REG - Volex PLC - Volex Plc: Half-year Report to 2 October 2016 <Origin Href="QuoteRef">VLX.L</Origin> - Part 2
11/11/2016 07:06
- Part 2: For the preceding part double click ID:nRSK9277Oa
April 2016. There are no standards, amendments to
standards or interpretations that are both mandatory for the first time for
the financial year ending 2 April 2017 and expected to have a material impact
on the Group's results.
2. Business and geographical segments
Business segments
The internal reporting provided to the Group's Board for the purpose of
resource allocation and assessment of Group performance is based upon the
nature of products which the Group supplies. In addition to the operating
divisions, a Central division exists to capture all of the corporate costs
incurred in supporting the operations.
Division Description
Power Cords The sale and manufacture of electrical power products to manufacturers of electrical / electronic devices and appliances. These include laptop / desktop computers, printers, televisions, power tools 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 and 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.
The following is an analysis of the Group's revenues and results by reportable
segment.
26 weeks to 2 October 2016 26 weeks to 4 October 2015
Revenue$'000 Profit/(loss)$'000 Revenue$'000 Profit/(loss)$'000
Power Cords 100,403 1,469 117,433 1,358
Cable Assemblies 65,694 4,812 71,996 5,469
Unallocated central costs (excluding share-based payments) (1,973) (2,616)
Divisional results before share-based payments and non-recurring items 166,097 4,308 189,429 4,211
Non-recurring items (8,741) (1,256)
Share-based payments (170) 927
Operating profit (4,603) 3,882
Finance income 11 9
Finance costs (1,014) (927)
Profit before tax (5,606) 2,964
Tax (1,072) (1,970)
Profit after tax (6,678) 944
(Audited)52 weeks to 3 April 2016
Revenue$'000 Profit/(loss)$'000
Power Cords 230,205 2,293
Cable Assemblies 137,329 9,842
Unallocated central costs (excluding share-based payments) (4,963)
Divisional results before share-based payments and non-recurring items 367,534 7,172
Non-recurring items (4,742)
Share-based payments 1,009
Operating profit 3,439
Finance income 18
Finance costs (1,915)
Profit before tax 1,542
Tax (3,854)
Profit after tax (2,312)
The accounting policies of the reportable segments are in accordance with the
Group's accounting policies.
The non-recurring items charge within operating profit of $8,741,000 (H1
FY2016: $1,256,000, FY2016: $4,742,000) was split $6,485,000 (H1 FY2016:
$422,000, FY2016: $1,802,000) to Power Cords, $1,616,000 (H1 FY2016: $320,000,
FY2016: $1,349,000) to Cable Assemblies and $640,000 (H1 FY2016: $514,000,
FY2016: $1,591,000) to Central.
Other segmental information
External revenue Non-current assets (excluding deferred tax assets)
26 weeks to 2 October 2016$'000 26 weeks to 4 October 2015$'000 (Audited)52 weeks to 3 April 2016 $'000 26 weeks to 2 October 2016$'000 26 weeks to 4 October 2015$'000 (Audited)52 weeks to 3 April 2016 $'000
Geographical segments
Asia (excluding India) 96,773 114,978 225,053 23,764 34,943 32,068
North America 39,503 42,444 80,802 1,202 1,372 1,532
Europe 25,878 25,769 50,305 3,136 3,885 3,614
India 2,360 3,702 6,878 857 713 897
South America 1,583 2,536 4,496 15 923 493
166,097 189,429 367,534 28,974 41,836 38,604
3. Non-recurring items and share-based payments
26 weeks to 2 October 2016$'000 26 weeks to 4 October 2015$'000 (Audited)52 weeks to 3 April 2016 $'000
Impairment 6,166 - 1,498
Restructuring costs 1,636 1,155 2,693
Manufacturing optimisation consultancy 621 - -
Movement in onerous lease provision 318 101 1,151
Provision for historic sales tax claims - - (600)
Total non-recurring items 8.741 1,256 4,742
Share-based payments (credit) / charge 170 (927) (1,009)
Non-recurring items and share-based payments 8,911 329 3,733
Costs that are one-off in nature and significant, such as restructuring costs
or impairment charges, are deemed to be non-recurring by virtue of their
nature and size. They 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 financial performance of the
Group.
Following a further downturn in Power revenue resulting in significant surplus
capacity at our Power factories, a full review of the Power cost base was
performed. As a consequence, one of the Power factory sites was downsized
with one of the three available buildings returned to the landlord. This
resulted in impairment of the associated building fit-out costs. Further the
number of production lines running in the remaining two buildings was reduced
resulting in impairment of the redundant plant, machinery and tooling. This
has resulted in a $6,166,000 impairment charge in the half year which followed
a $1,498,000 impairment charge in the second half of FY2016.
Volex's operations in Brazil continued to struggle in the first half of the
year despite the actions taken in FY2016. As a result, the decision was taken
to suspend all manufacturing operations in Brazil until such further time as
the Brazilian economy shows signs of recovery. $1,067,000 of restructuring
cost has been expensed in H1 FY2017 (H1 FY2016: $315,000, FY2016: $336,000)
following this decision covering fixed asset and inventory write downs plus
provisions for severance pay and future litigation. The underlying trading
loss, included within operating profit before non-recurring items and
share-based payments, incurred by the Brazilian operations was $0.3m. Since
operations had not fully ceased by 2 October 2016, the Brazil operations do
not meet the requirements of a discontinued operation under IFRS 5
'Non-current Assets Held for Sale and Discontinued Operations'.
A further $569,000 (H1 FY2016: $840,000, FY2016: $2,357,000) of restructuring
cost has been incurred in right-sizing our operations, primarily through
severance pay at the Power factory noted above. The prior year figures
included $282,000 in relation to the departure of the Chief Executive Officer
and further costs covering management changes in the Power division.
Following his appointment in November 2016, the Executive Chairman sought to
address the production issues facing our factories across the globe in order
to make them more cost competitive. To support the management function, an
external manufacturing consultancy was employed on a fixed term contract of 9
months, to advise on manufacturing best practice and implementation. This
contract expires in December 2016 and has therefore been classified as
non-recurring.
The Group has incurred a non-recurring charge in the period of $318,000 in
relation to the sub-let of a property in North America. The sub-lease is for
the full head lease term and mirrors the head lease clauses with the exception
of an initial quarter rent free period. In the prior year (H1 FY2016:
$101,000, FY2016: $1,151,000) the onerous lease charge was in relation to a UK
property. This property has been exited in H1 FY2017 with all exit payments
in line with the provision held.
The Group has a share based payment charge of $170,000 in H1 FY2017. The
prior year share based credit (H1 FY2016: credit of $927,000, FY2016: credit
of $1,009,000) was due to the reversal of the cumulative charge associated
with lapsed options following the departure of certain employees.
4. Tax charge
The Group tax charge for the period is based on the forecast tax charge for
the year as a whole and has been influenced by the differing tax rates in the
UK and the various overseas countries in which the Group operates.
5. Earnings per ordinary share
The calculations of the earnings per share are based on the following data:
Earnings/(loss) 26 weeks to 2 October 2016$'000 26 weeks to 4 October 2015$'000 52 weeks to 3 April2016$'000
Earnings/(loss) for the purpose of basic earnings per share (6,678) 994 (2,312)
Adjustments for:
Non-recurring items 8,741 1,256 4,742
Share based payments charge/(credit) 170 (927) (1,009)
Tax effect of above adjustments - - (88)
Underlying earnings 2,233 1,323 1,333
Weighted average number of ordinary shares No. shares No. shares No. shares
Weighted average number of ordinary shares for the purpose of basic earnings per share 88,956,532 88,956,531 88,956,532
Effect of dilutive potential ordinary shares - share options 38,862 48,995 27,370
Weighted average number of ordinary shares for the purpose of diluted earnings per share 88,995,394 89,005,526 88,983,902
Basic earnings/(loss) per share Cents Cents Cents
Basic earnings/(loss) per share from continuing operations (7.5) 1.1 (2.6)
Adjustments for:
Non-recurring items 9.8 1.4 5.3
Share based payments charge/(credit) 0.2 (1.0) (1.1)
Tax effect of above adjustments - - (0.1)
Underlying basic earnings per share 2.5 1.5 1.5
Diluted earnings/(loss) per share
Diluted earnings/(loss) per share (7.5) 1.1 (2.6)
Adjustments for:
Non-recurring items 9.8 1.4 5.3
Share based payments charge/(credit) 0.2 (1.0) (1.1)
Tax effect of above adjustments - - (0.1)
Underlying diluted earnings per share 2.5 1.5 1.5
The underlying earnings per share has been calculated on the basis of
continuing activities before non-recurring 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. Own shares
26 weeks to 2 October 2016$'000 26 weeks to 4 October 2015$'000 (Audited)52 weeks to 3 April2016 $'000
At the start and end of the period 867 867 867
The own shares reserve represents the cost of shares in the Company held by
the Volex Group plc Employee Share Trust to satisfy future share option
exercises under the Group's share option schemes.
The number of ordinary shares held by the Volex Group plc Employee Share Trust
at 2 October 2016 was 1,295,361 (H1 FY2016: 1,295,361, FY2016: 1,295,361).
In H1 FY2016 a further trust, the Volex Group Guernsey Purpose Trust, was
terminated. The $1,182,000 of cash held by the trust was transferred to Volex
plc and the intercompany balance of $39,000 repaid.
7. Analysis of net debt
3 April 2016 $'000 Cash flow $'000 Exchange movement $'000 Other non-cash changes $'000 2 October 2016$'000
Cash and cash equivalents 25,574 7,559 299 - 33,432
Bank loans (29,265) - 290 - (28,975)
Debt issue costs 442 552 (85) (204) 705
Net debt (3,249) 8,111 504 (204) 5,162
2 October 2016$'000 4 October 2015$'000 (Audited)3 April 2016 $'000
Cash and bank balances 33,432 30,022 30,738
Overdrafts (included in short term borrowings) - (7,069) (5,164)
Cash and cash equivalents 33,432 22,953 25,574
8. 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.
Included within the prior year restructuring charge shown in Note 3 is
$282,000 for severance payments made to directors.
9. Contingent Liabilities
As a global Group, subsidiary companies, in the normal course of business,
engage in significant levels of cross-border trading. The customs, duties and
sales tax regulations associated with these transactions are complex and often
subject to interpretation. While the Group places considerable emphasis on
compliance with such regulations, including appropriate use of external legal
advisors, full compliance with all customs, duty and sales tax regulations
cannot be guaranteed.
Through the normal course of business, the Group provides manufacturing
warranties to its customers and assurances that its products meet the required
safety and testing standards. When the Group is notified that there is a
fault with one of its products, the Group will provide a rigorous review of
the defective product and its associated manufacturing process and if found at
fault and contractually liable will provide for costs associated with recall
and repair as well as rectify the manufacturing process or seek recompense
from its supplier. The Group does not provide for such costs where fault has
not yet been determined and investigations are ongoing.
This information is provided by RNS
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