Volex plc · LSE:VLX
Volex — FY2002 Earnings Presentation
49 slides from Volex's earnings presentation, Jun 17, 2002
Slide 1: Full Year Results 2001/2002
Volex Group p.l.c. Full Year Results 2001/2002
Slide 2: Briefing Agenda
Briefing Agenda 1. Group Overview Dom Molloy, Group CEO 2. Regional Operations John Corcoran, Group CEO (Designate) 3. Financials Ken Hooper, Group FD 4. Strategy for the Future John Corcoran, Group CEO (Designate) 2 Full Year Results 2002 Volex Group plc 17 June 2002
Slide 3: 2001/2002 Year Results
2001/2002 Year Results ! Global Sales down 34% to £276m ! Operating Loss £0.5m (pre one-off cost + goodwill) – One-off cost + goodwill £10.4m ! Pre-tax Loss £14.0m ! Cash Generated £8.1m 3 Full Year Results 2002 Volex Group plc 17 June 2002
Slide 4: Key Features of Financial Year
Key Features of Financial Year ! Increased penetration with existing customer base ! Broadened our customer base ! Increased global market share (from #4 to #3) ! Order Book – upward trend in final quarter ! Significant reduction in cost base ! Completed the refinancing of the company 4 Full Year Re
Slide 5: Current Global Position
Current Global Position 37 Manufacturing/Sales/Distribution Units 22 Countries 8,175 Employees 2 mil. sq ft Manufacturing Capacity 5 Full Year Results 2002 Volex Group plc 17 June 2002
Slide 6: General Market Conditions
General Market Conditions ! Communications market still depressed – Carrier/Operator spending restricted – Slow deployment of new technologies (GPRS, 3G) – Real-time demand returning to server and router markets ! Consumer market recovering – Spending reduced through 2001 – Reduced interest rate env
Slide 7: General Market Conditions continued
General Market Conditions continued... ! Consolidation of customer base continues – OEM/EMS customer base merging and partnering – OEM/EMS migrating to lower cost locations ! Rationalisation of supply base continues – Regional players are being phased out – Global Strategic alliances driven with glo
Slide 8: Group Sales by Product
Group Sales by Product 2001/02 Percentage variation on prior year Communications & Data Power 20% 15% Harnesses 0% -20% -21% -40% 39% 12% -46% -60% 49% 8 Full Year Results 2002 Volex Group plc 17 June 2002
Slide 9: Group Sales by End Market
Group Sales by End Market Communications & Computing 2001/02 Percentage variation on prior year Appliances 15% Auto & Aero 20% 0% -20% 20% 12% -40% -40% -30% -60% 68% 9 Full Year Results 2002 Volex Group plc 17 June 2002
Slide 10: Volex Market Share
Volex Market Share World-wide cable assembly market in 2001: $13.758 billion Rank Companies Cable Assemblies Market Share 1 Hon Hai (Foxconn) $594m 4.32% 2 Tyco $422m 3.07% 3 Volex $338m 2.46% 4 Furukawa $270m 1.96% 5 3M $236m 1.72% 6 Molex $226m 1.64% 7 WL Gore $213m 1.55% 8 Fujikura America $188m
Slide 11: Regional Operations
Full Year Results 2001/02 Regional Operations
Slide 12: Market Dynamics
Market Dynamics Markets Telecoms Networking Computers Industrial Appliances Harnesses Characteristics Global Consolidation Outsourcing Technology Time To Market Demands Engineering Product Breadth Flexibility Competitiveness Value Creation Capability Volex Established Commercially Technologically Re
Slide 13: Group Sales by Destination
Group Sales by Destination 2001/02 Percentage variation on prior year Europe Americas 0% Asia -10% -8% -20% -30% 23% -40% -40% -39% 41% -50% 36% 13 Full Year Results 2002 Volex Group plc 17 June 2002
Slide 14: Volex in the Americas
Volex in the Americas 8 Manufacturing/Sales/Distribution units 3 Satellite Manufacturing units 2 Regional Centres Ottawa, Canada i Wilmington, MA, USA i i Fremont, CA, USA Quincy, MA, USA i Chula Vista, CA, USA Conover, NC, USA i P i Tijuana, Mexico Indianapolis, IN, USA P P Hermosillo, Mexico Clint
Slide 15: Volex in the Americas
Volex in the Americas • Revenue declined by 39% over prior year • Initial signals of global market decline • Regional competition provided opportunity • Continuing to strengthen our power cord position • Strategic Alliances driven with EMS – Majority are headquartered in USA • Mexican facilities str
Slide 16: Volex in Asia
Volex in Asia 12 Manufacturing/Sales/Distribution units i Manufacture Infocom products P Manufacture power cord products 6 Sales Offices Regional Centre Beijing,China Seoul, Korea Tokyo, Japan Osaka, Japan Suzhou, China i P Taipei, Taiwan P Shenzhen, China P Melbourne, Australia Zhongshan, China i P
Slide 17: Volex in Asia
Volex in Asia • Sales declined by 8% • Telecom market and intercompany demand weakened • Telecom infrastructure still an opportunity, but slow • Increased market share with Japanese customers • Migration of OEMs and EMS’s continues • Increased success with global customers • Product capability expan
Slide 18: Volex in Europe
Volex in Europe 5 Manufacturing/Sales/Distribution units i Manufacture Infocom products 3 Satellite Manufacturing units P Manufacture power cord products H Manufacture Harness products 1 Regional Centre Group Head Office i Östersund, Sweden i Kuressaare, Estonia i Castlebar, Ireland Warrington, Engl
Slide 19: Volex in Europe
Volex in Europe • Sales down overall by 40% over prior year • Infocom market severely impacted – User penetration high, key customer dependence • New customers added in OEM and EMS base – Flextronics, Alcatel, Jabil, Cisco Italy • Consolidation of Powercord and Data/Telco businesses • Power manufact
Slide 20: Cost Competitiveness
Cost Competitiveness Reduced Costs ! Restructuring of operations ! Reduced overhead ! Improved cash management ! Increased inventory turnover ! Low cost manufacturing 20 Full Year Results 2002 Volex Group plc 17 June 2002
Slide 21: Profiled Manufacturing
Profiled Manufacturing Production concentrated in global low cost locations Europe Asia Americas Estonia China Poland India Vietnam Mexico Croatia Brazil 21 Full Year Results 2002 Volex Group plc 17 June 2002
Slide 22: The Technology Breadth
The Technology Breadth Sonet Devices Networking Cables Switching Devices Base Stations Fibre Optics Networking Products Servers and Storage Peripheral Interconnects Industry Radio Internal Switching Standard Frequency Base Stations Industrial Products Switching Devices Industrial Automation Telco Ne
Slide 23: Technology Positioned
Technology Positioned ! Power Cords Consumer Electronics ! Telco/RF Interconnects Mobile & Telecommunications ! Data Interconnects Personal Computers & Peripherals ! Medical Cabling Diagnostic & Patient Care Systems ! Fibre Optics Wireless Communication Systems 23 Full Year Results 2002 Volex Group
Slide 24: Financial Highlights
Full Year Results 2001/02 Financial Highlights 2001/2002
Slide 25: Financial Highlights for the Year to March 2002
Financial Highlights for the Year to 31 March 2002 H1 H2 Full Year £m £m £m Sales 159.9 115.8 275.7 Operating Profit* 2.9 (3.4) (0.5) Pre-Tax Profit* 1.1 (4.7) (3.6) * before exceptional items and goodwill amortisation 25 Full Year Results 2002 Volex Group plc 17 June 2002
Slide 26: Turnover
Turnover 418 450 400 320 350 276 300 216 £m 250 192 200 150 100 50 0 1998 1999 2000 2001 2002 26 Full Year Results 2002 Volex Group plc 17 June 2002
Slide 27: Group Sales by Origin
Group Sales by origin (“output”) 2001/02 Percentage variation on prior year Europe Americas 0% Asia -10% -20% -20% -30% 25% -40% -40% -40% -50% 36% 39% 27 Full Year Results 2002 Volex Group plc 17 June 2002
Slide 28: Exchange Rates
Exchange Rates Average % Year End % 2002 2001 Change 2002 2001 Change United States 1.44 1.48 (2.7)% 1.42 1.42 0.0% Singapore 2.56 2.58 (0.8)% 2.62 2.57 1.9% Euro 1.63 1.63 0.0% 1.63 1.61 1.2% Canada 2.23 2.22 0.5% 2.27 2.24 1.3% Brazil 3.49 2.81 24.2% 3.31 3.08 7.5% Sweden 15.00 13.8 8.7% 14.75 14.
Slide 29: 2002 Exceptionals
2002 Exceptionals A. Above Line Closure of US (N. East coast) factory Timing - Dec. 2001 Cost - £1.0m Annual savings - £1.3m B. Below Line Europe fundamental reorganisation Timing - Q4 2001/02 Cost - £6.3m (non cash £1.7m) Annual savings - £3.7m 29 Full Year Results 2002 Volex Group plc 17 June 2002
Slide 30: Group Composite Tax Rates
Taxation Group Composite Tax Rates 31 March ‘00 31 March ‘01 31 March ‘02 31 March ‘03 ACTUAL ACTUAL ACTUAL INDICATION 30% 29% 28% 24 - 26% (underlying) Effective Tax Rates Countries 10% - 20% Ireland 20% - 30% Singapore, Sweden 30% - 40% UK, Brazil, Malaysia, China*, Croatia, Mexico 40%+ USA, Canad
Slide 31: Borrowings/Deposits
Borrowings/Deposits 2001/2002 2000/2001 £m £m Cash Deposits 13.1 18.6 Borrowings: - within 1 year (2.9) (15.4) - over 1 year (60.6) (61.6) Net Borrowings (50.4) (58.4) Interest cover (times) (2.9) 7.0 Gearing % 85.0 81.6 31 Full Year Results 2002 Volex Group plc 17 June 2002
Slide 32: Refinancing Terms
Refinancing Terms 1. Period - 2 years + year 3 option 2. Extra Margin - c. 2.5% over 2002 costs - ratchet down vs. financial ratios 3. Security - Fixed & floating - Group guarantee structure 4. Borrowing Levels - Adequate for foreseeable needs - Repayments starting June 2003 5. Costs - 2002 w/o £2.2
Slide 33: Cash Flow
Cash Flow £m EBITDA 6.9 Less: Maintenance Capital Expenditure (8.7) Net Working Capital Inflation (3.3) Maintenance Cash Outflow Pre-tax (5.1) Taxation (4.2) Cash Outflow Post Tax (9.3) Disposals - Property & Plant 0.7 Share Capital 0.1 c/fwd (8.5) 33 Full Year Results 2002 Volex Group plc 17 June 2
Slide 34: Cash Flow cont/d
Cash Flow cont/d £m b/fwd (8.5) Reduced Borrowings (net of currency) (7.9) (16.4) Applied as to: Deferred Consideration 4.0 Contraction of business (32.2) Fundamental Restructuring 2.0 Interest Paid (net) 2.9 Dividend Paid 6.9 (16.4) 34 Full Year Results 2002 Volex Group plc 17 June 2002
Slide 35: Group Capital Expenditure
Group Capital Expenditure Other Fixed Asset Additions New Factory Additions £4.6m 8.5 Depreciation Charge in Year 2002 £14.2m 7.9 2001 £7.9m £2.7m 7.1 2000 £7.0m £1.7m 5.3 1999 0 5 10 15 £'m 35 Full Year Results 2002 Volex Group plc 17 June 2002
Slide 36: Financial Indicators
Financial Indicators 1. Sales 2003 - reverse halves to 2002 2. Operating Profit - Break-even reduced to ca. £240m p.a. - Overheads (production & other) down by £15m p.a. 3. Finance charges - up by ca. 2.5% over 2002 rates 2002 average rate app. 5.5% to 6.0% 36 Full Year Results 2002 Volex Group plc
Slide 37: Strategy for the Future
Full Year Results 2001/02 Strategy for the Future
Slide 38: Market Indicators
Market Indicators ! Global Telecom Equipment Market to fall by 4% (2002-2003) Wireline capex to decline by 2%, Wireless to decline by 7%. Verified by current customer forecasts. ! IT budgets for Network Equipment flat, 10% growth anticipated in 2003 Value of PC market to grow at 2.3% CAGR 2001 - 200
Slide 39: Strategy for Growth
Strategy for Growth ! 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 –
Slide 40: Growth through Global Partnerships
Growth through Global Partnerships Degree of collaboration Key Account Relationship Stage Needs of Parties High: collaborative ts un co Ac Integrated Realisation of fullest potential (Strategic) y Ke Interdependent Confidence in relationship with (Preferred) high degree of evaluation Reduction of ri
Slide 41: Growth in Key Accounts
Growth in Key Accounts Telecom/Networking Computer/Office EMS Ericsson HP Flextronics Nortel Networks Compaq Solectron Lucent Dell Jabil Alcatel IBM Celestica Cisco Canon APW Sun Microsystems Epson Benchmark 41 Full Year Results 2002 Volex Group plc 17 June 2002
Slide 42: New Customer Growth
New Customer Growth ! Systems Integration Outsourcing Electronic Manufacturing Telecom/Networking/Computer OEMs Service (EMS) Providers Outsource SUPPLY CHAIN MANAGEMENT • Materials Sourcing • Systems Design Cables • Systems Build • Systems Test • Network Engineering 42 Full Year Results 2002 Volex
Slide 43: Market Segment Growth
Market Segment Growth Telecom & Networking Computer & Consumer Electronic Manufacturing Service Providers Industrial & Distribution 43 Full Year Results 2002 Volex Group plc 17 June 2002
Slide 44: Regional Growth
Regional Growth Focus on China • China - single biggest telecom market • OEM’s will use China as export base • EMS companies estalishing new facilities China • Emergence of Chinese “global” players • 4 major telecoms operators (previously 2) • Major reduction of import duties (WTO) • Low labour cost
Slide 45: Risks and Opportunities
Risks and Opportunities ! Structural changes within customer base Volex has managed through initial phases and now covers the ‘Top Five’ EMS Providers – the Platform has been established ! Price pressures remain Volex has taken action to correct cost base AVL control freedom to exploit independence
Slide 46: 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 47: 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 48: The Future continued
The Future continued... ! Maintain FY’03 sales at FY’02 levels ! Improve gross and operating margins ! Continue debt reduction ! Achieve growth through increased market share ! Sustain growth and profitability - FY’04 onwards 48 Full Year Results 2002 Volex Group plc 17 June 2002
Slide 49: Full Year Results
Volex Group p.l.c. Full Year Results 2001/2002