Volex Regulatory News (VLX)

VOLEX plc

Interim Management Statement for the 17 weeks ended 26 July 2012

Volex plc ('Volex' or together with its subsidiaries, the 'Group'), the global provider of electrical, digital and optical connections, today releases its first Interim Management Statement for FY2013, covering the 17 weeks ended 26 July 2012.

The Group is seeing increased demand for its products and consequently expects that full year FY2013 revenues will be ahead of previous management expectations. To accommodate the record revenue levels that are anticipated in the final three quarters of FY2013 we have made further substantial and largely unbudgeted investments in both capital and operating expenditure in Q1 FY2013. This includes the addition of more than 1,000 net new production staff during the quarter, equivalent to more than a 15% increase.

The timing of this investment, in advance of the corresponding revenues, has suppressed Q1 FY2013 profit. However, the Board is confident that profit for the full year FY2013 will be in line with management's expectations, with increased investment costs being offset by profit generated from higher than anticipated revenues on programmes already underway.

Q1 Trading for the three months to 1 July 2012

Highlights for the first quarter of FY2013 are as follows:

·; Revenue of $123.9m, in line with the same period last year and 2% ahead of Q4 FY2012

·; Underlying margins, excluding the costs relating to building additional capacity and capability, were 19.6% compared to 19.0% in Q1 FY2012 and 19.8% for FY2012 as a whole. After accounting for these build costs of $2.5m the reported gross margin was 17.6%

·; Operating profit of $3.1m, down 55% on Q1 FY2012 primarily as a result of these production capacity and capability costs and further investments in our sales, engineering and operational functions ahead of the anticipated revenue growth (Q1 FY2012: $6.8m)

·; Despite increased investment in capital and operating expenditures, together with increased inventories to support Q2 orders, the Group delivered neutral free cash flow in the quarter, and remains net cash positive

·; ROCE(i) of 22% in Q1 FY2013 (Q1 FY2012: 44%)

(i) Return on capital employed defined as normalised operating profit divided by net trading assets, where net trading assets is the aggregate of intangible assets (excluding goodwill), tangible fixed assets, inventory and trade and other receivables, less trade and other payables

Q1 FY2013 Sector Performance

Consumer revenue in Q1 FY2013 of $82.7m was up 6% on last year (Q1 FY2012: $77.9m) and up 5% over Q4 FY2012. New business wins and greater penetration of several customers, most notably the sector's largest customer, has more than compensated for weakened demand from some customers due to on-going macro-economic pressures. The Group is facing immediate, increased demand and in order to capitalise on this we are increasing our capital expenditure and have also invested approximately $2.1m of costs during the quarter most notably the recruitment and training of more than 1,000 net new production employees together with additional tooling and site preparation costs.

Telecoms/Datacoms revenue in the quarter of $21.7m was consistent with Q4 FY2012 levels, though was down 21% on last year (Q1 FY2012: $27.4m). Growth continues to be held back by lower spend from telecoms operators in response to on-going economic uncertainty. However we are seeing increased demand from both existing and new Datacoms customers and this is expected to drive a modest recovery throughout the remainder of FY2013. In particular, the Group has secured a number of new business wins during the quarter. These have yet to yield significant revenues but will contribute to second half growth and position Volex well to take advantage of the eventual economic recovery. Q1 gross margins in Telecoms/Datacoms were above those reported in FY2012.

Healthcare revenue of $10.3m was 6% lower than last year and down 21% on Q4 FY2012. Strong revenue growth is forecast in Healthcare for the rest of the year, driven by a new cabling solution programme, the introduction of which was delayed in Q1 but which is now on stream. Gross margins were in line with the record high levels reported in FY2012.

Industrial revenue of $9.3m was 6% up on the preceding quarter, though down 6% on Q1 FY2012 due to the weakness previously reported in the second half of FY2012. We are confident that we will see on-going revenue growth in our Industrial sector during the second half of the year, as expected regulatory changes drive market adoption of telematics products from our largest customer in this sector.

In summary, we are confident that all four sectors will grow revenues during the course of FY2013, with our strategy of aligning with those customers most likely to win in each sector and our success in winning new business compensating for weakened demand in some accounts.

Significant investment in production capacity and capabilities

The Group's investment in its production capabilities during FY2012, in particular higher grade tooling and precision moulding technologies, has significantly enhanced its competitive positioning. This is resulting in multiple new business wins with both new and existing customers in all sectors. The financial benefits of this within the current financial year are most evident in increased spend from the Group's largest customer, with known programmes delivering significant growth during the remaining quarters of FY2013. In anticipation of this continuing growth the Group has scaled up its production capacity and incurred advance production capacity build costs of approximately $2.5m in Q1 FY2013.

Of this, $2.1m relates to the Consumer division, and mainly arises from labour, training, tooling and line development costs in support of higher FY2013 revenues. Of particular note is that production headcount at the end of Q1 FY2013 increased by over 1,000 employees compared with the end of FY2012. It also includes the residual element of the set-up costs that were reported as exceptional during FY2012. A further $0.4m was incurred in Indonesia connected with bringing back in-house some outsourced production. This $0.4m, relating primarily to the Industrial sector, was fully expensed in Q1 but the benefits will only accrue from Q2 onwards.

In addition to these production costs, we have continued to invest elsewhere in the business. Operating expenses in Q1 FY2013 include a number of costs that have been added since Q1 FY2012, including a new COO, new Sector Heads and multiple other strategic appointments. While opex as a percentage of sales for the year as a whole is expected to be consistent with FY2012, the increase in opex in Q1 FY2013 in advance of the revenue ramp up, together with reduced gross profit, combined to reduce operating profit to $3.1m in Q1 FY2013, compared to $6.8m in the first quarter of last year.

Outlook

The Board remains confident that profit will be in line with management's expectations for the twelve months ending 31 March 2013, with the increased investments being offset by profit generated from higher revenues on programmes already underway. While on-going economic uncertainty is likely to continue to hamper growth generally, the Board expects the growth opportunities in the Consumer sector, for which the Group has invested heavily in FY2012 and Q1 FY2013, and to a lesser extent opportunities in the other sectors, to drive revenue and profit growth in the remainder of FY2013 and beyond.

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For further information please contact:

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 / Louise Hadcocks +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.