Management's vaunted "transformation plan" for Volex (VLX) appears to be working. The ailing power cord and cable specialist's increased engagement with customers helped it grow sales by 4 per cent, adjusting for an extra week in the trading year. Coupled with cost reductions, that drove underlying operating profit up 95 per cent to $8.8m (£5.7m).
Fierce price competition prompted management to introduce a 'design-to-cost' strategy, meaning its customers' target prices determined the products it launched, such as the V-Novus power cable range. It also clamped down on raw material costs by sourcing locally and using multiple suppliers. Scrapping product lines and restructuring its operations triggered $12.5m in one-off costs.
Sales of Volex's power cords rose 9 per cent as it built rapport with existing or former customers, signed new clients such as Chinese electronics giant Xiaomi and benefited from rivals' product recalls. Management are also eyeing the electric car market and USBc, the cable used by Apple's latest MacBook laptop.
After years of declines, sales of Volex's specialised data cables and connectors crept up 1 per cent. Although the division's three biggest buyers spent less, revenue from the rest jumped 24 per cent, partly thanks to the growing use of robotics in surgery and industry.
Broker Investec expects EPS of 7.3¢ in the year to April 2016, rising to 12.9¢ the year after (FY 2015: 2.8¢).
| VOLEX (VLX) | ||||
|---|---|---|---|---|
| ORD PRICE: | 84p | MARKET VALUE: | £76m | |
| TOUCH: | 81-84p | 12-MONTH HIGH: | 91p | LOW: 63p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 60¢ | NET CASH: | $1.9m | |
| Year to 5 Apr | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢)* | Dividend per share (¢)* |
|---|---|---|---|---|
| 2011 | 490 | 20.3 | 28.8 | 2.0 |
| 2012 | 518 | 19.2 | 29.9 | 4.4 |
| 2013 | 473 | 1.9 | -1.6 | 4.9 |
| 2014 | 400 | -7.6 | -22.6 | nil |
| 2015† | 423 | -7.2 | -12.8 | nil |
| % change | +6 | - | - | - |
*Adjusted for June 2014 open offer †53 week period £1=$1.55 | ||||
