Tt Electronics Regulatory News (TTG)

TTG.L

4 November 2014

TT ELECTRONICS PLC

Interim Management Statement

TT Electronics (the "Group"), an innovative global electronics company supplying world leading manufacturers, publishes its Interim Management Statement for the period from 1 July 2014 to date, based on the trading results for the ten months to October 2014.

Operational Improvement Plan

The Operational Improvement Plan in Sensing and Control ("S&C") has progressed and a final agreement has been reached with the trade union and workers' council in Germany covering the proposed transfer of manufacturing lines from Werne to the Group's best cost sites, principally in Romania. This large and complex restructuring is a critical part of the programme to improve the long term competitive position of the business and address an overhead issue.

Under the agreement, certain product lines will be moved from Werne to Romania but some manufacturing will remain in Werne for service and specific highly automated production. The overall headcount at Werne after the completion of the programme will reduce by approximately 45% to c300-325, compared with our initial target of around 220. As previously announced, the site at Werne will continue to be developed as the centre of excellence for engineering and product development. 

The cost of the programme in Europe is anticipated to be approximately £24 million as compared with the previous estimate of £25 million. Projected full year run rate cost improvements of £3.5 million are now anticipated versus the previous estimate of £6.0 million. This is due to the reduced headcount being transferred, the effect of lower volumes in Werne resulting from a decline in certain product lines and previous line transfers to, and new product launches in, Romania. 

The implementation of the programme is underway and is anticipated to be fully completed during the first half of 2017. There have been a number of costs in the current year relating to disruption linked to the planned movement of manufacturing from Werne to Romania. Whilst we are now making progress implementing this programme these inefficiencies are expected to continue in 2015. We expect to see the first benefits from the programme in the 2016 financial year. 

The closure of sales offices in Japan, France and Italy was completed on schedule by June 2014 and the benefits of £1.3 million per annum are being delivered, as expected, in the second half. The transfer of manufacturing from our Fullerton, California site to Mexicali, Mexico is also progressing. As previously announced, some production line transfers have been put on hold in order to fulfil a significant customer order agreed in the first half and we continue to anticipate that these transfers will be made during 2015.

Strategic Review and Organisation Change

As previously announced Richard Tyson, who joined as Group Chief Executive in July, is conducting a comprehensive review of the business to ensure we have a sustainable, long term growth strategy. The review, which is looking at all areas of the business, is progressing to schedule and we remain on track to present the findings in March 2015 with our 2014 results. 

The work to-date has confirmed that we are focused in markets with good underlying growth and that we have strong customer relationships. Parts of the business are showing progress in terms of performance and, once complete, the review will ensure that we have robust plans in place to deliver improved growth and profitability in all areas. However, we have also identified a number of issues, particularly in our Sensors business, that are impacting underlying performance. 

The business is continuing to invest in R&D to support future growth and gross R&D expense in S&C for 2014 has increased by around £2.3m year on year. As part of the ongoing strategic review we are undertaking a full review of our product portfolio and investment levels, including an in-depth review of historical R&D spend and amounts being carried on the balance sheet.

We have also seen slower progress implementing identified performance improvement plans within the Sensors business and a move in volume mix towards lower margin product groups. These movements, together with the other factors identified above, are now being offset in 2014 by the significant non-recurring new order from an existing customer received by our US sensing business.

As a consequence of the above, and taking into account the Group's underlying performance for 2014, we anticipate that the performance of the business will be materially lower in 2015.

We have implemented a number of organisational changes to ensure that we address the issues set out above and build robust plans to take the S&C business forward. We have created two clear customer facing segments: Transportation Sensing and Control; and Industrial Sensing and Control to provide greater market focus and accountability. Amrei Drechsler has joined the Group and will lead the transportation business. Amrei has a strong automotive background gained with a number of tier one suppliers to major global OEMs. Tim Roberts has been appointed to lead the Industrial Sensing and Control business. Tim has been part of the leadership team responsible for re-focusing the Group over the last six years and has more recently been responsible for leading a number of businesses in the Components division. In addition, we have strengthened other key areas of the business. Michael Robinson, who joined the Group in early 2014, has assumed responsibility for the delivery of our OIP programme and Candy Bowles has recently joined the Group focusing on corporate development and strategy execution. 

Financial Position

The Group retains a strong balance sheet, with net debt of £30.7 million at the end of October 2014 and continues to anticipate an improvement in working capital during the second half as outlined at the interim stage.

Current Trading

Trading over the period has been stable, despite some weakening in order intake in some of our European facing businesses. Underlying revenue growth for the ten months to October 2014 was 3.0% ahead of the prior period after excluding the effect of foreign exchange movement and the newly acquired Roxspur Measurement and Control business, the integration of which is proceeding to plan. The Group's financial performance continues to be affected by disruption arising from the delays in the Operational Improvement Plan outlined above, together with product mix which has adversely affected margins in our Sensors business and some delays in shipments to two key customers in our IMS division. As a result the Group's performance for 2014 is anticipated to be at the lower end of current market expectations.

Based on the initial findings from the strategic review, including feedback from customers, and with our new leadership the Board is confident that the actions in place will provide a strong foundation to deliver growth and shareholder value.