REG - Volex PLC - Preliminary Announcement of Volex plc results <Origin Href="QuoteRef">VLX.L</Origin> - Part 2
09/06/2016 07:06
- Part 2: For the preceding part double click ID:nRSI6800Aa
report on those financial
statements is unqualified and does not contain any statement under section 498
(2) or 498 (3) of the Companies Act 2006.
Information in this preliminary announcement does not constitute statutory
accounts of the Group within the meaning of section 434 of the Companies Act
2006. The full financial statements for the Group for the 53 weeks ended 5
April 2015 have been delivered to the Registrar of Companies. The independent
auditor's report on those financial statements was unqualified and did not
contain a statement under section 498 (2) or 498 (3) of the Companies Act
2006.
Going concern
The key terms of the Group's revolving credit facility, through which it will
meet its day to day working capital requirements, are shown in Note 6.
Following a post year end amendment and extension to the facility, it is
available until June 2018 and requires quarterly covenant tests to be
performed in relation to leverage and interest cover.
The Group's forecast and projections, taking reasonable account of possible
changes in trading performance, show that the Group should operate within the
level of the proposed facility for at least 12 months from the date of this
announcement and should comply with covenants over this period. The Group also
has access to and uses additional uncommitted facilities. Further the Group
has a number of mitigating actions available to it should actual performance
fall below the current financial forecasts. The Directors have the financial
controls and monitoring available to them to put in place those mitigating
actions in a timely fashion if they see the need to do so. The Directors
therefore believe that the Group is well placed to manage its business within
its covenants.
The Directors have, at the time of approving the financial statements, a
reasonable expectation that the Company and the Group have adequate resources
to continue in operational existence for at least 12 months from the date of
these accounts. Accordingly, they continue to adopt the going concern basis
in preparing the Annual Report and financial statements.
This preliminary announcement was approved by the Board of Directors on 9 June
2016.
2. Business and geographical segments
Operating segments
The internal reporting provided to the Group's Board for the purpose of
resource allocation and assessment of Group performance is based upon the
nature of the products supplied. In addition to the operating divisions, a
Central division exists to capture all of the corporate costs incurred in
supporting the operations.
Power Cords The sale and manufacture of electrical power products to manufacturers of electrical / electronic devices and appliances. These include laptop / desktop computers, printers, televisions, power tools and floor cleaning equipment.
Cable Assemblies The sale and manufacture of cables permitting the transfer of electronic, radio-frequency and optical data. These cables can range from simple USB cables to complex high speed cable assemblies. Data cables are used in numerous devices including medical equipment, data centres, telecoms networks and the automotive industry.
Central Corporate costs that are not directly attributable to the manufacture and sale of the Group's products but which support the Group in its operations. Included within this division are the costs incurred by the executive management team and the corporate head office.
The Board believes that the segmentation of the Group based upon product
characteristics allows it to best understand the Group's performance and
profitability.
52 weeks to 3 April 2016 53 weeks to 5 April 2015
Revenue Profit / (loss) Revenue Profit / (loss)
$'000 $'000 $'000 $'000
Power Cords 230,205 2,293 273,655 5,390
Cable Assemblies 137,329 9,842 149,754 11,197
Unallocated central costs - (4,963) - (7,755)
Divisional results before share-based payments and non-recurring items 367,534 7,172 423,409 8,832
Non-recurring operating items (4,742) (12,528)
Share-based payment credit / (expense) 1,009 (857)
Operating profit / (loss) 3,439 (4,553)
Finance income 18 40
Finance costs (1,915) (2,666)
Profit / (loss) before tax 1,542 (7,179)
Taxation (3,854) (3,529)
Profit / (loss) after tax (2,312) (10,708)
Credits / charges for share-based payments and non-recurring items have not
been allocated to divisions as management report and analyse division
profitability at the level shown above.
Geographical segments
The Group's revenue from external customers and information about its
non-current assets (excluding deferred tax assets) by geographical location
are provided below:
Revenue Non-Current Assets
2016$'000 2015$'000 2016$'000 2015$'000
Asia (excluding India) 225,053 259,940 32,068 33,709
North America 80,802 86,676 1,532 1,390
Europe 50,305 59,690 3,614 4,229
India 6,878 8,370 897 584
South America 4,496 8,733 493 624
367,534 423,409 38,604 40,536
3. Non-recurring items
2016$'000 2015$'000
Restructuring costs 2,693 5,223
Impairment / product portfolio realignment 1,498 5,825
Movement in onerous lease provisions 1,151 1,110
Provision for historic sales tax claims (600) 102
Financing - 72
Other - 196
Total non-recurring items 4,742 12,528
During the current year, the Group has incurred $2,693,000 (2015: $5,223,000)
of restructuring spend after it became apparent that trading fell below that
forecast and required to support the cost base of the Group. The
non-recurring cost can be split into several distinct elements:
· An executive and senior management change element of $1,321,000 (2015:
$711,000). The current period charge relates to the departure of the Group
Chief Executive Officer, the removal of the divisional management structure
and the removal of certain other executive management positions (e.g. Chief
Information Officer). In the prior period, the charge related to the
departure of the Chief Financial Officer and recruitment to the divisional
management teams.
· An operational element of $1,372,000 (2015: $3,556,000) which included
reductions to the direct and indirect manufacturing headcount in a number of
our factories following the downturn in volumes, the removal of certain
middle-management roles and targeted costs associated with right-sizing our
Brazil operations. The prior year charge included significant investment in
the sales function, the up-skilling of certain factory managers, the removal
of certain middle management roles throughout the organisation and costs
associated with down-sizing certain operations
· In the prior year a business process review element of $956,000 to
determine potential upgrades to the ERP system. Given the reduced Group
profitability, plans to replace the ERP system have been suspended.
Following the downturn in performance (particularly in the Power Cords
division) and the subsequent deterioration in the share price, a Group wide
impairment review was performed on the Group's fixed assets. As a result of
this $1,498,000 of property, plant and equipment has been impaired in the
year. $900,000 of this charge is in relation to the Power Cords division
where forecast profitability of certain product lines was insufficient to
support the associated fixed asset cost base and certain assets have been
deemed surplus to requirements. In the Cable Assemblies division $598,000 of
impairment charge has been recorded following management's decision to scale
back certain operations.
In the prior period, the Group suspended development of its Active Optical
Cables ('AOC') proposition. Under the requirements of IAS 36 'Impairment of
Assets' the recoverable amount of the AOC development asset was assessed and
it was determined to be lower than the carrying value. As a result an
impairment charge of $4,308,000 was booked. Similarly all software and
tangible fixed assets which were deemed specific to the AOC project were
reviewed for impairment and a further charge of $789,000 was processed. Future
contracted costs associated with AOC (including purchase commitments and an
onerous lease on the AOC development facility) were also provided for
totalling $707,000 and severance payments to AOC development engineers of
$21,000 were paid.
The Group has incurred an onerous lease charge in the period of $1,151,000
(2014: $1,110,000) following a revision to underlying assumptions included in
the provision calculation. These assumptions include a potential sub-let
within the onerous lease period and as a result of the on-going vacancy, this
assumption has been revised in light of the latest independent market
information.
Several years ago, the Group booked a $1,100,000 provision against a
recoverable sales tax asset held in its Indian subsidiary since doubt existed
over the full recovery of this asset. Subsequent to this decision, the Indian
subsidiary's trading performance has exceeded the then forecast. As a
consequence, a greater amount of the asset has been recovered then initially
believed possible. Following review of future recovery, the release of
$600,000 was deemed reasonable.
The prior year $102,000 non-recurring charge for historic sales tax claims
related to the Philippines and covered the period January 2011 to March 2014.
4. Taxation
2016 2015
$'000 $'000
Current tax - charge for the period 3,376 3,062
Current tax - adjustment in respect of previous periods 452 605
Total current tax 3,828 3,667
Deferred tax 26 (138)
Income tax expense 3,854 3,529
5. Earnings / (loss) per ordinary share
The calculations of the earnings / (loss) per share are based on the following
data:
Earnings / (loss) 2016 2015
$'000 $'000
Profit / (loss) for the purpose of basic and diluted earnings / (loss) per share being net profit attributable to equity holders of the parent (2,312) (10,708)
Adjustments for:
Non-recurring items 4,742 12,528
Share-based payments (credit) / charge (1,009) 857
Tax effect of above adjustments (88) (308)
Underlying earnings / (loss) 1,333 2,369
No. shares No. shares
Weighted average number of ordinary shares for the purpose of basic earnings per share 88,956,532 83,585,697
Effect of dilutive potential ordinary shares / share options 27,370 184,697
Weighted average number of ordinary shares for the purpose of diluted earnings per share 89,983,902 83,770,394
2016 2015
Basic earnings / (loss) per share Cents Cents
Basic earnings / (loss) per share (2.6) (12.8)
Adjustments for:
Non-recurring items 5.3 15.0
Share-based payments (credit) / charge (1.1) 1.0
Tax effect of above adjustments (0.1) (0.4)
Underlying basic earnings / (loss) per share 1.5 2.8
5. Earnings / (loss) per ordinary share (continued)
Diluted earnings per share
Diluted earnings / (loss) per share (2.6) (12.8)
Adjustments for:
Non-recurring items 5.3 15.0
Share-based payments (credit) / charge (1.1) 1.0
Tax effect of above adjustments (0.1) (0.4)
Underlying diluted earnings / (loss) per share 1.5 2.8
The underlying earnings / (loss) per share has been calculated on the basis of
profit / (loss) before non-recurring items and share-based payments, net of
tax. The Directors consider that this calculation gives a better understanding
of the Group's performance in the current and prior period.
6. Bank facilities
The Group has a $45.0 million multi-currency combined revolving overdraft and
guarantee facility with a syndicate of three banks (Lloyds Banking Group plc,
HSBC Bank plc and Clydesdale Bank plc - together 'the Syndicate'). This
facility is available until 15 June 2018.
The amount available under the facility at 3 April 2016 was $45.0 million
(2015: $45.0 million). The facility was secured by fixed and floating charges
over the assets of certain Group companies.
The terms of the facility require the Group to perform quarterly financial
covenant calculations with respect to leverage (adjusted net debt to adjusted
rolling 12-month EBITDA) and interest cover (adjusted rolling 12-month EBITDA
to adjusted rolling 12-month interest). Breach of these covenants could result
in cancellation of the facility. The amendment to the facility in the year
adjusted these covenants to be aligned with the forecast future trading of the
Group.
In the prior year, professional fees of $875,000 were incurred in relation to
an amendment to the facility. Of this $300,000 was paid to the Syndicate to
agree to the amendment. The $875,000 was capitalised and is charged to the
income statement on a straight line basis over the remaining period to
facility expiry.
7. Notes to cash flow statement
2016 $'000 2015 $'000
Profit / (loss) for the period (2,312) (10,708)
Adjustments for:
Finance income (18) (40)
Finance costs 1,915 2,666
Income tax expense 3,854 3,529
Depreciation on property, plant and equipment 6,162 6,413
Amortisation of intangible assets 1,018 799
Impairment loss 1,498 5,098
(Gain) / Loss on disposal of property, plant and equipment 25 14
Share option payment (credit) / charge (1,009) 857
Decrease / (increase) in provisions (1,203) (1,078)
Effects of foreign exchange rate changes 126 333
Operating cash flow before movement in working capital 10,056 7,883
Decrease / (increase) in inventories 1,897 (4,881)
Decrease / (increase) in receivables 10,609 171
(Decrease) / increase in payables (14,433) 9,587
Movement in working capital (1,927) 4,877
Cash generated from / (used in) operations 8,129 12,760
Cash generated from / (used in) operations before non-recurring items 12,597 18,175
Cash utilised by operating non-recurring items (4,468) (5,415)
Taxation paid (4,489) (2,596)
Interest paid (1,842) (2,367)
Net cash generated from / (used in) operating activities 1,798 7,797
8. Analysis of net debt
Cash and cash equivalents $'000 Bank loans Debt issue costs$'000 Total
$'000 $'000
At 30 March 2014 13,675 (46,372) 477 (32,220)
Cash flow 13,078 17,139 875 31,092
Exchange differences (550) 4,074 (114) 3,410
Other non-cash changes - - (402) (402)
At 5 April 2015 26,203 (25,159) 836 1,880
Cash flow (1,377) (3,372) - (4,794)
Exchange differences 748 (734) (19) (5)
Other non-cash changes - - (375) (375)
At 3 April 2016 25,574 (29,265) 442 (3,249)
8. Analysis of net debt (continued)
Debt issue costs relate to bank facility arrangement fees. Amortisation of
debt issue costs in the period amounted to $375,000 (FY2015: $402,000).
Analysis of cash and cash equivalents: 2016$'000 2015$'000
Cash and bank balances 30,738 33,736
Bank overdrafts (5,164) (7,533)
Cash and cash equivalents 25,574 26,203
9. Provisions
Property$'000 Corporate restructuring$'000 Other$'000 Total$'000
At 30 March 2014 3,849 2,608 228 6,685
Charge / (credit) in the period 1,381 85 2,324 3,790
Utilisation of provision (1,185) (2,354) (1,887) (5,426)
Unwinding of discount 112 - - 112
Exchange differences (331) (80) (81) (492)
At 5 April 2015 3,826 259 584 4,669
Charge / (credit) in the period 1,151 (6) 142 1,287
Utilisation of provision (1,652) (181) (343) (2,176)
Unwinding of discount 52 - - 52
Exchange differences (83) (5) (27) (115)
At 3 April 2016 3,294 67 356 3,717
Less: included in current liabilities 1,348 67 356 1,771
Non-current liabilities 1,946 - - 1,946
Property provisions
Property provisions represent the anticipated net costs of onerous leases and
associated dilapidations. The provisions have been recorded taking into
account management's best estimate, following appropriate advice, of the
anticipated net cost of the lease over the remaining lease term and the level
of sublease rental income, if any, that can be obtained from sub-tenants. This
provision will be utilised as the rental payments, net of any sublease income,
fall due through to 2020.
During the 52 weeks ended 3 April 2016, the Group revised its assumptions on
one onerous property following the failure to achieve a sub-lease in the
previously forecast time period. The onerous provision was recalculated after
receipt of external advice as to likely future cash outflows. The resultant
$1,151,000 onerous lease charge has been booked as a non-recurring item (see
note 3).
In the prior year, in addition to adjustments made to the onerous lease
provision on the above property, two further properties became onerous, one
following the decision to suspend the AOC development project and one
following the exit of sub-tenants. Of the $1,381,000 charged to the income
statement, $1,110,000 is shown in non-recurring items as movement in onerous
lease provision and $271,000 is included within the product portfolio
realignment charge as associated with the AOC suspension.
Corporate Restructuring
In the prior year a $259,000 provision was held for certain severance and
recruitment fees plus an amount held for professional fees associated with the
liquidation of dormant overseas entities. The severance and recruitments fees
have been paid in the year.
Other
Other provisions include the Directors' best estimate, based upon past
experience, of the Group's liability under specific product warranties,
purchase commitments and legal claims. The timing of the cash outflow with
respect to these claims is uncertain.
10. Reconciliation of operating profit to underlying EBITDA (earnings
before interest, tax, depreciation, amortisation, non-recurring items and
share-based payment charge)
2016 2015
$'000 $'000
Operating profit 3,439 (4,553)
Add back:
Non-recurring items 4,742 12,528
Share-based payment (credit) / charge (1,009) 857
Underlying operating profit 7,172 8,832
Depreciation of property, plant and equipment 6,162 6,413
Amortisation of acquired intangible assets 1,018 799
Underlying EBITDA 14,352 16,044
11. Events after the balance sheet date
On 8 June 2016, the Group entered into an 'Amendment and Extension' agreement
on its senior credit facility. The facility was extended for 12 months until
15 June 2018. The amendment to the facility is principally in relation to
covenant level revisions and guarantor group members.
This information is provided by RNS
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