Company Profile: Volex

Power cord and cable maker Volex is restoring its credibility under a new management team led by CEO Ray Walsh.

Power cord and cable maker Volex is restoring its credibility under a new management team led by CEO Ray Walsh.

Power cord and cable maker Volex is restoring its credibility under a new management team led by CEO Ray Walsh.

Although it has a recent history of earnings disappointments, London-headquartered Volex is ultimately a strongly positioned producer of electronic and fibre-optic cable assemblies and electrical power cords.

Its operations span Asia, Europe and North and South America and it supplies a vast array of products, ranging from power cords for laptops and computers to radio frequency connectors.

In turn, these products provide essential support to some heavyweight brands across the telecommunications, computing, consumer appliance and healthcare sectors – customers include Cisco Systems, Ericsson, Apple, Dell and Hewlett-Packard, as well as Dyson, Sony, General Electric and Philips Healthcare.

Telecommunications industry specialist Walsh took over in the chief executive’s hot seat in April, shortly after the disposal of Volex’s loss-making wiring harness division, which was sold to management for £1 in March. He has since rebuilt the fundamentals of Volex’s remaining divisions, Power Products and Interconnect, while restructuring its international manufacturing operations. Labour costs (both direct and indirect) have been trimmed under initiatives that, alongside a wider efficiency drive, have delivered more than £1 million in annual savings and helped the company to maintain its margins throughout the recession.

Recent half-year figures to October were encouraging. Although pre-tax profits dropped from £2.8 million to £1.7 million after restructuring charges, adjusted pre-tax profits rose from £2.7 million to £4.4 million. Cash performance was excellent, with almost £8 million generated during the half, helping to reduce net debt from £18.6 million a year earlier to £11.2 million.

In terms of divisions, within Power Products, a business that has been stabilised and is now recovering, sales were 17 per cent down at £66.5 million, reflecting declining spend on computers and consumer electronics. Despite this backdrop, Volex did not lose any major accounts and even noted recovery signs in the second quarter.

Sales were lower in the Interconnect division too (falling from £53.6 million to £43.7 million). Yet underlying operating profits rose from £700,000 to £1.7 million and Walsh sees the potential for some high-margin returns in the evolving markets for high-speed cable and connector products.

Going forward, Volex’s new sector-focused sales approach – healthcare is one industry where prospects excite – should cement ties with clients and ultimately deliver higher margins. Walsh is also upping the emphasis on cross-selling across the business, while he remains keen on developing the proportion of Volex-designed products within the overall sales mix.
And in some competitive markets, Volex has a number of advantages over peers that should ensure sustainable profits growth with both existing and new clients.

Having restructured and repositioned itself for growth, analysts are now forecasting a rise in adjusted pre-tax profits from £8.4 million to £9.6 million this year, ahead of £11.5 million pre-tax, as the top line returns to growth by 2011.

Nick Britton

Nick Britton

Nick was the Managing Editor for when it was owned by Vitesse Media, before moving on to become Head of Investment Group and Editor at What Investment and thence to Head of Intermediary...

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