REG - TT Electronics PLC - Full Year Results
09/03/2022 07:00
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RNS Number : 1080E TT Electronics PLC 09 March 2022
2021 Final Results, 9 March 2022
TT Electronics plc
Results for the year ended 31 December 2021
For further information, please contact:
TT Electronics
Richard Tyson, Chief Executive Officer
Mark Hoad, Chief Financial Officer
Kate Moy, Head of Investor Relations and Communications
Tel: +44 (0)1932 827 779
MHP Communications
Tim Rowntree / Pete Lambie
Tel: +44 (0)20 3128 8100
A management presentation for analysts and investors will be held today at
08.30 and can be accessed on
https://webcasting.brrmedia.co.uk/broadcast/61e13a95e3976b4d1b2d6d40
(https://webcasting.brrmedia.co.uk/broadcast/61e13a95e3976b4d1b2d6d40) . There
will be a conference call and moderated Q&A session following this and to
participate you will need to dial +44 (0)330 336 9601, confirmation code
5800399. A recording of the presentation and Q&A session will be
available on the website later in the day.
A PDF of this full year announcement is available for download from
https://www.ttelectronics.com/investors/investor-highlights/reports-presentations-videos/
(https://www.ttelectronics.com/investors/investor-highlights/reports-presentations-videos/)
.
Results for the year ended 31 December 2021
Strong performance and record order book into 2022
Financial Highlights
· Revenue and adjusted run-rate margin back to pre-COVID-19 levels
o Full year revenue up 14% year-on-year at constant currency
o Organic revenue growth of 10%
o Adjusted operating margin up 90bps to 7.3%, run rate of 8.1% excluding
Virolens costs
· Adjusted operating profit up 31% reflecting benefits of growth and
self-help actions
· Statutory operating profit increased to £19.3m, statutory basic EPS
of 7.3p
· Balance sheet strength maintained while investing to support future
growth, margin enhancement and to manage supply chain constraints
· Record order book into 2022 with increased visibility into H2 (2021
book to bill of 137%), including GMS fully booked
· Total dividend increase of 19% to 5.6p, reflecting strong performance
and positive outlook
Operational Highlights
· Pricing and operational improvements, including self-help programme,
offsetting cost headwinds
· New commitment to deliver a 50% reduction in Scope 1&2 emissions
by end of 2023(2), Net Zero Scope 1&2 by 2035. 25% tCO(2)e reduction over
last year
· Strong levels of employee engagement evidenced by results of our most
recent survey(3)
· Torotel integrated ahead of plan and pipeline building
· Margin enhancing Ferranti acquisition in January 2022 expands
technical capabilities
£ million (unless otherwise stated) Adjusted Results(1) Statutory Results
2021 2020 Change Change constant fx 2021 2020
Revenue 476.2 431.8 10% 14% 476.2 431.8
Operating profit 34.8 27.5 27% 31% 19.3 6.6
Operating profit margin 7.3% 6.4% 90bps 100bps 4.1% 1.5%
Profit before taxation 31.5 23.8 32% 36% 16.0 2.9
Earnings per share 14.5p 11.7p 24% 28% 7.3p 0.8p
Return on invested capital 9.1% 7.7%
Cash conversion 65% 130%
2021 2020
Free cash flow(1) (1.3) 14.4
Net debt(1) 102.5 83.9
Leverage(1) 1.7x 1.6x
Dividend per share 5.6p 4.7p
Richard Tyson, Chief Executive Officer, commented:
"I'm really pleased with our strong organic growth in 2021, with revenue and
adjusted run rate margins back to pre-pandemic levels. Significant increases
in profits and EPS reflect the benefits of this growth, combined with our
self-help initiatives, the successful integration of Torotel and excellent
execution by the team. Our strategy is delivering, and we continue to invest
for our future.
We continue to enhance the quality of our businesses and are making tangible
progress towards double-digit adjusted operating margins. We have started 2022
with a record order book, which gives us the confidence and the visibility to
achieve our growth plans for the year whilst continuing to manage the ongoing
cost and supply chain challenges in partnership with our customers.
As a result, we are confident that TT's momentum will continue, with the
outlook for financial performance in 2022 in line with management
expectations, although we are mindful of increased geopolitical uncertainty.
With good customer wins, strength in our target markets, and the commercial
aerospace recovery still to come, we believe the Group is in a strong position
for the future."
About TT Electronics
TT Electronics is a global provider of engineered electronics for performance
critical applications.
TT solves technology challenges for a sustainable world. TT benefits from
enduring megatrends in structurally high-growth markets including healthcare,
aerospace, defence, electrification and automation. TT invests in R&D to
create designed-in products where reliability is mission critical. Products
designed and manufactured include sensors, power management and connectivity
solutions. TT has design and manufacturing facilities in the UK, North
America, Sweden and Asia.
Notes
1. Throughout this announcement we refer to a number of alternative
performance measures which provide additional useful information. The
Directors have adopted these measures to provide additional information on the
underlying trends, performance and position of the Group with further details
set out on pages 17 to 19. The adjusted measures used are set out in the
'Reconciliation of KPIs and non IFRS measures' section on pages 40 to 48.
2. Against our 2019 baseline. We have improved the precision of our
2019-2021 Scope 1&2 carbon emissions data by using regional emissions
factors rather than an emissions factor for the UK. This has led to a change
in the data disclosed in 2019 and 2020.
3. Best Companies Ltd survey in which we maintained our excellent 2*
rating
CHIEF EXECUTIVE OFFICER'S REVIEW
Introduction
We delivered a strong trading performance in 2021 with very good revenue and
profit growth and as expected, a meaningful step forward towards double-digit
adjusted margins. The growth in revenue and the strong order intake across all
divisions reflect our strong customer relationships, momentum in our pipeline
and the positive structural trends evident in our end markets. This
performance has been delivered despite further COVID-19 disruption and
significant supply chain and cost headwinds, and is thanks to our teams who
have worked tirelessly throughout. We are proud and appreciative of their
support and engagement.
Alongside a strong trading performance, particularly in our Sensors and
Specialist Components and Global Manufacturing Solutions businesses, we have
continued to execute our strategy and invest for future growth. During the
year we have invested £11.4 million in research and development (R&D),
continuing to develop and enhance our pipeline of new products.
We have also completed, ahead of plan, the integration of the Torotel
acquisition. Torotel and Covina, have significantly advanced our power
electronics capabilities and market reach in the US and the resulting increase
in new customer opportunities is a direct result of our strategic approach to
M&A. We now expect to deliver £13-14 million of full run-rate benefits in
2023 from our investment in the self-help programme which contributed £6
million benefits in 2021, in addition to the £2 million delivered in
2020. We are pleased with the progress made so far to deliver this
significant programme, which is an important component of our path to
double-digit operating margins.
Environmental, social and governance (ESG) matters are central to our purpose
and deeply embedded in our business model and strategy. We have made further
excellent progress in 2021 to reduce our Scope 1 and Scope 2 carbon emissions.
These have decreased by 25 per cent to 15,740 tonnes CO(2)e down from 20,875
tonnes CO(2)e in 2020 and down 41 per cent from 26,657 tonnes CO(2)e in 2019.
This improvement has been achieved due to our energy efficiency actions and
further switching to the use of electricity from renewable sources.
We continue to prioritise the protection and safety of our employees, our
customers, our suppliers and our wider communities. We have greatly
appreciated how our employees have responded to another year of challenges.
Their skill, dedication and hard work, which they have constantly demonstrated
in uniquely difficult conditions, have resulted in them going above-and-beyond
to get things done well and on-time. We were delighted to once again record a
very high employee engagement score during the year, which was achieved
despite the continuing challenging working environment. We encourage our teams
to take an active role in their local communities, whether fundraising and
volunteering for chosen charities or committing time and resources to
promoting STEM education and careers.
Results and operations
Group revenue for the year at £476.2 million was 14 per cent higher than the
prior year at constant currency and 10 per cent higher on an organic 1
(#_ftn1) basis. There was a strong improvement in our financial performance
with adjusted operating profit up by 31 per cent compared to 2020, reflecting
the benefits of growth and our self-help programme.
In common with the broader industry, we have experienced supply chain
challenges with extended lead times, component shortages and notable cost
inflation. These have been largely mitigated through price increases, although
there can be a lag effect. During the year, we adapted software tools and data
analytics to enhance visibility of parts availability and sourcing in certain
areas, helping to mitigate the impact of cost increases and lead-time
extensions for our customers. We expect these cost headwinds and supply
chain challenges to continue through 2022 but are confident of our ability to
manage these, in partnership with our customers, and deliver on our growth
plans.
There has been exceptionally strong order intake across the Group, reflecting
underlying strength in our markets and new customer wins, as well as customers
committing earlier to secure capacity. Order intake for 2021 was 137 per
cent of revenue. The order book at the end of February 2022 is at record
levels.
Adjusted operating profit was £34.8 million, 31 per cent higher than the
prior year at constant currency. The adjusted operating margin was 7.3 per
cent and, excluding the start-up costs related to Virolens, the adjusted run
rate margin was 8.1 per cent. After the impact of adjusting items, including
restructuring and acquisition and disposal costs, the Group's full year
statutory operating profit was £19.3 million.
During the year we invested in our self-help programme to support margin
improvement, and in inventory to support our high levels of growth, our
increased customer order book and supply chain constraints on certain
component parts. Cash conversion of 65 per cent (2020: 130 per cent) reflected
this investment and included a working capital outflow totalling £14.7
million. This investment was partially offset by realising £9.1 million of
proceeds from property disposals. On a statutory basis, cash flow from
operating activity was £14.3 million (2020: £28.2 million). There was a free
cash outflow of £1.3 million (2020: £14.4 million inflow). Dividend payments
totalled £11.4 million (2020: £ nil).
We ended the year with net debt of £102.5 million (2020: £83.9 million),
including IFRS 16 lease liabilities of £22.6 million (2020: £15.9
million). We have a strong balance sheet, and this includes a defined
benefit pension scheme fully funded on an actuarial and self-sufficiency
basis. At 31 December 2021 leverage was 1.7 times (2020: 1.6 times), within
the Board's target leverage range of 1-2 times.
Our return on invested capital improved to 9.1 per cent in 2021, increasing by
140 basis points due to the growth in adjusted operating profit.
Dividend
Given our strong trading performance in 2021 and the positive outlook for 2022
and beyond, the Board is proposing a final dividend of 3.8 pence per share.
The total cash cost of this dividend will be approximately £6.7 million.
This, when combined with the interim dividend of 1.8 pence per share gives an
increased total dividend of 5.6 pence (2020: 4.7 pence per share). Payment
of the dividend will be made on 20 May 2022, to shareholders on the register
at 29 April 2022.
Our strategy
We solve technology challenges for a sustainable world, creating solutions
that enable our customers to make products that are cleaner, smarter and
healthier and that will benefit our planet and people for future generations.
We create value through supplying products and services that meet our
customers' sustainability ambitions in our target markets of healthcare,
aerospace & defence and automation & electrification.
We have transformed the Group over the past seven years, aligning our business
to structurally growing, higher added value markets with long-term customer
partnerships and substantially reducing our exposure to lower-growth, cyclical
areas. Our strategy is designed to leverage our assets to unlock TT's
potential, delivering our deeply embedded capabilities and differentiators to
our customers. This is enabled by strong capital discipline, a focus on cash
generation and careful use of the balance sheet to facilitate continued
investment.
Our markets
Healthcare (25 per cent of Group revenue)
In healthcare we provide design and manufacturing solutions for a range of
diagnostic, surgical and direct patient care devices critical to the
identification, treatment and prevention of disease. Growth is driven by a
combination of ageing populations, growing patient expectations and innovative
solutions. We have steadily increased our exposure to this attractive end
market from 13 per cent of Group revenue in 2015. Our focus areas include life
sciences and laboratory equipment, surgical devices, medical implants, and
diagnostics and imaging equipment. By supporting our life sciences partners,
we are collectively improving laboratory automation systems and enabling
samples to be collected and analysed with minimal human intervention, the
benefits of which are improved data reliability and accuracy, minimised
wastage, and time-efficient procedures. Through developing smaller, lighter,
more precise surgical devices, we are enabling reduced size of incisions,
shortened recovery times, and improved overall patient outcomes. In addition,
by improving the portability and ease of use of diagnostics, we are increasing
the availability of medical imaging to point-of-care facilities. This promotes
earlier detection and better monitoring, hence supporting measures taken to
address the rising prevalence of cancer, cardiac, neurological, and
musculoskeletal disorders.
COVID-19 has accelerated trends in the digital transformation and the
automation/robotics of healthcare which can be served by TT specialisms
including interventional healthcare devices, patient monitoring and laboratory
equipment.
Pent-up demand, post the pandemic, for deferred elective surgery and for large
installations for hospital or life science applications are expected to be
supportive of market growth over the next few years.
Aerospace and Defence (18 per cent of Group revenue)
In aerospace and defence we provide solutions for high-reliability
applications across a broad range of platforms operating on land, air and sea.
Growth is driven by increasing electrification of these platforms, which
supports fuel efficiency and safety. Commercial aerospace demand has been
stable in 2021 against levels experienced since Q2 2020, with continued lower
passenger-driven demand due to COVID-19. We anticipate a gradual recovery in
aircraft production over several years, as long-term growth resumes.
Fundamentally, the need for more efficient, safer, and environmentally
friendly aircraft remains. This drives demand for increasingly advanced
electronic systems and applications, complemented by demand from a growing,
globalised middle-class population who exhibit greater propensity to travel.
In defence, our central focus is on collaborating with our customers to reduce
size, weight, power, and cost (SWaP-C), while simultaneously enhancing
command, control, communications, computing, intelligence, surveillance, and
reconnaissance (C4ISR) capabilities. We have been successful recently in
providing more integrated, design-led solutions, demonstrating our ability to
deliver SWaP-C improvements. A recent example is the delivery of a significant
increase in the power density of DC-DC converters for a major defence prime.
We expect this to drive favourable shifts in product mix moving forward.
Automation and Electrification (39 per cent of Group revenue)
In automation and electrification markets, we are continuing to invest in
developing capabilities which exemplify our low-volume, high-mix approach to
address the needs of sophisticated automation and connectivity applications.
Customers rely on us to help solve their toughest automation and
electrification challenges, increasing their efficiency and helping them bring
smart, new products to the market. Growth is being driven by factors including
demand for sustainable solutions to improve energy efficiency, the use of
robotics to improve productivity and the increasing use of remote asset
tracking. Within electrification, our priority is in developing capabilities
which will support increasing energy efficiency and connectivity. Core focus
areas include complex systems integrations and AC and DC power conversion
technologies. We are increasingly able to develop complete, high-value
products and durable components featuring higher voltages. The positive
long-term growth drivers in this market give us confidence that demand will
increase for our power, sensing and connectivity solutions.
Creating value through technology investment
We prioritise organic investment in the business to maintain and drive
differentiation in our markets and our offering to our customers. R&D is a
key component of this, given its critical contribution to the ongoing health
of the business, enabling us to stay ahead of customers' needs and meet the
challenges they set us. Our investment in R&D is focused on bringing
higher growth, more sustainable products to market. These typically yield
higher returns and development is often undertaken in partnership with our
customers. Our investment strategy includes leveraging acquired complementary
capabilities targeted through mergers and acquisitions (M&A).
Our R&D cash investment in the year was £11.4 million (2020: £11.2
million), representing 4.5 per cent (2020: 4.8 percent) of the aggregate
revenue of our product businesses.
We continue to bring a pipeline of exciting new products to market, including
in areas where we have extended our technical capabilities through
acquisition. Examples include:
· Our Power and Connectivity business has been working on an Aerospace
Technology Institute (ATI) funded project developing high power DC/DC power
conversion for increased electrification of military aerospace, commercial
aerospace and hybrid electric and fully electric aircraft.
· We have also been investing in the surgical navigation and robotics
market. This segment is experiencing sustained double-digit growth and is
driven by several emerging clinical applications that provide the physician
with exceptionally accurate catheter placement, often eliminating the need for
harmful radiation. The miniaturised and highly accurate characteristics of
our technologies enable access to parts of the anatomy that in the past were
difficult to navigate including the lung, brain and heart. Additionally, new
applications for improved navigation needs have emerged to diagnose breast
cancer.
· We are currently investing in a combination of AC/DC and DC/DC power
conversion technologies in direct response to demand from aerospace and
defence customers, as well as ruggedised wire harness and magnetic
capabilities. These investments build upon our existing capabilities and give
us a wider platform to support major aerospace and defence customers, many of
whom are requiring power solutions that feature higher voltages and/or
efficiency improvements from legacy designs.
· In the first half of 2021 the Virolens COVID-19 screening device
achieved its first important regulatory milestone, gaining registration with
the MHRA in Great Britain.
Creating value through margin enhancement
The pursuit of higher margins through our self-help programme and organic and
inorganic growth remains core to the Group's strategy. We have made tangible
progress to delivering double-digit adjusted operating margins with further
improvement expected in 2022 and beyond. The actions we have taken this year
bring the business closer to realising this, with key contributions from:
· Operational leverage from organic revenue growth;
· Improved efficiencies and reductions in overheads through our
self-help programme; and
· Inorganic expansion developing technology offerings and market
positions.
Our significant self-help programme, designed to reduce our footprint and
fixed cost base, is nearing completion. The decision to relocate our Covina
business to the Torotel site in Kansas will extend the programme timeline
slightly, but also increase the benefits, some of which we will re-invest in
R&D to further grow the business. The programme delivered £6 million of
benefits in 2021, in addition to the £2 million delivered in 2020. With the
addition of the Covina transfer to the programme, the previously guided full
run-rate benefits of £11-12 million in 2023 are now expected to increase to
£13-14 million in 2023.
The programme comprises a number of different activities. In 2021 we closed
sites in Barbados, Carrollton and Corpus Christi, Texas transferring the
activities from those sites to Bedlington, UK and Mexicali, Mexico and Plano,
Texas. We have also made good progress in transferring manufacturing from
Lutterworth, UK to Bedlington, UK. In June, we completed the sale of the
freehold property of the Covina business as an extension of our self-help
programme and agreed to lease the site back for a period of 12 months while we
prepared for relocation. We have recently made the decision to integrate the
Covina business into the Torotel site in Kansas City which will deliver a
further £2 million of benefits. In addition, we have taken certain products
end-of-life in 2021, as well as relocating the manufacture of other products
within our existing footprint. This has enabled us to serve customers better,
as well as achieve an improved level of profitability.
The total cash spend for the self-help programme is now expected to be £18.8
million. £10.2 million was spent in 2021, comprising restructuring cash
spend of £2.3 million (net of £9.1 million after costs from property
disposals) and project capital expenditure of £7.9 million (2020 spend: £3.8
million, including £1.5 of restructuring cash spend and £2.3 million of
capital expenditure).
Our acquisitions contribute to higher Group margins. The acquisitions
completed in 2020, Torotel, Inc and Covina, have operating margins above the
TT Group average and we have reconfirmed our expectations for cost synergies.
Furthermore, our recent acquisition of the Ferranti Power and Control business
is expected to contribute mid-teens margins over time.
Creating value from mergers & acquisitions
M&A is an important part of our growth strategy as we look to add higher
margin businesses which build scale and enhance our technology capabilities
and market access, consolidating fragmented but valuable niche areas.
We create value by realising revenue synergies, including leveraging customer
access, and by optimising operations and the supply chain. We invest in
attractive, growing and higher margin segments that the Group knows well, and
where we have competitive advantage.
The recent Ferranti Power and Control acquisition highlights this as we gained
access to an IP-rich business with skilled employees and positions on
long-term defence platforms.
The two power electronics businesses acquired in 2020, Covina, the
California-based power supply business of Excelitas Technologies Corp.
(completed January 2020) and Torotel, Inc (completed November 2020), based in
Kansas have been very successful. Following the positive impact of Covina, the
integration of Torotel's systems and processes into TT's Power and
Connectivity division was completed ahead of schedule. We utilised our
well-defined business integration model, which integrates major business
processes including operations, procurement, finance, legal, IT and human
resources. This was completed against a backdrop of COVID-related travel
restrictions and other constraints. We are proud of the team and our new
Torotel colleagues for undertaking this complex task so quickly and in
challenging conditions.
We are very pleased with the performance and potential of Torotel. The
acquisition has increased our scale and capabilities in the very large and
attractive US defence market, and it has enhanced our US power electronics
presence. We are realising the benefits from integrating the products across
the Group and the cross-selling opportunities that are being generated with
new tier one OEMs. Torotel is also benefiting from our investment and is able
to partner more closely with clients and expand its product offering.
We have secured a number of new contract wins including an order for complex
cable assemblies with a major US defence supplier that commenced in 2021 and a
win in the radar electronics space that will start deliveries in 2022.
Our attention is now focused on creating value from improving operational
performance, delivering further benefits from integrating the Covina business
into the Torotel site and integrating Ferranti and the Torotel customer
proposition more closely with our other businesses. This will focus on
increased customer cross-selling, the integration of products from across the
Group to provide higher-value customer offerings and leveraging our business
development capabilities.
We are continuing to look for opportunities to extend TT's technology
capabilities and market reach and currently see a good pipeline.
Environmental, social and governance (ESG)
Not only do we develop, design, engineer and manufacture products that enable
reduced environmental impacts for our customers, but we are also optimising
our own operations to reduce our impact on the environment. We seek to have
a wider positive impact on society by understanding and prioritising employee
needs, doing business responsibly and reaching out to our local communities.
Our products address resource scarcity, improve energy efficiency, support
renewables and drive productivity, connectivity and health. We are positioned
to benefit from megatrends that are driving sustainable growth.
We remain at the forefront of delivering technologies that meet the
ever-increasing demand for cleaner energy, smart monitoring systems and home
automation. Our products can be found in a range of applications including:
· Renewable energy generation and smart grid metering
· Power management and energy control systems
· Water and wastewater measurement and monitoring
We have set ourselves a target to be Net Zero by 2035 for our Scope 1 & 2
emissions and we are undertaking a range of actions to deliver like-for-like
reductions in our annual emissions, in accordance with our carbon reduction
roadmap developed during the year. In the near term, we are making a new
commitment to deliver a 50 per cent reduction in Scope 1 & 2 carbon
emissions by the end of 2022, against our 2019 baseline, and a 55 per cent
reduction by the end of 2023.
In 2021 we have reduced our Scope 1 & 2 carbon emissions by 25 per cent
over 2020 levels, which themselves were 22 per cent lower than our baseline
set in 2019. Our intensity ratio, which measures our Scope 1 & 2
emissions against our revenue has reduced to 33.0, down from 48.3 in 2020 and
55.7 in 2019. During 2021, five additional sites in the US transitioned to
renewable energy contracts. As we look forward, further reductions in our
carbon emissions will require other measures such as infrastructure and
process projects to reduce electricity consumption and investment in solar
power or a change in the approach of local Governments to provide renewables
in Mexico, China and Malaysia. In 2022 we will undertake feasibility studies
for possible solar projects.
For our Scope 3 emissions we have been assessing areas of materiality for the
Group to better understand our emissions. Our top four most significant, and
measurable categories are transportation (upstream and downstream), purchased
goods and services, and waste, the last of which we are already measuring at
certain locations. In 2021 we have made progress in improving the robustness
of our reporting on the waste we send to landfill at site level.
TT has recently established a corporate partnership with the Carbon Disclosure
Project (CDP) Supply Chain Management team to help measure our supply chain
emissions. The data gathered will allow us to create a database, develop data
gathering and measurement tools, assess the relevance and magnitude of each
category, and put robust plans in place to reduce emissions. We will report on
these plans once established.
In addition, we are focusing on reducing single-use plastics within the
business; we have 10 sites that currently monitor this. We are in the process
of verifying the data captured and will make a commitment to reducing this
once we have established a baseline. Our continuing progress on ESG matters
has been recognised externally, having received a rating of 'AA' in the latest
MSCI ESG Ratings assessment and we have a 'C' rating from CDP.
ESG matters including culture, strategy, regulatory compliance, risk and
internal controls are governed as part of our overall governance and risk
management frameworks, ultimately overseen by senior management and the Board.
An update on key health, safety and environmental (including sustainability)
metrics is provided at each Board meeting and in-depth reviews are undertaken
on at least an annual basis.
Our teams are passionate about finding solutions to the world's toughest
technology challenges and delivering for customers. We champion knowledge,
skills, innovation, problem solving and service in four key areas: power,
connectivity, sensing and manufacturing &engineering. We set out to
attract, promote and retain the best, diverse, talented people and we are
focused on developing expertise at all levels of the organisation.
Outlook
We continue to enhance the quality of our businesses and are making tangible
progress towards double-digit adjusted operating margins. We have started 2022
with a record order book, which gives us the confidence and the visibility to
achieve our growth plans for the year whilst continuing to manage the ongoing
cost and supply chain challenges in partnership with our customers.
As a result we are confident that TT's momentum will continue, with the
outlook for financial performance in 2022 in line with management
expectations, although we are mindful of increased geopolitical uncertainty.
With good customer wins, strength in our target markets, and the commercial
aerospace recovery still to come, we believe the Group is in a strong position
for the future.
FINANCIAL OVERVIEW
Group revenue was £476.2 million (2020: £431.8 million). This included a
£15.2 million contribution from acquisitions and adverse currency translation
of £12.7 million. Group revenue was 14 per cent higher than the prior year
at constant currency and 10 per cent higher on an organic basis. Sales
volumes in key markets, with the notable exception of commercial aerospace,
have rebounded and the strength of our order book, at an all-time high, and
pipeline of new business opportunities gives us confidence that this momentum
will continue.
The Group's adjusted operating profit was £34.8 million (2020: £27.5
million) and statutory operating profit was £19.3m (2020: £6.6m) after a
charge for items excluded from adjusted operating profit of £15.5 million
(2020: £20.9 million) including:
· Restructuring costs of £7.8 million (2020: £14.5 million)
comprising £5.9 million relating to the restructure of the North America
Resistors business, £1.5 million relating to the closure of our Lutterworth
site, and £2.4 million relating to the other elements of our self-help
programme. These costs were partially offset by a gain of £1.7 million from
the disposal of freehold properties at Covina, and Corpus Christi (2020: £1.2
million property gain). In addition to this, there was a net gain of £0.3m
relating to pension projects.
· Acquisition and disposal costs totalled £7.7 million (2020: £6.4
million) comprising £2.6 million (2020: £3.2 million) of integration and
acquisition costs relating primarily to the Torotel integration and the
Ferranti acquisition, which completed early in 2022. Amortisation of
intangible assets arising on business combinations was £5.1 million (2020:
£4.2 million). In 2020 there was a £1.0 million credit due to the release of
the warranty and claims provision relating to the Transportation business.
The adjusted operating margin of 7.3 per cent (2020: 6.4 per cent) includes
the start-up costs to establish the Virolens product line. Excluding these
costs, the adjusted run-rate operating margin was 8.1 per cent. This
improvement reflects operational leverage on our sales growth and the benefits
of our self-help programme and was delivered despite increases in input costs
linked to supply chain constraints, which we are in the process of recovering
through price increases.
The net finance cost was £3.3 million (2020: £3.7 million). The Group's
overall tax charge was £3.2 million (2020: £1.6 million), including a
£3.0 million credit (2020: £2.7 million credit) on items excluded from
adjusted profit. The adjusted tax charge was £6.2 million (2020: £4.3
million), resulting in an effective adjusted tax rate of 19.6 per cent (2020:
18.1 per cent).
Basic earnings per share (EPS) was 7.3 pence (2020: 0.8 pence) reflecting the
increase in operating profit and the reduction in adjusting items set out
above. Adjusted EPS increased to 14.5 pence (2020: 11.7 pence), reflecting
the improved adjusted operating profit in the period.
The total net accounting surplus under the Group's defined benefit pension
schemes was £74.5 million ( 2020: £30.5 million). The main driver of this
was a rise in corporate bond yields reducing the Scheme's benefit obligation
and an increase in the fair value of assets due to investment performance. The
surplus also increased due to company contributions paid of £5.5 million, as
the contribution plan continued as we work towards the buy-out of the UK
scheme over time.
Adjusted operating cash inflow was £39.5 million (2020: £49.0 million
inflow). Improved profitability was more than offset by a working capital
outflow of £14.7 million (2020: £3.6 million inflow), including a £42.6
million investment in inventory to support the strong order book and to deal
with supply chain constraints. Capital and development expenditure increased
to £16.8 million (2020: £13.2 million) reflecting investment to support
growth and as part of the self-help programme. This resulted in adjusted
operating cash conversion of 65 per cent (2020: 130 per cent). On a statutory
basis, cash flow from operating activity was £14.3 million (2020: £28.2
million).
There was a free cash outflow of £1.3 million (2020: inflow £14.4 million),
net of £5.9 million of restructuring and acquisition related costs (2020:
£8.1 million), relating to the self-help programme and acquisition costs
associated with the Covina and Torotel acquisitions. Cash restructuring
costs were net of £9.1 million of property disposal proceeds. Pension
contribution payments in the year totalled £5.5 million (2020: £5.4
million).
Investments in acquisitions totalled £0.5 million (2020: £48.7 million)
relating to deferred consideration on a prior year acquisition. The spend in
2020 reflected the acquisition of Covina, the acquisition of Torotel, Inc,
including £3.0 million of debt acquired with Torotel, Inc and £3.8 million
of debt like items, as well as £0.5 million of deferred consideration
relating to a prior year acquisition. In 2020 there was £20.2 million of
equity issuance, which primarily related to the Torotel acquisition placing.
Dividend payments totalled £11.4 million (2020: £ nil).
At 31 December 2021 the Group's net debt was £102.5 million (31 December
2020: £83.9 million), including £22.6 million of lease liabilities (31
December 2020: £15.9 million). Leverage at 31 December 2021, consistent
with the bank covenants, was 1.7 times (31 December 2020: 1.6 times).
DIVISIONAL REVIEW
POWER AND CONNECTIVITY
The Power and Connectivity division develops and manufactures power
application products and connectivity devices which enable the capture and
wireless transfer of data. We collaborate with our customers to develop
innovative solutions to optimise their electronic systems.
2021 2020 Change Change constant fx
Revenue £140.2m £125.1m 12% 15%
Adjusted operating profit(1) £7.8m £10.3m (24)% (21)%
Adjusted operating profit margin(1) 5.6% 8.2% (260)bps (250)bps
(1 )See note 1 on page 3 for an explanation of alternative performance
measures. Adjusting items are not allocated to divisions for reporting
purposes. For further discussion of these items please refer to the section
titled 'Reconciliation of KPIs and non IFRS measures' on page 40 of this
document.
Revenue increased by £15.1 million to £140.2 million (2020: £125.1
million). There was a £15.2 million revenue contribution from Torotel which
we acquired in November 2020 and there was an adverse currency effect of
£3.4 million. Organic revenue was 3 per cent higher with growth in
defence, healthcare and automation & electrification whilst aerospace
volumes declined, particularly in Q1 2021, against Q1 2020 which was not
impacted by COVID-19.
Adjusted operating profit reduced by £2.5 million to £7.8 million (2020:
£10.3 million). Included within this was a profit contribution of £1.5
million from the Torotel acquisition. The adjusted operating margin was 5.6
per cent (2020: 8.2 per cent) which was impacted in part by a lag in the
recovery of higher material and freight costs, given the longer cycle nature
of the division. Run rate divisional margins were 8.3 per cent excluding the
start-up costs incurred in relation to the Virolens project.
Operational excellence initiatives included the closure of the division's
Lutterworth, UK site, and manufacturing has been transferred to Bedlington,
UK. The closure consolidates the division's operations further within its
existing operational footprint. We also initiated the footprint
rationalisation at Covina, with the business being consolidated into the
Torotel site at Kansas City, as one power business. The full benefits of these
actions will be realised in 2023 and will support additional investment in
R&D.
The Virolens production line was completed during the year and the product
received its first regulatory approval from the MHRA in Great Britain. While
we understand dialogue continues with other regulators there have been no
further approvals.
There have been some notable contract awards during the year, including:
· Our engineering team in Minneapolis, Minnesota collaborated with
Radwave Technologies, an innovative surgical navigation tracking technology
company to develop smaller, more accurate sensor coils which support new
procedures in structural heart and orthopaedic healthcare. This example is
evidence of the success of our cross-selling efforts as our GMS business will
also provide complete system manufacturing under an exclusive five-year
contract. We also reached an agreement to become Radwave's exclusive provider
of navigation sensors and early in 2022 further extended our partnership to
the manufacturing of control unit and field generating antenna.
· In aerospace and defence, a cross selling opportunity that TT brought
to the Torotel business generated over $2 million (over £1.5 million) in
orders in 2021 for complex, ruggedised wire harness assemblies. We won through
partnering with a major customer and investing in the capabilities needed to
succeed in this market. We are now positioned to partner with other aerospace
and defence customers to provide this product. With a second aerospace and
defence prime, TT used its supply chain expertise to significantly reduce lead
times and was the only supplier positioned to secure critical materials and
meet programme requirements.
· In October, we were awarded a contract with a major defence prime,
RBSL, for the main UK army vehicle programme for the next 10-20 years. We will
provide complex high reliability power electronics assemblies to the Boxer
vehicles. The multi-year contract worth over £5 million is centred around the
development of two types of primary power assemblies and secures us a spot
within the mechanised infantry vehicle supply chain. We will lead the design,
production and delivery of the battery control units enabling increased
efficiency of the vehicle power management system as well as the command
display units providing signalling and communications functionality on every
Boxer vehicle.
In January 2022 we were delighted to complete the £9 million acquisition of
Ferranti Power and Control (P&C), based in Greater Manchester, which
designs and manufactures mission-critical complex power and control
sub-assemblies for blue chip customers in high-reliability and
high-performance end markets, primarily aerospace and defence. One of the
principal benefits of the acquisition is that it brings highly skilled
employees who provide full-service capabilities from design, assembly,
manufacturing, and testing including environmental stress screening and
inspection through to service.
Ferranti P&C adds further technology capability, IP and scale to our Power
business with valuable long-term customer relationships and programmes with
leading global aerospace, defence and industrial OEMs operating in highly
regulated markets with significant barriers to entry through necessary
industry accreditations and customer approvals.
The acquisition is expected to be modestly earnings enhancing, to generate
mid-teens operating margins and to generate a return on invested capital in
excess of the Group's WACC in year one. We expect to generate cost synergies
of circa £0.4 million by year three.
GLOBAL MANUFACTURING SOLUTIONS
The Global Manufacturing Solutions division provides manufacturing services
and engineering solutions for our product divisions and to customers that
often require a lower volume and higher mix of different products. We
manufacture complex integrated product assemblies for our customers and
provide engineering services including designing testing solutions and value
engineering.
2021 2020 Change Change constant fx
Revenue £220.1m £197.5m 11% 14%
Adjusted operating profit(1) £18.3m £15.0m 22% 24%
Adjusted operating profit margin(1) 8.3% 7.6% 70bps 60bps
(1 )See note 1 on page 3 for an explanation of alternative performance
measures. Adjusting items are not allocated to divisions for reporting
purposes. For further discussion of these items please refer to the section
titled 'Reconciliation of KPIs and non IFRS measures' on page 40 of this
document
Revenue increased by £22.6 million to £220.1 million (2020: £197.5 million)
including an adverse currency effect of £4.1 million, with organic revenue 14
per cent higher. The organic revenue performance reflects good growth from
our existing customer base and a particularly strong performance in the Asia
region, particularly from our healthcare and automation & electrification
end markets.
This division has performed incredibly well in 2021, reflecting our robust
platform and targeted move towards customers who value our partnership and who
are winners in their own growth markets. Work on positioning this business as
a partner to our customers to win long-term incremental business is reflected
in our order book growth. The addition of GMS capability to the Kuantan site
in Malaysia, back in 2020, has added value through the expansion of our
high-level assembly capabilities to a variety of key customers. The order book
is such that the division is fully booked for 2022.
Adjusted operating profit increased by £3.3 million to £18.3 million (2020:
£15.0 million). The increase reflects operational leverage on the organic
growth delivered and benefits from our self-help programme, including factory
efficiencies. The adjusted operating profit margin improved to 8.3 per cent
(2020: 7.6 per cent).
During the year, in the face of increasing supply chain headwinds, we adapted
software tools and data analytics to enhance visibility of parts availability
and sourcing helping to mitigate the impact of cost increases and lead time
extensions for our customers. Despite this intense focus, inventory levels at
the year-end were impacted by increasing lead times on critical component
parts.
There have been a number of significant new customer awards during 2021 which
will impact future years, as follows:
· GMS won a contract with a world-leading life sciences customer for
machines used in spectrometry elemental isotope analysis to understand the
chemistry and composition of materials in healthcare and life sciences. We won
the contract from an underperforming competitor based on our service and
product quality. Demand from this customer continues to be driven by post
pandemic growth in healthcare and life sciences technology markets
· We won a contract with a new customer, Azenta Life Sciences, based on
our reputation with another medical prime. We are engaging on multiple
services including value add and vertical integration. Azenta was looking for
a manufacturing partner in Asia where a substantial amount of its life
sciences revenue is realised, which could help mitigate global supply chain
risks.
· A contract has been awarded with a long-standing customer to create a
complete end-to-end supply chain solution for a next generation silicon carbon
(SiC) inverter, a key component used in high performance electric vehicles. TT
collaborated with this customer through the early design phase of the project
and has been appointed the exclusive manufacturing partner for the SiC
inverter.
· A new project with a renewable energy provider to provide solutions
for voltage converters in offshore substations. This continues a ten-year
collaboration to provide manufacturing solutions for multiple renewable energy
projects.
· We are providing complex high-level assembly solutions for a
customer's innovative micro-turbine generator technology that powers some of
the largest mobile networks and TowerCos worldwide. TT is supporting this
customer to provide cleaner, energy solutions that are transforming the
off-grid telecoms power sector, providing clean, affordable and reliable
power.
SENSORS AND SPECIALIST COMPONENTS
The Sensors and Specialist Components division works with customers to develop
high-specification standard and customised solutions, including sensors and
power management devices. Our solutions improve the precision, speed and
reliability of critical aspects of our customers' applications.
2021 2020 Change Change constant fx
Revenue £115.9m £109.2m 6% 11%
Adjusted operating profit(1) £16.4m £9.4m 74% 82%
Adjusted operating profit margin(1) 14.2% 8.6% 560bps 550bps
(1 )See note 1 on page 3 for an explanation of alternative performance
measures. Adjusting items are not allocated to divisions for reporting
purposes. For further discussion of these items please refer to the section
titled 'Reconciliation of KPIs and non IFRS measures' on page 40 of this
document.
Revenue increased by £6.7 million to £115.9 million (2020: £109.2 million)
net of an adverse currency effect of £5.2 million. Organic revenue was 11
per cent higher, with the division's exposure to the automation &
electrification market the driver of increased demand. This business is in the
sweet spot of enabling our customers to reach their sustainability goals with
components for smart energy & city infrastructure and factory automation.
Despite usually having limited visibility, the order book in this division has
increased significantly reflecting strong underlying demand but also in part,
customers committing orders further ahead to protect their supply chains and
responding to lead time extensions.
Adjusted operating profit increased by £7.0 million to £16.4 million (2020:
£9.4 million). Operating profit reflects the benefits of our self-help
programme, some of which was achieved ahead of schedule, and the strong
operational leverage on our revenue growth. We benefited from our agility in
adapting our pricing strategies including timely price increases to offset
ongoing material and freight cost increases. The adjusted operating profit
margin was up 560 bps to 14.2 per cent (2020: 8.6 per cent).
As part of the Group's ongoing self-help programme, the closures of the sites
in Barbados, Carrollton and Corpus Christi, Texas were completed in the year
and we moved to our new facility in Plano, Texas. We have invested in capacity
and improved yields which are enabling volumes to be produced at higher rates
and are focused on improving our customer experience.
There were a number of favourable developments during the year which will
benefit the business, including:
· We won a contract for defibrillator resistors which involved a
collaboration between our engineers in the UK with our sales capabilities in
Asia. The win includes production as well as test equipment charges
· We recently launched a revolutionary optical sensory array
FlexSense(TM) designed to optimise optical encoder applications for evolving
automation and healthcare markets. This product meets customer requirements
for customised, high-end optical encoder sensors which can be configured for
higher resolution, faster response and smaller footprint. It also enables
acceleration of time-to-market and manufacturing throughput for our customers
· We have a proven track record for providing quality resistors for a
technology and innovation customer. This customer awarded a contract for
current sense and fusible resistors to ensure the safety of its battery pack
for its industry leading, high-reliability and high specification products.
OTHER FINANCIAL INFORMATION
Summary of Adjusted results
To assist with the understanding of earnings trends, the Group has included
within its non-GAAP alternative performance measures including adjusted
operating profit and adjusted profit. Further information is contained in
the 'Reconciliation of KPIs and non IFRS measures' on page 40.
A reconciliation of statutory to adjusted profit numbers is set out on page
19.
A summary of the Group's adjusted results is set out below:
£ million 2021 2020
Revenue 476.2 431.8
Operating profit 34.8 27.5
Operating margin 7.3% 6.4%
Net finance expense (3.3) (3.7)
Profit before tax 31.5 23.8
Tax (6.2) (4.3)
Tax rate 19.6% 18.1%
Profit after tax 25.3 19.5
Weighted average number of shares 174.8 million 166.5 million
EPS 14.5p 11.7p
Cash flow, net debt and leverage
The table below sets out Group cash flows and net debt movement:
£ million 2021 2020
Adjusted operating profit 34.8 27.5
Depreciation and amortisation 16.1 17.0
Impairment of intangibles - 0.2
Net capital expenditure(1) (14.9) (9.9)
Capitalised development expenditure (1.9) (3.3)
Working capital (14.7) 3.6
Other 3.3 0.7
Adjusted operating cash flow after capex. 22.7 35.8
Adjusted operating cash conversion 65% 130%
Net interest and tax (8.7) (3.8)
Lease payments (3.9) (4.1)
Restructuring, acquisition and disposal related costs(1,2) (5.9) (8.1)
Retirement benefit schemes (5.5) (5.4)
Free cash flow (1.3) 14.4
Dividends (11.4) -
Lease payments 3.9 4.1
Equity issued/acquired 1.4 20.2
Acquisitions & disposals(2) (0.5) (45.7)
Other (0.5) (1.8)
Increase in net debt (8.4) (8.8)
Opening net debt (83.9) (69.1)
New, acquired, modified and surrendered leases (10.8) (2.6)
Borrowings acquired - (3.0)
FX and other 0.6 (0.4)
Closing net debt (102.5) (83.9)
1 In 2021 Restructuring, acquisition and disposal related costs'
comprises proceeds on surplus property disposals of £9.1m
2 In 2020 'Restructuring, acquisition and disposal related costs'
exclude a £3.8 million payment for a debt-like item which crystallised upon
acquisition of Torotel and which has been presented within 'acquisitions and
disposals.' This £3.8 million is an acquisition related cost
At 31 December 2021 the Group's net debt was £102.5 million (31 December
2020: £83.9 million). Included within net debt was £22.6 million of lease
liabilities (31 December 2020: £15.9 million).
Consistent with the Group's borrowing agreements, which exclude the impact of
IFRS 16 Leases, leverage ratio was 1.7 times at 31 December 2021 (31 December
2020: 1.6 times). Net interest cover was 13.5 times (31 December 2020: 12.6
times). The Group's debt covenants state that the leverage ratio must not
exceed 3.0 times and that interest cover must be more than 4.0 times.
Reconciliation of Adjusted results
Details of the reasons for and uses of adjusted measures are included in the
section titled 'Reconciliation of KPIs and non IFRS measures' on page 40 of
this announcement.
£ million 2021 2020
Operating profit 19.3 6.6
Adjusted to exclude:
Restructuring and other items
Restructuring 9.8 14.8
Property disposals (1.7) (1.2)
Pension and past service charge (0.3) 0.9
Acquisition related costs
Amortisation of intangible assets arising on business combinations 5.1 4.2
Release of warranty and claims provision relating to Transportation business 0.0 (1.0)
divestment
Ferranti acquisition costs 0.5
Torotel acquisition and integration costs 1.5 1.3
Other acquisition costs 0.2 1.3
Aborted acquisition and disposal costs 0.4 0.6
Total operating reconciling items 15.5 20.9
Adjusted operating profit 34.8 27.5
Profit before tax 16.0 2.9
Total operating reconciling items (as above) 15.5 20.9
Adjusted profit before tax 31.5 23.8
Taxation charge on adjusted profit (6.2) (4.3)
Adjusted profit after taxation 25.3 19.5
Cautionary statement
This report contains forward-looking statements. These have been made by the
Directors in good faith based on the information available to them up to the
time of their approval of this report. The Directors can give no assurance
that these expectations will prove to have been correct. Due to the inherent
uncertainties, including both economic and business risk factors underlying
such forward-looking information, actual results may differ materially from
those expressed or implied by these forward-looking statements. The Directors
undertake no obligation to update any forward-looking statements whether as a
result of new information, future events or otherwise.
Consolidated income statement
For the year ended 31 December 2021
£million (unless otherwise stated) Note 2021 2020
Revenue 3 476.2 431.8
Cost of sales (360.6) (332.7)
Gross profit 115.6 99.1
Distribution costs (26.9) (24.6)
Administrative expenses (69.4) (67.9)
Operating profit 19.3 6.6
Analysed as:
Adjusted operating profit 3 34.8 27.5
Restructuring and other 6 (7.8) (14.5)
Acquisition and disposal related costs 6 (7.7) (6.4)
Finance income 5 1.1 0.6
Finance costs 5 (4.4) (4.3)
Profit before taxation 16.0 2.9
Taxation 7 (3.2) (1.6)
Profit for the period attributable to the owners of the Company 12.8 1.3
EPS attributable to owners of the Company (pence)
Basic 9 7.3 0.8
Diluted 9 7.2 0.8
( )
Consolidated statement of comprehensive income
For the year ended 31 December 2021
£million 2021 2020
Profit for the year 12.8 1.3
Other comprehensive income for the year after tax
Items that are or may be reclassified subsequently to the income statement:
Exchange differences on translation of foreign operations 3.4 (5.0)
Tax on exchange differences - 0.3
(Loss)/gain on hedge of net investment in foreign operations (0.2) 0.7
(Loss)/gain on cash flow hedges taken to equity less amounts recycled to the (3.2) 7.1
income statement
Deferred tax gain on movements in cash flow hedge reserves 0.5 -
Items that will never be reclassified to the income statement:
Remeasurement of defined benefit pension schemes 11 35.8 8.6
Tax on remeasurement of defined benefit pension schemes 7 (11.4) (2.1)
Total comprehensive income for the period attributable to the owners of the 37.7 10.9
Company
Consolidated statement of financial position
As at 31 December 2021
£million Note 2021 2020 ( 1 )
ASSETS
Non-current assets
Right-of-use assets 19.6 12.4
Property, plant and equipment 50.4 53.0
Goodwill 4 156.5 155.7
Other intangible assets 51.7 57.1
Deferred tax assets 7 11.3 8.9
Derivative financial instruments 0.6 1.8
Pensions 11 78.4 35.4
Total non-current assets 368.5 324.3
Current assets
Inventories 141.8 98.2
Trade and other receivables 86.2 71.3
Income taxes receivable 2.6 3.0
Derivative financial instruments 4.0 5.8
Cash and cash equivalents 10 68.3 70.2
Total current assets 302.9 248.5
Total assets 671.4 572.8
LIABILITIES
Current liabilities
Borrowings 10 1.1 2.3
Lease liabilities 4.1 3.6
Derivative financial instruments 1.3 1.1
Trade and other payables 133.9 90.2
Income taxes payable 7.1 7.5
Provisions 11 2.5 6.6
Total current liabilities 150.0 111.3
Non-current liabilities
Borrowings 10 147.1 135.9
Lease liabilities 18.5 12.3
Derivative financial instruments 0.7 0.8
Deferred tax liability 7 20.2 8.6
Pensions 11 3.9 4.9
Provisions and other non-current liabilities 1.0 1.0
Total non-current liabilities 191.4 163.5
Total liabilities 341.4 274.8
Net assets 330.0 298.0
EQUITY
Share capital 12 44.1 43.6
Share premium 22.6 21.7
Translation reserve 33.2 30.0
Other reserves 7.1 5.5
Retained earnings 221.0 195.2
Equity attributable to owners of the Company 328.0 296.0
Non-controlling interests 2.0 2.0
Total equity 330.0 298.0
1. Goodwill, deferred tax assets and trade and other receivables amounts at 31
December 2020 have been restated for the finalisation of the acquisition
accounting with respect to Torotel, Inc. as described in note 4.
Approved by the Board of Directors on 8 March 2022 and signed on their behalf
by:
Richard Tyson
Mark
Hoad
Director
Director
Consolidated statement of changes in equity
As at 31 December 2021
£million Share capital Share premium Translation Reserve Other reserves Retained earnings Sub- Non-controlling interest Total
total
At 31 December 2019 41.0 4.1 34.0 (0.5) 187.4 266.0 2.0 268.0
Profit for the year - - - - 1.3 1.3 - 1.3
Other comprehensive income
Exchange differences on translation of foreign operations - - (5.0) - - (5.0) - (5.0)
Tax on exchange differences - - 0.3 - - 0.3 - 0.3
Gain on hedge of net investment in foreign operations - - 0.7 - - 0.7 - 0.7
Gain on cash flow hedges taken to equity less amounts recycled to the income - - - 7.1 - 7.1 - 7.1
statement
Remeasurement of defined benefit pension schemes - - - - 8.6 8.6 - 8.6
Tax on remeasurement of defined benefit pension schemes - - - - (2.1) (2.1) - (2.1)
Total comprehensive income - - (4.0) 7.1 7.8 10.9 - 10.9
Transactions with owners recorded directly in equity
Share-based payments - - - (0.8) - (0.8) - (0.8)
Deferred tax on share-based payments - - - (0.3) - (0.3) - (0.3)
New shares issued 2.6 17.6 - - - 20.2 - 20.2
At 31 December 2020 43.6 21.7 30.0 5.5 195.2 296.0 2.0 298.0
At 31 December 2020 43.6 21.7 30.0 5.5 195.2 296.0 2.0 298.0
Profit for the year 12.8 12.8 - 12.8
Other comprehensive income
Exchange differences on translation of foreign operations - - 3.4 - - 3.4 - 3.4
Loss on hedge of net investment in foreign operations - - (0.2) - - (0.2) - (0.2)
Loss on cash flow hedges taken to equity less amounts recycled to income - - - (3.2) - (3.2) - (3.2)
statement
Deferred tax on gain on movement in cash flow hedges - - - 0.5 - 0.5 - 0.5
Remeasurement of defined benefit pension schemes - - - - 35.8 35.8 - 35.8
Tax on remeasurement of defined benefit pension schemes - - - - (11.4) (11.4) - (11.4)
Total comprehensive income - - 3.2 (2.7) 37.2 37.7 - 37.7
Transactions with owners recorded directly in equity
Equity dividends paid by the Company - - - - (11.4) (11.4) - (11.4)
Share-based payments - - - 3.8 - 3.8 - 3.8
Deferred tax on share-based payments - - - 0.5 - 0.5 - 0.5
New shares issued 0.5 0.9 - - (0.3) 1.1 - 1.1
Other movements - - - - 0.3 0.3 - 0.3
At 31 December 2021 44.1 22.6 33.2 7.1 221.0 328.0 2.0 330.0
Consolidated statement of cash flows
For the year ended 31 December 2021
£million Note 2021 2020
Cash flows from operating activities
Profit for the year 12.8 1.3
Taxation 7 3.2 1.6
Net finance costs 3.3 3.7
Restructuring and other 7.8 14.5
Acquisition related costs 7.7 6.4
Adjusted operating profit 34.8 27.5
Adjustments for:
Depreciation 13.6 14.0
Amortisation of intangible assets 2.5 3.0
Impairment of property, plant and equipment and intangible assets - 0.2
Share-based payment expense 3.8 1.0
Other items 1.1 (0.3)
(Increase)/decrease in inventories (42.6) 4.2
(Increase)/decrease in receivables (15.7) 11.2
Increase/(decrease) in payables and provisions 42.0 (11.8)
Adjusted operating cash flow 39.5 49.0
Special payments to pension funds 11 (5.5) (5.4)
Restructuring and acquisition related costs (15.0) (15.1)
Net cash generated from operations 19.0 28.5
Net income taxes paid (4.7) (0.3)
Net cash flow from operating activities 14.3 28.2
Purchase of property, plant and equipment (14.6) (9.3)
Proceeds from sale of property, plant and equipment and government grants 9.3 3.4
received
Capitalised development expenditure (1.9) (3.3)
Purchase of other intangibles (0.5) (0.8)
Acquisitions of businesses (0.5) (43.3)
Cash with acquired businesses - 1.4
Net cash flow used in investing activities (8.2) (51.9)
Cash flows from financing activities
Issue of share capital 1.4 20.2
Interest paid (4.0) (3.5)
Repayment of borrowings (86.9) (27.2)
Proceeds from borrowings 96.4 49.8
Capital payment of lease liabilities (3.9) (4.1)
Other items (0.5) (1.8)
Dividends paid by the Company 8 (11.4) -
Net cash flow (used in) / from financing activities (8.9) 33.4
Net (decrease)/increase in cash and cash equivalents (2.8) 9.7
Cash and cash equivalents at beginning of year 10 69.0 60.2
Exchange differences 10 1.0 (0.9)
Cash and cash equivalents at end of year 10 67.2 69.0
Cash and cash equivalents comprise:
Cash at bank and in hand 68.3 70.2
Bank overdrafts (1.1) (1.2)
67.2 69.0
TT Electronics Plc
Results for the year ended 31 December 2021
1 General information
The information set out below, which does not constitute full financial
statements, is extracted from the audited financial statements
· was approved by the Directors on 8 March 2022;
· have been reported on by the Group's auditor; their reports were
unqualified, did not draw attention to any matters by way of emphasis and did
not contain statements under s498(2) or (3) of the Companies Act 2006;
· will be available to the shareholders and the public in April
2022; and
· will be filed with the Registrar of Companies following the
Annual General Meeting.
While the financial information included in this preliminary announcement has
been prepared in accordance with the recognition and measurement criteria of
International Financial Reporting Standards ("IFRSs") adopted pursuant to
IFRSs as issued by the IASB, this announcement does not itself contain
sufficient information to comply with IFRSs. The Company expects to publish
full Financial Statements that comply with IFRSs during April 2022.
2 Basis of preparation
Going concern
The Group has experienced continued improvement in trading momentum and strong
growth on our 2020 numbers. The structural growth markets we have selected to
focus on have moved back towards their long-term growth trajectory, the
benefits of our strategic repositioning and focus on building close
relationships with our clients can be seen in both the order book and
financial performance of the Group.
The Group's financial position remains strong, at 31 December 2021 it had:
• £318.9 million of total lease liabilities and borrowing facilities
available comprising committed facilities of £276.3 million (net of £1.3
million loan arrangement fees and inclusive of £22.6 million of finance
leases), uncommitted facilities of £42.6 million representing overdraft lines
and an undrawn accordion facility of £30 million. The Group's primary source
of finance is the £180 million committed revolving credit facility (RCF); at
31 December 2021 £73.4 million of this facility had been drawn down. The
Group's RCF will mature in November 2023. In August 2021, TT agreed a debut
issue of £75 million of private placement fixed rate loan notes with three
institutional investors. The funds were received in December 2021 and the
issue is evenly split between 7 and 10 year maturities with an average
interest rate of 2.9% and covenants in line with our bank facility. The
private placement complements, at an attractive rate, the Group's existing
bank RCF, diversifying our sources of debt funding and providing us with a
stable, long-term financing structure.
• A leverage ratio (banking covenant defined measure) of 1.7 times at 31
December 2021 compared to a RCF covenant maximum of 3.0 times. Interest cover
(banking covenant defined measure) of 13.5 times compared to a RCF covenant
minimum of 4.0 times.
The Group has prepared and reviewed cash flow forecasts across the business
over the twelve-month period from the date of the approval of these financial
statements, considering the Group's current financial position and the
potential impact of our principal risks on divisions.
The Group's financial projections contain key assumptions surrounding revenue
and operating profit growth in 2022. Under the Group's base case financial
projections, the Group retains significant liquidity and covenant headroom,
with both metrics improving from the position as at 31 December 2021.
The Group's financial projections have been stress tested for "business as
usual" risks (such as profit growth and working capital variances), and the
impact of the following principal risks: general revenue reductions,
contractual risks, people and capability, supplier resilience and health and
safety (occurring both individually and in unison). Principal risks which were
not specifically modelled were either considered not likely to have an impact
within the going concern period or their financial effect was covered within
the overall downside economic risks implicit within the stress testing. Under
the stress tested modelling, the liquidity headroom within the group remains
significant. Financial covenants continue to be in compliance under the stress
tested model and management have a number of mitigating actions which could be
undertaken if required.
The Group's downside stress test scenario has been sensitised for supply chain
challenges and inflationary pressure which shows a reduction in revenue and
operating profit compared to the latest forecast. Despite this further
reduction these projections show that the Group would remain well within its
facilities headroom and within bank covenants for the next 12 months after the
approval of these financial statements. A "reverse" stress-test was also
modelled to understand the conditions which could jeopardise the ability of
the Group to continue as a going concern including assessing against covenant
testing and facility headroom. The stress testing also considered mitigating
actions which could be put in place. Mitigating actions included limiting
capital expenditure and reducing controllable costs including items such as
discretionary bonuses and pay rises.
TT Electronics Plc
Results for the year ended 31 December 2021
2 Basis of preparation continued
The reverse stress test is deemed to have a remote likelihood and help inform
the Directors' assessment that there are no material uncertainties in relation
to going concern.
The Group's wide geographical and sector diversification helps minimise the
risk of serious business interruption or catastrophic reputational damage.
Furthermore, the business model is structured so that the Group is not overly
reliant on any single customer, market or geography.
The Directors have assessed the future funding requirements of the Group with
due regard to the risks and uncertainties to which the Group is exposed and
compared them with the level of available borrowing facilities and are
satisfied that the Group has adequate resources for at least twelve months
from the date of signing these accounts. Accordingly, the financial statements
have been prepared on a going concern basis.
Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies the Directors are
required to make judgements, estimates and assumptions about the carrying
amounts of assets and liabilities that are not readily apparent from other
sources.
The estimates and associated assumptions are based on historical experiences
and other factors that are considered to be relevant. Actual results may
differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of revision and future periods if the revision affects both current and future
periods.
Critical judgements
In the course of preparing the Financial Statements, a critical judgement
within the scope of paragraph 122 of IAS 1: "Presentation of Financial
Statements" is made during the process of applying the Group's accounting
policies.
Adjusting items
Judgements are required as to whether items are disclosed as adjusting, with
consideration given to both quantitative and qualitative factors. Further
information about the determination of adjusting items in the year ended 31
December 2021 is below.
There are no other critical judgements other than those involving estimates,
that have had a significant effect on the amounts recognised in the Financial
Statements. Those involving estimates are set out below.
Key sources of estimation uncertainty
Assumptions concerning the future and other key sources of estimation
uncertainty at the balance sheet date, that may have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are discussed below.
• Note 4 - Goodwill in relation to the IoT Solutions cash
generating unit ("CGU"). The carrying amount of goodwill at 31 December 2021
was £156.5 million (2020: £155.7 million). Determining whether goodwill is
impaired requires an estimation of the value in use of the CGUs to which the
goodwill has been allocated. The value in use calculation requires management
to estimate the future cash flows expected to arise from CGUs and a suitable
discount rate in order to calculate present value. At 31 December 2021 and 31
December 2020, the Group recognised no impairment loss in respect of goodwill.
Further information, including a sensitivity analysis on the key assumptions,
is provided in note 4. The carrying amount of the IoT Solutions CGU's goodwill
was £27.7 million (2020: £27.6 million). Due to the impact of current supply
chain challenges, as explained in note 4, IoT Solutions CGU shows headroom of
£5.8 million and is sensitive to a reasonably possible change in assumptions;
discount rate, long-term growth rate, successful launch of new products and
short term operating cash flow. At 31 December 2021 and 31 December 2020, the
Group recognised no impairment loss in respect of these assets. Further
information, including a sensitivity analysis on the key assumptions, is
provided in note 4.
• Note 7 - Taxation. Accruals for tax contingencies require
management to make judgements and estimates in relation to tax authority
audits and exposures. Amounts accrued are based on management's interpretation
of country-specific tax law and the likelihood of settlement. Tax benefits are
not recognised unless the tax positions are probable of being sustained. Once
considered to be probable, management reviews each material tax benefit to
assess whether a provision should be taken against full recognition of the
benefit on the basis of potential settlement through negotiation and/or
litigation. These amounts are expected to be utilised or to reverse as tax
audits occur or as the statute of limitations is reached in the respective
countries concerned. The Group's current tax liability at 31 December 2021
includes tax provisions of £6.9 million (2020: £6.4 million). The Group
believes the range of reasonable possible outcomes in respect of these
exposures is tax liabilities of up to £9.0 million (2020: £8.2 million).
TT Electronics Plc
Results for the year ended 31 December 2021
2 Basis of preparation continued
• Note 11 - Defined benefit pension obligations. At 31 December
2021 the Group operated two defined benefit schemes in the UK (the TT Group
(1993) Pension Scheme and the Southern & Redfern Ltd Retirement Benefits
Schemes) and overseas defined benefit schemes in the USA. These schemes are
closed to new members and the UK schemes are closed to future accrual. The
defined benefit obligations in respect of the plans are discounted at rates
set by reference to market yields on high quality corporate bonds. Significant
estimation is required when setting the criteria for bonds to be included in
the population from which the yield curve is derived. The most significant
criteria considered for the selection of bonds to include are the issue size
of the corporate bonds, quality of the bonds and the identification of
outliers which are excluded. In addition, assumptions are made in determining
mortality and inflation rates to be used when valuing the plans' defined
benefit obligations. Whilst actual movements might be different to
sensitivities shown, there is a reasonably possible change that could occur.
At 31 December 2021, the retirement benefit plan was in a surplus of £74.5
million (2020: £30.5 million).
• Virolens. The carrying amount of Virolens related assets at 31
December 2021 was £4.8 million (2020: £4.5 million). The assets consist of
inventory, property, plant and equipment, and capitalised development
expenditure. The value of these assets is dependent upon the success of the
Virolens product, requiring management to estimate the future cash flows in a
range of possible outcomes. The key sources of estimation uncertainty are our
customers' ability to obtain regulatory approval and potential end customers
converting expressions of interest into firm funded orders. Our customer
continues to progress with regulatory approvals and global interest remains
strong given new COVID strains and vaccine limitations (efficacy and supply).
If regulatory approval is not obtained it is likely the assets related to
Virolens will require impairment.
Alternative performance measures
The Group presents Alternative Performance Measures ("APMs") in addition to
the statutory results of the Group. These are presented in accordance with the
guidelines on APMs issued by the European Securities and Markets Authority
("ESMA").
Adjusted operating profit has been defined as operating profit from continuing
operations excluding the impacts of significant restructuring programmes,
significant one-off items including property disposals, business acquisition,
integration, and divestment related activity; and the amortisation of
intangible assets recognised on acquisition. Acquisition and disposal related
items include the writing off of the pre-acquisition profit element of
inventory written up on acquisition, other direct costs associated with
business combinations and adjustments to contingent consideration related to
acquired businesses. Restructuring includes significant changes in footprint
(including movement of production facilities) and significant costs of
management changes.
In addition to the items above, adjusting items impacting profit after tax
include:
• The net effect on tax of significant restructuring from strategy changes
that are not considered by the Group to be part of the normal operating costs
of the business; and
• The tax effects of adjustments to profit before tax.
These financial statements include alternative performance measures that are
not prepared in accordance with IFRS. These alternative performance measures
have been selected by the Directors to assist them in making operating
decisions because they represent the underlying operating performance of the
Group and facilitate internal comparisons of performance over time.
The Directors consider the adjusted results to be an important measure used to
monitor how the businesses are performing as this provides a meaningful
reflection of how the businesses are managed and measured on a day-to-day
basis and achieves consistency and comparability between reporting periods.
TT Electronics Plc
Results for the year ended 31 December 2021
3 Segmental reporting
The Group is organised into three divisions, as shown below, according to the
nature of the products and services provided. Each of these divisions
represents an operating segment or an aggregation of operating segments in
accordance with IFRS 8 'Operating Segments'. The chief operating decision
maker is the Chief Executive Officer. The operating segments are:
· Power and Connectivity - The Power and Connectivity division
designs and manufactures power application products and connectivity devices
which enable the capture and wireless transfer of data. We collaborate with
our customers to develop innovative solutions to optimise their electronic
systems. Power and Connectivity is an aggregation of two operating segments
due to similarities in products and markets served;
· Global Manufacturing Solutions - The Global Manufacturing
Solutions division provides manufacturing services and engineering solutions
for our product divisions and to customers that often require a lower volume
and higher mix of different products. We manufacture complex integrated
product assemblies for our customers and provide engineering services
including designing testing solutions and value-engineering; and
· Sensors and Specialist Components - The Sensors and Specialist
Components division works with customers to develop standard and customised
solutions including sensors and power management devices. Our solutions
improve the precision, speed and reliability of critical aspects of our
customers' applications.
The key performance measure of the operating segments is adjusted operating
profit. Refer to the section titled 'Reconciliation of non IFRS measure' for a
definition of adjusted profit.
Corporate costs - Resources and costs of the head office managed centrally but
deployed in support of the operating units are allocated to segments based on
a combination of revenue and operating profit. Resources and costs of the head
office which are not related to the operating activities of the trading units
are not allocated to divisions and are separately disclosed, equivalent to the
segment disclosure information, so that reporting is consistent with the
format that is used for review by the chief operating decision maker. This
gives greater transparency of the adjusted operating profits for each segment.
Inter- segment pricing is determined on an arms length basis in a manner
similar to transactions with third parties.
The Group's geographical segments are determined by the location of the
Group's non-current assets and, for revenue, the location of external
customers. Group financing (including finance costs and finance income) and
income taxes are managed on a Group basis and are not allocated
to operating segments. Goodwill is allocated to the individual cash
generating units which may be smaller than the segment of which they are part.
a) Income statement information
2021
£million Power and Connectivity Global Manufacturing Solutions Sensors and Specialist Components Total Operating Segments Corporate Total
Sales to external customers 140.2 220.1 115.9 476.2 - 476.2
Adjusted operating profit 7.8 18.3 16.4 42.5 (7.7) 34.8
Add back: adjustments made to operating profit (note 6) (15.5)
Operating profit 19.3
Net finance costs (3.3)
Profit before taxation 16.0
2020
£million Power and Connectivity Global Manufacturing Solutions Sensors and Specialist Components Total Operating Segments Corporate Total
Sales to external customers 125.1 197.5 109.2 431.8 - 431.8
Adjusted operating profit 10.3 15.0 9.4 34.7 (7.2) 27.5
Add back: adjustments made to operating profit (note 6) (20.9)
Operating profit 6.6
Net finance costs (3.7)
Profit before taxation 2.9
TT Electronics Plc
Results for the year ended 31 December 2021
3 Segmental reporting continued
b) Geographic information
Revenue by destination
The Group operates on a global basis. Revenue from external customers by
geographical destination is shown below. Management monitors and reviews
revenue by region rather than by individual country given the significant
number of countries where customers are based.
£million 2021 2020
United Kingdom 100.2 100.2
Rest of Europe 78.6 74.8
North America 182.7 164.9
Asia 113.3 88.8
Rest of the World 1.4 3.1
476.2 431.8
C) Market information
Revenue by market
The Group operates in the following markets
£million 2021 2020 ( 1 )
Healthcare 118.8 100.4
Aerospace and defence 85.5 91.9
Automation and electrification 186.3 157.9
Distribution 85.6 81.6
476.2 431.8
1. Revenue by market in 2020 has been restated following a reclassification of
end markets for several key customers.
4 Goodwill
£million
Cost
At 1 January 2020 136.1
Additions 23.7
Net exchange adjustment (2.9)
At 31 December 2020 156.9
Remeasurement of acquired fair values (1.2)
Adjusted balance as at 31 December 2020 155.7
Net exchange adjustment 0.8
At 31 December 2021 156.5
In June 2021 the Group received new information about conditions which were
present at the time of the acquisition of Torotel, Inc, namely that the PPP
loan from the US government COVID-19 support scheme that was recognised in
full on the acquisition balance sheet, was waived. The Group has updated the
acquisition balance sheet to reflect this new information. The effect on the
acquired balance sheet and the Group's consolidated statement of financial
position as at 31 December 2020 was to decrease goodwill by £1.4 million with
a corresponding increase in trade and other receivables.
During the year it was determined that the deferred tax asset on the
acquisition balance sheet for Torotel, Inc. was overstated by £0.2 million.
The Group has updated the acquisition balance sheet to reflect this new
information. The effect on the acquired balance sheet and the Group's
consolidated statement of financial position as at 31 December 2020 was to
increase goodwill by £0.2 million with a corresponding decrease in deferred
tax assets.
TT Electronics Plc
Results for the year ended 31 December 2021
4 Goodwill continued
The goodwill generated as a result of acquisitions represents the premium paid
in excess of the fair value of all net assets, including intangible assets,
identified at the point of acquisition. The future improvements applied to the
acquired businesses, achieved through a combination of revised strategic
direction, operational improvements and investment are expected to result in
improved profitability of the acquired businesses during the period of
ownership. The combined value achieved from these improvements is expected to
be in excess of the value of goodwill acquired.
Goodwill is attributed to the following CGUs in the divisions shown below:
£million 2021 2020
Power and Connectivity:
Power Solutions (2) 57.0 56.7
IoT Solutions 27.6 27.6
Global Manufacturing Solutions:
Global Manufacturing Solutions 18.4 18.2
Sensors and Specialist Components:
Resistors 30.5 30.1
Sensors (1) 23.0 23.1
156.5 155.7
1. In the prior year the Sensors CGU comprised of the Optoelectronics CGU and
the Roxspur CGU with respective goodwill of £21.0 million and £2.1 million.
2. The carrying value of Goodwill attributable to the Power Solutions CGU at
31 December 2020 has been restated following the finalisation of the
acquisition accounting.
The Group tests goodwill impairment annually or more frequently if there are
indications that goodwill might be impaired. Effective from the year ended 31
December 2021, the date of the annual impairment test has been moved to 30
September 2021 to better align with internal forecasting and review processes.
The key assumptions used in the 30 September impairment testing were
reassessed at 31 December, however, there were no further indicators of value
decline that necessitated further consideration.
The recoverable amounts of the CGUs are determined from value in use
calculations. The key assumptions for the value in use calculations
are those regarding the discount rates, growth rates and operating cash flow
projections over a forecast period. The growth rate assumed after this
forecast period is based on long-term GDP projections capped at long term
growth rates (which are approximated as long term inflation rates) of the
primary market for the CGU, in perpetuity. Long-term growth rates are based on
long-term forecasts for growth in the sectors and geography in which the group
of CGUs operates. Long-term growth rates are determined using long-term growth
rate forecasts that take into account the international presence and the
markets in which each business operates.
Management estimate discount rates using pre-tax rates that reflect current
market assessments of the Group's time value of money and the risks specific
to the CGU being measured.
In determining the cost of equity, the Capital Asset Pricing Model ("CAPM")
has been used. Under CAPM, the cost of equity is determined by adding a risk
premium, based on an industry adjustment, to the expected return of the equity
market above the risk-free return. The relative risk adjustment reflects the
risk inherent in each group of CGUs relative to all other sectors and
geographies on average.
The cost of debt is determined using a risk-free rate based on the cost of
government bonds, and an interest rate premium equivalent to a corporate bond
with a similar credit rating to TT Electronics Plc.
The growth rates assume that demand for our products remains broadly in line
with the underlying economic environment in the long-term future. Taking into
account our expectation of future market conditions, we believe that the
evolution of selling prices and cost measures put into place will lead to a
sustained improvement in profitability.
Management has detailed plans in place reflecting the latest budget and
strategic growth plan. The pre-tax discount rates and periods of management
approved forecasts are shown below. The discount rates used in the annual
impairment test for the year ended 31 December 2021, which was performed on 30
September 2021 are shown below:
TT Electronics Plc
Results for the year ended 31 December 2021
4 Goodwill continued
2021 2020
Pre-tax discount rate Long term growth rate Period of forecast (years) Pre-tax discount rate Long term growth rate Period of forecast (years)
Power Solutions 12.2% 1.7% 5 11.6% 1.7% 3
IoT Solutions 12.2% 1.6% 5 11.5% 1.8% 5
Global Manufacturing Solutions 13.2% 1.8% 5 13.3% 2.2% 3
Resistors 13.3% 1.6% 5 12.9% 1.7% 3
Sensors (1) 13.8% 1.7% 5 11.8% 1.6% 3
1. In the prior year the Sensors CGU comprised of the Optoelectronics CGU and
the Roxspur CGU with respective long term growth rates of 1.6% and 1.6%, and
pre-tax discount factors of 13.8% and 11.5%.
No impairment losses have been recognised in the current or prior year as
recoverable amounts exceed the total carrying value of assets for all of the
CGUs.
Key assumptions in the value in use test is the projected performance of the
CGUs based on sales growth rates, cash flow forecasts and discount rate.
Forecast sales growth rates are based on past experience adjusted for the
strategic direction and near-term investment priorities within each CGU. The
key assumptions include externally obtained growth rates in the key markets
disclosed in note 3 and customer demand for product lines. Cash flow forecasts
are determined based on historic experience of operating margins, adjusted for
the impact of changes in product mix and cost-saving initiatives, including
the impact of our restructuring projects and cash conversion based on
historical experience.
The recoverable amounts associated with the goodwill balances which are based
on these performance projections and based on current forecast information do
not indicate that any goodwill balance is impaired. If a company's actual
performance does not meet these projections this could lead to an impairment
of the goodwill in future periods. The pandemic resulted in supply chain
challenges within the markets in which the Group operates and are restricting
the level of growth in the near term. Inflationary pressure on materials is
assumed to be largely passed on in the base case.
Sensitivity analysis has been performed on the key assumptions; operating cash
flow projections, revenue growth rates and discount rate. Cash flows can be
impacted by changes to sales prices, direct costs and replacement capital
expenditure; individually they are not significant assumptions. Forecast sales
growth rates are based on past experience adjusted for the strategic direction
and near-term investment priorities. Cash flow forecasts are determined based
on historic experience of operating margins, adjusted for the impact of
changes in product mix and cost-saving initiatives, including the impact of
our committed restructuring projects and cash conversion based on historical
experience.
The Directors have not identified changes in significant assumptions that
would cause the carrying value of recognised goodwill to exceed its
recoverable amount except for IoT Solutions.
Due to reduced forecast revenues resulting from the short-term supply chain
challenges, an indicator of impairment was identified in respect of goodwill
allocated to IoT Solutions.
IoT Solutions CGU operates in markets with strong growth fundamentals and the
short term forecasts for the IoT Solutions CGU include revenue and margin
growth from successful product launches, and post COVID-19 demand recovery in
the short and medium term. These forecasts exclude any potential benefits
from the Virolens rapid COVID-19 screening device given the wide range of
possible outcomes.
IoT Solutions CGU shows headroom of £5.8 million above the £60.0 million
carrying amount, including £27.6m of goodwill. The growth rates assume that
demand for our product remains in line with the underlying economic
environment in the long-term future. Taking into account our expectation of
future market conditions, we believe that the evolution of selling prices and
cost measures put into place will lead to a sustained improvement in
profitability. The IoT Solutions CGU's forecasts are reliant upon its ability
to execute on new business opportunities and technologies. The order book has
grown significantly in the last 12 months so the near term focus is on
execution. Delays, cancellations, and adjustments to the scheduled level of
demand will impact the carrying value of the goodwill. In accordance with IAS
36 'Impairment of Assets' the Group performed sensitivity analysis on the
estimates of recoverable amounts and found that the excess of recoverable
amount over the carrying amount of the IoT Solutions CGU would be reduced to
£nil as a result of a reasonably possible change in assumptions.
TT Electronics Plc
Results for the year ended 31 December 2021
4 Goodwill continued
A reduction in operating cash flow of 9.0 per cent in all forecast periods
would also reduce headroom to £nil. Management does not consider that the
relevant change in these assumptions would have a consequential effect on
other key assumptions.
A reduction in terminal revenue of 15.2 per cent and terminal operating profit
of 2.0 per cent (driven by project delivery delays or lower than anticipated
margin) would reduce headroom to £nil.
A failure to deliver the successful launch of new products and exploit
potential market share could impact margin and cash flow assumptions. A
reduction in the terminal operating margin of 2.7 per cent and terminal cash
conversion of 10.0 per cent in combination would reduce headroom to £nil.
5 Finance costs and finance income
£million 2021 2020
Interest income 0.2 0.1
Net interest income on pension schemes in surplus 0.9 0.5
Finance income 1.1 0.6
Interest expense 3.1 3.0
Interest on lease liabilities 0.8 0.8
Net interest expense on pension schemes in deficit 0.1 0.1
Amortisation of arrangement fees 0.4 0.4
Finance costs 4.4 4.3
Net finance costs 3.3 3.7
6 Adjusting items
As described in note 2, adjusted profit measures are an alternative
performance measure used by the Board to monitor the operating performance of
the Group.
2021 2020
£million Operating profit Tax Operating profit Tax
As reported 19.3 (3.2) 6.6 (1.6)
Restructuring and other
Restructuring (9.7) 1.2 (14.8) 1.8
Property disposals 1.7 (0.2) 1.2 -
Pension costs (1.5) 0.2 (0.9) 0.1
Pension increase exchange exercise 1.8 (0.2) - -
Other items (0.1) - - -
(7.8) 1.0 (14.5) 1.9
Acquisition and disposal related costs
Amortisation of intangible assets arising on business combinations (5.1) (0.3) (4.2) 0.4
Release of warranty and claims provision - - 1.0 (0.1)
Torotel acquisition and integration costs (1.5) 0.6 (1.3) 0.2
Covina acquisition and integration costs (0.2) 0.1 (1.3) 0.2
Ferranti Power and Control acquisition costs (0.5) 0.2 - -
Other acquisition and disposal related costs (0.4) 0.1 (0.6) 0.1
Tax losses relating to the disposal of the transportation division - 1.3 - -
(7.7) 2.0 (6.4) 0.8
Total items excluded from adjusted measure (15.5) 3.0 (20.9) 2.7
Adjusted measure 34.8 (6.2) 27.5 (4.3)
TT Electronics Plc
Results for the year ended 31 December 2021
6 Adjusting items continued
Restructuring and other £7.8 million (2020: £14.5 million)
Restructuring costs charged in the period primarily relate to cost of the
Group's self help programme which began in 2020 and it is expected to conclude
in 2022. To date the total income statement expense of the self help programme
has been £21.0 million and with the total cost estimated to be £23.4
million.
Within the costs above there was £5.9 million of costs relating to the
restructure of the US resistors business, £1.5 million relating to the
closure of our facility in Lutterworth, UK, £1.1 million relating to the
restructure of the US Power North America business, £0.9m relating to the
closure of our facility in Tunis, Tunisia and £0.4 million of other costs.
Gains on property disposals of £1.7 million (2020: £1.2 million Lutterworth
site, UK) relates to the sale of property in Covina, USA (£1.3 million),
Corpus Christi, USA (£0.6 million) and Olathe, USA (£0.2 million loss).
A £1.8 million gain was realised on a 'Pensions Increase Exchange' exercise
whereby eligible current pension members were offered the option to exchange
their non statutory pension increases for an additional amount of level
pension. Pension costs of £1.5 million relate to data cleanse work as we work
towards a buyout of the scheme.
2020's restructuring and other costs amounted to £14.5 million, primarily
related to restructuring of the Group's footprint, gain from property
disposals and costs relating to the pension past service charge as a result of
UK pensions schemes having to equalise male and female members' benefits in
respect of guaranteed minimum pensions.
Acquisition and disposal related costs £7.7 million (2020: £6.4 million)
Acquisition and disposal related costs charged in the period relate to
amortisation of acquired intangible assets (£5.1 million), integration costs
of Torotel, Inc. (£1.5 million, Torotel was acquired in 2020), acquisition
costs of Ferranti Power and Control (£0.5 million), integration costs of
Covina (£0.2 million) and other acquisitions and disposal costs primarily
relating to terminated deals (£0.4 million). A £1.3 million credit has been
recognised in the period on tax losses arising in relation to the disposal of
the transportation division due to the statute of limitations being reached.
2020's acquisition related costs amounted to £6.4 million and primarily
related to amortisation of acquired intangible assets (£4.2 million),
acquisition and integration costs of Covina (£1.3 million), acquisition and
integration costs of Torotel, inc. (£1.3 million) a credit related to
settlement against a warranty claim provision on the disposal of the
transportation division in 2017, (£1.0m), and other costs (£0.6m).
TT Electronics Plc
Results for the year ended 31 December 2021
7 Taxation
a) Analysis of the tax charge for the year
£million 2021 2020
Current tax
Current income tax charge 5.1 5.1
Adjustments in respect of current income tax of previous year (0.9) (3.4)
Total current tax charge 4.2 1.7
Deferred tax
Relating to origination and reversal of temporary differences (0.4) (0.5)
Change in tax rate 0.8 (0.4)
Recognition of previously unrecognised deferred tax assets (1.4) 0.8
Total deferred tax credit (1.0) (0.1)
Total tax charge in the income statement 3.2 1.6
The applicable tax rate for the period is based on the UK standard rate of
corporation tax of 19% (2020: 19%). Overseas taxation is calculated at the
rates prevailing in the respective jurisdictions. The Group's effective tax
rate for the year was 20.0% (the adjusted tax rate was 19.6%, see section
'Reconciliation of KPIs and non IFRS measures').
The enacted UK tax rate applicable since 1 April 2017 to current year profits
is 19%. An increase in UK rate has been enacted to occur from 1 April 2023 to
25%. The impact on deferred tax as a result of this change was £5.9 million.
Included within the total tax charge above is a £3.0 million credit relating
to items reported outside adjusted profit (2020: £2.7 million).
b) Reconciliation of the total tax charge for the year
£million 2021 2020
Profit before tax from continuing operations 16.0 2.9
Profit before tax multiplied by the standard rate of corporation tax in the UK 3.0 0.6
of 19% (2020: 19%)
Effects of:
Impact on deferred tax arising from changes in tax rates 0.8 (0.4)
Overseas tax rate differences 0.7 1.4
Items not deductible for tax purposes or income not taxable 2.2 2.6
Adjustment to current tax in respect of prior periods (0.9) (3.4)
Current year tax losses and other items not recognised (1.2) 0.1
Adjustment to value of deferred tax assets (1.4) 0.7
Total tax charge reported in the income statement 3.2 1.6
The adjustment to current tax in respect of prior periods largely relates to
the release of tax provisions in respect of concluded disputes and
uncertainties.
TT Electronics Plc
Results for the year ended 31 December 2021
7 Taxation continued
The overall aim of the Group's tax strategy is to support business operations
by ensuring a sustainable tax rate, mitigating tax risks in a timely and
cost-efficient way and complying with tax legislation in the jurisdictions in
which the Group operates. It is however inevitable that the Group will be
subject to routine tax audits or is in ongoing disputes with tax authorities
in the multiple jurisdictions it operates within. This is much more likely to
arise in situations involving more than one tax jurisdiction. Differences in
interpretation of legislation, of global standards (e.g. OECD guidance) and of
commercial transactions undertaken by the group between different tax
authorities are one of the main causes of tax exposures and tax risks for the
group.
In order to manage the risk to the Group an assessment is made of such tax
exposures and provisions are created using the best estimate of the most
likely amount to be incurred within a range of possible outcomes. The
resolution of the Group's tax exposures can take a considerable period of time
to conclude and, in some circumstances, it can be difficult to predict the
final outcome.
The current tax liability at 31 December 2021 includes tax provisions of £6.9
million (2020: £6.4 million). The Group believes the range of reasonable
possible outcomes in respect of these exposures is tax liabilities of up to
£9.0 million (2020: £8.2 million).
c) Deferred tax
The amounts of deferred taxation assets/(liabilities) provided in the
financial statements are as follows:
A deferred tax asset of £6.7 million has been recognised in respect of
territories where the group has made net tax losses in the current year. The
net tax losses have been driven by one-off costs excluded from adjusted
measures which the Group does not expect to recur in future periods. The
Group completed a five year forward looking strategic plan covering the
periods from 2022 to 2026 in which it was forecast that all divisions would
show increasing profitability. Therefore, a deferred tax asset is recognised
on the basis that it is considered probable that net taxable profits will be
recognised in these territories in future.
£million As at 1 Jan 2021 Continuing operations Recognised on acquisition Recognised in equity/ OCI Net exchange translation As at 31 December 2021
Intangible assets (10.6) (0.8) - - - (11.4)
Property, plant and equipment 1.7 (0.2) - - - 1.5
Deferred development costs (0.5) - - - - (0.5)
Retirement benefit obligations (5.7) (1.8) - (11.4) - (18.9)
Inventories 1.0 0.1 - - - 1.1
Tax losses 7.5 1.9 (0.2) - 0.1 9.3
Unremitted overseas earnings (2.0) (0.3) - - - (2.3)
Share-based payments 0.7 0.7 - 0.5 - 1.9
Cash flow hedges - - - 0.5 - 0.5
Short-term temporary differences 8.4 1.3 (0.1) - 0.3 9.9
Net deferred tax asset/(liability) 0.5 0.9 (0.3) (10.4) 0.4 (8.9)
Deferred tax assets 8.9 11.3
Deferred tax liabilities (8.6) (20.2)
Net deferred tax asset/(liability) 0.5 (8.9)
TT Electronics Plc
Results for the year ended 31 December 2021
7 Taxation continued
Deferred tax Description
Intangible assets Deferred tax relating to intangible assets created on acquisitions by the
Group. This excludes any internally generated intangibles relating to product
development costs.
Property, plant and equipment Deferred tax relating to temporary differences in the value of property, plant
and equipment between Group accounting and local accounting and/or tax returns
Deferred development costs Deferred tax relating to deferred development costs
Retirement benefit obligations Deferred tax relating to retirement benefit obligations
Inventories Deferred tax relating to temporary differences between the local book value
and Group consolidated value of inventory
Tax losses Deferred tax relating to recognised tax losses carried forwards for offset
against future profits of the Group
Unremitted overseas earnings Deferred tax relating to the repatriation of subsidiary profits to the Group's
ultimate holding company
Share based payments Deferred tax relating to share based payment
Short term temporary differences Deferred tax relating to temporary differences between Group accounts and
local accounts or tax return arising where a tax deduction is received on
payment of an amount either between Group companies or to external unconnected
third parties rather than on an accounting basis. This includes product
development costs.
£million At 31 December 2019 Continuing operations Recognised on acquisition Recognised in equity/ OCI Net exchange translation As at 31 December 2020
Intangible assets (9.0) 0.2 (2.2) - 0.2 (10.8)
Property, plant and equipment 1.9 (0.2) (0.1) - 0.1 1.7
Deferred development costs (1.0) 0.4 - - 0.1 (0.5)
Retirement benefit obligations (2.5) (1.1) - (2.1) - (5.7)
Inventories 1.5 (0.5) - - - 1.0
Tax losses 3.6 3.9 0.3 - (0.3) 7.5
Unremitted overseas earnings (1.7) (0.4) - - 0.1 (2.0)
Share-based payments 1.3 (0.3) - (0.3) - 0.7
Short-term temporary differences 9.4 (2.1) 1.2 - (0.1) 8.4
Net deferred tax asset 3.5 (0.1) (0.8) (2.4) 0.1 0.3
Deferred tax assets 8.1 8.9
Deferred tax liabilities (4.6) (8.6)
Net deferred tax asset 3.5 0.5
At 31 December 2021, the gross amount and expiry date of losses available for
carry forward are as follows:
£million Expiring within 5 years Expiring within 6-10 years Unlimited Total
Losses for which no deferred tax asset has been recognised 0.4 - 71.1 71.5
Tax losses of £58.2 million are subject to substantial limitations in the
type of profits they can be offset against and no such capital disposals are
currently anticipated.
TT Electronics Plc
Results for the year ended 31 December 2021
7 Taxation continued
At 31 December 2020, the gross amount and expiry date of losses available for
carry forward were as follows:
£million Expiring within Expiring within Unlimited Total
5 years
6-10 years
Losses for which no deferred tax asset has been recognised 0.7 - 77.0 77.7
At 31 December 2021, the Group had no other items for which no deferred tax
assets have been recognised (2020: £nil).
8 Dividends
2021 2021 2020 2020
pence per share
£million
pence per share
£million
Final dividend paid for prior year 4.70 8.2 - -
Interim dividend declared for current year 1.80 3.2 - -
The Directors recommend a final dividend of 3.8 pence per share. The Group has
a progressive dividend policy. The final dividend will be paid on 20 May 2022
to shareholders on the register on 29 April 2022.
9 Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to
owners of the Company by the weighted average number of shares in issue
during the year.
Pence 2021 2020
Earnings per share
Basic 7.3 0.8
Diluted 7.2 0.8
The numbers used in calculating adjusted, basic and diluted earnings per share
are shown below. Adjusted earnings per share is based on the adjusted profit
after interest and tax.
Adjusted earnings per share:
£million (unless otherwise stated) 2021 2020
Group
Profit for the year attributable to owners of the Company 12.8 1.3
Restructuring and other 7.8 14.5
Acquisition and disposal related costs 7.7 6.4
Tax effect of above items (see note 6) (3.0) (2.7)
Adjusted earnings 25.3 19.5
Adjusted earnings per share (pence) 14.5 11.7
Adjusted diluted earnings per share (pence) 14.2 11.6
The weighted average number of shares in issue is as follows (new shares
issued in the year described in Note 24):
million 2021 2020
Basic 174.8 166.5
Adjustment for share awards 3.3 1.6
Diluted 178.1 168.1
TT Electronics Plc
Results for the year ended 31 December 2021
10 Reconciliation of net cash flow to movement in net debt
Net cash of £67.2 million (2020: £69.0 million) comprises cash at bank and
in hand of £68.3 million (2020: £70.2 million) and overdrafts of £1.1
million (2020: £1.2 million).
£million Net cash Lease liabilities Borrowings Net debt
At 1 January 2020 60.2 (17.6) (111.7) (69.1)
Cash flow 9.7 - - 9.7
Businesses acquired (2.0) (3.0) (5.0)
Repayment of borrowings - - 27.2 27.2
Proceeds from borrowings - - (49.8) (49.8)
Payment of lease liabilities - 4.1 - 4.1
Reassessment of lease liabilities - (0.1) - (0.1)
New leases - (0.5) - (0.5)
Amortisation of loan arrangement fees - - (0.4) (0.4)
Exchange differences (0.9) 0.2 0.7 -
At 31 December 2020 69.0 (15.9) (137.0) (83.9)
Cash flow (2.8) - - (2.8)
Repayment of borrowings - - 86.9 86.9
Proceeds from borrowings - - (96.4) (96.4)
Payment of lease liabilities - 3.9 - 3.9
New leases - (10.8) - (10.8)
Net movement in loan arrangement fees - - 0.2 0.2
Exchange differences 1.0 0.2 (0.8) 0.4
At 31 December 2021 67.2 (22.6) (147.1) (102.5)
11 Retirement benefit schemes
Defined contribution schemes
The Group operates 401(k) plans in North America and defined contribution
arrangements in the rest of the world. The assets of these schemes are held
independently of the Group. The total contributions charged by the Group in
respect of defined contribution schemes were £3.0 million (2020: £3.2
million).
Defined benefit schemes
At 31 December 2021 the Group operated two defined benefit schemes in the UK
(the TT Group (1993) Pension Scheme and the Southern & Redfern Ltd
Retirement Benefits Schemes) and overseas defined benefit schemes in the
USA. These schemes are closed to new members and the UK schemes are closed
to future accrual.
The TT Group scheme commenced in 1993 and increased in size in 2006, 2007 and
2019 through the mergers of former UK schemes following a number of
acquisitions. The parent company is the sponsoring employer in the TT Group
scheme. The TT Group scheme is governed by TTG Pension Trustees Limited (the
"Trustee") that has control over the operation, funding and investment
strategy in consultation with the Group.
The triennial valuation of the TT Group scheme as at April 2019 showed a net
surplus of £0.3 million against the Trustee's statutory funding objective. As
the scheme was fully funded at the 2019 triennial valuation date, there is no
requirement for the Company to pay pension contributions. In addition to the
statutory funding objective, the Trustee and Company agreed to move towards a
'self-sufficiency' funding target, under which once full funding is achieved
the likelihood of the Trustee requiring subsequent contributions from the
Company is significantly reduced. To support the scheme's long-term funding
target of self-sufficiency the Company agreed to pay additional fixed
contributions of £5.7 million and £4.4 million in the years 2022 and 2023
respectively. The next triennial valuation of the TT Group scheme is due as at
5 April 2022.
TT Electronics Plc
Results for the year ended 31 December 2021
11 Retirement benefit schemes continued
The Trustee and Company agreed that the Trustee should undertake an exercise
during 2021, whereby eligible current pensioner members were offered an option
to exchange their non-statutory pension increase benefits for an additional
amount of level pension. In the year ended 31 December 2021, a £1.8 million
credit was recognised as a result of this exercise.
An actuarial valuation of the USA defined benefit schemes was carried out by
independent qualified actuaries in 2021 using the projected unit credit
method. Pension scheme assets are stated at their market value
at 31 December 2021.
An analysis of the pension surplus/(deficit) by scheme is shown below:
£million 2021 2020
TT Group (1993) 78.4 35.4
Southern & Redfern - -
USA schemes (3.9) (4.9)
Net surplus 74.5 30.5
Amounts recognised in the consolidated income statement are:
£million 2021 2020
Scheme administration costs (1.7) (1.7)
Net gain on pension projects (excluded from adjusted operating profit) 0.3 -
Net interest credit 0.9 0.4
Amounts recognised in the consolidated statement of comprehensive income are a
gain of £35.8 million (2020: gain of £8.6 million) which comprises of; the
actual return on scheme assets, a gain of £11.3 million (2020: gain of £70.9
million) and the remeasurement of the schemes obligations, an decrease of
£24.5 million (increase of £62.3 million).
12 Share capital
£million 2021 2020
Issued and fully paid
176,244,624 (2020: 174,580,743) ordinary shares of 25p each 44.1 43.6
During the period the Company issued 653,834 ordinary shares as a result of
share options being exercised under the Sharesave scheme and Share Purchase
plans.
The performance conditions of the Long-term Incentive Plan awards issued in
2018 and Restricted Share Plan awards issued in 2019, 2020 and 2021 were met
and shares were allocated to award holders from existing shares held by an
Employee Benefit Trust for £nil consideration. 191,651 new shares were issued
at par value of 25 pence to settle the vesting of part of the 2018 scheme.
818,396 new issue shares were issued at par value of 25 pence in anticipation
of vesting of the 2019 scheme in 2022.
The aggregate consideration received for all share issues during the year was
£1.4 million, which was represented by a £0.5 million increase in share
capital and a £0.9 million increase in share premium.
On the 22 September 2020 the Group issued 10,000,000 ordinary shares to fund
the acquisition of Torotel. The consideration received was £19.5 million
(after fees of £0.5 million which were recorded within share premium) which
was represented by a £2.5 million increase in share capital and a £17.0
million increase in share premium.
TT Electronics Plc
Results for the year ended 31 December 2021
13 Related party transactions
Transactions between the Company and its subsidiaries have been eliminated on
consolidation and are not disclosed in this note.
No related party transactions have taken place in 2021 or 2020 that have
affected the financial position or performance of the Group.
14 Subsequent events
On 7 January 2022 the Group acquired the Power and Control business of
Ferranti Technologies Ltd, from Elbit System UK Ltd. Cash consideration of
£9.0 million and an initial adjustment of £1.0 was paid in January 2022 and
the acquisition is subject to further adjustments dependant on the level of
working capital.
Ferranti Power and Control, based in Oldham, Greater Manchester, designs and
manufactures mission-critical complex power and control sub-assemblies for
blue chip customers in high-reliability and high-performance end markets,
primarily aerospace and defence. The acquisition brings highly skilled
employees who provide full-service capabilities from design, assembly,
manufacturing, and testing including environmental stress screening and
inspection through to service. Ferranti Power and Control adds further
technology capability, IP and scale to our Power business with valuable
long-term customer relationships and programmes with leading global aerospace,
defence and industrial OEMs operating in highly regulated markets with
significant barriers to entry through necessary industry accreditations and
customer approvals.
The provisional fair values of the identifiable assets and liabilities include
goodwill (representing the Group's view of the future earning's growth
potential) and intangible assets of £8 million, inventory of £3 million,
accounts receivable of £2 million and accounts payable of £3 million.
Given the limited time between the acquisition and the signing of these
accounts, the fair valuation of acquired assets and liabilities is incomplete
at the date of these financial statements.
Principal risks and uncertainties
The Group continues to be exposed to operational and financial risks and has
an established, structured approach to identifying, assessing, and managing
those risks. These risks relate to the following areas: general revenue
reduction; contractual risks; research and development; people and capability;
supplier resilience; IT systems and information; M&A and integration;
sustainability, climate change and the environment; health and safety; and
legal and regulatory compliance.
Reconciliation of KPIs and non IFRS measures
In accordance with the Guidelines on APMs issued by the European Securities
and Markets Authority (ESMA), additional information is provided on the APMs
used by the Group below.
To assist with the understanding of earnings trends, the Group has included
within its financial statements APMs including adjusted operating profit and
adjusted profit. The APMs used are not defined terms under IFRS and therefore
may not be comparable to similar measures used by other companies. They are
not intended to be a substitute for, or superior to, GAAP measures.
Management uses adjusted measures to assess the operating performance of the
Group, having adjusted for specific items as detailed in note 6. They form the
basis of internal management accounts and are used for decision making,
including capital allocation, with a subset also forming the basis of internal
incentive arrangements. By using adjusted measures in segmental reporting,
this enables readers of the financial statements to recognise how incentive
performance is targeted. Adjusted measures are also presented in this
announcement because the Directors believe they provide additional useful
information to shareholders on comparable trends over time. Finally, this
presentation allows for separate disclosure and specific narrative to be
included concerning the adjusting items; this helps to ensure performance in
any one year can be more clearly understood by the user of the financial
statements.
TT Electronics Plc
Results for the year ended 31 December 2021
Income statement measures:
Alternative Performance Measure Closest equivalent statutory measure Note reference to reconciliation to statutory measure Definition and purpose
Adjusted operating Operating profit Adjusting items as disclosed in note 6 Operating profit from continuing operations excluding the impacts of
significant restructuring programmes; significant one-off items including
profit property disposals, business acquisition and divestment related activity; and
the amortisation of intangible assets recognised on acquisition. Business
acquisition and divestment related items include the writing off of the
pre-acquisition profit element of inventory written up on acquisition, other
direct costs associated with business combinations and adjustments to
contingent consideration related to acquired businesses. Costs arising from
significant changes in footprint (including movement of production facilities)
and significant costs of management changes are also excluded.
To provide a measure of the operating profits excluding the impacts of
significant items such as restructuring or acquisition related activity and
other items such as amortisation of intangibles which may not be present in
peer companies which have grown organically.
Adjusted operating Operating profit margin Adjusting items as disclosed in note 6 Adjusted operating profit as a percentage of revenue.
margin To provide a measure of the operating profits excluding the impacts of
significant items such as restructuring or acquisition related activity and
other items such as amortisation of intangibles which may not be present in
peer companies which have grown organically.
Adjusted earnings Earnings per share See note 9 for the reconciliation and calculation of adjusted earnings per The profit for the year attributable to the owners of the Group adjusted to
share exclude the items not included within adjusted operating profit divided by the
per share weighted average number of shares in issue during the year.
To provide a measure of Earnings per Share excluding the impacts of
significant items such as restructuring or acquisition related activity and
other items such as amortisation of intangibles which may not be present in
peer companies which have grown organically.
TT Electronics Plc
Results for the year ended 31 December 2021
Income statement measures continued:
Alternative Performance Measure Closest equivalent statutory measure Note reference to reconciliation to statutory measure Definition and purpose
Adjusted Diluted earnings See note 9 for the reconciliation and calculation of adjusted diluted earnings The profit for the year attributable to the owners of the Group adjusted to
per share exclude the items not included within adjusted operating profit divided by the
diluted per share weighted average number of shares in issue during the year, adjusted for the
effects of any potentially dilutive options.
earnings
To provide a measure of Earnings per Share excluding the impacts of
per share significant items such as restructuring or acquisition related activity and
other items such as amortisation of intangibles which may not be present in
peer companies which have grown organically.
Organic Revenue See note APM 1 This is the percentage change in revenue from continuing operations in the
current year compared to the prior year, excluding the effects of currency
revenue movements, acquisitions and disposals. This measures the underlying growth or
decline of the business.
To provide a comparable view of the revenue growth of the business from period
to period excluding acquisition and foreign currency impacts.
Adjusted effective tax charge Effective tax charge See note APM 2 Tax charge adjusted to exclude tax on items not included within adjusted
operating profit divided by adjusted profit before tax, which is also adjusted
to exclude the items not included within adjusted operating profit.
To provide a tax rate which excludes the impact of adjusting items such as
restructuring or acquisition related activity and other items such as
amortisation of intangibles which may not be present in peer companies which
have grown organically.
Return on invested None See note APM 3 Adjusted operating profit for the year divided by average invested capital for
the year. Average invested capital excludes pensions, provisions, tax
capital balances, derivative financial assets and liabilities, cash and borrowings and
is calculated at average rates taking 12 monthly balances.
This measures how efficiently assets are utilised to generate returns with the
target of exceeding the cost to hold the assets
TT Electronics Plc
Results for the year ended 31 December 2021
Statement of financial position measures:
Alternative Performance Measure Closest equivalent statutory measure Note reference to reconciliation to statutory measure Definition and purpose
Net debt Cash and cash equivalents less borrowings and lease liabilities Reconciliation of net cash flow to movement in net debt (note 10) Net debt comprises cash and cash equivalents and borrowings including lease
liabilities.
This is additional information provided which may be helpful to the user in
understanding the liquidity and financial structure of the business.
Leverage (bank covenant) Cash and cash equivalents less borrowings N/A Leverage is the net debt defined as per the banking covenants (net debt
(excluding lease liabilities) adjusted for certain terms as per the bank
covenants) divided by EBITDA excluding items removed from adjusted profit and
further adjusted for certain terms as per the bank covenants.
Provides additional information over the Group's financial covenants to assist
with assessing solvency and liquidity.
Net capital and development expenditure None See note APM 4 Purchase of property, plant and equipment net of government grants (excluding
property disposals), purchase of intangibles (excluding acquisition
(net capex) intangibles) and capitalised development.
A measure of the Group's investments in capex and development to support
longer term growth.
Dividend per share Dividend per share Not applicable Amounts payable by dividend in terms of pence per share.
Provides the dividend return per share to shareholders.
TT Electronics Plc
Results for the year ended 31 December 2021
Statement of cash flows measures:
Alternative Performance Measure Closest equivalent statutory measure Note reference to reconciliation to statutory measure Definition and purpose
Adjusted operating Operating cash flow See note APM 5 Adjusted operating profit, excluding depreciation of property, plant and
equipment (depreciation of right-of-use assets is not excluded) and
cash flow amortisation of intangible assets, less working capital and other non-cash
movements.
An additional measure to help understand the Group's operating cash
generation.
Adjusted operating Operating cash flow See note APM 6 Adjusted operating cash flow less net capital and development expenditure.
cash flow An additional measure to help understand the Group's operating cash generation
after the deduction of capex.
post capex
Working Cashflow - inventories payables, provisions and receivables See note APM 7 Working capital comprises of three statutory cashflow figures:
(increase)/decrease in inventories, increase/(decrease) in payables and
capital provisions, and (increase)/decrease in receivables.
cashflow To provide users a measure of how effectively the group is managing its
working capital and the resultant impact on liquidity.
Free cash Net increase/ decrease in cash and cash equivalents See note APM 8 Free cash flow represents cash generated from trading after all costs
including restructuring, pension contributions, tax and interest payments.
flow Cashflows to settle LTIP schemes are excluded.
Free cash flow provides a measure of how successful the company is in creating
cash during the period which is then able to be used by the Group at its
discretion.
Cash None See note APM 9 Adjusted operating cash flow post capex (less any property disposals which
were part of restructuring programmes) divided by adjusted operating profit
conversion
Cash conversion measures how effectively we convert profit into cash and
tracks the management of our working capital and capital expenditure.
R&D cash spend as a percentage of revenue None See note APM 10 R&D cash spend and R&D investment as a percentage of revenue excludes
Global Manufacturing Solutions which is a manufacturing services business and
therefore has no R&D.
To provide a measure of the company's expenditure on R&D relative to its
overall size which may be helpful in considering the Group's longer term
investment in future product pipeline.
TT Electronics Plc
Results for the year ended 31 December 2021
Non-financial measures:
Alternative Performance Measure Closest equivalent statutory measure Note reference to reconciliation to statutory measure Definition
Employee engagement Not applicable Not applicable We use our employee survey to measure how our employees feel about working in
TT using a scale of 1 (low) to 7 (high) against eight factors (as surveyed by
Best Companies Ltd). A company is awarded between zero and three stars based
on the employee feedback.
Provides a measure of employee sentiment and engagement.
Safety performance Not applicable Not applicable Safety performance is defined as the number of occupational injuries resulting
in three or more days' absence per 1,000 employees. This KPI allows us to
compare our performance with that of our peers. We use a UK benchmark
published by the Health and Safety Executive and apply this to all our
facilities worldwide, reflecting our commitment to raising standards globally.
Provides users additional information about the Group's commitment and
achievements in the area of health and safety.
APM 1 - Organic revenue:
£million Power and Connectivity Global Manufacturing Solutions Sensors and Specialist Components Total Total
2021 revenue 140.2 220.1 115.9 476.2 476.2
Acquisitions 15.2 - - 15.2 15.2
2021 revenue (excluding acquisitions) 125.0 220.1 115.9 461.0 461.0
2020 revenue 125.1 197.5 109.2 431.8 431.8
Foreign exchange impact (3.4) (4.1) (5.2) (12.7) (12.7)
2020 revenue at 2021 exchange rates 121.7 193.4 104.0 419.1 419.1
Organic revenue increase (%) 3% 14% 11% 10% 10%
£million Power and Connectivity Global Manufacturing Solutions Sensors and Specialist Components Total Operating Segments Total
2020 revenue 125.1 197.5 109.2 431.8 431.8
Acquisitions 11.1 - - 11.1 11.1
2020 revenue (excluding acquisitions) 114.0 197.5 109.2 420.7 420.7
2019 revenue 138.2 213.2 126.8 478.2 478.2
Foreign exchange impact (0.1) (1.1) (0.2) (1.4) (1.4)
2019 revenue at 2020 exchange rates 138.1 212.1 126.6 476.8 476.8
Organic revenue decline (%) (18%) (7%) (14%) (12%) (12%)
TT Electronics Plc
Results for the year ended 31 December 2021
APM 2 - Effective tax charge:
£million 2021 2020
Adjusted operating profit 34.8 27.5
Net interest (3.3) (3.7)
Adjusted profit before tax 31.5 23.8
Adjusted tax (6.2) (4.3)
Adjusted effective tax rate 19.6% 18.1%
APM 3 - Return on invested capital:
£million 2021 2020
Adjusted operating profit 34.8 27.5
Average invested capital 382.4 357.3
Return on invested capital 9.1% 7.7%
APM 4 - Net capital and development expenditure (net capex):
£million 2021 2020
Purchase of property, plant and equipment (14.6) (9.3)
Proceeds from sale of investment property, plant and equipment and capital 9.3 3.4
grants received
Capitalised development expenditure (1.9) (3.3)
Purchase of other intangibles (0.5) (0.8)
Net capital and development expenditure (7.7) (10.0)
APM 5 - Adjusted operating cash flow:
£million 2021 2020
Adjusted operating profit 34.8 27.5
Adjustments for:
Depreciation 13.6 14.0
Amortisation of intangible assets 2.5 3.0
Impairment of property, plant and equipment and intangible assets - 0.2
Other items 1.1 0.7
(Increase)/decrease in inventories (42.6) 4.2
(Increase)/decrease in receivables (15.7) 11.2
Increase/(decrease) in payables and provisions 42.0 (11.8)
Adjusted operating cash flow 39.5 49.0
Special payments to pension funds (5.5) (5.4)
Restructuring and acquisition related costs (15.0) (15.1)
Net cash generated from operations 19.0 28.5
Net income taxes paid (4.7) (0.3)
Net cash flow from operating activities 14.3 28.2
TT Electronics Plc
Results for the year ended 31 December 2021
APM 6 - Adjusted operating cash flow post capex:
£million 2021 2020
Adjusted operating cash flow 39.5 49.0
Purchase of property, plant and equipment (14.6) (9.3)
Proceeds from sale of property, plant and equipment and government grants 9.3 3.4
received
Capitalised development expenditure (1.9) (3.3)
Purchase of other intangibles (0.5) (0.8)
Adjusted operating cash flow post capex 31.8 39.0
APM 7 - Working capital cashflow:
£million 2021 2020
(Increase)/decrease in inventories (42.6) 4.2
(Increase)/decrease in receivables (15.7) 11.2
Increase/(decrease) in payables and provisions 42.0 (11.8)
Items reported within other items in the statutory cashflow:
Increase in provisions over trade receivables 1.6 -
Working capital cashflow (14.7) 3.6
APM 8 - Free cash flow:
£million 2021 2020
Net cash flow from operating activities 14.3 28.2
Add back: Bonus paid to employees of Torotel which crystallised upon - 3.8
acquisition
Net cash flow from investing activities (8.2) (51.9)
Add back: Acquisition of business 0.5 43.3
Add back: Cash with acquired businesses - (1.4)
Payment of lease liabilities (3.9) (4.1)
Interest paid (4.0) (3.5)
Free cash flow (1.3) 14.4
APM 9 - Cash conversion:
£million 2021 2020
Adjusted operating profit 34.8 27.5
Adjusted operating cash flow post capex 31.8 39.0
Exclude: Property disposal proceeds as part of restructuring programmes (9.1) (3.2)
Adjusted operating cash flow post capex and excluding property disposals 22.7 35.8
Cash conversion 65% 130%
TT Electronics Plc
Results for the year ended 31 December 2021
APM 10 - R&D cash spend as a percentage of revenue:
£million 2021 2020
Revenue (excluding GMS) 256.1 234.3
R&D cash spend 11.4 11.2
R&D cash spend as a percentage of revenue 4.5% 4.8%
(1 )See 'Reconciliation of KPIs and non-IFRS measures' on page 40
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