11th Feb 2005 07:00
Volex Group PLC11 February 2005 EMBARGOED UNTIL 7.00 a.m. 11TH FEBRUARY 2005 VOLEX GROUP plc TRADING UPDATE In the interim results announcement on 10th November 2004, the Chairman,commenting on current trading, stated that the Group remained cautious about thesustainability of the current demand profile and the challenges the Group faced.The Chairman also reported on the action being taken in North America to bringthe Group back to more acceptable levels of performance. Since that update, the North American operation has been brought firmly undercontrol with the new management team now in place and costs have already beentaken out of that business unit as it returns to profitability. The operationhas substantially recovered from the effects of the fire in Tijuana, Mexico, inSeptember 2004. There has been an adverse effect on the operational results ofthe division as work has been rapidly transferred to higher cost facilities as atemporary measure but this has enabled the successful mitigation of the impacton the customer base and all customer relationships have been maintained.However, commodity prices, in particular copper, have continued to escalatefaster than the Group's ability to recover these increases from its extensivecustomer base. This factor together with the prospect of somewhat weaker thanexpected sales in the final quarter of the year is currently expected to producea profit before tax towards the bottom of the current range of marketexpectations. Through the course of the current financial year Volex has been working toresolve a number of overseas tax issues relating to earlier years. Negotiations,ongoing with local tax authorities, now indicate that the level of theseexposures is greater than previously estimated. The Board therefore considers itwill be prudent to increase the level of provisions in the current financialyear by up to £3m. The Board is also conducting a review of the Group's balance sheet and currentlyintends to provide for two property leases and for the goodwill in respect ofthe Brazilian business. In addition, the Board currently proposes to write offan automated manufacturing line, previously intended for redeployment within theGroup but now determined not to be economically viable. The provisions arisingfrom this review are currently expected to reduce net assets at the end of theyear by approximately £5m. The insurance claim process in respect of the September 2004 fire in one of thefactories in Tijuana, Mexico is continuing and it is not possible at this stageto estimate how much of the insurance claim currently carried as a £2.2mreceivable in the Group's balance sheet will be recovered. Upon completion of its budget process, the Group will, in March, startdiscussions with its three principal banks to extend its existing bankfacilities by a further year to 30th June 2006 and to provide sufficientflexibility to carry out operational restructurings aimed at improving thecompetitiveness of the Group. Whilst the above issues are significant to the Group they are mostly one-off andhistorical in nature. The Group continues to revitalise its management team,hiring expertise in areas for business growth and has excellent prospects fornew business with new customers. The operational performance of the Group isbeginning to deliver the benefits of the restructurings over the past number ofyears. The Group has continued to generate cash from its properties and hasrealised £3m in the second half of the year from this initiative. The Boardbelieves that actions that have been, and are being, taken throughout thebusiness will continue to position it firmly in the marketplace as a competitiveprovider of value cable assembly solutions to our customers. D.J. Molloy J. CorcoranChairman Group Chief Executive For further information please contact: Volex Group p.l.c. Tel: 01925 830101Dom Molloy, ChairmanJohn Corcoran, Group Chief ExecutiveDerek Walter, Group Finance Director Weber Shandwick Square Mile Tel: 020 7067 0700Chris Lynch/Nick Dibden This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Volex