Tt Electronics Regulatory News (TTG)

TTG.L

20 August 2013

TT ELECTRONICS PLC

A global provider of performance critical technology solutions to leading manufacturers

Half Year Report for the six months ended 30 June 2013

HIGHLIGHTS

1before exceptional items

· Trading improving after a slow first quarter with encouraging order bookings and ratio of orders to sales above one

· Operating profit affected by reduced sales in Components and ongoing investment for future growth

· New organisation launched with focus on Sensing and Control

· Implementing a business transformation programme to accelerate organic growth and drive towards sustainable double digit operating margins

· Interim dividend increased by 6.7 per cent, reflecting confidence in prospects for the business

Geraint Anderson, Group Chief Executive, said today:

"The Group has reported a resilient first half performance with trading improving in the second quarter and a positive order book trend."

We are implementing a series of programmes to capture growth opportunities and improve profitability, building on our deep customer relationships and focused on the newly-formed Sensing and Control business. Once implemented this programme will significantly improve the Group's performance and will secure further margin benefits over our stated 8 to 10 per cent margin targets."

For further information please contact:

TT electronics plc Tel: 01932 825300

Geraint Anderson, Group Chief Executive

Shatish Dasani, Group Finance Director

Hudson Sandler Tel: 020 7796 4133

Andrew Hayes/Wendy Baker

This announcement, together with other information on TT electronics plc, may be found at: www.ttelectronics.com

Chairman's statement

I am pleased to report that TT electronics has delivered a resilient first half performance with trading improving after a slow first quarter. Revenue from continuing operations, including the ACW Technology business acquired in December 2012, grew by 3.7% to £261.0 million after excluding the impact of foreign exchange. Revenue growth was flat on an organic basis and profit before tax and exceptional items was £11.5 million, marginally lower than the prior half year. Headline earnings per share was maintained at 5.5 pence.

A new organisation was implemented in June 2013, focusing on the Sensing and Control business in order to capture increasing market opportunities and accelerate performance. A business transformation programme comprising specific projects is now being pursued to accelerate organic growth and drive towards double digit performance. This includes the Operational Improvement Plan announced in June which will significantly improve the cost base of the Sensing and Control business. The P&L investment for the Plan is approximately £30 million, to be implemented over the next 24 months, and the efficiency benefits will be approximately £8 million per annum from the second half of 2015. We will announce further detail on the programme during the second half of 2013.

In February 2013, we completed the purchase of the minority interest in our Indian Sensing and Control business for a consideration of £8.3 million. The acquisition will enable the business to pursue growth opportunities in India, leveraging our existing global customer base. The new engineering centre opened in India late last year is being scaled and will have over 100 engineers by the end of the year, providing additional resources to enable us to address growing market opportunities. The integration of the ACW Technology business acquired in December 2012 has been successfully completed.

The Group retains a strong balance sheet, with net cash of £9.0 million at the end of June 2013 and committed borrowing facilities in excess of £70.0 million. We plan to continue to invest organically in the business and make appropriate acquisitions within the sensing and control markets where we can clearly demonstrate value.

The Board is pleased to declare an interim dividend of 1.6 pence per share (2012: 1.5 pence). This represents an increase of 6.7 per cent and reflects the Board's confidence in the Group's financial position and future prospects.

Outlook

Recent trading is encouraging after a difficult start to the year for our Components business. The cumulative ratio of orders to sales for the Group overall is above one, giving the Board confidence for a better second half performance.

The Board is confident that the focus on Sensing and Control will drive growth and improve overall operating margins to achieve the stated target of 8 to 10 per cent by 2015. The Operational Improvement Plan will underpin this and enable the Group to progress towards sustainable double digit margin performance.

Sean M Watson

Chairman

20 August 2013

Business review

Trading in the second quarter improved following a slow start, reflecting the weaker order pattern during the last quarter of 2012, particularly in the Components business.

In June 2013 the Group implemented a new organisation focused on the Sensing and Control business to accelerate performance and capture increasing market opportunities through product innovation, increased sales effectiveness and productivity. As outlined at the recent Investor and Analyst event, the Sensing and Control business is well positioned to target higher growth markets and regions through its broad geographical footprint and customer relationships. Additionally, it brings together the Group's sensing and control capabilities enabling the development of integrated product roadmaps and better leverage of engineering spend.

The formation of the Sensing and Control business provides a significant opportunity to further improve operational efficiency and accelerate productivity, including greater focus on best cost manufacturing operations. The Operational Improvement Plan announced in June 2013 will underpin the delivery of the Group's existing margin targets and enable it to drive further towards sustainable double digit margin performance. Implementation of the Operational Improvement Plan will commence in the second half.

In addition, we have continued to strengthen our business in India and, in February 2013, we completed the purchase of the 49% minority interest in our Indian business for a consideration of £8.3 million. Our new engineering centre, opened late last year in Bangalore, has grown in size significantly as we invest in additional resources to pursue growth opportunities. We are planning to continue scaling this investment in the second half and we will have over 100 engineers at this facility by the end of the year.

The integration of the ACW Technology business, purchased in December 2012, into our Integrated Manufacturing Services (IMS) division has been completed in accordance with the acquisition plan.

Overview of Group performance

1 Throughout this review operating profit is stated before exceptional items

Revenue from continuing operations increased by 3.7% in the half year to £261.0 million, after excluding a positive variance of 1.9% arising from foreign exchange. The result benefited from the inclusion of the ACW Technology acquisition. Underlying organic revenue was down by 0.8% after adjusting for the acquisition and foreign exchange rate benefits. The Sensing and Control business recorded underlying revenue growth of 2.4%. The Components business was affected by lower demand, particularly for industrial resistors and connectors for military and traction markets, and sales fell by 12.7% on an underlying basis. The IMS business delivered sales growth of 3.9% at constant exchange rates and before the inclusion of the ACW acquisition. 

Operating margins in the Sensing and Control business improved from 6.0% in the first half of 2012 to 6.3%. The Components business recorded a reduction in margins from 5.2% to 2.0% due to the lower volumes, material cost pressures and an adverse product mix offset in part by lower costs. As anticipated margins for the IMS business were adversely affected by the ACW acquisition and the exit of operations in Malaysia. 

The overall Group operating margin was down from 5.6% to 4.9%, reflecting the challenges faced by the Components business, ongoing investment and the effects of the ACW acquisition.

Trading improved in the second quarter and order bookings were encouraging, with the ratio of orders to sales above one. A number of measures are being taken to improve performance in the Components business, and the Sensing & Control business remains on track to capture customer opportunities and continue increasing productivity. The Integrated Manufacturing Services business entered the second half with a strong order book and the business is expected to improve margins.

The average sterling rate was 2.5% lower against the Euro in the first half of 2013 than 2012 and 1.9% lower against the US$. This had a positive impact on revenue of £4.7 million and on operating profit of £0.1 million.

Sensing and Control

The Sensing and Control business provides integrated and intelligent solutions for critical applications which require high levels of precision and reliability, often operating in extremely harsh environments. The sensor converts physical variables such as temperature, position, speed and pressure into electronic signals. The controller processes these inputs, turning them into a usable output for another part of the overall management system. The business is focused primarily on the transportation, industrial, aerospace and medical markets.

Revenue in the first half of 2013 increased by 2.4% after excluding a favourable foreign exchange impact of 2.2%. This growth was underpinned by progress in industrial and transportation markets, including a better performance from our operation in Austria. Operating profit increased by £0.8 million to £8.9 million in part due to higher volumes, better material pricing and tight cost control.

The business has a good pipeline of sales opportunities and a focused roadmap of new products, which together underpin the delivery of future organic growth. Demand in target markets is being driven by the need for better performance, safety and comfort whilst environmental regulations require stricter emission standards. As a result our customers are requiring solutions that are more resilient in harsh environments, provide increased functionality and power in smaller form factors, and are more energy efficient. We have a clearly defined product and technology roadmap that meets these requirements and we are investing in our engineering capability, including expanding our development centre in India, to accelerate delivery. The growing prosperity in emerging economies and rising living standards is also a strong positive for the medium term. As part of its growth plan, the business has recently won two new contracts in China for delivery in 2014 and 2015 onwards.

With the formation of Sensing and Control, the Group is focusing on several initiatives to deliver growth and improve productivity. During the first half of 2013, we moved several manufacturing lines from our German and Austrian operations to our best cost operation in Timisoara, Romania. We also expanded this facility with an additional 10,000 sq.m. of manufacturing space to support the Sensing and Control and IMS businesses.

Material cost reductions represent a significant part of our overall productivity roadmap. During the first half of 2013 we started a key initiative to leverage best-cost region suppliers for metal castings. New suppliers in China have been identified and a transition programme outlined. In the area of TT Business Excellence, continued focus by our Six Sigma black belts is delivering real productivity benefits.

Components

The Components business comprises resistive and magnetic components, microcircuits and connectors and creates value through delivering innovative electronic solutions to the industrial, transportation, defence and aerospace, and medical markets.

Revenue in the first half of 2013 reduced by 12.7% after excluding a positive foreign exchange variance of 0.7%. The connectors business was affected by lower levels of defence spending which is expected to continue, whilst the resistors business is seeing improving order levels following a slow end to 2012 that impacted sales in the first part of 2013 as customers re-balanced inventory levels. Operating profit reduced from £3.0 million in 2012 to £1.0 million due to the lower volume and an adverse product mix. 

Plans are being implemented to improve margins through cost reduction and addressing the manufacturing and process inefficiencies in the business. The new organisation structure is now providing greater clarity on the business issues, enabling faster resolution and clearer accountability.

The Group has invested capital in a new facility at our Corpus Christi, USA location for the development of thin film resistor products, and this will enable the resistor business to refresh and build the product portfolio.

Integrated Manufacturing Services

The business draws on its design engineering capabilities, flexibility and world-class facilities to provide high quality electronic manufacturing support to customers in the defence and aerospace, medical and premium industrial sectors.

Revenue in the half year increased by 3.9% on an underlying basis after excluding the ACW acquisition and a 2.6% positive variance arising from foreign exchange rates. The operating profit was unchanged at £2.8 million as the benefits from higher volume were offset by operational costs arising from the closure of the Malaysia facility.

The ACW business, acquired in December 2012, has strengthened our position as one of the largest aerospace and defence Contract Electronic Manufacturers in the UK and brought a number of new customers. The business has been successfully integrated and consolidated in the UK to one site and the transfer in China to TT's Suzhou factory was also completed in accordance with the plan. The IMS facility in Malaysia was closed at the end of June 2013 with business transferred to our facilities in China, Romania and the UK. The business is expanding its manufacturing footprint by establishing a new facility in Romania alongside the existing Sensing and Control operations.

Exceptional items

An exceptional cost of £2.6 million has been recognised in the half year to 30 June 2013, compared to £0.8 million during the first half of 2012. 

The exceptional costs in the half year relate to the post acquisition restructuring of the ACW Technology business, which was acquired in December 2012, the costs of relocating manufacturing facilities to Romania, the closure of the IMS facility in Malaysia and restructuring costs arising from the new organisation structure. In addition there were the final costs resulting from the closure in 2012 of the Components operation in Boone, North Carolina. The negative goodwill on business acquisition is the release of a surplus inventory provision set up when the ACW Technology business was acquired and the acquisition costs are the amortisation of the uplift in the Fair Value of inventory of ACW Technology. 

The exceptional costs in the half year to 30 June 2012 relate to restructuring costs associated with the closure of the Components operation in Boone, North Carolina.

Taxation

The tax charge is based on a forecast effective rate for the full year (excluding exceptional items) of 25.3 per cent. This compares to a re-presented effective tax rate for the full year 2012 of 26.5 per cent. The reduction in the effective tax rate reflects on-going progress in optimising the Group's tax position and increased focus on managing tax risks.

The forecast full year rate reflects a reduction in future tax rates in the UK, which will reduce the carrying value of UK-related deferred tax assets and hence lead to a deferred tax charge. As the change in rates was not substantively enacted until 3 July 2013, the tax rate applied to first half profits (excluding exceptional items) is lower at 24.3 per cent.

Earnings per share and dividends

Headline earnings per share from continuing operations was 5.5 pence, which is unchanged from the first half of 2012. Basic earnings per share from continuing operations was 4.1 pence, compared to 5.1 pence for the same period in 2012.

The Directors have declared an interim dividend of 1.6 pence per share, an increase of 6.7 per cent over the interim dividend paid in 2012. The Group's policy is to increase dividends progressively whilst maintaining cover of at least two times underlying earnings per share. The interim dividend will be paid on 31 October 2013 to shareholders on the register on 18 October 2013.

Pensions

The Group operates one significant defined benefit scheme in the UK and two overseas defined benefit schemes in the USA and Japan. All of these schemes are closed to new members and the UK and USA schemes were closed to future accrual during 2010.

The assets and liabilities of the Group's defined benefit schemes are summarised below:

The triennial valuation of the UK scheme as at April 2010 showed a deficit of £39.8 million. A funding agreement is in place with the Trustee, fixing contributions at £3.9 million in 2013 and increasing by £0.2 million each year to £4.5 million in 2016. £1.0 million was contributed to the scheme in the first half of 2013. In addition, the Company has set aside £3.0 million to be utilised in agreement with the Trustee for reducing the long-term liabilities of the scheme.

An actuarial valuation of the UK Scheme as at April 2013 is currently in progress.

Cash flow, borrowings and facilities

Operating cash flow before exceptional payments was £2.9 million compared with £7.4 million in the first half of 2012. Working capital showed an outflow of £20.9 million due to seasonal factors as well as the following one-off factors: ramp up of manufacturing in Romania, effect of the ACW acquisition, closure of the IMS Malaysia plant and lower trading in Components and IMS. 

Capital expenditure (including software) increased by £1.6 million to £13.5 million, exceeding depreciation of £8.6 million by £4.9 million, primarily as a result of continued investments in our facilities in Mexico and Romania.

Net cash at 30 June 2013 was £9.0 million, compared with net debt of £7.3 million at 30 June 2012, reflecting, amongst other things, the disposal of our Secure Power businesses. At 31 December 2012 the Group had a net cash balance of £46.7 million, with the decrease in the half year arising primarily from the working capital outflow, capital investment and the effect of acquisitions and disposals of £12.5 million.

The financial covenants of the banking facility restrict net debt to below 2.75 times EBITDA before exceptional items. In addition, EBITDA before exceptional items is required to cover net finance charges by 4.0 times. The covenants are tested half-yearly on a rolling 12 month basis. The financial covenants at 30 June 2013 were comfortably met.

The Directors have considered the future funding requirements of the Group and compared them with the level of available borrowing facilities and are satisfied that the Group has adequate resources for the foreseeable future.

Geraint Anderson Shatish D Dasani

Group Chief Executive Group Finance Director

20 August 2013 20 August 2013

Responsibility statement

We confirm that to the best of our knowledge

(a) the condensed set of financial statements has been prepared in accordance with IAS34 'Interim Financial Reporting' as adopted by the EU.

(b) the interim management report includes a fair review of the information required by DTR 4.2.7R:

(i) an indication of important events that have occurred during the first six months of the financial year, and their impact on the condensed set of financial statements, and

(ii) a description of the principal risks and uncertainties for the remaining six months of the year.

(c) the interim management report includes a fair review of the information required by DTR 4.2.8R:

(i) related parties transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group in that period, and

(ii) any changes in the related parties transactions described in the Annual Report 2012 that could have a material effect on the financial position or performance of the Group in the current period.

On behalf of the Board

Geraint Anderson Shatish D Dasani

Group Chief Executive Group Finance Director

20 August 2013 20 August 2013

Cautionary Statement

This announcement contains forward looking statements which are made in good faith based on the information available to the time of its approval. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a number of risks and uncertainties that are inherent in any forward looking statement which could cause actual results to differ materially from those currently anticipated.

Independent review report to TT electronics plc

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-year report for the six months ended 30 June 2013 which comprises the Condensed consolidated income statement, the Condensed consolidated statement of comprehensive income, the Condensed consolidated balance sheet, the Condensed consolidated statement of changes in equity, the Condensed consolidated cash flow statement and the related explanatory notes. We have read the other information contained in the half-year report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-year report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-year report in accordance with the DTR of the UK FCA.

The annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-year report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-year report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-year report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

Anthony Sykes

for and on behalf of KPMG Audit Plc

Chartered Accountants

15 Canada Square

London

E14 5GL

20 August 2013

Condensed consolidated income statement (unaudited)

for the six months ended 30 June 2013

*Re-presented for discontinued operations in accordance with IFRS and for IAS 19 (revised).

Condensed consolidated statement of comprehensive income (unaudited)

for the six months ended 30 June 2013

*Re-presented for IAS 19 (revised).

Total comprehensive income for the six months ended 30 June 2013 is entirely attributable to the owners of the Company.Condensed consolidated balance sheet (unaudited)

at 30 June 2013

Condensed consolidated statement of changes in equity (unaudited)

for the six months ended 30 June 2013

* Re-presented for IAS 19 (revised)

Condensed consolidated cash flow statement (unaudited)

for the six months ended 30 June 2013

*Re-presented for discontinued operations in accordance with IFRS and for IAS 19 (revised).

The Condensed consolidated cash flow statement includes cash flows from both continuing and discontinued operations.

Notes to the Condensed consolidated financial statements (unaudited)

1. General information

The Condensed consolidated financial statements for the six months ended 30 June 2013 are unaudited and were authorised for issue in accordance with a resolution of the Board of Directors. They do not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006. The comparative figures for the year ended 31 December 2012 are based on the Company's statutory accounts for that financial year re-presented for discontinued operations in accordance with IFRS and the effect of the adoption of IAS 19 (revised). Those accounts have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditors was unqualified, did not include a reference to any matter to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain a statement under section 498 of the Companies Act 2006.

2. Basis of preparation

a) Condensed consolidated half-year financial statements

These condensed consolidated half-year financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the EU. These condensed consolidated half-year financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the 2012 Annual Report.

b) Basis of accounting

The accounting policies adopted are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2012. Adoption of amendments to published standards and interpretations effective for the Group for the half-year ended 30 June 2013 did not have any impact on the financial position and performance of the Group with the exception of the adoption of IAS 19 (revised). 

The company has implemented IAS 19 (revised) "Employee benefits" in the half-year ended 30 June 2013. There are three impacts on the income statement resulting from this implementation. These are:

· A change in the calculation of interest income on plan assets, from the expected returns of the asset types held as investments to the discount rate used to calculate the interest expense on the pension liability. The effect of the change in the calculation is reflected in operating profit and in the Condensed consolidated statement of comprehensive income. This discount rate is derived from corporate bonds. The difference between this calculated return based on the discount rate and the actual return to the half-year is reported as remeasurement of the defined benefit pension liability in reserves.

· The disclosure of a net figure within Finance expense of the calculated interest income on assets and the calculated interest expense on liabilities. Previously, the expected return on assets and the pension interest on the liabilities were shown within Finance income and Finance expense respectively.

· The reclassification of the administration costs of the defined benefit scheme, including the levy for the Pension Protection Fund, from Finance expense to Administrative expenses within operating profit.

The effect of adopting IAS 19 (revised) on the Group's profit for the year ended 31 December 2012 is to reduce Operating profit and Operating profit before exceptional items by £0.7 million and Profit before taxation by £1.4 million. The effect on the Group's profit for the half-year ended 30 June 2012 is to reduce Operating profit and Operating profit before exceptional items by £0.4 million and Profit before taxation by £0.8 million.

Notes to the Condensed consolidated financial statements continued

The impact on the income statements is set out below:

There is no change to the net pension liability as a result of the adoption of IAS 19 (revised).

Notes to the Condensed consolidated financial statements continued

c) Estimates

The preparation of half-year financial statements requires management to make judgements, estimates and assumptions which affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates.

In preparing the condensed consolidated half-year financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were consistent with those applied to the consolidated financial statements as at and for the year ended 31 December 2012.

d) Going concern

After making appropriate enquiries, the Directors have a reasonable expectation that the Company has adequate resources and financial headroom to continue in operational existence for the foreseeable future. Therefore they continue to adopt the going concern basis of accounting in preparing the Condensed consolidated half-year financial statements. The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Business review on pages 3 to 7.

The Group had a net cash balance of £9.0 million at 30 June 2013 (31 December 2012: £46.7 million). The Group had available £47.4 million of undrawn committed borrowing facilities and £73.8 million of undrawn uncommitted borrowing facilities, representing overdraft lines (£30.6 million) and the accordion facility (£43.2 million). Given the considerable financial resources available, together with long term partnerships with a number of key customers and suppliers across different geographic areas and industries, the Directors believe that the Group is well placed to manage its business risks successfully.

The Group continues to manage foreign currency risk at a transactional level through the use of hedges which are monitored by the Group Treasury Committee.

The Treasury Committee regularly reviews counterparty credit risk, and ensures cash balances are held with carefully assessed counterparties with strong credit ratings.

Pages 36 to 39 of the 2012 Annual Report provide details of the Group's policy on managing its operational and financial risks.

Notes to the Condensed consolidated financial statements continued

3. Segmental reporting

As part of its strategic evolution in the first half of 2013, the Group is now organised into three divisions, as shown below, according to the nature of the products and services provided. Each of these divisions represents an operating segment in accordance with IFRS 8 'Operating segments' and there is no aggregation of segments. The chief operating decision maker is the Board of Directors. The operating segments are:

· Sensing and Control - the provision of integrated and intelligent solutions meeting customer requirements comprising sensors which convert physical variables into electronic signals and controls that process input from the sensor and instruct systems;

· Components - specialist resistive and magnetic components and mircocircuits, connectors and interconnection systems; and

· Integrated Manufacturing Services - the provision of global electronics manufacturing capability with logistics and integrated solutions.

The accounting policies of the reportable segments are the same as the Group's accounting policies and are as published in the 2012 Annual Report.

The key performance measure of the operating segments is operating profit before exceptional items. The Group reports non-trading income or expenditure as exceptional when the size, nature or function of an item or aggregation of similar items is such that separate presentation is relevant to an understanding of its financial position. Segment operating profit represents the profit earned by each segment after the allocation of central head office administration costs and is reviewed by the chief operating decision maker.

Group financing (including finance costs and finance income) and income taxes are managed on a Group basis and are not allocated to operating segments.

Goodwill is allocated to the individual cash generating units within the segment of which it is a part.

a) Income statement information - continuing operations

Notes to the Condensed consolidated financial statements continued

a) Income statement information - continuing operations continued

There is no significant revenue between segments.

b) Analysis of revenue by destination - continuing operations

Notes to the Condensed consolidated financial statements continued

4. Acquisitions

On 1 February 2013, the Group completed the acquisition of the 49% minority interest in Padmini TT electronics Private Limited for a consideration of £8.3 million cash. A further £0.5 million consideration has been deferred until 2014, subject to performance conditions.

During the year ended 31 December 2012 the Group acquired the majority of the UK business and assets of ACW Technology Limited for a consideration of £3.0 million in cash, with £0.1 million of consideration being deferred until 2013. The deferred consideration of £0.1 million was paid in the six months ended 30 June 2013.

5. Discontinued operations and assets held for sale

On 31 July 2012 the Group disposed of Dale Power Solutions Limited for total consideration of £10.6 million in cash before costs. As the Directors were committed to making the disposal prior to 30 June 2012 the assets and related liabilities were shown as being held for sale at the half-year ended 30 June 2012. 

On 7 December 2012 the Group disposed of Ottomotores SA de CV and Ottomotores Do Brasil Energia Ltda for a total consideration of $46.5 million (£29.0 million) in cash before costs. During the first half of 2013 the completion balance sheet, including net debt, was agreed with the buyer and £4.1 million was settled by TT electronics plc. As a result, a £0.8 million adjustment to the profit on disposal has been included within discontinued items at the half-year to 30 June 2013.

In accordance with IFRS 5 'Non-current assets held for sale and discontinued operations', comparatives for prior periods have been re-presented for businesses treated as discontinued.

a) Income statement

The results from discontinued operations for the period shown in the Condensed consolidated income statement are shown below:

The exceptional items relate to costs associated with the disposal of Dale Power Solutions Limited.

Notes to the Condensed consolidated financial statements continued

b) Balance sheet

The major classes of assets and liabilities of Dale Power Solutions Limited classified as held for sale at 30 June 2012 were as follows:

Dale Power Solutions Limited was sold in the second half of 2012 and therefore there were no 'Assets classified as held for sale' or 'Liabilities directly associated with assets classified as held for sale' at 30 June 2013 and 31 December 2012 respectively.

c) Cash flows

6. Exceptional items

Notes to the Condensed consolidated financial statements continued

a) Six months ended 30 June 2013

Exceptional items for the six months ended 30 June 2013 comprised:

· the closure and relocation of the ACW Technology facilities from Southampton to Tonypandy in Wales of £1.1 million;

· the relocation and start-up costs of production facilities in Romania of £0.4 million;

· the relocation of production facilities in Malaysia of £0.5 million;

· restructuring costs arising from the creation of the new organisation structure of £0.4 million;

· final costs relating to the closure of Boone, North Carolina plant of £0.2 million;

· the release of a surplus Fair Value inventory provision created at the date of the acquisition of ACW Technology of £0.4 million; and

· the amortisation of the Fair Value adjustment made to inventory at the date of the acquisition of ACW Technology of £0.4 million.

b) Six months ended 30 June 2012 and year ended 31 December 2012

Exceptional items for the six months ended 30 June 2012 comprised:

· Restructuring costs of £0.8 million associated with the closure of the Components operation in Boone, North Carolina

For the year ended 31 December 2012, the exceptional items relate to:

· Restructuring costs of £3.2 million associated with:

- the closure of the Components operation in Boone, North Carolina of £2.1 million;

- the transfer of certain Sensors production lines to Romania of £0.2 million;

- redundancy costs of £0.4 million; and

- costs associated with the post-acquisition restructuring of ACW Technology of £0.5 million.

· The write-off of negative goodwill arising on the acquisition of the trade and assets of ACW Technology of £0.3 million; and

· £0.4 million of acquisition-related legal and professional fees.

7. Finance income and costs

Notes to the Condensed consolidated financial statements continued

8. Taxation

The tax charge is based on a forecast effective rate for the full year (excluding exceptional items) of 25.3 per cent. This compares to a re-presented effective tax rate for half year 2012 of 28.0 per cent and full year 2012 of 26.5 per cent. The reduction in the effective tax rate reflects on-going progress in optimising the Group's tax position and increased focus on managing tax risks.

The forecast full year rate reflects a reduction in future tax rates in the UK, which will reduce the carrying value of UK-related deferred tax assets and hence lead to a deferred tax charge. As the change in rates was not substantively enacted until 3 July 2013, the tax rate applied to first half profits (excluding exceptional items) is lower at 24.3 per cent.

9. Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to the owners of the Company by the weighted average number of shares in issue during the period. The weighted average number of shares in issue is 157.2 million (30 June 2012: 155.5 million, 31 December 2012: 156.1 million). 

Headline earnings per share is based on profit for the period from continuing operations excluding exceptional items and their associated tax effect.

The numbers used in calculating headline earnings per share are shown below:

Notes to the Condensed consolidated financial statements continued

10. Dividends

The Directors have declared an interim dividend of 1.6 pence per share which will be paid on 31 October 2013 to shareholders on the register on 18 October 2013. Shares will become ex-dividend on 16 October 2013. The Group's dividend policy is to increase dividends progressively whilst maintaining cover of at least two times underlying earnings per share.

11. Retirement benefit schemes

The Group operates one significant defined benefit scheme in the UK and two overseas defined benefit schemes in the USA and Japan. All of these schemes are closed to new members and the UK scheme is closed to future accrual. 

The Company has an agreement with the Trustee of the UK scheme for additional fixed contributions extending to 2016 based on the actuarial deficit at April 2010 amounting to £3.9 million in 2013 (of which £1.0 million was paid in the first half of 2013), £4.1 million in 2014 and then increasing by £0.2 million each year to £4.5 million in 2016.

An actuarial valuation of the scheme was carried out by independent qualified actuaries in 2010 using the projected unit credit method. This actuarial valuation has been updated by the actuaries to assess the assets and liabilities of the schemes at 30 June 2013. Pension scheme assets are stated at market value at 30 June 2013. An actuarial valuation of the scheme as at April 2013 is currently in progress.

The amounts recognised in the Condensed consolidated balance sheet are:

The costs recognised in the Condensed consolidated income statement are:

Notes to the Condensed consolidated financial statements continued

12. Reconciliation of net cash flow to movement in net funds/(debt)

Net cash represents cash and cash equivalents less bank overdrafts. Net cash includes overdraft balances of £nil (30 June 2012: £10.6 million, 31 December 2012: £nil).

13. Share capital

During the period the Company issued 819,937 ordinary shares on the vesting of the Long Term Incentive Plan awards issued in May 2010. The shares were issued by an Employee Benefit Trust for nil consideration. A charge of £0.2 million has been recognised in retained earnings accordingly, together with a corresponding £0.2 million increase in share capital.

The Company also issued 382,371 ordinary shares as a result of share options being exercised under the TT Group plc 1994 Executive Share Option Scheme, the TT Group 1996 Unapproved Executive Share Option Scheme, the 2004 Approved Plan and Unapproved Plan and the Sharesave scheme. The aggregate consideration received was £0.4m, which was represented by a £0.1m increase in share capital and a £0.3 million increase in share premium.

14. Related party transactions

Transactions between the company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note.

No related party transactions have taken place during the six months ended 30 June 2013 that have affected the financial position or performance of the Group.

15. Principal risks and uncertainties

As described on pages 36 to 39 of the 2012 Annual Report, the Group continues to be exposed to a number of operational and financial risks and has an established, structured approach to identifying, assessing and managing those risks. The Directors do not believe that the risks faced by the Group have changed significantly during the first six months of 2013, and these relate to the following areas: Economic downturn; acquisitions; disposals; new products or technical capability; operational transformation programme; customer concentration; margin erosion; health and safety; attract and retain talent; IT delivery and support; supply chain reliance and costs; product liability and contractual risk; legal and regulatory compliance and financial risks.