Annual Report

RNS Number : 0901G

Volex PLC

25 June 2012

 



25 June 2012

Volex plc

Publication and posting of Annual Report & Accounts 2012

& Notification of Annual General Meeting

Volex plc (the "Company") announces that it has posted to shareholders its Annual Report & Accounts 2012 (the "Annual Report") and the Notice of Annual General Meeting, which is to be held at 10 Eastbourne Terrace, London W2 6LG on 26 July 2012 at 2.00 p.m. (the "AGM"), together with a Form of Proxy for use in connection with the AGM.

A copy of the Annual Report and Form of Proxy is available on the Company's website, www.volex.com and has also been submitted to the UK Listing Authority's National Storage Mechanism and will shortly be available at www.hemscott.com/nsm.do.

In compliance with The Disclosure and Transparency Rules (DTR) 6.3.5, the following information is extracted from the Annual Report and should be read in conjunction with the Company's Preliminary Announcement issued on 29 May 2012, both of which can be viewed at www.volex.com. Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service.

This material is not a substitute for reading the Annual Report in full and page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the Annual Report.

Statement of Directors' Responsibilities

The following statement is repeated here solely for the purpose of complying with DTR 6.3.5. This statement relates to, and is extracted from, page 66 of the Annual Report. Responsibility is for the full Annual Report not the extracted information presented in this announcement or the Preliminary Results Announcement.

The Directors are responsible for preparing the Annual Report, and the Group and parent Company financial statements in accordance with applicable law and regulations.

Companies Act 2006 requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under Companies Act 2006 the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to:

·     select suitable accounting policies and then apply them consistently;

·     make judgements and accounting estimates that are reasonable and prudent;

·     state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements;

·     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They have general responsibility for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed in the section of Board of Directors on pages 48 and 49, confirm that, to the best of their knowledge:

·     the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group;

·     the management report business review contained in the Directors' Report and the operating and financial review section in this 2012 Annual Report and Accounts includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces;

·     so far as each of the Directors is aware, there is no relevant audit information of which the Company's auditors are unaware; and

·     each of the Directors has taken all the steps he/she ought to have taken individually as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

Principal Risks

A description of the principal risks that the Company faces is extracted from pages 41 to 44 of the Annual Report

The table below summarises our principal risks and what we do to manage these risks. The Board considers these to be the most significant risks that could materially affect the Group's financial condition, performance, strategies and prospects. The risks listed do not comprise all risks faced by the Group and are not set out in any order of priority. Additional risks not presently known to management, or currently deemed to be less material, may also have an adverse effect on the business.

Risk	Description and possible impact	Mitigation Activities
Non-compliance with legislation and regulation	The Group operates in diverse markets and therefore is exposed to a wide range of legal, fiscal and regulatory frameworks. We must understand and comply with all applicable legislation. Any breach could have a financial impact and damage our reputation.	·   External consultants have been engaged to perform a number of corporate health checks in high risk markets to identify any compliance gaps and assist in the development of appropriate solutions. ·   We maintain a number of general compliance policies to ensure compliance with local laws, regulations and standards and any other laws with international reach, such as the UK Bribery Bill, where relevant. These policies are reinforced through our on-going training for employees. ·   Code of Business Conduct communicated to the Group and third parties to make sure business is carried out in line with our policies and procedures. ·   We have completed director fiduciary duty training with all Directors of Volex subsidiary companies.
Loss of a key customer	A significant proportion of the Group's trading activity is with a relatively small number of large global accounts. Over 80% of total Group revenue is generated by the Group's top 25 customers, mostly prestigious global OEMs. Two of the Group's customers individually account for more than 10% of total Group revenue, with the Group's largest customer, operating in the Consumer sector, accounting for 19% of total Group revenue in FY2012.	·   The Group mitigates the risk of fluctuations in revenues from these customers by emphasising strong trading relationships with them, while diversifying into other markets and new customers. ·   Initiatives in place to align our capabilities and resources with customers' needs, and to improve quality systems. ·   Global key account managers in place for major customers. ·   In practice these key customers operate in many business sectors and regions, with somewhat independent trading relationships in each sector/region. The loss of business in one particular area would not necessarily result in the loss of all the customer's business. ·   The relationship with the Group's largest customer has strengthened notably during the year, aided by substantial investment by Volex.
Failure to maintain an effective system of internal control	Without effective internal controls, we could be exposed to financial irregularities and losses which may have a significant impact on the ability of the business to operate. We must safeguard business assets and ensure accuracy and reliability of records and financial reporting.	·   Adoption of detailed authorisation matrices to ensure segregation of duties. ·   Minimum Internal Control Standards are in place; all business units are expected to be 100% compliant. ·   Detailed General, Finance, Operational, Sales and HR Policy Statements set out the required policies and procedures. ·   Rolling internal audit plan: all business units are reviewed by Group Business Assurance in collaboration with external audit firms. A site that receives an unsatisfactory rating is re-audited within 6 months to ensure improvement. ·   Group financial performance monitored with monthly Board reports and regular forecasting. ·   Senior executive team undertake detailed monthly business and financial reviews. ·   All senior managers are required to complete an Annual Certificate of Compliance, confirming compliance with the Group Policy Statements. ·   We run a Right- to - Speak email / phone hotlines for whistle blowing. All reported issues are investigated and appropriate actions taken, overseen by Executive Management and the Audit Committee.
Exchange rate fluctuations	The Group operates in many different countries and is subject to currency fluctuations arising on transactional foreign currency exposures and the translation of overseas subsidiaries' results which could create earnings and balance sheet volatility.	·   Group Treasury Policy Statement sets out procedures on exchange rate risk management. ·   During FY2012 the Group adopted the US Dollar as its presentation currency. Given that the substantial majority of the group's transactions are conducted in US Dollars, or currencies tied to the US Dollar, this will significantly reduce the translation impact of exchange rate fluctuations. ·   Billing currencies have been adjusted to achieve a higher level of natural hedging. ·   Where there are material remaining exposures, the Company enters into financial hedging to mitigate these exposures. ·   The impact of foreign exchange movements on the Consolidated Statement of Financial Position is mitigated by a natural hedge due to the Group's US Dollar and Euro denominated borrowings.
Increased competition	The Group's markets are highly competitive and we expect this will continue. Our competitive position results from a range of factors including the price, quality and performance of our products, technology innovation, customer service levels and lead times, and our geographic footprint. Competition may intensify, from global competitors and/or new entrants. Increased competition may result in price reductions, increased expense or investment, or loss of contracts, any of which could adversely affect our trading performance.	·   Developing strategic relationships with customers. ·   Investing in new technology and developing new products to maintain the Group's competitive position. ·   Close monitoring of market trends and industry developments (e.g. by participating in standards committees) to shape, or at least gain early sight of, future product requirements.
Failure to attract, develop and retain key personnel	The knowledge, skills and performance of our employees are central to our success. We must attract, develop and retain the talent required to fulfil our ambitions. Inability to retain key knowledge and adequately plan for succession could have a negative impact on Company performance.	·   Remuneration policies designed to attract, retain and reward key employees. ·   Talent strategy to provide opportunities for employees to develop careers. ·   Formalised objective setting in place for employees. ·   Bonus scheme in place for relevant employees based on business and individual objectives. ·   In 2011 the Group embarked on a global cultural change initiative. This is a multi-year programme that will see all employees engaged in the development and implementation of 'One Volex' and supporting values.
Rising commodity prices	Many of the Group's products, in particular power cords which represent the majority of the sales in the Consumer sector, are manufactured from components that contain significant proportions of copper and, to a lesser extent, other metals and oil-based products such as PVC. Increases in the prices of these commodities are reflected in the prices charged to our customers but delays in passing through these costs can cause short-term volatility in the Group's gross margins. Copper price volatility is the single largest commodity price exposure facing the Group. The graph above illustrates how LME copper spot prices have fluctuated during the period from April 2010 to May 2012	·   The Board regularly reviews the prices of these commodities and effects a number of measures to mitigate the impact of excessive volatility. ·   With specific respect to copper, prices are fixed quarterly with major suppliers based on average LME rate over prior quarter. ·   Approximately a third of the revenues in our Consumer sector are covered by copper clauses which provide for quarterly adjustments to our selling prices based on our input costs. ·   Occasionally, we employ back-to-back arrangements to match customer demand with cable supplier arrangements. ·   Strategic relationships established with key suppliers. ·   During FY2012 we initiated copper commodity derivative contracts which fix the cost for a portion of our copper purchases. These contracted extend out 12 months and are refreshed on a rolling monthly basis.
Adverse trading conditions	The Group's business and trading performance have been, and will continue to be, affected by global economic conditions. Should global economic conditions deteriorate or economic uncertainty increase, our customers and potential customers may experience deterioration of their businesses, which may result in the delay or cancellation of plans to purchase our products. This may have a material adverse effect on the Group's trading results.	·   Regular review of pricing, promotion and marketing strategies. ·   On-going close working relationships with suppliers and customers to monitor performance. ·   Adapting product ranges to meet changing customer needs. ·   Early communication of adverse trading conditions through functional and regional lines. Where these can be managed, we will address these with appropriate action plans/strategies to mitigate them where possible (and to the extent deemed appropriate after assessing the costs and benefits).
Production Challenges/Risks	The volume and timing of sales to our customers may vary due to fluctuating demand for their own products; our customers' attempts to manage their inventory; design changes; changes in their manufacturing strategy etc. Partly as a result, many customers do not commit to long-term production schedules. Our customers specify quality, performance and reliability standards. If flaws in the design or manufacture of our products were to occur, we could experience a rate of failure in our products that could result in delays in shipment and product re-work or replacement costs. The majority of our manufacturing sites are located in China and other developing markets. Changes in these labour markets as well as the rapid economic growth and social progress have resulted in high labour turnover and considerable increases in labour costs. Our operations and those of our suppliers and customers may be vulnerable to interruption by natural disasters or other catastrophic events. If a business interruption should occur, our business could be materially and adversely affected.	·   Our operations are designed to be extremely flexible and can accommodate a degree of volume fluctuation. We work very closely with our key suppliers to minimise lead times and maintain flexibility in material supplies. ·   We work very closely with key customers to ensure that we understand their requirements and develop our manufacturing capabilities to meet their needs. ·   We have invested in new mouldings, tooling, technology and have acquired new skills as part of our quality continuous improvement programme. ·   We are constantly reviewing our global footprint to ensure that we are located in the most cost effective area. ·   We are also engaged in driving LEAN manufacturing and automation strategies to reduce our overall labour content. ·   The investment in our Batam factory will give better geographic coverage and reduce our exposure in China. We continue to develop our business interruption plans.

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For further information please contact:

Volex plc

Matt Nydell, Company Secretary			[phone]
Andrew Cherry, Group Finance Director			[phone]
Buchanan Charles Ryland / Helen Chan/ Louise Hadcocks			[phone]

 

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