A Critical View of Volex’s Annual Report

Background

Volex are a worldwide leader in the production of electrical cables such as power cords, fibre optics, radio frequency connectors and wire harnesses. Volex produce much needed components for computers, telecommunication systems and also networking systems. It also manufacturers components for medical products, aerospace and also defence systems.  Volex has a very broad customer base and because of this it has offices located throughout the globe. It possesses fifteen manufacturing plants and nineteen sales and assistance offices worldwide. Due to its diversification Volex can provide practically every cable assembly solution a customer requires.

Volex holds a very strong position in the Electronics & Electrical Equipment industry. It is, without one of the leaders in this area. For example its contracts with giants such as the US Government, Rolls Royce, Apple and Nintendo give it a huge advantage. As a result of such contracts it can benefit from economies of scale and thus continue to ensure it holds a very strong position in the industry. The industry is quite concentrated, so it is very difficult for any one firm to dominate. Due to this high concentration ratio Volex must keep its standards high at all times or risk losing sales. This would probably best be described as an imperfectly competitive market. Firms offer a similar product but product differentiation does exist.

Product and Service Evaluation

The report begins with Volex outlining a list of the products and services offered. From the outset it is clear that the company has a great vision of itself. The opening part of the annual report summarizes the products which it offers to the public but they will be elaborated on further later in the report. It is impressive the way the report displays how it deals with its global footprint. I found it an admirable how Volex transfers its products closer to its customers so as to make it more cost effective for the business. Additionally, Volex promotes outsourcing to local businesses. Without doubt, this section of the report portrays Volex in a very favourable light. This is furthermore compounded when we see what measures they have taken to ensure that high standards of product and environmental quality. In this report there is huge emphasis on the quality certificates Volex has received such as the ISO Certifications thus giving off a very good impression to the reader. In addition to this the environmental procedures are brought to prominence:

“In addition, the design of our products is aimed at reducing their environmental impact in terms of production, product usage and disposal, which will assist producers in complying with the WEEE Regulation(Volex Annual Report 2007)(32 words).”

Undoubtedly, the management aim to project a high-quality, first-class, morally upstanding image of the company. The opening part of the report portrays this representation. Also in the modern day excellence and quality are key to success. These may be the only issues which give Volex a competitive advantage over its competitors so it is imperative that these areas are brought to the forefront when exhibiting their public.

Chairman’s Statement

The Chairman’s statement has an overwhelmingly positive tone to it. Mr. Richard Arkle begins by informing the reader of the recently implemented restructuring programme within Volex. He notifies us that 2007 has been a “significant year” and the financial aspect of the plan has been completed. Mr. Arkle also uses words such as “excited” and “accomplished” to instill a sense of security in the mind of the reader. As expected in, in the chairman’s statement issues discussed include financial, operational and strategic performance. Needless to say Arkle updates the reader on how successful the restructuring programme has been. Gearing is down to 37% and 96% of direct labour is now situated in low-cost, more cost effective regions. However, also outlined in the report is the area of personnel. In this part of the report the reader is given an insight into many of the new members of staff who have recently joined Volex. This is a change from the typical statistics and financial figures which often overload annual reports and make them ineffective. Instead it makes the report more personal and easier to relate to for the reader. 

Business Review

The business review begins with the company’s Chief Executive Officer informing the reader that they intend to enter new markets whilst continuing to dominate their current ones. This shows how eager they are to expand into new dimensions of the market and furthermore grow their already substantial share in the market. Another noticeable aspect of this report is how it mentions its relationships and working contracts with huge multi-nationals.  Volex holds a very strong position in the Electronics & Electrical Equipment industry. It is, without one of the leaders in this area. For example its contracts with giants such as the US Government, Rolls Royce, Apple and Nintendo give it a huge advantage. As a result of such contracts it can benefit from economies of scale and thus continue to ensure it holds a very strong position in the industry. They clearly believe these alliances benefit it hugely and are proud to be associated with such high profile and successful companies.

It must be admitted that the financial figures are reported quite neutrally. This was a surprise considering the rest of the report looks on the company in a hugely favourable light and biased viewpoint. One particularly interesting portion of the report is article 34 entitled “Contingent Liabilities”:

“The Mexican government has issued a claim against Volex de Mexico SA de CV, a subsidiary company, for 22 million pesos (c.£1million) alleging misstatement on customs returns for fiscal years 2000 and 2001. The Group’s legal advisors, as instructed by the Directors, have filed a response on behalf of the Company strongly rebutting such allegations. The case is before the Mexican Federal Tax Court and is now at the closing stages of the legal process. 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.(Volex Annual Report 2007(127 words)”

It was surprising to see this included in the annual report. However there was very little else in relation to this issue. It appears when it comes to controversy and Volex they are very fearful to elaborate further on this topic and project a poor image of Volex Group PLC.

Finally, one impressive part of this report is the inclusion of the independent auditors report. In this section, the reader is informed that the company’s financial figures are all above board and conform to The Companies Act of 1985 and Article 4 of IAS Regulations.

Comparison

It was necessary to make comparisons to various other annual reports also. The report of a competitor was examined also. The rival was Allied Wire and Cable PLC. It is an American company which specialises in electronic wire and electrical cable, tubing and assemblies. This business has grown rapidly since its establishment in 1988 in Phildelphia. It is one the US’s largest business’s in this sector. It has contracts to supply its products to the entire US Government, Aeroplane giants Boeing and Lockheed Martin. It produces a wide range of products including aerospace cables, computer cables, fire alarm wires, security cables and also wire harnesses. When studying this report it was clear the report was more customer orientated and client friendly than Volex’s. For example it gave direct quotations from satisfied purchasers of their products.

“The ability to create a wire specific to your own personal need is awesome!”-Trent Edwards, North Carolina (Allied Wire and Cable Annual Report 2007) (17 words)”

Having also investigated CRH’s annual report for the financial year of 2007 it is clear they place more emphasis on the use of visual aids such as images, histograms and line charts. This is more effective than the constant monotonous flow of word after word. Without doubt this is a smart move which Volex should include. This report also gives a more realistic view of its market by telling the readers how it is not successful as it once was and for example In Spain the housing sector is suffering quite substantially.

Conclusion

Having analysed these annual reports and come to terms with what constitutes an impressive, quality, excellent report there are certain issues which are first-rate and others which are a little short of this. The Director’s Remuneration report is a very good part of Volex’s report. For example it outlines the regulations the company has for its directors’ salaries such as it positions itself in line with directors from other companies and sets up a remuneration committee to deal with all such matters. When critiquing the article it was compounding to see how concerned the company is with showing a high level of transparency to its shareholders.

Overall, Volex’s report is well organised, professional and very useful. It gives a conclusive verdict on the year 2007. The report is biased in the way it is written. It constantly highlights managers’ achievements portraying them as the saviours of Volex. I found very little negative comment in the report even though I am sure there was more omitted from the report I studied.

Public image also is very high on Volex’s list of priorities also. The environment plays a prominent role in their new restricting plan. This coincides with the general move within the industrial world towards a greener production process. The general tone of the report is very upbeat which is surprising given this period of economic unstableness. It remains to be seen whether Volex’s restructuring programme will continue to be as successful when it faces more challenges in the near future. However, based on their outlook for 2008 and general optimism the company seems upbeat of its chances of continuing to progress and develop. This report certainly aims to install a sense of security and confidence in the hearts and minds of their shareholders by painting a very strong, comprehensive and complete picture of Volex PLC.