TIDMTIFS
RNS Number : 3780W
TI Fluid Systems PLC
18 August 2020
TI Fluid Systems plc - Half year results 2020
18 August 2020
TI Fluid Systems plc
Results for the six months ended 30 June 2020
TI Fluid Systems plc, a leading global manufacturer of
automotive fluid storage, carrying and delivery systems for light
vehicles announces its results for the six-month period ended 30
June 2020.
Management basis* As reported
EURm H1 2020 H1 2019 Change H1 2020 H1 2019 Change
Revenue 1,183.1 1,708.1 (525.0) 1,183.1 1,708.1 (525.0)
% Change at constant currency (30.7)%
Adjusted EBIT / Operating
Profit or (Loss) 27.6 173.1 (145.5) (311.9) 123.4 (435.3)
Margin 2.3% 10.1% (7.8)% (26.4)% 7.2% (33.6)%
Adjusted Net Income / (Loss)
or Profit for the period (39.7) 64.5 (104.2) (320.8) 59.9 (380.7)
Adjusted Free Cash Flow** 34.9 19.2 15.7
Dividend (EUR cents) - 3.02 - 3.02
*Management basis metrics are Non - IFRS measures as defined on
pages 18 to 19
** No equivalent GAAP measure - see table 8a for reconciliation
to statutory cash flow items
Group Highlights:
-- Successfully demonstrating the Group's resilient performance
in face of an unprecedented global COVID-19 pandemic and related
economic downturn
-- Revenue of EUR1,183.1 million outperformed global light vehicle production by 2.5%
-- Positive Adjusted EBIT margin of 2.3% despite sharply lower volumes
-- Significant Adjusted Free Cash Flow generation of EUR34.9
million and net cash generated from operating activities of EUR92.5
million
-- Strong balance sheet and liquidity with cash position of
EUR543.4 million at 30 June 2020
-- Instituted a significant cost savings and aggressive cash
preservation programme to ensure the sustainability of the Group's
near term viability
-- Significant savings in both cost and cash areas
-- Global initiative, experienced senior manager ownership
-- Actions across manufacturing, staff labour, purchasing, fixed and corporate costs
-- A structural fixed cost reduction programme was initiated in
the period to address long term viability resulting from a
potential prolonged reduction of global light vehicle
production
-- Expecting to reduce workforce by approximately 1,000
associates, 6 full plant closures and 2 partial closures
-- Cumulative cash expenditures across 2020 and 2021 of EUR47 million
-- Cumulative cash savings across 2020 through 2022 of EUR94 million
-- A non-cash charge of EUR304.6 million impacting goodwill,
intangibles and fixed assets primarily relating to the 2015 Bain
purchase of TI Automotive resulted in a reported loss of EUR(320.8)
million for the period
-- Continued execution of our organic growth strategy and
strategic focus on battery electric vehicles ("BEVs") and hybrid
electric vehicles ("HEVs") in light of the significant challenges
in the first half of 2020
-- We started production of thermal products for the two major
BEV awards announced in 2018, and continue to win additional BEV
programmes and engage in system collaboration with key customers
for additional BEV product and technology opportunities
-- The Group estimates to have its product content on more than
two thirds of 46 key BEVs recently identified to come to market
between 2020 and 2022. Approximately 50% of these BEVs have TIFS
thermal product content*
-- Awarded a new pressure resistant fuel tank programme for a
large HEV platform in Europe with a European customer using our
Integrated Transfer System ("ITS") process technology
*Company estimates/ JP Morgan Europe Equity Research: EV Deep
Dive: European Focus 10 July 2020
-- Awarded the London Stock Exchange Green Economy Mark
recognising that the Group generates over 50% of its revenue from
environmentally positive products, an endorsement of TI Fluid
System technologies that are helping vehicles become greener and
making the world a better place to live
COVID-19 Response
Global light vehicle production volumes were significantly lower
due to the unprecedented impact of COVID-19 with year on year
declines of 20% in China, 40% in Europe and North America. In light
of this growing pandemic, the Group took a number of steps early on
to protect and prioritise the safety of our employees, their
families and our communities. This response consisted of a global
travel ban and the transition to a remote work environment for all
applicable staff employees, as well the closing of certain
production facilities as our OEM customers closed their assembly
plants. The Group also implemented a detailed return to work
protocol with enhanced workplace and manufacturing measures such as
social distancing, improved hygiene procedures and modified shift
patterns. As of 30 June 2020 all of the Group's production
facilities have re-opened.
In addition, to provide humanitarian support to front line
health workers, the Group collaborated with Ford Motor Co. and 3M
to prototype, develop and produce air flex tube assemblies for
powered air-purifying respiratory systems (PAPR). The Group was
able to rapidly leverage its design and manufacturing capabilities
to mass produce quick connectors and a new 'one size fits all' air
flex tube solution for the PAPR system to meet the demand of much
needed protection for health care workers.
William L. Kozyra, Chief Executive Officer and President,
commented:
"The first six months of 2020 saw the impacts of an
unprecedented global economic downturn resulting from the widening
of the COVID-19 pandemic. The Group acted quickly beginning in
March to initiate both humanitarian safeguards for our employees,
cost savings and cash preservation measures to protect the health
of the company. Our actions were early and meaningful and these
cost reduction and cash preservation measures encompassed nearly
every aspect of our business. We continued to deliver solid revenue
outperformance, positive profit and solid positive free cash flow
generation despite the significant headwinds. Our balance sheet,
liquidity and cash positions remain strong. These actions and
initiatives are significant and will assist the Group's financial
performance in 2020 and beyond. We are pleased to have been awarded
the London Stock Exchange's Green Economy Mark as further
recognition of the environmental impact our product technologies
are providing to help make cars greener. Environmental, Social and
Governance ("ESG") remains central to our strategy and company
purpose. We continue to make steady progress in our growth strategy
for fluid systems and continue to win significant regional BEV
programmes with multiple global customers and in turn continue to
gain share in HEV fuel tanks with the award of a high volume
pressure resistant HEV fuel tank programme with a European OEM
customer in Europe. We are well positioned on BEVs launching in the
market today and over 2020-2022 have a solid share of new thermal
product content on key BEV programs coming to market. We continue
with new collaboration projects with key customers, including in
China, to reduce weight, and maximise efficiency in the vehicle
through integrated thermal products and systems. The Group remains
well positioned for the automotive megatrends of reduced emissions
and electrification.
The Group continued to demonstrate its ability to outperform
global light vehicle production in H1 2020, during the biggest
declines the global automotive market has faced in modern history.
We remain confident in our strategy, business model resilience,
operating flexibility and strength in our ability to generate
positive profit and positive free cash flow in H1 2020."
Outlook
As the Group communicated in its Q1 2020 Trading Update on 11
May 2020, the current global economic environment remains highly
uncertain and the continuing impacts of the COVID-19 pandemic
remain unknown, including the outlook for consumer demand adversely
impacting global light vehicle production. As a result, the Group
will not be providing full year 2020 financial outlook at this
time.
TI Fluid Systems plc will host a presentation for analysts and
investors at 9.00am UK time 18 August 2020.
Conference Call Dial-In Details:
UK: +44 (0)330 336 9105
Conference Code: 6387682
The presentation will be available at 7:00am UK time from
www.tifluidsystems.com. An audio recording will be available on our
website in due course.
Enquiries
TI Fluid Systems plc
David J Royce
Investor Relations
Tel: +1 248 376 8624
FTI Consulting
Richard Mountain
Nick Hasell
Tel: +44 20 3727 1340
Chief Executive Officer's review
In the face of an unprecedented global pandemic which drove
significantly lower levels of business activity, we are able to
report robust performance for the first half of 2020 despite the
sharp fall in the vehicle production environment. Management took
early and meaningful actions to protect the business and as a
result it was profitable and cash generative in the first half of
the year. We have instituted a significant cost savings and cash
preservation programme and are also executing a significant
restructuring initiative that will make the Group even stronger
competitively in the future.
Half year 2020 performance
Global light vehicle production volume declined by 33.2% in the
first six months of 2020, compared to the first half of 2019. We
delivered revenue of EUR1,183.1 million (-30.7% at constant
currency), or 2.5% above global light vehicle production. If we
include the impact of currency translation, revenue declined by the
same 30.7%.
We also continued to generate strong positive Adjusted EBITDA of
EUR109.7 million (9.3% margin) and positive Adjusted EBIT of
EUR27.6 million (2.3% margin). Adjusted Net Loss for the period was
EUR39.7 million (H1 2019: EUR64.5 million profit) and positive
Adjusted Free Cash Flow amounted to EUR34.9 million (H1 2019:
EUR19.2 million). These solid results benefitted from our
significant cost reduction and cash preservation actions initiated
early in March 2020. Reported net loss for the period of EUR(320.8)
million (H1 2019: EUR59.9 million) was influenced by the
exceptional impairment charge of EUR304.6 million in addition to
the lower trading volumes.
Our ability to maintain our strong revenue outperformance and
financial performance with solid margins and excellent positive
cash flow in the face of the depressed prevailing market conditions
demonstrates the Group's consistent resilience and the strength of
our strategy, business model and experienced management team and
focus.
Strategy update
In 2020, we expect to continue our success as a leading global
manufacturer of highly engineered fluid storage, carrying and
delivery systems for light vehicles through the execution of our
strategy. Our financial performance benefits from our commitment,
focus and dedication to designing and producing products that help
make vehicles greener, the environment cleaner and the world a
better place to live. This is core to our business model and
strategy. We also continue to benefit from operational flexibility
and our balanced and diversified customer, platform and regional
profile. We remain confident in our focus on electrification and
our HEV and BEV strategy which is progressing very well and is
clearly evidenced by our ability to have product content on more
than two thirds of the 46 key BEV platforms identified to come to
market between 2020 and 2022. This further demonstrates our
successful transition to an electrified world by validating the
Group having thermal products content on approximately 50% of these
46 BEVs. We are proud of this accomplishment and trajectory.
We continue to build on and invest in our leadership in
technology, global manufacturing and competitive cost structure to
support long-term revenue growth and outperformance, profitability
and positive cash flow generation.
The impact of the current COVID-19 outbreak remains challenging
and we are taking a number of mitigation actions and fixed cost
structural measures to prepare the Group for a potential multi-year
recovery of light vehicle production levels. This fixed cost
reduction plan includes the elimination of plants and associates
with cash expenditures in 2020 and 2021 and cash savings and
payback across 2020 through 2022. These fixed and variable cost
reductions are necessary and over the longer term, we expect to
benefit not only as global light vehicle production returns to
growth, but also from increased demand for our advanced fluid
handling products and systems and higher content opportunities
driven by the underlying megatrends of emission reduction,
increased fuel efficiency and electrification. These megatrends
have been and will continue to be front and centre for our
sector.
We will continue to prioritise variable and fixed cost
management and capital allocation to deliver sustainable growth and
continued solid financial performance.
We believe the Group's strong and diversified customer
relationships, extensive global footprint and long trusted
reputation as a leading fluid systems provider has contributed to
several thermal BEV collaboration activities and agreements, HEV
and BEV production contracts and will support continued growth in
these markets for many years to come. We continue to successfully
invest in the transition to electrification.
I remain excited about the path we are on and the Group's
future.
Our people
The Group relies on the skills and expertise of its excellent
employees worldwide, and the H1 2020 results would not have been
achieved without the commitment and dedication of our entire global
team. We are proud to have a strong senior management team whose
deep experience, leadership and determination remains critical
during these continued uncertain times. I would like to recognise,
sincerely thank and continue to hope all can stay healthy and safe
through these challenging times.
Protecting the health and safety of our people is our highest
priority. We took significant proactive actions early, including
travel restrictions, flexible work programmes and as we returned to
work, installed specific return to work protocols. I am confident
that with the efforts of the Group and each of our individual
employees we can limit the impact of the COVID-19 pandemic. Our
experienced management team has a track record of execution and
delivery and will continue to manage through the difficult
environment in 2020.
Bill Kozyra
Chief Executive Officer and President
Chief Financial Officer's Report
We are well placed to continue outperforming global light
vehicle production and delivering strong financial performance in
spite of the challenging global light vehicle production decline in
volumes.
Table 1: Key Performance measures EURm
Management basis* As reported
H1 2020 H1 2019 Change H1 2020 H1 2019 Change
Revenue 1,183.1 1,708.1 (525.0) 1,183.1 1,708.1 (525.0)
% Change at constant currency (30.7)%
Adjusted EBITDA 109.7 245.9 (136.2)
Margin 9.3% 14.4% (5.1)%
Adjusted EBIT / Operating
(Loss) or Profit 27.6 173.1 (145.5) (311.9) 123.4 (435.3)
Margin 2.3% 10.1% (7.8)% (26.4)% 7.2% (33.6)%
Adjusted Net Income / (Loss)
Profit for the period (39.7) 64.5 (104.2) (320.8) 59.9 (380.7)
Earnings per share (7.61) 12.40 (20.0) (61.66) 11.25 (72.9)
Adjusted Free Cash Flow
** 34.9 19.2 15.7
Dividend (EUR cents) - 3.02 - 3.02
*Management basis metrics are Non - IFRS measures as defined on
pages 18 to 19
**No equivalent GAAP measure - see table 8a for reconciliation
to statutory cash flow items
Global light vehicle production is the principal driver of the
Group's performance. In the first six months of 2020, global light
vehicle production decreased significantly to 30.1 million vehicles
or by 33.2% lower compared to the prior period. Even with the
challenging market our revenue continued to outperform global light
vehicle production.
Revenue decreased by EUR523.4 million, or 30.7% period over
period on a constant currency basis, to EUR1,183.1 million and
exceeded the global light vehicle production by 2.5% in H1 2020. If
we include the negative impact of currency of EUR1.6 million,
reported revenue declined by EUR525.0 million, also 30.7% period
over period.
We generated Adjusted EBIT of EUR27.6 million with a margin of
2.3%, a reduction of 780bps from the prior period Adjusted EBIT
margin. The decline in margin is directly related to the conversion
of lower sales arising from the impacts of COVID-19.
We delivered Adjusted Net Income of EUR(39.7) million, compared
to EUR64.5 million in the prior period. Loss for H1 2020 was
EUR(320.8) million compared to EUR59.9 million profit in H1 2019.
Basic EPS was (61.66) Euro cents, a decrease of 648.1% from the
prior period, and Adjusted Basic EPS was (7.61) Euro cents, a
decrease of 161.4% from H1 2019. In spite of the lower global light
vehicle production volumes, H1 2020 was also another period of
strong cash flow performance, where we delivered Adjusted Free Cash
Flow of EUR34.9 million (H1 2019: EUR19.2 million). There is no
equivalent GAAP measure for Adjusted Free Cash Flow as it derived
from net cash generated from operating activities less net cash
used by investing activities.
Automotive Markets
Global light vehicle production volumes declined significantly
by 33.2% in H1 2020 to 30.1 million vehicles as shown in table 2 -
an unprecedented fall due to the impact of COVID-19. The reduction
was across all major regions with the deepest decline occurring in
the month of April at -61.4%.
Table 2: Global light vehicle production volumes: millions of
units
H1 2020 % Change
Europe, including Middle East and Africa 7.5 (38.8)%
Asia Pacific 16.7 (26.3)%
North America 5.1 (39.9)%
Latin America 0.8 (51.0)%
Total global volumes 30.1 (33.2)%
Source: IHS Markit, July 2020 and Company estimates.
Change percentages calculated using unrounded data.
Revenue
Our revenue in each of the regions and by segment is included in
table 3.
Table 3: Revenue by region and by segment EURm
% Change
at constant
H1 2020 H1 2019 Change % Change currency
Total Group Revenue 1,183.1 1,708.1 (525.0) (30.7)% (30.7)%
By Region
Europe and Africa 453.5 705.7 (252.2) (35.7)% (35.6)%
Asia Pacific 415.9 487.1 (71.2) (14.6)% (13.7)%
North America 298.4 480.9 (182.5) (37.9)% (39.5)%
Latin America 15.3 34.4 (19.1) (55.5)% (44.3)%
By segment
Fluid Carrying Systems ("FCS") 651.0 964.2 (313.2) (32.5)% (32.3)%
Fuel Tank and Delivery Systems
("FTDS") 532.1 743.9 (211.8) (28.5)% (28.5)%
Group revenue in 2020 was EUR1,183.1 million, a decrease of
30.7% period over period at constant currency and 2.5% better than
the change in global light vehicle production.
In Europe and Africa, revenue at constant currency declined by
35.6% period over period compared to light vehicle production
decline of 38.8%. This represents an outperformance of 3.2% mainly
driven by the successful launch of new business and favourable mix.
In the region we aligned with our customers and closed factories to
minimise risk to employee well-being and also control costs. Plants
are now open and production volumes are beginning to recover.
In Asia Pacific, revenue at constant currency declined by 13.7%
period over period compared to light vehicle production decline of
26.3%. Asia Pacific outperformed the market by 12.6%. The Group
generates 22.8% of its revenue in China, driven by our
long-standing market position in our brake and fuel lines business
within our FCS segment and continued growth in fuel tank business
with the FTDS segment. Accordingly, FCS revenue was impacted by the
volume declines in China. Despite this we continue to outperform in
the region, primarily through successful business launches and
continuous growth in our FTDS segment in China where revenue was
marginally up period over period.
In North America, revenue at constant currency declined by 39.5%
period over period compared to light vehicle production decline of
39.9%. North America outperformed the market by 0.4%. Although
revenue was impacted by extended OEM factory closures due to
COVID-19, the favourable impact of new business launches and
favourable mix offset the overall decline in revenue.
FCS revenue at constant currency declined by 32.3% from the
prior period to EUR651.0 million. FTDS revenue at constant currency
decreased by 28.5% to EUR532.1 million. Revenue outperformance in
both segments was mainly driven by successful business launches and
program ramp ups in Asia Pacific and Europe regions.
Currency exchange rates had a minor net adverse impact of EUR1.6
million on revenue compared with the prior period. This was mostly
due to strengthening of the Euro against other key currencies in
countries where the Group has manufacturing operations partially
offset by the weakening of the Euro against the US Dollar.
Accordingly, revenue declined by 30.7% to EUR1,183.1 million at
reported rates. Table 4 below sets out the movement in exchange
rates most relevant to our operations.
Table 4: Exchange Rates
30 June 30 June
2020 period 2019 period
Key Euro exchange rates 2020 Average 2019 Average % Change end end % Change
US dollar 1.102 1.130 (2.5) % 1.124 1.137 (1.1) %
Chinese renminbi 7.747 7.664 1.1 % 7.941 7.804 1.8 %
South Korean won 1,328 1,294 2.6 % 1,349 1,313 2.7 %
======================== ============== ============== ======= === ============== ============== ======= ===
Operating profit, Adjusted EBITDA* and Adjusted EBIT*
We use several financial measures to manage our business,
including Adjusted EBITDA and Adjusted EBIT, which are non-IFRS
measures, but are measures of profitability that have been used
consistently by the Group and give insight into the operating
performance of the business. The metrics are also used in certain
of our compensation plans and to communicate to our investors.
Table 5 shows a reconciliation between the reported measure,
operating profit, Adjusted EBITDA and Adjusted EBIT.
Table 5: Calculation of Adjusted EBITDA* and Adjusted EBIT*
EURm
H1 2020 H1 2019
Operating (loss) / profit (311.9) 123.4
Depreciation and impairment of PP&E 54.3 52.7
Depreciation of right-of-use assets 16.9 14.7
Amortisation and impairment of intangible assets 39.4 49.0
Share of (loss)/profit of associates (0.1) 0.1
Exceptional impairment 304.6 -
EBITDA 103.2 239.9
Net foreign exchange losses / (gains) (0.7) (0.9)
Dividend received from associates 0.5 0.5
Restructuring costs 6.6 6.5
Share of loss/(profit) of associates 0.1 (0.1)
Adjusted EBITDA 109.7 245.9
Less:
Depreciation and impairment of PP&E (54.3) (52.7)
Depreciation of right-of-use assets (16.9) (14.7)
Amortisation and impairment of intangible assets (39.4) (49.0)
Add back:
Depreciation uplift arising on purchase accounting 6.5 7.5
Amortisation uplift arising on purchase accounting 22.0 36.1
Adjusted EBIT 27.6 173.1
------------------------------------------------------- ------- -------
* See Non-IFRS measures
The operating loss of EUR311.9 million (H1 2019: EUR123.4
million profit) was impacted by conversion on the lower revenues
caused by the COVID-19 related market impacts. The other major
factor was the exceptional charge of EUR304.6 million relating to
the impairment of certain assets as a result of a review of future
trading volumes by management in light of the prolonged recovery of
light vehicle production in the medium term. Amortisation of
intangible assets was EUR9.6 million lower due to some of the
assets recognised on the Bain acquisition becoming fully amortised
in the prior period. The net finance expense was EUR10.6 million
higher as a result of hedge ineffectiveness of EUR7.1 million (H1
2019: nil), fair value net gains on derivatives and foreign
exchange contracts not in hedged relationships in 2019 not
repeating in 2020 (H1 2019: EUR5.1 million) offset by lower term
loan interest EUR27.0 million (H1 2019: EUR28.7 million).
Adjusted EBITDA was EUR109.7 million (H1 2019: EUR245.9 million)
and Adjusted EBITDA margin was 9.3% (H1 2019: 14.4%) where major
impact was the lower operating profit as a result of conversion on
lower revenue, partially offset by reduction in overhead costs as a
result of cost saving measures in response to COVID-19. We continue
to manage our costs in line with the reduced volumes in order to
minimise the impact on margins. The main adjusting item relates to
restructuring where we took action in our operations in Europe and
North America.
Adjusted EBIT was EUR27.6 million (H1 2019: EUR173.1 million)
and Adjusted EBIT margin was 2.3% (H1 2019: 10.1%). This change was
impacted by lower Adjusted EBITDA as described previously and
increased depreciation and amortisation net of purchase accounting
adjustments of EUR82.1 million (H1 2019: 72.8 million). During the
period there were non-exceptional impairments of EUR4.1 million (H1
2019: EUR0.4 million).
By segment, FCS Adjusted EBIT was EUR14.1 million (H1 2019:
EUR100.2 million) with Adjusted EBIT margin of 2.2% (H1 2019:
10.4%). FCS continues to achieve positive margins despite the
prevailing market environment. The period over period decline in
margin reflected the volume reduction particularly in Europe and
North America. Asia Pacific margin remains strong as the region
recovered earlier from factory shutdowns compared to other
regions.
FTDS Adjusted EBIT decreased by EUR59.4 million to EUR13.5
million (H1 2019: EUR72.9 million) with Adjusted EBIT margin of
2.5% (H1 2019: 9.8%). The decrease in margin reflects the
conversion of the significant reduction in revenues as a result of
COVID-19. Asia Pacific margin also remains strong benefiting from
new business launches in the fuel tanks business.
Net finance expense
Net finance expense for the period was EUR40.7 million, an
increase of EUR10.6 million from the prior period. The increase was
a result of hedge ineffectiveness of EUR7.1 million (H1 2019: nil),
fair value net gains on derivatives and foreign exchange contracts
not in hedged relationships in 2019 not repeating in 2020 (H1 2019:
EUR5.1 million) offset by lower term loan interest EUR27.0 million
(H1 2019: EUR28.7 million). The early close out of certain cash
flow hedges which accelerated ineffectiveness charges into H1 2020,
also gave rise to a realised cash gain of EUR16.6 million.
Taxation
Income tax credit is EUR2.7 million a period over period
decrease of EUR36.2 million in tax charge, primarily due to a
significant period over period decrease in profit, resulting in an
overall ordinary Group loss of EUR48.1 million. There were no
significant changes to uncertain tax positions during the period
(partial release in period to 30 June 2019).
The H1 2020 Adjusted Effective Tax Rate is 40.1% (H1 2019:
31.0%). The Adjusted Effective Tax Rate, was calculated by
adjusting for the impact of UK losses, and prior period tax
movements. After the add back of the significant UK accounting loss
of EUR43.1m, deferred tax assets at the local effective tax rate
have been recognised in the principal operating territories,
offsetting the effects of the tax charges in profitable
territories. The increased Adjusted Effective Tax Rate reflects the
overall credit of EUR2.0m on a residual global loss of EUR5.0m. As
the residual amount of adjusted global loss is low, the Adjusted
Effective Tax Rate is magnified by the effects of certain tax
adjustments, mainly related to favourable foreign exchange
movements in H1 2020. Therefore small changes to the credit have a
material impact on the Adjusted Effective Tax Rate.
Table 6 shows the calculation of the Adjusted Effective Tax
Rate.
Table 6: Calculation of Adjusted Effective Tax rate* EURm
Amounts in the table below do not include the exceptional
impairment charge of EUR304.6 million and exceptional tax benefit
of EUR29.2 million.
Profit
Loss before before
tax Tax credit tax Tax charge
H1 2020 H1 2020 H1 2019 H1 2019
As reported (48.1) 2.7 93.4 (33.5)
Effective Tax Rate 5.6% 35.8%
Add back:
UK accounting loss** 43.1 24.5
Less:
Prior year tax benefit (0.1)
Prior year corporate tax benefit (0.6) (3.0)
Adjusted (5.0) 2.0 117.9 (36.5)
Adjusted Effective Tax Rate 40.1% 31.0%
*See Non-IFRS measures
** UK accounting loss is not tax effected due to the UK
historical tax loss position
Adjusted Net Income* and profit for the period
Adjusted Net Income is a component of the Adjusted Basic EPS
calculation and is also used to guide our dividend calculation. The
calculation of Adjusted Net Income is shown in table 7a.
Table 7a: Adjusted Net Income* EURm
H1 2020 H1 2019
Adjusted EBITDA (see table 5) 109.7 245.9
Less:
Net finance expense before exceptional items (40.7) (30.1)
Income tax credit/(expense) before exceptional items 2.7 (33.5)
Depreciation and impairment of PP&E (54.3) (52.7)
Depreciation of right-of-use assets (16.9) (14.7)
Amortisation and impairment of intangible assets (39.4) (49.0)
Non-controlling interests share of profit (0.8) (1.4)
Adjusted Net Income (39.7) 64.5
------------------------------------------------------- ------- -------
Table 7b: Reconciliation of profit for the period to Adjusted
Net Income* EURm
H1 2020 H1 2019
(Loss) / Profit for the period (320.8) 59.9
Less:
Non-controlling interests share of profit (0.8) (1.4)
Net foreign exchange gains (0.7) (0.9)
Exceptional deferred tax credit (29.2) -
Add back:
Exceptional asset impairment cost 304.6 -
Restructuring costs 6.6 6.5
Associate income less dividend received 0.6 0.4
Adjusted Net Income (39.7) 64.5
-------------------------------------------- ------- -------
*See Non-IFRS measures
In the first six months of 2020 there was a loss of EUR320.8
million, compared to a profit of EUR59.9 million in the
corresponding period in 2019, with lower operating profit as a
result of conversion of lower sales caused by COVID-19 and higher
finance expense, offset by lower fixed costs and tax. In addition,
the company reviewed its asset base in response to the lower
projected global light vehicle production volumes over the medium
term which resulted in an exceptional impairment charge of EUR304.6
million (H1 2019: nil).
Adjusted Net Income was a loss of EUR39.7 million in H1 2020, a
decrease of 161.6% from a profit of EUR64.5 million in H1 2019,
primarily driven by the flow through of lower revenues as a result
of the reduced light vehicle production volumes. The Group incurred
restructuring costs of EUR6.6 million in the period primarily
related to operations in Europe and North America (H1 2019: EUR6.5
million).
Basic EPS and Adjusted Basic EPS*
On a statutory basis, Basic Earnings per Share ('EPS') was
(61.66) Euro cents for the period (H1 2019: 11.25 Euro cents), a
decrease of (648.1)% from the prior period, reflecting the
significant statutory loss arising from lower operating loss as a
result of lower trading volumes and the exceptional impairment
charge, higher net finance expense offset by lower tax and the
exceptional deferred tax credit. Adjusted Basic EPS calculation is
based on Adjusted Net Income and the weighted average number of
shares in issue. Adjusted Basic EPS was (7.61) Euro cents per share
for the period (H1 2019: 12.40 Euro cents per share) reflecting the
decrease in Adjusted Net Income as noted above. Weighted average
shares outstanding on 30 June 2020 were 521.6 million (30 June
2019: 520.3 million). The prior period comparative has been
re-presented to be consistent with the 2020 figure.
*See Non-IFRS measures
Dividend
The Board's dividend policy is to target an annual dividend of
approximately 30% of Adjusted Net Income, one third payable
following half year results and two thirds following the Group's
final results.
The Board has decided not to recommend a 2020 interim dividend
during the ongoing exceptional circumstances.
Adjusted Free Cash Flow*
The Group uses Adjusted Free Cash Flow as its primary operating
measure of cash flow performance.
Table 8a: Adjusted Free Cash Flow* EURm
H1 2020 H1 2019
Net cash generated from operating activities 92.5 106.2
Net cash used by investing activities (48.6) (86.3)
Free Cash Flow* 43.9 19.9
Deduct:
Cash received on settlement of derivatives (16.6) (2.8)
Amounts received in cash from Financial Assets at
FVTPL (included in net cash generated from operations) - (0.3)
Add back: Restructuring cash spend 7.6 2.4
Adjusted Free Cash Flow 34.9 19.2
----------------------------------------------------------- ------- -------
Table 8b: Reconciliation of Adjusted EBITDA to Adjusted Free
Cash Flow* EURm
H1 2020 H1 2019
Adjusted EBITDA (see note 2) 109.7 245.9
Less:
Net cash interest paid (27.8) (30.8)
Cash taxes paid (20.9) (45.6)
Payment for property, plant and equipment (36.3) (59.5)
Payment for intangible assets (14.3) (28.5)
Movement in working capital 42.8 (56.6)
Movement in retirement benefit obligations 0.7 (0.7)
Movement in provisions and other (10.0) (4.3)
Free Cash Flow* 43.9 19.9
Deduct:
Cash received on settlement of derivatives (16.6) (2.8)
Amounts received in cash from Assets at FVTPL - (0.3)
Add back: Restructuring cash spend 7.6 2.4
Adjusted Free Cash Flow 34.9 19.2
*See Non-IFRS measures
In H1 2020, we generated Adjusted Free Cash Flow of EUR34.9
million (H1 2019: EUR19.2 million). The Adjusted EBITDA generated
by the Group was used to fund investment in capital equipment and
intangibles. There was a EUR37.2 million decrease in property,
plant and equipment and intangibles expenditure primarily due to
tight control of the expenditure to preserve cash. Tax cash
payments were EUR24.7 million lower due to lower taxable profits
and proactive deferral of taxes to minimise cash outflows during
the period. Movement in working capital of EUR42.8 million was
driven by the natural unwind of working capital balances. Cash
spend on restructuring activities was EUR7.6 million (H1 2019:
EUR2.4 million). The restructuring cash adjustment has been made to
align the treatment of restructuring with the other Adjusted
measures and has been applied retrospectively.
Retirement benefits
We operate funded and unfunded defined benefit schemes across
multiple jurisdictions with the largest being the US pension and
retiree healthcare schemes. We also have major schemes in the UK,
Canada and Germany. While all of our major plans are closed to new
entrants, a few allow for future accrual. Our schemes are subject
to periodic actuarial valuations. Our net unfunded position
increased by EUR24.0 million to EUR177.7 million at 30 June 2020
due to declining discount rates across many territories, coupled
with the weak overall pension asset performance resulting from the
unprecedented global COVID-19 pandemic which disrupted markets.
Net debt* and net leverage*
Net debt, a non-IFRS measure, as at 30 June 2020 was EUR718.0
million, a decrease of EUR20.3 million from the prior year end. The
Group's net leverage ratio, also a non-IFRS measure was 2.0 times
Last Twelve Months ("LTM") Adjusted EBITDA as at 30 June 2020 (31
December 2019: 1.5 times), the increase reflects the fall in the
LTM Adjusted EBITDA due to the lower trading conditions.
The Group excludes IFRS 16 lease liabilities from its net debt
and net leverage ratio. If the IFRS 16 lease liabilities were to be
included, the Group's net debt would be EUR877.2 million and net
leverage ratio would be 2.4 times LTM Adjusted EBITDA (31 December
2019: 1.8 times).
*See Non-IFRS measures
Liquidity and Going Concern
Our principal sources of liquidity have historically been cash
generated from operating activities and amounts available under our
credit facilities, that currently consist of a revolving facility
under our cash flow credit agreement of $125 million (EUR111.2
million) and an asset backed loan ('ABL') facility of $100 million
(EUR89.1 million). Management took the decision to fully draw the
revolving facility in March 2020 as a pre-emptive action to
minimise the risk that the funds would not be available due to the
risk of banking liquidity. For going concern modelling purposes, it
was anticipated that these drawings would be repaid in 2020. The
availability under the ABL facility as of 30 June 2020 was EUR55.4
million which reflects the reduction in the North America
receivables and inventory over which the facility is secured. Total
available liquidity (cash plus available facilities) on 30 June
2020 was EUR598.8m (31 December 2019: EUR589.9 million).
In making their assessment, the Directors' have reviewed a base
case forecast to 31 December 2021 prepared using the current global
light vehicle production volumes forecast which takes account of
the challenges associated with COVID-19. The base case showed
liquidity of EUR635 million at the end of the review period. A
downside model to recognise further COVID-19 impact and a more
general economic slowdown was also prepared which assumed a further
severe but plausible reduction in global light vehicle production
volumes to 60.0m in 2020 and 67.8m in 2021, 12.2% and 14.0%
respectively lower than the data used for the base model. The
ongoing benefits of the restructuring programme were also reduced
by 50%. The impact of this scenario would be to reduce available
liquidity to EUR497 million at the end of the review period. In
both the base case and the severe but plausible downside scenarios,
there were no covenant breaches.
The Directors have concluded after reviewing the future funding
requirements for the Group over the next 12 months by reference to
the headroom on the committed banking facilities and the expected
performance of the Group, that it is appropriate for the financial
statements to be prepared on a going concern basis. Through the
first half of the year the company remained cash generative.
Principal Risks and Uncertainties
The COVID-19 outbreak continues to represent an operating
performance challenge for us and the automotive industry generally.
The Directors continue to monitor the impact of COVID-19 and have
considered potential emerging risks stemming from the pandemic.
Particularly the Directors have considered risks relating to health
and safety of our global workforce, recent projections for global
light vehicle production volumes, our liquidity and our business
continuity plans. However, we continue to believe in terms of our
assessment of our principal risks and uncertainties, that the
continued impact from COVID-19 manifests itself in the risks
previously identified in the 2019 Annual Report and Accounts
available on our website www.tifluidsystems.com and therefore,
remain unchanged for the remainder of the year.
Outlook
The current global economic environment remains highly uncertain
and the continuing impacts of the COVID-19 pandemic remain unknown,
including the outlook for consumer demand adversely impacting
global light vehicle production. As a result, the Group will not be
providing full year 2020 financial outlook at this time.
Non-IFRS measures
In addition to the results reported under IFRS, we use certain
non-IFRS financial measures to monitor and measure performance of
our business and operations and the profitability of our divisions.
Such measures are also utilised by the Board as targets in
determining compensation of certain executives and key members of
management, as well as in our communications with investors. In
particular, we use Adjusted EBIT, Adjusted EBITDA, Adjusted Net
Income, Adjusted Basic EPS, Adjusted Free Cash Flow and Adjusted
Effective Tax Rate. These non-IFRS measures are not recognised
measurements of financial performance or liquidity under IFRS, and
should be viewed as supplemental and not replacements or
substitutes for any IFRS measures.
Adjusted EBITDA is defined as profit for the year adjusted for
income tax expense, net finance expense, depreciation, amortisation
and impairment of PP&E and intangible assets, net foreign
exchange gains / (losses), restructuring costs and adjustment for
associate income.
Adjusted EBIT is defined as Adjusted EBITDA less depreciation
(including PP&E impairment) and amortisation (including
intangibles impairment) arising on tangible and intangible assets
before adjusting for any purchase price adjustments to fair values
arising on acquisitions.
Operating profit margin is defined as operating profit expressed
as a percentage of revenue.
Adjusted Net Income is defined as Adjusted EBITDA less net
finance expense before exceptional items, income tax expense before
exceptional items, depreciation and amortisation (including
PP&E and intangible asset impairments) and non-controlling
interests share of profit.
Adjusted Basic EPS is defined as Adjusted Net Income divided by
the weighted average number of shares in issue in the year.
Free Cash Flow is defined as the total of net cash generated
from operating activities and net cash used by investing
activities.
Adjusted Free Cash Flow is defined as free cash flow adjusted
for acquisitions, movements in financial assets at fair value
through the profit or loss, cash payments related to IPO costs,
cash received on settlement of derivatives and restructuring cash
spend. The restructuring cash adjustment is made to align the
treatment of restructuring with the other Adjusted measures and is
applied retrospectively.
Adjusted Income Tax before Exceptional items is defined as
income tax before exceptional items adjusted for the tax impact of
prior year tax provisions and adjustments.
Adjusted Profit before Income Tax is defined as profit before
income tax adjusted for UK losses.
Adjusted Effective Tax Rate is defined as adjusted income tax
before exceptional items as a percentage of adjusted profit before
income tax.
Net debt is defined as the total of current and non-current
borrowings excluding lease liabilities, net of cash and cash
equivalents and financial assets at fair value through the profit
and loss.
Net leverage is defined as net debt divided by last twelve
months Adjusted EBITDA.
Ronald Hundzinski
Chief Financial Officer
17 August 2020
Cautionary Statement
This announcement contains certain forward-looking statements
with respect to the financial condition, results of operations and
business of TI Fluid Systems plc (the "Group"). The words
"believe", "expect", "anticipate", "intend", "estimate",
"forecast", "project", "will", "may", "should" and similar
expressions identify forward-looking statements. Others can be
identified from the context in which they are made. By their
nature, forward-looking statements involve risks and uncertainties,
and such forward-looking statements are made only as of the date of
this presentation. Accordingly, no assurance can be given that the
forward-looking statements will prove to be accurate and you are
cautioned not to place undue reliance on forward-looking statements
due to the inherent uncertainty therein. Past performance of the
Company cannot be relied on as a guide to future performance.
Nothing in this announcement should be construed as a profit
forecast.
TABLE OF CONTENTS
GROUP FINANCIAL STATEMENTS
Consolidated Income Statement 22
Consolidated Statement of Comprehensive Income 23
Consolidated Balance Sheet 24
Consolidated Statement of Changes in Equity 25
Consolidated Statement of Cash Flows 26
NOTES TO THE GROUP FINANCIAL STATEMENTS
Summary of Significant Accounting
1 Policies.................................................................. 27
Segment
Reporting.................................................................................................
2 .... 29
Finance Income and
3 Expenditure................................................................................ 30
Income
Tax.......................................................................................................
4 .......... 30
Earnings Per
Share.....................................................................................................
5 . 31
Property, Plant and
6 Equipment................................................................................... 32
Leases....................................................................................................
7 .................... 32
Intangible assets and
8 impairments.............................................................................. 33
Borrowings................................................................................................
9 ................. 40
Fair Values of Financial Assets and
10 Liabilities................................................................ 43
Retirement Benefit
11 Obligations................................................................................... 45
Provisions................................................................................................
12 ................... 46
Cash Generated from
13 Operations................................................................................ 47
Commitments and
14 Contingencies................................................................................ 47
Related Party
15 Transactions.......................................................................................... 47
Independent Review Report 49
Directors' Responsibilities Statement 51
...
Group Financial Statements
Consolidated Income Statement
For the period ended 30 June
Unaudited
2020 Unaudited Unaudited Unaudited
Before
exceptional Exceptional
item item 2020 2019
Continuing operations Notes EURm EURm EURm EURm
Revenue 2 1,183.1 - 1,183.1 1,708.1
Cost of sales (1,090.0) (120.4) (1,210.4) (1,460.9)
Gross profit/(loss) 93.1 (120.4) (27.3) 247.2
Distribution costs (35.5) - (35.5) (47.5)
Administrative expenses (70.0) (184.2) (254.2) (84.6)
Other income 4.4 - 4.4 7.4
Net foreign exchange gains 0.7 - 0.7 0.9
Operating (loss)/profit (7.3) (304.6) (311.9) 123.4
Finance income 3 1.0 - 1.0 6.0
Finance expense 3 (41.7) - (41.7) (36.1)
Net finance expense 3 (40.7) - (40.7) (30.1)
Share of (loss)/profit of
associates (0.1) - (0.1) 0.1
(Loss)/profit before income
tax (48.1) (304.6) (352.7) 93.4
Income tax credit/(expense) 4 2.7 29.2 31.9 (33.5)
(Loss)/profit for the period (45.4) (275.4) (320.8) 59.9
(Loss)/profit for the period
attributable to:
Owners of the parent company (46.2) (275.4) (321.6) 58.5
Non-controlling interests 0.8 - 0.8 1.4
(45.4) (275.4) (320.8) 59.9
Total earnings per share (Euro,
cents)
Basic 5 (0.09) (61.66) 11.25
Diluted 5 (0.09) (61.66) 11.24
-------------------------------- ----- ------------ ----------- --------- ---------
Consolidated Statement of Comprehensive Income
For the period ended 30 June
Unaudited Unaudited
2020 2019
EURm EURm
(Loss)/profit for the period (320.8) 59.9
Other comprehensive (expense)/income
Items that will not be reclassified to profit or
loss
- Re-measurements of retirement benefit obligations (23.7) (1.5)
- Income tax credit on retirement benefit obligations 5.2 -
(18.5) (1.5)
Items that may be subsequently reclassified to profit
or loss
- Currency translation (23.8) 6.8
- Cash flow hedges 12.2 1.9
- Net investment hedges 6.9 4.5
(4.7) 13.2
Other comprehensive (expense)/income for the period (23.2) 11.7
Total comprehensive (expense)/income for the period (344.0) 71.6
Attributable to:
- Owners of the parent company (343.9) 70.8
- Non-controlling interests (0.1) 0.8
Total comprehensive (expense)/income for the period (344.0) 71.6
------------------------------------------------------
Consolidated Balance Sheet
Unaudited
30 June 31 December
2020 2019
Notes EURm EURm
Non-current assets
Intangible assets 8 921.7 1,182.2
Right-of-use assets 7 131.6 161.4
Property, plant and equipment 6 614.0 715.0
Investments in associates 17.8 19.2
Deferred income tax assets 4 45.0 25.1
Trade and other receivables 18.8 21.6
1,748.9 2,124.5
Current assets
Inventories 372.3 367.1
Trade and other receivables 446.9 574.5
Current income tax assets 4 14.7 13.7
Derivative financial instruments 10 - 18.4
Financial assets at fair value through profit
and loss 10 0.9 0.9
Cash and cash equivalents 543.4 411.7
1,378.2 1,386.3
Total assets 3,127.1 3,510.8
Equity
Share capital 6.8 6.8
Share premium 2.2 2.2
Other reserves (109.9) (106.1)
Accumulated profits 919.3 1,261.7
Equity attributable to owners of the Parent
Company 818.4 1,164.6
Non-controlling interests 23.9 24.5
Total equity 842.3 1,189.1
Non-current liabilities
Trade and other payables 12.2 12.3
Borrowings 9 1,148.7 1,148.5
Lease liabilities 7 128.1 138.0
Deferred income tax liabilities 4 90.4 128.5
Retirement benefit obligations 11 177.7 153.7
Provisions 12 4.6 5.0
1,561.7 1,586.0
Current liabilities
Trade and other payables 512.3 611.2
Current income tax liabilities 4 47.7 48.7
Borrowings 9 113.6 2.4
Lease liabilities 7 31.1 28.7
Derivative financial instruments 10 1.6 25.4
Provisions 12 16.8 19.3
723.1 735.7
Total liabilities 2,284.8 2,321.7
Total equity and liabilities 3,127.1 3,510.8
----------------------------------------------
Consolidated Statement of Changes in Equity
For the period ended 30 June
Ordinary Share Other Accumulated Non-controlling Total
shares premium reserves profits Total interests equity
(Unaudited) EURm EURm EURm EURm EURm EURm EURm
Balance at 1
January 2020 6.8 2.2 (106.1) 1,261.7 1,164.6 24.5 1,189.1
(Loss)/profit
for the period - - - (321.6) (321.6) 0.8 (320.8)
Other comprehensive
expense for the
period - - (3.8) (18.5) (22.3) (0.9) (23.2)
Total comprehensive
expense for the
period - - (3.8) (340.1) (343.9) (0.1) (344.0)
Share-based credit - - - (2.3) (2.3) - (2.3)
Dividends paid - - - - - (0.5) (0.5)
Balance at 30
June 2020 6.8 2.2 (109.9) 919.3 818.4 23.9 842.3
--------------------
Ordinary Share Other Accumulated Non-controlling Total
shares premium reserves profits Total interests equity
(Unaudited) EURm EURm EURm EURm EURm EURm EURm
Balance at 1
January 2019 6.8 1.4 (126.3) 1,175.7 1,057.6 22.5 1,080.1
Profit for the
period - - - 58.5 58.5 1.4 59.9
Other comprehensive
income/(expense)
for the period - - 13.8 (1.5) 12.3 (0.6) 11.7
Total comprehensive
income for the
period - - 13.8 57.0 70.8 0.8 71.6
Share-based expense - - - 2.5 2.5 - 2.5
Dividends paid - - - (30.9) (30.9) (0.7) (31.6)
Shares issued - 0.8 - - 0.8 - 0.8
Balance at 30
June 2019 6.8 2.2 (112.5) 1,204.3 1,100.8 22.6 1,123.4
--------------------
Consolidated Statement of Cash Flows
For the period ended 30 June
Unaudited Unaudited
2020 2019
Notes EURm EURm
Cash flows from operating activities
Cash generated from operations 13 142.0 183.5
Interest paid (28.6) (31.7)
Income tax paid (20.9) (45.6)
Net cash generated from operating activities 92.5 106.2
Cash flows from investing activities
Payment for property, plant and equipment (36.3) (59.5)
Payment for intangible assets (14.3) (28.5)
Proceeds from the sale of property, plant
and equipment 1.2 0.8
Interest received 0.8 0.9
Net cash used by investing activities (48.6) (86.3)
Cash flows from financing activities
Proceeds from new borrowings 9 135.6 -
Fees paid on proceeds from new borrowings 9 - (0.3)
Voluntary repayments of borrowings 9 (22.7) (50.0)
Scheduled repayments of borrowings 9 (2.2) (2.2)
Lease principal repayments (12.8) (12.8)
Dividends paid - (30.9)
Dividends paid to non-controlling interests (0.5) (0.7)
Net cash generated from/(used by) financing
activities 97.4 (96.9)
Increase/(decrease) in cash and cash equivalents 141.3 (77.0)
Cash and cash equivalents at the beginning
of the period 411.7 360.1
Currency translation on cash and cash equivalents (9.6) 2.2
Cash and cash equivalents at the end of the
period 543.4 285.3
--------------------------------------------------
1. Summary of Significant Accounting Policies
The principal accounting policies applied in the preparation of
these half year condensed group financial statements are the same
as those applied in the audited consolidated financial statements
for the year ended 31 December 2019.
1.1. Basis of Preparation
These half year condensed group financial statements have been
prepared on the going concern basis as set out in Note 1.2 below.
These half year condensed group financial statements do not
constitute statutory accounts within the meaning of section 434 of
the Companies Act 2006. Statutory accounts for the year ended 31
December 2019 have been filed with the Registrar of Companies. The
report of the auditors on those accounts was unqualified, did not
contain an emphasis of matter paragraph and did not contain any
statement under section 498 of the Companies Act 2006. These half
year condensed group financial statements have been reviewed, not
audited.
These half year condensed group financial statements have been
prepared in accordance with IAS 34 'Interim Financial Reporting',
as adopted by the European Union and the Disclosure and
Transparency Rules of the Financial Conduct Authority.
1.2. Going Concern
The Directors are of the opinion that the Group has adequate
resources to continue in operational existence for at least 12
months from the date of approval of these half year condensed group
financial statements.
In making their assessment, the Directors have reviewed a base
case forecast to 31 December 2021 prepared using the current global
light vehicle production volumes forecast, taking account of the
challenges associated with COVID-19. The base case showed liquidity
of EUR635 million at the end of the review period.
A downside model to recognise further COVID-19 impact and a more
general economic slowdown was also prepared which assumed a further
severe but plausible reduction in global light vehicle production
volumes to 60.0m in 2020 and 67.8m in 2021, 12.2% and 14.0%
respectively lower than the data used for the base model. The
benefits of the restructuring programme were also reduced by 50%.
The impact of this scenario would be to reduce available liquidity
to EUR497 million at the end of the review period.
The Group therefore continues to adopt the going concern basis
in preparing its half year condensed group financial statements.
Further information on the Group's borrowings is given in Note
9.
1.3. New and Revised IFRS Affecting Amounts Reported in the
Current Period (and/or Prior Periods)
There are no new standards or IFRS IC interpretations effective
in the period that have a material impact on the Group.
New and Revised IFRS in issue but not yet effective
A number of new standards, amendments to standards, and
interpretations are effective for annual periods beginning on or
after 1 January 2021, or are not yet effective because they have
not yet been endorsed by the EU. These include an unendorsed
amendment to IFRS 16 'Lease's Covid 19-Related Rent Concessions',
issued on 28 May 2020, which is effective for annual periods
beginning on or after 1 January 2021, but for which earlier
application is permitted. These have not been applied in preparing
the consolidated financial statements. There are no standards or
IFRIC interpretations that are not yet effective that would be
expected to have a material impact on the Group.
1.4. Critical Accounting Estimates and Judgements
The preparation of these financial statements requires the use
of accounting estimates, and management judgement in applying the
Group's accounting policies. The areas involving a higher degree of
judgement or complexity, or where assumptions and estimates are
significant to these financial statements are: post employment
obligations, impairments of assets and recognition of deferred tax
assets.
Further details of the Group's critical accounting estimates
around post employment obligations can be found in Note 1.4.1 of
the audited consolidated financial statements for the year ended 31
December 2019.
Due to the COVID-19 pandemic, global automotive production
volumes are expected to be significantly impacted. Management
consider this to be an indicator of impairment and have therefore
performed a full impairment test as at 30 June 2020. Management
have designated certain input assumptions to the group impairment
test as being critical estimates.
Management have applied judgement in establishing four volume
forecast scenarios, from which operating cash flows over a five
year budget horizon were derived. Further judgement has then been
applied in assigning relative probabilities to these scenarios,
such that weighted average operating cash flows could be calculated
for use in the discounted cash flow model. As the scenarios were
designed to cover all reasonably conceivable outcomes, the key
source of estimation uncertainty in arriving at the forecast
operating cash flows is deemed to be the allocation of scenario
probabilities. The resulting CGU recoverable amounts, as calculated
using the discounted cash flow model, are then in turn sensitive to
the use of discount rates and long term expected growth rates.
Further discussion regarding how these critical estimates have
been made and sensitivity analysis of CGU recoverable amounts to
changes in these assumptions can be found in Note 8.
Due to the COVID-19 pandemic, global automotive production
volumes in the period have been significantly impacted and caused
trading losses. Recognition of deferred tax assets is based on
forecast future taxable income and therefore involves the exercise
of management's judgement regarding the future financial
performance of particular legal entities or tax groups in which the
deferred tax assets are recognised. Management have looked at short
and medium term production volume forecasts to assess the trading
profits to support recognition of the assets.
2. Segment Reporting
In accordance with the provisions of IFRS 8 'Operating
Segments', the Group's segment reporting is based on the management
approach with regard to segment identification; under which
information regularly provided to the chief operating decision
maker ('CODM') for decision making purposes forms the basis of the
disclosure. The Company's CODM is the Chief Executive Officer and
the Chief Financial Officer. The CODM evaluates the performance of
the Company's segments primarily on the basis of revenue and
Adjusted EBITDA, and Adjusted EBIT, both non-IFRS measures.
Two operating segments have been identified by the Group: Fluid
Carrying Systems ('FCS') and Fuel Tank and Delivery Systems
('FTDS').
Unaudited Unaudited
Half year Half year
2020 2019
EURm EURm
Revenue
- FCS - External 651.0 964.2
- Inter-segment 28.7 41.2
679.7 1,005.4
- FTDS - External 532.1 743.9
- Inter-segment 1.7 2.3
533.8 746.2
Inter-segment elimination (30.4) (43.5)
Total consolidated revenue 1,183.1 1,708.1
Adjusted EBITDA
- FCS 53.3 135.1
- FTDS 56.4 110.8
109.7 245.9
Adjusted EBITDA % of revenue
- FCS 8.2% 14.0%
- FTDS 10.6% 14.9%
Total 9.3% 14.4%
Adjusted EBIT
- FCS 14.1 100.2
- FTDS 13.5 72.9
27.6 173.1
Adjusted EBIT % of revenue
- FCS 2.2% 10.4%
- FTDS 2.5% 9.8%
Total 2.3% 10.1%
-----------------------------
3. Finance Income and Expenditure
Unaudited Unaudited
Half year Half year
2020 2019
Notes EURm EURm
Finance income
Interest on short-term deposits, other financial
assets and other interest income 1.0 0.9
Fair value net gains on derivatives and foreign
exchange contracts not in hedged relationships - 5.1
Finance income 1.0 6.0
Finance expense
Interest payable on term loans including expensed
fees 9 (27.0) (28.7)
Net interest expense of retirement benefit
obligations 11 (1.5) (2.3)
Fair value net losses on derivatives and foreign
exchange contracts not in hedged relationships (0.5) -
Fair value net losses on financial instruments:
ineffectiveness (7.1) -
Interest payable on lease liabilities (5.4) (4.9)
Utilisation of discount on provisions and other
finance expense (0.2) (0.2)
Finance expense (41.7) (36.1)
Total net finance expense (40.7) (30.1)
--------------------------------------------------
In March 2020, the group terminated all its forward foreign
exchange contracts designated in cash flow hedge relationships, its
forward foreign exchange contracts designated in net investment
hedges, and all its interest rate swaps. Termination of the hedges
resulted in the recognition of ineffectiveness of EUR7.0
million.
4. Income Tax
Income tax expense is recognised based on Management's estimate
of the effective income tax rate expected for the full financial
year in each jurisdiction in which the Group has operations.
This has resulted in an ordinary effective tax rate of 5.6% for
the half year ended 30 June 2020 (35.8% for the half year ended 30
June 2019). The effective tax rate is impacted by the UK book loss
of EUR43.1 million for the half year ended 30 June 2020 (EUR24.5
million for the half year ended 30 June 2019). This is not tax
effected due to the projected and historical tax loss position in
the UK and therefore has a material impact on the effective tax
rate for both periods.
The UK book loss incurred to 30 June 2020 is due to net interest
and financing expense in the amount of EUR21.1 million (30 June
2019: EUR10.8 million); net foreign exchange loss of EUR11.2
million (30 June 2019: net foreign exchange gain of EUR(1.3)
million) based on fluctuations in the US dollar to Euro exchange
rates related to US dollar denominated intercompany loans and other
operating expenses of EUR10.8 million (30 June 2019: EUR15.0
million).
When the UK book loss of EUR43.1 million for the half year ended
30 June 2020 (EUR24.5 million loss for the half year ended 30 June
2019) and prior period tax adjustments are not considered, the
effective tax rate is adjusted to 40.1% for the half year to 30
June 2020 (31.0% for the half year ended 30 June 2019).
The effective tax rate has decreased to 5.6% (half year to 30
June 2019 35.8%). This represents a small tax credit on an overall
loss for the period. The low credit is primarily due to the non
recognition of the UK losses discussed above.
The Group is also reporting an exceptional impairment charge of
EUR304.6 million for the half year ended 30 June 2020 with a
deferred tax benefit of EUR29.2 million which results in an
exceptional effective tax rate of 9.6%. The low exceptional
effective tax rate is due to the fact that the majority of the
impairment is related to goodwill that does not carry a deferred
tax balance and therefore this portion of the impairment is not tax
effected.
5. Earnings Per Share
5.1. Basic and Diluted Earnings Per Share
2020 2019
Weighted Weighted
Profit average Profit average
attributable number of Earnings attributable number of Earnings
to shareholders shares (in Per Share to shareholders shares (in Per Share
Unaudited (EURm) millions) (EUR, cents) (EURm) millions) (EUR, cents)
Basic (321.6) 521.6 (61.66) 58.5 520.1 11.25
Dilutive shares - - - - 0.5 (0.01)
Diluted (321.6) 521.6 (61.66) 58.5 520.6 11.24
---------------- --------------- ----------- ------------- --------------- ----------- -------------
5.2. Adjusted Earnings Per Share
2020 2019
Unaudited Basic Diluted Basic Diluted
Adjusted Net Income (EURm) (39.7) (39.7) 64.5 64.5
Weighted average number of shares
(in millions) 521.6 521.6 520.1 520.6
Adjusted Earnings Per Share (EUR,
in cents) (7.61) (7.61) 12.40 12.39
---------------------------------- ------ ------- ----- -------
Adjusted Net Income is based on Loss for the period attributable
to shareholders EUR39.7 million (2019: EUR59.9 million profit)
after adding back net adjustments of EUR281.1 million (2019: EUR4.6
million).
6. Property, Plant and Equipment
During the period the Group made PP&E additions of EUR28.0
million (2019: EUR47.4 million). Assets with a carrying value of
EUR1.4 million (2019: EUR1.2 million) were disposed of during the
period.
Exceptional impairment charges of EUR66.1 million were
recognised in the period in relation to PP&E.
7. Leases
The balance sheet at 30 June 2020 shows the following amounts
relating to leases:
Unaudited
30 June 31 December
2020 2019
EURm EURm
Right-of-Use Assets 131.6 161.4
Non-current Lease liabilities 128.1 138.0
Current Lease liabilities 31.1 28.7
Total Lease Liabilities 159.2 166.7
------------------------------
The Group has a significant number of leases for land,
buildings, plant, machinery and equipment. A number of these lease
terms were renegotiated during the period as a result of the
COVID--19 pandemic, to either reduce the rent on a temporary basis
"rent forgiveness", or to reduce the rent on a temporary basis, and
increase later payments, so that the total overall payments are
unchanged "rent holidays". IFRS 16 has been revised to permit
Companies not to assess whether particular COVID-19 related rent
concessions are lease modifications and, instead, account for those
concessions as if they were not lease modifications. This expedient
has not yet been endorsed by the EU. Rent holidays that have been
negotiated are not considered to be lease modifications.
Due to the COVID-19 pandemic, global automotive production
volumes are expected to be significantly impacted. Management
consider this to be an indicator of impairment and have therefore
performed a full impairment test on Right-of-use Assets as at 30
June 2020. This resulted in an impairment to Right-of-use of Assets
in the period of EUR16.8 million.
8. Intangible assets and impairments
8.1. Intangible Assets
Unaudited
30 June 31 December
2020 2019
EURm EURm
Goodwill 548.5 739.0
Capitalised development expenses, computer software
and licences, technology and customer platforms 373.2 443.2
Total intangible assets 921.7 1,182.2
----------------------------------------------------
8.2. Goodwill
Unaudited EURm
Cost at 1 January 2020 739.0
Currency translation (6.3)
Cost at 30 June 2020 732.7
Accumulated impairment at 1 January 2020 -
Exceptional impairment charge (184.2)
Accumulated impairment at 30 June 2020 (184.2)
Net book value at 30 June 2020 548.5
-----------------------------------------
EURm
Cost at 1 January 2019 733.3
Currency translation 5.7
Cost at 31 December 2019 739.0
Accumulated impairment at 1 January 2019 -
Accumulated impairment at 31 December 2019 -
Net book value at 31 December 2019 739.0
-------------------------------------------
8.3. Capitalised Development Expenses, Computer Software and
Licences, Technology and Customer Platforms
Capitalised Computer
development software Customer
expenses and licences Technology platforms* Total
Unaudited EURm EURm EURm EURm EURm
Cost at 1 January 2020 237.4 16.2 135.9 474.4 863.9
Accumulated amortisation (102.2) (11.3) (125.5) (181.7) (420.7)
Net book value at 1 January
2020 135.2 4.9 10.4 292.7 443.2
Additions 9.9 0.3 - - 10.2
Disposals - - - - -
Amortisation charge (14.3) (0.5) (1.2) (20.8) (36.8)
Impairments - exceptional
charge (21.3) (0.5) (0.5) (15.3) (37.6)
- other charges (2.5) - - - (2.5)
Currency translation (0.8) - - (2.5) (3.3)
Net book value at 30 June
2020 106.2 4.2 8.7 254.1 373.2
Cost at 30 June 2020 245.9 16.5 134.6 469.8 866.8
Accumulated amortisation (139.7) (12.3) (125.9) (215.7) (493.6)
Net book value at 30 June
2020 106.2 4.2 8.7 254.1 373.2
-------------------------------------------
*Customer platforms includes intangible assets relating to:
customer platforms (EUR209.4 million); aftermarket customer
relationships (EUR39.0 million}; trade names & trademarks
(EUR5.1 million); non-compete arrangements (EUR0.6 million).
The above amortisation charges for "technology" and "customer
platforms" amounting to EUR22.0 million arise from intangible
assets recognised through purchase price accounting. Amortisation
charges are included in cost of sales.
Capitalised Computer
development software Customer
expenses and licences Technology platforms* Total
EURm EURm EURm EURm EURm
Cost at 1 January 2019 205.4 15.0 130.7 469.0 820.1
Accumulated amortisation (71.5) (9.8) (104.2) (138.1) (323.6)
Net book value at 1 January
2019 133.9 5.2 26.5 330.9 496.5
Additions 31.7 1.2 - - 32.9
Disposals (0.6) - - - (0.6)
Amortisation charge (28.3) (1.5) (16.5) (41.5) (87.8)
Impairments (2.0) - - - (2.0)
Currency translation 0.5 - 0.4 3.3 4.2
Net book value at 31 December
2019 135.2 4.9 10.4 292.7 443.2
Cost at 31 December 2019 237.4 16.2 135.9 474.4 863.9
Accumulated amortisation (102.2) (11.3) (125.5) (181.7) (420.7)
Net book value at 31 December
2019 135.2 4.9 10.4 292.7 443.2
------------------------------
*Customer platforms includes intangible assets relating to:
customer platforms (EUR243.1 million); aftermarket customer
relationships (EUR43.0 million}; trade names & trademarks
(EUR5.6 million); non-compete arrangements (EUR1.0 million).
The above amortisation charges for 'technology' and 'customer
platforms' amounting to EUR58.0 million arise from intangible
assets recognised through purchase price accounting.
8.4. Impairment Tests for Goodwill and Intangibles
The purchase of TIFS Holdings Ltd ('TIFSHL') on 30 June 2015,
which was the previous Parent Company of the Group, and the
consequent fair valuation of assets and liabilities, resulted in
total goodwill recognition of EUR711.1 million and intangibles of
EUR663.2 million. The purchase of Millennium Industries Corporation
on 16 February 2016 resulted in total goodwill recognition of
EUR57.1 million and intangibles of EUR72.6 million.
The intangible assets recognised from acquisitions, as outlined
above, include EUR369.7 million and EUR57.1 million in relation to
customer platforms arising on the Bain and Millennium acquisitions
respectively. These assets reflect the future revenue expected to
arise from customer platforms existing at the date of acquisition,
based on platform lives and probabilities of renewals. The carrying
value at 30 June 2020 of these customer platforms is EUR177.3
million and EUR31.8 million respectively (year ended 31 December
2019: EUR206.7 million and EUR36.4 million) with a remaining useful
life of 6.0 and 6.7 years respectively.
Goodwill and intangible assets are monitored by management at
the operating division level and then the geographic sub-division
level. The distribution across each cash generating units ("CGU")
is as follows:
Unaudited
30 June 2020 31 December 2019
EURm EURm
Goodwill Intangibles Goodwill Intangibles
FCS
North America 151.9 94.2 223.9 102.5
Europe & Africa 140.7 49.0 218.4 53.9
Asia Pacific 231.6 91.0 237.1 100.6
Latin America - - - 0.2
FTDS
North America - 9.1 - 41.5
Europe & Africa - 83.1 34.8 95.5
Asia-Pacific 24.3 46.8 24.8 48.7
Latin America - - - 0.3
548.5 373.2 739.0 443.2
----------------
Goodwill is deemed to have an indefinite useful life. It is
carried at cost and reviewed annually for impairment. Intangibles
assets are amortised over their useful economic life, which range
from 3 to 25 years.
The Group ordinarily carries out its annual impairment test, a
comparison of the carrying value of the non-financial assets of a
CGU to their recoverable amount, as at 31 December. Where the
recoverable amount is less than the carrying value, an impairment
results.
During H1 2020, forecasts for global automotive production
volumes in the near and medium term have been significantly
negatively impacted when compared to equivalent forecasts that
underpinned the Group's 2019 annual impairment assessment, where no
impairment was recognised. The scale of this volume deterioration,
which was beyond what was reasonably estimable in early 2020 has
been the trigger for the Group to conduct a full impairment test as
at 30 June 2020. This resulted in the following impairments being
recorded as at 30 June 2020:
Impairment
Recoverable Impairment of other CGU Total
amount of goodwill assets impairment
EURm EURm EURm EURm
FCS-NA 437.2 71.7 - 71.7
FCS-EU 421.5 77.7 - 77.7
FCS-LA - - 6.3 6.3
FTDS-NA 68.1 - 88.8 88.8
FTDS-EU 273.2 34.8 22.2 57.0
FTDS-LA - - 3.1 3.1
1,200.0 184.2 120.4 304.6
--------
The recoverable amount for the CGUs has been determined based on
a value-in-use calculation. Due to the high level of uncertainty
over future global automotive production volumes, management
elected to use an "expected cash flow" approach described in IAS 36
to determine their estimate of future operating cash flows for each
of the CGUs. To determine the expected cash flows, the Group
established four volume scenarios which covered the period from 30
June 2020 to 30 June 2025, with relative probabilities then
assigned to the operating cash flows arising from these scenarios.
Weighted average operating cash flows across the scenarios are then
calculated for inclusion in the discounted cash flow model.
To reflect the high level of uncertainty in future volume
projections, the four scenarios demonstrate alternative profiles in
terms of the likely future volumes and the rate of market volume
recovery.
The base case scenario utilises the May 2020 IHS global light
vehicles production forecast. This forecast exhibits a significant
reduction in 2020 production units versus 2019, with a subsequent
recovery profile that returns volumes to 2019 levels in 2024, a
compound annual growth rate (CAGR) of 0.4%.
The three additional scenarios reflect two downside volume
profiles relative to the base scenario and one upside volume
profile. These scenarios were prepared by reflecting factors such
as historical external forecasting accuracy, geographical
distributions of volume and different potential rates of market
volume recovery, as demonstrated in the graph in the attached pdf.
(link below).
http://www.rns-pdf.londonstockexchange.com/rns/3780W_1-2020-8-17.pdf
The table below outlines the respective probabilities assigned
to each of these scenarios as well as the 2019 actual production
volumes and 2020 forecast production volumes, with corresponding
growths rates over this period.
2020 global
light vehicle
2019 global production
light vehicle management
production forecast
Scenario Assigned probability (million units) (million units) 2019-2024 CAGR
Base case 70% 88.9 68.3 0.4%
Downside 1 15% 88.9 60.0 (1.2)%
Downside 2 10% 88.9 60.0 (2.7)%
Upside 5% 88.9 70.0 0.8%
----------- ---------- --------- ---------------- ---------------- ---------- ---
The probabilities have been selected by management with
consideration to global economic forecasts, and the perceived
likelihood of plausible outcomes.
Assumptions
The key assumptions used in the value in use calculations
are:
-- Forecast operating cash flows
-- Long-term expected growth rates
-- Discount rates
As outlined above, the forecast operating cash flows were
established using the respective volume scenarios and the resultant
forecast demand for our products given those volumes. Product mix,
pricing assumptions, market outperformance and working capital
management actions, which remain broadly consistent with those that
underpinned the 2019 impairment review, were then applied to the
forecast sales profiles.
Long-term expected growth rates and discount rates are
determined using the services of third party valuation experts and
utilise externally available sources of information, adjusted where
relevant for industry specific factors. Long-term growth rates are
based on long-term economic forecasts for growth in the automotive
sector in the geographical regions in which the CGUs operate.
Discount rates are calculated for each division using a weighted
average cost of capital specific to the geographical regions from
which the cash flows are derived.
The range of discount and growth rates used were as follows:
2020 2019
FCS FTDS FCS FTDS
Pre-tax discount rates
North America 15.25% 16.25% 13.75% 14.75%
Europe & Africa 16.00% 17.00% 15.50% 16.50%
Asia Pacific 16.00% 16.50% 15.50% 15.75%
Latin America 27.00% 26.50% 26.25% 27.00%
Long-term growth rates
North America 2.00% 3.00% 2.50% 3.50%
Europe & Africa 2.75% 2.50% 3.25% 3.00%
Asia-Pacific 5.00% 4.75% 5.50% 5.25%
Latin America 4.50% 3.50% 5.00% 4.00%
----------------------- ----- ----- ----- -----
Sensitivity analysis
The H1 2020 impairment review necessitated that the recoverable
amount attributable to the FCS-LA and FTDS-LA assets, within the
scope of IAS 36, be fully impaired. Each scenario modelled resulted
in operating cash outflows. The Latin American CGUs have therefore
been excluded from the following sensitivity analysis, as
management do not believe reasonably possible changes in input
assumptions would alter this result.
Management consider the input assumptions to the impairment
model to be critical estimates, as there is a significant risk of a
material adjustment to the carrying value of CGU net assets
resulting from changes in these assumptions.
Where the current period impairment test has resulted in an
impairment, or where management believe a reasonably possible
change in assumption would cause a future impairment, sensitivity
testing has been performed.
The following table demonstrates the impact of changes in
long-term expected growth rates and discount rates for CGUs deemed
to be sensitive to such changes.
Impact of 100
Existing assumption BPS change
Long-term
Long-term expected
Recoverable expected Discount growth
amount Discount growth rate rate
EURm rate rate EURm EURm
FCS-NA 437.2 15.3% 2.0% 32.7 20.1
FCS-EU 421.5 16.0% 2.8% 36.4 22.9
FTDS-NA 68.1 16.3% 3.0% 7.2 4.5
FTDS-EU 273.2 17.0% 2.5% 20.4 12.1
-------- ----------- --------- ------- --------- ---------
Potential variability in the amount and timing of operating cash
flows has been incorporated in the calculation of forecast
operating cash flows, using the expected cash flow approach and
four scenarios outlined above.
Assuming 100% probability weightings to each of the four
scenarios would result in the following impairments:
100% Base 100% Downside 100% Downside
As recorded Case 1 2 100% Upside
FCS-NA 71.7 38.2 147.3 221.3 14.2
FCS-EU 77.7 33.1 208.0 237.7 0.0
FCS-LA 6.3 6.3 6.3 6.3 6.3
FTDS-NA 88.8 81.6 111.5 132.3 33.7
FTDS-EU 57.0 45.8 105.1 127.2 0.0
FTDS-LA 3.1 3.1 3.1 3.1 3.1
304.6 208.1 581.3 727.9 57.3
No impairments have been recorded in FCS-AP and FTDS-AP due to
more resilient production volume forecasts in the Asia Pacific
region. Applying a 100% weighting to the Downside 2 scenario would
still result in recoverable amounts that exceed CGU net assets.
In response to the COVID-19 pandemic, management have initiated
a number of mitigating cost reduction schemes, including global
restructuring programmes. Only savings from restructuring events
that were appropriately authorised by management and communicated
to the affected employees on or before 30 June 2020 have been
reflected in forecast operating cash flows. Further restructuring
activities will be undertaken in the second half of 2020, which it
is anticipated will have a favourable impact on future cash flows
not yet reflected in the current impairment modelling.
9. Borrowings
Unaudited
30 June 31 December
2020 2019
Notes EURm EURm
Non-current:
Secured loans:
- Main borrowing facilities 9.2 1,148.6 1,148.4
- Other secured loans 0.1 0.1
Total non-current borrowings 1,148.7 1,148.5
Current:
Secured loans:
- Main borrowing facilities 9.2 113.5 2.3
- Other secured loans 0.1 0.1
Total current borrowings 113.6 2.4
Total borrowings 1,262.3 1,150.9
Main borrowing facilities 9.2 1,262.1 1,150.7
Other loans 0.2 0.2
Total borrowings 1,262.3 1,150.9
-----------------------------
The main borrowing facilities are shown net of issuance
discounts and fees of EUR13.5 million (2019: EUR16.9 million).
9.1. Movement in Total Borrowings
Main borrowing Other
facilities loans Total borrowings
Unaudited EURm EURm EURm
At 1 January 2020 1,150.7 0.2 1,150.9
Accrued interest 23.6 - 23.6
Scheduled payments (25.8) - (25.8)
Fees expensed 3.4 - 3.4
New borrowings 135.6 - 135.6
Voluntary repayments of borrowings (22.7) - (22.7)
Currency translation (2.7) - (2.7)
At 30 June 2020 1,262.1 0.2 1,262.3
-----------------------------------
On 27 March 2020 the Group drew down US$125.0 million (EUR112 .9
million) of its revolving credit facility ("RCF"). Drawings are
available up to US$125.0 million under this facility, and bear
interest in a range of US$ LIBOR +3.0% to US$ LIBOR + 3.5% p.a.
depending on the Group's leverage ratios. The RCF whilst drawn was
bearing interest of US$ LIBOR +3.25%. The facility was repaid in
full on 29th July 2020.
On 27 March 2020 the Group also drew down US$25.0 million
(EUR22.7 million) of its asset backed loan ("ABL"). The ABL was
previously zero. The ABL is a facility of up to US$100.0 million
depending upon the level of inventories and trade receivables in
the Group's US and Canadian businesses. Drawings under the facility
bear interest at US$ LIBOR +1.25% p.a, unless the drawings are
$50.0 million or above, when the rate is US$ LIBOR +1.50% p.a. The
ABL was repaid in full on 21 May 2020.
Main borrowing
facilities
and unsecured Other
notes loans Total borrowings
EURm EURm EURm
At 1 January 2019 1,181.4 0.3 1,181.7
Accrued interest 48.8 0.3 49.1
Scheduled payments (53.2) (0.4) (53.6)
Fees expensed 7.7 - 7.7
Fees on new borrowings (0.3) - (0.3)
Voluntary repayments of borrowings (50.0) - (50.0)
Currency translation 16.3 - 16.3
At 31 December 2019 1,150.7 0.2 1,150.9
-----------------------------------
9.2. Main Borrowing Facilities
The main borrowing facilities comprise a package of secured
loans consisting of a term loan, a revolving credit facility and an
asset-backed loan.
The amounts outstanding under the agreements are:
Unaudited
30 June 31 December
2020 2019
EURm EURm
Principal outstanding:
US term loan 742.2 743.2
Euro term loan 422.2 424.4
Revolving credit facility 111.2 -
Main borrowing facilities 1,275.6 1,167.6
Issuance discounts and fees (13.5) (16.9)
Main borrowing facilities 1,262.1 1,150.7
----------------------------
9.3. Movements in Net Borrowings and Lease liabilities
Non-cash changes
At 1 January Fees Currency Remeas-urement At 30 June
2020 Cash flows New leases expensed translation and disposals 2020
Unaudited EURm EURm EURm EURm EURm EURm EURm
Cash and
cash
equivalents 411.7 141.3 - - (9.6) - 543.4
Financial
assets at
FVTPL 0.9 - - - - - 0.9
Borrowings (1,150.9) (110.7) - (3.4) 2.7 - (1,262.3)
Total net
borrowings (738.3) 30.6 - (3.4) (6.9) - (718.0)
Lease
liabilities (166.7) 12.8 (6.2) - 2.2 (1.3) (159.2)
Net
borrowings
and Lease
liabilities (905.0) 43.4 (6.2) (3.4) (4.7) (1.3) (877.2)
------------
Non-cash changes
Change
in
account-ing
policy: Restated
At 1 adoption at 1 At 31
January of IFRS January Cash New Fees Currency Remeas-urement December
2019 16 2019 flows leases expensed translation and disposals 2019
EURm EURm EURm EURm EURm EURm EURm EURm EURm
Cash and
cash
equivalents 360.1 - 360.1 48.2 - - 3.4 - 411.7
Financial
assets at
FVTPL 1.2 - 1.2 (0.3) - - - - 0.9
Borrowings (1,183.7) 2.0 (1,181.7) 54.8 - (7.7) (16.3) - (1,150.9)
Total net
borrowings (822.4) 2.0 (820.4) 102.7 - (7.7) (12.9) - (738.3)
Lease
liabilities - (147.0) (147.0) 27.1 (47.5) - - 0.7 (166.7)
Net
borrowings
and lease
liabilities (822.4) (145.0) (967.4) 129.8 (47.5) (7.7) (12.9) 0.7 (905.0)
------------
Cash flows from financing activities arising from changes in
financial liabilities are analysed below:
Unaudited Unaudited
Half year Half year
2020 2019
EURm EURm
Proceeds from new borrowings (135.6) -
Fees paid on proceeds from new borrowings - 0.3
Voluntary repayments of borrowings 22.7 50.0
Scheduled repayments of borrowings 2.2 2.2
Lease principal repayments 12.8 12.8
Cash (inflows)/outflows from financing activities
arising from changes in financial liabilities (97.9) 65.3
Borrowings cash flows (110.7) 52.5
Lease liabilities cash flows 12.8 12.8
Cash (inflows)/outflows from financing activities
arising from changes in financial liabilities (97.9) 65.3
--------------------------------------------------
10. Fair Values of Financial Assets and Liabilities
Financial Instruments by Category
As at 30 June 2020:
Assets
at amortised Assets
Unaudited cost at FVTPL Total
Financial assets EURm EURm EURm
Cash and cash equivalents 543.4 - 543.4
Financial assets at FVTPL - 0.9 0.9
Trade and other receivables excluding prepayments 405.4 - 405.4
Total at 30 June 2020 948.8 0.9 949.7
--------------------------------------------------
Liabilities
at amortised Liabilities
Unaudited cost at FVTPL Total
Financial liabilities EURm EURm EURm
Trade and other payables excluding deferred
income (395.4) - (395.4)
Borrowings (1,262.3) - (1,262.3)
Lease liabilities (159.2) - (159.2)
Derivative financial instruments:- Forward
foreign exchange contracts (cash flow hedges) - (1.6) (1.6)
Total at 30 June 2020 (1,816.9) (1.6) (1,818.5)
-----------------------------------------------
As at 31 December 2019:
Assets at
amortised Assets in Assets
cost hedged relationships at FVTPL Total
Financial assets EURm EURm EURm EURm
Cash and cash equivalents 411.7 - - 411.7
Financial assets at FVTPL - - 0.9 0.9
Trade and other receivables excluding
prepayments 528.4 - - 528.4
Derivative financial instruments:
- Forward foreign exchange contracts
(cash flow hedges) - 14.2 3.1 17.3
- Interest rate swaps (cash flow
hedges) - 1.1 - 1.1
Total at 31 December 2019 940.1 15.3 4.0 959.4
--------------------------------------
Liabilities Liabilities
at amortised in hedged Liabilities
cost relationships at FVTPL Total
Financial liabilities EURm EURm EURm EURm
Trade and other payables excluding
deferred income (507.3) - - (507.3)
Borrowings (1,150.9) - - (1,150.9)
Lease liabilities (166.7) - - (166.7)
Derivative financial instruments:
- Forward foreign exchange contracts
(cash flow hedges) - (5.4) (1.7) (7.1)
- Forward foreign exchange contracts
(net investment hedges) - (17.0) - (17.0)
- Interest rate floor - - (1.3) (1.3)
Total at 31 December 2019 (1,824.9) (22.4) (3.0) (1,850.3)
--------------------------------------
Fair value estimates of derivatives are based on relevant market
information and information about the financial instruments, which
are subjective in nature. The fair value of these financial
instruments is estimated by discounting the future cash flows to
net present values using appropriate market rates prevailing at the
reporting date, which is a proxy for market price. All derivative
items reported are within Level 2 of the fair value hierarchy
specified in IFRS 13 'Fair Value Measurement'; their measurement
includes inputs other than quoted prices that are observable for
the asset or liability, either directly or indirectly.
The fair values of non-derivative amounts are determined in
accordance with generally accepted valuation techniques based on
discounted cash flow analysis. For the non-derivative items
reported above, it is assumed that by their nature their carrying
value approximates their fair value.
11. Retirement Benefit Obligations
Balance Sheet
The net liability for defined benefit arrangements is as
follows:
Other Other post-employment
Unaudited US pensions pensions US healthcare liabilities Total
Net liability EURm EURm EURm EURm EURm
Present value of retirement
benefit obligations (233.6) (108.9) (35.0) (92.5) (470.0)
Fair value of plan assets 161.8 107.5 - 24.2 293.5
Asset ceiling - (1.2) - - (1.2)
Net liability at 30 June 2020 (71.8) (2.6) (35.0) (68.3) (177.7)
============================== =========== ========= ============= ===================== =======
Other Other post-employment
US pensions pensions US healthcare liabilities Total
Net liability EURm EURm EURm EURm EURm
Present value of retirement
benefit obligations (222.9) (107.9) (34.0) (92.0) (456.8)
Fair value of plan assets 171.7 111.9 - 24.5 308.1
Asset ceiling - (5.0) - - (5.0)
Net liability at 31 December
2019 (51.2) (1.0) (34.0) (67.5) (153.7)
============================= =========== ========= ============= ===================== =======
Income Statement
Net (expense)/income recognised in the Income Statement is as
follows:
Other
pensions Other post-employment
Unaudited US pensions EURm US healthcare liabilities Total
Net expense EURm EURm EURm EURm EURm
Current service cost (0.1) (0.6) - (3.7) (4.4)
Net interest expense (0.7) - (0.4) (0.4) (1.5)
Total expense for the period
ended 30 June 2020 (0.8) (0.6) (0.4) (4.1) (5.9)
============================= =========== ========= ============= ===================== =====
Other Other post-employment
Unaudited US pensions pensions US healthcare liabilities Total
Net expense EURm EURm EURm EURm EURm
Current service cost (0.1) (0.4) - (3.3) (3.8)
Net interest (expense)/income (1.2) 0.1 (0.7) (0.5) (2.3)
Total income/(expense) for
the period ended 30 June 2019 (1.3) (0.3) (0.7) (3.8) (6.1)
=============================== =========== ========= ============= ===================== =====
At 31 May 2020 the Group reviewed the discount rates relating to
the most significant retirement benefit obligations and determined
for US pension obligations the discount rate was 2.75% (3.20%, at
31 December 2019). As there was no material change in rates during
June, these May rates were used at 30 June 2020.
Changes resulting from these US benchmark indexes in the
first-half of 2020 coupled with weak overall pension asset
performance in the same period increased the net US pension
liability by EUR20.6 million resulting from the unprecedented
global COVID-19 pandemic which disrupted markets.
The decrease/(increase) in the total retirement benefit
obligations due to a +50bp/-50bp change in the discount rate is
EUR31.0m/(EUR36.1m) for all plans combined.
12. Provisions
Movements in provisions are as follows:
Product
warranty Restructuring Other Total
Unaudited EURm EURm EURm EURm
At 1 January 2020 13.9 5.1 5.3 24.3
Provisions made during the period 4.4 6.6 - 11.0
Provisions used during the period (4.1) (7.6) (0.1) (11.8)
Provisions reversed during the period (1.7) - - (1.7)
Currency translation (0.1) (0.1) (0.2) (0.4)
At 30 June 2020 12.4 4.0 5.0 21.4
--------------------------------------
Product
warranty Restructuring Other Total
EURm EURm EURm EURm
At 1 January 2019 18.4 4.4 6.1 28.9
Provisions made during the year 14.3 9.0 - 23.3
Provisions used during the year (17.3) (8.5) (0.4) (26.2)
Provisions reversed during the year (1.6) - (0.4) (2.0)
Utilisation of discount - 0.2 - 0.2
Currency translation 0.1 - - 0.1
At 31 December 2019 13.9 5.1 5.3 24.3
------------------------------------
The restructuring charge of EUR6.6 million in the period
comprises EUR4.4 million in relation to the FCS division and EUR2.2
million in relation to FTDS (year ended 31 December 2019: EUR6.4
million and EUR2.6 million respectively).
13. Cash Generated from Operations
Unaudited Unaudited
Half year Half year
2020 2019
EURm EURm
(Loss)/ profit for the period (320.8) 59.9
Income tax (credit)/expense before exceptional items (2.7) 33.5
Exceptional income tax credit (29.2) -
(Loss)/profit before income tax (352.7) 93.4
Adjustments for:
Depreciation, amortisation and impairment charges 110.6 116.4
Exceptional impairment charges 304.6 -
Loss on disposal of PP&E and intangible assets 0.2 0.2
Share-based (credit)/expense (2.3) 2.7
Net finance expense 40.7 30.1
Unremitted share of loss/profit from associates 0.6 0.4
Net foreign exchange gains (0.7) (0.9)
Changes in working capital:
- Inventories (11.5) (38.1)
- Trade and other receivables 181.9 (17.0)
- Trade and other payables (127.7) (1.5)
Change in provisions (2.4) (1.5)
Change in retirement benefit obligations 0.7 (0.7)
Total 142.0 183.5
-----------------------------------------------------
14. Commitments and Contingencies
Capital Commitments
Expenditure on non-current assets authorised and contracted for
at the end of the period but not yet incurred is as below:
Unaudited
30 June 31 December
2020 2019
EURm EURm
Intangible assets 10.7 7.3
Property, plant and equipment 48.3 46.9
Total 59.0 54.2
------------------------------
15. Related Party Transactions
15.1. Transactions with Group Companies
Balances and transactions between Group companies have been
eliminated on consolidation, and are not disclosed in this note
except for subsidiaries that are not wholly owned. Transactions
with those companies are made on the Group's standard terms of
trade.
There have been no significant changes in the nature of
transactions between subsidiaries that are not wholly owned, or
associates, and other group companies that have materially affected
the condensed group financial statements in the period.
15.2. Ultimate controlling party
The funds managed by Bain Capital have been the Company's
ultimate controlling party since its incorporation.
Independent review report to TI Fluid Systems plc
Report on the half year condensed group financial statements
Our conclusion
We have reviewed TI Fluid Systems plc's half year condensed
group financial statements (the "interim financial statements") in
the interim report of TI Fluid Systems plc for the 6 month period
ended 30 June 2020. Based on our review, nothing has come to our
attention that causes us to believe that the interim financial
statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the Consolidated Balance Sheet as at 30 June 2020;
-- the Consolidated Income Statement and Consolidated Statement
of Comprehensive Income for the period then ended;
-- the Consolidated Statement of Cash Flows for the period then ended;
-- the Consolidated Statement of Changes in Equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the interim report
have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The interim report, including the interim financial statements,
is the responsibility of, and has been approved by, the directors.
The directors are responsible for preparing the interim report in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the interim report based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Birmingham
17 August 2020
Directors' Responsibility Statement
The Directors of the Company confirm that these half year
condensed group financial statements have been prepared in
accordance with the basis of preparation (Note 1.1) and that they
include a fair review of the information required, namely:
-- An indication of important events that have occurred during
the first six months and their impact on the half year condensed
group financial statements, and a description of the principal
risks and uncertainties for the remaining six months of the
financial year; and
-- Material related party transactions in the first six months
and any material changes in the related party transactions
described in the last annual report for the year ended 31 December
2019.
By order of the Board
Bill Kozyra
President and CEO
17 August 2020
Ronald Hundzinski
Chief Financial Officer
17 August 2020
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
IR DDLFFBVLZBBB
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