Volex Group PLC 14 June 2006 Embargoed until 07.00am, 14 June 2006 VOLEX GROUP plc _______________ Preliminary Announcement of the Group Results _____________________________________________ for the Financial Year ended 2 April 2006 _________________________________________ Volex Group plc, the global electrical and electronic cable assemblies group, today announces its preliminary results for the financial year ended 2 April 2006. Financial Highlights: • Sales increased by 2.4% to £250.4m (2005: £244.6m) • Operating profit (before £8.6m major restructuring programme charge (2005: £6.8m) increased threefold to £5.3m (2005: £1.8m)(1) • Cash generated by operations: Before cost of major restructuring programme £13.2m (2005: £1.8m) After cost of major restructuring programme £11.7m (2005: £1.6m) • Loss per share before cost of major restructuring programme 1.0p (2005:loss 23.4p) • Basic loss per ordinary share 18.5p (2005: loss 46.2p) • Net borrowings at 2 April 2006 £13.3m (2005: £30.5m) (1) The operating loss after the £8.6m major restructuring programme charge (2005: £6.8m) was £3.3m (2005: loss £5.0m) The Chairman of Volex, Richard Arkle, commented: "In June 2005 we raised £17.6m net of costs by way of an equity placing with existing and new shareholders in order to provide the financial and strategic stability to allow us to execute a long-term strategy that will result in sustainable returns over the forthcoming years. We have made significant progress in achieving the key elements of the strategic plan set out in the Circular to shareholders on 6 June 2005. We generated cashflows from operations of £11.7m after the cost of the major restructuring compared with £1.6m last year. Our balance sheet is now much stronger. We have now passed the inflexion point of restructuring into a path of growth and profitability but we nevertheless recognise the significant challenges ahead of us. The industry dynamics of customers reducing their vendor base, rising commodity prices and pricing pressure are issues we face daily. Predicting the future in today's uncertain environment is difficult but we are confident that following the major changes that have been achieved over the last 12 months, we are well placed to make further progress towards bottom line profitability and enhancing shareholder value." Ends Volex will host an analysts' meeting today at 9.00am at the offices of Evolution Securities Limited, 100 Wood Street, London, EC2V 7AN. For further information, please contact: Volex Group plc Today: 020 7067 0700 Thereafter: 01925 830101 Richard Arkle, Chairman Heejae Chae, Group Chief Executive Derek Walter, Group Finance Director Weber Shandwick Square Mile 020 7067 0700 Chris Lynch / Nick Dibden VOLEX GROUP plc Preliminary Announcement of the Group Results for the Financial Year ended 2 April 2006 CHAIRMAN'S STATEMENT ____________________ The last year has seen the later stages of the restructuring programme that the Company embarked on four years ago. In June 2005 we raised £17.6m net of costs by way of an equity placing with existing and new shareholders in order to provide the financial and strategic stability to allow us to execute a long-term strategy that will result in sustainable returns over the forthcoming years. We have made significant progress in achieving the key elements of the strategic plan set out in the Circular to shareholders on 6 June 2005. Specifically we have: •Realigned the manufacturing footprint and moved to lower cost locations. By the end of FY2006 we have closed seven facilities and downsized two more and plan to close three further facilities in FY2007 and downsize one more. Over 95% of our direct labour force is now located in the low cost areas of Asia, Mexico and Eastern Europe. •Restructured the organisation into three global product groups to align with the market and better serve our customers. •Strengthened the management team through the addition of key staff in engineering, sales, sourcing and operations. The new team members join us from leading companies both inside and outside the industry. •Enhanced our penetration of high growth and emerging markets such as medical, high speed assemblies and WiMax (Worldwide Interoperability for Microwave Access). •Focused on cost reduction and cash generation to improve profitability and balance sheet. The Group generated cash flows from operations of £11.7m compared with £1.6m in the previous year. •Seen the operating profit before the £8.6m major restructuring programme charge triple to £5.3m from £1.8m. We managed to increase our operating margin despite a significant increase in commodity prices and pricing pressure from our customers. We saw benefits of the cost saving and restructuring programmes during the second half of the year when we generated £3.9m operating profit against £1.4m in the first half of FY2006. •Reduced net borrowings from £30.5m to £13.3m. Results The revenues for the financial year ended 2 April 2006 were up 2.4% at £250.4 million and operating profit (before the cost of the major restructuring programme) was £5.3m (2005: £1.8m). Net borrowings closed at £13.3m, down from £30.5m a year ago. The Group took a gross £8.9m charge in respect of the accelerated restructuring programme but a £0.3m credit in respect of higher fire insurance proceeds reduced the charge to £8.6m. The net loss for the year after this charge was £3.3m (2005: loss £5.0m). The Board is not proposing a dividend in respect of the year. Board and Management Changes As the Group is now transitioning from a restructuring phase to one of growth, changes have been made to the Board and management of the Company. Heejae Chae was appointed as the Chief Executive Officer of the Group. Heejae has already served as the Chief Operations Officer and has successfully guided the Group through the restructuring in the past year, particularly in North America. Heejae was previously the worldwide General Manager of the Radio Frequency Group of Amphenol Corporation. Martin May resigned as Chairman after providing leadership during the restructuring phase. Additionally, Derek Walter, 58, has tendered his resignation as Finance Director but will remain with the Group until a new Finance Director has been appointed and an orderly handover period has been completed. This new management team, together with a significant number of other new team members, will meet the requirements of the next stage of the Group's development. Dimitri Goulandris has also been appointed a non-executive director of the Board. Dimitri is a partner of Cycladic Capital LLP, which is a major shareholder of Volex. Future The Group is well positioned to take advantage of the dynamics of the global cable assembly and powercord marketplaces. Based on independent research, Volex is the third largest player in the cable assembly market (which includes powercords) and, using internal research material, the largest player in the powercord assembly market. Despite our leading market positions, our market share is single digit providing us the opportunity for significant growth. We are uniquely positioned to grow by leveraging our global footprint, broad technology capabilities and strategic and preferred relationships with customers that are leaders in the markets they serve. We have now passed the inflexion point of restructuring into a path of growth and profitability but we nevertheless recognise the significant challenges ahead of us. The industry dynamics of customers reducing their vendor base, rising commodity prices and pricing pressure are issues we face daily. Predicting the future in today's uncertain environment is difficult but we are confident that following the major changes that have been achieved over the last 12 months, we are well placed to make further progress towards bottom line profitability and enhancing shareholder value. In closing, I would like to thank everyone in the organisation. Our people span the world and many cultures and the business has over one hundred years of history. We would not have achieved our leadership position if not for the dedication, hard work and passion of our people. As we move forward to an exciting future, we recognise that respect, teamwork and collaboration with all our stakeholders must be the cornerstones that will drive the Group forward on a global footing and produce the anticipated returns for our shareholders. We will be asking the shareholders to support a new long term incentive plan for the senior team and details of the plan will be presented for approval at the AGM. Richard Arkle Chairman CHIEF EXECUTIVE'S REVIEW During FY2006, Volex Group went through a significant transformation financially, organisationally and culturally. We emerged from the year poised to build on our leadership position in the PowerCord, Infocom and Wiring Harness markets we serve. We have: •Restructured the organisation into three global product groups - PowerCord, Infocom and Wiring Harness - to align with the market and better serve the customers. We believe that the global nature of our customers and supply chain require that we operate as a global organisation. Each product group is responsible for all aspects of the business on a global basis. We can respond and service consistently the customers' needs anywhere in the world. We believe that the global structure allows us to leverage the knowledge, technology and scale to achieve greater efficiency and lower cost to better serve all our customers across the world. •Accelerated the global restructuring programme. By the end of FY2006 we have closed seven manufacturing facilities and downsized two more and we plan to close three further facilities and downsize one more in FY2007. As a result, we significantly reduced our costs enabling us to enter FY2007 with a much lower cost base and over 95% of our direct labour is now located in the low cost areas of Asia, Mexico and Eastern Europe. •Streamlined central functions and corporate structure. In order to empower each global product group, the global purchasing and IT functions were merged into each product group. Additionally, we have taken action to benefit from lower costs at headquarters in the coming year. We believe that the responsibility for business decisions should rest with the product groups, not the corporate office. The product groups are closer to the customers and can react much more quickly to the changing marketplace. •Transformed the organisation's cultural mindset to Global from Regional. With the reorganisation into global product groups, our perspective and mindset has become global. We are breaking down the barriers to better share knowledge and competencies across the organisation. This change will allow us to better manage our knowledge and technologies to ensure that we provide the best service consistently to all of our customers throughout the world. •Developed a performance driven organisation. We enter FY2007 with a focus on results and accountability. Everyone in the organisation understands our strategy and goal. We recognise that we must benchmark ourselves against the competition and drive the organisation to outperform, measuring ourselves against quantifiable metrics and performance goals. •Reinforced the organisation with new team members. We believe that people are our most important asset and we continuously look to invest in developing new talent at all levels. During the past year, we added key staff in engineering, sales, sourcing and operations. These individuals bring with them new perspectives that will fuel our growth. •Placed emphasis on a common value system. We recognise that our organisation comprises people from many countries and cultures. Each one of us brings unique skills and perspectives. It is important that we operate under common values yet recognise our diversity. We believe that the following values are universal at Volex: leadership, respect and integrity. We must promote them through communication and teamwork that will lead to knowledge sharing across our diverse people. Markets The cable assembly market, which encompasses PowerCord, Infocom and Wiring Harness, is estimated at approximately US$20 billion in annual sales. Volex's range of technologies and products allow us to participate in a broad variety of industries including consumer products, data and telecommunications, industrial, medical, automotive and military. The consumer product market continues to remain strong as result of healthy consumer spending across the world. New applications and development further drives the growth through the introduction of "must have" products. Volex has experienced solid gains in the consumer products sector especially for flat-screen televisions, gaming and music consoles. We anticipate future growth through continued new product introductions; however, as with other competitive markets, we expect significant pricing pressure going forward. Our participation in the sector is primarily through our PowerCord product line, which carries significant copper content. This commodity has recently experienced large price increases which are continuing through the early half of FY2007, further stressing the competitive nature of this business. The Group's second largest segment comprises data and telecommunications products. We provide an array of products in telecom infrastructure, computers, and Internet equipment (servers, storage systems and datacom equipment) and have preferred supplier status with customers that are leaders in the markets they serve. We expect the telecom market to continue to grow: in particular the wireless sector whose indicators remain strong; wireless subscriber growth continues with new and improved services and lower tariffs; 3G rollouts continue to gain traction with launches in many geographies; and the convergence of data and voice is a driver for future growth. As the system requirements increase and product cycles shorten, we continue to see growth in the sector; however, with competition from existing players and new entrants from low cost regions, pricing pressure remains significant. The medical equipment segment is expected to continue to grow driven by the demographics of an ever growing and ageing population. The cable assembly supply base for medical equipment is highly fragmented but evolving: equipment providers are aggressively managing their supply chains as they look to generate efficiency and reduce cost. Volex is a major supplier in the sector and now has established a leadership position with leading medical equipment providers through leveraging our technology, product offerings, superior service and global footprint. In the automotive and military markets we supply niche wiring harness systems for off-highway equipment, specialist vehicles and aerospace harness systems. Our sectors have remained steady, unlike the broader automotive markets, and experienced positive growth trends as a result of the increasing complexity of harness for specialty vehicles as well as the general growth in defence spending. Product Performance POWERCORDS: Revenue increased 6.7% in sterling terms. The growth in net sales was a result of volume increases and higher average selling prices due to a shift in the mix towards higher end products as well as price increases driven by escalating copper prices. New sales in consumer game consoles and increased sales to our Japanese OEM customers were the leading contributors to organic growth. Although the competitive pricing environment dampened the net sales increase, we continue to compete successfully on the basis of performance, quality, reliability, brand reputation, service and support. Competitive pricing pressures and escalating copper costs contributed to an increase in cost of sales. Copper prices rose from US$3,300/tonne to US$5,400/ tonne, compared with a reasonably stable average of approximately US$3,000/tonne in FY2005. The negative impact on the cost of sales was partially offset by aggressive supply chain management and improvements in labour and operating costs. During FY2006, we reorganised the PowerCord division into a single global product group, allowing us to rationalise our marketing, manufacturing and technology strategy. We have closed three facilities and downsized one and intend to close a further site in FY2007, moving the business to our expanded China operations. This expanded low-cost capacity will provide labour savings, fixed cost consolidation and supply chain leverage. Additionally, we have invested in the engineering resources across all regions to enhance our value to customers on a global basis. INFOCOM: The revenue from the Infocom business declined 4.8% as a result of our rationalising low margin business, increased pricing pressure and a one-time award of a contract for telecom infrastructure deployment in India completed in FY2005. However, revenue and profitability improvements were realised in key market sectors including medical and telecommunications throughout the year. The Infocom division went through significant changes in FY2006 designed to align the manufacturing footprint with our customers' requirements and cost targets. As a result, we consolidated our manufacturing locations into three principal manufacturing centres: China, Eastern Europe and Mexico, entering FY2007 with almost 100% of our direct labour based in low cost regions. Additionally, we undertook significant action to reduce overhead cost by reorganising the general and administrative structure. The sales organisation was realigned to provide global coverage of our key accounts and focus on new account development, enabling us to identify opportunities to leverage our technologies across application specific opportunities. Capitalising on our preferred supplier position at market leading customers, we look to leverage our technologies and products to gain new customers in similar applications. Going forward, technologies and competencies will be shared and leveraged across the entire group to best supply our customers with a broad offering of technology and capabilities. The Infocom market continues to be highly competitive through the entrance of low cost suppliers, the need for aggressive year on year cost reductions and the desire of customers to consolidate their supply bases. Additionally, we face rising commodity prices with limited visibility of customer demand. With the need to improve our market position and profitability, the actions we took in FY2006 and those we will continue to take in FY2007 will create additional competitive advantage and allow us to achieve our goals. We have begun to see the benefits of these actions during the second half of the year through improved profits and cash flow for the Infocom product group. WIRING HARNESS: The revenue from the Wiring Harness business increased by 11.8%, despite price reductions and was a result of the positioning in the growing markets of construction equipment and military/aerospace. The automotive market remains highly competitive with the entrance of new low cost suppliers, as well as aggressive year on year cost reductions. Whilst revenue increased, profitability came under severe pressure being impacted by an unexpected administration proceeding at one of our larger customers, rising commodity prices, as well as significant operational challenges. The Wiring Harness business in FY2006 continued its drive to improve its operational performance and cost base. We merged the two separate wiring harness businesses into one organisation and announced the closure of one of our manufacturing sites in the UK. Throughout the year we transferred projects to low cost manufacturing locations. The sales and engineering organisations were reorganised and strengthened to continue the business development activities already showing success in FY2006. The drive in FY2007 is to continue the downsizing in high labour cost areas, whilst improving our operational performance, focus on business development and build on our very strong reputation of quality and customer service. The Future As we look to the future, there is much uncertainty regarding rising commodity prices, customer pricing pressures, low cost competition and limited demand visibility. Challenging as these factors may be, this environment has been the reality of the industry for the past five years. The competitive landscape is littered with those unable to adapt to this new environment. Nevertheless, market leaders have emerged stronger and better and we recognise our challenge is to outperform them. Volex has struggled for the last five years and has now emerged to compete aggressively in this challenging marketplace. We believe that our transformation - financially, organisationally and culturally - will bring us to the forefront of the competitive landscape. We have aligned our manufacturing footprint and cost basis to support the most demanding customers; we have the technology to satisfy cutting edge customers; and we have the supply chain and logistic competencies to support our global customers. But most importantly, we have the people who are able to adapt to these constant changes and continue to provide the best service to our customers. FINANCE DIRECTOR'S REVIEW _________________________ International Financial Reporting Standards ('IFRS') and changes to previous year's figures FY2006 has been the first year in which Volex Group plc has produced its financial statements in accordance with IFRS and the comparative figures for the previous year have been restated accordingly. Details of Volex's IFRS accounting policies have already been published in the IFRS transition document produced with the Interim Results for the 26 weeks to 2 October 2005 and published on the Company's website, and will be included in the Annual Report and Accounts for FY2006. The major restatement in the Accounts has been the inclusion in the balance sheet of the pension fund deficit of two defined benefit schemes, which were closed on 31 March 2003 and replaced by defined contribution arrangements. At 2 April 2006 the combined deficits on the two defined benefit schemes amounted to £3.5m (2005: £4.1m). Overview The major financial event in FY2006 has been the raising in June 2005 of new equity (£19.0m before expenses), which has funded the implementation of the strategy set out in the 6 June 2005 Circular, most notably to date the realignment of the manufacturing footprint of the Group. Trading for the year Turnover for the 52 weeks ended 2 April 2006 at £250.4m increased by £5.8m, 2.4%, over FY2005, including a £7.3m positive currency effect. Thus Group sales in real terms decreased in the year, due to several factors including the pruning of approximately US$6m of revenue, which derived from low margin customer accounts in North America. Operating profit, before the £8.6m major restructuring programme charge, was £5.3m, giving a return on sales of 2.1%, compared with £1.8m operating profit and a return on sales of 0.7% in FY2005. Year on year the average exchange rate for the US dollar appreciated by 2.2% against sterling and the Singapore dollar by 3.7%, with other less significant currencies including the Euro also appreciating against sterling. Sales by destination in Asia and South America increased by 8.1% to £77.0m, in North America by 3.2% to £74.0m and in Europe, excluding the UK, by 2.7% to £64.8m. Sales in the UK were down by 10.3% to £34.6m. Sales of PowerCord products grew by £7.4m, 6.7%, to £118.3m but Infocom product sales, reflecting the customer base rationalisation in North America and some pricing pressures particularly in Europe, fell by £5.0m, 4.8%, to £99.4m. Wiring Harness sales grew by £3.4m, 11.8%, to £32.7m. Operating profits for each division were impacted by the restructuring programme with most of the restructuring charge in FY2006 affecting the Infocom division, compared with FY2005 where most of the charge related to the PowerCord division. A comparison of Group sales by source or manufacturing location, based on net sales showed a year on year growth in Asia of £8.8m, 9.7%, to £98.8m, accounting for 39.4% of the Group's output (2005: 36.8%). North America's net output increased by £0.8m, 1.1%, in sterling terms to £75.6m over the previous year and represented 30.2% of Group's total gross output (2005: 30.6%). Sales sourced from Europe (excluding the UK) fell by £7.6m, 14.8%, to £43.3m and accounted for 17.3% of the Group's net output (2005: 20.8%). UK sourced sales increased by £3.8m, 13.0%, to £32.7m, 13.1% of the Group's net output (2005: 11.8%). Gross profit increased by £3.6m to £39.1m and the gross margin to 15.6% compared with 14.5% in the previous year. The impact of raw material prices, in particular copper, continued to affect the Group but the restructuring programme, some sales price increases and the ongoing cost reduction programmes including procurement and value added engineering programmes contributed to the increase in margin. The Group recorded an operating profit (before the £8.6m major restructuring programme charge) for the year of £5.3m (2005: £1.8m). The translation of foreign currency operating profits into sterling had a positive impact of £0.6m. Major restructuring programme As indicated in the Chairman's Statement in the Interim Report, we have accelerated the restructuring programme in the latter part of the year. The charge taken at the half year of £1.8m was in respect of the downsizing of the Kanata site and some global management reduction. A further charge of £6.8m was taken in the second half of the year in respect of the closures either already implemented by the year end (Fremont, Aguascalientes and Thailand), or already announced and to be implemented in FY2007 (Clinton and Stoke on Trent, the consolidation of business from Butts Mill, Leigh, onto an adjacent site and the downsizing of the Hermosillo factory). The £8.6m charge for the year comprised £3.9m in respect of severance and relocation costs spent or to be spent, £3.1m in respect of property lease provisions and £1.9m in respect of asset write offs and other non-cash items less a £0.3m credit in respect of the settlement of the insurance claim in respect of the September 2004 fire at Tijuana. The operating loss after debiting the £8.6m major restructuring programme charge (2005: £6.8m) was a loss of £3.3m (2005: loss £5.0m). Interest Finance charges were £3.5m compared with £4.3m in the previous year, reflecting the lower debt levels following the equity raising. Higher Libor rates and stronger exchange rates added £0.2m to the charge in FY2006. Refinancing and amortisation of debt interest costs were £0.7m compared with £0.9m and the interest charge of £2.8m included interest on the pension deficit and interest on the restructuring provisions, which combined totalled £0.3m. Taxation Despite an overall Group loss before tax, there was a tax charge of £2.4m (2005: £4.4m). This charge related to taxes paid in countries where taxable profits were made and also included a charge of £0.6m in respect of prior years' taxes, mainly comprising withholding tax in Brazil. Earnings and Earnings Per Share The basic loss after tax was £9.1m (2005: loss £13.7m) and the basic loss per share for FY2006 of 18.5p compares with a loss of 46.2p in the prior year. The adjusted loss (arrived at after adding back the charge for the major restructuring programme) was a loss of £0.5m and in EPS terms shows an improvement from a loss of 23.4p in 2005 to a loss of 1.0p per share. The earnings figures are distorted by the higher than normal tax charge, as referred to above, and adding back £0.6m in respect of the prior years' tax charge, the adjusted earnings would have been positive in FY2006. Excluding the major restructuring programme Volex made pre-tax profits of £2.2m in the second half of the year and 2.3p earnings per share, compared with a £0.2m loss in the first half of the year and 3.3p loss per share. Net assets Net assets increased, as a result of the equity raising, from £15.1m to £26.1m at 2 April 2006. A share premium cancellation exercise was approved by the High Court in October 2005 whereby the share premium account was applied to reduce the deficit on distributable reserves. Other significant balance sheet changes Apart from the increase in equity and reduction in debt levels, which together with the funds flow is discussed below, the other significant change in the balance sheet in the year requiring explanation was the increase in the level of provisions. The long term provisions have increased from £3.0m to £5.0m and the short term provisions have increased from £0.6m to £4.0m. Onerous lease provisions were set up in the previous year in respect of two sites. As a result of the restructuring programme, onerous lease provisions have been established in FY2006 for a further four sites. The short term provisions of £4.0m relate to the severance and other relocation costs that are expected to be paid in the current fiscal year as well as the current year's lease payments in respect of the sites where onerous lease provisions have been accrued. Funds flow and borrowings Cash generated by operations was £11.7m, net of £1.5m restructuring payments, compared with £1.6m in the previous year. The increased inflow arose from improvements in working capital of £7.4m - a £4.6m inflow in FY2006 compared with a £2.8m outflow in the previous year - as well as from improved profits. Net interest payments fell to £2.5m against £3.8m in the previous year but taxation payments at £4.4m were £2.2m higher mainly due to £1.9m spent on prior year tax issues arising in Brazil and Hong Kong. Capital expenditure on fixed assets was £2.5m (including £0.1m of finance leases), compared with £2.2m in FY2005. New equity raised £17.6m net of expenses and with the strengthening of the currencies there was an adverse foreign exchange impact of £2.3m in the year on the net debt. As a result of the above movements, net debt fell by £17.2m from £30.5m at the start of the year to £13.3m, resulting in a year end gearing level of net borrowings to shareholders' funds of 51% (2005: 202%). The net debt at 2 April 2006 included £2.1m (2005: £nil) of unamortised financing costs. Banking facilities In conjunction with the equity raising the Group entered into a new three year banking facilities agreement on 30 June 2005 with its principal bankers. The total costs incurred in FY2005 in the renegotiation of the Group's facilities amounted to £2.5m and are being amortised over the life of the facilities within the finance costs. End of review _____________ Consolidated income statement For the 52 weeks ended 2 April 2006 (3 April 2005) Note 2006 2005 £'000 £'000 _______________________________________________________________________________ Revenue 1 250,378 244,551 _______________________________________________________________________________ Operating loss 1 (3,269) (4,978) Analysed as: _________________ Operating profit before major restructuring programme 5,329 1,768 Major restructuring programme 2 (8,598) (6,746) _________________ Operating loss (3,269) (4,978) Investment income 111 59 Finance costs _________________ - interest (2,761) (3,385) - refinancing costs and amortisation of debt issue costs (739) (932) _________________ (3,500) (4,317) _______________________________________________________________________________ Loss on ordinary activities before taxation (6,658) (9,236) Taxation 4 (2,448) (4,424) _______________________________________________________________________________ Loss on ordinary activities after taxation, being retained loss for the year 8 (9,106) (13,660) _______________________________________________________________________________ Loss per share (pence)* Basic and diluted 5 (18.5) (46.2) _______________________________________________________________________________ All results wholly relate to continuing operations. * The loss per share before the costs of the major restructuring programme for each period is shown in note 5. Consolidated statement of recognised income and expense For the 52 weeks ended 2 April 2006 (3 April 2005) 2006 2005 £'000 £'000 Exchange differences on translation of foreign operations 1,555 266 Actuarial gains/(losses) on defined benefit pension schemes 379 (487) _______________________________________________________________________________ Net income/(expense) recognised directly in equity 1,934 (221) Loss for the year (9,106) (13,660) _______________________________________________________________________________ Total recognised net expense for the year (7,172) (13,881) Adjustment on the first time adoption of IAS 32 & 39 (80) - _______________________________________________________________________________ Total recognised net expense since prior year balance sheet (7,252) (13,881) _______________________________________________________________________________ Consolidated balance sheet As at 2 April 2006 (3 April 2005) Note 2006 2005 £'000 £'000 Non-current assets Goodwill 1,930 1,930 Other intangible assets 148 117 Property, plant and equipment 11,515 13,451 Deferred tax asset 244 - _______________________________________________________________________________ 13,837 15,498 _______________________________________________________________________________ Current assets Inventories 30,274 28,030 Trade and other receivables 52,825 50,381 Current tax assets 1,087 - Cash and cash equivalents 11,646 14,962 _______________________________________________________________________________ 95,832 93,373 _______________________________________________________________________________ Total assets 109,669 108,871 _______________________________________________________________________________ Current liabilities Bank overdrafts and loans - 45,315 Obligations under finance leases 124 138 Trade and other payables 42,685 37,187 Current tax liabilities 2,580 2,993 Retirement benefit obligation 357 359 Provisions 3,996 619 Liability for share based payment 95 - _______________________________________________________________________________ 49,837 86,611 _______________________________________________________________________________ Net current assets 45,995 6,762 _______________________________________________________________________________ Non-current liabilities Bank overdrafts and loans 24,690 - Obligations under finance leases 106 43 Trade and other payables - 8 Retirement benefit obligation 3,154 3,736 Deferred tax liabilities 537 391 Long term provisions 4,983 2,957 Non-equity preference shares 80 - Liability for share based payment 187 - _______________________________________________________________________________ 33,737 7,135 _______________________________________________________________________________ Total liabilities 83,574 93,746 _______________________________________________________________________________ Net assets 26,095 15,125 _______________________________________________________________________________ Equity attributable to equity holders of the parent Share capital 8 13,888 7,465 Share premium account 8 168 20,986 Translation reserve 8 1,821 266 Retained earnings 8 10,218 (13,592) _______________________________________________________________________________ Total equity 8 26,095 15,125 _______________________________________________________________________________ Consolidated cash flow statement As at 2 April 2006 (3 April 2005) Note 2006 2005 £'000 £'000 ________________________________________________________________________________ Operating loss from continuing operations (3,269) (4,978) Adjustments for: Depreciation of property, plant and equipment 3,842 4,401 Impairment of property, plant and equipment 1,523 1,451 Amortisation of intangible assets 79 91 Impairment of goodwill - 1,868 Loss/(gain) on disposal of property, plant and equipment 133 (1,918) Share option expense 350 15 Increase in provisions 4,411 3,417 ________________________________________________________________________________ Operating cash flows before movements in working capital 7,069 4,347 (Increase)/decrease in inventories (46) 1,264 Decrease/(increase) in receivables 1,469 (297) Increase/(decrease) in payables 3,216 (3,731) ________________________________________________________________________________ Cash generated by operations 11,708 1,583 Analysed as: ________________ Cash generated before major restructuring programme 13,249 1,775 Cash utilised by major restructuring programme (1,541) (192) ________________ Cash generated by operations 11,708 1,583 Income taxes paid (4,359) (2,159) Interest received 111 59 Interest paid (2,639) (3,859) ________________________________________________________________________________ Net cash inflow/(outflow) from operating activities 4,821 (4,376) Cash flows from investing activities Proceeds on disposal of property, plant and equipment 29 7,826 Purchases of property, plant and equipment (2,252) (1,999) Purchases of intangible assets (100) (62) ________________________________________________________________________________ Net cash (used in)/from investing activities (2,323) 5,765 ________________________________________________________________________________ Net cash inflow before financing activities 2,498 1,389 Analysed as: ________________ Cash flows before major restructuring programme 4,039 (5,587) Cash (utilised)/generated by major restructuring programme (1,541) 6,976 ________________ Net cash inflow before financing activities 2,498 1,389 Cash flows from financing activities Proceeds on issue of shares 8 17,645 - Repayment of borrowings 9 (43,263) - Advances of borrowings 9 25,793 1,536 Debt issue and refinancing costs paid 9 (2,486) (743) (Decrease)/increase in bank overdrafts 9 (4,193) 1,050 Repayments of obligations under finance leases 9 (144) (136) ________________________________________________________________________________ Net cash (used in)/from financing activities (6,648) 1,707 ________________________________________________________________________________ Net (decrease)/increase in cash and cash equivalents 9 (4,150) 3,096 Cash and cash equivalents at beginning of year 14,962 11,919 Effect of foreign exchange rate changes 834 (53) ________________________________________________________________________________ Cash and cash equivalents at end of year 9 11,646 14,962 ________________________________________________________________________________ 1. Segments Business segments For management purposes, the Group's structure was reorganised during the second half of the year such that the Group is now organised into three operating divisions - PowerCord, Infocom and Wiring Harness. These classifications are based upon the nature of the products which they supply. These divisions are the basis on which the Group reports its primary segment information. Revenue Operating profit/(loss) _______________________________________________________________________________ 2006 2005 2006 2005 £'000 £'000 £'000 £'000 _______________________________________________________________________________ _______________________________________________________________________________ PowerCord 118,275 110,882 2,812 (243) Infocom 99,398 104,409 (2,196) (3,822) Wiring Harness 32,705 29,260 (3,885) (913) _______________________________________________________________________________ Consolidated 250,378 244,551 (3,269) (4,978) __________________________________________________________ Investment income 111 59 Finance costs (3,500) (4,317) _________________ Loss before tax (6,658) (9,236) Tax (2,448) (4,424) _________________ Loss from continuing operations (9,106) (13,660) _______________________________________________________________________________ External revenue by market sector 2006 2005 £'000 £'000 _______________________________________________________________________________ Consumer Products 100,525 95,614 Data and Telecommunications 87,986 94,296 Industrial and Medical 27,845 25,588 Vehicle and Aerospace 34,022 29,053 _______________________________________________________________________________ 250,378 244,551 _______________________________________________________________________________ Geographical segments The Group's operations are located mainly in Asia, North America, United Kingdom and Other Europe. The following table provides an analysis of Group's sales by geographical market, based on both the source and destination of the sale. External External revenue by revenue by source destination 2006 2005 2006 2005 £'000 £'000 £'000 £'000 _______________________________________________________________________________ Asia and South America 98,761 90,022 77,033 71,243 North America 75,591 74,746 73,986 71,691 United Kingdom 32,705 28,941 34,560 38,542 Other Europe 43,321 50,842 64,799 63,075 _______________________________________________________________________________ 250,378 244,551 250,378 244,551 _______________________________________________________________________________ 2. Major restructuring programme 2006 2005 £'000 £'000 _____________________________________________________________________________ Global management restructuring 1,535 - Property provisions 3,149 3,298 Closure of manufacturing facilities 2,720 1,171 Impairment of property, plant and equipment 1,523 1,451 Impairment of goodwill - 1,868 Insurance claim (329) 876 Profit on sale of properties - (1,918) _____________________________________________________________________________ 8,598 6,746 _____________________________________________________________________________ During the year, as part of the Group's major restructuring programme, the Global management team has been restructured. The Group's global manufacturing footprint has been changed and additional provisions have been recorded against four properties. Impairment charges have been recorded against property, plant and equipment at these properties. Settlement of the insurance claim relating to the Tijuana fire was finalised in January 2006 at a higher level than had been expected at the previous year end. 3. Exchange rates The principal exchange rates used in the preparation of the financial statements are: Average % change Year end % change 2006 2005 vs. £ 2006 2005 vs. £ ___________________________________________________________________________________ United States dollar 1.80 1.84 2.2 1.75 1.89 8.0 Singapore dollar 2.98 3.09 3.7 2.83 3.12 10.2 Euro 1.46 1.47 0.7 1.44 1.45 0.7 Canadian dollar 2.15 2.36 9.8 2.03 2.29 12.8 Brazilian real 4.23 5.28 24.8 3.82 5.02 31.4 ___________________________________________________________________________________ 4. Taxation 2006 2005 £'000 £'000 _____________________________________________________________________________ Current tax - charge for the year 1,865 2,629 Current tax - adjustment in respect of previous years 584 930 Deferred tax (1) 865 _____________________________________________________________________________ 2,448 4,424 _____________________________________________________________________________ 5. Loss per share The calculations of the loss per share are based on the following data: 2006 Per share 2005 Per share £'000 p £'000 p _______________________________________________________________________________ Basic loss (9,106) (18.5) (13,660) (46.2) Major restructuring programme costs 8,598 17.5 6,746 22.8 _______________________________________________________________________________ Adjusted loss (508) (1.0) (6,914) (23.4) _______________________________________________________________________________ No. shares No. shares _______________________________________________________________________________ Weighted average number of shares 49,247,645 29,540,692 _______________________________________________________________________________ The adjusted loss per share has been calculated on the basis of continuing activities before major restructuring costs, net of tax. The Directors consider that this loss per share calculation gives a better understanding of the Group's loss per share in the current and prior year. As the Group recorded a loss per share, the share options are anti-dilutive and therefore there is no difference between the basic and diluted loss per share. 6. Dividends The Directors do not recommend a dividend on the ordinary shares for the year (2005: £nil). 7. Bank facilities On 30 June 2005, new three-year bank facilities with the Group's principal Bankers became effective. As a consequence of signing these new bank facilities the conditions relating to the existing warrants, 494,945 of which were in issue, have been amended to include a re-pricing to 73.5p and an extension of the expiry date to 30 June 2008 (see note 9). 8. Movements in shareholders' equity Share Share Translation Retained Total capital premium reserve earnings equity £'000 £'000 £'000 £'000 £'000 ____________________________________________________________________________________________ Balance at 3 April 2005 7,465 20,986 266 (13,592) 15,125 Adjustment on first-time adoption of IAS 32 &39 (80) - - - (80) ____________________________________________________________________________________________ Balance at 4 April 2005 7,385 20,986 266 (13,592) 15,045 Net proceeds from issue of equity shares 6,503 11,142 - - 17,645 Reserves transfer on exercise and cancellation of options and warrants - 150 - (150) - Net loss for the year - - - (9,106) (9,106) Reserves contra entry for options and warrant charges - - - 577 577 Capital reduction - (32,110) - 32,110 - Actuarial gains on defined benefit schemes - - - 379 379 Exchange differences on translation of foreign operations - - 1,555 - 1,555 ____________________________________________________________________________________________ Balance at 2 April 2006 13,888 168 1,821 10,218 26,095 ____________________________________________________________________________________________ On 29 June 2005, an Extraordinary General Meeting approved an increase in the authorised share capital of the Company to £18,830,000. On 30 June 2005, the Company issued 25,850,340 ordinary shares for proceeds of £17.6m (net of £1.4m expenses). On 12 October 2005, the cancellation of the Company's share premium account was confirmed by the High Court of Justice, Chancery division. The balance on that account at that date was used to eliminate the deficit in the Company's retained earnings account. Upon the adoption of IAS 32 & IAS 39, the Company's non-equity preference shares (£80,000) have been reclassified as non-current liabilities. 9. Analysis of net debt 4 April 2005 Cash Exchange Other 2 April 2006 flow movement non-cash changes £'000 £'000 £'000 £'000 £'000 ________________________________________________________________________________ Cash at bank and in hand 14,962 (4,150) 834 - 11,646 Overdraft (4,026) 4,193 (167) - - Debt due after one year - (25,793) (958) - (26,751) Debt due within one year (41,289) 43,263 (1,974) - - Finance leases (181) 144 (11) (182) (230) Debt issue costs - 2,486 - (425) 2,061 ________________________________________________________________________________ Net debt (30,534) 20,143 (2,276) (607) (13,274) ________________________________________________________________________________ Non-cash changes within debt issue costs include £227,000 associated with the amendment of warrants (see note 7) and accrued costs of £87,000, less amortisation of debt issue costs of £739,000. 10. Adoption of International Financial Reporting and Accounting Standards ('IFRS') The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted for use in the European Union ('EU') and have been prepared on a historical cost basis. The Group has made use of the exemption available under IFRS 1 to apply IAS 32, Financial Instruments: Disclosure and Presentation and IAS 39, Financial Instruments: Recognition and Measurement from 4 April 2005. Whilst the information included in this preliminary announcement has been compiled in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS. Details of Volex's IFRS accounting policies have already been published in the IFRS transition document produced with the Interim Results for the 26 weeks to 2 October 2005 and published on the Company's website. The Company intends to publish full financial statements that comply with IFRS later this month and these will contain reconciliations between UK GAAP and IFRS for the 2005 income statement and 2004 and 2005 balance sheets together with a summary of the Group's significant accounting policies. Volex Group plc's consolidated financial statements were prepared in accordance with United Kingdom Generally Accepted Accounting Practices ('UK GAAP') until 4 April 2005. UK GAAP differs in some areas from IFRS. The effect of transition from UK GAAP to IFRS on the Group's loss for the year ended 3 April 2005 and its net assets at 3 April 2005 is set out below. Loss for Net assets year to as at 3 April 2005 3 April 2005 £'000 £'000 _______________________________________________________________________________ As previously reported under UK GAAP (13,928) 18,869 Reversal of goodwill amortisation 302 302 Goodwill impairment charge (132) (132) Defined benefit pension schemes 113 (3,914) Share options (15) - _______________________________________________________________________________ As restated under IFRS (13,660) 15,125 _______________________________________________________________________________ 11. Non-statutory financial statements The financial information set out above does not constitute the statutory financial statements of the Group within the meaning of Section 240 of the Companies Act 1985. Statutory financial statements for 2005 were prepared under UK GAAP and have been delivered to the Registrar of Companies for England and Wales. Those for 2006 will be delivered in due course. The auditors have reported on these accounts and did not contain a statement under Section 237(2) and (3) of the Companies Act 1985. The preliminary announcement was approved by the Board of Directors on 13 June 2006. This information is provided by RNS The company news service from the London Stock Exchange