28th Mar 2006 07:01
TT electronics PLC28 March 2006 TT ELECTRONICS FOCUSES ON FUTURE GROWTH TT electronics is a world leader in sensors and electronic component technology and today announces its preliminary results for the year to 31 December 2005. KEY POINTS • Group revenue of £565.3 million (2004: £573.1 million). • Operating profit was £32.0 million (2004: £34.7 million). • The acquisition of Dage Limited, which has performed well ahead of expectations, provides us with a facility in China where we are manufacturing for the Chinese and other worldwide markets. • Our sensor business continues to be successful and new product ranges have been well received. • The electrical division performed strongly and the Mexican power system operation expanded to meet increased demand. • The elimination of loss making operations during 2005 will provide a platform for improved future profitability. • The group generated cash from operations of £49.6 million (2004: £53.9 million) and gearing at the year end improved to 31 per cent (2004: 40 per cent). • The Board is recommending a maintained final dividend of 6.36p per share bringing the total for the year to 10.05p (2004: 10.05p). John Newman, Executive Chairman, said today: "TT electronics has emerged from a year of consolidation during which we haveeliminated certain loss making businesses. "We are encouraged by the strong performance in China - an operation which wehave already expanded. This enables us to continue the transfer of ourmanufacturing to a lower cost environment and provides access to the rapidlygrowing Chinese market. TT electronics now employs 38 per cent of its totalglobal workforce in low cost economies. "We remain focused on the global markets for sensors and electronic componentswhich are expected to show sustained long term growth. We continue to drivetechnological innovation as evidenced by the introduction of our range ofAutopad (R) inductive sensors and light emitting displays. These have been wellreceived by our customers and we expect them to provide future growth. TTelectronics is in good shape to make further acquisitions and has started 2006with a strong order intake." Enquiries: TT electronics plcJohn W Newman, Executive Chairman: Tel: 01932 856 647 BiddicksZoe Biddick: Tel: 020 7448 1000 Chairman's statement The year has been one of consolidation resulting in the group closing fourfactories based in the UK and Europe. The group has continued its policy oftransferring production to its low labour cost factories particularly in Chinaand Malaysia. Dage Limited and its subsidiaries, now trading as TT electronicintegrated systems were acquired in March 2005 and are performing well ahead ofexpectations. As a result, we now have a facility in China where we will bemanufacturing group products for the Chinese and worldwide markets. Revenue for the year to December 2005 was £565.3 million compared to £573.1million in 2004. Operating profit before exceptional gain was £29.9 million(2004: £34.7 million). Exceptional gain was £2.1 million (2004: £nil) resultingin operating profit for the year of £32.0 million (2004: £34.7 million). Financecosts (net) were £5.2 million (2004: £4.7 million), comprising £3.1 million ofbank and finance lease interest and £2.1 million relating to pension fundaccounting. Profit before tax was £26.8 million compared with £30.0 million in2004. Taxation charge in the year was £8.5 million (2004: £9.9 million) at aneffective rate of 32 per cent (2004: 33 per cent). The electronic sector will benefit from the demand for Autopad(R) sensors. Wehave taken orders in excess of £100 million which include new applications forour sensors. The electrical sector is benefiting from the demand for standard dieselgenerating sets manufactured in Mexico, in particular a £10 million orderawarded by a new customer in Central America. The exceptional items comprise the net gain on the sale of the Gravesendproperty after related closure costs, the profit on sale of Houchin Aerospace,and the costs of closure of the climate control business based in France. TheGravesend property was sold in March 2005 for an initial payment of £12.5million, with expected further payments to be received on the disposal of thesite following planning consent and onward sale. The power cable division onthat site has been closed at a cost of £3.1 million. The French climate controlbusiness has been closed at a cost of £6.7 million due to unacceptable lowmargins. These low margins arose from production inefficiencies on inheritedloss making contracts and new business which could only be achieved atunacceptable margins due to competition from lower labour cost areas. The discontinued operation is the cessation of manufacturing at PrestwickCircuits Limited, our printed circuit board manufacturer. Competition from FarEast suppliers at significantly lower selling prices has caused the closure ofthis business after a number of years of losses. The group's pension schemes showed an increased deficit, despite the rise in thestock market and additional cash contributions made by the group in the year,due to the effect of exceptionally low long-term interest yields and longer lifeexpectancy. Since the year end the Company has entered into a formal commitmentto fund over a ten year period part of this deficit. TT electronics continues to be a strong generator of cash. At the year end, thegroup's net indebtedness had reduced to £47.1 million from £67.3 million at theend of last year. We have successfully renegotiated our five year bank loanfacility which was due to expire in June 2006 for a new £70 million five yearbank loan facility commencing November 2005. The Board of TT electronics recommends a final dividend of 6.36p per sharewhich, following the 3.69p interim dividend, provides a total dividend for theyear of 10.05p, the same as last year. TT electronics' employees contribute enormously to the group's performance and Iwould like to thank them for all their efforts throughout the year. The successful future of TT electronics is based on product innovation and thecontinuing move of manufacturing to low labour cost countries. TT electronicintegrated systems in China will assist in this strategy. With reducedborrowings, the group is in good shape to make further acquisitions which,together with our new technology, will enable TT electronics to grow in thefuture. John W NewmanExecutive Chairman27 March 2006 Business review Summary----------------------------------------- -------- ------- 2005 2004 £million £million----------------------------------------- -------- -------Revenue 565.3 573.1Operating profit (1) 29.9 34.7Capital employed 197.7 232.6----------------------------------------- -------- -------Return on capital employed 15% 15%----------------------------------------- -------- ------- (1) Operating profit is stated before exceptional gain of £2.1 million. TT electronics operates in two main sectors, electronic and electrical. Theelectronic sector supplies sensors and systems, components and electronicmanufacturing services to major customers in the automotive, aerospace andindustrial markets worldwide. The electrical sector provides services andequipment for the generation and distribution of electrical power. 2005 was a year of rationalisation. The group announced the closure of fourmanufacturing operations during the year: the French climate control facility,two power transmission cable factories and the printed circuit board factory inthe UK. These operations were loss making and the Board took the view thatprofitability in the long-term was unlikely. In addition, the group sold HouchinAerospace Limited for a total cash sum of £8.0 million. Demand for the group's electronic products overall showed a small growth withsensors and electronic manufacturing services combining to more than offset thedecline in components. The electrical sector revenue reduced due to the factoryclosures and business disposals. Total Group - sector analysis ----------------------------------------- -------- ------- 2005 2004 £million £million----------------------------------------- -------- -------RevenueSensors and electronic systems 195.0 191.5Electronic components 129.6 137.1Electronic manufacturing services 60.3 50.7----------------------------------------- -------- -------Electronic sector 384.9 379.3----------------------------------------- -------- -------Power systems 50.4 56.0Power transmission 130.0 137.8----------------------------------------- -------- -------Electrical sector 180.4 193.8----------------------------------------- -------- -------Group total 565.3 573.1----------------------------------------- -------- -------Operating profit(1)Sensors and electronic systems 9.1 18.2Electronic components 8.7 8.1Electronic manufacturing services 2.0 1.6----------------------------------------- -------- -------Electronic sector 19.8 27.9----------------------------------------- -------- -------Power systems 4.6 3.8Power transmission 5.5 3.0----------------------------------------- -------- -------Electrical sector 10.1 6.8----------------------------------------- -------- -------Group total 29.9 34.7----------------------------------------- -------- ------- (1) Operating profit is stated before exceptional gain of £2.1 million. The revenue for 2005 was £565.3 million (2004: £573.1 million). The electronicsector revenue grew from £379.3 million to £384.9 million and the electricalsector revenue reduced from £193.8 million to £180.4 million. The increase inelectronics followed the acquisition in March 2005 of the business of DageLimited, now TT electronic integrated systems, which contributed £21.7 millionof revenue. The reduced revenue in the electrical sector was due to the sale ofHouchin Aerospace Limited in July and the closure of the cables businesses atBootle and Gravesend. Operating profit before exceptional items reduced from £34.7 million to £29.9million with margins in all sectors other than power systems under pressure. The operating profit includes the trading losses of AB Automotive (France) SASand the power cables factory at Gravesend which together amount to £4.8 million.Closure costs of £6.7 million have been incurred and treated as part of theexceptional items detailed on page 6. These losses have now been eliminated. Thegroup operating margin excluding these losses and exceptional items was 6.1 percent, the same as last year. Sensors and electronic systems 2005 2004 £million £million----------------------------------------- -------- -------Revenue 195.0 191.5Operating profit (1) 9.1 18.2Capital employed 66.4 94.1----------------------------------------- -------- -------Return on capital employed 14% 19%----------------------------------------- -------- -------Number of employees 2,804 2,841----------------------------------------- -------- ------- (1)Operating profit is stated before exceptional gain. Sensor sales within Europe grew due to our exposure to the successful Germanvehicle manufacturing industry, contrasting with sales in North America whichdeclined. Our newly developed inductive sensor Autopad(R) technology has been successful.New business has been won from German OEMs for a range of applications includingchassis, pedal, throttle air management and steering. Particularly exciting isthe new steering sensor development whereby both steering torque and angle canbe accurately measured within a single, cost effective, non-contact sensorpackage. The initial production runs for the first of these new applications arescheduled to start in late 2006. The climate control operations within electronic systems had another difficultyear. Manufacturing has been transferred from the UK to our North Americanclimate control facility in line with the plan to improve our service to theOEMs. These operations have now returned to profitability with a very clearfocus upon operational performance and internal cost reduction. Unfortunatelythe French climate control operation generated further significant losses duringthe year and it was decided that the facility should close. This is a complexand emotional process in France, but even so progress to closure was successful,and the operation ceased manufacture in March 2006. Performance from Optek Technology our optoelectronic business, remained strong.New products launched during the year included surface mount infra red lightemitting diodes and a complete range of visible light emitting displays. Thesenew products made a useful contribution to turnover in the year and we areexpecting substantial growth over the coming years. Electronic components 2005 2004 £million £million----------------------------------------- -------- -------Revenue 129.6 137.1Operating profit 8.7 8.1Capital employed 82.4 83.5----------------------------------------- -------- -------Return on capital employed 11% 10%----------------------------------------- -------- -------Number of employees 2,597 2,752----------------------------------------- -------- ------- Overall, the global market for passive electronic components remained broadlyflat. We saw some declines due to end of life programmes, plus difficult marketconditions in the UK for our traditional resistive products which caused adecline in profitability in our UK component operations. Our hybrid microcircuits facility based in Austria was particularly successfulin 2005. Sales, predominantly to the German automotive industry, grew as theproduct range was expanded into new areas, notably electronic control overelectrically powered water pumps for car cooling systems and the controlcircuitry for solar sensors. The decision was taken during the year to discontinue manufacturing operationsat our printed circuit board facility, Prestwick Circuits Limited, based inScotland. Future growth in electronic components is anticipated to come from emergingmarkets, predominantly in the Far East. To meet this expected demand, additionalsales personnel have been employed in Hong Kong, China, Japan, Korea and India.Our components, which were originally incorporated into assemblies manufacturedby our customers in high cost economies, are carefully monitored as they migrateproduction to low cost manufacturing sources to ensure that our componentscontinue to be used. Electronic manufacturing services 2005 2004 £million £million----------------------------------------- -------- -------Revenue 60.3 50.7Operating profit 2.0 1.6Capital employed 9.4 (5.4)----------------------------------------- -------- -------Return on capital employed 21% 100+%----------------------------------------- -------- -------Number of employees 739 465----------------------------------------- -------- ------- The major highlight in this sector was the acquisition of the business of DageLimited, now TT electronic integrated systems, with plants in the UK and China.Performance from both operations has exceeded estimates made at the time ofacquisition, and the Chinese facility has been expanded with the addition ofanother 4,000 square metre factory. This operation will form the basis forproduct transfers from higher cost UK and USA based group companies to low costmanufacturing sources and access to the rapidly growing Chinese market. New contract manufacturing operations at our Malaysian factory commenced volumemanufacture during 2005. A second production line was transferred to Malaysiaduring the year to support the award of a telephone systems contract worth inexcess of £8 million. The UK operations maintained steady performance although one site saw asubstantial downsizing following the transfer of manufacture to Malaysia.Further rationalisation of our UK operations can be expected during 2006. Power systems 2005 2004 £million £million----------------------------------------- -------- -------Revenue 50.4 56.0Operating profit(1) 4.6 3.8Capital employed 1.0 2.7----------------------------------------- -------- -------Return on capital employed 100+% 100+%----------------------------------------- -------- -------Number of employees 569 611----------------------------------------- -------- ------- (1)Operating profit is stated before exceptional gain. In anticipation of a contract award from a customer based in Central America,the Mexican power generator manufacturing operations were expanded with theaddition of a 5,000 square metre factory site. Shipments of this new majorcontract have now started and are expected to be valued at over £10 millionduring 2006. Business during 2005 remained at a high level primarily due todemand from China. The UK uninterruptible power supply and generator service businesses continuedto expand and improve their profitability. In August 2005 Houchin Aerospace Limited was sold for a cash consideration of £8million. Power transmission 2005 2004 £million £million----------------------------------------- -------- -------Revenue 130.0 137.8Operating profit(1) 5.5 3.0Capital employed 38.5 57.7----------------------------------------- -------- -------Return on capital employed 14% 5%----------------------------------------- -------- -------Number of employees 1,464 1,688----------------------------------------- -------- ------- (1)Operating profit is stated before exceptional gain. UK based manufacturing operations at our power and mineral cable factories wereclosed during the year. The cables business based at Birtley, UK has improved both revenue and profitsassisted by the high demand for cables from the house building industry. The electrical accessories business had a very successful year with newmanagement in place. New product development, together with the transfer of muchof the material sourcing and product manufacture to the Far East, will ensure aprofitable future. Exceptional gain The group sold the site of the Gravesend cables factory for an initialconsideration of £12.5 million. There are further cash proceeds expected theamount of which depend on the value of the onward sale to a land developer. TTelectronics will receive 100 per cent of the additional consideration up to anaggregate total of £20 million and a reducing proportion of the considerationthereafter. The cost of sale, being the carrying cost of the land and buildings,has all been charged against the initial sale proceeds and any additionalproceeds will be accounted for as cash and profit, subject only to further legaland professional costs. This onward sale is not likely to occur until 2007. Theclosure costs associated with this site were £3.1 million. Costs of £6.7 million have been incurred in the closure of the French climatecontrol factory. Furthermore this business incurred trading losses of £3.7million during 2005, which have been included in operating profit. Houchin Aerospace Limited, the aircraft standby power generation business, wassold for £8 million and the profit on sale of £4.1 million is included in theexceptional gain. Discontinued operation The group has discontinued the manufacture of printed circuit boards at itsfactory in Scotland. This business incurred substantial losses and, despitemanagement's efforts, the competition from low labour cost sources in the FarEast rendered a return to profitability unlikely. This business is shown as thediscontinued operation with losses after tax credits of £5.3 million. Finance costs The bank and finance lease interest paid (net of bank interest receivable) was£3.6 million (2004: £3.2 million). This arose in a period of increasing interestrates, lower average net borrowings of the group following strong cashgeneration and the proceeds from disposals less the cash cost of theacquisition. Net finance costs include the credit for the expected return on pension funds'assets and the charge for the unwinding of the discount used in arriving at thepresent value of the pension schemes' liabilities. The net of these overallamounts to £2.5 million (2004: £2.3 million). Taxation The group taxation charge of £5.2 million (2004: £9.1 million) is a 29 per centcharge on profit after exceptional items, finance costs and the discontinuedoperation. The rate of taxation reflects the aggregate effect of the pre-taxlosses and exceptional closure costs in France for which no tax relief has beenaccounted (although a tax claim has been made), the profit on sale of HouchinAerospace Limited which does not suffer a capital gains tax charge and somepartial relief of the capital gain on the sale of land. The group rate of taxexcluding these items would have been 28 per cent. Pensions During 2005, the group operated nine defined benefit pension schemes in the UKand two overseas, all of which are closed to new entrants. Calculated on an IAS19 basis, the total of these schemes' liabilities was £335.9 million and assets£245.7 million, resulting in a deficit of £90.2 million. The group intends toeliminate the deficit as re-measured each year over the next ten years andadditional cash contributions of £9.3 million were made in 2005 bringing thetotal cash contributions for 2005 to £14.1 million (2004: £8.7 million). Despite the increase in asset value following the strengthening of stock marketvalues, the deficit has increased as a result of the decrease in the discountrate being applied to the schemes liabilities and by longer life expectancy. TheBoard continues to recognise the increasing cost of pensions and is activelyreviewing its options. Since the year end, the pension schemes of TT electronicsplc, Prestwick Circuits Limited and four other smaller schemes have been merged. This will reduce the cost of administration of these small schemes. Treasury matters 2005 2004----------------------------------------- -------- -------Net interest paid cover - times 9 11----------------------------------------- -------- ------- The group maintains central control over its treasury function so as to maintaina cost efficient and risk averse source of borrowing facilities more thansufficient for the needs of the operations around the world. It has policies andprocedures which are monitored and controlled through monthly meetings of thetreasury committee. In November 2005, the group arranged a new mid-term borrowing facility for £70million over five years in the UK to replace the facility which was due tomature in June 2006. A further facility for $20 million over two years was setup in the USA. These, together with overdraft facilities with major clearingbanks in the countries where the group operates, form the basis of the group'sexternal finance arrangements. The risks to the group's business arising from fluctuations in foreign exchangerates, interest rates and the cost of certain key materials are managed by theuse of forward contracts and swaps. Similarly, the effect of changes in foreigncurrency exchange rates on the translation of overseas assets and tradingresults is minimised by use of forward currency contracts. The net effect ofchanges since 2004 in foreign currency rates used to translate the sales andoperating profit of the group's overseas companies were reductions of £2.9million and £0.1 million respectively. Cash flow and working capital 2005 2004 £million £million----------------------------------------- -------- -------Total net borrowings 47.1 67.3Cash generated from operations 49.6 53.9Capital expenditure 15.6 24.6----------------------------------------- -------- ------- Days Days----------------------------------------- -------- -------Debtors 50 54Creditors 44 49Inventory 74 79----------------------------------------- -------- ------- During the year the group reduced total net borrowings by £20.2 million from£67.3 million. The proceeds on the disposal of Houchin Aerospace Limited and theland at the Gravesend site totalled £20.5 million and expenditure on theacquisition of Dage Limited amounted to £9.7 million. Tight financial control ismaintained on the working capital at each operating company and a central creditcontrol function monitors the group's debtors, reporting monthly to a centralcredit control committee. Generally the bad debt experience of the group hasbeen good but in October 2005 certain parts of Delphi Inc. entered the Chapter11 process in the USA. Delphi Inc. was and continues to be a large customer ofTT electronics and the realisability of this trade receivable has been carefullyconsidered and a provision of £1.6 million has been made against the risk ofnon-payment. Capital expenditure on property, plant and equipment totalled £15.6 million(2004: £24.6 million). There are several major projects underway, mainly for newautomotive products, which will require an increased amount of capitalexpenditure in 2006. All capital expenditure over £20,000 is authorised by anexecutive Director before being committed to by the operating companies. The group's net gearing has improved to 31 per cent (2004: 40 per cent). Accounting and reporting This is the first Annual Report presented using International FinancialReporting Standards (IFRS). TT electronics issued a report in July 2005 in which the changes to the resultsof the first half and the full year 2004 and the balance sheets at December 2003and 2004 and June 2004 were set out and explained. The Interim Report issued in September 2005 and the consolidated results for thefull year 2005 set out in this Annual Report have been prepared usinginternational accounting policies consistent with those used in that earlierreport. Financial information in respect of the Company is not required to be reportedunder IFRS and has therefore been prepared under UK GAAP. Dividends The balance sheet requirement under either IFRS or current UK GAAP is to reporta final dividend as a liability only after that dividend has been approved. Noproposed dividend is therefore included in the balance sheet. The proposal todeclare an unchanged final dividend of 6.36p per share (2004: 6.36p per share)forms part of the resolutions for the forthcoming Annual General Meeting. Outlook The completion of 2005's rationalisation of the group has eliminated the majorloss making operations and will provide a platform for improved future profitability. Work to transfer certain product ranges to lower cost manufacturing sources willcontinue throughout the current year and beyond. The group currently employs 38per cent of its workforce in low labour cost economies, and the Board believesthis proportion will continue to increase. The automotive market in which we operate remains challenging. Our sales to thesuccessful German automotive market remain higher than those to the troubledNorth American market. We continue to develop new technologies to support growth in our main markets;Autopad(R) is an excellent example of our success in this area. The commitment of our people across the world remains key to our success. We expect the closure of the loss making operations to have a positive effect onthe profitability of our global operations and we have started 2006 with astrong order intake. Neil A Rodgers Roderick W WeaverChief Executive Finance Director27 March 2006 27 March 2006 Consolidated income statementfor the year ended 31 December 2005 Before 2005 2004 exceptional Exceptional items items* Total Total Note £million £million £million £million------------------------- ----- --------- --------- -------- -------Continuing operationsRevenue 2 565.3 - 565.3 573.1Cost of sales (460.3) - (460.3) (459.9)------------------------- ----- --------- --------- -------- -------Gross profit 105.0 - 105.0 113.2Distribution costs (40.5) - (40.5) (41.0)Administrative expenses (35.2) (9.8) (45.0) (35.3)Other operating expenses (1.0) - (1.0) (3.8)Other operating income 1.6 11.9 13.5 1.6------------------------- ----- --------- --------- -------- -------Operating profit 3 29.9 2.1 32.0 34.7Finance income 12.0 - 12.0 10.8Finance costs (17.2) - (17.2) (15.5)------------------------- ----- --------- --------- -------- -------Profit before taxation 3 24.7 2.1 26.8 30.0Taxation (8.1) (0.4) (8.5) (9.9)------------------------- ----- --------- --------- -------- -------Profit for the year fromcontinuing activities 3 16.6 1.7 18.3 20.1------------------------- ----- --------- --------- -------- ------- Discontinued operationLoss for the year fromdiscontinued operation 5 (5.3) (1.7)------------------------- ----- --------- --------- -------- -------Profit for the yearattributable to shareholders 13.0 18.4------------------------- ----- --------- --------- -------- ------- *Details of exceptional operating items are given in note 4. There were noexceptional items in 2004. Earnings per share 7From continuing anddiscontinued operations - basic 8.4p 11.9p - diluted 8.3p 11.8p From continuing operations - basic 11.8p 13.0p - diluted 11.7p 12.9p Consolidated balance sheetat 31 December 2005 Note 2005 2004 £million £million------------------------------ -------- ---------- ---------AssetsNon-current assetsProperty, plant and equipment 118.0 136.3Goodwill 52.5 42.4Other intangible assets 15.7 17.4Financial assets - investment - 1.0Deferred tax assets 30.0 23.2----------------------------- -------- ---------- ---------Total non-current assets 216.2 220.3----------------------------- -------- ---------- ---------Current assetsProperty - 0.1Inventories 93.9 99.6Trade and other receivables 95.1 103.8Financial assets - 0.3Cash and cash equivalents 24.0 5.5----------------------------- -------- ---------- ---------Total current assets 213.0 209.3----------------------------- -------- ---------- ---------Total assets 429.2 429.6----------------------------- -------- ---------- ---------LiabilitiesCurrent liabilitiesShort term borrowings 4.0 17.1Financial liabilities 0.4 -Trade and other payables 94.8 90.1Current tax payable 4.9 7.0Provision for liabilities 1.6 2.1----------------------------- -------- ---------- ---------Total current liabilities 105.7 116.3----------------------------- -------- ---------- ---------Non-current liabilitiesLong term borrowings 67.1 55.7Deferred tax provision 6.1 8.7Pensions and other post employment benefits 12 90.2 70.9Provision for liabilities 1.0 1.6Other non-current liabilities 7.4 9.7----------------------------- -------- ---------- ---------Total non-current liabilities 171.8 146.6----------------------------- -------- ---------- ---------Total liabilities 277.5 262.9----------------------------- -------- ---------- ---------Net assets 151.7 166.7----------------------------- -------- ---------- ---------EquityShare capital 38.7 38.7Share premium account - 56.0Capital redemption reserve - 4.4Merger reserve - 23.0Share options 0.5 0.2Hedging and translation reserve 3.5 (2.9)Retained earnings 107.0 44.4Minority interests 2.0 2.9----------------------------- --------- ---------- ---------Total equity 8 151.7 166.7----------------------------- --------- ---------- --------- Consolidated cash flow statementfor the year ended 31 December 2005 Note 2005 2004 £million £million------------------------------------ ------ -------- -------- Operating activitiesProfit for the year 13.0 18.4Adjustments for:Finance costs 6.1 5.5Taxation 5.2 9.1Depreciation of property, plant and equipment 26.8 29.4Amortisation of intangible assets 10.4 9.2Share based payment expense 0.3 0.1Gain on disposal of property, plant and equipment (12.0) (2.8)Gain on disposal of subsidiary (4.1) -Other non cash items (0.2) 2.9Additional payments to pension funds (9.3) (3.1)------------------------------------ ------ -------- --------Operating cash flow before movements in workingcapital 36.2 68.7Decrease in property assets 0.1 1.7Decrease in financial derivatives 0.7 0.8Decrease/(increase) in inventories 5.1 (1.1)Decrease/(increase) in receivables 12.1 (4.0)Increase in payables 0.1 5.4Exchange differences 4.0 (1.8)------------------------------------ ------ -------- --------Cash generated from operations 58.3 69.7Tax paid (8.7) (15.8)------------------------------------ ------ -------- --------Net cash from operating activities 49.6 53.9------------------------------------ ------ -------- --------Cash flows from investing activities:Purchase of property, plant and equipment (15.6) (24.6)Proceeds from sale of property, plant and equipmentand grants received 21.3 8.2Development expenditure (8.7) (10.8)Acquisition of subsidiaries net of cash acquired 10 (10.1) (1.3)Net cash proceeds from sale of subsidiary 11 7.8 -Loan repayment - 6.0------------------------------------ ------ -------- --------Net cash used in investing activities (5.3) (22.5)------------------------------------ ------ -------- --------Cash flows from financing activities:Interest paid (net) (3.4) (3.5)Net changes in long-term borrowings andfinance lease liabilities 7.2 4.2Dividends paid (15.6) (15.6)------------------------------------ ------ -------- --------Net cash used in financing activities (11.8) (14.9)------------------------------------ ------ -------- --------Net increase in cash and cash equivalents 9 32.5 16.5Cash and cash equivalents at beginning of period (9.6) (27.1)Exchange difference (0.6) 1.0------------------------------------ ------ -------- --------Cash and cash equivalents at end of period 22.3 (9.6)------------------------------------ ------ -------- --------Cash and cash equivalents comprise:Cash and cash equivalents 24.0 5.5Bank overdrafts (1.7) (15.1)------------------------------------ ------ -------- -------- 9 22.3 (9.6)------------------------------------ ------ -------- -------- Consolidated statement of recognised income and expensefor the year ended 31 December 2005 2005 2004 £million £million----------------------------------------- -------- -------Profit for the year 13.0 18.4Exchange differences on net foreign currencyinvestments 5.7 (2.7)Income tax on foreign currency exchange differences 0.7 (0.2)Actuarial net loss on defined benefit pension schemes (26.0) (10.2)Deferred tax on actuarial loss 7.8 2.5----------------------------------------- -------- -------Total recognised income and expense for the yearattributable to shareholders 1.2 7.8----------------------------------------- -------- ------- Notes to the financial statements 1. Basis of accounting The consolidated financial statements have been prepared under InternationalFinancial Reporting Standards (IFRS). The restatement of 2004 financialinformation from UK Generally Accepted Accounting Practice (GAAP) to IFRS wascirculated to shareholders on 22 July 2005 and is available on the group'swebsite. The information set out below, which does not constitute full financialstatements within the meaning of S240 CA, 1985 is extracted from the auditedfinancial statements of the group for the year ended 31 December 2005 which: - were approved by the Directors on 27 March 2006- carry an unqualified audit report, which did not contain statements under S237 CA, 1985- will be posted to shareholders and available to the public in April 2006- will be filed with the Registrar of Companies following the Annual General Meeting on 17 May 2006 2. Revenue By sector 2005 2004 £million £million-------------------------------------- -------- -------Electronic - sensors and electronic systems 195.0 191.5 - electronic components 129.6 137.1 - electronic manufacturing services 60.3 50.7-------------------------------------- -------- -------Total electronic 384.9 379.3-------------------------------------- -------- -------Electrical - power systems 50.4 56.0 - power transmission 130.0 137.8-------------------------------------- -------- -------Total electrical 180.4 193.8-------------------------------------- -------- -------Total 565.3 573.1-------------------------------------- -------- ------- By destination 2005 2004 £million £million-------------------------------------- -------- -------United Kingdom 161.1 176.9Rest of Europe 199.9 208.8North America 131.7 116.1Rest of the World 72.6 71.3-------------------------------------- -------- -------Total 565.3 573.1-------------------------------------- -------- ------- 3. Profit by sector 2005 2004 £million £million------------------------------------- -------- --------Electronic - sensors and electronic systems 9.1 18.2 - electronic components 8.7 8.1 - electronic manufacturing services 2.0 1.6------------------------------------- -------- --------Total electronic 19.8 27.9------------------------------------- -------- --------Electrical - power systems 4.6 3.8 - power transmission 5.5 3.0------------------------------------- -------- --------Total electrical 10.1 6.8------------------------------------- -------- --------Total 29.9 34.7Exceptional operating items (note 4) 2.1 -------------------------------------- -------- --------Operating profit - total 32.0 34.7Finance income 12.0 10.8Finance costs (17.2) (15.5)------------------------------------- -------- --------Profit before tax 26.8 30.0Income tax expense (8.5) (9.9)------------------------------------- -------- --------Profit for the year from continuing operations 18.3 20.1------------------------------------- -------- -------- 4. Exceptional items 2005 2004 £million £million------------------------------------- -------- --------Profit on sale of the Gravesend site 7.8 -Closure costs of Gravesend cables operation (3.1) -------------------------------------- -------- --------Net gain on closure of Gravesend cables operation 4.7 -Profit on sale of Houchin Aerospace Limited 4.1 -Closure costs of AB Automotive (France) SAS (6.7) -------------------------------------- -------- -------- 2.1 -------------------------------------- -------- -------- The profit on sale of the Gravesend site has been calculated based on initialsales proceeds of £12.5 million; further proceeds may be received based on thedevelopment of the site. Closure costs of the Gravesend cables operationcomprise £1.6 million of redundancy costs and £1.5 million of other costs. Houchin Aerospace Limited, a wholly owned subsidiary, was sold on 1 August 2005,see note 11 for further details. AB Automotive (France) SAS is to close in 2006. Closure costs committed to at 31December 2005 comprise £3.5 million of redundancy costs, £0.9 million for plantand equipment write downs, £1.1 million for the loss on onerous contracts and£1.2 million for other costs. Exceptional items analysed by sector: 2005 2004 £million £million------------------------------------- -------- --------Sensors and electronic systems (6.7) -Power systems 4.1 -Power transmission 4.7 -------------------------------------- -------- -------- 2.1 -------------------------------------- -------- -------- 5. Discontinued operation On 9 September 2005 the group announced the discontinuance of manufacturingoperations at Prestwick Circuits Limited, a printed circuit board manufacturer. The result for the year for Prestwick Circuits Limited was: 2005 2004 £million £million------------------------------------ --------- --------Loss before finance costs (7.7) (1.7)Finance costs (0.9) (0.8)------------------------------------ --------- --------Loss before taxation (8.6) (2.5)Income tax credit 3.3 0.8------------------------------------ --------- --------Loss for the year (5.3) (1.7)------------------------------------ --------- -------- 6. Dividends The following dividends have been paid in the year: 2005 2005 2004 2004 pence per £million pence per £million share share----------------------- --------- -------- -------- --------Final dividend for prioryear 6.36 9.9 6.36 9.9Interim dividend forcurrent year 3.69 5.7 3.69 5.7----------------------- --------- -------- -------- -------- 10.05 15.6 10.05 15.6----------------------- --------- -------- -------- -------- The Directors propose that a final dividend of 6.36p will be paid toshareholders on 26 May 2006. This dividend is subject to the approval ofshareholders at the Annual General Meeting and has not been included as aliability in these accounts. The total estimated cost of the dividend to be paidis £9.9 million. 7. Earnings per share From continuing and discontinued operations: 2005 2004 pence pence per share per share------------------------------------- -------- --------Basic 8.4 11.9Diluted 8.3 11.8------------------------------------- -------- -------- Earnings per share has been calculated by dividing the profit attributable toshareholders by the weighted average number of shares in issue during the year.The numbers used in calculating basic and diluted earnings per share arereconciled below: 2005 2004 £million £million------------------------------------- -------- --------Profit for the year attributable to shareholders:Earnings basic and diluted 13.0 18.4------------------------------------- -------- -------- Weighted average number of shares in issue 2005 2004 million million------------------------------------- -------- --------Basic 154.8 154.8Adjustment for share options 1.4 1.5------------------------------------- -------- --------Diluted 156.2 156.3------------------------------------- -------- -------- 2005 2004 pence pence per share per share------------------------------------- -------- --------From continuing operations:Basic 11.8 13.0Diluted 11.7 12.9------------------------------------- -------- -------- 2005 2004 £million £million------------------------------------- -------- --------Profit for the year attributable to shareholders 13.0 18.4Add loss for the year from discontinued operation 5.3 1.7------------------------------------- -------- --------Earnings from continuing operations 18.3 20.1------------------------------------- -------- -------- The denominators are the same as shown above for both basic and diluted earningsper share. 8. Shareholders equity £million------------------------------------- --------------At 1 January 2004 174.4Profit for the year 18.4Exchange differences on net foreign currency investments (2.7)Income tax on foreign currency exchange differences (0.2)Actuarial net loss on defined benefit pension schemes (10.2)Deferred tax on actuarial loss 2.5Dividends paid (15.6)Share based payments 0.1------------------------------------- --------------At 31 December 2004 166.7Profit for the year 13.0Exchange differences on net foreign currency investments 5.7Income tax on foreign currency exchange differences 0.7Actuarial net loss on defined benefit pension schemes (26.0)Deferred tax on actuarial loss 7.8Dividends paid (15.6)Share based payments 0.3Distribution to minority interest (0.9)------------------------------------- --------------At 31 December 2005 151.7------------------------------------- -------------- 9. Reconciliation of net cash flow to movement in net debt Loans and Net cash/ finance lease (overdraft) obligations Net debt £million £million £million-------------------------- --------- ---------- ----------At 31 December 2004 (9.6) (57.7) (67.3)Cash flow 32.5 (7.2) 25.3Disposal - 0.7 0.7Exchange differences (0.6) (5.2) (5.8)-------------------------- --------- ---------- ----------At 31 December 2005 22.3 (69.4) (47.1)-------------------------- --------- ---------- ---------- 10. Acquisition of subsidiaries On 10 March 2005 the group acquired the entire share capital of Dage Limited andits subsidiaries, an electronic manufacturing services business located in theUK and China. The Dage Limited subsidiaries now trade as TT electronicintegrated systems. The purchase consideration was £10.3 million for net assets at fair value of£5.4 million. The net assets included cash of £0.8 million and, after costs of£0.2 million, there was a cash outflow of £9.7 million. Deferred consideration of £0.4 million was paid in respect of the acquisition in2003 of the business of Demo de Commande SA. 11. Disposal of subsidiary On 1 August 2005, the group announced the disposal of Houchin Aerospace Limited,a supplier of standby power generation equipment. The sales proceeds were £8.0million for net assets of £3.9 million. On disposal the company retained £0.2million of cash balances. 12. Defined benefit pension plans The group operates defined benefit pension plans mainly in the UK. The mostrecent actuarial valuations have been updated by the actuaries to assess theassets and liabilities of the plans at 31 December 2005. The principal assumptions used for the purpose of the actuarial valuations wereas follows: 2005 2004 % %----------------------------- ------------- -----------Discount rate 4.9 5.6Inflation rate 2.6 2.6Increases to pensions in payment 2.5-2.6 2.5-3.0Salary increases 3.2 3.2----------------------------- ------------- ----------- The expected long-term rates of return on the main asset classes, net ofexpenses, set by management having regard to actuarial advice and relevantindices at 31 December 2005 were: 2005 2004 % %----------------------------- ------------- -----------Equities 6.9 7.0Bonds 4.3 5.0Gilts and cash 3.6 4.0----------------------------- ------------- ----------- On the above basis the amounts recognised on the group balance sheet are: 2005 2004 £million £million----------------------------- ------------- ----------Equities 170.5 154.6Bonds 2.9 4.0Gilts and cash 72.3 44.9----------------------------- ------------- ----------Fair value of assets 245.7 203.5Present value of funded obligation (335.9) (274.4)----------------------------- ------------- ----------Net liability recognised on the balance sheet (90.2) (70.9)----------------------------- ------------- ---------- Changes in the present value of the defined benefit obligation are: 2005 2004 £million £million----------------------------- ------------- ----------Opening defined benefit obligation 274.4 242.9Current service cost 4.8 5.2Interest on obligation 15.3 14.1Plan participant contributions 2.0 2.3Change in actuarial estimates and assumptions 47.6 19.1Exchange differences 0.3 (0.5)Benefits paid (8.5) (8.7)----------------------------- ------------- ----------Closing defined benefit obligation 335.9 274.4----------------------------- ------------- ---------- Changes in the fair value of plan assets are: 2005 2004 £million £million----------------------------- ------------- ----------Opening fair value of plan assets 203.5 180.8Expected return on plan assets 12.8 11.8Excess of actual over expected returns 21.6 8.9Contributions by employer 14.1 8.7Contributions by employees 2.0 2.3Exchange differences 0.2 (0.3)Benefits paid (8.5) (8.7)----------------------------- ------------- ----------Closing fair value of plan assets 245.7 203.5----------------------------- ------------- ---------- The experience adjustments arising on the plan assets and liabilities arereported in the Statement of recognised income and expense and are as follows: 2005 2004 £million £million----------------------------- ------------- ----------Experience adjustments on plan liabilities (47.6) (19.1)----------------------------- ------------- ----------Experience adjustments on plan assets 21.6 8.9----------------------------- ------------- ---------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Tt Electronics