Last checked at 25 Jun 2014 16:04
Volex plc
Publication and posting of Annual Report & Accounts 2014
& 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 & Accounts 2014 (the "Annual Report") and the Notice of Annual General Meeting, which is to be held at 10 Eastbourne Terrace, London W2 6LG on 18 July 2014 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 has also been submitted to the UK Listing Authority's National Storage Mechanism and will shortly be available at www.hemscott.com/nsm.do.
In compliance with the Disclosure and Transparency Rules (DTR) 6.3.5, the following information is extracted from the Annual Report and should be read in conjunction with the Company's Preliminary Announcement issued on 12 June 2014, 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 53 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 Group and Company 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 pages 26 and 27, confirm that, to the best of their knowledge:
● the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit loss of the Group;
● the Strategic Report 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 19 to 22 of the Annual Report.
The table below summarises the Group's principal risks and how they are managed. The Board considers these to be the most significant risks that could materially affect the Group's financial condition, performance, strategies and prospects. The risks listed do not comprise all risks faced by the Group and are not set out in any order of priority. Additional risks not presently known to management, or currently deemed to be less material, may also have an adverse effect on the business.
Risk | Description and possible impact | Mitigation activities |
Revenue | ||
Customer concentration | The Group's profitability, financial condition and future prospects may suffer significantly if it were to lose a material allocation on a key account. A significant proportion of the Group's trading is with a relatively small number of large global accounts. The Group's top ten customers accounted for over 68% of total revenue, mostly prestigious global OEMs. Specifically, the Group's largest customer individually accounted for 23% of total revenue. | The Group continues to develop strategic relationships with its customers and have dedicated account teams responsible for developing alliances. In structuring these account teams Volex attempts to replicate the customers internal organisational structure to ensure effective communication at each level. These account teams may include members of Volex senior management. Key customers may operate within different markets and this diversifies Volex's market risk. Whilst maintaining the current relationships the Group is actively taking steps to diversify its customer base. |
Increased competition | The markets for the Group's products are highly competitive. Pricing pressures and failure to invest in product development and secure cost reductions from suppliers could adversely affect the business. An increase in the products which compete with Volex products could result in the Group suffering price reductions, reduced sales, increased requirements for investment and loss of contracts, which may reduce margins. | The Group recognises that it will need to continue to invest in product development, productivity improvement and customer service and support in order to compete in the markets in which it operates. Whilst broadening the Volex product portfolio and attracting new customers, the Group continually works at reducing costs within its supply chain in order to enable it to compete on price in mature markets. |
People | ||
Staff retention | The Group's strategy is largely dependent on the skills, experience and knowledge of its employees. The inability to retain executive officers and other key employees, or a failure to adequately plan for succession, could negatively impact Group performance. The Group's future success depends on it continuing to attract, develop and retain highly qualified personnel, who are in great demand. | The Group appointed a new Chief Human Resources Officer during the year who is responsible for setting the policies and strategy for people development and retention. The Group's aim is to recruit and retain best-in-class employees and has implemented remuneration and bonus schemes to reflect this. The Group has a formalised objective setting process in place. |
Supply chain/manufacturing | ||
Customer requirements | The Group is affected by customer design changes, customer forecasting, changes in customer manufacturing strategies and customer inventory management initiatives, all of which impact upon customer production schedules and demand for the Group's products.
Flaws in designs or manufacturing processes could result in failure to produce products of the required specification, reliability or quality, and consequently cause delays in shipment and increased costs for product re-work or replacement. | The Group works closely with both its key customers and suppliers. Working with key customers ensures that the Group understands their requirements and develops manufacturing capabilities to meet their needs.
Working with suppliers assists in minimising lead-times and maintaining flexibility in material supplies. |
Manufacturing footprint | The Group operates nine production facilities around the globe. Inefficiencies in the production process could lead to increased cost of sales and decreased margins. The majority of the Group's manufacturing sites are located in China and other developing markets. Changes in labour markets, rapid economic growth and social progress may result in high labour turnover and increases in labour costs. The Group's operations are vulnerable to interruption by natural disasters or other catastrophic events, which could materially disrupt business. | The Group is frequently reviewing the global footprint to ensure that it is located in the most cost effective areas. The current global footprint provides an element of natural diversification against political or geographic disruptions. The Group holds comprehensive insurance covering, amongst other areas, business interruption. |
Supplier base | The Group has a concentrated supplier base. The Group's ability to compete on price is reliant on reducing costs within its supply chain, failure to accomplish this may result in lost opportunities or reduced margins. Interruptions of supplies from the Group's key suppliers could disrupt production and impact the Group's ability to maintain or increase production and sales. Identifying and accessing alternative sources may increase costs of sales. | The Group is working on implementing a strategy of localised multi-sourcing. Part of the VTP includes investment in new roles focusing on procurement and product quality. |
Finance | ||
Commodity pricing | Copper price volatility is the single largest commodity price exposure facing the Group. Many of the Group's products, particularly in the Power division, are manufactured from components that contain significant amounts of copper. Where possible the Group will pass on copper price movements to its customer. However, not all customers accept these pricing changes leaving the Group exposed to the movements in the copper price. | The Group adopts a copper hedging policy which was agreed by the Board and documented in the Group Copper Hedging Policy. This document sets out the guidelines and parameters within which copper hedging contracts are placed. These forward copper purchase contracts extend out 12 months and are refreshed on a rolling monthly basis. To minimise short term volatility, contracts with major suppliers include a clause that ensures that copper prices are fixed based on the average LME rate over the prior period. Customer contracts covering approximately 20% of Power revenues include clauses which ensure that the prices are adjusted on a quarterly basis to align with the changes in supplier contracts. |
Foreign exchange | The Group is subject to currency fluctuations arising on transactional foreign currency exposure in respect of suppliers and customers. Its results are also exposed to the translation of overseas subsidiaries' results, which could cause earnings and balance sheet volatility. The Group's financial results may be adversely affected by fluctuations in the value of the US Dollar against foreign currencies, exchange rate controls, or regulatory restrictions on the transfer of funds. | The Group Treasury Policy Statement sets out procedures on exchange rate risk management. Billing currencies have been adjusted to achieve a higher level of natural hedging where possible. In order to minimise foreign exchange fluctuations in the income statement of the Group, drawdowns on the facility in currencies other than the functional currency of the drawing entity will be treated where possible as a net investment hedge. |
Financial covenants | The financial performance and condition of Volex may be adversely impacted if the Group was to not meet its financial covenants. The Group's $75 million multi-currency revolving credit facility requires a quarterly assessment of the following two covenants (defined in the financial review): ● Leverage covenant ● Interest covenant Failure to meet these covenants would result in an 'Event of Default' which would allow the lender to cancel the facility and request immediate repayment. | The Group maintains an open and transparent dialogue with the facility providers to ensure they are aware of developments in the business. The Group has negotiated with its lenders a revised facility extending to 15 June 2017. The Group's forecasts indicate that it will meet the covenant tests under this facility. If performance was not in line with forecast, the Group has a number of mitigating actions that could be implemented. |
Technology | ||
Technology advancement | The market for the Group's products is affected by changing business conditions and customer requirements. The Group's ability to anticipate changes in technology and customer requirements and to successfully develop and introduce new and enhanced products on a timely basis and to the customer's cost requirement will be significant factors in the Group's ability to grow and to remain competitive. Failure, for technological or other reasons, to develop in a timely manner products incorporating new technologies could have a material adverse effect on the Group's revenues, results of operations and prospects. | The Group's investment in VTP includes a number of key roles that will be responsible for broadening the product portfolio and developing capabilities to produce products that match our customers' requirements for new technology. The Group has processes in place to ensure appropriate scrutiny of proposed investments into R&D and new technology. This ensures that resources are allocated most effectively. |
Regulation | ||
Non-compliance with regulation and legislation | Failure to comply with applicable legal and regulatory requirements may result in financial loss, a restriction on our business's ability to operate or reputational damage. The Group operates in diverse global markets and therefore is exposed to a wide range of legal, fiscal and regulatory frameworks, including employment, tax, environmental and health and safety legislation, along with product liability and contractual risks. In particular, operating within the rapidly evolving developing nations can expose the Group's businesses to significant local risks and challenges. | Whilst striving to recruit and retain people in specialist roles within the Group, where necessary the Group uses external consultants to provide local specialist advice. The Group maintains a number of general compliance policies to ensure compliance with local laws, regulations and standards and any other laws with international reach such as the UK Bribery Act, where relevant. The Volex Code of Business Conduct is communicated across the Group and to external third parties to ensure business is carried out in line with our policies and procedures. |
For further information please contact:
Volex plc
Nick Parker, Chief Financial Officer | +44 20 3370 8830 |
Nicole Pask, Company Secretary | +44 20 3370 8830 |