TI Fluid Systems Regulatory News (TIFS)

TI Fluid Systems plc - Half year results 2020

18 August 2020

TI Fluid Systems plc

Results for the six months ended 30 June 2020

TI Fluid Systems plc, a leading global manufacturer of automotive fluid storage, carrying and delivery systems for light vehicles announces its results for the six-month period ended 30 June 2020.

*Management basis metrics are Non - IFRS measures as defined on pages 18 to 19

** No equivalent GAAP measure - see table 8a for reconciliation to statutory cash flow items

Group Highlights:

• Successfully demonstrating the Group's resilient performance in face of an unprecedented global COVID-19 pandemic and related economic downturn

• Revenue of €1,183.1 million outperformed global light vehicle production by 2.5%

• Positive Adjusted EBIT margin of 2.3% despite sharply lower volumes

• Significant Adjusted Free Cash Flow generation of €34.9 million and net cash generated from operating activities of €92.5 million

• Strong balance sheet and liquidity with cash position of €543.4 million at 30 June 2020

• Instituted a significant cost savings and aggressive cash preservation programme to ensure the sustainability of the Group's near term viability

• Significant savings in both cost and cash areas

• Global initiative, experienced senior manager ownership

• Actions across manufacturing, staff labour, purchasing, fixed and corporate costs

• A structural fixed cost reduction programme was initiated in the period to address long term viability resulting from a potential prolonged reduction of global light vehicle production

• Expecting to reduce workforce by approximately 1,000 associates, 6 full plant closures and 2 partial closures

• Cumulative cash expenditures across 2020 and 2021 of ~ €47 million

• Cumulative cash savings across 2020 through 2022 of ~ €94 million

• A non-cash charge of €304.6 million impacting goodwill, intangibles and fixed assets primarily relating to the 2015 Bain purchase of TI Automotive resulted in a reported loss of €(320.8) million for the period

• Continued execution of our organic growth strategy and strategic focus on battery electric vehicles ("BEVs") and hybrid electric vehicles ("HEVs") in light of the significant challenges in the first half of 2020

• We started production of thermal products for the two major BEV awards announced in 2018, and continue to win additional BEV programmes and engage in system collaboration with key customers for additional BEV product and technology opportunities

• The Group estimates to have its product content on more than two thirds of 46 key BEVs recently identified to come to market between 2020 and 2022. Approximately 50% of these BEVs have TIFS thermal product content*

• Awarded a new pressure resistant fuel tank programme for a large HEV platform in Europe with a European customer using our Integrated Transfer System ("ITS") process technology

*Company estimates/ JP Morgan Europe Equity Research: EV Deep Dive: European Focus 10 July 2020

• Awarded the London Stock Exchange Green Economy Mark recognising that the Group generates over 50% of its revenue from environmentally positive products, an endorsement of TI Fluid System technologies that are helping vehicles become greener and making the world a better place to live

COVID-19 Response

Global light vehicle production volumes were significantly lower due to the unprecedented impact of COVID-19 with year on year declines of ~20% in China, ~40% in Europe and North America. In light of this growing pandemic, the Group took a number of steps early on to protect and prioritise the safety of our employees, their families and our communities. This response consisted of a global travel ban and the transition to a remote work environment for all applicable staff employees, as well the closing of certain production facilities as our OEM customers closed their assembly plants. The Group also implemented a detailed return to work protocol with enhanced workplace and manufacturing measures such as social distancing, improved hygiene procedures and modified shift patterns. As of 30 June 2020 all of the Group's production facilities have re-opened.

In addition, to provide humanitarian support to front line health workers, the Group collaborated with Ford Motor Co. and 3M to prototype, develop and produce air flex tube assemblies for powered air-purifying respiratory systems (PAPR). The Group was able to rapidly leverage its design and manufacturing capabilities to mass produce quick connectors and a new 'one size fits all' air flex tube solution for the PAPR system to meet the demand of much needed protection for health care workers.

William L. Kozyra, Chief Executive Officer and President, commented:

"The first six months of 2020 saw the impacts of an unprecedented global economic downturn resulting from the widening of the COVID-19 pandemic. The Group acted quickly beginning in March to initiate both humanitarian safeguards for our employees, cost savings and cash preservation measures to protect the health of the company. Our actions were early and meaningful and these cost reduction and cash preservation measures encompassed nearly every aspect of our business. We continued to deliver solid revenue outperformance, positive profit and solid positive free cash flow generation despite the significant headwinds. Our balance sheet, liquidity and cash positions remain strong. These actions and initiatives are significant and will assist the Group's financial performance in 2020 and beyond. We are pleased to have been awarded the London Stock Exchange's Green Economy Mark as further recognition of the environmental impact our product technologies are providing to help make cars greener. Environmental, Social and Governance ("ESG") remains central to our strategy and company purpose. We continue to make steady progress in our growth strategy for fluid systems and continue to win significant regional BEV programmes with multiple global customers and in turn continue to gain share in HEV fuel tanks with the award of a high volume pressure resistant HEV fuel tank programme with a European OEM customer in Europe. We are well positioned on BEVs launching in the market today and over 2020-2022 have a solid share of new thermal product content on key BEV programs coming to market. We continue with new collaboration projects with key customers, including in China, to reduce weight, and maximise efficiency in the vehicle through integrated thermal products and systems. The Group remains well positioned for the automotive megatrends of reduced emissions and electrification.

The Group continued to demonstrate its ability to outperform global light vehicle production in H1 2020, during the biggest declines the global automotive market has faced in modern history. We remain confident in our strategy, business model resilience, operating flexibility and strength in our ability to generate positive profit and positive free cash flow in H1 2020."

Outlook

As the Group communicated in its Q1 2020 Trading Update on 11 May 2020, the current global economic environment remains highly uncertain and the continuing impacts of the COVID-19 pandemic remain unknown, including the outlook for consumer demand adversely impacting global light vehicle production. As a result, the Group will not be providing full year 2020 financial outlook at this time.

TI Fluid Systems plc will host a presentation for analysts and investors at 9.00am UK time 18 August 2020.

Conference Call Dial-In Details:

UK: +44 (0)330 336 9105

Conference Code: 6387682

The presentation will be available at 7:00am UK time from www.tifluidsystems.com. An audio recording will be available on our website in due course.

Enquiries

TI Fluid Systems plc

David J Royce

Investor Relations

Tel: +1 248 376 8624

FTI Consulting

Richard Mountain

Nick Hasell

Tel: +44 20 3727 1340

Chief Executive Officer's review

In the face of an unprecedented global pandemic which drove significantly lower levels of business activity, we are able to report robust performance for the first half of 2020 despite the sharp fall in the vehicle production environment. Management took early and meaningful actions to protect the business and as a result it was profitable and cash generative in the first half of the year. We have instituted a significant cost savings and cash preservation programme and are also executing a significant restructuring initiative that will make the Group even stronger competitively in the future.

Half year 2020 performance

Global light vehicle production volume declined by 33.2% in the first six months of 2020, compared to the first half of 2019. We delivered revenue of €1,183.1 million (-30.7% at constant currency), or 2.5% above global light vehicle production. If we include the impact of currency translation, revenue declined by the same 30.7%.

We also continued to generate strong positive Adjusted EBITDA of €109.7 million (9.3% margin) and positive Adjusted EBIT of €27.6 million (2.3% margin). Adjusted Net Loss for the period was €39.7 million (H1 2019: €64.5 million profit) and positive Adjusted Free Cash Flow amounted to €34.9 million (H1 2019: €19.2 million). These solid results benefitted from our significant cost reduction and cash preservation actions initiated early in March 2020. Reported net loss for the period of €(320.8) million (H1 2019: €59.9 million) was influenced by the exceptional impairment charge of €304.6 million in addition to the lower trading volumes.

Our ability to maintain our strong revenue outperformance and financial performance with solid margins and excellent positive cash flow in the face of the depressed prevailing market conditions demonstrates the Group's consistent resilience and the strength of our strategy, business model and experienced management team and focus.

Strategy update

In 2020, we expect to continue our success as a leading global manufacturer of highly engineered fluid storage, carrying and delivery systems for light vehicles through the execution of our strategy. Our financial performance benefits from our commitment, focus and dedication to designing and producing products that help make vehicles greener, the environment cleaner and the world a better place to live. This is core to our business model and strategy. We also continue to benefit from operational flexibility and our balanced and diversified customer, platform and regional profile. We remain confident in our focus on electrification and our HEV and BEV strategy which is progressing very well and is clearly evidenced by our ability to have product content on more than two thirds of the 46 key BEV platforms identified to come to market between 2020 and 2022. This further demonstrates our successful transition to an electrified world by validating the Group having thermal products content on approximately 50% of these 46 BEVs. We are proud of this accomplishment and trajectory.

We continue to build on and invest in our leadership in technology, global manufacturing and competitive cost structure to support long-term revenue growth and outperformance, profitability and positive cash flow generation.

The impact of the current COVID-19 outbreak remains challenging and we are taking a number of mitigation actions and fixed cost structural measures to prepare the Group for a potential multi-year recovery of light vehicle production levels. This fixed cost reduction plan includes the elimination of plants and associates with cash expenditures in 2020 and 2021 and cash savings and payback across 2020 through 2022. These fixed and variable cost reductions are necessary and over the longer term, we expect to benefit not only as global light vehicle production returns to growth, but also from increased demand for our advanced fluid handling products and systems and higher content opportunities driven by the underlying megatrends of emission reduction, increased fuel efficiency and electrification. These megatrends have been and will continue to be front and centre for our sector.

We will continue to prioritise variable and fixed cost management and capital allocation to deliver sustainable growth and continued solid financial performance.

We believe the Group's strong and diversified customer relationships, extensive global footprint and long trusted reputation as a leading fluid systems provider has contributed to several thermal BEV collaboration activities and agreements, HEV and BEV production contracts and will support continued growth in these markets for many years to come. We continue to successfully invest in the transition to electrification.

I remain excited about the path we are on and the Group's future.

Our people

The Group relies on the skills and expertise of its excellent employees worldwide, and the H1 2020 results would not have been achieved without the commitment and dedication of our entire global team. We are proud to have a strong senior management team whose deep experience, leadership and determination remains critical during these continued uncertain times. I would like to recognise, sincerely thank and continue to hope all can stay healthy and safe through these challenging times.

Protecting the health and safety of our people is our highest priority. We took significant proactive actions early, including travel restrictions, flexible work programmes and as we returned to work, installed specific return to work protocols. I am confident that with the efforts of the Group and each of our individual employees we can limit the impact of the COVID-19 pandemic. Our experienced management team has a track record of execution and delivery and will continue to manage through the difficult environment in 2020.

Bill Kozyra

Chief Executive Officer and President

Chief Financial Officer's Report

We are well placed to continue outperforming global light vehicle production and delivering strong financial performance in spite of the challenging global light vehicle production decline in volumes.

Table 1: Key Performance measures €m

*Management basis metrics are Non - IFRS measures as defined on pages 18 to 19

**No equivalent GAAP measure - see table 8a for reconciliation to statutory cash flow items

Global light vehicle production is the principal driver of the Group's performance. In the first six months of 2020, global light vehicle production decreased significantly to 30.1 million vehicles or by 33.2% lower compared to the prior period. Even with the challenging market our revenue continued to outperform global light vehicle production.

Revenue decreased by €523.4 million, or 30.7% period over period on a constant currency basis, to €1,183.1 million and exceeded the global light vehicle production by 2.5% in H1 2020. If we include the negative impact of currency of €1.6 million, reported revenue declined by €525.0 million, also 30.7% period over period.

We generated Adjusted EBIT of €27.6 million with a margin of 2.3%, a reduction of 780bps from the prior period Adjusted EBIT margin. The decline in margin is directly related to the conversion of lower sales arising from the impacts of COVID-19.

We delivered Adjusted Net Income of €(39.7) million, compared to €64.5 million in the prior period. Loss for H1 2020 was €(320.8) million compared to €59.9 million profit in H1 2019. Basic EPS was (61.66) Euro cents, a decrease of 648.1% from the prior period, and Adjusted Basic EPS was (7.61) Euro cents, a decrease of 161.4% from H1 2019. In spite of the lower global light vehicle production volumes, H1 2020 was also another period of strong cash flow performance, where we delivered Adjusted Free Cash Flow of €34.9 million (H1 2019: €19.2 million). There is no equivalent GAAP measure for Adjusted Free Cash Flow as it derived from net cash generated from operating activities less net cash used by investing activities.

Automotive Markets

Global light vehicle production volumes declined significantly by 33.2% in H1 2020 to 30.1 million vehicles as shown in table 2 - an unprecedented fall due to the impact of COVID-19. The reduction was across all major regions with the deepest decline occurring in the month of April at -61.4%.

Table 2: Global light vehicle production volumes: millions of units

Revenue

Our revenue in each of the regions and by segment is included in table 3.

Table 3: Revenue by region and by segment €m

Group revenue in 2020 was €1,183.1 million, a decrease of 30.7% period over period at constant currency and 2.5% better than the change in global light vehicle production.

In Europe and Africa, revenue at constant currency declined by 35.6% period over period compared to light vehicle production decline of 38.8%. This represents an outperformance of 3.2% mainly driven by the successful launch of new business and favourable mix. In the region we aligned with our customers and closed factories to minimise risk to employee well-being and also control costs. Plants are now open and production volumes are beginning to recover.

In Asia Pacific, revenue at constant currency declined by 13.7% period over period compared to light vehicle production decline of 26.3%. Asia Pacific outperformed the market by 12.6%. The Group generates 22.8% of its revenue in China, driven by our long-standing market position in our brake and fuel lines business within our FCS segment and continued growth in fuel tank business with the FTDS segment. Accordingly, FCS revenue was impacted by the volume declines in China. Despite this we continue to outperform in the region, primarily through successful business launches and continuous growth in our FTDS segment in China where revenue was marginally up period over period.

In North America, revenue at constant currency declined by 39.5% period over period compared to light vehicle production decline of 39.9%. North America outperformed the market by 0.4%. Although revenue was impacted by extended OEM factory closures due to COVID-19, the favourable impact of new business launches and favourable mix offset the overall decline in revenue.

FCS revenue at constant currency declined by 32.3% from the prior period to €651.0 million. FTDS revenue at constant currency decreased by 28.5% to €532.1 million. Revenue outperformance in both segments was mainly driven by successful business launches and program ramp ups in Asia Pacific and Europe regions.

Currency exchange rates had a minor net adverse impact of €1.6 million on revenue compared with the prior period. This was mostly due to strengthening of the Euro against other key currencies in countries where the Group has manufacturing operations partially offset by the weakening of the Euro against the US Dollar. Accordingly, revenue declined by 30.7% to €1,183.1 million at reported rates. Table 4 below sets out the movement in exchange rates most relevant to our operations.

Table 4: Exchange Rates

Operating profit, Adjusted EBITDA* and Adjusted EBIT*

We use several financial measures to manage our business, including Adjusted EBITDA and Adjusted EBIT, which are non-IFRS measures, but are measures of profitability that have been used consistently by the Group and give insight into the operating performance of the business. The metrics are also used in certain of our compensation plans and to communicate to our investors. Table 5 shows a reconciliation between the reported measure, operating profit, Adjusted EBITDA and Adjusted EBIT.

Table 5: Calculation of Adjusted EBITDA* and Adjusted EBIT* €m

* See Non-IFRS measures

The operating loss of €311.9 million (H1 2019: €123.4 million profit) was impacted by conversion on the lower revenues caused by the COVID-19 related market impacts. The other major factor was the exceptional charge of €304.6 million relating to the impairment of certain assets as a result of a review of future trading volumes by management in light of the prolonged recovery of light vehicle production in the medium term. Amortisation of intangible assets was €9.6 million lower due to some of the assets recognised on the Bain acquisition becoming fully amortised in the prior period. The net finance expense was €10.6 million higher as a result of hedge ineffectiveness of €7.1 million (H1 2019: nil), fair value net gains on derivatives and foreign exchange contracts not in hedged relationships in 2019 not repeating in 2020 (H1 2019: €5.1 million) offset by lower term loan interest €27.0 million (H1 2019: €28.7 million).

Adjusted EBITDA was €109.7 million (H1 2019: €245.9 million) and Adjusted EBITDA margin was 9.3% (H1 2019: 14.4%) where major impact was the lower operating profit as a result of conversion on lower revenue, partially offset by reduction in overhead costs as a result of cost saving measures in response to COVID-19. We continue to manage our costs in line with the reduced volumes in order to minimise the impact on margins. The main adjusting item relates to restructuring where we took action in our operations in Europe and North America.

Adjusted EBIT was €27.6 million (H1 2019: €173.1 million) and Adjusted EBIT margin was 2.3% (H1 2019: 10.1%). This change was impacted by lower Adjusted EBITDA as described previously and increased depreciation and amortisation net of purchase accounting adjustments of €82.1 million (H1 2019: 72.8 million). During the period there were non-exceptional impairments of €4.1 million (H1 2019: €0.4 million).

By segment, FCS Adjusted EBIT was €14.1 million (H1 2019: €100.2 million) with Adjusted EBIT margin of 2.2% (H1 2019: 10.4%). FCS continues to achieve positive margins despite the prevailing market environment. The period over period decline in margin reflected the volume reduction particularly in Europe and North America. Asia Pacific margin remains strong as the region recovered earlier from factory shutdowns compared to other regions.

FTDS Adjusted EBIT decreased by €59.4 million to €13.5 million (H1 2019: €72.9 million) with Adjusted EBIT margin of 2.5% (H1 2019: 9.8%). The decrease in margin reflects the conversion of the significant reduction in revenues as a result of COVID-19. Asia Pacific margin also remains strong benefiting from new business launches in the fuel tanks business.

Net finance expense

Net finance expense for the period was €40.7 million, an increase of €10.6 million from the prior period. The increase was a result of hedge ineffectiveness of €7.1 million (H1 2019: nil), fair value net gains on derivatives and foreign exchange contracts not in hedged relationships in 2019 not repeating in 2020 (H1 2019: €5.1 million) offset by lower term loan interest €27.0 million (H1 2019: €28.7 million). The early close out of certain cash flow hedges which accelerated ineffectiveness charges into H1 2020, also gave rise to a realised cash gain of €16.6 million.

Taxation

Income tax credit is €2.7 million a period over period decrease of €36.2 million in tax charge, primarily due to a significant period over period decrease in profit, resulting in an overall ordinary Group loss of €48.1 million. There were no significant changes to uncertain tax positions during the period (partial release in period to 30 June 2019).

The H1 2020 Adjusted Effective Tax Rate is 40.1% (H1 2019: 31.0%). The Adjusted Effective Tax Rate, was calculated by adjusting for the impact of UK losses, and prior period tax movements. After the add back of the significant UK accounting loss of €43.1m, deferred tax assets at the local effective tax rate have been recognised in the principal operating territories, offsetting the effects of the tax charges in profitable territories. The increased Adjusted Effective Tax Rate reflects the overall credit of €2.0m on a residual global loss of €5.0m. As the residual amount of adjusted global loss is low, the Adjusted Effective Tax Rate is magnified by the effects of certain tax adjustments, mainly related to favourable foreign exchange movements in H1 2020. Therefore small changes to the credit have a material impact on the Adjusted Effective Tax Rate.

Table 6 shows the calculation of the Adjusted Effective Tax Rate.

Table 6: Calculation of Adjusted Effective Tax rate* €m

Amounts in the table below do not include the exceptional impairment charge of €304.6 million and exceptional tax benefit of €29.2 million.

*See Non-IFRS measures

** UK accounting loss is not tax effected due to the UK historical tax loss position

Adjusted Net Income* and profit for the period

Adjusted Net Income is a component of the Adjusted Basic EPS calculation and is also used to guide our dividend calculation. The calculation of Adjusted Net Income is shown in table 7a.

Table 7a: Adjusted Net Income* €m

Table 7b: Reconciliation of profit for the period to Adjusted Net Income* €m

*See Non-IFRS measures

In the first six months of 2020 there was a loss of €320.8 million, compared to a profit of €59.9 million in the corresponding period in 2019, with lower operating profit as a result of conversion of lower sales caused by COVID-19 and higher finance expense, offset by lower fixed costs and tax. In addition, the company reviewed its asset base in response to the lower projected global light vehicle production volumes over the medium term which resulted in an exceptional impairment charge of €304.6 million (H1 2019: nil).

Adjusted Net Income was a loss of €39.7 million in H1 2020, a decrease of 161.6% from a profit of €64.5 million in H1 2019, primarily driven by the flow through of lower revenues as a result of the reduced light vehicle production volumes. The Group incurred restructuring costs of €6.6 million in the period primarily related to operations in Europe and North America (H1 2019: €6.5 million).

Basic EPS and Adjusted Basic EPS*

On a statutory basis, Basic Earnings per Share ('EPS') was (61.66) Euro cents for the period (H1 2019: 11.25 Euro cents), a decrease of (648.1)% from the prior period, reflecting the significant statutory loss arising from lower operating loss as a result of lower trading volumes and the exceptional impairment charge, higher net finance expense offset by lower tax and the exceptional deferred tax credit. Adjusted Basic EPS calculation is based on Adjusted Net Income and the weighted average number of shares in issue. Adjusted Basic EPS was (7.61) Euro cents per share for the period (H1 2019: 12.40 Euro cents per share) reflecting the decrease in Adjusted Net Income as noted above. Weighted average shares outstanding on 30 June 2020 were 521.6 million (30 June 2019: 520.3 million). The prior period comparative has been re-presented to be consistent with the 2020 figure.

*See Non-IFRS measures

Dividend

The Board's dividend policy is to target an annual dividend of approximately 30% of Adjusted Net Income, one third payable following half year results and two thirds following the Group's final results.

The Board has decided not to recommend a 2020 interim dividend during the ongoing exceptional circumstances.

Adjusted Free Cash Flow*

The Group uses Adjusted Free Cash Flow as its primary operating measure of cash flow performance.

Table 8a: Adjusted Free Cash Flow* €m

Table 8b: Reconciliation of Adjusted EBITDA to Adjusted Free Cash Flow* €m

*See Non-IFRS measures

In H1 2020, we generated Adjusted Free Cash Flow of €34.9 million (H1 2019: €19.2 million). The Adjusted EBITDA generated by the Group was used to fund investment in capital equipment and intangibles. There was a €37.2 million decrease in property, plant and equipment and intangibles expenditure primarily due to tight control of the expenditure to preserve cash. Tax cash payments were €24.7 million lower due to lower taxable profits and proactive deferral of taxes to minimise cash outflows during the period. Movement in working capital of €42.8 million was driven by the natural unwind of working capital balances. Cash spend on restructuring activities was €7.6 million (H1 2019: €2.4 million). The restructuring cash adjustment has been made to align the treatment of restructuring with the other Adjusted measures and has been applied retrospectively.

Retirement benefits

We operate funded and unfunded defined benefit schemes across multiple jurisdictions with the largest being the US pension and retiree healthcare schemes. We also have major schemes in the UK, Canada and Germany. While all of our major plans are closed to new entrants, a few allow for future accrual. Our schemes are subject to periodic actuarial valuations. Our net unfunded position increased by €24.0 million to €177.7 million at 30 June 2020 due to declining discount rates across many territories, coupled with the weak overall pension asset performance resulting from the unprecedented global COVID-19 pandemic which disrupted markets.

Net debt* and net leverage*

Net debt, a non-IFRS measure, as at 30 June 2020 was €718.0 million, a decrease of €20.3 million from the prior year end. The Group's net leverage ratio, also a non-IFRS measure was 2.0 times Last Twelve Months ("LTM") Adjusted EBITDA as at 30 June 2020 (31 December 2019: 1.5 times), the increase reflects the fall in the LTM Adjusted EBITDA due to the lower trading conditions.

The Group excludes IFRS 16 lease liabilities from its net debt and net leverage ratio. If the IFRS 16 lease liabilities were to be included, the Group's net debt would be €877.2 million and net leverage ratio would be 2.4 times LTM Adjusted EBITDA (31 December 2019: 1.8 times).

*See Non-IFRS measures

Liquidity and Going Concern

Our principal sources of liquidity have historically been cash generated from operating activities and amounts available under our credit facilities, that currently consist of a revolving facility under our cash flow credit agreement of $125 million (€111.2 million) and an asset backed loan ('ABL') facility of $100 million (€89.1 million). Management took the decision to fully draw the revolving facility in March 2020 as a pre-emptive action to minimise the risk that the funds would not be available due to the risk of banking liquidity. For going concern modelling purposes, it was anticipated that these drawings would be repaid in 2020. The availability under the ABL facility as of 30 June 2020 was €55.4 million which reflects the reduction in the North America receivables and inventory over which the facility is secured. Total available liquidity (cash plus available facilities) on 30 June 2020 was €598.8m (31 December 2019: €589.9 million).

In making their assessment, the Directors' have reviewed a base case forecast to 31 December 2021 prepared using the current global light vehicle production volumes forecast which takes account of the challenges associated with COVID-19. The base case showed liquidity of €635 million at the end of the review period. A downside model to recognise further COVID-19 impact and a more general economic slowdown was also prepared which assumed a further severe but plausible reduction in global light vehicle production volumes to 60.0m in 2020 and 67.8m in 2021, 12.2% and 14.0% respectively lower than the data used for the base model. The ongoing benefits of the restructuring programme were also reduced by 50%. The impact of this scenario would be to reduce available liquidity to €497 million at the end of the review period. In both the base case and the severe but plausible downside scenarios, there were no covenant breaches.

The Directors have concluded after reviewing the future funding requirements for the Group over the next 12 months by reference to the headroom on the committed banking facilities and the expected performance of the Group, that it is appropriate for the financial statements to be prepared on a going concern basis. Through the first half of the year the company remained cash generative.

Principal Risks and Uncertainties

The COVID-19 outbreak continues to represent an operating performance challenge for us and the automotive industry generally. The Directors continue to monitor the impact of COVID-19 and have considered potential emerging risks stemming from the pandemic. Particularly the Directors have considered risks relating to health and safety of our global workforce, recent projections for global light vehicle production volumes, our liquidity and our business continuity plans. However, we continue to believe in terms of our assessment of our principal risks and uncertainties, that the continued impact from COVID-19 manifests itself in the risks previously identified in the 2019 Annual Report and Accounts available on our website www.tifluidsystems.com and therefore, remain unchanged for the remainder of the year.

Outlook

The current global economic environment remains highly uncertain and the continuing impacts of the COVID-19 pandemic remain unknown, including the outlook for consumer demand adversely impacting global light vehicle production. As a result, the Group will not be providing full year 2020 financial outlook at this time.

Non-IFRS measures

In addition to the results reported under IFRS, we use certain non-IFRS financial measures to monitor and measure performance of our business and operations and the profitability of our divisions. Such measures are also utilised by the Board as targets in determining compensation of certain executives and key members of management, as well as in our communications with investors. In particular, we use Adjusted EBIT, Adjusted EBITDA, Adjusted Net Income, Adjusted Basic EPS, Adjusted Free Cash Flow and Adjusted Effective Tax Rate. These non-IFRS measures are not recognised measurements of financial performance or liquidity under IFRS, and should be viewed as supplemental and not replacements or substitutes for any IFRS measures.

Adjusted EBITDA is defined as profit for the year adjusted for income tax expense, net finance expense, depreciation, amortisation and impairment of PP&E and intangible assets, net foreign exchange gains / (losses), restructuring costs and adjustment for associate income.

Adjusted EBIT is defined as Adjusted EBITDA less depreciation (including PP&E impairment) and amortisation (including intangibles impairment) arising on tangible and intangible assets before adjusting for any purchase price adjustments to fair values arising on acquisitions.

Operating profit margin is defined as operating profit expressed as a percentage of revenue.

Adjusted Net Income is defined as Adjusted EBITDA less net finance expense before exceptional items, income tax expense before exceptional items, depreciation and amortisation (including PP&E and intangible asset impairments) and non-controlling interests share of profit.

Adjusted Basic EPS is defined as Adjusted Net Income divided by the weighted average number of shares in issue in the year.

Free Cash Flow is defined as the total of net cash generated from operating activities and net cash used by investing activities.

Adjusted Free Cash Flow is defined as free cash flow adjusted for acquisitions, movements in financial assets at fair value through the profit or loss, cash payments related to IPO costs, cash received on settlement of derivatives and restructuring cash spend. The restructuring cash adjustment is made to align the treatment of restructuring with the other Adjusted measures and is applied retrospectively.

Adjusted Income Tax before Exceptional items is defined as income tax before exceptional items adjusted for the tax impact of prior year tax provisions and adjustments.

Adjusted Profit before Income Tax is defined as profit before income tax adjusted for UK losses.

Adjusted Effective Tax Rate is defined as adjusted income tax before exceptional items as a percentage of adjusted profit before income tax.

Net debt is defined as the total of current and non-current borrowings excluding lease liabilities, net of cash and cash equivalents and financial assets at fair value through the profit and loss.

Net leverage is defined as net debt divided by last twelve months Adjusted EBITDA.

Ronald Hundzinski

Chief Financial Officer

 17 August 2020

Cautionary Statement

This announcement contains certain forward-looking statements with respect to the financial condition, results of operations and business of TI Fluid Systems plc (the "Group"). The words "believe", "expect", "anticipate", "intend", "estimate", "forecast", "project", "will", "may", "should" and similar expressions identify forward-looking statements. Others can be identified from the context in which they are made. By their nature, forward-looking statements involve risks and uncertainties, and such forward-looking statements are made only as of the date of this presentation. Accordingly, no assurance can be given that the forward-looking statements will prove to be accurate and you are cautioned not to place undue reliance on forward-looking statements due to the inherent uncertainty therein. Past performance of the Company cannot be relied on as a guide to future performance. Nothing in this announcement should be construed as a profit forecast.

TABLE OF CONTENTS

Group Financial Statements

Consolidated Income Statement

For the period ended 30 June

Consolidated Statement of Comprehensive Income

For the period ended 30 June

Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

For the period ended 30 June

Consolidated Statement of Cash Flows

For the period ended 30 June

1. Summary of Significant Accounting Policies

The principal accounting policies applied in the preparation of these half year condensed group financial statements are the same as those applied in the audited consolidated financial statements for the year ended 31 December 2019.

1.1. Basis of Preparation

These half year condensed group financial statements have been prepared on the going concern basis as set out in Note 1.2 below. These half year condensed group financial statements do not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2019 have been filed with the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. These half year condensed group financial statements have been reviewed, not audited.

These half year condensed group financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the Financial Conduct Authority.

1.2. Going Concern

The Directors are of the opinion that the Group has adequate resources to continue in operational existence for at least 12 months from the date of approval of these half year condensed group financial statements.

In making their assessment, the Directors have reviewed a base case forecast to 31 December 2021 prepared using the current global light vehicle production volumes forecast, taking account of the challenges associated with COVID-19. The base case showed liquidity of €635 million at the end of the review period.

A downside model to recognise further COVID-19 impact and a more general economic slowdown was also prepared which assumed a further severe but plausible reduction in global light vehicle production volumes to 60.0m in 2020 and 67.8m in 2021, 12.2% and 14.0% respectively lower than the data used for the base model. The benefits of the restructuring programme were also reduced by 50%. The impact of this scenario would be to reduce available liquidity to €497 million at the end of the review period.

The Group therefore continues to adopt the going concern basis in preparing its half year condensed group financial statements. Further information on the Group's borrowings is given in Note 9.

1.3. New and Revised IFRS Affecting Amounts Reported in the Current Period (and/or Prior Periods)

There are no new standards or IFRS IC interpretations effective in the period that have a material impact on the Group.

New and Revised IFRS in issue but not yet effective

A number of new standards, amendments to standards, and interpretations are effective for annual periods beginning on or after 1 January 2021, or are not yet effective because they have not yet been endorsed by the EU. These include an unendorsed amendment to IFRS 16 'Lease's Covid 19-Related Rent Concessions', issued on 28 May 2020, which is effective for annual periods beginning on or after 1 January 2021, but for which earlier application is permitted. These have not been applied in preparing the consolidated financial statements. There are no standards or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

1.4. Critical Accounting Estimates and Judgements

The preparation of these financial statements requires the use of accounting estimates, and management judgement in applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to these financial statements are: post employment obligations, impairments of assets and recognition of deferred tax assets.

Further details of the Group's critical accounting estimates around post employment obligations can be found in Note 1.4.1 of the audited consolidated financial statements for the year ended 31 December 2019.

Due to the COVID-19 pandemic, global automotive production volumes are expected to be significantly impacted. Management consider this to be an indicator of impairment and have therefore performed a full impairment test as at 30 June 2020. Management have designated certain input assumptions to the group impairment test as being critical estimates.

Management have applied judgement in establishing four volume forecast scenarios, from which operating cash flows over a five year budget horizon were derived. Further judgement has then been applied in assigning relative probabilities to these scenarios, such that weighted average operating cash flows could be calculated for use in the discounted cash flow model. As the scenarios were designed to cover all reasonably conceivable outcomes, the key source of estimation uncertainty in arriving at the forecast operating cash flows is deemed to be the allocation of scenario probabilities. The resulting CGU recoverable amounts, as calculated using the discounted cash flow model, are then in turn sensitive to the use of discount rates and long term expected growth rates.

Further discussion regarding how these critical estimates have been made and sensitivity analysis of CGU recoverable amounts to changes in these assumptions can be found in Note 8.

Due to the COVID-19 pandemic, global automotive production volumes in the period have been significantly impacted and caused trading losses. Recognition of deferred tax assets is based on forecast future taxable income and therefore involves the exercise of management's judgement regarding the future financial performance of particular legal entities or tax groups in which the deferred tax assets are recognised. Management have looked at short and medium term production volume forecasts to assess the trading profits to support recognition of the assets.

2. Segment Reporting

In accordance with the provisions of IFRS 8 'Operating Segments', the Group's segment reporting is based on the management approach with regard to segment identification; under which information regularly provided to the chief operating decision maker ('CODM') for decision making purposes forms the basis of the disclosure. The Company's CODM is the Chief Executive Officer and the Chief Financial Officer. The CODM evaluates the performance of the Company's segments primarily on the basis of revenue and Adjusted EBITDA, and Adjusted EBIT, both non-IFRS measures.

Two operating segments have been identified by the Group: Fluid Carrying Systems ('FCS') and Fuel Tank and Delivery Systems ('FTDS').

3. Finance Income and Expenditure

In March 2020, the group terminated all its forward foreign exchange contracts designated in cash flow hedge relationships, its forward foreign exchange contracts designated in net investment hedges, and all its interest rate swaps. Termination of the hedges resulted in the recognition of ineffectiveness of €7.0 million.

4. Income Tax

Income tax expense is recognised based on Management's estimate of the effective income tax rate expected for the full financial year in each jurisdiction in which the Group has operations.

This has resulted in an ordinary effective tax rate of 5.6% for the half year ended 30 June 2020 (35.8% for the half year ended 30 June 2019). The effective tax rate is impacted by the UK book loss of €43.1 million for the half year ended 30 June 2020 (€24.5 million for the half year ended 30 June 2019). This is not tax effected due to the projected and historical tax loss position in the UK and therefore has a material impact on the effective tax rate for both periods.

The UK book loss incurred to 30 June 2020 is due to net interest and financing expense in the amount of €21.1 million (30 June 2019: €10.8 million); net foreign exchange loss of €11.2 million (30 June 2019: net foreign exchange gain of €(1.3) million) based on fluctuations in the US dollar to Euro exchange rates related to US dollar denominated intercompany loans and other operating expenses of €10.8 million (30 June 2019: €15.0 million).

When the UK book loss of €43.1 million for the half year ended 30 June 2020 (€24.5 million loss for the half year ended 30 June 2019) and prior period tax adjustments are not considered, the effective tax rate is adjusted to 40.1% for the half year to 30 June 2020 (31.0% for the half year ended 30 June 2019).

The effective tax rate has decreased to 5.6% (half year to 30 June 2019 35.8%). This represents a small tax credit on an overall loss for the period. The low credit is primarily due to the non recognition of the UK losses discussed above.

The Group is also reporting an exceptional impairment charge of €304.6 million for the half year ended 30 June 2020 with a deferred tax benefit of €29.2 million which results in an exceptional effective tax rate of 9.6%. The low exceptional effective tax rate is due to the fact that the majority of the impairment is related to goodwill that does not carry a deferred tax balance and therefore this portion of the impairment is not tax effected.

5. Earnings Per Share

5.1. Basic and Diluted Earnings Per Share

5.2. Adjusted Earnings Per Share

Adjusted Net Income is based on Loss for the period attributable to shareholders €39.7 million (2019: €59.9 million profit) after adding back net adjustments of €281.1 million (2019: €4.6 million).

6. Property, Plant and Equipment

During the period the Group made PP&E additions of €28.0 million (2019: €47.4 million). Assets with a carrying value of €1.4 million (2019: €1.2 million) were disposed of during the period.

Exceptional impairment charges of €66.1 million were recognised in the period in relation to PP&E.

7. Leases

The balance sheet at 30 June 2020 shows the following amounts relating to leases:

The Group has a significant number of leases for land, buildings, plant, machinery and equipment. A number of these lease terms were renegotiated during the period as a result of the COVID‐19 pandemic, to either reduce the rent on a temporary basis "rent forgiveness", or to reduce the rent on a temporary basis, and increase later payments, so that the total overall payments are unchanged "rent holidays". IFRS 16 has been revised to permit Companies not to assess whether particular COVID-19 related rent concessions are lease modifications and, instead, account for those concessions as if they were not lease modifications. This expedient has not yet been endorsed by the EU. Rent holidays that have been negotiated are not considered to be lease modifications.

Due to the COVID-19 pandemic, global automotive production volumes are expected to be significantly impacted. Management consider this to be an indicator of impairment and have therefore performed a full impairment test on Right-of-use Assets as at 30 June 2020. This resulted in an impairment to Right-of-use of Assets in the period of €16.8 million.

8. Intangible assets and impairments

8.1. Intangible Assets

8.2. Goodwill

8.3. Capitalised Development Expenses, Computer Software and Licences, Technology and Customer Platforms

*Customer platforms includes intangible assets relating to: customer platforms (€209.4 million); aftermarket customer relationships (€39.0 million}; trade names & trademarks (€5.1 million); non-compete arrangements (€0.6 million).

The above amortisation charges for "technology" and "customer platforms" amounting to €22.0 million arise from intangible assets recognised through purchase price accounting. Amortisation charges are included in cost of sales.