REG - Volex PLC - Half-year Report of Volex plc
09/11/2022 07:00
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RNS Number : 7504F Volex PLC 09 November 2022
09 November 2022
Volex plc
Half year results for the 26 weeks ended 2 October 2022
A diverse and resilient business delivering profitable growth alongside
continued investment to support expansion
Volex plc ("Volex", the "Company", or the "Group"), the global supplier of
integrated manufacturing services and power products, today announces its half
year results for the 26 weeks ended 2 October 2022 ("H1 FY2023").
Financial Summary 26 weeks to 26 weeks to
2 October 3 October %
2022 2021 Change
Revenue $357.5m $292.7m 22.1%
Underlying* operating profit $32.1m $27.3m 17.6%
Statutory operating profit $24.5m $21.2m 15.6%
Underlying* profit before tax $29.1m $25.5m 14.1%
Statutory profit before tax $21.5m $19.4m 10.8%
Basic underlying* earnings per share 14.4c 13.8c 4.3%
Interim dividend per share 1.3p 1.2p 8.3%
Net debt (before operating lease liabilities) $98.8m $22.3m
Net debt $117.0m $40.1m
* Before adjusting items (non-recurring items and amortisation of acquired
intangibles) and share-based payments
Financial and Operational Highlights
· Organic revenue growth of 14.3% delivering total revenue for H1
FY2023 of $357.5m, which also included $35m from acquisitions
· Underlying operating profit increased by 17.6% to $32.1m,
underpinned by robust customer demand and proactive management of inflationary
cost increases
· Underlying operating margin of 9.0% demonstrates effective
inflation management and cost control
· Robust customer demand across our markets, supported by
additional contract wins with new and existing customers
· Review Display Systems Group ("RDS") acquired in the UK for
initial consideration of $6m to enhance our capabilities and accelerate growth
in this market
· Integration and transition plans for recent acquisitions are
progressing well
· Good progress made towards five-year growth plan supported by
continued customer-led investment programme
· Interim dividend increased by 8.3% to 1.3 pence per share
Market Highlights
· Electric Vehicles - strong momentum continues with 53% organic
revenue growth delivered through a diverse product set
· Consumer Electricals - continued new customer project wins,
despite a challenging market, leveraging the Group's global footprint and
low-cost manufacturing infrastructure
· Medical - resilient demand continues as supply chain challenges
begin to subside
· Complex Industrial Technology - strong growth reflecting
improving supply chain and the delivery of new customer projects
Outlook
· Continuing confidence in our ability to deliver our strategic
objectives and to utilise our compelling commercial proposition in markets
with structural, long-term growth drivers
· We are mindful of broader macroeconomic developments but remain
confident that our diversified end market exposure and unique global footprint
stand us in good stead
· Our strong financial position creates a platform for long-term
growth through organic investment and acquisitions
· We remain on track to deliver revenues and underlying operating
profit in line with market expectations
Nat Rothschild, Volex's Executive Chairman said:
"We have built a strong, resilient business, aligned to key market sectors
with long-term structural growth characteristics. We have shown that we are
capable of managing supply chain and inflationary pressures effectively, while
simultaneously continuing to win new projects and expand opportunities with
existing customers.
"We continue to report strong organic sales growth, building on the momentum
generated last year whilst maintaining our margins within our target range and
demonstrating our ability to effectively pass through inflationary-driven
increases.
"In June, we set out an ambitious new five-year plan, to grow our revenues to
$1.2 billion by FY2027 and these results demonstrate the value added by our
investment programme and our ongoing ability to deliver against this plan.
"We are confident that our strategy and operating model provide us with the
opportunity to deliver long-term organic growth alongside complementary,
earnings-enhancing acquisitions. Our strong performance in the first half of
the year, clear strategy and pipeline of customer opportunities underpins our
confidence to reaffirm our outlook for the remainder of the year."
Analyst Presentation
A live presentation for analysts will be held online at 12.00 pm GMT on 9
November 2022. If you are an analyst and would like to join for this briefing,
please send an email to Volex@powerscourt-group.com. Log in details for the
meeting will be communicated to attendees.
Investor Presentation
A live presentation will be held online at 2.00 pm GMT on 9 November 2022 on
the Investor Meet Company ("IMC") platform. This online presentation is open
to all existing and potential shareholders. Questions can be submitted during
the live presentation.
Investors can sign up to IMC and add to meet Volex via:
https://www.investormeetcompany.com/volex-plc/register-investor
(https://www.investormeetcompany.com/volex-plc/register-investor)
For further information please contact:
Volex plc +44 (0)7747 488 785
Nat Rothschild, Executive Chairman
Jon Boaden, Chief Financial Officer
Singer Capital Markets (Nominated Adviser and Joint Broker) +44 (0)20 7496 3000
Shaun Dobson / George Tzimas
HSBC Bank plc (Joint Broker) +44 (0)20 7991 8888
Simon Alexander / Joe Weaving
Powerscourt +44 (0)20 7250 1446
James White / Nicholas Johnson / Maxim Hibbs
About Volex plc
Volex plc (AIM: VLX) is a global leader in integrated manufacturing for
performance-critical applications and a supplier of power products. We serve a
diverse range of markets and customers, with particular expertise in cable
assemblies, higher-level assemblies, data centre power and connectivity,
electric vehicles, and consumer electricals. We are headquartered in the UK
and operate from 19 manufacturing locations with a global workforce of over
8,000 employees across 22 countries. Our products are sold through our own
locally based sales teams and through authorised distributor partners to
Original Equipment Manufacturers and Electronic Manufacturing Services
companies worldwide. All of the products and services that we offer are
integral to the increasingly complex digital world in which we live, providing
power and connectivity from the most common household items to the most
complex medical equipment. For more information, please visit www.volex.com
Definitions
The Board of Volex considers that current consensus market expectations for
revenue are $691.7 million (with a range of $690 million to $693 million) and
for underlying operating profit are $62.8 million (with a range of $62.3
million to $64.0 million).
The Group presents some significant items separately to provide clarity on the
underlying performance of the business. This includes significant one-off
costs and income such as 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 payments. 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 debt (before
operating lease liabilities) represents cash and cash equivalents, less bank
loans and debt issue costs, but excluding operating lease liabilities. The
lease liabilities include $18.2 million of operating lease liabilities ($17.8
million at 3 October 2021).
Organic revenue growth is calculated using constant exchange rates ("CER") by
taking the total reported revenue (excluding the impact of acquisitions and
disposals) divided by the preceding financial year's revenue at the current
year's exchange rates.
Return on capital employed is calculated as the last twelve months underlying
operating profit as a percentage of average net assets excluding net
cash/debt.
Forward looking statements
This announcement contains certain forward-looking statements which have been
made by the Directors in good faith using information available up until the
date they approved the announcement. Forward-looking statements should be
regarded with caution as by their nature such statements involve risk and
uncertainties relating to events and circumstances that may occur in the
future. Actual results may differ from those expressed in such statements,
depending on the outcome of these uncertain future events.
RESULTS FOR THE 26 WEEKS ENDED 2 OCTOBER 2022
Overview
Volex deploys its extensive manufacturing experience and design expertise to
support the delivery of diverse, complex and safety-critical solutions to a
broad range of global customers. Our market leading capability is focused on
profitable sectors that deliver organic growth and attractive returns.
During the period, revenue grew by 22.1%, including acquisitions, compared to
the prior year. At constant exchange rates, organic revenue growth was 14.3%.
This builds on the momentum delivered in FY2022 when organic revenue growth
for the full year was 19.4%, as key markets recovered from the effects of
Covid-19. The current organic growth rate is ahead of our average growth rate
over the last three years, demonstrating the impact of the recent strategy in
accelerating the performance of the business.
With a range of complementary capabilities and manufacturing specialisms,
Volex is a robust and resilient business. This creates opportunities to
enhance the depth and breadth of customer relationships. Incremental sales are
achieved through leveraging an extensive global footprint as well as investing
in additional capabilities that support customers' requirements.
Volex is well positioned in key markets that demonstrate long-term structural
growth drivers, including Electric Vehicles, Medical and Complex Industrial
Technology. Our diverse customer base and ability to add value in key
production processes has delivered growth despite a challenging manufacturing
backdrop. Global events have disrupted supply chains, extended lead times and
increased costs. However, our proactive approach to addressing each of these
challenges, combined with our expertise in procurement and planning tools,
have maintained production output with only a modest increase in inventory
levels, minimising the risk of unscheduled interruptions. Higher material and
labour costs have been passed through to customers while value is maintained
through the continuous optimisation of processes. Volex's global footprint
satisfies the demands from customers who are looking to evolve and reconfigure
their procurement strategies through localisation.
The underlying operating margin for the first half of the year was 9.0% and
the Group has maintained underlying operating margins between 9% and 10% for
the previous two financial years. This demonstrates the consistency of the
operating model and the ability to manage inflationary pressures in a dynamic
market.
A new five-year plan was announced in June 2022, targeting Group revenues of
$1.2 billion by the end of FY2027, including revenues from acquisitions of
circa $200 million.
Trading performance overview
The half year to 2 October 2022 has seen the Group continue to deliver robust
organic growth and profitability. We are winning new projects across our
business with both new and existing customers. Although some challenges around
the availability of selected components and variability in lead times remain,
the situation continues to improve.
$m 26 weeks ended 26 weeks ended
2 October
3 October
2022 2021
Total Total
Revenue 357.5 292.7
Cost of Sales (283.9) (230.3)
Underlying gross profit* 73.6 62.4
Underlying gross margin 20.6% 21.3%
Underlying operating costs* (41.5) (35.1)
Underlying operating profit* 32.1 27.3
Underlying operating margin 9.0% 9.3%
Underlying EBITDA* 38.1 31.8
* Before adjusting items and share-based payment charges
Revenue for the first half of the year increased by 22.1% in total, organic
growth was 14.3%, compared to H1 FY2022. Customer demand has been strong
across our markets throughout the period, supported by new contract wins.
Gross margin is slightly lower than the first half of the previous year, but
consistent with FY2022 as a whole. The small reduction in gross margin is
primarily due to a change in sales mix during the period from customer growth
and the impact of acquisitions, with net inflation offset by cost
optimisation.
The underlying operating margin of 9.0% is broadly in line with the full year
operating margin for FY2022 of 9.1%. Underlying profit before tax is $29.1
million, an increase of 14.1% on the previous period. Underlying basic
earnings per share of 14.4 cents is 4.3% higher than the comparative period.
Statutory profit before tax, which includes the impact of adjusting items and
share-based payment expenses, was $21.5 million, an increase of 10.8% on the
prior period. The underlying effective tax rate for the period was 20.6% (H1
FY2022: 14.7%), with the increase due to the impact of foreign exchange rate
movements and the impact that changes in the UK tax rate had on deferred tax
assets in the prior period.
Underlying free cash flow for the first half of the year was $0.1 million
which includes investment in capital equipment as well as working capital to
support business growth and reduce the impact of supply chain related
disruption on customer projects. Net debt increased by $21.7 million from the
year end, which includes $7.5 million in respect of acquisitions completed in
prior years. Leverage, expressed as the ratio of net debt excluding operating
leases to underlying EBITDA, was 1.4x (YE FY2022: 1.1x). This provides
headroom for future investment and acquisition.
Acquisition of Review Display Systems
Volex completed the acquisition of the Review Display Systems Group ("RDS"),
incorporated in the United Kingdom, at the end of October 2022. RDS offers a
complete turnkey service for the design and manufacture of industrial
electronic display, embedded and Internet of Things ("IoT") enabled systems.
Alongside this, the business is focused on the design-in and specialist
technical distribution of electronic displays, touchscreens, embedded
intelligence and wireless mesh networking solutions and IoT system solutions.
RDS provide a comprehensive service, covering all aspects of the product
development process including electronic design for both hardware and
firmware, optimum component selection, mechanical design and final assembly
and manufacture.
RDS will combine with and complement GTK, our successful and growing UK-based
subsidiary. GTK specialises in the manufacture and provision of customised
electronic solutions, producing complex cable assemblies and integrated
solutions for global blue-chip customers. The two businesses will be managed
under a single leadership structure to identify and deliver synergy
opportunities.
RDS reported revenue of £9.5 million and EBITDA of £1.0 million for the year
ended 31 March 2022. RDS is being acquired for initial consideration of £5.4
million on a cash and debt-free basis. There are potential earn-out payments
of up to £2.9 million over two years, subject to the business achieving
stretching earn-out targets. To achieve the full earn-out payment, RDS will
need to generate EBITDA of £1.8m in the second year of ownership. The
acquisition is being funded from existing debt facilities.
Interim dividend
The Board have declared an interim dividend of 1.3 pence, an increase of 8.3%
on the previous year. Since the dividend was reintroduced in FY2020, it has
increased every year and is now 30% higher. We are committed to a progressive
dividend policy, striking a balance between delivering growth through
investment and returning cash to shareholders.
The interim dividend will be paid on 16 December 2022 to those shareholders on
the register on 18 November 2022, the ex-dividend date will be 17 November
2022. Shareholders may elect to receive the interim dividend as shares in
Volex, in lieu of cash, under the Volex plc Scrip Dividend Scheme. The
reference price for the Scrip Dividend will be announced on 24 November 2022.
Shareholders who wish to elect to receive the 2022 interim dividend in shares
must (i) complete a Scrip Dividend Mandate Form and return it to Link Group,
(ii) make a Scrip election online via www.signalshares.com or, (iii) submit a
Dividend Election Input Message in CREST, in each case by no later than 5.00
p.m. on 2 December 2022. Those shareholders who have opted in to a permanent
scrip election by completing (and not cancelling) a Scrip Dividend Mandate
Form either in hard copy or via www.signalshares.com do not need to complete a
new mandate form for the interim dividend. However, shareholders holding their
shares in CREST need to make an election for each dividend and would need to
submit a Dividend Election Input Message in respect of the interim dividend. A
copy of the terms and conditions for the Volex plc Scrip Dividend Scheme are
available on the Company's website
https://www.volex.com/wp-content/uploads/2022/07/Volex-Plc-Scrip-Dividend-Scheme-Terms-Conditions-Final.pdf.
Strategy
Having set out an ambitious five-year plan in June, we continue to invest in
our existing operations to support high-growth areas of the business and to
further optimise our manufacturing processes. This includes introducing
printed circuit board assembly ("PCBA") capability to our advanced
manufacturing centre in Tijuana, Mexico, supporting customers looking to
relocate key aspects of production to North America and de-risk supply chains.
This investment, in conjunction with our two existing PCBA factories in the
US, as well as our factory in India, positions us well to support customer
requirements.
We are actively managing and developing our pipeline of potential acquisition
opportunities. This is a key element of our growth plans, and we apply strict
criteria and a set methodology to identify businesses that can enhance our
capabilities, broaden customer relationships and access attractive markets. We
are mindful of the macroeconomic environment, and we are using a robust
approach to assess valuations for target companies.
These initiatives form part of our strategy to grow our revenues to $1.2
billion by the end of FY2027, including circa $200 million of revenue
generated by acquisitions. The investments that we are making in this
financial year in infrastructure and product development, combined with the
demand we are seeing from customers, put us in a strong position to achieve
our strategic goals.
Revenue by customer sector
Electric Vehicles
The strong momentum in Electric Vehicles has continued, with an organic
revenue increase of 52.5% year-on-year. This saw revenue increase to $69.1
million (H1 FY2022: $45.3 million). Compared to the second half of FY2022, EV
revenues have grown organically by 17.4% in the first half of the year.
Consumer demand for electric vehicles continues to accelerate as the
technology becomes widely adopted and the range of vehicles and manufacturers
expands. Our engineering specialists have been successfully developing a range
of solutions to address different requirements in the market. In addition to
our market leading position in connectivity for universal home charging
solutions, we provide solutions to support faster modes of charging in a
domestic context and out of the home.
Consumer Electricals
Consumer Electricals delivered organic growth of 3.6%. Revenue for the first
half of the year was $138.2 million (H1 FY2022: $127.4 million).
The improvements we have delivered in vertical integration and automation in
our Consumer Electricals business have created a market-leading, highly
competitive proposition, allowing us to gain market share through winning new
customer projects.
Our world-class production facilities and continuous improvement activities
mean that, even after passing through input cost increases to customers, our
competitive pricing allows us to win new business. Copper costs have increased
by approximately 7% compared with the same period a year ago. We expect to
pass through lower copper costs to customers in the second half resulting in a
slight reduction in revenue but with limited effect on profit.
Medical
There was a strong return of demand in the Medical sector post Covid-19 in
FY2022 and these demand levels have continued in the first half, with major
customers reporting significant order books. Revenue increased to $66.8
million (H1 FY2022: $62.0 million), with organic growth of 12.0%. Higher
demand levels are expected to be sustained over an extended period as the
complex nature of large medical equipment means that it will take some time
for the elevated demand to be satisfied.
Growth in the Medical sector is underpinned by advances in medical technology,
an ageing population and initiatives to reduce patient waiting times. Our
advanced facilities allow us to support the latest technical requirements in
the sector and we have extensive experience of surpassing stringent quality
standards.
Complex Industrial Technology
With improvements in the availability of components, we have seen solid growth
from our Complex Industrial Technology customers, delivering organic growth of
9.3%, as well as the benefit from acquisitions made in the previous year, with
revenue of $83.4 million (H1 FY2022: $58.0 million). Demand from our data
centre customers was flat year-on-year, with a step up in our customers'
requirements expected at the end of the year.
In Complex Industrial Technology, we have a range of solutions, deploying the
latest technology in an industrial context, helping our customers grow and
deliver operating efficiencies. With a customer-centric approach and
experienced production engineers who maintain rigorous quality standards,
Volex is a manufacturing partner for some of the biggest technology names.
For data centre customers, we are continuing to supply a range of high-speed
cables, including the new generation of cables with transmission rates of 400
Gbps. We are continuing to win new technology projects. Some of these are
currently at the prototype stage and we expect to experience significant
additional demand when volumes increase to full production levels. Our
investment in design and product development is resulting in a number of new
and innovative products to support our long-term growth in this area.
Revenue by market
We are a global, interconnected and integrated business. Our global footprint
with manufacturing capabilities in multiple locations allows us to ensure
continuity of supply. This is a significant differentiator for our blue-chip
customers with international operations.
Many customers are looking to simplify their supply chain processes and source
products closer to their manufacturing locations. In particular, we are seeing
demand for cost efficient alternatives to China. With significant experience
in onboarding complex requirements, we are expanding our capacity in key
locations to meet this demand. This includes new space in Mexico, Poland,
Indonesia and India.
North America is our largest customer region and we work with major technology
companies and global innovators. North America is 46.9% of overall revenue (H1
FY2022: 41.4%). Revenue in this market grew by 38.3% in the period to $167.5
million (H1 FY2022: $121.1 million). This includes some of the strong growth
that we experienced from electric vehicle customers and the impact of the
acquisitions completed in the second half of FY2022.
Revenues in Europe reduced by 3.5% to $97.4 million (H1 FY2022: $100.9
million). With much of this business priced in Euro, there was an adverse
impact of $10.5 million from changes in foreign exchange rates. Offsetting
this, the Group has seen growth across its key customer markets in this region
including medical, industrial and electric vehicles.
Asia revenue was $92.6 million (H1 FY2022 $70.7 million). The majority of
revenue in this region is in Consumer Electricals. Demand in the first half
remained strong due to new customer projects and strong demand from key
customers.
Gross margin
Our integration into customer processes and our ability to add value through
our advanced manufacturing capabilities, allows us to build strong
relationships with our customers. Given the critical nature of many of the
projects we support, we take our responsibility as a supplier extremely
seriously. We have secured incremental price increases on a fair and
transparent basis, maintaining cost competitiveness while also protecting our
margins.
We have seen extended lead times and increased costs for some raw materials.
We are able to pass through component cost increases to our customers, being
an established practice for our industry. We are working closely with our
customers to manage lead times and meet their expectations. Indeed, we believe
that our customer relationships have strengthened due to our support in
navigating the current supply chain complexities.
With inflation being managed effectively and proactively, gross margins have
remained consistent. The gross margin in the first half of the year was 20.6%
which compares with a gross margin of 20.5% achieved over the full year in
FY2022 and a gross margin of 21.3% for the first half of FY2022. Inflation
resulted in adverse movement of 0.8% year-on-year, which was offset by a
favourable cost optimisation impact of 0.9%. Acquisitions and mix had an
adverse impact of 1.2% in total. There was also a benefit from foreign
exchange due to the strength of the dollar which improved gross margin by
0.4%. This demonstrates that we have been effective in passing through higher
input costs to customers and identifying efficiency savings.
Underlying operating profit
Underlying operating costs increased by $6.4 million to $41.5 million (H1
FY2022: $35.1 million). $3.2 million of the increase was attributable to the
four acquisitions that were made in the second half of FY2022. The remaining
increase reflects business growth, inflation and investment in engineering and
sales capability. There was also a benefit from the strength in the US dollar.
Underlying operating costs as a percentage of revenue have reduced in the
period from 12.0% in H1 FY2022 to 11.6% reflecting management's continued
tight control over operating expenditure and the efficiencies delivered to
offset the impact of inflation on salary costs.
Underlying operating profit increased 17.6% to $32.1 million (H1 FY2022: $27.3
million). This includes the benefit from the organic growth as well as the
acquisitions that were completed in the second half of FY2022. The underlying
operating margin for the first half of the year was 9.0% which is in line with
the operating margin for the previous full year which was 9.1%.
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 associated tax.
Adjusting items and share-based payments totalled $7.6 million in the period
(H1 FY2022: $6.1 million). These costs are made up of $4.3 million (H1 FY2022:
$5.0 million) of amortisation of acquisition-related intangible assets, $2.6
million (H1 FY2022: $2.6 million) of share-based payments expense and $0.7
million (H1 FY2022: $1.1 million) of acquisition costs mainly related to
on-going activities to develop our acquisition pipeline. In the previous year,
we recognised a gain of $2.6 million on the forgiveness of Paycheck Protection
Program (PPP) loans provided to parts of the Group's North America operations.
Net finance costs
Net finance costs increased to $3.7 million (H1 FY2022: $1.9 million) mainly
due to the increased utilisation of the revolving credit facility following
the acquisitions made in FY2022 and higher interest rates. The financing
element for leases for the year was $0.5 million (H1 FY2022: $0.3 million).
During the period, the Group entered into an interest rate swap in respect of
$50 million of drawn debt. This fixes the interest on this element of the debt
to provide stability should there be variability in interest rates in the next
four years.
Taxation
The Group's income tax expense for the period was $4.9 million (H1 FY2022:
$2.2 million), representing an effective tax rate of 22.8% (H1 FY2022: 11.2%).
The underlying tax charge of $6.0 million (H1 FY2022: $3.8 million) represents
an effective tax rate of 20.6% (H1 FY2022: 14.7%). The tax expense and the
effective tax rate are affected by the recognition of deferred tax assets, as
required by International Financial Reporting Standards. The assets recognised
in the period are principally due to the recognition of historical operating
losses and unclaimed capital allowances.
The underlying current tax charge is calculated by reference to the taxable
profits in each individual entity and the local statutory tax rates. An
underlying deferred tax credit of $1.8 million (H1 FY2022: tax credit of $1.4
million) arose due to an increase in the net deferred tax asset recognised. In
a number of jurisdictions, the taxable profits are calculated in local
currency which can give rise to taxable profits when the local currency
depreciates. During the first half of the year, this has resulted in an
additional $1.0 million of tax expense (H1 FY2022: $0.2 million).
The Group operates in a number of different tax jurisdictions and is subject
to periodic tax audits by local authorities in the normal course of business
on a range of tax matters in relation to corporate tax. As at 2 October 2022,
the Group has net current tax liabilities of $9.5 million (FY2022: $8.2
million) which include $6.7 million (FY2022: $7.2 million) of provisions for
tax uncertainties.
The carrying amount of deferred tax assets is reviewed at each reporting date
and recognised to the extent that it is probable that there are sufficient
taxable profits to allow all or part to be recovered. Deferred tax assets have
been recognised based on future forecast taxable profits. As at the reporting
date the Group has recognised deferred tax assets of $20.3 million (FY2022:
$20.6 million) and deferred tax liabilities of $6.1 million (FY2022: $7.0
million).
Net debt and cash flows
During the first half of the year, inventory has increased to support the
growth of the business and also to secure critical components in a market
where there are regular issues with variable lead times and part shortages.
Securing sufficient inventory to support customer requirements is an important
way to ensure that customer commitments are met which protects revenue.
Inventory is kept under close review at both a factory level and a regional
level to optimise holding levels. As the supply chain situation improves,
there will be an opportunity to reduce inventory.
Underlying EBITDA increased by 19.8% to $38.1 million (H1 FY2022: $31.8
million). The Group generated underlying free cash flow of $0.1 million (H1
FY2022: $3.0 million). This included a working capital outflow of $21.2
million (two-thirds of which supported the growth of the business), as well as
net capital expenditure of $10.0 million and tax and net interest paid of $5.9
million. The adverse working capital movement is due to the significant growth
in the business and includes longer inventory holding periods resulting from
complexities in global supply chains. Compared with H1 FY2022 there were an
extra 4 days of inventory held by the business at the end of the period.
Inventory levels are expected to normalise, but this may not occur in the
second half of the year. Accounts receivable and accounts payable balances
also increased as a result of the growth in the business. Net debt (before
operating lease liabilities) increased from the year end to $98.8 million
($74.7 million at 3 April 2022). The Group also had operating lease
liabilities of $18.2 million ($20.6 million at 3 April 2022). This produces a
statutory net debt position of $117.0 million (YE FY2022: $95.3 million).
Acquisition strategy
Acquiring quality businesses and successfully integrating them is a
significant part of our strategy. We identify highly performing businesses in
sectors where we have deep understanding and experience. We are attracted to
businesses with blue-chip, long-term customers and proven capabilities. Our
acquisition pipeline is focused on businesses which will allow the Group to
add additional value and deliver further access to existing or adjacent
markets. The geographic location of the target is also a strategic
consideration, particularly given the way in which global supply chains are
reconfiguring. Targets that require significant integration or restructuring
effort are only considered where we can identify the management resources to
lead this activity.
We look to optimise the value created from each acquisition, and only progress
opportunities that meet strict criteria which are tailored to each transaction
based on the specific characteristics of the target. In general, acquisitions
should enhance the Group's margin profile.
We identify potential acquisitions through a variety of methods, seeking out
businesses that are not on the market as well as those already in an active
process. All these opportunities are qualified and approved by an investment
committee before we progress to negotiation. We only proceed to due diligence
where there is alignment on the commercial terms.
Having completed 10 acquisitions in four years from investment of some $200
million, we have a well-developed approach and a significant track record in
execution. The integration and transition activities for Irvine, Prodamex, TC
and inYantra, which were all acquired in FY2022, are well underway.
We have an interesting acquisition pipeline containing highly attractive
targets that we are pursuing, all of which fit within the core competency of
our senior operations team. We qualify every acquisition extensively using our
deep industry knowledge to find the best opportunities. We firmly believe that
our strength in this area will be a significant value driver.
Investing in our business
We are investing in our business to deliver our five-year plan. Our astute
investment decisions have allowed the Group to achieve a return on capital
employed of 20.2% (H1 FY2022: 25.7%). Given the rapid growth and continuing
customer project wins, we are increasing our production space in key
locations. This includes our sites in India, Mexico, Indonesia and Poland.
Our investment in development activities and new products has allowed us to
secure incremental customer projects and has contributed to our revenue
growth. We will continue these investment programmes in a targeted way,
focusing on activities that add the most value.
Total capital expenditure for the first half of the year was $15.7 million
which included $5.7 million for new printed circuit board assembly equipment
that was obtained under a finance lease arrangement. 90% of capital
expenditure approved in the first half of the year related to projects that
will drive business growth. The average cash payback period for these projects
is 20 months.
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 FY2022 Annual Report and
Accounts on pages 38 to 43, a copy of which is available on the website at
www.volex.com (http://www.volex.com) .
Outlook
Volex is a dynamic and resilient business, with compelling positions in
profitable markets with structural growth drivers, creating confidence in our
ability to deliver our strategic objectives. By maintaining a flexible
approach, the business is well placed to manage growth and profitability.
The Group is heading into the second half of the year with a clear strategy, a
strong pipeline of customer project opportunities and significant momentum
from the growth experienced in the first half. We are mindful of broader
macroeconomic developments but remain comfortable that our diversified end
market exposure stands us in good stead. These factors support the confidence
of the Board in delivering on long-term objectives as well as meeting the full
year consensus market expectations.
Nat
Rothschild
Jon Boaden
Group Executive
Chairman Group
Chief Financial Officer
9 November 2022
9 November 2022
Unaudited consolidated income
statement
For the 26 weeks ended 2 October 2022 (26 weeks ended 3 October 2021)
26 weeks ended 2 October 2022 26 weeks ended 3 October 2021
Before Adjusting Total Before Adjusting Total
Adjusting items and share based payments items and share-based payments Adjusting items and share based payments items and share-based payments
(note 3) (note 3)
Notes $'m $'m $'m $'m $'m $'m
Revenue 2 357.5 - 357.5 292.7 - 292.7
Cost of sales (283.9) - (283.9) (230.3) - (230.3)
Gross profit 73.6 - 73.6 62.4 - 62.4
Operating expenses (41.5) (7.6) (49.1) (35.1) (6.1) (41.2)
Operating profit 2 32.1 (7.6) 24.5 27.3 (6.1) 21.2
Share of net profit from associates 0.7 - 0.7 0.1 - 0.1
Finance income 0.1 - 0.1 0.2 - 0.2
Finance costs (3.8) - (3.8) (2.1) - (2.1)
Profit on ordinary activities before taxation 29.1 (7.6) 21.5 25.5 (6.1) 19.4
Taxation 4 (6.0) 1.1 (4.9) (3.8) 1.6 (2.2)
Profit for the period 23.1 (6.5) 16.6 21.7 (4.5) 17.2
Profit is attributable to:
Owners of the parent 22.8 (6.5) 16.3 21.7 (4.5) 17.2
Non-controlling interests 0.3 - 0.3 - - -
23.1 (6.5) 16.6 21.7 (4.5) 17.2
Earnings per share (cents)
Basic 5 14.4 10.3 13.8 11.0
Diluted 5 13.7 9.8 13.0 10.3
Audited consolidated income
statement
For the 26 weeks ended 2 October 2022 (26 weeks ended 3 October 2021)
52 weeks ended 3 April 2022
Before Adjusting Total
Adjusting items and share based payments items and share-based payments
(note 3)
Notes $'m $'m $'m
Revenue 2 614.6 - 614.6
Cost of sales (488.8) - (488.8)
Gross profit 125.8 - 125.8
Operating expenses (69.6) (15.2) (84.8)
Operating profit 2 56.2 (15.2) 41.0
Share of net profit from associates 0.4 - 0.4
Finance income 0.3 - 0.3
Finance costs (5.5) - (5.5)
Profit on ordinary activities before taxation 51.4 (15.2) 36.2
Taxation (9.1) 3.3 (5.8)
Profit for the period attributable to the owners of the parent 42.3 (11.9) 30.4
Earnings per share (cents)
Basic 5 26.9 19.3
Diluted 5 25.2 18.1
Unaudited consolidated statement of comprehensive income
For the 26 weeks ended 2 October 2022 (26 weeks ended 3 October 2021)
(Audited)
26 weeks to 26 weeks to 52 weeks to
2 October 3 October 2021 3 April
2022 2022
$'m $'m $'m
Profit for the period 16.6 17.2 30.4
Items that will not be reclassified subsequently to profit or loss:
Actuarial gain on defined benefit pension schemes 0.5 0.4 0.7
Tax relating to items that will not be reclassified (0.1) - (0.1)
0.4 0.4 0.6
Items that may be reclassified subsequently to profit or loss:
(Loss)/gain arising on cash flow hedges during the period (1.3) (0.1) 0.1
Exchange loss on translation of foreign operations (19.4) (1.7) (5.9)
Tax relating to items that may be reclassified 1.8 - 0.1
(18.9) (1.8) (5.7)
Other comprehensive expense for the period (18.5) (1.4) (5.1)
(1.9) 15.8 25.3
Total comprehensive (expense)/income for the period
Total comprehensive (expense)/income for the period is attributable to:
Owners of the parent (1.7) 15.8 25.3
Non-controlling interests (0.2) - -
(1.9) 15.8 25.3
Unaudited consolidated statement of financial
position
As at 2 October 2022 (3 October 2021) (Audited)
2 October 3 October 2021 3 April
Note 2022 $'m 2022
$'m $'m
Non-current assets
Goodwill 75.3 64.6 82.9
Other intangible assets 41.2 35.1 47.0
Property, plant and equipment 45.6 33.5 43.4
Right of use assets 23.0 16.5 19.4
Investments in associates 2.2 1.0 1.5
Other receivables 1.2 1.2 2.1
Derivative financial instruments 1.3 - -
Deferred tax assets 20.3 23.7 20.6
210.1 175.6 216.9
Current assets
Inventories 127.0 96.9 119.3
Trade receivables 142.2 111.3 119.0
Other receivables 13.5 13.8 16.7
Current tax assets 1.1 2.2 1.9
Derivative financial instruments 0.2 0.5 0.4
Cash and bank balances 8 23.0 21.7 29.1
307.0 246.4 286.4
Total assets 517.1 422.0 503.3
Current liabilities
Borrowings 8 - 4.4 5.0
Lease liabilities 5.0 3.8 4.3
Trade payables 93.8 87.1 84.7
Other payables 58.5 49.5 61.9
Current tax liabilities 10.6 9.8 10.1
Retirement benefit obligation 0.3 1.1 1.1
Provisions 1.7 1.8 2.3
Derivative financial instruments 2.5 0.2 0.1
172.4 157.7 169.5
Net current assets 134.6 88.7 116.9
Non-current liabilities
Borrowings 8 115.9 39.1 98.5
Non-current lease liabilities 19.1 14.5 16.6
Other payables 0.9 3.7 1.0
Deferred tax liabilities 6.1 7.5 7.0
Retirement benefit obligation 1.7 3.0 2.0
Provisions 0.1 0.2 0.2
143.8 68.0 125.3
Total liabilities 316.2 225.7 294.8
Net assets 200.9 196.3 208.5
Equity attributable to owners of the parent
Share capital 6 62.7 62.5 62.5
Share premium account 60.7 60.9 60.9
Non-distributable reserve 2.5 2.5 2.5
Hedging and translation reserve (28.2) (5.9) (9.8)
Own shares 7 (2.2) (1.8) (0.2)
Retained earnings 98.2 78.1 85.2
Total attributable to owners of the parent 193.7 196.3 201.1
Non-controlling interests 7.2 - 7.4
Total equity 200.9 196.3 208.5
Unaudited Consolidated Statement of Changes in Equity
For the 26 weeks ended 2 October 2022 (26 weeks ended 3 October 2021)
Share capital Share premium account Hedging and Own shares Retained earnings Equity attributable to owners
translation reserve
Non-distribut-able reserves Non-Controlling interests
Total equity
$'m $'m $'m $'m $'m $'m $'m $'m $'m
Balance 4 April 2021 62.0 60.9 2.5 (4.1) (3.3) 66.0 184.0 - 184.0
Profit for the period attributable to the owners of the parent - - - - - 17.2 17.2 - 17.2
Other comprehensive income for the period - - - (1.8) - 0.4 (1.4) - (1.4)
Total comprehensive income for the period - - - (1.8) - 17.6 15.8 - 15.8
Shares issued 0.5 - - - - - 0.5 - 0.5
Own shares sold/(utilised) in the period - - - - 3.4 (3.4) - - -
Own shares purchased in the period - - - - (1.9) - (1.9) - (1.9)
Dividend - - - - - (4.7) (4.7) - (4.7)
Reserve entry for share option charges - - - - - 2.2 2.2 - 2.2
Tax effect of share options - - - - - 0.4 0.4 - 0.4
Balance at 3 October 2021 62.5 60.9 2.5 (5.9) (1.8) 78.1 196.3 - 196.3
Unaudited Consolidated Statement of Changes in Equity (continued)
For the 26 weeks ended 2 October 2022 (26 weeks ended 3 October 2021)
Share capital Share premium account Non-distribut-able reserves Hedging and Own shares Retained earnings Equity attributable to owners
translation reserve
Non-Controlling interests
Total equity
$'m $'m $'m $'m $'m $'m $'m $'m $'m
Balance 3 April 2022 62.5 60.9 2.5 (9.8) (0.2) 85.2 201.1 7.4 208.5
Profit for the period - - - - - 16.3 16.3 0.3 16.6
Other comprehensive (expense)/income for the period - - - (18.4) - 0.4 (18.0) (0.5) (18.5)
Total comprehensive (expense)/income for the period - - - (18.4) - 16.7 (1.7) (0.2) (1.9)
Own shares sold/(utilised) in the period - - - - 1.7 (1.7) - - -
Own shares purchased in the period - - - - (3.7) - (3.7) - (3.7)
Dividend - - - - - (4.6) (4.6) - (4.6)
Shares issued 0.2 (0.2) - - - 1.3 1.3 - 1.3
Reserve entry for share option charges - - - - - 1.2 1.2 - 1.2
Tax effect of share options - - - - - 0.1 0.1 - 0.1
Balance at 2 October 2022 62.7 60.7 2.5 (28.2) (2.2) 98.2 193.7 7.2 200.9
Unaudited consolidated statement of cash flows
For the 26 weeks ended 2 October 2022 (26 weeks ended 3 October 2021)
(Audited)
26 weeks to 26 weeks to 52 weeks to
2 October 3 October 2021 3 April
Notes 2022 2022
$'m $'m $'m
Profit for the period 16.6 17.2 30.4
Adjustments for:
Finance income (0.1) (0.2) (0.3)
Finance costs 3.8 2.1 5.5
Income tax expense 4.9 2.2 5.8
Share of net profit from associates (0.7) (0.1) (0.4)
Depreciation of property, plant and equipment 3.8 3.0 6.4
Depreciation of right-of-use asset 1.8 1.5 3.4
Amortisation of intangible assets 4.7 5.1 10.4
Loss on disposal of property, plant and equipment - - (0.2)
Share option charge 2.6 2.6 4.4
Forgiveness of PPP loan 3 - (2.6) (2.6)
Contingent consideration adjustment - - (0.2)
Decrease in provisions (1.0) (0.9) (1.7)
Operating cash flow before movements in working capital 36.4 29.9 60.9
Increase in inventories (12.5) (20.4) (28.1)
Increase in receivables (27.4) (13.4) (14.2)
Increase in payables 17.7 15.1 7.9
Movement in working capital (22.2) (18.7) (34.4)
Cash generated by operations 14.2 11.2 26.5
Cash generated by operations before adjusting items 15.8 11.8 28.5
Cash utilised by adjusting items (1.6) (0.6) (2.0)
Taxation paid (3.6) (3.0) (6.5)
Interest paid (2.4) (0.9) (1.5)
Net cash generated from operating activities 8.2 7.3 18.5
Cash flow from investing activities
Interest received 0.1 - 0.1
Acquisition of businesses, net of cash acquired - - (35.7)
Contingent consideration for businesses acquired (7.5) (10.8) (19.2)
Proceeds on disposal of property, plant and equipment 0.1 - 0.5
Purchases of property, plant and equipment (8.1) (3.9) (10.8)
Purchases of intangible assets (2.0) (1.0) (4.2)
Proceeds from the repayment of preference shares 0.2 - -
Net cash used in investing activities (17.2) (15.7) (69.3)
Cash flow before financing activities (9.0) (8.4) (50.8)
Cash used before adjusting items (7.4) (7.8) (48.8)
Cash utilised in respect of adjusting items (1.6) (0.6) (2.0)
Unaudited consolidated statement of cash flows (continued)
For the 26 weeks ended 2 October 2022 (26 weeks ended 3 October 2021)
(Audited)
26 weeks to 26 weeks to 52 weeks to
2 October 3 October 2021 3 April
Notes 2022 2022
$'m $'m $'m
Cash flow before financing activities (9.0) (8.4) (50.8)
Cash flow from financing activities
Dividend paid (3.3) (4.7) (7.2)
Net purchase of shares for share schemes (3.5) (2.0) (5.1)
Refinancing costs paid - (0.1) (2.5)
New bank loan raised 19.0 8.2 69.3
Repayment of borrowings (2.3) (2.9) (3.4)
Outflow from factoring (0.7) (2.9) (6.0)
Interest element of lease payments (0.5) (0.3) (1.0)
Receipt from lease debtor 0.2 0.3 0.5
Capital element of lease payments (2.1) (1.9) (4.2)
Net cash generated from/(used in) financing activities 6.8 (6.3) 40.4
Net decrease in cash and cash equivalents 8 (2.2) (14.7) (10.4)
Cash and cash equivalents at beginning of period 8 25.9 36.5 36.5
Effect of foreign exchange rate changes 8 (0.7) (0.1) (0.2)
Cash and cash equivalents at end of period 8 23.0 21.7 25.9
Notes to the Interim Statements
1. Basis of preparation
These interim financial statements have been prepared in accordance with UK
adopted International Accounting Standard 34, 'Interim Financial
Reporting' and the AIM Rules for Companies'. The condensed consolidated
interim financial information should be read in conjunction with the annual
financial statements for the 52 weeks ended 3 April 2022, which were prepared
in accordance with UK-adopted international accounting standards and the
requirements of the Companies Act 2006.
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 2 October
2022 ('H1 FY2023') and the 26 weeks ended 3 October 2021 ('H1 FY2022') has not
been reviewed by the auditors. The financial information for the 52 weeks
ended 3 April 2022 ('FY 2022') is extracted and abridged from the Group's full
accounts for that year. The statutory accounts for FY2022 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 UK adopted
International Accounting Standard 34 'Interim Financial Reporting' 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 9 November 2022.
This interim report can be downloaded or viewed via the Group's website at
www.volex.com (http://www.volex.com) . Copies of the annual report for the 52
weeks ended 3 April 2022 are available at the Company's registered office at
Unit C1 Antura, Bond Close, Basingstoke, Hampshire, England, RG24 8PZ, and can
also be downloaded or viewed via the Group's website.
These condensed financial statements have also been prepared using accounting
policies consistent with those disclosed in the annual report and accounts for
the year ended 3 April 2022, which were prepared in accordance with UK-adopted
international accounting standards and the requirements of the Companies
Act 2006.
Going Concern
As at 2 October 2022 the Group had net debt of $117.0m with undrawn committed
borrowing available under its revolving credit facility of $82.3m (FY2022:
$96.0m).
The Group's forecast and projections, taking reasonable account of possible
changes in trading performance and the cash outflow associated with the
recently announced acquisition of Review Display Systems Group ("RDS") (see
note 11) show that the Group should continue to operate with sufficient
headroom under the revolving credit facility for the foreseeable future. The
Directors 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.
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 Executive members of the Company's
Board and the Chief Operating Officer for the purpose of resource allocation
and assessment of Group performance is based upon the regional performance of
where the customer is based and the products are delivered to. In addition to
the operating divisions, a Central division exists to capture all of the
corporate costs incurred in supporting the operations.
Unallocated central costs represent 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 2 October 2022 26 weeks to 3 October 2021
Revenue Profit/(loss) Revenue Profit/(loss)
$'m $'m $'m $'m
North America 167.5 16.1 121.1 9.9
Asia 92.6 5.1 70.7 5.2
Europe 97.4 14.2 100.9 15.2
Unallocated central costs (excluding share-based payments) (3.3) (3.0)
Divisional results before share-based payments and adjusting items 357.5 32.1 292.7 27.3
Adjusting items (5.0) (3.5)
Share-based payments (2.6) (2.6)
Operating profit 24.5 21.2
Share of net profit from associates 0.7 0.1
Finance income 0.1 0.2
Finance costs (3.8) (2.1)
Profit before tax 21.5 19.4
Tax (4.9) (2.2)
Profit after tax 16.6 17.2
2. Business and geographical segments (continued)
52 weeks to 3 April 2022
Revenue Profit/(loss)
$'m $'m
North America 272.1 21.4
Asia 142.7 11.6
Europe 199.8 32.1
Unallocated central costs (excluding share-based payments) - (8.9)
Divisional results before share-based payments and Adjusting items 614.6 56.2
Adjusting items (10.8)
Share-based payments (4.4)
Operating profit 41.0
Share of profit result from associates 0.4
Finance income 0.3
Finance costs (5.5)
Profit before tax 36.2
Tax (5.8)
Profit after tax 30.4
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 $5.0m (H1
FY2022: $3.5m, FY2022: $10.8m) was split $2.4m (H1 FY2022: credit $0.4m,
FY2022: $2.0m) to North America, $2.2m (H1 FY2022: $3.9m, FY2022: $7.2m) to
Europe, $0.4m (H1 FY2022: $nil, FY2022: $1.1m) to Asia and $nil to central (H1
FY2022: $nil, FY2022: $0.5m).
Other segmental information
The Group's revenue from external customers and information about its
non-current assets (excluding deferred tax assets) by geographical location
are provided below:
External revenue Non-current assets
(excluding deferred tax assets)
(Audited) (Audited)
26 weeks to 26 weeks to 52 weeks to 26 weeks to 26 weeks to 52 weeks to
2 October 3 October 3 April 2 October 3 October 3 April
2022 2021 2022 2022 2021 2022
$'m $'m $'m $'m $'m $'m
Geographical segments
North America 121.1 272.1 52.2 20.7 49.3
167.5
Asia 92.6 70.7 142.7 49.7 26.4 47.2
Europe 97.4 100.9 199.8 87.9 104.8 99.8
357.5 292.7 614.6 189.8 151.9 196.3
Revenue is attributed to countries on the basis of the geographical location
of the customer and delivery of the product.
3. Adjusting items and share-based payments
(Audited)
26 weeks to 26 weeks to 52 weeks to
2 October 3 October 3 April
2022 2021 2022
$'m $'m $'m
Amortisation of acquired intangibles 4.3 5.0 10.3
Acquisition costs 0.7 1.0 2.5
Adjustments to fair value of contingent consideration - 0.1 (0.2)
Restructuring costs - - 0.8
PPP loan forgiveness - (2.6) (2.6)
Total adjusting items 5.0 3.5 10.8
Share-based payments charge 2.6 2.6 4.4
Total adjusting items and share-based payments before tax 7.6 6.1 15.2
Adjusting items tax credit (1.1) (1.6) (3.3)
Adjusting items and share-based payments after tax 6.5 4.5 11.9
Adjusting items include costs and income 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 FY2023,
the amortisation charge on these intangible assets totalled $4.3m (FY2022 H1:
$5.0m, FY2022: $10.3m).
Acquisition-related costs of $0.7m (FY2022 H1: $1.0m, FY2022: $2.5m) are
mainly related to acquisitions that have or are being pursued. These costs
represented legal and professional fees associated with the transactions. In
the prior year, the Group's acquisition related costs of $2.5m primarily
related to the four acquisitions which were completed.
There was no remeasurement of contingent consideration during the period
(FY2022 H1: $0.1m, FY2022: gain of $0.2m).
During the prior year a gain of $2.6m was recognised on the forgiveness of PPP
loans provided to parts of the Group's North America's operations. These loans
were provided at the start of the pandemic and were previously recognised as a
financial liability within current borrowings in the FY2021 balance sheet.
Upon receipt of notification of forgiveness of the debts during the current
period, a gain on extinguishment of the debt was recognised as an adjusting
item.
4. Tax charge
The Group's income tax expense for the period was $4.9 million (H1 FY2022:
$2.2 million), representing an effective tax rate of 22.8% (H1 FY2022: 11.2%).
The underlying tax charge of $6.0 million (H1 FY2022: $3.8 million) represents
an effective tax rate of 20.6% (H1 FY2022: 14.7%). The tax expense and the
effective tax rate are affected by the recognition of deferred tax assets, as
required by International Financial Reporting Standards. The assets recognised
in the period are principally due to the recognition of historical operating
losses and unclaimed capital allowances.
The underlying current tax charge is calculated by reference to the taxable
profits in each individual entity and the local statutory tax rates. An
underlying deferred tax credit of $1.8 million (H1 FY2022: tax credit of $1.4
million) arose due to an increase in the net deferred tax asset recognised. In
a number of jurisdictions, the taxable profits are calculated in local
currency which can give rise to taxable profits when the local currency
depreciates. During the first half of the year, this has resulted in an
additional $1.0 million of tax expense (H1 FY2022: $0.2 million).
The Group operates in a number of different tax jurisdictions and is subject
to periodic tax audits by local authorities in the normal course of business
on a range of tax matters in relation to corporate tax. As at 2 October 2022,
the Group has net current tax liabilities of $9.5 million (FY2022: $8.2
million) which include $6.7 million (FY2022: $7.2 million) of provisions for
tax uncertainties.
The carrying amount of deferred tax assets is reviewed at each reporting date
and recognised to the extent that it is probable that there are sufficient
taxable profits to allow all or part to be recovered. Deferred tax assets have
been recognised based on future forecast taxable profits. As at the reporting
date the Group has recognised deferred tax assets of $20.3 million (FY2022:
$20.6 million) and deferred tax liabilities of $6.1 million (FY2022: $7.0
million).
5. Earnings per ordinary share
The calculations of the earnings per share are based on the following data:
(Audited)
26 weeks to 26 weeks to 52 weeks to
Earnings 2 October 3 October 3 April
2022 2021 2022
$'m $'m $'m
Earnings attributable to the ordinary equity holders of the company for the 16.3 17.2 30.4
purpose of basic earnings per share
Adjustments for:
Adjusting items 5.0 3.5 10.8
Share-based payments charge 2.6 2.6 4.4
Tax effect of above adjustments and other adjusting item tax movements (1.1) (1.6) (3.3)
Underlying earnings 22.8 21.7 42.3
Weighted average number of ordinary shares No. shares No. shares No. shares
Weighted average number of ordinary shares for the purpose of basic earnings 158,522,434 156,562,086 157,245,284
per share
Effect of dilutive potential ordinary shares - share options 8,243,213 9,649,535 10,309,105
Weighted average number of ordinary shares for the purpose of diluted earnings 166,765,647 166,211,621 167,554,389
per share
Basic earnings per share Cents Cents Cents
Basic earnings per share from continuing operations 10.3 11.0 19.3
Adjustments for:
Adjusting items 3.2 2.2 6.9
Share-based payments charge 1.6 1.6 2.8
Tax effect of above adjustments and other adjusting items tax movements (0.7) (1.0) (2.1)
Underlying basic earnings per share 14.4 13.8 26.9
Diluted earnings per share Cents Cents Cents
Diluted earnings per share 9.8 10.3 18.1
Adjustments for:
Adjusting items 3.0 2.1 6.5
Share-based payments charge 1.6 1.5 2.6
Tax effect of above adjustments and other adjusting items tax movements (0.7) (0.9) (2.0)
Underlying diluted earnings per share 13.7 13.0 25.2
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 to 26 weeks to 52 weeks to
2 October 2022 3 October 2021 3 April
$'m $'m 2022
$'m
Issued and fully paid:
159,096,324 (FY2022: 158,718,709) Ordinary shares of 25p each 62.7 62.5 62.5
Shareholders were able to elect to receive ordinary shares in place of the
final dividend for the year to 3 April 2022. This resulted in the issue of
377,615 (H1 FY2022: nil, FY2022: nil) new fully paid ordinary shares.
7. Own shares
(Audited)
26 weeks to 26 weeks to 52 weeks to
2 October 2022 3 October 3 April
$'m 2021 2022
$'m $'m
At the start of the period 0.2 3.3 3.3
Disposed of in the period on exercise of options (1.7) (3.4) (7.5)
Purchase of shares 3.7 1.9 4.4
At end of the period 2.2 1.8 0.2
The own shares reserve represents the cost of shares in the Company held by
the Volex Group plc Employee Share Trust ('EBT') to satisfy future share
option exercises under the Group's share option schemes.
During H1 FY2023 the EBT purchased 1,006,166 shares at a cost of $3.7m. During
the period 502,011 shares were utilised on the exercise of share awards. The
number of ordinary shares held by the Volex Group plc Employee Share Trust at
2 October 2022 was 557,360 (H1 FY2022: 1,000,838, FY2022: 53,205).
8. Analysis of net debt
Other
3 April New Cash Exchange movement $'m non-cash changes 2 October
2022 leases flow $'m 2022
$'m $'m $'m $'m
Cash & cash equivalents 25.9 - (2.2) (0.7) - 23.0
Bank loans (101.8) - (16.7) 1.1 - (117.4)
Factoring (0.7) - 0.7 - - -
Debt issue costs 2.2 - - (0.3) (0.4) 1.5
Lease liability (20.9) (6.7) 2.6 1.4 (0.5) (24.1)
Net debt (95.3) (6.7) (15.6) 1.5 (0.9) (117.0)
2 October 2022 3 October 2021 3 April
$'m $'m 2022
$'m
Cash and bank balances 23.0 21.7 29.1
Overdrafts - - (3.2)
Cash and cash equivalents 23.0 21.7 25.9
The carrying amount of the Group's financial assets and liabilities is
considered to be equivalent to their fair value.
9. 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 27.4% interest in Kepler SignalTek Limited, which is accounted
for as an associate. During the period the Group accrued financial income of
$0.1m on the preference shares (H1 FY2021: $0.1m, FY2022: $0.2m). The balance
due from the associate as at the period end date was $1.8m (H1 FY2022: $2.2m,
FY2022: $2.0m).
The Group also has a 43% interest in Volex-Jem Co. Ltd. During the current and
prior period, no transactions have occurred between the Group and Volex-Jem
Co. Ltd or 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 $0.1m (H1 FY2022: $0.1m, FY2022: $0.1m).
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 FY2022 and in line with the Director shareholding
notices disclosed on the Volex website (www.volex.com (http://www.volex.com)
).
10. 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
advisers, 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 holds a provision to cover potential costs of
recall or warranty claims for products which are in the field but where a
specific issue has not been reported.
11. Events after the balance sheet date
On 28 October 2022 the Group completed the acquisition of the entire issued
share capital of Review Display Systems Group for an initial consideration of
$6.0m, on a debt-free basis. Contingent consideration of $3.0m is linked to
EBITDA performance over a 2 year period.
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