Outcome of strategic review
TTG
TT electronics plc
OUTCOME OF STRATEGIC REVIEW
AND TRADING UPDATE
KEY POINTS
-
Focus on improving margins and organic growth based on strong underlying businesses, technologies and customers.
-
Core business to concentrate on highly-engineered, bespoke electronic components for niche growth markets, offering good margins. Sensor business being restructured to reduce exposure to automotive sector.
-
Investment in the Secure Power and Integrated Manufacturing Services businesses to realise growth and value potential.
-
New operating structure implemented to improve execution, facilitate cross divisional co-operation and drive sales.
-
Actions already implemented to reduce cost base, with a headcount reduction of 595 positions in 2008. Steps being taken to reduce headcount by a further 700 positions in 2009.
-
Sound financial position, trading well within banking facilities.
-
Trading conditions remain very difficult, although actions taken in 2008 and planned for 2009 will partially mitigate the impact of the economic slow-down.
Geraint Anderson, Group Chief Executive, said today:
'The review has confirmed that the Group's business is underpinned by its world class engineering skills and technologies, blue chip customer base and sound financial position. At the same time, we have identified opportunities which we believe can significantly improve business performance and drive shareholder value.'
For further information, please contact:
|
TT electronics plc Geraint Anderson, Group Chief Executive Shatish Dasani, Group Finance Director |
Tel: 01932 841310 |
|
Biddicks Zoë Biddick |
Tel: 020 7448 1000 |
|
KBC Peel Hunt Garry Levin |
Tel: 020 7418 8900 |
Introduction
TT electronics plc (the 'Group') today announces the outcome of the comprehensive review of its businesses instigated in August 2008, following the appointments of a new Group Chief Executive and Group Finance Director. The objective was to evaluate all Group businesses to identify the strategy and actions needed to deliver optimal shareholder value.
The review, which encompassed all Group businesses and assessed their markets, product segments and competitive positions, has confirmed that trading performance is underpinned by a blue chip global customer base, good products and technologies, and world class engineering skills. Furthermore, the Group has established market leadership within certain niche markets and has a sound financial position. At the same time, the review has identified significant opportunities to improve performance and increase margins in order to maximise value for shareholders. To deliver these benefits, a number of key decisions have already been taken:
-
New operational and organisational structures have been implemented to enable the active management of the Group's businesses from a global perspective and bring greater focus in terms of execution. The new structures will also facilitate improved co-operation across businesses and divisions and the co-ordination of a global sales effort.
-
There will be an increased focus on the Components division (which now includes the connector businesses) which the Board believes is capable of achieving good margins and growth to drive shareholder value.
-
The Sensor business has been redefined and will focus on exploiting its core sensor expertise in a broader range of markets to contribute to an overall reduction in Group exposure to the automotive industry over the medium term.
-
The Secure Power and Integrated Manufacturing Services businesses, both of which are performing well, now form separate global divisions with dedicated divisional directors to ensure their growth potential is supported and realised.
-
Changes have been made to the management team with new divisional directors to be appointed for the Sensor and General Industrial divisions.
-
Significant restructuring has been completed in 2008 with further actions underway in 2009.
-
A new management incentive plan is being introduced with a focus on the achievement of the strategic objectives and cash generation, as well as profit.
Components
The division will refine its product portfolio with greater emphasis on niche, highly engineered, bespoke solutions targeted at higher growth sectors, including the medical, military and mass transit markets where good margins can be achieved. The Components businesses have already achieved strong market positions in a range of product segments including fixed and variable resistors, military connectors and harnesses. There will be an increased focus on developing leading positions in additional growth segments such as visible optical, power semiconductors and radio frequency semiconductors. The division will continue to invest in new product development in these areas. The European sales organisation will be reconfigured to enhance customer service and to drive new product design wins. The Board believes that the Components division is capable of delivering double digit operating margins in the medium term.
Sensors
The Group's Sensor business has built strong relationships with the major German automotive OEMs. It has achieved strong market positions for chassis and transmission sensors and the outlook for its high temperature and low pressure sensors is promising. However deteriorating margins in poorly performing segments, including the increasingly commoditised pedal sector, and the high cost base of operations in Germany have adversely affected performance. A major restructuring is underway to focus on core sensor expertise, to broaden market exposure beyond automotive, and to align costs with revenues with a target of double digit operating margins in the longer term.
The proposed closure of the AB Electronic Romford facility, announced in October at an exceptional cost of £1.2m, is underway. Further realignment of the European cost base is also planned for 2009 with a reduction in headcount of over 200. This is expected to realise an annualised cost reduction of £8.2m and the cost of £7.5m will be charged as an exceptional item in 2009.
Secure Power
The newly created Secure Power division comprises Ottomotores, the Mexican manufacturer and distributor of generator sets and uninterruptible power supplies, and Dale Power Solutions, the UK provider of bespoke power solutions. The business, which is performing strongly and growing its export markets, will target sustainable double digit operating margins through focusing on further international development and exploiting opportunities to grow its service business both in the UK and Mexico.
Integrated Manufacturing Services
The electronic manufacturing services businesses have now been integrated under one division, branded as IMS. The strategy for IMS is to offer higher value added services for lower volume, complex build and assembly electronic projects. Already established in the UK, USA, China and Malaysia, the business is now creating a co-ordinated global sales organisation and will target the medical, aerospace and defence and industrial markets. The division is targeting mid to higher single digit operating margins.
General Industrial
We have re-categorised a number of businesses into this division which are unlikely to deliver a material increase in shareholder returns and we intend to manage these for value.
The closure of the AB Automotive climate control facility at Cardiff was announced in July 2008 and this is progressing on schedule. The decision has now been taken to withdraw from the AB Automotive business as quickly as possible to limit ongoing losses.
The other General Industrial businesses, which comprise AEI Compounds, Abtest, BAS Components, WT Henley, the Magnetics group, Prestwick Circuits and Wire Systems Technology, are profitable and delivered £6.5m of free cash flow in 2007.
Restructuring
As announced previously, an exceptional charge has been incurred in 2008 relating to the closures of the AB Automotive climate control facility in Cardiff and the AB Electronic facility at Romford. The total cost incurred in 2008 is now expected to be £4.1m.
During 2009, further steps will be taken to realign the cost base in the European sensors business, resulting in a headcount reduction of over 200. The annualised cost reduction resulting from this programme is expected to be £8.2m and the cost of £7.5m will be charged as an exceptional item.
The decision to withdraw from the AB Automotive business will result in a further charge in 2009 of £3.3m, in addition to the £2.9m charged previously. There will be further restructuring during 2009 across other businesses with a headcount reduction of over 100 at an exceptional cost of £2.0m.
In addition to the exceptional charges outlined above, actions were implemented during 2008 to reduce the cost base further and £2.1m has been charged to 2008 operating profit. Headcount reductions totalling 483 have been made under these programmes and an annualised cost reduction of £7.9m is expected to be realised.
The restructuring actions in 2008 and 2009 are summarised below:
|
|
Costs |
Annualised Cost Reduction |
||
|
Exceptional Items |
2008 £m |
2009 £m |
£m |
|
|
AB Electronic - Romford closure |
1.2 |
|
1.2 |
|
|
AB Automotive - Climate control exit |
2.9 |
3.3 |
4.0 |
|
|
European restructuring |
|
7.5 |
8.2 |
|
|
Other restructuring |
|
2.0 |
1.0 |
|
|
Total Exceptional |
4.1 |
12.8 |
14.4 |
|
|
Operating |
2.1 |
1.1* |
10.1 |
|
|
TOTAL |
6.2 |
13.9* |
24.5 |
|
*estimated
Cash generation
The Group continues to achieve good cash generation. Nevertheless, as part of the strategic review, several areas have been identified with the potential to improve working capital management and capital expenditure. Currently, working capital totals over £100m and management is aiming to reduce this by £10 - 15m over the next year, with further improvement thereafter. Tighter targets for stock turns, debtor days and creditor days have been set for each operating company.
Following a revision of the procedures for approving capital expenditure, this will be focused towards highly attractive projects with a short-term payback of less than two years. The businesses are well-invested and capital expenditure for 2009 is expected to be significantly lower than depreciation.
The Group is targeting to achieve 100% conversion of operating profit to operating cash flow after capital expenditure.
Dividend policy
The Board has reviewed the dividend policy as part of the strategic review and has defined a dividend policy to maintain cover of at least two times underlying earnings per share. A policy of progressively increasing dividends will be followed whilst maintaining cover at this level.
For the year ending 31 December 2008, the Board will not be recommending a final dividend. An interim dividend of 3.69p per share was paid on 23 October, making the total dividend for the year 3.69p per share (2007: 10.05p).
An interim dividend for 2009 will be paid in October 2009. The policy going forward will be to pay approximately one third of the total dividend as an interim dividend and two thirds as a final dividend.
Pensions
The previous funding agreement for the UK pension scheme was based on the annual IAS19 deficit with the objective of eliminating this deficit by 2014. The arrangement was susceptible to undue volatility in cash payments by the Group and could have led to a substantial increase in contributions as 2014 approached.
A revised agreement has now been reached with the Trustee for fixed contributions extending out to 2016 based on the last actuarial deficit at April 2007. Contributions of £8.7m in 2007 and £2.2m in 2008 have already been made and under the new agreement, the Group will make further contributions as follows: £2.2m in 2009, £3.2m in 2010, £3.5m in 2011, subsequently increasing by £0.2m each year to £4.5m in 2016.
Financial Position and Debt Facilities
The financial position of the Group remains sound, with a robust balance sheet.
Capital employed at 31 December 2008 was approximately £320m (31 December 2007: £257m). Net debt at 31 December 2008 was approximately £114m (31 December 2007: £75m) reflecting a £23m adverse impact from exchange rate movements and £14m paid for the acquisitions during 2008 of Semelab and New Chapel Electronics.
The Group has total banking facilities available of £166m, of which £60m are working capital facilities. The main term loan of £70m is a multi-currency revolving facility with HSBC which extends to 2011. The financial covenants in the loan agreement restrict gross debt to below three times total earnings before interest, tax, depreciation, amortisation and exceptional items ('EBITDA before exceptionals') and require that EBITDA before exceptionals covers gross interest by at least six times. These loan covenants were met comfortably at 31 December 2008. Furthermore, based on management projections arising from the strategic review, the Board anticipates that the Group will continue to have a comfortable level of headroom with respect to these covenants.
Corporate Governance
John Newman, with the full support of the Board, has expressed his intention to become Non-Executive Chairman later this year once implementation of this strategy is further advanced.
Current Trading
Trading conditions remained very difficult in the last quarter of 2008, especially for the automotive related businesses. However, trading in the Integrated Manufacturing Services and Secure Power businesses proved to be more resilient and the Group anticipates that the overall results for 2008 will be in line with market expectations, at the lower end of the range.
The very difficult markets experienced towards the end of 2008 are expected to continue in 2009 due to the severe global recession. The Group will continue to focus on tight cost control and conserving cash. Meanwhile, actions already taken in 2008 and those planned for 2009, as outlined above, will address the cost base and partially mitigate the impact of the economic slow-down.
This information is provided by RNS
Latest directors dealings
- 12 hours ago ASOS
- 13 hours ago MJ Gleeson
- 13 hours ago Rolls-Royce Holdings
- 13 hours ago Crest Nicholson Holdings
- 14 hours ago Naked Wines