Volex Regulatory News (VLX)

For immediate release 13 January 2012

VOLEX plc

Interim Management Statement for the 15 weeks ended 13 January 2012

Volex plc ('Volex' or together with its subsidiaries, the 'Group'), the global provider of electrical, digital and optical connections, is today releasing its second Interim Management Statement for the FY2012 financial year, covering the 15 weeks ended 13 January 2012.

The Board remains confident that, on a normalised(i) basis, results will be in line with current market expectations for the year ending 1 April 2012. Consistent with our strategy of manufacturing higher margin products we anticipate that we will have incurred one-off exceptional start-up costs in the current financial year of $5m-$6m in relation to new product introductions for our largest customer. The benefits of this investment are already evident in the Consumer sector. Moreover, the sustainable competitive advantage which this delivers enhances our ability to offer new and different products and to attract a wider range of customers.

Q3 Trading for the three months to 1 January 2012

Trading in the third quarter of FY2012 remained solid against a backdrop of volatile and challenging macro-economic conditions, with revenue in line with the same period last year. Year-to-date revenue for the 9 months to December is 9% ahead of last year. Profit in the quarter was restrained by the exceptional start-up costs referred to above. After normalising for the impact of these costs, gross margin percentage and operating profit were in line with management's expectations.

Highlights for the third quarter of FY2012 (three months to 1 January 2012) are as follows:

·; Revenue of $125.1m in line with same period last year

·; Reported gross margin of 17.1%, 0.9% down on Q3 FY2011 as a result of $2.8m exceptional start-up costs on new product introductions. Excluding these costs, normalised gross margin(i) in Q3 FY2012 was 19.4%

·; Reported operating profit of $4.2m, down 33% on Q3 FY2011. Normalised operating profit(i) of $7.0m was up 12% over same period last year

·; Net cash of $1.2m at the end of Q3 FY2012, $10.5m better than at the end of Q3 FY2011 and $13.1m better than at the end of Q2 FY2012. The first time since 1993 that the Group has achieved a net cash positive position

Q3 FY2012 Sector Performance

Consumer revenue in Q3 FY2012 of $82.1m was up 11% on last year (Q3 FY2011: $74.2m) driven by sales of our new product range to the sector's largest customer. 

Telecoms/Datacoms revenue in the quarter was adversely impacted by reduced spend by telecoms operators in response to increased economic uncertainty, with Q3 FY2012 revenue of $21.3m down 30% over last year (Q3 FY2011: $30.2m).

Healthcare revenue of $14.5m was up 17% over last year (Q3 FY2011: $12.4m), with trading especially strong in North America.

Industrial revenue in the quarter of $7.3m was down 13% compared to prior year (Q3 FY2011: $8.3m). This was principally as a result of customer de-stocking. Revenue in the fourth quarter is expected to recover towards H1 FY2012 levels. 

Exceptional start-up costs

Consistent with our core strategy, the Group has continued to invest in its higher margin product portfolio and production capability. Exceptional start-up costs of $2.8m were incurred in Q3 FY2012 in relation to new product introductions; specifically the migration from PVC to Halogen Free power cords combined with significantly higher technical and cosmetic standards. These new products necessitated wide ranging improvements to our manufacturing know-how and investments in higher grade tooling and precision moulding technologies. Whilst this initially resulted in lower yields and labour productivity during the production ramp-up period than originally forecast, these improvements represent a significant step-up in our engineering, manufacturing and quality control capabilities, and have served to strengthen the relationship with our largest customer. The benefits of this investment are already evident in the Consumer sector. Moreover, this sustainable competitive advantage enhances our ability to offer new and different products and to attract a wider range of customers.

As reported in H1 FY2012, these one-off start-up costs adversely impacted the H1 Consumer margins by approximately 1%, equivalent to $1.4m. With further costs expected in Q4 FY2012, such exceptional start-up costs are expected to total $5m-$6m for the full year, FY2012. We expect these exceptional costs to wind down during the final quarter of FY2012. Excluding the impact of these start-up costs, normalised gross margin(i) in Q3 FY2012 of 19.4% was consistent with management's targeted margin progression and, on a normalised basis, remains on course to exit the year at around 20%.

Outlook

The Board remains confident that, on a normalised basis, trading will be in line with current market expectations for the twelve months to 1 April 2012. This is despite increased global economic uncertainty which has caused growth to slow in Q3 FY2012 relative to the first half of the year. The Board is confident that we will see continued revenue growth and margin progression in FY2013, aided by the investments made in the most recent quarter.

(i) Normalised results stated before exceptional start-up costs and share based payments charge

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Volex plc

Ray Walsh Group Chief Executive +44 20 3370 8830

Andrew Cherry Group Finance Director +44 20 3370 8830

Buchanan

Charles Ryland / Helen Chan +44 20 7466 5000

Forward looking statements

Certain statements in this announcement are forward-looking statements which are based on Volex's expectations, intentions and projections regarding its future operating performance and objectives, anticipated events or trends and other matters that are not historical facts. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as 'anticipates', 'aims', 'could', 'may', 'should', 'expects', 'believes', 'intends', 'plans', 'targets', 'goal' or 'estimates'. By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, by way of example only and not limited to, general economic conditions, currency fluctuations, competitive factors, the loss or failure of one or more major customers, changes in raw materials or labour costs, and issues associated with implementing our strategic plan among other risks. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of such statements and, except as required by applicable law, Volex undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.