REG - TT Electronics PLC - Half-year Report <Origin Href="QuoteRef">TTG.L</Origin> - Part 2
11/08/2017 07:06
- Part 2: For the preceding part double click ID:nRSK7175Na
b) Basis of accounting
The accounting policies adopted are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 31
December 2016. Adoption of amendments to published standards and
interpretations effective for the Group for the half-year ended 30 June 2017
did not have any impact on the financial position and performance of the
Group.
In accordance with IFRS 5 "Non-current assets held for sale and discontinued
operations", comparatives for prior years have been re-presented for
businesses treated as discontinued. During the period to 30 June 2017 the
Transportation Sensing and Controls division has been re-presented as a
discontinued operation (see note 4).
In addition comparative financial information for the half-year ended 30 June
2016 has been re-presented to transfer £3.4 million on the acquisition of Aero
Stanrew Group Limited from share premium to the merger reserve.
c) Estimates
The preparation of half-year condensed consolidated financial statements
requires management to make judgements, estimates and assumptions which affect
the application of accounting policies and the reported amounts of assets,
liabilities, income and expense. Actual results may differ from these
estimates.
In preparing the condensed consolidated half-year financial statements, the
significant judgements made by management in applying the Group's accounting
policies and the key sources of estimation uncertainty were consistent with
those applied to the consolidated financial statements as at and for the year
ended 31 December 2016. These relate to the determination of items of income
and expense excluded from operating profit to arrive at underlying operating
profit, taxation, property plant and equipment, impairment of goodwill, other
intangible assets, provisions and defined benefit pension obligations.
d) Going concern
After making appropriate enquiries, the Directors have a reasonable
expectation that the Company has adequate resources and financial headroom to
continue in operational existence for the foreseeable future. Therefore they
continue to adopt the going concern basis of accounting in preparing the
condensed consolidated half-year financial statements. The Group's business
activities, together with the factors likely to affect its future development,
performance and position are set out in the Business review above and in note
13.
The Group had net debt of £56.0 million at 30 June 2017 (31 December 2016:
£55.4 million) including £9.5 million net funds within assets/liabilities held
for sale. The Group had available £43.0 million of undrawn committed borrowing
facilities and £55.8 million of undrawn uncommitted borrowing facilities,
representing overdraft lines (£25.8 million) and the accordion facility (£30.0
million). Given the considerable financial resources available, together with
long term partnerships with a number of key customers and suppliers across
different geographic areas and industries, the Directors believe that the
Group is well placed to manage its business risks successfully.
The Group continues to manage foreign currency risk at a transactional level
through the use of hedges which are monitored by the Group Treasury
Committee.
The Treasury Committee regularly reviews counterparty credit risk, and ensures
cash balances are held with carefully assessed counterparties with strong
credit ratings.
Pages 26 to 27 of the 2016 Annual Report provide details of the Group's policy
on managing its operational and financial risks.
3. Segmental reporting
Following the announcement on 1 August 2017, the Group is now 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 in
accordance with IFRS 8 'Operating segments' and there is no aggregation of
segments. The chief operating decision maker is the Board of Directors. The
operating segments are:
· Sensors and Specialist Components - The Sensors and Specialist
Components division collaborates with customers to develop both standard and
custom solutions that improve the precision, speed and reliability of
performance-critical applications in the industrial, medical, transportation
and aerospace and defence sectors. We design and manufacture highly engineered
parts that solve customer challenges. Product offerings include
optoelectronics and sensors for torque, position, pressure, flow and
temperature, and specialist circuit protection and circuit conditioning
components.
· Power Electronics - The Power Electronics division creates specialist,
high performance, ultra-reliable, highly engineered electronic components and
sub-assemblies for power management, signal conditioning and connectivity
applications in harsh environments. It serves customers in the industrial,
automotive and aerospace and defence markets and focuses on creating value by
developing innovative electronic solutions to challenging problems for our
customers' electronic systems.
· Global Manufacturing Solutions - The Global Manufacturing Solutions
division draws on its manufacturing design engineering capabilities, global
facilities and world-class quality standards to provide highly complex
electronic manufacturing solutions to customers in the aerospace and defence,
medical, and high technology industrial sectors. The business has broad
capabilities ranging from printed circuit board assembly to environmental test
and full systems integration. This global suite of end-to-end solutions is
focused exclusively on low volume, high mix business.
The key performance measure of the operating segments is underlying operating
profit. Refer to note 5 for a definition of underlying operating profit.
Corporate costs - In 2016 and prior years central corporate costs were
allocated to each of the divisions on the basis of revenue to determine
underlying operating profit. For 2017 reporting those costs of the head office
which are not related to the operating activities of the trading units are no
longer allocated to divisions. Resources and costs managed centrally but
deployed in support of the operating units will continue to be allocated to
the divisional segments based on a combination of revenue and operating
profit. Corporate costs are separately disclosed, equivalent to the segment
disclosure information, so that reporting is consistent with the format that
is now used for review by the chief operating decision maker. This gives
greater transparency of the underlying operating profits for each segment. As
required by IFRS8, comparative amounts have been restated to reflect this
change.
The accounting policies of the reportable segments are the same as the Group's
accounting policies and are as published in the 2016 Annual Report.
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 within the
segment of which it is a part.
Income statement information
Six months ended 30 June 2017
£million Sensors and Specialist Components Power Electronics Global Manufacturing Solutions Total Operating Segments Corporate Total
Sales to external customers 71.0 33.0 76.0 180.0 - 180.0
Underlying operating profit 8.6 3.4 2.5 14.5 (3.6) 10.9
Adjustments to underlying operating profit (note 5) (4.1)
Operating profit 6.8
Net finance costs (1.4)
Profit before taxation 5.4
Six months ended 30 June 2016 (re-presented)
£million Sensors and Specialist Components Power Electronics Global Manufacturing Solutions Total Operating Segments Corporate Total
Sales to external customers 60.6 26.3 72.3 159.2 - 159.2
Underlying operating profit 7.1 1.9 2.4 11.4 (3.1) 8.3
Adjustments to underlying operating profit (note 5) (3.5)
Operating profit 4.8
Net finance costs (2.4)
Profit before taxation 2.4
Year ended 31 December 2016 (re-presented)
£million Sensors and Specialist Components Power Electronics Global Manufacturing Solutions Total Operating Segments Corporate Total
Sales to external customers 129.5 56.2 147.0 332.7 - 332.7
Underlying operating profit 15.6 5.0 6.3 26.9 (6.3) 20.6
Adjustments to underlying operating profit (note 5) (1.8)
Operating profit 18.8
Net finance costs (4.5)
Profit before taxation 14.3
There is no significant revenue between segments.
Analysis of revenue by destination - continuing operations
£million Six months ended 30 June 2017 Six months ended 30 June 2016 Year ended 31 December 2016
(re-presented) (re-presented)
United Kingdom 47.0 45.7 94.6
Rest of Europe 31.8 28.9 60.5
North America 56.3 46.9 98.1
Central and South America 0.3 0.3 0.5
Asia 43.3 34.7 74.5
Rest of the World 1.3 2.7 4.5
Continuing operations 180.0 159.2 332.7
4. Discontinued operations and assets held for sale
On 19 July 2017 the Group announced the proposed disposal of the
Transportation Sensing and Control division to AVX Corporation for £118.8
million in cash. As the Directors were committed to the disposal prior to 30
June 2017 the business has been classified as a discontinued operation, with
the assets and related liabilities shown as being held for sale at the balance
sheet date.
Income statement
The results from discontinued operations for the period shown in the Condensed
consolidated income statement are shown below:
£million Six months ended 30 June 2017 Six months ended Year ended
30 June 2016 31 December 2016
(re-presented) (re-presented)
Revenue 131.9 117.8 237.2
Cost of sales (116.7) (105.5) (212.8)
Gross profit 15.2 12.3 24.4
Distribution costs (4.5) (4.5) (8.8)
Administrative expenses (4.4) (3.8) (6.8)
Operating profit 6.3 4.0 8.8
Analysed as:
Underlying operating profit 6.5 5.4 10.7
Restructuring (0.2) (1.4) (1.9)
Finance income - 0.1 0.1
Profit before taxation 6.3 4.1 8.9
Taxation (1.9) (1.1) (1.7)
Profit from discontinued operations 4.4 3.0 7.2
Balance sheet
The major classes of assets and liabilities classified as held for sale at 30
June 2017 were as follows:
£million
Assets
Property, plant and equipment 48.8
Goodwill 0.7
Other intangibles 4.7
Deferred tax assets 1.5
Inventories 27.8
Trade and other receivables 46.8
Cash and cash equivalents 11.1
Assets classified as held for sale 141.4
Liabilities
Borrowings 1.6
Derivative financial instruments 0.2
Trade and other payables 42.4
Income taxes payable 1.5
Provisions 1.4
Deferred tax liability 0.1
Other non-current liabilities 4.5
Liabilities directly associated with assets classified as held for sale 51.7
Net assets classified as held for sale 89.7
Cash flows
The net cash flows from discontinued operations included within the Condensed
consolidated cash flow statement are shown below:
£million Six months ended 30 June 2017 Six months ended Year ended
30 June 2016 31 December 2016
(re-presented) (re-presented)
Operating activities 9.0 8.4 20.3
Investing activities (5.1) (4.2) (8.5)
Net cash flow 3.9 4.2 11.8
5. Alternative performance measures
The Condensed consolidated financial statements include alternative
performance measures that are not prepared in accordance with IFRS. These
alternative performance measures have been selected by management 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.
Alternative performance measures are presented in these Condensed consolidated
financial statements as management believe they provide investors with a means
of evaluating performance of the Group on a consistent basis, similar to the
way in which management evaluates performance, that is not otherwise apparent
on an IFRS basis, given that certain non-recurring, infrequent or non-cash
items that management does not believe are indicative of the underlying
operating performance of the Group are included when preparing financial
measures under IFRS.
The Directors consider there to be four main alternative performance measures:
underlying operating profit, free cash flow, underlying EPS (see note 7) and
underlying effective tax rate.
Underlying operating profit
This has been defined as operating profit from continuing operations excluding
the impacts of significant restructuring programmes, significant one-off asset
impairments and business acquisition and divestment related activity. Business
acquisition and divestment related items include the amortisation of
intangible assets recognised on acquisition, 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. Items related to
significant restructuring programmes include the impact of the Operational
Improvement Plan initiated in 2014, other significant changes in footprint
(including movement of production facilities and sale of properties) and
significant costs of management changes.
£million Six months ended 30 June 2017 Six months ended 30 June 2016 Year ended 31 December 2016
(re-presented) (re-presented)
Operating profit Tax Operating profit Tax Operating profit Tax
As reported 6.8 (1.5) 4.8 (1.5) 18.8 (4.8)
Restructuring and other
Operational Improvement Plan (0.4) 0.1 (0.8) - (1.0) 0.2
Other restructuring (0.7) 0.3 (1.1) 0.2 (1.3) 0.6
Property items 0.2 - - - 4.3 (0.7)
Pensions increase exchange past service credit 0.8 (0.2) - - - -
(0.1) 0.2 (1.9) 0.2 2.0 0.1
Acquisition and disposal related costs
Release of divestment provision - - - - 0.9 -
Release of surplus fair value inventory provision - - 0.9 - - -
Amortisation of intangible assets arising on business combinations (1.5) 0.3 (1.8) 0.4 (3.5) 0.7
Other acquisition and disposal related costs (2.5) - (0.7) - (1.2) 0.2
(4.0) 0.3 (1.6) 0.4 (3.8) 0.9
Total items excluded from underlying measure (4.1) 0.5 (3.5) 0.6 (1.8) 1.0
Underlying measure 10.9 (2.0) 8.3 (2.1) 20.6 (5.8)
Restructuring costs charged in the period relate to further costs incurred on
the Operational Improvement Plan initiated in a previous period (£0.4 million)
as well as costs associated with other site restructuring (£0.7 million).
Credits were recognised in respect of a pension past service adjustment under
which members agreed to exchange future pension increases for an additional
amount of initial pension (£0.8 million net of £0.2 million costs) and a
profit arising on the sale of certain properties (£0.2 million)
Acquisition and disposal related costs include amortisation of acquired
intangible assets (£1.5 million) and other costs (£2.5 million) largely
relating to the proposed disposal of the Transportation Sensing and Control
division.
Free cash flow
This has been defined as net cash flow from operating activities less cash
flow from investing activities (excluding acquisitions and disposal proceeds)
less interest paid.
£million Six months ended 30 June 2017 Six months Year
ended ended
30 June 2016 31 December 2016
Net cash flow from operating activities 20.1 5.1 26.6
Net cash flow from investing activities (13.3) (8.8) (9.8)
Acquisition of business 1.2 - -
Interest paid (1.2) (1.2) (3.0)
Free cash flow 6.8 (4.9) 13.8
Underlying earnings per share
This is the profit for the year attributable to the owners of the Company
adjusted to exclude the items not included within underlying operating profit
divided by the weighted average number of shares in issue during the year. See
note 7 for the calculation of underlying earnings per share.
Underlying effective tax charge
This is the tax charge adjusted to exclude items not included within
underlying operating profit.
£million Six months ended 30 June 2017 Six months Year
ended ended
30 June 2016 31 December 2016
Underlying operating profit 10.9 8.3 20.6
Net interest (1.4) (2.4) (4.5)
Underlying profit before tax 9.5 5.9 16.1
Underlying tax 2.0 2.1 5.8
6. Taxation
The half-year tax charge is based on a forecast effective tax rate of 24.2%
(20.6% for continuing operations) on profit excluding restructuring, asset
impairments and acquisition related costs.
The enacted UK corporation tax rate applicable from 1 April 2015 is 20%, from
1 April 2017 is 19% and from
1 April 2020 is 17%.
7. Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to
the owners of the Company by the weighted average number of shares in issue
during the period. The weighted average number of shares in issue is 162.4
million (30 June 2016: 162.1 million, 31 December 2016: 162.2 million).
Underlying earnings per share is based on the underlying profit after interest
and tax.
Pence Six months ended 30 June 2017 Six months ended 30 June 2016 Year ended 31 December 2016
(re-presented) (re-presented)
Basic and diluted earnings per share
Continuing operations 2.4 0.6 5.9
Discontinued operations 2.7 1.8 4.4
Total 5.1 2.4 10.3
The numbers used in calculating underlying earnings per share are shown
below:
£million Six months ended 30 June 2017 Six months ended 30 June 2016 Year ended 31 December 2016
(re-presented) (re-presented)
Continuing operations
Profit for the period attributable to owners of the Company 3.9 0.9 9.5
Restructuring and other 0.1 1.9 (2.0)
Acquisition and disposal related costs 4.0 1.6 3.8
Tax effect of above items (see note 5) (0.5) (0.6) (1.0)
Underlying earnings 7.5 3.8 10.3
Underlying earnings per share (pence) 4.6 2.3 6.4
8. Dividends
2017 2017 2016 2016
pence per share £million pence per share £million
Final dividend for prior year 3.9 6.3 3.8 6.2
Interim dividend for current year - - 1.7 2.7
3.9 6.3 5.5 8.9
The Directors have declared an interim dividend of 1.75 pence per share which
will be paid on 19 October 2017 to shareholders on the register on 6 October
2017. Shares will become ex-dividend on 5 October 2017. The Group has a
progressive dividend policy.
9. Retirement benefit schemes
The Group operates one significant defined benefit scheme in the UK and
overseas defined benefit schemes in the USA. These schemes are closed to new
members and the UK scheme is closed to future accrual.
The amounts recognised in the condensed consolidated balance sheet are:
£million Six months ended 30 June 2017 Six months ended 30 June 2016 Year ended 31 December 2016
Fair value of assets 549.8 525.4 546.2
Present value of funded obligation (552.1) (526.7) (551.9)
Net liability recognised in the balance sheet (2.3) (1.3) (5.7)
Represented by
Schemes in net surplus 0.9 1.9 -
Schemes in net deficit (3.2) (3.2) (5.7)
The costs recognised in the condensed consolidated income statement are:
£million Six months ended 30 June 2017 Six months ended 30 June 2016 Year ended 31 December 2016
Scheme administration costs 0.6 0.5 1.2
Past service credit (non-underlying) 1.0 - -
Net interest cost 0.1 0.3 0.7
Settlements and curtailments - - (0.6)
The triennial valuation of the UK scheme as at April 2016 showed a deficit of
£46.0 million against the Trustee's funding objective compared with £19.1
million at April 2013. The Company has agreed fixed contributions through to
2020 based on the actuarial deficit at April 2016.
These planned contributions amount to £4.7 million (of which £2.3 million had
been paid in the first half of the year), £4.9 million, £5.1 million and £3.9
million to be paid over the next four years. In addition, the Group has set
aside £3.0 million to be utilised in agreement with the Trustee for reducing
the long-term liabilities of the scheme.
10. Reconciliation of net cash flow to movement in net debt
£million Net cash Borrowings and finance leases Net debt
At 1 January 2016 40.3 (96.4) (56.1)
Cash flow 1.5 (12.9) (11.4)
Non-cash items - (1.8) (1.8)
Exchange differences 2.5 (3.9) (1.4)
At 1 July 2016 44.3 (115.0) (70.7)
Cash flow 4.0 12.3 16.3
Exchange differences 1.5 (2.5) (1.0)
At 1 January 2017 49.8 (105.2) (55.4)
Cash flow 10.3 (10.8) (0.5)
Non-cash items - (0.2) (0.2)
Transferred to assets / liabilities held for sale (11.1) 1.6 (9.5)
Exchange differences (0.4) 0.5 0.1
At 30 June 2017 48.6 (114.1) (65.5)
Amounts included in assets / liabilities held for sale 11.1 (1.6) 9.5
At 30 June 2017 59.7 (115.7) (56.0)
Net cash includes overdraft balances of £nil (30 June 2016 and 31 December
2016: £nil).
11. Share capital
During the period the Company issued 124,112 ordinary shares as a result of
share options being exercised under the Sharesave scheme and Share Purchase
plans. The aggregate consideration received was £0.2 million, which was
represented by a £0.2 million increase in share premium.
12. 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 during the six months ended 30 June 2017 that
have affected the financial position or performance of the Group.
13. Principal risks and uncertainties
As described on pages 26 to 27 of the 2016 Annual Report, the Group continues
to be exposed to a number of 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 economic downturn; contractual risks; pricing and margin pressures;
research and development; people and capability; supplier resilience; and
legal and regulatory compliance.
In addition to these risks, the Directors believe that the group now faces
risks relating to the proposed disposal of the Transportation Sensing and
Control division. These risks relate to customary warranties and indemnities
in the sale agreement; occurrence of events or developments due to a delay
between signing and completion; unexpected costs arising due to the complexity
of the separation of the business from the continuing group; and potential
termination fees and other transaction costs.
This information is provided by RNS
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