Good morning!

TT electronics (LON:TTG)

Share price: 111p (down 32% on the day)
No. shares: 159.0m
Market Cap: £176.5m

A very sharp drop in share price here today, so there must have been a profit warning.

Interim Management Statement - today's statement covers H2 trading to date, so from 1 Jul 2014 to end Oct 2014, and of course the year to date - so ten months in, they should have a very good idea of how the full year will look. There are a number of issues;

1. Relocation - as mentioned in my report of 10 Jan 2014, the company's plans to relocate some production from Germany to Romania looked somewhat questionable, since the high exceptional costs of £30m were expected to deliver £8m "efficiency benefits" (i.e. paying staff less) from H2 of 2015. After consultation with the unions in Germany, this plan has been torn to pieces, and instead now only some jobs will move to Romania, but the figures now look unworkable - indeed one wonders why the company hasn't abandoned the relocation plan altogether?

Today the company says that the relocation will cost £24m, but will only deliver projected cost reductions of £3.5m. Who knows what disruption & hidden costs will be incurred from things going wrong, in such a major relocation? If I were a shareholder here, I would be questioning management hard, to explain why they are pressing ahead with a major reorganisation that no longer appears to make sense.

Also, what will it do for staff morale, to know that you're working for a company that will throw you on the scrap heap if they can save a few Euros by employing someone in Romania instead? This seems to be the wrong way round - many companies are now re-shoring production back to their home country, because off-shoring production has so many hidden costs, and often quality goes downhill - as you would expect if a completely new workforce overseas is chosen simply because they are cheap.

So maybe this is a case of the bean counters making short-sighted decisions which are back-firing?

The implementation of the programme is underway and is anticipated to be fully completed during the first half of 2017.  There have been a number of costs in the current year relating to disruption linked to the planned movement of manufacturing from Werne to Romania.  Whilst…

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