TIDMTTG
RNS Number : 1630X
TT Electronics PLC
08 August 2018
2018 Interim Results, 8 August 2018
TT Electronics plc
Results for the half-year ended 30 June 2018
For further information, please contact:
TT Electronics
Richard Tyson, Chief Executive Officer
Mark Hoad, Chief Financial Officer
Emma Darke, Head of Investor Relations and Communications Tel:
+44 (0)1932 825 300
MHP Communications
Tim Rowntree / Katie Hunt / Nessyah Hart Tel: +44 (0)20 3128
8100
An analyst presentation will be held today at 08:00 at Numis, 10
Paternoster Square, London EC4M 7LT. A replay of the webcast will
be available on the investor relations section of our website later
today at www.ttelectronics.com.
Interim Results for the half-year ended 30 June 2018
Strong organic performance, enhanced by acquisitions
GBP million unless
otherwise stated Underlying(1) Statutory
H1 2018 H1 2017 Change Change H1 2018 H1 2017
constant
fx(2)
Revenue 194.2 180.5 8% 12% 194.2 180.5
Operating profit 14.6 10.9 34% 45% 7.7 6.8
Operating profit margin 7.5% 6.0% 150bps 170bps 4.0% 3.8%
Profit before taxation 14.0 9.5 47% 61% 7.1 5.4
Earnings per share
(pence) 6.9p 4.6p 50% 60% 4.4p 2.4p
Return on invested
capital (3,4) 11.2% 10.6%
Cash conversion(5) 105% 128%
-------- -------- ------- ---------- -------- --------
Free cash flow(6) 4.1 6.8
Net (debt) / funds
(2017: year-end) (41.2) 47.0
Dividend per share
(pence) 1.95p 1.75p
-------- --------
1. Excluding the effect of restructuring and acquisition and
disposal related items
2. Change at constant currency calculated by comparing current
year actual results to the prior year results retranslated at
current year actual exchange rates
3. Rolling 12 month underlying operating profit return on
average invested capital
4. Return on invested capital for full year 2017
5. Underlying operating cash flow (underlying EBITDA less net
capital expenditure, capitalised development expenditure, working
capital and non-cash movements) divided by underlying operating
profit
6. Net cash flow from operating activities less net cash flow
from investing activities less interest paid
The non-IFRS financial measures reported in this announcement
are explained in note 6.
Financial Headlines
-- 12% revenue growth; up 3% organically and 5% on a
like-for-like basis; continued order intake momentum
-- Underlying operating profit up 45% at constant currency;
circa two-thirds from the base business, driving improvement in
return on invested capital
-- Underlying operating margins increased by 170 basis points at
constant currency to 7.5%
-- Excellent underlying cash conversion at 105%
-- Dividend up 11% to 1.95p
Strategic Progress
-- Continued strong business performance; growth from R&D
efforts and focus on key customers
-- Operational excellence and efficiency activity supporting
sales growth and margin improvement
-- Strong balance sheet gives flexibility to invest further in
growth
-- Stadium Group plc and Precision Inc. acquisitions completed
in period and contributing well; integration on track and
highlighting new opportunities from the business combination
Richard Tyson, Chief Executive Officer, said:
"TT has performed strongly in the first half. We have delivered
good revenue growth and significant margin improvement reflecting
operational leverage, better efficiency and the benefit of
value-added acquisitions. Our strong business performance has been
delivered alongside continued investment in the business to support
future growth. The integration of Stadium and Precision is
progressing well and is highlighting new opportunities.
Our strategy to position ourselves in structural growth markets
benefitting from increasing electrification is resulting in a much
stronger business with higher growth and higher margins. Our recent
acquisitions have added more design-led product solutions, whilst
providing a new growth dimension focused on connected devices and
the Internet of Things. We continue to look for further
opportunities to add to our portfolio. Our first half performance
and order momentum give us confidence of progress for the full year
ahead of our prior expectations."
H1 2018 OVERVIEW
The first half performance of the Group has been very strong,
with the benefit of revenue growth and operational efficiencies
driving significant margin progression. We are delighted with how
our employees have embraced the level of change within the Group
while delivering this financial performance.
Revenue grew by 12 per cent at constant currency and 3 per cent
organically, against a strong comparator. Excluding last year's
high margin one off sales in Power and Connectivity (previously
named Power Electronics), revenue growth was 5% on a like-for-like
basis with Sensors and Specialist Components and Global
Manufacturing Solutions growing by 7 per cent and 6 per cent
organically respectively. Foreign exchange had a GBP6.4 million
adverse impact. Group revenue of GBP194.2 million (H1 2017:
GBP180.5 million) included the contribution from the acquisitions
of Stadium Group plc ("Stadium") (acquired in April 2018) and
Precision Inc. ("Precision") (acquired in June 2018) which totalled
GBP14.6 million. Growth was driven by new sales wins and strong
market demand.
Underlying operating profit increased by 45 per cent to GBP14.6
million (H1 2017: GBP10.9 million), excluding the impact of foreign
exchange, with the improvement largely driven by operational
leverage and better efficiency. GBP3.1 million of improvement was
from the base business, driving a 60 basis point increase in return
on invested capital to 11.2 per cent (FY 2017: 10.6 per cent).
Underlying operating profit from acquisitions made in the period
was GBP1.4 million.
The underlying operating profit margin was 7.5 per cent, up 150
basis points as reported and 170 basis points at constant currency
(H1 2017: 6.0 per cent). The strong margin progression has been
achieved whilst making additional investment in the business to
build capacity for future growth and expand our capabilities. This
investment includes training and capability expansion in strategic
sales and business development to support the selling required for
product solutions and GBP0.6 million in Power and Connectivity to
support capacity increases, as indicated at the time of the Trading
Update in May.
Cash performance was excellent, with cash conversion of 105 per
cent (H1 2017: 128 per cent). The Group's free cash inflow totalled
GBP4.1 million (H1 2017: inflow GBP6.8 million). Net debt was
GBP41.2 million at 30 June 2018 (31 December 2017: net funds
GBP47.0 million). The net debt position reflects the acquisition of
Stadium and Precision for a total of GBP76.9 million.
STRATEGIC PROGRESS
We are making good progress with our strategic priorities to
drive sales growth and margin improvement.
Strategic business development
We are changing our approach to business development to reflect
the increasingly design-led focus of the business which requires us
to develop more strategic relationships with our customers. We are
providing our sales force with new tools and developing their
skills through training to improve our success in selling
engineered product solutions and higher-value component
capabilities. The team is focused on nurturing existing key
accounts, driving new sales opportunities across target customers
and markets, and developing new strategic relationships with key
customers.
We have focused our sales efforts on customers in markets where
we see good demand for our technical expertise and product
solutions as a result of the proliferation of electronics. This has
resulted in winning new customers and expanding what we do with a
series of other customers across all market verticals.
R&D and Value-added product solutions
2018 will see the highest run rate of new product introduction
the group has seen, running at three times that of 2015. Given the
momentum in the business and the level of opportunities, we have
continued to support increasing the R&D cash investment in the
business to support future growth, up 23 per cent from H1 2017. As
we increasingly focus on design-led product solutions while working
as strategic partners with our customers, we believe moving further
up the value chain becomes more important. During the period, we
established a new product introduction and prototyping capability
in Barnstaple to support faster and more efficient development of
electromagnetic products. We have also evaluated potential avenues
to extend our power electronics capability. In the second half we
will be adding to our engineering teams and establishing an
Advanced Technology Centre (ATC) for power electronics solutions
focused on the aerospace and defence market.
Operational excellence
We continue our focus on operational improvement to enhance
performance for our customers and drive margin improvement. During
the period, we trained a new cohort of master lean practitioners
using our own experts. These new practitioners have been deployed
around the business to drive improvement, focusing on sites where
we have the most opportunity to improve our operational efficiency.
This has positively impacted the financial performance in a number
of sites as well as driving better quality, shorter lead times and
improved on-time delivery for our customers. We continue to believe
there is more opportunity to drive operational efficiency and
support margin improvement.
Value-enhancing acquisitions
During the period, we completed the acquisition of Stadium
(April 2018) and acquired Precision (June 2018), which together in
the period contributed revenue of GBP14.6 million and underlying
operating profit of GBP1.4 million representing a 9.6 per cent
underlying operating profit margin. Cletronics added GBP0.2 million
of inorganic revenue growth in the period.
Stadium is a leading provider of design-led connectivity
solutions across industrial, transportation, medical and aerospace
and defence markets. The integration is progressing well, with
expected cost synergies to date being realised. Costs addressed
include the removal of duplicate "plc costs" and some initial
procurement savings have been identified by applying our best
practice approach to purchasing, including across freight and
printed circuit board assemblies. The integration has also
highlighted new opportunities emerging from our extended
capabilities. To address these opportunities, we are adding
additional investment in engineering focused on connected devices
and the Internet of Things. We are hiring additional engineering
resource in our Advanced Technology Centre in Kista, Sweden and
Shenzhen, China. Our net cost synergy expectations remain
unchanged, but our evaluation of their product capabilities
combined with our market presence and scale points to future
potential revenue upside.
Previously Stadium split its revenues between Technology
Products and Electronic Assemblies. The Technology Products
businesses are being integrated into the newly named Power and
Connectivity division (previously named Power Electronics), whilst
Electronic Assemblies is being integrated into the Global
Manufacturing Solutions division.
In June 2018, we acquired Precision, an industry-leading
designer and manufacturer of precision electromagnetic product
solutions for critical applications, primarily in medical markets.
The acquisition extends our capabilities by adding new design,
simulation and manufacturing capabilities including ultra-fine wire
winding. Precision provides an enhanced presence for us in the US,
with close proximity to a hub of medical customers in Minneapolis.
As announced at the time of the acquisition, Precision is being
integrated into the Power and Connectivity division.
DIVISIONAL REVIEWS
SENSORS AND SPECIALIST COMPONENTS (37% of Group revenue)
The Sensors and Specialist Components division works with
customers to develop standard and customised solutions including
sensors and power management devices. Our solutions improve the
precision, speed and reliability of critical aspects of our
customers' applications.
H1 2018 H1 2017 Change Change constant
fx
--------------------- -------- -------- ------ ---------------
Revenue GBP71.3m GBP71.0m 0% 7%
Underlying operating
profit GBP9.9m GBP8.6m 15% 24%
Underlying operating
profit margin 13.9% 12.1% 180bps 190ps
--------------------- -------- -------- ------ ---------------
Revenue in the first half was GBP71.3 million (H1 2017: GBP71.0
million), up 7 per cent organically. We have seen strong market
demand continuing across the division. Overall, we have benefited
from our strategy to position the business in areas with good
market demand and having combined the sales force and launched a
key account management approach, sales to our strategic
distributors increased by 22 per cent.
Underlying operating profit for the period improved to GBP9.9
million (H1 2017: GBP8.6 million), up 24 per cent at constant
currency. Underlying operating margins improved by 190 basis points
at constant currency to 13.9 per cent (H1 2017: 12.1 per cent). The
margin improvement has been driven by drop through on increased
volumes, operational efficiency, and improved product mix.
In our Bedlington, UK facility we have continued to make
capacity improvements which have enabled us to deliver a record
output to support market demand. In the US, we have been increasing
output to meet new demand for a high-reliability signal
conditioning platform of products, which precisely measure signals
in electronic circuits. This platform of products is now in its
ramp up phase and has contributed to growth in the first half.
We continue to see good growth in our automotive power inductors
product line, driven by the technological advancements for electric
and hybrid electric vehicles, and the team won a new European
customer in the period. In the medical market the increasing demand
for portable medical devices is resulting in increased demand for
our solutions. Customer wins have included two medical equipment
manufacturers for applications in portable medical monitors.
We launched 3 new sensing and power management products from our
new product and testing cell in Bedlington including a smaller
sized power management component, able to withstand high current
surges in an electronic circuit. The power management component can
be used in applications across aerospace, military, communications,
medical and industrial markets where the proliferation of
electronics requires more advanced and reliable circuitry
components.
POWER AND CONNECTIVITY (20% of Group revenue)
The Power and Connectivity division designs and manufactures
power application products and connectivity devices which enable
the capture and wireless transfer of data. We collaborate with our
customers to develop innovative solutions to optimise their
electronic systems.
H1 2018 H1 2017 Change Change constant
fx
--------------------- -------- -------- -------- ---------------
Revenue GBP38.7m GBP33.2m 17% 18%
Underlying operating
profit GBP2.5m GBP3.4m (26)% (22)%
Underlying operating
profit margin 6.5% 10.2% (370)bps (330)bps
--------------------- -------- -------- -------- ---------------
Revenue for the first half was GBP38.7 million (H1 2017: GBP33.2
million), an increase of 18 per cent at constant currency, driven
by the acquisitions of Stadium (April 2018) and Precision (June
2018). The 12 per cent organic revenue decline relates largely to
the absence of the high margin one-off sales relating to the last
time buy activity from a site closure in the US. Acquisitions
contributed GBP9.9 million of revenue.
Underlying operating profit was GBP2.5 million (H1 2017: GBP3.4
million), down 22 per cent at constant currency. Profitability was
adversely affected by the absence of last year's high margin
one-off sales and GBP0.6 million of additional one-off investment
to meet customer schedules and build capacity to support
anticipated future growth. There was a 330 basis point impact to
operating margin as expected and indicated at the time of the
Trading Update in May. The profit contribution from acquisitions
was GBP1.1 million.
The 'more electric aircraft' continues to drive a pipeline of
demand for our solutions. Projects we have been working on with our
customers include a development contract with a strategic partner
for a fuel reduction initiative in aircraft, aligned with
government initiatives around cleaner air targets; volume ramp-up
of products linked to the A350 aircraft platform; and the extension
of our capabilities into service support for engine test
requirements. Growth in these areas is offsetting the expected
reduction in revenue related to the 777 and A380 platforms.
To support current demand patterns and to provide capacity for
future growth, we are transferring a number of product lines from
Barnstaple, UK, to Kuantan, Malaysia, a Sensors and Specialist
Components site, where we have established an aerospace capability.
We have also established a new product introduction and prototype
laboratory in Barnstaple to service the pipeline of new business
opportunities. During the period we won a supplier award from a
global engine manufacturer for our work on hybrid microsystems in
Bedlington.
Stadium's Technology Products business forms TT's new
connectivity offering and has been incorporated into this division.
Our connectivity offering allows systems and applications to
communicate with one another and transmit data wirelessly. Our
solutions give us access to the fast growing Internet of Things
(IoT) market. Our solutions include connectivity, low-power power
supplies and human machine interface products. The business is
performing in line with our expectations. Our evaluation of their
product capabilities combined with our market presence and scale
points to future potential revenue upside. As a result we are
increasing investment to support the development of these
opportunities and a range of new platform products.
GLOBAL MANUFACTURING SOLUTIONS (43% of Group revenue)
The Global Manufacturing Solutions division provides
manufacturing services and engineering solutions for our product
divisions and to customers that often require a lower volume and
higher mix of different products. We produce printed circuit board
assemblies through to full electronic products to our customers'
designs coupled with engineering testing and integration
services.
H1 2018 H1 2017 Change Change constant
fx
--------------------- -------- -------- ------ ---------------
Revenue GBP84.2m GBP76.3m 10% 13%
Underlying operating
profit GBP5.9m GBP2.5m 136% 136%
Underlying operating
profit margin 7.0% 3.3% 370bps 360bps
--------------------- -------- -------- ------ ---------------
Revenue for the first half was GBP84.2 million (H1 2017: GBP76.3
million), up 13 per cent at constant currency, and up 6 per cent
organically. Revenue from Stadium was GBP4.9 million. Organically,
revenue growth was driven by demand in Asia and North America,
primarily driven by medical customers.
Underlying operating profit for the period was GBP5.9 million
(H1 2017: GBP2.5 million), up 136 per cent at constant currency,
and up 124 per cent organically. Underlying operating profit from
acquisitions was GBP0.3 million. Underlying operating margins were
7.0 per cent, up 360 basis points at constant currency compared to
the previous year (H1 2017: 3.3 per cent), now around the top of
the benchmark range. Margin improvement has been particularly
strong in China where we have been adding more engineering
services, extending our competencies from our manufacturing
capabilities.
This was an exceptionally good performance, with the improvement
in profitability largely a result of operational leverage on the
revenue growth and efficiencies which have driven improvement in
the European business. The improvement was also supported by short
term favourable purchase price variances and transactional foreign
exchange gains of GBP0.5 million which are not expected to recur in
the second half.
The demand for technological advancements in the medical market,
particularly in developing regions such as Asia, is driving demand
for our solutions. During the period we won a contract with a new
medical customer for printed circuit board assembly (PCBA) for a
new digital mammography device for breast diagnostics and
screening.
In the industrial market, we won contracts with two new
customers including a contract with a new Japanese customer to
develop PCBAs for lumiscopes. In addition, we have won a contract
with a US based technology company for PCBAs for industrial radio
remote controls.
We were successful during the period in winning a PCBA contract
with an aerospace and defence customer that has been a longstanding
customer in our Power and Connectivity division following our
global business development focus on a small number of key customer
accounts. The PCBAs will be used in navigation applications
including in GPS systems.
We continue with our focus on operational improvement as part of
our customer excellence programme and to drive margin improvement.
During the period, we closed the facility in Romania, moving
product lines to Rogerstone, UK, and Suzhou, China. Our European
operations have been improving and during the period we won a new
customer with a European marine company.
OTHER FINANCIAL INFORMATION
Corporate costs were GBP3.7 million (H1 2017: GBP3.6
million).
The net interest expense of GBP0.6 million decreased by GBP0.8
million (H1 2017: GBP1.4 million) reflecting the Group's net cash
position through the first quarter of the year. Underlying profit
before tax improved by 47 per cent to GBP14.0 million (H1 2017:
GBP9.5 million) representing a 61 per cent increase on a constant
currency basis.
The tax charge in the period totalled nil (H1 2017: GBP1.5
million) comprising an underlying tax charge of GBP2.8 million and
a credit on items excluded from underlying profit of GBP2.8
million. The underlying effective tax rate for the continuing group
was 19.8 per cent (H1 2017: 21.1 per cent; Full Year 2017: 20.0 per
cent). Basic underlying earnings per share increased by 50 per cent
to 6.9 pence (H1 2017: 4.6 pence), and by 60 per cent at constant
currency.
Profit from continuing operations increased to GBP7.1 million
(H1 2017: GBP3.9 million) after a charge for items excluded from
underlying profit of GBP6.9 million (H1 2017: GBP4.1 million).
Restructuring and other costs were a credit of GBP1.8 million (H1
2017: charge GBP0.1m) and included a GBP3.6 million profit on
disposal of a surplus property. Acquisition and disposal costs of
GBP8.7 million (H1 2017: GBP4.0 million) related to the
acquisitions of Stadium and Precision and GBP4.0 million of
non-cash items. The cash costs relating to these items totalled
GBP4.7 million (H1 2017: GBP4.1 million). Profit from discontinued
operations was GBPnil (H1 2017: GBP4.4 million).
Cash performance was excellent, with cash conversion of 105 per
cent (H1 2017: 128 per cent), and the combination of profit growth
combined with high levels of cash conversion resulted in a 60 basis
point improvement in return on invested capital to 11.2 per cent
(FY 2017: 10.6 per cent). There was a GBP0.5 million working
capital outflow (H1 2017: GBP2.0 million inflow) with active
working capital management mitigating the impacts of revenue growth
and the need to hold more inventory in the light of on-going
component shortages. Net capital expenditure and development
expenditure totalled GBP6.7 million, equivalent to 1.0 times
depreciation and amortisation, with increased spend in product
development across both product related divisions.
Net debt at the end of the period was GBP41.2 million (2017
year-end: net funds GBP47.0 million). Net debt to underlying EBITDA
at the end of the first half was 1.0 times as reported, and 0.8
times including a pro-forma adjustment for the full year effect of
EBITDA from acquisitions (2017 year-end: GBPnil, H1 2017: 0.9
times).
The net accounting surplus under the Group's defined benefit
pension schemes increased to GBP19.8 million (2017 year-end:
surplus GBP11.9 million). The improvement in the position of the
schemes was due to changes in financial assumptions reducing the
scheme liability, deficit contributions of GBP2.4 million made to
the UK scheme in the first half, together with the impact of
consolidating the Stadium Group pension schemes, which included a
deficit contribution of GBP0.1 million. The Stadium Group pension
schemes had a deficit of GBP3.7 million.
See note 6 to the condensed consolidated financial statements
for an explanation of alternative performance measures and why
management believe they provide investors with a means of
evaluating results on a consistent basis.
DIVID
In light of the strong performance in the first half and the
Board's confidence in the future prospects for the business, the
Board has declared an interim dividend of 1.95 pence per share, an
increase of 11 per cent. Payment of the dividend will be made on 18
October 2018 to shareholders on the register on 5 October 2018.
OUTLOOK
TT has performed strongly in the first half. We have delivered
good revenue growth and significant margin improvement reflecting
operational leverage, better efficiency and the benefit of
value-added acquisitions. Our strong business performance has been
delivered alongside continued investment in the business to support
future growth. The integration of Stadium and Precision is
progressing well and is highlighting new opportunities.
Our strategy to position ourselves in structural growth markets
benefitting from increasing electrification is resulting in a much
stronger business with higher growth and higher margins. Our recent
acquisitions have added more design-led product solutions, whilst
providing a new growth dimension focused on connected devices and
the Internet of Things. We continue to look for further
opportunities to add to our portfolio. Our first half performance
and order momentum give us confidence of progress for the full year
ahead of our prior expectations.
Interim Results for the half-year ended 30 June 2018
GOING CONCERN
The Directors have assessed the future funding requirements of
the Group with due regard to the risks and uncertainties to which
the Group is exposed and compared them with the level of available
borrowing facilities and are satisfied that the Group has adequate
resources for the 12 months from the date of these interim results.
Accordingly the financial statements have been prepared on a going
concern basis.
Responsibility statement of the Directors
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS34 "Interim Financial Reporting" as adopted
by the EU;
-- the interim management report includes a fair review of the
information required by DTR 4.2.7R:
(i) an indication of important events that have occurred during
the first six months of the financial year, and their impact on the
condensed set of financial statements; and
(ii) a description of the principal risks and uncertainties for
the remaining six months of the year
-- the interim management report includes a fair review of the
information required by DTR 4.2.8R:
(i) related parties transactions that have taken place in the
first six months of the current financial year and that have
materially affected the financial position or performance of the
Group in that period; and
(ii) any changes in the related parties transactions described
in the Annual Report 2017 that could have a material effect on the
financial position or performance of the Group in the current
period.
By order of the Board
Richard Tyson Mark Hoad
Chief Executive Officer Chief Financial Officer
7 August 2018 7 August 2018
Cautionary statement
This report contains forward-looking statements. These have been
made by the directors in good faith based on the information
available to them up to the time of their approval of this report.
The directors can give no assurance that these expectations will
prove to have been correct. Due to the inherent uncertainties,
including both economic and business risk factors underlying such
forward looking information, actual results may differ materially
from those expressed or implied by these forward-looking
statements. The directors undertake no obligation to update any
forward-looking statements whether as a result of new information,
future events or otherwise.
Independent review report to TT Electronics plc
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2018 which comprises the condensed
consolidated income statement, condensed consolidated statement of
comprehensive income, condensed consolidated statement of financial
position, condensed consolidated statement of changes in equity,
condensed consolidated cash flow statement and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2018 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements. A review
is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA. The annual financial statements of the group
are prepared in accordance with International Financial Reporting
Standards as adopted by the EU. The directors are responsible for
preparing the condensed set of financial statements included in the
half-yearly financial report in accordance with IAS 34 as adopted
by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Mike Barradell
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
7 August 2018
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2017(1)
GBPmillion (unless otherwise stated) Note 2018 2017(1)
====================================== ===== =========== =========== =============
Revenue 3 194.2 180.5 361.1
Cost of sales (145.9) (134.3) (268.3)
====================================== ===== =========== =========== =============
Gross profit 48.3 46.2 92.8
Distribution costs (12.5) (11.8) (22.7)
Administrative expenses (28.2) (28.1) (50.8)
Other operating income 0.1 0.5 0.7
====================================== ===== =========== =============
Operating profit 7.7 6.8 20.0
===== =========== ===========
Analysed as:
Underlying operating profit 3 14.6 10.9 24.3
Restructuring and other 6 1.8 (0.1) (1.6)
Acquisition and disposal related
costs 6 (8.7) (4.0) (2.7)
-------------------------------------- ----- ----------- =========== -------------
Finance income 0.3 - 0.1
Finance costs (0.9) (1.4) (2.4)
-------------------------------------- ----- ----------- ----------- -------------
Profit before taxation 7.1 5.4 17.7
Taxation 7 - (1.5) (2.0)
-------------------------------------- ----- ----------- ----------- -------------
Profit from continuing operations 7.1 3.9 15.7
-------------------------------------- ----- ----------- ----------- -------------
Discontinued operations
Profit from discontinued operations - 4.4 32.0
-------------------------------------- ----- ----------- ----------- -------------
Profit for the period attributable
to the owners of the Company 7.1 8.3 47.7
-------------------------------------- ----- ----------- ----------- -------------
EPS attributable to owners of the
Company (p)
Basic
From continuing operations 8 4.4 2.4 9.7
From discontinued operations 8 - 2.7 19.8
-------------------------------------- ----- ----------- ----------- -------------
4.4 5.1 29.5
-------------------------------------- ----- ----------- ----------- -------------
Diluted
From continuing operations 8 4.3 2.4 9.5
From discontinued operations 8 - 2.7 19.3
-------------------------------------- ----- ----------- ----------- -------------
4.3 5.1 28.8
-------------------------------------- ----- ----------- ----------- -------------
(1) Restated for IFRS 15
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2017
GBPmillion 2018 2017
==================================================== =========== =========== =============
Profit for the period 7.1 8.3 47.7
Other comprehensive income/(loss) for the
period after tax
Items that are or may be reclassified subsequently
to the income statement:
Exchange differences on translation of foreign
operations 3.0 (4.3) (9.3)
Gain on hedge of net investment in foreign
operations 0.6 0.1 1.5
(Loss)/gain on cash flow hedges taken to
equity less amounts taken to income statement (1.7) 2.4 2.1
Foreign exchange gain on disposals taken
to income statement - - (5.1)
Items that will never be reclassified to
the income statement:
Remeasurement of defined benefit pension
schemes 9.9 - 10.3
Remeasurement of other post-employment benefits - - 0.1
Tax on remeasurement of defined benefit
pension schemes (1.7) - (2.2)
----------------------------------------------------- ----------- ----------- -------------
Total comprehensive income for the period 17.2 6.5 45.1
----------------------------------------------------- ----------- ----------- -------------
Total comprehensive income for the six months ended 30 June 2018
is entirely attributable to the owners of the Company.
30 June 30 June 31 December
GBPmillion Note 2018 2017(1) 2017(1)
================================== ===== ======== ========= ============
ASSETS
Non-current assets
Property, plant and equipment 47.6 44.0 41.8
Goodwill 123.1 102.8 100.3
Other intangible assets 73.9 31.6 27.3
Deferred tax assets 3.7 5.2 5.6
Pensions 10 26.9 0.9 15.1
---------------------------------- ----- -------- --------- ------------
Total non-current assets 275.2 184.5 190.1
---------------------------------- ----- -------- --------- ------------
Current assets
Inventories 87.8 60.8 61.8
Trade and other receivables 76.2 58.1 66.0
Income taxes receivable 1.4 - 1.3
Derivative financial instruments 0.4 1.7 1.6
Cash and cash equivalents 38.9 48.6 46.5
Assets held for sale 5 - 141.4 -
---------------------------------- ----- -------- --------- ------------
Total current assets 204.7 310.6 177.2
---------------------------------- ----- -------- --------- ------------
Total assets 479.9 495.1 367.3
---------------------------------- ----- -------- --------- ------------
LIABILITIES
Current liabilities
Borrowings 0.4 0.2 0.3
Derivative financial instruments 1.1 0.5 0.6
Trade and other payables 92.0 71.3 67.0
Income taxes payable 12.8 6.9 19.0
Provisions 5.6 6.2 7.3
---------------------------------- ----- -------- --------- ------------
Total current liabilities 111.9 85.1 94.2
---------------------------------- ----- -------- --------- ------------
Non-current liabilities
Borrowings 79.7 113.9 0.3
Deferred tax liability 9.0 6.4 2.0
Pensions 10 7.1 3.2 3.2
Other non-current liabilities 0.1 0.1 0.1
---------------------------------- ----- -------- --------- ------------
Total non-current liabilities 95.9 123.6 5.6
---------------------------------- ----- -------- --------- ------------
Liabilities held for sale 5 - 51.7 -
---------------------------------- ----- -------- --------- ------------
Total liabilities 207.8 260.4 99.8
---------------------------------- ----- -------- --------- ------------
Net assets 272.1 234.7 267.5
---------------------------------- ----- -------- --------- ------------
EQUITY
Share capital 40.8 40.6 40.7
Share premium 3.0 2.3 2.9
Other reserves 2.2 11.8 8.4
Hedging and translation reserve 35.4 42.5 33.5
Retained earnings 188.7 135.5 180.0
---------------------------------- ----- -------- --------- ------------
Equity attributable to owners
of the Company 270.1 232.7 265.5
Non-controlling interests 2.0 2.0 2.0
---------------------------------- ----- -------- --------- ------------
Total equity 272.1 234.7 267.5
---------------------------------- ----- -------- --------- ------------
(1) Restated for IFRS 15
Approved by the Board of Directors on 7 August 2018 and signed
on their behalf by:
Richard Tyson Mark Hoad
Director Director
Share Share Hedging Other Retained Sub- Non-controlling Total
capital premium and reserves earnings total interest (1)
translation (1) (1)
GBPmillion reserve
====================== ========= ========= ============= ========== ========== ======= ================ ======
At 1 January 2018 40.7 2.9 33.5 8.4 180.0 265.5 2.0 267.5
---------------------- --------- --------- ------------- ---------- ---------- ------- ---------------- ------
Profit for the period - - - - 7.1 7.1 - 7.1
---------------------- --------- --------- ------------- ---------- ---------- ------- ---------------- ------
Other comprehensive
income
Exchange differences
on
translation of
foreign operations - - 3.0 - - 3.0 - 3.0
Gain on hedge of net
investment
in foreign
operations - - 0.6 - - 0.6 - 0.6
Loss on cash flow
hedges
taken to equity less
amounts
taken to income
statement - - (1.7) - - (1.7) - (1.7)
Remeasurement of
defined
benefit pension
schemes - - - - 9.9 9.9 - 9.9
Tax on remeasurement
of
defined benefit
pension
schemes - - - - (1.7) (1.7) - (1.7)
---------------------- --------- --------- ------------- ---------- ---------- ------- ---------------- ------
Total other
comprehensive
income - - 1.9 - 8.2 10.1 - 10.1
---------------------- --------- --------- ------------- ---------- ---------- ------- ---------------- ------
Transactions with
owners
recorded directly in
equity
Equity dividends paid
by
the Company - - - - (6.6) (6.6) - (6.6)
Share-based payments - - - (5.4) - (5.4) - (5.4)
Deferred tax on
share-based
payments - - - (0.8) - (0.8) - (0.8)
New shares issued 0.1 0.1 - - - 0.2 - 0.2
---------------------- --------- --------- ------------- ---------- ---------- ------- ---------------- ------
At 30 June 2018 40.8 3.0 35.4 2.2 188.7 270.1 2.0 272.1
---------------------- --------- --------- ------------- ---------- ---------- ------- ---------------- ------
At 1 January 2017 40.6 2.1 44.3 9.6 133.5 230.1 2.0 232.1
---------------------- --------- --------- ------------- ---------- ---------- ------- ---------------- ------
Profit for the period - - - - 8.3 8.3 - 8.3
---------------------- --------- --------- ------------- ---------- ---------- ------- ---------------- ------
Other comprehensive
income
Exchange differences
on
translation of
foreign operations - - (4.3) - - (4.3) - (4.3)
Gain on hedge of net
investment
in foreign
operations - - 0.1 - - 0.1 - 0.1
Gain on cash flow
hedges
taken to equity less
amounts
taken to income
statement - - 2.4 - - 2.4 - 2.4
Total other
comprehensive
income - - (1.8) - - (1.8) - (1.8)
---------------------- --------- --------- ------------- ---------- ---------- ------- ---------------- ------
Transactions with
owners
recorded directly in
equity:
Equity dividends paid
by
the Company - - - - (6.3) (6.3) - (6.3)
Share-based payments - - - 1.8 - 1.8 - 1.8
Deferred tax on
share-based
payments - - - 0.4 - 0.4 - 0.4
New shares issued - 0.2 - - - 0.2 - 0.2
---------------------- --------- --------- ------------- ---------- ---------- ------- ---------------- ------
At 30 June 2017 40.6 2.3 42.5 11.8 135.5 232.7 2.0 234.7
---------------------- --------- --------- ------------- ---------- ---------- ------- ---------------- ------
(1) Restated for IFRS 15
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2017
GBPmillion (unless otherwise stated) Note 2018 2017(1)
================================================== ===== =========== =========== =============
Cash flows from operating activities
Profit for the period 7.1 8.3 47.7
Taxation - 1.5 2.0
Net finance costs 0.6 1.4 2.3
Restructuring and other (1.8) 0.1 1.6
Acquisition and disposal related costs 8.7 4.0 2.7
Profit from discontinued operations - (4.4) (32.0)
-------------------------------------------------- ----- ----------- ----------- -------------
Underlying operating profit 14.6 10.9 24.3
Adjustments for:
Depreciation of property, plant and equipment 4.5 4.5 9.0
Amortisation of intangible assets 1.9 2.1 3.8
Other items 1.5 1.3 3.4
Increase in inventories (9.1) (5.0) (7.4)
Decrease/(increase) in receivables 3.6 (0.6) 3.0
Increase in payables 5.0 7.6 2.5
-------------------------------------------------- ----- ----------- ----------- -------------
Underlying operating cash flow 22.0 20.8 38.6
Operating cash flow from discontinued operations - 9.0 5.9
Special payments to pension funds (2.5) (2.3) (4.7)
Restructuring, acquisition and disposal
related costs (4.7) (4.1) (4.9)
-------------------------------------------------- ----- ----------- ----------- -------------
Net cash generated from operations 14.8 23.4 34.9
Net income taxes paid (3.5) (3.3) (5.6)
-------------------------------------------------- ----- ----------- ----------- -------------
Net cash flow from operating activities 11.3 20.1 29.3
-------------------------------------------------- ----- ----------- ----------- -------------
Cash flows from investing activities
Interest received 0.1 - 0.1
Purchase of property, plant and equipment (4.5) (5.9) (11.4)
Proceeds from sale of property, plant and
equipment and grants received 0.1 1.0 1.6
Development expenditure (1.6) (0.8) (1.6)
Purchase of other intangibles (0.7) (1.3) (2.1)
Investing cash flow from discontinued operations - (5.1) (9.2)
Acquisitions of businesses (63.4) (1.2) (1.2)
Dividends paid by subsidiary to former (0.8) - -
shareholders
Cash with acquired businesses (3.2) - -
Disposal of subsidiaries - - 116.1
Tax arising on disposal of subsidiaries (2.9)
Deferred consideration received 1.8 - -
Cash with disposed businesses - - (2.4)
-------------------------------------------------- ----- ----------- ----------- -------------
Net cash flow from investing activities (75.1) (13.3) 89.9
-------------------------------------------------- ----- ----------- ----------- -------------
Cash flows from financing activities
Issue of share capital 0.2 0.2 0.9
Interest paid (0.6) (1.2) (2.0)
Repayment of borrowings (9.8) - (119.1)
Proceeds from borrowings 80.0 10.9 13.9
Other items (6.9) - (6.3)
Finance leases (0.1) (0.1) (0.3)
Dividends paid by the Company (6.6) (6.3) (9.1)
-------------------------------------------------- ----- ----------- ----------- -------------
Net cash flow from financing activities 56.2 3.5 (122.0)
-------------------------------------------------- ----- ----------- ----------- -------------
Net (decrease)/increase in cash and cash
equivalents (7.6) 10.3 (2.8)
Cash and cash equivalents at beginning
of year 11 46.5 49.8 49.8
Cash transferred to assets held for sale 11 - (11.1) -
Exchange differences 11 - (0.4) (0.5)
-------------------------------------------------- ----- ----------- ----------- -------------
Cash and cash equivalents at the end of
period 38.9 48.6 46.5
-------------------------------------------------- ----- ----------- ----------- -------------
(1) Re-presented to show investing cash flow from discontinued
operations separately
Notes to the Condensed consolidated financial statements
(unaudited)
1. General information
The Condensed consolidated financial statements for the six
months ended 30 June 2018 are unaudited and were authorised for
issue in accordance with a resolution of the Board of Directors.
They do not constitute statutory financial statements as defined in
Section 434 of the Companies Act 2006. The comparative figures for
the year ended 31 December 2017 are based on the Group's statutory
accounts for that financial year. Those accounts have been reported
on by the Group's auditors and delivered to the Registrar of
Companies. The report of the auditor was unqualified, did not
include a reference to any matter to which the auditors drew
attention by way of emphasis without qualifying their report, and
did not contain a statement under section 498 of the Companies Act
2006.
2. Basis of preparation
a) Condensed consolidated half-year financial statements
These condensed consolidated half-year financial statements have
been prepared in accordance with IAS 34 "Interim Financial
Reporting" as adopted by the EU. These condensed consolidated
half-year financial statements do not include all the information
and disclosures required in the annual financial statements and
should be read in conjunction with the 2017 Annual Report.
b) Basis of accounting
Other than as described below the accounting policies adopted
are consistent with those followed in the preparation of the
Group's annual financial statements for the year ended 31 December
2017.
The Group has implemented IFRS 15 Revenue from Contracts with
Customers in the half-year ended 30 June 2018. The core principle
of IFRS 15 is that an entity recognises revenue in accordance with
principles set out in a five step model to depict the transfer of
promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in
exchange for those goods or services. Implementation of the
standard had the following impact on the income statement and
balance sheet:
The effect of adopting IFRS 15 on the Group for the year ended
31 December 2017 is to increase continuing revenue by GBP1.1
million, with a corresponding increase to cost of sales. Similarly
discontinued revenue has increased by GBP4.4 million, cost of sales
has increased by GBP4.0m and administrative expenses increased by
GBP0.4m. Inventory has increased by GBP2.7 million and other
payables have increased by GBP4.0 million. Group net assets would
decrease by GBP1.3 million.
The effect of adopting IFRS 15 on the Group for the half-year
ended 30 June 2017 is to increase continuing revenue by GBP0.5
million, with a corresponding increase to cost of sales. Similarly
discontinued revenue has increased by GBP3.7 million, cost of sales
has increased by GBP3.6m and administrative expenses increased by
GBP0.1m. Inventory has increased by GBP2.7 million and other
payables have increased by GBP4.0 million. Group net assets have
decreased by GBP1.3 million.
The Group also adopted IFRS 9 Financial Instruments in the half
year ended 30 June 2018. Adoption of the new standard did not have
a material impact on the Group. The Group continues to assess the
impact of IFRS 16 Leases which will be effective for periods
beginning 1 January 2019.
Estimates
The preparation of half-year condensed consolidated financial
statements requires management to make judgements, estimates and
assumptions which affect the application of accounting policies and
the reported amounts of assets, liabilities, income and expense.
Actual results may differ from these estimates.
In preparing the condensed consolidated half-year financial
statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were consistent with those applied to the
consolidated financial statements as at and for the year ended 31
December 2017. These relate to the determination of items of income
and expense excluded from operating profit to arrive at underlying
operating profit, taxation, property plant and equipment,
impairment of goodwill, other intangible assets, provisions and
defined benefit pension obligations.
c) Going concern
After making appropriate enquiries, the Directors have a
reasonable expectation that the Company has adequate resources and
financial headroom to continue in operational existence for at
least twelve months from the date of signing these interim results.
Therefore they continue to adopt the going concern basis of
accounting in preparing the condensed consolidated half-year
financial statements. The Group's business activities, together
with the factors likely to affect its future development,
performance and position are set out in the Business review above
and in note 14.
The Group had net debt of GBP41.2 million at 30 June 2018 (31
December 2017: GBP47.0 million net funds). The Group had available
GBP74.3 million of undrawn committed borrowing facilities and
GBP39.2 million of undrawn uncommitted borrowing facilities,
representing overdraft lines (GBP9.2 million) and the accordion
facility (GBP30.0 million). Given the considerable financial
resources available, together with long term partnerships with a
number of key customers and suppliers across different geographic
areas and industries, the Directors believe that the Group is well
placed to manage its business risks successfully.
The Group continues to manage foreign currency risk at a
transactional level through the use of hedges which are monitored
by the Group Treasury Committee.
The Treasury Committee regularly reviews counterparty credit
risk, and ensures cash balances are held with carefully assessed
counterparties with strong credit ratings.
Pages 26 to 29 of the 2017 Annual Report provide details of the
Group's policy on managing its operational and financial risks.
3. Segmental reporting
The Group is organised into three divisions, as shown below,
according to the nature of the products and services provided. Each
of these divisions represents an operating segment in accordance
with IFRS 8 'Operating segments' and there is no aggregation of
segments. The chief operating decision maker is the Board of
Directors. The operating segments are:
-- Sensors and Specialist Components - The Sensors and
Specialist Components division works with customers to develop
standard and customised solutions including sensors and power
management devices. Our solutions improve the precision, speed and
reliability of critical aspects of our customers' applications;
-- Power and Connectivity - The Power and Connectivity division
develops and manufactures power application products and
connectivity devices which enable the capture and wireless transfer
of data. We collaborate with our customers to develop innovative
solutions to optimise their electronic systems; and
-- Global Manufacturing Solutions - The Global Manufacturing
Solutions division provides manufacturing services and engineering
solutions for our product divisions and to customers that often
require a lower volume and higher mix of different products. We
produce printed circuit board assemblies through to full electronic
products to our customers' designs coupled with engineering testing
and integration services.
The key performance measure of the operating segments is
underlying operating profit. Refer to note 6 for a definition of
underlying operating profit.
Corporate costs - Resources and costs of the head office managed
centrally but deployed in support of the operating units are
allocated to segments based on a combination of revenue and
operating profit. Resources and costs of the head office which are
not related to the operating activities of the trading units are
not allocated to divisions and are separately disclosed, equivalent
to the segment disclosure information, so that reporting is
consistent with the format that is used for review by the chief
operating decision maker. This gives greater transparency of the
underlying operating profits for each segment.
The accounting policies of the reportable segments are the same
as the Group's accounting policies and are as published in the 2017
Annual Report.
Group financing (including finance costs and finance income) and
income taxes are managed on a Group basis and are not allocated to
operating segments. Goodwill is allocated to the individual cash
generating units within the segment of which it is a part.
Income statement information
Six months
ended
30 June
2018
================ ================== =============== =========== ========== ===========
GBPmillion Sensors Power Global Total Corporate Total
and Specialist and Connectivity Manufacturing Operating
Components Solutions Segments
========================= ================ ================== =============== =========== ========== ===========
Sales to external
customers 71.3 38.7 84.2 194.2 - 194.2
------------------------- ---------------- ------------------ --------------- ----------- ---------- -----------
Underlying operating
profit 9.9 2.5 5.9 18.3 (3.7) 14.6
Adjustments to
underlying
operating profit (note
6) (6.9)
------------------------- ================ ================== =============== =========== ==========
Operating profit 7.7
Net finance costs (0.6)
------------------------- ================ ================== =============== =========== ========== -----------
Profit before taxation 7.1
------------------------- ---------------- ------------------ --------------- ----------- ---------- -----------
Six months
ended
30 June
2017
================ ================== =============== =========== ========== ===========
GBPmillion Sensors Power Global Total Corporate Total
and Specialist and Connectivity Manufacturing Operating
Components Solutions Segments
========================= ================ ================== =============== =========== ========== ===========
Sales to external
customers 71.0 33.2 76.3 180.5 - 180.5
------------------------- ---------------- ------------------ --------------- ----------- ---------- -----------
Underlying operating
profit 8.6 3.4 2.5 14.5 (3.6) 10.9
Adjustments to
underlying
operating profit (note
6) (4.1)
------------------------- ---------------- ------------------ --------------- ----------- ---------- -----------
Operating profit 6.8
Net finance costs (1.4)
------------------------- ---------------- ------------------ --------------- ----------- ---------- -----------
Profit before taxation 5.4
------------------------- ---------------- ------------------ --------------- ----------- ---------- -----------
Year
ended
31 December
2017
================ ================== =============== =========== ========== =============
GBPmillion Sensors Power Global Total Corporate Total
and Specialist and Connectivity Manufacturing Operating
Components Solutions Segments
======================= ================ ================== =============== =========== ========== =============
Sales to external
customers 142.3 64.5 154.3 361.1 - 361.1
----------------------- ---------------- ------------------ --------------- ----------- ---------- -------------
Underlying operating
profit 18.8 6.2 6.5 31.5 (7.2) 24.3
Adjustments to
underlying
operating profit
(note
6) (4.3)
----------------------- ---------------- ------------------ --------------- ----------- ---------- -------------
Operating profit 20.0
Net finance costs (2.3)
----------------------- ---------------- ------------------ --------------- ----------- ---------- -------------
Profit before taxation 17.7
----------------------- ---------------- ------------------ --------------- ----------- ---------- -------------
There is no significant revenue between segments.
Analysis of revenue by destination - continuing operations
Six months Six months Year ended
ended 30 ended 30 31 December
GBPmillion June 2018 June 2017 2017
=========================== =========== =========== =============
United Kingdom 55.1 47.5 97.6
Rest of Europe 36.4 31.8 63.7
North America 53.8 56.3 110.2
Central and South America 0.7 0.3 0.8
Asia 46.6 43.3 85.8
Rest of the World 1.6 1.3 3.0
--------------------------- ----------- ----------- -------------
Continuing operations 194.2 180.5 361.1
--------------------------- ----------- ----------- -------------
4. Acquisitions
On 17 April 2018 the Group acquired the entire equity share
capital of Stadium Group plc for GBP45.8 million in cash and
assumed net debt of GBP13.9 million.
From the date of acquisition to the period end the business
contributed GBP13.1 million revenue (GBP8.2 million within Power
and Connectivity and GBP4.9 million within Global Manufacturing
Solutions), an operating profit of GBP1.2 million (GBP0.9 million
within Power and Connectivity and GBP0.3 million within Global
Manufacturing Solutions) and an underlying operating cash inflow of
GBP1.7 million.
In addition, on 1 June 2018 the Group acquired Precision Inc.
for an initial consideration of $23.5 million (GBP17.6 million) in
cash and up to an additional $4.0 million (GBP3.0 million) which
may become payable subject to business performance.
From the date of acquisition to the period end the business
contributed GBP1.5 million revenue, an operating profit of GBP0.1
million to the Group's results and an operating cash outflow of
GBP0.2 million.
The provisional fair values of the identifiable assets and
liabilities acquired are as follows:
Stadium Precision
Group Inc
plc
Book Fair Fair Book Fair Fair
value value value value value value
at date adjustments at date at date adjustments at date
of acquisition (provisional) of acquisition of acquisition (provisional) of acquisition
GBPmillion (provisional) (provisional)
================ =============== =============== =============== =============== =============== ===============
Non-current
assets
Property, plant
and
equipment 4.5 - 4.5 1.2 - 1.2
Identifiable
intangible
assets 1.5 38.1 39.6 - 9.0 9.0
Deferred tax
assets 0.6 - 0.6 - - -
Current assets
/ (liabilities)
Inventory 13.1 1.3 14.4 2.1 - 2.1
Trade and other
receivables 12.9 - 12.9 2.9 - 2.9
Cash /
(overdraft) (3.6) - (3.6) 0.4 - 0.4
Borrowings -
current (10.3) - (10.3) - - -
Income taxes
payable (0.2) - (0.2) - - -
Trade and other
payables (13.1) (0.8) (13.9) (1.8) - (1.8)
Provisions -
current (0.9) - (0.9) - - -
Non-current
liabilities
Pensions (4.7) - (4.7) - - -
Deferred tax
liability (0.3) (6.6) (6.9) - - -
(0.5) 32.0 31.5 4.8 9.0 13.8
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Consideration
paid/payable
Cash 45.8 17.6
Deferred
consideration - 3.0
Goodwill 14.3 6.8
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
The acquisitions accelerate the Group's strategy of building
leading positions where increasing electrification is fuelling the
demand for the Group's highly engineered electronic solutions. The
goodwill recognised on acquisition represents the Group's view of
the future earnings growth potential and the technical know-how in
the acquired businesses. The provisional fair values are based on
the information currently available; IFRS 3 Business Combinations
allows a period of one year from the date of acquisition for new
information to come to light which may result in a revision to
these fair values.
5. Discontinued operations
On 2 October 2017 the Group disposed of the Transportation
Sensing and Control division to AVX Corporation for GBP125.6
million in cash before costs, comprising GBP118.8 million initial
cash consideration and an additional GBP6.8 million in respect of
working capital and net debt adjustments, of which GBP5.0 million
was settled in cash during the year and GBP1.8 million settled in
cash in early 2018.
The results from discontinued operations shown in the
consolidated income statement are as follows:
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2017(1)
GBPmillion 2018 2017(1)
===================================== ============ =========== =============
Revenue - 135.6 205.5
Cost of sales - (120.3) (179.7)
===================================== ============ =========== =============
Gross profit - 15.3 25.8
Distribution costs - (4.5) (6.8)
Administrative expenses - (4.5) (6.6)
===================================== =========== =============
Operating profit - 6.3 12.4
============
Analysed as:
Underlying operating profit - 6.5 12.6
Restructuring - (0.2) (0.2)
------------------------------------- ------------ ----------- -------------
Finance income - - 0.1
Profit on disposal of discontinued
operations - - 26.3
------------------------------------- ------------ ----------- -------------
Profit before taxation - 6.3 38.8
Taxation - (1.9) (6.8)
------------------------------------- ------------ ----------- -------------
Profit from discontinued operations - 4.4 32.0
------------------------------------- ------------ ----------- -------------
(1) Restated for IFRS 15
The profit on disposal of discontinued operations in 2017 is
analysed below:
Year ended
31 December
GBPmillion 2017
========================================= =============
Gross cash received 123.8
Less: legal and professional costs (7.7)
------------------------------------------- -------------
Net proceeds per consolidated cash
flow statement 116.1
Deferred consideration receivable 1.8
Less: provision for costs (1.5)
Less: net assets at completion (91.8)
Less: write off of capitalised software
costs relating to disposed division (3.4)
Add: foreign exchange gain on disposals 5.1
------------------------------------------- -------------
26.3
----------------------------------------- -------------
6. Alternative performance measures
The Condensed consolidated financial statements include
alternative performance measures that are not prepared in
accordance with IFRS. These alternative performance measures have
been selected by management to assist them in making operating
decisions because they represent the underlying operating
performance of the Group and facilitate internal comparisons of
performance over time.
Alternative performance measures are presented in these
Condensed consolidated financial statements as management believe
they provide investors with a means of evaluating performance of
the Group on a consistent basis, similar to the way in which
management evaluates performance, that is not always apparent on an
IFRS basis, given that certain non-recurring, infrequent or
non-cash items that management does not believe are indicative of
the underlying operating performance of the Group are included when
preparing financial measures under IFRS.
The Directors consider there to be four main alternative
performance measures: underlying operating profit, free cash flow,
underlying EPS (see note 8) and underlying effective tax rate.
Underlying operating profit
This has been defined as operating profit from continuing
operations excluding the impacts of significant restructuring
programmes, significant one-off items including property disposals,
business acquisition and divestment related activity. Business
acquisition and divestment related items include the amortisation
of intangible assets recognised on acquisition, the writing off of
the pre-acquisition profit element of inventory written up on
acquisition, other direct costs associated with business
combinations and adjustments to contingent consideration related to
acquired businesses. Restructuring include significant changes in
footprint (including movement of production facilities) and
significant costs of management changes.
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2017
GBPmillion 2018 2017
============================= =========== ====== =========== ====== ============= ======
Operating Tax Operating Tax Operating Tax
profit profit profit
=========== ====== =========== ====== ============= ======
As reported 7.7 - 6.8 (1.5) 20.0 (2.0)
Restructuring and
other
Restructuring (1.8) 0.3 (1.1) 0.4 (3.7) 0.4
Property items 3.6 - 0.2 - 0.2 -
Pensions increase
exchange past service
credit - - 0.8 (0.2) 1.9 (0.4)
Impact of US tax reform
legislation - - - - - 1.8
----------------------------- ----------- ------ ----------- ------ ------------- ------
1.8 0.3 (0.1) 0.2 (1.6) 1.8
----------------------------- ----------- ------ ----------- ------ ------------- ------
Acquisition and disposal
related costs
Release of acquisition - 1.7 - - - -
and disposal tax provision
Amortisation of intangible
assets arising on
business combinations (2.7) 0.5 (1.5) 0.3 (2.3) 0.5
Other acquisition
and disposal related
costs (6.0) 0.3 (2.5) - (0.4) 0.1
----------------------------- ----------- ------ ----------- ------ ------------- ------
(8.7) 2.5 (4.0) 0.3 (2.7) 0.6
----------------------------- ----------- ------ ----------- ------ ------------- ------
Total items excluded
from underlying measure (6.9) 2.8 (4.1) 0.5 (4.3) 2.4
----------------------------- ----------- ------ ----------- ------ ------------- ------
Underlying measure 14.6 (2.8) 10.9 (2.0) 24.3 (4.4)
----------------------------- ----------- ------ ----------- ------ ------------- ------
Restructuring and other costs charged in the period relate to
costs arising on the closure of our GMS facilities in Timisoara,
Romania (GBP1.0 million) and other site restructuring (GBP0.8
million) and a profit arising on the sale of certain properties
(GBP3.6 million)
Acquisition and disposal related costs include amortisation of
acquired intangible assets (GBP2.7 million) and other costs (GBP6.0
million) largely relating to the acquisitions of Stadium and
Precision Inc. along with costs incurred on the disposal and
separation of the Transportation Sensing and Control Division.
Free cash flow
This has been defined as net cash flow from operating activities
less cash flow from investing activities (excluding acquisitions
and disposal proceeds and tax arising thereon) less interest
paid.
GBPmillion Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
================================ =========== =========== =============
Net cash flow from operating
activities 11.3 20.1 29.3
Net cash flow from investing
activities (75.1) (13.3) 89.9
Acquisition of business 63.4 1.2 1.2
Dividends paid by subsidiary 0.8
to former shareholders - -
Cash with acquired businesses 3.2 - -
Disposal of subsidiaries (1.8) - (116.1)
Tax arising from disposal 2.9 - -
of subsidiaries
Cash with disposed businesses - - 2.4
Interest paid (0.6) (1.2) (2.0)
-------------------------------- ----------- ----------- -------------
Free cash flow 4.1 6.8 4.7
-------------------------------- ----------- ----------- -------------
Underlying earnings per share
This is the profit for the year attributable to the owners of
the Company adjusted to exclude the items not included within
underlying operating profit divided by the weighted average number
of shares in issue during the year. See note 8 for the calculation
of underlying earnings per share.
Underlying effective tax charge
This is the tax charge adjusted to exclude items not included
within underlying operating profit.
GBPmillion Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
====================== =========== =========== =============
Underlying operating
profit 14.6 10.9 24.3
Net interest (0.6) (1.4) (2.3)
------------------------- ----------- ----------- -------------
Underlying profit
before tax 14.0 9.5 22.0
Underlying tax 2.8 2.0 4.4
Adjusted underlying
effective tax rate 19.8% 21.1% 20.0%
------------------------- ----------- ----------- -------------
7. Taxation
The half-year tax charge is based on a forecast effective tax
rate of 19.8% on profit excluding restructuring, asset impairments
and acquisition and disposal related costs. The tax charge arising
on the profit in the period is offset by tax credits arising on
prior periods.
The enacted UK corporation tax rate applicable from 1 April 2015
is 20%, from 1 April 2017 is 19% and from
1 April 2020 is 17%.
8. Earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to the owners of the Company by the weighted average
number of shares in issue during the period. The weighted average
number of shares in issue is 161.4 million (30 June 2017: 162.4
million, 31 December 2017: 161.7 million).
Underlying earnings per share is based on the underlying profit
after interest and tax.
Pence Six months Six months Year ended
ended ended 31 December
30 June 30 June 2017
2018 2017
============================ =========== =========== =============
Basic earnings per share
Continuing operations 4.4 2.4 9.7
Discontinued operations - 2.7 19.8
---------------------------- ----------- ----------- -------------
Total 4.4 5.1 29.5
---------------------------- ----------- ----------- -------------
Diluted earnings per share
Continuing operations 4.3 2.4 9.5
Discontinued operations - 2.7 19.3
---------------------------- ----------- ----------- -------------
Total 4.3 5.1 28.8
---------------------------- ----------- ----------- -------------
The numbers used in calculating underlying earnings per share
are shown below:
GBPmillion Six months Six months Year ended
ended ended 31 December
30 June 30 June 2017
2018 2017
======================================== =========== =========== =============
Continuing operations
Profit for the period attributable to
owners of the Company 7.1 3.9 15.7
Restructuring and other (1.8) 0.1 1.6
Asset impairments - -
Acquisition and disposal related costs 8.7 4.0 2.7
Tax effect of above items (see note 6) (2.8) (0.5) (0.6)
Impact of US tax reform legislation - - (1.8)
----------- ----------- -------------
Underlying earnings 11.2 7.5 17.6
---------------------------------------- ----------- ----------- -------------
Underlying earnings per share (pence) 6.9 4.6 10.9
---------------------------------------- ----------- ----------- -------------
9. Dividends
2018 2018 2017 2017
pence GBPmillion pence GBPmillion
per share per
share
=================================== =========== ============ ======= ============
Final dividend for prior year 4.05 6.6 3.90 6.3
Interim dividend for current year - - 1.75 2.8
----------------------------------- ----------- ------------ ------- ------------
4.05 6.6 5.65 9.1
----------------------------------- ----------- ------------ ------- ------------
The Directors have declared an interim dividend of 1.95 pence
per share which will be paid on 18 October 2018 to shareholders on
the register on 5 October 2018. Shares will become ex-dividend on 4
October 2018. The Group has a progressive dividend policy.
10. Retirement benefit schemes
At 31 December 2017 the Group operated one significant defined
benefit scheme in the UK (the TT Group scheme) and overseas defined
benefit schemes in the USA. These schemes are closed to new members
and the UK scheme is closed to future accrual. On the acquisition
of Stadium, the Group acquired two new UK defined benefit schemes
(Stadium Group and Southern & Redfern schemes).
The amounts recognised in the condensed consolidated balance
sheet are:
GBPmillion 30 June 30 June 31 December
2018 2017 2017
========================================= ======== ======== ============
Fair value of assets 561.3 549.8 559.8
Present value of funded obligation (541.5) (552.1) (547.9)
----------------------------------------- -------- -------- ------------
Net liability recognised in the balance
sheet 19.8 (2.3) 11.9
----------------------------------------- -------- -------- ------------
Represented by
Schemes in net surplus 26.9 0.9 15.1
Schemes in net deficit (7.1) (3.2) (3.2)
----------------------------------------- -------- -------- ------------
19.8 (2.3) 11.9
----------------------------------------- -------- -------- ------------
Represented by:
GBPmillion 30 June 30 June 31 December
2018 2017 2017
====================== ======== ======== ============
TT Group (1993) 26.9 0.9 15.1
Stadium Group (1974) (3.7) - -
Southern & Redfern - - -
USA schemes (3.4) (3.2) (3.2)
---------------------- -------- -------- ------------
19.8 (2.3) 11.9
---------------------- -------- -------- ------------
The costs recognised in the condensed consolidated income
statement are:
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2017
GBPmillion 2018 2017
====================================== =========== =========== =============
Scheme administration costs 0.5 0.6 1.2
Past service credit (non-underlying) - 1.0 2.3
Net interest (credit)/cost (0.1) 0.1 0.1
-------------------------------------- ----------- ----------- -------------
The triennial valuation of the TT Group scheme as at April 2016
showed a deficit of GBP46.0 million against the Trustee's funding
objective compared with GBP19.1 million at April 2013. The Company
has agreed fixed contributions through to 2020 based on the
actuarial deficit at April 2016. Given the nature of the Company's
control of the plan under the Scheme's rules, a pension surplus has
been recognised under IFRIC 14.
These planned contributions amount to GBP4.9 million (of which
GBP2.4 million had been paid in the first half of the year), GBP5.1
million and GBP3.9 million to be paid over the next three years. In
addition, the Group has set aside
GBP2.5 million to be utilised in agreement with the Trustee for
reducing the long-term liabilities of the scheme.
The triennial valuation of the Stadium Group scheme as at April
2017 showed a deficit of GBP4.3 million against the Trustee's
funding objective. Fixed contributions of GBP0.6 million per annum
through to 2025 have been agreed with the Trustee (of which GBP0.1
million had been paid in the first half of the year post
acquisition).
The total payments made in period ended 30 June 2018 in respect
of UK schemes ('special payments') was GBP2.5 million.
11. Reconciliation of net cash flow to movement in net (debt)/funds
GBPmillion Net cash Borrowings Unamortised Net funds/(debt)
and finance loan arrangement
leases fees
========================================== ========= ============= ================== =================
At 1 January 2017 49.8 (105.2) - (55.4)
Cash flow 10.3 - - 10.3
Proceeds from borrowings (10.9) - (10.9)
Finance lease payments 0.1 - 0.1
Amortisation of loan arrangement fees - (0.2) - (0.2)
Transferred to assets / liabilities
held for sale (11.1) 1.6 - (9.5)
Exchange differences (0.4) 0.5 - 0.1
------------------------------------------ --------- ------------- ------------------ -----------------
At 30 June 2017 48.6 (114.1) - (65.5)
Amounts included in assets / liabilities
held for sale 11.1 (1.6) - 9.5
------------------------------------------ --------- ------------- ------------------ -----------------
At 30 June 2017 59.7 (115.7) - (56.0)
Cash flow (13.1) - - (13.1)
Repayment of borrowings - 119.1 - 119.1
Proceeds from borrowings - (3.0) - (3.0)
Finance lease payments - 0.2 - 0.2
Amortisation of loan arrangement fees - (0.1) - (0.1)
Reclassification of loan arrangement
fees - (1.1) 1.1 -
Exchange differences (0.1) - - (0.1)
------------------------------------------ --------- ------------- ------------------ -----------------
At 1 January 2018 46.5 (0.6) 1.1 47.0
Cash flow (7.6) - - (7.6)
Repayment of borrowings - 9.8 - 9.8
Proceeds from borrowings - (80.0) - (80.0)
Finance lease payments - 0.1 - 0.1
Amortisation of loan arrangement fees - (0.2) - (0.2)
Reclassification of loan arrangement
fees - 1.1 (1.1) -
Acquisitions - (10.3) - (10.3)
------------------------------------------ --------- ------------- ------------------ -----------------
At 30 June 2018 38.9 (80.1) - (41.2)
------------------------------------------ --------- ------------- ------------------ -----------------
Net cash includes overdraft balances of GBPnil (30 June 2017 and
31 December 2017: GBPnil).
12. Share capital
The performance conditions of the Long Term Incentive Plan
awards issued in 2014 and 2015 were met and shares were allocated
to award holders from existing shares held by an Employee Benefit
Trust for nil consideration.
During the period the Company issued 106,326 ordinary shares as
a result of share options being exercised under the Sharesave
scheme and Share Purchase plans. The aggregate consideration
received was GBP0.2 million, which was represented by a GBP0.1
million increase in share capital and a GBP0.1 million increase in
share premium.
13. Related party transactions
Transactions between the company and its subsidiaries have been
eliminated on consolidation and are not disclosed in this note. No
related party transactions have taken place during the six months
ended 30 June 2018 that have affected the financial position or
performance of the Group.
14. Principal risks and uncertainties
As described on pages 26 to 29 of the 2017 Annual Report, the
Group continues to be exposed to a number of operational and
financial risks and has an established, structured approach to
identifying, assessing and managing those risks. These risks relate
to the following areas:
General economic downturn; contractual risks; research and
development; people and capability; supplier resilience; IT systems
and information; M&A and integration; legal and regulatory
compliance.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR LIFFETVITIIT
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