TIDMVLX
RNS Number : 3470T
Volex PLC
14 November 2019
14 November 2019
VOLEX plc
Half year results for the 26 weeks ended 29 September 2019
'Acquisitions on track, margin expansion and cash generation
ahead of plan'
Volex plc ('Volex'), the global provider of Complex Assemblies,
today announces its interim results for the 26 weeks to 29
September 2019 ('H1 FY2020').
26 weeks to 26 weeks to
29 September 30 September %
Financial Summary 2019 2018 Change
--------------------------------- -------------- ------------------- -------------
Revenue $195.7m $182.4m 7.3
Underlying* operating profit** $15.9m $9.9m 61.7
Statutory operating profit $10.4m $5.7m 82.5
Underlying* profit before tax $15.3m $9.0m 70.0
Statutory profit before tax $9.7m $4.9m 98.0
Basic earnings per share 5.3c 2.7c 96.3
Underlying diluted earnings per
share 8.5c 5.8c 46.6
Interim dividend per share 1.0p - -
Net cash (before IFRS 16 Leases
adjustment)*** $7.9m $24.9m (68.3)
* Before adjusting items (non-recurring items and amortisation
of acquired intangibles) and share-based payments
** The Group has adopted the cumulative catch-up approach to the
adoption of IFRS 16 ('Leases'). The impact during H1 FY2020 is a
$0.4 million increase to operating profit and $0.2 million increase
in finance costs.
*** Net cash is presented before the $7.2 million lease
liability recognised on adoption of IFRS 16 Leases.
Operational highlights
-- In July, we acquired Servatron, a US-based manufacturer of
printed circuit board assemblies, box builds and complete
sub-assembly solutions. The acquisition of Servatron in the North
American market, as with that of Silcotec in the European market,
allows us to continue to move up the value curve by offering more
complex integrated manufacturing solutions to existing Volex
customers
-- We have identified further opportunities to restructure our
operations to improve efficiencies and further reduce costs across
our global factory footprint
-- We have delivered further supply-chain improvements,
including a major step towards vertically integrating our Power
Cords business through the purchase in June of a Chinese cable
manufacturing business, Ta Hsing
-- We are in the process of significantly expanding the
manufacturing capacity in our Batam factory to allow for the
production of high-speed data cables outside of China for the first
time
-- We have been successful in winning two new global customers
in our Power Cords division which will contribute to revenue in the
second half
Financial highlights
-- Underlying gross margins have improved significantly from
18.7% for H1 FY2019 to 23.1% for H1 FY2020 across our Power Cords
and Complex Assemblies divisions as a result of rigorous cost
control and profit analysis across individual product lines to
ensure that margins are at acceptable levels. A beneficial change
in the product mix has led to a higher proportion of higher-margin
Complex Assemblies activity during the period
-- Overall revenue has increased by 7.3% to $195.7 million as we
reposition the business through targeted acquisitions and continue
to reduce exposure to low-margin legacy customers
-- Operating cash flow (before movements in working capital) has
shown significant improvement, up by 108% to $17.5 million, due to
the combined impact of the acquisitions and improved margins
Nat Rothschild, Executive Chairman, said:
"I am delighted to announce that Volex plc will recommence the
payment of a dividend, starting with an interim dividend of one
pence per share. This is the first dividend we have paid since 2013
and it has been made possible due to the significant re-positioning
seen across our business during that period. We are now cash
generative, creating healthy profits across our two business
divisions, and in acquisitive growth mode.
We have a clear strategy to grow this business and increase
shareholder value. We understand where we have the capability and
expertise to be competitive in our chosen markets. For the first
time, the higher-margin Complex Assemblies business made up the
majority of our revenue in the first half of FY2020, in accordance
with our strategy of repositioning Volex towards higher-margin
value-added business. We are well known as a high-volume
manufacturer of power cords but it is our Complex Assemblies
business that now leads the way in terms of profit generation.
We continue to invest through acquisitions of complementary
capabilities and, alongside our customers, in new programmes for
data centres and electric vehicles. The businesses that we acquired
in the prior year are now embedded within our organisation and
operating successfully within the Group. We made another two
acquisitions in the first half of this year. Servatron, a US-based
integrated solutions manufacturer, expands our capability set and
provides additional routes to service customer demand. Ta Hsing, a
Chinese manufacturer of cable products, provides us with additional
control over our power product supply chain while also reducing our
costs.
Within Complex Assemblies we continue to deliver solutions to
customers who value our engineering expertise. We use our knowledge
in this area to ensure we deliver to the highest quality standards
with economical pricing in defensible niche markets such as
medical, instrumentation and advanced data centre applications.
Certain customer segments play to the strengths in our Power
Cords division. We work best with customers who value high-quality
products at a competitive price point. We are highly skilled at
developing solutions that balance aesthetics and reliability, which
positions us well to work with premium brands. We are working hard
to develop new customer relationships as well as deliver innovation
and efficiency to our existing customers.
Outlook
Looking forward, we are taking the opportunity to selectively
invest in increasing capacity in our key facilities and leverage
our global footprint. We are continuing to vertically integrate our
power cord manufacturing capability and optimise our supply chain
and production capacity to reflect economic trends.
Volex has again delivered a solid first-half performance with
growth in trading profit and margins. Despite macroeconomic
headwinds, our business is proving resilient. There are further
significant opportunities for each of our business units to improve
both sales and margin performance through rigorous execution of the
strategy, in both the short and longer term. The Board remains
confident of delivering its full-year expectations and in the
Company's ability to drive shareholder value."
Contact details
Volex plc +44 7909 995 887
Nat Rothschild, Executive Chairman
Daren Morris, Chief Financial Officer and Company Secretary
N+1 Singer - Nominated Adviser & Joint Broker +44 20 7496
3000
Shaun Dobson
Whitman Howard - Joint Broker +44 20 7659 1234
Hugh Rich
Nick Lovering
RESULTS FOR THE 26 WEEKSED 29 September 2019
Overview
The Board is pleased to report the results for the half year to
29 September 2019, which has seen the Group continue to grow and
deliver improved margins.
$'000 26 weeks ended 26 weeks ended
29 September 30 September
2019 2018
Total Total
Revenue 195,706 182,427
Cost of Sales (150,429) (148,404)
---------------- ---------------
Underlying gross
profit* 45,277 34,023
Underlying gross
margin 23.1% 18.7%
Operating costs (29,331) (24,138)
---------------- ---------------
Underlying operating
profit* 15,946 9,885
================ ===============
Underlying operating
margin 8.1% 5.4%
---------------- ---------------
* Before adjusting items and share-based payment charges
Profitability in H1 FY2020 has seen a significant improvement in
comparison to H1 FY2019. There are several reasons behind this. The
Complex Assemblies business delivers higher margins because it is
manufacturing products that require more intensive processing and
development. Revenues from Complex Assemblies as a proportion of
the combined Group have increased significantly since the
comparative period as four of the five recent acquisitions sit
within this division.
Margins have also improved due to lower input costs. This has
come from a combination of negotiated price reductions from
suppliers, lower commodity costs, including for copper, and
favourable foreign exchange rates. This has been achieved without
the need to add significant additional overhead or central
costs.
Revenue has reduced slightly in our Power Cords division as we
carefully manage the optimum customer and product mix to improve
profitability. In Power Cords we have been very selective in which
customer opportunities to pursue to help deliver consistent margins
and to retain our commitment to high levels of quality and customer
service. We continue to deliberately reduce our exposure to one
major legacy customer which is the main reason for the decline in
revenue. Our Complex Assemblies division is growing significantly
as we see the benefit of our sales strategy bearing fruit and the
acquisitions that have taken place over the last 18 months perform
well.
One of our strategic objectives for the year is to continue the
integration of the businesses we acquired in the last financial
year as well as identify further acquisition targets. During the
first half of FY2020 we have delivered successfully on both fronts.
Our increased profitability in Complex Assemblies includes the
contribution of the three businesses we acquired in FY2019: MC
Electronics, Silcotec Europe and GTK. Each of these businesses is
trading strongly and is operating effectively within the Group.
We acquired Servatron in July 2019 and Ta Hsing in June 2019.
Servatron is a strategic addition to our Complex Assemblies
division. It brings some strong customer relationships as well as
technical capabilities that we did not possess within the Group. It
also brings cross-selling opportunities as we introduce the
Servatron skill set to our broader customer base. Ta Hsing produces
wire and cable products and is a key supplier of our Power Cords
division. Our acquisition of this business provides us with an
opportunity to vertically integrate an important part of our supply
chain.
During the period we recognised some costs associated with the
relocation of one of our Chinese factories. We had reached the end
of our lease for the manufacturing site and this provided us with
an opportunity to rationalise our requirements and move into a
building that better fits our future needs. This will result in
some restructuring and transfer costs which have been recognised as
an operating expense.
Volex plc will start paying a dividend in FY2020. This will
commence with an interim dividend of 1.0 pence per share. The
dividend will be paid on 5 February 2020 to those shareholders on
the register as at 10 January 2020. The divisions are delivering
strong and consistent cash flows and this supports our intention to
maintain a sustainable and progressive dividend policy as we move
forward.
Trading performance
Complex Assemblies Division
$'000 26 weeks 26 weeks 52 weeks
ended 29 ended 30 ended
September September 31 March
2019 2018 2019
Revenue 104,613 78,192 173,219
------------ ------------ ----------
Underlying gross
profit 26,917 15,224 37,141
Underlying gross
margin 25.7% 19.5% 21.4%
Operating costs (15,196) (9,976) (23,668)
------------ ------------ ----------
Underlying operating
profit 11,721 5,248 13,473
============ ============ ==========
Underlying operating
margin 11.2% 6.7% 7.8%
------------ ------------ ----------
Volex designs and manufactures a broad range of cables and
connectors that transfer electrical, electronic, radio-frequency
and optical data. Volex products are used in a variety of
applications including data networking equipment, data centres,
wireless base stations and cell site installations, mobile
computing devices, medical equipment, factory automation, vehicle
telematics, agricultural equipment and alternative energy
generation.
Revenue for H1 FY2020 was $104.6 million, up 33.8% on the prior
period. This includes two months of Servatron revenue in H1 FY2020
and a full period of the three FY2019 acquisitions.
There has been an improvement to both underlying gross margin
and underlying operating margin. This has been achieved through an
improvement in product mix, and savings in production costs. The
strength of the US dollar, which is the primary sales currency, has
also helped margins.
The acquisitions in FY2019 delivered blue-chip customers,
processes and excellent people to our organisation. There are areas
of the market where we deliver products that exceed our customers'
rigorous quality standards in applications where accuracy and
reliability are critical. Our performance in the healthcare and
data centre segments continues to be particularly strong. As we
move forward, we are looking at how to leverage the experience we
have in these segments to adjacent markets such as aerospace and
defence.
Our high-speed data cables offer a market-leading solution in
the demanding data centre space. Production of these cables was
predominantly in China, and a significant volume of the sales are
in the US. As a result of the trade tariffs introduced in 2018 on
certain goods imported from China to the US, we have made a
decision to move a proportion of production of these cables to our
factory in Indonesia. This facility will ramp up to production
volumes of these products in H2 FY2020. This demonstrates the value
of our global manufacturing capability.
Servatron was acquired at the end of July, and the results above
include two months of revenue which is $6.3 million. The
acquisition introduces new capabilities to the Group in respect of
printed circuit board assemblies, higher levels of system
integration and complementary test technology. As already
mentioned, there are significant cross-selling opportunities, and
the ability to respond to the frequent requests we receive from our
customers to deliver more complex assemblies.
The process of integrating and embedding the acquisitions into
our global business has provided a platform to share best practice
and drive consistency across the Group. This will benefit customer
satisfaction and retention as well as providing an opportunity to
further enhance margins.
Power Cords Division
$'000 26 weeks 26 weeks 52 weeks
ended 29 ended 30 ended
September September 31 March
2019 2018 2019
Revenue 91,093 104,235 198,885
------------ ------------ ----------
Underlying gross
profit 18,360 18,799 36,377
Underlying gross
margin 20.2% 18.0% 18.3%
Operating costs (11,213) (10,735) (23,148)
------------ ------------ ----------
Underlying operating
profit 7,147 8,064 13,229
============ ============ ==========
Underlying operating
margin 7.8% 7.7% 6.7%
------------ ------------ ----------
Volex designs and manufactures power cords that are sold to the
manufacturers of a broad range of electrical and electronic devices
and appliances. Volex products are used in home entertainment and
home computing devices, domestic and personal healthcare
appliances, power tools and electric vehicles. Many of our
customers are global household names operating in premium segments
of the consumer market.
Revenues in the Power Cords segment have fallen in comparison to
the first half of the previous financial year. The reduction was
expected and is largely due to our decision to reduce our business
with a significant consumer electronics customer. There will be
further decline from this customer in the second half of the year,
which will be partially offset by growth from programmes with new
customers. We are also evaluating acquisition opportunities in the
power space which is highly fragmented and ripe for
consolidation.
Gross margins have improved from 18.0% to 20.2%. This has been
achieved by identifying the correct price points for products and
working on delivering efficiency. Most sales are in US dollars but
a proportion of the cost base is in the local currency relevant to
the production location. The strength of the dollar has helped
improve margins, as have lower commodity costs, particularly in
respect of copper.
Volex Power Cords products are known for their quality and solid
engineering. A number of our competitors price very aggressively to
secure market share, but it does not make commercial sense for
Volex to compete on price in these situations because the margins
are not acceptable given our quality requirements. We continue to
focus on being profitable and delivering cost-effective solutions
in the most efficient way. This includes our efforts to rationalise
our product set. By producing fewer variants of our key products,
we can reduce our costs, improving our pricing to customers and
increasing our margins. An additional advantage of streamlining our
offer is that we can simplify the quotation process and improve
customer response times. It will take time for the benefits from
this activity to come through because it will be necessary to seek
relevant safety approval certificates.
The market for Power Cords is changing to accommodate consumer
demands. We deploy our best-in-class engineering experience to help
customers meet the challenges of safely delivering power to their
new products. It is a combination of our ability to innovate as
well as deliver on our commitment to quality that has helped us win
new global customers during the period.
There is a culture of continual improvement across our
manufacturing sites and we are investing in new technology to
automate specific areas of our production. This activity is
concentrated on where it will deliver the biggest benefit. As our
manufacturing costs are reduced, we are able to re-engage with
price-sensitive customers with a view to winning back share.
Group adjusting items and share-based payments
Adjusting items and share-based payments totalled $5.6 million
in the period (H1 FY2019: $4.2 million).
Associated with the acquisitions, Volex has recognised certain
intangible assets including customer relationships and order
backlogs. As at 29 September 2019, the intangibles associated with
Ta Hsing and Servatron are provisional and subject to change during
the annual subsequent measurement period following each
acquisition. The amortisation of these intangibles is non-cash and
totals $2.8 million for the period.
During the acquisition process, we identify where there are key
senior managers who have a critical role to play in the integration
and successful operation of the acquired operation. Retaining these
individuals is an important part of our acquisition strategy. As
well as offering a competitive salary we also use share awards with
strict performance criteria to retain key people and recognise
exceptional performance in respect of the acquired business. This
has resulted in an increase in the level of share-based payments
during the period.
In H1 FY2019, the Group recognised $1.9 million of restructuring
costs. In H1 FY2020, there have been no restructuring costs
recognised as adjusting items. The prior period included $1.5
million associated with restructuring of the Shenzhen factory, a
further $0.7 million expense relating to the closure of the
facility in India and the release of a $0.3 million provision
relating to an old potential claim. Where restructuring or
re-configuration activity has occurred in the current period, it
has been recognised as an operating expense in the relevant
division. This is because the extent of the restructuring is not
considered significant enough to require separate presentation.
During H1 FY2019 we incurred a total of $0.8 million of
professional fees on the acquisitions of MC Electronics and
Silcotec as well as certain post-acquisition retention payments.
During the first half of FY2020, costs associated with the
acquisitions have been less than $0.2 million.
Group taxation
The Group incurred a tax charge of $2.0 million (H1 FY2019: $1.5
million), representing an underlying effective tax rate of 15.7%
(H1 FY2019: 18.1%). This is slightly higher than the estimated ETR
for the full year. The decrease in ETR compared to 2019 is mainly
due to the utilisation of tax losses within the Group.
Group net debt and cash flows
Net cash (before the IFRS 16 adjustment) decreased from $20.7
million at 31 March 2019 to $7.9 million at 29 September 2019. The
Group generated a free cash flow after capital expenditure and tax,
but before the cost of acquisitions, of $11.7 million. This
included a cash operating inflow of $16.1 million and an adverse
working capital movement of $1.3 million, as well as capital
expenditure of $1.9 million and tax paid of $2.3 million. Under
IFRS 16 Leases, a liability is recognised for the present value of
the future commitment under operating leases. This liability
totalled $7.2 million and is required to be shown within net debt.
This produces a statutory net cash position of $0.6 million. As at
1 November 2019, net cash stood at $18.2 million.
The Servatron acquisition required $13.4 million of cash
consideration and involved the assumption of $5.4 million of net
debt. Ta Hsing cost $5.7 million after taking into account the cash
on hand in the business.
In July, the Group extended its $30 million revolving credit
facility with Lloyds Bank plc and HSBC UK Bank plc 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.
Risks and uncertainties
Risks to Volex are anticipated and regularly assessed and
internal controls are enhanced where necessary to ensure that such
risks are appropriately mitigated. There are a number of potential
risks that could have a material impact on the Group's financial
performance. The principal risks and uncertainties include
competitive threats, legal and regulatory issues, dependency on key
suppliers or customers, movements in commodity prices or exchange
rates, and quality issues. These risks and the relevant
risk-mitigation activities are set out in the FY2019 Annual Report
and Accounts on pages 24 to 27, a copy of which is available on the
website at www.volex.com.
Nat Rothschild Daren Morris
Group Executive Chairman Group Chief Financial Officer
13 November 2019 13 November 2019
Unaudited consolidated income statement
For the 26 weeks ended 29 September 2019 (26 weeks ended 30
September 2018)
26 weeks ended 29 September 26 weeks ended 30 September
2019 2018
Adjusting Adjusting
Before items and Before items and
Adjusting share-based Adjusting share-based
items payments Total items payments Total
Notes $'000 $'000 $'000 $'000 $'000 $'000
---------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Revenue 2 195,706 - 195,706 182,427 - 182,427
Cost of sales (150,429) - (150,429) (148,404) (1,666) (150,070)
---------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Gross profit 45,277 - 45,277 34,023 (1,666) 32,357
Operating expenses (29,331) (5,559) (34,890) (24,138) (2,495) (26,633)
---------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Operating profit/(loss) 2 15,946 (5,559) 10,387 9,885 (4,161) 5,724
Share of net loss from
associates - - - (210) - (210)
Finance income 93 - 93 42 - 42
Finance costs (776) - (776) (703) - (703)
Profit/(loss) on ordinary
activities before taxation 15,263 (5,559) 9,704 9,014 (4,161) 4,853
Taxation 4 (2,401) 451 (1,950) (1,628) 88 (1,540)
---------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Profit/(loss) for the
period attributable to
the owners of the parent 12,862 (5,108) 7,754 7,386 (4,073) 3,313
---------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Earnings per share (cents)
Basic 5 8.8 5.3 6.0 2.7
Diluted 5 8.5 5.1 5.8 2.6
---------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
52 weeks ended 31 March
2019
Adjusting
Before Items and
Adjusting share-based
items payments Total
Notes $'000 $'000 $'000
---------------------------- ----- ---------- ------------ ---------
Revenue 2 372,104 - 372,104
Cost of sales (298,586) - (298,586)
---------------------------- ----- ---------- ------------ ---------
Gross profit 73,518 - 73,518
Operating expenses (51,912) (8,614) (60,526)
---------------------------- ----- ---------- ------------ ---------
Operating profit/(loss) 2 21,606 (8,614) 12,992
Share of net loss from
associates (210) - (210)
Finance income 129 - 129
Finance costs (1,276) - (1,276)
---------------------------- ----- ---------- ------------ ---------
Profit/(loss) on ordinary
activities before taxation 20,249 (8,614) 11,635
Taxation 4 (2,650) 221 (2,429)
---------------------------- ----- ---------- ------------ ---------
Profit/(loss) for the
period attributable to
the owners of the parent 17,599 (8,393) 9,206
---------------------------- ----- ---------- ------------ ---------
Earnings per share (cents)
Basic 5 13.1 6.9
Diluted 5 12.7 6.7
---------------------------- ----- ---------- ------------ ---------
Unaudited consolidated statement of comprehensive income
For the 26 weeks ended 29 September 2019 (26 weeks ended 30
September 2018)
(Audited)
26 weeks 26 weeks 52 weeks
to to to
29 September 30 September 31 March
2019 2018 2019
$'000 $'000 $'000
-------------------------------------------------- ---------------- ---------------- -----------
Profit for the period 7,754 3,313 9,206
Items that will not be reclassified subsequently
to profit or loss:
Actuarial (loss)/gain on defined benefit
pension schemes (488) 331 305
Tax relating to items that will not be - - -
reclassified
-------------------------------------------------- ---------------- ---------------- -----------
(488) 331 305
Items that may be reclassified subsequently
to profit or loss:
(Loss)/gain arising on cash flow hedges
during the period (771) (626) 180
Exchange (loss)/gain on translation of
foreign operations (1,558) 437 579
Tax relating to items that may be reclassified - - -
-------------------------------------------------- ---------------- ---------------- -----------
(2,329) (189) 759
Other comprehensive (loss)/income for
the period (2,817) 142 1,064
Total comprehensive income for the period 4,937 3,455 10,270
-------------------------------------------------- ---------------- ---------------- -----------
Unaudited consolidated statement of financial position
As at 29 September 2019 (30 September 2018)
(Audited)
29 September 30 September 31 March
2019
Note $'000 2018 2019
$'000 $'000
----------------------------------- ------ -------------------- -------------- ----------
Non-current assets
Goodwill 25,751 7,587 17,531
Other intangible assets 18,498 6,131 11,115
Property, plant and equipment 22,152 20,583 20,420
Right of use assets 5,709 - -
Investments in associates - - -
Other receivables 2,829 2,321 2,704
Deferred tax asset 3,353 4,311 4,271
----------------------------------- ------ -------------------- -------------- ----------
78,292 40,933 56,041
----------------------------------- ------ -------------------- -------------- ----------
Current assets
Inventories 54,394 51,536 49,122
Trade receivables 76,587 72,106 71,307
Other receivables 7,162 6,917 8,448
Current tax assets 1,772 713 1,092
Derivative financial instruments - 46 374
Cash and bank balances 8 17,880 24,647 20,913
----------------------------------- ------ -------------------- -------------- ----------
157,795 155,965 151,256
----------------------------------- ------ -------------------- -------------- ----------
Total assets 236,087 196,898 207,297
----------------------------------- ------ -------------------- -------------- ----------
Current liabilities
Borrowings 8 9,922 - 320
Trade payables 39,815 46,350 45,863
Other payables 35,958 30,074 30,212
Current tax liabilities 4,299 6,416 4,811
Retirement benefit obligation 989 881 975
Lease liabilities 3,568 - -
Provisions 661 703 1,121
Derivatives financial instruments 393 476 -
95,605 84,900 83,302
----------------------------------- ------ -------------------- -------------- ----------
Net current assets 62,190 71,065 67,954
----------------------------------- ------ -------------------- -------------- ----------
Non-current liabilities
Borrowing 38 - -
Other payables 1,557 1,419 988
Non current tax liabilities 1,134 - 1,134
Deferred tax liabilities 6,529 2,568 4,447
Retirement benefit obligation 1,378 1,466 1,460
Derivative financial instruments - 10 -
Lease liabilities 3,715 - -
Provisions 263 343 318
14,614 5,806 8,347
----------------------------------- ------ -------------------- -------------- ----------
Total liabilities 110,219 90,706 91,649
----------------------------------- ------ -------------------- -------------- ----------
Net assets 125,868 106,192 115,648
----------------------------------- ------ -------------------- -------------- ----------
Equity attributable to owners of
the parent
Share capital 6 59,566 58,111 58,792
Share premium account 46,414 42,807 44,532
Non-distributable reserve 2,455 2,455 2,455
Hedging and translation reserve (9,720) (8,339) (7,391)
Own shares 7 (1,509) (792) (1,890)
Retained earnings 28,662 11,950 19,150
----------------------------------- ------ -------------------- -------------- ----------
Total equity 125,868 106,192 115,648
----------------------------------- ------ -------------------- -------------- ----------
Unaudited Consolidated Statement of Changes in Equity
For the 26 weeks ended 29 September 2019 (26 weeks ended 30
September 2018)
Share Non-distributable Hedging Retained
Share premium reserves and translation earnings/ Total
capital account reserve Own shares (losses) equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000
--------------------- --------- --------- ------------------ ----------------- ----------- ----------- --------
Balance 1 April 2018 39,755 7,122 2,455 (8,150) (867) 7,829 48,144
Profit for the
period
attributable to the
owners of the
parent - - - - - 3,313 3,313
Other comprehensive
income/ (loss) for
the period - - - (189) - 331 142
--------------------- --------- --------- ------------------ ----------------- ----------- ----------- --------
Total comprehensive
income/ (loss) for
the period - - - (189) - 3,644 3,455
Shares issued 18,205 35,685 - - - - 53,890
Exercise of deferred
bonus shares 151 - - - - (151) -
Own shares
sold/(utilised)
in the period - - - - 75 (31) 44
Reserve entry for
share option
charges/(credit) - - - - - 659 659
Balance at 30
September
2018 58,111 42,807 2,455 (8,339) (792) 11,950 106,192
--------------------- --------- --------- ------------------ ----------------- ----------- ----------- --------
Balance 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 - - - - - 7,754 7,754
Other comprehensive
income/ (loss) for
the period - - - (2,329) - (488) (2,817)
--------------------- --------- --------- ------------------ ----------------- ----------- ----------- --------
Total comprehensive
income/ (loss) for
the period - - - (2,329) - 7,266 4,937
Shares issued 692 1,882 - - - - 2,574
Exercise of deferred
bonus shares 82 - - - - (82) -
Own shares
sold/(utilised)
in the period - - - - 381 (139) 242
Reserve entry for
share option
charges/(credit) - - - - - 2,467 2,467
Balance at 29
September
2019 59,566 46,414 2,455 (9,720) (1,509) 28,662 125,868
--------------------- --------- --------- ------------------ ----------------- ----------- ----------- --------
Unaudited consolidated statement of cash flows
For the 26 weeks ended 29 September 2019 (26 weeks ended 30
September 2018)
(Audited)
26 weeks 26 weeks 52 weeks
to to to
29 September 30 September 31 March
Notes 2019 2018 2019
$'000 $'000 $'000
-------------------------------------------- ------- ---------------- ---------------- -----------
Profit for the period 7,754 3,313 9,206
Adjustments for:
Finance income (92) (42) (129)
Finance costs 775 703 1,276
Income tax expense 1,950 1,540 2,429
Share of net loss from associates - 210 210
Depreciation of property, plant and
equipment 1,836 1,594 3,318
Impairment of property, plant and - 249 -
equipment
Effects of foreign exchange rate changes 7 - 67
Amortisation of intangible assets 2,811 630 2,451
Loss on disposal of property, plant
and equipment 521 125 324
Share option charge 2,629 832 2,388
(Decrease)/increase in provisions (741) (748) (390)
-------------------------------------------- ------- ---------------- ---------------- -----------
Operating cash flow before movements
in working capital 17,450 8,406 21,150
Decrease/(increase) in inventories 1,153 (2,790) 606
Decrease/(increase) in receivables 4,534 (12,888) (10,196)
(Decrease)/increase in payables (6,974) (11,497) (15,068)
Movement in working capital (1,287) (27,175) (24,658)
Cash generated by operations 16,163 (18,769) (3,508)
---------------- ---------------- -----------
Cash generated by operations before
adjusting items 17,574 (16,219) (236)
Cash utilised by adjusting items (1,411) (2,550) (3,272)
---------------- ---------------- -----------
Taxation paid (2,330) (942) (2,501)
Interest paid (483) (438) (734)
-------------------------------------------- ------- ---------------- ---------------- -----------
Net cash generated from/(used in)
operating activities 13,350 (20,149) (6,743)
-------------------------------------------- ------- ---------------- ---------------- -----------
Cash flow from investing activities
Interest received 7 42 11
Acquisition of businesses, net of
cash acquired 9 (22,701) (9,398) (23,843)
Proceeds on disposal property, plant
and equipment 177 10 512
Purchases of property, plant and equipment (1,915) (1,257) (3,180)
Purchases of intangible assets (7) (161) (163)
Utilisation of own shares 394 42 (1,023)
Purchase of preference shares - (1,000) (1,300)
Net cash generated (used in)/from
investing activities (24,045) (11,722) (28,986)
-------------------------------------------- ------- ---------------- ---------------- -----------
Cash flow before financing activities (10,695) (31,871) (35,729)
---------------- ---------------- -----------
Cash (used)/generated before adjusting
items (9,284) (29,321) (32,457)
Cash utilised in respect of adjusting
items (1,411) (2,550) (3,272)
---------------- ---------------- -----------
Unaudited consolidated statement of cash flows (continued)
For the 26 weeks ended 29 September 2019 (26 weeks ended 30
September 2018)
(Audited)
26 weeks 26 weeks 52 weeks
to to to
29 September 30 September 31 March
Notes 2019 2018 2019
$'000 $'000 $'000
Cash flow before financing activities (10,695) (31,871) (35,729)
Cash flow from financing activities
Repayment of borrowings (7,097) (12,826) (12,826)
Refinancing costs paid (592) - -
New bank loan paid 7,000 - -
Payment of lease liabilities (1,257) - -
Proceeds on issue of shares - 46,685 46,685
Net cash generated (used in)/from
financing activities 8 (1,946) 33,859 33,859
----------------------------------------- ------- ---------------- ---------------- -----------
Net (decrease)/increase in cash and
cash equivalents (12,641) 1,988 (1,870)
Cash and cash equivalents at beginning
of period 8 20,593 22,981 22,981
Effect of foreign exchange rate changes (550) (322) (518)
----------------------------------------- ------- ---------------- ---------------- -----------
Cash and cash equivalents at end of
period 8 7,402 24,647 20,593
----------------------------------------- ------- ---------------- ---------------- -----------
Notes to the Interim Statements
1. Basis of preparation
These interim financial statements have been prepared in
accordance with IAS 34 'Interim Financial Reporting' as adopted by
the European Union. The condensed consolidated interim financial
information should be read in conjunction with the annual financial
statements for the 52 weeks ended 31 March 2019, which were
prepared in accordance with IFRSs as adopted by the European
Union.
This condensed consolidated interim financial information does
not comprise statutory accounts within the meaning of section 434
of the Companies Act 2006. The financial information presented for
the 26 weeks ended 29 September 2019 ('H1 FY2020') and the 26 weeks
ended 30 September 2018 ('H1 FY2019') has not been reviewed by the
auditors. The financial information for the 52 weeks ended 31 March
2019 ('FY 2019') is extracted and abridged from the Group's full
accounts for that year. The statutory accounts for FY 2019 have
been filed with the Registrar of Companies for England and Wales
and have been reported on by the Group's auditors. The Report of
the Auditors was not qualified and did not contain a statement
under section 498 of the Companies Act 2006.
The Directors confirm that, to the best of their knowledge, the
interim financial statements have been prepared in accordance with
IAS 34 'Interim Financial Reporting' as adopted by the European
Union and the AIM Rules for Companies, and that the interim report
includes a fair review of the information required. The interim
report was approved by the Board of Directors on 13 November
2019.
This interim report can be downloaded or viewed via the Group's
website at www.volex.com. Copies of the annual report for the 52
weeks ended 31 March 2019 are available at the Company's registered
office at Holbrook House, 34-38 Hill Rise, Richmond, Surrey,
London, TW10 6UA, UK, and can also be downloaded or viewed via the
Group's website.
In July 2019 the Group extended its multi-currency revolving
credit facility ('RCF') to July 2022 on improved terms. The
facility has an available limit of $30,000,000 (FY2019:
$30,000,000). As at 29 September 2019 the Group had net funds of
$637,000, or $7,920,000 excluding IFRS 16 lease liabilities
(FY2019: $20,690,000, H1 FY2019: $24,936,000). The reduction during
the period includes a $22,701,000 (FY2019: $23,843,000, H1 FY2019:
$9,398,000) net outflow associated with the completion of two
acquisitions.
The Group's forecast and projections, taking reasonable account
of possible changes in trading performance, show that the Group
should continue to operate with net funds (excluding lease
liability) for the foreseeable future. As of 14 November 2019, the
Group is not committed to any further acquisitions. Should any
opportunities under review develop, the Group will consider the
appropriate funding sources at the time. The Directors therefore
believe that the Group is well placed to manage its business within
the available facilities. Accordingly, they continue to adopt the
going concern basis in preparing these condensed financial
statements.
These condensed financial statements have also been prepared
using accounting policies consistent with International Financial
Reporting Standards as adopted for use in the European Union
('IFRS') and consistent with those disclosed in the annual report
and accounts for the year ended 31 March 2019, with the exception
of the adoption of IFRS 16 Leases.
The Group implemented IFRS 16 Leases with effect from 1 April
2019. The standard provides a single lessee accounting model,
requiring the recognition of right-of-use assets and lease
obligations. The Group has applied IFRS 16 using the modified
retrospective approach under which the cumulative effect of initial
application has been recognised in retained earnings on 1 April
2019. The comparative information has not been restated and
continues to be reported under IAS 17. As part of the transition
the Group has adopted a number of the practical expedients:
-- leases less than 12 months at transition have been treated as short-life leases;
-- leases of low value (defined as less than $5k) continue to be
accounted for under an accruals basis;
-- a portfolio approach has been adopted which allows a single
discount rate to be applied to a portfolio of leases with
reasonably similar characteristics; and
-- onerous lease provisions can be offset against the right-of-use asset.
On transition, the Group recognised $6,997,000 of right-of-use
assets, $7,245,000 of lease liabilities and an amount of $247,000
recognised against the onerous lease provision. The Group
recognised depreciation of $1,288,000 and interest costs of
$210,000 in respect of leases in the period ended 29 September
2019.
Reconciliation of the lease liabilities at 1 April 2019 to the
operating lease commitments at 31 March 2019
$'000
Operating lease commitments disclosed as at 31 March 2019
10,227
Discounted using the lessee's incremental borrowing rate
(1,535)
Less: short-term leases not recognised as a liability (965)
Less: low-value leases not recognised as a liability (2)
Less: adjustments due to treatment of extension and termination
options
(480)
Lease liability recognised as at 1 April 2019 7,245
Of which:
Current lease liabilities (4,011)
Non-current lease liabilities (3,234)
Impact of standards issued but not yet applied by the Group
There are no new standards, amendments to standards or
interpretations that are expected to have a material impact on the
Group's results.
2. Business and geographical segments
Business segments
The internal reporting provided to the Group's Board for the
purpose of resource allocation and assessment of Group performance
is based upon the nature of products which the Group supplies. In
addition to the operating divisions, a Central division exists to
capture all of the corporate costs incurred in supporting the
operations.
Division Description
Power Cords The sale and manufacture of electrical power products
to manufacturers of electrical/electronic devices and
appliances. These include laptop/desktop computers,
printers, televisions, power tools, floor-cleaning
equipment and electric vehicles.
----------------------------------------------------------
Complex Assemblies The sale and manufacture of products for the transfer
(formerly of electronic, radio-frequency and optical data. These
Cable Assemblies) can range from simple USB cables to high-speed complex
assemblies and are used in numerous devices including
medical equipment, data centres, telecoms networks
and industrial robotics.
----------------------------------------------------------
Central Corporate costs that are not directly attributable
to the manufacture and sale of the Group's products
but which support the Group in its operations. Included
within this division are the costs incurred by the
executive management team and the corporate head office.
----------------------------------------------------------
The following is an analysis of the Group's revenues and results
by reportable segment.
26 weeks to 29 September 26 weeks to 30 September
2019 2018
--------------------------------------- --------------------------- ---------------------------
Revenue Profit/(loss) Revenue Profit/(loss)
$'000 $'000 $'000 $'000
--------------------------------------- ---------- --------------- ---------- ---------------
Power Cords 91,093 7,147 104,235 8,064
Complex Assemblies 104,613 11,721 78,192 5,248
Unallocated central costs (excluding
share-based payments) (2,922) (3,427)
--------------------------------------- ---------- --------------- ---------- ---------------
Divisional results before share-based
payments and adjusting items 195,706 15,946 182,427 9,885
Adjusting items (2,931) (3,329)
Share-based payments (2,628) (832)
--------------------------------------- ---------- --------------- ---------- ---------------
Operating profit 10,387 5,724
Share of net loss from associates - (210)
Finance income 93 42
Finance costs (776) (703)
--------------------------------------- ---------- --------------- ---------- ---------------
Profit before tax 9,704 4,853
Tax (1,950) (1,540)
--------------------------------------- ---------- --------------- ---------- ---------------
Profit after tax 7,754 3,313
--------------------------------------- ---------- --------------- ---------- ---------------
52 weeks to 31 March
2019
--------------------------------------- ---------- ------------------------
Revenue Profit/(loss)
$'000 $'000
--------------------------------------- ---- ---- -------- --------------
Power Cords 198,885 13,229
Complex Assemblies 173,219 13,473
Unallocated central costs (excluding
share-based payments) - (5,096)
--------------------------------------------------- -------- --------------
Divisional results before share-based
payments and Adjusting items 372,104 21,606
Adjusting items (6,226)
Share-based payments (2,388)
--------------------------------------------------- -------- --------------
Operating profit 12,992
Share of net loss from associates (210)
Finance income 129
Finance costs (1,276)
--------------------------------------------------- -------- --------------
Profit before tax 11,635
Tax (2,429)
--------------------------------------------------- -------- --------------
Profit after tax 9,206
--------------------------------------------------- -------- --------------
The accounting policies of the reportable segments are in
accordance with the Group's accounting policies.
The adjusting items charge within operating profit for the
period of $2,931,000 (H1 FY2019: $3,329,000, FY2019: $6,226,000)
was split nil (H1 FY2019: $1,889,000, FY2019: $1,672,000) to Power
Cords, $2,769,000 (H1 FY2019: $1,440,000, FY2019: $3,589,000) to
Complex Assemblies and $162,000 (H1 FY2019: $nil, FY2019: $965,000)
to Central.
Other segmental information
External revenue Non-current assets
(excluding deferred tax assets)
---------------------------------------------- ----------------------------------------------
(Audited) (Audited)
26 weeks 26 weeks 52 weeks 26 weeks 26 weeks 52 weeks
to to to to to to
29 September 30 September 31 March 29 September 30 September 31 March
2019 2018 2019 2019 2018 2019
$'000 $'000 $'000 $'000 $'000 $'000
----------------- ---------------- ---------------- ---------- ---------------- ---------------- ----------
Geographical segments
Asia (excluding
India) 75,303 86,744 164,343 19,264 16,953 16,618
North America 68,231 58,325 119,623 15,963 2,125 2,067
Europe 52,172 35,238 85,883 39,709 17,052 33,083
India - 2,120 2,255 2 492 2
195,706 182,427 372,104 74,938 36,622 51,770
----------------- ---------------- ---------------- ---------- ---------------- ---------------- ----------
3. Adjusting items and share-based payments
(Audited)
26 weeks 26 weeks 52 weeks
to to to
29 September 30 September 31 March
2019 2018 2019
$'000 $'000 $'000
------------------------------------------ ---------------- ---------------- ----------
Amortisation of acquired intangibles 2,769 566 1,983
Acquisition costs 162 824 1,821
Restructuring costs - 1,939 1,942
Pension past service costs - - 480
Total adjusting items 2,931 3,329 6,226
Adjusting items tax expenses (451) (88) (221)
------------------------------------------ ---------------- ---------------- ----------
Total adjusting items 2,480 3,241 6,005
------------------------------------------ ---------------- ---------------- ----------
Share-based payments charge 2,628 832 2,388
------------------------------------------ ---------------- ---------------- ----------
Adjusting items and share-based payments 5,108 4,073 8,393
------------------------------------------ ---------------- ---------------- ----------
Adjusting items include costs that are one-off in nature and
significant (such as significant restructuring costs, impairment
charges or acquisition related costs) and the non-cash amortisation
of intangible assets recognised on acquisition.
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.
Associated with the acquisitions, the Group has recognised
certain intangible assets related to customer relationships and
order backlogs. During H1 FY2020, the amortisation charge on these
intangible assets totalled $2,769,000 (FY2019 H1 $566,000, FY2019:
$1,983,000). The amortisation of these intangibles is non-cash and
split between Silcotec ($821,000), MC Electronics ($78,000), GTK
($824,000) and Servatron ($1,046,000). As at 29 September 2019, the
attributed values of the intangibles related to Servatron and Ta
Hsing are provisional.
Acquisition-related costs of $162,000 (FY2019 H1: $824,000,
FY2019: $1,821,000) are split between $104,000 for Servatron and
$58,000 for Ta Hsing. These costs cover legal fees associated with
the transactions.
In the prior year, the Group incurred $1,942,000 (H1 FY2019: $
1,939,000) of restructuring costs. Following a further decline in
revenue with the Power Cords division's largest customer, further
restructuring costs of $1,459,000 were incurred at our Shenzhen
factory, primarily in relation to severance costs. In addition,
during the prior period, the decision was taken to close the Indian
factory. As part of this closure, the Group incurred $478,000 of
closure costs, principally in relation to severance fees, retention
bonuses paid to several key staff (in order that they remain and
work on an orderly closure of the factory) and the write-off of
assets no longer deemed recoverable. Following a review of the
organisational structure, a number of senior roles were also made
redundant, resulting in an expense of $270,000. Off-setting these
charges was a $265,000 credit resulting from the release of a
provision made several years ago for minimum order quantity
commitments that became time barred.
During 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. This is a past service cost that
pension schemes that had "contracted out" of the State Earnings
Related Pension Scheme must now recognise following the Lloyds
Banking Group judgement in October 2018. This judgement requires
the equalisation of male and female members' benefits for the
effect of unequal GMPs.
4. Tax charge
The Group tax charge for the period is based on the forecast tax
charge for the year as a whole and has been influenced by the
differing tax rates in the UK and the various overseas countries in
which the Group operates.
5. Earnings per ordinary share
The calculations of the earnings per share are based on the
following data:
26 weeks 26 weeks 52 weeks
to to to
29 September 30 September 31 March
2019 2018
$'000 $'000 2019
Earnings/(loss) $'000
-------------------------------------------- ------------------------ --------------- ------------
Earnings for the purpose of basic earnings
per share 7,754 3,313 9,206
Adjustments for:
Adjusting items 2,931 3,329 6,226
Share based payments charge 2,628 832 2,388
Tax effect of above adjustments and other
adjusting item tax movements (451) (88) (221)
-------------------------------------------- ------------------------ --------------- ------------
Underlying earnings 12,862 7,386 17,599
-------------------------------------------- ------------------------ --------------- ------------
Weighted average number of ordinary shares No. shares No. shares No. shares
-------------------------------------------- ------------------------ --------------- ------------
Weighted average number of ordinary shares
for the purpose of basic earnings per
share 146,651,798 123,824,603 134,382,209
Effect of dilutive potential ordinary
shares - share options 5,807,934 3,503,812 3,892,712
-------------------------------------------- ------------------------ --------------- ------------
Weighted average number of ordinary shares
for the purpose of diluted earnings per
share 152,459,732 127,328,415 138,274,921
-------------------------------------------- ------------------------ --------------- ------------
Basic earnings per share Cents Cents Cents
------------------------------------------- ------ ------ ------
Basic earnings per share from continuing
operations 5.3 2.7 6.9
Adjustments for:
Adjusting items 2.0 2.7 4.6
Share based payments charge 1.8 0.7 1.8
Tax effect of above adjustments and other
adjusting items tax movements (0.3) (0.1) (0.2)
------------------------------------------- ------ ------ ------
Underlying basic earnings per share 8.8 6.0 13.1
------------------------------------------- ------ ------ ------
Diluted earnings per share 26 weeks 26 weeks 52 weeks
to to to
29 September 30 September 31 March
2019 2018
$'000 $'000 2019
$'000
------------------------------------------- -------------- --------------- ----------
Diluted earnings per share 5.1 2.6 6.7
Adjustments for:
Adjusting items 2.0 2.6 4.5
Share based payments charge 1.7 0.7 1.7
Tax effect of above adjustments and other
adjusting items tax movements (0.3) (0.1) (0.2)
------------------------------------------- -------------- --------------- ----------
Underlying diluted earnings per share 8.5 5.8 12.7
------------------------------------------- -------------- --------------- ----------
The underlying earnings per share has been calculated on the
basis of continuing activities before adjusting items and the
share-based payments charge, net of tax. The Directors consider
that this earnings per share calculation gives a better
understanding of the Group's earnings per share in the current and
prior period.
6. Share capital
(Audited)
26 weeks 26 weeks 52 weeks
to to to
29 September 30 September 31 March
2019 2018
$'000 $'000 2019
$'000
--------------------------------------------- ---------------- ---------------- ----------
Issued and fully paid:
149,868,439 (FY2019: 147,367,933) Ordinary
shares of 25p each 59,566 58,111 58,792
--------------------------------------------- ---------------- ---------------- ----------
On 31 July 2019, the Group issued 2,233,712 shares as part of
the acquisition of Servatron.
On 7 August 2019, the Group issued 266,794 shares under the 2018
deferred share bonus plan.
7. Own shares
(Audited)
26 weeks 26 weeks 52 weeks
to to to
29 September 30 September 31 March
2019 2018
$'000 $'000 2019
$'000
--------------------------------------- ---------------- ---------------- ----------
At the start of the period 1,890 867 867
--------------------------------------- ---------------- ---------------- ----------
Disposed of in the period on exercise
of options (381) (75) (75)
--------------------------------------- ---------------- ---------------- ----------
Purchase of shares - - 1,098
--------------------------------------- ---------------- ---------------- ----------
At end of the period 1,509 792 1,890
--------------------------------------- ---------------- ---------------- ----------
The own shares reserve represents the cost of shares in the
Company held by the Volex Group plc Employee Share Trust to satisfy
future share option exercises under the Group's share option
schemes.
On the 26 and 29 April 2019, the Trust disposed of 748,294
shares to satisfy the exercise of share options. The number of
ordinary shares held by the Volex Group plc Employee Share Trust at
29 September 2019 was 1,410,983 (H1 FY2019: 1,159,278, FY2019:
2,159,277).
8. Analysis of net funds/(debt)
Other
1 April IFRS 16 Transition Business combination Cash Exchange movement $'000 non-cash changes 29 September 2019
2019 $'000 $'000 flow $'000 $'000
$'000 $'000
------------- --------- -------------------- ---------------------- -------- ------------------------- ------------------ -------------------
Cash and
cash
equivalents 20,593 - (5,771) (6,870) (550) - 7,402
Bank loans - - (135) 97 - - (38)
Debt issue
costs 97 - - 592 (6) (127) 556
Lease
liability (7,245) (1,589) 1,335 216 - (7,283)
------------- --------- -------------------- ---------------------- -------- ------------------------- ------------------ -------------------
Net funds 20,690 (7,245) (7,495) (4,846) (340) (127) 637
------------- --------- -------------------- ---------------------- -------- ------------------------- ------------------ -------------------
(Audited)
29 September 30 September 31 March
2019 2018
$'000 $'000 2019
$'000
------------------------------------------------ -------------- -------------- ----------
Cash and bank balances 17,880 24,647 20,913
Overdrafts (included in short term borrowings) (10,478) - (320)
Cash and cash equivalents 7,402 24,647 20,593
------------------------------------------------ -------------- -------------- ----------
The carrying amount of the Group's financial assets and
liabilities is generally the same as their fair value.
9. Acquisitions
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.
Servatron brings expertise in test technologies, higher levels
of system integration and PCBA assembly expertise. Combining our
cable-assemblies expertise and R&D skills will drive revenues
for the Group and strengthen our footprint in North America. The
acquisition provides the opportunity to increase organic growth
through value-added services for existing cable harness customers
and incorporates into our business a skilled local workforce and
management team.
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 2020 and 2021
calendar years. The fair value above has been based on the probable
outcome of each based upon the information available at 29
September 2019. As more information comes to light, the fair value
will be adjusted.
As part of the acquisition it was agreed 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 post-acquisition
expense.
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
Property, plant and equipment 1,933
Inventories 5,483
Trade receivables 5,019
Trade payables (1,040)
Other debtors and creditors (2,461)
Overdraft (3,677)
Bank loan (135)
Deferred taxes (2,490)
Lease obligation (1,589)
Total identifiable assets 11,592
-------------------------------- -----------------------------
Goodwill 7,567
-------------------------------- -----------------------------
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 H1 FY2020, Servatron contributed $6,282,000 to Group revenue
and $466,000 to adjusted operating profit. Associated acquisition
costs of $104,000 and intangible asset amortisation of $1,046,000
have both been expensed as adjusting items in the period.
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 Cords 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
through 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 2020 and 2021. The consideration has been measured at fair
value, with one of the instalments being dependent upon a new lease
agreement being obtained for the primary manufacturing site and any
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
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)
Deferred taxes -
Total identifiable assets 3,975
------------------------------- -----------------
Goodwill 1,422
------------------------------- -----------------
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 H1 FY2019, Ta Hsing
contributed $762,000 to the Group's external revenue and $359,000
to adjusted operating profit. Associated acquisition costs of
$58,000 have been expensed as adjusting items in the period.
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
--------------------------------------------------------- -------
10. Related parties
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
The Group has a 26.09% interest in Kepler SignalTek Limited
which is accounted for as an associate. During the period the Group
accrued financial income of $85,000 on the preference shares (H1
FY2019 $38,000, FY2019: $117,000). The balance due from the
associate as at the period end date was $1,910,000 (H1 FY2019:
$1,445,000, FY2019: $1,825,000).
The Group also has a 43% interest in Volex-Jem Co. Ltd. During
the period the Group purchased $107,000 (H1 FY2019: $2,552,000,
FY2019: $4,067,000) materials from Volex - Jem Cable Precision
(Dongguan) Co. Limited, an entity controlled by Volex-Jem Co. Ltd.
The balance due to the associates as at the period end was $88,000
(H1 FY2019: $1,316,000, FY2019: $1,141,000).
A number of share transactions with directors have occurred
during the period in line with share awards outstanding at the
prior year end and as disclosed in the annual accounts for FY2019
and in line with the director shareholding notices disclosed on the
Volex website (www.volex.com).
11. Contingent Liabilities
As a global Group, subsidiary companies, in the normal course of
business, engage in significant levels of cross-border trading. The
customs, duties and sales tax regulations associated with these
transactions are complex and often subject to interpretation. While
the Group places considerable emphasis on compliance with such
regulations, including appropriate use of external legal advisors,
full compliance with all customs, duty and sales tax regulations
cannot be guaranteed.
Through the normal course of business, the Group provides
manufacturing warranties to its customers and assurances that its
products meet the required safety and testing standards. When the
Group is notified that there is a fault with one of its products,
the Group will provide a rigorous review of the defective product
and its associated manufacturing process, and if found at fault and
contractually liable will provide for costs associated with recall
and repair as well as rectify the manufacturing process or seek
recompense from its supplier. The Group does not provide for such
costs where fault has not yet been determined and investigations
are ongoing.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR GGGAUGUPBPUW
(END) Dow Jones Newswires
November 14, 2019 02:01 ET (07:01 GMT)
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