REG - TT Electronics PLC - Final Results <Origin Href="QuoteRef">TTG.L</Origin> - Part 2
12/03/2015 07:01
- Part 2: For the preceding part double click ID:nRSL2247Ha
electronic signals and controls that process input
from the sensor and instruct systems;
· Components - specialist resistive and magnetic components and
microcircuits, connectors and interconnection systems; and
· Integrated Manufacturing Services - the provision of global electronics
manufacturing capability with logistics and integrated solutions.
The accounting policies of the reportable segments are the same as the Group's
accounting policies.
As part of the organisational change announced in November 2014, in order to
provide greater market focus and accountability Sensing and Control was
reorganised into two customer segments: Transportation Sensing and Control and
Industrial Sensing and Control with effect from 1 January 2015.
The key performance measure of the operating segments is underlying operating
profit. The Group reports non-trading income or expenditure outside underlying
profit when the size, nature or function of an item or aggregation of similar
items is such that separate presentation is relevant to an understanding of
its financial position, see basis of accounting in note 2. Segment operating
profit represents the profit earned by each segment after allocation of
central head office administration costs and is reviewed by the chief
operating decision maker.
Group financing (including finance costs and finance income) and income taxes
are managed on a Group basis and are not allocated to operating segments.
Goodwill is allocated to the individual cash generating units which are
smaller than the segment which they are part of.
a) Income statement information - continuing operations
2014
£million Sensing and Control Components Integrated Manufacturing Services Total
Sales to external customers 289.3 98.8 136.2 524.3
Segment underlying operating profit 14.2 9.5 5.5 29.2
Adjustments to underlying operating profit (note 7) (33.5)
Operating loss (4.3)
Net finance costs (1.6)
Loss before taxation (5.9)
3 Segmental reporting (continued)
2013*
£million Sensing and Control Components Integrated Manufacturing Services Total
Sales to external customers 285.2 100.4 146.6 532.2
Segment underlying operating profit 17.5 4.3 9.0 30.8
Adjustments to underlying operating profit (note 7) (11.8)
Operating profit 19.0
Net finance costs (0.7)
Profit before taxation 18.3
*Re-presented to exclude acquisition related items from underlying operating
items. See note 2.
There are no significant sales between segments.
b) Geographic information
Revenue by destination
The Group operates on a global basis. Revenue from external customers by
geographical destination is shown below. Management monitor and review revenue
by region rather than by individual country given the significant number of
countries where customers are based.
£million 2014 2013
United Kingdom 86.4 104.1
Rest of Europe 256.0 260.1
North America 101.0 94.4
Central and South America 3.4 3.9
Asia 74.5 68.8
Rest of the World 3.0 0.9
Total continuing operations 524.3 532.2
No individual customer directly accounts for more than 10% of Group revenue.
Revenue from services is less than 5% of Group revenues. All other revenue is
from the sale of goods.
4 Acquisitions
On 14 July 2014 the Group announced the acquisition of Roxspur. Initial net
consideration of £8.4 million was paid in cash with subsequent adjustments due
to the determination of net asset values acquired bringing consideration to
£8.3 million. A further amount of up to £2.5 million is payable in cash in
2016 based on the performance of the business in the period from completion to
31 December 2015 and subject to continuing employment of employees.
From the date of acquisition to the year end, the business contributed £3.7
million of revenue, an operating profit of £0.4 million to the Group's results
and an operating cash flow of £0.3 million. If the acquisition had occurred on
1 January 2014 it is estimated that Group revenue would have increased by £8.2
million and Group operating profit would have increased by £0.9 million.
The fair values of the identifiable assets and liabilities acquired are as
follows:
2014
£million Book value at date of acquisition Fair value adjustments (provisional) Fair value at date of acquisition (provisional)
Non-current assets
Property, plant and equipment 0.2 - 0.2
Indentifiable intangible assets - 4.5 4.5
Current assets / (liabilities)
Inventory 0.9 - 0.9
Trade and other receivables 2.3 - 2.3
Cash 0.4 - 0.4
Trade and other payables (1.0) (0.1) (1.1)
Income tax payable (0.1) - (0.1)
Non-current liabilities
Deferred tax - (0.9) (0.9)
2.7 3.5 6.2
Consideration paid/payable
Cash 8.3
Goodwill 2.1
As consideration payable exceeds the fair value of the net assets acquired,
goodwill of £2.1 million has been recognised on the balance sheet. The
goodwill represents technical know-how acquired with the business. The
know-how is used in the day to day activities of Roxspur and is essential for
the manufacturing and sale of their products, including temperature, pressure
and flow sensors, and calibration services. Roxspur has expertise in packaging
sensors and producing customised products tailored to customer requirements.
A deferred tax liability of £0.9 million has been recognised on the fair value
adjustment to the assets and liabilities acquired.
On 1 February 2013, the Group completed the acquisition of the 49% minority
interest in Padmini TT Electronics Private Limited for a consideration of £8.3
million cash. The deferred consideration of £0.5 million was paid in the year
ended 31 December 2014.
5 Discontinued operations
On 7 December 2012 the Group disposed of Ottomotores SA de CV and Ottomotores
Do Brasil Energia Ltda for a total consideration of $46.5 million (£29.0
million) in cash before costs. During 2013 the completion balance sheet,
including net debt, was agreed with the buyer and £4.1 million was paid. As a
result, £0.8 million additional cost was included within discontinued items
for the year ended 31 December 2013.
6 Finance income and finance costs
£million 2014 2013
Interest expense (1.0) (0.8)
Foreign exchange losses (0.7) (1.0)
Net interest on employee obligations (0.8) (1.5)
Amortisation of arrangement fees (0.2) (0.2)
Finance costs (2.7) (3.5)
Interest income 0.1 0.1
Foreign exchange gains 1.0 2.7
Finance income 1.1 2.8
Net finance costs (1.6) (0.7)
7 Underlying Measures
To assist with the understanding of earnings trends, the Group has included
within its published financial statements non-GAAP measures including
underlying profit and underlying earnings.
These are considered by the Board to be the most meaningful measures under
which to assess the true operating performance of the Group.
Underlying operating profit
This has been defined as operating profit from continuing operations excluding
restructuring costs, asset impairments and acquisition related costs as
detailed below.
£million 2014 2013
Restructuring
Operational Improvement Plan (15.0) (3.1)
Other restructuring costs (4.8) (5.9)
Costs relating to the closure of Boone, USA plant - (1.2)
Charges associated with management changes (2.4) -
(22.2) (10.2)
Asset impairments
Impairment charges associated with capitalised development costs (8.4) -
Other impairments (1.0) -
(9.4) -
Acquisition related costs
Contingent consideration (0.8) -
Release of surplus fair value inventory provision - 0.4
Amortisation of intangible assets arising on business combinations (0.7) (0.6)
M&A costs (included aborted deals) (0.4) (1.4)
(1.9) (1.6)
Total (33.5) (11.8)
For the year ended 31 December 2014, items excluded from underlying operating
profit relate to:
7 Underlying Measures (continued)
Restructuring costs £22.2 million
Operational Improvement Plan (£15.0 million)
The Operational Improvement Plan relates to a fundamental reorganisation of
the manufacturing and sales footprint of the Transportation Sensing and
Control and Industrial Sensing and Control divisions announced in June 2013.
The charge in the year relates to the closure of the facility at Fullerton,
USA and transfer of production to Mexico; the transfer of manufacturing at
Werne, Germany to our best cost facilities in Romania; and the release of
excess provisions for the closure of sales offices in France, Italy and Japan
originally recognised at the end of 2013.
Other restructuring costs (£4.8 million)
Other restructuring costs relate to site consolidation in the UK and the
establishment of a Romania facility for the IMS division; costs incurred in
securing certain supply chain activities; costs incurred in respect of the
closure of our loss making connectors facility in the US; and costs arising
from the creation of our new organisation structure.
Charges associated with management changes (£2.4 million)
Charges incurred in the year ended 31 December 2014 in respect of the
recruitment of the new CEO and CFO and one-off payments associated with
changes in senior management.
Impairment charges £9.4 million
Following a detailed appraisal of capitalised development expenditure
undertaken as part of a wider strategic review, the Board has re-evaluated the
margin expectations of certain products in relation to which development costs
have been previously capitalised. As part of this assessment the Group has
recognised an impairment of £8.4 million to the carrying value of a number of
development projects. In addition an impairment of £1.0 million related to
other assets where recoveries were dependent on continuing with certain
strategic sourcing channels which will no longer form part of the Group's
strategic focus together with the closure of our loss making connectors
facility in the USA.
Acquisition related costs £1.9 million
Acquisition costs relating to the amortisation of intangible assets arising on
business combinations; M&A costs arising from the acquisition of Roxspur in
July 2014 and other costs for potential acquisitions and disposals; and
contingent consideration associated with the acquisition of Roxspur which is
conditional on the employment services of the previous owners.
For the year ended 31 December 2013 items excluded from underlying profit
relate to:
Restructuring costs £10.2 million
Operational Improvement Plan (£3.1 million)
Charges relating to the closure of the facility at Fullerton, USA and transfer
of production to Mexico; the closure of sales offices in France, Italy and
Japan; and project consultancy costs of £0.5 million.
Other restructuring costs (£5.9 million)
Costs relating to the closure of the loss-making connectors business in the
US; the closure and relocation of the ACW Technology facilities from
Southampton to Tonypandy in Wales; the transfer of production lines from
Germany and Austria, and start-up costs in Romania; the relocation of IMS
production facilities in Malaysia; costs arising from the creation of the new
organisation structure; and costs incurred in securing certain supply chain
activities.
Additional costs of £1.2 million relating to the Boone property in the USA
mainly comprise environmental clean-up costs.
7 Underlying Measures (continued)
Acquisition related costs £1.6 million
Acquisition costs relating to the amortisation of intangible assets arising on
business combinations; negative goodwill arising on the release of a surplus
Fair Value inventory provision created at the date of the acquisition of ACW
Technology; and M&A costs arising from the acquisition of ACW in December 2012
and other costs for potential acquisitions and disposals.
8 Taxation
a) Analysis of the tax charge for the year
£million 2014 2013
Current tax
Current income tax charge 5.7 4.3
Adjustments in respect of current income tax of previous year (1.7) (1.6)
Total current tax charge 4.0 2.7
Deferred tax
Relating to origination and reversal of temporary differences 0.6 1.8
Total tax charge in the income statement - continuing operations 4.6 4.5
UK tax is calculated at 21.5% (2013: 23.3%) of taxable profits. Overseas tax
is calculated at the tax rates prevailing in the relevant countries. The
Group's effective tax rate for the year from continuing operations was (78.0)%
(25.7% underlying).
Included within the total tax charge above is a £2.5 million credit relating
to items reported outside underlying profit (2013: £2.6 million).
b) Reconciliation of the total tax charge for the year
£million 2014 2013
(Loss)/profit before tax from continuing operations (5.9) 18.3
(Loss)/profit before tax multiplied by the standard rate of corporation tax in the UK of 21.5% (2013: 23.3%) (1.3) 4.3
Effects of:
Overseas tax rate differences (0.3) 0.4
Items not deductible for tax purposes or income not taxable 6.6 1.5
Adjustment to current tax in respect of prior periods (1.7) (1.6)
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