A grim cocktail of US tariffs and falling revenues from its largest power cords customer is forcing Volex (VLX) to restructure its operations. The power and data cabling provider grew profits in what is proving a challenging environment for businesses with Chinese facilities, but it isn’t out of the woods yet.
Volex has openly mooted transferring some of its production from China before. India is an option for some industrial outfits desperate to serve the US without incurring tariff costs (see discoverIE (DSCV)), but not Volex, which has closed its Indian facility. The company has been investing in its Batam plant in Indonesia, which will probably become its main location for power cords production growth beyond China, with some PVC production lines moving here. Volex’s power cords division also produces in Vietnam.
Power cords revenues fell by 2.3 per cent over the year, as sales with Volex’s largest customer dropped from $48.6m (£38.3m) to $27.8m. This customer now provides a USB-C charger instead of a power cord with its laptops, and its current ‘duck head products’ will hit their end of life over the next 12 months, Volex says. This trend is expected to continue, so Volex is down-sizing its Shenzhen facility in China, which led to severance costs of $1.5m. Despite the market turmoil, management has signalled confidence in the near term with the expected reintroduction of its dividend at Volex’s half-year results in November 2019.
| VOLEX (VLX) | ||||
| ORD PRICE: | 103p | MARKET VALUE: | £ 150m | |
| TOUCH: | 103-104p | 12-MONTH HIGH: | 107p | LOW: 70p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 19 | |
| NET ASSET VALUE: | 79¢ | NET CASH: | $20.6m | |
| Year to 31 Mar | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
| 2015 | 423 | -7.2 | -12.8 | nil |
| 2016 | 368 | 1.5 | -2.6 | nil |
| 2017 | 320 | -8.5 | -7.9 | nil |
| 2018 | 322 | 7.0 | 4.4 | nil |
| 2019** | 372 | 11.6 | 6.9 | nil |
| % change | +15 | +66 | +57 | - |
| Ex-div: | na | |||
| Payment: | na | |||
| £1=$1.27 Includes intangible assets of $31.5m or 22¢ per share **Accounting year previously 52 weeks to 1 April | ||||
