TT Electronics plc (LON:TTG) Chief Executive Officer Richard Tyson and Chief Financial Officer Mark Hoad caught up with DirectorsTalk for an exclusive interview to discuss what the company does, their H1 performance and opportunities for the future.
Q1: Richard, could you tell us a little bit about TT Electronics, who they are and what it is you’ve set up TT to deliver?
A1: TT is a business that’s all about designing and manufacturing high specification electronics for sensing, managing power and delivering machine to machine connectivity.
So, as we move to the Internet of Things and a more connected world, today electronics are getting used everywhere and we are positioned to benefit from these long-term structural growth drivers across aerospace, defence, medical and industrial markets.
Our solutions are often mission critical, they operate in harsh environments and that means our customers trust us to engineer, to deliver high performance and high reliability.
So, in aerospace, for example, aircraft are becoming more electric, that means we’re supporting the growth of the aviation sector by providing power products that use power more efficiently with lower weight and that in turn, helps better environmental performance for the aircraft.
We’re bringing tomorrow’s technologies to life with advanced diagnostic and imaging and we ensure disease detection and can facilitate treatment.
In the industrial sector, we’re improving factory efficiency and automation for a more productive world.
We, as a group, launched the strategy 5 years ago to position ourselves in structural growth markets, creating differentiated capabilities through our engineering expertise and increased our R&D investment. We now work in partnership with our customers to solve their toughest electronic challenges.
Overall, the strategy is working and we are positioned with the right customers, in the right markets and now winning multi-million pound recurring revenues and there’s an awful lot more to come from the group.
Q2: Mark, half-year report just out taking us up to 30th June this year, how has the company performed through H1?
A2: We’ve built on a great set of results that we delivered in 2018 by delivering a really good set of results in the first half of 2019 with strong revenue growth, and profit growth, as well as some more margin improvement.
So, revenues increased by 20% at constant currency and by 8% organically, that was driven by good growth in our Power and Connectivity division and really honestly stellar growth in our Global Manufacturing Solutions which grew 17% organically. That more than offset a slight decline in our Sensors and Specialist Components division which had softer market conditions and some tough comps.
On the back of that, growth operating margin increased by 50 basis points in the half is now above 8% and Earnings Per Share grew by more than 20%.
Cash conversion was, for us, on the low side at 28% but really that’s a reflection of the strong growth that we’ve been delivering in the first half as well as some seasonality. For the full year, we fully expect that to normalise and for the year to deliver target levels of conversion. I think importantly, our main value creation metric that we look at, return on invested capital, continue to step forward on a like for like basis.
Overall, a really good set of results and on the back of that, the Board have declared an 8% increase on the dividend.
Q3: Richard, you’ve delivered some great numbers there, what opportunity is there for TT Electronics plc to keep delivering like this in the future?
A3: We firmly believe there’s a lot more to come from TT and are set up to deliver more organic growth and margin progression.
So, we’ve positioned ourselves to benefit from these long-term structural growth drivers and we’ve invested in these areas over the last few years and it’s really starting to pay off.
The execution of the team, with a completely transformed business development approach, becoming more strategic partners with our customers with more R&D investment in engineering going into the right areas to give us maximum opportunity. We’re also driving operational improvement and we’ve supplemented this with some value-enhancing acquisitions.
TT, as a whole, now is just a much better business, better quality and sustainability of earnings and we’ve an increased proportion of the revenues coming from aerospace, defence and medical markets where we grew a staggering 27% organically in the first half of the year, this is where we have more positions on multi-year programmes.
So, added to that, delivering successful acquisition integrations and driving out value, we really think we’re in a good place. As we’ve said in today’s announcement, we’re positioned well to make further progress in 2019 and beyond which frankly feels pretty good to me.