Volex Plc · LSE:VLX
Volex — FY2003 Earnings Presentation
46 slides from Volex's earnings presentation, 2003
Slide 1: Full Year Results 2002/2003
Volex Group p.l.c. Full Year Results 2002/2003
Slide 2: Briefing Agenda
Briefing Agenda 1. Group Overview John Corcoran, Group CEO 2. Regional Operations John Corcoran, Group CEO 3. Financials David Hudson, Group FD 4. Strategy for the Future John Corcoran, Group CEO Volex Group p.l.c. Full Year Results 2002/2003 2
Slide 3: 2002/2003 Year Results
2002/2003 Year Results ! Global Sales down 17% to £230m ! Operating Profit £0.6m (pre goodwill amortisation & impairment) • Goodwill impairment £8.7m • Goodwill amortisation £0.9m ! Pre-tax Loss £4.0m (pre goodwill amortisation & impairment) ! Borrowings reduced by £11.6m Volex Group p.l.c. Full Yea
Slide 4: Trading Conditions
Trading Conditions ! Market decline continued across most significant sectors ! Caution governing capital spending at enterprise level ! Customer delays in business transfers ! Customers delay order call-off But…… ! Market share increases continued ! Order book continued to strengthen ! Continued to
Slide 5: Key Features of Financial Year
Key Features of Financial Year ! Debt Reduced significantly ! Increased penetration of existing accounts ! Secured new accounts ! Reduced dependence – better balance ! Gross margin improving year on year ! Better utilisation of working capital ! Cash generative ! Break-even point further reduced ! S
Slide 6: Current Global Position
Current Global Position 36 Manufacturing/Sales/Distribution Units 22 Countries 8,350 Employees (average) 1.8 mil. sq ft Manufacturing Capacity Volex Group p.l.c. Full Year Results 2002/2003 6
Slide 7: General Market Conditions
General Market Conditions ! Communications market depressed • Carrier/Operator spending restricted, debt burdened • Slow adoption of new technologies (GPRS,WCDMA,UMTS,EDGE), • Enterprise spending depressed - impact on server and router markets ! Consumer market Stable but uncertain • Spending high i
Slide 8: General Market Conditions Cont/d
General Market Conditions Cont/d ! Consolidation of customer base continued • OEM/EMS customer base merging and partnering • OEM/EMS migrating to lower cost locations • MNC migration to China ! Rationalisation of supply base continues • Regional players are being phased out – secured wins • Pace of
Slide 9: Group Sales by Product
Group Sales by Product Data/Telecommunications 2002/03 Percentage variation on prior year Power Cords 0% Harnesses -10% -4.3% -6.7% -20% -30% -28.7% -40% 14% 44% 42% Volex Group p.l.c. Full Year Results 2002/2003 9
Slide 10: Group Sales by Market Sector
Group Sales by Market Sector Data/Telecommunications 2002/03 Percentage variation on prior year Consumer Appliances Consumer Electronics 10% 3.5% Vehicles & Aerospace 0% -10% -9.0% -7.9% -20% -30% -26.8% 14% 17% 48% 21% Volex Group p.l.c. Full Year Results 2002/2003 10
Slide 11: Group Sales by Destination
Group Sales by Destination Europe 2002/03 Percentage variation on prior year Americas 0% Asia -5% -10% -8.6% -15% -20% -15.0% 25% -25% -22.4% 37% 38% Volex Group p.l.c. Full Year Results 2002/2003 11
Slide 12: Volex Market Share
Volex Market Share The world’s No. 3 cable assembly provider. Rank Companies Shipments* Market Share Global cable assembly 2002 2002 ($'m) 2002 market in 2002: 1 Hon Hai $594 5.55% $10.703 billion* 2 Tyco $490 4.58% * Does not include power cords. 3 Volex $354 3.31% 4 Furukawa/Lucent $344 3.21% 5 Mo
Slide 13: Volex in the Americas
Volex in the Americas 6 Manufacturing/Sales/Distribution units 3 Satellite Manufacturing units 2 Regional Centres Ottawa, Canada i i Fremont, CA, USA Quincy, MA, USA Conover, NC, USA i P i Tijuana, Mexico Indianapolis, IN, USA P P Hermosillo, Mexico Clinton, AR, USA P P i Aguascalientes, Mexico Jaca
Slide 14: Volex in the Americas
Volex in the Americas ! Revenue declined by 22% over prior year ! Second half decline pronounced ! Dockers strike helped focus SCM strategy ! Profiling of US and Canadian sites ! Closed Chula Vista site, migrated to Mexico ! Increased dependence on supply from Volex Asia ! Mexico plants focused on t
Slide 15: Volex in Asia
Volex in Asia i Manufacture Infocom products 12 Manufacturing/Sales/Distribution units P Manufacture power cord products 6 Sales Offices H Manufacture Harness products Regional Centre Beijing,China Seoul, Korea Tokyo, Japan Osaka, Japan Suzhou, China i P H Taipei, Taiwan P Shenzhen, China P Melbourn
Slide 16: Volex in Asia
Volex in Asia ! Sales declined by 9% year on year ! Telecom market in China remains stalled to declining ! Telecom infrastructure still an opportunity ! Increased market share with Japanese customers ! Migration of MNCs to China accelerated ! Green product set developed for power cords ! Growing pre
Slide 17: Volex in Europe
Volex in Europe 5 Manufacturing/Sales/Distribution units i Manufacture Infocom products 4 Satellite Manufacturing units P Manufacture power cord products H Manufacture Harness products 1 Regional Centre Group Head Office i Östersund, Sweden H Kuressaare, Estonia i Castlebar, Ireland Warrington, Engl
Slide 18: Volex in Europe
Volex in Europe ! Sales down overall by 15% over prior year ! Growth in H2 over H1, infocom share increase ! ADSL/Broadband deployment benefit realised ! Powercord sales team re-structured ! Power manufacturing on automatic plant only ! Second site established in Poland with customer ! Growth in our
Slide 19: Focus on Cost and Cash
Focus on Cost and Cash ! Restructuring of operations continued ! Improved utilisation of working capital ! Centralised control on capital spending ! Centralised control on overhead movements ! Improved cash management in all regions ! Increased inventory turnover, reduced holding ! Low cost manufact
Slide 20: Financial Highlights
Volex Group p.l.c. Financial Highlights 2002/2003
Slide 21: Financial Highlights for the Year to March 2003
Financial Highlights for the Year to 31 March 2003 H1 H2 Full Year £m £m £m Sales 120 110 230 Operating Profit* 0.2 0.4 0.6 Pre-Tax Loss* (1.4) (2.6) (4.0) * before goodwill amortisation & impairment N.B.: Brazil goodwill impairment £8.7m (carrying value: £2m) Goodwill amortisation £0.9m Volex Group
Slide 22: Turnover
Turnover 250 217 201 176 200 160 144 116 120 150 110 £M 100 50 0 H1 H2 H1 H2 H1 H2 H1 H2 FY2000 FY2001 FY2002 FY2003 Volex Group p.l.c. Full Year Results 2002/2003 22
Slide 23: Group Sales by origin
Group Sales by origin (“output”) Europe 2002/03 Percentage variation on prior year Americas Asia 0% -10% -5.1% -20% -12.6% -20.7% -30% 28% 36% 36% Volex Group p.l.c. Full Year Results 2002/2003 23
Slide 24: Effect of Exchange Rates
Effect of Exchange Rates* 31 March 2003 £m % Turnover (8.2) (3.6) Operating Profit Nil Nil * - vs. 2001/02 Volex Group p.l.c. Full Year Results 2002/2003 24
Slide 25: Exchange Rates
Exchange Rates Average % Year End % 2003 2002 Change 2003 2002 Change United States 1.54 1.44 6.9% 1.57 1.42 10.6% Singapore 2.72 2.56 6.3% 2.78 2.62 6.1% Euro 1.54 1.63 (5.5)% 1.46 1.63 (10.4)% Canada 2.39 2.23 7.2% 2.30 2.27 1.3% Brazil 4.48 3.49 28.4% 5.28 3.31 59.5% Sweden 14.33 15.00 (4.5)% 13.
Slide 26: Group Composite Tax Rates
Taxation Group Composite Tax Rates 31 March ‘00 31 March ‘01 31 March ‘02 31 March ‘03 ACTUAL ACTUAL ACTUAL ACTUAL 30.3% 29.0% 27.8% 7.0% (effective) 23.6% (pre goodwill amortisation & impairment) Effective Tax Rates Countries Below 20% Ireland, China 20% - 30% Singapore, Sweden, Poland 30% - 40% UK
Slide 27: Cash Flow
Cash Flow £m Net Cash Inflow from Operating Activities: Operating Loss (post goodwill) (9.0) Depreciation 6.8 Goodwill (amortisation & impairment) 9.6 Working Capital 8.2 Fundamental Restructuring (2.3) Other (0.2) 13.1 Volex Group p.l.c. Full Year Results 2002/2003 27
Slide 28: Cash Flow cont/d
Cash Flow cont/d £m Net Cash Inflow from Operating Activities 13.1 Purchase of fixed assets (net) (2.0) Tax Refunds 2.4 Interest Paid (2.6) Refinancing costs (3.3) Acquisitions (0.3) Exchange 4.3 Reduction in Borrowings 11.6 Volex Group p.l.c. Full Year Results 2002/2003 28
Slide 29: Borrowings/Deposits
Borrowings/Deposits 31 Mar 03 31 Mar 02 £m £m Cash at Bank 13.7 13.1 Borrowings: - within 1 year (3.8) (2.9) - over 1 year (48.7) (60.6) Net Borrowings (38.8) (50.4) Gearing % 86.0 85.0 Gearing % - pre goodwill impairment 72.1 Volex Group p.l.c. Full Year Results 2002/2003 29
Slide 30: Facility Amendments
Facility Amendments 1. Period - Remain available to 30 June 2004 with company having option to renew for further 12 months (subject to meeting financial conditions) 2. Extra Margin - Ca. 1% over 2003 costs - Ratchet down vs financial ratios 3. Security - Remains unchanged 4. Borrowing Levels - Adequ
Slide 31: Bank Covenants
Bank Covenants 1. Gross Profit June 2003, September 2003 2. Net Worth 3. Interest Cover December 2003, March 2004 4. Debt to EBITDA Volex Group p.l.c. Full Year Results 2002/2003 31
Slide 32: Group Capital Expenditure
Group Capital Expenditure Half Year 1 Half Year 2 Capex multiple over depreciation 1.2 1.2 0.35 2003 3.2 1.4 0.54 2002 2001 6.7 7.5 1.8 5.6 5.0 1.5 2000 3.3 5.4 1.6 1999 0 5 10 15 £'M Volex Group p.l.c. Full Year Results 2002/2003 32
Slide 33: Overheads and break-even sales
2003 Outturn: reduced break-even 25 350 !Break-even sales reduced from approximately £300m 300 20 (end March 2001) to £220m 250 currently Overheads £m 15 !Overhead reduction over Sales £m 200 two year period of £20m 150 10 – Closure of Dartmouth and Chula Vista plants (USA) 100 5 – Restructuring of
Slide 34: Strategy for the Future
Volex Group p.l.c. Strategy for the Future
Slide 35: Strategy
Strategy To be the leading Value provider of Global cable assembly Solutions • Service • Quality • Footprint • Responsiveness • Account Mgt. • Flexibility • Coordinated • Margin premium • Design • Transfer • Independent • Development • Low Cost Options • Global Technology • NPI • Global Materials •
Slide 36: The Cable Assembly Stack
The Cable Assembly Stack Total Product Supply Services Cable Portfolio Management Control Services Layer Approved Vendor List Control Outsource/In-source Management Portfolio NPI Product/Solution Value-Add Applications Rationalisation Management Design Layer Hubbing/ JIT-to-Line Logistics Operationa
Slide 37: Total Solutions Provider
Total Solutions Provider Design/Development: • Complete technology bandwidth • Wide range of connector solutions (independent) • Design and Industrialisation for manufacture and cost reduction Installation: Product Introduction • Installation kit provision + Transfer: • Operate through installers/ •
Slide 38: The Future
The Future Platform for Business Development and Growth: ! Re-aligned cost base with breadth of technology capabilities ! Focused sales force selling the total portfolio ! Market leading supply chain: service driven, flexible and responsive ! Leverage independence with strategic supply alliances ! V
Slide 39: Growth Potential
Growth Potential ! Leverage the Consolidation/Outsourcing opportunity through Value Creation and Competitiveness Markets Telecoms Networking Computers Industrial Appliances Harnesses Characteristics Global Consolidation Outsourcing Technology Time to Market Demands Engineering Product Breadth Flexib
Slide 40: FY'04 Market Indicators
FY’04 Market Indicators Market VIEW Volex VIEW • Telco to decline by further 10- • Telco decline by 13%, 15%, shift to EDGE, WCDMA and particularly fixed line telephony CDMA • Server and Data flat with deferred capital spending • Server and data flat to 3-5%up, profile to H2, pending US increase by
Slide 41: Key Assumptions
Key Assumptions “All business proceeds on beliefs, on judgements of probabilities, and not on certainties”………..Charles W. Eliot ! Execution is not the issue ! Base assumption … we will outperform market decline ! The real gain … market starts recovery ! In the interim … remain financed – Drive flexi
Slide 42: Growth in FY'04
Growth in FY’04 ! The Business Plan does not depend on Global/Sectoral Growth Growth through Existing Customer Base – Address competition/diversity of supply base – Expand Service Offering – Create Barriers to Exit Growth through New Customer Development – OEM growth within established markets – EMS
Slide 43: Financial Indicators
Financial Indicators 1. Sales 2004 – Flat to slightly positive 2. Operating Profit – Break-even reduced to ca. £220m p.a. – Margin returning towards acceptable levels 3. Finance charges – up by ca. 1% over 2003 rates – 2003 average rate approximately 6% to 6.5% Volex Group p.l.c. Full Year Results 2
Slide 44: Risks and Opportunities
Risks and Opportunities ! Structural changes within customer base Volex has managed through all outsourcing programs - covers the ‘Top Five’ EMS Providers – the Platform has been established ! Price pressures remain Volex has taken action to correct the cost base – Gross margin improved – the Mfg./s
Slide 45: FY'04 Summary
FY’04 Summary Profitable and Cash Generative ! Aggressive on cash generation (debt reduction / fuel growth) ! Reduce break-even point further ! Improve gross and operating margins ! Position for market recovery ! Achieve growth through increased market share ! Sustainable growth and profitability -
Slide 46: Full Year Results
Volex Group p.l.c. Full Year Results 2002/2003