Volex Regulatory News (VLX)

15 Feb 2008 07:00

Volex Group PLC15 February 2008 15 February 2008 Volex Group plc Interim Management Statement Volex Group plc, the global electrical and electronic cable assemblies company,is today publishing its second Interim Management Statement relating to the 17week period from 1 October to 28 January. In light of the trading statementreleased on 29 January 2008, we are providing a fuller update and releasingfinancial information in respect of this period. Current Trading Although we have faced some execution challenges during the period, we havecontinued to push ahead with our strategy to drive long term growth and increasemargins. Revenue growth of 8% has been slightly ahead of expectations, whileoperating profit has been significantly behind. Revenue growth was driven by ourcore Power Products business, which performed strongly and has gainedsignificant new business with key customers such as Sony and Dell. The profitshortfall is a result of a much slower and more difficult restructuring of ourWiring Harness business combined with a significant slowdown in order levelsfrom Interconnect customers in the Wireless Infrastructure sector. Power ProductsRevenue increased 20% and operating margins were significantly ahead of the sameperiod last year. The increase in operating margins is partly due to moreeffective management of the fluctuations in copper pricing. InterconnectRevenue declined 10% compared to the same period last year as weak volumes frommajor Wireless Infrastructure customers, which account for 47% of ourInterconnect revenue, masked the underlying growth being achieved from newbusiness sectors. Our strategy to diversify our Interconnect business remainsvalid and we are starting to see the impact of this in rapid growth of theaccounts we have targeted. 27% of our Interconnect business in the periodderived from the Medical and Data sectors, which we have targeted for growth dueto the higher margin potential. Sales for these sectors grew 34% in the period. Operating margins have declined due to a combination of factors: inability toreduce costs in line with the sudden fall in Wireless Infrastructure volumes;initial new business volumes in the Medical and Data sectors are not yet highenough for efficient production; and, we increased costs in the first half todevelop new business with additional costs for sales, engineering and relatedexpenses. Wiring HarnessRevenue is 17% ahead of the same period last year as a result of developingexisting key accounts, particularly in the construction sector. However,operating margins have deteriorated from the same period last year as we havestruggled to deliver the benefits of the restructuring. Manufacturing efficiencyin the division remains low which has a consequential impact on our cost basewith significant costs being incurred to maintain customer service levels. Whileour internal performance indicators are now beginning to show some steady butslow improvement in efficiency levels, this is likely to be insufficient toreturn to profit by the end of the current financial year, as previouslyexpected. Net debt has increased to £23.8m compared to £16.6m at the same date last year.This is a result of the cash utilisation of the Wiring Harness division duringthe restructuring, lower profitability and cash generation of the Interconnectdivision and working capital requirement of the strong growth in Power Products.There have been no other significant changes in the financial position of theGroup in the period since the publication of the Interim Report for the 26 weeksended 30 September 2007. The outlook for the remainder of the financial year is in line with the tradingupdate of 29 January 2008. Our order outlook remains solid and the new businesspipeline is robust. Whilst it is too early to be certain, there are signs thatthe Wiring Harness division is beginning to show the expected operationalefficiency improvements, however, growth from the construction sector is likelyto moderate. For the Interconnect division we are confident that the growth of the target markets will continue, however, we are cautious on the timing of the recovery of the Wireless Infrastructure segment. While the outlook for the Power Products division currently remains strong, we are aware that a reduction in global demand for consumer products would impact us. The Board acknowledges that we have faced challenges in the period since our half-year announcement, however, we remain confident in our business model and the management, who are taking the necessary actions to drive profitability towards peer group levels over time, combined with solid top line growth. Appendix 1Divisional Trading Performance (Unaudited) 17 weeks to 27 17 weeks to 28 January 2008 January 2007 £'000 £'000-------------------------------------------------------------------------------- RevenuePower Products 47,605 39,850Interconnect 26,525 29,501Wiring Harness 12,609 10,805-------------------------------------------------------------------------------- 86,739 80,156-------------------------------------------------------------------------------- Operating ProfitPower Products 2,506 465Interconnect (855) 1,328Wiring Harness (1,300) (332)-------------------------------------------------------------------------------- 351 1,461-------------------------------------------------------------------------------- Appendix 2Analysis of Interconnect Revenue Sector Proportion of Growth rate total -------------------------------------------------------------------------------- Wireless Infrastructure 47% -32%Data and Medical 27% +34%Other 26% +14%-------------------------------------------------------------------------------- 100% -10% -------------------------------------------------------------------------------- END Volex Group plc 01925 844601Heejae Chae, Group Chief ExecutiveIan Degnan, Group Finance Director Weber Shandwick Financial 020 7067 0700Terry GarrettNick DibdenJames White This information is provided by RNS The company news service from the London Stock Exchange