Interim Results

Volex Group PLC 08 November 2006 Embargoed until 7.00am 8 November 2006 VOLEX GROUP plc Interim results for the 26 weeks ended 1 October 2006 Volex Group plc, the global electrical and electronic cable assembly group, today announces its unaudited interim results for the 26 weeks ended 1 October 2006. Financial Highlights: • Sales increased by 3.1% to £127.7m (2005: £123.9m) • Operating profit of £6.1m including £1.1m gain on sale of property (2005: loss £0.3m after charging £1.7m restructuring charges): underlying operating profit increased to £5.0m (2005: £1.4m) • Sale of Butts Mill, Leigh, for £1.5m cash proceeds • Basic earnings per share 5.9p (2005: loss 7.4p) • Basic earnings per share excluding major restructuring programme, increased to 3.9p (2005: loss 3.3p) • Net borrowings £13.7m (2005: £17.5m) and gearing 50.4% (2005: 58.6%) • LTIP approved at AGM with management to subscribe c. £0.8m of own funds for new shares The Chairman of Volex, Richard Arkle, commented: 'I am pleased to report that this is the third consecutive half of growth in sales and operating profit and it is clear that we are beginning to capture the full benefits of the restructuring that has been implemented over the last two years. In summary, we are aiming to provide better returns to our shareholders by positioning Volex to maximise the opportunities and minimise the risks. We believe that our improved customer value proposition coupled with a significantly lower cost base should improve our competitive advantage and provide us with the platform to deliver incremental revenues and profitability.' For further information please contact: Volex Group plc Today: 020 7067 0700 Thereafter: 01925 830101 Heejae Chae, Group Chief Executive Derek Walter, Group Finance Director Weber Shandwick Square Mile 020 7067 0700 Chris Lynch / Nick Dibden CHAIRMAN'S STATEMENT Revenues for the first six months of the year increased 3.1% to £127.7m, compared with £123.9m in the comparable period. Adjusting for £1.4m of adverse foreign exchange movements, sales grew by 4.2% in local currency terms. The Group generated a substantially higher operating profit of £5.0m compared with £1.4m in the first half of last year (excluding the major restructuring credit/ charge) despite increases in material costs, in particular the price of copper which reached an all time high. This is the third consecutive half of growth in sales and operating profit and it is clear that we are beginning to capture the full benefits of the restructuring effort. We have accelerated the timing of closures within our original three year restructuring programme and in the second half of this year we will be closing a further three facilities as well as continuing to downsize some other operations. Net debt was £13.7m at the half year with gearing reduced to 50%, compared with 59% at October 2005. The Powercord division of the Group continues to perform strongly with its focus on next generation and application specific products and grew its sales by 15% from the first half of last year. As innovation continues in consumer products and with the recent focus on 'cost of failure' from power sources, the Powercord division has benefited from its reputation for reliability and quality. However, the continued rise in commodity prices has impacted margins and we are in constant discussion with our customers to pass on these cost increases. We have expanded our facility at Heng Gang in southwest China and are consolidating some of the other facilities and functions there to leverage the lower labour cost and economies of scale. The Interconnect division (formerly known as Infocom) reported a 9% reduction in sales this half partly as a result of the customer base rationalisation that occurred last year in North America. The focus on profitability is reflected in the improved margins and an increase in operating profit to £2.5m (2005: £0.3m profit - excluding restructuring charges) on lower revenue. We believe that we have a clear market and sales focus and strategy to leverage our core competencies. We are already seeing the impact as we make gains, particularly in the medical and communication equipment markets. We continue to leverage our 'Preferred Supplier' status with our key customers to grow market share and we have made significant investments in engineering, sales and supply chain resources to strengthen our competencies further and provide a one-stop total system solution for our customers. We have also made good progress in the transfer of production from North America to China thereby reducing our cost base. The Wiring Harness division showed modest sales growth but continues to struggle with its cost base. We are currently restructuring the business by shifting its operation to lower cost areas and we expect that we will complete the transition during FY2007/8. We believe that once we have completed this restructuring, the Wiring Harness division will contribute both revenue and profit to the Group. The defence, aerospace and construction equipment markets are growing and attractive and we believe that our brand and excellent reputation will enable us to be a significant player in these segments. We recognise that the changes we are undergoing are challenging and costly but they are necessary in order to generate positive returns. Financial Review There were no significant changes in the average exchange rates compared with the first six months of last year. Sales would have been £1.4m higher and operating profits £0.1m higher in the current period had the first half 2005 average exchange rates applied. Operating profit excluding major restructuring credits and charges, increased from £1.4m to £5.0m and the return on sales improved to 3.9% but management recognises that this is still far from satisfactory. Both the Powercord and Interconnect divisions continued to improve their trading performances from fiscal 2006, reflecting the benefits of the extensive restructuring programmes but the performance of the Wiring Harness division (excluding the profit from the sale of Butts Mill, Leigh) continued to disappoint and we expect to be taking an additional restructuring charge in the second half of this year of up to £3m. The total interest charge was unchanged at £1.7m: the Group is paying lower bank interest as it benefits from lower debt levels but is having to amortise higher refinancing costs and accrue interest on restructuring provisions and the (decreasing) pension fund deficit. Reported pre tax profits were £4.5m (2005: loss £2.0m); excluding restructuring items, pre tax profits were £3.4m against a loss of £0.3m in the first half and a profit of £2.2m in the second half of last year. The tax charge in the first half of the year was £1.2m, unchanged in total from the comparable period which included a £0.2m non-recurring tax charge. Despite the increase in profits, we are expecting to be able to utilise some losses. After adjusting to exclude the major restructuring items, earnings per share this half year were 3.9p, up from 2.3p in the second half and a loss of 3.3p in the first half of last year. Net debt at 1 October 2006 was £13.7m compared with £13.3m at 2 April 2006 and £17.5m at 2 October 2005. Cash generated by operations in the first half was £0.8m after a net working capital outflow of £4.3m and £1.4m spend on the restructuring programme. Stocks increased by £6.2m, partly due to a build up of buffer stocks for the facilities' closures in the second half of the year and debtors increased by £6.6m; however, there was a partially compensating inflow of £8.5m from higher creditors. The sale of Butts Mill, Leigh, generated £1.5m proceeds, which virtually offset the capital expenditure in the first half of the year. The main element of the capital expenditure was the expansion at Heng Gang, which accounted for £0.9m. The Board has not declared an Interim dividend. Long Term Incentive Plan (LTIP) In conjunction with the changes in the Group, the shareholders approved the LTIP at the AGM on 28 September 2006, which will provide significant rewards for significant improvements in the Group's performance. As part of the LTIP, the management team will contribute some £0.8m in cash of their own personal capital into the Group by subscribing for a new issue of shares at market price. As a non executive director I am not entitled to participate in the LTIP but as part of my commitment to the Group, I will be subscribing for 100,000 shares at the same time and price. This injection of capital reflects our commitment to the Group's strategy and our belief in the future prospects for the Group as well as aligning our interests with those of the shareholders. Current Trading and Prospects We are continuing to execute our strategy for growth and profitability. Trading continues overall to be in line with expectations. We expect that Powercord will continue to be strong albeit we remain cautious against the backdrop of the economic slowdown in the US. Commodity prices remain a challenge to the business as the prices continue at their very high levels. In our Interconnect division we expect to show modest growth as we continue to realign the organisation with increased customer engineering and sales focus. The Wiring Harness division should emerge profitably when the restructuring is completed in FY2008. We are very pleased to announce that Ian Degnan will be appointed Group Finance Director with effect from 16 December 2006 to succeed Derek Walter. Ian is a chartered accountant and until recently was employed by Exel as Chief Financial Officer Europe, Global Forwarding Division and prior to that was Finance Director for various divisions of that group. There is no further relevant information to disclose under Listing Rule 9.6.13 in relation to Ian's appointment. In summary we are aiming to provide better returns to our shareholders by positioning Volex to maximise the opportunities and minimise the risks. We believe that our improved customer value proposition coupled with a significantly lower cost base should improve our competitive advantage and provide us with the platform to deliver incremental revenues and profitability. Richard Arkle Chairman 8 November 2006 Unaudited consolidated income statement For the 26 weeks ended 1 October 2006 (2 October 2005) 26 weeks to 26 weeks to 52 weeks to 1 October 2 October 2 April 2006 2005 2006 Continuing operations Note £'000 £'000 £'000 _______________________________________________________________________________ Revenue 3 127,739 123,897 250,378 _______________________________________________________________________________ Operating profit/(loss) 3 6,142 (328) (3,269) Analysed as: ________________________________________ Operating profit before major restructuring programme credit/(charge) 5,025 1,436 5,329 Major restructuring programme credit/(charge) 4 1,117 (1,764) (8,598) ________________________________________ Operating profit/(loss) 6,142 (328) (3,269) Finance costs ________________________________________ - interest on bank debt (909) (1,317) (2,339) - interest on retirement benefit obligations and provisions (221) (100) (311) - amortisation of debt issue costs (538) (252) (739) ________________________________________ (1,668) (1,669) (3,389) _______________________________________________________________________________ Profit/(loss) on ordinary activities before taxation 4,474 (1,997) (6,658) Taxation 5 (1,175) (1,179) (2,448) _______________________________________________________________________________ Profit/(loss) on ordinary activities after taxation, being retained profit/(loss) for the period 3,299 (3,176) (9,106) _______________________________________________________________________________ Earnings/(loss) per share* Basic and Diluted 6 5.9p (7.4)p (18.5)p * The loss per share before the costs of the major restructuring programme for each period is shown in Note 6 Unaudited consolidated statement of recognised income and expense For the 26 weeks ended 1 October 2006 (2 October 2005) 26 weeks to 26 weeks to 52 weeks to 1 October 2 October 2 April 2006 2005 2006 £'000 £'000 £'000 Exchange differences on translation of foreign operations (2,213) 107 1,555 Actuarial gains on defined benefit pension schemes - - 379 _______________________________________________________________________________ Net (expense)/income recognised directly in equity (2,213) 107 1,934 Profit/(loss) for the period 3,299 (3,176) (9,106) _______________________________________________________________________________ Total recognised net income/(expense) for the period 1,086 (3,069) (7,172) Adjustment on the first time adoption of IAS 32 and 39 - - (80) _______________________________________________________________________________ Total recognised net income/(expense) since prior year balance sheet 1,086 (3,069) (7,252) _______________________________________________________________________________ Unaudited consolidated balance sheet 1 October 2006 (2 October 2005) 1 October 2 October 2 April 2006 2005 2006 Note £'000 £'000 £'000 _______________________________________________________________________________ Non-current assets Goodwill 1,930 1,930 1,930 Other intangible assets 138 136 148 Property, plant and equipment 10,263 13,221 11,515 Deferred tax asset 236 - 244 _______________________________________________________________________________ 12,567 15,287 13,837 _______________________________________________________________________________ Current assets Inventories 34,572 30,679 30,274 Trade and other receivables 56,314 55,246 52,825 Current tax assets 702 - 1,087 Cash and cash equivalents 8 8,414 9,442 11,646 _______________________________________________________________________________ 100,002 95,367 95,832 _______________________________________________________________________________ Total assets 112,569 110,654 109,669 _______________________________________________________________________________ Current liabilities Obligations under finance leases 8 86 97 124 Trade and other payables 49,093 42,811 42,685 Current tax liabilities 2,765 2,340 2,580 Retirement benefit obligation 380 357 357 Provisions 2,962 700 3,996 Liability for share based payment 83 27 95 _______________________________________________________________________________ 55,369 46,332 49,837 _______________________________________________________________________________ Net current assets 44,633 49,035 45,995 _______________________________________________________________________________ Non-current liabilities Bank overdrafts and loans 8 21,975 26,808 24,690 Obligations under finance leases 8 67 37 106 Retirement benefit obligation 2,845 3,479 3,154 Deferred tax liabilities 501 133 537 Long-term provisions 4,360 3,900 4,983 Non-equity preference shares 80 80 80 Liability for share based payment 148 13 187 _______________________________________________________________________________ 29,976 34,450 33,737 _______________________________________________________________________________ Total liabilities 85,345 80,782 83,574 _______________________________________________________________________________ Net assets 27,224 29,872 26,095 _______________________________________________________________________________ Equity attributable to equity holders of the parent Share capital 7 13,888 13,848 13,888 Share premium account 7 168 32,110 168 Translation reserve 7 (392) 373 1,821 Retained earnings 7 13,560 (16,459) 10,218 _______________________________________________________________________________ Total equity 7 27,224 29,872 26,095 _______________________________________________________________________________ Unaudited consolidated cash flow statement For the 26 weeks ended 1 October 2006 (2 October 2005) 26 weeks to 26 weeks to 52 weeks to 1 October 2 October 2 April 2006 2005 2006 Note £'000 £'000 £'000 _______________________________________________________________________________ Operating profit/(loss) from continuing operations 6,142 (328) (3,269) Adjustments for: Depreciation and impairment of property, plant and equipment 1,681 1,932 5,365 Amortisation of intangible assets 63 61 79 (Gain)/loss on disposal of property, plant and equipment (1,087) (9) 133 Share option expense 43 82 350 (Decrease)/increase in provisions (1,717) 488 4,411 _______________________________________________________________________________ Operating cash flows before movements in working capital 5,125 2,226 7,069 ________________________________________ Increase in inventories (6,194) (1,493) (46) (Increase)/decrease in receivables (6,643) (2,899) 1,469 Increase in payables 8,529 4,296 3,216 ________________________________________ (Increase)/decrease in working capital (4,308) (96) 4,639 _______________________________________________________________________________ Cash generated by operations 817 2,130 11,708 Analysed as: ________________________________________ Generated before major restructuring programme 2,169 3,244 13,249 Utilised by major restructuring programme (1,352) (1,114) (1,541) ________________________________________ Cash generated by operations 817 2,130 11,708 Income taxes paid (486) (2,267) (4,359) Interest received 97 77 111 Interest paid (989) (1,438) (2,639) _______________________________________________________________________________ Net cash (outflow)/inflow from operating activities (561) (1,498) 4,821 Cash flows from investing activities ________________________________________ Proceeds on disposal of property, plant and equipment 1,491 25 29 Purchases of property, plant and equipment (1,555) (1,110) (2,252) Purchases of intangible assets (62) (21) (100) ________________________________________ Net cash used in investing activities (126) (1,106) (2,323) _______________________________________________________________________________ Cash flows before financing activities (687) (2,604) 2,498 Analysed as: ________________________________________ (Utilised)/generated before major restructuring programme (821) (1,490) 4,039 Generated/(utilised) by major restructuring programme 134 (1,114) (1,541) ________________________________________ Cash flows before financing activities (687) (2,604) 2,498 Cash flows from financing activities ________________________________________ Proceeds on issue of shares - 17,587 17,645 Repayment of borrowings 8 (1,689) (43,263) (43,263) Advances of borrowings 8 - 26,135 25,793 Refinancing costs paid 8 (208) (2,390) (2,486) Increase/(decrease) in bank overdrafts 8 35 (1,276) (4,193) Repayments of obligations under finance leases 8 (77) (47) (144) ________________________________________ Net cash used in financing activities (1,939) (3,254) (6,648) _______________________________________________________________________________ Net decrease in cash and cash equivalents (2,626) (5,858) (4,150) Cash and cash equivalents at beginning of period 8 11,646 14,962 14,962 Effect of foreign exchange rate changes (606) 338 834 _______________________________________________________________________________ Cash and cash equivalents at end of period 8 8,414 9,442 11,646 _______________________________________________________________________________ Notes to the interim financial report 1. General information The income and cash flow statements for the 26 weeks ended 2 October 2005 and 1 October 2006 and balance sheets as at 2 October 2005 and 1 October 2006 are unaudited and have not been reviewed by the auditors. The income and cash flow statements for the 52 weeks ended 2 April 2006 and the balance sheet as at 2 April 2006 are extracted and abridged from the Group's full accounts for that year. The statutory accounts for the financial year ended 2 April 2006 have been filed with the Registrar of Companies for England and Wales and have been reported on by the Group's auditors. The Report of the Auditors was not qualified and did not contain a statement under Section 237 (2) and (3) of the Companies Act 1985 (as amended). The interim report was approved by the Board of Directors on 7 November 2006. The announcement is being sent to shareholders. Copies of this report and the annual report for the financial year ended 2 April 2006 are available at the Company's registered office at Dornoch House, Birchwood Science Park, Kelvin Close, Warrington, WA3 7JX and can also be downloaded or viewed via the Group's website at www.volex.com. 2. Basis of preparation The Interim financial report has been prepared using accounting policies consistent with International Financial Reporting Standards as adopted for use in the European Union ('IFRS') and in accordance with those disclosed in the annual report for the financial year ended 2 April 2006, as published by the Company on 13 June 2006. 3. Business and geographical segments Business segments For management purposes, the Group is organised into three operating divisions - Powercord, Interconnect 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. 26 weeks to 26 weeks to 52 weeks to 1 October 2 October 2 April 2006 2005 2006 Revenue £'000 £'000 £'000 _______________________________________________________________________________ Powercord 64,125 55,851 118,275 Interconnect 47,218 52,052 99,398 Wiring Harness 16,396 15,994 32,705 _______________________________________________________________________________ 127,739 123,897 250,378 _______________________________________________________________________________ Operating profit Powercord 3,513 2,261 3,597 Interconnect 2,508 (1,388) (2,966) Wiring Harness 121 (1,201) (3,900) _______________________________________________________________________________ 6,142 (328) (3,269) Finance costs, net (1,668) (1,669) (3,389) _______________________________________________________________________________ Profit/(loss) before tax 4,474 (1,997) (6,658) Tax (1,175) (1,179) (2,448) _______________________________________________________________________________ Profit/(loss) from continuing operations 3,299 (3,176) (9,106) _______________________________________________________________________________ 26 weeks to 26 weeks to 52 weeks to 1 October 2 October 2 April 2006 2005 2006 External revenue by market sector £'000 £'000 £'000 _______________________________________________________________________________ Consumer Products 57,708 49,935 100,525 Data and Telecommunications 39,143 44,232 87,986 Industrial and Medical 14,119 13,737 27,845 Vehicle and Aerospace 16,769 15,993 34,022 _______________________________________________________________________________ 127,739 123,897 250,378 _______________________________________________________________________________ The comparative information for the 26 weeks to 2 October 2005 has been restated to take account of the reorganisation of the Group that occurred in the second half of the prior financial year. The comparative segmental operating loss information for the 52 weeks to 2 April 2006 has been restated to reflect a more appropriate allocation of costs. Geographical segments External revenue by source External revenue by destination 26 weeks to 26 weeks to 52 weeks to 26 weeks to 26 weeks to 52 weeks to 1 October 2 October 2 April 1 October 2 October 2 April 2006 2005 2006 2006 2005 2006 £'000 £'000 £'000 £'000 £'000 £'000 __________________________________________________________________________________________________________ Asia and South America 55,485 46,435 98,761 47,242 36,186 77,033 North America 34,097 39,040 75,591 32,550 38,010 73,986 United Kingdom 16,396 15,597 32,705 16,937 16,983 34,560 Other Europe 21,761 22,825 43,321 31,010 32,718 64,799 __________________________________________________________________________________________________________ 127,739 123,897 250,378 127,739 123,897 250,378 __________________________________________________________________________________________________________ 4. Major restructuring programme (credit)/charge 26 weeks to 26 weeks to 52 weeks to 1 October 2 October 2 April 2006 2005 2006 £'000 £'000 £'000 _______________________________________________________________________________ Global management restructuring - 574 1,535 Property provisions - 1,190 3,149 Closure of manufacturing facilities - - 2,720 Impairment of property, plant and equipment - - 1,523 Insurance claim (receipt) - - (329) (Profit) on sale of properties (1,117) - - _______________________________________________________________________________ (1,117) 1,764 8,598 _______________________________________________________________________________ During the period, the Wiring Harness facility in Leigh, UK was sold with a profit of £1.1 million being recorded. 5. Tax charge The Group tax charge for the period is based on the forecast tax charge for the year as a whole and has been influenced by the differing tax rates in the UK and in the various overseas countries in which the Group operates. 6. Earnings/(loss) per share The calculations of the earnings/(loss) per share are based on the following data: 26 weeks to 26 weeks to 52 weeks to 1 October 2 October 2 April 2006 2005 2006 Earnings £'000 £'000 £'000 _______________________________________________________________________________ Basic earnings/(loss) 3,299 (3,176) (9,106) Major restructuring programme (credit)/charge (1,117) 1,764 8,598 _______________________________________________________________________________ Adjusted earnings/(loss) 2,182 (1,412) (508) _______________________________________________________________________________ Weighted average number of ordinary shares No. shares No. shares No. shares _______________________________________________________________________________ For the purpose of basic EPS 55,551,699 43,108,550 49,247,645 Effect of dilutive potential ordinary shares - share options 41,373 - - _______________________________________________________________________________ For the purpose of diluted EPS 55,593,072 43,108,550 49,247,645 _______________________________________________________________________________ Basic earnings/(loss) per share Pence Pence Pence _______________________________________________________________________________ Basic earnings/(loss) per share 5.9 (7.4) (18.5) Adjustment for major restructuring programme (income)/costs (2.0) 4.1 17.5 _______________________________________________________________________________ Adjusted basic earnings/(loss) per share 3.9 (3.3) (1.0) _______________________________________________________________________________ Diluted earnings/(loss) per share _______________________________________________________________________________ Diluted earnings/(loss) per share 5.9 (7.4) (18.5) Adjustment for major restructuring programme costs (2.0) 4.1 17.5 _______________________________________________________________________________ Adjusted diluted earnings per share 3.9 (3.3) (1.0) _______________________________________________________________________________ Basic earnings/(loss) represents net profit/(loss) attributable to equity holders of the Company. The adjusted earnings/(loss) per share has been calculated on the basis of continuing activities before major restructuring programme costs, net of tax. The Directors consider that this earnings/(loss) per share calculation gives a better understanding of the Group's earnings/(loss) per share in the periods presented. As the Group recorded a loss per share in the periods to 2 October 2005 and 2 April 2006, the share options are anti-dilutive and therefore there is no difference between the basic and diluted loss per share in those periods. 7. Statement of changes in shareholders' equity Share Share Translation Retained Total capital premium reserve earnings equity £'000 £'000 £'000 £'000 £'000 ____________________________________________________________________________ Balance at 2 April 2006 13,888 168 1,821 10,218 26,095 Net profit for the period - - - 3,299 3,299 Reserves entry for share option charges - - - 43 43 Exchange differences on translation of foreign operations - - (2,213) - (2,213) ____________________________________________________________________________ Balance at 1 October 2006 13,888 168 (392) 13,560 27,224 ____________________________________________________________________________ 8. Analysis of net debt Other 2 April Exchange non cash 1 October 2006 Cash flow movement changes 2006 £'000 £'000 £'000 £'000 £'000 _______________________________________________________________________________ Cash at bank and in hand 11,646 (2,626) (606) - 8,414 Overdraft - (35) - - (35) Debt due after one year (26,751) 1,689 1,437 - (23,625) Finance leases (230) 77 - - (153) Debt issue costs 2,061 208 - (584) 1,685 _______________________________________________________________________________ Net debt (13,274) (687) 831 (584) (13,714) _______________________________________________________________________________ Non-cash changes include amortisation of debt issue costs of £538,000 and accrued costs of £46,000. Note: The presentation being made to stockbroking analysts on Wednesday 8 November 2006 will be on the Company's web site www.volex.com from 11.00 am that day. This information is provided by RNS The company news service from the London Stock Exchange

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