Interim Results

Volex Group PLC 05 November 2003 Embargoed until 7.00am Wednesday 5 November 2003 VOLEX GROUP p.l.c. Interim results for the half-year to 30 September 2003 Volex Group p.l.c., the international electrical and electronic cable assemblies group, today announces its interim results for the half-year to 30 September 2003. Financial Highlights: * Turnover comparison against successive half-years has seen sales increase by 3% * Operating result before goodwill amortisation and exceptionals was a loss of Â£(0.7)m * Exceptional operating item of Â£3.0m associated with cessation of manufacturing in Ireland * Net borrowings of Â£40.6m The Chairman of Volex, Dom Molloy, commented: 'I am pleased that the results for the half-year to 30 September 2003 confirm our expectations that activity levels and the financial health of the Company have been stabilised. Compared to the second half of last year we experienced a modest growth in sales up 3% to Â£113m. Profits were adversely impacted as a result of short-term inefficiencies as we reduced our manufacturing base and transferred products to lower cost facilities. We are confident however that these initiatives will reduce our breakeven point further and the benefit of these on-going cost reductions should contribute toward operating profits in the second half. As a result all banking covenants have been met and we anticipate that this position will continue through the balance of the year. Recent advances in our customers' fortunes, reflected in the strengthening of our order books, bode well for the future of the Group.' Ends For further information please contact: Volex Group p.l.c. Today: 020 7067 0700 Thereafter: 01925 830101 Dom Molloy, Chairman John Corcoran, Group Chief Executive David Hudson, Group Finance Director Weber Shandwick Square Mile 020 7067 0700 Chris Lynch / Peter Corbin CHAIRMAN'S STATEMENT I am pleased that the results for the half-year to 30 September 2003 confirm our expectations that activity levels and the financial health of the Company have been stabilised. Compared to the second half of last year we experienced a modest growth in sales up 3% to Â£113m. Profits were adversely impacted as a result of short-term inefficiencies as we reduced our manufacturing base and transferred products to lower cost facilities. We are confident however that these initiatives will reduce our breakeven point further and the benefit of these on-going cost reductions should contribute toward operating profits in the second half. The Group revenue performance somewhat masks inherent regional improvements in Asia and Europe offset by a fall in North America. A significant factor in North America has been the migration of business to Volex Asia as multinational companies (MNCs) move their operations to this lower cost region. Very tight control continues to be exercised over capital expenditure and cash, even while we continue to invest in the business' future. As a result all banking covenants have been met and we anticipate that this position will continue through the balance of the year. We are cautiously optimistic that the recent advances in our customers' fortunes, reflected in the strengthening of our order book, bode well for the future. Operations The cable assembly business is closely allied to the finished product assembly and therefore generally lags recovery in areas such as the semiconductor industry, which is typically a lead indicator of market dynamics. Therefore the market demand increases being experienced by our customers is now translating into an improved order book profile for Volex. However, the performance in the first half is characterised less by a global macro economic dynamic and more by region specific factors. The sales performance in Asia is up on the same period last year and on the preceding six months. The strengthening of the powercord element of our business has been largely driven by regional improvements in consumer spending and the migration of MNC's to that region. The months immediately preceding the end of the half-year demonstrated an increasing order book, particularly on the powercord/consumer product business, and we believe that this is sustainable in the short to medium term. The data/telecommunications business remained flat during the period although again the order book for this segment is strengthening. As the MNC's continue the migration of their facilities to South East Asia we continue to be very well positioned, by virtue of our presence there for the past 11 years, to capitalise both on the transfer of business from other Volex units and the inherent growth potential offered by the relocation of these organisations into this region. In Europe, the data and telecommunications market has seen evidence of sustained improvement over the last several months reflecting an improving capital spend environment as operators and businesses maximise the potential, not only of increased subscriber revenues, but also of business effectiveness. The rapid deployment of broadband in Europe, exceeded in scale only by Japan and Korea, has provided a platform on which Volex Europe has increased its revenue half-year on half-year and compensated for a weak powercord market environment. Through this period we have also initiated the cessation of all manufacturing operations in Ireland transferring the production to our low-cost Central European locations. This exercise will be completed by the calendar year-end. However, the Group performance has been impacted by the poor rate of recovery in the North American market, which has seen a level of reduction in the demand for both consumer products and for data/telecommunications. On a year on year basis revenues for North America are down but an improving order book, combined with general optimism in enterprise, carrier and consumer spending, point to a better second half performance. Since the start of the year the North American team have focussed heavily on the migration of volume manufacturing capacity out of North America and into our Mexican and Asian facilities. Our harness business continues to experience the effects of the difficult aerospace environment and the special vehicle harness markets. These trends are unlikely to be reversed in the second half although we are expecting a marginally improving year on year performance in the special vehicle harness business. In any event these trends will not impact significantly on overall Group performance. In summary, our efforts remain focussed on strengthening our business through strong cash management, debt reduction and profitability. The efforts deployed in the second half of the last financial year and the first half of this year are beginning to reap benefits for the organisation. Financial Review Turnover of Â£113.1m for the first half of the 2004 financial year was down 6% over the comparative period last year. However, given the market dynamics over the last 12-18 months the more relevant comparison of sales is against successive half-years - on this basis sales increased by almost 3% over sales in the second half of last year. This reverses the trend of previous periods. Comparison of sequential half-years by destination shows that sales increased to our Asian customers by 14% and to our European customers by 1% but declined some 4% to customers in the Americas. A geographical analysis of where the Group manufactures its total output shows gross sales improving by 15% in Asia reflecting both the Group's on-going drive to locate production in lower cost areas and the business dynamics of our MNC customers already referred to above. Total output in Europe also increased by 4%, driven by increasing telecommunications activity in the region supported by our newly established Eastern European facilities. An analysis of sales by product category and market sector is given in Note 2 to the results. The operating result before goodwill amortisation and exceptionals was a loss of Â£0.7m compared with an operating profit of Â£0.2m in the first half of last year. Despite sales being ahead of last year's exit break-even level, excessive ramp-up costs to meet customer delivery requirements whilst restructuring manufacturing to low cost territories, have had a negative effect on first half profitability. The anticipated closure costs of Â£3.0m associated with manufacturing activity in Ireland, is a one-off charge separately identified as an exceptional operating item; whilst a proportion of the annualised cost savings estimated at Â£2.0m will benefit the second half. The charge in the period in respect of goodwill amortisation was Â£0.2m, down on the comparative period last year. Finance costs in the half-year consisted of interest costs of Â£1.6m (2002 - Â£1.4m) and Â£0.3m (2002 - Â£0.2m) of amortisation costs relating to the 2002 refinancing. The first half-year result before tax, goodwill and refinancing cost amortisation, was a loss of Â£5.3m (2002 - Â£1.2m loss) - after amortisation of these items the result was a loss before tax of Â£5.8m (2002 - Â£1.8m loss). The Group's effective tax charge pre-goodwill amortisation is 20% as compared with an effective rate of 23.6% before goodwill amortisation and impairment for the last full year. The impact in the half-year of changes in foreign currency translation rates, compared with the average rates applicable during the first half of last year, was a reduction in sales of Â£1.8m. Overall there was a negligible impact on profits. Net borrowings at the half-year were Â£40.6m as against Â£38.8m at the end of last year, a net increase of Â£1.8m. Gearing increased to 101% from 86% at the end of last year. Details of cashflows during the year are given in the Group cash flow statement and in Note 6. As stated earlier, the Group continues to meet its banking covenants at the end of the half-year. The Group has adequate bank facility headroom for the foreseeable future. Dividend The Board has not declared an interim dividend. The Future Our strategy is clear and consistent. We will continue our drive to be the leading provider of global cable assembly solutions in our chosen markets. As a total solution provider the Group has a global reach, an extensive product portfolio and a reputation for flexible and responsive service. Therefore, as the market recovery materialises, and we continue to benefit from the consolidation of our customers' supply base, the Group will capitalise on the reduced breakeven point, strong customer relationships, and global footprint to service our customer base wherever they trade. GROUP PROFIT AND LOSS ACCOUNT Six months to Six months to Year to 30 September 30 September 31 March 2003 2002 2003 Â£'000 Â£'000 Â£'000 Turnover Continuing operations (see note 2) 113,086 120,122 230,066 ======= ======= ======= ------------------------------------ Operating (loss)/profit pre goodwill amortisation, impairment and exceptional items (689) 162 573 Exceptional operating item (see note 3) (2,991) - - Goodwill amortisation (162) (430) (933) Impairment of goodwill - - (8,652) ------------------------------------ -------- -------- -------- Operating loss on continuing operations (3,842) (268) (9,012) ------------------------------------ Finance charges - interest (net) (1,632) (1,409) (3,084) - refinancing costs - - (1,000) - amortisation of debt issue costs (341) (168) (509) ------------------------------------ (1,973) (1,577) (4,593) -------- -------- -------- Loss on ordinary activities before taxation (5,815) (1,845) (13,605) Tax on loss on ordinary activities 1,131 462 948 -------- -------- -------- Loss on ordinary activities after taxation (4,684) (1,383) (12,657) Dividends paid on non-equity shares - (3) (6) Other finance costs of non-equity shares (3) - - -------- -------- -------- Loss for the period transferred from reserves (4,687) (1,386) (12,663) ======= ======= ======= Basic loss per ordinary share (16.4)p (4.8)p (44.3)p Headline loss per ordinary share* (15.8)p (3.3)p (7.3)p Diluted loss per ordinary share (16.4)p (4.8)p (44.3)p * pre goodwill amortisation, impairment and refinancing costs INTERIM DIVIDEND The Directors have not declared an interim dividend in respect of the year ending 31 March 2004 (2003 - nil p net per ordinary share). STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Six months to Six months to Year to 30 September 30 September 31 March 2003 2002 2003 Â£'000 Â£'000 Â£'000 Loss for the period (4,684) (1,383) (12,657) Unrealised deficit on revalued freehold andleasehold buildings - - (1,419) Currency variations (372) (1,724) (100) -------- -------- -------- Total recognised losses for the period (5,056) (3,107) (14,176) ====== ====== ====== GROUP BALANCE SHEET (abridged) As at As at As at 30 September 30 September 31 March 2003 2002 2003 Â£'000 Â£'000 Â£'000 Fixed assets Intangible 4,212 13,664 4,374 Tangible 30,711 36,810 33,844 ----------- ----------- ----------- 34,923 50,474 38,218 ----------- ----------- ----------- Current assets Stocks 29,160 30,690 29,219 Debtors 54,285 52,493 52,938 Current asset investments 1,482 1,482 1,482 Cash at bank and in hand 8,455 7,662 13,728 ----------- ----------- ----------- 93,382 92,327 97,367 ----------- ----------- ----------- Creditors: - Amounts falling due within one year: Borrowings and finance liabilities (3,550) (5,430) (3,815) Trade creditors and provisions (39,717) (32,195) (38,792) ----------- ----------- ----------- (43,267) (37,625) (42,607) ----------- ----------- ----------- Net current assets 50,115 54,702 54,760 ----------- ----------- ----------- Total assets less current liabilities 85,038 105,176 92,978 Creditors: - Amounts falling due after one year: Borrowings and finance liabilities (44,961) (48,837) (47,845) Other liabilities - (134) - ----------- ----------- ----------- Net assets 40,077 56,205 45,133 ====== ====== ====== Represented by: Share capital 7,231 7,231 7,231 Reserves 32,846 48,974 37,902 ----------- ----------- ----------- Total capital employed 40,077 56,205 45,133 ====== ====== ====== Gearing 101% 83% 86% MOVEMENTS IN SHAREHOLDERS' FUNDS As at As at As at 30 September 30 September 31 March 2003 2002 2003 Â£'000 Â£'000 Â£'000 Loss for the period (4,684) (1,383) (12,657) Dividends - (3) (6) ----------- ----------- ----------- (4,684) (1,386) (12,663) Currency variations (372) (1,724) (100) Unrealised deficit on revalued freehold and leasehold buildings - - (1,419) ----------- ----------- ----------- Net decrease (5,056) (3,110) (14,182) Opening shareholders' funds 45,133 59,315 59,315 ----------- ----------- ----------- Closing shareholders' funds 40,077 56,205 45,133 ====== ====== ====== GROUP CASH FLOW STATEMENT (abridged) Six months to Six months to Year to 30 September 30 September 31 March 2003 2002 2003 Â£'000 Â£'000 Â£'000 Net cash (outflow)/inflow from operating activities (see note 6) (2,122) 3,426 13,059 ======= ======= ======= Returns on investments and servicing of finance Interest paid (net) (420) (1,677) (2,549) Refinancing costs (785) (3,253) (3,294) Interest element of finance lease rentals (6) (9) (15) Preference dividends paid - (3) (6) ----------- ----------- ----------- Net cash outflow from returns on investments and servicing of finance (1,211) (4,942) (5,864) ======= ======= ======= Taxation recovered 234 2,613 2,379 ======= ======= ======= Capital expenditure Purchase of tangible fixed assets (947) (1,277) (2,255) Sale of tangible fixed assets 222 - 301 ----------- ----------- ----------- Net cash outflow from capital expenditure (725) (1,277) (1,954) ======= ======= ======= Acquisitions Purchase of subsidiary undertakings - - (279) ----------- ----------- ----------- Net cash outflow from acquisitions - - (279) ======= ======= ======= Cash (outflow)/inflow before financing (3,824) (180) 7,341 ======= ======= ======= Financing Repayment of loans (1,175) (7,247) (6,039) Capital element of finance lease rentals (22) (28) (43) ----------- ----------- ----------- Net cash outflow from financing (1,197) (7,275) (6,082) ======= ======= ======= (Decrease)/increase in cash in the period (5,021) (7,455) 1,259 ======= ======= ======= NOTES TO GROUP RESULTS 1. The summarised results for the six months to 30 September 2003 have been prepared under the historical cost convention modified to include, where considered appropriate, the revaluation of land and buildings and in accordance with the accounting policies adopted in the accounts for the year to 31 March 2003. These and the comparative results for the half year to 30 September 2002 are non-statutory accounts within the meaning of Section 240 of the Companies Act 1985 and have not been reported upon by the auditors under Section 235 of the Companies Act 1985 or reviewed in accordance with APB Bulletin 1999/4 'Review of interim financial information'. The figures for the year ended 31 March 2003 are an abridged version of the Group's full accounts and, together with other financial information contained in these results, do not constitute statutory accounts of the Group within the meaning of Section 240 of the Companies Act 1985. Statutory accounts for the period ended 31 March 2003 have been filed with the Registrar of Companies for England and Wales and have been reported on by the Group's auditors. The Report of the Auditors was not qualified and did not contain a statement under Section 237 (2) and (3) of the Companies Act 1985. 2. SEGMENTAL INFORMATION Turnover by Geographical Area Six months to Six months to Year to 30 September 30 September 31 March 2003 2002 2003 Â£'000 Â£'000 Â£'000 By destination: United Kingdom 19,994 22,399 42,230 Europe 24,197 18,974 42,689 ---------- ---------- ---------- Total Europe 44,191 41,373 84,919 Americas 37,283 48,502 87,182 Asia 31,612 30,247 57,965 ---------- ---------- ---------- Total 113,086 120,122 230,066 ====== ====== ====== By source: United Kingdom 14,149 15,499 34,411 Europe 30,315 25,783 49,724 ---------- ---------- ---------- Total Europe 44,464 41,282 84,135 Americas 40,255 51,986 93,475 Asia 38,936 38,420 72,368 ---------- ---------- ---------- 123,655 131,688 249,978 Less: Intra Group (10,569) (11,566) (19,912) ---------- ---------- ---------- Total 113,086 120,122 230,066 ====== ====== ====== Turnover by product category Six months to Six months to Year to 30 September 30 September 31 March 2003 2002 2003 Â£'000 Â£'000 Â£'000 Data/telecommunications 49,735 50,976 96,142 Powercords 49,042 53,512 101,860 Harnesses 14,309 15,634 32,064 ---------- ---------- ---------- 113,086 120,122 230,066 ====== ====== ====== Turnover by market sector Six months to Six months to Year to 30 September 30 September 31 March 2003 2002 2003 Â£'000 Â£'000 Â£'000 Data/telecommunications 63,776 60,549 111,661 Consumer appliances 21,212 25,479 48,914 Consumer electronics 13,960 18,641 38,094 Vehicle and aerospace 14,138 15,453 31,397 ---------- ---------- ---------- 113,086 120,122 230,066 ====== ====== ====== Operating profit, profit before tax and net assets by geographical area and by type of business are not given as such disclosure is considered by the directors to be seriously prejudicial to the interests of the Group. All activity has arisen from continuing operations. 3. Exceptional operating item In the period costs of a restructuring of the continuing operations of the Group's European manufacturing activities amounted to Â£2,991,000. The taxation effect of this exceptional item was Â£299,000. 4. The Group tax charge for the period is based on anticipated tax rates for the year as a whole and has been influenced by the differing tax rates in the UK and in the various overseas countries in which the Group operates and in respect of provisions in previous periods which are no longer required. 5. The calculation of earnings per share are based on the following profits and numbers of shares: Basic, diluted and headline Six months to Six months to Year to 30 September 30 September 31 March 2003 2002 2003 Â£'000 Â£'000 Â£'000 Loss for the financial period (4,684) (1,383) (12,657) Preference Dividends - (3) (6) Other finance costs of non-equity shares (3) - - ---------- ---------- ---------- Basic loss (4,687) (1,386) (12,663) Goodwill amortisation and impairment 162 430 9,585 Refinancing costs - - 1,000 ---------- ---------- ---------- Headline loss (4,525) (956) (2,078) ======== ======== ======== No. of shares No. of shares No.of shares For basic, diluted and headline loss per share 28,602,637 28,602,637 28,602,637 =========== =========== =========== Basic loss per share (16.4)p (4.8)p (44.3)p Headline loss per share (15.8)p (3.3)p (7.3)p Diluted loss per share (16.4)p (4.8)p (44.3)p 6. CASH FLOW (i) Reconciliation of operating profit to net cash inflow from operating activities Six months to Six months to Year to 30 September 30 September 31 March 2003 2002 2003 Â£'000 Â£'000 Â£'000 Operating loss (3,842) (268) (9,012) Depreciation 2,985 3,521 6,758 Goodwill amortised and impaired 162 430 9,585 Government grants - - (128) Loss on sale of tangible fixed assets - - 5 (Increase)/decrease in stocks (254) 3,056 5,793 Increase in debtors (1,861) (2,399) (2,664) Increase in creditors 1,072 623 5,058 Cash impact of exceptional item (384) (1,435) (2,336) Other items - (102) - ---------- ---------- ---------- (2,122) 3,426 13,059 ======== ======== ======== NOTES TO GROUP RESULTS (ii) Analyses of net debt 1 April Cash flow Exchange 30 September 2003 movement 2003 Â£'000 Â£'000 Â£'000 Â£'000 -------- Cash at bank and in hand 13,728 (5,097) (176) 8,455 Overdraft (2,756) 76 37 (2,643) -------- (5,021) -------- Debt due after one year (48,716) 1,097 2,127 (45,492) Debt due within one year (1,035) 78 53 (904) Finance leases (25) 22 - (3) -------- 1,197 -------- -------- -------- -------- Net debt (38,804) (3,824) 2,041 (40,587) ====== ====== ====== ====== Net debt is stated before the offset of debt issue costs of Â£531,000 (2003 - Â£872,000). (iii)Reconciliation of net cash flow to movement in net debt Six months to Six months to Year to 30 September 30 September 31 March 2003 2002 2003 Â£'000 Â£'000 Â£'000 (Decrease)/increase in cash in the period (5,021) (7,455) 1,259 Cash outflow from decrease 1,197 7,275 6,082 in debt and lease financing ---------- ---------- ---------- Change in net debt resulting from cash flows (3,824) (180) 7,341 Translation difference 2,041 3,984 4,264 ---------- ---------- ---------- Movement in net debt in the period (1,783) 3,804 11,605 Net debt at beginning of period (38,804) (50,409) (50,409) ---------- ---------- ---------- Net debt at the end of the period (40,587) (46,605) (38,804) ======= ======= ======= Note: Copies of this interim report are being sent to all shareholders. Copies can also be obtained from the Company Secretary, Volex Group p.l.c., Dornoch House, Kelvin Close, Birchwood Science Park, Warrington WA3 7JX. The presentation being made to stockbroking analysts on Wednesday 5 November 2003 will be on the Company's web site www.volex.com from 11.00 a.m. that day. This information is provided by RNS The company news service from the London Stock Exchange

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