Last checked at 1 Jun 2009 07:00
VOLEX GROUP PLC
Preliminary Announcement of the Group Results for the Financial Year ended 5 April 2009
Volex Group plc, the global electrical and electronics cable assemblies group today announces its preliminary results for financial year ended 5 April 2009:
Operational Highlights
New experienced management appointed, including new Chief Executive and new Group Finance Director.
Disposed of loss-making Wiring Harness division, resulting in a largely non-cash loss on disposal of £14.4m.
Significant progress in increasing the proportion of Volex designed product within sales.
Completed the closure of the Hermosillo and Kanata sites.
Financial Highlights
Lloyds and HBOS banking facilities extended to 2012 on competitive terms.
Revenues from continuing operations up 19% at £265.1m (2% at constant exchange rates) - comprising 11% increase in Power Product sales to £150.7m and a 31% in Interconnect sales to £114.4m.
Adjusted operating profits(1) from continuing operations increased 53% to £11.2m from £7.3m driven by higher revenues and increased margins.
Cash generated by operations before non-recurring items of £21.8m compared to a cash out flow of £2.2m in the previous year.
Net borrowings reduced by 30% from £21.0m to £14.8m.
Outlook/Strategic Objectives
The Power Products and Interconnect businesses continue to be profitable and cash generative.
Driving global synergies to effect purchasing economies of scale, optimise our global supply chain and manufacturing footprint and accelerate product development lifecycles.
Restructuring the sales organisation to improve global account relationships, increase industry segment expertise and enhance customer acquisition capabilities.
Developing our skill, processes and systems to enhance executional competencies and improve our visibility and control of the business.
We expect the 2010 financial year profits to be broadly in line with 2009.
(1) before non-recurring items and share based payments, see note 3.
The Chairman of Volex, Mike McTighe commented:
"This past year has seen significant success in restructuring and repositioning the business.
We have made good progress in rebuilding the fundamentals of the company. This coming period will be one where we implement very necessary improvements in skills, processes, and systems to ensure we have a solid foundation for future growth. Your Board and executive team are very excited about the prospects for the Group but remain acutely aware of just how much remains to be done."
Ends
For further information please contact:
| Volex Group PLC | |
| Ray Walsh Group Chief Executive | 07775 602577 |
| Andrew Cherry Finance Director | 07801 233366 |
| Weber Shandwick Financial | 020 7067 0700 |
| Terry Garrett / Nick Dibden / James White / Katie Matthews |
CHAIRMAN'S STATEMENT
Dear Shareholder
This past year has seen significant success in restructuring and repositioning the business.
The disposal of the Wiring Harness division after years of losses and unsuccessful attempts to turn it around is a major milestone. While we pursued a potential disposal of the Power Products business in order to facilitate the deleveraging of the Group, this was ultimately deemed not to be in the best interests of the shareholders and we are now working to maximise the combined strengths of the ongoing Power Product and Interconnect businesses.
As testimony to these strengths we were able to renew and extend our banking relationship with Lloyds Banking Group plc. In addition we have appointed a new Chief Executive and a new Group Finance Director. At the same time we bid farewell to Bill Taylor, our former VP Global Operations who led the MBO of the Wiring Harness division.
In line with my stated objectives in last year's statement:
| 1. | We have consolidated our market leading position in Power Products. |
| 2. | We effected a modest improvement in operating profit margins (although much remains to be done in this area) which combined with greatly improved working capital management has yielded cash generated by operations before non-recurring items of £21.8m compared to a prior year cash outflow of £2.2m. |
| 3. | We have made operational improvements, including completing the closures of our Hermosillo and Kanata factories, and further rationalised the manufacturing footprint with the recent closure of the Jakarta factory. We recognise that there is more work to be done here especially in the area of supply chain management. |
| 4. | We saw progress in respect of new and exciting technology markets. We have secured certification for Volex connectors with a number of key global accounts and expect that the year ahead will bear significant fruit from the Group's investments in developing high speed copper cable products. |
The net effect of the above developments has been:
The risk profile of the Group has been significantly improved.
Our focus is now on driving improved performance across the full range of the Group's Power and Interconnect products with both divisions now growing and being profitable and cash generative.
Our major stakeholders - shareholders, banking partners, customers and employees - are much more confident in the future prospects of the business.
In addition, new experienced management is in place to drive sustainable profitable growth.
In summary, we have made good progress this past year in rebuilding the fundamentals of the Company. This coming period will be one where we implement very necessary improvements in skills, processes and systems to ensure we have a solid foundation for future growth. Your Board and executive team are very excited about the prospects for the Group but remain acutely aware of just how much remains to be done.
If you have any comments on this letter or any aspect of the 2009 Annual Report, I would be delighted to hear from you by either writing to me at Volex or by email at mike.mctighe@volex.com.
Yours sincerely
Mike McTighe
Chairman
BUSINESS REVIEW
Stabilised business
The past year for Volex has been focused on restructuring and stabilisation of the business in preparation for a more robust, market focused strategy of profitable and sustainable growth. A number of restructuring activities have been completed in the last year which mainly involved the consolidation and optimisation of the manufacturing footprint. The Group has also completed the divestment of its loss making and cash consumptive Wiring Harness business. These actions paved the way to a renegotiated and extended three year banking facility, which will provide significant flexibility to the Group in daily operating activities and in implementing further changes to enhance the Volex value proposition and market placement.
In the last two quarters of the year Volex was impacted by the deepening economic recession with reduced order volumes and a sharp decrease in order lead times as our customers focused on inventory minimisation. The contraction in consumer and business spending resulted in a decrease in demand for our Power products and we saw a quarter over quarter reduction in revenue in our Power Product division of -14% in Q3 and -16% in Q4. In our Interconnect division we saw quarter over quarter revenue growth of 1% in Q3 and 14% in Q4. Despite these challenges, steady focus on costs during this period resulted in Volex meeting profitability and cash flow forecasts.
Looking forward - market focus and operational optimisation
Volex proudly serves a broad range of strategic accounts and will continue to focus on how the Group can introduce our full scope of products and capabilities across these enterprises. We will increasingly focus on expansion in the key emerging markets in China, the broader Asian markets and India where significant technology introductions and highly competitive OEM companies present significant opportunities for Volex products. In the past year our Interconnect sales in India, where we are supplying critical infrastructure components in mobile network implementations, grew year over year by 265% to £25.5m. We have also managed to expand the range of our products used in these projects based on our strategic positioning in the segment.
Our tasks in the next year will include structured planning and execution of new and improved Group wide standard processes and supporting systems, which will enhance visibility and control of the broader business. This will involve changes across the enterprise in the way we approach sales and marketing, optimising our manufacturing footprint and global supply chain management whilst focusing our engineering talent to develop new products that deliver improved margins on product lifecycle. All of this will be underpinned by a focus on aptitude in the senior management team and where required, attraction of world-class talent to drive the execution of these strategies.
We begin the new fiscal year with a new senior leadership team who were recruited specifically for, and tasked with, taking the now stabilised business on a path toward functional scalability and growth.
Volex operates eight manufacturing facilities across the globe. This sizable footprint provides Volex with the advantage of a natural hedge compared to many of our competitors by being able to purchase materials and use local labour to manufacture and sell locally in the local currency. However, we recognise that this advantage can come at the cost of sub-scale operations, remote management and underutilised floor space. Although the Group consolidated a number of facilities in the past year, we will continue to evaluate the manufacturing footprint with more focus on the optimisation of where specific products are manufactured, utilising local sourcing and labour costs, against shipping time and costs. We believe that Volex has a unique ability to leverage the existing manufacturing base to meet our customers' demands with either localised supply of finished goods with associated short lead times or lower cost, remote manufacturing solutions with longer lead times.
Our distributed manufacturing base is not currently covered by a rigid, global supply chain process and accompanying systems. Each region has developed strategic and commercial relationships with key suppliers for their respective production requirements. In the coming year our objective will be to reduce our supplier base of material and component vendors to consolidate purchases, streamline our inventory control and use our scale in purchasing power to negotiate better prices and terms. Through these efforts and achieving better scale in total revenue, we intend to move Volex from current cost of sales of 85% closer to our peer group performance averages in the 75% range and also see an improvement in our working capital requirements through reduced levels of inventory holding.
Volex intends to maintain its low capital expenditure rates through continued focus on product development activities that result in rapid realisation of revenue at acceptable margins. Compared to our industry peer group, we will continue to spend less than 25% of the industry average on capital expenditures relative to revenues. Operationally, we will similarly target capital in manufacturing automation where Volex can recognise a fast return on the investment in reduced labour costs and/or an increase in the quality of the product; which is a key differentiator for our brand and products. By targeting specific product groups, focusing our engineering resources toward optimised manufacturing processes and through building increasingly closer relationships with our customer design and engineering teams, Volex distinguishes itself from competitors who attack the market on a commodity basis. We will continue to secure intellectual property as a result of these investments and we currently have one patent submission in the process of being approved.
We will be implementing a revised sales structure this year that will enhance our capabilities towards key market sectors including the Consumer, Datacoms, Healthcare, Telecoms and Industrial solutions. Through this market solutions focus, we will be targeting and penetrating accounts with a strategic value proposition, together with further alignment of our product development activities with key customer strategies and industry trends. We intend this focus to move Volex, in many cases, from a supplier to a strategic solutions provider by which we selectively develop and sell products at the early stage of the product lifecycle at optimal margin attainment. Through this shift in strategy we will witness greater assimilation across our product base with our customers.
We are very encouraged as we enter the new fiscal year with indications of a bottoming in demand for our Power products and a solid order book across the globe for our Interconnect products. We have recently penetrated key service and OEM providers from the Chinese markets for deployments on a global scale and are playing an increasingly significant and important role in data and wireless network expansions across India; all whilst retaining our unique and strategic relationships with key North American and European OEMs and service providers. We are hopeful that the current economic issues will begin to clear in the latter quarters of the year when many of our optimisation activities will be implemented to support significant, profitable growth. At the same time, we continue to evaluate all components of our cost base to deliver better contribution margins and to be prepared for a longer duration economic downturn. We are taking the view that the coming year will continue to present significant challenges on the macro-economic front whilst our more market focused and strategic penetration of key accounts will provide for consistent, longer term growth. Based on these assumptions the Group is expecting profits for the 2010 financial year to be broadly in line with 2009.
The entire Volex team is proud to serve under a brand that stands for quality and value and we are all focused on continuing to deliver on this heritage.
FINANCIAL REVIEW
Trading performance of ongoing operations
The financial year ending 5 April 2009 demonstrated significant improvement over the prior year.
Revenues
Revenues from continuing operations were up 19% at £265.1m (up 16% on a pro-rated 52 week basis) and were displaying a strong upwards trajectory prior to the Lehman episode in September 2008 (end of H1 2009) whereby full year growth would have been significantly greater had it not been for the deteriorating economic backdrop. Currency movements, in particular the depreciation of Sterling against the US Dollar and the Euro, benefited the group by £36.9m. On a constant currency basis revenues were up 2%.
The Interconnect business has continued to grow, with sales moving from £87.1m to £114.4m despite the economic situation and despite the group discontinuing product lines which were deemed to be yielding unsatisfactory margins. This growth has been driven by advances in the Indian and Chinese markets, with our revenues in India in particular growing over three fold during the year and now representing 8% of total group sales.
Power Products displayed strong growth in the first half of the year with sales up 22% year on year. However, volumes declined in the latter half of the year in line with falling sales of consumer electrical and electronic goods. Despite this the division still posted full year revenues of £150.7m, up 11% on prior year. The declines experienced in the latter half of the year seem to have stabilised during the three months of the final quarter and we are hopeful that the 2010 financial year will see a return to growth.
The Group has continued the trend of recent years of manufacturing becoming increasingly concentrated in Asia with 60% of total group revenues sourced from the region (2008: 55%). However, the Group continues to enjoy strong sales into each of the three major continents with year on year revenue growth in each of Asia, the Americas and the UK & Europe.
Profits
Gross margins in the Power Products business are typically around 10 - 15% and within Interconnect are typically 15 - 20% . Given the 57%:43% split of full year revenues between the two divisions, this resulted in a blended gross margin of 15%. We believe that this percentage will increase in the coming years as a result of the Interconnect business increasing as a percentage of the total Group and also improving margins in Interconnect as a result of the increased proportion of Volex designed content.
The level of Group half yearly operating profits has increased significantly during the year after declines during the second half of 2008. On a full year basis operating profit before non-recurring items and share based payments increased from £7.3m to £11.2m due in part to higher revenues but with the majority of the increase driven by improving operating margins, which rose by 1.1% from 3.1% to 4.2%.
Non-trading items
The Group incurred three non-recurring items which, together with a share based payments credit of £0.1m, reconcile between the £11.2m noted above and the Operating profit of £6.6m:
a £3m provision for an onerous lease arising on the disposal of the discontinued Wiring Harness operations;
£1m of costs associated with the efforts to dispose of the Power Products division; and
a £0.7m provision relating to costs associated with the restructuring of the corporate management team.
Research & development and capital expenditures
Group expenditure on research & development totalled £1.7m during the year (2008: £1.1m). This is a lower level of expenditure relative to revenues than many of our competitors. This is in part due to the Group's greater focus on service quality. The year on year increase reflects a greater emphasis on Volex developed content. The level of expenditure may increase marginally as the Group continues this strategy.
Additions to property, plant and equipment were consistent with prior years at £2.0m (2008 £1.7m).
Harnesses discontinued business
Volex sold its Wiring Harness division with effect from 3 April 2009. This division had represented the Group's only remaining manufacturing operation in the UK and had been loss making for several years. Despite continued efforts, including the relocation of manufacturing to Estonia and Croatia, the profitability continued to deteriorate with losses before tax for the period ended 3 April 2009 of £6.7m (2008: £3.0m loss). In addition to the trading losses the Group incurred a further non-cash loss of £14.4m, being the proceeds of disposal less the carrying amount of the division's net attributable assets. Further details of the transaction are contained within the Circular to Shareholders issued on 16 March 2009 and available at www.volex.com.
Cashflows and working capital
The Group was extremely successful during the year with cash generated by operations before non-recurring items of £21.8m compared to a cash outflow of £2.2m in the previous year. The majority of this £23.9m improvement came through a £23.0m reduction in working capital.
After modest increases in tax payments and outflows related to non-recurring items this resulted in Net cash inflow from operating activities of £13.4m (2008: £8.7m outflow). There has been a steady period on period improvement in cashflow performance.
Banking facilities
The Group has US$76.0m available under a revolving credit facility with Lloyds Banking Group plc which after amortisation had an available limit of US$62.7m as at 5 April 2009, comprising both a US Dollar and a Euro component. At the year end the amounts drawn under this facility were US$30.7m and €13.5m. The US Dollar amount drawn has not changed since November 2008 and the Euro drawing is unchanged throughout the year. The average combined utilisation during the year was US$50.9m. In addition, the Group has a €6.8m facility with HBOS plc. At 5 April 2009 the Group had undrawn committed borrowing facilities of £14.7m (2008: £8.1m).
The Lloyds facility had been due to mature in December 2009. However, in February 2009 the Group secured a three year extension of this facility to March 2012. As detailed in note 7, the terms of this extension are broadly consistent with the pre-existing facility save for small increases in the margin over LIBOR to reflect current market rates. As part of the facility extension the Group negotiated an amortisation holiday under which the available facility does not reduce until March 2010. At the same time the Group extended the HBOS facility to the same March 2012 maturity date. Based on the Group's projected financial performance the Board is confident that the combination of the above facilities provides adequate liquidity headroom for the successful execution of the Group's operations.
The extended Lloyds facility simplified the covenant structure under which the Group was operating, from a set of four profit and cashflow covenants to a single leverage ratio being the ratio of Adjusted Net Debt to Adjusted EBIT (where Adjusted Net Debt is the average balance over the preceding three month ends discounted for cash balances held outside of the UK and Adjusted EBIT is calculated on a rolling twelve month basis after adjustment for customary items including agreed non-recurring items). Based on the Group's projected financial performance the Board is confident that the Group will be able to operate in compliance with its agreed covenant levels.
Debt, gearing and interest
Borrowings increased by £6.4m from £25.3m to £31.7m during the year. However, the underlying US Dollar and Euro denominated borrowings were essentially unchanged with all of the movement in Sterling terms accounted for by the movement in the year end exchange rates with Sterling depreciating from US$2.01 to US$1.47 and from €1.27 to €1.10. This effect has been partially offset by favourable exchange movements on foreign currency cash balances of £1.9m, giving a net adverse exchange movement on net debt of £5.6m.
Without this adverse exchange movement reducing the impact of the strong operating cashflows net debt would have reduced further.
Shareholders' funds reduced during the year from £22.6m to £6.3m primarily due to the £21.0m loss incurred by the Wiring Harness division. As a result, the headline year-end gearing of net debt to shareholders funds increased to 236% (2008: 93%).
Interest costs increased marginally during the year from £2.3m to £2.7m due to higher average net debt balances during the year, despite a reduction in the weighted average interest rate from 6.2% to 5.9%.
Tax
The Group incurred a tax charge of £2.0m (2008: £2.5m) representing an effective tax rate of 56% (2008: 117%). The high effective rates result from the distribution of taxable profits across different jurisdictions with taxes payable in some jurisdictions but no offsetting reduction in tax within other loss making jurisdictions.
The Group has unused tax losses of £46m (2008: £37m) available for offset against future profits. No deferred tax asset has been recognised in respect of these losses due to the unpredictability of future profit streams. However, the Group expects that significant value to be realised for these assets in due course.
Earnings per share
There was a basic loss per share of 34.1p (2008: 6.0p loss). Adjusted earnings per share was 3.9p (2008: loss per share of 1.5p), see note 5.
Dividends
The Company has negative retained earnings of £25.8m and accordingly is unable to declare and pay a dividend.
Defined benefit pension schemes
The Group's net pension deficit under IAS 19 at the year end was substantially unchanged at £1.8m (2008: £1.7m). While the fair value of the scheme assets diminished during the period from £11.5m to £9.2m, the present value of the defined benefit obligations fell by a similar amount from £13.2m to £11.1m.
Principal risks and uncertainties
Customer concentration
The largest customer of the Group operates in the wireless infrastructure sector and represents 13% of total Group revenues. Indeed around two thirds of total Group revenue is generated by the Group's top 25 customers, mostly prestigious global OEMs. The Group continues to mitigate the risk of fluctuations in the revenues from these customers through closer relations with individual customers while diversifying into other customers and market segments.
Counter party risk
The Group regularly reviews the credit worthiness of all customers and operates appropriate credit limits to limit the exposure to any given customer. During the year the Group has incurred write-offs of £0.9m relating to amounts due from Nortel and LDV.
The Group is also dependent upon a limited number of suppliers, particularly in respect of cable materials. However, the Board believes that in the event of one of these suppliers failing to honour its obligations to the Group that alternative sources of supply could be engaged without substantial disruption to the business nor any material financial loss.
Commodity prices
Many of the Group's products, in particular within the Power Products division, are manufactured from components that contain significant proportions of copper and to a lesser extent other precious metals and oil based products such as PVC. Increases in the prices of these commodities are reflected in the price charged to our customers but delays in passing through these prices changes can cause short term volatility in the Group's gross margins and working capital requirements.
The Group was adversely impacted in the first quarter of 2009 by sharp price increases during Q4 2008 and delays in passing through these price increases to our end customers. From July through to December prices fell sharply producing the reverse effect.
The Board regularly reviews the prices of these commodities and effects a number of measures to mitigate the impact of excessive volatility.
Foreign exchange
A substantial portion of the Group's revenues and expenditures are denominated in
US Dollars and Euros. During the financial year Sterling devalued by 27% against the US Dollar and by 14% against the Euro.
The Group's costs are broadly denominated in the equivalent currencies in which it generates the associated revenues. For example, the majority of Euro denominated revenues are serviced from locations where the costs are incurred in Euros or Euro related currencies and likewise for the US Dollar. As such there is no significant trading advantage or disadvantage resulting from these currency movements.
The main impact of these movements is to increase the Sterling value of foreign currency denominated items in the consolidated Income Statement, which serves to increase profits, and to increase the Sterling value of the US Dollar and Euro denominated balance sheet items, most notably the US Dollar and Euro denominated borrowings. To this extent there is essentially a natural hedge through the foreign currency denominated borrowings.
Key performance indicators
The metrics discussed above represent the key performance indicators monitored by the management and Board.
Going concern
As discussed further in note 1, after making enquiries, the directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Group has resources to continue in operational existence for the foreseeable future. For this reason the directors continue to adopt the going concern basis in preparing the financial statements.
Directors' responsibility statements
The Directors' Responsibility Statement has been prepared in connection with the full Financial Statements, Business and Financial Review and Directors' Report as included in the Annual Report and Accounts 2009. Therefore certain notes and parts of the Directors' Report reported on are not included within this release.
"We confirm to the best of our knowledge:
"1. the Financial Statements prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
"2. the management report, which is incorporated in the Directors' Report includes a fair review of the development and performance of the position of the Company and undertakings included in consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.
By order of the Board "
2009 Annual Report and Accounts
The 2009 Annual Report and Accounts will be available on the Company's website, www.volex.com
| Consolidated Income Statement | |||
| For the 53 weeks ended 5 April 2009 (52 weeks ended 30 March 2008) | |||
| Notes | 2009 £'000 | 2008 £'000 | |
| Continuing operations | |||
| Revenue | 2 | 265,116 | 223,426 |
| Operating profit | 6,567 | 4,794 | |
| Analysed as: | |||
| Operating profit before non recurring items and share based payments | 11,175 | 7,338 | |
| Provision for onerous lease arising on disposal of discontinued operations | 3 | (3,000) | - |
| Aborted disposal costs | 3 | (1,020) | - |
| Corporate management restructuring | 3 | (720) | - |
| Major restructuring programme charge | - | (2,676) | |
| Share based payments credit | 132 | 132 | |
| Operating profit / (loss) | 6,567 | 4,794 | |
| Investment income | 226 | 205 | |
| Finance costs | |||
| - Interest | (2,690) | (2,332) | |
| - Amortisation of debt issue costs | (520) | (520) | |
| (3,210) | (2,852) | ||
| Profit on ordinary activities before taxation | 3,583 | 2,147 | |
| Taxation | 4 | (1,991) | (2,530) |
| Profit / (loss) for the period from continuing operations | 1,592 | (383) | |
| Discontinued operations | |||
| Loss for the period from discontinued operations | (20,976) | (3,000) | |
| Loss for the period, being the retained loss for the year attributable to equity holders of the parent | (19,384) | (3,383) | |
| Earnings / (loss) per share (pence)* | |||
| From continuing operations | |||
| Basic and diluted | 5 | 2.8 | (0.7) |
| From continuing and discontinued operations | |||
| Basic and diluted | 5 | (34.1) | (6.0) |
* Earnings per share before non recurring items, loss on disposal and share based payments is shown in note 5
| Consolidated Statement of Recognised Income and Expense | |||
| For the 53 weeks ended 5 April 2009 (52 weeks ended 30 March 2008) | |||
| 2009 £'000 | 2008 £'000 | ||
| Losses on hedge if net investments taken to equity | (5,554) | (3,354) | |
| Exchange differences on translation of foreign operations | 8,948 | 2,513 | |
| Actuarial (loss) / gain on defined benefit pension schemes | (285) | 776 | |
| Net expense income/(expense) recognised directly in equity | 3,109 | (65) | |
| Loss for the year | (19,384) | (3,383) | |
| Total recognised net expense for the year | (16,275) | (3,448) | |
| Consolidated Balance Sheet | |||
| As at 5 April 2009 (As at 30 March 2008) | |||
| Notes | 2009 £'000 | 2008 £'000 | |
| Non-current assets | |||
| Goodwill | 1,930 | 1,930 | |
| Other intangible assets | 566 | 261 | |
| Property, plant and equipment | 8,040 | 7,784 | |
| Deferred tax asset | 692 | 312 | |
| 11,228 | 10,287 | ||
| Current assets | |||
| Inventories | 24,135 | 35,050 | |
| Trade and other receivables | 59,751 | 63,876 | |
| Current tax assets | 56 | 353 | |
| Cash and cash equivalents | 16,877 | 4,317 | |
| 100,819 | 103,596 | ||
| Total assets | 112,047 | 113,883 | |
| Current liabilities | |||
| Obligations under finance leases | 2 | 44 | |
| Trade and other payables | 56,332 | 52,367 | |
| Current tax liabilities | 5,842 | 4,343 | |
| Retirement benefit obligation | 153 | 149 | |
| Provisions | 3,735 | 3,359 | |
| Liability for share based payments | 14 | 214 | |
| Derivative financial instruments | 248 | - | |
| 66,326 | 60,476 | ||
| Net current assets | 34,493 | 43,120 | |
| Non-current liabilities | |||
| Bank overdrafts and loans | 31,662 | 25,283 | |
| Trade and other payables | 631 | - | |
| Deferred tax liabilities | - | 118 | |
| Retirement benefit obligation | 1,683 | 1,513 | |
| Long-term provisions | 5,396 | 3,773 | |
| Non-equity preference shares | 80 | 80 | |
| Liability for share based payments | - | 4 | |
| 39,452 | 30,771 | ||
| Total liabilities | 105,778 | 91,247 | |
| Net assets | 6,269 | 22,636 | |
| Equity attributable to equity holders of the parent | |||
| Share capital | 8 | 14,205 | 14,205 |
| Share premium account | 8 | 1,357 | 1,357 |
| Hedging and translation reserve | 8 | 1,533 | (1,861) |
| Merger reserve | 8 | - | - |
| Retained earnings | 8 | (10,826) | 8,935 |
| Total equity | 6,269 | 22,636 | |
| Consolidated Cash Flow Statement | |||
| For the 53 weeks ended 5 April 2009 (52 weeks ended 30 March 2008) | |||
| Notes | 2009 £'000 | 2008 £'000 | |
| Net cash inflow / (outflow) from operating activities | 10 | 13,359 | (8,654) |
| Cash flows from investing activities | |||
| Interest received | 226 | 205 | |
| Proceeds on disposal of property, plant & equipment | 283 | 242 | |
| Purchases of property, plant & equipment | (2,016) | (1,712) | |
| Purchases of intangible assets | (418) | (289) | |
| Cash utilised on disposal of operations | (762) | - | |
| Net cash used in investing activities | (2,687) | (1,554) | |
| Cash flows before financing activities | 10,672 | (10,208) | |
| Cash generated/(utilized) before non-recurring items | 15,966 | (6,321) | |
| Cash utilised on disposal of operations | (762) | - | |
| Cash utilised by non-recurring items | (4,532) | (3,887) | |
| Cash flows before financing activities | 10,672 | (10,208) | |
| Cash flows from financing activities | |||
| Net proceeds from issue of share capital | - | 138 | |
| Repayments of borrowings | (49,038) | (18,823) | |
| New bank loans raised | 49,038 | 20,410 | |
| Decrease in bank overdrafts | - | (30) | |
| Repayments of obligations under finance leases | (42) | (52) | |
| Net cash (used in) / from financing activities | (42) | 1,643 | |
| Net increase/(decrease) in cash and cash equivalents | 9 | 10,630 | (8,565) |
| Cash and cash equivalents at beginning of period | 9 | 4,317 | 12,235 |
| Effect of foreign exchange rate changes | 9 | 1,930 | 647 |
| Cash and cash equivalents at end of period | 9 | 16,877 | 4,317 |
1. Basis of preparation
The financial information has been prepared based on the Company's financial statements which are prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted for use in the EU and in accordance with those accounting policies disclosed in the Group's last published financial statements for the 52 weeks ended 30 March 2008.
The information contained in this preliminary announcement for the 53 weeks ended 5 April 2009 does not constitute the statutory accounts within the meaning of section 240 of the Companies Act 1985 but has been extracted from those accounts. The statutory financial statements for the 52 weeks ended 30 March 2008 have been delivered to the Registrar of Companies for England and Wales and those for the 53 weeks ended 5 April 2009 will be delivered following the Company's Annual General Meeting. The auditors' report on those accounts; their reports were unqualified, did not draw attention to any matter by way of emphasis without qualifying the report and did not contain any statements under Section 237(2) or (3) of the Companies Act 1985.
Going concern
As highlighted in note 7, the group meets its day to day working capital requirements through a revolving credit facility which has recently been renewed until December 2012.
The group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the group should be able to operate within the level of its current facility. The Group has access to additional undrawn committed facilities together with long established contracts with a number of customers and suppliers across different geographic areas and industries. As a consequence, the directors believe that the group is well placed to manage its business risks successfully despite the current uncertain economic outlook.
After making enquiries, the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.
This preliminary announcement was approved by the Board of Directors on 1 June 2009.
2. Business and geographical segments
| The Group's revenue predominantly relates to the sale of goods. Follow the disposal of the Wiring Harness Division on 3 April 2009, the Group is organised for management purposes as two operating divisions - Power Products and Interconnect. 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. | ||
| Revenue | 2009 £'000 | 2008 £'000 |
| Continuing operations | ||
| Power Products | 150,680 | 136,312 |
| Interconnect | 114,436 | 87,114 |
| 265,116 | 223,426 | |
| Discontinued Operations | ||
| Wiring Harness | 37,704 | 36,339 |
| 302,820 | 259,765 | |
| Following the disposal of the Wiring Harness Division the segmental operating results of the Group for 2008 have been restated in accordance with IFRS 5 Non-current assets held for sale and discontinued operations. Corporate overhead costs previously included within the results of the Wiring Harness Division have been reallocated to the Power Products and Interconnect segments on the basis of external revenues. | ||
| Operating profit / (loss) before non recurring items and share based payments | 2009 £'000 | 2008 £'000 (restated) |
| Continuing operations | ||
| Power Products | 6,014 | 8,280 |
| Interconnect | 5,161 | (942) |
| 11,175 | 7,338 | |
| Non recurring items and share based payments | ||
| Power Products | (2,619) | (1,709) |
| Interconnect | (1,989) | (835) |
| (4,608) | (2,544) | |
| Operating profit/(loss) | ||
| Power Products | 3,395 | 6,571 |
| Interconnect | 3,172 | (1,777) |
| 6,567 | 4,794 | |
| Investment Income | 226 | 205 |
| Finance costs | (3,210) | (2,852) |
| Profit before tax from continuing operations | 3,583 | 2,147 |
| Tax | (1,991) | (2,530) |
| Profit / (loss) from continuing operations | 1,592 | (383) |
| Loss from discontinued operations | (20,976) | (3,000) |
| Loss after tax and discontinued operations | (19,384) | (3,383) |
2. Business and geographical segments (cont)
| External revenue by product market sector | 2009 £'000 | 2008 £'000 | |||
| Continuing operations | |||||
| Consumer Products | 150,207 | 139,705 | |||
| Data, Telecommunications and Medical | 109,862 | 82,855 | |||
| Industrial, Vehicle and Aerospace | 5,047 | 866 | |||
| 265,116 | 223,426 | ||||
| Discontinued operations |
|
| |||
| Industrial, Vehicle and Aerospace | 37,704 | 36,339 | |||
| 302,820 | 259,765 | ||||
| Geographical segments | |||||
| Following the disposal of the Wiring Harness Division, headquartered in the United Kingdom, the Group's remaining operations are located in Asia, South America, North America and Europe. The following table provides an analysis of the Group's sales by geographical market, based both on source and destination of the sale. Segment assets and capital expenditure are allocated on the basis of where the assets are located. The geographical segment analysis for 2008 has been restated. The previously reported analysis of Asia and South America and north America has been recategorised into the segments below as, in the opinion of the Board, the revised segments present a clearer understanding of the Group's geographic presence. | |||||
| External revenue by source | External revenue by destination | ||||
| 2009 £'000 | 2008 £'000 | 2009 £'000 | 2008 £'000 | ||
| Continuing items | |||||
| Asia | 174,317 | 134,769 | 137,598 | 104,038 | |
| Americas | 52,454 | 52,352 | 57,338 | 56,495 | |
| United Kingdom | - | - | 6,496 | 7,989 | |
| Europe | 38,345 | 36,305 | 63,684 | 54,904 | |
| 265,116 | 223,426 | 265,116 | 223,426 | ||
| Discontinued operations | |||||
| Asia | 8,334 | 7,459 | 46 | 18, | |
| Americas | - | - | 7 | 7 | |
| United Kingdom | 9,392 | 7,030 | 26,581 | 24,795 | |
| Europe | 19,978 | 21,850 | 11,070 | 11,519 | |
| 37,704 | 36,339 | 37,704 | 36,339 | ||
| 302,820 | 259,765 | 302,820 | 259,765 | ||
3. Non recurring items
| 2009 £'000 | 2008 £'000 | |
| Continuing operations | ||
| Provision for onerous lease arising on disposal of discontinued operations | (3,000) | - |
| Aborted disposal costs | (1,020) | - |
| Corporate management restructuring | (720) | - |
| Major restructuring programme charge | - | (2,676) |
| (4,740) | (2,676) | |
| Discontinued operations | ||
| Pre disposal restructuring programme | (1,278) | - |
| Post disposal restructuring programme | (1,350) | - |
| (2,628) | ||
| (7,368) | (2,676) |
3. Non recurring items (cont)
Continuing operations
Provision for onerous lease arising on disposal of discontinued operations
On 3 April 2009 the Group completed the disposed of its Wiring Harness Division. As part of the conditions pertaining to the disposal the Group retains the liability for the lease of the Wiring Harness premises in the UK until 2020 and as a consequence has reflected a provision for the resulting onerous lease. The provision represents management's best estimate, following appropriate advice, of the anticipated net cost of the lease taking into account how long the property will remain vacant and level of rental income, if any, that can be obtained from sub-tenants.
Aborted disposal costs
On 22 September 2008 the Board announced, that following our a strategic review of its business operations and the most effective way of generating value for shareholders, it was to investigate the potential for realising value from its Power Products Division including its potential divestment or flotation of the business on an Asian stock market.
Following the intervening period of market uncertainty caused by changing economic conditions, on 9 February 2009 the Board announced that it had terminated the divestment process. Costs of £1,020,000, which had been incurred as part of the process, were written of to the income statement.
Corporate management restructuring
Following the announcement of the agreed disposal of the Wiring Harness Division the Board has commenced a review of the corporate management structure to align the organisation with the remaining Power Products and Interconnect Divisions and to gain greater leverage from the organisation's global operations. Costs of £720,000 have been incurred in the period to 5 April 2009, including an estimate of the compensation for loss of office payable to Heejae Chae, formerly CEO and a Director of the Group, who left the Group on 9 March 2009.
The taxation effect of the above charges in the year was £nil (2008: £nil).
Discontinued operations
Pre disposal restructuring programme
In response to the continued loss making position of the Wiring Harness Division prior to its disposal on 3 April 2009, the Group announced a substantial redundancy programme to reduce the cost base of the division. A charge of £1,278,000 and £841,000, for Group and Company respectively, was made during the period to 5 April 2009 to reduce headcount in the UK and Croatia.
Post disposal restructuring programme
Following the disposal of the Wiring Harness Division, the acquirer has terminated the supply agreement for wiring harness products manufactured in China and consequently these operations are being closed. A provision of £350,000 has been established in respect of redundancy costs and an impairment charge of £1,000,000 in respect of write down of inventory and fixed assets specific to wiring harness products.
The taxation effect of the above charges in the year was £nil (2008: £nil).
4. Taxation
| 2009 £'000 | 2008 £'000 | |
| From continuing and discontinued operations | ||
| Current tax - charge for the year | 2,685 | 2,749 |
| Current tax - adjustment in respect of previous years | (205) | (201) |
| Deferred tax | (590) | (18) |
| 1,890 | 2,530 |
5. (Loss) / earnings per ordinary share
| Notes | 2009 £'000 | 2008 £'000 | |
| Loss for the purpose of basic loss per share being net loss attributable to equity holders of the Parent | (19,384) | (3,383) | |
| Adjustments for: | |||
| Non recurring items | 7,368 | 2,676 | |
| Share based payments credit | (132) | (132) | |
| Loss on disposal of discontinued operations | 14,373 | - | |
| Adjusted earnings / (loss) for the purpose of adjusted earnings per share | 2,225 | (839) | |
| Number of shares | No shares | No shares | |
| Weighted average number of ordinary shares for the purpose of basic earnings per share | 56,821,563 | 56,780,292 | |
| Effect of dilutive potential ordinary shares | 45,579 | - | |
| 56,867,142 | 56,780,292 | ||
| 2009 pence | 2008 pence | ||
| Basic loss per share | (34.1) | (6.0) | |
| Adjustments for: | |||
| Non recurring items | 13.0 | 4.7 | |
| Share based payments credit | (0.2) | (0.2) | |
| Loss on disposal of discontinued operations | 25.2 | - | |
| Adjusted basic earnings /(loss) per share | 3.9 | (1.5) | |
| 2009 pence | 2008 pence | ||
| Diluted loss per share | (34.1) | (6.0) | |
| Adjustments for: | |||
| Non recurring items | 13.0 | 4.7 | |
| Share based payments credit | (0.2) | (0.2) | |
| Loss on disposal of discontinued operations | 25.2 | - | |
| Adjusted diluted earnings /(loss) per share | 3.9 | (1.5) | |
The adjusted earnings / (loss) per share has been calculated on the basis of continuing activities before major restructuring costs and write-off of unamortised debt issue costs, net of tax. The directors consider that this earnings / (loss) per share calculation gives a better understanding of the Group's earnings / (loss) per share in the current and prior year. As the Group recorded a loss per share in 2008, the share options were anti-dilutive and accordingly, there was no difference between the basic and diluted loss per share in that period.
5. (Loss) / earnings per ordinary share (cont)
| Earnings / (loss) per share from continuing operations | Notes | 2009 £'000 | 2008 £'000 |
| Loss for the purpose of basic loss per share being net loss attributable to equity holders of the Parent | (19,384) | (3,383) | |
| Adjustments to exclude loss for the period from discontinued operations | 20,965 | 3,015 | |
| Earnings / (loss) from continuing operations for the purpose of basic (loss) / earnings per share | 1,581 | (368) | |
| Adjustments for: | |||
| Non recurring items | 3 | 4,740 | 2,676 |
| Share based payments credit | (132) | (132) | |
| Earnings from continuing operations for the purpose of adjusted earnings per share | 6,189 | 2,176 | |
| The denominators are the same as those detailed for both basic and diluted earnings per share from continuing and discontinued operations | |||
| 2009 pence | 2008 pence | ||
| Basic earnings / (loss) per share from continuing operations | 2.8 | (0.7) | |
| Adjustments for: | |||
| Non recurring items | 8.3 | 4.7 | |
| Share based payments credit | (0.2) | (0.2) | |
| Adjusted basic earnings per share | 10.9 | 3.8 | |
| Diluted earnings / (loss) per share from continuing operations | 2.8 | (0.7) | |
| Adjustments for: | |||
| Non recurring items | 8.3 | 4.7 | |
| Share based payments credit | (0.2) | (0.2) | |
| Adjusted diluted earnings per share | 10.9 | 3.8 | |
| Loss per share from discontinued operations | 2009 pence | 2008 pence | |
| Basic and diluted loss per share from discontinued operations | (36.9) | (5.3) | |
6. Dividends
The directors do not recommend a dividend on the ordinary shares for the year (2008: £nil)
7. Bank facilities
The Group's principal funding is provided via $76.0m multi currency revolving, overdraft and guarantee facility. The facility commenced on 8 December 2006 and was extended for a further 3 years until March 2012. The amount available under the facility at 5 April 2009 was $62.7m (2008; $69.3m). Under the terms of the restated facility the amount available will be reduced by a minimum, depending on the level of surplus funds available, of $5.0m at 31 March 2010 and by $2.5m for each financial quarter thereafter. The facility is secured by fixed and floating charges over the assets of certain Group companies. At 5 April 2009, the facility incurred interest at a margin of 4% (2008: 2.25%) above LIBOR.
8. Movements in shareholders' equity
| Share capital £'000 | Share premium £'000 | Hedging & translation reserve£'000 | Retained earnings£'000 | Total£'000 | |
| Balance at 2 April 2007 | 14,158 | 1,219 | (1,020) | 11,702 | 26,059 |
| Net proceeds from issue of equity shares | 47 | 91 | - | - | 138 |
| Reserve transfer on exercise of warrants | - | 47 | - | (47) | - |
| Net loss for the year | - | - | - | (3,383) | (3,383) |
| Reserve entry for share option charge | (113) | (113) | |||
| Actuarial gains on defined benefit pension schemes | - | - | - | 776 | 776 |
| Exchange differences on translation of foreign operations | - | - | 2,513 | - | 2,513 |
| Loss recognised on net investment hedge | - | - | (3,354) | - | (3,354) |
| Balance at 30 March 2008 | 14,205 | 1,357 | (1,861) | 8,935 | 22,636 |
| Net loss for the year | - | - | - | (19,384) | (19,384) |
| Reserve entry for share option charge | (92) | (92) | |||
| Actuarial gains on defined benefit pension schemes | - | - | - | (285) | (285) |
| Exchange differences on translation of foreign operations | - | - | 8,948 | - | 8,948 |
| Loss recognised on net investment hedge | - | - | (5,554) | - | (5,554) |
| Balance at 5 April 2009 | 14,205 | 1,357 | 1,533 | (10,826) | 6,269 |
9. Analysis of net debt
| 31 March 2008 £'000 | Cash flow £'000 | Exchange movement£'000 | Other non cash changes£'000 | 5 April 2009£'000 | |
| Cash at bank and in hand | 4,317 | 10,630 | 1,930 | - | 16,877 |
| Debt due after one year | (25,890) | 251 | (7,505) | - | (33,144) |
| Finance lease | (44) | 44 | - | - | - |
| Debt issue costs | 607 | - | - | 875 | 1,482 |
| Net debt | (21,010) | 10,925 | (5,575) | 875 | (14,785) |
Debt issue costs include facility fees of £1,396,000, which are payable in equal instalments in May 2009 and April 2010, and amortisation of prior issue costs of £520,000.
10. Notes to the cash flow statement
| 2009 £'000 | 2008 £'000 | |
| £000 | £000 | |
| Loss for the year | (19,384) | (3,383) |
| Adjustments for: | ||
| Investment revenues | (226) | (205) |
| Finance costs | 3,210 | 2,852 |
| Income tax expense | 1,890 | 2,530 |
| Loss on disposal of discontinued operations | 14,373 | - |
| Depreciation on property, plant and equipment | 2,575 | 2,906 |
| Impairment on property plant & equipment | 250 | - |
| Amortisation of intangible assets | 42 | 80 |
| Loss on disposal of property, plant and equipment | 18 | 4 |
| Share option expense | (92) | (113) |
| Increase/(decrease) in provisions | 929 | (1,469) |
| Operating cash flow before movement in working capital | 3,585 | 3,202 |
| Decrease / (increase) in inventories | 12,660 | (2,791) |
| Decrease / (increase) in receivables | 10,709 | (12,506) |
| (Decrease) / increase in payables | (9,702) | 5,994 |
| Movement in working capital | 13,667 | (9,303) |
| Cash generated by operations | 17,252 | (6,101) |
| Cash generated by operations before non-recurring items | 21,784 | (2,214) |
| Cash utilised by non-recurring items | (4,532) | (3,887) |
| Cash generated by operations | 17,252 | (6,101) |
| Taxation paid | (1,622) | (887) |
| Interest paid (net) | (2,271) | (1,666) |
| Net cash inflow from operating activities | 13,359 | (8,654) |