TIDMVLX
RNS Number : 2989Q
Volex PLC
18 June 2020
18 June 2020
Volex plc
Preliminary Announcement of the Group Results
for the 53 weeks ended 5 April 2020
'Results in line with expectations, exceptional cash
generation;
investing for growth despite Covid-19'
Volex plc ('Volex'), a global provider of integrated
manufacturing services and power products, today announces its
preliminary results for the 53 weeks ended 5 April 2020
('FY2020').
53 weeks to Year on 52 weeks
5 April 2020 year change to
31 March
Financial Highlights 2019
------------------------------------- -------------- ------------- ----------
Revenue $391.4m 5.2% $372.1m
Underlying* operating profit $31.6m 46.3% $21.6m
Statutory operating profit $17.1m 31.5% $13.0m
Underlying* profit before
tax $30.4m 50.5% $20.2m
Statutory profit before
tax $15.9m 37.1% $11.6m
Statutory profit after tax $14.7m 59.8% $9.2m
Basic earnings per share 9.9c 43.5% 6.9c
Underlying diluted earnings
per share 17.3c 36.2% 12.7c
Net cash (before lease liabilities) $31.6m 53.4% $20.6m
Net cash $21.2m 2.9% $20.6m
* Before adjusting items and share-based payments charge (see
note 3 for more details)
Summary
-- Underlying operating profit increased by 46.3% to $31.6 million
-- Revenue growth of 5.2%
-- Statutory profit after tax increased by 59.8% to $14.7 million
-- Exceptional cash generation with underlying free cash flow of $48.8 million
-- Net cash excluding lease liabilities of $31.6 million as at the year end
-- Gross margin has improved to 23.2% in FY2020 from 19.8% in FY2019
Dividend
Following approval by shareholders at the AGM on 30 July 2020,
the final dividend of 2.0p per ordinary share will be paid on 7
August 2020 to those shareholders on the register on 17 July
2020.The Executive Chairman of Volex, Nat Rothschild,
commented:
'Volex's strategy over the past five years to diversify our
customer base and geographic footprint has resulted in a resilient
business with a renewed reputation for quality and reliability.
FY2020 has been another transformative year. We have strengthened
our position, expanded our business, built a strong platform for
growth and made two further acquisitions.
Volex has demonstrated effective management during the Covid-19
pandemic, minimised disruption to our business and continued to
supply and support our customers. We are grateful to all our
employees for their outstanding efforts.
Our strategy to reposition the Group over the last five years
has improved its resilience and, in particular, our diversified
customer base has mitigated the worst effects of Covid-19. This,
coupled with our early action in China to keep our sites
operational, has enabled us to weather the subsequent global spread
of the virus.
Acquisitions are a key element of our overall growth strategy.
The combination of a strong balance sheet and low interest rates
provides an opportunity to increase scale, customer reach and
capability. We are continuing to develop our acquisition
pipeline.
Volex is in a strong position and well placed to withstand any
further downturns and maintain our dividend, whilst being able to
pursue the opportunities that are presenting themselves and to
create value for our shareholders.'
For further information please contact:
Volex plc
+44 7909 995887
Nat Rothschild, Executive Chairman
Daren Morris, Group Chief Financial Officer
N+1 Singer - Nominated Adviser & Joint Broker +44 20 7496
3000
Shaun Dobson
Iqra Amin
Whitman Howard - Joint Broker +44 20 7659 1234
Hugh Rich
Nick Lovering
Definitions
The Group presents some significant items separately to provide
clarity on the underlying performance of the business. This
includes significant one-off costs such as restructuring and
acquisition related costs, the non-cash amortisation of intangible
assets acquired as part of business combinations, and share-based
payments. Further detail on adjusting items is provided in Note
3.
Underlying operating profit is operating profit before adjusting
items and share-based payment expense.
Underlying free cash flow is net cash flow before financing
activities excluding cash flows associated with the acquisitions of
businesses and cash utilised in respect of adjusting items.
Net cash (before lease liabilities) represents cash and cash
equivalents, less bank loans and debt issue costs, but excluding
lease liabilities. This measure has been used to aid comparability
with the equivalent figure from the previous year following the
adoption of IFRS 16 which brings certain lease liabilities onto the
balance sheet for FY2020.
Forward looking statements
Certain statements in this announcement are forward-looking
statements which are based on Volex's expectations, intentions and
projections regarding its future operating performance and
objectives, anticipated events or trends and other matters that are
not historical facts. Forward-looking statements are sometimes, but
not always, identified by their use of a date in the future or such
words as 'anticipates', 'aims', 'could', 'may', 'should',
'expects', 'believes', 'intends', 'plans', 'targets', 'goal' or
'estimates'. By their very nature forward-looking statements are
inherently unpredictable, speculative and involve risk and
uncertainty because they relate to events and depend on
circumstances that will occur in the future. There are a number of
factors that could cause actual results and developments to differ
materially from those expressed or implied by these forward-looking
statements. Factors that could cause or contribute to such
differences include, by way of example only and not limited to,
general economic conditions, currency fluctuations, competitive
factors, the loss of one of our major customers, failure of one or
more major suppliers and changes in raw materials or labour costs
among other risks. Given these risks and uncertainties, prospective
investors are cautioned not to place undue reliance on
forward-looking statements. Forward-looking statements speak only
as of the date of such statements and, except as required by
applicable law, Volex undertakes no obligation to update or revise
publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
Market Abuse Regulation
This announcement is released by Volex plc and contains inside
information for the purposes of the Market Abuse Regulation (EU)
596/2014 ('MAR') and is disclosed in accordance with the Company's
obligations under Article 17 of MAR.
Executive Chairman's Statement
The year ended 5 April 2020 ('FY2020') has been another
transformative year. We have strengthened our position, expanded
our business, built a strong platform for growth and made two
further acquisitions.
The acquisition of Ta Hsing continues our journey from an
assembler of power cords to a vertically integrated power products
company with extensive technological knowledge in the markets we
serve. The acquisition of Servatron is in line with our strategy to
become a global leader in integrated manufacturing services.
Across both divisions we added new customers and invested in
operations to improve our profit margins. These actions meant that
we ended the year with both our operating profit and cash reserves
at a 10-year high, despite having invested $30.5 million of cash in
acquisitions and capital expenditure during the year.
In January 2020, the global Coronavirus outbreak presented us
with new and significant challenges. Following an extended
production site closure over the Chinese New Year period as a
result of the outbreak, our local teams worked tirelessly with the
local authorities, customers and suppliers to safely reopen our
sites and resume the delivery of critical products to our
customers. Our other sites across the world were able to plan and
prepare for a global spread of the virus, and as a result we have
kept our business running, our employees safe and supported our
customers with minimal disruptions.
The Coronavirus outbreak will clearly have an adverse impact on
the global economy, which we are unable to influence. However, we
can take steps to ensure that Volex is in the best possible
position to continue to make progress in more uncertain economic
times.
Our strategic goals are clear and remain unchanged. We aim to
continue to improve our cost position in the manufacture of power
products and to develop our presence in value-added segments of the
power market such as electric vehicles. In Integrated Manufacturing
Services we continue to benefit from the need of our global
customers to outsource both simple and highly complex cable
assemblies, PCBAs and fully integrated box builds to a stable
partner with a truly global manufacturing footprint. By targeting
both organic growth and strategic acquisitions we see the
opportunity to move further up the value chain and to increase our
levels of vertical integration.
As we increase our scale and technical capabilities through
continued development and innovation, we are accessing higher-value
opportunities in our core medical, data centre and industrial end
markets, where barriers to entry and profit margins are higher.
Recent Performance
Revenue for FY2020 was $391.4 million, an increase of 5.2% over
the prior year.
In Integrated Manufacturing Services, which is now the larger of
our two divisions, we saw growth across all our main market
segments of data centre connectivity, medical and industrial
equipment. Demand from customers in our largest geographic market,
North America, was particularly strong during the period, as we
were able to utilise non-China production to support tariff-free
supply. Going forward we expect continued growth in Integrated
Manufacturing Services as we acquire new customers that seek
exposure to a global partner like Volex. We are already seeing the
benefits that scale can bring through our recent acquisitions of MC
Electronics, Silcotec and Servatron, and are working with customers
on a number of new development projects as a direct result of these
acquisitions.
In Power Products, our revenue reduced as we took the decision
to lessen exposure to lower-margin business, and instead focus on
higher-margin customers and products. This resulted in an overall
improvement in profitability and provides us with funds to invest
in new production capacity outside of China and to continue our
success in the electric vehicle segment. We continue to see more
opportunities in electric vehicles for Volex and expect a number of
new vehicle programmes to launch in the coming year supported by
Volex technology.
We were particularly pleased with the improvement in gross
margin during the year from 19.8% to 23.2% despite continued cost
inflation and competitive pressures on pricing. The improvement in
gross margin occurred across both our operating divisions and is a
result of the hard work by management to rationalise our production
site and office footprint, and a continuous focus on improving
profitability across all of our locations, product lines and
customers.
Underlying operating expenses at $59.0 million increased by
13.7% year on year. This was due to the acquisitions made during
the year and also as a result of our strong financial performance
triggering increased bonus payments for our staff.
Cost inflation is a common theme across all of the countries in
which we operate and we are therefore continuing to invest in
automation across the Group to mitigate this. In addition, the
effect of US import tariffs on Chinese production has resulted in
Volex moving certain production capacity to alternative locations
outside of China, which has resulted in additional administrative
and investment costs for the Group.
Overall underlying operating profit for the year was $31.6
million, up 46.3% from $21.6 million in the prior year.
Acquisitions
Achieving growth through acquisition is part of our DNA. We have
made two successful acquisitions during the year, which have added
new customers, capability and geographic presence to the Group.
In June 2019 we acquired Ta Hsing, with manufacturing facilities
in Shenzhen, China. Ta Hsing provides Volex with power cables and
is part of our strategy to increase vertical integration in the
power division.
In July 2019 we acquired Servatron, a US-based manufacturer of
complex printed circuit boards and complete sub-assembly solutions
for the industrial, medical and aerospace markets.
We continue to evaluate acquisition targets, in line with our
stated strategy, across both divisions. Our priorities are to
continue to reduce cost and increase vertical integration in our
power division, and to improve our technological capability and
product offering in complex sub-assemblies to support medical and
high-speed data centre customers.
We have been very pleased with all five companies that we have
acquired over the past two years and going forward we expect to
continue to acquire well-run, high-quality businesses.
Financial Flexibility
We ended FY2020 with a net cash balance before lease liabilities
of $31.6 million. As a global group we rely on a portion of this
cash to support ongoing working capital fluctuations and capital
investment. However, a substantial proportion of this cash is
available to continue to grow Volex through acquisitions and allow
us to increase our profitability and further diversify our revenue
mix.
In addition, we have a $30 million committed revolving credit
facility, which is currently undrawn, to provide further financial
flexibility as required.
People
Our recent success can be attributed to the skill and dedication
of all of our 6,000 employees across the globe. On behalf of our
Board and our shareholders, I would like to thank all our employees
for all of their hard work and dedication.
We recognise the need to invest in and to motivate our people.
Over the past 12 months we have taken steps to improve our internal
communication, improve safety and working conditions in our sites
and reintroduce performance management and career planning for our
managers.
We are very fortunate to have a team which has a deep
understanding of our business and our customers' requirements.
Volex's success depends on our ability to deliver complex products,
of high quality, on time and at a competitive cost. We achieve this
for hundreds of customers across our 14 production sites, 24 hours
a day, seven days a week.
Outlook
Through this period of unprecedented uncertainty, Volex has
implemented a series of plans and actions set to protect the safety
and health of our employees and wider communities, at the same time
as reducing our costs and protecting our cash flows. We entered
this period with a very strong balance sheet and ample liquidity.
The Group has continued to generate strong cash flows in the first
two months of our financial year. We are continuing to invest back
into the business for future growth and margin enhancement.
As anticipated in the 16 April 2020 announcement, our
'essential' business status has allowed Volex to keep operating
throughout the period, supporting our customers' requirements.
Despite experiencing labour shortages caused by compliance with
local government restrictions, such as employee shielding and
self-isolation, the overall situation is now improving as these
government restrictions ease, with all Volex facilities open, and
the number of employees in self-isolation reducing.
Unaudited revenue for the four months ended May 2020 was $126.2
million, 4% ahead of the same period a year earlier. During this
period, the business has performed ahead of expectations, although
we are now seeing areas of weakness primarily in the medical
equipment installation sector, as hospitals around the world remain
closed for non-critical medical procedures. In our electric vehicle
business, after weakness in March and April due to customer factory
closures, we are starting to see a recovery. Our consumer and data
centre businesses continue to perform well.
However, the duration and breadth of the market disruption
arising from this situation remains unclear and therefore we do not
believe it is appropriate to provide financial guidance for the
current year at this early stage. We remain optimistic for our
business prospects over the medium term and consider that our focus
on the high-quality growth markets of medical, electric vehicle and
high-speed data centre products, combined with our strong funnel of
design wins in our Integrated Manufacturing Services division, will
allow us to grow and prosper in the years to come.
Nathaniel Rothschild
Executive Chairman
Review of FY2020 Performance
Volex is a leading integrated manufacturing specialist for
performance-critical applications and supplier of power products.
We serve a diverse range of markets and customers, with particular
expertise in cable assemblies, higher-level assemblies, data-centre
products, electric vehicles and consumer electronics.
We are headquartered in the UK but operate from 14 manufacturing
locations and employ over 6,000 staff across 20 countries. Our
products are sold through our own global sales force and through
distributors to Original Equipment Manufacturers ('OEMs') and
Electronic Manufacturing Services companies.
Our products and services are integral to the increasingly
sophisticated digital world in which we live, providing power and
connectivity for everyday items to complex machinery.
FY2020 FY2019
$'000 Before Before
adjusting Adjusting adjusting Adjusting
items and items and items and items and
share based share based share based share based
payments payments Total payments payments Total
Revenue
Power Products 171,008 - 171,008 198,885 - 198,885
IMS 220,346 - 220,346 173,219 - 173,219
------------- ------------- -------- ------------- ------------- --------
391,354 - 391,354 372,104 - 372,104
Gross profit
Power Products 35,860 35,860 36,377 36,377
IMS 54,801 - 54,801 37,141 - 37,141
------------- ------------- -------- ------------- ------------- --------
90,661 - 90,661 73,518 - 73,518
Gross margin 23.2% 23.2% 19.8% 19.8%
Operating
profit
Power Products 14,053 (58) 13,995 13,229 (1,672) 11,557
IMS 23,341 (5,750) 17,681 13,473 (3,589) 9,884
Central costs (5,764) - (5,764) (5,096) (965) (6,061)
Share-based
payments expense - (8,737) (8,737) - (2,388) (2,388)
------------- ------------- -------- ------------- ------------- --------
31,630 14,545 17,085 21,606 (8,614) 12,992
Operating
margin 8.1% 4.4% 5.8% 3.5%
Share of net
loss of associates - - - (210) - (210)
Net finance
costs (1,224) - (1,224) (1,147) - (1,147)
Taxation (3,504) 2,339 (1,165) (2,650) 221 (2,429)
Profit after
tax 26,902 (12,206) 14,696 17,599 (8,393) 9,206
------------- ------------- -------- ------------- ------------- --------
Due to the different market environments and technical product
requirements, the Group reports under a two-divisional structure:
the Power Products division and the Integrated Manufacturing
Services (IMS) division.
Integrated Manufacturing Services Division
53 weeks 52 weeks
ending ending
5 April 31 March
$'000 2020 2019
Revenue 220,346 173,219
--------- ----------
Underlying* gross profit 54,801 37,141
--------- ----------
Underlying* gross margin 24.9% 21.4%
--------- ----------
Operating costs (31,460) (23,668)
--------- ----------
Underlying* operating profit 23,431 13,473
--------- ----------
Underlying* operating margin 10.6% 7.8%
--------- ----------
Operating profit 17,681 9,884
------------------------------ --------- ----------
* Before adjusting items and share-based payments charge.
Our Integrated Manufacturing Services business delivers
technically sophisticated manufacturing solutions designed to
satisfy customer requirements. Our manufacturing approach can cope
with a large variety of products in varying volumes, from a handful
of pieces up to thousands of units. Across our sites we use a wide
variety of manufacturing techniques and controls to ensure that
every single item is of the highest quality and able to pass
rigorous testing. All of this enables Volex to hit challenging
deadlines supporting our customers' integrated supply chains on a
global basis.
Integrated Manufacturing Services' products include bespoke
high-performance cabling solutions designed to transmit power and
data in accordance with a customer's technical requirements in
medical and industrial applications. This segment also builds
partial and full electro-mechanical assemblies which may include
multiple elements of hardware, printed circuit boards and bespoke
cabinets, all fully commissioned and tested in-house by Volex
personnel. The Integrated Manufacturing Services division also
includes the production of high-speed copper cables that transmit
data at extremely high speeds and with low error rates. These
products are used extensively in communications networks and data
centre environments. Other production is centred around 10
locations: two in Asia, four across Europe and four in North
America. This distribution reflects the spread of our customers and
each site has specialist capabilities to support local demands. Our
global footprint allows manufacturing to be conducted in the most
appropriate site depending on the customer's requirements.
Revenue for FY2020 was up $47.1 million to $220.3 million
(FY2019: $173.2 million). Gross profit increased to $54.8 million
(FY2019: $37.1 million) representing a gross margin improvement of
350 basis points to 24.9% (FY2019: 21.4%). The growth includes the
impact of the acquisition of Servatron and the fact that FY2020
includes a full year of the three acquisitions made in FY2019. The
margin improvement is caused by the product mix and the efficiency
improvements implemented during the year.
The medical sector has been strong in FY2020. Volex makes many
connectivity solutions which are critical to the operation of
diagnostic imaging and therapeutic machines. Our products are used
within a wide variety of applications including robotic surgery,
patient imaging and ventilators. Technological advances in the
treatment of serious diseases are encouraging healthcare operators
to invest in new equipment to improve patient outcomes. What is
particularly encouraging about the growth in this market is that
stringent regulatory approval processes mean Volex solutions are
usually specified into the customer's design for the life of the
product, which may extend over many years.
Data centre capacity is continuing to expand rapidly to fulfil
demand for cloud computing and storage. This is contributing to
increased demand for the very high-specification copper data cables
that we produce in our specialist facilities in Suzhou, China, and
Batam, Indonesia. The majority of the market demand for these
cables is in the US and new production lines have been opened at
our site in Indonesia to help mitigate any effects of US
tariffs.
Our industrial and technology clients continue to exploit
opportunities for innovation in their specialist markets. This is
seen through an increased demand for products that support energy
efficiency and miniaturisation. As solutions are driven more by
digital communications there are fewer requirements for legacy
radio-frequency connectors, and we have seen a corresponding
decline in sales.
Volex has responded to trends in the market by implementing
improvements in manufacturing processes and production
configuration. This has included distributing high-speed cable
production and complex cable harness manufacture between sites to
give customers additional flexibility and local support and to
maximise the use of resources.
The Integrated Manufacturing Services division has expanded
significantly through acquisition over the last two years with
three acquisitions in FY2019 and the acquisition of Servatron in
FY2020. The results in FY2020 include a full year of each of the
prior year acquisitions and benefit from the inclusion of Servatron
from August 2019. Servatron was an important step in our stated aim
of broadening the capabilities of the Group through the
introduction of PCB and higher-level assemblies. This creates
opportunities for the cross-selling of new competencies into
existing customers as well as growing Servatron's own strategic
customer base on a global footprint.
Just over half of the customers for our Integrated Manufacturing
Services business are in the medical and healthcare industry.
Although there has been some disruption to the medical systems
installation business recently due to the inability to access
hospitals at the current time, generally demand for medical
products is less cyclical than for industrial products. This market
is relatively fragmented and there is an opportunity for customers
to aggregate their requirements with larger, global suppliers like
Volex who can offer high levels of customer service and consistent,
on-time delivery. The majority of the Group's customers strive for
growth through continual technological innovation. Volex's ability
to successfully partner with these organisations through the
product life cycle, from initial development and subsequent
optimisation, is a key value driver.
The Integrated Manufacturing Services division is emerging as a
world-class manufacturing business with a strong suite of
capabilities and a relentless focus on quality. The recent
acquisitions have created additional opportunities for cross sales
and profitable growth.
Power Products Division
53 weeks 52 weeks
ending ending
5 April 31 March
$'000 2020 2019
Revenue 171,008 198,885
--------- ----------
Underlying* gross profit 35,860 36,377
--------- ----------
Underlying* gross margin 21.0% 18.3%
--------- ----------
Operating costs (21,807) (23,148)
--------- ----------
Underlying* operating profit 14,053 13,229
--------- ----------
Underlying* operating margin 8.2% 6.7%
--------- ----------
Operating profit 13,995 11,557
------------------------------ --------- ----------
* Before adjusting items and share-based payments charge.
Volex manufactures power cords and other power products for some
of the biggest brands in the world. Products vary in complexity and
are designed to meet specific customer requirements. This can
include specialist cosmetic features for use in high-end domestic
applications or technical capabilities allowing deployment in
challenging environments. Volex has safety approvals covering every
major market which simplifies the procurement process for
international manufacturers. The Group has the scale to meet the
demands of the largest customers in the market, who demand regular
product improvements and price reductions over the product life
cycle.
Customers are supported by a dedicated engineering team based in
Singapore and China who have deep experience in designing and
optimising components to meet demanding technical requirements. The
Group has manufacturing facilities in China, Indonesia and Vietnam
that support our global sales team and customer base. Our global
presence is a differentiator from our fragmented China-based
competition. Production is allocated to particular plants based on
their strengths, customer proximity and supply-chain
availability.
The competitive landscape for Power Products is changing as
energy efficiency and battery technology change the power
requirements of some products. The development of battery
technology has also had a huge impact in the automotive sector, and
high-current power cords with numerous safety features are an
important element of the new generation of electric and plug-in
hybrid vehicles.
Revenue in the Power Products division declined by $27.9 million
to $171.0 million (FY2019: $198.9 million). Gross profit reduced
slightly to $35.9 million (FY2019: $36.4 million) with a gross
margin improvement of 270 basis points to 21.0% (FY2019: 18.3%).
This reflects a deliberate shift in the product and customer mix
away from low-margin customers, combined with improvements in
efficiency and the further implementation of automated lines. Volex
has reduced its business in low-margin commodity power cords in
order to free up resources for new and higher-margin customers.
Volex continues to adapt to the trends in the power cords
sector. Premium manufacturers often have specific requirements
about the appearance and aesthetics of the power cords that are
deployed with their products. This is in addition to robust safety
and quality requirements. Volex has efficient production facilities
that can meet customer demands and has also created a range of
high-quality power cords designed to be manufactured for maximum
value. Electric vehicles represent an opportunity for Volex to
deploy its expertise in handling mains voltage in challenging
environments in an automotive context.
Volex has always stood for high quality and solid engineering.
This is borne out through positive feedback from customers who are
looking for a trouble-free solution that will be reliable and
durable. As the complexity of global supply chains has increased
and manufacturers look for opportunities to improve efficiencies,
Volex has been able to support them by making things easy for
customers through the use of vendor-managed inventory associated
with just-in-time manufacturing. Value for money is critically
important in this sector, which is achieved through a deep
knowledge of the best manufacturing approach and leveraging a
significant and global supply chain to drive down raw material
costs.
During the year Volex acquired a Chinese cable extrusion
business, Ta Hsing. The business was well known to Volex as an
important and long-standing supplier. This acquisition has given
Volex greater control over its supply chain for a critical input to
the manufacturing process for power cords. It also creates
opportunities to reduce the overall costs of products and to
deliver better value to customers and therefore receive increased
business volumes. A process is underway to migrate key customers
onto Volex-produced and branded cables, which will reduce reliance
on external suppliers over time.
There has been a focus on eliminating low-margin business during
the year. Although revenues for the Power Products segment are
lower than the prior year, profitability is up by 150 basis points.
This approach is part of a clear strategy to focus on cash
generation and higher-value-added opportunities. This has included
work to improve space utilisation in the south China sites, which
has reduced overhead costs.
In FY2020 the Group won a number of significant new customer
projects. These were for customers in the consumer electronics and
electric vehicle markets. This demonstrates the strength of our
commercial proposition, which combines value for money with quality
and customer service.
Towards the end of the financial year, two of our Power Product
sites were closed temporarily in response to the outbreak of
Covid-19 in China. Although this closure resulted in a reduction in
production capacity, the impact on sales was minimised because
during this period customers continued to access vendor-managed
inventory held at hub locations. In addition, the sites had built
up buffer stocks of finished goods and raw materials to account for
the planned Lunar New Year holiday, which reduced the impact of
supply-chain disruption. The revenue impact of the Covid-19
closures in the last quarter of FY2020 in Power Products is
estimated to be $8.0 million.
There will be a number of areas of focus in the next financial
year all aimed at improving profitability and cash generation. This
will include steps to move more customers onto cables produced
using Volex's cable extrusion capabilities. High-volume customers
will be offered the opportunity to move to a new range of products
which are designed to be manufactured more efficiently on automated
production lines, offering better value.
The Power Products division will maintain a robust approach to
preserve margins, working with customers to reduce material costs
and improve efficiency through automation. The division continues
to generate strong cash flows for the Group with a sales team
focused on the types of business with the greatest fit and the best
margins. Going forward, the highly fragmented market offers
selective growth opportunities to Volex as the only major western
listed company with a global sales and engineering force located in
Europe and North America. There is also the potential for accretive
and margin-enhancing acquisitions which could unlock significant
value
Financial Review
53 weeks to 52 weeks to
5 April 2020 31 March 2019
------------------------------
Revenue Profit/(loss) Revenue Profit/(loss)
$'000 $'000 $'000 $'000
------------------------------ -------- -------------- -------- --------------
Power Products division 171,008 14,053 198,885 13,229
Integrated Manufacturing
Services division 220,346 23,341 173,219 13,473
Unallocated central costs - (5,764) (5,096)
------------------------------ -------- -------------- -------- --------------
Divisional underlying
results 391,354 31,630 372,104 21,606
Adjusting operating items (5,808) (6,226)
Share-based payments (8,737) (2,388)
------------------------------ -------- -------------- -------- --------------
Operating profit 17,085 12,992
------------------------------ -------- -------------- -------- --------------
Share of loss from associate
and JVs - (210)
Net finance costs (1,224) (1,147)
------------------------------ -------- -------------- -------- --------------
Profit before taxation 15,861 11,635
Taxation (1,165) (2,429)
------------------------------ -------- -------------- -------- --------------
Profit after taxation 14,696 9,206
------------------------------ -------- -------------- -------- --------------
Basic earnings per share:
Statutory 9.9 cents 6.9 cents
Underlying* 18.2 cents 13.1 cents
* Before adjusting items and share-based payments charge.
Trading performance
FY2020 has delivered growth in revenue and improvement in
profitability. Revenue is up by 5.2% to $391.4 million (FY2019:
$372.1 million). This has been achieved at the same time as
significant increases in both adjusted operating profit and profit
before tax.
During the year, the Group made two acquisitions. Servatron is a
US-based electronic manufacturing services business with a strong
customer base and significant expertise in PCB assembly, complex
testing requirements and the delivery of complete assemblies. The
business has a manufacturing site in Spokane, Washington, with the
majority of customers based in North America. During the year,
Servatron contributed $26.4 million to Group revenues.
The second acquisition was a cable extrusion company based in
south China. This operation was previously a significant cable
supplier to Volex. Acquiring this business provides the Group with
greater control over a significant element of the Power Products
supply chain while also offering opportunities to improve profit
margins through vertical integration. Although most of the output
of the acquired business was to the Group, there are some remaining
external sales which contributed $1.6 million to Group revenues
during the year.
The Group has a strong balance sheet and significant undrawn
committed facilities. In the current low interest rate environment,
this offers significant opportunities for further
earnings-enhancing acquisitions. The Board has adopted a strategy
that anticipates revenues growing to over $650 million in the next
few years with an adjusted operating margin of 10%. Part of this
growth will come from organic improvements in our existing
business, but the larger proportion will come via selective bolt-on
acquisitions.
Revenue in Integrated Manufacturing Services increased by $47.1
million to $220.3 million (FY2019: $173.2 million). This included
revenues from Servatron and a full year of revenue from the three
acquisitions that were completed in FY2019. The high-level trends
in this segment were a year-on-year increase in medical and
high-speed copper data cable sales and a reduction in sales to
legacy telecommunications customers.
The increased demand in medical reflects a market sector that
has performed strongly in recent years as new therapeutic and
diagnostic technology drives demand for more advanced equipment
from healthcare providers. The market in high-speed copper data
cables is driven by both new data centres and the upgrade of
existing facilities to provide increased bandwidth for customers.
The fall in telecommunications revenues was expected as the new
generation of base stations uses a different technical architecture
which is less dependent on radio frequency connectors and cables
supplied by Volex.
Power Products revenue fell by $27.9 million to $171.0 million
(FY2019: $198.9 million). The strategy for FY2020 was to reduce
levels of lower-margin power cord sales with the intention of
improving profitability. The effectiveness of this strategy is
demonstrated by the improvement in gross margin of 270bps to 21.0%
(FY2019: 18.3%). Despite the fall in revenue, underlying operating
profit for the division increased by $0.9 million to $14.1 million
(FY2019: $13.2 million).
There were some significant new customer programmes in the Power
Products segment during the year including some automotive electric
vehicle projects. The division is fortunate to have a wide variety
of customers, and recent efforts to balance the customer portfolio
have reduced any reliance on individual contracts.
Underlying operating expenses have increased by $7.1 million to
$59.0 million (FY2019: $51.9 million). Most of the increase is a
result of the acquisitions but there were also uplifts in
performance-related remuneration, reflecting the strong performance
and profitability seen across the entire Group. During the year
certain costs were incurred related to the reconfiguration of
operations within production sites and transfers between sites to
optimise production costs. These costs have been included within
operating costs.
The Group aims to manage operations as efficiently as possible,
and management are continually challenged to take out any costs
that are not adding value. This has resulted in operating costs
which are competitive in the context of the global operations and
structure. Production sites have relatively low management
overheads, which does require some costs in the centre, but this
represents the most efficient way of running this organisation.
Although it is more demanding to operate any business profitably
and deliver growth when the economic conditions are challenging,
the Group has a great track record in reducing costs and optimising
the operating model.
Underlying operating profit (which is stated before adjusting
items such as the amortisation of acquired intangibles and also
before the charge for share-based payments) has increased by $10.0
million to $31.6 million (FY2019: $21.6 million). Statutory
operating profit is up by $4.1 million to $17.1 million (FY2019:
$13.0 million).
Adjusting items and share-based payments
The Group presents some significant items separately to provide
clarity on the underlying performance of the business. This
includes significant one-off costs such as restructuring and
acquisition related costs, the non-cash amortisation of intangible
assets acquired as part of business combinations, and share-based
payments, as well as the associated tax.
Costs of $0.2 million (FY2019: $1.8 million) were incurred in
connection with the acquisitions that took place during the year.
These costs are modest because the Group uses its own experts and
in-depth understanding of the sector to conduct detailed due
diligence on acquisition targets, minimising external fees.
Incremental improvements in the operating efficiency of the
business have been achieved during the year without incurring
material restructuring costs, and the costs associated with these
improvements have been included within underlying operating profit.
As a result, restructuring costs were nil (FY2019: $1.9
million).
Amortisation of acquired intangibles has increased to $5.7
million (FY2019: $2.0 million) because the results include a full
year of amortisation for the prior-year acquisitions and also the
impact of the acquisitions made during the year. The Group has
recognised two classes of separately identifiable intangible
assets, which are customer relationships and the acquired open
order book. The open order book is amortised over a period of less
than one year, so the level of amortisation is higher in the first
year following acquisition in comparison to subsequent years.
Customer relationship intangible assets are generally amortised
over a period of between four and five years.
Share-based payments include awards made to incentivise senior
management as well as awards granted to the senior management of
acquired companies. These awards form an important part of the
negotiation of consideration in an acquisition situation and are
used to reduce the cash consideration and as an incentivisation and
retention tool. In accordance with IFRS, where these awards have
included any ongoing performance features, they must be recognised
in the income statement rather than as part of the cost of
acquisition.
During the year, the charge recognised through the income
statement for share-based payment awards comprises $2.4 million
(FY2019: $1.7 million) in respect of senior management, $5.6
million (FY2019: $ 0.3 million) in respect of acquired businesses
and $0.7 million (FY2019: $0.4 million) for associated payroll
taxes.
Finance costs
The Group has maintained cash balances throughout the year and
the revolving credit facility has been undrawn except for a short
period when it was utilised to support the acquisition of
Servatron. Finance costs include a commitment fee in respect of the
revolving credit facility and the amortisation of the arrangement
fee incurred when the facility was renewed. For FY2020 the Group
has adopted IFRS 16 Leases, which means a financing element is
calculated for operating leases and reflected in the income
statement as a finance cost. Because the Group has taken the
modified retrospective approach, there is no adjustment to the
comparative figure. This has resulted in an increase in net
financing costs in FY2020 of $0.4 million. Overall net financing
costs have increased to $1.2 million (FY2019: $1.1 million).
Foreign exchange
Most sales are in US dollars, with limited sales in other
currencies including euros and British pounds sterling. Most
purchases of raw materials are denominated in US dollars but costs
such as rent, utilities and salaries are paid in local currencies.
This creates some exposure to movements in foreign exchange, some
of which is hedged. Foreign exchange gains recognised in the income
statement for the period were $0.4 million (FY2019: $0.4
million).
Tax
The Group incurred a tax charge of $1.2 million (FY2019: $2.4
million) representing an effective tax rate (ETR) of 7.3% (FY2019:
20.9%). The underlying tax charge of $3.5 million (FY2019: $2.6
million) represents an ETR of 11.5% (FY2019: 13.1%).
The underlying tax charge of $3.5 million (FY2019: $2.6 million)
comprises an underlying current tax charge of $7.7 million (FY2019:
$3.4 million) and an underlying deferred tax credit of $4.2 million
(FY2019: credit of $0.8 million).
The underlying current tax charge is calculated by reference to
the taxable profits in each individual entity and the local
statutory tax rates. Where tax losses are available, these have
been used to the fullest extent possible to reduce the taxable
profit.
The Group operates in a number of different tax jurisdictions
and is subject to periodic tax audits by local tax authorities in
relation to corporate tax and transfer pricing. As at 5 April 2020,
the Group has net current tax liabilities of $6.2 million (FY2019:
$4.9 million) which include $7.9 million (FY2019: $2.6 million) of
uncertain tax provisions.
A deferred tax credit of $5.1 million (FY2019: $0.8 million)
arose due to an increase in the deferred tax asset recognised on
trading losses and short-term timing items due to the utilisation
of losses based on future forecast taxable profits in certain
regions. At the reporting date the Group has recognised a deferred
tax asset of $9.0 million (FY2019: $4.3 million), of which $4.5
million (FY2019: $3.4 million) relates to tax losses, $3.9m
(FY2019: $nil) to short term timing items and $0.6m (FY2019: $0.6m)
to intangible assets.
Earnings per share
Basic earnings per share for FY2020 was 9.9 cents (FY2019: 6.9
cents), reflecting improved performance in FY2020. The underlying
fully diluted earnings per share was 17.3 cents (FY2019: 12.7
cents).
Cash flow
Cash flow has improved significantly from the previous year as a
result of the higher operating profit and improvements in working
capital. Operating cash flow before movements in working capital
has increased by $16.6 million to $37.7 million (FY2019: $21.2
million), which reflects the strong growth in operating profit.
Working capital improved by $19.6 million, which compares to an
adverse movement of $24.7 million in FY2019.
The inflow comprises:
-- an increase in inventory leading to a cash outflow of $2.9
million (FY2019: inflow of $0.6 million). This change is driven by
higher volumes of Integrated Manufacturing Services activity, which
requires more inventory than Power Products;
-- a decrease in receivables leading to a cash inflow of $20.5
million (FY2019: outflow of $10.2 million). This decrease is
partially due to the timing of the year end, which was on 5 April,
meaning greater opportunities to collect March end-of-month
customer receipts. In addition, the change in product mix from
Power Products to Integrated Manufacturing Services has had a
positive impact on the receivables profile; and
-- an inflow related to payables of $2.0 million (FY2019:
outflow of $15.1 million). This was a result of the timing of the
year end which resulted in the receipt of deliveries from suppliers
for an additional week.
Net financing outflows were $10.5 million (FY2019: inflow of
$32.8 million). This year, this included the interim dividend
payment of $2.0 million (FY2019: $nil) and also the additional
interest expense as a result of the adoption of IFRS 16 and due to
the finance leases that were acquired with Servatron. As part of
the extension and enhancement of the Group's revolving credit
facility, legal costs and arrangement fees of $0.7 million (FY2019:
$nil) were incurred during the year. These amounts will be spread
over three years in the income statement.
Capital expenditure increased to $5.0 million from $3.3 million
in FY2019. During the year, the Group has continued to invest in
automation to deliver efficiency in the Power Products segment. An
investment of $0.8 million was made during the year to secure
additional land adjacent to the Group's production site in Batam,
Indonesia, to allow for expansion. There will be further
expenditure in FY2021 to support the build and fit-out of the
additional manufacturing capacity.
Free cash flow increased by $58.3 million to $47.4 million
(FY2019: cash outflow of $10.9 million). Free cash flow represents
net cash flows before financing activities excluding the net
outflow from the acquisition of subsidiaries. This was a
significant improvement caused by the increase in operating profit
and the improvement in working capital.
Total cash expenditure on acquisitions (net of cash acquired)
was $25.6 million (FY2019: $23.8 million) including $2.9 million
(FY2019: $nil) in respect of contingent consideration. The Group is
expecting to make payments of $4.0 million in FY2021 in relation to
contingent consideration for acquisitions made in FY2020 and
previous years.
The cash outflow associated with the settlement of awards under
share-based payment arrangements was $4.6 million (FY2019: $1.0
million) including the purchase of shares to be held in trust to
fulfil exercises in future periods.
IFRS 16 Leases
The Group implemented IFRS 16 Leases with effect from 1 April
2019. On adoption of the new standard, the Group recognised $3.5
million of right-of-use assets, $2.1 million investment in finance
leases and $5.8 million of lease liabilities. The impact on the
income statement in the year has been to increase underlying
operating profit by $0.6 million and net interest expense by $0.4
million. Comparative information for the prior year has not been
restated.
Net cash and dividends
The Group has maintained a net cash position throughout the
year. At the end of FY2019 the net cash balance stood at $20.6
million. At the end of FY2020 cash stood at $31.6 million excluding
lease liabilities and $21.2 million including lease
liabilities.
The Group paid an interim dividend of 1.0 pence per share in
February 2020. A final dividend of 2.0 pence per share will be
recommended to shareholders at the Annual General Meeting, which
reflects the robust financial position of the Group.
Banking facilities, going concern and covenants
In July 2019, the Group extended its $30 million revolving
credit facility ('RCF') for three years on improved terms. The key
terms of the extension were: a 40 basis point reduction in the
non-utilisation fee and a 70 basis point reduction in interest-rate
margin; fewer restrictions in key operational covenants; and a $10
million uncommitted 'accordion' feature to provide further
capacity, up to a total RCF limit of $40 million, for potential
future acquisitions to support the Group's strategy.
This facility is provided by a syndicate of two banks (Lloyds
Bank plc and HSBC UK Bank plc) and was undrawn at the year end.
The key terms of the facility are:
-- available until 23 July 2022;
-- no scheduled amortisation; and
-- interest cover and total debt to EBITDA leverage covenants.
As at 5 April 2020, the RCF was undrawn (FY2019: undrawn) with
$nil drawn under the cash pool (FY2019: $0.3 million). After
accounting for guarantees and letters of credit, the remaining
headroom as at 5 April 2020 was $29.7 million (FY2019: $29.1
million). Under the terms of the facility the two covenant tests
above must be performed at each quarter-end date. Throughout FY2020
all covenants were met.
The Group prepared forward-looking financial forecasts as part
of its strategic and financial planning process, incorporating
profit, cash and covenant measures. In assessing the ability of the
Group to continue on a going concern basis, the financial forecasts
are sensitised using scenarios that take into account the principal
risks and uncertainties identified by management. For FY2020, as a
result of the increased pressures on the global economy as a result
of the COVID-19 pandemic, we conducted additional financial stress
testing and sensitivity analysis, considering revenues at risk as
well as the impact of our response plan to the crisis. The Group's
forecasts show that the Group should continue to operate in
compliance with its banking facilities for a period of at least one
year from the date of this report. Accordingly, the Directors
continue to adopt the going concern basis in preparing the
financial statements.
Financial instruments and cash flow hedge accounting
For most products in our Power Products division, the price of
copper has an impact on the cost of key raw materials. This risk is
minimised by passing the variability in cost through to the end
customer in the majority of cases. Where the customer contract does
not provide for the pass-through of risk, the Group enters into
forward contracts to mitigate the Group's exposure to copper price
volatility.
The forward contracts act as an economic hedge against the
impact of copper price movements. They meet the hedge accounting
requirements of IFRS 9 and therefore are accounted for as cash flow
hedges of forecast future purchases of copper. As at 5 April 2020,
a financial liability of $0.3 million (FY2019: financial asset of
$0.2 million) has been recognised in respect of the fair value of
open copper contracts with a corresponding $0.3 million debit
recognised in reserves. This debit is retained in reserves until
such time as the forecast copper consumption takes place, at which
point it will be recycled through the income statement.
A credit of $0.1 million has been recognised in cost of sales
for FY2020 (FY2019: credit of $0.1 million) in respect of copper
hedging contracts that closed out during the period. This credit
has arisen since the average London Metal Exchange copper price in
the period has been above the contracted price.
Defined benefit pension schemes
The Group's net pension deficit under IAS 19 as at 5 April 2020
was $3.5 million (FY2019: $2.4 million). The increase is primarily
due to recognising an overseas unfunded retirement benefit
obligation within this balance this year rather than within other
liabilities, to reflect the substance of the arrangement.
Covid-19
The Covid-19 pandemic has had an impact on all of the Group's
operating locations and the surrounding communities. From the
outset, the guiding principle has been to protect the health and
well-being of our workforce by implementing sensible precautions at
every site. During FY2020, the initial impact was at our Chinese
sites when local authorities extended the Lunar New Year holiday to
prevent the spread of the virus. Each site worked swiftly to
implement new procedures to protect our staff allowing the sites to
reopen. Immediately after production recommenced the sites were
operating at reduced capacity to allow time for the health
prevention measures to be embedded and because many staff were in
locations subject to travel restrictions. Capacity increased during
February and production returned to normal levels in March.
It is estimated that the reduced production in quarter 4 of
FY2020 resulted in a reduction in revenue of $8.0 million. The
impact of the disruption was minimised for a number of reasons. The
sites in China built additional stocks of raw materials and
finished goods in preparation for the Lunar New Year holiday. This
enabled many customers to continue to pull inventory from hub
locations during the site closures. The raw materials allowed
production to recommence despite some short-term issues in the
production supply chains. The hard work and flexibility of our
employees was also central to our ability to get back to work
quickly.
Moving into FY2021 the Group has implemented measures at all
sites to lessen the risk of transmission of Covid-19 within the
work environment. Production for some customers is being
transferred to ensure there are geographically diverse locations.
It has been clear since the beginning of the Covid-19 disruption
that communication with customers is critical to prioritising
supply and ensuring the continuity of deliveries. This is a
strength of the Group and something that will continue.
Many of the Group's facilities supply essential components into
the medical and healthcare markets. In most locations there are
provisions in place to allow such production to continue during
periods of restricted movement. All our sites with medical output
are closely engaged with customers and local authorities to ensure
that this critical activity can continue in a safe way when
restrictions on non-essential activity are in place.
It is anticipated that there will be some impact on demand in
FY2021 caused by Covid-19-related disruption. It is difficult to
forecast the timing and amount of this impact. The Group is
fortunate to have a strong and diverse business. The medical
market, which makes up half of our output in Integrated
Manufacturing Services, tends to be less cyclical than other
sectors. The Group has a robust business which is well funded and
capable of adapting to changing levels of demand.
Daren Morris
Chief Financial Officer
Consolidated Income Statement
----------------------------------------------------------------------------------------------------------------------
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March
2019)
2020 2019
Adjusting Adjusting
Before items Before items
adjusting and share-based adjusting and share-based
items and payments items and payments
share-based (Note share-based (Note
payments 3) Total payments 3) Total
Notes $'000 $'000 $'000 $'000 $'000 $'000
------------------------- ----- ------------ ---------------- --------- ------------ ---------------- ---------
Revenue 2 391,354 - 391,354 372,104 - 372,104
Cost of sales (300,693) - (300,693) (298,586) - (298,586)
------------------------- ----- ------------ ---------------- --------- ------------ ---------------- ---------
Gross profit 90,661 - 90,661 73,518 - 73,518
Operating expenses (59,031) (14,545) (73,576) (51,912) (8,614) (60,526)
------------------------- ----- ------------ ---------------- --------- ------------ ---------------- ---------
Operating profit
/ (loss) 2 31,630 (14,545) 17,085 21,606 (8,614) 12,992
Share of net
loss from associates - - - (210) - (210)
Finance income 328 - 328 129 - 129
Finance costs (1,552) - (1,552) (1,276) - (1,276)
------------------------- ----- ------------ ---------------- --------- ------------ ---------------- ---------
Profit / (loss)
on ordinary activities
before taxation 30,406 (14,545) 15,861 20,249 (8,614) 11,635
Taxation 4 (3,504) 2,339 (1,165) (2,650) 221 (2,429)
------------------------- ----- ------------ ---------------- --------- ------------ ---------------- ---------
Profit / (loss)
for the period
attributable
to the owners
of the parent 26,902 (12,206) 14,696 17,599 (8,393) 9,206
------------------------- ----- ------------ ---------------- --------- ------------ ---------------- ---------
Earnings per
share (cents)
Basic 5 18.2 9.9 13.1 6.9
Diluted 5 17.3 9.5 12.7 6.7
------------------------- ----- ------------ ---------------- --------- ------------ ---------------- ---------
Consolidated Statement of Comprehensive Income
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
2020 2019
$'000 $'000
Profit for the period 14,696 9,206
Items that will not be reclassified subsequently to profit or loss
Actuarial (loss)/gain on defined benefit pension schemes (1,343) 305
(1,343) 305
Items that may be reclassified subsequently to profit or loss
(Loss)/gain arising on cash flow hedges during the period (2,266) 180
Exchange gain on translation of foreign operations 151 579
(2,115) 759
Other comprehensive (loss)/income for the period (3,458) 1,064
------------------------------------------------------------------------------------------ -------- -------
Total comprehensive income for the period attributable to the owners of the parent 11,238 10,270
------------------------------------------------------------------------------------------ -------- -------
Consolidated Statement of Financial Position
2020 2019
As at 5 April 2020 (31 March $'000 $'000
2019) Notes
------------------------------------ ------ --- -------- --------
Non-current assets
Goodwill 25,760 17,531
Other intangible assets 15,537 11,115
Property, plant and equipment 21,565 20,420
Right-of-use asset 8,345 -
Interests in associates and - -
joint ventures
Other receivables 4,488 2,704
Deferred tax asset 8,955 4,271
------------------------------------ ------ --- -------- --------
84,650 56,041
------------------------------------ ------ --- -------- --------
Current assets
Inventories 57,995 49,122
Trade receivables 56,382 71,307
Other receivables 7,987 8,448
Current tax assets 2,154 1,092
Derivative financial instruments - 374
Cash and bank balances 8 32,305 20,913
------------------------------------ ------ --- -------- --------
156,823 151,256
------------------------------------ ------ --- -------- --------
Total assets 241,473 207,297
------------------------------------ ------ --- -------- --------
Current liabilities
Borrowings 8 225 320
Lease liabilities 3,498 -
Trade payables 39,653 45,863
Other payables 38,453 30,212
Current tax liabilities 8,384 4,811
Retirement benefit obligation 982 975
Provisions 9 834 1,121
Derivative financial instruments 1,819 -
93,848 83,302
------ --- --------
Net current assets 62,975 67,954
------------------------------------ ------ --- -------- --------
Non-current liabilities
Other payables 570 988
Non-current tax liabilities - 1,134
Deferred tax liabilities 6,130 4,447
Retirement benefit obligation 2,492 1,460
Non-current lease liabilities 7,385 -
Provisions 9 516 318
17,093 8,347
------ --- --------
Total liabilities 110,941 91,649
------------------------------------ ------ --- -------- --------
Net assets 130,532 115,648
------------------------------------ ------ --- -------- --------
Equity attributable to owners
of the parent
Share capital 11 60,189 58,792
Share premium account 46,414 44,532
Non-distributable reserves 2,455 2,455
Hedging and translation reserve (9,506) (7,391)
Own shares 12 (1,024) (1,890)
Retained earnings 32,004 19,150
------------------------------------ ------ --- -------- --------
Total equity 130,532 115,648
------------------------------------ ----------- -------- --------
Consolidated Statement of Changes in Equity
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March
2019)
Share Hedging
Share premium Non-distributable and translation Retained Total
capital account reserves reserve Own shares earnings equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000
---------------------------- -------- -------- ----------------- ---------------- ---------- --------- -------
Balance at 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 - - - - - 9,206 9,206
Other comprehensive
income for the period - - - 759 - 305 1,064
---------------------------- -------- -------- ----------------- ---------------- ---------- --------- -------
Total comprehensive
income for the period - - - 759 - 9,511 10,270
---------------------------- -------- -------- ----------------- ---------------- ---------- --------- -------
Share issue 18,886 37,410 - - - - 56,296
Exercise of deferred
bonus shares 151 - - - - (151) -
Own shares sold/(utilised)
in the period - - - - 75 (31) 44
---------------------------- -------- -------- ----------------- ---------------- ---------- --------- -------
Own shares purchased
in the period - - - - (1,098) - (1,098)
Credit to equity for
equity-settled share-based
payments - - - - - 1,992 1,992
---------------------------- -------- -------- ----------------- ---------------- ---------- --------- -------
Balance at 31 March
2019 58,792 44,532 2,455 (7,391) (1,890) 19,150 115,648
---------------------------- -------- -------- ----------------- ---------------- ---------- --------- -------
Profit for the period
attributable to the
owners of the parent - - - - - 14,696 14,696
Other comprehensive
expense for the period - - - (2,115) - (1,343) (3,458)
---------------------------- -------- -------- ----------------- ---------------- ---------- --------- -------
Total comprehensive
(expense)/income for
the period - - - (2,115) - 13,353 11,238
---------------------------- -------- -------- ----------------- ---------------- ---------- --------- -------
Share issue 1,315 1,882 - - - - 3,197
Exercise of deferred
bonus shares 82 - - - - (82) -
Own shares sold/(utilised)
in the period - - - - 2,630 (6,514) (3,884)
Own shares purchased
in the period - - - - (1,764) - (1,764)
Dividend - - - - - (1,956) (1,956)
Credit to equity for
equity-settled share-based
payments - - - - - 8,053 8,053
---------------------------- -------- -------- ----------------- ---------------- ---------- --------- -------
Balance at 5 April
2020 60,189 46,414 2,455 (9,506) (1,024) 32,004 130,532
---------------------------- -------- -------- ----------------- ---------------- ---------- --------- -------
Consolidated Statement of Cash Flows
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
Restated
Notes 2020 2019
$'000 $'000
------------------------------------------------------------------------- ------ -------- ----------
Net cash generated from/(used in) operating activities 7 51,735 (6,743)
Cash flow generated from/(used in) investing activities
Interest received 22 11
Acquisition of businesses, net of cash acquired (22,701) (23,843)
Contingent consideration for businesses acquired (2,850) -
Proceeds on disposal of intangible assets, property, plant and equipment 564 512
Purchases of property, plant and equipment (4,910) (3,180)
Purchases of intangible assets (40) (163)
Purchase of preference shares - (1,300)
Proceeds from the repayment of preference shares 25 -
Net cash used in investing activities (29,890) (27,963)
Cash flows before financing activities 21,845 (34,706)
Cash generated/(used) before adjusting items 23,251 (31,434)
Cash utilised in respect of adjusting items (1,406) (3,272)
-------- ----------
Cash flow (used in)/generated from financing activities
Dividend paid (1,956) -
Net purchase of shares for share schemes (4,634) (1,023)
Refinancing costs paid (659) -
New bank loans raised 7,000 -
Repayment of borrowings (7,056) (12,826)
Proceeds on issue of shares - 46,685
Interest element of lease payments (553) -
Receipt from lease debtor 499 -
Capital element of lease payments (3,150) -
------------------------------------------------------------------------- ------ -------- ----------
Net cash (used in)/generated from financing activities (10,509) 32,836
Net increase/(decrease) in cash and cash equivalents 11,336 (1,870)
Cash and cash equivalents at beginning of period 20,593 22,981
Effect of foreign exchange rate changes (280) (518)
------------------------------------------------------------------------- ------ -------- ----------
Cash and cash equivalents at end of period 8 31,649 20,593
------------------------------------------------------------------------- ------ -------- ----------
Restatement: The net purchase of shares for share schemes has
been reclassified in the prior year from investing to financing
activities to reflect the nature of the transactions. See note 7
for further details.
1 Basis of preparation
The preliminary announcement for the 53 weeks ended 5 April 2020
has been prepared in accordance with the accounting policies as
disclosed in Volex plc's Annual Report and Accounts 2019, as
updated to take effect of any new accounting standards applicable
for the period as set out in Volex plc's Interim Statement
2020.
The annual financial information presented in this preliminary
announcement is based on, and is consistent with, that in the
Group's audited financial statements for the 53 weeks ended 5 April
2020, and those financial statements will be delivered to the
Registrar of Companies following the Company's Annual General
Meeting. The independent auditors' report on those financial
statements is unqualified and does not contain any statement under
section 498 (2) or 498 (3) of the Companies Act 2006.
Information in this preliminary announcement does not constitute
statutory accounts of the Group within the meaning of section 434
of the Companies Act 2006. The full financial statements for the
Group for the 52 weeks ended 31 March 2019 have been delivered to
the Registrar of Companies. The independent auditors' report on
those financial statements was unqualified and did not contain a
statement under section 498 (2) or 498 (3) of the Companies Act
2006.
Going concern
The Group prepared forward-looking financial forecasts as part
of its strategic and financial planning process, incorporating
profit, cash and covenant measures. In assessing the ability of the
Group to continue on a going concern basis, the financial forecasts
are sensitised using scenarios that take into account the principal
risks and uncertainties set out in the Annual Report. For FY2020,
as a result of the increased pressures on the global economy as a
result of the COVID-19 pandemic, we conducted additional financial
stress testing and sensitivity analysis, considering revenues at
risk as well as the impact of our response plan to the crisis. The
Group's forecasts show that the Group should continue to operate in
compliance with its banking facilities for a period of at least one
year from the date of this report. Accordingly, the Directors
continue to adopt the going concern basis in preparing the
financial statements.
This preliminary announcement was approved by the Board of
Directors on 18 June 2020.
2 Business and geographical segments
Operating 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 the products supplied. In addition to
the operating divisions, a Central division exists to capture all
of the corporate costs incurred in supporting the operations.
Power Products The sale and manufacture of power cords, duck heads
and related products that are sold to 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 and electric and autonomous
vehicles.
-------------- ---------------------------------------------------------
Integrated The sale and manufacture of a broad range of higher-level
Manufacturing assemblies and connectors (ranging from high-speed
Services copper cables to complex multi-branch high reliability
systems) that transfer electronic, radio-frequency
and optical data.
-------------- ---------------------------------------------------------
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.
-------------- ---------------------------------------------------------
The Board believes that the segmentation of the Group based upon
product characteristics allows it to best understand the Group's
performance and profitability. The Group consider the executive
members of the Company's Board and the Chief Operating Officer to
be the chief operating decision makers. The following is an
analysis of the Group's revenues and results by reportable
segment.
.
53 weeks to 52 weeks to
5 April 2020 31 March 2019
Revenue Profit/(loss) Revenue Profit/(loss)
$'000 $'000 $'000 $'000
-------------------------------------- ------- ------------- ------- -------------
Power Products 171,008 14,053 198,885 13,229
Integrated Manufacturing Services 220,346 23,341 173,219 13,473
Unallocated Central costs - (5,764) - (5,096)
-------------------------------------- ------- ------------- ------- -------------
Divisional results before share-based
payments and adjusting items 391,354 31,630 372,104 21,606
Adjusting operating items (5,808) (6,226)
Share-based payment charge (8,737) (2,388)
-------------------------------------- ------- ------------- ------- -------------
Operating profit 17,085 12,992
Share of net loss from associates
and joint ventures - (210)
Finance income 328 129
Finance costs (1,552) (1,276)
-------------------------------------- ------- ------------- ------- -------------
Profit before taxation 15,861 11,635
Taxation (1,165) (2,429)
-------------------------------------- ------- ------------- ------- -------------
Profit after taxation 14,696 9,206
-------------------------------------- ------- ------------- ------- -------------
Charges for share-based payments and adjusting items have not
been allocated to divisions as management report and analyse
division profitability at the level shown above. The accounting
policies of the reportable segments are in accordance with the
Group's accounting policies.
Geographical segments
The Group's revenue from external customers and information
about its non-current assets (excluding deferred tax assets) by
geographical location are provided below:
Revenue Non-Current Assets
2020 2019 2020 2019
$'000 $'000 $'000 $'000
----------------------- ------- ------- --------- ---------
Asia (excluding India) 140,133 164,343 21,469 16,618
North America 145,081 119,623 25,826 2,067
Europe 106,140 85,883 28,400 33,083
India - 2,255 - 2
391,354 372,104 75,695 51,770
----------------------- ------- ------- --------- ---------
3 Adjusting items and share-based payments
2020 2019
$'000 $'000
----------------------------------------------- ------- ------
Restructuring costs - 1,942
Acquisition costs 156 1,821
Amortisation of acquired intangibles 5,652 1,983
Pension past service costs - 480
Total adjusting operating items 5,808 6,226
----------------------------------------------- ------- ------
Share-based payments 8,737 2,388
----------------------------------------------- ------- ------
Total adjusting items and share-based payments
before tax 14,545 8,614
----------------------------------------------- ------- ------
Tax effect of adjusting items and share-based
payments (note 4) (2,339) (221)
----------------------------------------------- ------- ------
Total adjusting items and share-based payments
after tax 12,206 8,393
----------------------------------------------- ------- ------
Adjusting items include costs that are one-off in nature and
significant (such as restructuring costs, impairment charges or
acquisition-related costs) as well as 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 the current year, the Group has not incurred any
restructuring costs (2019: $1,942,000). In the prior year, the
Group incurred $1,942,000 of restructuring spend following the
downsizing of an Asian factory, the closure of the Indian factory
and a review of the organisational structure that resulted in the
redundancy of some senior roles. These amounts were partially
offset by the release of a provision made some years ago which was
no longer required.
Acquisition related costs of $156,000 (2019: $1,821,000) are
split between $98,000 for Servatron Inc and $58,000 for Ta Hsing
Industries Limited. These costs are in respect of legal fees
associated with the transactions.
Associated with the acquisitions, the Group has recognised
certain intangible assets including customer relationships and
customer order backlogs. The amortisation of these intangibles is
non-cash and totals $5,652,000 (2019: $1,983,000) for the period,
split $2,747,000 (2019: $nil) for Servatron Inc, $1,357,000 (2019:
$980,000) for Silcotec Europe Limited, $106,000 (2019: $251,000)
for MC Electronics LLC and $1,442,000 (2019: $752,000) for GTK
(Holdco) Limited.
In the prior year the Group recognised a one-off pension past
service cost of $480,000 as a result of Guaranteed Minimum Pension
(GMP) equalisation following a legal judgement requiring all
pension schemes conduct an equalisation of male and female members'
benefits for the effect of unequal GMPs.
4 Taxation
2020 2019
-------------------------- ------------------------------------- -------------------------------------
Adjusting Adjusting
Before items Before items
adjusting and share-based adjusting and share-based
items payments Total items payments Total
$'000 $'000 $'000 $'000 $'000 $'000
-------------------------- ---------- ---------------- ------- ---------- ---------------- -------
Current tax - expense
for the period (9,525) 907 (8,618) (4,241) (74) (4,315)
Current tax - adjustment
in respect of previous
periods 663 - 663 709 - 709
Current tax - impact
of S965 on deferred
foreign income 1,134 - 1,134 108 - 108
-------------------------- ---------- ---------------- ------- ---------- ---------------- -------
Total current tax (7,728) 907 (6,821) (3,424) (74) (3,498)
-------------------------- ---------- ---------------- ------- ---------- ---------------- -------
Deferred tax - credit
for the period 5,061 1,432 6,493 1,211 295 1,506
Deferred tax - adjustment
in respect of previous
periods (837) - (837) (437) - (437)
-------------------------- ---------- ---------------- ------- ---------- ---------------- -------
Total deferred tax
(note 21) 4,224 1,432 5,656 774 295 1,069
-------------------------- ---------- ---------------- ------- ---------- ---------------- -------
Income tax expense (3,504) 2,339 (1,165) (2,650) 221 (2,429)
-------------------------- ---------- ---------------- ------- ---------- ---------------- -------
UK corporation tax is calculated at 19% (2019: 19%) of the
estimated assessable profit for the period. Taxation for other
jurisdictions is calculated at the rates prevailing in the
respective jurisdictions.
The Group recognises provisions for uncertain tax positions when
the Group has a present obligation as a result of a past event and
management judge that it is probable that there will be a future
outflow within the Group to settle the obligation. Uncertain tax
positions are assessed and measured within the jurisdictions that
we operate in using the best estimate of the most likely outcome.
It is inevitable that the Group will be subject to routine tax
audits or be in ongoing disputes with tax authorities in the
multiple jurisdictions it operates within.
5 Earnings per ordinary share
The calculations of the earnings per share are based on the
following data:
Earnings 2020 2019
$'000 $'000
---------------------------------------------------- --- ----------- -----------
Profit for the purpose of basic and diluted
earnings per share being net profit attributable
to equity holders of the parent 14,696 9,206
Adjustments for:
Adjusting items 5,808 6,226
Share-based payments charge 8,737 2,388
Tax effect of adjusting items and share-based
payments (2,339) (221)
--------------------------------------------------------- ----------- -----------
Underlying earnings 26,902 17,599
No. shares No. shares
---------------------------------------------------- --- ----------- -----------
Weighted average number of ordinary shares
for the purpose of basic earnings per share 148,057,993 134,382,209
Effect of dilutive potential ordinary shares
/ share options 7,339,875 3,892,712
--------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
for the purpose of diluted earnings per
share 155,397,868 138,274,921
--------------------------------------------------------- ----------- -----------
2020 2019
Basic earnings per share Cents Cents
---------------------------------------------------- --- ----------- -----------
Basic earnings per share 9.9 6.9
Adjustments for:
Adjusting items 3.9 4.6
Share-based payments charge 6.0 1.8
Tax effect of adjusting items and share-based
payments (1.6) (0.2)
--------------------------------------------------------- ----------- -----------
Underlying basic earnings per share 18.2 13.1
2020 2019
Diluted earnings per share Cents Cents
---------------------------------------------------- ----- -----
Diluted earnings per share 9.5 6.7
Adjustments for:
Adjusting items 3.7 4.5
Share-based payments charge 5.6 1.7
Tax effect of adjusting items and share-based
payments (1.5) (0.2)
----------------------------------------------------- ----- -----
Underlying diluted earnings per share 17.3 12.7
----------------------------------------------------- ----- -----
The underlying earnings per share has been calculated on the
basis of profit before adjusting items and share-based payments,
net of tax. The Directors consider that this calculation gives a
better understanding of the Group's earnings per share in the
current and prior period.
6 Bank facilities
During the 53 weeks ended 5 April 2020 the Group utilised a
multi-currency combined revolving overdraft and guarantee facility.
The syndicate at year end comprises Lloyds Bank plc and HSBC UK
Bank plc. During the year the $30m facility was extended for 3
years. The new facility includes an additional $10 million
uncommitted 'accordion' feature to provide further capacity for
potential future acquisitions. The amount available under the
facility at 5 April 2020 was $30,000,000 (2019: $30,000,000). The
facility is secured by fixed and floating charges over the assets
of certain Group companies.
The terms of the facility require the Group to perform quarterly
financial covenant calculations with respect to leverage (adjusted
total debt to adjusted rolling 12-month EBITDA) and interest cover
(adjusted rolling 12-month EBITDA to adjusted rolling 12-month
interest). Breach of these covenants could result in cancellation
of the facility. The Group was compliant with these covenants
during the period and remains compliant in the period subsequent to
the period end.
7 Notes to cash flow statement
2020 2019
$'000 $'000
----------------------------------------------------- ------- --------
Profit for the period 14,696 9,206
Adjustments for:
Finance income (328) (129)
Finance costs 1,552 1,276
Income tax expense 1,165 2,429
Share of net loss from associates - 210
Depreciation on property, plant and equipment 3,643 3,318
Depreciation on right-of-use assets 2,714 -
Impairment of right-of-use assets 65 -
Amortisation of intangible assets 5,749 2,451
Loss on disposal of property, plant and equipment 838 324
Share-based payment charge 8,737 2,388
(Decrease)/increase in provisions (1,090) (390)
Effects of foreign exchange rate changes 5 67
Operating cash flow before movement in working
capital 37,746 21,150
(Increase)/decrease in inventories (2,943) 606
Decrease/(increase)in receivables 20,499 (10,196)
Increase/(decrease) in payables 2,041 (15,068)
----------------------------------------------------- ------- --------
Movement in working capital 19,597 (24,658)
Cash generated from / (used in) operations 57,343 (3,508)
------- --------
Cash generated from / (used in) operations
before adjusting items 58,749 (236)
Cash utilised by adjusting items (1,406) (3,272)
------- --------
Taxation paid (5,135) (2,501)
Interest paid (473) (734)
Net cash generated from / (used in) operating
activities 51,735 (6,743)
----------------------------------------------------- ------- --------
Restatement: The Group purchases its own shares through its
employee benefit trust in order to settle share-based payment
transactions. In the previous period, the Group incurred a cash
outflow of $1,023,000 associated with the purchase of shares by the
employee benefit trust. This outflow was included within investing
activities in the statement of cash flows. The cash outflow should
have been reported within financing activities. The Group has
restated the previous period to correct for this error. The impact
of this correction on the 52 weeks ended 31 March 2019 is to
increase net cash used in investing activities and cash flows
before financing activities by $1,023,000 and to decrease net cash
generated from financing activities by $1,023,000. The correction
of the classification of the cash outflow for the 52 weeks ended 31
March 2019 had no effect on the Group's profit after tax,
consolidated statement of financial position or the Group's basic
and diluted earnings per share.
8 Analysis of net funds
Cash and Bank Lease Debt issue
cash equivalents loans liabilities costs Total
$'000 $'000 $'000 $'000 $'000
------------------------------- ----------------- -------- ------------ ---------- --------
At 1 April 2018 22,981 (13,550) - 517 9,948
Cash flow (1,870) 12,826 - - 10,956
Exchange differences (518) 724 - (33) 173
Amortisation of debt issue
costs - - - (387) (387)
At 31 March 2019 20,593 - - 97 20,690
IFRS 16 Transition - - (5,777) - (5,777)
------------------------------- ----------------- -------- ------------ ---------- --------
Adjusted balance at 1 April
2019 20,593 - (5,777) 97 (14,913)
Business combination (5,771) (135) (4,380) - (10,286)
Cash flow 17,107 56 3,703 659 21,525
New leases entered into during
the year - - (4,445) - (4,445)
Lease interest - - (553) - (553)
Exchange differences (280) - 569 (8) (285)
Amortisation of debt issue
costs - - - (238) (238)
------------------------------- ----------------- -------- ------------ ---------- --------
At 5 April 2020 31,649 (79) (10,883) 510 21,197
------------------------------- ----------------- -------- ------------ ---------- --------
Debt issue costs relate to bank facility arrangement fees.
Analysis of cash and cash 2020 2019
equivalents:
$'000 $'000
--------------------------- ---- ---- ------- -------
Cash and bank balances 32,305 20,913
Bank overdrafts (656) (320)
--------------------------------------- ------- -------
Cash and cash equivalents 31,649 20,593
--------------------------------------- ------- -------
9 Provisions
Corporate
Property restructuring Other Total
$'000 $'000 $'000 $'000
At 1 April 2018 20 65 292 377
Acquired through business
combination 485 - 500 985
Charge in the period 52 - 126 178
Utilisation of provision (146) - (7) (153)
Unwinding of discount 76 - - 76
Exchange differences - (2) (22) (24)
----------------------------- --------- --------------- ------- -------
At 31 March 2019 487 63 889 1,439
Reclassification for lease
liabilities (IFRS 16) (248) - - (248)
----------------------------- --------- --------------- ------- -------
Adjusted balance at 1 April
2019 239 63 889 1,191
Charge in the period 63 - 405 468
Utilisation of provision - - (276) (276)
Exchange differences (5) (7) (21) (33)
----------------------------- --------- --------------- ------- -------
At 5 April 2020 297 56 997 1,350
----------------------------- --------- --------------- ------- -------
Less: included in current
liabilities 148 56 630 834
Non-current liabilities 149 - 367 516
----------------------------- --------- --------------- ------- -------
Property provisions
During the prior year the Group recognised an onerous lease
provision of $485,000 relating to surplus property leased by MC
Electronics LLC identified on acquisition. This provision was being
released evenly over the remaining term of the lease. Upon the
adoption of IFRS 16 ('Leases') the Group has used the practical
expedient to allow the closing provision of $248,000 to be offset
against the right-of-use asset on transition.
Other
Other provisions include the Directors' best estimate, based
upon past experience, of the Group's liability under specific
product warranties and legal claims. The timing of the cash
outflows with respect to these claims is uncertain.
Included within this provision is a $500,000 liability
associated with a pending legal case which was recognised upon
acquisition of MC Electronics LLC. This liability represents the
Directors' best estimate to settle the claim which had been
identified prior to acquisition. An indemnity in respect of this
matter was obtained from the seller of MC Electronics LLC as part
of the sale and purchase agreement.
10 Reconciliation of operating profit to underlying EBITDA
(earnings before interest, tax, depreciation, amortisation,
adjusting items and share-based payments)
2020 2019
$'000 $'000
----------------------------------------------- ------ ------
Operating profit 17,085 12,992
Add back:
Adjusting operating items 5,808 6,226
Share-based payment charge 8,737 2,388
----------------------------------------------- ------ ------
Underlying operating profit 31,630 21,606
Depreciation of property, plant and equipment 3,643 3,318
Depreciation of right-of-use assets 2,714 -
Impairment of right-of-use assets 65 -
Amortisation of intangible assets not acquired
in a business combination 97 468
----------------------------------------------- ------ ------
Underlying EBITDA 38,149 25,392
----------------------------------------------- ------ ------
11 Share capital
Par Share
Value Premium Total
Group Number of Shares $'000 $'000 $'000
----------------------------------------------------- ----------------- ------- --------- --------
At 1 April 2018 90,251,892 39,755 7,122 46,877
Acquisition of MC Electronics LLC 3,000,000 1,052 2,126 3,178
Placing 48,000,000 15,980 31,944 47,924
Acquisition of Silcotec Europe Limited 3,521,437 1,173 1,626 2,799
Issue of deferred bonus shares 470,588 151 - 151
Acquisition of GTK (Holdco) Limited 2,124,016 681 1,714 2,395
----------------------------------------------------- ----------------- ------- --------- --------
At 31 March 2019 147,367,933 58,792 44,532 103,324
Acquisition of Servatron 2,233,712 692 1,882 2,574
Issue of deferred bonus shares 266,794 82 - 82
Acquisition of Servatron - contingent consideration 1,481,239 473 - 473
Options exercised 469,084 150 - 150
----------------------------------------------------- ----------------- ------- --------- --------
At 5 April 2020 151,818,762 60,189 46,414 106,603
----------------------------------------------------- ----------------- ------- --------- --------
During the current and prior year the Group issued shares to
satisfy the requirement of share awards, deferred bonus awards and
fund acquisitions. During the current year the movements were as
follows:
-- Issued 2,233,712 shares as part of the initial consideration
for the acquisition of Servatron.
-- Issued 266,794 shares under the 2018 deferred share bonus plan.
-- Issued 1,481,239 shares to the former owners of Servatron as
the business met the required operating profit targets set out in
the acquisition agreement.
-- Issued 469,084 shares under the share incentive scheme agreed
as part of the acquisition of Servatron.
The prior year movements were:
-- Issued 3,000,000 shares as part of the acquisition of MC Electronics LLC.
-- Issued 48,000,000 ordinary shares at a price of 75 pence per share.
-- Issued 3,521,437 shares as part of the acquisition of Silcotec Europe Limited.
-- Issued 470,588 shares under the 2017 deferred share bonus plan.
-- Issued 2,124,016 ordinary shares as part of the acquisition of GTK (Holdco) Limited.
12 Own shares and non-distributable reserves
2020 2019
Own shares $'000 $'000
-------------------------------- -------- -------
At the beginning of the period 1,890 867
Sale of shares (2,630) (75)
Purchase of shares 1,764 1,098
-------------------------------- -------- -------
At end of the period 1,024 1,890
-------------------------------- -------- -------
The own shares reserve represents both the cost of shares in the
Company purchased in the market and the nominal share capital of
shares in the Company issued to the Volex Group plc Employee Share
Trust to satisfy future share option exercises under the Group's
share option schemes.
The number of Ordinary shares held by the Volex Group plc
Employee Share Trust at 5 April 2020 was 456,576 (2019: 2,159,277).
The market value of the shares as at 5 April 2020 was $592,000
(2019: $2,614,000).
Unless and until the Company notifies a trustee of the Volex
Group plc Employee Share Trust, in respect to shares held in the
Trust in which a beneficial interest has not vested, rights to
dividends in respect to the shares held in the Trust are
waived.
During the year 2,652,701 (2019: 136,083) shares were utilised
on the exercise of share awards. During the year the Company
purchased 950,000 shares (2019: 1,000,000) at a cost of $1,764,000
($1,098,000).
In December 2013, the Volex Group plc Employee Share Trust sold
3,378,582 shares at GBP1.16 per share to the open market. The
average price of shares held by the Trust at the time was GBP0.70
with a number of the shares having been issued by Volex plc to the
Trust at nominal value. In accordance with the Accounting
Standards, the difference between the sales price of GBP1.16 and
the average share price of GBP0.70 was recorded as a
non-distributable reserve, giving rise to the $2,455,000
non-distributable reserve balance.
13 Business combinations
The fair value adjustments associated with the acquisitions 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. None of the goodwill recognised is expected to be
deductible for income tax purposes.
Servatron Inc
On 31 July 2019 Volex plc completed the acquisition of Servatron
Inc ('Servatron'), a North American-based manufacturer of printed
circuit board assemblies ('PCBA'), box builds and complete
sub-assembly solutions. Servatron's business is a complementary fit
with Volex's strategy to maintain and build leading positions in
niche sectors with structural growth drivers and defensive
characteristics. Servatron adds complementary technologies
including PCBA manufacturing, state-of-the-art test capabilities,
and higher-level system integration.
Combining complex-assemblies expertise and R&D skills will
drive revenues for the Group and strengthen its footprint in North
America. The acquisition provides the opportunity to increase
organic growth through value-added services for existing cable
harness customers and incorporates a skilled local workforce and
management team into the business.
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 13,355
Ordinary shares issued 2,574
Contingent consideration 3,230
----------------------------------------- -------
Total purchase consideration 19,159
----------------------------------------- -------
The fair value of the 2,233,712 shares issued as part of the
consideration was based on the published closing share price on 31
July 2019, the last trading date preceding the share issue of
GBP0.93.
The contingent consideration is dependent upon certain EBITDA
targets being met post-acquisition during the 2019 and 2020
calendar years. The fair value above has been based on the probable
outcome of each based upon the information available at 5 April
2020.
As part of the acquisition it was agreed that 3,000,000 share
options would be granted to incentivise and retain key local
management. The options are dependent upon Servatron achieving
certain profit and employment targets. As these options are
conditional on continued employment, these are accounted for as a
post-acquisition expense.
Servatron exceeded the 2019 EBITDA targets and as such the first
instalments of the contingent consideration and first tranche of
share options vested in early 2020.
The provisional fair value amounts recognised in respect of the
identifiable assets acquired and liabilities assumed are set out in
the table below.
Provisional
Fair Value
$'000
-------------------------------- ------------
Identifiable intangible assets 10,500
Other intangibles 49
Right-of-use assets 3,464
Property, plant and equipment 889
Inventories 5,483
Trade receivables 5,019
Trade payables (1,040)
Other debtors and creditors (2,483)
Overdraft (3,677)
Bank loan (135)
Deferred taxes (2,464)
Lease liabilities (4,009)
Total identifiable assets 11,596
-------------------------------- ------------
Goodwill 7,563
-------------------------------- ------------
Consideration 19,159
-------------------------------- ------------
An exercise has been conducted to assess the provisional fair
value of assets and liabilities acquired. This exercise identified
customer relationships and order backlog intangible assets.
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 identified 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 FY2020, Servatron contributed $26,376,000 to Group revenue
and $2,621,000 to adjusted operating profit. Associated acquisition
costs of $98,000 and intangible asset amortisation of $2,747,000
have both been expensed as adjusting items in the period. If
Servatron had been acquired at the beginning of the year, it would
have contributed estimated revenues of $41,248,000 and estimated
operating profit of $3,746,000 to the results of the Group.
Ta Hsing Industries Limited
On 26 June 2019 the Group completed the acquisition of Ta Hsing
Industries Limited ('Ta Hsing'), a supplier of power cables to the
Power Products division. Ta Hsing has a manufacturing site in
Shenzhen, in the People's Republic of China, and is headquartered
in Hong Kong. The acquisition allows Volex to vertically integrate
the in-house production of PVC resin and cable extrusion
capabilities, while also expanding the design and manufacturing
capability. The acquisition also brings a small number of new
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 3,575
Contingent consideration 1,822
----------------------------------------- ------
Total purchase consideration 5,397
----------------------------------------- ------
The contingent consideration is payable in three instalments
across the calendar years 2020 and 2021. The consideration has been
measured at fair value based on the probable outcome of each based
upon the information available at 5 April 2020. The instalments are
dependent upon a new lease agreement being obtained for the primary
manufacturing site and warranty claims.
The provisional fair value amounts recognised in respect of the
identifiable assets acquired and liabilities assumed are set out in
the table below:
Provisional Fair
value
$'000
------------------------------- -----------------
Property, plant and equipment 584
Right-of-use asset 379
Inventories 1,370
Trade receivables 5,472
Trade payables (694)
Other debtors and creditors (663)
Cash and cash equivalent 854
Short term bank loan (2,948)
Lease liabilities (379)
Deferred taxes (146)
Total identifiable assets 3,829
------------------------------- -----------------
Goodwill 1,568
------------------------------- -----------------
Consideration 5,397
------------------------------- -----------------
An exercise has been conducted to assess the provisional fair
value of assets and liabilities assumed. This exercise included an
independent external valuation of the machinery located in the
Shenzhen facility. Following this review, a $574,000 increase to
the book value of the property, plant and equipment was recorded.
Since Volex was Ta Hsing's largest customer, the Group has not
recognised an intangible associated with the customer relationship
or open order book that Ta Hsing had with Volex at the acquisition
date due to the definition of an asset not being met, as no future
economic benefits will be derived from outside the Group.
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.
The provisional goodwill balance recognised above includes
certain intangible assets that cannot be separately identified 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 Ta Hsing
with $2,948,000 in order that it could pay off its external loan.
This funding has been recorded as an intercompany balance between
Volex Cables (HK) Limited and Ta Hsing and therefore has been
excluded from the consideration paid.
In FY2020, Ta Hsing contributed $1,618,000 to the Group's
external revenue and $335,000 to adjusted operating profit.
Associated acquisition costs of $58,000 have been expensed as
adjusting items in the period. If Ta Hsing had been acquired at the
beginning of the year, it would have contributed estimated revenues
of $3,104,000 and estimated operating profit of $529,000 to the
results of the Group.
Net cash outflow on acquisitions $'000
--------------------------------------------------------- -------
Cash consideration
- Servatron 13,355
- Ta Hsing 3,575
Total cash consideration 16,930
Add: overdraft and short-term debt liabilities acquired
- Servatron 3,677
- Ta Hsing 2,094
--------------------------------------------------------- -------
Net cash outflow 22,701
--------------------------------------------------------- -------
Payment of contingent consideration
- Servatron 1,728
- Silcotec Europe 1,122
--------------------------------------------------------- -------
Net cash outflow 2,850
--------------------------------------------------------- -------
14 Events after balance sheet date
There are no disclosable events after the balance sheet
date.
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
FR KKOBKKBKBDAD
(END) Dow Jones Newswires
June 18, 2020 02:00 ET (06:00 GMT)
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