Final Results - Year Ended 31 December 1999

TT Group PLC 27 March 2000 Preliminary Results for the year ended 31 December 1999 TT Group, a leading specialist engineering company announces its preliminary results today. The Group's operations are divided into Electronic and Industrial Engineering. HIGHLIGHTS * Turnover of £612.4m (1998: £619.9m) * Profit before tax of £38.0m (1998: £65.0m) * Basic earnings per share of 16.4p (1998: 27.8p) * Final dividend maintained at 6.10p, making 9.79p for the year, the same as last year * Comprehensive review of Group's business carried out: - Decision to expand electronic component activities - Non-core businesses to be sold * BI Technologies acquired in January 2000 for £39.7m - a global manufacturer of electronic components * New development and production orders won provide a base for future growth for automotive operations John Newman, Executive Chairman said today: 'Whilst the current year has started with a limited improvement in the Group's performance, the actions which have been taken during 1999 will enable TT Group to take advantage of improved trading conditions' 'The Board has carried out a strategic review of the Group and has decided to expand the Group's electronic component activities, maintain its electrical businesses and dispose of non-core businesses' 'Over 50% of all cars manufactured in Europe and the USA contain at least one of TT Group's products' Enquiries: TT Group PLC Tel: 01932 856647 John W Newman, Executive Chairman College Hill Tel: 0171 457 2020 Alex Sandberg James Henderson TT Group PLC Preliminary Results for the year ended 31 December 1999 CHAIRMAN'S STATEMENT On turnover of £612.4 million compared with £619.9 million in 1998, TT Group has made profits before taxation of £38.0 million which show a decline from £65.0 million in the previous year. Basic earnings per share were 16.4p (1998 - 27.8p); fully diluted earnings per share were 16.4p (1998 - 27.7p). The taxation charge for the year was 27.9 per cent compared with 27.8 per cent in the previous year. In the light of the low level of indebtedness and a dividend cover of 1.7 times, the Board of TT Group has decided to recommend a final dividend of 6.10p in line with last year, making a total dividend of 9.79p, the same as last year. This year has been a difficult year for TT Group and after eleven years of continuous growth in profitability the Board is disappointed to report these lower levels of profit. A prime reason for the reduction of profits has been the weakening of the Euro against the British pound, which has affected both our profit margins on export sales and the translation of mainland European profits. All sectors of the business have been affected, especially as 72 per cent of the Group's sales are manufactured in the United Kingdom and 32 per cent of these sales are exported. The Group also experienced strong pressure from customers for price reductions and despite continued lowering of the cost of manufacture the Group suffered a decline in margins. In addition it is normal for the Group to have three or four underperforming businesses, which are normally offset by a similar number of businesses significantly outperforming profit expectations. Unfortunately in 1999, this offset did not occur. Action taken by the Group included cutting the total workforce by 9 per cent during the first quarter of the year, reducing manufacturing costs and recruiting additional sales application engineers to assist in the drive to increase turnover. Further details are provided in the Chief Executive's review. During the past twelve months, TT Group has made two important acquisitions. Prestwick Holdings plc was reported in the Group's last interim statement. Prestwick, which trades under the name Prestwick Circuits, operates out of two factories near Glasgow and manufactures a range of printed circuit boards for European original equipment manufacturers. The Group purchased the businesses of BI Technologies Corporation in January 2000 for £39.7 million. BI Technologies had a turnover of £57.1 million and made operating profits of £3.6 million in the year to 30 September 1999. BI Technologies manufactures resistors, trimmers, sensors and inductors with factories at Fullerton in California, Mexicali in Mexico, Glenrothes in Scotland and Kuantan in Malaysia. The company has six sales offices including one in Japan. These sales offices will be merged with our existing offices with the exception of Japan where the Group currently has no presence. This will expand our market penetration in the Far East by selling the full range of the Group's electronic component products. The Board considers that the acquisition of BI Technologies will strengthen our market position and provide opportunity for growth within our existing resistor, sensor and ferrite operations. These acquisitions take the Group further into the field of electronic components. The Board has carried out a comprehensive review of the Group's businesses and decided that the future of the TT Group is in the expansion of its electronic component activities. As a result a decision has been made to dispose of non-core businesses and it is expected that a number of disposals will be announced in the coming year. The strength of the Group's expertise in electronic components, linked to its electrical businesses, provides a strong base for future expansion especially as the growth in the Internet flows through to greater demand for electronic components incorporated in telecommunication and computer equipment. The Group will also benefit from the continuing expansion of the use of electronic components in the automotive industry. The recent increases in United Kingdom interest rates, which are giving rise to a strengthening of the British pound, are not in the interests of British based manufacturing. TT Group is committed to drive down the cost of manufacturing in order to be competitive with lower labour cost areas of the world. The Group will need to reduce the emphasis on manufacturing within the United Kingdom to continue to be competitive in its marketplace. The acquisition of BI Technologies provides two well established low labour cost manufacturing facilities in Mexico and Malaysia, which will improve the Group's competitiveness. The Board welcomes the publication of the Turnbull Report. All businesses by nature carry a degree of risk, which TT Group has always recognised as needing to be assessed and monitored. TT Group provides specialised products for global markets and therefore depends on the skills and commitment of our employees. The Board would like to thank all Group employees for their hard work in what has been a difficult year. Whilst the current year has started with a limited improvement in the Group's performance, the actions which have been taken during 1999 will enable TT Group to take advantage of improved trading conditions. John W Newman Executive Chairman 24 March 2000 TT Group PLC Preliminary Results for the year ended 31 December 1999 CHIEF EXECUTIVE'S REVIEW TT Group's philosophy is to ensure world class manufacturing standards are achieved enabling the Group to remain competitive in selected marketplaces and to protect profit margins with a tight control over costs. The trading conditions, which were described in the 1998 annual and 1999 half year reports, caused 1999 full year profits to fall well short of the historic growth record. The results are disappointing, particularly as in anticipation of the difficulties which were being encountered in a number of marketplaces, the Group embarked on an accelerated cost reduction exercise in the first quarter of 1999, which included selectively reducing 9 per cent of the worldwide workforce. The Group's marketplace has been influenced by a number of factors, which impacted on normal trading activities. The combination of a weak Euro with pressure to reduce selling prices affected turnover and operating margins. Established Far Eastern markets remained depressed, reducing demand for the Group's products. The weak home market for Far Eastern and European suppliers caused local manufacturers to target the United Kingdom, which imposed greater competitive pressure from imports. While these market forces were anticipated, the combination of factors has continued for a longer period than expected. On the positive side the demands for price reductions are slowing. European and Far Eastern economies are strengthening and the Group is adapting to a re-aligned Euro exchange rate by purchasing raw materials and finished products from low cost overseas sources. TT Group's focus remains on its global customers in the automotive, telecommunications and industrial engineering markets. Global customers require and form relationships with suppliers of scale and substance that will develop innovative designs and manufacture a wide range of technically advanced products. The Group is continuing to invest in engineering skills and develop further a range of technologies, which are then adapted to suit each specific customer's requirement. Customers use a number of monitoring techniques to ensure key suppliers provide value for money; placing high priority on service from the time of the initial enquiry, excellence in product quality, innovative technology, cost competitive products and on time delivery. TT Group's established global customer base in each marketplace evidences the success of meeting these requirements. The strategy of enhancing the Group's core businesses with appropriate acquisitions has continued and the acquisition of Prestwick Circuits, a manufacturer of printed circuit boards, was completed in May 1999. The acquisition of BI Technologies, a manufacturer of electronic components, was finalised in early January 2000. These acquisitions expand the Group's product range, which will increase sales to current customers as well as enlarging the customer base. ELECTRONIC SECTOR Over a number of years the Group has built a portfolio of operations in the electronic sector which complement each other both in technology and in the specific market places served. TT Group is increasingly recognised by major global original equipment manufacturers as an integrated provider of innovative electronic products particularly applicable to the automotive and telecommunications markets but also serving a wider range of applications in industrial, aerospace, medical and consumer products. In the automotive sector it is estimated that over 50 per cent of all cars manufactured in Europe and the USA have at least one of the Group's products incorporated into them, ranging from sensors to climate control units and from resistors to electronic body control modules. Worldwide legislation is continually reducing the limits of harmful exhaust emissions as well as demanding improvements to built-in safety features. The market demand for better fuel economy, ever improved functionality and comfort in the car are reasons for the strong growth in automotive electronics. This market is expected to grow by 10 per cent per annum over the next five years. The automotive industry is technically innovative, but there are however usually several years from the initial conception of the application to the vehicle model launch and its full production. This is illustrated by the Group's design winning drive-by-wire electronic accelerator pedal sensor modules, which were launched on top of the range cars in 1999. These will cascade to higher volume vehicle models over the next three years by which time the Group will be providing more than 2.5 million units per annum to a number of vehicle manufacturers. This demand has necessitated the construction of a new 70,000 square foot factory adjoining one of TT Group's current premises in Germany in which production commenced in early 2000. At the Group's modernised facility in North Carolina, USA, production equipment has been delivered and commissioned to manufacture chassis height level sensors for luxury cars and light trucks. This investment in production equipment will enable sensors to be manufactured more cost effectively and over the next few months sensor production will increase to satisfy a build rate of over 0.4 million vehicles per annum as part of an ongoing five year contract. The assembly of climate control units also started during the year, which supplements the existing UK production for a US vehicle manufacturer. Additional new contracts have been awarded to supply a number of different vehicles manufactured in Europe and this will entail doubling production by 2002. Car safety has been greatly improved with the introduction of airbag technology. It is estimated that the European and US demand will be in excess of 500 million units by 2003. As this technology progresses it has created a requirement for airbag ignitors, which trigger the inflation of the airbag with ever faster response times. To meet this demand TT Group has developed a device based on advanced thin film resistor technology. An initial contract has recently been won with a major airbag producer to supply 5 million ignitor chips per annum. Development continues to ensure the Group has the products to satisfy this growing market. During 1999 manufacture of a number of technically advanced products commenced at Group factories. Some initial difficulties should always be expected during the early stages of new production notwithstanding careful planning and employee training. These arise from the introduction of new equipment and changes to production methods. In 1999 more problems than usual were encountered particularly in the German factories. Both the customers' quality and delivery requirements were met but at a higher cost than had been budgeted. The Group's level of sales in 1999 for automotive products did not increase proportionately to the growth of European and US vehicle production due to delays in the launch of vehicle models in which the Group's components are utilised. A number of these programmes are now commencing production. The satisfactory level of new development and production orders won during the year provides a base for future growth for the Group's automotive operations. Telecommunication markets are being driven by the global demand for personal computers, mobile phones, internet access and e-commerce functionality, all of which require large quantities of electronic components including resistors, trimmers, inductors, hybrids and micro- electronic packages which are incorporated into the hardware of the systems. These components are manufactured at the Group's worldwide facilities which have now been expanded following the acquisition of BI Technologies. The Group's electronic components used in the telecommunications industry are again at the forefront of technology. It is estimated that 20 per cent of the world's production of personal computers contain at least one of the Group's current sensing or silicon based resistor/capacitor networks. All communication devices, including hard line and mobile phones, as well as communications through the Internet rely on transmission lines and switching systems. Recent market estimates are that up to 100 million new transmission lines will be installed annually worldwide over the next few years. All these lines need to be protected against power surges and TT Group specialises in line surge protective devices and is currently supplying over 10 per cent of the world demand. The worldwide fibre optic cable web which serves the Internet incorporates land based and sub-sea signal booster stations at frequent intervals. The Group has developed specialist resistor products built into booster stations which are specially engineered to withstand these harsh environments. The Group's technical resources in both Europe and the USA are closely co- ordinated to ensure new product offerings to this growth market are maximised. INDUSTRIAL ENGINEERING SECTOR Power Technology The demand for generators over the last two years from the Far East, which historically represented over 50 per cent of the world's demand, has been weak due to the inability of customers to raise finance. The 'millennium bug' gave some project opportunities but these were less than anticipated. The manufacturing operations of the generator business are in the process of being concentrated onto one manufacturing site. This process started in 1999 and will be complete by the end of the first quarter of 2000. The reorganisation has caused some disruption and additional costs, but will ensure a more efficient and cost effective operation for the future. Mobile and internet telecommunication networks rely on completely secure sources of electrical power and backup systems to support vital switching and remote base stations which are essential to keep networks running. The Group's power technology operations specialise in the supply of uninteruptible power supplies and generator sets to maintain power when mains supply fails. The Group's power generation operation in Mexico has achieved another good year with increasing exports to Central America. The United Kingdom based specialist ground power operation for aircraft was successful in winning a number of orders for major airlines and airforces internationally. Contracts for sub-sea cable projects are sporadic. A major contract to supply 78 kilometres of sub-sea cable for a Shell Petroleum installation in Nigeria was won and manufacture commenced in the second half of 1999 with delivery scheduled for the first half of 2000. The Group continues actively to seek further opportunities in this marketplace. Industrial cable activities suffered from severe price competition. The Group continues to develop specialist cable solutions for fire retardant, high temperature and data communications for automotive and telecommunications customers. For technical reasons these developments have been at a slower pace than originally anticipated. The Group's ferrite business in North America has successfully developed new products for telecommunication applications for which it has applied for worldwide patents. Pilot production has commenced with equipment for full production being delivered during the first half of 2000 enabling contracted demand to be fulfilled. Investment continues in the Group's low cost manufacturing factory in India not only to support an increasing home telecommunications market but also to take advantage of increasing export opportunities. Industrial The two circuit board assembly factories, whose main customers are in the computer, telecommunications and automotive markets, produce a wide range of circuit board assemblies and are also increasingly supplying completed product ready for sale. The operation in the North East of England performed well with strong demand for network circuits and the operation in South Wales, whilst gaining new business in 1999, will not see the benefits of this increased production until the first quarter of 2000. Delays in the manufacture of rolling stock for a number of major United Kingdom mainline and cross-country rail projects reduced demand for the Group's range of harsh environmental connectors during the year. The decision in 1998 to set up a manufacturing and distribution centre in the USA has helped our penetration of the market with increased sales during 1999. An innovative new range of connectors for a wide range of industrial uses is in the final stage of development for launch during the year 2000. The Group's specialist Flangeform fasteners achieved record sales in the USA from its dedicated technical and distribution centre opened in Ohio in 1998. However, UK sales of automotive fasteners remained depressed due to lower than anticipated production of vehicles by a major customer. Packaging The glass container operations' capability to produce innovative designs to enhance the customers' products helped to increase sales to a record number of containers in the year. However, European price competition reduced selling prices and resultant margins. Packaging film sales benefited from the higher level of specialist film development and increased manufacturing capacity but 'end of line' packaging equipment sales were inhibited by slow exports and capital expenditure constraints on customers in the United Kingdom. OUTLOOK The Group is focusing on growth in the electronic sector. The investment in product development and additional manufacturing capacity together with the important and strategic acquisitions of Prestwick Circuits and BI Technologies supports this strategy. Prestwick Circuits manufactures printed circuit boards for many of TT Group's global customers and is also a supplier to several Group companies. The technical expertise in the manufacture of the base component of many electronic systems will enhance the Group's product development capability and enable it to offer customers a more integrated product range. BI Technologies is a leading supplier of a range of passive electronic components comprising trimmers, potentiometers, position sensors, resistors and resistor networks, transformers, inductors and hybrids. All these products complement rather than compete with the Group's current electronic component range. BI Technologies manufacture in California, Scotland, Mexico and Malaysia. The low cost facilities in Mexico and Malaysia will increasingly enhance the competitiveness of the Group. Whilst TT Group has good global distribution channels, the addition of BI Technologies' strong sales presence in Singapore and Japan will in particular accelerate opportunities for sales growth in the Far Eastern markets. Due to the continuing weakness of the Euro, the Group envisages ongoing pressure on prices and margins in mainland Europe, a major marketplace. The underlying strength of the Group's product range and management teams will enable TT Group to take advantage of improvement in the world economies and this will help achieve the Group's long term objective of sustained growth. Sheridan W A Comonte Chief Executive 24 March 2000 Consolidated Profit and Loss Account For the year ended 31 December 1999 1999 1998 Acquisition Total Total Note £million £million £million £million Turnover 1 21.7 590.7 612.4 619.9 Cost of sales (18.6) (470.2) (488.8) (479.4) Gross profit 3.1 120.5 123.6 140.5 Sales and (1.5) (48.3) (49.8) (44.5) distribution costs Administration (1.2) (32.2) (33.4) (31.2) expenses Other operating - 0.9 0.9 1.7 income Group operating 0.4 40.9 41.3 66.5 profit Share of operating 0.3 - profit of associate Total operating profit: group and 1 41.6 66.5 share of associate Profit on sale of 0.4 - fixed asset investments Profit on sale of - 1.9 businesses Profit on ordinary 42.0 68.4 activities before interest Interest (4.0) (3.4) Profit on ordinary 38.0 65.0 activities before taxation Taxation (10.6) (18.1) Profit on ordinary 27.4 46.9 activities after taxation Minority interests (0.1) - Profit for the year 27.3 46.9 Dividends 2 (16.3) (16.3) Retained profit for 11.0 30.6 the year Earnings per share - 3 16.4p 27.8p basic Earnings per share - 3 16.4p 27.7p fully diluted The above results arise from continuing activities Consolidated Balance Sheet At 31 December 1999 1999 1998 £million £million Fixed assets Intangible assets 3.3 0.3 Tangible assets 182.7 173.5 Investments: Investment in associate 8.3 - Other investments - 12.3 194.3 186.1 Current assets Stocks 115.3 100.8 Debtors 118.5 121.9 Investments 1.0 2.1 Cash 4.4 4.6 239.2 229.4 Creditors falling due within one year (151.7) (143.0) Net current assets 87.5 86.4 Total assets less current liabilities 281.8 272.5 Creditors falling due after more than (29.4) (29.7) one year Provisions for liabilities and charges (10.6) (11.3) Minority interests (3.3) (3.2) Total net assets 238.5 228.3 Capital and reserves Share capital 41.6 41.6 Share premium account 56.0 56.0 Capital redemption reserve 1.5 1.5 Profit and loss account 139.4 129.2 Equity shareholders' funds 238.5 228.3 Consolidated Cash Flow Statement For the year ended 31 December 1999 Note 1999 1998 £ million £ million Net cash inflow from operating 4 63.5 76.4 activities Returns on investments and servicing of finance Dividends received 0.4 0.2 Interest paid (4.7) (4.2) Interest received 0.3 0.7 Net cash outflow from returns on (4.0) (3.3) investments and servicing of finance Taxation (12.9) (20.5) Capital expenditure and financial investment Sale of tangible fixed assets 1.5 3.4 Government grants received 0.7 0.3 Sale of fixed asset investments 5.4 - Purchase of fixed asset investments (4.6) (7.3) Purchase of tangible fixed assets (34.0) (42.5) Net cash outflow from capital (31.0) (46.1) expenditure and financial investment Acquisitions and disposals Purchase of businesses (3.2) (1.9) Sale of businesses - 1.3 Net cash outflow from acquisitions and (3.2) (0.6) disposals Ordinary dividends paid (16.3) (15.6) Net cash outflow before liquid (3.9) (9.7) resources and financing Management of liquid resources Purchase of current asset investments (1.3) (1.4) Sale of current asset investments 2.0 1.5 Net cash inflow from management of 0.7 0.1 liquid resources Financing Issue of ordinary share capital - 0.5 Purchase of own shares - (7.0) New loans 0.4 0.1 Loan repayments (1.0) (1.1) Finance lease repayments (0.9) - Net cash outflow from financing (1.5) (7.5) Decrease in cash (4.7) (17.1) Notes 1. Analysis of turnover and operating profit Turnover 1999 1998 £ million £ million By Sector Electronic 203.2 179.8 Industrial Engineering 409.2 440.1 - Power Technology 241.4 256.3 - Industrial 107.1 123.5 - Packaging 60.7 60.3 612.4 619.9 By Origin United Kingdom 441.7 465.2 Rest of Europe 81.3 75.9 North America 58.7 49.9 Rest of the World 30.7 28.9 612.4 619.9 By Destination United Kingdom 307.7 334.2 Rest of Europe 152.0 142.2 North America 76.8 67.2 Rest of the World 75.9 76.3 612.4 619.9 Total Operating Profit 1999 1998 £million £ million By Sector Electronic 21.1 29.1 Industrial Engineering 20.5 37.4 - Power Technology 7.1 18.5 - Industrial 6.5 9.9 - Packaging 6.9 9.0 Total Operating Profit 41.6 66.5 By Origin United Kingdom 22.6 46.1 Rest of Europe 6.2 8.4 North America 9.5 8.3 Rest of the World 3.3 3.7 Total Operating Profit 41.6 66.5 The post acquisition results of Prestwick Holdings plc and its subsidiaries are included in the Electronic Sector. 2. Dividends 1999 1998 pence pence 1999 1998 per per £million £million share share Equity Ordinary dividends - Interim, paid 3.69 3.69 6.1 6.1 - Final, proposed 6.10 6.10 10.2 10.2 9.79 9.79 16.3 16.3 The final dividend of 6.10p per share (1998 - 6.10p) is proposed to be paid on 25 May 2000 to ordinary shareholders on the register at 12 May 2000 3. Earnings per share Basic earnings per share of 16.4p (1998: 27.8p) are calculated on profit attributable to ordinary shareholders of £27.3 million (1998: £46.9 million) and on 166,366,767 ordinary shares being the weighted average number in issue during the year (1998: 168,943,638). The calculation of fully diluted earnings per share assumes the exercise of dilutive share options equivalent to 36,097 ordinary shares (1998: 238,296) and is based on earnings of £27.3 million (1998: £46.9 million) and on 166,402,864 ordinary shares (1998: 169,181,934). 4. Reconciliation of Group operating profit to net cash inflow from operating activities 1999 1998 £million £million Total operating profit 41.6 66.5 Depreciation and amortisation 28.5 26.3 Government grants credited to (0.7) (0.7) profit Profit on sale of tangible fixed (0.4) (0.7) assets Share of profits of associated (0.3) - undertaking (Increase)/Decrease in stocks (11.9) 7.7 Decrease in debtors 9.1 2.3 (Decrease) in creditors (2.7) (23.2) Loss/(Profit) on disposal of 0.4 (0.4) current asset investments Movement on pension prepayments 0.2 0.3 and accruals Exchange translation differences (0.3) (1.7) Net cash inflow from operating 63.5 76.4 activities 5. Reconciliation of net cash flow to movement in net debt Net cash / Short Loans and Total (overdraft) term finance investments lease obligations £million £million £million £million At 31 December 1998 (11.3) 2.1 (24.9) (34.1) Cash flow (4.7) (0.7) 1.5 (3.9) Acquisition - - (4.5) (4.5) Exchange - - 0.4 0.4 differences Other non cash - (0.4) - (0.4) movements At 31 December 1999 (16.0) 1.0 (27.5) (42.5) 6. Basis of preparation The information above which does not constitute full financial statements within the meaning of S240 CA 1985 is extracted from the audited financial statements of TT Group PLC for the year ended 31 December 1999 which: - have been prepared on a basis consistent with the accounting policies set out in the annual report for the year ended 31 December 1998 as filed with the Registrar of Companies - were approved by the Directors on 24 March 2000 - carry an unqualified audit report which did not contain any statements under S237 CA 1985 - will be posted to shareholders and available to the public in April 2000 - will be filed with the Registrar of Companies following the Annual General Meeting on 11 May 2000

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