Recovery continues for Volex

2nd Nov 2010 12:03

Power cords and cable assemblies supplier Volex has managed to increase sales without increasing its fixed costs and that has enabled it to quadruple interim profit. Revenues jumped 43% to £157m in the six months to 3 October 2010, while pre-tax profit soared from £1.7m to £7m. Part of that improvement came from a sharp reduction in restructuring costs. Volex does not strip out these costs any more but they effectively reduced from £2.66m to around £600,000. All the company's divisions are winning new business but the main growth is coming from the consumer side thanks to people's appetite for gadgets. The second quarter is normally the strongest but the division continues to grow. Healthcare growth is steady as new customers are added. The industrial sector has been boosted by telematics and agricultural equipment demand and this division is growing strongly from a small base - it is still less than 7% of revenues. The main disappointment was the telecoms division, which grew but with no help from India. There are delays in India's 3G roll out and the government is re-certifying equipment because of concerns about Chinese spyware. There is pent up demand for 3G equipment and this could start to come through in the second half. Volex says that its full year profit is likely to be modestly ahead of previous guidance and Charles Stanley has edged up its profit forecast from £13.6m to £14.4m. Net debt is £10.1m. The operating cash inflow fell as higher sales led to increased working capital needs. The net debt figure will be similar at the end of the financial year. A capital reorganisation will enable Volex to return to paying dividends next year. A restructuring of the supply chain should enable Volex to use up more of its tax losses.