TIDMVLX
RNS Number : 8849G
Volex PLC
09 November 2018
9 November 2018
VOLEX plc
Half year results for the 26 weeks ended 30 September 2018
'Solid half year performance underpinned by underlying operating
profit organic growth of 48% '
Volex plc ('Volex'), the global provider of cable assemblies,
today announces its interim results for the 26 weeks to 30
September 2018 ('H1 FY2019').
26 weeks to 26 weeks to
30 September 1 October %
Financial Summary 2018 2017 Change
--------------------------------- -------------- ----------------- -------------
Revenue $182.4m $161.4m 13.0
Underlying* operating profit $9.9m $5.5m 80.9
Statutory operating profit $5.7m $5.1m 12.8
Underlying* profit before tax $9.0m $4.5m 98.2
Statutory profit before tax $4.9m $4.2m 16.7
Basic earnings per share 2.7c 3.9c (30.8)
Underlying diluted earnings per
share 5.8c 4.3c 34.9
Net cash $24.9m $5.8m 430.4
* Before adjusting items (non-recurring items and amortisation
of acquired intangibles) and share-based payments
Operational highlights
-- Completed the acquisitions of MC Electronics LLC and Silcotec
Europe Limited during the half year. Both businesses are performing
well and expand Volex's customer base and manufacturing footprint
in complex cable assemblies.
-- Significant profit margin improvement in our Power division
as a result of management actions to reduce excess capacity in
Shenzhen, consolidate PVC production in Zhongshan, exit low margin
business and successfully manage input cost inflation.
-- We expect to continue to reduce our production costs over the
next 12 months through a focus on automation and product
standardisation.
Financial highlights
-- Underlying operating profit of $9.9 million is up 80.9% on
the prior year. Stripping out the contributions from the newly
acquired entities, organic growth was 48.4% reflecting improvements
in both the Power and Cable Assembly divisions.
-- Organic revenue growth of 3.5% in the period despite a 32.5%
reduction in revenue with our largest Power customer. Growth was
seen in virtually all other key accounts such that with the largest
Power customer stripped out, organic revenue growth was 10%.
-- Placing of 48 million new shares generated net cash proceeds
of $46.7 million. $11.3 million was utilised in the acquisition of
Silcotec with the balance being used to fund investment, working
capital and future accretive acquisitions. Net cash at the period
end was $24.9 million.
Nat Rothschild, Executive Chairman, said:
"I am pleased to report that the actions we have taken over the
past two years are reflected in the solid financial results
announced today. This progress has been made possible by a
rejuvenated management team with a clear strategy focused on
driving shareholder returns. As part of our future plans we intend
to further enhance our senior management team through selective
recruitment whilst further developing our factory teams with
training and development programmes aligned to our growth
objectives. Through careful planning, we believe we will return
value to our shareholders.
Thanks to the support of those shareholders, we were able to
raise $46.7 million of cash in the first half of the year through a
placing of shares. This cash has been used to
-- deleverage the balance sheet, leaving Volex in a strong financial position;
-- fund the acquisition of Silcotec Europe Limited and provide
funds for future accretive acquisitions;
-- enable investment in factory rationalisation and automation; and
-- increase our capabilities in new product development,
especially in the fast growing electric vehicle space.
The acquisition of Silcotec, following the acquisition earlier
in the year of MC Electronics LLC, was part of Volex's strategy to
grow the Cable Assemblies division both organically and through
targeted acquisitions in this highly fragmented marketplace. It is
our aim to build a well-diversified, global Cable Assemblies
business, providing the highest standard of quality and service to
customers in the medical and industrial equipment markets.
Both acquisitions are trading in line with plan and to date have
contributed $15.3 million to Group revenue and $1.8 million to
underlying operating profit. During the second half of the year we
plan to step up the level of integration in both businesses so that
we may maximise the benefits arising from an enlarged Cable
Assemblies division.
The acquisitions have not detracted from the performance of the
'traditional' Volex business where we continue to drive efficiency,
process and supply chain improvements across our facilities through
a renewed commitment to lean manufacturing. This approach coupled
with organic revenue growth of 3.5% has resulted in an underlying
operating profit growth of 48.4%. And this despite a further
managed reduction of 32.5% in the revenues derived from our largest
Power customer. To counter this decline we are in the early stages
of assessing our options regarding the relocation of our
manufacturing operations in Shenzhen where approximately 50% of our
site is owned with the remaining 50% on a lease expiring in
2021.
The revenue growth away from our largest Power customer can
largely be attributed to our core customers in the healthcare,
high-speed cabling solutions and electric vehicle charging sectors
who value our product and service offering and our reputation for
quality. The profit improvement flows from the additional volumes
passing through our factories, ongoing tight cost control (which
includes the reduced cost base from previous restructuring
activities undertaken) and improved manufacturing processes. With
the setting up of a dedicated PVC power cords factory in the prior
year, we have introduced our first two automated production lines
with further automation planned for the second half of the
year.
Outlook
Volex's core markets are expected to remain highly competitive
and the US trade tariffs imposed on China imports has created
uncertainty in the marketplace. However, the Board believes that
the increase in tariffs from 10% to 25% in January 2019 provides
the Group with a competitive opportunity. Few of Volex's China
based competitors have an international factory footprint and we
are already engaging with customers about the possibility of
transferring production from China to one of our alternate
factories.
Going forward, we are seeing the cost price pressure ease with
the copper price dropping back and the US Dollar strengthening
against our key manufacturing currencies.
With a continuing strong sales pipeline, the Board is optimistic
about the future outlook and expects full year trading performance
slightly ahead of market expectations.
Further we are in discussion with several potential acquisition
targets and we expect to make further announcements in this regard
in the second half of the year".
For further information please contact:
Volex plc
Nat Rothschild, Group Executive Chairman +65 6788 7833
Daren Morris, Group Chief Financial Officer +44 7909 995887
Liberum
Nominated adviser and broker +44 203 100 2000
Steve Pearce & Euan Brown
RESULTS FOR THE 26 WEEKSED 30 September 2018
Overview
The Board is pleased to report its results for the half year to
30 September 2018 which has seen the Group continue on its path to
recovery, improving upon the prior first half year's profit
performance, which itself was the best first half performance in
five years.
$'000 26 weeks 26 weeks
ended 30 ended 1
September October
Traditional Acquisitions 2018 2017
Total Total
Revenue 167,086 15,341 182,427 161,449
Cost of Sales (136,688) (11,716) (148,404) (132,578)
-------------- --------------- ------------ ----------
Underlying gross
profit* 30,398 3,625 34,023 28,871
Underlying gross
margin 18.2% 23.6% 18.7% 17.9%
Operating costs (22,289) (1,849) (24,138) (23,407)
-------------- --------------- ------------ ----------
Underlying operating
profit* 8,109 1,776 9,885 5,464
============== =============== ============ ==========
Underlying operating
margin 4.9% 11.6% 5.4% 3.4%
-------------- --------------- ------------ ----------
* Before adjusting items (non-recurring items and amortisation
of acquired intangibles) and share-based payments
During the half year, the Group completed the acquisitions of MC
Electronics LLC ('MC') and Silcotec Europe Limited ('Silcotec').
Both acquisitions are to be included within the Cable Assemblies
division and are currently trading in line with their acquisition
plan. Full operational integration will occur in the second half of
the year primarily in respect of IT, procurement and sales so that
Volex maximises the benefits arising from an enlarged Cable
Assemblies division.
MC and Silcotec have contributed $15.3 million to the half year
revenue with 88% of that revenue derived from customers that Volex
had little or no relationship with prior to acquisition. This has
made a significant contribution to the Group's strategy of
diversifying the customer base. The underlying gross margin
achieved by the two entities is ahead of the rest of the group
partly due to their product mix (higher margin healthcare cable
assemblies as opposed to commoditised power cords) and partly due
to better factory utilisation and productivity. The underlying
operating profit margin is ahead of the rest of the group due to
the lower corporate costs carried by both businesses.
Excluding the acquisitions (the 'traditional' Group), revenue
increased by 3.5% with this growth split across the two divisions
and across numerous accounts. In particular, our healthcare,
high-speed cabling solutions and electric vehicle charging sectors
performed well. This growth came despite a 32.5% fall in the
revenues derived from our largest Power customer. We expect
revenues from this customer to continue to decline as they look to
go 'cordless' in the next few years, however, as this half year has
shown we are now well equipped to manage this scenario.
Part of the revenue increase was due to the sharing of input
cost inflation with our customers. Of those input costs, copper (a
key component of our power cables) was on average 20.3% more
expensive in H1 FY2019 compared to H1 FY2018. Similarly the US
Dollar has been weaker in H1 FY2019 versus H1 FY2018 against our
key manufacturing currencies of the Chinese Renminbi (average 3.8%
weaker) and the Polish Zloty (average 3.6% weaker), pushing up
local manufacturing costs such as direct labour and utility
costs.
Whilst targeted price increases partially mitigated the impact
of input cost inflation, an improvement in underlying gross margin
was observed in the traditional business due to the leveraging
effect of passing higher volumes through our factories which help
absorb the fixed overheads. Further improvements in productivity
and scrap rates following the roll-out of Kaizen manufacturing
initiatives helped push the underlying gross margin up to 18.2%. In
the second half of the year, we expect the new automated production
lines to further drive productivity improvements.
The underlying operating profit from the traditional Volex
business at $8.1m was up 48.4% on prior year. Despite the increased
activity, the Group's continued tight cost control has ensured that
operating costs did not grow accordingly. The actual recorded
decline was in part due to a reduced number of new product
development projects with our largest Power customer and in part
due to a foreign exchange gain made from the US Dollar
strengthening against all currencies at the end of the half
year.
During the period, the Group announced the closure of its Indian
manufacturing facility. Several of the key accounts previously
served by the Indian factory have been retained and will be
serviced from either our Poland or China factories. As part of the
India factory closure, Volex has incurred non-recurring closure
costs of $0.7 million, of which $0.4 million were cash costs
primarily in relation to redundancies and retention bonuses
(several key personnel were paid bonuses to help close the factory
in an orderly manner). During the review of the balance sheet,
certain accounting irregularities were identified that have been
fully provided for and appropriate action taken. This gave rise to
an additional net $0.3 million charge.
During the half year, the US administration implemented a 10%
trade tariff on certain products imported from China. These tariffs
were effective as of 24 September 2018 with an expectation that the
tariff will rise to 25% in January 2019. Volex views these tariffs
as a competitive opportunity since very few of Volex's Chinese
rivals have a global factory footprint to rival Volex. We are
currently seeing interest from several of our customers in
exploring the opportunity to move production from our China sites
to an alternate Volex factory.
Further detailed analysis of the trading divisions is given on
the subsequent pages.
Trading performance
Power Cords Division
$'000 26 weeks 26 weeks 52 weeks
ended 30 ended 1 ended
September October
2018 2017 1 April
(Restated*) 2018
(Restated*)
Revenue 104,235 100,536 203,569
------------ -------------- -------------
Underlying gross
profit 18,799 16,131 33,877
Underlying gross
margin 18.0% 16.0% 16.6%
Operating costs (10,735) (11,206) (21,765)
------------ -------------- -------------
Underlying operating
profit 8,064 4,925 12,112
============ ============== =============
Underlying operating
margin 7.7% 4.9% 6.0%
------------ -------------- -------------
* Certain revenues and costs associated with specific customers
were transferred between
the Power Cords and Cable Assemblies division in order that each
factory could be wholly
identifiable as a Power Cords or Cable Assemblies
contributor.
Volex designs and manufactures power cords, duck heads and
related products that are sold to the manufacturers of a broad
range of electrical and electronic devices and appliances. Volex
products are used in laptops, PCs, tablets, printers, TVs, games
consoles, power tools, kitchen appliances, vacuum cleaners and
electric vehicles.
The Power division revenue for H1 FY2019 was $104.2 million, up
3.7% on the prior period. This performance was despite the
division's largest customer continuing its decline with revenue
down 31.7% on the prior year. As previously highlighted, this
customer's laptop range is now being sold with a USB-C charger
rather than a traditional power cord with other Volex legacy
products also being designed out. Further end-consumer demand for
new products manufactured by this customer, that we supply power
cords for, has been weak resulting in disappointing sales. We now
believe that business with this customer will continue its decline
as this customer looks to go cordless over the next few years and
duck head products reach end of life. As the above numbers show,
however, loss of this business does not have a significant
detrimental impact on the division due to the low margins achieved.
Divisional management has begun assessing the future options for
the Shenzhen facility where all of this customer's manufacturing
takes place, including the possible relocation of our manufacturing
operations since only c.50% of the site is owned with the remainder
held on a lease expiring in 2021.
Off-setting the decline with the division's largest customer,
Volex saw significant growth across many other key accounts with
sales to one of the world's leading electric vehicle manufacturers
up by 82%. Given that commercial production with this customer
began only last year, its rise to being a top ten account has been
rapid. Other accounts showing strong growth cover diverse sectors
including home power tools, commercial refrigeration, coffee makers
and data centres. Even the accounts relating to laptops, PCs and
printers showed modest growth, reversing a downward trend observed
over the past few years.
In addition to increased volumes, divisional management and the
sales team had success in sharing some of the input cost price
inflation the division was experiencing with our customers. The
cost of copper, a key conducting element of our power cords, was on
average 20.3% more expensive in H1 FY2019 compared to H1 FY2018. At
the end of the period the copper price had dropped back with an
approximate 12% decline but this will not impact Volex until the
second half of the year. Similarly with the key Power manufacturing
sites based in China, an average 3.8% weakening in the US Dollar
against the Renminbi pushed up the cost of the China direct labour
force and local costs. By the period end, however, the US Dollar
had strengthened so the labour cost pressure is expected to ease in
the second half.
With targeted price increases helping negate some of the cost
price inflation, the gross margin has been further enhanced by the
ongoing programme of removing negative margin products from our
portfolio and improvements in productivity and scrap rates
following the roll-out of Kaizen manufacturing initiatives. In the
past, products were often priced in batches with the return on an
overall batch analysed rather than the individual products.
However, over time our customers became more sophisticated and
would buy from us just those products on which we had a lower price
and therefore a negative margin. For the past few years, Volex has
worked to eliminate these negative margin products with over 100
part numbers re-priced in the past half year. Going forward, Volex
hopes to eliminate all negative margin products in the second half
of the year.
As noted in the FY2018 year-end accounts, in the prior year a
strategic decision was taken to transfer all PVC production from
Shenzhen to Zhongshan since with all PVC production under one roof,
better asset utilisation, better management of factory floor space
and overhead savings could all be achieved. Further the greater
production volumes would provide better conditions for automation.
To this end, 5 PVC lines were transferred in FY2018 with a further
6 lines transferred in H1 FY2019. In August 2018, Zhongshan
introduced its first two fully automated production lines, one for
EU power cord production and one for the US. Productivity gains are
already being observed as a result of this change.
To further enhance the level of automation within Volex, Volex
needs to standardise the Power product offering, reducing the
number of variants of essentially the same product. As a result, a
new range of products was developed in the half year. The
engineering team is currently working to secure safety approvals on
these new products and once certified all new sales will be made
using the new range with Volex also looking to transition existing
customers across.
Thanks to the leveraging effect of increased volumes, the
negotiated price increases arising from the higher input costs, the
removal of negative margin products and the improved manufacturing
processes, the gross margin within the division increased to
18.0%.
Operating costs have been closely monitored throughout the
period and the rigorous cost control policies implemented over the
past few years remain in place. The reduction in cost since the
prior half year is primarily due to the reduced level of new
product development with the division's largest customer.
As a consequence of the above, underlying operating profit has
increased by 63.8% to $8.1 million.
Cable Assemblies Division
$'000 26 weeks 26 weeks 52 weeks
ended 30 ended 1 ended
September October
2018 2017 1 April
(Restated*) 2018
(Restated*)
Traditional 62,851 60,913 118,808
Acquisitions 15,341 - -
------------ -------------- -------------
Revenue 78,192 60,913 118,808
------------ -------------- -------------
Underlying gross
profit 15,224 12,740 22,112
Underlying gross
margin 19.5% 20.9% 18.6%
Operating costs (9,976) (9,717) (18,590)
------------ -------------- -------------
Underlying operating
profit 5,248 3,023 3,522
============ ============== =============
Underlying operating
margin 6.7% 5.0% 3.0%
------------ -------------- -------------
* Certain revenues and costs associated with specific customers
were transferred between
the Power Cords and Cable Assemblies division in order that each
factory could be wholly
identifiable as a Power Cords or Cable Assemblies
contributor.
Volex designs and manufactures a broad range of cables and
connectors (ranging from high speed copper and fiber-optic cables
to complex customised optical cable assemblies) that transfer
electronic, radio-frequency and optical data. Volex products are
used in a variety of applications including data networking
equipment, data centres, wireless base stations and cell site
installations, mobile computing devices, medical equipment, factory
automation, vehicle telematics, agricultural equipment and
alternative energy generation.
Revenue for H1 FY2019 was $78.2 million, up 28.4% on the prior
period. Stripping out the revenue contribution from the acquired MC
and Silcotec entities, the revenue increase is reduced to 3.2%.
This increase arose principally from the high-speed interconnect
solutions and healthcare sectors with a large online retailer
providing significant growth in the period. This growth has been
partially off-set by the decline seen from a key US transportation
and telematics customer. As we have noted previously, demand from
this customer is cyclical and after a year of high demand, this
year Volex is seeing reduced activity.
The underlying gross profit has increased to $15.2 million from
$12.7 million, representing a gross margin of 19.5% (H1 FY2018:
20.9%). The reduction in margin is due to price downs given to two
key customers whilst at the same time Volex suffered from cost
price inflation. Divisional management is optimistic that with a
renewed operational focus, we can reverse much of this decline.
Operating costs have increased by $0.3 million to $10.0 million,
however, of this $1.8 million related to the two new acquisitions.
The traditional Volex business saw a decline in costs of $1.5m with
a $0.8 million reduction due to foreign exchange (US Dollar
strengthened significantly against the Renminbi and the Polish
Zloty) and a $0.5 million saving on legal fees associated with the
closure of Volex Brazil.
As a result of the above, underlying divisional operating profit
for the period increased from $3.0 million in H1 FY2018 to $5.2
million in H1 FY2019.
Adjusting items and share-based payments
Adjusting items and share-based payments totalled $4.1 million
in the period (H1 FY2018: $0.4 million).
Adjusting items replace the previously disclosed non-recurring
items. The new description expands on the previous disclosure to
not only include costs that are one-off in nature and significant
(such as restructuring costs, impairment charges or acquisition
related costs) but to also include the non-cash amortisation of
intangible assets.
Included within the $4.1 million is $1.9 million of
restructuring costs. Restructuring of the Shenzhen factory
continued as Volex responded to the declining business from the
Power division's largest customer resulting in $1.5 million of
severance payments. A further $0.7 million charge has been incurred
through the closure of the Volex factory in India comprising
severance payments ($0.3 million), retention payments made to
certain key staff ($0.1 million) and a net $0.3 million charge to
impair non-recoverable assets. Off-setting these two charges is a
credit of $0.3 million in relation to the release of certain
provisions booked a number of years ago for which settlement has
now become time-barred.
$0.8 million of costs have been incurred in the period in
relation to legal fees on the acquisitions of MC Electronics and
Silcotec plus post-acquisition retention payments due.
Associated with the acquisitions, Volex has recognised certain
intangible assets including non-compete agreements, customer
relationships and order backlogs. As at 30 September 2018, these
intangibles are provisional and subject to change during the annual
subsequent measurement period following each acquisition. The
amortisation of these intangibles is non-cash and totals $0.6
million for the period, split $0.4 million for Silcotec and $0.2
million for MC Electronics.
The share-based payments expense of $0.8 million is higher than
the prior half year due to the fact that H1 FY2018 benefitted from
a significant credit arising on the lapse of certain share
options.
Tax
The Group incurred a tax charge of $1.5 million (H1 FY2018: $0.7
million) representing an underlying effective tax rate of 18.1% (H1
FY2018: 14.8%), consistent with our expectation of the underlying
ETR for the full year. The increase in the ETR reflects tax charges
due on recent acquisitions and additional withholding tax on
undistributed reserves.
Half year position and cash flows
Balance sheet and refinancing
Net assets as at H1 FY2019 are $106.2 million, up $58.0 million
from the prior year end. The principal reason for the increase is
the $46.7 million raised through the placing of 45 million shares
and the $6.7 million of equity issued in consideration for the
acquisitions of MC Electronics and Silcotec.
The table below summarises the impact of the two acquisitions
made:
$'000 30 September 1 April
2018 2018
Total Total
Traditional Acquisitions
Non-current assets
Goodwill 2,451 5,136 7,587 2,633
Other intangible assets 591 5,540 6,131 498
Property, plant and equipment 16,777 3,806 20,583 17,406
Other long term assets 6,319 313 6,632 4,069
26,138 14,482 40,933 24,606
Net current assets (excluding
cash and overdraft)
Inventories 43,143 8,393 51,536 40,686
Trade receivables 64,510 7,596 72,106 56,199
Trade payables (44,100) (2,250) (46,350) (54,181)
Other Working capital (28,651) (2,512) (31,163) (22,329)
----------------- ----------------- -------------- ---------
34,902 11,227 46,129 20,375
Long term liabilities (5,511) (295) (5,806) (6,785)
Net funds 22,429 2,507 24,936 9,948
Net assets 77,958 28,234 106,192 48,144
================= ================= ============== =========
Goodwill and other intangibles (non-compete agreements, customer
relationships and order backlogs) have been recognised on the
acquisition of both MC Electronics and Silcotec.
Inventory in the traditional Volex business has increased on
year end by $2.5 million, partly due to the increased level of
trade but also due to buffer stock having been built up in advance
of the transfer of the PVC lines from Shenzhen to Zhongshan.
Additionally the lead time on raw materials used in our Electric
Vehicle chargers is longer than the raw material for standard power
cords and therefore Volex holds a higher level of raw material in
order to meet customer demand.
Trade receivables in the traditional business has increased by
$8.3 million on year end due to the higher level of business
activity whilst trade payables has decreased by $10.1 million since
with net funds following the equity raise, Volex is taking
advantage of prompt payment discounts.
At 30 September 2018, the Group had net funds of $24.9 million.
The Group's senior credit facility runs to June 2019 with no
elements (other than the letter of credit facility) drawn at half
year. At present the net funds are sufficient for the Group to
continue in operations for the foreseeable future with no
requirement for a credit facility. Volex is currently considering
its financing options for the period post June 2019.
Cash flows
Net cash increased from $9.9 million at 1 April 2018 to $24.9
million at 30 September 2018. This increase was primarily due to
the $46.7 million raised through the equity issue in June 2018 (48
million shares issued at GBP0.75 each) less the net $9.4 million
consideration paid on the acquisition of MC Electronics and
Silcotec, a $2.3 million payment post Silcotec acquisition to
release it from a loan obligation and a $18.8 million cash outflow
from operations (H1 FY2018: $0.4 million).
The cash outflow from operations has arisen due to the large
movement in working capital since the prior year end,
including:
-- an increase in inventory leading to a cash outflow of $2.8
million (H1 FY2018 outflow of $5.3 million). This increase is due
to the increased level of trade, the seasonality of the Power
business (stock tends to be higher in September than March due to
pre-Christmas activity) and a build of buffer stock in advance of
the transition of further PVC lines to Zhongshan.
-- an increase in receivables leading to a cash outflow of $12.9
million (H1 FY2018 outflow of $6.1 million). This increase is due
to the increased level of trade plus the fact that the Silcotec
business was acquired without any trade receivables. The cash
collection of invoices raised prior to the acquisition date was
left with the seller, with Volex responsible only for cash
collection on sales post-acquisition. At half year-end, Silcotec
trade debtors totalled $5.1 million and the entirety of this
increase is within the $12.9 million movement.
-- a decrease in payables of $11.5 million. Due to the surplus
cash, the Group decided to take advantage of prompt payment
discounts offered by several key suppliers in order to improve
margins.
Impact of Brexit
At the time of writing, the exact nature of the UK's future
trading relationship with the EU is still unclear. At present our
Power sales into Europe are manufactured in Asia and then shipped
to Tilbury docks in Essex before onward shipment to the end
customer. Annual European sales from our Power division is approx.
$14 million with roughly half of these sales remaining in the UK
for a UK end customer. We have already begun looking for an
alternate dock on mainland Europe to take delivery of the half of
sales destined for EU end customers. For our Cable Assembly sales,
the level of sales to UK customers is small. Therefore we believe
the impact upon the business will be minimal.
Risks and uncertainties
Risks to Volex are anticipated and regularly assessed and
internal controls are enhanced where necessary to ensure that such
risks are appropriately mitigated. The principal risks and
uncertainties facing the Group in the second half of the year
remain those detailed in the FY2018 Annual Report and Accounts on
pages 25 to 29, a copy of which is available on the website at
www.volex.com.
The principal risks and uncertainties are summarised as:
-- Competitor risk;
-- Customer concentration;
-- Key personnel retention;
-- Quality and product failure;
-- Product development;
-- Supplier dependency;
-- Investment valuation and integration;
-- Breach of financial covenants and liquidity;
-- Copper price volatility;
-- Foreign exchange rate movements;
-- Compliance with legislation and regulations; and
-- Corporate Governance.
Responsibility statement
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS34 'Interim Financial Reporting' as adopted
by the EU.
-- the interim management report includes a fair review of the
information required by DTR 4.2.7R:
o an indication of important events that have occurred during
the first six months of the financial year, and their impact on the
condensed set of financial statements, and
o a description of the principal risks and uncertainties for the
remaining six months of the year.
-- the interim management report includes a fair review of the
information required by DTR 4.2.8R:
o related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the Group in that
period, and
o any changes in the related party transactions described in the
Annual Report 2018 that could have a material effect on the
financial position or performance of the Group in the current
period.
Nat Rothschild Daren Morris
Executive Chairman Group Chief Financial Officer
9 November 2018 9 November 2018
Unaudited consolidated income statement
For the 26 weeks ended 30 September 2018 (26 weeks ended 1
October 2017)
26 weeks ended 30 September 26 weeks ended 1 October
2018 2017
Adjusting Adjusting
Before Items and Before Items and
Adjusting share-based Adjusting share-based
items payments Total items payments Total
Notes $'000 $'000 $'000 $'000 $'000 $'000
---------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Revenue 2 182,427 - 182,427 161,449 - 161,449
Cost of sales (148,404) (1,666) (150,070) (132,578) - (132,578)
---------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Gross profit 34,023 (1,666) 32,357 28,871 - 28,871
Operating expenses (24,138) (2,495) (26,633) (23,407) (388) (23,795)
---------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Operating profit/(loss) 2 9,885 (4,161) 5,724 5,464 (388) 5,076
Share of net profit/(loss)
from associates (210) - (210) (52) - (52)
Finance income 42 - 42 8 - 8
Finance costs (703) - (703) (873) - (873)
Profit/(loss) on ordinary
activities before taxation 9,014 (4,161) 4,853 4,547 (388) 4,159
Taxation 4 (1,628) 88 (1,540) (674) - (674)
---------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Profit/(loss) for the
period attributable to
the owners of the parent 7,386 (4,073) 3,313 3,873 (388) 3,485
---------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Earnings/(loss) per share
(cents)
Basic 5 6.0 2.7 4.4 3.9
Diluted 5 5.8 2.6 4.3 3.8
---------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
52 weeks ended 1 April
2018
Adjusting
Before Items and
Adjusting share-based
items payments Total
Notes $'000 $'000 $'000
---------------------------- ----- ---------- ------------ ---------
Revenue 2 322,377 - 322,377
Cost of sales (266,388) (146) (266,534)
---------------------------- ----- ---------- ------------ ---------
Gross profit 55,989 (146) 55,843
Operating expenses (44,532) (2,538) (47,070)
---------------------------- ----- ---------- ------------ ---------
Operating profit/(loss) 2 11,457 (2,684) 8,773
(192) - (192)
Finance income 20 - 20
Finance costs (1,606) - (1,606)
---------------------------- ----- ---------- ------------ ---------
Profit/(loss) on ordinary
activities before taxation 9,679 (2,684) 6,995
Taxation 4 (1,519) (1,551) (3,070)
---------------------------- ----- ---------- ------------ ---------
Profit/(loss) for the
period attributable to
the owners of the parent 8,160 (4,235) 3,925
---------------------------- ----- ---------- ------------ ---------
Earnings/(loss) per share
(cents)
Basic 5 9.2 4.4
Diluted 5 8.9 4.3
---------------------------- ----- ---------- ------------ ---------
Unaudited consolidated statement of comprehensive income
For the 26 weeks ended 30 September 2018 (26 weeks ended 1
October 2017)
(Audited)
26 weeks 26 weeks 52 weeks
to to to
30 September 1 October 1 April
2018 2017 2018
$'000 $'000 $'000
-------------------------------------------------- ---------------- ------------- ----------
Profit/(loss) for the period 3,313 3,485 3,925
Items that will not be reclassified subsequently
to profit or loss:
Actuarial gain/(loss) on defined benefit
pension schemes 331 617 870
Tax relating to items that will not be - - -
reclassified
-------------------------------------------------- ---------------- ------------- ----------
331 617 870
Items that may be reclassified subsequently
to profit or loss:
Gain/(loss) on hedge of net investment - - -
taken to equity
Gain/(loss) arising on cash flow hedges
during the period (626) 253 (265)
Exchange gain/(loss) on translation of
foreign operations 437 (2,485) (3,631)
Tax relating to items that may be reclassified - - -
-------------------------------------------------- ---------------- ------------- ----------
(189) (2,232) (3,896)
Other comprehensive income/(loss) for
the period 142 (1,615) (3,026)
Total comprehensive income/(loss) for
the period 3,455 1,870 899
-------------------------------------------------- ---------------- ------------- ----------
Unaudited consolidated statement of financial position
As at 30 September 2018 (1 October 2017)
(Audited)
30 September 1 October 1 April
2018
Note $'000 2017 2018
$'000 $'000
----------------------------------- ------ -------------- ----------- ----------
Non-current assets
Goodwill 7,587 2,584 2,633
Other intangible assets 6,131 544 498
Property, plant and equipment 20,583 17,709 17,406
Investments in associates - 248 226
Other receivables 2,321 759 1,560
Deferred tax asset 4,311 2,955 2,283
----------------------------------- ------ -------------- ----------- ----------
40,933 24,799 24,606
----------------------------------- ------ -------------- ----------- ----------
Current assets
Inventories 51,536 41,628 40,686
Trade receivables 72,106 60,030 56,199
Other receivables 6,917 8,091 7,376
Current tax assets 713 178 948
Derivative financial instruments 46 688 192
Cash and bank balances 8 24,647 23,464 24,830
----------------------------------- ------ -------------- ----------- ----------
155,965 134,079 130,231
----------------------------------- ------ -------------- ----------- ----------
Total assets 196,898 158,878 154,837
----------------------------------- ------ -------------- ----------- ----------
Current liabilities
Borrowings 8 - 1,003 1,849
Trade payables 46,350 54,953 54,181
Other payables 30,074 27,211 25,576
Current tax liabilities 6,416 4,579 4,030
Retirement benefit obligation 881 770 947
Provisions 703 362 292
Derivatives financial instruments 476 - -
84,900 88,878 86,875
----------------------------------- ------ -------------- ----------- ----------
Net current assets 71,065 45,201 43,356
----------------------------------- ------ -------------- ----------- ----------
Non-current liabilities
Borrowings 8 - 16,667 13,033
Other payables 1,419 463 1,080
Non current tax liabilities - - 1,242
Deferred tax liabilities 2,568 1,326 2,008
Retirement benefit obligation 1,466 2,971 2,370
Derivative financial instruments 10 - -
Provisions 343 85 85
5,806 21,512 19,818
----------------------------------- ------ -------------- ----------- ----------
Total liabilities 90,706 110,390 106,693
----------------------------------- ------ -------------- ----------- ----------
Net assets 106,192 48,488 48,144
----------------------------------- ------ -------------- ----------- ----------
Equity attributable to owners of
the parent
Share capital 6 58,111 39,755 39,755
Share premium account 42,807 7,122 7,122
Non-distributable reserve 2,455 2,455 2,455
Hedging and translation reserve (8,339) (6,486) (8,150)
Own shares 7 (792) (867) (867)
Retained earnings 11,950 6,509 7,829
----------------------------------- ------ -------------- ----------- ----------
Total equity 106,192 48,488 48,144
----------------------------------- ------ -------------- ----------- ----------
Unaudited Consolidated Statement of Changes in Equity
For the 26 weeks ended 30 September 2018 (26 weeks ended 1
October 2017)
Share Non-distributable Hedging Retained
Share premium reserves and translation earnings/ Total
capital account reserve Own shares (losses) equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000
--------------------- --------- --------- ------------------ ----------------- ----------- ----------- --------
Balance 2 April 2017 39,755 7,122 2,455 (4,254) (867) 2,096 46,307
Profit for the
period
attributable to the
owners of the
parent - - - - - 3,485 3,485
Other comprehensive
income/ (loss) for
the period - - - (2,232) - 617 (1,615)
--------------------- --------- --------- ------------------ ----------------- ----------- ----------- --------
Total comprehensive
income/ (loss) for
the period - - - (2,232) - 4,102 1,870
Reserve entry for
share option
charges/(credit) - - - - - 311 311
Balance at 1 October
2017 39,755 7,122 2,455 (6,486) (867) 6,509 48,488
--------------------- --------- --------- ------------------ ----------------- ----------- ----------- --------
Balance 1 April 2018 39,755 7,122 2,455 (8,150) (867) 7,829 48,144
Profit for the
period
attributable to the
owners of the
parent - - - - - 3,313 3,313
Other comprehensive
income/ (loss) for
the period - - - (189) - 331 142
--------------------- --------- --------- ------------------ ----------------- ----------- ----------- --------
Total comprehensive
income/ (loss) for
the period - - - (189) - 3,644 3,455
Shares issued 18,205 35,685 - - - - 53,890
Exercise of deferred
bonus shares 151 - - - - (151) -
Own shares
sold/(utilised)
in the period - - - - 75 (31) 44
Reserve entry for
share option
charges/(credit) - - - - - 659 659
Balance at 30
September
2018 58,111 42,807 2,455 (8,339) (792) 11,950 106,192
--------------------- --------- --------- ------------------ ----------------- ----------- ----------- --------
Unaudited consolidated statement of cash flows
For the 26 weeks ended 30 September 2018 (26 weeks ended 1
October 2017)
(Audited)
26 weeks 26 weeks 52 weeks
to to to
30 September 1 October 1 April
Notes 2018 2017 2018
$'000 $'000 $'000
-------------------------------------------- ------- ---------------- --------------------- ----------
Profit/(loss) for the period 3,313 3,485 3,925
Adjustments for:
Finance income (42) (8) (20)
Finance costs 703 873 1,606
Income tax expense 1,540 674 3,070
Share of net profit/(loss) from associates 210 52 192
Depreciation of property, plant and
equipment 1,594 1,546 3,095
Impairment of property, plant and 249 - -
equipment
Impairment of intangible assets - - 74
Amortisation of intangible assets 630 59 115
Loss on disposal of property, plant
and equipment 125 8 89
Share option charge/(credit) 832 388 1,132
Increase/(decrease) in provisions (748) (382) (810)
-------------------------------------------- ------- ---------------- --------------------- ----------
Operating cash flow before movements
in working capital 8,406 6,695 12,468
(Increase)/decrease in inventories (2,790) (5,279) (3,974)
(Increase)/decrease in receivables (12,888) (6,130) (1,661)
Increase/(decrease) in payables (11,497) 4,310 1,508
Movement in working capital (27,175) (7,099) (4,127)
Cash generated by operations (18,769) (404) 8,341
---------------- --------------------- ----------
Cash generated by operations before
adjusting items (16,219) 147 9,365
Cash utilised by adjusting items (2,550) (551) (1,024)
---------------- --------------------- ----------
Taxation paid (942) (1,227) (2,469)
Interest paid (438) (483) (979)
-------------------------------------------- ------- ---------------- --------------------- ----------
Net cash generated from/(used in)
operating activities (20,149) (2,114) 4,893
-------------------------------------------- ------- ---------------- --------------------- ----------
Cash flow from investing activities
Interest received 42 8 12
Net proceeds on acquisition of businesses 9 (9,398) - -
Proceeds on disposal property, plant
and equipment 10 11 44
Purchases of property, plant and equipment (1,257) (1,051) (2,436)
Purchases of intangible assets (161) (2) (2)
Utilisation of own shares 42 - -
Purchase of preference shares (1,000) - (400)
Investments in associates - (300) (400)
Net cash generated from/(used in)
investing activities (11,722) (1,334) (3,182)
-------------------------------------------- ------- ---------------- --------------------- ----------
Cash flow before financing activities (31,871) (3,448) 1,711
---------------- --------------------- ----------
Cash generated/(used) before adjusting
items (29,321) (2,897) 2,735
Cash utilised in respect of adjusting
items (2,550) (551) (1,024)
---------------- --------------------- ----------
Cash flow from financing activities
Repayment of borrowings (12,826) (3,000) (7,285)
Refinancing costs paid - (494) (496)
Proceeds on issue of shares 46,685 - -
Net cash generated from/(used in)
financing activities 8 33,859 (3,494) (7,781)
----------------------------------------- --------- -------- --------
Net increase/(decrease) in cash and
cash equivalents 1,988 (6,942) (6,070)
Cash and cash equivalents at beginning
of period 8 22,981 29,565 29,565
Effect of foreign exchange rate changes (322) (162) (514)
----------------------------------------- --------- -------- --------
Cash and cash equivalents at end of
period 8 24,647 22,461 22,981
----------------------------------------- --------- -------- --------
Notes to the Interim Statements
1. Basis of preparation
These interim financial statements have been prepared in
accordance with IAS 34, 'Interim Financial Reporting' as adopted by
the European Union. The condensed consolidated interim financial
information should be read in conjunction with the annual financial
statements for the 52 weeks ended 1 April 2018, which have been
prepared in accordance with IFRSs as adopted by the European
Union.
This condensed consolidated interim financial information does
not comprise statutory accounts within the meaning of section 434
of the Companies Act 2006. The financial information presented for
the 26 weeks ended 30 September 2018 ('H1 FY2019') and the 26 weeks
ended 1 October 2017 ('H1 FY2018') has not been reviewed by the
auditors. The financial information for the 52 weeks ended 1 April
2018 ('FY 2018') is extracted and abridged from the Group's full
accounts for that year. The statutory accounts for FY 2018 have
been filed with the Registrar of Companies for England and Wales
and have been reported on by the Group's auditors. The Report of
the Auditors was not qualified and did not contain a statement
under Section 498 of the Companies Act 2006.
The interim report was approved by the Board of Directors on 9
November 2018.
This interim report can be downloaded or viewed via the Group's
website at www.volex.com. Copies of the annual report for the
financial year ended 1 April 2018 are available at the Company's
registered office at Holbrook House, 34-38 Hill Rise, Richmond,
Surrey, London, TW10 6UA, UK and can also be downloaded or viewed
via the Group's website.
Following the placement of 48 million new shares in the period
which raised $46.7 million, the Group is in a net funds position
with $24.9m of cash held at 30 September 2019. The Group continues
to have access to a committed senior credit facility, however, with
the exception of 4 letters of credit totalling $0.7 million, it is
unutilised. The facility expires in June 2019. The Group's forecast
and projections, taking reasonable account of possible changes in
trading performance show that the Group should continue to operate
with net funds for the foreseeable future. As of 9 November 2018,
the Group is not committed to any further acquisitions. Should any
opportunities under review develop, the Group will consider the
appropriate funding sources at the time. The Directors therefore
believe that the Group is well placed to manage its business within
the available facilities. Accordingly, they continue to adopt the
going concern basis in preparing these condensed financial
statements.
The same presentation and methods of computation are followed in
these condensed financial statements as applied in the Group's
latest annual financial statements with the following two
exceptions:
-- replacement of the non-recurring items disclosure with an
adjusting items disclosure. Adjusting items expands upon
non-recurring items to include not only those costs that are
one-off in nature and significant (such as restructuring costs or
impairment charges and acquisition related costs) but to also
include the non-cash amortisation of acquired intangible
assets.
-- restatement of the prior year segmental reporting. Following
a change in reporting lines and in an attempt to improve the
transparency and accountability of each site, a number of sites
which had been classified as "hybrid" and had their revenues and
costs allocated across the reporting divisions have now been
reclassified to either the Power Cords or the Cable Assembly
divisions.
These condensed financial statements have also been prepared
using accounting policies consistent with International Financial
Reporting Standards as adopted for use in the European Union
('IFRS') and which are consistent with those disclosed in the
annual report and accounts for the year ended 1 April 2018 with the
exception of the following two new accounting standards that have
become effective during the period:
-- IFRS 15 'Revenue from Contracts with Customers' - this
introduces a single, principles based approach to the recognition
and measurement of revenue from all contracts with customers. The
majority of the Group's contracts have just one performance
obligation which is the delivery of goods. Under IFRS 15 revenue is
to be recognised at a single point, either on delivery or pick up
depending upon the agreed terms with the customers. From the review
performed of the Group's largest customers no material impacts were
identified from IFRS 15 adoption.
-- IFRS 9 'Financial Instruments' - the adoption of IFRS 9 has
had no material impact upon the amounts recognised in the financial
statements. It has, however, lead to a change to the internal
documentation held with respect to our copper and foreign exchange
hedging contracts. We continue to account for these contracts as
cash flow hedges. Due to the low level of historic debt write off,
the impact of provisioning for future expected credit loss has been
deemed immaterial.
Impact of standards issued but not yet applied by the Group
IFRS 16 Leases prescribes a single lessee accounting standard
that requires the recognition of a right of use asset and
corresponding liability for all those leases with terms over 12
months unless the underlying asset is of low value. The
implementation of IFRS 16 is likely to have a significant impact on
the Group with the transition work currently on going.
2. Business and geographical segments
Business segments
The internal reporting provided to the Group's Board for the
purpose of resource allocation and assessment of Group performance
is based upon the nature of products which the Group supplies. In
addition to the operating divisions, a Central division exists to
capture all of the corporate costs incurred in supporting the
operations.
Division Description
Power Cords The sale and manufacture of electrical power products
to manufacturers of electrical / electronic devices
and appliances. These include laptop / desktop computers,
printers, televisions, power tools, floor cleaning
equipment and electric vehicles.
-----------------------------------------------------------
Cable Assemblies The sale and manufacture of cables permitting the transfer
of electronic, radio-frequency and optical data. These
cables can range from simple USB cables to complex
high speed cable assemblies and are used in numerous
devices including medical equipment, data centres,
telecoms networks and industrial robotics.
-----------------------------------------------------------
Central Corporate costs that are not directly attributable
to the manufacture and sale of the Group's products
but which support the Group in its operations. Included
within this division are the costs incurred by the
executive management team and the corporate head office.
-----------------------------------------------------------
Following a change in reporting lines and in an attempt to
improve the transparency and accountability of each site, a number
of sites which had been classified as "hybrid" and had their
revenues and costs allocated across the reporting divisions have
now been reclassified to either the Power Cords or the Cable
Assembly divisions. As a result, the prior period segmental
reporting has been restated so that it is presented on a comparable
basis to the current year.
The following is an analysis of the Group's revenues and results
by reportable segment. Prior period performance has been restated
into divisional reporting on the same basis as the current
period.
26 weeks to 30 September 26 weeks to 1 October
2017
2018 (restated)
--------------------------------------- --------------------------- ------------------------
Revenue Profit/(loss) Revenue Profit/(loss)
$'000 $'000 $'000 $'000
--------------------------------------- ---------- --------------- -------- --------------
Power Cords 104,235 8,064 100,536 4,925
Cable Assemblies 78,192 5,248 60,913 3,023
Unallocated central costs (excluding
share-based payments) (3,427) (2,484)
--------------------------------------- ---------- --------------- -------- --------------
Divisional results before share-based
payments and adjusting items 182,427 9,885 161,449 5,464
Adjusting items (3,329) -
Share-based payments (832) (388)
--------------------------------------- ---------- --------------- -------- --------------
Operating profit 5,724 5,076
Share of net profit from associates (210) (52)
Finance income 42 8
Finance costs (703) (873)
--------------------------------------- ---------- --------------- -------- --------------
Profit before tax 4,853 4,159
Tax (1,540) (674)
--------------------------------------- ---------- --------------- -------- --------------
Profit after tax 3,313 3,485
--------------------------------------- ---------- --------------- -------- --------------
52 weeks to 1 April
2018
(restated and unaudited)
--------------------------------------- ---------- ----------------------------
Revenue Profit/(loss)
$'000 $'000
--------------------------------------- ---- ---- ---------- ----------------
Power Cords 203,569 12,112
Cable Assemblies 118,808 3,522
Unallocated central costs (excluding
share-based payments) - (4,177)
--------------------------------------------------- ---------- ----------------
Divisional results before share-based
payments and Adjusting items 322,377 11,457
Adjusting items (1,552)
Share-based payments (1,132)
--------------------------------------------------- ---------- ----------------
Operating profit 8,773
Share of net profit/(loss)
from associates (192)
Finance income 20
Finance costs (1,606)
--------------------------------------------------- ---------- ----------------
Profit before tax 6,995
Tax (3,070)
--------------------------------------------------- ---------- ----------------
Profit after tax 3,925
--------------------------------------------------- ---------- ----------------
The accounting policies of the reportable segments are in
accordance with the Group's accounting policies.
The adjusting items charge within operating profit for the
period of $3,329,000 (H1 FY2018: $nil, FY2018: $1,552,000) was
split $1,889,000 (H1 FY2018: $nil, FY2018: $628,000) to Power
Cords, $1,440,000 (H1 FY2018: $nil, FY2018: $305,000) to Cable
Assemblies and $nil (H1 FY2018: $nil, FY2018: $738,000) to
Central.
Other segmental information
External revenue Non-current assets
(excluding deferred tax assets)
------------------------------------------- -------------------------------------------
(Audited) (Audited)
26 weeks 26 weeks 52 weeks 26 weeks 26 weeks 52 weeks
to to to to to to
30 September 1 October 1 April 30 September 1 October 1 April
2018 2017 2018 2018 2017 2018
$'000 $'000 $'000 $'000 $'000 $'000
----------------- ---------------- ------------- ---------- ---------------- ------------- ----------
Geographical segments
Asia (excluding
India) 86,744 88,758 175,266 16,953 16,562 16,525
North America 58,325 45,040 90,421 2,125 1,048 1,088
Europe 35,238 25,512 51,959 17,052 3,440 3,899
India 2,120 2,139 4,731 492 794 811
182,427 161,449 322,377 36,622 21,844 22,323
----------------- ---------------- ------------- ---------- ---------------- ------------- ----------
3. Adjusting items and share-based payments
(Audited)
26 weeks 26 weeks 52 weeks
to to to
30 September 1 October 1 April
2018 2017 2018
$'000 $'000 $'000
------------------------------------------ ---------------- ------------- ----------
Restructuring costs 1,939 - 860
Acquisition costs 824 - 135
Amortisation of acquired intangibles 566 - -
Transition to AIM - - 513
Impairment of Goodwill - - 74
Movement in onerous lease provision - - (30)
Total adjusting items 3,329 - 1,552
Adjusting items tax expenses (88) - 1,551
------------------------------------------ ---------------- ------------- ----------
Total adjusting items 3,241 - 3,103
------------------------------------------ ---------------- ------------- ----------
Share-based payments (credit) / charge 832 388 1,132
------------------------------------------ ---------------- ------------- ----------
Adjusting items and share-based payments 4,073 388 4,235
------------------------------------------ ---------------- ------------- ----------
Adjusting items replace the previously disclosed non-recurring
items. The new description expands on the previous disclosure to
not only include costs that are one-off in nature and significant
(such as restructuring costs, impairment charges or acquisition
related costs) but to also include the non-cash amortisation of
intangible assets.
The adjusting items and share-based payments are included under
the statutory classification appropriate to their nature but are
separately disclosed on the face of the income statement to assist
in understanding the underlying financial performance of the
Group.
During H1 FY2019, the Group incurred $1,939,000 (H1 FY2018:
$nil, FY2018: $860,000) of restructuring costs. Following a further
decline in revenue with the Power division's largest customer,
further restructuring costs of $1,469,000 were incurred at our
Shenzhen factory, primarily in relation to severance costs. In
addition, during the period the decision was taken to close the
Indian factory. As part of this closure, Volex has incurred
$685,000 of closure costs principally in relation to severance
fees, retention bonuses paid to several key staff (in order that
they remain and work on an orderly closure of the factory) and the
write off of assets no longer deemed recoverable. Off-setting these
two charges was a $265,000 credit resulting from the release of a
provision made several years ago for minimum order quantity
commitments that have now become time barred.
During FY2018, the Group incurred $860,000 of restructuring
spend following the down-sizing of an Asian factory, the
down-sizing of the European and South Korean sales teams and the
restructuring of the Singapore regional head office.
Acquisition related costs of $824,000 (FY2018: $135,000) are
split between $590,000 for Silcotec and $234,000 for MC
Electronics. These costs cover legal fees associated with the
transactions and post-acquisition remuneration charges linked to
the retention of key staff.
Associated with the acquisitions, the Group has recognised
certain intangible assets including non-compete agreements,
customer relationships and order backlogs. As at 30 September 2018,
the attributed values of these intangibles are provisional. The
amortisation of these intangibles is non-cash and totals $566,000
for the period, split $393,000 for Silcotec and $173,000 for MC
Electronics.
During FY2018, the Group incurred $513,000 of professional and
administrative fees in transitioning from the Main Market of the
London Stock Exchange to AIM whilst continued poor performance at
the Group's Indian operations resulted in a $74,000 impairment of
associated goodwill.
4. Tax charge
The Group tax charge for the period is based on the forecast tax
charge for the year as a whole and has been influenced by the
differing tax rates in the UK and the various overseas countries in
which the Group operates.
5. Earnings per ordinary share
The calculations of the earnings per share are based on the
following data:
26 weeks 26 weeks 52 weeks
to to to
30 September 1 October 1 April
2018 2017
$'000 $'000 2018
Earnings/(loss) $'000
-------------------------------------------- -------------- ------------ -----------
Earnings/(loss) for the purpose of basic
earnings per share 3,313 3,485 3,925
Adjustments for:
Adjusting items 3,329 - 1,552
Share based payments charge/(credit) 832 388 1,132
Tax effect of above adjustments and other
adjusting item tax movements (88) - 1,551
-------------------------------------------- -------------- ------------ -----------
Underlying earnings 7,386 3,873 8,160
-------------------------------------------- -------------- ------------ -----------
Weighted average number of ordinary shares No. shares No. shares No. shares
-------------------------------------------- -------------- ------------ -----------
Weighted average number of ordinary shares
for the purpose of basic earnings per
share 123,824,603 88,956,532 88,956,532
Effect of dilutive potential ordinary
shares - share options 3,503,812 1,874,381 3,162,104
-------------------------------------------- -------------- ------------ -----------
Weighted average number of ordinary shares
for the purpose of diluted earnings per
share 127,328,415 90,830,913 92,118,636
-------------------------------------------- -------------- ------------ -----------
Basic earnings/(loss) per share Cents Cents Cents
------------------------------------------------- ------ ------ ------
Basic earnings/(loss) per share from continuing
operations 2.7 3.9 4.4
Adjustments for:
Adjusting items 2.7 - 1.7
Share based payments charge/(credit) 0.7 0.5 1.3
Tax effect of above adjustments and other
adjusting items tax movements (0.1) - 1.8
------------------------------------------------- ------ ------ ------
Underlying basic earnings per share 6.0 4.4 9.2
------------------------------------------------- ------ ------ ------
Diluted earnings/(loss) per share 26 weeks 26 weeks 52 weeks
to to to
30 September 1 October 1 April
2018 2017
$'000 $'000 2018
$'000
------------------------------------------- -------------- ------------ ---------
Diluted earnings/(loss) per share 2.6 3.8 4.3
Adjustments for:
Adjusting items 2.6 - 1.7
Share based payments charge/(credit) 0.7 0.5 1.2
Tax effect of above adjustments and other
adjusting items tax movements (0.1) - 1.7
------------------------------------------- -------------- ------------ ---------
Underlying diluted earnings per share 5.8 4.3 8.9
------------------------------------------- -------------- ------------ ---------
The underlying earnings per share has been calculated on the
basis of continuing activities before adjusting items and the
share-based payments charge, net of tax. The Directors consider
that this earnings per share calculation gives a better
understanding of the Group's earnings per share in the current and
prior period.
6. Share capital
(Audited)
26 weeks 26 weeks 52 weeks
to to to
30 September 1 October 1 April
2018 2017
$'000 $'000 2018
$'000
-------------------------------------------- ---------------- ------------- ----------
Issued and fully paid:
145,243,917 (FY2018: 90,251,892) Ordinary
shares of 25p each 58,111 39,755 39,755
-------------------------------------------- ---------------- ------------- ----------
On 30 April 2018, the Group issued 3,000,000 shares as part of
the acquisition of MC Electronics.
On 5 June 2018, the Group issued 48,000,000 ordinary shares at a
price of 75 pence per share.
On 8 June 2018, the Group issued 3,521,437 shares as part of the
acquisition of Silcotec Europe Limited.
On 7 September 2018, the Group issued 470,588 shares under the
2017 deferred share bonus plan.
7. Own shares
(Audited)
26 weeks 26 weeks 52 weeks
to to to
30 September 1 October 1 April
2018 2017
$'000 $'000 2018
$'000
--------------------------------------- ---------------- ------------- ----------
At the start of the period 867 867 867
--------------------------------------- ---------------- ------------- ----------
Disposed of in the period on exercise (75) - -
of options
--------------------------------------- ---------------- ------------- ----------
At end of the period 792 867 867
--------------------------------------- ---------------- ------------- ----------
The own shares reserve represents the cost of shares in the
Company held by the Volex Group plc Employee Share Trust to satisfy
future share option exercises under the Group's share option
schemes.
On the 7 September 2018, the Trust sold 136,083 shares to
satisfy the exercise of share options. The number of ordinary
shares held by the Volex Group plc Employee Share Trust at 30
September 2018 was 1,159,278 (H1 FY2018: 1,295,361, FY2018:
1,295,361).
8. Analysis of net funds
Other
1 April Cash Exchange non-cash 30 September
movement changes 2018
$'000
2018 flow $'000 $'000
$'000 $'000
--------------------------- --------- -------- ----------- ---------- --------------
Cash and cash equivalents 22,981 1,988 (322) - 24,647
Bank loans (13,550) 12,825 725 - -
Debt issue costs 517 - (31) (197) 289
--------------------------- --------- -------- ----------- ---------- --------------
Net funds 9,948 14,813 372 (197) 24,936
--------------------------- --------- -------- ----------- ---------- --------------
(Audited)
30 September 1 October 1 April
2018 2017
$'000 $'000 2018
$'000
------------------------------------------------ -------------- ----------- ----------
Cash and bank balances 24,647 23,464 24,830
Overdrafts (included in short term borrowings) - (1,003) (1,849)
Cash and cash equivalents 24,647 22,461 22,981
------------------------------------------------ -------------- ----------- ----------
The carrying amount of the Group's financial assets and
liabilities are generally the same as their fair value.
9. Acquisitions
MC Electronics LLC
On 30 April the Group acquired 100% of the units of MC
Electronics LLC, a North-American based manufacturer of customised
complex medical and industrial cables, wire harnesses and
electro-mechanical assemblies for medical and industrial
applications. The acquisition expands the Group's presence in the
Cable Assembly market and brings new customer relationships to
Volex as well as providing an opportunity to integrate the Group's
North American operations to improve profitability and
competitiveness.
The purchase has been accounted for as a business combination.
Details of the purchase consideration, the net assets acquired and
goodwill are as follows:
Fair value of consideration transferred $'000
----------------------------------------- ------
Cash paid 435
Ordinary shares issued 3,178
Contingent consideration 416
------
Total purchase consideration 4,029
------
The fair value of the 3,000,000 shares issued as part of the
consideration was based on the published closing share price on the
last trading date preceding the share issue of GBP0.753.
The contingent consideration is dependent upon certain revenue
targets being met post-acquisition, the outcome of a specific legal
case and the recovery of certain historic tax overpayments. The
fair value above has been based on the probable outcome of each
based upon the information available at 30 September 2018. As more
information comes to light, the fair value will be adjusted.
The provisional fair value amounts recognised in respect of the
identifiable assets acquired and liabilities assumed are set out in
the table below:
Fair Value
$'000
-------------------------------- -----------
Identifiable intangible assets 500
Property, plant and equipment 448
Deferred taxes 313
Inventories 3,842
Trade receivables 1,959
Trade payables (2,372)
Other debtors and creditors 119
Cash & overdrafts (134)
Provisions (983)
Total identifiable assets 3,692
-------------------------------- -----------
Goodwill 337
-------------------------------- -----------
Consideration 4,029
-------------------------------- -----------
An exercise has been conducted to assess the provisional fair
value of assets and liabilities assumed. This exercise identified a
$700,000 write down on inventory for non-moving stock and a
$485,000 onerous lease provision adjustment to the initial book
value. The intangible assets acquired as part of the acquisition
relate to customer relationships and order backlogs.
The fair value adjustments are provisional and will be finalised
within 12 months of the acquisition date. Any resulting changes in
the fair values will have an impact on the acquisition accounting
and will result in a reallocation between the assets and goodwill
and a possible adjustment to the amortisation charge shown in the
income statement.
The provisional goodwill balance recognised above includes
certain intangible assets that cannot be separately identifiable
and measured due to their nature. This includes control over the
acquired business, the skills and experience of the assembled
workforce and the anticipated synergies arising on integration.
In H1 FY2019, MC Electronics contributed $7,988,000 to Group
revenue and $485,000 to adjusted operating profit. Associated
acquisition costs of $234,000 and intangible asset amortisation of
$173,000 have both been expensed as adjusting items in the
period.
Silcotec Europe Limited
On 8 June 2018 the Group completed the acquisition of the trade
and assets of Silcotec Europe Limited ('Silcotec Europe'), a
manufacturer and seller of cable harnesses and electronic
sub-assemblies for the medical, telecommunications and computer
industries. Silcotec Europe comprises of a sales office in Ireland
and a factory in Slovakia. The acquisition expands further the
Group's Cable Assembly activities in Europe and is consistent with
the strategy of consolidating the highly fragmented cable assembly
industry to generate synergies in group-wide procurement, sales and
operations. The acquisition brings new medical and scientific
customers to Volex.
The purchase has been accounted for as a business combination.
Details of the purchase consideration, the net assets acquired and
goodwill are as follows:
Fair value of consideration transferred $'000
----------------------------------------- -------
Cash paid 8,990
Ordinary shares issued 4,038
Contingent consideration 1,165
-------
Total purchase consideration 14,193
-------
The fair value of the 3,521,437 shares issued as part of the
consideration was based on the published closing share price on the
last trading date preceding the share issue of GBP0.861.
The contingent consideration is dependent upon certain revenue
targets being met post-acquisition.
The provisional fair value amounts recognised in respect of the
identifiable assets acquired and liabilities assumed are set out in
the table below:
Fair value
$'000
-------------------------------- -----------
Identifiable intangible assets 5,626
Property, plant and equipment 3,585
Inventories 4,701
Trade payables (1,599)
Other debtors and creditors (758)
Cash 161
Loans (2,332)
Total identifiable assets 9,384
-------------------------------- -----------
Goodwill 4,809
-------------------------------- -----------
Consideration 14,193
-------------------------------- -----------
An exercise has been conducted to assess the provisional fair
value of assets and liabilities assumed. This exercise identified a
$700,000 increase to the book value of the Slovakian factory (land
and freehold held by Silcotec) with the valuation provided by an
independent surveyor. The intangible assets acquired as part of the
acquisition relate to customer relationships and a non-compete
agreement.
The fair value adjustments are provisional and will be finalised
within 12 months of the acquisition date. Any resulting changes in
the fair values will have an impact on the acquisition accounting
and will result in a reallocation between the assets and goodwill
and a possible adjustment to the amortisation charge shown in the
P+L.
The provisional goodwill balance recognised above includes
certain intangible assets that cannot be separately identifiable
and measured due to their nature. This includes control over the
acquired business, the skills and experience of the assembled
workforce and the anticipated synergies arising on integration.
Immediately after the acquisition, the Group funded Silcotec
Europe with $2,332,000 in order that it could pay off its external
loan. This funding has been recorded as an intercompany balance
between Volex Plc and Silcotec Europe and therefore has been
excluded from the consideration paid.
In H1 FY2019, Silcotec Europe contributed $7,353,000 to Group
revenue and $1,291,000 to adjusted operating profit. Associated
acquisition costs of $590,000 and intangible asset amortisation of
$393,000 have both been expensed as adjusting items in the
period.
Net cash outflow on acquisitions $'000
-------------------------------------------------- ------
Cash consideration
- MC Electronics 435
- Silcotec Europe 8,990
Less: cash and cash equivalent balances acquired
- MC Electronics 134
- Silcotec Europe (161)
-------------------------------------------------- ------
Net cash outflow 9,398
-------------------------------------------------- ------
10. Related parties
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
The Group has a 26.09% interest in Kepler SignalTek Limited
which is accounted for as an associate. During H1 FY2019 the Group
invested a further $1,000,000 in 10% cumulative preference shares
in Kepler SignalTek. During the period the Group accrued financial
income of $38,000 on the preference shares (FY2018: $8,000). The
balance due from the associate as at the period end date was
$1,445,000 (H1 FY2018: nil, FY2018: $408,000).
The Group also has a 43% interest in Volex-Jem Co. Ltd. During
the period the Group purchased $2,552,000 (H1 FY2018: nil, FY2018:
$1,738,000) materials from Volex - Jem Cable Precision (Dongguan)
Co., Limited an entity controlled by Volex-Jem Co. Ltd. The balance
due to the associates as at the period end was $1,316,000 (H1
FY2018: nil, FY2018: $1,403,000).
On the 5 June 2018 Nat Rothschild subscribed to 11,654,538
shares at GBP0.75 per share as part of the share placing.
Further share transactions with directors have occurred during
the period in line with share awards outstanding at the prior year
end and as disclosed in the annual accounts for FY2018 and in line
with the director shareholding notices disclosed on the Volex
website (www.volex.com).
11. Contingent Liabilities
As a global Group, subsidiary companies, in the normal course of
business, engage in significant levels of cross-border trading. The
customs, duties and sales tax regulations associated with these
transactions are complex and often subject to interpretation. While
the Group places considerable emphasis on compliance with such
regulations, including appropriate use of external legal advisors,
full compliance with all customs, duty and sales tax regulations
cannot be guaranteed.
Through the normal course of business, the Group provides
manufacturing warranties to its customers and assurances that its
products meet the required safety and testing standards. When the
Group is notified that there is a fault with one of its products,
the Group will provide a rigorous review of the defective product
and its associated manufacturing process and if found at fault and
contractually liable will provide for costs associated with recall
and repair as well as rectify the manufacturing process or seek
recompense from its supplier. The Group does not provide for such
costs where fault has not yet been determined and investigations
are ongoing.
12. Prior period adjustment
Following a change in reporting lines and in an attempt to
improve the transparency and accountability of each site, a number
of sites which had been classified as "hybrid" and had their
revenues and costs allocated across the reporting divisions have
now been reclassified to either the Power or the Data divisions. As
a result, the prior period segmental reporting has been restated so
that it is presented on a comparable basis to the current
year. The tables below show the impact of the restatement on both periods.
26 weeks to 1 October 26 weeks to 1 October
2017 2017
(as previously reported) (restated)
--------------------------------------- ---------------------------- ------------------------
Revenue Profit/(loss) Revenue Profit/(loss)
$'000 $'000 $'000 $'000
--------------------------------------- ---------- ---------------- -------- --------------
Power Cords 90,528 2,703 100,536 4,925
Cable Assemblies 70,921 5,245 60,913 3,023
Unallocated central costs (excluding
share-based payments) - (2,484) (2,484)
--------------------------------------- ---------- ---------------- -------- --------------
Divisional results before share-based
payments and adjusting items 161,449 5,464 161,449 5,464
52 weeks to 1 April 52 weeks to 1 April
2018 2018
(as previously reported (restated and unaudited)
& audited)
--------------------------------------- --------------------------- ----------------------------
Revenue Profit/(loss) Revenue Profit/(loss)
$'000 $'000 $'000 $'000
--------------------------------------- ---------- --------------- ---------- ----------------
Power Cords 181,170 6,825 203,569 12,112
Cable Assemblies 141,207 8,809 118,808 3,522
Unallocated central costs (excluding
share-based payments) - (4,177) - (4,177)
--------------------------------------- ---------- --------------- ---------- ----------------
Divisional results before share-based
payments and Adjusting items 322,377 11,457 322,377 11,457
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR EAKFNEFXPFEF
(END) Dow Jones Newswires
November 09, 2018 02:00 ET (07:00 GMT)
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