REG - TT Electronics PLC - Full Year Results
08/03/2023 07:15
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RNS Number : 2192S TT Electronics PLC 08 March 2023
2022 Final Results, 8 March 2023
TT Electronics plc
Results for the year ended 31 December 2022
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 Group
Tim Rowntree / Ollie Hoare
Tel: +44 (0)20 3128 8100
A management presentation for analysts and investors will be held today at
0900hrs and can be accessed on
https://stream.brrmedia.co.uk/broadcast/63d3e966777efd4a8b516f5b
(https://stream.brrmedia.co.uk/broadcast/63d3e966777efd4a8b516f5b) .
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 2022
2022 performance ahead of expectations with strong momentum into 2023
£ million (unless otherwise stated) Adjusted Results(1) Statutory Results
2022 2021 Change Change constant fx 2022 2021
Revenue 617.0 476.2 30% 22% 617.0 476.2
Operating profit/(loss) 47.1 34.8 35% 19% (3.4) 19.3
Operating profit margin 7.6% 7.3% 30bps (20)bps (0.6)% 4.1%
Profit/(loss) before taxation 40.4 31.5 28% 13% (10.1) 16.0
Earnings/(loss) per share 18.2p 14.5p 26% 11% (7.5)p 7.3p
Return on invested capital 10.5% 9.1%
Cash conversion 33% 65%
2022 2021
Free cash flow(1) (13.1) (1.3)
Net debt(1) 138.4 102.5
Leverage(1) 2.0x 1.7x
Dividend per share 6.3p 5.6p
Financial Highlights
· Record order intake in 2022 (book to bill of 118%) and strong revenue
growth reflecting our successful positioning in structural growth markets and
new project and customer wins
o Full year revenue up 22% year-on-year at constant currency
o Organic revenue growth of 20% (c.6% pass through, 3% price, 11% volume)
· Adjusted operating profit up 19% at constant currency reflecting
growth, self-help actions and recovery of cost inflation - much improved H2
performance as anticipated
o Adjusted operating margin of 7.6%, 8.1% excluding impact of pass-through
revenue
· Statutory operating loss of £3.4m (including a one off, non-cash
impairment charge of £23.1m and non-cash pension settlement charge of
£11.8m), statutory basic EPS of (7.5)p
· Free cash outflow reflects investment in working capital to support
growth
· Leverage back into target range and reduced by 0.4x from June 2022 as
expected
· Total dividend increase of 13% to 6.3p, reflecting strong performance
and positive outlook
Operational Highlights
· Excellent business development success, over 50 significant contract
awards delivering over £125 million of multi-year revenues
· Very strong growth from 40 largest key accounts
· Cross-divisional collaboration driving new business wins
· Self-help programme reaching conclusion and delivering benefits ahead
of schedule
· Margin enhancing Ferranti acquisition expanded technical capabilities
and is performing ahead of plan
· Pension buy-in completed saving £6m a year in ongoing cash
contributions
· Delivered a 54% reduction in Scope 1&2 emissions, meeting target
a year ahead of plan(2), Net Zero Scope 1&2 by 2035.
Outlook
· Continued order momentum through Q4 resulting in circa 90% of planned
2023 revenues covered at the end of December, including GMS fully booked
· Strong free cash flows and a continued reduction in leverage expected
in 2023
· Disciplined approach to pricing of the order book, continued growth
of the business and actions taken in 2022 underpin our confidence in further
progress in 2023
Richard Tyson, Chief Executive Officer, commented:
"2022 was a year of strong operational and financial progress. We delivered
excellent top line growth for the Group as we executed on our record order
book, which reflected a significant number of new customer wins, incremental
business opportunities with existing customers, and market share gains. Our
teams across the Group have performed exceptionally well in a year
characterised by significant volatility, ongoing supply chain issues and cost
inflation. At the same time, we have completed our programme of site
rationalisation and finalised the buy-in of our UK pension scheme.
TT is well-aligned with global mega trends, driving demand from high-growth
markets. While we are mindful of the wider macro environment, we enter 2023
with good momentum underpinned by a strong order book. This unprecedented
visibility, coupled with further benefits of our self-help programme, mean we
are confident in our ability to deliver further progress in 2023."
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 mega trends 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 19 to 21. The adjusted measures used are set out in the
'Reconciliation of KPIs and non IFRS measures' section on pages 43 to 50.
2. Against our 2019 baseline.
CHIEF EXECUTIVE OFFICER'S REVIEW
Introduction
2022 has been a year of excellent growth for TT. This reflects a significant
number of new customer wins and incremental business opportunities with
existing customers, alongside continued market share gains. The growth in
revenue and the strong order intake also reflect multi-year programme wins and
the positive structural trends evident in our end markets. Our teams across
the Group have executed exceptionally well in the continuing challenging
environment, given the significant supply chain and cost headwinds, to deliver
a strong trading performance with very good profit growth, ahead of
expectations.
With the strength in order intake our order book provides excellent levels of
forward visibility. At the end of December, the order book gives us visibility
over circa 90 per cent of planned 2023 revenues. This compares with 77%
revenue visibility at the same time last year, and 59 per cent at December
2020.
The repositioning of TT is evident in our performance in 2022 as we continue
to unlock the potential of the Group and benefit from the structural growth in
our end markets. Our relationships with customers are longer term and more
collaborative, resulting in new wins and a greater share of wallet. Our top 40
OEM customers now account for 58 per cent of our revenue (up from 56 per cent
in 2021) and saw 27 per cent revenue growth in the year. We have also
progressed efforts to build an environmentally sustainable business, which
remains central to our strategic decision-making, particularly when we
consider the opportunities presented by the move to a lower carbon world for
our design-led technologies.
The Group's performance was led by outstanding results in our Sensors and
Specialist Components (S&SC) and GMS businesses. While timing issues on
some key aerospace and defence programmes in Power and Connectivity (P&C)
in the first half depressed revenues (on a constant currency basis) and
impacted our operational performance, there was a substantial recovery in the
second half.
We expect to deliver £13-14 million of full run-rate benefits in 2023 from
our investment in the self-help programme which contributed circa £4 million
of benefits in 2022, ahead of plan, in addition to the £6 million delivered
to 2021. 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.
During the year organic investment in the business totalled £22.7m; we have
invested £11.0 million in research and development (R&D) and £11.7
million in capital expenditure to support growth and the development and
enhancement of our pipeline of new products.
The integration of the Ferranti acquisition has progressed well and as
planned; we will move production to a new facility in Greater Manchester in
Q3.
Environmental, social and governance (ESG) principles are central to our
purpose and deeply embedded in our business model and strategy. We have made
further progress in 2022 to reduce our Scope 1 and Scope 2 carbon emissions.
These have decreased by 23 per cent in the year to 12,166 tonnes and are down
54 per cent against our 2019 baseline, meaning we have achieved our near-term
goal one year ahead of plan. In adjusting for revenue growth within the
business, the intensity ratio improved from 55.7 in 2019 to 19.7 in 2022. This
improvement has been achieved due to our energy efficiency actions and further
switching to the use of electricity from renewable sources. During 2022 we
completed an initial review of the resilience of our strategy to
climate-related risks and opportunities using an external consultant. We
will undertake further work in this regard during 2023.
Our embedded values were central to our approach during the pandemic, leading
to a series of actions to make our workplaces safe and secure and to protect
and support employees whose dedication and commitment ensured delivery for our
customers. Accordingly, during 2022 we supported our employees impacted by
higher inflation on costs of living with appropriate regional responses,
whilst continuing to manage the impact of COVID-19 on our employees in Asia.
Given the increased cost of living, which has disproportionately impacted our
lowest earners, we have supported them through a variety of pro-active
regional actions including an additional cost of living support payment to
eligible UK employees.
Results and operations
Revenue for the year was £617.0 million. This was 22 per cent higher than the
prior year at constant currency and 20 per cent higher on an organic 1
(#_ftn1) basis, with a significant acceleration of growth in the second half
of the year. Adjusted operating profit increased by 35 per cent and by 19 per
cent on a constant currency basis compared to 2021, reflecting the benefits of
volume growth and our self-help programme. A much improved second half
performance was in part driven by the expected recovery in our P&C
division. The business performance in GMS was ahead of expectations and
S&SC produced outstanding results over the year.
We continue to experience supply chain challenges with extended lead times,
component shortages and notable cost inflation. Through our collaboration with
customers, our investment in inventory and our actions to source some
components on an expedited basis, organic revenue growth accelerated to 31 per
cent in the second half of 2022. We estimate that cost inflation in the year
amounted to circa £40 million. This was fully recovered by re-pricing our
offerings and working collaboratively with our customers. Of the increase
circa £28 million was cost pass-through. This relates to materials where
there has been very significant cost inflation which is being transparently
passed on to customers with no margin mark-up. Even excluding these
pass-through revenues, organic growth was still an excellent 14 per cent.
There has been exceptionally strong order intake across the Group, reflecting
underlying growth in our markets and new customer wins, as well as customers
committing earlier to secure capacity and give us greater visibility. Customer
demand remains robust, but we are vigilant to any changes in demand. Order
intake for 2022 was 118 per cent of revenues, which we grew 20 per cent
organically. We secured over 50 significant contract wins that will deliver
over £125 million of multi-year revenues. Our collaborative approach to
deliver solutions based on our technical expertise has been a key factor in
winning new orders. We are focused on leveraging expertise across the Group to
pursue cross selling opportunities and deepening our relationships with our
top customers. Much of this effort is led by the GMS division which is
integral to converting these opportunities and increasingly showcases the
capabilities of the P&C division.
Adjusted operating profit was £47.1 million, 19 per cent higher than the
prior year at constant currency. The adjusted operating margin was 7.6 per
cent. Excluding zero margin pass-through revenues, adjusted operating margin
was 8.1 per cent. After the impact of adjusting items, including
restructuring, pension, acquisition and disposal costs, and a non-cash asset
impairment, the Group's full-year statutory operating loss was £3.4 million.
The non-cash impairment of £23.1 million is shown within the Power and
Connectivity division and is linked to an increase in discount rates, coupled
with revised forecasts for the Connectivity business in the context of a
weaker macro-economic environment and the impact of the evolution of the COVID
pandemic on the potential demand for COVID testing. Cashflow impacting
adjusting items totalled £11.1 million.
Adjusted EPS increased to 18.2 pence (2021: 14.5 pence), reflecting the
improved adjusted operating profit in the period. Basic earnings per share
(EPS) was a loss of 7.5 pence (2021: profit 7.3 pence). The increase in
adjusted operating profit was more than offset by the increase in non-cash
adjusting items set out below.
During the year we completed the cash spend on our self-help programme to
support margin improvement. We also invested 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 33 per cent (2021:
65 per cent) reflected this investment and included a working capital outflow
totalling £38.8 million. The working capital outflow was mainly a result of
investment in inventory to support the significant growth in order intake.
This was exacerbated by material cost inflation and high value pass-through
materials secured with customer agreement. We had anticipated a modest
improvement in the second half, but this was adversely impacted by higher than
anticipated receivables due to the exceptionally strong organic revenue growth
as well as a small number of larger value receivables which arrived post
year-end.
In 2022 we completed the buy-in of our UK defined benefit pension scheme. This
buy-in secures pension benefits for circa 5,000 members and their dependents.
The Scheme's circa £360 million of liabilities are now matched by an
insurance policy, and TT no longer bears any investment, longevity, interest
rate or inflation risk in respect of the Scheme. There was a benefit to the
Group's 2022 free cash flow of £6 million and there is an equivalent annual
improvement to free cash flow in future years.
On a statutory basis, cash flow from operating activity was £12.7 million
(2021: £14.3 million). There was a free cash outflow of £13.1 million (2021:
£1.3 million outflow). Dividend payments totalled £10.2 million (2021:
£11.4 million). We ended the year with net debt of £138.4 million (2021:
£102.5 million), including IFRS 16 lease liabilities of £23.1 million (2021:
£22.6 million).
At 31 December 2022 leverage was 2.0 times (2021: 1.7 times), within the
Board's target leverage range of 1-2 times, and down 0.4 times from June 2022,
as anticipated. We are confident this downward trajectory will continue as
EBITDA increases and as we deliver a material step-up in free cash flow in
2023.
Our return on invested capital was 10.5 per cent in 2022, increasing by 140
basis points due to the growth in adjusted operating profit, even with the
additional investment in working capital.
Dividend
Given our strong trading performance in 2022 and the positive outlook for 2023
and beyond, the Board is proposing a final dividend of 4.3 pence per share.
The total cash cost of this dividend will be approximately £7.6 million.
This, when combined with the interim dividend of 2.0 pence per share gives an
increase of 13 per cent in the total dividend to 6.3 pence (2021: 5.6 pence
per share). Payment of the dividend will be made on 26 May 2023, to
shareholders on the register at 28 April 2023.
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. 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 positioned the Group in structurally growing, higher added value
markets with long-term customer partnerships. The success of this strategy is
reflected in the revenue growth in 2022 and order book strength into 2023. We
believe the growth rates in our end markets have the potential to be higher
than the combined 3-5 per cent we have previously cited. This, combined with
our ability to outperform given our business development success with higher
growth, blue-chip customers, means we now believe market growth of 4-6 per
cent over the medium term is achievable, and that TT will exceed it. Our
strategy is designed to generate optimum returns for all our stakeholders
while maintaining strong capital discipline, delivering strong cash generation
and careful use of the balance sheet to facilitate continued investment.
Our markets
Healthcare (28 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 the
importance of digitalisation; electronics plays a central role in advancing
the progress of medical technology.
We have steadily increased our exposure to this attractive end market from 13
per cent of Group revenue in 2015. Our power, connectivity and sensor
technologies span the modern surgical suite from patient monitoring and
therapeutic devices to surgical navigation, diagnostic equipment and life
sciences. 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. By supporting the development of 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, automation and
robotics of healthcare which can be served by TT specialisms including
interventional healthcare devices, patient monitoring and laboratory
equipment.
Pent-up demand, post 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 (15 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. Throughout 2022 the commercial aerospace
market has shown steady recovery from pandemic levels; with the gradual
alleviation of travel restrictions and release of pent-up demandin China
expected to support further growth in 2023. 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.
The defence electronics manufacturing market exhibits consistent, moderate
expansion as governments invest to maintain state-of-the-art capabilities.
However, in the aftermath of the Russian invasion of Ukraine and despite
recessionary fears, heightened geopolitical tensions mean we are likely to see
a pick-up in defence spending. In defence, our central focus is on next
generation requirements for high-density power electronics and electrical
machines collaborating with our customers on the development of technologies
that 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.
Automation and Electrification (37 per cent of Group revenue)
In automation and electrification markets, we are continuing to invest in
developing capabilities to address the needs of sophisticated automation and
connectivity applications. Customers rely on us to help solve their toughest
automation and electrification challenges; streamlining their supply chains,
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.
Distribution sales channel (20 per cent of Group revenue)
We grew our revenues through distributors again in 2022 and this area now
represents 20 per cent of our overall sales. The demand from distributors
comes from a very wide range of customers and end markets but is, in large
part, driven by the same mega trends supporting our focus end markets
including rapid technological change and digital transformation.
Creating value through technology and capital investment
We prioritise organic investment in technology and capital to support new
project growth, this totalled £22.7 million in 2022. A key part in the step
change in dialogue with our customers in recent years has been our focus on
R&D. This has resulted in us becoming firmly embedded with our customers,
enabling us to stay ahead of their needs and meet the challenges they set us.
We are also investing in capital to support growth programmes for our
customers. Our investment is focused on bringing higher growth, innovative,
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 £11.0 million (2021: £11.4
million), representing 3.7 per cent (2021: 4.5 per cent) of the aggregate
revenue of our product businesses, with the reduction mainly a result of the
conclusion of the development phase of our encoder project which has now moved
into the new product introduction phase. Capital expenditure totalled £11.7
million (2021: £14.9 million).
The pipeline of new products coming to market continues to grow, 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 continue to invest 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 require power solutions that feature higher voltages and/or efficiency
improvements from legacy designs.
Creating value through margin enhancement
The pursuit of higher margins through our self-help programme, organic and
inorganic growth, remains core to the Group's strategy. In 2022 progress to
delivering double-digit adjusted operating margins was impeded by pass-through
revenue which is creating a temporary headwind to margin progression.
Nevertheless, Group adjusted operating margin still improved from 7.3 per cent
to 7.6 per cent overall. Excluding the impact of pass-through revenues,
adjusted operating margin was 8.1 per cent. We anticipate pass-through
revenues to become less pronounced by 2024.
Our significant self-help programme, designed to reduce our footprint and
fixed cost base, is nearing completion. Spend on this programme was completed
in 2022 as we consolidated the Covina business into the Torotel site at
Kansas City, which has created one power business in North America. Production
at Covina ceased in December 2022 and the establishment of this new production
in Kansas City will be completed in H1 2023. Our new facility in Plano, Texas
is now up and running and the qualification is substantially complete, with
the final qualifications determined by customer demand. Furthermore, in 2022
we established a new clean room at Bedlington to support the products
transferred from Lutterworth. With the majority of qualification activities at
both Bedlington and Plano completed in 2022, we expect to be operating at
higher, and more efficient, levels of production in 2023.
The total cash spend for the self-help programme was £22.2 million with £8.5
million spent in 2022, comprising restructuring cash spend of £7.1 million
and project capital expenditure of £1.4 million (2021 spend: £10.2 million,
including £2.3 million of restructuring cash spend (net of £9.1 million
after costs from property disposals) and £7.9 million of project capital
expenditure). With the addition of the Covina transfer to the programme, the
previously guided full run-rate benefits of £11-12 million increased to
£13-14 million, which we expect to realise in 2023.
The gradual reversal of the pass-through margin impact, operational leverage
on growth and the elimination of inefficiencies underpins our confidence in
achieving double-digit margins.
Creating value from mergers & acquisitions
We are delighted with the Ferranti Power and Control (Ferranti) acquisition
which completed in January 2022. In combining this business into our Power and
Connectivity division, we utilised our well-defined integration model, which
incorporates major business processes including operations, procurement,
finance, legal, IT and human resources. The business is performing ahead of
our expectations, has already secured new orders under our ownership and is
also set to benefit from the extension of demand for programmes which had been
expected to tail off over the next few years. Ferranti will move to new
bespoke facilities in Greater Manchester, as planned, during 2023.
While leverage has reduced, we are mindful that it remains temporarily near
the top end of our target range, reflecting the investment in inventory to
execute our order book and support our high revenue growth. We continue to
monitor an active pipeline of opportunities while we focus on free cash flow
generation and leverage reduction to generate capacity for further M&A.
Environmental, social and governance (ESG)
Understanding and managing the impact of our business operations on the
environment is an important part of the way we do business. 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 environmental impact. 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, protect health, improve energy efficiency,
support renewables and assist productivity and connectivity. We are positioned
to benefit from mega trends 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 are moving at pace to reduce our carbon emissions and have set ourselves a
target to be Net Zero by 2035 for our Scope 1 & 2 emissions.
In 2022 we made excellent progress on our ESG milestones and have reduced our
Scope 1 & 2 carbon emissions by 54 per cent from our baseline set in 2019,
achieving our 2023 target of delivering a 50 per cent reduction a year ahead
of plan. This has been accomplished by switching to renewable tariffs, further
site rationalisation, transferring manufacturing capability and capacity to
modern, green facilities and local site energy saving initiatives. Our 2022
emissions are a further 23 per cent lower than in 2021. Our intensity ratio,
which measures our Scope 1 & 2 emissions against our revenue has reduced
to 19.7, down from 55.7 in 2019. All our sites that are able to purchase
electricity on renewable tariffs are now doing so.
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 other renewables and
we will be ready to benefit from renewables gradually coming on stream in
China. In 2022 we undertook feasibility studies for onsite solar projects and
now the transition to solar panels, to provide a renewable source of energy,
is underway. Our first solar project at Kuantan in Malaysia was installed in
2022 and commissioned early in 2023. Each of our manufacturing sites has its
own energy efficiency plan to include further rolling out of LED lighting,
eliminating waste electricity, replacing inefficient legacy equipment or
reorganising space to save heating/lighting and managing shift patterns.
During the year we have progressed our assessment of our Scope 3 emissions, in
particular areas of materiality for the Group to better understand our
emissions. We have commenced measurement and internal reporting of six
categories: transportation (upstream and downstream), purchased goods and
services, business and employee travel and waste. Three categories have been
set aside for further review after evaluation in 2022, these are capital
goods, use of sold products and end of life treatment of sold products.
Using an external advisor, TT has recently undertaken high-level scenario
analysis to test the resilience of our strategy to climate-related risks and
opportunities identified across one physical and two transition scenarios and
different time periods. This yielded valuable information on next steps and
was a precursor to a more detailed Climate Related Scenario Analysis which we
will undertake in 2023. TT has a corporate partnership with the Carbon
Disclosure Project (CDP) Supply Chain Management team to help measure our
supply chain emissions. The data gathered allows 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.
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 controlled 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.
Engaging employees by continually building our culture, communicating,
listening and supporting is an important part of what we do every day. The
re-launch of our Group intranet, ConnecTT, has enhanced our employee ability
to communicate, share resources and hosts a range of employee communities.
Our employees have continued to support their local communities and fundraise
for local and national causes. 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. The resilience, contribution, and dedication of our employees in all
regions has been remarkable over this pro-longed period of uncertainty. We
will continue to focus on supporting them as they are critical to the success
of TT.
We undertake a Group-wide employee engagement survey every 12-18 months and
use pulse surveys to get up to date feedback and an indication of progress.
The results are reviewed by the Board and our Senior Independent Director,
Jack Boyer, participates directly in people matters through membership of the
People Social Environmental and Ethics Committee.
Outlook
2022 was a year of strong operational and financial progress. We delivered
excellent top line growth for the Group as we executed on our record order
book, which reflected a significant number of new customer wins, incremental
business opportunities with existing customers, and market share gains. Our
teams across the Group have performed exceptionally well in a year
characterised by significant volatility, ongoing supply chain issues and cost
inflation. At the same time, we have completed our programme of site
rationalisation and finalised the buy-in of our UK pension scheme.
TT is well-aligned with global mega trends, driving demand from high-growth
markets. While we are mindful of the wider macro environment, we enter 2023
with good momentum underpinned by a strong order book. This unprecedented
visibility, coupled with further benefits of our self-help programme mean we
are confident in our ability to deliver further progress in 2023.
FINANCIAL OVERVIEW
Group revenue was £617.0 million (2021: £476.2 million). This included a
£7.9 million contribution from acquisitions and currency translation benefit
of £31.5 million. Group revenue was 22 per cent higher than the prior year at
constant currency and 20 per cent higher on an organic basis. Excluding the
zero margin pass-through revenues, organic growth was still 14 per cent, split
approximately 11 per cent volume growth and 3 per cent pricing. Sales volumes
across our key markets have been buoyant and the strength of our order book,
and the pipeline of new business opportunities, gives us confidence that
growth will continue. Our order book reached record levels in the second half
of 2022.
The Group's adjusted operating profit was £47.1 million (2021: £34.8
million) and statutory operating loss was £(3.4) million (2021: £19.3
million profit) after a charge for items excluded from adjusted operating
profit of £50.5 million (2021: £15.5 million) including:
· Restructuring and other costs of £20.2 million (2021: £7.8 million)
comprising:
· Restructuring costs of £6.4 million (2021: £8.1 million) including
£2.7 million relating to the restructure of the North America Resistors
business (including pre-production costs at our new Plano facility), £2.0
million relating to the closure of our Lutterworth site, and £1.7 million
relating to relocation of production facilities in the USA, as part of our
self-help programme, and
· Pension costs of £13.8 million (2021: £0.3 million credit) relating
to pension projects which included £11.8 million non-cash settlement costs
for an enhanced transfer value exercise and £2.0 million of cash costs
associated with this exercise and the scheme buy-in project.
· Acquisition and disposal costs totalled £7.2 million (2021: £7.7
million) comprising £1.2 million (2021: £2.6 million) of integration and
acquisition costs relating primarily to the Ferranti acquisition, which
completed early in 2022. Amortisation of intangible assets arising on business
combinations was £6.0 million (2021: £5.1 million).
· Non-cash impairment costs totalled £23.1 million (2021: £nil) being
an impairment in respect of the IoT Technology Products business including
£5.4 million of assets associated with the Virolens project. This impairment
is shown within the Power and Connectivity division and is linked to an
increase in discount rates, coupled with revised forecasts for the business in
the context of a weaker macro-economic environment and impact of the evolution
of the COVID pandemic on the potential demand for COVID testing.
The adjusted operating margin of 7.6 per cent (2021: 7.3 per cent) reflects
the benefits of growth and our self-help programme. We successfully offset
increases in input costs through price increases.
The net finance cost was £6.7 million (2021: £3.3 million) with the increase
being mainly due to a combination of higher base rates and higher drawn debt
levels. The Group's overall tax charge was £3.1 million (2021: £3.2
million), including a £5.3 million credit (2021: £3.0 million credit) on
items excluded from adjusted profit. The adjusted tax charge was £8.4 million
(2021: £6.2 million), resulting in an effective adjusted tax rate of 20.8 per
cent (2021: 19.6 per cent).
Adjusted EPS increased to 18.2 pence (2021: 14.5 pence), reflecting the
improved adjusted operating profit in the period. Basic earnings per share
(EPS) was a loss of 7.5 pence (2021: profit 7.3 pence). The increase in
adjusted operating profit was more than offset by the increase in non-cash
adjusting items set out above.
Adjusted operating cash inflow after capex was £15.7 million (2021: £22.7
million inflow). Improved profitability was more than offset by a working
capital outflow of £38.8 million (2021: £14.7 million outflow), including a
£40.4 million investment in inventory to support the strong order book and
impacted by supply chain constraints. Capital and development expenditure of
£14.0 million (2021: £16.8 million) reflected investment to support growth
and as part of the self-help programme. This resulted in adjusted operating
cash conversion of 33 per cent (2021: 65 per cent). On a statutory basis, cash
flow from operating activity was £12.7 million (2021: £14.3 million).
There was a free cash outflow of £13.1 million (2021: outflow £1.3 million),
net of £11.1 million of restructuring and acquisition related costs (2021:
£5.9 million), relating to the self-help programme and acquisition costs
associated with the Ferranti acquisition. There were no pension contribution
payments in the year (2021: £5.5 million) due to the buy-in of the UK scheme
as detailed below.
Investments in acquisitions totalled £8.3 million (2021: £0.5 million)
relating to the Ferranti Power and Control acquisition in January 2022.
Dividend payments totalled £10.2 million (2021: £ 11.4 million).
At 31 December 2022, the Group's net debt was £138.4 million (31 December
2021: £102.5 million), including £23.1 million of lease liabilities (31
December 2021: £22.6 million). Leverage at 31 December 2022, consistent with
the bank covenants, was 2.0 times (31 December 2021: 1.7 times).
Pension buy-in
In November 2022, the Trustee of the TT Electronics Pension Scheme (the
"Scheme") purchased a bulk annuity insurance policy from Legal and General
Assurance Society Limited, covering all liabilities required to pay all future
defined benefit pensions for the Scheme's circa 5,000 members and any eligible
dependents. The purchase of this insurance policy was the successful
culmination of extensive work over the last few years by TT and the Scheme
Trustees. The insurance policy was purchased using existing assets held within
the Scheme, without the need for TT to make any additional contributions.
TT is not required to make any future contributions into the Scheme regarding
defined benefit liabilities and the buy-in delivers greater security to the
Scheme's members. The Scheme's circa £360 million of liabilities are now
matched by the insurance policy, and TT no longer bears any investment,
longevity, interest rate or inflation risk in respect of the Scheme. There was
an immediate benefit to the Group's current year cash flow of £6 million in
2022 and there is an equivalent annual improvement to free cash flow in future
years.
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.
2022 2021 Change Change constant fx
Revenue £154.2m £140.2m 10% 5%
Adjusted operating profit(1) £7.9m £7.8m 1% (9)%
Adjusted operating profit margin(1) 5.1% 5.6% (50)bps (80)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 pages 43 to 50 of
this document.
Revenue increased by £14.0 million to £154.2 million (2021: £140.2 million)
and includes a £7.9 million revenue contribution from Ferranti Power &
Control which we acquired in January 2022 and a currency benefit of £7.2
million. Organic revenue was 1 per cent lower dampened by the timing of
programme revenues, the closure of the Akron, Ohio facility and the transfer
of activity from Lutterworth to Bedlington.
Adjusted operating profit increased by £0.1 million to £7.9 million (2021:
£7.8 million). Included within this was a profit contribution of £1.9
million from the Ferranti acquisition and there was a £0.9 million foreign
exchange benefit. The organic reduction in operating profit was mainly driven
by reduced revenues and site inefficiencies including the impact of COVID
disruptions in the first half. The operating profit contribution from the
division stepped up materially from £2.1 million in the first half to £5.8
million in the second half as anticipated. The adjusted operating margin was
5.1 per cent (2021: 5.6 per cent) for the full year and 6.8 per cent in the
second half.
Order intake has been good in the year, running well ahead of revenues giving
us confidence of a return to growth in 2023 which will support further margin
improvement. With the consolidation of activities into the Kansas City site,
following closure of the Covina site, combined with the transfer of activity
from Lutterworth to Bedlington now completed, we are well placed to benefit
from these operational efficiencies in 2023.
There have been some notable contract awards during the year, including:
· We were awarded a contract from long-term partner Honeywell Aerospace
to support the design of a new power supply for next-generation inertial
navigation units. This partnership highlights TT's market responsiveness,
innovation and long-standing expertise in demanding defence and military
applications
· Our work on the Boxer programme (the main UK army vehicle programme)
has expanded with significant additional contracts wins. Following on from the
power electronics assembly contract and the subsequent award for the design
and development of electrical cable harness systems for the Challenger 3
upgrade project, we have recently cross sold our expertise into GMS. We are
already contracted to provide complex, high reliability power electronics
assemblies to the Boxer vehicles and 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
· Recent significant advances have allowed electromagnetic tracking to
become an emerging technology of choice for new clinical applications. This
adoption is leading to a dramatic upsurge in related procedure volume. Working
with a new customer, a medical equipment manufacturer, on its electromagnetic
(EM) tracking system, which incorporates TT's EM micro-coil sensors, we have
taken the system from prototype to full launch and this tracking system is now
used for diagnosing certain cancers
· Environmental innovation from ZapCarbon in combination with our
electronics technology and IoT powered monitoring expertise brought to the
mass market the Healthy Homes Sensor. This sensor is designed for use in
social housing as a means to combat fuel poverty and unhealthy living
conditions. Our battery operated, cellular connected sensor can detect unsafe
humidity conditions long before mould occurs thus improving the health for
occupants of social housing and preventing the need for costly remediation
work.
In January 2022 we completed the £8.3 million acquisition of Ferranti Power
and Control, 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 the skills to provide full-service capabilities from design,
assembly, manufacturing, and testing including environmental stress screening
and inspection through to service.
Ferranti adds further technology capability, IP and scale to our Power
business. It brings 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.
Ferranti is a mid-teens operating margin business, and in this, our first year
of ownership, the acquisition has generated a return on invested capital in
excess of the Group's WACC. 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.
2022 2021 Change Change constant fx
Revenue £323.0m £220.1m 47% 37%
Adjusted operating profit(1) £25.2m £18.3m 38% 23%
Adjusted operating profit margin(1) 7.8% 8.3% (50)bps (90)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 pages 43 to 50 of
this document.
Revenue increased by £102.9 million to £323.0 million (2021: £220.1
million) including a currency benefit of £15.4 million, with organic revenue
37 per cent higher. The organic revenue performance reflects strong growth
from our existing customer base, particularly from our healthcare and
automation & electrification end markets. There was strong growth in all
geographic regions. Pass-through revenue was around £32 million which has
created a technical head wind to margin progression. Excluding this
pass-through revenue, the operating margin was 8.7 per cent.
This division has again performed incredibly well in 2022, as momentum built
reflecting the targeted move towards customers who are winners in their own
markets and provide opportunity to grow share of wallet. Work on positioning
GMS as a partner to 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
division's planned revenues for 2023 are fully covered and it has started to
secure revenue for 2024. Given the significant increase in revenues in 2022,
GMS will make incremental capital investment in 2023 to enhance capacity in
existing facilities.
Adjusted operating profit increased by £6.9 million to £25.2 million (2021:
£18.3 million), including a £2.2 million foreign exchange benefit. The
constant currency increase reflects operational leverage on the organic growth
and the full recovery of inflationary costs. The adjusted operating profit
margin was 7.8 per cent (2021: 8.3 per cent), impacted by the pass-through
revenues, without which margins would have been 8.7 per cent.
The order book growth has been underpinned by several multi-million-pound
wins, a number of which extend beyond 12 months. We continue to see that our
power customers require manufacturing capability and so our GMS and P&C
divisions are partnering to provide this solution. Packages secured on the
Boxer programme illustrate how we are able to expand our involvement in a
programme from initial work within Power and Connectivity to providing PCBAs
through GMS. We continue to improve our understanding of how to leverage these
opportunities from the customer perspective.
In late December, TT was delighted to receive an award for best-in-class
performance as one of AMI's top performing suppliers for outstanding technical
and operational achievements in areas including quality, service, lead time,
delivery, cost and responsiveness. We believe this award reinforces our
reputation as a trusted partner across multiple geographies.
Overall, the GMS division is in excellent shape, the order pipeline is
stronger than ever, and our enhanced customer relationships and business
development initiatives are delivering revenue and order book growth. GMS has
achieved a step change in its margin profile over recent years, reflecting the
value of the service we bring to our customers, reliability, and the value
engineering and testing capability we offer. We believe GMS margins can
improve incrementally with growth.
In 2022, a key component of the revenue and order book growth reflected large,
ongoing programmes with our blue-chip customers in healthcare and automation.
In addition, there have been a number of significant new customer awards which
will impact future years. Some examples include:
· TT has been awarded a substantial five-year agreement with a leading
systems integrator in commercial aerospace worth circa £50 million, for the
manufacture of complex electronic assemblies for aircraft braking systems.
This award further strengthens our longstanding collaboration with this
customer and reflects its confidence in our expertise in demanding military
and aerospace applications.
· Following several years of prototype development and supply chain
support, TT has been selected as a strategic manufacturing partner to support
multiple line replaceable units (LRUs) that comprise the Honeywell Anthem
avionics suite. Unveiled in late 2021, the Honeywell Anthem flight deck is the
industry's first cloud-connected cockpit system. Anthem is powered by a
flexible software platform that can be customised for virtually every type of
aircraft, including large passenger and cargo planes, business jets,
helicopters, general aviation aircraft and the rapidly emerging class of
advanced air-mobility (AAM) vehicles. TT will be providing engineering
support, manufacturing, and full systems integration for this next-generation
avionics programme over the next 12 years.
· 2022 saw strong revenue growth on a number of new projects for a
world-leading life sciences customer. These included high level assemblies for
a Gas Chromatography Mass Spectrometer. Such machines are used in spectrometry
elemental isotope analysis to understand the chemistry and composition of
materials and healthcare and life sciences. Other key projects with this
customer include a DNA sequencer and high-end analytical instruments for
radiation detection
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.
2022 2021 Change Change constant fx
Revenue £139.8m £115.9m 21% 12%
Adjusted operating profit(1) £21.8m £16.4m 33% 20%
Adjusted operating profit margin(1) 15.6% 14.2% 140bps 110bps
(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 pages 43 to 50 of
this document.
Revenue increased by £23.9 million to £139.8 million (2021: £115.9 million)
including a currency benefit of £8.9 million. Organic revenue was 12 per cent
higher, with strong growth through the division's distribution partners a key
driver. 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.
Historically, order visibility has been very limited, but more recently the
order book has increased significantly reflecting strong underlying demand and
also, customers committing orders further ahead to protect their supply chains
and responding to lead time extensions. We have been careful to adjust our
commercial terms, where possible, to orders that are non-cancellable,
non-refundable and in some cases, non-reschedulable.
Adjusted operating profit increased by £5.4 million to £21.8 million (2021:
£16.4 million) with a currency benefit of £1.7 million. The constant
currency operating profit growth reflects the benefits of our self-help
programme and the strong operational leverage on our revenue growth. We have
benefited from our agility in adapting our pricing strategies to offset
material and freight cost increases.
At our new facility in Plano, Texas we have invested in capacity and having
substantially completed qualification, are now improving yields which is
enabling volumes to be produced at higher rates. We are very focused on
improving our customer experience.
There were a number of favourable developments during the year which will
benefit the business, including:
· We secured repeat business with a major US defence prime, for a sole
source, opto isolator used on power-up boards installed as safety critical,
precision navigational aids, for guided defence systems
· The U.S. team secured two different optical sensor opportunities with
a medical device company, for use in a blood analyser. These sensors are used
in the disposable test vessel cartridges designed for the Werfen GEM 5000
blood gas analyser. The sensors are critical to detect the proper loading of
the cartridge as its alignment with the analyser optics, for spectral
measurements, is essential for proper execution of the test.
· Schneider Electric - We secured a contract to provide a thick-film
resistor that met the high-reliability requirements of a Schneider
Gas-insulated switchboard utilised in electricity distribution. The end
customer for this product is France's main electricity distribution company
which supplies 95 per cent of the market.
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 pages 43 to 50. A
reconciliation of statutory to adjusted profit numbers is set out on page 21.
A summary of the Group's adjusted results is set out below:
£ million 2022 2021
Revenue 617.0 476.2
Operating profit 47.1 34.8
Operating margin 7.6% 7.3%
Net finance expense (6.7) (3.3)
Profit before tax 40.4 31.5
Tax (8.4) (6.2)
Tax rate 20.8% 19.6%
Profit after tax 32.0 25.3
Weighted average number of shares 175.8 million 174.8 million
EPS 18.2p 14.5p
Cash flow, net debt and leverage
The table below sets out Group cash flows and net debt movement:
£ million 2022 2021
Adjusted operating profit 47.1 34.8
Depreciation and amortisation 16.1 16.1
Net capital expenditure(1) (11.7) (14.9)
Capitalised development expenditure (2.3) (1.9)
Working capital (38.8) (14.7)
Other 5.3 3.3
Adjusted operating cash flow after capex. 15.7 22.7
Adjusted operating cash conversion 33% 65%
Net interest and tax (13.4) (8.7)
Lease payments (4.3) (3.9)
Restructuring, acquisition and disposal related costs(1) (11.1) (5.9)
Retirement benefit schemes - (5.5)
Free cash flow (13.1) (1.3)
Dividends (10.2) (11.4)
Lease payments 4.3 3.9
Equity issued/acquired 0.4 1.4
Acquisitions & disposals (8.3) (0.5)
Other (3.0) (0.5)
Increase in net debt (29.9) (8.4)
Opening net debt (102.5) (83.9)
New, acquired, modified and surrendered leases (2.3) (10.8)
Borrowings acquired (0.2) -
FX and other (3.5) 0.6
Closing net debt (138.4) (102.5)
1 In 2021 Restructuring, acquisition and disposal related costs'
comprises proceeds on surplus property disposals of £9.1m
At 31 December 2021 the Group's net debt was £138.4 million (31 December
2021: £102.5 million). Included within net debt was £23.1 million of lease
liabilities (31 December 2021: £22.6 million).
Consistent with the Group's borrowing agreements, which exclude the impact of
IFRS 16 Leases, leverage ratio was 2.0 times at 31 December 2022 (31 December
2021: 1.7 times). Net interest cover was 7.4 times (31 December 2021: 13.5
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 pages 43 to
50 of this announcement.
£ million 2022 2021
Operating (loss)/profit (3.4) 19.3
Adjusted to exclude:
Restructuring and other items
Restructuring 6.4 9.8
Property disposals - (1.7)
Pension restructuring costs 2.0 -
Pension enhanced value transfer value 11.8 -
Pension and past service charge - (0.3)
Asset impairments
Goodwill impairment 17.7 -
Other impairments 5.4 -
Acquisition related costs
Amortisation of intangible assets arising on business combinations 6.0 5.1
Ferranti acquisition and integration costs 1.1 0.5
Torotel acquisition and integration costs 0.1 1.5
Other acquisition costs - 0.2
Aborted acquisition and disposal costs - 0.4
Total operating reconciling items 50.5 15.5
Adjusted operating profit 47.1 34.8
(Loss)/profit before tax (10.1) 16.0
Total operating reconciling items (as above) 50.5 15.5
Adjusted profit before tax 40.4 31.5
Taxation charge on adjusted profit (8.4) (6.2)
Adjusted profit after taxation 32.0 25.3
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 2022
£million (unless otherwise stated) Note 2022 2021
Revenue 3 617.0 476.2
Cost of sales (481.5) (360.6)
Gross profit 135.5 115.6
Distribution costs (29.6) (26.9)
Administrative expenses (109.3) (69.4)
Operating (loss)/profit (3.4) 19.3
Analysed as:
Adjusted operating profit 3 47.1 34.8
Restructuring and other 7 (20.2) (7.8)
Asset impairments 7 (23.1) -
Acquisition and disposal related costs 7 (7.2) (7.7)
Finance income 6 2.3 1.1
Finance costs 6 (9.0) (4.4)
(Loss)/profit before taxation (10.1) 16.0
Taxation 8 (3.1) (3.2)
(Loss)/profit for the period attributable to the owners of the Company (13.2) 12.8
EPS attributable to owners of the Company (pence)
Basic 10 (7.5) 7.3
Diluted 10 (7.5) 7.2
Consolidated statement of comprehensive income
For the year ended 31 December 2022
£million 2022 2021
(Loss)/profit for the year (13.2) 12.8
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 26.9 3.4
Tax on exchange differences (1.6) -
Loss on hedge of net investment in foreign operations (3.4) (0.2)
Loss on cash flow hedges taken to equity less amounts recycled to the income (2.9) (3.2)
statement
Deferred tax (loss)/gain on movement in cash flow hedges (0.4) 0.5
Items that will never be reclassified to the income statement:
Remeasurement of defined benefit pension schemes (35.9) 35.8
Tax on remeasurement of defined benefit pension schemes 6.5 (11.4)
Total comprehensive (loss) / income for the period attributable to the owners (24.0) 37.7
of the Company
Consolidated statement of financial position
For the year ended 31 December 2022
£million Note 2022 2021
ASSETS
Non-current assets
Right-of-use assets 19.6 19.6
Property, plant and equipment 54.8 50.4
Goodwill 5 155.1 156.5
Other intangible assets 53.7 51.7
Deferred tax assets 13.2 11.3
Derivative financial instruments 0.8 0.6
Pensions 12 31.3 78.4
Total non-current assets 328.5 368.5
Current assets
Inventories 189.2 141.8
Trade and other receivables 120.3 86.2
Income taxes receivable 1.1 2.6
Derivative financial instruments 3.1 4.0
Cash and cash equivalents 65.0 68.3
Total current assets 378.7 302.9
Total assets 707.2 671.4
LIABILITIES
Current liabilities
Borrowings 11 3.7 1.1
Lease liabilities 4.4 4.1
Derivative financial instruments 3.6 1.3
Trade and other payables 173.2 133.9
Income taxes payable 9.6 7.1
Provisions 3.5 2.5
Total current liabilities 198.0 150.0
Non-current liabilities
Borrowings 11 176.6 147.1
Lease liabilities 18.7 18.5
Derivative financial instruments 0.8 0.7
Deferred tax liability 12.4 20.2
Pensions 12 2.9 3.9
Provisions and other non-current liabilities 0.8 1.0
Total non-current liabilities 212.2 191.4
Total liabilities 410.2 341.4
Net assets 297.0 330.0
EQUITY
Share capital 13 44.1 44.1
Share premium 22.9 22.6
Translation reserve 55.1 33.2
Other reserves 7.3 7.1
Retained earnings 167.6 221.0
Equity attributable to owners of the Company 297.0 328.0
Non-controlling interests - 2.0
Total equity 297.0 330.0
Approved by the Board of Directors on 7 March 2023 and signed on their behalf
by:
Richard Tyson
Mark Hoad
Director
Director
Consolidated statement of changes in equity
For the year ended 31 December 2022
£million Share capital Share premium Translation Reserve Other reserves Retained earnings Sub- Non-controlling interest Total
total
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 the income - - - (3.2) - (3.2) - (3.2)
statement
Deferred tax 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
At 31 December 2021 44.1 22.6 33.2 7.1 221.0 328.0 2.0 330.0
Loss for the year (13.2) (13.2) - (13.2)
Other comprehensive income
Exchange differences on translation of foreign operations - - 26.9 - - 26.9 - 26.9
Tax on exchange differences - - (1.6) - - (1.6) - (1.6)
Loss on hedge of net investment in foreign operations - - (3.4) - - (3.4) - (3.4)
Loss on cash flow hedges taken to equity less amounts recycled to income - - - (2.9) - (2.9) - (2.9)
statement
Deferred tax on movement in cash flow hedges ( 1 ) - - - 0.2 (0.6) (0.4) - (0.4)
Remeasurement of defined benefit pension schemes - - - - (35.9) (35.9) - (35.9)
Tax on remeasurement of defined benefit pension schemes - - - - 6.5 6.5 - 6.5
Total comprehensive income/(loss) - - 21.9 (2.7) (43.2) (24.0) - (24.0)
Transactions with owners recorded directly in equity
Equity dividends paid by the Company - - - - (10.2) (10.2) - (10.2)
Share-based payments - - - 4.8 - 4.8 - 4.8
Deferred tax on share-based payments - - - (1.0) - (1.0) - (1.0)
New shares issued - 0.3 - - - 0.3 - 0.3
Other movements - - - (0.9) - (0.9) - (0.9)
Dividend to non-controlling interest - - - - - - (2.0) (2.0)
At 31 December 2022 44.1 22.9 55.1 7.3 167.6 297.0 - 297.0
1. During the year £0.6 million was transferred out of retained earnings and
into the hedging reserve.
Consolidated statement of cash flows
For the year ended 31 December 2022
£million Note 2022 2021
Cash flows from operating activities
(Loss)/Profit for the year (13.2) 12.8
Taxation 8 3.1 3.2
Net finance costs 6.7 3.3
Restructuring costs and non underlying asset impairments 7 43.3 7.8
Acquisition related costs 7 7.2 7.7
Adjusted operating profit 47.1 34.8
Adjustments for:
Depreciation 13.9 13.6
Amortisation of intangible assets 2.2 2.5
Share based payment expense 4.8 3.8
Other items 0.5 1.1
Increase in inventories (40.4) (42.6)
Increase in receivables (26.3) (15.7)
Increase in payables and provisions 27.9 42.0
Adjusted operating cash flow 29.7 39.5
Special payments to pension funds - (5.5)
Restructuring and acquisition related costs (11.1) (15.0)
Net cash generated from operations 18.6 19.0
Net income taxes paid (5.9) (4.7)
Net cash flow from operating activities 12.7 14.3
Cash flows from investing activities
Purchase of property, plant and equipment (11.4) (14.6)
Proceeds from sale of property, plant and equipment and government grants 0.3 9.3
received
Capitalised development expenditure (2.3) (1.9)
Purchase of other intangibles (0.6) (0.5)
Acquisitions of businesses 4 (8.3) (0.5)
Net cash flow used in investing activities (22.3) (8.2)
Cash flows from financing activities
Issue of share capital 13 0.4 1.4
Interest paid (7.5) (4.0)
Repayment of borrowings (149.3) (86.9)
Proceeds from borrowings 174.3 96.4
Capital payment of lease liabilities (4.3) (3.9)
Other items (1.0) (0.5)
Dividends paid to minority shareholders (2.0) -
Dividends paid by the Company (10.2) (11.4)
Net cash flow from / (used in) financing activities 0.4 (8.9)
Net (decrease)/increase in cash and cash equivalents (9.2) (2.8)
Cash and cash equivalents at beginning of year 11 67.2 69.0
Exchange differences 11 3.3 1.0
Cash and cash equivalents at end of year 11 61.3 67.2
Cash and cash equivalents comprise:
Cash at bank and in hand 65.0 68.3
Bank overdrafts (3.7) (1.1)
61.3 67.2
TT Electronics Plc
Results for the year ended 31 December 2022
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 7 March 2023;
· 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
2023; 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 UK adopted 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 2023.
2 Basis of preparation
Going concern
The Group has experienced continued improvement in trading momentum and strong
growth on our 2021 results. 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 2022 it had:
• £267.2 million of total borrowing facilities available (comprising
committed facilities of £226.0 million and uncommitted facilities of £41.2
million representing overdraft lines and an accordion facility of £32.6
million). The Group's primary source of finance is the £147.4 million
committed revolving credit facility (RCF) which was signed in June 2022 to
replace the already existing RCF; at 31 December 2022 £103.6 million of this
facility had been drawn down. The Group's RCF is payable on a floating rate
basis above GBP SONIA, USD SOFR or EURIBOR depending on the currency of the
loan and will mature in June 2026 with a one-year extension option which
expires in May 2023. In February 2023 £15.0 million of uncommitted
accordion facility was converted into committed RCF extending the total
committed facilities to £241.0 million. In December 2021, the Group issued
£75.0 million of private placement fixed rate loan notes with three
institutional investors; 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.
• A leverage ratio (banking covenant defined measure) of 2.0 times at 31
December 2022 compared to the RCF (and PP loan notes) covenant maximum of 3.0
times. Interest cover (banking covenant defined measure) of 7.4 times compared
to the RCF (and PP loan notes) 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 2023. Under the Group's base case financial
projections, the Group retains significant liquidity and covenant headroom
throughout the forecast period, with both metrics improving from the position
as at 31 December 2022.
The Group's financial projections have been stress tested for "business as
usual" risks (such as profit growth, supply chain pressure and working capital
variances), and the impact of the following principal risks: general revenue
reduction, contractual risks, research and development, 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 adequate throughout the forecast
period. 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.
TT Electronics Plc
Results for the year ended 31 December 2022
2 Basis of preparation continued
The Group's downside stress test scenario has been sensitised for supply chain
challenges and capacity constraints which shows a reduction in revenue and
operating profit compared to the latest forecast. Despite this further
reduction these projections show that the Group should remain well within its
facilities headroom and within bank covenants for the 12 months following 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. 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. 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 2022 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.
• Notes 5 and 7 - Assumptions used to determine the carrying
value of goodwill in relation to the IoT Solutions cash generating unit
("CGU"). The carrying amount of goodwill at 31 December 2022 was £155.1
million (2021: £156.5 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. During the year a full
impairment review was performed and an impairment charge of £17.7 million was
recorded in respect of goodwill held in the IoT Solutions CGU which was
recognised within the Power and Connectivity segment. Should the business
experience further unforeseen deterioration of results a future impairment may
be required. Further information is provided in note 7 and sensitivity
analysis is provided in note 5. Following the impairment, the carrying amount
of the IoT Solutions CGU's goodwill was £9.9 million (2021: £27.6 million).
TT Electronics Plc
Results for the year ended 31 December 2022
2 Basis of preparation continued
• Note 8 - 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 2022
includes tax provisions of £8.4 million (2021: £6.9 million). The Group
believes the range of reasonable possible outcomes in respect of these
exposures is tax liabilities of up to £11.1 million (2021: £9.0 million).
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, impairment charges
significant in nature and/or value, 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.
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 KPIs and non IFRS
measure' for a definition of adjusted profit.
TT Electronics Plc
Results for the year ended 31 December 2022
3 Segmental reporting continued
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 - continuing operations
2022
£million Power and Connectivity Global Manufacturing Solutions Sensors and Specialist Components Total Operating Segments Corporate Total
Sales to external customers 154.2 323.0 139.8 617.0 - 617.0
Adjusted operating profit 7.9 25.2 21.8 54.9 (7.8) 47.1
Add back: adjustments made to operating profit (note 7) (50.5)
Operating loss (3.4)
Net finance costs (6.7)
Loss before taxation (10.1)
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 7) (15.5)
Operating profit 19.3
Net finance costs (3.3)
Profit before taxation 16.0
TT Electronics Plc
Results for the year ended 31 December 2022
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 2022 2021
United Kingdom 130.0 100.2
Rest of Europe 104.3 78.6
North America 236.6 182.7
Asia 144.7 113.3
Rest of the World 1.4 1.4
617.0 476.2
Revenue from services is less than 1% of Group revenues. All other revenue is
from the sale of goods.
c) Market information key customers
The Group operates in the following markets:
£million 2022 2021 (1)
Healthcare 172.0 118.8
Aerospace and defence 91.7 85.5
Automation and electrification 229.6 172.2
Distribution 123.7 99.7
617.0 476.2
1. Revenue by market in 2021 has been represented following a reclassification
of end markets for several key customers.
The Group had one customer who contributed greater than 10% of revenues (12%)
in 2022 (2021: less than 10%). Revenues from this customer are recognised
within the Global Manufacturing Solutions segment.
4 Acquisitions
On 7 January 2022 the Group acquired the Power and Control business of
Ferranti Technologies Ltd, from Elbit Systems UK Ltd. Total cash consideration
was £8.3 million comprising £10.0 million paid in January 2022 and a final
£1.7 million working capital adjustment received in April 2022.
Had the acquisition been completed on 1 January 2022, the full year revenue,
operating loss and adjusted operating profit would have been unchanged at
£617.0 million, £3.4 million and £47.1 million respectively as reported.
Ferranti Power and Control's contribution to the Group's 2022 revenue,
operating loss and adjusted operating profit was £7.9 million, £0.8 million
and £1.9 million respectively.
TT Electronics Plc
Results for the year ended 31 December 2022
4 Acquisitions continued
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, 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 goodwill recognised on acquisition represents the Group's view
on the future earnings growth potential and technical capabilities of the
acquired business. None of the goodwill recognised is expected to be
deductible for income tax purposes. Costs in relation to this acquisition
recognised in the statement of profit or loss amounted to £0.3 million.
The fair values of the identifiable assets (including goodwill) and
liabilities are presented below.
The fair value of receivables of £2.1 million is not materially different to
the contractual cashflows. The amount expected to not be collected is £nil.
£million Power and Control business of Ferranti Technologies Ltd
Non-current assets
Right-of-use asset 0.2
Property, plant and equipment 0.4
Identifiable intangible assets 5.3
Current assets / (liabilities)
Inventory 2.2
Trade and other receivables 2.1
Trade and other payables (2.5)
Provisions (3.0)
Lease liabilities (0.2)
Deferred tax liabilities (1.2)
Net assets of acquiree 3.3
Consideration paid
Cash consideration 8.3
Goodwill 5.0
The acquisition balance sheet above represents the final acquisition balance
after substantially completing the initial measurement period of 12 months
since acquisition. During the final six months of the year there were opening
balance sheet adjustments as compared to the preliminary acquisition balance
sheet disclosed with the half year results. These adjustments were to increase
provisions by £0.4 million reduce trade and other receivables by £0.1
million, reduce deferred tax liabilities by £0.1 million and to increase
goodwill by £0.4 million.
TT Electronics Plc
Results for the year ended 31 December 2022
5 Goodwill
£million
Cost
At 1 January 2021 155.7
Net exchange adjustment 0.8
At 31 December 2021 156.5
Additions 5.0
Net exchange adjustment 11.3
At 31 December 2022 172.8
Impairment
At 1 January 2021 and at 31 December 2021 -
Impairment 17.7
At 31 December 2022 17.7
Net book value
At 31 December 2022 155.1
At 31 December 2021 156.5
The £5.0 million addition in goodwill in 2022 arose upon the acquisition of
Power and Control business of Ferranti Technologies Ltd and is considered part
of the Power Solutions CGU.
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 net of impairment is attributed to the following CGUs in the
divisions shown below:
£million 2022 2021
Power and Connectivity:
Power Solutions 65.6 57.0
IoT Solutions 9.9 27.6
Global Manufacturing Solutions:
Global Manufacturing Solutions 19.5 18.4
Sensors and Specialist Components:
Resistors 34.2 30.5
Sensors 25.9 23.0
155.1 156.5
Impairment Testing
The Group tests goodwill impairment annually or more frequently if there are
indications that goodwill might be impaired.
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 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.
TT Electronics Plc
Results for the year ended 31 December 2022
5 Goodwill continued
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 2022 are shown below:
2022 2021
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 13.4% 1.7% 5 12.2% 1.7% 5
IoT Solutions 14.3% 1.6% 5 12.2% 1.6% 5
Global Manufacturing Solutions 13.8% 1.9% 5 13.2% 1.8% 5
Resistors 13.5% 1.6% 5 13.3% 1.6% 5
Sensors 13.2% 1.7% 5 13.8% 1.7% 5
The date of the annual impairment test was 30 September 2022 to align with
internal forecasting and review processes.
Based on the impairment testing performed, an impairment charge of £17.7
million was recorded in 2022 (2021: £nil) in respect of the IoT Solutions CGU
as a result of revised forecasts for the business in the context of a weaker
macro-economic environment and the impact of the evolution of the COVID
pandemic on the potential demand for COVID testing, coupled with an increase
in discount rates. The impairment charge is shown as an adjusting item (see
note 7) in conjunction with related assets in the IoT Solutions CGU. No
impairment losses have been recognised in the current or prior year in respect
of the other CGUs as recoverable amounts exceed carrying value of assets in
respect of those businesses. Sensitivity analysis has been provided in respect
of reasonably possible changes to key assumptions where applicable.
Key assumptions in the value in use test are 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 current forecast information do not
indicate that any goodwill balance, other than that for IoT Solutions, 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.
Sensitivity Analysis
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.
TT Electronics Plc
Results for the year ended 31 December 2022
5 Goodwill continued
Other than in the case of the IoT Solutions CGU where an impairment has been
recognised, the Directors have not identified reasonably possible changes in
significant assumptions that would cause the carrying value of recognised
goodwill to exceed its recoverable amount.
As discussed in note 2, determination of the recoverable amount involves
management judgement on highly uncertain matters, particularly with regard to
future growth prospects in the markets in which the CGUs operate, the level of
competition and discount factors. Revenue forecasts for the IoT Solutions CGU
have reduced and a higher discount factor has been applied in 2022. As a
result the recoverable amount of the IoT Solutions CGU was £43.8 million
resulting in an impairment to goodwill of £17.7 million.
In accordance with IAS 36 'Impairment of Assets' sensitivity analysis has been
carried out as illustrated below:
· a further 1 per cent increase in the discount rate would result
in a reduction in value in use (and additional impairment) of £3.3
million.
· a further 1 per cent decrease in the long-term growth rate
(driven by delayed product launches) would result in a reduction in value in
use (and additional impairment) of £2.2 million.
· a further 5 per cent reduction in the terminal value of operating
profit (driven by lower than anticipated margin) would result in a reduction
in value in use (and additional impairment) of £1.4 million.
6 Finance costs and finance income
£million 2022 2021
Interest income 0.1 0.2
Net interest income on pension schemes in surplus 2.2 0.9
Finance income 2.3 1.1
Interest expense 7.1 3.1
Interest on lease liabilities 0.8 0.8
Net interest expense on pension schemes in deficit 0.1 0.1
Amortisation of arrangement fees 1.0 0.4
Finance costs 9.0 4.4
Net finance costs 6.7 3.3
Within 'Amortisation of arrangement fees' is an expense of £0.5m relating
to the acceleration of capitalised loan arrangement fees following a
refinancing activity as described in note 11.
TT Electronics Plc
Results for the year ended 31 December 2022
7 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.
2022 2021
£million Operating profit Tax Operating profit Tax
As reported (3.4) (3.1) 19.3 (3.2)
Restructuring and other
Restructuring (6.4) 1.2 (9.7) 1.2
Property disposals - - 1.7 (0.2)
Pension restructuring costs (2.0) 0.4 (1.5) 0.2
Pension enhanced transfer value exercise (11.8) 2.2 - -
Pension increase exchange exercise - - 1.8 (0.2)
Other items - - (0.1) -
(20.2) 3.8 (7.8) 1.0
Asset impairments
Goodwill impairment (17.7) - - -
Other impairments (5.4) 1.0 - -
(23.1) 1.0 - -
Acquisition and disposal related costs
Amortisation of intangible assets arising on business combinations (6.0) 0.3 (5.1) (0.3)
Torotel acquisition and integration costs (0.1) - (1.5) 0.6
Covina acquisition and integration costs - - (0.2) 0.1
Ferranti Power and Control acquisition and integration costs (1.1) 0.2 (0.5) 0.2
Tax losses relating to the disposal of the transportation division - - - 1.3
Other acquisition and disposal related costs - - (0.4) 0.1
(7.2) 0.5 (7.7) 2.0
Total items excluded from adjusted measure (50.5) 5.3 (15.5) 3.0
Adjusted measure 47.1 (8.4) 34.8 (6.2)
Restructuring and other £20.2 million (2021: £7.8 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 now substantially
complete.
Restructuring costs of £6.4 million comprise £2.7 million relating to the
restructure of the North America Resistors business, which includes
pre-production costs at our new Plano facility; £2.0 million relating to
closure of our site in Lutterworth, UK, £1.5 million relating to the
relocation of production facilities from Covina, USA to Kansas, USA and £0.2
million relating to the relocation of production facilities from Medina, USA
to Minneapolis, USA.
Pension enhanced transfer value exercise of £11.8 million represents the
settlement cost of a liability management exercise undertaken during the year
ahead of the buy-in completed in 2022. Pension restructuring costs of £2.0
million relate to costs associated with the enhanced transfer value exercise
and scheme buy-in (see note 12).
Prior period restructuring costs of £7.8 million primarily comprised £8.0
million, net of a £1.7 million gain on property disposals, relating to
restructuring the Group's footprint, £1.5 million relating to preparing the
Group's pension scheme for buy-in, £0.1 million relating to other costs, and
a £1.8 million gain relating to 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.
TT Electronics Plc
Results for the year ended 31 December 2022
7 Adjusting items continued
Asset impairments £23.1 million (2021: £nil)
During the year an impairment of £5.4 million associated with Virolens
related assets (£2.8 million of inventory, £1.5 million of plant and
equipment, £0.8 million of other debtors and £0.3 million of product
development costs) was recognised, reducing the carrying value to £nil.
Following a detailed impairment review of goodwill completed during the year
an impairment charge of £17.7 million (2021: £nil) was recognised to reduce
the carrying value of the IoT Solutions CGU to the recoverable amount.
The impairments of both Virolens related assets and goodwill were as a result
of revised forecasts in the context of a weaker macro-economic environment and
the impact of the evolution of the COVID pandemic on the potential demand for
COVID testing. The impairment charges were recognised within the Power and
Connectivity segment.
Acquisition and disposal related costs £7.2 million (2021: £7.7 million)
Acquisition and disposal related costs charged in the year comprise £6.0
million (2021: £5.1 million) of amortisation of acquired intangible assets;
£0.3 million (2021: £0.5 million) of acquisition costs and £0.8 million of
integration costs relating to the acquisition of the Power and Control
business of Ferranti Technologies Ltd. based in Oldham, UK and £0.1 million
of integration costs of Torotel, Inc. (2021: £1.5 million). The prior period
also included £0.4 million of costs of terminated acquisitions and £0.2
million of integration costs of the aerospace and defence power supply
business of Excelitas Technologies Corp based in Covina, California.
TT Electronics Plc
Results for the year ended 31 December 2022
8 Taxation
a) Analysis of the tax charge for the year
£million 2022 2021
Current tax
Current income tax charge 9.1 5.1
Adjustments in respect of current income tax of previous year (0.5) (0.9)
Total current tax charge 8.6 4.2
Deferred tax
Relating to origination and reversal of temporary differences (3.4) (0.4)
Change in tax rate (1.2) 0.8
Adjustments in respect of deferred tax of previous years (0.9) (1.4)
Total deferred tax credit (5.5) (1.0)
Total tax charge in the income statement 3.1 3.2
The applicable tax rate for the period is based on the UK standard rate of corporation tax of 19% (2021: 19%). Overseas taxation is calculated at the rates prevailing in the respective jurisdictions. The Group's effective tax rate for the year was -30.7% (the adjusted tax rate was 20.8%, 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%. In 2022 the impact on deferred tax as a result of this change was £1.2
million recognised in the income statement.
Included within the total tax charge above is a £5.3 million credit relating
to items reported outside adjusted profit (2021: £3.0 million credit).
b) Reconciliation of the total tax charge for the year
£million 2022 2021
(Loss)/profit before tax from continuing operations (10.1) 16.0
(Loss)/profit before tax multiplied by the standard rate of corporation tax in (1.9) 3.0
the UK of 19% (2021: 19%)
Effects of:
Impact on deferred tax arising from changes in tax rates (1.2) 0.8
Overseas tax rate differences 0.8 0.7
Items not deductible for tax purposes or income not taxable 8.8 2.2
Adjustment to current tax in respect of prior periods (0.5) (0.9)
Current year tax losses and other items not recognised (2.0) (1.2)
Adjustments in respect of deferred tax of previous years (0.9) (1.4)
Total tax charge reported in the income statement 3.1 3.2
Items not deductible for tax purposes or income not taxable includes an
impairment of IoT Solutions CGU not deductible for tax purposes of £9.6
million.
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 2022
8 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 2022 includes tax provisions of £8.4
million (2021: £6.9 million). The Group believes the range of reasonable
possible outcomes in respect of these exposures is tax liabilities of up to
£11.1 million (2021: £9.0 million).
9 Dividends
2022 2022 2021 2021
pence per share
£million
pence per share
£million
Final dividend paid for prior year 3.80 6.7 4.70 8.2
Interim dividend declared for current year 2.00 3.5 1.80 3.2
The Directors recommend a final dividend of 4.3 pence per share. The Group has
a progressive dividend policy. The final dividend will be paid on 26 May 2023
to shareholders on the register on 28 April 2023.
10 Earnings per share
Basic earnings/(loss) per share is calculated by dividing the profit/(loss)
attributable to owners of the Company by the weighted average number of shares
in issue during the year.
Pence 2022 2021
(Loss)/Earnings per share
Basic (7.5) 7.3
Diluted (7.5) 7.2
The numbers used in calculating adjusted, basic and diluted (loss)/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) 2022 2021
Group
(Loss)/profit for the year attributable to owners of the Company (13.2) 12.8
Restructuring and other 20.2 7.8
Asset impairments 23.1 -
Acquisition and disposal related costs 7.2 7.7
Tax effect of above items (see note 7) (5.3) (3.0)
Adjusted earnings 32.0 25.3
Adjusted earnings per share (pence) 18.2 14.5
Adjusted diluted earnings per share (pence) 18.0 14.2
TT Electronics Plc
Results for the year ended 31 December 2022
10 Earnings per share continued
The weighted average number of shares in issue is as follows (new shares
issued in the year described in note 13):
million 2022 2021
Basic 175.8 174.8
Adjustment for share awards 2.0 3.3
Diluted 177.8 178.1
As the Group made a statutory loss, diluted statutory EPS has been
calculated using the basic weighted average number of shares.
11 Reconciliation of net cash flow to movement in net debt
Net cash of £61.3 million (2021: £67.2 million) comprises cash at bank and
in hand of £65.0 million (2021: £68.3 million) and overdrafts of £3.7
million (2021: £1.1 million).
£million Net cash Lease liabilities Borrowings Net debt
At 1 January 2021 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)
Amortisation of 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)
Cash flow (9.2) - - (9.2)
Businesses acquired - (0.2) - (0.2)
Repayment of borrowings - - 149.3 149.3
Proceeds from borrowings - - (174.3) (174.3)
Payment of lease liabilities - 4.3 - 4.3
New leases - (2.3) - (2.3)
Net movement in loan arrangement fees - - 0.7 0.7
Exchange differences 3.3 (2.3) (5.2) (4.2)
At 31 December 2022 61.3 (23.1) (176.6) (138.4)
The Group's primary source of finance is the £147.4 million committed
revolving credit facility (RCF), and an uncommitted accordion facility of
£32.6 million, which was signed in June 2022 to replace the previously
existing RCF. The Group's RCF is payable on a floating rate basis above GBP
SONIA, USD SOFR or EURIBOR depending on the currency of the loan and will
mature in June 2026 with a one year extension option which expires in May
2023. As at 31 December 2022, £103.6 million (31 December 2021: £73.4
million) of the facility was drawn down. Arrangement fees with amortised cost
of £2.0 million (2021: £1.3 million) have been netted off against these
borrowings.
In December 2021 the Group issued £75.0 million of unsecured loan notes with
£37.5 million maturing in seven years and £37.5 million maturing in 10 years
respectively to a collection of three counterparties.
TT Electronics Plc
Results for the year ended 31 December 2022
12 Retirement benefit schemes
Defined contribution schemes
The Group operates 401(k) plans in North America and defined contribution
arrangements in the rest of the world. The assets of these schemes are held
independently of the Group. The total contributions charged by the Group in
respect of defined contribution schemes were £3.2 million (2021: £3.0
million).
Defined benefit schemes
During the year 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.
In October 2022 the Trustees of the Southern & Redfern Ltd Retirement
Benefits Scheme completed a buy-out of the scheme with a leading insurer,
securing the pensions of members for the future. As a result, the assets
(£0.6 million) and liabilities (£0.6 million) of the scheme have been
derecognised. There was no impact on the income statement or OCI as a result
of the buy-out.
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.
In November 2022, the Trustees of the TT Group Scheme entered into a bulk
annuity insurance contract with an insurer in respect of the liabilities of
the defined benefit scheme. This type of deal is also known as a 'buy-in'. The
insurer, Legal & General, will pay into the Scheme cash matching the
benefits due to members. The Trustee is of the opinion that this investment
decision is appropriate, reduces the risks in the Scheme and provides
additional security for the benefits due to members of the Scheme. The Trustee
continues to be responsible for running the Scheme and retains the legal
obligation for the benefits provided under the Scheme.
As the buy-in policy is a qualifying insurance asset, the fair value of the
insurance policy is deemed to be the present value of the obligations that
have been insured. The policy secured matches the benefits due to Scheme
members under the Scheme's Trust Deed and Rules.
Since the assets of the Scheme were greater than the premium required to
secure the liabilities through the buy-in, the Scheme Is in a net asset
position at 31 December 2022 of £31.3 million. The buy-in has resulted in a
re-measurement of the Scheme's assets, with a total re-measurement loss of
£37.5 million recognised in the Group Statement of Comprehensive Income. A
"true-up premium/refund" may be payable to/from the insurer during 2023,
subject to a data cleanse exercise to formally agree the final benefits that
are covered by the buy-in contract.
Prior to the buy-in, the TT Group scheme exposed the Group to a number of
actuarial risks such as longevity risk, currency risk, inflation risk,
interest rate risk and market (investment) risk. The buy-in mitigates the
majority of these risks and the principal risk remaining is the credit risk
associated with Legal & General, which is assessed to be very low.
The last 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 was 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. Due to an improvement in the funding
position and favourable insurer pricing during 2022 the Company and Trustee
began investigating in more detail the possibility of securing the Scheme's
liabilities under a buy-in policy. As a result of the plans to secure the
Scheme's liabilities under the buy-in policy, the Trustees and Company agreed
that there was no requirement for any contributions falling due after 30
September 2022 to be paid to the Scheme after that date. The next triennial
valuation of the TT Group scheme, as at April 2022, is expected to be
completed by July 2023 and will take account of the new buy-in policy held by
the Trustee.
In the year ended 31 December 2022 the Group made no funding contributions to
the TT Group (1993) scheme or the Southern & Redfern Ltd Retirement
Benefits Schemes.
TT Electronics Plc
Results for the year ended 31 December 2022
12 Retirement benefit schemes continued
The Trustee and Company agreed that the Trustee should undertake an exercise
during 2022, whereby deferred members were offered an enhanced transfer value
option. In the year ended 31 December 2022 a £11.8 million settlement cost
was recognised within items excluded from adjusted operating profit as a
result of this exercise.
An analysis of the pension surplus/(deficit) by scheme is shown below:
£million 2022 2021
TT Group (1993) 31.3 78.4
Southern & Redfern - -
USA schemes (2.9) (3.9)
Net surplus 28.4 74.5
Amounts recognised in the consolidated income statement are:
£million 2022 2021
Scheme administration costs (1.2) (1.7)
Net (loss)/gain on pension projects (excluded from adjusted operating profit) (13.8) 0.3
Net interest credit 2.1 0.9
13 Share capital
£million 2022 2021
Issued and fully paid
176,486,627 (2021: 176,244,624) ordinary shares of 25p each 44.1 44.1
During the period the Company issued 242,003 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
2019 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.
The aggregate consideration received for all share issues during the year was
£382,814 which was represented by a £60,501 increase in share capital and a
£322,314 increase in share premium.
14 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 2022 or 2021 that have
affected the financial position or performance of the Group.
Principal risk and uncertainties
The Group continues to be exposed to operational and financial risks and has
an established, structured approach to identifying,
assessing, and managing those risks. These risks relate to the following
areas: general 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.
TT Electronics Plc
Results for the year ended 31 December 2022
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 adjusted operating profit and other
adjusted profit measures. 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 7. 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.
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 7 Adjusted operating profit has been defined as operating profit from continuing
operations excluding the impacts of significant restructuring programmes,
profit significant one-off items including property disposals, impairment charges
significant in nature and/or value, 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.
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 7 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 per share See note 10 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
earnings weighted average number of shares in issue during the year.
per share 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 2022
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 10 for the reconciliation and calculation of adjusted diluted The profit for the year attributable to the owners of the Group adjusted to
earnings 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 exchange impacts.
Adjusted 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
effective tax charge 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 twelve 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 2022
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 11) 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 Dividend per share Not applicable Amounts payable by dividend in terms of pence per share.
share Provides the dividend return per share to shareholders.
TT Electronics Plc
Results for the year ended 31 December 2022
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 (amortisation of acquisition intangibles is
not excluded) 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 share based payment 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 2022
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
2022 revenue 154.2 323.0 139.8 617.0
Acquisitions 7.9 - - 7.9
2022 revenue (excluding acquisitions) 146.3 323.0 139.8 609.1
2021 revenue 140.2 220.1 115.9 476.2
Foreign exchange impact (6.8) (87.5) (15.0) (109.3)
2021 revenue at 2022 exchange rates 147.4 235.5 124.8 507.7
Organic revenue increase (%) (1%) 37% 12% 20%
£million Power and Connectivity Global Manufacturing Solutions Sensors and Specialist Components Total
2021 revenue 140.2 220.1 115.9 476.2
Acquisitions 15.2 - - 15.2
2021 revenue (excluding acquisitions) 125.0 220.1 115.9 461.0
2020 revenue 125.1 197.5 109.2 431.8
Foreign exchange impact (3.4) (4.1) (5.2) (12.7)
2020 revenue at 2021 exchange rates 121.7 193.4 104.0 419.1
Organic revenue increase (%) 3% 14% 11% 10%
TT Electronics Plc
Results for the year ended 31 December 2022
APM 2 - Effective tax charge:
£million 2022 2021
Adjusted operating profit 47.1 34.8
Net interest (6.7) (3.3)
Adjusted profit before tax 40.4 31.5
Adjusted tax (8.4) (6.2)
Adjusted effective tax rate 20.8% 19.6%
APM 3 - Return on invested capital:
£million 2022 2021
Adjusted operating profit 47.1 34.8
Average invested capital 448.6 382.4
Return on invested capital 10.5% 9.1%
APM 4 - Net capital and development expenditure (net capex):
£million 2022 2021
Purchase of property, plant and equipment (11.4) (14.6)
Proceeds from sale of investment property, plant and equipment and capital 0.3 9.3
grants received
Capitalised development expenditure (2.3) (1.9)
Purchase of other intangibles (0.6) (0.5)
Net capital and development expenditure (14.0) (7.7)
TT Electronics Plc
Results for the year ended 31 December 2022
APM 5 - Adjusted operating cash flow:
£million 2022 2021
Adjusted operating profit 47.1 34.8
Adjustments for: - -
Depreciation 13.9 13.6
Amortisation of intangible assets 2.2 2.5
Impairment of property, plant and equipment and intangible assets - -
Share based payment expense 4.8 3.8
Other items 0.5 1.1
Increase in inventories (40.4) (42.6)
Increase in receivables (26.3) (15.7)
Increase in payables and provisions 27.9 42.0
Adjusted operating cash flow 29.7 39.5
Special payments to pension funds - (5.5)
Restructuring and acquisition related costs (11.1) (15.0)
Net cash generated from operations 18.6 19.0
Net income taxes paid (5.9) (4.7)
Net cash flow from operating activities 12.7 14.3
APM 6 - Adjusted operating cash flow post capex:
£million 2022 2021
Adjusted operating cash flow 29.7 39.5
Purchase of property, plant and equipment (11.4) (14.6)
Proceeds from sale of property, plant and equipment and government grants 0.3 9.3
received
Capitalised development expenditure (2.3) (1.9)
Purchase of other intangibles (0.6) (0.5)
Adjusted operating cash flow post capex 15.7 31.8
APM 7 - Working capital cashflow:
£million 2022 2021
Increase in inventories (40.4) (42.6)
Increase in receivables (26.3) (15.7)
Increase in payables and provisions 27.9 42.0
Items reported within other items in the statutory cashflow:
Increase in provisions over trade receivables - 1.6
Working capital cashflow (38.8) (14.7)
TT Electronics Plc
Results for the year ended 31 December 2022
APM 8 - Free cash flow:
£million 2022 2021
Net cash flow from operating activities 12.7 14.3
Net cash flow from investing activities (22.3) (8.2)
Add back: Acquisition of business 8.3 0.5
Payment of lease liabilities (4.3) (3.9)
Interest paid (7.5) (4.0)
Free cash flow (13.1) (1.3)
APM 9 - Cash conversion:
£million 2022 2021
Adjusted operating profit 47.1 34.8
Adjusted operating cash flow post capex 15.7 31.8
Exclude: Property disposal proceeds as part of restructuring programmes - (9.1)
Adjusted operating cash flow post capex and excluding property disposals 15.7 22.7
Cash conversion 33% 65%
APM 10 - R&D cash spend as a percentage of revenue:
£million 2022 2021
Revenue (excluding GMS) 294.0 256.1
R&D cash spend 11.0 11.4
R&D cash spend as a percentage of revenue 3.7% 4.5%
(1) See 'Reconciliation of KPIs and non-IFRS measures' on pages 43 to 50.
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