Volex Regulatory News (VLX)

8 Nov 2006 07:00

Volex Group PLC08 November 2006 Embargoed until 7.00am 8 November 2006 VOLEX GROUP plc Interim results for the 26 weeks ended 1 October 2006 Volex Group plc, the global electrical and electronic cable assembly group,today announces its unaudited interim results for the 26 weeks ended 1 October2006. Financial Highlights:• Sales increased by 3.1% to £127.7m (2005: £123.9m)• Operating profit of £6.1m including £1.1m gain on sale of property (2005: loss £0.3m after charging £1.7m restructuring charges): underlying operating profit increased to £5.0m (2005: £1.4m)• Sale of Butts Mill, Leigh, for £1.5m cash proceeds• Basic earnings per share 5.9p (2005: loss 7.4p)• Basic earnings per share excluding major restructuring programme, increased to 3.9p (2005: loss 3.3p)• Net borrowings £13.7m (2005: £17.5m) and gearing 50.4% (2005: 58.6%)• LTIP approved at AGM with management to subscribe c. £0.8m of own funds for new shares The Chairman of Volex, Richard Arkle, commented: "I am pleased to report that this is the third consecutive half of growth insales and operating profit and it is clear that we are beginning to capture thefull benefits of the restructuring that has been implemented over the last twoyears. In summary, we are aiming to provide better returns to our shareholders bypositioning Volex to maximise the opportunities and minimise the risks. Webelieve that our improved customer value proposition coupled with asignificantly lower cost base should improve our competitive advantage andprovide us with the platform to deliver incremental revenues and profitability." For further information please contact: Volex Group plc Today: 020 7067 0700 Thereafter: 01925 830101Heejae Chae, Group Chief ExecutiveDerek Walter, Group Finance Director Weber Shandwick Square Mile 020 7067 0700Chris Lynch / Nick Dibden CHAIRMAN'S STATEMENT Revenues for the first six months of the year increased 3.1% to £127.7m,compared with £123.9m in the comparable period. Adjusting for £1.4m of adverseforeign exchange movements, sales grew by 4.2% in local currency terms. TheGroup generated a substantially higher operating profit of £5.0m compared with£1.4m in the first half of last year (excluding the major restructuring credit/charge) despite increases in material costs, in particular the price of copperwhich reached an all time high. This is the third consecutive half of growth in sales and operating profit andit is clear that we are beginning to capture the full benefits of therestructuring effort. We have accelerated the timing of closures within ouroriginal three year restructuring programme and in the second half of this yearwe will be closing a further three facilities as well as continuing to downsizesome other operations. Net debt was £13.7m at the half year with gearing reduced to 50%, compared with59% at October 2005. The Powercord division of the Group continues to perform strongly with its focuson next generation and application specific products and grew its sales by 15%from the first half of last year. As innovation continues in consumer productsand with the recent focus on "cost of failure" from power sources, the Powercorddivision has benefited from its reputation for reliability and quality. However,the continued rise in commodity prices has impacted margins and we are inconstant discussion with our customers to pass on these cost increases. We haveexpanded our facility at Heng Gang in southwest China and are consolidating someof the other facilities and functions there to leverage the lower labour costand economies of scale. The Interconnect division (formerly known as Infocom) reported a 9% reduction insales this half partly as a result of the customer base rationalisation thatoccurred last year in North America. The focus on profitability is reflected inthe improved margins and an increase in operating profit to £2.5m (2005: £0.3mprofit - excluding restructuring charges) on lower revenue. We believe that wehave a clear market and sales focus and strategy to leverage our corecompetencies. We are already seeing the impact as we make gains, particularly inthe medical and communication equipment markets. We continue to leverage our"Preferred Supplier" status with our key customers to grow market share and wehave made significant investments in engineering, sales and supply chainresources to strengthen our competencies further and provide a one-stop totalsystem solution for our customers. We have also made good progress in thetransfer of production from North America to China thereby reducing our costbase. The Wiring Harness division showed modest sales growth but continues to strugglewith its cost base. We are currently restructuring the business by shifting itsoperation to lower cost areas and we expect that we will complete the transitionduring FY2007/8. We believe that once we have completed this restructuring, theWiring Harness division will contribute both revenue and profit to the Group.The defence, aerospace and construction equipment markets are growing andattractive and we believe that our brand and excellent reputation will enable usto be a significant player in these segments. We recognise that the changes weare undergoing are challenging and costly but they are necessary in order togenerate positive returns. Financial Review There were no significant changes in the average exchange rates compared withthe first six months of last year. Sales would have been £1.4m higher andoperating profits £0.1m higher in the current period had the first half 2005average exchange rates applied. Operating profit excluding major restructuring credits and charges, increasedfrom £1.4m to £5.0m and the return on sales improved to 3.9% but managementrecognises that this is still far from satisfactory. Both the Powercord andInterconnect divisions continued to improve their trading performances fromfiscal 2006, reflecting the benefits of the extensive restructuring programmesbut the performance of the Wiring Harness division (excluding the profit fromthe sale of Butts Mill, Leigh) continued to disappoint and we expect to betaking an additional restructuring charge in the second half of this year of upto £3m. The total interest charge was unchanged at £1.7m: the Group is paying lower bankinterest as it benefits from lower debt levels but is having to amortise higherrefinancing costs and accrue interest on restructuring provisions and the(decreasing) pension fund deficit. Reported pre tax profits were £4.5m (2005: loss £2.0m); excluding restructuringitems, pre tax profits were £3.4m against a loss of £0.3m in the first half anda profit of £2.2m in the second half of last year. The tax charge in the first half of the year was £1.2m, unchanged in total fromthe comparable period which included a £0.2m non-recurring tax charge. Despitethe increase in profits, we are expecting to be able to utilise some losses. After adjusting to exclude the major restructuring items, earnings per sharethis half year were 3.9p, up from 2.3p in the second half and a loss of 3.3p inthe first half of last year. Net debt at 1 October 2006 was £13.7m compared with £13.3m at 2 April 2006 and£17.5m at 2 October 2005. Cash generated by operations in the first half was£0.8m after a net working capital outflow of £4.3m and £1.4m spend on therestructuring programme. Stocks increased by £6.2m, partly due to a build up ofbuffer stocks for the facilities' closures in the second half of the year anddebtors increased by £6.6m; however, there was a partially compensating inflowof £8.5m from higher creditors. The sale of Butts Mill, Leigh, generated £1.5mproceeds, which virtually offset the capital expenditure in the first half ofthe year. The main element of the capital expenditure was the expansion at HengGang, which accounted for £0.9m. The Board has not declared an Interim dividend. Long Term Incentive Plan (LTIP) In conjunction with the changes in the Group, the shareholders approved the LTIPat the AGM on 28 September 2006, which will provide significant rewards forsignificant improvements in the Group's performance. As part of the LTIP, themanagement team will contribute some £0.8m in cash of their own personal capitalinto the Group by subscribing for a new issue of shares at market price. As anon executive director I am not entitled to participate in the LTIP but as partof my commitment to the Group, I will be subscribing for 100,000 shares at thesame time and price. This injection of capital reflects our commitment to theGroup's strategy and our belief in the future prospects for the Group as well asaligning our interests with those of the shareholders. Current Trading and Prospects We are continuing to execute our strategy for growth and profitability. Tradingcontinues overall to be in line with expectations. We expect that Powercord willcontinue to be strong albeit we remain cautious against the backdrop of theeconomic slowdown in the US. Commodity prices remain a challenge to the businessas the prices continue at their very high levels. In our Interconnect divisionwe expect to show modest growth as we continue to realign the organisation withincreased customer engineering and sales focus. The Wiring Harness divisionshould emerge profitably when the restructuring is completed in FY2008. We are very pleased to announce that Ian Degnan will be appointed Group FinanceDirector with effect from 16 December 2006 to succeed Derek Walter. Ian is achartered accountant and until recently was employed by Exel as Chief FinancialOfficer Europe, Global Forwarding Division and prior to that was FinanceDirector for various divisions of that group. There is no further relevantinformation to disclose under Listing Rule 9.6.13 in relation to Ian'sappointment. In summary we are aiming to provide better returns to our shareholders bypositioning Volex to maximise the opportunities and minimise the risks. Webelieve that our improved customer value proposition coupled with asignificantly lower cost base should improve our competitive advantage andprovide us with the platform to deliver incremental revenues and profitability. Richard ArkleChairman8 November 2006 Unaudited consolidated income statementFor the 26 weeks ended 1 October 2006 (2 October 2005) 26 weeks to 26 weeks to 52 weeks to 1 October 2 October 2 April 2006 2005 2006Continuing operations Note £'000 £'000 £'000_______________________________________________________________________________Revenue 3 127,739 123,897 250,378_______________________________________________________________________________Operating profit/(loss) 3 6,142 (328) (3,269) Analysed as: ________________________________________Operating profit before major restructuring programme credit/(charge) 5,025 1,436 5,329Major restructuring programme credit/(charge) 4 1,117 (1,764) (8,598) ________________________________________Operating profit/(loss) 6,142 (328) (3,269) Finance costs ________________________________________- interest on bank debt (909) (1,317) (2,339)- interest on retirement benefit obligations and provisions (221) (100) (311)- amortisation of debt issue costs (538) (252) (739) ________________________________________ (1,668) (1,669) (3,389)_______________________________________________________________________________Profit/(loss) on ordinary activities before taxation 4,474 (1,997) (6,658) Taxation 5 (1,175) (1,179) (2,448)_______________________________________________________________________________Profit/(loss) on ordinary activities after taxation, being retained profit/(loss) for the period 3,299 (3,176) (9,106)_______________________________________________________________________________ Earnings/(loss) per share*Basic and Diluted 6 5.9p (7.4)p (18.5)p * The loss per share before the costs of the major restructuring programme foreach period is shown in Note 6 Unaudited consolidated statement of recognised income and expenseFor the 26 weeks ended 1 October 2006 (2 October 2005) 26 weeks to 26 weeks to 52 weeks to 1 October 2 October 2 April 2006 2005 2006 £'000 £'000 £'000Exchange differences on translation of foreign operations (2,213) 107 1,555Actuarial gains on defined benefit pension schemes - - 379_______________________________________________________________________________Net (expense)/income recognised directly in equity (2,213) 107 1,934 Profit/(loss) for the period 3,299 (3,176) (9,106)_______________________________________________________________________________Total recognised net income/(expense) for the period 1,086 (3,069) (7,172) Adjustment on the first time adoption of IAS 32 and 39 - - (80)_______________________________________________________________________________Total recognised net income/(expense) since prior year balance sheet 1,086 (3,069) (7,252)_______________________________________________________________________________ Unaudited consolidated balance sheet1 October 2006 (2 October 2005) 1 October 2 October 2 April 2006 2005 2006 Note £'000 £'000 £'000_______________________________________________________________________________Non-current assetsGoodwill 1,930 1,930 1,930Other intangible assets 138 136 148Property, plant and equipment 10,263 13,221 11,515Deferred tax asset 236 - 244_______________________________________________________________________________ 12,567 15,287 13,837_______________________________________________________________________________ Current assetsInventories 34,572 30,679 30,274Trade and other receivables 56,314 55,246 52,825Current tax assets 702 - 1,087Cash and cash equivalents 8 8,414 9,442 11,646_______________________________________________________________________________ 100,002 95,367 95,832_______________________________________________________________________________Total assets 112,569 110,654 109,669_______________________________________________________________________________ Current liabilitiesObligations under finance leases 8 86 97 124Trade and other payables 49,093 42,811 42,685Current tax liabilities 2,765 2,340 2,580Retirement benefit obligation 380 357 357Provisions 2,962 700 3,996Liability for share based payment 83 27 95_______________________________________________________________________________ 55,369 46,332 49,837_______________________________________________________________________________Net current assets 44,633 49,035 45,995_______________________________________________________________________________ Non-current liabilitiesBank overdrafts and loans 8 21,975 26,808 24,690Obligations under finance leases 8 67 37 106Retirement benefit obligation 2,845 3,479 3,154Deferred tax liabilities 501 133 537Long-term provisions 4,360 3,900 4,983Non-equity preference shares 80 80 80Liability for share based payment 148 13 187_______________________________________________________________________________ 29,976 34,450 33,737_______________________________________________________________________________Total liabilities 85,345 80,782 83,574_______________________________________________________________________________ Net assets 27,224 29,872 26,095_______________________________________________________________________________Equity attributable to equity holders of the parentShare capital 7 13,888 13,848 13,888Share premium account 7 168 32,110 168Translation reserve 7 (392) 373 1,821Retained earnings 7 13,560 (16,459) 10,218_______________________________________________________________________________Total equity 7 27,224 29,872 26,095_______________________________________________________________________________ Unaudited consolidated cash flow statementFor the 26 weeks ended 1 October 2006 (2 October 2005) 26 weeks to 26 weeks to 52 weeks to 1 October 2 October 2 April 2006 2005 2006 Note £'000 £'000 £'000_______________________________________________________________________________Operating profit/(loss) from continuing operations 6,142 (328) (3,269)Adjustments for: Depreciation and impairment of property, plant and equipment 1,681 1,932 5,365 Amortisation of intangible assets 63 61 79 (Gain)/loss on disposal of property, plant and equipment (1,087) (9) 133 Share option expense 43 82 350 (Decrease)/increase in provisions (1,717) 488 4,411_______________________________________________________________________________Operating cash flows before movements in working capital 5,125 2,226 7,069 ________________________________________Increase in inventories (6,194) (1,493) (46)(Increase)/decrease in receivables (6,643) (2,899) 1,469Increase in payables 8,529 4,296 3,216 ________________________________________(Increase)/decrease in working capital (4,308) (96) 4,639_______________________________________________________________________________Cash generated by operations 817 2,130 11,708Analysed as: ________________________________________ Generated before major restructuring programme 2,169 3,244 13,249 Utilised by major restructuring programme (1,352) (1,114) (1,541) ________________________________________Cash generated by operations 817 2,130 11,708Income taxes paid (486) (2,267) (4,359)Interest received 97 77 111Interest paid (989) (1,438) (2,639)_______________________________________________________________________________Net cash (outflow)/inflow from operating activities (561) (1,498) 4,821 Cash flows from investing activities ________________________________________Proceeds on disposal of property, plant and equipment 1,491 25 29Purchases of property, plant and equipment (1,555) (1,110) (2,252)Purchases of intangible assets (62) (21) (100) ________________________________________Net cash used in investing activities (126) (1,106) (2,323)_______________________________________________________________________________Cash flows before financing activities (687) (2,604) 2,498Analysed as: ________________________________________ (Utilised)/generated before major restructuring programme (821) (1,490) 4,039 Generated/(utilised) by major restructuring programme 134 (1,114) (1,541) ________________________________________Cash flows before financing activities (687) (2,604) 2,498 Cash flows from financing activities ________________________________________Proceeds on issue of shares - 17,587 17,645Repayment of borrowings 8 (1,689) (43,263) (43,263)Advances of borrowings 8 - 26,135 25,793Refinancing costs paid 8 (208) (2,390) (2,486)Increase/(decrease) in bank overdrafts 8 35 (1,276) (4,193)Repayments of obligations under finance leases 8 (77) (47) (144) ________________________________________Net cash used in financing activities (1,939) (3,254) (6,648)_______________________________________________________________________________Net decrease in cash and cash equivalents (2,626) (5,858) (4,150) Cash and cash equivalents at beginning of period 8 11,646 14,962 14,962Effect of foreign exchange rate changes (606) 338 834_______________________________________________________________________________Cash and cash equivalents at end of period 8 8,414 9,442 11,646_______________________________________________________________________________ Notes to the interim financial report 1. General information The income and cash flow statements for the 26 weeks ended 2 October 2005 and 1October 2006 and balance sheets as at 2 October 2005 and 1 October 2006 areunaudited and have not been reviewed by the auditors. The income and cash flowstatements for the 52 weeks ended 2 April 2006 and the balance sheet as at 2April 2006 are extracted and abridged from the Group's full accounts for thatyear. The statutory accounts for the financial year ended 2 April 2006 have beenfiled with the Registrar of Companies for England and Wales and have beenreported on by the Group's auditors. The Report of the Auditors was notqualified and did not contain a statement under Section 237 (2) and (3) of theCompanies Act 1985 (as amended). The interim report was approved by the Board of Directors on 7 November 2006.The announcement is being sent to shareholders. Copies of this report and theannual report for the financial year ended 2 April 2006 are available at theCompany's registered office at Dornoch House, Birchwood Science Park, KelvinClose, Warrington, WA3 7JX and can also be downloaded or viewed via the Group'swebsite at www.volex.com. 2. Basis of preparation The Interim financial report has been prepared using accounting policiesconsistent with International Financial Reporting Standards as adopted for usein the European Union ('IFRS') and in accordance with those disclosed in theannual report for the financial year ended 2 April 2006, as published by theCompany on 13 June 2006. 3. Business and geographical segments Business segments For management purposes, the Group is organised into three operating divisions -Powercord, Interconnect and Wiring Harness. These classifications are based uponthe nature of the products which they supply. These divisions are the basis onwhich the Group reports its primary segment information. 26 weeks to 26 weeks to 52 weeks to 1 October 2 October 2 April 2006 2005 2006Revenue £'000 £'000 £'000_______________________________________________________________________________Powercord 64,125 55,851 118,275Interconnect 47,218 52,052 99,398Wiring Harness 16,396 15,994 32,705_______________________________________________________________________________ 127,739 123,897 250,378_______________________________________________________________________________ Operating profitPowercord 3,513 2,261 3,597Interconnect 2,508 (1,388) (2,966)Wiring Harness 121 (1,201) (3,900)_______________________________________________________________________________ 6,142 (328) (3,269)Finance costs, net (1,668) (1,669) (3,389)_______________________________________________________________________________Profit/(loss) before tax 4,474 (1,997) (6,658)Tax (1,175) (1,179) (2,448)_______________________________________________________________________________Profit/(loss) from continuing operations 3,299 (3,176) (9,106)_______________________________________________________________________________ 26 weeks to 26 weeks to 52 weeks to 1 October 2 October 2 April 2006 2005 2006External revenue by market sector £'000 £'000 £'000_______________________________________________________________________________Consumer Products 57,708 49,935 100,525Data and Telecommunications 39,143 44,232 87,986Industrial and Medical 14,119 13,737 27,845Vehicle and Aerospace 16,769 15,993 34,022_______________________________________________________________________________ 127,739 123,897 250,378_______________________________________________________________________________ The comparative information for the 26 weeks to 2 October 2005 has been restatedto take account of the reorganisation of the Group that occurred in the secondhalf of the prior financial year. The comparative segmental operating lossinformation for the 52 weeks to 2 April 2006 has been restated to reflect a moreappropriate allocation of costs. Geographical segments External revenue by source External revenue by destination 26 weeks to 26 weeks to 52 weeks to 26 weeks to 26 weeks to 52 weeks to 1 October 2 October 2 April 1 October 2 October 2 April 2006 2005 2006 2006 2005 2006 £'000 £'000 £'000 £'000 £'000 £'000__________________________________________________________________________________________________________Asia and South America 55,485 46,435 98,761 47,242 36,186 77,033North America 34,097 39,040 75,591 32,550 38,010 73,986United Kingdom 16,396 15,597 32,705 16,937 16,983 34,560Other Europe 21,761 22,825 43,321 31,010 32,718 64,799__________________________________________________________________________________________________________ 127,739 123,897 250,378 127,739 123,897 250,378__________________________________________________________________________________________________________ 4. Major restructuring programme (credit)/charge 26 weeks to 26 weeks to 52 weeks to 1 October 2 October 2 April 2006 2005 2006 £'000 £'000 £'000_______________________________________________________________________________Global management restructuring - 574 1,535Property provisions - 1,190 3,149Closure of manufacturing facilities - - 2,720Impairment of property, plant and equipment - - 1,523Insurance claim (receipt) - - (329)(Profit) on sale of properties (1,117) - -_______________________________________________________________________________ (1,117) 1,764 8,598_______________________________________________________________________________ During the period, the Wiring Harness facility in Leigh, UK was sold with aprofit of £1.1 million being recorded. 5. Tax charge The Group tax charge for the period is based on the forecast tax charge for theyear as a whole and has been influenced by the differing tax rates in the UK andin the various overseas countries in which the Group operates. 6. Earnings/(loss) per share The calculations of the earnings/(loss) per share are based on the followingdata: 26 weeks to 26 weeks to 52 weeks to 1 October 2 October 2 April 2006 2005 2006Earnings £'000 £'000 £'000_______________________________________________________________________________Basic earnings/(loss) 3,299 (3,176) (9,106)Major restructuring programme (credit)/charge (1,117) 1,764 8,598_______________________________________________________________________________Adjusted earnings/(loss) 2,182 (1,412) (508)_______________________________________________________________________________ Weighted average number of ordinary shares No. shares No. shares No. shares_______________________________________________________________________________For the purpose of basic EPS 55,551,699 43,108,550 49,247,645Effect of dilutive potential ordinary shares - share options 41,373 - -_______________________________________________________________________________For the purpose of diluted EPS 55,593,072 43,108,550 49,247,645_______________________________________________________________________________ Basic earnings/(loss) per share Pence Pence Pence_______________________________________________________________________________Basic earnings/(loss) per share 5.9 (7.4) (18.5)Adjustment for major restructuring programme (income)/costs (2.0) 4.1 17.5_______________________________________________________________________________Adjusted basic earnings/(loss) per share 3.9 (3.3) (1.0)_______________________________________________________________________________ Diluted earnings/(loss) per share _______________________________________________________________________________Diluted earnings/(loss) per share 5.9 (7.4) (18.5)Adjustment for major restructuring programme costs (2.0) 4.1 17.5_______________________________________________________________________________Adjusted diluted earnings per share 3.9 (3.3) (1.0)_______________________________________________________________________________ Basic earnings/(loss) represents net profit/(loss) attributable to equityholders of the Company. The adjusted earnings/(loss) per share has been calculated on the basis ofcontinuing activities before major restructuring programme costs, net of tax.The Directors consider that this earnings/(loss) per share calculation gives abetter understanding of the Group's earnings/(loss) per share in the periodspresented. As the Group recorded a loss per share in the periods to 2 October 2005 and 2April 2006, the share options are anti-dilutive and therefore there is nodifference between the basic and diluted loss per share in those periods. 7. Statement of changes in shareholders' equity Share Share Translation Retained Total capital premium reserve earnings equity £'000 £'000 £'000 £'000 £'000 ____________________________________________________________________________Balance at 2 April 2006 13,888 168 1,821 10,218 26,095Net profit for the period - - - 3,299 3,299Reserves entry for share option charges - - - 43 43Exchange differences on translation of foreign operations - - (2,213) - (2,213)____________________________________________________________________________Balance at 1 October 2006 13,888 168 (392) 13,560 27,224____________________________________________________________________________ 8. Analysis of net debt Other 2 April Exchange non cash 1 October 2006 Cash flow movement changes 2006 £'000 £'000 £'000 £'000 £'000_______________________________________________________________________________Cash at bank and in hand 11,646 (2,626) (606) - 8,414Overdraft - (35) - - (35)Debt due after one year (26,751) 1,689 1,437 - (23,625)Finance leases (230) 77 - - (153)Debt issue costs 2,061 208 - (584) 1,685_______________________________________________________________________________Net debt (13,274) (687) 831 (584) (13,714)_______________________________________________________________________________ Non-cash changes include amortisation of debt issue costs of £538,000 andaccrued costs of £46,000. Note: The presentation being made to stockbroking analysts on Wednesday 8 November2006 will be on the Company's web site www.volex.com from 11.00 am that day. This information is provided by RNS The company news service from the London Stock Exchange