Volex revenue dips, though underlying earnings improve

Cable assembly provider Volex posted its interim results for the 26 weeks to 2 October on Friday, with $11.3m of cash generated by operations during the period.

The AIM-traded company said it achieved its return to net cash through “tight working capital management”.

Underlying operating profit was up 2.3% on the first half of the previous year, to $4.3m, despite a 12.3% reduction in sales.

Revenue was down 12.3%, however, to $166.1m.

The board said the revenue decline from its largest customer at 21.7% had been managed by a reduction in its power manufacturing footprint.

That did result in a non-cash impairment charge of $6.2m, however..

Underlying operating expenses for the half reduced by $3.6m, or 13.5%, with the board putting it down to the benefits from removing the divisional management structure in the prior year and further cost reduction measures taken in the first half of 2016.

A $4.6m statutory operating loss after tax was recorded, after the $6.2m impairment charge and $1.1m of non-recurring costs associated with the downsizing of the Brazilian operation.

The company’s US facility was successfully exited during the period, as well as a 50% size reduction in its Singapore head office.

Underlying diluted earnings per share were up 60% to 2.5c following a reduction in the global tax charge, though a basic loss per share of 7.5c was recorded, reflecting the impairment charge taken in the half year.

“I am pleased to report that underlying profitability has been maintained at prior year levels reflecting the actions that we have taken to address the continuing decline in revenues from several of our larger customers,” said executive chairman Nat Rothschild.

“There has been strong progress at the factory level with improvements in operational efficiency and reductions in inventories and factory operating expenses.

“Through the difficult actions we have taken in the first half of the year, which have included the downsizing of one of our Chinese facilities and the closure of our Brazil facility, factory profitability should improve in the second half of the year as we run at higher capacity with lower overheads.”

Rothschild said additionally, work at the company’s previously-announced joint venture agreement with a Taiwanese manufacturer continued with the aim of producing competitively priced Volex-branded AC raw cables.

“We have an encouraging set of projects in the sales pipeline, however, we anticipate that the benefits arising from these will not be realised for at least another twelve months - the lead time to bring on new accounts.

“In the meantime, we expect our markets to remain fiercely competitive and we will continue the practice of ensuring our factory footprint and costs are aligned with revenue performance.”