Interim Results

RNS Number : 2454I
Volex Group PLC
17 November 2008
 



17 November 2008

VOLEX GROUP plc

Half-yearly results for the 27 weeks ended 5 October 2008

Volex Group plc, the global electrical and electronic cable assembly group, today announces its unaudited half-yearly results for the 27 weeks ended 5 October 2008.


First Half Highlights:

  • Strong revenue growth across all three businesses. Significant improvement in Interconnect with 23.8% growth 

  • Substantial recovery with operating profits of £2.4m(1) compared to loss of £0.3m in previous six months to 30 March 2008

  • Working capital reduced by £2.0m despite 22.8% increase in sales

  • Initial benefit of the aggressive efforts to improve profitability coming through:

    • Successfully completed the closure of two facilities

    • Continuing cost reductions through consolidation of overheads 

    • Improved operational performance with higher productivity and efficiency

    • Efforts to implement Volex designed solutions are accelerating

  • Power Products maintaining its double digit growth rate at 21.8% through market share gains with key Japanese customers

  • Interconnect India revenue grew 250% driven by increasing telecom infrastructure spend

  • Production in High Speed interconnect ramped up with strong new business pipeline

  • Design wins in Interconnect with all three Chinese telecom equipment manufacturers participating in China's 3G rollout

  • Announced on 22 September 2008 that the Board is investigating the potential to divest the Power Products division


Financial Summary:

  • Revenue up 22.8% to £155.1m (2007: £126.3m); in local currency terms, revenue increased 16.1%.

  • Operating profit of £2.4m (2007: £4.6m)(1).

  • Adjusted(1) and reported pre tax profit of £1.0m and £1.1m respectively (2007: adjusted £3.3m; reported £2.8m). 

  • Adjusted earnings per share for the period were 0.0p, (2007: 4.1p); and basic earnings per share were 0.2p (2007:3.3p).

  • Cash generated by operations was £8.1m (2007: utilised £4.2m) 

  • Net borrowings at 5 October 2008 were £18.6m (30 March 2008: £21.0m) and gearing was 74.9% (30 March 2008: 92.8%).

1. Operating profit after share based payment credit of £0.1m (2007 charge of £0.5m) was £2.5m (2007: £4.1m).


The Chairman of Volex, Mike McTighe, commented: 'We are pleased with the solid progress the Group has made during the six months. Our focus on core profitability and cash generation has delivered results and improved our financial stability. We continue to drive further operational efficiencies and to maintain focus on each of our businesses


'Current market conditions make it difficult to forecast the outlook for the second half. Whilst we have not yet seen a decline in the Interconnect markets, we are seeing a reduction in demand for Power Products, which serve the consumer market. Our outlook assumes that the current rate of decline, which is in line with other consumer product companies, will continue into the fourth quarter. If the economic trend continues at a similar level until the end of the financial year, the Board believes that the structural improvements we have made coupled with the favourable impact of lower commodity prices and the stronger US Dollar will enable the Board to meet its expectations for the current year.'


Ends

 


For further information please contact:


Volex Group plc

Today: 020 7067 0700

Thereafter: 01925 830101

Mike McTighe, Chairman



Heejae Chae, Group Chief Executive



Ian Degnan, Group Finance Director






Weber Shandwick Financial


020 7067 0700

Terry Garrett



Nick Dibden



James White




  INTERIM MANAGEMENT REPORT

27 Weeks ended 5 October 2008


A substantial recovery has been achieved during the first half of the year with operating profits of £2.4m (2007: £4.6m) demonstrating the initial impact of management's decisive efforts to achieve acceptable profitability after the losses of the previous six months. The improvement was achieved despite challenging commodity prices and an exchange loss of £1.6m. Cash flow also improved significantly with cash generated from operations of £8.1m and working capital reduced by £2m even though there was a 22.8% increase in revenue.  

This performance has been underpinned by good progress in all three businesses. Interconnect in particular, posted a significant improvement with revenue growth of 23.8% (13.4% in local currency terms) which was driven by emerging markets and new technologies. Power Products continued its double digit growth trend, increasing 21.8% (15.7% in local currency terms) despite a slowdown in certain segments and markets. Revenue for Wiring Harness also grew 24.2% with the aerospace and agricultural sectors offsetting the slowdown in the construction segment.


Power Products

The Power Products division continues to deliver exceptional performance with growth of 21.8%. Our strategy to capitalize on our position as the global market leader by partnering with top global customers enabled us to outperform the market and will help mitigate the impact of the general economic slowdown. Our success with Japanese accounts such as Sony, Matsushita, Canon and others demonstrates our commitment and ability to maintain our leadership position. Over the past three years we have made a significant investment in building relationships and raising our product quality to meet the exacting requirements of these Japanese customers. Our focus and commitment enabled us to become a strategic supplier to these accounts which is a significant accomplishment for a non Japanese company. As result of our supplier designation, revenue has increased by 50% each year since FY05 and we estimate that our market share of these accounts will continue to grow from the current level as we expand across their product portfolio and platforms. The PC and related segment of the business also showed strong growth during the first half although we expect demand to decline in the second half given the general economic slowdown. 

Despite strong revenue growth, the operating margin was 4.6% (2007: 7.7%) as a result of high commodity prices, in particular copper, impacting the first quarter. The recent fall in copper prices should, conversely, benefit us during the second half of the year. In addition, the full benefit of the Mexico plant closure should come through during the second half.  

We announced on 22 September 2008 that the Board is investigating the potential for realising value from the Power Products division through its divestiture or flotation on an Asian stock market. We are currently working with our financial advisers to explore all the opportunities available to us and will update the market in due course. 


Interconnect

The strategy to reposition the Interconnect division into high growth technologies and geographies is yielding a positive result. During the first half of the year, revenue increased 23.8% and the division returned to profitability.  India continued its impressive level of growth, increasing 250% on the prior year. Our focus on RF technology enabled us to leverage our market presence in India to become the leader in the wireless infrastructure rollout. We are now supporting 5 out of 8 major operators in India in their US$50 billion investment plan for the next five years. Another area of growth for Interconnect was the medical sector which increased 15.9% as we expanded our product portfolio beyond cable assemblies and into RF coils for MRI equipment. The data and telecom segment also grew 18.8% primarily in emerging countries with Europe and North America remaining largely flat.

In the second half, we expect that we will continue to see the benefit of the High Speed business which is now in full production with an increasing customer base and a comprehensive line of new generation products. Additionally, we are ideally positioned to participate in the 3G rollout in China which should continue given the Chinese government's intention to stimulate the economy through infrastructure investment. We have products designed-in at all three of the Chinese manufacturers whose equipment will be deployed in the rollout. 


The division returned to profitability after the operating losses incurred in the second half of the year to March 2008. The growth of higher margin business, combined with increased productivity and efficiencies from higher volume, contributed to the turnaround. We expect that our cost base will be further improved during the second half following the Canadian plant closure and a reduction in overheads during the first half. 


Wiring Harness

The strategy for Wiring Harness is to focus on customers who can drive profitable growth whilst properly structuring the cost basis to maximize operational efficiency. Our customer focused approach has yielded targeted growth at Rolls Royce and Case New Holland, which generated most of the division's 24.2% revenue growth.  

We have made progress with our operational improvement programme, which has been reflected in improved key performance measures and customer service levels. The deterioration in operating losses of £2.0m (2007: £1.1m loss) has been stemmed although the operational improvements that have been achieved are yet to impact operating margins. While we have adjusted our cost base in the division, closing two facilities in the UK and significantly downsizing another, more actions need to be taken to structure the business properly to match current requirements. We will adjust the cost base further in order to return the division to profitability.


Financial Review

Operating profit for the period was £2.4m, (2007 £4.6m) (excluding share based payment charges). The existing share incentive programmes, previously reported, benefited the results by £0.1m (2007 charge of £0.5m).  

The net interest charge increased by £0.1m to £1.4m, mainly as a result of higher average borrowings in the period. 

Adjusted pre-tax profits were £1.0m (2007: £3.3m) after adjusting for share based payment charges. Reported pre-tax profits were £1.1m (2007: £2.8m). The tax charge was £1.0m (2007: £1.0m), which is largely in respect of the trading profits generated by the Group's Asian operations.

Adjusted earnings per share for the period were 0.0p, (2007: 4.1p); and basic earnings per share were 0.2p (2007:3.3p).

Capital expenditure at £1.2m was £0.5m higher than 2007 as a result of expanding the capacity in China for Power Products production.

Cash generated by operations in the first half of 2008 was £8.1m after a net reduction in working capital of £5.2m. This is a significant improvement in cash generation compared to the cash utilisation by operations of £4.2m in the first half of last financial year. Net debt was £18.6m compared with £17.5m at 30 September 2007 and £21.0m at 30 March 2008. Gearing was 74.9%, compared with 63.4% at 30 September 2007. 

The Board expects that the actions we have taken to improve cash generation in the first half, coupled with the favourable improvement in copper prices will lead to further cash generation in the second half and further reductions in net debt.

In order to improve our financial flexibility we have secured an additional finance facility with Bank of Scotland plc which allows us to draw up to Eur 6.8m in addition to our existing revolving credit facility of $64.3m with LloydsTSB. Both facilities run until the end of December 2009.

The impact of changes in exchange rates compared to 2007 is that operating profit would have been £1.6m higher. The main exchange rate movement that has affected the results is the US Dollar to £ Sterling and also the US Dollar to Indian Rupee. For the second half of this financial year, if the US Dollar stays at current levels we will see a favourable impact on the translation of our US Dollar denominated earnings into £ Sterling. In addition to this, we have also taken measures to mitigate the potential negative impact of any further changes in the US Dollar to £ Sterling and US Dollar to Indian Rupee exchange rates on translation of the balance sheet.

The Board has again not declared an interim dividend. 


Current Trading and Prospects

We have achieved a solid recovery and expect the actions taken in the first half to reduce our cost base, coupled with improving margins in Interconnect, will benefit us in the second half of the financial year .We will continue to drive further operational efficiencies over the coming period.  In addition, the recent significant falls in copper prices will have a beneficial impact on margins and the appreciation of the US Dollar will improve our earnings when translated into £ Sterling. 

Current market conditions make it difficult to forecast the outlook for the second half. Whilst we have not yet seen a decline in the Interconnect markets, we are seeing a reduction in demand for Power Products, which serve the consumer market. Our outlook assumes that the current rate of decline, which is in line with other consumer product companies, will continue into the fourth quarter. If the economic trend continues at a similar level until the end of the financial year, the Board believes that the structural improvements we have made coupled with the favourable impact of lower commodity prices and the stronger US Dollar will enable the Board to meet its expectations for the current year.



Heejae Chae

Ian Degnan

Group Chief Executive

Group Finance Director

17 November 2008

17 November 2008






  STATEMENT OF DIRECTORS' RESPONSIBILITIES


The Directors confirm that to the best of their knowledge:

  • the set of financial statements has been prepared in accordance with IAS 34;

  • the interim management report includes a fair review of the information required in DTR 4.2.7R (indication of important events that have occurred during the first six months of the financial year and description of the principal risks and uncertainties for the remaining six months of the year); and

  • the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).


By Order of the Board






Heejae Chae

Ian Degnan

Group Chief Executive

Group Finance Director

17 November 2008

17 November 2008


  Unaudited consolidated income statement 

For the 27 weeks ended 5 October 2008 (26 weeks ended 30 September 2007)




27 weeks to
5 October

2008

26 weeks to 
30 September

2007

(Audited)
52 weeks to

30 March

2008


Note

£'000

£'000

£'000

Continuing activities





Revenue

2

155,104

126,303

259,765






Operating profit

2

2,536

4,140

1,794






Analysed as:





Operating profit before major    restructuring programme and share based payments charge


2,446

4,611

4,338

Major restructuring programme charge

3

-

-

(2,676)

Share based payments credit / (charge)


90

(471)

132

Operating profit


2,536

4,140

1,794






Investment income


171

153

205






Finance costs





 - interest on bank debt and other liabilities


(1,253)

(983)

(2,167)

 - interest on retirement benefit obligations and provisions


(88)

(211)

(165)

 - amortisation of debt issue costs


(260)

(260)

(520)



(1,601)

(1,454)

(2,852)

Profit / (loss) on ordinary activities before taxation


1,106

2,839

(853)






Taxation

4

(988)

(975)

(2,530)

Profit / (loss) on ordinary activities after taxation,

being retained profit for the period


118

1,864

(3,383)






Earnings / (loss) per share (pence)*





Basic and diluted

5

0.2

3.3

(6.0)

*    The earnings per share before the costs of the major restructuring programme and share based payments for each period is shown in Note 5.

 

 

Unaudited consolidated statement of recognised income and expense

For the 27 weeks ended 5 October 2008 (26 weeks ended 30 September 2007)


 



27 weeks to
5 October

2008

26 weeks to 
30 September

2007

(Audited)
52 weeks to

30 March

2008


£'000

£'000

£'000






Losses on hedge of net investment taken to equity


(1,910)

(1,019)

(3,354)

Exchange differences on translation of foreign operations


3,684

278

2,513

Actuarial gains on defined benefit pension schemes


354

-

776

Net income / (expense) recognised directly in equity 


2,128

(741)

(65)






Profit / (loss) for the period


118

1,864

(3,383)

Total recognised net income / (expense) for the period


2,246

1,123

(3,448)







Unaudited consolidated balance sheet

5 October 2008 (30 September 2007)

 



5 October
2008

30 September
2007

(Audited)
30 March

2008

Note

£'000

£'000

£'000

Non-current assets





Goodwill


1,930

1,930

1,930

Other intangible assets


263

180

261

Property, plant and equipment


8,431

8,380

7,784

Deferred tax asset


437

190

312



11,061

10,680

10,287






Current assets





Inventories


39,005

39,118

35,050

Trade and other receivables


74,338

57,806

63,876

Current tax assets


84

431

353

Cash and cash equivalents

7

8,207

5,710

4,317



121,634

103,065

103,596

Total assets


132,695

113,745

113,883






Current liabilities





Obligations under finance leases

7

15

52

44

Trade and other payables


69,166

49,896

52,367

Current tax liabilities


5,447

3,753

4,343

Retirement benefit obligation


43

395

149

Provisions


1,973

2,428

3,359

Liability for share based payments


-

336

214



76,644

56,860

60,476

Net current assets


44,990

46,205

43,120


Non-current liabilities

Bank overdrafts and loans

7

26,811

23,162

25,283

Obligations under finance leases

7

-

10

-

Deferred tax liabilities


100

262

118

  Retirement benefit obligation


1,120

2,158

1,513

Long-term provisions


3,098

3,550

3,773

Non-equity preference shares


80

80

80

Liability for share based payments


-

44

4



31,209

29,266

30,771

Total liabilities


107,853

86,126

91,247

Net assets


24,842

27,619

22,636


   Equity attributable to equity holders of the parent




Share capital

6

14,205

14,205

14,205

Share premium account

6

1,357

1,357

1,357

Hedging and translation reserve

6

(87)

(1,761)

(1,861)

Retained earnings

6

9,367

13,818

8,935

Total equity

6

24,842

27,619

22,636


Unaudited consolidated cash flow statement 

For the 27 weeks ended 5 October 2008 (26 weeks 30 September 2007)



27 weeks to
5 October

2008

26 weeks to 
30 September

2007

(Audited)
52 weeks to

30 March

2008

Note

£'000

£'000

£'000






Operating profit from continuing operations


2,536

4,140

1,794

Adjustments for:





Depreciation of property, plant and equipment


1,333

1,325

2,906

Amortisation of intangible assets


47

41

80

Loss on disposal of property, plant and equipment


-

30

4

Share option (credit) / expense


(40)

299

(113)

Decrease in provisions


(2,020)

(2,481)

(1,469)

Operating cash flows before     movements in working capital


1,856

3,354

3,202






Increase in inventories


(815)

(7,502)

(2,791)

Increase in receivables


(4,855)

(7,712)

(12,506)

Increase in payables


10,787

5,572

5,994

Decrease / (increase) in working capital


5,117

(9,642)

(9,303)

Cash generated / (utilised) by operations


6,973

(6,288)

(6,101)

Analysed as:





Generated / (utilised) before major restructuring programme


8,125

(4,168)

(2,214)

Utilised by major restructuring programme


(1,152)

(2,120)

(3,887)

Cash generated / (utilised) by operations


6,973

(6,288)

(6,101)






Income taxes paid


(288)

(236)

(887)

Interest received


171

153

205

Interest paid


(591)

(622)

(1,666)

Net cash inflow / (outflow) from operating activities


6,265

(6,993)

(8,449)






Cash flows from investing activities





Proceeds on disposal of property, plant and equipment


38

10

242

Purchases of property, plant and equipment


(1,181)

(705)

(1,712)

Purchases of intangible assets


(35)

(101)

(289)

Net cash used in investing activities


(1,178)

(796)

(1,759)

Cash flows before financing activities


5,087

(7,789)

(10,208)

Analysed as:





Generated / (used) before major restructuring programme


6,239

(5,669)

(6,321)

Used by major restructuring programme


(1,152)

(2,120)

(3,887)

Cash flows before financing activities


5,087

(7,789)

(10,208)

Cash flows from financing activities





Proceeds on issue of shares

6

-

138

138

Repayment of borrowings

7

(4,406)

(3,915)

(18,823)

Advances of borrowings

7

3,502

4,978

20,410

Decrease in bank overdrafts

7

-

(30)

(30)

Repayments of obligations under finance leases

7

(29)

(30)

(52)

Net cash (used in) / from financing activities


(933)

1,141

1,643

Net increase /(decrease) in cash and cash equivalents


4,154

(6,648)

(8,565)

Cash and cash equivalents at beginning of period

7

4,317

12,235

12,235

Effect of foreign exchange rate changes


(264)

123

647

Cash and cash equivalents at end of period

7

8,207

5,710

4,317


 

Notes to the interim statements

1.  Basis of preparation

These interim financial statements have been prepared in accordance with IAS 34, 'Interim Financial Reporting' as adopted by the EU.

The financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards as adopted for use in the European Union ('IFRS') and which are consistent with those disclosed in the annual report and accounts for the 52 weeks ended 30 March 2008.

The financial information presented for the 27 weeks ended 5 October 2008 and 26 weeks ended 30 September 2007 has not been reviewed by the auditors. The financial information for the 52 weeks ended 30 March 2008 is extracted and abridged from the Group's full accounts for that year. The statutory accounts for the 52 weeks ended 30 March 2008 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 14 November 2008.  

The announcement is being sent to shareholders. Copies of this report and the annual report for the financial year ended 30 March 2008 are available at the Company's registered office at Dornoch House, Birchwood Science Park, Kelvin Close, WarringtonWA3 7JX and can also be downloaded or viewed via the Group's website at www.volex.com.

  2.  Business and geographical segments

Business segments

For management purposes, the Group is organised into three operating divisions Power Products, Interconnect and Wiring Harness. These classifications are based upon the nature of products that they supply. These divisions are the basis on which the Group reports its primary segment information.



27 weeks to
5 October

2008

26 weeks to 
30 September

2007

52 weeks to
30 March

2008



£'000

£'000

£'000

Revenue





Power Products


80,307

65,932

136,312

Interconnect


53,556

43,272

87,114

Wiring Harness


21,241

17,099

36,339



155,104

126,303

259,765

Operating profit / (loss) before major restructuring programme and share based payments:





Power Products


3,700

5,061

8,195

Interconnect


786

658

(786)

Wiring Harness


(2,040)

(1,108)

(3,071)



2,446

4,611

4,338

Major restructuring programme and share based payments:





Power Products


47

(246)

(1,672)

Interconnect


31

(161)

(901)

Wiring Harness


12

(64)

29



90

(471)

(2,544)

Operating profit / (loss)





Power Products


3,747

4,815

6,523

Interconnect


817

497

(1,687)

Wiring Harness


(2,028)

(1,172)

(3,042)



2,536

4,140

1,794

Investment income


171

153

205

Finance costs


(1,601)

(1,454)

(2,852)

Profit / (loss) before tax


1,106

2,839

(853)

Tax


(988)

(975)

(2,530)

Profit / (loss) from continuing operations


118

1,864

(3,383)


 



27 weeks to
5 October

2008

26 weeks to 
30 September

2007

52 weeks to
30 March

2008



£'000

£'000

£'000

External revenue by product market sector





Consumer Products


83,670

63,533

139,705

Data, Telecommunications and Medical


48,989

41,603

82,855

Industrial, Vehicle and Aerospace


22,445

21,167

37,205



155,104

126,303

259,765


  


External revenue by source

External revenue by destination


27 weeks to
5 October

2008

26 weeks to 
30 September

2007

52 weeks to
30 March

2008

27 weeks to
5 October

2008

26 weeks to 
30 September

2007

52 weeks to
30 March

2008


£'000

£'000

£'000

£'000

£'000

£'000

Geographical segments







Asia

89,810

73,130

142,228

67,990

49,572

104,056

Americas

25,764

19,165

52,352

28,039

28,032

56,502

United Kingdom

5,194

4,017

7,030

17,147

16,968

32,784

Europe

34,336

29,991

58,155

41,928

31,731

66,423


155,104

126,303

259,765

155,104

126,303

259,765


3. Major restructuring programme


27 weeks to
5 October

2008

26 weeks to 
30 September

2007

52 weeks to
30 March

2008


£'000

£'000

£'000





Property provisions

-

-

545

Closure of manufacturing facilities

-

-

2,131


-

-

2,676


4.  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 the various overseas countries in which the Group operates.


5.  Earnings / (loss) per ordinary share


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

Earnings / (loss)

27 weeks to
5 October

2008

26 weeks to 
30 September

2007

52 weeks to
30 March

2008


£'000

£'000

£'000





Earnings / (loss) 

118

1,864

(3,383)

Adjustments for:




Major restructuring programme charge

-

-

2,676

Share based payments (credit) /charge 

(90)

471

(132)

Adjusted earnings / (loss)

28

2,335

(839)





Weighted average number of ordinary shares

No. shares

No. shares

No. shares





For the purpose of basic and diluted earnings / (loss) per share

56,780,292

56,739,021

56,780,292





Basic and diluted earnings per share

Pence

Pence

Pence





Basic and diluted earnings / (loss) per share

0.2

3.3

(6.0)

Adjustments for:




Major restructuring programme charge 

-

-

4.7

Share based payments (credit) / charge 

(0.2)

0.8

(0.2)

Adjusted basic and diluted earnings / (loss) per share

-

4.1

(1.5)

Basic earnings represent 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 and share based payment charges/(credit) net of tax. The Directors consider that this earnings per share calculation gives a better understanding of the Group's earnings per share in the periods presented.


6.  Statement of changes in shareholders' equity



Share capital

Share

premium

Translation reserve

Retained earnings

Total

equity


£'000

£'000

£'000

£'000

£'000







Balance at 31 March 2008

14,205

1,357

(1,861)

8,935

22,636

Net profit for the period

-

-

-

118

118

Reserves entry for share option charges

-

-

-

(40)

(40)

Actuarial gains on defined benefit pension schemes

-

-

-

354

354

Exchange differences on translation of foreign operations

-

-

3,684

-

3,684

Loss recognised on net investment hedge

-

-

(1,910)

-

(1,910)

Balance at 5 October 2008

14,205

1,357

(87)

9,367

24,842

 

 

7.  Analysis of net debt


 


31 March 
2008

Cash flow

Exchange movement

Other non cash changes

5 October 
2008


£'000

£'000

£'000

£'000

£'000







Cash at bank and in hand

4,317

4,154

(264)

-

8,207

Debt due after one year

(25,890)

904

(2,172)

-

(27,158)

Finance leases

(44)

29

-

-

(15)

Debt issue costs

607

-

-

(260)

347

Net debt

(21,010)

5,087

(2,436)

(260)

(18,619)


Non-cash changes includes amortisation of debt issue costs of £260,000.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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