No surprise that first-half revenues and profit margins plunged at Volex (VLX), a global supplier of electrical, digital and optical connections, after the company warned last month that Apple, its largest customer, accounting for around a third of sales, had decided to use a different component for its new iPhone and iPad chargers. The news wiped a quarter off the company's market value at the time.
The loss of Apple's business has piled pressure on margins, too. Volex had invested heavily in switching production from PVC to higher-margin Halogen Free power cords, but volumes will now be much lower than first anticipated. That squeezed gross margins from 19.2 per cent to 17.8 per cent. However, chief executive Ray Walsh is confident that full-year gross margins can recover, helped by an extensive restructuring programme. "We're looking to cut annualised operating costs by $10m," says Mr Walsh.
Outside of the consumer segment, Volex has made some progress in recent years but the business has not been immune from eurozone worries and an uncertain world economic backdrop. Revenue from the telecoms sector was down 20 per cent, while sales in healthcare and industrial declined 9 per cent and 15 per cent, respectively. More encouragingly, Mr Walsh claims a sales pipeline at a four-year high.
Broker Canaccord Genuity forecasts current year adjusted pre-tax profits to fall 25 per cent to $21.8m, giving EPS of 28¢ (42¢ in 2012).
VOLEX (VLX) | ||||
|---|---|---|---|---|
| ORD PRICE: | 167p | MARKET VALUE: | £104m | |
| TOUCH: | 165-167p | 12-MONTH HIGH: | 305p | LOW: 157p |
| DIVIDEND YIELD: | 1.9% | PE RATIO: | 9 | |
| NET ASSET VALUE: | 82¢ | NET DEBT: | 9% | |
| Half-year to 30 Sep | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2011 | 271 | 10.4 | 15.0 | 1.50 |
| 2012 | 249 | 2.2 | 3.1 | 2.00 |
| % change | -8 | -79 | -79 | +33 |
Ex-div: 9 Jan Payment: 15 Feb | ||||
