TT electronics plc Annual Report 2010
Delivering
operational
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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
For further information on our group please visit:
www.ttelectronics.com
Directors’ report – Overview
Who we are
TT electronics is a world leader in
sensor and electronic component
technology supplying leading
manufacturers in the defence,
aerospace, medical, transportation
and industrial electronics markets.
We provide innovative solutions
to meet customers’ critical needs,
focusing where we can create
the greatest value through a
differentiated position based on
our technology and engineering
expertise, customer service and
manufacturing capabilities.
Cautionary statement on forward-looking statements and related information
This document contains a number of forward-looking statements relating to the Group/Company with respect to,
amongst others, the following: financial conditions; results of operations; economic conditions in which the Group/
Company operates; the business of the Group/Company; and management plans and objectives. The Group/Company
considers any statements that are not historical facts as “forward-looking statements”. They relate to events and trends
that are subject to risks and uncertainties that could cause the actual results and financial position of the Group/
Company to differ materially from the information presented in the relevant forward-looking statement. When used
in this document the words “estimate”, “project”, “intend”, “aim”, “anticipate”, “believe”, “expect”, “should” and similar
expressions, as they relate to the Group/Company or the management of it, are intended to identify such forward-
looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements which
speak only as at the date of this document. Neither the Group/Company nor any member of the Group’s/Company’s
Board or management undertake any obligation publicly to update or revise any of the forward-looking statements,
whether as a result of new information, future events or otherwise, save in respect of any requirement under applicable
laws, the Listing Rules, and other regulations.
Designed and produced by Radley Yeldar (www.ry.com) using the paperless proofing system Wizardry.
TT electronics plc are committed to caring for the environment and looking for sustainable ways to minimise our impact on it.
We take care to minimise the impact on the environment in the paper we use. The paper we have chosen:
• contains material sourced from responsibly managed forests, certified in accordance with the FSC® (Forest Stewardship Council)
• is manufactured under strict environmental management systems, the international ISO 14001 standard, EMAS (Eco-Management & Audit Scheme) and the IPPC
(Integrated Pollution Prevention and Control) regulation.
FSC – Forest Stewardship Council. This ensures there is an audited chain of custody from the
tree in the well-managed forest through to the finished document in the printing factory.
ISO 14001 – A pattern of control for an environmental management system against which
an organisation can be credited by a third party.
Directors’ report – Overview
Group highlights
Revenue1
Underlying operating cash flow
£571.3m
£83.9m
£463.5m
£60.2m
£571.3m
£60.2m
2009
2010
2009
2010
Profit before taxation1
£20.7m
Net debt
£56.9m
£0.8m
2009
2010
£20.7m
£9.9m
£9.9m
2009
2010
Significant progress in delivering the Group’s strategy, coupled with
a much improved financial performance and increased margins
Strengthening customer relationships and positions in emerging
markets leading to increased opportunities
Robust revenue growth of 23 per cent resulting from actions taken
to re-position the Group and a recovery in end markets
Major improvement in operating profit to £29.7 million for 2010
(£25.2 million before exceptional items)
Disposal of six businesses within the General Industrial division
generating £21.7 million of cash proceeds
Significant reduction in the Group’s net debt to £9.9 million, providing
a strong financial platform for the further development of the business
Re-instatement of the dividend with an interim dividend of 0.8 pence
per share paid and a recommended final dividend for 2010 of 2.0 pence
per share
1 Continuing operations before exceptional items
Overview
1 Group highlights
2 Chairman’s statement
4 How our Group is organised
5 Our global presence
6 Our Group at a glance
8 Our strategy and business model
10
Implementing our strategy
12 Measuring our performance
Business review
14 Delivering operational excellence
22 Business review
35 Financial review
37 Principal risks and uncertainties
40 Corporate responsibility
41 Outlook for 2011
Governance
42 Directors and Company Secretary
43 Operating Board
44 Directors’ report
47 Corporate governance
53 Nominations Committee
54 Audit Committee
55 Directors’ remuneration report
Group accounts
61 Statement of Directors’ responsibilities
62 Report of the Independent Auditors
on the financial statements
63 Consolidated income statement
64 Consolidated statement of
comprehensive income
65 Consolidated balance sheet
66 Consolidated statement of changes
in equity
67 Consolidated cash flow statement
68 Notes to the consolidated financial
statements
Company accounts
100 Company balance sheet
101 Notes to the Company financial statements
Shareholder information
106 Five year record
107 Shareholder information
TT electronics plc 1
Annual Report 2010
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Directors’ report – Overview
Chairman’s statement
Our strategy is to create
value for our customers
through the provision of
innovative solutions which
meet their critical needs.
23.3%
Group revenue growth
3.0% points*
Improvement in Group
operating margin
I am delighted to report excellent progress in
delivering the Group’s strategy and a significantly
improved financial performance. During 2010 we
focused on delivering operational improvements
and investing in our people, creating a strong
platform for sustainable growth.
* For continuing operations before exceptional items
2 TT electronics plc
Annual Report 2010
Directors’ report – Overview
As a result of our actions and the recovery
in many of our markets, Group revenue from
continuing operations increased by 23.3 per
cent to £571.3 million (2009: £463.5 million).
Operating profit from continuing operations
before exceptional items was £25.2 million
compared with £6.4 million in 2009, delivering
an operating margin of 4.4 per cent (2009:
1.4 per cent). This represents good progress
towards the Group’s medium-term margin
target of eight to ten per cent and I am
confident that the actions we continue to
take will lead to a further improvement in
performance in 2011.
Headline EPS from continuing operations
was 9.0 pence compared with a loss per
share of 1.2 pence in 2009. In line with our
policy to increase dividends progressively
whilst maintaining cover of at least two times
headline EPS and in recognition of our strong
performance the Board is recommending a
final dividend of 2.0 pence per share giving a
total dividend for 2010 of 2.8 pence per share.
Our strategy is to create value for our
customers by providing innovative solutions
which meet their critical needs, focusing
on those markets where we can establish
a differentiated position based on our
technology and engineering expertise,
customer service and manufacturing
capabilities. A number of steps were taken
during the year to improve alignment
with our key customers and markets.
In the Components division we began to
change the way we develop and bring our
products to market with the introduction
of global business units focused around
specific technologies and markets. In addition,
both the Sensors and Components divisions
completed the move to global management
structures resulting in improved engagement
with key customers. In our manufacturing
facilities we are driving increasing efficiencies
under the leadership of global operations
directors appointed in both divisions
during the past year.
In addition to building our presence in
market segments where we can create
clearly differentiated positions based on our
technology and applications expertise, we
increased our presence in emerging markets.
Revenue from customers in Asia increased
by 49 per cent (at constant exchange rates)
and constituted 13 per cent of overall Group
revenue. We made significant progress in
China and India.
Customer feedback has confirmed that our
key account management programme is
providing them with demonstrable benefits
and the rate of revenue growth in 2010 from
the initial 14 key accounts exceeded that of
the Group overall. Further accounts will be
added to the programme in 2011.
We remain committed to the development
of our people who are key to the delivery
of our strategy. Reflecting this emphasis
we invested in teams across the globe
and appointed the Group’s first permanent
HR director. We have completed the Group’s
first all-employee survey which has provided
a valuable insight into employee opinions
and engagement. All businesses have plans in
place to drive improvement in selected areas.
In line with our strategy to manage the
General Industrial division for value, six
businesses were successfully sold during the
year. I am very pleased with the proceeds we
have realised from these disposals which are
ahead of the Board’s expectations overall,
and with our success in finding new owners
positioned to support the businesses’ future
development.
Closing net debt was £9.9 million
(2009: £56.9 million) with the reduction
resulting from strong underlying cash
generation, continued progress in managing
working capital and the proceeds from the
business disposals. The closing net debt
position together with the Group’s borrowing
facilities, which amount to over £110 million,
provide a strong financial platform for
the further development of the business,
including through additional strategic
investments to supplement the Group’s
organic growth.
The UK defined benefit pension
scheme was closed to future accrual in
April 2010 and the liabilities under the
plan have reduced. The triennial valuation
as at 5 April 2010 shows a deficit of
£39.8 million, reduced from £59.6 million
three years previously. The deficit recovery
plan previously agreed with the Trustee in
December 2008 has been confirmed.
I assumed the role of Chairman following
the Annual General Meeting in May.
In September, Mike Baunton joined the Board
as an independent non-executive Director.
Mike previously held senior roles with a
number of major international manufacturers
and brings a wealth of engineering and
production experience.
Increased emphasis has been placed on
corporate governance and a more in-depth
approach introduced to assess Board
performance, with greater focus being given
to succession planning and risk management.
No major changes to our procedures have
been necessary as a result of the publication
of the UK Corporate Governance Code.
Following strong growth in 2010, the
prospects for 2011 are encouraging.
I am confident that our management
and organisational structures, our focus
on building differentiated positions in
key markets, and the completion of the
transformation of the Group in line with the
strategy will deliver a further improvement
in performance.
Finally, on behalf of the Board, I would like to
thank our employees for their commitment
and dedication – it is through their hard
work that we have delivered the significant
progress we have seen in 2010.
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Sean M Watson Chairman
16 March 2011
TT electronics plc 3
Annual Report 2010
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Directors’ report – Overview
How our Group is organised
Our divisional structure
The Group has five divisions grouped into three strategic categories:
Strategic Focus
Strategic Focus
(Components and Sensors)
(Components and Sensors)
Scalable Development
Scalable Development
(Secure Power and Integrated
(Integrated Manufacturing Services
Manufacturing Services (IMS))
(IMS) and Secure Power)
Run for Value
Run for Value
General Industrial)
(General Industrial)
Within this framework each division has a strategy to achieve value for our shareholders, underpinned by clearly
aligned priorities, organisational structure and resources.
Components
Speciality and custom
passive components,
optoelectronics,
microelectronic modules,
semiconductor products,
connectors and harnesses.
Sensors
Highly engineered
custom sensor solutions
for specific transportation
and industrial applications.
IMS
Outsourced
manufacturing and
supply chain solutions
for customers with lower
volume, complex build
and assembly electronic
products.
Secure Power
Secure power solutions
including generator sets,
uninterruptible power
supplies and service for
customers’ critical power
requirements worldwide.
General
Industrial
A diverse range of market
sectors with a variety of
products and services.
During 2010 all but two of
the businesses were sold.
More detail on page 6
More detail on page 6
More detail on page 7
More detail on page 7
More detail on page 7
Our markets
We are focused on markets where we can create the greatest value:
Defence and aerospace
Medical
Transportation
Industrial
The Components and IMS
divisions supply electronic
components and systems
engineered to operate in
demanding environments
with a high degree of reliability,
together with manufacturing
services to original equipment
manufacturers (OEMs) and
their suppliers.
The Components, Sensors and
IMS divisions design products
such as precision resistors,
optical and position sensors
and microcircuits for use in
applications including diagnostic,
imaging and laboratory
equipment and patient
monitoring systems, together
with manufacturing services.
The Components and Sensors
divisions provide highly
engineered sensing solutions
and electronic components for
applications requiring a high
degree of reliability and accuracy,
often in extreme temperatures
and harsh environments.
We are a leading supplier to the
diverse industrial market with
a focus on applications such
as smart power management,
building controls, automation
and alternative energy where our
broad technology and design
capabilities enable us to provide
innovative solutions.
4 TT electronics plc
Annual Report 2010
Directors’ report – Overview
Our global presence
Our operations
Our operations
Divisional key
Components
Sensors
IMS
Secure Power
General Industrial
The Americas
Christchurch, Barbados
Curitiba, Brazil
Juarez, Mexico
Mexicali, Mexico
Mexico City, Mexico
Fullerton, California
Boone, North Carolina
Smithfield, North Carolina
Perry, Ohio
Corpus Christi, Texas
Dallas, Texas
Asia
Suzhou, China
Kuantan, Malaysia
Gurgaon, India
Tokyo, Japan
Singapore
Europe and Middle East
Salzburg, Austria
Paris, France
Milan, Italy
Klingenberg, Germany
Munich, Germany
Werne, Germany
Dubai, UAE
Kiev, Ukraine
Abercynon, UK
Aberdeen, UK
Bedlington, UK
Cambridge, UK
Fairford, UK
Lutterworth, UK
Rogerstone, UK
Sandwich, UK
Scarborough, UK
Contribution to
Group revenue 28% Contribution to
Group revenue 59%
Contribution to
Group revenue
13%
TT electronics plc 5
Annual Report 2010
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Directors’ report – Overview
Our Group at a glance
TT electronics plc
is a world leader
in sensor and
electronic component
technology supplying
leading manufacturers
in markets including
defence and
aerospace, medical,
transportation and
industrial. We operate
from more than 20
major manufacturing
locations worldwide.
The Group consists of five
divisions. In 2010 total
revenues for the Group
from continuing operations
were £571.3 million with
more than 6,000 people
employed worldwide.
Components
Supported by a global network of
application sales engineers, the
Components division provides
engineered electronic components
including fixed and variable resistors,
optoelectronics, power modules,
control circuitry and interconnect
solutions for multiple applications,
particularly where reliability,
performance and packaging
considerations are critical.
Key growth drivers are the increased
use of complex control electronics,
the need for electronics to operate
in harsh environments and the
increase in circuit speeds, power
and miniaturisation.
Sensors
Supplies high performance custom
sensing solutions to the transportation
and industrial markets. Products
include speed, direction, position,
temperature and pressure sensor
assemblies for critical applications in
areas such as the chassis, powertrain
and transmission.
The division is focused on growing in
the attractive broader transportation,
and selective industrial segments,
together with critical automotive
applications linked to emissions
and safety.
Revenue
Operating profit
£234.6m
£10.7m
Revenue
Operating profit
£143.5m
£3.9m
Proportion of
Group revenue
41%
Proportion of
Group revenue
25%
For further information
on our Group please visit:
www.ttelectronics.com
Markets served
industrial,
defence and aerospace,
medical,
transportation
Markets served
transportation,
industrial
Products
Products
Dynamic braking resistors
using thick film on steel
technology for motor
drive applications where
extremely high overloads
occur
Infrared reflective sensor
used to detect objects and
movements in automation
equipment, paper handling
systems and ATMs
High temperature sensor
used in exhaust gas
treatment system to help
reduce environmental
pollution
Speed sensor with direction
sensitive electronics to
optimise the powertrain
of cars with start/stop
technology
More detail on pages 26 and 27
More detail on pages 28 and 29
6 TT electronics plc
Annual Report 2010
Directors’ report – Overview
IMS
Specialises in providing high quality
electronic manufacturing services
to customers in the defence and
aerospace, medical and premium
industrial sectors. The division offers a
broad capability from board assembly
to full systems integration, design for
manufacturing and logistics support.
The business is focused on higher
mix/lower volume business with
a strategy to move towards more
specialised integrated assembly.
Secure Power
Provides secure power solutions
including generating sets,
uninterruptible power supplies and
customer support from operations
in the UK, Mexico, Brazil and the
Middle East.
Secure Power protects customers’
critical power supplies with a
reputation for bespoke engineered
solutions designed for the most
demanding applications, with a
particular focus on the
petrochemical, medical, utilities
and financial services sectors.
General Industrial
At 31 December 2010 comprised
AEI Compounds, providing specialist
compounds for the cable and pipe
markets and Abtest, providing
environmental testing services.
General Industrial also included a
number of businesses sold in 2010
which served a range of market
sectors. The businesses sold gave
rise to an operating profit of
£0.7 million in the year on revenue
of £28.4 million.
Revenue
Operating profit
£91.4m
£4.3m
Revenue
Operating profit
£85.2m
£6.2m
Revenue
Operating profit
£16.6m
£0.1m
Proportion of
Group revenue
16%
Proportion of
Group revenue
15%
Proportion of
Group revenue
3%
Markets served
industrial,
defence and aerospace,
medical
Markets served
industrial
Markets served
industrial
Services
Products
Products
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The division provides outsourced manufacturing
solutions across the entire product lifecycle from design
to bespoke logistics
40kVA parallel redundant
industrial UPS system
providing emergency
power for offshore oil
and gas platforms
2000 kVA diesel generating
set designed to supply
continuous or emergency
power and capable of
operating in extreme
climate conditions
Low voltage power cable
with flame retardant
insulation
Data communication cable
insulated with thermoplastic
flame retardant material
More detail on pages 30 and 31
More detail on pages 32 and 33
More detail on page 34
TT electronics plc 7
Annual Report 2010
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Directors’ report – Overview
Our strategy and business model
Our approach
Our strategy
To create value for our customers through the innovative application of our technology combined with
excellence in customer service and delivery from world-class manufacturing facilities, whilst providing
growth opportunities for our people.
Creating a platform for sustainable growth
Through our people
Through operational excellence
p Customer focus
p Technology and
innovation
p Operational
delivery
More detail on pages
20 and 21
More detail on pages
14 and 19
Our resources
Customer relationships
and global sales
channels
By developing existing
customer relationships and
building new ones we will
deliver long-term value for
all stakeholders. We work
closely with many leading
companies, understanding
their requirements
and collaborating to
develop solutions
which enable them to
meet their objectives.
Our global presence
allows us to access markets
worldwide and support
customers as they move
into new regions.
Engineering
expertise
Our engineering talent is
a key strength. Research
and development teams
bring new products and
technologies to market,
with specific subject
matter experts sharing
knowledge across the
Group. Our application
or field engineers then
work alongside customer
teams to understand their
requirements, creating
value through the design of
bespoke solutions to solve
their problems.
Worldwide
manufacturing
operations
As customers continue
to rationalise their supply
bases and seek to partner
with companies that can
provide global support,
our world-class facilities in
North and South America,
Europe and Asia provide
us with the capability to
manufacture products
where it makes the most
sense for us and our
customers.
Our people
The knowledge, passion
and commitment of our
people underpin our
ability to deliver innovative
solutions and are the
foundation for the Group’s
future growth. We have
systems in place to identify
and develop key talent
and we are working across
the business to further
engage and empower
our employees.
Underpinned by our Core Values
Customer driven
We are in business to deliver value
to our customers. All that we do
is geared to providing world-class
products and the best possible
customer experience.
Integrity
We will always be straightforward
and transparent in our dealings.
Upholding high ethical standards
and maintaining integrity are
cornerstones of our business. We
are committed to our corporate
and social responsibilities.
8 TT electronics plc
Annual Report 2010
Passion for excellence
We stretch ourselves to make the
difference and look for continuous
improvements by constantly
challenging the status quo.
Directors’ report – Overview
How we create value
We provide innovative solutions to meet customers’ critical needs, focusing on those markets where we can
create the greatest value through a differentiated position based on our technology and engineering expertise,
customer service and manufacturing capabilities.
We support our customers, wherever they are, through our global sales network and manufacturing footprint.
Our worldwide presence is a key enabler as we build long-term partnerships with our customers, supporting
them as they develop and grow.
Components
Our applications engineers, with their extensive subject matter expertise, use the Group’s technology to
partner with customers early in their design processes providing them with the highly engineered electronic
components they need to bring their products to market. The division is focused on markets which have
the greatest need for bespoke solutions to address issues such as higher power, faster switching, harsh
environments and reduced size.
Sensors
We use our core technology building blocks and engineering expertise to provide highly engineered
sensing solutions targeting critical transportation and industrial applications where the sensor must operate
with a high degree of reliability and accuracy, often in extreme temperatures and harsh environments.
Our reputation and experience gained with major automotive OEMs provide a solid foundation as we
further develop our position in the broader transportation and industrial markets.
IMS
Using our design engineering capabilities, flexibility and world-class facilities we partner with customers to build
their more complex products, typically found in the industrial, medical and defence and aerospace markets.
We create value by delivering an end-to-end outsourced manufacturing service (from design to delivery) for
lower volume more highly engineered products, combined with worldwide support.
Secure Power
Utilising our engineering capability we provide bespoke turnkey solutions for major one-off projects as well as
providing differentiated medium to high power generating sets to meet specific market needs. We focus on
providing solutions to markets with critical power requirements such as petrochemical, financial services and
utilities where our reputation for quality, reliability and service are valued.
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More information on each division can be
found on pages 26 to 34
People focused
Success for our business will be
determined by our people. We
aim to attract, retain and develop
high quality staff and ensure that
they are fully committed and
positively engaged.
Innovative problem solving
We pride ourselves on our ability
to solve our customers’ problems,
focusing on delivering innovative
solutions in a timely manner.
Teamwork
Teamwork underpins our
business. We encourage a team-
working environment, constantly
challenging each other whilst
maintaining mutual respect and
a clear focus on the achievement
of common goals.
TT electronics plc 9
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Directors’ report – Overview
Implementing our strategy
A clear framework for priorities
We have a clear plan to develop the Group in three phases (set out in the diagram below).
Having completed Phase I, in which we established a clear strategy and direction for the Group and put in
place the required senior management team and organisational structures, we are now focused on Phase II.
Everything we do is aligned with the delivery of the strategy through the execution of detailed plans at both
a Group and divisional level to create a platform for sustainable medium- and long-term growth. Although
at an early stage, work has begun to identify additional strategic investments to supplement the Group’s
organic growth.
Phase III
2011–2012
p Core Business
“Fit for Purpose”
p Focus on
accelerating
growth
p Organic
p Acquisitions
Phase I
2009–2010
p Complete strategy
review and announce
to market
p Reorganise
divisional structures
p Bolster senior
management team
p Undertake
restructuring to
“right size” business
p Identify (and begin
to exploit) inter-
divisional and
cross-divisional
opportunities
p Begin cultural
change
Phase II
2010–2011
p Execution
p Developing people
p Focus on
“Operational
Excellence”
• Customer focus
• Technology and
innovation
• Operational
delivery
p Embed new
management
processes and
systems to support
execution
p Focus resources into
development of
Components, Sensors,
Secure Power and IMS
We continually test the strategy and our progress against short- and long-term goals
The Group’s strategy is reviewed, tested and adjusted through our annual strategic review process.
This involves detailed discussion with the individual businesses and divisions before the strategy is endorsed
by the Board. Priorities at a Group, divisional and business unit level are agreed in line with the strategy, with
progress reviewed regularly. These priorities are integrated into the Group’s performance management system.
In addition, progress against short- and long-term goals is monitored through key performance indicators, a
sub-set of which is published on pages 12 and 13.
10 TT electronics plc
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Directors’ report – Overview
Progress against our goals
Our key goals
Align the
organisation with the
strategic objectives
of the Group,
recognising that
our employees are
critical to our success
Achieve operational
excellence in the
ways in which we
interface with our
customers, develop
and market our
technologies
and manufacture
our products
Increase our
presence in higher
growth and higher
margin markets
Deliver a significant
increase in
shareholder value
through the further
development of our
core Components
and Sensors divisions
Develop the
IMS and Secure
Power divisions
through increased
management focus
and investment
Progress
New operational and organisational structures have been implemented in the Components
and Sensors divisions aligned with delivery of the strategic objectives (see pages 27 and 28 for
more detail). Our on-line performance management tool has been extended to cover over 400
employees worldwide. In addition to allowing us to assess performance and identify development
needs, it enables objectives to be set and tracked throughout the year, ensuring that these are
aligned with the Group’s strategic priorities. We have undertaken an employee survey to assess
engagement and have identified improvement actions. The senior management team was
strengthened during the year with a number of key appointments including a new leader for the
Components division and the Group’s first permanent HR director.
Our key account management programme continues to strengthen customer relationships.
The rate of revenue growth in 2010 from the initial 14 key accounts exceeded that of the Group
overall and additional accounts will be added in 2011. In addition to the formal programme, key
account management principles are being used to improve our interaction with other customers.
The global management structure implemented in the Components division during 2010 is
changing the way we develop and bring our products to market, with the introduction of global
business units focused around specific technologies and end markets. In addition, a number
of other functions that were historically aligned with individual companies have now been
re-configured in both the Components and Sensors divisions. Global operations directors have
been appointed to manage manufacturing worldwide, build on existing lean manufacturing
techniques and deliver continued improvements and efficiencies.
We have identified a number of markets which we believe provide opportunities for higher
growth and margins based on our technology and engineering expertise, customer service and
manufacturing capabilities. These include the defence and aerospace, medical and alternative
energy markets where we have virtual teams who bring together the capabilities of the Group to
enhance our customer offering. We have also identified segments within the automotive, broader
transportation and industrial markets which we believe represent good growth opportunities.
We are continuing to invest in developing our presence in emerging markets including Latin
America, China and India. We made good progress in these markets in 2010 reflecting both the
increased opportunity and our ongoing investment.
Both divisions delivered good growth in revenue and profit following a difficult 2009, together with
progress against the strategic priorities identified at the start of the year. Further details for each
division are set out on pages 26 to 29.
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Both divisions made progress during the year against their strategic plans including significant
investment in the sales area and a greater focus on specific target markets. Further details for each
division are set out on pages 30 to 33.
TT electronics plc 11
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Directors’ report – Overview
Measuring our performance
We use a number of financial and non-financial key performance indicators (KPIs)
to measure our performance
Financial KPIs
Organic revenue growth
Definition
Organic revenue growth measures the change in revenue in the
current year compared with the prior year, from continuing Group
operations. The effect of currency movements and acquisitions made
during the current or prior financial year have been removed.
We have chosen this specific KPI because our strategy is to participate in
markets which have the ability to provide us with growth opportunities.
Performance
Organic revenue growth benefited from the actions taken to
re-position the Group and the global economic recovery during 2010.
Earnings per share (EPS) growth
Definition
EPS growth is calculated as profit before exceptional items from
continuing operations attributable to shareholders divided by the
weighted average number of shares in issue during the year.
We have chosen EPS growth as a KPI as it is a standard metric to
determine corporate profitability for shareholders. In addition, it is a
measure used as one of the performance conditions in the Group’s
Long Term Incentive Plan – see further detail on page 56.
Performance
There was a significant improvement in EPS during the year from a loss
of 1.2 pence per share to a profit of 9.0 pence per share.
2009
2010
23.5%
2009
2010
9.0 pence*
Target
each year, 2010 to 2014
Mid to high single digits
-1.2 pence
Target
Year on year growth
of 3% in excess of RPI
-24.3%
*Actual EPS as 2009 was a loss per share
Operating cash conversion
Definition
Operating cash conversion is defined as cash generated from
continuing operations after capital and development expenditure,
expressed as a percentage of operating profit before exceptional
items from continuing operations. Cash conversion is an important
metric to track the management of our working capital and capital
expenditure programme.
Performance
The cash conversion target of 100 per cent was exceeded in 2010 due
to the delivery of operational efficiencies and active management of
the Group’s working capital.
Relative total shareholder return (TSR)
Definition
TSR is defined as capital growth plus dividends paid, assuming
dividends are re-invested over the period using a three-month
opening and closing average.
We believe that TSR is an important measure of the delivery of
shareholder value as well as relative performance. In addition, it is a
measure used as one of the performance conditions in the Group’s
Long Term Incentive Plan – see further detail on page 56.
Performance
There was a strong improvement in the Group’s share price during
2010 resulting in a TSR of 126.0 per cent compared to the median of
the comparator group of 12.2 per cent.
Target
each year, 2010 to 2012
100%
2009
2010
Between
median
and upper
quartile
Upper
quartile
Target
Above median
performance against
the FTSE Small Cap
(excluding investment
trusts)
2009
1,040%
2010
167%
12 TT electronics plc
Annual Report 2010
Directors’ report – Overview
Financial KPIs
Non-financial KPIs
Operating profit margin
Definition
Operating profit margin is defined as operating profit before
exceptional items from continuing operations expressed as a
percentage of revenue from continuing operations.
This KPI is appropriate because we are focused on increasing the
proportion of revenue from those markets where we can make higher
returns, in addition to delivering an improvement in operational efficiency.
Performance
Operating margins improved in all businesses with the exception of
Secure Power, reflecting higher volumes, benefits from restructuring
undertaken in prior periods and continuing actions to re-position
the business.
Safety performance
Definition
The number of occupational injuries resulting in three or more days
absence per 1,000 employees.
This KPI allows us to compare our performance with that of our
peers. We use a UK benchmark published by the Health and Safety
Executive and apply this to all of our facilities worldwide reflecting
our commitment to raise standards globally. Some minor differences
remain in how our businesses report data in different geographies
and this will be standardised in 2011.
Performance
Performance was adversely affected by our facility in Mexico where
improvement actions are in place. Excluding this site, the Group’s
accident rate would have been 4.0.
Group
2009
1.4%
2010
4.4%
Components
2010
2009
4.6%
3.1%
Sensors
2009
2010
2.7%
-3.7%
Secure Power
2010
2009
8.1%
7.3%
IMS
2009
3.2%
2010
4.7%
Target
in medium term
8 -10%
Target
in medium term
10%
Target
in longer term
10%
Target
in short term
10%
Target
in medium term
6 - 8%
2010
8.5
Target
in medium term
Lower than UK manufacturing
benchmark, 2010: 6.1
Employee engagement
Definition
During 2010, 68% of the workforce participated in our first employee
survey, compared with an industry benchmark of 48 per cent.
A key indicator is overall employee engagement, measured using
a scale of 1 (low) to 7 (high) and benchmarked against mid-size UK
manufacturing companies as surveyed by Best Companies Ltd.
This KPI is important because our ability to recruit, maintain and
develop engaged and committed employees is critical to our
continued success.
Performance
For an initial survey the results were satisfactory and improvement
plans are in place in all divisions.
2010
4.28
Target
in medium term
Achieve UK mid-size manufacturing
benchmark, 2010: 4.47
Training and communities
We are committed to investing in the development of all our
employees and in the communities in which they live and work.
We help employees enhance and develop their skills. For example,
in 2010 four employees in the Sensors division achieved green belt
certification in Six Sigma lean manufacturing methodology. In China
we have instituted a graduate programme to provide us with the
skilled employees we need as we further develop our presence
in this key region. We plan to introduce structured development
programmes for senior management during 2011.
Although at an early stage, we made progress in 2010 to raise
the profile of the work our employees are doing to support local
communities worldwide. More details are set out on page 40.
TT electronics plc 13
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Directors’ report – Business review
Delivering operational excellence
Delivering
operational excellence through
14 TT electronics plc
Annual Report 2010
customer focuscustomer focus Directors’ report – Business review
Building the business by
sharpening customer focus
The key account management programme is
enabling us to foster closer working relationships
with our customers.
It provides an operating framework that aligns
our global manufacturing, development and sales
and support resources with our key customers
to support their current and future needs.
Partnering with IBM
In 2010 IBM placed significant demands on their component supply
chain, including their key resistor technology suppliers, due to a
significant growth in demand for their servers. The TT electronics Key
Account Manager for IBM successfully co-ordinated engineering and
manufacturing resources to meet the increased demand. Our speed of
response, flexibility and ability to work globally with IBM in the US and
its subcontractors in Europe and Asia has strengthened the customer
relationship and resulted in an increase in business.
TT electronics plc 15
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customer focuscustomer focus
Directors’ report – Business review
Delivering operational excellence
Delivering
operational excellence through
16 TT electronics plc
Annual Report 2010
technology and innovationtechnology and innovation Directors’ report – Business review
Technology and innovation
deliver our competitive
advantage
We understand that optimised product designs
need bespoke components. Our customers rely
on us to develop differentiated technical solutions
which meet their specific performance, reliability
and packaging requirements. Energy management
is an exciting growth sector where we are putting
our engineering and applications expertise into
practice.
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Smart metering protection
A leading global meter manufacturer approached our applications
engineering team with a demanding component specification. A vital
protection barrier against the effects of lightning strikes, the new part
needed to be 50 per cent shorter than available alternatives, whilst
delivering on performance, reliability and price.
The solution was to sink the component body into an opening in
the circuit board and adapt it for cost-effective automated assembly.
The unique terminal configuration and innovative mounting
technique provided a competitive edge to our customer in the drive
to advance green initiatives through intelligent energy management.
Most importantly, the critical protection performance was assured by
custom design and testing.
TT electronics plc 17
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Directors’ report – Business review
Delivering operational excellence
Delivering
operational excellence through
18 TT electronics plc
Annual Report 2010
operational deliveryoperational delivery Directors’ report – Business review
Focusing on continuous
improvement in our operations
Many of our businesses have signed up to
21st Century Supply Chains (“SC21”), a change
programme designed to boost the competitiveness
of the defence and aerospace industry by raising
the performance of its supply chains.
SC21 in action
Through the SC21 programme, we are committed to continuously
improving quality and innovation to provide the most competitive
solutions for our customers. The programme drives an increased focus
on all stages of the product development and manufacturing cycle
within the SC21 accreditation framework. Each participant is sponsored
by, and works closely with, a major defence and aerospace customer
creating stronger business partnerships. Sustainability is realised
by reinforcing a culture of continuous improvement through the
participation and empowerment of our teams as they work to improve
their own processes and procedures.
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operational deliveryoperational delivery
Directors’ report – Business review
Delivering operational excellence
Delivering
operational excellence through
20 TT electronics plc
Annual Report 2010
people Directors’ report – Business review
Helping our people fulfil their
true potential
The engagement of our workforce, their belief
in our future, and a real sense of belonging is
crucial to the success of our business. As the
Group increases its presence in new regions,
this is presenting exciting opportunities for our
existing employees as we develop our teams
in emerging markets.
A global citizen
The opportunities for personal and professional growth are perfectly
demonstrated by Asif Baig (pictured, left). Asif joined the Sensors
division in 1997 after completing his academic studies and an
apprenticeship in Pakistan. Having worked for the Group in Germany
and the UK, Asif has now moved to China to be a key member of the
local team which is being strengthened to meet rapidly increasing
customer demand. Progressing from supervisor, through test and
development and quality to global support team leader, Asif’s career is a
practical example of individual development, global opportunity and a
commitment to the business and its customers.
TT electronics plc 21
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Business review
Delivering operational excellence
The Group is well
positioned in its markets
with a clear strategy
to deliver value to all
stakeholders.
TT electronics today is about operational
excellence, focusing on the customer and
improving performance across the business
through manufacturing and product innovation,
all driven by our people.
Geraint Anderson Group Chief Executive
Shatish D Dasani Group Finance Director
16 March 2011
22 TT electronics plc
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Directors’ report – Business review
Group overview
During 2010 we invested in our people and
focused on operational excellence across the
business. This is creating a strong platform for
sustainable growth and margin improvement
for the medium and long term. Many of
the actions taken to improve performance
will continue in 2011 as we progress the
transformation of the Group into a best-in-
class global business.
New talent was brought into the Group
with a number of senior management
appointments including a new Divisional
Chief Executive for the Components division.
Reflecting the importance of our people,
the Group’s first permanent HR director was
appointed and divisional HR leaders for the
core Sensors and Components divisions
joined in early 2011. We have completed
the first Group employee survey to assess
engagement and identify improvement
actions and our on-line performance
management tool has been extended to
cover more than 400 senior employees
worldwide. We have invested in teams
across all locations with a significant focus
on increasing our presence in emerging
markets, a trend which is expected to
accelerate in 2011.
Our operational excellence programme
targets three areas: (i) customer focus;
(ii) technology and innovation; and
(iii) operational delivery.
“Changes have been made to
the sales organisations in the
Components and Sensors
divisions with global sales
teams now ensuring better
engagement with our
customers.”
Changes have been made to the sales
organisations in the Components and
Sensors divisions with global sales teams
now ensuring better engagement with
our customers. As reported on page 11, the
key account management programme is
progressing and additional key accounts will
be added in 2011. As customers continue to
seek efficiencies from their supply chains we
are evolving our business structures and IT
systems, making it easier for them to
transact with the Group.
Global management structures implemented
in the Sensors and Components divisions
during 2010 are changing the way we
develop and bring our products to market.
For example, in the Components division,
global business units are being introduced
focused around specific technologies and
end markets, bringing together previously
separate marketing and engineering teams
to deliver co-ordinated product development
programmes aligned with customer needs.
The first such business unit was established
in October 2010 and the remainder will be in
place by mid 2011.
Improving the efficiency and productivity
of the Group’s manufacturing operations
remains a key focus. Operations directors
were appointed in the Sensors and
Components divisions in 2010 with
responsibility for driving better performance
worldwide. Good progress was made during
the year and further areas for improvement
have been identified for 2011. We continue
to build on existing lean manufacturing
techniques across all businesses.
Further information on each of the three key
areas is set out on pages 14 to 21, with more
detail by division on pages 26 to 33.
We have identified a number of markets
which we believe provide opportunities for
higher growth and margins based on our
technology and engineering expertise,
customer service and manufacturing
capabilities. These include defence and
aerospace, medical, non-passenger car
transportation and certain industrial
segments.
Revenue
£463.5m
£571.3m
2009
2010
Operating profit*
£25.2m
£6.4m
2009
2010
£571.3m
+23.3%
£25.2m
+294%
Operating profit margin*
4.4%
4.4%
+3% points
1.4%
2009
2010
Capital employed
£212.7m
£189.0m
£189.0m
-11.1%
2009
2010
Year end headcount
6,302
6,188
6,188
-1.8%
2009
2010
Operating cash flow*
£83.9m
£60.2m
£60.2m
-28.2%
2009
2010
* Before exceptional items
TT electronics plc 23
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Business review continued
Delivering operational excellence continued
Group overview continued
Particularly good progress was made during
the year in developing our position in the
medical market with revenue increasing from
£15.2 million in 2009 to £26.9 million in 2010.
Although sales to the passenger car market
increased in absolute terms, they represented
a slightly smaller proportion of total Group
revenue in 2010, decreasing from 34.6 per
cent in 2009 to 32.0 per cent in 2010. Revenue
from other transportation segments
(excluding passenger cars) increased from
£18.9 million in 2009 to £34.1 million in 2010.
Each of the divisions has identified specific
segments within the broader markets where
they can create the greatest value for their
customers. New business from these target
segments is forming a growing proportion of
total revenue as existing programmes come
to an end and new contracts move into
volume production. However this can take
a number of years, particularly in the
automotive arena which has long product
lifecycles, and in the case of outsourced
manufacturing where it takes time to bring
new programmes into production.
Despite an increase in product sold to
customers in Asia of 49 per cent in 2010 (at
constant exchange rates), the Group remains
under represented in this region, which
contributed 13 per cent of sales in the period
(compared to 28 per cent for North, Central
and South America and 57 per cent for
Europe). However, it should be noted that
this analysis does not include product sold to
customers based outside Asia, but whose end
customer is located within the region. As we
look to develop a more balanced business,
good opportunities exist for growth in
Asia for the Sensors, Components and
IMS divisions as they build on the progress
made in 2010. We are also looking to invest
in expanding our manufacturing capabilities
in Eastern Europe in 2011.
In line with the strategy to manage the
General Industrial division for value, six
businesses were successfully sold during the
year realising net proceeds of £21.7 million,
ahead of the Board’s expectations. Additional
deferred consideration of approximately
£1.0 million is expected to be received in 2011.
Although at an early stage, work has begun to
identify additional strategic investments to
supplement the Group’s organic growth.
“As we look to develop a more balanced business, good
opportunities exist for growth in Asia for the Sensors,
Components and IMS divisions as they build on the
progress made in 2010.”
23.3%
Group revenue growth
4.4%*
Operating profit margin
* Before exceptional items
24 TT electronics plc
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Operating profit
(before exceptional items)
Operating profit from continuing operations
significantly improved in the year as a result
of the increase in sales, the benefit of cost
reduction actions undertaken during 2009
and 2010 and actions taken to re-position
the business. These were partially offset by
certain increases in the cost base, including
investments to support future growth.
Operating profit for the year was £25.2 million
compared with a profit of £6.4 million in 2009.
Operating margins for all divisions, apart from
Secure Power, improved in the year. There
was a small net benefit of £0.2 million from
the impact of foreign exchange variations
on the translation of operating profit.
Directors’ report – Business review
Market conditions
Trading conditions improved significantly
in 2010 compared with the prior year.
We experienced good growth in the
majority of our markets with particularly
strong demand from customers exposed
to emerging regions. As anticipated, there
was some easing in the rate of growth during
the last quarter of the year as inventory levels
began to be replenished. Further detail is
provided for each division on pages 26 to 34.
Revenue
Group revenue from continuing operations
increased by 23.3 per cent to £571.3 million
(2009: £463.5 million) including an adverse
effect from foreign exchange movements of
approximately £1.3 million. The underlying
growth in revenue was 23.5 per cent,
reflecting increased demand resulting from
the actions taken to re-position the Group
and the general market recovery.
Underlying revenue in the Components
division increased by 23.2 per cent.
The Sensors division delivered growth in
revenue of 41.5 per cent as its key European
automotive OEM customers benefited
from the general recovery and demand
for premium passenger cars from Asia.
Revenue in the IMS division increased by
20.8 per cent on an underlying basis,
notwithstanding the difficulties experienced
in sourcing components throughout the year.
Good demand from export markets helped
the Secure Power division deliver growth
of 37.4 per cent. All figures exclude foreign
exchange variations. Growth rates including
the effects of foreign exchange are detailed
on pages 27 to 32.
“We experienced good growth in the majority of our markets
with particularly strong demand from customers exposed to
emerging regions.”
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Custom sensing solutions
utilising infrared reflective
technology
We created a unique solution for a major medical
manufacturer by developing a custom designed
digital optical sensor for an anaesthesia delivery
system used in operating theatres. The technology
enables the accurate monitoring of anaesthesia fluid,
preventing expensive delays in operating procedures.
These unique sensors incorporate a custom output
protocol designed for the customer’s specific
application, providing them with a competitive
edge in the marketplace.
Creating unique
solutions for the
medical
marketplace
26 TT electronics plc
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Directors’ report – Business review
Business review continued
Components
The Components division partners with
customers to provide the engineered
electronic components they need to bring
their products to market. Our global
network of application sales engineers
work closely with customers’ own design
centres to develop differentiated
solutions, often in circumstances where
reliability, performance and the ability
to work in harsh environments are key.
The division has a global footprint with
facilities in North America, Europe and Asia
and a sales presence in all major markets.
To allow us to serve our customers better,
unified regional sales structures were
implemented in North America and Asia
from 1 January 2010, following a similar
reorganisation in Europe in 2009. In addition,
we appointed our first Vice President of
Global Sales to provide co-ordinated
leadership and direction.
In the second half of the year an operations
leader was appointed with responsibility for
all manufacturing facilities worldwide.
The new structure is making it easier for
the business to support customers across
different regions and enabling more efficient
utilisation of our manufacturing footprint.
Changes are underway to improve the way
in which the division identifies and develops
new products, with the creation of global
business units focused around specific
technologies and markets. The fixed resistors
business unit was the first to be implemented
in October 2010, bringing together a number
of previously separate marketing and
engineering teams. The transition to the
business unit structure will be completed
in the first half of 2011.
In 2010 the division strengthened its
distribution network, with a special focus
on field support to secure new business.
A continued focus on the key account
management programme and the
implementation of Customer Relationship
Management (CRM) tools are helping
improve communications with our
customers. We are now able to track
growth opportunities across geographies
as customers move into new regions, often
with design activity and manufacturing
taking place in different parts of the world.
Good progress was made in the target
medical and alternative energy segments
with wins including components for life
support, medical diagnostic and patient
monitoring equipment and intelligent
energy meters.
The division’s principal competitors include
Amphenol, Fairchild, Koa, Smiths Interconnect,
Vishay and Yageo.
Market conditions
There was a significant improvement in
demand for electronic components across
most end markets in 2010, driven by the
general recovery in the economic
environment and inventory replenishment
activities. This resulted in shortages in the
supply chain with production of many
components unable to keep up with
demand. Against this backdrop, the division
worked hard to respond quickly to changing
customer demands to win new business.
Performance
Underlying revenue in 2010 increased by
23.2 per cent after adjusting for a 0.2 per cent
foreign exchange impact. The increase in
volumes, coupled with management
actions to increase efficiencies, delivered
a significantly improved operating profit of
£10.7 million and an operating margin of
4.6 per cent. Inventory turns improved by
43 per cent to 6.3 turns (2009: 4.4 turns).
Outlook
The outlook for 2011 is positive albeit with
more modest growth expected as customers
readjust their inventory levels and order
patterns to reflect improving availability and
reduced lead times. Recent and ongoing
actions are improving the way in which
the division works with and supports its
customers, develops new products and
technologies and manages its factories.
We expect the division to deliver further
improvements in performance in 2011.
Revenue
£190.8m
£234.6m
2009
2010
Operating profit*
£10.7m
£5.9m
2009
2010
£234.6m
+23.0%
£10.7m
+81.4%
Operating profit margin*
4.6%
3.1%
2009
2010
Capital employed
£148.8m
£128.3m
4.6%
+1.5% points
£128.3m
-13.8%
2009
2010
Year end headcount
3,113
3,183
3,183
+2.2%
2009
2010
* Before exceptional items
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“As we move into 2011 we are focused on completing the
transformation of the organisation to deliver a best-in-class
global business. This transformation, together with a continued
focus to work in partnership with our key customers in growth
segments, will deliver further improvements in performance.”
Billal Hammoud
Divisional Chief Executive – Components
TT electronics plc 27
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Sensors
Revenue
£105.4m
£143.5m
2009
2010
Operating profit*
£3.9m
£(3.9)m
2009
2010
£143.5m
+36.1%
£3.9m
+£7.8m
Operating profit margin*
2.7%
2.7%
+6.4% points
(3.7)%
2009
2010
Capital employed
£55.7m
£52.5m
£52.5m
-5.7%
2009
2010
Year end headcount
998
1,069
1,069
+7.1%
2009
2010
* Before exceptional items
28 TT electronics plc
Annual Report 2010
The Sensors division provides highly
engineered sensing solutions targeting
critical transportation and industrial
applications where conditions demand
a high degree of reliability and accuracy,
often in extreme temperatures and harsh
environments. We continue to be a key
technology partner for major automotive
OEM customers as they grow in emerging
markets, whilst making solid progress in
further developing our presence in the
broader transportation and selective
industrial sensor segments.
Our principal operations are based in
Germany, China and India with further sites
in the UK and Eastern Europe.
2010 saw our traditional European customers
accelerate investments in manufacturing
capacity in emerging markets, coupled with
continued growth in demand from local
OEMs and their suppliers. Reflecting this, the
division implemented a global management
structure to align itself with key customers.
As part of the reorganisation, global leaders
were appointed for all major functions.
Additionally, investments were made in
engineering and manufacturing to support
customers in China and India.
This progress was recognised by key
customers. For example, the division was
granted global preferred supplier status by
VW and is working closely with them on new
projects worldwide. Good growth was
achieved in India and a number of new
programmes will commence in China this
year to supply sensors, both to domestic
customers and European OEMs’ local
factories. A further significant increase
in resources in China is planned for 2011.
Progress was made in applying technologies
developed for automotive customers to other
markets, with the division winning a number
of new programmes in the truck and
agricultural vehicle segments. Progress in the
industrial market was slower but included
new solutions for process automation
and industrial engines.
The division’s principal competitors include
divisions of Bosch, Continental, CTS and Hella.
Market conditions
Automotive end markets recovered strongly
following the significant downturn in late
2008 and 2009 with particularly strong
demand for passenger cars from emerging
markets. More modest growth was seen in
Europe and the US where sales of smaller cars
were affected by scrappage schemes coming
to an end. The truck and off-road markets
also recovered well. In addition, we saw a
continuation of the trend to increase the
number of sensors on each platform.
Performance
The division’s key European automotive
OEM customers saw especially high levels
of demand in the premium passenger car
segment from customers in emerging
markets. With its global presence and key
customer relationships the division was
well placed to benefit from this. As a result,
underlying revenue, excluding a 5.4 per cent
impact of foreign exchange, increased by
41.5 per cent and operating profit before
exceptional items increased to £3.9 million.
Outlook
The outlook for 2011 is broadly positive across
all markets with good visibility for the first half.
The automotive market in Europe and the US
is expected to deliver modest growth with
higher demand in Asia and other emerging
regions, particularly for premium vehicles.
The truck, off-road and industrial markets
are expected to show continued recovery.
The steps being taken to develop the
division’s capability globally and the focus
on providing solutions for critical applications
position the business well for the longer term.
Further improvements in margins are
expected in 2011.
“2010 saw a strong recovery across all markets with a particular
emphasis on emerging economies. The investments we are
making to increase our engineering and production capabilities,
particularly in China, India and Mexico position us well to
support our key customers in these growth markets and
to further develop our position in the broader transportation
and industrial segments.”
Pat Murray
Divisional Chief Executive – Sensors
Directors’ report – Business review
Continuous sensor innovation
reduces vehicle emissions
Our unique multi-axis non contact “start-stop” sensor
solution has been chosen by a leading European
vehicle manufacturer. The gearshift sensor is used to
accurately detect when the driver selects a forward or
reverse gear whilst the vehicle is at rest. This sensor is
an integral part of a fast reacting start-stop system that
helps to drive down emissions and increase efficiency.
Sensor excellence helps
transport
the world
TT electronics plc 29
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Leading in
advanced
manufacturing
Providing electronic systems
for energy recovery solutions
We are partnering with Bowman Power Group,
a world leader in advanced exhaust energy
recovery techniques, to provide electronic systems
for their new 30KW and 60KW energy recovery
products. Our world-class supply chain, advanced
manufacturing capability and lean philosophies
ensure that the products are built to the highest
quality standards whilst providing the flexibility to
support Bowman’s aggressive plans for growth.
30 TT electronics plc
Annual Report 2010
Directors’ report – Business review
Business review continued
IMS
The division draws on its design
engineering capabilities, flexibility
and world-class facilities to provide
high quality electronic manufacturing
services to customers in the defence
and aerospace, medical and premium
industrial sectors. The business has a
broad capability from board assembly
to full systems integration focused on
higher mix/lower volume business.
The division supports its customers from
operations in China, USA, UK and Malaysia.
Our strategy is to work with customers who
are looking for a partner to build their more
complex electronic and electromechanical
products and who value our ability to provide
support, not only throughout the product
lifecycle but also across multiple geographic
regions.
During the year, we made very good progress
in the target industrial, medical, traction and
aerospace segments, with the continued
focus on key account management resulting
in new wins with existing customers.
In addition, initial business was won with
ten major new accounts, each having the
potential to grow to more than £1 million
of revenue per year. Our global presence
remains a key differentiator against regional
competitors and several cross-site wins were
secured with key accounts being supplied
from multiple manufacturing locations.
We are also beginning to see results from our
strategy to transition projects to lower cost
manufacturing regions where appropriate,
providing us with improved margins whilst
at the same time allowing us to offer more
competitive pricing.
In the UK, the Aylesbury plant was closed
as planned in the first half of the year and
the transfer of business to our Rogerstone
facility completed.
Although all of the division’s operations
have made good progress in increasing
the proportion of business from strategic
customers in our target market segments,
further significant opportunity remains.
The division’s principal competitors include
ACW, CTS, EPIC, La Barge, Neways and Plexus.
Market conditions
Following the market downturn in 2009,
customer demand increased in the first
quarter of 2010 and remained strong
throughout the year in all markets.
However, acute component shortages were
experienced across the industry and these
impacted performance and delayed some
customer build programmes. Although the
situation eased in the second half of the year,
lead times on certain components remained
an issue through to the end of the year.
Performance
Underlying revenue grew by 20.8 per cent
after adjusting for a foreign exchange benefit
of 0.9 per cent. Improved volumes, efficiencies
from the consolidation of the UK operations
and the progress made in winning new
business in target segments delivered
an increase in operating profit before
exceptional items of £1.9 million to
£4.3 million and an improved operating
margin of 4.7 per cent.
Outlook
We are seeing good levels of customer
activity and continued improvements in
demand in all regions which, together with
a solid order book, provide good visibility for
the first half of the year. Component lead
times are more stable although they remain
longer for certain items when compared to
the position in 2007 and 2008. The progress
made in winning new business positions
the division well for 2011 and beyond.
Revenue
£75.1m
£91.4m
2009
2010
Operating profit*
£4.3m
£2.4m
2009
2010
£91.4m
+21.7%
£4.3m
+79.2%
Operating profit margin*
4.7%
+1.5% points
4.7%
3.2%
2009
2010
Capital employed
£19.9m
£21.8m
£21.8m
+9.5%
2009
2010
Year end headcount
1,011
1,054
1,054
+4.3%
2009
2010
* Before exceptional items
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“Following a difficult 2009, we saw a recovery in demand across
most geographies and end markets in 2010. We have made
good progress against our strategy as evidenced by new wins in
the target industrial, medical, traction and aerospace segments.
Together with the actions taken to improve margins, particularly
in the UK and Malaysia, this progress positions the division well
for 2011.”
John Molloy
Divisional Chief Executive – IMS
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Secure Power
Revenue
£59.1m
£85.2m
2009
2010
Operating profit
£6.2m
£4.8m
2009
2010
£85.2m
+44.2%
£6.2m
+29.2%
Operating profit margin
8.1%
7.3%
7.3%
-0.8% points
2009
2010
Capital employed
£15.1m
£11.6m
£15.1m
+30.2%
2009
2010
Year end headcount
757
589
757
+28.5%
2009
2010
32 TT electronics plc
Annual Report 2010
The division provides secure power
solutions to customers in the
petrochemical, medical, utilities and
financial services sectors, who value
its reputation for quality, reliability
and service. Utilising its engineering
capability, the division focuses on
providing bespoke turnkey solutions
for major one-off projects and
differentiated medium to high power
generating sets.
The division has two principal operations:
Ottomotores in Mexico and Dale Power
Solutions in the UK. In addition, we have a
facility in Brazil and sales and service offices
in Aberdeen and Dubai.
During 2010 we continued to invest in
developing sales channels in the UK and
Mexico as well as in key overseas markets.
Through a combination of dealer and
distributor development, and an increase in
direct sales focus and resource, we secured
new business in Central and South America,
as well as in the Middle East and West Africa.
The sales and service office in Brazil
developed in line with our expectations.
There were fewer large secure power projects
in the first half of the year compared with
2009, particularly in the UK, and this impacted
margins. However, demand improved in
the second half and we won a number of
projects in target segments, including
solutions to protect water and sewage
infrastructure for utilities customers.
The investment in the division’s service
operations in 2009 was reflected in double
digit growth in service revenues in the period.
We took further steps to improve the
product range introducing new containerised
generator sets providing improved reliability
and performance in a smaller footprint.
Manufacturing quality from the Mexican
plant, an important element in enabling sales
in overseas markets, improved during the
year, and we introduced the European “CE”
quality standard for certain product ranges.
The division’s principal competitors include
Broadcrown, Caterpillar (including FG Wilson),
Chloride and IGSA.
Market conditions
Following the downturn in the second half
of 2009, markets in the UK, Mexico and
Middle East recovered slowly with stronger
competition and longer approval cycles for
larger capital projects. In contrast, there was
good demand in other markets including
Latin America and West Africa.
Performance
The division delivered strong revenue growth
of 37.4 per cent excluding a 6.8 per cent
foreign exchange benefit. Sales from export
markets grew by more than 75.0 per cent
and this success was underpinned by growth
from traditional markets in the UK and
Mexico, albeit at lower levels. Unfavourable
product mix, ongoing investment and pricing
pressure, principally in the UK, together with
adverse transactional exchange rate impacts,
resulted in a reduced operating margin
overall. However, operating profit improved
by £1.4 million, driven by the increase in
revenues.
Outlook
In certain developed markets, particularly
the US, UK and Europe, growth in demand
is expected to continue to be muted, with
restrictions on government spending and
major capital projects taking longer to be
approved. We anticipate that the higher
levels of demand experienced in 2010 in
other markets will continue and, based on
the investments made to broaden sales
channels and improve our product range,
the division is well positioned to capture
further growth in these regions.
“We made great progress in overseas markets in 2010.
In addition to delivering revenue growth we invested in
developing our sales channels and improving our access to
specific markets, particularly in Latin America and West Africa.
These actions, together with new products launched during
the year, position the division for further growth.”
Nigel Brice
Divisional Chief Executive – Secure Power
Directors’ report – Business review
Powering growth in
Latin America
Supporting the electricity
grid in Brazil
Brazil is one of the world’s largest consumers
of electricity, with more than 80 per cent of its
requirement supplied from hydroelectric power.
When severe droughts hit in 2010, we provided
48 diesel secure power generating systems,
delivering 46MW of continuous power, to support
the electricity grid in the Amazon region near
Manaus. Our Mexican facility worked closely with
the customer to meet very tight timescales.
TT electronics plc 33
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General Industrial
With operations in the UK, South Africa,
India, China, USA and Canada, the division
served a range of market sectors during
2010. Applications included magnetics,
electrical fusegear and specialist
compounds for the cable and pipe
markets, as well as fastenings for the
industrial and automotive sectors.
In line with the strategy to manage the
division for value, six businesses were
successfully sold during the year to existing
management or trade buyers who were
better positioned to invest and develop them
over the medium and long term. The net
sale proceeds received, which amounted
to £21.7 million, were ahead of the Board’s
expectations and additional deferred
consideration of approximately £1.0 million
is expected to be received in 2011.
At 31 December, the division comprised
AEI Compounds, a UK-based manufacturer
of speciality compounds for the cable and
pipe markets and Abtest. During 2010 we
continued to invest in the development of
AEI Compounds, completing the move to
a new site and also adding further capacity
to meet the increasing demand for low
smoke and fume speciality compounds.
During early 2011, Abtest became part
of the IMS division.
Market conditions
The businesses within the General Industrial
division served a wide range of end markets,
all of which showed some recovery following
the impact of the global recession in 2009.
Performance
The businesses sold during the year
contributed revenue of £28.4 million and
operating profit of £0.7 million up to the
dates of their disposal and are treated as
discontinued operations in this report.
A net profit on disposal of £7.1 million
was recorded and is also shown under
discontinued operations.
AEI Compounds delivered revenue of £15.5
million and operating profit of £0.1 million in
the period. Operating profit was adversely
affected by one-off issues related to the move
to the new site and the commissioning of a
major new machine. The business is expected
to deliver significantly improved performance
in 2011.
“I am delighted that we were successful in finding new
owners for the businesses sold who are well positioned
to support their future development, whilst also realising
good value for the Group. With regard to AEI Compounds,
as a result of the work undertaken in 2010 by the management
team, the business is well positioned to take advantage of
increasing levels of demand.”
Andrew Dick
Divisional Chief Executive – General Industrial
34 TT electronics plc
Annual Report 2010
Directors’ report – Business review
Business review continued
Financial review
Overview
Revenue from continuing operations
increased by 23.3 per cent to £571.3 million in
2010. Operating profit before exceptional
items increased from £6.4 million to £25.2
million due to improved volumes and further
benefits from the restructuring programme
undertaken over the last two years, offset in
part by investment expenditure. Profit before
tax and exceptional items was £20.7 million,
an increase of £19.9 million compared to 2009.
Exceptional items
An exceptional credit of £4.5 million from
continuing operations has been recognised
during 2010, compared with an exceptional
cost of £17.4 million for 2009. This is shown
below:
£million
Pension curtailment gain
from scheme closure
Profit on sale of property
interest
Onerous property leases
Restructuring costs
Goodwill impairment
Total
2010
2009
4.3
–
1.0
(0.8)
–
–
4.5
1.0
–
(14.6)
(3.8)
(17.4)
The pension curtailment gain arises from the
closure of the UK defined benefit scheme to
future accrual, as discussed further below.
The Group received £1.0 million in exchange
for a reduction in its participation of future
profits from the development of the
Gravesend site sold in 2005. The residual
interest retained by the Group is not
expected to result in a material benefit in the
medium term. A provision of £0.8 million has
been made in respect of two non-trading
properties which are subject to onerous
long-term leases.
Net finance costs
Net finance costs for 2010 were £4.5 million
compared to £5.6 million in 2009. These
include £0.5 million (2009: £2.3 million) in
respect of the net interest expense arising on
pension scheme liabilities due to a reduction
in the pension deficit and discount rate and
£0.6 million (2009: £nil) in respect of the
amortisation of loan arrangement fees
associated with the re-financing undertaken
in May 2010.
Taxation
The tax charge for the year was £6.7 million
(2009: £2.2 million), which represents an
effective tax rate of 32.4 per cent on
continuing operations excluding exceptional
items. The charge arises from the profits
generated in overseas countries, in particular
in USA, Mexico and China. There is no tax
payable in the UK or Germany due to the
availability of tax losses.
Earnings per share and dividends
Headline EPS from continuing operations
were 9.0 pence (2009: loss per share of
1.2 pence), whilst basic earnings per share
from continuing operations were 11.9 pence
(2009: loss per share of 12.1 pence).
The Directors recommend a final dividend of
2.0 pence which, when combined with the
interim dividend of 0.8 pence, gives a total
dividend for the year of 2.8 pence per share
(2009: nil). This is in line with the Group’s
policy to increase dividends progressively
whilst maintaining cover of at least two
times. The final dividend will be paid on
9 June 2011 to shareholders on the register
on 27 May 2011.
Discontinued operations
During the year, the Group disposed of six
businesses, all of which were part of the
General Industrial division: MMG Canada
Limited, Wire Systems Technology (Pty)
Limited, MMG Magdev Limited, MMG India
Private Limited, WT Henley Limited and
BAS Components Limited.
Cash proceeds received during the period
from the disposals amounted to £21.7 million
with approximately a further £1.0 million
expected to be received in 2011. There was
a profit of £7.4 million in 2010 (2009: loss of
£0.8 million) arising from the discontinued
businesses.
These businesses are included within
discontinued operations in the consolidated
income statement and the 2009
comparatives have been re-presented
accordingly.
Pensions
The Group operated one significant defined
benefit scheme in the UK and two overseas
defined benefit schemes in the USA and
Japan. All of these schemes are closed to new
members and, in April 2010, the UK scheme
was closed to future accrual following
extensive consultation, with affected
employees being transferred into an
enhanced Group defined contribution
scheme. A one-off reduction in future
liabilities of £4.3 million was recognised in
the consolidated income statement as an
exceptional credit.
The assets and liabilities of the Group’s
defined benefit schemes in accordance
with IAS 19 are summarised below:
£million
2010
2009
Fair value of assets
Liabilities
Deficit – UK scheme
Overseas schemes
Total Group deficit
333.9
(372.5)
(38.6)
(2.6)
(41.2)
302.9
(343.6)
(40.7)
(3.0)
(43.7)
The results of the triennial valuation of the
UK defined benefit scheme as at April 2010
shows a deficit of £39.8 million compared
with £59.6 million at April 2007. A revised
funding agreement was agreed with the
Trustee of the UK scheme in January 2009,
fixing deficit contributions until 2016.
Under the agreement, a special contribution
of £3.2 million was made in 2010, with
£3.5 million to be paid in 2011, increasing by
£0.2 million each year to £4.5 million in 2016.
The Company and the Trustee agreed that a
change to the deficit funding plan was not
necessary following the triennial valuation.
In addition the Company has agreed to set
aside £1.0 million per year for the next three
years to be deployed in agreement with the
Trustee for reducing the long-term liabilities
of the scheme.
TT electronics plc 35
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Business review continued
Financial review continued
In May 2010 the Group agreed a new
committed facility of £70 million over three
years to May 2013 with a club of four banks
comprising HSBC, Royal Bank of Scotland,
Santander and Fifth Third Bank of the USA.
The new facility replaces an existing term loan
which had been due for repayment in April
2011. The new facility, together with other
bilateral term loans and working capital lines,
give the Group facilities of over £110 million
and provide a comfortable level of headroom
over net debt.
The main financial covenants in the new
facility restrict net debt to be below 2.5 times
EBITDA before exceptional items in the first
year, and then 2.0 times EBITDA before
exceptional items in the second and third
years. In addition, EBITDA before exceptional
items is required to cover net finance charges
by 5.25 times in year one, 6.25 times in
year two and 6.5 times in year three.
The covenants are to be tested quarterly on
a rolling 12-month basis and were satisfied
comfortably at 31 December 2010:
Net debt/EBITDA before
exceptional items
EBITDA before
exceptional items/net
finance charges
Covenant
December
2010
<2.5
0.2
>5.25
14.0
The Directors have assessed the future
funding requirements of the Group and
compared them with the level of available
borrowing facilities and are satisfied that
the Group has adequate resources for the
foreseeable future.
Cash flow, borrowings
and facilities
£million (unless otherwise stated)
Underlying operating
cash flow
Working capital
improvement
Capital expenditure
(including software)
Exceptional restructuring
costs
Proceeds from disposal
of businesses
Net debt
Stock turns (times)
Debtor days
Creditor days
2010
2009
60.2
83.9
5.0
47.2
(12.2)
(9.4)
(5.0)
(9.6)
21.7
(9.9)
5.7
44
55
–
(56.9)
5.0
48
57
Underlying operating cash flow for the
year was £60.2 million (2009: £83.9 million).
This satisfactory result was due to the increase
in profitability and sustained increase in
managing working capital following the
significant out-performance in 2009.
Inventory reduced by £2.5 million
accompanied by an improvement in stock
turns from 5.0 to 5.7 times. Debtor days
improved by four although this was partially
offset by a two-day reduction in creditor days.
Conversion of operating profit to operating
cash flow after capital expenditure was
167 per cent, exceeding the target of
100 per cent conversion.
Exceptional restructuring cash costs of
£5.0 million were incurred during the year,
together with a £3.2 million special payment
to the UK pension fund, resulting in cash
generated from operations of £52.0 million
(2009: £72.1 million).
Capital expenditure (including software) was
£12.2 million compared with depreciation of
£21.2 million. Proceeds from the sale of fixed
assets amounted to £1.7 million and proceeds
from the disposal of businesses amounted to
£21.7 million. Net cash flow for the year was
£47.0 million (2009: £56.3 million) leading to a
significant reduction in net debt to £9.9
million (31 December 2009: £56.9 million).
36 TT electronics plc
Annual Report 2010
Directors’ report – Business review
Business review continued
Principal risks and uncertainties
The Group is subject to a variety of operational and financial risks which could have a
negative impact on its performance and financial position. The Board is responsible
for the Group’s system of internal control and risk management and for reviewing its
effectiveness. The principal risks are considered to be:
Principal risks
Description of risk
How we mitigate that risk
Market and
customer
related
General economic downturn leading
to reduction in customer demand and
production volumes
Forward-looking indicators are regularly reviewed to identify
deteriorating market conditions. The management structure is
in place to enable a rapid response to changing circumstances
Significant erosion of existing customer
base as a result of customer relocation or
a reduction in end user demand for their
products
We review composition of the customer base as part of the annual
strategic planning process and establish and monitor plans to diversify
the customer base. Our key account management programme
ensures major customers are serviced on a global basis. We continue
to increase our capabilities to service customers in emerging markets
Over-dependence on one or more key
market sectors or products
Market concentration and new product development are reviewed
annually at a business, divisional and Group level as part of the
annual strategic planning process. Plans are established to address
any issues identified
Manufacturing
and
operational
Major product liability claims or recall
costs from quality failure, particularly in
the automotive sector
Comprehensive quality control procedures are backed up by an
appropriate level of insurance. Major contracts are reviewed by
the Group Legal Counsel
Failure of business continuity plans with
consequential impact on revenue and profit
Robust business continuity plans are in place at each business
and are tested periodically
Inadequate succession planning, combined
with a lack of training and development,
resulting in a lack of management talent
A talent review process is held twice a year to assess senior
management across the Group, identify succession issues and
determine training and development needs. In addition, we identify,
assess and monitor the development of the Group’s management
using a web-based performance management tool
Damage to reputation amongst key
stakeholders due to product quality or
product delivery issues
Comprehensive quality control procedures are in place and we
work continuously to build and maintain relationships with all
key stakeholders
Health and safety; accidents or claims
Major IT failure, failure to deliver IT
projects on time/on budget or late
delivery of IT project
Best practice is driven by the Group’s Health and Safety Committee.
Responsibility for health and safety at each site on a day to day
basis is devolved to local management. All accidents resulting in
three days’ or more absence from work are reviewed by the Group
Risk Committee. Health and safety processes and procedures are
reviewed by the Group’s internal audit team as part of their regular
on-site audit visits
The Group’s IT Steering Committee meets on a monthly basis to
review all major IT projects. The committee is chaired by the Group
Chief Executive and members include the Group Finance Director,
certain Divisional Chief Executives and the Group’s IT Director.
In addition the Group only sources hardware and software from
reputable manufacturers and suppliers and has appropriate disaster
recovery plans in place
Financial
Foreign exchange risk, interest rate risk,
credit risk and liquidity risk
Financial risks are managed at a Group level as further
described below
TT electronics plc 37
Annual Report 2010
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Directors’ report – Business review
Business review continued
Principal risks and uncertainties continued
Risk management process
In common with other international
businesses, the Group is exposed to a number
of potential risks which may have a material
effect on its reputation and financial or
operational performance. These include
product liability, credit risk, reliance on
customers’ commitments and other usual
commercial risks. We have a wide portfolio
of products and operate in a number of
market sectors. It is not possible to identify
or anticipate every risk that may affect us, or
the materiality of that risk. However, there are
established control procedures in place to
manage such risks, including production
quality control, management and financial
control procedures and insurance with
reliable insurers, which are considered
appropriate to the risk involved and the
marketplace in which the exposure arises.
The Board has overall responsibility for risk
management and internal controls,
supported by the Risk Committee and
the Audit Committee.
The Risk Committee of the Board holds
monthly meetings to review risks and assess
and monitor actions to mitigate those risks.
This provides a framework for managing risks
throughout the Group. During the year the
Committee was chaired by the Group Chief
Executive and included the Group Finance
Director, the Group Legal Counsel, the Group
Internal Controls Executive and up to four
senior executives from within the Group.
Business risk evaluation including the nature,
likelihood and materiality of the risks affecting
each Group business is assessed by
operational management and reviewed
periodically. On the basis of these
assessments, each month the Risk Committee
produces a Group Risk Register and a Group
Risk Map which identifies and categorises
risks (based on the likelihood of their
occurrence and their potential impact on
the Group) together with management
actions to address and mitigate them.
Minutes of the Risk Committee meetings,
together with the Group Risk Register and
Risk Map, are circulated to the Board and
to the Audit Committee.
The Risk Committee monitors the
effectiveness of risk management with the
assistance of the Group Internal Controls
Executive who conducts a series of internal
audits in line with an annual plan approved
by the Audit Committee. Following each site
visit, a report is prepared and presented to
local entity and divisional management and
to the Chairman of the Audit Committee.
A copy is also made available to the external
auditors. Further details of the Group’s system
of internal controls are contained in the
Directors’ report on corporate governance
on pages 50 to 51.
As described in the Corporate governance
report, there is an embedded process for
monitoring and managing risks through
monthly financial and operational reporting
procedures. In addition, appropriate levels
of cover are maintained under the Group
insurance programme in respect of insurable
risks.
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. It should be recognised that
such systems can only provide reasonable
and not absolute protection against risk,
material misstatement or loss.
Operational risks
The Group directly and indirectly serves large
automotive OEM customers. This exposes the
Group to several risks including fluctuating
manufacturing volumes, the potential for
significant quality and recall claims and
customer default. In the event that one of the
larger automotive manufacturers or suppliers
defaults or seeks protection from its creditors,
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, supply chain
issues, reliance on customers’ commitments
and other usual commercial risks in all of its
businesses, including those identified as
Principal Risks in the table on page 37.
The Group has a wide portfolio of products
and operates in a number of market sectors.
There are established procedures in place
to manage such risks, including production
quality 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.
In addition, major contracts are reviewed by
the Group Legal Counsel.
The Group has contractual and other
arrangements with numerous third parties in
support of its business activities. This report
does not contain information about any
of these third parties as none of the
arrangements with them are considered
essential to the business of the Group.
Financial risks
As an international business, the major
financial risks faced by the Group are foreign
exchange risk, interest rate risk, credit risk and
liquidity risk and these are regularly
considered by the Board.
Foreign exchange risk
The Group is exposed to transactional
and translational foreign exchange risk.
Transactional foreign exchange risk arises
from sales or purchases by a Group company
in a currency other than its own functional
currency. Translational foreign exchange risk
arises on the translation of profits earned
in overseas currencies into GBP and the
translation of net assets denominated in
overseas currencies into GBP, being the
Group’s functional currency.
In order to mitigate against transactional
foreign exchange risk, wherever possible
Group companies enter into transactions in
their functional currencies with customers
and suppliers. When this is not possible,
hedging strategies are undertaken through
the use of forward currency contracts.
The Group uses forward currency profit
hedges to mitigate against translational
foreign exchange risk taking into account
the level of forecast profits in foreign
currencies, natural hedges and the cost
of taking out cover.
38 TT electronics plc
Annual Report 2010
Directors’ report – Business review
Financial risks continued
Interest rate risk
The Group’s interest rate management policy
is to maintain a balance between fixed and
floating rates of interest on borrowings and
deposits, and to use interest rate derivatives
such as caps when appropriate.
Credit risk
Exposure to credit risk arises as a result of
transactions in the normal course of business
and is applicable to all financial assets.
It relates to the exposure of dealing with
counter parties who are primarily customers
and financial institutions.
Customer credit risk is managed at an
operating company level with the oversight
of Group management through a monthly
Credit Committee chaired by the Group
Finance Director. Credit evaluations are
performed for all major customers and credit
limits are authorised based on internal or
external rating criteria and other financial
sources. A letter of credit or payment in
advance is obtained where a customer’s
credit quality is not considered strong
enough for open credit.
Liquidity
The Group maintains a balance between
availability of funding through short-term
credit facilities and longer-term debt
instruments, and maximising investment
returns on its liquid resources. Group
management regularly reviews the funding
requirements of subsidiaries and the Group,
and selects appropriate maturities of cash
investments and repayment profile of debt
instruments accordingly. The Group maintains
back-up liquidity by retaining standby
committed credit facilities. Oversight is
provided by a Group Treasury Committee
chaired by the Group Finance Director.
Directors’ review
The Directors have reviewed the effectiveness
of risk management and internal control
during the year to 31 December 2010 and the
period since then to the date of this report
and have taken appropriate actions for
improvement where necessary.
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TT electronics plc 39
Annual Report 2010
Directors’ report – Business review
Business review continued
Corporate responsibility
We are committed to understanding,
monitoring and improving our social
and environmental impact, and take our
corporate responsibility (CR) seriously
as an employer, manufacturer, investor
and consumer.
Operating in a responsible and sustainable
manner is central to the Group’s ethics
and values.
At a Group level CR is monitored and
managed by the Corporate and Social
Responsibility Committee which is chaired by
the Group Chief Executive. This Committee
met four times in 2010. Building on the
framework established during 2009, the
Group’s approach to CR was formalised
during 2010 in our Corporate Social
Responsibility Policy. This provides a
framework within which we expect all of
our employees and businesses to operate
and complements the Group’s cultures and
values which are set out on pages 8 and 9.
Working with Business in the Community we
have identified four key areas where we will
continue to focus our efforts:
Workplace:
improving the workplace
environment for our
employees
Marketplace: working with our customers
and suppliers to improve
corporate responsibility
Environment:
reducing our impact on
the environment
Community: making a sustainable, positive
impact in the communities in
which we operate
Workplace
In today’s competitive market, the
enthusiasm, commitment and talent of
our people are critical in order to continue
building a sustainable and successful
business. We believe that, in order to deliver
an excellent product and service to our
customers, we need to provide a safe,
stimulating and supportive work
environment for our people.
We aim to attract, develop and retain the
most talented people by truly engaging
them in the business. In 2010 we launched
our first global employee survey, “Your Voice”,
which achieved a creditable 68 per cent
response rate against an industry benchmark
of approximately 48 per cent. The feedback
was encouraging with many employees
identifying strongly with the businesses
they work for and being proud to be part of
the Group. We have identified a number of
specific areas for improvement and these
are being addressed in 2011.
TT electronics provides training and
development opportunities to assist
our employees to acquire new skills and
experiences and reach their full potential.
For example, in 2010 the Sensors division
commenced a training programme for
Six Sigma, an internationally recognised
lean manufacturing methodology. Four
employees achieved green belt certification
during the year and the programme
is continuing in 2011. In China we have
instituted a graduate development scheme
providing a structured development
programme which benefits both our
employees and the Group.
During 2010 we extended our performance
management programme to cover over 400
of the Group’s managers. Each participant
receives detailed feedback from their
colleagues and this, together with a review of
progress against agreed goals and objectives,
is used to assess performance and to set clear
objectives and development plans for the
following year, closely aligned with the
Group’s strategic priorities and values.
Our employees’ health and safety is a key
concern and further details of our actions
in this area can be found on page 37.
Marketplace
We are working actively with our supply
chains to ensure they commit to our values,
especially around fair employment,
transparent business practices and good
environmental stewardship. As members of
the Electronics Industry Citizenship Coalition
(EICC) we have adopted the EICC Code of
Conduct. In 2011 we plan to use their audit
tools to benchmark both our own operations
and those of our major suppliers.
Environment
It is the Group’s policy that all of its
operating companies should gain ISO 14001
accreditation, providing a consistent
approach to measuring, managing and
improving our environmental management
systems.
During 2010 we have continued to work
with the Carbon Trust and external partners
with the objective of reducing the carbon
footprint of our UK operations. The
programme is managed by an internal team
who are driving energy saving initiatives and
monitoring power consumption through
a comprehensive system of smart meters.
Our largest facilities in the UK have been
externally assessed and two of them achieved
best in class status.
We are working to define a framework during
2011 to help our global teams to effectively
manage their carbon footprint.
Community
In 2010 we successfully launched the Group’s
community investment programme in the
UK, forging a partnership with Help the
Hospices, a leading charity supporting
hospice care. Each of our UK businesses was
twinned with a local hospice, with employees
raising funds through events and activities.
In the three months leading up to Christmas,
they raised £10,000, which was then matched
by the Group. This partnership will continue
in the UK during 2011 and we will be putting
in place a formal programme to encourage all
of our businesses and employees worldwide
to support their local charities. This will
supplement the existing work being done in
many regions. For example, our Secure Power
operation in Mexico continues to work with a
charity supporting indigenous communities
in the remote region of la Montana de
Guerrero, to create a model of sustainable
development. This business has had a long
association with the charity and, as part of its
60th anniversary celebrations, donations from
customers and suppliers were matched by
the business, raising a total of USD 25,000
to assist in funding the construction of
hurricane-proof housing for the community
of El Aguacate.
40 TT electronics plc
Annual Report 2010
Directors’ report – Business review
Business review continued
Outlook for 2011
Trading conditions improved significantly
in 2010 and we experienced good growth
in the majority of our markets.
Strong customer demand has continued in
2011, particularly in our Components, Sensors
and IMS divisions. The current order book
and trading in January and February provide
confidence for the first half of the year.
The excellent progress made to re-position
the business, and actions continuing in 2011,
will further improve Group performance.
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TT electronics plc 41
Annual Report 2010
Directors’ report – Governance
Directors and Company Secretary
1. Sean M Watson (62)
Chairman
4. Tim H Roberts (40)
Group Business Development Director
6. Michael J Baunton CBE (60)
Independent Non-executive Director
Chairman of the Nominations and Corporate
Governance Committees and member of the
Remuneration Committee
Appointed to the Board as an independent
non-executive Director in 2007. Became
Chairman on 12 May 2010, following the
retirement of J W Newman. A solicitor and
partner at CMS Cameron McKenna LLP and
was a non-executive director of Informa plc
from 2000 to 2009.
2. Geraint Anderson (51)
Group Chief Executive
Chairman of the Corporate and Social
Responsibility and Risk Committees
Appointed to the Board in 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 (49)
Group Finance Director
Member of the Corporate Governance and
Risk Committees
Appointed to the Board in 2008. A Chartered
Accountant, previously with De La Rue plc,
Lafarge SA and Blue Circle Industries plc.
Was also previously a non-executive director
of Camelot plc.
Member of the Corporate Governance
Committee
Member of the Audit and Nominations
Committees
Appointed to the Board on 26 January 2010.
Joined TT electronics in January 2008.
Previously Strategy and Business Development
Director with Spirent Communications
plc and formerly a solicitor specialising in
corporate finance.
5. David S Crowther (65)
Senior Independent Non-executive Director
Chairman of the Audit Committee and
member of the Nominations, Remuneration
and Corporate Governance Committees
Appointed to the Board in 2005. A Chartered
Accountant who was a senior partner
with PricewaterhouseCoopers LLP. A non-
executive Board Member and chairman
of the Audit Committee of the Treasury
Solicitor’s Department. Previously a member
of the Professional Oversight Board, a part
of the Financial Reporting Council, and
a non-executive director of the Financial
Ombudsman Service.
Appointed to the Board on 1 September 2010.
Currently Chairman of the Board of the Society
of Motor Manufacturers and Traders Limited’s
Industry Forum and advisor to the Board of
Stirling Energy Systems Inc. Awarded a CBE
in 2004 for services to the automotive and
engineering industries in the UK. Previously
held senior executive roles with companies
including Caterpillar Inc, Perkins Engine
Company Limited and Tenneco Inc.
7. John C Shakeshaft (56)
Independent Non-executive Director
Chairman of the Remuneration Committee
and member of the Audit, Nominations
and Corporate and Social Responsibility
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, Xebec Adsorption, Inc
and TEB, NV. Also an external member of the
Council of Cambridge University. Previously a
corporate financier with ABN AMRO, Lazard
and Barings.
8. Wendy J Sharp (45)
Group Company Secretary
Member of the Corporate Governance
Committee
1
2
3
4
5
6
7
8
42 TT electronics plc
Annual Report 2010
Directors’ report – Governance
Operating Board
In addition to the executive Directors, the
Operating Board consists of:
3. Nigel Brice (49)
Divisional Chief Executive –
Secure Power
5. John Molloy (47)
Divisional Chief Executive –
IMS
1. Billal Hammoud (38)
Divisional Chief Executive –
Components
Appointed to lead the Components division
in January 2010. Previously responsible
for Honeywell’s magnetic, optical and
pressure sensor portfolios serving the global
transportation, aerospace, medical and
industrial markets. An engineer who holds an
MBA, he is fluent in French and Arabic and is
Six Sigma Green Belt certified.
2. Pat Murray (51)
Divisional Chief Executive –
Sensors
Appointed to lead the Sensors division in
2009. Previously Global Leader of Honeywell’s
Sensor Division and Regional Vice-President
and General Manager for Europe, Middle East
and Africa. A chartered engineer and Six Sigma
Green Belt certified.
Joined TT electronics plc in 1996 and has
held a number of divisional management
positions, having had responsibility for the
Group’s Secure Power businesses since 2003.
Previously with The General Electric Company
and Saint-Gobain. Member of the Corporate
and Social Responsibility Committee.
Joined the Group in 2005 when it acquired
Dage (a business which now forms part of the
IMS division) where he had been working in
senior management roles for six years, primarily
in Asia. Previously held senior management
positions with electronics companies and
EMS providers.
4. Paul Felbeck (46)
General Counsel
Joined T T electronics plc in 2000 as General
Counsel. Formerly International Legal Counsel
with MediaOne (now a unit of AT&T). Started
his professional career as a solicitor with
Freshfields. Member of the Corporate and
Social Responsibility and Risk Committees.
6. John Leighton-Jones (41)
Group Human Resources Director
Joined TT electronics plc in August 2010 from
QinetiQ Group plc, where he was Human
Resources Director. Previously worked in
a variety of senior human resources roles.
Originally trained as a tax accountant.
Member of the Corporate and Social
Responsibility Committee.
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TT electronics plc 43
Annual Report 2010
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Directors' report – Governance
Other statutory disclosures
The Directors present their report and the audited financial statements for the year ended 31 December 2010.
Principal activities and business review
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 defence and aerospace, medical, automotive and other industrial electronics markets.
Further details of the Group’s activities and future plans are set out in the Overview and Business review sections on pages 1 to 41 of
this report.
The principal operating subsidiaries are listed on page 105.
Results and dividends
The Group’s profit on ordinary activities after taxation was £25.9 million (2009: £19.6 million loss). The audited financial statements of the Group
and the Company are set out on pages 63 to 105. Further details of the Group’s activities are set out in the Business review on pages 22 to 41.
The Directors are recommending a final dividend of 2.0p per share for the year ended 31 December 2010 (2009: nil) to be paid on 9 June 2011
to shareholders on the register at 27 May 2011 which, together with the interim dividend of 0.8p per share paid on 28 October 2010 (2009: nil),
makes a total for the year of 2.8p (2009: nil).
Disposals
In line with the Board’s strategic objective to realise value from the businesses within the Group’s General Industrial division, the following
disposals took place during 2010:
On 16 March 2010, MMG Canada Limited was sold for a net consideration of £0.1 million.
On 14 May 2010, the sale of Wire Systems Technology (Pty) Ltd (which had been announced on 17 February 2010) was completed, the final
net consideration being £5.8 million after the post-completion net asset adjustment.
On 30 June 2010 the Group sold two wholly owned subsidiaries, MMG Magdev Limited and MMG India Private Limited, to Delta Magnets
Limited, an Indian publicly listed group, for a combined net consideration of £1.5 million after the post-completion net asset adjustment.
On 29 October 2010, the WT Henley business (comprising the entire share capital of WT Henley Limited in the UK and WT Henley Electrical
(Suzhou) Co. Ltd. in China) was sold to Sicame SA for a net consideration of £11.2 million after the post-completion net asset adjustment.
Completion of the sale of the business in China is conditional on the receipt of certain regulatory approvals from the Chinese authorities.
On 15 December 2010, the BAS Components business (comprising the entire share capital of BAS Components Limited, based in Pembroke in
the UK and BAS Components Inc., a sales office based in Ohio, USA) was sold to PSM International Holdings Limited for a net consideration of
£4.1 million subject to a post-completion net asset adjustment which has yet to be finalised.
Auditors
On 15 July 2010, it was announced that, following a competitive tender, KPMG Audit Plc were appointed as Auditors in place of Grant
Thornton UK LLP. KPMG Audit Plc 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 Audito s responsibilities are set out on page 62 and should be read in conjunction with those of the Directors as set out at the
end of this report.
r ’
Annual General Meeting
The Annual General Meeting of the Company will be held on 19 May 2011 at the offices of Numis Securities Ltd at 11.30 am. The Notice of the
Company’s Annual General Meeting accompanies this document.
44 TT electronics plc
44 TT electronics plc
Annual Report 2010
Annual Report 2010
Directors' report – Governance
Fixed assets
A professional valuation of land and buildings was carried out during the year and, in the opinion of the Directors, the market value, on an
existing use basis, is 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. Further details are given in note 14 to the consolidated financial statements.
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. The average number of days’ credit taken by Group companies at the financial year end was 55 days (2009: 57 days).
The average number of days’ credit taken by the Company for trade purchases at the financial year end was 64 days (2009: 76 days).
Employment
The Group is committed to the fair and equal treatment of all its employees regardless of gender, race, age, religion, disability or sexual
orientation. Where existing employees become disabled, the policy of the Group is to provide continuing employment and training
wherever practicable. 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. Further details on the Group’s policies relating to its employees are given on page 40.
Donations
During the year the Group contributed £58,000 (2009: £53,000) for charitable purposes. Employees across the Group regularly fund-raise for
charity. Further details on the Group’s fundraising activities are given in the Corporate responsibility section of the Business review on page 40.
There were no political contributions.
Share capital
The Company’s issued share capital comprises a single class of share capital which is divided into Ordinary shares of 25p each. All issued
shares are fully paid. The share capital during the year is shown in note 18 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 Group 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.
Authority to allot shares and disapply statutory pre-emption rights
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 19 May 2011.
Purchase of own shares
At the Annual General Meeting held on 12 May 2010, 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 by the Company. The Directors will be seeking
a new authority for the Company to purchase its Ordinary shares at the forthcoming Annual General Meeting.
Further details regarding the authority to allot shares and disapply statutory pre-emption rights and the purchase of own shares are set out
in the Notice of the Annual General Meeting which accompanies this document and is available to view on the Company’s website.
TT electronics plc 45
Annual Report 2010
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Directors' report – Governance
Other statutory disclosures
Shares held by the Employee Benefit Trust
During the year, the Company established an employee benefit trust (“EBT”), the trustee of which is Sanne Trust Company Limited, part of
Sanne Group. As at 31 December 2010, the trustee held 259,515 shares with a nominal value of £64,879 and an aggregate purchase price
of £1.46 per share, representing 0.16 per cent of the total issued share capital at that date. This figure was also the maximum number of shares
held by the EBT during the year. These shares will be used to satisfy awards made under the TT electronics plc Restricted Share Plan (“RSP”)
or other employee share schemes. The voting rights in relation to these shares are exercisable by the trustee; however, in accordance with
investor protection guidelines the trustee abstains from voting. The executive Directors as employees of the Company are potential
beneficiaries of shares held by the EBT. During the year, no shares were disposed of by the EBT by way of the exercise of awards granted
under the RSP or any other employee share scheme.
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 incapable of managing their affairs; or (iv) is in favour of not more than four transferees.
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:
• certain restrictions may from time to time be imposed by laws and regulations (for example insider trading laws);
• 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
• 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.
Disclosure of information to auditors
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.
Approved by the Board on 16 March 2011 and signed on its behalf by:
Wendy Sharp
Group Company Secretary
46 TT electronics plc
Annual Report 2010
Directors' report – Governance
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 2008 Combined Code (“Code”) have been complied with throughout the year ended 31 December
2010. No major changes to the Company’s procedures have been necessary as a result of the publication of the UK Corporate Governance
Code which applies for the year ending 31 December 2011. Details and explanations of the application of the principles of corporate
governance are set out below.
The Board
Subject to the Company’s Articles of Association, UK legislation and any directions given by special resolution, the business of the Company
is managed by 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 and acquisition and disposal policy. The Board appoints its members and those of its principal Committees having received the
recommendations of the Nominations Committee and reviews recommendations of the Board Committees and the financial performance
and operation of the Group’s 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 2010 the Board comprised up to three executive Directors and up to four non-executive Directors. Of the executive Directors,
S D Dasani and G Anderson served throughout the year. T H Roberts was appointed on 26 January 2010. Of the non-executive Directors,
D S Crowther, J C Shakeshaft and S M Watson served throughout the year. J W Newman retired on 12 May 2010 and M J Baunton was
appointed on 1 September 2010. D S Crowther is the senior independent non-executive Director.
During the year there were seven Board meetings on scheduled dates for which full notice was given. Unscheduled supplementary meetings
also take place as and when required and, during 2010, six such meetings took place. The Board has had two scheduled and no unscheduled
supplementary meetings to date during 2011. Full details of each Director’s Board and Committee meeting attendance are given on page 49.
Directors
Directors’ biographies including the Committees on which they serve and chair are shown on page 42 together with brief biographical notes.
S M Watson is a partner at CMS Cameron McKenna LLP, one of a number of law firms which advise the Company. Prior to his appointment as a
non-executive Director in 2007, the Company, in consultation with Riskmetrics and major shareholders, undertook an assessment to ascertain
whether S M Watson met the criteria for independence set out in the 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. S M Watson was appointed Chairman upon the retirement of J W Newman and, accordingly,
at the time of his appointment as Chairman, was considered independent in accordance with the provisions of the Code. The remaining
non-executive Directors are all also considered to be independent as defined by the Code.
In accordance with the Company’s Articles of Association each Director will offer himself for re-election every three years. At the forthcoming
Annual General Meeting S M Watson and J C Shakeshaft retire and, being eligible, offer themselves for re-election. M J Baunton, having been
appointed since the previous Annual General Meeting, retires in accordance with the Articles of Association and, being eligible, offers himself
for re-election.
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, not being fewer than three in number. Further details of the activities of the Nominations Committee including details relating
to the appointments made to the Board during the year are set out on page 53.
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 except that provisions of the Company’s share plans may cause options and awards granted under
such schemes to vest on takeover, subject to the satisfaction of any performance conditions. Further details of the executive Directors’ service
contracts can be found in the Directors’ remuneration report on pages 55 to 60. Copies of the executive Directors’ service contracts and letters
of appointment of the non-executive Directors are available for inspection by any person at the Company’s registered office during normal
business hours on any weekday (public holidays excepted) and at the Annual General Meeting from 15 minutes before the Annual General
Meeting until it ends.
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 pension scheme indemnity within the meaning of Section 235 of the Companies Act 2006 to directors of associated companies.
TT electronics plc 47
Annual Report 2010
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Directors' report – Governance
Corporate Governance
Directors’ interests
The Directors of the Company at 31 December 2010 held interests in the following numbers of the Company’s Ordinary shares of 25p each on
1 January 2010, 31 December 2010 and 12 March 2011:
S M Watson
G Anderson
S D Dasani
T H Roberts(1)
D S Crowther
M J Baunton(2)
J C Shakeshaft
(1) Appointed 26 January 2010.
(2) Appointed 1 September 2010.
12 March 2011
Ordinary shares
31 Dec 2010
Ordinary shares
140,450
140,000
400,000
53,473
103,800
25,000
15,479
140,450
140,000
400,000
53,473
103,800
25,000
15,479
1 Jan 2010
(or date of
appointment
if later)
Ordinary shares
62,950
140,000
350,000
33,196
65,000
nil
15,479
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 55 to 60.
The Chairman and Group Chief Executive
The division of responsibilities between the Chairman and the Group Chief Executive has been defined, formalised in writing and approved
by the Board:
The Chairman maintains responsibility for the leadership and effectiveness of the Board and setting its agenda; ensuring that all Directors
receive accurate, timely and clear information on financial, business and corporate matters to enable them to participate effectively in Board
decisions; facilitating the effective contribution of non-executive Directors in particular and ensuring constructive relations between executive
and non-executive Directors; and ensuring effective communication with shareholders. He is also responsible for ensuring that the
performance of individual Directors, the Board as a whole and its Committees are evaluated at least once a year.
The Group Chief Executive is responsible for the operations of the Group. He is responsible for developing Group objectives and strategy
having regard to the Group’s responsibilities to its shareholders, customers, employees and other stakeholders and, following presentation
to, and approval by, the Board, for the successful implementation and achievement of those strategies and objectives. His other areas of
responsibility include managing the Group’s risk profile, including its health and safety performance; ensuring that the Group’s businesses
are managed in line with strategy and approved business plans, and comply with applicable legislation and Group policy; ensuring effective
communication with shareholders; and setting Group human resource policies, including management development and succession
planning for the senior executive team.
Board procedures
All Directors have access to the advice and services of the Group 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.
In accordance with the provisions on conflicts of interest in the Companies Act 2006, 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 and,
in accordance with best practice, a review of Directors’ conflicts of interests is conducted annually.
48 TT electronics plc
Annual Report 2010
Directors' report – Governance
Board and Committee performance evaluation
In accordance with the Code, the Board conducted an evaluation of its performance and that of its principal Committees.
The Board performance evaluation programme was led by the Chairman and each Director completed a questionnaire which they used to
score and comment on a number of performance criteria. These individual responses were then compiled into a single report by the Group
Company Secretary and this was circulated to the Board for discussion and detailed review. It was concluded that the Board was performing
satisfactorily, noting in particular that:
• Board engagement had improved as a result of increased contact with the Divisional Chief Executives, together with visits to operational
facilities;
• the transition to a new Chairman had been successfully effected; and
• the appointment of a new independent non-executive Director with extensive experience in engineering and production worldwide had
resulted in a more well balanced Board with a complementary mix of skills and experience.
The evaluation process employed by each of the principal Committees is detailed in their respective reports on pages 53 to 60.
Directors’ performance evaluation
In accordance with the Code, the performance of individual Directors was also evaluated.
Each of the non-executive Directors completed a self assessment questionnaire which required them to score their own performance against
a number of criteria. The Chairman then held private discussions with each non-executive Director and this provided an opportunity to discuss
any issues which had arisen in respect of either their individual assessments or those of the Board and its principal Committees. In respect of
the Chairman’s performance, the other non-executive Directors together with the Group Chief Executive met privately to discuss this, with the
outcomes from these discussions being fed back to the Chairman by the senior independent non-executive Director for discussion and action
as appropriate.
At the beginning of the year, each executive Director was set challenging performance objectives, progress against which was then reviewed
as the year progressed. All the executive Directors take part in the Group’s performance management programme under which they each
receive detailed feedback from their colleagues which, together with a review of progress against agreed goals and objectives, is used to
assess performance and to set clear objectives and developmental plans for the following year which are closely aligned with the Group’s
strategic priorities and values. The Group Chief Executive met with each of the other two executive Directors to confidentially discuss and
review their performance against objectives whilst the performance evaluation of the Group Chief Executive was conducted by the Chairman.
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 members of all
principal Board Committees, having received the recommendations of the Nominations Committee.
Principal Committees
The principal Committees are the Nominations, Audit and Remuneration Committees. Details of the Nominations and Audit Committees,
including 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 together with a summary of significant events which have taken place during the year can
be found on pages 53 and 54, respectively and should be read as part of the Directors’ report. Details of the Remuneration Committee and its
activities are contained within the Directors’ remuneration report on pages 55 to 60.
Board and Committee meeting attendance 2010
The table below shows the number of scheduled meetings held by the Board and its principal Committees and the attendance of each of the
Directors at those meetings.
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Total meetings held
S M Watson
J W Newman(1)
G Anderson
S D Dasani
T H Roberts(2)
D S Crowther
M J Baunton(3)
J C Shakeshaft
(1) Retired 12 May 2010.
(2) Appointed 26 January 2010.
(3) Appointed 1 September 2010. Did not attend one Nominations Committee meeting.
Board
Audit
Committee
Remuneration
Committee
Nominations
Committee
7
7
2
7
7
7
7
2
7
4
n/a
n/a
n/a
n/a
n/a
4
1
4
4
4
n/a
n/a
n/a
n/a
4
n/a
4
2
2
1
n/a
n/a
n/a
2
0
2
TT electronics plc 49
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Directors' report – Governance
Corporate Governance
Further unscheduled supplementary meetings of the Board and its principal Committees take place as and when required throughout the
year. During 2010 there were six such Board meetings, one Audit Committee meeting, four Remuneration Committee meetings and two
Nominations Committee meetings. These meetings were all fully attended other than one Board meeting and one Nominations Committee
meeting (both held on the same day) which D S Crowther was unable to attend.
Other Committees
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 Chairman and included the Group Finance Director, one independent non-executive Director and the Group
Company Secretary. The Group Business Development Director was also appointed to the Committee with effect from 9 December 2010.
The Committee’s duties are as follows:
• to review regularly the corporate governance procedures of the Company;
• to ensure that the Company’s corporate governance procedures are up-to-date and effective and that these are communicated to those
employees, officers and/or Directors of the Company or its subsidiaries to whom they are relevant;
• to make recommendations to the Board from time to time on any procedures, or processes, that may need changing, in order to ensure
that the Company is compliant with relevant legislation, including but not limited to, the Companies Act 2006;
• to ensure that the Company is compliant with the standards and disclosures required by the Code and the Listing, Prospectus and
Disclosure and Transparency Rules of the UK Listing Authority; and
• to receive reports, or any views expressed by shareholders, stakeholders, government or other regulatory bodies and any other interested
parties in relation to corporate governance.
The Committee met three times during 2010, during which time it conducted a review of the new UK Corporate Governance Code and the
measures required to ensure the Group’s compliance for the year ending 31 December 2011. The reports and AGM voting recommendations
from various investor bodies were also reviewed and areas for improvement noted in relation to key performance indicators, governance,
environmental and social matters, and performance evaluation and succession planning.
Corporate and Social Responsibility Committee
The Corporate and Social Responsibility Committee is chaired by the Group Chief Executive and also comprises one independent
non-executive Director, the Group Legal Counsel and up to three senior executives from within the Group. The Committee met four
times during 2010 and has had one meeting to date during 2011. The Board regularly receives reports on its activities.
Further information on the activities of the Corporate and Social Responsibility Committee is given in the Corporate responsibility section of
the Business review on page 40.
Risk Committee
The Risk Committee assists the Board and the Audit Committee in fulfilling their responsibilities by:
• providing a framework for managing risks throughout the Group; and
• providing an appropriate level of reporting on the status of risk management within the Group.
This is achieved by promoting awareness of risk management, and ensuring that a risk management framework is in place to ensure that risks
are identified, quantified, managed, monitored and reported.
During the year the Committee was chaired by the Group Chief Executive and included the Group Finance Director, the Group Legal Counsel,
the Group Internal Controls Executive and up to four senior executives from within the Group. A representative from the Company’s insurance
brokers also regularly attends meetings. The Committee met 12 times during 2010 and has had three meetings to date in 2011.
Further information on the activities of the Risk Committee is given in the Principal risks and uncertainties section of the Business review on
pages 37 to 39 and in the Review of principal risks and internal controls below.
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 prevented or, failing which, 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 operating company and
Group level as part of the annual budget preparation. Having identified risks, each operating company then monitors, reviews and updates
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 the monthly Risk Committee meetings. The principal risks of the
Group are subject to review by the Risk Committee, Audit Committee and the Board. Further details of the Group’s exposure to risk and
processes in place to manage the same are set out in the Business review on pages 37 to 39.
50 TT electronics plc
Annual Report 2010
Directors' report – Governance
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
• 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.
• The Group Chief Executive chairs a Committee (“Operating Board”) consisting of the executive Directors, Divisional Chief Executives and
other senior management. The Operating Board meets on a monthly basis and reviews the historical performance and the outlook for the
Group as a whole and agrees and implements any actions as necessary. In addition, it is responsible for monitoring and driving delivery of
the Group’s key priorities and acts as a forum to raise and debate significant operational issues. Biographies of Operating Board members
are given on page 43.
• The Group Chief Executive also chairs the Risk Committee. Further details on the remit and activities of the Risk Committee are given above.
• Each operating company within the Group operates within the policies, rules and procedures determined by the Directors and
communicated through an internet based Group Policies hub. 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 and seek to
ensure that these companies comply with Group accounting policies in the process for preparation of consolidated financial statements.
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.
• 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 companies prepare strategic plans and annual budgets which are reviewed and approved
by the divisional senior executives, Group management and the Board.
• 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.
• 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.
• 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 to the Audit Committee and is also a member of the Risk Committee.
• Risk management systems at key operational facilities (as identified by the Operating Board) are reviewed and assessed by the Group
Internal Controls Executive to identify recommended improvements.
• 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 2010
and during the period since then to the date of this report. They have made improvements where necessary.
Financial risk management objectives and policies are set out under Financial risks on pages 37 to 39.
Substantial shareholding notifications
At 12 March 2011 the Company had been notified of the following voting rights attaching to TT electronics plc shares in accordance with the
Disclosure and Transparency Rules:
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Legal & General Group plc and Legal & General Investment Management Limited(1)
J W Newman
Mondrian Investment Partners Limited
Tweedy, Browne Company LLC
Legal & General Group plc(1)
Number
14,409,544
10,858,010
7,912,306
7,664,336
7,549,681
%
9.2
7.0
5.1
4.9
4.8
(1) Legal & General Group plc have a direct interest in TT electronics shares which makes them a substantial shareholder in their own right. Accordingly, under the Disclosure and
Transparency Rules, their direct interest is initially notifiable at 3 per cent (and thereafter every time it moves through a percentage point – eg. from 3 per cent to 4 per cent).
They also hold shares as a fund manager, via their subsidiary, Legal & General Investment Management Limited, whereby they have an indirect interest. The combined total
of their direct and indirect interests is then subject to 5 per cent and 10 per cent disclosure thresholds.
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.
TT electronics plc 51
Annual Report 2010
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Directors' report – Governance
Corporate Governance
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. S M Watson, as Chairman, and D S Crowther, as senior
independent non-executive Director, also undertake consultation on certain matters with major shareholders. Through these Directors the
Company maintains a regular dialogue with institutional shareholders and analysts and feedback received is reported to the Board so that all
Directors develop an understanding of the views of major shareholders about the Company. 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.
Going concern
The Directors have reviewed the budgets for 2011 and the projections for 2012 developed during the 2010 annual strategic planning cycle,
which have been adjusted to take account of the current trading environment. There has been a good level of increased activity during 2010
following the downturn experienced in 2009. Sensitivity analyses have been applied to these projections. Further, the Directors have assessed
the future funding requirements of the Group and compared them with the level of available borrowing facilities, recognising that the main
committed facility was re-negotiated during 2010 for a period of three years to May 2013. Based on this, 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.
Approved by the Board on 16 March 2011 and signed on its behalf by:
Wendy Sharp
Group Company Secretary
52 TT electronics plc
Annual Report 2010
Directors' report – Governance
Nominations Committee
Membership:
S M Watson (Chairman)
D S Crowther
M J Baunton
J C Shakeshaft
The Nominations Committee generally meets at least twice a year to make recommendations to the Board including regarding the
appointment of replacement or additional Directors. It comprises the non-executive Directors and the 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 Remuneration Committees. In 2010 the Committee met four times, following which the appointments of T H Roberts as an
executive Director, S M Watson as Chairman and M J Baunton as an independent non-executive Director were recommended to the Board.
T H Roberts had joined the Company in 2008, in advance of the retirement of J W Armstrong, who had previously held the post of Corporate
Development Director.
S M Watson had been an independent non-executive Director of the Company since 2007. Before nominating him to become Chairman
upon the retirement of J W Newman, the Committee weighed the relative merits of appointing an internal candidate conversant with
the agreed strategy and its current execution or an external candidate with different skills and experience from existing Board members.
The Committee took external advice from the Company’s bankers, brokers and remuneration consultants and took soundings of all Board
members. Recruitment consultants were engaged to assess S M Watson against a set of professional competences (board leadership;
influencing and collaboration; coaching and development; strategic acumen; independence and integrity; and industry and market
knowledge) and also against a control group of possible external candidates. S M Watson measured well on both sets of criteria and stronger
than the external set on the particular requirements of the Company. Accordingly, the Committee recommended S M Watson’s nomination.
In advance of the retirement of J W Newman, the Committee also began the search for an additional independent non-executive Director
with experience in industrial manufacturing, engaging the assistance of recruitment consultants. Following interviews with a number of
candidates, M J Baunton was identified as being suitable for the role, with extensive experience in engineering and production worldwide,
having worked within manufacturing for over 40 years. The Committee therefore recommended M J Baunton’s appointment as an
independent non-executive Director, serving on the Audit and Nominations Committees.
The Committee carried out an assessment of its performance in 2010 based on a review of its activities during the year against its terms of
reference. It was concluded that the Committee is structured appropriately to provide effective support to the Board, but that, following the
progress made during 2010, would benefit from placing an increased emphasis on succession planning which will now be formally reviewed
twice per year.
The Committee has had no meetings to date during 2011.
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TT electronics plc 53
Annual Report 2010
Directors' report – Governance
Audit Committee
Membership:
D S Crowther (Chairman)
M J Baunton
J C Shakeshaft
During the year, the Audit Committee comprised up to three of the non-executive Directors: D S Crowther (Chairman), J C Shakeshaft and
M J Baunton (who was appointed to the Committee on 1 September 2010). D S Crowther has recent and relevant financial knowledge,
as required by the Code. The Committee’s duties include reviewing and advising the Board on:
• 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;
• changes to accounting policies and procedures, decisions of judgement affecting financial reporting, compliance with accounting
standards and with the Companies Act 2006;
• 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 (by reference to reports received regularly from the Risk Committee and the head of the internal control/audit function)
and any changes to the Register of Principal Risks; and
• the Company’s procedures for responding to any allegations made by whistleblowers.
In order to fulfil its duties the Audit Committee regularly receives reports from the Risk Committee and on the findings of the Group
Internal Controls Executive who is required to attend the Committee’s meetings. The Committee also reviews internal audit plans and
recommendations.
During 2010 the Audit Committee met five times. All Committee members attended all the meetings. The Committee met once with Grant
Thornton UK LLP without executives of the Company being present. Since the appointment of KPMG Audit Plc as Auditors, the Committee
has met with them twice without executives of the Company being present. During the year, the Committee also met twice with the head
of the internal control function without executives of the Company being present.
Grant Thornton UK LLP were the Group’s auditors and, in May 2010, the Committee agreed that four firms, including Grant Thornton UK LLP
be invited to take part in a competitive tender process in order to benchmark the service provided and level of fees charged. A Selection
Committee was established which reviewed the proposal documents from each of the audit firms and attended their presentations.
The Selection Committee was chaired by the Group Finance Director and also included the Group Financial Controller, the Group Company
Secretary, the Group Internal Controls Executive and three Divisional Finance Directors. The Chairman of the Audit Committee attended the
presentations given by each of the four firms and gave guidance to the Selection Committee throughout the process. The recommendations
of the Selection Committee were then considered by the Audit Committee and the Board, leading to the appointment of KPMG Audit Plc in
July 2010.
The independence of the Auditors is usually assessed annually by the Audit Committee. This is achieved by means of a self-assessment of
independence which is completed by the Auditors and is then subject to review, analysis and query by the Audit Committee to ensure that
suitable policies and procedures are in place to safeguard the Auditors’ independence and objectivity. However, given that KPMG Audit Plc
had only recently been appointed and their independence had been considered at the time of their appointment, no such assessment of
Auditors independence took place during 2010.
The Company has an established policy regarding the provision of non-audit services. This states that non-audit services may be obtained
from the most appropriate source having regard to expertise, availability, knowledge and cost. Non-audit services where fees are expected to
exceed a pre-determined threshold should be approved, in advance, by the Chairman of the Audit Committee or in his absence by another
member of the Audit Committee. There is a restriction so that non-audit services fees will not exceed the audit service fees, paid to the
same service provider, for more than two consecutive years unless specifically recommended by the Audit Committee and agreed by the
Board. The preference of the Committee is not to engage the Auditors for additional non-assurance services, absent compelling reason
(e.g. capability, time, cost) to the contrary.
The Committee carried out a self assessment of its performance during 2010, based on a Committee-specific questionnaire which was
circulated to each Committee member for completion. It was concluded that the Committee is structured appropriately to provide effective
support to the Board, having been strengthened during the year by the appointment of a new independent non-executive Director.
This meant that the issue previously identified with respect to the size of the Committee had now been resolved.
The Committee has had one meeting to date during 2011.
54 TT electronics plc
Annual Report 2010
Directors' report – Governance
Directors’ remuneration report
Membership:
J C Shakeshaft (Chairman)
D S Crowther
S M Watson
This report has been prepared in accordance with the Companies Act 2006, Schedule 8 of the Large and Medium Sized Companies and
Groups (Accounts and Reports) Regulations 2008 and the Listing Rules of the UK Listing Authority. This report also describes how the Board
has applied the principles for Directors’ remuneration in the 2008 Combined Code (“Code”). A resolution to approve the report will be
proposed at the Annual General Meeting on 19 May 2011.
The Auditors are required to give an opinion on whether certain parts have been prepared in accordance with the Accounting Regulations.
The report is therefore divided between audited and unaudited information.
Unaudited information
Remuneration Committee
The Remuneration Committee comprises three independent non-executive Directors: D S Crowther, J C Shakeshaft and S M Watson.
Until 12 May 2010, the Committee was chaired by D S Crowther. J C Shakeshaft has chaired the Committee since 12 May 2010. S M Watson,
who was appointed Chairman of the Group on 12 May 2010, continues to be a member of the Committee as, at the time of his appointment
as Chairman, he was considered independent in accordance with the provisions of the Code. The Group Chief Executive, G Anderson, and the
Group Human Resources Director, J Leighton-Jones, also attend Committee meetings, as and when required, to provide advice and respond
to specific questions.
The role of the Committee is to recommend to the Board policy for and the amount of the remuneration of the Chairman, executive Directors,
Divisional Chief Executives and the Group Company Secretary. Such remuneration includes fees, salaries and other benefits, pensions,
performance-related pay and share incentive plans, and the terms and conditions of service. In determining these matters the Committee has
due regard to the contents of the Code as well as to the UK Listing Authority’s Listing Rules and associated guidance. No individual is present
during discussions relating to their own remuneration.
In 2010 the Committee met eight times and all members attended each meeting. The Committee carried out an assessment of its
performance, constitution and terms of reference based on a questionnaire completed by its members. The Committee was deemed
to be performing satisfactorily.
Considering the circumstances of the Group and the demands of its senior management, the Committee also takes into account the position
of the Company relative to other companies and is informed of these companies’ policies and payments, although comparisons are treated
with caution. The Committee appointed Hewitt New Bridge Street (“HNBS”), independent external consultants, to advise on senior executive
remuneration matters. HNBS provided no other services to the Company during the year.
Remuneration policy
The Group’s remuneration policy is to recruit, retain and motivate talented and well-qualified senior executives to execute the Group's strategy
and to align their interests with those of shareholders. A significant proportion of their remuneration is linked to corporate and individual
performance. Following a review of existing total remuneration entitlements, the Committee concluded that the current arrangements are
appropriate for 2011.
Base salary
The Committee reviews salaries annually and takes account of personal and Company performance and data sourced from companies of a
broadly similar size and complexity although external comparisons are considered with caution.
Details of current base salary levels for executive Directors who served during the year are set out below:
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G Anderson
S D Dasani
T H Roberts(1)
1 January 2011
£379,040
£259,560
£189,520
1 April 2010
£367,500
£252,000
£183,750
1 January 2010 (or date of
appointment if later)
£350,000
£240,000
£175,000
(1) T H Roberts was appointed to the Board on 26 January 2010.
Following a lifting of the pay freeze which had applied during 2009, base salary levels were increased by 5 per cent with effect from 1 April
2010 having regard to personal performance, Group performance and pay levels within the Group. Following a decision by the Committee to
change the salary review date for executive Directors to 1 January each year, base salaries were increased by 3 per cent from 1 January 2011.
TT electronics plc 55
Annual Report 2010
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Directors' report – Governance
Directors’ remuneration report
Annual bonus
Executive Directors participate in an annual bonus scheme. The objective of performance-related remuneration is to stimulate improved
results of the Group by providing the opportunity for increased remuneration on achieving challenging performance targets.
For 2010, the performance measures were annual targets, comprising a sliding scale of profit (50 per cent of total bonus potential), a sliding
scale of cash flow (25 per cent of total bonus potential) and personal objectives linked to implementation of the Group’s strategy (25 per cent
of total bonus potential). The achievement of strategy-related personal objectives qualify for bonus potential separately from financial targets.
This recognises the importance attached to successful implementation of the Group’s strategy, notwithstanding possible delayed financial
benefits. The bonus arrangements for all senior executives below Board level are based on the same performance criteria to encourage
greater team working and include an element of profit of the whole division or group into which they report. The bonus arrangements for
2011 have been reviewed and will continue to be aligned with profitable growth combined with strong operating cash performance,
supported by the achievement of key strategic initiatives through the fulfilment of personal objectives.
The maximum potential bonus which can be earned was, and continues to be, 100 per cent of salary. Annual bonus payments are not
pensionable.
Details of bonuses awarded to the executive Directors for the year ended 31 December 2010 are set out in the emoluments table on page 58.
Long Term Incentive Plan 2005 (“LTIP”)
The LTIP is the primary long-term incentive scheme in the Company. LTIP participants may receive annual awards of up to 100 per cent of
base salary. The award is a contingent right to receive shares in the future, subject to continued employment and the achievement of agreed
performance criteria.
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 normally vest three years after the date of grant.
The performance targets attached to awards granted in May 2010 require the achievement of earnings per share (“EPS”) and total shareholder
return (“TSR”) targets measured over a three year performance period as follows:
• 50 per cent of an award is based on EPS targets: 25 per cent of the shares subject to this part of the award will vest if the EPS for the year
ending 31 December 2012 is equal to 12p, increasing on a straight-line basis to 100 per cent where the EPS is 14p or more; and
• 50 per cent of an award is based on TSR performance targets against companies within the FTSE SmallCap (excluding investment trusts)
index: 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, the Committee will consider the Company’s
underlying financial performance to ensure that vesting percentages under this part of an award are appropriate.
The Committee’s current intention is that similar EPS and TSR targets will apply for awards to be granted in 2011, although instead of the
absolute EPS pence targets applied to the 2010 awards, percentage growth targets will be operated as per previous awards. The Committee
considers that the combined use of EPS and TSR performance conditions provides a good blend of performance measures, with EPS
rewarding strong financial performance and TSR rewarding relative stock market performance.
Shareholding guidelines
The Company operates shareholding guidelines for executive Directors for 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 the shares (net of taxes) until such
time as a total personal shareholding equivalent to 100 per cent of prevailing base salary has been reached.
56 TT electronics plc
Annual Report 2010
Directors' report – Governance
Total shareholder return
The Company’s total shareholder return performance for the five years to 31 December 2010 is shown on the graph below compared with the
index of the FTSE SmallCap companies (excluding investment trusts). The Company is a constituent of the FTSE SmallCap Index; the Directors
consider it an appropriate benchmark for the Company’s performance.
)
0
0
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R
(
R
S
T
200
175
150
125
100
75
50
25
0
5
0
0
2
4
Q
6
0
0
2
1
Q
6
0
0
2
2
Q
6
0
0
2
3
Q
6
0
0
2
4
Q
7
0
0
2
1
Q
7
0
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2
2
Q
7
0
0
2
3
Q
7
0
0
2
4
Q
8
0
0
2
1
Q
8
0
0
2
2
Q
8
0
0
2
3
Q
8
0
0
2
4
Q
9
0
0
2
1
Q
9
0
0
2
2
Q
9
0
0
2
3
Q
9
0
0
2
4
Q
0
1
0
2
1
Q
0
1
0
2
2
Q
0
1
0
0
2
3
Q
0
1
0
2
4
Q
TT electronics plc
FTSE SmallCap (excl. Investment Trusts)
Share options
The Company has operated a number of share option schemes in the past. The Committee does not intend to make further grants to
executive Directors under these plans.
Sharesave Scheme
The Company adopted a Sharesave Scheme at last year’s Annual General Meeting. The executive Directors have all chosen to participate in
the plan.
Service contracts
The executive Directors have service contracts reflecting current market practice and an appropriate balance between the interests of the
Company and those of 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.
Comparison of fixed to variable pay for the Group Chief Executive
The composition of the remuneration package for the Group Chief Executive changes with performance. The anticipated mix between
fixed and variable remuneration is that 45 per cent will be fixed and 47 per cent will be performance-related, excluding pensions and other
benefits. For exceptional performance, the mix changes to 32 per cent and 62 per cent respectively. For 2010, the actual fixed element
amounted to 38 per cent of the remuneration package. This mix is illustrated in the following charts:
On target performance 2011
Exceptional performance 2011
Payments 2010
4
1
3
2
4
1
4
1
1 Salary 45%
2 Bonus 22%
25%
3 LTIP
4 Benefits 8%
3
2
1 Salary 32%
2 Bonus 31%
31%
3 LTIP
4 Benefits 6%
3
1 Salary 38%
2 Bonus 36%
20%
3 LTIP
4 Benefits 6%
2
The charts illustrate the balance between fixed and variable pay for the Group Chief Executive. Salary represents the executive’s base salary;
bonus that can be earned in respect of the year; LTIP awards granted during the year and benefits includes car or allowance, pension and
medical benefits.
Target performance payments are: base salary, benefits, bonus payment equal to 50 per cent of base salary, and an intrinsic value of
55 per cent of base salary in respect of the LTIP award granted in the year.
Exceptional performance payments are: base salary, benefits, bonus payment equal to 100 per cent of base salary, and an intrinsic value of
100 per cent of base salary in respect of the LTIP award granted in the year.
Payments 2010 illustrates the proportion of fixed and variable pay for the year: base salary, benefits, bonus payment of 100 per cent of base
salary at 1 January 2010 and an intrinsic value of 55 per cent of base salary in respect of the LTIP award granted in the year.
TT electronics plc 57
Annual Report 2010
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Directors' report – Governance
Directors’ remuneration report
Non-executive Directors
The remuneration of each of the non-executive Directors is determined by the Chairman and the executive Directors, reflecting the time
commitment required, the responsibility of each role and the fees paid in other comparable companies. The remuneration of the Chairman
is a matter for the Committee. Current fee levels are as follows:
Chairman
Non-executive Director
Audit Committee Chair fee
Remuneration Committee Chair fee
No benefits in kind are provided for non-executive Directors.
Audited information
£140,000
£38,000
£7,000
£7,000
Aggregate Directors’ emoluments
Set out below are tables of remuneration of the Directors who served during 2010 and 2009. 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, bonus, benefits in kind
and other payments is:
Executive Directors
G Anderson
S D Dasani
T H Roberts(1)
Non-executive Directors
S M Watson(2)
D S Crowther
M J Baunton(3)
J C Shakeshaft
Former Director
J W Newman(2)
Salary/fees
£000
Annual
bonus(4)
£000
Benefits
£000
363
249
167
115
45
14
43
36
350
240
168
–
–
–
–
–
1,032
758
22
24
10
–
–
–
–
1
57
2010
Total
£000
735
513
345
115
45
14
43
37
1,847
2009
Total
£000
481
335
n/a
32
42
n/a
32
178
1,100
(1) T H Roberts was appointed to the Board on 26 January 2010.
(2) J W Newman retired on 12 May 2010. S M Watson was appointed non-executive Chairman from 12 May 2010 and it was agreed that his fees from that date would be £140,000.
(3) M J Baunton was appointed as a non-executive Director on 1 September 2010.
(4) The amounts are payable under the bonus arrangements in place for 2010 as explained on page 56. 50 per cent of salary was payable against the profit targets, 25 per cent of salary
was payable against the cash flow targets and up to 25 per cent of salary was payable against personal objectives.
Benefits in kind during the year comprised company car or allowance benefits, telephone expenses and the provision of private medical
insurance. No Director received an expense allowance during the year.
Former Executive Director’s pension – defined benefit
One individual who had previously been an executive Director was a member of the Company’s defined benefit pension scheme.
J W Newman
Notes
Increase/
(decrease)
in accrued
pension
£000
Annual
pension at
31 December
2010
£000
Lump sum
received
during year
£000
Value at
31 December
2010
£000
(Decrease)/
increase in value
£000
Value at
31 December
2009
£000
–
226
–
3,956
13
3,943
(a) J W Newman is in receipt of a pension from the scheme. The change in the cash equivalent value of J W Newman’s future benefits reflects the difference in market conditions
underlying the assumptions used to value the benefit, less the amounts paid to him during the year.
(b) Pensions in payment accrued between 1 January 1989 and 5 April 2005 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.
(c) In the event of the death of an executive or former executive Director, a pension equal to one-half of the Director’s pre-commutation pension will become payable to a
surviving spouse.
58 TT electronics plc
Annual Report 2010
Directors' report – Governance
Executive Directors’ pensions – defined contribution
During the year the Company contributed £36,312 for G Anderson, £38,595 for S D Dasani and £17,548 for T H Roberts to the Company’s
group personal pension arrangement.
Long Term Incentive Plan
As at 31 December 2010, Directors’ interests under the LTIP were as follows:
Date of grant
1 January
2010
Granted
during the
year
Lapsed
Vested
31 December
2010
Market
value at
31 December
2010
£
Market
price at grant
date
Pence
Vesting
date
16 Jan 07
117,596
28 Aug 08
341,463
5 May 09
875,000
–
–
–
4 May 10
–
330,189
1,216,463
330,189
28 Aug 08
214,634
5 May 09
600,000
–
–
4 May 10
–
226,415
814,634
226,415
24 Apr 08
10,000
5 May 09
202,667
–
–
4 May 10
–
123,821
212,667
123,821
117,596
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
248.0
16 Jan 10
341,463
587,316
102.5 28 Aug 11
875,000 1,505,000
30.25
5 May 12
330,189
567,925
106.0
4 May 13
– 1,546,652 2,660,241
–
–
–
214,634
369,170
102.5 28 Aug 11
600,000 1,032,000
30.25
5 May 12
226,415
389,434
106.0
4 May 13
– 1,041,049 1,790,604
–
–
–
–
10,000
17,200
110.0
24 Apr 11
202,667
348,587
30.25
5 May 12
123,821
212,972
106.0
4 May 13
336,488
578,759
J W Newman
G Anderson
S D Dasani
T H Roberts
Notes
(1) The performance conditions relating to the awards granted in 2007 were not satisfied and therefore the awards did not vest.
(2) For LTIP awards granted in 2008: 25 per cent of the shares subject to an 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. These performance conditions have not been met.
(3) For LTIP awards granted in 2009: for 50 per cent of an award, 25 per cent of this part 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. For the other 50 per cent, 25 per cent of this part will vest at
median performance against the FTSE SmallCap (excluding Investment Trusts) increasing on a straight-line basis to 100 per cent vesting at the upper quartile. In addition to the TSR
targets, the Committee will consider the Company’s underlying financial performance to ensure that vesting percentages under this part of an award are appropriate.
(4) For LTIP awards granted in 2010: for 50 per cent of an award, 25 per cent of this part will vest if the EPS for the year ending 31 December 2012 is equal to 12 pence, increasing on a
straight-line basis to 100 per cent vesting for EPS of 14 pence or more. For the other 50 per cent, 25 per cent of this part of an award will vest at median performance against the
FTSE SmallCap (excluding Investment Trusts) increasing on a straight-line basis to 100 per cent vesting at the upper quartile. In addition to the TSR targets, the Committee will
consider the Company’s underlying financial performance to ensure that vesting percentages under this part of an award are appropriate. These awards equated to 100 per cent
of base salary for G Anderson and S D Dasani and 75% for T H Roberts at date of grant based on the market value of 106 pence.
(5) The market value at 31 December 2010 represents the total number of shares award multiplied by 172 pence being the share price on 31 December 2010. The calculation does not
take into account the likelihood of vesting.
TT electronics plc Sharesave Scheme
As at 31 December 2010, Directors’ interests under the Sharesave Scheme were as follows:
Date of grant
1 January
2010
Granted
during the
year
Lapsed
Vested
31 December
2010
Potential gain
at
31 December
2010
£
Option price
Pence
Exercisable
between
G Anderson
1 Oct 2010
S D Dasani
T H Roberts
Notes
1 Oct 2010
1 Oct 2010
–
–
–
13,552
7,894
7,894
–
–
–
–
–
–
13,552
7,860
7,894
4,579
7,894
4,579
1 Nov 15–
30 Apr 16
1 Nov 13–
30 Apr 14
1 Nov 13–
30 Apr 14
114
114
114
(1) The potential gain at 31 December 2010 represents the total number of shares under option multiplied by 172 pence being the share price on 31 December 2010 less the option
price. The calculation assumes that the executive Director remains employed and completes the contract.
TT electronics plc 59
Annual Report 2010
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Directors' report – Governance
Directors’ remuneration report
Directors’ share options
Options set out below granted under the 1996 Executive Share Option Scheme (Unapproved) are marked(1) and the 2004 Company Share
Option Plan (Unapproved) are marked(2):
J W Newman
Notes
1 January 2010
Exercised
248,192
128,593
273,180
155,241
112,823
918,029
–
–
–
155,241(2)
–
155,241
Lapsed
248,192(1)
128,593(1)
273,180(1)
–
112,823(2)
762,788
31 December
2010
Exercise
price
Pence
Exercise period
166.0 May 2004–May 2011
165.0
Apr 2005–Apr 2012
80.0 Mar 2006–Mar 2013
145.0 May 2007–May 2014
205.5
Apr 2008–Apr 2015
–
–
–
–
–
–
(1) Options granted under the 1996 Executive Share Option Scheme 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.
(2) 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.
During the year options previously granted to J W Newman totalling 762,788 shares lapsed. The performance conditions relating to the share
options granted in May 2004 had been satisfied and accordingly J W Newman exercised his option over 155,241 shares at the exercise price
of 145 pence during the six-month exercise period following his retirement. These shares were sold on exercise at a price of 155 pence.
The closing middle market prices for an Ordinary share of 25 pence of the Company on 31 December 2010 and 2009 as derived from the
Stock Exchange Daily Official List were172 pence and 73.25 pence respectively. During 2010 the middle market price of TT electronics plc
Ordinary shares ranged between 73.25 pence and 174.25 pence.
In a volatile year for the global economy, TT electronics performed well. In determining base salary adjustments, annual bonus, and long-term
awards, the Committee has recognised the significant achievements of the management team.
Approved by the Board on 16 March 2011 and signed on its behalf by:
John Shakeshaft
Chairman of the Remuneration Committee
60 TT electronics plc
Annual Report 2010
Financial statements – Group accounts
Statement of Directors’ responsibilities
Statement of Directors’ responsibilities in respect of the Annual Report and the financial statements
The Directors are responsible for preparing the Annual Report and the Group and Company financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Group and Company financial statements for each financial year. Under that law they are
required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by
the European Union and applicable law. The Directors have elected to prepare the Company financial statements in accordance with UK
Accounting Standards and applicable law (UK Generally Accepted Accounting Practice (UK GAAP)).
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the
state of affairs of the Group and the Company and of their profit or loss for that period. In preparing each of the Group and Company financial
statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• for the Group financial statements, state whether they have been prepared in accordance with IFRS as adopted by the European Union;
• for the Company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the Company financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will
continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s and the Group’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to
ensure that the financial statements comply with the Companies Act 2006.
They have general responsibility for 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.
Under applicable law and regulations, the Directors are also responsible for preparing a Directors’ report, a Directors’ remuneration report and
a Directors’ report on corporate governance which comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation
in other jurisdictions.
Responsibility statement of the Directors in respect of the Annual Report
We confirm that to the best of our knowledge:
• 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
• the Directors’ report 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.
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By order of the Board:
Wendy Sharp
Group Company Secretary
16 March 2011
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TT electronics plc 61
Annual Report 2010
Financial statements – Group accounts
Report of the Independent Auditors to the members of
TT electronics plc
Independent auditor’s report to the members of TT electronics plc
We have audited the financial statements of TT electronics plc for the year ended 31 December 2010 which comprise the consolidated
income statement, the consolidated statement of comprehensive income, the consolidated and Company balance sheets, the consolidated
statement of changes in equity, the consolidated cash flow statement and related notes. The financial reporting framework that has been
applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRS) as
adopted by the European Union. The financial reporting framework that has been applied in the preparation of the Company financial
statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice (UK GAAP)).
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
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 auditor’s 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 auditor
As explained more fully in the Directors’ responsibilities statement set out on page 61, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and to express an opinion on,
the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require
us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm.
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2010 and of
the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRS as adopted by the European Union;
• the Company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice; and
• the financial statements have been prepared have been prepared in accordance with the requirements of the Companies Act 2006 and,
as regards the Group financial statements, Article 4 of the IAS Regulation.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
• the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and
• the information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the
financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the Company financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the
accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Under the Listing Rules, we are required to review:
• the Directors’ statement, set out on page 52, in relation to going concern;
• the part of the Directors’ report on corporate governance relating to the Company’s compliance with the nine provisions of the 2008
Combined Code specified for our review; and
• certain elements of the report to shareholders by the Board on Directors’ remuneration.
A J Sykes (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square
London E14 5GL
16 March 2011
62 TT electronics plc
Annual Report 2010
Financial statements – Group accounts
Consolidated income statement
For the year ended 31 December 2010
£million (unless otherwise stated)
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other operating income
Operating profit/(loss)
Analysed as:
Operating profit before exceptional items
Exceptional items
Finance income
Finance costs
Profit/(loss) before taxation
Taxation
Profit/(loss) from continuing operations
Discontinued operations
Profit from discontinued operations
Profit/(loss) for the year
Attributable to:
Owners of the Company
Non-controlling interests
EPS attributable to owners of the Company – basic and diluted
From continuing operations (p)
From discontinued operations (p)
*Re-presented for discontinued operations in accordance with IFRS.
Note
2010
2009*
3
571.3
463.5
(471.2)
(391.7)
100.1
(35.0)
(37.8)
2.4
29.7
25.2
4.5
19.5
(24.0)
25.2
(6.7)
18.5
7.4
25.9
25.9
–
11.9
4.8
16.7
71.8
(30.2)
(53.8)
1.2
(11.0)
6.4
(17.4)
15.8
(21.4)
(16.6)
(2.2)
(18.8)
(0.8)
(19.6)
(19.6)
–
(12.1)
(0.5)
(12.6)
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3a
7
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5
8
6
4
10
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TT electronics plc 63
Annual Report 2010
Financial statements – Group accounts
Consolidated statement of comprehensive income
for the year ended 31 December 2010
£million
Profit/(loss) for the year
Other comprehensive income/(loss) for the year after tax
Exchange differences on retranslation of foreign operations
Tax on exchange differences
(Loss)/gain on hedge of net investment in foreign operations
(Loss)/gain on cash flow hedges taken to equity less amounts taken to income statement
Foreign exchange loss on disposals taken to income statement
Fair value of minority put option
Actuarial loss on defined benefit pension schemes
Tax on actuarial amounts in pension deficit movement
Total comprehensive income/(expense) for the year
Total comprehensive income is entirely attributable to owners of the Company.
Note
31
2010
25.9
2.1
0.1
(0.9)
(0.2)
(1.7)
(3.9)
(5.9)
8.1
2009
(19.6)
(15.6)
0.4
4.5
2.1
–
–
(28.7)
–
23.6
(56.9)
64 TT electronics plc
Annual Report 2010
Financial statements – Group accounts
Consolidated balance sheet
at 31 December 2010
£million
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
Derivative financial instruments
Cash and cash equivalents
Total current assets
Total assets
LIABILITIES
Current liabilities
Borrowings
Derivative financial instruments
Trade and other payables
Income taxes payable
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Derivative financial instruments
Deferred tax liability
Pensions and other post-employment benefits
Provisions
Other non-current liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Share capital
Share premium
Share options reserve
Hedging and translation reserve
Retained earnings
Equity attributable to owners of the Company
Non-controlling interests
Total equity
Approved by the Board of Directors on 16 March 2011 and signed on their behalf by:
G Anderson
Director
S D Dasani
Director
12
13
14
24
15
16
26
22
24
31
26
27
18
20
21
Note
2010
2009
93.5
66.9
14.7
20.1
111.3
65.9
17.6
4.9
195.2
199.7
81.4
92.7
0.4
44.8
219.3
414.5
22
5.4
0.4
27
112.9
4.5
3.0
83.9
85.1
0.3
24.7
194.0
393.7
11.2
0.5
88.7
1.7
8.9
126.2
111.0
49.3
4.3
8.9
41.2
0.1
5.4
109.2
235.4
179.1
38.8
0.4
1.6
26.6
109.7
177.1
2.0
179.1
70.4
–
5.9
43.7
0.2
6.7
126.9
237.9
155.8
38.7
0.2
1.0
27.2
86.3
153.4
2.4
155.8
TT electronics plc 65
Annual Report 2010
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Financial statements – Group accounts
Consolidated statement of changes in equity
for the year ended 31 December 2010
Share
capital
Share
premium
38.7
–
–
–
–
–
–
–
–
–
38.7
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
–
38.8
0.2
–
0.4
Share
options
reserve
1.2
–
–
–
–
–
–
–
–
Hedging
reserve
Translation
reserve
Retained
earnings
Non-
controlling
interest
Sub-
total
(18.1)
53.9
134.6
210.5
–
–
–
4.5
2.1
–
–
–
(19.6)
(19.6)
(15.6)
0.4
–
–
–
–
–
–
–
–
(15.6)
0.4
4.5
2.1
(28.7)
(28.7)
–
–
6.6
(15.2)
(28.7)
(37.3)
2.4
–
–
–
–
–
–
–
–
Total
212.9
(19.6)
(15.6)
0.4
4.5
2.1
(28.7)
–
(37.3)
–
0.2
(0.2)
1.0
–
(11.5)
–
38.7
–
(0.2)
86.3
153.4
–
2.4
(0.2)
155.8
–
–
–
–
–
–
–
–
–
–
–
0.3
0.7
–
(0.4)
1.6
–
25.9
25.9
–
–
–
–
2.1
0.1
(0.9)
(0.2)
–
–
–
–
–
(1.7)
–
–
–
–
–
–
–
–
(3.5)
(5.9)
2.1
0.1
(0.9)
(0.2)
(1.7)
(3.5)
(5.9)
8.1
8.1
–
–
–
–
–
–
(0.4)
–
–
(0.2)
(0.4)
(1.3)
(1.9)
(0.4)
–
–
–
–
–
–
–
–
–
–
(1.2)
(1.2)
–
–
–
–
0.3
0.7
0.3
(0.4)
–
–
–
–
–
(11.7)
38.3
109.7
177.1
2.0
179.1
25.9
2.1
0.1
(0.9)
(0.2)
(1.7)
(3.9)
(5.9)
8.1
(2.3)
(1.2)
0.3
0.7
0.3
(0.4)
£million
At 1 January 2009
Loss for the year
Other comprehensive income
Exchange differences on translation
of foreign operations
Tax on exchange differences
Net gain on hedge of net investment in foreign
operations
Net gain on cash flow hedges taken to equity
less amounts taken to income statement
Actuarial loss on defined benefit pension scheme
Tax on actuarial amounts in pension deficit
movement
Total other comprehensive income
Transactions with owners recorded directly
in equity
Share-based payments
At 31 December 2009
Profit for the year
Other comprehensive income
Exchange differences on translation
of foreign operations
Tax on exchange differences
Net loss on hedge of net investment in
foreign operations
Net loss on cash flow hedges taken to equity
less amounts taken to income statement
Foreign exchange loss on disposals taken
to income statement
Fair value of minority put option
Actuarial loss on defined benefit pension scheme
Tax on actuarial amounts in pension deficit
movement
Total other comprehensive income
Transactions with owners recorded directly
in equity
Equity dividends paid by the Company
Share-based payments
Deferred tax on share-based payments
New shares issued
Own shares acquired
At 31 December 2010
66 TT electronics plc
Annual Report 2010
Financial statements – Group accounts
Consolidated cash flow statement
for the year ended 31 December 2010
£million
Cash flows from operating activities
Profit/(loss) for the year
Taxation
Net finance costs
Exceptional items
Profit on disposal of discontinued operations
Operating profit from discontinued operations before exceptional items
Operating profit from continuing operations before exceptional items
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Other items
(Increase)/decrease in inventories
(Increase)/decrease in receivables
Increase/(decrease) in payables
Operating cash flow before exceptional payments
Special payments to pension funds
Exceptional restructuring costs
Net cash generated from operations
Income taxes paid
Net cash flow from operating activities
Cash flows from investing activities
Interest received
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment and grants received
Development expenditure
Purchase of other intangibles
Acquisition of subsidiary (net of cash acquired)
Disposal of subsidiaries (net of cash in subsidiaries at date of disposal)
Net cash flow from/(used) in investing activities
Cash flows from financing activities
Issue of share capital
Interest paid
Repayment of borrowings
Proceeds from borrowings (net of arrangement costs of £2.0 million)
Finance leases
Dividends paid by the Company
Net cash flow used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange differences
Cash and cash equivalents at end of year
Cash and cash equivalents comprise
Cash at bank and in hand
Bank overdrafts
Note
2010
2009
12
14
25.9
7.1
4.5
(4.5)
(7.1)
(0.7)
25.2
21.2
9.6
(0.8)
(6.0)
(15.2)
26.2
60.2
(3.2)
(5.0)
52.0
(7.0)
45.0
0.2
12
(10.8)
14
14
18
23
23
23
23
17
1.7
(6.0)
(1.4)
–
21.7
5.4
0.3
(2.9)
(86.5)
59.1
(0.1)
(1.2)
(31.3)
19.1
24.5
0.6
44.2
44.8
(0.6)
44.2
(19.6)
2.4
5.7
18.0
–
(0.1)
6.4
24.1
11.8
(5.6)
31.1
22.2
(6.1)
83.9
(2.2)
(9.6)
72.1
(5.3)
66.8
0.2
(9.4)
5.7
(6.9)
–
(1.0)
–
(11.4)
–
(4.0)
(17.6)
2.9
(0.1)
–
(18.8)
36.6
(12.2)
0.1
24.5
24.7
(0.2)
24.5
The consolidated cash flow statement includes cash flows from both continuing and discontinued operations.
TT electronics plc 67
Annual Report 2010
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Financial statements – Group accounts
Notes to the consolidated financial statements
1 Basis of preparation
a) Basis of accounting
The consolidated financial statements have been prepared on a historical cost basis modified by the revaluation of financial assets and
derivatives held at fair value and by the revaluation of certain property, plant and equipment at the transition date to International Financial
Reporting Standards (IFRS). The consolidated financial statements have been prepared in accordance with IFRS as issued by the International
Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) of
the IASB, as adopted by the European Union, and in accordance with the provisions of the Companies Act 2006.
The financial statements set out on pages 63 to 105 have been prepared using consistent accounting policies, except for the adoption of new
accounting standards and interpretations noted below. Adoption of these standards and interpretations did not have a significant impact on
the financial position and performance of the Group.
• IFRS 2 “Share-based payment – Group cash settled share-based payment transactions”. The Group adopted the amendment to IFRS 2
on 1 January 2010. The amendment to IFRS 2 has been amended to clarify the accounting for group cash-settled share-based payment
transactions. This amendment supersedes IFRIC 8 and IFRIC 11;
• IFRS 3 “Business combinations (Revised)”. The Group adopted IFRS 3 (Revised) on 1 January 2010. IFRS 3 (Revised) introduces a number of
changes in the accounting for business combinations occurring after this date that will impact the amount of goodwill recognised, the
reported results in the period that an acquisition occurs and future reported results;
• IAS 39 “Financial instruments: recognition and measurement – eligible hedged items (Amendment).” The Group adopted the amendment
to IAS 39 on 1 January 2010. The amendment addresses the designation of a one-sided risk in a hedged item, and the designation of
inflation as a hedged risk or portion in particular situations; and
• IFRIC 17 “Distribution of non-cash assets to owners”. The Group adopted IFRIC 17 on 1 January 2010. The IFRIC provides guidance on
accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as
dividends.
b) Basis of consolidation
The consolidated financial statements set out the Group’s financial position as at 31 December 2010 and the Group’s financial performance
for the year ended 31 December 2010.
Subsidiaries are those enterprises controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern
the financial and operating policies of an enterprise so as to obtain benefits from its activities. Subsidiaries are consolidated from the date
on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.
All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full.
Unrealised losses are eliminated in the same way as unrealised gains except that they are only eliminated to the extent that there is no
evidence of impairment.
c) Discontinued operations
In accordance with IFRS 5 “Non-current assets held for sale and discontinued operations”, comparatives for prior years have been re-presented
for businesses treated as discontinued.
d) Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the
Business review on pages 14 to 41. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described
in the Finance review on pages 35 to 36. In addition, note 17 to the financial statements include the Group’s objectives, policies and processes
for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to
credit risk and liquidity risk.
The Group has considerable financial resources together with long-term partnerships with a number of key customers and suppliers across
different geographic areas and industries. As a consequence, the Directors believe that the Group is well placed to manage its business
risks successfully.
The Directors have a reasonable expectation that the Company has adequate resources and financial headroom to continue in operational
existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial
statements.
68 TT electronics plc
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Financial statements – Group accounts
1 Basis of preparation (continued)
e) New standards and interpretations not yet adopted
In preparing the consolidated financial statements, the Group has not applied the following relevant standards and interpretations that have
been issued but are not yet effective:
• IAS 24 ”Related Party Disclosures (Amendment)“. The amended standard is effective for annual periods beginning on or after 1 January 2011.
It clarifies the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its
application;
• IFRS 9 ”Financial Instruments: Classification and Measurement.“ IFRS 9 as issued reflects the first phase of the IASBs work on the replacement
of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. The standard is effective for annual periods
beginning on or after 1 January 2013 and could change the Group’s classification and measurement of financial assets; and
• ”Improvements to IFRSs“ (issued in May 2010). The IASB issued Improvements to IFRSs, an omnibus of amendments to its IFRS standards.
The amendments have not been adopted as they become effective for annual periods on or after either 1 July 2010 or 1 January 2011.
The Group does not expect there to be a significant impact on its financial position or performance arising from adoption of these
accounting standards.
f) Change in accounting policies
There have been no changes to accounting policies during the year, except for the adoption of new standards and interpretations as
disclosed in note 1(a).
g) Significant accounting judgements and estimates
Judgements
Determining many of the amounts included in the consolidated financial statements involves the use of judgements. These judgements are
based on management’s best knowledge of the relevant facts and circumstances having regard to prior experience, but actual results may
differ from the amounts included in the consolidated financial statements. Other than the key sources of estimation uncertainty shown below,
the Directors believe that there were no material transactions or events during the year which required critical judgements in applying the
Group’s accounting policies.
Estimation uncertainty
The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of
revenues and expenses during the reporting period. Actual outcomes could differ from these estimates. In particular, information about
significant areas of estimation uncertainty made by the Directors in preparing the consolidated financial statements is shown below:
• Note 14 – Intangible assets. The recoverability of capitalised development costs is dependent on assessments of the future commercial
viability of the relevant products and processes;
• Note 13 – Impairment of goodwill. The carrying amount of goodwill has been tested for impairment by estimating the value in use
of the cash-generating units to which it has been allocated. Note 13 outlines the significant assumptions made in performing the
impairment tests;
• Note 31 – Defined benefit pension obligations. The defined benefit pension obligations are calculated using a number of assumptions,
including future inflation, salary increases and mortality and the obligation is then discounted to its present value using an assumed
discount rate. The pension deficit has been calculated using the assumptions set out in note 31;
• Note 26 – Provisions. The Group makes appropriate provision on a consistent basis for risks of product liability, litigation, credit risk and
other normal trading exposures with estimates being made regarding the timing of future payments; and
• Note 24 – Deferred tax. The recognition of deferred tax assets is dependent on assessments of future taxable income in the relevant
countries concerned.
2 Summary of significant accounting policies
The following significant accounting policies have been applied in the preparation of the consolidated financial statements. These accounting
policies have been consistently applied across the Group.
a) 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. Goodwill is not amortised, and any impairment
losses are not subsequently reversed. 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.
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Financial statements – Group accounts
Notes to the consolidated financial statements
2 Summary of significant accounting policies (continued)
b) 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.
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is
recognised in the income statement as incurred. Expenditure on development activities, whereby research findings are applied to a plan or
design for the production of new or substantially improved products and processes, is capitalised if the product or process is technically and
commercially feasible and the Group has sufficient resources to complete development. The expenditure capitalised includes the cost of
materials, direct labour and an appropriate proportion of overheads. Other development expenditure is recognised in the income statement
as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses. The carrying values
of intangible assets are tested for impairment whenever there is an indication that they may be impaired.
Acquired computer software licences for use within the Group are capitalised as an intangible asset on the basis of the costs incurred to
acquire and bring to use the specific software. Costs that are directly associated with the implementation of identifiable and unique software
products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as
intangible assets. Capitalised software development expenditure is stated at cost less accumulated amortisation.
The amortisation rates for intangible assets are:
Acquired patents and licences
up to 10 years
Product development costs
up to 3 years
Customer relationships
Software
3 to 8 years
3 to 5 years
Amortisation is on a straight-line basis.
c) Foreign currency translation
The functional currency for each entity in the Group is determined with reference to the currency of the primary economic environment in
which it operates. Transactions in currencies other than the functional currency are initially recorded at the functional currency rate ruling at
the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at
the balance sheet date. Exchange gains and losses on settlement of foreign currency transactions translated at the rate prevailing at the date
of the transactions, or the translation of monetary assets and liabilities at period end exchange rates, are taken to the income statement.
Non-monetary assets and liabilities denominated in foreign currencies that are stated at historical cost are translated to the functional
currency at the foreign exchange rate ruling at the date of the transaction.
On consolidation, income statements of subsidiaries are translated into sterling, at average rates of exchange. Balance sheet items are
translated into sterling at period end exchange rates. Exchange differences on the retranslation are taken to equity. Exchange differences
on foreign currency borrowings financing those net investments are also dealt with in equity and are reported in the statement of
comprehensive income. All other exchange differences are charged or credited to the income statement in the year in which they arise.
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.
d) Property, plant and equipment
Initial measurement
Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. The cost of a tangible fixed asset
comprises its purchase price and any costs directly attributable to bringing it into working condition for its intended use. The cost of
self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads.
Depreciation
The cost of each item of property, plant and equipment is depreciated over its useful life. Depreciation is charged to the income statement
so as to write-off the cost less estimated residual value on a straight-line basis over the estimated useful life of the asset. Depreciation
commences on the date the assets are used within the business and the asset carrying values are reviewed for impairment when there
is an indication that they may be impaired. Freehold land is not depreciated.
The expected useful lives of assets are as follows
Freehold buildings
2%
Leasehold buildings
2% (or over the period of the lease if less than 50 years)
Plant, equipment and vehicles
10% to 331/3%
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets that take a substantial period of time
to get ready for their intended use are capitalised as part of the cost of the respective asset.
70 TT electronics plc
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Financial statements – Group accounts
2 Summary of significant accounting policies (continued)
e) Investment property
Property held to earn rental income rather than for the purpose of the Group’s principal activities is classified as investment property.
Investment property is recorded at cost less accumulated depreciation and any recognised impairment loss. The depreciation policy
is consistent with those described for other Group properties. The assets’ residual values and useful lives are reviewed, and adjusted,
if appropriate, at each balance sheet date.
Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn
from use and no future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying
amount of the asset is recognised in the income statement in the period of derecognition.
f) Leases
Finance leases, which transfer to the Group substantially all the risks and rewards of ownership of the leased items, are capitalised at the
commencement of the lease. Plant and equipment acquired by way of finance lease is stated at an amount equal to the lower of its fair
value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment
losses. The capital elements of future obligations under leases and hire purchase contracts are included as liabilities in the balance sheet.
Lease payments are apportioned between the finance charge and reduction of the lease liability so as to achieve a constant rate of interest
on the remaining balance of the liability. Finance charges are charged directly against income. Capitalised lease assets are depreciated over
the shorter of the estimated useful life of the asset or the lease term. All other leases are treated as operating leases and the cost is expensed
to the income statement as incurred.
g) 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.
h) 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.
i) Trade and other receivables
Trade receivables are carried at original invoice price (which is the fair value of the consideration receivable) less provision made for
impairment of these receivables. A provision for impairment of trade receivables is established when there is objective evidence that the
Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the
difference between the original carrying amount and the recoverable amount, being the present value of expected cash flows receivable.
The amount of the provision is recognised in the income statement.
j) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, short-term deposits held on call or with maturities of less than three months
at inception and highly liquid investments that are readily convertible into known amounts of cash and are subject to insignificant risk of
changes in value, and bank overdrafts.
k) 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. No provision is made for deferred tax which would become payable on the distribution of
retained profits by overseas subsidiaries where the timing of the reversal of the temporary difference can be controlled and it is probable that
the temporary difference will not reverse in the foreseeable future. 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. However, deferred tax is
not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a
business combination or affects tax or accounting profit.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can
be utilised or that they will reverse. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will
be realised.
Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the
deferred taxes relate to the same taxable entity and the same taxation authority.
l) Borrowings
Borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial
recognition, borrowings are subsequently measured at amortised cost using the effective interest method.
m) Trade payables
Trade payables are carried at the amounts expected to be paid to counterparties.
n) Employee benefits
Defined benefit plans
The Group operates defined benefit post-retirement benefit schemes and defined contribution pension schemes.
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Financial statements – Group accounts
Notes to the consolidated financial statements
2 Summary of significant accounting policies (continued)
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 in the statement of comprehensive income.
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will
have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are
recognised in the income statement in the periods during which services are rendered by employees.
Termination benefits
Termination benefits are recognised as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal,
to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result
of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the
Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be
estimated reliably.
Short-term employee benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present
legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be
estimated reliably.
Share-based payments
Certain employees of the Group receive part of their remuneration in the form of share-based payment transactions, whereby employees
render services in exchange for shares or rights over shares (equity-settled transactions). The cost of equity-settled transactions with
employees is measured at fair value at the date at which they are granted. The fair value of share awards with market-related vesting
conditions is determined by an external consultant and the fair value at the grant date is expensed on a straight-line basis over the vesting
period based on the Group’s estimate of shares that will eventually vest. The estimate of the number of awards likely to vest is reviewed at
each balance sheet date up to the vesting date at which point the estimate is adjusted to reflect the actual outcome of awards which have
vested. No adjustment is made to the fair value after the vesting date even if the awards are forfeited or not exercised.
o) Own shares
Own equity instruments which are re-acquired (own shares) are recognised at cost and deducted from equity. No gain or loss is recognised in
the income statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying
amount and the consideration paid to acquire such equity instruments is recognised within equity.
p) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an
outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount. If the effect of the time value
of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in
the provision due to the passage of time is recognised as a finance cost.
q) Revenue
Revenue is measured at the fair value of the right to consideration, usually the invoiced value, for the provision of goods and services to
external customers excluding value added tax and other sales related taxes and is recognised when the significant risks and rewards of
ownership have transferred to the customer. In most cases this coincides with the transfer of legal title of the goods. Revenue for services
is recognised as the services are rendered.
r) Finance income
Finance income comprises interest income on funds invested, foreign exchange gains and the expected return on pension scheme assets.
Interest income is recognised as it accrues.
s) Finance costs
Finance costs comprise interest expense on borrowings which are not capitalised under the borrowing costs policy, the unwinding of interest
cost on employee benefits and provisions and foreign exchange losses.
t) Income tax
Income tax for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it
relates to items charged or credited directly to equity, in which case it is recognised in equity. Current tax expense is the expected tax payable
on the taxable income for the year and any adjustment to tax payable in respect of previous years.
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Financial statements – Group accounts
2 Summary of significant accounting policies (continued)
u) Dividends
Dividends are recognised as a liability in the period in which they are approved by shareholders. Dividends receivable are recognised when
the Group’s right to receive payment is established.
v) Discontinued operations
The Group reports a business as a discontinued operation when it has been disposed of in a period, or its future sale is considered to be highly
probable at the balance sheet date, and results in the cessation of a major line of business or geographical area of operation.
w) Financial instruments
Recognition
The Group recognises financial assets and liabilities on its balance sheet when it becomes a party to the contractual provisions of the
instrument.
Financial assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to set
off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
Measurement
When financial assets and liabilities are initially recognised, they are measured at fair value being the consideration given or received plus
directly attributable transaction costs.
In determining estimated fair value, investments are valued at quoted bid prices on the trade date. When quoted prices on an active market
are not available, fair value is determined by reference to price quotations for similar instruments traded.
Loans and receivables are loans and receivables created by the Group providing money to a debtor. Loans and receivables comprise loans
and advances other than purchased loans. Originated loans and receivables are initially recognised in accordance with the policy stated
above and subsequently re-measured at amortised cost using the effective interest method. Allowance for impairment is estimated on a
case-by-case basis.
The Group uses derivative financial instruments such as forward foreign exchange contracts to hedge risks associated with foreign exchange
fluctuations. These are designated as cash flow hedges. At the inception of the hedge relationship, the Group documents the relationship
between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various
hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging
instrument that is used in a hedging relationship is highly effective in offsetting changes in cash flows of the hedged item.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in equity.
The gain or loss relating to the ineffective portion is recognised immediately in the income statement.
Amounts deferred in equity are recycled in the income statement in the periods when the hedged item is recognised in the income
statement, in the same line of the income statement as the recognised hedged item. However, when the forecast transaction that is hedged
results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously deferred in equity are transferred
from equity and included in the initial measurement of the cost of the asset or liability.
Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated,
or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is
recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected
to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in the income statement.
Derecognition
A financial asset is derecognised when the Group loses control over the contractual rights that comprise that asset. This occurs when the
rights are realised, expire or are surrendered. A financial liability is derecognised when it is extinguished. Originated loans and receivables are
derecognised on the date they are transferred by the Group.
Impairment of financial assets
The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is
impaired. A financial asset or group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a
result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an
impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
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Financial statements – Group accounts
Notes to the consolidated financial statements
3 Segmental reporting
For management purposes, the Group is organised into five divisions, as shown below, according to the nature of the products and services
provided. Each of these divisions represents an operating segment in accordance with IFRS 8 ”Operating segments“ and there is no
aggregation of segments. The chief operating decision maker is the Board of Directors. The operating segments are:
• Components – specialist resistive components and microcircuits, connectors and interconnection systems;
• Sensors – electronic accelerator pedals, engine and wheel speed, temperature and pressure sensors and chassis height sensors;
• Integrated Manufacturing Services – the provision of global electronics manufacturing capability with logistics, interconnect and integrated
solutions;
• Secure Power – standby generation and uninterruptible power systems manufacture and service; and
• General Industrial – manufacturing operations whose applications primarily relate to compounding.
The accounting policies of the reportable segments are the same as the Group’s accounting policies as shown in note 2.
The key performance measure of the operating segments is operating profit before exceptional items. The Group reports non-trading 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. Segment operating profit represents the profit earned by each segment after allocation
of central head office administration costs.
Group financing (including finance costs and finance income) and income taxes are managed on a Group basis and are not allocated
to operating segments.
Goodwill is allocated to the individual cash generating units which are smaller than the segment which they are part of.
a) Income statement information – continuing operations
Components
234.6
Sensors
143.5
10.7
3.9
Integrated
Manufacturing
Services
91.4
4.3
Secure
Power
85.2
General
Industrial
16.6
6.2
0.1
£million
Sales to external customers
Segment operating profit before
exceptional items
Exceptional items
Operating profit
Net finance costs
Profit before taxation
£million
Sales to external customers
Segment operating profit/(loss) before
exceptional items
Components
190.8
Sensors
105.4
5.9
(3.9)
Integrated
Manufacturing
Services
75.1
2.4
Secure
Power
59.1
General
Industrial
33.1
4.8
(2.8)
Exceptional items
Operating loss
Net finance costs
Loss before taxation
There are no significant sales between sectors.
The results for General Industrial in 2009 include those relating to AB Automotive which was closed down in that year.
2010
Total
571.3
25.2
4.5
29.7
(4.5)
25.2
2009
(re-presented)
Total
463.5
6.4
(17.4)
(11.0)
(5.6)
(16.6)
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3 Segmental reporting (continued)
b) Segment assets
£million
Components
Sensors
Integrated Manufacturing Services
Secure Power
General Industrial
Segment assets and liabilities
Pensions and other post-employment benefits
Unallocated assets and liabilities
Total assets/liabilities
£million
Components
Sensors
Integrated Manufacturing Services
Secure Power
General Industrial
Total continuing operations
Discontinued operations
Total
c) Geographic information
2010
175.9
79.7
46.1
38.0
9.9
Assets
2009
181.1
80.9
39.1
28.8
34.2
2010
47.6
27.2
24.3
22.9
4.0
349.6
364.1
126.0
–
64.9
414.5
–
29.6
41.2
68.2
393.7
235.4
Liabilities
2009
32.3
25.2
19.2
17.2
11.0
104.9
43.7
89.3
237.9
Capital expenditure
2010
2009
5.9
9.6
1.0
0.6
1.1
18.2
–
18.2
3.9
9.1
0.5
0.4
1.9
15.8
0.5
16.3
Depreciation and
amortisation
2009
(re-presented)
13.9
16.5
2.2
0.6
1.2
34.4
1.5
35.9
2010
12.3
14.6
1.8
0.6
0.7
30.0
0.8
30.8
Revenue by destination
The Group operates on a global basis. Revenue from external customers by geographical destination is shown below. Management monitor
and review revenue by region rather than by individual country given the significant number of countries where customers are based.
£million
United Kingdom
Rest of Europe
North America
Central and South America
Asia
Rest of the World
Total continuing operations
Discontinued operations
Total revenue
2010
99.8
226.4
102.6
58.5
72.3
11.7
571.3
28.4
599.7
2009
(re-presented)
81.3
192.4
85.3
47.3
47.7
9.5
463.5
36.1
499.6
No individual customer accounts for more than 10% of Group revenue. Revenue from services is less than 5% of Group revenues.
All other revenue is from the sale of goods.
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Notes to the consolidated financial statements
3 Segmental reporting (continued)
Non-current assets
The carrying amount of non current assets, excluding deferred tax assets and financial assets, analysed by the geographical area in which the
assets are located is shown below:
£million
United Kingdom
Rest of Europe
North America
Central and South America
Asia
Rest of the World
2010
33.5
49.9
76.1
6.6
9.0
–
2009
40.1
58.7
78.1
6.4
10.6
0.9
175.1
194.8
4 Discontinued operations
During the year, the Group disposed of the following six businesses, all of which were part of the General Industrial division:
• MMG Canada Limited;
• Wire Systems Technology (Pty) Limited;
• MMG Magdev Limited;
• MMG India (Private) Limited;
• WT Henley Limited; and
• BAS Components Limited.
There were no discontinued operations during the year ended 31 December 2009. The results from discontinued operations for the year
shown in the consolidated income statement are shown below:
£million
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Exceptional items
Operating profit/(loss)
Net finance costs
Profit/(loss) before taxation
Taxation
Profit/(loss) after taxation
Profit on disposal of discontinued operations
Profit/(loss) from discontinued operations
The profit on disposal in 2010 of £7.1 million is analysed below:
£million
Gross cash received
Less: legal and professional costs
Less: cash disposed of at completion
Net proceeds per consolidated cash flow statement
Deferred consideration receivable
Less: net assets at completion
76 TT electronics plc
Annual Report 2010
2010
28.4
(21.5)
6.9
(2.4)
(3.8)
–
0.7
–
0.7
(0.4)
0.3
7.1
7.4
2009
36.1
(28.7)
7.4
(3.5)
(3.8)
(0.6)
(0.5)
(0.1)
(0.6)
(0.2)
(0.8)
–
(0.8)
2010
23.5
(1.5)
(0.3)
21.7
1.0
(15.6)
7.1
Financial statements – Group accounts
4 Discontinued operations (continued)
The net cash flows from discontinued operations included within the consolidated cash flow statement are shown below:
£million
Operating activities
Investing activities
Financing activities
Net cash flow
5 Finance income and finance costs
£million
Interest income
Expected return on pension scheme assets
Finance income
Interest expense
Interest on employee obligations
Amortisation of arrangement fees
Unwinding of discount factor on minority put option
Finance costs
Finance costs – net
6 Profit/(loss) for the year
Profit/(loss) from continuing operations for the year is stated after charging/(crediting):
£million
Depreciation of property, plant and equipment
Amortisation of intangible assets
Net foreign exchange (gains)/losses
Cost of inventories recognised as an expense
Staff costs (see note 11)
Remuneration of Group Auditors
– Company and consolidation statutory audits
– statutory audit of subsidiaries
– tax services
Remuneration of other Auditors
– statutory audit of subsidiaries
– tax services
Government grants credited
Share-based payment
2010
0.2
0.4
–
0.6
2009
4.2
(0.2)
(0.3)
3.7
2009
(re-presented)
2010
0.2
19.3
19.5
(3.2)
(19.8)
(0.6)
(0.4)
(24.0)
(4.5)
2010
20.4
9.6
–
467.0
143.0
0.1
0.5
0.2
–
–
(1.0)
0.3
0.2
15.6
15.8
(3.5)
(17.9)
–
–
(21.4)
(5.6)
2009
(re-presented)
22.6
11.8
0.7
388.2
129.1
0.1
0.8
0.2
0.1
0.1
(1.1)
(0.2)
Auditors’ remuneration for 2010 in the above table relates to KPMG Audit plc, whereas the comparative information for 2009 relates to
Grant Thornton LLP.
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Financial statements – Group accounts
Notes to the consolidated financial statements
7 Exceptional items
£million
Continuing operations
Restructuring costs:
AB Automotive – closure costs
AB Automotive – property profit
Sensors – European restructuring
Sensors – Romford closure
IMS – UK consolidation including Aylesbury closure
Components – BI Technologies closure of manufacturing
General Industrial restructuring
Other restructuring
Profit on sale of properties
Onerous property leases
Impairment of goodwill
Pensions curtailment gain from scheme closure
Total continuing operations
Discontinued operations
Total
2009
(re-presented)
2010
–
–
–
–
–
–
–
–
(1.0)
0.8
–
(4.3)
(4.5)
–
(4.5)
4.1
(0.9)
7.4
0.4
1.2
1.0
0.8
0.6
(1.0)
–
3.8
–
17.4
0.6
18.0
a) Year ended 31 December 2010
For the year ended 31 December 2010, the exceptional items relate to:
• a curtailment gain of £4.3 million arising from the closure of the UK defined benefit scheme to future accrual;
• profit of £1.0 million arising from the sale of property interests; and
• a provision of £0.8 million which has been recognised in respect of two vacant properties subject to onerous long-term leases.
b) Year ended 31 December 2009
For the year ended 31December 2009, the exceptional items relate to:
• the closure costs of the climate control production sites in the UK, North America, Brazil and China following the decision to exit from
the business;
• the closure of sensors production in the UK which has transferred to China and India;
• the cost of significant reductions in headcount in Germany in the Sensors division;
• phase 1 of the consolidation of the IMS businesses in the UK into one business; and
• goodwill impairment within Optek Technology Inc.
The Group reports non-trading 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.
78 TT electronics plc
Annual Report 2010
Financial statements – Group accounts
8 Taxation
a) Analysis of the tax charge/(credit) for the year
£million
Current tax
Current income tax charge
Adjustments in respect of current income tax of previous year
Total current tax charge
Deferred tax
Relating to origination and reversal of temporary differences
Total tax charge in the income statement – continuing operations
2009
(re-presented)
2010
11.3
(0.1)
11.2
(4.5)
6.7
3.5
0.4
3.9
(1.7)
2.2
UK tax is calculated at 28% (2009: 28%) of taxable profits. Overseas tax is calculated at the tax rates prevailing in the relevant countries.
The Group’s effective tax rate for the year from continuing operations was 26.6% (32.4% excluding exceptional items).
b) Reconciliation of the total tax charge/(credit) for the year
£million
Profit/(loss) before tax from continuing operations
Profit before tax multiplied by the standard rate of corporation tax in the UK of 28% (2009: 28%)
Effects of:
Items not deductible for tax purposes or income not taxable
Adjustment to current tax in respect of prior periods
Recognition and utilisation of previously unrecognised tax losses
Current year tax losses and attributes not recognised
Overseas tax rate differences
Other
Total tax charge reported in the income statement – continuing operations
2009
(re-presented)
(16.6)
(4.6)
0.5
0.4
(1.0)
7.9
(0.1)
(0.9)
2.2
2010
25.2
7.1
1.1
(0.1)
(2.1)
0.3
0.4
–
6.7
The Emergency Budget on 22 June 2010 announced that the UK corporation tax rate will be reduced from 28 per cent to 24 per cent over a
period of four years from 2011. The first reduction in the rate from 28 per cent to 27 per cent was substantively enacted on 21 July 2010 and
will be effective from 1 April 2011. As this rate change was substantively enacted prior to the year end, the closing deferred tax assets and
liabilities have been recalculated. The resulting charges or credits have been recognised in the income statement except to the extent that
they relate to items previously charged or credited to other comprehensive income or equity.
9 Dividends
Final dividend for prior year
Interim dividend for current year
2010
pence per
share
2010
£million
2009
pence per
share
2009
£million
–
0.8
0.8
–
1.2
1.2
–
–
–
–
–
–
The Directors recommend a final dividend of 2.0p which when combined with the interim dividend of 0.8p gives a total dividend for the year
of 2.8p per share. The Group’s dividend policy is to increase dividends progressively whilst maintaining cover of at least two times underlying
earnings per share. The final dividend will be paid on 9 June 2011 to shareholders on the register on 27 May 2011.
TT electronics plc 79
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Financial statements – Group accounts
Notes to the consolidated financial statements
10 Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to owners of the Company by the weighted average number of shares
in issue during the period. The weighted average number of shares in issue is 155.0 million (2009: 155.0 million).
Headline earnings per share is based on profit for the year from continuing operations adjusted for exceptional items and their associated
tax effect.
Pence
Basic and diluted earnings/(loss) per share:
Continuing operations
Discontinued operations
Total
Headline earnings per share
The numbers used in calculating headline, basic and diluted earnings/(loss) per share are shown below:
£million
Continuing operations:
Profit/(loss) for the period attributable to owners of the Company
Exceptional items
Tax effect of exceptional items
Headline earnings/(loss)
Headline earnings/(loss) per share (pence)
The weighted average number of shares in issue is as follows:
Million
Basic
Adjustment for share awards
Diluted
2009
(re-presented)
2010
11.9
4.8
16.7
(12.1)
(0.5)
(12.6)
2009
(re-presented)
2010
18.5
(4.5)
–
14.0
9.0
2010
155.0
–
(18.8)
17.4
(0.4)
(1.8)
(1.2)
2009
155.0
–
155.0
155.0
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Financial statements – Group accounts
11 Employee information
The average number of full time equivalent employees (including Directors) during the year from continuing operations was:
Number
By function
Production
Sales and distribution
Administration
By division
Components
Sensors
Integrated Manufacturing Services
Secure Power
General Industrial
Total continuing operations
The aggregate emoluments including those of Directors for the year were:
£million
Wages and salaries
Social security charges
Employers’ pension costs
Remuneration in respect of the Directors was as follows:
£million
Emoluments
2009
(re-presented)
2010
5,305
5,018
479
356
494
382
6,140
5,894
3,255
1,049
1,043
717
76
3,027
1,044
1,056
587
180
6,140
5,894
2010
120.7
20.7
1.6
143.0
2010
1.9
2009
108.1
19.7
1.3
129.1
2009
1.1
Further details of individual Directors’ remuneration, pension benefits and share awards are shown in the Directors’ remuneration report on
pages 55 to 60.
Key management personnel
The remuneration of key management during the year was as follows:
£million
Short-term benefits
Compensation for loss of office
Post-employment benefits
2010
4.0
–
0.2
4.2
2009
2.3
0.1
0.2
2.6
In accordance with IAS 24 “Related party disclosures”, key management personnel are those persons having authority and responsibility for
planning, directing and controlling the activities of the Group, directly or indirectly. Key management personnel comprise the Directors,
Company Secretary, Divisional Chief Executives and Divisional Directors. Their compensation is considered and recommended to the Board
by the Remuneration Committee.
Disclosures on Directors’ remuneration required by the Companies Act 2006 and those specified for audit by the Directors’ Remuneration
Report Regulations 2002 are included in the Directors’ remuneration report.
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Notes to the consolidated financial statements
12 Property, plant and equipment
£million
Cost
At 1 January 2009
Additions
Disposals
Net exchange adjustment
At 1 January 2010
Additions
Disposals
Disposal of subsidiaries
Net exchange adjustment
At 31 December 2010
Depreciation and impairment
At 1 January 2009
Depreciation charge
Impairment
Disposals
Net exchange adjustment
At 1 January 2010
Depreciation charge
Impairment
Disposals
Disposal of subsidiaries
Net exchange adjustment
At 31 December 2010
Net book value
At 31 December 2010
At 31 December 2009
Land and
buildings
Plant and
equipment
69.1
0.5
(1.9)
(2.9)
64.8
0.1
(0.6)
(2.1)
(0.9)
364.3
8.9
(26.2)
(15.9)
331.1
10.7
(24.7)
(18.5)
(2.8)
Total
433.4
9.4
(28.1)
(18.8)
395.9
10.8
(25.3)
(20.6)
(3.7)
61.3
295.8
357.1
15.2
2.1
–
(0.2)
(0.8)
16.3
2.0
0.4
(0.3)
(0.4)
(0.3)
280.8
22.0
1.0
(23.7)
(11.8)
268.3
19.2
–
(24.2)
(15.4)
(2.0)
296.0
24.1
1.0
(23.9)
(12.6)
284.6
21.2
0.4
(24.5)
(15.8)
(2.3)
17.7
245.9
263.6
43.6
48.5
49.9
62.8
93.5
111.3
Included within land and buildings are three investment properties with a carrying value of £3.5 million (2009: £3.5 million). The fair value of
these properties is £6.0 million (2009: £7.1 million).
The carrying amount of land and buildings includes £0.3 million (2009: £0.3 million) in respect of assets held under finance leases.
No borrowing costs were capitalised by the Group during the year (2009: £nil) as no significant qualifying assets commenced construction
after 1 January 2009.
The depreciation charge for the year is allocated to continuing operations £20.4 million (2009: £22.6 million) and discontinued operations
£0.8 million (2009: £1.5 million).
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Financial statements – Group accounts
13 Goodwill
Cost
At 1 January 2009
Impairment
Net exchange adjustment
At 1 January 2010
Net exchange adjustment
At 31 December 2010
Goodwill is attributed to the following operating company cash generating units in the divisions shown below:
Components:
Bl Technologies, USA
Optek Technology, USA
New Chapel Electronics, UK
Semelab, UK
Integrated Manufacturing Services:
TT electronics integrated manufacturing services, USA
TT electronics integrated manufacturing services, Suzhou
Other
£million
74.5
(3.8)
(4.8)
65.9
1.0
66.9
£million
29.0
18.3
3.4
2.3
8.0
5.1
0.8
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TT electronics plc 83
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Financial statements – Group accounts
Notes to the consolidated financial statements
13 Goodwill (continued)
Year ended 31 December 2010
The Group tests goodwill impairment for each cash generating unit (“CGU”) annually or more frequently if there are indications that goodwill
might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value
in use calculations are those regarding the discount rates, growth rates and operating cash projections during the period for which
management have detailed plans. Management estimate discount rates using pre-tax rates that reflect current market assessments of the
Group’s time value of money and the risks specific to the CGU being measured.
As part of the annual budgeting and strategic review processes, the Group prepares cash flow forecasts for the following three years.
The growth rate assumed after this three-year period is based on long-term GDP projections of the primary market for the CGU. The long-term
projections used are based on GDP growth of 3.0%. The growth rates assume that demand for our products remains broadly in line with the
underlying economic environment in the long term future. Taking into account our expectation of future market conditions we believe that
the evolution of selling prices and cost measures put into place will lead to a sustained improvement in profitability which is higher than in
recent years.
The pre-tax rate used to discount the forecast cash flows is 8.3% for the UK businesses, 10.5% for the US businesses and 11.5% for the
Chinese business.
Following detailed review, no impairment losses have been recognised in the year.
The goodwill allocated to each of BI Technologies (”BI“), Optek Technology (”Optek’“) and TT electronics integrated manufacturing services
USA (”Perry“) are considered to be individually significant as they represent more than 10% of the Group’s total goodwill carrying value.
After translation using year end foreign exchange rates, these CGUs represent 83% or £55.3 million of the total goodwill balance.
The recoverable amounts associated with these goodwill balances have been determined on a value in use basis using conservative
assumptions. A value in use test requires comparison of asset carrying values with pre-tax cash flows (which exclude any tax benefit).
Furthermore, the value in use test ignores the related deferred tax liabilities which IFRS prevents from being included in any value in use
calculation. Key assumptions and sensitivities are as follows:
• The budget and strategic review for these companies have been extrapolated in perpetuity using a long-term growth rate of 1.0% and
discounted using the relevant entity discount rate. A key assumption in deriving the growth rate is that the businesses will grow in line
with the underlying economic environment for the foreseeable future. Revenue would need to contract annually by 1.5% and 5.6% in BI
and Optek respectively for the carrying value to be impaired. Revenue growth at Perry would have to be 2.6% rather than 3% for the
carrying value to be impaired;
• Sensitivity analysis has determined that the discount rate of 10.5% in the US is an influential assumption on the outcome of the recoverable
amount calculation. The recoverable amounts of BI, Optek and Perry exceed the total carrying value of assets for the CGU by £11.1 million,
£12.6 million and £0.8 million respectively; the discount rate would need to increase to 13.1%, 15.8% and 10.8% for BI, Optek and Perry
respectively in order for the carrying value to be impaired; and
• Sensitivity analysis has also been performed on the operating cash flow projections. Cash flows can be impacted by changes to sales
projections, sales prices, direct costs and replacement capital expenditure. In order for the carrying value of goodwill for BI, Optek and Perry
to be impaired the expected cash flows for every year would need to reduce by 22%, 36% and 4% respectively.
The Directors have not identified any other likely changes in other significant assumptions that would cause the carrying value of recognised
goodwill to exceed its recoverable amount.
Year ended 31 December 2009
In the year ended 31 December 2009, an impairment charge of £3.8 million was recognised in respect of goodwill associated with Optek
using a value in use model. A discount factor of 10% was used in the value in use model with sales growth rates of 6% per annum for 2013
and 2014, and 2% thereafter. The improvement in performance and profitability in 2010 in Optek and forecast growth has not led to any
further impairment charges being recognised in 2010.
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Financial statements – Group accounts
14 Other intangible assets
£million
Cost
At 1 January 2009
Additions
Disposals
Net exchange adjustment
At 1 January 2010
Additions
Disposals
Disposal of subsidiaries
Net exchange adjustment
At 31 December 2010
Amortisation
At 1 January 2009
Charge for the year
Disposals
Net exchange adjustment
At 1 January 2010
Charge for the year
Disposals
Disposal of subsidiaries
Net exchange adjustment
At 31 December 2010
Net book value
At 31 December 2010
At 31 December 2009
15 Inventories
£million
Raw materials
Work in progress
Finished goods
Product
development
costs
Patents,
licences and
other
Customer
relationships
36.0
6.9
(10.6)
(2.0)
30.3
6.0
(11.7)
(0.1)
(0.8)
23.7
17.7
10.8
(10.6)
(1.0)
16.9
8.9
(11.7)
(0.1)
(0.5)
13.5
10.2
13.4
4.7
–
–
(0.1)
4.6
1.4
(0.6)
–
–
5.4
1.8
0.4
–
–
2.2
0.4
(0.2)
–
–
2.4
3.0
2.4
3.6
–
–
(0.1)
3.5
–
–
–
–
3.5
1.2
0.6
–
(0.1)
1.7
0.3
–
–
–
2.0
1.5
1.8
2010
40.2
21.8
19.4
81.4
Inventories are stated after deduction of a provision for slow moving and obsolete items of £24.5 million (2009: £17.9 million).
16 Trade and other receivables
£million
Trade receivables
Prepayments
Other debtors
2010
74.5
8.2
10.0
92.7
Total
44.3
6.9
(10.6)
(2.2)
38.4
7.4
(12.3)
(0.1)
(0.8)
32.6
20.7
11.8
(10.6)
(1.1)
20.8
9.6
(11.9)
(0.1)
(0.5)
17.9
14.7
17.6
2009
37.8
19.5
26.6
83.9
2009
68.3
8.0
8.8
85.1
TT electronics plc 85
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Financial statements – Group accounts
Notes to the consolidated financial statements
17 Financial risk management
The financial information disclosed in the tables relating to the year ended 31 December 2010 represents continuing operations only.
The main risks arising from the Group’s financial instruments are foreign exchange risk, interest rate risk, credit risk and liquidity risk. These risks
arise from exposures that occur in the normal course of business and are managed by the Group’s Treasury department in close co-operation
with the Group’s business divisions and operating companies. The responsibilities of the Group’s Treasury department includes the
monitoring of financial risks, management of cash resources, debt and capital structure management, approval of counterparties and relevant
transaction limits, and oversight of all significant treasury activities undertaken by the Group. The Group Treasury department operates as a
service centre to the business divisions of the Group and not as a profit centre.
The Group’s principal financial instruments comprise borrowings, cash and cash equivalents and derivatives used for risk management
purposes. The Group’s borrowings, surplus liquidity and derivative financial instruments are monitored and managed centrally by the Group’s
Treasury department.
The Group’s accounting policies with regard to financial instruments are detailed in note 2(w) .
a) Derivatives, financial instruments and risk management
The Group uses derivative financial instruments to manage certain exposures to fluctuations in exchange rates and interest rates.
The Group does not hold any speculative financial instruments.
The Group is exposed to transactional and translation foreign exchange risk. Transactional foreign exchange risk arises from sales or purchases
by a Group company in a currency other than that company’s functional currency. Translational foreign exchange risk arises on the translation
of profits earned in overseas currencies into GBP and the translation of net assets denominated in overseas currencies into GBP, the Group’s
functional currency.
To mitigate against transactional foreign exchange risk, wherever possible, Group companies enter into transactions in their functional
currencies with customers and suppliers. When this is not possible, then hedging strategies are undertaken through the use of forward
currency contracts for up to one year ahead.
The Group uses forward currency profit hedges to mitigate against translational foreign exchange risk taking into account the level of forecast
profits in foreign currencies, natural hedges and cost of taking out cover. In 2009 the Group hedged the effect of currency movements against
sterling on the translation of 2009 profit earned in US dollars and Chinese yuan, by selling forward US dollars and Chinese yuan for sterling at
fixed exchange rates. At 31 December 2009 contracts were in place to hedge the translation of 2010 profits for $3.6 million and €0.6 million.
Subsequently contracts for the sale of a further $4.0 million were entered into. At 31 December 2010, no profit hedges had been taken out by
the Group in respect of 2011 profits.
The Group’s interest rate management policy is to maintain a balance between fixed and floating rates of interest on borrowings and deposits,
and to use interest rate derivatives such as caps when appropriate. Following the re-financing undertaken in May 2010, the Group took out a
three-year 1% LIBOR interest rate cap on £20 million of borrowings which caps the interest payable on half of the Group’s fixed-term floating
rate debt. The Group will therefore benefit from LIBOR levels which are significantly below their historic averages on the remainder of the
floating rate debt.
At 31 December 2009 the Group had an interest rate cap applying to $50 million of borrowings at a rate of 4.75%. This cap expired in
February 2010. Furthermore, at 31 December 2009 the Group had an interest rate swap fixing the interest rate on $50 million of borrowings
to April 2011. Following the re-financing undertaken in May 2010, the fair value of the interest rate swap included within equity was written
off to the income statement resulting in an expense on £0.2 million which is included within finance costs.
The forward currency contracts and interest rate cap have been designated as cash flow hedges and the mark to market valuation of these
derivatives at 31 December 2010 is taken to the hedging reserve within equity. At 31 December 2010, the Group had a net derivative financial
liability of £4.3 million (2009: net derivative financial liability of £0.2 million).
Included within derivative financial liabilities is a cash settled put and call option associated with a minority interest in one of the Group’s
subsidiaries of £4.3 million (2009: £nil). This has been accounted for under the anticipated acquisition method which results in the recognition
of the liability at its fair value and the elimination of the minority interest. Changes in the fair value of the liability are reflected as a movement
in reserves. An interest expense on the financial liability is recognised within finance costs in the income statement.
86 TT electronics plc
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Financial statements – Group accounts
17 Financial risk management (continued)
b) Foreign exchange risk
The Group’s exposure to foreign currency is shown below:
£million
31 December 2010
Trade and other receivables
Cash and cash equivalents
Borrowings
Trade and other payables
31 December 2009
Trade and other receivables
Cash and cash equivalents
Borrowings
Trade and other payables
GBP
USD
Euro
Other
Total
0.4
0.1
–
(0.8)
(0.3)
0.6
0.2
–
(1.3)
(0.5)
13.1
5.9
(6.4)
(11.5)
1.1
21.1
9.5
–
(18.5)
12.1
3.7
1.9
–
(2.4)
3.2
6.0
3.1
–
(3.9)
5.2
3.3
1.6
–
(2.7)
2.2
5.3
2.6
–
(4.4)
3.5
20.5
9.5
(6.4)
(17.4)
6.2
33.0
15.4
–
(28.1)
20.3
A 10% strengthening of GBP against the following currencies at 31 December would have increased/(decreased) equity and profit after tax by
the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed
on the same basis for 2009:
£million
US dollar
Euro
2010
0.1
0.3
2009
1.2
0.5
A 10% weakening of GBP against the above currencies at 31 December would have had an equal but opposite effect on the above currencies
to the amount shown above, on the basis that all other variables remain constant.
c) Interest rate risk
The Group has financial assets and liabilities which are exposed to changes in market interest rates. Changes in interest rates primarily impact
borrowings by changing their future cash flows (floating rate debt) or their fair value (fixed rate debt) and deposits.
The exposure of the Group’s financial assets and liabilities to interest rate risk is as follows:
£million
Financial assets
Trade and other receivables
Cash and cash equivalents
Total financial assets
Financial liabilities
Borrowings
Trade and other payables
Derivative financial instruments
Total financial liabilities
Floating
rate
Fixed
rate
–
33.8
33.8
–
11.0
11.0
Non-
interest
bearing
84.5
–
2010
total
84.5
44.8
84.5
129.3
(39.4)
(15.3)
–
(54.7)
–
–
–
–
(110.7)
(110.7)
(4.3)
(4.3)
(39.4)
(15.3)
(115.0)
(169.7)
At 31 December 2010, 28% (2009: 7%) of total debt was at a fixed rate and the balance was at floating rate. Of the floating rate borrowings of
£39.4 million, £20 million has been hedged using an interest rate cap fixed at 1% until May 2013. Including the impact of the interest rate cap,
65% of the total debt was fixed at 31 December 2010.
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Financial statements – Group accounts
Notes to the consolidated financial statements
17 Financial risk management (continued)
£million
Financial assets
Trade and other receivables
Cash and cash equivalents
Total financial assets
Financial liabilities
Borrowings
Trade and other payables
Derivative financial instruments
Total financial liabilities
Floating
rate
Fixed
rate
Non-interest
bearing
2009
total
–
22.7
22.7
–
2.0
2.0
(75.7)
(5.9)
–
–
–
–
(75.7)
(5.9)
77.1
–
77.1
–
(88.0)
(0.2)
(88.2)
77.1
24.7
101.8
(81.6)
(88.0)
(0.2)
(169.8)
The interest charged on floating rate financial liabilities is based on the relevant benchmark rate (such as LIBOR). Interest on financial
instruments classified as fixed rate is fixed until the maturity of the instrument.
Considering the net debt position of the Group at 31 December 2010, any increase in interest rates would result in a net loss in the
consolidated income statement, and any decrease in interest rates would result in a net gain. The effect on profit after tax of a 1%
movement in £LIBOR, based on the year-end floating rate net debt and with all other variables held constant, is estimated to be £0.1 million
(2009: £0.5 million).
d) Credit risk
Exposure to credit risk arises as a result of transactions in the Group’s ordinary course of business and is applicable to all financial assets.
Investments in cash and cash equivalents and derivative financial instruments are with approved counterparty banks and other financial
institutions. Counterparties are assessed prior to, during, and after the conclusion of transactions to ensure exposure to credit risk is limited
to an acceptable level. The maximum exposure with respect to credit risk is represented by the carrying amount of each financial asset on
the balance sheet.
Credit risk relating to trade receivables
The Group’s major exposure to credit risk is in respect of trade receivables. Given the number and geographical spread of the Group’s ultimate
customers and the solvency of major trade debtors, credit risk is believed to be limited. 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. The Group regularly monitors its exposure to bad debts
in order to minimise this exposure.
The Group has strict procedures in place to manage the credit risk on trade receivables. Customer credit risk is managed by each operating
company within a division but is subject to Group oversight to ensure that each division’s customer credit risk management system operates
in a prudent and responsible manner. Credit evaluations are performed for all customers and credit limits are established based on internal
or external rating criteria. The credit quality of the Group’s significant customers is monitored on an on-going basis, and receivables that are
neither past due nor impaired are considered of good credit quality. Letters of credit or payments in advance are obtained where customer
credit quality is not considered strong enough for open credit.
Trade receivables are denominated in the currencies in which the Group trades. The Group’s policy is that receivables and payables 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 which can be hedged using foreign
exchange hedges.
There were no material impairments of trade receivables as at 31 December 2010 or 2009. The solvency of the debtor and their ability to repay
the receivables were considered in assessing the impairment of such assets.
(i) Risk for trade receivables by geographical regions
The maximum exposure to credit risk for trade receivables at 31 December by geographic areas was:
£million
Europe (including UK)
North America
Central and South America
Asia
Rest of the World
88 TT electronics plc
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2010
44.3
14.3
6.2
7.4
2.3
74.5
2009
40.6
13.1
5.7
6.8
2.1
68.3
Financial statements – Group accounts
17 Financial risk management (continued)
(ii) Impairment losses
The ageing of trade receivables at 31 December was:
£million
Not past due
Past due 0–60 days
Past due 60–120 days
More than 120 days
Gross
44.3
21.8
5.4
7.1
78.6
2010
Impairment
–
(0.1)
–
(4.0)
(4.1)
The movement in the provision for impairment in respect of trade receivables during the year was as follows:
£million
At 1 January 2010
Charged to income statement
Written off
Net exchange adjustment
At 31 December 2010
Gross
40.3
19.8
4.9
6.5
71.5
2010
3.2
0.7
–
0.2
4.1
2009
Impairment
–
–
(0.1)
(3.1)
(3.2)
2009
4.9
0.2
(1.5)
(0.4)
3.2
(iii) Credit risk related to other financial assets and cash deposits
Credit risk relating to the Group’s other financial assets, principally comprising cash and cash equivalents, other receivables and derivative
financial instruments arises from the potential default of counterparties. Credit risk arising from balances with banks and financial institutions
is managed by the Group’s Treasury Department. Investment of cash and deposits are made only with approved counterparties of high credit
worthiness and are reviewed on a regular basis to take account of developments in financial markets.
No material exposure is considered to exist by virtue of the possible non-performance of the counterparties to derivative financial instruments
and other receivables.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at 31 December was:
£million
Other receivables
Cash and cash equivalents
Derivative financial instruments (current assets)
2010
10.0
44.8
0.4
2009
8.8
24.7
0.3
e) Liquidity risk
The Group maintains a balance between availability of funding and maximising investment return on cash balances through the use of short
term cash deposits, credit facilities and longer term debt instruments. Management regularly reviews the funding requirements of the Group.
The Group’s policy is to centrally manage debt and surplus cash balances.
At 31 December 2010, the Group had £21.2 million of undrawn committed borrowing facilities (2009: £27.8 million).
Maturity of financial assets and liabilities
The table below analyses the Group’s financial assets and liabilities, which will be settled on a gross basis, into relevant maturity groups based
on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual
undiscounted cash flows.
£million
31 December 2010
Trade and other receivables
Cash and cash equivalents
Borrowings
Trade and other payables
Derivative financial instruments
On demand
Less than
3 months
3 to 12
months
1 to 5
years
–
33.8
33.8
(0.6)
–
–
84.5
11.0
95.5
(0.4)
(110.7)
–
–
–
–
–
–
–
(6.1)
(51.6)
–
–
(0.6)
(111.1)
(6.1)
Total
84.5
44.8
129.3
(58.7)
–
(110.7)
(5.3)
(56.9)
(5.3)
(174.7)
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Financial statements – Group accounts
Notes to the consolidated financial statements
17 Financial risk management (continued)
At 31 December 2010, the Group had derivative financial instruments hedging a notional contractual amount of £81.7 million, of which
£29.7 million relates to foreign exchange cash flow hedges and £52.0 million to interest rate cash flow hedges. Of this total amount,
£61.7 million matures within one year and £20.0 million matures between one and five years.
£million
31 December 2009
Trade and other receivables
Cash and cash equivalents
Borrowings
Trade and other payables
Derivative financial instruments
On demand
Less than
3 months
3 to 12
months
1 to 5
years
–
22.7
22.7
(0.2)
–
–
(0.2)
77.1
2.0
79.1
(0.3)
(88.0)
(0.2)
(88.5)
–
–
–
–
–
–
(11.9)
(70.7)
–
–
–
–
(11.9)
(70.7)
(171.3)
Total
77.1
24.7
101.8
(83.1)
(88.0)
(0.2)
f) Fair value of financial assets and liabilities
The Group adopted the amendment to IFRS7 ‘Financial Instruments: Disclosures’ for financial instruments that are measured in the balance
sheet at fair value. This requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:
• Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices); and
• Level 3 – inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs).
Set out below is a comparison by class of the carrying amounts and fair value of the Group’s financial instruments that are carried in the
financial statements.
£million
Trade and other receivables
Cash and cash equivalents
Borrowings
Trade and other payables
Derivative financial instruments
Carrying
value
2010
Fair value
Carrying
value
2009
Fair value
84.5
44.8
84.5
44.8
(54.8)
(54.4)
(110.7)
(110.7)
(4.3)
(4.3)
77.1
24.7
(81.6)
(88.0)
(0.2)
77.1
24.7
(81.2)
(88.0)
(0.2)
The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate
the fair values:
• cash and cash equivalents, trade and other receivables, trade and other payables approximate to their carrying amounts largely due to the
short-term maturities of these instruments;
• the fair value of derivative financial instruments are estimated by discounting expected future cash flows using current market indices such
as yield curves and forward exchange rates over the remaining term of the instrument (level 1 and level 2);
• provisions for cash payments are discounted back to their present value; and
• the fair value of borrowings is estimated by discounting future cash flows using rates currently available for debt and remaining maturities.
g) Capital management
The over-riding objectives of the Group’s capital management policy are to safeguard and support the business as a going concern through
the business cycle and to maintain an optimal capital structure by reducing the Group’s overall cost of capital.
The Group maintains a balance between availability of funding and maximising investment return on cash balances through the use of
short term cash deposits, credit facilities and longer term debt instruments, and management regularly reviews the funding requirements
of the Group.
Dividends are paid when the Board consider it appropriate to do so, taking into account the availability of funding. The Group’s dividend
policy is to increase dividends progressively whilst maintaining cover of at least two times underlying earnings per share.
The Group is in a net debt position of £9.9 million (2009: £56.9 million). Included within the debt facilities are financial covenants related to
net debt/EBITDA before exceptional items and EBITDA before exceptional items/net finance charges for which compliance certificates are
produced on a 12 month rolling basis each quarter. All financial covenants were fully complied with during the year and up to the date of
approval of the financial statements. There are no covenants under negotiation at present.
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Financial statements – Group accounts
18 Share capital
£million
Issued and fully paid
155,124,724 (2009: 154,952,795) Ordinary shares of 25p each
2010
2009
38.8
38.7
During the year the Company issued 171,929 Ordinary shares as a result of share options being exercised under the 2004 Approved Plan.
The aggregate consideration received was £0.3 million, which was represented by a £0.1 million increase in share capital and a £0.2 million
increase in share premium.
19 Share-based payment plans
The Company has the following share-based payment plans in operation at 31 December 2010:
• Share option schemes, which are closed for future grants;
• Long Term Incentive Plans (“LTIP”) for senior executives;
• Restricted Share Plan for certain senior executives; and
• Sharesave plan for UK employees.
a) Share option schemes
Details of the share options outstanding during the year are as follows:
At 1 January
Granted
Forfeited
Exercised
Expired
At 31 December
Exercisable at 31 December
2010
Weighted
average
exercise price
(p)
2009
Weighted
average
exercise price
(p)
Number of
share options
Number of
share options
2,618,043
135.3 4,145,419
134.2
–
–
–
–
(1,434,857)
140.9
(1,036,879)
125.6
171,929
(218,954)
145.0
–
91.5
(490,497)
1,136,161
138.2 2,618,043
234,595
145.0
447,419
–
146.4
135.3
145.0
At 31 December 2010 options were exercisable over 1,136,161 (2009: 2,618,043) 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 138.2p and a weighted average remaining contractual life of
2.44 years (2009: 3.0 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 annum for options granted prior to 2001 and 4% per annum
for options granted after 2000 above the increase in the Retail Price Index over the same period.
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.
b) Long Term Incentive Plans
Details of the LTIP awards outstanding during the year are as follows:
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Granted
Forfeited
Vested
Expired
At 31 December
Exercisable at 31 December
2010
Number of
share awards
2009
Number of
share awards
5,458,293
2,189,744
1,846,920
4,002,502
(339,988)
(733,953)
–
(659,346)
–
–
6,305,879
5,458,293
–
–
During 2009 and 2010 grants of awards were made under the LTIP for the issue of shares in 2012 and 2013 respectively. 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 require the achievement of earnings per share (“EPS”) and total shareholder return (“TSR”)
targets as detailed in the Directors’ remuneration report on page 56.
On 5 May 2009 and 27 October 2009 grants of awards were made under the LTIP for the issue of up to 3,799,835 and 202,667 shares in 2012.
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Notes to the consolidated financial statements
19 Share-based payment plans (continued)
On 4 May 2010 and 24 September 2010, grants of awards were made under the LTIP for the issue of up to 1,781,178 and 65,742 shares in 2013.
The fair value of the shares was estimated at the grant date using a Monte Carlo simulation model, taking into account the terms and
conditions upon which the shares were granted. This model simulated the TSR and compares it against the group of comparator companies.
It takes into account historic dividends and share price fluctuations to predict the distribution of relative share price performance.
The following table lists the inputs to the model:
Number of awards
Fair value at grant date
Share price at grant date
Exercise price
Expected volatility
Expected weighted average life at 31 December 2010
2010
2009
Shares with a
24 September
2010 grant
date
Shares with a
4 May 2010
grant date
Shares with a
27 October
2009 grant
date
Shares with a
5 May 2009
grant date
65,742 1,781,180
202,667
3,799,835
84,700 1,676,200
119,168
873,962
146.0p
105.0p
75.0p
28.75p
£nil
68%
2.8
£nil
68%
2.3
£nil
80%
1.8
£nil
80%
1.3
The award of shares is not affected by the risk free rate of interest since no investment is required by the recipient, and therefore no interest
could be earned elsewhere. Expected volatility is based on historic share price movements.
Furthermore, on 4 May 2010 140,000 notional share awards were granted to senior executives which will ultimately be settled in cash.
These awards are subject to the same vesting criteria as the 4 May 2010 LTIP grant.
The LTIP grants made in 2007 did not vest and the grants made in 2008 are not forecast to vest based on the performance conditions.
c) Restricted Share Plan
On 24 September 2010, the Group granted 259,515 shares under a restricted share plan to certain senior executives. The award is a contingent
right to receive shares with a three-year vesting period subject to continued employment with the Group and no performance conditions.
Details of the restricted share plan awards outstanding during the year are as follows:
At 1 January 2010
Granted
Forfeited
Exercised
Expired
At 31 December 2010
Exercisable at 31 December 2010
The fair value of the shares at grant date was 139.0p.
2010
Number of
share awards
–
259,515
–
–
–
259,515
–
The Company purchased 259,515 shares on 12 October 2010 at a cost of £0.4 million through an Employee Benefit Trust. These shares are
dilutive for the purposes of earnings per share.
d) Sharesave scheme
On 1 October 2010, the Group granted 1,492,920 shares to participating UK employees in a Sharesave scheme under either a three-year or
five-year plan. Employees may purchase the Group’s shares at a 20% discount to the closing market price on 3 September 2010 of 142.5p
up to a maximum contribution value of £3,000 in any one year. Monthly contributions are saved with Equiniti Ltd, the Registrars, in the
employee’s share savings plan and will only be released to employees who remain in the Group’s employment for a period of either three or
five years from date of grant. Options become exercisable on completion of either the three or five year term or within six months of leaving
in certain circumstances. The fair value of the shares at grant date was 70.0p for the three-year scheme and 79.0p for the five-year scheme.
92 TT electronics plc
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Financial statements – Group accounts
19 Share-based payment plans (continued)
Details of the Sharesave awards outstanding during the year are as follows:
At 1 January 2010
Granted
Forfeited
Exercised
Expired
At 31 December 2010
Exercisable at 31 December 2010
2010
Number of
share awards
–
1,492,920
–
–
–
1,492,920
–
The total share-based payment charge for the year arising from the above share scheme plans was £0.3 million (2009: credit of £0.2 million).
20 Hedging and translation reserves
£million
At 1 January 2009
Exchange differences on translation of foreign operations
Tax on exchange differences
Gain on hedge of net investment in foreign operations
Cash flow hedges
At 1 January 2010
Exchange differences on translation of foreign operations
Tax on exchange differences
Loss on hedge of net investment in foreign operations
Cash flow hedges
Foreign exchange loss on disposals taken to income statement
At 31 December 2010
21 Retained earnings
£million
At 1 January 2009
Loss for the year
Actuarial net loss on defined benefit pension schemes (see note 31)
At 1 January 2010
Profit for the year
Fair value of minority put option
Dividends paid by the Company
Actuarial net loss on defined benefit pension schemes (see note 31)
Tax on actuarial amounts in pension deficit movement
At 31 December 2010
Hedging
reserve
Translation
reserve
(18.1)
–
–
4.5
2.1
(11.5)
–
–
–
(0.2)
–
(11.7)
53.9
(15.6)
0.4
–
–
38.7
2.1
0.1
(0.9)
–
(1.7)
38.3
Total
35.8
(15.6)
0.4
4.5
2.1
27.2
2.1
0.1
(0.9)
(0.2)
(1.7)
26.6
134.6
(19.6)
(28.7)
86.3
25.9
(3.5)
(1.2)
(5.9)
8.1
109.7
TT electronics plc 93
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Financial statements – Group accounts
Notes to the consolidated financial statements
22 Borrowings
£million (unless otherwise stated)
31 December 2010
£60 million multi-currency club facility
£10 million manufacturing fund loan
AB Mikroelektronik GmbH loan
TT Automotive Electronics (Suzhou) Co. loan
AB Electronics (Suzhou) Co. loan
Overdrafts
Finance leases (see note 25)
Loan arrangement fee
Total
31 December 2009
£70 million multi-currency bank loan
£5 million multi-currency bank loan
AB Mikroelektronik GmbH loan
Overdrafts
Finance leases (see note 25)
Total
Maturity
Currency of
denomination
Current Non-current
Total
2013 GBP/USD
2013
2011
2011
2011
GBP
Euro
CNY
CNY
2011
2010
2010
GBP
GBP
Euro
–
–
4.2
0.6
0.5
0.6
0.1
(0.6)
5.4
–
5.0
5.9
0.2
0.1
39.7
10.0
–
–
–
–
0.3
(0.7)
49.3
39.7
10.0
4.2
0.6
0.5
0.6
0.4
(1.3)
54.7
70.0
70.0
–
0.1
–
0.3
5.0
6.0
0.2
0.4
11.2
70.4
81.6
In May 2010, the Group agreed a new committed facility of £60 million over three years to May 2013 with a club of four banks comprising
HSBC, The Royal Bank of Scotland, Santander and Fifth Third Bank of the USA. This facility is made up of a term loan amount of £40 million
and a revolving credit facility of £20 million. At 31 December 2010, the term loan was fully drawn down and the revolving credit facility was
undrawn. The interest margin payable on the facility is based on the Group’s compliance with covenants (net debt/EBITDA before exceptional
items and EBITDA before exceptional items/net finance charges) and is payable on a floating basis above £LIBOR or $LIBOR depending on the
currency of denomination of the loan. Of the £40 million drawn down, a 1% £LIBOR interest rate cap was taken out in June 2010 which limits
the interest payable on £20 million of the borrowings.
In May 2010, the Group also agreed a £10 million fixed rate bi-lateral three-year manufacturing fund loan with The Royal Bank of Scotland.
This bi-lateral loan and the club facility replaced the £70 million term loan which had been due for repayment in April 2011.
Arrangement fees with an amortised cost of £1.3 million, gross cost before amortisation of £1.9 million, have been netted off against
these borrowings in accordance with IFRS.
The loan in AB Mikroelektronik GmbH is an export facility loan and used for working capital purposes within that business.
The loans in TT Automotive Electronics (Suzhou) Co. Ltd and AB Electronics (Suzhou) Co. Ltd are used for working capital purposes
within China.
The £5 million multi-currency bank loan at 31 December 2009 was re-paid in April 2010.
Undrawn facilities
At 31 December 2010, the total borrowing facilities available to the Group amounted to £110.7 million (2009: £142.1 million). At 31 December
2010, the Group had available £21.2 million (2009: £27.8 million) of undrawn committed borrowing facilities.
23 Reconciliation of net cash flow to movement in net debt
£million
At 1 January 2009
Cash flow
Exchange differences
At 31 December 2009
Cash flow
Non-cash items
Exchange differences
At 31 December 2010
94 TT electronics plc
Annual Report 2010
Net
cash/overdraft
Borrowings and
finance leases
(12.2)
(101.0)
Net debt
(113.2)
36.6
0.1
24.5
19.1
–
0.6
44.2
14.8
4.8
(81.4)
27.5
(0.6)
0.4
(54.1)
51.4
4.9
(56.9)
46.6
(0.6)
1.0
(9.9)
Financial statements – Group accounts
24 Deferred tax
The amounts of deferred taxation assets/(liabilities) provided in the financial statements are as follows:
£million
Intangible assets
Property, plant and equipment
Deferred development costs
Retirement benefit obligations
Inventories
Provisions
Tax losses
Unremitted overseas earnings
Share-based payments
Short-term timing differences
Deferred tax asset/(liability)
£million
Intangible assets
Property, plant and equipment
Deferred development costs
Retirement benefit obligations
Inventories
Provisions
Tax losses
Unremitted overseas earnings
Short-term timing differences
Deferred tax asset/(liability)
As at
1 January
2010
Continuing
operations
Businesses
disposed
Recognised
in equity
Net
exchange
translation
As at
31 December
2010
(3.7)
(2.5)
(4.0)
5.6
1.6
2.5
0.1
(0.3)
–
(0.3)
(1.0)
0.1
1.7
0.9
(0.5)
1.2
1.6
0.5
(0.5)
–
(0.5)
4.5
–
–
–
–
–
–
–
–
–
0.2
0.2
–
–
–
6.6
–
–
–
–
0.7
–
7.3
(0.1)
–
0.1
0.1
–
0.1
–
–
–
–
0.2
(3.7)
(0.8)
(3.0)
11.8
2.8
4.2
0.6
(0.8)
0.7
(0.6)
11.2
As at
1 January
2009
Continuing
operations
Net
exchange
translation
As at
31 December
2009
(3.8)
(2.6)
(5.5)
4.5
2.4
1.5
–
–
0.3
(3.2)
(0.2)
(0.1)
1.2
0.9
(0.6)
1.3
0.1
(0.3)
(0.6)
1.7
0.3
0.2
0.3
0.2
(0.2)
(0.3)
–
–
–
0.5
2010
20.1
(8.9)
11.2
2010
26.0
16.1
(3.7)
(2.5)
(4.0)
5.6
1.6
2.5
0.1
(0.3)
(0.3)
(1.0)
2009
4.9
(5.9)
(1.0)
2009
28.2
21.4
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Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances:
£million
Deferred tax assets
Deferred tax liabilities
Net deferred tax asset/(liability)
At 31 December 2010, the Group had the following items for which no deferred tax assets have been recognised:
£million
Tax losses
Property, plant and equipment
Included within the £26.0 million of unrecognised tax losses in the table above is £9.8 million of tax losses within the Company. Since UK tax
legislation does not allow the utilisation of brought forward tax losses of one UK entity against the current year tax profits of another UK entity,
the use of these tax losses is therefore limited.
At the balance sheet date the aggregate unrecognised deferred tax liability in respect of undistributed earnings of subsidiaries is £0.2 million
(2009: £1.4 million).
TT electronics plc 95
Annual Report 2010
Financial statements – Group accounts
Notes to the consolidated financial statements
25 Obligations under finance leases
£million
Amounts payable under finance leases:
One year or less
Between one and five years
Over five years
Minimum lease payments
Present value of minimum
lease payments
2010
2009
2010
2009
0.1
0.2
0.1
0.4
0.1
0.3
0.1
0.5
0.1
0.2
0.1
0.4
0.1
0.2
0.1
0.4
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 obligation is 8% (2009: 8%).
The fair value of the lease obligation approximates to carrying amount. Total minimum lease payments include £nil (2009: £0.1 million)
of future finance costs.
26 Provisions
£million
At 1 January 2009
Utilised
Arising during the year
At 1 January 2010
Utilised
Arising during the year
At 31 December 2010
Reorganisation
Environmental
Legal and other
2.5
(9.6)
13.7
6.6
(5.5)
–
1.1
0.1
–
–
0.1
(0.1)
–
–
3.1
(1.0)
0.3
2.4
(1.7)
1.3
2.0
Total
5.7
(10.6)
14.0
9.1
(7.3)
1.3
3.1
The reorganisation provision relates to the restructuring programme that was initiated in 2009. The environmental provision is for 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 between current and non-current as follows:
£million
Non-current
Current
27 Trade and other payables
£million
Current liabilities
Trade payables
Taxation and social security
Other payables, accruals and deferred income
£million
Non-current liabilities
Accruals and deferred income
2010
2009
0.1
3.0
3.1
0.2
8.9
9.1
2010
2009
61.7
3.6
47.6
112.9
50.5
5.6
32.6
88.7
2010
2009
5.4
6.7
28 Contingent liabilities
The Group has contingent liabilities amounting to £1.0 million (2009: £1.5 million) in respect of performance bonds and guarantees entered
into in the normal course of business. The Group is subject to claims which arise in the ordinary course of business. Other than those for which
provisions have been included within note 26, the Directors consider the likelihood of any other claims giving rise to a significant liability to
be remote.
96 TT electronics plc
Annual Report 2010
Financial statements – Group accounts
29 Capital commitments
£million
Contractual commitments for the purchase of property, plant and equipment
30 Operating leases
Operating lease payments charged to the income statement are as follows:
£million
Fixtures and equipment
Land and buildings
The Group has outstanding commitments under non-cancellable operating leases, which fall due as follows:
£million
In less than one year
Between one and five years
After five years
2010
3.2
2010
0.3
4.0
2009
1.8
2009
0.3
4.4
2010
2009
3.3
9.1
3.7
4.0
9.1
4.0
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.
31 Retirement benefit schemes
Defined contribution schemes
The Group operates 401(k) plans in North America and defined contribution arrangements in the rest of the world. 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 £1.5 million (2009: £2.1 million).
Defined benefit schemes
The Group operates one significant defined benefit scheme in the UK and two overseas defined benefit schemes in the USA and Japan. All of
these schemes are closed to new members and, in April 2010, the UK scheme was closed to future accrual following extensive consultation
with affected employees being transferred into an enhanced Group defined contribution scheme. A one-off reduction in future liabilities of
£4.3 million was recognised in the consolidated income statement as an exceptional item. In addition, the Company agreed with the Trustee
to apportion the pension scheme liabilities from the participating employers to TT electronics plc. This provides additional security to the
scheme whilst providing the Group with greater operational flexibility.
The Company had reached agreement with the Trustee of the UK scheme for additional fixed contributions extending to 2016 based on the
actuarial deficit at April 2007 and these arrangements have been confirmed under the actuarial valuation at April 2010. £3.2 million was paid
in 2010 and further planned contributions amount to: 2011 £3.5 million, 2012 £3.7 million then increasing by £0.2 million each year to
£4.5 million in 2016.
The Group also operates defined benefit schemes in the United States and Japan. Actuarial valuations of the schemes were carried out by
independent qualified actuaries in 2010 using the projected unit credit method. Pension scheme assets are stated at their market value at
31 December 2010.
An analysis of the pension deficit by country is shown below:
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£million
UK
USA
Japan
2010
38.6
2.2
0.4
41.2
2009
40.7
2.4
0.6
43.7
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Financial statements – Group accounts
Notes to the consolidated financial statements
31 Retirement benefit schemes (continued)
The principal assumptions used for the purpose of the actuarial valuations for the Group’s primary defined benefit scheme, the UK scheme,
were as follows:
%
Discount rate
Inflation rate
Increases to pensions in payment
Salary increases
2010
5.4
3.5
2009
5.8
3.4
2.5–3.5
2.5–3.4
n/a
3.9
A decrease in the discount rate by 0.1% per annum increases the liabilities by approximately £6.0 million. An increase in the inflation rate of
0.1% per annum increases the liabilities by approximately £3.5 million.
The assumptions have not been adjusted to reflect the UK Government’s announcement in 2010 to change the basis for the indexation
of occupational pension schemes from the Retail Price Index to the Consumer Price Index. The Group is in the process of evaluating the
implications of this change and will communicate with affected members during 2011.
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 swaps
Cash
2010
2009
7.4
4.8
3.4
0.1
7.8
5.2
3.8
0.1
The mortality tables applied by the actuaries at 31 December 2010 were S1NA tables adjusted by + one year, with future improvements
increasing in line with medium cohort with a 1% p.a. floor. This compares with PA92 tables adjusted by + two years with future improvements
increasing in line with medium cohort at 31 December 2009. This change is in line with the assumptions used in the triennial valuation in
April 2010.
The amounts recognised in respect of the pension deficit in the Consolidated balance sheet are:
£million
Equities
Bonds
Gilts and cash
Swaps
Fair value of assets
Present value of funded obligation
Net liability recognised on the Consolidated balance sheet
2010
199.8
36.8
63.0
38.5
338.1
(379.3)
(41.2)
2009
190.0
36.8
61.6
18.1
306.5
(350.2)
(43.7)
2008
174.7
25.8
48.7
33.9
283.1
(301.7)
(18.6)
2007
182.0
12.4
103.8
–
2006
187.8
10.9
73.4
–
298.2
272.1
(315.6)
(344.7)
(17.4)
(72.6)
2005
170.5
2.9
72.3
–
245.7
(335.9)
(90.2)
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 instruments taken out to hedge part of the scheme inflation and interest rate risks.
Amounts recognised in the Consolidated income statement are:
£million
Current service cost
Curtailment gain
Interest on pension obligations
Expected return on schemes’ assets
2010
0.3
(4.3)
19.8
2009
1.7
(1.9)
17.9
(19.3)
(15.6)
Of the current service cost of £0.3 million (2009: £1.7 million), £0.2 million (2009: £1.1 million) is included in cost of sales in the income
statement, £nil million (2009: £0.3 million) is included in distribution costs and £0.1 million (2009: £0.3 million) is included in administrative
expenses.
The actual return on schemes assets was a gain of £45.8 million (2009: a gain of £31.4 million). Actuarial gains and losses are recognised directly
in retained earnings and reported in the Consolidated statement of comprehensive income and, since transition to IFRS, amount to a net loss
of £30.9 million.
98 TT electronics plc
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Financial statements – Group accounts
31 Retirement benefit schemes (continued)
Changes in the present value of the defined benefit obligation are:
£million
Defined benefit obligation at 1 January
Current service cost
Interest on obligation
Scheme participant contributions
Curtailment
Change in actuarial estimates and assumptions
Exchange differences
Benefits paid
Defined benefit obligation at 31 December
Changes in the fair value of the schemes’ assets are:
£million
Fair value of schemes’ assets at 1 January
Expected return on schemes’ assets
Excess/(deficit) of actual over expected returns
Contributions by employer
Contributions by employees
Exchange differences
Benefits paid
Fair value of schemes’ assets at 31 December
2010
350.2
0.3
19.8
0.2
(4.3)
31.8
–
(18.7)
379.3
2010
306.5
19.3
25.9
4.9
0.2
–
(18.7)
338.1
The experience adjustments arising on the scheme’s assets and liabilities are reported in the Consolidated statement of comprehensive
income and are as follows:
£million
Experience adjustments on schemes’ liabilities
Experience adjustments on schemes’ assets
2010
(31.8)
25.9
(5.9)
2009
(44.5)
15.8
(28.7)
2008
22.2
(25.4)
(3.2)
2007
37.8
0.5
38.3
2006
(6.2)
9.4
3.2
2009
301.7
1.7
17.9
1.0
(1.9)
44.5
(0.6)
(14.1)
350.2
2009
283.1
15.6
15.8
5.4
1.0
(0.3)
(14.1)
306.5
2005
(47.6)
21.6
(26.0)
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The Group expects to contribute approximately £3.5 million to defined benefit schemes in 2011.
32 Related party transactions
£000
TT electronics plc
Subsidiaries
Purchase of goods
and services
Sale of goods
and services
Rents paid
Rents received
Amounts owed to
related parties
2010
2009
2010
2009
2010
–
–
–
–
–
–
–
–
–
1
–
1
–
–
–
2009
110
–
110
2010
2009
2010
2009
–
–
–
–
–
–
–
–
–
–
–
–
Related party transactions solely related to transactions with JW Newman, the former Chairman, who retired from the Board on12 May 2010.
All transactions were at arm’s length prices on normal credit terms and were paid to agreed terms. There were no related party transactions
during 2010.
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Financial statements – Company accounts
Company balance sheet
£million
Fixed assets
Tangible assets
Investments
Deferred tax asset
Current assets
Debtors
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
Pension liability
Net assets
Capital and reserves
Called up share capital
Share premium account
Profit and loss account
Shareholders’ funds
Approved by the Board of Directors on 16 March 2011 and signed on their behalf by:
G Anderson
Director
S D Dasani
Director
Note
2010
2009
2
3
14
4
2.2
128.8
11.1
142.1
59.5
10.0
69.5
5
(10.2)
59.3
201.4
–
(38.6)
162.8
38.8
0.4
123.6
162.8
5
13
7
9
9
2.3
132.3
–
134.6
119.0
0.1
119.1
(7.7)
111.4
246.0
(70.0)
–
176.0
38.7
0.2
137.1
176.0
100 TT electronics plc
Annual Report 2010
Financial statements – Company accounts
Notes to the Company financial statements
1 Significant accounting policies
Basis of preparation
The financial statements of TT electronics plc (the Company) are presented as required by the Companies Act 2006 and have been prepared
under the historical cost convention as modified by the revaluation of financial assets and derivatives held at fair value and in accordance with
applicable United Kingdom accounting standards and law.
The following amendments to standards have been adopted in these financial statements for the first time. Adoption of these standards did
not have a significant impact on the financial position and performance of the Company.
• The amendment to FRS 20 (IFRS 2) Group Cash-settled Share-based Payment. The amendments expand the definition of a share-based
payment to bring all Group entities' financial statements within the scope of the standard for all Group awards; and
• Improvements to FRSs.
The following new and amendments to standards are not yet effective, but are not expected to have a significant impact on the financial
position and performance of the Company:
• Amendment to FRS 25 Financial Instruments: Presentation (Classification of rights issues) – mandatory for periods starting on or after
1 February 2010; and
• FRS 30: Heritage Assets – mandatory for periods starting on or after 1 April 2010.
The principal accounting policies are summarised below and have been applied consistently throughout the year and prior year:
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 2 to the consolidated financial statements. The carrying values
of fixed assets are reviewed for impairment when there is an indication that the assets may be impaired.
Investments
Fixed asset investments in subsidiaries are carried at cost less provision for impairment.
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 at the
balance sheet date.
Pension costs
The Company operates a pension scheme providing benefits based on final pensionable pay. The assets of the scheme are held separately
from those of the Company.
Pension scheme assets are measured using market values. For quoted securities the current bid price is taken as market value. Pension scheme
liabilities are measured using a projected unit method and discounted at the current rate of return on a high quality corporate bond of
equivalent term and currency to the liability.
The pension scheme deficit is recognised in full with the movement in the scheme deficit being split between operating charges, finance
items and, in the statement of total recognised gains and losses, actuarial gains and losses.
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
Certain employees of the Company receive part of their remuneration in the form of share-based payment transactions, whereby employees
render services in exchange for shares or rights over shares (equity-settled transactions). The cost of equity-settled transactions with
employees is measured at fair value at the date at which they are granted. The fair value of share awards with market-related vesting
conditions is determined by an external consultant and the fair value at the grant date is expensed on a straight-line basis over the vesting
period based on the Company’s estimate of shares that will eventually vest. The estimate of the number of awards likely to vest is reviewed at
each balance sheet date up to the vesting date at which point the estimate is adjusted to reflect the actual outcome of awards which have
vested. No adjustment is made to the fair value after the vesting date even if the awards are forfeited or not exercised.
Leases
Payments under operating leases are charged to the profit and loss account on a straight-line basis over the lease term.
Derivative 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.
TT electronics plc 101
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Financial statements – Company accounts
Notes to the Company financial statements
1 Significant accounting policies (continued)
Own shares held by ESOP trust
Transactions of the Company-sponsored ESOP trust are treated as being those of the Company and are therefore reflected in the Company’s
financial statements. In particular, the trust’s purchases of shares in the Company are debited directly to equity.
2 Tangible fixed assets
£million
Cost
At and 1 January 2009 and 31 December 2009
Additions
At 31 December 2010
Depreciation
At 1 January 2009 and 31 December 2009
Charge for the year
At 31 December 2010
Net book value
At 31 December 2010
At 31 December 2009
Freehold land and buildings includes freehold land with a carrying value of £0.6 million (2009: £0.6 million).
3 Fixed asset investments
£million
Cost
At January 2009 and 31 December 2009
Disposals
At 31 December 2010
Provisions for impairment
At 1 January 2009 and 31 December 2009
Charge for year
At 31 December 2010
Net book value
At 31 December 2010
At 31 December 2009
Freehold
land and
buildings
Plant,
equipment
and vehicles
2.9
–
2.9
0.7
0.1
0.8
2.1
2.2
0.7
0.1
0.8
0.6
0.1
0.7
0.1
0.1
Total
3.6
0.1
3.7
1.3
0.2
1.5
2.2
2.3
Subsidiary
undertakings
132.3
(2.9)
129.4
–
0.6
0.6
128.8
132.3
The Company’s principal operating subsidiary undertakings and their locations are shown in note 16.
The Company owns 100% of the ordinary share capital or equivalent and 100% of voting rights of all subsidiary undertakings other than
Padmini TT Electronics Private Limited which is 51% owned and Rodco Limited, which is non-trading and is 60% owned. Shareholdings are
held indirectly for all principal operating subsidiary undertakings.
4 Debtors
£million
Amounts falling due within one year
Trade debtors
Amounts owed by subsidiary undertakings
Prepayments and accrued income
Corporation tax
102 TT electronics plc
Annual Report 2010
2010
2009
0.1
57.8
1.4
0.2
59.5
0.1
115.1
0.5
3.3
119.0
Financial statements – Company accounts
5 Creditors
£million
Amounts falling due within one year
Borrowings (note 6)
Trade creditors
Derivatives financial instruments
Amounts owed to subsidiary undertakings
Taxation and social security
Accruals and deferred income
Amounts falling due after more than one year
Borrowings (note 6)
6 Borrowings
At 31 December 2010, the Company had no borrowings.
2010
2009
–
0.5
0.2
3.3
0.5
5.7
10.2
0.2
0.6
0.5
3.1
0.4
2.9
7.7
–
70.0
At 31 December 2009, the Company had £70.2 million of sterling denominated borrowings of which £70.0 million was under a committed
unsecured multi-currency loan facility which was due to expire in April 2011. These borrowings were repaid in May 2010 as part of the Group’s
re-financing exercise (see note 22 of the consolidated financial statements for further details). The new borrowings were subsequently drawn
down into TTG Investments Ltd, a wholly-owned subsidiary of the Company.
At 31 December 2009 the Company had an interest rate cap applying to $50 million of borrowings at a rate of 4.75%. This cap expired
in February 2010. Furthermore, at 31 December 2009 the Company had an interest rate swap fixing the interest rate on $50 million of
borrowings to April 2011. Following the re-financing undertaken in May 2010, the fair value of the interest rate swap was written-off to
the profit and loss account resulting in an expense of £0.2 million which is included within finance costs.
7 Share capital
£million
Issued called up and fully paid
155,124,724 (2009: 154,952,795) ordinary shares of 25p each
2010
2009
38.8
38.7
During the year the Company issued 171,929 ordinary shares as a result of share options being exercised under the 2004 Approved Plan.
The aggregate consideration received was £0.3 million, which was represented by a £0.1 million increase in share capital and £0.2 million
increase in share premium.
8 Share-based payments
Details of share based payments are shown in note 19 of the consolidated financial statements.
9 Reserves
£million
At 1 January 2009
Share-based payments
Profit for the year
At 1 January 2010
New shares issued
Share-based payments
Deferred tax on share-based payments
Dividends paid by the Company
Own shares acquired
Loss for the year
At 31 December 2010
Share
premium
Profit and
loss account
0.2
–
–
0.2
0.2
–
–
–
–
–
0.4
127.1
(0.2)
10.2
137.1
–
0.3
0.7
(1.2)
(0.4)
(12.9)
123.6
10 Profit for the year
As permitted by Section 408 of the Companies Act 2006, the Company has elected not to present its profit and loss account for the year.
The loss after tax of the Company for the year was £12.9 million (2009: profit of £10.2 million). The auditor’s remuneration for audit services
is disclosed in note 6 to the consolidated financial statements.
TT electronics plc 103
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Financial statements – Company accounts
Notes to the Company financial statements
11 Guarantees
At 31 December 2009, the Company guaranteed the bank borrowings of a subsidiary of up to £10 million. The amount guaranteed at
31 December 2010 was £nil.
12 Obligations under operating leases
Obligations under non-cancellable operating leases were as follows:
£million
On leases expiring:
Within one year
Between two and five years
13 Pension schemes
Land and
buildings
Other
2010
Total
Land and
buildings
Other
2009
Total
–
0.4
0.4
–
–
–
–
0.4
0.4
0.1
0.4
0.5
–
0.1
0.1
0.1
0.5
0.6
Defined benefit scheme:
In October 2010, the Company agreed with the Trustee of the UK pension scheme to apportion the pension scheme liabilities from the
participating employers to TT electronics plc. This provides additional security to the scheme whilst providing the Group with greater
operational flexibility.
Accordingly the Company has recognised the full UK pension deficit of £38.6 million on the balance sheet as at 31 December 2010, with a
corresponding expense going through the profit and loss account as a past service cost in accordance with FRS 17.
The Directors do not consider the carrying value of the deficit recognised as at 31 December 2010 to be significantly different from that in
October 2010 when the apportionment was finalised.
Further details of the UK defined benefit pension scheme are shown in note 31 to the consolidated financial statements.
Defined contribution scheme:
The Company operates a Group personal pension plan for employees and pays contributions to administered pension insurance plans.
The Company has no further payment obligation once the contributions have been paid. Payments to the defined contribution scheme are
charged as an expense as they are incurred. The total contributions charged by the Company in respect of the year ended 31 December 2010
were £216,000 (2009: £151,000).
14 Deferred tax
The deferred tax asset of £11.1 million is made up of an asset of £10.4 million which has been recognised in the profit and loss account
in respect of the pension liability, and an asset of £0.7 million which has been recognised in equity in respect of share based payments.
No deferred tax assets were recognised in 2009.
At 31 December 2010, the Company had the following items for which no deferred tax assets have been recognised:
• Tax losses £9.8 million (2009: £9.8 million); and
• Property, plant and equipment £0.5 million (2009: £0.5 million).
15 Related party transactions
During 2010, the Company did not have any related party transactions other than with wholly owned subsidiaries. Details of related party
transactions for the year ended 31 December 2009 are shown in note 32 to the consolidated financial statements.
104 TT electronics plc
Annual Report 2010
Financial statements – Company accounts
16 Principal operating subsidiaries
The principal operating subsidiaries are:
Components
International Resistive Company, USA, Barbados
BI Technologies, USA, UK, Mexico
Optek Technology, USA, Mexico
Semelab Limited
AB Mikroelektronik GmbH, Austria
Welwyn Components Limited
AB Connectors Limited
AB Interconnect, Inc, USA
New Chapel Electronics Limited
AB Electronics (Suzhou) Co Ltd, China
Sensors
AB Elektronik GmbH, Germany
AB Elektronik Sachsen GmbH, Germany
Padmini TT electronics Private Limited, India (51% owned)
TT Automotive Electronics (Suzhou) Co Ltd, China
Integrated Manufacturing Services
TT electronics integrated manufacturing services Limited
TT electronics integrated manufacturing services (Suzhou) Co Ltd, China
TT electronics integrated manufacturing services, Inc, USA
BI Technologies, Malaysia
Secure Power
Ottomotores SA de CV, Mexico
Dale Power Solutions plc
Ottomotores Do Brasil Energia Ltda, Brazil
General Industrial
AEI Compounds Limited
Abtest Limited
Companies are located and incorporated in the UK except where indicated.
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TT electronics plc 105
Annual Report 2010
Shareholder information
Five Year Record
£million (unless otherwise stated)
Revenue
Operating profit
Profit/(loss) before taxation
Earnings/(loss)
Earnings/(loss) per share (p)
Dividends – paid and proposed
Dividend per share – paid and proposed (p)
Average number of shares in issue
Net debt
Shareholders’ funds
Notes
(1) Results for 2009 and 2010 have been adjusted to exclude discontinued operations.
(2) Operating profit, profit before taxation, earnings and earnings per share are stated before exceptional items.
2010(1)
571.3
2009(1)
463.5
25.2
20.7
14.0
9.0
4.3
2.8
155.0
9.9
179.1
6.4
0.8
(1.8)
(1.2)
–
–
155.0
56.9
155.8
2008
584.3
27.0
21.1
14.3
9.2
5.7
3.69
155.0
113.2
212.9
2007
544.9
37.7
33.3
24.0
15.5
15.6
10.05
154.9
75.0
182.3
2006
539.4
36.2
31.2
21.8
14.1
15.6
10.05
154.8
71.0
157.0
106 TT electronics plc
Annual Report 2010
Shareholder information
Shareholder information
Annual General Meeting
The Annual General Meeting will be held on 19 May 2011 at 11.30 am at the offices of Numis Securities Limited, The London Stock Exchange
Building, 10 Paternoster Square, London EC4M 7LT.
Results
Announcement of 2011 half year results – late August 2011.
Preliminary announcement of 2011 results – mid March 2012.
Annual report 2011 – to be posted mid April 2012.
Dividends
For the year ending 31 December 2010, the Board has recommended a final dividend of 2.0p per share which will be paid on 9 June 2011
to shareholders on the register on 27 May 2011 (2009: nil). An interim dividend of 0.8p per share was paid on 28 October 2010 (2009: nil).
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.
Share dealing services
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.
Log on to www.shareview.co.uk/dealing or call 0845 603 7037 between 8.30 am and 4.30 pm, 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. lt 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.
Shareholder enquiries
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:
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.
TT electronics plc 107
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Shareholder information
Shareholder notes
108 TT electronics plc
Annual Report 2010
Directors’ report – Overview
Who we are
TT electronics is a world leader in
sensor and electronic component
technology supplying leading
manufacturers in the defence,
aerospace, medical, transportation
and industrial electronics markets.
We provide innovative solutions
to meet customers’ critical needs,
focusing where we can create
the greatest value through a
differentiated position based on
our technology and engineering
expertise, customer service and
manufacturing capabilities.
Cautionary statement on forward-looking statements and related information
This document contains a number of forward-looking statements relating to the Group/Company with respect to,
amongst others, the following: financial conditions; results of operations; economic conditions in which the Group/
Company operates; the business of the Group/Company; and management plans and objectives. The Group/Company
considers any statements that are not historical facts as “forward-looking statements”. They relate to events and trends
that are subject to risks and uncertainties that could cause the actual results and financial position of the Group/
Company to differ materially from the information presented in the relevant forward-looking statement. When used
in this document the words “estimate”, “project”, “intend”, “aim”, “anticipate”, “believe”, “expect”, “should” and similar
expressions, as they relate to the Group/Company or the management of it, are intended to identify such forward-
looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements which
speak only as at the date of this document. Neither the Group/Company nor any member of the Group’s/Company’s
Board or management undertake any obligation publicly to update or revise any of the forward-looking statements,
whether as a result of new information, future events or otherwise, save in respect of any requirement under applicable
laws, the Listing Rules, and other regulations.
Designed and produced by Radley Yeldar (www.ry.com) using the paperless proofing system Wizardry.
TT electronics plc are committed to caring for the environment and looking for sustainable ways to minimise our impact on it.
We take care to minimise the impact on the environment in the paper we use. The paper we have chosen:
• contains material sourced from responsibly managed forests, certified in accordance with the FSC® (Forest Stewardship Council)
• is manufactured under strict environmental management systems, the international ISO 14001 standard, EMAS (Eco-Management & Audit Scheme) and the IPPC
(Integrated Pollution Prevention and Control) regulation.
FSC – Forest Stewardship Council. This ensures there is an audited chain of custody from the
tree in the well-managed forest through to the finished document in the printing factory.
ISO 14001 – A pattern of control for an environmental management system against which
an organisation can be credited by a third party.
TT electronics plc Annual Report 2010
Delivering
operational
excellence
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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
For further information on our group please visit:
www.ttelectronics.com