Volex shares plunge after profit warning

Electrical, digital and optical connections provider Volex said it expects revenue and profit for the year ending 31st March 2013 to fall short of previous company expectations after an unexpected change in demand from its largest customer in the consumer sector.

"These lower growth expectations are driven primarily by a delay in product launches and a change in product component strategy by our largest customer," the group explained.

"Furthermore, we are also experiencing lower current and forecast demand from a number of other consumer sector customers reflecting the broader economic conditions. We expect revenues and margins in our industrial, telecoms/datacoms and healthcare sectors to be broadly in line with our previous expectations."

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While total group revenues for the full year are expected to show year-on-year growth of around 5%, the lower than expected consumer revenue and resulting loss of operational leverage will impact the reported operating profit, which Management now expects to be broadly in line with that of FY2012, it added.

As a result, management has initiated a programme of material cost reductions across the group and will focus on improving gross margins through improved labour efficiency and productivity, reduced scrap rates, other operational improvements and the introduction of new, higher margin products.

Volex said despite the weaker than expected near term outlook, it is encouraged by an increasing pipeline of prospective new customers and expectations of the group's third consecutive year of increasing revenue, a trend that is expected to continue in FY2014.

"The Directors believe the fundamentals of the business remain sound but recognise there is significant work ahead to bring margins and profitability back to a level commensurate with their objectives for the business," the group concluded.

CJ