TIDMTIFS
RNS Number : 1378T
TI Fluid Systems PLC
16 March 2023
TI Fluid Systems plc - Full year results 2022
Released: 16 March 2023
TI Fluid Systems plc
Results for the year ended 31 December 2022
Strong EV bookings confirm strategic pivot to
electrification
TI Fluid Systems plc (TIFS), a leading global manufacturer of
automotive fluid storage, carrying, delivery, and thermal
management products and systems for light vehicles, announces its
results for the year ended 31 December 2022.
EUR millions
-------------------------- -------------- -----------
Constant
Currency
Adjusted Measures* 2022 2021 Change Change
-------------------------- ----------- ----------- -------------- -----------
Revenue 3,268.3 2,956.6 10.5% 5.2%
Adjusted EBIT 180.0 212.6
Adjusted EBIT Margin % 5.5% 7.2%
Adjusted Net Income 43.5 58.3
Adjusted Basic Earnings
per Share 8.48 11.23
Adjusted Free Cash Flow 78.4 117.3
Statutory Measures 2022 2021 Change
-------------------------- ----------- ----------- --------------
Revenue 3,268.3 2,956.6 10.5%
Operating (Loss) / Profit (217.0) 126.8
(Loss) / Profit for the
Year (279.0) 16.0
Basic Earnings per Share
(EUR cents) (54.39) 2.76
Dividend (EUR cents) 2.54 3.39
*Adjusted measures are non - IFRS metrics and reconciled in Note
4 and defined in the glossary in Note 14
Group Highlights:
- New business bookings on a lifetime revenue basis of EUR1.3
billion for BEV platforms and EUR1.3 billion for HEV platforms,
strengthening our conviction in our strategic pivot to
electrification; 35% or EUR0.44 billion of BEV bookings were in
China
- Revenue of EUR3,268.3 million, up 10.5% at actual exchange
rates and 5.2% at constant currency
- Adjusted EBIT of EUR180.0 million
- Adjusted Free Cash Flow generation of EUR78.4 million
- Strong balance sheet and liquidity; cash position of EUR491.0
million at 31 December 2022; term loans mature in 2026 and
unsecured senior notes in 2029
- Statutory Operating Loss of EUR217.0 million includes a
EUR317.4 million non-cash exceptional impairment charge
- Net cash generated from operating activities of EUR167.5 million
Proposed FY2022 final dividend of 1.54 euro cents per share,
which when combined with the interim dividend of 1.00 euro per
share, represents a full year pay-out in line with our 30% of
Adjusted Net Income dividend policy.
Accelerating execution of the T(3) - Take the Turn strategy:
- Technology investment accelerated and bringing benefits with
the launch of the e-Mobility Innovation Centre concept which is
being rolled out across our key markets, and strong growth in new
business awards on EV platforms;
- Transforming our business to embrace environmental, social and
governance (ESG) best practices as shown by progress on our
sustainability journey. Further commitments to CO(2) (e) reductions
based on science-based targets of 50% reduction of Scope 1 and 2
emissions and a 30% reduction in Scope 3 emissions by 2030 based on
absolute 2021 emission levels; improvements in diversity; and
- Talent development has been accelerated by the adoption of the
six mindsets for success across the Group to ensure the
organisation is ready to embrace the knowledge and behaviour
transition required to grow the business profitably and
sustainably
Hans Dieltjens, Chief Executive Officer and President,
commented:
"2022 was our centennial year during which continued to lay the
foundations for securing the Group's future with 37% of our booking
awards on BEV vehicles, in addition to year-on-year revenue growth.
The execution of our Take the Turn strategy is gaining momentum
with the establishment of the first of five e-Mobility Innovation
Centres in Germany, but even more so by our customers' enthusiasm
for our enhanced product offerings. These form strong indicators of
how the Group is building a leadership position in the automotive
industry pivot to electrification over the medium term.
Notwithstanding our good progress in the BEV business, the Group
remains strong in its hybrid and internal combustion business, both
from a bookings and revenue perspective.
"In 2022 our businesses in North America, Europe and Asia
Pacific excluding China, showed revenue outperformance at constant
currency compared to GLVP growth. The underperformance in China was
a reflection of strong growth in domestic OEM production, where our
representation is lower, but growing, and low growth from Global
OEMs in China where our presence is stronger, ahead of important
launches in 2023. The adverse mix and phasing effect was
exacerbated by the Chinese authorities unexpected and abrupt change
in COVID-19 policy towards the end of the year. However, the Group
expects the situation in China to stabilise and return to
outperformance during 2023, supported by several new EV launches
with both Chinese and Global OEMs. Global production volumes
continued to recover from the pandemic years of 2020 and 2021, a
positive trend as supply constraints eased. The Group's overall
financial performance was adversely affected by continued
operational volatility and most significantly by inflationary cost
increases despite recoveries from customers at levels in line with
our industry.
"The team maintained focus through another difficult year and
successfully balanced recoveries from customers with winning new
business on electrified platforms. Our balance sheet, liquidity and
cash position remain robust, and provides scope for accelerating
development of the Group.
"In addition to our purpose to help make vehicles cleaner and
greener to protect the environment and make our world a better
place to live, we are committed to doing so sustainably. The Board
has recently approved targets to reduce Scope 1, 2 and 3 emissions
in line with the science-based target initiative (SBTi) by 2030,
enhancing our previous commitment on Scope 1 and 2 emissions, from
37% reduction by 2039 on a 2019 base to a 50% reduction of scope 1
and 2 emissions and introducing a 30% reduction of scope 3
emissions both by 2030 on an absolute basis from a 2021 base.
"As production continues to recover to pre-pandemic levels, the
Group is well positioned in the medium term to drive growth, build
profitability back to historic levels, and increase market share in
the expanding thermal management market. The Group remains
confident in the execution of our strategy to implement technology
improvements, ensure the transition to a sustainable business
model, and to invest in our talent to create value for our
shareholders."
Outlook
The current S&P Global Mobility estimate for GLVP in 2023 is
85.1 million units although the Group remains slightly more
cautious anticipating circa 83.0 million units due to the potential
for demand moderation combined with ongoing supply constraints. The
Group expects the first quarter of 2023 to be impacted by the
disrupted situation in China, but expect this to resolve for a
stronger second half of the year. Mindful of the geopolitical
uncertainty, and the ongoing but improving global supply
constraints, the Group expects revenue growth at constant currency
to return to outperformance compared to GLVP volume growth this
year. With a strong focus on cost management, cost recoveries, and
a more stable production environment, the Group expects Adjusted
EBIT margin to expand above 6% this year. Adjusted Free Cash Flow
is expected to return to approximately 30% of Adjusted EBITDA.
Looking to the medium term, the Group is well placed to use its
good position in the automotive industry transition to electric
vehicles and expects strong new business bookings driving future
revenue growth and outperformance, in addition to returning to
historic profit margins.
Results presentation
TI Fluid Systems plc will host a teleconference for analysts and
investors at 8.00 am UK time on 16 March 2023.
Analysts wishing to join may listen to the presentation live by
using the details below.
Conference Call Dial-In Details:
United Kingdom 0800 640 6441
United Kingdom (Local) 020 3936 2999
1 855 9796
United States 654
United States (Local) 1 646 664 1960
+44 20 3936
All other locations 2999
Access code: 191254
You can pre-register using this link to receive a unique PIN to
dial directly into the call.
The presentation will be available at 7:00 am UK time from
www.tifluidsystems.com and an audio recording will be available on
our website in due course.
Enquiries
TI Fluid Systems plc
Tim Furber
Investor Relations
Tel: +44 1865 871 887
FTI Consulting
Richard Mountain
Nick Hasell
Tel: +44 20 3727 1340
Chief Executive Officer's review
I am pleased and proud to give my first full year report as the
CEO of TI Fluid Systems. It is especially meaningful given that
2022 was our Company's historic centennial year. I remain grateful
for the opportunity to lead this great Company at such a pivotal
time.
First and foremost, in 2022, the Group has enhanced,
strengthened, and continued to progress our Take the Turn strategy
that charts our path into vehicle electrification. In 2022,
electric vehicles (EVs) were 19% of total light vehicle production.
By 2030, EVs are expected to represent 62% of light vehicle
production, a CAGR of 18.1% for EVs compared to an overall
production CAGR of 2.1%. Of course, this tremendous EV growth means
declining production of traditional internal combustion engine
(ICE) vehicles. However, our plans show that we can profitably
manage our ICE business during the transition to EVs. We believe
that our content per vehicle potential for battery electric
vehicles (BEVs) is higher than for ICE vehicles and that our
potential content per vehicle for hybrid electric vehicles (HEVs),
which are an important bridge from ICE vehicles to BEVs, is
significantly higher than for traditional ICE vehicles. Therefore,
capitalising on EV growth is the Group's biggest opportunity and
our key strategic focus.
To position the Group to realise long-term benefits from the
transition to EVs, we have developed a range of products
specifically for EVs. In particular, our work on modular thermal
systems to heat and cool EV batteries as well as weight-saving
plastic refrigerant and coolant lines has progressed significantly
as evidenced by the fact that 76% of our new business bookings in
2022 were for EVs (totalling EUR2.6 billion of lifetime sales).
Importantly, China, currently the world's largest market for
battery electric vehicles (BEVs), represented 35% of our 2022
bookings for BEV platforms.
In addition, with our eye on the longer term, we opened the
first of our five planned e-Mobility Innovation Centres (eMICs) in
April 2022 in Rastatt, Germany. By 2024, we will have an eMIC in
every major automotive region (Germany, China, Japan, Korea, and
the US) in order to bring together key design, engineering and
testing capabilities under one roof to support EV product
innovation in collaboration with our OEM customers around the world
for the next decade.
While we continue to look to a bright EV future, our financial
performance in 2022 was below our high expectations. However, 2022
results must be viewed in the context of high inflation, global
supply disruptions, labour shortages, and volatile customer orders.
Our experienced management team, supported by the hard work and
dedication of our entire workforce, did very well under the
circumstances to deliver the level of financial performance
achieved in 2022. Importantly, I am convinced that the fundamental
strengths of our business - an experienced management team,
advanced product technology, diverse customer base, and a global
footprint - remain and position the Group to realize improved
financial performance as market conditions recover.
For the Group's 2023 Outlook, see the CFO's Report. In summary,
for 2023, our expectation is that production volumes will be
modestly higher than 2022 and that our revenue growth (at constant
currency) will outperform the growth in production volumes. With a
strong focus on cost management, cost recoveries, and a more stable
production environment, we expect Adjusted EBIT margin to expand
above 6% and Adjusted Free Cash Flow to return to the rate of
approximately 30% of Adjusted EBITDA.
In the longer term, the Group is well positioned to be a winner
in the transition to electrification, and we expect new EV business
bookings to continue to increase, driving revenue growth and margin
improvement.
Market conditions
In 2022, the automotive market was characterised by the current
impacts of inflation, challenging operating conditions, and a
sluggish production volume recovery set against a backdrop of
ongoing acceleration of the long-term trend of vehicle
electrification with 77% more global BEV production, mainly in
China.
Persistent inflationary pressures in 2022 caused significant
cost increases throughout the value chain, including raw materials,
energy, and labour costs. The Russian invasion of Ukraine and the
lingering effects of the COVID-19 pandemic resulted in production
volatility, supply chain disruptions, labour shortages, and
manufacturing instabilities. Our management team responded by
addressing cost inflation through negotiation of recoveries with
our OEM customers and further executing on our restructuring
programmes together with performance enhancement initiatives to
offset some of the post-pandemic impacts. Despite achieving
customer recoveries to offset approximately 70% of the cost
inflation (in line with peers), 2022 margins were impacted.
Global light vehicle production volumes increased 6.7% in 2022
to 82.4 million units (still 7.8% less than 2019), far less than
initially expected. Furthermore, production growth was not uniform
across regions or powertrains. North America production volume was
up 9.7% in 2022, but production volumes in Europe were only 0.6%
higher than 2021, being negatively impacted by the conflict in
Ukraine. Production volumes in Asia Pacific, by far the largest
automotive market, were 8.2% higher than 2021, driven primarily
from the increased production and adoption of BEVs in China which
increased by 93% year on year, mostly BEVs produced by domestic
Chinese OEMs. S&P Global Mobility show that global production
volume is now forecast to grow at a 2.1% CAGR from 2022-2030,
including a gradual return to 2019 levels by 2025.
Beyond the challenging operating environment, 2022 clearly
reflected the sustained, long-term automotive trend of EV growth.
More EVs were produced by our OEM customers in 2022 than prior
years, with HEVs representing 8.7% of total production and BEVs
representing 10.7%. Business awards and sourcing in 2022 were also
dominated by new EV platforms.
In 2022 it also became evident that, while our OEM customers are
focused on launching and producing many 'early generation' EV
platforms, they are also working to rapidly progress the design and
engineering of their EVs in order to reduce costs and improve
performance, both of which are necessary to support increased
consumer adoption of EVs. In particular, more efficient and
cost-effective thermal management solutions must be developed and
deployed for EVs, with a desire for modular solutions rather than
components.
2022 performance
Overall, the team at TI Fluid Systems is not content with the
results achieved in 2022, but is committed and focused on
improvement in 2023, driving cost savings and ongoing customer
recoveries for inflation and benefiting from potential market
stabilisation and volume increases.
The Group delivered revenue of EUR3.3 billion (+10.5% vs. 2021
and +5.2% at constant currency) representing a 1.5%
underperformance of global light vehicle production, which
increased 6.7% from 2021. The Group's underperformance was almost
entirely related to Asia Pacific, where we had underperformance of
8.7% compared to production volumes due to COVID-19-related
closures in China as well as production growth in China coming
predominately from BEVs produced by domestic Chinese OEMs.
In 2022, the Group experienced inflationary cost increases of
EUR143 million for the full year, partially offset by customer
recoveries. Adjusted EBITDA was EUR333.3 million (10.2% margin),
Adjusted EBIT was EUR180.0 million (5.5% margin), and Adjusted Free
Cash Flow amounted to EUR78.4 million. The Statutory Loss for the
year was EUR(279.0) million was impacted by the exceptional
impairment charge after tax of EUR297.3 million which reflects the
reduction in medium-term GLVP growth, impact of cost pressures, and
increase in discount rates, all of which act to reduce the current
value of future cash flows. The majority of impairment was applied
to the goodwill.
The Group also continued its restructuring initiatives to
optimise fixed costs, closing six facilities and downsized another
seven in 2022.
Amidst the difficult operating environment, the transition to
vehicle electrification continued at an accelerating pace. As such,
we were pleased that 31% of the BEV launches in 2022 included TIFS
content. We were also pleased that EV bookings represented 76% of
the Group's total bookings in 2022 (based on lifetime revenue),
with our 2022 EV bookings totalling EUR2.6 billion (BEV awards of
EUR1.3 billion and HEV awards of EUR1.3 billion). Our accelerated
focus on China's growth market through our light weight and energy
saving product lines for Thermal management resulted in BEV booking
awards of EUR0.44 billion lifetime sales, with a majority allocated
to domestic Chinese OEMs. I can also confirm that these new
business awards should produce similar margins to our historic, ICE
platform awards.
Strategy update
Our OEM customers have all introduced ambitious plans to launch
a record number of HEV and BEV programmes in the next few years.
HEVs and BEVs are forecast to become a significant portion of the
global light vehicle market - from 19% of total production volume
in 2022 (16 million units) to 62% in 2030 (60 million units). As
previously mentioned, in order to support increased EV production,
our OEM customers are working to rapidly progress the design and
engineering of their EVs in order to reduce costs and improve
performance, both of which are necessary to support increased
consumer adoption of EVs. In particular, more efficient and
cost-effective thermal management solutions must be developed and
deployed for EVs.
In response, our Take the Turn strategy charts the Group's own
path to realise significant EV growth opportunities by developing
innovative, cost-efficient thermal fluid management components,
modules and systems solutions in collaboration with our OEM
customers to reduce costs and improve EV performance in both the
near-term and long-term. An important statement is 'in
collaboration with our OEM customers' as standards have not been
set and regional differences occur both in technology and in speed
of adaptation. To do so, we will leverage the Group's existing
strengths - our deep customer relationships, especially in
engineering, our global footprint, and our fluid management
expertise in manufacturing and design capabilities. Furthermore, to
support this collaborative development and product expansion, the
Group is establishing a global network of e-Mobility Innovation
Centres (eMICs), which are collaborative engineering and lab
spaces, close to the customer base, where digitalisation is key. At
an eMIC, we will be able to work with our customers to simulate,
design, process, prototype, product test and vehicle test thermal
systems for EVs and take into consideration the local requirements
and needs from our customer base.
A key area of focus in the near-term is the application of
plastic line and hose solutions for cabin comfort systems (i.e.
passenger heating and air conditioning). These systems, for both
ICE vehicles and EVs, are currently constructed using a range of
aluminium and rubber components, which can be replaced with
thermoplastic refrigerant lines (TPRL) developed by the Group to
generate important weight and cost savings.
With regards to product solutions for the thermal management of
EV batteries, the Group is developing plastic line solutions for
current coolant and refrigerant systems in the near-term to
mid-term.
The Group is working with our OEM customers on the development
of modular thermal management solutions for EVs, including
manifolds and modules for both coolant and refrigerant systems,
given the increasing importance of the space, weight and cost
savings these modular product lines offer.
As BEV platforms increase, revenues from our ICE products are
expected to decline. In the near-term, that decline will be
moderated by the fact that HEVs will continue to require
significant ICE content. In the longer-term, the decline is
expected to be offset by a significant opportunity to increase the
Group's revenue on BEVs, especially thermal products, to manage the
heating and cooling of batteries, and other EV components.
Nonetheless, at all phases of the transition, we must carefully
manage the operation of our ICE-related assets.
While the Group's overall level of capital investment (capital
assets plus research and development) is expected to remain at 4%
to 5% of revenue, the allocation will shift to support investments
in the EV thermal fluid management business with a tight control on
assets related to ICE. The Group has sufficient capacity installed
to accommodate the expected life of ICE products, so that any
investment in future ICE programmes is expected to be limited and
linked to specific customer requirements and volume commitments. In
addition, there will be the opportunity to repurpose some of the
blow moulding machines used to manufacture fuel tanks to produce
integrated thermal manifold assemblies (ITMa) for EVs. As fewer
engineers and other personnel are needed to support ICE-related
projects, they will be reassigned to support the growth of the
thermal fluid management business for EV platforms.
Sustainability update
Our Take the Turn strategy reflects three main pillars that
combine to drive sustainable growth: Technology (Electrification),
Transformation (Sustainability), and Talent (Learning). In other
words, our Take the Turn strategy addresses not only the
transitional risks and opportunities associated with vehicle
electrification but also the need to operate our business in a more
sustainable manner to address climate change and maintain a diverse
and talented workforce.
The Group is taking climate change impacts very seriously and
has performed extensive analysis of the ways that our business can
support the effort to limit global warming. We have determined that
our previously announced CO(2) (e) emissions reduction target (37%
reduction of Scope 1 and 2 emissions from 2019 to 2039) is no
longer in line with the current expectations. The COP27 Conference
held in November 2022 clearly demonstrated the critical need for
both the public and private sectors to take urgent action by 2030,
to limit global warming to 1.5 degrees Celsius, using
science--based targets as a first, critical step to a longer-term
net zero world. So, consistent with the science-based target
initiative (SBTi), we have now committed to a 50% reduction of our
Scope 1 and 2 emissions and a 30% reduction of our Scope 3
emissions, in each case on an absolute basis by 2030 from a 2021
baseline.
We have developed achievement plans that include significantly
increased use of renewable electricity, extensive energy efficiency
improvements, and supplier engagement. Importantly, these
initiatives have been modelled and incorporated into our budget
process in terms of operational costs, capital investments and
human resources. In addition, we are working on plans to eliminate
landfill waste and conserve water.
In addition to environmental stewardship, we recognise that the
Group's success and sustainability is also directly linked to our
ability to recruit, retain, motivate, educate and develop a diverse
and talented workforce. We are committed to creating a safe and
inclusive workplace culture in which diversity is valued, and
diverse experiences are appreciated.
To those ends, the Group has implemented a formal Diversity
Policy together with diversity and inclusion training for all
senior managers within the business. The Group's recruitment
processes have been reviewed and guidance issued to all locations
to minimise unconscious bias and promote diverse hiring. Our
progress will be tracked by monitoring against diversity targets
based on local university graduation rates. A women's mentorship
programme has also been established to support and guide women
within the organisation and advise on strategies for success.
To prepare the next generation of women to succeed in the
automotive industry, the Group has awarded 55 scholarships at
leading universities in Germany, Poland, Mexico, the US and China,
for female students enrolling to study STEM subjects to help with
the costs of tuition, room, board and other educational costs. In
addition, these scholarship recipients are connected to local TI
facilities for internships and other extracurricular learning
opportunities.
Ultimately, we aspire to be a company that is environmentally
and socially responsible and a valued member of our local
communities around the globe.
Looking ahead
Despite lower margins in 2022, the Group is confident that we
will return to its historic margin levels in the mid term.
Our path to achieving historic Adjusted EBIT margins has three
main components: (i) production volume recovery, (ii) pricing
economics, and (iii) enhanced productivity.
In the near term, the Group will benefit from upside margin
conversion on revenue growth which will come from general global
production volume increases as well as the Group having an improved
BEV business mix in China over the next few years as our global OEM
customers increase their BEV production in China and by the Group
pursuing increased BEV content with domestic Chinese OEMs.
In addition, we will maintain our focus on pricing economics,
including customer recoveries to offset the impacts of cost
inflation and continued efficiency initiatives, and restructuring
to optimise fixed costs.
Finally, the Group will realise productivity benefits from more
stable volumes, less volatile customer ordering, diminishing supply
disruptions, and series production on new products.
In the longer term, the Group will leverage its strengths,
including deep and diversified customer engineering relationships,
and a global footprint, to develop innovative, cost-efficient
thermal fluid management products and system solutions in
collaboration with our OEM customers to improve performance and
realise significant EV growth opportunities.
The Group's most immediate financial priorities for 2023 are to
increase pricing and customer recoveries to offset the impacts of
cost inflation, to continue cost rationalisation efforts, to
optimise fixed and other costs, and to complete new launches at the
right price and cost level using indices where possible.
At the same time, it is imperative that we continue in 2023 to
lay the foundation for future EV growth by furthering our
activities with our OEM customers to develop cost-efficient thermal
fluid management products and system solutions. To do so, we will
expand our global network of e-Mobility Innovation Centres (eMICs)
so we can work with our customers to simulate, design, process,
prototype, product test and vehicle test thermal systems for
EVs.
Leadership changes
In November 2022, Ron Hundzinski announced his retirement from
the Group as its Chief Financial Officer and he will leave during
2023. Ron joined the Group in January 2020, just before the
COVID-19 pandemic threw the world into turmoil. We are all grateful
to Ron, and wish him well for his retirement. His years of
experience were pivotal in ensuring the Group survived an
exceptionally difficult period, remaining well positioned to pivot
through the industry change to electrification.
Replacing Ron will be Alexander de Bock who will be joining on
31 March 2023 from ZF Friedrichshafen AG where he was the CFO and
Senior Vice President of Commercial Vehicles. Prior to joining ZF,
Alexander had been CFO of WABCO Holdings Inc (NYSE: WBC), a
publicly listed leading global supplier of vehicle controls systems
to the Commercial Vehicle industry. Alexander brings with him a
broad range of finance experience and will play a key role in
executing the Group's strategy to embrace the industry change to
electrification.
Hans Dieltjens
Chief Executive Officer and President
15 March 2023
Chief Financial Officer's Report
Our revenue grew year over year despite some unfavourable mix
impacts in China, and we have made significant progress in our cost
recovery efforts and maintained cash generation even with prolonged
pressures on working capital. Our balance sheet remains strong, and
our liquidity position is healthy.
The Group continued to focus on strengthening operational
performance and its underlying business, which will improve results
in the medium and longer term. Notably, we continue to make
impressive bookings in our BEV and HEV orders, recording EUR1.3
billion of lifetime revenue in each category in 2022, representing
76% of the total new business wins.
Our margin profile reflects the inflationary pressures that were
present in all areas of our cost base, but an approximately 70%
recovery of these costs from our customer base offset a large
portion.
Table 1: Key performance measures
EUR millions
-------------------------- ------ ----------------
Constant
Adjusted Measures* 2022 2021 Change Currency Change
-------------------------- ------- ------- ------ ----------------
Revenue 3,268.3 2,956.6 10.5% 5.2%
Adjusted EBITDA 333.3 352.9
Adjusted EBITDA Margin
% 10.2% 11.9%
Adjusted EBIT 180.0 212.6
Adjusted EBIT Margin % 5.5% 7.2%
Adjusted Net Income 43.5 58.3
Adjusted Basic Earnings
per Share 8.48 11.23
Adjusted Free Cash Flow 78.4 117.3
Statutory Measures 2022 2021 Change
-------------------------- ------- ------- ------
Revenue 3,268.3 2,956.6 10.5%
Operating (Loss) / Profit (217.0) 126.8
(Loss) / Profit for the
Year (279.0) 16.0
Basic Earnings per Share
(EUR cents) (54.39) 2.76
Dividend (EUR cents) 2.54 3.39
*Adjusted measures are non-IFRS metrics as defined in Note 4 and
defined in the glossary in Note 14
Global light vehicle production (GLVP) remains a principal
driver of the Group's performance, and in 2022 increased to 82.4
million vehicles or by 6.7% compared to the prior year.
Post-pandemic volume recovery in the industry continues to be
uneven, with different regions experiencing different supply chain
constraints in addition to challenging global macroeconomic
conditions. Russia's invasion of Ukraine created supply chain
issues in the automotive industry during the first half of the year
and this adversely impacted light vehicle production in Europe.
2022 revenue at actual rates increased by EUR311.7 million, or
10.5% year over year to EUR3,268.3 million, with growth in every
significant region except China, where the product mix was affected
by the rapid transition to BEV platforms from domestic OEMs fuelled
by government incentives and unexpected COVID-19 related closures.
Growth included a positive currency impact of EUR149.9 million,
mainly as a result of a stronger US dollar exchange rate against
the Euro throughout 2022. On a constant currency basis, revenue
increased by EUR161.8 million or 5.2% year over year, providing
slightly lower growth in comparison to GLVP volumes at 150 bps in
the year.
We generated Adjusted EBIT of EUR180.0 million with an adjusted
margin of 5.5%. The adjusted margin is a reflection of the
significant global inflationary pressures, which resulted in higher
operating costs, the impact of COVID-19 in China, and the
volatility caused by continuing semi-conductor shortages. Operating
loss of EUR217.0 million (2021: EUR126.8 million profit) includes
an exceptional impairment charge of EUR317.4 million. This is
covered in more detail in the Operating Profit, Adjusted EBITDA and
Adjusted EBIT discussion in this report.
Adjusted Net Income was EUR43.5 million, compared to EUR58.3
million in the prior year. The reported loss for the year was
EUR279.0 million compared to EUR16.0 million profit in 2021, with
2022 being impacted by the EUR297.3 million exceptional impairment
charge net of tax. Basic EPS was (54.39) Euro cents (2021: 2.76
Euro cents) and Adjusted Basic EPS was 8.48 Euro cents, compared
with 11.23 Euro cents in 2021.
The Group delivered Adjusted Free Cash Flow of EUR78.4 million
(2021: EUR117.3 million). With financing net cash outflows
amounting to EUR62.4 million (2021: EUR122.5 million), including
EUR12.6 million (2021: EUR45.0 million) in respect of dividend
payments and a favourable currency impact of EUR3.4 million (2021:
EUR24.3 million), year-end net debt was EUR624.9 million (2021:
EUR600.3 million), inclusive of cash balances of EUR491.0 million
(2021: EUR499.1 million).
Automotive markets
Global light vehicle production volumes increased by 6.7% in
2022 to 82.4 million vehicles as shown in Table 2, with Europe
impacted by the conflict in Ukraine, and Asia Pacific benefiting
from the accelerated adoption of local BEVs in China due to
time-limited government incentives.
Table 2: Global light vehicle production volumes: millions of
units
2022 % Change
Europe, including Middle East and Africa 18.1 0.6 %
Asia Pacific 47.2 8.2 %
North America 14.3 9.7 %
Latin America 2.8 8.4 %
------------------------------------------------- ----- -----------
Total global volumes 82.4 6.7 %
------------------------------------------------- ----- -----------
Sources: S&P Global Mobility February 2023 and Company estimates
Change percentages calculated using unrounded data
Revenue
Our revenue in each of the regions, and by segment, is included
in Table 3.
Table 3: Revenue by region and by segment EURm
% Change Constant
at constant currency
currency growth vs
2022 2021 Change % Change LVP growth
Total Group revenue 3,268.3 2,956.6 311.7 10.5% 5.2% (150) bps
By segment
FCS 1,869.7 1,603.5 266.2 16.6% 10.3% 360 bps
FTDS 1,398.6 1,353.1 45.5 3.4% -0.9% (760) bps
By region
Europe and Africa 1,207.1 1,138.4 68.7 6.0% 5.8% 520 bps
Asia Pacific 1,114.3 1,058.1 56.2 5.3% -0.5% (870) bps
North America 895.8 713.6 182.2 25.5% 12.9% 320 bps
Latin America 51.1 46.5 4.6 9.9% -2.6% (1,100) bps
In Europe and Africa, where we ceased operations in Russia due
to its invasion of Ukraine, revenue at constant currency increased
by 5.8% year over year compared to a light vehicle production (LVP)
volume change of 0.6%, giving an outperformance of 520 bps. This
outperformance was driven by the successful launch of new HEV/BEV
programmes for both FTDS and FCS.
In Asia Pacific, revenue at constant currency decreased by 0.5%
year over year compared to an LVP increase of 8.2%, giving an
underperformance of 870 bps. Underperformance in the region was
entirely in China and was impacted by the transition to BEVs by
domestic OEMs, as previously highlighted and compounded by COVID-19
related closures towards the end of the year.
In North America, revenue at constant currency increased by
12.9% year over year compared to an LVP increase of 9.7%,
reflecting an outperformance of 320 bps. Outperformance in this
region was mainly driven by strong growth in FCS due to thermal
business launches and ramp ups. FCS outperformed the market in that
region by 660 bps.
FCS revenue increased by EUR174.8 million, or 10.3% at constant
currency from the prior year to EUR1,869.7 million, giving an
outperformance of 360 bps when compared to GLVP growth. The strong
FCS revenue increase is driven by successful launches of thermal
programmes in Europe and North America, as well as cost recoveries
from customers.
FTDS revenue at constant currency decreased by 0.9% to
EUR1,398.6 million, underperforming GLVP growth by 760 bps,
primarily driven by the growth in BEV production which reduced the
addressable market, and the impact of the COVID-19 related
shutdowns in China, where key manufacturing facilities are located.
Revenue was also impacted by the planned exit of part of the
business in Latin America.
Revenue at actual rates increased by 10.5% to EUR3,268.3 million
due to a net positive currency exchange rate impact of EUR149.9
million compared with the prior year, in addition to the regional
volume differences. Compared to the same period last year, the US
Dollar depreciated by 11% against the Euro, and the Chinese
Renminbi by 7.2%. With just under half of the Group's revenue
denominated in these currencies, these foreign exchange rate
movements against the Euro had a significant positive impact on the
Group's revenue performance. On a constant currency basis, revenue
increased by 5.2%.
Operating loss, Adjusted EBITDA* and Adjusted EBIT*
We use several financial measures to manage our business,
including Adjusted EBITDA and Adjusted EBIT, which are non-IFRS
measures, but are measures of profitability that have been used
consistently by the Group and give insight into the underlying
operating performance of the business. The metrics are also used in
certain of our compensation plans and to communicate to our
investors. A reconciliation between the reported measures and
Adjusted EBITDA and Adjusted EBIT is shown in Note 4.
* See Non-IFRS measures in Note 4 and defined in the glossary in
Note 14
The operating loss of EUR217.0 million (2021: EUR126.8 million
profit) was principally due to the exceptional impairment charge of
EUR317.4 million. This was recognised following a full impairment
review triggered by a reduction in the projected GLVP volumes over
the five-year review period, and rising discount rates. Our full
impairment review is included in Note 9 and shows that goodwill
arising from the Bain acquisition of EUR217.1 million was impaired
and other assets including property, plant and equipment, other
intangibles and right of use assets of EUR100.3 million were also
impaired. The impairment was primarily caused by the reduction of
medium-term GLVP forecasts, impact of cost pressures, and increases
in discount rates arising from the increase in interest rates.
Operating profit before exceptional items was EUR100.4 million,
EUR26.4 million lower than last year (2021: EUR126.8 million),
where the operating gains from higher revenues were more than
offset by the impact of the adverse macroeconomic pressures that we
continue to face, most notably the inflationary effects on raw
materials and energy costs not fully recovered from customers.
The Group continues its business rationalisation programme, with
the cost saving activity started in 2020 continuing into 2022, and
in this regard, we incurred further restructuring charges of
EUR22.8 million related to permanent headcount reductions across
all our businesses and the planned closure and downsizing of
manufacturing plants in Europe, North America and Latin America. At
the end of 2022, there was a restructuring provision of EUR7.8
million (2021: EUR15.8 million). The closure of two plants in
Russia were included as part of the restructuring activities.
Adjusted EBITDA was EUR333.3 million (2021: EUR352.9 million)
and Adjusted EBITDA margin was 10.2% (2021: 11.9%), impacted by
higher input costs due to rapid and high levels of inflation, which
added EUR143.0 million of commodities, energy, freight and labour
costs, which were offset by customer recoveries of EUR101.0
million, an approximately 70% recovery rate. The operating costs
have been impacted by macroeconomic challenges relating to
inflationary cost pressures, the conflict in Ukraine, which has
adversely affected the supply chain, as well as persistent global
semi-conductor shortages.
Adjusted EBIT was EUR180.0 million (2021: EUR212.6 million) and
Adjusted EBIT margin was 5.5% (2021: 7.2%), mainly reflecting the
cost pressures discussed above. During the year there were
programme-specific impairment charges of EUR1.4 million (2021:
EUR2.0 million).
By segment, FCS Adjusted EBIT was EUR95.0 million (2021:
EUR117.9 million) with an Adjusted EBIT margin of 5.1% (2021:
7.4%). This reflects the adverse macroeconomic conditions
experienced in the year, particularly rising material and labour
costs, which were only partially offset by savings from
restructuring activities and manufacturing efficiencies.
FTDS Adjusted EBIT was EUR85.0 million (2021: EUR94.7 million)
with an Adjusted EBIT margin of 6.1% (2021: 7.0%). The margin
reflects the tough operating conditions, particularly inflationary
pressures, some of which was partially mitigated by having customer
contracts with indexing clauses for resin cost changes.
Net finance expense
Net finance expense, before exceptional items for the year was
EUR58.7 million, an improvement of EUR1.3 million from the prior
year excluding exceptional items. This was mainly due to lower
capitalised fee amortisation expense following the refinancing
carried out in April 2021, and higher interest income due to higher
interest rates, which was partially offset by higher interest
expense, particularly on the US Term Loan due to higher base
lending rates for the US LIBOR. The exceptional finance expense in
2021 related to the write-off of previously capitalised fees upon
refinancing in April 2021.
Taxation
The Group income tax charge, before exceptional items, is
EUR23.4 million, down EUR17.5 million from 2021. This lower income
tax charge results in a decrease in the Effective Tax Rate to 56.1%
(2021: 62.0%) on revised Group Profit Before Tax of EUR41.7 million
(2021: EUR67.0 million). The high effective tax rate is reflective
of the mix effect of the increase in the level of profits
generating a tax charge and an increase in the level of losses
where no deferred tax asset is recognised. See Note 6 for more
details.
The 2022 exceptional impairment charge of EUR317.4 million has
an associated deferred tax credit of EUR20.1 million, which results
in an effective tax rate of 6.3%. The lower effective tax rate is
due to the fact that the majority of the impairment is related to
goodwill that does not carry a deferred tax balance and, therefore,
this portion of the impairment is not tax effected.
For 2021, the Group reported an exceptional US refinancing
charge of EUR11.8 million with a corporate tax benefit of EUR1.8
million and a deferred tax benefit of EUR1.0 million, which results
in an exceptional effective tax rate of 23.7% (the US 2021
effective tax rate).
Adjusted Net Income* and Loss for the year
Adjusted Net Income is a component of the Adjusted Basic EPS
calculation and is also used to guide our dividend policy
calculation.
Adjusted Net Income was EUR43.5 million in 2022, compared to
EUR58.3 million in 2021, primarily driven by the unrecovered
inflationary cost increases discussed. The loss for the year was
EUR279.0 million (2021: EUR16.0 million profit) reflecting the
lower operating performance and the exceptional impairment charge,
net of tax of EUR297.3 million (2021: EUR9.0 million charge
relating to refinancing).
*See Non-IFRS measures in Note 4 and defined in the glossary in
Note 14
Basic EPS and Adjusted Basic EPS*
On a statutory basis, Basic Earnings per Share ('EPS') was
(54.39) Euro cents for the year (2021: 2.76 Euro cents), reflecting
the significant impairment charge booked in the year. Adjusted
Basic EPS was 8.48 Euro cents per share for the year (2021: 11.23
Euro cents per share) reflecting the decrease in Adjusted Net
Income as noted above.
*See EPS Note 7 and defined in the glossary in Note 14
Dividend
The Company's dividend policy is to target an annual dividend of
approximately 30% of Adjusted Net Income, one-third payable
following the half year results and two-thirds following the
Group's final results.
The Board has decided to recommend a final dividend of 1.54 Euro
cents per share amounting to EUR7.9 million. This final dividend,
together with the 2022 interim dividend of 1.00 Euro cents per
share paid in September 2022, makes a total dividend for 2022 of
2.54 Euro cents per share, totalling EUR13.0 million. The total
dividend is 30% of Adjusted Net Income. Subject to shareholder
approval at the Annual General Meeting on 16 May 2023, the final
dividend will be paid on 23 June 2023 to those on the register on
26 May 2023, the Dividend Record Date and will be converted to
Sterling at a fixed rate on the same date.
The Group continues to remain confident in its business model,
cost flexibility, strong cash generation, experienced management
team, and successful transition to electrification.
Cash flow performance
The Group uses Adjusted Free Cash Flow as its primary operating
measure of cash flow performance.
In 2022, we generated Adjusted Free Cash Flow of EUR78.4 million
(2021: EUR117.3 million). The Adjusted EBITDA generated by the
Group was used to fund investment in capital equipment and
intangibles. There was a EUR5.7 million decrease in property, plant
and equipment and intangibles expenditure and tax cash payments
were EUR4.2 million higher. The outflow from working capital of
EUR22.7 million was driven by the increase in working capital
balances arising from higher sales and also the adverse impact from
the prolonged challenges in the macroeconomic environment, and the
increasing inventory valuation driven by raw materials inflation.
The net cash outflow on restructuring was EUR23.6 million,
predominantly severance payments (2021: EUR21.3 million).
Free cash flows of EUR50.9 million (2021: EUR111.5 million) were
offset by cash outflows from financing of EUR62.4 million (2021:
EUR122.5 million), resulting in a reported decrease in cash and
cash equivalents of EUR11.5 million (2021: EUR11.0 million).
Financing outflows include EUR11.4 million for the Group's purchase
of its own shares (2021: EUR8.3 million) associated with the
Group's liabilities under the long-term incentive plans, scheduled
repayments of borrowing EUR5.5 million (2021: EUR22.1 million
including the net impact of the 2022 refinancing), and EUR32.9
million (2021: EUR31.6 million) lease principal repayments. In
December 2021, the Associate holding in SeAH FS Co. Ltd was sold
for EUR15.5 million; the proceeds of this transaction are excluded
from the calculation of Adjusted Free Cash Flow.
The 2022 total dividend cash outflow amounted to EUR12.6 million
(2021: EUR45.0 million).
Retirement benefits
We operate funded and unfunded defined benefit schemes across
multiple territories with the largest being the US pension and
retiree healthcare schemes, which represent 53% of our net unfunded
position at 31 December 2022 (2021: 52%), and Germany pension and
retiree schemes 19% (2021: 20%). We also have funded schemes in the
UK and Canada, which were fully funded at 31 December 2022 (2021:
1%). While all our major plans are closed to new entrants, a few
allow for future accrual. Our schemes are subject to periodic
actuarial valuations. Our net unfunded position improved by EUR23.9
million from 31 December 2021 to EUR104.2 million at 31 December
2022, primarily due to discount rates differential year-on-year and
overall pension investment performance.
Net debt* and net leverage*
Net debt, a non-IFRS measure, as at 31 December 2022 was
EUR624.9 million, an increase of EUR24.6 million from the prior
year-end mainly due to foreign exchange movements on the US dollar
Term Loan of EUR16.4 million and lower cash compared to the prior
year.
The Group's net leverage ratio, also a non-IFRS measure, was 1.9
times Adjusted EBITDA as at 31 December 2022 (31 December 2021: 1.7
times), reflecting the lower Adjusted EBITDA and higher Net
Debt.
The Group excludes IFRS 16 lease liabilities from its net debt
and net leverage ratio. If the IFRS 16 lease liabilities were to be
included, the Group's net debt would be EUR774.5 million (31
December 2021: EUR750.2 million) and net leverage ratio would be
2.3 times Adjusted EBITDA (31 December 2021: 2.1 times).
*Defined in the glossary Note 14
Liquidity
Our principal sources of liquidity have historically been cash
generated from operating activities and amounts available under our
credit facilities, which consist of a revolving facility under our
cash flow credit agreement of $225.0 million (EUR210.8 million).
Total available liquidity (cash plus available facilities) on 31
December 2022 was EUR699.9 million (31 December 2021: EUR695.3
million).
Outlook
The current S&P Global Mobility estimate for GLVP in 2023 is
85.1 million units although the Group remains slightly more
cautious anticipating circa 83.0 million units due to the potential
for demand moderation combined with ongoing supply constraints. The
Group expects the first quarter of 2023 to be impacted by the
disrupted situation in China, but expect this to resolve for a
stronger second half of the year. Mindful of the geopolitical
uncertainty, and the ongoing but improving global supply
constraints, the Group expects revenue growth at constant currency
to return to outperformance compared to GLVP volume growth this
year. With a strong focus on cost management, cost recoveries, and
a more stable production environment, the Group expects Adjusted
EBIT margin to expand above 6% this year. Adjusted Free Cash Flow
is expected to return to approximately 30% of Adjusted EBITDA.
Looking to the medium term, the Group is well placed to use its
good position in the automotive industry transition to electric
vehicles and expects strong new business bookings driving future
revenue growth and outperformance, in addition to returning to
historic profit margins.
Ronald Hundzinski
Chief Financial Officer
15 March 2023
Cautionary Statement
This announcement contains certain forward-looking statements
with respect to the financial condition, results of operations and
business of TI Fluid Systems plc (the "Group"). The words
"believe", "expect", "anticipate", "intend", "estimate",
"forecast", "project", "will", "may", "should" and similar
expressions identify forward-looking statements. Others can be
identified from the context in which they are made. By their
nature, forward-looking statements involve risks and uncertainties,
and such forward-looking statements are made only as of the date of
this presentation. Accordingly, no assurance can be given that the
forward-looking statements will prove to be accurate and you are
cautioned not to place undue reliance on forward-looking statements
due to the inherent uncertainty therein. Past performance of the
Company cannot be relied on as a guide to future performance.
Nothing in this announcement should be construed as a profit
forecast.
TABLE OF CONTENTS
GROUP FINANCIAL STATEMENTS
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
NOTES TO THE GROUP FINANCIAL STATEMENTS
1 General Information
2 Basis of Preparation
3 Segment Reporting
4 Alternative Performance Measures
5 Finance Income and Expense
6 Income Tax
7 Earnings Per Share
8 Intangible Assets
9 Impairments
10 Borrowings
11 Retirement Benefit Obligations
12 Provisions
13 Cash Generated from Operations
14 Glossary of terms
Group Financial Statements
Consolidated Income Statement
For the year ended 31 December
2022 2022 2022 2021 2021 2021
Before Exceptional After Before Exceptional After exceptional
exceptional items exceptional exceptional items items
items items items
Continuing Note EURm EURm EURm EURm EURm EURm
operations
----------------- ---- ----------- ----------- ---------------- ----------- ---------------- ------------------------
Revenue 3 3,268.3 - 3,268.3 2,956.6 - 2,956.6
Cost of sales (2,938.0) (100.3) (3,038.3) (2,626.8) - (2,626.8)
Gross
profit/(loss) 330.3 (100.3) 230.0 329.8 - 329.8
-----------------
Distribution
costs (112.1) - (112.1) (93.9) - (93.9)
Administrative
expenses (119.0) (217.1) (336.1) (105.8) - (105.8)
Net foreign
exchange
losses (0.7) - (0.7) (6.9) - (6.9)
Other gains and
losses 1.9 - 1.9 3.6 - 3.6
Operating
profit/(loss) 100.4 (317.4) (217.0) 126.8 - 126.8
-----------------
Finance income 5 5.7 - 5.7 3.1 - 3.1
Finance expense 5 (64.4) - (64.4) (63.1) (11.8) (74.9)
Net finance
expense 5 (58.7) - (58.7) (60.0) (11.8) (71.8)
-----------------
Share of loss
of associate - - - (0.9) - (0.9)
----------------- ---- ----------- ----------- ---------------- ----------- ---------------- ------------------------
Profit/(loss)
before income
tax 41.7 (317.4) (275.7) 65.9 (11.8) 54.1
----------------- ---- ----------- ----------- ---------------- ----------- ---------------- ------------------------
Income tax
(expense)/credit 6 (23.4) 20.1 (3.3) (40.9) 2.8 (38.1)
Profit/(loss)
for the year 18.3 (297.3) (279.0) 25.0 (9.0) 16.0
-----------------
Profit/(loss)
for the year
attributable
to:
Owners of the
Parent Company 18.2 (297.3) (279.1) 23.3 (9.0) 14.3
Non-controlling
interests 0.1 - 0.1 1.7 - 1.7
----------------- ---- ----------- ----------- ---------------- ----------- ---------------- ------------------------
18.3 (297.3) (279.0) 25.0 (9.0) 16.0
----------------- ---- ----------- ----------- ---------------- ----------- ---------------- ------------------------
Total earnings
per share (Euro,
cents)
----------------- ---- ----------- ----------- ---------------- ----------- ---------------- ------------------------
Basic 7 (54.39) 2.76
Diluted 7 (54.39) 2.73
----------------- ---- ----------- ----------- ---------------- ----------- ---------------- ------------------------
Refer to Note 4 for reconciliation to adjusted performance
measures (APMs).
Consolidated Statement of Comprehensive Income
For the year ended 31 December
2022 2021
Note EURm EURm
---------------------------------------------------- ---- ------- -----
(Loss)/profit for the year (279.0) 16.0
Other comprehensive income
Items that will not be reclassified to profit
or loss
- Re-measurements of retirement benefit obligations 28.0 36.3
- Income tax expense on retirement benefit
obligations 6 (6.9) (6.8)
21.1 29.5
----------------------------------------------------
Items that may be subsequently reclassified
to profit or loss
- Currency translation 6.0 75.1
- Net investment hedges - 0.9
6.0 76.0
----------------------------------------------------
Total other comprehensive income for the
year 27.1 105.5
---------------------------------------------------- ---- ------- -----
Total comprehensive income for the year (251.9) 121.5
---------------------------------------------------- ---- ------- -----
Attributable to:
- Owners of the Parent Company (252.0) 120.1
- Non-controlling interests 0.1 1.4
---------------------------------------------------- ---- ------- -----
Total comprehensive income for the year (251.9) 121.5
---------------------------------------------------- ---- ------- -----
Consolidated Balance Sheet
As at 31 December
2022 2021
Note EURm EURm
---------------------------------------------- ---- ------- -------
Non-current assets
Intangible assets 8 603.9 884.8
Right-of-use assets 109.3 125.2
Property, plant and equipment 531.4 595.4
Deferred income tax assets 6 105.2 70.5
Trade and other receivables 20.6 19.2
---------------------------------------------- ---- ------- -------
1,370.4 1,695.1
---------------------------------------------- ---- ------- -------
Current assets
Inventories 372.0 332.3
Trade and other receivables 541.9 520.5
Current income tax assets 7.9 11.4
Derivative financial instruments 2.8 0.9
Financial assets at fair value through profit
or loss - 0.9
Cash and cash equivalents 491.0 499.1
---------------------------------------------- ---- ------- -------
1,415.6 1,365.1
---------------------------------------------- ---- ------- -------
Total assets 2,786.0 3,060.2
---------------------------------------------- ---- ------- -------
Equity
Share capital 6.8 6.8
Share premium 2.2 2.2
Other reserves (55.4) (61.4)
Retained earnings 722.6 995.9
---------------------------------------------- ---- ------- -------
Equity attributable to owners of the Parent
Company 676.2 943.5
---------------------------------------------- ---- ------- -------
Non-controlling interests 0.5 0.4
---------------------------------------------- ---- ------- -------
Total equity 676.7 943.9
---------------------------------------------- ---- ------- -------
Non-current liabilities
Trade and other payables 12.8 14.6
Borrowings 10 1,114.0 1,098.5
Lease liabilities 121.5 119.8
Deferred income tax liabilities 6 80.7 95.8
Retirement benefit obligations 11 104.2 128.1
Provisions 12 2.6 2.6
---------------------------------------------- ---- ------- -------
1,435.8 1,459.4
---------------------------------------------- ---- ------- -------
Current liabilities
Trade and other payables 584.8 546.1
Current income tax liabilities 6 44.5 49.9
Borrowings 10 1.9 1.8
Lease liabilities 28.1 30.1
Derivative financial instruments 0.2 0.3
Provisions 12 14.0 28.7
---------------------------------------------- ---- ------- -------
673.5 656.9
---------------------------------------------- ---- ------- -------
Total liabilities 2,109.3 2,116.3
---------------------------------------------- ---- ------- -------
Total equity and liabilities 2,786.0 3,060.2
---------------------------------------------- ---- ------- -------
Consolidated Statement of Changes in Equity
For the year ended 31 December
Ordinary Share Other Retained Non-controlling Total
shares premium reserves earnings Total interests equity
EURm EURm EURm EURm EURm EURm EURm
-------------------------- -------- -------- --------- --------- ------- --------------- -------
Balance at 1 January
2022 6.8 2.2 (61.4) 995.9 943.5 0.4 943.9
(Loss)/profit for
the year - - - (279.1) (279.1) 0.1 (279.0)
Total other comprehensive
income for the
year - - 6.0 21.1 27.1 - 27.1
-------------------------- -------- -------- --------- --------- ------- --------------- -------
Total comprehensive
income for the
year - - 6.0 (258.0) (252.0) 0.1 (251.9)
Share-based expense - - - 9.6 9.6 - 9.6
Issue of own shares
from Employee Benefit
Trust - - - 1.0 1.0 - 1.0
Vested share awards - - - (1.9) (1.9) - (1.9)
Purchase of own
shares - - - (11.4) (11.4) - (11.4)
Dividends paid - - - (12.6) (12.6) (12.6)
-------------------------- -------- -------- --------- --------- ------- --------------- -------
Transactions with
owners recognised
directly in equity - - - (15.3) (15.3) - (15.3)
-------------------------- -------- -------- --------- --------- ------- --------------- -------
Balance at 31
December 2022 6.8 2.2 (55.4) 722.6 676.2 0.5 676.7
-------------------------- -------- -------- --------- --------- ------- --------------- -------
Ordinary Share Other Retained Non-controlling Total
shares premium reserves earnings Total interests equity
EURm EURm EURm EURm EURm EURm EURm
------------------------ ---------------- ------------------ --------- --------- ------ --------------- -------
Balance at 1 January
2021 6.8 2.2 (137.7) 987.7 859.0 25.2 884.2
Profit for the
year - - - 14.3 14.3 1.7 16.0
Total other
comprehensive
income for the
year - - 76.3 29.5 105.8 (0.3) 105.5
------------------------ ---------------- ------------------ --------- --------- ------ --------------- -------
Total comprehensive
income for the
year - - 76.3 43.8 120.1 1.4 121.5
------------------------ ---------------- ------------------ --------- --------- ------ --------------- -------
Decrease in share
held by Non-controlling
interests - - - 26.2 26.2 (26.2) -
Purchase of NCI - - - (15.5) (15.5) - (15.5)
Share-based expense - - - 6.8 6.8 - 6.8
Issue of own shares
from Employee Benefit
Trust 1.1 1.1 1.1
Vested share awards (0.9) (0.9) (0.9)
Purchase of own
shares - - - (8.3) (8.3) - (8.3)
Dividends - - - (45.0) (45.0) (45.0)
------------------------ ---------------- ------------------ --------- --------- ------ --------------- -------
Transactions with
owners recognised
directly in equity - - - (35.6) (35.6) (26.2) (61.8)
------------------------ ---------------- ------------------ --------- --------- ------ --------------- -------
Balance at 31 December
2021 6.8 2.2 (61.4) 995.9 943.5 0.4 943.9
------------------------ ---------------- ------------------ --------- --------- ------ --------------- -------
Consolidated Statement of Cash Flows
For the year ended 31 December
2022 2021
Note EURm EURm
-------------------------------------------------- ---- ------------------- ------------------
Cash flows from operating activities
Cash generated from operations 13 282.5 319.8
Interest paid (56.7) (50.6)
Income tax paid on operating activities (58.3) (54.1)
-------------------------------------------------- ---- ------------------- ------------------
Net cash generated from operating activities 167.5 215.1
-------------------------------------------------- ---- ------------------- ------------------
Cash flows from investing activities
Payment for property, plant and equipment (90.8) (88.2)
Payment for intangible assets (27.1) (35.4)
Proceeds from the sale of property, plant
and equipment - 1.4
Proceeds from the sale of associated undertakings - 15.5
Tax paid on the proceeds from the sale of
associated undertakings (3.0) -
Interest received 4.3 3.1
-------------------------------------------------- ---- ------------------- ------------------
Net cash used in investing activities (116.6) (103.6)
-------------------------------------------------- ---- ------------------- ------------------
Net cash generated from operating & investing
activities ('Free Cash Flow') 4 50.9 111.5
-------------------------------------------------- ---- ------------------- ------------------
Cash flows from financing activities
Purchase of own shares (11.4) (8.3)
Purchase of non-controlling interests - (15.5)
Proceeds from new borrowings 10 - 600.0
Fees paid on proceeds from new borrowings 10 - (15.3)
Voluntary repayments of borrowings 10 - (600.0)
Scheduled repayments of borrowings 10 (5.5) (6.8)
Lease principal repayments (32.9) (31.6)
Dividends paid (12.6) (45.0)
Net cash used in financing activities (62.4) (122.5)
--------------------------------------------------
Net decrease in cash and cash equivalents (11.5) (11.0)
-------------------------------------------------- ---- ------------------- ------------------
Cash and cash equivalents at the beginning
of the year 499.1 485.8
Currency translation on cash and cash equivalents 3.4 24.3
-------------------------------------------------- ---- ------------------- ------------------
Cash and cash equivalents at the end of the
year 491.0 499.1
-------------------------------------------------- ---- ------------------- ------------------
1 . General Information
The Group's full financial statements have been approved by the
Board of Directors and reported on by the auditors on 15 March
2023. These condensed consolidated financial statements for the
current and prior years do not constitute statutory accounts as
defined in section 434 of the Companies Act 2006. A copy of the
statutory accounts for the year ended 31 December 2021 has been
delivered to the Registrar of Companies, and those for the year
ended 31 December 2022 will be delivered in due course. The
independent auditors' report on the full financial statements for
the year ended 31 December 2021 was unqualified and did not contain
an emphasis of matter paragraph or any statement under section 498
of the Companies Act 2006.
2 . Basis of Preparation
The condensed consolidated financial statements included within
this announcement have been prepared in accordance with UK-adopted
International Accounting Standards and in conformity with the
requirements of the Companies Act 2006 and the Disclosure and
Transparency Rules of the Financial Conduct Authority.
The consolidated financial statements have been prepared under
the historical cost convention, except for the fair valuation of
assets and liabilities of subsidiary companies acquired, and
financial assets and liabilities at fair value through profit or
loss ('FVTPL') (including derivative instruments not in hedged
relationships).
The preparation of financial statements in conformity with
UK-adopted International Accounting Standards requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities and the reported amounts of revenue and
expenses during the reporting period. Although these estimates are
based on management's reasonable knowledge, actual results may
differ from those estimates.
3 . Segment Reporting
In accordance with the provisions of IFRS 8 'Operating
Segments', the Group's segment reporting is based on the management
approach with regard to segment identification, under which
information regularly provided to the chief operating decision
makers ('CODM') for decision-making purposes forms the basis of the
disclosure. The Company's CODM is the Chief Executive Officer
('CEO'), Chief Operating Officer and the Chief Financial Officer.
The CODM evaluates the performance of the Company's segments
primarily on the basis of revenue, adjusted EBITDA, and adjusted
EBIT (see note 4).
Two operating segments have been identified by the Group: Fluid
Carrying Systems ('FCS') and Fuel Tank and Delivery Systems
('FTDS'). Inter-segment revenue is attributable solely to the
ordinary business activities of the respective segment and is
conducted on an arm's-length basis.
2022 2021
EURm EURm
----------------------------- ------- -------
Revenue
- FCS - External 1,869.7 1,603.5
- Inter-segment 67.0 63.1
----------------------------- ------- -------
1,936.7 1,666.6
----------------------------- ------- -------
- FTDS - External 1,398.6 1,353.1
- Inter-segment 2.8 2.5
----------------------------- ------- -------
1,401.4 1,355.6
----------------------------- ------- -------
Inter-segment elimination (69.8) (65.6)
----------------------------- ------- -------
Total consolidated revenue 3,268.3 2,956.6
----------------------------- ------- -------
Adjusted EBITDA
- FCS 170.4 177.1
- FTDS 162.9 175.8
----------------------------- ------- -------
333.3 352.9
----------------------------- ------- -------
Adjusted EBITDA % of revenue
- FCS 9.1% 11.0%
- FTDS 11.6% 13.0%
----------------------------- ------- -------
Total 10.2% 11.9%
----------------------------- ------- -------
Adjusted EBIT
- FCS 95.0 117.9
- FTDS 85.0 94.7
----------------------------- ------- -------
180.0 212.6
----------------------------- ------- -------
Adjusted EBIT % of revenue
- FCS 5.1% 7.4%
- FTDS 6.1% 7.0%
----------------------------- ------- -------
Total 5.5% 7.2%
----------------------------- ------- -------
Restructuring costs of EUR 22.8 million (EUR19.8 million in FCS
and EUR3.0 million in FTDS) (2021: EUR26.8 million of which EUR15.3
million in FCS and EUR11.5 million in FTDS) comprise announced
headcount reductions and related costs of balancing production
capacity with market requirements. Please refer to Alternative
Performance Measures (Note 4 ) for reconciliation to Income
Statement.
4 . Alternative Performance Measures
In addition to the results reported under IFRS, Management use
certain non-IFRS financial measures to monitor and measure the
performance of the business and operations and the profitability of
the divisions. Such measures are also utilised by the Board as
targets in determining compensation of certain executives and key
members of management, as well as in communications with investors.
In particular, Management use Adjusted EBIT, Adjusted EBITDA,
Adjusted Net Income, and Adjusted Free Cash Flow. These non-IFRS
measures are not recognised measurements of financial performance
or liquidity under IFRS, and should be viewed as supplemental and
not replacements or substitutes for any IFRS measures.
Definitions for alternative performance measures are included in
the Note 14 glossary.
2022 2021
Adjusted Performance Measures EURm EURm
------------------------------ ----- -----
Adjusted EBIT 180.0 212.6
Adjusted EBITDA 333.3 352.9
Adjusted net income 43.5 58.3
Adjusted free cash flow 78.4 117.3
------------------------------ ----- -----
For Adjusted basic EPS please refer to Note 7.
4.1 Adjusting Items
Management exclude certain items in the derivation of
alternative performance measures, as shown below:
2022 2021
Adjusting Items Note EURm EURm
-------------------------------------------- ---- ----- ----
Restructuring costs 12 22.8 26.8
Exceptional impairment charge 9 317.4 -
Net foreign exchange losses 0.7 6.9
Costs associated with business acquisitions
or disposals 1.8 -
Loss on disposal of associate and other - 0.4
-------------------------------------------- ---- ----- ----
342.7 34.1
-------------------------------------------- ---- ----- ----
Restructuring costs comprise announced headcount reductions and
related costs of balancing production capacity with market
requirements.
The exceptional impairment charge relates to the write-down of
goodwill, intangible assets, property, plant and equipment and
right-of-use assets, following the outcome of the 2022 annual
impairment test. As a significant, non-recurring item, this charge
has been excluded from our alternative performance measures.
Net foreign exchange gains/losses on the foreign currency
revaluation of intercompany loan and cash balances are included in
adjusting items to remove the impact of market volatility on our
adjusted performance measures.
Costs associated with business acquisitions or disposals and, in
the prior year, the loss on disposal of associate, have been
excluded from the alternative performance measures due to their
ad-hoc non-recurring nature.
4.2 Adjusted Performance Measures
Reconciliations of adjusted performance measures to their
statutory GAAP equivalent measures are provided below.
2022 2021
Adjusted EBITDA Note EURm EURm
-------------------------------------------------- ---- ------- -----
Operating (loss)/profit (217.0) 126.8
Depreciation and amortisation arising on purchase
accounting 54.3 51.7
Adjusting items 4.1 342.7 34.1
-------------------------------------------------- ---- ------- -----
Adjusted EBIT 180.0 212.6
-------------------------------------------------- ---- ------- -----
Depreciation, amortisation and non-exceptional
impairments on non-purchase accounting 153.3 140.3
-------------------------------------------------- ---- ------- -----
Adjusted EBITDA 333.3 352.9
-------------------------------------------------- ---- ------- -----
Adjusted Net Income Note 2022 2021
EURm EURm
------------------------------------------- ---- ------- -----
(Loss)/profit for the year (279.0) 16.0
Non-controlling interests' share of profit (0.1) (1.7)
Share of loss of associate - 0.9
Exceptional tax credit 6 (20.1) (2.8)
Exceptional finance expense 5 - 11.8
Adjusting items 4.1 342.7 34.1
------------------------------------------- ---- ------- -----
Adjusted Net Income 43.5 58.3
------------------------------------------- ---- ------- -----
2022 2021
Adjusted Free Cash Flow Notes EURm EURm
------------------------------------------------- ------ ------- -------
Net cash generated from operating activities 167.5 215.1
Net cash used in investing activities (116.6) (103.6)
--------------------------------------------------------- ------- -------
Free Cash Flow 50.9 111.5
--------------------------------------------------------- ------- -------
Proceeds from the sale of associate - (15.5)
Cash received on movements of financial assets
at FVTPL (0.9) -
Net restructuring cash spend 23.6 21.3
Tax paid on the gain on disposal of associated
undertakings 3.0 -
Costs associated with business acquisitions
or disposals 1.8 -
--------------------------------------------------------- ------- -------
Adjusted Free Cash Flow 78.4 117.3
--------------------------------------------------------- ------- -------
5 . Finance Income and Expense
2022 2021
EURm EURm
-------------------------------------------------------- ------ ------
Finance income
Interest on short-term deposits, other financial assets
and other interest income 3.9 2.6
Fair value gains on derivatives and foreign exchange
contracts not in hedged relationships 1.8 0.5
Finance income 5.7 3.1
--------------------------------------------------------
Finance expense
Interest payable on term loans including expensed fees (28.3) (33.5)
Interest payable on unsecured senior notes including
expensed fees (23.7) (16.7)
Net interest expense of retirement benefit obligations (2.8) (2.5)
Net interest expense related to specific uncertain
tax positions (0.1) (0.6)
Interest payable on lease liabilities (9.3) (9.8)
Other finance expense (0.2) -
Finance expense before exceptional items (64.4) (63.1)
Unamortised transaction costs expensed on voluntary
repayments of borrowings - (11.8)
-------------------------------------------------------- ------ ------
Exceptional finance expense - (11.8)
-------------------------------------------------------- ------ ------
Finance expense after exceptional items (64.4) (74.9)
-------------------------------------------------------- ------ ------
Total net finance expense after exceptional items (58.7) (71.8)
-------------------------------------------------------- ------ ------
2022 2021
Fees included in interest payable under the effective
interest method EURm EURm
------------------------------------------------------ ----- -----
Fees included in interest payable on term loans (3.5) (4.4)
Fees included in interest payable on unsecured senior
notes (1.2) (0.8)
------------------------------------------------------ ----- -----
2022 2021
Fees expensed in exceptional finance expense EURm EURm
--------------------------------------------- ----- ------
Fees expensed in respect of term loans - (11.8)
--------------------------------------------- ----- ------
Exceptional finance expenses in the prior year of EUR11.8
million relates to the expensing to the income statement of
unamortised transaction costs following the voluntary repayment and
partial extinguishment of the Group's Euro and US dollar term
loans.
6 . Income Tax
6.1. Income Tax (Expense)/Credit
2022 2021
EURm EURm
------------------------------------------------------- ------ ------
Current tax on profit for the year (66.0) (68.1)
Exceptional - Current tax impact of US refinancing
costs - 1.8
Adjustments in respect of prior years 8.6 2.7
------------------------------------------------------- ------ ------
Total current tax expense (57.4) (63.6)
------------------------------------------------------- ------ ------
Origination and reversal of temporary deferred tax
differences 34.0 24.5
Exceptional - deferred tax impact of US refinancing
charge - 1.0
Exceptional - deferred tax impact of impairment charge 20.1 -
------------------------------------------------------- ------ ------
Total deferred tax benefit 54.1 25.5
------------------------------------------------------- ------ ------
Income tax expense - Income Statement (3.3) (38.1)
------------------------------------------------------- ------ ------
Origination and reversal of temporary deferred tax
differences (6.9) (6.8)
------------------------------------------------------- ------ ------
Income tax expense - Statement of Comprehensive Income (6.9) (6.8)
------------------------------------------------------- ------ ------
Total income tax expense (10.2) (44.9)
------------------------------------------------------- ------ ------
In 2022, the Group is reporting an exceptional impairment charge
of EUR317.4 million with a deferred tax benefit of EUR20.1 million
which results in an exceptional effective tax rate of 6.3%. The low
exceptional effective tax rate is due to the fact that the majority
of the impairment is related to goodwill that does not carry a
deferred tax balance and therefore this portion of the impairment
is not tax effected.
In 2021, the Group reported an exceptional US refinancing charge
of EUR11.8 million with a current corporate tax benefit of EUR1.8
million and a deferred tax benefit of EUR1.0 million which resulted
in an exceptional effective tax rate of 23.7% (the US 2021
effective tax rate).
The table below analyses the constituent elements of the Group
income tax charge separately identifying the tax charges recognised
in respect of entities that ordinarily pay tax or where the
recognition of deferred tax assets is appropriate, the impact of
entities where the level of tax losses limits the payment of tax or
restricts the deferred tax recognition in respect of the losses,
the impact of withholding taxes suffered in the Group, tax charges
recognised in respect of unremitted overseas distributable reserves
and the impact of purchase accounting adjustments.
2022 2021
----------------------------- -------------------
Profit Profit
before before
tax Tax charge tax Tax charge
EURm EURm EURm EURm
-------------------------------------------- ----------------- ---------- ------- ----------
Results excluding exceptional items 41.7 (23.4) 65.9 (40.9)
Adjustments:
Disposal of associated undertaking impact - - 0.2 3.1
Share of associate losses - - 0.9 -
-------------------------------------------- ----------------- ---------- ------- ----------
41.7 (23.4) 67.0 (37.8)
-------------------------------------------- ----------------- ---------- ------- ----------
Analysed as:
Tax charges (including deferred tax assets)
recognised 160.4 (27.1) 166.7 (43.8)
Tax losses where no deferred tax assets
recognised (64.4) (1.5) (46.9) (0.3)
Withholding tax and tax on unremitted
distributable reserves - (8.3) - (6.1)
Annual amortisation and depreciation
of assets with historic purchase price
accounting adjustments (54.3) 13.5 (52.8) 12.4
-------------------------------------------- ----------------- ---------- ------- ----------
41.7 (23.4) 67.0 (37.8)
-------------------------------------------- ----------------- ---------- ------- ----------
The tax on the Group's profit/(loss) before tax differs from the
theoretical amount that would arise using the UK statutory tax rate
applicable to profits of the consolidated entities as follows:
2022 2021
---------------------------------------
Before After Before After
exceptional Exceptional exceptional exceptional Exceptional exceptional
items items items item items items
EURm EURm EURm EURm EURm EURm
------------------------------------ ------------ ----------- ------------ ------------ ----------- ------------
Profit/(loss) before
income tax 41.7 (317.4) (275.7) 65.9 (11.8) 54.1
------------------------------------ ------------ ----------- ------------ ------------ ----------- ------------
Income tax calculated
at UK statutory tax rate
of 19% (2021: 19%) applicable
to profits in respective
countries (7.9) 60.3 52.4 (12.5) 2.2 (10.3)
Tax effects of:
Overseas tax rates (excluding
associates) (3.6) 3.0 (0.6) (5.9) 0.6 (5.3)
Income not subject to
tax 9.9 - 9.9 7.1 - 7.1
Expenses not deductible
for tax purposes - other
& UK non-deductible
interest/expenses (17.1) - (17.1) (16.6) - (16.6)
Expenses not deductible
for tax purposes - goodwill
impairment - (41.2) (41.2) - - -
Temporary differences
on unremitted earnings 0.2 - 0.2 0.6 - 0.6
Specific tax provisions (3.6) - (3.6) (2.9) - (2.9)
Unrecognised current year
deferred tax assets (9.1) (2.0) (11.1) (7.1) - (7.1)
Other taxes (10.1) - (10.1) (10.7) - (10.7)
Adjustment in respect
of prior years - current
tax adjustments 8.6 - 8.6 2.7 - 2.7
Adjustment in respect
of prior years - deferred
tax adjustments 6.4 - 6.4 (0.3) - (0.3)
Impact of changes in tax
rate (0.4) - (0.4) 1.5 - 1.5
Double Tax Relief and
Other Tax Credits 3.3 - 3.3 3.2 - 3.2
------------------------------------ ------------ ----------- ------------ ------------ ----------- ------------
Income tax (expense)/benefit
- Income Statement (23.4) 20.1 (3.3) (40.9) 2.8 (38.1)
------------------------------------ ------------ ----------- ------------ ------------ ----------- ------------
Deferred tax expense on
re-measurement of retirement
benefit obligations (6.9) - (6.9) (6.8) - (6.8)
------------------------------------ ------------ ----------- ------------ ------------ ----------- ------------
Income tax expense -
Statement of Comprehensive
Income (6.9) - (6.9) (6.8) - (6.8)
------------------------------------ ------------ ----------- ------------ ------------ ----------- ------------
Total tax (expense)/benefit (30.3) 20.1 (10.2) (47.7) 2.8 (44.9)
------------------------------------ ------------ ----------- ------------ ------------ ----------- ------------
Other taxes comprised various local taxes of EUR1.7 million
(2021: EUR2.2 million) together with taxes withheld on dividend,
interest and royalty remittances totalling EUR8.4 million (2021:
EUR8.5 million).
In 2022, the Group reported an exceptional impairment charge of
EUR317.4 million with a deferred tax benefit of EUR20.1 million.
The majority of the impairment charge is related to goodwill which
is not tax deductible, and this results in a material unfavourable
permanent tax adjustment.
Factors that may affect future tax charges include the continued
non-recognition of deferred tax assets in certain territories as
well as the existence of tax losses in certain territories which
could be available to offset future taxable income in certain
territories and for which no deferred tax asset is currently
recognised.
6.2. Deferred Tax Assets and Liabilities
2022 2021
EURm EURm
--------------------------- ------ ------
Deferred tax assets 105.2 70.5
Deferred tax liabilities (80.7) (95.8)
--------------------------- ------ ------
24.5 (25.3)
--------------------------- ------ ------
6.2.1. Movement on Net Deferred Tax Assets/(Liabilities)
2022 2021
EURm EURm
----------------------------------------------------------- ------ ------
At 1 January (25.3) (41.9)
Income statement benefit 34.0 24.5
Exceptional income statement benefit - tax impact of
impairment charge 20.1 -
Exceptional income statement benefit - tax impact of
US refinancing charge - 1.0
Tax on remeasurement of retirement benefit obligations (6.9) (6.8)
Transfer of uncertain tax position balance from deferred
tax to current tax 2.0 0.6
Currency translation 0.6 (2.7)
----------------------------------------------------------- ------ ------
At 31 December 24.5 (25.3)
----------------------------------------------------------- ------ ------
7 . Earnings Per Share
7.1. Basic and Diluted Earnings Per Share
2022 2021
------------------------------------------------ -----------------------------------------------
Weighted Weighted
average average
Loss attributable number of Earnings Profit attributable number of Earnings
to shareholders shares Per Share to shareholders shares (in Per Share
(EURm) (in millions) (EUR, cents) (EURm) millions) (EUR, cents)
------------------- ----------------- ------------------- ----------- -------------
Basic (279.1) 513.1 (54.39) 14.3 519.1 2.76
Dilutive potential
ordinary shares - - - - 5.5 -
Diluted (279.1) 513.1 (54.39) 14.3 524.6 2.73
------------------- ----------------- -------------- ------------- ------------------- ----------- -------------
In 2022, dilutive potential ordinary shares of 7.3 million were
not included in the calculation of diluted earnings per share in
the year because they were antidilutive, but could potentially
dilute basic earnings in the future. below.
7.2. Adjusted Earnings Per Share
2022 2021
------------------ --------------
Adjusted Adjusted
basic diluted Basic Diluted
---------------------------------- -------- ----- -------
Adjusted Net Income (EURm) 43.5 43.5 58.3 58.3
Weighted average number of shares
(in millions) 513.1 513.1 519.1 524.6
Adjusted Earnings Per Share (EUR,
in cents) 8.48 8.48 11.23 11.11
---------------------------------- -------- -------- ----- -------
Adjusted Net Income is based on the loss for the year
attributable to shareholders of EUR279.1 million (2021: EUR14.3
million profit), after adding back exceptional items net of tax,
associate dividends received and eliminating the impact of net
restructuring charges, foreign exchange gains or losses, and the
impact of any business acquisitions or disposals, totalling
EUR322.6 million (2021: EUR44.0 million). These different profit
measures are fully reconciled in Note 4.
8 . Intangible Assets
2022 2021
EURm EURm
---------------------------------------------------- ----- -----
Goodwill 353.9 564.3
Capitalised development expenses, computer software
and licences, technology and customer platforms 250.0 320.5
---------------------------------------------------- ----- -----
Total intangible assets 603.9 884.8
---------------------------------------------------- ----- -----
8.1. Goodwill
Goodwill is deemed to have an indefinite useful life. It is
carried at cost and reviewed annually for impairment.
EURm
------------------------------------------- -------
Cost at 1 January 2022 747.6
Currency translation 11.4
------------------------------------------- -------
Cost at 31 December 2022 759.0
------------------------------------------- -------
Accumulated impairment at 1 January 2022 (183.3)
Impairment - exceptional charge (217.1)
Currency translation (4.7)
------------------------------------------- -------
Accumulated impairment at 31 December 2022 (405.1)
------------------------------------------- -------
Net book value at 31 December 2022 353.9
------------------------------------------- -------
EURm
------------------------------------------- -------
Cost at 1 January 2021 714.2
Currency translation 33.4
------------------------------------------- -------
Cost at 31 December 2021 747.6
------------------------------------------- -------
Accumulated impairment at 1 January 2021 (178.3)
Currency translation (5.0)
------------------------------------------- -------
Accumulated impairment at 31 December 2021 (183.3)
------------------------------------------- -------
Net book value at 31 December 2021 564.3
------------------------------------------- -------
8.2. Capitalised Development Expenses, Computer Software and
Licences, Technology and Customer Platforms
Intangible assets are amortised over their useful economic life,
which range from three to 25 years.
Capitalised Computer
development software Customer
expenses and licences Technology platforms* Total
EURm EURm EURm EURm EURm
------------------------------ ------------ ------------- ---------- ----------- -------
Cost at 1 January 2022 267.2 24.9 137.8 481.9 911.8
Accumulated amortisation (161.0) (15.4) (132.6) (282.3) (591.3)
------------------------------ ------------ ------------- ---------- ----------- -------
Net book value at 1 January
2022 106.2 9.5 5.2 199.6 320.5
------------------------------ ------------ ------------- ---------- ----------- -------
Additions 23.3 1.0 - - 24.3
Disposals (1.8) - - - (1.8)
Amortisation charge (26.2) (4.3) (2.0) (42.6) (75.1)
Impairments - exceptional
charge (11.1) (0.6) - (11.9) (23.6)
Currency translation 1.0 0.2 0.3 4.2 5.7
------------------------------ ------------ ------------- ---------- ----------- -------
Net book value at 31 December
2022 91.4 5.8 3.5 149.3 250.0
------------------------------ ------------ ------------- ---------- ----------- -------
Cost at 31 December 2022 270.5 25.7 138.5 492.2 926.9
Accumulated amortisation (179.1) (19.9) (135.0) (342.9) (676.9)
------------------------------ ------------ ------------- ---------- ----------- -------
Net book value at 31 December
2022 91.4 5.8 3.5 149.3 250.0
------------------------------ ------------ ------------- ---------- ----------- -------
*Customer platforms includes intangible assets relating to:
customer platforms, aftermarket customer relationships, trade names
and trademarks.
Capitalised Computer
development software Customer
expenses and licences Technology platforms* Total
EURm EURm EURm EURm EURm
------------------------------ ------------ ------------- ---------- ----------- -------
Cost at 1 January 2021 254.4 23.3 126.7 455.2 859.6
Accumulated amortisation (151.5) (12.7) (119.8) (227.7) (511.7)
------------------------------ ------------ ------------- ---------- ----------- -------
Net book value at 1 January
2021 102.9 10.6 6.9 227.5 347.9
------------------------------ ------------ ------------- ---------- ----------- -------
Additions 27.4 1.8 - - 29.2
Disposals (0.5) - - - (0.5)
Amortisation charge (25.7) (3.4) (2.1) (39.0) (70.2)
Currency translation 2.1 0.5 0.4 11.1 14.1
------------------------------ ------------ ------------- ---------- ----------- -------
Net book value at 31 December
2021 106.2 9.5 5.2 199.6 320.5
------------------------------ ------------ ------------- ---------- ----------- -------
Cost at 31 December 2021 267.2 24.9 137.8 481.9 911.8
Accumulated amortisation (161.0) (15.4) (132.6) (282.3) (591.3)
------------------------------ ------------ ------------- ---------- ----------- -------
Net book value at 31 December
2021 106.2 9.5 5.2 199.6 320.5
------------------------------ ------------ ------------- ---------- ----------- -------
The above amortisation charges for 'technology' and 'customer
platforms' amounting to EUR44.6 million (2021: EUR41.1 million)
arise from intangible assets recognised through purchase price
accounting. Amortisation charges are included within cost of
sales.
As at 31 December 2022, goodwill of EUR353.9 million (2021:
EUR564.3 million), technology of EUR3.5 million (2021: EUR5.2
million) and customer platforms of EUR149.3 million (2021: EUR199.6
million) relate to assets that arose from purchase price
allocations following historic acquisitions.
9 . Impairments
9.1. Impairment Tests for Goodwill and Intangibles
As part of the Bain Capital acquisition, the purchase of TIFS
Holdings Ltd ('TIFSHL') on 30 June 2015, being the previous parent
company of the Group, and the consequent fair valuation of assets
and liabilities, resulted in recognition of goodwill of EUR711.1
million and other intangible assets of EUR663.2 million. The
purchase of Millennium Industries Corporation on 16 February 2016
resulted in recognition of goodwill of EUR57.1 million and other
intangible assets of EUR72.6 million, included in the FCS North
Americas CGU.
The non-goodwill intangible assets recognised from the
acquisitions outlined above included EUR369.7 million and EUR57.1
million in relation to customer platforms arising on the Bain and
Millennium acquisitions respectively. These assets reflect the
future revenue expected to arise from customer platforms existing
at the date of acquisition, based on platform lives and
probabilities of renewals.
During 2020, an impairment loss of EUR304.6 million was
recognised due to volume deterioration driven by the COVID-19
pandemic, with EUR184.2 million allocated to goodwill and the
remaining EUR120.4 million apportioned across other assets on a pro
rata basis, as required by IAS 36 'Impairment of assets'.
The impairment test for goodwill and intangible assets is
conducted at the CGU level, which the Group defines as the
intersection between the two operating segments, FCS and FTDS, and
the geographic sub-divisions, North America ('NA'), Europe and
Africa ('EU'), Asia Pacific ('AP') and Latin America ('LA'). This
is the level at which goodwill is monitored by management.
As observed in the external forecasts from S&P Global
Mobility, since 2020, declining volume projections persisted for
light vehicle production, driven by reduction in production
expectations of internal combustion engine ('ICE') light vehicles
which exceeds the growth of BEV platform production. Supply chain
disruptions and semiconductor shortage issue remained, as well as
the continued impact of the COVID-19 pandemic (notably in China)
and Russia's invasion of Ukraine. The businesses have also faced
significant inflationary pressures on input prices and energy
costs, and challenges in passing these on to customers, which has
impacted our business and operating profit margin significantly. In
2022, increases in general levels of interest rates impacted the
discount rates. This together with increases in cost of living in
several countries significantly impacted the level of consumer
demand. The collective impact of these adverse events (particularly
the disruptive effect of Russia's invasion, interest rate increases
and cost of living crisis) became pronounced in the second half of
2022.
In the light of these factors and the limited level of headroom
since the recognition of the impairment loss in June 2020, the
results of the 2022 impairment test indicated that the carrying
values of CGU assets were higher than their recoverable amounts for
four of the CGUs, resulting in the following impairment loss being
recognised at 31 December 2022:
Total exceptional
Recoverable Impairment Impairment impairment
amount of goodwill of other assets charge
EURm EURm EURm EURm
------------------ ----------- ------------ ---------------- -----------------
FCS North America 309.3 76.4 - 76.4
FCS Europe &
Africa 159.0 140.7 78.4 219.1
FCS Latin America - - 1.8 1.8
FTDS Europe
& Africa 285.8 - 20.1 20.1
754.1 217.1 100.3 317.4
------------------
The 'other asset' impairment loss of EUR100.3 million was
apportioned across the respective CGU asset categories on a pro
rata basis, resulting in the following asset class allocation:
2022 impairment
charge
EURm
--------------------------------- ---------------
Goodwill 217.1
Capitalised development expenses 11.1
Computer software and licences 0.6
Other intangible assets 11.9
Land & buildings 6.3
PP&E 52.0
Right-of-use assets 18.4
--------------------------------- ---------------
317.4
--------------------------------- ---------------
Following the impairment, the carrying values of goodwill and
other intangible assets as at 31 December 2022 were as follows:
2022 2021
---------------------- ---------------------------
Other
Goodwill intangibles Goodwill Other intangibles
EURm EURm EURm EURm
-------------------- -------- ------------ -------- -----------------
FCS
-------------------- -------- ------------ -------- -----------------
North America 83.6 63.5 150.1 73.1
Europe and Africa - 21.2 140.7 42.3
Asia Pacific 244.6 61.6 247.4 77.2
Latin America - - - 0.1
-------------------- -------- ------------ -------- -----------------
FTDS
-------------------- -------- ------------ -------- -----------------
North America - 5.1 - 6.6
Europe and Africa - 58.6 - 76.0
Asia Pacific 25.7 40.0 26.1 45.2
Latin America - - - -
-------------------- -------- ------------ -------- -----------------
353.9 250.0 564.3 320.5
-------------------- -------- ------------ -------- -----------------
The intangible assets above include customer platforms arising
on the Bain and Millennium acquisitions with carrying values at 31
December 2022 of EUR114.5 million and EUR22.1 million respectively
(2021: EUR145.8 million and EUR25.8 million) with remaining useful
lives of 3.5 and 4.1 years.
9.2. 2022 Impairment Assessment
IAS 36 'Impairment of assets' requires the recoverable amount to
be determined based on the higher of value in use and fair value
less costs of disposal. In carrying out the 2022 annual impairment
assessment, management considered both value in use and fair value
less costs of disposal to determine the recoverable amount. The
resultant impairment loss is based on fair value less costs of
disposal of the CGUs (prior year assessment was based on value in
use which indicated no impairment), which were estimated with the
input of external experts, using a weighted combination of the
discounted cash flow method at 75%, and guideline public company
method at 25% (where fair values are determined by referring to the
historical and/or anticipated financial metrics of the CGUs by
multiples, such as enterprise value to EBITDA, derived from an
analysis of certain guideline companies). These fair values are
classified as Level 3 fair value measurement within the fair value
hierarchy.
The basis of the fair value less costs of disposal valuation is
forecast operating cash flows covering the years 2023-2027 from the
Group's latest budget and medium-term plan ('MTP') approved by the
Board of Directors, which utilises November 2022 S&P Global
Mobility global light vehicle production forecasts.
The S&P Global Mobility forecasts have been moderated to
capture management's best assessment of potential estimation error,
in light of the ongoing impact of global semiconductor shortages on
the automotive manufacturing process and other macroeconomic
factors. The Group is therefore forecasting based on global
automotive production volumes of 83.0 million in 2023, with a
similar reduction from S&P Global Mobility maintained across
the MTP to 2027. This adjustment draws on management's experience
and judgement, with consideration given to variances between
historic forecasting and subsequent actual volumes retrospectively
observed during periods of fluctuating growth / decline in the
market.
Volume forecasts are further adjusted for product mix, pricing
assumptions and market outperformance to establish forecast sales
values. Contribution margin, fixed cost, research and development
expenditure, capital expenditure and working capital management
estimates are then applied to arrive at the forecast operating cash
flows for inclusion in the model. In following this approach,
management carefully assessed the cost recovery rates that are
expected to be achieved in the future taking into consideration
historical experiences. In addition, the impact of cost increases
arising from the continued effect of decarbonisation of the supply
chain or carbon taxes, is assumed to be recovered from the customer
base.
Cash flows resulting from restructuring activities and cash
flows that are generated from enhanced capital expenditure are
reflected in the forecasts. Cash flows from the Corporate function
are allocated to CGUs based on their respective proportion of total
Group revenue.
The five year operating cash flows were taken from the MTP and a
further five years (extrapolated using the long-term expected
growth rate), were then discounted to present value using CGU
specific discount rates and combined with a perpetuity value
calculated by applying the long-term expected growth rate to the
terminal year cash flow forecast.
A single base set of 2023-2027 volume forecasts has been
utilised, with a specific FTDS long term expected negative growth
rate being applied in the long-term cash flow estimation, as
further explained below.
Management have considered the potential impacts of climate
change on the impairment assessment. Cost implications of managing
the impact of climate change have been incorporated into the
forecast operating cash flows used in the impairment model. These
include capital investments to reduce the carbon output from the
Group's production processes and additional budget for increasing
the mix of renewable energy within the Group's electricity
consumption, in line with our commitment to a 50% reduction of
Scope 1 and 2 emissions and a 30% reduction in Scope 3 emissions by
2030 based on absolute 2021 emission levels. As previously noted,
other costs arising from the effects of climate change are assumed
to be recovered from customers.
Climate change also poses transitional risks to the products
that the Group currently manufacture. This is particularly evident
in the FTDS division, where existing products predominantly cater
for internal combustion engine (ICE) vehicle platforms. The impact
of climate change on environmental regimes and automotive market
trends has a significant bearing on the rate of transition to
battery electric vehicle (BEV) platforms. In some jurisdictions
this transition will be mandated, as governments announce deadlines
for curtailing the production of ICE vehicles, in order to achieve
commitments on emissions.
Whilst an increase in hybrid electric vehicle (HEV) production
and their need for higher margin pressurised fuel tanks, offers
mid-term opportunities for the FTDS division, the eventual
transition to BEV will result in a declining market for existing
FTDS products. Management's forecasts suggest the peak in ICE and
HEV vehicle production will occur in the mid-to late-2020s with BEV
platforms subsequently driving future growth in the automotive
market.
The risk to future cash flows that can be achieved from the
current FTDS technology and asset base has been captured in the
impairment model by applying a negative growth rate to the terminal
year perpetuity calculation. This is to account for the expected
decline in the volumes of ICE and HEV vehicle after the MTP period
(i.e. from 2028) due to the current climate change commitment from
the COP21 Paris Agreement to limit global temperature increases
over the next century to 1.5 to 2 degrees Celsius and associated
climate change mitigations, coupled with changing customer
behaviour in the future.
As the FCS division is less susceptible to future changes in
platform mix that may arise as a result of climate change, it was
not deemed appropriate to apply a negative growth rate, and a
conventional positive long-term expected growth rate is used in the
perpetuity calculation.
The 2022 impairment assessment resulted in impairment losses in
four CGUs, being FCS North America, FCS Europe & Africa, FCS
Latin America and FTDS Europe & Africa. These impairment losses
are sensitive to reasonably possible changes in key assumptions. A
low headroom was observed in FTDS North America (EUR7.2 million),
primarily impacted by the use of negative growth rates in the
terminal year perpetuity formula in response to the long-term
forecast decline in ICE and HEV vehicle production.
The key assumptions used in the fair value less costs of
disposal calculations are as follows:
-- forecast operating cash flows
-- long-term expected growth rates
-- discount rates
Forecast operating cash flows are established as described
above, based upon the Budget and MTP approved by the Board of
Directors which were prepared using external forecast volume data
from S&P Global Mobility.
Long-term expected growth rates and discount rates are
determined with input from external experts and utilise externally
available sources of information, adjusted where relevant for
industry specific factors.
Long-term growth rates are based on long-term economic forecasts
for growth in the automotive sector in the geographical regions in
which the CGUs operate. As described above, for FTDS specifically,
negative growth rates have been used in the terminal year
perpetuity calculation to reflect the impact climate change may
have on the rate of market transition to BEVs.
The negative growth rates utilise a long-term forecast prepared
by management in conjunction with information from external
sources, covering the period from 2028 to 2035. Based on this, a
long-term negative compound annual growth rate (CAGR) was
calculated for each of the FTDS CGUs, reflecting a forecast decline
in ICE and HEV volumes to 35.8 million in 2035 (a reduction from
the 39.9 million utilised in the 2021 impairment test).
These negative growth rates are then applied in perpetuity and
therefore reflected in the expected cash generation from ICE and
HEV sales from 2028 onwards.
Discount rates are calculated for each division using a weighted
average cost of capital specific to the geographical regions from
which the cash flows are derived, and reflecting an appropriate
company specific risk premium, with input from external
experts.
The range of discount and growth rates used were as follows:
2022 2021
---------------------------------------------- ----------------------------------------------------------------------
Post-tax Pre-tax
---------------------------------------------- ----------------------------------------------------------------------
FCS FTDS FCS FTDS Base FTDS Down
---------- --------------------- --------------------- ---------------------- -----------------------
Discount
rates
North
America 13.50% 14.00% 15.25% 16.00% 16.00%
Europe and
Africa 14.75% 15.25% 15.00% 15.25% 15.25%
Asia
Pacific 16.25% 13.00% 13.75% 16.40% 16.40%
Latin
America 16.25% n/a 23.75% 23.00% 23.00%
Long-term
growth
rates
North
America 2.00% (10.00%) 2.00% (8.30%) (19.70%)
Europe and
Africa 2.75% (9.75%) 2.75% (8.80%) (20.90%)
Asia
Pacific 5.00% (0.80%) 5.00% (5.00%) (11.50%)
Latin
America 4.50% n/a 4.50% n/a n/a
---------- --------------------- ----------------------- --------------------- ---------------------- -----------------------
Discount rates used in the current year fair value less costs of
disposal model were post-tax (prior year value in use model used
pre-tax discount rates). Discount rates and long-term growth rates
are not applicable for FTDS Latin America as its cash flow model is
based on forecast cash flows ending in 2022, as the Group has
ceased operations in this CGU.
For the prior year value in use model, Management prepared two
negative growth rate scenarios in FTDS, to reflect potential
variations in the rate of market transition to BEV platforms. A
probability weighted average of these two scenarios was then used
to establish recoverable amount. In the current year fair value
less costs of disposal model, a single negative growth rate
scenario has been used to establish recoverable amount. The
estimation risk associated with this single scenario has been
captured through sensitivity analysis, as outlined below.
Management considers the assumptions used in the impairment
model to be critical accounting estimates, as there is a
significant risk of a material adjustment in the next twelve months
to the carrying value of CGU net assets resulting from changes in
these assumptions.
Sensitivity analysis
Where management believes a reasonably possible change in
assumption could result in the recognition of additional impairment
charges, or in the reversal of previously recognised impairment
charges, sensitivity analysis has been performed.
Based on the level of headroom in FCS Asia Pacific and FTDS Asia
Pacific, management does not believe a reasonably possible change
in assumptions would impact the carrying value of CGU assets.
The Latin America CGUs in both FCS and FTDS were fully impaired
in 2020 due to forecast operating losses, with a further minor
impairment loss in 2022. Although restructuring activities were
subsequently implemented to mitigate these negative cash flows,
uncertainty over the longer-term economic viability of operations
in this region lead management to conclude that it is appropriate
to recognise the impairment losses.
Further sensitivity analysis has therefore been performed for
FCS North America, FCS Europe & Africa, FTDS North America and
FTDS Europe & Africa.
The following table demonstrates the impact of changes in the
long-term expected growth rates and discount rates, in isolation,
for CGUs deemed to be sensitive to such changes.
For FCS North America, should a reasonably possible change in
input assumption trigger further impairment losses, this would
initially be allocated to the carrying value of goodwill of EUR83.6
million, with any excess then being allocated across other CGU
assets on a pro rata basis.
FCS North America, FCS Europe & Africa, FTDS North America
and FTDS Europe & Africa are also sensitive to changes in
forecast operating cash flows, which could be driven by factors
such as reduced demand for products, failure to recover
inflationary cost increases and other potential cost pressures,
such as the future imposition of carbon taxes. The table also
demonstrates the impact of an isolated 10% reduction in operating
cash flow annually and into perpetuity.
Impact
Impact of 100 of 10%
Assumption bps change change
----------- ------------------------------------------- ------------------- ----------
Long-term
expected
Recoverable Post-tax Long-term Discount growth Operating
amount discount expected growth rate rate cash flow
EURm rate rate EURm EURm EURm
------------------- ----------- ------------------ -------- --------- ----------
FCS North America 309.3 13.50% 2.00% (30.0) (20.0) (40.0)
FCS Europe &
Africa 159.0 14.75% 2.75% (20.0) (10.0) (30.0)
FTDS North America 31.0 14.00% (10.00)% (3.0) -* (8.0)
FTDS Europe
& Africa 285.8 15.25% (9.75)% (10.0) -* (20.0)
------------------- ----------- ------------------ ----------------------- -------- --------- ----------
Specific to FTDS, the risks to the division beyond 2027 arising
from climate change and the associated rate of consumer transition
to BEV vehicles has been captured by using the negative perpetuity
growth rate discussed above. If we assume the 2035 volumes used in
the CAGR calculations are reached in 2031 and as such the negative
trend is accelerated, this would result in the following impact on
headroom/(impairment):
Accelerated
As calculated decline Impact
EURm EURm EURm
--------------------- ------------- ----------- ------
FTDS North America 7.2 5.2 (2.0)
FTDS Europe & Africa (20.1) (40.1) (20.0)
--------------------- ------------- ----------- ------
This result highlights the sensitivity of the above CGUs to the
rate of decline in long-term ICE and HEV sales, particularly in
FTDS Europe & Africa.
10 . Borrowings
2022 2021
EURm EURm
---------------------------------- ----------------- -----------------
Non-current:
Unsecured senior notes 592.9 591.7
Secured term loans and facilities 521.1 506.8
---------------------------------- ----------------- -----------------
Total non-current borrowings 1,114.0 1,098.5
---------------------------------- ----------------- -----------------
Current:
Secured term loans and facilities 1.9 1.8
Total current borrowings 1.9 1.8
----------------------------------
Total borrowings 1,115.9 1,100.3
---------------------------------- ----------------- -----------------
Unsecured senior notes 592.9 591.7
Secured term loans and facilities 523.0 508.6
---------------------------------- ----------------- -----------------
Total borrowings 1,115.9 1,100.3
---------------------------------- ----------------- -----------------
The main borrowing facilities are shown net of issuance
discounts and fees of EUR20.6 million (2021: EUR24.6 million).
10.1. Movement in Total Borrowings
Unsecured
senior Term loans Total
notes and facilities borrowings
EURm EURm EURm
--------------------- ------------------ ------------------ --------------------
At 1 January 2022 591.7 508.6 1,100.3
Accrued interest 22.5 24.8 47.3
Scheduled payments (22.5) (30.3) (52.8)
Fees expensed 1.2 3.5 4.7
Currency translation - 16.4 16.4
--------------------- ------------------ ------------------ --------------------
31 December 2022 592.9 523.0 1,115.9
--------------------- ------------------ ------------------ --------------------
Unsecured Term loans Other
senior notes and facilities loans Total borrowings
EURm EURm EURm EURm
------------------------------------- ---------------------- --------------- --------------- ---------------------
At 1 January 2021 - 1,076.6 0.1 1,076.7
Accrued interest 15.9 29.1 - 45.0
Scheduled payments (15.9) (35.8) (0.1) (51.8)
Fees expensed 0.8 4.4 - 5.2
New borrowings 600.0 - - 600.0
Fees on new borrowings (9.1) (6.2) - (15.3)
Voluntary repayments of borrowings - (600.0) - (600.0)
Fees expensed on voluntary repayments
of borrowings - 11.8 - 11.8
Currency translation - 28.7 - 28.7
------------------------------------- ---------------------- --------------- --------------- ---------------------
31 December 2021 591.7 508.6 - 1,100.3
------------------------------------- ---------------------- --------------- --------------- ---------------------
In the prior year, the Group successfully executed a refinancing
of its external borrowings. It issued EUR600.0 million unsecured
Senior Notes maturing on 15 April 2029 and bearing an interest rate
of 3.75% per annum, and its Euro and US dollar term loans were
partly repaid and extended to 16 December 2026. The margins on the
term loans were also reduced. The refinancing was treated as a
partial extinguishment of the Group's term loans, and as a result
unamortised transaction costs were recognised as an exceptional
finance expense in the prior year's income statement of EUR11.8
million.
10.2. Currency Denomination of Borrowings
2022 2021
EURm EURm
----------------- -------------- --------------
US dollar 267.1 251.1
Euro 848.8 849.2
----------------- -------------- --------------
Total borrowings 1,115.9 1,100.3
----------------- -------------- --------------
10.3. Main Borrowing Facilities
The main borrowing facilities are comprised of unsecured Senior
Notes and a package of secured loans consisting of a Euro term
loan, a US dollar term loan, and a revolving credit facility (which
was undrawn during the year except for letters of credit).
The amounts outstanding under the agreements are:
2022 2021
EURm EURm
---------------------------- --------------- ---------------
Principal outstanding:
Unsecured senior notes 600.0 600.0
US term loan 276.2 261.9
Euro term loan 260.3 263.0
---------------------------- --------------- ---------------
Total principal outstanding 1,136.5 1,124.9
---------------------------- --------------- ---------------
Issuance discounts and fees (20.6) (24.6)
---------------------------- --------------- ---------------
Main borrowings facilities 1,115.9 1,100.3
---------------------------- --------------- ---------------
Unsecured Senior Notes
The unsecured Senior Notes bear an interest rate of 3.75% per
annum and mature on 15 April 2029. Interest on the Notes is payable
semi-annually in arrears on 15 April and 15 October of each
year.
Term loan
The principal outstanding of the US term loan in US dollars at
31 December 2022 is $294.8 million (2021: $297.8 million). The
interest rate on the loan is US-dollar three-month LIBOR (minimum
0.5% p.a.) +3.25% p.a and the amount repayable per quarter on the
loan is $750,000 until the final balance falls due on 16 December
2026.
The rate on the Euro term loan is three-month EURIBOR (minimum
0.0% p.a.) +3.25% p.a. and the amount repayable per quarter is
EUR662,500 until the final balance falls due on 16 December
2026.
Revolving Credit Facility
The revolving credit agreement provides a facility of up to
$225.0 million. Drawings under this facility bear interest in a
range of US-dollar LIBOR +3.0% to US-dollar LIBOR + 3.75% p.a.
depending on the Group's total net leverage ratio . The facility is
available to be used to issue letters of credit on behalf of TI
Group Automotive Systems LLC, a subsidiary undertaking. The
facility was undrawn at 31 December 2022 and 31 December 2021
(except for letters of credit see below). The revolving credit
facility ('RCF') expires on 16 July 2026 and the non-utilisation
fee is 0.25%. In the event the total net leverage ratio is greater
than 3.5:1, the non-utilisation fee will increase to 0.375%.
The net undrawn facilities under the RCF are shown below:
2022 2021
-------------------------------------- ============================== ============
$m EURm $m EURm
-------------------------------------- ------------ ---------------- ----- -----
RCF Agreement 225.0 210.8 225.0 197.9
Utilisation for letters of credit (2.0) (1.9) (1.9) (1.7)
-------------------------------------- ------------ ---------------- ----- -----
Net undrawn revolving credit facility 223.0 208.9 223.1 196.2
-------------------------------------- ------------ ---------------- ----- -----
Issuance discounts and fees
All capitalised fees are expensed using the effective interest
rate method over the remaining terms of the facilities. Net
issuance discounts and fees at 31 December 2022 are EUR20.6 million
(2021: EUR24.6 million).
10.4. Other Secured Loans
A subsidiary in Spain granted security over certain of its
assets in return for credit facilities from its banks. The loan had
total amortisation repayments of EUR27,000 payable every six
months. The facility expired on 15 June 2022 and there is therefore
no balance outstanding at 31 December 2022 (2021: EUR27,000).
10.5. Total Undrawn Borrowing Facilities
2022 2021
EURm EURm
Expiring within one year 11.1 10.8
Expiring after more than one year 208.9 196.2
---------------------------------- --------------- ---------------
Total at floating rate 220.0 207.0
---------------------------------- --------------- ---------------
All facilities are at floating rates.
10.6. Movements in Net Debt and Lease Liabilities
Non-cash changes
---------- -------------------------------------- --------------------
At 1 At 31
January Cash New Fees Currency Remeas-urement December
2022 flows leases expensed translation and disposals 2022
EURm EURm EURm EURm EURm EURm EURm
------------ --------- ---------- ---------- ---------------- -------------------- -------------------- ---------
Cash and
cash
equivalents 499.1 (11.5) - - 3.4 - 491.0
Financial
assets
at FVTPL 0.9 (0.9) - - - - -
Borrowings (1,100.3) 5.5 - (4.7) (16.4) - (1,115.9)
------------ --------- ---------- ---------- ---------------- -------------------- -------------------- ---------
Total net
debt (600.3) (6.9) - (4.7) (13.0) - (624.9)
------------ --------- ---------- ---------- ---------------- -------------------- -------------------- ---------
Lease
liabilities (149.9) 32.9 (42.6) - (3.0) 13.0 (149.6)
------------ --------- ---------- ---------- ---------------- -------------------- -------------------- ---------
Net debt and
lease
liabilities (750.2) 26.0 (42.6) (4.7) (16.0) 13.0 (774.5)
------------ --------- ---------- ---------- ---------------- -------------------- -------------------- ---------
Non-cash changes
------------ ------------------------------- -----------------
At 1
January Cash Fees Currency Remeas-urement At 31 December
2021 flows New leases expensed translation and disposals 2021
EURm EURm EURm EURm EURm EURm EURm
------------ -------------- --------- ------------ -------- --------------------- ----------------- ----------------------
Cash and
cash
equivalents 485.8 (11.0) - - 24.3 - 499.1
Financial
assets
at FVTPL 0.9 - - - - - 0.9
Borrowings (1,076.7) 22.1 - (17.0) (28.7) - (1,100.3)
------------ -------------- --------- ------------ -------- --------------------- ----------------- ----------------------
Total net
debt (590.0) 11.1 - (17.0) (4.4) - (600.3)
------------ -------------- --------- ------------ -------- --------------------- ----------------- ----------------------
Lease
liabilities (151.0) 31.6 (18.1) - (5.3) (7.1) (149.9)
------------ -------------- --------- ------------ -------- --------------------- ----------------- ----------------------
Net debt and
lease
liabilities (741.0) 42.7 (18.1) (17.0) (9.7) (7.1) (750.2)
------------ -------------- --------- ------------ -------- --------------------- ----------------- ----------------------
Cash flows from financing activities arising from changes in
financial liabilities are analysed below:
2022 2021
EURm EURm
------------------------------------------------ ------------------- ---------------------
Proceeds from new borrowings - (600.0)
Fees paid on proceeds from new borrowings - 15.3
Voluntary repayments of borrowings - 600.0
Scheduled repayments of borrowings 5.5 6.8
Lease principal repayments 32.9 31.6
------------------------------------------------ ------------------- ---------------------
Cash outflows from financing activities arising
from changes in financial liabilities 38.4 53.7
------------------------------------------------ ------------------- ---------------------
Borrowings cash flows 5.5 22.1
Lease liabilities cash flows 32.9 31.6
------------------------------------------------ ------------------- ---------------------
Cash outflows from financing activities arising
from changes in financial liabilities 38.4 53.7
------------------------------------------------ ------------------- ---------------------
11 . Retirement Benefit Obligations
11.1. Defined Benefit Arrangements in the Primary Financial
Statements
a. Balance Sheet
Other post-
Other employment
US pensions pensions US healthcare liabilities Total
Net liability EURm EURm EURm EURm EURm
----------------------------- ----------------- ---------------- ------------- ------------ -------
Present value of retirement
benefit obligations (145.5) (68.9) (28.0) (79.7) (322.1)
Fair value of plan assets 117.9 77.7 - 31.1 226.7
Asset ceiling - (8.8) - - (8.8)
----------------------------- ----------------- ---------------- ------------- ------------ -------
Net liability at 31 December
2022 (27.6) - (28.0) (48.6) (104.2)
----------------------------- ----------------- ---------------- ------------- ------------ -------
Other post-
Other employment
US pensions pensions US healthcare liabilities Total
Net liability EURm EURm EURm EURm EURm
-------------------------- ----------------- ----------------- ------------------ ----------------------- -------
Present value of
retirement
benefit obligations (184.5) (117.7) (33.4) (88.2) (423.8)
Fair value of plan assets 150.7 126.5 - 27.8 305.0
Asset ceiling - (9.3) - - (9.3)
-------------------------- ----------------- ----------------- ------------------ ----------------------- -------
Net liability at 31
December
2021 (33.8) (0.5) (33.4) (60.4) (128.1)
-------------------------- ----------------- ----------------- ------------------ ----------------------- -------
b. Income Statement
Net (expense)/income recognised in the Income Statement is as
follows:
Other post
US Other US employment
pensions pensions healthcare liabilities Total
Net expense /(income) EURm EURm EURm EURm EURm
------------------------------ --------- --------- ------------------- ------------ ---------------
Current service cost - (1.5) - (6.4) (7.9)
Past service cost - - - (0.3) (0.3)
Settlement / curtailment loss - (0.5) - - (0.5)
Net interest (expense)/income (1.0) 0.2 (0.9) (1.1) (2.8)
------------------------------ --------- --------- ------------------- ------------ ---------------
Total expense for the year
ended 31 December 2022 (1.0) (1.8) (0.9) (7.8) (11.5)
------------------------------ --------- --------- ------------------- ------------ ---------------
Other post
US Other US employment
pensions pensions healthcare liabilities Total
Net expense /(income) EURm EURm EURm EURm EURm
------------------------- ----------------- ----------------- -------------------- ------------ -----------------
Current service cost - (1.6) - (4.3) (5.9)
Past service cost - - - 0.6 0.6
Settlement/curtailment
(loss)/gain (0.4) (0.9) - 0.6 (0.7)
Net interest expense (1.2) - (0.7) (0.6) (2.5)
------------------------- ----------------- ----------------- -------------------- ------------ -----------------
Total expense for the
year
ended 31 December 2021 (1.6) (2.5) (0.7) (3.7) (8.5)
------------------------- ----------------- ----------------- -------------------- ------------ -----------------
Restructuring of the Group's Bramalea Canada facility resulted
in a settlement loss of EUR0.5 million in the year (2021: EUR0.9
million loss).
c. Statement of Comprehensive Income
Re-measurements of retirement benefit obligations included in
the Statement of Comprehensive Income are as follows:
Other post
US Other US employment
pensions pensions healthcare liabilities Total
(Expense)/income EURm EURm EURm EURm EURm
----------------------- ----------------- ----------------- --------------------- ------------------------ ------
Return on assets
excluding
amounts recognised in
the Income
Statement (37.3) (43.5) - - (80.8)
Changes in demographic
assumptions - (0.8) - 0.3 (0.5)
Changes in financial
assumptions 46.0 49.1 5.2 13.2 113.5
Experience
gains/(losses) 1.3 (3.2) 1.4 (3.9) (4.4)
Change in asset ceiling - 0.2 - - 0.2
----------------------- ----------------- ----------------- --------------------- ------------------------ ------
Total net Income for
the year
ended 31 December 2022 10.0 1.8 6.6 9.6 28.0
----------------------- ----------------- ----------------- --------------------- ------------------------ ------
Other post
US Other US employment
pensions pensions healthcare liabilities Total
Income/(expense) EURm EURm EURm EURm EURm
---------------------------- ---------------- ----------------- ------------------- ----------------------- -----
Return on assets excluding
amounts recognised in the
Income
Statement 13.7 3.0 - 0.1 16.8
Changes in demographic
assumptions (0.7) 1.4 (0.2) - 0.5
Changes in financial
assumptions 11.0 4.9 0.5 3.4 19.8
Experience gains/(losses) (1.3) 3.6 1.3 0.9 4.5
Change in asset ceiling - (5.3) - - (5.3)
---------------------------- ---------------- ----------------- ------------------- ----------------------- -----
Total net income for the
year
ended 31 December 2021 22.7 7.6 1.6 4.4 36.3
---------------------------- ---------------- ----------------- ------------------- ----------------------- -----
11.2. Sensitivity analysis
Changes in the principal assumptions would decrease/(increase)
the total defined benefit obligation (DBO) as follows:
2022 2021
------------------------------- ----------- ------------------
Change in Increase Decrease Increase Decrease
Decrease/(increase) in DBO assumption EURm EURm EURm EURm
------------------------------- ----------- -------- --------
Discount rate 0.5% 15.7 (17.2) 26.9 (30.2)
Inflation rate 0.5% (4.9) 4.9 (9.4) 8.8
Salary growth rate 0.5% (2.2) 2.0 (2.9) 2.9
Life expectancy 1 year (8.7) 8.8 (15.1) 15.1
Healthcare cost trend: Initial
rate 0.5% (0.9) 0.8 (1.3) 1.3
------------------------------- ----------- -------- -------- -------- --------
The sensitivity analysis above illustrates the change in each
major assumption whilst holding all others constant. The methods of
calculating the defined benefit obligation for this purpose are the
same as used for calculating the end-of-year position.
12 . Provisions
Movements in provisions are as follows:
Product
warranty Restructuring Other Total
EURm EURm EURm EURm
---------------------------------- ----------------- ------------------------- ----------------- -----------------
At 1 January 2022 10.7 15.8 4.8 31.3
Provisions made during the year 2.4 23.1 0.4 25.9
Provisions reversed during the
year (6.3) (0.3) (0.4) (7.0)
Provisions used during the year (2.1) (30.0) (1.2) (33.3)
Currency translation 0.4 (0.8) 0.1 (0.3)
---------------------------------- ----------------- ------------------------- ----------------- -----------------
At 31 December 2022 5.1 7.8 3.7 16.6
---------------------------------- ----------------- ------------------------- ----------------- -----------------
Total provisions:
2022 2021
EURm EURm
----------------- ---- ----
Non-current 2.6 2.6
Current 14.0 28.7
----------------- ---- ----
Total provisions 16.6 31.3
----------------- ---- ----
Product warranty
The majority of product warranty provisions relate to specific
customer issues, and are based upon open negotiations and past
customer claims experience. Utilisation of the warranty provision
is expected in 2023.
Restructuring
Restructuring provisions comprise announced headcount reductions
and similar costs of balancing production capacity with market
requirements. Provisions made during the year of EUR23.1 million,
less provisions reversed during the year of EUR0.3 million results
in a net charge to Income Statement of EUR22.8 million (2021:
EUR26.8 million). A significant portion of the balance is expected
to be utilised in 2023 with the remaining residual amount in
2024.
Other provisions
Other provisions at 31 December 2022 comprise provisions for
disputed claims for indirect taxes totalling EUR0.7 million (2021:
EUR0.7 million) and asset retirement obligations totalling EUR3.0
million (2021: EUR4.1 million). Asset retirement obligations are
linked to the useful lives of the underlying assets, with expected
utilisation ranging from 2023 to 2025. The indirect tax provisions
are expected to be utilised over the next five years.
13 . Cash Generated from Operations
2022 2021
EURm EURm
---------------------------------------------------------- ------- ------
(Loss)/profit for the year (279.0) 16.0
Income tax expense before exceptional items 23.4 40.9
Exceptional income tax credit (20.1) (2.8)
---------------------------------------------------------- ------- ------
(Loss)/profit before income tax (275.7) 54.1
---------------------------------------------------------- ------- ------
Adjustments for:
Depreciation, amortisation and non-exceptional impairment
charges 207.6 192.0
Exceptional impairment charges 317.4 -
Net losses on disposal of PP&E, intangible and right
of use assets 0.3 0.6
Loss on disposal of PP&E in restructuring costs 3.7 -
Loss on disposal of investment in associate before
income tax - 0.2
Share-based expense excluding social security costs 9.6 6.8
Net finance expense 58.7 71.8
Unremitted share of loss from associates - 0.9
Net foreign exchange losses 0.7 6.9
Changes in working capital:
- Inventories (34.0) 34.4
- Trade and other receivables (16.3) 39.3
- Trade and other payables 27.6 (83.0)
Change in provisions (14.4) 0.4
Change in retirement benefit obligations (2.7) (4.6)
---------------------------------------------------------- ------- ------
Total 282.5 319.8
---------------------------------------------------------- ------- ------
The changes in working capital (movements in inventories, trade
and other receivables and trade and other payables) reflect a
number of non-cash transactions. The most significant of these
arises from movements due to changes in foreign exchange rates, on
translation of the Group's overseas operations into the Group's
presentation currency, Euro.
14 . Glossary of Terms
Adjusted Basic EPS
Adjusted Net Income divided by the weighted average number of
shares in issue in the year .
Adjusted EBIT
is defined as Adjusted EBITDA less depreciation, amortisation
and non-exceptional impairment on tangible and intangible assets
net of depreciation and amortisation on purchase price
accounting.
Adjusted EBITDA
EBITDA adjusted for exceptional operating costs, net foreign
exchange gains/(losses), net restructuring charges, associate share
of profits or losses, associate dividends received and the impact
of any business acquisitions or disposals.
Adjusted Free Cash Flow
Free Cash Flow adjusted for cash movements in financial assets
at fair value through the profit or loss, net cash flows relating
to restructuring, settlement of derivatives and the impact of any
business acquisitions or disposals. The restructuring cash
adjustment is made to align the treatment of restructuring with the
other adjusted measures.
Adjusted Net Income
Profit or Loss for the year attributable to the ordinary
shareholders before exceptional items adjusted to reflect associate
dividends received and eliminate the impact of net restructuring
charges, foreign exchange gains or losses and the impact of any
business acquisitions or disposals.
BEV
Battery Electric Vehicles.
CGU
Cash Generating Unit, being the management level of the Group,
for example FCS North America.
Constant currency
The remeasurement of prior year results at current exchange
rates to eliminate fluctuations in translation rates and achieve a
like-for-like comparison.
EBITDA
Profit or loss before tax, net finance expense, depreciation,
amortisation and impairment of tangible and intangible assets, and
associate share of profits or losses.
EV
Electric Vehicles including BEV and HEV.
FCS
Fluid Carrying Systems, a division of the Group which supplies
Brake & Fuel lines and Thermal products.
FHEV
Full Hybrid Electric vehicles, includes PHEV and self-charging
HEV.
Free Cash Flow
The total of net cash generated from operating activities and
net cash used by investing activities.
FTDS
Fuel Tanks and Delivery Systems, a division of the Group that
supplies fuel tanks and fuel pumps and modules.
GLVP
Global Light Vehicle Production of light vehicles.
HEV
Hybrid Electric Vehicles, excluding mild hybrid vehicles.
ICE
Internal Combustion Engine vehicles.
LVP
Light Vehicle production used as a reference when referring to
regional data.
MHEV
Mild Hybrid Electric Vehicles, which only have modest
electrification.
Net debt
The total of current and non-current borrowings excluding lease
liabilities, net of cash and cash equivalents and financial assets
at fair value through profit or loss.
Net leverage
Net debt divided by last 12 months' Adjusted EBITDA.
OEM
Original Equipment Manufacturer, used to refer to vehicle
manufacturers the main customers of the Group.
Operating profit margin
Operating profit expressed as a percentage of revenue.
PHEV
Plug in Hybrid Electric Vehicles.
Revenue outperformance
The growth in revenue at constant currency compared to the
growth in global light vehicle production volumes.
SBTi
Science-Based Target Initiative which is used to refer to the
climate change targets aligned to the Paris Agreement targets.
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END
FR SFEESIEDSESD
(END) Dow Jones Newswires
March 16, 2023 03:00 ET (07:00 GMT)
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