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Building for the future
TT electronics plc
Clive House
12 – 18 Queens Road
Weybridge
Surrey KT13 9XB
Reg No 87249
Tel +44(0) 1932 841310
Fax +44(0) 1932 836450
TT electronics plc Annual Report 2008
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TT electronics is a world leader in sensor
and electronic component technology
Shareholder information
Our intention is to achieve growth by
Annual General Meeting
Share dealing services
Shareholder enquiries
(cid:127) Concentrating on highly-engineered, bespoke
electronic components for niche growth markets,
offering good margins
(cid:127) Restructuring our sensor business to reduce our
automotive exposure from approximately 40% to
25 – 30% of Group sales
(cid:127) Investing in our Secure Power and Integrated
Manufacturing Services businesses to realise
growth and value potential
(cid:127) Implementing a new operating structure to
improve execution, facilitate cross divisional
co-operation and drive sales
(cid:127) Withdrawing from low growth, unprofitable areas
Results
Group accounts
Company accounts
Highlights and financial summary
Chairman’s statement
Summary of sectors
The way forward
Business review
Directors and Company Secretary
Directors’ report
Governance
Directors’ report on corporate governance
Directors’ remuneration report
1
2
3
4
10
21
22
26
31
Report of the Independent Auditors on
Report of the Independent Auditors
the consolidated financial statements
Consolidated income statement
Consolidated balance sheet
Consolidated statement of
recognised income and expense
Consolidated cash flow statement
Accounting policies for the
consolidated financial statements
Notes to the
consolidated financial statements
37
38
39
40
41
42
45
on the Company financial statements
Company balance sheet
Accounting policies for the
Company financial statements
Notes to the
66
67
68
Company financial statements
69
Historical record and Shareholder information 76
Shareview Dealing is a telephone
and internet service provided by
Equiniti and provides a simple and
convenient way of buying and
selling TT electronics plc shares.
Equiniti maintain the register of members
of the Company. If you have any queries
concerning your shareholding, or if any
of your details change, please contact
the Registrars:
Log on to www.shareview.co.uk/dealing
or call 08456 037037 between 8.30am and
4.30pm, Monday to Friday, for more
information about this service and for
details of the rates and charges.
A weekly postal dealing service is also
available and a form together with terms
and conditions can be obtained by calling
0871 384 2248*. Commission is 1 per cent
with a minimum of £10.
ShareGift
ShareGift is a charity share donation
scheme for shareholders, administered by
The Orr Mackintosh Foundation. It is
especially for those who may wish to
dispose of a small parcel of shares whose
value makes it uneconomical to sell on
a commission basis. Further information
can be obtained at www.sharegift.org
or from Equiniti.
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Telephone 0871 384 2396*
Fax 0871 384 2100*
Textphone for shareholders with hearing
difficulties 0871 384 2255*
Equiniti also offer a range of
shareholder information on-line at
www.shareview.co.uk.
* Calls to this number are charged at 8p per minute from
a BT landline. Other telephony provider costs may vary.
Website
Information on the Group’s financial
performance, activities and share price is
available at www.ttelectronics.com.
The Annual General Meeting will be held
on 13 May 2009 at 12 noon at the
Ironmongers’ Hall, Shaftesbury Place,
Barbican, London EC2Y 8AA.
Results
Announcement of 2009 half year results –
late August 2009.
Preliminary announcement of 2009 results
– late March 2010.
Annual report 2009 – to be posted mid
April 2010.
Dividends
For the year ending 31 December 2008, the
Board has not recommended 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).
Multiple accounts on the
shareholder register
If you have received two or more copies
of this document, this means that there is
more than one account in your name on
the shareholder register. This may be
caused by either your name or address
appearing on each account in a slightly
different way. For security reasons, the
Registrars will not amalgamate the
accounts without your written consent,
so if you would like any multiple accounts
combined into one account, please
write to Equiniti Limited at the address
given below.
This report is printed on Hello Silk which is
made up of virgin pulp which has been FSC (Forest
Stewardship Council) certified.
It is 100% recyclable and biodegradable and has been
printed by CTD using an alcohol free process; the
printing inks are made from vegetable oil and
are non-hazardous from renewable sources. Over 90%
of solvents and developers are recycled for further use
and recycling initiatives are in place for
all other waste associated with this production.
CTD are FSC and ISO 14001 certified with strict
procedures in place to safeguard the environment
through all our processes
Designed and produced by Linnett Webb Jenkins.
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Highlights 2008
Operational highlights
(cid:127) Group revenue increased by 7.2% to £584.3m
(2007: £544.9m) due to foreign exchange
and acquisitions; on an underlying basis
Group revenue was down 1.7% with rapid
deterioration in the last quarter
(cid:127) Profit before tax and exceptional items of
£21.1m (2007: £33.3m), in line with October
2008 trading update
(cid:127) Strong level of operating cash flow at £46.2m
(2007: £42.9m)
(cid:127) Sound financial position, continuing to trade
comfortably within banking facilities
Financial summary
Revenue
Operating profit1
Profit before taxation1
Cash generated from operations
Headline earnings per share from continuing activities1
Basic earnings per share from continuing operations
Ordinary dividends per share
1 The above are reported before the exceptional loss in 2008.
There were no exceptional items in 2007.
2008
£million
584.3
27.0
21.1
46.2
9.2p
7.5p
3.69p
2007
£million
544.9
37.7
33.3
42.9
15.5p
15.5p
10.05p
1
TT electronics plc Annual Report 2008
Results
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Chairman’s statement
TT electronics’ performance was
noticeably affected by the global
economic recession from mid-September.
For the year, the Group’s turnover was
£584.3 million (2007: £544.9 million), with
the increase due to foreign exchange and
acquisitions, producing operating profit
before exceptional items of £27.0 million
compared with £37.7 million in 2007.
Finance costs were £5.9 million net (2007:
£4.4 million) which comprised £4.1 million
of banking and finance interest (2007:
£4.5 million) and £1.8 million relating to
pension fund accounting (2007:
£0.1 million credit). Profit before tax and
exceptional items was £21.1 million
compared to £33.3 million in 2007. The
underlying taxation charge of £6.8 million
(2007: £9.3 million) represents an
underlying rate of 32 per cent (2007:
28 per cent). Exceptional items relating to
the closures of the AB Automotive factory
at Cardiff and the AB Electronic facility
at Romford were £3.8 million. Headline
earnings per share from continuing
operations were 9.2 pence compared
with 15.5 pence in 2007.
“ Despite the current
difficulties of the market,
the strengths of our
worldwide activities will
enable us to manage the
business through this
recession and give us the
opportunity to come out
of it as a stronger group.”
We welcomed Geraint Anderson and
Shatish Dasani as Group Chief Executive
and Group Finance Director respectively
during the year and with them undertook
a fundamental assessment of the Group’s
strategy. As we announced in the outcome
of the review in January 2009, the Board
has recognised the need to focus on
improving margins and organic growth
based on our strong underlying
businesses, technologies and customers
and to manage for value the non-core
assets. During the year the Group acquired
two companies supplying the aerospace
and defence industries. In April 2008 we
purchased New Chapel Electronics for an
initial cash consideration of £4.2 million
and deferred consideration capped at
£1.0 million. New Chapel Electronics,
based at Fairford, Gloucestershire, is a
manufacturer of wiring harnesses and
connectors for the aerospace and military
industries. In August 2008 we acquired
assets comprising the majority of the
business of Semelab Limited for
£9.7 million. The business, based in
Lutterworth, Leicestershire, designs and
produces specialised radio frequency
and power modules, semiconductors,
optoelectronic components and power
microcircuits and modules.
During the year costs were incurred in
reducing our climate control activities,
and closing our facility in Romford, which
are reported as exceptional items. We
intend to cease manufacturing electronic
systems for automotive climate control
products as soon as possible. The Group
also announced the closure of our sensor
factory in Romford, with the majority
of manufacturing transferred to facilities
in China and India. The Group is reducing
its exposure to the automotive sector
progressively.
At 31 December 2008 the Group’s
net indebtedness was £113.2 million
compared with £75.0 million at the
previous year end. The borrowings were
affected by the acquisition of Semelab
and New Chapel Electronics, the fall in
sterling against the US dollar and the euro,
and the Group’s payment of an additional
£2.2 million into the pension scheme.
The Group’s indebtedness remains
comfortably within the terms of its
committed banking facilities. With our
operations and net assets overseas,
principally in the US, Europe and the
Far East, the adverse movement in sterling
has strengthened the balance sheet.
The time and effort of the pension scheme
trustees, together with the benefits reaped
from a change in investment strategy, has
enabled the pension schemes to end the
year with only a marginal additional deficit,
despite the adverse movement in the stock
market. The pension schemes are now
94 per cent funded on an IAS 19 basis
(2007: 94 per cent).
As stated in the January announcement
the Board has decided not to recommend
the payment of a final dividend for this
year. Therefore the dividend for the year
is 3.69 pence, compared with 10.05 pence
in the previous year.
My thanks to our employees worldwide for
their continuing support and performance
during these difficult times. We will work
together to ensure the future success of
TT electronics.
Within the strategic review the Group
announced my intention to become the
non-executive Chairman later this year.
As reported in the Interim Report, Rod
Weaver and David Crowe retired as
Directors during 2008. In January 2009
Jimmy Armstrong retired as the Group’s
Corporate Development Director and
I would like to thank him for his ten
years as a Director of TT electronics and
the wealth of knowledge he brought
to the Board.
Despite the current difficulties of the
market, the strengths of our worldwide
activities will enable us to manage the
business through this recession and give
us the opportunity to come out of it as
a stronger group.
John W Newman
Executive Chairman
13 March 2009
2
TT electronics plc Annual Report 2008
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Summary of sectors
As reported in the recent strategic review, the Group’s businesses were organised into
a new divisional structure with effect from 1 January 2009.*
During 2008 the business comprised the following divisions:
Sensors and electronic systems
Electronic components
This division has two distinct areas of operation:
The sensors business consists primarily of
sales into the German automotive market and
includes products to monitor pedal position,
engine and wheel speed, temperature and
pressure, and chassis position. There is increasing
use of sensors on vehicles due to tighter
legislation on vehicle emissions and increasingly
sophisticated engines and electronic systems.
The automotive electronic systems business
includes climate control panels and infotainment
modules destined largely for the European
and North American automotive industry.
This business made a significant operating loss
during 2008 and the decision has been taken
to withdraw from it as quickly as practicable.
Electronic manufacturing services
Our electronic manufacturing services operations
are based in the UK, USA, China and Malaysia.
These specialise in providing high quality
manufacturing support for customers in the
defence, aerospace, telecom and premium
industrial sectors. We have a broad capability
from board assembly to full systems integration,
design for manufacturing and logistics support.
Our business strategy is to become an integral
part of our customers’ manufacturing supply
chain by meeting their demands for increasingly
complex manufacturing solutions, often for
integrated assemblies, in both established and
emerging markets.
The focus of the Electronic components division
is on delivering highly engineered, bespoke
components. These are custom designed for
specific customer applications by our global
network of application sales engineers who
support our customers’ own design centres.
The business has strong market positions in a
number of product segments including fixed
and variable resistors and is continuing
to invest in new product development in
growth segments such as visible optical,
power semiconductors and radio frequency
semiconductors.
Key drivers are the increased use of complex
control electronics in defence, aerospace and
industrial applications where high reliability is
vital, the need for electronics to operate in harsh
environments, and the increased circuit speeds
required by modern electronic solutions.
Secure power and industrial
TT electronics operates in the secure power market
through Dale Power Solutions in the UK and
Ottomotores in Mexico. Both companies provide
secure power solutions for customers’ critical
power needs in selected markets worldwide.
The interconnection business operates from
two facilities in the UK and one facility in the US,
and specialises in the manufacture of specialist
connectors for harsh environments and
interconnection systems for use by the defence,
aerospace and traction markets.
In addition, the division includes businesses
involved in the manufacture of electrical fusegear,
specialist compounds and fine wire.
* More detail is provided in the Business review on pages 10 to 20.
3
TT electronics plc Annual Report 2008
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The way forward – building
on a solid foundation
Our business is built on world class engineering skills, an enviable customer base
and sound finance. Through the recent strategic review we have identified clear priorities
to significantly improve performance.
Clear Priorities
We have clarified our priorities and simplified our organisation. We have identified the
market segments which we believe will deliver the greatest returns and these are where
we are investing our resources. We have categorised each of our businesses into the
following groups and they will be managed accordingly: Strategic Focus; Development;
and General Industrial.
1 We will focus on markets where we believe we can obtain higher
returns. These include the defence, aerospace and medical markets where
we are already working with leading companies on advanced technology
projects. We are looking to better utilise our capabilities and global
customer base across the divisions.
2 The strategic review identified growth opportunities in the technologies
of fixed and variable resistors, optoelectronics, semiconductors, connectors
and microelectronics. Our design engineering teams work closely with
customers on complex applications to meet the requirements of ever
changing markets.
4
TT electronics plc Annual Report 2008
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1
2
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Strategic Focus
Our focus is on the design and manufacture of highly engineered bespoke electronic
components. We will continue to invest in areas where we have a leading position today
and focus on developing new technologies and markets which provide the greatest
opportunities to deliver revenue and profit growth.
1 We manufacture a unique range of multi-chip arrays for global
government-sponsored aerospace applications. This growing and
sustainable market demands the very highest standards in design,
manufacture, testing and screening.
2 The addition of ultraviolet LEDs to our range further enhances the wide
spectrum of environmentally sound solutions we provide to our markets.
Ultraviolet LEDs will drive new and innovative applications in currency
detection, industrial and medical curing applications.
1
2
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Development
We will invest in the high quality businesses we own in the Integrated Manufacturing
Services and Secure Power sectors to realise their potential and value for the Group.
1 The formation of the Integrated Manufacturing Services division unites the
skills and technologies of five electronic manufacturing facilities located in
Europe, North America and Asia. The division continues to focus on higher
mix/lower volume business, with a coordinated strategy to move towards
more specialised integrated assembly.
2 2008 was another good year for our UK and Mexican secure power
operations with significant growth in our generating set and uninterruptible
power service business. The formation of a separate Secure Power division
will bring the focus this business requires to realise its potential.
6
TT electronics plc Annual Report 2008
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1
2
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General Industrial
We have re-categorised into this division a number of businesses which are unlikely to
deliver a material increase in shareholder returns and we intend to manage these for value
with limited investment.
1 Our CT06/30 product for building wire insulation offers a low smoke,
halogen free (LSF) fire retardant solution to cable producers. This product
has been specified in many infrastructure related projects in both the
Middle East and Europe with sales approaching 1000 metric tonnes in the
first year.
2 We are significantly involved in the distribution of electricity from the
grid under the Self Help Project in Ghana, that is increasing access for
township and rural communities.
1
2
7
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Heading
For the year...
Management Strength
We will continue to invest in our employees, including recruiting new senior managers
and investing in world class sales training to help deliver the Group’s strategic objectives.
The new operating structure will improve the way we work together as a group and bring
greater clarity and accountability.
1 We are increasing our focus on customers by integrating sales across
the components companies in Europe. A key account programme has been
established to ensure we work together across the divisions and regions,
to support our strategic customers.
2 We continue to invest in our global engineering teams. They have a
complete set of capabilities and work on complex customer applications
covering all stages of the product cycle, from innovation, through
whole-product design, to manufacture, assembly and testing.
1
2
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Heading
For the year...
2008
2007
World Class
We have a blue chip customer base and worldwide operations. We have leading
technologies in many product segments and tremendous applications engineering
expertise. Our goal is to utilise this foundation to be a leader in our chosen
market segments.
1 HALOSENSOR™ is a highly accurate drill position locator for aircraft
assembly. Designed by our engineers in the UK, it has been used to build
every Airbus aircraft since 2003, including the A400M Military Transport
and the A380. We are currently developing new systems for the A350 XWB.
2 Using the latest high tech materials we have developed a unique and
lightweight composite carbon fibre material. Immensely strong with high
impact tolerance and chemical resistance, it is currently being used
for the electrical harnesses on the Eurofighter Typhoon Landing Gear.
1
2
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Business review
1
2
1 Geraint Anderson Group Chief Executive
2 Shatish D Dasani Group Finance Director
“ The recent strategic review
identified the market
segments which we believe
will deliver the greatest
returns and these are
where we are investing our
resources. We are focused
on delivering against
identified opportunities
to significantly improve
business performance and
drive shareholder value.”
Geraint Anderson
“ The Group has a sound
financial position and
continues to generate
a strong level of operating
cash flow. The target for
2009 and beyond is to
reduce costs and achieve
a sustainable reduction
in working capital and
net debt.”
Shatish D Dasani
(cid:127) The Secure Power and Integrated
Manufacturing Services businesses
now form separate global divisions with
dedicated divisional directors to ensure
their growth potential is supported
and realised.
(cid:127) The remaining businesses which are
unlikely to deliver a material increase
in shareholder returns have been
grouped together in the General
Industrial division which will be run
separately and managed for value.
As a result of the review, the Group’s
businesses have been re-organised into
the following divisions with effect from
1 January 2009:
(cid:127) Components
(cid:127) Sensors
(cid:127)
(cid:127) Secure Power
(cid:127) General Industrial
Integrated Manufacturing Services (‘IMS’)
The primary focus of the Group is on
the Components division and the delivery
of highly engineered, bespoke electronic
components for niche growth markets.
The Sensors business, which is currently
being re-structured, is expected to form
part of the Components group in the
future. The Group has set a target to
reduce exposure to the automotive
market from approximately 40 per cent
of revenue in 2008 to between 25 per cent
and 30 per cent in the medium term.
In addition, the Group will invest in
its Integrated Manufacturing Services
and Secure Power businesses which it
believes can deliver material increases in
shareholder value over the medium term.
TT electronics is a technology-based
group providing components, sensors,
integrated manufacturing services and
secure power solutions to a broad base
of customers worldwide.
The Group carried out a strategic review
of its business in the second half of the
year, the results of which were announced
on 21 January 2009.
The review, which encompassed all Group
businesses and assessed their markets,
product segments and competitive
positions, confirmed that the business
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. At the same time,
the review 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
been taken:
(cid:127) 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.
(cid:127) 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.
(cid:127) The Sensors 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.
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Sales
A number of strategic actions for 2009
were outlined in January and we continue
to make progress against these:
A new divisional director has
been recruited.
IMS: restructuring
Sensors and electronic systems 32%
Electronic components 25%
Electronic manufacturing services 18%
Secure power and industrial 25%
Operating profit
Sensors and electronic systems 3%
Electronic components 27%
Electronic manufacturing services 22%
Secure power and industrial 48%
Components: reconfigure European
sales office
We are implementing the re-organisation
of the sales structure in Europe to allow
us to better serve our customers. In
addition, we have initiated a key account
management program to make sure we
work together across our businesses to
support our major customers.
Components: restructuring
The current restructuring of the UK
facility in Bedlington is on track to be
completed by the end of March with
further headcount reductions made
in February.
Components: develop US aerospace
and defence business
Our US interconnection facility was
awarded several contracts during 2008
to provide connectors for the US military
totalling over $90 million. We are making
good progress towards achieving military
approval certification for our new
range of 38999 connectors.
Sensors: European restructuring
We are in the process of reducing the
headcount at our German facility in
Werne by approximately 225 as part of
the fundamental realignment of the
division’s cost base which will result in
an exceptional cost of up to £5.5 million
spread over the remainder of the year.
These actions are expected to save
£5.0 million on an annualised basis.
We are in a period of consultation
which we expect to be completed with
the reductions effective from early April.
We are continuing the closure of the
AB Electronic Romford facility and a
further seven lines have been moved off-
shore in 2009. We are on track to exit this
site on or before 30 June.
Headcount has been reduced by more
than 100 so far in 2009 and additional
actions are planned.
IMS: global structure and brand
We have completed the recruitment of a
Global Sales Director to fill this newly
created position. This individual will lead
the development of the global sales
structure and the IMS brand.
Secure Power: develop service business
We have appointed a new Service Director
in the UK and opened two new service
centres in Mexico as part of our plans to
increase the capture and retention of
service business.
General Industrial
The recruitment of a divisional director for
this division is at an advanced stage.
AB Automotive: withdraw from business
The closure of the AB Automotive
climate control facility in Cardiff is on track
to be completed in the first half of the
year. We have continued to progress our
withdrawal from this business globally.
Headcount reductions
In the strategy review announcement
in January we identified 1,295 positions
to be eliminated in 2008 and 2009. More
than 1,100 positions have been eliminated
in 2008 and in the first two months of
2009 with approximately a further 225
underway in Germany. We are continuing
to review our cost base in light of the
deteriorating market conditions and we
now expect total headcount reductions to
be higher.
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Business review continued
We assess business progress using a
number of key performance indicators.
Orders, revenue and cash balances are
reviewed on a weekly basis. Every month
we review these items, and a number of
additional key financial metrics including
profitability, working capital and cash flow
conversion, against agreed budgets and
targets. Progress against key strategic
initiatives for each division is reviewed at
regular management meetings and by the
Board on a quarterly basis.
Revenue analysis under new structure
The analysis of revenue for the new
divisional structure is presented below.
Components
Sensors
Integrated Manufacturing
Services
Secure Power
General Industrial
2008
£million
2007
£million
192.1
125.9
103.4
65.9
97.0
176.3
116.1
92.2
59.9
100.4
584.3
544.9
However, the commentary and the
segmental analysis that follows and the
financial statements are based upon the
divisional structure that was in place
throughout 2008.
The comparatives for revenue and
operating profits are shown for continuing
operations. There were no discontinued
operations in 2008 but in 2007 the
AEI Cables business was sold.
due to foreign exchange hedges taken
out in accordance with Group policy.
Market conditions deteriorated
progressively during the year with trading
particularly difficult in the fourth quarter
in our automotive markets where we saw
significant declines in customer demand
in both North America and Europe. In
general, our other markets were more
resilient but the effects of the credit crisis
and global recession were felt in all of
our businesses. Against this backdrop, we
took steps to adjust the cost base of many
of our businesses, including reducing
our workforce and moving additional
production to lower cost locations.
We also announced the closure of
two facilities in the UK serving the
automotive market.
During the year we completed two
acquisitions – New Chapel Electronics
and Semelab. New Chapel Electronics,
which is based in Fairford, Gloucestershire,
manufactures wiring harnesses and
connectors for the aerospace and
defence industries and complements
our international connection systems
activities. The acquisition was completed in
April 2008 for an initial cash consideration
of £4.2 million and deferred consideration
capped at £1.0 million. We completed the
purchase of Lutterworth-based Semelab
in August 2008 for £9.7 million. Semelab
designs and produces specialised radio
frequency and power semiconductors,
optoelectronic components and power
microcircuits and modules, primarily for
the UK and European markets. Both
acquisitions have performed well and
clearly fit with our strategy of focusing
on delivering niche component solutions
to customers worldwide.
Overview of Group performance
2008
£million
2007
£million
Revenue
Continuing operations
Electronic components
145.2
189.2
Sensors and electronic systems
Electronic manufacturing services 103.4
146.5
Secure power and industrial
131.2
182.3
92.2
139.2
Operating profit1
Continuing operations
Electronic components
Sensors and electronic systems
Electronic manufacturing services
Secure power and industrial
584.3
544.9
7.3
0.8
6.0
12.9
27.0
10.0
10.0
4.1
13.6
37.7
Profit before tax
and exceptional items
Headline earnings per share
Cash generated from operations
21.1
9.2p
46.2
33.3
15.5p
42.9
1 Throughout this review operating profit for 2008
is stated before exceptional items. There were no
exceptional items in 2007.
Revenue for 2008 was £584.3 million
compared with £544.9 million in 2007.
The increase was mainly due to
favourable exchange rate movements
of approximately £39 million in relation
to subsidiaries based in the USA and
mainland Europe. The acquisition of New
Chapel Electronics and Semelab during
2008 also contributed to top line
growth. However, after adjusting for these
factors, there was an underlying reduction
in revenue of 1.7 per cent, with falls in
the Electronic components and Sensors
and electronic systems operations
offset by good performances from
Secure power and industrial and
Electronic manufacturing services.
Operating profit for 2008 was down by
£10.7 million at £27.0 million. This decline
was the result of a downturn in volumes,
especially in the automotive market,
consequent pressure on margins and
ongoing restructuring costs incurred to
reduce the cost base in line with reduced
activity levels. There was a marginal
exchange rate benefit to operating profits,
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Our safety critical electronic systems
continue to prove themselves in the most
extreme conditions.
Our manufacturing and development
facilities in Europe and the US provide
precision components and electronic modules
which meet the high reliability standards
required in the avionics industry. Using
established thick and thin film technologies,
we are increasing the number of specific
product applications we can offer to leading
civil aircraft manufacturers.
Our microcircuits engineering team in the UK
is working alongside Aero Engine Controls, a joint
venture between Rolls Royce and Goodrich, to
supply multi chip module technology for the
Airbus A380 and the Boeing 787 Dreamliner.
We are working on Aero Engine Controls’ Profit
Through Partnership continuous improvement
programme to develop and maintain our
status as a valued supplier.
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Business review continued
The strategic review has provided
clarity in terms of the market areas
which we believe represent the greatest
opportunities for the Group to deliver
revenue and profit growth. We will
continue to invest in developing new
products and technologies to address
these opportunities.
Electronic components
Revenue
Operating profit
Capital employed
2008
£million
2007
£million
145.2
7.3
134.4
131.2
10.0
99.4
Return on capital employed
5%
10%
Number of employees
2,642
2,707
The focus of the Electronic components
division is on delivering highly
engineered, bespoke components. These
are custom designed for specific customer
applications by our global network of
application sales engineers who support
our customers’ own design centres.
The components businesses already
have strong market positions in a number
of product segments including fixed
and variable resistors, and the addition
of Semelab’s product range broadens
TT electronics’ offering considerably.
The acquisition represents an excellent
addition to our electronic component
activities, and we will continue to invest
in new product development in such
growth segments as visible optical, power
semiconductors and radio frequency
semiconductors.
During 2008, operating profit in the
division fell from £10.0 million to
£7.3 million due to difficult trading
conditions in all markets, especially
the automotive market, and additional
costs being incurred as new products
came on stream.
During the year a number of steps
were taken to adjust the cost base
including moving four manufacturing
lines off-shore from the UK and reducing
headcount. Two new senior appointments
were made during the year to lead the
US operations and bring greater focus
to the European sales structure, which is
being reorganised to allow us to better
serve our customers across a number
of different Group companies.
The division’s existing businesses,
together with the Group’s interconnection
business (previously included in the Secure
power and industrial division), have been
reorganised from 1 January 2009 to form
the new Components division. This
division will continue to refine its product
portfolio placing greater emphasis on
niche solutions targeted at higher growth
sectors, including the medical and
defence markets.
Sensors and electronic systems
Revenue
Operating profit
Capital employed
2008
£million
2007
£million
189.2
0.8
127.8
182.3
10.0
105.1
Return on capital employed
1%
10%
Number of employees
2,216
2,429
This division consisted of two distinct
areas of operation – automotive sensors
and automotive electronic systems.
Together they recorded a profit of
£0.8 million in 2008 compared with a profit
of £10.0 million in 2007, the reduction
being due to a sharp decrease in volumes,
particularly towards the end of the year,
and a deterioration in margins.
Automotive sensor technologies include
products to monitor pedal position,
engine and wheel speed, temperature
and pressure, and chassis position.
These products are sold primarily into the
German original equipment market and
are produced at our facilities in the UK and
Germany, with an increasing proportion
being manufactured in lower cost
locations in Eastern Europe and China.
The performance of the business was
affected in the first half of the year by poor
underlying demand from US automotive
manufacturers and industrial action at a
parts supplier. Demand in the second half
of the year declined further in the US
and in Europe with a particularly sharp
reduction in demand in the fourth
quarter, as all of our customers reduced
their manufacturing output. In addition,
deteriorating margins in poorly
performing segments, such as the
increasingly commoditised pedal sector,
and the high cost of operations in
Germany adversely affected performance.
A major restructuring is underway to
focus on core sensor expertise, to broaden
market exposure beyond automotive and
to further re-align the European cost base.
The proposed closure of the AB Electronic
facility in Romford, announced in October,
is underway and is due to be completed
by 30 June 2009. During 2008, seven
production lines were transferred off-shore
with a further 13 lines moving to lower
cost regions in the current year.
Steps were taken in 2008 to reduce our
cost base in Germany including the use of
short-time working.
In addition, we are in the process of
reducing the headcount at our facility in
Germany by approximately 225.
It is these businesses which, since
January 2009, have constituted the new
Sensors division.
The automotive electronic systems
business includes climate control panels
and infotainment modules, largely
destined for the European and North
American automotive industry. The
business made a substantial operating loss
during 2008 as markets were adversely
affected by declining volumes and
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Our connectors and interconnection
systems operate in harsh environments
where high performance and reliability
are mandatory.
Strong partnerships with the world's leading
defence companies, combined with specialist
technical engineering skills, ensure that we
remain a leader in the growing defence sector.
2008 saw us consolidate technical expertise and
experience and, with the acquisitions of New
Chapel Electronics and Semelab, we are able to
offer a broader range of applications and
skills to our customers.
Our growing US interconnection facility supports
many of the US land based military OEMs and
was awarded several contracts during the year to
provide connectors for the US military totalling
over $90m. Our specialist high power connectors
enable various military vehicles to restart tanks
and armoured vehicles when their batteries
have failed.
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Business review continued
by increasing price pressure from low
cost competitors. The closure of the
AB Automotive climate control facility in
Cardiff was announced in July 2008. This
is progressing according to schedule
and should be complete in the first half
of 2009. The decision has now been taken
to withdraw from this business as quickly
as possible. This will include the closure
of the AB Automotive sites in Brazil
and China. In future, this business will
be reported as part of the General
Industrial division.
Electronic manufacturing services
Revenue
Operating profit
Capital employed
Return on capital employed
2008
£million
2007
£million
103.4
6.0
34.7
17%
92.2
4.1
32.4
13%
Number of employees
1,343
1,070
TT electronics’ global electronic
manufacturing services operations are
based in the UK, USA, China and Malaysia.
These specialise in providing high quality
manufacturing support for customers
operating in the defence, aerospace,
telecom and premium industrial sectors.
The Group offers broad capabilities from
board assembly to full systems integration,
design for manufacturing and logistics
support. It has a substantial design
engineering team and an international
purchasing office based in China.
The Group’s strategy is to leverage its
global footprint to become an integral
part of its customers’ manufacturing
solutions, with our western manufacturing
bases supporting lower volume, more
specialist production, and the low cost
Far East manufacturing capabilities
targeted to those contracts with higher
volume. In addition, our operation in
China has established a local sales team
with the objective of winning business
in the large domestic market.
The operations in the UK and China had a
very successful first half year. Trading was
more difficult in the second half with the
completion of some large contracts in the
UK. Overall, the business achieved a good
improvement in operating profit from
£4.1 million in 2007 to £6.0 million in 2008,
together with an increase in margins.
During 2008 the businesses were further
integrated with the UK, US, China and
Malaysian sites brought under a new
divisional director. The operations
continue to work closely on building
customer relations and promoting the
division’s global presence. The cost base
was adjusted during the year and further
reductions are planned for 2009. We
will continue to monitor developments
in the marketplace and act as necessary.
From January 2009 these businesses
will be managed and reported as the
Integrated Manufacturing Services
division. This change of name reflects the
division’s delivery of integrated supply
chain solutions to our customers, focused
on higher value-added services for lower
volume, complex build and assembly
electronic products.
Secure power and industrial
Revenue
Operating profit
Capital employed
2008
£million
2007
£million
146.5
12.9
54.0
139.2
13.6
40.1
Return on capital employed
24%
34%
Number of employees
1,391
1,340
The Secure Power business achieved
an increase in profits due to good
performances at both Dale and
Ottomotores, assisted by some foreign
exchange benefit arising from the
strengthening US dollar for the Mexican
business. The other businesses, notably
AEI Compounds and W T Henley, also
made satisfactory contributions. The
overall reduction in the segment’s profits
from £13.6 million to £12.9 million was
mainly due to the connectors business
which had achieved an exceptional
level of profit in 2007 due to urgent
military orders.
TT electronics operates in the secure
power market through Ottomotores in
Mexico and Dale Power Solutions in the
UK. Both companies provide secure power
solutions for customers’ critical power
needs in selected markets worldwide.
Ottomotores manufactures generator
sets and distributes uninterruptible
power supplies. It is the market leader in
Mexico for generator sets and recorded
underlying export growth of 22 per cent
from the supply of standby generating
sets to key markets in the Middle East
and Latin America. A new factory was
opened during the year in Mexico City.
This facility will provide enhanced
production capabilities and satisfy the
increased demand for acoustic canopies
and enclosures.
Dale Power Solutions also provides
generator sets and uninterruptible power
supplies. It has continued to expand both
in the UK and in key emerging markets in
the Middle East and North Africa. Projects
for the supply of high-reliability, mission-
critical power generation equipment for
the petrochemical industry in Algeria and
uninterruptible power supply equipment
for the United Arab Emirates’ electricity
grid in Dubai were successfully delivered
during the year.
From January 2009 these businesses have
formed the new Secure Power division
with a dedicated divisional Chief Executive
to focus on further development.
The interconnection business, which
since January 2009 has formed part of the
new Components division, operates from
two facilities in the UK and one facility
in the US. In addition, it is taking advantage
of the Group’s low cost manufacturing
footprint in Mexico, China and Malaysia.
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Our advances in medical technology
improve the reliability of equipment which
helps to save lives.
We are working with companies at the forefront
of medical science developing applications
for use in both hospitals and the growing
community- and home-based healthcare
markets. Our product applications include
precision control of scanning equipment,
high voltage solutions for defibrillator
charge control, patient monitoring equipment,
potentiometers for diagnostic equipment and
advanced blood analysis systems.
Our electronic components facility in California
has developed technology to provide a more
precise diagnosis during CAT and MRI scanning
procedures. Our sensors are used to control
the scanner active beam area, enabling
medical staff to make more informed
treatment decisions.
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Business review continued
The business specialises in the
manufacture of specialist connectors
for harsh environments and
interconnection systems for use by
the defence, aerospace and traction
markets. It supplies customers on a
global basis and works with them in the
design of interconnection systems.
The integration of New Chapel Electronics
into this business has gone well and
is nearing completion. New Chapel
Electronics operates in the military and
civilian aerospace market. The facility at
Smithfield, North Carolina, has continued
to expand from its original business
of connector assembly to providing
interconnection systems to the US military.
Rail infrastructure projects continue to
be a focus for the UK connector factory
in Wales, having secured several contracts
in 2008 for the supply of connectors and
harnessing systems for new trains being
built for London Underground.
The remaining businesses in the former
Secure power and industrial division
include businesses involved in the
manufacture of electrical fusegear,
specialist compounds and fine wire.
These businesses, together with the
automotive electronic systems business
(covered under the Sensors and electronic
systems division above), form the core
of the new General Industrial division.
Restructuring
Exceptional costs were incurred
during 2008 in respect of the closure of
the AB Automotive climate control facility
in Cardiff and the AB Electronic facility
at Romford.
AB Automotive Electronics Ltd
AB Electronic Ltd
2008
£million
2.7
1.1
3.8
Dividends and earnings per share
Earnings per share before exceptional
items were 9.2 pence (2007: 15.5 pence).
Basic earnings per share were 7.5 pence
(2007: 15.5 pence).
As announced in January 2009, the Board
has set a dividend policy to maintain cover
of at least two times underlying earnings
per share and progressively increase
dividends from this base.
For the year ending 31 December 2008,
the Board has not recommended a
final dividend. An interim dividend of
3.69 pence per share was paid in October
2008, making the total dividend for
the year 3.69 pence per share (2007:
10.05 pence).
Taxation
The overall rate of tax is 33 per cent
(2007: 28 per cent). The underlying rate
is 32 per cent before exceptional
costs. Deductions arising from cash
contributions to the pension funds and
the exceptional costs at AB Automotive
Electronics and AB Electronic offset
taxable profits generated elsewhere
within the UK group. The increase in the
rate of tax results from changes in the
overall mix of profits across the Group
and, in particular, the reduced level
of operating profits generated by
the sensor businesses in Germany and
a greater proportion of profits earned
in the US and Mexico.
Cash flow, borrowings and facilities
2008
£million
2007
£million
Cash generated from operations
Capital expenditure
Development expenditure
Net debt
46.2
21.9
10.9
113.2
Stock turn
Debtor days
Creditor days
4.1
58
50
42.9
29.4
10.1
75.0
4.7
47
46
Cash generated from operations increased
by £3.3 million due to a lower level of
special contribution towards the pension
deficit. Operating profits were lower and
there was a net outflow from working
capital, mainly due to inventory increases
of £6.6 million. A key target for 2009 is a
sustained reduction in working capital.
Capital expenditure of £21.9 million
was lower than depreciation by
£1.5 million. Acquisitions totalled
£13.9 million, relating to the purchase
of New Chapel Electronics in April 2008
and Semelab in August 2008.
Net debt was £113.2 million at
31 December 2008 (2007: £75.0 million),
the increase reflecting the acquisitions
described above and the adverse impact
of £22.7 million of changes in exchange
rates on dollar denominated borrowings.
Gearing is calculated at 53 per cent
compared with 41per cent in 2007.
The Group had total banking facilities
available of £166.0 million, of which
£60.0 million are working capital facilities
with a number of major UK and overseas
banks which in the ordinary course are
periodically renewable. The main term
loan of £70.0 million is a multi-currency
revolving facility with HSBC drawn down
in US dollars and extending to 2011. The
amount drawn down in dollars is required
to be rebalanced to £70.0 million at the
prevailing rate in June 2009 and
periodically thereafter and forward
contracts have been taken towards
covering this position. 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.
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These loan covenants were satisfied
comfortably at 31 December 2008:
Gross debt/EBITDA
before exceptionals
EBITDA before exceptionals/
gross interest
Target
Actual
< 3
> 6
2.0
13.6
Two term loans of £20.4 million and
£10.0 million respectively fall due for
renewal in December 2009 and
September 2009. Preliminary discussions
with both banks concerned have
been positive.
The Directors have reviewed the forecasts
for 2009 and the projections for 2010
developed during the recent strategic
review, which have been adjusted to
take account of the current trading
environment. Demand in most of the
Group’s end markets has been severely
affected by the global economic recession.
Recognising this, the Directors have
considered a range of different scenarios
and the impact of these on the Group’s
cash flow, facilities and headroom within
its banking covenants. Further, the
Directors have assessed the future funding
requirements of the Group and compared
them with the level of available borrowing
facilities. Based on this work, the Directors
are satisfied that the Group has adequate
resources for the foreseeable future.
Pensions
The Group operates both defined
benefit and defined contribution
pension schemes in the UK. Assets of the
defined benefit scheme were valued
at £283.1 million at 31 December 2008
(2007: £298.2 million) and the fund
benefited from the change in
investment strategy implemented
during 2007 and 2008.
Scheme liabilities under International
Accounting Standard No 19 (IAS19) were
valued by the actuaries at £301.7 million
(2007: £315.6 million), giving a deficit of
£18.6 million (2007: £17.4 million).
The previous funding agreement for the
scheme was based on the annual IAS19
deficit with the objective of elimination of
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 £8.7 million
in 2007 and £2.2 million in 2008 have
already been made and under the new
agreement, the Group will make further
contributions as follows: £2.2 million in
2009, £3.2 million in 2010, £3.5 million
in 2011, subsequently increasing by
£0.2 million each year to £4.5 million
in 2016.
Exposure to risks
Financial risks
(cid:127) Liquidity
The current economic conditions create
uncertainty over the availability of bank
financing in the present banking climate
and consequently there is a risk that the
Group may have insufficient resources to
meet its financial liabilities as they fall
due. The Group addresses this risk by
maintaining adequate banking facilities
and by continuously monitoring forecast
and actual cash flows to ensure that bank
covenants and liquidity requirements will
be met. The Group regularly discusses its
requirements with its principal bankers
and it is considered unlikely that the
Group will face any significant funding
issues in the foreseeable future.
(cid:127) Foreign currency
The Group’s main foreign exchange
exposures are to the effect of the
translation of profits, and net assets
denominated in overseas currencies
into sterling and transactions in foreign
currencies. The policy of the Group
is to use hedges to reduce these risks.
These hedges are achieved through
forward currency contracts and
currency borrowings.
Interest cost
(cid:127)
The interest rate is capped on $50.0 million
of total borrowings until February 2010.
Short-term interest rate fixes are also used
to reduce volatility in interest costs.
Commercial and other risks
The current global financial crisis
presents significant challenges to the
Group, principally related to the level
of market demand.
The Group’s largest market sector is
automotive where, directly and indirectly,
it serves automotive OEM customers.
This exposes the Group to several risks
including significantly decreasing
manufacturing volumes, the potential
for material quality claims and financial
exposure should such customers be
unable to continue trading in their current
form. It is possible that one of the larger
US automotive manufacturers may seek
protection from its creditors which in
turn could result in some of its suppliers
seeking similar creditor protection.
In this event, the Group may not recover
all of the amounts owed to it.
In addition, the Group is exposed to risks
of product liability, credit risk, reliance
on customers’ commitments and
other usual commercial risks in all of its
businesses. The Group has a wide portfolio
of products and operates in a number
of market sectors.
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Business review continued
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
have been put in place taking into account
the risk involved and the marketplace in
which the exposure arises.
Outlook
Trading conditions remained very
difficult in the last quarter of 2008 and
we have experienced a further significant
weakening in customer demand in
January and February with limited forward
visibility of market demand. The outlook
for most of our major markets is both
challenging and uncertain as the
unprecedented global economic recession
continues to severely impact demand.
The outlook for automotive vehicle
production is difficult to predict with any
confidence and our Sensors division has
seen a further rapid decline in demand
in the first two months of 2009 as
manufacturers reduce inventories and
re-align output with consumer demand.
The automotive element of the
Components division has been similarly
affected. We are seeing a significant
slowdown in our IMS business as the
reduction in manufacturing demand
impacts the supply chain. The majority
of our other businesses, including Secure
Power, are also seeing slower demand.
The traction, defence and aerospace
markets are proving more resilient and
we continue to see solid performance
from our Components division in these
areas, including our interconnection
business and Semelab.
In January we identified 1,295 positions
to be eliminated in 2008 and 2009. We
have accelerated these actions with more
than 1,100 jobs eliminated by the end of
February and a further 225 underway in
Germany. We are continuing to review our
cost base in light of the deteriorating
market conditions and we now expect
total headcount reductions to be higher
with increased benefit in the second half
of the year. In addition, we have
implemented short-time working and
temporary shutdowns across a number
of sites and an extensive pay freeze is in
place. All of these actions are designed
to help limit the impact of the current
difficult trading conditions.
Our balance sheet is sound. Based on
management expectations adjusted to
take account of the present difficult
trading environment, we continue to trade
comfortably within our banking facilities
with reasonable headroom within our
covenants. We continue to generate strong
cash flows with an ongoing focus on
reducing working capital.
Trading conditions in the first two
months of the year have become
significantly more difficult. Accordingly,
trading for the full year to 31 December
2009, and the medium term, is likely to
fall materially below management’s
previous expectations.
The Board is confident that progress
against our strategic plan and actions
taken to adjust the cost base will provide
long term benefits and enhance
performance as markets recover.
Geraint Anderson
Group Chief Executive
Shatish D Dasani
Group Finance Director
13 March 2009
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Directors and Company Secretary
1 John W Newman (63)
Executive Chairman
Chairman of the Nominations Committee
Chairman of the Corporate Governance
Committee
5 John C Shakeshaft (54)
Independent Non-executive Director
Member of the Audit, Remuneration,
Nominations and Corporate Governance
Committees
Appointed to the Board in 2007. Currently
chairman of Ludgate Environmental Fund
Limited and of Valiance Special Opportunities
Fund of Funds and Co-Investment Fund;
investment director, Corestone, AG and a director
of Tele2 AB, Questair Technologies Inc and TEB,
NV. Also an external member of the Audit
Committee of Cambridge University. Previously a
corporate financier with ABN AMRO, Lazard and
Barings.
6 Sean M Watson (60)
Independent Non-executive Director
Member of the Remuneration, Nominations and
Corporate and Social Responsibility Committees
Appointed to the Board in 2007. A solicitor
and senior corporate finance partner at CMS
Cameron McKenna LLP and a non-executive
Director of Informa plc.
7 Wendy J Sharp ACA (43)
Group Company Secretary
Member of the Corporate Governance
Committee
Appointed to the Board in 1986. A Chartered
Accountant who is also Chairman of the Newship
group of companies.
2 Geraint Anderson (49)
Group Chief Executive
Chairman of the Corporate and Social
Responsibility Committee
Appointed to the Board on 4 August 2008.
Previously Vice President and General Manager
of the Worldwide Service Provider Organisation
for Linksys, a Division of Cisco Systems, Inc.
3 Shatish D Dasani (47)
Group Finance Director
Member of the Corporate Governance
Committee
Appointed to the Board on 1 August 2008. A
Chartered Accountant, previously with De La Rue
plc, Lafarge SA and Blue Circle Industries plc.
4 David S Crowther (63)
Senior Independent Non-executive Director
Chairman of the Audit and Remuneration
Committees and member of the Nominations
Committee
Appointed to the Board in 2005. A Chartered
Accountant who was a senior partner with
PricewaterhouseCoopers LLP. Member of
the Professional Oversight Board, a part of
the Financial Reporting Council, and a non-
executive Board Member and chairman of
the Audit Committee of the Treasury
Solicitor's Department.
1
2
3
4
5
6
7
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Directors’ report
The Directors present their report and the audited financial
statements for the year ended 31 December 2008.
Principal activities and business review
Financial risk management objectives and policies
These are set out under Exposure to risks in the Business review
on page 19.
TT electronics plc is the parent company of a Group
whose principal activities during the year were the design,
manufacture and sale of electronic and electrical components
for the automotive, telecom and computer, aerospace, defence
and other industrial markets. Further details of the Group’s
activities and future plans are set out in the Chairman's
statement and the Business review on pages 2 and 10 to 20 of
this Annual Report and these should be read as part of the
Directors’ report.
The principal operating subsidiaries are listed on page 75.
Results and dividends
The Group’s profit on ordinary activities before taxation and
exceptional items was £21.1 million (2007: £33.3 million) and
after taxation and exceptional items was £11.6 million
(2007: £24.0 million). The audited financial statements of the
Group and the Company are set out on pages 37 to 75. Further
details of the Group’s activities are set out in the Business
review on pages 10 to 20.
The Directors are not recommending a final dividend for
the year ended 31 December 2008 (2007: 6.36p). An interim
dividend of 3.69p per share was paid on 23 October 2008,
making the total dividend for the year 3.69p per share
(2007: 10.05p).
Significant agreements relating to change of control
The Group has a number of borrowing facilities provided
by various banking groups. Some of these facility agreements
include change of control provisions which, in the event of
a change in ownership of the Company, could result in
renegotiation or withdrawal of these facilities.
There are a number of other agreements that may be
renegotiated upon a change of control of the Company.
None is considered to be significant in terms of their
potential impact on the business of the Group as a whole.
Supplier payments policy
The Group’s policy in relation to the payment of its suppliers
is to agree its terms of payment with each supplier when
negotiating the terms of each business transaction. It is Group
practice to abide by the agreed terms of payment unless the
supplier defaults under its own obligations. Trade creditors
at the year end amount to 50 days of average supplies for the
year (2007: 46 days).
Corporate governance
The application of the principles and provisions of the
Combined Code is set out in the Directors’ report on
corporate governance.
Acquisitions
Directors
On 2 April 2008 the Group announced the acquisition of
New Chapel Electronics Limited. Further details are set out in
note 26 to the consolidated financial statements.
On 21 August 2008 the Group announced that it had
acquired assets comprising the majority of the business of
Semelab Limited. Further details are set out in note 26 to the
consolidated financial statements.
Fixed assets
No professional valuation of land and buildings has been
carried out during the year, but in the opinion of the Directors
the market value, on an existing use basis, is considered to be
not materially different from net book value.
Research and development
The Group carries out research and development in order to
develop new products and processes and to substantially
improve existing products and processes.
The Directors are listed on page 21 with brief biographical
notes. All the Directors held office throughout the year, with the
exception of S D Dasani and G Anderson who were appointed
on 1 and 4 August 2008 respectively. N A Rodgers resigned on
11 June 2008. R W Weaver and D E A Crowe retired on 1 August
2008 and 3 September 2008 respectively. J W Armstrong retired
on 5 January 2009.
At the forthcoming Annual General Meeting J W Newman
retires and, being eligible, offers himself for re-election.
G Anderson and S D Dasani, having been appointed since
the previous Annual General Meeting, retire in accordance with
the Articles of Association and, being eligible, offer themselves
for re-election.
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Rules for the appointment and replacement of Directors are
set out in the Company’s Articles of Association. Directors are
appointed by the Board on the recommendation of the
Nominations Committee. Directors may also be appointed or
removed by the Company by ordinary resolution at a general
meeting of holders of ordinary shares. The office of a Director
shall be vacated if his resignation is requested by all the other
Directors and all the other Directors are not less than three in
number. The Corporate governance report sets out further
details of the requirements for re-election of Directors on page
26. In addition, further details of the activities of the Nominations
Committee are set out on page 28.
Other than an extended notice period of 18 months which
applies to G Anderson’s service contract in the event of a bid
approach on or prior to 3 August 2009 which is successful, there
are no agreements between the Company and its Directors or
employees providing for compensation for loss of office or
employment that occurs as a result of a takeover bid. Further
details of the executive Directors’ service contracts can be found
in the Directors’ remuneration report on pages 31 to 36.
The Group maintains Directors’ and Officers’liability insurance.
The Directors of the Company also benefit from a qualifying third
party indemnity provision in accordance with section 234 of the
Companies Act 2006 and the Company’s Articles of Association.
The Company has provided a qualifying pension scheme
indemnity within the meaning of section 235 of the Companies
Act 2006 to directors of associated companies.
Directors’ interests
The Directors of the Company at 31 December 2008 held interests
in the following numbers of the Company’s ordinary shares of 25p
each on 1 January 2008, 31 December 2008 and 9 March 2009:
9 March 2009
Ordinary shares
1 Jan 2008
(or date of
31 Dec 2008 appointment if later)
Ordinary shares
Ordinary shares
10,848,627
90,000
150,000
n/a
40,000
15,479
62,950
10,848,627
90,000
150,000
70,582
40,000
15,479
62,950
9,598,627
–
30,000
39,582
20,000
7,219
7,700
J W Newman
G Anderson(1)
S D Dasani(2)
J W Armstrong(3)
D S Crowther
J C Shakeshaft
S M Watson
(1) appointed 4 August 2008
(2) appointed 1 August 2008
(3) retired 5 January 2009
The interests of the Directors in the Company’s share options
and Long Term Incentive Plan are shown in the Directors’
remuneration report on pages 31 to 36.
Substantial shareholdings
At 9 March 2009 the Company had been notified of the following
voting rights attaching to TT electronics plc shares in accordance
with the Disclosure and Transparency Rules:
Tweedy, Browne Company LLC
J W Newman(1)
J O Hambro Capital Management Limited
Mondrian Investment Partners Limited
Barclays Global Investors
Number
15,359,648
9,452,010
8,298,662
7,783,343
5,163,416
%
9.9
6.1
5.3
5.0
3.3
(1) At the time of the last disclosure made by J W Newman in his capacity as a substantial
shareholder under the Disclosure and Transparency Rules, 9,432,437 TT electronics
shares in which J W Newman had voting rights were held by Newship Investments
Limited. (Newship Investments Limited is a wholly-owned subsidiary of Newship
Industries Limited, in which J W Newman holds a controlling interest).
So far as has been ascertained no other person or corporation
holds or is beneficially interested in any substantial part of the
share capital of the Company.
Share capital
The Company’s issued share capital comprises a single class of
share capital which is divided into ordinary shares of 25p each.
The share capital during the year and the number of ordinary
shares reserved for issue are shown in note 15 to the consolidated
financial statements. The rights and obligations attaching to the
Company’s ordinary shares are set out in the Company’s Articles
of Association, copies of which can be obtained from Companies
House in the United Kingdom or by writing to the Company
Secretary. Subject to applicable statutes, shares may be issued
with such rights and restrictions as the Company may by ordinary
resolution decide, or (if there is no such resolution or so far as
it does not make specific provision) as the Board may decide.
Holders of ordinary shares are entitled to speak at general
meetings of the Company, to appoint one or more proxies
and, if they are corporations, to appoint corporate representatives
and to exercise voting rights. Holders of ordinary shares may
also receive a dividend and on a liquidation may share in the
assets of the Company.
In addition, holders of ordinary shares are entitled to receive
the Company’s Annual Report and accounts. Subject to meeting
certain thresholds, holders of ordinary shares may require a
general meeting of the Company to be held or the proposal of
resolutions at Annual General Meetings.
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Directors’ report continued
Authority to Allot Shares and Disapply Statutory
Pre-Emption Rights
incapable of managing their affairs; or (iv) is in favour of not more
than four transferees.
The Directors will be seeking to renew their authorities to allot
unissued shares and to disapply statutory pre-emption rights at
the Annual General Meeting to be held on 13 May 2009. Further
details are set out in the papers containing details of the Annual
General Meeting which accompany this document.
Purchase of Own Shares
At the Annual General Meeting held on 14 May 2008, the
Company was given authority to purchase up to 15,495,279 of its
ordinary shares until the date of its next Annual General Meeting.
No purchases were made during the year. The Directors will be
seeking a new authority for the Company to purchase its ordinary
shares at the forthcoming Annual General Meeting. Further
details are set out in the papers containing details of the Annual
General Meeting which accompany this document.
Voting Rights and Restrictions on Transfer of Shares
On a show of hands at a general meeting of the Company every
holder of ordinary shares present in person or by proxy and
entitled to vote has one vote and on a poll every member present
in person or by proxy and entitled to vote has one vote for every
ordinary share held. Further details regarding voting at the
Annual General Meeting can be found in the Notice of the Annual
General Meeting which accompanies this document. None of the
ordinary shares carry any special rights with regard to control of
the Company. Electronic and paper proxy appointments and
voting instructions must be received by the Company’s Registrars
not later than 48 hours before a general meeting. A shareholder
can lose his entitlement to vote at a general meeting where that
shareholder has been served with a disclosure notice and has
failed to provide the Company with information concerning
interests in those shares.
The Directors may refuse to register a transfer of a certificated
share which is not fully paid, provided that the refusal does not
prevent dealings in shares in the Company from taking place on
an open and proper basis. The Directors may also refuse to
register a transfer of a certificated share unless the instrument
of transfer: (i) is lodged, duly stamped (if stampable), at the
registered office of the Company or any other place decided by
the Directors accompanied by the certificate for the share to
which it relates and/or such other evidence as the Directors
may reasonably require to show the right of the transferor to
make the transfer; (ii) is in respect of only one class of shares; (iii) is
in favour of a person who is not a minor, bankrupt or a person in
respect of whom an order has been made on the ground that
such person is suffering from a mental disorder or is otherwise
Transfers of uncertificated shares must be carried out using
CREST and the Directors can refuse to register a transfer of an
uncertificated share in accordance with the regulations
governing the operation of CREST.
The Directors may decide to suspend the registration of transfers,
for up to 30 days a year, by closing the register of shareholders.
The Directors cannot suspend the registration of transfers of any
uncertificated shares without obtaining consent from CREST.
There are no other restrictions on the transfer of ordinary shares
in the Company except:
(cid:127) certain restrictions may from time to time be imposed by laws
and regulations (for example insider trading laws);
(cid:127) pursuant to the Company’s share dealing code whereby the
Directors and certain employees of the Group require approval
to deal in the Company’s shares; and
(cid:127) where a shareholder with at least a 0.25 per cent interest in
the Company’s certificated shares has been served with a
disclosure notice and has failed to provide the Company with
information concerning interests in those shares.
The Company is not aware of any agreements between
shareholders that may result in restrictions on the transfer of
ordinary shares or on voting rights.
Articles of Association
The Company’s Articles of Association may only be amended by
special resolution approved at a general meeting of the
shareholders.
Annual General Meeting
The Annual General Meeting of the Company will be held on
Wednesday 13 May 2009 at the Ironmongers’ Hall, Shaftesbury
Place, Barbican, London EC2Y 8AA at 12 noon. The Notice of the
Company’s Annual General Meeting accompanies this document.
Auditors
Grant Thornton UK LLP have expressed their willingness to
continue in office as Auditors and a resolution will be proposed to
reappoint them at the Annual General Meeting.
The Auditors’ responsibilities are set out on pages 37 and 66 and
should be read in conjunction with those of the Directors as set
out below.
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Statement of Directors’ responsibilities in relation to
financial statements
The Directors are responsible for the preparation of financial
statements for each financial year in accordance with applicable
law and regulations.
The Directors are required to prepare the consolidated financial
statements in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union. The Directors
have elected to prepare the Company’s financial statements
under UK Generally Accepted Accounting Practice (UK GAAP).
The financial statements are required by law to give a true and
fair view of the state of affairs of the Group and the Company and
of the profit or loss of the Group.
The Directors, in preparing the financial statements,
are required to:
(cid:127) use suitable accounting policies and to apply them
consistently;
(cid:127) make reasonable and prudent judgements and estimates;
(cid:127) state that the consolidated financial statements comply with
IFRS as adopted by the European Union and that the Company
financial statements comply with UK GAAP subject to any
departures disclosed and explained in the financial statements
The Directors have responsibility for:
(cid:127) ensuring that the Company and the Group prepare and
maintain accounting records which disclose with reasonable
accuracy at any time the financial position of the Company
and the Group at that time and which enable them to
ensure that the financial statements comply with the
Companies Act 1985 and Article 4 of the IAS Regulation;
taking such steps as are reasonably open to them to
safeguard the assets of the Company and the Group and to
prevent and detect fraud and other irregularities;
the maintenance and integrity of the financial information
on the Company’s website
(cid:127)
(cid:127)
Going concern
The Directors have reviewed the forecasts for 2009 and the
projections for 2010 developed during the recent strategic
review, which have been adjusted to take account of the current
trading environment. Demand in most of the Group’s end markets
has been severely affected by the global economic recession.
Recognising this, the Directors have considered a range of
different scenarios and the impact of these on the Group’s cash
flow, facilities and headroom within its banking covenants.
Further, the Directors have assessed the future funding
requirements of the Group and compared them with the level of
available borrowing facilities. Based on this work, the Directors
are satisfied that the Group has adequate resources to continue in
operational existence for the foreseeable future. For this reason
they continue to adopt the going concern basis in preparing the
financial statements.
To the best of each Director’s knowledge and belief, there is no
audit information relevant to the preparation of the Auditors’
Report of which the Auditors are unaware and each Director has
taken all the steps which might be expected to be aware of such
relevant information and to establish that the Auditors are also
aware of that information.
By order of the Board:
W J Sharp
Company Secretary
13 March 2009
Responsibility statement
We confirm that to the best of our knowledge:
(cid:127)
the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit of the
Company and the undertakings included in the consolidation
taken as a whole; and
(cid:127) the business review includes a fair review of the development
and performance of the business and the position of the
Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face.
G Anderson
Group Chief Executive
S D Dasani
Group Finance Director
13 March 2009
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Directors’ report on corporate governance
The Company is committed to achieving and maintaining
high standards of corporate governance. The principles of good
corporate governance set out in Section 1 of the 2006 Combined
Code (‘Code’) contained in the Listing Rules of the Financial
Services Authority, have been complied with throughout the year
ended 31 December 2008 and this compliance has continued
through to the date of this report. Details and explanations
of the application of the principles of corporate governance are
set out below.
The Board
The Board’s main roles are to provide leadership to the
management of the Group, determine the Group’s strategy and
ensure that the agreed strategy is implemented. The Board has
also reserved certain specific matters to itself for decision. These
include financial policy, acquisition and disposal policy, and the
approval of major capital expenditure projects. The Board
appoints its members and those of its Committees, and reviews
recommendations of the Board Committees and the financial
performance and operation of each of the Group businesses.
It regularly reviews the identification, evaluation and
management of the principal risks faced by the Group and the
effectiveness of the Group’s system of internal control.
During 2008 the Board comprised up to four executive Directors
and up to four non-executive Directors of whom three were
considered independent.
Of the executive Directors, J W Newman and J W Armstrong
served throughout the year. N A Rodgers resigned on 11 June
2008 and R W Weaver retired on 1 August 2008. S D Dasani and
G Anderson were appointed on 1 and 4 August 2008 respectively.
Since the year end, J W Armstrong has also retired.
Of the non-executive Directors, D S Crowther, J C Shakeshaft
and S M Watson served throughout the year. D S Crowther is
the senior non-executive Director. D E A Crowe retired on
3 September 2008.
S M Watson is a senior corporate partner at CMS Cameron
McKenna LLP, one of a number of law firms which advise the
Company. Under provision A.3.1 of the Combined Code, a non-
executive director cannot be considered independent if he has,
or has had within the last three years, a material business
relationship with the Company either directly, or as a partner,
shareholder, director or senior employee of a body that has
such a relationship with the Company.
Before his appointment as a non-executive Director, the Company,
in consultation with Riskmetrics and major shareholders,
undertook an assessment to ascertain whether S M Watson met
this and the other criteria for independence set out in the
Combined Code. It was concluded that he did as the value of the
fees charged by CMS Cameron McKenna LLP to the Company,
relative to each of their respective turnovers, was not significant
enough to be considered material. This continues to be the
position, the Company having paid CMS Cameron McKenna circa
£67,000 during 2008. Accordingly, all current non-executive
Directors are considered to be independent as defined by the
Combined Code.
During the year there were 11 Board meetings on scheduled dates
for which full notice was given. All Directors attended each Board
meeting other than D E A Crowe and S M Watson who were each
unable to attend one meeting.
Directors’ biographies including the Committees on which they
serve and chair are shown on page 21. Each Director will offer
himself for re-election every three years.
The Executive Chairman and Group Chief Executive
The Company has an executive Chairman and a Group Chief
Executive, and their respective areas of responsibility are defined.
On 21January 2009, it was announced that the Chairman planned
to become non-executive later in the year. The Chairman is
responsible for the leadership of the Board ensuring that all
Directors receive information on financial, business and corporate
matters to enable them to participate effectively in Board
decisions. He currently takes an active role in strategic planning
and banking relationships and is also directly responsible, through
the appropriate senior executives, for the functions of treasury,
pensions and legal matters.
The Group Chief Executive is responsible for the operations of the
Group, formulation of strategy and the maximisation of profits in
the long-term. He is also responsible for ensuring that the Group’s
businesses are managed in line with strategy and approved
business plans, and comply with applicable legislation and Group
policy. Other areas of responsibility include investor relations and
risk management.
Under the provisions of the Code, the Chairman should on
appointment be considered independent. However, J W Newman
was appointed executive Chairman in 1995 before the Company
was bound by any provision as to the independence of
its Chairman.
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Report on corporate governance continued
Board procedures and performance evaluation
All Directors have access to the advice and services of the
Company Secretary and are offered training to fulfil their role as
Directors, both on appointment and at any subsequent time.
There is an agreed procedure for any individual Director to take
independent professional advice at the Company’s expense if
he considers it necessary.
The Company amended its Articles of Association in May 2008 to
deal with, amongst other things, the provisions on conflicts of
interest in the Companies Act 2006 which came into force in
October 2008. Following this, the Company has put in place
procedures for the disclosure and review of any conflicts, or
potential conflicts, of interest which the Directors may have and
for the authorisation of such conflict matters by the Board. In
deciding whether to authorise a conflict or potential conflict the
Directors must have regard to their general duties under the
Companies Act 2006. The authorisation of any conflict matter, and
the terms of authorisation, may be reviewed at any time.
During the year the Board conducted an evaluation of its
performance covering, among other matters:
(cid:127) maintaining and improving its performance;
(cid:127) developing the Group’s strategy;
(cid:127) maintaining the optimum mix of skills and knowledge among
the Directors;
(cid:127) ensuring robust and effective risk management; and
(cid:127) considering full and timely information on financial and other
performance.
In addition, each of the principal Committees carried out
an assessment of its own performance during the year.
The performance of individual Directors is also reviewed annually
and includes discussions between the Chairman and senior
non-executive Director on their respective performance.
Following these detailed reviews it was considered that the Board
and its Committees were performing satisfactorily.
Review of principal risks and internal controls
The Directors have overall responsibility for the Group’s systems
of internal control and for reviewing their effectiveness. These
systems have been in place for the full financial year. The Group
is committed to a policy of maintaining strict internal control over
all of its activities. Controls are designed to provide the Directors
with reasonable assurance that assets are safeguarded,
transactions are properly authorised, and that material errors
and irregularities are either prevented or are discovered on a
timely basis. The systems of control are reviewed regularly and
improved where necessary to meet the Group’s requirements.
Business risk evaluation takes place at Group level as part of
the annual budget preparation. Having identified risks, each
operating company then monitors and reviews them regularly.
The Group Chief Executive oversees maintenance of the Group’s
Register of Principal Risks. Members of staff who are involved in
the Group’s risk management function report directly to the
Group Chief Executive at a quarterly meeting. The principal risks
of the Group are subject to review by the Audit Committee and
the Board. Further details of the Group’s exposure to risk are set
out in the Business review on pages 10 to 20.
The risk management procedures and systems of internal control
are designed to identify and assess the significant risks which the
Group faces and to manage them appropriately. However, such
systems can only provide reasonable and not absolute protection
against material mis-statement or loss.
Principal features of the system of internal control
(cid:127) The Directors meet as a Board at least every other month to
monitor financial performance, give direction on significant
strategic and financial issues and review the principal risks of
the Group.
(cid:127) The Group Chief Executive chairs a Committee (‘Operating
Board’) which meets on a regular basis and reviews the
performance of the Group as a whole and oversees the
implementation of strategy.
(cid:127) Each operating company within the Group operates within the
policies, rules and procedures determined by the Directors and
communicated through a Group manual. The Directors exercise
control over operating companies through divisional senior
executives who monitor and oversee the activities, financial
performance and controls of each operating company. The
directors of operating companies are held accountable for the
effectiveness of the implementation and maintenance of
controls within their companies. This provides constant and
consistent management.
(cid:127) The Group has detailed financial planning and reporting
systems. Detailed management accounts are prepared
monthly by each operating company comparing actual
performance with budget. The financial performance of each
operating company is subjected to detailed formal review at
monthly meetings. One purpose of these reviews is the early
identification of potential business risks and agreement
on suitable and prompt courses of action. Operating
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Directors’ report on corporate governance continued
companies prepare strategic plans and annual budgets
which are reviewed and approved by the divisional senior
executives, Group management and the Board.
(cid:127) The Group has comprehensive control and approval
procedures which are rigorously enforced. There are clear
definitions of appropriate authorisation levels. Capital
investment and other major items of expenditure are made
only after compliance with detailed appraisal procedures
and, if above set levels, only with the approval of the
executive Directors.
(cid:127) Accounting and reporting policies and practices require that
the Group’s accounting records are prepared consistently,
accurately and in compliance with Group policy and relevant
accounting standards.
(cid:127) The framework for maintaining control and the adherence
to procedures is reviewed by the Group Internal Controls
Executive, who reports to the Group Finance Director and the
Audit Committee.
(cid:127) Certain key functions, including treasury, taxation, pensions,
provision of legal advice, risk and insurance are controlled at
the Group’s head office and are monitored by the executive
Directors.
The Directors have reviewed the effectiveness of the systems
of risk management and internal control during the year to
31 December 2008 and during the period since then to the date
of this report. They have made improvements where necessary.
Board Committees
The Board has established a number of Committees, each with
its own delegated authority defined in terms of reference. These
terms are reviewed periodically and the Board receives reports
and copies of minutes of Committee meetings. The Board
appoints the chairmen of all Board Committees, having received
the recommendations of the Nominations Committee.
The principal Committees and brief descriptions of their terms
of reference (full details of which are available for inspection
by shareholders at the Annual General Meeting and on the
Group’s website) and duties are as follows:
a) Audit Committee
During the year, the Audit Committee comprised two of the
independent non-executive Directors: J C Shakeshaft and D S
Crowther (Chairman) who has recent and relevant financial
knowledge, as required by the Code. The Committee’s duties
include reviewing and advising the Board on:
(cid:127)
(cid:127)
(cid:127)
(cid:127)
the integrity of the financial statements;
the appointment and remuneration of external auditors;
the effectiveness of the Auditors in line with the requirements
of the Code;
the nature and extent of non-audit services provided by the
Auditors to ensure that their independence and objectivity are
maintained;
(cid:127) changes to accounting policies and procedures, decisions of
judgement affecting financial reporting, compliance with
accounting standards and with the Companies Act;
(cid:127)
(cid:127)
(cid:127)
(cid:127)
the Auditors’ assessment of internal audit and other internal
controls;
the scope, performance and effectiveness of the internal audit
and other internal control functions;
risk management and any changes to the Register of Principal
Risks; and
the Company’s written procedures for responding to any
allegations made by whistleblowers.
In order to fulfil its duties the Audit Committee regularly receives
reports on the findings of the Group Internal Controls Executive
who is required to attend the Committee's meetings and the
Committee reviews internal audit plans and recommendations.
During 2008 the Audit Committee met five times and both
committee members attended all the meetings. Two of the
meetings were also attended by the Auditors without executives
of the Company being present.
The Committee reviewed the effectiveness of the external
auditors during the year and also carried out a self assessment of
its performance, based on a questionnaire completed by the
members of the Committee.
b) Remuneration Committee
The Directors’ remuneration report on pages 31 to 36 includes
details of the Remuneration Committee and its work.
c) Nominations Committee
The Nominations Committee generally meets twice a year to
make recommendations to the Board regarding the appointment
of replacement or additional directors. It comprises the
independent non-executive Directors and executive Chairman,
who also chairs the Committee. The Committee has an
established procedure for recommending Board appointments
and for the appointment of members to the Audit and
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Directors’ report on corporate governance continued
Remuneration Committees. In 2008 the Committee met twice.
The appointments of both G Anderson and S D Dasani were
made on the recommendation of the Committee, following
its review of the candidates shortlisted by headhunters.
All Committee members attended both meetings, except for
J C Shakeshaft who was absent from one meeting. The Committee
also carried out an assessment of its performance in 2008.
Board and Committee Meeting Attendance 2008
The table below shows the number of meetings held and the
attendance of each of the Directors at those meetings.
Board
Audit
Committee
Remuneration
Committee
Nominations
Committee
5
n/a
n/a
n/a
n/a
n/a
n/a
n/a
5
5
n/a
7
n/a
n/a
n/a
n/a
n/a
n/a
n/a
7
7
6
2
2
n/a
n/a
n/a
n/a
n/a
n/a
2
1
2
11
11
4
4
4
7
11
7
11
11
10
Total meetings held
J W Newman
G Anderson(1)
S D Dasani(2)
N A Rodgers(3)
R W Weaver(4)
J W Armstrong(5)
D E A Crowe(6)
D S Crowther
J C Shakeshaft
S M Watson
(1) appointed 4 August 2008
(2) appointed 1 August 2008
(3) resigned 11 June 2008
(4) retired 1 August 2008
(5) retired 5 January 2009
(6) retired 3 September 2008
Corporate Governance Committee
The Corporate Governance Committee is responsible for
monitoring the Group’s compliance with good corporate
governance. During the year it was chaired by the Corporate
Development Director and included the Group Finance Director,
one non-executive Director and the Company Secretary. The
Committee met twice during 2008.
Following J W Armstrong’s retirement, the Chairman has taken
over the role of chairing this Committee. The Committee therefore
now comprises the Chairman, the Group Finance Director, one
non-executive Director and the Company Secretary.
benefits the Company in terms of its reputation and ability to
conduct business effectively with customers and suppliers. It also
helps in the recruitment, motivation and retention of employees
at all levels. The Company’s subsidiaries participate in the life
of their local communities and make significant efforts to foster
good relations with community stakeholders.
Ensuring a safe working environment for employees and
reducing wasteful consumption are sound business practices as
well as being examples of corporate responsibility, and the
Company continuously seeks to improve its performance
Group-wide.
Every company in the Group is encouraged to develop and
implement employment policies and remuneration schemes
designed so that employees identify with their company’s
achievements and their knowledge and skills can best contribute
towards its success. The Directors recognise the importance of
employee involvement throughout the Group and this is fostered
by the development of communications though the normal
subsidiary company reporting procedures.
The Corporate and Social Responsibility Committee monitors the
Group’s performance on these matters and regularly reports to
the Board.
The Committee is chaired by the Group Chief Executive and also
comprises one non-executive Director, the Group Legal Counsel,
and up to three senior executives from within the Group. The
Committee met three times during 2008 and has had one
meeting to date during 2009.
The Board recently reviewed the remit of the Committee and
decided that its role should be expanded in order to proactively
advance social and environmental responsibility within the Group.
With this in mind, the Committee, on behalf of the Company,
intends to seek membership of the Electronic Industry Citizenship
Coalition in 2009. This is an industry body promoting good
corporate citizenship practices within the electronics industry.
The Committee’s expanded duties include monitoring Group
performance, reviewing and advising the Board on:
Corporate and Social Responsibility Committee
(cid:127) Employment
The Group operates worldwide with a diverse workforce. Our
managers deal with changing local and transnational regulatory
frameworks, as well as running businesses, and must engage
constructively with employees, customers, local residents,
regulators and other interested third parties. The Company
requires its managers and employees to act with integrity and to
conduct business to high ethical standards. Being a trusted
industrial partner and a responsible member of the community
The Group is committed to the fair and equal treatment of all
its employees regardless of gender, race, age, religion, disability
or sexual orientation. The Group makes significant efforts to
ensure that high standards of employee welfare are maintained
worldwide in all its operations, irrespective of geography and
local market conditions, and intends to seek assurances from
suppliers that they too are committed to high standards of
employee welfare.
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Directors’ report on corporate governance continued
(cid:127) Health and safety
Donations
During the year the Group contributed £50,000 (2007: £50,000)
for charitable purposes. Employees across the Group regularly
fund-raise for charity.
There were no political contributions.
Communications with shareholders
G Anderson and S D Dasani meet institutional investors
immediately after publication of the annual and interim results,
as well as providing the information needed to maintain an
orderly market in the Company’s shares. The Company carries on
a regular dialogue with institutional shareholders and analysts.
Trading updates and press releases are issued as appropriate and
the Company’s brokers provide briefings on shareholder opinion
and compile independent feedback from investor meetings.
Information offered at the analysts’ meetings together with our
financial press releases are available on the Group’s website.
The Annual General Meeting is used by the Directors to
communicate with both institutional and private investors.
Approved by the Board on 13 March 2009 and signed on its
behalf by:
W J Sharp
Company Secretary
The Directors must comply with all relevant legislation and
codes of practice and are mindful of the importance of health
and safety in the Group’s activities. The Group constantly seeks
to reduce the incidence of accidents, work-related ill-health,
emissions, waste and dangerous occurrences and strives to
achieve and maintain safe conditions of work for all employees
and sub-contractors. In 2009 the Group will continue to
encourage a culture in which employees ensure that they, their
colleagues and members of the general public are kept safe
from potential incidents and hazards and will also seek to
promote the issue of health and safety with its suppliers.
(cid:127) Environmental policy
The Group strives to meet requirements of all applicable
environmental laws and regulations, to seek continuous
improvement in environmental performance and to contribute
to long-term economic, environmental and social sustainability.
The pursuit of recognised environmental management
standards, such as ISO 14001 accreditation, is encouraged
throughout the Group.
Group companies will continue to:
(cid:127) seek energy efficient means of manufacture;
(cid:127) reduce, where possible, the use of dangerous, volatile or
environmentally damaging chemicals;
(cid:127) recycle and re-use waste; and
(cid:127) dispose of non-reusable waste responsibly.
(cid:127) Ethics
To meet its business objectives and its wider responsibilities in
the communities in which it operates, the Group is committed to
the highest standards of business integrity. The Corporate and
Social Responsibility Committee establishes standards and
monitors compliance in respect of the Group’s business ethics,
and takes the lead in communicating these core values to
employees and stakeholders.
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Directors’ remuneration report
This report has been prepared in accordance with Schedule 7A
of the Companies Act 1985 (‘Act’). A resolution to approve the
report will be proposed at the Annual General Meeting on
13 May 2009. It sets out the Company’s policy for Directors’
remuneration, the arrangements for 2008 and proposals for 2009.
The Act requires the Auditors to report to the Company’s
members on the auditable section of the Directors’ remuneration
report and to state whether in their opinion that part of the
report has been properly prepared in accordance with the Act.
The report has therefore been divided into separate sections for
audited and unaudited information.
Unaudited information
Remuneration Committee
The Remuneration Committee comprises the independent non-
executive Directors and is chaired by D S Crowther (the senior
independent non-executive Director). Its other members are
J C Shakeshaft and S M Watson.
In 2008 the Committee met seven times and all members of the
Committee attended each meeting other than S M Watson who
was unable to attend one meeting. During the year the
Committee carried out a self assessment of its performance,
constitution and terms of reference based on a questionnaire
completed by the members of the Committee.
The role of the Committee is to recommend to the Board the
policy for the remuneration of the executive Directors, Divisional
Chief Executives, Divisional Directors and the Company Secretary.
This covers salaries and other benefits, pensions, performance
related pay and share incentive plans and the terms and
conditions of service.
The Committee is responsible for appointing external
independent consultants to advise on senior executive
remuneration matters. This advice was provided during 2008
by Hewitt New Bridge Street (‘HNBS’) and they continue to
advise the Remuneration Committee. HNBS provided no other
services to the Company during the year.
Remuneration policy
The objectives of the Group’s remuneration policy are to recruit,
retain and motivate senior executives with appropriate expertise
to realise the Group’s business objectives and to align their
interests with those of shareholders.
Base salary
The remuneration policy is to provide senior executives with a
base salary that is competitive with the base salary paid in other
comparable companies.
The base salaries of executive Directors are reviewed annually
at 1 July having regard to personal performance, Group
performance, competitive market practice as determined by
external research and pay levels within the Group.
Details of base salary levels for executive Directors, together with
the previous salaries, are set out below:
J W Newman
G Anderson(1)
S D Dasani(2)
1 July 2008
(or date of appointment
if later)
£214,882
£350,000
£220,000
1 July 2007
£206,617
n/a
n/a
(1) appointed 4 August 2008
(2) appointed 1 August 2008, salary increased to £240,000 on 1 January 2009 as specified in
his appointment contract.
It is currently envisaged that no base salary increases will be made
at the 1 July 2009 review.
Annual bonus
Executive Directors, other than J W Newman, participate in an
annual bonus arrangement. The objective of the performance
linked element of remuneration is to stimulate improved
results of the Group by providing the opportunity of increased
remuneration subject to achieving challenging performance
criteria.
For 2008, measurement was based on challenging, sliding scale
Group profit before taxation targets. Because these profit targets
were not met, no bonuses arise for 2008.
For 2009, following the completion of the strategic review, the
Committee has concluded that a more balanced set of annual
performance targets should be operated, with the introduction
of sliding scale cashflow targets (30% of total potential) and
personal objectives (20% of total potential) in addition to the
sliding scale profit targets (50% of total potential, reduced from
100%). No bonus will be payable for personal objectives unless
at least threshold performance against both the profit and
cashflow sliding scale targets has been achieved.
The maximum potential bonus which can be earned remains
capped at 100 per cent of salary.
Long term incentive plan 2005 (‘LTIP’)
The LTIP is the primary long-term incentive arrangement of
the Company. LTIP participants may receive annual awards of
up to 100 per cent of basic salary per annum. The award is a
contingent right to receive shares in the future, subject to
continued employment and the achievement of predetermined
performance criteria.
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Directors’ remuneration report continued
Participants make no payment upon the grant, vesting or release
of an award (other than such as may be required as a result of tax,
social security or other regulatory requirements). Awards will vest
three years after the date of grant.
The maximum number of shares which could be issued under
outstanding grants is 2,189,744 compared to 1,144,002 in 2007.
The Committee considers that the combined use of EPS and
TSR performance conditions will provide a good blend of
performance metrics, with EPS rewarding strong financial
performance and TSR rewarding relative stock market
performance. The Company’s largest shareholders and
ABI and Riskmetrics will be consulted on the changes to the
scheme and in advance of the 2009 awards being granted.
Performance conditions
Award levels
The performance targets attached to awards granted in 2008
require the Group’s earnings per share (‘EPS’), measured over a
three year period, to grow by at least 3 per cent compound per
annum in excess of the Retail Price Index (‘RPI’). At this level only
25 per cent of an award will vest. For an award to vest in full,
the Group’s EPS, measured over the same period must grow
by at least 7 per cent compound per annum in excess of RPI.
For EPS between these thresholds, the number of shares vesting
will be calculated on a proportional basis.
Following a review of long-term incentive provision, the
Committee has concluded that, while the use of EPS and the
existing range of targets remain appropriately challenging, the
LTIP should be refined to enhance the alignment between the
management team and shareholders through the introduction of
a relative total shareholder return ('TSR') performance measure.
Therefore, for awards to be granted in April 2009 and in future
years, the current EPS performance targets will only apply to
50 per cent of an LTIP award (instead of the current 100 per cent)
with TSR targets applying to the other 50 per cent. In effect
therefore, it is proposed that two separate performance targets
will apply:
(cid:127) The performance target attached to 50 per cent of an award
will be based on the current three year EPS targets, namely
25 per cent of the shares subject to this part of the award will
vest for EPS growth of 3 per cent compound per annum in
excess of RPI, increasing on a straight-line basis to 100 per cent
vesting for EPS growth of at least 7 per cent compound per
annum in excess of RPI; and
(cid:127) The performance target attached to the other 50 per cent
of an LTIP award will be based on TSR performance targets
against the FTSE SmallCap (excluding investment trusts);
25 per cent of shares subject to this part of the award will vest
at median performance increasing on a straight-line basis to
100 per cent vesting at the upper quartile of the comparator
group. In addition to the TSR targets above, the Committee
will also consider the Company's underlying financial
performance to ensure that vesting percentages under this
part of an award are appropriate.
As an incentive to join and recognising forfeited rights G Anderson
and S D Dasani received LTIP awards over shares worth 100 per cent
of their respective base salaries on appointment in 2008. In 2008
awards to relevant executive Directors were made of 75 per cent of
base salary, however, as a result of the fall in share price over the last
year and in light of recent investor pronouncements with respect to
reducing award levels where a company's share price has fallen, it is
intended that executive Directors (other than J W Newman) will
receive awards over shares to a value of circa 50 per cent of base
salary for 2009.
Share options
The Company has operated a number of share option schemes
in the past. It is the Committee’s policy not to make further grants
to executive Directors under these plans. There are no other
share-based incentive plans operated by the Company.
Shareholding guidelines
In conjunction with the amendments to the LTIP performance
targets set out above, shareholding guidelines for executive
Directors will be introduced, linked to the out-turn of the LTIP.
At the time awards vest under the LTIP (or any other executive
plan operated in the future), there will be a requirement to retain
no fewer than 50 per cent of shares (net of taxes) until such time
as a total personal shareholding equivalent to 100 per cent of
prevailing base salary has been achieved.
Service contracts
The executive Directors, other than the Chairman, have service
contracts which reflect both current market practice and the
appropriate balance between the interests of the Company
and the individual Director. These contracts include 12 month
non-compete clauses and standard provisions for summary
termination and are terminable on 12 months notice from either
side. As part of the terms of his appointment, G Anderson has
an extended notice period of 18 months in the event of a bid
approach on or prior to 3 August 2009 which is successful.
After this date, his notice period reduces to 12 months.
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Pensions
(1) appointed 4 August 2008.
The Company operates a defined benefit scheme and defined
contribution scheme for employees including the executive
Directors. G Anderson and S D Dasani are members of the defined
contribution arrangement. Benefits are based on contributions
paid and investment returns achieved during their membership
of the scheme. All other executive Directors who served during
the year are members of the defined benefit scheme. Benefits are
based on the numbers of years of accrued service and
pensionable salary.
Non-executive Directors
The remuneration of each of the non-executive Directors is
determined by the executive members of the Board, reflecting
time commitment, responsibility of each role and the fees paid
in other comparable companies. Fee increases awarded in 2008
were in line with inflation and the duties performed. No benefits
in kind are provided for non-executive Directors.
Audited information
Aggregate Directors’ emoluments
Set out below are tables of remuneration of the Directors who
served during the year ended 31 December 2008. The amount of
each element of the remuneration received and receivable by the
Directors in the year including base salary and fees paid during
the year, benefits in kind and other payments is:
Salary/fees
£000
Other
£000
Compensation
for loss of
office
£000
Benefits
£000
Executive Directors
J W Newman
G Anderson(1)
S D Dasani(2)
J W Armstrong(3)
N A Rodgers(4)
R W Weaver(5)
211
146
92
194
165
157
Non-executive
Directors
D S Crowther
D E A Crowe(6)
J C Shakeshaft
S M Watson
T H Reed
Sir L H P Magnus
41
21
31
31
–
–
–
–
60
–
–
50
–
–
–
–
–
–
15
5
9
22
15
23
–
–
–
–
–
–
–
–
–
–
402
–
–
–
–
–
–
–
2008
Total
£000
226
151
161
216
582
230
41
21
31
31
–
–
2007
Total
£000
428
–
–
259
427
335
37
29
13
3
15
16
1,089
110
89
402
1,690
1,562
(2) appointed 1 August 2008. S D Dasani received a payment of £60,000 for lost incentives
as a result of leaving his previous employer.
(3) retired 5 January 2009.
(4) resigned 11 June 2008. N A Rodgers’ compensation for loss of office comprised £330,000
payment in lieu of notice, £50,000 termination payment and benefits in kind valued at
£22,000 in respect of the retained use of his company car and private medical insurance
for the period to 30 June 2009.
(5) retired 1 August 2008. It was agreed that R W Weaver would receive a bonus of £50,000
in recognition of his performance up to the date of his retirement. He also retained his
company car. This is included within the benefit figure disclosed above.
(6) retired 3 September 2008.
The value of benefits in kind received during the year comprised
life assurance cover, company car benefits, telephone expenses
and the provision of private medical insurance. No Directors
received expense allowances during the year.
Executive Directors’ pensions - defined benefit
During the year four of the executive Directors were members of
the Company’s defined benefit pension scheme.
Pension
com-
Accrued mutation
lump sum
received
2008 during year
£000
£000
Decrease in pension at
31 Dec
accrued
pension
£000
J W Newman
J W Armstrong
N A Rodgers
R W Weaver
Notes
(46)
(1)
(47)
(33)
220
66
36
62
543
n/a
242
411
Value at
31 Dec
2008
£000
4,193
1,143
940
1,463
Increase
in value
£000
841
237
63
350
Value at
31 Dec
2007
£000
3,349
892
866
1,102
(a) J W Newman, R W Weaver and N A Rodgers all retired from the pension scheme
during the year and elected to take a lump sum in exchange for part of their pension
entitlement. They are now drawing their pensions.
(b) J W Armstrong’s accrued pension is that which would be paid annually on retirement at
normal retirement date based on pensionable service and final pensionable salary to
31 December 2008.
(c) Members of the scheme have the option to pay additional voluntary contributions;
neither these contributions nor the resulting benefits are included in the above table.
(d) The decrease in accrued pension during the year excludes any increases for inflation.
(e) Values are calculated in accordance with ‘Retirement Benefit Schemes –
Transfer Values (GN 11)’ published by the Institute of Actuaries and the Faculty
of Actuaries.
(f ) The increase in value during the year is net of employee contributions made
to the scheme and arises principally from the increased cost of pension provision
during the year due to falls in gilt yields and increased life expectancies.
(g) Each executive Director has a normal retirement date of his 65th birthday but can take
a pension from age 60.
(h) No actuarial reduction is made in respect of early retirement between the ages of
60 and 65.
(i) Pensions in payment accrued between 1 January 1989 and 5 April 2005 for
J W Newman and J W Armstrong, and in total for R W Weaver and N A Rodgers, are
increased annually in line with the annual rise in the All Items Index of Retail Prices
subject to a maximum of 5 per cent per annum. Post 5 April 2005, increases are
subject to a maximum of 2.5 per cent per annum. Pensionable salaries have been
frozen at the 6 April 2006 level for three years.
(j) In the event of the death of an executive Director, a pension equal to one half of the
Director’s pension will become payable to a surviving spouse.
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Directors’ remuneration report continued
Executive Directors’ pensions – defined contribution
G Anderson and S D Dasani who were appointed during the year are members of the Company’s group personal pension
arrangement. During the year the Company contributed £5,833 for G Anderson and £5,683 for S D Dasani.
Long Term Incentive Plan
Two awards under this plan were made during the year to the executive Directors of the Company. An initial award was made
following the announcement of the Group’s results and a further award over shares worth 100 per cent of base salary was made to
G Anderson and S D Dasani on their respective appointments:
J W Newman
G Anderson
S D Dasani
J W Armstrong (1)
N A Rodgers (2)
R W Weaver (1)
Date of
grant
1 January
2008
16 Jan 07
28 Aug 08
28 Aug 08
16 Jan 07
31 May 07
24 Apr 08
16 Jan 07
31 May 07
24 Apr 08
16 Jan 07
31 May 07
117,596
–
–
38,754
29,953
–
61,878
47,826
–
50,288
38,868
Awarded
during
the year
–
341,463
214,634
–
–
129,545
–
–
225,000
–
–
Lapsed
Vested
Market price
31 December at grant date
pence
2008
Vesting
date
–
–
–
–
9,984
86,363
–
47,826
225,000
–
12,956
–
–
–
–
–
–
–
–
–
–
–
117,596
341,463
214,634
38,754
19,969
43,182
61,878
–
–
50,288
25,912
248.0 16 Jan 10
102.5 28 Aug 11
102.5 28 Aug 11
248.0 16 Mar 09
217.5 16 Mar 09
110.0 16 Mar 09
248.0 16 Jan 10
–
217.5
110.0
–
248.0 16 Mar 09
217.5 16 Mar 09
(1) On their respective retirements it was agreed that R W Weaver and J W Armstrong would, subject to performance conditions, benefit from the vesting of proportions of the awards
made under the LTIP arrangements. In respect of the award made in January 2007, the LTIPs may potentially vest in respect of the full LTIP award subject to performance. In respect
of the awards made in May 2007 and April 2008, the maximum number of shares that may vest is two thirds and one third respectively of the awards made. The table shows the
maximum amount of shares which may vest and reflects the shares which have lapsed. The shortened performance will be measured against the EPS for the end of the 2008 financial
year and will vest or lapse on the announcement of the Group’s results.
(2) It was agreed that N A Rodgers would, subject to performance conditions, benefit from the vesting of the full award made under the LTIP arrangement in January 2007 subject
to performance.
No consideration is payable for the awards, the terms of which are set out earlier in this report.
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Directors’ remuneration report continued
Directors’ share options
Options set out below granted under the 1994 Executive Share Option Scheme (Approved) are marked(1), the 1996 Executive Share
Option Scheme (Unapproved) are marked(2) and the 2004 Company Share Option Plan (Unapproved) are marked(3):
J W Newman
J W Armstrong (4)
N A Rodgers
R W Weaver (4)
31 December
2008
Exercise
price pence
Lapsed
19,825
1 January
2008
19,825
147,058
248,192
128,593
273,180
155,241
112,823
0(2)
147,058(2)
248,192(2)
128,593(2)
273,180(2)
155,241(3)
112,823(3)
1,084,912
19,825 1,065,087
5,033
73,529
109,289
38,253
11,818
28,975
86,662
49,247
37,181
5,033
0(2)
73,529(2)
109,289(2)
38,253(2)
11,818(1)
28,975(2)
86,662(2)
49,247(3)
37,181(3)
439,987
5,033
434,954
2,852
10,570
23,662
45,901
6,550
20,450
6,424
21,091
58,500
84,137
59,367
2,852
10,570
23,662
45,901
6,550
20,450
6,424
21,091
58,500
84,137
59,367
339,504
339,504
0(1)
0(2)
0(2)
0(2)
0(1)
0(2)
0(1)
0(2)
0(2)
0(3)
0(3)
0
20,000
147,058
109,289
49,638
9,090
43,845
112,455
48,248
20,000
0(2)
147,058(2)
109,289(2)
49,638(2)
9,090(1)
43,845(2)
112,455(2)
48,248(3)
539,623
20,000 519,623
300.0
136.0
166.0
165.0
80.0
145.0
205.5
300.0
136.0
91.5
166.0
165.0
165.0
80.0
145.0
205.5
300.0
300.0
177.5
91.5
163.0
163.0
165.0
165.0
80.0
145.0
205.5
300.0
136.0
91.5
166.0
165.0
165.0
80.0
205.5
Exercise period
Mar 2001 – Mar 2008
Sep 2002 – Sep 2009
May 2004 – May 2011
Apr 2005 – Apr 2012
Mar 2006 – Mar 2013
May 2007 – May 2014
Apr 2008 – Apr 2015
Mar 2001 – Mar 2008
Sep 2002 – Jul 2009
Mar 2003 – Jul 2009
May 2004 – Jul 2009
Apr 2005 – Jul 2009
Apr 2005 – Jul 2009
Mar 2006 – Jul 2009
May 2007 – Jul 2009
Apr 2008 – Jul 2009
Mar 2001 – Mar 2008
Mar 2001 – Mar 2008
Mar 2002 – Dec 2008
Mar 2003 – Dec 2008
Apr 2004 – Dec 2008
Apr 2004 – Dec 2008
Apr 2005 – Dec 2008
Apr 2005 – Dec 2008
Mar 2006 – Dec 2008
May 2007 – Dec 2008
Apr 2008 – Dec 2008
Mar 2001 – Mar 2008
Mar 2002 – Jan 2009
Mar 2003 – Jan 2009
May 2004 – Jan 2009
Apr 2005 – Jan 2009
Apr 2005 – Jan 2009
Mar 2006 – Jan 2009
Apr 2008 – Jan 2009
35
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Directors’ remuneration report continued
Notes
Total shareholder returns
(1,2) Options granted under the 1994 and 1996 Executive Share Option Schemes are
generally exercisable not less than three and not more than ten years after their
grant, and only then if a performance criterion has been achieved. Prior to 2001
the Group must have experienced annual growth in its earnings per share of at least
2 per cent over and above the Retail Price Index for a period of three years following
the grant of the options. Options granted after 2000 carry a performance condition
of annual growth in the Group’s earnings per share of at least 4 per cent over and
above the Retail Price Index for a period of three years following the grant of the
options. The constituent parts of the condition are calculated each year to see if the
performance condition has been met.
(3)
Options granted under the 2004 HMRC Approved and the Unapproved Company
Share Option Plans carry a performance condition stating that the growth in the
Group’s earnings per share must exceed the increase in Retail Price Index by an
average of 4 per cent per annum over a period of three consecutive years. Any year
in which earnings per share is negative cannot be included. Options granted under
these schemes lapse on the sixth anniversary of the date of grant in the event
that any exercise condition is no longer capable of satisfaction.
(4)
Following retirement the options under the plan may be exercised within six months
of the date of retirement provided the performance condition has been achieved.
During the year options granted to the executive Directors
totalling 384,362 shares have lapsed. No options were exercised
by the executive Directors.
The closing middle market prices for an ordinary share of 25p of
the Company on 31 December 2008 and 2007 as derived from
the Stock Exchange Daily Official List were 34.88p and 112.75p
respectively. During the year the middle market price of
TT electronics plc ordinary shares ranged between 23.88p
and 134.88p.
The Company’s total shareholder return performance for the
five years to 31 December 2008 is shown on the graph below
compared with the performance achieved by the FTSE SmallCap
companies (excluding investment trusts). The Company is a
constituent of the FTSE SmallCap Index and for this reason the
Directors consider it appropriate to benchmark the Company’s
performance against it.
250
225
200
175
150
125
100
75
50
25
0
Dec 2003
Dec 2004
Dec 2005
Dec 2006
Dec 2007
Dec 2008
—
—
TT electronics plc
FTSE SmallCap (excluding investment trusts)
Approved by the Board on 13 March 2009 and signed on its
behalf by:
D S Crowther
Chairman of the Remuneration Committee
36
TT electronics plc Annual Report 2008
Governance
213447_TT_REPORT_P37_76:213447_TT_REPORT_P37_76 2/4/09 10:36 Page 37
Report of the Independent Auditors to the members of TT electronics plc
We have audited the consolidated financial statements of
TT electronics plc for the year ended 31 December 2008 which
comprise the consolidated income statement, the consolidated
balance sheet, the consolidated statement of recognised income
and expense, the consolidated cash flow statement, the
accounting policies and notes 1 to 32. These consolidated
financial statements have been prepared under the accounting
policies set out therein.
We have reported separately on page 66 on the Company
financial statements of TT electronics plc for the year ended
31 December 2008 and the information in the Directors’
remuneration report that is described as having been audited.
This report is made solely to the Company’s members, as a
body, in accordance with Section 235 of the Companies Act
1985. Our audit work has been undertaken so that we might
state to the company’s members those matters we are required
to state to them in an auditors’ report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and
the Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of Directors and Auditors
The Directors’ responsibilities for preparing the Annual Report
and the consolidated financial statements in accordance with
United Kingdom law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union are set out
in the Statement of Directors’ Responsibilities.
Our responsibility is to audit the consolidated financial
statements in accordance with relevant legal and regulatory
requirements and International Standards on Auditing
(UK and Ireland).
We report to you our opinion as to whether the consolidated
financial statements give a true and fair view and whether the
consolidated financial statements have been properly prepared
in accordance with the Companies Act 1985 and Article 4 of the
IAS Regulation. We also report to you whether in our opinion the
information given in the Directors’ report is consistent with the
consolidated financial statements.
In addition we report to you if, in our opinion, we have not
received all the information and explanations we require for our
audit, or if information specified by law regarding Directors’
remuneration and other transactions is not disclosed.
We review whether the Directors’ report on corporate
governance reflects the Company’s compliance with the nine
provisions of the 2006 Combined Code specified for our review
by the Listing Rules of the Financial Services Authority, and we
report if it does not. We are not required to consider whether the
Board’s statements on internal control cover all risks and controls,
or form an opinion on the effectiveness of the group’s corporate
governance procedures or its risk and control procedures.
We read other information contained in the Annual Report and
consider whether it is consistent with the audited consolidated
financial statements. The other information comprises only the
Directors’ report, the Chairman’s statement, the Business review,
the Directors’ report on corporate governance, the unaudited
part of the Directors’ remuneration report and the historical
record. We consider the implications for our report if we become
aware of any apparent misstatements or material inconsistencies
with the consolidated financial statements. Our responsibilities
do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) issued by the Auditing
Practices Board. An audit includes examination, on a test basis,
of evidence relevant to the amounts and disclosures in the
consolidated financial statements. It also includes an assessment
of the significant estimates and judgments made by the
Directors in the preparation of the group financial statements,
and of whether the accounting policies are appropriate to the
group’s circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary
in order to provide us with sufficient evidence to give reasonable
assurance that the consolidated financial statements are free
from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the
overall adequacy of the presentation of information in the
consolidated financial statements.
Opinion
In our opinion
(cid:127)
(cid:127)
(cid:127)
the consolidated financial statements give a true and fair view,
in accordance with IFRSs as adopted by the European Union,
of the state of the group’s affairs as at 31 December 2008 and
of its profit for the year then ended;
the consolidated financial statements have been properly
prepared in accordance with the Companies Act 1985 and
Article 4 of the IAS Regulation; and
the information given in the Directors’ report is consistent with
the financial statements.
Grant Thornton UK LLP
Registered Auditors, Chartered Accountants
London, 13 March 2009
37
TT electronics plc Annual Report 2008
Group accounts
213447_TT_REPORT_P37_76:213447_TT_REPORT_P37_76 2/4/09 10:36 Page 38
Consolidated income statement
for the year ended 31 December 2008
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other operating income
Operating profit before exceptional items
Exceptional items
Operating profit
Finance income
Finance costs
Profit before taxation
Taxation
Profit for the year from continuing operations
Discontinued operation
Loss for the year from discontinued operation
Profit for the year attributable to shareholders
Earnings per share
From continuing operations
– basic
– diluted
From continuing and discontinued operations
– basic
– diluted
Note
1
1
4
2
2
1
5
6
8
2008
£million
584.3
(480.8)
103.5
(37.5)
(40.4)
1.4
27.0
(3.8)
23.2
18.1
(24.0)
17.3
(5.7)
11.6
–
11.6
7.5p
7.5p
7.5p
7.5p
2007
£million
544.9
(437.0)
107.9
(36.0)
(35.2)
1.0
37.7
–
37.7
18.3
(22.7)
33.3
(9.3)
24.0
(11.8)
12.2
15.5p
15.3p
7.9p
7.8p
38
TT electronics plc Annual Report 2008
Group accounts
213447_TT_REPORT_P37_76:213447_TT_REPORT_P37_76 2/4/09 10:36 Page 39
Consolidated balance sheet
at 31 December 2008
Assets
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Short-term borrowings
Financial derivatives
Trade and other payables
Current tax payable
Provisions for liabilities
Total current liabilities
Non-current liabilities
Long-term borrowings
Deferred tax provision
Pensions and other post employment benefits
Provisions for liabilities
Other non-current liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Share options reserve
Hedging and translation reserves
Retained earnings
Minority interests
Total equity
Note
2008
£million
10
11
12
22
13
14
14
20
21
25
24
20
22
30
24
25
15
16
16
17
18
19
137.4
74.5
23.6
5.5
241.0
120.0
111.5
10.1
241.6
482.6
51.2
2.9
99.4
3.1
5.6
162.2
72.1
8.7
18.6
0.1
8.0
107.5
269.7
212.9
38.7
0.2
1.2
35.8
134.6
2.4
212.9
2007
£million
112.0
52.3
17.3
4.2
185.8
91.0
95.1
7.6
193.7
379.5
16.8
0.7
81.9
–
0.3
99.7
65.8
6.0
17.4
0.7
7.6
97.5
197.2
182.3
38.7
0.2
1.1
(1.5)
141.8
2.0
182.3
Approved by the Directors on 13 March 2009 and signed on their behalf by:
G Anderson
Director
S D Dasani
Director
39
TT electronics plc Annual Report 2008
Group accounts
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Consolidated statement of recognised income and expense
for the year ended 31 December 2008
Profit for the year
Exchange differences on net foreign currency investments
Hedging reserve
Actuarial (loss)/gain on defined benefit pension schemes
Deferred tax on actuarial gains
Total recognised income and expense for the year attributable to shareholders
2008
£million
11.6
39.4
(2.1)
(3.2)
–
45.7
2007
£million
12.2
4.8
(0.2)
38.3
(14.7)
40.4
40
TT electronics plc Annual Report 2008
Group accounts
213447_TT_REPORT_P37_76:213447_TT_REPORT_P37_76 2/4/09 10:36 Page 41
Consolidated cash flow statement
for the year ended 31 December 2008
Note
2008
£million
2007
£million
Operating activities
Profit for the year
Adjustments for:
Finance costs
Taxation
Exceptional items
Depreciation of property, plant and equipment
Amortisation of intangible assets
Share based payment expense
Gain on disposal of property, plant and equipment
Loss on disposal of business
Pension curtailment gain
Other non-cash items
Exceptional costs
Additional payments to pension funds
Operating cash flow before movements in working capital
Decrease in financial derivatives
Increase in inventories
Decrease in receivables
Increase/(decrease) in payables
Cash generated from operations
Tax paid
Net cash from operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment and grants received
Development expenditure and purchase of patents and licences
Acquisition of subsidiaries net of cash acquired
Loan repayment
Net cash proceeds from sale of business
Net cash used in investing activities
Cash flows from financing activities:
Interest paid (net)
Net changes in long-term borrowings and finance lease liabilities
Issue of shares
Dividends paid
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Exchange difference
Cash and cash equivalents at end of period
Cash and cash equivalents comprise:
Cash and cash equivalents
Bank overdrafts
6
14
20
11.6
5.9
5.7
3.8
23.4
10.9
0.1
(1.9)
–
(1.2)
(3.8)
(1.7)
(3.2)
49.6
2.2
(6.6)
–
1.0
46.2
(3.6)
42.6
(21.9)
5.1
(10.9)
(13.9)
2.0
0.9
(38.7)
(3.8)
9.0
–
(15.6)
(10.4)
(6.5)
(5.2)
(0.5)
(12.2)
10.1
(22.3)
(12.2)
12.2
4.6
8.3
–
21.7
9.6
0.3
(2.7)
12.3
(1.1)
(1.5)
–
(15.7)
48.0
1.3
(4.2)
0.4
(2.6)
42.9
(7.3)
35.6
(29.4)
7.1
(10.1)
–
–
10.8
(21.6)
(4.7)
0.3
0.2
(15.6)
(19.8)
(5.8)
0.7
(0.1)
(5.2)
7.6
(12.8)
(5.2)
41
TT electronics plc Annual Report 2008
Group accounts
213447_TT_REPORT_P37_76:213447_TT_REPORT_P37_76 2/4/09 10:36 Page 42
Accounting policies for the consolidated financial statements
The consolidated financial statements have been prepared under
International Financial Reporting Standards (IFRS) as endorsed
by the European Union.
The financial statements have been prepared under the historical
cost convention modified by the revaluation of financial assets
and derivatives held at fair value and by the revaluation at the
transition date to IFRS of certain property, plant and equipment.
Other intangible assets
Intangible assets acquired as part of a business combination
are stated in the balance sheet at their fair value at the date
of acquisition less accumulated amortisation. Internally
generated intangible assets, principally product development
costs, are stated in the balance sheet at cost less accumulated
amortisation. The amortisation rates for intangible assets are:
The Group is not yet required to, and has not, adopted the
latest revisions of: IAS 1; IAS 23; IAS 27; IFRS 3; IFRS 8; IFRICs 12, 13,
14, 15, 16, 17 and 18. The adoption of these revisions and
standards would not have had any significant effect on these
financial statements.
Acquired patents and licences
Development projects
Customer relationships
– up to 10 years
– up to 3 years
– 3-8 years
Amortisation is on a straight-line basis.
Basis of consolidation
The Group’s financial statements consolidate the financial
statements of TT electronics plc and all its subsidiaries.
Subsidiaries are consolidated from the date on which control
transfers to the Group and are included until the date on which
the Group ceases to control them. Transactions between Group
companies are eliminated, together with unrealised gains on
inter-group transactions, on consolidation.
Revenue recognition
Revenue is the fair value, usually the invoiced value, of goods and
services supplied to external customers excluding value added
tax and other sales related taxes. Transactions are recorded as
sales when the delivery of products or performance of services
takes place in accordance with the contract terms of sale.
Goodwill
Goodwill arising on the acquisition of a business, representing
the difference between the cost of acquisition and the fair value
of the identifiable net assets acquired, is capitalised and is tested
annually for impairment. The net book value of goodwill at the
date of transition to IFRS has been treated as deemed cost.
On the subsequent disposal or discontinuance of a previously
acquired business, the relevant goodwill is dealt with in the
income statement except for the goodwill already charged
to reserves.
The carrying values of intangible assets are tested for impairment
when there is an indication that they may be impaired.
Foreign currencies
Assets and liabilities of overseas subsidiaries are translated into
sterling at the rate of exchange ruling at the balance sheet date.
The results and cash flows of overseas subsidiaries are translated
into sterling using the average rate of exchange for the year.
Exchange movements on the restatement of the net assets of
overseas subsidiaries, foreign currency loans held for the purpose
of financing overseas investments, and the adjustment between
the income statement translated at the average rate and the
closing rate are recognised in equity and reported in the
statement of recognised income and expense. All other
exchange differences are dealt with through the consolidated
income statement. On disposal of an overseas subsidiary any
cumulative exchange movements relating to that subsidiary held
in the translation reserve are transferred to the consolidated
income statement.
The Group uses forward currency contracts in order to partially
hedge its exposure to foreign exchange risks.
42
TT electronics plc Annual Report 2008
Group accounts
213447_TT_REPORT_P37_76:213447_TT_REPORT_P37_76 2/4/09 10:36 Page 43
Property, plant and equipment
Financial assets:
Property, plant and equipment are stated at cost less a provision
for depreciation. Depreciation is calculated so as to write-off
the cost less estimated residual value of the assets in equal
instalments over their expected useful lives. No depreciation is
provided on freehold land. Depreciation is provided on other
assets at the following rates:
Freehold buildings
Leasehold buildings
– 2%
– 2% (or over the period of the
lease if less than 50 years)
Plant, equipment and vehicles
– 10% to 33%
The carrying values of property, plant and equipment are
reviewed for impairment when there is an indication that they
may be impaired.
Inventories
Inventories are valued at the lower of cost, including related
overheads, and net realisable value. Cost comprises direct
materials and, where applicable, direct labour costs and the
overheads incurred in bringing inventories to their present
location and condition. Cost is calculated on a weighted average
cost basis.
Deferred taxation
Deferred taxation is provided on taxable temporary differences
between the carrying amounts of assets and liabilities in the
financial statements and their corresponding tax bases. Deferred
tax assets are recognised to the extent that it is probable that
taxable profits will be available against which temporary
differences can be utilised or that they will reverse. No provision
is made for deferred tax which would become payable on the
distribution of retained profits by overseas subsidiaries unless
there is an intention to distribute such profits. Deferred tax is
measured using the tax rates expected to apply when the asset is
realised or the liability settled based on tax rates enacted or
substantially enacted by the balance sheet date.
Leases
Assets acquired under finance leases which confer substantially
all the risks and rewards of ownership of an asset are capitalised
within property, plant and equipment and the outstanding rental
instalments, net of interest, are shown in borrowings. Assets held
under finance leases are depreciated over the shorter of the lease
terms and the expected useful lives of the assets.
Payments on operating leases are charged to the income
statement on a straight-line basis over the lease term.
Trade and other receivables
Trade and other receivables are carried at the invoiced or
contractually agreed amount less any required allowances for
uncollectable amounts.
Financial derivatives
Derivative financial instruments are measured at fair value. The
Group uses forward foreign exchange contracts and interest rate
instruments to manage the relevant exposures. These derivative
financial instruments are classified as fair value through profit or
loss and all changes in fair value are recognised in the
consolidated income statement.
Cash and cash equivalents
Cash and cash equivalents comprise cash at hand, demand
deposits and short-term highly liquid investments that are easily
convertible into known amounts of cash.
Financial liabilities:
Hedge accounting
The Group uses cash flow hedges to reduce its exposure
to exchange rate, interest rate and other financial risks.
The application of the hedge is documented before hedge
accounting commences and is regularly reviewed for
effectiveness. The net gains or losses relating to hedged items
to the extent that the hedge is effective are dealt with in the
Statement of recognised income and expense. Any ineffective
portions are dealt with in the income statement.
Bank borrowings
Bank borrowings are carried at the amounts payable at the
balance sheet date. The Group uses borrowings in overseas
currencies to hedge its exchange rate exposure on overseas
assets. All borrowing costs are expensed.
Trade payables
Trade payables are carried at the amounts expected to be paid to
counterparties.
43
TT electronics plc Annual Report 2008
Group accounts
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Accounting policies for the consolidated financial statements continued
Employee benefits
Segmental reporting
The Group operates defined benefit post retirement benefit
schemes and defined contribution pension schemes.
The liability recognised in the balance sheet for defined benefit
schemes is the present value of schemes’ liabilities less the fair
value of schemes’ assets. The operating and financing costs of
defined benefit schemes are recognised separately in the income
statement. Operating costs comprise the current service cost, any
gains or losses on settlement or curtailments, and past service
costs where benefits have vested. Finance items comprise the
unwinding of the discount on schemes’ liabilities and the
expected return on schemes’ assets. Actuarial gains or losses
comprising differences between the actual and expected return
on schemes’ assets, changes in schemes’ liabilities due to
experience and changes in actuarial assumptions are recognised
immediately in the Statement of recognised income and
expense.
Pension costs for the defined contribution plans represent
the amount of contributions payable in respect of the
accounting period.
Government grants
Government grants relating to non-current assets are treated as
deferred income and credited to the income statement by equal
instalments over the anticipated useful lives of the assets to
which the grants relate. Other grants are credited to the income
statement over the period of the project to which they relate.
Research and development
Research costs are written-off as incurred. Development costs
incurred in the development of new or substantially improved
products and processes are capitalised as intangible assets if it is
probable that the expenditure will generate future economic
benefits and can be measured reliably. Such costs are amortised
on a straight-line basis over three years.
Share based payments
The fair value at the date of grant of share based remuneration is
calculated using appropriate pricing models and charged to the
income statement on a straight-line basis over the vesting period
of the award. The charge to the income statement takes account
of the estimated number of shares that will vest. All share based
remuneration is equity settled.
The Group’s primary reporting format is business segments
which are subject to similar risks and returns. The secondary
format is geographical segments.
Critical judgements in applying the entity’s
accounting policies
There were no material transactions or events during
the year requiring critical judgements in applying the
Group’s accounting policies.
However in preparing the accounts, there are a number of
sources of estimation uncertainty that have a significant risk
of resulting in a material adjustment to the carrying amounts of
assets and liabilities within the next financial year. These are
shown below.
Key sources of estimation uncertainty
i Recoverability of internally generated intangible assets
The recoverability of capitalised development costs is dependent
on assessments of the future commercial viability of the relevant
products and processes. The carrying amount of £18.3 million at
31 December 2008 is considered to be fairly stated.
ii Impairment of goodwill
The carrying amount of goodwill is £74.5 million. This has been
tested for impairment by estimating the value in use of the cash
generating units to which it has been allocated. The value in use
is estimated by discounting future cash flows. This process gives
rise to uncertainty in respect of the cash flows themselves and
the discount factors applied.
iii Defined benefit pension obligations
The defined benefit pension obligations are calculated using a
number of assumptions, such as future inflation, salary increases
and mortality and the obligation is then discounted to its present
value using an assumed discount rate. The pension deficit of
£18.6 million at 31 December 2008 has been calculated using the
assumptions set out in note 30.
iv Provisions
The Group makes appropriate provision on a consistent
basis for risks of product liability, litigation, credit risk and other
normal trading exposures.
Discontinued operations
v Deferred tax
The Group reports a business as a discontinued operation when
its sale, probable sale or abandonment results in the cessation of
a major line of business or geographical area of operation.
The recognition of deferred tax assets is dependent on
assessments of future taxable income in the countries
concerned.
44
TT electronics plc Annual Report 2008
Group accounts
213447_TT_REPORT_P37_76:213447_TT_REPORT_P37_76 2/4/09 10:36 Page 45
Notes to the consolidated financial statements
1
Segmental reporting
The Group’s primary reporting segments for 2007 and 2008 were the following business sectors
(cid:127) Sensors and electronic systems – manufactured for major automotive and other customers.
(cid:127) Electronic components – resistors, microcircuits, potentiometers and trimmers, power control modules.
(cid:127) Electronic manufacturing services – printed circuit board and higher level assemblies.
(cid:127) Secure power and industrial – standby and continuous power systems, electrical transmission and connection systems and
insulation products.
– Sensors and electronic systems
– Electronic components
– Electronic manufacturing services
– Secure power and industrial
Total
Exceptional operating items (note 4)
Operating profit
Finance income (note 2)
Finance costs (note 2)
Profit before tax
Taxation (note 5)
Profit for the year from continuing operations
There are no significant sales between sectors.
– Sensors and electronic systems
– Electronic components
– Electronic manufacturing services
– Secure power and industrial
Sector assets and liabilities – continuing operations
Pensions and other post employment benefits
Unallocated assets and liabilities
2008
£million
162.1
164.4
56.9
83.6
467.0
–
15.6
Assets
2007
£million
134.7
120.8
50.2
62.0
367.7
–
11.8
Total net assets
482.6
379.5
2008
£million
189.2
145.2
103.4
146.5
584.3
Revenue
2007
£million
182.3
131.2
92.2
139.2
544.9
Sector result
2008
£million
2007
£million
0.8
7.3
6.0
12.9
27.0
(3.8)
23.2
18.1
(24.0)
17.3
(5.7)
11.6
10.0
10.0
4.1
13.6
37.7
–
37.7
18.3
(22.7)
33.3
(9.3)
24.0
Liabilities
2007
£million
29.6
21.4
17.8
21.9
90.7
17.4
89.1
Total capital
employed
2007
£million
105.1
99.4
32.4
40.1
277.0
(17.4)
(77.3)
2008
£million
127.8
134.4
34.7
54.0
350.9
(18.6)
(119.4)
197.2
212.9
182.3
2008
£million
34.3
30.0
22.2
29.6
116.1
18.6
135.0
269.7
45
TT electronics plc Annual Report 2008
Group accounts
213447_TT_REPORT_P37_76:213447_TT_REPORT_P37_76 2/4/09 10:36 Page 46
Notes to the consolidated financial statements continued
1
Segmental reporting continued
– Sensors and electronic systems
– Electronic components
– Electronic manufacturing services
– Secure power and industrial
Total – before exceptional items
Exceptional items
Total continuing operations
Geographical segments
Capital additions
Depreciation
and amortisation
2008
£million
2007
£million
2008
£million
2007
£million
20.0
7.6
1.0
4.2
32.8
–
32.8
21.3
11.0
2.3
4.6
39.2
–
39.2
17.1
10.9
2.3
3.6
33.9
0.4
34.3
14.7
10.0
2.4
3.5
30.6
–
30.6
The following is an analysis of the carrying amount of segment assets and additions to property, plant and equipment and intangible
assets analysed by the geographical area in which the assets are located.
Capital additions
Carrying amount
of segment assets
United Kingdom
Rest of Europe
North America
Rest of the World
Total – continuing operations
The Group operates globally. Revenue by geographical destination is:
United Kingdom
Rest of Europe
North America
Rest of the World
2
Finance costs – net
Interest receivable
Expected return on pension scheme assets
Finance income
Interest on bank overdrafts and loans
Interest on finance leases
Unwinding of the discount on pension scheme liabilities
Finance costs
Finance costs – net
2008
£million
2007
£million
2008
£million
6.6
17.6
6.1
2.5
32.8
8.6
21.3
7.2
2.1
39.2
Continuing operations
Discontinued operation
2008
£million
108.3
213.4
154.3
108.3
584.3
2007
£million
2008
£million
2007
£million
111.2
201.1
149.5
83.1
544.9
–
–
–
–
–
31.1
1.6
0.1
4.8
37.6
117.3
114.7
183.8
51.2
467.0
2008
£million
108.3
213.4
154.3
108.3
584.3
Continuing operations
Discontinued operation
2008
£million
2007
£million
2008
£million
2007
£million
2008
£million
0.4
17.7
18.1
4.4
0.1
19.5
24.0
5.9
0.5
17.8
18.3
4.7
0.3
17.7
22.7
4.4
–
–
–
–
–
–
–
–
–
0.7
0.7
0.2
–
0.7
0.9
0.2
0.4
17.7
18.1
4.4
0.1
19.5
24.0
5.9
2007
£million
102.5
89.1
139.2
36.9
367.7
Total
2007
£million
142.3
202.7
149.6
87.9
582.5
Total
2007
£million
0.5
18.5
19.0
4.9
0.3
18.4
23.6
4.6
46
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Group accounts
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3
Profit for the year
Profit for the year is stated after charging/(crediting):
Depreciation of property, plant and equipment
Amortisation of intangible assets included in cost of sales
Net foreign exchange losses
Cost of inventories recognised as an expense
Employee emoluments
Fees to group Auditors
– company and consolidation statutory audits
Fees to group Auditors and associates
– statutory audit of subsidiaries
– tax services
– audit of group pension schemes
Fees to other Auditors
– statutory audit of subsidiaries
– tax services
Government grants credited
Share based payment
4
Exceptional items
AB Automotive Electronics Limited
AB Electronic Limited
Continuing operations
Discontinued operation
2008
£million
23.4
10.9
1.1
480.8
153.9
0.1
0.8
0.2
–
0.1
0.1
(1.4)
0.1
2007
£million
21.0
9.6
0.6
437.0
144.2
0.2
0.6
0.2
0.1
0.1
0.1
(1.2)
0.3
2008
£million
2007
£million
–
–
–
–
–
–
–
–
–
–
–
–
–
0.7
–
–
35.0
6.3
–
–
–
–
–
–
–
–
2008
£million
23.4
10.9
1.1
480.8
153.9
0.1
0.8
0.2
–
0.1
0.1
(1.4)
0.1
Total
2007
£million
21.7
9.6
0.6
472.0
150.5
0.2
0.6
0.2
0.1
0.1
0.1
(1.2)
0.3
2008
£million
2007
£million
2.7
1.1
3.8
–
–
–
The exceptional items are the costs of closing the UK production sites of AB Automotive Electronics Limited and AB Electronic Limited.
Production for AB Electronic Limited is being relocated to Group companies in China and India.
The Group reports income or expenditure as exceptional when the size, nature or function of an item or aggregation of similar items is
such that separate presentation is relevant to an understanding of its financial position.
47
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Notes to the consolidated financial statements continued
5
Taxation
Current tax
Deferred tax (note 22)
Continuing operations
Discontinued operation
2008
£million
2007
£million
2008
£million
2007
£million
2008
£million
5.9
(0.2)
5.7
7.1
2.2
9.3
–
–
–
(1.0)
–
(1.0)
5.9
(0.2)
5.7
Total
2007
£million
6.1
2.2
8.3
UK tax is calculated at 28.5 per cent (2007: 30 per cent) of taxable profit. Overseas tax is calculated at the rates ruling in the relevant
countries. The total tax charge for the year represents an overall rate of 33 per cent (2007: 28 per cent).
The tax charge is explained as follows:
Profit before taxation
Continuing operations
Discontinued operation
Tax at the UK income tax rate
Tax rates of non UK subsidiaries
Utilisation of losses not previously recognised
Losses for which no deferred tax asset is recognised
Expenses not deductible for tax purposes
Other
2008
£million
2007
£million
17.3
–
17.3
4.9
0.6
(1.1)
0.5
0.8
–
5.7
33.3
(12.8)
20.5
6.2
(0.4)
(2.1)
4.0
0.8
(0.2)
8.3
6 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 loan note for £0.9 million forming part of the disposal proceeds was repaid on 3 September 2008.
The amount included in the income statement for this disposal comprises:
Loss after taxation before curtailment gain
Curtailment of pension scheme benefits
Loss on disposal of business and assets
7 Dividends
The following dividends have been paid in the year:
Final dividend for prior year
Interim dividend for current year
2008
£million
–
–
–
–
2008
pence per share
6.36
3.69
10.05
2008
£million
9.9
5.7
15.6
2007
pence per share
6.36
3.69
10.05
The Directors are not recommending the payment of a final dividend for 2008.
48
TT electronics plc Annual Report 2008
Group accounts
2007
£million
(0.6)
1.1
(12.3)
(11.8)
2007
£million
9.9
5.7
15.6
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8
Earnings per share
From continuing operations:
Headline (1)
Basic
Diluted
2008
pence per share
2007
pence per share
9.2
7.5
7.5
15.5
15.5
15.3
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:
Profit for the year attributable to shareholders
Add loss for the year from discontinued operation
Earnings from continuing operations
Weighted average number of shares in issue:
Basic
Adjustment for share options
Diluted
2008
£million
11.6
–
11.6
2008
million
155.0
0.1
155.1
2007
£million
12.2
11.8
24.0
2007
million
154.9
1.5
156.4
(1) Headline earnings per share on continuing operations before exceptional items of 9.2p (2007: 15.5p) is based on the profit for
the year of £11.6 million (2007: £24.0 million) adjusted for exceptional items of £3.8 million (2007: £nil million) less the
associated taxation of £1.1 million (2007: £nil million).
From continuing and discontinued operations:
Basic
Diluted
Profit for the year attributable to shareholders:
Earnings basic and diluted
The denominators are the same as shown above for both basic and diluted earnings per share.
From discontinued operation:
Basic – loss
Diluted – loss
Loss for the year from discontinued operation
The denominators are the same as shown above for both basic and diluted loss per share.
2008
pence per share
2007
pence per share
7.5
7.5
2008
£million
11.6
7.9
7.8
2007
£million
12.2
2008
pence per share
2007
pence per share
–
–
2008
£million
–
(7.6)
(7.5)
2007
£million
(11.8)
49
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Notes to the consolidated financial statements continued
9
Employees
The average number of full time equivalent employees (including Directors) during the year was:
By function
Production
Sales and distribution
Administration
By sector
– Sensors and electronic systems
– Electronic components
– Electronic manufacturing services
– Secure power and industrial
Total continuing operations
Discontinued operation
Total
The aggregate emoluments including those of Directors for the year were:
Wages and salaries
Employers’ social security charges
Employers’ pension costs
Remuneration in respect of the Directors was as follows:
Emoluments
2008
number
6,455
645
492
7,592
2,216
2,642
1,343
1,391
7,592
–
7,592
2008
£million
129.1
21.3
3.5
153.9
2008
£million
1.7
2007
number
6,709
589
463
7,761
2,429
2,707
1,070
1,340
7,546
215
7,761
2007
£million
126.2
19.9
4.4
150.5
2007
£million
1.6
Further details of individual Directors’ remuneration, pension benefits and share options are shown in the Directors’ remuneration
report on pages 31 to 36.
50
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10 Property, plant and equipment
Cost
At 1 January 2007
Additions
Disposal of business
Disposals
Exchange translation differences
At 1 January 2008
Additions
Acquisition of subsidiaries
Disposals
Exchange translation differences
At 31 December 2008
Accumulated depreciation and impairment
At 1 January 2007
Depreciation charge for the year
Disposal of business
Eliminated on disposals
Exchange translation differences
At 1 January 2008
Depreciation charge for the year
Acquisition of subsidiaries
Eliminated on disposals
Exchange translation differences
At 31 December 2008
Carrying amount:
At 31 December 2008
At 31 December 2007
Land and
buildings
£million
Plant and
equipment
£million
Total
£million
55.0
4.9
–
(5.7)
1.7
55.9
3.4
2.6
(3.7)
10.9
292.6
24.5
(10.0)
(23.0)
7.2
291.3
18.5
2.6
(8.7)
60.6
347.6
29.4
(10.0)
(28.7)
8.9
347.2
21.9
5.2
(12.4)
71.5
69.1
364.3
433.4
12.4
1.3
–
(0.4)
0.4
13.7
1.7
–
(2.7)
2.5
226.6
20.4
(8.7)
(21.8)
5.0
221.5
21.7
1.0
(8.3)
44.9
239.0
21.7
(8.7)
(22.2)
5.4
235.2
23.4
1.0
(11.0)
47.4
15.2
280.8
296.0
53.9
42.2
83.5
69.8
137.4
112.0
The following rates are used for the depreciation of property, plant and equipment:
Freehold property
2%
Leasehold land and buildings
2% (or over the period of the lease if less than 50 years)
Plant and equipment
10% to 33%
The carrying amount of land and buildings includes £0.4 million (2007: £0.5 million) in respect of assets held under finance leases.
51
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Notes to the consolidated financial statements continued
11 Goodwill
Cost
At 1 January 2007
Exchange translation differences
At 1 January 2008
Acquisition of subsidiaries
Exchange translation differences
At 31 December 2008
Goodwill is primarily attributed to the following cash generating units in the sectors shown:
BI Technologies – Electronic components
Optek Technology – Sensors and electronic systems
TT electronics integrated manufacturing services, Inc USA – Electronic manufacturing services
TT electronics integrated manufacturing services (Suzhou) Co Ltd – Electronic manufacturing services
New Chapel Electronics
Semelab
£million
53.1
(0.8)
52.3
5.7
16.5
74.5
£million
30.9
23.6
8.4
5.1
3.4
2.3
Goodwill has been tested for impairment by assessing the value in use of the relevant cash generating units. The value in use
calculations were based on projected cash flows for the years 2009 – 18. Cashflows for 2009 are based on the budget for the year,
which was finalised in December 2008 in light of changed economic conditions. Cashflows for 2010 and 2011 are based on the
financial data derived from the strategic review initiated in August 2008 the results of which were announced on 21 January 2009.
The strategic review was conducted for every subsidiary and reviewed in depth by key management and external consultants. The
results of the strategic review have been endorsed by the Board.
In the outer years (2012 – 18), cashflows are based on a prudent level of sales growth of 3% per annum or lower, taking account of
past performance and the strategic review projections. The terminal value has been conservatively estimated as 5 times EBITDA for
the final year.
Cash flows for 2009 – 18 were discounted at 10% per annum, which is the estimated cost of capital for the businesses concerned.
The impairment tests have been subjected to sensitivity analysis using a reduction in annual operating profits of 20%, changing the
terminal value to 3 times EBITDA or changing the discount rate to 12%.
The conclusion reached is that no impairment provision is required.
52
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Group accounts
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12 Other intangible assets
Cost
At 1 January 2007
Additions
Retirements
Exchange translation differences
At 1 January 2008
Additions
Acquisition of subsidiaries
Retirements
Exchange translation differences
At 31 December 2008
Amortisation
At 1 January 2007
Charge for the year
Retirements
Exchange translation differences
At 1 January 2008
Charge for the year
Retirements
Exchange translation differences
At 31 December 2008
Carrying amount
At 31 December 2008
At 31 December 2007
Development
costs
£million
Patents
and licences
£million
Customer
relationships
£million
Total
£million
26.4
9.5
(9.7)
1.5
27.7
10.3
–
(9.3)
7.3
36.0
13.6
8.8
(9.7)
0.7
13.4
10.0
(9.3)
3.6
17.7
18.3
14.3
3.0
0.6
–
0.1
3.7
0.6
0.2
–
0.2
4.7
0.8
0.4
–
0.1
1.3
0.4
–
0.1
1.8
2.9
2.4
1.1
–
–
–
1.1
–
2.3
–
0.2
30.5
10.1
(9.7)
1.6
32.5
10.9
2.5
(9.3)
7.7
3.6
44.3
0.1
0.4
–
–
0.5
0.5
–
0.2
14.5
9.6
(9.7)
0.8
15.2
10.9
(9.3)
3.9
1.2
20.7
2.4
0.6
23.6
17.3
Development costs are amortised over up to three years and are retired when fully written-off. Patents and licences are amortised
over ten years. The attributed value of customer relationships are amortised over 3-8 years.
53
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Group accounts
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Notes to the consolidated financial statements continued
13 Inventories
Raw materials
Work in progress
Finished goods
2008
£million
51.9
24.3
43.8
120.0
Inventories are stated after deduction of a provision for slow moving and obsolete items of £19.0 million (2007: £14.2 million).
The carrying amount of inventories has increased by £19.6 million as a result of currency exchange rate movements.
14 Other financial assets and prepayments
Trade and other receivables
Trade debtors
Prepayments
Other debtors
Loan to Newship Limited
2008
£million
98.1
8.1
5.3
–
111.5
The loan to Newship Limited was repaid on 15 May 2008.
The carrying amount of trade and other receivables approximates to their fair value. The carrying amount of trade and other
receivables has increased by £16.4 million as a result of currency exchange rate movements.
Cash and cash equivalents
2008
£million
10.1
2007
£million
40.4
19.4
31.2
91.0
2007
£million
76.8
8.3
8.0
2.0
95.1
2007
£million
7.6
Cash and cash equivalents comprise bank balances and short-term bank deposits. The carrying amount approximates to fair value.
The Group’s financial assets comprise cash and loans and receivables. The credit risk on the cash and cash equivalents is negligible
because the counterparties are banks with high credit ratings. The carrying amount approximates to fair value.
Trade debtors are stated net of an allowance for estimated irrecoverable amounts of £2.8 million (2007: £2.2 million) and the carrying
amount approximates to fair value. The Group is not reliant on any particular customer in the markets in which it operates and there
is no significant concentration of credit risk.
An analysis of the age of trade debtors that were past due at the year end but for which no impairment provision was made is:
Not more than 3 months
More than 3 months but not more than 6 months
More than 6 months but not more than 1 year
More than one year
2008
£million
20.7
1.4
0.1
–
22.2
2007
£million
20.5
1.7
0.3
0.3
22.8
The Group has strict procedures in place to ensure debts are not entered into without appropriate authorisation and that they are
collected in a timely manner.
Trade debtors are denominated in the currencies in which the Group trades. The Group’s policy is that debtors and creditors not in
the functional currency of the subsidiary concerned are covered by forward foreign currency exchange contracts. The exchange risk
at Group level is therefore restricted to the risk on the translation of overseas assets, liabilities and cash flows into sterling.
54
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14 Other financial assets and prepayments continued
Financial assets analysed by currency are:
Sterling
US dollar
Euro
Other
15 Share capital
Authorised
226,000,000 (2007: 226,000,000) ordinary shares of 25p each
Issued and fully paid
154,952,795 (2007: 154,952,795) ordinary shares of 25p each
The ordinary shares of 25p each are equity share capital.
2008
£million
35.5
24.5
23.3
29.7
113.0
2008
£million
56.5
38.7
2007
£million
32.4
19.4
18.9
23.7
94.4
2007
£million
56.5
38.7
Potential issues of ordinary shares
The Company has share option schemes, which are closed for future grants, and a Long Term Incentive Plan (‘LTIP’) for senior executives.
Details of the share options outstanding during the year are:
At 1 January
Granted
Forfeited
Exercised
Expired
At 31 December
Exercisable at 31 December
Number of
share options
5,136,108
–
(849,302)
–
(141,387)
4,145,419
546,730
2008
Weighted average
exercise price (p)
135.0
–
111.4
–
300.0
134.2
145.0
Number of
share options
5,798,564
–
(315,555)
(154,692)
(192,209)
5,136,108
721,445
2007
Weighted average
exercise price (p)
147.9
–
230.7
145.0
359.0
135.0
145.0
For share options outstanding at 31 December 2008 the range of exercise prices was 80.0p to 205.5p (2007: 80.0p to 300.0p) and the
weighted average remaining contractual life was 3.4 years (2007: 4.4 years). Options are equity settled, have a life of ten years (with
the exception of certain schemes where the options lapse after six years if the performance criteria are not achieved) and vest after
three years. Exercise of the options is conditional on there being an increase in earnings per share over any consecutive three year
period of 2 per cent per annum for options granted prior to 2001 and 4 per cent per annum for options granted after 2000 above the
increase in the Retail Price Index over the same period.
On 24 April 2008 and 28 August 2008 grants of awards were made under the LTIP for the issue of up to 1,019,045 and 556,097 shares
in 2011. During the year, 529,400 shares were forfeited and 2,189,744 shares were outstanding as at 31 December 2008
(2007: 1,144,002 shares).
The award is a contingent right to receive shares in the future, subject to continued employment and the achievement of
predetermined performance criteria. The performance targets attached to awards granted in 2008 are that the Group’s earnings per
share, measured over a three year period, must grow by at least 3 per cent compound per annum in excess of the Retail Price Index.
At this level only 25 per cent of an award will vest. For an award to vest in full, the Group’s earnings per share measured over the same
period must have grown by at least 7 per cent compound per annum in excess of the Retail Price Index. For earnings per share
between these thresholds, the number of shares vesting will be calculated on a proportional basis. Any part of an award that does
not vest after three years where the performance criteria are not reached will lapse.
55
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Group accounts
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Notes to the consolidated financial statements continued
15 Share capital continued
The estimated fair values of the LTIP grants on 24 April 2008 and 28 August 2008 are 82.4p and 74.9p per share respectively. These fair
values were calculated using the following inputs:
Share price
Dividend per annum
Risk free rate
Grant vesting
24 April
110.0p
10.05p
4.5%
25%
28 August
102.5p
10.05p
4.4%
25%
The Group charged £0.1 million (2007: £0.3 million) to the Consolidated income statement in respect of share based payments.
The charge represents the cost allocated to 2008 in respect of the LTIP grants in 2006, 2007 and 2008 offset by a credit of £0.1 million
arising from attrition to options issued in 2003 and 2005.
16 Capital reserves
At 1 January 2007
Share issues
Share based payments
At 1 January 2008
Share based payments
At 31 December 2008
17 Hedging and translation reserves
At 1 January 2007
Exchange differences on translation of foreign operations
Exchange differences on US$124 million borrowings
Cash flow hedges
At 1 January 2008
Exchange differences on translation of foreign operations
Exchange differences on US$124 million borrowings
Cash flow hedges
At 31 December 2008
Share premium account
£million
Share option reserve
£million
Total
£million
–
0.2
–
0.2
–
0.2
0.8
–
0.3
1.1
0.1
1.2
Hedging reserve
£million
Translation reserve
£million
5.2
–
1.1
(0.2)
6.1
–
(22.1)
(2.1)
(18.1)
(11.3)
3.7
–
–
(7.6)
61.5
–
–
53.9
0.8
0.2
0.3
1.3
0.1
1.4
Total
£million
(6.1)
3.7
1.1
(0.2)
(1.5)
61.5
(22.1)
(2.1)
35.8
The cash flow hedges arise from the 2008 profit translation hedges £0.1 million and the forward foreign exchange contracts
hedging 2009 transactions £2.2 million. The effect in the Consolidated income statement of hedges unwinding was £0.5 million
(2007: £nil million).
56
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18 Retained earnings
At 1 January 2007
Profit for the year
Actuarial net gain on defined benefit pension schemes
Deferred tax thereon
Dividends paid
At 1 January 2008
Profit for the year attributable to equity
Actuarial net loss on defined benefit pension schemes
Dividends paid
At 31 December 2008
19 Shareholders’ equity
At 1 January 2007
Profit for the year
Exchange differences on net foreign currency investments
Actuarial net gain on defined benefit pension schemes
Deferred tax on actuarial gain
Dividends paid
Share based payments
Premium on share issues
Cash flow hedges
At 1 January 2008
Profit for the year
Exchange differences on net foreign currency investments
Actuarial net loss on defined benefit pension schemes
Dividends paid
Share based payments
Cash flow hedges
Minority interests
At 31 December 2008
Details of movements in the constituent elements of shareholders’ equity are given in notes 15, 16, 17 and 18.
£million
121.6
12.2
38.3
(14.7)
(15.6)
141.8
11.6
(3.2)
(15.6)
134.6
£million
157.0
12.2
4.8
38.3
(14.7)
(15.6)
0.3
0.2
(0.2)
182.3
11.6
39.4
(3.2)
(15.6)
0.1
(2.1)
0.4
212.9
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Notes to the consolidated financial statements continued
20 Borrowings
Bank overdrafts
Bank loans
Finance leases
The borrowings are repayable as follows:
In one year or less
In more than one year but not more than two years
In more than two years but not more than three years
In more than three years but not more than four years
In more than four years but not more than five years
In more than five years
In more than one year
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
Sterling
US dollar
Euro
Other
2008
£million
22.3
100.5
0.5
123.3
2008
£million
51.2
1.7
70.0
0.1
0.1
0.2
72.1
2008
£million
22.2
89.0
11.7
0.4
Borrowings of £96.9 million (2007: £66.5 million) are at fixed interest rates for an average period of 0.4 years (2007: 0.4 years).
The average interest rates at the balance sheet date were:
Bank overdrafts
Bank loans
Finance leases
The estimated fair value of borrowings is:
Bank overdrafts
Bank loans
Finance leases
2008
%
3.1
4.0
7.8
2008
£million
22.3
100.5
0.5
2007
£million
12.8
67.6
2.2
82.6
2007
£million
16.8
0.6
1.5
62.5
0.3
0.9
65.8
2007
£million
5.2
68.1
8.9
0.4
2007
%
5.7
4.9
7.9
2007
£million
12.8
67.6
2.2
The borrowing facilities available to the Group amounted to £166.2 million (2007: £164.1 million).
At 31 December 2008, the Group had available £14.9 million (2007: £15.4 million) of undrawn committed borrowing facilities.
The Group borrowings are funded mainly through bank overdrafts including short-term committed facilities of £30.0 million and a
committed unsecured £70.0 million multi-currency revolving bank loan facility which expires in April 2011. Under this facility funds
can be drawn in sterling, US dollars or euros or a combination thereof at fixed rates of interest for periods varying from one month to
a year. Interest rates are at a fixed margin over the inter-bank borrowing rate at the date the funds are drawn. The amount drawn
down in dollars at 31 December 2008 is required to be rebalanced to £70.0 million at the prevailing rate in June 2009 and periodically
thereafter and forward contracts have been taken towards covering this positition.
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20 Borrowings continued
Interest rate hedge
At 31 December 2008 the Group had an interest rate cap applying to $50.0 million at a rate of 4.75% from 4 February 2008 to
4 February 2010. This cap is designated as a cash flow hedge and marked to market at the year end. At 31 December 2008 and
31 December 2007 the market value was £nil million.
Hedge of net investment
The Group has designated $124.0 million (2007: $124.0 million) of its borrowings as a currency hedge of its US dollar denominated
net assets. This is an effective partial hedge. The net result of translating the US dollar net assets and the $124.0 million of borrowings
is dealt with in the translation reserve and reported in the Consolidated statement of recognised income and expense, together with
the exchange difference arising from the translation of the Group’s other overseas net assets.
In 2008 there was a net gain of £39.4 million (2007: £4.8 million) on translation of overseas assets after accounting for this hedge.
21 Derivative financial instruments
Forward foreign currency contracts
2008
Liabilities
£million
2.9
2007
Liabilities
£million
0.7
The Group uses forward foreign exchange contracts to reduce currency exposures on sales and purchasing transactions for up to
a year ahead. In January 2006 the Group purchased an interest rate cap of 5.0 per cent for the period 2 February 2006 to 4 February
2008 for $50.0 million of its borrowings. A further interest rate cap on $50.0 million of borrowings for the period 4 February 2008 to
4 February 2010 was purchased in November 2007. These caps are designated as hedges of the interest expense relating to the
$124.0 million loan.
The Group hedged the effect of currency movements against sterling on the translation of 2008 profit earned in euros and US
dollars, by selling forward euros and US dollars for sterling at fixed exchange rates. At 31 December 2007 contracts were in place for
$10.0 million and euro 4.0 million. Subsequently contracts for the sale of a further euro 4.0 million were entered into. The contracts
were marked to market at 31 December 2007 and were a net liability of £0.1 million. No hedges against the effect of currency
movements against sterling on the translation of 2009 profits were in place at 31 December 2008.
The Group’s financial assets and liabilities are sensitive to movements in currency exchange rates against sterling. Analysis of financial
assets and liabilities by currency are given in notes 14 and 25, the major overseas currencies being the US dollar and the euro . The
effect of any such currency movement on the net financial liabilities is reported in equity in the Group accounts.
US dollar
Euro
– effect of 10% strengthening : a reduction in equity of £7.6 million
– effect of 10% strengthening : no significant net effect
Whilst the Group had a net financial liability in US dollars, overall it had a net asset position when taking into account inventory and
non-current assets. Details of the Group’s exposure to risk are given on pages 19 to 20 of the Business review.
59
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Notes to the consolidated financial statements continued
22 Deferred tax
At 1 January 2007
Income statement
Charge to equity
Exchange differences
At 1 January 2008
Income statement
Exchange differences
At 31 December 2008
Deferred tax assets
Deferred tax liabilities
Accelerated
Deferred
capital development
costs
£million
allowances
£million
(5.9)
1.0
–
(0.5)
(5.4)
0.6
(1.6)
(6.4)
(3.4)
(0.7)
–
–
(4.1)
(0.1)
(1.3)
(5.5)
Retirement
benefit
obligations
£million
Other
£million
Total
£million
21.9
(2.9)
(14.7)
–
4.3
–
(0.2)
4.1
2008
£million
5.5
(8.7)
3.0
0.4
–
–
3.4
(0.3)
1.5
4.6
15.6
(2.2)
(14.7)
(0.5)
(1.8)
0.2
(1.6)
(3.2)
2007
£million
4.2
(6.0)
At 31 December 2008 the Group had unused tax losses of £14.0 million (2007: £13.9 million) for which no deferred tax asset has been
recognised. None of these tax losses have an expiry date.
At the balance sheet date the aggregate unrecognised deferred tax liability in respect of undistributed earnings of subsidiaries is
£2.1 million (2007: £2.2 million).
23 Obligations under finance leases
Amounts payable under finance leases:
One year or less
Between one and five years
Over five years
Minimum
Present value of
lease payments minimum lease payments
2008
£million
2007
£million
2008
£million
2007
£million
0.1
0.3
0.2
0.4
1.4
1.1
0.1
0.2
0.2
0.3
1.0
0.9
The obligations derive mainly from property leases where the risks and rewards of ownership are considered to be with the Group
and which are therefore accounted for as finance leases. The average implicit interest rate used to evaluate the obligations is
8 per cent (2007: 8 per cent). The fair value of the lease obligation approximates to carrying amount. Total minimum lease payments
include £0.1 million (2007: £0.7 million) of future finance costs.
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24 Provisions for liabilities
Reorganisation
£million
Environmental
£million
At 1 January 2008
Reclassification
Utilised
Transfer from/(to) Consolidated income statement
At 31 December 2008
–
–
(1.3)
3.8
2.5
0.6
–
(0.4)
(0.1)
0.1
Legal and
other claims
£million
0.4
2.3
(0.2)
0.6
3.1
The reorganisation provision relates to the closure of production sites of AB Automotive Electronics Limited and AB Electronic
Limited, see note 4. The environmental provision is for probable clean up costs of ex-production sites. Legal and other claims
represent the best estimate for the cost of settling outstanding product and other claims.
The total provisions are analysed:
Non-current
Current
25 Trade and other payables
Current liabilities
Trade creditors
Taxation and social security
Other creditors, accruals and deferred income
Non-current liabilities
Accruals and deferred income
Other creditors
2008
£million
0.1
5.6
5.7
2008
£million
58.7
4.7
36.0
99.4
8.0
–
8.0
Total
£million
1.0
2.3
(1.9)
4.3
5.7
2007
£million
0.7
0.3
1.0
2007
£million
51.1
3.9
26.9
81.9
5.3
2.3
7.6
The carrying amount of trade and other payables approximates to their fair value. Trade and other payables have increased by
£14.3 million as a result of currency exchange rate movements.
Trade and other payables are denominated in the currencies in which the Group trades. The Group’s policy is that trade debtors
and creditors not in the functional currency of the subsidiary concerned are covered by forward foreign currency exchange
contracts. The exchange risk at Group level is therefore restricted to the risk on the translation of overseas assets, liabilities and cash
flows into sterling.
Financial liabilities comprising trade and other creditors, bank overdrafts and other borrowings analysed by currency are:
Sterling
US dollar
Euro
Other
2008
£million
52.2
100.6
22.6
17.7
193.1
2007
£million
32.4
77.9
18.5
13.3
142.1
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Notes to the consolidated financial statements continued
26 Acquisition of subsidiaries
The Group acquired New Chapel Electronics Limited on 2 April 2008 and assets comprising the majority of the business of Semelab
Limited on 21 August 2008. The Group owns 100 per cent of the equity of the acquired entities.
The net assets acquired and the goodwill arising are as follows:
New Chapel Electronics
Book value
£million
Fair value
£million
Semelab
Book value
£million
Fair value
£million
Total
Fair value
£million
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Tax payables
Goodwill
Total consideration
Net outflows arising
Cash consideration
Cash costs
Net cash outflow
Deferred consideration, capped at £1.0 million
Total consideration
–
0.2
0.7
0.8
(0.9)
(0.1)
0.7
1.3
0.3
0.6
0.8
(1.0)
(0.2)
1.8
3.4
5.2
–
3.5
2.1
1.9
(1.6)
–
5.9
1.2
3.9
2.2
2.0
(1.9)
–
7.4
2.3
9.7
2.5
4.2
2.8
2.8
(2.9)
(0.2)
9.2
5.7
14.9
£million
13.6
0.3
13.9
1.0
14.9
New Chapel Electronics Limited designs and manufactures specialist interconnection systems and is based in the United Kingdom.
The goodwill on acquisition arises because it complements the Group’s existing interconnection systems business by providing
improved sales channels to the high margin military and civil aerospace market. New Chapel Electronics Limited is included in the
secure power and industrial sector and contributed revenue of £4.8 million and operating profit of £0.3 million since acquisition.
If the acquisition had been for the full financial year, revenue would have been £6.2 million and operating profit would have been
£0.4 million.
Semelab Limited designs and produces specialised radio frequency and power semiconductors, optoelectronic components
and power microcircuits primarily for the UK and European markets. The goodwill on acquisition arises from the broadening of the
Group’s product range, joint R&D efforts for new products and the Group’s sales presence in North America providing the resources
for expansion. Semelab Limited is included in the electronic components sector and contributed revenue of £4.6 million and
operating profit of £0.5 million. If the acquisition had been made on 1 January 2008, revenue would have been £12.2 million and
operating profit would have been £1.3 million.
27 Contingent liabilities
The Group has contingent liabilities amounting to £2.7 million (2007: £1.4 million) in respect of performance bonds and guarantees
entered into in the normal course of business. The Group is the subject of claims which arise in the ordinary course of business. Other
than those for which provisions have been included within note 24, the Directors consider the likelihood of any other claims giving
rise to a liability to be remote.
28 Capital commitments
Contractual commitments for the purchase of property, plant and equipment
2008
£million
6.3
2007
£million
7.4
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29 Operating leases
Minimum operating lease payments charged to operating profit:
Fixtures and equipment
Land and buildings
2008
£million
0.3
4.6
The Group has outstanding commitments under non-cancellable operating leases, which fall due as follows:
In less than one year
Between one and five years
After five years
2008
£million
4.6
11.0
4.2
2007
£million
0.3
4.1
2007
£million
3.5
7.5
2.9
Lease terms for land and buildings are predominantly for less than ten years with rents fixed for an average of four years. There are no
contingent rents.
30 Retirement benefit schemes
Defined contribution schemes
The Group operates defined contribution schemes in the United Kingdom and the Rest of the World and 401(k) plans in North
America. The assets of these schemes are held independently of the Group. The total contributions charged by the Group in respect
of defined contribution schemes were £1.6 million (2007: £1.6 million).
Defined benefit schemes
The Group operated one significant defined benefit pension scheme in the United Kingdom and two overseas. The Company has
reached agreement with the UK scheme for additional fixed contributions extending to 2016 based on the actuarial deficit at April
2007. These planned contributions amount to: 2009 £2.2 million, 2010 £3.2 million, 2011 £3.5 million then increasing by £0.2 million
each year to £4.5 million in 2016. A curtailment gain of £1.2 million arises from the closure of the AB Automotive Electronics business
and the extension of the freeze on pensionable salaries by one year. The Group also operates defined benefit schemes in the
United States and Japan. All these schemes are closed to new members. Actuarial valuations of the schemes were carried out by
independent qualified actuaries in 2007 and 2008 using the projected unit credit method. These actuarial valuations have been
updated by the actuaries to assess the assets and liabilities of the schemes at 31 December 2008. Pension scheme assets are stated
at market value at 31 December 2008.
The principal assumptions used for the purpose of the actuarial valuations were as follows:
Discount rate
Inflation rate
Increases to pensions in payment
Salary increases to April 2010 (pensionable salaries have been frozen)
Salary increases thereafter
2008
%
6.1
2.9
2.2 – 2.9
–
3.4
2007
%
6.0
3.2
2.5 – 3.2
–
3.7
A decrease in the discount rate by 0.1% per annum increases the liabilities by approximately £5.6 million. An increase in the inflation
rate of 0.1% per annum increases the liabilities by approximately £4.2 million.
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:
Equities
Bonds
Gilts and cash
2008
Second half
2008
First half
2007
Second half
2007
First half
7.5
6.1
4.5
7.2
5.6
4.2
7.9
5.5
4.9
7.0
4.5
4.0
The mortality tables applied by the actuaries at 31 December 2008 were PA92 MC + two years.
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Notes to the consolidated financial statements continued
30 Retirement benefit schemes continued
The amounts recognised on the Consolidated balance sheet are:
Equities
Bonds
Gilts and cash
Swaps
Fair value of assets
Present value of funded obligation
2008
£million
174.7
25.8
48.7
33.9
2007
£million
182.0
12.4
103.8
–
283.1
(301.7)
298.2
(315.6)
2006
£million
187.8
10.9
73.4
–
272.1
(344.7)
2005
£million
170.5
2.9
72.3
–
2004
£million
154.6
4.0
44.9
–
245.7
(335.9)
203.5
(274.4)
Net liability recognised on the Consolidated balance sheet
(18.6)
(17.4)
(72.6)
(90.2)
(70.9)
The schemes’ assets do not include the Group’s financial instruments nor any property occupied by, or other assets used by the Group.
Swaps are liability driven hedges.
Amounts recognised in the Consolidated income statement are:
Current service cost
Interest on obligation
Expected return on schemes’ assets
2008
£million
1.9
19.5
(17.7)
2007
£million
2.8
18.4
(18.5)
Of the current service cost of £1.9 million (2007: £2.8 million), £1.3 million (2007: £1.5 million) is included in cost of sales in the
income statement, £0.3 million (2007: £0.3 million) is included in distribution costs and £0.3 million (2007: £1.0 million) is included in
administrative expenses. The actual return on schemes’ assets was a loss of £7.7 million (2007: a gain of £19.0 million). Actuarial
gains and losses are recognised directly in retained earnings and reported in the Consolidated statement of recognised income and
expense and, since transition to IFRS, amount to a net gain of £2.1 million.
Changes in the present value of the defined benefit obligation are:
Opening defined benefit obligation
Current service cost
Interest on obligation
Scheme participant contributions
Curtailment
Change in actuarial estimates and assumptions
Exchange differences
Benefits paid
Closing defined benefit obligation
Changes in the fair value of the schemes’ assets are:
Opening fair value of schemes’ assets
Expected return on schemes’ assets
(Deficit)/excess of actual over expected returns
Contributions by employer
Contributions by employees
Exchange differences
Benefits paid
Closing fair value of schemes’ assets
2008
£million
315.6
1.9
19.5
1.2
(1.2)
(22.2)
2.2
(15.3)
301.7
2008
£million
298.2
17.7
(25.4)
5.1
1.2
1.6
(15.3)
283.1
2007
£million
344.7
2.8
18.4
1.5
(1.1)
(37.8)
–
(12.9)
315.6
2007
£million
272.1
18.5
0.5
18.5
1.5
–
(12.9)
298.2
64
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30 Retirement benefit schemes continued
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:
Experience adjustments on schemes’ liabilities
Experience adjustments on schemes’ assets
2008
£million
22.2
(25.4)
2007
£million
2006
£million
37.8
0.5
(6.2)
9.4
2005
£million
(47.6)
21.6
2004
£million
(19.1)
8.9
The Group expects to contribute approximately £5 million to defined benefit schemes in 2009.
31 Related party transactions
All related party transactions are with entities in which J W Newman was interested during the year.
TT electronics plc
Subsidiaries
TT electronics plc
Subsidiaries
Purchase of goods
and services
Sale of goods
and services
2008
£000
1
–
1
2007
£000
2008
£000
2007
£000
–
–
–
9
–
9
1
–
1
2008
£000
165
2
167
Rents paid
Rents received
2007
£000
165
3
168
2008
£000
5
–
5
2007
£000
28
–
28
Amounts owed
by related parties
Amounts owed
to related parties
2008
£000
–
–
–
2007
£000
5
–
5
2008
£000
16
–
16
2007
£000
16
–
16
Sales and purchases of goods and services were on normal credit terms at third party prices. Rentals, which included for premises
used by J W Newman in performing duties as executive Chairman, were calculated on open market bases and paid to agreed terms.
As part of the demerger from TT electronics on 14 May 2001 two loans totalling £8 million were made to Newship Limited (formerly
Send Group Limited). Subsequently, Newship Limited became a related party on 15 November 2002. One loan of £6.0 million was
repaid in 2004 and the other of £2.0 million was repaid on 15 May 2008. Interest on the loan amounted to £46,000 (2007: £130,000)
of which £nil (2007: £34,000) was outstanding at the year end.
Compensation of key management personnel
The remuneration of key management during the year was as follows:
Short-term benefits
Compensation for loss of office
Post-employment benefits
Share based payments
2008
£million
2.3
0.4
0.2
0.1
3.0
2007
£million
2.7
–
0.2
0.1
3.0
Key management personnel comprise the Directors, Company Secretary and Divisional Chief Executives. Their compensation is
considered and recommended to the Board by the Remuneration Committee.
32 Post balance sheet event
On 21 January 2009, the Group announced the results of its strategic review, details of which are given in the Business review
and on the Group’s website. The strategic review reported the exit from the climate control business and European and other
restructurings which were estimated to have an exceptional cost of £12.8 million in 2009 and from which substantial cost savings
were anticipated.
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Report of the Independent Auditors to the members of TT electronics plc
We have audited the Company financial statements of
TT electronics plc for the year ended 31 December 2008 which
comprise the balance sheet, the accounting policies for the
Company financial statements and notes 1 to 13. These Company
financial statements have been prepared under the accounting
policies set out therein. We have also audited the information in
the Directors’ remuneration report that is described as having
been audited.
We have reported separately on page 37 on the consolidated
financial statements of TT electronics plc for the year ended
31 December 2008.
This report is made solely to the Company’s members, as a body,
in accordance with Section 235 of the Companies Act 1985.
Our audit work has been undertaken so that we might state to
the Company’s members those matters we are required to state
to them in an auditors’ report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of Directors and Auditors
The Directors’ responsibilities for preparing the Annual Report,
the Directors’ remuneration report and the parent company
financial statements in accordance with United Kingdom law and
Accounting Standards (United Kingdom Generally Accepted
Accounting Practice) are set out in the Statement of Directors’
Responsibilities.
Our responsibility is to audit the Company financial statements
and the part of the Directors’ remuneration report to be audited
in accordance with relevant legal and regulatory requirements
and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the Company
financial statements give a true and fair view and whether the
Company financial statements and the part of the Directors’
remuneration report to be audited have been properly prepared
in accordance with the Companies Act 1985. We also report to
you whether in our opinion the information given in the
Directors’ report is consistent with the financial statements.
In addition we report to you if, in our opinion, the Company
has not kept proper accounting records, if we have not received
all the information and explanations we require for our audit, or if
information specified by law regarding Directors’ remuneration
and other transactions is not disclosed.
We read other information contained in the Annual Report and
consider whether it is consistent with the audited Company
financial statements. The other information comprises only the
Directors’ report, the unaudited part of the Directors’ remuneration
report, the Chairman’s statement, the Business review, the Directors’
report on corporate governance and the historical record. We
consider the implications for our report if we become aware of
any apparent misstatements or material inconsistencies with the
Company financial statements. Our responsibilities do not extend
to any other information.
Basis of audit opinion
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) issued by the Auditing
Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the parent
company financial statements and the part of the Directors’
remuneration report to be audited. It also includes an assessment
of the significant estimates and judgments made by the Directors
in the preparation of the Company financial statements, and of
whether the accounting policies are appropriate to the Company’s
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary in
order to provide us with sufficient evidence to give reasonable
assurance that the Company financial statements and the part of
the Directors’ remuneration report to be audited are free from
material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the
overall adequacy of the presentation of information in the
Company financial statements and the part of the Directors’
remuneration report to be audited.
Opinion
In our opinion:
(cid:127) the Company financial statements give a true and fair view,
in accordance with United Kingdom Generally Accepted
Accounting Practice, of the state of the Company’s affairs as
at 31 December 2008;
(cid:127) the Company financial statements and the part of the Directors’
remuneration report to be audited have been properly prepared
in accordance with the Companies Act 1985; and
(cid:127) the information given in the Directors’ report is consistent with
the financial statements.
Grant Thornton UK LLP
Registered Auditors, Chartered Accountants
London, 13 March 2009
66
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Company balance sheet
at 31 December 2008
Fixed assets
Tangible assets
Investments
Current assets
Debtors
Financial derivatives
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Total net assets
Capital and reserves
Share capital
Share premium
Profit and loss account
Shareholders’ funds
Approved by the Directors on 13 March 2009 and signed on their behalf by:
G Anderson
Director
S D Dasani
Director
Note
1
2
3
5
4
4
6
8
8
2008
£million
2.3
132.3
134.6
122.0
–
–
122.0
(20.6)
101.4
236.0
(70.0)
166.0
38.7
0.2
127.1
166.0
2007
£million
2.4
139.3
141.7
105.8
–
0.3
106.1
(5.5)
100.6
242.3
(62.2)
180.1
38.7
0.2
141.2
180.1
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Accounting policies for the Company financial statements
Foreign currencies
Assets and liabilities denominated in foreign currencies are
translated into sterling at the rates of exchange ruling at the
balance sheet date.
Share based payments
The fair value at the date of grant of share based remuneration,
principally share options, is calculated using a binomial pricing
model and charged to the profit and loss account on a straight-
line basis over the vesting period of the award. The charge to the
profit and loss account takes account of the estimated number of
shares that will vest. All share based remuneration is equity
settled.
Leases
Payments on operating leases are charged to the profit and loss
account on a straight-line basis over the lease term.
Financial instruments
Derivative financial instruments used to manage exposure to
interest rate risk and to changes in currency exchange rates are
measured at fair value. All changes in fair value are recognised in
the profit and loss account.
The financial statements of TT electronics plc (the Company)
have been prepared under the historical cost convention as
modified by the revaluation of financial assets and derivatives
held at fair value in accordance with applicable United Kingdom
accounting standards.
The principal accounting policies of the Company are:
Tangible fixed assets and depreciation
Tangible fixed assets are stated at cost less a provision for
depreciation. Depreciation is calculated so as to write-off the cost
less estimated residual value of tangible fixed assets, in equal
instalments over their expected useful lives. No depreciation is
provided on freehold land. The depreciation rates for the major
categories of asset are given in note 1. The carrying values of
fixed assets are reviewed for impairment when there is an
indication that the assets may be impaired.
Investments
Investments in subsidiaries are carried at cost less amounts
written-off.
Deferred taxation
Deferred taxation is the taxation attributable to timing
differences between the results computed for taxation purposes
and results as stated in the financial statements. It is recognised
on all timing differences where the transaction or event which
gives the Company an obligation to pay more tax, or the right to
pay less tax in the future, has occurred by the balance sheet date.
Deferred tax assets are recognised when it is more likely than not
that they will be recovered. Deferred tax is measured using the
rates of tax enacted or substantively enacted by the balance
sheet date.
Pension costs
The Company is a member of a multi-employer defined benefit
scheme. The Company cannot identify its share of the scheme
assets and liabilities. Pension costs are therefore accounted for
under the rules for defined contribution schemes and represent
the contributions payable in respect of the period.
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Notes to the Company financial statements
1
Tangible fixed assets
Cost at 31 December 2008 and 1 January 2008
Depreciation at 1 January 2008
Charge for the year
Depreciation at 31 December 2008
Net book amounts
At 31 December 2008
At 31 December 2007
Freehold land
and buildings
£million
Plant, equipment
and vehicles
£million
2.9
0.6
0.1
0.7
2.2
2.3
0.7
0.6
–
0.6
0.1
0.1
Total
£million
3.6
1.2
0.1
1.3
2.3
2.4
Freehold land and buildings includes a carrying value for freehold land of £0.6 million (2007: £0.6 million).
No depreciation is provided on freehold land. Depreciation is provided on other assets at the following rates:
Freehold buildings
Plant, equipment and vehicles
2%
10% to 33%
2
Fixed asset investments
At 1 January 2008
Provision
At 31 December 2008
Subsidiary undertakings
£million
139.3
(7.0)
132.3
The Company’s principal operating subsidiary undertakings and the location of their principal operations are shown in note 13.
The Company owns 100 per cent of the ordinary share capital or equivalent and 100 per cent of voting rights of all subsidiary
undertakings other than Thuthuka Conductors and Insulations (Pty) Ltd which is 74 per cent owned, Padmini TT Electronics Private
Limited which is 51 per cent owned and Rodco Limited, which is non-trading and is 60 per cent owned. Shareholdings are held
indirectly for all principal operating subsidiary undertakings.
3 Debtors
Amounts falling due within one year
Trade debtors
Amounts owed by subsidiary undertakings
Prepayments and accrued income
Corporation tax
Loan to Newship Limited
2008
£million
0.1
116.7
0.6
4.6
–
122.0
2007
£million
0.1
93.6
1.0
9.1
2.0
105.8
69
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Notes to the Company financial statements continued
4
Creditors
Amounts falling due within one year
Short-term borrowings (note 5)
Trade creditors
Amounts owed to subsidiary undertakings
Taxation and social security
Accruals and deferred income
Amounts falling due after more than one year
Bank loans (note 5)
5
Borrowings and financial derivatives
2008
£million
2007
£million
14.4
0.8
2.3
0.5
2.6
20.6
70.0
–
0.5
1.7
0.5
2.8
5.5
62.2
The Company’s principal borrowing is under a committed unsecured multi-currency loan facility which expires in April 2011. Under
this facility funds can be drawn in either sterling, US dollars or euros or a combination thereof at fixed rates of interest for periods
varying from one month to one year. Interest rates are at a fixed margin over the appropriate inter-bank borrowing rate at the date
the funds are drawn. In November 2007 the Company purchased an interest rate cap of 4.75% on $50.0 million of borrowings for the
period 4 February 2008 to 4 February 2010.
The carrying amounts of the Company’s borrowings are denominated in the following currencies:
Sterling
US dollars
The borrowings are repayable as follows:
On demand or within one year
In the third year
In the fourth year
2008
£million
–
84.4
84.4
2008
£million
14.4
70.0
–
84.4
2007
£million
–
62.2
62.2
2007
£million
–
–
62.2
62.2
The fair value of borrowings is the same as their carrying value. At 31 December 2008, the Company had committed undrawn
borrowing facilities available of £nil million (2007: £7.8 million). There are other substantial committed and uncommitted borrowing
facilities available to the Group.
Financial derivatives
Current assets
Interest rate cap
6
Share capital
Authorised
226,000,000 (2007: 226,000,000) ordinary shares of 25p each
Issued called up and fully paid
154,952,795 (2007: 154,952,795) ordinary shares of 25p each
Ordinary shares of 25p each are equity share capital.
2008
£million
–
2008
£million
56.5
38.7
2007
£million
–
2007
£million
56.5
38.7
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Share option schemes
At 31 December 2008 options were exercisable over 4,145,419 (2007: 5,136,108) ordinary shares under the Group share option
schemes up to 2015. Subscription prices range from 80.0p to 205.5p with a weighted average of 134.2p. Subsequent to 31 December
2008 no options have been exercised. Following the approval of the Long Term Incentive Plan 2005 at the Extraordinary General
Meeting held on 20 October 2006, all existing share option schemes were closed for future grants.
1994 Executive scheme
This scheme for senior executives was approved at the Annual General Meeting on 24 May 1994. The options outstanding at the date
of this report are over 888,550 ordinary shares and such options are:
Exercisable
on or after
31.03.2002
28.03.2003
18.04.2004
03.04.2005
26.03.2006
Options
82,236
158,452
153,195
220,042
274,625
Subscription
price (p)
177.5
91.5
163.0
165.0
80.0
1996 Executive scheme
This scheme for senior executives was approved at the Annual General Meeting on 14 May 1996. The options outstanding at the date
of this report are over 2,221,299 ordinary shares and such options are:
Exercisable
on or after
31.03.2002
15.09.2002
28.03.2003
18.04.2004
23.05.2004
03.04.2005
26.03.2006
Options
40,616
367,645
336,441
72,190
336,083
273,277
795,047
Subscription
price (p)
177.5
136.0
91.5
163.0
166.0
165.0
80.0
Options issued under the 1994 and 1996 Executive Share Option Schemes may not generally be exercised for a period of three years
from the date of grant and are conditional on there being an increase in earnings per share over any consecutive three year period
between the date of grant and the date of exercise of 2 per cent per annum for options granted prior to 2001 and 4 per cent for
options granted after 2000 above the increase in the All Items Index of Retail Prices over the same period. For this purpose earnings
per share on any relevant date is that derived from the audited financial statements of the Company and its subsidiaries last
published prior to such date.
2004 Approved Plan
This scheme for senior executives was approved at the Annual General Meeting on 19 May 2004. The options outstanding at the date
of this report are over 224,830 ordinary shares and such options are:
Exercisable
on or after
25.05.2007
07.04.2008
Options
126,400
98,430
Subscription
price (p)
145.0
205.5
71
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Notes to the Company financial statements continued
2004 Unapproved Plan
This scheme for senior executives was approved at the Annual General Meeting on 19 May 2004. The options outstanding at the date
of this report are over 810,740 ordinary shares and such options are:
Exercisable
on or after
25.05.2007
17.04.2008
Options
420,330
390,410
Subscription
price (p)
145.0
205.5
Options issued under the 2004 Approved and Unapproved Company Share Option Plans may not generally be exercised for a period
of three years from the date of grant and are conditional on there being growth in the Group’s earnings per share exceeding the
Retail Price Index by an average of 4 per cent per annum over a period of three consecutive years prior to exercise. Any year in which
earnings per share is negative cannot be included. For this purpose the earnings per share on any relevant date is that derived from
the audited financial statements of the Company and its subsidiaries last published prior to such date.
Long Term Incentive Plan 2005
This scheme for senior executives was approved at the Extraordinary General Meeting held on 20 October 2006. On 24 April 2008
and 28 August 2008 grants of awards were made under the Long Term Incentive Plan 2005 for the issue of up to 1,019,045 and
556,097 shares in 2011.
The awards outstanding at the date of this report are over 2,189,744 ordinary shares and such awards potentially vest on the
following dates:
Normal vesting date
16.01.2010
31.05.2010
24.04.2011
28.08.2011
Shares
472,203
462,387
699,057
556,097
The award is a contingent right to receive shares in the future, subject to continued employment and the achievement of
predetermined performance criteria. The performance targets attached to awards granted in 2007 and 2008 are that the Group’s
earnings per share, measured over a three-year period, must grow by at least 3 per cent compound per annum in excess of the Retail
Price Index. At this level only 25 per cent of an award will vest. For an award to vest in full, the Group’s earnings per share measured
over the same period must have grown by at least 7 per cent compound per annum in excess of the Retail Price Index. For earnings
per share between these thresholds, the number of shares vesting will be calculated on a proportional basis. Any part of an award
that does not vest after 3 years where the performance criterion is not reached will lapse.
7
Share based payments
Details of the share options issued are given in note 6. The bases of calculation of the share based payments are given in the
consolidated financial statements, note 15.
8
Reserves
At 1 January 2008
Final dividend 2007
Interim dividend 2008
Share based payment
Profit for the year
At 31 December 2008
Share premium
£million
Profit and loss account
£million
0.2
–
–
–
–
0.2
141.2
(9.9)
(5.7)
0.1
1.4
127.1
In accordance with the exemption allowed by Section 230 of the Companies Act 1985, the Company has not presented its own profit
and loss account.
72
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9 Guarantees and financial commitments
Financial commitments relating to bank loans are set out in note 5. The Company has no guarantees or contingent
financial commitments.
10 Obligations under operating leases
The operating lease payments due within one year to which the Company was committed at 31 December 2008 were:
On leases expiring:
Within one year
Between two and five years
Over five years
11 Pension schemes
Defined benefit scheme:
Land and
buildings
£million
Other
£million
2008
Total
£million
Land and
buildings
£million
Other
£million
2007
Total
£million
0.3
0.5
–
0.8
–
0.1
–
0.1
0.3
0.6
–
0.9
0.2
0.2
0.4
0.8
–
0.1
–
0.1
0.2
0.3
0.4
0.9
The Company is a member of a multi-employer defined benefit scheme which is closed to new entrants. The Company is unable
to identify its share of the underlying assets and liabilities of the scheme. Accordingly the Company has applied the exemption in
FRS 17 and accounted for the scheme as if it were a defined contribution scheme. The total contributions charged by the Company
in respect of the year ended 31 December 2008 were £2.5 million (2007: £14.0 million). The most recent triennial valuation of the
scheme has been updated by an independent qualified actuary, taking account of the requirements of FRS 17 to assess the liabilities
of the scheme at 31 December 2008. The market value of the scheme’s assets at the year end was £279.0 million and the present
value of the scheme’s liabilities was £294.1 million.
Further details and an analysis of the Group’s pension schemes are given in note 30 to the consolidated financial statements.
Defined contribution scheme:
The Company operates a defined contribution scheme which is set up under trust and whose assets are therefore independent
of the Company. The total contributions charged by the Company in respect of the year ended 31 December 2008 were £84,000
(2007: £59,000).
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Notes to the Company financial statements continued
12 Employees
The average number of employees (including Directors) during the year was:
By function
Administration
The aggregate emoluments (including those of Directors) for the year were:
Wages and salaries
Employer’s social security charges
Employer’s pension contributions
Remuneration in respect of the Directors was as follows:
Emoluments
2008
number
46
2008
£million
4.4
0.6
2.5
7.5
2008
£million
1.7
2007
number
50
2007
£million
4.3
0.5
14.1
18.9
2007
£million
1.6
Further details of individual Directors’ remuneration, pension benefits and share options are shown in the Directors’ remuneration
report on pages 31 to 36.
74
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13 Principal operating subsidiaries
The principal operating subsidiaries are:
Sensors and electronic systems
AB Automotive Electronics Limited
AB Interconnect, Inc, USA
AB Electronic Limited
AB Elektronik GmbH, Germany
AB Elektronik Sachsen GmbH, Germany
Optek Technology, USA, Mexico
Padmini TT Electronics Private Limited, India (51% owned)
Electronic components
AB Mikroelektronik GmbH, Austria
BI Technologies, USA, UK, Mexico, Malaysia
International Resistive Company, Inc, USA
MMG India Private Limited, India
Welwyn Components Limited
Semelab Limited
Electronic manufacturing services
TT electronics integrated manufacturing services Limited
TT electronics integrated manufacturing systems Limited
TT electronics integrated manufacturing services (Suzhou) Co Ltd, China
TT electronics integrated manufacturing services, Inc, USA
BI Technologies, Malaysia
Secure power and industrial
Dale Power Solutions plc
Ottomotores SA de CV, Mexico
AB Connectors Limited
New Chapel Electronics Limited
AEI Compounds Limited
Wire Systems Technology (Pty) Limited, South Africa
W T Henley Limited
BAS Components Limited
Companies are located and incorporated in the UK except where indicated.
75
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Historical record
Accounting year
Revenue
Operating profit
Profit before taxation
Earnings
Earnings per ordinary share
Ordinary dividend
Ordinary dividend per share
Average ordinary shares in issue
Net debt
Shareholders’ funds
Notes
2008
(£million)
584.3
2007
544.9
2006
539.4
2005
503.8
2004
505.9
(£million)
(£million)
(£million)
(p)
(£million)
27.0
21.1
14.3
9.2
5.7
(p)
3.69
(million)
155.0
(£million)
113.2
37.7
33.3
24.0
15.5
15.6
10.05
154.9
75.0
36.2
31.2
21.8
14.1
15.6
10.05
154.8
71.0
29.9
24.5
16.4
10.6
15.6
10.05
154.8
47.1
(£million)
212.9
182.3
157.0
151.7
34.7
31.6
21.2
13.7
15.6
10.05
154.8
67.3
166.7
1 Results have been adjusted where appropriate to exclude discontinued operations.
2 Operating profit, profit before taxation, earnings and earnings per share are stated as being before impairment provisions, goodwill amortisation and exceptional items where
appropriate for the applicable accounting standards ruling at that time.
76
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TT electronics is a world leader in sensor
and electronic component technology
Shareholder information
Our intention is to achieve growth by
Annual General Meeting
Share dealing services
Shareholder enquiries
(cid:127) Concentrating on highly-engineered, bespoke
electronic components for niche growth markets,
offering good margins
(cid:127) Restructuring our sensor business to reduce our
automotive exposure from approximately 40% to
25 – 30% of Group sales
(cid:127) Investing in our Secure Power and Integrated
Manufacturing Services businesses to realise
growth and value potential
(cid:127) Implementing a new operating structure to
improve execution, facilitate cross divisional
co-operation and drive sales
(cid:127) Withdrawing from low growth, unprofitable areas
Results
Group accounts
Company accounts
Highlights and financial summary
Chairman’s statement
Summary of sectors
The way forward
Business review
Directors and Company Secretary
Directors’ report
Governance
Directors’ report on corporate governance
Directors’ remuneration report
1
2
3
4
10
21
22
26
31
Report of the Independent Auditors on
Report of the Independent Auditors
the consolidated financial statements
Consolidated income statement
Consolidated balance sheet
Consolidated statement of
recognised income and expense
Consolidated cash flow statement
Accounting policies for the
consolidated financial statements
Notes to the
consolidated financial statements
37
38
39
40
41
42
45
on the Company financial statements
Company balance sheet
Accounting policies for the
Company financial statements
Notes to the
66
67
68
Company financial statements
69
Historical record and Shareholder information 76
Shareview Dealing is a telephone
and internet service provided by
Equiniti and provides a simple and
convenient way of buying and
selling TT electronics plc shares.
Equiniti maintain the register of members
of the Company. If you have any queries
concerning your shareholding, or if any
of your details change, please contact
the Registrars:
Log on to www.shareview.co.uk/dealing
or call 08456 037037 between 8.30am and
4.30pm, Monday to Friday, for more
information about this service and for
details of the rates and charges.
A weekly postal dealing service is also
available and a form together with terms
and conditions can be obtained by calling
0871 384 2248*. Commission is 1 per cent
with a minimum of £10.
ShareGift
ShareGift is a charity share donation
scheme for shareholders, administered by
The Orr Mackintosh Foundation. It is
especially for those who may wish to
dispose of a small parcel of shares whose
value makes it uneconomical to sell on
a commission basis. Further information
can be obtained at www.sharegift.org
or from Equiniti.
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Telephone 0871 384 2396*
Fax 0871 384 2100*
Textphone for shareholders with hearing
difficulties 0871 384 2255*
Equiniti also offer a range of
shareholder information on-line at
www.shareview.co.uk.
* Calls to this number are charged at 8p per minute from
a BT landline. Other telephony provider costs may vary.
Website
Information on the Group’s financial
performance, activities and share price is
available at www.ttelectronics.com.
The Annual General Meeting will be held
on 13 May 2009 at 12 noon at the
Ironmongers’ Hall, Shaftesbury Place,
Barbican, London EC2Y 8AA.
Results
Announcement of 2009 half year results –
late August 2009.
Preliminary announcement of 2009 results
– late March 2010.
Annual report 2009 – to be posted mid
April 2010.
Dividends
For the year ending 31 December 2008, the
Board has not recommended 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).
Multiple accounts on the
shareholder register
If you have received two or more copies
of this document, this means that there is
more than one account in your name on
the shareholder register. This may be
caused by either your name or address
appearing on each account in a slightly
different way. For security reasons, the
Registrars will not amalgamate the
accounts without your written consent,
so if you would like any multiple accounts
combined into one account, please
write to Equiniti Limited at the address
given below.
This report is printed on Hello Silk which is
made up of virgin pulp which has been FSC (Forest
Stewardship Council) certified.
It is 100% recyclable and biodegradable and has been
printed by CTD using an alcohol free process; the
printing inks are made from vegetable oil and
are non-hazardous from renewable sources. Over 90%
of solvents and developers are recycled for further use
and recycling initiatives are in place for
all other waste associated with this production.
CTD are FSC and ISO 14001 certified with strict
procedures in place to safeguard the environment
through all our processes
Designed and produced by Linnett Webb Jenkins.
213447_TT_REPORT_COVER:213447_TT_REPORT_COVER 2/4/09 10:38 Page 1
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Building for the future
TT electronics plc
Clive House
12 – 18 Queens Road
Weybridge
Surrey KT13 9XB
Reg No 87249
Tel +44(0) 1932 841310
Fax +44(0) 1932 836450
TT electronics plc Annual Report 2008