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Volex PLC (VLX)

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Thursday 12 November, 2020

Volex PLC

Half-year Report of Volex plc

RNS Number : 0567F
Volex PLC
12 November 2020
 

 

12 November 2020 

VOLEX plc

Half year results for the 26 weeks ended 4 October 2020

  Robust H1 performance - resilient business model responding well to Covid-19

 

Volex plc ("Volex"), a global provider of integrated manufacturing services and power products, today announces its half year results for the 26 weeks ended 4 October 2020 ("H1 FY2021").

Financial Summary

26 weeks to

4 October

2020

26 weeks to

29 September

2019

 

%

Change

Revenue

$202.5m

$195.7m

3.5

Underlying* operating profit

$20.8m

$15.9m

30.8

Statutory operating profit

$14.3m

$10.4m

37.5

Underlying* profit before tax

$20.9m

$15.3m

36.6

Statutory profit before tax

$14.4m

$9.7m

48.5

Basic earnings per share

10.2c

5.3c

92.5

Underlying diluted earnings per share

12.9c

8.5c

51.8

Interim dividend per share

1.1p

1.0p

10.0

Net funds (before IFRS 16 Leases liability)**

$32.0m

$7.9m

305.1

* Before adjusting items (non-recurring items and amortisation of acquired intangibles) and share-based payments

** Net funds are presented before the lease liability of $11.7m (29 September 2019: $7.3m).

 

Financial and Corporate Highlights

·     Operational agility and our unique geographic footprint, coupled with the decision to diversify our capabilities and customer base, has allowed Volex to navigate an exceptionally difficult period in the wider global economy caused by the Covid-19 pandemic

· Underlying gross margins have continued to improve significantly from 23.1% in H1 FY2020 to 25.1% in H1 FY2021, driven by a disciplined approach to capital allocation and cost control across both divisions

· Underlying operating profit has increased by 30.8% to a record $20.8 million resulting in our underlying operating margin improving from 8.1% to 10.3%

· Interim dividend increased by 10% to 1.1 pence per share reflecting our confidence in the ongoing prospects of the business  

· Post period end, we have today announced that we have signed an agreement to acquire De-Ka Elektroteknik Sanayi ve Ticaret Anonim Sirketi ("DEKA"), a leading European power cord manufacturer headquartered in Turkey, accelerating our strategy of creating the most efficient and lowest-cost global producer in the industry

· We have also signed a new, three-year $100 million multi-currency revolving credit facility to replace our current $30 million credit facility, increasing our capacity for investment in future growth. The facility consists of a $70 million committed facility with a $30m accordion feature and is effective from 12 November 2020

· Daren Morris has left the Board with immediate effect and will be leaving the business. Jon Boaden, who joined the business in April 2019 as Deputy Chief Financial Officer, has been promoted to the role of CFO. We have also announced that Sir Peter Westmacott, a senior British Diplomat, has agreed to join the Board as an Independent Non-Executive Director and member of the Company's Nominations Committee.

Operational and Divisional Highlights

· Power Products - sales of products for use in electric vehicles grew by 78% year-on-year and overall profitability continues to improve due to our focus on automation and vertical integration

· Integrated Manufacturing Services - we have improved profitability levels as a result of our focus on higher value-added products despite very challenging conditions in the medical installation business as a result of Covid-19

· Upgrade of capacity and facilities - during the period we have relocated our Suzhou plant to a new state-of-the-art facility and we have also commenced work on our new cable extrusion plant in Batam which we expect to be operational by the summer of 2021

Outlook

· Having delivered a robust performance in the first half of the year, coupled with a strong forward order-book, the Board remains confident in delivering on full-year expectations, absent any material disruptions to our business that may be caused by Covid-19

· We continue to monitor the dynamic and evolving situation in relation to the Covid-19 pandemic closely and are mindful of the impact that future government-imposed restrictions designed to control the spread of the virus could have on our business in various geographies

· The longer-term prospects for our business remain strong and we continue to invest in increasing capacity in our key facilities to meet customer demand and to implement vertical integration to improve our competitiveness and profitability

 

Nat Rothschild, Volex's Executive Chairman said:

"Our response to the unprecedented challenges of Covid-19 is a fitting testament to Volex's forward planning, resilience and agility. In a period of profound global disruption, we have prioritised keeping our people safe and protecting our operations while growing our operating profit, improving our margins and continuing to progress well with our strategic objectives.

This relentless focus on operational and process improvements gives us sufficient confidence to increase our interim dividend by 10%.

Today we have also announced our acquisition of DEKA, a world-class Power Products business. As one of the two leading power cord producers in Europe, with a strong management team and a world-class customer list, DEKA is a perfect fit with our business model, and the acquisition accelerates our strategy of creating the most efficient and lowest-cost global producer in the industry, providing an immediate and scalable European platform.

Our outlook for the remainder of the year remains unchanged, absent any material disruptions that may be caused by Covid-19, and we continue to invest across the business in order to meet customer demand and deliver on our long-term growth prospects."

For further information please contact:

Volex plc

+44 (0)7747 488 785

Nat Rothschild, Executive Chairman

 

Jon Boaden, Chief Financial Officer

 

 

N+1 Singer - Nominated Adviser & Joint Broker

+44 (0)20 7496 3000

Shaun Dobson

 

Iqra Amin

 

 

Panmure Gordon - Joint Broker

+44 (0)20 7886 2500

Hugh Rich

 

 

Powerscourt - Media Enquiries

 

+ 44 (0)20 7250 1446

James White

 

Jack Holden

 

 

 

About Volex plc

 

Volex plc (AIM:VLX) is a leading integrated manufacturing specialist. The Group designs and manufactures products that ensure a critical connection never fails and are used in everything from defibrillators and ventilators through to data networking equipment and vehicle telematics. Headquartered in the United Kingdom, Volex serves the needs of its blue-chip customer base from its manufacturing sites located across nine countries and three continents, employing over 6,000 people. Volex's products are sold through its own global sales force and through distributors to Original Equipment Manufacturers ('OEMs') and Electronic Manufacturing Services companies.  For more information please visit www.volex.com

 

RESULTS FOR THE 26 WEEKS ENDED 4 OCTOBER 2020

 

Group overview

Volex occupies a unique niche through our capability in integrated manufacturing services. Having 14 factories located in key manufacturing hubs and a size and scale that only a very small number of competitors can match, Volex is set to benefit from an accelerating trend towards supply chain consolidation.

In a world becoming more global and interconnected, our customers demand larger global suppliers to support them as they consolidate their fragmented supplier bases. We have seen this trend particularly in the medical technology sector and on the Power side of Volex's business. Customers demand scale, reputation, quality and a global presence, all of which Volex can provide.

The Covid-19 pandemic and the implementation of import tariffs by the US government have shown how important it is to be able to offer multiple manufacturing locations to our customers and our diversification has proven to be a key strength over the past six months.

Our ability to identify acquisitions in a highly fragmented market is also a key part of our success. These acquisitions enable us to acquire competencies such as the capability to manufacture complete sub-systems, electro-mechanical as well as electronic sub-assemblies, and advanced niche PCB assembly products, in order to become more valuable to our customers.

The ongoing benefits of moving up the value chain and deepening integration with our customers is a key element of our strategy, and as a result of our strong balance sheet and the prioritisation of free cash flow over revenue, we retain a high degree of strategic flexibility, allowing us to continue to look for value-enhancing acquisitions while remaining committed to a progressive dividend policy.

Today we announced the acquisition of DEKA, a world-class Power Products manufacturer. This positions us as a global market leader in the Power Products industry. Combining DEKA's strong position in Europe with our significant scale in North America and Asia will unlock customer opportunities and allow us to identify substantial supply chain synergies.

As announced today, Daren Morris, who initially joined the business in June 2014 as a Non-Executive Director before becoming Chief Financial Officer in September 2014, has left the Board with immediate effect and will be leaving the business. Jon Boaden, who joined the business in April 2019 as Deputy Chief Financial Officer, has been promoted to the role of CFO having played a key role in the significant growth and development of the Group's business since joining over 18 months ago. Separately Sir Peter Westmacott, a senior British diplomat, has agreed to join the Board as an Independent Non-Executive Director and member of the Company's Nominations Committee. His substantial record, acknowledged by successive Prime Ministers, of policy and business delivery, will be a key asset to Volex.

We are also pleased to have signed a new $70 million multi-currency revolving credit facility with a $30 million accordion feature to replace our current $30 million credit facility. The new facility has a three-year term with the option of a one-year extension. It is provided by three relationship banks and was oversubscribed.

Finally, we will also pay an interim dividend of 1.1 pence per share on 15 December 2020 to those shareholders on the register as at 20 November 2020. We are delivering strong and consistent cash flows and this supports our intention to maintain a sustainable and progressive dividend policy as we move forward.

 

Covid-19

The challenges posed by Covid-19 first became apparent when we re-opened our Chinese facilities following an extended lunar new year closure in February 2020. We put in place precautionary best practice measures to protect our employees in these sites, and as we realised that the pandemic was spreading rapidly across the globe, we rapidly rolled out these 'best practices' across all our locations. Our factory teams globally have performed exceptionally by implementing and maintaining these measures, all of which remain in place.

However, no prevention activity can guarantee that we will not see any disruption at our key locations and, while we believe that we are taking appropriate steps to mitigate the risk posed by Covid-19, we continue to monitor infection rates among our workforce and the subsequent impact on our operational activities closely.

More broadly, we also remain acutely aware of the impact that future government-imposed restrictions designed to control the spread of the virus could have on our business, our customers and our partners in various geographies. 

 

Trading performance overview

The half year to 4 October 2020 has seen the Group continue to grow and deliver improved margins.

 

$'000

 26 weeks ended
4 October

2020

Total

26 weeks ended
29 September

2019

Total

 

Revenue

202,465

195,706

Cost of Sales

(151,706)

(150,429)

Underlying gross profit*

50,759

45,277

Underlying gross margin

25.1%

23.1%

 

 

 

Operating costs

(29,951)

(29,331)

Underlying operating profit*

20,808

15,946

Underlying operating margin

10.3%

8.1%

  * Before adjusting items and share-based payment charges

 

Revenue for the first half of the year is up by 3.5% on the comparable period in FY2020. We have seen some variations in customer demand due to the pandemic.

In our Integrated Manufacturing Services ("IMS") division, demand for data centre products has been strong with an increase in sales of nearly 50% over the prior period. Sales into medical end-markets have shown variability depending on the application. Our largest customer in this segment has seen increased demand, but a number of smaller customers in the imaging and oncology-related markets have seen significant delays in orders and installations due to difficulty in accessing hospitals stemming from restrictions in relation to the Covid-19 pandemic.

Demand for our high-speed data centre products has been excellent, with sales up by 57%. This reflects strong underlying demand drivers as the move to remote working has increased global reliance on cloud computing. In addition, data centre customers have looked to reduce their supply chain exposure by building inventory. The pandemic disrupted sales to a number of our medical and industrial technology customers during the period, but we are starting to see an improvement in demand from these customers. Overall, the strength in the data centre product sales has helped to offset weakness in medical and industrial, and margins have improved.

Demand for Power Products ("Power") started slowly as a number of our customers responded to the challenges of operating under pandemic conditions. Sales volumes improved during the period with all our Power sites at high levels of utilisation at the end of the first half, and a strong performance from the sale of our new products for the electric vehicles market.

Profitability in H1 FY2021 has shown a significant improvement in comparison to H1 FY2020. Margins in both divisions have increased as a result of a change in mix towards higher-margin products and customers.  

Margins have also improved due to lower input costs. This has come from a combination of lower copper prices, beneficial foreign exchange rates and price reductions negotiated with suppliers. The favourable position on copper and foreign exchange rates may not continue in the second half as we see a weakening of the US dollar and an increase in the price of copper and other commodities. Travel costs were significantly lower than usual in the first half of the year and we expect this to continue for the remainder of the year.

 

Integrated Manufacturing Services

$'000

 26 weeks ended 4 October

2020

 26 weeks ended 29 September

2019

53 weeks ended

5 April

2020

 

 

 

 

Revenue

114,723

104,613

220,346

Underlying gross profit

30,852

26,917

54,801

Underlying gross margin

26.9%

25.7%

24.9%

 

 

 

 

Operating costs

(15,627)

(15,196)

(31,460)

Underlying operating profit

15,225

11,721

23,431

Underlying operating margin

13.3%

11.2%

10.6%

 

Customers trust Volex to deliver connectivity solutions in a variety of performance-critical applications including medical devices, data centres and advanced industrial technology. With a customer-centric approach and experienced production engineers who ensure we maintain rigorous quality standards, Volex is a manufacturing partner for some of the biggest names in technology.

Revenue for H1 FY2021 was $114.7 million, up 9.7% on the prior period. This includes six months of revenue from Servatron, a business we acquired in July 2019, rather than the two months of Servatron revenue in the comparative period.

We are very proud of our capabilities in the medical devices supply chain. We were involved in a number of projects to accelerate the manufacture and delivery of devices specifically intended to support patients being treated for the effects of Covid-19. At the same time, demand for the critical data connectivity products we manufacture for large diagnostic imaging and radiological and surgical treatment devices was materially lower. This reflects the fact that many hospitals have postponed  scheduled installations and maintenance while the facilities focus on dealing with the pandemic and have suspended non-critical procedures. We believe that the underlying demand for installations, maintenance and upgrades remains, but the timing of a recovery will be dependent on our customers being able to return to having normalised access to medical facilities.

There has been an improvement to both underlying gross margin and underlying operating margin. This has been achieved through an improvement in product mix and savings in production costs. The strength of the US dollar, which is the primary sales currency, versus many emerging market currencies where we operate has also helped margins during the period.

We continue to focus on quality which delivers benefits to our bottom line. Much of the improvement is delivered through re-engineering our processes as well as investing in equipment to deliver exceptional consistency and high throughput.

Power Products

$'000

 26 weeks ended 4 October

2020

 26 weeks ended 29 September

2019

53 weeks ended

5 April

2020

 

 

 

 

Revenue

87,742

91,093

171,008

Underlying gross profit

19,907

18,360

35,860

Underlying gross margin

22.7%

20.2%

21.0%

 

 

 

 

Operating costs

(11,436)

(11,213)

(21,807)

Underlying operating profit

8,471

7,147

14,053

Underlying operating margin

9.7%

7.8%

8.2%

 

Volex designs and manufactures power cords and related products that are sold to the manufacturers of a broad range of electrical and electronic devices and appliances. Volex products are used in home entertainment and home computing devices, domestic and personal healthcare appliances, power tools and electric vehicles. Many of our customers are global household names operating in premium segments of the consumer market.

Revenues in the first half were marginally lower in comparison to the same period in the previous year. Although all Volex Power Products sites were open and fully operational during the period, in the first quarter some customers experienced disruption to production which reduced demand for both consumer electronics and electric vehicle products.

Our high-quality and well-engineered products have been well received by customers for electric vehicle applications. Revenue from our automotive customers is up 78% year-on-year and this segment now represents over 15% of our sales for Power Products in the first half of the year. We believe that there is significant further opportunity for growth in this area.

As many countries saw a shift to homeworking, we saw strong sales into the consumer electronics segment once our customers resumed normal operations in late April and May. This trend continued throughout the period. With demand strong in this area, we maximised our production to support our customers. This resulted in high levels of utilisation across all Power Products sites in the second quarter of FY2021.

Underlying gross margins have improved from 20.2% to 22.7%. Last year we acquired Ta Hsing, a cable extrusion business. We have made excellent progress integrating this capability into our Power Products division, reducing input costs and improving margins. We also continue to roll out targeted automation. This is focused on the areas where it gives us the best return and is compatible with our requirements to maintain a flexible manufacturing approach. Most sales are in US dollars, but a proportion of the cost base is in the local currency relevant to the production location. The strength of the dollar has helped improve margins, as have lower costs for certain raw materials.

 

Group adjusting items and share-based payments

Adjusting items and share-based payments totalled $6.5 million in the period (H1 FY2020: $5.6 million). These costs are made up of $2.3 million (H1 FY2020: $2.8 million) of amortisation of acquisition-related intangible assets, $4.0 million (H1 FY2020: $2.6 million) of share-based payments expense and $0.2 million (H1 FY2020: $0.2 million) of acquisition costs related to the acquisition of DEKA. Share-based payments include awards made to incentivise senior management as well as awards granted to the management teams within acquired companies.

 

Group taxation

The Group incurred a tax credit of $1.1 million (H1 FY2020: tax charge of $2.0 million), representing an effective tax rate of -7.4% (H1 FY2020: 20.1%). The underlying tax charge of $nil (H1 FY2020: $2.4 million) represents an ETR of 0.2% (H1 FY2020: 15.7%).

An underlying deferred tax credit of $2.9 million (H1 FY2020: charge of $1.2 million) arose due to an increase in the deferred tax asset recognised on trading losses and short-term timing differences due to the utilisation based on future forecast taxable profits in certain regions. As at the reporting date the Group has recognised deferred tax assets of $12.2 million (H1 FY2020: $ 3.4 million, FY2020: $9.0m). Of this deferred tax asset $6.5 million (H1 FY2020: $2.4 million, FY2020: $4.5 million) is in relation to tax losses and $5.7 million (H1 FY2020: $1.0 million, FY2020: $4.5 million) in relation to short term timing differences.

 

Group net debt and cash flows

We are pleased to have signed a new $100 million multi-currency revolving credit facility to replace our current $30 million credit facility. The new facility has a three-year term with the option of a one-year extension. The facility consists of a $70m committed facility with a $30m accordion feature and is effective from 12 November 2020. It is provided by three relationship banks and was oversubscribed.

The new facility has a more relaxed net debt to EBITDA covenant as compared to the existing credit facility which will give the Group more flexibility to undertake future acquisitions. This facility provides additional headroom and further scope to make value-accretive investments to grow our business.

Our business is cash generative with excellent cash conversion. Coming into the period, levels of inventory were lower than usual as a result of the pandemic. During the first half of the year, inventory has increased, replenishing finished goods in our customer hub locations. This has offset an element of the cash generated by our underlying business operations.

Net funds (before lease liabilities) was unchanged from the year end standing at $32.0 million ($32.1 million at 5 April 2020). The Group generated a free cash flow after capital expenditure and tax, but before the cost of acquisitions, of $8.0 million. This included a cash operating inflow of $23.5 million and an adverse working capital movement of $11.0 million, as well as capital expenditure of $2.6 million and tax paid of $1.8 million. The adverse working capital movement is due to very low inventory levels at the end of FY2020 when customers had consumed Power Products stock while the production sites were closed for an extended Lunar New Year holiday due to the pandemic. In the first half of FY2021 inventory levels have returned to normal, causing an adverse working capital movement. Accounts receivable and accounts payable   also increased as invoicing and supply chain activity returned to normal levels following the sites closures . The Group had lease liabilities of $11.7 million. This produces a statutory net funds position of $20.3 million.

 

Risks and uncertainties

Risks to Volex are anticipated and regularly assessed and internal controls are enhanced where necessary to ensure that such risks are appropriately mitigated. There are a number of potential risks that could have a material impact on the Group's financial performance. The principal risks and uncertainties include competitive threats, legal and regulatory issues, dependency on key suppliers or customers, movements in commodity prices or exchange rates, and quality issues. These risks and the relevant risk-mitigation activities are set out in the FY2020 Annual Report and Accounts on pages 30 to 34, a copy of which is available on the website at www.volex.com.

 

Outlook

We remain closely focused on ensuring our employees' welfare and are planning for a range of possible outcomes in relation to the ongoing Covid-19 pandemic.

Having delivered a robust performance in the first half of the year, coupled with a strong forward order-book, the Board remains confident in delivering on full-year expectations, absent any material disruptions to our business that may be caused by Covid-19.

The longer-term prospects for our business remain strong and we continue to invest in increasing capacity in our key facilities to meet customer demand and to implement vertical integration to improve our competitiveness and profitability.

 

 

 

Nat Rothschild  Jon Boaden

Group Executive Chairman  Group Chief Financial Officer

12 November 2020   12 November 2020

 

 

Unaudited consolidated income statement 

For the 26 weeks ended 4 October 2020 (26 weeks ended 29 September 2019)

 

 

 

26 weeks ended 4 October 2020

26 weeks ended 29 September 2019

 

 

Before

Adjusting items

Adjusting

items and share-based payments

Total

Before

Adjusting items

Adjusting

items and share-based payments

Total

 

Notes

$'000

$'000

$'000

$'000

$'000

$'000

 

 

 

 

 

 

 

 

Revenue

2

202,465

-

202,465

195,706

-

195,706

Cost of sales

 

(151,706)

-

(151,706)

(150,429)

-

(150,429)

Gross profit

 

50,759

-

50,759

45,277

-

45,277

Operating expenses

 

(29,951)

(6,502)

(36,453)

(29,331)

(5,559)

(34,890)

Operating profit

2

20,808

(6,502)

14,306

15,946

(5,559)

10,387

Share of net profit from associates

 

637

-

637

-

-

-

Finance income

 

155

-

155

93

-

93

Finance costs

 

(720)

-

(720)

(776)

-

(776)

Profit on ordinary activities before taxation

 

20,880

(6,502)

14,378

15,263

(5,559)

9,704

Taxation

4

(37)

1,096

1,059

(2,401)

451

(1,950)

Profit for the period attributable to the owners of the parent

 

20,843

(5,406)

15,437

12,862

(5,108)

7,754

Earnings per share (cents)

 

 

 

 

 

 

 

Basic

5

13.7

 

10.2

8.8

 

5.3

Diluted

5

12.9

 

9.5

8.5

 

5.1

 

 

 

 

53 weeks ended 5 April 2020

 

 

 

 

 

Before

Adjusting items

Adjusting

Items and share-based payments

Total

 

Notes

 

 

 

$'000

$'000

$'000

 

 

 

 

 

 

 

 

Revenue

2

 

 

 

391,354

-

391,354

Cost of sales

 

 

 

 

(300,693)

-

(300,693)

 

 

 

 

90,661

-

90,661

Operating expenses

 

 

 

 

(59,031)

(14,545)

(73,576)

2

 

 

 

31,630

(14,545)

17,085

Share of net loss from associates

 

 

 

 

-

-

-

Finance income

 

 

 

 

328

-

328

Finance costs

 

 

 

 

(1,552)

-

(1,552)

Profit on ordinary activities before taxation

 

 

 

 

30,406

(14,545)

15,861

Taxation

4

 

 

 

(3,504)

2,339

(1,165)

Profit/(loss) for the period attributable to the owners of the parent

 

 

 

 

26,902

(12,206)

14,696

Earnings per share (cents)

 

 

 

 

 

 

 

Basic

5

 

 

 

18.2

 

9.9

Diluted

5

 

 

 

17.3

 

9.5

 

Unaudited consolidated statement of comprehensive income

For the 26 weeks ended 4 October 2020 (26 weeks ended 29 September 2019)

 

 

 

26 weeks to

 5 October

2020

 

26 weeks to

 29 September

2019

(Audited)

53 weeks to

 5 April

2020

 

$'000

$'000

$'000

Profit for the period

15,437

7,754

14,696

 

 

 

 

Items that will not be reclassified subsequently to profit or loss:

 

 

 

Actuarial loss on defined benefit pension schemes

(148)

(488)

(1,343)

Tax relating to items that will not be reclassified

359

-

-

 

211

(488)

(1,343)

Items that may be reclassified subsequently to profit or loss:

 

 

 

Gain/(loss) arising on cash flow hedges during the period

2,067

(771)

(2,266)

Exchange gain/(loss) on translation of foreign operations

2,705

(1,558)

151

Tax relating to items that may be reclassified

(65)

-

-

 

4,707

(2,329)

(2,115)

 

 

 

 

Other comprehensive income/(loss) for the period

4,918

(2,817)

(3,458)

 

Total comprehensive income for the period

20,355

4,937

11,238

 

 

 

 

 

Unaudited consolidated statement of financial position 

As at 4 October 2020 (29 September 2019)

 

 

 

Note

 

4 October

 2020

$'000

 

29 September

 2019

$'000

(Audited)

5 April

2020

$'000

Non-current assets

 

 

 

 

Goodwill

 

26,767

25,751

25,760

Other intangible assets

 

13,842

18,498

15,537

Property, plant and equipment

 

22,577

22,152

21,565

Right of use assets

 

9,381

5,709

8,345

Investments in associates

 

637

-

-

Other receivables

 

4,590

2,829

4,488

Deferred tax asset

 

12,158

3,353

8,955

 

 

89,952

78,292

84,650

Current assets

 

 

 

 

Inventories

 

66,878

54,394

57,995

Trade receivables

 

70,655

76,587

56,382

Other receivables

 

9,158

7,162

7,987

Current tax assets

 

1,908

1,772

2,154

Derivative financial instruments

 

379

-

-

Cash and bank balances

8

34,229

17,880

32,305

 

 

183,207

157,795

156,823

Total assets

 

273,159

236,087

241,473

Current liabilities

 

 

 

 

Borrowings

8

2,198

9,922

225

Trade payables

 

47,914

39,815

39,653

Other payables

 

42,211

35,958

38,453

Current tax liabilities

 

9,193

4,299

8,384

Retirement benefit obligation

 

1,038

989

982

Lease liabilities

 

3,648

3,568

3,498

Provisions

 

929

661

834

Derivatives financial instruments

 

170

393

1,819

 

 

107,301

95,605

93,848

Net current assets

 

75,906

62,190

62,975

Non-current liabilities

 

 

 

 

Borrowings

 

-

38

-

Other payables

 

1,435

1,557

570

Non-current tax liabilities

 

-

1,134

-

Deferred tax liabilities

 

3,032

6,529

6,130

Retirement benefit obligation

 

2,323

1,378

2,492

Lease liabilities

 

8,040

3,715

7,385

Provisions

 

293

263

516

 

 

15,123

14,614

17,093

Total liabilities

 

122,424

110,219

110,941

Net assets

 

150,735

125,868

130,532

 

 

 

 

 

Equity attributable to owners of the parent

 

 

 

 

Share capital

6

60,322

59,566

60,189

Share premium account

 

46,414

46,414

46,414

Non-distributable reserve

 

2,455

2,455

2,455

Hedging and translation reserve

 

(4,799)

(9,720)

(9,506)

Own shares

7

(590)

(1,509)

(1,024)

Retained earnings

 

46,933

28,662

32,004

Total equity

 

150,735

125,868

130,532

 

Unaudited Consolidated Statement of Changes in Equity

For the 26 weeks ended 4 October 2020 (26 weeks ended 29 September 2019)

 

 

Share capital

Share premium account

Non-distribut-able reserves

Hedging and
translation reserve

Own shares

Retained earnings/ (losses)

Total

equity

 

$'000

$'000

$'000

$'000

$'000

$'000

$'000

Balance 31 March 2019

58,792

44,532

2,455

(7,391)

(1,890)

19,150

115,648

Profit for the period attributable to the owners of the parent

-

-

-

-

-

7,754

7,754

Other comprehensive income/ (loss) for the period

-

-

-

(2,329)

-

(488)

(2,817)

Total comprehensive income/ (loss) for the period

-

-

-

(2,329)

-

7,266

4,937

Shares issued

692

1,882

-

-

-

-

2,574

Exercise of deferred bonus shares

82

-

-

-

-

(82)

-

Own shares sold/(utilised) in the period

-

-

-

-

381

(139)

242

Reserve entry for share option charges/(credit)

-

-

-

-

-

2,467

2,467

Balance at 29 September 2019

59,566

46,414

2,455

(9,720)

(1,509)

28,662

125,868

 

 

 

 

 

 

 

 

Balance 5 April 2020

60,189

46,414

2,455

(9,506)

(1,024)

32,004

130,532

Profit for the period attributable to the owners of the parent

-

-

-

-

-

15,437

15,437

Other comprehensive income/ (loss) for the period

-

-

-

4,707

-

211

4,918

Total comprehensive income/ (loss) for the period

-

-

-

4,707

-

15,648

20,355

Exercise of deferred bonus shares

133

-

-

-

-

(133)

-

Own shares sold/(utilised) in the period

-

-

-

-

434

(1,912)

(1,478)

Dividend

-

-

-

-

-

(3,791)

(3,791)

Reserve entry for share option charges/(credit)

-

-

-

-

-

2,911

2,911

Tax effect of share options

-

-

-

-

-

2,206

2,206

Balance at 4 October 2020

60,322

46,414

2,455

(4,799)

(590)

46,933

150,735

 

Unaudited consolidated statement of cash flows

For the 26 weeks ended 4 October 2020 (26 weeks ended 29 September 2019)

 

 

 

 

Notes

 

26 weeks to

 4 October

2020

*RESTATED

26 weeks to

 29 September

2019

(Audited)

53 weeks to

 5 April

2020

 

 

$'000

$'000

$'000

Profit for the period

 

15,437

7,754

14,696

Adjustments for:

 

 

 

 

Finance income

 

(155)

(92)

(328)

Finance costs

 

720

775

1,552

Income tax (income)/expense

 

(1,059)

1,950

1,165

Share of net profit from associates

 

(637)

-

-

Depreciation of property, plant and equipment

 

1,863

1,836

3,643

Depreciation of right-of-use asset

 

1,540

-

2,714

Impairment of right-of-use asset

 

-

-

65

Effects of foreign exchange rate changes

 

-

7

5

Amortisation of intangible assets

 

2,311

2,811

5,749

Loss on disposal of property, plant and equipment

 

47

521

838

Share option charge

 

4,048

2,629

8,737

(Decrease)/increase in provisions

 

(643)

(741)

(1,090)

Operating cash flow before movements in working capital

 

23,472

17,450

37,746

 

 

 

 

 

Decrease/(increase) in inventories

 

(7,506)

1,153

(2,943)

Decrease/(increase) in receivables

 

(13,720)

4,534

20,499

(Decrease)/increase in payables

 

10,178

(6,974)

2,041

Movement in working capital

 

(11,048)

(1,287)

19,597

 

 

 

 

 

Cash generated by operations

 

12,424

16,163

57,343

Cash generated by operations before adjusting items

 

12,614

17,574

58,749

 

Cash utilised by adjusting items

 

(190)

(1,411)

(1,406)

Taxation paid

 

(1,796)

(2,330)

(5,135)

Interest paid

 

(191)

(483)

(473)

Net cash generated from operating activities

 

10,437

13,350

51,735

 

 

 

 

 

Cash flow from investing activities

 

 

 

 

Interest received

 

12

7

22

Acquisition of businesses, net of cash acquired

9

-

(22,701)

(22,701)

Contingent consideration for businesses acquired

 

(1,142)

-

(2,850)

Proceeds on disposal of property, plant and equipment

 

108

177

564

Purchases of property, plant and equipment

 

(2,518)

(1,915)

(4,910)

Purchases of intangible assets 

 

(76)

(7)

(40)

Proceeds from the repayment of preference shares

 

25

-

25

Net cash used in investing activities 

 

(3,591)

(24,439)

(29,890)

 

 

 

 

 

Cash flow before financing activities

 

6,846

(11,089)

(21,845)

Cash (used)/generated before adjusting items

 

7,036

(9,678)

(23,251)

Cash utilised in respect of adjusting items

 

(190)

(1,411)

(1,406)

 

*Restatement: The net purchase of shares for share schemes was reclassified from investing to financing activities to reflect the nature of the transactions. This is consistent with the presentation in the FY2020 financial report.

 

Unaudited consolidated statement of cash flows (continued)

For the 26 weeks ended 4 October 2020 (26 weeks ended 29 September 2019)

 

 

 

 

 

Notes

 

26 weeks to

 4 October

2020

 

* RESTATED

26 weeks to

 29 September

2019

(Audited)

53 weeks to

 5 April

2020

 

 

$'000

$'000

$'000

Cash flow before financing activities

 

6,846

(11,089)

21,845

 

 

 

 

 

Cash flow from financing activities

 

 

 

 

Dividend paid

 

(3,791)

-

(1,956)

Net purchase of shares for share schemes

 

(1,552)

394

(4,634)

New bank loan raised

 

-

7,000

7,000

Other loans

 

2,584

-

-

Repayment of borrowings

 

(43)

(7,097)

(7,056)

Refinancing costs paid

 

-

(592)

(659)

Interest element of lease payments

 

(315)

-

(553)

Payment of lease liabilities

 

(1,948)

(1,257)

(3,150)

Receipt from lease debtor

 

267

-

499

Net cash used in financing activities

8

(4,798)

(1,552)

(10,509)

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

2,048

(12,641)

11,336

 

 

 

 

 

Cash and cash equivalents at beginning of period

8

31,649

20,593

20,593

Effect of foreign exchange rate changes

 

532

(550)

(280)

Cash and cash equivalents at end of period

8

34,229

7,402

31,649

 

 

*Restatement: The net purchase of shares for share schemes was reclassified from investing to financing activities to reflect the nature of the transactions. This is consistent with the presentation in the FY2020 financial report.

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 European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the 53 weeks ended 5 April 2020, which were prepared in accordance with IFRSs as adopted by the European Union.

This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The financial information presented for the 26 weeks ended 4 October 2020 ('H1 FY2021') and the 26 weeks ended 29 September 2019 ('H1 FY2020') has not been reviewed by the auditors. The financial information for the 53 weeks ended 5 April 2020 ('FY 2020') is extracted and abridged from the Group's full accounts for that year. The statutory accounts for FY2020 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 498 of the Companies Act 2006.

The Directors confirm that, to the best of their knowledge, the interim financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union and the AIM Rules for Companies, and that the interim report includes a fair review of the information required. The interim report was approved by the Board of Directors on 11 November 2020.

This interim report can be downloaded or viewed via the Group's website at www.volex.com . Copies of the annual report for the 53 weeks ended 5 April 2020 are available at the Company's registered office at Unit C1 Antura, Bond Close, Basingstoke, Hampshire, England, RG24 8PZ, and can also be downloaded or viewed via the Group's website.

Subsequent to the end of the period, the Group signed a new, three-year $100 million multi-currency revolving credit facility to replace our current $30 million credit facility. The facility has an available limit of $70 million (FY2020: $30 million). The facility consists of a $70m committed facility with a $30m accordion feature and is effective from 12 November 2020. As at 4 October 2020 the Group had net funds of $20.3 million.

The Group's forecast and projections, taking reasonable account of possible changes in trading performance and the cash outflow associated with the acquisition of DEKA, show that the Group should continue to operate with sufficient headroom under the revolving credit facility for the foreseeable future. The Directors believe that the Group is well placed to manage its business within the available facilities. Accordingly, they continue to adopt the going concern basis in preparing these condensed financial statements.

These condensed financial statements have also been prepared using accounting policies consistent with International Financial Reporting Standards as adopted for use in the European Union ('IFRS') and consistent with those disclosed in the annual report and accounts for the year ended 5 April 2020. The only new significant accounting policy relates to the accounting for Government Grants.

 

 

1. Basis of preparation (continued)

In line with IAS20 'Accounting for Government Grants', government grants are recognised when there is reasonable assurance that it will be received and that the Group will comply with the conditions attached to it. Government grants intended to compensate the Group for expenses incurred are deducted from the relevant costs in the income statement on a systematic basis in the same periods in which the expenses are incurred, unless the conditions for receiving the grant are met after the related expenses have been recognised. In this case, the grant is recognised when it becomes receivable. Government grants intended to compensate the Group for the acquisition of an asset are deducted from the acquisition cost of the related asset. This policy has been applied during the period to government incentives in respect of the Suzhou site relocation.

 

Impact of standards issued but not yet applied by the Group

There are no new standards, amendments to standards or interpretations that are expected to have a material impact on the Group's results.

 

 

 

2. Business and geographical segments

Business segments

The internal reporting provided to the Group's Board for the purpose of resource allocation and assessment of Group performance is based upon the nature of products which the Group supplies. As certain sites of the Group become capable of supplying both Power Products and IMS customers we continue to evaluate the best way of segmenting our financial performance. In addition to the operating divisions, a Central division exists to capture all of the corporate costs incurred in supporting the operations.

Division

Description

Power Products (formerly Power Cords)

The sale and manufacture of power cords, duck heads and related products that are sold to manufacturers of a broad range of electrical and electronic devices and appliances. Volex products are used in laptops, PCs, tablets, printers, TVs, games consoles, power tools, kitchen appliances and electric vehicles.

Integrated Manufacturing Services (formerly Complex Assemblies)

The sale and manufacture of higher-level assemblies and connectors (ranging from high-speed copper cables to complex multi-branch high reliability systems) that transfer electronic, radio-frequency and optical data. Volex products are used in a variety of applications including medical equipment, data-networking equipment, data centres, wireless base stations, mobile computing devices, factory automation and vehicle telematics.

Central

Central costs are those that are not directly attributable to the manufacture and sale of the Group's products, but which support the Group in its operations. Included within this division are the costs incurred by the executive management team and the corporate head office.

 

The following is an analysis of the Group's revenues and results by reportable segment.

 

26 weeks to 4 October 2020

26 weeks to 29 September 2019

 

Revenue

$'000

Profit/(loss)

$'000

Revenue

$'000

Profit/(loss)

$'000

 

 

 

 

 

Power Products

87,742

8,471

91,093

7,147

Integrated Manufacturing Services

114,723

15,225

104,613

11,721

Unallocated central costs (excluding share-based payments)

 

(2,888)

 

(2,922)

Divisional results before share-based payments and adjusting items

202,465

20,808

195,706

15,946

Adjusting items

 

(2,454)

 

(2,931)

Share-based payments

 

(4,048)

 

(2,628)

Operating profit

 

14,306

 

10,387

Share of net profit from associates

 

637

 

-

Finance income

 

155

 

93

Finance costs

 

(720)

 

(776)

Profit before tax

 

14,378

 

9,704

Tax

 

1,059

 

(1,950)

Profit after tax

 

15,437

 

7,754

 

 

 

2. Business and geographical segments (continued)

 

 

 

53 weeks to 5 April 2020

 

 

 

Revenue

$'000

Profit/(loss)

$'000

 

 

 

 

 

Power Products

 

 

171,008

14,053

Integrated Manufacturing Services

 

 

220,346

23,341

Unallocated central costs (excluding share-based payments)

-

(5,764)

Divisional results before share-based payments and Adjusting items

 

 

391,354

31,630

Adjusting items

 

 

 

(5,808)

Share-based payments

 

 

 

(8,737)

Operating profit

 

 

 

17,085

Share of net result from associates

 

 

 

-

Finance income

 

 

 

328

Finance costs

 

 

 

(1,552)

Profit before tax

 

 

 

15,861

Tax

 

 

 

(1,165)

Profit after tax

 

 

 

14,696

The accounting policies of the reportable segments are in accordance with the Group's accounting policies.

The adjusting items charge within operating profit for the period of $2,454,000 (H1 FY2020: $2,931,000, FY2020: $5,808,000) was split $190,000 (H1 FY2020: $nil, FY2020: $58,000) to Power Products, $2,264,000 (H1 FY2020: $2,769,000, FY2020: $5,750,000) to IMS and $nil (H1 FY2020: $162,000, FY2020: $nil) to Central.

 

 

Other segmental information

 

Non-current assets

(excluding deferred tax assets)

 

 

26 weeks to

 4 October

2020

$'000

 

26 weeks to

 29 September

2019

$'000

(Audited)

53 weeks to

5 April

2020

$'000

 

26 weeks to

 4 October

2020

$'000

 

26 weeks to

 29 September

2019

$'000

(Audited)

53 weeks to

5 April

2020

$'000

Geographical segments

 

 

 

 

 

Asia

72,704

75,303

140,133

22,869

19,267

21,469

North America

74,538

68,231

145,081

24,715

15,963

25,826

Europe

55,223

52,172

106,140

30,210

39,709

28,400

 

202,465

195,706

391,354

77,794

74,939

75,695

 

 

 

3. Adjusting items and share-based payments

 

 

26 weeks to

 4 October

2020

$'000

 

26 weeks to

 29 September

2019

$'000

(Audited)

53 weeks to

5 April

2020

$'000

Amortisation of acquired intangibles

2,264

2,769

5,652

Acquisition costs

190

162

156

Total adjusting items

2,454

2,931

5,808

Share-based payments charge

4,048

2,628

8,737

Total adjusting items and share-based payments before tax

6,502

5,559

14,545

Adjusting items tax credit

(1,096)

(451)

(2,339)

Adjusting items and share-based payments after tax

5,406

5,108

12,206

 

Adjusting items include costs that are one-off in nature and significant (such as significant restructuring costs, impairment charges or acquisition related costs) and the non-cash amortisation of intangible assets recognised on acquisition.

The adjusting items and share-based payments are included under the statutory classification appropriate to their nature but are separately disclosed on the face of the income statement to assist in understanding the underlying financial performance of the Group.

Associated with the acquisitions, the Group has recognised certain intangible assets related to customer relationships and order backlogs. During H1 FY2021, the amortisation charge on these intangible assets totalled $2,264,000 (FY2020 H1 $2,769,000, FY2020: $5,652,000). The amortisation of these intangibles is non-cash and split between Servatron ($1,151,000), GTK ($535,000), Silcotec ($550,000) and MC Electronics ($28,000).

Acquisition-related costs of $190,000 (FY2020 H1: $162,000, FY2020: $156,000) are related to acquisition of DEKA. These costs cover due diligence and legal fees associated with the transactions. In the prior year, the Group incurred acquisition related costs of $156,000, split between $98,000 for Servatron Inc and $58,000 for Ta Hsing Industries Limited. These costs represented legal fees associated with the transactions.

 

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.

The Group incurred a tax credit of $1.1 million (H1 FY2020: tax charge of $2.0 million), representing an effective tax rate of -7.4% (H1 FY2020: 20.1%). The underlying tax charge of $nil (H1 FY2020: $2.4 million) represents an ETR of 0.2% (H1 FY2020: 15.7%).

An underlying deferred tax credit of $2.9 million (H1 FY2020: charge of $1.2 million) arose due to an increase in the deferred tax asset recognised on trading losses and short-term timing differences due to the utilisation based on future forecast taxable profits in certain regions.

 

 

 

5. Earnings per ordinary share

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

 

 

 

Earnings

 

26 weeks to

4 October

2020

$'000

 

26 weeks to

29 September 2019

$'000

(Audited)

53 weeks to

5 April

2020

$'000

Earnings for the purpose of basic earnings per share

15,437

7,754

14,696

Adjustments for:

 

 

 

Adjusting items

2,454

2,931

5,808

Share-based payments charge

4,048

2,628

8,737

Tax effect of above adjustments and other adjusting item tax movements

(1,096)

(451)

(2,339)

Underlying earnings

20,843

12,862

26,902

 

 

 

 

Weighted average number of ordinary shares

No. shares

No. shares

No. shares

Weighted average number of ordinary shares for the purpose of basic earnings per share

  151,816,604

  146,651,798

148,057,993

Effect of dilutive potential ordinary shares - share options

10,370,884

5,807,934

7,339,875

Weighted average number of ordinary shares for the purpose of diluted earnings per share

162,187,488

  152,459,732

155,397,868

 

Basic earnings per share

Cents

Cents

Cents

Basic earnings per share from continuing operations

10.2

5.3

9.9

Adjustments for: 

 

 

 

Adjusting items

1.6

2.0

3.9

Share-based payments charge

2.6

1.8

6.0

Tax effect of above adjustments and other adjusting items tax movements

(0.7)

(0.3)

(1.6)

Underlying basic earnings per share

13.7

8.8

18.2

 

 

 

 

 

Diluted earnings per share

 

26 weeks to

4 October

 2020

$'000

 

26 weeks to

29 September
2019

$'000

(Audited)

53 weeks to 5 April

2020

$'000

Diluted earnings per share

9.5

5.1

9.5

Adjustments for:

 

 

 

Adjusting items

1.5

2.0

3.7

Share-based payments charge

2.6

1.7

5.6

Tax effect of above adjustments and other adjusting items tax movements

(0.7)

(0.3)

(1.5)

Underlying diluted earnings per share

12.9

8.5

17.3

 

The underlying earnings per share has been calculated on the basis of continuing activities before adjusting items and the share-based payments charge, 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 current and prior period.

 

 

 

6. Share capital

 

 

 

 

 

 

26 weeks to

 4 October 2020

$'000

 

26 weeks to

 29 September 2019

$'000

(Audited)

53 weeks to

5 April

2020

$'000

Issued and fully paid:

152,250,802 (FY2020: 151,818,762) Ordinary shares of 25p each

 

60,322

 

59,566

 

60,189

On 1 July 2020, the Group issued 432,040 shares under the 2019 deferred share bonus plan.

7. Own shares

 

 

 

 

26 weeks to

 4 October 2020

$'000

 

26 weeks to

 29 September 2019

$'000

(Audited)

53 weeks to

5 April

2020

$'000

At the start of the period

1,024

1,890

1,890

Disposed of in the period on exercise of options

(434)

(381)

(2,630)

Purchase of shares

-

-

1,764

At end of the period

590

1,509

1,024

The own shares reserve represents the cost of shares in the Company held by the Volex Group plc Employee Share Trust to satisfy future share option exercises under the Group's share option schemes.

 

On the 29 April 2020, the Trust disposed of 250,000 shares to satisfy the exercise of share options. The number of ordinary shares held by the Volex Group plc Employee Share Trust at 5 October 2020 was 206,576 (H1 FY2020: 1,410,983, FY2020: 456,576).

 

 

8. Analysis of net funds/(debt)

 

 

5 April

2020

$'000

 

New

leases

$'000

 

Cash

flow

$'000

 

Exchange movement $'000

Other

non-cash changes

$'000

 

4 October

2020

$'000

Cash & cash equivalents

31,649

-

2,048

532

-

34,229

Bank loans

(79)

-

42

-

-

(37)

Other loans

-

-

(2,584)

-

-

(2,584)

Debt issue costs

510

-

-

27

(114)

423

Lease liability

(10,883)

(2,555)

2,263

(198)

(315)

(11,688)

Net funds

21,197

(2,555)

1,769

361

(429)

20,343

 

 

 

 

4 October 2020

$'000

29 September 2019

$'000

5 April

2020

$'000

Cash and bank balances

34,229

17,880

32,305

Overdrafts

-

(10,478)

(656)

Cash and cash equivalents

34,229

7,402

31,649

The carrying amount of the Group's financial assets and liabilities is considered to be equivalent to their fair value.

 

9. Related parties

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

The Group has a 26.09% interest in Kepler SignalTek Limited, which is accounted for as an associate. During the period the Group accrued financial income of $97,000 on the preference shares (H1 FY2020: $85,000, FY2020: $196,000). The balance due from the associate as at the period end date was $2,055,000 (H1 FY2020: $1,910,000, FY2020: $1,990,000).

The Group also has a 43% interest in Volex-Jem Co. Ltd. During the period the Group purchased $nil (H1 FY2020: $107,000, FY2020: $116,000) materials from Volex - Jem Cable Precision (Dongguan) Co. Limited, an entity controlled by Volex-Jem Co. Ltd. The balance due to the associates as at the period end was $81,000 (H1 FY2019: $88,000, FY2020: $115,000).

A number of share transactions with Directors have occurred during the period in line with share awards outstanding at the prior year end and as disclosed in the annual accounts for FY2020 and in line with the Director shareholding notices disclosed on the Volex website (www.volex.com).

 

 

 

10. Contingent Liabilities

As a global Group, subsidiary companies, in the normal course of business, engage in significant levels of cross-border trading. The customs, duties and sales tax regulations associated with these transactions are complex and often subject to interpretation. While the Group places considerable emphasis on compliance with such regulations, including appropriate use of external legal advisors, full compliance with all customs, duty and sales tax regulations cannot be guaranteed.

Through the normal course of business, the Group provides manufacturing warranties to its customers and assurances that its products meet the required safety and testing standards. When the Group is notified that there is a fault with one of its products, the Group will provide a rigorous review of the defective product and its associated manufacturing process, and if found at fault and contractually liable will provide for costs associated with recall and repair, as well as rectifying the manufacturing process or seeking recompense from its supplier. The Group does not provide for such costs where fault has not yet been determined and investigations are ongoing.

 

11. Events after the balance sheet date

Effective from the 12 November 2020 the Group signed a new, three-year $100 million multi-currency revolving credit facility to replace the current $30 million credit facility. The facility consists of a $70 million committed facility with a $30 million accordion feature.

On the 12 November 2020 the Company announced the proposed acquisition of the entire issued share capital of De-Ka Elektroteknik Sanayi ve Ticaret Anonim Şirketi ("DEKA"), for a total consideration of up to €61.8 million, on a debt free basis. The Acquisition is expected to close in January 2021, subject to approval by the Turkish Competition Authority and admission of the newly issued shares to trading on AIM.

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