9th Apr 2014 08:43
LONDON (Alliance News) - Volex PLC said in a year-end update Wednesday that it continues to expect underlying operating profit for the ended March 30 to be materially lower than the previous year, although revenues will be ahead of consensus market expectations.
The electrical cable supplier said that although usually it is first-half weighted, it had seen a reverse of this trend in the recent year, as it utilised its global presence and focused on price competitiveness. This has led to a short-term reduction in gross margins, which has hit operating profit, Volex said.
Net debt as at March 30 was USD33 million, which it said was lower than expected, even taking into account the USD11 million it raised in December 2013 through a share placing.
The company said it had continued to make good progress on its "transformation plan" during the year. Volex won further customers in China, including Xiaomi Inc, as it increased focus on its regional sales operations.
Volex also achieved some cost savings, and said it has set itself "aggressive targets for the months to come." It said it expects the benefits of its cost savings to be more prominent in the second half of the new financial year, and expects margins to gradually improve.
In 2014, it said it intends to deliver further cost savings and focus on revenue growth in its Power and Data divisions. Volex said it had seen encouraging order intake in the new financial year.
Broker Jefferies on Wednesday maintained its Buy rating for Volex, saying that the tone of the update was upbeat, and that it feels "management are increasingly confident regarding the group's outlook and in its ability to deliver the 'transformation plan'."
As a result of slightly depressed gross margins in the near term, Jefferies expects Volex's financial year 2014 earnings before interest and tax to be at the low end of expectations, but expects little change to consensus for the financial year 2015.
Jefferies said it feels "Volex still has to get the market on-side and must now must deliver on EBIT forecasts," noting there's no room for slippage in 2015.
Shares in Volex were trading down 9.4% at 98.05 pence Wednesday morning.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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