REG - Volex PLC - Half-year report
23/11/2023 07:00
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RNS Number : 3920U Volex PLC 23 November 2023
23 November 2023
Volex plc
Half year results for the 26 weeks ended 1 October 2023
Strong revenue growth and margin expansion underpins confidence
in the full year and progress towards five-year plan
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 1 October 2023 ("H1 FY2024").
Financial Summary 26 weeks to 26 weeks to % Change
1 October 2 October
2023 2022
Revenue $397.5m $357.5m 11.2%
Underlying(1) operating profit $37.4m $32.1m 16.5%
Statutory operating profit $25.8m $24.5m 5.3%
Underlying(1) profit before tax $33.6m $29.1m 15.5%
Statutory profit before tax $22.0m $21.5m 2.3%
Underlying(1) basic earnings per share 14.9c 14.4c 3.5%
Interim dividend per share 1.4p 1.3p 7.7%
Net debt (before operating lease liabilities)(2) $140.6m $98.8m
Net debt $173.7m $117.0m
(1) Before adjusting items (non-recurring items and amortisation of acquired
intangibles) and share-based payment charge
(2) Represents cash and cash equivalents, less bank loans, debt issue costs
and finance leases, but excluding operating lease liabilities (see definitions
section for more details)
Financial and Operational Highlights
· Revenue growth of 11.2%, with constant currency organic growth of
4.2%
· Underlying operating profit increased by 16.5% to $37.4 million
· Underlying operating margin strengthened to 9.4% due to careful
cost control and an improving sales mix
· Significant improvement in underlying free cash flow, delivering
$11.9 million, with working capital improved compared to the previous period
· Increase in net debt to part fund acquisition of Murat Ticaret
Kablo Sanayi A.S. ("Murat Ticaret"), for $195 million, with period end
covenant leverage of 1.3x, comfortably within the Group's target corridor of
1.0x to 2.0x
· Integration of Murat Ticaret is progressing well with positive
customer engagement and cross-sales opportunities
· Continued progress towards the five-year plan supported by a
targeted investment programme expanding capacity and capabilities
· Interim dividend increased by 7.7% to 1.4 pence per share
Market Highlights
· Electric Vehicles - strong comparative period benefitted from
customer inventory build, whereas increased confidence in lead times resulted
in some short-term customer destocking during the period
· Consumer Electricals - demand normalised across North American
and Asian markets, as anticipated, with new customer projects commencing in
the second half of the year
· Medical - strong demand continues with enhanced component
availability enabling customers to address order book backlogs
· Complex Industrial Technology - substantial growth, including
increased pace in the manufacturing of Data Centre products, with easing of
supply chain issues leading to acceleration in customer deliveries
· Off-Highway - acquisition of Murat Ticaret provides significant
enhanced scale in a fifth, attractive market, with further cross-selling
opportunities
Outlook
· Volex's diverse market exposure ensures operational resilience
and creates confidence in the achievement of strategic five-year goals
· The Group benefits from a robust pipeline of customer
opportunities, with the strategic acquisition of Murat Ticaret providing
access to new customers and markets
· The diversified end-market and customer exposure will continue to
mitigate any adverse macro impact and help the Group to deliver sustainable,
long-term growth
· Progress will be supported by investment in organic growth
projects, with flexibility for future acquisitions given the strength of the
balance sheet
· Board remains confident in the ability to achieve long-term
objectives and meet full-year market expectations
Nat Rothschild, Volex's Executive Chairman said:
"Our business is in exceptional shape, demonstrating resilience and diversity
in its operations. We employ a management model that is working effectively,
and enables us to pursue sustainable growth whilst maintaining margins. In
parallel, our commitment to supporting customers remains steadfast as we
effectively manage supply chains, regardless of fluctuations in demand. I am
delighted to confirm that we are well on track to achieve the objectives
outlined in our ambitious five-year plan.
"We are three months into our integration programme for Murat Ticaret, having
completed the acquisition at the end of August. These activities are already
yielding positive results, with an overwhelmingly favourable response from our
new colleagues and customers. We are identifying promising cross-selling
prospects, securing incremental customer projects and optimising processes to
enhance the operations.
"Our commitment to driving strong profitability remains unwavering, and the
strategic acquisition of Murat Ticaret will further bolster our financial
performance. Our global manufacturing footprint stands as a testament to our
competitive advantage, empowering us to support our customers' reshoring
aspirations.
"With excellent customer relationships, differentiated infrastructure and a
dedicated workforce, complemented by our clear strategic vision, we have every
reason to be confident in our ability to not only meet the market expectations
for the current year but also to achieve the ambitious targets set out in our
five-year plan. Volex is a transformed business and there are real grounds for
optimism as we move towards the 2024 calendar year."
Analyst Presentation
A live presentation for analysts will be held via conference call and in
person at Vintry & Mercer, 19-20 Garlick Hill, London EC4V 2AU, at 09.00
am GMT today, 23 November 2023. 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 10.00 am GMT on 27 November 2023 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
Peel Hunt LLP (Nominated Adviser and Joint Broker) +44 (0)20 7418 8900
Ed Allsopp / Tom Ballard / Ben Harrington
HSBC Bank plc (Joint Broker) +44 (0)20 7991 8888
Simon Alexander / Joe Weaving
Powerscourt +44 (0)20 7250 1446
James White / Nicholas Johnson
About Volex plc
Volex plc (AIM:VLX) is a driving force in integrated manufacturing for
mission-critical applications and a global leader in power and data
connectivity solutions. Our diverse operations support international blue-chip
customers in five key sectors: Electric Vehicles, Consumer Electricals,
Medical, Complex Industrial Technology and Off-Highway. Headquartered in the
UK, we orchestrate operations across 27 advanced manufacturing facilities,
uniting over 12,000 dynamic individuals from 24 different nations. Our
extraordinary products find their way to market through our localised sales
teams and authorised distributor partners, supporting Original Equipment
Manufacturers and Electronic Manufacturing Services companies across the
globe. In a world that grows more digitally complex by the day, customers
trust us to deliver power and connectivity that drives everything from
household essentials to life-saving medical equipment. Learn more at
www.volex.com (http://www.volex.com) .
Definitions
The Board of Volex considers that current consensus market expectation for
revenue is $860.4 million (with a range of $850 million to $873 million) and
for underlying operating profit of $84.1 million (with a range of $83.3
million to $84.5 million).
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 acquisition related costs, the non-cash amortisation of
intangible assets acquired as part of business combinations, and share-based
payments. Further detail on adjusting items is provided in note 3.
Underlying operating profit is operating profit before adjusting items and
share-based payment expense.
Underlying free cash flow is net cash flow before financing activities
excluding cash flows associated with the acquisitions of businesses and cash
utilised in respect of adjusting items.
Net debt (before operating lease liabilities) represents cash and cash
equivalents, less bank loans, debt issue costs and finance leases, but
excluding operating lease liabilities (defined as lease liabilities excluding
pre-IFRS 16 finance leases). The lease liabilities include $33.1 million of
operating lease liabilities ($18.2 million at 2 October 2022).
Covenant leverage represents the ratio of net debt, excluding operating lease
liabilities, to underlying EBITDA excluding the impact of right of use
amortisation arising on operating lease arrangements, adjusted to include the
EBITDA from the last twelve months of acquisitions on a proforma basis. This
measure is aligned with the covenant calculations used for external debt
facilities.
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 1 OCTOBER 2023
Overview
Throughout the first half of the year, Volex has continued to work closely
with its global customers to deliver complex and safety-critical solutions to
address a wide range of manufacturing requirements. The Group operates
effectively across diverse sectors with a broad customer base, delivering
organic growth and attractive returns.
During the period, total revenue, including acquisitions, grew by 11.2%
compared to the prior year. At constant exchange rates, organic revenue growth
was 4.2%. As markets continue to adjust to improving supply chain dynamics,
there were some short-term trends in customer behaviour that affected demand,
both positively and negatively. Some EV and Consumer Electrical customers who
had built up additional buffer stocks to limit exposure to variable lead times
are now confident in reducing inventory positions back to normal levels. Other
customers in Medical and Complex Industrial Technology are using the improved
availability of components to increase production and reduce backlogs. There
are signs from some customers that inventories are returning to historical
levels and ordering patterns are normalising.
A key strength of Volex is the diverse end-market exposure that has been built
in recent years, reducing exposure to any single market sector or customer.
This has been enhanced in the period through the acquisition of Murat Ticaret,
creating a new, fifth sector for the group in an attractive market that suits
the Group's strategy to deliver high quality, specialist manufacturing
solutions.
Volex maintains strong, market-leading positions within pivotal markets driven
by long-term structural growth factors, notably Electric Vehicles, Medical,
and Complex Industrial Technology and most recently, Off-Highway. Our ability
to serve a diverse customer base and add substantial value to critical
production processes has yielded robust overall growth, even amidst a
challenging manufacturing landscape. Despite some short-term changes in demand
profile, profitability has been maintained through careful cost control and
dynamic resource management. This is supported by strong procurement practices
and an active continuous improvement programme across all sites.
The underlying operating margin for the first half of the year was 9.4% which
includes one month of contribution from Murat Ticaret. This is the fourth
consecutive year in which margins have been maintained within the 9% to 10%
target range, demonstrating the consistency and flexibility of the operating
model and the ability to manage and pass through inflationary cost challenges
in a dynamic market.
Trading performance overview
In mixed market conditions, the half year to 1 October 2023 has seen the Group
continue to deliver profitable growth. Supply chains continue to improve,
creating opportunities for some customers to accelerate production and address
backlogs, and for others to optimise inventory and reduce buffer stock.
$m 26 weeks ended 26 weeks ended
1 October 2 October
2023 2022
Total Total
Revenue 397.5 357.5
Cost of Sales (306.3) (283.9)
Gross profit* 91.2 73.6
Gross margin 22.9% 20.6%
Underlying operating costs* (53.8) (41.5)
Underlying operating profit* 37.4 32.1
Underlying operating margin 9.4% 9.0%
Underlying EBITDA* 46.8 38.1
* Before adjusting items and share-based payment charges
Revenue for the first half of the year increased by 11.2% in total, organic
growth was 4.2%, against the strong comparative period reported for H1 FY2023.
During this period, customer demand varied across our markets, influenced by
the easing of supply chain pressures, leading to a reassessment of inventory
levels by some customers and the addressing of backlogs by others.
Year-on-year gross margins have improved, aided by the impact of acquisitions
and cost optimisation activities along with incremental benefits from passing
on cost inflation and favourable changes in product mix. Overall Group gross
margin is in line with the second half of FY2023.
The underlying operating margin of 9.4% is an improvement against the same
period in FY2023 where we reported an underlying operating margin of 9.0%.
Underlying profit before tax is $33.6 million, an increase of 15.5% on the
previous period. Underlying basic earnings per share of 14.9 cents is 3.5%
higher than the comparative period. Statutory profit before tax, which
includes the impact of adjusting items and share-based payment expenses, was
$22.0 million, an increase of 2.3% on the prior period. The underlying
effective tax rate for the period was 22.9% (H1 FY2023: 20.6%), with the
increase due to loss recognition in the comparative period, the impact of
foreign exchange rate movements and the impact of changes in the UK tax rate.
Underlying free cash flow for the first half of the year was $11.9 million (H1
FY2023: $0.1 million) which includes outflows relating to capital investments
to support future growth and interest and tax payments. Net debt excluding
operating leases increased by $64.2 million from the year end, predominantly
due to the acquisition of Murat Ticaret for cash consideration (net of cash
acquired and excluding acquisition costs) of $131.4 million, partially offset
by proceeds of $72.3 million from the equity raise in June 2023. Covenant
leverage, expressed as the ratio of net debt excluding operating leases to
covenant EBITDA, was 1.3x (YE FY2023: 1.0x). This provides headroom for future
investment and acquisition.
Acquisition of Murat Ticaret
On 31 August 2023, Volex completed the acquisition of Murat Ticaret, which
contributed one month's trading to the H1 FY2024 results. Murat Ticaret is a
leading manufacturer of complex wire harnesses for specialist applications,
headquartered in Turkey. It has a global presence with eight manufacturing
sites across three continents, significantly enhancing the Group's scale.
Murat Ticaret represents the Group's largest acquisition to-date, delivering
immediate scale in the Off-Highway sector, a fifth end market, and accelerates
a further diversification of the Group. Murat Ticaret brings a diverse
customer base of blue-chip global manufacturers, with products complementary
to the rest of the Volex Group. This provides the ability to market the full
range of Volex production capabilities to the acquired customer base. There is
also the opportunity to leverage Volex's existing footprint to expand
operations in the fragmented North American Off-Highway market.
Murat Ticaret is a highly profitable business, with an excellent track record
of growth, which will structurally improve the underlying operating margin of
the Group, principally due to its high degree of vertical integration.
Integration into the Volex Group began immediately upon acquisition and is
progressing well, with excellent initial customer engagement. There are
exciting cross-selling opportunities, for which a targeted plan is being
developed.
Murat Ticaret has been acquired for total consideration of €178 million
($193 million) on a cash and debt-free basis, or 5.3x EV/EBITDA on the
assumption that earnout payments are made in full. The consideration includes
potential earn-out payments of up to €41.6 million ($45.8 million) over two
years, subject to the business achieving certain performance conditions.
Interim dividend
The Board has declared an interim dividend of 1.4 pence, an increase of 7.7%
on the previous year. Since the Group recommenced dividend distributions in
FY2020, it has progressively increased payments by 40% in that time. The Board
is 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 10 January 2024 to those shareholders on
the register on 1 December 2023. The ex-dividend date will be 30 November
2023. 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 7 December 2023.
Shareholders who wish to elect to receive the 2023 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 15 December 2023. 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
The Group has a clear strategy to capitalise on its strong position within
specialised manufacturing markets, where Volex's manufacturing footprint and
operational excellence is a clear differentiator. This strategic emphasis is
one of the reasons for choosing to expand into the Off-Highway sector with the
acquisition of Murat Ticaret.
Investment is continuing in key markets where our customers are looking for
increased capacity as they evolve their supply chain practices, including the
prominent trend of reshoring. We recently completed the relocation of our
Poland operations to a newly established facility, doubling our production
space. We also have on-going expansion programmes underway in Mexico,
Indonesia and India. These are locations that we believe will benefit
customers who are looking to diversify and localise their supply chains. In
total we are planning on adding 53 thousand square meters to our manufacturing
footprint during this year and next year.
The identification of potential acquisition opportunities continues to be an
important element of our growth plans. Applying stringent criteria and a
structured methodology, we diligently identify enterprises that offer the
potential to expand our competencies, deepen customer relationships, and
access attractive markets. We remain acutely attuned to the prevailing
macroeconomic landscape, particularly when assessing valuations for
prospective acquisitions.
Our continued focus on sustainable growth in markets with structural growth
drivers gives us confidence that we will be able to deliver on the five-year
strategy of securing revenues of $1.2 billion by the end of FY2027, including
circa $200 million of revenue generated by acquisitions, at an underlying
operating margin of 9-10%.
Revenue by customer sector
Electric Vehicles
Electric Vehicle revenues declined in the first half of the year relative to a
particularly strong comparative period in the first half of FY2023. A year
ago, customers were increasing buffer stock levels to mitigate the effects of
variability in lead times caused by raw material shortages and delays caused
by the availability of international shipping capacity. As these challenges
have abated in recent months, customers have taken the opportunity to reduce
inventory levels which is having an impact on volumes in this sector.
Following the post-covid recovery, monthly demand levels are variable, but
demand is significantly up over the last few years and will continue to grow
as EV penetration increases.
Revenue declined to $57.4 million (H1 FY2023: $69.1 million) which represented
an organic decline of 15.8%. This decline needs to be viewed against a period
of extremely strong growth and represents an expected degree of normalisation
in a relatively new technology. In the past three years, the Group has
achieved compound annual growth of 57.8% which is ahead of the long-term
growth assumptions used in the current five-year plan, and the pipeline for
new business, which includes new programmes that are entering production,
looks particularly encouraging.
During the period, Volex announced that it had become a licensed partner of
Tesla for the North American Charging Standard ("NACS") EV Charging system, an
important point of validation that recognised Volex's position as a trusted
manufacturing partner to the world's leading EV manufacturing companies and
suppliers. The Group also announced that it had secured a major new contract
with a leading, global North American-based automotive manufacturer with
annualised revenues expected to exceed $30 million.
Overall demand for electric vehicles continues to grow, with government
subsidies available for consumers in North American and European markets.
Legislation restricting the sale of internal combustion engine vehicles in
Europe from 2035 is encouraging manufacturers to broaden their range of
battery electric vehicles. These factors continue to suggest double digit
growth in demand for vehicles themselves over the medium term.
Consumer Electricals
Consumer Electricals revenues were down slightly on the prior period at $122.8
million (H1 FY2023: $138.2 million). This represents an organic reduction in
revenue of 9.0%. This includes the impact of lower raw material costs,
including copper, which have an impact on revenue as increases and decreases
are passed through to the customer.
Underlying demand for Consumer Electricals was buoyed during the covid period
as factors such as homeworking and restrictions on leisure activity encouraged
higher consumer spending. A normalisation in demand is coinciding with
improvements in supply chains which is enabling customers to reduce inventory
levels. This process is more progressed in the European domestic appliance
market, where demand is now starting to increase following a temporary
softening in customer requirements in the previous year. In the North American
and Asian Consumer Electricals markets, demand is still subdued, with an
expectation of a moderate recovery in the second half of the year.
Having achieved an incredibly competitive manufacturing base through a
combination of geographic footprint, automation, continuous improvement and
vertical integration, Volex has a very compelling customer proposition, both
in terms of price and the ability to support customers across multiple
markets. This is resulting in winning new customer projects and supports
opportunities for continued growth when customer inventory levels have
normalised.
Medical
Demand in Medical continues to be strong, with customers using improved
availability in components as an opportunity to address backlogs that have
increased in recent periods. Medical customers were unable to access hospitals
during the pandemic and for a period of time afterwards, which caused an
increase in their levels of backlog. This was exacerbated by the variable lead
times and instances of component shortages experienced over the last eighteen
months. Volex has a resilient and reliable supply chain for medical-grade
components, allowing a quick response to customer requirements and the scaling
up of production to meet increased demand.
Revenue increased to $86.1 million (H1 FY2023: $66.8 million) with organic
growth of 17.8%. Longer term, growth levels are expected to moderate once
customers have cleared the current elevated backlogs. The ageing global
population and the trends towards localisation are likely to be the main
drivers of future growth. Volex's global footprint and medical grade
manufacturing facilities ensure we are well positioned to support customers.
Complex Industrial Technology
Improved availability of components was also an important factor in the level
of growth seen for Complex Industrial Technology customers. Organic revenue
grew by 30.1% taking revenues to $100.6 million (H1 FY2023 restated: $74.5
million).
There is a high degree of diversification across this sector both in terms of
customer end markets and capabilities. The breadth of solutions available to
support customers in key strategic locations is also a major advantage in
securing new customer projects and achieving cross-selling opportunities.
A particular highlight during the period has been the acceleration of
production for data centre customers. Data centre sales were being constrained
because customers were finding it hard to secure other key data centre
components to allow them to perform periodic technology refreshes across their
estates. This situation has improved, resulting in higher demand for data
centre products. In addition, increasing investment in artificial intelligence
technology requires intensive data processing, an application that is ideally
suited to the cutting-edge products that Volex has developed.
Off-Highway
Following the acquisition of Murat Ticaret, Volex has immediate scale in the
Off-Highway market and going forward this will be separately disclosed as a
fifth market sector. Off-Highway involves the sale of complex wire harnesses
and power connectivity components and connectors to manufacturers supporting
specialist vehicle markets. The end markets include agricultural equipment,
passenger transportation vehicles such as coaches, construction equipment,
material handling equipment such as lift trucks, as well as specialist defence
vehicles.
Sales from entities in North America and India to Off-Highway customers that
were previously reported within the Complex Industrial Technology have been
reclassified. As such, the prior year has been restated to reflect the new
market sector. Details of this are provided in note 13.
Total Off-Highway revenue was $30.6 million (H1 FY2023 restated: $8.9 million)
with organic growth of 37.6%. The Murat Ticaret acquisition also provides
significant cross-selling opportunities, particularly in the large,
highly-fragmented North American market.
Revenue by reportable segment
Volex is a global, interconnected, and integrated business. There is an
increasing and accelerating requirement from customers to have manufacturing
in multiple locations, reducing the risk of supply chain disruption from any
single country. Our global footprint with manufacturing capabilities in
multiple locations is a significant differentiator in supporting the
objectives of our blue-chip customers.
We operate with a regional focus to meet this need and therefore analyse our
customer revenue geographically on this basis, dependent upon where the
customer relationship is which reflects our customer-centric nature.
North America is our largest customer region at 44.6% of overall revenue (H1
FY2023: 46.9%). Revenue in this market grew by 5.7% in the period to $177.1
million (H1 FY2023: $167.5 million). This includes some of the strong growth
that we experienced from Medical and Complex Industrial Technology customers,
offset by the impact of de-stocking on the Electric Vehicles revenue.
Asia revenue declined by 8.5% to $84.7 million (H1 FY2023 $92.6 million) and
comprises 21.3% of Group revenue (H1 FY2023: 25.9%). With demand levels for
Consumer Electricals being adversely impacted by customers reevaluating
inventory holdings and most of the revenue in this region coming from that
market sector, revenue has decreased year-on-year.
Revenues in Europe grew by 39.3% to $135.7 million (H1 FY2023: $97.4 million)
and now make up 34.1% of Group revenue (H1 FY2023: 27.2%). Of this increase, a
small amount arises from changes in foreign exchange rates. The Group has seen
strong growth across its key customer markets in this region including Medical
and Complex Industrial Technology. The acquisitions of RDS and Murat Ticaret
both contribute to the growth in this segment.
Gross margin
The gross margin in the first half of the year was 22.9% (H1 FY2023: 20.6%),
which was broadly in line with the 22.8% achieved in the second half of
FY2023. With incredibly strong customer relationships, we have negotiated and
agreed incremental price increases on a fair and transparent basis,
maintaining cost competitiveness, while also protecting our margins in this
high-inflationary environment. Inflation resulted in positive movement in
gross margin of 0.3% year-on-year, which was balanced by inflationary costs
within underlying operating expenses.
The post-covid supply chain pressures have continued to ease in the first half
of the year, with component availability improving. This has driven demand for
our more complex products, whilst for our higher volume products this has
caused some end customers to review and reduce inventory levels. The change in
product mix arising from these conditions has provided a benefit of 0.3% to
our gross margins compared to the prior period.
Cost optimisation, including on freight terms, labour efficiency and vertical
integration, had a beneficial impact on gross margins of 0.8%. The acquisition
of RDS and Murat Ticaret improved gross margins by 0.8%. There was also a
small benefit from foreign exchange due to the strength of the dollar which
improved gross margin by 0.1%.
Underlying operating profit
Underlying operating costs increased by $12.3 million to $53.8 million (H1
FY2023: $41.5 million). There was a negative impact of $1.1 million from
changes in foreign exchange rates. Inflationary increases in the labour base
have also increased the underlying operating costs year-on-year, some of which
were passed onto customers, helping the gross margin increase from the prior
year. $4.0 million of the increase was attributable to the acquisitions of RDS
in the second half of FY2023 and Murat Ticaret at the end of August.
The remaining increase reflects business growth and investment in expanding
our capabilities and capacity. Underlying operating costs as a percentage of
revenue have increased in the period from 11.6% in H1 FY2023 to 13.5% due to
inflationary costs, which are partially offset through price increases,
changes in foreign exchange rates and investment to support future growth.
Underlying operating profit increased 16.5% to $37.4 million (H1 FY2023: $32.1
million). This includes the benefit from the organic growth as well as the
acquisitions of RDS and Murat Ticaret. The underlying operating margin for the
first half of the year was 9.4% which is above the underlying operating margin
of 9.0% in H1 FY2023, due to a combination of factors, including the
beneficial impact from the Murat Ticaret acquisition.
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 $11.6 million in the period
(H1 FY2023: $7.6 million). These costs are made up of $5.8 million (H1 FY2023:
$4.3 million) of amortisation of acquisition-related intangible assets, $3.0
million (H1 FY2023: $2.6 million) of share-based payments expense and $2.8
million (H1 FY2023: $0.7 million) of acquisition related costs.
Net finance costs
Net finance costs increased to $5.4 million (H1 FY2023: $3.7 million), despite
average bank debt being lower compared to the prior period, as there has been
an increase in interest rates over the past 18 months. The financing element
for leases for the period was $1.2 million (H1 FY2023: $0.5 million).
During the prior 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
over a four-year period.
Taxation
The underlying tax charge of $7.7 million (H1 FY2023: $6.0 million) represents
an underlying effective tax rate (ETR) of 22.9% (H1 FY2023: 20.6%). The
underlying tax charge is calculated at an entity level using local statutory
tax rates and is affected by the recognition of deferred tax assets, including
the recognition of historical tax losses. As tax losses are utilised in FY2024
and future periods, a deferred tax expense arises which will increase the ETR.
The increase in underlying ETR is primarily attributable to the prior period
ETR benefits from deferred tax asset recognition and the increase in the UK
corporate tax rate from 19% to 25% from 1 April 2023. The ETR was adversely
affected by foreign exchange differences between tax and functional
currencies, but this has been partially offset by the benefits from tax
incentives as a result of the Group's investments in plant and machinery and
R&D in certain territories.
Cash tax paid during the period was $6.6m (H1 FY2023: $3.6m), representing an
underlying cash ETR of 19.6% (H1 FY2023: 12.4%). The increase is due to the
exhaustion of tax losses in an overseas jurisdiction, the receipt of several
tax refunds relating to previous periods during H1 FY2023, and the timing of
payments in certain territories.
Net debt and cash flows
Underlying EBITDA increased by 22.8% to $46.8 million (H1 FY2023: $38.1
million). The Group generated underlying free cash flow of $11.9 million (H1
FY2023: $0.1 million). This included a working capital outflow of $7.9
million, as well as net capital expenditure of $16.0 million and tax and net
interest paid of $10.3 million.
The working capital outflow represents the increase in working capital
required to support the growth in the business less the benefit from
improvements in the supply chain. The extended lead times and instances of
reduced component availability that we were experiencing a year ago, began to
ease in the second half of last year. These supply chain pressures have
continued to improve in the first half of the year, allowing us to reduce
inventory levels comparatively to revenue.
Working capital is kept under close review at both a factory and regional
level and multiple projects are well underway to optimise working capital
balances. Interest payments have increased significantly compared to H1 FY2023
due to interest rates being higher through the period. There has also been an
increase in cash tax partly as a result of the timing of payments and the
requirement to start paying tax in an overseas jurisdiction after fully
utilising brought forward tax losses.
Net debt (before operating lease liabilities) increased from the year end to
$140.6 million ($76.4 million at 2 April 2023) principally driven by the cost
of acquiring Murat Ticaret less cash raised through issuing new shares. The
Group also had operating lease liabilities of $33.1 million ($27.3 million at
2 April 2023). This produces a statutory net debt position of $173.7 million
(FY2023: $103.7 million).
Acquisition strategy
Acquiring high quality businesses for attractive valuations remains a
fundamental component of our strategy. Our methodology involves the
identification of high-performing enterprises within sectors where our
organisation possesses a deep understanding and significant experience. We are
particularly drawn to businesses with strong and long-lasting customer
relationships and established competencies. Our acquisition pipeline is
carefully managed to prioritise opportunities that augment our Group's value
proposition and expand our reach into existing or adjacent markets. In light
of the evolving global supply chain landscape, we also consider the strategic
geographic location of potential targets. We only entertain targets demanding
substantial integration or restructuring when we are comfortable that we have
sufficient availability of requisite managerial resources to oversee these
projects.
In general, our acquisitions should enhance the Group's margin profile. The
process of identifying prospective acquisitions includes businesses not
currently on the market and those already engaged in an active sales process.
Each of these prospects undergoes thorough qualification and subsequent
approval by our investment committee before progressing to the negotiation
phase. Due diligence is initiated only when alignment on the commercial terms
is assured.
With a history of successfully completing twelve acquisitions in the past four
years, totalling an aggregate investment of approximately $400 million, the
Group has developed and refined a well-structured approach and built a
substantial track record of execution.
Integration activities for our latest, and largest acquisition to date, Murat
Ticaret, are progressing well. The acquired business has a strong and robust
operating culture that is focused on delivering high quality production on a
timely basis to a broad range of customers with complex requirements. A number
of improvement areas have been identified in respect of the back-office
operations of the business. With targeted investment in key areas, this should
allow the business to readily adopt the best-in-class manufacturing and
reporting processes deployed across the other operations within the Group.
Investing in our business
With a significant focus on organic growth in the five-year plan, we continue
to make strategic investments in the business. Our investment decisions are
carefully considered, with customer demand and project payback central to the
approval process. As we continue to experience rapid growth and win new
customer projects, we are expanding our production capacity in important
locations. The expansion of our facility in Poland completed in the period,
whilst projects continue in our facilities in India, Mexico and Indonesia.
Our innovative research and development team allows us to deliver exciting new
products and win incremental customer projects, contributing to our revenue
growth. By concentrating on future developments in our high-growth markets and
focusing on activities that add the most value we can successfully partner
with our customers.
Total capital expenditure for the first half of the year was $16.0 million,
slightly higher than the $15.7 million spend in H1 FY2023. More than 90% of
capital expenditure approved in the first half of the year related to projects
that will drive business growth. Our capital investments typically have a
high-level of return, with an average cash payback period for these projects
of 17 months.
Cyber security incident
On 9 October 2023, Volex announced that it had been the subject of a cyber
incident which resulted in unauthorised access to certain IT systems and data,
at some of the Group's international sites. The incident has been well managed
with minimal disruption to operations with all manufacturing sites fully
operational shortly afterwards.
The effective deployment of the Group's established business continuity
strategy minimised customer disruption and there is not expected to be any
material adverse impact to revenue or underlying operating profit because of
the incident. Costs for the recovery and remediation of systems are
anticipated to be approximately $2 million, which will be reported as an
adjusting item in the second half of the year.
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 several 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 FY2023 Annual Report and Accounts on pages 44 to 49, a copy of
which is available on the website at www.volex.com (http://www.volex.com) .
Outlook
Volex has an increasingly diverse end-market exposure providing the Group with
a high degree of resilience throughout our operations. With deep customer
relationships in our chosen markets, which are all supported by robust
structural growth drivers, we are fully confident in delivering our strategic
objectives and ambitious five-year plan.
The recently completed acquisition of Murat Ticaret brings increased
diversification and access to additional customers and markets. Furthermore,
our investments in organic growth initiatives, coupled with the flexibility to
pursue future acquisitions supported by our strong balance sheet, will drive
long-term value creation.
Whilst the Group is cognisant of short-term macroeconomic conditions the Board
remains convinced that our diversified end-market and customer exposure will
continue to mitigate any adverse macro impact and help the Group to deliver
sustainable, long-term growth.
As a result, the Board remains confident in our ability to achieve long-term
objectives and meet full-year market expectations.
Nat
Rothschild
Jon Boaden
Group Executive
Chairman Group
Chief Financial Officer
23 November 2023
23 November 2023
Unaudited Consolidated Income
Statement
For the 26 weeks ended 1 October 2023 (26 weeks ended 2 October 2022)
26 weeks ended 1 October 2023 26 weeks ended 2 October 2022
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 2 397.5 - 397.5 357.5 - 357.5
Cost of sales (306.3) - (306.3) (283.9) - (283.9)
Gross profit 91.2 - 91.2 73.6 - 73.6
Operating expenses (53.8) (11.6) (65.4) (41.5) (7.6) (49.1)
Operating profit 2 37.4 (11.6) 25.8 32.1 (7.6) 24.5
Share of net profit from associates 1.6 - 1.6 0.7 - 0.7
Finance income 0.3 - 0.3 0.1 - 0.1
Finance costs (5.7) - (5.7) (3.8) - (3.8)
Profit on ordinary activities before taxation 33.6 (11.6) 22.0 29.1 (7.6) 21.5
Taxation 4 (7.7) 1.2 (6.5) (6.0) 1.1 (4.9)
Profit for the period 25.9 (10.4) 15.5 23.1 (6.5) 16.6
Profit is attributable to:
Owners of the parent 25.4 (10.3) 15.1 22.8 (6.5) 16.3
Non-controlling interests 0.5 (0.1) 0.4 0.3 - 0.3
25.9 (10.4) 15.5 23.1 (6.5) 16.6
Earnings per share (cents)
Basic 5 14.9 8.8 14.4 10.3
Diluted 5 14.2 8.4 13.7 9.8
Audited Consolidated Income
Statement
For the 52 weeks ended 2 April 2023
52 weeks ended 2 April 2023
Before Adjusting Total
Adjusting items and share based payments items and share-based payments
(note 3)
Notes $'m $'m $'m
Revenue 2 722.8 - 722.8
Cost of sales (565.8) - (565.8)
Gross profit 157.0 - 157.0
Operating expenses (89.7) (13.5) (103.2)
Operating profit 2 67.3 (13.5) 53.8
Share of net profit from associates 1.1 - 1.1
Finance income 0.4 - 0.4
Finance costs (9.5) - (9.5)
Profit on ordinary activities before taxation 59.3 (13.5) 45.8
Taxation (10.7) 2.3 (8.4)
Profit is attributable to:
Owners of the parent 48.0 (11.2) 36.8
Non-controlling interests 0.6 - 0.6
48.6 (11.2) 37.4
Earnings per share (cents)
Basic 5 30.2 23.2
Diluted 5 28.8 22.1
Unaudited Consolidated Statement of Comprehensive Income
For the 26 weeks ended 1 October 2023 (26 weeks ended 2 October 2022)
(Audited)
26 weeks to 26 weeks to 52 weeks to
1 October 2 October 2022 2 April
2023 2023
$'m $'m $'m
Profit for the period 15.5 16.6 37.4
Items that will not be reclassified subsequently to profit or loss:
Actuarial (loss)/gain on defined benefit pension schemes (0.2) 0.5 (0.5)
Tax relating to items that will not be reclassified - (0.1) 0.1
(0.2) 0.4 (0.4)
Items that may be reclassified subsequently to profit or loss:
(Loss)/gain arising on cash flow hedges during the period (1.7) (1.3) 1.4
Exchange loss on translation of foreign operations (5.4) (19.4) (7.0)
Tax relating to items that may be reclassified 1.0 1.8 0.2
(6.1) (18.9) (5.4)
Other comprehensive expense for the period (6.3) (18.5) (5.8)
Total comprehensive income/(expense) for the period is attributable to:
Owners of the parent 8.9 (1.7) 31.6
Non-controlling interests 0.3 (0.2) -
9.2 (1.9) 31.6
Unaudited Consolidated Statement of Financial
Position
As at 1 October 2023 (2 October 2022) (Audited)
1 October 2 October 2022 2 April
Note 2023 $'m 2023
$'m $'m
Non-current assets
Goodwill 153.7 75.3 82.3
Other intangible assets 100.2 41.2 41.8
Property, plant and equipment 82.5 45.6 50.1
Right of use assets 39.4 23.0 34.5
Interests in associates 6.5 2.2 2.6
Other receivables 1.4 1.2 1.8
Derivative financial instruments 2.1 1.3 0.9
Deferred tax assets 25.5 20.3 24.6
411.3 210.1 238.6
Current assets
Inventories 180.4 127.0 120.5
Trade receivables 183.5 142.2 136.2
Other receivables 16.0 13.5 15.7
Current tax assets 0.5 1.1 0.8
Derivative financial instruments 0.3 0.2 0.9
Cash and bank balances 8 47.2 23.0 22.5
427.9 307.0 296.6
Total assets 839.2 517.1 535.2
Current liabilities
Borrowings 8 0.5 - 1.8
Lease liabilities 17.5 5.0 15.6
Trade payables 118.6 93.8 84.4
Other payables 134.4 58.5 65.2
Current tax liabilities 17.3 10.6 14.5
Retirement benefit obligation 0.4 0.3 0.3
Provisions 3.2 1.7 0.9
Derivative financial instruments 2.2 2.5 -
294.1 172.4 182.7
Net current assets 133.8 134.6 113.9
Non-current liabilities
Borrowings 8 181.4 115.9 89.6
Non-current lease liabilities 21.5 19.1 19.2
Other payables 1.5 0.9 1.4
Deferred tax liabilities 23.3 6.1 6.9
Retirement benefit obligation 5.1 1.7 2.3
Provisions 0.4 0.1 0.4
233.2 143.8 119.8
Total liabilities 527.3 316.2 302.5
Net assets 311.9 200.9 232.7
Equity attributable to owners of the parent
Share capital 6 69.5 62.7 62.7
Share premium account 62.1 60.7 60.7
Non-distributable reserve 2.5 2.5 2.5
Hedging and translation reserve (20.6) (28.2) (14.6)
Own shares 7 (1.0) (2.2) (1.0)
Retained earnings 191.5 98.2 115.0
Total attributable to owners of the parent 304.0 193.7 225.3
Non-controlling interests 7.9 7.2 7.4
Total equity 311.9 200.9 232.7
Unaudited Consolidated Statement of Changes in Equity
For the 26 weeks ended 1 October 2023 (26 weeks ended 2 October 2022)
Share capital Share premium account Hedging and Own shares Retained earnings Equity attribut-able to owners
trans-lation reserve
Non-distribut-able reserves Non-cont-rolling interests
Total equity
$'m $'m $'m $'m $'m $'m $'m $'m $'m
Balance 2 April 2023 62.7 60.7 2.5 (14.6) (1.0) 115.0 225.3 7.4 232.7
Profit for the period - - - - - 15.1 15.1 0.4 15.5
Other comprehensive (expense)/income for the period - - - (6.0) - (0.2) (6.2) (0.1) (6.3)
Total comprehensive (expense)/income for the period - - - (6.0) - 14.9 8.9 0.3 9.2
Business combination - - - - - - - 0.2 0.2
Own shares sold/(utilised) in the period - - - - 1.2 (1.2) - - -
Own shares purchased in the period - - - - (1.2) - (1.2) - (1.2)
Dividend - - - - - (6.1) (6.1) - (6.1)
Scrip dividend related share issue 0.1 (0.1) - - - 1.8 1.8 - 1.8
Shares issued 6.7 1.5 - - - 64.1 72.3 - 72.3
Reserve entry for share option charges - - - - - 2.5 2.5 - 2.5
Tax effect of share options - - - - - 0.5 0.5 - 0.5
Balance at 1 October 2023 69.5 62.1 2.5 (20.6) (1.0) 191.5 304.0 7.9 311.9
Unaudited Consolidated Statement of Changes in Equity (continued)
For the 26 weeks ended 1 October 2023 (26 weeks ended 2 October 2022)
Share capital Share premium account Non-distribut-able reserves Hedging and Own shares Retained earnings Equity attribut-able to owners
trans-lation reserve
Non-controll-ing 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 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 1 October 2023 (26 weeks ended 2 October 2022)
(Audited)
26 weeks to 26 weeks to 52 weeks to
1 October 2 October 2022 2 April
Notes 2023 2023
$'m $'m $'m
Profit for the period 15.5 16.6 37.4
Adjustments for:
Finance income (0.3) (0.1) (0.4)
Finance costs 5.7 3.8 9.5
Income tax expense 6.5 4.9 8.4
Share of net profit from associates (1.6) (0.7) (1.1)
Depreciation of property, plant and equipment 5.0 3.8 8.2
Depreciation of right-of-use asset 3.4 1.8 4.8
Amortisation of intangible assets 6.8 4.7 10.2
Loss on disposal of property, plant and equipment - - 0.1
Share option charge 3.0 2.6 3.7
Contingent consideration adjustment (1.3) - (1.3)
Decrease in provisions (0.9) (1.0) (1.1)
Operating cash flow before movements in working capital 41.8 36.4 78.4
Increase in inventories (16.3) (12.5) (0.2)
Increase in receivables (5.4) (27.4) (15.4)
Increase in payables 16.1 17.7 7.0
Movement in working capital (5.6) (22.2) (8.6)
Cash generated by operations 36.2 14.2 69.8
Cash generated by operations before adjusting items 38.0 15.8 72.0
Cash utilised by adjusting items (1.8) (1.6) (2.2)
Taxation paid (6.6) (3.6) (7.9)
Interest paid (4.0) (2.4) (6.2)
Net cash generated from operating activities 25.6 8.2 55.7
Cash flow from investing activities
Interest received 0.3 0.1 0.3
Acquisition of businesses, net of cash acquired (131.4) - (5.1)
Contingent consideration for businesses acquired (2.2) (7.5) (7.1)
Proceeds on disposal of property, plant and equipment 0.3 0.1 0.1
Purchases of property, plant and equipment (14.3) (8.1) (14.4)
Purchases of intangible assets (2.0) (2.0) (3.9)
Purchase of shares in associate (2.3) - -
Proceeds from the repayment of preference shares 0.2 0.2 0.3
Net cash used in investing activities (151.4) (17.2) (29.8)
Cash flow before financing activities (125.8) (9.0) 25.9
Cash generated/(used) before adjusting items (124.0) (7.4) 28.1
Cash utilised in respect of adjusting items (1.8) (1.6) (2.2)
Unaudited Consolidated Statement of Cash Flows (continued)
For the 26 weeks ended 1 October 2023 (26 weeks ended 2 October 2022)
(Audited)
26 weeks to 26 weeks to 52 weeks to
1 October 2 October 2022 2 April
Notes 2023 2023
$'m $'m $'m
Cash flow before financing activities (125.8) (9.0) 25.9
Cash flow from financing activities
Dividend paid (4.3) (3.3) (5.7)
Net purchase of shares for share schemes (1.2) (3.5) (7.2)
Refinancing costs paid (0.3) - (0.5)
New bank loan raised 105.6 19.0 25.0
Repayment of borrowings (15.2) (2.3) (35.3)
Proceeds on issue of shares 72.3 - -
Outflow from factoring - (0.7) (0.7)
Interest element of lease payments (1.2) (0.5) (1.7)
Receipt from lease debtor 0.1 0.2 0.5
Capital element of lease payments (4.1) (2.1) (5.8)
Net cash generated from/(used in) financing activities 151.7 6.8 (31.4)
Net increase/(decrease) in cash and cash equivalents 8 25.9 (2.2) (5.5)
Cash and cash equivalents at beginning of period 8 20.7 25.9 25.9
Effect of foreign exchange rate changes 8 0.6 (0.7) 0.3
Cash and cash equivalents at end of period 8 47.2 23.0 20.7
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 2 April 2023, 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 1 October
2023 ('H1 FY2024') and the 26 weeks ended 2 October 2022 ('H1 FY2023') has not
been reviewed by the auditors. The financial information for the 52 weeks
ended 2 April 2023 ('FY2023') is extracted and abridged from the Group's full
accounts for that year. The statutory accounts for FY2023 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 23 November 2023.
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 2 April 2023 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 2 April 2023, which were prepared in accordance with UK-adopted
international accounting standards and the requirements of the Companies
Act 2006.
Going Concern
As at 1 October 2023 the Group had net debt of $173.7m with undrawn committed
borrowing available under its revolving credit facility of $59.3m (FY2023:
$107.8m).
The Group's forecast and projections, taking reasonable account of possible
changes in trading performance, 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
The following standards, with an effective date of 1 January 2023, have been
adopted without any significant impact on the amounts reported in these
financial statements:
- IFRS 17 Insurance Contracts
- Definition of Accounting Estimates - Amendments to IAS 8
- Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice
Statement 2
- Deferred Tax related to Assets and Liabilities arising from a Single
Transaction - Amendments to IAS 12
- Lease Liability in a Sale and Leaseback - Amendments to IFRS 16
- Classification of Liabilities as Current or Non-current and Non-current
Liabilities with Covenants - Amendments to IAS 1
- Amendments to IAS 12 International Tax Reform Pillar Two Model Rule
The Group has not early adopted any standard, interpretation or amendment that
was issued but is not yet effective. The Group is assessing any potential
implication, but currently do not expect a material impact on the Group.
2. Business and geographical segments
Business segments
The internal reporting provided to the Executive members of the Group'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 to where products are delivered. In addition
to the operating divisions, a Central division exists to capture all 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 1 October 2023 26 weeks to 2 October 2022
Revenue Profit/(loss) Revenue Profit/(loss)
$'m $'m $'m $'m
North America 177.1 17.0 167.5 16.1
Asia 84.7 4.7 92.6 5.1
Europe 135.7 19.5 97.4 14.2
Unallocated central costs (excluding share-based payments) (3.8) (3.3)
Divisional results before share-based payments and adjusting items 397.5 37.4 357.5 32.1
Adjusting items (8.6) (5.0)
Share-based payments (3.0) (2.6)
Operating profit 25.8 24.5
Share of net profit from associates 1.6 0.7
Finance income 0.3 0.1
Finance costs (5.7) (3.8)
Profit before tax 22.0 21.5
Tax (6.5) (4.9)
Profit after tax 15.5 16.6
2. Business and geographical segments (continued)
52 weeks to 2 April 2023
Revenue Profit/(loss)
$'m $'m
North America 339.8 30.9
Asia 171.4 12.5
Europe 211.6 31.5
Unallocated central costs (excluding share-based payments) (7.6)
Divisional results before share-based payments and Adjusting items 722.8 67.3
Adjusting items (9.8)
Share-based payments (3.7)
Operating profit 53.8
Share of net profit from associates 1.1
Finance income 0.4
Finance costs (9.5)
Profit before tax 45.8
Tax (8.4)
Profit after tax 37.4
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 $8.6m (H1
FY2023: $5.0m, FY2023: $9.8m) was split $1.9m (H1 FY2023: $2.4m, FY2023:
$4.8m) to North America, $6.5m (H1 FY2023: $2.2m, FY2023: $3.7m) to Europe,
$0.2m (H1 FY2023: $0.4m, FY2023: $0.3m) to Asia and $nil to central (H1
FY2023: $nil, FY2023: $1.0m).
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
1 October 2 October 2 April 1 October 2 October 2 April
2023 2022 2023 2023 2022 2023
$'m $'m $'m $'m $'m $'m
Geographical segments
North America 167.5 339.8 53.2 52.2 51.4
177.1
Asia 84.7 92.6 171.4 64.8 49.7 59.0
Europe 135.7 97.4 211.6 267.8 87.9 103.6
397.5 357.5 722.8 385.8 189.8 214.0
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
1 October 2 October 2 April
2023 2022 2023
$'m $'m $'m
Amortisation of acquired intangibles 5.8 4.3 8.9
Acquisition-related costs 3.2 0.7 1.3
Acquisition-related remuneration 0.9 - 0.9
Adjustments to fair value of contingent consideration (1.3) - (1.3)
Total adjusting items 8.6 5.0 9.8
Share-based payments charge 3.0 2.6 3.7
Total adjusting items and share-based payments before tax 11.6 7.6 13.5
Adjusting items tax credit (1.2) (1.1) (2.3)
Adjusting items and share-based payments after tax 10.4 6.5 11.2
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 FY2024,
the amortisation charge on these intangible assets totalled $5.8m (H1 FY2023:
$4.3m, FY2023: $8.9m).
Acquisition-related costs of $3.2m (H1 FY2023: $0.7m, FY2023: $1.3m) are
mainly related to the acquisition of Murat Ticaret. These costs represented
legal and professional fees associated with the transaction. In the prior
year, the Group's acquisition-related costs of $1.3m consists of legal and
professional fees related to potential and completed acquisitions.
There was a $1.3m remeasurement of contingent consideration during the period
(H1 FY2023: $nil, FY2023: $1.3m).
4. Tax charge
The Group's income tax expense for the period was $6.5 million (H1 FY2023:
$4.9 million), representing an effective tax rate ("ETR") of 29.5% (H1 FY2023:
22.8%). The increase in statutory ETR was mainly caused by adjusting items,
including non-deductible acquisition-related expenses, and the increase in the
Turkish headline corporate tax rate from 20% to 25% which increased the
deferred tax liability in respect of intangible assets acquired in previous
years.
The underlying tax charge of $7.7 million (H1 FY2023: $6.0 million) represents
an underlying ETR of 22.9% (H1 FY2023: 20.6%). The underlying tax charge is
calculated by reference to the taxable profits in each individual entity and
the local statutory tax rates and is affected by the recognition of deferred
tax assets as required by IFRS primarily in respect of unused tax losses. In
FY2023, deferred tax assets were fully recognised in a key jurisdiction which
reduced the FY2023 ETR. As the recognised tax losses are utilised in FY2024
and future periods, a deferred tax expense arises in respect of the profits
which have been offset by the tax losses, thereby normalising the ETR.
The increase in underlying ETR is primarily attributable to the prior period
ETR benefits from deferred tax asset recognition and the increase in the UK
corporate tax rate from 19% to 25% from 1 April 2023. The ETR was again
adversely affected by foreign exchange differences between tax and functional
currencies, but this has been partially offset by the benefits from tax
incentives as a result of the Group's investments in plant and machinery and
R&D in certain territories.
Cash tax paid during the period was $6.6m (H1 FY2023: $3.6m), representing an
underlying cash ETR of 19.6% (H1 FY2023: 12.4%). The increase is due to the
Group's historical tax losses being fully utilised in a major jurisdiction,
the receipt of several tax refunds relating to previous periods during H1
FY2023, and the timing of payments in certain territories.
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 and transfer pricing.
As at 1 October 2023, the Group has net current tax liabilities of $16.8
million (FY2023: $13.7 million) which include $10.7 million (FY2023: $10.4
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 $25.5 million (FY2023:
$24.6 million) and deferred tax liabilities of $23.3 million (FY2023: $6.9
million). The increase in deferred tax liabilities is driven by the
acquisition of Murat Ticaret, primarily arising from the acquired identifiable
intangible assets.
On 11 July 2023 Finance (No. 2) Act 2023 was enacted in the UK, which contains
the UK's legislation in relation to a new tax framework which is part of the
Organisation for Economic Co-operation and Development (OECD) Base Erosion and
Profit Shifting (BEPS) initiative. This introduces a global minimum effective
tax rate of 15% for large multinational groups, effective for accounting
periods beginning on or after 31 December 2023. On 27 September 2023, the UK
Government published additional updated draft legislation, for technical
consultation, relating to these rules. The Group monitors income tax
developments in the territories in which it operates, as well as the
applicable accounting standards, to understand their potential future impacts.
The Group has applied the exemption under the IAS 12 amendment to recognising
and disclosing information about deferred tax assets and liabilities related
to top-up income taxes.
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 1 October 2 October 2 April
2023 2022 2023
$'m $'m $'m
Earnings attributable to the ordinary equity holders of the company for the 15.1 16.3 36.8
purpose of basic earnings per share
Adjustments for:
Adjusting items 8.5 5.0 9.8
Share-based payments charge 3.0 2.6 3.7
Tax effect of above adjustments and other adjusting item tax movements (1.2) (1.1) (2.3)
Underlying earnings 25.4 22.8 48.0
Weighted average number of ordinary shares No. shares No. shares No. shares
Weighted average number of ordinary shares for the purpose of basic earnings 170,546,699 158,522,434 158,681,078
per share
Effect of dilutive potential ordinary shares - share options 8,024,110 8,243,213 7,896,423
Weighted average number of ordinary shares for the purpose of diluted earnings 178,570,809 166,765,647 166,577,501
per share
Basic earnings per share Cents Cents Cents
Basic earnings per share from continuing operations 8.8 10.3 23.2
Adjustments for:
Adjusting items 5.0 3.2 6.1
Share-based payments charge 1.8 1.6 2.3
Tax effect of above adjustments and other adjusting items tax movements (0.7) (0.7) (1.4)
Underlying basic earnings per share 14.9 14.4 30.2
Diluted earnings per share Cents Cents Cents
Diluted earnings per share 8.4 9.8 22.1
Adjustments for:
Adjusting items 4.8 3.0 5.9
Share-based payments charge 1.7 1.6 2.2
Tax effect of above adjustments and other adjusting items tax movements (0.6) (0.7) (1.4)
Underlying diluted earnings per share 14.2 13.7 28.8
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
1 October 2023 2 October 2022 2 April
$'m $'m 2023
$'m
Issued and fully paid:
181,403,737 (FY2023: 159,107,085) 69.5 62.7 62.7
Ordinary shares of 25p each
Shareholders were able to elect to receive ordinary shares in place of the
final dividend for the 52 weeks to 2 April 2023. This resulted in the issue of
478,471 (H1 FY2023: 377,615, FY2023: 388,376) new fully paid ordinary shares.
On 22 June 2023, the Group completed an equity raise to raise finances for the
completion of the acquisition of Murat Ticaret. The Group issued 21,818,181
new ordinary shares of 25 pence each, comprising the 'Placing Shares' and the
'Retail Offer Shares' (together, the 'equity raise'). The shares were issued
at a price of 275 pence per share, representing a discount of 3.8% to the
closing share price of 286 pence per share on 21 June 2023. In aggregate, the
equity raise represented gross proceeds of £60.0m ($74.0m) and net proceeds
of £58.6m ($72.3m).
The 21,304,186 Placing Shares were issued for non-cash consideration by way of
a 'cash box' structure. This involved a newly incorporated subsidiary of the
company ('Cash Box'). This structure involved the issue of ordinary and
preference shares by Cash Box to one of the brokers advising the company in
respect of the equity raise. These preference and ordinary shares were
subsequently acquired by the company and the preference shares were redeemed
by Cash Box. The acquisition by the company of the ordinary shares in Cash Box
held by the broker resulted in the company securing over 90% of the equity
share capital of Cash Box. The company was therefore able to rely on Section
612 of the Companies Act 2006, which provides relief from the requirements
under Section 610 of the Companies Act 2006 to create a share premium account.
Therefore, no share premium was recorded in relation to the Placing Shares.
The premium over the nominal value of the Placing Shares was credited to a
merger reserve and subsequently recognised in retained earnings. The merger
reserve created was determined to be distributable for the purposes of the
Companies Act 2006. Certain Directors of the company participated in the
equity raise via the Placing Shares, subscribing for (in aggregate) 5,461,088
Placing Shares.
Retail investors were able to participate in the equity raise on the same
terms as institutional investors via the retail offer, which was available
through a number of intermediaries. A total of 513,995 Retail Offer Shares
were issued and Share Premium of $1.5m was recognised.
7. Own shares
(Audited)
26 weeks to 26 weeks to 52 weeks to
1 October 2023 2 October 2 April
$'m 2022 2023
$'m $'m
At the beginning of the period 1.0 0.2 0.2
Disposed of in the period on exercise of options (1.2) (1.7) (4.2)
Purchase of shares 1.2 3.7 5.0
At end of the period 1.0 2.2 1.0
The own shares reserve represents the cost of shares in the Company held by
the Volex Group PLC Employees' Share Trust ('EBT') to satisfy future share
option exercises under the Group's share option schemes.
During H1 FY2024 the EBT purchased 350,000 shares at a cost of $1.2m. During
the period 336,747 shares were utilised on the exercise of share awards. The
number of ordinary shares held by the EBT at 1 October 2023 was 247,231 (H1
FY2023: 577,360, FY2023: 233,978).
8. Analysis of net debt
Other
non-cash changes 1 October
2 April Business comb-inations New Cash Exchange movement $'m $'m 2023
2023 $'m leases flow $'m
$'m $'m $'m
Cash & cash equivalents 20.7 16.1 - 9.8 0.6 - 47.2
Bank loans (91.5) (4.0) - (90.4) 2.2 - (183.7)
Debt issue costs 1.9 - - 0.3 - (0.4) 1.8
Lease liability (34.8) (6.5) (2.3) 5.3 0.5 (1.2) (39.0)
Net debt (103.7) 5.6 (2.3) (75.0) 3.3 (1.6) (173.7)
1 October 2023 2 October 2022 2 April
$'m $'m 2023
$'m
Cash and bank balances 47.2 23.0 22.5
Overdrafts - - (1.8)
Cash and cash equivalents 47.2 23.0 20.7
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.
On 3 April 2023 the Group acquired an additional 8.3% in Kepler SignalTek
Limited for $2.3m, increasing its shareholding to 35.7%. The entity continues
to be accounted for as an associate. During the period the Group accrued
financial income of $nil on the preference shares (H1 FY2023: $0.1m, FY2023:
$0.2m). The balance due from the associate as at the period end date was $1.5m
(H1 FY2023: $1.8m, FY2023: $1.7m).
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 FY2023: $0.1m, FY2023: $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 FY2023 and in line with the Director shareholding
notices disclosed on the Volex website (www.volex.com (http://www.volex.com)
).
10. Business Combination
On 31 August 2023 the Group completed the acquisition of 100% of the share
capital of Murat Ticaret Kablo A.Ş. ('Murat') a leading manufacturer of
complex wire harnesses, headquartered in Turkey. The acquisition expands the
Group presence in the off-highway sector with operations on three continents
and eight manufacturing sites.
The purchase has been accounted for as a business combination. Details of the
purchase consideration, the net assets acquired and goodwill are as follows:
Provisional Fair value of consideration transferred $'m
Initial cash 159.6
Deferred consideration 6.0
Contingent consideration 39.8
Total purchase consideration 205.4
Initial cash includes the initial consideration and the estimated working
capital adjustment payable. Deferred consideration is the fair value of future
committed payments.
The contingent consideration is dependent upon certain EBITDA targets being
met post-acquisition over two one-year measurement periods. The fair value
above has been based on the probable outcome of each based upon the
information available at 1 October 2023.
An exercise has been conducted to assess the provisional fair values of assets
acquired and liabilities assumed. This exercise identified customer
relationships and order backlog intangible assets. Property, plant and
equipment are currently undergoing external valuation.
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
$'m
Identifiable intangible assets 65.1
Property, plant and equipment 23.6
Right-of-use asset 6.5
Inventories 45.3
Trade receivables 40.5
Trade payables (27.3)
Other debtors and creditors (8.5)
Loans (4.0)
Provisions (2.3)
Cash 16.1
Deferred taxes (17.4)
Lease liabilities (6.5)
Total identifiable assets 131.1
Less non-controlling interest (0.2)
Goodwill 74.5
Consideration 205.4
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 assets and goodwill and a possible adjustment to the amortisation
charge shown in the income statement. The non-controlling interest has been
initially measured at fair value.
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.
None of the goodwill recognised is expected to be deductible for income tax
purposes.
In H1 FY2024, Murat contributed $18.9m to Group revenue, $3.3m to adjusted
operating profit and $1.4m to statutory operating profit. Associated
acquisition costs of $3.2m and intangible asset amortisation of $2.1m have
both been expensed as adjusting items in the period.
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
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.
12. Events after the balance sheet date
There are no disclosable events after the balance sheet date.
13. Alternative performance measures
The Group makes use of underlying and other alternative performance measures
in addition to the measures set out in International Financial Reporting
Standards.
Underlying operating profit and Underlying EBITDA
Underlying operating profit is defined as operating profit excluding adjusting
items and share-based payments. Underlying EBITDA is defined as underlying
operating profit adjusted for depreciation and amortisation. The Group uses
Underlying operating profit and Underlying EBITDA to present meaningful
year-on-year comparisons. The reconciliation between Operating profit and
Underlying operating profit and Underlying EBITDA is presented below.
1 October 2023 2 October 2022 2 April 2023
$'m $'m $'m
Operating profit 25.8 24.5 53.8
Add back:
Adjusting operating items 8.6 5.0 9.8
Share-based payments charge 3.0 2.6 3.7
Underlying operating profit 37.4 32.1 67.3
Depreciation of property, plant and equipment 5.0 3.8 8.2
Depreciation of right-of-use assets 3.4 1.8 4.8
Amortisation of intangible assets not acquired in business combination 1.0 0.4 1.3
Underlying EBITDA 46.8 38.1 81.6
Underlying basic earnings per share and underlying diluted earnings per share
Underlying basic earnings per share is defined by the profit attributable to
the owners of the parent company excluding adjusting items divided by the
weighted average number of share in issue during the year. Underlying diluted
earnings per share is adjusts the basic earnings per share by the effect of
dilutive potential share options as at the period end date. Both metrics are
reconciled to statutory measures in note 5.
Organic growth
The Group has undertaken twelve acquisitions in the past six years and
management use organic revenue growth so that meaningful year-on-year
comparisons can be made.
Organic revenue growth is calculated using constant exchange rates 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.
Electric Vehicles Consumer Electricals Medical Complex Industrial Technology Off-Highway Total
$'m $'m $'m $'m $'m $'m
Revenue
26 weeks to 2 October 2022 reported 69.1 138.2 66.8 83.4 - 357.5
Restatement * - - - (8.9) 8.9 -
26 weeks to 2 October 2022 restated 69.1 138.2 66.8 74.5 8.9 357.5
FX impact (0.9) (3.3) 1.7 - (0.4) (2.9)
68.2 134.9 68.5 74.5 8.5 354.6
Organic growth (10.8) (12.1) 12.2 22.4 3.2 14.9
Organic growth % (15.8%) (9.0%) 17.8% 30.1% 37.6% 4.2%
Acquisitions - - 5.4 3.7 18.9 28.0
26 weeks to 1 October 2023 57.4 122.8 86.1 100.6 30.6 397.5
* Upon acquisition of Murat Ticaret we gained scale in the Off-Highway market,
allowing us to launch a new fifth market sector. Previously we reported sales
to Off-Highway customers from our sites in North America and India within
Complex Industrial Technology, this has been restated to ensure comparability
going forwards.
Covenant leverage
The Group has a $240 million committed facility together with an additional
$60 million uncommitted accordion.
The terms of the RCF require the Group to perform quarterly financial covenant
calculations with respect to leverage (net debt (before operating lease
liabilities) to covenant EBITDA) and interest cover (covenant EBITDA to
covenant interest). Breach of these covenants could result in cancellation of
the facility. Net debt (before operating lease liabilitites) in the financial
statements is defined as net debt excluding lease liabilities but including
pre-IFRS 16 finance leases. Covenant EBITDA is defined as underlying EBITDA
adjusted for depreciation of right-of-use assets and the last twelve months
prorated EBITDA from acquisitions.
Note 1 October 2023 2 October 2022 2 April 2023
$'m $'m $'m
Net debt 8 (173.7) (117.0) (103.7)
Lease liabilities 8 39.0 24.1 34.8
Finance leases (5.9) (5.9) (7.5)
Net debt (before operating lease liabilities) (140.6) (98.8) (76.4)
Underlying EBITDA 90.4 72.4 81.6
Depreciation of right-of-use assets (6.4) (3.7) (4.8)
Prorated acquired EBITDA 27.6 1.1 1.6
Covenant EBITDA 111.6 69.8 78.4
Covenant leverage 1.3x 1.4x 1.0x
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