TT electronics plc
Clive House
12 – 18 Queens Road
Weybridge
Surrey KT13 9XB
Reg No 87249
Tel +44(0) 1932 825300
Fax +44(0) 1932 836450
TT electronics plc Annual Report 2011
Embedding
innovation
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For further information on our group please visit:
www.ttelectronics.com
014995_TT_AR11_Cover.indd 1
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Contents
Overview
Embedding innovation
1
2 Chairman’s statement
2011 performance
3
Our plan for growth
6 Our business model
8 Our drivers
10 Our strategy
Our strategy in action
12 – Focus
14 – Innovation
16 – Globalisation
18 – Culture
20 Execution
22 Key performance indicators
Progress in 2011
Financial statements
Shareholder information
118 Five year record
119 Shareholder information
25 How we are structured
26 Operating review
28 Components
31 Sensors
34
IMS
36 Secure Power
38 Financial review
41
Principal risks and risk
management process
44 Corporate responsibility
Governance
47
48
Introduction by the Chairman
Board of Directors and
Company Secretary
50 Operating Board
51 Corporate Governance
57 Nominations Committee
58 Audit Committee
60 Remuneration report
67 Other statutory disclosures
Group accounts
70 Statement of Directors’
responsibilities
71 Report of the Independent
Auditors on the financial
statements
72 Consolidated income statement
73 Consolidated statement
of comprehensive income
74 Consolidated balance sheet
75 Consolidated statement
of changes in equity
76 Consolidated cash flow
statement
77 Notes to the consolidated
financial statements
Company accounts
112 Company balance sheet
113 Notes to the Company
financial statements
Online report
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Or visit: http://investors.
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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.
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Directors’ report – Overview
Embedding innovation
TT electronics delivers performance critical solutions, turning
research and technology into innovative products. Working
closely with world leading manufacturers, we target markets
with strong fundamental growth dynamics where the pace
of deployment of electronics is being driven by increasing
demands in terms of performance and reliability.
In 2011 we made further progress, improving operating margins
to 5.8 per cent and ending the year with net cash of £15.2 million.
We concentrated our focus on electronics with the successful sale of
the last remaining business within the General Industrial division.
Entering 2012, the Group is well positioned with a strategy
to create value for all stakeholders built on market focus, deep
customer relationships, innovation and our global footprint.
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TT electronics plc 1
Annual Report 2011
Directors’ report – Overview
Chairman’s statement
“I am very pleased with the significant
improvement in operating performance
in 2011. We continue to strengthen
relationships with our customers, improve
the way we innovate, and optimise our
manufacturing footprint. These actions are
having a significant positive impact on our
competitive position and create a strong
foundation for the Group’s development.”
I am pleased to report that TT electronics has delivered another set
of improved results. Revenue from continuing operations increased
to £591.3 million (2010: £555.5 million), an increase of 7.2 per cent at
constant exchange rates, with an increase in operating profit before
exceptional items of 37.3 per cent to £34.2 million (2010: £24.9 million).
The Group ended the year with net cash of £15.2 million (2010: net
debt £9.9 million). Headline EPS was 13.3 pence (2010: 9.0 pence).
During the year we made significant progress on improving the
Group’s competitive position. We strengthened relationships with our
customers and sharpened our approach to product management
and innovation, ensuring our resources are focused on delivering
solutions for markets where we can create the most value. We
delivered improved operating margins whilst continuing to invest for
the future, including major programmes to align our manufacturing
footprint with our global customers and to reduce our cost base.
The programme to realise value from the General Industrial division
has been successfully concluded with the sale of the last remaining
business completed in July.
The actions we have taken and the ongoing investments we are
making provide a solid foundation for the future. Focusing on our
electronics businesses, we have a clear vision of the value that we
bring to our customers through the delivery of innovative solutions
based on our core technologies and engineering expertise. We are
successfully building our position in markets with strong underlying
growth drivers and in which the use of complex electronics is
increasing to meet demands for improvements in performance.
We continue to strive for best practice in corporate governance
as set out later in this report, starting on page 46. In particular,
we completed a thorough review of the Group’s risk management
and internal audit processes. This identified a number of areas for
improvement including the reorganisation of the risk and internal
2 TT electronics plc
Annual Report 2011
audit function and the appointment of a new Group Head of Risk
and Assurance. Stephen King joined the Group as an independent
non-executive Director with effect from 24 October 2011 bringing
significant finance experience, combined with extensive knowledge
of global manufacturing businesses. Stephen is a member of the
Audit and Nominations Committees and will succeed David Crowther
as Chairman of the Company’s Audit Committee at the conclusion
of the 2012 Annual General Meeting.
David Crowther will be retiring from the Board following the
conclusion of the Annual General Meeting in May 2012 after seven
years as a non-executive Director. On behalf of my fellow Directors
I would like to thank David for his valuable contribution to the Group,
including his leadership as Chairman of the Audit Committee, during
a period of significant change.
In recognition of the strong performance in 2011 and the Board’s
continued confidence in the Group’s future prospects, the Board
is pleased to recommend a final dividend of 3.2 pence which,
when combined with the interim dividend of 1.2 pence, gives a total
of 4.4 pence per share for the full year (2010: 2.8 pence per share),
representing an increase of 57 per cent.
Our ability to provide critical solutions for major customers in markets
with strong fundamental growth dynamics, coupled with the
investments we are making to improve our competitive position,
provide confidence that the Group will make further progress in 2012.
Sean Watson
Chairman
14 March 2012
Directors’ report – Overview
2011 performance
Revenue3
2011
2010
Operating profit margin2,3
£591.3m
£555.5m
2011
2010
+7.2% at constant exchange rates1
+130 bps
Profit before taxation2,3
Net cash/(debt)
2011
2010
+43.2%
£29.5m
2011
£20.6m
2010
+£25.1m
5.8%
4.5%
£15.2m
-£9.9m
37.3 per cent increase in operating profit²
for 2011 to £34.2 million (£36.5 million after
exceptional items)
Improvement in operating profit margin²
to 5.8 per cent
Strong operating cash generation and
proceeds from disposals resulting in closing
net cash of £15.2 million
Significant improvements in the Group’s
competitive position with growth in key
customer accounts and sharper focus on
product management and innovation
Major programmes being implemented to
reduce the cost base and align the Group’s
global manufacturing footprint with key
growth markets
Increased concentration on electronics
businesses and platform in place to create
value for stakeholders
Recommended final dividend of 3.2 pence
per share increasing total dividend for 2011
by 57 per cent to 4.4 pence per share
(2010: 2.8 pence)
1 +6.4% at actual exchange rates
2 Before exceptional items
3 Continuing operations
TT electronics plc 3
Annual Report 2011
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Annual Report 2011
Our plan for
growth
In this section
6 Our business model
8 Our drivers
10 Our strategy
Our strategy in action
12 – Focus
14 – Innovation
16 – Globalisation
18 – Culture
20 Execution
22 Key performance indicators
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TT electronics plc 5
Annual Report 2011
Directors’ report – Our plan for growth
Our business model
Vision
To be the preferred and most trusted provider of performance critical technology
solutions to world leading manufacturers, embedding innovation in everything we do.
• We are focused on markets where the pace of deployment of complex electronics is driven
by increasing demands in terms of performance, regulation and growth and prosperity
• We have a clear strategy to create value for all stakeholders through innovation, focus
and globalisation underpinned by our culture
• We have priorities and plans in place and a clear set of key performance indicators
to measure our progress
Vision
Drivers
Strategy
Execution
KPIs
Vision
6 TT electronics plc
Annual Report 2011
Performance
Focus
Drivers
Regulation
Strategy
Innovation
Culture
Execution
Growth and prosperity
Globalisation
Investment in
people
Total business
excellence
Acquisitions
Targeting
higher growth
markets
Increasing
customer
intimacy
Differentiation
through
innovation
International
expansion
focused on
emerging
regions
KPIs
Organic
revenue
growth
Operating
profit
margins
EPS
growth
Relative
total
shareholder
return
Operating
cash
conversion
Safety
performance
Employee
engagement
Training
and
communities
TT electronics plc 7
Annual Report 2011
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Directors’ report – Our plan for growth
Our drivers
Market demand is driven by the following long-term growth drivers:
Performance
Manufacturers are designing increasingly sophisticated products which rely
upon more complex electronic systems to deliver increased functionality,
efficiency and power. In addition, high reliability electro-mechanical devices
are replacing hydraulics to reduce weight and increase reliability. As new
technology becomes available it is rapidly adopted and deployed, thereby
fuelling further demand.
Regulation
Regulation, stemming from safety and environmental concerns, drives many
of the markets in which we operate. Climate change protocols are driving
investment in new forms of energy generation and its efficient distribution
and consumption. Emissions legislation is resulting in significant investment
in the transportation and aerospace markets to improve performance,
reduce weight and treat exhaust gases.
Growth and prosperity
Rising living standards and increasing disposable income, particularly in
certain emerging economies, is driving demand in the energy, medical,
transportation and aerospace markets.
8 TT electronics plc
Annual Report 2011
Drivers
Strategy
Execution
KPIs
These drivers underpin the requirement for sophisticated electronics in each
of our markets:
Transportation
Industrial
Energy
Demand for transportation (from
mass transit systems to passenger cars)
is growing, particularly in emerging
economies. Sophisticated electronics
are being used to improve safety and
performance and to reduce emissions
to meet tighter regulations. Features
introduced on premium cars are being
deployed on other models and in other
transportation segments.
Our focus is on growth segments
within the industrial market where
the deployment of electronics is
being driven by the complexity
of the equipment and processes
being used. These segments
include automation and control
for manufacturing and process
equipment, and test and measurement.
There is significant investment in new
technologies for energy generation to
meet increasing demand and tighter
environmental regulations, together
with the deployment of new smart grid
technologies to improve the efficiency
of the distribution network and reduce
energy consumption.
Medical
Defence
Aerospace
Demand for medical equipment and
devices is increasing as more individuals
and governments are able to afford
access to medical care, together with
aging populations in many developed
countries. Additionally, devices are
becoming more sophisticated with
increasingly complex electronic content.
Investment in growth areas including
communications networks, unmanned
vehicles and other mission critical
electronic systems is forecast to continue.
Commercial airline production is
forecast to grow due to globalisation
and the continued development of
emerging markets. High performance
electronics are reducing weight and
improving efficiencies. Demand for
satellites is increasing, driven by the
growth of satellite based services.
TT electronics plc 9
Annual Report 2011
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Directors’ report – Our plan for growth
Our strategy
Our strategy is to create value for our stakeholders by delivering innovative solutions
to world leading manufacturers in markets with good long-term growth dynamics.
We will build upon our existing global footprint to ensure we continue to win new
business in all major regions of the world. Our culture and values ensure a consistent
set of standards and behaviours throughout the Group.
Focus
We are focused on the following higher growth
markets: aerospace, defence, energy, medical,
transportation and specific segments of the
industrial market. Within these markets we are
building our position with leading global players
through our key account programme.
Actions
• Alignment throughout the organisation on
– target markets
– key accounts
• Clear value proposition developed
Effect
•
Increasing proportion of sales and new business
opportunities from target markets
• Significant growth from key accounts
• Certain segments de-emphasised
Innovation
We create high value differentiated solutions for
challenging applications built upon our broad
platform technologies, engineering expertise and
our reputation in markets which value reliability.
Our “trusted partner” status with major customers
leads to early involvement in their development
programmes and provides us with visibility of
their future technology roadmaps.
Actions
• Business unit/product managers appointed
• Product roadmaps developed
• Deeper engagement with key customers
Effect
• Effective product management
– Focused research and development resources
– Visibility of customers’ technology roadmaps
– Platform technologies and “product families”
for target markets
10 TT electronics plc
Annual Report 2011
Drivers
Strategy
Execution
KPIs
Globalisation
Culture
The Group is well positioned to benefit from
globalisation with sales and engineering teams
and leading international and domestic customers
in all major regions. We are able to support our
customers from manufacturing and service
locations in the Americas, Europe and Asia.
We have a clear set of values that provide a
framework within which we expect all of our
employees to operate. We put the customer
at the heart of everything we do supported by
teamwork, innovation and a passion for excellence;
all underpinned by a commitment to invest in our
employees and to act with integrity at all times.
Actions
• Global organisation structure implemented
Actions
• Core values embedded in organisation
– Sales teams in all major regions
– Active programme of internal communication
– Engineering support close to customers
– Group wide training and compliance programmes
– Manufacturing footprint in Americas, Europe and Asia
– “Voice of Customer” elevated
– Uniform processes and quality standards
– Structured programmes to identify and develop talent
Effect
• Ability to support customers worldwide
– Operational excellence programme established
– Cross functional global teams in place
• Recognised as a global partner by major customers
• New wins with international and domestic customers in
all major regions
• Developing lower cost centres of excellence in Mexico, India,
China and Romania
Effect
• Reputation for integrity and strong ethical approach
• Greater customer intimacy and stronger relationships
• Engaged employees with opportunities for development
• Efficiency improvements
•
Increased pace of execution
TT electronics plc 11
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Directors’ report – Our plan for growth
Our strategy in action
Focus
We are focused on developing strong partnerships with leading manufacturers in
markets with good long-term growth dynamics. Through our key account programme
we work closely with major companies that value our ability to support them as they
develop new products. We align our resources with these customers where our
engineering expertise and global footprint enable us to create a differentiated value
proposition, providing the basis for the development of long-term relationships that
benefit both parties.
Volkswagen AG
The Volkswagen Group is one of the world’s leading automobile
manufacturers and the largest car maker in Europe. It sells its vehicles in 153
countries and operates 62 production plants. Revenue in 2011 was €159 billion.
We have worked in partnership with VW since the early 1980s. In 2010 TT
implemented a global management structure and committed to further
developing its worldwide manufacturing and support capabilities to align
itself with its major customers. This was recognised by VW and TT is
now a key technology partner working closely with their design engineers
and manufacturing plants globally.
“ As a key strategic supplier partner we are working closely with TT on a number
of sensors for our latest global engine platform that will be manufactured in
Germany, China and Mexico. TT’s ability and commitment to support us in these
regions, together with their engineering experience and their willingness to
invest in our relationship, makes them an ideal partner for us. They have been
awarded a significant number of speed and temperature sensor applications
on the new engine platform and we are actively looking at additional
opportunities together.”
Dr. Michael Kilger, Director R&D Components Powertrain Electronics, Audi
12 TT electronics plc
Annual Report 2011
Aero Engine Controls
Aero Engine Controls (AEC) is a joint venture between Rolls-Royce plc and
Goodrich Corporation, two leading aerospace manufacturers, that provides
engine control systems and engine intelligence to the aerospace industry.
Since the formation of the joint venture, we have been working closely
with AEC developing critical products that are able to operate reliably in
the harsh environments found in aircraft engines. Our Components division
supplies a range of microcircuits and resistors for AEC’s engine control
systems which improve fuel efficiency. These technologies are in use on
today’s most advanced aircraft including the Boeing 787 and Airbus A350.
“ We really value the aerospace expertise and technology that TT provides
for our engine control systems. In these critical applications, where failure
is not an option, we need suppliers who are able to provide the right
technical solutions to enable us to meet the stringent demands of
our customers.”
Annette Rothwell, Vice President Supply Chain, Aero Engine Controls
Meggitt PLC
Meggitt PLC is a global engineering group specialising in extreme
environment components and smart sub-systems for the aerospace,
defence and energy markets. Revenue in 2010 was £1.2 billion.
Following a competitive tender process, the IMS division was selected as a
preferred supplier partner. This success was based on our track record of
providing global manufacturing and supply chain services from our facilities
in the US, Europe and Asia with uniform process and quality co-ordinated
through a single point of contact for the customer.
“ TT electronics’ commitment to excellence in manufacturing and supply
chain performance for leading aerospace and defence organisations
is enabling Meggitt to better satisfy the challenging requirements
of our marketplace. We value the IMS division’s global footprint and
investment in new technologies as these are in step with our own plans
for organic growth in established and emerging markets. A high level
of responsiveness through strong lines of communication is proving
to be a hallmark of TT electronics’ approach to customer relationships.”
Martin Calland, Group Head of Procurement, Meggitt PLC
Drivers
Strategy
Execution
KPIs
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TT electronics plc 13
Annual Report 2011
Directors’ report – Our plan for growth
Our strategy in action
Innovation
Our ability to innovate enables
us to create competitive
advantage, gain market
share and deliver higher
financial returns. Our
engineering development
teams are often the best in
their field in terms of their
knowledge and experience
of our core technologies.
They support our applications
engineers who work closely
with the customer to turn
our ideas and technology
into differentiated solutions.
Americas
Core technology platform
is being customised and
packaged to be a high
performance sensor that
will improve reliability,
safety and reduce emissions
in the truck, bus and
agricultural markets.
Typical sensor value stream
Global design centres of excellence
develop core technology platforms
which are then customised for
specific applications and regions.
Example shown is a chassis height
sensor used to control the height
and enhance the handling of the
vehicle to improve safety and meet
legislative requirements.
Sensing element with
application-specific
integrated circuit
14 TT electronics plc
Annual Report 2011
Core technology platform
Drivers
Strategy
Execution
KPIs
China
Core technology platform
used in a high performance
sensor that reduces
emissions and improves
performance in the volume
small car sector.
India
Core technology platform
used in a high performance
sensor that improves
reliability, safety and
performance in the local
two wheeler market.
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Germany
R&D centre of excellence
designed a core technology
platform for speed and position
sensing that is then customised
and packaged by local teams
for specific applications.
Germany
Core technology platform
used in a high performance
sensor that is at the heart
of performance engines
for the luxury car market.
Core technology platform
Final packaged product for
local market and application
Interface and control
software
Environmental package for
harsh environments (for
example -40°C to + 130°C)
Application specific
packaging and interface
electronics
TT electronics plc 15
Annual Report 2011
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Directors’ report – Our plan for growth
Our strategy in action
Globalisation
Delivering value
worldwide
TT is well positioned globally
with sales, engineering and
manufacturing in all major
regions. Key account managers
align these resources to
support major customers.
Schneider
Schneider is a global specialist
in energy management, with
solutions for power and control,
energy efficiency, automation
and renewable energy. Having
been identified as a key account
in 2009, Schneider nominated
TT electronics as a key supplier
in early 2010. We now work
with their design centres
worldwide and visit multiple
sites each week to work on new
opportunities. We ship products
to many locations supporting
their manufacturing organisation,
creating a strong partnership that
drives value for both businesses.
16 TT electronics plc
Annual Report 2011
USA
Product is shipped to Schneider and their
fulfilment partners worldwide, with local
teams ensuring continuity in the supply chain.
France
TT’s key account
managers work closely
with Schneider’s global
procurement team
headquartered in
Grenoble, France.
India
China
Field applications engineers work closely
with Schneider’s design centres in China,
India, France and America designing high
performance electronic components that
meet demanding requirements.
Our global reach
Drivers
Strategy
Execution
KPIs
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The Americas
Headcount
Percentage of Group revenue
Europe, Middle East and Africa
Headcount
Percentage of Group revenue
Asia
Headcount
Percentage of Group revenue
2,432
27%
2,474
61%
1,309
12%
TT electronics plc 17
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Directors’ report – Our plan for growth
Our strategy in action
Culture
Our values define who we are and how we do business, creating a consistent set of
standards and behaviours throughout the Group. This is increasingly important in
an environment that requires our employees to operate across broad geographies
in a less hierarchical structure, responding rapidly to opportunities as they arise.
Our values
Customer
driven
Integrity
Passion for
excellence
We are in business to
deliver value to our
customers. Everything we
do is geared to providing
world-class products
and the best possible
customer experience.
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.
We stretch ourselves
to make the difference
and look for continuous
improvements by
constantly challenging
the status quo.
18 TT electronics plc
Annual Report 2011
Drivers
Strategy
Execution
KPIs
People
focused
Innovative,
problem solving
Teamwork
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.
We pride ourselves on
our ability to solve our
customers’ problems,
focusing on delivering
innovative solutions in
a timely manner.
Teamwork underpins our
business. We encourage a
teamworking environment,
constantly challenging
each other whilst
maintaining mutual
respect and a clear focus
on the achievement of
common goals.
TT electronics plc 19
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Directors’ report – Our plan for growth
Execution
Our priorities reflect our strategy and are designed to strengthen the Group.
These priorities translate the strategy into deliverable plans within each division.
Targeting higher
growth markets
All of our internal resources are focused on markets
with good long-term growth drivers. Product
roadmaps are in place to ensure we develop the
right technologies. Our sales teams have clear
objectives to serve our customers, supported
by manufacturing and customer service.
Increasing customer
intimacy
We aim to build long-term relationships with
our customers. We undertake regular business
reviews with our major customers and constantly
monitor our quality, responsiveness and on time
delivery performance. We are investing in the key
account programme and training for our sales
and applications engineering teams. In addition,
we continue to upgrade our IT systems to make
it easier for our customers to do business with us.
International
expansion
We are investing in our capabilities in emerging
markets with projects underway to expand our
campus facility in China, increase our capabilities
in Mexico (where the Sensors division will begin
manufacturing in late 2012) and further develop
our position in India. Going forward, we expect the
pace of investment in these regions to continue.
Differentiation
through innovation
We are committed to developing new products
and technologies. We have clear development
plans for 2012. These are aligned to our customers’
technology roadmaps due to our focus on
specific markets and our significant investment
in product management.
20 TT electronics plc
Annual Report 2011
Investment
in people
Our people are key to our success. We invest
in training and development and ensure that
talented individuals are recognised and provided
with opportunities to progress within the Group.
We recently commenced the roll-out of a global
management development programme aimed
at 400 managers, in addition to providing courses
focused on specific functions including sales and
procurement. We will continue to supplement
our own talent with key hires where necessary.
Acquisitions
We will look to acquire technologies and
businesses that have a good fit with our strategy.
These businesses will be technology leaders
serving our target markets, will ideally accelerate
our geographic growth, particularly in Asia and
Latin America, and will share our culture and values.
Drivers
Strategy
Execution
KPIs
Total business
excellence
We continue to standardise processes, sharing
expertise and best practice across the Group.
Lean manufacturing, continuous improvement
initiatives and the development of lower cost
manufacturing facilities in Mexico, Romania,
India and China are delivering sustainable
improvements in cost, quality and on time delivery.
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Directors’ report – Our plan for growth
Key performance indicators
We use a number of financial and non-financial key performance indicators (KPIs),
set in 2009, to measure our performance
Financial KPIs¹
Organic revenue
growth
Earnings per share
(EPS) growth
Operating cash
conversion
Relative total shareholder
return (TSR)
2011
2010
2009
7.2%
23.5%
-24.3%
2011
2010
2009
13.3p
9.0p
-1.2p
2011
2010
2009
106%
169%
1,040%
2011
2010
2009
3rd Quartile
1st Quartile
2nd Quartile
TARGET – EACH yEAR, TO 2014
Mid to high
single digits
TARGET
Year on year growth
of 3% in excess of RPI
TARGET – EACH yEAR, TO 2012
100%
Definition
Organic revenue growth measures
the change in revenue in the
current year compared with the
prior year from continuing Group
operations. The effects 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 strong sales in many
key markets.
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 62.
Performance
There was a significant
improvement in EPS during the
year, delivering growth of 48 per
cent, well ahead of the target.
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 2011 due to the delivery
of operational efficiencies
and active management of
the Group’s working capital.
TARGET
Above median performance
against the FTSE Small Cap
(excluding investment trusts)
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 62.
Performance
The Group’s TSR for 2011 was
-11.3 per cent compared to the
median of the comparator group
of -11.2 per cent. TSR for 2010 and
2011 combined would place the
Group in the first quartile.
¹All comparative data is as previously published in the 2009 and 2010 Annual Reports.
22 TT electronics plc
Annual Report 2011
Drivers
Strategy
Execution
KPIs
Financial KPIs
Operating profit
margin
2011
2010
2009
TARGET – IN MEDIUM TERM
Group
8–10%
Non-financial KPIs
Safety
performance
Employee
engagement
5.8%
4.5%
1.4%
2011
2010
2009
TARGET – IN MEDIUM TERM
Components
10%
6.1%
4.6%
3.1%
2011
2010
5.1
8.5
2011
2010
4.31
4.28
TARGET – IN MEDIUM TERM
TARGET – IN MEDIUM TERM
Lower than UK
manufacturing
benchmark, 2011: 5.3
Achieve UK mid-
size manufacturing
benchmark, 2011: 4.67
2011
2010
2009
5.3%
2.7%
-3.7%
2011
2010
2009
TARGET – IN LONGER TERM
Sensors
10%
TARGET – IN MEDIUM TERM
IMS
6–8%
6.7%
7.3%
8.1%
2011
2010
2009
TARGET – IN SHORT TERM
Secure Power
10%
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.
5.1%
4.7%
3.2%
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.
Performance
We are committed to targeting
zero occupational injuries.
The injury rate improved in
2011 and was better than the
UK manufacturing benchmark.
Training and communities
Understanding our current
capabilities and future requirements
and identifying talent within the
Group is essential to sustaining
our growth. We made significant
improvements to our talent
management and succession
planning process throughout 2011.
It has been designed to promote
from within through career
development, building on
potential talent across all divisions
and geographies. In 2011, we
continued to support our future
leaders through individually tailored
Definition
We use our employee survey to
measure how our employees feel
about working in TT using a scale
of 1 (low) to 7 (high) against eight
factors. We benchmark the results
against mid-size UK manufacturing
companies as surveyed by Best
Companies Ltd.
Performance
The response rate from this year’s
survey was a creditable 65 per cent,
compared to an industry
benchmark of 50 per cent.
The results show an improvement
in our overall engagement score
against the backdrop of
considerable change in the business
during 2011. Whilst the score has
increased, with good progress in
areas of focus, it remains below the
benchmark. We will share the results
of the latest survey with our
employees and develop plans to
deliver further improvements.
mentoring and development plans
and maintained our graduate and
apprenticeship programmes at
selected sites. During 2012 we will
continue to encourage our people
to use the increasing range of
training programmes on offer.
The 2010 engagement survey
highlighted the need to increase
our engagement with the
communities in which we operate.
A wide range of activities took
place during the year as set out
on page 45.
TT electronics plc 23
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Progress
in 2011
In this section
25 How we are structured
26 Operating review
28 Components
31 Sensors
34
IMS
36 Secure Power
38 Financial review
41
44 Corporate responsibility
Principal risks and risk management process
24 TT electronics plc
Annual Report 2011
Directors’ report – Progress in 2011
How we are structured
The Group consists of four divisions. The Components, Sensors and IMS divisions
all provide electronic products and services to common target markets worldwide.
The Secure Power division provides standby power solutions, principally to
customers in Central and South America and the UK.
Components
Sensors
The division delivers innovative electronic solutions providing
increased functionality, efficiency and control, coupled with best
in class service and support worldwide. Products include fixed
and variable resistors, optoelectronics, power modules, control
circuitry, magnetics and interconnect solutions for customers in
the transportation, industrial, defence, aerospace, medical and
energy markets.
Provides sensing solutions for critical applications which require
high levels of expertise, precision and reliability, often operating in
extremely harsh environments. Products include speed, direction,
position, temperature and pressure sensor assemblies primarily
for customers in the transportation and industrial markets.
k Further detail: See page 28
Revenue
Operating profit
Proportion of
Group revenue
£242.7m
£14.8m
41%
IMS
The division draws on its design engineering capabilities,
flexibility and word-class facilities to provide high quality electronic
manufacturing support to customers in the premium industrial,
medical, defence and aerospace sectors. The business has a broad
capability from board assembly to full systems integration.
k Further detail: See page 31
41%
Revenue
Operating profit
Proportion of
Group revenue
£166.9m
£8.8m
28%
28%
Secure Power
Provides generating sets and uninterruptible power supplies to a
wide variety of global industries which require reliable consistent
power including the petrochemical, medical, utilities and financial
services sectors. The division is focused on supplying turnkey
solutions for major one-off projects and differentiated medium
to high power generating sets with a focus on quality, reliability
and service.
k Further detail: See page 34
Revenue
Operating profit
Proportion of
Group revenue
£100.0m
£5.1m
17%
k Further detail: See page 36
17%
Revenue
Operating profit
Proportion of
Group revenue
£81.7m
£5.5m
14%
14%
TT electronics plc 25
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Directors’ report – Progress in 2011
Operating review
Geraint Anderson Group Chief Executive
Shatish Dasani Group Finance Director
14 March 2012
14 March 2012
TT delivered a strong improvement in performance in 2011 with
a 37.3 per cent increase in operating profit before exceptional items
and ended the year in a net cash position.
Group overview
The Group is now more focused, following
completion of the sale of the General Industrial
businesses. As an electronics group we have
a clear vision to deliver performance critical
solutions by turning ideas and technology into
innovative products that our customers need.
As set out on pages 8 and 9, we are targeting
markets with strong fundamental growth
dynamics and where the pace of deployment
of electronics is being driven by increasing
demands in terms of performance and reliability.
In 2011 the Group performed strongly. Having
deployed our resources to ensure that we put
the customer at the heart of our business, it has
been encouraging to see this delivering tangible
results. We strengthened our relationships with
key customers and secured new business in target
markets. We have regular reviews with our major
customers and, whilst significant opportunity exists
for further improvement, we have seen positive
progress as illustrated by what our customers
say about us on pages 12 and 13. We added four
customers to our key account programme during
the year and aggregate revenue from our key
accounts as a group increased by more than
11 per cent. Three of the customers added to the
programme are based in Asia and we relocated
key members of our management team to China
during the year, reflecting the growth potential
of this region for the Group.
We have made good progress developing our
position in markets which we believe present the
greatest opportunity. Revenue from the medical
market increased by 35 per cent at constant
currency rates due to particularly strong growth
in this segment by the IMS division and we also
secured a number of new customers in the
Components division. The passenger car market
remained the largest segment for the Group
representing 35 per cent of revenue due to strong
demand from Daimler, BMW and VW and from
customers in emerging markets. We remain
committed to reducing this to below 30 per cent
of Group revenue in the medium term by growing
our business in other areas more rapidly. Revenue
from other transportation markets, including trucks,
buses and off-road vehicles grew by more than
37 per cent to approximately £47 million and
revenue from industrial markets increased by
9 per cent. Sales to the aerospace segment
increased by 43 per cent whilst sales to defence
markets decreased by 16 per cent. Revenue
from power generation decreased by 6 per cent
reflecting lower sales in the Secure Power division.
Sales to the telecom and computing markets
reduced by 27 per cent reflecting our strategic focus.
We continued to invest in our people,
strengthening the divisional management
teams and increasing training and development.
This included rolling out the first phase of a
global management development programme
(see page 21).
Revenue
2011
2010
+7.2%*
Operating profit**
2011
2010
+37.3%
Operating profit margin**
2011
2010
+130 bps
£591.3m
£555.5m
£34.2m
£24.9m
5.8%
4.5%
Capital employed***
2011
2010
-6.8%
£176.2m
£189.0m
Year end headcount
2011
2010
+1.7%
Operating cash flow**
2011
2010
+4.7%
6,236
6,130
£63.0m
£60.2m
* At constant exchange rates
** Before exceptional items
*** Capital employed represents net assets
less net cash/(debt)
26 TT electronics plc
Annual Report 2011
Group overview (continued)
Revenue
We continue to improve our international
operational footprint to increase profitability
and better support our global business. We are
developing regional lower cost manufacturing
centres of excellence and our new facility in
Romania is expected to begin production in the
second quarter of 2012. We are doubling the size
of our existing Components division facility in
Mexicali, Mexico, to accommodate production lines
that are being relocated from other sites, including
our facility in Boone, North Carolina, which will be
closed by the end of 2012. In addition, the Sensors
division is making significant investments to further
develop existing operations in India and China,
and a new manufacturing operation is being
established in Mexico to serve the North and
South American markets, with manufacturing
due to commence at the end of 2012.
We completed a review of our risk management
and internal audit processes which resulted in the
re-organisation of the risk and internal audit
function and the appointment of a Group Head
of Risk and Assurance to ensure that our risk
management process is robust, consistently
applied across the Group and aligned to the
strategy (see page 41 for further detail).
In July, we completed the disposal of AEI
Compounds Limited, the last remaining business
within the General Industrial division, comprising
those businesses identified in the Strategic Review
in 2009 as non-core and to be run for value. In total,
over the years, the Group received more than
£30 million net proceeds, considerably exceeding
the Board’s initial expectations.
Market environment
The broad market recovery seen during 2010
continued into 2011 and we experienced increased
demand in the majority of our markets in the first
half of the year. There was a sharp increase in orders
in certain markets immediately following
the Japanese earthquake. This particularly affected
our Components and IMS divisions which saw a
re-balancing in the latter part of the year as
customers reduced inventory and reacted to
increasing macroeconomic uncertainty, particularly
in Europe. Demand from customers in the
passenger car and transportation markets
remained robust throughout the year.
Revenue from continuing operations increased by
6.4 per cent to £591.3 million (2010: £555.5 million)
after including an adverse foreign exchange impact
of approximately £4.1 million. Excluding this foreign
exchange impact, the underlying growth in
revenue was 7.2 per cent, against our target of
mid to high single digit growth. Our electronics
businesses, comprising the Components, Sensors
and IMS divisions represented 86.2 per cent of sales
and grew by 4.9 per cent, 14.9 per cent and 9.7 per
cent respectively on an underlying basis. Revenue
in the Secure Power division fell by 2.3 per cent
on an underlying basis as a result of challenging
trading conditions in the Mexican and South
American markets in the first half of the year.
Operating profit
The strong overall revenue performance, new
business at improved margins and the impact of
our operational excellence programme resulted in
an operating profit from continuing operations
(before exceptional items) of £34.2 million, an
increase of 37.3 per cent compared to 2010. All
divisions delivered higher operating profit margins,
with the exception of Secure Power where margins
declined slightly. The overall Group operating profit
margin increased from 4.5 per cent to 5.8 per cent
and significant potential remains to increase
margins and achieve the target for the Group of
8 to 10 per cent as set out on page 23. The adverse
impact of foreign exchange variations on the
translation of operating profit was £0.7 million.
Group outlook
We are focused on providing critical technology
to markets with strong fundamental growth
dynamics where the deployment of complex
electronics is increasing. This will drive demand
for our solutions even if the macroeconomic
environment remains unpredictable. We are
investing to improve further the Group’s
competitive position for the medium and
longer term with a number of important projects
expected to begin to have a positive impact on
overall Group performance towards the end of
the year. As a result of this and a sharp increase
in orders in certain markets immediately following
the Japanese earthquake in the first half of last year,
we anticipate that performance in the current year
will be more weighted to the second half. The
good progress we are making provides confidence
that we will meet the performance targets set.
TT electronics plc 27
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Directors’ report – Progress in 2011
Components
“ With the new organisation in place I am excited about the
opportunities in 2012. We will continue improving performance
by completing a number of initiatives to optimise our operational
footprint. We will also begin to see the benefit of the actions we
have taken to accelerate the introduction of new products for our
target markets.”
Billal Hammoud Divisional Chief Executive – Components
Watch a video of Billal:
http://annualreports.
ttelectronics.com
The Components division is focused on
creating value by delivering innovative
electronic solutions with increased
functionality, efficiency and control, coupled
with best in class service and support
worldwide. With facilities in North America,
Europe and Asia, a sales presence in all major
markets and application engineers strategically
located around the world, the division is well
positioned to serve customers in all regions.
Strategy
The division targets markets with underlying
growth drivers (as set out on pages 8 and 9)
where it can create value based upon its
technology and engineering expertise. It works
closely with its customers, anticipating their needs,
turning ideas and technology into differentiated
solutions. It is focused on increasing the pace of
new product introduction through improvements
in product management and delivering wide
ranging operational improvements that make
it easier for customers to do business with the
division and contribute to increased profitability.
Progress
The division successfully completed the transition
to a business unit structure in 2011, creating
alignment around key products and technologies,
supported by global functions to drive best
practices. This new structure is a key enabler for
the efficient development of new products and
for optimising our manufacturing footprint
and supply chains.
The development of the product portfolio is a
critical focus. Recognising this, we appointed
a Vice President of Marketing (a newly created
position) in the third quarter of 2011, responsible
for ensuring that our product development plans
accurately align with our customers’ technology
roadmaps. In addition, working in conjunction with
the business unit and functional leaders, a new
product introduction programme has been
implemented that focuses on gathering inputs
from our customers to identify their current and
future needs. This process will be supplemented
in the first half of 2012 by the introduction of a
project portfolio management tool which will
provide a framework for effectively managing
and prioritising the portfolio of development
projects and the related spend. All of these actions
are designed to increase the value that we capture,
the pace of new product introduction and the
return on engineering investment, underpinning
improvements in revenue and profit in 2012
and beyond.
We are seeing continued benefits from the global
sales structure, the investments made in the sales
team in 2011 and the focus on growth markets.
Our opportunity pipeline doubled from December
2010 to December 2011, with a major proportion
of the growth generated through key account
activities, improved engagement with channel
partners and targeted marketing campaigns
linked to specific products and applications.
Several contracts were won with new customers
in China during the year and we doubled the
number of local sales and application engineering
resources. In 2012 we are implementing a new
campaign process to focus our sales resources
on high growth segments where we can offer
multiple products and create the greatest value
for our customers.
£242.7m
£234.6m
£14.8m
£10.7m
6.1%
4.6%
£119.7m
£128.3m
3,219
3,183
Revenue
2011
2010
+4.9%*
Operating profit**
2011
2010
+38.3%
Operating profit margin**
2011
2010
+150 bps
Capital employed
2011
2010
-6.7%
Year end headcount
2011
2010
+1.1%
* At constant exchange rates
** Before exceptional items
28 TT electronics plc
Annual Report 2011
Applying innovation
in space
TT electronics has significant experience supplying highly-
engineered electronic components to customers in the space
industry including Tesat-Spacecom, a subsidiary of EADS Astrium
NV. In 2011, our applications engineering teams worked closely
with Tesat-Spacecom’s design department in Backnang near
Stuttgart, Germany, to develop an improved RF power amplifier,
a key component in communications satellites. Our high
reliability hermetic packaging “know-how” and our experience
in semiconductor technologies enabled us to develop a radiation
tolerant product meeting rigorous European Space Agency
standards. It is designed to operate reliably for a programme
life of more than ten years in the harsh space environment.
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EUTELSAT 9B, EADS Astrium´s high-power broadcast satellite,
scheduled for launch end of 2014. © Astrium
TT electronics plc 29
Annual Report 2011
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Directors’ report – Progress in 2011
Components continued
Progress (continued)
Markets
The operations team delivered improvements in
efficiency, quality and on-time delivery through the
implementation of lean manufacturing principles,
six sigma and investments in infrastructure,
including in the area of enterprise resource
planning. As previously announced, we are
opening a new lower cost facility in Romania
to accommodate increasing customer demand.
The fit out programme is well underway and
manufacturing is expected to start in the second
quarter of 2012. In August we announced the
closure of our facility in Boone, North Carolina as
part of the Group’s strategy to align its footprint
with key customers and increase profitability.
We are doubling the size of our facility in Mexicali
to accommodate production lines that are being
relocated. The full year benefit of this project will
be realised from 2013 and is on target to be in the
region of £2.5 million per year.
The division’s principal competitors include Bourns,
Fairchild, Koa, Semikron and Vishay.
The broad market recovery in 2010 continued in
the first half of 2011. The earthquake in Japan led to
sharp increases in order patterns as our customers
sought to secure component supplies. Demand
softened in the latter part of 2011, reflecting a
rebalancing of inventory levels and uncertainty
caused by the economic crisis in Europe.
Performance
Underlying revenue for the year increased by
4.9 per cent to £246.1 million excluding an adverse
foreign exchange impact of 1.4 per cent. Operating
profits significantly increased by 38.3 per cent to
£14.8 million with the operating profit margin
increasing to 6.1 per cent (2010: 4.6 per cent).
Outlook
The continuing macroeconomic issues are creating
some uncertainty and we expect our distributors
to continue to reduce inventory levels in the first
half of the year. However, this is offset by the
strong fundamental growth drivers in our markets
underpinning an increased demand for electronic
components in the medium term. The investments
we are making in operational improvements, and
the increased pace of new product introductions,
will underpin further improvements in performance
and will begin to have a positive impact in the
second half of the year.
30 TT electronics plc
Annual Report 2011
Directors’ report – Progress in 2011
Sensors
“ We have strong drivers in our end markets resulting in an increase
in the use of sensors. In 2011 we strengthened our longstanding
relationships with VW, Daimler and BMW, three leading worldwide
automotive manufacturers. The globalisation of our business,
our ability to respond quickly to opportunities and the significant
business we have secured with leading customers in the automotive,
truck, off-highway and industrial segments is extremely exciting.”
Pat Murray Divisional Chief Executive – Sensors
Watch a video of Pat:
http://annualreports.
ttelectronics.com
The division provides sensing solutions for
critical applications which require high levels
of expertise, precision and reliability, often
operating in extremely harsh environments.
We are focused primarily on the transportation
and industrial markets where our ability to
meet these requirements helps our customers
to compete and win. The division’s principal
operations are in Germany, China and India
supported by additional engineering and
development teams in Eastern Europe and
the UK. A new manufacturing operation has
been established in Mexico to serve North
and South America.
Strategy
We provide sensors that form the heart of critical
systems which improve safety, performance and
emissions, helping our customers to be more
competitive and address increasing levels of
regulation and legislation. The division’s ability
to deliver high performance micro electronic
and mechanical solutions that work reliably first
time, every time, in extremely harsh environments
is a key differentiator. We are focused on sectors
which are growing, that value our expertise and
where the deployment of sensing technology
is increasing to address new challenges. Target
markets include transportation, industrial and
medical. We are building long-term strategic
partnerships with leading companies in each
of these markets whilst investing in the further
development of our geographic footprint to
support them in all major regions. The division is
embedding a culture of continuous improvement
and using total business excellence to ensure
common core processes and standards across
all of its operations.
Progress
We made good progress in 2011 securing sensor
projects on new vehicle platforms and increasing
our market share. In addition we benefited from
greater sensor content per vehicle. We achieved
strategic wins with BMW, Daimler and VW. These
included our nomination as a key sensor partner
for VW’s latest global engine platform that will
be manufactured in Germany, China and Mexico
(see page 12 for more detail) and major new
programmes with BMW for our innovative
combi-sensor (providing precision pressure and
temperature measurement in one smaller package).
We are responding quickly to global opportunities,
actively transferring sensor expertise developed
over many years in Germany and the UK to our
teams in China, India and Mexico. These teams
re-package our core technology, developing
customised solutions for the local market.
Growing our business in the Americas and Asia
remains a key strategy and we secured wins with
several of the leading Chinese manufacturers
during the year, including JAC, Chery and BYD
and continued to strengthen our relationship
with Hero, Mahindra and Tata in India. It is also
notable that a significant proportion of our
European revenues are linked to exports by
our customers to other regions, principally Asia.
Another key strategy for the division is to modify
our core automotive sensing technologies and
re-package them for the broader transportation
market (including truck, off-highway and rail)
and selective industrial and medical applications.
The investments we have made are beginning to
deliver results, particularly in the transportation
market where we increased revenue in 2011 to
c£26 million, representing growth of 90 per cent.
£166.9m
£143.5m
£8.8m
£3.9m
5.3%
2.7%
£47.6m
£52.5m
1,108
1,069
Revenue
2011
2010
+14.9%*
Operating profit**
2011
2010
+125.6%
Operating profit margin**
2011
2010
+260 bps
Capital employed
2011
2010
-9.3%
Year end headcount
2011
2010
+3.6%
* At constant exchange rates
** Before exceptional items
TT electronics plc 31
Annual Report 2011
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Directors’ report – Progress in 2011
Sensors continued
Progress (continued)
Markets
The global structure put in place in 2010 was
strengthened during the year. The division’s
Global Operations leader relocated from Germany
to China, along with the key account manager for
VW, reflecting the region’s importance, the need
to be close to our customers and our growing
global manufacturing presence. In addition we
have established a new manufacturing centre
in Mexico where we are on track to commence
production in 2012. We will continue to strengthen
the local and global management teams to enable
further growth.
Our manufacturing operations continue to improve
productivity, whilst ensuring consistent quality and
on-time delivery across all sites, which is critical for
our customers. We are implementing common
processes, equipment and systems in all of our
facilities so that we operate to one global standard.
As part of this programme, in 2011 we selected five
highly talented individuals to undergo black belt
training and become experts in six sigma and lean
techniques as we continue our drive for savings
and continuous improvement. These individuals,
along with the divisional leadership team, are
championing the culture change necessary for
us to be a best in class sensors business and
remain the first choice for our customers.
The division’s principal competitors include
divisions of Bosch, Continental, CTS and Hella.
The recovery in the automotive market seen in
2010 continued in 2011 with particularly strong
demand for premium passenger cars from
emerging markets. Despite more modest growth
in Western Europe and the US, our three largest
automotive customers all had record years as the
premium car market out-performed other sectors.
The truck and off-highway segments also showed
a good improvement in key regions.
Performance
The division has delivered an excellent
performance during 2011. Underlying revenue
for the year increased by 14.9 per cent, excluding
a foreign exchange benefit of 1.4 per cent,
and we grew sales in Europe, Asia and North
America. Operating profit more than doubled
to £8.8 million with the operating profit margin
increasing to 5.3 per cent.
Outlook
Following the growth in 2011, demand in Western
Europe for passenger cars is expected to reduce
in 2012. The US, China and India are forecast to
see good growth. We are very well positioned
to capture new business worldwide, both with
our major global customers who are growing
their market share and with local manufacturers.
In addition sensor deployment continues to
increase driven by emissions regulations and a
desire for greater safety, comfort and performance.
Building on our progress in 2011, we are continuing
to invest in our people and our global footprint as
we secure new programmes that will come into
volume production in 2013 and beyond.
32 TT electronics plc
Annual Report 2011
Implementing global
standards
With manufacturing facilities in Europe, Asia and North America,
the Sensors division delivers products to customers from multiple
locations. Business excellence and lean manufacturing are key
to ensuring consistent quality and on time delivery across all
sites - factors which are of critical importance to our customers.
In 2012 the division will begin to manufacture and ship products
to Daimler from its facility in China, supporting their global growth.
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TT electronics plc 33
Annual Report 2011
Directors’ report – Progress in 2011
IMS
Watch a video of John:
http://annualreports.
ttelectronics.com
“2011 was another strong year for the IMS division, building upon
the foundations we put in place during 2010. I am particularly
pleased that we have strengthened our position in key markets
by further developing our relationships with major customers
and with the step change in performance from our site in the UK.
Our progress in 2011 positions us to deliver further improvements
in performance in 2012.”
John Molloy Divisional Chief Executive – IMS
Margins improved as we brought on new business
and completed the transition of a number of
projects to lower cost manufacturing regions.
In addition, we saw a significant improvement
in the profitability of our operation in the UK
following the re-structuring completed in 2010.
The division’s principal competitors include ACW,
CTS, EPIC, Neways and Plexus.
Markets
Strong customer demand at the end of 2010
continued into 2011 in all of our markets. The
natural disasters in Japan and Thailand resulted
in an increase in demand in the second and third
quarters as customers placed orders to secure
supply for the rest of the year. Reflecting this,
demand stabilised in the final quarter with
customers looking to manage their year end
inventory positions.
Performance
Underlying revenue for the year grew by
9.7 per cent excluding a foreign exchange impact
of 1.2 per cent. Progress made with our global
customers underpinned this growth and led
to an improvement in operating profit before
exceptional items which increased to £5.1 million,
delivering an operating profit margin of
5.1 per cent.
Outlook
Following a strong year in 2011, we expect to
see limited growth in broader market demand
in the first half of 2012 due to the ongoing
macroeconomic issues. However, we are
focused on specific segments that have good
fundamental growth drivers and on further
developing our position with key customers.
Revenue
2011
2010
+9.7%*
Operating profit**
2011
2010
+24.4%
Operating profit margin**
2011
2010
+70 bps
Capital employed
2011
2010
+7.8%
Year end headcount
2011
2010
+5.9%
£100.0m
£92.2m
£5.1m
£4.1m
5.1%
4.4%
£23.5m
£21.8m
1,133
1,070
* At constant exchange rates
** Before exceptional items
All 2010 comparatives restated for
inclusion of Abtest Limited
The division draws on its design engineering
capabilities, flexibility and world-class
facilities to provide high quality electronic
manufacturing support 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
manufacturing operations in China, USA,
UK and Malaysia.
Strategy
The division’s 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. Our
global presence, combined with local engineering
and customer service is a key differentiator against
our regional competitors.
Progress
During the year our continued focus on key markets
and accounts, combined with investments in our
sales team, resulted in significant new contract
wins. In addition to increasing our revenue with
many of our major customers, we were particularly
pleased to secure a new global customer,
Meggitt PLC, bringing significant business for
all of our sites (see page 13 for further detail).
We successfully managed the supply chain
challenges that arose following the Japanese
tsunami and the flooding in Thailand. Our
procurement teams worked hard with our
suppliers, quickly securing the parts required to
maintain supply to our customers. Based on our
responsiveness and performance, a number of
customers have awarded us additional business.
Quality remains a key focus and, in June, our facility
in China obtained the NADCAP standard which is
widely recognised as the leading quality standard
in the aerospace industry. This accreditation is now
being replicated at our other sites.
34 TT electronics plc
Annual Report 2011
Supporting our
customer’s growth
When a major US instrumentation company wanted to
manufacture product in China for the medical market, they
decided to build on a trusted and established relationship. The
IMS division was already supporting them in the UK and because
of its global footprint was the natural partner. Working closely
with the customer, the division developed a local supply chain
for components, re-engineered certain elements of the design
to reduce cost and invested in additional capabilities. As a result,
TT was awarded significant business and is positioned to support
the customer globally on additional new projects in 2012.
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TT electronics plc 35
Annual Report 2011
Delivering market leading
secure power solutions
The new “Secure Power Series” product range was developed
specifically for the rental and urgent power markets providing
higher power in a limited footprint, combined with reduced noise
and emissions. The product delivered strong sales in 2011 and
generated significant interest at the recent Middle East Electricity
show in Dubai.
36 TT electronics plc
Annual Report 2011
Directors’ report – Progress in 2011
Secure Power
“ Following a difficult first six months in Mexico and Latin America
we finished the year strongly with a good order book for 2012.
New products introduced in 2011 and our increasing presence in
key export markets provide a strong platform as we go into 2012.”
Watch a video of Nigel:
http://annualreports.
ttelectronics.com
Nigel Brice Divisional Chief Executive – Secure Power
The division provides secure power solutions
including generating sets, uninterruptible
power supplies and service and support to
a wide variety of global industries which
require reliable consistent power. Utilising
its engineering capability, the division offers
bespoke turnkey solutions for major one-off
projects and differentiated medium to high
power generating sets with a focus on quality,
reliability and service.
The division has two principal operations:
Ottomotores in Mexico and Dale Power
Solutions in the UK. In addition, it has a
facility in Brazil and sales and service
offices in Scotland and the UAE.
the launch of the new containerised Secure
Power Series product range in late 2010, winning
a number of major orders in the UK and Middle
East. This is a portable product designed primarily
for the growing rental market where the ability
to deliver higher power in a limited footprint,
combined with reduced noise and emissions,
is critical. Additionally, further investment was
made in developing export sales channels and
there was a significant increase in the number of
orders received for the commercial UPS product
range first introduced in 2010.
The division’s principal competitors include
Broadcrown, Caterpillar (including FG Wilson),
Chloride and IGSA.
Strategy
Markets
The division is focused on providing secure power
solutions to industries which face significant
economic loss from any disruption in their power
supply including the petrochemical, utilities and
financial services sectors. The business is expanding
in Latin America and the Middle East through
investment in the sales organisation and the
development of new distributor relationships to
take advantage of increasing requirements for
standby and continuous power. In addition, the
division is continuing to improve its product range
with a specific emphasis on solutions targeting the
growing number of rental providers and higher
power opportunities.
Progress
Ottomotores made solid progress during 2011.
A new mid power canopied range of generating
sets was introduced with a number of orders
secured, including two for customers in Kuwait
and Brazil each worth c£1 million. In addition,
a major project was delivered in Venezuela for
a “mini power plant”, reflecting a trend towards
utilities and industrial plant developers using
banks of mid to high power gensets to deliver
large amounts of power in place of supply from
the grid. The business strengthened its distributor
and dealer network in Venezuela, Guatemala,
Ecuador and Chile and made good progress
in Brazil where we commenced local product
assembly. Dale saw significant success following
The Latin American markets, including Mexico,
were difficult in the first half of the year with
many customers delaying major capital projects.
However, we experienced a significant improvement
in demand in the second half with a very strong
final quarter in terms of both orders and sales.
Markets in the UK and Middle East performed well.
Performance
Following a 44.2 per cent increase in full year
revenue in 2010, underlying revenue for 2011
reduced by 2.3 per cent to £83.2 million excluding
an adverse foreign exchange impact of 1.8 per cent.
Operating profits reduced broadly in line with
revenue to £5.5 million, delivering an operating
profit margin of 6.7 per cent.
Outlook
We anticipate good levels of demand from key
export markets in Latin America, the Middle East
and North Africa whilst the UK and Europe are
expected to continue to be impacted by ongoing
uncertainty in the eurozone. The division normally
experiences some seasonality in demand with a
stronger second half year and we expect this to be
the case in the current year. Investments in sales
channels, the extension of the product range and
the success of the Secure Power Series position
the division well for 2012.
£81.7m
£85.2m
£5.5m
£6.2m
6.7%
7.3%
£22.0m
£15.1m
730
757
Revenue
2011
2010
-2.3%*
Operating profit
2011
2010
-11.3%
Operating profit margin
2011
2010
-60 bps
Capital employed
2011
2010
+45.7%
Year end headcount
2011
2010
-3.6%
* At constant exchange rates
TT electronics plc 37
Annual Report 2011
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Directors’ report – Progress in 2011
Financial review
Measuring our performance
The Group has a clear strategy to improve
performance and deliver shareholder value.
Key financial performance indicators were
identified in the 2009 Annual Report and these
are used to monitor progress. Organic revenue
growth from continuing operations for 2011
compared to 2010 was 7.2 per cent against the
overall target of mid to high single digit growth.
The improvement in the Group operating margin
to 5.8 per cent represents progress towards
the goal of 8 to 10 per cent. The Components,
Sensors and IMS divisions all made excellent
progress towards their respective operating margin
targets, while the operating profit margin in the
Secure Power division declined slightly in the year.
We remain on course to achieve the overall target
margin for the Group of 8 per cent as we exit 2013.
Both earnings per share growth and operating
cash flow conversion exceeded the targets set
whilst the relative total shareholder return was
broadly in line with the target level.
Revenue from continuing operations increased
by 7.2 per cent to £595.4 million in 2011 at constant
exchange rates, and operating profit before
exceptional items increased to £34.2 million. Profit
before tax and exceptional items was £29.5 million,
an increase of 43.2 per cent compared to 2010.
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. An exceptional credit of £2.3 million from
continuing operations has been recognised during
2011, compared with an exceptional credit of
£4.5 million for 2010. The make up is shown below:
£million
2011
2010
Reduction in UK pension liabilities
Restructuring costs
Pension curtailment gain from
scheme closure
Profit on sale of property interest
Onerous property leases
Total
7.5
(5.2)
–
–
–
2.3
–
–
4.3
1.0
(0.8)
4.5
Following the UK Government’s announcement
in 2010 to change the basis of indexation of
occupational pension schemes from the Retail
Price Index (RPI) to the Consumer Price Index (CPI),
the Group has recognised a one-off reduction in
the future liabilities of the UK pension scheme
of £7.5 million. Restructuring costs principally
include the costs associated with the closure of
the Components facility in Boone, North Carolina.
Net finance costs
Net finance costs for 2011 were £4.7 million
compared to £4.3 million in 2010. Included within
this amount is £1.0 million in respect of the net
interest expense arising on pension scheme
liabilities (2010: £0.5 million) primarily due to a
reduction in the discount rate, £0.6 million
(2010: £0.6 million) in respect of the amortisation
of loan arrangement fees associated with the
re-financing undertaken in May 2010 and
£0.7 million (2010: £0.4 million) in respect of
the interest expense on a minority put/call
option relating to a third party minority interest
in one of the Group’s subsidiaries.
Taxation
The tax charge for the year was £7.3 million
(2010: £6.7 million), which represents an effective
tax rate of 30.2 per cent on continuing operations
excluding exceptional items (2010: 32.4 per cent).
The charge arises from the profits generated in
overseas countries, in particular in USA, Mexico,
China and India. There is a minimal level of tax
payable in the UK and Germany due to the
availability of tax losses.
Earnings per share and dividends
Headline earnings per share from continuing
operations were 13.3 pence which represents
an increase of 47.8 per cent over the 2010 figure.
Basic earnings per share from continuing
operations were 15.8 pence (2010: 11.9 pence).
The Directors recommend a final dividend of
3.2 pence which together with the interim
dividend of 1.2 pence gives a total dividend for
the year of 4.4 pence per share (2010: 2.8 pence),
an increase of 57 per cent. This is in line with the
Group’s policy of increasing dividends progressively
whilst maintaining cover of at least two times
underlying earnings per share. The final dividend
will be paid on 8 June 2012 to shareholders on the
register at 25 May 2012.
38 TT electronics plc
Annual Report 2011
Discontinued operations
Cash flow, borrowings and facilities
In July 2011, the Group disposed of AEI Compounds
Limited, the last business remaining within the
former General Industrial division, for £8.6 million in
cash before costs. This business has been classified
as a discontinued operation in the Consolidated
income statement. Discontinued operations for
2010 comprised AEI Compounds Limited and the
other General Industrial businesses which were
sold during that year.
Pensions
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 the
UK and USA schemes were closed to future
accrual during 2010.
The assets and liabilities of the Group’s defined
benefit schemes are summarised below:
£million
2011
2010
Fair value of assets
Liabilities
Deficit – UK scheme
Overseas schemes
Total Group deficit
373.4
(405.5)
(32.1)
(3.4)
(35.5)
333.9
(372.5)
(38.6)
(2.6)
(41.2)
As noted above, during 2011 there was a one-off
reduction in the future liabilities of the UK scheme
of £7.5 million arising from the UK Government’s
change to using CPI rather than RPI.
The triennial valuation of the UK scheme as at
April 2010 showed a deficit of £39.8 million.
A funding agreement is in place with the Trustee
fixing deficit contributions at £3.5 million in
2011 and increasing by £0.2 million each year to
£4.5 million in 2016. In addition, the Company has
agreed to set aside £1.0 million per year for the
next three years to be utilised in agreement with
the Trustee for reducing the long-term liabilities
of the scheme.
Excellent progress has been made in reducing
net debt levels. The Group moved into a net
cash position of £15.2 million at the end of 2011,
compared with a net debt balance of £9.9 million
at the end of 2010, and £113.2 million at the end
of 2008.
£million (unless otherwise stated)
Underlying operating cash flow
Working capital improvement
Capital expenditure
(including software)
Exceptional restructuring costs
Proceeds from disposal
of businesses
Net cash/(debt)
Stock turns (times)
Debtor days
Creditor days
2011
63.0
5.4
2010
60.2
5.0
(21.6)
(2.2)
(12.2)
(5.0)
8.3
15.2
5.7
42
53
21.7
(9.9)
5.7
44
55
Underlying operating cash flow for the year was
£63.0 million compared with £60.2 million in 2010.
This increase was as a result of the improvement in
profitability and the continued focus on managing
working capital, which reduced by a further
£5.4 million in 2011, following reductions made
in the prior two years. The divisions successfully
managed the impact of the increase in inventory
levels following the Japanese earthquake and the
Thailand floods, and the adverse working capital
cash flow impact at the half year was reversed by
year end. As a percentage of sales, trade working
capital was a healthy 16 per cent compared with
17 per cent at December 2010 demonstrating our
commitment to managing working capital levels.
Conversion of operating profit to operating cash
flow after capital expenditure was 106 per cent,
exceeding the target of 100 per cent conversion.
There was an increase in cash generated from
operations of 10.2 per cent to £57.3 million after
exceptional restructuring cash costs of £2.2 million
and a £3.5 million special payment to the UK
pension fund.
TT electronics plc 39
Annual Report 2011
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Directors’ report – Progress in 2011
Financial review continued
Cash flow, borrowings and facilities (continued)
Capital expenditure (including software) increased
to £21.6 million compared with depreciation of
£16.9 million as divisions increased investment
levels. Proceeds from the sale of AEI Compounds
Limited and the receipt of deferred consideration
from previous disposals amounted to £8.3 million.
Net cash flow for the year was £25.8 million
(2010: £46.6 million).
The Group has in place a committed facility of
£60 million 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 2011, the term loan
was fully drawn down and the revolving credit
facility was undrawn. During the year a £10 million
loan from one of the club banks was repaid. The
club facility, together with other bilateral term loans
and working capital lines, give the Group facilities
of over £100 million, which are adequate for the
foreseeable future.
The main financial covenants in the £60 million
club facility restrict net debt to be below two
times EBITDA before exceptional items. In addition,
EBITDA before exceptional items is required
to cover net finance charges by 6.25 times,
increasing to 6.5 times in the final year of the facility.
The covenants are tested quarterly on a rolling
12-month basis and were satisfied comfortably
at 31 December 2011:
Covenant
December
20111
Net debt/EBITDA before
exceptional items
EBITDA before exceptional items/
net finance charges
<2.0
(0.3)
>6.25
16.0
1 based on EBITDA and net finance charges for year ended
31 December 2011
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.
40 TT electronics plc
Annual Report 2011
Directors’ report – Progress in 2011
Principal risks and risk management process
As a multinational business, operating in diverse industrial markets
and jurisdictions, the Group is exposed to a number of potential risks
which may have a material effect on its reputation and financial or
operational performance. The Board has overall responsibility for risk
management and internal controls, supported by the Risk Committee
and the Audit Committee.
The Risk Committee, chaired by the Group Chief Executive, holds
regular meetings to review risks and assess and monitor actions
to mitigate them. This provides a framework for managing risk
throughout the Group. Risk identification and evaluation, including
the nature, likelihood and materiality of the risks affecting each Group
business, is owned and assessed by management and reviewed
periodically. On the basis of these assessments, 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 Group Risk Map,
are circulated to the Board and to the Audit Committee.
It should be recognised that risk management and internal controls
can only provide reasonable and not absolute protection against risk,
material misstatement or loss.
KPMG Audit Plc were engaged to undertake a comprehensive
assessment of the Group’s risk management processes and internal
audit function during 2011. The processes and structure were
reviewed in order to identify areas for improvement which would
build on the progress made over recent years. This was achieved
by means of a desktop review of risk management and internal
audit documentation; structured interviews with key stakeholders;
assessment of where risk management and internal audit is
positioned against stakeholders’ expectations and review against
KPMG’s knowledge base of leading practices. The results of
these assessments were then benchmarked against KPMG’s
Risk Management Maturity Framework, leading practices and
standards set by the Institute of Internal Audit.
The Group’s risk management processes were assessed as being at
a level of maturity typical of many FTSE 250 companies. Key strengths
identified included a strong “tone at the top” and an active Group
level Risk Committee. However areas for improvement at divisional
and site level were also highlighted. In order to reach a more mature
state, changes to the Group’s risk management organisational
structure and the formalisation of risk management processes,
including roles and responsibilities were recommended.
Opportunities for improvements in the effectiveness of the
Group’s internal audit department were also identified and KPMG’s
recommendation was that a review of the structure, approach and
reporting lines of the internal audit department be undertaken.
In light of these recommendations and following a review of the
risk management processes and internal audit function, recruitment
began for a new combined role of Group Head of Risk and Assurance,
reporting to the Group Chief Executive. The new appointee, Per-Olof
Ahlstrom, joined the Group in January 2012 and has been appointed
to the Operating Board and the Risk Committee, with responsibility
for developing risk and compliance frameworks, developing risk
detection, assessment and mitigation strategies, and working closely
with the businesses to ensure that risk management is fully
embedded across the Group.
Further details of the Group’s system of internal controls are contained
in the Directors’ report on corporate governance on pages 51 to 56.
Additional risk mitigation and related initiatives undertaken during
2011 included the implementation of a Group-wide training and
compliance programme, training seminars conducted within each
division, the risk assessment of suppliers and business partners, the
introduction of revised ethics and compliance policies and a new,
multi-lingual, anonymous whistleblowing procedure maintained
by an external third party provider. In addition, specific legal and
product liability risk training for key members of staff involved in
providing sensors and components to the automotive industry was
carried out in conjunction with Allianz, the Group’s product liability
insurer, at its technical centre in Munich.
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TT electronics plc 41
Annual Report 2011
Directors’ report – Progress in 2011
Principal risks and risk management process continued
The Risk Committee reviews risks and assesses and monitors actions to mitigate them.
The risks outlined below are those the Group believes are the principal and material
risks. The risks are listed in priority order within each area of risk based upon their
current relevance to our business. It should be noted that additional risks the Group
does not consider material, or of which it is not aware, could have an adverse impact.
Area of risk
Potential impact
Mitigation
Markets and customers
Economic downturn
General economic downturn leading to reduction
in customer demand and production volumes.
• Forward-looking indicators are regularly reviewed
to identify deteriorating market conditions.
Erosion of customer base
The Group operates in a highly competitive global
market and could face a significant erosion of its
existing customer base as a result of competition,
customer relocation or a reduction in end user demand.
Operations
Product warranty
The Group manufactures products that often operate
in extreme environments where a serious incident
arising from failure could result in liabilities for personal
injury and damage to reputation, particularly in the
automotive sector which represented 35 per cent
of Group revenue in 2011.
IT delivery
The Group and operational management depend on
timely and reliable information from software systems.
A large SAP implementation across the Group is in
progress. A major failure in the delivery of the SAP or
other IT projects on time and on budget could delay
or impact decision making or service to our customers.
• Management structures are in place to enable
a rapid response to changing circumstances.
• The composition of the customer base is reviewed
as part of the annual strategic planning process.
Plans are established and monitored to diversify it.
• The key account management programme
ensures that major customers are dealt within a
co-ordinated manner globally. Regular reviews are
held with them to assess performance and identify
areas for improvement.
• Regular feedback from customers is used to drive
improvements in performance.
•
Improvements in product development roadmaps
ensure that the Group retains and increases its
competitive advantage.
• Comprehensive quality control procedures and
rigorous product testing are backed up by an
appropriate level of insurance.
• Processes are in place to audit key suppliers
and monitor the quality of materials received.
• Major contracts are reviewed by the Group General
Counsel and we work continuously to build and
maintain relationships with all key stakeholders.
• Group guidelines on acceptable levels of contractual
liability are reinforced by legal risk training seminars,
specific to each division’s business needs.
• The Group’s IT Steering Committee meets on
a monthly basis to review the SAP implementation
and all other major IT projects.
• The Committee is chaired by the Group Chief
Executive and members include the Group Finance
Director, Group Business Development Director,
the Group IT Director and certain Divisional
Chief Executives.
• The Group only sources hardware and software
from reputable manufacturers and suppliers and
has appropriate disaster recovery plans in place.
42 TT electronics plc
Annual Report 2011
Area of risk
Potential impact
Mitigation
Operations (continued)
Transformation programme
The Group is going through a transformational
programme to improve competitive advantage and
be more responsive to customers’ requirements. This is
being achieved by consolidating manufacturing sites,
implementing common IT solutions and streamlining
processes. For example, the Group is closing a site
in Boone, North Carolina, transferring business and
product lines to Mexicali, Mexico. Risks associated with
such large scale transformation include disruption to
the customer base, anticipated benefits not being
realised and the loss of key individuals.
• Strong change management and operational
controls with professional project managers
recruited to oversee major programmes.
• Regular project reviews by the senior
management team.
• Close communication with key customers to
explain the actions being taken and to understand
and address their concerns.
• Regular talent and performance reviews, supported
by monitoring and communication with employees.
Business interruption
Inability to fulfil customer orders resulting in lost sales
and reputational damage with a consequential impact
on revenue and profit.
• The spread of businesses offers good protection
from individual events.
• Robust business continuity plans are tested
periodically to manage the risk of the loss of
a major facility.
Supply chain costs
Reliance on suppliers for key commodities, materials
and components, some of which may be available from
a limited number of sources. There is a risk of substantial
increases in supplier costs driven by commodity pricing.
• The Group purchasing team co-ordinates activities
across the Components, Sensors and IMS divisions
through the Group Purchasing Steering Committee
which meets monthly.
Acquisitions
The Group may pursue acquisitions as part of its overall
growth strategy. Such acquisitions may not realise
expected benefits.
• Key material pricing trends are tracked to ensure
increases are passed on to customers where possible.
• An active programme to improve low cost sourcing.
• Use of commodity price hedging, taking into
account the forecast volume of purchases, forward
commodity prices and the cost of taking out cover.
• Performing robust due diligence.
• Obtaining representation, warranties and indemnities
from vendors where possible.
•
Implementing business integration processes.
Laws and regulations
Compliance
Finance
Financial risks
The Group operates in a large number of jurisdictions
and, as a consequence, is subject to numerous
domestic and international regulations. These
include laws and regulations covering export control,
anti-bribery and competition. Failure to comply could
result in civil or criminal liabilities leading to significant
fines and penalties or restrictions being placed upon
the Group’s ability to trade resulting in reduced sales
and profitability, and reputational damage.
• Robust policy and control framework in place.
• Cross-division export compliance group formed,
led by the Group General Counsel, supported by
external advisers as required.
• Comprehensive anti-bribery programme introduced
including an employee declaration supported by
online and site specific training.
• Audit programmes and clear policies issued to
all employees.
The major financial risks faced by the Group are: foreign
exchange risk, interest rate risk, credit risk, liquidity risk
and commodity price risk. Significant fluctuations in
foreign exchange rates, interest rates or commodity
prices could have a material adverse impact on the
Group’s results and financial position if not managed
appropriately. The global nature of the Group’s business
means that it is exposed to financial risks in multiple
jurisdictions. The Group is increasing its presence in
emerging regions where systems of financial controls
may be less developed.
• The main financial risks are managed by the Group’s
Treasury department in close liaison with the Group’s
business divisions and operating companies, under
the oversight of a Treasury Committee chaired by the
Group Finance Director.
• The responsibilities of the Group’s Treasury
department include management of cash resources,
debt and capital structure, approval of counterparties
and relevant transaction limits and oversight of all
significant treasury activities.
TT electronics plc 43
Annual Report 2011
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Directors’ report – Progress in 2011
Corporate responsibility
We manage our business responsibly and
sustainably in accordance with the diverse
expectations of our global stakeholders.
We understand corporate responsibility
(CR) as a dynamic discipline to manage risk
and maximise opportunities in an ever
changing world.
We take our corporate responsibility seriously
across the Group as an employer, manufacturer,
investor and consumer. We are committed to
understanding, monitoring and managing our
social, environmental and economic impact to
enable us to contribute to society’s wider goal of
sustainable development. We aim to demonstrate
these responsibilities through our actions and
within our corporate policies.
The Corporate and Social Responsibility
Committee, chaired by the Group Chief Executive,
is responsible for defining our strategic CR priorities,
monitoring our CR performance and ensuring that
our CR activity remains directly related to our
overall business objectives. This report highlights
some of the activities undertaken in key areas.
Our workplace
We believe that the people working at
TT electronics are our key asset. Creating a
good working environment at all of our locations
is of paramount importance. We strive to build
a supportive, diverse and engaging workplace,
whilst nurturing a high performance corporate
culture, built around our core values (set out
on pages 18 and 19).
We employ more than 6,000 people globally
and will continue to invest in their training and
development. We strongly believe in equipping
our people with the skills to do their jobs
effectively, encouraging them to develop to their
full potential. TT electronics provides a variety of
tailored training and development opportunities.
For example, in 2011, the Sensors division
continued its six sigma training programme
with five employees achieving black belt status.
Managers and employees alike are encouraged
to promote and live our corporate values,
collectively making our people feel proud to be
part of our organisation. In 2011, we successfully
launched our global recognition programme
“Inspire”, acknowledging individual and team
contributions through monthly recognition
awards, quarterly exceptional awards and
bi-annual Chief Executive awards.
Actively encouraging open communication
throughout the workplace assists in developing
a culture where inclusion, diversity and flexible
working practices are the norm. During the year
we improved the way we communicate with our
employees, formalising quarterly management
briefings to share and discuss business critical
information directly with them. In addition, regular
face to face briefings are taking place at a local level
throughout the Group.
The Group is committed to providing a safe
working environment for all employees.
We made significant progress during 2011 to create
a working environment that supports the health,
safety and well-being of our people and we have
seen a 40 per cent reduction in the number of
three day workplace accidents compared to 2010.
All our global employees were recently invited to
complete our second employee survey to gather
views on what it is like to work for TT electronics.
Survey questions relate to a wide range of topics
and results are analysed by each business unit and
shared by all managers with their teams. During
2011, a number of actions were taken based on the
results of our first survey including encouraging
further engagement with the local communities
in which we operate, enhancing our learning
and development offerings and a greater focus
on rewarding achievements.
We reviewed our whistleblowing policy during the
year in light of legislative changes and more than
600 employees also undertook mandatory training
and assessment relating to the UK Bribery Act.
Our marketplace
We work closely with our customers, treating
them with respect whilst ensuring we maintain
the highest ethical standards. To this end
we have launched a global, multi-lingual
Ethics and Integrity Helpline.
By acting with integrity and fairness, we seek
to be a business partner that customers choose
to work with. In turn, we require our own supply
chain to ensure that their employees operate in
a safe environment. The Group is a member of
the Electronic Industry Citizenship Coalition (EICC)
and follows its Code of Conduct. During 2012
we will focus on improving how we monitor
and manage our supply chain. We adhere
to appropriate values, ethics, standards and
behaviours even in areas where laws or standards
are inadequate or absent, ensuring that we meet
the needs of all stakeholders.
44 TT electronics plc
Annual Report 2011
Our marketplace (continued)
Products highlighted by the auditor included:
Ensuring that we provide a world-class service to
our customers is essential to the continued growth
of our business. Each division has its own set of
quality and performance measures which are
monitored on a monthly basis. We undertake
regular reviews with all our key customers to
gather clear feedback on our performance.
Our environment
We are all responsible for the preservation of
the natural environment. For TT, this means
managing our operations to minimise our impact
on the environment. In 2011 we made progress
mitigating the impact of climate change by
reducing greenhouse gas emissions from energy
use, transportation and everyday processes.
We attained the Carbon Trust Standard for our
UK operations and delivered an 8.6 per cent
reduction per annum in our UK carbon footprint
in the period from 2008 to 2010 (equivalent to
a reduction of c3,000 tonnes of carbon per year
on an ongoing basis). The auditor was particularly
impressed with the breadth of products designed
and manufactured in the UK that contribute to
carbon reduction and the new web-based system
for measuring energy reduction that is now in use
at each of our UK sites.
• Sensors that assist start stop technology for
Audi and Fiat
• Lower energy processes for resistive ink manufacture
• Electronic components for smart meters
• UPS solutions for windfarm monitoring equipment
During 2012 we will continue to focus on further
reducing our carbon emissions across the Group.
Our community
As an organisation we believe that it is our
responsibility to ensure that our activities
support strong, thriving and diverse communities
around the world. We aim to make a distinctive
contribution to equality and social development
by establishing effective partnerships and
programmes that make best use of the energies
and skills of our employees. We support our
employees in fundraising for charities and
voluntary work, recognising both the benefit to
the community and to the employees themselves.
During 2011, we actively encouraged
employees to become involved in worthwhile
community activities, in partnership with
community organisations.
1
3
2
4
1
BI Technologies
– Malaysia
celebrating
1,000,000 accident
free hours.
2
In January 2011
the Sensors division
introduced TTotal
Business Excellence
focused on six
sigma and lean
manufacturing.
3
Congratulations to
everyone involved
in achieving a
17% reduction
in our carbon
footprint across
the UK business.
4
“Go Yellow”
charity days at TT’s
UK companies
in support of
Help the Hospices.
TT electronics plc 45
Annual Report 2011
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Section header
Introduction
Governance
Introduction by the Chairman
Board of Directors and Company Secretary
In this section
47
48
50 Operating Board
51 Corporate Governance
57 Nominations Committee
58 Audit Committee
60 Remuneration report
67 Other statutory disclosures
46 TT electronics plc
Annual Report 2011
Directors’ report – Governance
Introduction by the Chairman
“I am pleased with the progress we have made embedding
our core values, principles and ethics throughout the
business to ensure that all employees understand, and
adhere to, the behaviours expected of them in their
day to day activities.”
Effective succession planning is key if the Board and
its committees are to have the appropriate balance
of skills, experience, independence and knowledge
to enable them to effectively discharge their duties
and responsibilities. I am delighted with the
appointment of Stephen King as a non-executive
Director, strengthening the Board and bringing
additional finance experience and an in depth
knowledge of global manufacturing businesses.
The achievement of good governance requires
focus and commitment. As we continue to build
on the progress made in recent years I am confident
that we are encouraging the correct behaviours
across the Group to effectively support a highly
sustainable, successful and respected business.
Sean Watson Chairman
The application of the principles of good corporate
governance: accountability, transparency, probity
and focus is critical to the continued success of
the Group. High quality governance requires that
core values, principles and ethics are encouraged
throughout the business to ensure that all
employees understand, and adhere to, the
behaviours expected of them in their day to day
activities. We have clearly defined values that
provide a framework within which we expect all
of our employees to operate and which guide how
we manage the business. I am pleased with the
progress that we have made in 2011 embedding
these values across the organisation.
The effectiveness of the Board is one of my
principal priorities and we made further
improvements in 2011. The Board has been actively
engaged with the Group’s business, meeting with
many members of the senior management team
in formal and informal settings. In addition, Board
members undertook an active programme of site
visits and we held our first Board meeting at our
facility in China, reflecting the importance of the
region. The Board evaluation process continues
to mature, with increased transparency and the
honest and open expression of feedback actively
encouraged. We will continue to strive to ensure
that the Board is well informed, engaged and free
to openly express views and concerns.
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TT electronics plc 47
Annual Report 2011
Directors’ report – Governance
Board of Directors and Company Secretary
1
2
4
3
5
1. Sean Watson (63)
Chairman
Committees:
Nominations (Chairman)
Corporate Governance (Chairman)
Remuneration
Joined TT: 2007 as an independent
non-executive Director. Chairman since
May 2010.
Experience: A partner and former Head of
Corporate Finance with CMS Cameron McKenna
LLP. Was a non-executive Director of Informa plc
from 2000 to 2009.
2. Geraint Anderson (52)
Group Chief Executive
Committees:
Corporate and Social Responsibility (Chairman)
Risk (Chairman)
Joined TT: 2008
Experience: Previously Vice President and
General Manager of the Worldwide Service
Provider Organisation for Linksys, a division
of Cisco Systems, Inc.
3. Shatish Dasani (50)
Group Finance Director
Committees:
Corporate Governance
Risk
Joined TT: 2008
Experience: 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.
4. Tim Roberts (41)
Group Business Development Director
Committees:
Corporate Governance
Joined TT: 2008. Appointed to the Board
in January 2010.
Experience: Previously Strategy and
Business Development Director with Spirent
Communications plc and formerly a solicitor
specialising in corporate finance.
5. David Crowther (66)
Senior Independent Non-executive Director
Committees:
Audit (Chairman*)
Nominations
Remuneration
Corporate Governance
Joined TT: 2005
Experience: 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.
48 TT electronics plc
Annual Report 2011
* Stephen King will succeed David Crowther as Chairman
of the Audit Committee upon David Crowther’s retirement
at the conclusion of the 2012 Annual General Meeting
6
8
7
9
7. Stephen King (51)
Independent Non-executive Director
Committees:
Audit
Nominations
Joined TT: 24 October 2011
Experience: Currently Group Finance Director
of Caledonia Investments plc; non-executive
Director and chairman of the Audit Committee
of The Weir Group plc; and member of the
Board of Bristow Group Inc. Group finance
director of De La Rue plc from 2003 to 2009
and, prior to that, finance director of Aquila
Networks plc (formerly Midlands Electricity plc).
A Chartered Accountant, Stephen has also held
senior financial positions in Lucas Industries plc
and Seeboard plc and was also a non-executive
director of Camelot plc from 2008 to 2009.
9. Wendy Sharp (46)
Group Company Secretary
Committees:
Corporate Governance
Joined TT: 1996. Appointed Group Company
Secretary in 2007.
6. Michael Baunton CBE (61)
Independent Non-executive Director
Committees:
Audit
Nominations
Joined TT: 2010
Experience: Currently Chairman of the
Board of the Society of Motor Manufacturers
and Traders Limited’s Industry Forum and a
non-executive Director of ACAL Energy Ltd.
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
Engines Company Limited and Tenneco Inc.
8. John Shakeshaft (57)
Independent Non-executive Director
Committees:
Remuneration (Chairman)
Audit
Nominations
Corporate and Social Responsibility
Joined TT: 2007
Experience: Currently chairman of Ludgate
Environmental Fund Limited; deputy chairman
and chair of the Audit Committee of The
Economy Bank NV; chair of the Investment
Committee of Corestone, AG; director and
chair of the Audit Committee of both Tele2
AB and Xebec Adsorption, Inc.. Director of
Valiance Investment Funds. External member
and chair of the Audit Committee of the
Council of Cambridge University. Formerly a
Managing Director at ABN AMRO and Lazard
Brothers, having held senior positions within
Barings, Morgan Stanley and Morgan Grenfell.
Joined the City in 1986 following a number
of overseas postings with HM Foreign and
Commonwealth Office.
TT electronics plc 49
Annual Report 2011
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Directors’ report – Governance
Operating Board
1
4
2
5
7
3
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3. John Molloy (48)
Divisional Chief Executive – IMS
Joined TT: 2005
Experience: Joined the Group 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.
6. John Leighton-Jones (42)
Group Human Resources Director
Committees:
Corporate and Social Responsibility
Joined TT: 2010
Experience: Joined 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.
The Operating Board consists of the executive Directors and:
1. Billal Hammoud (39)
Divisional Chief Executive – Components
Joined TT: 2010
Experience: 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.
4. Nigel Brice (50)
Divisional Chief Executive – Secure Power
Committees:
Corporate and Social Responsibility
Joined TT: 1996
Experience: Has held a number of divisional
management positions, having had
responsibility for the Group’s Secure Power
businesses since 2003. Previously had been
working in senior management roles for eight
years with The General Electric Company.
Started his professional career as a Chartered
Management Accountant with Saint-Gobain.
50 TT electronics plc
Annual Report 2011
2. Pat Murray (52)
Divisional Chief Executive – Sensors
Joined TT: 2009
Experience: 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.
5. Paul Felbeck (47)
General Counsel
Committees:
Risk
Joined TT: 2000
Experience: Formerly International Legal Counsel
with MediaOne (now a unit of AT&T). Started his
professional career as a solicitor with Freshfields.
7. Per-Olof Ahlstrom (35)
Group Head of Risk and Assurance
Committees:
Risk
Joined TT: January 2012
Experience: Joined from Everything Everywhere
Limited, a joint venture between Orange UK
and T-Mobile UK, where he was Director, Risk
Assurance and Internal Audit. Previously worked
with T-Mobile and PwC covering programme,
service integration, risk, audit and compliance
management. A CISA accredited Information
System Auditor with a BSc and MSc, he is fluent
in Swedish.
Directors’ report – Governance
Corporate Governance
The Company is committed to achieving and maintaining high standards of corporate governance. The main and supporting principles of
good corporate governance set out in the UK Corporate Governance Code (“Code”) have been complied with throughout the year ended
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 2011 the Board comprised three executive Directors and up to five non-executive Directors. All of the Directors served throughout
the year, with the exception of Stephen King who was appointed on 24 October 2011. David Crowther is the senior independent
non-executive Director.
Board and Committee meetings are scheduled in line with the financial calendar of the Company, thereby ensuring that latest operating data is
available for review and sufficient time and focus can be given to matters under consideration. During the year there were eight principal Board
meetings on scheduled dates for which full notice was given. Of these principal meetings, one was dedicated to strategic planning, whilst two
were held at subsidiaries in Leicestershire, UK and Suzhou, China, thereby enabling the non-executive Directors to meet with employees and
gain a better understanding of these operations. Additional meetings are held as and when required and, during 2011, three such meetings
took place. The Board has had two principal meetings and one additional meeting to date during 2012. Full details of each Director’s Board
and Committee meeting attendance are given on page 53 and in the relevant Committee report.
Directors
Directors’ biographies including the Committees on which they serve and chair are shown on pages 48 and 49.
At the time of his appointment as Chairman, Sean Watson was considered to be independent in accordance with the provisions of the Code.
All the remaining non-executive Directors are 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 Geraint Anderson and Shatish Dasani retire and, being eligible, offer themselves for re-election. Stephen King, 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.
Directors’ interests
The Directors of the Company at 31 December 2011 held interests in the following numbers of the Company’s Ordinary shares of 25p each on
1 January 2011, 31 December 2011 and 12 March 2012:
Sean Watson
Geraint Anderson
Shatish Dasani
Tim Roberts
David Crowther
Michael Baunton
Stephen King (appointed 24 October 2011)
John Shakeshaft
12 March 2012
Ordinary shares
31 Dec 2011
Ordinary shares
173,000
140,000
420,000
33,196
111,006
64,217
50,000
15,479
173,000
140,000
420,000
33,196
111,006
64,217
50,000
15,479
1 Jan 2011
(or date of
appointment
if later)
Ordinary shares
140,450
140,000
400,000
53,473
103,800
25,000
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 65 and 66.
TT electronics plc 51
Annual Report 2011
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Directors’ report – Governance
Corporate Governance continued
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; 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 is 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 conflicts
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, 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.
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, particularly that of the non-executive Directors, had continued to improve as a result of increased contact with the
Divisional Chief Executives, together with visits to operational facilities; and
• the Board had been strengthened by the appointment of an additional independent non-executive Director: Stephen King has relevant
and recent financial experience and will become Chairman of the Audit Committee at the conclusion of the 2012 Annual General Meeting.
Future enhancements to the strategic review process were identified so as to encourage greater input from both executive and non-executive
Directors on strategy development, including the consideration of alternative strategies, at an earlier stage in the process. It was also noted that
further improvements to risk management should be expected following the appointment of the new Group Head of Risk and Assurance.
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, led by the senior independent non-executive Director, and with input from
the Group Chief Executive, met privately to discuss this, with the outcomes 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. The performance evaluation of the Group Chief Executive was conducted by the Chairman, taking account
of the output from the Group’s performance management programme together with feedback provided by the other non-executive Directors
at a private meeting held to discuss this and any other matters which the non-executive Directors wished to raise.
52 TT electronics plc
Annual Report 2011
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 57 to 59 and should be read as part of the Directors’ report. Details of the Remuneration Committee and its activities are
contained within the Remuneration report on pages 60 to 66.
Board meeting attendance 2011
Eight principal Board meetings were held during 2011.
Sean Watson
Geraint Anderson
Shatish Dasani
Tim Roberts
David Crowther
Michael Baunton
Stephen King (appointed 24 October 2011)
John Shakeshaft
8 of 8
8 of 8
8 of 8
8 of 8
8 of 8
8 of 8
2 of 2
8 of 8
Additional meetings of the Board and its principal Committees take place as and when required throughout the year. During 2011 there were
three such Board meetings, all of which were fully attended.
Directors’ attendance at meetings of the principal Committees on which they serve are detailed in the Audit, Nominations and Remuneration
Committee reports on pages 57, 58 and 60.
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 senior independent non-executive Director, the Group Finance Director, the Group Business
Development Director and the Group Company Secretary. The Committee’s duties are as follows:
• to review regularly the corporate governance procedures of the Company to ensure that they are up-to-date and effective, and 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 2011, during which time it considered recent developments, including those relating to diversity. Details
of the policy on Board diversity can be found in the Nominations Committee section of this report. The Corporate Governance Committee also
considered Code provisions regarding the annual re-election of Directors and external facilitation of the Board performance evaluation process,
notwithstanding the fact that these provisions do not apply to the Company, it currently being outside of the FTSE 350. It was concluded that
no changes would be implemented but that these matters would be considered again in 2012. The reports and AGM voting recommendations
from various investor bodies were also reviewed and areas for improvement noted in relation to auditors and audit policy, remuneration and
environmental, social and governance matters.
TT electronics plc 53
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Directors’ report – Governance
Corporate Governance continued
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 and up to three senior executives from within the Group. The Committee met four times during 2011 and has had one meeting to date
during 2012. 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
on pages 44 and 45.
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 General
Counsel, the Group Internal Controls Executive and up to four senior executives from within the Group. Following the creation of the new role
of Group Head of Risk and Assurance, the Group Internal Controls Executive has been replaced on the Committee by the Group Head of Risk
and Assurance. A representative from the Company’s insurance brokers also regularly attends meetings. The Committee met 12 times during
2011 and has had three meetings to date in 2012.
Further information on the activities of the Risk Committee, including the work undertaken in relation to the Bribery Act 2010, is given in the
Principal risks and risk management process section on pages 41 to 43 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, divisional and
Group levels as part of the annual budget preparation process. Having identified risks, operating companies and divisions then monitor, review
and update the risks 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 regularly report directly to the Group Chief Executive at 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 on pages 41 to 43.
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.
54 TT electronics plc
Annual Report 2011
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 50.
• The Group Chief Executive also chairs the Risk Committee. Further details on the remit and activities of the Risk Committee are given on
page 54.
• 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 and heads of business units 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 consolidated up to a divisional
and Group level and 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 and the Board.
• 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.
• During 2011, the framework for maintaining control and the adherence to procedures was reviewed by the Group Internal Controls Executive.
• During 2011, risk management systems at key operational facilities (as identified by the Operating Board) were reviewed and assessed
by the Group Internal Controls Executive to identify recommended improvements.
Responsibility for the above two items now sits with the newly-appointed Group Head of Risk and Assurance, who reports to the
Group Chief Executive.
• 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 2011
and during the period since then to the date of this report. They have made, and will continue to make, improvements where necessary.
Financial risk management objectives and policies are set out under Financial risks on page 43.
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Directors’ report – Governance
Corporate Governance continued
Investor relations
Geraint Anderson and Shatish Dasani meet institutional investors immediately after publication of the annual and interim results. Sean Watson,
as Chairman, David Crowther, as senior independent non-executive Director and John Shakeshaft, as Chairman of the Remuneration
Committee, also undertake consultation on certain matters with major shareholders from time to time. 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 2012 and the projections for 2013 developed during the 2011 annual strategic planning cycle.
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 14 March 2012 and signed on its behalf by:
Wendy Sharp
Group Company Secretary
56 TT electronics plc
Annual Report 2011
Directors’ report – Governance
Nominations Committee
Membership:
Sean Watson (Chairman)
David Crowther
Michael Baunton
Stephen King (appointed 24 October 2011)
John Shakeshaft
Sean Watson Chairman
Remit:
The Nominations Committee’s remit includes the structure, size and composition of the Board as a whole; the overall leadership needs of the
organisation; consideration of succession planning for Directors and Divisional Chief Executives (having due regard to the length of service of
non-executive Directors) and the search for and selection of suitable candidates for the appointment of replacement or additional Directors.
Committee meeting attendance 2011
During 2011 the Committee met three times.
Sean Watson
David Crowther
Michael Baunton
Stephen King (appointed 24 October 2011)
John Shakeshaft
The Committee has had no meetings to date during 2012.
3 of 3
3 of 3
3 of 3
1 of 1
3 of 3
2011 review
The Committee seeks to ensure that the Board of TT electronics is balanced and effective with diverse skills, knowledge and experience.
Diversity and gender inclusiveness span the whole Group and are important and enduring considerations in the search for and selection
of Board members.
The Committee reviewed Lord Davies of Abersoch’s report “Women on Boards” published in February 2011 and the subsequent changes
to the Code announced by the Financial Reporting Council in October 2011. The Committee is rigorous in seeking talent and is focused on
ensuring that the Group has the best possible Board available to promote its interests. The Committee engages external search consultants
to assist in the specification of Board positions and their selection of prospective candidates to ensure that there is a robust, measurable and
orderly process. The Committee believes that this rigorous process has, over time, led to the recruitment of talented individuals, significantly
enhancing the composition of the Board.
The Committee considers diversity quotas are inappropriate and is committed to recruiting the best talent available, based on merit and
assessed against objective criteria of skills, knowledge, independence and experience. Its primary objective is to ensure that TT maintains
the strongest possible leadership.
During 2011 the Committee began the search for an additional independent non-executive Director with relevant and recent financial
experience with a view to that individual being appointed as Chairman of the Audit Committee, in anticipation of David Crowther stepping
down from that role. Search consultants were engaged and tasked with ensuring that they considered a wide, diverse pool of potential
candidates of the appropriate calibre who met the agreed specification. Following interviews with a number of candidates, Stephen King was
identified as being suitable for the role, having extensive experience in finance, combined with a detailed knowledge of global manufacturing
businesses. The Committee accordingly recommended Stephen King’s appointment as an independent non-executive Director, serving
on the Audit and Nominations Committees.
Non-executive Directors’ lengths of service
2005
2006
2007
2008
2009
2010
2011
2012
2013
David Crowther
John Shakeshaft
Michael Baunton
Stephen King
First three year term
First additional three year term
Second additional three year term
Performance evaluation
The Committee carried out an assessment of its performance in 2011 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. Improved visibility
on the business and the performance of senior management team members had been achieved by Divisional Chief Executives presenting
at Board meetings, site visits undertaken by the Board and non-executive Directors participating in Group events. In relation to succession
planning for executive Directors, the Committee concluded that, in order to maximise the possibilities of succession from within the Group,
in future it would have greater involvement in the recruitment process for senior positions below Board level.
TT electronics plc 57
Annual Report 2011
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Directors’ report – Governance
Audit Committee
Membership:
David Crowther (Chairman)
Michael Baunton
Stephen King (appointed 24 October 2011)
John Shakeshaft
David Crowther Chairman
Remit
The Committee’s duties include reviewing and advising the Board on:
• the integrity of the financial statements;
• the appointment and remuneration of external auditors and their effectiveness 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 scope, performance and effectiveness of the internal audit and other internal control functions and the Auditors’ assessment thereon;
• risk management (by reference to reports received regularly from the Risk Committee and the head of the internal control function) and any
changes to the Register of Principal Risks; and
• the Company’s procedures for responding to any allegations made by whistleblowers.
The Code requires that at least one member of the Audit Committee has recent and relevant financial experience. David Crowther and
Stephen King both fulfil this requirement.
Committee meeting attendance 2011
During 2011 the Committee held four scheduled meetings.
David Crowther
Michael Baunton
Stephen King (appointed 24 October 2011)
John Shakeshaft
4 of 4
4 of 4
1 of 1
4 of 4
The Committee met twice with the Group’s auditors, KPMG Audit Plc, 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.
The Committee has had two meetings to date during 2012.
58 TT electronics plc
Annual Report 2011
2011 review
In order that the Audit Committee fulfils its duties regarding the integrity of the financial statements and other financial data, the Group
Finance Director and the Group Financial Controller attend Committee meetings, presenting reports and providing analysis and explanations
for queries raised. The external auditors are also attendees and present reports on their audits – addressing such matters as an overview of the
financial statements, key accounting judgements, accounting policies, audit differences and internal control matters.
During 2011 the Audit Committee regularly received reports from both the Risk Committee and the Group Internal Controls Executive who was
required to attend the Committee’s meetings. The Committee reviews internal audit plans and recommendations, and a formal review of the
effectiveness of the internal control functions is undertaken as part of the year end process.
Following a review of the Group’s risk management and internal audit processes undertaken in 2011 in conjunction with KPMG, the Group
re-organised the risk and internal audit function, establishing a new position of Group Head of Risk and Assurance reporting directly to
the Group Chief Executive (see page 41 for further detail). The Committee endorsed this review and its recommendations and the steps
taken subsequently.
Significant matters reported through the Group’s multi-lingual, anonymous whistleblowing portal are reported to, and considered by, the
Committee. During the year the Committee received details of three matters which were all investigated and action taken where appropriate.
Auditors’ independence, objectivity and effectiveness
The independence of the Auditors is assessed annually by the Audit Committee in order to ensure that suitable policies and procedures are
in place to safeguard the Auditors’ independence and objectivity, having regard to length of tenure, provision of non-audit services and the
existence of any conflicts of interest. KPMG Audit Plc were appointed in July 2010, at which time their independence had been considered.
At the time of the annual assessment, the provision of non-audit services was reviewed and KPMG Audit Plc confirmed that no conflicts of
interest existed of which the Audit Committee should be aware.
The Committee also reviewed the effectiveness of the Auditors during the year. The use of an evaluation questionnaire assisted in ensuring
that a comprehensive assessment was undertaken, and reference was made to a report produced by the Audit Inspection Unit of the
Financial Reporting Council together with information provided by the Auditors.
Following confirmation by the Auditors that none of the comments made by the Audit Inspection Unit of the Financial Reporting Council
on areas where improvements were required applied to the audit of TT electronics and that no conflicts of interest existed of which the
Committee should be aware, it was concluded that the Auditors’ independence and objectivity were suitably safeguarded and that they
were providing an effective service to the Group.
The Audit Committee has recommended to the Board that KPMG Audit Plc continue in office as Auditors.
Policy on non-audit services
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. Following a review of the policy during 2011, this threshold was reduced from £50,000 to £25,000. There is also 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 overriding 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.
Performance evaluation
The Committee carried out an assessment of its performance in 2011 based on a review of its activities during the year against its terms
of reference. It was concluded that the Committee was performing satisfactorily, is structured appropriately to provide effective support to
the Board and had been reinforced by the appointment of Stephen King who will succeed David Crowther as Chair of the Committee at the
conclusion of the 2012 Annual General Meeting.
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TT electronics plc 59
Annual Report 2011
Directors’ report – Governance
Remuneration report
Membership:
John Shakeshaft (Chairman)
David Crowther
Sean Watson
John Shakeshaft Chairman
This remuneration report has been prepared according to the requirements of 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. Additionally, the Board
has applied the principles for Directors’ remuneration as set out in the UK Corporate Governance Code. The purpose of the report is to set out
the Group’s remuneration policy with a particular focus on executive Directors.
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 unaudited and audited information. A resolution to approve the report will be proposed at the
Annual General Meeting on 15 May 2012.
Unaudited information
Remuneration Committee
Remit:
The role of the Committee is to recommend to the Board the policy for 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,
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.
In order to enable the Committee to make informed decisions on executive remuneration, the Committee retained the services of New Bridge
Street (“NBS”), independent external consultants, to advise on senior executive remuneration matters. NBS provided no other services to the
Company during the year.
The Group Chief Executive, Geraint Anderson, and the Group Human Resources Director, John Leighton-Jones, also attend Committee
meetings as and when required to provide advice on Group strategy, performance and remuneration strategy. No individual is present during
discussions relating to their own remuneration.
4 of 4
4 of 4
4 of 4
Committee meeting attendance 2011
During 2011 the Committee met four times.
John Shakeshaft
David Crowther
Sean Watson
The Committee has had two meetings to date during 2012.
2011 review
The Committee’s main activities during 2011 included the:
• annual review of base salary levels;
• review of executive Director pension arrangements;
• assessment of annual bonus levels for executive Directors for 2010, payable in 2011;
• setting of targets for the 2012 executive Directors’ annual bonus plan;
• review of total remuneration levels for executive Directors and the next level of senior executives;
• review of the linkage between risk and reward;
• review of non-executive Chairman’s fees;
• 2011 grant under the Long Term Incentive Plan (“LTIP”) (including a review of the performance targets);
• review of the LTIP structure and the current dilution position; and
• review of the Committee’s external advisers.
60 TT electronics plc
Annual Report 2011
Performance evaluation
The Committee carried out an assessment of its performance, constitution and terms of reference during 2011 based on a questionnaire
completed by its members. The Committee was deemed to be performing satisfactorily and it was noted that its future performance would
be enhanced by having access to more in-depth information relating to performance assessments for those individuals under its remit,
together with increased visibility of management remuneration arrangements across the Group.
Remuneration policy
The Group is committed to the objective of maximising shareholder return in the longer term ensuring that a strong link between performance
and reward is maintained. The remuneration policy aims to be competitive, performance based, aligned to shareholder interests and relatively
simple and transparent in nature.
The Committee aims to pay base salaries around market median levels coupled with highly competitive total rewards that are linked to
performance and aligned with shareholders’ interests. Remuneration packages must meet the objective of attracting, retaining and motivating
executives of the highest quality in a challenging business environment. In delivering an appropriate mix between fixed and variable
remuneration, the Committee is mindful to avoid creating excessive risks in the pursuit of performance metrics.
Following a review of the existing total remuneration framework for the executive Directors and the most senior managers, the Committee
concluded that the following principles remain appropriate for 2012.
Competitive: Through the combination of base salaries and competitive performance-related incentive mechanisms, the Group aims to
provide individuals with a competitive total remuneration package in return for superior performance. Base salaries are designed to reflect
the nature of the role and its responsibility, together with the overall level of individual performance. In ascertaining appropriate salary
adjustments, account is also taken of prevailing market and economic conditions together with salary levels across the Group.
Performance related: The majority of the executive Directors’ and senior managers’ remuneration packages are determined based on
the performance of the Group. A significant proportion of this is aligned to shareholder interests given that it is awarded based on earnings
growth and total shareholder return. Failure to achieve predetermined growth thresholds results in no payout under the Group’s annual bonus
or long-term incentive arrangements. In order to provide further alignment with the achievement of strategic objectives and delivery of value
to shareholders, executive Directors have agreed to maintain a minimum shareholding equal to 100 per cent of base salary through the vesting
of long-term incentives.
Transparency: In order to engender a fair and collaborative culture, total remuneration frameworks are clear and openly communicated.
Components of total remuneration
In the year under review, executive Directors’ total remuneration packages comprised:
• Fixed pay, including base salary, pension contribution, car or car allowance and private medical insurance; and
• Variable pay, comprising annual bonus opportunity, participation in a share based Long Term Incentive Plan and participation
in an all employee share scheme.
No changes were made in 2011 to the level of short-term or long-term incentive payouts payable for achieving either on-target
or stretch performance.
Base salary
The Committee reviews salaries annually and takes account of personal and Company performance, together with data sourced from
companies of a broadly similar size and complexity.
Details of current base salary levels for executive Directors who served during the year are set out below:
Geraint Anderson
Shatish Dasani
Tim Roberts
1 January 2012
1 January 2011
% Increase
£388,516
£266,049
£210,000
£379,040
£259,560
£189,520
2.5%
2.5%
10.8%
In reviewing base salaries from 1 January 2012, the Committee had regard to personal performance, Group performance and pay levels
within the Group. External benchmark data was also considered based on companies within similar sectors and of a similar turnover and
market capitalisation to the Group although such external comparisons are used by the Committee with caution given the risk of upwards
ratchets in pay.
As a result, base salary levels for the Group Chief Executive and Group Finance Director were increased by the general workforce increase
of 2.5 per cent. The salary for the Group Business Development Director was increased by 10.8 per cent reflecting both personal performance
and increasing experience following his promotion to the Board at the start of 2010. All increases were made with effect from 1 January 2012.
TT electronics plc 61
Annual Report 2011
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Directors’ report – Governance
Remuneration report continued
Benefits
Benefits in kind comprise a company car or allowance and the provision of private medical insurance.
Pension
Following a review of market practice conducted at the start of 2011 and for consistency with the Group Finance Director, the Group Chief
Executive’s and Group Business Development Director’s pension contributions were increased from 10 per cent to 15 per cent of salary.
The provisions were increased in stages, to 12.5 per cent of salary for 2011 and to 15 per cent from 1 January 2012.
Annual bonus
Bonus arrangements for executive Directors comprise three core elements: operating profit, operating cash flow and attainment of personal
objectives. The objective of performance-related remuneration is to stimulate improved Group results by providing the opportunity for
increased remuneration upon the achievement of challenging performance targets.
For 2011, targets comprised a sliding scale of operating 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).
This recognises the importance attached to successful implementation of the Group’s strategy.
The bonus arrangements for all senior executives below Board level are aligned to 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.
Bonus awards for 2011
Following the assessment of the performance targets and in light of the Group’s strong revenue and cash performance, the annual bonus
payment has been calculated at 96.3% of maximum. Performance against each of the targets is set out below:
Group profit
Group operating cash flow
Personal objectives
Total % of salary
Potential
(% of salary)
Maximum/Stretch
performance
(% of budget)
% of budget
achieved
Actual payout
(% of salary)
50%
25%
25%
100%
120%
130%
n/a
122%
121%
n/a
50%
21.3%
25%
96.3%
For further analysis of the Group’s performance please refer to the Key performance indicators on pages 22 and 23.
Details of bonuses awarded to the executive Directors for the year ended 31 December 2011 are set out in the emoluments table on page 64.
Annual Bonus Opportunity 2012
The maximum potential bonus which can be earned will continue to be 100 per cent of salary for 2012. The bonus arrangements for 2012
have been reviewed and will continue to be aligned with profitable growth combined with strong cash performance, supported by the
achievement of key strategic initiatives through the fulfilment of personal objectives.
Long Term Incentive Plan 2005 (“LTIP”)
During the latter part of 2011, the Committee reviewed the operation of the LTIP. The main conclusions of the review were that the LTIP
should remain the primary long-term incentive scheme in the Company and the structure of long-term incentives should remain unchanged.
Award levels (100 per cent of base salary) and performance metrics based on earnings per share (“EPS”) and relative Total Shareholder Return
(“TSR”) against the FTSE SmallCap index excluding investment trusts remain appropriate. However, the Committee concluded that shareholder
approval should be sought at the 2012 AGM to remove the 5 per cent in ten year limit and, consistent with best practice, a clawback provision
should be added to the LTIP rules (see below).
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 2011 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 2013 is equal to RPI plus 10 per cent compound per annum, increasing on a straight-line basis to 100 per cent vesting
for EPS growth of at least 15 per cent compound per annum in excess of RPI; 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 2012. 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.
62 TT electronics plc
Annual Report 2011
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.
Dilution
The Company’s current dilution position is 4.6 per cent against the 5 per cent in ten year limit and 5.7 per cent against the 10 per cent in ten
year limit. Given the limited headroom under the 5 per cent in ten year limit and following an extensive investor consultation exercise at the
start of 2012 during which the Company’s largest shareholders and the major representative bodies were consulted, the Company will seek
shareholder consent at the 2012 AGM to remove the 5 per cent limit from the LTIP rules.
As the Committee wishes to revert to a 5 per cent in ten year limit over time, the Committee will formally review the dilution position in 2015
when the Company’s existing LTIP will time expire. That said, to the extent that the Committee is not able to revert to a 5 per cent in ten year
limit in 2015, the position will be reviewed annually with a long-term objective of reverting to the 5 per cent within a ten year limit. Full details
with respect to the Company’s dilution position will be provided in future Remuneration Reports.
Clawback
Consistent with best practice, clawback provisions will operate whereby annual bonus and LTIP awards may be clawed back if following
payment/grant/vesting it transpires that value was awarded/delivered as a result of gross misconduct or a material mis-statement of results.
Total shareholder return
The Company’s total shareholder return performance for the five years to 31 December 2011 is shown on the graph below compared with
the index of the FTSE SmallCap companies (excluding investment trusts). As the Company is a constituent of the FTSE SmallCap Index, the
Directors consider it an appropriate benchmark for the Company’s performance.
120
100
80
60
40
20
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31 Dec 06
31 Dec 07
31 Dec 08
31 Dec 09
31 Dec 10
31 Dec 11
This graph shows the spot value on 31 December 2011 of £100 invested in TT electronics plc on 31 December 2006 compared with the value of
£100 invested in the FTSE SmallCap (excluding investment trusts) Index. The intermediate points are the spot values on each calendar year end.
TT electronics plc
FTSE SmallCap (excluding investment trusts) Index
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 introduced international all employee Sharesave schemes in 2010 and 2011. Grants under the schemes have been made
to encourage the involvement of employees in the Company’s performance. The executive Directors have all chosen to participate
in the UK scheme.
TT electronics plc 63
Annual Report 2011
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Directors’ report – Governance
Remuneration report continued
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 Directors. 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 graphs below show the proportion of the package delivered through fixed and variable rewards together with the value of the 2012
package for on-target and stretch performance:
Proportion of Incentive Package (%)
Value of Package (£'000)
On Target
Exceptional
On Target
Exceptional
0
20
40
60
Salary
Benefits
Bonus
100
80
LTIP
0
200
400
600
Salary
Benefits
Bonus
800
LTIP
1,000
1,200
Non-executive Directors
The fees 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 fees paid to the Chairman were reviewed at the
start of 2012 and were increased by 2.5 per cent. 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
£143,500
£39,000
£7,000
£7,000
Aggregate Directors’ emoluments
Set out below are tables of remuneration of the Directors who served during 2011 and 2010. 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
Geraint Anderson
Shatish Dasani
Tim Roberts
Non-executive Directors
Sean Watson
David Crowther
Michael Baunton
Stephen King(2)
John Shakeshaft
Former Directors(3)
Salary/fees
£000
Annual
bonus(1)
£000
Benefits
£000
379
260
190
140
45
38
7
45
–
365
250
182
–
–
–
–
–
–
1,104
797
27
23
11
–
–
–
–
–
–
61
2011
Total
£000
771
533
383
140
45
38
7
45
–
2010
Total
£000
735
513
345
115
45
14
–
43
37
1,962
1,847
(1) The amounts are payable under the bonus arrangements in place for 2011 as explained on page 62. 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.
(2) Stephen King was appointed as a non-executive Director on 24 October 2011.
(3) J W Newman retired on 12 May 2010.
Benefits in kind during the year comprised a company car or allowance and the provision of private medical insurance. No Director received
an expense allowance during the year.
64 TT electronics plc
Annual Report 2011
Executive Directors’ pensions – defined contribution
During 2011, the Company contributed £42,618 for Geraint Anderson, £40,232 for Shatish Dasani and £23,278 for Tim Roberts to the Company’s
group personal pension arrangement.
Long Term Incentive Plan
As at 31 December 2011, Directors’ interests under the LTIP were as follows:
Date of grant
28-Aug-08
05-May-09
04-May-10
27-Apr-11
28-Aug-08
05-May-09
04-May-10
27-Apr-11
28-Aug-08
05-May-09
04-May-10
27-Apr-11
1 January
2011
341,463
875,000
330,189
–
1,546,652
214,634
600,000
226,415
–
1,041,049
10,000
202,667
123,821
–
336,488
Granted
during
the year
–
–
–
216,285
216,285
–
–
–
148,108
148,108
–
–
–
108,142
108,142
Lapsed
341,463
–
–
–
341,463
214,634
–
–
–
214,634
10,000
–
–
–
10,000
Vested
31 December
2011
Market value at
31 December
2011
£
Market price at
grant date
Pence
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
875,000
330,189
216,285
–
1,176,875
444,104
290,903
1,421,474
1,911,882
–
600,000
226,415
148,108
974,523
–
202,667
123,821
108,142
434,630
–
807,000
304,528
199,205
1,310,733
–
272,587
166,539
145,451
584,577
102.50
30.25
106.00
172.25
102.50
30.25
106.00
172.25
102.50
30.25
106.00
172.25
Vesting date
28-Aug-11
05-May-12
04-May-13
27-Apr-14
28-Aug-11
05-May-12
04-May-13
27-Apr-14
28-Aug-11
05-May-12
04-May-13
27-Apr-14
Geraint Anderson
Shatish Dasani
Tim Roberts
Notes
(1) For LTIP awards granted in 2008: 25 per cent of the shares subject to an award vested 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 were not met and the awards therefore lapsed.
(2) 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.
(3) For LTIP awards granted in 2010: For 50 per cent of an award, 25 per cent of this part of an award 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.
(4) For LTIP awards granted in 2011: For 50 per cent of an award, 25 per cent of this part will vest for EPS growth of 10 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 15 per cent compound per annum in excess of RPI. 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.
(5) The market value at 31 December 2011 represents the total number of shares award multiplied by 134.5 pence being the share price on 31 December 2011. The calculation does not take
into account the likelihood of vesting.
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TT electronics plc 65
Annual Report 2011
Directors’ report – Governance
Remuneration report continued
TT electronics plc Sharesave Scheme
As at 31 December 2011, Directors’ interests under the Sharesave Scheme were as follows:
Date of grant
1 January
2011
Granted
during
the year
Lapsed
Vested
Potential gain at
31 December
2011
£
31 December
2011
Option price
Pence
Geraint Anderson
01-Oct-10
13,552
Shatish Dasani
01-Oct-10
Tim Roberts
01-Oct-10
7,894
7,894
–
–
–
–
–
–
–
–
–
13,552
7,894
7,894
2,778
1,618
1,618
114
114
114
Exercisable
between
1 Nov 15–30
Apr 16
1 Nov 13–30
Apr 14
1 Nov 13–30
Apr 14
Notes
(1) The potential gain at 31 December 2011 represents the total number of shares under option multiplied by 134.5 pence being the share price on 31 December 2011 less the option price.
The calculation assumes that the executive Director remains employed and completes the contract.
The closing middle market prices for an Ordinary share of 25 pence of the Company on 31 December 2010 and 2011 as derived from the
Stock Exchange Daily Official List were 172.0 pence and 134.5 pence respectively. During 2011 the middle market price of TT electronics plc
Ordinary shares ranged between 120.5 pence and 208.0 pence.
Conclusion
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 14 March 2012 and signed on its behalf by:
John Shakeshaft
Chairman of the Remuneration Committee
66 TT electronics plc
Annual Report 2011
Directors’ report – Governance
Other statutory disclosures
Directors’ report
This Annual Report includes the Directors’ report and the audited financial statements for the year ended 31 December 2011. Certain
information required to be disclosed in the Directors’ report is provided in other sections of this Annual Report. This includes the Overview,
the Operating and Financial reviews, the Corporate governance and Remuneration reports and specific elements of the financial statements
noted below and, accordingly, these are incorporated into the Directors’ report by reference.
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 component and sensor technology for the defence, aerospace, medical, transportation and industrial electronics markets.
Further details of the Group’s activities and future plans are set out in the Overview and Operating and Financial review sections on
pages 1 to 45 of this report.
The principal operating subsidiaries are listed on page 117.
Results and dividends
The Group’s profit on ordinary activities after taxation was £25.0 million (2010: £25.9 million). The audited financial statements of the Group
and the Company are set out on pages 72 to 117. Further details of the Group’s activities are set out in the Operating and Financial review
on pages 26 to 40.
The Directors are recommending a final dividend of 3.2p per share for the year ended 31 December 2011 (2010: 2.0p) to be paid on 8 June 2012
to shareholders on the register at 25 May 2012 which, together with the interim dividend of 1.2p per share paid on 3 November 2011 (2010: 0.8p),
makes a total for the year of 4.4p (2010: 2.8p).
Disposals
On 16 May 2011, the sale of WT Henley Electrical (Suzhou) Co. Ltd. in China to Sicame SA (reported in the Annual Report 2010) was completed,
following receipt of the relevant regulatory approvals from the Chinese authorities.
The Board’s strategic objective to realise value from the businesses within the Group’s General Industrial division was completed during the year
with the sale of AEI Compounds Limited to Saco Polymers Inc on 11 July 2011 for a gross consideration of £8.6 million.
Directors
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 57.
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 60 to 66. 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.
Auditors
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 Auditors’ responsibilities are set out on page 71 and should be read in conjunction with those of the Directors as set out at the end
of this report.
Annual General Meeting
The Annual General Meeting of the Company will be held on 15 May 2012 at the offices of Hudson Sandler Financial and Corporate
Communications at 11.30 am. The Notice of the Company’s Annual General Meeting accompanies this document.
Fixed assets
A professional valuation of land and buildings was carried out during the year ended 31 December 2010 and, in the opinion of the Directors,
the market value, on an existing use basis, as at 31 December 2011 in aggregate 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.
TT electronics plc 67
Annual Report 2011
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Directors’ report – Governance
Other statutory disclosures continued
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 52 days (2010: 55 days). The average number of
days’ credit taken by the Company for trade purchases at the financial year end was 60 days (2010: 64 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. Together with many other global companies operating in its sector, the
Group is a member of the Electronic Industry Citizenship Coalition, a leading industry organisation promoting best practices in corporate
responsibility, which is committed to raising standards of employee welfare in all jurisdictions and at all levels of the supply chain for electronic
products. Further details on the Group’s policies relating to its employees are given on page 44.
Donations
During the year the Group contributed £58,000 (2010: £58,000) 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 on pages 44 and 45. 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 15 May 2012.
Purchase of own shares
At the Annual General Meeting held on 19 May 2011, the Company was given authority to purchase up to 15,512,889 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.
Shares held by the Employee Benefit Trust
The Company has established an employee benefit trust (“EBT”), the trustee of which is Sanne Trust Company Limited, part of Sanne Group.
As at 31 December 2011, 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.
68 TT electronics plc
Annual Report 2011
Substantial shareholding notifications
The Company had been notified of the following voting rights attaching to TT electronics plc shares in accordance with the Disclosure and
Transparency Rules at 12 March 2012 and 31 December 2011.
J W Newman
Mondrian Investment Partners Limited
Crystal Amber Fund Limited
Tweedy, Browne Company LLC
Legal & General Group plc
Number
10,858,010
7,912,306
8,047,752
7,664,336
6,188,558
12 March 2012
31 December 2011
%
7.0
5.1
5.1
4.9
3.9
Number
10,858,010
7,912,306
8,047,752
7,664,336
6,188,558
%
7.0
5.1
5.1
4.9
3.9
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.
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.
UK Corporate Governance Code
The Code is available to view at the website of the Financial Reporting Council, www.frc.org.uk.
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 14 March 2012 and signed on its behalf by:
Wendy Sharp
Group Company Secretary
TT electronics plc 69
Annual Report 2011
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Financial statements – Group accounts
Statement of Directors’ responsibilities
Statement of Directors’ responsibilities in respect of the Annual Report
The Directors are responsible for preparing the Annual Report. Company law requires the Directors to prepare Group and parent Company
financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRSs as
adopted by the EU and applicable law and have elected to prepare the parent Company financial statements in accordance with UK Accounting
Standards and applicable law (UK Generally Accepted Accounting Practice).
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 parent Company and of their profit or loss for that period. In preparing each of the Group and parent 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 IFRSs as adopted by the EU; and
• for the parent Company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the parent Company financial statements.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s transactions
and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its 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 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, Directors’ remuneration report and
a Directors’ report on corporate governance that complies 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 UK 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
Each of the persons who is a Director at the date of approval of this report confirms that to the best of his or her knowledge:
• each of the Group and parent company financial statements, prepared in accordance with IFRS and UK Accounting Standards respectively,
gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer and the undertakings included in the
consolidation taken as a whole; and
• the Directors’ report on pages 1 to 69 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.
By order of the Board:
Wendy Sharp
Group Company Secretary
14 March 2012
70 TT electronics plc
Annual Report 2011
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 2011 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 (IFRSs) as adopted by the EU. The financial reporting framework that has been applied in the preparation of the
parent Company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice).
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 Statement of Directors’ responsibilities set out on page 70 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 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 parent Company’s affairs as at 31 December 2011
and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;
• the parent Company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice;
• the financial statements 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 parent Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the parent Company financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the
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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 56 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 UK Corporate
Governance Code specified for our review; and
• certain elements of the report to shareholders by the Board on Directors’ remuneration.
AJ Sykes (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square
London E14 5GL
14 March 2012
TT electronics plc 71
Annual Report 2011
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Financial statements – Group accounts
Consolidated income statement
for the year ended 31 December 2011
£million (unless otherwise stated)
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other operating income
Operating profit
Analysed as:
Operating profit before exceptional items
Exceptional items
Finance income
Finance costs
Profit before taxation
Taxation
Profit from continuing operations
Discontinued operations
Profit from discontinued operations
Profit for the year attributable to owners of the Company
EPS attributable to owners of the Company – basic
From continuing operations (p)
From discontinued operations (p)
EPS attributable to owners of the Company – diluted
From continuing operations (p)
From discontinued operations (p)
* Re-presented for discontinued operations in accordance with IFRS.
Note
2011
2010*
3
3a
7
5
5
8
6
4
10
10
10
10
591.3
(473.0)
118.3
(40.7)
(42.8)
1.7
36.5
34.2
2.3
21.1
(25.8)
31.8
(7.3)
24.5
0.5
25.0
15.8
0.3
16.1
15.5
0.3
15.8
555.5
(456.4)
99.1
(34.5)
(37.6)
2.4
29.4
24.9
4.5
19.5
(23.8)
25.1
(6.7)
18.4
7.5
25.9
11.9
4.8
16.7
11.9
4.8
16.7
72 TT electronics plc
Annual Report 2011
Financial statements – Group accounts
Consolidated statement of comprehensive income
for the year ended 31 December 2011
£million
Profit for the year
Other comprehensive income/(loss) for the year after tax
Exchange differences on retranslation of foreign operations
Tax on exchange differences
Loss on hedge of net investment in foreign operations
Gain/(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 schemes
Tax on actuarial amounts in pension deficit movement
Total comprehensive income for the year
Total comprehensive income is entirely attributable to the owners of the Company.
Note
22
21
2011
25.0
0.9
0.1
(0.6)
0.2
–
–
(6.2)
(2.3)
17.1
2010
25.9
2.1
0.1
(0.9)
(0.2)
(1.7)
(3.9)
(5.9)
8.1
23.6
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TT electronics plc 73
Annual Report 2011
Financial statements – Group accounts
Consolidated balance sheet
at 31 December 2011
£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 14 March 2012 and signed on their behalf by:
G Anderson
Director
S D Dasani
Director
74 TT electronics plc
Annual Report 2011
Note
2011
2010
12
13
14
21
15
16
19
17
18
19
21
22
18
17
23
23
25
26
90.9
67.3
11.8
21.0
191.0
83.4
85.6
0.5
69.5
239.0
430.0
14.2
6.9
113.0
6.1
6.4
146.6
40.1
–
9.3
35.5
0.2
6.9
92.0
238.6
191.4
38.8
0.5
3.6
27.2
119.3
189.4
2.0
191.4
93.5
66.9
14.7
20.1
195.2
81.4
92.7
0.4
44.8
219.3
414.5
5.4
0.4
112.9
4.5
3.0
126.2
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
Financial statements – Group accounts
Consolidated statement of changes in equity
for the year ended 31 December 2011
Share
capital
Share
premium
38.7
–
0.2
–
Share
options
reserve
1.0
–
Hedging
reserve
Translation
reserve
Retained
earnings
(11.5)
–
38.7
–
86.3
25.9
Sub-
total
153.4
25.9
Non-
controlling
interest
2.4
–
Total
155.8
25.9
–
–
–
(0.2)
–
–
–
–
2.1
0.1
(0.9)
–
(1.7)
–
–
–
–
–
–
–
–
(3.5)
(5.9)
8.1
2.1
0.1
(0.9)
(0.2)
(1.7)
(3.5)
(5.9)
8.1
–
–
–
–
–
(0.4)
–
–
2.1
0.1
(0.9)
(0.2)
(1.7)
(3.9)
(5.9)
8.1
(0.2)
(0.4)
(1.3)
(1.9)
(0.4)
(2.3)
£million
At 1 January 2010
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
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 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
Equity dividends paid by the Company
Change in fair value of minority put option
Share-based payments
Deferred tax on share-based payments
New shares issued
At 31 December 2011
–
–
–
–
–
–
–
–
–
–
–
–
0.1
–
38.8
–
–
–
–
–
–
–
–
–
–
–
–
–
38.8
–
–
–
–
–
–
–
–
–
–
–
–
0.2
–
0.4
–
–
–
–
–
–
–
–
–
–
–
–
0.1
0.5
–
–
–
–
–
–
–
–
–
–
0.3
0.7
–
(0.4)
1.6
–
–
–
–
–
–
–
–
–
–
–
–
–
(11.7)
–
–
–
–
0.2
–
–
–
–
–
–
–
38.3
–
0.9
0.1
(0.6)
–
–
–
(1.2)
–
–
–
–
109.7
25.0
–
–
–
–
(6.2)
(2.3)
(1.2)
0.3
0.7
0.3
(0.4)
177.1
25.0
0.9
0.1
(0.6)
0.2
(6.2)
(2.3)
0.2
0.4
(8.5)
(7.9)
–
–
1.7
0.3
–
3.6
–
–
–
–
–
(11.5)
–
–
–
–
–
38.7
(5.0)
(1.9)
–
–
–
119.3
(5.0)
(1.9)
1.7
0.3
0.1
189.4
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–
–
–
–
2.0
–
–
–
–
–
–
–
–
–
–
–
–
–
2.0
(1.2)
0.3
0.7
0.3
(0.4)
179.1
25.0
0.9
0.1
(0.6)
0.2
(6.2)
(2.3)
(7.9)
(5.0)
(1.9)
1.7
0.3
0.1
191.4
TT electronics plc 75
Annual Report 2011
Financial statements – Group accounts
Consolidated cash flow statement
for the year ended 31 December 2011
£million
Note
2011
Cash flows from operating activities
Profit 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
Impairment of intangible assets
Other items including share-based payments
Increase in inventories
(Increase)/decrease in receivables
Increase 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
Disposal of subsidiaries (net of cash in subsidiaries at date of disposal)
Deferred consideration received from disposal of subsidiaries in 2010
Net cash flow (used in)/from investing activities
Cash flows from financing activities
Issue of share capital
Interest paid
Repayment of borrowings
Proceeds from borrowings (2010: 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
25.0
7.3
4.7
(2.3)
(0.5)
–
34.2
16.9
7.6
0.6
(1.7)
(5.3)
0.8
9.9
63.0
(3.5)
(2.2)
57.3
(7.9)
49.4
0.3
(21.3)
2.0
(5.3)
(0.3)
7.6
0.7
(16.3)
0.1
(2.4)
(11.1)
0.2
(0.1)
(5.0)
(18.3)
14.8
44.2
(0.2)
58.8
69.5
(10.7)
58.8
12
14
14
12
14
14
23
27
27
27
19
The consolidated cash flow statement includes cash flows from both continuing and discontinued operations.
76 TT electronics plc
Annual Report 2011
2010
25.9
7.1
4.5
(4.5)
(7.1)
(1.0)
24.9
21.2
9.6
–
(0.5)
(6.0)
(15.2)
26.2
60.2
(3.2)
(5.0)
52.0
(7.0)
45.0
0.2
(10.8)
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
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 72 to 111 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.
• “Improvements to IFRSs”. The Group adopted the Improvements to IFRSs on 1 January 2011.
• IAS 24 “Related party disclosures”. The Group adopted the amendment to IAS 24 on 1 January 2011. The amendment clarified the definition
of a related party.
b) Basis of consolidation
The consolidated financial statements set out the Group’s financial position as at 31 December 2011 and the Group’s financial performance for the
year ended 31 December 2011.
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 on pages 6 to 37.
The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial review on pages 38 to 40.
In addition, note 20 to the financial statements includes 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 had a net cash balance of £15.2 million at 31 December 2011, compared to a net debt balance of £9.9 million at 31 December 2010,
with available financial headroom of over £100 million. Given the considerable financial resources available, together with long-term partnerships
with a number of key customers and suppliers across different geographic areas and industries, 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. Further details are contained in the Directors’ report on page 56.
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TT electronics plc 77
Annual Report 2011
Financial statements – Group accounts
Notes to the consolidated financial statements
continued
1 Basis of preparation (continued)
e) New standards and interpretations not yet adopted
There were no revisions to adopted IFRSs which became applicable in 2011 which had a significant impact on the Group’s financial statements.
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:
The Group does not expect there to be a significant impact on its financial position or performance arising from adoption of these
accounting standards.
IAS 1
IAS 19
IFRS 9
IFRS 10
IFRS 11
IFRS 12
IFRS 13
Presentation of financial statements (Amendment)
Employee benefits (Amendment)
Financial instruments: Classification and measurement
Consolidated financial statements
Joint arrangements
Disclosure of interests in other entities
Fair value measurement
Effective date
1 July 2012
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
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 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 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 18 – Provisions. The Group makes appropriate provision on a consistent basis for risks of product liability, litigation, restructuring, credit
risk and other normal trading exposures with estimates being made regarding the timing of future payments;
• Note 21 – Deferred tax. The recognition of deferred tax assets is dependent on assessments of future taxable income in the relevant countries
concerned; and
• Note 22 – 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 22.
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.
78 TT electronics plc
Annual Report 2011
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 depreciation rates of assets are as follows
Freehold buildings
Leasehold buildings
2%
2% (or over the period of the lease if less than 50 years)
Plant and equipment
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.
TT electronics plc 79
Annual Report 2011
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Financial statements – Group accounts
Notes to the consolidated financial statements
continued
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 substantively 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.
80 TT electronics plc
Annual Report 2011
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.
TT electronics plc 81
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Financial statements – Group accounts
Notes to the consolidated financial statements
continued
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 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.
82 TT electronics plc
Annual Report 2011
3 Segmental reporting
For management purposes, the Group is organised into four 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 and integrated solutions; and
• Secure Power – standby generation and uninterruptible power systems manufacture and service.
The accounting policies of the reportable segments are the same as the Group’s accounting policies as shown in note 2.
Following the disposal of AEI Compounds Limited in July 2011, the General Industrial division ceased to exist. This business is shown
as a discontinued operation in these financial statements and the 2010 comparative amounts have been re-presented accordingly.
In 2010 Abtest Limited was reported under the General Industrial division, but is now included as part of the Integrated Manufacturing Services
division. The comparatives for 2010 have been re-presented accordingly.
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 and is reviewed by the chief operating decision maker.
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
£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 before exceptional items
Exceptional items
Operating profit
Net finance costs
Profit before taxation
There are no significant sales between sectors.
Components
242.7
14.8
Integrated
Manufacturing
Services
100.0
5.1
Sensors
166.9
8.8
Secure Power
81.7
5.5
Components
234.6
10.7
Integrated
Manufacturing
Services
92.2
4.1
Sensors
143.5
3.9
Secure Power
85.2
6.2
2011
Total
591.3
34.2
2.3
36.5
(4.7)
31.8
2010
(re-presented)
Total
555.5
24.9
4.5
29.4
(4.3)
25.1
TT electronics plc 83
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Financial statements – Group accounts
Notes to the consolidated financial statements
continued
3 Segmental reporting (continued)
b) Segment assets
£million
Components
Sensors
Integrated Manufacturing Services
Secure Power
Segment assets and liabilities
Assets and liabilities of discontinued operations
Pensions and other post-employment benefits
Unallocated assets and liabilities
Total assets/liabilities
£million
Components
Sensors
Integrated Manufacturing Services
Secure Power
Total continuing operations
Discontinued operations
Total
c) Geographic information
2011
168.1
78.9
45.5
46.6
339.1
–
–
90.9
430.0
Assets
2010
175.9
79.7
46.1
38.0
339.7
9.9
–
64.9
414.5
2011
48.4
31.3
22.0
24.6
126.3
–
35.5
76.8
238.6
Liabilities
2010
47.6
27.2
24.3
22.9
122.0
4.0
41.2
68.2
235.4
Capital expenditure
Depreciation and amortisation
2011
11.0
12.8
1.7
1.1
26.6
0.3
26.9
2010
5.9
9.6
1.0
0.6
17.1
1.1
18.2
2011 2010 (re-presented)
9.3
12.8
1.4
0.7
24.2
0.3
24.5
12.3
14.6
1.8
0.6
29.3
1.5
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
2011
98.6
250.7
110.7
48.7
70.5
12.1
591.3
12.4
603.7
2010
(re-presented)
95.0
222.4
102.3
58.5
72.3
5.0
555.5
44.2
599.7
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.
84 TT electronics plc
Annual Report 2011
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
2011
27.2
52.4
75.2
6.6
8.6
170.0
2010
33.5
49.9
76.1
6.6
9.0
175.1
4 Discontinued operations
On 11 July 2011 the Group disposed of AEI Compounds Limited, the last remaining business within the former General Industrial division,
for consideration of £8.6 million in cash before costs.
During the year ended 31 December 2010, the Group disposed of six other businesses, all of which were part of the former
General Industrial division.
The results from discontinued operations shown in the consolidated income statement are as follows:
£million
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit
Net finance costs
Profit before taxation
Taxation
Profit after taxation
Profit on disposal of discontinued operations
Profit from discontinued operations
The profit on disposal of discontinued operations 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
2011
12.4
(11.4)
1.0
(0.2)
(0.8)
–
–
–
–
–
0.5
0.5
2011
8.6
(0.5)
(0.5)
7.6
0.2
(7.3)
0.5
2010
(re-presented)
44.2
(36.3)
7.9
(2.9)
(4.0)
1.0
(0.2)
0.8
(0.4)
0.4
7.1
7.5
2010
23.5
(1.5)
(0.3)
21.7
1.0
(15.6)
7.1
TT electronics plc 85
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Financial statements – Group accounts
Notes to the consolidated financial statements
continued
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 expense
Foreign exchange losses
Interest on employee obligations
Amortisation of arrangement fees
Unwinding of discount factor on minority put option
Finance costs
Interest income
Foreign exchange gains
Expected return on pension scheme assets
Finance income
Net finance costs
6 Profit for the year
Profit 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 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
– other services
Government grants credited
Share-based payments
Other operating income includes £0.4 million of profit on the disposal of property, plant and equipment.
2011
0.7
0.2
2.8
3.7
2011
2.2
2.3
20.0
0.6
0.7
25.8
0.5
1.6
19.0
21.1
4.7
2011
16.6
7.6
2.3
475.0
156.5
0.2
0.6
0.2
0.1
(0.7)
1.7
2010
(re-presented)
0.9
(0.6)
–
0.3
2010
(re-presented)
3.0
–
19.8
0.6
0.4
23.8
0.2
–
19.3
19.5
4.3
2010
(re-presented)
20.0
9.6
0.1
455.9
141.1
0.1
0.5
0.2
–
(1.0)
0.3
86 TT electronics plc
Annual Report 2011
7 Exceptional items
£million
Continuing operations
Reduction in UK pension liabilities
Restructuring costs
Profit on sale of property interest
Onerous property leases
Pensions curtailment gain from scheme closure
Total
2011
7.5
(5.2)
–
–
–
2.3
2010
–
–
1.0
(0.8)
4.3
4.5
a) Year ended 31 December 2011
For the year ended 31 December 2011, the exceptional items relate to:
• a one-off reduction of £7.5 million in the future liabilities of the UK pension scheme following the UK Government’s announcement to change
the basis of indexation of occupational pension schemes from RPI to CPI (see note 22); and
• restructuring costs of £5.2 million primarily associated with the closure of the Components operation in Boone, North Carolina. This amount
includes impairments of fixed assets of £1.8 million, provisions against inventory of £0.6 million and reorganisation provisions of £2.8 million.
b) 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.
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.
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Annual Report 2011
Financial statements – Group accounts
Notes to the consolidated financial statements
continued
8 Taxation
a) Analysis of the tax charge 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
2011
2010
9.7
(0.1)
9.6
(2.3)
7.3
11.3
(0.1)
11.2
(4.5)
6.7
2010
25.1
7.1
1.1
(0.1)
(2.1)
0.3
0.4
–
–
6.7
UK tax is calculated at 26.5% (2010: 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 23.0% (30.2% excluding exceptional items).
Included within the £2.3 million deferred tax credit for 2011 is £1.6 million relating to exceptional items.
b) Reconciliation of the total tax charge for the year
£million
Profit before tax from continuing operations
Profit before tax multiplied by the standard rate of corporation tax in the UK of 26.5% (2010: 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 other items not recognised
Overseas tax rate differences
Other timing differences – exceptional items
– other
Total tax charge reported in the income statement – continuing operations
2011
31.8
8.4
4.1
(0.1)
(4.2)
0.2
0.4
(1.6)
0.1
7.3
The 2010 Emergency Budget and the 2011 Budget announced that the UK corporation tax rate will reduce from 28% to 23% over a period of
four years from 2011. The reductions to 26% effective from 1 April 2011 and 25% effective from 1 April 2012 were substantively enacted on
29 March 2011 and 5 July 2011 respectively. As the rate change to 25% was substantively enacted prior to the year end, the closing deferred tax
assets and liabilities have been calculated at this rate. 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. Accordingly, in 2011 £0.1 million
has been charged directly to equity.
Had the further tax rate changes been substantively enacted on or before the balance sheet date it would have had the effect of reducing the
deferred tax asset by £0.8 million.
9 Dividends
Final dividend for prior year
Interim dividend for current year
2011
pence per
share
2.0
1.2
3.2
2011
£million
3.1
1.9
5.0
2010
pence per
share
–
0.8
0.8
2010
£million
–
1.2
1.2
The Directors recommend a final dividend of 3.2p which when combined with the interim dividend of 1.2p gives a total dividend for the year
of 4.4p 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 8 June 2012 to shareholders on the register on 25 May 2012.
88 TT electronics plc
Annual Report 2011
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 154.9 million (2010: 154.8 million).
Headline earnings per share is based on profit for the year from continuing operations before exceptional items and their associated tax effect.
Pence
Basic earnings per share
Continuing operations
Discontinued operations
Total
Pence
Diluted earnings per share
Continuing operations
Discontinued operations
Total
The numbers used in calculating headline, basic and diluted earnings per share are shown below.
Headline earnings per share
£million
Continuing operations
Profit for the period attributable to owners of the Company
Exceptional items
Tax effect of exceptional items (see note 8a)
Headline earnings
Headline earnings per share (pence)
The weighted average number of shares in issue is as follows:
Million
Basic
Adjustment for share awards
Diluted
2011
15.8
0.3
16.1
2011
15.5
0.3
15.8
2011
24.5
(2.3)
(1.6)
20.6
13.3
2011
154.9
3.6
158.5
2010
(re-presented)
11.9
4.8
16.7
2010
(re-presented)
11.9
4.8
16.7
2010
(re-presented)
18.4
(4.5)
–
13.9
9.0
2010
154.8
–
154.8
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TT electronics plc 89
Annual Report 2011
Financial statements – Group accounts
Notes to the consolidated financial statements
continued
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
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
2011
2010
(re-presented)
5,479
356
380
6,215
3,247
1,092
1,149
727
6,215
2011
135.3
19.1
2.1
156.5
5,258
474
351
6,083
3,255
1,049
1,062
717
6,083
2010
(re-presented)
119.1
20.5
1.5
141.1
2011
1.8
2010
(re-presented)
1.7
Further details of individual Directors’ remuneration, pension benefits and share awards are shown in the Directors’ remuneration report on
pages 60 to 66. The 2010 comparative has been re-presented from £1.9 million to £1.7 million to exclude social security charges.
Key management personnel
The remuneration of key management during the year was as follows:
£million
Short-term benefits
Post-employment benefits
Share based payments
2011
3.8
0.2
0.9
4.9
2010
3.7
0.2
–
3.9
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 other members of the Operating Board. 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 Remuneration report.
90 TT electronics plc
Annual Report 2011
12 Property, plant and equipment
£million
Cost
At 1 January 2010
Additions
Disposals
Disposal of subsidiaries
Net exchange adjustment
At 1 January 2011
Additions
Disposals
Disposal of subsidiaries
Net exchange adjustment
At 31 December 2011
Depreciation and impairment
At 1 January 2010
Depreciation charge
Impairment
Disposals
Disposal of subsidiaries
Net exchange adjustment
At 1 January 2011
Depreciation charge
Impairment
Disposals
Disposal of subsidiaries
Net exchange adjustment
At 31 December 2011
Net book value
At 31 December 2011
31 December 2010
Land and
buildings
Plant and
equipment
64.8
0.1
(0.6)
(2.1)
(0.9)
61.3
1.5
(0.7)
(0.1)
(0.5)
61.5
16.3
2.0
0.4
(0.3)
(0.4)
(0.3)
17.7
2.5
1.7
(0.1)
–
(0.1)
21.7
39.8
43.6
331.1
10.7
(24.7)
(18.5)
(2.8)
295.8
19.8
(9.8)
(5.5)
(1.9)
298.4
268.3
19.2
–
(24.2)
(15.4)
(2.0)
245.9
14.4
0.1
(9.0)
(2.6)
(1.5)
247.3
51.1
49.9
Total
395.9
10.8
(25.3)
(20.6)
(3.7)
357.1
21.3
(10.5)
(5.6)
(2.4)
359.9
284.6
21.2
0.4
(24.5)
(15.8)
(2.3)
263.6
16.9
1.8
(9.1)
(2.6)
(1.6)
269.0
90.9
93.5
Included within land and buildings are two (2010: three) investment properties with a carrying value of £3.0 million (2010: £3.5 million).
The fair value of these properties is £5.5 million (2010: £6.0 million).
The carrying amount of land and buildings includes £0.3 million (2010: £0.3 million) in respect of assets held under finance leases.
No borrowing costs were capitalised by the Group during the year (2010: £nil) as no significant qualifying assets commenced construction
after 1 January 2010.
The depreciation charge for the year is allocated to continuing operations £16.6 million (2010: £20.0 million) and discontinued operations
£0.3 million (2010: £1.2 million).
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TT electronics plc 91
Annual Report 2011
Financial statements – Group accounts
Notes to the consolidated financial statements
continued
13 Goodwill
Cost
At 1 January 2010
Net exchange adjustment
At 1 January 2011
Net exchange adjustment
At 31 December 2011
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
65.9
1.0
66.9
0.4
67.3
£million
29.3
18.4
3.4
2.3
8.1
5.1
0.7
92 TT electronics plc
Annual Report 2011
13 Goodwill (continued)
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% (2010: 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 rates used to discount the forecast cash flows are:
UK businesses
US businesses
Chinese business
2011
8.0%
10.5%
11.5%
2010
8.3%
10.5%
11.5%
Following detailed review, no impairment losses have been recognised in the current or prior year.
The goodwill allocated to each of BI Technologies, Optek Technology and TT electronics integrated manufacturing services USA 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 £55.8 million (2010: 83% or £55.3 million) of the total goodwill balance.
The recoverable amounts exceed the total carrying value of assets for the CGUs by the following amounts:
£million
BI Technologies
Optek Technology
TT electronics integrated manufacturing services, USA
2011
12.8
13.8
11.2
2010
11.1
12.6
0.8
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:
Long-term growth rate
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)/increase annually by the following amounts for the carrying
values to be impaired:
BI Technologies
Optek Technology
TT electronics integrated manufacturing services, USA
2011
(0.6%)
(1.9%)
(3.1%)
Discount rate
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. For the carrying values to be impaired, the discount rate would need to increase to the following amounts:
BI Technologies
Optek Technology
TT electronics integrated manufacturing services, USA
2011
13.3%
15.9%
16.6%
2010
(1.5%)
(5.6%)
2.6%
2010
13.1%
15.8%
10.8%
TT electronics plc 93
Annual Report 2011
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Financial statements – Group accounts
Notes to the consolidated financial statements
continued
13 Goodwill (continued)
Cash flows
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 Technologies, Optek Technology
and TT electronics integrated manufacturing services, USA to be impaired the expected cash flows for every year would need to reduce
by the following:
BI Technologies
Optek Technology
TT electronics integrated manufacturing services, USA
2011
23%
36%
41%
2010
22%
36%
4%
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.
94 TT electronics plc
Annual Report 2011
14 Other intangible assets
Cost
At 1 January 2010
Additions
Disposals
Disposal of subsidiaries
Net exchange adjustment
At 1 January 2011
Additions
Disposals
Disposal of subsidiaries
Net exchange adjustment
At 31 December 2011
Amortisation
At 1 January 2010
Charge for the year
Disposals
Disposal of subsidiaries
Net exchange adjustment
At 1 January 2011
Charge for the year
Impairment
Disposals
Disposal of subsidiaries
Net exchange adjustment
At 31 December 2011
Net book value
At 31 December 2011
At 31 December 2010
15 Inventories
£million
Raw materials
Work in progress
Finished goods
Product
development
costs
Patents,
licences and
other
Customer
relationships
30.3
6.0
(11.7)
(0.1)
(0.8)
23.7
5.3
(11.1)
(0.1)
(0.3)
17.5
16.9
8.9
(11.7)
(0.1)
(0.5)
13.5
6.7
0.6
(11.1)
(0.1)
(0.1)
9.5
8.0
10.2
4.6
1.4
(0.6)
–
–
5.4
0.3
–
–
(0.1)
5.6
2.2
0.4
(0.2)
–
–
2.4
0.6
–
–
–
–
3.0
2.6
3.0
3.5
–
–
–
–
3.5
–
–
–
–
3.5
1.7
0.3
–
–
–
2.0
0.3
–
–
–
–
2.3
1.2
1.5
2011
40.9
22.8
19.7
83.4
Inventories are stated after deduction of a provision for slow moving and obsolete items of £27.8 million (2010: £24.5 million).
16 Trade and other receivables
£million
Trade receivables
Prepayments
Other receivables
Provisions for impairment in respect of trade receivables are shown in note 20(d)(ii).
2011
69.1
9.5
7.0
85.6
Total
38.4
7.4
(12.3)
(0.1)
(0.8)
32.6
5.6
(11.1)
(0.1)
(0.4)
26.6
20.8
9.6
(11.9)
(0.1)
(0.5)
17.9
7.6
0.6
(11.1)
(0.1)
(0.1)
14.8
11.8
14.7
2010
40.2
21.8
19.4
81.4
2010
74.5
8.2
10.0
92.7
TT electronics plc 95
Annual Report 2011
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Financial statements – Group accounts
Notes to the consolidated financial statements
continued
17 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
18 Provisions
£million
At 1 January 2010
Utilised
Arising during the year
At 1 January 2011
Utilised
Arising during the year
At 31 December 2011
2011
2010
57.6
5.2
50.2
113.0
2011
6.9
61.7
3.6
47.6
112.9
2010
5.4
Reorganisation
Environmental
Legal and other
Total
6.6
(5.5)
–
1.1
(2.2)
2.8
1.7
0.1
(0.1)
–
–
–
–
–
2.4
(1.7)
1.3
2.0
(0.5)
3.4
4.9
9.1
(7.3)
1.3
3.1
(2.7)
6.2
6.6
The reorganisation provision in 2011 primarily relates to the restructuring programme associated with the closure of the Boone, North Carolina
operations and is expected to be substantially utilised during 2012. 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
2011
0.2
6.4
6.6
2010
0.1
3.0
3.1
The timing of the utilisation of these amounts is uncertain as they are subject to commercial negotiation and legal process in different
jurisdictions.
19 Borrowings
£million
31 December 2011
£60 million multi-currency club facility
AB Mikroelektronik GmbH loan
Overdrafts
Finance leases
Loan arrangement fee
Total
31 December 2010
£60 million multi-currency club facility
£10 million manufacturing fund loan
AB Mikroelektronik GmbH loan
TT Automotive Electronics (Suzhou) Co. Ltd loan
AB Electronics (Suzhou) Co. Ltd loan
Overdrafts
Finance leases
Loan arrangement fee
Total
96 TT electronics plc
Annual Report 2011
Maturity
Currency of
denomination
Current
Non-current
Total
2013
2011
GBP/USD
Euro
2013
2013
2011
2011
2011
GBP/USD
GBP
Euro
CNY
CNY
–
4.0
10.7
0.1
(0.6)
14.2
–
–
4.2
0.6
0.5
0.6
0.1
(0.6)
5.4
39.8
0.3
–
0.2
(0.2)
40.1
39.7
10.0
–
–
–
–
0.3
(0.7)
49.3
39.8
4.3
10.7
0.3
(0.8)
54.3
39.7
10.0
4.2
0.6
0.5
0.6
0.4
(1.3)
54.7
19 Borrowings (continued)
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 2011, 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 certain 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 loan was repaid in full in April 2011. Arrangement fees with an amortised cost of £0.8 million, gross cost before amortisation of £2.0 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 AB Electronics (Suzhou) Co. Ltd and TT Automotive Electronics (Suzhou) Co. Ltd were both repaid in full in June and
July 2011 respectively.
Undrawn facilities
At 31 December 2011, the total borrowing facilities available to the Group amounted to £102.3 million (2010: £110.7 million).
At 31 December 2011, the Group had available £33.2 million (2010: £38.4 million) of undrawn committed borrowing facilities and
£14.8 million (2010: £17.6 million) of undrawn uncommitted borrowing facilities, representing overdraft lines.
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TT electronics plc 97
Annual Report 2011
Financial statements – Group accounts
Notes to the consolidated financial statements
continued
20 Financial risk management
The financial information disclosed in the tables relating to the year ended 31 December 2011 represents continuing operations only.
The main risks arising from the Group’s financial instruments are foreign exchange risk, interest rate risk, credit risk, liquidity risk and commodity
price 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, under the oversight of a Treasury Committee which is chaired
by the Group Finance Director. The responsibilities of the Group’s Treasury department include 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.
A Group Treasury policy has been approved by the Board of Directors and is periodically updated to reflect developments in the financial markets
and the financial exposure facing the Group. The Group’s Treasury and internal audit departments monitor compliance with the Treasury Policy
on a regular basis.
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, interest rates and commodity
prices. 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 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 average rate forward currency hedges to mitigate translational foreign exchange risk taking into account the level of forecast
profits in foreign currencies, natural hedges and the cost of taking out cover. During 2011, the Group took out average rate forward contracts
hedging GBP against a portion of US dollar and Euro forecast cash flows for 2011 and 2012. In 2011, the Group broke even on the hedges that
matured in 2011, and at 31 December 2011 the mark to market position of the 2012 hedges stood at a profit of £0.3 million which has been
recognised in equity. The Group did not take out any average rate forward contracts in 2010.
In light of the current economic environment in the Eurozone economy, the Treasury Committee has undertaken an assessment of the sensitivity
of the Group’s Euro-denominated assets, liabilities and transactional activity to a variety of potential changes to the Eurozone economy and
consequential impact on the Euro, and has considered the financial and operational consequences of such changes. Mitigating actions have been
put in place through the use of GBP/Euro cash flow hedges to mitigate the impact of any downside risk arising from the Eurozone uncertainty and
these hedges are constantly monitored by the Treasury Committee.
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. The Group holds 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 club facility rate debt.
The interest rate cap matures in May 2013.
In light of the significant commodity market volatility seen in the second half of the year, the Group commenced an exercise of evaluating
commodity price hedging for the main base and precious metal exposures faced. These hedges were executed in January 2012 on a
non-deliverable basis covering a portion of the maximum exposures for 2012.
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 2011 is taken to the hedging reserve within equity. At 31 December 2011, the Group had a net derivative financial
liability of £6.4 million (2010: net derivative financial liability of £4.3 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 £6.9 million (2010: £4.3 million). The option can be exercised by either party within a five year window commencing
in September 2012. 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 representing the unwinding of the discount factor.
98 TT electronics plc
Annual Report 2011
20 Financial risk management (continued)
b) Foreign exchange risk
The Group’s exposure to foreign currency is shown below:
£million
31 December 2011
Trade and other receivables
Cash and cash equivalents
Borrowings
Trade and other payables
31 December 2010
Trade and other receivables
Cash and cash equivalents
Borrowings
Trade and other payables
GBP
USD
Euro
Other
Total
0.3
0.2
–
(0.8)
(0.3)
0.4
0.1
–
(0.8)
(0.3)
5.1
3.3
(6.4)
(5.6)
(3.6)
13.1
5.9
(6.4)
(11.5)
1.1
2.3
2.2
–
(1.4)
3.1
3.7
1.9
–
(2.4)
3.2
2.6
3.3
–
–
5.9
3.3
1.6
–
(2.7)
2.2
10.3
9.0
(6.4)
(7.8)
5.1
20.5
9.5
(6.4)
(17.4)
6.2
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 2010.
£million
US dollar
Euro
2011
(0.2)
0.3
2010
0.1
0.3
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
Derivative financial instruments
Total financial assets
Financial liabilities
Borrowings
Trade and other payables
Derivative financial instruments
Total financial liabilities
Floating
rate
–
52.5
–
52.5
(50.0)
–
–
(50.0)
Fixed
rate
–
17.0
–
17.0
(4.3)
–
–
(4.3)
Non-
interest
bearing
75.1
–
0.5
75.6
–
(114.1)
(6.9)
(121.0)
2011
total
75.1
69.5
0.5
145.1
(54.3)
(114.1)
(6.9)
(175.3)
At 31 December 2011, 8% (2010: 28%) of total debt was at a fixed rate and the balance was at floating rate. Of the floating rate borrowings of
£50.0 million, £20.0 million has been hedged using an interest rate cap fixed at 1% until May 2013. Including the impact of the interest rate cap,
45% of the total debt was fixed at 31 December 2011.
TT electronics plc 99
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Financial statements – Group accounts
Notes to the consolidated financial statements
continued
20 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
–
33.8
33.8
(39.4)
–
–
(39.4)
Fixed
rate
–
11.0
11.0
(15.3)
–
–
(15.3)
Non-
Interest
bearing
84.5
–
84.5
–
(110.7)
(4.3)
(115.0)
2010
total
84.5
44.8
129.3
(54.7)
(110.7)
(4.3)
(169.7)
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 cash position of the Group at 31 December 2011, any increase in interest rates would result in a net gain in the consolidated
income statement, and any decrease in interest rates would result in a net loss. The effect on profit after tax of a 1% movement in £LIBOR, based
on the year-end floating rate net cash/(debt) and with all other variables held constant, is estimated to be £0.2 million (2010: £0.1 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 GBP which can be hedged using
foreign exchange hedges.
There were no material impairments of trade receivables as at 31 December 2011 or 2010. 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
100 TT electronics plc
Annual Report 2011
2011
39.6
9.3
11.2
8.0
1.0
69.1
2010
44.3
14.3
6.2
7.4
2.3
74.5
20 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
50.5
15.2
4.1
1.6
71.4
2011
Impairment
–
(0.7)
(0.4)
(1.2)
(2.3)
The movement in the provision for impairment in respect of trade receivables during the year was as follows:
£million
At 1 January 2011
Charged/(credited) to income statement
Businesses disposed
At 31 December 2011
Gross
44.3
21.8
5.4
4.5
76.0
2011
1.5
0.8
–
2.3
2010
Impairment
–
(0.1)
–
(1.4)
(1.5)
2010
1.7
(0.1)
(0.1)
1.5
(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)
2011
7.0
69.5
0.5
2010
10.0
44.8
0.4
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 2011, the Group had £33.2 million of undrawn committed borrowing facilities (2010: £38.4 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 2011
Trade and other receivables
Cash and cash equivalents
Derivative financial instruments
Borrowings
Trade and other payables
Derivative financial instruments
On demand
Less than
3 months
3 to 12
months
–
69.5
–
69.5
(10.7)
–
–
(10.7)
71.2
–
–
71.2
0.1
(102.3)
–
(102.2)
3.8
–
0.5
4.3
(1.1)
(5.2)
(7.5)
(13.8)
1 to 5
years
0.1
–
–
0.1
(44.8)
(4.4)
–
(49.2)
Over 5
years
–
–
–
–
–
(2.2)
–
(2.2)
Total
75.1
69.5
0.5
145.1
(56.5)
(114.1)
(7.5)
(178.1)
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Financial statements – Group accounts
Notes to the consolidated financial statements
continued
20 Financial risk management (continued)
At 31 December 2011, the Group had derivative financial instruments hedging a notional contractual amount of £35.8 million, of which
£15.8 million relates to foreign exchange cash flow hedges and £20 million to interest rate cash flow hedges. Of this total amount, £15 million
matures within one year and £20 million matures between one and five years.
£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
–
33.8
33.8
(0.6)
–
–
(0.6)
84.5
11.0
95.5
(0.4)
(110.7)
–
(111.1)
–
–
–
(6.1)
–
–
(6.1)
1 to 5
years
–
–
–
(51.6)
–
(5.3)
(56.9)
Over 5
years
–
–
–
–
–
–
–
Total
84.5
44.8
129.3
(58.7)
(110.7)
(5.3)
(174.7)
f) Fair value of financial assets and liabilities
The Group has adopted the amendment to IFRS 7 “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.
Trade and other receivables
Cash and cash equivalents
Borrowings
Trade and other payables
Derivative financial instruments
Carrying
value
75.1
69.5
(54.3)
(114.1)
(6.4)
2011
Fair value
75.1
69.5
(54.2)
(114.1)
(6.4)
Carrying
value
84.5
44.8
(54.8)
(110.7)
(4.3)
2010
Fair value
84.5
44.8
(54.4)
(110.7)
(4.3)
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 instrument assets (£0.5 million) 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). The fair value
of the derivative financial liability (£6.9 million) is estimated using risk-adjusted discounted future cash flow projections (level 3);
• 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 Board considers equity
shareholders’ funds as 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 cash position of £15.2 million (2010: net debt position of £9.9 million). Included within the debt facilities are certain 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.
102 TT electronics plc
Annual Report 2011
21 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
Share-based payments
Short-term timing differences
Deferred tax asset/(liability)
As at
1 January
2011
Continuing
operations
Businesses
disposed
Recognised
in equity
Net
exchange
translation
As at
31 December
2011
(3.7)
(0.8)
(3.0)
11.8
2.8
4.2
0.6
(0.8)
0.7
(0.6)
11.2
(0.5)
(0.8)
0.6
–
(0.2)
1.0
1.5
(0.4)
0.3
0.8
2.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2.3)
–
–
–
–
0.3
–
(2.0)
–
–
0.1
0.1
0.1
–
–
–
–
(0.1)
0.2
(4.2)
(1.6)
(2.3)
9.6
2.7
5.2
2.1
(1.2)
1.3
0.1
11.7
As at
1 January
2010
Continuing
operations
Businesses
disposed
Recognised
in equity
Net
exchange
translation
As at
1 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
The deferred tax movement recognised in equity in respect of retirement benefit obligations of £2.3 million arises due to a reduction in the
substantively enacted UK tax rate (£0.8 million) and a reduction in the UK pension deficit (£1.5 million).
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
At 31 December 2011, the Group had the following items for which no deferred tax assets have been recognised:
£million
Tax losses
Property, plant and equipment
2011
21.0
(9.3)
11.7
2011
28.0
12.7
Included within the £28.0 million (2010: £26.0 million) of unrecognised tax losses in the table above is £19.7 million (2010: £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 £nil (2010: £0.2 million).
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(3.7)
(0.8)
(3.0)
11.8
2.8
4.2
0.6
(0.8)
0.7
(0.6)
11.2
2010
20.1
(8.9)
11.2
2010
26.0
16.1
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Financial statements – Group accounts
Notes to the consolidated financial statements
continued
22 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 £2.0 million
(2010: £1.5 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 as an exceptional item in the consolidated income statement in 2010.
Following the UK Government’s announcement in July 2010 to change the basis of statutory minimum indexation of occupational pension
schemes from the Retail Price Index (RPI) to the Consumer Price Index (CPI), the Company communicated the impact of this change to affected
members in 2011. This has resulted in a one-off reduction in the future liabilities of £7.5 million which has been recognised as an exceptional item
within the consolidated income statement (see note 7).
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, £3.5 million was paid in 2011 and further planned contributions amount to: 2012 £3.7 million; 2013 £3.9 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 2007 and 2010 using the projected unit credit method. Pension scheme assets are stated at their
market value at 31 December 2011.
An analysis of the pension deficit by country is shown below:
£million
UK
USA
Japan
2011
32.1
3.1
0.3
35.5
2010
38.6
2.2
0.4
41.2
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
2011
4.7
2.7
2.5–3.2
2010
5.4
3.5
2.5–3.5
A decrease in the discount rate by 0.1% per annum increases the liabilities by approximately £6.8 million. An increase in the inflation rate
of 0.1% per annum increases the liabilities by approximately £4.2 million.
The expected percentage long-term rates of return on the main asset classes, net of expenses, set by management having regard to actuarial
advice and relevant indices were:
2011
6.8
4.1
2.5
0.1
2010
7.4
4.8
3.4
0.1
%
Equities
Bonds
Gilts and swaps
Cash
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Annual Report 2011
22 Retirement benefit schemes (continued)
The mortality tables applied by the actuaries at 31 December 2011 were S1NA tables adjusted by + one year, with future improvements increasing
in line with medium cohort with a 1% p.a. floor.
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 in the Consolidated balance sheet
2011
213.9
78.6
26.9
58.6
378.0
(413.5)
(35.5)
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
–
298.2
(315.6)
(17.4)
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
Settlement/curtailment gain
RPI/CPI change to indexation
Interest on employee obligations
Expected return on pension scheme assets
2011
0.1
–
(7.5)
20.0
(19.0)
2006
187.8
10.9
73.4
–
272.1
(344.7)
(72.6)
2010
0.3
(4.3)
–
19.8
(19.3)
Of the current service cost of £0.1 million (2010: £0.3 million), £0.1 million (2010: £0.2 million) is included in cost of sales in the income statement
and £nil (2010: £0.1 million) is included in administrative expenses.
The actual return on schemes assets was a gain of £49.3 million (2010: £45.2 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 £36.3 million.
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
RPI/CPI change to indexation
Settlement/curtailment gain
Change in actuarial estimates and assumptions
Benefits paid
Defined benefit obligation at 31 December
2011
379.3
0.1
20.0
–
(7.5)
–
36.5
(14.9)
413.5
2010
350.2
0.3
19.8
0.2
–
(4.3)
31.8
(18.7)
379.3
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Financial statements – Group accounts
Notes to the consolidated financial statements
continued
22 Retirement benefit schemes (continued)
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 of actual over expected returns
Contributions by employer
Contributions by employees
Benefits paid
Fair value of schemes’ assets at 31 December
2011
338.1
19.0
30.3
5.5
–
(14.9)
378.0
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
2011
(36.5)
30.3
(6.2)
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
The Group expects to contribute approximately £3.7 million of additional fixed contributions to defined benefit schemes in the UK in 2012.
23 Share capital
£million
Issued and fully paid
155,217,949 (2010: 155,124,724) ordinary shares of 25p each
2011
2010
38.8
38.8
During the year the Company issued 93,225 ordinary shares as a result of share options being exercised under the 2004 Approved Plan and
Unapproved Plan and the Sharesave scheme. The aggregate consideration received was £0.1 million, which was represented by a £0.1 million
increase in share premium.
24 Share-based payment plans
The Company has the following share-based payment plans in operation at 31 December 2011:
• 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 plans for UK, German and Austrian employees; and Share Purchase plans for US employees.
a) Share option schemes
Details of the share options outstanding during the year are as follows:
2011
Weighted
average
exercise price
(p)
138.2
–
128.9
145.0
186.1
115.9
145.0
Number of
share options
1,136,161
–
(140,818)
(77,234)
(338,541)
579,568
142,297
Number of
share options
2,618,043
–
(1,090,999)
(171,929)
(218,954)
1,136,161
234,595
2010
Weighted
average
exercise price
(p)
135.3
–
140.9
145.0
91.5
138.2
145.0
At 1 January
Granted
Forfeited
Exercised
Expired
At 31 December
Exercisable at 31 December
106 TT electronics plc
Annual Report 2011
24 Share-based payment plans (continued)
At 31 December 2011 options were exercisable over 579,568 (2010: 1,136,161) Ordinary shares under the Group share option schemes up to 2015.
Subscription prices range from 80p to 165p with a weighted average of 115.9p and a weighted average remaining contractual life of 1.32 years
(2010: 2.44 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 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:
At 1 January
Granted
Forfeited
Vested
Expired
At 31 December
Exercisable at 31 December
2011
2010
Number of
share awards
Number of
share awards
6,305,879
1,525,800
(291,811)
–
(930,121)
6,609,747
–
5,458,293
1,846,920
(339,988)
–
(659,346)
6,305,879
–
During 2010 and 2011 grants of awards were made under the LTIP for the issue of shares in 2013 and 2014 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 62.
On 27 April 2011 and 18 October 2011, grants of awards were made under the LTIP for the issue of up to 1,490,800 and 35,000 shares in 2014.
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 simulates 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 2011
2011
Shares with a
18 October 2011
grant date
Shares with a
27 April 2011
grant date
Shares with a
24 September 2010
grant date
35,000
126.0p
149.8p
£nil
66%
2.9
1,490,800
148.5p
176.5p
£nil
66%
2.3
65,742
128.8p
146.0p
£nil
68%
1.8
2010
Shares with a
4 May 2010
grant date
1,781,180
94.1p
105.0p
£nil
68%
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.
On 27 April 2011, 113,000 (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 27 April 2011 (4 May 2010) LTIP grant.
The LTIP grants made in 2008 did not vest but the grants made in 2009 are forecast to vest in full based on the performance conditions.
TT electronics plc 107
Annual Report 2011
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Financial statements – Group accounts
Notes to the consolidated financial statements
continued
24 Share-based payment plans (continued)
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
Granted
Forfeited
Exercised
Expired
At 31 December
Exercisable at 31 December
2011
2010
Number of
share awards
Number of
share awards
259,515
–
–
–
–
259,515
–
–
259,515
–
–
–
259,515
–
The fair value of the shares at grant date was 139.0p. On 24 October 2010, the Company purchased 259,515 shares at a cost of £0.4 million
through an Employee Benefit Trust. These shares are dilutive for the purpose of earnings per share.
d) Sharesave schemes
The Group operates Sharesave schemes for participating employees in the UK, Germany and Austria under either a three-year or five-year plan.
Employees may purchase the Group’s shares at a 20% discount to the market price on the day prior to the commencement of the offer up to a
maximum contribution value of £3,000 (UK) or €3,480 (Germany/Austria) in any one year. Monthly contributions are saved with LloydsTSB plc, via
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 commencement of the savings contract. Options become exercisable on completion of either the
three or five year term or within six months of leaving in certain circumstances.
UK
Germany/Austria
UK
The fair value of the shares at grant date was as follows:
Pence
3 year scheme
5 year scheme
Details of the Sharesave awards outstanding during the year are as follows:
Date price set
Market price
Option price
3 September 2010
19 April 2011
2 September 2011
142.5p
169.0p
162.0p
114.0p
136.0p
130.0p
2011
Germany/
Austria
83.6
93.9
UK
77.9
87.5
UK
70.0
79.0
Options
outstanding
1,306,507
130,801
288,204
2010
Germany/
Austria
–
–
At 1 January
Granted
Forfeited
Exercised
Expired
At 31 December
Exercisable at 31 December
2011
2010
Number of share
awards
Number of share
awards
1,492,920
425,702
(177,119)
(15,991)
–
1,725,512
30,695
–
1,492,920
–
–
–
1,492,920
–
On 26 September 2011 the Group launched a Stock Purchase Plan for participating US employees. Under the plan employees may purchase
the Group’s shares at a 15% discount to the market price at the date of acquisition, up to a maximum of $6,500 per annum. Employees save
on a monthly basis and shares are purchased each quarter.
The total share-based payment charge for the year (excluding social security charges of £0.3 million) arising from the above share scheme plans
was £1.7 million (2010: £0.3 million).
108 TT electronics plc
Annual Report 2011
25 Hedging and translation reserves
£million
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 1 January 2011
Exchange differences on translation of foreign operations
Tax on exchange differences
Loss on hedge of net investment in foreign operations
Cash flow hedges
At 31 December 2011
26 Retained earnings
£million
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 22)
Tax on actuarial amounts in pension deficit movement
At 1 January 2011
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 22)
Tax on actuarial amounts in pension deficit movement
At 31 December 2011
Hedging
reserve
Translation
reserve
(11.5)
–
–
–
(0.2)
–
(11.7)
–
–
–
0.2
(11.5)
38.7
2.1
0.1
(0.9)
–
(1.7)
38.3
0.9
0.1
(0.6)
–
38.7
Total
27.2
2.1
0.1
(0.9)
(0.2)
(1.7)
26.6
0.9
0.1
(0.6)
0.2
27.2
86.3
25.9
(3.5)
(1.2)
(5.9)
8.1
109.7
25.0
(1.9)
(5.0)
(6.2)
(2.3)
119.3
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TT electronics plc 109
Annual Report 2011
Financial statements – Group accounts
Notes to the consolidated financial statements
continued
27 Reconciliation of net cash flow to movement in net funds/(debt)
£million
At 1 January 2010
Cash flow
Non-cash items
Exchange differences
At 1 January 2011
Cash flow
Non-cash items
Exchange differences
At 31 December 2011
Borrowings and
Net cash
finance leases Net (debt)/funds
24.5
19.1
–
0.6
44.2
14.8
–
(0.2)
58.8
(81.4)
27.5
(0.6)
0.4
(54.1)
11.0
(0.5)
–
(43.6)
(56.9)
46.6
(0.6)
1.0
(9.9)
25.8
(0.5)
(0.2)
15.2
Net cash includes overdraft balances of £10.7 million (2010: £0.6 million).
28 Contingent liabilities
The Group has contingent liabilities amounting to £1.2 million (2010: £1.0 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 made and included within note 18, the Directors consider the likelihood of any other claims giving rise to a significant liability to
be remote.
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
2011
9.7
2011
0.4
2.7
2011
3.4
9.6
1.8
2010
3.2
2010
0.3
4.0
2010
3.3
9.1
3.7
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.
110 TT electronics plc
Annual Report 2011
31 Related party transactions
Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note.
No related party transactions have taken place in 2011 or 2010 that have affected the financial position or performance of the Group.
Key management personnel and Directors’ emoluments are disclosed in note 11.
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TT electronics plc 111
Annual Report 2011
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
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 14 March 2012 and signed on their behalf by:
G Anderson
Director
S D Dasani
Director
Note
2011
2010
2
3
11
4
5
10
6
8
8
3.1
119.7
9.0
131.8
76.2
1.3
77.5
(9.8)
67.7
199.5
(32.1)
167.4
38.8
0.5
128.1
167.4
2.2
128.8
11.1
142.1
59.5
10.0
69.5
(10.2)
59.3
201.4
(38.6)
162.8
38.8
0.4
123.6
162.8
112 TT electronics plc
Annual Report 2011
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 8 “Related party disclosures”; and
• The amendment to SSAP 25 “Segmental reporting”.
There are no new standards or amendments to standards which are issued but not yet effective.
The principal accounting policies are summarised below and have been applied consistently throughout the current 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 113
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Financial statements – Company accounts
Notes to the Company financial statements continued
1 Significant accounting policies (continued)
Own shares held by Employee Benefit Trust
Transactions of the Company-sponsored Employee Benefit 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 1 January 2011
Additions
Disposals
At 31 December 2011
Depreciation
At 1 January 2011
Charge for the year
Disposals
At 31 December 2011
Net book value
At 31 December 2011
At 31 December 2010
Freehold
land and
buildings
Plant,
equipment
and vehicles
2.9
–
–
2.9
0.8
–
–
0.8
2.1
2.1
0.8
1.1
(0.6)
1.3
0.7
0.1
(0.5)
0.3
1.0
0.1
Freehold land and buildings includes freehold land with a carrying value of £0.6 million (2010: £0.6 million).
3 Fixed asset investments
£million
Cost
At 1 January and 31 December 2011
Provisions for impairment
At 1 January 2011
Charge for year
At 31 December 2011
Net book value
At 31 December 2011
At 31 December 2010
Total
3.7
1.1
(0.6)
4.2
1.5
0.1
(0.5)
1.1
3.1
2.2
Subsidiary
undertakings
129.4
0.6
9.1
9.7
119.7
128.8
The Company’s principal operating subsidiary undertakings and their locations are shown in note 14.
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.
The impairment charge for the year relates to the Company’s investment in Automotive Electronic Systems Limited, an intermediate
holding company.
4 Debtors
£million
Amounts falling due within one year
Trade debtors
Amounts owed by subsidiary undertakings
Prepayments and accrued income
Corporation tax
114 TT electronics plc
Annual Report 2011
2011
–
74.5
1.7
–
76.2
2010
0.1
57.8
1.4
0.2
59.5
5 Creditors
£million
Amounts falling due within one year
Trade creditors
Derivatives financial instruments
Amounts owed to subsidiary undertakings
Taxation and social security
Accruals and deferred income
6 Share capital
£million
Issued called up and fully paid
155,217,949 (2010: 155,124,724) Ordinary shares of 25p each
2011
1.4
–
2.9
0.6
4.9
9.8
2011
38.8
2010
0.5
0.2
3.3
0.5
5.7
10.2
2010
38.8
During the year the Company issued 93,225 Ordinary shares as a result of share options being exercised under the TT electronics plc 2004 Inland
Revenue Approved Company Share Option Plan, the TT electronics plc 2004 Unapproved Company Share Option Plan and the Sharesave
scheme. The aggregate consideration received was £0.1 million, which was represented by a £0.1 million increase in share premium.
7 Share-based payments
Details of share-based payments are shown in note 24 of the consolidated financial statements.
8 Reserves
£million
At 1 January 2011
New shares issued
Actuarial net loss on defined benefit pension schemes
Tax on actuarial amounts in pension deficit movement
Share-based payments
Deferred tax on share-based payments
Dividends paid by the Company
Profit for the year
At 31 December 2011
Share
premium
Profit and
loss
account
0.4
0.1
–
–
–
–
–
–
0.5
123.6
–
(5.6)
(2.4)
1.7
0.3
(5.0)
15.5
128.1
9 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 profit
after tax of the Company for the year was £15.5 million (2010: loss of £12.9 million). The auditor’s remuneration for audit services is disclosed in
note 6 to the consolidated financial statements.
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TT electronics plc 115
Annual Report 2011
Financial statements – Company accounts
Notes to the Company financial statements continued
10 Pension schemes
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 the Company. Further details of the UK defined benefit pension scheme are shown in note 22 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 2011
were £0.3 million (2010: £0.2 million).
11 Deferred tax
The deferred tax asset of £9.0 million (2010: £11.1 million) is made up of an asset of £8.0 million (2010: £10.4 million), the movement of which has
been recognised in equity in respect of the pension liability, and an asset of £1.0 million (2010: £0.7 million), the movement in which has been
recognised in equity in respect of share-based payments.
At 31 December 2011, the Company had the following items for which no deferred tax assets have been recognised:
• Tax losses £19.7 million (2010: £9.8 million); and
• Property, plant and equipment £0.3 million (2010: £0.5 million).
12 Commitments under operating leases
Annual commitments under non-cancellable operating leases were as follows:
£million
On leases expiring:
Within one year
Between two and five years
Land and
buildings
–
0.4
0.4
Other
0.1
0.3
0.4
2011
Total
0.1
0.7
0.8
Land and
buildings
Other
–
0.4
0.4
–
–
–
2010
Total
–
0.4
0.4
13 Related party transactions
During 2011 and 2010, the Company did not have any related party transactions other than with wholly owned subsidiaries.
116 TT electronics plc
Annual Report 2011
14 Principal operating subsidiaries
The principal operating subsidiaries are:
Components
International Resistive Company, USA, Barbados
BI Technologies, USA, 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)
AB Elektronik Sensors (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
Ottomotores Comercializadora SA de CV, Mexico
Dale Power Solutions plc
Ottomotores Do Brasil Energia Ltda, Brazil
Companies are located and incorporated in the UK except where indicated.
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TT electronics plc 117
Annual Report 2011
Shareholder information
Five year record
£million (unless otherwise stated)
Revenue
Operating profit(2)
Profit before taxation(2)
Earnings/(loss)(2)
Earnings/(loss) per share (p)(2)
Dividends – paid and proposed
Dividend per share – paid and proposed (p)
Average number of shares in issue
Net cash/(debt)
Total equity
Notes
(1) Results for 2010 have been adjusted to exclude discontinued operations.
(2) Operating profit, profit before taxation, earnings and earnings per share are stated before exceptional items.
2011
591.3
34.2
29.5
20.6
13.3
6.8
4.40
154.9
15.2
191.4
2010(1)
555.5
24.9
20.6
13.9
9.0
4.3
2.80
154.8
(9.9)
179.1
2009
463.5
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
118 TT electronics plc
Annual Report 2011
Shareholder information
Shareholder information
Annual General Meeting
The Annual General Meeting will be held on 15 May 2012 at 11.30 am at the offices of Hudson Sandler Financial and Corporate
Communications, 2nd Floor, 29 Cloth Fair, London EC1A 7NN.
Results
Announcement of 2012 half year results – late August 2012.
Preliminary announcement of 2012 results – mid March 2013.
Annual report 2012 – to be posted mid April 2013.
Dividends
For the year ending 31 December 2011, the Board has recommended a final dividend of 3.2p per share which will be paid on 8 June 2012
to shareholders on the register on 25 May 2012 (2010: 2.0p). An interim dividend of 1.2p per share was paid on 3 November 2011 (2010: 0.8p).
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 1.75 per cent with a minimum charge of £30.
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* (or +44 121 415 7047 if calling from outside the United Kingdom)
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
*UK calls to 0871 numbers are charged at 8p per minute from a BT landline. Other telephony provider costs may vary. Lines are open from 8.30 am to 5.30 pm, Monday to Friday.
Website
Information on the Group’s financial performance, activities and share price is available at www.ttelectronics.com
TT electronics plc 119
Annual Report 2011
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Shareholder notes
120 TT electronics plc
Annual Report 2011
Contents
Overview
Embedding innovation
1
2 Chairman’s statement
2011 performance
3
Our plan for growth
6 Our business model
8 Our drivers
10 Our strategy
Our strategy in action
12 – Focus
14 – Innovation
16 – Globalisation
18 – Culture
20 Execution
22 Key performance indicators
Progress in 2011
Financial statements
Shareholder information
118 Five year record
119 Shareholder information
25 How we are structured
26 Operating review
28 Components
31 Sensors
34
IMS
36 Secure Power
38 Financial review
41
Principal risks and risk
management process
44 Corporate responsibility
Governance
47
48
Introduction by the Chairman
Board of Directors and
Company Secretary
50 Operating Board
51 Corporate Governance
57 Nominations Committee
58 Audit Committee
60 Remuneration report
67 Other statutory disclosures
Group accounts
70 Statement of Directors’
responsibilities
71 Report of the Independent
Auditors on the financial
statements
72 Consolidated income statement
73 Consolidated statement
of comprehensive income
74 Consolidated balance sheet
75 Consolidated statement
of changes in equity
76 Consolidated cash flow
statement
77 Notes to the consolidated
financial statements
Company accounts
112 Company balance sheet
113 Notes to the Company
financial statements
Online report
Please see our website for additional content:
www.ttelectronics.com
Using your smartphone, scan this
code to access enriched content.
Or visit: http://investors.
ttelectronics.com/
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.
This report has been printed on Hello Silk a paper which is certified by the Forest Stewardship Council®.
The paper is made at a mill with EMAS and ISO 14001 environmental management system accreditation.
This report was printed using vegetable oil based inks by a CarbonNeutral® printer certified to ISO 14001
environmental management system and registered to EMAS theEco Management Audit Scheme.
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.
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TT electronics plc
Clive House
12 – 18 Queens Road
Weybridge
Surrey KT13 9XB
Reg No 87249
Tel +44(0) 1932 825300
Fax +44(0) 1932 836450
TT electronics plc Annual Report 2011
Embedding
innovation
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For further information on our group please visit:
www.ttelectronics.com
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