Tag: TTG

TT Electronics plc (LON:TTG), a global provider of engineered electronics for performance critical applications, today announced that Wendy McMillan and Michael (“Mick”) Ord will join the Board as Non-Executive Directors on 16 January 2023.  Both will serve on the Nominations Committee, Wendy on the Audit Committee and Mick on the Remuneration Committee.

Wendy McMillan is Chief Executive of the Safety Sector at Halma plc, and a member of its Executive Committee. Wendy has previously held executive positions at Dyson, BT plc and Bain & Company. She has an MBA from INSEAD and an M.Eng in Engineering, Economics and Management from Oxford University.

Mick Ord is Group Chief Executive of Chemring Group plc. Mick has previously held senior positions at BAE Systems plc, GKN Aerospace and the Royal Navy. He is a Chartered Engineer and holds a B.Eng (Hons) in Aeronautical Systems Engineering from Plymouth University.

Commenting on the announcement, the Company’s Chairman, Warren Tucker, said: “The Board carefully considered its composition and future succession needs and as a result, we are delighted to welcome Wendy and Mick to TT Electronics. I am sure their experience will be invaluable as we execute our organic growth plan and our strategic development.”

The Company confirms that there is no further information to be disclosed under the requirements of Listing Rule 9.6.13R in relation to either of these appointments.

TT Electronics plc (LON:TTG), a global provider of engineered electronics for performance critical applications, has announced that it has completed a buy-in of all its UK defined benefit pension liabilities giving an immediate £6 million cash flow benefit.

The Trustee of the TT Electronics Pension Scheme has 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 dependants.  

The purchase of this insurance policy is the successful culmination of extensive work over the last few years by TT and the Scheme Trustees. The insurance policy has been purchased using existing assets held within the Scheme, without the need for TT to make any additional contributions.

TT Electronics will not be 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 £400 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 will be an immediate benefit to the Group’s current year cash flow of £6 million and an equivalent annual improvement to free cash flow in future years.

The pension benefits that Scheme members will receive in the future are almost entirely unaffected by this transaction.

Mark Hoad, TT Electronics Chief Financial Officer commented:

“This transaction is an excellent outcome for our defined benefit pension scheme members, TT and our shareholders. We have worked hand in hand with the Scheme’s Trustee over the last few years to reach this position. Those efforts, combined with excellent stewardship by the Scheme’s Trustee Directors, has meant that the Scheme can now be fully de-risked for the benefit of members and the Group. 

Importantly, the successful execution of this transaction means there will be a significant increase in TT’s annual free cash flow.”

TT Electronics plc (LON:TTG), a global provider of engineered electronics for performance critical applications, has published the following trading update on the Group’s performance in the four-month period ended 29 October 2022.

Strong demand continues

The continued strength in our focus end markets, together with our customer positioning, is reflected in the Group’s year-to-date organic¹ constant currency revenue growth of 18 per cent. Revenue growth has accelerated in the four months to October as expected, with strong volume growth augmented by pricing and material pass through costs.

Our order intake continues to run ahead of our accelerating revenue growth, with book to bill of 106% in the four months to October. Overall, for the year to date, our book to bill is 127%. The order book remains well above historic levels across the business and provides excellent visibility for 2023.

Execution

Global supply chain constraints persist alongside continued inflation pressure from wages, material costs and energy.  Prices are under continuous review to recover these costs; the ongoing nature of inflation dynamics will mean some lag in recovery.

Balance sheet

The Group remains on track to deliver improved cash generation and a year-end leverage position within our target 1-2x net debt to adjusted EBITDA range.

Outlook

Despite the challenging backdrop, given the strong performance of the Group, we expect to report adjusted profit before tax in line with the Board’s expectations for the full year, with benefits of foreign exchange offsetting the headwinds from increased interest costs.

Richard Tyson, TT Chief Executive Officer commented:

“Momentum across the Group continues to be strong reflecting our successful positioning in structural growth markets. The team is executing well against the ongoing challenging backdrop, and we continue to expect to deliver margin improvement in the second half.

While mindful of the wider macroeconomic backdrop, the continued growth in order book extends our visibility of revenues for 2023.”

Notes:

1.   Organic growth is stated at constant currency and is calculated by comparing current year actual results to prior year results retranslated at current year actual exchange rates.  Organic revenue excludes the impact of acquisitions and disposals.

2.   Analyst consensus expectations for 2022 adjusted profit before tax are in a range of £35.4m to £39.8m.

3.   TT will announce its full year results on 8 March 2023.

TT Electronics plc (LON:TTG), a global provider of engineered electronics for performance critical applications, has published the following trading update on the Group’s performance for the four months to the end of April 2022, ahead of the AGM taking place later today.

Strong Demand Continuing

Trading in the period reflects the ongoing healthy growth trends in TT’s focus end-markets and the strength of our customer relationships. Group revenue was 6 per cent higher than the previous year on a constant currency basis and 5 per cent higher on an organic¹ basis.

Order intake continues to run well ahead of revenue with book to bill for the four months running at 151 per cent.

Good Operational Execution

Overall, the business continues to execute well in the face of COVID disruption and the well-documented supply chain issues. In the period, our Power and Connectivity facility in Dongguan was temporarily closed, but our larger GMS facility in Suzhou, near Shanghai, has remained open.

Our Sensors and Specialist Components and GMS divisions are performing well, whilst the results of our Power and Connectivity division are expected to be second half weighted. Our well-established self-help initiatives and our decisive action on pricing continue to effectively offset current cost inflation.

The integration of the Ferranti acquisition is progressing to plan and the team have already been successful with new business opportunities.

Balance Sheet

Given the high levels of demand and supply chain constraints, we have continued to invest in inventory to support the growth of the business. As a result, our net debt and leverage at the end of June are expected to increase from the year-end position before reducing to more normalised levels by the year end.

Full year expectations unchanged

Whilst macroeconomic conditions remain uncertain, the year has started well, with continued growth in our end markets, and good execution against the well-documented challenges.

Accordingly, TT Electronics management outlook for the year as a whole is unchanged.

Notes:

1.   Organic growth is stated at constant currency and is calculated by comparing current year actual results to prior year results retranslated at current year actual exchange rates.  Organic revenue excludes the impact of acquisitions and disposals.

2.   TT will announce its half year results on 4 August 2022.

3.   Latest company compiled view of market expectations shows a consensus adjusted operating profit of £43.7 million within a range of £41.6 million to £44.8 million for the year ended December 2022.

About TT Electronics

TT Electronics is a global provider of engineered electronics for performance critical applications.

TT solves electronics challenges for a sustainable world. TT benefits from enduring megatrends in structurally high-growth markets including healthcare, aerospace, defence, electrification and automation. TT invests in R&D to create designed-in products where reliability is mission critical. Products designed and manufactured include sensors, power management and connectivity solutions. TT has design and manufacturing facilities in the UK, North America, Sweden and Asia.

TT Electronics plc (LON:TTG) has announced its results for the year ended 31 December 2021.

Financial Highlights  

·    Revenue and adjusted run-rate margin back to pre-COVID-19 levels

o  Full year revenue up 14% year-on-year at constant currency

o  Organic revenue growth of 10%

o  Adjusted operating margin up 90bps to 7.3%, run rate of 8.1% excluding Virolens costs

·    Adjusted operating profit up 31% reflecting benefits of growth and self-help actions

·    Statutory operating profit increased to £19.3m, statutory basic EPS of 7.3p

·    Balance sheet strength maintained while investing to support future growth, margin enhancement and to manage supply chain constraints

·    Record order book into 2022 with increased visibility into H2 (2021 book to bill of 137%), including GMS fully booked

·    Total dividend increase of 19% to 5.6p, reflecting strong performance and positive outlook

Operational Highlights

·    Pricing and operational improvements, including self-help programme, offsetting cost headwinds

·    New commitment to deliver a 50% reduction in Scope 1&2 emissions by end of 2023², Net Zero Scope 1&2 by 2035. 25% tCO₂e reduction over last year

·    Strong levels of employee engagement evidenced by results of our most recent survey³

·    Torotel integrated ahead of plan and pipeline building

·    Margin enhancing Ferranti acquisition in January 2022 expands technical capabilities

Richard Tyson, TT Electronics Chief Executive Officer, commented:

“I’m really pleased with our strong organic growth in 2021, with revenue and adjusted run rate margins back to pre-pandemic levels. Significant increases in profits and EPS reflect the benefits of this growth, combined with our self-help initiatives, the successful integration of Torotel and excellent execution by the team.  Our strategy is delivering, and we continue to invest for our future.

We continue to enhance the quality of our businesses and are making tangible progress towards double-digit adjusted operating margins. We have started 2022 with a record order book, which gives us the confidence and the visibility to achieve our growth plans for the year whilst continuing to manage the ongoing cost and supply chain challenges in partnership with our customers.

As a result, we are confident that TT’s momentum will continue, with the outlook for financial performance in 2022 in line with management expectations, although we are mindful of increased geopolitical uncertainty. With good customer wins, strength in our target markets, and the commercial aerospace recovery still to come, we believe the Group is in a strong position for the future.”

Notes

1.   Throughout this announcement we refer to a number of alternative performance measures which provide additional useful information.  The Directors have adopted these measures to provide additional information on the underlying trends, performance and position of the Group with further details set out on pages 17 to 19.  The adjusted measures used are set out in the ‘Reconciliation of KPIs and non IFRS measures’ section on pages 40 to 48.

2.   Against our 2019 baseline. We have improved the precision of our 2019-2021 Scope 1&2 carbon emissions data by using regional emissions factors rather than an emissions factor for the UK. This has led to a change in the data disclosed in 2019 and 2020.

3.   Best Companies Ltd survey in which we maintained our excellent 2* rating

CHIEF EXECUTIVE OFFICER’S REVIEW

Introduction 

We delivered a strong trading performance in 2021 with very good revenue and profit growth and as expected, a meaningful step forward towards double-digit adjusted margins. The growth in revenue and the strong order intake across all divisions reflect our strong customer relationships, momentum in our pipeline and the positive structural trends evident in our end markets. This performance has been delivered despite further COVID-19 disruption and significant supply chain and cost headwinds, and is thanks to our teams who have worked tirelessly throughout. We are proud and appreciative of their support and engagement.

Alongside a strong trading performance, particularly in our Sensors and Specialist Components and Global Manufacturing Solutions businesses, we have continued to execute our strategy and invest for future growth. During the year we have invested £11.4 million in research and development (R&D), continuing to develop and enhance our pipeline of new products.  

We have also completed, ahead of plan, the integration of the Torotel acquisition. Torotel and Covina, have significantly advanced our power electronics capabilities and market reach in the US and the resulting increase in new customer opportunities is a direct result of our strategic approach to M&A. We now expect to deliver £13-14 million of full run-rate benefits in 2023 from our investment in the self-help programme which contributed £6 million benefits in 2021, in addition to the £2 million delivered in 2020. We are pleased with the progress made so far to deliver this significant programme, which is an important component of our path to double-digit operating margins. 

Environmental, social and governance (ESG) matters are central to our purpose and deeply embedded in our business model and strategy. We have made further excellent progress in 2021 to reduce our Scope 1 and Scope 2 carbon emissions. These have decreased by 25 per cent to 15,740 tonnes CO₂e down from 20,875 tonnes CO₂e in 2020 and down 41 per cent from 26,657 tonnes CO₂e in 2019. This improvement has been achieved due to our energy efficiency actions and further switching to the use of electricity from renewable sources.

We continue to prioritise the protection and safety of our employees, our customers, our suppliers and our wider communities. We have greatly appreciated how our employees have responded to another year of challenges. Their skill, dedication and hard work, which they have constantly demonstrated in uniquely difficult conditions, have resulted in them going above-and-beyond to get things done well and on-time. We were delighted to once again record a very high employee engagement score during the year, which was achieved despite the continuing challenging working environment. We encourage our teams to take an active role in their local communities, whether fundraising and volunteering for chosen charities or committing time and resources to promoting STEM education and careers.

Results and operations

Group revenue for the year at £476.2 million was 14 per cent higher than the prior year at constant currency and 10 per cent higher on an organic^[1] basis. There was a strong improvement in our financial performance with adjusted operating profit up by 31 per cent compared to 2020, reflecting the benefits of growth and our self-help programme.

In common with the broader industry, we have experienced supply chain challenges with extended lead times, component shortages and notable cost inflation. These have been largely mitigated through price increases, although there can be a lag effect. During the year, we adapted software tools and data analytics to enhance visibility of parts availability and sourcing in certain areas, helping to mitigate the impact of cost increases and lead-time extensions for our customers.  We expect these cost headwinds and supply chain challenges to continue through 2022 but are confident of our ability to manage these, in partnership with our customers, and deliver on our growth plans.

There has been exceptionally strong order intake across the Group, reflecting underlying strength in our markets and new customer wins, as well as customers committing earlier to secure capacity.  Order intake for 2021 was 137 per cent of revenue. The order book at the end of February 2022 is at record levels.

Adjusted operating profit was £34.8 million, 31 per cent higher than the prior year at constant currency.  The adjusted operating margin was 7.3 per cent and, excluding the start-up costs related to Virolens, the adjusted run rate margin was 8.1 per cent. After the impact of adjusting items, including restructuring and acquisition and disposal costs, the Group’s full year statutory operating profit was £19.3 million.

During the year we invested in our self-help programme to support margin improvement, and in inventory to support our high levels of growth, our increased customer order book and supply chain constraints on certain component parts. Cash conversion of 65 per cent (2020: 130 per cent) reflected this investment and included a working capital outflow totalling £14.7 million. This investment was partially offset by realising £9.1 million of proceeds from property disposals.  On a statutory basis, cash flow from operating activity was £14.3 million (2020: £28.2 million). There was a free cash outflow of £1.3 million (2020: £14.4 million inflow). Dividend payments totalled £11.4 million (2020: £ nil).

We ended the year with net debt of £102.5 million (2020: £83.9 million), including IFRS 16 lease liabilities of £22.6 million (2020: £15.9 million).  We have a strong balance sheet, and this includes a defined benefit pension scheme fully funded on an actuarial and self-sufficiency basis.  At 31 December 2021 leverage was 1.7 times (2020: 1.6 times), within the Board’s target leverage range of 1-2 times.

Our return on invested capital improved to 9.1 per cent in 2021, increasing by 140 basis points due to the growth in adjusted operating profit.

Dividend

Given our strong trading performance in 2021 and the positive outlook for 2022 and beyond, the Board is proposing a final dividend of 3.8 pence per share. The total cash cost of this dividend will be approximately £6.7 million. This, when combined with the interim dividend of 1.8 pence per share gives an increased total dividend of 5.6 pence (2020: 4.7 pence per share).  Payment of the dividend will be made on 20 May 2022, to shareholders on the register at 29 April 2022.

Our strategy

We solve technology challenges for a sustainable world, creating solutions that enable our customers to make products that are cleaner, smarter and healthier and that will benefit our planet and people for future generations. We create value through supplying products and services that meet our customers’ sustainability ambitions in our target markets of healthcare, aerospace & defence and automation & electrification. 

We have transformed the Group over the past seven years, aligning our business to structurally growing, higher added value markets with long-term customer partnerships and substantially reducing our exposure to lower-growth, cyclical areas.  Our strategy is designed to leverage our assets to unlock TT’s potential, delivering our deeply embedded capabilities and differentiators to our customers. This is enabled by strong capital discipline, a focus on cash generation and careful use of the balance sheet to facilitate continued investment.  

Our markets

Healthcare (25 per cent of Group revenue)

In healthcare we provide design and manufacturing solutions for a range of diagnostic, surgical and direct patient care devices critical to the identification, treatment and prevention of disease. Growth is driven by a combination of ageing populations, growing patient expectations and innovative solutions. We have steadily increased our exposure to this attractive end market from 13 per cent of Group revenue in 2015. Our focus areas include life sciences and laboratory equipment, surgical devices, medical implants, and diagnostics and imaging equipment. By supporting our life sciences partners, we are collectively improving laboratory automation systems and enabling samples to be collected and analysed with minimal human intervention, the benefits of which are improved data reliability and accuracy, minimised wastage, and time-efficient procedures. Through developing smaller, lighter, more precise surgical devices, we are enabling reduced size of incisions, shortened recovery times, and improved overall patient outcomes. In addition, by improving the portability and ease of use of diagnostics, we are increasing the availability of medical imaging to point-of-care facilities. This promotes earlier detection and better monitoring, hence supporting measures taken to address the rising prevalence of cancer, cardiac, neurological, and musculoskeletal disorders.

COVID-19 has accelerated trends in the digital transformation and the automation/robotics of healthcare which can be served by TT specialisms including interventional healthcare devices, patient monitoring and laboratory equipment.

Pent-up demand, post the pandemic, for deferred elective surgery and for large installations for hospital or life science applications are expected to be supportive of market growth over the next few years. 

Aerospace and Defence (18 per cent of Group revenue)

In aerospace and defence we provide solutions for high-reliability applications across a broad range of platforms operating on land, air and sea. Growth is driven by increasing electrification of these platforms, which supports fuel efficiency and safety. Commercial aerospace demand has been stable in 2021 against levels experienced since Q2 2020, with continued lower passenger-driven demand due to COVID-19.  We anticipate a gradual recovery in aircraft production over several years, as long-term growth resumes. Fundamentally, the need for more efficient, safer, and environmentally friendly aircraft remains. This drives demand for increasingly advanced electronic systems and applications, complemented by demand from a growing, globalised middle-class population who exhibit greater propensity to travel.  

In defence, our central focus is on collaborating with our customers to reduce size, weight, power, and cost (SWaP-C), while simultaneously enhancing command, control, communications, computing, intelligence, surveillance, and reconnaissance (C4ISR) capabilities. We have been successful recently in providing more integrated, design-led solutions, demonstrating our ability to deliver SWaP-C improvements. A recent example is the delivery of a significant increase in the power density of DC-DC converters for a major defence prime. We expect this to drive favourable shifts in product mix moving forward.

Automation and Electrification (39 per cent of Group revenue)

In automation and electrification markets, we are continuing to invest in developing capabilities which exemplify our low-volume, high-mix approach to address the needs of sophisticated automation and connectivity applications. Customers rely on us to help solve their toughest automation and electrification challenges, increasing their efficiency and helping them bring smart, new products to the market. Growth is being driven by factors including demand for sustainable solutions to improve energy efficiency, the use of robotics to improve productivity and the increasing use of remote asset tracking.  Within electrification, our priority is in developing capabilities which will support increasing energy efficiency and connectivity. Core focus areas include complex systems integrations and AC and DC power conversion technologies. We are increasingly able to develop complete, high-value products and durable components featuring higher voltages. The positive long-term growth drivers in this market give us confidence that demand will increase for our power, sensing and connectivity solutions.

Creating value through technology investment

We prioritise organic investment in the business to maintain and drive differentiation in our markets and our offering to our customers. R&D is a key component of this, given its critical contribution to the ongoing health of the business, enabling us to stay ahead of customers’ needs and meet the challenges they set us. Our investment in R&D is focused on bringing higher growth, more sustainable products to market. These typically yield higher returns and development is often undertaken in partnership with our customers. Our investment strategy includes leveraging acquired complementary capabilities targeted through mergers and acquisitions (M&A). 

Our R&D cash investment in the year was £11.4 million (2020: £11.2 million), representing 4.5 per cent (2020: 4.8 percent) of the aggregate revenue of our product businesses.

We continue to bring a pipeline of exciting new products to market, including in areas where we have extended our technical capabilities through acquisition. Examples include:

·    Our Power and Connectivity business has been working on an Aerospace Technology Institute (ATI) funded project developing high power DC/DC power conversion for increased electrification of military aerospace, commercial aerospace and hybrid electric and fully electric aircraft.

·    We have also been investing in the surgical navigation and robotics market. This segment is experiencing sustained double-digit growth and is driven by several emerging clinical applications that provide the physician with exceptionally accurate catheter placement, often eliminating the need for harmful radiation. The miniaturised and highly accurate characteristics of our technologies enable access to parts of the anatomy that in the past were difficult to navigate including the lung, brain and heart. Additionally, new applications for improved navigation needs have emerged to diagnose breast cancer. 

·    We are currently investing in a combination of AC/DC and DC/DC power conversion technologies in direct response to demand from aerospace and defence customers, as well as ruggedised wire harness and magnetic capabilities. These investments build upon our existing capabilities and give us a wider platform to support major aerospace and defence customers, many of whom are requiring power solutions that feature higher voltages and/or efficiency improvements from legacy designs.

·    In the first half of 2021 the Virolens COVID-19 screening device achieved its first important regulatory milestone, gaining registration with the MHRA in Great Britain.

Creating value through margin enhancement

The pursuit of higher margins through our self-help programme and organic and inorganic growth remains core to the Group’s strategy. We have made tangible progress to delivering double-digit adjusted operating margins with further improvement expected in 2022 and beyond. The actions we have taken this year bring the business closer to realising this, with key contributions from:

·    Operational leverage from organic revenue growth;

·    Improved efficiencies and reductions in overheads through our self-help programme; and

·    Inorganic expansion developing technology offerings and market positions.

Our significant self-help programme, designed to reduce our footprint and fixed cost base, is nearing completion. The decision to relocate our Covina business to the Torotel site in Kansas will extend the programme timeline slightly, but also increase the benefits, some of which we will re-invest in R&D to further grow the business. The programme delivered £6 million of benefits in 2021, in addition to the £2 million delivered in 2020. With the addition of the Covina transfer to the programme, the previously guided full run-rate benefits of £11-12 million in 2023 are now expected to increase to £13-14 million in 2023.

The programme comprises a number of different activities. In 2021 we closed sites in Barbados, Carrollton and Corpus Christi, Texas transferring the activities from those sites to Bedlington, UK and Mexicali, Mexico and Plano, Texas. We have also made good progress in transferring manufacturing from Lutterworth, UK to Bedlington, UK. In June, we completed the sale of the freehold property of the Covina business as an extension of our self-help programme and agreed to lease the site back for a period of 12 months while we prepared for relocation. We have recently made the decision to integrate the Covina business into the Torotel site in Kansas City which will deliver a further £2 million of benefits. In addition, we have taken certain products end-of-life in 2021, as well as relocating the manufacture of other products within our existing footprint. This has enabled us to serve customers better, as well as achieve an improved level of profitability. 

The total cash spend for the self-help programme is now expected to be £18.8 million. £10.2 million was spent in 2021, comprising restructuring cash spend of £2.3 million (net of £9.1 million after costs from property disposals) and project capital expenditure of £7.9 million (2020 spend: £3.8 million, including £1.5 of restructuring cash spend and £2.3 million of capital expenditure).  

Our acquisitions contribute to higher Group margins. The acquisitions completed in 2020, Torotel, Inc and Covina, have operating margins above the TT Group average and we have reconfirmed our expectations for cost synergies. Furthermore, our recent acquisition of the Ferranti Power and Control business is expected to contribute mid-teens margins over time.

Creating value from mergers & acquisitions

M&A is an important part of our growth strategy as we look to add higher margin businesses which build scale and enhance our technology capabilities and market access, consolidating fragmented but valuable niche areas.

We create value by realising revenue synergies, including leveraging customer access, and by optimising operations and the supply chain. We invest in attractive, growing and higher margin segments that the Group knows well, and where we have competitive advantage.

The recent Ferranti Power and Control acquisition highlights this as we gained access to an IP-rich business with skilled employees and positions on long-term defence platforms.

The two power electronics businesses acquired in 2020, Covina, the California-based power supply business of Excelitas Technologies Corp. (completed January 2020) and Torotel, Inc (completed November 2020), based in Kansas have been very successful. Following the positive impact of Covina, the integration of Torotel’s systems and processes into TT’s Power and Connectivity division was completed ahead of schedule.  We utilised our well-defined business integration model, which integrates major business processes including operations, procurement, finance, legal, IT and human resources.  This was completed against a backdrop of COVID-related travel restrictions and other constraints.  We are proud of the team and our new Torotel colleagues for undertaking this complex task so quickly and in challenging conditions.

We are very pleased with the performance and potential of Torotel.  The acquisition has increased our scale and capabilities in the very large and attractive US defence market, and it has enhanced our US power electronics presence. We are realising the benefits from integrating the products across the Group and the cross-selling opportunities that are being generated with new tier one OEMs. Torotel is also benefiting from our investment and is able to partner more closely with clients and expand its product offering.

We have secured a number of new contract wins including an order for complex cable assemblies with a major US defence supplier that commenced in 2021 and a win in the radar electronics space that will start deliveries in 2022.

Our attention is now focused on creating value from improving operational performance, delivering further benefits from integrating the Covina business into the Torotel site and integrating Ferranti and the Torotel customer proposition more closely with our other businesses. This will focus on increased customer cross-selling, the integration of products from across the Group to provide higher-value customer offerings and leveraging our business development capabilities.

We are continuing to look for opportunities to extend TT’s technology capabilities and market reach and currently see a good pipeline.

Environmental, social and governance (ESG)

Not only do we develop, design, engineer and manufacture products that enable reduced environmental impacts for our customers, but we are also optimising our own operations to reduce our impact on the environment.  We seek to have a wider positive impact on society by understanding and prioritising employee needs, doing business responsibly and reaching out to our local communities. Our products address resource scarcity, improve energy efficiency, support renewables and drive productivity, connectivity and health. We are positioned to benefit from megatrends that are driving sustainable growth.

We remain at the forefront of delivering technologies that meet the ever-increasing demand for cleaner energy, smart monitoring systems and home automation. Our products can be found in a range of applications including:

·    Renewable energy generation and smart grid metering

·    Power management and energy control systems

·    Water and wastewater measurement and monitoring

We have set ourselves a target to be Net Zero by 2035 for our Scope 1 & 2 emissions and we are undertaking a range of actions to deliver like-for-like reductions in our annual emissions, in accordance with our carbon reduction roadmap developed during the year. In the near term, we are making a new commitment to deliver a 50 per cent reduction in Scope 1 & 2 carbon emissions by the end of 2022, against our 2019 baseline, and a 55 per cent reduction by the end of 2023.

In 2021 we have reduced our Scope 1 & 2 carbon emissions by 25 per cent over 2020 levels, which themselves were 22 per cent lower than our baseline set in 2019.  Our intensity ratio, which measures our Scope 1 & 2 emissions against our revenue has reduced to 33.0, down from 48.3 in 2020 and 55.7 in 2019.  During 2021, five additional sites in the US transitioned to renewable energy contracts. As we look forward, further reductions in our carbon emissions will require other measures such as infrastructure and process projects to reduce electricity consumption and investment in solar power or a change in the approach of local Governments to provide renewables in Mexico, China and Malaysia. In 2022 we will undertake feasibility studies for possible solar projects.

For our Scope 3 emissions we have been assessing areas of materiality for the Group to better understand our emissions. Our top four most significant, and measurable categories are transportation (upstream and downstream), purchased goods and services, and waste, the last of which we are already measuring at certain locations. In 2021 we have made progress in improving the robustness of our reporting on the waste we send to landfill at site level.

TT has recently established a corporate partnership with the Carbon Disclosure Project (CDP) Supply Chain Management team to help measure our supply chain emissions. The data gathered will allow us to create a database, develop data gathering and measurement tools, assess the relevance and magnitude of each category, and put robust plans in place to reduce emissions. We will report on these plans once established.

In addition, we are focusing on reducing single-use plastics within the business; we have 10 sites that currently monitor this. We are in the process of verifying the data captured and will make a commitment to reducing this once we have established a baseline. Our continuing progress on ESG matters has been recognised externally, having received a rating of ‘AA’ in the latest MSCI ESG Ratings assessment and we have a ‘C’ rating from CDP.

ESG matters including culture, strategy, regulatory compliance, risk and internal controls are governed as part of our overall governance and risk management frameworks, ultimately overseen by senior management and the Board. An update on key health, safety and environmental (including sustainability) metrics is provided at each Board meeting and in-depth reviews are undertaken on at least an annual basis. 

Our teams are passionate about finding solutions to the world’s toughest technology challenges and delivering for customers. We champion knowledge, skills, innovation, problem solving and service in four key areas: power, connectivity, sensing and manufacturing &engineering. We set out to attract, promote and retain the best, diverse, talented people and we are focused on developing expertise at all levels of the organisation.

Outlook

We continue to enhance the quality of our businesses and are making tangible progress towards double-digit adjusted operating margins. We have started 2022 with a record order book, which gives us the confidence and the visibility to achieve our growth plans for the year whilst continuing to manage the ongoing cost and supply chain challenges in partnership with our customers.

As a result we are confident that TT’s momentum will continue, with the outlook for financial performance in 2022 in line with management expectations, although we are mindful of increased geopolitical uncertainty. With good customer wins, strength in our target markets, and the commercial aerospace recovery still to come, we believe the Group is in a strong position for the future.

FINANCIAL OVERVIEW

Group revenue was £476.2 million (2020: £431.8 million). This included a £15.2 million contribution from acquisitions and adverse currency translation of £12.7 million.  Group revenue was 14 per cent higher than the prior year at constant currency and 10 per cent higher on an organic basis.  Sales volumes in key markets, with the notable exception of commercial aerospace, have rebounded and the strength of our order book, at an all-time high, and pipeline of new business opportunities gives us confidence that this momentum will continue.

The Group’s adjusted operating profit was £34.8 million (2020: £27.5 million) and statutory operating profit was £19.3m (2020: £6.6m) after a charge for items excluded from adjusted operating profit of £15.5 million (2020: £20.9 million) including:  

·    Restructuring costs of £7.8 million (2020: £14.5 million) comprising £5.9 million relating to the restructure of the North America Resistors business, £1.5 million relating to the closure of our Lutterworth site, and £2.4 million relating to the other elements of our self-help programme. These costs were partially offset by a gain of £1.7 million from the disposal of freehold properties at Covina, and Corpus Christi (2020: £1.2 million property gain). In addition to this, there was a net gain of £0.3m relating to pension projects.

·    Acquisition and disposal costs totalled £7.7 million (2020: £6.4 million) comprising £2.6 million (2020: £3.2 million) of integration and acquisition costs relating primarily to the Torotel integration and the Ferranti acquisition, which completed early in 2022. Amortisation of intangible assets arising on business combinations was £5.1 million (2020: £4.2 million). In 2020 there was a £1.0 million credit due to the release of the warranty and claims provision relating to the Transportation business.

The adjusted operating margin of 7.3 per cent (2020: 6.4 per cent) includes the start-up costs to establish the Virolens product line. Excluding these costs, the adjusted run-rate operating margin was 8.1 per cent. This improvement reflects operational leverage on our sales growth and the benefits of our self-help programme and was delivered despite increases in input costs linked to supply chain constraints, which we are in the process of recovering through price increases.

The net finance cost was £3.3 million (2020: £3.7 million).  The Group’s overall tax charge was £3.2 million (2020: £1.6 million), including a £3.0 million credit (2020: £2.7 million credit) on items excluded from adjusted profit.  The adjusted tax charge was £6.2 million (2020: £4.3 million), resulting in an effective adjusted tax rate of 19.6 per cent (2020: 18.1 per cent). 

Basic earnings per share (EPS) was 7.3 pence (2020: 0.8 pence) reflecting the increase in operating profit and the reduction in adjusting items set out above.  Adjusted EPS increased to 14.5 pence (2020: 11.7 pence), reflecting the improved adjusted operating profit in the period.

The total net accounting surplus under the Group’s defined benefit pension schemes was £74.5 million ( 2020: £30.5 million). The main driver of this was a rise in corporate bond yields reducing the Scheme’s benefit obligation and an increase in the fair value of assets due to investment performance. The surplus also increased due to company contributions paid of £5.5 million, as the contribution plan continued as we work towards the buy-out of the UK scheme over time.

Adjusted operating cash inflow was £39.5 million (2020: £49.0 million inflow).  Improved profitability was more than offset by a working capital outflow of £14.7 million (2020: £3.6 million inflow), including a £42.6 million investment in inventory to support the strong order book and to deal with supply chain constraints. Capital and development expenditure increased to £16.8 million (2020: £13.2 million) reflecting investment to support growth and as part of the self-help programme. This resulted in adjusted operating cash conversion of 65 per cent (2020: 130 per cent). On a statutory basis, cash flow from operating activity was £14.3 million (2020: £28.2 million).

There was a free cash outflow of £1.3 million (2020: inflow £14.4 million), net of £5.9 million of restructuring and acquisition related costs (2020: £8.1 million), relating to the self-help programme and acquisition costs associated with the Covina and Torotel acquisitions.  Cash restructuring costs were net of £9.1 million of property disposal proceeds. Pension contribution payments in the year totalled £5.5 million (2020: £5.4 million).

Investments in acquisitions totalled £0.5 million (2020: £48.7 million) relating to deferred consideration on a prior year acquisition. The spend in 2020 reflected the acquisition of Covina, the acquisition of Torotel, Inc, including £3.0 million of debt acquired with Torotel, Inc and £3.8 million of debt like items, as well as £0.5 million of deferred consideration relating to a prior year acquisition.  In 2020 there was £20.2 million of equity issuance, which primarily related to the Torotel acquisition placing. Dividend payments totalled £11.4 million (2020: £ nil).

At 31 December 2021 the Group’s net debt was £102.5 million (31 December 2020: £83.9 million), including £22.6 million of lease liabilities (31 December 2020: £15.9 million).  Leverage at 31 December 2021, consistent with the bank covenants, was 1.7 times (31 December 2020: 1.6 times).

DIVISIONAL REVIEW

POWER AND CONNECTIVITY

The Power and Connectivity division develops and manufactures power application products and connectivity devices which enable the capture and wireless transfer of data.  We collaborate with our customers to develop innovative solutions to optimise their electronic systems.

	2021	2020	Change	Change constant fx
Revenue	£140.2m	£125.1m	12%	15%
Adjusted operating profit1	£7.8m	£10.3m	(24)%	(21)%
Adjusted operating profit margin1	5.6%	8.2%	(260)bps	(250)bps

¹ See note 1 on page 3 for an explanation of alternative performance measures.  Adjusting items are not allocated to divisions for reporting purposes.  For further discussion of these items please refer to the section titled ‘Reconciliation of KPIs and non IFRS measures’ on page 40 of this document.

Revenue increased by £15.1 million to £140.2 million (2020: £125.1 million).  There was a £15.2 million revenue contribution from Torotel which we acquired in November 2020 and there was an adverse currency effect of £3.4 million.  Organic revenue was 3 per cent higher with growth in defence, healthcare and automation & electrification whilst aerospace volumes declined, particularly in Q1 2021, against Q1 2020 which was not impacted by COVID-19.  

Adjusted operating profit reduced by £2.5 million to £7.8 million (2020: £10.3 million).  Included within this was a profit contribution of £1.5 million from the Torotel acquisition.  The adjusted operating margin was 5.6 per cent (2020: 8.2 per cent) which was impacted in part by a lag in the recovery of higher material and freight costs, given the longer cycle nature of the division.  Run rate divisional margins were 8.3 per cent excluding the start-up costs incurred in relation to the Virolens project.

Operational excellence initiatives included the closure of the division’s Lutterworth, UK site, and manufacturing has been transferred to Bedlington, UK. The closure consolidates the division’s operations further within its existing operational footprint. We also initiated the footprint rationalisation at Covina, with the business being consolidated into the Torotel site at Kansas City, as one power business. The full benefits of these actions will be realised in 2023 and will support additional investment in R&D.

The Virolens production line was completed during the year and the product received its first regulatory approval from the MHRA in Great Britain. While we understand dialogue continues with other regulators there have been no further approvals.

There have been some notable contract awards during the year, including:

·    Our engineering team in Minneapolis, Minnesota collaborated with Radwave Technologies, an innovative surgical navigation tracking technology company to develop smaller, more accurate sensor coils which support new procedures in structural heart and orthopaedic healthcare. This example is evidence of the success of our cross-selling efforts as our GMS business will also provide complete system manufacturing under an exclusive five-year contract. We also reached an agreement to become Radwave’s exclusive provider of navigation sensors and early in 2022 further extended our partnership to the manufacturing of control unit and field generating antenna.

·    In aerospace and defence, a cross selling opportunity that TT brought to the Torotel business generated over $2 million (over £1.5 million) in orders in 2021 for complex, ruggedised wire harness assemblies. We won through partnering with a major customer and investing in the capabilities needed to succeed in this market. We are now positioned to partner with other aerospace and defence customers to provide this product.  With a second aerospace and defence prime, TT used its supply chain expertise to significantly reduce lead times and was the only supplier positioned to secure critical materials and meet programme requirements.  

·    In October, we were awarded a contract with a major defence prime, RBSL, for the main UK army vehicle programme for the next 10-20 years. We will provide complex high reliability power electronics assemblies to the Boxer vehicles. The multi-year contract worth over £5 million is centred around the development of two types of primary power assemblies and secures us a spot within the mechanised infantry vehicle supply chain. We will lead the design, production and delivery of the battery control units enabling increased efficiency of the vehicle power management system as well as the command display units providing signalling and communications functionality on every Boxer vehicle.

In January 2022 we were delighted to complete the £9 million acquisition of Ferranti Power and Control (P&C), based in Greater Manchester, which designs and manufactures mission-critical complex power and control sub-assemblies for blue chip customers in high-reliability and high-performance end markets, primarily aerospace and defence. One of the principal benefits of the acquisition is that it brings highly skilled employees who provide full-service capabilities from design, assembly, manufacturing, and testing including environmental stress screening and inspection through to service.

Ferranti P&C adds further technology capability, IP and scale to our Power business with valuable long-term customer relationships and programmes with leading global aerospace, defence and industrial OEMs operating in highly regulated markets with significant barriers to entry through necessary industry accreditations and customer approvals.

The acquisition is expected to be modestly earnings enhancing, to generate mid-teens operating margins and to generate a return on invested capital in excess of the Group’s WACC in year one. We expect to generate cost synergies of circa £0.4 million by year three.

GLOBAL MANUFACTURING SOLUTIONS

The Global Manufacturing Solutions division provides manufacturing services and engineering solutions for our product divisions and to customers that often require a lower volume and higher mix of different products.  We manufacture complex integrated product assemblies for our customers and provide engineering services including designing testing solutions and value engineering.

	2021	2020	Change	Change         constant fx
Revenue	£220.1m	£197.5m	11%	14%
Adjusted operating profit1	£18.3m	£15.0m	22%	24%
Adjusted operating profit margin1	8.3%	7.6%	70bps	60bps

¹ See note 1 on page 3 for an explanation of alternative performance measures.  Adjusting items are not allocated to divisions for reporting purposes.  For further discussion of these items please refer to the section titled ‘Reconciliation of KPIs and non IFRS measures’ on page 40 of this document

Revenue increased by £22.6 million to £220.1 million (2020: £197.5 million) including an adverse currency effect of £4.1 million, with organic revenue 14 per cent higher.  The organic revenue performance reflects good growth from our existing customer base and a particularly strong performance in the Asia region, particularly from our healthcare and automation & electrification end markets. 

This division has performed incredibly well in 2021, reflecting our robust platform and targeted move towards customers who value our partnership and who are winners in their own growth markets. Work on positioning this business as a partner to our customers to win long-term incremental business is reflected in our order book growth. The addition of GMS capability to the Kuantan site in Malaysia, back in 2020, has added value through the expansion of our high-level assembly capabilities to a variety of key customers. The order book is such that the division is fully booked for 2022.

Adjusted operating profit increased by £3.3 million to £18.3 million (2020: £15.0 million). The increase reflects operational leverage on the organic growth delivered and benefits from our self-help programme, including factory efficiencies. The adjusted operating profit margin improved to 8.3 per cent (2020: 7.6 per cent).

During the year, in the face of increasing supply chain headwinds, we adapted software tools and data analytics to enhance visibility of parts availability and sourcing helping to mitigate the impact of cost increases and lead time extensions for our customers. Despite this intense focus, inventory levels at the year-end were impacted by increasing lead times on critical component parts.

There have been a number of significant new customer awards during 2021 which will impact future years, as follows:

·    GMS won a contract with a world-leading life sciences customer for machines used in spectrometry elemental isotope analysis to understand the chemistry and composition of materials in healthcare and life sciences. We won the contract from an underperforming competitor based on our service and product quality. Demand from this customer continues to be driven by post pandemic growth in healthcare and life sciences technology markets

·    We won a contract with a new customer, Azenta Life Sciences, based on our reputation with another medical prime. We are engaging on multiple services including value add and vertical integration. Azenta was looking for a manufacturing partner in Asia where a substantial amount of its life sciences revenue is realised, which could help mitigate global supply chain risks.

·    A contract has been awarded with a long-standing customer to create a complete end-to-end supply chain solution for a next generation silicon carbon (SiC) inverter, a key component used in high performance electric vehicles. TT collaborated with this customer through the early design phase of the project and has been appointed the exclusive manufacturing partner for the SiC inverter.

·    A new project with a renewable energy provider to provide solutions for voltage converters in offshore substations. This continues a ten-year collaboration to provide manufacturing solutions for multiple renewable energy projects.

·    We are providing complex high-level assembly solutions for a customer’s innovative micro-turbine generator technology that powers some of the largest mobile networks and TowerCos worldwide. TT is supporting this customer to provide cleaner, energy solutions that are transforming the off-grid telecoms power sector, providing clean, affordable and reliable power.

SENSORS AND SPECIALIST COMPONENTS

The Sensors and Specialist Components division works with customers to develop high-specification standard and customised solutions, including sensors and power management devices.  Our solutions improve the precision, speed and reliability of critical aspects of our customers’ applications.

	2021	2020	Change	Change constant fx
Revenue	£115.9m	£109.2m	6%	11%
Adjusted operating profit1	£16.4m	£9.4m	74%	82%
Adjusted operating profit margin1	14.2%	8.6%	560bps	550bps

¹ See note 1 on page 3 for an explanation of alternative performance measures.  Adjusting items are not allocated to divisions for reporting purposes.  For further discussion of these items please refer to the section titled ‘Reconciliation of KPIs and non IFRS measures’ on page 40 of this document.

Revenue increased by £6.7 million to £115.9 million (2020: £109.2 million) net of an adverse currency effect of £5.2 million.  Organic revenue was 11 per cent higher, with the division’s exposure to the automation & electrification market the driver of increased demand. This business is in the sweet spot of enabling our customers to reach their sustainability goals with components for smart energy & city infrastructure and factory automation.

Despite usually having limited visibility, the order book in this division has increased significantly reflecting strong underlying demand but also in part, customers committing orders further ahead to protect their supply chains and responding to lead time extensions.

Adjusted operating profit increased by £7.0 million to £16.4 million (2020: £9.4 million).  Operating profit reflects the benefits of our self-help programme, some of which was achieved ahead of schedule, and the strong operational leverage on our revenue growth.  We benefited from our agility in adapting our pricing strategies including timely price increases to offset ongoing material and freight cost increases. The adjusted operating profit margin was up 560 bps to 14.2 per cent (2020: 8.6 per cent). 

As part of the Group’s ongoing self-help programme, the closures of the sites in Barbados, Carrollton and Corpus Christi, Texas were completed in the year and we moved to our new facility in Plano, Texas. We have invested in capacity and improved yields which are enabling volumes to be produced at higher rates and are focused on improving our customer experience.

There were a number of favourable developments during the year which will benefit the business, including:

·    We won a contract for defibrillator resistors which involved a collaboration between our engineers in the UK with our sales capabilities in Asia. The win includes production as well as test equipment charges

·    We recently launched a revolutionary optical sensory array FlexSense^TM designed to optimise optical encoder applications for evolving automation and healthcare markets. This product meets customer requirements for customised, high-end optical encoder sensors which can be configured for higher resolution, faster response and smaller footprint. It also enables acceleration of time-to-market and manufacturing throughput for our customers

·    TT Electronics have a proven track record for providing quality resistors for a technology and innovation customer. This customer awarded a contract for current sense and fusible resistors to ensure the safety of its battery pack for its industry leading, high-reliability and high specification products.

TT Electronics plc (LON:TTG), a global provider of engineered electronics for performance critical applications, has acquired the Power and Control business of Ferranti Technologies Ltd, from Elbit System UK Ltd for £9.0 million in cash, subject to customary post-completion working capital adjustments.

Highlights of the Acquisition

Ferranti P&C, based in 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. One of the principal benefits of the acquisition is that it brings highly skilled employees who provide full-service capabilities from design, assembly, manufacturing, and testing including environmental stress screening and inspection through to service.

Ferranti P&C adds further technology capability, IP and scale to TT’s Power Solutions business, which is one of our focus areas for structural growth. It has valuable long-term customer relationships and programmes with leading global aerospace, defence and industrial OEMs operating in highly regulated markets with significant barriers to entry through necessary industry accreditations and customer approvals.

The acquisition is expected to be modestly earnings enhancing, to generate mid-teens operating margins and to generate a return on invested capital in excess of the Group’s WACC in year 1. We expect to generate cost synergies of circa £0.4 million by year 3.

Current Trading

TT confirms that trading for the full year was in line with the update provided on 23 November 2021.

Commenting on the acquisition, Richard Tyson, TT Electronics Chief Executive Officer said:

“We are pleased to announce the acquisition of Ferranti’s Power and Control business which is in line with our strategy for growth at higher margins and moving up the value chain in our target end markets in A&D. This highly attractive platform adds scale and technology capabilities to our Power Solutions business in Europe. We expect to achieve our financial return hurdle rate in the first full year.

I am delighted to welcome Ferranti Power and Control’s highly skilled team to TT as we continue to build differentiated capabilities and engineer smarter solutions for our customers.”

TT Electronics plc (LON:TTG), a global provider of engineered electronics for performance critical applications, has published the following trading update on the Group’s performance in the four-month period ended 30 October 2021.

Strong Demand

The strength in the Group’s performance has continued with year-to-date organic¹ revenue growth of 10 per cent, as expected. Revenue in the four months to October is 11 per cent higher than the previous year on a constant currency basis and 8 per cent higher on an organic basis.

Our order intake continues to run well ahead of strongly growing revenue with book to bill of 140% and we have delivered additional contract wins in the period. As a result, the Group’s order book is at record levels and provides excellent visibility into 2022, underpinning our growth expectations.

Second Half Cost Pressures & Progress on Self-Help

Global supply chain constraints have continued in the second half and in some areas have tightened, principally impacting Power and Connectivity. The increased material and freight costs are being broadly offset by efficiencies and price management and supported by the self-help programme which continues to progress well and we remain on track to deliver the anticipated run-rate benefits of £11-12m in 2023.

Virolens

Positive dialogue continues with regulators in a number of jurisdictions. The product line is established to meet potential demand but as yet no further orders have been received.

Balance sheet

The ongoing strength of demand and supply chain constraints mean that we continue to hold higher levels of inventory. Despite this, we expect the year end leverage position to improve compared to leverage at the half year.

Outlook

Given the strong growth in our revenues, we expect to deliver adjusted operating profit of circa £35m for the current financial year, despite the significant cost headwinds referred to above.

The orderbook strength, customer wins and benefits of our self-help programme position us well for 2022.

Richard Tyson, TT Chief Executive Officer commented:

“I’m really pleased with the trading performance in the business. Customer demand and order intake has been very strong in the period, across all our divisions reflecting customer wins and market demand for our design-led solutions across structural growth markets. I am proud of how our people are managing the supply chain challenges and increased cost headwinds. 

We expect to deliver further margin improvement this year as we continue on our path to double digit margins.”

Notes: 

1.   Organic growth is stated at constant currency and is calculated by comparing current year actual results to prior year results retranslated at current year actual exchange rates.  Organic revenue excludes the impact of acquisitions and disposals. 

2.   Analyst consensus expectations for 2021 adjusted operating profit are £35.0m to £37.0m.

3.   TT Electronics will announce its full year results on 9 March 2022.

TT Electronics plc (LON:TTG) have today published interim results for the half-year ended 30th June 2021.

Highlights

·    Record order book and continued strong order intake with good visibility building for 2022

·    H1 book to bill of 134%

·    Significant new customer wins, reflecting focus on structural growth markets underpinned by megatrends and ESG drivers

·    Revenue up 16% for the period on a constant currency basis, 12% on an organic basis

·    Successful self-help programme remains on track to deliver expected savings at reduced cost

·    Adjusted operating profit up 27% benefiting from growth, self-help programme and M&A

·    Adjusted operating margin improved to 6.7% and run rate margin higher at 8.0% excluding Virolens start-up costs

·    Statutory operating profit increased to £9.3m, statutory basic EPS of 3.3p

·    Interim dividend of 1.8p per share reflecting confidence in outlook

Outlook

·    Order and sales momentum continue; 2021 expected revenues already fully covered

·    Confident in medium term outlook and further modest increase in full year profit expectation

·    Anticipate strong improvement in adjusted operating margin and cash conversion in H2

·    Increased visibility in our path to deliver double digit Group operating margins

£ million (unless otherwise stated)	Adjusted Results1			Statutory Results
	H1 2021	H1 2020	Change	Change	H1 2021	H1 2020
		Restated2		Constant fx		Restated2
Revenue	235.6	210	12%	16%	235.6	210
Operating profit	15.9	13.2	20%	27%	9.3	-1.1
Operating profit margin	6.70%	6.30%	40bps	50bps	3.90%	-0.50%
Profit before tax	14.1	11.3	25%	33%	7.4	-3
Basic earnings per share	6.5p	5.6p	16%	23%	3.3p	(1.8)p
Dividend per share	1.8p	–	–
Return on invested capital (2020: year-end)	8.30%	7.70%	60bps
Cash conversion	-7%	53%
Free cash flow1					-10.3	-5.2
Net debt (2020: year-end) 1					107.3	83.9
Leverage (2020: year-end)1					2.0x	1.6x

Richard Tyson, TT Electronics Chief Executive Officer, said:

“We are really pleased to have delivered a strong performance in the first half with a record order book and strong growth as a direct result of the steps we have taken to reposition and improve the quality of the business. This growth together with the benefits of our self-help programme and higher margin acquisitions have resulted in improved margins.

With 2021 expected revenues already fully covered by orders, continuing demand momentum and the benefits of our successful self-help programme being realised we are confident of delivering a further improvement in full year 2021 results and have increased visibility in our path to double digit margins.”

TT Electronics is a global provider of engineered electronics for performance critical applications. It solves technology challenges for a sustainable world. TT benefits from enduring megatrends in structurally high-growth markets including healthcare, aerospace, defence, automation and electrification. 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.

TT Electronics plc (LON:TTG), a global provider of engineered electronics for performance critical applications, published today this trading update for the four months to the end of April 2021, ahead of the AGM taking place later today.

Trading in the first four months of the year has continued to strengthen with Group revenue 7% above last year on an organic¹ basis, building on the strong start made in the first two months of the year. As the market recovers, we have seen strong growth across healthcare, automation and electrification markets as demand for products that enable a cleaner, smarter and healthier environment continues.

We continue to book orders ahead of revenue, enhancing order book visibility compared to previous years, with strength across all three divisions, although we are mindful of the potential impact on output of supply chain shortages and logistics challenges. As a result, the Board now anticipates adjusted operating profit for the full year to be towards the upper end of market expectations².

The Torotel business, acquired in November 2020, is performing well and we have won a new multi-year contract with an existing TT aerospace and defence customer. With the cross-selling win and the pipeline of new business opportunities, Torotel is now expected to perform ahead of plan.

The Group’s ongoing self-help programme continues to progress well, supporting our plans to deliver double digit operating margins, with preparations underway for the planned site closures to improve efficiency further.

Commenting Richard Tyson, TT Electronics Chief Executive Officer said:

“We have seen continuing good growth across our key markets and in our three divisions in the period and now anticipate our performance for the year to be towards the upper end of market expectations, reflecting our exposure to structural growth dynamics. Our strong growth, the contribution from acquisitions made in 2020, and our self-help actions give us confidence in 2021 and beyond.”

Notes

¹Excluding the impact of exchange rates, acquisitions and disposals

²Latest company compiled view of market expectations shows a consensus adjusted operating profit of £34.5m with a range of £33.6m to £35.4m

Following on from the announcement made on the 25th March 2021, TT Electronics plc (LON:TTG) has confirmed that the Medicines and Healthcare products Regulatory Authority, which is responsible for ensuring that medical devices meet applicable standards of safety, quality and efficacy, has registered Virolens® for use and sale in Great Britain and iAbra has been granted Certificates of Free Sale.

This is a welcome milestone in the development of the Virolens technology.

Virolens® is a rapid COVID-19 screening device for which TT Electronics is the exclusive manufacturing partner.

Revenues to TT from the sale of Virolens following the MHRA approval are dependent on iAbra’s potential end customers in Great Britain converting expressions of interest into firm orders.

A high proportion of the commercial interest in Virolens to date has been outside of Great Britain and any revenues resulting from this interest require further regulatory approval in those territories.

There continues to be a wide range of potential commercial outcomes and hence no certainty as to the financial impact on TT.

TT Electronics plc (LON:TTG) has noted today’s rise in the share price and provides an update on evaluation trials in the UK of Virolens®, a rapid COVID-19 screening device for which TT is the exclusive manufacturing partner.

TT understands that the Medicines and Healthcare products Regulatory Authority (“MHRA”), which is responsible for ensuring that medical devices meet applicable standards of safety, quality and efficacy, is in the final stages of registering Virolens for use and sale in Great Britain.

Revenues to TT from the sale of Virolens following final MHRA registration would be dependent on iAbra’s potential end customers in Great Britain converting expressions of interest into firm orders.

A high proportion of the commercial interest in Virolens to date has been outside of Great Britain and any revenues resulting from this interest require further regulatory approvals in those territories.

There continues to be a wide range of potential commercial outcomes and hence no certainty as to the financial impact on TT.

TT Electronics will update the market on any further developments as appropriate.

TT Electronics plc (LON:TTG) have today provided results for the year ended 31 December 2020.

Second half recovery and record order book, started 2021 well

Results Highlights  

·    Recovery well underway, strengthening in Q4 with increasing order intake and improved production capacity, after Q2 COVID-19 impact

·    £60 million investment in R&D and acquisitions; Torotel largely integrated, performing well and bringing exciting business opportunities

·    Benefiting from structural growth drivers associated with sustainability, supplying products for a cleaner, smarter and healthier world

·    ESG credentials recognised through an improved ‘AA’ rating in MSCI ESG assessment

·    Self-help programme on-track; yielding £2 million benefits in 2020, a further £5 million in 2021 and £11-12 million full run-rate in 2023

·    Full year revenue down 9% year-on-year at constant currency after COVID-19 impact; improving trend in H2

·    Strong free cash flow of £14.4 million, aided by £3.6 million working capital inflow

·    Resumption of dividend payments, reflecting good recovery and positive outlook

Outlook

·    Improving business performance and clear path to double-digit margins, supported by self-help actions

·    Good trading momentum in 2021 underpinned by record order book

·    Revenue in the five months from October 2020 to February 2021 flat organically versus prior year

·      Positive structural trends in markets expected to accelerate as a result of COVID-19 impacts

£ million (unless otherwise stated)	Adjusted1		Statutory
	2020	2019(restated)2	Change	Change constant fx		2020	2019(restated)2
Revenue	431.8	478.2	(10)%	(9)%		431.8	478.2
Operating profit	27.5	38.1	(28)%	(27)%		6.6	16.9
Operating profit margin	6.4%	8.0%	(160)bps	(150)bps		1.5%	3.5%
Profit before taxation	23.8	34.4	(31)%	(30)%		2.9	13.2
Earnings per share	11.7p	17.8p	(34)%	(34)%		0.8p	7.6p
Dividend per share						4.7p	2.1p
Return on invested capital	7.7%	10.8%
Cash conversion	130%	103%
						2020	2019
Free cash flow1						14.4	9.7
Net debt1						83.9	69.1
Leverage1						1.6x	1.0x

Richard Tyson, Chief Executive Officer, said:

“We started 2020 with good momentum prior to the COVID-19 outbreak which most impacted our trading performance in the second quarter. Since then our performance has been on a recovering trend, which has strengthened in the fourth quarter of the year.  This trend has continued into 2021 on the back of an increasing order intake across all divisions.  

We believe that many of the positive, structural trends in our markets will accelerate as a result of the longer-term impacts on society from COVID-19.  We see this in a number of areas, but especially in increasing demand for improved healthcare and an acceleration of digital transformation and connectivity.  These factors, combined with the steps we have taken to enhance the quality of our businesses, our self-help programme and our record order book position us well for 2021 and give us confidence in an exciting future for TT.”

About TT Electronics

TT Electronics is a global provider of engineered electronics for performance critical applications.

TT solves electronics challenges for a sustainable world. TT benefits from enduring megatrends in structurally high-growth markets including healthcare, aerospace, defence, electrification and automation. TT invests in R&D to create designed-in products where reliability is mission critical. Products designed and manufactured include sensors, power management and connectivity solutions. TT has design and manufacturing facilities in the UK, North America, Sweden and Asia.

Notes

1.   Throughout this announcement we refer to a number of alternative performance measures which provide additional useful information.  The Directors have adopted these measures to provide additional information on the underlying trends, performance and position of the Group with further details set out on page 15 to 18.  The adjusted measures used are set out in the ‘Reconciliation of KPIs and non IFRS measures’ section on pages 41 to 47.

2.   The results for the year ended 31 December 2019 have been restated to reflect prior year adjustments. Further details are set out in note 2.

CHIEF EXECUTIVE OFFICER’S REVIEW

Introduction 

Our purpose is to solve electronic challenges for a sustainable world.  We design and manufacture solutions that enable a cleaner, smarter and healthier environment.  We create value through supplying products and services that support sustainability in our target markets of healthcare, aerospace & defence and automation & electrification.^[1]

Environmental, social and governance (ESG) matters are central to our purpose.  We have received an improved rating of ‘AA’ in the MSCI ESG Ratings assessment, recognising our progress during the year.  We have worked hard to reduce our scope 1 and scope 2 carbon emissions.  These have decreased by 20% to 12,518 tonnes CO₂e in 2020 from 15,705 tonnes CO₂e in 2019.  This improvement is due to our energy efficiency actions and increased use of green electricity as well as the lower production volumes in the year.

We started 2020 with good trading momentum prior to the COVID-19 outbreak. Although COVID-19 did impact trading, particularly in the second quarter, our performance has been on an improving trend in the second half, and this has continued into early 2021.  The improving trajectory is being driven by increasing order intake across all divisions, as well as our improved production capacity, as employees have returned to work.  All sites are now open following a few temporary closures in the first half of 2020. 

As a result of the longer-term impacts on society from the COVID-19 outbreak, we believe that many of the positive, structural trends already evident in our markets will accelerate. These include the digital transformation, increased automation, more demand for remote tracking of assets, a greater prevalence of connectivity and demand for improved healthcare.  This gives us confidence in the strong prospects we see for TT.

Alongside a resilient trading performance, we have continued to execute our strategy.  During the year we have invested £11.2 million in research and development (R&D), enhancing our pipeline of new products.  We have also completed two acquisitions, Torotel and Covina, investing £48.7 million in total, including deferred consideration relating to a prior year acquisition.  These acquisitions have advanced our power supply capabilities and market reach in the US.  We are also on-track to deliver the £11-12 million of full run-rate benefits in 2023 from our investment in the self-help programme launched in the first half of the year.  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. 

Throughout the year we have prioritised the protection and safety of our employees, our customers, our suppliers and our wider communities.  We have greatly appreciated how our employees have responded to the challenges presented.  Their skill, dedication and hard work, which they have constantly demonstrated in uniquely difficult conditions, have resulted in them going above-and-beyond to get things done well and on-time.  Their flexibility, responsiveness and ability to deliver has strengthened and deepened many of our customer relationships.  Together with our critical capabilities and balance sheet strength, this has positioned us well for future work and collaborations.

Results and operations

Group revenue for the year was £431.8 million, 9 per cent lower than the prior year at constant currency and 12 per cent lower on an organic basis.  Organic revenue was 17 per cent lower in the second quarter against the comparable prior year period due to reduced demand and as we shielded staff, reducing capacity.  There were also temporary closures of a few sites.  However, since then we have continued to see improving momentum across the business.  Notably the recovery strengthened during the fourth quarter, when organic revenue was only 5 per cent lower than the prior year.  We have seen further improvement at the start of 2021.

This recovery trend has been underpinned by strong order intake across the Group through the fourth quarter of the year.  This has continued into 2021 across all divisions.  Order intake for full year 2020 was 99 per cent of revenue, and for the second half of 2020 was 103 per cent of revenue. The order book at the end of February 2021 is at record levels.

In recognition of the improving trends we have seen through the second half of the year and our strong cash generation, early in 2021 we repaid the Coronavirus Job Retention Scheme (furlough) payments to the UK Government. The £1.1 million cost of repayment has been provided for in these 2020 results.

Adjusted operating profit for the year was £27.5 million, 27 per cent lower than the prior year at constant currency.  The second half adjusted operating margin was 6.5 per cent, including the accrued cost of the furlough repayment. After the impact of adjusting items, including restructuring and acquisition and disposal costs, the Group’s full year statutory operating profit was £6.6 million.

During the year end close process, a prior period non-cash timing adjustment was identified, associated with the timing of overhead recognition in one of our sites in Global Manufacturing Solutions.  As a result of this adjustment, the previously reported 2019 operating profits have been reduced by £1.9 million and the reported operating profits for 2020 are ahead of management’s original expectations by a similar amount.  The reported operating profits for 2020 represent the actual performance of the business for the year and no “one-off” benefit has been derived from this adjustment when comparing against restated 2019 results.

We are particularly pleased with our strong cash performance, delivering operating cash conversion of 130 per cent.  This was driven by continuing tight control over costs and capital expenditure.  In addition, there was a working capital inflow of £3.6 million, which included £4.2 million from a reduction in inventory.  On a statutory basis, cash flow from operating activity was £28.2 million (2019: £35.9 million). Our strong operating cash performance helped us deliver increased free cash flow of £14.4 million (2019: £9.7 million), despite the impact of COVID-19 on our profits.

We ended the year with net debt of £83.9 million (2019: £69.1 million), including IFRS 16 lease liabilities of £15.9 million (2019: £17.6 million).  We have a strong balance sheet, and this includes a defined benefit pension scheme fully funded on an actuarial basis.  At 31 December 2020 leverage was 1.6 times (2019: 1.0 times), within the Board’s target leverage range of 1-2 times.

Our return on invested capital has declined to 7.7 per cent in 2020 due to the volume driven profit reduction and this will recover as business momentum increases.

Dividend

Given the good recovery we are seeing and the positive outlook for 2021 and beyond, we are resuming dividends as planned, with the Board proposing a final dividend of 4.7 pence per share. The total cash cost of this dividend will be approximately £8.2 million.  Payment of the dividend will be made on 21 May 2021, to shareholders on the register at 30 April 2021.

Our markets

We focus on creating value through our sustainable products in our target markets of healthcare, aerospace & defence and automation & electrification, where there are advanced technology requirements.  We believe that many of the positive, structural trends already evident in our markets will accelerate as a result of the COVID-19 outbreak.  

In healthcare (25 per cent of Group revenue) growth is driven by increasing global incomes leading to demand for improved healthcare, alongside ageing populations and new preventative care technologies.  In 2020 the usual market trends have been impacted by the pandemic and we have supported new and existing customers to provide products to counter the virus.  Pent-up demand for deferred elective surgery and for large installations for hospital or life science applications are expected to be supportive of growth over the next few years.  COVID-19 has also reinforced the need for a number of TT specialisms, including interventional healthcare devices, patient monitoring and laboratory equipment.

In aerospace and defence (22 per cent of Group revenue), growth is driven by increasing electrification of platforms, which supports fuel efficiency and safety as well as, over the longer term, increasing passenger numbers.  Currently, with less passenger-driven demand due to COVID-19, commercial aerospace production has found a new, lower level.  Rates are now largely re-set and we have proactively reduced our cost base to match.  We anticipate a gradual recovery in aircraft production over several years, as long-term growth resumes.  The defence market has been seen by governments as an essential business activity through 2020.  It has continued to show strong growth, with heightened global security tensions also remaining a driver behind spending.  Our ability to design and manufacture smaller, lighter and more efficient products helps our customers improve efficiency and reduce carbon emissions, positioning us well in the market.

In automation and electrification markets (37 per cent of Group revenue), 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.  There has been an improving demand trend in the second half of the year, with orders and visibility increasing. The positive long-term growth drivers in this market give us confidence that demand will increase for our power, sensing and connectivity solutions.

Creating value through technology investment

R&D is one of our top capital allocation priorities, given its critical contribution to the ongoing health of the business.  Our investment in R&D is focused on bringing higher growth, more sustainable products to market. These typically yield higher returns and development is often undertaken in partnership with our customers.  Our investment strategy includes leveraging acquired complementary capabilities targeted through mergers and acquisitions (M&A). 

During the year, we have continued to invest in line with our target of 5 per cent of product sales. Our R&D cash investment was £11.2 million (2019: £13.5 million), representing 4.8 per cent (2019: 5.1 percent) of the aggregate revenue of our product businesses.

We continue to bring a pipeline of exciting new products to market, including in areas where we have extended our technical capabilities through acquisition. Examples include:

·    Following two years of development, we received qualification orders at our Minneapolis, Minnesota site (Precision Inc, acquired in 2018) from a healthcare customer for a miniature high voltage transformer/inductor power assembly for an implantable defibrillator programme.  Initial qualification examples are expected to be delivered in the second quarter of 2021.  The product has been developed in close collaboration with the customer with work undertaken at the customer’s engineering laboratories;

·    As a result of investment in a power supply for a ground-vehicle laser warning system, the product has been selected for a US military programme.  This followed an initial approach from a long-standing customer.  Deliveries will start in late 2021, as a result of successful live-fire demonstrations, having been developed at our Covina, California site (acquired in January 2020).  The product is based on an existing, proprietary TT design used across a number of airborne applications;

·     We have launched a new range of metal foil sensor chips which offer improved surge tolerance and self-heating characteristics.  These are intended to service the market for products that require control and monitoring of energy consumption, including healthcare and automation and electrification applications.

During the year we were appointed exclusive manufacturing partner by iAbra for Virolens,® a rapid COVID-19 screening device.  Evaluation trials of the product are continuing, and iAbra is making good progress with the regulatory approvals process. There continues to be a role for COVID-19 screening to complement vaccination programmes in the UK and elsewhere. Revenue to TT from the sale of Virolens® are dependent on potential end customers converting expressions of interest into firm orders and regulatory approval in each relevant territory. There continues to be a wide range of potential commercial outcomes and hence no certainty as to the financial impact on TT.

In addition, TT is part of the UK’s Project High-T Hall, alongside Rolls-Royce, Paragraf and CSA Catapult.  This project is intended to demonstrate how graphene-based Hall Effect sensors can operate reliably at high temperatures.  This paves the way for more efficient electric engines for aerospace and other applications.  The project, which started in July 2020, is expected to run for one year and is funded by UK Research and Innovation.

Creating value through margin enhancement

The pursuit of higher margins through organic and inorganic growth remains core to the Group’s strategy.  Notwithstanding the short-term impact of COVID-19 on 2020 margins, we have a clear path to delivering double-digit operating margins with an improving trend expected in 2021 and beyond.  The actions we have taken this year bring the business closer to realising this, with key contributions expected from:

·    Operational leverage from organic revenue growth;

·    Reductions in overheads; and

·    Inorganic expansion developing technology offerings and market positions.

Our significant self-help programme, which will reduce our footprint and fixed cost base, commenced in the first half of 2020.  This has made very good progress.  Initial programme benefits were £2 million in 2020, and these have helped to mitigate the slowdown in our end-markets.  Incremental benefits of £5 million are expected in 2021, supporting margin improvement.  There is a clear path to achieving the expected full run-rate benefits of £11-12 million in 2023.  

The programme comprises a number of different activities.  Given the COVID-19 related weakness in certain end-markets, we expanded the original programme to include additional headcount reductions across a number of sites.  By the end of 2021 we will have closed three primary operating sites, further improving efficiency.  In addition, we are taking certain products end-of-life in 2021, as well as relocating the manufacture of other products within our existing footprint.  This will enable us to serve customers better, as well as achieve an improved level of profitability.  Total net headcount reductions of around 500 employees are expected on completion of the programme. At the end of 2020    c. 70 per cent of the planned headcount reductions had been delivered.

We continue to anticipate total cash spend for the self-help programme of £18 million, of which £4.1 million was spent in 2020, including £2.5 million of capital expenditure.  Restructuring spend of £1.6 million is net of the accelerated disposal for £3.0 million after costs of our Lutterworth, UK freehold property.  The total anticipated programme P&L expense remains at £24 million, with £12.9 million incurred in 2020.  In addition to the cash costs, the P&L expense incorporates non-cash items, primarily asset and inventory write-downs and the impairment of intangibles.

Our acquisitions also contribute to higher margins. The acquisitions completed in the year, Torotel, Inc and Covina, the power supply business of Excelitas Technologies Corp., have brought with them operating margins above the TT Group average and we have reconfirmed our expectations for cost synergies.    

Environmental, social and governance (ESG)

Not only do we develop, design, engineer and manufacture products that enable reduced environmental impacts, but we are also optimising our own operations to reduce our impact on the environment. 

We have set ourselves a target to be carbon neutral by 2035 and we are undertaking a range of actions to deliver like-for-like reductions in our annual emissions.  In 2020 we reduced our scope 1 and scope 2 carbon emissions by 20%.  In addition, we are focusing on reducing single-use plastics within the business and on reducing the amount of waste we send to landfill.   Our continuing progress on ESG matters has been recognised externally, having received an improved rating of ‘AA’ in the latest MSCI ESG Ratings assessment.

Creating value from mergers & acquisitions

We use M&A to enhance TT’s technology capabilities and market access, consolidating fragmented but valuable niche areas within the Group.  We create value by realising revenue synergies, including leveraging customer access, and by optimising operations and the supply chain. We invest in attractive, growing and higher margin segments that the Group knows well, and where we have competitive advantage.

This year we have bought two power supply businesses, the Covina, California based power supply business of Excelitas Technologies Corp. (completed January 2020) and Torotel, Inc (completed November 2020), based in Olathe, Kansas.  We have rapidly and effectively integrated these businesses and we are engaged in the robust pursuit of synergy opportunities.

Our most recent acquisition, Torotel, is another particularly strong fit with the Group’s strategy. The acquisition has increased our scale and capabilities in the very large and attractive US defence market, and it has enhanced our US power electronics presence. Torotel has a track-record of strong revenue growth and brings opportunities to apply our proven operational improvement and integration capabilities to the business.

Following the successful integration of Covina earlier in the year, the integration of Torotel’s systems and processes into TT’s Power and Connectivity division has also been largely completed.   Utilising our well-defined business integration model, this has integrated major business processes including operations, procurement, finance, legal, IT and human resources.  This was completed against a backdrop of COVID-related travel restrictions and other constraints.  We are proud of the team and our new Torotel colleagues for undertaking this complex task so quickly and in really difficult conditions.

Our attention is now focused on creating value from improving operational performance and integrating the Torotel customer proposition more closely with our other businesses.  This includes customer cross-selling, the integration of products from across the Group to provide higher-value customer offerings and leveraging our business development capabilities.   Examples of the exciting opportunities we are seeing already are as follows:

·    As a result of a Torotel customer introduction, TT is actively pursuing two significant new opportunities with a US defence prime;

·    The newly combined TT and Torotel teams are working with a customer on a specific opportunity to expand the power supply work currently undertaken by TT’s recently acquired business based at Covina, California;

·    Utilising it as a centre of excellence, Torotel has been introduced to an existing TT customer to expand the magnetics we currently provide.

The Precision business (acquired in 2018), based in Minneapolis, Minnesota, has also secured a long-term contract with a US defence prime for an alternator assembly. This order is the single largest in Precision’s history with production from October 2020.  We continue to work on several other new and existing programmes with this customer. 

We are continuing to look for opportunities to extend TT’s technology capabilities and market reach.

Outlook

We started 2020 with good momentum prior to the COVID-19 outbreak which most impacted our trading performance in the second quarter. Since then our performance has been on a recovering trend, which has strengthened in the fourth quarter of the year.  This trend has continued into 2021 on the back of increasing order intake across all divisions.  

We believe that many of the positive, structural trends in our markets will accelerate as a result of the longer-term impacts on society from COVID-19.  We see this in a number of areas, but especially in increasing demand for improved healthcare and an acceleration of digital transformation and connectivity.  These factors, combined with the steps we have taken to enhance the quality of our businesses, our self-help programme and our record order book position us well for 2021 and give us confidence in an exciting future for TT.

FINANCIAL OVERVIEW

Group revenue was £431.8 million (2019: £478.2 million).   This included an £11.1 million contribution from acquisitions and adverse currency translation of £1.4 million.  Group revenue was 9 per cent lower than the prior year at constant currency and 12 per cent lower on an organic basis.  There were lower sales volumes from commercial aerospace, automation and electrification and healthcare markets, although defence remained strong.

The Group’s statutory operating profit was £6.6m after a charge for items excluded from adjusted operating profit of £20.9 million (2019: £21.2 million) including:  

·    Restructuring costs of £14.5 million (2019: £13.2 million), primarily related to the Group’s self-help programme of £14.8 million, within which £6.3 million related to severance costs and provisions; £3.4 million to intangible asset write downs; £2.0 million of right of use asset and plant, property and equipment write downs; £1.6 million relating to stock write downs and £1.5 million of other costs, including prior year projects completed in 2020.  Also included was a property disposal profit of £1.2 million (2019: £nil) and pension costs of £0.9 million (2019: £1.0 million, with £0.4 million relating to past service charge and £0.6 million relating to other pension restructuring costs) primarily relating to UK pensions schemes having to equalise male and female members’ benefits in respect of guaranteed minimum pensions (‘GMP’);

·    Acquisition and disposal costs totalled £6.4 million (2019: £8.0 million) and included amortisation of intangible assets arising on business combinations of £4.2 million (2019: £4.5 million), a £1.0 million credit (2019: £nil) due to the release of the warranty and claims provision relating to the Transportation business divestment and other acquisition and integration related costs of £3.2 million (2019: £3.5 million).

Adjusted operating profit was £27.5 million (2019: £38.1 million), with the reduction a result of the COVID-19 outbreak, with an operating margin of 6.4 per cent (2019: 8.0 per cent).

The net finance cost was £3.7 million (2019: £3.7 million).  The Group’s overall tax charge was £1.6 million (2019: £0.8 million), including a £2.7 million credit (2019: £4.6 million credit) on items excluded from adjusted profit.  The adjusted tax charge was £4.3 million (2019: £5.4 million), resulting in an effective adjusted tax rate of 18.1 per cent (2019: 15.7 per cent). 

Basic earnings per share (EPS) was 0.8 pence (2019: 7.6 pence) being impacted by the reduction in operating profit and the adjusting items set out above.  Adjusted EPS decreased to 11.7 pence (2019: 17.8 pence), reflecting the lower adjusted operating profit in the period.

The total net accounting surplus under the Group’s defined benefit pension schemes was £30.5 million (31 December 2019: £16.6 million). The main driver of this was an increase in the fair value of assets due to investment performance, part of which relates to interest rate hedges.  This offset an increase in the Scheme’s benefit obligation, mainly due to a fall in corporate bond yields. The surplus also increased due to company contributions paid of £5.4 million, as the deficit contribution plan continued, targeting self-sufficiency and further de-risking.

Adjusted operating cash flow was £49.0 million (2019: £57.4 million).  This was impacted by lower profitability, although this was largely mitigated by the Group’s proactive cash management, including capital and development expenditure lower at £13.2 million (2019: £18.2 million).  In addition, the Group generated a working capital inflow of £3.6 million (2019: £1.2 million outflow), including a £4.2 inflow from inventory reduction.  This resulted in very strong adjusted operating cash conversion of 130 per cent (2019: 103 per cent). On a statutory basis, cash flow from operating activity was £28.2 million (2019: £35.9 million).

There was increased free cash flow of £14.4 million (2019: £9.7million), net of £8.1 million of restructuring and acquisition related costs (2019: £9.2 million), relating to the new self-help programme and acquisition costs associated with the Covina and Torotel acquisitions.  Pension contribution payments in the period were lower at £5.4 million (2019: £8.6 million), with the prior year including a one-off payment of £3.4 million relating to the merger of the Stadium Group Retirement Benefits Plan (1974) pension scheme into the TT Group scheme.

Investments in acquisitions totalled £48.7 million (2019: £2.3 million), reflecting the acquisition of Covina, the power supply business of Excelitas Technologies Corp., the acquisition of Torotel, Inc, including, £3.0 million of debt acquired with Torotel, Inc and £3.8 million of debt like items, as well as £0.5 million of deferred consideration relating to a prior year acquisition.  Partially offsetting this was £20.2 million (2019: £0.9 million) of equity issuance, which primarily related to the Torotel acquisition placing. There was no dividend payment in the year (2019: £10.9 million).

At 31 December 2020 the Group’s net debt was £83.9 million (31 December 2019: £69.1 million), including £15.9 million of lease liabilities (31 December 2019: £17.6 million).  Leverage, consistent with the bank covenants, was 1.6 times at 31 December 2020.