Last checked at 29 Jun 2016 07:00
29 June 2016
Volex plc
Publication and posting of Annual Report and Accounts 2016
& Notification of Annual General Meeting
Volex plc (the "Company"), the global provider of power and data cabling solutions, announces that it has posted to shareholders its Annual Report and Accounts 2016 (the "Annual Report") and the Notice of Annual General Meeting, which is to be held at Penthouse Suite, Radisson Blu Edwardian Hampshire, 31-36 Leicester Square, London, WC2H 7LH on 26 July 2016 at 10.00 a.m. (the "AGM"), together with a Form of Proxy for use in connection with the AGM.
A copy of the Annual Report and Form of Proxy is available on the Company's website, www.volex.com and will shortly be submitted to the UK Listing Authority's National Storage Mechanism and will then be available at www.hemscott.com/nsm.do.
In compliance with the Disclosure and Transparency Rules (DTR) 6.3.5, the following information is extracted from the Annual Report and should be read in conjunction with the Company's Preliminary Announcement issued on 9 June 2016, both of which can be viewed at www.volex.com. Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service.
This material is not a substitute for reading the Annual Report in full and page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the Annual Report.
Statement of the Directors' responsibilities
The following statement is repeated here solely for the purpose of complying with DTR 6.3.5. This statement relates to, and is extracted from, page 47 of the Annual Report. Responsibility is for the full Annual Report not the extracted information presented in this announcement or the Preliminary Results Announcement.
The Directors of the Company are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and parent Company financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union. In preparing these financial statements, the Directors have also elected to comply with IFRSs, issued by the International Accounting Standards Board ('IASB'). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Company and Group for that period. In preparing these financial statements, the Directors are required to:
· Select suitable accounting policies and then apply them consistently;
· Make judgements and accounting estimates that are reasonable and prudent;
· State whether applicable IFRSs as adopted by the European Union and IFRSs issued by IASB have been followed, subject to any material departures disclosed and explained in the financial statements; and
· Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
Each of the Directors, whose names and functions are listed on page 20 confirm that, to the best of their knowledge:
· The Group and Company financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group;
· The Strategic Report on pages 3 to 19 includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces; and
· The Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's performance, business model and strategy.
Principal Risks
A description of the principal risks that the Company faces is extracted from pages 17 to 18 of the Annual Report.
The table below summarises the Group's principal risks and how they are managed centrally. The Board considers these the most significant risks that could materially affect the Group's financial condition, performance, strategies and prospects. The risks listed do not comprise all risks faced by the Group and are not set out in any order of priority. Additional risks not presently known to management, or currently deemed to be less material, may also have an adverse effect on the business.
Risk | Possible impact | Mitigation activities |
Strategic | ||
Competitor Risk | With the presence of competitors that are vertically integrated, financially stronger and with ability to invest in newer technology and capabilities, the Group is highly susceptible to increased competition and price pressures. The Group's business and future results may be adversely impacted if it is unable to compete adequately and secure new business in the markets in which it operates.
| The Group seeks to remain competitive by focusing on being responsive to our customers and improving the quality, deliveryand reliability of our products. Additionally, the Group monitors competitor activities and trends in the markets on an ongoing basis. During the year, a pilot project on production optimisation and process improvement was initiated with the aim of driving cost reduction and cash generation. The review has proven itself with a renewed focus on quality and inventory control as well as a better understanding of our customers and redefining our supply chain. Along with other streamlining initiatives, the Group is set to be leaner and more efficient.
|
Sales Channel Effectiveness Risk | The Group relies on its direct sales force to drive revenue. Indirect sales channels such as distributors accounted for 1% of total revenue, mainly in the North America region. The potential of effective sales channels may not be fully realised and optimised as the cost of our direct sales force may be prohibitive for smaller customers, in comparison to the cost of a distributor.
| The Group recognises that successful sales channels are critical to drive business growth and boost revenue. Whilst the Group continues to focus on key account management, strengthening strategic partnerships with key customers, it looks to introduce indirect sales channels in the Asia and Greater China regions. This will allow our direct sales force to refocus and reprioritise their time and efforts on key accounts and understanding our customers as the smaller customers are being funnelled through the indirect channels. A new Sales Incentive Plan has been developed to reinvigorate our sales force and support the new sales strategy.
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Customer Concentration Risk | With the Group's top ten customers accounting for 68%(no change from previous year) of total revenue, the Group is exposed to customer concentration risk where its performance, financial condition and future prospects may be significantly impacted if there is a shift in allocation on a key customer account. The Group's largest customer accounted for 26% of total revenue, representing a 1% decrease from the previous year.
| In reality, the Group's key customers operate in different sectors and regions or countries where the risk is diversified across geographical regions mitigating the concentration exposure. The risk of fluctuations in revenues from these customers is further mitigated by strategic relationships through dedicated global key account engagement. Initiatives are in place to align our capabilities and resources with customers' needs and to improve quality systems.
|
Operational | ||
Supplier Dependency Risk | The Group's delivery of the strategy is dependent on the availability and timely receipt of raw materials. As it continues to be heavily reliant on single-source suppliers for key materials or critical components, any disruptions may impact production and the Group's ability to meet customer commitments, win future business or achieve operational results. Disruption to key supplies may be a result of insolvency of the supplier, scarcity of materials or the suppliers' inability to meet our standards such as quality, reliability and cost reductions. In turn, the Group's inability to drive cost reductions may also result in a lack of competitiveness.
| Single-source supplier risks are identified during the year and where operationally feasible, dual sources and local multi-sourcing for key materials and critical components are being developed. Strategic relationships with key suppliers are established to enable flexible sourcing arrangements that are balanced with appropriate levels of inventory. The Group continues to monitor financial and operational viability of key suppliers periodically.
|
Quality Risk | Our customers specify quality, performance and reliability standards. If failure by design or manufacture of our products were to occur, the risk of customers receiving unsafe, faulty or non-performing products is increased. Consequently, the Group may experience delays in shipment and product rework or replacement costs. Subsequent customer complaints, warranty claims and product recall or replacement may result in reputational damage and reduced allocation.
| The Group recognises that the quality of our products is critical. Quality assurance processes are embedded in the entire supply chain and every stage of the manufacturing process across all sites, supporting compliance with safety and customer quality standards. New moulds, tooling and technology are acquired as part of our quality continuous improvement programme to sustain high quality output.
|
Key People | Our customers specify quality, performance and reliability standards. If failure by design or manufacture of our products were to occur, the risk of customers receiving unsafe, faulty or non-performing products is increased. Consequently, the Group may experience delays in shipment and product rework or replacement costs. Subsequent customer complaints, warranty claims and product recall or replacement may result in reputational damage and reduced allocation.
| The Group recognises that the quality of our products is critical. Quality assurance processes are embedded in the entire supply chain and every stage of the manufacturing process across all sites, supporting compliance with safety and customer quality standards. New moulds, tooling and technology are acquired as part of our quality continuous improvement programme to sustain high quality output.
|
Compliance | ||
Legal and Regulatory Compliance Risk | The Group is subject to diverse laws and regulations in the global markets in which it operates, particularly in certain territories where the risk is elevated due to jurisdictions with immature business practices and/or systems. The areas include but are not limited to those related to product safety, environmental, health and safety, export controls or customs, tax laws and anti-bribery and corruption. Non-compliance with legislation or other regulatory requirements may compromise the Group's ability to conduct business in certain jurisdictions. They may expose the Group to potential reputational damage, financial penalties and/or suspension of business activities, any of which could have a material adverse effect.
| The Group takes an uncompromising approach towards non- compliance. The Group's Code of Conduct provides a framework to general compliance and governance policies that have been established to ensure compliance with laws, regulations and standards. The Group continually monitors developments in applicable laws and regulations in the jurisdictions in which it operates and external advice is sought where necessary. Regular monitoring programmes are in place at all sites to enable continuous improvement.
|
Financial | ||
Going Concern | The Group has a $45 million multi-currency revolving credit facility extended to June 2018. The facility is subject to a quarterly assessment of two financial covenants, namely the leverage covenant and interest covenant. Whilst the Group's forecasts have indicated that both covenants will be met, any unforeseen downturn may result in failure to meet the covenant test. Consequently, this may result in an 'event of default' where immediate repayment is requested.
| The Group reviews its performance against budget to ensure that funding is balanced against economic results. The Group continues to maintain an open and transparent dialogue with the facility providers to ensure that they are well aware of the developments in the business. The Group's forecasts indicate that it will meet the covenant tests under the facility. If performance is not in line with the forecast, the Group has a number of mitigating actions that can be implemented.
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Copper Price Volatility Risk | Many of the Group's products, in particular power cords, are manufactured from wire components that contain significant amounts of copper. Wire components accounted for 46% of the Group's purchases for the year. As copper price volatility is the single largest commodity price exposure facing the Group and driven by market volatility, failure to manage copper prices may result in erosion of profit margins and loss of competitive advantage. Whilst copper price movements are passed on to customers, delays in passing through the costs may create short term volatility in the Group's gross margins.
| Copper price movements are continuously monitored and where appropriate, are reflected in the pricing of our products. Whilst copper prices are fixed quarterly with major suppliers based on average LME rate over the prior quarter, 40% of our revenues are covered by copper clauses which provide for quarterly adjustments to our selling prices based on our material costs. The Group maintains forward copper purchase contracts extending out twelve months and are refreshed on a rolling monthly basis.
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For further information please contact:
Volex plc
Daren Morris, Chief Financial Officer and Company Secretary +44 (0)20 3370 8830