27309 25 June 2020 4:29 pm Proof 8The Global Integrated Manufacturing SpecialistsAnnual Report and Accounts 2020Volex plc Annual Report and Accounts 2020Stock Code: VLX26523-Volex-Annual-Report-2020.indd 325-Jun-20 4:31:55 PM Welcome to the Annual Report 2020
Who We Are
Volex is a leading integrated manufacturing specialist for performance-critical
applications and supplier of power products. We serve a diverse range of markets
and customers, with particular expertise in cable assemblies, higher-level
assemblies, data centre products, electric vehicles and consumer electronics.
We are headquartered in the UK but operate from 14 manufacturing locations
and employ over 6,000 staff across 20 countries. Our products are sold through
our own global sales force and through distributors to Original Equipment
Manufacturers (‘OEMs’) and Electronic Manufacturing Services companies.
Our products and services are integral to the increasingly sophisticated digital
world in which we live, providing power and connectivity for both everyday items
and complex machinery.
How We Do It
Having completed two further acquisitions in the
past year we now have 14 manufacturing sites across
nine countries. We support these sites through a
network of field application engineers, a centralised
engineering hub and sales and administrative offices
in a further 11 countries. We operate a number of
leased warehouses and stock hubs close to our key
customers in order to support their global operational
requirements.
Integrated manufacturing services are always
bespoke as we act as a solutions provider. We support
customers who want to outsource both simple
and highly complex cable assemblies, box builds
and PCBAs to a stable partner with a truly global
manufacturing footprint. Each site has developed
capabilities in manufacturing, procurement and
engineering. Our sites in Suzhou in China and
Batam in Indonesia cater for our high-speed data
transmission cables. Our sites in Poland and Slovakia
support mainly European medical customers, and
our sites in Mexico are focused on North American
medical and industrial customers. Through our recent
acquisitions we have solidified our market-leading
position in the medical equipment segment as well
as other high-tech sub-sectors.
The majority of our power cord production is still
undertaken in China, close to raw material suppliers.
The in-year acquisition of Ta Hsing continues our
journey from an assembler of power cords to a
vertically integrated power products company
with extensive technologies and capabilities in the
markets we serve.
Our global footprint allows us to balance production
demands across Asia, offering a tariff-free capability
from our sites in Vietnam and Indonesia. Power
Product engineering is managed centrally from our
Asian head office in Singapore and procurement is
centralised in China.
Our Key Differentiators
Volex differentiates itself from the competition
in three key aspects:
Quality and reliability
Quality and reliability is of critical
importance to our premium customer
base. Volex has an enviable reputation
in the market for safety and a detailed
understanding of local regulatory
requirements.
Read more about our
Business Model on pages 14 and 15
Manufacturing footprint
None of our direct competitors is able to
offer manufacturing sites located across
nine countries and three continents. In
Volex, our international customers have
access to one global supplier with a
detailed knowledge of local markets and
the ability to reduce lead times.
Read more about our
Markets on pages 12 and 13
Scale
In a fragmented market, Volex is one
of the largest producers, which allows
us to benefit from economies of scale
and significant purchasing power in the
global component market.
26523-Volex-Annual-Report-2020.indd 3
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:31:56 PM
Highlights
UNDERLYING
OPERATING PROFIT
($M)1
REVENUE
($M)
2020
2019
2018
2017
2016
$31.6m
2020
$21.6m
$11.5m
$9.1m
$7.2m
2019
2018
2017
2016
PROFIT
BEFORE TAX
($M)
NET ASSETS
($M)
2020
2019
2018
2017
2016
$15.9m
$11.6m
$7.0m
$(8.5)m
$1.5m
2020
2019
2018
2017
2016
$391.4m
$372.1m
$322.4m
$319.6m
$367.5m
$130.5m
$115.6m
$48.1m
$46.3m
$51.4m
FREE CASH
FLOW
($M)2
UNDERLYING BASIC
EARNINGS PER SHARE3
(CENTS)
2020
2019
2018
2017
2016
$47.4m
$(10.9)m
$1.7m
$13.6m
$(4.7)m
2020
2019
2018
2017
2016
18.2 cents
13.1 cents
9.2 cents
9.5 cents
1.5 cents
1. Operating profit before adjusting items and share-based payment charges — see note 7
on page 94.
2. Free cash flow is net cash flow before financing activities and the acquisition of businesses,
net of cash acquired.
3. Based on profit before underlying earnings — see note 11 on page 97.
Read more within our
Operational Review on pages 20 and 21
Read more about our
Key Performance Indicators on page 18
www.volex.com
Business overview
CONTENTS
Business overview
Highlights
At a Glance
100 Years of Volex
Executive Chairman’s Statement
Strategic report
Markets
Business Model
Strategy
Key Performance Indicators
Operational Review
Divisional Review
Financial Review
Group Risk Management
Covid-19: Volex Response
Corporate Social Responsibility
Section 172 Statement
Governance
Board of Directors
Executive Chairman’s Introduction
Corporate Governance Report
Audit Committee Report
Health and Safety Committee
Report
Directors’ Remuneration Report
Directors’ Report
Statement of Directors’
Responsibilities
Independent Auditors’ Report
Financials
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Financial Position
Consolidated Statement of
Changes in Equity
Consolidated Statement of
Cash Flows
Notes to the Financial Statements
Company Statement of
Financial Position
Company Statement of
Changes in Equity
Notes to the Company Financial
Statements
Five year summary
Shareholder information
01
02
04
08
12
14
16
18
20
22
26
30
35
36
40
44
46
48
52
55
57
66
69
70
78
79
80
81
82
83
125
126
127
141
142
Annual Report and Accounts 2020 01
Volex plc
26523-Volex-Annual-Report-2020.indd 1
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:31:56 PM
Business overview
At a Glance
Introduction
Volex is a global supplier of integrated manufacturing services for performance-
critical applications and power products. We have renamed our Cable Assemblies
division Integrated Manufacturing Services to reflect the expanding capabilities in
this area. Power Products is the new name for Power Cords as our product set grows.
Manufacturing Solutions
Taking a customer blueprint, Volex can source the
raw materials, build the manufacturing line and
develop rigorous testing procedures to ensure that
every product is built to exacting quality standards in
an efficient way that delivers value to our customers.
Our global network of manufacturing sites,
warehouses and hubs helps ensure that finished
products are held in the right locations to minimise
our customers’ stockholding needs.
Product Development
Should a customer choose to outsource its entire
assembly requirement, our team of experienced
engineers can engage with the customer’s product
development team at an early stage to design
and build everything from complex higher-level
assemblies through to high-volume power cords.
Whatever the challenge, whether it be data-
transmission rates, signal-degradation issues,
durability or aesthetics, our team of engineers will
produce the optimal solution at the ideal price point.
We Operate Across Two Divisions
Integrated Manufacturing Services
Volex designs and manufactures a broad range of
higher-level assemblies and connectors (ranging from
high-speed copper cables to complex multi-branch
high reliability systems) that transfer electronic, radio-
frequency and optical data.
Volex products are used in a variety of applications
including medical equipment, data networking
equipment, data centres, wireless base stations,
mobile computing devices, factory automation and
vehicle telematics.
Power Products
Volex designs and manufactures power cords,
duck heads and related products that are sold to
manufacturers of a broad range of electrical and
electronic devices and appliances.
Volex products are used in laptops, PCs, tablets,
printers, TVs, games consoles, power tools, kitchen
appliances and electric and autonomous vehicles.
Integrated Manufacturing Services on page 22
Power Products on page 24
Our Markets
Consumer Electronics
Electric Vehicles
Data Centre Products
Medical
02
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 2
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:31:57 PM
Business overview
Our Locations
As the trend towards globalisation continues, Volex is well positioned to serve and engage with customers on a global basis, from
engineering design to manufacturing and delivery to account management.
We maintain production and distribution facilities across three continents in order to be a ‘local partner’ to customers, better
supporting their global operational requirements.
Manufacturing Location
Volex HQ/Regional HQ
AMERICAS
EUROPE
ASIA
Sales offices and staff in Canada
and the United States. Distribution
centres throughout North America.
Manufacturing sites in Mexico and
the United States.
A head office close to London and a
shared service centre in Poland. A UK
and Ireland-based sales team that works
with customers across the continent.
Manufacturing sites in Poland, the UK,
Romania and Slovakia.
A regional head office in Singapore.
Sales offices and/or staff in Singapore,
China, Malaysia, Thailand, the Philippines,
Japan, Taiwan, India and Hong Kong.
Manufacturing facilities in China,
Indonesia and Vietnam.
REVENUE
BY LOCATION
EMPLOYEES
BY LOCATION
NON-CURRENT ASSETS
BY LOCATION*
l Americas $145.1m
l Europe $106.1m
l Asia $140.1m
l Americas 1,095
l Europe 632
l Asia 4,431
www.volex.com
l Americas $25.8m
l Europe $28.4m
l Asia $21.5m
* excluding deferred
tax assets
Annual Report and Accounts 2020 03
Volex plc
26523-Volex-Annual-Report-2020.indd 3
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:31:58 PM
27309 25 June 2020 4:29 pm Proof 8100 years of VolexIn September 2019, Volex plc celebrated its 100th year as a UK company.WARD & GOLDSTONEThe business, focused on the manufacture of electrical products, was originally established in the Manchester suburb of Gorton, in northwest England, in around 1892 by Meyer Hart Goldstone and James Henry Ward. Volex was not formally incorporated until 1919, when it was registered with Companies House under the name ‘Ward & Goldstone Ltd’. That year, it booked a trading profit of £23,000 and counted net assets of £87,000. By then, it had expanded its operations to sites across Manchester, Salford and Lancashire, setting up its factories in former mill sites. For most of the 20th century, the Company would be a major manufacturer and employer in the region.By 1922, the Company employed 850 people and manufactured and/or sold a wide range of electrical products, including lamps, torches, medical coils, electric kettles, batteries, dynamos and telephones, as well as wireless telegraphy sets. As early as 1910, Ward & Goldstone had begun using the ‘Volex’ brand name to market dry-cell batteries. During the Second World War, the Company supplied radio communications products for the UK military, in particular wiring accessories that were used in RAF aircraft.By 1969, Ward & Goldstone was selling its products in around 100 overseas markets. Although production remained UK-based, it had established local representative offices and distribution centres around the world, including in Ireland, mainland Europe, Africa, South and Central America, the Caribbean, the Middle East and elsewhere in Asia. That year, it employed around 6,000 staff in 15 UK factories and offices, and throughout the period was a major supplier to the electrical, radio, television, domestic appliance, automobile and aircraft industries, as well as to government departments. Its products by now included wiring systems for cars, buses and lorries, power and television cables, batteries and lighting accessories, as well as plugs, sockets, fuses and switches for domestic use in people’s homes.Business established1910Earliest known use of the ‘Volex’ brand name19111892First involvement in the modern automotive industry, supplying cables to the Ford plant in ManchesterIncorporated and registered at Companies House as ‘Ward & Goldstone Ltd’ INTEGRATED MANUFACTURING SPECIALISTS1919Business overviewVolex plcAnnual Report and Accounts 2020Stock code: VLX0426523-Volex-Annual-Report-2020.indd 425-Jun-20 4:31:59 PM 27309 25 June 2020 4:29 pm Proof 81984Name changed to ‘Volex Group plc’1968Supplied 25% of the British market for car electrical systems, with customers including Aston Martin1970sFactory floorspace in UK now over 2 million square feet. Expansion into Ireland. Patented and launched UK’s first moulded plugs for domestic use1950sMassive expansion in product ranges in all divisions during the post-war plastics and consumer booms. Company becomes one of Salford’s biggest employers. ‘Volex’ brand name becomes widely used again1960sAuto division begins supplying harnesses to the iconic 60s British car, the Mini. Also a supplier for the popular Pifco brand of fans, hairdryers and heatersNumber of workers1919: (approx.)2019: (approx.)Countries operating in1919: 2019: In 1979, former England footballer Bobby Charlton attended the Company’s annual party in Eccles to present prizes to staffVolex Accessories advertisementBusiness overviewwww.volex.comVolex plcAnnual Report and Accounts 20200526523-Volex-Annual-Report-2020.indd 525-Jun-20 4:31:59 PM Business overview
100 years of Volex CONTINUED
FROM WARD & GOLDSTONE TO MODERN VOLEX
Although it was by now selling its
products around the world, the firm
remained a UK-centred, family-run
company for most of the 20th century.
However, following a series of difficult
years financially and after the last
members of the Goldstone family left
the Board of Directors, the Company
changed its name in 1984 to ‘Volex
Group plc’ and began attaching the
Volex brand name to most of its
individual operations – later becoming
simply ‘Volex plc’ in 2011.
In 1991, the Volex Accessories
division, which manufactured the
plugs, sockets, switches and related
electrical items found in millions
of British households, was sold to
Electrium, a division of Hanson plc,
which in turn was bought by the
Siemens Group in 2006. These items
remain in production today under the
Volex Accessories brand, despite no
longer being manufactured or sold by
Volex itself.
By 2000, although the head office
remained in Warrington, in northwest
England, and some manufacturing
was still taking place in the UK,
Volex had expanded to become an
international company, with not
only significant sales operations but
also multiple manufacturing sites
around the world. Eventually its
manufacturing activities would be
undertaken entirely overseas, from
as many as 30 sites across North and
South America, Europe and Asia.
However, the Group was hit hard
by the telecoms crash of 2001, and
the next decade saw a period of
consolidation and a refocus away
from telecoms to the medical and
industrial sectors.
In 2009, Volex plc moved its head
office from the northwest to London,
where it remained for the next 10
years. In April 2020, the head office
was moved to Basingstoke. Since
2015, when the current executive
management team took over after
a series of difficult years for the
Company, Volex has once again
become a profitable, expanding and
acquisitive business. The Group has
acquired five businesses since 2018,
and through its ownership of GTK is
now manufacturing in the UK again
after a gap of over 10 years.
2002
2006
2007
2008
First duck head
manufactured
V-lock range
launched
First high-speed
copper cables
Halogen-free
cables launched
1992
Significant
expansion into
US and Asia. By
2001 Volex had 29
manufacturing sites
around the world
Net assets
1919:
2019:
(As at September 2019)
Stock code: VLX
06
Volex plc
Annual Report and Accounts 2020
26523-Volex-Annual-Report-2020.indd 6
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:00 PM
Business overview
Profit
1919:
2019:
(Trading profit)
(Underlying operating profit 2019/20)
2009
2011
2015
2018
2019
HQ moves
from northwest
England to
London
Name changed
to ‘Volex plc’
V-Novus range
launched
Acquisitions of
GTK, Silcotec and
MC Electronics
Acquisitions of
Servatron and
Ta Hsing
2008
www.volex.com
Annual Report and Accounts 2020 07
Volex plc
26523-Volex-Annual-Report-2020.indd 7
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:01 PM
27309 25 June 2020 4:29 pm Proof 8Executive Chairman’s Statement‘Volex’s strategy over the past five years to diversify our customer base and geographic footprint has resulted in a resilient business with a renewed reputation for quality and reliability.’Nathaniel RothschildExecutive ChairmanThe year ended 5 April 2020 (‘FY2020’) has been another transformative year. We have strengthened our position, expanded our business, built a strong platform for growth and made two further acquisitions. The acquisition of Ta Hsing continues our journey from an assembler of power cords to a vertically integrated power products company with extensive technological knowledge in the markets we serve. The acquisition of Servatron is in line with our strategy to become a global leader in integrated manufacturing services.Across both divisions we added new customers and invested in operations to improve our profit margins. These actions meant that we ended the year with both our operating profit and cash reserves at a 10-year high, despite having invested $30.5 million of cash in acquisitions and capital expenditure during the year. In January 2020, the global Covid-19 outbreak presented us with new and significant challenges. Following an extended production site closure over the Chinese New Year period as a result of the outbreak, our local teams worked tirelessly with the local authorities, customers and suppliers to safely reopen our sites and resume the delivery of critical products to our customers. Our other sites across the world were able to plan and prepare for a global spread of the virus, and as a result we have kept our business running, our employees safe and supported our customers with minimal disruptions. The Covid-19 outbreak will clearly have an adverse impact on the global economy, which we are unable to influence. However, we can take steps to ensure that Volex is in the best possible position to continue to make progress in more uncertain economic times. Our strategic goals are clear and remain unchanged. We aim to continue to improve our cost position in the manufacture of power products and to develop our presence in value-added segments of the power market such as electric vehicles. In Integrated Manufacturing Services we continue to benefit from the need of our global customers to outsource both simple and highly complex cable assemblies, PCBAs and fully integrated box builds to a stable partner with a truly global manufacturing footprint. By targeting both organic growth and strategic acquisitions we see the opportunity to move further up the value chain and to increase our levels of vertical integration. As we increase our scale and technical capabilities through continued development and innovation, we are accessing higher-value opportunities in our core medical, data centre and industrial end markets, where barriers to entry and profit margins are higher.Recent Performance Revenue for FY2020 was $391.4 million, an increase of 5.2% over the prior year. In Integrated Manufacturing Services, which is now the larger of our two divisions, we saw growth across all our main market segments of data centre connectivity, medical and industrial equipment. Demand from customers in our largest geographic market, North America, was particularly strong during the period, as we were able to utilise non-China production to support tariff-free supply. Going forward we expect continued growth in Integrated Manufacturing Services as we acquire new customers that seek exposure to a global partner like Volex. We are already seeing the benefits that scale can bring through our recent acquisitions of MC Electronics, Silcotec and Servatron, and are working with customers on a number of new Business overviewVolex plcAnnual Report and Accounts 2020Stock code: VLX0826523-Volex-Annual-Report-2020.indd 825-Jun-20 4:32:06 PM 27309 25 June 2020 4:29 pm Proof 8development projects as a direct result of these acquisitions. In Power Products, our revenue reduced as we took the decision to lessen exposure to lower-margin business, and instead focus on higher-margin customers and products. This resulted in an overall improvement in profitability and provides us with funds to invest in new production capacity outside of China and to continue our success in the electric vehicle segment. We continue to see more opportunities in electric vehicles for Volex and expect a number of new vehicle programmes to launch in the coming year supported by Volex technology. We were particularly pleased with the improvement in gross margin during the year from 19.8% to 23.2% despite continued cost inflation and competitive pressures on pricing. The improvement in gross margin occurred across both our operating divisions and is a result of the hard work by management to rationalise our production site and office footprint, and a continuous focus on improving profitability across all of our locations, product lines and customers. Underlying operating expenses at $59.0 million increased by 13.7% year on year. This was due to the acquisitions made during the year and also as a result of our strong financial performance triggering increased bonus payments for our staff. Cost inflation is a common theme across all of the countries in which we operate and we are therefore continuing to invest in automation across the Group to mitigate this. In addition, the effect of US import tariffs on Chinese production has resulted in Volex moving certain production capacity to alternative locations outside of China, which has resulted in additional administrative and investment costs for the Group. Overall underlying operating profit for the year was $31.6 million, up 46.3% from $21.6 million in the prior year. AcquisitionsAchieving growth through acquisition is part of our DNA. We have made two successful acquisitions during the year, which have added new customers, capability and geographic presence to the Group. In June 2019 we acquired Ta Hsing, with manufacturing facilities in Shenzhen, China. Ta Hsing provides Volex with power cables and is part of our strategy to increase vertical integration in the power division. In July 2019 we acquired Servatron, a US-based manufacturer of complex printed circuit boards and complete sub-assembly solutions for the industrial, medical and aerospace markets. We continue to evaluate acquisition targets, in line with our stated strategy, across both divisions. Our priorities are to continue to reduce cost and increase vertical integration in our power division, and to improve our technological capability and product offering in complex sub-assemblies to support medical and high-speed data centre customers.We have been very pleased with all five companies that we have acquired over the past two years and going forward we expect to continue to acquire well-run, high-quality businesses. Financial FlexibilityWe ended FY2020 with a net cash balance before lease liabilities of $31.6 million. As a global group we rely on a portion of this cash to support ongoing working capital fluctuations and capital investment. However, a substantial proportion of this cash is available to continue to grow Volex through acquisitions and allow us to increase our profitability and further diversify our revenue mix. In addition, we have a $30 million committed revolving credit facility, which is currently undrawn, to provide further financial flexibility as required. People Our recent success can be attributed to the skill and dedication of all of our 6,000 employees across the globe. On behalf of our Board and our shareholders, I would like to thank all our employees for all of their hard work and dedication.We recognise the need to invest in and to motivate our people. Over the past 12 months we have taken steps to improve our internal communication, improve safety and working conditions in our sites and reintroduce performance management and career planning for our managers. We are very fortunate to have a team which has a deep understanding of our business and our customers’ requirements. Volex’s success depends on our ability to deliver complex products, of high quality, on time and at a competitive cost. We achieve this for hundreds of customers across our 14 production sites, 24 hours a day, seven days a week. Outlook Through this period of unprecedented uncertainty, Volex has implemented a series of plans and actions set to protect the safety and health of our employees and wider communities, at the same time as reducing our costs and protecting our cash flows. We entered this period with a very strong balance sheet and ample liquidity. The Group has continued to generate strong cash flows in the first two months of our financial year. We are continuing to invest back into the business for future growth and margin enhancement.As anticipated in the 16 April 2020 announcement, our ‘essential’ business status has allowed Volex to keep operating throughout the period, supporting our customers’ requirements. Despite experiencing labour shortages caused by compliance with local government restrictions, such as employee shielding and self-isolation, the overall situation is now improving as these government restrictions ease, with all Volex facilities open, and the number of employees in self-isolation reducing. Unaudited revenue for the four months ended May 2020 was $126.2 million, 4% ahead of the same period a year earlier. During this period, the business has performed ahead of expectations, although we are now seeing areas of weakness primarily in the medical equipment installation sector, as hospitals around the world remain closed for non-critical medical procedures. In our electric vehicle business, after weakness in March and April due to customer factory closures, we are starting to see a recovery. Our consumer and data centre businesses continue to perform well. However, the duration and breadth of the market disruption arising from this situation remains unclear and therefore we do not believe it is appropriate to provide financial guidance for the current year at this early stage. We remain optimistic for our business prospects over the medium term and consider that our focus on the high-quality growth markets of medical, electric vehicle and high-speed data centre products, combined with our strong funnel of design wins in our Integrated Manufacturing Services division, will allow us to grow and prosper in the years to come.Nathaniel RothschildExecutive Chairman 18 June 2020Business overviewwww.volex.comVolex plcAnnual Report and Accounts 20200926523-Volex-Annual-Report-2020.indd 925-Jun-20 4:32:06 PM Strategic report
Markets
Business Model
Strategy
Key Performance Indicators
Operational Review
Divisional Review
Financial Review
Group Risk Management
Covid-19: Volex Response
Corporate Social Responsibility
Section 172 Statement
12
14
16
18
20
22
26
30
35
36
40
26523-Volex-Annual-Report-2020.indd 10
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:07 PM
S
T
S
I
L
A
I
C
E
P
S
G
RIN
U
I
N
T
E
G
R
A
T
E
D MANUF A C T
One hundred years
of innovation and a
household name
From its beginnings as a business during the years when
electricity was becoming interwoven into the fabric of everyday
life in the UK, Volex – or Ward & Goldstone Ltd as it was
then, with Volex merely one of its brands – has been at the
forefront of technological innovation in the electronics sector,
producing a wide range of electrical accessories, including
batteries, switches, dynamos, lamps and even ‘Magneto-Electric
Machines’, designed to administer mild electric shocks to
patients for therapeutic or medical purposes.
Unlike today, up until the 1970s most domestic appliances in
the UK were sold without plugs – which consumers would
need to purchase separately and attach to the lead themselves.
Working with appliance manufacturers, Ward & Goldstone
were the first company to develop a moulded plug that would
come pre-attached to the power lead. By 1982, the company
was the market leader in the production of moulded plugs, of
the sort that were eventually made compulsory in the UK. Most
households in the UK today are likely to have at least one power
lead with a moulded plug bearing the Volex name.
Earliest known use of
Volex brand name
Price of Volex car
battery c.1917
26523-Volex-Annual-Report-2020.indd 11
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:07 PM
Strategic report
Markets
MEDICAL
DATA CENTRE PRODUCTS
ELECTRIC VEHICLES
CONSUMER ELECTRONICSS
Trends
Technology is changing medicine.
Advances in diagnostic and therapeutic
devices are bringing a range of new
treatments to patients around the
world. Earlier identification of serious
illness and longer life expectancies
are increasing demand for medical
technology. Patients are expecting the
best possible treatment to encourage
optimal outcomes. Healthcare spend
as a percentage of GDP is increasing
in many economies. This makes the
procurement of effective and up-to-
date equipment a priority for healthcare
providers.
Demand for cutting-edge technology
comes from advanced markets and
specialist hospitals. Over time, the next
generation of device will become more
affordable and more widely available.
This supports the investment required
in device design through a sustainable
product life cycle, which may include
many years of manufacturing with
periodic incremental improvements and
cost reductions.
Trends
The adoption of cloud technology
has revolutionised the information-
processing and software sectors. Cloud
is often the default choice for complex
deployments and challenging global
roll-outs. Consumers have embraced
cloud technology through streaming
and social media. And as cloud demand
grows, data centre capacity grows. This
creates challenges for data architects
who must design scalable and cost-
efficient data centres that can meet
end-user expectations with respect to
availability and speed.
Trends
A greater awareness of the
environmental impact of passenger
vehicle emissions is seeing a move
towards electric vehicles (EV). This is a
consumer-led trend with government
support. Acceptance of the electric
vehicle proposition is growing among
car buyers as the charging infrastructure
improves and range increases. Many
countries are offering fiscal incentives
to encourage the adoption of EV and
some have even set deadlines that will
see the sale of internal combustion
Trends
Growth in consumer electronics comes
in two directions. At the premium
end of the market, improvements
in functionality and user experience
encourage the replacement of items
to take advantage of an expanded
feature set. Manufacturers of high-end
products also place a greater emphasis
on the aesthetics of the power cord.
Improvements in manufacturing and
the simplification of complex technology
allow value-focused manufacturers to
drive down costs, which attracts a new
group of consumers to products that
were previously unaffordable.
High-performance computing, artificial
intelligence and big data are providing
solutions to problems that were
previously unanswerable. These systems
require exceptional levels of connectivity
and the lowest latency to ensure data is
distributed as quickly as possible.
These trends are set not just to continue,
but to accelerate. Moves to remote
working and streaming entertainment
have created increased demand
for communications services and
related infrastructure.
engine cars completely phased out in
years to come. This is likely to prompt a
scaling back of investment in traditional
engine technology, with automotive
development focusing on EV.
As adoption of EV grows, the charging
infrastructure will need to develop
further to accommodate those who are
unable to charge at home, such as city
dwellers. Advances in battery technology
are likely to allow faster charging at
higher currents.
Developments in battery technology
and improvements in energy efficiency
are resulting in more devices that can
operate wirelessly. This is impractical
for many appliances with either a high
power draw or those that operate for
extended periods. In addition, the extra
cost and complexity of incorporating
a battery is only justified where this
provides a significant benefit in
the functionality of the device. As a
result, these changes are only likely
to have a marginal impact on power
cord demand.
12
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 12
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:08 PM
Strategic report
Annual growth in
medical devices market1
Increase in life
expectancy 2000–20162
Annual growth in public
cloud market3
Top 5 cloud providers
market share4
Forecast global battery
electric cars by 20255
Increase in sales of
electric vehicles6
How we are responding
Our significant experience in the
medical sector is an important strength
as we work closely with our customers
to support the development of their
products and help them deliver increased
value through the product life cycle. We
understand where there are opportunities
to improve processes and replace
components with items of comparable
quality to reduce total production costs.
We have developed comprehensive
testing and quality assurance processes
which mean our customers can trust us to
deliver a consistent and reliable product.
How we are responding
Exceptional performance is critical in
products that are pushing the technical
boundaries to support the most
advanced data centres in the world.
We deliver this through a first-class
manufacturing process and a rigorous
end-to-end testing regime which we
develop to meet customer requirements.
This provides confidence that our
cables will work first time and support a
straightforward installation process.
Data rates for our cables continue to
improve, with our latest cables capable
How we are responding
The emergence of electric vehicles
posed a new challenge for automotive
designers. The industry has a deep
understanding of operating low-voltage
power and data transmission systems
within vehicles, but no experience of
the engineering complexity and safety
considerations relating to dealing with
mains voltage systems. Fortunately, we
have unrivalled expertise in this area and
have solutions to ensure power cords
can operate reliably and consistently
in challenging conditions. All of this is
achieved while ensuring that end-user
safety is the foremost consideration.
Our acquisitions in the past two years have
expanded our capabilities, meaning we
can offer a greater range of services to our
customers. This helps our customers deal
with the increasing complexity of their
medical devices by outsourcing more
assembly activity into the supply chain.
We have a lot of experience supporting
just-in-time manufacturing flows and
work closely with customers to anticipate
demand to meet tight production
schedules.
of delivering a data rate of up to 400
Gb/s. Our engineers work closely with
our suppliers to take advantage of new
components that support transmission
speed improvements. This is supported
by our prototype and test specialists, who
identify how we can create a product that
will meet or exceed industry standards.
In addition, our passive copper cables do
not require any additional power, which
means they support data centres’ efforts
to manage power consumption and
environmental impact.
This has included using our specialist
knowledge to deliver products which
can cope with harsh environments, such
as being left outside for a prolonged
period. We have incorporated several
safety features into the power cords to
make sure potential issues are identified
and to reduce the risk to consumers. We
have also built systems and processes
to give exceptional levels of traceability
and quality assurance throughout the
manufacturing process.
Increase in consumer
electronics spending7
Number of PCs sold
globally8
How we are responding
Delivering value to customers is
extremely important in this market
segment. During the year we purchased
a cable extrusion operation which will
allow us to vertically integrate the supply
chain for power cords and improve price
competitiveness. We are simplifying
our product set, which will allow for
increased efficiency and help us achieve
optimum utilisation for our automated
production lines.
We continue to serve the most
demanding customers who have strict
criteria about the colour, finish and
appearance of their power cords. We
have extensive experience in being a
reliable partner to organisations with
complex supply chains through the
use of vendor-managed inventory
which supports the just-in-time
manufacturing approaches that most
large manufacturers use.
KPMG Medical devices 2030
1.
2. WHO Global Health Observatory data
3.
Gartner Global Public Cloud Revenue forecast for 2020;
Nov 2019
www.volex.com
4.
5.
6.
Gartner Worldwide IaaS Public Cloud Services Market
Share, 2017–2018; July 2019
IEA Electric vehicle stock in the EV3030 scenario 2018-2030
Jato.com Global BEV sales H1 2019 vs H1 2018
7.
8.
IDC Global consumer spending on electronic devices; Oct 2019
Statista PC shipments worldwide for 2019
Volex plc
Annual Report and Accounts 2020
13
26523-Volex-Annual-Report-2020.indd 13
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:08 PM
Strategic report
Business Model
Introduction
Volex’s business model is based on adding value to customer products, delivered through our expertise in design and
development and in manufacturing and testing. We aim for ‘trusted partner’ status with our customers, where we engage
with their product development cycles at an early stage to provide solutions that meet their specific requirements for product
performance and quality, greater efficiency and timely delivery. Through the provision of these services we seek to create
sustainable value for Volex and its shareholders.
KEY RESOURCES
OUR DIVISIONS
Experienced
management
Our management team
have a deep understanding
of our business and our
customers. This helps us
define the appropriate
strategy for our organisation.
Strong capital structure
We have a strong balance
sheet and significant
resources, which allow us
to develop our business
and invest in additional
capabilities.
Global reach
Our global manufacturing
base and international
sales team allow us to run
manufacturing on a cost-
efficient basis with local
support for our customers.
Extensive knowledge
of our industry
We have an exceptional
amount of knowledge
within this organisation. This
is why we work so well with
customers in addressing
their technical challenges
and why we have a great
reputation for quality.
Integrated
Manufacturing
Services
Power
Products
Product development
We are able to support
our customers with their
technical challenges at the
design stage, helping them
achieve their objectives.
We also work closely with
our customers during
production to help optimise
the process and identify
where alternative sourcing
strategies could deliver
savings.
Manufacturing services
We provide a range of
manufacturing services
tailored to the requirements
of our customers. This
can include sourcing raw
materials, developing the
manufacturing process and
establishing the testing
regime. Our capabilities
include the production
of complete higher-level
assemblies.
Our competitive advantages are vital to
Volex and underpin our business model:
Unrivalled global manufacturing footprint
None of our direct competitors is able to offer manufacturing facilities located over
nine separate countries across three continents. Our global customers have access
to one global supplier, but one with detailed knowledge of their key local markets
and an ability to reduce local lead times.
Respected brand known for quality and reliability
Quality and reliability is of importance to our premium customer base. Volex has an
enviable reputation in the market for safety and a detailed understanding of local
regulatory requirements.
Scale
In a fragmented market, Volex is one of the largest producers, which allows us to
benefit from economies of scale and significant purchasing power in the global
component market.
14
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 14
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:09 PM
Strategic report
OUR MARKETS
DELIVERY CHANNELS
VALUE CREATED
Medical
We are involved in a wide range of
products in the healthcare market
from simple cable assemblies
through to complex high-level
assemblies for diagnostic and
therapeutic machines. Quality
standards are stringent, with
demanding regulatory approval
requirements.
Data centre products
We supply industry-standard cables
which can guarantee high-speed
and reliable data transmission
at a reasonable price point. This
requires specialist manufacturing
and a rigorous end-to-end testing
approach.
Electric vehicles
We can deliver high-current
power cords with numerous safety
features that are suitable for
use in a demanding automotive
environment. Our expertise in this
area and our global safety approvals
mean we can be a trusted partner for
manufacturers and OEMs.
Consumer electronics
This is a diverse and complex market
with different features. We can cater
for high-volume production as well
as more specialist requirements for
premium products such as high-end
audio. We have multiple production
locations to suit individual customer
requirements.
Engineering/Design
We design solutions that meet the
power and connectivity needs of our
customers while also addressing the
challenges our customers face with
their next-generation products.
We work closely with our customers’
engineering teams at an early stage
of the development cycle to help
optimise the approach and achieve
their design objectives. Our design-
to-cost strategy ensures the products
meet quality and price expectations.
Supply chain management
We manage, on behalf of our
customers, the sourcing of all
required components for their
cable assembly solutions. We seek
to own the bill of materials for all
our products, allowing selection of
components that offer the best all-
round performance after considering
cost, quality and delivery response
times.
Manufacturing
We construct and test integrated
manufacturing solutions according
to customer requirements for
volume, quality, lead-time and price.
Our global manufacturing footprint
and distribution hubs enable cost-
efficient localised production and
effective inventory control.
Global logistics
We maintain facilities over three
continents in order to be a ‘local’
supplier to customers and better
support their own production and
speed-to-market objectives. Our
customer hubs enable us to support
fully our customers’ just-in-time
manufacturing processes.
Shareholders
We are developing the business
sustainably through a combination
of organic growth and acquisition.
There is a strong focus on
profitability and cash generation.
These measures have given us
the confidence to recommence
dividend payments in FY2020.
Employees
We have a highly capable and
dedicated workforce who are
committed to making Volex a
successful business. We want
to empower our employees to
develop their talents and realise
their potential. This requires
effective communication channels
with our employees to help them
understand Group strategy and also
to understand their feedback and
suggestions.
Customers
Customer satisfaction is central to
everything we do. Our customers
have different requirements and
we work hard to understand these
and how we can best support their
objectives. This means we need to
focus on the end-to-end service we
provide.
Local communities
We want to have a positive impact
on the communities where we
operate. We comply with all relevant
local environmental and regulatory
requirements and encourage
employee awareness of waste
reduction, recycling and responsible
disposal. Many of our sites support
local charities to enhance their
communities.
www.volex.com
Volex plc
Annual Report and Accounts 2020
15
26523-Volex-Annual-Report-2020.indd 15
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:09 PM
Strategic report
Strategy
Our strategy is focused on five areas that we believe will position us for growth
and improve profitability. This is part of our plan to build a world-class
manufacturing business.
PRODUCT DEVELOPMENT
CUSTOMER FOCUS
OPERATIONAL EXCELLENCE
What this means:
We support a wide range of customers
with broad requirements. At the heart
of this we have to demonstrate great
value and excellent quality in everything
we do. We need to be alert to how
technological developments are shaping
future requirements and be prepared to
innovate our product set and capabilities.
This means offering customers solutions
for the technical challenges they are
facing.
Strategy in action:
We have continued to improve the
data transmission rate in our copper
high-speed data cables while achieving
stringent quality standards. The
acquisition of Servatron has expanded
our capabilities to deliver higher-level
assemblies to our customers.
We have rationalised our product
offering in Power Products to create a
simpler range which will offer benefits in
the manufacturing process and achieve
a lower cost of production.
Future priorities:
There is an opportunity to increase the
proportion of our power cords that are
made using Volex manufactured and
branded cable. This will have beneficial
cost impacts.
We will explore how we can expand our
product range aimed at the data centre
market.
Our capabilities in delivering full
assemblies will expand our product
offering significantly.
What this means:
It is essential we deliver value to our
customers. We need to communicate
effectively and explain our expanding
capabilities. We should demonstrate
a comprehensive understanding of
our customers’ operations. We need
to be responsive at every stage of
the customer journey from the initial
engagement and quotation process
through to order fulfilment.
Strategy in action:
During the year we created a central
customer quotation team which
improves the speed and consistency
of our response to customer enquiries.
Future priorities:
We will make customer satisfaction
measures a central part of the annual
objectives for all our production general
managers.
We will be making targeted investments
in sales resource for high-growth areas
of our business. In addition, there will be
a focus on cross-selling our capabilities
to existing customers, allowing us to
demonstrate how our expertise has
grown following recent acquisitions.
What this means:
We continue to invest in operational
efficiencies across the Group. The
focus is on creating a best-in-class
organisation that is capable of
leveraging its global footprint and
scale to optimise production.
Continuous improvement has to take
place at all levels of the organisation on
both the production floor and in support
functions. Local managers are supported
by senior leaders to deliver positive
change in the organisation.
Strategy in action:
We have made good progress in
delivering automation to improve the
efficiency of production in China. We
have also been able to take advantage
of our global footprint and transfer
production between our facilities, which
is reducing the fully landed cost for
some of our customers in the US.
There is a culture of continuous
improvement in all of our facilities and
this has contributed to a reduction in
costs throughout the year.
Future priorities:
We have plans to roll out automation
to our site in Indonesia, which will
create additional capacity and optimise
production costs.
As well as ongoing continuous
improvement programmes there will
be targeted activities to identify and
deliver synergy savings in respect of the
acquired businesses.
Link to KPIs
1
3
4
Link to KPIs
1
2
Link to KPIs
2
4
5
16
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 16
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:09 PM
Strategic report
INVESTMENT AND ACQUISITION
PEOPLE
Key for KPIs
1
Annual Revenue
Change
2 Underlying
Operating Profit
3 Return on Capital
Employed
4 Underlying Free
Cash Flow
5 Underlying
Basic EPS
6 Employee
Safety
What this means:
We are changing rapidly. Volex has
emerged from a turnaround story as
a strong and ambitious organisation
ready for growth. This requires our senior
management to be aligned around a
clear set of goals with a clarity of focus
and a shared purpose.
Strategy in action:
This year we have taken steps to improve
our internal communication, improve
safety and working conditions in our
sites and reintroduce performance
management and career planning for
our managers.
Future priorities:
Work will commence on a Group-wide
review of systems and processes to
ensure that the right tools are being
deployed to manage our business.
A new system will capture objectives
for all our managers to ensure better
visibility and alignment as part of the
annual appraisal process.
A number of communications projects
are being rolled out along with a
recognition programme.
What this means:
Acquisitions are a key element of our
overall growth strategy. The combination
of a strong balance sheet and low
interest rates provides an opportunity
to increase scale, customer reach
and capability. Our agile approach to
acquisitions, strong network among
Volex senior management and earnout-
based model differentiates us from
traditional acquirors.
We have significant investment
opportunities in our existing business
that will deliver good cash returns.
Strategy in action:
We made two important acquisitions
during the year which expand our
business. The acquisition of Servatron
enhances our capabilities and delivers
on our stated aim of moving up the
value chain and cementing our position
as a leading integrated manufacturing
services business. Our acquisition of
Ta Hsing, a cable extrusion business,
helps us control our supply chain and
take costs out of our business.
We have made a number of key strategic
investment decisions over the last two
to three years which will help move the
business forward in future periods.
Future priorities:
We will continue to identify potential
strategic acquisitions which will deliver
value to the Group.
Link to KPIs
3
6
www.volex.com
Link to KPIs
3
6
Volex plc
Annual Report and Accounts 2020
17
26523-Volex-Annual-Report-2020.indd 17
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:10 PM
Strategic report
Key Performance Indicators
1 ANNUAL REVENUE
CHANGE (%)
2 UNDERLYING OPERATING
PROFIT ($M)
3 RETURN ON CAPITAL
EMPLOYED (%)
2020
2019
2018
2017
2016
5%
15%
1%
(13%)
(13%)
2020
2019
2018
2017
2016
$31.6m
$21.6m
$11.5m
$9.1m
$7.2m
2020
2019
2018
2017
2016
29.9%
26.7%
31.3%
20.3%
13.4%
Definition
Change in reported revenue compared
to the previous year.
Definition
Operating profit before adjusting items
and share-based payment expense.
Relevance
Through consistent customer service
and the right sales mix we aim to drive
higher revenue.
Performance
Revenue growth was lower this year as
we made a decision to reduce low-
margin Power Products sales and focus
on profitability.
Relevance
Optimising profitability is central to
our strategy. This is realised through a
robust pricing strategy and efficiency
programmes.
Performance
Profitability increased significantly as
a result of favourable improvements in
the sales mix and cost optimisation.
Link to Strategy
Link to Strategy
Product Development
Customer Focus
Customer Focus
Operational Excellence
Definition
Underlying operating profit as a
percentage of net assets excluding
net cash/debt.
Relevance
This measures return on the equity asset
base as the Group continues to grow.
Performance
This measure has improved due to
higher profitability and the success
of the acquisition strategy.
Link to Strategy
Product Development
People
Investment and Acquisition
Link to Remuneration
Annual bonus
LTIP
4 UNDERLYING FREE
CASH FLOW ($M)
5 UNDERLYING BASIC EPS
(CENTS)
6 EMPLOYEE
SAFETY
2020
2019
2018
2017
2016
$48.8m
$(7.6)m
$2.7m
$19.3m
$(0.3)m
2020
2019
2018
2017
2016
2020
2019
18.2¢
13.1¢
9.2¢
9.5¢
1.5¢
1.07
2.25
Definition
Underlying free cash flow excludes costs
of acquisitions and non-recurring items.
Relevance
We aim to maximise cash generation
to fund further acquisitions and support
the growth of the business.
Performance
Cash flow has benefited from the
underlying profitability of the business
and favourable working capital
movements.
Link to Strategy
Product Development
Operational Excellence
Link to Remuneration
Annual bonus
18
Volex plc
Annual Report and Accounts 2020
Definition
Earnings per share adjusted for the
impacts of adjusting items and share-
based payment expense.
Relevance
This measures the growth and
profitability of the Group and is a
measure used by investors when
assessing the business.
Performance
The growth of the business through
acquisition and the improvements
in profit have improved EPS.
Link to Strategy
Operational Excellence
Definition
Reportable accidents per million hours
worked.
Relevance
We want to ensure that we offer a safe
environment for our employees and that
all of our sites take safety seriously.
Performance
A new Health & Safety Committee was
established this year and Group-wide
site reviews were completed.
Link to Strategy
People
Investment and Acquisition
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 18
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:14 PM
Strategic report
STRATEGY IN ACTION
Kepler SignalTek: a Volex partner and specialist manufacturer of
medical, high-speed data and industrial interconnects
Kepler SignalTek was founded in 2017 by Scott Hayden, a veteran of the
medical device and interconnect industries with 30 years of experience in
leadership, design and manufacturing. Volex owns 26% of Kepler SignalTek.
Kepler SignalTek is focused on the
production of high-performance
cable and interconnect products,
and benefits from a strategically
selected team and a cost-effective
business structure. It has formed a
niche in process technologies and
micro interconnects for wires that
are as small as 0.45mm (0.018″)
along with value-added assembly.
The Volex partnership and
investment have supported the
growth of Kepler’s current business
to top tier OEM customers in seven
countries with a 95% concentration
in the medical device market.
Within medical, Kepler focuses on
single and multiple-use products
in support of patient monitoring,
diagnostic ultrasound, and surgical
and interventional procedures. The
focus on interconnect assemblies
and finished medical devices for
its OEM customers has fuelled
its year-on-year growth. Kepler’s
ability to expedite its planned
expansion has helped to address
the global demand for monitoring
and imaging products aimed at
supporting patients during the
Covid-19 outbreak.
The company has exceeded
initial revenue and profitability
projections and is currently
investing in new capabilities as it
expands its business and widens its
customer and technology base. The
relationship with Volex has provided
the company with financial
credibility and the stability needed
during the start-up phase in 2017.
Kepler has worked in conjunction
with the Volex team to bring their
technical capabilities to various
medical and high-performance
applications to complement
each other’s business objectives.
Kepler’s future will include further
expansion of its Dongguan China
manufacturing location as well as
investment in operations and staff
in targeted areas of its business.
Kepler is accounted for as an
associate and more details can be
found in note 16 on page 102 of the
financial statements.
Kepler revenue in
FY2020
Revenue growth
(YoY)
www.volex.com
Volex plc
Annual Report and Accounts 2020
19
26523-Volex-Annual-Report-2020.indd 19
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:15 PM
27309 25 June 2020 4:29 pm Proof 8Operational ReviewQ&A withQ How has Volex developed in the last 12 months?A There are several things I am proud of achieving this year including our continued focus on improvements in profitability. In Integrated Manufacturing Services, the acquisitions we have completed in the last two years have introduced new customers and capabilities. We have kept up our focus on improving profitability through manufacturing efficiency, smarter sourcing and intelligent production planning. The impact of this approach is clear in the 46.3% improvement in underlying operating profit year on year.We have welcomed some important new customers to our Power Products business as well as broadening and deepening our relationship with key existing customers. We have also reduced our exposure to lower-margin business. This demonstrates that we have a compelling proposition with good traction in the market. The division is most successful where we work with significant global brands who value the quality of our products, our technical ingenuity and our customer service. Our introduction of automated production lines into China has been a great success and improved the efficiency of our operations. We plan to extend this to Indonesia in FY2021.Q How would you explain the strategy at Volex?A Our focus is on generating shareholder value by optimising our manufacturing capabilities and developing our revenues by acquiring new customers either organically or through our acquisition strategy. We need to deliver the right balance between great quality, customer service and competitive pricing. Quality comes down to having well-run operations and successful processes. We also need to understand our customers and identify what they need from our products so we can anticipate their requirements. Hitting the right price point is all about optimising the product and sourcing the best-value components as well as running our manufacturing in the most efficient way possible.Q What was it that appealed to you about the two acquisitions you made this year?A There were different drivers behind the acquisitions we made this year. Servatron is a US-based electronic manufacturing services business who have significant expertise in PCB and higher-level assembly. They are experienced at delivering very reliable electronic assemblies into applications where safety is critical, including medical and aerospace markets. This means they are a great fit with our existing Integrated Manufacturing Services business with complementary customers. Their capability with PCB assemblies and the associated testing and quality assurance process brings additional capability into the Group. They also have a strong management team and track record of profitable growth.This year we also acquired a cable extrusion business called Ta Hsing, based in Shenzhen in southern China. This gives us control over the most significant component of our power cords, allowing us to drive savings through vertical integration.We selected our acquisitions very carefully. The businesses we have bought are well run and profitable. Through the due diligence process, we make sure we have a deep understanding of what makes the operations work. Post-acquisition we make sure we maintain this approach and ensure that we retain and motivate the local management team to deliver stretching cash and profit targets. We also identify where there are sales synergies and leverage relationships that we have across the Group in relation to both sales and procurement. Q How do you think Covid-19 will impact you moving forward?A We saw the first impact of Covid-19 in China when we were required to delay the reopening of our production sites at the end of the Lunar New Year holiday. We worked hard to put in place measures to prevent the spread of the virus amongst our workforce, which allowed us to get the plants back up and running reasonably quickly. We John Molloy Chief Operating OfficerVolex plcAnnual Report and Accounts 2020Stock code: VLX20Strategic report26523-Volex-Annual-Report-2020.indd 2025-Jun-20 4:32:20 PM Strategic report
took this approach forward to our other
locations and made sure that we were
well prepared as the impact moved
from China to the rest of the world.
I think our global footprint certainly
helped us mitigate the impact. I’m also
immensely grateful to all our staff who
have supported our operations through
these challenging times, allowing us to
continue delivering to our customers,
which include many providing essential
products into the medical sector.
The scale and depth of the economic
repercussions of the Covid-19 pandemic
are still uncertain and this makes it hard
to forecast the impact on customer
demand. Two-thirds of our Integrated
Manufacturing Services business is
dedicated to the supply of medical
customers and the production of high-
speed data cables for deployment in
data centres. We believe that this will
be less affected by global recessionary
trends but there might be some short-
term disruption. Our power cords are
used in a wide range of applications
including home appliances, consumer
electronics and electric vehicles. This
means we have some exposure to
consumer demand which can vary
dependent on underlying economic
conditions. However, we can scale our
operations to maintain profitability
where demand is variable.
Q How is the market evolving?
A Our Integrated Manufacturing
Services customers are innovative
and working at the cutting edge of
technology, and they work with us to
develop products that support their
design strategies. We continue to
deepen our technical expertise to ensure
we remain the best partner for these
customers. More of our customers now
require full end-to-end traceability of our
products to support their deployment
in safety-critical applications. Our scale
and experience mean we can easily
fulfil these requests. Some customers
have asked us to move the production
of goods destined for the US market
out of China to avoid tariffs. Our global
manufacturing footprint has meant that
we are well placed to support this.
The power cords market has been
undergoing significant change for
several years now, with consumer
electronics manufacturers shifting
from mains cords to USB power
supplies. At the same time, we are
seeing opportunities from electric
vehicles which require complex and
www.volex.com
safety-critical solutions. We believe this
presents us with additional prospects to
deliver higher-value-added products to
a new set of customers. In relation to our
core offering of mains power cords, the
family of products has grown over time
as customer-specific requirements have
created multiple versions of essentially
similar items. There is a strong case
for rationalising these products as it
allows us to unlock the benefits of
automation and standardisation. We are
working with our customers to deliver a
simpler set of products that meet their
requirements and deliver great value.
Q What will drive growth?
A There are three elements to growing
our operations. The first is deepening our
relationship with existing customers and
delivering on the greater capabilities that
we have, for example through harnessing
our skills in PCB assembly and our
expertise in providing mains power
solutions in an automotive context. The
second area is identifying how we can
generate new customer relationships
and make sure we are demonstrating
how we can replace incumbent suppliers.
The third element is making the right
acquisitions that expand our reach and
deliver profitable growth.
We have successfully acquired some
very strong businesses and I believe
that there will be more opportunities
to follow. The acquisitions are strong
and healthy businesses with good
opportunities for further growth. They
have all been cash generative from
day one. The market we operate in is
extremely fragmented and there are
many businesses that we could acquire
and develop successfully. We have a
good approach and our success to date
demonstrates that.
Q What are the key milestones on
your roadmap for the next year?
A We have been in the process of
transferring some production from
China to Indonesia. This reduces the
cost of goods to our customers in the US
by reducing the impact of importation
tariffs. I’m looking forward to seeing
this activity ramp up to full capacity.
There are some great sales synergies
that we are working on between our
business units and I am excited about
these opportunities. We’ve made some
successful acquisitions so far and there is
definitely scope for further deals that will
move us forward.
Underlying operating
margin
Underlying operating
profit growth
Volex plc
Annual Report and Accounts 2020
21
26523-Volex-Annual-Report-2020.indd 21
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:20 PM
Strategic report
Divisional Review
Integrated Manufacturing Services
MEDICAL
Revenue
Proportion of revenue
DATA CENTRE PRODUCTS
Revenue
Proportion of revenue
INDUSTRIAL AND TELECOMS
Revenue
Proportion of revenue
$’000
Revenue
Underlying* gross profit
Underlying* gross margin
Operating costs
Underlying* operating profit
Underlying* operating margin
Operating profit
53 weeks
ended
5 April
2020
52 weeks
ended
31 March
2019
220,346
173,219
54,801
24.9%
37,141
21.4%
(31,460)
(23,668)
23,431
10.6%
17,681
13,473
7.8%
9,884
* Before adjusting items and share-based payments charge (see note 4 on page 93 for more details).
Our Integrated Manufacturing Services
business delivers technically sophisticated
manufacturing solutions designed to
satisfy customer requirements. Our
manufacturing approach can cope with
a large variety of products in varying
volumes, from a handful of pieces up
to thousands of units. Across our sites
we use a wide variety of manufacturing
techniques and controls to ensure that
every single item is of the highest quality
and able to pass rigorous testing. All of this
enables Volex to hit challenging deadlines
supporting our customers’ integrated
supply chains on a global basis.
Integrated Manufacturing Services’
products include bespoke high-
performance cabling solutions designed
to transmit power and data in accordance
with a customer’s technical requirements
in medical and industrial applications.
This segment also builds partial and
full electro-mechanical assemblies
which may include multiple elements
of hardware, printed circuit boards and
bespoke cabinets, all fully commissioned
and tested in-house by Volex personnel.
The Integrated Manufacturing Services
division also includes the production of
high-speed copper cables that transmit
data at extremely high speeds and with
low error rates. These products are used
extensively in communications networks
and data centre environments. Other
production is centred around 10 locations:
two in Asia, four across Europe and four in
North America. This distribution reflects
the spread of our customers and each
site has specialist capabilities to support
local demands. Our global footprint
allows manufacturing to be conducted in
the most appropriate site depending on
the customer’s requirements.
Revenue for FY2020 was up $47.1 million
to $220.3 million (FY2019: $173.2 million).
Gross profit increased to $54.8 million
(FY2019: $37.1 million) representing
a gross margin improvement of 350
basis points to 24.9% (FY2019: 21.4%).
The growth includes the impact of the
acquisition of Servatron and the fact that
FY2020 includes a full year of the three
acquisitions made in FY2019. The margin
improvement is caused by the product
mix and the efficiency improvements
implemented during the year.
The medical sector has been strong in
FY2020. Volex makes many connectivity
solutions which are critical to the
operation of diagnostic imaging and
therapeutic machines. Our products are
used within a wide variety of applications
including robotic surgery, patient imaging
and ventilators. Technological advances
in the treatment of serious diseases are
encouraging healthcare operators to
invest in new equipment to improve
patient outcomes. What is particularly
encouraging about the growth in this
market is that stringent regulatory
approval processes mean Volex solutions
are usually specified into the customer’s
design for the life of the product, which
may extend over many years.
Data centre capacity is continuing to
expand rapidly to fulfil demand for
cloud computing and storage. This is
contributing to increased demand for
the very high-specification copper data
cables that we produce in our specialist
facilities in Suzhou, China, and Batam,
Indonesia. The majority of the market
demand for these cables is in the US and
new production lines have been opened
at our site in Indonesia to help mitigate
any effects of US tariffs.
Our industrial and technology clients
continue to exploit opportunities for
innovation in their specialist markets. This
is seen through an increased demand for
products that support energy efficiency
22
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 22
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:20 PM
Strategic report
STRATEGY IN ACTION
Servatron: moving us from complex
assemblies to a true integrated
manufacturing services provider
Volex acquired Servatron in July 2019, the fourth
acquisition in Integrated Manufacturing Services
in two years.
Headquartered in Spokane, Washington, Servatron currently supplies
printed circuit board assemblies ('PCBA'), box builds and complete sub-
assembly solutions from a single manufacturing site in the US.
Servatron’s business is a complementary fit with Volex’s strategy to
maintain and build leading positions in niche sectors with structural
growth drivers and defensive characteristics. Servatron adds
complementary technologies including PCBA manufacturing, state-of-
the-art test capabilities and higher-level system integration.
Combining our cable-assemblies expertise and R&D skills has helped drive
revenues for the newly enlarged Volex. As well as a strengthened footprint
in North America, the acquisition provides increased organic growth
through value-added services for our existing cable harness customers.
We also benefit from the incorporation into our business of a skilled local
workforce and management team.
Manufacturing facility
Employees
and miniaturisation. As solutions are
driven more by digital communications
there are fewer requirements for legacy
radio-frequency connectors, and we have
seen a corresponding decline in sales.
Volex has responded to trends in the
market by implementing improvements in
manufacturing processes and production
configuration. This has included
distributing high-speed cable production
and complex cable harness manufacture
between sites to give customers additional
flexibility and local support and to
maximise the use of resources.
The Integrated Manufacturing Services
division has expanded significantly
through acquisition over the last two years
with three acquisitions in FY2019 and the
acquisition of Servatron in FY2020. The
results in FY2020 include a full year of each
of the prior year acquisitions and benefit
from the inclusion of Servatron from
August 2019. Servatron was an important
step in our stated aim of broadening the
capabilities of the Group through the
introduction of PCB and higher-level
assemblies. This creates opportunities for
the cross-selling of new competencies
into existing customers as well as growing
Servatron’s own strategic customer base
on a global footprint.
Just over half of the customers for our
Integrated Manufacturing Services
business are in the medical and
healthcare industry. Although there has
been some disruption to the medical
systems installation business recently
due to the inability to access hospitals
at the current time, generally demand
for medical products is less cyclical than
for industrial products. This market is
relatively fragmented and there is an
opportunity for customers to aggregate
their requirements with larger, global
suppliers like Volex who can offer high
levels of customer service and consistent,
on-time delivery. The majority of the
Group’s customers strive for growth
through continual technological
innovation. Volex’s ability to successfully
partner with these organisations
through the product life cycle, from
initial development and subsequent
optimisation, is a key value driver.
The Integrated Manufacturing Services
division is emerging as a world-class
manufacturing business with a strong
suite of capabilities and a relentless focus
on quality. The recent acquisitions have
created additional opportunities for cross
sales and profitable growth.
www.volex.com
Volex plc
Annual Report and Accounts 2020
23
26523-Volex-Annual-Report-2020.indd 23
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:21 PM
Strategic report
Divisional Review
Power Products
PVC
Revenue
Volume
HALOGEN-FREE
Revenue
Volume
DUCK HEADS
Revenue
Volume
INTERNAL HARNESSES
AND OTHER
Revenue
24
Volex plc
Annual Report and Accounts 2020
$’000
Revenue
Underlying* gross profit
Underlying* gross margin
Operating costs
Underlying* operating profit
Underlying* operating margin
Operating profit
53 weeks
ended
5 April
2020
171,008
35,860
21.0%
52 weeks
ended
31 March
2019
198,885
36,377
18.3%
(21,807)
(23,148)
14,053
8.2%
13,995
13,229
6.7%
11,557
* Before adjusting items and share-based payments charge (see note 4 on page 93 for more details).
Volex manufactures power cords and
other power products for some of the
biggest brands in the world. Products
vary in complexity and are designed to
meet specific customer requirements.
This can include specialist cosmetic
features for use in high-end domestic
applications or technical capabilities
allowing deployment in challenging
environments. Volex has safety approvals
covering every major market which
simplifies the procurement process
for international manufacturers. The
Group has the scale to meet the
demands of the largest customers in the
market, who demand regular product
improvements and price reductions over
the product life cycle.
Customers are supported by a
dedicated engineering team based in
Singapore and China who have deep
experience in designing and optimising
components to meet demanding
technical requirements. The Group
has manufacturing facilities in China,
Indonesia and Vietnam that support our
global sales team and customer base.
Our global presence is a differentiator
from our fragmented China-based
competition. Production is allocated
to particular plants based on their
strengths, customer proximity and
supply-chain availability.
The competitive landscape for Power
Products is changing as energy
efficiency and battery technology
change the power requirements of some
products. The development of battery
technology has also had a huge impact
in the automotive sector, and high-
current power cords with numerous
safety features are an important element
of the new generation of electric and
plug-in hybrid vehicles.
Revenue in the Power Products division
declined by $27.9 million to $171.0
million (FY2019: $198.9 million). Gross
profit reduced slightly to $35.9 million
(FY2019: $36.4 million) with a gross
margin improvement of 270 basis
points to 21.0% (FY2019: 18.3%). This
reflects a deliberate shift in the product
and customer mix away from low-
margin customers, combined with
improvements in efficiency and the
further implementation of automated
lines. Volex has reduced its business in
low-margin commodity power cords in
order to free up resources for new and
higher-margin customers.
Volex continues to adapt to the trends
in the power cords sector. Premium
manufacturers often have specific
requirements about the appearance
and aesthetics of the power cords
that are deployed with their products.
This is in addition to robust safety
and quality requirements. Volex has
efficient production facilities that can
meet customer demands and has also
created a range of high-quality power
cords designed to be manufactured
for maximum value. Electric vehicles
represent an opportunity for Volex to
deploy its expertise in handling mains
voltage in challenging environments in
an automotive context.
Volex has always stood for high quality
and solid engineering. This is borne
out through positive feedback from
customers who are looking for a trouble-
free solution that will be reliable and
durable. As the complexity of global
supply chains has increased and
manufacturers look for opportunities
to improve efficiencies, Volex has been
able to support them by making things
easy for customers through the use of
vendor-managed inventory associated
with just-in-time manufacturing. Value
for money is critically important in this
sector, which is achieved through a deep
knowledge of the best manufacturing
approach and leveraging a significant
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 24
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:21 PM
Strategic report
and global supply chain to drive down
raw material costs.
During the year Volex acquired a Chinese
cable extrusion business, Ta Hsing. The
business was well known to Volex as an
important and long-standing supplier.
This acquisition has given Volex greater
control over its supply chain for a critical
input to the manufacturing process for
power cords. It also creates opportunities
to reduce the overall costs of products
and to deliver better value to customers
and therefore receive increased business
volumes. A process is underway to migrate
key customers onto Volex-produced and
branded cables, which will reduce reliance
on external suppliers over time.
There has been a focus on eliminating
low-margin business during the year.
Although revenues for the Power
Products segment are lower than the
prior year, profitability is up by 150 basis
points. This approach is part of a clear
strategy to focus on cash generation
and higher-value-added opportunities.
This has included work to improve space
utilisation in the south China sites, which
has reduced overhead costs.
In FY2020 the Group won a number of
significant new customer projects. These
were for customers in the consumer
electronics and electric vehicle markets.
This demonstrates the strength of
our commercial proposition, which
combines value for money with quality
and customer service.
Towards the end of the financial year,
two of our Power Product sites were
closed temporarily in response to the
outbreak of Covid-19 in China. Although
this closure resulted in a reduction in
production capacity, the impact on sales
was minimised because during this
period customers continued to access
vendor-managed inventory held at hub
locations. In addition, the sites had built
up buffer stocks of finished goods and
raw materials to account for the planned
Lunar New Year holiday, which reduced
the impact of supply-chain disruption.
The revenue impact of the Covid-19
closures in the last quarter of FY2020
in Power Products is estimated to be
$8.0 million.
There will be a number of areas of focus
in the next financial year all aimed
at improving profitability and cash
generation. This will include steps to
move more customers onto cables
produced using Volex’s cable extrusion
capabilities. High-volume customers
will be offered the opportunity to move
to a new range of products which are
designed to be manufactured more
efficiently on automated production
lines, offering better value.
The Power Products division will
maintain a robust approach to preserve
margins, working with customers to
reduce material costs and improve
efficiency through automation. The
division continues to generate strong
cash flows for the Group with a sales
team focused on the types of business
with the greatest fit and the best
margins. Going forward, the highly
fragmented market offers selective
growth opportunities to Volex as the
only major western listed company with
a global sales and engineering force
located in Europe and North America.
There is also the potential for accretive
and margin-enhancing acquisitions
which could unlock significant value.
STRATEGY IN ACTION
Improving profitability with Ta Hsing
Ta Hsing was well known to Volex as a supplier of high-quality power cables.
Volex’s strategy is to maintain and
build on its position as a global
leader in the power and integrated
manufacturing solutions sectors,
and to be a stable, long-term and
trusted partner to its customers.
As a result, the Company is
constantly looking for opportunities
to develop efficiencies in its
production processes and supply
chains. Vertical integration is a key
component of this strategy. Ta Hsing
has been a long-time supplier of
cables to Volex and is based close to
one of our main global power cord
manufacturing sites.
The acquisition provides an
opportunity for vertical integration
of our power business in China
and consequential improvement
in operational and manufacturing
efficiencies. This will allow us to
bring in-house the design and
manufacture of power cables
and produce our own PVC resin,
a critical component of power
cord production. In time, this will
also provide the opportunity for
further expansion of in-house
cable extrusion capacity in other
production locations.
of Volex’s PVC cable
demand is made by
Ta Hsing
www.volex.com
Volex plc
Annual Report and Accounts 2020
25
26523-Volex-Annual-Report-2020.indd 25
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:23 PM
Strategic report
Financial Review
Trading performance
FY2020 has delivered growth in revenue
and improvement in profitability.
Revenue is up by 5.2% to $391.4 million
(FY2019: $372.1 million). This has been
achieved at the same time as significant
increases in both underlying operating
profit and profit before tax.
During the year, the Group made two
acquisitions. Servatron is a US-based
electronic manufacturing services
business with a strong customer
base and significant expertise in PCB
assembly, complex testing requirements
and the delivery of complete assemblies.
The business has a manufacturing site in
Spokane, Washington, with the majority
of customers based in North America.
During the year, Servatron contributed
$26.4 million to Group revenues.
The second acquisition was a cable
extrusion company based in south
China. This operation was previously
a significant cable supplier to Volex.
Acquiring this business provides
the Group with greater control over
a significant element of the Power
Products supply chain while also
offering opportunities to improve profit
margins through vertical integration.
Although most of the output of the
acquired business was to the Group,
there are some remaining external sales
which contributed $1.6 million to Group
revenues during the year.
The Group has a strong balance sheet
and significant undrawn committed
facilities. In the current low interest
rate environment, this offers significant
opportunities for further earnings-
enhancing acquisitions. The Board has
adopted a strategy that anticipates
revenues growing to over $650 million
in the next few years with an underlying
operating margin of 10%. Part of
this growth will come from organic
improvements in our existing business,
but the larger proportion will come via
selective bolt-on acquisitions.
Revenue in Integrated Manufacturing
Services increased by $47.1 million to
$220.3 million (FY2019: $173.2 million).
This included revenues from Servatron
and a full year of revenue from the
three acquisitions that were completed
in FY2019. The high-level trends in this
segment were a year-on-year increase
in medical and high-speed copper data
cable sales and a reduction in sales to
legacy telecommunications customers.
‘As well as two successful
acquisitions we have
significantly improved
profitability and shown
strong cash generation.’
Daren Morris
Chief Financial Officer
Financial Highlights
Revenue
Underlying* operating profit
Statutory operating profit
Underlying* profit before tax
Statutory profit before tax
Statutory profit after tax
Basic earnings per share
Underlying diluted earnings per share
Net cash (note 26)
Net cash (excluding lease liabilities)
53 weeks to
5 April
2020
Year-on-year
change
52 weeks to
31 March
2019
$391.4m
$31.6m
$17.1m
$30.4m
$15.9m
$14.7m
9.9c
17.3c
$21.2m
$31.6m
5.2%
46.3%
31.5%
50.5%
37.1%
59.8%
43.5%
36.2%
2.9%
53.4%
$372.1m
$21.6m
$13.0m
$20.2m
$11.6m
$9.2m
6.9c
12.7c
$20.6m
$20.6m
* Before adjusting items and share-based payments charge (see note 4 for more details)
26
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 26
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:25 PM
Strategic report
The increased demand in medical
reflects a market sector that has
performed strongly in recent years
as new therapeutic and diagnostic
technology drives demand for more
advanced equipment from healthcare
providers. The market in high-speed
copper data cables is driven by both
new data centres and the upgrade of
existing facilities to provide increased
bandwidth for customers. The fall in
telecommunications revenues was
expected as the new generation of
base stations uses a different technical
architecture which is less dependent on
radio frequency connectors and cables
supplied by Volex.
Power Products revenue fell by
$27.9 million to $171.0 million (FY2019:
$198.9 million). The strategy for FY2020
was to reduce levels of lower-margin
power cord sales with the intention of
improving profitability. The effectiveness
of this strategy is demonstrated by the
improvement in gross margin of 270bps
to 21.0% (FY2019: 18.3%). Despite the fall in
revenue, underlying operating profit for
the division increased by $0.9 million to
$14.1 million (FY2019: $13.2 million).
There were some significant new
customer programmes in the Power
Products segment during the year
including some automotive electric
vehicle projects. The division is fortunate
to have a wide variety of customers, and
recent efforts to balance the customer
portfolio have reduced any reliance on
individual contracts.
Underlying operating expenses have
increased by $7.1 million to $59.0 million
(FY2019: $51.9 million). Most of the
increase is a result of the acquisitions but
there were also uplifts in performance-
related remuneration, reflecting the
strong performance and profitability seen
across the entire Group. During the year
certain costs were incurred related to
the reconfiguration of operations within
production sites and transfers between
sites to optimise production costs.
These costs have been included within
operating costs.
The Group aims to manage operations as
efficiently as possible, and management
are continually challenged to take out
any costs that are not adding value.
This has resulted in operating costs
which are competitive in the context
of the global operations and structure.
Production sites have relatively low
management overheads, which does
require some costs in the centre, but
this represents the most efficient way of
running this organisation. Although it is
more demanding to operate any business
profitably and deliver growth when the
economic conditions are challenging, the
Group has a great track record in reducing
costs and optimising the operating model.
Underlying operating profit (which is
stated before adjusting items such as
the amortisation of acquired intangibles
and also before the charge for share-
based payments) has increased by
$10.0 million to $31.6 million (FY2019:
$21.6 million). Statutory operating profit is
up by $4.1 million to $17.1 million (FY2019:
$13.0 million).
Adjusting items and
share-based payments
The Group presents some significant
items separately to provide clarity on the
underlying performance of the business.
This includes significant one-off costs
such as restructuring and acquisition
related costs, the non-cash amortisation
of intangible assets acquired as part of
business combinations, and share-based
payments, as well as the associated tax.
Costs of $0.2 million (FY2019: $1.8 million)
were incurred in connection with the
acquisitions that took place during the
year. These costs are modest because
the Group uses its own experts and
in-depth understanding of the sector
to conduct detailed due diligence on
acquisition targets, minimising external
fees. Incremental improvements in the
operating efficiency of the business have
been achieved during the year without
incurring material restructuring costs,
and the costs associated with these
improvements have been included
within underlying operating profit. As
a result, restructuring costs were nil
(FY2019: $1.9 million).
Amortisation of acquired intangibles
has increased to $5.7 million (FY2019:
$2.0 million) because the results include
a full year of amortisation for the prior-
year acquisitions and also the impact of
the acquisitions made during the year.
The Group has recognised two classes
of separately identifiable intangible
assets, which are customer relationships
and the acquired open order book. The
open order book is amortised over a
period of less than one year, so the level
of amortisation is higher in the first year
following acquisition in comparison to
subsequent years. Customer relationship
intangible assets are generally amortised
over a period of between four and
five years.
Share-based payments include awards
made to incentivise senior management
as well as awards granted to the senior
management of acquired companies.
These awards form an important part
of the negotiation of consideration in
an acquisition situation and are used
to reduce the cash consideration and
as an incentivisation and retention tool.
In accordance with IFRS, where these
awards have included any ongoing
performance features, they must be
recognised in the income statement
rather than as part of the cost of
acquisition.
During the year, the charge recognised
through the income statement for share-
based payment awards comprises $2.4
million (FY2019: $1.7 million) in respect of
senior management, $5.6 million (FY2019:
$0.3 million) in respect of acquired
businesses and $0.7 million (FY2019: $0.4
million) for associated payroll taxes.
Finance costs
The Group has maintained cash
balances throughout the year and
the revolving credit facility has been
undrawn except for a short period
when it was utilised to support the
acquisition of Servatron. Finance costs
include a commitment fee in respect
of the revolving credit facility and
the amortisation of the arrangement
fee incurred when the facility was
renewed. For FY2020 the Group has
adopted IFRS 16 Leases, which means
a financing element is calculated for
operating leases and reflected in the
income statement as a finance cost.
Because the Group has taken the
modified retrospective approach, there
is no adjustment to the comparative
figure. This has resulted in an increase
in net financing costs in FY2020 of
$0.4 million. Overall net financing costs
have increased to $1.2 million (FY2019:
$1.1 million).
Foreign exchange
Most sales are in US dollars, with limited
sales in other currencies including
euros and British pounds sterling.
Most purchases of raw materials are
denominated in US dollars but costs
such as rent, utilities and salaries are
paid in local currencies. This creates
some exposure to movements in foreign
exchange, some of which is hedged.
Foreign exchange gains recognised in
the income statement for the period
were $0.4 million (FY2019: $0.4 million).
www.volex.com
Volex plc
Annual Report and Accounts 2020
27
26523-Volex-Annual-Report-2020.indd 27
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:25 PM
Strategic report
Financial Review CONTINUED
Working capital improved by
$19.6 million, which compares to an
adverse movement of $24.7 million in
FY2019.
The inflow comprises:
▷ An increase in inventory leading
to a cash outflow of $2.9 million
(FY2019: inflow of $0.6 million). This
change is driven by higher volumes
of Integrated Manufacturing Services
activity, which requires more
inventory than Power Products;
▷ A decrease in receivables leading
to a cash inflow of $20.5 million
(FY2019: outflow of $10.2 million).
This decrease is partially due to
the timing of the year end, which
was on 5 April, meaning greater
opportunities to collect March
end-of-month customer receipts. In
addition, the change in product mix
from Power Products to Integrated
Manufacturing Services has had a
positive impact on the receivables
profile; and
▷ An inflow related to payables of
$2.0 million (FY2019: outflow of
$15.1 million). This was a result of the
timing of the year end which resulted
in the receipt of deliveries from
suppliers for an additional week.
Net financing outflows were $10.5 million
(FY2019: inflow of $32.8 million). This
year, this included the interim dividend
payment of $2.0 million (FY2019: $nil)
and also the additional interest expense
as a result of the adoption of IFRS 16
and due to the finance leases that
were acquired with Servatron. As part
of the extension and enhancement
of the Group’s revolving credit facility,
legal costs and arrangement fees of
$0.7 million (FY2019: $nil) were incurred
during the year. These amounts will be
spread over three years in the income
statement.
Capital expenditure increased to
$5.0 million from $3.3 million in
FY2019. During the year, the Group has
continued to invest in automation to
deliver efficiency in the Power Products
segment. An investment of $0.8 million
was made during the year to secure
additional land adjacent to the Group’s
production site in Batam, Indonesia,
to allow for expansion. There will be
further expenditure in FY2021 to support
the build and fit-out of the additional
manufacturing capacity.
Tax
The Group incurred a tax charge of $1.2
million (FY2019: $2.4 million) representing
an effective tax rate (ETR) of 7.3% (FY2019:
20.9%). The underlying tax charge of $3.5
million (FY2019: $2.6 million) represents
an ETR of 11.5% (FY2019: 13.1%).
The underlying tax charge of $3.5 million
(FY2019: $2.6 million) comprises an
underlying current tax charge of
$7.7 million (FY2019: $3.4 million) and
an underlying deferred tax credit
of $4.2 million (FY2019: credit of
$0.8 million).
The underlying current tax charge is
calculated by reference to the taxable
profits in each individual entity and the
local statutory tax rates. Where tax losses
are available, these have been used to
the fullest extent possible to reduce the
taxable profit.
The Group operates in a number of
different tax jurisdictions and is subject
to periodic tax audits by local tax
authorities in relation to corporate tax
and transfer pricing. As at 5 April 2020,
the Group has net current tax liabilities
of $6.2 million (FY2019: $4.9 million)
which include $7.9 million (FY2019: $2.6
million) of uncertain tax provisions.
A deferred tax credit of $5.1 million
(FY2019: $0.8 million) arose due to
an increase in the deferred tax asset
recognised on trading losses and short
term timing items due to the utilisation
of losses based on future forecast
taxable profits in certain regions. At
the reporting date the Group has
recognised a deferred tax asset of $9.0
million (FY2019: $4.3 million), of which
$4.5 million (FY2019: $3.4 million) relates
to tax losses, $3.9m (FY2019: $nil) to short
term timing items and $0.6m (FY2019:
$0.6m) to intangible assets.
Earnings per share
Basic earnings per share for FY2020 was
9.9 cents (FY2019: 6.9 cents), reflecting
improved performance in FY2020. The
underlying fully diluted earnings per
share was 17.3 cents (FY2019: 12.7 cents).
Cash flow
Cash flow has improved significantly
from the previous year as a result
of the higher operating profit and
improvements in working capital.
Operating cash flow before movements
in working capital has increased by
$16.6 million to $37.7 million (FY2019:
$21.2 million), which reflects the strong
growth in operating profit.
28
Volex plc
Annual Report and Accounts 2020
Free cash flow increased by $58.3 million
to $47.4 million (FY2019: cash outflow of
$10.9 million). Free cash flow represents
net cash flows before financing activities
excluding the net outflow from the
acquisition of subsidiaries. This was a
significant improvement caused by
the increase in operating profit and the
improvement in working capital.
Total cash expenditure on acquisitions
(net of cash acquired) was $25.6 million
(FY2019: $23.8 million) including
$2.9 million (FY2019: $nil) in respect of
contingent consideration. The Group
is expecting to make payments of
$4.0 million in FY2021 in relation to
contingent consideration for acquisitions
made in FY2020 and previous years.
The cash outflow associated with the
settlement of awards under share-based
payment arrangements was $4.6 million
(FY2019: $1.0 million) including the
purchase of shares to be held in trust to
fulfil exercises in future periods.
IFRS 16 Leases
The Group implemented IFRS 16
Leases with effect from 1 April 2019. On
adoption of the new standard, the Group
recognised $3.5 million of right-of-use
assets, $2.1 million investment in finance
leases and $5.8 million of lease liabilities.
The impact on the income statement in
the year has been to increase underlying
operating profit by $0.6 million and
net interest expense by $0.4 million.
Comparative information for the prior
year has not been restated.
Net cash and dividends
The Group has maintained a net cash
position throughout the year. At the end
of FY2019 the net cash balance stood at
$20.6 million. At the end of FY2020 cash
stood at $31.6 million excluding lease
liabilities and $21.2 million including
lease liabilities.
The Group paid an interim dividend of
1.0 pence per share in February 2020. A
final dividend of 2.0 pence per share will
be recommended to shareholders at the
Annual General Meeting, which reflects
the robust financial position of the Group.
Banking facilities, going concern
and covenants
In July 2019, the Group extended its
$30 million revolving credit facility
(‘RCF’) for three years on improved terms.
The key terms of the extension were: a 40
basis point reduction in the non-utilisation
fee and a 70 basis point reduction in
interest-rate margin; fewer restrictions
in key operational covenants; and a
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 28
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:25 PM
27309 25 June 2020 4:29 pm Proof 8$10 million uncommitted 'accordion' feature to provide further capacity, up to a total RCF limit of $40 million, for potential future acquisitions to support the Group’s strategy. This facility is provided by a syndicate of two banks (Lloyds Bank plc and HSBC UK Bank plc) and was undrawn at the year end.The key terms of the facility are: ▷Available until 23 July 2022; ▷No scheduled amortisation; and ▷Interest cover and total debt to EBITDA leverage covenants.As at 5 April 2020, the RCF was undrawn (FY2019: undrawn) with $nil drawn under the cash pool (FY2019: $0.3 million). After accounting for guarantees and letters of credit, the remaining headroom as at 5 April 2020 was $29.7 million (FY2019: $29.1 million). Under the terms of the facility the two covenant tests above must be performed at each quarter-end date. Throughout FY2020 all covenants were met.The Group prepared forward-looking financial forecasts as part of its strategic and financial planning process, incorporating profit, cash and covenant measures. In assessing the ability of the Group to continue on a going concern basis, the financial forecasts are sensitised using scenarios that take into account the principal risks and uncertainties set out on pages 30 to 34 of the Annual Report. For FY2020, as a result of the increased pressures on the global economy as a result of the Covid-19 pandemic, we conducted additional financial stress testing and sensitivity analysis, considering revenues at risk as well as the impact of our response plan to the crisis. The Group’s forecasts show that the Group should continue to operate in compliance with its banking facilities for a period of at least one year from the date of this report. Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements.Financial instruments and cash flow hedge accountingFor most products in our Power Products division, the price of copper has an impact on the cost of key raw materials. This risk is minimised by passing the variability in cost through to the end customer in the majority of cases. Where the customer contract does not provide for the pass-through of risk, the Group enters into forward contracts to mitigate the Group’s exposure to copper price volatility (see page 34 where rising commodity prices have been identified as a key risk). The forward contracts act as an economic hedge against the impact of copper price movements. They meet the hedge accounting requirements of IFRS 9 and therefore are accounted for as cash flow hedges of forecast future purchases of copper. As at 5 April 2020, a financial liability of $0.3 million (FY2019: financial asset of $0.2 million) has been recognised in respect of the fair value of open copper contracts with a corresponding $0.3 million debit recognised in reserves. This debit is retained in reserves until such time as the forecast copper consumption takes place, at which point it will be recycled through the income statement.A credit of $0.1 million has been recognised in cost of sales for FY2020 (FY2019: credit of $0.1 million) in respect of copper hedging contracts that closed out during the period. This credit has arisen since the average London Metal Exchange copper price in the period has been above the contracted price.Defined benefit pension schemesThe Group’s net pension deficit under IAS 19 as at 5 April 2020 was $3.5 million (FY2019: $2.4 million). The increase is primarily due to recognising an overseas unfunded retirement benefit obligation within this balance this year rather than within other liabilities, to reflect the substance of the arrangement.Covid-19The Covid-19 pandemic has had an impact on all of the Group’s operating locations and the surrounding communities. From the outset, the guiding principle has been to protect the health and well-being of our workforce by implementing sensible precautions at every site. During FY2020, the initial impact was at our Chinese sites when local authorities extended the Lunar New Year holiday to prevent the spread of the virus. Each site worked swiftly to implement new procedures to protect our staff allowing the sites to reopen. Immediately after production recommenced the sites were operating at reduced capacity to allow time for the health prevention measures to be embedded and because many staff were in locations subject to travel restrictions. Capacity increased during February and production returned to normal levels in March.It is estimated that the reduced production in quarter 4 of FY2020 resulted in a reduction in revenue of $8.0 million. The impact of the disruption was minimised for a number of reasons. The sites in China built additional stocks of raw materials and finished goods in preparation for the Lunar New Year holiday. This enabled many customers to continue to pull inventory from hub locations during the site closures. The raw materials allowed production to recommence despite some short-term issues in the production supply chains. The hard work and flexibility of our employees was also central to our ability to get back to work quickly.Moving into FY2021 the Group has implemented measures at all sites to lessen the risk of transmission of Covid-19 within the work environment. Production for some customers is being transferred to ensure there are geographically diverse locations. It has been clear since the beginning of the Covid-19 disruption that communication with customers is critical to prioritising supply and ensuring the continuity of deliveries. This is a strength of the Group and something that will continue.Many of the Group’s facilities supply essential components into the medical and healthcare markets. In most locations there are provisions in place to allow such production to continue during periods of restricted movement. All our sites with medical output are closely engaged with customers and local authorities to ensure that this critical activity can continue in a safe way when restrictions on non-essential activity are in place.It is anticipated that there will be some impact on demand in FY2021 caused by Covid-19-related disruption. It is difficult to forecast the timing and amount of this impact. The Group is fortunate to have a strong and diverse business. The medical market, which makes up half of our output in Integrated Manufacturing Services, tends to be less cyclical than other sectors. The Group has a robust business which is well funded and capable of adapting to changing levels of demand. Daren MorrisChief Financial Officer 18 June 2020www.volex.comVolex plcAnnual Report and Accounts 202029Strategic report26523-Volex-Annual-Report-2020.indd 2925-Jun-20 4:32:25 PM Strategic report
Group Risk Management
Risk Governance
Under the QCA Code, the Board is
expected 'to ensure that the company’s
risk management framework identifies
and assesses all relevant risks in order to
execute and deliver strategy', including
the need to determine 'the extent
of exposure to the identified risks
that the company is able to bear and
willing to take'. The Board has overall
responsibility for the management of
risk within the Group as part of its role
in providing strategic oversight, with
specific responsibility for reviewing the
effectiveness of the Group’s system of
internal controls and risk management
being delegated to the Audit
Committee.
Given the risks and uncertainties
involved in operating in a complex,
competitive and fast-changing global
environment, identifying, understanding
and managing those risks is essential
to the Group’s long-term success and
sustainability. Clearly one current area
of concern for all businesses, including
Volex, is the disruption being caused by
the Covid-19 pandemic. The potential
impacts on production operations
and staff, on supply chains and on the
Group’s customers, as well as the longer-
term impact on the global economy
and the risk of recession, all need to
be considered. However, given Volex’s
strong balance sheet and cash position,
as well as its presence in the medical
and high-speed sectors, the Group is
in a good position both to manage
and mitigate the disruption caused
by the virus in the short term and to
sustain itself in the longer term when
the economic environment improves.
The accompanying briefing on page
35 sets out how Volex has managed its
immediate response to the outbreak
and consequent government-imposed
restrictions in order to protect both
its staff and its business, as well as the
efforts the Group has made to assist in
the fight against Covid-19.
Risk Management Process
The risk management process across the
year essentially comprises two separate
elements:
▷ An ongoing process of assessment
and review of individual Volex
sites and/or entities undertaken
by the Group’s Internal Audit
function through an Enterprise Risk
Management system, which has
been introduced this year following
the appointment of a new Head of
Internal Audit; and
▷ The wider annual risk survey
conducted centrally across the entire
senior management team and
Group-wide functions. Potential risks
are assessed to reflect the likelihood
of occurrence and the potential
impact on the business were they
to occur, as well as the extent to
which they are being addressed
and mitigated.
The Board
Overall
responsibility
for risk
management
Volex
Top Down
Strategic Risk assessment
at Executive and
Board level
Audit
Committee
Supports the
Board
Principal Risks
These are risks that could have a
material adverse impact on the
Group’s future results or reputation
STRATEGIC
OPERATIONAL
COMPLIANCE
FINANCIAL
Risks assessed
at operational and
functional level
Bottom Up
Risk Heat Map
The diagram below illustrates the relative positioning of our risks
in terms of impact and likelihood, and the level of management
focus on each.
h
g
H
i
y
t
i
r
e
v
e
S
w
o
L
1
2
3
4
5
1
5
7
3
8
9
12
6
10
4
2
11
13
Low
Likelihood
High
Global Economic
Conditions
Acquisition Integration
Market Competition
6
7
8
9
Staffing and HR
11
Commodity Prices & FX
IT & Cybersecurity
Rates
Product Quality
Technological Change
12
13
Regulatory Compliance
Financial Controls
Customer Concentration
10
Access to Finance
Supply Chain
30
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
Key:
Strategic
Operational
Financial
Compliance
26523-Volex-Annual-Report-2020.indd 30
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:26 PM
Strategic report
Principal Risks
The Board, having reviewed the relevant risk data, considers the following to be the most significant risks that could materially
affect the future prospects or reputation of the Group, including those that would threaten its business model, future
performance, solvency or liquidity. Identifying these potential risks assists in ensuring risk management procedures and internal
controls exist to prevent them occurring, or to at least mitigate their impact should they occur.
Principal risks are classified into four broad areas:
Strategic – Risks that potentially may affect the Group in delivering its strategy or achieving its strategic objectives.
Operational – Risks arising out of operational activities in areas such as sales and operations planning, procurement,
warehousing, logistics and product development.
Financial – Risks relating to the finances of the business that may arise externally, such as financial market risk, or internally from
the perspective of internal controls and processes.
Compliance – Risks relating to compliance with applicable laws and regulations.
Developments
The results of the risk survey for this financial year suggested a shift in perceived risks to the Group, with those relating to the
global economy and supply chains – both affected in turn by Covid-19 – taking over from acquisition integration and HR/staffing
issues as the top identified potential risks.
Risk and Possible Impact
Risk Mitigation Activities
Trend
Link to
Strategy
1 Strategic – Global Economic Conditions
Although the global economy has performed
well in recent years, the risk exists of it falling
into cyclical recession in the coming years. This
possibility increased significantly at the end
of the financial year as a result of the wider
disruption caused by the Covid-19 pandemic.
2 Strategic – Acquisition Integration
Although the Group’s recent acquisitions have
been of companies that complement or expand
the Group’s existing business, there is a risk
that the synergies envisaged pre-acquisition do
not materialise and that the Group’s activities
become too unfocused.
Covid-19 has had a limited financial impact
on FY2020 due to the nature of the Group’s
customer base and the effective action taken
when the crisis began to potentially impact
the business, but the longer-term impact as
government-imposed shutdowns continue
and as both customers and suppliers react to
changing circumstances remains unclear.
The Group has a strong presence in the
medical market and a roster of financially
secure customers more generally. The Group
has carried out a robust assessment of its
financial position and even if revenues fall, the
Group has sufficient liquidity to operate as a
going concern.
The Group continues to focus on sequential
acquisitions that add value and cash generation
from day one, with an effective earn-out model
to encourage success and senior staff retention
in the acquired businesses.
Some acquisitions, for example, Ta Hsing,
were explicitly made to afford greater vertical
integration within the Group and its supply
chain. Others were designed to expand the
Group’s potential reach into new products
and increase opportunities for cross-selling,
as well as sharing staff resources and best
practice. Consideration may need to be given to
accelerating more formal integration in terms
of internal structures and procedures.
Key:
Up Trend
Down Trend
No Change
Customer Focus
Product Development
People
Investment and Acquisition
Operational Excellence
.
www.volex.com
Volex plc
Annual Report and Accounts 2020
31
26523-Volex-Annual-Report-2020.indd 31
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:26 PM
Commodity Prices & FX
Rates
Regulatory Compliance
Financial Controls
Strategic report
Group Risk Management CONTINUED
Risk and Possible Impact
Risk Mitigation Activities
Trend
Link to
Strategy
3 Strategic – Market Competition
The Group operates in highly competitive
markets and faces competition from rivals
operating with lower costs and overheads,
especially in the power cords market.
4 Strategic – Customer Concentration
A proportion of the Group’s revenue continues
to be derived from a small number of large
customer accounts, leading to potentially
disproportionate impact if a key customer
account is reduced or lost.
5 Operational – Supply Chain
The Group is in some cases dependent on single
external suppliers for components and is not
as vertically integrated as some competitors. In
addition, the Covid-19 pandemic risks disruption
to supply chains.
6 Operational – Staffing and People
The retention of staff in key executive roles as well
as in on-the-ground operations is important to
any business. The departure of senior managers
who have led the Group’s turnaround as well as
any increase in turnover of production staff may
have a negative impact on the Group.
Volex has created a successful differentiation
strategy that mitigates this risk. The Group
continues to focus on markets and customers
where it can differentiate on factors other than
price, including engineering know-how and
quality. The Group has looked to increase the
use of automation for standard, lower-margin
mass production, while seeking greater vertical
integration to stay competitive.
More complex Volex products often not only
require specialised engineering knowledge but
are subject to stringent regulatory approval,
making supplier churn for customers more
difficult. Volex is continually looking to keep its
high-speed product offering up to date.
Previously reliant on a smaller number of large
customers, Volex has in recent years pursued a
successful diversification strategy and seen the
growth of smaller accounts that have lessened
this risk. Some of the new acquisitions, for
example GTK, have a very broad customer base.
Individual production sites and other entities
may however be more susceptible to reliance on
individual customers.
Volex will need to continue pursuing its current
strategy of increased vertical integration
and supplier diversification. The likelihood of
supplier and customer distress and bankruptcy
due to the global pandemic and subsequent
economic depression has increased. As a
contract manufacturer, however, in many cases
we are tied to customers’ Approved Vendor Lists
for raw materials and components, while for
some specialist products, supplier options can
be limited. Especially in light of the disruption
caused by Covid-19, individual sites and entities
are taking steps to secure sufficient stock,
including from alternative sources, where
possible.
A new long-term incentive plan for key senior
executives was put in place in FY2020 to
encourage retention. Turnover rates in other roles
vary considerably between Volex sites, with high
churn rates of staff in some production sites.
With a new Global HR Director in place, effort is
being put into staff engagement and improving
conditions across the Group as well as into
succession planning for more senior positions.
32
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 32
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:27 PM
Strategic report
Risk and Possible Impact
Risk Mitigation Activities
Trend
Link to
Strategy
7 Operational – IT and Cybersecurity
With a computer usage base of an estimated
1,500–2,000 employees and a high number of
evolving cyberattacks daily, the Group faces a
constant challenge to keep staff aware of and
alert to the threat from data breaches. In addition,
the obsolescence of infrastructure will need to be
managed.
8 Operational – Product Quality
The impact on the Group of product defects
or product failure not only carries immediate
financial risk in terms of repair or recall costs, but
longer-term damage to its reputation for quality
and reliability.
9 Operational – Technological Change
Developments in technology and resulting
changes in demand for specific products
represent not only an opportunity but also a
threat. The Group’s products risk becoming
obsolete, while it also risks failing to take
advantage of the new sectors opening up.
10 Financial – Access to Finance
If the Group cannot access sufficient cash, bank
borrowing or equity finance, investment and
acquisition plans may be adversely affected.
Mandatory cybersecurity awareness training
was implemented in FY2020, and internal
phishing tests were conducted to measure
levels of awareness. Volex IT is investigating
other security technologies to improve overall
security as well as enhanced data classification
and management. Investment will continue
to maintain up-to-date and effective servers
and hardware.
Volex has high quality standards and has
developed an ability to mitigate technical
setbacks through close customer relationships.
Volex sites and entities are subject to regular
customer audit and third-party review, and all
are ISO 9001 certified. Sites focused on medical
equipment have ISO 13485 accreditation
and those focused on the aerospace sector
have AS9100D accreditation. Closer control
of supplier-provided components by the
procurement function and increased automation
in manufacturing, as well as recruitment of
experienced Quality and Engineering staff, will
enable further improvements in Volex’s overall
reputation for quality.
As a contract manufacturer, Volex is driven
by customer needs and designs but is also
addressing this risk through increased R&D
investment, acquisitions and an improved
strategic marketing function. The Group’s design
team continues to develop innovative, patentable
products, and Volex remains a strong player in
the expanding high-speed data and EV markets.
Volex is seeking to diversify products and enter
a wider range of markets. Changes in charging
technology have affected the power cords
business, and there is also a risk from increasing
wireless transmission of data, but having a well-
diversified customer portfolio and broadening
our service offering should help secure a longer-
term future.
The Company currently has a strong balance
sheet. The $30 million revolving credit facility was
renewed in FY2020 on improved terms and was
undrawn at year end. The Group ended the year
with a strong cash position. However, changing
economic conditions and further acquisitions
may temporarily have an impact here.
Key:
Up Trend
Down Trend
No Change
Customer Focus
Product Development
People
Investment and Acquisition
Operational Excellence
.
www.volex.com
Volex plc
Annual Report and Accounts 2020
33
26523-Volex-Annual-Report-2020.indd 33
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:27 PM
Strategic report
Group Risk Management CONTINUED
Risk and Possible Impact
Risk Mitigation Activities
Trend
Link to
Strategy
11 Financial – Commodity Prices and FX Rates
As a global manufacturer producing and selling
around the world, the Group’s supply chain
can be adversely affected by movements in
commodity prices and other supplier inputs.
The Group is also exposed to fluctuations and
changes in currency exchange rates.
12 Compliance – Regulatory Compliance
The Group operates in many jurisdictions
around the world, all with different standards
and rules for corporate governance, taxation
employment law, environmental law and product
compliance and quality. Failure to adhere to local
or international rules can result in severe fines,
or even restrictions on the right of the Group to
operate in those jurisdictions.
13 Compliance – Financial Controls
With global operations and considerable
autonomy often afforded to local regional centres
and entities, the risk of control breaches opens
up the risk of loss through fraud or through
prosecution for breach of financial regulations.
Volex has demonstrated an ability to manage
commodity price risk, for example through
effective hedging and copper clauses in
contracts with customers. In the near to
medium term, due to the likely weak economic
environment and fall in oil prices, the Volex
supply chain should face reduced risk this year in
terms of these costs.
Compliance across the Group is overseen
centrally by head office HR, Tax and Legal/
Compliance functions, and managed locally
in Volex regional centres, with assistance
from professional advisers. Regular internal
assessments are made, for example, of
employment practices, health and safety
conditions, corporate compliance, et cetera.
For Volex products, safety and compliance
staff are involved in the early stages of product
design, liaising with customers and regulatory
agencies.
A dedicated trade compliance team was set
up early last year to ensure improved export
control compliance. At the supplier level, since
2018, updated standard agreements including
an NDA, a Code of Conduct, a Purchase
Agreement containing product warranty/
liability provisions, and environmental/quality
agreements before any non-AVL supplier can
be selected and qualified as a Volex supplier
have been rolled out.
The Group’s dedicated Internal Audit function
has conducted regular on-site reviews
throughout the year, which will resume when
international travel restrictions are lifted. Where
minor potential issues have been identified,
corrective action has been instituted. An
Enterprise Risk Management scheme is currently
being rolled out for all sites. Central and regional
head offices exercise ongoing review and
assessment of individual Volex operations.
Annual participation in the Volex Group Anti-
Bribery e-learning course is mandatory for all
relevant staff. Internal authorisation processes are
reviewed periodically to ensure that they remain
relevant and effective.
Key:
Up Trend
Down Trend
No Change
Customer Focus
Product Development
People
Investment and Acquisition
Operational Excellence
.
34
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 34
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:28 PM
Covid-19: Volex Response
Strategic report
Introduction
As the world celebrated the Chinese
New Year on 25 January, for the Year
of the Rat, and our Chinese workforce
commenced what should have been
a seven-day Spring Festival holiday
period, it quickly became clear that
2020 was going to be different. The
WHO situation report published on
26 January identified 2,014 confirmed
global cases of the new Covid-19
infection originally identified in the
city of Wuhan, with 52 deaths in
Hubei province alone, and cases in
Hong Kong, Macau, Taipei, Vietnam
and Australia.
The Spring Festival is a time for
family, and many people travel
within China during this special
time. As a company with several
thousand manufacturing employees
we saw many return to their home
provinces to mark the festival.
The response to the developing
epidemic started with the lockdown
of Wuhan and the wider Hubei
province, and from here it quickly
became apparent that there would
be disruption to travel as the Spring
Festival came to an end and that
many hundreds of our employees
could be stranded in their home
provinces. Although our sites in
China are all some distance from the
original centre of the outbreak, the
lockdown and disruption were clearly
going to have a potentially significant
impact on all manufacturing
operations in the country.
Early action
Within the first few hours of
this situation developing our
management teams were looking
at ways to secure our plants, and to
ensure that quarantine requirements
could be met and that the ability of
each worker to return to our sites
after the holiday period was being
assessed. This was an immediate
communication challenge as key
staff found themselves in their home
towns, far away from their normal
office environments.
By 28 January the Chinese
government had already announced
regulations around the suspension
of production, and operations across
China and Pacific provinces were
confirming that the Spring Festival
holiday would be extended by a
number of days.
As February began the focus was on
implementing the necessary health
controls to ensure that as soon as
our plants could reopen everything
would be in hand. This meant
setting up emergency response
teams in each site, and sourcing
masks, disinfectants and other
necessary materials. Each site where
there were dormitories had to take
more stringent actions to ensure the
health and safety of our workforce,
and dedicated quarantine zones
were established.
Alongside government-mandated
rules, we established countrywide
guidelines for the prevention and
control of the Covid-19, focused
on strict rules around checking
whether people had travelled to
or from risk areas, staff working
from home where possible, the
wearing of masks, temperature
checks, disinfection of work
surfaces and self-isolation for
anyone found displaying symptoms
of possible infection. Every site
worked incredibly hard to comply
with these onerous obligations.
The establishment of temporary
hospitals in Wuhan triggered an
urgent order for cables from our
Zhongshan production site and
we received special permission
to bring in a team of workers to
complete this order. Some workers
at our Henggang plant who did
not travel over Chinese New Year
were quarantined locally during
the countrywide lockdown, and this
factor played a key part in getting
the Henggang facility back up and
running quickly once production
resumed.
All of our plants resumed work on
14 February, although initially with
limited production. Many employees
were still in lockdown in their home
provinces, while others were in
quarantine having returned to our
production locations. By 19 February
we had less than 50% of our
workforce back available for work
but by the end of February this had
increased to around 70%.
Lessons learned from China
With a global business, and with the
signs that the virus was spreading
across the world, we chose to
apply the same health prevention
standards at all sites worldwide.
Although local governments have
moved at very different speeds,
our decision to adopt these global
standards enabled all of our sites to
remain open through March and
April as the pandemic spread and
the global economy went into partial
shutdown. With our global supply
chain expertise we have been able to
ensure masks and other protective
equipment have been supplied,
where needed, to all of our plants
around the world.
Manufacturing expertise and
community assistance
As a business with many customers
in the medical sector we have been
working extremely closely with
those customers to arrange rapid
turnaround of the development,
manufacture and supply of critical
cable assemblies and other products
to meet the urgent medical needs
in many countries around the
world, including parts for ventilator
production. Our teams have also
been proactive in supporting health
services in their communities –
for example, our production site
in Poland has been using its 3D
printers to create face visors for use
by staff in the local hospital, while
GTK has donated hundreds of high-
grade masks from its stocks to a UK
home care provider in southeast
England which was running short
for its own staff.
www.volex.com
Volex plc
Annual Report and Accounts 2020
35
26523-Volex-Annual-Report-2020.indd 35
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:28 PM
Strategic report
Corporate Social Responsibility
The Volex Board is committed to the
Group having a positive impact on the
environment and society and to taking
seriously the needs of all stakeholders
and not just its shareholders. The Board is
responsible for developing and managing
the Group’s strategy on matters including
health and safety, diversity, compliance
with ethical trading practices, conflict
minerals, and modern slavery and human
trafficking. The Group’s Code of Business
Conduct and the range of more detailed
internal policies that sit under it set out
clear ethical values, which the Board
expects all Group companies and staff
to adhere to. All senior staff are expected
each year, on behalf of their business
units or areas of responsibility, to sign a
certificate confirming their compliance
with key internal Volex policies.
Our people
The commitment, enthusiasm and skill of
the people who work for Volex are critical
if the Group is to continue its successful
transformation. Communication with
and input from staff are key, an area our
new Group HR Director has focused on
this year along with employee retention
and health and safety. For more on our
commitment to our people, please see
pages 38 and 39.
Equality and human rights
Volex is committed to generating benefits
for all its stakeholders while ensuring that
it does not infringe the human rights of
others. We recognise that our employees
are crucial to the ongoing success of the
business and to how the Company is
regarded by the wider market, and believe
that all employees should be treated
equally, fairly and with respect.
Modern slavery
Modern slavery is a fundamental violation
of human rights. It takes various forms,
all of which seek to deprive a person of
their liberty for another’s commercial or
personal gain. Volex has a zero-tolerance
approach to any form of modern slavery
and is committed to ensuring there is no
modern slavery or human trafficking in
any part of its supply chains, or its own
business. As required by UK law, we also
publish a Modern Slavery Transparency
Statement, which is made available on
our website. We expect the same high
standards from all of our contractors,
suppliers and other business partners.
Diversity
Volex’s success is reflected in our
diverse global workforce. To maintain
our competitive edge, we believe it is
important to maintain diversity in gender,
36
Volex plc
Annual Report and Accounts 2020
ethnicity, age, thinking and background.
Our leadership and management team is
distributed across the world; however, of
our top 50 leaders, only 28% are female,
and overall our Board and executive team
remains imbalanced when it comes
to gender, figures we are looking to
improve.
traditional Volex sites and our recently
acquired sites are ISO 9001 certified.
Sites focused on medical equipment
have ISO 13485 accreditation and sites
focused on the aerospace sector have
AS9100D accreditation. We aim to meet
any additional requirements explicitly
requested by our customers.
Conflict minerals
Volex has a dedicated policy addressing
the issue of conflict minerals. We are
committed to avoiding the use of conflict
minerals in our products, and we ask our
suppliers to ensure that materials used in
components and products they supply to
us, including tin, tantalum, tungsten and
gold, are conflict-free.
Our impact on the environment
We comply with all relevant statutory
and regulatory requirements in the
jurisdictions in which we operate. We
monitor the environmental impact of
our business activities and encourage
employee awareness of waste reduction,
recycling and responsible disposal. Nine
of our manufacturing sites are ISO 14001
certified and have local waste-reduction
and/or pollution-prevention programmes.
We are compliant with the provisions of
EU RoHS and EU REACH, and implement
stringent controls to eliminate the use
of hazardous substances. Our products
are free from MCCP, phthalates, lead and
DINP. We also offer a range of halogen-
free cables.
Health and safety
Volex maintains stringent safety practices
and implements industry best practice
across the Group. Each manufacturing
site conducts programme training, risk
assessments and regular management
reviews to identify safety risks and ensure
compliance with industry best practice.
All sites comply with local law and
regulations relating to health and safety,
and most have ISO 45001 or equivalent
accreditation. A new health and safety
policy was approved by the Board and
rolled out this year, and a new Health &
Safety Committee established.
Community involvement
and charity
Volex strives to become involved in local
events and activities in the areas where it
has sites. For example, in Tijuana, Mexico,
each year staff collect presents and food
which they deliver to local care home
residents over Christmas. During the year,
GTK staff raised thousands of pounds for
Great Ormond Street Hospital, a London
hospital for children, through sponsorship
of and participation in the London to
Brighton bicycle ride and through direct
donations at Christmas. Silcotec donates
€3,000 every year to a local orphanage in
the town of Komárno, where its Slovakian
production site is based.
The Volex Board has agreed in principle
to make more regular payments to
charities when financial performance
allows, and approved a £13,000 donation
to cancer and youth charities following
Chief Financial Officer Daren Morris’s
successful sponsored climb of Ben Nevis,
the highest mountain in the UK, in June
2019. Following the Covid-19 outbreak,
local sites and subsidiaries have been
providing aid and assistance to local
hospitals and other care providers (see
page 35 for more on Volex’s response to
the outbreak).
Customers and suppliers
Just as Volex’s customers around the
world demand strict adherence to high
environmental and ethical standards,
we demand the same of our suppliers,
requiring them to sign up to a Supplier
Code of Conduct that mirrors the
standards we set for ourselves. All of the
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 36
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:28 PM
27309 25 June 2020 4:29 pm Proof 8Streamlined Energy & Carbon Reporting (SECR)Under the Climate Change Act 2008 and The Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013, we are mandated to disclose our global energy use and associated greenhouse gas (GHG) emissions for which we are responsible. Specifically, we are required to report, in the form of tonnes of carbon dioxide equivalent (CO2e), on all material emissions of the six Kyoto gases generated from both direct sources and purchased electricity, heat, steam and cooling.We partnered with Carbon Footprint Ltd to complete the calculation of our carbon footprint for the data period: 1 April 2019 to 31 March 2020. Calculation Methodology Carbon Footprint Ltd has assessed Volex’s GHG emissions in accordance with the UK Department for Environment, Food and Rural Affairs (Defra) ‘Environmental reporting guidelines: including Streamlined Energy and Carbon Reporting requirements’, and uses the 2019 emission conversion factors developed by Defra and the Department for Business, Energy & Industrial Strategy (BEIS).We have used the financial control approach. The scope of the GHG emissions assessment includes: ▷Buildings-related energy including: − Natural gas (Scope 1) −LPG consumption (Scope 1) − Site diesel (Scope 1) − Electricity (Scope 2) − District heating (Scope 2); and ▷Vehicle and equipment fuel consumption (Scope 1); and ▷Employee owned vehicle (grey fleet) fuel and hire car travel (Scope 3). ResultsThe table below shows Volex GHG emissions during the reporting year 1 April 2019 to 31 March 2020. This is the fourth year Volex has assessed its emissions. Element2019/20 (tCO2e) Direct emissions (Scope 1) – Natural gas, LPG, diesel, company car travel, refrigerants & vehicle fuel consumption 989.34Indirect emissions from purchased electricity and district heating generation (Scope 2)14,084.69Total tCO2e (Scope 1 & 2) 15,074.03Intensity metric: Scope 1 and 2 GHG emissions per employee2.64Intensity metric: Scope 1 and 2 GHG emissions per $M turnover38.51Total energy consumption (kWh) (Scope 1&2 only)26,244,543Scope 3Other indirect emissions (Scope 3) – grey fleet travel, hired vehicles, electricity and district heating distribution1,182.84Overall Gross Total (Scope 1,2 & 3)16,256.87Volex’s UK operations account for 0.87% of Volex’s global consumption and 0.36% of Volex’s total associated global emissions.Energy EfficiencyVolex attempts to rely on renewable energy sources and electric vehicles as much as possible and to limit unnecessary energy use. The Group does not however have centrally managed carbon reduction or offsetting programmes.www.volex.comVolex plcAnnual Report and Accounts 202037Strategic report26523-Volex-Annual-Report-2020.indd 3725-Jun-20 4:32:29 PM Strategic report
Corporate Social Responsibility CONTINUED
‘I was delighted to join
the Volex family at the
start of the financial year.
Volex has a long history,
with our origins traceable
back to 1892. At one time
we employed over 11,000
worldwide.’
Alan Taylor
Group HR Director
VOLEX –
IT’S ALL ABOUT OUR PEOPLE
It was clear to me that as Volex starts
to grow and confirm its position as a
leading global business there would
need to be a series of important people-
centred workstreams. Over the past
12 months, as I have gained an ever-
deeper insight into the business, it is
very clear where the people priorities are.
Ensuring the safety of all
First and foremost, we all believe in
ensuring the safety and health of
everyone involved and affected by our
operations. Four of our main sites have
certified Health and Safety Management
systems that meet either OHSAS 18001
or ISO 45001.
We do not rely on heavy manufacturing
processes, and the risks created in our
sites are modest. However, accidents
do occur on sites, and during the year
we have significantly strengthened our
commitment to enhancing our safety
culture throughout the Group. We
have renewed our Group’s health and
safety policy, which has been cascaded
across the business in local languages
as appropriate. We have defined and
deployed an initial set of minimum
safety standards and implemented a
series of regular plant safety reviews,
based on visual inspection. These
regular and systematic on-site visual
inspections are conducted by me in
collaboration with members of each
site’s management team. Our Board,
through its Health & Safety Committee,
provides a further forum to review and
challenge our practices and to ensure
that our actions as an executive team are
fit for purpose.
In FY2020 we:
▷ Launched our management team
development programme, with
40 managers in Mexico, Slovakia and
Poland completing the programme
▷ Achieved a 52% reduction in lost-time
accidents compared to the previous
year, with two large sites achieving
12 months without any accidents.
In FY2021 we will:
▷ Continue to enhance our strong
focus on health and safety
▷ Work to embed a new Group-wide
performance management process
for our top 210 leaders
▷ Continue to expand the scope of the
site management team development
programme across the remaining sites
38
Volex plc
Annual Report and Accounts 2020
Ensuring workforce stability
One of the immediate concerns that I was
asked to focus on was in relation to the
levels of workforce stability in a couple of
our key sites. All sites now have action plans
in place to drive necessary improvements.
Ensuring we create a place where
people are proud to work and give
their best
Our people are committed, hard-working
and keen to contribute to the success of
the Company. We want to empower our
employees to realise their potential and
are working to ensure we have the talent
to meet, and exceed, our organisational
ambitions for future growth. We can
do this in many different ways, from
celebrating success with improvements
to internal communications, and from
engaging them in kaizen continuous
improvement activities within each of
their plants, to simply listening to their
ideas and any concerns.
Diversity
Our commitment to realising the
potential of our people extends to all
employees. For us, it’s all about merit.
Anyone can and should be able to realise
their full potential in Volex without
experiencing inequality or unfairness
on any grounds. The advantage of
being a global business means that we
naturally accept contributions from
every part of the world irrespective of a
person’s nationality, beliefs, gender or
age. Our leadership team is distributed
internationally, which creates a truly
global culture within our leadership.
Despite this, our track record for gender
diversity within our Board, executive team
and top 50 leaders remains imbalanced.
As we work to increase our bench
strength by attracting external talent
and promoting internally we will pay real
attention to ensuring fairness, inclusion
and equity in these core people processes.
Employee voice
We are working to improve
communications across the business. This
workstream takes many different forms,
from updating and reconfiguring our
intranet site to developing a regular staff
newsletter. We are working to ensure there
are clear channels for employees to speak
up at some sites, whether through elected
or unelected representatives. We also
have an effective internal whistleblowing
process called Right to Speak!
Alan Taylor
Group HR Director
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 38
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:29 PM
CASE STUDY
Kaizen
Strategic report
All sites have formal kaizen programmes and report weekly
on these activities. This creates opportunities for quick
sharing of best practices around the Group. Several of our
sites have held celebration and recognition events to thank
our employees for their efforts in supporting our kaizen
programme.
The team (pictured) are from our Batam plant in Indonesia
during their most recent event to celebrate kaizen.
CASE STUDY
CASE STUDY
Celebrating Chinese New Year
Sports Day in Volex Vietnam
Celebrating festivals, national holidays and other
seasonal events is hugely important for our site-
based workforce. It has been great to see the
efforts taken by our local teams to recognise these
important events. With a significant percentage
of our workforce based in China, one of the most
important dates in the calendar is Chinese New Year.
Increasing employee involvement and engagement
is important for all of our sites. Our Vietnam team
(pictured) delivered an outstanding Sports Day
this year in which the majority of the workforce
participated.
www.volex.com
Annual Report and Accounts 2020 39
Volex plc
26523-Volex-Annual-Report-2020.indd 39
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:33 PM
Strategic report
Section 172 Statement
conflict minerals, et cetera. Company
policies are hosted on the company
intranet site and communicated to
new staff on entering employment.
Suppliers are required to sign an
equivalent document which confirms
their commitment to abide by
similar standards. Every year, senior
management for individual production
sites and cross-company areas of
responsibility in all the subsidiary
companies are required to sign a
Certificate of Compliance with the
main code and with other key policies,
confirming their adherence to them.
More details on the Company’s ethical
values and standards can be found
in the Corporate Social Responsibility
Report on pages 36 and 37 and in the
Governance Report on pages 48 to 51.
The need to act fairly as between
members of the Company
All Volex shares are publicly traded on
AIM and each carries equal value and an
equal vote for any members’ resolutions.
The Board does not make any distinction
between the Company’s shareholders
and currently does not issue different
types of share. The Executive Chairman
is a major shareholder, which helps
align his interests with those of other
shareholders. All of the Company’s
Directors, including the Non-Executives,
are usually available to speak to
shareholders and answer questions
at the Company’s AGM. Smaller
shareholders are often the most regular
attendees and active in questioning the
Board at the AGM.
The Companies (Miscellaneous
Reporting) Regulations 2018 require
Directors to include a statement in
the Strategic Report describing how
they have had regard to the matters
set out in sections 172(1)(a) to (f) of the
Companies Act 2006. This section 172
statement explains how the Company’s
Directors have, as well as the interests
of shareholders, also taken into account
the following issues.
The likely consequences of any
decision in the long term
As a global business working in the
high-technology sector, the Board is
always conscious of the longer-term
impact of decisions and the changing
context in which the Company operates.
In October, the Board and other senior
managers held two days of extended
meetings to plan the Company’s long-
term objectives and strategy. Further
details of the Company’s strategy and
longer-term objectives can be found in
the Executive Chairman’s Statement on
pages 8 and 9, in the Strategy section
on pages 16 and 17 and in the Chief
Operating Officer’s Q&A on pages 20
and 21.
The interests of the Company’s
employees
With the recent appointment of
a new Group HR Director, and the
establishment of the Health & Safety
Committee, the Board has shown
its commitment to supporting and
managing the development of its staff.
Employee safety is one of the Company’s
KPIs, while 'People' is one of the five key
strategy areas. The activities recently
undertaken to improve employee
engagement and welfare are set out in
the Executive Chairman’s Statement
on pages 8 and 9, and in more detail
in the ‘People’ section of the Corporate
Social Responsibility Report on pages 38
and 39. The Health & Safety Committee
Report can be found on pages 55 and 56.
The need to foster the Company’s
business relationships with
suppliers, customers and others
The Company maintains long-term
relationships with many customers,
suppliers and other business partners
including its professional advisers.
The nature of its business, with many
products requiring safety and other
technical certifications, ensures close
co-operation with partners and the
development of strong business
relationships. Further information on
the Company’s business relationships
can be found in the Strategy section
on pages 16 and 17, the Chief Operating
Officer’s Q&A on pages 20 and 21, and
the Divisional Review on pages 22 to 25.
The impact of the Company’s
operations on the community and
the environment
The Company continues to examine
ways in which its impact on the
community and environment, whether
local or global, can be managed and
mitigated, as set out in the Corporate
Social Responsibility Report on pages
36 and 37. The Company maintained
regular monitoring and reporting of its
energy use and carbon emissions even
when that was not compulsory for AIM-
listed companies. This year, the Board
established a new policy on charitable
donations. Details of the Company’s
commitment to engagement with the
local community can be found in the
People report on pages 38 and 39, and
in the account of its response to Covid-19
on page 35.
The desirability of the Company
maintaining a reputation for high
standards of business conduct
The Volex Group has a clear Code of
Conduct regarding its ethical and
business standards, formally approved
by the Board, and numerous more
specific company policies which lie
under and feed into that code, relating
to financial matters, health and safety
issues, environmental standards,
employment practices, modern slavery,
40
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 40
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:33 PM
Strategic report
Stakeholder engagement
Outlined below are some of the key ways in which the Company engages with
stakeholders. Further details can be found across the Annual Report.
Employees
The Company communicates centrally
with its global workforce through
newsletters, its intranet site and local
HR engagement. We have an internal
whistleblowing 'Right to Speak' process,
and are working to establish improved
channels for employees to speak
up about other matters of concern
through their representatives.
Ahead of the Servatron acquisition,
senior executives visited the factory
in Washington state, and as part
of the acquisition terms ensured
arrangements were in place for the
retention of key staff. As part of its
strategy trip in October 2019, the Board
visited the Silcotec factory in Komárno,
Slovakia.
Communities
Our sites around the world regularly
engage in local community events. This
year, the Board approved a new policy
on charitable donations, intended in
part to further encourage such activity.
Investors
The Executive Chairman and Chief
Financial Officer are in regular contact
with institutional shareholders,
and undertake roadshows and
presentations to current and
prospective investors. Under usual
circumstances, the AGM offers a regular
forum for any members to question the
Board in person.
Customers
'Customer Focus' is one of the five
key strategy areas identified by the
Company. As well as the day-to-day
contact through our global sales
teams, senior executives including
at Board level are in regular contact
with customers. The Company’s larger
customers often speak directly to the
Directors.
The Environment
The Company monitors its Group-wide
carbon emissions and energy use, and
operates dedicated recycling systems
for scrap material across the Group.
Energy conservation activities take
place at most of our sites and we are
constantly looking at increasing the
energy efficiency of our production
machinery.
Suppliers
We have a dedicated procurement
team, based in Suzhou, China, that
manages our supplier relationships.
We work extremely closely with all of
our supply chain to ensure that they
can collaborate with us in meeting our
customers’ needs. We have a dedicated
global network of supplier quality
engineers that support our supplier
community.
Public Authorities
The Company liaises with regulators
and other public authorities as and
when appropriate and necessary. This
engagement became particularly
important as a result of the Covid-19
outbreak, since each one of our
sites has needed support from local
authorities in order to remain open and
to be qualified as an essential business.
Interactions with local authorities are
commonplace and an essential part of
maintaining effective relationships in
the communities in which we operate.
www.volex.com
Volex plc
Annual Report and Accounts 2020
41
26523-Volex-Annual-Report-2020.indd 41
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:35 PM
Governance
Board of Directors
44
Executive Chairman’s Introduction 46
Corporate Governance Report
48
Audit Committee Report
Health & Safety Committee report
52
55
Directors’ Remuneration Report
57
Directors’ Report
Independent Auditors’ Report
66
70
26523-Volex-Annual-Report-2020.indd 42
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:36 PM
S
T
S
I
L
A
I
C
E
P
S
G
RIN
U
I
N
T
E
G
R
A
T
E
D MANUF A C T
From the Northwest
of England to a Global
Conglomerate
When it was incorporated in 1919, Ward & Goldstone was
a small but growing business based in the northwest of
England – today, Volex is a multinational corporate group
with manufacturing sites and sales offices in 20 countries
and a presence across the Americas, Europe and Asia.
Although the Company had established a manufacturing
site outside the UK and Ireland previously, in Malaysia, and
had exported internationally for some time through its
overseas sales offices, it was not until 1992 that it took serious
steps to establish itself as a global manufacturer.
In January 1992, the Company acquired Cable Products, Inc.,
a US manufacturer with operations in Massachusetts and
Ireland, which saw the Group enter the field of data cable
assemblies – two further US acquisitions followed in the
next 12 months, forming the basis of what would eventually
become Volex Inc., now our main US trading company. In
October 1992, we acquired a 60% stake in Singapore-based
Mayor Pte Ltd, with facilities in Singapore, China, Indonesia,
Mexico and Wales. Volex later acquired the remaining 40%,
and it is this entity that constitutes the modern Volex (Asia)
Pte Ltd, which oversees our current operations in China and
the rest of east Asia.
Worldwide manufacturing
sites in 2001
Sales in
2001
26523-Volex-Annual-Report-2020.indd 43
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:32:36 PM
27309 25 June 2020 4:29 pm Proof 8ANRHNCommittee Membership: A Audit Committee N Nominations Committee R Remuneration Committee Board of DirectorsNATHANIEL ROTHSCHILD Executive Chairman DEAN MOORE Senior Non-Executive Director DAREN MORRIS Chief Financial Officer and Company SecretaryNathaniel Rothschild was appointed to the Board as a Non-Executive Director on 15 October 2015 and became Executive Chairman on 27 November 2015.Nathaniel was previously a Non-Executive Director of Barrick Gold Corporation, Genel Energy plc, Asia Resource Minerals plc and RIT Capital Partners plc. From 1996 to 2009 he was a partner at Atticus Capital and prior to that worked as an investment analyst at Gleacher and Co., Inc. He holds an MA in History from Oxford University and an MSc in Addiction Studies from King’s College London. He was appointed as a Foundation Fellow of Wadham College, Oxford in 2018, and is currently a Visiting Senior Research Fellow in the Department of Addictions within the Institute of Psychiatry, Psychology & Neuroscience, King’s College London. Key areas of expertise: Sales & marketing, strategic planning and business development in developed and emerging markets.Daren Morris was appointed as interim Chief Financial Officer on 11 December 2014 and Chief Financial Officer on 8 June 2015.Daren has spent the majority of his career in the financial services industry, where he was a managing director at UBS Investment Bank and Morgan Stanley, advising manufacturing and technology companies on their expansion and financing strategies. Daren is a qualified chartered accountant and holds a degree in Physics from Oxford University.Key areas of expertise: All aspects of financial management, cost control, corporate finance, commercial and legal contract risk, company secretarial duties and investor relations.Dean Moore was appointed as a Non-Executive Director on 18 April 2017. He is Chairman of the Audit Committee, and a member of the Remuneration Committee and Nominations Committee. He is the Senior Independent Director.Dean is a chartered accountant with wide-ranging experience as both an Executive and Non-Executive Director. A former Chief Financial Officer of Cineworld Group plc, N Brown Group plc, T&S Stores plc and Graham Group plc, he is currently also a Non-Executive Director at Cineworld Group plc, where he acts as Chair of the Audit and Remuneration Committees, and at Dignity plc, where he is Chair of the Audit Committee.Key areas of expertise: Governance, risk management, mergers & acquisitions, managerial finance, strategy.Volex plcAnnual Report and Accounts 2020Stock code: VLX44Governance26523-Volex-Annual-Report-2020.indd 4425-Jun-20 4:32:50 PM 27309 25 June 2020 4:29 pm Proof 8HRANH Health & Safety Chair of Committee JEFFREY JACKSON Non-Executive Director ADRIAN CHAMBERLAIN Non-Executive Director Adrian Chamberlain was appointed to the Board of Directors as a Non-Executive Director on 16 June 2016. He is Chairman of the Remuneration Committee, and a member of the Audit Committee and the Nominations Committee.Adrian is Executive Chairman of eConsult Health Limited, a cloud-based medical triage company, and a Non-Executive Director of Cambridge University NHS Trust and Alfa Financial Software Holdings plc. Adrian has proven experience in technology markets, customer development and business strategy. He holds an MA in History from Trinity College, Cambridge, and an MSc in Business Studies from London Business School. Key areas of expertise: Technology and telecoms markets, customer development, product management, marketing, and business strategy.Jeffrey Jackson was appointed to the Board of Directors as a Non-Executive Director on 30 July 2019. He is Chair of the newly constituted Health & Safety Committee.Jeffrey is Program Director with aerospace manufacturer Meggitt plc working on reducing their global manufacturing footprint as well as leading several cost improvement initiatives. He holds a BA in Cultural Anthropology from Michigan State University and undertook post-graduate business studies at the University of Phoenix. Key areas of expertise: Operations and supply chain management, planning, sourcing, manufacturing and distribution operations in several market segments including automotive, electronics, aerospace and medical devices.www.volex.comVolex plcAnnual Report and Accounts 202045GovernanceBOARD TENURE122l Less than 1 year l 1-3 years l 4-6 yearsEXECUTIVE SPLITl Executive Chairman l Executive Director l Non-Executive Director11326523-Volex-Annual-Report-2020.indd 4525-Jun-20 4:32:58 PM 27309 25 June 2020 4:29 pm Proof 8Executive Chairman’s Introduction‘Maintaining our high standards of corporate governance remains a key objective for the entire leadership team.’Nathaniel RothschildExecutive ChairmanMaintaining our high standards of corporate governance remains a key objective for the entire leadership team, and we continue to follow the Quoted Companies Alliance Corporate Governance Code (the ‘QCA Code’). We remain committed to those standards and continue to comply with the provisions of the QCA Code, with some exceptions. Following the successful turnaround of the business in recent years, changes were made to the Board structure this year, with the addition of a third Non-Executive Director and the creation of a Health & Safety Committee to complement the work of the Board’s existing Committees and to broaden the Board’s decision-making and review processes. As we anticipated doing in last year’s Annual Report, we have retained the Company’s executive leadership structure, including my Executive Chairman role. We acknowledge that this is one respect in which we do not fully comply with the requirements of the QCA Code, which recommend a division between the role of Chairman and Chief Executive. However, given the ongoing progress made under the current leadership arrangement, the Board still believes that it is in the best interests of the Company for it to continue, while at the same taking steps to broaden the executive structure in other ways. Our Board structure now allows for swift and effective decision-making but also for more thorough oversight and review of all aspects of our leadership decisions. We are constantly evaluating what further changes may need to be made as the business moves forward.The Non-Executive Directors have played a vital role in advising the Executive Directors this past year, through informal engagement as well as through attendance at formal Board and Committee meetings. Our new Non-Executive Director, Jeffrey Jackson, based in the United States, has decades of experience in supply chain management and operations. His arrival has strengthened the Board’s ability to provide effective and independent oversight of the Company’s strategy and its global business operation. Our revamped HR and Internal Audit functions now both report regularly to the Board, ensuring we are better placed to understand and manage any issues around employee relations, financial risk and ethical standards.Our Corporate Governance Report is set out on pages 48 to 51 and explains how we manage the Group in order to follow the provisions of the QCA Code, as well as corporate and business standards and best practice more generally. It also sets out further details about the activity of the Board and its various Committees during the year. As Executive Chairman, I remain committed to combining effective leadership of the business with high standards of governance. Maintaining our values and the integrity of the Volex brand is key to driving long-term performance. Despite global uncertainty, we remain committed to and confident about the Company and its future, and fully understand the role that good corporate governance will play in building that future.The corporate governance section of the Annual Report sets out the standards and practices we at Volex follow both at Board level and in terms of wider management of the business, and seeks to assure shareholders and other stakeholders, including our customers and our own staff, that we have not only articulated but embedded the values that they would expect to see in place. Corporate governance guidelines set a framework which underpins the core values of the business, setting standards against which the Board and senior management can judge whether we are acting in the right way and for the right reasons when we make decisions, and at the same time ensuring we have all the appropriate and necessary safeguards, checks and balances in place. Volex plcAnnual Report and Accounts 2020Stock code: VLX46Governance26523-Volex-Annual-Report-2020.indd 4625-Jun-20 4:33:07 PM 27309 25 June 2020 4:29 pm Proof 8www.volex.comVolex plcAnnual Report and Accounts 202047Governance26523-Volex-Annual-Report-2020.indd 4725-Jun-20 4:33:08 PM 27309 25 June 2020 4:29 pm Proof 8Corporate Governance Report‘Volex remains committed to high standards of corporate governance.’Daren MorrisChief Financial Officer and Company SecretaryThe Board provides leadership on these issues and maintains a framework of controls for risk assessment and management. Specific matters are formally reserved for decision-making by the Board and its Committees to ensure a sound system of internal control and risk management.The Executive Chairman, Nathaniel Rothschild, is responsible for the leadership of the Company and the Board. He is jointly responsible with the Senior Independent Director for creating the right Board dynamics and for ensuring that all important matters, including strategic decisions, receive adequate time and attention at Board meetings. The Executive Chairman, Chief Financial Officer and Chief Operating Officer are, together, responsible for the day-to-day management of the business, developing corporate strategy, advising the Board and then implementing Board decisions.The Chief Financial Officer also acts as Company Secretary, and reports to the Executive Chairman and Senior Independent Director on governance matters. With support from the Company’s Nominated Adviser and the Assistant Company Secretary, he is responsible for keeping the Board up to date on all legislative, regulatory and governance issues, managing the timetable of Board and Committee meetings, advising on Directors’ duties and facilitating appropriate information flows between the business and the Board. Although the dual roles are not an arrangement preferred by the QCA Code, Volex continues to believe this more focused and streamlined structure is appropriate given the size of the Company, the current Board’s proven success in transforming the fortunes of the business, and the oversight and support resources available. However, as with all aspects of the Company’s governance, this will remain under review, especially as the Group expands.The Company’s three Non-Executive Directors, whose appointments are reviewed every three years, are responsible for exercising independent and objective judgement to constructively challenge the decisions of executive management and satisfy themselves that the systems of business risk management and internal financial controls are robust. They are expected to spend as much time as is necessary to perform their duties.The Corporate Governance Report sets out how the Group’s main corporate governance principles have been applied across all its companies. Volex plc has taken the provisions of the QCA Corporate Governance Code as its main benchmark for good corporate practice for the year ended 5 April 2020, and from that date up to the date of publication of this Annual Report and Accounts. It has adhered to those provisions other than in the highlighted instances.The Board seeks not only to ensure that the Company can generate sustainable growth and deliver long-term value for shareholders and other stakeholders but to establish the governance standards, values and strategic aims of the Company. The names, biographical details and dates of appointment of the members of the Board are set out on pages 44 and 45.Volex plcAnnual Report and Accounts 2020Stock code: VLX48Governance26523-Volex-Annual-Report-2020.indd 4825-Jun-20 4:33:13 PM Governance
Operation of the Board
The Board is responsible for setting
the Company’s business objectives,
oversight of risk, strategic development
and effective corporate governance.
It holds regular, scheduled meetings
throughout the year to review the
Company’s financial and operational
performance and to consider any other
matters as appropriate, including
potential merger and acquisition
opportunities, risk management and
shareholder feedback. When issues
requiring the attention of the Board
arise outside the regular schedule, the
Directors will action agreement via
minuted ad hoc Board calls or written
resolutions.
All the Directors receive comprehensive
briefing packs in advance of Board and
Committee meetings. They have access
to the services of external advisers and
can take independent professional
advice at the Company’s expense if
needed.
Matters reserved for the Board
The Board delegates day-to-day
management of the Company to the
Executive Directors who, as appropriate,
delegate to executive management.
However, certain matters are formally
reserved for decision by the Board,
including:
Board focus in FY2020
The major focus this year was to
maintain the progress made by the
business in recent years and to further
secure its financial position, but also to
look forward to the longer-term strategic
options for the Group, including
identifying potential further acquisitions
that could bring additional value. In
particular, this year the Board:
▷ Approved the acquisition of Ta Hsing
Industries Ltd, a Hong Kong and
China-based cable manufacturer
whose incorporation into the Group
is intended to help drive its vertical
integration;
▷ Approved the acquisition of
Servatron, Inc., a US PCBA, box build
and complex assembly manufacturer
based in Washington state;
▷ Approved the investment in Batam,
Indonesia, to significantly expand the
existing facility for the production of
high-speed data cables and power
cords;
▷ Approved the restoration of dividend
payments, with a 1.0 pence per
share interim dividend being paid
in February 2020 and a 2.0 pence
per share final dividend to be
recommended to shareholders in
July 2020;
▷ Approved the renewal of the Group’s
three-year revolving credit facility on
much improved terms;
▷ Approved the Company’s new long-
term incentive plan, designed to
retain and motivate the executive
leadership and other staff;
▷ Held several sessions with senior
management representatives across
a two-day period to review and
discuss the Company’s long-term
strategy, including a visit to the
Silcotec factory in Komárno, Slovakia.
Attendance at meetings
The Board met for scheduled discussions
nine times during the year, following
a timetable set at the start of the year
and based around the calendar of key
upcoming events for the Company. The
four Board Committees met 10 times
in total. The size of the Board allows it
flexibility to meet on short notice on
a more ad hoc basis in response to
the needs of the business, and Non-
Executive Directors are also encouraged
to communicate directly with Executive
Directors and executive management
between Board meetings.
▷ Approval of the annual budget;
▷ Approval of the Company’s objectives
and setting its long-term strategy;
Directors attended all meetings of the Board and of those Committees of which they
are members. Directors’ attendance at the Board and Committee meetings during
the financial year:
▷ Approval of material capital
expenditure projects;
▷ Approval of acquisitions;
▷ Approval of half-yearly reports,
trading updates, the preliminary
announcement of year-end
results and the Annual Report and
Accounts;
▷ Internal control and risk
management; and
▷ Material contracts, expenditure and
Number of
meetings
Chairman
Nathaniel Rothschild
Executive Directors
Daren Morris
Non-Executive
Directors
Group borrowings.
Adrian Chamberlain
Dean Moore
Jeffrey Jackson
1Attended by invitation
Full Board
(9 meetings)
Audit
Committee
(4 meetings)
Remuneration
Committee
(5 meetings)
Nominations
Committee
(0 meetings)
Health
& Safety
Committee
(1 meeting)
9/9
9/9
9/9
9/9
9/9
1/41
4/41
4/4
4/4
–/4
1/51
1/51
5/5
5/5
1/51
–/–
–/–
–/–
–/–
–/–
1/1
–/1
–/1
–/1
1/1
The Deputy CFO, Group HR Director and Assistant Company Secretary regularly attend Board and
Committee meetings by invitation. The Head of Internal Audit and the Company’s auditors, PwC,
usually attend meetings of the Audit Committee.
www.volex.com
Annual Report and Accounts 2020 49
Volex plc
26523-Volex-Annual-Report-2020.indd 49
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:13 PM
Governance
Corporate Governance Report CONTINUED
Details of the Committee’s activities
are contained in the Audit Committee
Report on pages 52 to 54.
Remuneration Committee
The members of the Remuneration
Committee are Adrian Chamberlain
(Chairman) and Dean Moore.
The Committee met five times during
the year.
The Committee is charged with
determining and agreeing the
remuneration of the Executive
Directors as well as recommending
and monitoring the structure of
remuneration for senior management
and the management of the Company’s
share incentive scheme.
Details of the Committee’s activities are
contained in the Directors’ Remuneration
Report on pages 57 to 65.
Health & Safety Committee
The members of the Health & Safety
Committee are Jeffrey Jackson
(Chairman), Nathaniel Rothschild and
Alan Taylor (Secretary).
The Committee met once formally
during the year.
The Committee aims to ensure
appropriate governance is applied to
the management of health and safety
within the Group. It monitors the
effectiveness of controls relating to
health, safety and environmental risks,
and monitors the overall compliance
around labour-related risks within
the business.
Details of the Committee’s activities
are contained in the Health & Safety
Committee Report on pages 55 and 56.
Board effectiveness
Composition, independence and
diversity on the Board
The Board comprises the Executive
Chairman, the Chief Financial Officer
and three Non-Executive Directors, such
that the QCA Corporate Governance
Code requirement for at least two
independent Non-Executive Directors
has been met. Dean Moore, Adrian
Chamberlain and Jeffrey Jackson
are considered by the Board to be
independent of management and free
from any business or other relationship
that could materially interfere with the
exercise of their judgement.
Committees of the Board
The Board has delegated certain
responsibilities to the following
Committees:
▷ the Nominations Committee;
▷ the Audit Committee;
▷ the Remuneration Committee; and
▷ the Health & Safety Committee.
Each of the above Committees operates
under defined terms of reference, which
are available on the Company’s website.
To ensure independent oversight of
the audit and remuneration functions,
only the Company’s independent
Non-Executive Directors serve on those
Committees. However, the Nominations
Committee is chaired by Nathaniel
Rothschild, who also sits on the Health
& Safety Committee. The Company
Secretary acts as secretary to each
Committee, other than the Health &
Safety Committee, where the Group HR
Director, Alan Taylor, acts as secretary.
Nominations Committee
The members of the Nominations
Committee are Nathaniel Rothschild
(Chairman), Dean Moore and Adrian
Chamberlain.
The Committee did not meet during
the year.
The Committee is responsible for
reviewing the size and composition of the
Board – including whether the balance
of Executive Directors and Non-Executive
Directors continues to be appropriate –
succession planning and recommending
suitable candidates for membership of
the Board when such posts arise.
In appointing a new Board member, the
Committee evaluates the balance of skills,
knowledge and experience of the Board
and prepares a clear description of the
role and the capabilities and strengths
required to fulfil a particular appointment.
Audit Committee
The members of the Audit Committee
are Dean Moore (Chairman) and Adrian
Chamberlain.
The Committee met four times during
the year.
The Committee is responsible for
monitoring the integrity of the
Company’s financial statements,
including its annual and half-yearly
results, as well as for keeping the
Company’s internal controls under
review and overseeing the relationship
with the external auditors.
50
Volex plc
Annual Report and Accounts 2020
Currently, there is no female
representation on the Board. The
Board recognises the importance of
gender diversity in the Company and
is committed to promoting gender
diversity throughout the organisation.
Further information on the total
female representation in our workforce
is provided in our Corporate Social
Responsibility Report on page 36.
Re-election of Directors
Directors are elected by shareholders at
the first Annual General Meeting after
any appointment by the Board and,
thereafter, may offer themselves up for
re-election by shareholders at regular
intervals and in any event at least once
every three years. Dean Moore will be
offered for re-election to the Board at
the next AGM.
Conflicts of interest
Under the Companies Act 2006, a
Director must avoid a situation where
a direct or indirect conflict of interest
may occur and procedures are in
place to manage any circumstance
where a conflict may be perceived.
The Company’s Articles of Association
prevent Directors from voting on issues
where they have, or may have, a conflict
of interest, other than in exceptional and
specific circumstances.
Performance evaluation
The Non-Executive Directors met
separately with the Executive Chairman
and the Chief Financial Officer at
numerous points during the year. Board
member performance was discussed at
these meetings and any performance
concerns subsequently addressed.
The Board recognises that a robust
performance evaluation is important
to maximise Board effectiveness.
Development
All new Directors receive an induction
programme tailored to their background
and experience, organised by the
Company Secretary and the Company’s
Nominated Adviser. In addition, all
Directors are informed of changes to
relevant legislation or regulations and
receive updates and briefings on areas
such as Directors’ duties and corporate
governance guidelines and best practice.
Individual Directors, with the support
of the Company Secretary, are also
expected to take responsibility for
identifying their own training needs
and to ensure that they are adequately
informed about the Group and their
responsibilities as a Director.
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 50
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:13 PM
27309 25 June 2020 4:29 pm Proof 8Accountability forfinancial reportingThe Board is responsible for presenting a fair, balanced and understandable assessment of the Company. The Company has a comprehensive annual budgeting process, to which all its global subsidiary entities contribute directly and which culminates in formal approval of the annual budget by the Board. Regular forecasts and updates on financial performance are presented to the Board during the year. The reasons why the Directors continue to adopt the going concern basis for preparing the financial statements are given in the Directors’ Report on page 67.Internal controls and risk managementThe Board has overall responsibility for the Group’s system of internal control and risk management, which is designed to identify, evaluate and control the significant risks associated with delivering the Group’s strategy with a view to safeguarding shareholders’ investments and the Group’s assets. The Group’s recently strengthened Internal Audit function manages the Enterprise Risk Management system. The Head of Internal Audit conducts regular site visits to Group entities and reports regularly to the Board and the Audit Committee.An ongoing process for identifying, evaluating and managing the significant risks faced by the Group has been in place for the year up to and including the date of approval of this report, based on a combination of site-by-site risk reporting to create individual risk registers and an annual risk survey of all senior management across the Group. Read more about Volex’s risk management processes and outcomes on pages 30 to 34.Key features of the Company’s system of internal controlsKey elements of the Company’s system of internal controls which have operated throughout the year are: ▷A system of regular reports from management setting out key performance and risk indicators; ▷Rigorous short-term management and forecasting of cash flow; ▷A schedule of specific, key matters reserved for decision by the Board; ▷A framework for reporting and escalating matters of significance; ▷Group-wide procedures, policies and standards which incorporate statements of required behaviour; ▷Continuous review of operating performance and monitoring of monthly results against annual budgets, and periodic forecasts; ▷Risk-based internal audits of sites and/or business processes, with audit observations and recommendations to improve controls being reported to management to ensure timely action, with oversight provided by the Audit Committee; and ▷A process and policy for employees to raise concerns and regular reports to the Audit Committee of all material disclosures made, the results of investigations and actions taken. Through its risk-management process and the review of effectiveness of the system of internal controls, the Board believes the control environment is adequate for a group the size of Volex.Relations with shareholdersThe Board is responsible for effectively engaging with shareholders. The Board achieves this through regular dialogue with brokers, analysts and shareholders themselves, with the Executive Chairman and Chief Financial Officer taking a lead in those relationships. The Board takes steps to understand the views of major shareholders of the Company, including through receiving feedback from any shareholder meetings and through analyst/broker briefings. The Board always takes account of the corporate governance guidelines of institutional shareholders and their representative bodies such as the Investment Association and the Pensions and Lifetime Savings Association. The Executive Chairman and Chief Financial Officer are available to meet with major and prospective shareholders. The Non-Executive Directors are available to attend shareholder meetings as necessary.Annual General Meeting (‘AGM’)The Notice of AGM will be dispatched to shareholders, together with explanatory notes or a circular on items of special business, at least 21 clear days before the meeting. Separate resolutions will be proposed on each substantive issue, including a resolution relating to the Annual Report and Accounts. Given the current situation with the Covid-19 outbreak and the lockdown measures that could still be in place, it may be necessary this year to make adjustments to the organisation and logistics of the meeting, for example by limiting direct access to the meeting venue. We will obviously keep all shareholders updated in this respect.The Non-Executive Directors will, with the other Directors, be available to answer shareholders’ questions. The Board welcomes questions from shareholders, and they will have the opportunity to raise issues before or after the meeting if circumstances prevent active attendance. For each resolution, the proxy appointment forms provide shareholders with the option to direct their proxy vote either for or against the resolution, or to withhold their vote. As with last year, we will be encouraging shareholders to switch to paperless voting.The Company will ensure that the proxy form and any announcement of the results of a vote will make it clear that a ‘vote withheld’ is not a vote in law and will not be counted in the calculation of the proportion of the votes for and against the resolution.All valid proxy appointments are properly recorded and counted. For each resolution, after the vote has been taken, information on the number of proxy votes for and against the resolution, and the number of shares in respect of which the vote was withheld, are given at the meeting and are made available on the Company’s website at www.volex.com. Daren MorrisCompany Secretarywww.volex.comVolex plcAnnual Report and Accounts 202051Governance26523-Volex-Annual-Report-2020.indd 5125-Jun-20 4:33:13 PM 27309 25 June 2020 4:29 pm Proof 8Audit Committee ReportI am pleased to present this year’s report on the activity of the Volex Audit Committee during the course of another successful year for the Company. During the year, the Committee has undertaken its regular work of reviewing the Group’s financial systems and controls and its published financial statements, assessing the accounting judgements being made, and liaising with the external auditors, PricewaterhouseCoopers (‘PwC’). The Committee has received and discussed the usual regular updates from the head office finance team and PwC representatives, as well as receiving reports on the several Internal Audit site reviews conducted during the year. I am pleased to confirm that the latter uncovered no serious issues requiring action and that where necessary, ‘The Committee plays a key role in reviewing the Company’s financial systems and controls.’Dean MooreChairman of the Audit Committeefollowing the reviews, additional safeguards and minor improvements to some procedures have been put in place to maintain that record. A new Enterprise Risk Management system has also been introduced for individual sites to evaluate and monitor potential risks.For FY2021, the Internal Audit and Legal/Compliance functions have begun work on reviewing and updating all Company policies and procedures to ensure they remain up to date and fit for purpose. The Committee will continue to oversee and co-ordinate that work, and to report and make any necessary recommendations on matters within its area of responsibility to the full Board.Internal Audit site reports reviewedCommittee meetingsVolex plcAnnual Report and Accounts 2020Stock code: VLX52Governance26523-Volex-Annual-Report-2020.indd 5225-Jun-20 4:33:20 PM Governance
Key objectives
The Committee establishes and oversees
the Group’s systems of internal control
and risk management, monitors the
integrity of financial information
published externally for use by
shareholders, and ensures the integrity
of the financial statements is supported
by an effective external audit.
Composition of the
Audit Committee
The members of the Audit Committee
were:
Name
Date of
appointment
Dean Moore (Chairman)
18 April 2017
▷ Reporting to the Board on the
processes in place to confirm that
the Annual Report and Accounts,
when taken as a whole, are fair,
balanced and understandable and
contain the information necessary
to allow shareholders to assess the
Group’s performance, business
model and strategy;
▷ Reviewing and challenging where
necessary the appropriateness of
accounting policies and the manner
in which they are applied across the
Group;
▷ Reviewing the Group’s internal
financial controls and the Group’s
internal risk-management systems;
Adrian Chamberlain
16 June 2016
▷ Monitoring and reviewing the
Appointments are for a period of three
years and are extendable by no more
than two additional three-year terms.
The Committee must consist of at least
two members, all of whom should be
independent Non-Executive Directors. The
current Committee members have the
appropriate range of financial, commercial
and risk-management experience to
fulfil its duties. The Audit Committee
Chairman has recent and relevant financial
experience, in line with the QCA Corporate
Governance Code and Committee terms of
reference. Biographical details are set out
on page 44.
Meetings
The Audit Committee met four times
in the year, with those meetings and
their agendas timed to link to events
in the Group’s financial calendar. The
Audit Committee invites the Group
Chief Financial Officer, the Deputy
CFO, the Head of Internal Audit, senior
representatives of the external auditors
and other staff to attend its meetings as
required, although it reserves the right
to request any of these individuals to
withdraw for specific items of discussion.
Governance
The Audit Committee’s terms of
reference can be found on the Volex
website.
The Committee is responsible for:
▷ Monitoring the integrity of the
Group’s financial statements and
any other formal announcements
relating to the Group’s financial
performance, and reviewing
significant financial reporting
judgements contained in them;
effectiveness of the Group’s Internal
Audit function in the context of the
Group’s overall risk-management
system;
▷ Reviewing the Group’s procedures
for detecting and responding to
fraud and bribery and for handling
allegations made by employees with
respect to financial malpractice or
other forms of whistleblowing, and
oversight of any and all reports on
such incidents; and
▷ Oversight of the relationship with the
external auditors including, where
appropriate, the recommendation
of appointment or reappointment of
the external auditors.
The Audit Committee reports its findings
to the Board, identifying any matters
on which it considers that action or
improvement is needed, and makes
recommendations on the steps to
be taken.
Main activities of the
Committee during the year
Financial reporting
The primary role of the Audit Committee
in relation to financial reporting is
to review with both management
and the external auditors, PwC, the
appropriateness of the half-year
and annual financial statements,
concentrating on, among other matters:
▷ The quality and acceptability of
accounting policies and practices;
▷ The clarity of the disclosures and
compliance with financial reporting
standards and relevant governance
reporting requirements;
▷ Material areas in which significant
judgements or estimates have been
applied or there has been discussion
with PwC; and
▷ The processes to ensure that the
Annual Report and Accounts,
taken as a whole, are fair, balanced
and understandable and provide
the information necessary for
shareholders.
To aid its review the Committee
considers reports from the Chief
Financial Officer and the Deputy CFO,
from the Internal Audit function and
from the external auditors. Following
its review of the Annual Report and
Accounts, the Committee challenges
management on the content to ensure
that the report as a whole is fair,
balanced and understandable.
The Committee has reviewed the paper
on the critical judgements and estimates
outlined in note 2 to the financial
statements on pages 90 and 91. The
primary areas of judgement considered
and discussed by the Committee
in relation to the FY2020 financial
statements and how these have been
addressed are listed below.
Going concern – Having reviewed the
Group’s budget and trading position,
the potential impact of Covid-19 and
considered its compliance with banking
facility covenants, the Committee has
concluded that the financial statements
should continue to be prepared on a
going concern basis.
Adjusting items – Management has
presented a breakdown of adjusting
items, and explanations as to why
they should be categorised as such.
The Audit Committee has reviewed
and discussed this analysis with
management. Details are shown in note
4 on page 93. Adjusting items during the
year amounted to $5.8 million (FY2019:
$6.2 million).
Inventory provisions – The Committee
reviewed the level of provision held
against inventory in light of the Group’s
provisioning policy, the ageing of the
stock and forecast future demand.
Specific items one-off in nature
or material due to their size were
also considered. In light of this, the
Committee believes the provision is
reasonable.
Accounting for business combinations
The Committee reviewed the principal
assumptions and judgements applied
in accounting for business combinations
that occurred during the year.
www.volex.com
Volex plc
Annual Report and Accounts 2020
53
26523-Volex-Annual-Report-2020.indd 53
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:20 PM
Governance
Audit Committee Report CONTINUED
Internal control, risk and
compliance
The Audit Committee is required to
assist the Board in its annual assessment
of the effectiveness of the Volex risk-
management and internal control
systems. To fulfil these duties, the
Committee reviewed:
▷ The results of the annual Certificate
of Compliance exercise and survey,
involving all senior personnel in the
organisation;
▷ The reports issued during the year
by Internal Audit following their risk-
based review of sites and processes;
▷ The annual risk survey conducted
among the executive team and other
senior management; and
▷ Investigations performed on all
whistleblowing, control breakdowns
and fraud issues.
Details of our internal controls and risk
management systems including controls
over the financial reporting process can
be found on page 51 in the Corporate
Governance Report with our risk factors
in full in the Strategic report on pages
30 to 34.
Internal audit
The Audit Committee is responsible for
ensuring the adequacy of resourcing
and plans for the Internal Audit function.
To fulfil these duties, the Committee:
▷ Establishes the function’s terms of
reference, reporting lines and access
to the Audit Committee;
▷ Approves the appointment and
removal of the Internal Auditor;
▷ Reviews and assesses the annual
internal audit plan in the context of
the Group’s overall risk management
system; and
▷ Reviews promptly the internal
audit reports produced from the
site/process reviews and monitors
management’s responsiveness to
the findings and recommendations
included therein.
During the year, the Head of Internal
Audit visited seven production and office
sites to conduct reviews of financial,
HR and procurement procedures. The
results of all the reviews were presented
to the Audit Committee for review.
No serious issues for concern were
identified. Due to flight restrictions as a
result of the Covid-19 outbreak, further
in-person visits are currently on hold, but
sites are in the meantime being required
to update and provide completed formal
risk registers as part of the roll out of the
Enterprise Risk Management system.
The Group’s Whistleblowing Policy
contains arrangements for the Audit
Committee to review all complaints in
confidence.
External audit
The Audit Committee is responsible for
the monitoring of the independence,
objectivity and compliance with ethical
and regulatory requirements of the
external auditors. Details of the total
remuneration for the auditors for the
year can be found in note 8 on page 95
of the consolidated financial statements.
The auditors’ independence and
objectivity are safeguarded by limiting
the value and nature of external services
provided by the auditors. The Group
also has a policy of not recruiting
employees of the external auditors who
have worked on the audit in the last two
years to senior positions in the Group.
There is a rotation policy for the lead
engagement partner.
Non-audit services provided
by the auditors
The Audit Committee maintains a non-
audit services policy which sets out the
categories of non-audit services that
the external auditors will and will not be
allowed to provide to the Group, including
those that are pre-approved by the Audit
Committee and those that require specific
approval before they are contracted for,
subject to de minimis levels.
Non-audit fees for the year were $2,000
(FY2019: $nil).
Audit tender
The Audit Committee considers the
reappointment of the external auditors
each year. PwC have been the Group’s
auditors since their appointment on
4 April 2010 following a tender process.
There are no contractual obligations
that restrict the Committee’s choice of
external auditors.
To fulfil its responsibility regarding the
independence and effectiveness of the
external auditors, the Audit Committee:
▷ Reviewed the external auditors’
plan for the current year and agreed
the scope of the audit work to be
performed;
▷ Agreed the fees to be paid to PwC
for their audit of the 2020 financial
statements and other non-audit fees;
▷ Reviewed a report from PwC
describing their arrangements to
identify, report and manage any
conflicts of interest and confirming
the basis of their independence;
▷ Assessed PwC’s fulfilment of the
agreed audit plan and any variations
from that plan; and
▷ Assessed the robustness and
perceptiveness of PwC in their
handling of the key accounting and
audit judgements.
The Audit Committee, having considered
the length of PwC’s audit tenure and
the results of the above, continues
to consider PwC to be independent
and therefore has provided the Board
with its recommendation that PwC be
reappointed as external auditors for
the 52 weeks ending 4 April 2021.
This will continue to be assessed on an
annual basis in light of any guidance
on external audit tendering.
Summary
As a result of its work during the year,
the Audit Committee has concluded
that it has acted in accordance with its
terms of reference and has ensured the
independence and objectivity of the
external auditors.
We would welcome feedback from
shareholders on this report.
On behalf of the Audit Committee
Dean Moore
Chairman of the Audit Committee
54
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 54
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:20 PM
27309 25 June 2020 4:29 pm Proof 8Health & Safety Committee Report‘The health and safety of employees is of primary importance to the Board.’Jeffrey JacksonChairman of the Health & Safety CommitteeI am pleased to report on the work of the new Volex Health & Safety Committee, established to improve the Board’s oversight of issues relating to health and safety and wider environmental performance around the Group. The formation of the new Committee was approved by the Board at its meeting in Slovakia held on 15 October 2019.The health and safety of Volex employees and the broader context of labour and environmental issues is of primary importance to the Board. The establishment of the Committee is intended to sharpen the focus on these issues within the Group and to provide a more effective channel for information about relevant issues and activities around the Group’s global operations to feed into the Board. Not only does Volex want to ensure it adheres to best practice wherever possible and provide a safe and productive working environment for its employees, but customers increasingly want verifiable assurances from their suppliers and business partners about working conditions and labour-related issues. Details of the actions taken by the Group to protect employees amid the new Covid-19 outbreak can be found on page 35 of the Annual Report.ObjectivesThe key aims of the Committee are to ensure that: ▷The Volex management team operates an effective system to control health, safety and environmental risks, and labour-related risks relevant to the adherence to the Responsible Business Alliance standard. ▷The Volex Board has a view of current performance and trend information for health, safety and environmental performance across the Group and all of its subsidiaries; and ▷The Group establishes and maintains an effective management system to control health, safety, environmental and labour-related risks.As with the other Board Committees, the Health & Safety Committee reports its findings to the full Board, identifying any matters on which it considers that action or improvement is needed, and makes recommendations on the steps to be taken.Composition of the Health & Safety CommitteeThe members of the Health & Safety Committee were:NameDate of appointmentJeffrey Jackson (Chairman)15 October 2019Nathaniel Rothschild15 October 2019Alan Taylor (Secretary)15 October 2019www.volex.comVolex plcAnnual Report and Accounts 202055Governance26523-Volex-Annual-Report-2020.indd 5525-Jun-20 4:33:26 PM Governance
Health & Safety Committee Report CONTINUED
Meetings and Activities
The Committee met formally once
during the financial year, but receives
updates on the Group’s health and
safety performance from the Group
HR Director on a quarterly basis. The
intention is that the Committee will
usually meet annually but will, where
necessary, hold additional meetings on
an ad hoc basis.
The main activities undertaken by the
Committee during the year were: review
of the updated Group health and safety
policy, which was then approved by the
full Board; review of the risk profile of the
Group’s global operations; and review of
the approach being taken by the Group
to improve Group-wide performance in
the areas of health, safety, environment
and labour-related risk.
The new health and safety policy was
rolled out following Board approval in
October 2019. It confirms the Group’s
commitment to compliance with all
local legal requirements as a minimum
and to continuous improvement in its
structures and processes. Employees
are encouraged to speak up where they
become aware of potentially unsafe
situations on site in order to allow
corrective action, and managers are
expected to listen and respond to any
such notifications.
During the year, seven plant safety
reviews were conducted by HR and local
management at production sites around
the world, assessing the sites on the basis
of a strict evaluation process against
specific categories. For the new financial
year, a Group-wide site excellence award
is being established, in which one of
the categories will be safety. The March
health and safety update showed a
52% reduction year on year in lost-time
accidents in Volex sites.
For the coming year, I look forward
to ensuring the Group maintains and
further improves on its record in this
regard.
On behalf of the Health & Safety
Committee
Plant safety reviews
Jeffrey Jackson
Chairman of the Health & Safety
Committee
Reduction in lost-
time accidents year
on year
56
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 56
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:28 PM
27309 25 June 2020 4:29 pm Proof 8Directors’ Remuneration Reportwith assistance from outside consultants, Mercer, was approved by the Board and shareholders at the AGM in July 2019. The first share awards under the scheme were made in September 2019, and are due to vest – subject to the meeting of stringent targets – in September 2022. The enhanced awards granted in the first year of the new scheme to the senior executive team, including the Executive Directors, include a two-year retention period on vesting. I believe that this aligns the long-term interests of our management with those of our shareholders.The Committee also agreed this year that as from FY2021, the Company would open a pension scheme for the Executive Chairman, Nathaniel Rothschild, with a 10% Company contribution. An inflation-equivalent increase in base salaries of 2% for the Executive Directors (along with all central UK-based staff) was agreed in March 2020 for the coming financial year, down from the 3% increase put in place for the previous year.As a result of the Company’s strong performance this year, it has exceeded the bonus targets that we set out in last year’s annual report in respect of operating profit and cash generation. The Remuneration Committee has applied the bonus deferral policy (whereby two-thirds of any bonus above 25% of annual salary is deferred into Volex shares) and therefore 49% of the Executive Directors’ bonuses have been deferred into Volex shares, which will vest after one year.In FY2021, the Executive Directors will continue to have the opportunity to earn up to 100% of annual salary as a bonus under the remuneration plan. As with FY2020, the targets for FY2021 will focus on operating profit and cash generation, as well as specific personal objectives, in order to incentivise the Executive Directors to focus on generating value for shareholders and meeting our strategic goals.The Remuneration Committee is mindful of any potential risks associated with remuneration programmes, and seeks to provide a structure that encourages an acceptable level of risk-taking through key performance measures and an optimal remuneration mix. The Committee undertakes regular evaluations to ensure our reward programmes achieve the correct balance and do not encourage excessive risk-taking. The Committee has considered the risk involved in the short and long-term incentive schemes and is satisfied that the governance procedures mitigate these risks appropriately. The Committee continues to welcome feedback from shareholders, and I hope we can continue to receive your support in future on the remuneration-related votes at our AGM.On behalf of the Remuneration CommitteeAdrian ChamberlainChairman of the Remuneration Committee18 June 2020‘The Committee seeks to ensure the executive team are incentivised to meet the Company’s strategic goals and generate value for shareholders.’Adrian ChamberlainChairman of the Remuneration CommitteeOverview from the Chairman of the Remuneration CommitteeI am pleased to introduce the Directors’ Remuneration Report for the year ended 5 April 2020.In FY2020 we saw another year of continued improvement in the business, with growth in revenue, operating profit and cash generation, as well as the return of dividend payments. The Group has also increased in size, with two additional acquisitions. This year also saw the introduction of a new Long-Term Incentive Plan for the Executive Directors and other senior management staff to replace the previous Volex Group plc Performance Share Plan, which had reached the end of its 10-year life. The new plan, drawn up www.volex.comVolex plcAnnual Report and Accounts 202057Governance26523-Volex-Annual-Report-2020.indd 5725-Jun-20 4:33:33 PM Governance
Directors’ Remuneration Report CONTINUED
Compliance statement
The Board is committed to maintaining high standards of corporate governance and the Directors intend, so far as is practicable
given the Company’s size and constitution of the Board, to comply with the provisions of the Quoted Companies Alliance
Corporate Governance Code (the ‘QCA code’).
Introduction – summary of remuneration policy
The Company’s Remuneration Policy (the ‘Policy’) is designed to reinforce the Company’s goals, providing effective incentives for
exceptional Group and individual performance. The Committee regularly reviews the remuneration structure in place at Volex
to ensure it remains aligned with the business strategy, reinforces the Company’s success and aligns reward with the creation
of shareholder value. The Committee strives to ensure that shareholders’ interests are being served, by creating an appropriate
balance between fixed and performance-related pay. A considerable part of the reward package is linked to share-price
performance and is delivered in shares. The Policy was approved by shareholders at the 2017 AGM, with 98% voting in support.
Performance measurement and targets
The aim of the annual bonus plan is to reward key executives over and above base salary for the achievement of business
objectives. The bonus criteria are selected annually to reflect the Group’s main KPIs for the year and are designed to encourage
continuous performance improvement for the Group. Group financial performance targets relating to the annual bonus plan are
set from the Company’s annual budget, which is reviewed and signed off by the Board prior to the start of each financial year.
Underlying operating profit is used as a key performance indicator for the annual bonus plan because it is a clear measure of the
financial performance of the Group.
Separately, long-term share-based incentives are designed to align the interests of key executives with the longer-term interests
of the Company’s shareholders, by rewarding them for delivering sustained increases in shareholder value. Accordingly, the
vesting of share awards is linked to the Company’s relative and/or absolute total shareholder return (‘TSR’) and operating
profit. TSR has been selected as it is directly aligned with shareholder interests. Operating profit has been selected as it is a key
measure of long-term performance for Volex and is closely aligned with the Company’s strategic plans. The Committee believes
that the minimum three-year performance period is in line with the market and therefore aids the recruitment of senior hires.
Performance measures and targets are reviewed by the Committee ahead of each grant.
Targets applying to the bonus awards and the current share-based Long-Term Incentive Plan (‘LTIP’) are reviewed annually,
based on a number of internal and external reference points. Performance targets are set to be stretching but achievable, with
regard to the particular strategic priorities and economic environment in a given year.
Remuneration policy for other employees
Volex’s approach to annual salary reviews is consistent across the Group, with consideration given to the levels of experience and
responsibility, to individual performance and to salary levels in comparable companies. Specific cash incentives and bonuses are
also in place to motivate, reward and retain staff below Board level, and senior staff around the Group also receive share option
awards. Opportunities and specific performance conditions vary by organisational level, with business area-specific metrics
incorporated where appropriate.
Shareholding guidelines
The Committee continues to recognise the importance of Executive Directors aligning their interests with shareholders through
building up a significant shareholding in the Company. Shareholding guidelines are in place that require Executive Directors to
acquire, over time, a holding equivalent to 100% of base salary. Both Executive Directors currently meet that threshold.
Volex’s Remuneration Policy for Non-Executive Directors
The Board determines the Remuneration Policy and level of fees for the Non-Executive Directors within the limits set out in the
Articles of Association. The Remuneration Committee recommends the Remuneration Policy and level of fees for the Executive
Chairman. Non-Executive Directors are not eligible to participate in the annual bonus, share award or pension schemes.
Pay scenario charts
The charts below provide estimates of the potential future reward opportunity for the current Executive Directors, and the
potential split between the different elements of remuneration under four different performance scenarios: ‘Minimum’, ‘On
Target/Threshold’, ‘Stretch’ and ‘Maximum’.
The potential reward opportunities are based on the Remuneration Policy as applied to the base salary as at 6 April 2020. For
the annual bonus, the amounts illustrated are those potentially receivable in respect of performance for FY2021. For the LTIP, the
award opportunities are based on those awards which are expected to be granted in FY2021, which will not normally vest until
the third anniversary of the date of grant. The LTIP calculations are based on an estimated share price of 131.5 pence (the average
across the three months to 16 June 2020), with the ‘Maximum’ outcome calculated on the assumption of a 50% increase in the
share price from that base figure during the vesting period.
58
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 58
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:33 PM
Governance
In illustrating potential reward opportunities the following rules have been applied:
Component
Fixed
Minimum
Base salary
Pension
Other benefits
On Target
Stretch Target
Absolute TSR Multiplier
Annual bonus
No bonus payable
20%
100%
LTIP
No LTIP vesting
30% vesting
100% vesting
Up to 2x award
Executive Chairman – Nathaniel Rothschild
CFO – Daren Morris
Maximum
Stretch
On-Target/
Threshold
Minimum
Maximum
Stretch
On-Target/
Threshold
Minimum
£ 000s
0
200
400
600
800
1,000
1,200
£ 000s
0
200
400
600
800
1,000
1,200 1,400
1,600
Fixed
Annual Bonus
LTIP
Service contracts
Best practice recommends notice periods of no more than one year for Executive Directors and that any payments to a
departing Executive Director should be determined having full regard to the duty of mitigation. Company policy is that Executive
Directors’ service contracts may be terminated by either party on not more than 12 months’ notice.
The Executive Directors are employed under contracts of employment with Volex plc. The principal terms of the Executive
Directors’ service contracts are as follows:
Executive Director
Position
Effective date of
contract
Nathaniel Rothschild
Executive Chairman
1 December 2015
Daren Morris
Chief Financial Officer
8 June 2015
Notice period
From Company
From Director
6 months
6 months
6 months
6 months
Letters of appointment are provided to the Non-Executive Directors. Non-Executive Directors have letters of appointment
effective for a period of three years. Non-Executive Directors’ letters of appointment are available to view at the Company’s
registered office.
Non-Executive Directors’ letters of appointment and the unexpired period of their appointments (where appropriate after
extension by re-election) are set out below:
Non-Executive Director
Adrian Chamberlain
Dean Moore
Jeffrey Jackson
Unexpired term as at
5 April 2020
26 months
2 weeks
28 months
Date of
appointment
16 June 2019
18 April 2020
30 July 2019
Notice period
3 months
3 months
3 months
External appointments
With the approval of the Board in each case, and subject to the overriding requirements of the Group, Executive Directors may
act as Non-Executive Directors to other companies and retain any fees received.
www.volex.com
Volex plc
Annual Report and Accounts 2020
59
26523-Volex-Annual-Report-2020.indd 59
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:34 PM
Governance
Directors’ Remuneration Report CONTINUED
Annual Report on Remuneration
The following section provides details of how the Remuneration Policy was implemented during the year.
Remuneration Committee membership in FY2019
The Committee met five times during the year under review. Attendance by individual Committee members at meetings is
detailed below.
Committee member
Adrian Chamberlain
Dean Moore
Member
throughout
2019/20
Number of
meetings
attended
Yes
Yes
5
5
During the year, the Committee sought internal support from the Group HR Director, the Executive Chairman and the Chief
Financial Officer, who attended Committee meetings by invitation from the Chairman to advise on specific questions raised by
the Committee and on matters relating to the performance and remuneration of senior managers. No individuals are involved in
decisions relating to their own remuneration. The Company Secretary attended each meeting as secretary to the Committee.
Agenda during FY2020
The agenda during FY2020 included:
▷ The FY2019 Directors’ Remuneration Report;
▷ The new Volex plc LTIP share award scheme;
▷ Share awards under the new scheme for Executive Directors and senior managers for FY2020;
▷ Consideration of the annual inflationary pay increase for UK employees;
▷ Approval of the new pension arrangements for the Executive Chairman; and
▷ Evaluation of the proposal for the FY2020 annual bonus plan.
Advisers
In undertaking its responsibilities, the Committee seeks independent external advice as necessary. For the year under review,
the Committee continued to retain the services of Mercer as the principal external advisers to the Committee. The Committee
evaluates the support provided by its advisers annually and is comfortable that the Mercer team provides independent
remuneration advice to the Committee and does not have any connections that may impair independence.
Fees of £17,200 (FY2019: £19,750) were paid to advisers in respect of work carried out for the year under review.
Summary of shareholder voting at the last AGM
It is the Remuneration Committee’s policy to consult with major shareholders prior to any major changes to its Executive Directors’
remuneration structure. The table below shows the results of the votes on the FY2019 Directors’ Remuneration Report and the new
LTIP at the AGM held on 30 July 2019.
For (including discretionary)
Against
Total votes cast (excluding withheld votes)1
Votes withheld
Total votes cast (including withheld votes)
For (including discretionary)
Against
Total votes cast (excluding withheld votes)1
Votes withheld
Total votes cast (including withheld votes)
FY2019 Remuneration Report
Total number
of votes % of votes cast
107,614,692
26,063
107,640,755
1,311
107,642,066
99.98%
0.02%
100%
The New Volex plc Long-Term
Incentive Plan
Total number
of votes % of votes cast
107,618,646
22,109
107,640,755
1,311
107,642,066
99.98%
0.02%
100%
1. A withheld vote is not a vote in law and is not counted in the calculation of the proportion of votes cast for and against a resolution.
60
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 60
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:34 PM
Governance
Single figure of Executive Director remuneration
The table below sets out a single figure for the total remuneration received by each Executive Director for the year ended 5 April
2020 and the prior year:
Executive Director
Year
Salary
GBP
Benefits1
GBP
Pension2
GBP
Cash
annual
bonus3
GBP
Deferred annual
bonus (restricted
shares)3
GBP
PSP4
GBP
Total
GBP
Nathaniel Rothschild
2020
£323,377
Daren Morris
2019
£313,958
2020
£323,377
2019
£313,958
£2,420
£1,822
£343
£2,211
–
–
£159,300 £1,014,736
£157,300
£1,657,133
£153,839
–
£150,700
£620,319
£64,675
£159,300
£957,804
£157,300 £1,662,799
£62,792
£153,839
£83,694
£150,700
£767,194
1.
Taxable value of benefits received in the year by Executives includes healthcare and life assurance.
2. Pension: During the year, Daren Morris participated in a money purchase scheme into which the Company contributed 20% of salary.
3. Annual bonus: The FY2020 targets were substantially met and 98% of maximum bonuses were awarded. In accordance with the bonus deferral
policy, two-thirds of any bonus above 25% of annual salary is deferred into Volex shares. Therefore, a significant proportion of the Executive
Directors’ bonuses (approximately 50%) were deferred into Volex shares for a period of one year. The FY2019 targets were substantially met and
97% of maximum bonuses were awarded, so that approximately 49% was deferred into Volex shares for a period of one year.
4. During the year Mr Rothschild exercised awards in respect of 1,174,147 shares that had vested under the PSP with a valuation (net of exercise
price and fees) of £1,014,736. During the year Mr Morris exercised awards in respect of 924,147 shares under the PSP with a valuation (net of
exercise price and fees) of £957,804.
Single figure of Non-Executive Director remuneration and Non-Executive Director fees
The table below sets out a single figure for the total remuneration received by each Non-Executive Director for the year ended
5 April 2020 and the prior year:
Non-Executive Director
Dean Moore
Adrian Chamberlain
Jeffrey Jackson
Year
2020
2019
2020
2019
2020
2019
Base
fee (£)
£50,000
£50,000
£50,000
£50,000
£33,333
–
Committee
Chair/SID
fee (£)
Additional
fee (£)
Benefits
in kind (£)
£20,000
£20,000
£10,000
£10,000
£4,167
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£70,000
£70,000
£60,000
£60,000
£37,500
–
Jeffrey Jackson was only appointed as from 30 July 2019 so his fees are proportionately lower for FY2020. The Non-Executive
Directors are not eligible for bonuses or retirement benefits and cannot participate in any share scheme operated by the
Company.
The base fees during the year and for FY2021 (effective from the date of the AGM) are:
Non-Executive Director base fee
Senior Independent Director fee
Committee Chairman additional fee
Fee1
FY2021
FY2020
£50,000
£50,000
£10,000
£10,000
£10,000
£10,000
1. Remuneration comprises an annual fee for acting as a Non-Executive Director of the Company. Additional fees are paid to Non-Executive
Directors in respect of service as Chairs of the Audit, Remuneration and Health & Safety Committees.
www.volex.com
Volex plc
Annual Report and Accounts 2020
61
26523-Volex-Annual-Report-2020.indd 61
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:34 PM
Governance
Directors’ Remuneration Report CONTINUED
Incentive outcomes for the year ended 5 April 2020
Annual bonus in respect of FY2020 performance
For FY2020, the maximum bonus potential for the Executive Directors was set at 100% of basic annual salary with 40% based on
achieving an underlying operating profit target, 40% on a cash generation target and 20% on achieving personal objectives.
The performance against the criteria, as defined, determined that bonuses would be earned under the annual bonus plan at the
level of 98% for the Executive Directors. The Remuneration Committee has applied the bonus deferral policy (whereby two-thirds
of any bonus above 25% of annual salary is deferred into Volex shares) and therefore a significant proportion of the Executive
Directors’ bonuses (approximately 50%) have been deferred into Volex shares, and will vest after one year.
Annual bonus in respect of FY2018 and FY2019 performance
For FY2018, the maximum bonus potential for the Executive Directors was set at 100% of basic annual salary with 25% based
on achieving an operating profit target, 25% on achieving a return on capital employed target, 30% based on achieving a sales
target and 20% based on achieving personal objectives.
The performance against the criteria, as defined, determined that bonuses would be earned under the annual bonus plan at the
level of 74% for Mr Rothschild and 80% for Mr Morris. The Remuneration Committee applied the bonus deferral policy (whereby
two-thirds of any bonus above 25% of annual salary is deferred into Volex shares) and therefore a significant proportion of the
Executive Directors’ bonuses (approximately 45%) were deferred into Volex shares for a period of one year.
For FY2019, the maximum bonus potential for the Executive Directors was set at 100% of basic annual salary with 30% based on
achieving an underlying operating profit target, 25% on an improvement in average net cash target, 25% based on achieving a sales
target and 20% based on achieving personal objectives.
The performance against the criteria, as defined, determined that bonuses would be earned under the annual bonus plan at the
level of 97% for the Executive Directors. The Remuneration Committee applied the bonus deferral policy (whereby two-thirds
of any bonus above 25% of annual salary is deferred into Volex shares) and therefore a significant proportion of the Executive
Directors’ bonuses (approximately 49%) were deferred into Volex shares for a period of one year.
Annual bonus target for FY2021 performance
Corporate targets set by the Committee require Executive Directors to deliver significant stretch performance. The Committee
has taken the decision to publish performance targets prospectively. For FY2021 targets see page 64.
PSP Schemes
PSP awards held by Nathaniel Rothschild of 600,000 shares vested on 1 December 2019 based on the TSR target being 100% met
and the cumulative profit target being 100% met.
PSP awards held by Daren Morris of 600,000 shares vested on 1 December 2019 based on the TSR target being 100% met and the
cumulative profit target being 100% met.
Scheme interests awarded in FY2020
The following awards were granted during the year under the new LTIP:
LTIP award
Executive Chairman
Chief Financial Officer
10 September 20191
10 September 20191
340,000
680,000
Date of grant
Number of shares
Market price
at date of award
90.0p
90.0p
Face value
£306,000
£612,000
1.
The awards will vest on the third anniversary of the grant date as nil-cost options. The basic performance condition is 50% based on relative TSR
performance and 50% based on cumulative operating profit. The three-year performance period over which operating profit performance will
be measured began on 1 April 2019 and will end on 31 March 2022. The awards are also subject to a potential multiplier based on absolute TSR
performance, whereby 100% growth in TSR over the three years could see the awards double.
The FY2020 awards to the Executive Chairman amounted to 94.6% of base salary while those to the Chief Financial Officer
amounted to 189.2% of base salary.
For any shares to vest on TSR, the Committee must satisfy itself that the recorded TSR is a genuine reflection of the underlying
business performance of Volex.
Payments for loss of office
No Executive Directors left the Group during the year, and therefore no payments were made.
Payments to past Directors
No payments were made to past Directors during the year.
62
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 62
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:34 PM
Governance
Six-year TSR performance review and CEO single figure
The following graph charts the TSR of the Company and the FTSE All Share, FTSE All Share Electronic and Electrical Equipment
and FTSE AIM All Share indices over the six-year period from March 2014 to March 2020.
250
200
150
100
50
0
Mar 14
Sept 14 Mar 15
Sept 15 Mar 16
Sept 16 Mar 17
Sept 17 Mar 18
Sept 18 Mar 19
Sept 19
Mar 20
Volex
FTSE All Share
FTSE All Share Electronic & Electrical Equipment
FTSE AIM All Share Index
Source: Bloomberg
Note: TSR is calculated on a common currency basis.
2015
20161
2017
2018
2019
2020
CEO / Executive Chairman single figure of
remuneration (£’000)
Annual bonus pay-out (% of maximum)
PSP vesting (% of maximum)
906
76%
0%
547
0%
0%
392
50%
0%
534
74%
0%
620
97%
88%
1,657
98%
100%
1.
The comparison of CEO remuneration is made complex by the change in CEO during the year. Christoph Eisenhardt resigned in September
2015 and the position was temporarily filled by Geraint Anderson as interim CEO before the position of CEO was replaced by an Executive
Chairman, Nathaniel Rothschild. The single figure above is an aggregate of the amounts due to each individual during their time in the
relevant role.
Implementation of Executive Director Remuneration Policy for FY2021
Base salary
Market positioning of base salary is approached on an individual basis, taking account of advice received from the Committee’s
independent advisers on the rates of salary for similar roles in selected groups of comparable companies, and the individual
performance and experience of each Executive Director. The aim is for base salary to be set with reference to the market median,
dependent on the Committee’s view of individual and Group performance.
The Committee reviewed salaries during the year and agreed that there would be an increase approximately in line with UK
inflation of 2.0%.
Executive Director
Nathaniel Rothschild
Daren Morris
Base salary in place
prior to review
Base salary effective
from 1 April 2020
Percentage increase
from 1 April 2020
£323,377
£323,377
£329,844
£329,844
2.0%
2.0%
A salary increase averaging 2.0% for all UK staff was agreed as part of the annual pay review.
Pension
The Chief Financial Officer receives a pension contribution of 20% of salary. In FY2020 the Executive Chairman did not receive a
pension benefit. From FY2021 he will receive a pension contribution of 10% of salary. A review was conducted this year of market
practice and an appropriate plan selected from a shortlist of options which satisfied all of the UK conditions for a qualifying
pension scheme. The 10% contribution rate was benchmarked against the arrangements made for other Company employees
and the existing Executive Director’s scheme.
www.volex.com
Annual Report and Accounts 2020 63
Volex plc
26523-Volex-Annual-Report-2020.indd 63
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:35 PM
Governance
Directors’ Remuneration Report CONTINUED
Annual bonus
The annual bonus for FY2021 will operate on the criteria set out in the Policy. The Committee has approved a maximum annual
bonus opportunity of 100% of salary for the Executive Directors.
As outlined above, going forward, the Committee has committed to disclose targets on a prospective basis. For FY2020, the
maximum bonus potential for the Executive Directors was set at 100% of basic annual salary with 40% based on achieving an
operating profit target, 40% on achieving a cash generated from operations before adjusting items target and 20% based on
achieving personal objectives. Given the effect of Covid-19 on the global economy and the uncertain demand environment, the
Remuneration Committee has considered it appropriate to have a larger range on the financial targets for FY2021 than would
usually be the case. The proposed targets are as follows:
Group operating profit
Free cash flow
Personal objectives
Threshold (20%) Maximum (100%)
$27.0m
$22.0m
n/a
$35.0m
$24.0m
n/a
The Remuneration Committee reserves the right to adjust the targets in November/December and/or to increase the weighting
of personal objectives due to the uncertainty around forecasting at the current time.
PSP
Awards held but as yet unvested under the old PSP scheme vest as nominal-cost options with an exercise price of 25 pence per
share after three years based on a relative TSR target and a cumulative operating profit target, as follows:
Performance condition
Weighting
Award vesting
TSR (share price growth plus reinvested dividends) relative
to companies in the FTSE ASX Index
Cumulative operating profit
50%
50%
Target (Index) – 30%
Stretch (Index + 15% pa) – 100%
Target – 30% Stretch – 100%
LTIP
The maximum base award available under the new scheme is 680,000 shares per recipient, or 750,000 in exceptional
circumstances. Final vesting of any grant, as nil-cost options, will depend on the achievement of three-year relative TSR
outperformance against a defined comparator group and cumulative operating profit, as follows:
Performance condition
Weighting
Award vesting
TSR (share price growth plus reinvested dividends)
relative to defined Comparator Group
Cumulative Operating Profit
50%
50%
Target (group median) – 30%
Stretch (upper quartile of group) – 100%
Target – 30%
Stretch – 100%
For the top executive team, including Executive Directors, a potential multiplier of the normal award in the event of exceptional
performance can also be applied at the point of award at the discretion of the Remuneration Committee, as measured against
an absolute TSR target.
Performance condition
Level of performance
Below Target
Target
Stretch
Absolute TSR (share price growth plus reinvested dividends)
Below 50%
50%
100% or above
Multiplier1
n/a
15
25
1.
There is straight-line vesting between the ‘Target’ and ‘Stretch performance levels.
Specific targets for future operating profit are deemed to be commercially sensitive and will not be published until such time
that the Committee is confident there will be no adverse impact on the Company of such disclosure. Further details of the grant
date and number of interests for FY2021 will be disclosed in the 2021 Annual Report on Remuneration.
Chairman and Non-Executive Director fees
The Board determined that Non-Executive remuneration should be maintained at the current levels given the 19% increase
granted in July 2017. Fee levels will continue to be reviewed on an annual basis.
64
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 64
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:35 PM
27309 25 June 2020 4:29 pm Proof 8FY2020 feesFY2021 feesBase feesChairmann/an/aNon-Executive Director £50,000 £50,000Additional feesAudit Committee Chair £10,000 £10,000Remuneration Committee Chair £10,000 £10,000Health & Safety Committee Chair £10,000 £10,000Directors’ interests The table below shows the Directors’ interests in shares and the extent to which Volex’s shareholding guidelines are achieved. Number of shares held as at 5 April 2020Current shareholding (% salary/fees)Shareholding1 guideline (as % of salary) Guideline metNathaniel Rothschild236,876,07812,088%100%YesDaren Morris890,000292%100%YesAdrian Chamberlain24,986n/an/an/aDean Moore15,000n/an/an/aJeffrey Jackson–n/an/an/a1. The shareholding guidelines were approved by the Remuneration Committee in March 2014. The guidelines require the Chief Executive Officer and Chief Financial Officer to acquire over time (to the extent they have not already done so) and maintain an ownership level of holdings of shares in Volex plc equal to gross basic salary.2. Nathaniel Rothschild’s shareholding is held directly and through NR Holdings Limited. The table below shows the Executive and Non-Executive Directors’ interests in shares at year end, which includes all shares owned beneficially together with those interests in shares which have vested and are no longer subject to deferral or performance conditions and may be included as an interest in shares under Volex’s shareholding guidelines plus those shares and options over which future performance conditions remain.Not subject to future performanceSubject to future performanceShares heldVested under PSP but unexercisedDeferred FY2019 bonus shares dueUnvested awards under PSP/LTIPTotalNathaniel Rothschild36,876,078–155,2011,030,00038,061,279Daren Morris890,000250,000155,2011,720,0003,015,201Adrian Chamberlain24,896–––24,986Dean Moore15,000–––15,000Jeffrey Jackson–––––Post year-end, the Remuneration Committee confirmed that Nathaniel Rothschild would be awarded 113,986 shares and Daren Morris 113,986 shares as part of the FY2020 bonus award, with issue deferred for one year as per standard practice. These are not included in the above table.Directors’ interests in shares and options under the old Volex PSP and the new LTIPDetails of the Directors’ interests in long-term incentive schemes are set out below. Details, including explanation of movements during FY2020, are set out on page 62 of this Remuneration Report.Number of shares subject to PSP options held at 1 April 2019Number of shares subject to LTIP options granted during FY2020Number of shares subject to PSP options exercised during FY2020Number of shares subject to options lapsed during FY2020Number of shares subject to options held at 5 April 2020Exercise price of shares subject to options (£)Nathaniel Rothschild1,864,147340,000(1,174,147)–1,030,0000–0.25Daren Morris2,214,147680,000(924,147)–1,970,0000–0.25The Directors’ Remuneration Report was approved by the Board of Directors on 18 June 2020 and signed on its behalf by:Adrian ChamberlainChairman of the Remuneration Committeewww.volex.comVolex plcAnnual Report and Accounts 202065Governance26523-Volex-Annual-Report-2020.indd 6525-Jun-20 4:33:35 PM Governance
Directors’ Report
The Directors of the Company present
their Annual Report for the year ended
5 April 2020. Certain information
required for disclosure in this report is
provided in other appropriate sections
of the Annual Report and Accounts.
These include the Corporate Governance
Statement, the Directors’ Remuneration
Report, the Strategic Report and the
financial statements, together with the
notes to those financial statements, and
accordingly these are incorporated into
this report by reference.
Results and dividend
Results for the year ended 5 April 2020
are set out in the consolidated income
statement on page 78.
The Board is recommending payment
of a final dividend of 2.0 pence per share
for the 53 weeks ended 5 April 2020
(FY2019: nil). Together with the interim
dividend of 1.0 pence per share paid on
5 February 2020 (FY2019: nil), this makes
a total for the year of 3.0 pence (FY2019:
nil).
Important events since the end of
the financial year
In the period between 6 April 2020 and
18 June 2020, no important events have
taken place.
Directors
The Directors who were in office during
the year and up to the date the financial
statements were signed are as follows:
Executive
Director
Nathaniel
Rothschild
Non-Executive
Directors
Adrian
Chamberlain
Daren Morris
Dean Moore
Jeffrey Jackson1
1. From 30 July 2019.
Biographical details of the Directors
currently serving on the Board and their
dates of appointment are set out on
pages 44 and 45.
Powers of Directors
The Directors may exercise all the powers
of the Company, subject to any restrictions
in the Company’s Articles of Association,
any relevant legislation and any directions
given by the Company by passing a
special resolution at a general meeting.
In particular, the Directors may exercise
all the powers of the Company to borrow
money, subject to the limitation that the
aggregate amount of all money borrowed
by the Group and owing to persons
outside the Group shall not, without the
66
Volex plc
Annual Report and Accounts 2020
sanction of an ordinary resolution of the
Company, exceed an amount equal to
three times the aggregate of the Group’s
capital and reserves calculated in the
manner prescribed by the Company’s
Articles of Association.
Appointment and replacement
of Directors
The Company’s approach to the
appointment and replacement of
Directors is governed by its Articles of
Association (together with relevant
legislation).
The number of Directors should be no
fewer than three and no more than
15. Directors may be appointed by the
Company by ordinary resolution or by
the Board of Directors.
At each Annual General Meeting, all
Directors who (i) were appointed by the
Board since the last Annual General
Meeting, (ii) held office at the time of the
two preceding Annual General Meetings
and who did not retire at either of them,
or (iii) have held office (other than
employment or executive office) for a
continuous period of nine years or more,
shall automatically retire.
At the meeting at which the Director
retires, the members may pass an
ordinary resolution to fill the office
being vacated by electing the retiring
Director or some other person eligible
for appointment to that office. In default,
the retiring Director shall be deemed
to have been elected or re-elected (as
the case may be) unless (i) it is expressly
resolved at the meeting not to fill the
vacated office or the resolution of such
election or re-election is put to the
meeting and lost, or (ii) such Director has
given notice that he or she is unwilling
to be elected or re-elected, or (iii) the
procedural requirements set out in the
Company’s Articles of Association are
contravened.
The Company may, by ordinary
resolution, remove any Director before
the expiration of his or her term of office.
As set out in the Company’s Articles of
Association, there are also circumstances
where a Director will immediately cease
to hold office. These circumstances
include where he or she is prohibited by
law from being or acting as a Director
or where he or she has been made
bankrupt.
Directors’ indemnities and
insurance
In accordance with the Companies
Act 2006 and the Company’s Articles
of Association, the Company has
purchased Directors’ and Officers’
Liability Insurance. The indemnity was
in force throughout the last financial
year and is currently in force at the date
of this report. The Company reviews its
insurance policies on an annual basis in
order to satisfy itself that its level of cover
remains adequate.
Directors’ share interests
The number of ordinary shares of the
Company in which the Directors are
beneficially interested at 5 April 2020 is
set out in the Directors’ Remuneration
Report on page 65.
Articles of Association
Any amendments to the Articles of
Association of the Company may be
made by special resolution of the
shareholders.
Share capital
Details of the Company’s share capital
are set out in note 23 to the financial
statements. The Company’s share
capital consists of one class of ordinary
shares which do not carry rights to fixed
income. As at 5 April 2020, there were
151,818,762 ordinary shares of 25p each
in issue.
A new authority to allot shares will be
sought at the forthcoming Annual
General Meeting.
Voting rights
Ordinary shareholders are entitled
to receive notice of, and in normal
circumstances to attend and speak at,
general meetings. Each shareholder
present in person or by proxy (or by duly
authorised corporate representative)
shall, on a show of hands, have one vote.
On a poll, each shareholder present in
person or by proxy shall have one vote
for each share held.
Restrictions on transfer of shares
Other than the general provisions of the
Articles of Association (and prevailing
legislation) there are no specific
restrictions on the size of a holding or on
the transfer of the ordinary shares.
The Directors are not aware of any
agreements between the Company’s
shareholders that may result in the
restriction of the transfer of securities or
on voting rights. No shareholder holds
securities carrying any special rights or
control over the Company’s share capital.
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 66
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:35 PM
Governance
Energy use and emissions
The disclosures on energy use and
greenhouse gas emissions are
made within the Corporate Social
Responsibility Report on page 37.
Financial risk management
The Company’s objectives and policies
on financial risk management including
information on the exposure of the
Company to strategic, operational,
financial and compliance risks are
set out in note 30 to the financial
statements and in the Group Risk
Management section on pages 30 to 34.
Overseas branches
During the year no new or additional
overseas branches were established.
The Company currently maintains one
overseas branch, in Sweden.
Going concern statement
The considerations made by the
Directors with regards to going concern
are set out in the Financial Review on
pages 26 to 29.
Having taken these into account, the
Directors have, at the time of approving
the financial statements, a reasonable
expectation that the Company and
the Group have adequate resources
to continue in operational existence
for at least 12 months from the date of
these financial statements. Accordingly,
they continue to adopt the going
concern basis in preparing the financial
statements.
Significant shareholders
The Company had been advised of the following notifiable direct and indirect
interests in 3% or more of its issued share capital as at 28 May 2020.
Notification received from:
NR Holdings Limited1
Ruffer LLP
Downing
Quaero Capital
Premier Miton
Herald Investment Management
Tellworth Investments
Number of
ordinary
shares of
25p each
36,876,078
20,250,000
8,922,673
8,800,975
6,151,683
6,138,020
5,711,266
% of total
voting
rights
24.29
13.34
5.88
5.80
4.05
4.04
3.76
1.
The Executive Chairman Nathaniel Rothschild is a beneficiary of NR Holdings. The number of
shares noted here also includes those he holds directly.
Authority to purchase own shares
The Company was authorised by
shareholder resolution at the 2019
Annual General Meeting to purchase
up to 10% of its issued share capital.
No shares were purchased pursuant
to this authority during the year. A
resolution to renew this authority will
be proposed at the forthcoming Annual
General Meeting. Under this authority,
any shares purchased will either be
cancelled, resulting in a reduction of the
Company’s issued share capital, or held
in treasury.
Employee share schemes
The Company does not have any
employee share schemes with shares
which have rights with regard to the
control of the Company that are not
exercisable directly by the employees.
Significant agreements/
change of control
The Company is a party to a revolving
credit facility in which the counterparties
can determine whether or not to cancel
the agreement where there has been a
change of control of the Company.
Details of the Directors’ service
contracts can be found in the Directors’
Remuneration Report on page 59.
Future developments
The development of the business is
detailed in the Strategic Report on
pages 12 to 40.
Research and development
The Company’s research and
development activities are focused
on driving innovation throughout
the product portfolio, to enable it to
deliver new or enhanced customer-
specific connection solutions. We
have continued to recruit design and
development expertise and pursue the
development of patents where relevant.
Employees
The Company’s disclosures on employee
policies and involvement can be found
in the Corporate Social Responsibility
Report on pages 36 to 39.
Relationships with suppliers,
customers and other business
partners
Information on the Company’s
management of its business
relationships can be found in the
Strategic Report on pages 16 and 17.
Corporate governance
The Company follows and complies
with, subject to some exceptions, the
provisions of the Quoted Companies
Alliance’s Corporate Governance Code.
The Company’s corporate governance
practice is outlined in the Corporate
Governance Report on pages 46 to 51.
Political and charitable donations
The Company made a total of £13,000
charitable donations during the year.
The Company made a £15,000 donation
to the Conservative party. Mr Morris and
Mr Rothschild each reimbursed £5,000
to the Company, so the net contribution
by the Company was £5,000.
www.volex.com
Annual Report and Accounts 2020 67
Volex plc
26523-Volex-Annual-Report-2020.indd 67
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:35 PM
27309 25 June 2020 4:29 pm Proof 8Directors’ Report CONTINUEDAuditors and disclosure of information to auditors Each of the persons who is a Director at the date of approval of this Annual Report confirms that: ▷So far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and ▷The Director has taken all the reasonable steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.The above confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006. PricewaterhouseCoopers LLP have expressed their willingness to continue in office as auditors and a resolution seeking to reappoint them will be proposed at the forthcoming Annual General Meeting. Annual General MeetingThe Company’s Annual General Meeting will be held on 30 July 2020. Details of the venue and the resolutions to be proposed are set out in a separate Notice of Annual General Meeting. Special arrangements may be put in place limiting attendance in person due to the current Covid-19 outbreak and relevant government guidance on public gatherings.This report was approved by the Board of Directors of Volex plc and signed on its order by:Daren MorrisCompany Secretary 18 June 2020Volex plcAnnual Report and Accounts 2020Stock code: VLX68Governance26523-Volex-Annual-Report-2020.indd 6825-Jun-20 4:33:35 PM 27309 25 June 2020 4:29 pm Proof 8Statement of Directors’ Responsibilitiesin respect of the financial statementsThe Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of Group and Company and of the profit or loss of the Group and the Company for that period. In preparing the financial statements, the Directors are required to: ▷ select suitable accounting policies and then apply them consistently; ▷ state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements; ▷ make judgements and accounting estimates that are reasonable and prudent; and ▷ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006.The Directors are responsible for the maintenance and integrity of the company’s financial statements published on the ultimate Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.Directors’ confirmationsThe Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company’s position and performance, business model and strategy.In the case of each Director in office at the date the Directors’ Report is approved: ▷ so far as the Director is aware, there is no relevant audit information of which the Group and Company’s auditors are unaware; and ▷ they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group and Company’s auditors are aware of that information. By order of the BoardNathaniel RothschildExecutive ChairmanDaren MorrisChief Financial Officer & Company Secretarywww.volex.comVolex plcAnnual Report and Accounts 202069Governance26523-Volex-Annual-Report-2020.indd 6925-Jun-20 4:33:36 PM 27309 25 June 2020 4:29 pm Proof 8Independent Auditors’ Reportto the Members of Volex plcReport on the audit of the financial statementsOpinionIn our opinion: ▷Volex plc’s Group and Company financial statements (the ‘financial statements’) give a true and fair view of the state of the Group’s and of the Company’s affairs as at 5 April 2020 and of the Group’s profit and cash flows for the 53 week period (the ‘period’) then ended; ▷the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; ▷the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and applicable law); and ▷the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.We have audited the financial statements, included within the Annual Report and Accounts 2020 (the ‘Annual Report’), which comprise: the Consolidated and Company Statements of Financial Position as at 5 April 2020; the Consolidated Income Statement and Consolidated Statement of Comprehensive Income, the Consolidated and Company Statements of Changes in Equity, and the Consolidated Statement of Cash Flows for the 53 week period then ended; and the notes to the financial statements, which include a description of the significant accounting policies.Basis for opinionWe conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.IndependenceWe remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.Our audit approachOverview MaterialityAudit scopeKey auditmatters ▷Overall Group materiality: $1,500,000 (2019: $1,000,000), based on 5% of profit before tax, interest expense, adjusting items and share-based payments. ▷Overall Company materiality: £489,000 (2019: $525,000), based on 1% of total assets and capped at Group component materiality. ▷We conducted a full scope audit of seven components and performed specified audit procedures on certain balances and transactions at a further four components, which provided us with the following coverage: 86% of revenue, 79% of profit before tax, interest expense, adjusting items and share-based payments, 100% of adjusting items, 71% of interest payable and 73% of net assets. ▷Analytical review procedures were performed on a further eight components. ▷To ensure sufficient oversight of our component audit teams, the Group team performed a number of procedures throughout the audit which included directing the audit approach and procedures, conducting remote file reviews and conducting remote face to face meetings with local management and the component teams. ▷Adjusting Items (Group) ▷Business Combinations (Group) ▷Impact of Covid-19 (Group and Company)Volex plcAnnual Report and Accounts 2020Stock code: VLX70Governance26523-Volex-Annual-Report-2020.indd 7025-Jun-20 4:33:36 PM Governance
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all
of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was
evidence of bias by the directors that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether
or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we
make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all
risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Adjusting Items (Group)
The directors have classified $5.8m of pre-tax expenses
and $2.3m of tax income as adjusting in the Consolidated
Income Statement, disclosure of which they believe helps to
understand the underlying performance of the business.
Adjusting items are disclosed in note 4 and in the Financial
Review on page 27.
The directors have assessed the costs included in note 4
and the relevant tax income included in note 10 to be both
one-off in nature and significant in size and have classified
these as adjusting items in line with their accounting policy
in note 2. These items relate to costs associated with the
acquisitions made during the year and amortisation of
acquired intangibles. We focused on this area because of the
magnitude of these items, and the impact that they have on
the presentation of underlying profit in comparison to the
statutory measure of profit.
We obtained management’s detailed listing of adjusting
items and our procedures included the following:
▷ Testing that they met the Group’s accounting policy for
adjusting items, as described in note 2, and applying
professional scepticism as to the appropriateness of the
classification of these items as adjusting items considering
their nature and value;
▷ For acquisition costs, we assessed whether the costs were
related to the acquisitions and had been incurred pre year
end, and were one-off in nature; we agreed a sample of
costs to invoices;
▷ For the amortisation of acquired intangibles, we
performed a high-level analytic and substantiated
differences above a threshold lower than materiality;
▷ We tested that the reconciliation of operating profit to
statutory measures as shown in note 7 is accurate; and
▷ We assessed that the appropriateness and completeness
of disclosures included in the Group financial statements
reflected the output of management’s positions in respect
of these adjusting items, noting no significant deviations.
Overall, we consider the position taken by management to be
appropriate.
www.volex.com
Volex plc
Annual Report and Accounts 2020
71
26523-Volex-Annual-Report-2020.indd 71
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:36 PM
Governance
Independent Auditors’ Report
to the Members of Volex plc CONTINUED
Key audit matter
How our audit addressed the key audit matter
Business combinations (Group)
As disclosed in note 34 to the financial statements, during the
year the Group acquired 100% of the issued share capital of
Servatron Inc and Ta Hsing Industries Limited.
Both transactions are considered to be business combinations
under IFRS 3. Accounting for business combinations is
complex and involves judgement around identifying the date
of acquisition, determination of the fair value of consideration
paid and payable, and assessment of the fair value of assets
and liabilities acquired. Management made further fair value
adjustments to working capital balances as required. The fair
value exercise resulted in a $9.1m increase in goodwill and a
$10.5m increase in intangible assets.
Given the significance and complexity around the
transactions, there is a risk that the accounting treatment
may be incorrect and as such this is a key audit matter.
We obtained management’s fair value calculations and
evaluated the key judgements and estimates made by
management in determining the fair value of net assets
acquired; this included the identification of intangible assets
related to customer relationships. We focused on this area due
to the significance of these transactions and the complexity
around judgements and estimates made in accounting for
the acquisitions. We undertook the following procedures:
▷ We used our valuation experts to evaluate the key
assumptions, including revenue growth, customer
value, the replacement cost of property, plant and
equipment and discount rates used by management. We
benchmarked these to external data and challenged the
assumptions based on our knowledge of the Group and
the industry within which it operates.
▷ We obtained and reviewed the sale and purchase
agreements.
▷ We obtained management’s fair value calculations for
each component of the consideration and assessed the
appropriateness of these calculations.
▷ For the assets and liabilities acquired, we tested a selection
to supporting documentation and recalculated estimates
to gain comfort over the fair value on acquisition of both
entities. There were no material differences.
▷ In respect of the fair value of the intangibles, we obtained
management’s discounted cash flow calculations and
assessed the reasonableness of the assumptions. Key
assumptions made by management included discount
rate, forecast sales, gross profit margins, operating profit
margins and the estimated economic life of the acquired
intangibles.
Based on our procedures, we found no exceptions and overall
consider management’s key assumptions to be within an
acceptable range.
Impact of Covid-19 (Group and Company)
Disclosure of the risk to the Group of Covid-19 and
management’s conclusions on going concern has been
included within the Strategic Report and note 2 of the
financial statements.
We obtained management’s detailed Covid-19 impact
assessment and evaluated the key judgements and estimates
made by management in determining potential outcomes for
the Group. We undertook the following procedures:
The extent of the negative impact of the pandemic on future
trading performance is unclear and measurement of the
impact as it relates to the financial statements entails a
significant degree of estimation uncertainty.
Management has developed a forecast model based on its
best estimate of the impact of Covid-19.
This model and related assumptions have been used by
management in its assessment of the impact on future
trading at the reporting date, as well as to underpin
management’s going concern assessments.
Management has also modelled possible downside scenarios
to its base case trading forecast. Having taken into account
these models, together with a robust assessment of planned
and possible mitigating actions, management has concluded
that the Group remains a going concern, and that there is no
material uncertainty in respect of this conclusion.
▷ We considered the potential impact on the balance
sheet, specifically around investments, goodwill, trade
receivables and inventory and do not consider there to be
any indicators of material impairment as at the balance
sheet date or subsequently (for disclosure only).
▷ We reviewed management’s disclosures relating to the
Covid-19 potential impact and found them to be consistent
with the downside scenarios performed.
▷ We tested the accuracy and reasonableness of the
assumptions used by management in its assessment
of going concern and the impact of Covid-19 against
historical and post year end performance.
▷ We increased the frequency and extent of our oversight
of our component audit teams, using video conferencing
and remote working paper reviews, to satisfy ourselves
as to the appropriateness of audit work performed at our
significant components.
Overall, we consider the position taken by management to be
appropriate.
72
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 72
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:36 PM
Governance
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls,
and the industry in which they operate.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at the
statutory reporting unit level by us, as the Group audit team, or through involvement of our component auditors in Poland,
Mexico, China and Singapore. The Group operates two main divisions, ‘Power Products’ and ‘Integrated Manufacturing Services’,
and the operations are spread across multiple countries. Our approach gives us sufficient coverage of both divisions.
Where work was performed by our component auditors in Poland, Mexico, China and Singapore, we determined the level of
involvement we needed to have in the audit work for each reporting unit to be able to conclude whether sufficient appropriate
audit evidence had been obtained as a basis for our opinion on the Group financial statements as a whole. As Covid-19 prevented
travel to any countries post year-end, we were unable to make site visits as planned; we instead conducted our oversight of
the component teams through conference calls, video conferencing and remote working paper reviews as well as remote face
to face meetings with local management as well as our component teams and other forms of communication as considered
necessary to satisfy ourselves as to the appropriateness of audit work performed by our component teams.
The Group audit team performed the work over Silcotec Europe, G.T.K. (U.K.) and the head office branch of the Company, with
our component auditors in Poland performing the work in respect of the significant branches of the Company for which the
books and records are located in that territory. The Group audit team performed the audit of the consolidation.
We identified seven units which, in our view, required an audit of their complete financial information, either due to their size
or risk characteristics. This included the operating subsidiaries in Zhongshan, Galway, Basingstoke, Batam and Tijuana; the
European branches of the Company whose accounting records are located in Poland, as well as the head office branch of the
Company in the United Kingdom. Specified audit procedures on certain balances and transactions were also performed on a
further four components. The above gave us coverage of 86% of revenue, 79% of profit before tax, interest expense, adjusting
items and share-based payments, 100% of adjusting items, 71% of interest payable and 73% of net assets. Analytical review
procedures were performed on a further eight components. As a whole, these procedures gave us the evidence we needed for
our opinion on the Group financial statements.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Company financial statements
Overall materiality
$1,500,000 (2019: $1,000,000).
£489,000 (2019: $525,000).
How we determined it
5% of profit before tax, interest expense,
adjusting items and share-based payments.
1% of total assets and capped at Group component
materiality.
Rationale for benchmark
applied
We consider profit before tax, interest
expense, adjusting items and share-based
payments to provide an accurate depiction
of the underlying profitability of the business
and to be the primary measure used by
shareholders in assessing the performance of
the Group.
1% of total assets was considered an appropriate
benchmark to use due to the Company’s status
primarily as an investment holding company.
However this would have given a materiality level in
excess of the materiality allocated to the component
determined through our Group scoping exercise.
Accordingly, Company materiality was capped at the
Group component materiality allocation.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality.
The range of materiality allocated across components was between $300,000 and $750,000. Certain components were audited
to a local statutory audit materiality that was also less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above $75,000
(Group audit) (2019: $50,000) and £24,000 (Company audit) (2019: $50,000) as well as misstatements below those amounts that,
in our view, warranted reporting for qualitative reasons.
www.volex.com
Volex plc
Annual Report and Accounts 2020
73
26523-Volex-Annual-Report-2020.indd 73
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:36 PM
Governance
Independent Auditors’ Report
to the Members of Volex plc CONTINUED
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you where:
▷ the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate;
or
▷ the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant
doubt about the Group’s and the Company’s ability to continue to adopt the going concern basis of accounting for a period
of at least twelve months from the date when the financial statements are authorised for issue.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s and
the Company’s ability to continue as a going concern.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly
stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based
on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to
report certain opinions and matters as described below.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and
Directors’ Report for the period ended 5 April 2020 is consistent with the financial statements and has been prepared in
accordance with applicable legal requirements.
In light of the knowledge and understanding of the Group and the Company and their environment obtained in the course of
the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities set out on page 69, the directors are responsible for the
preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true
and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic
alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.
org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
74
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-2020.indd 74
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:37 PM
Governance
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
▷ we have not received all the information and explanations we require for our audit; or
▷ adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received
from branches not visited by us; or
▷ certain disclosures of directors’ remuneration specified by law are not made; or
▷ the Company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Timothy McAllister (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
18 June 2020
www.volex.com
Volex plc
Annual Report and Accounts 2020
75
26523-Volex-Annual-Report-2020.indd 75
27309
25 June 2020 4:29 pm
Proof 8
25-Jun-20 4:33:37 PM
Financials
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
Company Statement of Financial Position
Company Statement of Changes in Equity
Notes to the Company Financial Statements
Five-Year Summary
Shareholder Information
Registered Office and Advisers
78
79
80
81
82
83
125
126
127
141
142
142
26523-Volex-Annual-Report-Financials-2020.indd 76
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:33 PM
S
T
S
I
L
A
I
C
E
P
S
G
RIN
U
I
N
T
E
G
R
A
T
E
D MANUF A C T
One Hundred Years
of Innovation
Volex experienced mixed fortunes in the 2000s, facing a
decline in sales and turnover amid difficult trading conditions
caused primarily by the telecoms crash of 2001. As the
Company refocused towards the industrial and medical
sectors, and wound down its manufacturing capability in
the UK and Ireland, the total number of factory sites was
consolidated into nine by 2009, all overseas.
Nonetheless it was during this period that its current
European base in Bydgoszcz in Poland was established.
At the same time, throughout the 2000s and then into
the 2010s, the Company continued to move forward and
innovate, introducing its first duck head products, its first
high-speed copper cables and halogen-free cables, as well
as its patented V-Lock range of power cables and V-Novus
products, becoming a major supplier to companies driving the
revolution in IT and communications in the 21st century.
Decline in turnover
between 2001 and 2002
Factory sites
in 2009
26523-Volex-Annual-Report-Financials-2020.indd 77
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:33 PM
Financials
Consolidated Income Statement
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
2020
2019
Before
adjusting
items and
share-based
payments
$’000
Adjusting
items and
share-based
payments
(Note 4)
$’000
Before
adjusting
items and
share-based
payments
$’000
Adjusting
items and
share-based
payments
(Note 4)
$’000
Total
$’000
Revenue
Cost of sales
Gross profit
Operating expenses
Operating profit/(loss)
Share of net loss from
associates and joint ventures
Finance income
Finance costs
Profit/(loss) on ordinary
activities before taxation
Taxation
Profit/(loss) for the period
attributable to the owners
of the parent
Earnings per share (cents)
Basic
Diluted
16
5
6
10
7
11
11
3
391,354
(300,693)
90,661
(59,031)
31,630
–
328
(1,552)
–
–
–
(14,545)
(14,545)
–
–
–
30,406
(3,504)
(14,545)
2,339
391,354
372,104
(300,693)
(298,586)
90,661
(73,576)
17,085
–
328
(1,552)
15,861
(1,165)
73,518
(51,912)
21,606
(210)
129
(1,276)
20,249
(2,650)
–
–
–
(8,614)
(8,614)
–
–
–
(8,614)
221
Total
$’000
372,104
(298,586)
73,518
(60,526)
12,992
(210)
129
(1,276)
11,635
(2,429)
26,902
(12,206)
14,696
17,599
(8,393)
9,206
18.2
17.3
9.9
9.5
13.1
12.7
6.9
6.7
The notes on pages 83 to 124 are an integral part of these financial statements.
78
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 78
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:34 PM
Consolidated Statement of Comprehensive Income
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
Financials
Profit for the period
Items that will not be reclassified subsequently to profit or loss
Actuarial (loss)/gain on defined benefit pension schemes
Items that may be reclassified subsequently to profit or loss
(Loss)/gain arising on cash flow hedges during the period
Exchange gain on translation of foreign operations
Notes
29
2020
$’000
14,696
(1,343)
(1,343)
(2,266)
151
(2,115)
2019
$’000
9,206
305
305
180
579
759
Other comprehensive (loss)/income for the period
(3,458)
1,064
Total comprehensive income for the period attributable to the owners of the parent
11,238
10,270
The notes on pages 83 to 124 are an integral part of these financial statements.
www.volex.com
Volex plc
Annual Report and Accounts 2020
79
26523-Volex-Annual-Report-Financials-2020.indd 79
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:34 PM
27309 25 June 2020 4:32 pm Proof 8Consolidated Statement of Financial PositionAs at 5 April 2020 (31 March 2019)Notes2020$’000 2019$’000 Non-current assetsGoodwill1225,76017,531Other intangible assets1315,53711,115Property, plant and equipment1421,56520,420Right of use asset158,345–Interests in associates and joint ventures16––Other receivables184,4882,704Deferred tax asset218,9554,27184,65056,041Current assetsInventories1757,99549,122Trade receivables1856,38271,307Other receivables187,9878,448Current tax assets2,1541,092Derivative financial instruments30–374Cash and bank balances2732,30520,913156,823151,256Total assets241,473207,297Current liabilitiesBorrowings19225320Lease liabilities193,498–Trade payables2039,65345,863Other payables2038,45330,212Current tax liabilities108,3844,811Retirement benefit obligations29982975Provisions228341,121Derivative financial instruments301,819–93,84883,302Net current assets62,97567,954Non-current liabilitiesOther payables20570988Non-current tax liabilities10–1,134Deferred tax liabilities216,1304,447Retirement benefit obligations292,4921,460Non-current lease liabilities197,385–Provisions2251631817,0938,347Total liabilities110,94191,649Net assets130,532115,648Equity attributable to owners of the parentShare capital2360,18958,792Share premium account46,41444,532Non-distributable reserve242,4552,455Hedging and translation reserve(9,506)(7,391)Own shares24(1,024)(1,890)Retained earnings32,00419,150Total equity130,532115,648The notes on pages 83 to 124 are an integral part of these financial statements. The consolidated financial statements on pages 79 to 124 of Volex plc (company number: 158956) were approved by the Board of Directors and authorised for issue on 18 June 2020 and signed on its behalf by:Nathaniel RothschildExecutive ChairmanDaren MorrisChief Financial Officer Volex plcAnnual Report and Accounts 2020Stock code: VLX80Financials26523-Volex-Annual-Report-Financials-2020.indd 8025-Jun-20 4:36:34 PM Consolidated Statement of Changes in Equity
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
Financials
Share
premium
account
$’000
Non-
distributable
reserves
$’000
Hedging
and
translation
reserve
$’000
2. Significant accounting policies
Taxation
The Group operates in a large number of different tax jurisdictions. The Directors are required to exercise significant
judgement in determining the Group’s provision for taxes. Amounts provided are based on management’s interpretation of
country-specific tax law. Tax benefits are not recognised unless the tax positions are capable of being sustained. In arriving
at this position, management reviews each material tax benefit to assess whether a provision should be taken against full
Own
shares
$’000
Retained
earnings
$’000
Total
equity
$’000
recognition of the benefit.
Deferred tax assets and liabilities require management judgement in determining the amounts to be recognised. In
particular, significant judgement is used when assessing the extent to which deferred tax assets should be recognised, with
7,122
2,455
(8,150)
(867)
7,829
48,144
consideration given to the timing and level of future taxable income, time limits on the availability of taxable losses for carry
Share
capital
$’000
39,755
–
–
–
–
–
18,886
–
37,410
151
–
–
–
–
–
–
–
–
–
–
–
–
–
58,792
–
44,532
–
2,455
–
–
–
1,315
82
–
–
–
–
–
–
1,882
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 1 April 2018
Profit for the period attributable
to the owners of the parent
Other comprehensive income for
the period
Total comprehensive income for
the period
Share issue
Exercise of deferred bonus
shares
Own shares sold/(utilised) in the
period
Own shares purchased in the
period
Credit to equity for equity-settled
share-based payments
Balance at 31 March 2019
Profit for the period attributable
to the owners of the parent
Other comprehensive expense
for the period
Total comprehensive (expense)/
income for the period
Share issue
Exercise of deferred bonus
shares
Own shares sold/(utilised) in the
period
Own shares purchased in the
period
Dividend
Credit to equity for equity-settled
share-based payments
Balance at 5 April 2020
–
60,189
–
46,414
–
2,455
–
(9,506)
–
759
759
–
–
–
–
–
(7,391)
–
(2,115)
(2,115)
–
–
–
–
–
forward and any future tax planning strategies.
Key sources of estimation uncertainty
The key area where estimates and assumptions are significant to the financial statements is described below.
Impairment charge
Power Cords
Cable Assemblies
Central
2020
$’000
2019
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
75
(1,098)
–
(1,890)
–
–
–
–
–
9,206
9,206
305
9,511
–
(151)
(31)
1,064
10,270
56,296
–
44
–
(1,098)
1,992
19,150
1,992
115,648
14,696
14,696
(1,343)
(3,458)
13,353
–
11,238
3,197
(82)
–
2,630
(6,514)
(3,884)
(1,764)
–
–
(1,024)
–
(1,956)
(1,764)
(1,956)
8,053
32,004
8,053
130,532
www.volex.com
Volex plc
Annual Report and Accounts 2020
81
26523-Volex-Annual-Report-Financials-2020.indd 81
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:35 PM
Financials
Consolidated Statement of Cash Flows
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
Net cash generated from/(used in) operating activities
Cash flow generated from/(used in) investing activities
Interest received
Acquisition of businesses, net of cash acquired
Contingent consideration for businesses acquired
Proceeds on disposal of intangible assets, property, plant and equipment
Purchases of property, plant and equipment
Purchases of intangible assets
Purchase of preference shares
Proceeds from the repayment of preference shares
Net cash used in investing activities
Cash flows before financing activities
Cash generated/(used) before adjusting items
Cash utilised in respect of adjusting items
Cash flow (used in)/generated from financing activities
Dividend paid
Net purchase of shares for share schemes
Refinancing costs paid
New bank loans raised
Repayment of borrowings
Proceeds on issue of shares
Interest element of lease payments
Receipt from lease debtor
Capital element of lease payments
Net cash (used in)/generated from financing activities
Notes
27
5
34
34
14
13
16
16
2020
$’000
51,735
22
(22,701)
(2,850)
564
(4,910)
(40)
–
25
RESTATED1
2019
$’000
(6,743)
11
(23,843)
–
512
(3,180)
(163)
(1,300)
–
(29,890)
(27,963)
21,845
23,251
(1,406)
(34,706)
(31,434)
(3,272)
(1,956)
(4,634)
(659)
7,000
(7,056)
–
(553)
499
(3,150)
(10,509)
–
(1,023)
–
–
(12,826)
46,685
–
–
–
32,836
Net increase/(decrease) in cash and cash equivalents
11,336
(1,870)
Cash and cash equivalents at beginning of period
Effect of foreign exchange rate changes
Cash and cash equivalents at end of period
27
27
27
20,593
(280)
31,649
22,981
(518)
20,593
1 Restatement: The net purchase of shares for share schemes has been reclassified in the prior year from investing to financing
activities to reflect the nature of the transactions. See note 27 for further details.
The notes on pages 83 to 124 are an integral part of these financial statements.
82
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 82
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:35 PM
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
Financials
1. Presentation of financial statements
Volex plc (‘the Company’ and together with its subsidiaries ‘the Group’) is a public limited company incorporated by shares and
registered and domiciled in England and Wales under the Companies Act 2006 and whose shares are listed on AIM, a market on
the London Stock Exchange. The address of the registered office is given on page 142. The nature of the Group’s operations and
its principal activities are set out in the Strategic Report on pages 10 to 41.
Financial statements are prepared for the period ending on the Sunday following the Friday that falls closest to the accounting
reference date of 31 March each year.
These financial statements are presented in US dollars (‘USD’). Each entity in the Group determines its own functional currency
and items included in the financial statements of each entity are measured using that functional currency.
2. Significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These
policies have been consistently applied to all the periods presented, unless otherwise stated.
Basis of accounting
The financial statements have been prepared in accordance with European Union adopted IFRS, interpretations issued by the
IFRS Interpretations Committee (IFRS IC) and the Companies Act 2006, applicable to companies reporting under IFRS.
The financial statements have been prepared on a going concern basis under the historical cost convention except for the revaluation
of financial instruments that are measured at fair values at the end of each reporting period, as explained in the accounting policies
below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
The Group’s forecast and projections, taking reasonable account of possible changes in trading performance including the
impact of Covid-19, show that the Group should operate within the level of the facility for the period in which the facility is
available and should comply with the covenants over this period.
Adoption of new and revised International Financial Reporting Standards (‘IFRSs’)
The Group adopted IFRS 16 Leases from 1 April 2019. The standard provides a single lessee accounting model, requiring the
recognition of right-of-use assets and lease obligations. The Group has applied IFRS 16 using the modified retrospective
approach under which the cumulative effect of initial application has been recognised in retained earnings on 1 April 2019. The
comparative information has not been restated and continues to be reported under IAS 17. As part of the transition the Group
has adopted a number of the practical expedients permitted:
▷ leases less than 12 months remaining at transition have been treated as short-life leases;
▷ leases of low value (defined as total payments of less than $5k) continue to be accounted for under an accruals basis;
▷ a portfolio approach has been adopted which allows a single discount rate to be applied to a portfolio of leases with
reasonably similar characteristics; and
▷ onerous lease provisions can be offset against the right-of-use asset.
Prior to the adoption of IFRS 16, non-cancellable operating lease payments were not recognised as liabilities in the balance sheet.
These payments were recognised as rental expenses over the lease term on a straight-line basis.
The Group has applied judgement to determine the lease term for contracts that include renewal options. The assessment of
whether the exercise of such options is reasonably certain impacts the lease term, which significantly affects the amount of lease
liability and right-of-use asset recognised.
On transition, the Group recognised $5,530,000 of lease related assets, consisting of $3,447,000 right-of-use assets (see note 15) and
$2,083,000 of net investment in finance leases associated with a sub-lease of a property in North America. A lease liability of $5,777,000
has been recognised and an amount of $247,000 recognised against the onerous lease provision brought forward. The Group recognised
depreciation of $2,714,000, $65,000 of impairment and interest costs of $553,000 in respect of leases in the year ended 5 April 2020.
Reconciliation of the lease liabilities at 1 April 2019 to the operating lease commitments at 31 March 2019.
Operating lease commitments disclosed as at 31 March 2019
Discounted using the lessee’s incremental borrowing rate
Less: short-term leases not recognised as a liability
Less: low-value leases not recognised as a liability
Less: adjustments due to treatment of extension and termination options
Lease liabilities recognised as at 1 April 2019
Of which:
Current lease liabilities
Non-current lease liabilities
$’000
10,227
(1,573)
(2,395)
(2)
(480)
5,777
(2,309)
(3,468)
The adoption of IFRIC 23 ‘Uncertainty over Income Tax Treatments’ from 1 April 2019 did not have a material impact upon the Group.
www.volex.com
Annual Report and Accounts 2020 83
Volex plc
26523-Volex-Annual-Report-Financials-2020.indd 83
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:35 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
2. Significant accounting policies continued
New standards, amendments and interpretations issued but not yet effective for the financial year beginning
1 April 2019 and not early adopted
The Group does not consider that any standard, amendment or interpretation issued by the IASB, but not yet applicable, will
have a significant impact on the financial statements. Standards and interpretations issued by the IASB are only applicable if
endorsed by the EU.
Basis of consolidation
The consolidated financial statements of Volex plc incorporate the financial statements of the Company and entities which it
controls (its subsidiaries), (together the ‘Group’), and are drawn up to the relevant period end date. Control is achieved where
the Company has the power to govern the financial and operating policies so as to be able to obtain benefits from its activities.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into
line with those used by the Group. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to
transactions between the members of the Group are eliminated in full on consolidation.
Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a
business combination is measured at fair value, which is calculated as the sum of acquisition-date fair values of assets transferred
by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group
in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.
Goodwill is measured as the excess of the sum of the consideration transferred and the amount of any non-controlling interests
in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed.
Where the consideration for the acquisition includes any asset or liability resulting from a contingent consideration
arrangement, it is measured at its acquisition date fair value and included as part of the consideration transferred. Subsequent
changes in the fair value of contingent consideration that qualify as measurement period adjustments are adjusted
retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise
from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition
date) about facts and circumstances that existed at the acquisition date.
Goodwill
Goodwill is initially recognised and measured as set out above.
Goodwill is not amortised but is tested annually for impairment. For the purpose of impairment testing, goodwill is allocated
to cash-generating units. The allocation is made to those cash-generating units or groups of cash-generating units that
are expected to benefit from the business combination in which the goodwill arose. If the recoverable amount of the cash-
generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount
of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each
asset in the unit. The impairment loss is recognised immediately in profit and loss and is not reversed in subsequent periods.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts.
Goodwill arising on acquisitions prior to 31 March 1998 has been written off to reserves and has not been reinstated in the
statement of financial position and will not be included in determining any subsequent profit or loss on disposal.
Interests in associates and joint ventures
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding
of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of
accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or
decreased to recognise the investor’s share of the change in net assets of the investee after the date of acquisition.
The Group’s share of post-acquisition profit or loss is recognised in the income statement, and its share of post-acquisition
movements in other comprehensive income is recognised in other comprehensive income, with a corresponding adjustment
to the carrying amount of the investment. Where the Group’s share of losses in an associate equals or exceeds its interest in the
associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal
or constructive obligations or made payments on behalf of the associate. Distributions received from an associate reduce the
carrying amount of the investment.
The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is
impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount
of the associate and its carrying value, and it recognises the amount adjacent to ‘share of profit/(loss) of associates’ in the income
statement.
84
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 84
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:35 PM
Financials
2. Significant accounting policies continued
Foreign currencies
The individual financial statements of each Group company are prepared in the currency of the primary economic environment
in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial
position of each Group company are expressed in USD, which is the presentation currency for the consolidated financial
statements.
In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional
currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At each
reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing
at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates
prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost
in a foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the period in which they arise
except for:
▷ Exchange differences on transactions entered into to hedge certain foreign currency risks (see below under financial
instruments/hedge accounting); and
▷ Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither
planned nor likely to occur in the foreseeable future (therefore forming part of the net investment in the foreign operation),
which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal or
partial disposal of the net investment.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations
are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average
exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates
at the date of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and
accumulated in equity.
Revenue recognition
Revenue is recognised in accordance with the satisfaction of performance obligations of contracts. The majority of the Group’s
contracts have just one performance obligation which is the delivery of goods, which under IFRS 15 Revenue is recognised as
a single point, on delivery or pick-up depending on the agreed terms with the customer. This is normally when control of the
goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be
entitled in exchange for those goods or services. The Group has concluded that it is the principal in its revenue arrangements.
Revenue is measured at the fair value of the consideration received or receivable for goods and services provided in the normal
course of business, net of discounts, VAT and other sales-related taxes.
The Group considers whether there are additional commitments in contracts that are separate performance obligations to
which a portion of the transaction price needs to be allocated. In addition, most customer contracts include a warranty clause
for general repairs of defects that existed at the time of sale. Warranties cannot be purchased separately. These assurance-type
warranties are accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
In determining the transaction price for the sale of equipment, the Group also considers the effects of the following:
▷ The existence of significant financing components. There are contracts where the Group receives short-term advances from
its customers. Using the practical expedient in IFRS 15, the Group does not adjust the promised amount of consideration for
the effects of a significant financing component if it expects, at contract inception, that the period between the transfer of
the promised good or service to the customer and when the customer pays for that good or service will be one year or less.
The normal credit term is 60 to 90 days upon delivery;
▷ Consideration payable to the customer – in certain instances the Group purchases raw materials from the customer. This
consideration is not treated as a reduction to revenue since the payments made are in exchange for a distinct good (the raw
material) that the customer transfers to the Group; and
▷ Variable consideration and non-cash consideration – both of these are deemed to be immaterial for the Group.
The Group also generates incidental revenue from the provision of engineering services is recognised by reference to the stage
of completion of the contracted services.
Interest income is accrued on a timely basis by reference to the principal outstanding and the effective interest rate applicable.
Dividend income from investments is recognised when the shareholder’s right to receive payment has been established.
Finance Costs
Finance costs comprise lease interest payable, amortised debt issue costs, interest expense on borrowings which are not
capitalised and the interest expense on the defined benefit obligation. Finance costs are split between operating and financing
activities in the statement of cash flows based upon the nature of the transaction.
www.volex.com
Annual Report and Accounts 2020 85
Volex plc
26523-Volex-Annual-Report-Financials-2020.indd 85
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:35 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
2. Significant accounting policies continued
Taxation
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the
extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is recognised in
other comprehensive income or directly in equity, respectively.
The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit as reported in the income
statement because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes
items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates and laws that have
been enacted or substantively enacted by the reporting date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted
for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred
tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differences arise from
goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that
affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates and
interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable
that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is
realised based on tax rates and laws that have been enacted or substantively enacted by the reporting date. Deferred tax is
charged or credited in the income statement, except when it relates to items charged or credited in other comprehensive
income, in which case the deferred tax is also dealt with in other comprehensive income.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current
liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current
tax assets and liabilities on a net basis.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Cost
includes the original purchase price of the asset and any further costs attributable to bringing the asset to its working condition
for its intended use.
Depreciation is recognised so as to write off the cost or valuation of assets (other than freehold land which is not depreciated)
less their residual values over their useful lives, using the straight-line method, on the following basis:
Freehold and long leasehold buildings
up to 50 years or period of lease, if shorter
Plant and machinery
3 to 15 years
Assets under construction
Depreciation commences once an asset is ready for its intended use
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected
to arise from the continued use of the asset. The gain or loss arising on the disposal of an asset is determined as the difference
between the sale proceeds and the carrying amount of the asset and is recognised in the income statement.
Intangible assets – computer software and licences
Computer software is stated at cost less accumulated depreciation and any recognised impairment loss. Acquired computer
software licences are capitalised on the basis of the costs incurred to acquire and use the specific software. These costs are
included in the statement of financial position within intangible assets and are amortised straight-line over their estimated
useful lives, not exceeding five years. Costs associated with maintaining computer software are recognised as an expense as
incurred.
Intangible assets – patents and customer contracts and relationships
Separately acquired patents are stated at cost less accumulated amortisation. Customer contracts and relationships acquired in
a business combination are recognised at fair value at the acquisition date. These intangible assets are amortised on a straight-
line basis over their estimated useful lives, not exceeding five years.
Intangible assets – internally generated intangible assets – research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
86
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 86
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:35 PM
Financials
2. Significant accounting policies continued
The Group is engaged in development activities which include both general product development and specific customer
development projects. An internally generated intangible asset arising from these development activities is recognised only if all
of the following conditions are met:
▷ An asset is created that can be identified;
▷ It is probable that the asset created will generate future economic benefits; and
▷ The development cost of the asset can be measured reliably.
Internally generated intangible assets are amortised on a straight-line basis over their useful lives. Where no internally generated
intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.
Impairment of property, plant and equipment and intangible assets excluding goodwill
At each reporting date, the Group reviews the carrying amounts of its property, plant and equipment and intangible assets to
determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset
does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-
generating unit (‘CGU’) to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset
(or CGU) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant
asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate
of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset (or CGU) in prior periods. A reversal of an impairment
loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of
the impairment loss is treated as a revaluation increase.
Leases
The Group leases various offices, buildings, vehicles and other equipment. Rental contracts are typically made for a period of up
to five years, but may have extension options.
Contracts may contain both lease and non-lease components. The Company allocates the consideration in the contract to
the lease and non-lease components based on their relative stand-alone prices. However, for leases of real estate for which
the Company is a lessee and for which it has major leases, it has elected not to separate lease and non-lease components and
instead accounts for these as a single lease component.
Previously leases of property, plant and equipment were classified as either finance leases or operating leases. From 1 April 2019,
leases are recognised as a right-of-use asset with a corresponding liability at the date at which the leased asset is available for
use by the Group.
Assets and liabilities arising from a lease are initially measured on a present-value basis. Lease liabilities include the net present
value of the following lease payments:
▷ Fixed payments less any lease incentive receivable;
▷ Variable lease payments that are based on an index or a rate;
▷ Amounts expected to be payable by the Group under residual value guarantees;
▷ The exercise price of a purchase option if the Group is reasonably certain to exercise that option; and
▷ Payments of penalties for termination of the lease, if the lease term reflects the Group exercising that option.
The company is exposed to potential future increases in variable lease payments based on an index or rate, which are not
included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect,
the lease liability is reassessed and adjusted against the right-of-use asset.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease
period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the following:
▷ The amount of the initial measurement of the lease liability or a revaluation of the liability;
▷ Any lease payments made at or before the commencement date less any lease incentives received;
▷ Any initial direct costs; and
▷ Restoration costs.
www.volex.com
Annual Report and Accounts 2020 87
Volex plc
26523-Volex-Annual-Report-Financials-2020.indd 87
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:35 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
2. Significant accounting policies continued
Leases (continued)
Each right-of-use asset is depreciated over the shorter of its useful economic life and the lease term on a straight-line basis
unless the lease is expected to transfer ownership of the underlying asset to the Group, in which case the asset is depreciated to
the end of the useful life of the asset. Payments associated with the short-term leases are recognised on a straight-line basis as
an expense in the income statement. Short-term leases are leases with a lease term of 12 months or less.
Where a vacant office is sub-leased for the remainder of the lease the head lease and sublease are recorded as two separate
contracts, applying both the lessee and lessor accounting requirements.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using a standard cost methodology and
adjusted for material variances such that the adjusted figure represents direct materials, direct labour and an attributable
proportion of manufacturing overheads based on normal levels of activity. Net realisable value is based on estimated selling
price, less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Provision is made for
obsolete, slow-moving or defective items where appropriate.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that
are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value less bank overdrafts.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges,
including premiums on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the
consolidated income statement using the effective interest rate method and are added to the carrying amount of the
instrument to the extent that they are not settled in the period in which they arise.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the
reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using
the cash flows estimated to settle the present obligation, its carrying value is the present value of those cash flows (when the
effect of the time value of money is material).
Present obligations arising under onerous lease contracts are recognised and measured as provisions. An onerous contract is
considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the
contract exceed the economic benefits expected to be received under it.
A restructuring provision is recognised when the Group has developed a detailed formal plan for restructuring and has raised
a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its
main features to those affected by it. The measurement of a restructuring provision includes only the direct expenditures arising
from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with
ongoing activities of the entity.
Provisions for the expected cost of warranty obligations under local sales of goods legislation are recognised at the date of sale of
the relevant products, at the Directors’ best estimate of the expenditure required to settle the Group’s obligation.
Retirement benefits
The Group has both defined benefit and defined contribution retirement benefit schemes, including a defined benefit scheme
in the UK which is now closed to new entrants and an unfunded defined benefit scheme in Indonesia which provides a lump
sump payment to individuals on retirement. The retirement benefit obligations recognised in the consolidated statement of
financial position represents the deficit or surplus in the Group’s defined benefit scheme.
For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial
valuations carried out at the end of each reporting period.
Defined benefit costs are split into three categories: Remeasurement; Net interest expense or income; and Past service cost and
gains and losses on curtailments and settlements.
Remeasurement comprises actuarial gains and losses, the effect of the asset ceiling (where applicable) and the return on
scheme assets (excluding interest). These costs are recognised immediately in the statement of financial position with a
charge or credit to the statement of comprehensive income in the period in which they occur. Remeasurement recorded in the
statement of comprehensive income is not recycled. Net interest is calculated by applying a discount rate to the net defined
benefit liability or asset and is recognised within finance costs (see note 6). As the defined benefit scheme is now closed, no
service cost is incurred.
Payments to defined contribution retirement benefit schemes are recognised as an expense when employees have rendered
service entitling them to the contributions. Payments to state-managed schemes are treated as payments to defined contribution
schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution scheme.
88
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 88
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:35 PM
Financials
2. Significant accounting policies continued
Share-based payments
Certain senior employees (including executives) receive remuneration in the form of share-based payment transactions where
the individuals are compensated for services they provide with consideration in the form of equity instruments.
The cost of equity-settled transactions with employees is measured with reference to the fair value of the equity instrument at
the date they are granted and is recognised as an expense over the period in which the performance and/or service conditions
are fulfilled, ending on the date on which the employee becomes fully entitled to the award.
No expense is recognised for awards that do not ultimately vest as a result of not meeting performance or service conditions.
Where all service and performance vesting conditions have been met, the awards are treated as vesting, irrespective of whether
or not the market condition is satisfied, as market conditions have been reflected in the fair value of the equity instruments.
The fair value determined at the date of grant of the equity-settled share-based payments is expensed to the income statement
on a straight-line basis over the vesting period, based on the estimate of the number of options that will eventually vest. At each
reporting date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of
non-market-based vesting conditions. The movement in cumulative expense since the previous balance sheet date is recognised
in the income statement, with a corresponding entry in equity.
Adjusting items
Adjusting items include costs and incomes that are one-off in nature and significant (such as restructuring costs, impairment
charges or acquisition related costs) but to also include the non-cash amortisation charge of intangible assets which have arisen
under IFRS 3 Business Combinations. Only those restructuring costs that result in a permanent reduction in capabilities either to
a particular geography or line of business, are treated as adjusting items.
Adjusting items are included under the statutory classification appropriate to their nature but are separately disclosed on the
face of the income statement within adjusting items to assist in understanding the underlying performance of the Group.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in
equity as a deduction from the proceeds, net of tax.
Investments and other financial assets – classification
Financial assets within the scope of IFRS 9 Financial Instruments are classified as financial assets at fair value through profit or
loss (FVTPL), financial assets at fair value through other comprehensive income (FVOCI) and financial assets at amortised cost.
The classification of financial assets is determined on initial recognition. This takes account of the nature of the financial asset
and the purpose for which it was acquired. Where an asset is classified as fair value through profit or loss (FVTPL) it is measured
at fair value. Any net gains and losses, including dividend income or interest are recognised in finance revenue or finance cost in
the income statement.
Financial assets classified as at fair value through other comprehensive income (FVOCI) are measured at fair value. For
investments in equity instruments, dividends are recognised when the entity’s right to receive payment is established, the
amount can be measured reliably and it is probable that the economic benefits will flow to the entity. Dividends are recognised
in the income statement unless they represent the recovery of part of the cost of the investment, in which case they are included
in other comprehensive income.
Changes in the fair value of the financial asset are recognised in other comprehensive income and are not recycled to the
income statement.
Financial assets that are held with the objective of collecting contractual cash flows and where the contractual terms of the
financial asset give rise to cash flows on specified dates that represent the repayment of principal and interest are measured
subsequently at amortised cost.
Investments and other financial assets – recognition and measurement
Where an entity holds an investment in an equity instrument that is actively traded in an organised financial market, the fair
value is determined with reference to quoted closing market bid prices at the balance sheet date. Where there is no such active
market, fair value is determined using valuation techniques and models appropriate to the instrument.
Loans and receivables are measured at amortised cost using the effective interest method and taking into consideration any
allowance for impairment. The calculation includes any premium or discount on acquisition and includes transaction costs and
fees that are an integral part of the effective interest rate.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method less any provision for impairment.
At each balance sheet date the Group undertakes an assessment as to whether a financial asset or group of financial assets is
impaired.
www.volex.com
Annual Report and Accounts 2020 89
Volex plc
26523-Volex-Annual-Report-Financials-2020.indd 89
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:35 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
2. Significant accounting policies continued
Trade and other receivables
For trade receivables, the Group applies the simplified approach permitted by IFRS 9, resulting in trade receivables recognised
and carried at original invoice amount less an allowance for any uncollectable amounts based on expected credit losses. The
Group assesses on a forward-looking basis the expected credit losses associated with its receivables carried at amortised cost.
The impairment methodology applied depends on whether there has been a significant increase in credit risk.
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the
contractual arrangement.
Borrowings
Interest-bearing loans and overdrafts are recognised initially at fair value, net of transaction costs incurred. Subsequent to initial
recognition, borrowings are measured at amortised cost, using the effective interest rate method.
Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented
as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method.
Derivative financial instruments
The Group’s activities expose it to the financial risks of changes in foreign exchange rates, interest rates and commodity prices.
The Group enters into a variety of derivative financial instruments to manage its exposure to these risks. The use of financial
derivatives is governed by a Group policy approved by the Board of Directors which provides written principles on the use of
financial derivatives to hedge certain risk exposures. The Group does not use derivative financial instruments for speculative
purposes. Further details of derivative financial instruments are disclosed in note 30 to the financial statements.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured
to their fair value at each reporting date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative
is designated and effective as a hedging instrument, in which event, the timing of the recognition in profit or loss depends on
the nature of the hedge relationship. The Group designates certain derivatives as either fair value hedges, cash flow hedges or
hedges of net investments in foreign operations.
A derivative is classified as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than
12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or
current liabilities.
Hedge accounting
The Group designates certain hedging instruments, which include derivatives and non-derivatives in respect of foreign currency
and commodity risk, as either cash flow hedges or hedges of net investments in foreign operations.
At the inception of the hedge relationship the entity documents the relationship between the hedging instrument and hedged
item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at
the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instruments that are used in
hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
Cash flow hedge
Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges. Similarly, commodity derivative
contracts which are entered into to mitigate commodity price fluctuations on firm purchasing commitments are accounted for
as cash flow hedges.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised
in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss.
Hedges of net investments in foreign operations
Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive
income and accumulated in the hedging and translation reserve. The gain or loss relating to the ineffective portion is recognised
immediately in profit or loss.
Gains and losses deferred in the hedging and translation reserve are recognised immediately in profit or loss when the foreign
operation is disposed of.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It
also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The Directors
consider the following to be the key judgements and estimates that have the most significant effect on the amounts recognised
in the financial statements.
90
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 90
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:35 PM
Financials
2. Significant accounting policies continued
Critical judgements in applying the Group’s accounting policies
In applying the Group’s accounting policies, management have made the following judgements, which have the most
significant effect on the consolidated financial statements.
Business combinations
Acquisitions are accounted for using the acquisition method as described in the business combinations accounting policy. This
includes the determination of fair values for assets and liabilities acquired, including the separate identification of intangible
assets, which use assumptions and estimates and are therefore subjective. The Group has developed a process to meet the
requirements of IFRS 3 including the separate identification of customer relationship intangible assets based on estimated
future performance and customer attrition rates. External valuation specialists are used where appropriate.
Adjusting items
The Directors believe that presenting adjusting items separately provides a clearer understanding of the business performance
and facilitates comparison of trading performance year-on-year. In determining the classification of items management
exercises significant judgement. During the period under review the adjusting operating items identified total $5,808,000
(2019: $6,226,000). These primarily comprise acquisition-related costs and amortisation of intangibles arising from business
combinations. See note 4 for further details. Management see this as a key judgement as a decision has to be made as to which
income statement items fall within the criteria and therefore should be shown separately.
Taxation
The Group operates in a large number of different tax jurisdictions. The Directors are required to exercise significant judgement in
determining the Group’s provision for taxes. Amounts provided are based on management’s interpretation of country-specific tax
law. Tax benefits are not recognised unless the tax positions are capable of being sustained. In arriving at this position, management
reviews each material tax benefit to assess whether a provision should be taken against full recognition of the benefit.
Deferred tax assets and liabilities require management judgement in determining the amounts to be recognised. In particular,
significant judgement is used when assessing the extent to which deferred tax assets should be recognised, with consideration
given to the timing and level of future taxable income, time limits on the availability of taxable losses for carry-forward and any
future tax planning strategies.
Key sources of estimation uncertainty
The key areas where estimates and assumptions are significant to the financial statements are described below.
Inventory provisions
Inventories are carried at the lower of cost and net realisable value, which is calculated as the estimated sales proceeds less costs
of sale. Factors considered in the determination of net realisable value are the ageing, category and condition of inventories,
recent inventory utilisation and forecasts of projected inventory utilisation. Reviews of provisions held against damaged, obsolete
and slow-moving inventory are carried out at least quarterly by management and these reviews require the application of
judgement and estimates. Changes to these estimates could result in changes to the net valuation of inventory. At 5 April 2020,
the Group had net inventories of $57,995,000 (2019: $49,122,000).
Goodwill
The carrying amount of goodwill has been tested for impairment by estimating the value in use of the cash-generating units to
which it has been allocated. Note 12 outlines the significant assumptions made in performing the impairment tests.
Lease term
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise
an extension option, or not utilise a break clause. Extension options (or periods after break clauses) are only included in the lease
term if the lease is reasonably certain to be extended (or break clause not utilised).
Uncertain tax provisions
The Group operates in many countries and is subject to taxes in numerous jurisdictions. Management uses judgement to assess
the recoverability of tax assets such as whether there will be sufficient future taxable profits to utilise losses. The Group is subject
to periodic tax audits by local authorities on a range of tax matters in relation to corporate tax and transfer pricing. Management
applies judgement in estimating the provision to cover the economic outflow associated with any potential tax audits.
www.volex.com
Volex plc
Annual Report and Accounts 2020
91
26523-Volex-Annual-Report-Financials-2020.indd 91
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:36 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
3. Segment information
The internal reporting provided to the Group’s Board for the purpose of resource allocation and assessment of Group
performance is based upon the nature of the products which the Group supplies. In addition to the operating divisions, a Central
division exists to capture all of the corporate costs incurred in supporting the operations.
Power
Products
The sale and manufacture of power cords, duck heads and related products that are sold to manufacturers of a
broad range of electrical and electronic devices and appliances. Volex products are used in laptops, PCs, tablets,
printers, TVs, games consoles, power tools, kitchen appliances and electric and autonomous vehicles.
Integrated
Manufacturing
Services
The sale and manufacture of a broad range of higher-level assemblies and connectors (ranging from high-
speed copper cables to complex multi-branch high reliability systems) that transfer electronic, radio-frequency
and optical data.
Central
Corporate costs that are not directly attributable to the manufacture and sale of the Group’s products but
which support the Group in its operations. Included within this division are the costs incurred by the executive
management team and the corporate head office.
The Board believes that the segmentation of the Group based upon product characteristics allows it to best understand the
Group’s performance and profitability. The Group consider the executive members of the Company’s Board and the Chief
Operating Officer to be the chief operating decision makers. The following is an analysis of the Group’s revenues and results by
reportable segment.
53 weeks to 5 April 2020
52 weeks to 31 March 2019
Revenue
$’000
Profit/(loss)
$’000
Revenue
$’000
Profit/(loss)
$’000
Power Products
Integrated Manufacturing Services
Unallocated Central costs
171,008
220,346
–
Divisional results before share-based payments and adjusting items
391,354
Adjusting operating items
Share-based payment charge (see note 28)
Operating profit
Share of net loss from associates and joint ventures
Finance income
Finance costs
Profit before taxation
Taxation
Profit after taxation
198,885
173,219
–
372,104
14,053
23,341
(5,764)
31,630
(5,808)
(8,737)
17,085
–
328
(1,552)
15,861
(1,165)
14,696
13,229
13,473
(5,096)
21,606
(6,226)
(2,388)
12,992
(210)
129
(1,276)
11,635
(2,429)
9,206
The accounting policies of the reportable segments are in accordance with the Group’s accounting policies. The adjusting
operating items charge of $5,808,000 (2019: $6,226,000) was split $58,000 (2019: $1,672,000) to Power Products, $5,750,000 (2019:
$3,589,000) to Integrated Manufacturing Services and $nil (2019: $965,000) to Central.
Divisional profit represents the profit earned by each division before the allocation of central operating expenses, adjusting
items, share-based payments, finance income, finance costs and income tax expense. This is the measure reported to the
Group’s Board for the purpose of resource allocation and assessment of performance. The divisional profits above are shown
after the following charges for depreciation and amortisation:
Depreciation and amortisation
Power Products
Integrated Manufacturing Services
Central
2020
$’000
2,738
3,590
191
6,519
2019
$’000
2,389
1,353
44
3,786
Asset and liability information is not provided to the Board on a divisional basis. In order to maximise the efficiency of asset
utilisation, the Group’s assets are employed cross-division and the Board believes that there is no meaningful basis on which
such assets and liabilities can be allocated.
92
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 92
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:36 PM
Financials
3. Segment information continued
Information about major customers
One (2019: one) of the Group’s customers individually accounts for more than 10% of total Group revenue. This customer operates
in the Integrated Manufacturing Services division and accounts for 17% (2019: 17%) of total Group revenue.
Geographical information
The Group’s revenue from external customers and information about its non-current assets (excluding deferred tax assets) by
geographical location are provided below:
Asia (excluding India)
North America
Europe
India
Revenue
Non-current assets
2020
$’000
140,133
145,081
106,140
–
2019
$’000
164,343
119,623
85,883
2,255
2020
$’000
21,469
25,826
28,400
–
2019
$’000
16,618
2,067
33,083
2
391,354
372,104
75,695
51,770
Revenue is attributed to countries on the basis of the geographical location of the Group entity recording the sale.
4. Adjusting items and share-based payments
Restructuring costs
Acquisition costs
Amortisation of acquired intangibles
Pension past service costs
Total adjusting operating items
Share-based payments (see note 28)
Total adjusting items and share-based payments before tax
Tax effect of adjusting items and share-based payments (see note 10)
Total adjusting items and share-based payments after tax
2020
$’000
–
156
5,652
–
5,808
8,737
14,545
(2,339)
12,206
2019
$’000
1,942
1,821
1,983
480
6,226
2,388
8,614
(221)
8,393
Adjusting items include costs that are one-off in nature and significant (such as restructuring costs, impairment charges
or acquisition-related costs) as well as the non-cash amortisation of intangible assets. The adjusting items and share-based
payments are included under the statutory classification appropriate to their nature but are separately disclosed on the face of
the income statement to assist in understanding the underlying financial performance of the Group.
During the current year, the Group has not incurred any restructuring costs (2019: $1,942,000). In the prior year, the Group
incurred $1,942,000 of restructuring spend following the downsizing of an Asian factory, the closure of the Indian factory and a
review of the organisational structure that resulted in the redundancy of some senior roles. These amounts were partially offset
by the release of a provision made some years ago which was no longer required.
Acquisition related costs of $156,000 (2019: $1,821,000) are split between $98,000 for Servatron Inc and $58,000 for Ta Hsing
Industries Limited. These costs are in respect of legal fees associated with the transactions.
Associated with the acquisitions, the Group has recognised certain intangible assets including customer relationships and
customer order backlogs. The amortisation of these intangibles is non-cash and totals $5,652,000 (2019: $1,983,000) for the
period, split $2,747,000 (2019: $nil) for Servatron Inc, $1,357,000 (2019: $980,000) for Silcotec Europe Limited, $106,000 (2019:
$251,000) for MC Electronics LLC and $1,442,000 (2019: $752,000) for GTK (Holdco) Limited.
In the prior year the Group recognised a one-off pension past service cost of $480,000 as a result of Guaranteed Minimum
Pension (GMP) equalisation following a legal judgement requiring all pension schemes conduct an equalisation of male and
female members’ benefits for the effect of unequal GMPs.
www.volex.com
Annual Report and Accounts 2020 93
Volex plc
26523-Volex-Annual-Report-Financials-2020.indd 93
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:36 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
5. Finance income
Interest on bank deposits
Lease interest income
Interest on preference shares
2020
$’000
2019
$’000
16
116
196
328
12
−
117
129
Finance income earned on financial assets was derived from loans and receivables (including cash and bank balances) only. No
other gains or losses have been recognised in respect of loans and receivables other than those disclosed above and impairment
losses recognised in respect of trade receivables (see note 18).
6. Finance costs
Interest on bank overdrafts and loans
Lease interest payable
Net interest expense on defined benefit obligations
Unwinding of discount on long-term provisions
Unwinding of deferred consideration
Other
Total interest costs
Amortisation of debt issue costs
Total finance costs
Notes
2020
$’000
29
22
26
559
553
47
−
154
−
1,313
239
1,552
2019
$’000
730
−
71
76
−
12
889
387
1,276
No gains or losses have been recognised on financial liabilities measured at amortised cost (including bank overdrafts and loans)
other than those disclosed above.
7. Profit/loss for the period
Profit/(loss) for the period has been arrived at after charging/(crediting):
Net foreign exchange (gain)/losses
Research and development costs
Depreciation of property, plant and equipment
Depreciation and impairment of right-of-use assets
Amortisation of intangible assets
Cost of inventories recognised as an expense
Write-down of inventories recognised as an expense
Reversal of write-downs of inventories recognised in the period
Staff costs
Impairment loss recognised on trade receivables
Reversal of impairment losses recognised on trade receivables
Loss on disposal of property, plant and equipment
Notes
14
15
13
9
18
18
2020
$’000
(431)
2,574
3,643
2,714
5,749
2019
$’000
(411)
2,644
3,318
–
2,451
220,587
220,443
2,317
(756)
90,247
938
(64)
839
3,495
–
73,309
378
(55)
324
94
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 94
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:36 PM
7. Profit/loss for the period continued
Research and development costs disclosed above comprise the following:
Employment costs
Raw materials and consultancy
Other
Financials
2020
$’000
2,308
513
60
2,881
2019
$’000
1,917
592
135
2,644
In the current year, no development costs were capitalised (2019: $nil).
Reconciliation of operating profit to underlying EBITDA (earnings before interest, tax, depreciation and amortisation, adjusting
items and share-based payment charge):
Operating profit
Add back:
Adjusting operating items
Share-based payment charge
Underlying operating profit
Depreciation of property, plant and equipment (note 14)
Depreciation of right-of-use assets (note 15)
Impairment of right-of-use assets (note 15)
Amortisation of intangible assets not acquired in a business combination (note 13)
Underlying EBITDA
8. Auditors’ remuneration
The analysis of auditors’ remuneration is as follows:
Fees payable to the Company’s auditors for the audit of the Company’s annual financial statements
Fees payable to the Company’s auditors and their associates for other audit services to the Group
– the audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
Other services
Total non-audit fees
2020
$’000
17,085
5,808
8,737
31,630
3,643
2,714
65
97
38,149
2019
$’000
12,992
6,226
2,388
21,606
3,318
–
–
468
25,392
2020
$’000
2019
$’000
325
403
728
2
2
326
306
632
–
–
www.volex.com
Annual Report and Accounts 2020 95
Volex plc
26523-Volex-Annual-Report-Financials-2020.indd 95
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:36 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
9. Staff costs
The average monthly number of employees (including Executive Directors) was:
Production
Sales and distribution
Administration
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Share-based payment charge (note 28)
Other pension costs (note 29)
2020
No.
5,340
369
449
6,158
2020
$’000
72,323
8,697
8,737
490
90,247
2019
No.
5,456
389
362
6,207
2019
$’000
62,461
8,020
2,388
440
73,309
In addition to the above, during the prior year the Group incurred $2,187,000 of severance costs and retention bonuses. These
were included within the net restructuring cost of $1,942,000 shown in note 4.
Details of Directors’ remuneration, share options, pension contributions, pension entitlements, fees for consulting services and
interests for the period required by the Companies Act 2006 are provided in the Directors’ Remuneration Report on pages 57 to
65 and form part of the financial statements.
Remuneration of key management – Directors of the parent Company
Short-term employee benefits
Post-employment benefits
Share-based payment charge
2020
$’000
1,447
82
940
2,469
2019
$’000
1,407
83
882
2,372
96
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 96
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:36 PM
Financials
10. Taxation
2020
Adjusting
items and
share-based
payments
$’000
Before
adjusting
items
$’000
Current tax – expense for the period
(9,525)
907
Current tax – adjustment in respect of
previous periods
Current tax – impact of S965 on deferred
foreign income
Total current tax
Deferred tax – credit for the period
Deferred tax – adjustment in respect of
previous periods
Total deferred tax (note 21)
Income tax expense
663
1,134
(7,728)
5,061
(837)
4,224
(3,504)
–
–
907
1,432
–
1,432
2,339
2019
Adjusting
items and
share-based
payments
$’000
Before
adjusting
items
$’000
(4,241)
(74)
709
108
(3,424)
1,211
(437)
774
(2,650)
–
–
(74)
295
–
295
221
Total
$’000
(8,618)
663
1,134
(6,821)
6,493
(837)
5,656
(1,165)
Total
$’000
(4,315)
709
108
(3,498)
1,506
(437)
1,069
(2,429)
UK corporation tax is calculated at 19% (2019: 19%) of the estimated assessable profit for the period. Taxation for other jurisdictions
is calculated at the rates prevailing in the respective jurisdictions.
The expense for the period can be reconciled to the profit per the income statement as follows:
Profit before tax
Tax at the UK corporation tax rate
Tax effect of expenses that are not deductible and income that is not
taxable in determining taxable profit
Tax effect of non-utilisation of tax losses
Adjustment in respect of previous periods
Effect of different tax rates of subsidiaries operating in other
jurisdictions
Tax effect of recognised deferred tax
Tax effect of loss utilisation
Tax expense and effective tax rate for the period before adjusting items
and share-based payments
Tax effect of adjusting items and share-based payments
Tax expense and effective tax rate for the period
2020
$’000
15,861
3,014
9,359
668
(960)
(9)
(5,866)
(2,702)
3,504
(2,339)
1,165
2020
%
100
19
59
4
(5)
(1)
(37)
(17)
22
(15)
7
2019
$’000
11,635
2,211
1,424
1,199
(272)
(41)
(289)
(1,582)
2,650
(221)
2,429
2019
%
100
19
12
10
(2)
(1)
(2)
(13)
23
(2)
21
Included in the non-deductible tax items is an uncertain tax provision of $5,776,000 (2019: credit of $441,000). The Group
recognises provisions for uncertain tax positions when the Group has a present obligation as a result of a past event and
management judge that it is probable that there will be a future outflow within the Group to settle the obligation. Uncertain
tax positions are assessed and measured within the jurisdictions that we operate in using the best estimate of the most likely
outcome. It is inevitable that the Group will be subject to routine tax audits or be in ongoing disputes with tax authorities in the
multiple jurisdictions it operates within.
A deferred tax credit of has been recognised as at 5 April 2020 on trading losses and short term timing items due to future
forecast taxable profits in certain regions. See note 21 for more details.
www.volex.com
Annual Report and Accounts 2020 97
Volex plc
26523-Volex-Annual-Report-Financials-2020.indd 97
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:36 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
11. Earnings per Ordinary share
The calculation of the basic and diluted earnings per share is based on the following data:
Profit for the purpose of basic and diluted earnings per share being net profit
attributable to equity holders of the parent
Adjustments for:
Adjusting items
Share-based payment charge
Tax effect of adjusting items and share-based payments
Underlying earnings
Notes
2020
$’000
2019
$’000
4
28
14,696
9,206
5,808
8,737
(2,339)
26,902
6,226
2,388
(221)
17,599
2020
No. shares
2019
No. shares
Weighted average number of Ordinary shares for the purpose of basic earnings per share
148,057,993
134,382,209
Effect of dilutive potential Ordinary shares/share options
7,339,875
3,892,712
Weighted average number of Ordinary shares for the purpose of diluted earnings per share
155,397,868
138,274,921
Basic earnings per share
Basic earnings per share
Adjustments for:
Adjusting items
Share-based payment charge
Tax effect of adjusting items and share-based payments
Underlying basic earnings per share
Diluted earnings per share
Diluted earnings per share
Adjustments for:
Adjusting items
Share-based payment charge
Tax effect of adjusting items and share-based payments
Underlying diluted earnings per share
2020
cents
9.9
3.9
6.0
(1.6)
18.2
2020
cents
9.5
3.7
5.6
(1.5)
17.3
2019
cents
6.9
4.6
1.8
(0.2)
13.1
2019
cents
6.7
4.5
1.7
(0.2)
12.7
The underlying earnings per share has been calculated on the basis of profit before adjusting items and share-based payments,
net of tax. The Directors consider that this calculation gives a better understanding of the Group’s earnings per share in the
current and prior period.
98
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 98
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:37 PM
12. Goodwill
Cost
At the beginning of the period
Business combinations
Exchange differences
At the end of the period
Accumulated impairment losses
At the beginning of the period
Impairment
Exchange differences
At the end of the period
Carrying amount at the end of the period
Carrying amount at the beginning of the period
Financials
2020
$’000
2019
$’000
20,028
9,131
(1,051)
5,328
15,099
(399)
28,108
20,028
2,497
–
(149)
2,348
25,760
17,531
2,695
–
(198)
2,497
17,531
2,633
Goodwill acquired in a business combination is allocated, at acquisition, to the business units that are expected to benefit from
that business combination. After recognition of impairment losses, the carrying amount of goodwill has been allocated as
follows:
Servatron
Ta Hsing
GTK
Silcotec
MC Electronics
Volex North America
Volex Europe
2020
$’000
7,563
1,568
9,402
3,979
953
1,752
543
25,760
2019
$’000
–
–
10,010
4,127
953
1,864
577
17,531
Goodwill is not amortised and is retranslated each year at the prevailing rate. The Group annually tests goodwill for impairment,
or more frequently if there are indications that goodwill might be impaired. The recoverable amount of goodwill is determined
from value in use calculations. The key assumptions used in the value in use calculations are those regarding the discount rates,
revenue and costs growth. Management estimates discount rates using pre-tax rates that reflect current market assessments of
the time value of money and the risks specific to the business unit. The growth rates are based upon industry growth forecasts.
The Group prepared a cash flow forecast derived from the most recently approved annual budget which has been extrapolated
over a five-year period. This assumes levels of revenue and profits based on both past performance and expectations for future
market development and takes into account the cyclicality of the business in which the CGU operates. Cash flows beyond the
five-year period are extrapolated in perpetuity using a zero percentage growth rate.
The rate used to discount the forecast cash flows is a pre-tax discount rate of 13.6% (2019: 11.8%), which reflects the Group’s
estimated cost of capital.
www.volex.com
Annual Report and Accounts 2020 99
Volex plc
26523-Volex-Annual-Report-Financials-2020.indd 99
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:37 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
13. Other intangible assets
Group
Cost
At 1 April 2018
Business combinations
Additions
Disposals
Exchange differences
At 31 March 2019
Business combinations
Additions
Disposals
Exchange differences
At 5 April 2020
Accumulated amortisation and impairment
At 1 April 2018
Amortisation charge for the period
Disposals
Exchange differences
At 31 March 2019
Amortisation charge for the period
Disposals
Exchange differences
At 5 April 2020
Carrying amount
At 5 April 2020
At 31 March 2019
At 1 April 2018
Acquired
patents
$’000
Capitalised
development
costs
$’000
Software
and licences
$’000
Customer
contracts
and
relationships
$000
1,336
3,301
–
–
–
(93)
1,243
–
–
–
(74)
1,169
1,336
–
–
(93)
1,243
–
–
(74)
1,169
–
–
–
–
–
–
(173)
3,128
–
–
–
(128)
3,000
2,903
398
–
(173)
3,128
–
–
(128)
3,000
–
–
398
4,813
–
163
(608)
(260)
4,108
49
40
–
(196)
4,001
4,713
70
(608)
(253)
3,922
97
–
(190)
3,829
172
186
100
–
13,053
–
–
(162)
12,891
10,500
–
–
(602)
22,789
–
1,983
–
(21)
1,962
5,652
–
(190)
7,424
15,365
10,929
–
Total
$’000
9,450
13,053
163
(608)
(688)
21,370
10,549
40
–
(1,000)
30,959
8,952
2,451
(608)
(540)
10,255
5,749
–
(582)
15,422
15,537
11,115
498
The capitalised development costs balance primarily relates to a Power Products product range, the ‘V-Novus’ range, which
was developed in FY2015 and is now in commercial production. The capitalised balance included engineering hours directly
attributable to the product and safety certification costs. The assets were fully amortised during the prior year.
Computer software is amortised over the estimated useful life, not exceeding five years. The amortisation charge for the period is
fully expensed within operating expenses.
Customer contracts and relationships relate to customer related intangible assets acquired as part of a business combination.
They are recognised at their fair value at the date of acquisition and are subsequently amortised on a straight-line basis on the
timing of projected cash flows of the contracts over their estimated useful lives. More details on business combinations are
included in note 34.
100
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 100
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:37 PM
Financials
14. Property, plant and equipment
Group
Cost
At 1 April 2018
Additions
Business combination
Disposals
Exchange differences
At 31 March 2019
Additions
Business combination
Disposals
Exchange differences
At 5 April 2020
Accumulated depreciation and impairment
At 1 April 2018
Depreciation charge for the period
Disposals
Exchange differences
At 31 March 2019
Depreciation charge for the period
Disposals
Exchange differences
At 5 April 2020
Carrying amount
At 5 April 2020
At 31 March 2019
At 1 April 2018
Freehold
land and
buildings
$’000
Long
leasehold
buildings
$’000
Plant and
machinery
$’000
Assets under
construction
$’000
Total
$’000
–
83
3,171
(30)
(118)
3,106
142
–
–
(122)
3,126
–
208
(30)
(4)
174
253
–
(14)
413
2,713
2,932
–
12,886
176
34
(311)
(43)
12,742
943
156
(3,890)
(113)
9,838
7,411
508
(306)
(40)
7,573
515
(3,431)
(90)
4,567
5,271
5,169
5,475
61,673
2,838
1,150
(7,713)
(648)
57,300
2,612
1,317
(12,375)
(589)
48,265
49,742
2,602
(6,882)
(481)
44,981
2,875
(11,431)
(443)
35,982
12,283
12,319
11,931
–
–
–
–
–
–
1,298
–
–
–
1,298
–
–
–
–
–
–
–
–
–
1,298
–
–
74,559
3,097
4,355
(8,054)
(809)
73,148
4,995
1,473
(16,265)
(824)
62,527
57,153
3,318
(7,218)
(525)
52,728
3,643
(14,862)
(547)
40,962
21,565
20,420
17,406
At 5 April 2020, the Group had $621,000 (2019: $406,000) contractual commitments for the acquisition of property, plant and
equipment.
Of the $3,643,000 (2019: $3,318,000) depreciation charge for the period, $2,889,000 (2019: $2,665,000) was expensed through cost
of sales and $754,000 (2019: $653,000) was expensed through operating expenses.
www.volex.com
Volex plc
Annual Report and Accounts 2020
101
26523-Volex-Annual-Report-Financials-2020.indd 101
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:37 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
15. Right-of-use assets
Cost
At 31 March 2019
Impact of adoption of IFRS 16
Adjusted balance at 1 April 2019
Additions
Business combination
Disposals
Exchange differences
At 5 April 2020
Accumulated depreciation and impairment
At 31 March 2019
Depreciation charge for the period
Impairment
Disposals
Exchange differences
At 5 April 2020
Carrying amount
At 5 April 2020
At 31 March 2019
Buildings
$’000
Vehicles
$’000
Other
$’000
Total
$’000
–
2,890
2,890
4,348
2,799
(8)
(639)
9,390
–
2,192
65
(8)
(128)
2,121
7,269
–
–
385
385
27
–
–
(65)
347
–
196
–
–
(4)
192
155
–
–
172
172
69
1,044
–
(38)
–
3,447
3,447
4,444
3,843
(8)
(742)
1,247
10,984
–
326
–
–
–
326
921
–
–
2,714
65
(8)
(132)
2,639
8,345
–
During the year the Group impaired the remaining right-of-use asset associated with a production site in North America which
was closed during the year.
16. Interests in associates and joint ventures
Where the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity,
it is classified as an associate or joint venture. The Group uses the equity method, where the Group’s share of post-acquisition
profits and losses are recognised in the Consolidated Statement of Comprehensive Income (except for losses in excess of the
Group’s investment in the associate or joint venture unless there is an obligation to make good those losses).
Investment in associates:
– Kepler SignalTek Limited
– Volex-Jem Co. Ltd
2020
$’000
2019
$’000
–
–
–
–
–
–
Kepler SignalTek Limited
On 12 April 2017, the Group acquired 26.09% of the voting shares in Kepler SignalTek Limited (a company incorporated in Hong
Kong) for consideration of $300,000. The company is focused on developing interconnect and finished device solutions for
medical OEM customers and also provides high performance data transmission and industrial cable assemblies from their
facility in China. As part of the shareholder agreement, Volex is entitled to appoint one of the three directors to the company.
102
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 102
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:37 PM
Financials
16. Interests in associates and joint ventures continued
Summarised financial information in respect of Kepler SignalTek Limited is set out below. The summarised information below
represents amounts before intra-group eliminations.
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net liabilities
Revenue
Profit/(loss) for the period
Other comprehensive income for the period
Total comprehensive income for the period
As at
5 April
2020
$’000
3,277
764
(2,744)
(1,675)
(378)
As at
31 March
2019
$’000
975
659
(435)
(1,825)
(626)
Period to
5 April
2020
$’000
Period to
31 March
2019
$’000
7,313
293
(44)
249
1,701
(1,059)
(39)
(1,098)
A reconciliation of the above summarised financial information to the carrying amount of the interests in the consolidated
financial statements is set out below:
Net liabilities of the associate
Proportion of the Group
Carrying amount of the Group’s interest in Kepler SignalTek Limited
As at
5 April
2020
$’000
(378)
26%
–
As at
31 March
2019
$’000
(626)
26%
–
Kepler SignalTek became profitable during the year and redeemed $25,000 of the preference shares owned by Volex (see note
18). Due to the cumulative losses the carrying amount of the Group’s equity in the venture is nil.
Volex-Jem Co. Ltd
On 12 September 2017, the Group completed its 43% investment in Volex-Jem Co. Ltd, a Taiwanese holding company. Volex’s
investment took the form of cable certification with sufficient customer cables certified in order that a minimum cable
production volume would pass through the joint arrangement, The costs associated with the certification process was $100,000.
The Taiwanese holding company has a 70% shareholding in a Chinese manufacturing company. Under the joint agreement,
Volex has the right to appoint one of three directors to the Board of the Taiwanese holding company.
The Group has announced its intentions to exit the venture.
17. Inventories
Raw materials
Work in progress
Finished goods
2020
$’000
31,070
2,480
24,445
57,995
2019
$’000
24,697
847
23,578
49,122
www.volex.com
Annual Report and Accounts 2020 103
Volex plc
26523-Volex-Annual-Report-Financials-2020.indd 103
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:37 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
18. Trade and other receivables
Trade receivables
Amounts receivable for the sale of goods
Allowance for doubtful debts
Other receivables
Other debtors
Investment in finance lease
Preference shares due from related parties
Prepayments
Due for settlement within 12 months
Due for settlement after 12 months
2020
$’000
57,822
(1,440)
56,382
6,238
1,702
1,990
2,545
12,475
7,987
4,488
12,475
2019
$’000
71,961
(654)
71,307
7,099
–
1,825
2,228
11,152
8,448
2,704
11,152
Trade receivables are classified as loans and receivables and are therefore measured at amortised cost.
During the prior year the Company invested $1,300,000 in 10% redeemable preference shares taking its total investment in
Kepler SignalTek Limited to $2,000,000 ($1,700,000 preference shares and $300,000 equity investment). During the current year
$25,000 of preference shares were redeemed. The remaining preference shares are expected to be redeemed by April 2022. As at
the balance sheet date the Group has no further commitments (2019: nil).
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
Upon adoption of IFRS 16 ‘Leases’ an investment in finance lease asset has been recognised in relation to the sub-lease of
a vacant property in North America. The sublease payments match the payments under the head lease. Interest income of
$116,000 (note 5) and interest expense of $116,000 (note 6) have been recognised in relation to the movement during the year. A
corresponding lease liability has been recognised in relation to the payments due under the head lease.
One (2019: one) of the Group’s customers individually accounts for more than 10% of total Group revenue. The largest customer
operates in the Integrated Manufacturing Services division and accounts for 17% (2019: 17%) of total Group revenue. Other
than this customer, the Group has no significant concentration of credit risk, with exposure spread over a large number of
counterparties and customers. At 5 April 2020, the largest customer represented 14% of the net trade receivables (2019: 17%).
The average credit period taken on sales of goods is 58 days (2019: 70 days). An allowance has been made for estimated
irrecoverable amounts from the sale of goods. This allowance has been determined by reference to the expected credit loss
which includes consideration of past default experience, an analysis of the counterparty’s current financial position, the current
economic environment and potential losses.
Included in trade receivables are receivables with a carrying value of $6,638,000 (2019: $9,705,000) for the Group which are past
due at the reporting date for which no provision has been made as there has not been a significant change in credit quality and
the amounts are still considered recoverable. The Group does not hold any collateral over these balances.
Ageing of past due but not impaired receivables
0–60 days
60–90 days
90–120 days
120+ days
2020
$’000
6,215
301
101
21
6,638
2019
$’000
4,856
1,776
1,399
1,674
9,705
104
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 104
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:38 PM
18. Trade and other receivables continued
Movement in the allowance for doubtful debts
Balance at the beginning of the period
Amounts acquired on business combination
Amounts written off during the period
Amounts recovered during the period
Increase/(decrease) in allowance recognised in profit or loss
Exchange differences
Balance at the end of the period
Financials
2020
$’000
2019
$’000
654
–
(25)
1
874
(64)
1,440
226
133
(13)
–
323
(15)
654
In determining the recoverability of trade receivables, the Group considers any change in the credit quality of the trade
receivable from the date credit was initially granted up to the reporting date. With the exception of the one customer noted
above (2019: one customer), the concentration of credit risk is limited due to the customer base being large and unrelated.
Given the economic uncertainty associated with Covid-19 the Directors have considered the impact upon IFRS 9 and the Group’s
provision matrix. After consideration of historical loss rates and the movement in credit scores observed for a range of customers
the expected credit loss provision has been increased to $841,000. The Group has not included the full disclosure requirements of
IFRS 9 in respect of the impairment allowance since the balance is immaterial.
Ageing of impaired trade receivables
Current
0–60 days
60–90 days
90–120 days
120+ days
19. Borrowings and lease liabilities
Unsecured borrowings at amortised cost
Bank overdrafts
Secured borrowings at amortised cost
Bank loans
Lease liabilities
Total borrowings at amortised cost
Amount due for settlement within 12 months
Amount due for settlement after 12 months
2020
$’000
646
249
29
85
431
1,440
2019
$’000
–
105
30
39
480
654
2020
$’000
2019
$’000
146
79
10,883
11,108
3,723
7,385
11,108
320
–
–
320
320
–
320
At 5 April 2020 debt issue costs of $510,000 are included within the bank overdraft balance shown above. Debt issue costs of
$97,000 were included in other debtors at 31 March 2019 because the bank loan balance was nil.
The total cash outflow for leases is $3,703,000 comprising lease repayments of $3,150,000 and $553,000 of interest on lease. The cost
of short-term and low-value leases was $2,317,000. Interest on lease liabilities is shown in note 6 and the maturity of lease liabilities is
shown in note 30.
The Group has outstanding commitments under short-term and low-value leases (2019: operating leases), which fall due as follows:
2019
USD
2020
USD
In less than 1 year
Between one and five years
After five years
www.volex.com
105
–
–
105
4,011
4,492
1,724
10,227
Annual Report and Accounts 2020 105
Volex plc
26523-Volex-Annual-Report-Financials-2020.indd 105
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:38 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
19. Borrowings and lease liabilities continued
The weighted average interest rates paid on the Group’s borrowings during the period were as follows:
Bank loans and overdrafts
2020
%
4.6
2019
%
3.0
During the 53 weeks ended 5 April 2020 the Group utilised a multi-currency combined revolving overdraft and guarantee facility.
The syndicate at year end comprises Lloyds Bank plc and HSBC UK Bank plc. During the year the $30m facility was extended
for 3 years. The new facility includes an additional $10 million uncommitted ‘accordion’ feature to provide further capacity for
potential future acquisitions. The amount available under the facility at 5 April 2020 was $30,000,000 (2019: $30,000,000). The
facility is secured by fixed and floating charges over the assets of certain Group companies.
The terms of the facility require the Group to perform quarterly financial covenant calculations with respect to leverage (adjusted
total debt to adjusted rolling 12-month EBITDA) and interest cover (adjusted rolling 12-month EBITDA to adjusted rolling
12-month interest). Breach of these covenants could result in cancellation of the facility. The Group was compliant with these
covenants during the period and remains compliant in the period subsequent to the period end.
During the year, professional fees of $659,000 were incurred in relation to the three-year extension of the facility. Of this, $225,000
was paid to the syndicate to agree to the extension. The $659,000 was capitalised and is being charged to the income statement
on a straight-line basis over the facility term.
At 5 April 2020, the facility incurred interest at a margin of 2.3% (2019: 3%) above LIBOR.
Also drawn under the facilities, and not included above, are guarantees and letters of credit amounting to $270,000 (2019:
$540,000).
Drawings under the facilities were made in various currencies. Total borrowings for the Group at 5 April 2020 can be analysed by
currency as follows:
USD
Euro
Pound sterling
Less: debt issue costs (note 26)
2020
$’000
735
–
–
735
(510)
225
2019
$’000
(8,902)
4,383
4,839
320
(97)
223
Undrawn borrowing facilities
At 5 April 2020, the Group had undrawn committed borrowing facilities available of $29,730,000 (2019: $29,140,000).
20. Trade and other payables
Trade payables
Trade payables
Other payables
Other taxes and social security
Accruals and deferred income
Due for settlement within 12 months
Due for settlement after 12 months
2020
$’000
2019
$’000
39,653
45,863
3,934
35,089
39,023
38,453
570
39,023
3,797
27,403
31,200
30,212
988
31,200
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The Directors
consider that the carrying amount of trade and other payables approximates to their fair value.
106
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 106
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:38 PM
Financials
21. Deferred tax
The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon during the
current and prior reporting periods.
At 1 April 2018
Acquisitions
(Charge)/credit to income
Exchange differences
At 31 March 2019
Acquisitions
(Charge)/credit to income
Exchange differences
At 5 April 2020
Unremitted
earnings
$’000
Intangible
assets
$’000
Trading
losses
$’000
Accelerated
tax
depreciation
$’000
Other short
term timing
differences
$’000
(2,008)
–
(754)
–
(2,762)
–
(100)
–
–
(1,231)
195
12
(1,024)
(2,205)
634
243
(2,862)
(2,352)
1,921
–
1,482
–
3,403
–
1,130
–
4,533
–
(224)
418
–
194
(455)
(83)
(5)
(349)
362
(81)
(272)
4
13
50
4,075
(283)
3,855
Total
$’000
275
(1,536)
1,069
16
(176)
(2,610)
5,656
(45)
2,825
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset)
for financial reporting purposes:
Deferred tax assets
Deferred tax liabilities
2020
$’000
8,955
(6,130)
2,825
2019
$’000
4,271
(4,447)
(176)
At the balance sheet date, the group had unused tax losses of $126,303,000 (2019: $161,989,000) available for offset against future
profits.
Included in the unrecognised tax losses are losses of $14,262,000 (2019: $42,942,000) that cannot be carried forward indefinitely.
Of this amount, $9,286,000 (2019: $9,333,000) expires during the next five accounting periods. Other losses may be carried
forward to future periods.
The carrying amount of deferred tax assets is reviewed at each reporting date and recognised to the extent that it is probable
that there are sufficient taxable profits to allow all or part to be recovered. Deferred tax assets have been recognised based on
future forecast taxable profits.
The recognised deferred tax asset of $8,955,000 consists of $4,533,000 tax losses, $1,139,000 share options, $1,157,000 stock
provisions, $901,000 general provisions, $600,000 bad debts and $625,000 intangible assets. Of the $8,955,000 (2019: $4,271,000)
recognised deferred tax asset, the Group expects to utilise $2,787,000 (2019: $1,292,000) within the next 12 months.
At the reporting date a deferred tax liability of $2,862,000 (2019: $2,762,000) has been recognised relating to the unremitted
earnings of overseas subsidiaries as the Group is able to control the reversal of these temporary differences and it is probable that
they will reverse in the foreseeable future. The temporary differences at 5 April 2020 represent only the unremitted earnings of
those overseas subsidiaries where remittance to the UK of those earnings may still result in a tax liability, principally as a result of
dividend withholding taxes levied by the overseas tax jurisdictions in which those subsidiaries operate.
On 17 March 2020, the previously enacted reduction in the UK corporation tax rate to 17% was reversed and hence the 19% rate
will continue to apply from 1 April 2020. The 19% rate has therefore been applied in the measurement of the Group’s UK based
deferred tax assets and liabilities as at 31 March 2020.
www.volex.com
Volex plc
Annual Report and Accounts 2020
107
26523-Volex-Annual-Report-Financials-2020.indd 107
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:38 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
22. Provisions
At 1 April 2018
Acquired through business combination
Charge in the period
Utilisation of provision
Unwinding of discount (note 6)
Exchange differences
At 31 March 2019
Reclassification for lease liabilities (IFRS 16)
Adjusted balance at 1 April 2019
Charge in the period
Utilisation of provision
Exchange differences
At 5 April 2020
Less: included in current liabilities
Non-current liabilities
Property
$’000
Corporate
restructuring
$’000
Other
$’000
Total
$’000
20
485
52
(146)
76
–
487
(248)
239
63
–
(5)
297
148
149
65
–
–
–
–
(2)
63
–
63
–
–
(7)
56
56
–
292
500
126
(7)
–
(22)
889
–
889
405
(276)
(21)
997
630
367
377
985
178
(153)
76
(24)
1,439
(248)
1,191
468
(276)
(33)
1,350
834
516
Property provisions
During the prior year the Group recognised an onerous lease provision of $485,000 relating to surplus property leased by MC
Electronics LLC identified on acquisition. This provision was being released evenly over the remaining term of the lease. Upon the
adoption of IFRS 16 (‘Leases’) the Group has used the practical expedient to allow the closing provision of $248,000 to be offset
against the right-of-use asset on transition.
Other
Other provisions include the Directors’ best estimate, based upon past experience, of the Group’s liability under specific product
warranties and legal claims. The timing of the cash outflows with respect to these claims is uncertain.
Included within this provision is a $500,000 liability associated with a pending legal case which was recognised upon acquisition
of MC Electronics LLC. This liability represents the Directors’ best estimate to settle the claim which had been identified prior
to acquisition. An indemnity in respect of this matter was obtained from the seller of MC Electronics LLC as part of the sale and
purchase agreement.
23. Share capital
At 1 April 2018
Acquisition of MC Electronics LLC
Placing
Acquisition of Silcotec Europe Limited
Issue of deferred bonus shares
Acquisition of GTK (Holdco) Limited
At 31 March 2019
Acquisition of Servatron
Issue of deferred bonus shares
Acquisition of Servatron – contingent consideration
Options exercised
At 5 April 2020
Par
value
$’000
Share
premium
$’000
Number of
shares
90,251,892
3,000,000
48,000,000
3,521,437
470,588
2,124,016
39,755
1,052
15,980
1,173
151
681
147,367,933
58,792
2,233,712
266,794
1,481,239
469,084
692
82
473
150
Total
$’000
46,877
3,178
47,924
2,799
151
2,395
103,324
2,574
82
473
150
7,122
2,126
31,944
1,626
–
1,714
44,532
1,882
–
–
–
151,818,762
60,189
46,414
106,603
108
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 108
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:38 PM
Financials
23. Share capital continued
During the current and prior year the Group issued shares to satisfy the requirement of share awards, deferred bonus awards
and fund acquisitions. During the current year the movements were as follows:
▷ Issued 2,233,712 shares as part of the initial consideration for the acquisition of Servatron.
▷ Issued 266,794 shares under the 2018 deferred share bonus plan.
▷ Issued 1,481,239 shares to the former owners of Servatron as the business met the required operating profit targets set out in
the acquisition agreement.
▷ Issued 469,084 shares under the share incentive scheme agreed as part of the acquisition of Servatron.
The prior year movements were:
▷ Issued 3,000,000 shares as part of the acquisition of MC Electronics LLC.
▷ Issued 48,000,000 ordinary shares at a price of 75 pence per share.
▷ Issued 3,521,437 shares as part of the acquisition of Silcotec Europe Limited.
▷ Issued 470,588 shares under the 2017 deferred share bonus plan.
▷ Issued 2,124,016 ordinary shares as part of the acquisition of GTK (Holdco) Limited.
Under the terms of the Group’s various share schemes, the following rights to subscribe for Ordinary shares are outstanding:
Date of grant
Option price (p)
Exercise period
Performance Share Plan
31 March 2016
1 December 2016
23 February 2017
1 December 2017
11 December 2018
24 March 2019
Long Term incentive Plan
10 September 2019
1 December 2019
Acquisition Retention Awards
11 December 2018
31 July 2019
31 July 2019
Deferred Bonus Plan
5 June 2018
11 June 2019
25
25
25
25
25
25
–
–
–
–
–
–
–
Number of shares
2020
2019
271,626
903,155
2,232,779
2,604,623
–
495,256
March 2019 – March 2026
December 2019 – December 2026
February 2020 – February 2027
December 2020 – December 2027
2,525,000
2,525,000
December 2021 – December 2028
2,230,000
2,225,000
March 2022 – March 2029
300,000
September 2022 – September 2029
December 2022 – December 2029
3,050,000
482,500
–
–
–
June 2019 – June 2022
March 2020 – March 2027
March 2021
June 2019
June 2020
3,333,333
4,000,000
2,000,000
1,481,239
–
–
–
266,794
432,040
–
17,008,893
14,349,452
For further details of the Group’s share option schemes see note 29.
Post year end 316,083 shares have been awarded to the executive management team in lieu of a cash bonus award. The shares
vest in June 2021 subject to continuous employment with the Group.
www.volex.com
Annual Report and Accounts 2020 109
Volex plc
26523-Volex-Annual-Report-Financials-2020.indd 109
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:38 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
24. Own shares and non-distributable reserves
Own shares
At the beginning of the period
Sale of shares
Purchase of shares
At end of the period
2020
$’000
1,890
(2,630)
1,764
1,024
2019
$’000
867
(75)
1,098
1,890
The own shares reserve represents both the cost of shares in the Company purchased in the market and the nominal share capital of
shares in the Company issued to the Volex Group plc Employee Share Trust to satisfy future share option exercises under the Group’s
share option schemes (see note 28).
The number of Ordinary shares held by the Volex Group plc Employee Share Trust at 5 April 2020 was 456,576 (2019: 2,159,277). The
market value of the shares as at 5 April 2020 was $592,000 (2019: $2,614,000).
Unless and until the Company notifies a trustee of the Volex Group plc Employee Share Trust, in respect to shares held in the Trust in
which a beneficial interest has not vested, rights to dividends in respect to the shares held in the Trust are waived.
During the year 2,652,701 (2019: 136,083) shares were utilised on the exercise of share awards. During the year the Company purchased
950,000 shares (2019: 1,000,000) at a cost of $1,764,000 ($1,098,000).
In December 2013, the Volex Group plc Employee Share Trust sold 3,378,582 shares at £1.16 per share to the open market. The average
price of shares held by the Trust at the time was £0.70 with a number of the shares having been issued by Volex plc to the Trust at
nominal value. In accordance with the Accounting Standards, the difference between the sales price of £1.16 and the average share
price of £0.70 was recorded as a non-distributable reserve, giving rise to the $2,455,000 non-distributable reserve balance.
25. Dividends
Dividends
Declared during the financial year:
Interim dividend for the year ended 5 April 2020: 1p per share (2019: nil)
Proposed after the end of the year and not recognised as a liability
Final dividend for the year ended 5 April 2020: 2p per share (2019: nil)
26. Analysis of net funds
2020
$’000
2019
$’000
1,956
1,956
3,702
–
–
–
Lease
liability
$’000
Debt issue
costs
$’000
At 1 April 2018
Cash flow
Exchange differences
Amortisation of debt issue costs
At 31 March 2019
IFRS 16 Transition
Adjusted balance at 1 April 2019
Business combination
Cash flow
New leases entered into during the year
Lease interest
Exchange differences
Amortisation of debt issue costs
At 5 April 2020
Cash
and cash
equivalents
$’000
22,981
(1,870)
(518)
–
20,593
–
20,593
(5,771)
17,107
–
–
(280)
–
31,649
Bank
loans
$’000
(13,550)
12,826
724
–
–
–
–
(135)
56
–
–
–
–
–
–
–
–
–
(5,777)
(5,777)
(4,380)
3,703
(4,445)
(553)
569
–
(79)
(10,883)
Total
$’000
9,948
10,956
173
(387)
20,690
(5,777)
(14,913)
(10,286)
21,525
(4,445)
(553)
(285)
(238)
21,197
517
–
(33)
(387)
97
–
97
–
659
–
–
(8)
(238)
510
Debt issue costs relate to bank facility arrangement fees. During the year, $659,000 of professional fees were capitalised in
relation to the three-year extension obtained on the senior credit facility (2019: nil). The resulting debt issue cost is being
amortised over the remaining life of the facility.
110
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 110
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:38 PM
27. Notes to the statement of cash flows
Profit for the period
Adjustments for:
Finance income
Finance costs
Income tax expense
Share of net loss from associates
Depreciation on property, plant and equipment
Depreciation on right-of-use assets
Impairment of right-of-use assets
Amortisation of intangible assets
Loss on disposal of property, plant and equipment
Share-based payment charge
(Decrease)/increase in provisions
Effects of foreign exchange rate changes
Operating cash flow before movement in working capital
(Increase)/decrease in inventories
Decrease/(increase) in receivables
Increase/(decrease) in payables
Movement in working capital
Cash generated from/(used in) operations
Cash generated from/(used in) operations before adjusting operating items
Cash utilised by adjusting operating items
Taxation paid
Interest paid
Net cash generated from/(used in) operating activities
Cash and cash equivalents
Cash and bank balances
Bank overdrafts
Financials
2020
$’000
14,696
(328)
1,552
1,165
–
3,643
2,714
65
5,749
838
8,737
(1,090)
5
37,746
(2,943)
20,499
2,041
19,597
57,343
58,749
(1,406)
(5,135)
(473)
51,735
2020
$’000
32,305
(656)
31,649
2019
$’000
9,206
(129)
1,276
2,429
210
3,318
–
–
2,451
324
2,388
(390)
67
21,150
606
(10,196)
(15,068)
(24,658)
(3,508)
(236)
(3,272)
(2,501)
(734)
(6,743)
2019
$’000
20,913
(320)
20,593
Cash and cash equivalents comprise cash held by the Group, short-term bank deposits with an original maturity of three months
or less and bank overdrafts. The carrying amount of these assets approximates their fair value. Included within cash and cash
equivalents is $1,071,000 (2019: $163,000) held in trust which can only be used for Volex employees.
Restatement: The Group purchases its own shares through its employee benefit trust in order to settle share-based payment
transactions. In the previous period, the Group incurred a cash outflow of $1,023,000 associated with the purchase of shares by
the employee benefit trust. This outflow was included within investing activities in the statement of cash flows. The cash outflow
should have been reported within financing activities. The Group has restated the previous period to correct for this error. The
impact of this correction on the 52 weeks ended 31 March 2019 is to increase net cash used in investing activities and cash
flows before financing activities by $1,023,000 and to decrease net cash generated from financing activities by $1,023,000. The
correction of the classification of the cash outflow for the 52 weeks ended 31 March 2019 had no effect on the Group’s profit after
tax, consolidated statement of financial position or the Group’s basic and diluted earnings per share.
www.volex.com
Volex plc
Annual Report and Accounts 2020
111
26523-Volex-Annual-Report-Financials-2020.indd 111
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:39 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
28. Share-based payments
The Group has four equity-settled share-based payment arrangements in operation.
Performance Share Plan (‘PSP’)
The PSP is a discretionary long-term incentive scheme for Executive Directors and senior managers. It provides for the award of
nominal value options which vest after at least three years, subject to performance conditions. Options issued under the PSP are
exercisable between three and ten years from the date of grant, subject to the continued employment of the participant and
achievement of performance targets. All awards under the PSP have an exercise price of 25p, which is equivalent to the nominal
value of the underlying Ordinary shares. During the year the PSP scheme rules expired and was replaced with the new Long Term
Incentive Plan (‘LTIP’). Details of how the scheme operates are explained on page 64 of the Directors’ Remuneration Report.
Long Term Incentive Plan (‘LTIP’)
The LTIP is a discretionary long-term incentive scheme for Executive Directors and senior managers. It provides for the award
of nominal value options which vest after at least three years, subject to performance conditions. Options issued under the LTIP
are exercisable between three and ten years from the date of grant, subject to the continued employment of the participant
and achievement of performance targets. All awards under the LTIP are nil cost. Full details of how the scheme operates are
explained on page 64 of the Directors’ Remuneration Report.
Deferred Bonus Plan (‘DBP’)
The DBP is for the executive management team. A percentage of any cash bonus is deferred to shares and held in trust for
a period which is determined by the Remuneration Committee. The percentage of any cash bonus to be deferred is at the
discretion of the Remuneration Committee. The only vesting condition is continuing employment.
Acquisition Retention Awards (‘ARA’)
The ARA are used to incentivise and retain key employees in acquired businesses who are deemed to deliver a significant
contribution to the integration of the acquired business into the Group and have an important role in the continuing success of
the acquired business. These awards have vesting periods that are determined by the specific circumstances of the acquisition
and vest based on continued employment as well as performance measures that relate to the performance of the Group or the
acquired business. Awards consist of shares or the right to acquire shares for a nominal value.
Details of the share awards outstanding and the weighted average exercise price of those awards are as follows:
Outstanding at 1 April 2018
Granted during the period
Exercised during the period
Expired during the period
Outstanding at 31 March 2019
Exercisable at 31 March 2019
Outstanding at 1 April 2019
Granted during the period
Exercised during the period
Expired during the period
PSP
Number
LTIP
Number
9,671,932
2,255,000
(136,083)
(1,678,191)
10,112,658
2,499,573
10,112,658
–
–
–
–
–
–
–
DBP
Number
470,588
ARA
Number
Total
Number
–
10,142,520
266,794
4,000,000
6,521,794
(470,588)
–
–
–
(606,671)
(1,678,191)
266,794
4,000,000
14,379,452
–
–
2,499,573
266,794
4,000,000
14,379,452
300,000
3,532,500
432,040
5,962,478
10,227,018
(3,878,781)
(304,096)
–
–
(266,794)
(3,147,906)
(7,293,481)
–
–
(304,096)
Outstanding at 5 April 2020
6,229,781
3,532,500
432,040
6,814,572
17,008,893
Exercisable at the 5 April 2020
1,174,781
–
–
–
1,174,781
Weighted
average
exercise
price (p)
24
9
6
(25)
18
22
18
0
(9)
(25)
14
25
Of the share awards that expired during the period, 25,000 (2019: 1,451,385) lapsed in respect of leavers and 279,096 (2019: 226,806)
expired due to failure to meet performance conditions.
The awards outstanding at 5 April 2020 had a weighted average remaining contractual life of nine years (2019: nine years).
Of the 17,008,893 awards outstanding at 5 April 2020, 6,229,781 had an exercise price of £0.25 and 10,779,112 had an exercise price
of £nil.
Of the 14,379,452 awards outstanding at 31 March 2019, 10,112,658 had an exercise price of £0.25 and 4,266,794 had an exercise
price of £nil.
The aggregate of the estimated fair values of the options granted during the period was $11,282,000 (2019: $6,609,000).
112
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 112
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:39 PM
Financials
28. Share-based payments continued
Of the awards granted during the period, 432,040 were deferred bonus plan awards with an exercise price of £nil, a service
period of one year and no performance conditions. 5,962,478 awards were acquisition retention awards with an exercise price
of £nil, a service period of three years and performance conditions based on the performance of the acquired business and
the achievement of synergies. The remaining 3,832,500 awards were performance share plan awards with a nil exercise price, a
service period of three years and performance conditions based on the business performance and shareholder return.
The fair value of awards granted in the period was calculated at the date of grant using a Monte Carlo binomial model or a Black–
Scholes model, depending on the vesting criteria of each award. Market based performance conditions are taken into account in
the calculation of the fair values. Valuation model inputs were as follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life (years)
Risk-free rate
Expected dividends
2020
LTIP
£0.95
£nil
33%
3.5
0.5%
2.7%
2019
PSP
£0.90
£0.25
38%
3.5
0.7%
0.0%
During the period the previous PSP scheme rules expired and were replaced by the new LTIP.
Expected volatility was determined with reference to historical volatility of the Group’s share price over the previous three
years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-
transferability, exercise restrictions and behavioural considerations.
During the year the ARA awards on 31 July 2019 were valued at their market price on the day of grant, adjusted for the expected
dividend yield. The DBP awards were valued at their market price on the day of grant, being £0.80 on 5 June 2018. Post year end
316,083 shares have been awarded to the executive management team in lieu of a cash bonus award. The shares vest in June
2021 subject to continuous employment with the Group.
During the prior year the ARA and DBP awards were valued at their market price on the day of grant, being £0.89 on 11
December 2018 and £0.80 on 5 June 2018 respectively. Post year end 458,076 shares have been awarded to the executive
management team in lieu of a cash bonus award. The shares vest in June 2020 subject to continuous employment with the
Group.
During the period, the total expense recognised for share-based payment arrangements was as follows:
PSP
LTIP
DBP
ARA
Share-based payment charge
Employers’ tax charge in relation to share awards
2020
$’000
1,424
607
445
5,577
8,053
684
8,737
2019
$’000
1,278
–
409
305
1,992
396
2,388
www.volex.com
Volex plc
Annual Report and Accounts 2020
113
26523-Volex-Annual-Report-Financials-2020.indd 113
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:39 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
29. Retirement benefit obligations
Defined contribution schemes
The Group operates a number of defined contribution pension schemes. Contributions to the defined contribution schemes are
charged to the income statement as they fall due. The Group has no further obligations once the contributions have been made.
The total cost charged to the Group’s income statement in the period was $317,000 (2019: $440,000).
Defined benefit schemes
The Group operates two defined benefit plans.
Volex Executive Pension Scheme
Volex plc (the Company) operates a defined benefit pension arrangement called the Volex Executive Pension Scheme (the
Scheme). The Scheme provides benefits based on final salary and length of service on retirement, leaving service or death.
The Scheme is subject to the Statutory Funding Objective under the Pensions Act 2004. A valuation of the Scheme is carried
out at least once every three years to determine whether the Statutory Funding Objective is met. As part of the process the
Company must agree with the Trustees of the Scheme the contributions to be paid to meet the Statutory Funding Objective.
The future contributions required to meet the Statutory Funding Objective do not currently affect the balance sheet of the
Scheme in these financial statements.
The most recent comprehensive actuarial valuation of the Scheme was carried out as at 31 July 2016. An actuarial valuation as
at 31 July 2019 is currently in progress. In the event that the valuation reveals a larger deficit than expected the Company may
be required to increase contributions above those set out in the existing Schedule of Contributions. Conversely, if the position is
better than expected, contributions may be reduced.
In accordance with the Schedule of Contributions dated October 2017 the Company have agreed to pay contributions of
£803,300 p.a. (payable in quarterly instalments) over the period to 4 April 2021.
The Scheme is managed by a Trustee Company, the board of which is appointed in part by the Company and in part from
elections by members of the Scheme. The Trustee has responsibility for obtaining valuations of the fund, administering benefit
payments and investing the Scheme’s assets. The Trustee delegates some of these functions to their professional advisers where
appropriate.
The Scheme exposes the Company to a number of risks:
▷ Investment risk. The Scheme holds investments in some asset classes which have volatile market values and while these
assets are expected to provide the real returns over the long term, the short-term volatility can cause additional funding to be
required if a deficit emerges.
▷ Interest rate risk. The Scheme’s liabilities are assessed using market yields on high-quality corporate bonds to discount the
liabilities. As the Scheme holds assets such as equities the value of the assets and liabilities may not move in the same way.
▷ Inflation risk. A significant proportion of the benefits under the Scheme are linked to inflation. Although the Scheme’s assets
are expected to provide a good hedge against inflation over the long term, movements over the short term could lead to
deficits emerging.
There were no scheme amendments, curtailments or settlements during the period.
The key assumptions utilised are:
Discount rate
Future pension increases
Inflation assumption (RPI)
Inflation assumption (CPI)
Valuation at
2020
2.1%
2.2%
3.0%
2.2%
2019
2.4%
2.5%
3.5%
2.5%
114
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 114
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:39 PM
29. Retirement benefit obligations continued
The following mortality assumptions have been made:
Future life expectancy for a pensioner currently aged 65
– Male
– Female
Future life expectancy at age 65 for a non-pensioner currently aged 55
– Male
– Female
Financials
2020
Years
2019
Years
22.5
24.0
23.0
24.7
22.0
23.0
22.5
23.7
Significant actuarial assumptions for the determination of the defined benefit obligations are the discount rate, inflation and
life expectancy. The sensitivity analysis below has been determined based on reasonably possible changes of the assumptions
occurring at the end of the reporting period, assuming that all other assumptions are held constant:
Assumption
Discount rate
Inflation
Life expectancy
Change in assumption
Impact on scheme liabilities
Increase/decrease by 0.5%
($1,142,000)/$1,270,000
Increase/decrease by 0.5%
Increase/decrease by 1 year
$846,000/($790,000)
$801,000/($830,000)
In reality one might expect interrelationships between the assumptions, especially between discount rate and inflation. The
above analysis does not take the effect of these interrelationships into account.
Amounts recognised in income statement
Interest cost
Expected return on scheme assets
Finance costs (note 6)
Past service costs
Total charge to the Income statement
2020
$’000
(476)
429
(47)
–
(47)
2019
$’000
(531)
460
(71)
(480)
(551)
During the prior year the Group recognised a one-off pension past service cost of $480,000 as a result of Guaranteed Minimum
Pension (GMP) equalisation. This is a past service cost that pension schemes that had ‘contracted out’ of the State Earnings
Related Pension Scheme must now recognise following the Lloyds Banking Group judgement in October 2018. This judgement
requires the equalisation of male and female members’ benefits for the effect of unequal GMPs.
No other amounts have been recognised in the income statement in the current or prior year.
An actuarial loss of $1,343,000 (2019: gain of $305,000) has been reported in the statement of comprehensive income.
Cumulative actuarial gains/(losses) recognised in equity
At the beginning of the period
Net actuarial (losses)/gains recognised in the period
At the end of the period
Amounts recognised in the statement of financial position
Fair value of scheme assets
Present value of defined benefit obligations
Deficit in scheme recognised in the statement of financial position
Current liabilities
Non-current liabilities
2020
$’000
(2,533)
(1,343)
(3,876)
2020
$’000
15,887
(18,585)
(2,698)
(982)
(1,716)
(2,698)
2019
$’000
(2,838)
305
(2,533)
2019
$’000
17,978
(20,413)
(2,435)
(975)
(1,460)
(2,435)
www.volex.com
Volex plc
Annual Report and Accounts 2020
115
26523-Volex-Annual-Report-Financials-2020.indd 115
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:39 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
29. Retirement benefit obligations continued
The Group has contributed $994,000 to the defined benefit pension plans in the period ended 5 April 2020 (2019: $898,000).
Movements in the present value of defined benefit obligations
At the beginning of the period
Interest cost
Past service costs
(Loss)/gains from changes to demographic assumptions
Experience loss on liabilities
Remeasurement loss
Benefits paid
Foreign exchange
At the end of the period
Movements in the fair value of scheme assets
At the beginning of the period
Interest on assets
Actuarial (losses)/gains
Contributions from the sponsoring company
Benefits paid
Foreign exchange
At the end of the period
Assets
Asset category
Quoted equity instruments
Debt instruments
Cash
Total
2020
$’000
2019
$’000
(20,413)
(22,152)
(476)
–
(428)
(469)
(201)
2,213
1,189
(531)
(480)
594
–
(772)
1,312
1,616
(18,585)
(20,413)
2020
$’000
2019
$’000
17,978
18,835
429
(245)
994
(2,213)
(1,056)
15,887
2020
$’000
7,793
6,930
1,164
15,887
460
483
898
(1,312)
(1,386)
17,978
2019
$’000
10,486
7,167
325
17,978
None of the fair values of the assets shown above include any of the Company’s own financial instruments or any property
occupied or other assets used by the Company (2019: $nil).
The actual return on scheme assets for the period was a gain of $184,000 (2019: a gain of $926,000).
The estimated amount of contributions expected to be paid to the Scheme during the 52 weeks to 4 April 2021 is $982,000 (2020:
$975,000).
Overseas scheme
In Indonesia the Group operates an unfunded defined benefit scheme. The scheme requires continuous employment with a
lump sum payable upon retirement. The actuarial liability as at the 5 April 2020 has been calculated as $776,000 by an external
actuary. During the prior year the liability of $535,000 was classified within other creditors.
116
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 116
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:39 PM
Financials
30. Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising
the return to stakeholders through the optimisation of the debt and equity balance.
The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 19, cash and cash equivalents
and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as contained in
the statement of changes in equity.
The Board reviews the capital structure on a regular basis, including facility headroom, forecast working capital and capital
expenditure requirements.
The Group has a multi-currency revolving credit facility (‘RCF’), which had an available limit of $30,000,000 as at 5 April 2020
(2019: $30,000,000). At this date, no term loans were drawn down under this facility (2019: nil). Under the RCF, a cash pool facility
exists denominated in a variety of currencies. At 5 April 2020, the cash pool was in a net cash position of $10,065,000 (2019: net
overdraft position of $320,000). The average combined utilisation during the period was $2,734,000 (2019: $7,682,000). The RCF
expires on 23 July 2022.
Included in note 19 is a description of undrawn facilities as at the reporting date.
The terms of the RCF require the Group to perform quarterly financial covenant calculations with respect to leverage (adjusted
total debt to adjusted rolling 12-month EBITDA) and interest cover (adjusted rolling 12-month EBITDA to adjusted rolling
12-month interest). Breach of these covenants could result in cancellation of the facility. The Group was compliant with these
covenants during the year and has continued to operate within these covenants in the period from 5 April 2020 to the date of
issue of these financial statements.
The Board is therefore confident that the combination of the above facility and the cash on hand at the end of the year provides
adequate liquidity headroom for the successful execution of the Group’s operations.
The Group is not subject to externally imposed capital requirements.
Financial instruments
The Group’s principal financial instruments comprise bank borrowings and overdrafts, cash and short-term deposits, trade and
other receivables and trade and other payables. The Group also enters into derivative transactions, principally forward copper
contracts to manage the commodity price risk arising from its operations and forward currency contracts to manage the
currency risks arising from its operations.
Set out below is a comparison by category of carrying amounts and fair values of all the Group’s financial instruments that are
carried in the financial statements. Except as detailed below, the Directors consider that the carrying amounts of the financial
assets and financial liabilities recorded at amortised cost approximate their fair values.
Financial assets – loans and receivables
Cash
Trade and other receivables
Financial liabilities – amortised cost
Interest-bearing loans and borrowings
Lease liabilities
Trade and other payables
Book value
2020
$’000
Book value
2019
$’000
Fair value
2020
$’000
Fair value
2019
$’000
32,305
59,656
20,913
73,643
32,305
59,656
20,913
73,643
(225)
(10,883)
(66,824)
(320)
(735)
–
(10,883)
(320)
–
(70,432)
(66,824)
(70,432)
Financial derivatives for which hedge accounting has been applied
Derivative financial instruments
(1,819)
374
(1,819)
374
Financial derivatives for which hedge accounting has
not been applied
Derivative financial instruments
–
–
–
–
The fair values of the financial derivatives above are categorised within Level 2 of the fair value hierarchy on the basis that their
fair value has been calculated by management using inputs that are observable in active markets which are related to the
individual asset or liability.
www.volex.com
Volex plc
Annual Report and Accounts 2020
117
26523-Volex-Annual-Report-Financials-2020.indd 117
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:39 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
30. Financial instruments continued
Financial risk management
Activities related to financing, monitoring and managing the financial risks relating to the operations of the Group are co-
ordinated centrally. These risks include market risk (interest rate risk, currency risk and commodity price risk), credit risk and
liquidity risk.
The Group seeks to minimise these risks by using derivative financial instruments to hedge these risk exposures and external
borrowings denominated in currencies that match the net asset currency profile of the Group. The Board reviews and agrees
policies for managing these risks and they are summarised below. The Group also monitors the market price risk arising from
all financial instruments. It is, and has been throughout the periods under review, the Group’s policy that no trading in financial
instruments shall be undertaken.
Market risk
The Group’s activities expose it primarily to the financial risks of changes in interest rates, foreign currency exchange rates and
copper commodity prices.
Interest rate risk
The Group’s interest rate risk arises principally from borrowings issued at variable rates which expose the Group to cash flow
interest rate risk. During the current and prior year, the Group invested in 10% cumulative preference shares with its associate,
Kepler SignalTek Limited. The following table sets out the carrying amount, by maturity, of the Group’s financial instruments that
are exposed to interest rate risk:
2020
Fixed rate
Trade and other receivables
Bank loans and borrowings
Floating rate
Cash assets
Bank loans and borrowings
2019
Fixed rate
Within
1 year
$’000
–
(79)
32,305
(656)
Within
1 year
$’000
1–2
years
$’000
1,990
–
–
–
2–3
years
$’000
3–4
years
$’000
4–5
years
$’000
More than
5 years
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1–2
years
$’000
2–3
years
$’000
3–4
years
$’000
4–5
years
$’000
More than
5 years
$’000
Trade and other receivables
–
1,825
Floating rate
Cash assets
Bank loans and borrowings
20,913
(320)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
$’000
1,990
(79)
32,305
(656)
Total
$’000
1,825
20,913
(320)
Interest rate and sensitivity
The Group manages its exposure to interest rate risk by maintaining an appropriate mix between fixed and floating rate
borrowings, and by the use of interest rate swap contracts. Hedging activities are evaluated regularly to align with interest rate
views and defined risk appetite, ensuring the most cost-effective hedging strategies are applied.
Management regularly reviews the interest rate risk exposure and is currently of the view that the Group should not fix its
interest rate. At 5 April 2020, the Group is exposed to floating rate interest on borrowings at a margin of 2.3% (31 March 2019: 3%)
above LIBOR.
Had interest rates been 0.5% higher/0.25% lower in the period, and all other variables were held constant, Group profit before tax
would have been $12,000 lower/$6,000 higher (2019: $36,000 lower/$18,000 higher). A 0.5% increase/0.25% decrease interest rate
sensitivity test has been performed since this represents the Directors’ assessment of a reasonably possible change in interest rates.
Foreign currency risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily
with respect to the euro, Chinese renminbi and pound sterling. Foreign exchange risk arises from future commercial
transactions, recognised assets and liabilities and net investments in foreign operations.
The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. The
Group’s policy is to hedge its related translation exposures through the designation of certain amounts of its foreign currency
denominated debt as a hedging instrument.
118
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 118
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:40 PM
Financials
30. Financial instruments continued
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting
date are as follows:
USD
Euro
Chinese renminbi
Pound sterling*
Indian rupee
Other
Liabilities
Assets
2020
$’000
34,183
3,662
14,377
9,132
768
6,214
2019
$’000
2020
$’000
29,709
75,885
7,544
14,313
12,787
947
3,297
8,289
3,675
(1,160)
274
3,085
2019
$’000
70,143
13,123
3,933
4,363
996
2,372
* Under the RCF, a cash pool facility exists over two entities, denominated in a variety of currencies. At 5 April 2020, the overall cash pool was in a
net cash position of $10,065,000 (2019: net cash overdraft position of $320,000).
Foreign currency sensitivity
The following table details the Group’s sensitivity to a 10% increase and decrease in US dollar against the relevant foreign
currencies. The 10% rate used represents management’s assessment of the reasonably possible change in foreign exchange
rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their
translation at the period end for a 10% change in foreign currency rates. The sensitivity analysis includes both external loans and
loans to foreign operations within the Group where the denomination of the loan is in a currency other than the currency of
the lender or the borrower. A 10% change in foreign exchange rate sensitivity test has been performed since this represents the
Directors’ assessment of a reasonably possible change in foreign exchange rates.
Pounds sterling impact
Euro impact
Chinese renminbi impact
2020
$’000
2019
$’000
2020
$’000
2019
$’000
2020
$’000
2019
$’000
10% depreciation of US dollar against
foreign currency
(i) Profit before tax
(ii) Equity*
10% appreciation of US dollar against
foreign currency
(i) Profit before tax
(ii) Equity*
(1,860)
(8,922)
(666)
(9,393)
(668)
2,049
(55)
2,187
(1,338)
–
1,522
7,300
546
7,685
547
(1,676)
45
(1,789)
1,095
–
(988)
–
808
–
(i.) The main exposure impacting profit before tax is on Chinese renminbi monetary liabilities in the Group at the reporting date.
(ii.) This is mainly attributable to changes in the carrying value of intercompany loans for which settlement is not planned.
* Excludes any deferred tax impact.
www.volex.com
Volex plc
Annual Report and Accounts 2020
119
26523-Volex-Annual-Report-Financials-2020.indd 119
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:40 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
30. Financial instruments continued
Copper commodity price risk
Copper price volatility is the single largest commodity price exposure facing the Group. Many of the Group’s products, in
particular power cords used in the Power Products division, are manufactured from components that contain significant
amounts of copper. Where possible, the Group will pass on copper price movements to its customers. In order to mitigate the
remaining volatility associated with copper, the Group has entered into arrangements with its key suppliers to purchase copper.
Coupled with these purchases, the Group has entered into a number of contracts with financial institutions which are linked
to the average copper price as published by the London Metal Exchange (‘LME’). These contracts have been deemed cash flow
hedges of forecast future copper purchases. At the reporting date, the open copper contracts are as follows:
Copper cash flow hedges
2020
2019
Contracted copper price
$5,500–$6,000
$6,000–$6,500
$6,500–$7,000
$7,000–$7,500
Contracted
volume
(MT)
Fair value
$’000
Contracted
volume
(MT)
Fair value
$’000
240
85
–
–
325
(141)
(106)
–
–
(247)
150
150
50
–
350
77
38
(2)
–
113
All contracts expire within 12 months of 5 April 2020.
Liquidity risk
The Group manages liquidity risk by maintaining adequate banking facilities, regular monitoring of forecast and actual cash
flows and matching the maturity profiles of financial assets and liabilities. Included in note 19 is a description of undrawn
facilities as at the reporting date.
In addition to the banking facilities available to the Group, the Group has access to a non-recourse invoice discounting facility.
Under the terms of the arrangement, the Group can sell up to $15 million of trade receivables associated with a specific
customer. As at 5 April 2020, the Group had utilised $0.1 million (2019: $0.4 million) of this facility.
The following table analyses the Group’s financial liabilities into relevant maturity groupings to show the timing of cash flows
associated with the financial liabilities from the reporting date to the contracted maturity date. The amounts disclosed represent
the contracted undiscounted cash flows (based on the earliest date on which the Group may be required to pay).
2020
Non-derivative financial liabilities
Trade and other payables
Bank overdrafts and loans
Lease liabilities
Derivative financial liabilities
Copper commodity contracts
Derivative financial instruments
2019
Non-derivative financial liabilities
Trade and other payables
Bank overdrafts and loans
Derivative financial liabilities
Copper commodity contracts
Carrying
amount
$’000
Contractual
cash flows
$’000
Within
1 year
$’000
1–2
years
$’000
2–5
years
$’000
More than
5 years
$’000
(66,824)
(68,824)
(66,570)
(225)
(734)
(10,883)
(12,910)
(247)
(1,572)
(247)
(1,572)
Carrying
amount
$’000
Contractual
cash flows
$’000
(734)
(3,590)
(247)
(1,572)
Within
1 year
$’000
(25)
–
(178)
–
(51)
–
(2,633)
(4,740)
(1,947)
–
–
1–2
years
$’000
–
–
–
–
2–5
years
$’000
More than
5 years
$’000
(68,277)
(68,277)
(68,486)
(26)
(320)
(320)
(320)
–
–
–
–
–
–
–
–
(765)
–
–
120
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 120
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:40 PM
Financials
30. Financial instruments continued
Credit risk
The Group’s principal financial assets are bank balances and cash, trade and other receivables. Credit risk refers to the risk that a
counterparty will default on its contractual obligations resulting in financial loss to the Group.
Bank and cash balances comprise cash held by the Group and short-term bank deposits with an original maturity of three
months or less. The carrying amount of these assets approximates to their fair value. The credit risk on these assets is limited
because the counterparties are predominantly financial institutions with investment-grade credit ratings assigned by
international credit rating agencies.
The Group’s credit risk is therefore primarily attributable to its trade receivables. The Group’s customers are predominantly
large blue chip OEMs, contract equipment manufacturers and distributors. The Group regularly reviews the creditworthiness
of significant customers and credit references are sought for major new customers where relevant. The Board recognises that
credit risk is a feature of all businesses, especially international businesses. However, it believes that all reasonable steps to
mitigate any loss are taken.
The net amount of trade receivables reflects the maximum credit exposure to the Group. No other guarantees or security have
been given. For further information on the credit risk associated with trade and other receivables, see note 18.
31. Contingent liabilities
As a global Group, subsidiary companies, in the normal course of business, engage in significant levels of cross-border trading.
The customs, duties and sales tax regulations associated with these transactions are complex and often subject to interpretation.
While the Group places considerable emphasis on compliance with such regulations, including appropriate use of external legal
advisers, full compliance with all customs, duty and sales tax regulations cannot be guaranteed.
Through the normal course of business, the Group provides manufacturing warranties to its customers and assurances that its
products meet the required safety and testing standards. When the Group is notified that there is a fault with one of its products,
the Group will provide a rigorous review of the defective product and its associated manufacturing process and, if found at fault
and contractually liable, will provide for costs associated with recall and repair as well as rectify the manufacturing process or
seek recompense from its supplier. The Group does not provide for such costs where fault has not yet been determined and
investigations are ongoing.
The Company enters into financial guarantee contracts to guarantee the indebtedness of other Group companies. The Company
considers these to be insurance arrangements and treats the guarantee contract as a contingent liability until such time as it
becomes probable that the Company will be required to make a payment under the guarantee.
32. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and
are not disclosed in this section of the note.
The Group’s other related party transactions were the remuneration of key management personnel (refer to note 9). Details of
Directors’ remuneration for the period are provided in the Directors’ Remuneration Report on page 61. Family members of one of
the Directors received $nil (2019: $6,000) for services provided during the year.
As explained in note 16, the Group has a 26.09% interest in Kepler SignalTek Limited, which is accounted for as an associate.
During the prior year the Company invested $1,300,000 in redeemable preference shares taking its total investment to
$2,000,000 ($1,700,000 preference shares and $300,000 equity investment). During the period the Group accrued financial
income of $196,000 on the preference shares (2019: $117,000). The balance due from the associate as at the period end date was
$1,990,000 (2019: $1,825,000).
The Group also has a 43% interest in Volex-Jem Co. Ltd. During the period the Group purchased $115,000 (2019: $4,067,000) of
materials from Volex-Jem Cable Precision (Dongguan) Co., Limited an entity controlled by Volex-Jem Co. Ltd. The balance due to
the associate as at the period end date was $81,000 (2019: $1,141,000).
33. Events after the balance sheet date
There are no disclosable events after the balance sheet date.
www.volex.com
Volex plc
Annual Report and Accounts 2020
121
26523-Volex-Annual-Report-Financials-2020.indd 121
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:40 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
34. Business combinations
The fair value adjustments associated with the acquisitions are provisional and will be finalised within 12 months of the
acquisition date. Any resulting changes in the fair values will have an impact on the acquisition accounting and will result in
a reallocation between the assets and goodwill and a possible adjustment to the amortisation charge shown in the income
statement. None of the goodwill recognised is expected to be deductible for income tax purposes.
Servatron Inc
On 31 July 2019 Volex plc completed the acquisition of Servatron Inc (‘Servatron’), a North American-based manufacturer
of printed circuit board assemblies (‘PCBA’), box builds and complete sub-assembly solutions. Servatron's business is a
complementary fit with Volex’s strategy to maintain and build leading positions in niche sectors with structural growth drivers
and defensive characteristics. Servatron adds complementary technologies including PCBA manufacturing, state-of-the-art test
capabilities, and higher-level system integration.
Combining complex assemblies expertise and R&D skills will drive revenues for the Group and strengthen its footprint in North
America. The acquisition provides the opportunity to increase organic growth through value-added services for existing cable
harness customers and incorporates a skilled local workforce and management team into the business.
The purchase has been accounted for as a business combination. Details of the purchase consideration, the net assets acquired
and goodwill are as follows:
Fair value of consideration transferred
Cash paid
Ordinary shares issued
Contingent consideration
Total purchase consideration
$’000
13,355
2,574
3,230
19,159
The fair value of the 2,233,712 shares issued as part of the consideration was based on the published closing share price on 31 July
2019, the last trading date preceding the share issue of £0.93.
The contingent consideration is dependent upon certain EBITDA targets being met during the 2019 and 2020 calendar years.
The fair value above has been based on the probable outcome of each based upon the information available at 5 April 2020.
As part of the acquisition it was agreed that 3,000,000 share options would be granted to incentivise and retain key local
management. The options are dependent upon Servatron achieving certain profit and employment targets. As these options are
conditional on continued employment, these are accounted for as an post-acquisition expense.
Servatron exceeded the 2019 EBITDA targets and as such the first instalments of the contingent consideration and first tranche
of share options vested in early 2020.
The provisional fair value amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in
the table below:
Identifiable intangible assets
Other intangibles
Right-of-use assets
Property, plant and equipment
Inventories
Trade receivables
Trade payables
Other debtors and creditors
Overdraft
Bank loan
Deferred taxes
Lease liabilities
Total identifiable assets
Goodwill
Consideration
122
Volex plc
Annual Report and Accounts 2020
Provisional
fair value
$’000
10,500
49
3,464
889
5,483
5,019
(1,040)
(2,483)
(3,677)
(135)
(2,464)
(4,009)
11,596
7,563
19,159
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 122
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:40 PM
Financials
34. Business combinations continued
An exercise has been conducted to assess the provisional fair value of assets and liabilities acquired. This exercise identified
customer relationships and order backlog intangible assets.
The fair value adjustments are provisional and will be finalised within 12 months of the acquisition date. Any resulting changes in
the fair values will have an impact on the acquisition accounting and will result in a reallocation between the assets and goodwill
and a possible adjustment to the amortisation charge shown in the income statement.
The provisional goodwill balance recognised above includes certain intangible assets that cannot be separately identified and
measured due to their nature. This includes control over the acquired business, the skills and experience of the assembled
workforce, and the anticipated synergies arising on integration.
In FY2020, Servatron contributed $26,376,000 to Group revenue and $2,621,000 to adjusted operating profit. Associated
acquisition costs of $98,000 and intangible asset amortisation of $2,747,000 have both been expensed as adjusting items in the
period. If Servatron had been acquired at the beginning of the year, it would have contributed estimated revenues of $41,248,000
and estimated operating profit of $3,746,000 to the results of the Group.
Ta Hsing Industries Limited
On 26 June 2019 the Group completed the acquisition of Ta Hsing Industries Limited (‘Ta Hsing’), a supplier of power cables to the
Power Products division. Ta Hsing has a manufacturing site in Shenzhen, in the People’s Republic of China, and is headquartered
in Hong Kong. The acquisition allows Volex to vertically integrate the in-house production of PVC resin and cable extrusion
capabilities, while also expanding the design and manufacturing capability. The acquisition also brings a small number of new
customers to Volex.
The purchase has been accounted for as a business combination. Details of the purchase consideration, the net assets acquired
and goodwill are as follows:
Fair value of consideration transferred
Cash paid
Contingent consideration
Total purchase consideration
$’000
3,575
1,822
5,397
The contingent consideration is payable in three instalments across the calendar years 2020 and 2021. The consideration has
been measured at fair value based on the probable outcome of each based upon the information available at 5 April 2020. The
instalments are dependent upon a new lease agreement being obtained for the primary manufacturing site and warranty
claims.
The provisional fair value amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in
the table below:
Property, plant and equipment
Right of use asset
Inventories
Trade receivables
Trade payables
Other debtors and creditors
Cash and cash equivalent
Short-term bank loan
Lease liabilities
Deferred taxes
Total identifiable assets
Goodwill
Consideration
Provisional
fair value
$’000
584
379
1,370
5,472
(694)
(663)
854
(2,948)
(379)
(146)
3,829
1,568
5,397
www.volex.com
Annual Report and Accounts 2020 123
Volex plc
26523-Volex-Annual-Report-Financials-2020.indd 123
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:40 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
34. Business combinations continued
An exercise has been conducted to assess the provisional fair value of assets and liabilities assumed. This exercise included an
independent external valuation of the machinery located in the Shenzhen facility. Following this review, a $574,000 increase to
the book value of the property, plant and equipment was recorded. Since Volex was Ta Hsing's largest customer, the Group has
not recognised an intangible associated with the customer relationship or open order book that Ta Hsing had with Volex at the
acquisition date due to the definition of an asset not being met, as no future economic benefits will be derived from outside the
Group.
The fair value adjustments are provisional and will be finalised within 12 months of the acquisition date. Any resulting changes in
the fair values will have an impact on the acquisition accounting and will result in a reallocation between the assets and goodwill
and a possible adjustment to the amortisation charge.
The provisional goodwill balance recognised above includes certain intangible assets that cannot be separately identified and
measured due to their nature. This includes control over the acquired business, the skills and experience of the assembled
workforce, and the anticipated synergies arising on integration.
Immediately after the acquisition, the Group funded Ta Hsing with $2,948,000 in order that it could pay off its external loan. This
funding has been recorded as an intercompany balance between Volex Cables (HK) Limited and Ta Hsing and therefore has
been excluded from the consideration paid.
In FY2020, Ta Hsing contributed $1,618,000 to the Group’s external revenue and $335,000 to adjusted operating profit. Associated
acquisition costs of $58,000 have been expensed as adjusting items in the period. If Ta Hsing had been acquired at the
beginning of the year, it would have contributed estimated revenues of $3,104,000 and estimated operating profit of $529,000 to
the results of the Group.
Net cash outflow on acquisitions
Cash consideration
– Servatron
– Ta Hsing
Total cash consideration
Add: overdraft and short-term debt liabilities acquired
– Servatron
– Ta Hsing
Net cash outflow
Payment of contingent consideration
– Servatron
– Silcotec Europe
Net cash outflow
$’000
13,355
3,575
16,930
3,677
2,094
22,701
1,728
1,122
2,850
124
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 124
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:40 PM
27309 25 June 2020 4:32 pm Proof 8CompanyNotes2020£’000 RESTATED12019£’000 RESTATED1 2018 £’000Non-current assetsOther intangible assets4154644Property, plant and equipment5422Right of use assets616––Investments7109,82491,50873,572Other receivables9167244109,87591,62873,662Current assetsInventories82,2592,2731,428Trade receivables95,8079,7255,815Other receivables98,50814,8223,742Current tax assets192108–Derivative financial instruments–354137Cash and bank balances7,9852,6513424,75129,93311,156Total assets134,626121,56184,818Current liabilitiesBorrowings10––1,275Trade payables11254189214Other payables1122,78022,09522,248Lease liability1017––Provisions11406––Derivative financial instruments1,270––Retirement benefit obligation1380375067525,53023,03424,412Net current (liabilities)/assets(779)6,899(13,256)Non-current liabilitiesBorrowings10––9,290Other payables111,24619,57019,512Deferred tax liabilities12–––Retirement benefit obligation131,4021,1231,6892,64820,69330,491Total liabilities28,17843,72754,903Net assets106,44877,83429,915Equity attributable to owners of the parentShare capital1537,95536,84222,564Share premium account1533,74632,2274,165Non-distributable reserve17–781781Hedging and translation reserve(3,350)(3,216)(2,688)Merger reserve8,2248,2248,224Retained earnings29,8732,976(3,131)Total equity106,44877,83429,9151. Restated: Due to change in presentational currency, see note 2.2 for further details. The profit after tax for the period of the Company amounted to £22,933,000 (2019: profit of £4,468,000). The financial statements on pages 125 to 140 of Volex plc (company number: 158956) were approved by the Board of Directors and authorised for issue on 18 June 2020. They were signed on its behalf by:Nathaniel RothschildExecutive ChairmanDaren MorrisChief Financial Officer Company Statement of Financial PositionAs at 5 April 2020 (31 March 2019)www.volex.comVolex plcAnnual Report and Accounts 2020125Financials26523-Volex-Annual-Report-Financials-2020.indd 12525-Jun-20 4:36:41 PM Financials
Company Statement of Changes in Equity
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
Share
capital
£’000
Share
premium
account
£’000
Non-
distributable
reserves
£’000
Hedging
and
translation
reserve
£’000
Retained
earnings/
accumulated
losses
£’000
Merger
reserve
£’000
Total
equity
£’000
22,564
4,165
781
(2,688)
8,224
(3,131)
29,915
RESTATED1
Balance at 1 April 2018
Profit for the period attributable
to the owners of the parent
Other comprehensive income for
the period
Total comprehensive (loss)/
income for the period
–
–
–
–
–
–
Shares issued
14,161
28,062
Exercise of deferred bonus
shares
Credit to equity for equity-settled
share-based payments
117
–
–
–
–
–
–
–
–
–
–
(528)
(528)
–
–
–
–
–
–
–
–
–
Balance at 31 March 2019
36,842
32,227
781
(3,216)
8,224
Profit for the period attributable
to the owners of the parent
Other comprehensive loss for the
period
Total comprehensive (loss)/
income for the period
–
–
–
–
–
–
Shares issued
1,046
1,519
Exercise of deferred bonus
shares
Issue of shares by employment
benefit trust
Dividend paid
Credit to equity for equity-settled
share-based payments
67
–
–
–
–
–
–
–
Balance at 5 April 2020
37,955
33,746
–
–
–
–
–
(781)
–
–
–
–
(134)
(134)
–
–
–
–
–
–
–
–
–
–
–
–
–
4,468
4,468
237
(291)
4,705
–
4,177
42,223
(117)
–
1,519
2,976
1,519
77,834
22,933
22,933
(1,068)
(1,202)
21,865
–
21,731
2,565
(67)
781
–
–
(1,497)
(1,497)
5,815
5,815
(3,350)
8,224
29,873
106,448
1 Restated: Due to change in presentational currency, see note 2.2 for further details.
126
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 126
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:41 PM
Financials
1. General Information
Volex plc (the Company) is a public company limited by shares incorporated in the United Kingdom under the Companies Act
and is registered in England and Wales. Its shares are listed on AIM, a market on the London Stock Exchange. The address of the
registered office is given on page 142.
The principal activities of the company are the manufacture and sale of power and data cables, and to act as the ultimate
holding company of the Volex group.
2. Significant accounting policies
2.1 Basis of preparation
The separate financial statements of the Company are drawn up in accordance with the Companies Act 2006 and Financial
Reporting Standard 101 ‘Reduced disclosure framework’, (FRS 101). Previously, the Company adopted International Financial
Reporting Standards (IFRSs) as adopted by the European Union, on transition to FRS 101 no adjustments were recorded. The
Company will continue to prepare its financial statements in accordance with FRS 101 on an ongoing basis until such time as it
notifies shareholders of any change to its chosen accounting framework.
The Company financial statements have been prepared using the historical cost convention, as modified by the revaluation of
certain financial assets and financial liabilities and in accordance with the UK Companies Act 2006. The financial statements
have been prepared on a going concern basis. The following exemptions available under FRS 101 have been applied:
▷ Paragraphs 45(b) and 46 to 52 of IFRS 2, ‘Share-based payment’ (details of the number and weighted-average exercise prices
of share options, and how the fair value of goods or services received was determined);
▷ IFRS 7 ‘Financial Instruments: Disclosures’;
− Paragraph 91 to 99 of IFRS 13, ‘Fair value measurement’ (disclosure of valuation techniques and inputs used for fair value
measurement of assets and liabilities);
− Paragraph 38 of IAS 1 ‘Presentation of financial statements’ comparative information requirements in respect of
paragraph 79(a)(iv) of IAS 1;
− paragraph 118(e) of IAS 38, ‘Intangible assets’ (reconciliations between the carrying amount at the beginning and end of
the period).
▷ The following paragraphs of IAS 1 ‘Presentation of financial statements’:
− 10(d) (statement of cash flows);
− 16 (statement of compliance with all IFRS);
− 16 (statement of compliance with all IFRS);
− 38A (requirement for minimum of two primary statements, including cash flow statements);
− 38B-D (additional comparative information);
− 111 (cash flow statement information); and
− 134-136 (capital management disclosures).
▷ IAS 7 ‘Statement of cash flows’;
▷ Paragraph 30 and 31 of IAS 8 ‘Accounting policies, changes in accounting estimates and errors’ (requirement for the
disclosure of information when an entity has not applied a new IFRS that has been issued but is not yet effective);
▷ The requirements in IAS 24 ‘Related party disclosures’ to disclose related party transactions entered into between two or
more members of a group.
▷ Paragraph 52, the second sentence of paragraph 89, and paragraphs 90, 91 and 93 of IFRS 16 Leases.
The Company has elected to take the exemption under section 408 of the Companies Act 2006 to not present the parent
company statement of comprehensive income (and separate income statement). The profit for the parent company for the
period was £22,933,000 (2019: profit of $4,468,000).
2.2 Restatement: Change in presentation currency
The Company’s functional currency is GBP. The Company has elected to change its presentational currency to GBP from USD
from 1 April 2019. This was to provide greater transparency to the distributable reserves position of the Company. A change in
presentational currency is a change in accounting policy which is accounted for retrospectively. Financial information included
in the consolidated financial statements for the period ended 31 March 2019 previously reported in US Dollars has been restated
into GBP using the procedures outlined below:
▷ Assets and liabilities denominated in non-GBP currencies were translated into GBP at the closing rates of exchange on the
relevant balance sheet date;
▷ Non-GBP income and expenditure were translated at the average rates of exchange prevailing for the relevant period; and
▷ Share capital, share premium and the other reserves were translated at the historic rates prevailing on the date of each
transaction. The cumulative foreign currency translation reserve has been restated on the basis that the Company has
reported in GBP since 2009, when the presentational currency of the Company was changed to US Dollars.
www.volex.com
Volex plc
Annual Report and Accounts 2020
127
26523-Volex-Annual-Report-Financials-2020.indd 127
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:41 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
2. Significant accounting policies continued
2.3 Revenue recognition
Revenue is recognised in accordance with the satisfaction of performance obligations of contracts. The majority of the
Company’s contracts have just one performance obligation which is the delivery of goods, which under IFRS 15 is recognised
at a single point, on delivery or pick-up depending on the agreed terms with the customer. This is normally when control of
the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company
expects to be entitled in exchange for those goods or services. The Company has concluded that it is the principal in its revenue
arrangements. Revenue is measured at the fair value of the consideration received or receivable for goods and services provided
in the normal course of business, net of discounts, VAT and other sales-related taxes. The Company’s revenues are derived from
Europe.
2.4 Business combinations
Acquisitions are accounted for using the acquisition method as described in the business combinations accounting policy. This
includes the determination of fair values for assets and liabilities acquired, including the separate identification of intangible
assets, which use assumptions and estimates and are therefore subjective. The Group has developed a process to meet the
requirements of IFRS 3 including the separate identification of customer relationship intangible assets based on estimated
future performance and customer attrition rates. External valuation specialists are used where appropriate.
2.5 Investments
Investments are stated at cost and reviewed for impairment if there are indicators that the carrying value may not be
recoverable. An impairment loss is recognised to the extent that the carrying amount cannot be recovered either by selling the
asset or by continuing to hold the asset and benefiting from the net present value of the future cash flows of the investment.
Where subsidiary undertakings incur charges for share-based payments in respect of share options and awards granted by
the Company, a capital contribution in the same amount is recognised as an investment in subsidiary undertakings with a
corresponding credit to shareholders’ equity.
2.6 Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Cost
includes the original purchase price of the asset and any further costs attributable to bringing the asset to its working condition
for its intended use.
Depreciation is recognised so as to write off the cost or valuation of assets (other than freehold land which is not depreciated)
less their residual values over their useful lives, using the straight-line method, on the following basis:
Freehold and long leasehold buildings
up to 50 years or period of lease, if shorter
Plant and machinery
3 to 15 years
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected
to arise from the continued use of the asset. The gain or loss arising on the disposal of an asset is determined as the difference
between the sales proceeds and the carrying amount of the asset and is recognised in income.
2.7 Intangible assets – computer software and licences
Computer software is stated at cost less accumulated depreciation and any recognised impairment loss. Acquired computer
software licences are capitalised on the basis of the costs incurred to acquire and use the specific software. These costs are
included in the statement of financial position within intangible assets and are amortised straight-line over their estimated
useful lives of between three and five years. Costs associated with maintaining computer software are recognised as an expense
as incurred.
2.8 Leases
Upon commencement of a lease, a right-of-use asset and corresponding liability are recognised. The liability is initially measured
at the present value of the future lease payments for the lease term. The depreciation of the right-of-use asset and interest
on the lease liability will be recognised in the income statement over the lease term. Leases with terms less than 12 months or
deemed low value are not capitalised.
The Company has applied IFRS 16 using the modified retrospective approach under which the cumulative effect of initial
application has been recognised in retained earnings on 1 April 2019. The comparative information has not been restated and
continues to be reported under IAS 17.
As part of the transition the Company adopted a number of the practical expedients:
▷ Leases less than 12 months at transition have been treated as short-life leases;
▷ Leases of low value (defined as less than $5k) continue to be accounted for under an accruals basis; and
▷ A portfolio approach has been adopted which allows a single discount rate to be applied to a portfolio of leases with
reasonably similar characteristics.
128
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 128
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:41 PM
Financials
2. Significant accounting policies continued
2.9 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using a standard cost methodology and
adjusted for material variances such that the adjusted figure represents direct materials, direct labour and an attributable
proportion of manufacturing overheads based on normal levels of activity. Net realisable value is based on estimated selling
price, less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Provision is made for
obsolete, slow moving or defective items where appropriate.
2.10 Trade and other receivables
For trade receivables, the Company applies the simplified approach permitted by IFRS 9, resulting in trade receivables
recognised and carried at original invoice amount less an allowance for any uncollectible amounts based on expected credit
losses. The Company assesses on a forward-looking basis the expected credit losses associated with its receivables carried at
amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
2.11 Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments
with original maturities of three months or less, and bank overdrafts. In the balance sheet, bank overdrafts are shown within
borrowings in current liabilities.
2.12 Borrowings
Interest-bearing loans and overdrafts are recognised initially at fair value, net of transaction costs incurred. Subsequent to initial
recognition, borrowings are measured at amortised cost, using the effective interest rate method.
2.13 Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented
as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using
the effective interest method.
2.14 Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured
to their fair value at each reporting date. The resulting gain or loss is recognised in profit or loss immediately.
A derivative is classified as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than
12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or
current liabilities.
Further details of derivative financial instruments are disclosed in note 30 to the consolidated financial statements.
2.15 Taxation
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the
extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is recognised in
other comprehensive income or directly in equity, respectively.
The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit as reported in the income
statement because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes
items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates and laws that have
been enacted or substantively enacted by the reporting date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted
for using the liability method.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to
the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
Such assets and liabilities are not recognised if the temporary differences arise from goodwill or from the initial recognition
(other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the
accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates
and interests in joint ventures, except where the Company is able to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets
is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is
realised based on tax rates and laws that have been enacted or substantively enacted by the reporting date. Deferred tax is
charged or credited in the income statement, except when it relates to items charged or credited in other comprehensive
income, in which case the deferred tax is also dealt with in other comprehensive income.
www.volex.com
Annual Report and Accounts 2020 129
Volex plc
26523-Volex-Annual-Report-Financials-2020.indd 129
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:41 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
2. Significant accounting policies continued
2.15 Taxation continued
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current
liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current
tax assets and liabilities on a net basis.
2.16 Share-based payment transactions
Certain senior employees within the Group (including executives) receive remuneration in the form of share-based payment
transactions where the individuals are compensated for services they provide with consideration in the form of equity
instruments. The parent Company settles the award by delivering its own equity instruments to the employees of the subsidiary.
The cost of equity-settled transactions with employees is measured with reference to the fair value of the equity instrument at
the date they are granted and is recognised as an expense over the period in which the performance and/or service conditions
are fulfilled, ending on the date on which the employee becomes fully entitled to the award.
No expense is recognised for awards that do not ultimately vest as a result of not meeting performance or service conditions.
Where all service and performance vesting conditions have been met, the awards are treated as vesting, irrespective of whether
or not the market condition is satisfied, as market conditions have been reflected in the fair value of the equity instruments.
The fair value determined at the date of grant of the equity-settled share-based payments is expensed to the income statement
on a straight-line basis over the vesting period, based on the estimate of the number of options that will eventually vest. At each
reporting date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of
non-market-based vesting conditions. The movement in cumulative expense since the previous balance sheet date is recognised
in the income statement, with a corresponding entry in equity
The fair value of the Company’s employee services received in exchange for the grant of the options is recognised as an expense.
A credit is recognised directly in shareholders’ funds. The issuance by the Company of share options and awards to employees
of its subsidiaries represents additional capital contributions to its subsidiaries. An addition to the Company’s investment in
subsidiaries is recorded with a corresponding increase in equity shareholders’ funds. The additional capital contribution is
determined based on the fair value of options and awards at the date of grant and is recognised over the vesting period.
2.17 Retirement benefits
The Company has both defined benefit and defined contribution retirement benefit schemes, the former of which is now
closed to new entrants. The retirement benefit obligation recognised in the company statement of financial position represents
the deficit or surplus in the Company’s defined benefit scheme. For defined benefit schemes, the cost of providing benefits is
determined using the Projected Unit Credit Method, with actuarial valuations carried out at the end of each reporting period.
Defined benefit costs are split into three categories:
▷ Remeasurement;
▷ Net interest expense or income; and
▷ Past service cost and gains and losses on curtailments and settlements.
Remeasurement comprises actuarial gains and losses, the effect of the asset ceiling (where applicable) and the return on
scheme assets (excluding interest). These costs are recognised immediately in the statement of financial position with a
charge or credit to the statement of comprehensive income in the period in which they occur. Remeasurement recorded in the
statement of comprehensive income is not recycled. Net interest is calculated by applying a discount rate to the net defined
benefit liability or asset and is recognised within finance costs. As the defined benefit scheme is now closed, no service cost is
incurred.
Payments to defined contribution retirement benefit schemes are recognised as an expense when employees have rendered
service entitling them to the contributions.
2.18 Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in
equity as a deduction from the proceeds, net of tax.
2.19 Merger reserve
The merger reserve was derived from acquisitions made under old UK GAAP prior to the transition to IFRS.
2.20 Dividend distribution
Dividend distributions to the Company’s shareholders are recognised as a liability in the Company’s financial statements in the
period in which the dividends are approved by the Company’s shareholders.
130
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 130
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:41 PM
Financials
2. Significant accounting policies continued
2.21 Critical accounting judgements and key sources of estimation uncertainty
The preparation of Company financial statements in conformity with FRS 101 requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the Company financial statements and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that
period or in the period of the revision and future periods if the revision affects both current and future periods. The key area
of judgement that has the most significant effect on the amounts recognised in the financial statements is the review for
impairment of investment carrying values.
3. Staff costs
The average monthly number of employees (including Executive Directors) was:
Sales and distribution
Administration
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs (note 13)
2020
Number
2019
Number
2
11
13
2020
£’000
2,237
206
128
2,571
4
9
13
2019
£’000
1,655
238
138
2,031
Details of Directors’ remuneration, share options, pension contributions, pension entitlements, fees for consulting services and
interests for the period required by the Companies Act 2006 are provided in the Directors’ Remuneration Report on pages 57 to
65 and form part of the financial statements.
4. Other intangible assets
Cost
At the beginning of the period
Additions
At the end of the period
Accumulated amortisation
At the beginning of the period
Amortisation charge for the period
At the end of the period
Carrying amount at the end of the period
Carrying amount at the beginning of the period
Software and licences
2020
£’000
2019
£’000
2,388
–
2,388
2,342
31
2,373
15
46
2,354
34
2,388
2,310
32
2,342
46
44
www.volex.com
Volex plc
Annual Report and Accounts 2020
131
26523-Volex-Annual-Report-Financials-2020.indd 131
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:41 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
5. Property, plant and equipment
Cost
At the beginning of the period
Additions
Disposals
At the end of the period
Accumulated depreciation and impairment
At the beginning of the period
Depreciation charge for the period
Disposals
At the end of the period
Carrying amount at the end of the period
Carrying amount at the beginning of the period
2020
£’000
2019
£’000
319
3
–
322
317
1
–
318
4
2
319
2
(2)
319
317
1
(1)
317
2
2
6. Right-of-use asset
This note provides information for leases where the Company is the lessee. As permitted under the specific transition provisions
in the standard the Company has adopted IFRS 16 Leases retrospectively from 1 April 2019. At transition the Company only had
two operating leases.
Cost
At the beginning of the period
Adoption of IFRS 16
At the end of the period
Accumulated depreciation and impairment
At the beginning of the period
Depreciation charge for the period
At the end of the period
Carrying amount at the end of the period
Carrying amount at the beginning of the period
2020
£’000
–
135
135
–
119
119
16
–
132
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 132
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:42 PM
6. Right-of-use asset continued
a) Amounts recognised in the balance sheet
Right-of-use assets
Buildings
Vehicles
Lease liability
Current
Additions during the period to the right-of-use assets were nil.
b) Amounts recognised in the statement of profit or loss
The statement of profit or loss shows the following amounts relating to leases:
Depreciation charge of right-of-use assets
Buildings
Vehicles
Interest expense (included in finance cost)
Financials
On
transition
1 April
2019
£’000
5 April
2020
£’000
–
16
16
17
101
34
135
–
5 April
2020
£’000
101
18
119
3
www.volex.com
Volex plc
Annual Report and Accounts 2020
133
26523-Volex-Annual-Report-Financials-2020.indd 133
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:42 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
7. Investments
The Company’s fixed asset investments comprise investments in wholly-owned subsidiary undertakings and permanent loans as
follows:
Cost
At 1 April 2018
Additions
Repayment
Exchange differences
At 31 March 2019
Additions
Repayment
Exchange differences
At 5 April 2020
Accumulated depreciation and impairment
At 1 April 2018
Impairment
Exchange differences
At 31 March 2019
Impairment
Exchange differences
At 5 April 2020
Carrying amount
At 5 April 2020
At 31 March 2019
At 1 April 2018
Shares
£’000
Loans
£’000
Total
£’000
34,333
17,191
–
–
51,524
15,572
–
–
67,096
56,224
3,317
(5,407)
3,618
57,752
11,309
90,557
20,508
(5,407)
3,618
109,276
26,881
(10,806)
(10,806)
2,823
61,078
2,823
128,174
5,190
11,795
16,985
–
–
–
783
–
783
5,190
12,578
17,768
–
–
–
582
–
582
5,190
13,160
18,350
61,906
46,334
29,143
47,918
45,174
44,429
109,824
91,508
73,573
In the United Kingdom, the Company includes three operational branches, Volex Powercords Europe, Volex Europe Cable
Assemblies and Volex Sweden. Details of the Company’s subsidiary undertakings are set in note 20 ‘Related undertakings’.
Investments in subsidiaries are all stated at cost less provision for impairment.
On the 31 July 2019 the company acquired Servatron Inc for consideration of £15,075,000. Following this acquisition the Company
decided to consolidate the Group’s North American subsidiaries under a common holding Company. On the 23 August 2019
MC Electronics was contributed to Volex Holdings Inc in exchange for additional shares in Volex Holdings Inc. A gain of £302,000
has been recognised on the remeasurement of the fair value of the transaction.
On the 31 August 2019 Servatron was contributed to Volex Holdings Inc in exchange for additional share capital in Volex Holdings
Inc. The fair value consideration of £15,075,000 was satisfied by way of additional share in Volex Holdings Inc. On the 1 April 2020
the Company also acquired Volex Europe (No.1) Limited for £196,000.
All loans are carried at amortised cost. In the 53 weeks to 5 April 2020, the Company’s loans with Volex Group Holdings Limited
accrued interest at 2.8% and between 3% – 6% with Volex Poland SP z.o.o. All other loans did not accrue interest. Repayments
were also received from Volex Inc, MC Electronics LLC and Volex Poland SP z.o.o during the period.
During the prior period the Company acquired the trade and assets of Silcotec Europe Limited on 8 June 2018. On the same
day, the Company disposed of the trade and assets of Silcotec Europe Limited (with the exception of 11% of the share capital
of Silcotec Europe SK, the entity that owns the Slovakian factory) to Volex Europe Limited, a wholly owned subsidiary of the
Company, with consideration satisfied by way of an intercompany loan.
During the period the Company received four dividends (2019: two) totalling £27,546,000 (2019: £4,955,000) from its subsidiaries
Volex Group Holdings Limited and Volex Europe No.1 Limited.
134
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 134
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:42 PM
8. Inventories
Raw materials
Finished goods
9. Trade and other receivables
Trade receivables
Amounts receivable for the sale of goods
Allowance for doubtful debts
Other receivables
Amounts due from Group undertakings
Other debtors
Prepayments
Due for settlement within 12 months
Due for settlement after 12 months
10. Borrowings and lease liability
Unsecured borrowings at amortised cost
Bank overdrafts
Secured borrowings at amortised cost
Bank loans
Lease liability
Total borrowings at amortised cost
Amount due for settlement within 12 months
Amount due for settlement after 12 months
Financials
2020
£’000
–
2,259
2,259
2020
£’000
5,894
(87)
5,807
2019
£’000
1
2,272
2,273
2019
£’000
9,725
–
9,725
7,448
14,086
799
277
8,524
8,508
16
8,524
578
230
14,894
14,822
72
14,894
2018
£’000
–
1,428
1,428
2018
£’000
5,815
–
5,815
3,367
213
206
3,786
3,742
44
3,786
2020
£’000
2019
£’000
2018
£’000
–
–
17
17
17
–
–
–
–
–
–
–
–
–
1,275
9,290
–
10,565
1,275
9,290
10,565
Debt issue costs of £417,000 are included in other debtors at 5 April 2020 (31 March 2019 £74,000) because the bank loan balance
is nil. At 1 April 2018 debt issue costs of £368,000 were included within the total bank loan balance shown above.
www.volex.com
Volex plc
Annual Report and Accounts 2020
135
26523-Volex-Annual-Report-Financials-2020.indd 135
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:42 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
11. Trade and other payables
Trade payables
Other payables
Amounts owed to Group undertakings
Other taxes and social security
Accruals and deferred income
Due for settlement within 12 months
Due for settlement after 12 months
2020
£’000
254
2019
£’000
189
18,780
84
5,162
24,026
22,780
1,246
24,026
38,140
463
3,062
41,665
22,095
19,570
41,665
2018
£’000
214
39,494
220
2,046
41,760
22,248
19,512
41,760
Amounts owed to Group undertakings are unsecured and non-interest bearing. The Directors consider that the carrying amount
of trade and other payables approximates to their fair value.
During the period the Company recognised a provision of £406,000 related to a specific product warranty claim. The amount
represents the Directors’ best estimate, based upon past experience, of the Group’s liability. The timing of the cash outflow with
respect to these claims is uncertain.
12. Deferred tax
At the reporting date, the Company had unused tax losses of £63,708,000 (2019: £61,602,000) available for offset against future
profits. Of this amount £15,446,000 (2019: £15,222,000) are post-31 March 2017. The Company has not recognised any deferred
tax assets in respect of these unused tax losses or other temporary differences as the future use of these assets is uncertain. The
losses may be carried forward indefinitely.
13. Retirement benefit obligation
Defined benefit scheme
The company operates a defined benefit pension arrangement called the Volex Executive Pension Scheme (the ‘Scheme’). The
Scheme provides benefits based on final salary and length of service up on retirement, leaving service or death.
The Scheme is subject to the Statutory Funding Objective under the Pensions Act 2004. A valuation of the Scheme is carried
out at least once every three years to determine whether the Statutory Funding Objective is met. As part of the process the
Company must agree with the Trustees of the Scheme the contributions to be paid to meet the Statutory Funding Objective.
The future contributions required to meet the Statutory Funding Objective do not currently affect the balance sheet of the
Scheme in these financial statements.
The most recent comprehensive actuarial valuation of the Scheme was carried out as at 31 July 2016. An actuarial valuation as
at 31 July 2019 is currently in progress. In the event that the valuation reveals a larger deficit than expected the Company may
be required to increase contributions above those set out in the existing Schedule of Contributions. Conversely, if the position is
better than expected, it’s possible that contributions may be reduced.
In accordance with the Schedule of Contributions dated October 2017 the Company have agreed to pay contributions of
£803,300 p.a. (payable in quarterly instalments) over the period to 4 April 2021.
Further details of the scheme and assumptions associated with the actuarial valuation are provided in note 29 to the Group
financial statements.
Defined contribution scheme
The Company operates a Group personal pension plan for employees and pays contributions to administered pension insurance
plans. Contributions to the defined contribution schemes are charged to the income statement as they fall due. The Group has
no further obligations once the contributions have been made. The total cost charged to the Company’s income statement in
the period was £128,000 (2019: £138,000).
14. Share-based payments
The Company currently uses a number of equity-settled share plans to grant options and shares to the Directors and employees
of its subsidiaries. Full details of share-based payments, share option schemes and share plans are disclosed in note 28 ‘Share-
based payments’ to the consolidated financial statements.
136
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 136
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:42 PM
Financials
15. Share capital
At 31 March 2019
Acquisition of Servatron Inc
Issue of deferred bonus shares
Acquisition of Servatron – contingent consideration
Options exercised
At 5 April 2020
Number of
shares
Par value
£’000
147,367,933
36,842
2,233,712
266,794
1,481,239
469,084
558
67
371
117
Share
premium
£’000
32,227
1,519
–
–
–
Total
£’000
69,069
2,077
67
371
117
151,818,762
37,955
33,746
71,701
During the current and prior period the Group issued shares to satisfy the requirement of share awards, deferred bonus awards
and fund acquisitions. During the current period the movements were as follows:
▷ Issued 2,233,712 shares as part of the initial consideration for the acquisition of Servatron.
▷ Issued 266,794 shares under the 2018 deferred share bonus plan.
▷ Issued 1,481,239 shares to the former owners of Servatron as the business met the required operating profit targets set out in
the acquisition agreement.
▷ Issued 469,084 shares under the share incentive scheme agreed as part of the acquisition of Servatron.
Post period end 316,083 shares have been awarded to the executive management team in lieu of a cash bonus award. The shares
vest in June 2021 subject to continuous employment with the Group.
16. Equity dividend
Dividends paid and received are included in the Company financial statements in the period in which the related dividends are
actually paid or received or, in respect of the Company’s final dividend for the period, approved by shareholders.
Declared during the period
Interim dividend for the period ended 5 April 2020 1.0p per share (2019: nil)
Proposed after the balance sheet date and not recognised as a liability:
Final dividend for the period ended 5 April 2020 2.0p per share (2019: nil)
2020
£’000
2019
£’000
1,497
3,027
–
–
The Group’s consolidated reserves are set out on page 81 do not reflect the profits available for distribution in the Group.
17. Non-distributable reserves
Between March 2014 and July 2014 the Company sold 1,005,000 shares which were held by the Volex Group Guernsey Purpose
Trust to the Volex Group plc Employee Share Trust. A gain of £781,000 was recognised as a result of this transaction has been
classified as a non-distributable reserve until such time that the shares are issued by the Volex Group plc Employee Share Trust.
During the period these original shares were issued to employees to fulfil vested share awards. Therefore, the reserve has been
reduced to zero during the current financial period.
18. Other matters
The auditors’ remuneration for the current period in respect of audit services was £255,000 (2019: £248,000) and no non-audit
services were performed (2019: none).
19. Related party transactions
For full details of transactions and arrangements with key management personnel (Directors of the Company), see note 9 of the
consolidated financial statements.
20. Related undertakings
Volex Powercords Europe, Volex Europe Cable Assemblies and Volex PLC Sweden Filial are all trading divisions of Volex plc.
In accordance with Section 409 of the Companies Act 2006, the subsidiaries owned at 5 April 2020 are disclosed below. The
following subsidiary entities are either wholly or partly owned directly by the plc and/or through other Group companies. For the
two joint ventures, ownership is shared between a local Volex subsidiary and the relevant JV partner.
www.volex.com
Volex plc
Annual Report and Accounts 2020
137
26523-Volex-Annual-Report-Financials-2020.indd 137
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:42 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
20. Related undertakings continued
Name of entity
Footnote
incorporation Address
Country of
Percentage
owned by
plc
Directly held
Volex Pte Ltd
Volex Holdings Inc
Volex Canada Inc
Volex Group Holdings Ltd
GTK (Holdco) Ltd
Volex Poland Sp z.o.o.
Volex France Sarl
Volex Germany GmbH
Volex Sweden AB
Volex International Korea LLC
Volex do Brasil Ltda
Volex (No.4) Ltd
Volex (No.3) Ltd
Volex (No.2) Ltd
Volex (No.1) Ltd
Cable Products Ltd
Pencon Ltd
Volex Executive Pension
Scheme Trustee Ltd
Volex Electrical Products Ltd
Volex Group Pension Scheme
Trustee Ltd
Ward and Goldstone Ltd
Volex Interconnect Products
Ltd
Volex Electronics Ltd
Ionix Development Company
Ltd
Pendle Connectors Ltd
Mayor (UK) Ltd
Volex Interconnect
Systems Ltd
Volex Europe (No.1) Ltd
1
2
3
2
2
1
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
Singapore 37A Tampines Street 92, #08–01, Singapore 528886
USA 84 State Street, Boston MA 02109
Canada 1565 Carling Avenue, Fourth floor, Ottawa On K1Z 8R1
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
UK Unit C2 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
Poland Podłuzna 11–13, 85–790, Bydgoszcz, Kuyavian–
Pomeranian Voivodeship, Poland
France Citco France Sarl, 8 avenue Hoche, 75008 Paris, France
Germany Zu den Mühlen 19, 35390 Gießen, Deutschland
Sweden SE–831 48 Östersund, Jämtland County
South Korea
Brazil Rod. Geraldo Scavone 2.080, Unidade 13 A 16, Jacarei,
12305–490, Brazil
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
100%
100%
100%
100%
100%
99%
100%
100%
100%
100%
99%
99%
50%
50%
99%
50%
50%
67%
90%
99%
99%
99%
99%
99%
99%
99%
99%
Ireland Carraroe Industrial Estate, Carraroe, Co Galway, H91WR82
100%
138
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 138
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:42 PM
Financials
Percentage
owned by
plc
20. Related undertakings continued
Name of entity
Indirectly held
G.T.K. (U.K.) Ltd
GTK Ltd
Volex (No.5) Ltd
GTK Electronics GmbH
GTK RO S.r.l
Silcotec Europe (SK) s.r.o
Silcotec Europe (UK) Ltd
Silcotec Europe Ltd
Volex Inc
MC Electronics LLC
Servatron Inc.
Volex (Asia) Pte Ltd
PT Volex Indonesia
PT Volex Cable Assembly
Volex Cable Assemblies (Phils)
Inc
Volex Japan KK
Volex (Taiwan) Co. Ltd
Volex (Thailand) Co. Ltd
Country of
Footnote
incorporation Address
1
3
3
1
1
1
3
1
1
1
1
1
1
3
1
1
1
1
UK Unit C2 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
UK Unit C2 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
Germany Romberg 25b, 51381 Leverkusen
Romania Str. Fantana Popova, Nr. 36, Et.1, Cod Postal, 200319,
Craiova, Dolj, Romania
Slovakia Družstevná 14, Komárno, 945 05, Slovakia
UK Unit C1 Antura, Bond Close, Basingstoke, Hampshire,
England, RG24 8PZ
Ireland Carraroe Industrial Estate, Carraroe, Co Galway, H91WR82
USA 84 State Street, Boston MA 02109
USA 1891 Airway Drive, Hollister, California, 95023
USA 12825 Mirabeau Parkway, Suite 104, Spokane Valley, WA
99216–1617
Singapore 37A Tampines Street 92, #08–01, Singapore 528886
Indonesia JL. Ir. Sutami Kawasan Industri Sekupang, Batam,
Indonesia 29422, Indonesia
Indonesia
Philippines Galaxy Building km 60.7 Maharlika Highway, Sto Thomas
Batangas
Japan 9th floor Kannai Tosei Building II, Sumiyoshi–cho 4–45–1,
Naka–Ku, Yokohama–shi, Kangawa
Taiwan 4F, No 1406–1, Zhongzheng Road, Taoyuan District,
Taoyuan City 33071, Taiwan
Thailand No. 99/349, Chaengwattana Road,
Thungsong–Hong, Laksi, Bangkok 10210, Thailand
www.volex.com
Volex plc
Annual Report and Accounts 2020
139
26523-Volex-Annual-Report-Financials-2020.indd 139
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:42 PM
Financials
Notes to the Financial Statements
For the 53 weeks ended 5 April 2020 (52 weeks ended 31 March 2019)
20. Related undertakings continued
Name of entity
Footnote
incorporation Address
Country of
Percentage
owned by
plc
Volex Cable Assembly
(Vietnam) Co Ltd
Volex Cable Assemblies Sdn
Bhd
Volex Interconnect (India) Pvt
Ltd
Volex Cables (HK) Ltd
Ta Hsing Industries Ltd
Shenzhen Ta Hsing Wire and
Cable Ltd
Volex Interconnect Systems
(Suzhou) Co. Ltd
Volex Cable Assembly
(Shenzhen) Co. Ltd
Volex Cable Assembly
(Zhongshan) Co. Ltd
Volex Hermosillo SA de CV
Volex de Mexico SA de CV
Volex Group plc Employees’
Share Trust
Interests in associates/joint ventures
Kepler SignalTek Ltd
Volex-Jem Co Ltd
Volex-Jem Cable Precision
(Dongguan) Co., Limited
1
1
1
1
1
1
1
1
1
3
1
1
2
1
Vietnam Plot D–5B, Thanglong Industrial Park, Vomg La
Commune, Dong Anh District, Hanoi, Vietnam
Malaysia B–03–13A, Empire Soho, Empire Subang, Jalan SS16/1,
SS16, 47500, Subang Jaya, Selangor, Malaysia
India Level 9, Olympia Teknos Park, No. 28 Sidco Industrial
Estate, Guindy, Chennai, Tamil Nadu, IN 600 032
Hong Kong Unit 1001, 10/F, Infinitus Plaza, 199 Des Voeux Road
Central, Hong Kong
Hong Kong Unit 1001, 10/F, Infinitus Plaza, 199 Des Voeux Road
Central, Hong Kong
China 5 Horizontal Lane, Yuan Hu Road, Zhang Bei
Community, Long Cheng Street, Long Gang District,
Shenzhen City, Guang Dong
China Part A C3–C6, Weiting Industrial Zone, No.9, Weixin
Road, Suzhou Industrial Park, Suzhou, Jiang–su Province
215122, China
China No. 6279, Henggang Section, Longgang Avenue, Bao’an
Village, Henggang Sub–district, Longgang District,
Shenzhen City
China 2 Xingda Street, Torch High–tech Ind Dvpt Zone,
Zhongshan, 528437, China
Mexico Palo Verde, 1085 Palo Verde, Solidaridad, CP 83280
Mexico Av 32 Sur, No 8950 Interior G/1,D,E,F, Parque Industrial
La Mesa, Fraccionamiento Rubio, Tijuana; Baja California
Mexico, CP 22116
Switzerland 3 Place Isaac Mercier, Geneva 11, Switzerland
Hong Kong 21st Floor, Office Tower, Langham Place, 8 Argyle Street,
Mongkok, Kowloon, Hong Kong
Taiwan 19F, No.79, Sec 1. Singtai 5th Road, Sijhih City, Taipei,
Country 221, Taiwan
China 406 Qingfeng Road, Qingxi Town, Dongguan
1 Manufacture and/or sale of power and data cables
2 Holding company
3 Dormant company
140
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 140
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:43 PM
Five Year Summary
Financials
Results
Revenue – total Group
Gross profit – total Group
Unaudited
IFRS
2020
$’000
Unaudited
IFRS
2019
$’000
Unaudited
IFRS
2018
$’000
Unaudited
IFRS
2017
$’000
Unaudited
IFRS
2016
$’000
391,354
90,661
372,104
73,518
322,377
55,843
319,584
367,534
42,347
58,519
Operating expenses – total Group
(73,576)
(60,526)
(47,070)
(48,968)
(55,080)
Normalised operating profit(i) – total Group
Adjusting operating items
Share-based payment (charge)/credit
Profit/(loss) on ordinary activities before taxation
Depreciation and amortisation (excluding intangible
assets acquired in a business combination)(iii)
31,630
(5,808)
(8,737)
15,861
21,606
(6,226)
(2,388)
11,635
11,457
(1,552)
(1,132)
6,995
9,079
(15,232)
(468)
(8,500)
7,172
(4,742)
1,009
1,542
6,519
3,786
3,210
5,368
7,180
Cents
Cents
Cents
Cents
Cents
Basic underlying earnings per share – total Group(ii)
Basic earnings/(loss) per share – total Group
18.2
9.9
13.1
6.9
Statement of financial position
Non-current assets
Net cash/(debt)(iii)
Other assets and liabilities
Net assets
Gearing
$’000
$’000
84,650
31,570
14,312
56,041
20,593
39,014
130,532
115,648
–
–
9.2
4.4
$’000
24,606
9,948
13,590
48,144
–
9.5
(7.9)
1.5
(2.6)
$’000
$’000
24,905
39,427
11,335
10,067
46,307
–
(3,249)
15,174
51,352
6%
(i) Defined as operating profit before adjusting items and share-based payments.
(ii) Defined as earnings/(loss) per share before share-based payments and adjusting items.
(iii) Following the adoption of IFRS 16 on the 1 April 2019 this calculation includes the lease liability and associated depreciation charge from the
right of use asset recognised.
www.volex.com
Volex plc
Annual Report and Accounts 2020
141
26523-Volex-Annual-Report-Financials-2020.indd 141
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:43 PM
Financials
Shareholder Information
Provisional Financial Calendar
FY2021
Interim Results Announced w/c 9 November 2020
Period End 4 April 2021
Final Results Announced w/c 14 June 2021
Registered Office and Advisers
Registered Office
Unit C1 Antura Bond Close
Basingstoke, Hampshire
RG24 8PZ
www.volex.com
Registered number
158956 (Registered in England and Wales)
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
www.linkassetservices.com
Independent Auditors
PricewaterhouseCoopers LLP
Bankers
Lloyds Bank plc
HSBC Bank plc
Nominated Adviser & Joint Broker
Nplus1 Singer Advisory LLP
Joint Broker
Whitman Howard
Solicitors
Travers Smith LLP
142
Volex plc
Annual Report and Accounts 2020
Stock code: VLX
26523-Volex-Annual-Report-Financials-2020.indd 142
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:43 PM
26523-Volex-Annual-Report-Financials-2020.indd 3
27309
25 June 2020 4:32 pm
Proof 8
25-Jun-20 4:36:43 PM
27309 25 June 2020 4:29 pm Proof 8Volex plcUnit C1 AnturaBond CloseBasingstokeHampshireRG24 8PZUnited Kingdomwww.volex.comVolex plc Annual Report and Accounts 2020Stock Code: VLX26523-Volex-Annual-Report-2020.indd 325-Jun-20 4:31:54 PM