1. Excluding the effect of restructuring costs, asset impairments and acquisition related costs.

2. All items are shown on a continuing operations basis.

3. Re-presented to exclude acquisition related costs from underlying operating profit.

Financial Headlines

   Revenue broadly unchanged in a challenging year

   Underlying operating profit down 5 per cent including c. 5m benefit from non-recurring trading items.

   Mixed divisional performance:

-  Components: strong operating profit progression driven by improvement in product mix and underlying cost

 base

-  Sensing and Control: poor performance in Transportation sensors partially offset by strong performance in

 Industrial sensors and controls and Transportation controls businesses

-  Integrated Manufacturing Services: weaker than expected customer demand and start up issues from transfer

 of manufacturing to Romania

   Balance sheet remains strong

-  Good second half cash performance

-  14.3m of net debt at the year end

    Final dividend maintained to give overall increase for year of 2 per cent

 

Strategic and Operational Progress

   New CEO and CFO appointed; new senior management team in place

   Operational Improvement Plan re-set, re-structured and making progress

   Comprehensive review of the business completed; strategic direction clear; execution planning underway

   New strategic plan to improve the performance of the business based on:

-   Building market-leading positions;

-   Enhanced customer focus;

-  Targeted and efficient R&D spend;

-  Driving operational efficiency;

-  Lean, agile and learning organisation;

-  Financial discipline and performance management.

Richard Tyson, Chief Executive Officer, said:

The overall operational and financial performance for 2014 was disappointing.  However, the Group has undergone significant change during the second half of the year. We have a new management team in place and a clear strategic plan to improve the performance of the businesses.  2015 will be an important year of transition as this new plan is implemented.

Whilst our order book remains sound, our markets continue to look challenging, especially in Europe.  We therefore remain cautious in our outlook for 2015 and expect profits to be more second-half weighted than in the prior year. The benefits of the new strategic plan are expected to be seen from 2016.   We are putting in place a solid platform from which to return to sustainable profitable growth and to improve value for shareholders.

For further information, please contact:

TT Electronics  

Richard Tyson, Chief Executive Officer

Mark Hoad, Chief Financial Officer                                           Tel: +44 (0)1932 825 300

MHP Communications

Tim Rowntree / John Olsen / Jamie Ricketts                          Tel: +44 (0)20 3128 8100

 

www.ttelectronics.com/en/investor-relations/overview.

 

2014 OVERVIEW

2014 was a year of challenges and significant change on a number of fronts. We have closely re-examined our business and strategy, and reshaped our management teams and organisational structure.

2014 Results

Group revenue from continuing operations was 524.3 million (2013: 532.2 million). On an organic basis, revenue increased by 2 per cent, excluding the effects of foreign exchange (22.6 million) and a 3.7 million contribution from Roxspur Measurement and Control Limited (Roxspur), which was acquired in July 2014. The organic revenue increase was largely related to a one-time order within Sensing and Control. 

Underlying operating profit from continuing operations declined by 5 per cent to 29.2 million (2013: 30.8 million) with the reduction principally related to a 1.7 million negative foreign exchange impact partially offset by the 0.4 million in operating profit from the acquisition of Roxspur. At constant currency, underlying operating profit was broadly unchanged.  The underlying operating profit performance included circa 4 million of profit from the one-off order referred to above and circa 1 million of profit from non-recurring orders related to the Smithfield, USA facility closure.

There was a 0.9 million increase in the net interest expense to 1.6 million (2013: 0.7 million) primarily as a result of a lower net credit from the retranslation of foreign currency borrowings. Underlying profit before tax declined by 8 per cent to 27.6 million (2013: 30.1 million) representing a 3 per cent reduction on a constant currency basis.

The underlying effective tax rate of 25.7 per cent was slightly higher than the prior year (2013: 23.6 per cent) and basic underlying earnings per share decreased by 12 per cent to 12.9 pence (2013: 14.6 pence), and by 5 per cent at constant currency.

The reported loss for the period amounted to 10.5 million (2013: profit 13.0 million) after a charge for items excluded from underlying profit of 33.5 million (2013: 11.8 million). Included within this charge were restructuring costs of 22.2 million (2013: 10.2 million), which related principally to the Operational Improvement Plan, and asset impairments of 9.4 million (2013: nil), which related largely to an accounting write-down of capitalised intangible development costs following a review of expected returns.

There was a free cash outflow in 2014 of 22.5 million (2013: inflow 0.5 million) with a free cash inflow of 12.5 million in the second half of the year compared with a 35.0 million outflow in the first half. Net capital expenditure increased as planned to 28.0 million (2013: 23.9 million) and capitalised development expenditure amounted to 6.8 million (2013: 5.2 million), equivalent in total to 1.6 times underlying depreciation and amortisation. There was a working capital outflow of 16.8 million (2013: 9.4 million) due to significant supplier payments made during the first half of the year.

Total acquisition and disposal expenditure in the year amounted to 8.5 million (2013: 12.5 million) including the acquisition of Roxspur for 8.0 million net of cash in the acquired business. Total dividend payments in the year amounted to 8.7 million (2013: 8.0 million) and we ended the year with a closing net debt position of 14.3 million (2013: net cash 26.9 million).

Dividend

The Board is recommending an unchanged final dividend of 3.8 pence which, when combined with the interim dividend of 1.7 pence, gives a total of 5.5 pence per share for the full year (2013: 5.4 pence per share), representing an increase of 2 per cent. 

Board and Senior Management Changes

We have made a number of changes to the Board and senior management team. Richard Tyson joined from Cobham plc as Chief Executive Officer in July 2014, and Mark Hoad was appointed as Chief Financial Officer in January 2015.  Mark previously held the position of Group Finance Director at BBA Aviation plc.

At a senior management level, we have implemented a number of organisational changes and reformed the leadership team.

Within the Sensing and Control division we have created two distinct customer facing segments to provide greater market focus and accountability. We appointed Amrei Drechsler as Executive Vice President (EVP) Transportation Sensing and Control, Tim Roberts as EVP Industrial Sensing and Control and TC Chan as EVP of the Integrated Manufacturing Services (IMS) division. Our Components division has been re-named Advanced Components and Gareth Mycock has been appointed the EVP of that division.

We have also strengthened other key areas of the business. Michael Robinson has assumed the role of EVP Operations and Supply Chain to drive operational excellence through our global operations and supply chain.  Candy Bowles has been appointed as Group EVP of Corporate Development and Strategy.

Strategic and operational progress

We have conducted a comprehensive review of the business. This review solidified our understanding of the business and confirmed that we enjoy some strong positions in attractive growth markets, that we have loyal customers who respect and value what we do and we have strong, technically robust products that perform well in demanding environments. During the review, we completed a number of immediate actions to simplify and stabilise the business including the strengthening in capability and experience of the senior management as outlined above, and organisational changes designed to improve customer focus and enhance transparency, accountability and pace.

We have identified good opportunities in our Industrial Sensing and Control and Advanced Components businesses based on favourable market dynamics and our current position. 

Transportation Sensing and Control also has good structural growth characteristics and we have had success in a number of areas, however, the performance of our Transportation sensors business has been disappointing. We now have a clear plan to turn the business around operationally, by ensuring our R&D resources are targeted on the right opportunities and that our processes are more effective.

Our IMS business, which focuses on more challenging lower volume, high specification segments, will continue to deliver at a similar level of performance, and we will support the business with appropriate levels of investment. 

The Operational Improvement Plan (OIP), first launched in June 2013, is a large and complex restructuring programme targeted at improving our long-term competitive position whilst also reducing overheads. Relocating certain manufacturing lines from Werne, Germany to Timisoara, Romania is a key aspect of this programme, and progress was delayed during 2014. Agreement on the overall shape of the programme was reached with the workers’ council and trade union in late 2014 and the transfer is now making progress.

The cost of the OIP programme in Europe is anticipated to be approximately 24.0 million with projected full year run rate cost improvements of 3.5 million. We expect to see the first benefits from the programme in the 2016 financial year. This programme is a necessary step to underpin future competitiveness.

Detailed plans under the OIP to move production are in place, and monitored continually, to ensure progress against critical milestones.  The first production line transfer from Werne was completed in January, as planned, and the qualification of that line in Romania is now in progress. An additional ten lines are planned to move in 2015 with the remainder of the lines scheduled to be moved throughout 2016. We expect all elements of the programme to be completed in the first half of 2017.

 

The closure of sales offices in Japan, France and Italy was completed on schedule with the full year benefits of 1.3 million per annum largely realised in the year. As previously announced, the transfer of manufacturing from our Fullerton, California site to Mexicali, Mexico has been put on hold in order to fulfil a significant customer order agreed in the first half of 2014. We continue to anticipate that the transfer will be completed in 2015.

As a result of the business review we have developed a strategic plan. Our focus now is on the execution of this plan and a return to sustainable, profitable growth.  The strategy is one of re-focusing, re-building and generating momentum in the business supported by six main strategic priorities:

    Building market-leading positions in attractive niches by harnessing our expertise in electronics for performance-critical applications;

 

    Enhanced customer focus and more effective cross-selling to make the most of the knowledge of, and access to, markets and customers across our businesses;

 

   Targeted and efficient R&D spend. to drive greater balance across our markets and a more efficient and effective new product development process to meet customer needs;

   Driving operational efficiency through greater collaboration across our businesses to leverage best practice, procurement and economies of scale across our operations — including successful delivery of the OIP;

   Lean, agile and learning organisation supporting the development of and investment in our people’s capabilities, and improving decision making with greater transparency and accountability;

   Financial discipline and performance management to drive rigorous data-rational decision making, focus on value based investment decisions and emphasis on cash generation.

This plan is designed to enhance and refine our existing strategy with three key outcomes; improved customer performance, improved operational performance and improved returns and cash generation.  Our priority will be driving a ‘step change’ in execution, deployment and engagement.

Outlook

The overall operational and financial performance for 2014 was disappointing.  However, the Group has undergone significant change during the second half of the year. We have a new management team in place and a clear strategic plan to improve the performance of the businesses.  2015 will be an important year of transition as this new plan is implemented.

Whilst our order book remains sound, our markets continue to look challenging, especially in Europe.  We therefore remain cautious in our outlook for 2015 and we expect profits to be more second-half weighted than in the prior year. The benefits of the new strategic plan are expected to be seen from 2016.   We are putting in place a solid platform from which to return to sustainable profitable growth and to improve value for shareholders.

 

DIVISIONAL REVIEWS

SENSING AND CONTROL

The division provides sensing and control solutions, including speed, position, temperature, accelerator pedal, pressure, fluid condition and flow sensors, together with microcircuits and intelligent power modules for critical applications which require high levels of expertise, precision and reliability.  The division’s principal manufacturing operations are located in Germany, Austria, Romania, UK, India, China and Mexico and are supported by additional engineering and development teams in the USA and UK. The division now has two customer facing segments, Transportation Sensing and Control and Industrial Sensing and Control.  With a sales presence in all major markets, the division is well positioned to serve our global customer base.