Preliminary Results
TT electronics PLC
17 March 2008
TTG.L
TT electronics is a world leader in sensor and electronic component technology
and announces its preliminary results for the year ended 31 December 2007.
Further earnings growth and dividend held
KEY POINTS
• Group revenue from continuing activities of £544.9 million (2006: £539.4
million).
• Operating profit from continuing activities improved to £37.7 million (2006:
£36.5 million before exceptional gain).
• Earnings per share from continuing operations increased by 10 per cent to
15.5p (2006: 14.1p before exceptional gain).
• Pension fund deficit reduced to £17.4 million (2006: £72.6 million).
• The Board is recommending a maintained final dividend of 6.36p per share
bringing the total for the year to 10.05p (2006: 10.05p).
• Successful exit from low margin, commodity cables operation.
• Employees in low cost manufacturing operations increased to 42 per cent of
workforce (2006: 39 per cent).
• Strong cash generation and a robust balance sheet with 41 per cent gearing
(2006: 45 per cent) provides a good platform for the future.
Neil Rodgers, Chief Executive, said today:
'TT electronics has reported further growth in 2007, despite deteriorating
market conditions in North America and the weakness of the US dollar.
'Our sensor business continues to perform well and approval for the manufacture
of accelerator pedals incorporating our innovative Autopad(R) sensor technology
has been received. The electronic manufacturing services business has delivered
significant growth in profit and, following the acquisition of TT Apsco, Inc in
2006, has established a truly global footprint.
'TT electronics' strategy is to invest in leading edge technologies and focus on
the development of specialist new products to enhance both our competitive
advantage and margins.
'While the challenges in the broader economic environment cause us to take a
cautious view for 2008, we believe that we are well positioned in our key
markets.'
Enquiries:
TT electronics plc Tel: 01932 841310
Neil Rodgers, Chief Executive
Biddicks Tel: 020 7448 1000
Zoe Biddick
Chairman's statement
TT electronics delivered operating profits of £37.7 million compared with £36.5
million before exceptional profit in the previous year, a 3 per cent
improvement. Turnover of continuing operations was £544.9 million compared to
£539.4 million in the previous year. Finance costs (net) were £4.4 million
(2006: £5.3 million). These comprise £4.5 million of bank and finance interest
(2006: £3.5 million) and £0.1 million income relating to pension fund accounting
(2006: £1.8 million cost). Profit before tax from continuing operations was
£33.3 million compared with £31.2 million before exceptional profit in 2006, an
increase of 7 per cent. Taxation charge of £9.3 million (2006: £12.0 million)
was an effective rate of 28 per cent (2006: 30 per cent).
Basic earnings per share from continuing operations before exceptional items
were 15.5p compared with 14.1p in 2006, an increase of 10 per cent.
The sale of our commodity cable business of AEI Cables Limited was completed on
3 September 2007 as I reported in my half year statement. The cash proceeds of
sale, following settlement of the completion accounts, were £10.8 million plus a
deferred consideration of £0.9 million. This resulted in a final discount
including costs of £12.3 million against the carrying value of assets sold. We
have retained ownership of the freehold land at the AEI Cables site, which is
leased at a market rate, and we expect to produce a profit on the sale of this
land in due course.
As a result of the sale of the AEI Cables business, the remaining Electrical
sector businesses have been combined into the newly designated 'Secure power and
industrial sector'. The analysis of the other sectors is unchanged.
During the year the group incurred costs of the transfer of manufacturing from
the USA and Europe to low labour cost areas, in particular Malaysia and China.
Further costs will be incurred in 2008 when we transfer the next tranches of the
manufacture of electronic systems, sensors and components to our facilities in
China, India and Mexico. These moves are essential to remain cost competitive
and improve future operating margins.
At 31 December 2007, the group's net indebtedness was £75.0 million compared
with £71.0 million in the previous year resulting in gearing of 41 per cent
(2006: 45 per cent). The inflow of cash from the sale of AEI Cables has been
offset by further additional payments into the group's pension scheme amounting
to £15.7 million. The group is utilising 46 per cent of its total borrowing
facilities and 43 per cent of these facilities are in the form of a medium term
facility with over three years before renewal.
I am pleased to report that, following the significant additional payments into
the pension scheme, a higher discount rate and improved returns from the assets
held, the deficit on the pension funds has been reduced to £17.4 million
compared with £72.6 million at the previous year end. The pension schemes are
now 94 per cent funded on an IAS 19 basis (2006: 79 per cent).
The following appointment to the Board has been made since my half year
statement: in November 2007, Sean Watson, a senior partner in CMS Cameron
McKenna LLP was invited to join the Board as an independent non-executive
Director. Sean Watson's knowledge of corporate law will be of great benefit to
the Board, especially in the light of the latest Companies Act. On 1 August
2008, Shatish Dasani will join the Board as Finance Director replacing Roderick
Weaver who will be retiring on the same day. Roderick has been with the group
for 23 years, 12 of which were as Finance Director. All those who know him are
aware of the great contribution he has made.
I would like to give my thanks to all the employees of TT electronics for their
efforts and contribution to the group's performance during the past year.
The Board recommends a final dividend of 6.36p per share. This is the same final
dividend as in the previous year, bringing the total dividend for the year to
10.05p. The final dividend will be paid on 23 May 2008 to shareholders on the
register on 16 May 2008.
Whilst current trading is expected to remain overall similar to 2007, the
further reorganisation of operations, difficulties in the credit markets and
concerns as to the effect on the global economy causes the Board to take a
cautious view for the current year.
John W Newman
Executive Chairman
14 March 2008
Business review
TT electronics is a technology based group with a leading position in sensors,
electronic components and electronic manufacturing services in global markets.
The group's strategy is to continue to invest in leading edge technologies and
to focus on product development for an expanding global customer base. This will
enable TT electronics to move up the value chain by producing more specialist,
high level assemblies thereby growing competitive advantage and operating
margins. The further transfer of manufacturing to lower cost economies, where
appropriate, and other cost reduction plans will minimise the effect of price
competition. The group's comprehensive global manufacturing capability is a
strong platform to service both specialist western based markets and emerging
markets.
The disposal of the business of AEI Cables Limited resulted in the power
transmission product sector largely being discontinued. The remaining power
transmission businesses are now included in the power systems product grouping
which has been renamed 'Secure power and industrial'. There are no other changes
to the analysis of product grouping.
The summary of key financial performance indicators and a review of the group's
overall performance are detailed as follows:
Overview of group performance
2007 2006
£million £million
----------------------------------------- -------- -------
Revenue
Continuing operations
sensors and electronic systems 182.3 184.8
electronic components 131.2 139.9
electronic manufacturing services 92.2 72.1
secure power and industrial 139.2 142.6
----------------------------------------- -------- -------
544.9 539.4
----------------------------------------- -------- -------
Operating profit(1)
Continuing operations
sensors and electronic systems 10.0 11.6
electronic components 10.0 11.4
electronic manufacturing services 4.1 1.3
secure power and industrial 13.6 12.2
----------------------------------------- -------- -------
37.7 36.5
----------------------------------------- -------- -------
Cash generated from operations 42.9 32.1
Capital employed 277.0 255.2
Return on capital employed 14% 14%
Number of employees 7,546 7,599
Employees in low cost economies 42% 39%
----------------------------------------- -------- -------
(1) Throughout this review operating profit for 2006 is stated before the
exceptional gain. There were no exceptional items in 2007.
TT electronics has generated an operating profit on continuing activities of
£37.7 million, which represents a growth of 3 per cent over the prior year's
profit of £36.5 million.
This growth has been achieved in market conditions which rapidly became more
difficult during the final months of 2007. The global credit crisis, the
weakness of the US dollar and a general softness within the USA markets combined
to make the final months of 2007 challenging. The effect of currency movements
on the translation of revenue and operating profit was a reduction of £19.1
million and £1.4 million respectively. This was predominantly as a result of the
exchange rate of the US dollar against sterling weakening from an average rate
of 1.84 in 2006 to 2.00 for 2007.
The integration of TT Apsco Inc, which was acquired in November 2006, into the
electronic manufacturing services sector has now been completed.
The legal formalities for the establishment of Padmini TT, the new joint venture
in India serving the automotive market, have been completed and contracts to
supply automotive sensor products are now being won.
The completion of the sale of the business of AEI Cables Limited was a major
step forward in the withdrawal from non-core commodity products. This is in line
with the strategy to concentrate on more specialist products with higher
margins.
The demand for the group's products in world markets has varied dependent upon
the sector and geographical market serviced.
The European and Far East markets have remained strong but the well publicised
difficulties of the North American automotive market have had an adverse effect
on profit. The move of manufacturing to lower cost economies continues to
benefit the group and growth in domestic sales in emerging markets is being
targeted. The group now has 42 per cent of its employees in low cost economies
and the China based operations continue to grow with the establishment of
factories for the manufacture of automotive sensors and electronic systems,
resistors, electrical fusegear and interconnection systems. Since 2005 the
factory space occupied in China has expanded from 2,500 sq. metres to over
15,000 sq. metres.
Work on acquisitions has continued throughout the year but no suitable prospects
at an acceptable price have been identified. TT electronics remains cautious of
opportunities requiring prices based on high multiples of profits and it is
pleasing that the global credit crisis has reduced price expectations of
business sellers and may provide trade purchasers such as ourselves with greater
opportunity. Consequently activity on the search for suitable acquisitions has
been increased.
We remain committed to maintaining the pace of new product development,
particularly in our sensor and electronic component sectors. TT electronics has
many exciting new technologies and innovative new products, and it is our
intention to drive for growth from these and to supplement them with suitable
acquisitions to accelerate organic growth of the group. During 2007 the group
purchased the patents to expand the use of Autopad(R) for fuel level sensing and
Digital Angular Position Sensing for steering applications.
Sensors and electronic systems
2007 2006
£million £million
----------------------------------------- -------- -------
Revenue 182.3 184.8
Operating profit 10.0 11.6
Capital employed 105.1 87.4
----------------------------------------- -------- -------
Return on capital employed 10% 13%
----------------------------------------- -------- -------
Number of employees 2,429 2,601
----------------------------------------- -------- -------
TT electronics' leading edge automotive sensor technologies include products
such as electronic accelerator pedals, which are single sourced on a range of
German premium vehicles, as well as engine and wheel speed, temperature and
pressure sensors and chassis height sensors used for load levelling and
electronic stability control which is increasingly popular in modern vehicles.
An average vehicle may incorporate around fifty electronic sensors and the TT
electronics' product range covers up to 20 per cent of these applications. The
optoelectronic sensor product range mainly addresses non-automotive markets for
applications within office, industrial and banking equipment, a market which is
growing in line with increased automation across the world.
The electronic systems manufactured are largely destined for the North American
automotive industry. Increasing competition from the Far East, combined with
lower volumes and a weak US dollar, have combined to make this a low margin
activity. We initiated plans during 2007 to cease manufacture in our North
American facility and by the end of 2008 this factory will be used for the sale
and service of electronic systems and the manufacture of interconnection
systems.
Development of the Autopad(R) inductive sensor technology suffered with initial
delays to the completion of the Application Specific Integrated Circuit ('ASIC')
necessary for it to be effective in volume automotive applications. An ASIC
development programme can take up to three years to complete. This has caused a
major customer for this technology to defer the start of production from autumn
2007 to autumn 2008. However, this development is now complete and customer
approval for production has been given. Manufacture of accelerator pedals will
commence in quarter two 2008 for production launch on vehicles in quarter four
2008. Autopad(R) is an innovative technology with excellent growth potential in
a range of automotive applications.
The optoelectronic non-automotive sensor range continues to be developed and the
product range of visible LEDs has been relaunched. There are many exciting new
products for development and launch during 2008, such as ultra violet sensors,
optocouplers and encoders. Growth in the Far East has levelled off following our
very successful year in 2006. However, we remain confident in the future success
of the product line in global markets.
There have been significant investments made in this sector including the
extension of one of the German factories to provide further capacity for new
products and investment in plant for the manufacture of the Autopad(R) range of
sensors planned for launch in 2008.
The revenue in this sector has declined in 2007 due to the completion of a
number of automotive programmes. However the Autopad(R) technology, the combined
growth of automotive temperature and pressure products and the future
development of the optoelectronic product range provide an excellent foundation
for growth in 2009 and beyond.
Electronic components
2007 2006
£million £million
----------------------------------------- -------- -------
Revenue 131.2 139.9
Operating profit 10.0 11.4
Capital employed 99.4 95.9
----------------------------------------- -------- -------
Return on capital employed 10% 12%
----------------------------------------- -------- -------
Number of employees 2,707 2,598
----------------------------------------- -------- -------
TT electronics specialises in the manufacture of a wide range of resistive
products for the defence, aerospace, industrial and automotive markets. The
group's global sales channels provide access to both western based markets and
growing emerging markets in China and India. The group's product range targets
specialist, high margin markets; products are custom designed for our customers'
applications by a global network of experienced application sales engineers who
support the customers' design centres.
Within this sector are microcircuit operations which specialise in manufacturing
custom designed microcircuits for a range of applications in the defence,
aerospace, automotive and premium industrial markets. These products are complex
to manufacture and are designed to provide extreme reliability, often operating
in harsh environments. Under development for the German automotive industry is
an exciting new range of solid state lighting modules for the control of vehicle
daylight running lamps and direction indicator units. Production is planned to
start during 2008.
In February 2008 the group's UK resistor manufacturing operation announced a
reduction in its workforce in line with the transfer of manufacturing of low
margin products to lower cost economies. The UK manufacturing operations and the
European sales offices have been combined into a single reporting entity in
order to facilitate greater market penetration.
There have been two significant investments in the component sector during 2007.
Both of these expansions have been completed on time and as planned. The
expansion of the Austrian microcircuit factory has been completed; this is
needed for the introduction of the new business won recently. Additional
production equipment has been installed in our Texas based manufacturing
facility and this investment has enabled us to reduce lead times significantly
and thereby meet customer delivery expectations. This factory manufactures thin
film products and was previously operating on a seven day, twenty-four hour
basis. The investment is now complete and we anticipate increased business will
result.
The overall market for component products softened during the latter months of
2007; this was particularly pronounced in North America. Revenue from older
leaded resistive component products declined as customers substituted these for
surface mount component technologies. The marketplace for the products continues
to migrate to lower cost economies, particularly the Far East, and we track this
transfer to ensure that TT electronics' components remain specified in the
customer's product. However, inevitably some business has been lost to local
suppliers. To counter this, our sales representation in China and India has been
increased and where a financial justification can be made the group will
transfer the manufacture of resistive products to those territories.
The outlook for specialist resistive products and microcircuit operations is
still healthy; although competition for the older product ranges remains
intense.
Electronic manufacturing services
2007 2006
£million £million
----------------------------------------- -------- -------
Revenue 92.2 72.1
Operating profit 4.1 1.3
Capital employed 32.4 31.4
----------------------------------------- -------- -------
Return on capital employed 13% 4%
----------------------------------------- -------- -------
Number of employees 1,070 888
----------------------------------------- -------- -------
TT electronics global electronic manufacturing services ('ems') operations are
based in the UK and USA with low cost manufacturing operations in China and
Malaysia. These specialise in providing high quality manufacturing support for
customers operating in the defence, aerospace, telecom and premium industrial
markets. The group's capability extends to providing design for manufacturing
and logistics support, and the group's strategy is to be an integral part of the
customer's manufacturing solutions.
The integration of TT Apsco Inc into the TT electronics ems sector is complete.
New management is in place, the operation is now focussed on implementing modern
manufacturing methods and controls, standard costing has been installed and is
giving clear visibility of customer margins, and the sales force expanded. These
improvements, particularly to the sales force, are now beginning to bear fruit
and the operation has started to win new business for introduction during 2008.
The cost issues reported in the first half year results in connection with the
transfer of production from the UK based manufacturing site to Malaysia have
been resolved and new management has been put in place.
The ems operations' strategy is to capitalise on the group's global footprint,
with the western manufacturing bases supporting lower volume, more specialist
production and the low cost manufacturing capabilities targeted to those
contracts with higher volumes.
Revenue in this sector has increased by 28 per cent, primarily due to the
acquisition of TT Apsco Inc in Cleveland, Ohio in November 2006. New contracts
continue to be won in all territories and future growth in revenue and
profitability is promising.
Secure power and industrial
2007 2006
£million £million
----------------------------------------- -------- -------
Revenue 139.2 142.6
Operating profit 13.6 12.2
Capital employed 40.1 40.5
----------------------------------------- -------- -------
Return on capital employed 34% 30%
----------------------------------------- -------- -------
Number of employees 1,340 1,512
----------------------------------------- -------- -------
TT electronics operates in the secure power market concentrating on the supply
of standby generators, uninterruptible power systems, electrical control panel
upgrades and service. The Mexican factory has established a strong market
position in its domestic market and has been very successful in expanding its
global sales operations to the export markets in South America and China.
The remaining businesses in this sector are involved in the manufacture of
interconnection systems, electrical fusegear, specialist compounds and fine
wire.
The standby generator manufacturing operation based in Mexico City has delivered
another year of robust performance. The factory site, purchased in late 2005,
has received substantial investment and the building has been extended making
the site more suitable for high volume equipment manufacture. In the UK, two
secure power operations have been combined into a single business on a single
site under new management. The combined operations have beaten initial targets
and have a promising future.
The interconnection systems operation has expanded from its original business of
connector manufacture to become a higher value added supplier of a range of
interconnection systems and complex electrical equipment to the defence and
traction markets. Manufacturing has been expanded into the USA and China and
further growth opportunities in the USA and UK markets identified.
Within the remaining operations, common themes are the outsourcing of
manufacturing to third parties, the expansion of revenues in export markets and
the continued development of new product ranges to maximise future revenue.
In the industrial markets serviced, growth from new products or markets is more
difficult to achieve. However, the businesses in this sector anticipate
continued good performance.
The sector's performance has steadily improved and operating profit is 10 per
cent of sales with an excellent return on capital employed.
Discontinued operation
The sale of the business of AEI Cables Limited was completed on 3 September
2007. This business manufactured medium power electrical cables, typically
suitable for domestic and industrial buildings. The marketplace was dominated by
larger manufacturing companies with an international coverage and, although the
operation was well run, the margins were not sufficient to compensate for the
high risks in the business. The single most significant risk was exposure to the
volatility in the cost of copper metal. The business made an operating loss of
£0.3 million in 2006 but this loss increased to £1.7 million in the first half
of 2007 on revenues of £60.9 million and £26.8 million respectively.
The loss on sale of the discontinued operation including costs was £12.3 million
which is lower than that shown in the Interim Report. This is due to the
consideration being dependent on finalisation of the completion accounts and the
value of assets sold on 3 September. The consideration for the stock at 30 June,
included in the assets held for sale, was capped but by the date of the sale the
stock levels had been reduced to below the level of the cap and the discount
against assets sold was thereby reduced.
Dividends and earnings per share
The final dividend proposed is 6.36p per share, bringing the total dividend for
the year to 10.05p which is the same as last year. The dividend cover from
ongoing operations for this year has improved to 1.5 times
(2006: 1.4 times before exceptional gain).
Basic earnings per share on continuing operations were 15.5p, an improvement of
10 per cent over 2006 which were 14.1p excluding exceptional items. This is
based on earnings of £24.0 million (2006: £28.0 million less £8.8 million
curtailment and £2.6 million of related tax).
Taxation
The overall rate of tax is 28 per cent (2006: 30 per cent). The additional cash
contributions to the pension funds made in the UK are largely an allowable
deduction for tax and this, with the termination losses of the business of AEI
Cables Limited, and losses brought forward gave rise to unrelieved tax losses
carried forward of £13.9 million. There are no other significant unrelieved
losses carried forward elsewhere in the group's non-UK operations. The reduction
in the tax rates in Germany from approximately 39 per cent to 30 per cent will
benefit the group with a reduced tax burden for 2008.
Treasury and borrowings
2007 2006
£million £million
----------------------------------------- -------- -------
Net borrowings 75.0 71.0
Cash generated from operations 42.9 32.1
Capital expenditure 29.4 20.6
----------------------------------------- -------- -------
Days Days
----------------------------------------- -------- -------
Debtor days outstanding 47 53
Creditors days 46 43
Inventory days 78 72
----------------------------------------- -------- -------
The group's banking facilities, all of which are unsecured, are provided by a
£70 million committed multi-currency facility which expires in April 2011, a two
year $30 million committed facility which expires in December 2009 and overdraft
facilities totalling over £70 million provided by major clearing banks in the
UK, Germany and other operating locations around the world.
The major elements of change in the levels of borrowing have been: the increase
in working capital of £5.1 million (2006: £27.8 million), a level of capital
expenditure which has increased to £29.4 million (2006: £20.6 million) and
payments to the pension funds of £15.7 million (2006:£7.0 million) less the
proceeds of sale of the cables business of £10.8 million. It is expected that
capital expenditure in 2008 will be closer to the depreciation charge and
overall payments to the pension funds will reduce to £6 million from £18.5
million in 2007.
The net interest charge for bank loans, overdrafts and cash of £4.2 million was
covered nine times by operating profit and at the end of December the group's
net gearing was 41 per cent (2006: 45 per cent).
Exposure to risk and uncertainties
Foreign currency
The group's main exposures are to changes in the exchange rate of sterling to
the US dollar, the euro and the Chinese yuan. The policy of the group is to
minimise, in a cost effective way, the effect of such exposures by hedging the
risks. These hedges are achieved by matching foreign currency revenues with an
equivalent foreign currency cost or by use of forward exchange contracts, swaps
and other derivative instruments.
Price changes
The group's single largest exposure to the risk of changes in the cost of raw
materials was to the change in price of copper metal. Following the disposal of
the electrical cables business this risk is substantially reduced. There are no
other significant exposures to risks from changes in the cost of raw materials.
Interest cost
The group has maintained since 2006, a cap to the interest cost on about one
third of the total borrowings.
Commercial and other risks
The group is exposed to risks of product liability, credit risk, reliance on
customers' commitments and other usual commercial risks. The group has a wide
portfolio of products and operates in a number of market sectors, the largest of
which is automotive, most importantly the German automotive OEMs. There are
established control procedures in place to manage such risks, including
production quality control, management and financial control procedures and
insurance with reliable insurers, which are considered appropriate to the risk
involved and marketplace in which the exposure arises.
Pensions
All of the significant pension schemes in the UK were merged with effect from
April 2007 following which an increase in the cost of the provision of the
pension was borne by the members who chose to remain in the scheme. As part of
the agreement to these changes, the Company committed to a one-off additional
cash contribution of £5.5 million in 2007 and to a plan to eliminate the IAS19
deficit, as re-measured each year, by 2014. Overall payments to the fund
totalled £18.5 million (2006: £11.4 million).
These payments together with other changes in the valuation of assets and
liabilities, return on assets and the interest cost of liabilities resulted in
the deficit being reduced from £72.6 million at December 2006 to £33.0 million
at June 2007 and £17.4 million at December 2007.
The changes to the actuarial estimates were £37.8 million and £0.5 million for
liabilities and assets respectively. The reduction in the level of liabilities
was mainly the result of the discount rate applied to future liabilities
increasing from 5.3 per cent at December 2006 to 6.0 per cent at the end of
2007.
The mortality tables used in estimating the pension obligations are PA92 medium
cohort plus 2 years and are unchanged from those used in 2006.
Outlook
In the current economic climate, with the global credit crisis still evident,
the effect of fluctuating exchange rates and the potential for either recession
or at best a slow down in our main markets, we remain cautious about 2008.
Growth in the core sensors and electronic component sectors remains dependent on
the new products being developed and favourable market conditions in the
automotive and industrial sectors. In the ems and secure power and industrial
sectors the outlook overall remains stable with the potential for growth.
Further consolidation of the operations involved in sensors, electronic systems
and components particularly in the UK will be completed during 2008, as these
operations transfer more of their manufacturing capacity to low labour cost
economies. The costs of this will impact the first half of 2008.
The new product ranges and further transfers of manufacturing to low cost
regions will secure a brighter future for TT electronics in 2009 and beyond.
Neil A Rodgers Roderick W Weaver
Chief Executive Finance Director
14 March 2008 14 March 2008
Consolidated income statement
for the year ended 31 December 2007
Note 2007 2006
£million £million
------------------------- ------ -------- --------
Continuing operations
Revenue 2 544.9 539.4
Cost of sales (437.0) (429.9)
------------------------- ------ -------- --------
Gross profit 107.9 109.5
Distribution costs (36.0) (34.8)
Administrative expenses (35.2) (39.2)
Other operating income 1.0 1.0
------------------------- ------ -------- --------
Operating profit before exceptional item 3 37.7 36.5
Exceptional item 4 - 8.8
------------------------- ------ -------- --------
Operating profit 37.7 45.3
Finance income 5 18.3 14.0
Finance costs 5 (22.7) (19.3)
------------------------- ------ -------- --------
Profit before taxation 3 33.3 40.0
Taxation (9.3) (12.0)
------------------------- ------ -------- --------
Profit for the year from continuing operations 3 24.0 28.0
------------------------- ------ -------- --------
Discontinued operation
Loss for the year from discontinued operation 7 (11.8) -
------------------------- ------ -------- --------
Profit for the year attributable to shareholders 12.2 28.0
------------------------- ------ -------- --------
Earnings per share 8
From continuing operations
- basic 15.5p 18.1p
- diluted 15.3p 17.9p
From continuing and discontinued operations
- basic 7.9p 18.1p
- diluted 7.8p 17.9p
------------------------- ------ -------- --------
Consolidated balance sheet
at 31 December 2007
Note 2007 2006
£million £million
------------------------------------ ------ -------- --------
Assets
Non-current assets
Property, plant and equipment 112.0 108.6
Goodwill 52.3 53.1
Other intangible assets 17.3 16.0
Deferred tax assets 4.2 21.0
------------------------------------ ------ -------- --------
Total non-current assets 185.8 198.7
------------------------------------ ------ -------- --------
Current assets
Inventories 91.0 99.8
Trade and other receivables 95.1 104.6
Financial derivatives - 0.6
Cash and cash equivalents 7.6 9.5
------------------------------------ ------ -------- --------
Total current assets 193.7 214.5
------------------------------------ ------ -------- --------
Total assets 379.5 413.2
------------------------------------ ------ -------- --------
Liabilities
Current liabilities
Short-term borrowings 16.8 11.5
Financial derivatives 0.7 -
Trade and other payables 81.9 87.3
Current tax payable - 1.3
Provisions for liabilities 0.3 0.9
------------------------------------ ------ -------- --------
Total current liabilities 99.7 101.0
------------------------------------ ------ -------- --------
Non-current liabilities
Long-term borrowings 65.8 69.0
Deferred tax provision 6.0 5.4
Pensions and other post employment benefits 11 17.4 72.6
Provisions for liabilities 0.7 0.7
Other non-current liabilities 7.6 7.5
------------------------------------ ------ -------- --------
Total non-current liabilities 97.5 155.2
------------------------------------ ------ -------- --------
Total liabilities 197.2 256.2
------------------------------------ ------ -------- --------
Net assets 182.3 157.0
------------------------------------ ------ -------- --------
Equity
Share capital 38.7 38.7
Share premium account 0.2 -
Share options reserve 1.1 0.8
Hedging and translation reserve (1.5) (6.1)
Retained earnings 141.8 121.6
Minority interests 2.0 2.0
------------------------------------ ------ -------- --------
Total equity 9 182.3 157.0
------------------------------------ ------ -------- --------
Consolidated cash flow statement
for the year ended 31 December 2007
Note 2007 2006
£million £million
------------------------------------ ------ -------- --------
Operating activities
Profit for the year 12.2 28.0
Adjustments for:
Finance costs 4.6 5.7
Taxation 8.3 11.3
Depreciation of property, plant and equipment 21.7 23.2
Amortisation of intangible assets 9.6 9.1
Share based payment expense 0.3 0.3
Gain on disposal of property, plant and equipment (2.7) (2.0)
Loss on disposal of business 12.3 -
Pension curtailment gain (1.1) (8.8)
Other non cash items (1.5) 0.1
Additional payments to pension funds (15.7) (7.0)
------------------------------------ ------ -------- --------
Operating cash flow before movements
in working capital 48.0 59.9
Decrease/(increase) in financial derivatives 1.3 (1.0)
Increase in inventories (5.3) (0.8)
Increase in receivables (1.3) (5.6)
Decrease in payables (0.9) (14.0)
Exchange differences 1.1 (6.4)
------------------------------------ ------ -------- --------
Cash generated from operations 42.9 32.1
Tax paid (7.3) (7.0)
------------------------------------ ------ -------- --------
Net cash from operating activities 35.6 25.1
------------------------------------ ------ -------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment (29.4) (20.6)
Proceeds from sale of property, plant and
equipment and grants received 7.1 7.1
Development expenditure and purchase of
patents and licences (10.1) (8.6)
Acquisition of subsidiary net of cash acquired - (14.7)
Net cash proceeds from sale of business 10 10.8 -
------------------------------------ ------ -------- --------
Net cash used in investing activities (21.6) (36.8)
------------------------------------ ------ -------- --------
Cash flows from financing activities:
Interest paid (net) (4.7) (3.8)
Net changes in long-term borrowings and
finance lease liabilities 0.3 10.0
Issue of shares 0.2 -
Dividends paid (15.6) (15.6)
------------------------------------ ------ -------- --------
Net cash used in financing activities (19.8) (9.4)
------------------------------------ ------ -------- --------
Net decrease in cash and cash equivalents (5.8) (21.1)
Cash and cash equivalents at beginning of period 0.7 22.3
Exchange difference (0.1) (0.5)
------------------------------------ ------ -------- --------
Cash and cash equivalents at end of period (5.2) 0.7
------------------------------------ ------ -------- --------
Cash and cash equivalents comprise:
Cash and cash equivalents 7.6 9.5
Bank overdrafts (12.8) (8.8)
------------------------------------ ------ -------- --------
(5.2) 0.7
------------------------------------ ------ -------- --------
Consolidated statement of recognised income and expense
for the year ended 31 December 2007
2007 2006
£million £million
----------------------------------------- -------- -------
Profit for the year 12.2 28.0
Exchange differences on net foreign
currency investments 4.8 (9.6)
Hedging reserve (0.2) -
Actuarial net gain on defined benefit pension schemes 38.3 3.2
Deferred tax on actuarial gain (14.7) (1.0)
----------------------------------------- -------- -------
Total recognised income and expense for the year
attributable to shareholders 40.4 20.6
----------------------------------------- -------- -------
Notes to the financial statements
1. Basis of accounting
The consolidated financial statements have been prepared under International
Financial Reporting Standards (IFRS) as adopted by the European Union. The
financial statements for 2007 have been prepared under accounting policies
consistent with those used for 2006.
The information set out below, which does not constitute full financial
statements within the meaning of S240 CA, 1985, is extracted from the audited
financial statements of the group for the year ended 31 December 2007 which:
- were approved by the Directors on 14 March 2008
- carry an unqualified audit report, which did not contain statements under S237
CA, 1985
- will be posted to shareholders and available to the public in April 2008
- will be filed with the Registrar of Companies following the Annual General
Meeting on 14 May 2008
2. Revenue
On 3 September 2007 the group disposed of the business and net assets of AEI
Cables Limited. This transaction meets the criteria of IFRS5 requiring it to be
classified as a discontinued operation. Following this disposal the remaining
power transmission businesses no longer fulfil the requirements of a segment and
are now reported with the power systems businesses as the Secure power and
industrial segment.
By sector 2007 2006
£million £million
-------------------------------------- -------- -------
- Sensors and electronic systems 182.3 184.8
- Electronic components 131.2 139.9
- Electronic manufacturing services 92.2 72.1
- Secure power and industrial 139.2 142.6
-------------------------------------- -------- -------
Total - continuing operations 544.9 539.4
-------------------------------------- -------- -------
By destination 2007 2006
£million £million
-------------------------------------- -------- -------
United Kingdom 111.2 115.7
Rest of Europe 201.1 200.9
North America 149.5 145.6
Rest of the World 83.1 77.2
-------------------------------------- -------- -------
Total - continuing operations 544.9 539.4
-------------------------------------- -------- -------
3. Profit by sector
2007 2006
£million £million
------------------------------------- -------- --------
- Sensors and electronic systems 10.0 11.6
- Electronic components 10.0 11.4
- Electronic manufacturing services 4.1 1.3
- Secure power and industrial 13.6 12.2
------------------------------------- -------- --------
Operating profit before exceptional item 37.7 36.5
Exceptional operating item (note 4) - 8.8
------------------------------------- -------- --------
Operating profit 37.7 45.3
Finance income 18.3 14.0
Finance costs (22.7) (19.3)
------------------------------------- -------- --------
Profit before tax 33.3 40.0
Taxation (9.3) (12.0)
------------------------------------- -------- --------
Profit for the year from continuing operations 24.0 28.0
------------------------------------- -------- --------
4. Exceptional item
2007 2006
£million £million
------------------------------------- -------- --------
Curtailment of pension scheme benefits - 8.8
------------------------------------- -------- --------
The pensionable salaries of members of the UK defined benefit schemes are frozen
for three years. The consequent reduction in the liabilities of the schemes was
recognised in the actuarial valuations of the schemes at 31 December 2006 and
under the requirements of IAS19 is reported in operating profit.
There were no exceptional items in 2007.
5. Finance costs - net
2007 2006
£million £million
------------------------------------- -------- --------
Interest receivable 0.5 0.8
Expected return on pension scheme assets 17.8 13.2
------------------------------------- -------- --------
Finance income 18.3 14.0
------------------------------------- -------- --------
Interest on bank overdrafts and loans 4.7 4.0
Interest on finance leases 0.3 0.3
Unwinding of the discount on pension scheme liabilities 17.7 15.0
------------------------------------- -------- --------
Finance costs 22.7 19.3
------------------------------------- -------- --------
Finance costs - net 4.4 5.3
------------------------------------- -------- --------
The loss for the discontinued operation included net finance costs of £0.2
million (2006 : £0.4 million).
6. Dividends
The following dividends have been paid in the year:
2007 2007 2006 2006
pence per £million pence per £million
share share
----------------------- --------- -------- -------- --------
Final dividend for
prior year 6.36 9.9 6.36 9.9
Interim dividend for
current year 3.69 5.7 3.69 5.7
----------------------- --------- -------- -------- --------
10.05 15.6 10.05 15.6
----------------------- --------- -------- -------- --------
The Directors propose that a final dividend of 6.36p will be paid on 23 May 2008
to shareholders on the register on 16 May 2008. The ex-dividend date is 14 May
2008. This dividend is subject to the approval of shareholders at the Annual
General Meeting and has not been included as a liability in these accounts. The
total estimated cost of the final dividend is £9.9 million.
7. Discontinued operation
On 3 September 2007 the group sold the business and net trading assets of AEI
Cables Limited which completed the group's exit from the cables business. The
amount included in the income statement for this disposal comprises:
2007 2006
£million £million
------------------------------------- -------- --------
Loss after taxation before curtailment gain (0.6) -
Curtailment of pension scheme benefits 1.1 -
Loss on disposal of business and assets (12.3) -
------------------------------------- -------- --------
(11.8) -
------------------------------------- -------- --------
8. Earnings per share
From continuing operations:
2007 2006
pence pence
per share per share
------------------------------------- -------- --------
Basic 15.5 18.1
Diluted 15.3 17.9
------------------------------------- -------- --------
Earnings per share has been calculated by dividing the profit attributable to
shareholders by the weighted average number of shares in issue during the year.
The numbers used in calculating basic and fully diluted earnings per share are
reconciled below:
2007 2006
£million £million
------------------------------------- -------- --------
Profit for the year attributable to shareholders 12.2 28.0
Add loss for the year from discontinued operation 11.8 -
------------------------------------- -------- --------
Earnings from continuing operations 24.0 28.0
------------------------------------- -------- --------
Weighted average number of shares in issue
2007 2006
million million
------------------------------------- -------- --------
Basic 154.9 154.8
Adjustment for share options 1.5 1.4
------------------------------------- -------- --------
Diluted 156.4 156.2
------------------------------------- -------- --------
Earnings per share on continuing operations before exceptional items of 15.5p
(2006 : 14.1p) is based on the profit for the year of £24.0 million (2006 :
£28.0 million) adjusted for exceptional items of £nil million (2006 : £8.8
million) less the associated taxation of £nil million (2006 : £2.6 million).
From continuing and discontinued operations:
2007 2006
pence pence
per share per share
------------------------------------- -------- --------
Basic 7.9 18.1
Diluted 7.8 17.9
------------------------------------- -------- --------
------------------------------------- -------- --------
2007 2006
£million £million
------------------------------------- -------- --------
Profit for the year attributable to shareholders:
Earnings basic and diluted 12.2 28.0
------------------------------------- -------- --------
The denominators are the same as shown above for both basic and diluted earnings
per share.
From discontinued operation:
2007 2006
pence pence
per share per share
------------------------------------- -------- --------
Basic - loss (7.6) -
Diluted - loss (7.5) -
------------------------------------- -------- --------
------------------------------------- -------- --------
2007 2006
£million £million
------------------------------------- -------- --------
Loss for the year from discontinued operation (11.8) -
------------------------------------- -------- --------
The denominators are the same as shown above for both basic and diluted loss per
share.
9. Shareholders' equity
£million
------------------------------------- --------------
At 1 January 2007 157.0
Profit for the year 12.2
Exchange differences on net foreign currency investments 4.8
Actuarial net gain on defined benefit pension schemes 38.3
Deferred tax on actuarial gain (14.7)
Dividends paid (15.6)
Share based payments 0.3
Premium on share issues 0.2
Cash flow hedges (0.2)
------------------------------------ --------------
At 31 December 2007 182.3
------------------------------------ --------------
10. Disposal of AEI Cables business
On 3 September 2007 the group disposed of the AEI Cables business and net
trading assets.
(i) The assets sold and sales consideration were:
2007
£million
------------------------------------- --------------
Net assets sold 24.0
------------------------------------- --------------
Cash consideration 11.3
Cash costs (0.5)
------------------------------------ --------------
Cash inflow 10.8
Loan note repayable in one year 0.9
------------------------------------ --------------
Net consideration 11.7
------------------------------------ --------------
Loss on disposal (12.3)
------------------------------------ --------------
(ii) The loss after taxation for the period to 3 September 2007 was:
2007 2006
£million £million
------------------------------------- -------- --------
Revenue 37.6 60.9
------------------------------------- -------- --------
Operating loss (1.4) (0.3)
Finance costs (net) (0.2) (0.4)
------------------------------------- -------- --------
Loss before taxation (1.6) (0.7)
Taxation 1.0 0.7
------------------------------------- -------- --------
Loss for the period (0.6) -
------------------------------------- -------- --------
Curtailment gain on pension fund 1.1 -
------------------------------------- -------- --------
11. Defined benefit pension schemes
The group operates defined benefit pension schemes mainly in the UK. The most
recent actuarial valuations have been updated by the actuaries to assess the
assets and liabilities of the schemes at 31 December 2007.
The principal assumptions used for the purpose of the actuarial valuations were
as follows:
2007 2006
% %
----------------------------- ------------- ----------
Discount rate 6.0 5.3
Inflation rate 3.2 2.9
Increases to pensions in payment 2.5-3.2 2.5-2.9
Salary increases for 3 years - -
Salary increases thereafter 3.7 3.4
----------------------------- ------------- ----------
The expected percentage long-term rates of return on the main asset classes, net
of expenses, set by management having regard to actuarial advice and relevant
indices were:
2007 2007 2006
Second half First half
-------------------------- ---------- --------- ----------
Equities 7.9 7.0 6.8
Bonds 5.5 4.5 4.3
Gilts and cash 4.9 4.0 3.6
-------------------------- ---------- --------- ----------
The mortality tables applied by the actuaries at 31 December 2007 were PA92 MC +
two years.
The amounts recognised on the group balance sheet are:
2007 2006
£million £million
----------------------------- ------------- ----------
Equities 182.0 187.8
Bonds 12.4 10.9
Gilts and cash 103.8 73.4
----------------------------- ------------- ----------
Fair value of assets 298.2 272.1
Present value of funded obligation (315.6) (344.7)
----------------------------- ------------- ----------
Net liability recognised on the
Consolidated balance sheet (17.4) (72.6)
----------------------------- ------------- ----------
Changes in the present value of the defined benefit obligation are:
2007 2006
£million £million
----------------------------- ------------- ----------
Opening defined benefit obligation 344.7 335.9
Current service cost 2.8 4.4
Interest on obligation 18.4 16.4
Scheme participant contributions 1.5 1.5
Curtailment gain (1.1) (8.8)
Change in actuarial estimates and assumptions (37.8) 6.2
Exchange differences - (0.8)
Benefits paid (12.9) (10.1)
----------------------------- ------------- ----------
Closing defined benefit obligation 315.6 344.7
----------------------------- ------------- ----------
Changes in the fair value of scheme assets are:
2007 2006
£million £million
----------------------------- ------------- ----------
Opening fair value of scheme assets 272.1 245.7
Expected return on scheme assets 18.5 14.5
Excess of actual over expected returns 0.5 9.4
Contributions by employer 18.5 11.4
Contributions by employees 1.5 1.5
Exchange differences - (0.3)
Benefits paid (12.9) (10.1)
----------------------------- ------------- ----------
Closing fair value of scheme assets 298.2 272.1
----------------------------- ------------- ----------
The experience adjustments arising on the schemes' assets and liabilities are
reported in the Consolidated statement of recognised income and expense and are
as follows:
2007 2006
£million £million
----------------------------- ------------- ----------
Experience adjustments on schemes' liabilities 37.8 (6.2)
----------------------------- ------------- ----------
Experience adjustments on schemes' assets 0.5 9.4
----------------------------- ------------- ----------
------------------------------------------------
Annual General Meeting
The Company proposes to adopt new Articles of Association at its Annual General
Meeting to be held on 14 May 2008 primarily to take account of changes brought
about by the Companies Act 2006.
This information is provided by RNS
The company news service from the London Stock Exchange
Friday, 31st May 2024
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