TIDMTTG
RNS Number : 9122E
TT Electronics PLC
04 March 2020
2019 Final Results, 4 March 2020
TT Electronics plc
Results for the year ended 31 December 2019
For further information, please contact:
TT Electronics
Richard Tyson, Chief Executive Officer
Mark Hoad, Chief Financial Officer
Emma Darke, Head of Investor Relations and Communications Tel: +44 (0)1932 825 300
MHP Communications
Tim Rowntree / Rachel Mann Tel: +44 (0)20 3128 8100
An analyst presentation will be held today at 9.00am at Numis,
10 Paternoster Square, London EC4M 7LT. The webcast will be
available live on the investor relations section of our website
with a recoding available later today at www.ttelectronics.com.
TT Electronics plc
Results for the year ended 31 December 2019
Continued growth and margin development
GBP million unless Underlying(1) Statutory
otherwise stated
-----------------------------------
2019 2018* Change Change 2019 2018*
constant
fx
Continuing Operations
Revenue 478.2 429.5 11% 9 % 478.2 429.5
Operating profit 40.0 33.4 20% 17 % 18.8 16.5
Operating profit
margin (%) 8.4% 7.8% 60bps 60 bps
Profit before tax 36.3 31.5 15% 12 % 15.1 14.6
Earnings per share
(pence) 18.7p 16.2p 15 % 13 % 8.5p 8.0p
Return on invested
capital(2) 11.3% 11.5%
Cash conversion(3) 98% 88%
------ ------ ------- ----------
Total Operations
Earnings per share
(pence) 10.6p 8.3p
Free cash flow(4) 9.7 8.5
Net debt (69.1) (41.7)
Net debt exc . IFRS
16 (51.5)
Net debt to EBITDA
(5) 0.9x 0.9x
------- -------
Dividend per share
(pence) 7.0p 6.5p
------- -------
*FY 2018 not re-stated for IFRS 16 impacts
Strategic highlights
-- Strategy continues to drive growth, enhance margin and improve quality of business
-- Aerospace, defence and medical revenues up 22% organically now 47% of Group revenues
-- New customer wins with multi-year recurring revenues;
improved order book visibility for the third year in succession
-- New self-help programme launched to underpin further margin
progression, improved efficiency and reduced carbon footprint;
-- Successful capital deployment: core technology acquisitions
with cross-selling success and continued R&D investment
Financial headlines
-- 4% organic revenue growth; 9% growth at constant currency
-- Underlying operating profit and PBT both materially
increased; underlying EPS CAGR of 21% since 2015
-- 8.4% underlying operating margin, +60 basis points
-- ROIC of 11.3%; up 10 basis points to 11.6% before the impact of IFRS 16
-- Strong cash conversion of 98% and ongoing investment for growth
-- UK pension scheme triennial valuation completed - fully funded on an actuarial basis
-- Full year dividend up 8% to 7.0p
Richard Tyson, Chief Executive Officer, said:
"Our performance in 2019 is the latest evidence of the
significant business transformation we have achieved over the last
five years. We have delivered a strong performance with another
year of good revenue growth, double-digit profit improvement and
further margin enhancement despite the macro challenges in some of
our markets.
TT is continuing its path to a higher-quality, better-balanced
business as a result of our investment in aerospace, defence and
medical markets. Our power, sensing and connectivity solutions help
to enable a more sustainable world. We have added to our technology
and capabilities with the US acquisitions of Power Partners and the
Covina power supply business.
We are well placed to make progress in 2020 and beyond. However,
the duration and impact of the coronavirus remains uncertain, and
based on the current situation we anticipate that it could impact
underlying operating profit by up to GBP3 million in 2020. We are
focused on making further strategic progress, and our new self-help
programme underpins the journey to double-digit margins."
1. Excluding the effect of restructuring and other non-recurring
costs and acquisition related costs
2. Rolling 12 month underlying operating profit return on
average invested capital. Excluding IFRS16, ROIC is 11.6%, up 10
bps
3. Underlying operating cash flow (underlying EBITDA less net
capital expenditure excluding property disposals, capitalised
development expenditure, working capital and non-cash movements)
divided by underlying operating profit
4. Net cash flow from operating activities less net cash flow
from investing activities and leases less interest paid. Please see
note 7 for more information
5. Net debt at average exchange rates excluding leases
previously recognised as operating leases divided by underlying
operating profit excluding the impact of IFRS 16. including
full-year pro-forma effect for acquisitions. Measure used for our
banking covenants
2019: ANOTHER YEAR OF STRONG FINANCIAL PERFORMANCE
TT has again delivered a strong financial performance in 2019,
with good revenue growth, profit improvement and margin enhancement
as well as good cash conversion, despite more mixed market
conditions. We are demonstrating that the transformation of the
business to focus on markets with structural growth drivers has led
to a higher-margin and better-balanced business capable of
sustaining a strong financial performance.
Group revenue for 2019 was GBP478.2 million (2019: GBP429.5
million), up 4 per cent organically. Acquisitions contributed
revenue of GBP25.8 million and there was a favourable GBP7.6
million foreign exchange impact. We saw good growth from our
aerospace, defence and medical customers and revenues from these
customers grew 22 per cent organically, now representing 47 per
cent of our business. The Group's order book is strong, with an
increased proportion of recurring revenues, and order visibility
has improved for the third year in succession.
Underlying operating profit increased by 17 per cent at constant
currency to GBP40.0 million (2018: GBP33.4 million). Acquisitions
contributed GBP1.9 million. Statutory operating profit was GBP18.8
million (2018: GBP16.5 million), an increase of 14 per cent due to
the improved trading performance, partially offset by increased
restructuring costs. Statutory profit before tax was GBP15.1
million (2018: GBP14.6 million), up 3 per cent. The Group's profit
improvement was driven by the Power and Connectivity and Global
Manufacturing Solutions divisions which more than offset the impact
of softer markets in the primarily industrial facing Sensors and
Specialist Components division. Decisive cost action taken in the
first half has helped to protect margins in this division. The
synergy actions arising from the 2018 acquisition of Stadium have
now been completed with further run rate benefits expected in
2020.
Underlying operating profit margin for the Group has improved by
60 basis points at constant currency to 8.4 per cent (2018: 7.8 per
cent). Return on invested capital was 11.3 per cent, and 11.6 per
cent before the impact of IFRS 16, an increase of 10 basis points
on a like-for-like basis (2018: 11.5 per cent). We delivered
another year of good cash conversion of 98 per cent (2018: 88 per
cent) and free cash flow of GBP9.7 million (2018: GBP8.5
million).
SOLVING ELECTRONIC CHALLENGES FOR A SUSTAINABLE WORLD
OUR STRATEGY
We create sustainable value by:
-- Positioning ourselves in structural growth markets
-- Creating differentiated capabilities
-- Working with our customers to solve their toughest electronic challenges
The trend for "electronics everywhere" represents a structural
growth dynamic in our global markets. In industrial markets,
automation and robotics have become commonplace; in medical
markets, technology is taking medical surgery to a new level; in
aerospace and defence, new aircraft platforms are launching with
electronics at the heart of the drive for fuel efficiency; and in
transportation, in the rail infrastructure market electronic
solutions are being used to help improve efficiency and deliver
preventative maintenance programmes. TT provides solutions to
address our customers' challenges in all these markets. Our
technology and products are used in a huge range of applications
from smart infrastructure to medical scanners and the latest
generation fighter jets.
Results of our strategy
Since 2015, the Group has undergone a significant transformation
and is now a fundamentally different and improved business with a
sustainable future. TT is continuing on the path to becoming a
higher quality, better balanced Group with increasing exposure to
the structural growth markets of aerospace, defence and
medical.
-- Portfolio development - moved from 25% aerospace, defence and medical in 2015 to 47% in 2019
-- M&A - Disposal of the automotive focused transportation
division. Six acquisitions since 2015 with aggregate consideration
of GBP137 million. Further financial firepower remaining
-- Organic revenue growth - moved from a 3% decline in 2015 to 4% growth in 2019
-- Margin enhancement - almost doubled from 4.3% in 2015 to 8.4% in 2019
-- ROIC improvement - moved from 9.0% in 2015 to 11.6% (*) in 2019
-- Employee engagement - TT rated by employees as a 1 star great place to work
* Before the impact of IFRS 16
Benchmarked by Best Companies Ltd
Our strategy is designed to grow TT and create value for our
stakeholders including customers, employees, the communities in
which we operate and shareholders. Fundamental to the success of
our business is the engagement of our employees and we are
committed to making TT a great place to work.
We have identified five strategic priorities to best focus the
Group and enable us to fulfil our potential.
Business development
Our targeted business development activities identify customers
with whom we can build strategic partnerships. We have identified
key customer accounts where we have the greatest opportunity to
expand our relationships, including introducing teams from other TT
divisions. We have a sales council which helps ensure we go to
market as 'One TT' and we have reorganised our marketing function
to support this approach. We have also developed lead coaches
across the Group to support members of our sales community and
ensure we approach new sales opportunities in a way that maximises
our chances of success. This has resulted in new customer wins,
increased sales to existing customers and cross-selling
successes.
Our success is reflected in the very strong growth we have
delivered in our Global Manufacturing Solutions division, where we
first developed this approach. Across the Group, our top three
medical customers grew 18 per cent in the year and we won four new
customers in our focus markets of aerospace, defence and medical.
We successfully qualified a power supply from our newly acquired
Power Partners business onto a medical product for one of our
largest customers in Global Manufacturing Solutions, demonstrating
early cross-selling success between these businesses. Aerospace and
defence customer wins include a contract awarded by L3 Harris
Technologies to support a substantial electronics manufacturing
programme for a key military platform where we are preparing for
contract volumes to ramp up through 2020 and 2021.
R&D and value-added product solutions
During the year, we increased our R&D spend to GBP13.5
million, up 6 per cent at constant currency. Investment is focused
on three areas where we see the greatest opportunity for
growth:
-- Power solutions for aerospace and medical applications
-- Connectivity for the industrial internet of things
-- Specialist sensing capabilities
In June 2019 we launched a new prototype power convertor for
aerospace applications at the Paris Airshow, demonstrating our
product solution capabilities and the ability to move up the value
chain. We have been balancing our near-term customer new product
introduction priorities with engineering efforts that focus on
longer term initiatives and during the year we secured funding to
develop next generation power technology for the aerospace market.
We are working alongside Innovate UK and a global engine
manufacturer to help develop technology that can be used in more
sustainable aircraft travel of the future, contributing to cleaner,
quieter air travel.
Operational excellence
We strive to deliver operational excellence at each of our
sites, wanting our customers to recognise TT for outstanding
service. Following the successful transformation of some of our
lowest performing sites in 2018, we continued to deploy our
resources in sites where operational performance has been below TT
benchmark levels, particularly in the UK. We see more opportunity
to improve our operational performance and drive excellence through
our cross divisional operations, supply chain and health and safety
councils.
We have worked on optimising our cost base and our environmental
impact, by reducing our footprint. In the year, we closed four
sites, consolidating operations into our existing manufacturing
footprint, so improving the efficiency of the Group.
We have initiated a new self-help programme to underpin the
journey to double-digit margins, reducing the fixed cost base of
the business, as well as improving the Group's environmental
impact. The total cash cost of these projects is expected to be
circa GBP14 million, comprising restructuring costs and capital
expenditure, with full year run-rate benefits of GBP5-6 million in
2022.
We operate a zero-harm strategy and remain determined to
continuously improve our safety performance. In 2019, we reduced
the number of three-day lost time accidents from 17 to 4 following
analysis of issues, shared experiences and a re-doubling of
efforts. We have also increased our efforts around near miss
reporting, preventative measures and behaviour-based safety
training.
Value-enhancing acquisitions
We announced two acquisitions in the year, extending our power
supply capabilities in the US across our core markets of aerospace,
defence and medical. We acquired Power Partners, a small power
supply provider in March 2019. The acquisition extends our
technology roadmap for power products while improving our medical
market access. We have already had a power supply designed by Power
Partners approved for use with one of Global Manufacturing
Solution's largest medical customers for use in pharmaceutical lab
equipment.
In November 2019, we announced the acquisition of the aerospace
and defence power supply business of Excelitas Technologies Corp
based in Covina, California. The acquisition completed on 3 January
2020. The business expands our capabilities in power conversion
while giving us enhanced access to the large and attractive US
aerospace and defence market.
We are focused on opportunities that will extend our existing
capabilities in our core markets of aerospace, defence and medical.
We continue to develop our acquisition pipeline and review
acquisition opportunities that will add complementary capabilities,
customers and market access.
Building a sustainable business
TT engineers advanced electronics that benefit our planet and
people for future generations. We do this by designing,
manufacturing and working in a way that is cleaner, smarter and
improves wellbeing. Our focus on engineering electronics that work
reliably in challenging and performance critical environments helps
our customers bring advances that benefit our planet and its
people. We apply these principles to ourselves, in the way that we
work and interact with our communities and through our innovative
products and services for customers. The result is long-term
sustainable value for our customers, our people and our local
communities.
Our People, Social, Environment and Ethics Committee has an
expanded remit, replacing our long-standing Corporate Social
Responsibility Committee, which is chaired by the CEO and attended
by a Non-executive director. The Committee drives TT's
sustainability strategy in the best interests of our employee,
community, customer and investor stakeholders.
We engineer and manufacture power, sensing and connectivity
solutions to enable a more sustainable world and we are working
towards sensible sustainability targets to incorporate into our key
performance indicators to better measure our performance.
We are actively reviewing our operational footprint to improve
the efficiency of the Group by optimising our cost base and our
environmental impact. Our environmental strategy is focused around
the areas we have assessed to have the greatest environmental
impact, namely energy usage, waste management and water usage.
-- Energy usage: Electricity is the largest component of our
energy usage. Our target is to become carbon neutral on scope 1 and
2 emissions by 2035. As part of this, we are looking to switch our
sites to green energy electricity tariffs, in geographies where
they are available, as our energy contracts come up for
renewal.
-- Waste management: Our current waste management focus is
around reducing our direct and indirect single plastic usage.
During the year TT sites signed a "pledge on plastic" to reduce
single use plastic. This pledge was endorsed by the Executive
Management Board. We are looking at our waste to landfill and
recycled waste and are targeting to reduce our waste to landfill
and increase what we recycle.
-- Water usage: We are conscious of the water we use during our
production processes and are working to reduce this where possible.
Examples include using wastewater generated by facilities for
irrigation.
We are leading designers and manufacturers of products which
help to minimise environmental impacts. Our power control solutions
for aerospace and defence applications contribute to lighter and
more environmentally friendly aircraft. As a result of the "Clean
Sky" initiative, and the associated economic benefits from
increased fuel efficiency, demand for our products has been
increasing. We also produce power management devices for smart
metering technology, which is driving a greater awareness of and
subsequent reduction in energy usage in the business and home
environments.
DIVISIONAL REVIEWS
POWER AND CONNECTIVITY
The Power and Connectivity division develops and manufactures
power application products and connectivity devices which enable
the capture and wireless transfer of data. We collaborate with our
customers to develop innovative solutions to optimise their
electronic systems.
2019 2018 Change Change constant
fx
--------------------------- --------- --------- ------ ---------------
Revenue GBP138.2m GBP115.5m 20% 18%
Underlying operating
profit(1) GBP16.5m GBP11.2m 47% 45%
Operating profit margin(1) 11.9% 9.7% 220bps 210bps
--------------------------- --------- --------- ------ ---------------
1. Excluding the effect of restructuring and other non-recurring
costs and acquisition related costs
Note: Prior period restated for the transfer of the Malaysian
Magnetics business to the Power and Connectivity division.
In 2018 the Malaysian Magnetics business generated revenue of
GBP17.5 million and underlying operating profit of GBP2.8
million.
The Power and Connectivity division performed strongly, with
good growth and significant margin enhancement in the year.
Revenues were up 2 per cent organically to GBP138.2 million (2018:
GBP115.5 million). There was a GBP1.2 million favourable foreign
exchange impact. The growth was driven by increased revenue from
existing customers in aerospace, defence and medical. These markets
now account for over 50 per cent of the division and grew 14 per
cent organically. Acquisitions made a GBP19.5 million contribution
to revenue.
Underlying operating profit was GBP16.5 million (2018: GBP11.2
million), up 45 per cent at constant currency. There was a GBP2.0
million profit contribution from acquisitions. Underlying operating
profit margin improved to 11.9 per cent (2018: 9.7 per cent). The
growth in underlying operating profit was driven by operational
leverage from increased revenues and efficiency improvements,
including the closure of three sites associated with the 2018
acquisitions of Stadium and Precision. Delivery of the synergy plan
for the Stadium acquisition is now complete and combined with
synergies from the acquisition of Precision delivered GBP2 million
of cost savings in 2019.
The division continues to benefit from the structural growth
drivers associated with the increasing electrification of aircraft
and we won two new aerospace and defence customers in the period.
Following a continued focus on key account management, we grew our
revenues with three of our largest aerospace and defence customers
by 36 per cent. We have targeted our R&D investment on the next
generation of power solutions working across components,
sub-assemblies and complete products. During the year we launched
our first prototype power conversion unit at the Paris Airshow,
following investment in 2018. We are actively working on several
industry, government and customer funded projects focused on new
technology for the next generation of more sustainable aircraft,
developing electrical solutions that will contribute to cleaner,
greener and quieter aircraft of the future alongside our key
aerospace and defence customers.
We made progress with our connectivity offerings, including
tracking devices for assets in the construction industry and
medical wearable devices for use in European care homes. We also
secured a cross-selling win with a Global Manufacturing Solutions
customer for human machine interface solutions for a high-end,
British automotive customer.
We have bolstered our power supply capabilities with two
acquisitions. We acquired Power Partners in March 2019, a small US
based power supply provider, which accelerates our technology
roadmap for power products while improving our US medical market
access. We are already pursuing revenue synergy opportunities with
power solutions for existing TT customers. In November 2019, we
announced the acquisition of the aerospace and defence power supply
business of Excelitas Technologies Corp based in Covina,
California. This acquisition completed on 3 January 2020 and
expands our capabilities in power conversion, while giving us
enhanced access to the large and attractive US aerospace and
defence market.
At the start of the year we transferred our Malaysian Magnetics
business from the Sensors and Specialist Components division to the
Power and Connectivity division bringing together all our
electromagnetics design and manufacturing capabilities in one
division. This has enabled a joined-up approach for their routes to
market and the optimisation of our manufacturing footprint
strategy. This follows the accreditation of our Malaysian facility
for aerospace and defence work, and the transfer of some of our
product lines from our facility in North Devon, UK to Malaysia to
create the capacity required for future growth.
GLOBAL MANUFACTURING SOLUTIONS
The Global Manufacturing Solutions division provides
manufacturing services and engineering solutions for our product
divisions and to customers that often require a lower volume and
higher mix of different products. We manufacture complex integrated
product assemblies for our customers and provide engineering
services including designing testing solutions and
value-engineering.
2019 2018 Change Change constant
fx
--------------------------- --------- --------- ------ ---------------
Revenue GBP213.2m GBP181.8m 17% 16%
Underlying operating
profit(1) GBP15.4m GBP11.3m 36% 34%
Operating profit margin(1) 7.2% 6.2% 100bps 90bps
--------------------------- --------- --------- ------ ---------------
1 Excluding the effect of restructuring and other non-recurring
costs and acquisition related costs
Global Manufacturing Solutions delivered very strong revenue
growth coupled with improved order visibility, reflecting the value
our customers place on our manufacturing and engineering
capabilities. Revenues were up by 12 per cent organically to
GBP213.2 million (2018: GBP181.8million), driven by growth with
customers in aerospace, defence and medical markets following our
business development success in these markets over the last two
years. There was a GBP2.2 million favourable foreign exchange
impact. Acquisitions made a GBP6.3 million contribution to revenue
in the division.
Underlying operating profit increased to GBP15.4 million from
GBP11.3 million in 2018, up 34% at constant currency. There was a
GBP0.1 million loss from acquisitions. Underlying operating profit
primarily grew as a result of operational leverage on increased
revenues and continued operational improvement, particularly in our
UK operations. Underlying operating margins improved by 100 basis
points to 7.2 per cent (2018: 6.2 per cent). The sustained step up
in the margin of the division is a result of the transformation of
the business from a manufacturing focus on printed circuit board
assemblies to increasingly providing value-added services to our
customers. We have invested in engineering teams to enable the
manufacture of complex assemblies and to provide more sophisticated
testing and engineering services, which account for 55% of
revenues. By providing value-added services that benefit our
customers, we are developing deeper and longer-term customer
relationships and reducing churn in the revenue stream.
The strong growth is a result of investments made in strategic
business development where we have been focused on targeting the
right customers in the right markets. We have identified customers
that have good structural growth drivers in their own markets and
that value the complex engineering services we provide. During the
year, we saw particularly strong growth from an aerospace and
defence braking systems customer on a single aisle commercial
aircraft, following our contract win in 2017.
Our top medical customers grew 18 per cent in the year and we
won two new aerospace, defence and medical customers with
multi-year, multi-million pound revenue streams. Customer wins
include a contract awarded by L3 Harris Technologies to support a
substantial electronics manufacturing programme for a key military
platform, where we are preparing for the contract to ramp up in
2020 and 2021.
We have seen good cross-divisional collaboration, including with
Power Partners, acquired this year. We have had a power supply
designed by Power Partners approved by one of Global Manufacturing
Solution's largest medical customers for use in pharmaceutical
laboratory equipment. We see further opportunity from integrating
products from our Power and Connectivity division, particularly in
aerospace, defence and medical markets.
SENSORS AND SPECIALIST COMPONENTS
The Sensors and Specialist Components division works with
customers to develop standard and customised solutions, including
sensors and power management devices. Our solutions improve the
precision, speed and reliability of critical aspects of our
customers' applications.
2019 2018 Change Change constant
fx
--------------------------- --------- --------- -------- ---------------
Revenue GBP126.8m GBP132.2m (4)% (7)%
Underlying operating
profit(1) GBP15.3m GBP18.5m (17)% (19)%
Operating profit margin(1) 12.1% 14.0% (190)bps (180)bps
--------------------------- --------- --------- -------- ---------------
1 Excluding the effect of restructuring and other non-recurring
costs and acquisition related costs
Note: Prior period restated for the transfer of the Malaysian
Magnetics business to the Power and Connectivity division.
In 2018 the Malaysian Magnetics business generated revenue of
GBP17.5 million and underlying operating profit of GBP2.8
million.
During the year, the Sensors and Specialist Components division
was impacted by softer market conditions and inventory de-stocking
across its markets. Consequently, revenues were GBP126.8 million
(2018: GBP132.2 million), down 7 per cent on an organic basis.
There was also a favourable GBP4.2 million foreign exchange impact.
This follows very strong mid-to-high single digit organic revenue
growth in 2017 and in 2018.
Underlying operating profit was GBP15.3 million (2018: GBP18.5
million), down 19 per cent at constant currency. The underlying
operating profit margin was 12.1 per cent (2018: 14.0 per cent).
The reduction largely reflected the lower revenues and cost
headwinds. We accelerated actions to improve the efficiency of our
cost base including optimising our footprint and fixed labour
costs. We have closed one facility and a further facility is in the
process of being closed, with production being consolidated within
the existing footprint. The total cash cost of this programme is
expected to be circa GBP3.5 million. These actions realised circa
GBP2 million of savings in the year . The underlying operating
profit margin was 12.5 per cent in the second half, following the
decisive cost action taken in the first half. We continue to review
the range of self-help actions that are open to us in the
business.
As a result of the weaker market conditions for sensing and
power management devices we have taken the decision to put on hold
the planned joint venture with Uniroyal. Uniroyal remain a key
supply partner and we are focused on developing our existing
relationship.
Although there has been short term market softening, the long
term structural growth drivers for sensing and power management
devices in applications such as robotic automation, energy, smart
devices and infrastructure remain attractive. We have refocused our
R&D investments around these core growth areas. De-stocking in
the supply chain continues, and once completed we expect demand to
return to more normal levels.
We have seen good growth in the period with a global industrial
customer for our sensors which provide solutions for accurate
information sensing for cash and card transactions. In the year we
have won positions with new and existing customers, including a
contract with a US defence prime to provide a custom sensor used in
power management for a precision guidance mechanism. This arose
from a cross-selling opportunity identified following the
acquisition of Precision in 2018. New contracts were also won with
aerospace and defence customers, primarily for avionic and engine
controls on aircraft.
OTHER FINANCIAL INFORMATION
Corporate costs were GBP7.2 million (2018: GBP7.6 million).
The net interest expense of GBP3.7 million (2018: GBP1.9
million) increased by GBP1.8 million, in part reflecting higher
average net debt associated with the acquisitions of Stadium and
Precision and increased levels of working capital during the year
as well as a GBP1.0 million increase due to the adoption of IFRS
16. Underlying profit before tax increased by 12% at constant
currency to GBP36.3 million (2018: GBP31.5 million).
There was a tax charge in the period of GBP1.2 million (2018:
GBP1.6 million) with an underlying tax charge of GBP5.8 million
(2018: GBP5.3 million) and a credit on items excluded from
underlying profit of GBP4.6 million. This resulted in an effective
underlying tax rate of 16.0 per cent (2018: 16.8 per cent). Basic
underlying earnings per share increased by 15 per cent to 18.7
pence (2018: 16.2 pence) and by 13 per cent at constant
currency.
Profit from continuing operations in the year increased by 7 per
cent to GBP13.9 million (2018: GBP13.0 million) after a charge for
items excluded from underlying profit of GBP21.2 million (2018:
GBP16.9 million). This comprised restructuring and other costs of
GBP13.2 million (2018: GBP4.9 million) primarily related to
headcount reduction and footprint rationalisation in the Sensors
and Specialist Components division, as well as to support delivery
of the Stadium synergy plan. There was also GBP1.0 million related
to pension projects. In addition, acquisition and disposal costs
were GBP8.0 million (2018: GBP12.0 million), including GBP3.1
million of cash costs related to the acquisitions made in the year,
integration costs and costs associated with aborted M&A
activities. Non-cash acquisition costs totalled GBP4.9 million,
including GBP4.5 million of amortisation of acquired intangibles.
Profit from discontinued operations was GBP3.4 million (2018:
GBP0.4 million), primarily relating to the release of tax
provisions due to the resolution of tax risks and expiry of
warranties.
Full year cash conversion was 98% (2018: 88%). Within this,
capital and development expenditure payments totalled GBP18.2
million (2018: GBP18.9 million), equivalent to 1.3 times (2018: 1.4
times) owned asset depreciation and amortisation. There was a
working capital outflow of GBP3.1 million (2018: GBP2.1 million),
with working capital levels adversely impacted by Brexit-related
buffer inventory through the year, as well as additional inventory
to support growth and contract wins. Net interest and taxation
payments were GBP7.7 million (2018: GBP8.4 million).
The Group implemented IFRS 16, Leases with effect from 1 January
2019. On adoption of the new standard, the Group recognised GBP18.0
million of right-of-use assets and GBP21.3 million of lease
liabilities. The impact on the income statement in the year has
been to increase underlying operating profit by GBP0.8 million,
with a broadly offsetting increase in the interest expense of
GBP1.0 million. Prior year comparative information has not been
restated.
Closing net debt at the year-end was GBP69.1 million (2018:
GBP41.7 million), including GBP17.6 million of IFRS 16 lease
liabilities. As a result, net debt to underlying EBITDA at 31
December 2019 on a bank covenant basis was 0.9 times (2018: 0.9
times).
The net accounting surplus under the Group's defined benefit
pension schemes was GBP16.6 million (2018: GBP16.5 million). Total
deficit contribution payments made in the year were GBP8.6 million.
The Stadium Group Retirement Benefits Plan (1974) pension scheme
was merged into the TT Group scheme in March 2019, with the deficit
contributions in the year including a payment of GBP3.4 million to
align the schemes' funding levels.
The triennial valuation of the TT UK defined benefit scheme was
completed during the year. As at April 2019, the scheme was fully
funded (GBP0.3 million surplus) on an actuarial basis. This
compares with a deficit of GBP46.0 million in April 2016. This
significant improvement in the funding position has arisen from the
combination of strong asset returns, planned deficit contributions
and proactive liability management exercises such as the 2018
Pensions Increase Exchange. The Company has committed to continue
its deficit contribution plan to target self-sufficiency and
intends to undertake further de-risking in the future. Future
planned contributions are GBP5.3 million, GBP5.5 million, GBP5.7
million and GBP4.4 million to be paid in 2020 to 2023
respectively.
Bank covenant basis is pre-IFRS 16, proforma for
acquisitions
DIVID
The Board is proposing a final dividend of 4.9 pence per share.
This, with the interim dividend of 2.1 pence per share, gives an
increased dividend of 7.0 pence per share for the full year (2018:
6.5 pence per share), an increase of 8 per cent. Payment of the
dividend will be made on 15 May 2020 to shareholders on the
register on 24 April 2020.
UPDATE ON THE IMPACT OF COVID-19 (CORONAVIRUS)
TT operates two manufacturing facilities in China. One in Suzhou
with circa 650 employees and one in Dongguan with circa 200
employees. In addition, we have two small support facilities in
Shenzhen and Hong Kong. In 2019, these facilities accounted for 25
per cent of the Group's revenues.
Following the coronavirus outbreak around the turn of the year,
our primary concern has been the well-being of our employees and
managing their safe return to work following the lunar holiday.
Both of our facilities closed for the lunar new year holiday as
normal and were mostly closed for normal production until 10
February, as directed by the Chinese authorities. During this
period, our global business continuity and crisis management plans
operated very effectively, and we responded daily to local
authority guidance.
Our Suzhou facility was given special permission to continue
production throughout the extended lunar holiday to supply some
critically needed medical diagnostic products for use in combating
the virus. At this time, under strict government control, we
operated at circa 20 per cent capacity instead of being shut
completely. The Suzhou and Dongguan facilities re-opened on 10
February and have experienced a slower than normal capacity ramp-up
but are now operating at circa 95 per cent capacity. We continue to
prioritise actions and precautions to ensure the safety and
well-being of our employees returning to work in the
facilities.
We are carefully monitoring our supply chain of around 900
suppliers in China. At this time, to the best of our knowledge, 99
per cent of our suppliers have recommenced operations but with
varying degrees of capacity.
The duration and impact of this issue on our business is
uncertain, however based on slower than normal capacity ramp-up in
both our own operations and the supply chain, lost or delayed sales
and cost base inefficiencies we currently anticipate that it could
impact underlying operating profit by up to GBP3 million. The
possible impact of an extended supply chain disruption is
uncertain. We currently expect the impact of these events to be
restricted to 2020.
Our employees and local leadership have been exemplary during
this difficult period. The outstanding efforts of our teams have
enabled the business to continue to operate, deliver critical
equipment and be returning to normality at the earliest possible
time. Our thoughts remain with our employees and their families and
those directly impacted by this situation.
OUTLOOK
Our performance in 2019 is the latest evidence of the
significant business transformation we have achieved over the last
five years. We have delivered a strong performance with another
year of good revenue growth, double-digit profit improvement and
further margin enhancement despite the macro challenges in some of
our markets.
TT is continuing its path to a higher-quality better-balanced
business as a result of our investment in aerospace, defence and
medical markets. Our power, sensing and connectivity solutions help
to enable a more sustainable world. We have added to our technology
and capabilities with the US acquisitions of Power Partners and the
Covina power supply business.
We are well placed to make progress in 2020 and beyond. However,
the duration and impact of the coronavirus remains uncertain, and
based on the current situation we anticipate that it could impact
underlying operating profit by up to GBP3 million in 2020. We are
focused on making further strategic progress, and our new self-help
programme underpins the journey to double-digit margins.
GOING CONCERN
The Directors have reviewed the budgets for 2020 and the
projections for 2021 developed during the 2019 annual strategic
planning cycle. They have assessed the future funding requirements
of the Group and compared them with the level of available
borrowing facilities. They have also assessed the potential impact
on the Group's trading arising from Brexit, which is not
anticipated to be significant in the context of the Group's
operations. Based on this, the Directors are satisfied that the
Group has adequate resources to continue in operational existence
for at least 12 months from the date of approval of the financial
statements. For this reason, they confirm that it is appropriate to
adopt the going concern basis in preparing the financial
statements.
RESPONSIBILITY OF THE DIRECTORS
We confirm that to the best of our knowledge:
-- The financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole; and
-- The Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
We consider 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's position and
performance, business model and strategy.
By order of the Board
Richard Tyson Mark Hoad
Chief Executive Officer Chief Financial Officer
3 March 2020 3 March 2020
Cautionary statement
This report contains forward-looking statements. These have been
made by the Directors in good faith based on the information
available to them up to the time of their approval of this report.
The Directors can give no assurance that these expectations will
prove to have been correct. Due to the inherent uncertainties,
including both economic and business risk factors underlying such
forward-looking information, actual results may differ materially
from those expressed or implied by these forward-looking
statements. The Directors undertake no obligation to update any
forward-looking statements whether as a result of new inf ormation,
future events or otherwise.
Consolidated income statement
for the year ended 31 December 2019
GBPmillion (unless otherwise stated) Note 2019 2018
=============================================== ===== ======== ========
Revenue 3 478.2 429.5
Cost of sales (361.4) (318.8)
=============================================== ===== ======== ========
Gross profit 116.8 110.7
Distribution costs (28.1) (26.4)
Administrative expenses (71.3) (69.5)
Other operating income 1.4 1.7
=============================================== ===== ======== ========
Operating profit 18.8 16.5
========
Analysed as:
Underlying operating profit 3 40.0 33.4
Restructuring and other 7 (13.2) (4.9)
Acquisition related costs 7 (8.0) (12.0)
----------------------------------------------- ----- -------- --------
Finance income 6 0.9 0.5
Finance costs 6 (4.6) (2.4)
----------------------------------------------- ----- -------- --------
Profit before taxation 15.1 14.6
Taxation 8 (1.2) (1.6)
----------------------------------------------- ----- -------- --------
Profit from continuing operations 13.9 13.0
----------------------------------------------- ----- -------- --------
Discontinued operations
Profit from discontinued operations 5 3.4 0.4
----------------------------------------------- ----- -------- --------
Profit for the period attributable to the
owners of the Company 17.3 13.4
----------------------------------------------- ----- -------- --------
EPS attributable to the owners of the Company
(pence)
Basic
Continuing operations 10 8.5 8.0
Discontinued operations 10 2.1 0.3
----------------------------------------------- ----- -------- --------
10.6 8.3
----------------------------------------------- ----- -------- --------
Diluted
From continuing operations 10 8.4 7.8
From discontinued operations 10 2.0 0.3
----------------------------------------------- ----- -------- --------
10.4 8.1
----------------------------------------------- ----- -------- --------
Consolidated statement of comprehensive income
for the year ended 31 December 2019
GBPmillion 2019 2018
====================================================== ====== ======
Profit for the year 17.3 13.4
Other comprehensive income/(loss) for the
year after tax
Items that are or may be reclassified subsequently
to the income statement:
Exchange differences on translation of foreign
operations (4.9) 6.3
(Loss)/gain on hedge of net investment in
foreign operations (2.0) 1.7
Gain/(loss) on cash flow hedges taken to
equity less amounts taken to income statement 0.1 (2.4)
Items that will never be reclassified to
the income statement:
Remeasurement of defined benefit pension
schemes (9.1) 9.5
Tax on remeasurement of defined benefit pension
schemes 1.7 (1.6)
------------------------------------------------------- ------ ------
Total comprehensive income for the year attributable
to the owners of the Company 3.1 26.9
------------------------------------------------------- ------ ------
Consolidated statement of financial position
at 31 December 2019
GBPmillion Note 2019 2018
====================================== ===== ====== ======
ASSETS
Non-current assets
Right-of-use assets 12.8 -
Property, plant and equipment 51.1 51.7
Goodwill 136.1 137.9
Other intangible assets 51.3 55.0
Deferred tax assets 7.5 6.1
Pensions 12 21.2 24.9
-------------------------------------- ----- ------ ------
Total non-current assets 280.0 275.6
-------------------------------------- ----- ------ ------
Current assets
Inventories 102.8 96.4
Trade and other receivables 78.6 76.2
Income taxes receivable 4.3 1.6
Derivative financial instruments 0.9 0.4
Cash and cash equivalents 60.2 40.6
-------------------------------------- ----- ------ ------
Total current assets 246.8 215.2
-------------------------------------- ----- ------ ------
Total assets 526.8 490.8
-------------------------------------- ----- ------ ------
LIABILITIES
Current liabilities
Lease liabilities 3.8 0.4
Derivative financial instruments 2.1 2.1
Trade and other payables 103.9 96.0
Income taxes payable 8.0 13.2
Provisions 5.2 4.4
-------------------------------------- ----- ------ ------
Total current liabilities 123.0 116.1
-------------------------------------- ----- ------ ------
Non-current liabilities
Borrowings 111.7 81.7
Lease liabilities 13.8 0.2
Deferred tax liability 4.6 4.8
Pensions 12 4.6 8.4
Other non-current liabilities 0.2 0.1
-------------------------------------- ----- ------ ------
Total non-current liabilities 134.9 95.2
-------------------------------------- ----- ------ ------
Total liabilities 257.9 211.3
-------------------------------------- ----- ------ ------
Net assets 268.9 279.5
-------------------------------------- ----- ------ ------
EQUITY
Share capital 41.0 40.8
Share premium 4.1 3.4
Other reserves 1.2 2.7
Hedging and translation reserve 32.3 39.1
Retained earnings 188.3 191.5
-------------------------------------- ----- ------ ------
Equity attributable to owners of the
Company 266.9 277.5
Non-controlling interests 2.0 2.0
-------------------------------------- ----- ------ ------
Total equity 268.9 279.5
-------------------------------------- ----- ------ ------
Approved by the Board of Directors on 3 March 2020 and signed on
their behalf by:
Richard Tyson Mark Hoad
Director Director
Consolidated statement of changes in equity
for the year ended 31 December 2019
GBPmillion Share Share Hedging Other Retained Sub- Non-controlling Total
capital premium and translation reserves earnings total interest
reserve
================= ======== ======== ================ ========= ========= ====== =============== ======
At 1 January 2018 40.7 2.9 33.5 8.4 180.0 265.5 2.0 267.5
----------------- -------- -------- ---------------- --------- --------- ------ --------------- ------
Profit for the
period - - - - 13.4 13.4 - 13.4
----------------- -------- -------- ---------------- --------- --------- ------ --------------- ------
Other
comprehensive
income
Exchange
differences on
translation of
foreign
operations - - 6.3 - - 6.3 - 6.3
Gain on hedge of
net investment
in foreign
operations - - 1.7 - - 1.7 - 1.7
Loss on cash flow
hedges
taken to equity
less amounts
taken to income
statement - - (2.4) - - (2.4) - (2.4)
Remeasurement of
defined
benefit pension
schemes - - - - 9.5 9.5 - 9.5
Tax on
remeasurement of
defined benefit
pension
schemes - - - - (1.6) (1.6) - (1.6)
----------------- -------- -------- ---------------- --------- --------- ------ --------------- ------
Total other
comprehensive
income - - 5.6 - 7.9 13.5 - 13.5
----------------- -------- -------- ---------------- --------- --------- ------ --------------- ------
Transactions with owners
recorded
directly in equity
Equity dividends
paid by
the Company - - - - (9.7) (9.7) - (9.7)
Share-based
payments - - - (3.8) - (3.8) - (3.8)
Deferred tax on
share-based
payments - - - (1.0) - (1.0) - (1.0)
Current tax taken
to equity - - - - (0.1) (0.1) - (0.1)
Purchase of own
shares - - - (0.9) - (0.9) - (0.9)
New shares issued 0.1 0.5 - - - 0.6 - 0.6
----------------- -------- -------- ---------------- --------- --------- ------ --------------- ------
At 31 December
2018 40.8 3.4 39.1 2.7 191.5 277.5 2.0 279.5
Impact of
adoption of IFRS
16 - - - - (2.3) (2.3) - (2.3)
----------------- -------- -------- ---------------- --------- --------- ------ --------------- ------
Adjusted balance
at 1 January
2019 40.8 3.4 39.1 2.7 189.2 275.2 2.0 277.2
----------------- -------- -------- ---------------- --------- --------- ------ --------------- ------
Profit for the
year - - - - 17.3 17.3 - 17.3
----------------- -------- -------- ---------------- --------- --------- ------ --------------- ------
Other
comprehensive
income
Exchange
differences on
translation of
foreign
operations - - (4.9) - - (4.9) - (4.9)
Loss on hedge of
net investment
in foreign
operations - - (2.0) - - (2.0) - (2.0)
Gain on cash flow
hedges
taken to equity
less amounts
taken to income
statement - - 0.1 - - 0.1 - 0.1
Remeasurement of
defined
benefit pension
schemes - - - - (9.1) (9.1) - (9.1)
Tax on
remeasurement of
defined benefit
pension
schemes - - - - 1.7 1.7 - 1.7
----------------- -------- -------- ---------------- --------- --------- ------ --------------- ------
Total other
comprehensive
income - - (6.8) - (7.4) (14.2) - (14.2)
----------------- -------- -------- ---------------- --------- --------- ------ --------------- ------
Transactions with owners
recorded
directly in equity
Equity dividends
paid by
the Company - - - - (10.9) (10.9) - (10.9)
Share-based
payments - - - 0.2 - 0.2 - 0.2
Deferred tax on
share-based
payments - - - 0.1 - 0.1 - 0.1
Current tax taken
to equity - - - - 0.1 0.1 - 0.1
Purchase of own
shares - - - (1.8) - (1.8) - (1.8)
New shares issued 0.2 0.7 - - - 0.9 - 0.9
----------------- -------- -------- ---------------- --------- --------- ------ --------------- ------
At 31 December
2019 41.0 4.1 32.3 1.2 188.3 266.9 2.0 268.9
----------------- -------- -------- ---------------- --------- --------- ------ --------------- ------
Consolidated cash flow statement
for the year ended 31 December 2019
GBPmillion Note 2019 2018
=============================================== ===== ======= =======
Cash flows from operating activities
Profit for the year 17.3 13.4
Taxation 1.2 1.6
Net finance costs 3.7 1.9
Restructuring and other 13.2 4.9
Acquisition related costs 8.0 12.0
Profit from discontinued operations (3.4) (0.4)
----------------------------------------------- ----- ------- -------
Underlying operating profit 40.0 33.4
Adjustments for:
Depreciation of property, plant and equipment 13.9 9.8
Amortisation of intangible assets 4.1 3.8
Other items 2.5 3.5
Increase in inventories (9.5) (16.2)
(Increase)/decrease in receivables (4.0) 4.6
Increase in payables 10.4 9.5
----------------------------------------------- ----- ------- -------
Underlying operating cash flow 57.4 48.4
Special payments to pension funds (8.6) (5.3)
Restructuring and acquisition related costs (9.2) (11.2)
----------------------------------------------- ----- ------- -------
Net cash generated from operations 39.6 31.9
Net income taxes paid (3.7) (6.8)
----------------------------------------------- ----- ------- -------
Net cash flow from operating activities 35.9 25.1
----------------------------------------------- ----- ------- -------
Cash flows from investing activities
Interest received 0.1 0.1
Purchase of property, plant and equipment (14.0) (13.4)
Proceeds from sale of property, plant and
equipment and grants received 0.4 4.2
Development expenditure (3.9) (3.7)
Purchase of other intangibles (0.7) (2.1)
Acquisitions of businesses (2.4) (63.9)
Dividends paid by subsidiary to former
shareholders - (0.8)
Cash with acquired businesses 0.1 (3.2)
Disposal of subsidiaries - 1.5
Tax arising on disposal of subsidiaries (1.2) (2.9)
----------------------------------------------- ----- ------- -------
Net cash flow from investing activities (21.6) (84.2)
----------------------------------------------- ----- ------- -------
Cash flows from financing activities
Issue of share capital 0.9 0.6
Interest paid (4.1) (1.7)
Repayment of borrowings - (15.0)
Proceeds from borrowings 30.4 86.7
Payment of lease liabilities (4.4) (0.3)
Other items (4.6) (7.9)
Dividends paid by the Company (10.9) (9.7)
----------------------------------------------- ----- ------- -------
Net cash flow from financing activities 7.3 52.7
----------------------------------------------- ----- ------- -------
Net increase/(decrease) in cash and cash
equivalents 21.6 (6.4)
Cash and cash equivalents at beginning
of year 11 40.6 46.5
Exchange differences 11 (2.0) 0.5
----------------------------------------------- ----- ------- -------
Cash and cash equivalents at end of year 11 60.2 40.6
----------------------------------------------- ----- ------- -------
1 General information
The information set out below, which does not constitute full
financial statements, is extracted from the audited financial
statements of the Group for the year ended 31 December 2019
which:
-- was approved by the Directors on 3 March 2020;
-- contained an unqualified audit report that did not contain
statements under section 498(2) or (3) of the Companies Act
2006;
-- will be available to the shareholders and the public in April
2020; and
-- will be filed with the Registrar of Companies following the
Annual General Meeting.
2 Basis of accounting
The consolidated financial statements have been prepared on a
historical cost basis modified by the revaluation of derivatives
held at fair value and by the revaluation of certain property,
plant and equipment at the transition date to International
Financial Reporting Standards (IFRS). The consolidated financial
statements have been prepared in accordance with IFRS as issued by
the International Accounting Standards Board (IASB) and
interpretations issued by the IFRS Interpretations Committee of the
IASB, as adopted by the European Union, and in accordance with the
provisions of the Companies Act 2006.
The Group has implemented IFRS 16 Leases with effect from 1
January 2019. The standard provides a single lessee accounting
model, requiring lessees to recognise right-of-use assets and lease
obligations for all leases unless the lease term is 12 months or
less or the underlying asset has a low value. 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 at 1 January 2019 and comparative information has
not been restated and continues to be reported under IAS17.
The Group previously classified leases as operating or finance
leases based on whether the lease transferred substantially all the
risks and rewards of ownership. Under IFRS 16, the Group recognises
right-of-use assets and lease liabilities for most leases (unless
the lease term is 12 months or less or the underlying asset has a
low value).
The Group recognises a lease liability at the lease commencement
date (or on initial application), measured as the present value of
the future lease payments, discounted at the incremental borrowing
rate. A corresponding right-of-use asset is recognised separately
on the face of the balance sheet, net of accumulated depreciation
and impairment losses. For leases recognised on initial
application, the right-of-use asset is initially measured at either
the carrying amount if IFRS 16 had always been applied, or an
amount equal to the initially recognised lease liability.
On transition, the Group recognised GBP18.0 million of
right-of-use assets, GBP21.3 million of lease liabilities, an
adjustment of GBP0.2 million to working capital, an adjustment of
GBP0.8 million to deferred tax and an amount of GBP2.3 million
recognised in retained earnings.
The Group recognised depreciation of GBP3.5 million and
impairment of GBP2.7 million (reported outside of underlying
operating profit) in respect of right-of-use assets and interest
costs of GBP1.0 million in respect of leases in the year ended 31
December 2019.
3 Segmental reporting
The Group is organised into three divisions, as shown below,
according to the nature of the products and services provided. Each
of these divisions represents an operating segment in accordance
with IFRS 8 Operating Segments and there is no aggregation of
segments. The chief operating decision maker is the Board of
Directors. The operating segments are:
-- Power and Connectivity - The Power and Connectivity division
designs and manufactures power application products and
connectivity devices which enable the capture and wireless transfer
of data. We collaborate with our customers to develop innovative
solutions to optimise their electronic systems;
-- Global Manufacturing Solutions - The Global Manufacturing
Solutions division provides manufacturing services and engineering
solutions for our product divisions and to customers that often
require a lower volume and higher mix of different products. We
manufacture complex integrated product assemblies for our customers
and provide engineering services including designing testing
solutions and value-engineering; and
-- Sensors and Specialist Components - The Sensors and
Specialist Components division works with customers to develop
standard and customised solutions including sensors and power
management devices. Our solutions improve the precision, speed and
reliability of critical aspects of our customers' applications.
During the year management responsibility for the Kuantan,
Malaysia based Magnetics business was transferred from the Sensors
and Specialist Components operating segment to the Power and
Connectivity operating segment.
The key performance measure of the operating segments is
underlying operating profit. Refer to note 7 for a definition of
underlying operating profit and other alternative performance
measures.
Corporate costs - Resources and costs of the head office managed
centrally but deployed in support of the operating units are
allocated to segments based on a combination of revenue and
operating profit. Resources and costs of the head office which are
not related to the operating activities of the trading units are
not allocated to divisions and are separately disclosed, equivalent
to the segment disclosure information, so that reporting is
consistent with the format that is used for review by the chief
operating decision maker. This gives greater transparency of the
underlying operating profits for each segment.
The accounting policies of the reportable segments are the same
as the Group's accounting policies.
Group financing (including finance costs and finance income) and
income taxes are managed on a Group basis and are not allocated to
operating segments.
Goodwill is allocated to the individual cash generating units
which may be smaller than the segment of which they are part.
a) Income statement information - continuing operations
2019
================== =============== ================ =========== ========== =======
GBPmillion Power Global Sensors Total Corporate Total
and Connectivity Manufacturing and Specialist Operating
Solutions Components Segments
============================= ================== =============== ================ =========== ========== =======
Sales to external customers 138.2 213.2 126.8 478.2 - 478.2
----------------------------- ------------------ --------------- ---------------- ----------- ---------- -------
Underlying operating profit 16.5 15.4 15.3 47.2 (7.2) 40.0
Adjustments to underlying
operating profit (note 7) (21.2)
----------------------------- ================== =============== ================ =========== ==========
Operating profit 18.8
Net finance costs (note
6) (3.7)
----------------------------- ================== =============== ================ =========== ========== -------
Profit before taxation 15.1
----------------------------- ------------------ --------------- ---------------- ----------- ---------- -------
2018
(1)
================== =============== ================ =========== ========== =======
GBPmillion Power Global Sensors Total Corporate Total
and Connectivity Manufacturing and Specialist Operating
Solutions Components Segments
============================= ================== =============== ================ =========== ========== =======
Sales to external customers 115.5 181.8 132.2 429.5 - 429.5
----------------------------- ------------------ --------------- ---------------- ----------- ---------- -------
Underlying operating profit 11.2 11.3 18.5 41.0 (7.6) 33.4
Adjustments to underlying operating
profit (note 7) (16.9)
------------------------------------------------- --------------- ---------------- ----------- ---------- -------
Operating profit 16.5
Net finance costs (note
6) (1.9)
----------------------------- ------------------ --------------- ---------------- ----------- ---------- -------
Profit before taxation 14.6
----------------------------- ------------------ --------------- ---------------- ----------- ---------- -------
(1) Restated for the transfer of the Malaysian Magnetics
business from the Sensors and Specialist Components
division to the Power and Connectivity division
There are no significant sales between segments.
b) Geographic information
The Group operates on a global basis. Revenue from external
customers by geographical destination is shown below. Management
monitor and review revenue by region rather than by individual
country given the significant number of countries where customers
are based.
GBPmillion 2019 2018
============================= ====== ======
United Kingdom 139.4 122.4
Rest of Europe 89.6 79.8
North America 141.7 121.9
Central and South America 0.6 1.1
Asia 103.1 100.7
Rest of the World 3.8 3.6
----------------------------- ------ ------
Total continuing operations 478.2 429.5
----------------------------- ------ ------
c) Market information
The Group operates in the following markets.
GBPmillion 2019 2018
======================= ====== ======
Transportation 54.5 51.2
Aerospace and defence 106.7 80.4
Industrial 201.2 205.4
Medical 115.8 92.5
478.2 429.5
----------------------- ------ ------
4 Acquisitions
On 22 March 2019 the Group acquired the entire equity share
capital of Power Partners Inc. for an initial cash consideration of
$1.6 million (GBP1.2 million). An additional $1.3 million (GBP1.0
million) may become payable subject to business performance over
the next two years, of which GBP1.0 million has been accrued at
year end giving total consideration of GBP2.2 million. From the
date of acquisition to the year end the business generated revenue
of GBP3.3 million and operating profit of GBP0.5 million.
The provisional fair value of the net assets acquired were
GBP1.3 million, including identifiable intangible assets of GBP0.8
million and other assets of GBP0.5 million, resulting in goodwill
recognised on acquisition of GBP0.9 million.
Had the acquisition been completed on 1 January, the full year
revenue and underlying operating profit would have been GBP487.5
million and GBP40.1 million respectively, compared to GBP487.2
million and GBP40.0 million as reported.
The acquisition enhances the Group's technology capabilities in
power products and improves our medical market access accelerating
our organic technology roadmap and US medical market presence. The
goodwill recognised on acquisition represents the Group's view of
the future earnings growth potential of the acquired businesses.
The provisional fair values are based on the information currently
available; if new information obtained within one year of the date
of acquisition about facts and circumstances that existed at the
date of acquisition identifies adjustments to the above amounts, or
any additional provisions that existed at the date of acquisition,
then the accounting for the acquisition will be revised.
On 17 April 2018 the Group acquired the entire equity share
capital of Stadium Group plc for GBP45.8 million in cash and
assumed net debt of GBP13.9 million. On 1 June 2018 the Group
acquired the entire equity share capital of Precision Inc. for an
initial cash consideration of $23.5 million (GBP17.6 million), a
further $0.5 million (GBP0.4 million) working capital adjustment
paid in cash. An additional $1.1 million (GBP0.8 million) was due
based on business performance and was settled in cash in February
2019. The measurement periods closed on 17 April 2019 and 1 June
2019 with no further adjustment to the provisional fair values
shown below:
Stadium Precision
GBPmillion Group plc Inc
================================ =========== ==========
Non-current assets
Property, plant and
equipment 4.1 1.2
Identifiable intangible
assets 22.1 8.2
Deferred tax assets 2.3 -
Current assets / (liabilities)
Inventory 14.6 2.0
Trade and other receivables 13.1 2.9
Cash / (overdraft) (3.6) 0.4
Borrowings - current (10.3) -
Trade and other payables (14.3) (2.1)
Income taxes payable (0.1) -
Provisions - current (0.9) -
Non-current liabilities
Pensions (4.5) -
Deferred tax liability (4.0) -
18.5 12.6
-------------------------------- ----------- ----------
Consideration paid
Cash 45.8 18.0
Deferred consideration - 0.8
----------- ----------
Goodwill 27.3 6.2
-------------------------------- ----------- ----------
5 Discontinued Operations
The results from discontinued operations shown in the
consolidated income statement relates to release of divestment and
tax provisions of GBP3.4 million (2018: GBP0.4 million) held in
respect of disposals completed in earlier years.
The net cash flow from discontinued operations included in the
consolidated cash flow statement is shown below:
GBPmillion 2019 2018
========================================= ====== ======
Disposal of subsidiaries - 1.5
Tax arising on disposal of subsidiaries (1.2) (2.9)
Net cash flow (1.2) (1.4)
----------------------------------------- ------ ------
6 Finance costs and finance income
GBPmillion 2019 2018
========================================= ===== =====
Interest income 0.1 0.1
Interest income on pension surplus 0.8 0.4
========================================= ===== =====
Finance income 0.9 0.5
----------------------------------------- ----- -----
Interest expense 3.0 1.8
Interest on lease liabilities 1.0 -
Interest expense on pension liabilities 0.2 0.2
Amortisation of arrangement fees 0.4 0.4
========================================= ===== =====
Finance costs 4.6 2.4
----------------------------------------- ----- -----
Net finance costs 3.7 1.9
----------------------------------------- ----- -----
7 Alternative performance measures
This financial information includes alternative performance
measures that are not prepared in accordance with IFRS. These
alternative performance measures have been selected by management
to assist them in making operating decisions because they represent
the underlying operating performance of the Group and facilitate
internal comparisons of performance over time.
Alternative performance measures are presented as management
believe they provide investors with a means of evaluating
performance of the Group on a consistent basis, similar to the way
in which management evaluates performance, that is not otherwise
apparent on an IFRS basis, given that certain non-recurring,
infrequent or non-cash items that management does not believe are
indicative of the underlying operating performance of the Group are
included when preparing financial measures under IFRS.
The Directors recognise the following alternative performance
measures: underlying operating profit, free cash flow, cash
conversion, organic revenue growth, underlying EPS (see note 10),
underlying effective tax rate and return on invested capital.
Underlying operating profit
This has been defined as operating profit from continuing
operations excluding the impacts of significant restructuring
programmes; significant one-off items including property disposals,
business acquisition, integration and divestment related activity;
and the amortisation of intangible assets recognised on
acquisition. Business acquisition and divestment related items
include the writing off of the pre-acquisition profit element of
inventory written up on acquisition, other direct costs associated
with business combinations and adjustments to contingent
consideration related to acquired businesses. Restructuring include
significant changes in footprint (including movement of production
facilities) and significant costs of management changes.
2019 2018
========== ====== ========== ======
GBPmillion Operating Tax Operating Tax
profit profit
====================================== ========== ====== ========== ======
As reported 18.8 (1.2) 16.5 (1.6)
Restructuring and other
Restructuring (12.8) 3.0 (2.7) 0.4
Property items - - 3.6 -
Pensions past service charge (0.4) 0.1 (5.8) 1.1
(13.2) 3.1 (4.9) 1.5
-------------------------------------- ---------- ------ ---------- ------
Acquisition related costs
Release of acquisition current tax
provision - - - 0.6
Amortisation of intangible assets
arising on business combinations (4.5) 1.0 (4.8) 1.2
Other acquisition related costs (3.5) 0.5 (7.2) 0.4
-------------------------------------- ---------- ------ ---------- ------
(8.0) 1.5 (12.0) 2.2
-------------------------------------- ---------- ------ ---------- ------
Total items excluded from underlying
measure (21.2) 4.6 (16.9) 3.7
-------------------------------------- ---------- ------ ---------- ------
Underlying measure 40.0 (5.8) 33.4 (5.3)
-------------------------------------- ---------- ------ ---------- ------
Restructuring GBP13.2 million (2018: GBP4.9 million)
In the year ended 31 December 2019 total restructuring costs
amounted to GBP13.2 million of which GBP8.7 million related to the
ongoing restructuring of the footprint of the Sensors and
Specialist Components division (comprising impairment of
right-of-use assets, property, plant and equipment resulting from
the planned closure of one of our facilities in Mexicali, Mexico
(GBP3.9 million) and the closure of our office in Brea, California
(GBP0.3 million) and GBP4.5 million of other costs), GBP2.1 million
to restructuring the site footprint acquired with the Stadium
Group, GBP1.2 million to restructuring the site footprint of the
Power and Connectivity Division, GBP0.8 million for other
restructuring and GBP0.4 million to a pension past service charge
as a result of UK pensions schemes having to equalise male and
female members' benefits in respect of guaranteed minimum
pensions.
In the year ended 31 December 2018 total restructuring costs
amounted to GBP4.9 million of which GBP2.7 million related to costs
associated with site restructuring, a profit arising on the sale of
property (GBP3.6 million) and a pension past service charge (GBP5.8
million) as a result of UK pensions schemes having to equalise male
and female members' benefits in respect of guaranteed minimum
pensions.
Acquisition and disposal related costs GBP8.0 million (2018:
GBP12.0 million)
In the year ended 31 December 2019 acquisition and disposal
related costs amounted to GBP8.0 million which comprises GBP4.5
million of amortisation of acquired intangible assets and GBP3.5
million of other acquisition related costs largely relating to the
integration of Stadium Group and Precision Inc., the acquisition of
Power Partners Inc. and the acquisition of the aerospace and power
supply business of Excelitas Technologies Corporation.
Free cash flow
This has been defined as total net cash flow from operating
activities less total cash flow from investing activities
(excluding acquisitions and disposal proceeds) less interest
paid.
GBPmillion 2019 2018
=========================================== ======= =======
Net cash flow from operating activities 35.9 25.1
Net cash flow from investing activities (21.6) (84.2)
Add back: Acquisition of business 2.4 63.9
Add back: Dividends paid by subsidiary
to former shareholders - 0.8
Add back: Cash with acquired businesses (0.1) 3.2
Add back: Disposal of subsidiaries - (1.5)
Add back: Tax arising from disposal of
subsidiaries 1.2 2.9
Payment of lease liabilities previously (4.0) -
reported as operating leases
Interest paid (4.1) (1.7)
=========================================== ======= =======
Free cash flow 9.7 8.5
------------------------------------------- ------- -------
Cash conversion
This is the underlying operating cash flow post capex
(underlying EBITDA less net capital expenditure (excluding property
disposals), capitalised development expenditure, working capital
and non-cash movements) divided by underlying operating profit.
Cash conversion measures how effectively we convert profit into
cash and tracks the management of our working capital and capital
expenditure.
GBPmillion 2019 2018
=========================================== ======= =======
Underlying operating profit 40.0 33.4
Underlying operating cash flow 57.4 48.4
Purchase of property, plant and equipment (14.0) (13.4)
Proceeds from sale of plant and equipment
and grants received 0.4 0.3
Development expenditure (3.9) (3.7)
Purchase of other intangibles (0.7) (2.1)
Underlying operating cash flow post capex 39.2 29.5
Cash conversion 98% 88%
-------------------------------------------- ------- -------
Organic revenue growth
This is the percentage change in revenue from continuing
operations in the current year compared to the prior year,
excluding the effects of currency movements and acquisitions. This
measures the underlying growth of the business.
GBPmillion Power and Global Sensors Total
Connectivity Manufacturing and Specialist
Solutions Components
======================================= ============== =============== ================ =======
2019 revenue 138.2 213.2 126.8 478.2
Acquisitions (19.5) (6.3) - (25.8)
2019 revenue (excluding acquisitions) 118.7 206.9 126.8 452.4
--------------------------------------- -------------- --------------- ---------------- -------
2018 revenue 115.5 181.8 132.2 429.5
Foreign exchange impact 1.2 2.2 4.2 7.6
2018 revenue at 2019 exchange
rates 116.7 184.0 136.4 437.1
--------------------------------------- -------------- --------------- ---------------- -------
Organic revenue growth (%) 2% 12% (7%) 4%
--------------------------------------- -------------- --------------- ---------------- -------
Underlying earnings per share
This is the profit for the year attributable to the owners of
the Company adjusted to exclude the items not included within
underlying operating profit divided by the weighted average number
of shares in issue during the year (see note 10).
Underlying EPS is a standard metric to determine corporate
profitability for shareholders and it is a measure used as one of
the performance conditions in the Group's Long-term Incentive Plan.
See note 10 for the calculation of underlying earnings per
share.
Underlying effective tax rate
This is defined as the tax charge, adjusted to exclude items not
included within underlying operating profit and other
non-underlying tax items divided by underlying profit before tax,
which is also adjusted to exclude the items not included within
underlying operating profit.
GBPmillion 2019 2018
=============================== ====== ======
Underlying profit 40.0 33.4
Net interest (3.7) (1.9)
------------------------------- ------ ------
Underlying profit before tax 36.3 31.5
Underlying tax 5.8 5.3
Underlying effective tax rate 16.0% 16.8%
------------------------------- ------ ------
Return on invested capital
This is defined as underlying operating profit for the year
divided by average invested capital for the year. Average invested
capital excludes pensions, provisions, tax balances, derivative
financial assets and liabilities, cash and borrowings. This
measures how efficiently assets are utilised to generate returns
with the target of exceeding the cost to hold the assets.
GBPmillion 2019 2019(1) 2018
---------------------------- ------ -------- ------
Underlying profit 40.0 39.2 33.4
Average invested capital 354.0 338.6 289.8
Return on invested capital 11.3% 11.6% 11.5%
(1) Amounts adjusted for the impact of IFRS 16 (underlying
operating profit is adjusted to remove right-of-use asset
depreciation and add back IAS17 operating lease rentals. Invested
capital excludes right-of-use assets).
8 Taxation
a) Analysis of the tax charge for the year
UK tax is calculated at 19% (2018: 19%) of taxable profits.
Overseas tax is calculated at the tax rates prevailing in the
relevant countries. The Group's effective tax rate for the year
from continuing operations was 7.9% (the underlying tax rate was
16.0%, see note 7).
Included within the total tax charge above is a GBP4.6 million
credit relating to items reported outside underlying profit (2018:
GBP3.7 million).
GBPmillion 2019 2018
======================================================= ====== ======
Current tax
Current income tax charge 3.7 6.3
Adjustments in respect of current income tax of
previous year (3.1) (2.9)
------------------------------------------------------- ------ ------
Total current tax charge 0.6 3.4
------------------------------------------------------- ------ ------
Deferred tax
Relating to origination and reversal of temporary
differences 1.4 (1.3)
Change in tax rate 0.1 0.1
Recognition of previously unrecognised deferred
tax assets (0.9) (0.6)
------------------------------------------------------- ------ ------
Total deferred tax credit 0.6 (1.8)
------------------------------------------------------- ------ ------
Total tax charge in the income statement - continuing
operations 1.2 1.6
------------------------------------------------------- ------ ------
b) Reconciliation of the total tax charge for the year
GBPmillion 2019 2018
======================================================== ====== ======
Profit before tax from continuing operations 15.1 14.6
-------------------------------------------------------- ------ ------
Profit before tax multiplied by the standard rate
of corporation tax in the UK of 19% (2018: 19%) 2.9 2.8
Effects of:
Impact on deferred tax arising from changes in tax
rates 0.1 0.1
Overseas tax rate differences 1.0 1.2
Items not deductible for tax purposes or income
not taxable 1.6 1.2
Adjustment to current tax in respect of prior periods (3.1) (2.9)
Recognition of previously unrecognised deferred
tax assets (0.9) (0.6)
Current year tax losses and other items not recognised (0.4) (0.2)
-------------------------------------------------------- ------
Total tax charge reported in the income statement 1.2 1.6
-------------------------------------------------------- ------ ------
The enacted UK corporation tax rate applicable from 1 April 2017
is 19% and from 1 April 2020 is 17%.
9 Dividends
2019 2019 2018 2018
pence GBPmillion pence GBPmillion
per share per share
=============================== =========== ============ =========== ============
Final dividend for prior year 4.55 7.4 4.05 6.6
Interim dividend for current
year 2.10 3.4 1.95 3.1
------------------------------- ----------- ------------ ----------- ------------
6.65 10.8 6.00 9.7
------------------------------- ----------- ------------ ----------- ------------
The Directors recommend a final dividend of 4.9 pence per share
which when combined with the interim dividend of 2.1 pence per
share gives a total dividend for the year of 7.0 pence per share.
The Group has a progressive dividend policy. The final dividend
will be paid on 15 May 2020 to shareholders on the register on 24
April 2020.
10 Earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to the owners of the Company by the weighted average
number of shares in issue during the year.
Underlying earnings per share is based on the underlying profit
after interest and tax.
Pence 2019 2018
============================ ===== =====
Basic earnings per share
Continuing operations 8.5 8.0
Discontinued operations 2.1 0.3
---------------------------- ----- -----
Total 10.6 8.3
---------------------------- ----- -----
Pence 2019 2018
============================ ===== =====
Diluted earnings per share
Continuing operations 8.4 7.8
Discontinued operations 2.0 0.3
---------------------------- ----- -----
Total 10.4 8.1
---------------------------- ----- -----
The numbers used in calculating underlying, basic and diluted
earnings per share are shown below.
Underlying earnings per share:
GBPmillion 2019 2018
============================================ ====== ======
Continuing operations
Profit for the year attributable to owners
of the Company 13.9 13.0
Restructuring and other 13.2 4.9
Acquisition and disposal related costs 8.0 12.0
Tax effect of above items (see note 7) (4.6) (3.7)
------ ------
Underlying earnings 30.5 26.2
-------------------------------------------- ------ ------
Underlying earnings per share (pence) 18.7 16.2
-------------------------------------------- ------ ------
The weighted average number of shares in issue is as
follows:
Million 2019 2018
============================= ====== ======
Basic 163.1 161.8
Adjustment for share awards 3.3 4.6
----------------------------- ------ ------
Diluted 166.4 166.4
----------------------------- ------ ------
11 Reconciliation of net cash flow to movement in net debt
GBPmillion Net cash Borrowings Unamortised Net (debt)/funds
and lease loan
liabilities arrangement
fees
====================================== ========= ============= ============= =================
At 1 January 2018 46.5 (0.6) 1.1 47.0
Cash flow (6.4) - - (6.4)
Businesses acquired - (10.3) - (10.3)
Repayment of borrowings - 15.0 - 15.0
Proceeds from borrowings - (86.7) - (86.7)
Finance lease payments - 0.3 - 0.3
Amortisation of loan arrangement
fees - (0.4) - (0.4)
Reclassification of loan arrangement
fees - 1.1 (1.1) -
Exchange differences 0.5 (0.7) - (0.2)
====================================== ========= ============= ============= =================
At 1 January 2019 40.6 (82.3) - (41.7)
Adjustment on initial application
of IFRS 16 - (21.3) - (21.3)
====================================== ========= ============= ============= =================
Adjusted balance at 1 January
2019 40.6 (103.6) - (63.0)
Cash flow 21.6 - - 21.6
Businesses acquired - (0.2) - (0.2)
Proceeds from borrowings - (30.4) - (30.4)
Payment of lease liabilities - 4.4 - 4.4
Amortisation of loan arrangement
fees - (0.4) - (0.4)
New finance leases - (0.7) - (0.7)
Lease disposal - 0.4 - 0.4
Exchange differences (2.0) 1.2 - (0.8)
====================================== ========= ============= ============= =================
At 31 December 2019 60.2 (129.3) - (69.1)
====================================== ========= ============= ============= =================
12 Retirement benefit schemes
Defined contribution schemes
The Group operates 401(k) plans in North America and defined
contribution arrangements in the rest of the world. The assets of
these schemes are held independently of the Group. The total
contributions charged by continuing operations in respect of
defined contribution schemes were GBP3.5 million (2018: GBP3.0
million).
Defined benefit schemes
At 31 December 2018 the Group operated three defined benefit
schemes in the UK (the TT Group scheme, the Stadium Group and
Southern & Redfern schemes) and overseas defined benefit
schemes in the USA. These schemes are closed to new members and the
UK scheme is closed to future accrual. In order to improve
governance of the UK pension schemes, as well as drive cost
efficiency, the Stadium Group scheme was merged into the TT Group
scheme (the Group's main scheme) with effect from 29 March
2019.
The triennial valuation of the TT Group scheme as at April 2019
showed a net surplus of GBP0.3 million against the Trustee's
funding objective compared with a net deficit of GBP46.0 million at
April 2016. As the scheme was fully funded at the 2019 triennial
valuation date, there is no requirement for the Company to pay
deficit repair contributions. In addition to the statutory funding
objective, the Trustee and Company have agreed to move towards a
'self-sufficient' funding target, under which once full funding is
achieved the likelihood of the Trustee requiring subsequent
contributions from the Company is significantly reduced. To support
the scheme's long-term funding target of self-sufficiency the
Company has agreed to pay additional fixed contributions of GBP5.3
million, GBP5.5 million, GBP5.7 million and GBP4.4 million to be
paid in the years 2020 to 2023.
In addition, the Company has set aside GBP2.5 million to be
utilised in agreement with the Trustee for reducing the long-term
liabilities of the scheme.
The amounts recognised in respect of the pension surplus in the
consolidated balance sheet are:
GBPmillion 2019 2018
============================ ======== ========
Fair value of assets 583.1 541.6
Defined benefit obligation (566.5) (525.1)
---------------------------- -------- --------
Net surplus 16.6 16.5
---------------------------- -------- --------
Represented by:
UK 21.2 20.8
USA (4.6) (4.3)
---------------------------- -------- --------
16.6 16.5
---------------------------- -------- --------
Amounts recognised in the consolidated income statement are:
GBPmillion 2019 2018
==================================== ===== =====
Scheme administration costs 1.0 1.3
Past service cost (non-underlying) 0.4 5.8
Net interest credit 0.6 0.2
------------------------------------ ----- -----
13 Related party transactions
Transactions between the Company and its subsidiaries have been
eliminated on consolidation and are not disclosed in this note.
No related party transactions have taken place in 2019 or 2018
that have affected the financial position or performance of the
Group.
14 Principal risk and uncertainties
The Group continues to be exposed to operational and financial
risks and has an established, structured approach to identifying,
assessing and managing those risks. These risks relate to the
following areas: general economic downturn; contractual risks;
research and development; people and capability; supplier
resilience; IT systems and information; M&A and integration;
sustainability, environment, health and safety; and legal and
regulatory compliance.
15 Subsequent events
On 3 January 2020 the Group acquired the trade and assets of the
aerospace and defence power supply business of Excelitas
Technologies Corp based in Covina, California, for an initial cash
consideration of $17.7 million (GBP13.7 million) and subject to an
additional adjustment dependant on the level of working capital.
The provisional fair values of the identifiable assets and
liabilities acquired are as follows:
GBPmillion
================================================= ======
Non-current assets
Property, plant and equipment 5.4
Current assets / (liabilities)
Inventory 1.3
Trade and other receivables 1.8
Trade and other payables (0.5)
8.0
------------------------------------------------- ------
Consideration
Cash consideration net of the impact of hedging 13.7
Goodwill and acquired intangibles 5.7
------------------------------------------------- ------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UOVBRRWUORAR
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