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WE SOLVE ELECTRONIC
CHALLENGES FOR A
SUSTAINABLE WORLD
TT Electronics plc
Annual Report and Accounts 2020
WHAT’S
INSIDE
Strategic report
Strategy framework
TT at a glance
Chairman’s statement
1
2
4
Chief Executive’s
review
• Strategic review
• Q&A
Our strategy
Our business model
Key performance indicators
Our capabilities
8
16
20
22
24
Our markets
• Market review
• Healthcare
• Aerospace and
defence
• Automation and
electrification
30
Divisional review
Chief Financial Officer's review
Risk management
Principal risks and uncertainties
38
44
50
52
Stakeholder
engagement
• Customers and
Suppliers
• Employees
• Investors
• Society
54
OUR
PURPOSE...
Our purpose
We solve electronic
challenges for a
sustainable world.
TT engineers
advanced electronics
which benefit our
planet and its people
for future generations.
We focus on electronics that work reliably
in challenging and performance-critical
environments, helping our customers bring
advances that benefit our planet and its
people.
We apply our principles to ourselves, in
the way we work and how we interact with
our communities, and through the delivery
of innovative products and services to
our customers. The result is long-term
sustainable value for our customers
and suppliers, our people, communities,
investors… and the planet.
We achieve this through the design,
engineering and manufacture of our power,
connectivity and sensing capabilities. These
provide solutions that are cleaner, smarter
and healthier. This is achieved through
increased fuel efficiency of aircraft, smart
city infrastructure for reduced energy usage
and through the provision of healthcare
solutions which support laboratory analysis,
healthcare diagnostics and minimally invasive
procedures.
Cautionary statement
This report contains forward-looking
statements. These have been made by
the Directors in good faith based on the
information available to them up to the
time of their approval of this report. The
Directors can give no assurance that these
expectations will prove to have been correct.
Due to the inherent uncertainties, including
both economic and business risk factors
underlying such forward-looking information,
actual results may differ materially from
those expressed or implied by these forward-
looking statements. The Directors undertake
no obligation to update any forward-looking
statements whether as a result of new
information, future events or otherwise
Cover photo
Our power, connectivity, and sensor
technologies span the modern surgical suite
and are used to help deliver therapy directly to
patients. Learn more on pages 24 and 25.
Our people
• Purpose and culture
• Health and safety
• Engagement
• Equality, diversity
and inclusion
Our environment
• Governance
• Environmental
priority areas
• Community
58
64
Non-financial information statement
70
Governance and Directors’ report
Chairman’s introduction to governance
Board of Directors and Company Secretary
Executive Leadership Team
Leadership and company purpose
Composition, succession and evaluation
Nominations Committee report
Audit Committee report
Directors’ remuneration report
Remuneration Policy overview
Remuneration at a glance
Annual report on remuneration
Other statutory disclosures
Statement of Directors’ responsibilities in
respect of the Annual Report and Accounts
72
76
79
80
84
86
88
92
97
99
100
111
113
Financial statements
115
124
Independent auditor’s report to
the members of TT Electronics plc
Consolidated income statement
Consolidated statement of
125
comprehensive income
126
Consolidated statement of financial position
127
Consolidated statement of changes in equity
128
Consolidated cash flow statement
Notes to the consolidated financial statements 129
182
Company statement of financial position
183
Company statement of changes in equity
184
Notes to the Company financial statements
Five-year record
191
Reconciliation of KPIs and non IFRS measures 192
Additional information
Shareholder information
Glossary
199
Inside back cover
... AND STRATEGY FRAMEWORK
Our strategy
We create sustainable value by:
Positioning ourselves
in structural growth markets
Creating differentiated
capabilities
Working with our customers to solve
their toughest electronic challenges
We are exposed to megatrends which drive sustainable growth:
Cleaner
Climate change and
resource scarcity
Smarter
Technological breakthrough
and digital transformation
Healthier
Demographics and
social change
TT designs and manufactures solutions which:
Improve energy
efficiency
• Aircraft electrification
• Electric and hybrid
electric vehicles
Ensure accuracy
Drive automation
• Smart energy
infrastructure
• Smart city
infrastructure
• Remote patient
monitoring
• Factory automation
and productivity
Improve patient
outcomes
• Laboratory analysis
• Minimally invasive
procedures
• Medical diagnostics
Our strategy is advanced through our five strategic priorities:
Strategic business
development
R&D and value
added product
solutions
Read more about our strategic priorities on pages 16 to 19
Operational
excellence
Value-enhancing
acquisitions
Building a sustainable
business
Our value creation is underpinned through engagement with our key stakeholders:
Customers and suppliers
We work with our customers and
suppliers to turn ideas and design
concepts into reality using our
electronic engineering expertise and
domain knowledge.
Employees
We reward our people financially,
while enabling their personal
development and protecting their
health, safety and mental wellbeing.
Communities
We manage our activities to
minimise our impact on the
environment and we give back to
the communities in which we work
and live.
Shareholders
Our strategy is designed to enable us
to create sustainable value over the
long-term for our shareholders.
Read more about the value we create for stakeholders in our business model on pages 20 to 21 and also see the Board’s
relations with stakeholders on pages 54 to 57
We work with each other and our stakeholders according to our ‘TT Way’ values:
We do the right thing
We bring out the best
in each other
We achieve more
together
We champion
expertise
We get the job
done … well
TT Electronics plc Annual Report and Accounts 2020
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Financial statementsGovernance and Directors' reportStrategic report Strategic report | TT at a glance
DELIVERING SPECIALIST
CAPABILITIES ACROSS THE GLOBE
Our divisions
Read more on pages 38 to 43
Power and Connectivity
The Power and Connectivity division
designs and manufactures power
application products and connectivity
devices which enable the capture
and wireless transfer of data. We
collaborate with our customers
to develop innovative solutions to
optimise their electronic systems.
Global Manufacturing Solutions
The Global Manufacturing Solutions
division provides manufacturing services
and engineering solutions for our product
divisions and to customers that often
require a lower volume and higher mix
of different products. We manufacture
complex integrated product assemblies
for our customers and provide
engineering services including designing
testing solutions and value-engineering.
Sensors and Specialist Components
The Sensors and Specialist Components
division works with customers to
develop standard and customised
solutions including sensors and power
management devices. Our solutions
improve the precision, speed and
reliability of critical aspects of our
customers’ applications.
Revenue
Revenue
Revenue
£125.1m 2019: £138.2m
£197.5m 2019: £213.2m
£109.2m 2019: £126.8m
Change
(9)%
Adjusted operating profit1
£10.3m 2019: £16.5m
Adjusted operating margin
8.2% 2019: 11.9%
Change
(7)%
Adjusted operating profit1,2
£15.0m 2019: £13.5m
Adjusted operating margin
7.6% 2019: 6.3%
Change
(14)%
Adjusted operating profit1
£9.4m 2019: £15.3m
Adjusted operating margin
8.6% 2019: 12.1%
1 See note 1c on page 129 for an explanation of alternative performance measures.
2The results for the year ended 31 December 2019 have been restated to reflect prior year adjustments. Further details are set out in note 1h on page 133.
Our markets
Read more on pages 30 to 37
Our target markets
25%
Healthcare
• Advanced surgical devices
• Imaging and direct patient care
• Laboratory automation and
diagnostics
22%
Aerospace and
defence
• Commercial and military
aircraft
• Space and satellite
• Defence systems and
vehicles
37%
Automation and electrification
• Automation and control
• Energy and smart devices
• Infrastructure
TT’s other market is revenue through the distribution sales channel which accounts for 16 per cent of 2020 revenue.
2
TT Electronics plc Annual Report and Accounts 2020
You can visit us online at www.ttelectronics.com
You can also visit our Annual Report online at
www.ttelectronics/investors/investor-highlights/reports-presentations-videos/.com
Our global reach
38%
North and Central America
(% of Group revenue)
Employees
2,086
Primary locations
13
Total permanent headcount at 31 December 2020.
Revenue is by destination
Our capabilities
Read more on pages 24 to 29
Power
We design and manufacture
customised, highly efficient
power management devices
Target markets served
23%
United Kingdom
(% of Group revenue)
Employees
1,235
Primary locations
10
17%
Rest of Europe
(% of Group revenue)
Employees
20
Primary locations
1
22%
Asia and Rest of World
(% of Group revenue)
Employees
1,399
Primary locations
7
Connectivity
We help enable the
Internet of Things
Sensing
We design and manufacture
smart sensors
Target markets served
Target markets served
Healthcare
Healthcare
Healthcare
Aerospace and defence
Automation and electrification
Aerospace and defence
Automation and electrification
Automation and electrification
Manufacturing and engineering
We are a trusted global manufacturing partner
TT Electronics plc Annual Report and Accounts 2020
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Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Chairman’s statement
Since 2015 the
Company has
meaningfully improved
operational execution,
customer focus and
re-shaped the portfolio.
This strategy has
increased the quality of the
business and the focus on
healthcare, aerospace &
defence and automation
& electrification markets.
We believe our markets
will remain highly relevant
to customers going
forward and some of
the existing, favourable
structural growth
drivers we are seeing
will accelerate.
Warren Tucker, Chairman
AS I COME TO THE END
OF MY FIRST YEAR AS
CHAIRMAN, I SEE MUCH
TO BE OPTIMISTIC
ABOUT ACROSS TT.
This is my first statement as Chairman of TT, having assumed the role on
6 May 2020, at the conclusion of the Annual General Meeting. This followed
my joining the Board on 2 April 2020.
4
TT Electronics plc Annual Report and Accounts 2020
I am delighted to have the opportunity to be the
Chairman of TT. It is an attractive business with
really great prospects and excellent people and
I am committed to its purpose-driven mission.
has enabled us to continue delivering
to customer requirements, thereby
contributing to society’s essential needs,
including rapid-response work on
various projects for COVID-19 solutions.
The Group has delivered a resilient
performance in 2020, during a very
challenging year for the global economy.
This has had a significant impact on
our results. As soon as the impact of
COVID-19 on our markets was clear,
we took decisive action to respond
quickly and effectively to the COVID-19
outbreak. The impacts on the business
have been mitigated, as a result of the
swift actions taken to control costs and
optimise cash. Increasing order intake
from our sustainable markets, together
with our increased production capacity
as employees have returned to work, is
driving an improving performance trend
from the second half of 2020.
Being TT Chairman is a privilege, as
TT is an attractive business with really
great prospects and excellent people.
It has differentiated technology in
markets with structural growth drivers,
and these have sustainability as a core
theme. This is combined with deep
domain knowledge and good, long-term
customer relationships. I have been
deeply impressed by the management
team and the employees I have been
fortunate to meet.
With all that said, my first year with the
company has meant significant Board
attention to address the unprecedented
challenges presented by the COVID-19
outbreak. In particular, we have spent
time considering how to mitigate the
impacts of COVID-19, all the while
prioritising the protection and wellbeing
of our employees and communities, and
supporting our customers. The Board
has also overseen the Group's strong
cost control and cash management
activities, with a firm eye on enhancing
TT’s growth prospects.
I have also written to TT’s largest
shareholders and conducted
introductory virtual meetings to suit their
requirements. I look forward to meeting
our shareholders face-to-face, when
conditions allow.
Our COVID-19 response and trading
The Company has executed against
its comprehensive plans to protect the
safety and wellbeing, not just of our
employees, but also our customers
and partners, as well as our wider
communities. Where necessary, and
in compliance with local government
requirements, vulnerable employees
have been shielded.
Through the robust actions we have
taken to keep employees safe, as well
as our designated ‘essential’ business
status across our businesses, we have
remained largely operational through the
year. All our sites are currently open. This
WHAT ATTRACTED
ME TO TT
Sustainability
driving growth
Attractive,
expanding markets
Global customer
and manufacturing
footprint
Significant
investment
in technology
differentiation
A culture of pride,
high integrity and
a can-do attitude
Experienced,
high-performing
management team
Employee safety first
Protecting our teams has remained
our highest priority across all of our
facilities. In Hartlepool, UK wall-mounted
thermometers have been installed. A Red
Cross flag flies high above the Mexicali,
Mexico site, symbolising TT’s dedication
to safeguarding the health and safety of all
employees through our robust COVID-19
prevention protocols.
TT Electronics plc Annual Report and Accounts 2020
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Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Chairman’s statement continued
Strategic progress
The Company has been pursuing its
strategy since 2015 and this has been
a key enabler of the performance in
2020. This strategy has increased the
quality and resilience of the business, by
divesting TT’s more cyclical automotive
business, and by increasing the focus
on attractive healthcare, aerospace &
defence and automation & electrification
markets. Furthermore, we believe our
focus markets will remain highly relevant
to customers going forward and the
existing, favourable market drivers
will accelerate.
We have also further advanced our
strategy during 2020. We have made
two high quality acquisitions in the
year, helping us move further up the
value chain and they bring above Group
average margins. These acquisitions
have been rapidly integrated. We now
have a growing market position and
scale in the Power Solutions segment
in North America and the opportunity
to achieve the same in Europe. These
acquisitions were funded with a
combination of debt and new equity,
consistent with our conservative
approach to Group leverage. We have
also delivered good progress against
our self-help programme, which has the
key aims of reducing TT’s operational
footprint and fixed cost base and
ensuring products are manufactured
in the right locations for optimal
profitability and customer service.
I make no apologies for saying once
again: all this has been achieved in the
context of the COVID-19 outbreak and
the additional safety, access, travel and
other constraints that this entailed.
The environment
The Board is aware just how important
the environment is to all our stakeholders
and it is mindful that we need to be
a good custodian of the planet. TT’s
purpose, which was first set out in
2019, is to solve electronic challenges
for a sustainable world. We have set
out through this Annual Report and
Accounts different examples of the
ways in which we provide solutions
and products for our customers that
are cleaner, smarter and healthier.
The Board is also mindful that
focusing on TT’s own performance,
as well as what it sells to customers,
will also have a beneficial impact on
the environment. Through 2020, the
Board has overseen, both directly
and through its People, Social,
Environmental and Ethics Committee,
a number of management initiatives
to reduce our impact on the planet.
For example, we now track carbon
emissions (carbon dioxide tonnes
equivalent) as a Group-level key
performance indicator, including short-
term carbon reduction targets, and we
have a target of being a carbon neutral
business (scope 1 and scope 2) by 2035.
We are also targeting reductions in the
amount of non-recycled plastic and
waste we produce. Further details of TT’s
environmental initiatives and performance
are set out on pages 64 to 69.
Building on this momentum, the Board
intends to undertake a specific Climate
Risk Assessment in 2021 and we will
report the results as appropriate in next
year’s Annual Report.
The Board
There have been a number of changes to
the Board in 2020. My predecessor, Neil
Carson, stood down as Chairman on 6
May 2020 with Stephen King leaving the
Board on 30 September 2020 after nine
years’ service.
Neil and Stephen served on the Board
as Chairman and Senior Independent
Director respectively through a period of
great strategic and operational progress
for TT Electronics. We are extremely
grateful for the leadership, direction and
We solve electronic challenges for a
sustainable world
Our focus on the design and manufacture
of engineering electronics that perform
reliably in challenging and performance
critical environments helps our customers
bring advances that benefit both our planet
and its people, including offshore renewable
energy projects.
(scope 1 & scope 2)
20%Reduction in carbon emissions
2035
Our target to be carbon neutral
6
TT Electronics plc Annual Report and Accounts 2020
Our employees have worked tirelessly and I have
been greatly impressed with the overall culture
of the organisation, which is consistent with the
principles of the ‘TT Way’.
Despite the many COVID-related
difficulties that this has entailed, our
employees have continued to serve
customer needs throughout the year.
They have an abundance of technical
expertise, deep domain knowledge and
good customer relationships. More
than this, however, they have shown
themselves to be adaptable, working
according to the new practices and
controls we have introduced this year
in response to COVID-19. Alongside this,
they have also shown dedication, hard
work and an ability to go beyond basic
requirements in difficult conditions to
get tasks done well and on-time.
TT has been an active participant in the
fight against COVID-19, being involved
in a range of projects through the year.
These include vaccine refrigeration and
ventilator products, and a COVID-19
screening device called Virolens®. We
have funded technology investment
during 2020 to provide the right products
and services to support front-line staff
and the broader community.
Our employees have worked tirelessly on
these and other projects and I have been
greatly impressed with the overall culture
of the organisation, consistent with the
principles of the ‘TT Way’. Employees
have also shown great commitment
to our communities by voluntarily
providing critical protective equipment
to frontline staff. There is more detail on
this on page 69. This can-do attitude
has impressed the Board and we offer
our appreciation and thanks for our
employees’ hard work and dedication
through the year.
insights provided through this time. They
have left the Company a much stronger
business and we thank them for their
significant contributions.
In line with our succession planning,
on 3 April 2020 Jack Boyer became
Senior Independent Director with
Anne Thorburn becoming Chair of
the Audit Committee.
As a Board we take our governance
responsibilities very seriously and
believe these allow the Company to
pursue its strategy with more pace
and less risk. Our approach to our wide
range of responsibilities is set out in the
Chairman’s introduction to governance
on pages 72 to 75.
Dividend payment
Given the good recovery we are seeing
and the positive outlook for 2021 and
beyond, we are resuming dividends as
planned, with the Board proposing a
final dividend of 4.7 pence per share.
The total cash cost of this dividend will
be approximately £8.2 million. Payment
of the dividend will be made on 21 May
2021, to shareholders on the register at
30 April 2021.
Our employees
As a Group, we could not achieve
anything meaningful without the help
and support of our employees. I have not
been able to meet as many employees
in person as I would have liked in my first
year as Chairman, due to travel and other
COVID-related constraints. However, I
have made every use of technology to
get to know as many as possible, as well
as receiving employee feedback from the
People, Social, Environmental and Ethics
Committee. There is also a good level
of Board engagement with employees
overall, with further details of this on
pages 54 to 55.
We achieve more together
Demonstrating excellent teamwork, 540
employees took just 80 minutes to piece
together more than 50,000 stickers to create
six pixel wall murals – each illustrating
aspects of the TT culture during an annual
team building event in Suzhou, China.
Looking forward
As I come towards the end of my first
year as Chairman, I see much to be
optimistic about across TT. The Group
has successfully maintained and built
on its traditional technical and domain
strengths with investment in the business
continuing. Solid strategic progress has
been made and we can build on this for
future success. The Group is positioned
well to deliver on our growth priorities,
based on strong technical, operational
and customer foundations and we have
significant bandwidth to do much more.
When taken together, these provide
the Board with great confidence in
the Group’s prospects.
Warren Tucker
Chairman
9 March 2021
TT Electronics plc Annual Report and Accounts 2020
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Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Chief Executive’s review
CREATING
SUSTAINABLE
VALUE
Richard Tyson, Chief Executive Officer
Our purpose is to solve
electronic challenges for
a sustainable world. We
design and manufacture
solutions that enable
a cleaner, smarter and
healthier environment.
Throughout the year
we have prioritised the
protection and safety
of our employees,
our customers, our
suppliers and our wider
communities. We have
greatly appreciated
how our employees
have responded to the
challenges presented.
Their skill, dedication
and hard work, which
they have constantly
demonstrated in uniquely
difficult conditions, have
resulted in them going
above-and-beyond to
get things done well
and on-time.
Introduction
Our purpose is to solve electronic
challenges for a sustainable world. We
design and manufacture solutions that
enable a cleaner, smarter and healthier
8
TT Electronics plc Annual Report and Accounts 2020
We bring out the best in each other
During uncertain times, TT’s teams continued
to support local communities. In Mexicali,
Mexico the “Giving Something Back”
programme provided two bags of food to each
employee to be shared between family and
neighbours to support the most vulnerable.
environment. We create value through
supplying products and services that
support sustainability in our target
markets of healthcare, aerospace &
defence and automation & electrification.
Environmental, social and governance
("ESG") matters are central to our
purpose. We have received an improved
rating of ‘AA’ in the MSCI ESG Ratings
assessment, recognising our progress
during the year. We have worked hard to
reduce our scope 1 and scope 2 carbon
emissions. These have decreased by
20% to 12,518 tonnes CO2e in 2020
from 15,705 tonnes CO2e in 2019. This
improvement is due to our energy
efficiency actions and increased use
of green electricity as well as the lower
production volumes in the year.
We started 2020 with good trading
momentum prior to the COVID-19
outbreak. Although COVID-19 did impact
trading, particularly in the second
quarter, our performance has been
on an improving trend in the second
half and this has continued into early
2021. The improving trajectory is being
driven by increasing order intake across
all divisions, as well as our improved
production capacity, as employees have
returned to work. All sites are now open
following a few temporary closures in the
first half of 2020.
As a result of the longer-term impacts
on society from the COVID-19 outbreak,
we believe that many of the positive,
structural trends already evident in
our markets will accelerate. These
include the digital transformation,
increased automation, more demand
for remote tracking of assets, a greater
prevalence of connectivity and demand
for improved healthcare. This gives us
confidence in the strong prospects we
see for TT.
Alongside a resilient trading
performance, we have continued to
execute our strategy. During the year we
have invested £11.2 million in research
and development ("R&D"), enhancing
our pipeline of new products. We have
also completed two acquisitions, Torotel,
Inc and Covina, investing £48.7 million
in total, including deferred consideration
relating to a prior year acquisition.
These acquisitions have advanced our
power supply capabilities and market
reach in the US. We are also on-track to
deliver the £11-12 million of full run-rate
benefits in 2023 from our investment
in the self-help programme launched in
the first half of the year. We are pleased
with the progress made so far to deliver
this significant programme which is an
important component of our path to
double-digit operating margins.
Throughout the year we have prioritised
the protection and safety of our
employees, our customers, our suppliers
and our wider communities. We have
greatly appreciated how our employees
have responded to the challenges
presented. Their skill, dedication and
hard work, which they have constantly
demonstrated in uniquely difficult
conditions, have resulted in them
going above-and-beyond to get things
done well and on-time. Their flexibility,
responsiveness and ability to deliver has
strengthened and deepened many of our
customer relationships. Together with
our critical capabilities and balance sheet
strength, this has positioned us well for
future work and collaborations.
Results and operations
Group revenue for the year was £431.8
million, 9 per cent lower than the prior
year at constant currency and 12 per
cent lower on an organic basis. Organic
revenue was 17 per cent lower in the
second quarter against the comparable
prior year period due to reduced demand
as we shielded staff, reducing capacity.
There were also temporary closures of a
few sites. However, since then we have
continued to see improving momentum
across the business. Notably the
recovery strengthened during the fourth
quarter, when organic revenue was only
5 per cent lower than the prior year. We
have seen further improvement at the
start of 2021
DEVELOPING
SUSTAINABLE PRODUCTS
Cleaner
Healthier
Cleaner and smarter
Smaller, lighter and more power efficient
Our smallest DC-DC power converter
is lightweight, weighing less than 0.2kg.
It is designed for use on unmanned aerial
systems, where size, weight and power
efficiency are critical considerations.
Our design allowed our customer to reduce
the overall volume and weight by around
two-thirds in comparison to a standard
sized transponder.
Miniature product for implantable
applications
Our high-voltage healthcare transformer
has been redesigned to a customer’s
demanding requirements. We have
successfully reduced the size of this tiny,
implantable product to 6mm x 9mm x 10mm,
and from six to two pieces while meeting
enhanced performance expectations.
Contained within an implantable cardioverter-
defibrillator, the product can help patients with
hereditary heart disease live for decades.
Low carbon and energy efficient technology
Our new S-2 CONNECT hub and sensor
devices enable customers to deploy cost-
effective smart home solutions, fast. It has
achieved early success in a UK housing
association’s low-carbon and energy
efficiency programme. It is helping to roll-
out remote environmental monitoring and
preventative maintenance solutions across
thousands of new social homes in London.
TT Electronics plc Annual Report and Accounts 2020
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Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Chief Executive’s review continued
We believe that many of the positive, structural
trends in our markets will accelerate as a result of
the longer-term impacts on society from COVID-19
and this give us confidence in an exciting future
for TT Electronics.
This recovery trend has been
underpinned by strong order intake
across the Group through the fourth
quarter of the year. This has continued
into 2021 across all divisions. Order
intake for full year 2020 was 99 per
cent of revenue, and for the second half
was 103 per cent of revenue. The order
book at the end of February 2021 is at
record levels.
TT has continued its focus on improved
health through life-changing technology
where demand for improved healthcare
continues to be driven by increasing global
incomes and ageing populations.
In recognition of the improving trends
we have seen through the second
half of the year and our strong cash
generation, early in 2021 we repaid
the UK Government Coronavirus Job
Retention Scheme (furlough) payments
to the UK Government. The £1.1 million
cost of repayment has been provided for
in these 2020 results.
Adjusted operating profit for the year
was £27.5 million, 27 per cent lower than
the prior year at constant currency. The
second half adjusted operating margin
was 6.5 per cent, including the accrued
cost of the furlough repayment. After
the impact of adjusting items, including
restructuring and acquisition and disposal
costs, the Group’s full year statutory
operating profit was £6.6 million.
During the year end close process,
a 2019 non-cash timing adjustment
was identified, associated with the
timing of overhead recognition in one
of our sites in Global Manufacturing
Solutions. As a result of this adjustment
the previously reported 2019 operating
profit has been reduced by £1.9 million
and 2020 operating profit is ahead of
management's original expectations by
a similar amount.
We are particularly pleased with our strong
cash performance, delivering operating
cash conversion of 130 per cent. This was
driven by continuing tight control over
costs and capital expenditure. In addition,
there was a working capital inflow of £3.6
million, which included £4.2 million from
a reduction in inventory. On a statutory
basis, cash flow from operating activity
was £28.2 million (2019: £35.9 million). Our
strong operating cash performance helped
us deliver increased free cash flow of £14.4
million (2019: £9.7 million), despite the
impact of COVID-19 on our profits.
10 TT Electronics plc Annual Report and Accounts 2020
We ended the year with net debt of £83.9
million (2019: £69.1 million), including
IFRS 16 lease liabilities of £15.9 million
(2019: £17.6 million). We have a strong
balance sheet, and this includes a
defined benefit pension scheme fully
funded on an actuarial basis. At 31
December 2020 leverage was 1.6 times
(2019: 1.0 times), within the Board’s
target leverage range of 1-2 times.
Our return on invested capital has
declined to 7.7 per cent in 2020 due
to the volume driven profit reduction
and this will recover as business
momentum increases.
Our markets
We focus on creating value through
our sustainable products in our target
markets of healthcare, aerospace &
defence and automation & electrification,
where there are advanced technology
requirements. We believe that many of
the positive, structural trends already
evident in our markets will accelerate as
a result of the COVID-19 outbreak.
In healthcare (25 per cent of Group
revenue) growth is driven by increasing
global incomes leading to demand for
improved healthcare, alongside ageing
populations and new preventative
care technologies. In 2020 the usual
market trends have been impacted by
the pandemic and we have supported
new and existing customers to provide
products to counter the virus. Pent-up
demand for deferred elective surgery
and for large installations for hospital
or life science applications are expected
to be supportive of growth over the
next few years. COVID-19 has also
reinforced the need for a number of
TT specialisms, including interventional
healthcare devices, patient monitoring
and laboratory equipment.
In aerospace and defence (22 per cent
of Group revenue) growth is driven by
increasing demand for electrification of
platforms, which supports fuel efficiency
and safety as well as, over the longer
term, increasing passenger numbers.
Currently, with less passenger-driven
demand due to COVID-19, commercial
aerospace production has found a new,
lower level. Rates are now largely re-set
and we have proactively reduced our
cost base to match. We anticipate a
gradual recovery in aircraft production
over several years, as long-term growth
During the year, we have continued to
invest in line with our target of 5 per cent
of product sales. Our R&D investment
was £11.2 million (2019: £13.5 million),
representing 4.8 per cent (2019: 5.1 per
cent) of the aggregate revenue of our
product businesses.
We continue to bring a pipeline of
exciting new products to market,
including in areas where we have
extended our technical capabilities
through acquisition. Examples include:
• Following two years of development,
we received qualification orders at our
Minneapolis, Minnesota site (Precision
Inc, acquired in 2018) from a healthcare
customer for a miniature high voltage
transformer/inductor power assembly
for an implantable defibrillator
programme. Initial qualification
examples are expected to be delivered
in the second quarter of 2021. The
product has been developed in close
collaboration with the customer, with
work undertaken at the customer’s
engineering laboratories;
• As a result of investment in a power
supply for a ground-vehicle laser
warning system, the product has been
selected for a US military programme.
This followed an initial approach from
a long-standing customer. Deliveries
will start in late 2021, as a result of
successful live-fire demonstrations
having been developed at our Covina,
California site (acquired in January
2020). The product is based on
an existing, proprietary TT design
used across a number of airborne
applications;
• We have launched a new range of
metal foil sensor chips which offer
improved surge tolerance and self-
heating characteristics. These are
intended to service the market for
products that require control and
monitoring of energy consumption,
including healthcare, and automation
and electrification applications.
During the year we were appointed
exclusive manufacturing partner by iAbra
for Virolens®, a rapid COVID-19 screening
device. Evaluation trials of the product
are continuing, and iAbra is making good
progress with the regulatory approvals
process. There continues to be a role for
COVID-19 screening to complement the
vaccination programme in the UK and
elsewhere. Revenue to TT from the sale
of Virolens® are dependent on potential
end customers converting expressions
of interest into firm orders and regulatory
approvals in each relevant territory.
There continues to be a wide-range of
potential commercial outcomes hence
no certainty as to the financial impact
on TT.
In addition, TT is part of the UK’s
Project High-T Hall, alongside Rolls-
Royce, Paragraf and CSA Catapult. This
project is intended to demonstrate how
graphene-based Hall Effect sensors can
operate reliably at high temperatures.
This paves the way for more efficient
electric engines for aerospace and other
applications. The project, which started
in July 2020, is expected to run for one
year and is funded by UK Research and
Innovation.
Read more on our capabilities on pages 24 to 29
Creating value through
margin enhancement
The pursuit of higher margins
through organic and inorganic growth
remains core to the Group’s strategy.
Notwithstanding the short-term impact
of COVID-19 on 2020 margins, we have
a clear path to delivering double-digit
operating margins with the improving
trend expected to continue in 2021 and
beyond. The actions we have taken
this year bring the business closer to
realising this, with key contributions
expected from:
• Operational leverage from organic
revenue growth;
• Reductions in overheads; and
• Inorganic expansion developing
technology offerings and market
positions.
Our significant self-help programme,
which will reduce our footprint and
fixed cost base, commenced in the first
half of 2020. This has made very good
progress. Initial programme benefits
were £2 million in 2020, and these have
helped to mitigate the slowdown in our
end-markets. Incremental benefits of £5
million are expected in 2021, supporting
margin improvement. There is a clear
path to achieving the expected full run-
rate benefits of £11-12 million in 2023.
The programme comprises a number of
different activities. Given the COVID-19
related weakness in certain end-markets,
we expanded the original programme to
include additional headcount reductions
across a number of sites. By the
end of 2021 we will have also closed
three primary operating sites, further
improving efficiency.
TT Electronics plc Annual Report and Accounts 2020
11
Investment at the Minneapolis, Minnesota
facility has enabled TT to remain at the very
forefront of healthcare product development
creating significant opportunity for the
business moving forward.
resumes. The defence market has been
seen by governments as an essential
business activity through 2020. It has
continued to show strong growth, with
heightened global security tensions also
remaining a driver behind spending.
Our ability to design and manufacture
smaller, lighter and more efficient
products helps our customers improve
efficiency and reduce carbon emissions,
positioning us well in the market.
In automation and electrification markets
(37 per cent of Group revenue), growth is
being driven by factors including demand
for sustainable solutions to improve
energy efficiency, the use of robotics to
improve productivity and the increasing
use of remote asset tracking. There has
been an improving demand trend in the
second half of the year, with orders and
visibility increasing. The positive long-
term growth drivers in this market give
us confidence that demand will increase
for our power, sensing and connectivity
solutions.
Read more on our markets on pages 30 to 37
Creating value through
technology investment
R&D is one of our top capital allocation
priorities, given its critical contribution
to the ongoing health of the business.
Our investment in R&D is focused on
bringing higher growth, more sustainable
products to market. These typically
yield higher returns and development
is often undertaken in partnership
with our customers. Our investment
strategy includes leveraging acquired
complementary capabilities targeted
through mergers and acquisitions (M&A).
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Chief Executive’s review continued
The acquisition of the Torotel business
broadens TT’s power electronics capabilities
and further expands the Company’s
presence in the US aerospace and defence
market. The acquisition builds on the
recently acquired Covina, California-based
business unit.
In addition, we are taking certain
products end-of-life in 2021, as well
as relocating the manufacture of other
products within our existing footprint.
This will enable us to serve customers
better, as well as achieve an improved
level of profitability. Total net headcount
reductions of around 500 employees
are expected on completion of the
programme. At the end of 2020 c.70% of
the planned headcount reductions had
been delivered.
We continue to anticipate total cash
spend for the self-help programme of
£18 million, of which £4.1 million was
spent in 2020, including £2.5 million of
capital expenditure. Restructuring spend
of £1.6 million is net of the accelerated
disposal for £3.0 million after costs, of
our Lutterworth, UK freehold property.
The total anticipated programme P&L
expense remains at £24 million, with
£12.9 million incurred in 2020. In addition
to the cash costs, the P&L expense
incorporates non-cash items, primarily
asset and inventory write-downs and the
impairment of intangibles.
Our acquisitions also contribute to higher
margins. The acquisitions completed
in the year, Torotel, Inc and Covina, the
power supply business of Excelitas
Technologies Corp. have brought with
them operating margins above the TT
Group average and we have reconfirmed
our expectations for cost synergies.
Environmental, social and
governance (ESG)
Not only do we develop, design,
engineer and manufacture products
that enable reduced environmental
impacts, but we are also optimising
our own operations to reduce our
impact on the environment.
We have set ourselves a target to be
carbon neutral by 2035 and we are
undertaking a range of actions to deliver
like-for-like reductions in our annual
emissions. In 2020 we reduced our
scope 1 and scope 2 carbon emissions
by 20%. In addition, we are focusing on
reducing single-use plastics within the
business and on reducing the amount of
waste we send to landfill. Our continuing
progress on ESG matters has been
recognised externally, having received an
improved rating of ‘AA’ in the latest MSCI
ESG Ratings assessment.
Read more on Our environment on pages 64 to 69
Inspiring the next generation
of engineers
Science, Technology, Engineering and
Mathematics (STEM) skills remain critical to
the future of our company and the industry.
As such, TT remains actively committed in
helping develop these skills with employees
encouraged to participate in charitable
and community activities to engage and
encourage more interest in STEM subjects.
12 TT Electronics plc Annual Report and Accounts 2020
Creating value from mergers
& acquisitions
We use M&A to enhance TT’s
technology capabilities and market
access, consolidating within the Group
fragmented but valuable niche areas.
We create value by realising revenue
synergies, including leveraging customer
access and by optimising operations and
the supply chain. We invest in attractive,
growing and higher margin segments
that the Group knows well, and where we
have competitive advantage.
This year we have bought two power
supply businesses, the Covina
(California) based power supply
business of Excelitas Technologies Corp.
(completed January 2020) and Torotel,
Inc (completed November 2020), based
in Olathe, Kansas. We have rapidly and
effectively integrated these businesses
and we are engaged in the robust pursuit
of synergy opportunities.
Our most recent acquisition, Torotel, is
another particularly strong fit with the
Group’s strategy. The acquisition has
increased our scale and capabilities in
the very large and attractive US defence
market, and it has enhanced our US
power electronics presence. Torotel has
a track-record of strong revenue growth
and brings opportunities to apply our
proven operational improvement and
integration capabilities to the business.
Following the successful integration of
Covina earlier in the year, the integration
of Torotel’s systems and processes into
TT’s Power and Connectivity division has
also been completed. Utilising our well-
defined business integration model, this
has integrated major business processes
including operations, procurement,
finance, legal, IT and human resources.
This was completed against a backdrop
of COVID-related travel restrictions and
other constraints. We are proud of the
team and our new Torotel colleagues for
undertaking this complex task so quickly
and in really difficult conditions.
R&D is one of our top capital allocation priorities,
given its critical contribution to the ongoing health
of the business.
Outlook
We started 2020 with good
momentum prior to the COVID-19
outbreak which most impacted our
trading performance in the second
quarter. Since then our performance
has been on a recovering trend, which
has strengthened in the fourth quarter
of the year. This trend has continued
into 2021 on the back of increasing
order intake across all divisions.
We believe that many of the positive,
structural trends in our markets will
accelerate as a result of the longer-term
impacts on society from COVID-19.
We see this in a number of areas, but
especially in increasing demand for
improved healthcare and an acceleration
of digital transformation and connectivity.
These factors, combined with the steps
we have taken to enhance the quality of
our businesses, our self-help programme
and our record order book position us
well for 2021 and give us confidence in an
exciting future for TT.
Richard Tyson
Chief Executive Officer
9 March 2021
Our attention is now focused on creating
value from improving operational
performance and integrating the Torotel
customer proposition more closely with
our other businesses. This includes
customer cross-selling, the integration
of products from across the Group
to provide higher-value customer
offerings and leveraging our business
development capabilities. Examples of
the exciting opportunities we are seeing
already are as follows:
• As a result of a Torotel customer
introduction, TT is actively pursuing
two significant new opportunities with
a US defence prime;
• The newly combined TT and Torotel
teams, are working with a customer
on a specific opportunity to expand
the power supply work currently
undertaken by TT’s recently acquired
business based at Covina, California;
• Utilising it as a centre of excellence,
Torotel has been introduced to an
existing TT customer to expand the
magnetics we currently provide.
The Precision business (acquired in
2018), based in Minneapolis, Minnesota,
has also secured a thirty-month contract
with a US defence prime for an alternator
assembly. This order is the single largest
in Precision’s history, with production
from October 2020. We continue to
work on several other new and existing
programmes with this customer.
We are continuing to look for opportunities
to extend TT’s technology capabilities
and market reach.
TT Electronics plc Annual Report and Accounts 2020
13
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Chief Executive’s Q&A
CHIEF
EXECUTIVE’S
Q&A
Q
Richard Tyson, Chief Executive Officer
Q.
How much do you think TT has
changed since you became Chief
Executive Officer in 2014?
TT today is unrecognisable from
the business I joined in 2014. We
have significantly repositioned TT’s
portfolio of businesses. We sold
the Transportation, Sensing and
Control division in 2017 and we have
re-invested the proceeds into high-
quality acquisitions in aerospace and
defence, healthcare and automation
and electrification markets. We have
increased the rate of investment in
technology, with a focus on capabilities
that help solve our customers’ electronic
challenges for a more sustainable world.
We have established a Group culture
of putting people first, of championing
expertise and of getting the job done
well. We have taken a more strategic
approach to business development,
encouraging collaboration and cross-
selling. We have focused on our cost
base and we have embarked on a
self-help programme in 2020 which
will reduce the number of operating
locations in the Group, making us more
efficient, as well as reducing our carbon
TT works with some of the world’s leading
healthcare equipment developers and
manufacturers where customers rely on
an experience in high-precision and high
reliability applications for the life-critical
healthcare devices and equipment. Learn
more on pages 24-25.
footprint. While the COVID-19 outbreak
has impacted our results in 2020, the
result of our actions between 2015 to
the end of 2019 has been to deliver good
organic revenue growth, a doubling in the
Group’s operating margin and improved
profits, all the while significantly
enhancing the quality of the business.
We are well-positioned to resume
positive momentum.
Q.
What are the drivers in your
markets today that will underpin
TT’s future growth?
We have re-positioned the business in
markets with attractive, sustainable,
structural growth characteristics. For
example, in healthcare markets our
specialisms include telemedicine,
device connectivity and remote patient
monitoring capabilities. In automation
and electrification markets these include
robotics, factory automation, smart
city infrastructure and remote tracking
of assets.
Our technology is linked to sustainability
and we create differentiated capabilities
working with our customers to solve
their toughest electronic challenges. In
particular, we are all impacted by climate
change and resource scarcity and TT
can offer solutions which feed into
global ‘mega-trends’. In our aerospace
and defence markets the proliferation
of electronics is at the heart of fuel
efficiency and safety. In our healthcare
markets, we provide electronics for a
healthier world and in our automation
and electrification markets, we
participate in the long-term trends
towards lower power consumption,
greater productivity and efficiency.
14 TT Electronics plc Annual Report and Accounts 2020
Q.
How important are environmental
matters to TT?
We are passionate about ESG
matters. We develop, design, engineer
and manufacture products for our
customers that help them reduce their
environmental impacts and which
also have significant, beneficial, social
impacts for society – making our planet
cleaner, smarter and healthier.
We are also optimising our own
operations to reduce their impact on the
environment. We have included carbon
emissions within our Group KPIs for
the first time in 2020 and we aim to be
carbon neutral by 2035, with like-for-like
reductions annually. In addition, we are
focusing on reducing single-use plastics
within the business and on reducing the
amount of waste we send to landfill.
Q.
How would you summarise
TT’s performance in 2020?
We started 2020 with good momentum
but there were COVID-19 related impacts
in the first quarter at our Chinese
operations and then, in the second
quarter, at our other sites around the
world. This had an immediate impact
on our customers' operations as they
faced restrictions and uncertainty,
impacting and reducing our short-
term order intake. However, our trading
performance has been showing an
improving trend through the second half
of 2020 and into 2021, with the recovery
strengthening in the fourth quarter of
2020. This has been driven by increasing
order intake across all the divisions and
good recovery in the market segments in
which our customers operate.
We have also continued to implement
our strategy and ensure we position the
We provide value-added product solutions
for our customers. We use our industry
expertise and focused R&D to streamline
supply chains, increase efficiency and bring
newer smarter products to market. Learn
more on pages 30-31.
At TT we understand the importance of
our impact on the environment. Our sites
are developing cleaner energy solutions to
reduce CO2 emissions, improving energy
efficiency and minimising waste. Read more
on pages 64-69.
business for success as economies
recover. We have invested £11.2 million
during the year in R&D, in conjunction
with our customers, which continues to
enhance our new business pipeline of
opportunity. We have also completed
two acquisitions, investing a total of
£48.2 million. We are also on-track
to significantly improve our overhead
efficiency and deliver in 2023 the full
run-rate £11-12 million benefits from
the self-help programme we launched
in the first half of the year and we are
really pleased with the progress made to
execute this significant programme.
Q.
What do you see as the main benefits
to TT from the November 2020 Torotel,
Inc acquisition?
Torotel is a business we have been
following for a while, and the acquisition
is consistent with our strategy. It
increases our scale in the very large and
attractive US defence and aerospace
markets and enhances our position
in US power electronics. Now that
it is part of the TT family, I am even
more enthused about what it brings
us and what we can do to improve
the business. Torotel comes with
a track-record of strong revenue
growth and we have built on this
by cross-selling to our respective
customers, as well as combining
our product offerings to move
up the value chain. We are
already seeing new opportunities we can
bring to Torotel, and we can also help
improve its probability of winning work.
Additionally, there are clear opportunities
for us to apply our proven operational
improvement capabilities to Torotel,
increasing its margin and creating
further value.
The acquisitions of Torotel and Covina
extends TT’s list of blue-chip US aerospace
and defence customers, providing access
to sole-sourced, multi-year positions on
major platforms.
A
TT Electronics plc Annual Report and Accounts 2020
15
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Our strategy
OUR
STRATEGY
We create sustainable
value through our:
Market focus
Positioning ourselves
in structural growth
markets
Product differentiation
Creating differentiated
capabilities
Smarter solutions
Working with our
customers to solve
their toughest
electronic challenges
We are delivering
against this strategy by
focusing on delivering
against our five
strategic priorities:
Priority
Why this is important
Highlights in the year
Future priorities
Link to KPIs
We continue to see strategic business development as a
key driver of future, sustainable revenue and profit growth.
This involves cross-business and division collaboration
and Group-wide targeting of key potential customers
who have the ‘right fit’ for our business. Our business
development strategy complements excellent delivery
and customer service.
Strategic business
development
R&D is one of our top capital allocation priorities, given its
critical contribution to the ongoing health of the business.
Our investment is often undertaken in partnership with our
customers, helping our customers address climate change
and other sustainability issues by providing products that
are cleaner, smarter and healthier.
Research & Development
By investing in value-add products we are driving future
revenue growth and enhancing our ability to move up the
value chain, supporting an enhanced operating margin.
Our investment strategy includes leveraging acquired
complementary capabilities targeted through mergers and
acquisitions.
Aligned with our investment in innovation is the ability to
conduct our operations efficiently, resulting in a reduced
cost base and an enhanced operating margin.
Operational excellence also enables us to deliver
consistently to our customers, on time and on budget
with appropriate levels of quality, meaning they will want
to continue to place further orders with us.
Operational excellence
Targeted, complementary acquisitions help us to
accelerate our strategy in terms of capability as well as
market and customer exposure.
Our disciplined financial approach and proven ability
to integrate acquisitions enable us to create value,
by exceeding our cost of capital.
Value-enhancing
acquisitions
Our acquisitions also contribute to higher margins.
bringing with them operating margins above the
Group average.
Sustainability is central to what we make for our
customers – products that are cleaner, smarter and
healthier.
Sustainability is also central to the way we run our
business. We seek to minimise our impact on
the environment to the benefit of our stakeholders,
including customers and suppliers, employees,
communities and shareholders.
Building a sustainable
business
• We have navigated COVID-19 well with our performance on an
• Continuing focus on targeting the most
• Organic revenue growth
improving trend through the second half of 2020, and this trend
attractive customer accounts
• Adjusted operating profit margin
has continued into 2021
• A cross-Group Business Development Council has continued to
ensure co-ordination between divisions to optimise our effort,
• Develop our online and digital service
delivery including technical support
and virtual marketing of capabilities
• Adjusted EPS
• Cash conversion
• Return on invested capital
including targeting the most promising customers
to customers
• There has been continuing success from our cross-selling
• Continue to prioritise cross-selling
opportunities. The Global Manufacturing Solutions division has
opportunities between our divisions
made customer introductions to other divisions, resulting in
and businesses
significant business wins.
• In particular, we will seek optimise
• The Covina based power supply acquisition, which was acquired in
cross-selling opportunities from our
January 2020, has won a significant new contract. This is as a result
recent acquisitions, including Torotel,
of a TT customer introduction, and happened within a few months
Inc. with a pipeline of opportunities
of acquisition
already being created
• We have continued to invest in line with our target of 5 per cent of
• We will continue the focus around
• Organic revenue growth
product sales. Our R&D investment was 4.8 per cent (2019: 5.1 per
investment in our three capabilities
• Adjusted operating profit margin
cent) of the aggregate revenue of our product businesses
of power solutions for aerospace and
• We have reassessed our investment in the context of those markets
healthcare markets; connectivity for
which remain most attractive in the shorter term, given demand
the Internet of Things; and specialist
• Return on invested capital
• Adjusted EPS
• Cash conversion
• R&D investment
pattern changes
sensing capabilities
• We have supplemented our product design and development
• Our focus will continue to be on
capability with the acquisitions of the Covina and Torotel
sustainability and market growth
businesses, helping us move up the value chain and enabling us to
drivers, including electrification,
bring together our specialist capabilities from across the Group
digitisation, automation and
connectivity
• We will maintain a pipeline of new
products focused on optimising
our market potential in higher
growth segments driven by a more
sustainable world
• We quickly implemented COVID-19 specific safety protocols which,
• We will continue our multi-year
• Organic revenue growth
together with our essential business status, meant we remained
self-help programme and bring it to a
• Adjusted operating profit margin
largely open and operational through the year. There was only a
successful conclusion
limited impact on our capacity, in the face of COVID-19 and we
• We will progress Torotel operational
• Adjusted EPS
• Cash conversion
continued delivering to customer requirements, while protecting the
improvements, including investment
• Return on invested capital
safety and wellbeing of our people and the wider community, as well
in its operations
as customers and suppliers
• We will continue to progress our
• Our new, extended self-help programme commenced in the first
Group-wide Supply Chain Council
half of 2020 and we are making good progress, with c. 70 per cent
activities
of planned headcount reductions completed and transfer activity
• Our site level Lean Practitioners and
on schedule to support the site closure timeline. The project is
BE Lean efficiency activities will
on schedule to deliver the expected £11-12 million of full run-rate
continue in 2021
benefits in 2023
• Our ongoing BE Lean activities continue and improve our efficiency
around specific processes at site level
• Safety performance
• Engagement score
• CO2 equivalent (tonnes)
• We acquired the Covina (California) based power supply business
• We will continue to drive superior
• Organic revenue growth
of Excelitas Technologies Corp in January 2020 for a headline
returns from recent acquisitions
• Adjusted operating profit margin
$17.7 million
• We will drive value creation
• We also acquired Torotel, Inc, based in Olathe, Kansas, in November
opportunities, both revenue and
2020 for a headline $43.4 million
cost synergies
• We continued to look for opportunities to extend our technology
• We will drive cross-selling and
• Adjusted EPS
• Cash conversion
• Return on invested capital
• CO2 equivalent (tonnes)
capabilities and market reach
other opportunities from all our
acquisitions, which aids our efforts to
beat the cost of capital
• We will continue the further
development and execution of our
acquisition pipeline
• We have continued to invest in the business (see in particular
• We will continue our multi-year self-
R&D and operational excellence above) to design and
help programme
manufacture value-add products that help customers provide
• We will continue with initiatives to
more sustainable products and services
reduce our carbon footprint in line
• We have continued to drive our own sustainability strategy in the
with our pledge to be carbon neutral
year, including setting targets for reduced CO2 emissions, actions
by 2035
to improve our health and safety performance and enhanced
• We will maintain investment in
safety procedures during the COVID-19 outbreak
• We commenced a self-help programme which will result in the
closure of three facilities, reducing our carbon footprint
the business, consistent with
our target, to develop new,
sustainable products
• Organic revenue growth
• Underlying operating
profit margin
• Underlying EPS
• Cash conversion
• Return on invested capital
• Safety performance
• Engagement score
• R&D investment
• CO2 equivalent (tonnes)
16 TT Electronics plc Annual Report and Accounts 2020
We continue to see strategic business development as a
key driver of future, sustainable revenue and profit growth.
This involves cross-business and division collaboration
and Group-wide targeting of key potential customers
who have the ‘right fit’ for our business. Our business
development strategy complements excellent delivery
and customer service.
R&D is one of our top capital allocation priorities, given its
critical contribution to the ongoing health of the business.
Our investment is often undertaken in partnership with our
customers, helping our customers address climate change
and other sustainability issues by providing products that
are cleaner, smarter and healthier.
Our investment strategy includes leveraging acquired
complementary capabilities targeted through mergers and
acquisitions.
Aligned with our investment in innovation is the ability to
conduct our operations efficiently, resulting in a reduced
cost base and an enhanced operating margin.
Operational excellence also enables us to deliver
consistently to our customers, on time and on budget
with appropriate levels of quality, meaning they will want
to continue to place further orders with us.
Targeted, complementary acquisitions help us to
accelerate our strategy in terms of capability as well as
market and customer exposure.
Our disciplined financial approach and proven ability
to integrate acquisitions enable us to create value,
by exceeding our cost of capital.
Sustainability is central to what we make for our
customers – products that are cleaner, smarter and
healthier.
Sustainability is also central to the way we run our
business. We seek to minimise our impact on
the environment to the benefit of our stakeholders,
including customers and suppliers, employees,
communities and shareholders.
Strategic business
development
Operational excellence
Building a sustainable
business
Value-enhancing
acquisitions
Our acquisitions also contribute to higher margins.
bringing with them operating margins above the
Group average.
Priority
Why this is important
Highlights in the year
Future priorities
Link to KPIs
• We have navigated COVID-19 well with our performance on an
improving trend through the second half of 2020, and this trend
has continued into 2021
• A cross-Group Business Development Council has continued to
ensure co-ordination between divisions to optimise our effort,
including targeting the most promising customers
• There has been continuing success from our cross-selling
opportunities. The Global Manufacturing Solutions division has
made customer introductions to other divisions, resulting in
significant business wins.
• The Covina based power supply acquisition, which was acquired in
January 2020, has won a significant new contract. This is as a result
of a TT customer introduction, and happened within a few months
of acquisition
• Continuing focus on targeting the most
attractive customer accounts
• Develop our online and digital service
delivery including technical support
and virtual marketing of capabilities
to customers
• Continue to prioritise cross-selling
opportunities between our divisions
and businesses
• In particular, we will seek optimise
cross-selling opportunities from our
recent acquisitions, including Torotel,
Inc. with a pipeline of opportunities
already being created
• Organic revenue growth
• Adjusted operating profit margin
• Adjusted EPS
• Cash conversion
• Return on invested capital
• We have continued to invest in line with our target of 5 per cent of
product sales. Our R&D investment was 4.8 per cent (2019: 5.1 per
cent) of the aggregate revenue of our product businesses
• We have reassessed our investment in the context of those markets
which remain most attractive in the shorter term, given demand
pattern changes
• We will continue the focus around
investment in our three capabilities
of power solutions for aerospace and
healthcare markets; connectivity for
the Internet of Things; and specialist
sensing capabilities
• We have supplemented our product design and development
• Our focus will continue to be on
• Organic revenue growth
• Adjusted operating profit margin
• Adjusted EPS
• Cash conversion
• Return on invested capital
• R&D investment
Research & Development
By investing in value-add products we are driving future
revenue growth and enhancing our ability to move up the
value chain, supporting an enhanced operating margin.
capability with the acquisitions of the Covina and Torotel
businesses, helping us move up the value chain and enabling us to
bring together our specialist capabilities from across the Group
• We quickly implemented COVID-19 specific safety protocols which,
together with our essential business status, meant we remained
largely open and operational through the year. There was only a
limited impact on our capacity, in the face of COVID-19 and we
continued delivering to customer requirements, while protecting the
safety and wellbeing of our people and the wider community, as well
as customers and suppliers
• Our new, extended self-help programme commenced in the first
half of 2020 and we are making good progress, with c. 70 per cent
of planned headcount reductions completed and transfer activity
on schedule to support the site closure timeline. The project is
on schedule to deliver the expected £11-12 million of full run-rate
benefits in 2023
• Our ongoing BE Lean activities continue and improve our efficiency
around specific processes at site level
• We acquired the Covina (California) based power supply business
of Excelitas Technologies Corp in January 2020 for a headline
$17.7 million
• We also acquired Torotel, Inc, based in Olathe, Kansas, in November
2020 for a headline $43.4 million
• We continued to look for opportunities to extend our technology
capabilities and market reach
sustainability and market growth
drivers, including electrification,
digitisation, automation and
connectivity
• We will maintain a pipeline of new
products focused on optimising
our market potential in higher
growth segments driven by a more
sustainable world
• We will continue our multi-year
self-help programme and bring it to a
successful conclusion
• We will progress Torotel operational
improvements, including investment
in its operations
• We will continue to progress our
Group-wide Supply Chain Council
activities
• Our site level Lean Practitioners and
BE Lean efficiency activities will
continue in 2021
• We will continue to drive superior
returns from recent acquisitions
• We will drive value creation
opportunities, both revenue and
cost synergies
• We will drive cross-selling and
other opportunities from all our
acquisitions, which aids our efforts to
beat the cost of capital
• We will continue the further
development and execution of our
acquisition pipeline
• Organic revenue growth
• Adjusted operating profit margin
• Adjusted EPS
• Cash conversion
• Return on invested capital
• Safety performance
• Engagement score
• CO2 equivalent (tonnes)
• Organic revenue growth
• Adjusted operating profit margin
• Adjusted EPS
• Cash conversion
• Return on invested capital
• CO2 equivalent (tonnes)
• We have continued to invest in the business (see in particular
• We will continue our multi-year self-
R&D and operational excellence above) to design and
manufacture value-add products that help customers provide
more sustainable products and services
• We have continued to drive our own sustainability strategy in the
year, including setting targets for reduced CO2 emissions, actions
to improve our health and safety performance and enhanced
safety procedures during the COVID-19 outbreak
• We commenced a self-help programme which will result in the
closure of three facilities, reducing our carbon footprint
help programme
• We will continue with initiatives to
reduce our carbon footprint in line
with our pledge to be carbon neutral
by 2035
• We will maintain investment in
the business, consistent with
our target, to develop new,
sustainable products
• Organic revenue growth
• Underlying operating
profit margin
• Underlying EPS
• Cash conversion
• Return on invested capital
• Safety performance
• Engagement score
• R&D investment
• CO2 equivalent (tonnes)
TT Electronics plc Annual Report and Accounts 2020
17
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Our strategy continued
OUR STRATEGY
IN ACTION
Research & Development
Our investment is focused on sustainable
markets with attractive growth characteristics,
in line with our purpose which is to enable a
cleaner, smarter and healthier world. During
the year, we launched the new S-2 CONNECT
(speed-to-connect) system, which has multiple
applications including remote monitoring
of energy, security, temperature and home
healthcare. Our product has won its first
contract which is to help a customer roll-out
an energy-efficiency programme across a
residential housing estate.
Strategic business development
We have continued to win new customers
during the year, including:
• A contract for the provision of power supplies
and other products, as well as manufacturing
and fulfilment services, in the healthcare
market. This contract support a new and
novel imaging technology
• A multi-year contract with a new Asian
customer to build assemblies for diagnostic
healthcare equipment. The customer is
seeing increased demand as a result of the
COVID-19 outbreak.
• A multi-year contract for a range of
electronics manufacturing services with a
leading provider of renewable, wind-turbine
energy products
18 TT Electronics plc Annual Report and Accounts 2020
Value-enhancing acquisitions
We acquired two power supply businesses in 2020,
the Covina, California power supply business of
Excelitas Technologies Corp. (completed January
2020) and Torotel, Inc (completed November
2020), based in Olathe, Kansas. We have rapidly
and effectively integrated these businesses and
we are pursuing cross-selling and other synergy
opportunities with a good pipeline of potential
opportunities already in place.
Our new Covina-based acquisition won, as a result
of a cross-divisional team effort, a multi-year design
and manufacture programme for a power converter
on a US military aircraft. The work was won within a
few months of TT gaining ownership.
Operational excellence
The Group’s new self-help programme
commenced in the first half of 2020. This
multi-year programme further consolidates our
production activities, optimises the location of
manufacturing of certain product lines and is
expected to deliver £11-12 million of full run-
rate benefits in 2023.
Building a sustainable business
TT recognises that our activities have an
environmental impact. As well as producing
sustainable products for our customers we
optimise our own operations to reduce their
impact on the environment. Our goal is to be a
carbon neutral business by 2035, with like-for-like
annual reductions in our emissions. We are also
committed to reducing our single-use plastics and
the amount of waste we send to landfill.
TT Electronics plc Annual Report and Accounts 2020
19
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Our business model
HOW WE
CREATE VALUE
What differentiates TT:
TT’s differentiation arises from
our deep domain knowledge and
sustained investment in technology,
allied with customer intimacy and an
ability to deliver with flexibility
Our resources and relationships
Our key resources and relationships
Our people and culture
– Our people are at the heart of what we do
– They have deep experience of our chosen,
specialist capabilities
– The ‘TT Way’ underpins the behaviours we encourage
and by which we live every day, with the right culture being
critical to our ability to deliver sustainably over time
See pages 58 to 63
Access to our customers
– We have excellent customer credibility, often working
together with them over many years
– We have a model of working in partnership to solve
electronic challenges
– We can provide differentiated capabilities
to our customers
See page 11
Our business development organisation
– We have a Group-wide leadership approach through our
Business Development Council that fosters inter-Group
collaboration and promotes cross-selling
– We invest in training and tools to help increase our share
of work with the most strategic customers, as well
as bringing on board new customers by winning key
contracts and programmes. This is through an enhanced
approach to selling and partnering
See pages 16 to 17
Our engineering capability
– Through our customer intimacy, we can align our
engineering resources to develop the right applications
in the right markets - and at the right time
– We are aligned to structural growth trends and achieve
advances in technology to bring into production
sustainable products that will benefit the planet
and its people
– We invest in our specialisms through product
development, investment in our people and in
our facilities
See pages 9 and 13
A global manufacturing footprint
– Our manufacturing footprint enables us to service a global
customer base with a sustainable supply chain network
– It gives us flexibility to switch production
between geographies, according to capacity,
and customer requirements
– We are agile and flexible and focus on higher mix,
lower volume work where there is a need for significant
product customisation
See page 3
20 TT Electronics plc Annual Report and Accounts 2020
BUSINESS DEVELOPMENT
AND CUSTOMER INTIMACY
– We seek out customers who value what we do and
where we can add-value in markets that have long-term
structural growth dynamics driven by sustainability. We
seek revenue streams that are multi-year and recurring
– We develop a partnership approach with customers,
working with them to solve their toughest electronic
challenges
– We look for markets and customers where we can
establish long term relationships. We seek to be being
'designed in', as it creates barriers to entry, as our
components, products and engineering services are
integral to customers’ designs
– We foster collaboration internally, share opportunities
and key customer account intelligence to enable
improved probability of winning new business
and securing future growth
MANUFACTURING
AND DELIVERY
– We specialise in low volume and high mix products, that
require multiple factory set-ups; this sets us apart from
many competitors that specialise in higher volume, lower
mix products
– We can serve a global customer base as we have
facilities around the world that can cater for customers’
needs in different geographic locations
– We are lowering our cost base through site consolidation,
product optimisation and investment in operational
excellence. This also reduces our carbon emissions over
time, increasing the sustainability of the business
We leverage our attributes to unlock TT’s potential and solve electronic challenges for a sustainable world by providing solutions
for our customers that are cleaner, smarter and healthier. We contribute to lighter and more environmentally friendly aircraft, with
increased fuel efficiency. Our products support smart city infrastructure, including smart metering technology which is driving
reduced energy usage and we help improve health with a range of solutions, including laboratory analysis, minimally invasive
surgical procedures, healthcare diagnostics and wearable devices.
RESEARCH &
DEVELOPMENT
– We invest in R&D, often in partnership with customers,
understanding this is critical to the health of our
business as it brings new, advanced and sustainable
products to market
– We look for single source and designed-in development
opportunities where we can move up the value chain
– We operate in markets where our R&D investment
makes a real difference, by bringing to market highly
customised and complex products
– The critical nature of our markets often means obtaining
complex regulatory approvals, requiring
know-how and experience, resulting in barriers to entry
– We are known as being innovative and agile so we can
bring new products to market quickly
– We have 11 R&D centres around the world that
are the repository of our IP and specialist product
development skills
ENGINEERING
CAPABILITY
– We have deep domain knowledge in our markets: and
years of experience solving electronic challenges
– We have a particular skill in our ability to package
products, to make customers’ end products
smaller, lighter and less power consuming – which
is key to our customers' fuel and energy saving
products; this also aids the use of wearable and
implantable devices in healthcare markets to
improve health
– We invest in the business organically and
inorganically so we can move up the value chain
to engineer products, as well as components
Who are our stakeholders?
Customers and suppliers
We communicate regularly with customers and suppliers.
For example, we undertake ‘Voice of the Customer’ feedback
surveys to better understand our customers' views on what
we do well and how we can improve.
We work closely with our key suppliers both at a site level
and globally, to make sure they understand our needs and
requirements and ensure our supply chain is as robust,
efficient and sustainable as possible.
We engage with key suppliers, adopting a pragmatic
approach so that we can achieve maximum benefit for both
parties, within a clear framework of corporate responsibility.
Employees
We put in place a suite of comprehensive controls globally
to protect our employees and their families from COVID-19,
learning from our early experience at our Chinese facilities.
We have been benchmarked by Best Companies as a "2 Star"
great place to work.
We have developed an Equality, Diversity and Inclusion
strategy and Committee and ED&I business unit working
groups to drive equality and diversity at a local level.
Our communities
We are contributing to improving the environment by reducing
our carbon emissions by 20% in 2020. We have baselined
our single-use plastic and waste to landfill in the year.
We have actions in place to reduce all of these annually on
a like-for-like basis.
Our global teams remain committed to giving back to
their local communities, including participating in several
COVID-19 support initiatives and STEM programmes
through 2020.
Shareholders
Over the medium term the outcome of our business
model has included organic revenue growth, an increasing
underlying operating profit margin and good cash
generation. This means we can invest organically and
inorganically and generate an increasing EPS, which all helps
to deliver an improving return on invested capital.
TT Electronics plc Annual Report and Accounts 2020
21
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Key performance indicators
OUR KEY PERFORMANCE
INDICATORS
KPI and description
Five-year
performance chart
Why this KPI is important
2020 progress and
medium-term target
Financial
Organic revenue growth (%)
The percentage change in revenue
from continuing operations in
the current year compared to the
prior year, excluding the effects of
currency movements, divestments
and acquisitions. This measures
the like-for-like growth or decline
of the business.
(12)%
2019: 4%
(12)%
2020
2019
2018
2017
20161
4%
6%
5%
0%
Adjusted operating profit
margin (%)
Adjusted operating profit as
a percentage of revenue.
6.4%
2019: 8.0%
2020
2019
2018
2017
20161
6.4%
8.0%
7.8%
6.7%
5.5%
11.7p
2019: 17.8p
2020
2019
2018
2017
20161
11.7p
17.8p
16.2p
10.9p
12.0p
Adjusted earnings
per share (pence)
The profit for the year attributable
to shareholders excluding items not
included within adjusted operating
profit divided by the weighted
average number of shares in
issue during the year.
Cash conversion (%)
Adjusted operating cash flow including
capital expenditure, divided by
adjusted operating profit.
130%
2019: 103%
2020
2019
2018
2017
20161
130%
103%
88%
98%
87%
Return on invested capital
Adjusted operating profit for the year
divided by average invested capital
for the year. Average invested capital
excludes pensions, provisions, tax
balances, derivative financial assets
and liabilities, cash and borrowings.
It is calculated at average rates taking
into account monthly balances.
7.7%
2019: 10.8%
2020
2019
2018*
2017*
20161*
7.7%
10.8%
11.5%
10.6%
10.3%
22 TT Electronics plc Annual Report and Accounts 2020
Sustainable organic revenue growth
is an important means by which
value can be created. It reflects a
combination of conditions in our
markets and our success in gaining
market share from serving our
customers better.
Organic revenue was 12% lower
reflecting the impact of the COVID-19
outbreak. There were lower volumes
from commercial aerospace,
automation and electrification and
healthcare markets, although defence
remained strong.
The adjusted operating profit margin
is an indicator of our ability over the
longer term to extract fair value from
our products and services driven by a
mixture of increasing revenue and an
optimised cost base.
Target: 3-5% organic revenue growth
annually over the medium term.
The adjusted operating margin was
lower at 6.4% reflecting the impact
of reduced sales volumes related to
COVID-19 and associated operating
constraints and inefficiencies. These
were partlially offset by cost control
and efficiency measures.
Target: Double-digit margin by 2023.
Adjusted EPS is an important
metric used by shareholders. It
summarises the overall financial
performance of the Group including
revenue growth, operating margin,
the cost of debt finance and the rate
of underlying taxation.
Adjusted EPS was 11.7 pence,
primarily reflecting the lower adjusted
operating profit in the period.
Target: Double digit adjusted EPS
growth annually at constant currency
over the medium term.
Carbon dioxide equivalent
(tonnes)3
The total amount emitted in tonnes
for scope 1 and scope 2 (carbon
dioxide equivalent), with further
details on the calculation method set
out on page 65.
20%
reduction since 2019
2020
2019
12,518
15,705
Cash conversion measures how
effectively profit is converted into
cash and, within this, reflects the
management of working capital and
capital expenditure. High levels of
cash conversion aids investment
in the business. It also enables the
Group to provide increased returns for
shareholders and supports a strong
balance sheet.
Cash conversion increased to 130%
as a result of the Group’s proactive
cash management with capital and
development expenditure lower and
a working capital inflow, including an
inflow from inventory reduction.
Target: 90%+ cash conversion
annually over the medium term.
Return on invested capital is a measure
of how efficiently the Group is utilising
its assets, relative to profitability, in
generating shareholder returns.
Return on Invested Capital declined to
7.7 per cent due to the volume driven
profit reduction.
Target: Exceed the cost of holding
assets with year-on-year increases.
Safety performance
(number of three day lost-
time incidents)
The number of work-place health
and safety incidents that resulted in
employees, contractors or visitors
needing to be off work for three days
or more.
5
2019: 4
5
4
Employee engagement
score
Results from a third-party survey, Best
Companies Ltd, which uses a scale of
one (low) to seven (high) against eight
success factors. Employee feedback is
received anonymously.
5.21
2018: 4.82
Interim pulse surveys
2020
2019
2018
2017
20161
2020
20192
2018
2017
20161
17
7
13
5.21
4.82
4.73
4.59
Data available from 2019 only.
4.8%
2019: 5.1%
2020
2019
2018
2017
20161
4.8%
5.1%
5.1%
4.6%
4.0%
Employee wellbeing lies at the heart of
There was one more incident in
the “TT Way". A low number of Health
2020 compared to 2019 with the
and Safety incidents is one measure
total in the year at five. This in part
of how our safety performance,
reflected COVID-related disruption to
which potentially impacts employees,
established processes and working
contractors and our communities
practices through the year.
generally, is succeeding relative to
peers. It measures how well we are
executing on our commitment to raise
safety standards globally and is also
linked to our operational performance.
Target: Year-on-year reduction
in incidents, ultimately leading to
‘zero harm’.
Employee engagement lies at the
Our net employee engagement score
centre of our strategy and is at the
has increased since 2018 to 5.21,
heart of the ‘TT Way’. Having engaged
with the company now being judged
employees is crucial to attracting and
a “2 star" great place to work. This is
maintaining the talent we need to
an increase on the “1 star" received in
execute our strategy.
the last survey.
Target: Survey-on-survey increase in
the Group's engagement score over
the medium term
We consider that the biggest impact
A decrease of 20 per cent in emissions
we have on the environment from our
(carbon dioxide equivalent – tonnes)
operations is in respect of climate
in the year. This improvement is due
change. We have therefore included
to our energy efficiency actions and
an emissions metric within our Group
increased use of green electricity as
KPI’s for the first time in 2020. This
well as lower production volumes in
will be a measure of how we optimise
the year.
our operations over time to reduce
this impact.
Target: Annual reductions, with the
Group being carbon neutral by 2035.
A sustainable level of R&D
We have continued to invest in
investment enables us to introduce
line with our target of 5 per cent of
new and innovative products that
product sales. Our R&D investment,
allow us to increase our revenue
in the year, represented 4.8 per cent
and deliver on our sustainability
of the aggregate revenue of our
commitments to deliver cleaner,
product businesses. We continue
smarter and healthier products.
to bring a pipeline of exciting new
products to market, with further
details on page 11.
Target: Maintain R&D investment at
around 5 per cent of revenue annually
over the medium term.
R&D investment as
a % of sales
R&D cash investment as a
percentage of revenue. The metric
excludes Global Manufacturing
Solutions which is a manufacturing
services business and which
therefore has no R&D.
* Excluding IFRS16 impacts.
1 2016 not restated for disposal of the
transportation business.
2 No employee engagement survey was
undertaken in 2019.
3 New KPI, consistent with TT’s 2019
Annual Report commitment to introduce
sustainability targets within our Key
Performance Indicators. Numbers only
collected from 2019.
Our measures of success are
aligned with our strategy and
strategic priorities.
Alternative Performance Measure.
For further details see note 1c on page
129. The adjusted measures used are set
out on pages 194 to 198.
KPI and description
Five-year
performance chart
Why this KPI is important
2020 progress and
medium-term target
Organic revenue growth (%)
The percentage change in revenue
from continuing operations in
the current year compared to the
prior year, excluding the effects of
currency movements, divestments
and acquisitions. This measures
the like-for-like growth or decline
of the business.
(12)%
2019: 4%
(12)%
Sustainable organic revenue growth
Organic revenue was 12% lower
is an important means by which
reflecting the impact of the COVID-19
value can be created. It reflects a
outbreak. There were lower volumes
combination of conditions in our
from commercial aerospace,
markets and our success in gaining
automation and electrification and
market share from serving our
healthcare markets, although defence
customers better.
remained strong.
Target: 3-5% organic revenue growth
annually over the medium term.
4%
6%
5%
0%
Adjusted operating profit
margin (%)
Adjusted operating profit as
a percentage of revenue.
6.4%
2019: 8.0%
The adjusted operating profit margin
The adjusted operating margin was
is an indicator of our ability over the
lower at 6.4% reflecting the impact
longer term to extract fair value from
of reduced sales volumes related to
our products and services driven by a
COVID-19 and associated operating
mixture of increasing revenue and an
constraints and inefficiencies. These
optimised cost base.
were partlially offset by cost control
and efficiency measures.
Target: Double-digit margin by 2023.
11.7p
2019: 17.8p
Adjusted earnings
per share (pence)
The profit for the year attributable
to shareholders excluding items not
included within adjusted operating
profit divided by the weighted
average number of shares in
issue during the year.
Cash conversion (%)
Adjusted operating cash flow including
capital expenditure, divided by
adjusted operating profit.
130%
2019: 103%
Cash conversion measures how
Cash conversion increased to 130%
effectively profit is converted into
as a result of the Group’s proactive
cash and, within this, reflects the
cash management with capital and
management of working capital and
development expenditure lower and
capital expenditure. High levels of
a working capital inflow, including an
cash conversion aids investment
inflow from inventory reduction.
in the business. It also enables the
Group to provide increased returns for
shareholders and supports a strong
balance sheet.
Target: 90%+ cash conversion
annually over the medium term.
Return on invested capital
Adjusted operating profit for the year
divided by average invested capital
for the year. Average invested capital
excludes pensions, provisions, tax
balances, derivative financial assets
and liabilities, cash and borrowings.
It is calculated at average rates taking
into account monthly balances.
7.7%
2019: 10.8%
Return on invested capital is a measure
Return on Invested Capital declined to
of how efficiently the Group is utilising
7.7 per cent due to the volume driven
its assets, relative to profitability, in
profit reduction.
generating shareholder returns.
Target: Exceed the cost of holding
assets with year-on-year increases.
2020
2019
2018
2017
20161
2020
2019
2018
2017
20161
2020
2019
2018
2017
20161
2020
2019
2018
2017
20161
2020
2019
2018*
2017*
20161*
6.4%
8.0%
7.8%
6.7%
5.5%
17.8p
16.2p
11.7p
10.9p
12.0p
130%
103%
88%
98%
87%
7.7%
10.8%
11.5%
10.6%
10.3%
Non-Financial
Safety performance
(number of three day lost-
time incidents)
The number of work-place health
and safety incidents that resulted in
employees, contractors or visitors
needing to be off work for three days
or more.
Employee engagement
score
Results from a third-party survey, Best
Companies Ltd, which uses a scale of
one (low) to seven (high) against eight
success factors. Employee feedback is
received anonymously.
5
2019: 4
2020
2019
2018
2017
20161
5
4
5.21
2018: 4.82
17
7
13
2020
20192
2018
2017
20161
5.21
Interim pulse surveys
4.82
4.73
4.59
Adjusted EPS is an important
Adjusted EPS was 11.7 pence,
metric used by shareholders. It
primarily reflecting the lower adjusted
summarises the overall financial
operating profit in the period.
performance of the Group including
revenue growth, operating margin,
the cost of debt finance and the rate
of underlying taxation.
Target: Double digit adjusted EPS
growth annually at constant currency
over the medium term.
Carbon dioxide equivalent
(tonnes)3
The total amount emitted in tonnes
for scope 1 and scope 2 (carbon
dioxide equivalent), with further
details on the calculation method set
out on page 65.
20%
reduction since 2019
2020
2019
12,518
15,705
Data available from 2019 only.
4.8%
2019: 5.1%
2020
2019
2018
2017
20161
4.8%
5.1%
5.1%
4.6%
4.0%
R&D investment as
a % of sales
R&D cash investment as a
percentage of revenue. The metric
excludes Global Manufacturing
Solutions which is a manufacturing
services business and which
therefore has no R&D.
* Excluding IFRS16 impacts.
1 2016 not restated for disposal of the
transportation business.
2 No employee engagement survey was
undertaken in 2019.
3 New KPI, consistent with TT’s 2019
Annual Report commitment to introduce
sustainability targets within our Key
Performance Indicators. Numbers only
collected from 2019.
Employee wellbeing lies at the heart of
the “TT Way". A low number of Health
and Safety incidents is one measure
of how our safety performance,
which potentially impacts employees,
contractors and our communities
generally, is succeeding relative to
peers. It measures how well we are
executing on our commitment to raise
safety standards globally and is also
linked to our operational performance.
There was one more incident in
2020 compared to 2019 with the
total in the year at five. This in part
reflected COVID-related disruption to
established processes and working
practices through the year.
Target: Year-on-year reduction
in incidents, ultimately leading to
‘zero harm’.
Employee engagement lies at the
centre of our strategy and is at the
heart of the ‘TT Way’. Having engaged
employees is crucial to attracting and
maintaining the talent we need to
execute our strategy.
Our net employee engagement score
has increased since 2018 to 5.21,
with the company now being judged
a “2 star" great place to work. This is
an increase on the “1 star" received in
the last survey.
Target: Survey-on-survey increase in
the Group's engagement score over
the medium term
We consider that the biggest impact
we have on the environment from our
operations is in respect of climate
change. We have therefore included
an emissions metric within our Group
KPI’s for the first time in 2020. This
will be a measure of how we optimise
our operations over time to reduce
this impact.
A decrease of 20 per cent in emissions
(carbon dioxide equivalent – tonnes)
in the year. This improvement is due
to our energy efficiency actions and
increased use of green electricity as
well as lower production volumes in
the year.
Target: Annual reductions, with the
Group being carbon neutral by 2035.
A sustainable level of R&D
investment enables us to introduce
new and innovative products that
allow us to increase our revenue
and deliver on our sustainability
commitments to deliver cleaner,
smarter and healthier products.
We have continued to invest in
line with our target of 5 per cent of
product sales. Our R&D investment,
in the year, represented 4.8 per cent
of the aggregate revenue of our
product businesses. We continue
to bring a pipeline of exciting new
products to market, with further
details on page 11.
Target: Maintain R&D investment at
around 5 per cent of revenue annually
over the medium term.
TT Electronics plc Annual Report and Accounts 2020
23
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Our capabilities continued
OUR
CAPABILITIES
IN ACTION
We design and manufacture
products for high-reliability
applications where the
proliferation of electronics
is driving demand for our
power, connectivity and
sensing capabilities.
Our products enable solutions
that are cleaner, smarter and
healthier – including in our
target markets:
• Safer, more fuel-efficient
aircraft operating in the most
demanding conditions
• Smart city infrastructure and
efficient factory automation
• Advanced healthcare devices
and diagnostic innovations
24 TT Electronics plc Annual Report and Accounts 2020
Capabilities in action – Healthcare
HELPING SHAPE
THE FUTURE OF
HEALTHCARE
The world’s leading healthcare
equipment innovators rely on us for
their therapy driven, safety-critical
electronics. Our power, connectivity,
and sensor technologies span the
modern surgical suite; from patient
monitoring and therapeutic devices
to surgical navigation and diagnostic
equipment.
Our electronic components and
assemblies are used in surgical
navigation systems to help deliver
therapy directly to patients during
minimally invasive procedures, as
well as in implantable devices and
other external applications that
require high reliability power and
sensor-enabled communication.
Advanced interventional
and surgical devices
We design and manufacture custom electromagnetic
components and subassemblies used in surgical
navigation systems to help deliver therapy during minimally
invasive procedures, as well as in implantable devices. Our
products support:
• Surgical navigation equipment for resection and ablation
• Implantable pacemakers and defibrillators
• Neuromodulators
• Implant programmers and chargers
• Transcutaneous energy transfer systems
• Left ventricular assist and transcranial
magnetic systems
Direct patient care and monitoring
Innovative diagnostics and imaging
The increasing global population is driving
demand for advanced preventative and
life-saving healthcare treatment. Our sensor
technologies, power supplies and electronic
subsystems can be found across many
critical healthcare devices supporting hospital
patients including:
• Patient monitoring equipment
• Surgical lighting
• Cardiopulmonary perfusion equipment
• Ventilators
TT provides design and manufacturing solutions
for a range of the most innovative diagnostic and
imaging equipment, critical to the identification,
treatment and prevention of disease. Our specialised
components and electronic assemblies support:
• Ultrasound, x-ray and MRI machines
• Radiotherapy equipment for cancer treatment
• Sensor-enabled diagnostic devices
4
1
3
25%of Group revenue
Our market breakdown
1– Healthcare
2– Aerospace & Defence
3– Automation & Electrification
4– Other
2
TT Electronics plc Annual Report and Accounts 2020
25
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Our capabilities continued
Capabilities in action – aerospace and defence
MISSION-
CRITICAL
SYSTEMS FOR
SAFE FLIGHT
From cockpit displays to fuel pumps
and defence systems, our aircraft
solutions enable peak performance
and reliability under the harshest and
most demanding conditions.
Our products provide performance,
size, weight, and efficiency benefits
for applications such as power
conversion, actuation and control
for mission-critical systems where
our solutions support a broad
range of military and commercial
platforms globally.
Precision guidance and defensive
aids systems
Precision guidance systems are designed to
hit the intended target consistently thereby
minimising collateral damage. Defensive aids
protect military aircraft from attack by collecting
and communicating information from a range of
sensors to provide situational awareness and timely
warning of threats. Our power modules, magnetics,
and electronic assemblies are used in:
• Laser targeting and inertial navigation systems
• Precision guided weapon power supplies
• Radar jammers
4
1
3
Our market breakdown
1– Healthcare
2– Aerospace & Defence
3– Automation & Electrification
4– Other
2
22%of Group revenue
Engine controls and fuel systems
Engine controls and fuel systems rely
on a range sensors, electromagnetics
and high-power actuation technologies;
these work together to optimise fuel
management and engine performance
throughout flight. We provide power
conversion, magnetics, sensors and
electronic assemblies for:
• Fuel systems
• Engine ice protection
• Auxiliary power units
26 TT Electronics plc Annual Report and Accounts 2020
Cockpit avionics and
flight controls
Flight safety depends on command and
control systems centred on the cockpit,
from digital displays to flight controls
and information management systems.
We manufacture complete electronic
assemblies, custom power modules
and electronic components used in:
• Avionics display units
• Flight control power supplies
• Engine controls and landing gear
Communication, navigation and radar systems
Aircraft communication and navigation systems
provide the foundation for safe flight and enable
secure, tactical data transmission across multiple
critical functions – ranging from weather radar to
precision navigation and early warning systems. We
provide DC-DC power conversion, electromagnetics
and components found within:
• Global positioning systems (GPS)
• Radar systems
• Communications, navigation and
identification
TT Electronics plc Annual Report and Accounts 2020
27
Strategic reportGovernance and Directors' reportFinancial statements Factory automation and
electrification
We manufacture a range of specialised
electronic components and assemblies
found in:
• Industrial robotics and automation
equipment
• Power monitoring supplies
• Industrial safety and security controls
• Smart packaging and label equipment
Strategic report | Our capabilities continued
Capabilities in action – automation and electrification
ENABLING
SMARTER CITIES
TO IMPROVE
LIVES
We design and manufacture
electronics that support
the increased demand for
automation and electrification.
From clean energy and smart
home applications to more
efficient factory equipment and
connected asset tracking, our
power, connectivity, and sensor
technologies enable innovations
that contribute to a smarter,
cleaner, and healthier world
4
1
3
Our market breakdown
1– Healthcare
2– Aerospace & Defence
3– Automation & Electrification
4– Other
2
37%of Group revenue
28 TT Electronics plc Annual Report and Accounts 2020
Clean energy and smart cities
We remain at the forefront of delivering technologies that
meet the ever-increasing demand for cleaner energy,
smart monitoring systems and home automation. Our
products can be found in a range of applications including:
• Renewable energy generation and smart grid metering
• Power management and energy control systems
• Water and wastewater measurement and monitoring
• Smart lighting, security systems and fire detection
• Secure access and safety controls
Smart infrastructure and industrial connectivity
Some of the world’s largest, and most advanced transportation
systems are powered and connected by our electronic
solutions. Our products support:
• Transportation communication systems
• Railway signalling systems and temperature control
• Asset tracking and inventory management systems
• Communication and cloud service connectivity
TT Electronics plc Annual Report and Accounts 2020
29
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Market review
ATTRACTIVE GROWTH
ATTRACTIVE GROWTH
OPPORTUNITIES
OPPORTUNITIES
Critical market
Trend description
Healthcare
Read more on pages 32 to 33
5-7%
Medium term
market growth
to 2024 (CAGR)
Aerospace and defence
Read more on pages 34 to 35
3-4%
Aerospace & defence
market growth to
2024 (CAGR)
Automation and electrification
Read more on pages 36 to 37
4-6%
Medium term
market growth
to 2024 (CAGR)
2020 has proven the importance and critical need
globally for better technology and more efficient
ways to serve healthcare patients. The market
for healthcare electronics is growing strongly,
driven by an increasing global population, higher
numbers of older people and therefore heightened
demand for advanced treatments. The United
Nations forecasts that the world’s population is
expected to increase to c.10 billion people by 2050,
accompanied by a doubling of people over the
age of 65(1) which will lead to increased demand
for healthcare. In the shorter term, we believe that
the focus on COVID-19 treatments has created
pent up demand for deferred elective surgeries
and equipment. In the longer term, the COVID-19
outbreak has demonstrated the potential of
telemedicine and will drive the need to accelerate
capabilities through device connectivity and remote
patient monitoring. To become more efficient,
healthcare device manufacturers have continued to
outsource aspects of device manufacturing. This
market is expected to reach $98 billion by 2027 and
have a CAGR of c.11 per cent from 2020 to 2027.(2)
Key areas of growth within the healthcare market
include implantable devices and interventional
devices for critical, non-elective close-to-the-
patient procedures.
The commercial aerospace sector has had an
unprecedented reset in 2020, due in large part
to travel restrictions that have been put in place
around the world to slow the spread of COVID-19.
World air travel demand remains low and there
remains significant near-term challenges in
commercial aerospace, with the market expected
to remain flat in the short term with recovery
to 2019 levels occurring around 2024-2025.
Pre-existing market trends are expected to
continue with demand for more efficient, safer and
environmentally friendly aircraft meaning increased
need for electronic systems and applications.
Over the longer-term the sector outlook is positive,
driven by a growing and global middle-class
population and a greater propensity to travel.
The defence market is expected to continue to grow
over the next few years with defence budgets driven
by global instability and political uncertainty. The US
defence budget, which is the largest in the world, is
expected to grow to $768 billion by 2025.(1) The UK
Government has also announced an increase in its
budget with £16.5 billion of additional funding over
four years. This is one of the largest increases in this
budget since the Cold War era.
Within this market, there are significant
opportunities for growth arising from technology
improvements and innovation, including
electrification, and more efficient systems.
Certain parts of defence budgets are priority areas
with exposure enabling faster growth. These priority
areas include surveillance, radar, sonar, electronic
warfare, missiles and other applications.
Automation and electrification markets cover
different subsegments and had a range of
outcomes in 2020, but overall these markets were
significantly impacted by COVID-19. However,
Gross Domestic Product trends in 2020 have
gradually improved sequentially from the second
quarter low point, providing a foundation for
ongoing recovery in 2021. Global economic
growth, which is a proxy for general automation
and electrification activity, is expected to be 6.3 per
cent in 2021, with the US growing at c.5 per cent,
Europe at c.6 per cent, United Kingdom at c.7 per
cent and China at
c.8 per cent.(1) Government policies aim to sustain
national economies and stimulate future growth.
The economic recovery will be underpinned by a
focus on infrastructure spending to improve the
environment and drive sustainability.
Automation and electrification markets are
expected to benefit from an acceleration of existing
technological trends including moving from
mechanical solutions to electrical solutions and
these will provide numerous opportunities to deliver
more and increasingly efficient electrical systems.
Existing trends towards automation, remote asset
tracking and monitoring will continue and may be
accelerated as COVID-19 has proven the need for
increased productivity, remote access to assets and
automation for real-time remote monitoring and
service capabilities. The global asset tracking, smart
home and automotive telematics markets are all
expected to grow between 13 -16 percent over the
medium term.(3)
30 TT Electronics plc Annual Report and Accounts 2020
$97.5bn
The healthcare device manufacturing market is
expected to grow to $97.5bn by 2027.(2)
We have continued to work with our customers in
During the peak of the outbreak we demonstrated
the healthcare sector to provide highly-engineered
our capabilities and agility by working with different
solutions for their exacting needs. We remain
cross-sector teams to provide urgently needed
focused on providing solutions for the patient
products. We have used this opportunity to
monitoring, laboratory equipment and diagnostic
showcase TT’s capabilities, and this has resulted
segments of this market. The impact of COVID-19
in further business opportunities.
The medical implants market is expected to grow at
a c.7 per cent CAGR from 2020 to 2025.(3)
7%
6.4%
The worldwide healthcare device manufacturing
market is expected to grow at 6.4% CAGR to 2024.(4)
has reinforced the need for interventional devices,
patient monitoring and laboratory equipment,
among others, and these are all TT specialisms.
We continue to invest in R&D to bring new and
improved healthcare products to market. We also
continue to look for inorganic opportunities to
grow, following the acquisition of Power Partners
in 2019, which specialises in providing power
solutions for the healthcare market.
In the shorter term there has been a broad market
focus on providing solutions to combat the
COVID-19 outbreak.
Sources:
Highlights
(1) United Nations World Population Prospects 2019
(2) https://www.globenewswire.com/news-
release/2020/10/15/2109290/0/en/Medical-Device-
Contract-Manufacturing-Market-Size-to-Hit-US-97-52-
Bn-by-2027.html
(3) https://www.mordorintelligence.com/industry-reports/
medical-implants-market
(4) New Venture Research – NVR Worldwide EMS Market
– 2020 Edition
4%
We continue to provide innovative solutions and
We have invested inorganically in aerospace and
systems with proven high reliability characteristics
defence in the year, completing the acquisition
for critical customer products, who design and
of the power supply business of the Covina-
The medium and long-term trend shows good
manufacture commercial and military aircraft,
based Excelitas Technologies Corp in January
growth in commercial aerospace. Passenger traffic
defence platforms and products, and space
2020 and Torotel, Inc in November 2020. These
globally is expected to double by 2039 from the highs
programmes. Our leading-edge capabilities have
acquisitions expand our power supply solutions
of 2019 with an annual CAGR of 4 per cent.(2)
helped us win new work during the year on a range
and electro-magnetic assembly capabilities for
of current and future US and UK fighter platforms, as
harsh environments and give us enhanced access
well on the Perseverance Mars 2020 Rover mission.
to the large and attractive US market. They bring
43,110
It is expected there will be 18,350 new aircraft
products for growing segments of the aerospace
deliveries by 2029, and 43,110 by 2039, with 75 per
and defence markets, and we are able to switch
cent being single aisle aircraft. Modernisation and
our development resources between these end-
Sources:
replacement of old aircraft is a focus accelerated
markets as conditions dictate.
We continue to invest organically to develop new
by the increased need for fuel efficiency.(2), (3)
an existing blue-chip customer base and enhance
our ability to cross-sell products and win new
customers.
(1) US National Defense Budget Green Book, April 2020
(2) http://www.boeing.com/commercial/market/
commercial-market-outlook/index.page
(3) Boeing Commercial Market Outlook 2020 - 2039
$768bn
The US defence budget is currently c.$705 billion in
FY21 and is projected to grow to c.$768 billion by 2025.(1)
6.3%
€1tr
The EU recovery plan has announced a Green Deal
worth more than €1 trillion providing a favourable
backdrop for green industrial activity.(2)
We focus our efforts on providing solutions for a
COVID-19 outbreak, we have continued to win
diverse set of high-end industrial and connectivity
new work from a variety of customers, including a
markets, where we can provide differentiation
producer of renewable energy for products to be
Economic growth is expected to rebound
strongly in 2021 with an increase in Global GDP
of 6.3 per cent.(1)
and benefit from structural growth including the
delivered from 2021.
provision of highly accurate sensors used for
robotics and automation. In addition, we provide
Sources:
products for remote asset tracking, smart city
applications and energy saving applications
among others.
Our R&D efforts are aligned to these markets,
bringing to market during the year our innovative
new S-2 CONNECT system which enables
customers to deploy an ‘Internet of Things’ strategy
quickly and cost effectively.
While market conditions across our diverse
industrial markets has been mixed, as a result of the
(1) Goldman Sachs Economic Outlook December 2020.
(2) The European Commission (https://ec.europa.eu/info/
strategy/priorities-2019-2024/european-green-deal_en)
(3) https://www.businesswire.com/news/
home/20201113005604/en/Global-Asset-Tracking-
Market-2020-to-2028---Government-Initiatives-in-
Favour-of-GPS-Tracking-Presents-Opportunities---
ResearchAndMarkets.com;
https://www.prnewswire.com/news-releases/
smart-home-market-worth--207-88-billion-globally-
by-2027-at-13-52-cagr-verified-market-
research-301165666.html;
2020 has proven the importance and critical need
outbreak has demonstrated the potential of
globally for better technology and more efficient
telemedicine and will drive the need to accelerate
ways to serve healthcare patients. The market
capabilities through device connectivity and remote
for healthcare electronics is growing strongly,
patient monitoring. To become more efficient,
driven by an increasing global population, higher
healthcare device manufacturers have continued to
numbers of older people and therefore heightened
outsource aspects of device manufacturing. This
demand for advanced treatments. The United
market is expected to reach $98 billion by 2027 and
Nations forecasts that the world’s population is
have a CAGR of c.11 per cent from 2020 to 2027.(2)
expected to increase to c.10 billion people by 2050,
Key areas of growth within the healthcare market
accompanied by a doubling of people over the
include implantable devices and interventional
age of 65(1) which will lead to increased demand
devices for critical, non-elective close-to-the-
for healthcare. In the shorter term, we believe that
patient procedures.
the focus on COVID-19 treatments has created
pent up demand for deferred elective surgeries
and equipment. In the longer term, the COVID-19
The commercial aerospace sector has had an
The defence market is expected to continue to grow
unprecedented reset in 2020, due in large part
over the next few years with defence budgets driven
to travel restrictions that have been put in place
by global instability and political uncertainty. The US
around the world to slow the spread of COVID-19.
defence budget, which is the largest in the world, is
World air travel demand remains low and there
expected to grow to $768 billion by 2025.(1) The UK
remains significant near-term challenges in
Government has also announced an increase in its
commercial aerospace, with the market expected
budget with £16.5 billion of additional funding over
to remain flat in the short term with recovery
four years. This is one of the largest increases in this
to 2019 levels occurring around 2024-2025.
budget since the Cold War era.
Pre-existing market trends are expected to
continue with demand for more efficient, safer and
environmentally friendly aircraft meaning increased
need for electronic systems and applications.
Over the longer-term the sector outlook is positive,
driven by a growing and global middle-class
population and a greater propensity to travel.
Within this market, there are significant
opportunities for growth arising from technology
improvements and innovation, including
electrification, and more efficient systems.
Certain parts of defence budgets are priority areas
with exposure enabling faster growth. These priority
areas include surveillance, radar, sonar, electronic
warfare, missiles and other applications.
Automation and electrification markets cover
Automation and electrification markets are
different subsegments and had a range of
expected to benefit from an acceleration of existing
outcomes in 2020, but overall these markets were
technological trends including moving from
significantly impacted by COVID-19. However,
mechanical solutions to electrical solutions and
Gross Domestic Product trends in 2020 have
these will provide numerous opportunities to deliver
gradually improved sequentially from the second
more and increasingly efficient electrical systems.
quarter low point, providing a foundation for
Existing trends towards automation, remote asset
ongoing recovery in 2021. Global economic
tracking and monitoring will continue and may be
growth, which is a proxy for general automation
accelerated as COVID-19 has proven the need for
and electrification activity, is expected to be 6.3 per
increased productivity, remote access to assets and
cent in 2021, with the US growing at c.5 per cent,
automation for real-time remote monitoring and
Europe at c.6 per cent, United Kingdom at c.7 per
service capabilities. The global asset tracking, smart
cent and China at
home and automotive telematics markets are all
c.8 per cent.(1) Government policies aim to sustain
expected to grow between 13 -16 percent over the
national economies and stimulate future growth.
medium term.(3)
The economic recovery will be underpinned by a
focus on infrastructure spending to improve the
environment and drive sustainability.
Well-positioned with accelerating positive market trends due to COVID-19
Headline statistics
Our response
$97.5bn
The healthcare device manufacturing market is
expected to grow to $97.5bn by 2027.(2)
7%
The medical implants market is expected to grow at
a c.7 per cent CAGR from 2020 to 2025.(3)
6.4%
The worldwide healthcare device manufacturing
market is expected to grow at 6.4% CAGR to 2024.(4)
We have continued to work with our customers in
the healthcare sector to provide highly-engineered
solutions for their exacting needs. We remain
focused on providing solutions for the patient
monitoring, laboratory equipment and diagnostic
segments of this market. The impact of COVID-19
has reinforced the need for interventional devices,
patient monitoring and laboratory equipment,
among others, and these are all TT specialisms.
We continue to invest in R&D to bring new and
improved healthcare products to market. We also
continue to look for inorganic opportunities to
grow, following the acquisition of Power Partners
in 2019, which specialises in providing power
solutions for the healthcare market.
In the shorter term there has been a broad market
focus on providing solutions to combat the
COVID-19 outbreak.
During the peak of the outbreak we demonstrated
our capabilities and agility by working with different
cross-sector teams to provide urgently needed
products. We have used this opportunity to
showcase TT’s capabilities, and this has resulted
in further business opportunities.
Sources:
(1) United Nations World Population Prospects 2019
Highlights
(2) https://www.globenewswire.com/news-
release/2020/10/15/2109290/0/en/Medical-Device-
Contract-Manufacturing-Market-Size-to-Hit-US-97-52-
Bn-by-2027.html
(3) https://www.mordorintelligence.com/industry-reports/
medical-implants-market
(4) New Venture Research – NVR Worldwide EMS Market
– 2020 Edition
4%
The medium and long-term trend shows good
growth in commercial aerospace. Passenger traffic
globally is expected to double by 2039 from the highs
of 2019 with an annual CAGR of 4 per cent.(2)
43,110
It is expected there will be 18,350 new aircraft
deliveries by 2029, and 43,110 by 2039, with 75 per
cent being single aisle aircraft. Modernisation and
replacement of old aircraft is a focus accelerated
by the increased need for fuel efficiency.(2), (3)
$768bn
The US defence budget is currently c.$705 billion in
FY21 and is projected to grow to c.$768 billion by 2025.(1)
6.3%
Economic growth is expected to rebound
strongly in 2021 with an increase in Global GDP
of 6.3 per cent.(1)
€1tr
The EU recovery plan has announced a Green Deal
worth more than €1 trillion providing a favourable
backdrop for green industrial activity.(2)
We continue to provide innovative solutions and
systems with proven high reliability characteristics
for critical customer products, who design and
manufacture commercial and military aircraft,
defence platforms and products, and space
programmes. Our leading-edge capabilities have
helped us win new work during the year on a range
of current and future US and UK fighter platforms, as
well on the Perseverance Mars 2020 Rover mission.
We continue to invest organically to develop new
products for growing segments of the aerospace
and defence markets, and we are able to switch
our development resources between these end-
markets as conditions dictate.
We have invested inorganically in aerospace and
defence in the year, completing the acquisition
of the power supply business of the Covina-
based Excelitas Technologies Corp in January
2020 and Torotel, Inc in November 2020. These
acquisitions expand our power supply solutions
and electro-magnetic assembly capabilities for
harsh environments and give us enhanced access
to the large and attractive US market. They bring
an existing blue-chip customer base and enhance
our ability to cross-sell products and win new
customers.
Sources:
(1) US National Defense Budget Green Book, April 2020
(2) http://www.boeing.com/commercial/market/
commercial-market-outlook/index.page
(3) Boeing Commercial Market Outlook 2020 - 2039
We focus our efforts on providing solutions for a
diverse set of high-end industrial and connectivity
markets, where we can provide differentiation
and benefit from structural growth including the
provision of highly accurate sensors used for
robotics and automation. In addition, we provide
products for remote asset tracking, smart city
applications and energy saving applications
among others.
Our R&D efforts are aligned to these markets,
bringing to market during the year our innovative
new S-2 CONNECT system which enables
customers to deploy an ‘Internet of Things’ strategy
quickly and cost effectively.
While market conditions across our diverse
industrial markets has been mixed, as a result of the
COVID-19 outbreak, we have continued to win
new work from a variety of customers, including a
producer of renewable energy for products to be
delivered from 2021.
Sources:
(1) Goldman Sachs Economic Outlook December 2020.
(2) The European Commission (https://ec.europa.eu/info/
strategy/priorities-2019-2024/european-green-deal_en)
(3) https://www.businesswire.com/news/
home/20201113005604/en/Global-Asset-Tracking-
Market-2020-to-2028---Government-Initiatives-in-
Favour-of-GPS-Tracking-Presents-Opportunities---
ResearchAndMarkets.com;
https://www.prnewswire.com/news-releases/
smart-home-market-worth--207-88-billion-globally-
by-2027-at-13-52-cagr-verified-market-
research-301165666.html;
TT Electronics plc Annual Report and Accounts 2020
31
Strategic reportGovernance and Directors' reportFinancial statements
Strategic report | Our markets
Healthcare
IMPROVING
HEALTH
32 TT Electronics plc Annual Report and Accounts 2020
1
2
3
Healthcare (Group revenue %)
1– Power and Connectivity
2– Global Manufacturing Solutions
3– Sensors and Specialist Components
25%of Group revenue
Healthcare technology is
evolving at a rapid pace.
Customers rely on us
to help bring their products
to market safely and
quickly. Our technology
expertise and partnership
approach help customers
innovate faster, optimise
performance, and pave
the way in medical and life
sciences for healthier lives.
TT is a global provider of advanced
electronic technologies, engineering
and manufacturing solutions for high-
reliability healthcare systems for many of
the world’s largest and most recognised
healthcare device manufacturers.
TT has continued to expand its capabilities
supporting “in-body” surgical devices
including defibrillators, neuro-stimulation
and pacemakers as well as surgical
navigation devices
We provide design and manufacturing
solutions for a range of diagnostic,
surgical and direct patient care devices
critical to the identification, treatment and
prevention of disease. We manufacture
laboratory and mass spectrometry
products for leading life science
customers that protect people and enable
cleaner and safer environments.
Our global factories offer the highest
quality, regulatory and traceability
requirements that the industry demands.
During the peak of the COVID-19
outbreak in the first half of 2020, we
worked with different cross-sector
teams to provide urgently needed
products for manufacturers of life
saving healthcare and laboratory
equipment. Despite market and
operational challenges created by the
outbreak, the need for more and better
equipment and for improved efficiency
remains a priority around the world. In
the shorter term, we believe that the
focus on COVID-19 treatments has
created pent up demand for deferred
elective surgeries and equipment. In
the longer term COVID-19 also has
the potential to rapidly accelerate
the sustained need for telemedicine,
device connectivity and remote patient
monitoring capabilities. The need to free
up hospital space and facilitate quicker
post-surgical healing continues to drive
demand for more robotic, less invasive
surgical procedures. These are all areas
of TT expertise.
Our powerful portfolio of healthcare devices
contribute to the improved health of people
today and in the future, creating products for
technologies that improve outcomes.
Our 2018 acquisition of Precision
Inc. has continued to expand our
capabilities and customer base, with
new product offerings that span the
surgical suite including electrosurgical,
interventional and surgical devices.
Our components and assemblies are
used in surgical navigation systems to
help deliver therapy directly to patients
during minimally invasive procedures,
as well as in implantable devices and
other external applications that require
high reliability power and sensor-
enabled communication.
In 2020, we established new advanced
electronics manufacturing capabilities
in our Malaysia facility to help solve
supply chain hurdles for key life science
customers. This came in direct response
to customer demand, and complements
our existing operations in China, Europe
and North America.
As the healthcare market continues to
recover, TT is well positioned to continue
serving as a preferred solutions partner
to healthcare manufacturers with our
global supply chain, proven technology
and expertise, partnering approach and
low-cost manufacturing options.
TT Electronics plc Annual Report and Accounts 2020
33
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Our markets continued
Aerospace and defence
DELIVERING
CLEAN SKIES
Experience and
expertise in design and
manufacturing has led to
long-term partnerships with
customers where product
demands continue to
be driven by the need
for smaller, lighter, less
power consuming and
cleaner solutions.
34
TT Electronics plc Annual Report and Accounts 2020
1
3
2
Aerospace and defence (Group revenue %)
1– Power and Connectivity
2– Global Manufacturing Solutions
3– Sensors and Specialist Components
22%of Group revenue
We specialise in
designing and
manufacturing high-
reliability, advanced
technologies for
performance-critical
applications. Our
experience of partnering
with industry leaders
and developing mission-
critical product solutions
together has helped us
evolve into what we are
today: a world-class
provider of engineered
electronics – dedicated
to serving the aerospace
and defence market
with solutions that are
smaller, cleaner and
more efficient.
We provide solutions for high-reliability
applications within aerospace and
defence, where the proliferation of
electronics is driving increased demand
for our custom power management and
conversion systems.
Our products often provide performance,
size, weight and efficiency benefits
typically for applications such as power
conversion, actuation and control for
mission-critical systems. Here our
solutions support a broad range of
globally recognised platforms across
air, land and sea. We have a presence on
all major commercial aircraft platforms,
and a strong position on major defence
platforms, many of which are sole-
sourced. Our long-term customer
partnerships and platform exposure
give us good visibility and access to long
term programmes which include the
Airbus A220 and A320, the Boeing 737
MAX and 787, the Lockheed Martin F-35
and the next generation BAE Systems
Tempest aircraft.
While the commercial aerospace industry
has been adversely impacted by the
pandemic, growth will return in the
medium term supported by structural
trends of global travel and the need for
greater aircraft electrification. In the
longer term, there will be continued
technological investments including
those in advanced air mobility and electric
propulsion. This should reduce carbon
emissions and make flights quieter.
Many of our solutions are focused around
managing power effectively and efficiently
given the challenges customers are faced
with within the restricted environment of an
aircraft.
Military programmes remain critical to
national defence around the world due to
heightened geopolitical tensions, despite
the impact of COVID-19. Global defence
spending is expected to grow by about
2.8% in 2021, crossing the $2 trillion
mark.(1) The defence market represents
an exciting growth opportunity for TT
as we continue to build and expand our
military product and capability portfolio.
In November 2020, we acquired
Torotel, a US-based designer and
manufacturer of high-reliability power
and electromagnetic assemblies
and components for aerospace and
defence markets. This has broadened
our power electronics capabilities and
further expanded our presence in the
US market, building on the recently
acquired Covina, California-based
business unit bought from Excelitas
Technologies earlier in the year.
From cockpit displays to fuel
pumps and defence systems, our
aircraft solutions span nose to tail
and enable peak performance and
reliability under the harshest and most
demanding conditions.
.
(1) 2021 Aerospace and Defense Industry Outlook,
Deloitte, 2020.
TT Electronics plc Annual Report and Accounts 2020
35
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Our markets continued
Automation and electrification
EMPOWERING
SMARTER
SOLUTIONS
With an increased drive for automation and robotics TT’s
custom manufacturing solutions deliver improved efficiency,
increased speed and greater positional control.
36 TT Electronics plc Annual Report and Accounts 2020
SMARTER
1
3
2
Automation & electrification (Group revenue %)
1– Power and Connectivity
2– Global Manufacturing Solutions
3– Sensors and Specialist Components
37%of Group revenue
A range of blue-chip
customers rely on
us to help solve their
toughest automation and
electrification challenges,
streamlining their supply
chains, increasing their
efficiency and bringing
new, smart products
to market.
Extensive manufacturing expertise,
engineering support and our global
supply chain often make us a preferred
systems solution partner for automation
and electrification equipment
manufacturers. Our solutions support
applications requiring high-reliability
and often customised technologies, with
our notable expertise in automation and
electrification, energy, smart devices
and infrastructure solutions.
(1) Asset Tracking and Inventory Management Solutions
– Global Market Trajectory & Analytics, Global Industry
Analysts, Inc. 2020.
solutions, estimated to be c.$13.3 billion
in 2020, is projected to reach a revised
size of c.$30 billion by 2027, growing at a
CAGR of 12.3 per cent.(1) Our connectivity
products can be used in asset tracking
applications to enable factories that
depend on just-in-time delivery of goods
to adapt to new operational requirements.
Similarly, factory automation and
robotics are being deployed at a rapid
pace, and our high-reliability sensor
technologies and manufacturing
solutions enable those capabilities to
perform efficiently and with precision.
We help our automation and
electrification customers maximise
the value chain through product and
services focused on our three core
capabilities: power, connectivity
and sensing. Additionally, our global
manufacturing footprint provides them
with risk mitigation benefits and supply
chain flexibility for customers navigating
dynamic trade challenges and other
supply chain obstacles as they bring
innovative new products to market.
Demand for our solutions is being
driven by existing trends for increased
factory automation, connectivity and
smart products, with economies
combating operational and global
market challenges. We think the existing
trends towards automation, remote
asset tracking and monitoring will
continue and may be accelerated as
the COVID-19 outbreak has proven the
need for increased productivity, remote
access to assets and automation for
real-time remote monitoring and service
capabilities. The global market for asset
tracking and inventory management
TT Electronics delivers advanced solutions
to meet the growing demand for smarter
solutions within markets serving the Internet
of Things (IoT), including remote asset
tracking and preventative maintenance
TT Electronics plc Annual Report and Accounts 2020
37
Strategic reportGovernance and Directors' reportFinancial statements
Strategic report | Divisional review
OUR
DIVISIONS
Power and Connectivity
The Power and Connectivity division designs and manufactures power
application products and connectivity devices which enable the capture
and wireless transfer of data. We collaborate with our customers to
develop innovative solutions to optimise their electronic systems.
Global Manufacturing
Solutions
The Global Manufacturing Solutions division provides manufacturing
services and engineering solutions for our product divisions and to
customers that often require a lower volume and higher mix of different
products. We manufacture complex integrated product assemblies for our
customers and provide engineering services including designing testing
solutions and value-engineering.
Sensors and Specialist
Components
The Sensors and Specialist Components division works with customers to
develop standard and customised solutions including sensors and power
management devices. Our solutions improve the precision, speed and
reliability of critical aspects of our customers’ applications.
38 TT Electronics plc Annual Report and Accounts 2020
POWER AND
CONNECTIVITY
Revenue decreased
by £13.1 million
to £125.1 million
(2019: £138.2 million).
This included a
£11.1 million aggregate
contribution from the
Covina power supply
business, Torotel, Inc
and the full-year impact
of the Power Partners
acquisition.
Organic revenue was 17 per cent lower.
Organic revenue was adversely impacted
by lower commercial aerospace demand
and disruption to the installation of
connectivity products on customer sites
due to COVID-related access constraints.
Demand for defence-related products
remained strong through the year.
In the first half there were also some
operating constraints and inefficiencies
driven by the COVID-19 outbreak, as well
as the temporary COVID-related closure
of the division’s manufacturing sites in
Kuantan, Malaysia and Tunis, Tunisia.
There has been a modest recovery in
the second half, despite some COVID-19
related inefficiencies remaining, including
additional operating controls and social-
distancing measures.
Speed to Connect from TT Electronics is
an innovative system launched in 2020 that
enables customers to deploy Internet of
Things solutions fast and cost effectively.
It is scalable, flexible, secure and ready to
deploy quickly.
POWER AND
CONNECTIVITY
Power and connectivity: In summary
Revenue
£125.1m
2019: £138.2m
Change: (9)% - (9)% at constant currency
Adjusted operating profit1
£10.3m
2019: £16.5m
Change: (38)% - (37)% at constant currency
Adjusted operating profit margin1
8.2%
2019: 11.9%
Change: (370)bps – (370)bps at constant currency
Percentage of Group revenue
29%
2019: 29%
Organic revenue growth
(17)%
2019: 2%
Employees (year average)
1,447
17Primary locations
Target markets served
Healthcare
Aerospace and defence
Automation and electrification
1 See note 1c on page 129 for an explanation of
alternative performance measures. Adjusting items
are not allocated to divisions for reporting purposes.
For further discussion of these items please refer to
note 8 on page 146.
We make critical healthcare devices, having
served global manufacturers in healthcare
technologies for over 30 years.
Adjusted operating profit decreased
by £6.2 million to £10.3 million (2019:
£16.5 million). Included within this was
a profit contribution of £1.3 million from
acquisitions. The reduction in adjusted
operating profit reflected the impact of
lower sales volumes related to COVID-19
and associated operating constraints
and inefficiencies, partly offset by cost
control and efficiency measures. The
adjusted operating margin was 8.2 per
cent (2019: 11.9 per cent).
From engine controls to avionics, TT
Electronics delivers high-reliability solutions
to some of the most recognisable military
aircraft in service. Pictured: DC/DC Power
Converter
The closure of the division’s Lutterworth,
UK site is progressing to plan and is
expected to be completed by the end
of 2021. The closure consolidates the
division’s operations further within its
existing operational footprint, with certain
products going end-of-life during 2021.
A headcount reduction programme,
impacting sites where demand has fallen,
was completed in the year.
There have been some significant
awards during the year, including:
• A long-term contract with a major US
defence prime for an alternator assembly
supporting several military programme
variants. Production began in October
2020 and is scheduled to complete in
February 2023.
• Qualification orders from a leading
healthcare device customer for a new
miniature high voltage transformer/
inductor assembly for an implantable
defibrillator platform. This award followed
four years of product development,
which has resulted in leading-edge
performance, with production expected
to start in the second half of 2021 and
last for twenty years.
• Approved validation from a healthcare
customer for a custom stator for use in a
left ventricle assist device blood pumping
system. An initial sample order has
been shipped with full release expected
in 2021, with production expected to
continue for ten years.
TT Electronics plc Annual Report and Accounts 2020
39
Strategic reportGovernance and Directors' reportFinancial statements There have been a number of significant
new customer awards during 2020 which
will impact future years, as follows:
• Two new multi-year contracts to build
assemblies for mass spectrometers in
the life sciences market.
• A multi-year contract with a new
Asian customer to build assemblies
for diagnostic healthcare equipment,
with increased demand due to the
COVID-19 outbreak.
• Multi-year contracts with two different
European defence primes to support
the manufacture of secure military
communications equipment.
• The manufacture of assemblies for
a global renewable energy supplier.
The units will be used in offshore
electricity substations used to transfer
renewable energy generated to land.
In response to customer demand for an
additional manufacturing centre in Asia,
the division has established box-build
capabilities on the site of the Group’s
existing Kuantan facility. It is focused on
supporting major healthcare customers
by delivering complex assemblies. This
new Malaysian manufacturing capability,
which commenced production in the
third quarter of 2020, has increased
production through the remainder of the
year and is expected to continue to grow
in 2021.
In addition, additional manufacturing
has commenced for the Power and
Connectivity division as a result of
ongoing close collaboration and an
increasing ability to design and manufacture
power products, as well as components.
This development helps make efficient
use of TT’s global footprint.
Strategic report | Divisional review continued
GLOBAL
MANUFACTURING
SOLUTIONS
Revenue decreased
by £15.7 million
to £197.5 million
(2019: £213.2 million)
including an adverse
currency effect of
£1.1 million, with organic
revenue 7 per cent lower.
The organic revenue performance was
better than the Group average and
reflected new business previously won
in North America, exposure to more
resilient Asian markets and a strong
performance in defence markets.
There has been a strong recovery
in the second half, despite some
ongoing operating controls and social-
distancing measures put in place in
response to COVID-19.
Adjusted operating profit increased
by £1.5 million to £15.0 million
(2019: £13.5 million). The increase
reflected cost control measures, factory
efficiencies and initial benefits from our
self-help programme. This is despite
the adverse impact on profit from
lower revenue. As a result, the adjusted
operating profit margin improved to
7.6 per cent (2019: 6.3 per cent).
A restructure of customer accounts at
the Cardiff, UK facility was completed
early in 2021, bringing additional focus on
blue-chip customers with more advanced
technology requirements. Some key
customer accounts and product lines
have been transferred to facilities
elsewhere in the division, where they can
be better and more profitably served.
Our global footprint and engineering
capabilities provide customers with a
consistent manufacturing experience that
they can rely on, no matter what.
40 TT Electronics plc Annual Report and Accounts 2020
Global Manufacturing Solutions:
In summary
Revenue
£197.5m
2019: £213.2m
Change: (7)% - (7)% at constant currency
Adjusted operating profit1,2
£15.0m
2019: £13.5m
Change: 11% - 11% at constant currency
Adjusted operating profit margin1,2
7.6%
2019: 6.3%
Change: 130ps – 120 bps at constant currency
Percentage of Group revenue
46%
2019: 45%
Organic revenue growth
(7)%
2019: 12%
Employees (year average)
1,475
6Primary locations
Target markets served
Healthcare
Aerospace and defence
Automation and electrification
1 See note 1c on page 129 for an explanation of
alternative performance measures. Adjusting
items are not allocated to divisions for reporting
purposes. For further discussion of these items
please refer to note 8 on page 146.
2 The results for the year ended 31 December 2019
have been restated to reflect prior year
adjustments. Further details are set out in note 1h
on page 133.
However, there were increased resistor
sales into healthcare markets in support
of ventilators and defibrillators.
In the first half there were also some
operating constraints and inefficiencies
driven by the COVID-19 outbreak and
the division was also impacted by the
temporary closure of its manufacturing
site in Barbados and two sites in
Mexico due to COVID-related general
lockdowns. There has been a recovery
in the second half, despite some
ongoing inefficiency due to COVID-
related additional operating controls
and social-distancing measures.
SENSORS AND
SPECIALIST
COMPONENTS
Revenue decreased
by £17.6 million
to £109.2 million
(2019: £126.8 million).
Organic revenue was
14 per cent lower, with
the division’s exposure
to automation and
electrification, the
distribution sales
channel and commercial
aerospace markets
primary drivers of
reduced demand.
TT Electronics has a proven track-record
in meeting today’s space challenges –
supporting some of the most prominent
deep space exploration programmes
from Voyager 1 & 2 to the latest Curiosity –
Mars Rover lander in 2020.
TT Electronics plc Annual Report and Accounts 2020
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Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Divisional review continued
Adjusted operating profit decreased by
£5.9 million to £9.4 million (2019: £15.3
million). Operating profit reflected lower
sales volumes and operating inefficiencies,
partially offset by cost actions taken and
the impact of a headcount reduction
carried out in late 2019. The adjusted
operating profit margin was 8.6 per
cent (2019: 12.1 per cent).
As part of the Group’s ongoing self-
help programme, the closure of its
Barbados and Corpus Christi, Texas
sites are on-track for completion in 2021.
This reduction in footprint will result in
some products going end-of-life. An
additional targeted headcount reduction
programme has been completed during
the year.
There were a number of favourable
developments during the year which will
benefit the business, including:
• Space applications for the division’s
Hall effect sensors, including on NASA’s
Orion spacecraft, which will ultimately
take manned space travel to Mars. In
addition, the sensors are also being
used in motors that control the speed
and movement of robotic arms on the
Perseverance Mars 2020 Rover mission.
• Contracts from three global car
manufacturers for the power control
unit current sense resistor on their
hybrid-electric vehicle ranges. This new
resistor has extremely fine tolerances,
being the first on the market with
the power levels needed to meet the
required electrical load balance.
• Immediate orders for the new High
Pulse Chip from a technology and
innovation customer. The chip has
been designed into a new consumer
product, following a rapid build of
samples after technical problems
with a competitor product. Following
initial orders in 2020, the customer
has placed further orders for delivery
in 2021.
Sensors and Specialist Components:
In summary
Revenue
£109.2m
2019: £126.8m
Change: (14)% - (14)% at constant currency
Adjusted operating profit1
£9.4m
2019: £15.3m
Change: (39)% - (38)% at constant currency
Adjusted operating profit margin1
8.6%
2019: 12.1%
Change: (350)bps – (340)bps at constant currency
Percentage of Group revenue
25%
2019: 26%
Organic revenue growth
(14)%
2019: (7)%
Employees (year average)
1,656
8Primary locations
Target markets served
Healthcare
Aerospace and defence
Automation and electrification
1 See note 1c on page 129 for an explanation of
alternative performance measures. Adjusting items
are not allocated to divisions for reporting purposes.
For further discussion of these items please refer to
note 8 on page 146.
42 TT Electronics plc Annual Report and Accounts 2020
TT Electronics plc Annual Report and Accounts 2020
43
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Chief Financial Officer’s review
RECOVERY WELL
UNDERWAY WITH
RECORD ORDER BOOK
TT has proven its
resilience in the face of
the COVID-19 outbreak,
benefiting from the
actions we have taken
to improve the quality
of the business, and we
have delivered strong
cash generation
Mark Hoad, Chief Financial Officer
Financial Headlines
Revenue
Adjusted operating profit
Operating profit
£431.8m
2019: £478.2m
(10%)
£27.5m
2019: £38.1m
(28)%
£6.6m
2019: £16.9m
(61)%
Adjusted EPS
11.7p
2019: 17.8p
(34)%
EPS
0.8p
2019: 7.6p
Free cash flow
£14.4m
2019: £9.7m
Operating cash flow
Net debt
£28.2m
2019: £35.9m
£83.9m
2019: £69.1m
Dividend
4.7p
2019: 2.1p
44 TT Electronics plc Annual Report and Accounts 2020
Results for the year ended 31 December 2020
£million (unless otherwise stated)
Revenue
Operating profit
Operating profit margin
Profit before taxation
Earnings per share
Dividend per share
Return on invested capital
Cash conversion
Free cash flow1
Net debt1
Leverage1
Adjusted1
2019
(restated)2
478.2
38.1
8.0%
34.4
17.8p
10.8%
103%
2020
431.8
27.5
6.4%
23.8
11.7p
7.7%
130%
Change
(10)%
(28)%
Change
constant fx
(9)%
(27)%
(160)bps
(150)bps
(31)%
(34)%
(30)%
(34)%
Statutory
2019
(restated)2
478.2
16.9
3.5%
13.2
7.6p
2.1p
2019
9.7
69.1
1.0x
2020
431.8
6.6
1.5%
2.9
0.8p
4.7p
2020
14.4
83.9
1.6x
1 Throughout the Annual Report we refer to a number of alternative performance measures which provide additional useful information. The Directors have adopted these measures to
additional information on the underlying trends, performance and position of the Group with further details set out on page 129. The adjusted measures used are set out in note 8 on page 146.
2 The results for the year end 31 December 2019 have been restated to reflect prior year adjustments. Further details are set out in note 1h on page 133.
Overview of the year
TT has proven its resilience in the face of
the COVID-19 outbreak benefiting from
the actions we have taken to improve
the quality of the business, and we have
delivered strong cash generation.
Group revenue was £431.8 million, 9 per
cent lower than the prior year at constant
currency and 12 per cent lower on an
organic basis. We have seen a steady
organic improvement trend from the
second half of the year with organic
revenue only 4 per cent lower than the
prior year in the last two months of 2020.
This recovery trend has been
underpinned by strong order intake
across the Group through the fourth
quarter of the year. This has continued
into 2021 across all divisions. Order
intake for full year 2020 was 99 per cent
of revenue, and for the second half of
2020 was 103 per cent of revenue. The
order book at the end of February 2021
is at record levels.
In recognition of the improving trends
we have seen through the second half of
the year and our strong cash generation,
early in 2021 we repaid the Coronavirus
Job Retention Scheme (furlough)
payments to the UK Government. The
£1.1 million cost of repayment has been
provided for in these 2020 results.
Adjusted operating profit for the year
was £27.5 million, 27 per cent lower than
the prior year at constant currency. The
second half adjusted operating margin
was 6.5 per cent, including the accrued
cost of the furlough repayment. After
the impact of adjusting items, including
restructuring and acquisition and disposal
costs, the Group’s full year statutory
operating profit was £6.6 million.
During the year end close process, a
prior period non-cash timing adjustment
was identified, associated with the
timing of overhead recognition in one
of our sites in Global Manufacturing
Solutions. As a result of this adjustment,
the previously reported 2019 operating
profits have been reduced by £1.9 million
and the reported operating profits for
2020 are ahead of management’s
original expectations by a similar
amount. The reported operating
profits for 2020 represent the actual
performance of the business for the
year and no “one-off” benefit has been
derived from this adjustment when
comparing against restated 2019 results.
We are particularly pleased with our strong
cash performance, delivering operating
cash conversion of 130 per cent. This was
driven by continuing tight control over
costs and capital expenditure. In addition,
there was a working capital inflow of £3.6
million, which included £4.2 million from
a reduction in inventory. On a statutory
basis, cash flow from operating activity
was £28.2 million (2019: £35.9 million).
Our strong operating cash performance
helped us deliver increased free cash flow
of £14.4 million (2019: £9.7 million), despite
the impact of COVID-19 on our profits
We have ended the year with net debt
of £83.9 million (2019: £69.1 million),
including IFRS 16 lease liabilities of
£15.9 million (2019: £17.6 million). We
have a strong balance sheet, and this
includes a defined benefit pension
scheme fully funded on an actuarial
basis. At 31 December 2020 leverage
was 1.6 times, within the Board’s target
leverage range of 1-2 times.
Our return on invested capital has
declined to 7.7 per cent in 2020 due
to the volume driven profit reduction
and this will recover as business
momentum increases.
TT Electronics plc Annual Report and Accounts 2020
45
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Chief Financial Officer’s review continued
• Acquisition and disposal costs
totalled £6.4 million (2019: £8.0 million)
and included amortisation of
intangible assets arising on business
combinations of £4.2 million
(2019: £4.5 million), a £1.0 million
credit (2019: £nil) due to the release
of the warranty and claims provision
relating to the Transportation business
divestment and other acquisition and
integration related costs of £3.2 million
(2019: £3.5 million).
Adjusted operating profit was £27.5
million (2019: £38.1 million) with the
reduction a result of the COVID-19
outbreak, with an operating margin of 6.4
per cent (2019: 8.0 per cent). The second
half adjusted operating margin was 6.5
per cent, including the accrued cost of
the furlough repayment.
For a reconciliation between adjusted
profit and statutory profit see note 8 on
page 146 in the Consolidated Financial
Statements.
Net finance cost
The net finance cost was £3.7 million
(2019: £3.7 million).
Tax
The Group’s overall tax charge was
£1.6 million (2019: £0.8 million),
including a £2.7 million credit (2019: £4.6
million credit) on items excluded from
adjusted profit. The adjusted tax charge
was £4.3 million (2019: £5.4 million),
resulting in an effective adjusted tax rate
of 18.1 per cent (2019: 15.7 per cent).
Revenue
Group revenue was £431.8 million
(2019: £478.2 million). This included
an £11.1 million contribution from
acquisitions and adverse currency
translation of £1.4 million. Group
revenue was 9 per cent lower than the
prior year at constant currency and
12 per cent lower on an organic basis.
Organic revenue was 17 per cent lower
in the second quarter against the
comparable prior year period due to
reduced demand and as we shielded
staff, reducing capacity. There were
also temporary closures of a few sites.
However, since then we have continued
to see improving momentum across
the business. Notably the recovery
strengthened during the fourth quarter,
when organic revenue was only 5 per
cent lower than the prior year. We have
seen further improvement at the start
of 2021.
Operating profit
The Group’s statutory operating
profit was £6.6 million after a charge
for items excluded from adjusted
operating profit of £20.9 million
(2019: £21.2 million) including:
• Restructuring costs of £14.5 million
(2019: £13.2 million) primarily related
to the Group’s self-help programme of
£14.8 million within which £6.3 million
related to severance costs and
provisions; £3.4 million to intangible
asset write downs; £2.0 million of right
of use asset and plant, property and
equipment write downs; £1.6 million
relating to stock write downs and
£1.5 million of other costs, including
prior year projects completed in 2020.
Also included was a property disposal
profit of £1.2 million (2019: £nil) and
pension costs of £0.9 million (2019:
£1.0 million, with £0.4 million relating
to past service charge and £0.6 million
relating to other pension service costs)
primarily relating to UK pensions
schemes having to equalise male and
female members’ benefits in respect
of guaranteed minimum pensions.
Earnings per share
Basic earnings per share ("EPS") was
0.8 pence (2019: 7.6 pence) being
impacted by the reduction in operating
profit and the adjusting items set out .
Adjusted EPS decreased to 11.7 pence
(2019: 17.8 pence), reflecting the lower
adjusted operating profit in the period.
Cash generation
£million
2020
2019
Adjusted operating profit
27.5
38.1
Depreciation and
amortisation
Impairment of intangibles
17.0
0.2
18.0
–
Net capital expenditure
(9.9)
(14.3)
Capitalised development
expenditure
Working capital
Other
Adjusted operating cash
flow after capex.
Adjusted operating cash
conversion
Net interest and tax
Lease payments
Restructuring, acquisition
and disposal related costs1,2
Retirement benefit schemes
Free cash flow
Dividends
Lease payments
Equity issued
Acquisitions & disposals2
Other
Increase in net debt
(3.3)
3.6
0.7
(3.9)
(1.2)
2.5
35.8
39.2
130%
103%
(3.8)
(4.1)
(11.9)
(5.4)
14.4
–
4.1
20.2
(45.7)
(1.8)
(8.8)
(7.7)
(4.0)
(9.2)
(8.6)
9.7
(10.9)
4.0
0.9
(2.3)
(4.6)
(4.4)
Opening net debt
(69.1)
(63.0)
New, acquired, modified and
surrendered leases
Borrowings acquired
FX and other
Closing net debt
(2.6)
(3.0)
(0.4)
(83.9)
(0.5)
–
(1.2)
(69.1)
1
2
'Restructuring, acquisition and disposal related costs'
comprises £3.6 million of restructuring costs and £4.5
milllion of acquisition and disposal related costs.
'Restructuring, acquisition and disposal related costs'
excludes a £3.8 million payment for debt-like items
which crystallised upon acquisition of Torotel and which
has been presented within 'Acquisitions & disposals'.
This £3.8 million is an acquisition related cost but is not
included within the acquisitions paid in the Consolidated
statement of cash flows on page 128.
46 TT Electronics plc Annual Report and Accounts 2020
Adjusted operating cash flow was £49.0
million (2019: £57.4 million). This was
impacted by lower profitability, although
this was largely mitigated by the Group’s
proactive cash management, including
capital and development expenditure
lower at £13.2 million (2019: £18.2
million). In addition, the Group generated
a working capital inflow of £3.6 million
(2019: £1.2 million outflow), including
a £4.2 inflow from inventory reduction.
This resulted in very strong adjusted
operating cash conversion of 130 per
cent (2019: 103 per cent). On a statutory
basis, cash flow from operating activity
was £28.2 million (2019: £35.9 million).
There was increased free cash flow
of £14.4 million (2019: £9.7 million),
net of £8.1 million of restructuring and
acquisition related costs (2019: £9.2
million), relating to the new self-help
programme and acquisition costs
associated with the Covina and Torotel
acquisitions. Pension contribution
payments in the period were lower at
£5.4 million (2019: £8.6 million), with the
prior year including a one-off payment
of £3.4 million relating to the merger of
the Stadium Group Retirement Benefits
Plan (1974) pension scheme into the
TT Group scheme.
Net accounting pension surplus
Investments in acquisitions totalled
£48.7 million (2019: £2.3 million),
reflecting the acquisition of Covina,
the power supply business of Excelitas
Technologies Corp., the acquisition of
Torotel, Inc including, £3.0 million of debt
acquired with Torotel, Inc and £3.8 million
of debt like items, as well as £0.5 million
of deferred consideration relating to a
prior year acquisition. Partially offsetting
this was £20.2 million (2019: £0.9 million)
of equity issuance, which primarily
related to the Torotel acquisition placing.
There was no dividend payment in the
year (2019: £10.9 million).
Dividend policy and dividend
The Board has a progressive dividend
policy, which primarily takes into account
adjusted earnings cover, but also sees
beyond this to take into account other
factors such as the expected underlying
growth of the business, its capital and
other investment requirements and its
pension obligations. The Group’s balance
sheet position and its ability to generate
cash are also considered.
The Board considers these factors in the
context of the Group’s Principal Risks,
which are set out on pages 52 to 53,
and the overall risk profile of the Group.
The Group has increased the net accounting surplus under its defined benefit
schemes to:
£30.5m
2019: £16.6m
The Group’s ability to pay a dividend is
impacted by the distributable reserves
available in the parent Company, which
operates as a holding company, primarily
deriving its net income from dividends
paid by its subsidiary companies.
At 31 December 2020, TT Electronics plc
had sufficient distributable reserves to
pay dividends for the foreseeable future.
The parent Company Balance Sheet is
set out on page 182.
Given the good recovery and the
positive outlook for 2021 and beyond,
dividends are being resumed as
planned, with the Board proposing a
final dividend of 4.7 pence per share.
Payment of the dividend will be made
on 21 May 2021, to shareholders on
the register at 30 April 2021.
Pensions
The Group has one significant defined
benefit scheme in the UK and some
much smaller defined benefit schemes
in the US. All the Group’s defined benefit
schemes are closed to new members
and to future accrual.
The total net accounting surplus
under the Group’s defined benefit
pension schemes was £30.5 million
(31 December 2019: £16.6 million).
The main driver of this was an increase
in the fair value of assets due to
investment performance, part of which
relates to interest rate hedges. This
offset an increase in the Scheme’s
benefit obligation, mainly due to a fall in
corporate bond yields. The surplus also
increased due to company contributions
paid of £5.4 million, as the deficit
contribution plan continued, targeting
self-sufficiency and further de-risking.
We are particularly pleased with our strong cash
performance, delivering a full year operating cash
conversion of 130 per cent.
TT Electronics plc Annual Report and Accounts 2020
47
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Chief Financial Officer’s review continued
The Group has developed a strategy to
manage the financial risk associated
with these schemes as follows:
• Maintaining a long-term working
partnership with Trustees to ensure
strong governance of risks within the
TT Group Scheme, which is a long-
term undertaking and is managed
accordingly to provide security for
members and value for money to
the Group.
The assets and liabilities of the Group’s
UK defined benefit schemes are
summarised below, together with the
Group pension surplus:
£million
Fair value of assets
Liabilities
UK scheme (surplus)
Overseas schemes (deficit)
Total Group surplus
2020
641.2
2019
575.5
605.8
(554.3)
35.4
(4.9)
30.5
21.2
(4.6)
16.6
• A prudent investment strategy is
pursued by seeking risk-rewarded,
long-term returns while removing
the majority of liability mismatching
unrewarded risks. As such, the Group
has in place financial hedging that
aims to remove the majority of interest
rate and inflation-related risk. At the
current level there is no significant
impact on the reported accounting
deficit of a 10bps fall in interest rates
(which would be otherwise a c. £10
million increase if the hedging were not
in place) thereby reducing volatility. This
strategy has been in place for a number
of years protecting the TT Group
scheme’s position since December
2013 when yields commenced a
prolonged decline.
• The Group recognises that seeking
risk rewarded returns in its investment
strategy could lead to short-term
funding fluctuations, dependent
on market conditions. The Group
considers that by maintaining a good
relationship with the Trustee, it will be
able to utilise flexibility in the funding
regime to even out the impact of
short-term market underperformance
to enhance predictability of Group
pension contributions. This creates a
suitable balance between the needs
of the TT Group Scheme, the Group
and its members.
Following the triennial valuation of the
TT Group scheme as at April 2019, an
actuarial valuation of the US defined
benefit schemes was carried out by
independent qualified actuaries in 2020
using the projected unit credit method.
Further details of the Group’s defined
benefit schemes are in note 23 on
page 170 of the Consolidated Financial
Statements.
Treasury
The Group’s Treasury activities are
managed centrally by the Group
Treasury Function, which reports to the
Chief Financial Officer. The Treasury
Function operates within written policies
and delegation levels that have been
approved by the Board.
Financial risk management and
treasury policies
The Group’s main financial risks relate
to funding and liquidity, interest rate
fluctuations and currency exposures.
The overall policy objective is to use
financial instruments to manage
financial risks arising from underlying
business activities and therefore
the Group does not undertake
speculative transactions for which
there is no underlying financial
exposure. More details of the Group’s
Treasury operations are set out in note
22 on page 161 of the Consolidated
Financial Statements.
Funding and liquidity
The Group’s operations are funded
through a combination of retained
profits, equity and borrowings.
Borrowings are generally raised at
Group-level from a group of relationship
banks and lent to operating subsidiaries.
The Group maintains sufficient available
committed borrowings to meet any
forecasted funding requirements.
During the year the Group undertook
an equity placing, raising £20 million,
which partly funded the acquisition
of Torotel, Inc.
Net debt and gearing
At 31 December 2020 the Group’s net
debt was £83.9 million (31 December
2019: £69.1 million), including £15.9
million of lease liabilities (31 December
2019: £17.6 million).
At 31 December 2020 the Group had
available undrawn committed and
uncommitted facilities of £237.3 million.
The Group’s borrowings are in the form
of a multi-currency Revolving Credit
Facility (RCF). The RCF matures in
November 2023, with no short-term re-
financing risk for the Group.
The Group's leverage is usually
expressed in terms of its net debt/
adjusted EBITDA ratio. The Group’s main
financial covenants in its bank facilities
states that net debt must be below 3.0
times adjusted EBITDA, and adjusted
EBITDA is required to cover interest
charges, excluding interest on pension
schemes, by at least 4.0 times.
Leverage ratio
The Group's year end leverage ratio of 1.6
times is within the Group's target range
of 1-2 times.
1.6x
48 TT Electronics plc Annual Report and Accounts 2020
Under the Group’s borrowing
agreements, the figure for net debt
used in the calculation of the net
debt/adjusted EBITDA gearing ratio
calculation is translated at an average
foreign exchange rate, with IFRS 16 lease
liabilities and other IFRS 16 impacts
excluded. In addition, there are other
adjustments including the exclusion of
certain specified items from EBITDA.
A full year pro-forma contribution from
acquisitions is included within EBITDA.
On this basis, net debt/adjusted EBITDA
was 1.6 times at 31 December 2020
(31 December 2019: 1.0 times). Interest
cover at 31 December 2020 was 12.6
times (31 December 2019: 15.0 times).
Foreign currency translation
The following are the average and
closing rates of the foreign currencies
that have the most impact on the
translation into sterling of the Group’s
Income Statement and Balance Sheet:
£million
Income
Statement
$/£
RMB/£
Balance
Sheet
$/£
RMB/£
2020
2019
Average
rate
1.28
8.87
Closing
Rate
1.37
8.94
1.27
8.79
1.32
9.23
TT’s capital allocation policy is set within
the framework of a target Group net
debt/EBITDA gearing ratio that lies within
a range of 1-2 times in current market
conditions.
Foreign exchange translation exposure
arises on the earnings of operating
companies based in the US and
China, with additional lesser exposures
elsewhere in the world.
A further summary of the Group’s
borrowings and maturities are set out in
note 21 on page 160 of the Consolidated
Financial Statements.
Foreign currency transaction
The Group’s policy is to reduce or
eliminate, whenever practical foreign
currency transaction risk. The Group
hedges expected foreign currency cash
flows to a minimum of at least 75 per cent
of its exposure up to twelve months and
hedges a further 50 per cent of expected
cash flows within 12-24 months.
Further details of the Group’s hedging
strategy and exposure at 31 December
2020 are set out in note 22 on page 161 of
the Consolidated Financial Statements.
Interest rates
The Group monitors its exposure to
interest rates to bring greater stability
and certainty to its borrowing costs. The
policy is to have between 25 per cent and
75 per cent of the Group's debt subject to
a fixed interest rate.
Going concern
See page 82 for the Going
Concern statement.
Mark Hoad
Chief Financial Officer
9 March 2021
TT Electronics plc Annual Report and Accounts 2020
49
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Risk management
RISK MANAGEMENT
FOR THE SUCCESSFUL
DELIVERY OF OUR
STRATEGY
Risk management
The Board of Directors is responsible for
risk management and internal controls,
supported by the Audit Committee
and informed by the executive Risk
Committee. The Board defines risk
appetite and monitors the management
of significant risks to ensure that the
nature and extent of significant risks
taken by the Group are aligned with
overall goals and strategic objectives.
The Risk Committee supports the Board
and the Audit Committee in monitoring
the exposure through regular reviews,
including reviewing the effectiveness of
risk management processes and controls.
The Internal Audit function is operated
under a directed outsource arrangement
to enhance the levels of resource and
expertise available to the Group in
specific areas, with its activities under
the direction of the Executive Leadership
Team ("ELT"). The Internal Audit function
assists the Risk Committee by advising
management on improvements to the
overall risk management framework,
facilitating the risk review process
and providing independent experience
and input to the process.
Risk management processes and internal
control procedures are established within
business practices across all levels of
the organisation. Risk identification,
assessment and mitigation are performed
both “bottom-up” with more detailed
assessment at operational level, as well
as through “top-down” assessment of
strategic and market risk at the Executive
management and Board level.
Risk management and internal controls
provide reasonable but not absolute
protection against risk. The Board
acknowledges and recognises that in
the normal course of business the Group
Our risk management framework
Corporate level steering
“Top-down” oversight; set risk appetite; monitor significant risks; alignment with
strategic objectives at corporate level
Board of Directors
Primary responsibility
for risk oversight; setting
strategic objectives and
defining risk appetite
Audit Committee
Oversees risk
management and
internal control
processes
Risk Committee
Provides framework for
managing risks; regular
reviews of principal risks
and risk management
processes
Risk and Assurance function
Divisional level steering
and reporting
Risk identification assessment and
implementation of risk management
action plans and actions
Business units/site level steering
and reporting
Implement and embed risk
management at operational level
Operational steering and implementation
“Bottom-up” identification, assessment and mitigation of risk at operational level
50 TT Electronics plc Annual Report and Accounts 2020
is exposed to risk and that it is willing to
accept a level of risk in managing the
business to achieve its strategic priorities.
Risk appetite is not static and as part
of its risk management processes, the
Board regularly considers its risk appetite
in terms of the tolerance it is willing to
accept in relation to each principal risk
based on key risk indicators to ensure it
continues to be aligned with the Group’s
goals and strategy.
Risk profile
At the direction of the Board, Executive
management has performed a robust
assessment of the principal risks facing
the Group, taking into account those that
would threaten the business model, future
performance, solvency or liquidity, as
well as the Group’s strategic objectives.
This process includes a “bottom-up”
analysis of key risks at a divisional level.
All principal risks identified by this process
may have an impact on the Group's
strategic objectives within the next six to
twelve months. Executive management
and the Risk Committee perform further
analysis to prioritise these risks, with
a focus on those principal elements
posing the highest current risk to the
achievement of the Group’s objectives
or the ongoing viability of the business.
Risks assessed as higher priority are
consolidated into a Group Risk Register.
Risks included on the register are
monitored closely by the Board, in terms
of both prioritisation and mitigation
strategies. It is recognised that, whilst
these “top risks” represent a significant
proportion of the Group’s risk profile,
Executive management and the Risk
Committee continue to monitor the entire
universe of potential risks to identify new
or emerging threats as well as changes
in risk exposure.
The assessment of principal risks during
the year has identified that while there
have been some significant changes
in the external environment, the Group
has remained robust and resilient with
mitigating activities undertaken. This is
reflected in the table of principal risks.
The Group has long been conscious of
our ESG agenda which has been reported
to the Board through our People, Social,
Environment and Ethics Committee
(PSEE) which is attended by the Senior
Independent Director. Last year it was
identified that there is an increasing
risk that a negative perception of our
ESG profile could impact on our ability
to attract new talent to the business,
build relationships with our customers,
positively impact the communities in
which we operate, and attract investment
from potential shareholders. In response
we added a new principal risk with the
description “Sustainability, Environment,
Health and Safety” to recognise the
increasing risk that a negative perception
of our ESG profile could negatively
impact the business and reflect the focus
on mitigating actions we have taken.
Because of its continued importance we
have taken the further step of splitting
Sustainability and Environment into a
separate risk from Health and Safety, to
better reflect the different impact of each
and how the Group is responding to this.
We have set out those areas in which we
have made progress during the year in
the Our environment section on pages
64 to 69, in particular relating to carbon
emissions and the recycling of waste.
Macroeconomic environment
While there is an acknowledgement of
continued uncertainty around geopolitical
and macroeconomic risk during 2020 and
into 2021, the Group continues to take
appropriate mitigating actions to address
this. The changes in strategic direction
and market focus have significantly
improved the Group’s overall resilience
to these external factors.
Executive management and the Board
do not currently anticipate any significant
impact on the Group’s trading following
the UK/EU Brexit trading deal, given
that trade between the UK and the EU
accounts for a small proportion of Group
revenue and material purchases. We have
however planned for potential disruption
in the event of border related issues.
No significant direct impact from
increased tariffs between the US and
China is anticipated. The businesses
continue to talk to their customers to
see how TT's global footprint can offer
opportunities to mitigate customers’
own risks in relation to increased tariffs.
Impact of COVID-19
The COVID-19 outbreak has impacted
every site across the world during the
course of 2020. However, because of the
swift action taken by the Group, the overall
impact at a site level has been minimised.
A set of COVID-secure working practices
has been put in place at each site and TT
has been designated a critical supplier
by customers and governments in each
territory in which the Group operates.
The duration and impact of COVID-19 on
the business continues to be uncertain,
however the Group is well equipped to
deal with this going into 2021.
Viability statement and prospects
In accordance with the UK Corporate
Governance Code, the Directors have
assessed the viability and long-term
prospects of the Group over the period
to December 2023, taking into account
the Group’s current position and the
potential impact of the principal risks
and uncertainties set out on pages 52
to 53 of the Strategic report. Based
on this assessment, the Directors
confirm that they have a reasonable
expectation that the Group will be able
to continue in operation and meet
its liabilities as they fall due over the
period to December 2023.
TT operates in markets with structural
growth dynamics. We engineer and
manufacture power, sensing and
connectivity solutions to address our
customers’ challenges in the healthcare,
aerospace and defence and automation
and electrification markets. These benefit
from the trends for improved healthcare,
for increased aircraft fuel efficiency
and safety, and demand for sustainable
solutions to improve energy efficiency. By
positioning ourselves in the right markets,
by creating differentiated capabilities
through our R&D investment, and by
attracting and developing the right talent
we have a strategy to create sustainable
value over the long-term.
The Directors have determined that the
period to December 2023 represents an
appropriate period over which to provide
the viability statement as this aligns with
the business cycle including product
development and order intake trends.
The Directors have taken the view that
it is reasonable to assume (based on
indications of interest received from the
Group’s existing relationship banks and
the wider banking and debt financing
community) that the Group will be able to
refinance its existing facility agreements
to at least the existing or better level
of debt on materially equivalent terms
in advance of the maturity date of
November 2023.
While the Directors have no reason to
believe the Group will not be viable over
a longer period, the period over which the
Directors considers it possible to form a
reasonable expectation as to the Group’s
longer-term viability, is the three-year
period to 31 December 2023. This also
aligns with the duration of the business
plan prepared annually and reviewed
by the Board. The Directors believe that
this presents investors and other key
stakeholders with a reasonable degree
of confidence while still providing a
longer-term perspective.
In making this statement, the Directors
have carried out a robust assessment
of the principal risks facing the Group,
including those that would threaten
its business model, the underlying
mitigation planning, the assessment
of future performance, solvency and
liquidity, and the Group’s internal controls
environment. The Group’s modelling
assumes a full recovery from the impact
of the pandemic during the course of the
viability review period.
In performing the assessment, the
Directors have further stress tested
the Group’s financial projections for the
period covered by the viability statement,
testing it for “business as usual” risks
(such as profit growth and working
capital variances), the combined impact
of severe but plausible events, as well as
a “reverse” stress-test to understand the
conditions which could jeopardise the
future viability of the Group. This work
included assessing against financial
covenants and facility headroom.
This severe but plausible events stress
testing included consideration of the
potential impact of the Group’s principal
risks and uncertainties outlined on
pages 52 to 53. This stress testing
specifically included the impact of the
following principal risks: general revenue
reductions, contractual risks, people
and capability, supplier resilience and
health and safety. Principal risks which
were not specifically modelled were
either considered not likely to have an
impact within the viability period or their
financial effect was covered within the
overall downside economic risks implicit
within the stress testing.
The Group’s wide geographical and
sector diversification helps minimise
the risk of serious business interruption
or catastrophic reputational damage.
Furthermore, the business model is
structured so that the Group is not
overly reliant on any single customer,
market or geography.
While this review does not consider
all of the risks that the Group may
face, the Directors consider that this
stress-testing based assessment of
the Group’s prospects is reasonable
in the circumstances of the inherent
uncertainty involved.
TT Electronics plc Annual Report and Accounts 2020
51
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Risk management continued
PRINCIPAL RISKS
AND UNCERTAINTIES
General
Risk description
Potential impact
Mitigating action
Change in the year
General revenue reduction
Reduction in demand and orders due
to economic downturn, geopolitical
instability or disruption to operations
(pandemic or other business
interruption event)
• Decelerating sales growth affecting
operating profit
• Monitor the wider economic
conditions of our markets
• Timely financial reporting to monitor
performance and provide a basis for
corrective action when required
• Ongoing optimisation of our cost
base and strategic moves creating a
more resilient portfolio
• Business continuity and crisis
management planning
• Management structures in place to
enable a rapid response to changing
circumstances
• Divisional assessment of the impact
of Brexit and mitigation plans put
in place
Increased risk – market volatility and
political uncertainty continue primarily
due to the COVID-19 outbreak, as
well as to a lesser extent the impact
of Brexit and ongoing global political
discord. However, the mitigating
actions taken by the Group are proving
to be robust.
Commercial
Contractual risks
Potential liabilities from defects in
performance-critical products that
often operate in extreme environments
Research and development
Delay in new product development
which is intended to support revenue
growth
• Reputational impact
• Deterioration in customer
relationships
• Liability claims
• Reduction in revenue, profitability
and cash generation
• Quality control procedures and
systems in place and appropriate
levels of insurance carried for key
risk
• Group guidelines on acceptable
levels of contractual liability are
reinforced
No change
• Increased cost in product
• Close collaboration with key
development
customers
• Delay in achieving projected revenue
• Inability to meet the latest
• Active monitoring of costs and
No change
milestones
requirements due to a step change in
technology
• Target R&D more effectively
• Implementation of standard project
management disciplines
Operational
People and capability
Ability to attract and retain high-quality
and capable people
• Loss of key personnel
• Potential business disruption
• Breakdown of communication and
misalignment
No change
• Remuneration structure designed to
support retention
• Succession planning processes
embedded within the businesses
• Campaigns to increase performance
and development of communication
between managers and employees
to ensure alignment to objectives
• Using a feedback loop utilising
surveys, with further detail in Our
people section on pages 58 to 63,
to encourage regular objectives and
performance discussions
Supplier resilience
Potential failure of critical suppliers;
product delivery delays; inability to
meet customer commitments
• Reduction in revenue, profitability
• Regular review of key supplier
and cash generation
financial health and product quality
• Monitoring of relevant commodity
and precious metals pricing
• Review of spend patterns to identify
opportunities
Increased risk – continued impact of
COVID-19 on the economic stability
of suppliers and security of supply
lines, combined with additional risk of
disruption due to Brexit.
52 TT Electronics plc Annual Report and Accounts 2020
Operational continued
Risk description
Potential impact
Mitigating action
Change in the year
• Reputational impact, business
• Regular analysis of cyber security
disruption and potential deterioration
in customer relationships
and data management
• IT strategy reviewed by management
IT systems and information
IT security breaches or disruption,
unauthorised access or mistaken
disclosure of information
M&A and integration
Realisation of financial benefit of
acquisitions
Sustainability, climate change and
the environment
Our manufactured products or other
activities or decisions of the Group
may not be judged by our customers,
employees, communities and
investors as being sustainable
• Failure to realise the expected
benefits of an acquisition or post-
acquisition performance of the
acquired business not meeting the
expected financial performance
at the time acquisition terms were
agreed could adversely affect
the strategic development, future
financial results and prospects of
the Group
• Failure to appropriately manage
the environmental impact of our
operations and products.
• Reputational impact and potential
deterioration in our relationships with
our stakeholders
Health and safety
The manufacturing industry is
inherently dangerous. Managing the
impact on our employees, sites and
the environment of these risks
• Incidents occurring due to unsafe
manufacturing processes. Failure
to manage the impact of these
risks could negatively impact our
employees, lead to regulatory fines,
reputational damage and lost
production.
and the Board
• Information security policies
updated recently
• Investment through recruitment
of additional IT security and ERP
specialists
• Processes and tools put in place to
support cyber security certifications
• Full financial and other due diligence
is conducted to the extent achievable
in the context of each M&A
opportunity
• A detailed business case including
forecasts is reviewed by the Board
for each opportunity
• Integration risk and planning is
reviewed and undertaken as part of
every acquisition
• Health, Safety and Environmental
Council responsible for Company-
wide best practice sharing,
monitoring and improvements and
strategy setting
• PSEE Committee responsible for
reporting Group progress against the
development and monitoring of our
strategy and associated KPIs
• Continued investment in M&A,
business development and new
product introduction in areas where
the solutions contribute to a more
sustainable world (see further detail
on page 11)
• Health, Safety and Environmental
Council responsible for Company-
wide best practice sharing,
monitoring and improvements and
strategy setting
• Regional best practice teams
established
• Processes and roadmaps in place to
minimise the risk of incidents
Reduced risk – investment and
improvements made in this area,
demonstrated through successful
remote working due to COVID-19
restrictions, have reduced the net risk
to the Group
Reduced risk - recent acquisitions
have been integrated successfully and
lessons learned activities built into
future plans
No change – see pages 64 to 69 for more
details on the work done across the Group
Increased risk – whilst the overall
Health and Safety risk faced by the
Group has increased due to the impact
of COVID-19 on working practices,
this has been mitigated with a strong
framework of processes and controls
at all our sites. Underlying health and
safety incidents remain very low
Legal
Legal and regulatory compliance
Intentional or inadvertent non-
compliance with legislation including
laws and regulations covering export
control, anti-bribery and competition
• Reputational impact
• Civil or criminal liabilities leading
to significant fines and penalties
or restrictions being placed on the
ability to trade
• Reduction in revenue, profitability
and cash generation
• Cross-divisional export compliance
group established and anti-bribery
programme in place
• Approach involves risk assessment,
policy, training, review and
monitoring
• Whistleblower process in place
to ensure issues can be raised,
investigated and managed
No change
TT Electronics plc Annual Report and Accounts 2020
53
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Stakeholder engagement
HOW AND
WHY WE
ENGAGE
Our stakeholders are key to the long-
term sustainability of our business.
The importance of open and meaningful
engagement with all our stakeholders is
fully embraced by our Board members
and is encouraged through all levels of
the Company. The Board has completed
its stakeholder mapping exercise to
identify the Company’s key stakeholders,
to determine the Board’s engagement
activities during the year and to review
the information flow from senior
management and other commercial
teams up to the Board, and back down
the organisational structure.
2020 has been a challenging year where
engagement with our stakeholders
took on a new importance to help all
of us respond and collaborate quickly
and effectively in the face of the
unprecedented challenges our working
environments. At the same time, many
of the usual methods of engagement
became more and more constrained as
the pandemic took hold. As travel and
social contact was restricted throughout
the year, we were challenged with finding
innovative and effective ways of dealing
with our stakeholders; from finding new
ways of gauging customer feedback,
to securing investor commitments in
respect of the equity placing to fund the
Torotel acquisition.
s172 statement
Under Section 172 of the Companies
Act 2006, Directors are required to
promote the success of the Company
for the benefit of our shareholders
and, in doing so, to have regard to the
interests of all of our other stakeholders.
We have outlined here the key
engagement activities carried out by the
Board and the Company during the year.
Where to find out more
Employees Our people
Investors How we create value
Environment Our environmental priorities
Society Our community
Long-term success
Our strategy
Risk management
Viability statement
58
20
64
69
16
50
51
CUSTOMERS AND SUPPLIERS
Adapting in 2020:
• Our supply chain and business unit
leaders across the Group increased
their virtual activity to underpin and
support one another to successfully
manage issues caused by the
COVID-19 outbreak.
• Further development of our Risk in
the Supply Chain analytics tool led
to quick identification of key risk
areas in our supply chains to ensure
our businesses and our employees
remained protected.
• Face to face engagements with our
supply chain partners and customers
were moved to virtual platforms
to ensure we maintained strong
relationships and communications links.
• Online New Product Introduction
webinars were set up to deal with the
launch of new products and product
roadmaps with online feedback
questionnaires to help us gauge if these
approaches met customers’ needs.
• Customer engineers attended TT-run
online training sessions.
Our activities that affect them:
• Research and development (“R&D”)
• Operations and production pipeline
• Safety, environmental quality control
and reliability
• Legal and regulatory compliance
• Payment practices
• Responsible business, sustainability
and ethics
How we have engaged:
• Attendance at customer/supplier
meetings, trade events and
conferences.
• Sales and engineering teams engage
with lead customers to inform new
product development.
• CEO and Board regularly receive
reports from internal lead councils on
key customer and supplier initiatives.
• Internal reporting processes flow
information and KPIs on health and
safety, environmental, sustainability,
strategy, production and financial
performance from site level through
the ELT to the Board.
• “Voice of the Customer” feedback
informs our business development,
R&D and operations approaches.
• Payment practices, and the effects
on our suppliers, are reviewed and
considered by the Board.
• Our global cyber security and IT
delivery strategies to reduce the risk
of hacking events and ensure the
protection of customers’ confidential,
technical information is regularly
reviewed and developed.
• The Board reviewed and approved the
Group’s Modern Slavery Policy and
Statement for 2020.
• The Board’s engagement with our sites
gives insight into customer and supplier
responses to key programmes and
integration activities.
54 TT Electronics plc Annual Report and Accounts 2020
EMPLOYEES
Our activities that affect them:
• Protecting our People/Health
and Safety/Sustainability
• Employment, training and
apprenticeships
• Group employment policies
• Investment in our sites
• Diversity/Inclusion
• Group strategy
How we have engaged:
• The Board typically holds at least
one of its meetings each year at
one of our manufacturing sites to
enable the Directors to gain a greater
understanding of the operations at our
facilities and to engage directly with the
workforce. Outside of the scheduled
Board meetings, Directors visited
(either physically or virtually) four sites
during 2020.
• The Employee Engagement Survey
was circulated worldwide and the
results were fed back to the Board
for consideration and discussion,
for more information see page 62.
Sites across the Group are working
on actions plans to identify areas
to further improve our engagement
across a variety of key topics.
• Our health and safety record at our
sites is of critical importance to the
Board and the Directors understand
that the health and safety tone must be
set from the top.
• During the year employees
worldwide have regularly received
communications regarding the
Company’s operations, challenges
and successes through both weekly
email updates and our quarterly
“BE TT News” magazine.
• Site employee forums were held at
a number of sites across our global
locations in 2020 with key items fed
back to the PSEE Committee where
our nominated Non-executive Director
(“NED”), Jack Boyer, ensures that the
“Voice of the Employee” is considered
in Board decision-making.
• The Board has continued to work
closely with the EVP HR to develop
and progress initiatives to address
diversity and inclusion within the
current employee base and the future
pipeline. We continued our programme
of “Women in Business” forums, and
our Equality, Diversity & Inclusion Policy
roadmap was approved by the Board
and circulated to all employees.
Adapting in 2020:
• TT’s COVID-19 response plan
facilitated a fast-paced, two-way flow
of information from site/divisional
management to the ELT and the Board
to ensure that Health and Safety
policies and processes were quickly
communicated to our sites to keep our
employees safe.
• Dedicated COVID-response
committees on each site around the
globe, were responsible for regular
updates to local employees on changes
to working practices, new H&S
processes and any other COVID-related
changes. The Committees shared
information on a regular basis with the
HR and H&S functions.
NEDs virtual site visits
During 2020, the Board was not able
to plan site visits to our international
sites outside of the UK due to travel
restrictions. Instead, two “virtual
overseas site visits” were organised
by our Board members using video
conferencing. The aim of the site visits
was to speak directly with members of
the senior management team as well as
other employees to assess the culture
at these sites and to give an opportunity
for employees to raise any questions or
concerns to the NEDs. This is the first
time that site visits have been conducted
virtually and, while some limitations
were identified, the NEDs felt this was a
worthy exercise which enabled them to
connect meaningfully with employees
at the sites and gain valuable insights
into the successes and challenges
faced by our teams. Following these
site “visits”, the nominated NED for
employee engagement shared the
discussions and outcomes with the
PSEE Committee and subsequently
the Board. These discussions revolved
around the feedback from employees
and improvements that could be made
on the “virtual” engagement process to
ensure a wide spectrum of employees
is involved and that there are more
opportunities for open and frank
conversations to be had with the NEDs
away from the site management team.
TT Electronics plc Annual Report and Accounts 2020
55
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Stakeholder engagement continued
INVESTORS
Our activities that affect them:
• Financial performance
• Governance and transparency
• Leadership
• Reputation
• Sustainability
How we have engaged:
• The CEO and CFO meet with
institutional investors immediately
after publication of the full year and
half year results, and at other times
through the year.
• The Chairman wrote to our largest
shareholders and also had introductory
virtual meetings with some of them,
more information can be found on
page 5. See page 94 for information
about the consultation activities carried
out by the Chair of the Remuneration
Committee.
• Feedback on investor relations issues
is reported to the Board so that all
Directors develop an understanding
of major shareholders’ views on the
Company.
• The Company’s brokers provide
briefings to the Board on shareholder
opinions and compile independent
feedback from investor meetings.
• Company presentations used at
analyst and investor meetings, together
with financial press releases, and other
useful shareholder information, are
made available on the Group’s website
(www.ttelectronics/investors.com)
• The Directors use the Annual General
Meeting (“AGM”) to communicate with
institutional and private investors. Full
details of the 2021 AGM are given on
page 199.
• We have increased our disclosure of a
number of sustainability related issues
in the Annual Report and Accounts,
collecting data for the first time and
setting short term and longer term
targets for environmental improvement.
• We participated in the annual Carbon
Disclosure Project (“CDP”) annual
survey, with CDP awarding a ‘C’ rating,
denoting ‘awareness’, an improved
score on the prior year.
• Prior to the non pre-emptive placing
of shares in September 2020 and in
advance of the Torotel acquisition,
the Directors consulted directly with a
significant number of our shareholders
to gauge their feedback on both
activities.
Adapting in 2020:
• The Board ensured that investors were
kept informed via extra trading updates
of the impact of the pandemic on
operations and national restrictions on
our trading and financial performance.
• Since the first UK lockdown
commenced, all investor engagement
has been ‘virtual’, with live video calls
the usual means of communication.
This has been supplemented with
recorded video messages by the CEO
and CFO.
• Due to the national restrictions
imposed in the UK during the first
half of 2020, the Company’s AGM
could not be held in the usual
manner where shareholders would
be invited to meet directly with our
Board. Instead our AGM was held
as a ‘closed meeting’ to respect the
national lockdown safety measures
in place and shareholders were
encouraged to vote in advance of
the meeting and submit questions
to the Board using a dedicated
email address.
56 TT Electronics plc Annual Report and Accounts 2020
Torotel case study
In November 2020, TT acquired the
entire issued and outstanding share
capital of Torotel, Inc, an SEC listed
company, for a value of $43.4 million
(£32.9 million) as part of a competitive
tender process. The acquisition was
structured as a merger between
Torotel and a specially incorporated
TT subsidiary company, with the
approval of Torotel’s shareholders
being required under Missouri law as a
condition precedent to completion. The
transaction was part funded by an equity
placing, which raised £20 million of the
consideration proceeds. Given the deal
structure, the Board and transaction
team prioritised engagement with a wide
variety of stakeholder groups in order
to secure an exclusive position for TT
as the preferred bidder for Torotel. Key
stakeholders included (i) the Torotel
board and senior management team,
which ultimately recommended the
terms of the transaction to shareholders,
(ii) Torotel shareholders, who gave their
approval for the transaction to proceed,
and (iii) TT’s investor base, as part of
the equity placing process. In the latter
case, the Executive Directors had direct
engagement with over twenty current
and prospective investors on the terms
of the transaction and the equity placing
arrangements. As part of the overall
transaction process, TT liaised with a
number of UK and US regulatory bodies
to ensure that all necessary approvals
were secured in the context of Torotel
being a US-based supplier to a wide
range of customers in the Aerospace
and Defence sector and also as part of
the process of raising acquisition funding
through a UK placing.
Torotel case study
Corporate Social Responsibility day –
Kuantan, Malaysia
September 2002’s Corporate Social
Responsibility day was dedicated to creating
awareness of environmental issues with the
day’s activities focused on cleaning an area
of local beach. Despite the gloomy weather
and rain around 400 employees and their
families took part raising over $600 for
several local environmental charities to help
in supporting their efforts.
A key focus of the transaction was
to secure Torotel’s product portfolio
and technical capability in order to
enhance TT’s customer offering in
the Power Solutions sector, thereby
deepening relationships with existing
customers and allowing the Group to
penetrate new customer platforms; this
customer engagement element was
a key component of the post-closing
integration process. Another important
consideration was to ensure that all
existing Torotel employees were made
to feel part of the expanded TT “family”
post-completion, which was achieved by
moving Torotel employees into TT-wide
compensation schemes at an early
stage of the integration programme.
The Board played an active part in the
transaction process, having carefully
considered Torotel’s position in the
US Aerospace and Defence market,
the availability of US Government
funded programmes and opportunities
to enhance existing TT capabilities/
customer initiatives through the Torotel
platform. The Torotel transaction was
discussed on a total of seven occasions
by the Board in 2020, with three such
meetings being dedicated entirely to the
Torotel acquisition process and/or the
equity placing arrangements.
SOCIETY
Our activities that affect them:
• Employment, training and
apprenticeships
• Sustainability KPIs
• Pollution, waste, environmental policies
• Local operational impact
• Helping local communities
• Footprint optimisation
How we have engaged:
• Member of the Confederation of British
Industry (“CBI”) and the Responsible
Business Alliance. TT is committed to
working in an ethically responsible way
towards creating a more prosperous
and equal society. TT participated in
research to form part of the CBI’s new
Goal 13 Impact Platform designed to
accelerate climate transition by sharing
companies' progress from across the
UK and beyond, inspiring further climate
commitments and action, and facilitating
collaboration between companies.
• Regular updates to the Board from
the HSE Council, the designated NED
sitting on our PSEE Committee and the
EVP HR on social, environmental and
employee engagement themes.
• The HSE Council engages on our
environmental impact directly with
regulatory bodies and across all
our TT sites to share reports with
the Board on the Group’s progress
against its KPI targets in relation to
the environment, see more on page 23.
• Our PSEE objectives remained focused
on supporting our local communities
and charitable activities which ‘Build
Expertise’ in science, technology,
engineering and maths (STEM). Further
details on the way we work with the
communities in which we operate and
employees’ environmental initiatives
can be found on page 69.
• Diversity within our industry is an
important theme for the Board and
gender balance is often considered
in terms of our senior management
pipeline, our extended workforce, the
wider automation and electrification
sector and educational institutions
around the country.
Adapting in 2020:
• Many of our sites around the world
engaged with local healthcare
institutions and their local communities
to provide much needed PPE, safety
equipment and food and hygiene kits
where they were needed most.
• STEM activities within our local
communities and schools continued
in 2020 but were adapted to virtual
platforms where possible.
• The Board has closely monitored the
Virolens® project which aims to provide
a unique and highly-engineered testing
product to help in the fight against the
global threat of COVID-19 to societies
around the world.
TT Electronics plc Annual Report and Accounts 2020
57
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Our people
OUR
PEOPLE
ARE THE
FOUNDATION
OF OUR
BUSINESS
Our people
Our culture and Purpose (see inside front
cover for more details) are at the heart of
what makes TT Electronics a great place
to work and great to work with. People
are at the heart of our Purpose and
this includes not only our employees,
but also other stakeholders including
customers and suppliers and our wider
communities. We continually strive to
ensure everyone who works for TT can
be themselves and has the opportunity
to do their best every day at work. Our
people really are our greatest asset and it
is through training and developing them
and working together effectively we
unlock the potential of TT.
Purpose and meaning
In 2019 we reviewed and updated our
Purpose, and this has enabled us to
engage with our senior management
during 2020 and explore what it
means to them and their teams. This
enables us to draw on and focus our
employees’ energy into their ways of
working. Our local teams have long
been committed to creating social value
in their communities and our Purpose
also enables us to connect with this
and focus our activity in the same areas
where we help our customers support
a more sustainable world, providing
cleaner, smarter solutions and improving
health. “Cleaner” therefore includes our
sustainability goals such as reducing
our energy usage and waste to landfill,
58 TT Electronics plc Annual Report and Accounts 2020
The “TT Way”
We do the right thing
We bring out the
best in each other
We achieve
more together
We champion
expertise
We get the job
done… well
“smarter”, encompasses our STEM
activities, as well as providing improved
health for our employees, which in this
context includes diversity and inclusion,
psychological and physical safety, as
well as providing the appropriate tools
and support systems that underpin
health. In this way, we have linked our
Purpose statement to the development
of our internal culture and to what we do
for our customers.
Our environment section on pages 64
to 69 gives more details on how we are
seeking to reduce our impact on the
environment as well as our community
engagement activities.
Culture and values
We believe that embedding the right
culture in the business is critical to our
ability to deliver sustainably over time.
We also continue to be committed
to the “TT Way” which underpins the
behaviours we encourage, by which we
live every day. All of our employees are
measured through regular performance
reviews on what they deliver and
how they deliver it, with the “TT Way”
underpinning the ‘how’.
We believe that investments we make in
people help them improve, also building
loyalty and trust. Our people can do
remarkable things, not only because they
have a sense of belonging but a purpose
that helps them think big, underpinned
by our ‘TT Way’ culture and behaviours.
TT Electronics plc Annual Report and Accounts 2020
59
Strategic reportGovernance and Directors' reportFinancial statements 262019: 23
Sites with zero three day
lost-time incidents
We invest significant resources in attracting,
motivating and retaining the talented
engineers, designers, administrators and
technicians of tomorrow
Our ‘zero harm’ roadmaps are used
to set annual improvement plans at
each location to ensure continuous
improvement. These are regularly
reviewed by each site General Manager
as well as the divisional EVP. Twenty-six
locations had zero lost time incidents
in 2020. Each one received a ‘zero
harm’ certificate from the CEO in
recognition of their commitment to
safety management and continuous
improvement. This is an increase on
2019 when 23 sites achieved a ‘zero
harm’ performance.
Strategic report | Our people continued
Health and safety
Health and safety is extremely important
to us and one of our Group KPIs is a key
health and safety metric (see page 23).
As a result of COVID-19 it has been a
challenging year, but this has resulted
in an extraordinary response from our
people. By learning from the experiences
of our Chinese colleagues, who were
impacted by the COVID-19 outbreak first,
and by implementing COVID-19 secure
working practices early on elsewhere, we
were able to ensure all our employees
remain safe and well at work. Being
primarily considered a manufacturer
of essential products, our employees’
commitment and safe working practices
enabled us to continue manufacturing
around the world with only limited,
short-term exceptions. We constantly
review these safe working practices and
we have been sharing our experiences
weekly to help everyone stay safe.
We have also run reinforcing campaigns
such as ‘Hands, Space, Face … because
I care,’ focused on embedding social
distancing and other behavioural
changes.
We actively promote our health and
safety culture that is embedded in
our “TT Way” behaviours. We work
together to identify, remove or reduce
hazards and risks to ensure everyone
returns home safe and healthy, with a
focus on preventative actions. In 2020,
we recorded 4,155 (2019: 1,460) total
hazards, monitoring this important
‘leading’ safety indicator within our
employee engagement metrics.
This increase is a result of our focused,
preventative safety culture programme
aimed at raising awareness of hazards,
education and recognising employees
that demonstrate our ‘TT Way’ behaviours.
We are committed to achieving a ‘zero
harm’ workplace and, as part of our
continuous improvement culture, we
have invested in the development of an
analytical safety reporting tool. From
2021 this will provide us with additional
transparency through the reporting of
hazards and near misses by causation
type. We will utilise this data to help
focus our resources and further develop
our safety programme.
60 TT Electronics plc Annual Report and Accounts 2020
Providing PPE for the front line
Our “TT Way” principles
Mexicali Human Resources Manager
Ivonne Rodriguez commented:
“We are excited to partner with the
hospital and to help support front-
line health personnel in their mission
to combat COVID-19. Caring for our
people and the welfare of the Mexicali
community is what our TT values are
all about.”
For further examples of how our
employees have helped local
communities in the year, see the Our
environment section on pages 64 to 69.
Demonstrating our principles
In a demonstration of our ‘TT Way’
principles, a number of sites across
the Group have been doing the right
thing by helping local communities
during the year in the fight against
COVID-19.
Employees from our Mexicali, Mexico
facility, among others around the
Group, have been active in this regard.
The Mexicali facility has been making
and delivering facemasks to protect
healthcare staff who have been in
the front-line in the fight against
COVID-19. Staff are pictured above
towards the end of 2020 outside
the local general hospital with a
consignment of donated face masks.
We are excited to partner with the hospital and to
help support front-line health personnel in their
mission to combat COVID-19. Caring for our people
and the welfare of the Mexicali community is what
our TT values are all about.
In 2020, three-day lost time incidents,
our primary ‘lagging’ health and safety
indicator, and Group KPI, increased
slightly to five incidents (2019: four).
This in part reflected COVID-related
disruption to established processes and
working practices through the year. To
further support our values we developed,
along with employee representatives and
operations management, a global safety
behavioural standard, which we will
develop further during 2021.
We have continued to invest in mental
wellbeing during 2020. As well as
running workshops to train line
managers about mental health, we have
also continued to train mental health
first aiders at a number of our facilities
globally. Ensuring employees are able to
express personal anxiety and concern
during these challenging times has
been crucial.
In the mid-year performance review
cycle, we introduced Wellness Action
Plans. This tool empowers individuals
and managers to talk about how to get
the best out of one another at work, how
they respond under stress and what
support and workplace adjustments they
might need. Workshops on using the tool
were also run.
Our wellbeing scores in our recent
engagement survey (set out in the
section on 'Engagement' below) were
very strong and addressing wellbeing
continues to be a key priority.
Our online, voluntary ‘Mindfulness
Monday’ sessions have been very
popular, creating space for our
employees to learn mindfulness
practices in support of wellbeing.
Health and safety is at the heart of our
culture and we are totally committed to
continuously embedding and improving
safe working practices everywhere.
BE Inspired awards
Our BE Inspired awards recognise and
internally publicise every quarter those
employees who have demonstrated
“TT Way” principles, with nominations
encouraged from across the Group.
From these nominations a number of
awards are made celebrating the most
outstanding employee achievements.
TT Electronics plc Annual Report and Accounts 2020
61
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Our people continued
Engagement
Our employees have been identified as a
key stakeholder group with the Board’s
2020 interaction with employees set
out in the s172 statement on pages 54
to 57 of this Annual Report and in the
Chairman's Statement on pages 4 to 7.
• ongoing commitment to an enhanced
Women’s Leadership Programme
which enables internal sponsorship as
a support to promotion;
• a flexible working policy catering for
diverse working practices ;
• a significantly enhanced maternity
Employee attraction, retention
and development
Attracting, retaining and developing our
employees is crucial to the achievement
of our strategic objectives.
Personal development and growth
are important at TT. As well as
running training programmes for
leaders and managers, we also
focus on maintaining robust personal
development plans with regular,
quality feedback to accelerate personal
growth and build succession plans.
We also invest heavily in functional
development, such as building sales
capability, including coaching and
development programmes.
leave policy.
We are also undertaking a project to
look at our talent acquisition practices,
including how we remove bias from our
descriptions and job advertisements.
53%Female employees
Employees - full-time equivalents (average in year)
Male
Female
4
5
29
773
420
518
468
28
2
1
6
474
426
711
884
38
2,207
2,533
We ran a series of Leadership
Development sessions in 2020,
including on developing a winning
mindset and leading high performing
teams. We have also run a series of
management workshops with sessions
including change, loss and recovery;
compassionate leadership; leading
change; dealing with adversity; and
making better decisions. We run a
performance review process including
regular personal interaction with line
managers, so employees know what is
expected of them and receive feedback
on their performance. We recognise
exceptional contributions from all
employees through our Be Inspired
awards and we publicise monthly
recognition, as well as annual awards,
which are aligned to the “TT Way”.
Despite the many COVID-related
challenges during 2020, we have made
good progress on our journey to be a
truly great place to work.
Main Board of Directors
Executive Leadership Team (ELT)
Other senior managers (ex-ELT)
UK and Europe
USA
Mexico and Caribbean
Asia
Other
Total
Driving ED&I across the organisation
We have developed an ED&I strategy,
Committee and business unit working
groups to drive equality and diversity.
In 2020, we started inclusive leadership
training among the Senior Leadership
Team and piloted ED&I training at our
facilities. Training will be provided during
2021 for all our employees.
We have continued our Women’s
Business Forum and we will look to run
our Women’s Leadership Programme
before the end of 2021. We have also
developed revised global ED&I policies.
We are excited by how passionate many
of our employees are about ED&I and
there is a real opportunity to build in 2021
on the progress we have made to date.
At 31 December 2020 we had 4,740
employees Group-wide, of which 47
per cent are men and 53 per cent are
women. This gender diversity split by
geography and seniority is set out above:
Our Gender Pay Gap report is also
available for viewing at
https://www.ttelectronics.com/
TTElectronics/media/SiteFiles/Legal%20
Documents/TTE_Gender-pay-gap-
report.
We measure our employee engagement
using the independent ‘Best Companies’
survey and methodology. We undertook
our employee survey in October 2020,
achieving an 85 per cent response
rate. We are delighted to have made
significant progress in all areas since
the late-2018 survey and received an
overall '2 Star' rating, benchmarking
TT Electronics alongside the very best
global corporations in terms of employee
engagement. A number of TT sites were
also individually recognised as the very
best, achieving a ‘3 Star’ rating. Given
the impact of COVID-19 and the general
market uncertainty, together with the
fact that three contributing TT sites are
in the process of closing, the results
are a powerful demonstration of how
employees perceive our commitment
to engagement and how they feel about
working at TT.
In 2020 we also worked with ‘Best
Companies’ to deliver a more
robust reporting and analysis of
the survey results. Line managers
received a personalised employee
engagement score that enables them
to undertake a more targeted action
plan, aiding continued improvement
in engagement levels.
Equality, diversity and inclusion
We are committed to ensuring all our
employees, everywhere, get to be
themselves at work every day. Ensuring
our leaders and managers are inclusive
and that everyone is treated fairly at work
is core to our culture and strategy.
Building a diverse senior
leadership team
We recognise our leaders' critical role
in promoting and monitoring equality,
diversity and inclusion (ED&I) in TT.
This includes regularly reviewing ED&I
metrics and investing in supporting our
minority employee populations.
Some examples of what we have
achieved in the year include:
• more inclusive hiring practices
including balanced shortlists and
diverse interview panels;
62 TT Electronics plc Annual Report and Accounts 2020
Business ethics
We hold ethical standards in high regard,
operating with integrity to a common
standard worldwide. We do not tolerate
corruption or bribery in any form.
We operate systems and processes
which counter corrupt practices,
including an anonymous and multi-
lingual ‘whistleblower’ portal through
which individuals can report concerns.
Significant issues arising are reported
to the Audit Committee, with cases
investigated in detail and appropriate
action taken.
Our Statement of Values and Business
Ethics Code sets out the operating
principles to which we adhere. Day-to-
day oversight of ethics and compliance
related matters are undertaken by the
PSEE Committee, which is chaired by
the Group CEO and which includes
the Senior Independent Director as a
member. For any matters of particular
concern, an Ethics Committee is
convened to investigate, and this is
constituted by members of the ELT.
All relevant employees are required to
complete mandatory online training
annually across different aspects
of ethics including anti-bribery and
corruption, IT and cyber security, export
controls and information management.
Human rights and modern slavery
We are committed to upholding the human
rights of our workers and treating them
with dignity and respect as understood
by the international community. Our
Human Rights Code is contained within
the Responsible Business Alliance Code
of Conduct and covers permanent,
temporary, migrant, student, contract,
direct and indirect workers.
We do not tolerate practices which
contravene international standards.
Regulatory demands vary considerably
around the world; however, we have
established a core structure to ensure
that Group companies fully comply with
legislative and regulatory requirements
while permitting them to tailor their
approach to local needs.
Everyone in TT is responsible for
having due regard for human rights.
Managers and supervisors must provide
leadership that promotes human rights
as an equal priority to other business
issues. All employees are responsible
for ensuring that their own actions do
not impair the human rights of others
and are encouraged to bring forward, in
confidence, any concerns they may have
about human rights.
TT is committed to acting ethically and
with integrity in our business dealings.
As part of this commitment, TT has
adopted a zero-tolerance approach to
modern slavery, whether in the form of
servitude; forced, bonded, or indentured
labour; slavery; human trafficking or
any other activity that amounts to an
unreasonable restriction on the free
movement of workers.
The Board has adopted a policy
on modern slavery, setting out the
standards we expect from all our
employees, contractors, suppliers,
distributors and other business partners.
A copy of our modern slavery statement
can be found on www.ttelectronics.com.
Supply chain
It is important that not only does TT
adhere to high social standards, but we
seek to do business only with a like-
minded supply chain. Therefore, in 2020
we updated TT’s Corporate and Social
Responsibilities – Supplier Expectations
policy, which sets out TT’s required
standards of our global supplier base
with respect to social and environmental
practices. In addition to supplier
environmental standards (see page 69),
the policy addresses a number of social
and ethical aspects including health
and safety, modern slavery, child labour,
discrimination, harsh or inhumane
treatment, equality, diversity and
inclusion, anti-bribery, cyber security,
living wages and working hours. We
carry out assessments of our suppliers
regularly to ensure compliance and we
will not do business with suppliers who
violate these standards. The policy can
be found on www.ttelectronics.com.
85%Reponse rate to employee survey
2 Star
Employee engagement rating
TT Electronics plc Annual Report and Accounts 2020
63
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Our environment
OUR
ENVIRONMENT
We help solve electronic challenges by providing solutions that are cleaner,
smarter and healthier, which help our customers reduce their environmental
impacts. At the same time, we also seek to optimise our own operations to
reduce our impact on the environment.
TT recognises that our activities
and those of our customers have an
environmental impact. Our response is
two-fold:
• develop, design, engineer and
manufacture products for our
customers that help them reduce their
environmental impacts and which
also have significant, beneficial, social
impacts for society; and
• optimise our own operations to reduce
this impact on the environment.
For more information on our products
and how they impact society please see
Our Markets on pages 30 to 37.
Governance
We are committed to driving our
sustainability agenda and we are
organised in the following way:
• Our Health, Safety and Environmental
Policy statement defines our goals
and objectives
• The Board considers climate change
and environmental risks as part of its
overall assessment of the risks facing
the Group
• The Board is supported according to
the organisation chart below, and this
sets out our Governance structure
Oversight of our environmental
performance is provided by the PSEE
Committee and which is chaired by
the CEO and attended by the Senior
Independent Director. The Committee
drives TT’s sustainability strategy for our
employee, community, customer and
investor stakeholders. The Committee
Chair reports back to the Board on the
activities of the Committee, including the
progress made on environmental matters.
From 2021 we have set up a Sustainability
Council that comprises a mix of senior
corporate managers and representatives
from each division. The purpose of the
Council is to advise the PSEE Committee,
providing a conduit to and insights from,
the global business leadership team. The
Council also provides technical and other
specialist advice with respect to driving
further sustainable improvements within
the Group.
The ELT is chaired by the CEO and
comprises the CFO, the divisional
EVP’s and other senior managers.
This body meets on a quarterly basis
and is responsible for delivering
against sustainability targets and other
objectives by working with our global
site leadership.
Board
CEO and CFO
PSEE Committee
Executive and Senior Leadership team
Sustainability Council
Site leadeship
Our environmental priority areas
We recognise that our business
activities have significant relevance to
the UN Sustainability Goals (UN SDG).
Accordingly, in 2019 we completed a
strategic workshop. This was chaired
by the EVP HR, and included Board
representation, as well as senior
managers from within the businesses.
The workshop identified those areas
where there was greatest alignment
with the UN SDG and where we had
the opportunity to make the most
difference. From an environmental
perspective, we believe we are most
closely aligned to Climate Change (UN
SDG #13), as this is the single biggest
impact we have on the environment.
In recognition of this, we have included
this metric within our Group KPIs for
the first time in 2020 (see page 23) with
our ultimate target being to become
carbon neutral on scope 1 and scope
2 emissions by 2035, with like-for-like
reductions in our emissions annually.
Following further consideration of our
environmental exposures, and in addition
to reducing our carbon emissions, we
are also focusing on reducing our use
of single use plastics and on reducing
the amount of waste we send to landfill
every year.
Our overall progress has been
recognised, as we received a rating
of ‘AA’ in the 2020 MSCI ESG Ratings
assessment, placing TT in the leading
companies in its sector group. MSCI
ESG Research provides in-depth
research, ratings and analysis of the
environmental, social and governance-
related business practices of thousands
of companies worldwide.
64 TT Electronics plc Annual Report and Accounts 2020
SUZHOU,
CHINA
Our Suzhou, China site held 30 training
sessions during its 2020 employee
sustainability event and received
173 energy-saving ideas from its
employees. The site implemented eight
projects, which were selected from the
employee suggestions received. The
implementation of these projects has
had a significant impact on energy usage,
with an estimated 15 per cent reduction
in energy use at the site as a result.
Carbon dioxide equivalent (tonnes)
2020
2019*
Emissions from activities which
the company owns or controls
including the combustion of fuel
and operation of facilities
(Scope 1)/tCO2e
Emissions from the purchase
of electricity, heat, steam
and cooling for own use
(Scope 2, location based)/tCO2e
Total gross Scope 1 & 2
emissions/tCO2e
Revenue (£million)
Intensity ratio: tCO2e
(gross Scope 1 & 2)/£1 million
revenue
1,259
770
11,259
14,935
12,518
431.8
15,705
478.2
29.0
32.8
* The Group’s 2019 carbon dioxide equivalent (tonnes) GHG
have been restated. The restatement includes the impacts
of a change from a decentralised to a centralised GHG
methodology in 2020. The change is expected to improve
the consistency and reliability of data.
Carbon emission factors for grid
electricity are calculated according to
the ‘market-based method.’ We have
adopted the UK Government GHG
emission conversion factors by relevant
year for our centralised emission factor
calculation for GHG equivalent carbon
dioxide. Other greenhouse gases
emitted as a result of the manufacturing
process are not included within this
figure as they are a negligible proportion
of overall emissions. We are using an
operational control boundary for direct
GHG emissions. We have adopted a
cross-sector calculation method in
line with the GHG Protocol Corporate
Standard, restating our 2019 disclosure
to be consistent.
For scope 1 emissions, we include our
total owned and leased vehicle direct
emission impact.
The Covina, California acquisition
was completed in January 2020 and
its emissions have been included in
the 2020 carbon dioxide numbers.
The acquisition of Torotel, Inc, which
completed in November 2020, will be
included from 2021.
The Group’s total scope 1 & 2 carbon
emissions have in 2020 reduced by 20%
to 12,518 tonnes (2019: 15,705 tonnes).
In addition, we participated in the 2020
CDP annual climate change survey. CDP
is a not-for-profit charity that runs a
global disclosure system for companies
and other organisations to manage their
environmental impacts. It awarded us an
improved ‘C’ rating, denoting awareness
of climate change issues.
20% CO2 reduction
Scope 1 & scope 2
Energy use and carbon dioxide
emissions
We are focused on reducing our carbon
dioxide impact from energy use. We
have set out the actions we are taking
below in ‘Reducing our energy use and
carbon emissions’.
In 2020 we implemented a carbon
dioxide reporting tool consistent with
the Greenhouse Gas (GHG) Protocol
Corporate Standard and with the
Streamlined Energy and Carbon
Reporting (SECR) guidelines. This
Group-wide tool is in use at all sites
and is important in helping us better
measure and manage our carbon
dioxide emissions.
We report using an intensity ratio of
carbon dioxide emissions per £1 million
of revenue for our global scope 1 and 2
GHG emissions (expressed in tonnes of
carbon dioxide equivalent).
In 2021 we intend to identify our scope
3 boundaries for business activities.
We will baseline our carbon dioxide
equivalent emissions from these
activities and disclose them annually
after this.
By far the largest component of our
energy usage is electricity. We use this
in our facilities around the world for
our development, design, engineering
and production activities, as well as in
our sales, support and management
activities, with total emissions as follows:
TT Electronics plc Annual Report and Accounts 2020
65
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Our environment continued
The primary drivers of this
improvement are:
• Eight UK sites moving to a green
electric energy, UK Government backed
scheme in October 2020.
• Capital investment projects including,
energy efficient lighting and controls
and installation of energy efficient
heating/cooling systems.
• Local site energy saving projects with
each site participating in a global
sustainability event to identify and
implement energy saving actions (see
Suzhou, China case study).
• The impact of COVID-19 on our
operations including lower production
volumes, reduced business travel and
increased home working for office-
based employees.
The Group’s intensity ratio of carbon
dioxide emissions for 2020 (as defined
above) were 29.0 tonnes (2019: 32.8
tonnes) of carbon dioxide equivalent per
£1 million of revenue. The intensity ratio
declined largely due to the impact of the
efficiency measures set out above.
Reducing our energy use and
carbon emissions
Our strategy is to improve our efficiency
and productivity, and this is set out
in more detail on pages 16 to 19.
The actions being taken include a
reduction in our operating footprint, in
part comprising the closure of three
operating sites. These closures are
expected to occur before the end
of 2021. This, together with other
actions we are taking, are expected to
contribute to a reduction in our carbon
emissions over the coming years.
We are committed to moving to
sustainable energy in each country
where there is an accessible source
available. Eight UK sites switched to
Renewable Energy Guarantees of Origin
(REGO) contracts from October 2020
to take advantage of a wind generated
electricity source. This switch to REGO
and other green energy provision will be
a key contributor towards our journey to
becoming carbon neutral.
As well as a top-down approach to
managing our carbon emissions, we
also use a bottom-up approach. All our
sites participated in a company-wide
sustainability event in 2020 themed as
‘our road to a safe and a sustainable
world.’ The event was focused on raising
employee awareness of sustainability
issues and channeling their enthusiasm
and ideas into action. Accordingly,
Scope 1 and 2 emissions by geography, carbon dioxide equivalent (tonnes) – 2020
United
Kingdom
Rest of
Europe
North
America
Asia
–
296
9,037
–
9,333
2,827
28
28,273
–
31,128
527
72
6,591
164.9
2,107
88.8
Rest of
World
–
–
59
–
59
–
14
3.1
Total
5,563
986
48,274
2,924
57,747
1,259
11,259
431.8
2,736
660
10,905
2,908
17,209
660
2,547
100.2
–
2
–
16
18
–
-
74.8
Geographic Region
Natural gas
(MWh)
Fuel in company owned/leased
vehicles (MWh)
Electricity
(non-renewable) (MWh)
Electricity (renewable) (MWh)
Total energy (MWh)
Total scope 1 emissions
(tonnes CO2e)
Total scope 2 emissions
(tonnes CO2e)
Revenue (£million)
Tonnes of carbon dioxide
equivalent per £1 million of
revenue
32.0
0
43.2
24.5
4.5
29.0
The MWh figures shown are sourced from site supplier energy invoices.
The following facts are relevant when considering the geographic emissions split:
• The bulk of our UK sites transitioned to green electricity in October 2020, reducing our
electricity emissions. The full year impact of this will also reduce our 2021 emissions;
• Our European operations, comprising one operating site and sales offices, are
already almost exclusively using green energy sources;
• Our North American, Asian and Rest of the World sites do not currently use green
energy. Where this is available, we will transition to green energy. We are also
assessing opportunities to implement green energy infrastructure projects;
• We have fewer, larger sites in Asia, with more, smaller sites in North America. As
part of our footprint consolidation, two sites in North America are expected to close
before the end of 2021.
Carbon dioxide data breakdown by division (scope 1 and 2) - 2020
Power and
Connectivity
Global
Manufacturing
Solutions
Sensors and
Specialist
Components
Corporate
Natural gas (MWh)
3,675
149
1,739
Fuel in company owned/leased vehicles
(MWh)
Electricity (non- renewable) (MWh)
Electricity (renewable) (MWh)
Total energy (MWh)
Total scope 1 emissions (tonnes CO2e)
Total scope 2 emissions (tonnes CO2e)
Revenue (£million)
Tonnes of carbon dioxide equivalent per
£1 million of revenue
133
11,022
833
15,663
703
2,570
125.1
26.2
Total
5,563
986
48,274
2,924
57,747
1,259
11,259
431.8
-
128
-
-
128
31
-
-
338
10,313
659
387
26,939
1,432
11,459
30,497
106
2,404
197.5
419
6,285
109.2
12.7
61.4
n/a
29.0
• Sensors and Specialist Components has the highest energy intensity, having the lowest
proportion of sites using green electricity (see availability of green energy above);
• Global Manufacturing Solutions – has the lowest energy intensity having the fewest
sites, of which half transitioned to green energy in October 2020.
66 TT Electronics plc Annual Report and Accounts 2020
this event had a particular emphasis
on identifying energy reduction
opportunities, as well as enhancing
employee engagement. We have set
out in a case study on page 65 the work
done at our Suzhou, China facility to
reduce its emissions.
Each TT site has developed its own
energy action plan using a Group-
wide Energy and Greenhouse gas
emission (scope 1 and 2) Conservation
Roadmap (EC/GhGR). This aids focus on
decreasing the quantity of energy used
and implementing energy efficiency
initiatives. The EC/GhGR has resulted
in a number of local initiatives including
installing LED lighting, implementing
light sensors in work areas and the
implementation of optimised power
controls for air conditioning.
Carbon disclosure reporting
Our new global carbon tracking tool
provides additional disclosure and
transparency in support of our target
of becoming a carbon neutral business
by 2035, with like-for-like emission
reductions annually. Consequently,
from 2020 we are able to provide more
detailed disclosure of our emissions
impacts, as shown in the following table:
Global GHG emissions and
energy use data – 2020
Natural gas (MWh)
Fuel in company vehicles (MWh)
Electricity (non-renewable) (MWh)
Electricity (renewable) (MWH)
Total energy (MWh)
Total scope 1 emissions (tonnes CO2e)
Total scope 2 emissions (tonnes CO2e)
2020
5,563
986
48,274
2,924
57,747
1,259
11,259
With the 2019 data set analysis
incomplete, comparative numbers will
be provided from financial year 2021,
together with explanations of variances
and our overall progress.
Carbon data by geographic location
(scope 1 and 2)
Our new carbon reporting tool has also
enabled us to provide scope 1 and 2
emissions carbon dioxide equivalent, by
division and geographic region for the first
time. This is set out in the tables on page
66. Comparative numbers will be provided
from financial year 2021 onwards.
In late 2020, we undertook a full site
energy assessment at one of our larger
manufacturing sites in the UK. This was
conducted by independent experts. The
objective was to examine the full range
of ways in which we could reduce site
carbon emissions. This included all
possible energy efficiency measures
as well as site potential to generate
renewable energy in an economic
way. The site assessment report,
which has become available in the first
quarter of 2021, is intended to set out a
financial business case and a potential
implementation programme for suitable
solutions meeting our requirements. We
intend to use this report as a template
for other site assessments and energy
reduction measures, which could be
carried out within the context of our green
energy strategy.
Task Force on Climate-related
Financial Disclosures
We endorse the Task Force on Climate-
related Financial Disclosures (TCFD) and
we are currently making preparations to
meet the detailed disclosures in line with
its recommendations. To achieve this we
intend to complete a gap analysis during
2021, which will identify necessary actions
needed and ensure the governance of
climate-related issues are incorporated in
employee roles and responsibilities.
The gap analysis will include an assessment
of our climate change risk management
process, so we can broaden our
understanding of the actual and potential
impacts of climate change on our business.
We identify our environmental risk and
impacts at an operational site level and
this forms part of our site operational
risk assessment and review. This risk
assessment is reviewed at Group level and
consolidated. Significant identified risks
are placed on the Group environmental risk
register. The Group register is reviewed by
the Risk Committee and the Board on a
regular basis.
Climate and environmental risks are
already considered as part of our risk
management processes and we consider
our disclosures on governance, strategy,
risk management, metrics and targets to
be broadly in line with most of the TCFD
recommendations. In 2021 the Board
will review the materiality assessment of
climate-related risks and opportunities and
this will take account of the different long-
term climate-related scenarios.
Where any climate and environmental matters
have been identified as principal risks for TT,
these have been set out in the section on risk
on pages 52 to 53. Further, our non-financial
KPIs are set out on page 23.
A description of our initial response to TCFD
recommendations are set out below under
the four sub-headings set out in the TCFD,
as follows.
Governance
The PSEE Committee (see the
Governance section on page 64) drives
our response to all environmental
matters, including our response to TCFD.
Strategy
Our strategy is focused around the
areas where we have the greatest
environmental impact, primarily energy
use, with additional focus on single
use plastics and waste management.
Energy use, in particular electricity
use, has been identified as one of the
largest contributors to our emissions.
Our target is to become carbon neutral
on scope 1 and 2 emissions by 2035,
with like-for-like reductions annually. As
part of this, we are switching our sites to
green electricity tariffs - in geographies,
where renewable tariffs are available - as
existing energy contracts come up for
renewal. In 2020 eight of our sites have
switched to REGO schemes.
One of our strategic priorities is to
reduce the carbon dioxide impact of our
operational facilities with a focus being
on taking sensible actions to optimise our
operational performance and supply chain.
We have updated our Purpose statement,
which is to solve electronic challenges
for a sustainable world, to align it with our
ambition to be a carbon neutral business
for scope 1 and 2 emissions by 2035.
We have developed a Group-wide
Environmental Sustainability and Energy
Management roadmap to decrease our
impact on the environment through
implementing energy and environmental
initiatives. Each site conducts a detailed
annual review to identify its priorities
for the year ahead. This is reviewed
regularly by the local management team
with a quarterly review with the EVP of
the Division. Environmental risks arising
from these reviews are added to the site
operational risk register.
Risk management
The assessment of environmental and
sustainability risks form part of the wider
Group risk management process as set
out on page 50 to 51. The Risk Register is
reviewed quarterly at divisional level with
any new environmental risks added. The
register is considered by the Board and
the Risk Committee. For more details,
see Risk Management on page 50 to 51.
TT Electronics plc Annual Report and Accounts 2020
67
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Our environment continued
Metrics
We have set-out our reporting metrics
in the section above on carbon
disclosure reporting.
to plastic wherever possible, so we
can transition to more sustainable,
alternative packaging.
FAIRFORD,
UK
61% plastic
purchased is recyclable
88% of waste
diverted from landfill
Our Fairford, UK team decided to
respond to a UK National Health Service
appeal for the provision of protective
visors and masks for their staff in the
frontline of the fight against COVID.
TT contributed the special materials
needed to make this equipment and,
using the site’s 3D printer, our employees
produced much-needed face shields.
These were donated to local critical
care nurses and doctors, a local primary
school and a funeral care home.
During the pandemic, employees from
around the Group have also offered
much needed support to the hungry
and homeless. Our sites donated food
parcels, clothing and hygiene kits to local
charities for people in need.
Despite the focus on COVID, other sites
around the Group have continued to
raise cash and help out in their local
communities for a range of good causes.
Single-use plastics
A primary waste management focus
is to reduce our reliance on (direct
and indirect) single-use plastics. In
2019, TT sites signed a “pledge on
plastic” to reduce single-use plastics,
which was endorsed by the Group's
Executive leaders. As part of this pledge,
stakeholder meetings have taken place
and educational programmes launched
to raise awareness of the detrimental
effect of single-use plastics on our
environment.
In 2020, for the first time we measured
the amount of single-use plastics
purchased Group-wide. Total plastic
purchased in the year was 234 tonnes.
In part, as a result of the stakeholder
work done during 2019 and 2020, 143
tonnes (61 per cent of the total) of the
plastic we purchased in 2020 was
recyclable. A baseline of 91 tonnes
(39 per cent of the total) of single-
use plastics has been established. In
support of our reduction efforts, we have
commenced programmes at our sites to
replace this single-use plastics over time
with more sustainable products. The
bulk of our single-use plastics is used
in packaging products for shipment to
customers. Sites are switching over time
to recyclable bubble wrap, pallet wrap
and other packaging materials.
We will reduce the like-for-like weight
of our single-use plastic annually and
will encourage sites to seek supply
alternatives to single-use packaging.
We also intend to commence
engagement with our customers in 2021
to seek support for use of alternatives
Waste to landfill
Our other primary waste management
focus is to reduce the amount of waste
we send to landfill. To aid our overall
waste reduction efforts, we have
baselined the amount of waste we
send to landfill for the first time. In 2020
we generated 1,513 tonnes of waste
Group-wide. Of this, 1,333 tonnes (88 per
cent of the total) is diverted away from
landfill with a baseline of 180 tonnes
(12 per cent of the total) sent to landfill.
Within this, three of our operational
sites, through ongoing waste reduction,
efficiency and recycling efforts, already
send zero waste to landfill.
Our sites are increasingly segregating
their waste streams to increase the
amount of recyclable waste including
cardboard, paper, metal, hazardous
waste, wood and plastic. For example,
in our Cardiff, UK facility we have
implemented a green waste recycling
area where waste was previously
coming led and sent to landfill.
Consistent with our culture of
continuous improvement we are
sharing best practices undertaken
across the Group to drive our waste-
reduction efforts. We are targeting
like-for-like reductions in the tonnage of
waste we send to landfill annually.
Water usage
While water usage is not considered
our biggest impact on the environment,
following a 2020 environmental impact
review, we are conscious that water is a
precious global resource and needs to
be managed. We monitor the amount of
water used for production and we seek
68 TT Electronics plc Annual Report and Accounts 2020
MINNEAPOLIS,
MINNESOTA
Our Minneapolis, Minnesota site raised
more than $2,000 to support its local
Community Emergency Assistance
Programme. This gives aid to families
in need over the Christmas period. The
money raised was a combination of
personal donations by employees and a
lump-sum donation from the company.
We also fund our employees’ local STEM
activities – with employees making
school visits, supporting science projects
and organising activities to encourage
young people to take up a career in
science- or technology-related fields.
We supported school curriculums with
engineering-related competitions and
designed fun ways to demonstrate the
importance of electronics in everyday life.
Our STEM ambassadors in Lutterworth,
UK continued offering their virtual support
by taking part in mock interviews to help
students prepare for the world of work.
Despite COVID-19 restrictions across
many of our locations during the year,
our teams found innovative ways to
make a difference. Fundraising activities
included a lockdown photo competition,
sponsored head shaving, chilli cook-off,
sponsored cycle rides and face mask
making contests - all to raise funds for
local good causes. In 2020 we raised
just under £31,000 (2019: over £50,000)
for local good causes through our
fundraising initiatives. This includes
money raised by employees and
donations from the company.
TT has been an active participant in
the fight against COVID-19. We have
been involved in a range of healthcare
projects through the year from vaccine
refrigeration, products for ventilators,
to Virolens®, a COVID-19 screening
device, where we are the exclusive
global manufacturing partner, as well
as a supplier of a number of different
products for the device. We have funded
technology investment during 2020 to
provide the right products and services
to support front-line staff and the
broader community.
In addition, employees in many of our
sites focused on directly supporting the
fight against COVID-19. Employees in
Bedlington, Fairford and Barnstaple in
the UK used TT’s 3D printers to produce
protective visors for frontline health
workers. Lutterworth and Hartlepool
in the UK and Cleveland in the US
donated ‘home-made’ mask extenders
to hospitals and care homes, while the
Cardiff, UK team produced touch-free
door openers. In Juarez, Mexico the team
donated protective screens to the local
general hospital with all our community
donations gratefully received.
to minimise this wherever possible. We
optimise water use by recycling waste-
water for irrigation, including establishing
green areas where appropriate.
Our water usage in 2020 was 130,760
cubic metres and we will report our water
usage annually going forward.
Supply chain
We understand that not only do we
have to be mindful of our impact on the
environment and strive to improve our own
performance year-on-year, but we must
also work with like-minded suppliers.
As part of this, we have published our
Corporate and Social Responsibilities –
Supplier Expectations Policy in 2020, to
help embed sustainability in the supply
chain. The document is available on
our website, is at the foot of emails to
suppliers and, starting in 2021, will be on
supplier purchase orders.
The document covers a range of
social and ethical issues, which
we discuss in more detail on page
63. The document also covers our
environmental procurement practices
including the requirement for suppliers
to have an Environmental Policy and
Management System, comply with
all relevant environmental legislation
and have environmental improvement
plans in place. As an affiliate member of
the Responsible Business Alliance, we
carry out assessments of our suppliers
regularly to ensure compliance and we
will not do business with suppliers who
violate these standards. The Policy can be
found on our website www.ttelectronics.
com/global-sourcing.
Our community
We believe community issues are best
addressed locally, wherever possible.
Each site is encouraged to manage
its operations and activities with due
consideration for the wellbeing of our
communities, whom we regard as key
stakeholders. It is TT’s policy not to make
political donations.
We encourage and support our
employees to take part in charitable
and community activities which benefit
the locations in which they live and
work. Our ‘Hours for Giving’ programme
encourages each employee to take
five hours paid work leave per year
to donate to local causes. This year
staff donated just under 4,000 hours
(2019: over 5,000 hours), with the time
we were able to give in 2020 impacted
by COVID-related constraints.
TT Electronics plc Annual Report and Accounts 2020
69
Strategic reportGovernance and Directors' reportFinancial statements Strategic report | Non-financial information statement
NON-FINANCIAL
INFORMATION
STATEMENT
Reporting requirement
Environmental matters
Key stakeholder group
impacted
Our approach
and key policies
Employees, customers
and suppliers,
community, investors
Employees
Employees
We help solve our customers
electronic challenges for a sustainable
world by providing them with solutions
that are cleaner, smarter and healthier.
We optimise our own operations to
reduce our impact on the environment.
We have linked our Purpose statement
to the development of our internal
culture and to what we do for our
customers.
Key policies:
Statement of Values and Business
Ethics Code.1
Health, Safety and Environmental
Policy.
Our employees deliver our leading
expertise in electronics and they are
the foundation on which TT is built.
Promoting the health and wellbeing of
our employees lies at the heart of the
“TT Way”.
Key policies:
The “TT Way” principles.
Statement of Values and Business
Ethics Code.1
Health, Safety and Environmental
Policy.
ED&I strategy document
Employee Grievance and
Disciplinary Policy.
Whistleblower Policy.1
Gender Pay Gap Report
published annually1.
Outcomes in 2020
Carbon dioxide equivalent (tonnes)
emissions reduced by 20% to 12,518
(2019: 15,705)2.
Further information
See Our environment on
pages 64 to 69
See Principal risks on
pages 52 to 53
61 per cent of total plastic was used
more than once.
88 per cent of waste generated was
diverted from landfill.
Investment in R&D at 4.8 per cent of
revenue in our product businesses2
bringing new and improved products
to market.
Five three-day lost-time health and
safety incidents.2
See Our people on pages
58 to 63
Rated a ‘2 Star’ great place to work
by Best Companies Limited in its
2020 survey.2
See Principal risks on
pages 52 to 53
A gender balanced permanent
workforce with 53 per cent women and
47 per cent men at 31 December 2020.
Our new ED&I strategy is being rolled
out with Inclusive Leadership training
for the senior leadership team and
piloted ED&I training at our facilities.
Our BE Inspired recognition scheme
had 2,754 nominations and presented
366 awards.
Our site based Works Council and
employee forums discuss issues
relevant to employees.
70 TT Electronics plc Annual Report and Accounts 2020
Our non-financial information statement is set out below in compliance with
Sections 414CA and 414CB of the Companies Act 2006. It is intended to guide
our stakeholders to where relevant non-financial information is included within
the Strategic report. Further non-financial information can be found in the Our
environment section of the Strategic report.
Reporting requirement
Key stakeholder group
impacted
Our approach
and key policies
Social matters
Employees, community As a responsible, global organisation
we are committed to making a
sustainable, positive impact on
the local communities in which
we operate.
Key policies:
Statement of Values and Business
Ethics Code.1
Community and Charity Support,
Our Guiding Principles.
Health, Safety and Environmental
Policy.
We are committed to upholding the
human rights of our workers and
treating them with dignity and respect.
Outcomes in 2020
Our sites donated just under
£31,000 to local causes through our
programme called “Giving the TT Way”
Further information
See Our environment on
pages 64 to 69
See Principal risks on
pages 52 to 53
In recognition of the improving trends
through the second half of the year
and our strong cash generation, we
repaid the £1.1 million Coronavirus
Job Retention Scheme (furlough)
payments to the UK Government.
Our employees donated just under
4,000 hours of their time in TT's
scheme called ‘hours for giving’.
The time is given to good causes.
No human rights violations have been
identified during 2020.
See Our environment on
pages 64 to 69
Key policies:
Statement of Values and Business
Ethics Code.1
We reaffirm our commitment annually
to opposing slavery through the
publication of our Modern Slavery
statement.
Human Rights Code.1
Modern Slavery Statement.1
We hold ethical standards in high
regard, with one TT standard
worldwide. We do not tolerate
corruption or bribery in any form.
Key policies:
Statement of Values and Business
Ethics Code.1
Whistleblower Policy.1
Employees are required to undertake
ethics training annually.
See Our people on pages
58 to 63
There is an anonymous Whistleblower
Helpline and significant complaints are
reported to the Board and investigated.
See Principal risks on
pages 52 to 53
Respect for Human Rights Employees, customers
and suppliers,
community
Anti-corruption and anti-
bribery
Employees, customers
and suppliers,
community, investors
1 Document is on the TT Electronics website (www.ttelectronics.com).
2 Group KPI – see pages 22 to 23 for more information.
The table above corresponds to our key stakeholder groups set out on pages 54 to 57. These stakeholder groups are key
to the long-term sustainability of our business and inform the Board’s engagement activities.
The Strategic report also includes a description of our business model (see pages 20 to 21), our principal risks and how we
manage them (see pages 50 to 53) and on our KPIs, including our non-financial KPIs (see pages 22 to 23) and the reasons
why they are important.
The 2020 Strategic report, from pages 1 to 71, has been reviewed
and was approved by the Board of Directors on 9 March 2021.
Richard Tyson
Chief Executive Officer
Mark Hoad
Chief Financial Officer
TT Electronics plc Annual Report and Accounts 2020
71
Strategic reportGovernance and Directors' reportFinancial statements
Governance | Chairman’s introduction to governance
Warren Tucker, Chairman
CHAIRMAN’S
INTRODUCTION
TO GOVERNANCE
KEY
HIGHLIGHTS
Strong focus in 2020 on
the following priorities:
– Business resilience in the face of the
COVID-19 outbreak.
– Maintaining strategic direction
(including targeted M&A); positioning
the Group in markets where key
drivers support demand and long-
term growth.
– Strong focus on sustainability
and the needs of our employees;
evidenced by 2 star “Best Companies
– Great Place to Work” Employee
Engagement rating.
– Moving the Group forward in other
key areas including: customer mix,
investment in site footprint/R&D,
effective cash management and
balance sheet strength, in each case
whilst navigating a path through the
COVID-19 outbreak.
My appointment to the Board in
April 2020 coincided with a period of
unprecedented turmoil across the world,
as the COVID-19 outbreak took hold.
As with most companies, the outbreak
has put a significant strain on TT’s
operations worldwide, with our business
continuity plans and HR processes
having been tested as never before.
However, despite the uncertainty created
by these global events, we have shown
tremendous resilience as a business
and have withstood the crisis in a way
which puts the Group on a firmer footing
for the years ahead. This is shown by
the continuing strength of both our
core operations and the Group balance
sheet (as described in more detail in the
Strategic report). In addition, we have
continued to prioritise the delivery of
growth through targeted M&A (including
the acquisitions of the Covina Power
Solutions business and Torotel, Inc) as
well as assisting in the development of
the Virolens® COVID-19 pathogen testing
product within an accelerated timescale.
These achievements are testament
to the strength of our corporate
72 TT Electronics plc Annual Report and Accounts 2020
governance regime, through which the
Board has been able to navigate a path
of maintaining stability whilst remaining
focused on delivering on our growth
potential, for the benefit of all of our
stakeholders. Further details of how our
governance structures have responded in
the face of the COVID-19 outbreak are set
out in this section of the Annual Report.
COVID-19 – our response
The COVID-19 outbreak has had an
impact (to a greater or lesser degree) on
all of our operations around the world,
starting in China and other parts of Asia
in early 2020, before quickly spreading
to our UK, European and North
American business locations. Naturally
the responsibility for managing the
day-to-day response to the outbreak
(including the introduction of site-
specific Health and Safety processes,
remote working practices and modified
customer/supply chain activities) rested
with local site management, supported
by our functional teams. However,
right from the start of the outbreak,
a dedicated reporting structure was
established that allowed a fast-paced,
two-way flow of information from
site, Divisional and HR teams, via a
specially constituted COVID Steering
Committee, into the ELT and ultimately
the Board. Members of the Board met
on a number of occasions, outside
the regular cycle of Board meetings,
to track key operational and financial
metrics, including those relating to
Health and Safety performance, site
operability and cash management. It is
to the credit of our staff worldwide that
all but five of our manufacturing sites
have remained operational throughout
the pandemic, with periods of closure
required to comply with local regulatory
requirements being kept to a minimum
in each instance. Perhaps the best
indicator of how TT has responded
to these unprecedented events is
provided by our workforce, who
were universally positive in our 2020
Employee Engagement Survey about
TT’s prioritisation of health & safety,
staff communication and maintaining
salary levels, whilst minimising site
closures. The Board is truly indebted
to the professionalism and responsible
approach shown by staff throughout
the past year, in difficult circumstances.
Notwithstanding the challenges presented by the
COVID-19 outbreak in 2020, I am pleased to report
that the Board has maintained a strong focus on its
wider governance responsibilities throughout the
past year.
The Board
As indicated above, I joined the Board
in April 2020 and became Chairman
a month later following our AGM.
Whilst the recruitment process that
preceded my appointment followed
a relatively conventional path, my
induction programme (coupled with
the initial period of engagement with
the Board) was rather more unusual,
with all initial meetings being held
via videoconference and the Board
unable to meet in person until October
2020. Likewise, the pandemic (and the
resulting UK Government “Stay at Home
Measures”) meant that shareholders
were unable to attend our 2020 AGM in
person. Nevertheless, I am pleased to
confirm that I have now completed an
extensive induction programme, which
has allowed me to engage with a number
of shareholders, advisers and members
of the senior management team within
TT and other key stakeholders. I am
particularly indebted to my predecessor,
Neil Carson, for the significant efforts
he made to ensure that I was as fully
prepared as possible to take over his
responsibilities as Chairman. On behalf
of the Board, I would like to thank Neil
for his leadership, direction and insights
throughout his tenure as Chairman, which
represented a period of great strategic
and operational progress for TT.
In April, we also announced that Stephen
King would be stepping down from
the Board in September 2020, having
served for nine years as a Non-executive
Director, the majority as Chair of the
Audit Committee, but also as Senior
Independent Director for the last four
years. As with Neil, it was sad to see
Stephen leave the Board given his
significant contribution during his time
as a Non-Executive Director. We wish
him well for the future. As indicated
in April, Jack Boyer was appointed
as Stephen’s replacement as Senior
Independent Director with effect from
the close of the 2020 AGM and Anne
Thorburn took over as Chair of the
Audit Committee at the same time.
Given the period of transition we have
experienced in 2020, and also the
significant progress we have made on
gender diversity in recent years, I can
confirm that we do not intend to recruit
any new members to the Board at the
present time. Similarly, having now been
in post for almost a year, a key priority
for me as the incoming Chairman is to
maintain the culture of openness and
transparency that has been engendered
over the past few years, which allows the
Board to maintain a keen focus on TT’s
key strategic priorities in an environment
of trust and freedom of expression.
Engaging with our Employees
As with most companies, the COVID-19
outbreak has had a significant impact
on the Board’s ability to visit TT facilities
during 2020, although I was able to
participate in a tour of the Rogerstone
site in October, accompanied by the
CEO, whilst the entire Board visited the
Fairford site over the Autumn period.
Both visits were particularly useful in
terms of getting a sense of how the
business had responded to meeting
customer requirements and adhering to
new health and safety standards during
the pandemic. As part of this process,
Non-executives attended “employee
voice” sessions at both facilities, together
with additional events organised
via teleconference with Suzhou and
Covina team members, which allowed
the Board to take the pulse of key
engagement issues. The outputs of
these exercises were fed into the Board
via our People, Social, Environmental
and Ethics (PSEE) Committee meetings,
of which our Senior Independent Director
is a member, utilising the framework
first applied in 2019 for promoting
NED engagement on “employee voice”
issues. The Executive Directors also
held regular review sessions with site
leadership throughout the pandemic,
both virtually and in-person (wherever
possible at UK sites), to ensure that
employee feedback was built into TT’s
response planning for the initial (and
potentially future) COVID-19 outbreaks.
Further information on our employee
engagement framework is set out on
page 62. I am immensely proud that
in these challenging times, the Board
was able to continue to the process of
ensuring effective engagement with
employees and senior management.
Governance Responsibilities
Notwithstanding the challenges
presented by the COVID-19 outbreak
in 2020, I am pleased to report that the
Board has maintained a strong focus
on its wider governance responsibilities
throughout the past year, which
includes monitoring the delivery of the
Group’s strategic priorities, driving our
sustainability agenda and performance
in key areas of TT’s operations, including:
Health & Safety, talent management,
site rationalisation, improved business
development capability and operational
efficiency, M&A execution and
overseeing key elements of the Virolens®
manufacturing opportunity. A review of
strategic priorities is scheduled on every
Board agenda and TT’s governance
arrangements allow current activities to
be assessed at each meeting to ensure
alignment with Group strategy. The
Board’s activities during the year are set
out on page 78 and demonstrate how
the strategic direction of the Group and
the long-term success of the Company
have remained at the forefront of the
Board’s decision-making processes (see
also the Group’s Section 172 statement
on page 75). Whilst we have taken the
decision not to undertake an external
evaluation of Board performance in
2020, there has been a continuous
focus throughout the last financial year
on how the Board can better support
the business as it strives to meet its
growth agenda, which culminated in an
in-depth Board evaluation exercise at
the end of the year. The outputs of this
exercise are summarised on pages 84
to 85 of this Annual Report. The Board
has paid particular attention in 2020 to
the requirements of the UK Corporate
Governance Code (the Code) in scoping
its future activities; our Code compliance
statement can be found on page 74.
TT Electronics plc Annual Report and Accounts 2020
73
Financial statementsStrategic reportGovernance and Directors' report The Board attaches a high degree of
importance to diversity at all levels
across the Group and is committed
to recruiting the best talent available,
based on merit, and assessed against
objective criteria of skills, knowledge,
independence and experience;
however, we do not advocate a forced
approach to diversity at any level
of the organisation. This process
was reinforced by a strong focus
on diversity and inclusion initiatives
across the Group as part of the Talent
Review exercise in 2020 (as described
in more detail on page 87), which
will continue to be a key priority for
the Board in 2021. Furthermore, the
governance structures which underpin
key operational priorities including
environment/sustainability and
stakeholder engagement are set out
on pages 64 and 54 respectively; in
addition, we have included a detailed
summary of the methodology by
which we have discharged our duty to
promote the success of the Company
under section 172 of the Companies
Act 2006 on page 75, which focuses in
particular on the Board’s response to
the COVID-19 outbreak.
Given the challenging economic
environment experienced globally
in 2020, driven in large part by the
COVID-19 outbreak, I am truly humbled
by the response provided by our
employees across the business in 2020,
which represents another year of delivery
on the Group’s strategic priorities. TT
has proved itself to be resilient in the
face of significant operational and
customer challenges during 2020 and
I believe strongly that the effectiveness
of the Board’s governance processes
has assisted significantly in putting the
business on a firmer footing moving
into 2021. I see it as a key priority for me
as Chairman to ensure that the Board
continues to focus on the strategic
priorities for the Group, with a view to
positioning TT for future growth.
Governance | Chairman’s introduction to governance continued
UK Corporate Governance Code
Compliance statement
TT is committed to achieving and maintaining the highest standards of corporate
governance. As at 31 December 2020, the Group was compliant with all of the
relevant provisions set out in the UK Corporate Governance Code 2018 (“the Code”),
other than provision 38 in aligning our Executive Directors’ pension payments with
the wider workforce. The current Remuneration Policy commits to aligning the
retirement provision of newly appointed Executive Directors to those available to
the wider UK workforce and it has been agreed that the pensions of the existing
Executive Directors will also be aligned by the end of 2022. The Code is available to
view at the website of the Financial Reporting Council, www.frc.org.uk. Details and
explanations of the application of the principles of corporate governance can be
found as follows:.
Board leadership and Company purpose
Long-term value and sustainability
Purpose, values and strategy
Read more on page
8-13
16-19, 58-59, 80
59
56
62
54-57
81
79
83
81
86-87
76-77
76
84-85
62, 87
88-91
88
91
50
91
52-53
97-98
95-96
96
Culture
Shareholder engagement
Employee engagement
Other stakeholder engagement
Conflicts of interest
Division of responsibilities
Role of Chairman and CEO
Leadership structure
Non-executive directors
Composition, succession & evaluation
Appointments and succession planning
Skills, experience and knowledge
Length of service
Performance evaluation
Equality, diversity and inclusion
Audit, risk and internal control
Committee report
Integrity of financial statements
Fair, balanced and understandable
Internal controls and risk management
External Auditor
Principal and emerging risks
Remuneration
Policies and practices
Alignment with purpose, values
and long-term sustainability
Independent judgement and discretion
74 TT Electronics plc Annual Report and Accounts 2020
The Board has also taken active
steps to share its COVID-19 response
strategy with investors, by providing
dedicated trading updates in April and
June (in addition to the usual half-
year results and November trading
updates), which were supplemented
by a number of virtual calls with
individual investors throughout the year.
On each such occasion, TT’s COVID
response strategy was a key topic of
discussion with investors. Beyond
that, TT was approached to work with
the UK Government on the ventilator
manufacturing initiative during the
early stages of the outbreak, with TT
being identified as a key manufacturing
partner as part of a wider consortium
of companies. Likewise, TT has
partnered with i-Abra to assist in the
development of the Virolens® COVID-19
testing product in an accelerated
timeframe, which involved a series of
close interactions with Government
officials and regulatory bodies to move
the programme from the development
phase through to post-prototype
manufacture, in support of COVID
testing worldwide. The Board has
committed significant staff, operational
and financial resources to the Virolens®
project, with the objective of providing
a unique, innovative, highly engineered
solution to the global threat to society
arising from the COVID-19 outbreak,
in support of getting economies
back to work and protecting jobs and
local supply chains in areas of high
unemployment. See also page 69 of
the Our environment section for further
details of our contribution to society and
the wider community during 2020.
Warren Tucker
Chairman
9 March 2021
S172
STATEMENT
Under Section 172 of the Companies
Act 2006, Directors are required to
promote the success of the Company
for the benefit of our shareholders, but
also for all of our other stakeholders.
The Board has identified who its key
stakeholders are and has considered
how it engages with these groups (see
pages 54 to 57). Throughout the year,
the Board considered how stakeholders
are affected by key strategic decisions;
two key priorities for the Board in 2020
which highlight clearly how stakeholder
views are considered in Board
decision-making were the COVID-19
response and the acquisition of Torotel,
Inc. The engagement activities and
considerations made by the Board
relating to the acquisition of Torotel,
Inc are explained in more detail in the
stakeholder engagement section on
pages 56 to 57.
S172 - COVID-19 Response
The Board ensured the business had
a dedicated, Group-wide COVID-19
response plan in place in early March
2020, following an initial assessment
of the impact of the outbreak on TT’s
operations in Asia. This involved the
creation of a dedicated COVID-19
Steering Committee, which allowed key
financial, operational, supply chain, HR,
Health & Safety and regulatory data
to be tracked, on a day-by-day basis,
through functional work-streams and
close interaction with individual sites.
An example of how this worked in
practice involved TT’s China facilities
which, under local government approval,
were allowed to open to enable delivery
of critical products to support the
pandemic response. These protocols
were turned into standard operational
procedures and implemented across
Europe and North America. Another
example involved TT’s procurement
team, which used its international
networks to source personal protection
equipment at a time of key shortages,
allowing rapid deployment to those parts
of the business with the greatest need,
in order to maintain staff safety and
continuity of operations. TT’s COVID-19
response plan facilitated a fast-paced,
two-way flow of information - both
down into site/divisional management
teams and up to the ELT and the Board
– with the objective of expediting
decision-making. The key outputs
of this approach included the rapid
introduction of site-specific Health and
Safety policies and processes (including
the early transfer of learnings from our
China facilities), the introduction of home
working practices (wherever possible),
continuity of supply to customers in the
vast majority of TT’s manufacturing
facilities and real-time monitoring of
supply chain activities in response to
fast-changing customer requirements
(particularly in managing lead times
and demand profiles). Members of the
Board took an active role in driving this
process forward, with TT’s response
to the COVID-19 outbreak being
discussed at every scheduled Board
meeting from March 2020 onwards. In
addition, the CEO/CFO provided regular
“pulse” reports and several extra Board
meetings were convened to monitor
progress and review scenario planning,
to assess the potential impact on the
Group and ensure confidence in our
ability to continue to operate and to meet
our banking covenants. In each case
these meetings were held outside the
regular reporting cycle.
The reaction of the employee base to the
way TT managed the COVID-19 outbreak
is clearly demonstrated by the feedback
from the 2020 Employee Engagement
Survey, which highlighted in particular
the effective health and safety plans that
were put in place across the business,
as well as TT’s approach of maintaining
salary levels, minimising redundancies
(except where absolutely necessary)
and providing timely communication
on key initiatives. The Board received
similar feedback first-hand as part of the
“employee voice” initiative conducted
in Q4, when the views of staff in
Suzhou, Covina, Cardiff and Fairford
on TT’s COVID-19 response were
fed directly into the NEDs. The Group
provided an additional day’s holiday
to all staff in 2020 to demonstrate
the Board’s appreciation for keeping
TT’s sites operational following the
COVID-19 outbreak and employees were
encouraged to take up their full holiday
entitlement during the year as part of
the Group’s wider wellbeing initiatives.
Likewise, the need for management
to conduct regular “check-ins” with
individual employees was prioritised,
rather than just simply relying on online
engagement tools for those working
from home.
TT Electronics plc Annual Report and Accounts 2020
75
Financial statementsStrategic reportGovernance and Directors' report Governance | Board of Directors and Company Secretary
A BLEND OF SKILLS AND EXPERIENCE
N R
Warren Tucker
Chairman
Joined: April 2020
Current external appointments:
• Non-executive director and chair of
the audit committee of Tate & Lyle
plc (UK Listed)
• Trustee on the board of Magna
Learning Partnership
Relevant skills and experience:
• Strategy/Growth
• M&A/Financing
• Financial Management
• International Business
• Manufacturing/Engineering
• Operations/Supply Chain
• Aerospace & Defence Sector
• Investor Relations
Past appointments:
• Non-executive director of Reckitt
Benckiser Group plc and the
Foreign, Commonwealth and
Development Office
• Chief financial officer of Cobham plc
RI
Mark Hoad
Chief Financial Officer
Joined: 2015
Relevant skills and experience:
• Strategy/Growth
• Leadership/Management
• Financial Management
• International Business
• Restructuring
• Transformation
• M&A/Financing
• Equity and Debt Capital Markets
• Investor Relations
• Risk Management
• Aerospace & Defence Sector
Past appointments:
• Group finance director of BBA Aviation plc
RI P
Richard Tyson
Chief Executive Officer
Joined: 2014
Current external appointments:
• Non-executive director of the Vitec Group plc (UK
Listed)
• Governor of St Swithuns’ Independent School for
Girls in Hampshire
Relevant skills and experience:
• Leadership/Management
• M&A/Integration
• Strategy/Growth
• Operational Excellence
• Supply Chain
• Manufacturing/Engineering
• International Business
• Product Technology
• Risk Management
• Aerospace & Defence Sector
• Investor Relations
Past appointments:
• Member of the Executive Committee and
President of the Aerospace & Security division
of Cobham plc
Board tenure
Years
0
1
2
3
4
5
6
7
8
Warren Tucker
Jack Boyer
Alison Wood
Anne Thorburn
Other Directors who served during the year
Neil Carson served as Chairman to the Board until 6 May 2020 when he stepped down. Stephen King was the Senior Independent Non-executive Director until
6 May 2020 and stepped down from the Board on 30 September 2020.
Committee Key
N Nominations Committee
R Remuneration Committee
RI Risk Committee
A Audit Committee
P People, Social, Environmental
and Ethics ("PSEE") Committee
Chair of the Committee
76 TT Electronics plc Annual Report and Accounts 2020
A N R P
R A N
A N
P RI
Alison Wood
Independent Non-executive Director
Anne Thorburn
Independent Non-executive Director
Joined: 2016
Joined: 2019
Jack Boyer OBE
Senior Independent Non-executive
Director
Joined: 2016
Current external appointments:
• Non-executive director of Ricardo
plc (UK Listed)
• Chair of the University of Bristol
• Member of the Board of the
Henry Royce Institute for
Advanced Materials
Current external appointments:
• Non-executive director and chair
of remuneration committee of
Costain Group plc (UK Listed), Cairn
Energy plc (UK Listed) and Oxford
Instruments plc (UK Listed).
• Non-executive director of British
Standards Institution (BSI)
Relevant skills and experience:
• Strategy/Growth
• Corporate Finance and Investment
• M&A
• Engineering/Technology/Innovation
• International Business
• Manufacturing/Engineering
• Product Technology
• Operations/Supply Chain
• Aerospace & Defence Sector
• Medical Sector
Relevant skills and experience:
• Strategy/Growth
• Remuneration Policy-Setting
• M&A/Financing
• International Business
• Regulatory
• Talent and Succession
• Risk Management
• Investor Relations
• Aerospace & Defence Sector
• Medical Sector
Past appointments:
• Non-executive director of Mitie
Group plc and Laird plc
• Chairman of Ilika plc, AIM-listed
Seeing Machines Limited and the
Academies Enterprise Trust
Past appointments:
• Global director corporate
development & strategy for National
Grid plc
• Group strategic development
director for BAE Systems plc
• Non-executive director of Cobham
plc, e2v technologies plc, BTG plc
and THUS plc
Lynton Boardman
General Counsel and Company
Secretary
Joined: 2012
Relevant skills and experience:
A qualified solicitor, Lynton has
many years of experience as general
counsel and company secretary in
international companies listed on
the London Stock Exchange. His
expertise includes corporate law and
governance, international operations
and M&A.
Past appointments:
• Solicitor with Simmons &
Simmons, Macfarlanes and
Burges Salmon LLP
• Head of Legal (Europe, Middle
East and Africa) at Syngenta
Crop Protection
• General Counsel and Company
Secretary of QinetiQ Group plc
Current external appointments:
• Senior independent director and
chair of the Audit Committee of
Diploma PLC (UK Listed)
Relevant skills and experience:
• Strategy/Growth
• Financial Management
• Risk Management
• Audit and Internal Control
• M&A/Financing
• International Business
• Operations/Supply Chain
• Medical and Industrial Sectors
Past appointments:
• Chief financial officer of Exova
Group plc
• Group finance director at British
Polythene Industries plc
• Non-executive director of BTG plc
Board attendance
Attendance 2020
Warren Tucker1
Richard Tyson
Mark Hoad
Jack Boyer
Alison Wood
Anne Thorburn
Neil Carson2
Stephen King3
Board
5 of 5
7 of 7
7 of 7
7 of 7
7 of 7
7 of 7
3 of 3
5 of 5
Audit
Committee
Nominations
Committee
Remuneration
Committee
–
–
–
4 of 4
4 of 4
4 of 4
–
3 of 3
2 of 2
2 of 2
–
–
4 of 4
4 of 4
4 of 4
3 of 3
3 of 3
–
–
4 of 4
4 of 4
–
2 of 2
–
1 Warren Tucker was appointed to the Board on 2 April 2020; he attended all scheduled meetings after such date.
2 Neil Carson stepped down from the Board on 6 May 2020; he attended all scheduled meetings before such date.
3 Stephen King stepped down from the Board on 30 September 2020; he attended all scheduled meetings before such date.
TT Electronics plc Annual Report and Accounts 2020
77
Financial statementsStrategic reportGovernance and Directors' report Governance | Executive Leadership Team
BOARD ACTIVITIES
During the financial year, the Board discussed and implemented the following key actions:
Strategic business development
• Regular updates from the Executive Directors on the impact of COVID-19 on global operations, including stakeholder feedback
• Review of post-COVID-19 market trends and the anticipated impact on Group operations and strategic positioning
• Review of BD planning activities
• Allocation of R&D investment, linked to markets driven by sustainable, budget-focused drivers
• Presentations from external advisers on Investor Relations and Group strategy (including performance relative to peer group)
• Regular review of Divisional trading activities
Sustainability
• Development of Sustainability Strategy and Goals
• Delivery of our new Purpose Statement aligned with TT’s Sustainability Strategy and goals
• Review of activities to optimise the TT site footprint
• Review of actions across key ESG priority areas to embed across TT
• Receive regular updates on HSE performance and statistics
R&D and value added product solutions
• Consideration of TT’s role on UK/US ventilator programmes (post COVID-19)
• Approval of resource commitments (people, operational and financial) for the Virolens® project
• Review of organic opportunities in Defence and Healthcare sectors
Operational excellence
• Review of global Health & Safety response to COVID-19 outbreak (including safe working arrangements and keeping sites open)
• Review customer response to COVID-19 and actions to protect customer and supplier relationships
• Review of Group IT Strategy
• Receive update on “Voice of the Employee” and “Voice of the Customer” programmes
• Agree business case and monitor progress on the site restructuring programme
Value-enhancing acquisitions
• Regular review and scrutiny of acquisition proposal pipeline
• Consideration of regulatory barriers to delivery of M&A strategy in US Defence
• Review and approval of the Torotel acquisition
• Review and approval of placing arrangement to part-fund the Torotel acquisition
• Review of integration actions for the Covina Power Solutions and Torotel acquisition
Organisational capabilities (people)
• Approve COVID-19 Government support arrangements
• Review HR organisational re-structure
• Undertake Talent and Succession Planning activity
• Approval of the new ED&I strategy
• Review of "Voice of the Employee" and wider stakeholder issues through PSEE Committee
• Lead the recruitment process for a new Chairman
• Review the Employee Engagement Survey results and associated actions
Governance and reporting
• Annual Report content
• Board Evaluation exercise
• Review of AGM documents, post-COVID meeting arrangements and results
• Investor relations feedback and strategy review
• Conduct conflicts of interest review
• Modern Slavery Policy and Statement
• Approve Group payment practices reports
Financial, risk, operational performance
• Review of financial results (half year and full year)
• Review of Dividend Policy and payments
• Assess financial impact of COVID-19 (cash flow, debtors, debt profile etc)
• Banking covenant review
• Oversight of appointment and transition of new auditors
• Assessment of Going Concern and Fair Balanced and Understandable analysis
• Regular review of Risk Register and receive regular reports from Risk Committee
• Risk analysis including emerging risk factors and risk appetite
• Review Group’s insurance cover
• Review and revise Strategic Growth Plan (post-COVID and beyond)
• Planning and approval of equity placing
• Approve 2021 Budget
• Receive presentation by Tax & Treasury and approval of policies
• Internal audit updates and review
• Review of regulatory and legislative changes affecting operations
78 TT Electronics plc Annual Report and Accounts 2020
EXECUTIVE LEADERSHIP TEAM
Richard Tyson
Chief Executive Officer
Mark Hoad
Chief Financial Officer
Joined: 2014
Joined: 2015
Relevant skills and experience:
Full biography on page 76.
Relevant skills and experience:
Full biography on page 76.
Lynton Boardman
General Counsel and Company
Secretary
Joined: 2012
Relevant skills and experience:
Full biography on page 77.
Operation of ELT
The Executive Leadership
Team (“ELT”) meets on a
monthly basis and operates
as the principal strategic
decision-making body for
the Group below Board level.
The ELT agenda covers a
variety of strategic priorities
across the business as part
of its scheduled activities,
with the Group’s response
to the COVID-19 pandemic
being a key area of focus
during 2020. Standing
items on the ELT agenda
include: HS&E performance;
Sustainability; People /
Organisation /Talent;
Diversity & Inclusion;
Ethics; Strategic Planning
(including M&A); Group
Financial Performance
and Governance.
Sarah Hamilton-Hanna
EVP, Human Resources
Joined: 2019
Michael Leahan
Divisional EVP
Joined: 2017
Charlie Peppiatt
Divisional EVP
Joined: 2018
Relevant skills and experience:
Sarah brings over 16 years’
experience in HR across global HR,
business transformation, talent and
organisational development. Sarah
was formerly Global HR lead for the
food and beverage solutions division
of Tate and Lyle.
Relevant skills and experience:
Michael has over 30 years’ experience
in the aerospace and defence industry.
Michael previously held senior
positions at Marotta Controls, Lucas
Aerospace and Fairchild Controls.
Relevant skills and experience:
Charlie joined TT in 2018, following
the acquisition of the Stadium
Group, where he was CEO from 2013.
Previously Charlie was VP Global
Operations for Laird Technologies
and has held senior roles globally
The Chairman and Chief Executive Officer
The division of responsibilities between the Chairman and the Chief Executive Officer has been defined, formalised in writing,
and approved by the Board:
Roles and responsibilities
Chairman
Chief Executive
Maintains responsibility for:
• the leadership and effectiveness of the Board, and for setting its agenda;
• ensuring all Directors receive accurate, timely and clear information on
Maintains responsibility for:
• the operations of the Group;
• developing Group objectives and strategy, having regard to the Group’s
financial, business and corporate matters so they can participate in Board
decisions effectively;
responsibilities to its shareholders, customers, employees and other stakeholders;
• successful implementation and achievement of strategies and objectives, as
• facilitating the effective contribution of NEDs;
• ensuring constructive relations between Executive and Non-executive Directors;
• ensuring effective communication with shareholders;
• ensuring the performance of individual Directors, the Board as a whole, and its
Committees are evaluated at least once a year.
approved by the Board;
• managing the Group’s risk profile, including its health and safety performance;
• ensuring the Group’s businesses are managed in line with strategy and approved
business plans, and complying with applicable legislation and Group policy;
• ensuring effective communication with shareholders;
• setting Group human resource policies, including management development
and succession planning for the senior executive team.
TT Electronics plc Annual Report and Accounts 2020
79
Financial statementsStrategic reportGovernance and Directors' report Governance | Leadership and Company purpose
LEADERSHIP AND
COMPANY PURPOSE
the Board monitors and reviews the
implementation of the Company’s
culture through processes such as our
anonymous Whistleblower Helpline,
where concerns raised are independently
investigated and escalated to the
Board for its review. During 2020, the
Board received reports on the results
of the 'Best Companies' Employee
Engagement exercise, which provided
a clear insight from staff regarding
TT culture and adherence to the "TT
Way" (see further detail on page 62).
Furthermore, our Senior Independent
Director (Jack Boyer) sits on our PSEE
Committee and reports back to the
Board on wider stakeholder engagement
processes, which in 2020 included
discussions with a range of employees
across four of our key facilities on
topics including TT culture and how the
activities within their individual business
units align with TT’s values and strategic
priorities. To support full understanding
of our policies and standards there
is a programme of induction for new
employees and regular refresher training
through e-modules and Company
communications. At a wider stakeholder
level, the Board approves the Group’s
Modern Slavery Policy and Modern
Slavery Statement on an annual basis.
A detailed summary of how the Board
engages across a range of internal and
external stakeholder groups is set out on
pages 54 to 57 of this report.
Board; the multi-year strategic plan
(which was accelerated in 2020 following
the COVID-19 outbreak) is discussed in
detail and is approved annually, based
on the Company’s activities, its progress
on delivering the strategic priorities and
the significant challenges that have
been identified both within the business
and across the wider macro-economic
environment. Our strategy defines what
we do.
The Company’s values, culture and
behaviours drive how we execute our
strategic vision. The “TT Way” principles,
see page 59, set out the Company’s
culture and values by which we expect
our employees, from the top down,
to conduct our business. We strive to
always act with integrity, transparency
and professionalism. To support the
“TT Way”, the Company has a number of
policies in place such as our Statement
of Values and Business Ethics Code,
the TT Worldwide Anti-Corruption
and Bribery Policy and the Modern
Slavery Policy. Alongside these policies
The Company’s values, culture and behaviours
drive how we execute our strategic vision. The
“TT Way” principles set out the Company’s
culture and values by which we expect our
employees, from the top down, to conduct our
business.
COMPANY
PURPOSE,
STRATEGY AND
VALUES
The Board’s main roles are to provide
leadership to the management of the
Group, to determine and ensure the
implementation of the Group’s strategy
and to maintain the highest standards
of corporate governance. Underpinning
all of these aspects of the Board’s
responsibilities lies the principal aim
of ensuring the sustainable, long-term
success of the Company. The main
activities covered by the Board in the
year are set out below.
The Board understands the relationship
between the Company’s purpose,
strategy and values. In 2019 the Board
reviewed the Company’s purpose
statement – “We solve electronic
challenges for a sustainable world.
TT engineers advanced electronics
which benefit our planet and its people
for future generations. We do this by
designing, manufacturing and working
in a way that is cleaner, smarter and
improves wellbeing.” The Board
considers that this purpose statement
continues to represent an appropriate
reflection of the Group’s culture and
the strategic direction for the business,
both in the context of the post-COVID
operating environment and in respect
of the Group’s priorities for the future.
Our corporate purpose is integral to
understanding why we do what we
do. The Company’s strategy is clearly
defined and regularly reviewed by the
80 TT Electronics plc Annual Report and Accounts 2020
(introduced to manage operations
remotely in response to the COVID-19
outbreak) on a more permanent basis.
A key conclusion from this exercise
is that TT’s technological solutions
and wider product portfolio places the
Group in a strong position to support
its customers in meeting the long-term
operational challenges presented by
the pandemic. Through this process,
the Board continues to develop a deep
understanding of the Group’s business
model and strategy and the strategic
priorities that underpin the business.
Directors
All Directors have access to the advice
and services of the Group General
Counsel and Company Secretary and
are offered training to fulfil their role
as Directors, both on appointment
and subsequently. There is an agreed
procedure for any individual Director to
take independent professional advice at
the Company’s expense if they consider
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, we conduct a review of Director
conflicts of interest annually.
LEADERSHIP
The Board
Subject to the Company’s Articles of
Association, UK legislation and any
directions given by special resolution, the
Board manages the Company’s business.
The Board has reserved certain specific
matters to itself for decision. These
include financial policy (including tax and
treasury matters) and policy relating to
acquisition and disposal.
The Board appoints its members, and
those of its principal Committees,
having received the recommendations
of the Nominations Committee. It
also 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 as set
out on pages 52 and 53.
Board and Committee meetings are
scheduled in line with the Company’s
financial calendar, thereby ensuring that
the latest operating data is available
for review and sufficient time and
focus can be given to matters under
consideration. During the year, there
were seven principal Board meetings on
scheduled dates, for which full notice
was given. However, in response to the
global impact of the COVID-19 pandemic
two additional meetings were held in
March and April this year. A further
three meetings were held to consider
and approve the programme of work to
develop and scale-up production of the
Virolens® pathogen detection device
(in collaboration with our partner i-Abra)
and also deal with the acquisition and
equity placing arrangements in respect
of the Torotel transaction. The Board
has held two principal meetings to date
during 2021. The NEDs meet, without the
Executive Directors present, at the end
of each scheduled Board meeting, as a
standing agenda item.
As was the case for many other
businesses in the UK, the Board faced
sudden and unprecedented changes
to its usual working practices from
March of last year. Both the ELT and
the Directors reacted quickly and
efficiently to ensure that the Board could
continue to meet and respond to the
fast-changing business environment.
The Board was already prepared with
a fully online board portal which had
been introduced in 2019. This, alongside
TT’s proven online meeting software,
allowed the Board to continue working
and sharing information securely and
seamlessly via online meetings from the
moment that the UK and other countries
were put into lockdown restrictions. In
addition, further measures were put
in place to increase the regularity of
reporting on COVID-related impacts
on the business from the Executive
Directors to the Board. Unfortunately,
due to the various social and business-
related restrictions put in place from
March 2020 onwards in response to
the pandemic, the level of face-to-face
interaction that the Board would usually
enjoy, through events such as board
dinners and social events with the
wider senior management team, was
significantly reduced this year.
The main events in the Board calendar
are the approval of the half-year and
full-year results, the Board site visit, the
review of the multi-year strategic plan
and the approval of the budget towards
the end of the year. At each meeting
during 2020 the Board discussed
strategic issues (principally focused
on key site rationalisation projects,
the M&A opportunity pipeline and the
status of integration activity on recent
acquisitions) together with operational,
financial, human resources, legal,
governance and investor relations items.
The Directors reviewed, throughout
the year, the opportunities and risks to
the future success of the business by
receiving and discussing information
from both internal and external sources
regarding the issues affecting the
business, the wider industry and the
macroeconomic environment. As part of
this process, a detailed assessment of
the impact of the COVID-19 outbreak on
Group strategy was undertaken, which
was facilitated by an external consultant,
and focused in particular on the potential
need for companies to operate in a less
globalised world, using technologies
TT Electronics plc Annual Report and Accounts 2020
81
Financial statementsStrategic reportGovernance and Directors' report Going concern
The Directors have reviewed the
budgets for 2021 and the projections
for 2022 and 2023 developed during
the 2020 annual strategic planning
cycle. They have assessed the future
funding requirements of the Group
and compared them with the level of
available borrowing facilities. They have
also assessed the potential impact on
the Group’s trading arising from: (i) Brexit
(as further described on page 51), which
is not anticipated to be significant in
the context of the Group’s operations,
and (ii) the COVID-19 outbreak (which is
described in detail on page 51). Based
on this, the Directors are satisfied that
the Group has adequate resources to
continue in operational existence for
at least 12 months from the date of
approval of the financial statements.
For this reason, they continue to adopt
the going concern basis in preparing the
financial statements.
Relations with shareholders
The full list of engagement activities and
our relations with shareholders during
the year are set out on page 56.
Governance | Leadership and Company purpose continued
Each member of the Board, including
the Senior Independent Director, has
the right to include items on the Board
agenda or the agenda of the Committees
they sit on.
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 or her resignation is requested by all
the other Directors, not being fewer than
three in number. Further details of the
activities of the Nominations Committee
are set out on page 86.
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 Policy. Copies of the
Executive Directors’ service contracts
and letters of appointment of the NEDs
are available for inspection by any
person at the Company’s registered
office, during normal business hours on
any weekday (other than public holidays)
and at the AGM from 15 minutes before
the start of the AGM until its conclusion.
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.
Directors’ interests
The Directors of the Company at 31
December 2020 held interests (directly
or through their connected persons) in
the following numbers of the Company’s
ordinary shares of 25 pence each on 1
January 2020, 31 December 2020 and 8
March 2021:
8
March
2021
Ordinary
shares
31
December
2020
Ordinary
shares
1
January
2020
Ordinary
shares
Warren Tucker
60,075
60,075
10,945
Richard Tyson
873,530 873,530
717,251
Mark Hoad
683,127
683,127 550,090
Jack Boyer
95,514
95,514
82,588
Alison Wood
–
–
–
Anne Thorburn
60,000
60,000
45,000
The interests of the Directors in the
Company’s share options and Long-
Term Incentive Plan are shown in the
Directors’ Remuneration report on
page 106.
82 TT Electronics plc Annual Report and Accounts 2020
DIVISION OF RESPONSIBILITIES
Leadership Structure
Details of TT’s Board of Directors
are set out on pages 76 and 77 of
this report. The chart below provides
further information on how leadership
at the Board level is discharged. Most
importantly, the Board comprises a
majority of Independent NEDs, with the
division of responsibilities between the
Chairman and Chief Executive Officer
having been clearly articulated. The
Board believes that its composition, the
structure of its principal committees and
the processes it has in place to discharge
its primary areas of responsibility, meet
the requirements of “Board Leadership”
and “Composition” under the UK
Corporate Governance Code.
The Board has established a number
of Committees, each with its own
delegated authority defined in terms
of reference. The Board reviews
these terms periodically (the last
occasion being in December 2020),
and 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.
activities as described on page 62
and sustainability initiatives described
on pages 65 to 69. The designated
NED on the PSEE Committee reports
this information directly to the Board
following each Committee meeting.
The key activities covered by the PSEE
Committee are described in more detail
in the table below.
Approved by the Board on 9 March 2021
and signed on its behalf by:
A NED (Jack Boyer) has been nominated
to be a member of the PSEE Committee
with the purpose of receiving information
about the Company’s engagement with
its key stakeholders. This includes the
outcomes of our employee engagement
Lynton Boardman,
Group General Counsel
& Company Secretary
9 March 2021
Audit Committee
Committee report
on page 88
Nominations
Committee
Committee report
on page 86
Remuneration
Committee
Committee report
on page 92
Board
Chief Executive Officer
Chief Financial Officer
Executive Leadership Team
• Reviews business performance and agrees
and implements any actions as necessary
• Responsible for monitoring and driving
delivery of the Group’s key strategic priorities
• Acts as a forum to raise and debate significant
operational issues
Disclosure
Committee
• Reviews potential
existence of and
manages the
disclosure of
inside information
• Maintains project
insider lists
Senior Leadership
Team
• Reviews and
discusses key
strategic and
operational
matters
• Information-
sharing between
a wider group of
senior executives
• Considers and
scrutinises cross-
divisional topics
Risk Committee
• Provides a
framework for
managing risks
• Monitors risk
appetite and
exposure through
regular reviews of
principal risks
• Reviews the
effectiveness of
risk management
processes and
controls
• Provides an
appropriate level
of reporting on
the status of risk
management
• Assesses wider
emerging risks
Key
Delegation
Reporting
People, Social,
Ethics &
Environmental
Committee
• Health & Safety
• Environmental
• Human
Resources
• Employee
engagement with
the Board
• Local
Communities
• Ethics
Diversity &
Inclusion
Committee
• Reviews and
develops ED&I
policy and
strategic priorities
• Provides an ED&I
framework
• Information-
sharing across
the business units
TT Electronics plc Annual Report and Accounts 2020
83
Financial statementsStrategic reportGovernance and Directors' report Governance | Composition, succession and evaluation
COMPOSITION, SUCCESSION
AND EVALUATION
BOARD
COMPOSITION
However, continuing the best practice
first adopted at the 2013 AGM, all
Directors will retire and, if eligible,
offer themselves for re-election at
the forthcoming AGM. This practice
will continue in the future, to ensure
compliance with the requirements of the
Code. Following formal performance
evaluation, the Board has concluded
that the performance of each Director
continues to be effective and to
demonstrate commitment to the role.
The Notice of AGM sets out details of the
key areas of contribution made by each
of the Directors in providing leadership to
the Company.
During 2020, the Board comprised two
Executive Directors (Richard Tyson
and Mark Hoad) and between four and
six Non-executive Directors, as the
Board composition changed on several
occasions during the year. In addition
to the Executive Directors, Jack Boyer,
Alison Wood and Anne Thorburn all
served throughout the year. Warren
Tucker joined the Board on 2 April
2020 and took over as Chairman of
the Board when Neil Carson stepped
down at the Company’s AGM on 6 May
2020. Jack Boyer replaced Stephen
King as the Senior Independent Non-
executive Director on 6 May 2020 and
Stephen King, having served on the
Board of TT for nine years, stepped
down from the Board on 30 September
2020. We provide full details of each
Director’s Board and Committee meeting
attendance on page 77 and Directors’
biographies, including the Committees
they serve on and chair, can be found
on pages 76 and 77.
At the time of his appointment
as Chairman, Warren Tucker 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, Directors must offer
themselves for re-election at the first AGM
held following their initial appointment, and
every three years after that.
BOARD AND COMMITTEE
PERFORMANCE EVALUATION
In accordance with the Code, the Board
has conducted an evaluation of its
performance and that of its principal
committees during 2020. The Board
considered the option of engaging
an external facilitator to conduct its
performance review for 2020, but
decided to proceed with an internal
assessment process (as in previous
years) given the various Board-level
changes made in 2020 (including the
appointments of a new Chairman,
Senior Independent Director and
Audit Committee Chair) as well as the
limitations of conducting an evaluation
process remotely in the COVID
environment, rather than in person.
Overall, the Board concluded it had
performed satisfactorily in 2020 and
that each Director had performed
effectively whilst giving due
commitment to their role.
Evaluation process
• Skills matrices reviewed by each NED to assess knowledge and expertise in key areas
• Matrices evaluated to identify any areas of weakness in the skills held by the Board
as a whole
• One-to-one interviews between the Chairman and Committee chairs
• One-to-one interviews between the Chairman and all Directors
Discussion points
• Key positives for 2020 included: (i) maintaining the cadence of meetings/
communication flow; (ii) attention to strategic priorities (e.g. sustainability, stakeholder
engagement), and (iii) the seamless transition to a new Chairman
• The Board continued to conduct its business in an honest, open, collegiate and ego-
free environment, with no topics considered “off-limits”
• Face-to-face dialogue has been missed in the lockdown environment, including
unstructured discussions on “single-topic” items, normally reserved for Board dinners
Conclusions
• Reinstate Board dinners as soon as possible in 2021 (or find an alternative means of
promoting “unstructured” debate) to ensure sufficient time is given to address key
strategic topics through a variety of different lenses
• Focus on agreed Board objectives for 2021 (see table on page 85)
• Clear attention given to 2020 priorities (see table on page 85)
• Consider options for external facilitation of discussion on strategic progress and
important stewardship priorities (including technology roadmaps, consumer
behaviour, sustainability and cultural change)
• Consider Board composition and whether training and/or diversity initiatives are
required to address capability gaps
84 TT Electronics plc Annual Report and Accounts 2020
Conclusions of FY19 evaluation
2020 Areas of focus
2021 Board objectives
• Excellent governance processes, with a
common understanding of TT strategy
and culture
• Increase engagement between NEDs and
Divisional/Operations teams (including
non-ELT personnel)
• NEDs and Executive Directors are
engaged, constructive, open, supportive
and challenging with each other
• Communication between Executive and
Non-executive Directors is open, honest
and constructive
• There is an environment of trust,
transparency and mutual support
• The Board understands the strengths
of individual Board members and
anticipates concerns of individuals well
in advance
• The Board has responded to initiatives in
a collaborative manner and has operated
“at pace” whenever required
• Strong levels of engagement exist
between Committee chairs and the
relevant functions within TT
• Work to embed the ESG agenda more
• Strong focus on strategy execution and
fully into the TT strategy
sustainability
• Minimise the impact of significant
• Alive to red flag issues and mapping key
changes at Board and Committee level
in 2020 (appointment of a new Board
Chairman, Audit Chair and external
Auditor)
initiatives to the Group risk register
• Focus on talent, breadth, diversity and
inclusion, and retention
• Continue the focus on recruitment and
succession planning
• Good governance to support the business
purpose
• Provide investors with increased
exposure to TT’s capabilities and how
we can combine technologies to provide
tangible opportunities for our customers
DIRECTORS’ PERFORMANCE EVALUATION
In accordance with the Code, the
performance of individual Directors
was also evaluated during 2020.
For the Non-executive Directors, the
output from a private meeting held
between the Chairman and the Executive
Directors formed the basis for individual
appraisals held by the Chairman with
each Non-executive Director. This also
provided an opportunity to discuss any
issues which had arisen from either their
individual assessments or those of the
Board and its principal Committees.
For the Chairman’s performance, the
other Non-executive Directors, led by
the Senior Independent Non-executive
Director, and with input from the Chief
Executive Officer and Chief Financial
Officer, met privately to discuss this,
with the outcomes being fed back to the
Chairman by the Senior Independent
Director for discussion.
At the beginning of the year, we set
each Executive Director challenging
performance objectives, and reviewed
progress against these as the year
progressed. Both the Executive Directors
take part in the Group’s performance
management programme 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 Chief
Executive Officer meets with the Chief
Financial Officer at the beginning of each
year to discuss and review performance
against objectives. The Chairman
conducted the performance evaluation
of the Chief Executive Officer, 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.
TT Electronics plc Annual Report and Accounts 2020
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Financial statementsStrategic reportGovernance and Directors' report Governance | Nominations Committee Report
Warren Tucker, Chair, Nominations Committee
NOMINATIONS
COMMITTEE
REPORT
Membership
Warren Tucker (Chair)
Jack Boyer
Alison Wood
Anne Thorburn
Principal responsibilities
• Regularly review the structure, size and composition of the Board as a
whole and make recommendations for any changes to the Board.
• Review the overall leadership needs of the organisation by considering
succession planning for Non-executive Directors (having due regard to their
length of service), Executive Directors and members of the ELT and make
recommendations to the Board.
• Manage the search for, and selection of, suitable candidates for the
appointment of replacement or additional Directors and nominate
candidates for the approval of the Board.
86
TT Electronics plc Annual Report and Accounts 2020
Committee meetings in 2020
During 2020, the Committee held four
formal meetings, two of which were
entirely devoted to the recruitment of the
new Chair. The Committee has held no
meeting to date during 2021.
2020 review
As disclosed in last year’s Annual
Report, the Committee engaged
external search consultants (Russell
Reynolds) in the latter part of 2019 to
start the recruitment process for a new
Non-executive Chairman. There are no
connections between TT, its Directors
and the external search consultants
that require disclosure in relation to
this recruitment exercise. This was the
Committee’s key priority for 2020, given
the announcement of Neil Carson’s
decision to stand down from the Board
as some stage in 2020 as a result of
his increasing external commitments.
The Committee specified a number of
key criteria as part of the recruitment
process, which included the selection of
a candidate with: (i) proven PLC pedigree,
having previous experience of chairing a
FTSE listed company; (ii) wide-ranging
exposure to engineering/manufacturing
operations in businesses with an
international dimension and a strong
innovation/technology focus; (iii) the
ability to drive the strategic ambitions
of the Group in areas such as portfolio
change and M&A; (iv) a personality
style that would align with and enhance
the existing Board culture, whilst also
acting as a sounding board for the CEO
on key strategic decisions; and (v) the
motivation to drive forward the Group’s
change management and growth
agenda. The Committee stressed, in
particular, the importance of recruiting a
new Chairman who would maintain the
culture of openness and transparency
that had characterised the operations
of the Board and its Committees in
recent years, coupled with a “low ego”
approach to running the Board. The
Committee considered diversity to be
a key element of the selection process,
which was reviewed at each stage of
the recruitment exercise; however, no
applications were received from female
candidates who fulfilled the core criteria
for the role and as a result, only male
candidates formed part of the final
selection round. The interview process,
which was led by the Senior Independent
Director, Jack Boyer, and involved
each of the ongoing members of the
Equality, Diversity and Inclusion
(ED&I)
This year the Company has introduced
its ED&I strategy to the workforce,
setting out our three-step multi-year
strategy to enable the Company to
understand the needs of its diverse
workforce and embed ED&I as an
integral part of the Company’s strategy
(see page 62 for further information).
The Nominations Committee’s remit
includes having regard for issues such
as culture and diversity when reviewing
recruitment practices and succession
planning and the new ED&I strategy will
assist the Committee in overseeing a
diverse pipeline for senior management
and Board positions. The Committee
will receive updates on the progress
of the initiatives launched via the new
ED&I strategy and will monitor the
achievement of targets set in line with
the strategy.
Performance evaluation
As described further on pages 84
and 85, the Committee assessed its
performance in 2020 by reviewing its
activities during the year against its
terms of reference. It concluded that
it had performed satisfactorily and is
structured appropriately to provide
effective support to the Board.
Warren Tucker
Chair, Nominations Committee
9 March 2021
in the immediate future. In addition
to succession planning activities, the
Committee also undertook a review of
its terms of reference during 2020.
At all times during 2020, the Committee
has sought to ensure that the Board of TT
Electronics is balanced and effective, with
diverse skills, knowledge and experience.
The Committee attaches a high degree of
importance to diversity at all levels across
the Group and is committed to recruiting
the best talent available, based on merit,
and assessed against objective criteria
of skills, knowledge, independence and
experience. However, we do not advocate
a forced approach to diversity at any level
of the organisation. This is the rationale
that was applied to the recruitment of a
new Chairman in 2020 and this approach
will continue to be applied in the future.
Female representation on the Board now
stands at one third, which the Committee
believes will have a positive impact on the
Board’s governance processes and sends
out a strong message across the Group
of the importance of a diverse workforce
to the future success of the business.
Details of the number of employees,
senior managers and Directors of each
gender are given in the People section
on page 62.
All Board members complete a conflicts
of interest questionnaire and are
required to inform the Board of any new
or potential conflicts that may arise
during the year. In addition, all Directors
must obtain approval from the Board
for any new external appointments to
boards of listed companies to ensure
that Directors are not overstretched in
terms of commitments. To assist in this
process, the Nominations Committee
tracks and reviews the number of external
appointments held by each Director,
including the number of chairmanships
and executive director roles held. This
tracking schedule facilitates the decision-
making process when reviewing whether
a new external appointment would lead to
over-boarding.
Committee, took place in the first half of
2020 and culminated in the appointment
of Warren Tucker to the Board in April
2020 and his subsequent appointment
as Chairman the following month, after
the close of the Company’s 2020 AGM.
The Company provides all Directors
with a comprehensive Directors'
Induction Pack which is available at
all times on the electronic portal used
for Board information. The pack sets
out all relevant information about the
Company, including its strategy, its
policies and processes, directors' duties
and responsibilities, and the role of
the Board and its Committees. Since
Warren Tucker joined the Board in April
2020 he has completed an extensive
induction programme; engaging with a
number of shareholders, advisers and
members of the senior management
team within TT, as well as some of the
Group’s other key stakeholders.
Whilst this NED appointment process
represented the main area of focus
for the Committee in the past year, the
Committee also evaluated the existing
structure of the Board, together with the
succession planning options at both
an Executive Director and ELT level.
The Committee’s succession planning
activities were undertaken in conjunction
with the Board’s annual talent review
exercise, which identified several
candidates across the business with the
potential for promotion to ELT and/or
Executive Director roles in the future.
In relation to the existing NED structure,
in May 2020, Jack Boyer became Senior
Independent Director following the
recommendation of the Committee
and Anne Thorburn was appointed
Chair of the Audit Committee, with
Warren Tucker becoming Chair of
the Nominations Committee at
the same time. As announced in
2019, Stephen King stepped down
from the Board in September 2020
having completed nine years as a
Non-Executive Director. Following
these changes, the Committee
reviewed the current composition
of the Board and concluded that TT
Electronics had in place a group of
highly experienced individuals with
the skills and competencies to meet
the strategic and operational needs of
the business in its core markets. As a
result, it was concluded that it would
not be looking to recruit any new NEDs
TT Electronics plc Annual Report and Accounts 2020
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Financial statementsStrategic reportGovernance and Directors' report Governance | Audit Committee report
Anne Thorburn, Chair of the Audit Committee
AUDIT
COMMITTEE
REPORT
Membership
Anne Thorburn (Chair)
Jack Boyer
Alison Wood
Principal responsibilities
• Monitor the integrity of the financial statements and the results
announcements of the Group.
• Recommend the appointment and remuneration of the Auditor, assess
their effectiveness, and monitor provision of non-audit services.
• Assess the content of the Auditor’s transparency report, concerning
Auditor independence in providing both audit and non-audit services.
• Review the scope, performance and effectiveness of the internal audit
and other internal control functions and the Auditor’s assessment of it.
• Review changes to accounting policies and procedures, decisions of
judgement affecting financial reporting, compliance with accounting
standards and with the Companies Act 2006.
• Review risk management processes, including principal risks and internal
control findings highlighted by management or internal and external audit.
• Review the Group’s whistleblowing arrangements and procedures.
88 TT Electronics plc Annual Report and Accounts 2020
Committee meetings in 2020
During 2020, the Committee held four
scheduled meetings.
The Committee met with the
Group’s Auditor, KPMG LLP until
their resignation and then Deloitte
LLP, on three occasions during 2020,
without Executives of the Company
being present. During the year, the
Committee also met representatives of
the outsourced internal control function
once, without other Executives of the
Company being present.
The Committee has held one meeting to
date during 2021.
The Code requires at least one member
of the Audit Committee to have recent
and relevant financial experience. Anne
Thorburn fulfils this requirement. In
addition, Anne Thorburn, Alison Wood
and Jack Boyer all have extensive past
and current experience within sectors
that are highly related to TT.
2020 review
To allow the Audit Committee to fulfil
its duties regarding the integrity of the
financial statements and other financial
data, the Chief Financial Officer and
the Group Director of Financial Control
attend Committee meetings, presenting
reports and providing analysis and
explanations for queries raised. The
external Auditor also attends, and
presents reports on their audits. They
address matters including an overview of
the financial statements, key accounting
judgements, accounting policies, audit
differences and internal control matters.
On occasion, at the request of the
Committee, the Chairman and the CEO
also attend for part of the scheduled
Committee meetings.
The Group conducts its internal audit
activities under a directed outsource
arrangement, resourced by PwC
and directed by our Group Director
of Financial Projects and Risk. The
Director of Financial Projects and Risk
attends Audit Committee meetings
to provide updates on: progress
on the internal audit plan; findings
and recommendations; and team
and methodology improvements.
The Committee also regularly
receives updates on the Group’s risk
management framework, to allow
members to review principal risks and
the effectiveness of risk management
processes. As part of this process, the
Committee noted the outputs of the
internal audit reviews conducted during
Committee activities in 2020
Financial reporting
• Monitored and reviewed the Group’s financial
statements and results announcements
• Reviewed significant financial reporting and
accounting issues
• Reviewed going concern and viability statements,
including appropriate sensitivity analysis
(particularly in the context of COVID-19)
• Reviewed the fair, balanced and understandable
process for the financial reports
• Reviewed and discussed 2020 H1 and year-end
accounting issues
• Detailed review of ISA 540 and ISA 570 and the
impact on Group results
Governance
• Reviewed the Financial Reporting Council’s letter
of 12 November 2020 in relation to 2020/2021
Corporate Governance reporting
• Reviewed Terms of Reference
• Received and considered whistleblowing matters
reported through the Group’s multi-lingual,
anonymous Ethics and Integrity portal
• Undertook an internal evaluation on the
effectiveness of the Committee
• Considered new areas of audit disclosure under
UK legislation/regulation and potential audit reform
Internal audit and risk and assurance
• Received a report at each meeting on the internal
audit and risk assurance plan
• Reviewed internal audit planned activity in light
of COVID-19 restrictions
• Agreed the remit of the internal audit
programme of work
• Considered the results of the 2020 internal
audit activities
• Reviewed and approved the 2021 internal
audit plan
• Conducted the annual review of the Group’s
internal auditor
• Reviewed systems and controls for the
prevention of bribery and fraud
External audit
• Discussed and approved the external audit plan
and audit fee
• Reviewed external auditor planned activity in
light of COVID-19 restrictions
• Reviewed and confirmed the independence of
the external Auditor as part of the 2020 review
and non-audit fees
• Assessed the quality and effectiveness of the
audit programme, including the performance
of the Auditor relative to prior year
• Oversaw the transition process leading to the
appointment of new Auditors in May 2020
2020, which are undertaken both on a
site-specific basis (with each principal
TT site being reviewed at least once
every three years) and on targeted
functional areas, which for 2020 included
Treasury, IT Security and Health &
Safety. The Committee has continued
to pay close attention in the past year
to the progress made in developing
the Group-wide Controls Framework
programme and its application in driving
business performance across TT,
particularly in the context of the impact
of the COVID-19 pandemic, the financial
integration of newly acquired businesses
and the impact of behavioural factors on
the controls environment. The Internal
Audit function has been particularly
focused on ensuring the delivery of its
2020 programme of work in the current
COVID environment, which resulted in
a new methodology being put in place
for conducting audit reviews remotely
(including through the use of specific IT
solutions where necessary) in instances
where the local “stay at home” measures
have prevented physical access to TT
facilities to conduct audit reviews in
person. For further details of our risk
management and internal controls
structures see pages 50 and 51.
A key part of the Committee’s activities
in 2020 related to overseeing the efficient
transition of external Auditor services
from KPMG to Deloitte, following the
conclusion of the audit re-tender
exercise in 2019. The 2019 audit
programme was structured to allow
Deloitte to shadow KPMG throughout
the audit process, which involved both
audit firms being in attendance at each
meeting of the Committee through to
the date of Deloitte’s formal appointment
(at the conclusion of the 2020 AGM).
This process led to an extremely smooth
transition of responsibilities and both
firms are to be commended for the
professional approach they took to
minimising any potential disruption to
the business. As stated below, Deloitte
had already been engaged by TT to
conduct financial due diligence work on
the Torotel acquisition before its formal
appointment as Auditor and whilst (in
an effort to maintain continuity) this
activity continued beyond the date of its
appointment as Auditor, no further work
of a similar nature will be undertaken
during Deloitte’s tenure as Auditor.
A number of adjustments impacting prior
periods have been recorded (full details
are provided in note 1h to the financial
statements). Whilst a number of these
adjustments were revising balance sheet
presentation and disclosures, there were
two adjustments which the Committee
spent more time with executive
management and Deloitte to understand
in detail the background and control
implications. The first of these was a
revised judgement in respect of pricing
concessions given to isolated customers
dating back to the initial application of
IFRS 15, this was considered by the
Committee not to have a wider control
implication beyond the requirement for a
detailed review of pricing arrangements
within future contracts. The second
was an inventory adjustment required
to correct the absorption of overhead
costs within closing inventory at one of
the Group’s sites. The Committee was
satisfied, based upon work performed by
management, that this was an isolated
error and is now working with Internal
Audit to monitor controls over this
process within future reviews.
During 2020, the ELT continued to
conduct a detailed review of possible
emerging risks (in consultation with the
Internal Audit function), which were not
currently addressed in the Group risk
register, but could have application in
the future to an international business
operating in TT’s sector. The outputs
of this analysis were discussed further
at both the Board and Audit Committee
level, which included a review of the risk
appetite of the Group.
The impact of the COVID-19 outbreak
has been described in detail throughout
this Annual Report and a significant part
of the Committee’s focus during 2020
has been to ensure that the integrity of
the Group’s system of internal controls
was maintained throughout the year.
This activity first commenced during the
approval process for the 2019 financial
results, following the initial stages of
the COVID-19 outbreak in Asia. There
then followed a detailed review by the
Committee of how both the internal
and external audit programmes could
function effectively in response to
governmental “stay at home” measures
implemented across TT’s global
footprint and supply chain, which
imposed limitations on physical access
to local sites. This also resulted in a more
rigorous review of the going concern
assessment being undertaken at the
half year stage, than would typically be
the case, as the standards required of all
companies managing their operations
in a post-COVID environment were
raised, involving a particular focus on
cash management, debtor profile and
borrowing facilities across the Group.
TT Electronics plc Annual Report and Accounts 2020
89
Financial statementsStrategic reportGovernance and Directors' report Governance | Audit Committee Report continued
2020 was a year of transition for the
Audit Committee; not only with the
appointment of new audit firm, but
also with Anne Thorburn’s succession
as Chair of the Committee in place of
Stephen King. Anne was a member
of the Committee for almost a year
before she was appointed as Chair in
May 2020, with the result that there
was a significant period of handover
and becoming acquainted with the key
issues facing the Committee prior to
her appointment. Of course, Anne has a
successful track record of operating as
CFO for several listed companies with
a similar profile to TT (in comparable
market sectors) and has considerable
experience as an Audit Committee
chair over several years on the board
of Diploma PLC.
In addition to the usual standing agenda
items and further matters detailed in the
table on page 89, the Committee also
reviewed and challenged the form and
content of the Group’s Annual Report
and Accounts and Financial Statements
for the last financial year. In conducting
its review, the Committee considered
reports prepared by management and
the external Auditor. These reports
covered analyses of the judgements
and sources of estimation uncertainty
involved in applying the accounting
policies as described in note 1(h) to
the financial statements. During 2020,
the Committee also considered and
challenged the assumptions relating
to goodwill, the carrying value of fixed
assets and the level of provisions held
on the balance sheet (as detailed above).
In addition, as part of the Committee’s
planning for the 2020 year-end audit
process, a detailed assessment was
undertaken (in conjunction with the
external Auditor) of the FRC’s key areas
of focus, as outlined in its letter to Audit
Committee Chairs, CEOs and CFOs
Significant issues considered in relation to the financial statements
The main areas of judgement and estimation are set out in the accounting policies on pages 129 to 140. The Committee received
and reviewed reports from management and the external Auditor setting out the significant issues in relation to the 2020 financial
statements, as outlined below. They discussed these issues with management during the year and with the external Auditor at
the time the Committee reviewed and agreed the external Auditor’s Group audit plan; when the external Auditor reviewed the
half-year results in July 2020; and also at the conclusion of the audit of the financial statements. The Committee is satisfied
that the significant assumptions used for determining the value of assets and liabilities have been appropriately scrutinised and
challenged, and are sufficiently robust.
Significant issue
Committee actions/work undertaken
Adjusted profit (see Note 8)
The Group reports non-trading income or expenditure outside of adjusted
profit 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.
Provisions
Taxation (See Note 9)
Current tax provisions held in respect of tax risks are included within current
tax liabilities depending on the underlying circumstances of the provision.
Goodwill and impairment Review (See Note 15)
The Committee has reviewed management’s computation of the present
value of future cash flows from the three year plan and outer years. These
have been compared to the carrying amounts in order to test for impairment,
(refer to note 15 to the Group Financial Statements)
Other items
Legal and restructuring provisions (See Note 20)
A provision is recognised in the financial statements when the Group has a
present legal or constructive obligation as a result of a past event and it is
probable that an outflow of resources, that can be reliably measured, will be
required to meet the obligation.
Provisions are recognised at an amount equal to management’s best estimate
of the expenditure required to meet the Group’s liability taking into account the
time value of money, where this is considered material.
Going concern and viability (See Note 1d)
The Committee considered the outcome of management’s reviews of current
and forecast net debt positions and the various financing facilities and options
available to the Group, including the risk and potential impact of unforeseen events.
90 TT Electronics plc Annual Report and Accounts 2020
The Committee challenged the items that were excluded from underlying profit
and were satisfied that these were in accordance with the Group’s disclosed
accounting policy and gave a true and fair view of the Group’s underlying
financial position.
The Auditor explained to the Committee the work they had conducted and
the results of their audit procedures on significant items recorded outside
underlying profit.
Management confirmed to the Committee that the provisions recorded
at 31 December 2020 represent its best estimate of the potential financial
exposure faced by the Group. The Committee reviewed each significant
provision and challenged the basis of management’s judgement and
concurred with the estimates.
The Auditor explained to the Committee the work they had conducted
during the year, including how their audit procedures were focused on those
provisions with the highest level of judgement on recognition criteria and/
or measurement.
The Committee considers management's conclusion that no new impairment
charges for goodwill and acquired intangibles have been required for 2020 to
be appropriate.
The Committee reviewed the reasonable possible change disclosure for IoT
Solutions CGU and challenged management’s assumptions. The Committee
confirmed both the disclosures and assumptions were appropriate.
On legal and contractual exposures, the Committee received periodic reports
from the Group General Counsel and Company Secretary outlining the open
legal and contractual disputes and best estimates of the expected costs
associated with such matters.
Management has confirmed to the Committee that the provisions recorded
at 31 December 2020 represent its best estimate of the potential financial
exposure faced by the Group. The Committee reviewed each significant
provision and challenged the basis of management’s judgement and
concurred with management’s estimates.
The Auditor explained to the Committee the work they had conducted during
the year in this area. Further information about the specific categories of
provisions held by the Group is set out in note 20.
The Committee reviewed the going concern and viability assessment over the
three-year period based upon 2021 budget and the strategic plan to 2023.
The Committee confirmed that the application of the going concern basis for
the preparation of the financial statements continued to be appropriate.
the Board. The overriding preference
of the Committee is not to engage the
Auditor for additional non-assurance
services, unless there are compelling
reasons to the contrary, such as
capability, time or cost.
In 2020, total fees paid to Deloitte were
£1.5 million, while non-audit service
fees paid to Deloitte totalled £173,000
which comprised financial due diligence
services relating to the acquisition of
Torotel. Further, £94,000 was paid for
their review of the Company's interim
results. During 2020, non-audit service
fees paid to Deloitte represented 18
per cent of audit service fees paid to
them during the same period, based
principally around the fact that Deloitte
was instructed to conduct financial due
diligence work on the Torotel acquisition
before its formal appointment as Auditor.
The Committee believes that, for these
particular areas, Deloitte was best placed
to provide a comprehensive and effective
service to the Company.
Anne Thorburn
Chair, Audit Committee
9 March 2021
on corporate governance reporting,
published in November 2020. The
Committee also focused its attention
on critical judgements, estimates
and accounting policies; the viability
statement and risk reporting; strategic
reporting; Alternative Performance
Measures; the impact of Brexit; and the
Group’s pension scheme obligations/
funding requirements.
Notwithstanding the logistical challenges
presented by the COVID-19 restrictions,
methodologies were adapted such that
both internal and external audit activities
could be fully completed and to support
the transition to new auditors. As a result,
the Committee concluded that it had
discharged its responsibilities efficiently
and effectively in 2020 and was content
to recommend to the Board that the
Group operated an appropriate system
of internal control.
Misstatements
Management has confirmed to the
Committee that it was not aware of
any material uncorrected misstatements
or immaterial misstatements made
intentionally to achieve a particular
presentation. The Committee
confirms that it is satisfied that
the external Auditor has fulfilled its
responsibilities with diligence and
professional scepticism.
After reviewing the presentations
and reports from management and
consulting where necessary with the
Auditor, the Audit Committee is satisfied
the financial statements appropriately
address the critical judgements and
key estimates (both for the amounts
reported and the disclosures).
Fair, balanced and understandable
In accordance with the Code, the Board
requested the Committee to advise it on
whether it believed the Group’s Annual
Report, taken as a whole, is fair, balanced
and understandable, and provides the
information necessary for shareholders
to assess the Company’s position and
performance, business model and
strategic plan. Procedures are in place
to facilitate the appropriate and timely
review of the drafts of the Annual Report
and specifically to highlight evidence
of a fair and balanced representation,
which supports input and challenge
from all Independent Non-executive
Directors, the external Auditor and other
external advisers. On careful review of
the Annual Report for the year ended 31
December 2020, and the basis for the
statement made by the Board on “Fair,
balanced and understandable” on page
114, the Audit Committee recommended
to the Board that, taken as a whole,
the Annual Report is fair, balanced
and understandable and provides the
information necessary for shareholders
to assess the Company’s position and
performance, business model and
strategic plan.
Auditor’s independence, objectivity
and effectiveness
The Audit Committee assesses the
independence of the Auditor annually to
ensure suitable policies and procedures
are in place to safeguard the Auditor’s
independence and objectivity, having
regard to length of tenure, provision of
non-audit services and the existence of
any conflicts of interest.
The Committee has formally reviewed
the independence of the Auditor as
part of the 2020 review. Deloitte has
provided a letter to the Committee
confirming they remain independent
within the meaning of the relevant
regulations and in accordance with
their professional standards.
The Committee also reviewed the
quality and effectiveness of the audit
programme during the year, including
the performance of the Auditor. The use
of an evaluation questionnaire and an
auditor assessment survey (completed
by heads of finance across the Group’s
operations), together with information
provided by the Auditor, assisted
in ensuring that a comprehensive
assessment was undertaken. We
identified some limited areas for
improvement and made the Auditor
aware of improvement areas identified
following the 2020 audit exercise.
Policy on non-audit services
The Company has an established policy
regarding the provision of non-audit
services by external auditors. This policy,
which was refreshed in 2020, states
that we may obtain non-audit services
from the most appropriate source,
having regard to expertise, availability,
knowledge and cost. Non-audit services
where fees are expected to exceed
£25,000 should be approved, in advance,
by the Chair of the Audit Committee or,
in her absence, by another member of
the Audit Committee. There is also a
restriction such that fees for non-audit
services will not exceed those for audit
services, paid to the same service
provider, for more than two consecutive
years, unless specifically recommended
by the Audit Committee and agreed by
TT Electronics plc Annual Report and Accounts 2020
91
Financial statementsStrategic reportGovernance and Directors' report Governance | Directors' remuneration report
Alison Wood, Chair of the Remuneration Committee
DIRECTORS'
REMUNERATION
REPORT
Membership
Alison Wood (Chair)
Warren Tucker
Jack Boyer
Directors’ remuneration report
Annual statement
Remuneration Policy overview
Remuneration at a glance
Annual report on remuneration
Implementation of the Policy for 2021
Implementation of the Policy for 2020
Total single figure remuneration
Salary and benefits
Short-term incentive for 2020
Long-term incentive
Directors’ share interests
2020 highlights
• Review of the impact of COVID-19 on remuneration and incentives across
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the Company.
• Shareholder consultation on the short-term incentive outcome for the
Executive Directors and a change to performance measures of the 2020
LTIP Awards which were granted shortly before the first UK COVID-19
lockdown in early 2020.
• Reviewed the Executive Director pension provision to align with the
workforce by the end of 2022.
• Reviewed performance measures within incentive arrangements to improve
alignment with the strategic priorities on ESG.
• Commenced strategic review of remuneration practices in our growth markets.
See our KPIs on pages 22–23
Read our full Remuneration Policy in the 2019 Annual Report at www.ttelectronics.com/investors
92 TT Electronics plc Annual Report and Accounts 2020
Annual Statement
On behalf of the Board, I am pleased to
introduce the Directors’ remuneration
report for the year ended 31 December
2020. The report sets out our philosophy,
together with the key activities and
decisions made by the Remuneration
Committee. The report is split into the
following sections:
i. This Annual statement which
contains a summary of the activities
of the Remuneration Committee
during the year, including the key
remuneration decisions taken by the
Committee and the context within
which these decisions were reached.
ii. An ‘at a glance’ summary of the
Remuneration Policy and the key
remuneration outcomes for the year.
A full version of the Remuneration
Policy that was approved by
shareholders at the 2020 AGM can
be found in the 2019 Annual Report
and Accounts.
iii. The Annual report on remuneration
on the implementation of the Policy
in the year ended 31 December 2020
and the proposed implementation of
the Policy for the next financial year.
Context for the year
2020 has clearly been an extraordinary
and challenging year. Despite a strong
start to the year, the impact of the
COVID-19 pandemic on the business
was significant.
However, the Committee, together
with the Board, have been continually
impressed by the resilience and
dedication of our incredible employees
helping to keep our facilities safe and
operational throughout the year. To
protect the Company and best serve our
stakeholders over the course of the year,
management, with the support of the
Board, enacted a series of measures to
reduce costs, to make our workplaces
COVID-19 secure, often ahead of local
government requirements, and to
safeguard as many jobs as possible.
In respect of measures taken on
remuneration, Executive Director,
Chairman and Non-executive Director
salaries/fees and Executive Director
short-term incentive potential were
voluntarily reduced and across the wider
workforce, salary levels were frozen
except for our lowest paid employees.
To protect our employees from the
impact of the pandemic on our end
markets we placed 253 employees
Principal responsibilities
• Determine the Remuneration Policy
for Directors for approval at least every
three years.
• Determine remuneration packages and
terms and conditions of employment for
the Executive Directors, Senior Managers
and the Chairman of the Board.
• Approve the design, performance
measures, targets and outturns of
incentive schemes for the Executive
Directors and Senior Managers.
• Set remuneration policy within the
wider context of remuneration trends
across the workforce.
• Produce an annual report of the
implementation of the Directors’
Remuneration Policy in the last financial
year and for the forthcoming year.
Areas of focus 2021
• Approve the design, performance
measures, targets and outturns of
incentive schemes for the Executive
Directors and Senior Managers,
including the impact on incentives of
the ongoing pandemic and further
portfolio development.
• Consider remuneration outcomes in the
context of the uncertainty and evolution
of the pandemic to ensure that our
arrangements remain ‘fit for purpose’.
• Monitor market developments,
developments in good practice and the
alignment of remuneration strategy to
deliver the business strategy within the
context of wider workforce remuneration.
Business performance
Since 2015, the Group has pursued a
strategy to become a higher quality,
better-balanced business with
increasing exposure to the structural
growth markets of aerospace and
defence, healthcare and automation and
electrification. Despite the pandemic
we have continued to make significant
progress against our strategic priorities.
During the year, we made good progress
with our self-help programme which
will underpin our margin progression,
and this remains on track to deliver
run-rate efficiency savings of £11-
12 million in 2023. We have further
progressed our strategy through the
acquisition and integration of the
Power Solutions business of Excelitas
Technologies Corp. based in Covina,
US and of Torotel, Inc. based in Olathe,
Kansas. These acquisitions broaden
TT's power electronics capabilities and
give enhanced access to the large and
attractive US aerospace and defence
market. Finally, we have continued to
build on our Company purpose and
announced a target to be net carbon
neutral for scope 1 and scope 2
emissions by 2035, with like-for-like
reductions annually. Our HSE platforms
have been upgraded to establish
baselines, enabling target setting and
tracking of improvements. From our
initial baseline we plan to manage
our environmental footprint, including
the reduction of carbon emissions,
a reduction in waste to landfill and a
reduction in the purchase of single-
use plastics. In 2020, TT Electronics
received a rating of AA (on a scale of
AAA-CCC) in the MSCI ESG Ratings
assessment. We were pleased to see
the recognition of our progress which
establishes TT as a leading company in
MSCI ESG Ratings assessment for the
Electronic Equipment, Instruments and
Components sector index.
on furlough through the year for an
average length of three months utilising
the UK Government Coronavirus Job
Retention Scheme. The reduction
in customer demand, particularly in
commercial aerospace, caused us to
add to our existing site-restructuring
plans and there has been a limited
number of additional redundancies.
Equally, a number of new roles have
been created during the year.
In October 2020, we undertook our
employee survey and despite the
uncertainty of the pandemic the
Group reached its goal to become a
'2 star’ employer, benchmarking the
Company alongside the very best global
corporations in terms of employee
engagement. Employees gave strong
feedback in respect to their wellbeing
and the actions taken to create safe and
supportive workplaces.
That said, with the stabilisation of our
end markets, we have seen an improving
trend in the second half of the year
with strong order book momentum
and recognising the resilience of the
Group's performance and strong cash
generation, the Board has repaid the
Coronavirus Job Retention Scheme
payments received from the UK
Government, which has been accrued
in the 2020 results. The Company has
also announced that its intention is
to recommend a resumption to the
dividend at the time of the 2020 year-end
results announcement. The dividend was
withdrawn early in 2020 as part of the
measures to conserve cash and protect
liquidity in response to the pandemic.
The Committee has continuously
monitored remuneration decisions
being taken across the Group and has
considered executive pay in the context
of the wider workforce, the broader
impact on society, its shareholders
and maintaining the sustainability and
strategic growth of the Company.
The Committee has been mindful of the
impact of the pandemic on remuneration
and adopted a holistic and rigorous
approach to decision-making to ensure
alignment with stakeholders and our
shareholders. Details of the Committee’s
approach to remuneration in 2020, and
the proposed policy implementation for
2021, are set out in detail in this report.
TT Electronics plc Annual Report and Accounts 2020
93
Financial statementsStrategic reportGovernance and Directors' report Governance | Directors' remuneration report continued
The Company entered 2020 with good
momentum and on a sound financial
footing and the year started by looking
like it would continue the trend of being
another strong year of performance
and growth for the Group. The effects of
the pandemic have tested the business
model and the Group’s strategy. While the
pandemic impacted our overall financial
performance, particularly in the second
quarter, the business recovered well in
the second half, particularly in the fourth
quarter. Overall, performance has been
favourable relative to many of our peers.
• Adjusted profit before tax was £23.8
million, down by 31 per cent.
• Free cash flow was £14.4 million, up by
48 per cent.
• Adjusted EPS was 11.7 pence, down by
34 per cent.
Remuneration for 2020 and TT’s
response to COVID-19
The intended approach to remuneration
for 2020 was as follows:
• Executive Director base salaries,
Chairman and Non-executive Director
fees would remain at 2019 levels.
• Short-term incentive opportunity
for Executive Directors would be
increased to 125 per cent of salary
with 20 per cent of earned incentive
deferred into shares for a period
of two years. The performance
measures were to be based on Group
adjusted profit before tax (50 per
cent weighting), Group free cash flow
(25 per cent weighting) and strategic
objectives (25 per cent weighting).
• Long-term incentive awards of 150
per cent of salary for the CEO and
135 per cent of salary for the CFO
were planned for March 2020 with
performance measures equally
weighted between relative TSR and
growth in the Group’s EPS.
However, in direct response to the
challenge presented by the COVID-19
pandemic the following changes
were made:
• Executive Directors, Chairman and Non-
executive Directors voluntarily waived
20 per cent of their contractual base
salaries/fees for the three months from
April to June 2020. The reduction was
also applied to pension contributions for
the Executive Directors.
• The 2020 short-term incentive
opportunity was voluntarily reduced
from 125 per cent of salary to 100 per
cent of salary. No changes were made
to the target weightings or the new
deferral requirement (notwithstanding
the reduction in quantum).
The 2020 LTIP awards were granted at
the normal date (13 March 2020) based
on EPS and TSR performance conditions
approved by the Committee in December
2019 (i.e. prior to both the first UK
lockdown, on 23 March 2020, and before
the full societal and economic impact of
COVID-19 become fully known) as set
out in last year’s Remuneration report.
However, the Committee believes
that had the scheduled 2020 LTIP
award cycle been a week or two later,
consistent with a significant number
of 31 December 2020 year-end FTSE
All-Share companies, the Committee
would have: (i) delayed the grant of
the awards, or taken advantage of the
flexibility suggested by the Investment
Association in respect of granting the
awards at the normal time but setting the
performance targets within a six month
period from grant; and (ii) increased the
proportion of the award (most probably
to 100 per cent) that is measured against
relative TSR. Whilst the majority of TT’s
operations have remained resilient in
light of the disruption resulting from
COVID-19, the Committee formed the
view that, after extensive discussion,
the compound EPS growth targets of
5 per cent (threshold) and 12 per cent
p.a. (maximum) based on the 2019 EPS
number were excessively stretching and
that there would be a risk that: (i) this
would adversely impact management
motivation; and/or (ii) overly stretching
performance measures could incentivise
short-term actions that could damage
the longer-term growth of the business.
As such, following a consultation
exercise with our largest institutional
investors at the start of 2021, during
which the majority of our largest
shareholders confirmed that they were
supportive, the Committee agreed to
reweight the LTIP awards made in 2020
to 100 per cent based on the existing
TSR performance targets. No changes
will be made to the terms of the 2018
and 2019 LTIP awards which are now
forecast to have low levels of vesting.
Prior to the pandemic, the 2018 and
2019 awards were forecast to be at or
near 100% vesting. As at March 2021,
the Company TSR for all three active
awards is slightly ahead of the respective
medians, meaning that any level of
vesting is by no means guaranteed.
Performance-related remuneration
for 2020
In determining the Executive Directors’
remuneration outcomes, in the context
of this very challenging financial
year, the Committee has focused on
balancing the principle of aligning pay
with performance, setting remuneration
outcomes in the context of the impact
of the pandemic on our stakeholders,
and ensuring the appropriate level of
motivation and focus required to deliver
the next phase of the Company strategy.
The Committee believes that the
following outcomes are a fair reflection
of business performance and the
personal performance of the Executive
Directors. Performance measures were
not adjusted during the year. In respect
of performance-related remuneration
outcomes for the wider workforce,
short-term incentive awards will be
made to recognise performance and the
attainment of relevant financial business
performance measure in 2020. This
aligns with the approach outlined below
for the Executive Directors:
• The 2020 short-term incentive for
Executive Directors was 75 per cent
based on financial measures (50 per
cent Group adjusted profit before
tax and 25 per cent Group free cash
flow) and 25 per cent based on the
achievement of strategic objectives. For
the year ended 31 December 2020, free
cash flow performance was again very
strong at £14.4 million with an adjusted
cash conversion of 130 per cent, and
as a result, performance was above
the maximum performance hurdle.
Adjusted profit before tax declined 31
per cent to £23.8 million, and despite
the good performance in the context of
the pandemic, performance was below
the entry performance hurdle. The
Executive Directors delivered another
year of strong strategic progress and
demonstrated exceptional leadership
throughout the year. As such, the
Committee agreed that whilst no award
was automatically payable in respect
of the strategic objectives given that
the threshold Group profit before tax
target had not been achieved, the
resilient financial and strong cash flow
performance justified the payment
under the strategic objectives. In light of
the sensitivity surrounding the payment
of annual incentive awards in respect
of 2020, the Committee consulted with
94 TT Electronics plc Annual Report and Accounts 2020
its major investors in advance of the
decision being made and there was in
the main a strong level of support for
the Committee’s actions. As a result,
in addition to the 25 per cent of salary
payable against the Group free cash
flow targets, 25 per cent of salary
will be payable against the strategic
objectives, albeit the total 50 per cent
of salary bonus award was reduced
by 8.5 per cent to reflect the historical
accounting adjustment in the Global
Manufacturing Solutions Division
(as explained further on page 45),
effectively neutralising the estimated
impact on the 2019 short-term
incentive awards to Executive Directors.
• For the 2020 short-term incentive for
Executive Directors the Committee
decided to defer 100 per cent of the
bonus into shares, rather than adopt
the 80 per cent cash payment and 20
per cent deferred share approach as
per the default under the Remuneration
Policy. Details of the short-term
incentive performance targets and
performance achieved is presented on
pages 103 to 104.
• The 2017 LTIP awards vested in
March 2020. The awards were based
on two equally weighted measures,
absolute adjusted EPS and relative TSR
performance. The EPS element vested
in full as reported last year. The TSR
performance over the three-year period
was above the upper quartile, at 61.8
per cent, which meant that this part of
the awards vested in full as presented
on page 104.
• The 2018 LTIP awards vest in March
2021 based on performance against
EPS and TSR. Until the onset of the
COVID-19 pandemic, performance
was strong with good levels of vesting
forecast. However, the impact of
the pandemic has meant that the
threshold EPS performance measure
was not met. The TSR performance
measure concludes in March 2021
and is anticipated to vest between the
threshold and maximum performance
targets. The final vesting will be
disclosed in next year’s Directors’
remuneration report. Further detail is
presented on page 104.
Remuneration in 2021
The continued focus of the Committee
will be to ensure that our remuneration
structures are effective, to enable us to
continue to motivate, engage and retain
the talented colleagues who are critical
to the future success of the Company.
The Committee recognises that
performance targets are being set in the
middle of the pandemic with a number
of different scenarios and outcomes
still possible. Performance targets will
need to be achievable yet appropriately
stretching to drive performance. In line
with the Policy and following a total
remuneration review of the Executive
Directors and Senior Managers, the
Committee has agreed the following:
• Base salaries for the Executive
Directors were increased by 1.5 per
cent on 1 January 2021. In making the
decision, the Committee took account
of the proposed approach for the UK
workforce, expected to average around
2 per cent, retention risks, last year's
salary freeze and the wider societal
impact of the pandemic.
• The Executive Directors have agreed
that their pension allowance will be
aligned with those available to the wider
UK workforce (currently 7 per cent of
salary) by 31 December 2022 by way of
a single reduction. As such Executive
Director pension provision will remain
at 15 per cent of salary for 2021.
• The short-term incentive will reflect the
business priorities for the year ahead.
Our focus for the forthcoming year will
be the responsible restoration of our
profitability and managing our leverage
through our free cash flow to support
the ongoing strategic development of
the Group. The incentive will comprise
75 per cent based on financial
measures (50 per cent Group adjusted
profit before tax and 25 per cent Group
free cash flow) and 25 per cent on the
achievement of strategic objectives. In
line with our Policy, and further to the
Executive Directors wish to defer the
2020 increase in maximum opportunity
to 2021, the maximum short-term
incentive opportunity for 2021 will be
125 per cent of base salary. At least 20
per cent of any award will be deferred
into shares for a period of two years.
The targets and performance against
all of the performance measures
will be fully disclosed in next year’s
Directors’ remuneration report. The
strategic priorities for 2021 reflect
the creation of sustainable value for
all our stakeholders with a focus on
ESG development, development of our
investment offering and progressive
cash flow management beyond the
planned activity for the year.
• LTIP awards are planned to be made
in March 2021. The Committee felt it
appropriate to align the award levels
for the Executive Directors for 2021
which are expected to be set at 150
per cent of salary. This ensures that
the Executive Directors are more
appropriately aligned to the longer-
term performance of the Company.
However, the Committee is mindful
of the perception of ‘windfall gains’
and will determine if any reduction
to award levels is required based on
the prevailing share price prior to the
grant date. Performance targets are
anticipated to revert to normal practice,
being based on two equally weighted
performance measures, EPS and
TSR. However, noting the Investment
Association’s recent addendum to its
guidance on shareholder expectations
during the Covid-19 pandemic, the
setting of the targets will be delayed
until after the grant date. The targets
will be set within six months of grant
and published as soon as possible after
they have been sent via an RNS.
Remuneration in the context of the
wider workforce
TT Electronics’ over-arching
remuneration framework is commonly
applied across the Group and supports
the people strategy to create an
inclusive, equitable and performance
related organisational culture. It is
designed to underpin the business’
core purpose and delivery of strategic
priorities, enables it to attract, retain
and motivate talented people by
applying consistent yet locally driven
remuneration principles across the
Group. Where practicable, remuneration
practices are aligned with those of the
Executive Directors to ensure alignment
of focus and motivation.
We had planned in 2020 to build on
our existing mechanisms to engage
the workforce on how remuneration
arrangements are aligned throughout
the Company. In 2020 site employee
forums continued to be held at a number
of sites, and in light of the pandemic,
communication and discussion were
principally focused on the twin priorities
to deliver COVID-19 secure workplaces
and practices to ensure the safety of
our employees and on the operational
impacts of the pandemic to continue
to deliver essential products to our
customers. The introduction of NED
virtual site visits allowed for open and
frank dialogue directed by feedback
and priority areas from our employees
(see page 55). For 2021, a revised site
incentive scheme will be launched, which
applies to the majority of our workforce,
ensuring that we continue to have
alignment in our remuneration principles
and our strategic priorities.
TT Electronics plc Annual Report and Accounts 2020
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The Committee continues to consider
the wider workforce when making pay
decisions for the Executive Directors and
senior leadership roles, engaging directly
with the workforce and conducting
regular reviews of the wider employee
remuneration arrangements, such
as the salary review arrangements
across the Group and the impact of
the pandemic on wider employee
remuneration. In reviewing the impact
of COVID-19 on remuneration and
incentives across the Company, the
Committee was supportive of targeted
long-term remuneration arrangements
put in place to support the retention of
employees with high potential and for
employees in critical roles.
For 2020, the median CEO pay ratio
has fallen significantly from 55:1 in
2019 to 40:1 in 2020. This reflects
our remuneration principles, with the
majority of the CEO remuneration
opportunity determined based on pay
for performance and the wider employee
comparator group having the majority of
their remuneration opportunity based on
fixed pay. Further detail on the pay ratio
is presented on page 109.
Creating a safe and positive work
environment where all employees can
develop and build their expertise is
of paramount importance to TT. We
strive to build a supportive, diverse and
engaging place to work built around
the “TT Way”. We are confident that
our people policies and approaches
to recruitment, training, development
and remuneration are fair and free of
bias. Although across the Company
we are broadly evenly split by gender,
we acknowledge that there is more
to do and are focused on improving
diversity amongst our professional and
management roles. Further detail on our
action is presented on page 62. Details
of our UK Gender Pay disclosures can be
found on www.ttelectronics.com.
During the year, we were delighted
to see an increased focus in the
communication and education of our UK
and US all employee share schemes. We
feel strongly in the positive benefits of
our colleagues being shareholders in the
business and are thrilled that just under
half of our UK workforce participate in
the scheme.
Discretion, independent judgement
and shareholder engagement
As a Committee, we are willing to
exercise judgement and discretion when
determining remuneration outcomes
for the Executive Directors. Before
agreeing performance outcomes we
reflect on whether the Company’s
overall performance is appropriately
represented by the performance
measures we have set, by taking into
account performance against non-
financial measures, environmental,
social and governance matters, the
demonstration of leadership qualities,
living our values and conversations with
our major shareholders where relevant.
As described above, the Committee
applied its discretion to: (i) enable the
payment of the strategic objectives
element in respect of the 2020 short-
term incentive in light of the strong
free cash flow performance, good
debt management, tight control over
costs and capital expenditure, and
the significant leadership displayed
during the year to keep our employees
safe whilst maintaining significant
strategic momentum in very challenging
circumstances; (ii) to defer the full 2020
short-term incentive into shares; and
(iii) reweight performance of the LTIP
Awards made in 2020 to 100 per cent
based on the existing TSR performance
targets. However, given the sensitivity
surrounding Executive Director
remuneration at the current time, the
Committee engaged with our largest
institutional investors and the major
investor representatives in respect of
both the 2020 short-term and long-term
incentive awards at the start of 2021.
I am pleased to write that the majority
of the shareholder feedback was
understanding and supportive and the
Committee is appreciative of the open
dialogue and support received.
In addition to the above and in
connection to the year-end audit
process, as a result of a historical
accounting adjustment in the Global
Manufacturing Solutions division
(as explained further on page 45),
the Committee decided that it was
appropriate to reduce the Executive
Director’s 2020 short-term incentive
awards award by 8.5 per cent,
effectively neutralising the estimated
impact on the 2019 short-term
incentive awards to Executive Directors.
The Committee also reviewed the
performance of the vested 2017 LTIP
awards and noted that the adjustment
did not alter the level of vesting.
96 TT Electronics plc Annual Report and Accounts 2020
The year ahead
In line with good practice, the Committee
reviews its effectiveness on a regular
basis. The Committee believes that the
openness and transparency provided
by the Company is of significant benefit
to enable extensive and well-informed
decision making. The Committee
recognises the challenges posed by
the pandemic in 2020 in the setting of
incentive performance targets, when
the full impact of the COVID-19 outbreak
was not fully understood. Reflecting on
these challenges the Committee is better
prepared to deal with the continuation of
the pandemic during 2021.
As the Company continues to
transform, the Committee, working
with management, will continue to
assess and ensure the alignment of
remuneration arrangements with
TT’s strategy, business results and
market demands. In particular, in
2021 the Committee will review the
appropriate performance measures
for future LTIP Awards, including the
use of alternative financial measures
(e.g. return based measures) and
ESG sustainability measures. The
Committee will also continue to consider
remuneration outcomes in the context
of the uncertainty and evolution of
the pandemic to ensure that our
arrangements remain ‘fit for purpose’.
Throughout the pandemic, our
employees, led by the leadership team
have made significant contributions
in an exceptionally challenging
period, whilst in some cases having
experienced a detrimental impact on
remuneration outcomes. I would like
to thank all our employees for their
commitment and support.
As always, we would welcome any
feedback or comments on this Report.
If you would like to discuss any further
aspect of our remuneration strategy I would
welcome your views. I can be contacted
at alison.wood@ttelectronics.com.
Alison Wood
Chair, Remuneration Committee
9 March 2021
REMUNERATION POLICY OVERVIEW
The following pages provide a summary of the approach to remuneration, including a summary of the Remuneration Policy which
was approved by over 91 per cent of shareholders at the 2020 AGM. The Policy supports and rewards the achievement of the
Company’s strategy to deliver profitable and sustainable growth over the short and longer term. This is driven and evaluated by
how the Company performs against a variety of KPIs both financial and non-financial. .
Key Policy objectives
To deliver a remuneration package:
To attract, retain and motivate high
calibre Executives in a challenging and
competitive business environment
That delivers an appropriate
balance between fixed and variable
compensation for each Executive
That places a strong emphasis on
performance, both short-term and
long-term
Strongly aligned to the achievement of
strategic objectives and the delivery of
sustainable value to shareholders
That seeks to avoid creating
excessive risks in the achievement of
performance targets
Remuneration principles
• Performance-related: the majority of the Executive and Senior Manager remuneration packages should be determined based on
the performance of the Group. A significant proportion of this is aligned with shareholder interests, such as measures based on
EPS and/or TSR.
• Transparency and culture: to engender a fair and collaborative culture, total remuneration frameworks should be clear, openly
communicated and easy to understand.
• Competitive: through a combination of base salaries and competitive performance-related incentive schemes, the Committee
aims to provide competitive total remuneration in return for superior performance. Base salaries are designed to reflect the
requirements of the role and responsibility, together with the overall level of individual performance and taking account of
prevailing market and economic conditions, and remuneration levels across the Group.
In line with the UK Corporate Governance Code, the following factors, which align well with our principles, were also
considered:
• Simplicity – we are mindful of the need to avoid overly complex remuneration structures which can be misunderstood and
deliver unintended outcomes. We believe that our remuneration structures are straightforward and easy to understand.
• Clarity – we believe in being open and transparent, so stakeholders can assess whether remuneration paid to Executives
is appropriate, given the financial, operational and strategic performance of the Company and Executives’ individual
performance. We have reviewed feedback from last year’s report and have enhanced how we analyse and describe
Executives’ individual performance.
• Risk and proportionality – we are aware of the risks that can result from excessive rewards. Our Policy is designed to discourage
inappropriate risk-taking and ensure it is not rewarded via: (i) the balanced use of short-term and long-term incentives which
employ a blend of financial, non-financial and shareholder aligned measures; (ii) the significant role played by equity in our
incentive plans; and (iii) malus/clawback provisions. This year the Committee and Executive Directors have been mindful of the
alignment with the workforce through voluntary salary reductions and the alignment of incentive outcomes.
• Predictability – we believe that the link between individual awards, the delivery of strategy and the long-term health and
performance of the Company is openly and transparently explained in this report and that our approach ensures pay outcomes
are fair, proportionate and do not reward poor performance.
• Alignment to culture – we want our Executives to make decisions for the long-term benefit and performance of the
Company. This is a key part of our purpose and informs our approach to target-setting, operation of discretion and setting
of strategic objectives.
TT Electronics plc Annual Report and Accounts 2020
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Financial statementsStrategic reportGovernance and Directors' report Governance | Remuneration Policy overview
Remuneration Policy
A summary of the Policy is outlined below. The full Remuneration Policy can be found in the 2019 Annual Report and Accounts
which can be found at www.ttelectronics.com.
Executive Director remuneration for 2021
Element
Maximum
2021
2022
2023
2024
2025
Fixed Pay
Salary
Benefits
Pension
Variable
Pay
Short-term
incentive plan
Market competitive.
Increases set with
reference to the wider
workforce.
Salary paid.
Market competitive.
Benefits paid.
Aligned to those available to
majority of local workforce
for newly appointed
Executives. 15% of salary
for existing Executive
Directors.
CEO/CFO 125% of salary.
80% cash and 20% in
deferred shares.
Pension
provision paid.
Cash element
paid (80%
of earned
incentive).
2-year share deferral (20% of
earned incentive).
Annual
performance
conditions
apply. Majority
weighting on
Group financial
targets, minority
to strategic
objectives.
Long-term incentive
plan
CEO 150% of salary, CFO
150% of salary. 2-year
holding period
Based on financial and/or shareholder value creation
measures over three-year performance periods.
2-year holding period.
Governance
Share ownership
requirement
200% of salary.
Executive Directors required to build and maintain the share ownership requirement.
Malus (withholding)
and clawback
(recovery)
All incentives.
Malus: incentive plans allow for the Committee to exercise discretion and make
adjustments to formulaic outcomes.
Clawback: misstatement, serious misconduct, serious reputational damage, error in
calculation and corporate failure.
Post-employment
share ownership
100% of salary.
Holding requirement for shares until two years after cessation of employment.
Key performance indicators for 2021
Our remuneration arrangements share a clear link to our key performance indicators and our strategic priorities to deliver
sustainable shareholder value.
Variable
pay element
Performance
headline
Performance
measure (weighting)
What they
measure
Short-term incentive
plan
Financial
Adjusted profit before tax1 (50%)
Operational performance. Encompassing our strategic priorities of
strategic business development and operational excellence
Group free cash flow1 (25%)
Cash flow performance. Encompassing our cash conversion and
cash generation for capital re-investment
Strategic
Strategic objectives (25%)
Progress of the Group's strategic aims in order to deliver sustainable
growth in shareholder value
Long-term incentive
plan
Financial
Share price
Earnings per share (50%)
Sustainable growth in the Group's profitability per share over 3 years
Total shareholder return (50%)
Performance of the Group's value per share relative to a peer group
over 3 years
1 Target and actual performance are assessed at constant budget exchange rates.
98 TT Electronics plc Annual Report and Accounts 2020
REMUNERATION AT A GLANCE
2020 Performance snapshot
£23.6m
Adjusted profit before tax1
£13.5m
Group free cash flow1
11.7p
61.8%
Adjusted earnings per share2
Total shareholder return2
Variable pay performance outcomes
Short-term
incentive plan1
Long-term
incentive plan2
Financial
objectives
Strategic
objectives
Financial
objectives
Adjusted profit before tax (50%)
£23.6m, 0% of max
Group free cash flow (25%)
£13.5m, 100% of max
Execution of portfolio strategy (10%)
Performance at stretch, 100% of max
Improve operational efficiency (10%)
Performance at stretch, 100% of max
ESG development (5%)
Performance at stretch, 100% of max
Adjusted earnings per share (50%)
2.4% compound annual growth rate over the 3 year
performance period, 0% of max
Share price
Total shareholder return (50%)
77 percentile, 100% of max
1 Target and actual performance are assessed at constant budget exchange rates. Bonus out-turn of 50 per cent of salary reduced by 8.5 per cent to reflect the historical accounting
adjustment in the Global Manufacturing Solutions (as explained further on page 95).
2 EPS performance measure relates to the 2018 LTIP award (performance period of 1 January 2018 to 31 December 2020), TSR performance measure of the 2017 LTIP award (performance
period of 15 March 2017 to 14 March 2020).
The Committee believes that performance measures should be both motivational and stretching. Against the stretching targets,
the overall short-term incentive awards to the CEO and CFO were 50 per cent of salary. The awards, after the reduction for the
historical accounting adjustment, will be fully deferred into shares. In reaching this decision the Committee agreed that whilst no
award was automatically payable in respect of the strategic objectives given that the threshold Group profit before tax target had
not been achieved, the resilient financial and strong cash flow performance justified the payment under the strategic objectives.
In light of the sensitivity surrounding the payment of annual incentive awards in respect of 2020, the Committee consulted with its
major investors in advance of the decision being made and there was a strong level of support for the Committee’s actions.
Executive Director Remuneration for 2020
Richard Tyson - Chief Executive Officer
Mark Hoad - Chief Financial Officer
23.6%
21.8%
£1.00m
2019: £1.43m
47.8%
47.8%
£0.76m
2019: £1.04m
–Salary and benefits
–Pension
–Short-term incentive
–Long-term incentive
23.9%
21.6%
6.8%
6.7%
1 2020 short-term incentive award values are shown after the 8.5 per cent reduction as a result of the historical accounting adjustment in the Global Manufacturing Solutions division.
Ensuring shareholder alignment
Share ownership requirement:
200% of salary for Executive Directors
200%
375%
390%
CEO
CFO
Short-term incentive
awards subject to a 20% mandatory
deferral into shares with a two-year
holding period. The 2020 award will
be 100% deferred into shares
Long-term incentive
awards paid in shares and subject to
mandatory two-year holding period
Post-employment share ownership
shares to value of 100% of salary
to be held until two years after
cessation of employment
TT Electronics plc Annual Report and Accounts 2020
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Financial statementsStrategic reportGovernance and Directors' report Governance | Annual report on remuneration
ANNUAL REPORT ON REMUNERATION
Implementation of the Remuneration Policy for the year ending 31 December 2021
A summary of how the Directors’ Remuneration Policy will be applied during the year ending 31 December 2021 is set out below.
Basic salary
The Remuneration Committee agreed that it would be appropriate to increase the base salaries of the Executive Directors by 1.5
per cent effective 1 January 2021, a level which is below the expected average increase for the wider UK workforce.
Executive
Richard Tyson
Mark Hoad
2021
£485,391
£364,112
2020
Increase
£478,218
£358,731
1.5%
1.5%
The Company’s UK employees, in general, are expected to receive pay rises averaging 2 per cent depending on location,
promotional increases and individual performance.
Pension and benefits
The Executive Directors have agreed that their pension allowance will be aligned with those available to the wider UK workforce by
31 December 2022 by way of a single reduction. As such Executive Director pension provision will remain at 15 per cent of salary
for 2021 and benefit provision will remain unchanged.
Short-term Incentive Plan
The Committee believes it is important that a significant proportion of Executive Director remuneration be performance-related
and that the performance conditions applying to incentive arrangements support the delivery of the Company’s strategy. For
2021, as originally planned for 2020 and in line with the Remuneration Policy approved by shareholders at the 2020 AGM, the
maximum short-term incentive opportunity will be 125 per cent of base salary, with 20 per cent of any incentive deferred into
shares for a period of two years.
The split between financial and strategic performance measures will remain consistent with prior years, continuing to be focused
on profit, cash flow and strategic progress.
Performance measure
Adjusted profit before tax
Group free cash flow
Strategic objectives
Total
Threshold
opportunity
(% of salary)
Maximum
opportunity
(% of salary)
0%
2.5%
n/a
62.5%
31.25%
31.25%
125%
Weighting
50%
25%
25%
100%
Paid
in cash
Paid
in shares
80%
20%
Targets are set taking account of internal and external forecasts relating to the Company’s performance, the ongoing
economic and societal uncertainty arising from the pandemic and reflecting the Board’s expectation of the development
of the Group. The strategic objectives reflect the creation of sustainable value for all our stakeholders with a focus on ESG
development, development of our investment offering and progressive cash flow management beyond planned activity for the
year. No award will be payable in respect of the strategic objectives unless the threshold profit before tax or threshold free cash
flow target is reached.
Targets for the 2021 STIP are currently considered to be commercially sensitive. The targets and the respective levels of
achievement will be disclosed in the 2021 Directors’ remuneration report.
100 TT Electronics plc Annual Report and Accounts 2020
Long-term Incentive Plan
LTIP awards are expected to be granted in March 2021. Vesting is intended to be based on performance against the following
equally weighted measures over three-year performance periods:
• Absolute adjusted EPS
• Relative TSR against the FTSE Small-Cap (excluding Investment Trusts)
The performance measures ensure the alignment of senior management’s and shareholders’ interests. Target ranges for the
2021 awards will be set taking into account the latest internal and external forecasts for the business, including both economic
and political uncertainty and TT’s principal risks. In line with the Investment Association’s recent addendum to its guidance on
shareholder expectations during the Covid-19 pandemic, the setting of the targets will be delayed until after the grant date. The
targets will be set within six months of grant and published as soon as possible after they have been set via an RNS.
The Committee will continue to consider the impact of any significant future portfolio development on the outstanding
performance targets at the time of the capital deployment. Any further changes to the performance targets in these
circumstances will be communicated to shareholders.
The awards, as a percentage of salary, are expected to be as follows:
Executive
Richard Tyson
Mark Hoad
2021
150%
150%
2020
150%
135%
For 2021 the Committee felt it appropriate to align the awards for the Executive Directors. This ensures that the Executive
Directors are adequately tied in to the longer-term performance of the Company. The one-off increase in award to Mark Hoad
recognises his strong contribution and his importance to the ongoing development of the Company and ongoing value creation
for shareholders.
The Committee is mindful that share price falls can lead to the perception of ‘windfall gains’. The Committee will review the share
price at grant when determining final award values. Discretion may be applied at grant or on vesting to manage any relevant
windfall gain from the allocation.
The awards will vest on the third anniversary of grant to the extent the performance targets have been satisfied, followed by a
two-year holding period.
Shareholding requirement
No changes will be made to the shareholding requirements. Executive Directors are required to build and maintain a shareholding
in employment of 200 per cent of basic salary. Post cessation of employment, Executive Directors are required to maintain
for two years, a shareholding of half this requirement or maintain their actual holding if lower. During the two-year period,
Executive Directors will be required to self-certify their holdings on an annual basis. In addition, it is anticipated that some vested
shareholding will be subject to holding periods during the post cessation requirement.
Fees for Non-executive Directors
The Chairman’s fee and the Non-executive Director base fee increased by 1.5 per cent effective 1 January 2021, a level which is
below the average expected increase for the wider UK workforce. The SID fee was brought in line with the other Chair fees which
remain unchanged.
Chairman
Base fee
Additional fees:
Senior Independent Director
Audit Committee Chair
Remuneration Committee Chair
2021
2020
Increase
£182,700
£180,000
£45,822
£45,145
£8,000
£8,000
£8,000
£6,000
£8,000
£8,000
1.5%
1.5%
33.3%
0.0%
0.0%
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Implementation of the Remuneration Policy for the year ending 31 December 2020
Single figure for total remuneration (audited)
Directors’ remuneration for the year ended 31 December 2020 was as follows:
£’000
Executive Directors
Richard Tyson
Mark Hoad
Chairman
Warren Tucker1
Non-executive Directors
Jack Boyer2
Anne Thorburn3
Alison Wood
Former Directors
Neil Carson4
Stephen King5
Salary/
fees
Taxable
benefits Pension
Total
fixed pay
Short-
term
Incentive6
Long-term
Incentive7
Malus and
clawback
Other
Total
variable
pay
Single
total
figure
2020
2019
2020
2019
454
478
341
359
2020
126
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
47
45
48
23
50
53
62
188
36
59
25
23
21
20
68
72
51
54
547
573
413
433
126
47
45
48
23
50
53
62
188
36
59
219
306
164
230
237
551
181
373
456
857
345
603
1,003
1,430
758
1,036
126
47
45
48
23
50
53
62
188
36
59
1 Warren Tucker was appointed to the Board on 2 April 2020
2 Jack Boyer was appointed Senior Independent Director on 6 May 2020
3 Anne Thorburn was appointed Chair of the Audit Committee on 6 May 2020. 2019 fees reflect her appointment date of 1 July 2019
4 Neil Carson stepped down as Chairman on 6 May 2020
5 Stephen King stepped down as a Non-executive Director on 30 September 2020
6 2020 short-term incentive award values are shown after the voluntary deferral of the 2020 increase in maximum opportunity from 100% of salary to 125% of salary to 2021, and after the
8.5 per cent reduction as a result of the historical accounting adjustment in the Global Manufacturing Solutions division.
7 LTIP values shown in the single figure include dividend equivalents; the value attributable to share price appreciation for the CEO and CFO is minimal, being £(3,199) and £(2,446)
respectively. The Committee did not exercise any discretion in relation to vesting outcomes in relation to the impact of share price movements.
Base salary/fees
At the request of the Executive Directors base salaries were not increased in 2020 following a salary review in December 2019.
This recognised changes to some of our external markets and the actions taken within the Company. The Chairman’s fee and
those of the Non-executive Directors also remained unchanged at the annual review. The Chairman's fee on appointment was 4.5
per cent lower than the prior Chairman.
In response to the COVID-19 pandemic a series of actions were taken to reduce costs and protect our cash flows. One such action
was that the members of the Board volunteered a 20 per cent salary/fee reduction for a three-month period which is reflected in
the single figure for total remuneration table.
Taxable benefits
The Executive Directors’ taxable benefits consist of a car allowance and insurance benefits.
Pensions
Employer contributions are paid at 15 per cent of base salary, as defined contribution pension and/or a cash supplement.
Pension contributions were 20 per cent lower during the period of the voluntary salary reduction in relation to the impacts of
the COVID-19 pandemic.
102 TT Electronics plc Annual Report and Accounts 2020
Short-term incentive
In response to the COVID-19 pandemic, the Executive Directors requested that the maximum opportunity was reduced from 125
per cent to 100 per cent of salary for 2020. The default under the Remuneration Policy is to defer 20 per cent of any incentive into
shares for a period of two years. Incentive payments were based on performance against Group adjusted profit before tax (up
to 50 per cent of salary) and Group free cash flow (up to 25 per cent of salary) measured at constant budget exchange rates and
strategic objectives (up to 25 per cent of salary) as measured over the 2020 financial year.
During the year, the Company completed the acquisitions of the Covina power supply business from Excelitas Technologies
Corp. and the Torotel, Inc power and electromagnetic business. In order to neutralise the impact of these transactions, the
Group adjusted profit before tax and Group free cash flow targets were increased to include pro-rata budgeted performance and
adjusted for the impact of unbudgeted cash flows for adjusting items in relation to M&A acquisition and integration.
The strategic objectives of the Executive Directors focused on the creation of sustainable value for all our stakeholders with a
focus on delivery of critical operational and strategic goals. Performance against these is set out in the table below.
Strategic
objective
Performance
commentary
Execution of portfolio strategy. Drive
the acquisition growth strategy.
Further identify and progress potential
opportunities.
Execution of acquisitions of the Covina aerospace and defence power supply
business of Excelitas Technologies Corp. in January 2020 and the Torotel, Inc power
and electromagnetic business in November 2020 supported by equity placing in
challenging market conditions.
Maximum
potential
(% of salary)
10%
Achievement
✓✓✓✓
Improve operational efficiency to drive
sustained margin enhancement.
Finalise to plan a series of facility
footprint projects and execute.
Integration of the Covina acquisition completed with strong performance against the
business case. Torotel integration under way.
Significant progress/engagement in several potential opportunities aligned to
strategic growth markets.
Implementation of actions from 2019 facility footprint review to optimise efficiency
and support margin improvement.
10%
✓✓✓✓
Three facility closures announced and under way with management of product
transfers to optimise receiving facilities.
Plans developed for further self-help activity in 2021.
Efficiency actions showing strong financial returns in line with business case to
deliver £11-12 million of run-rate benefits in 2023.
Develop and integrate the ESG strategic
priority and embed in the strategy.
ESG positioned as core element of revised Company purpose, incorporated into key
internal and external communications.
5%
✓✓✓✓
HSE platform upgraded to establish baselines, enable target setting and tracking of
improvements. Enabled commitments to be carbon neutral by 2035 with initial plans
developed and actions under way centred on renewable energy, energy reduction,
waste to landfill reduction and reduction of single-use plastics.
Significant focus on safety and safe operations during the year with specific actions
in response to the pandemic.
Employee engagement achieved the strategic goal of becoming a 2-star rated
employer with exceptional wellbeing and values scores across the Company.
Continued focus on ensuring that employees can be at their best every day and that
potential barriers to progression are being identified and addressed through the
equality, diversity and inclusion focus.
External CDP Sustainability Audit rating improved, showing significant improvement
from 2019.
✓ underperforming, ✓✓ performing, ✓✓✓ out-performing, ✓✓✓✓ stretch
The outcomes of the short-term incentive awards for financial and individual strategic performance in 2020 are summarised below.
TT Electronics plc Annual Report and Accounts 2020
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Short-term incentive payments for 20201
Performance measure
Group adjusted profit before tax
Group free cash flow
Strategic objectives
Total
Remuneration Committee discretion2
2020 Short-term incentive award
Threshold
potential
(% of salary)
Maximum
potential
(% of salary)
Required for
threshold
bonus (£m)
Required for
maximum
bonus (£m)
5%
2.5%
n/a
50%
25%
25%
100%
34.1
(1.5)
38.7
4.1
As outlined
Outturn for
incentive plan
purposes (£m)
23.6
13.5
Achievement
(% of salary)
0.0%
25.0%
25.0%
50.0%
(4.25)%
45.75%
1 Short-term incentives are measured using constant budget exchange rates. The value shown is after the voluntary deferral of the 2020 increase in maximum opportunity from 100% of
salary to 125% of salary to 2021.
2 The 8.5% reduction to the total award, as a result of the historical accounting adjustment in the Global Manufacturing Solutions division, equates to a reduction of 4.25% of salary
Summary
The Executive Directors delivered another year of strong strategic progress whilst managing and protecting our stakeholders through the economic volatility and
impact of the pandemic. The Executive Directors have demonstrated exceptional leadership throughout the pandemic to protect our employees, the sustainability of
the Company and delivering COVID-19 safe facilities built on benchmark operating procedures delivered in advance and often above relevant government guidelines.
The Company was also able to divert internal resources to support multiple government ventilator projects globally, including those in the UK.
In the context of the pandemic, financial performance has been robust and strong cost action has protected the balance sheet resulting in excellent free cash flow,
significantly above expectation. In managing the business, the Company utilised the UK Government Coronavirus Job Retention Scheme (furlough) to protect
our employees although the monies from the furlough scheme have been repaid in full in early 2021 and the Company does not intend to further utilise the UK
Government Job Retention Scheme (furlough). While there were some job losses resulting from structural changes to some of our end markets, new business
opportunities have meant a number of new roles being created. Following a decision to pause dividend payments, the resumption of the dividend is expected to be
announced at the time of the 2020 year-end results announcement.
In carrying out the review, the Committee agreed that whilst no award was automatically payable in respect of the strategic objectives given that the threshold Group
profit before tax target had not been achieved, the resilient financial and strong cash flow performance justified the payment under the strategic objectives. As
such, in addition to the 25 per cent of salary payable against the Group free cash flow targets, 25 per cent of salary will be payable against the strategic objectives.
In light of the sensitivity surrounding the payment of annual incentive awards in respect of 2020, the Committee consulted with its major investors in advance of the
decision being made and there was in the main a strong level of support for the Committee’s actions. Reflecting feedback from a number of major investors during
consultation, the Committee decided that rather than adopt the 80 per cent cash payment and 20 per cent deferred share approach as per the default under the
Remuneration Policy, 100 per cent of the bonus award should be deferred into shares.
In addition to the above and in connection to the year-end audit process, as a result of a historical accounting adjustment in the Global Manufacturing Solutions
division (as explained further on page 95), the Committee decided that it was appropriate to use its discretion to reduce the Executive Directors 2020 short-term
incentive awards award by 8.5 per cent, effectively neutralising the estimated impact on the 2019 short-term incentive awards to the Executive Directors.
Long-term incentive
The LTIP awards granted in 2017 and 2018 vest depending on performance against two equally weighted measures over separate
three-year performance periods. The EPS performance condition is over the three-year period aligned with the Group’s financial
year. The TSR performance condition is over a separate three-year performance period, ending on the third anniversary of the
award date. Accordingly, the performance periods of the two performance conditions end in separate reporting years. Both the
2017 and 2018 LTIP awards had performance periods that ended on or by 31 December 2020 which are therefore included in the
single figure for total remuneration for 2020.
Award year and performance measure
2017 LTIP award1: Relative TSR
performance against the FTSE SmallCap
(excluding Investment Trusts)
2018 LTIP award2,3: EPS compound annual growth
over the three-year performance period
Threshold
(25% vesting)
Maximum
(100% vesting)
Median
rank
Upper quartile
rank or above
10%
17.5%
Percentage
of maximum
achievement
100%
0%
Outcome
77 percentile
(Above upper
quartile)
2.4%
(Below
threshold)
1 2017 LTIP award (vested March 2020): The EPS performance period ended on 31 December 2019 and a maximum level of vesting was achieved as described in last year’s Remuneration report.
The 2019 single figure for total remuneration has been restated to reflect the vested value of the shares subject to the EPS performance measure which vested on 15 March 2020. The TSR
performance period for this award ended on 15 March 2020 and a maximum level of vesting was achieved as indicated in the above table. The vested value of the shares subject to EPS
performance measure is included in the 2020 single figure for total remuneration. In both cases the vested shares have been valued at 164.5p.
2 2018 LTIP award (vests March 2021): The EPS performance period for this award ended on 31 December 2020 and vesting of the EPS component was not achieved as indicated in the above table.
The TSR performance period ends in March 2021 and the value of the vested awards subject to the TSR performance measures will be included in the 2021 single figure for total remuneration.
3 As disclosed in previous Directors’ annual Remuneration report, the EPS targets were reviewed for the effect of portfolio developments during 2018 in respect of the acquisition of Stadium Group
and Precision Inc.. Following that review, the EPS targets were increased from a threshold target of 5% compound annual growth and a maximum target of 12% compound annual growth.
104 TT Electronics plc Annual Report and Accounts 2020
As part of the portfolio development strategy the Committee has agreed principles for the adjustment of LTIP performance
conditions in relation to capital deployment. During the year, the acquisitions of the Covina aerospace and defence power supply
business of Excelitas Technologies Corp. for a total consideration of £14.4 million, and the £28.7 million acquisition of Torotel, Inc
mainly funded through an equity placing, were reviewed against the principles and the financial impact was deemed to be below
the materiality threshold.
Other
No disclosures occurred during the period.
Malus and clawback
No malus or clawback events occurred during 2020.
Long-term incentives granted during the financial year (audited)
LTIP awards were granted to Executive Directors on 13 March 2020, prior to the first UK national lockdown and prior to the share
price volatility that followed. Awards are subject to a three-year vesting period plus an additional two-year holding period.
Executive
Richard Tyson
Mark Hoad
Basis of award
granted
(% of salary)
150%
135%
Share price at
date of grant
(pence)1
196
196
Number
of shares over
which award
was granted
365,983
247,085
Face value
of award
(£)
717,327
484,287
% of award
that would vest
at threshold
performance
Performance
period end date
25%
25%
13/03/2023
13/03/2023
1 The share price used to determine the number of shares granted was the average share price over the three trading days prior to grant.
The Committee is mindful that share price falls can lead to the perception of ‘windfall gains’. The share price used to calculate
the number of shares under the 2020 award was less than 3 per cent lower than that of the 2019 award. As such the Committee
believes that windfall gains would not apply to this award as a result of any share price volatility from the pandemic. The
Committee retains discretion to adjust formulaic incentive outcomes to ensure they reflect underlying business performance and
shareholder interests. This would be reviewed at vesting.
Performance measures for LTIP awards granted during the financial year (audited)
Awards to Executive Directors during 2020 were granted on 13 March 2020 subject to the two equally weighted measures of EPS
and TSR as follows.
Performance measures
EPS compound annual growth over the
three-year period
Relative TSR performance against the FTSE
SmallCap (excluding Investment Trusts)
Weighting
Threshold
(25% vesting)
Maximum
(100% vesting)
50%
50%
5%
12.0%
Median
rank
Upper quartile
rank or above
The performance measures attributable to the 2020 awards were approved by the Committee in December 2019, with the awards
granted prior to both the first UK lockdown and before the societal and economic impact of COVID-19 became fully known.
Following a supportive consultation exercise with our largest institutional investors and the major investor representatives, the
Committee agreed to reweight performance to 100 per cent based on the existing TSR performance targets. Whilst the majority
of TT’s operations have remained resilient in light of the disruption resulting from COVID-19, the Committee believed, after
extensive discussion, that the compound EPS growth targets of 5 per cent to 12 per cent per annum, based on the 2019 EPS
number were excessively stretching and that there would be a risk that: (i) this would adversely impact management motivation;
and/or (ii) overly stretching performance measures could incentivise short-term actions that could damage the longer-term
growth of the business. The Committee believes that had the scheduled LTIP award been granted slightly later, consistent with
a significant number of December year-end FTSE All-Share companies, the Committee would have: (i) delayed the grant of the
awards; (ii) taken advantage of the flexibility suggested by the Investment Association in respect of granting the awards at the
normal time but setting the performance targets within a six month period from grant; and/or (iii) increased the proportion of the
award (most probably to 100 per cent) that is measured against relative TSR.
The Committee is mindful to the perception of ‘windfall gains’ and retains discretion to adjust formulaic incentive vesting
outcomes to ensure they reflect underlying business performance and shareholder interests.
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Executive Director interests in shares subject to Company performance conditions
The table below sets out details of outstanding LTIP share awards held by the Executive Directors at 31 December 2020.
Market
value at
31 December
2020
(£)1
Market
price at
grant date
(pence)
Granted
during
the year
Lapsed
Vested
266,565
31 December
2020
Date
of grant
1 January
2020
15/03/2017
266,565
14/03/2018
294,1522
11/03/2019 355,9933
13/03/2020
365,983
15/03/2017
203,844
14/03/2018
202,4462
11/03/2019
240,3403
13/03/2020
247,085
203,844
294,152
355,993
365,983
603,012
729,786
750,265
1,016,128
2,083,062
202,446
240,340
247,085
689,871
415,014
492,697
506,524
1,414,236
Vesting
date
15/03/2020
14/03/2021
11/03/2022
13/03/2023
15/03/2020
14/03/2021
11/03/2022
13/03/2023
167
232
202
196
167
232
202
196
Executive
Richard Tyson
Total outstanding
Mark Hoad
Total outstanding
1 The market value at 31 December 2020 represents the total number of shares awarded multiplied by 205.0 pence, being the share price on 31 December 2020. The calculation does not
take into account dividend equivalents or the likelihood of vesting.
2 The performance condition attached to 50% of the award is based on EPS. As disclosed in previous Annual report on remuneration, the EPS targets were reviewed for the effect of portfolio
developments during 2018 in respect of the acquisition of Stadium Group and Precision Inc.. Following that review, the EPS targets were increased. 25% of the shares subject to this part of
the award will vest for EPS growth of 10% (previously 5%) compound per annum, increasing on a straight-line basis to 100% vesting for EPS growth for the year ending 31 December 2020
of 17.5% (previously 12%) compound per annum. The performance condition attached to the other 50% of the award is based on TSR performance against the FTSE SmallCap (excluding
Investment Trusts) during the three-year performance period from the date of award. 25% of the shares subject to this part of the award will vest at median performance increasing on a
straight-line basis to 100% vesting at the upper quartile of the comparator group.
3 The performance condition attached to 50% of the award is based on EPS. 25% of the shares subject to this part of the award will vest for EPS growth of 6% compound per annum,
increasing on a straight-line basis to 100% vesting for EPS growth for the year ending 31 December 2020 of 13.5% compound per annum. The performance condition attached to the other
50% of the award is based on TSR performance against the FTSE SmallCap (excluding Investment Trusts) during the three-year performance period from the date of award. 25% of the
shares subject to this part of the award will vest at median performance increasing on a straight-line basis to 100% vesting at the upper quartile of the comparator group.
TT Electronics plc Sharesave scheme
Executive
Date
of grant
1 January
2020
Granted
during the
year
Lapsed
Vested
31 December
2020
Market
value at
31 December
2020
(£)1
Market
price at
grant date
(pence)
Richard Tyson
01/10/2018
8,372
Mark Hoad
01/10/2018
8,372
8,372
8,372
0
0
215
215
1 The potential gain at 31 December 2020 represents the total number of shares under the option multiplied by 205.0 pence, being the share price on 31 December 2020.
Vesting
date
01/11/2021–
30/04/2022
01/11/2021–
30/04/2022
Payments to past Directors (audited)
No payments were made in 2020.
Payments for loss of office (audited)
No payments were made in 2020.
106 TT Electronics plc Annual Report and Accounts 2020
Statement of Directors’ shareholding and share interests (audited)
The Executive Directors are required to build and hold a shareholding of 200 per cent of salary. Executive Directors must retain 50
per cent of the net of tax value of any vested LTIP shares until the guideline is met. At 31 December 2020, the Executive Directors
were compliant with the requirement.
Beneficially
owned at
1 January
2020
Beneficially
owned at
31 December
2020
Unvested share
awards subject
to Company
performance
conditions
Outstanding
share awards
under all
employee share
plans as at
31 December
2020
Shareholding
as a % of
salary at
31 December
20201
Value of
beneficially
owned at
31 December
2020
(£)
Basic salary at
31 December
2020
717,251
550,090
873,530
683,127
1,016,128
689,871
8,372
8,372
375%
390%
1,790,737
1,400,410
478,218
358,731
10,945
60,075
82,588
0
45,000
95,514
0
60,000
Executive
Executive Directors
Richard Tyson
Mark Hoad
Chairman
Warren Tucker
Non-executive Directors
Jack Boyer
Alison Wood
Anne Thorburn
1 The shareholding as a % of salary at 31 December 2020 is calculated as the beneficially owned shares at 31 December multiplied by 205.0 pence, being the share price on 31 December
2020, divided by the basic salary at 31 December 2020.
There have been no changes to shareholdings between 31 December 2020 and the date of this report.
The closing middle market prices for an ordinary share of 25 pence of the Company on 31 December 2019 and 31 December
2020 as derived from the Stock Exchange Daily Official List were 250.0 pence and 205.0 pence respectively. During 2020, the
middle market price of TT Electronics plc ordinary shares ranged between 143.0 pence and 269.0 pence.
Directors’ service contracts
Executive
Executive Directors
Richard Tyson
Mark Hoad
Chairman
Warren Tucker
Non-executive Directors
Jack Boyer
Alison Wood
Anne Thorburn
Date of
appointment
Date of current
contract/letter of
appointment
Notice from
Company
Notice from
individual
Unexpired period
of service
contract
01/07/2014
01/01/2015
14/01/2014
09/12/2014
12 months
12 months
12 months
Rolling contract
12 months
Rolling contract
06/05/2020
02/04/2020
1 month
1 month
Rolling contract
10/06/2016
11/07/2016
01/07/2019
10/06/2016
11/07/2016
12/06/2019
1 month
1 month
1 month
1 month
Rolling contract
1 month
Rolling contract
1 month
Rolling contract
TT Electronics plc Annual Report and Accounts 2020
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Financial statementsStrategic reportGovernance and Directors' report Governance | Annual report on remuneration
Performance graph and table
The following graph shows the cumulative Total Shareholder Return of the Company over the last ten financial years relative to
the FTSE SmallCap Index (excluding Investment Trusts). The FTSE SmallCap Index has been selected for consistency as it is the
index against which the Company’s Total Shareholder Return is measured for the purposes of the LTIP. In addition, the Company
300
is a constituent of the Index.
250
200
150
100
50
0
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 16
Dec 18
Dec 19
Dec 20
TT Electronics (Re-based to 100)
FTSE Small-Cap excluding investment trusts (Re-based to 100)
The graph above shows the value, by 31 December 2020, of £100 invested in TT Electronics plc on 31 December 2010 compared
with the value of £100 invested in the FTSE SmallCap Index (excluding Investment Trusts).
Total remuneration figures for the Chief Executive Officer
The total remuneration figures for the Chief Executive Officer during each of the last ten financial years are shown in the table
below. The total remuneration figures include the short-term incentive based on that year’s performance and LTIP awards based
on three-year performance periods ending in the relevant year.
Total remuneration (£’000)
Short-term incentive
(% of maximum)
LTIP vesting (% of maximum)
2011
1,576
96.0
100.0
2012
1,684
50.0
94.0
2013
1,154
53.0
89.6
20141
249
20142
401
0.0
39.6
25.0
n/a
2015
1,151
90.8
0.0
2016
1,152
100.0
0.0
2017
1,794
100.0
50.0
2018
2,189
93.3
100.0
2019
1,430
64.0
86.5
2020
1,003
45.8
50.0
1 Relates to previous Chief Executive Officer who was in position until 30 June 2014.
2 Relates to current Chief Executive Office who joined on 1 July 2014.
Percentage change in the remuneration of Directors compared to other employees
The following table shows the percentage change in each Executive and Non-executive Director's remuneration compared
with the average change for all employees of the parent Company for the year ended 31 December 2020. Going forward, this
disclosure will build up over time to cover a rolling five-year period.
Executive Directors
Richard Tyson
Mark Hoad
Chairman
Warren Tucker1
Non-executive Directors
Jack Boyer2
Alison Wood
Anne Thorburn3
Average UK TT Electronics parent employee4
1 Warren Tucker was appointed to the Board as Chairman on 2 April 2020.
2 Jack Boyer was appointed Senior Independent Director on 6 May 2020.
Change in salary/
fees (%)
Change in
benefits (%)
Change in
cash STIP
(5.0)%
(5.0)%
n/a
3.3%
(5.0)%
6.0%
3.8%
5.9%
8.0%
n/a
n/a
n/a
n/a
6.1%
(28.5)%
(28.5)%
n/a
n/a
n/a
n/a
(39.4)%
3 Anne Thorburn was appointed Chair of the Audit Committee on 6 May 2020. 2019 fees reflect the full year Non-executive base fee applicable at the appointment date of 1 July 2019.
4 Average parent Company employee based on employees who were employed over the complete two-year period.
108 TT Electronics plc Annual Report and Accounts 2020
The reduction in salary/fees for the Board reflects the 20 per cent voluntary salary/fee reduction for a three-month period as
part of the cost reduction and cash flow protection actions in response to the COVID-19 pandemic. During the year there were
changes to the members of the Board with Jack Boyer and Anne Thorburn appointed as the Senior Independent Director and
Audit Chair respectively.
In line with the wider UK workforce, UK parent Company employees were subject to a salary freeze at the annual salary review.
The change in the average salary is the result of increases in relation to promotions, progression in role and market realignment in
response to specific retention risks.
Pay ratio of the Chief Executive Officer
The table below shows the ratio of the total remuneration of the Chief Executive Officer to that of the UK employees of the
Group. The CEO’s pay is based on the single figure of remuneration. In line with our remuneration principles, the majority of the
CEO’s remuneration opportunity is performance-related variable pay. The CEO’s pay ratio is, therefore, heavily dependent on
the outcomes of the short-term and long-term incentive plans and, in the case of long-term share-based awards, share price
movements. As such it is expected that there will be considerable year-to-year changes in the pay ratio. Context to the CEO total
remuneration is set out on pages 102 to 105. The Committee believes that the pay ratio is appropriate and is reflective of the roles
undertaken by employees in the UK.
Year
20204
20195
Methodology used1
Pay Ratio
Remuneration Values2,3
Lower quartile
Median
Upper quartile
Lower quartile
Median
Upper quartile
Option B
Option B
54:1
63:1
40:1
55:1
29:1
38:1
18,414
22,853
25,115
26,182
34,640
37,307
1 Method B has been selected as the basis of the disclosure as permitted under The Companies (Miscellaneous Reporting) Regulations 2018. This method was selected due to the
administration complexities associated with Method A.
2 Under method B, representative quartile employees are selected utilising the Gender Pay reporting datasets which is a snapshot of pay on 6 April 2020. Adjustments may be made to
ensure quartiles are representative. Employees must have been employed on 31 December 2020 and employee data is based on full-time equivalent pay and calculated in accordance
with the single figure of remuneration. Employee earnings include the forecast value of any incentive payments to relevant employees, the forecast will be restated for the actual vested
value in the next Remuneration report and pay ratios updated as relevant.
3 Across the UK, the majority (80%) of the workforce undertake operational roles in our facilities. The employee lower quartile and median remuneration values are generally reflective of the
roles held by our semi-skilled/skilled operators. Employee salaries excluding benefits and variable pay at the lower quartile, median and upper quartile are £16,242, £20,465 and £29,330
respectively.
4 The 2020 ratio has been impacted by COVID-19. Salary and incentive remuneration levels for 2020 include salary reductions taken by the CEO, included in the single figure of remuneration,
and the impact of the UK Government Coronavirus Job Retention Scheme and associated voluntary furlough salary reductions in the wider UK workforce. Under the chosen method for
calculation, the employee ranking and quartile assessment is based on the April 2020 snapshot date during which time approximately 14% of employees were on furlough.
5 The 2019 pay ratio has been restated in line with the restated CEO single figure of remuneration
Relative importance of spend on pay
The following table shows the Company’s actual spend on pay for all employees relative to dividends. Dividend figures relate to
amounts payable in respect of the relevant financial year.
Staff costs (£’m)
Dividends (£’m)
2020
130.1
8.2
2019 Change
135.6
(4.1)%
3.4
141%
Advisers to the Remuneration Committee
The Committee received advice during the year from FIT Remuneration Consultants LLP (FIT). FIT is a member of the
Remuneration Consultants Group and has signed up to that group’s code of conduct. The Committee is satisfied that the advice
it received during the year was appropriate, objective and independent. FIT did not provide any other services to the Company and
does not have any other connection with the Company or individual Directors.
Work undertaken by FIT in its role as independent advisers to the Committee included advice in respect to the Remuneration
Policy, developments in good governance, advice relating to share scheme rules, the provision of market information and market
practice, and other governance matters. The fees paid to FIT for providing advice in relation to Executive remuneration over the
financial year, based on time and materials, totalled £34,514.
The Company’s approach to the Chairman’s and Executive Directors’ remuneration is determined by the Board on the advice
of the Remuneration Committee. The Committee considers the views of the Chairman on the performance of the CEO, and of
the CEO on the performance and remuneration of the other members of the Executive Leadership Team. The Committee is
also supported by the Group General Counsel and Company Secretary who acts as Secretary to the Committee, the CFO, the
EVP Human Resources and the Group Reward Director who attend meetings at the invitation of the Committee. No Committee
members or attendees take part in any discussions relating to their own remuneration.
TT Electronics plc Annual Report and Accounts 2020
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Financial statementsStrategic reportGovernance and Directors' report Governance | Annual report on remuneration
Shareholder voting
The Remuneration Committee considers shareholder feedback received in connection with the AGM each year at a meeting
immediately following the AGM and at other times of the year. This feedback is considered as part of the Company’s annual
review of the Remuneration report and Remuneration Policy. In addition, the Remuneration Committee endeavours to consult
directly with the largest shareholders and their representative bodies on proposals ahead of significant changes.
At the Annual General Meeting held on 6 May 2020, the proxy votes cast in respect of the resolutions on the Directors’
Remuneration Policy and Directors’ remuneration report were as follows:
Number of votes
Date of
AGM
For and
Discretionary
Directors’ Remuneration Policy
Directors’ remuneration report
May 2020
May 2020
109,271,441
124,542,291
For and
Discretionary
(%)
91.89%
97.28%
Against
9,642,007
3,486,914
Against
(%)
8.11%
2.72%
Withheld
13,273,878
4,158,121
Total
votes
132,187,326
132,187,326
A full schedule in respect of shareholder voting on the above and all resolutions at the 2020 AGM is available at www.ttelectronics.com.
The Directors’ remuneration report has been approved by the Board on 9 March 2021 and signed on its behalf by:
Alison Wood
Chair, Remuneration Committee
9 March 2021
110 TT Electronics plc Annual Report and Accounts 2020
OTHER STATUTORY DISCLOSURES
This Annual Report and Accounts
includes the Directors’ report and the
audited financial statements for the
year ended 31 December 2020. 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 Governance
and Remuneration reports and specific
elements of the Financial Statements
noted below. The table below lists items
that are relevant to this report, and which
are incorporated by reference, including
information required in accordance with
the UK Companies Act 2006 and Listing
Rule 9.8.4R:
AGM information
CO2 emissions
Page 199
Page 65
Current and future dividend waiver
Page 112
Employee engagement
Future developments in the
business
Going concern
Greenhouse gas emissions
S172 statement
Share capital
Pages 55, 62
Pages 8-13
Page 82
Page 67
Page 75
Page 199
Subsidiary undertakings
Pages 188–190
Viability Statement
Page 51
Results and dividend
The Group’s profit on ordinary activities
after taxation was £1.3 million (2019:
£15.8 million). The audited financial
statements of the Group and the
Company are set out on pages 124
to 198. Further details of the Group’s
activities are set out in the Strategic
report on pages 1 to 71 which is
incorporated into the Directors’ report
by reference.
Full details of the Company’s
dividend policy and proposed final
dividend payment for the year ended
31 December 2020 are set out on page
47 and Note 10 to the consolidated
financial statements.
Tax principles and strategy
The Group applies a conservative
approach to tax and seeks to comply
with the OECD Transfer Pricing guidelines,
which should ensure that profits are
taxed where value is created and business
risks are managed. The Group’s full Tax
Principles and Strategy document is
published on the Group’s website.
Mergers and acquisitions
As disclosed in last year’s Annual Report,
in October 2019, the Company’s wholly-
owned subsidiary, TT Electronics Power
Solutions (US) Inc, signed an Asset
Purchase Agreement to acquire the
aerospace and defence power supply
business of Excelitas Technologies
Corp. based in Covina, California. The
consideration for the transaction was
US$17.7 million (£13.7 million) in cash,
which was subject to customary
conditions precedent (including regulatory
approvals) and a post-completion working
capital adjustment. The transaction
completed on 3 January 2020.
On 17 September 2020, the Company’s
wholly-owned subsidiaries, TT Group
Industries, Inc (“TTGI”) and Thunder
Merger Sub, Inc, signed an Agreement
and Plan of Merger (the “Merger
Agreement”) to acquire 100% of Torotel,
Inc, a US-based SEC listed designer
and manufacturer of high-reliability
power and electromagnetic assemblies
and components designed for harsh
environments, primarily for defence
markets. The enterprise value of the
acquisition was $43.4 million (£33.9
million), representing 10.9x adjusted
EBITDA for the target company, the
payment of which was conditional upon
satisfaction of customary conditions
precedent for a US public acquisition
(including shareholder approval under
the requirements of Missouri law). The
transaction was part funded by an equity
placing, which raised £20 million of the
consideration proceeds, with the balance
being funded from the Group’s existing
debt facilities. The transaction completed
on 10 November 2020, following
satisfaction of the conditions precedent,
at which point: (i) all outstanding shares
of the common stock in Torotel, Inc
were converted into the right to receive
$6.17 per share in cash; and (ii) Thunder
Merger Sub, Inc merged into Torotel,
Inc., leaving Torotel, Inc as the surviving
corporation and a wholly-owned
subsidiary of TTGI. Following the merger,
Torotel, Inc was delisted and ceased to
be a publicly traded company.
Important events since the end of
the financial year
There were no important events
affecting the Group which occurred
since 31 December 2020.
Auditor
In 2019, the Company undertook a
competitive re-tender exercise for
external audit services, following which
Deloitte LLP ("Deloitte") was appointed
as external Auditor for the financial year
2020 onwards. Deloitte was appointed
by the Company’s shareholders at the
AGM held on 6 May 2020. See pages
89 for further details on the Auditor
transition process.
The Auditor’s responsibilities are set
out on page 121 and should be read in
conjunction with those of the Directors
as set out at the end of this report.
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.
TT Electronics plc Annual Report and Accounts 2020
111
Financial statementsStrategic reportGovernance and Directors' report Governance | Other statutory disclosures continued
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 it maintains high standards of
employee welfare in all its operations,
irrespective of where in the world, and
of local market conditions. Together
with many other global companies
operating in its sector, the Group is a
member of the Responsible Business
Alliance (formerly the Electronic Industry
Citizenship Coalition), a leading industry
organisation promoting best practice
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 pages 58 to 63.
Political contributions
The Group made no political
contributions during the year.
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 13 May 2021.
During 2020, this authority was used
primarily in connection with the placing
of 10,000,000 shares in the Company
(as announced on 17 September 2020),
at a price of £2.00 per share, in part
funding of the acquisition of Torotel,
Inc (as described in more detail under
the heading “Mergers and acquisitions”
on page 111). In addition, this authority
was also used in respect of customary
allotments of shares resulting from the
operation of the Group’s share schemes.
Purchase of own shares
At the Annual General Meeting held on
6 May 2020, the Company was given
authority to purchase up to 16,406,508
of its ordinary shares until the date of its
next AGM. Other than market purchases
made by the Employee Benefit Trust, 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.
Disclosure of information to Auditor
To the best of each Director’s knowledge
and belief, there is no audit information
relevant to the preparation of the
Auditor’s report of which the Auditor is
unaware and each Director has taken
all steps which might be expected, to be
aware of such relevant information and
to establish that the Auditor is also aware
of that information.
Approved by the Board on 9 March 2021
and signed on its behalf by:
Lynton Boardman,
Group General Counsel
and Company Secretary
9 March 2021
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 Fiduciary
Services Limited, part of Sanne Group.
As at 31 December 2020, the trustee
held 148,969 shares with a nominal
value of £37,242.25 and an aggregate
purchase price of £1.62 per share,
representing 0.085 per cent of the
total issued share capital at that date.
These shares will be used to satisfy
awards made under the TT Electronics
plc Restricted Share Plan, the TT
Electronics plc Long-Term Incentive Plan
or other employee share schemes. The
maximum number of shares held by the
EBT during the year was 1,011,123. 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. A dividend waiver is in place
under which the trustee waived its right
to receive dividends on the shares it held
during the year, and any future dividends.
The Executive Directors, as employees of
the Company, are potential beneficiaries
of shares held by the EBT.
112 TT Electronics plc Annual Report and Accounts 2020
STATEMENT OF DIRECTORS’
RESPONSIBILITIES IN RESPECT OF THE
ANNUAL REPORT AND ACCOUNTS
The Directors are responsible for preparing
the Annual Report and Accounts and
the Group and parent company financial
statements in accordance with applicable
law and regulations.
Company law requires the Directors to
prepare Group and parent Company
financial statements for each financial
year. Under that law the Directors are
required to prepare the group financial
statements in accordance with
international accounting standards in
conformity with the requirements of the
Companies Act 2006 and International
Financial Reporting Standards adopted
pursuant to Regulation (EC) No
1606/2002 as it applies in the European
Union. The Directors have elected to
prepare the parent Company financial
statements in accordance with UK
accounting standards, including FRS 101
Reduced Disclosure Framework.
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, relevant and reliable;
• for the Group financial statements,
state whether they have been prepared
in accordance with IFRSs as adopted
by the EU;
• 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;
• assess the Group and parent
Company’s ability to continue as
a going concern, disclosing, as
applicable, matters related to going
concern; and
• use the going concern basis of
accounting unless they either intend
to liquidate the Group or the parent
Company or to cease operations,
or have no realistic alternative but
to do so.
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 are responsible for such internal
control as they determine is necessary
to enable the preparation of financial
statements that are free from material
misstatement, whether due to fraud or
error, and 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 Strategic
report, Directors’ report, Directors’
Remuneration report and Corporate
Governance statement 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.
TT Electronics plc Annual Report and Accounts 2020
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Financial statementsStrategic reportGovernance and Directors' report Governance | Statement of Directors’ responsibilities in respect of the Annual Report and Accounts continued
Responsibility statement of
the Directors in respect of the
Annual Report and Accounts
We confirm that to the best of
our knowledge:
• the financial statements, prepared in
accordance with the applicable set
of accounting standards, give a true
and fair view of the assets, liabilities,
financial position and profit or loss of
the Company and the undertakings
included in the consolidation taken as a
whole; and
• the Strategic report includes a fair
review of the development and
performance of the business and
the position of the Company and
the undertakings included in the
consolidation taken as a whole,
together with a description of the
principal risks and uncertainties that
they face.
We consider the Annual Report and
Accounts, taken as a whole, is fair,
balanced and understandable and
provides the information necessary
for shareholders to assess the Group’s
position and performance, business
model and strategy.
The coordination and review of Group-
wide input into the Annual Report is
a key element of the control process
upon which the Directors rely and
is an exercise which spans a period
wider than the timetable for compiling
the Annual Report itself. This control
process incorporates the controls the
Group operates throughout the year to
identify key financial and operational
issues and includes:
• Strategy meetings, held as part of most
Board meetings, at which the entire
Board is present, resulting in a clear
agreement of the Group’s strategy.
• The identification of the key
milestones and the related KPIs
to be monitored and measured
throughout the period.
• Monthly reviews of business
performance conducted by
Executive management (in
consultation with Divisional
management), supplemented by
reports highlighting key issues and
analysis of the main variances from
budget and prior year.
• Preparation of a detailed
budget, reviewed and agreed by
management and then the Board,
which is used to calibrate strategy
implementation and against which
actual performance is measured.
• A timetabled process coordinating
input from each division, identifying
significant market issues and key
elements of performance for each
business area, and appropriately
incorporating them into the structure
of the Annual Report.
• The identification of key risks from
the risk management process, for
inclusion within the Annual Report,
ensuring a consistency of approach
with regard to the risks and the
ongoing review programme.
• A planned Audit Committee sign-off
process which incorporates meetings
of the Chair of the Audit Committee
with the Executive Directors, the Risk
and Assurance function and external
Auditor to identify and timetable
potential issues of significance to be
addressed.
• A process for internal distribution
and comment on the Annual Report,
including those of the members of
the Board, the ELT, key advisers and
external Auditor.
By order of the Board:
Lynton Boardman,
Group General Counsel
and Company Secretary
9 March 2021
114 TT Electronics plc Annual Report and Accounts 2020
INDEPENDENT
AUDITOR’S REPORT
TO THE MEMBERS OF
TT ELECTRONICS PLC
Report on the audit of the financial statements
1.
Opinion
In our opinion:
• the financial statements of
TT Electronics plc (the ‘parent
company’) and its subsidiaries (the
‘group’) give a true and fair view of
the state of the group’s and of the
parent company’s affairs as at 31
December 2020 and of the group’s
profit and parent company’s loss for
the year then ended;
• the group financial statements
have been properly prepared in
accordance with international
accounting standards in
conformity with the requirements
of the Companies Act 2006 and
International Financial Reporting
Standards (IFRSs) as adopted by
the European Union and IFRSs
as issued by the International
Accounting Standards Board (IASB);
• the parent company financial
statements have been properly
prepared in accordance with United
Kingdom Generally Accepted
Accounting Practice, including
Financial Reporting Standard 101
“Reduced Disclosure Framework”;
and
• the parent company financial
statements have been prepared in
accordance with the requirements
of the Companies Act 2006.
We have audited the financial statements
which comprise:
• the consolidated income statement;
• the consolidated statement of
comprehensive income;
• the consolidated and parent company
statements of financial position;
• the consolidated and parent company
statements of changes in equity;
• the consolidated cash flow statement;
and
• the related notes 1 to 32 of the
consolidated financial statements and
the related notes 1 to 15 of the parent
company balance sheet.
The financial reporting framework that
has been applied in the preparation
of the group financial statements
is applicable law and international
accounting standards in conformity
with the requirements of the Companies
Act 2006 and IFRSs as adopted by the
European Union. The financial reporting
framework that has been applied in
the preparation of the parent company
financial statements is applicable
law and United Kingdom Accounting
Standards, including FRS 101 “Reduced
Disclosure Framework” (United Kingdom
Generally Accepted Accounting Practice).
Basis for opinion
2.
We conducted our audit in accordance
with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards
are further described in the auditor’s
responsibilities for the audit of the
financial statements section of our
report.
We are independent of the group and the
parent company in accordance with the
ethical requirements that are relevant to
our audit of the financial statements in
the UK, including the Financial Reporting
Council’s (the ‘FRC’s’) Ethical Standard
as applied to listed public interest entities,
and we have fulfilled our other ethical
responsibilities in accordance with these
requirements. We confirm that the non-
audit services prohibited by the FRC’s
Ethical Standard were not provided to the
group or the parent company.
We believe that the audit evidence we
have obtained is sufficient and appropriate
to provide a basis for our opinion.
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3.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• Impairment of goodwill;
• Classification of adjusting items; and
• Uncertain tax provisions.
Materiality
Scoping
The materiality that we used for the group financial statements was £1.2 million which was determined on the basis of a range of
measures including adjusted profit before tax, revenue and net assets.
Our Group audit scope focused on audit work at 23 components representing 78% of the Group’s revenue, 90% of the Group’s adjusted
operating profit and 86% of the Group’s net assets.
Significant changes in
our approach
We have changed the basis on which we have determined materiality in the current year to reflect the fall in profit, which we do not
consider as representing a long term decline in the size and scale of the business. Refer to section 6 for further details.
Last year the previous auditor’s report included three other key audit matters which are not included in our report this year:
• the impact of uncertainties due to the UK exiting the European Union: this has not been identified as an area where significant audit
effort is required as a result of a trade deal being finalised prior to the balance sheet date;
• warranty and other product provisions, and recoverability of parent company’s investment in and amounts due from subsidiaries:
these areas were not amongst the matters of greatest significance that we communicated to the audit committee for the 2020 audit.
Conclusions relating to going concern
4.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern
basis of accounting included:
• Obtaining an understanding of the key processes relating to the Group’s forecasting;
• inspecting loan documents to assess the principal terms and related financial covenants;
• assessing management’s key assumptions underpinning the Group’s forecasts, specifically the forecast Covid-19 recovery,
the forecast adjusting items expense and cash flows and the achievability of forecasts with reference to external data such as
market growth rates and industry data
• assessing the reasonableness of the assumptions in the forecasts and the impact of reasonably possible downside scenarios
on the group’s funding position;
• comparing forecasts to historical financial information to assess management’s historical forecasting accuracy;
• assessing the mitigating actions available to the Group and the likelihood of being able to take the benefit of these in the next 12
months; and
• assessing trading and the ongoing impact of Covid-19 until the date of signing, including impact on cash flow forecasts; and
• assessing the appropriateness of the going concern disclosures in the financial statements.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the group's and parent company’s ability to continue as a going concern
for a period of at least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the group has applied the UK Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of
this report.
116 TT Electronics plc Annual Report and Accounts 2020
Key audit matters
5.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
5.1.
Impairment of goodwill
Key audit matter
description
Total goodwill on the balance sheet at 31 December 2020 is £156.9 million arising from past acquisitions. As required by IAS 36
Impairment of assets management performs an impairment review for all goodwill balances on an annual basis. This review identified
that the IoT cash generating unit (‘CGU’) was particularly sensitive to changes in assumptions. This CGU accounts for goodwill of £27.6
million.
The impairment assessment of goodwill for the IoT solutions CGU has been identified as a key audit matter as a result of the
quantitative significance of the balance, the low headroom, and the application of management judgement and estimation in its
impairment assessment, specifically with respect to:
• the effect on future cash flows of (a) the pace of recovery from Covid-19, (b) restructuring either implemented in the year or
committed as at the balance sheet and (c) new product launches.
• determination of the discount and growth rates used in the model.
No impairment was recognised in the current year. Further details are included in note 15 to the financial statements in relation to the
sensitivities reflecting the risks inherent in the valuation of goodwill and also in note 1g of the financial statements in relation to the key
sources of estimation uncertainty for these businesses.
How the scope of our
audit responded to the
key audit matter
Refer also to page 90 of the Audit committee report.
We obtained an understanding of the relevant controls over the valuation of goodwill, in particular controls over the forecasts that
underpin the impairment model and controls around management’s preparation of the model.
We assessed management’s impairment paper, underlying analysis and supporting financial models, and challenged the
reasonableness of the assumptions which underpin management’s forecasts. Specifically, our work included, but was not limited to:
• challenging management’s key assumptions relating to the 2021 forecast and later forecast periods with reference to the recent and
historical performance of the IoT Solutions business, our knowledge of the businesses, in particular the restructuring activity in the
year, and the status of new products expected to launch;
• challenging management’s assumptions around the impact of Covid-19 and Brexit on the business, including the recovery of
revenues against a variety of external market reports;
• benchmarking long term growth rates to applicable macro-economic and market data, also taking into account the assumed
recovery from Covid-19 pandemic;
• involving our internal valuation specialists to challenge the discount rate applied, by obtaining the underlying data used in the
calculation and benchmarking it against market data and comparable organisations, and by evaluating the underlying process used to
determine the risk adjusted cash flow projections;
• checking the integrity of the impairment models through testing of the mathematical accuracy, checking the application of the input
assumptions, and testing its compliance with IAS 36;
• assessing and reperforming management’s sensitivity analysis to identify the key assumptions which have a significant effect on the
model; challenging management on the key assumptions such as forecast revenues, operating margins, discount rate and long-term
growth rate which would either individually or collectively impact the level of headroom whilst also considering the likelihood of such
movements; and
• assessing the adequacy of the disclosures in note 1g of the financial statements in relation to the key sources of estimation
uncertainty for the business and note 15 of the financial statements in relation to the sensitivities reflecting the risks inherent in the
valuation of goodwill and the impact of a reasonably possible change in assumptions.
Key observations
We determined that the assumptions applied in the impairment model were within acceptable ranges, that the overall position adopted
was reasonable, and the disclosures are appropriate. The financial statements include disclosures relating to impairments which are
reasonably possible within the short term, should future performance fall below forecasts.
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5.2. Classification of adjusting items
Key audit matter
description
In addition to the statutory results, the Group continues to present adjusted profit measures in the consolidated income statement.
While the key measure used by management to monitor performance is adjusted operating profit, adjusted profit before tax is also a key
measure used by management in communication with shareholders. The Group’s policy on adjusting items is set out in note 1c to the
financial statements.
Judgements made by management regarding the classification of adjusting costs and income therefore have a significant impact on
the presentation of the Group’s results. In total, adjustments of £20.9 million have been made to the statutory operating profit of £6.6
million to derive adjusted operating profit of £27.5 million.
Adjusting items include:
• Restructuring costs (£14.8 million), including £6.3 million of severance costs and provisions, £7 million of costs relating to asset
impairments and £1.5 million of other costs primarily relating to project team costs;
• Gain on property disposals (£1.2 million);
• Pension costs (£0.9 million);
• Amortisation of intangible assets arising on business combinations (£4.2 million);
• Release of warranty and claims provision (£1 million);
• Torotel and Covina acquisition and integration costs (£2.6 million); and
• Other acquisition related costs (£0.6 million).
The identification of adjusting items and the presentation of adjusted profit and earnings measures that show a consistent and
balanced view of the performance of the Group involves significant judgement.
Significant judgement is also involved in ensuring that undue prominence is not given to underlying financial information, which
could be misleading to the readers of the financial statements. The effect of these matters is that, as part of our risk assessment, we
determined that the presentation of underlying operating profit requires a high degree of judgement and was therefore a key audit
matter.
There is a risk that items may be classified as adjusting which do not meet the Company’s definitions, and therefore distort the reported
adjusted profit whether due to manipulation or error, which may impact financial covenants reported and management remuneration.
Consistency in the identification and presentation of these items is important for the comparability of year on year reporting.
How the scope of our
audit responded to the
key audit matter
Explanations of each adjustment are set out in note 8 to the financial statements. Refer also to page 90 of the Audit committee report.
We obtained understanding of the relevant controls over the classification of adjusting items in the financial statements.
We evaluated the appropriateness of the inclusion of items, both individually and in aggregate, within adjusted results. Specifically, our
procedures included:
• assessing the consistency of the Group’s policy and items included year on year, and the application of management’s accounting
policy, challenging the nature of these items in comparison to ESMA guidance and latest FRC guidance on the impact of Covid-19 on
alternative performance measures, and challenging in particular the inclusion of those items that recur annually;
• focusing our challenge on certain categories within adjusted items where we assessed that increased level of judgement had been
applied by management, and there was increased opportunity for fraud or error;
• for restructuring costs related to severance, assessed whether these met the criteria of IAS37 ‘Provisions’, including a review of
announcements and other communication to employees;
• for asset impairments included within restructuring costs, assessing the classification of these under the Group’s policy;
• testing a sample of adjusting items by agreeing to source documentation evaluating the classification of the individual costs against
the Group’s definition of adjusting items (and, by extension, the FRC and ESMA definition); and
• assessing whether the disclosures within the financial statements provide sufficient detail for the reader to understand the nature of
these items and how adjusted results are reconciled to statutory results.
Key observations
The value of adjusting items results in a material difference between the statutory and adjusted results. We are satisfied that the
classification and disclosure of adjusting items in the financial statements is reasonable and in line with the Group policy.
5.3. Uncertain tax provisions
Key audit matter
description
In calculating the tax charge for the year ended 31 December 2020, the Group has recognised a liability of £6.4m relating to uncertain
tax positions at 31 December 2020 (the expected costs of settling existing and future potential disputes with tax authorities).
The estimation of uncertain tax provisions requires the directors to make significant judgements and estimates in relation to tax issues
and exposures. These arise from the fact that the Group operates in a number of tax jurisdictions, the complexities of transfer pricing
and other international tax legislation, and the time taken for open tax matters to be agreed with the tax authorities.
The effect of these matters is that we determined that tax provisioning levels have a high degree of estimation uncertainty. The
amount provided and assessed may not reflect the eventual outcome and there is a potential range of reasonable outcomes, which
are disclosed in note 9 to the financial statements, with further disclosure on the estimation uncertainty in note 1g to the financial
statements.
Our procedures included:
• assessing together with our own international and local tax specialists the Group’s tax positions and calculation methodology;
• assessing advice received by management from their professional advisors and correspondence with tax authorities;
• re-performing calculations using alternative methodologies and searching for contradictory evidence;
• assessing the completeness of the balance, considering the existence of tax risks beyond those captured by management; and
• assessing the adequacy of the Group’s disclosures in respect of uncertain tax positions.
How the scope of our
audit responded to the
key audit matter
Key observations
We concur that it is appropriate for a provision to be booked for these risks and we consider management’s calculation methodology
and the amounts recorded for the uncertain tax provisions to be reasonable.
118 TT Electronics plc Annual Report and Accounts 2020
Our application of materiality
6.
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Parent company financial statements
Materiality
£1.2 million (2019: £1.4 million)
£0.8 million (2019: £0.8 million)
Basis for determining
materiality
We considered a number of benchmarks including profit before
tax normalised to exclude restructuring and acquisition related
costs as disclosed in note 8 to the financial statements, revenue
and net assets and the materiality figures derived from those,
then selected a materiality within that range that we considered to
be appropriate.
Parent company materiality equates to 0.3% of net assets, which
is capped at 65% of group materiality in order address the risk of
aggregation when combined with other businesses.
Last year materiality was determined by the previous auditor as
0.2% of total assets.
Materiality for the current year represents:
0.3% of revenue (2019: 0.3%);
4.4% of adjusted profit (2019: 3.5%); and
0.4% of net assets (2019: 0.5%).
The 2019 comparative percentages have been derived using the
amounts in the annual report for the year ended 31 December
2019.
Last year the previous auditor determined materiality using
Group profit before tax from continuing operations normalised to
exclude restructuring and other acquisition related costs.
Given the impact of Covid-19, we considered that use of a range
of benchmarks was appropriate because the current year profit
did not represent a long term decline in the size and scale of the
business. In addition to this, we judged that a number of balance
sheet metrics will also be of equal interest to the users of the
financial statements in times of such economic uncertainty.
The use of a range of benchmarks enables us to determine a
more stable materiality level which is commensurate with the
current size and scale of the Group.
Prior year materiality was derived using Group profit before tax
from continuing operations normalised to exclude this year’s
restructuring and other acquisition related costs.
Rationale for the
benchmark applied
We believe that use of a balance sheet measure was appropriate
given that the parent acts as a holding company.
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial statements as a whole
Performance
materiality
Basis and rationale
for determining
performance
materiality
Group financial statements
65% of group materiality
Parent company financial statements
65% of parent company materiality
In determining performance materiality, we considered the following factors:
• our assessment of the complexity of the group and nature of the group’s business model;
• the de-centralised nature of the group’s control environment, its variation across the group, and the impact of Covid-19; and
• the low number of uncorrected misstatements identified by the previous auditor.
6.3. Error reporting threshold
We agreed with the Audit committee that we would report to the Committee all audit differences in excess of £60,000 as well
as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit
committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
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An overview of the scope of our audit
Identification and scoping of components
7.
7.1.
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and
assessing the risks of material misstatement at the Group and component level.
There are 74 reporting components in total, each of which is responsible for maintaining their own accounting records and
controls and using an integrated consolidation system to report to UK head office.
Our Group audit scope focused on audit work at 23 components representing 78% of the Group’s revenue, 90% of the Group’s
adjusted operating profit and 86% of the Group’s net assets, of which:
• 18 components were selected for a full scope audit representing 49% of the Group’s revenue, 78% of the Group’s adjusted
operating profit and 80% of net assets.
• 5 components were in scope for specified audit procedures, representing 29% of the Group’s revenue, 11% of the Group’s
adjusted operating profit and 6% of the Group’s net assets.
For the entities not subject to detailed audit work, we tested the consolidation process and conducted analytical procedures to
confirm our conclusion that there were no material misstatements in the aggregated financial information
Each component was set a specific component materiality, considering its relative size and any component-specific risk factors
such as the location of components, and this being a first year audit. The component materialities applied were in the range £0.3
to £0.4 million.
In total, as set out in the chart below we performed audit work on site at locations which together contributed 78% of Group
revenue, 90% of adjusted operating profit and 86% of net assets.
7.2.
Due to Covid-19 restrictions a majority of the audit work was executed remotely. The Group engagement team had online
interaction with the Group’s largest and most complex businesses during 2020 with a particular focus on locations where work
was performed on significant or material components.
In addition to the above, the senior statutory auditor held group-wide, divisional and individual planning and close meetings which
covered all businesses. Each division has a dedicated senior member of the group audit team responsible for the supervision and
direction of components, including where appropriate sector-specific expertise. We included the component audit team in our
team briefing, discussed and reviewed their risk assessment, and reviewed documentation of the findings from their work. We
also reviewed the audit work papers supporting component teams’ reporting to us remotely using shared desktop technology.
Revenue
Adjusted operating profit
Net assets
22%
29%
49%
10%
11%
14%
6%
79%
80%
Full audit scope Specific audit procedures Review at group level
Other information
8.
The other information comprises the information included in the annual report other than the financial statements and our
auditor’s report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on
the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we
do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives
rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact.
120 TT Electronics plc Annual Report and Accounts 2020
We have nothing to report in this regard.
Responsibilities of directors
9.
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability
to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.
org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the group’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
• results of our enquiries of management, internal audit and the Audit committee about their own identification and assessment of
the risks of irregularities;
• any matters we identified having obtained and reviewed the group’s documentation of their policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-
compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations; and
• the matters discussed among the audit engagement team including significant component audit teams and relevant internal
specialists, including tax, valuations, pensions and IT specialists regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud
and identified the greatest potential for fraud in the following areas: classification of adjusting items and revenue recognition.
In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of
management override.
We also obtained an understanding of the legal and regulatory frameworks that the group operates in, focusing on provisions
of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules, pensions
legislation and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but
compliance with which may be fundamental to the group’s ability to operate or to avoid a material penalty.
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11.2. Audit response to risks identified
As a result of performing the above, we identified the classification of adjusting items as a key audit matter related to the potential
risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the specific
procedures we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect on the financial statements;
• enquiring of management, the Audit committee and external legal counsel concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence
with tax authorities;
• addressing the risk of fraud in revenue recognition through tests of detail and the testing of manual adjustments posted to
revenue; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists and component audit teams, and remained alert to any indications of fraud or non-compliance with
laws and regulations throughout the audit.
Report on other legal and regulatory requirements
12. Opinions 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.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the
course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors' statement in relation to going concern, longer-term viability and that part of
the Corporate Governance Statement relating to the group’s compliance with the provisions of the UK Corporate Governance
Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 82;
• the directors’ explanation as to its assessment of the group’s prospects, the period this assessment covers and why the period
is appropriate set out on page 51;
• the directors' statement on fair, balanced and understandable set out on page 91;
• the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 50;
• the section of the annual report that describes the review of effectiveness of risk management and internal control systems set
out on page 50; and
• the section describing the work of the Audit committee set out on pages 88 to 91.
122 TT Electronics plc Annual Report and Accounts 2020
14. Matters on which we are required to report by exception
14.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• 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 are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
14.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have
not been made or the part of the directors’ remuneration report to be audited is not in agreement with the accounting records and
returns.
We have nothing to report in respect of these matters.
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the Audit committee, we were appointed by the board of directors of the parent company on
the 6 May 2020 at the 2020 Annual General Meeting, to audit the financial statements for the year ending 31 December 2020 and
subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 1 year, covering the
year ended 31 December 2020.
15.2. Consistency of the audit report with the additional report to the Audit committee
Our audit opinion is consistent with the additional report to the Audit committee we are required to provide in accordance with
ISAs (UK).
16. Use of our report
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.
Robert Knight (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
9 March 2021
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123
Governance and Directors' reportStrategic reportFinancial statements Financial statements
Financial statements
Consolidated income statement
for the year ended 31 December 2020
£million (unless otherwise stated)
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other operating income
Operating profit
Analysed as:
Adjusted operating profit
Restructuring and other
Acquisition and disposal related costs
Finance income
Finance costs
Profit before taxation
Taxation
Profit from continuing operations
Discontinued operations
Profit from discontinued operations
Profit for the period attributable to the owners of the Company
EPS attributable to owners of the Company (pence)
Basic
Continuing operations
Discontinued operations
Diluted
Continuing operations
Discontinued operations
1
‘Cost of sales’ and ‘Taxation’ have been restated for the comparative period as described in note 1h.
Note
3a
3a
8
8
6
6
9
5
11
11
11
11
2020
431.8
(332.7)
99.1
(24.6)
(68.1)
0.2
6.6
27.5
(14.5)
(6.4)
0.6
(4.3)
2.9
(1.6)
1.3
−
1.3
0.8
−
0.8
0.8
−
0.8
2019
Restated [1]
478.2
(363.3)
114.9
(28.1)
(71.3)
1.4
16.9
38.1
(13.2)
(8.0)
0.9
(4.6)
13.2
(0.8)
12.4
3.4
15.8
7.6
2.1
9.7
7.5
2.0
9.5
126
124 TT Electronics plc Annual Report and Accounts 2020
TT Electronics plc Annual Report and Accounts 2020
Financial statements
Consolidated statement of comprehensive income
for the year ended 31 December 2020
£million
Profit for the year
Other comprehensive income/(loss) for the year after tax
Items that are or may be reclassified subsequently to the income statement:
Exchange differences on translation of foreign operations
Tax on exchange differences
Gain on hedge of net investment in foreign operations
Gain on cash flow hedges taken to equity less amounts recycled to the income statement
Items that will never be reclassified to the income statement:
Remeasurement of defined benefit pension schemes
Tax on remeasurement of defined benefit pension schemes
Total comprehensive income for the year attributable to the owners of the Company
Note
23
9
2020
1.3
(5.0)
0.3
0.7
7.1
8.6
(2.1)
10.9
2019
Restated [1]
15.8
(7.6)
0.1
0.7
0.1
(9.1)
1.7
1.7
1
‘Exchange differences on translation of foreign operations’ and ‘Gain on hedge of net investment in foreign operations’ have been re-presented and ‘Profit for the year’ has been restated
in the comparative period as described in note 1h.
TT Electronics plc Annual Report and Accounts 2020
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127
125
Governance and Directors' reportFinancial statementsStrategic report
Financial statements
Financial statements
Consolidated statement of financial position
at 31 December 2020
£million
ASSETS
Non-current assets
Right-of-use assets
Property, plant and equipment
Goodwill
Other intangible assets
Deferred tax assets
Derivative financial instruments
Pensions
Total non-current assets
Current assets
Inventories
Trade and other receivables
Income taxes receivable
Derivative financial instruments
Cash and cash equivalents
Total current assets
Total assets
LIABILITIES
Current liabilities
Borrowings
Lease liabilities
Derivative financial instruments
Trade and other payables
Income taxes payable
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Derivative financial instruments
Deferred tax liability
Pensions
Provisions and other non-current liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Share capital
Share premium
Translation reserve
Other reserves
Retained earnings
Equity attributable to owners of the Company
Non-controlling interests
Total equity
Note
2020
2019
Restated [1]
2018
Restated [1]
13
14
15
16
9
22
23
17
18
22
31
21
30
22
19
20
21
30
22
9
23
20, 19
24
24
12.4
53.0
156.9
57.1
9.1
1.8
35.4
325.7
98.2
69.9
3.0
5.8
70.2
247.1
572.8
2.3
3.6
1.1
90.2
7.5
6.6
12.8
51.1
136.1
51.3
8.1
0.4
21.2
281.0
100.1
78.6
4.3
0.5
69.8
253.3
534.3
9.6
3.8
1.2
100.7
8.0
6.4
−
51.7
137.9
55.0
6.3
0.3
24.9
276.1
95.6
76.2
1.6
0.1
44.7
218.2
494.3
4.1
0.4
2.0
92.3
13.2
5.8
111.3
129.7
117.8
135.9
12.3
0.8
8.6
4.9
1.0
163.5
274.8
298.0
43.6
21.7
30.0
5.5
195.2
296.0
2.0
298.0
111.7
13.8
0.9
4.6
4.6
1.0
136.6
266.3
268.0
41.0
4.1
34.0
(0.5)
187.4
266.0
2.0
268.0
81.7
0.2
0.1
4.8
8.4
1.2
96.4
214.2
280.1
40.8
3.4
40.9
0.9
192.1
278.1
2.0
280.1
1 ‘Cash and cash equivalents’, ‘Borrowings’, ‘Retained earnings’, ‘Trade and other payables’, ‘Inventories’, ‘Deferred tax assets’, ‘Provisions’, ‘Provisions and other long term liabilities’
and ’Retained earnings’ have been restated for the comparative periods as described in note 1h.
Approved by the Board of Directors on 9 March 2021 and signed on their behalf by:
Richard Tyson
Director
Mark Hoad
Director
128
126 TT Electronics plc Annual Report and Accounts 2020
TT Electronics plc Annual Report and Accounts 2020
Financial statements
Consolidated statement of changes in equity
for the year ended 31 December 2020
£million
At 31 December 2018
Restatement to the adoption adjustment for IFRS 15 [1]
Restatement to carrying value of inventory [2]
Adjusted balance at 31 December 2018
Share
capital
Share
premium
Translation
Reserve
Other
reserves
Retained
earnings
Sub-
total
40.8
−
3.4
−
40.9
0.9
191.5
277.5
−
−
1.2
1.2
(0.6)
(0.6)
Non-
controlling
interest
2.0
−
Total
279.5
1.2
(0.6)
40.8
3.4
40.9
0.9
192.1
278.1
2.0
280.1
40.8
−
3.4
−
40.9
0.9
189.8
275.8
−
−
15.8
15.8
2.0
−
(2.3)
(2.3)
Impact of adoption of IFRS 16
Adjusted balance at 1 January 2019
Profit for the period [3]
Other comprehensive income
Exchange differences on translation
of foreign operations [3]
Tax on exchange differences
Gain on hedge of net investment in
foreign operations [3]
Gain on cash flow hedges taken to equity
less amounts taken to income statement
Remeasurement of defined benefit pension schemes
Tax on remeasurement of defined benefit pension
schemes
Total comprehensive income
Transactions with owners recorded directly in equity
Equity dividends paid by the Company
Share-based payments
Deferred tax on share-based payments
Purchase of own shares
New shares issued
At 31 December 2019
Profit for the year
Other comprehensive income
Exchange differences on translation
of foreign operations
Tax on exchange differences
Gain on hedge of net investment in foreign operations
Gain on cash flow hedges taken to equity
less amounts recycled to the income statement
Remeasurement of defined benefit pension schemes
Tax on remeasurement of defined benefit pension
schemes
Total comprehensive income
Transactions with owners recorded directly in equity
Share-based payments
Deferred tax on share-based payments
New shares issued
At 31 December 2020
−
−
−
−
−
−
−
−
−
−
−
0.2
41.0
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
0.7
4.1
−
−
−
−
−
−
−
−
−
−
2.6
43.6
17.6
21.7
(2.3)
277.8
15.8
(7.6)
0.1
0.7
0.1
(9.1)
1.7
1.7
(10.9)
0.2
0.1
(1.8)
0.9
268.0
1.3
(5.0)
0.3
0.7
7.1
8.6
(2.1)
10.9
(0.8)
(0.3)
20.2
298.0
(7.6)
−
0.7
−
−
−
−
−
−
0.1
−
−
(6.9)
0.1
−
0.1
−
−
(9.1)
1.7
8.5
(7.6)
0.1
0.7
0.1
(9.1)
1.7
1.7
−
−
−
−
−
34.0
−
(5.0)
0.3
0.7
−
−
−
(4.0)
−
(10.9)
(10.9)
0.2
0.1
(1.8)
0.9
0.2
0.1
(1.8)
−
−
−
−
−
(0.5) 187.4
1.3
−
266.0
1.3
2.0
−
−
−
−
7.1
−
−
−
−
−
8.6
(5.0)
0.3
0.7
7.1
8.6
(2.1)
(2.1)
7.1
7.8
10.9
−
−
−
(0.8)
(0.3)
−
−
−
−
(0.8)
(0.3)
20.2
30.0
5.5
195.2
296.0
2.0
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
1
2
3
‘Retained earnings’ has been restated for an adjustment to the initial assessment of IFRS15 as described in note 1h.
‘Retained earnings’ and ‘Profit for the year’ have been restated for the comparative periods as described in note 1h.
‘Exchange differences on translation of foreign operations’ and ‘Gain on hedge of net investment in foreign operations’ have been re-presented in the comparative periods as described
in note 1h.
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Financial statements
Financial statements
Consolidated statement of cash flows
for the year ended 31 December 2020
£million
Cash flows from operating activities
Profit for the year
Taxation
Net finance costs
Restructuring and other
Acquisition related costs
Profit from discontinued operations
Adjusted operating profit
Adjustments for:
Depreciation
Amortisation of intangible assets
Impairment of property, plant and equipment and intangible assets
Other items
Decrease/(increase) in inventories
Decrease/(increase) in receivables
(Decrease)/increase in payables and provisions
Adjusted operating cash flow
Special payments to pension funds
Restructuring and acquisition related costs
Net cash generated from operations
Net income taxes paid
Net cash flow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment and government grants received
Capitalised development expenditure
Purchase of other intangibles
Acquisitions of businesses
Cash with acquired businesses
Tax arising on disposal of subsidiaries
Net cash flow used in investing activities
Cash flows from financing activities
Issue of share capital
Interest paid
Repayment of borrowings
Proceeds from borrowings
Payment of lease liabilities
Other items
Dividends paid by the Company
Net cash flow from 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
Note
2020
2019
Restated [1]
9
13, 14
16
13, 14, 16
14
16
16
4
24
10
26
26
26
1.3
1.6
3.7
14.5
6.4
−
27.5
14.0
3.0
0.2
0.7
4.2
11.2
(11.8)
49.0
(5.4)
(15.1)
28.5
(0.3)
28.2
(9.3)
3.4
(3.3)
(0.8)
(43.3)
1.4
−
15.8
0.8
3.7
13.2
8.0
(3.4)
38.1
13.9
4.1
−
2.5
(7.6)
(4.0)
10.4
57.4
(8.6)
(9.2)
39.6
(3.7)
35.9
(14.0)
0.4
(3.9)
(0.7)
(2.4)
0.1
(1.2)
(51.9)
(21.7)
20.2
(3.5)
(27.2)
49.8
(4.1)
(1.8)
−
33.4
9.7
60.2
(0.9)
69.0
0.9
(4.0)
−
30.4
(4.4)
(4.6)
(10.9)
7.4
21.6
40.6
(2.0)
60.2
1
‘Profit for the year’, ‘Taxation’ and ‘Decrease/(increase) in inventories’ have been restated for the comparative period as described in note 1h.
130
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TT Electronics plc Annual Report and Accounts 2020
Financial statements
Notes to the consolidated financial statements
1 Basis of preparation
a) Basis of accounting
TT Electronics Plc (“the Group”) is a public company limited by shares (company number 00087249). The Group is incorporated
in the United Kingdom under the Companies Act 2006 and registered in England and Wales. The address of the registered office
is ’TT Electronics Plc, Fourth Floor, St Andrews House, West Street, Woking, Surrey, GU21 6EB’. The nature of the Group’s
operations and its principal activities by operating segment are set out in note 3 and in the divisional reviews on pages 38 to 43.
The Consolidated Financial Statements of the Group for the year ended 31 December 2020 were authorised in accordance with
a resolution of the Directors of TT Electronics Plc on 9 March 2021.
These Financial Statements are presented in pounds Sterling which is the currency of the primary economic environment in which
the Company is based. Foreign operations are included in accordance with the policies set out in note 2.
The consolidated financial statements have been prepared on a historical cost basis modified by derivatives held at fair value.
The consolidated financial statements have been prepared in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union.
The financial statements set out on pages 124 to 198 have been prepared using consistent accounting policies except for the
adoption of new accounting standards and interpretations noted below.
b) Basis of consolidation
The consolidated financial statements set out the Group’s financial position as at 31 December 2020 and the Group’s financial
performance for the year ended 31 December 2020.
Subsidiaries are those enterprises controlled by the Group. Control exists when the Group is exposed, or has rights, to variable
returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary.
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) Alternative performance measures
The Group presents Alternative Performance Measures (“APMs”) in addition to the statutory results of the Group. These are
presented in accordance with the guidelines on APMs issued by the European Securities and Markets Authority (“ESMA”).
Adjusted operating profit has been defined as operating profit from continuing operations excluding the impacts of significant
restructuring programmes, significant one-off items including property disposals, business acquisition, integration and divestment
related activity; and the amortisation of intangible assets recognised on acquisition. Acquisition and disposal related items include
the writing off of the pre-acquisition profit element of inventory written up on acquisition, other direct costs associated with
business combinations and adjustments to contingent consideration related to acquired businesses. Restructuring includes
significant changes in footprint (including movement of production facilities) and significant costs of management changes.
In addition to the items above, adjusting items impacting profit after tax include:
• The net effect on tax of significant restructuring from strategy changes that are not considered by the Group to be part of the
normal operating costs of the business; and
• The tax effects of adjustments to profit before tax.
Costs associated with restructuring, acquisitions and disposals are uncertain with regard to their timing and size and therefore their
inclusion within adjusted operating profit could mislead the reader of the accounts.
These financial statements include alternative performance measures that are not prepared in accordance with IFRS. These
alternative performance measures have been selected by the Directors to assist them in making operating decisions because
they represent the underlying operating performance of the Group and facilitate internal comparisons of performance over time.
The Directors consider the adjusted results to be an important measure used to monitor how the businesses are performing as
this provides a meaningful reflection of how the businesses are managed and measured on a day-to-day basis and achieves
consistency and comparability between reporting periods, when all businesses are held for a complete reporting period.
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Financial statements
Financial statements
Notes to the consolidated financial statements
continued
1 Basis of preparation continued
These alternative performance measures exclude certain significant non-recurring, infrequent or non-cash items that the Directors
do not believe are indicative of the underlying operating performance of the Group (that are otherwise included when preparing
financial measures under IFRS).
Adjusted profit is not a defined term under IFRS and may not be comparable with similarly titled profit measures reported by other
companies. It is not intended to be a substitute for, or superior to, GAAP measures. All APMs relate to the current year results
and comparable periods where provided.
The Directors consider there to be four main alternative performance measures: adjusted operating profit, free cash flow, adjusted
EPS and adjusted effective tax rate.
All alternative performance measures are presented on pages 192 to 198 and are reconciled to their equivalent statutory measures
where this is appropriate.
d) Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set
out within the Strategic Report on pages 1 to 71. The Strategic Report analyses the financial position of the Group, its cash flows,
liquidity position and borrowing facilities. In addition, note 22 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.
Whilst the Group was negatively impacted by COVID-19 in the year with revenues down 9% on a constant currency basis, the
Group’s recovery is well underway. Following the impact of COVID-19 in the second quarter of 2020, the Group has been on an
improving upward trend in both order intake and production capacity. This trend has been underpinned by strong order intake
across the Group through the fourth quarter of the year and has continued into early 2021 across all divisions. The order book
at the end of February 2021 is at record levels.
The Group’s financial position remains strong, at 31 December 2020 it had:
• £237.3 million of total borrowing facilities available (comprising committed facilities of £198.1 million and uncommitted facilities
of £39.2 million representing overdraft lines and an undrawn accordion facility of £30 million). The Group’s primary source of
finance is the £180 million committed revolving credit facility (RCF); at 31 December 2020 £136.8 million of this facility had been
drawn down. The Group’s RCF will mature in November 2023.
• A leverage ratio of 1.6 times at 31 December 2020 compared to a covenant maximum of 3.0 times. Interest cover (pre-IFRS 16
and excluding pension interest) of 12.6 times compared to a covenant minimum of 4.0 times.
The Group has prepared and reviewed cash flow forecasts across the business over the twelve-month period from the date of the
approval of these financial statements, considering the Group’s current financial position and the potential impact of our principal
risks on divisions.
The Group’s financial projections contain key assumptions surrounding revenue and operating profit recovery in 2021, these
estimates position the Group remaining below pre-COVID 2019 levels throughout the twelve months from the date of signing
these financial statements. Under the Group’s base case financial projections, the Group retains significant liquidity and covenant
headroom, with both metrics improving from the position as at 31 December 2020.
The Group’s financial projections have been stress tested for “business as usual” risks (such as profit growth and working capital
variances), and the impact of the following principal risks: general revenue reductions, contractual risks, people and capability,
supplier resilience and health and safety (occurring both individually and in unison). Principal risks which were not specifically
modelled were either considered not likely to have an impact within the going concern period or their financial effect was covered
within the overall downside economic risks implicit within the stress testing. Under the stress tested modelling, the liquidity
headroom within the group remains significant. Financial covenants continue to be in compliance under the stress tested model
and management have a number of mitigating actions which could be undertaken if required.
A “reverse” stress-test was also modelled to understand the conditions which could jeopardise the ability of the Group to continue
as a going concern including assessing against covenant testing and facility headroom. The stress testing also considered
mitigating actions which could be put in place. Mitigating actions included limiting capital expenditure and reducing controllable
costs including items such as discretionary bonuses and pay rises. The reverse stress test is deemed to have a remote likelihood
and help inform the Directors’ assessment that there are no material uncertainties in relation to going concern.
132
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Financial statements
1 Basis of preparation continued
The Group’s wide geographical and sector diversification helps minimise the risk of serious business interruption or catastrophic
reputational damage. Furthermore, the business model is structured so that the Group is not overly reliant on any single customer,
market or geography.
The Directors have assessed the future funding requirements of the Group with due regard to the risks and uncertainties to which
the Group is exposed and compared them with the level of available borrowing facilities and are satisfied that the Group has
adequate resources for at least twelve months from the date of signing. Accordingly, the financial statements have been prepared
on a going concern basis.
e) New and revised standards and interpretations adopted, not yet adopted and those in issue but not yet effective
New and revised standards and interpretations adopted during the year
At the date of authorisation of these financial statements the Group has applied the following revised IFRS Standards:
• ‘Amendments to References to the Conceptual Framework in IFRS Standards’ (Amendments to IFRS)
• ‘Definition of Business’ (Amendments to IFRS 3)
• ‘Definition of Material’ (Amendments to IAS 1 and IAS 8)
• ‘COVID-19-Related Rent Concessions’ (Amendment to IFRS 16)
• ‘Interest Rate Benchmark Reform’ (Amendments to IFRS 9, IAS 39 and IFRS 7)
New and revised standards and interpretations not yet adopted
The Group does not consider that any standard, amendment or interpretation issued by the IASB, but not yet applicable, will have
a significant impact on the financial statements.
New and revised IFRS Standards in issue but not yet effective
At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRS Standards
that have been issued but are not yet effective:
• ‘Classification of Liabilities as Current or Non-Current’ (Amendments to IAS 1)
• ‘Reference to the Conceptual Framework’ (Amendments to IFRS 3)
• ‘Property, Plant and Equipment — Proceeds before Intended Use’ (Amendments to IAS 16)
• ‘Onerous Contracts — Cost of Fulfilling a Contract’ (Amendments to IAS 37)
• ‘Annual Improvements to IFRS Standards 2018–2020’
• ‘Amendments to IFRS 17’
• ‘Extension of the Temporary Exemption from Applying IFRS 9’ (Amendments to IFRS 4)
• ‘Classification of Liabilities as Current or Non-current’ (Amendment to IAS 1)
• ‘Interest Rate Benchmark Reform — Phase 2’ (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
f) Change in accounting policies
Adoption of new and amendments to published standards and interpretations effective for the Group for the year ended
31 December 2020 did not have any material impact on the financial position or performance of the Group.
During the year the Group adopted the amendment to IFRS 16 ‘Leases’ relating to COVID-19 to allow rent concessions to be
recognised in the income statement without reassessing the carrying amounts of the related lease liability or right-of-use asset.
g) Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in note 2, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.
The estimates and associated assumptions are based on historical experiences and other factors that are considered to be
relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods
if the revision affects both current and future periods.
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Financial statements
Financial statements
Notes to the consolidated financial statements
continued
1 Basis of preparation continued
Critical judgements
In the course of preparing the Financial Statements, a critical judgement within the scope of paragraph 122 of IAS 1: “Presentation
of Financial Statements” is made during the process of applying the Group’s accounting policies.
Adjusting Items
Judgements are required as to whether items are disclosed as adjusting, with consideration given to both quantitative and
qualitative factors. Further information about the determination of adjusting items in the year ended 31 December 2020 is included
in note 1c.
There are no other critical judgements other than those involving estimates, that have had a significant effect on the amounts
recognised in the Financial Statements. Those involving estimates are set out below.
Key sources of estimation uncertainty
Assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that may have
a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year,
are discussed below.
• Note 4 – Acquisitions. The opening balance sheet for the recent acquisition of Torotel, Inc. has not yet been finalised and is
preliminary. There is uncertainty whether a loan provided under a US Government COVID-19 support scheme of $1.9 million
(£1.4 million) will be forgiven as described in more detail in Note 4.
• Note 9 – Taxation. Accruals for tax contingencies require management to make judgements and estimates in relation to tax audit
issues and exposures. Amounts accrued are based on management’s interpretation of country-specific tax law and the likelihood
of settlement. Tax benefits are not recognised unless the tax positions are probable of being sustained. Once considered to be
probable, management reviews each material tax benefit to assess whether a provision should be taken against full recognition
of the benefit on the basis of potential settlement through negotiation and/or litigation. These amounts are expected to be
utilised or to reverse as tax audits occur or as the statute of limitations is reached in the respective countries concerned. The
Group’s current tax liability at 31 December 2020 includes tax provisions of £6.4 million (2019: £7.3 million). The Group believes
the range of reasonable possible outcomes in respect of these exposures is tax liabilities of up to £8.2 million (2019: £7.4 million).
• Note 15 – Goodwill. The carrying amount of goodwill at 31 December 2020 was £156.9 million (31 December 2019:
£136.1 million). Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating
units (“CGUs”) to which the goodwill has been allocated. The value in use calculation requires management to estimate the future
cash flows expected to arise from CGUs and a suitable discount rate in order to calculate present value. The carrying amount
of the IoT Solutions CGU’s goodwill was £27.6 million (2019: £27.6 million). Due to the impact of COVID-19, as explained in note
15, IoT Solutions CGU shows headroom of £6.1 million and is sensitive to a reasonably possible change in assumptions; discount
rate, long-term growth rate and operating cash flow. At 31 December 2020 and 31 December 2019, the Group recognised no
impairment loss in respect of these assets. Further information, including a sensitivity analysis on the key assumptions, is
provided in note 15.
• Note 23 – Defined benefit pension obligations. The defined benefit obligations in respect of the plans are discounted at rates
set by reference to market yields on high quality corporate bonds. Significant estimation is required when setting the criteria
for bonds to be included in the population from which the yield curve is derived. The most significant criteria considered for the
selection of bonds to include are the issue size of the corporate bonds, quality of the bonds and the identification of outliers
which are excluded. In addition, assumptions are made in determining mortality and inflation rates to be used when valuing
the plan’s defined benefit obligations. Whilst actual movements might be different to sensitivities shown, there is a reasonably
possible change that could occur. At 31 December 2020, the retirement benefit plan was in a surplus of £30.5 million
(31 December 2019: £16.6 million). Note 23 outlines the significant assumptions and associated sensitivities.
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h) Restatements and representations
During the year, it was determined that the Group’s cash and overdrafts within notional cash pooling arrangements did not meet
the requirements for offsetting in accordance with IAS 32: ‘Financial Instruments: Presentation’ and cannot be presented net in
the statement of financial position. For presentational purposes, amounts have therefore been restated for the preceding years
ending 31 December 2019 and 31 December 2018 in accordance with IAS 8: ‘Accounting Policies, Changes in Accounting Policies
and Errors’. The impact of this change is to increase both cash and cash equivalents and overdrafts within current loans
and other borrowings for the year ended 31 December 2019 by £9.6 million (31 December 2018: £4.1 million) in the Group’s
consolidated statement of financial position. The re-presentation has no impact on the Group’s net debt, bank covenants or
other commercial agreements.
Within the comparative periods the consolidated statement of comprehensive income and the consolidated statement of changes
in equity have been re-presented to present the gain/(loss) upon retranslation of foreign currency denominated quasi equity loans
within the line ‘Exchange differences on translation of foreign operations’ which were previously presented within the line ‘Gain on
hedge of net investment in foreign operations’. The value of the amounts re-presented was £2.7 million in the year to 31 December
2019. There was no impact on the Group consolidated statement of financial position or the Group consolidated statement of
cash flows.
Within the comparative periods the consolidated statement of financial position has been represented to report certain balances
held within accruals within current ‘Trade and other payables’ relating to warranty and property items into current ‘Provisions’
and non-current ‘Provisions and other non-current liabilities’. The impact as at 31 December 2018 was to reduce ‘Trade and
other payables’ by £2.5 million, increase ‘Provisions’ by £1.4 million and increase ‘Provisions and other non-current liabilities’ by
£1.1 million. The impact as at 31 December 2019 was to reduce ‘Trade and other payables’ by £2.0 million, increase ‘Provisions’
by £1.2 million and increase ‘Provisions and other non-current liabilities’ by £0.8 million.
During the year it was determined that an adjustment was required to the initial deferred income recognised due to pricing
concessions given to isolated customers on the adoption of IFRS 15: ‘Revenue from Contracts with Customers’. The impact of
this restatement is to increase ‘Retained earnings’ and decrease deferred revenue (presented within ‘Trade and other payables’)
for the year ending 31 December 2019 by £1.2 million (31 December 2018: £1.2 million) within the Global Manufacturing Solutions
segment. There was no impact on the Group consolidated income statement, Group consolidated statement of cash flows or EPS.
During the year, it was determined certain overheads had been included in raw materials in a manner inconsistent with IAS 2:
‘Inventories’ at one site within the Global Manufacturing Solutions segment. The effect of restating the absorbed overheads as at
31 December 2018 was to decrease ‘Inventories’ by £0.8 million, increase ‘Deferred tax assets’ by £0.2 million and decrease equity
by £0.6m. For the year ending 31 December 2019 the cumulative effect was to decrease ‘Inventories’ by £2.7 million, increase
‘Deferred tax assets’ by £0.6 million, decrease ‘Operating profit’ by £1.9 million and decrease the tax charge by £0.4 million.
The reconciliation below describes the impact on the consolidated income statement and the consolidated statement of financial
position of the adjustments made to the initial deferred income recognised upon the adoption of IFRS 15: ‘Revenue from Contracts
with Customers’, the adjustment to ‘Inventories’ and the adjustment to reclassify certain items within ‘Trade and other payables’
into ‘Provisions’ and ‘Provisions and other non-current liabilities’.
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£million
As published
Cash and
overdrafts
gross up
Restatement of
accruals and
provisions
IFRS 15
adoption
restatement
Restatement
of inventory
As Restated
2018
Consolidated statement of
financial position
Cash and cash equivalents
Inventories
Borrowing (current)
Trade and other payables
Provisions − current
Deferred tax asset
Provisions and other non-current
liabilities
Retained earnings
Total equity
40.6
96.4
−
96.0
4.4
6.1
0.1
191.5
279.5
4.1
−
4.1
−
−
−
−
−
−
−
−
−
(2.5)
1.4
−
1.1
−
−
−
−
−
(1.2)
−
−
−
1.2
1.2
−
(0.8)
−
−
−
0.2
−
(0.6)
(0.6)
44.7
95.6
4.1
92.3
5.8
6.3
1.2
192.1
280.1
2019
£million
As published
Cash and
overdrafts
gross up
Restatement of
accruals and
provisions
IFRS 15
adoption
restatement
Restatement
of inventory
As Restated
Consolidated statement of
financial position
Cash and cash equivalents
Inventories
Borrowing (current)
Trade and other payables
Provisions − current
Deferred tax asset
Provisions and other non-current
liabilities
Retained earnings
Total equity
£million
Consolidated income statement
Cost of sales
Operating profit
Adjusted operating profit
Profit before taxation
Taxation
Profit for the period
£million
Earnings per share (p)
Basic − Continuing operations
Basic − Discontinued operations
Basic − Group
Diluted − Continuing operations
Diluted − Discontinued operations
Diluted − Group
60.2
102.8
−
103.9
5.2
7.5
0.2
188.3
268.9
9.6
−
9.6
−
−
−
−
−
−
−
−
−
−
−
−
(2.0)
(1.2)
1.2
−
0.8
−
−
−
−
−
1.2
1.2
−
(2.7)
−
−
−
0.6
−
(2.1)
(2.1)
69.8
100.1
9.6
100.7
6.4
8.1
1.0
187.4
268.0
2019
As published
Restatement
of inventory
As Restated
(361.4)
18.8
40.0
15.1
(1.2)
17.3
(1.9)
(1.9)
(1.9)
(1.9)
0.4
(1.5)
(363.3)
16.9
38.1
13.2
(0.8)
15.8
2019
As published
Restatement
of inventory
As Restated
8.5
2.1
10.6
8.4
2.0
10.4
(0.9)
−
(0.9)
(0.9)
−
(0.9)
7.6
2.1
9.7
7.5
2.0
9.5
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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) 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 customer
obtains control of goods. In most cases this is at the point in time of transfer of legal title of the goods. Revenue for services
is recognised as the services are rendered. For sales to customers where a right to return an item is granted, revenue is recognised
to the extent of the consideration to which the Group ultimately expects to be entitled (i.e. revenue is not recognised for goods
expected to be returned). Where a service warranty is provided to customers, the associated revenue, based upon an allocation
of the overall cost of performance, is recognised over the warranty period. Payment terms typically range from 30 to 120 days.
b) Finance income
Finance income comprises interest income on funds invested and foreign exchange gains. Interest income is recognised using the
effective interest rate.
c) Finance costs
Finance costs comprise interest expense on borrowings which are not capitalised under the borrowing costs policy, the calculated
interest income on pension assets net of the calculated interest expense on pension liabilities and foreign exchange losses.
d) Discontinued operations and assets held for sale
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. An asset is classified as held for sale if it is available for immediate sale in its present condition subject only to terms that
are usual and customary for sales of such assets and that it is highly probable the asset will be sold within one year from the date
of classification.
e) 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.
f) Business combinations
Business combinations are accounted for using the acquisition method. Goodwill on business combinations is recognised as the
fair value of the consideration, including the full cost of any derivative financial instruments used to hedge this item, less the fair
value of the identifiable assets and liabilities acquired and is recognised as an asset in the consolidated balance sheet. Costs
directly attributable to business combinations are recognised as an expense within the income statement as incurred.
Acquisitions and disposals of non-controlling interests that do not result in a change of control are accounted for as transactions
with owners in their capacity as owners and therefore no goodwill is recognised as a result of such transactions. The adjustments
to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary. Any difference between the
price paid or received and the amount by which non-controlling interests are adjusted is recognised directly in equity and attributed
to the owners of the parent.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination
occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts
are adjusted during the measurement period (which is no longer than 12 months from the acquisition date), or additional assets
or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition
date that, if known, would have affected the amounts recognised as of that date.
g) 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.
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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 ready for use 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 building improvements
Plant and equipment
50 years
50 years (or over the period of the lease, if shorter)
3 to 10 years
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.
h) 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 that 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.
i) Leases
The Group applies IFRS 16 ‘Leases’ and recognises right-of-use assets and lease liabilities for most leases (unless the lease term
is 12 months or less or the underlying asset has a low value).
The Group recognises a lease liability at the lease commencement date, measured as the present value of the future lease
payments, discounted at the incremental borrowing rate. A corresponding right-of-use asset is recognised separately on the face
of the consolidated balance sheet, net of accumulated depreciation and impairment losses.
The Group has applied judgement to determine the lease term for contracts that include renewal options. The assessment of
whether the exercise of such options is reasonably certain impacts the lease term, which significantly affects the amount of lease
liability and right-of-use asset recognised.
j) 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.
The Group participated in the UK Government Coronavirus Job Retention Scheme and received an exemption from Chinese social
security contributions. Both schemes meet the definition of a government grant under IAS 20 ‘Accounting for government grants’.
The Group has elected to present income received from these schemes as an offset to the employee expenses covered by the
schemes, in the same line of the income statement.
As of 31 December 2020, in the UK the Group received cash payments of £1.1 million, which were repaid in Q1 2021, hence there
was no income statement impact in the year ending 31 December 2020. In China, the Group recognised non-cash income from
government grants relating to the scheme of £1.4 million; there are no conditional costs attached to this grant. The Group also
received £0.2 million of other relief.
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k) 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. On the subsequent disposal or discontinuance of a previously acquired business,
the relevant goodwill is included in the gain or loss on disposal within the consolidated income statement except to the extent it has
been previously impaired.
Negative goodwill arising on the acquisition of a business is credited to the consolidated income statement on acquisition as part
of acquisition costs reported outside adjusted profit.
Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an
indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of
the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the
other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for
goodwill is not reversed in a subsequent period.
l) 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.
Customer relationships and contracts are valued on the basis of the net present value of the future additional cash flows arising
from customer relationships with appropriate allowance for attrition of customers.
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
Product development costs
Customer relationships
Order backlog
Software
up to 10 years
5 years
3 to 22 years
up to 2 years
3 to 5 years
Amortisation is charged on a straight-line basis.
m) 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.
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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.
n) 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. Net realisable value is based on estimated selling price less costs expected
to be incurred to completion and disposal. Provisions are made for obsolescence or other expected losses where necessary.
o) Trade receivables
Trade receivables are recognised at transaction price (i.e. original invoice price) and subsequently measured at amortised cost
less provision made for loss allowance of these receivables based upon the expected credit loss model (simplified model). All trade
receivables are held to collect contractual cash flows within a business model and meet the ‘Solely Payments of Principal and
Interest’ SPPI test.
p) 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 (or minus) directly attributable transaction costs.
In determining estimated fair value, investments are valued at quoted bid prices on the trade date.
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 remeasured at amortised cost using the effective interest
method as they are held with the intention to collect all cash flows and payments are solely payments of principal and interest.
The Group uses derivative financial instruments such as forward foreign exchange contracts and interest rate derivatives to hedge
risks associated with foreign exchange fluctuations and interest rate risk. These are designated as cash flow hedges (CFH). 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.
Hedge accounting is discontinued when 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.
The Group has made an accounting policy choice to treat the cost of hedging of derivatives taken out over any FX arising on
a forecast acquisition of the business as a basis adjustment on the goodwill recognised.
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2 Summary of significant accounting policies continued
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 – other financial assets
At each reporting date the Group assesses credit risk by considering reasonable and supportable information that may indicate
increases in credit risk. Indicators that an asset carries a higher credit risk compared to at inception or that an asset is credit-
impaired would include observable data in relation to the financial health of the debtor: significant financial difficulty of the issuer
or the debtor; the debtor breaches contract; it is probable that the debtor will enter bankruptcy or financial reorganisation.
The amount of credit risk provision is the difference between the original carrying amount and the recoverable amount, being the
present value of expected cash flows receivable (discounted using the original effective interest rate). The amount of the provision
is recognised in the income statement within administrative expenses.
Financial assets are written off when there is evidence indicating that the debtor is in severe financial difficulty and the Group has
no realistic prospect of recovery.
q) 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. Within the cashflow statement this definition also includes bank overdrafts that are
repayable on demand and form an integral part of the Group’s cash management.
r) 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.
s) Trade payables
Trade payables are carried at the amounts expected to be paid to counterparties.
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.
u) 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.
v) Employee benefits
The Group operates defined benefit post-retirement benefit schemes and defined contribution pension schemes.
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.
Defined benefit plans
The liability recognised in the balance sheet for defined benefit schemes is the present value of the schemes’ liabilities less the
fair value of the 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. Net interest income and expense on net defined benefit assets and liabilities is determined by applying discount rates
used to measure defined benefit obligations at the beginning of the year to net defined benefit assets and liabilities at the beginning
of the year and is included in finance income and costs. Remeasurements arising from defined benefit plans comprise actuarial
gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest).
The Group recognises them immediately in other comprehensive income and all other expenses related to defined
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benefit plans in employee benefit expenses in profit or loss. Surpluses are recognised where, on wind-up, the Group has
unconditional right to any surplus and Trustees do not have unilateral power to alter members’ benefits.
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.
w) 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.
x) 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 (which are designated as net investment hedges) and
exchange differences on intercompany loans which will not be repaid in the foreseeable future (which are treated as quasi equity)
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.
y) Impairment of non-financial assets
Property, plant and equipment and intangible assets (excluding goodwill) carrying amounts are reviewed at each reporting date
to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the asset is
estimated. Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate. Assets that do not generate
largely independent cash flows are assessed based on the CGU to which the asset belongs. If the recoverable amount of an
asset (or CGU) is estimated to be less than its carrying amount, an impairment loss is recognised in the income statement.
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140 TT Electronics plc Annual Report and Accounts 2020
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Financial statements
3 Segmental reporting
The Group is organised into three 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:
• Power and Connectivity – The Power and Connectivity division designs and manufactures power application products and
connectivity devices which enable the capture and wireless transfer of data. We collaborate with our customers to develop
innovative solutions to optimise their electronic systems;
• Global Manufacturing Solutions – The Global Manufacturing Solutions division provides manufacturing services and engineering
solutions for our product divisions and to customers that often require a lower volume and higher mix of different products.
We manufacture complex integrated product assemblies for our customers and provide engineering services including designing
testing solutions and value-engineering; and
• Sensors and Specialist Components – The Sensors and Specialist Components division works with customers to develop
standard and customised solutions including sensors and power management devices. Our solutions improve the precision,
speed and reliability of critical aspects of our customers’ applications.
The key performance measure of the operating segments is adjusted operating profit. Refer to note 8 for a definition of
adjusted profit.
Corporate costs – Resources and costs of the head office managed centrally but deployed in support of the operating units are
allocated to segments based on a combination of revenue and operating profit. Resources and costs of the head office which are
not related to the operating activities of the trading units are not allocated to divisions and are separately disclosed, equivalent to
the segment disclosure information, so that reporting is consistent with the format that is used for review by the chief operating
decision maker. This gives greater transparency of the adjusted operating profits for each segment.
Inter-segment pricing is determined on an arm’s length basis in a manner similar to transactions with third parties.
The Group’s geographical segments are determined by the location of the Group’s non-current assets and, for revenue, the location
of external customers. 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 may be
smaller than the segment which they are part of.
a) Income statement information – continuing operations
£million
Sales to external customers
Adjusted operating profit
Add back: adjustments made to
operating profit (note 8)
Operating profit
Net finance costs
Profit before taxation
£million
Sales to external customers
Adjusted operating profit
Add back: adjustments made to
operating profit (note 8)
Operating profit
Net finance costs
Profit before taxation
Power and
Connectivity
Global
Manufacturing
Solutions
Sensors and
Specialist
Components
Total Operating
Segments
125.1
10.3
197.5
15.0
109.2
9.4
431.8
34.7
Corporate
−
(7.2)
Power and
Connectivity
138.2
16.5
Global
Manufacturing
Solutions
Sensors and
Specialist
Components
Total Operating
Segments
213.2
13.5
126.8
15.3
478.2
45.3
Corporate
−
(7.2)
2020
Total
431.8
27.5
(20.9)
6.6
(3.7)
2.9
2019
Total
Restated [1]
478.2
38.1
(21.2)
16.9
(3.7)
13.2
1
‘Adjusted operating profit’ has been restated as described in note 1h.
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Financial statements
Notes to the consolidated financial statements
continued
3 Segmental reporting continued
b) Segment assets and liabilities
£million
Power and Connectivity
Global Manufacturing Solutions
Sensors and Specialist Components
Segment assets and liabilities
Pensions
Unallocated
Total assets/liabilities
Assets
2019
Restated [1]
172.7
125.4
122.8
420.9
21.2
92.2
534.3
Liabilities
2019
Restated [1]
26.0
67.6
23.0
116.6
4.6
145.1
266.3
2020
29.1
58.3
22.2
109.6
4.9
160.3
274.8
2020
216.9
119.6
110.2
446.7
35.4
90.6
572.7
1
‘Cash and cash equivalents’, ‘Borrowings’, ‘Retained earnings’, ‘Trade and other payables’, ‘Inventories’, ‘Deferred tax assets’, ‘Provisions’, ‘Provisions and other long term liabilities’ and
‘Retained earnings’ have been restated for the comparative periods as described in note 1h.
Unallocated assets of £90.6 million (2019: £92.2 million) comprise deferred tax of £9.1 million (2019: £8.1 million), cash and cash
equivalents of £70.2 million (2019: £69.8 million) and income tax of £3.0 million (2019: £4.3 million) and assets associated with the
central corporate function of £8.3 million (2019: £10.0 million).
Unallocated liabilities of £160.3 million (2019: £145.1 million) comprise borrowings (excluding leases and overdrafts) of
£135.9 million (2019: £111.7 million), overdrafts of £1.2 million (2019: £9.6 million), deferred tax of £8.6 million (2019: £4.6 million),
income tax of £7.5 million (2019: £7.8 million) and liabilities associated with the central corporate function of £7.1 million
(2019: £11.4 million).
£million
Power and Connectivity
Global Manufacturing Solutions
Sensors and Specialist Components
Capital expenditure
Depreciation and amortisation
2020
3.1
2.6
4.3
10.0
2019
4.9
5.2
9.0
19.1
2020
5.2
5.2
6.6
17.0
2019
4.9
5.2
7.9
18.0
c) Geographic information
Revenue by destination
The Group operates on a global basis. Revenue from external customers by geographical destination is shown below. Management
monitors and reviews 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
2020
100.2
74.8
164.2
0.7
88.8
3.1
431.8
2019
139.4
89.6
141.7
0.6
103.1
3.8
478.2
No individual customer directly accounts for more than 10% of Group revenue. Revenue from services is less than 1% of Group
revenues. All other revenue is from the sale of goods.
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Financial statements
3 Segmental reporting continued
Non-current assets
The carrying amount of non-current assets, excluding deferred tax assets and pensions, analysed by the geographical area is
shown below:
£million
United Kingdom
Rest of Europe
North America
Central and South America
Asia
d) Market information
Revenue by market
The Group operates in the following markets:
£million
Healthcare
Aerospace and defence
Automation and electrification
Distribution
2020
121.9
0.4
143.5
4.4
11.0
281.2
2020
106.1
93.4
163.6
68.7
431.8
2019
126.7
0.5
106.5
4.7
12.9
251.3
2019
110.7
95.7
196.5
75.3
478.2
4 Acquisitions
On 3 January 2020 the Group acquired the trade and assets of the aerospace and defence power supply business of Excelitas
Technologies Corp based in Covina, California, for an initial cash consideration of $17.7 million (£13.5 million) and a further
$0.9 million (£0.7 million) working capital adjustment paid in cash. In the year ended 31 December 2019 $0.3 million (£0.2 million)
was paid for a derivative financial instrument to hedge the consideration. Acquisition costs including integration costs are disclosed
in note 8. $18.6 million (£14.2 million) of the goodwill acquired is deductible for tax purposes.
The fair value of the net assets acquired were £12.1 million, including intangible assets relating primarily to the business’ customer
relationships of £4.1 million, resulting in goodwill recognised on acquisition of £2.3 million (all of which may become deductible
for tax purposes). From the date of acquisition to the period end the business generated revenue of £7.9 million, operating loss
of £0.1 million, adjusted operating profit of £1.0 million and an adjusted operating cash inflow of £1.8 million.
Had the acquisition been completed on 1 January, the Group’s full year revenue, operating profit and adjusted operating profit
would have been unchanged at £431.8 million, £6.6 million and £27.5 million respectively as reported.
The acquisition enhances the Group’s presence in the large and growing US aerospace and defence market and extends the
Group’s power electronics capabilities to include power convertors, moving the Group up the value chain, in line with its strategy.
This will also provide access to sole-sourced positions on growing defence programmes for the Group and new customer
relationships with key US defence primes. The goodwill recognised on acquisition represents the Group’s view of the future
earnings growth potential and technical know-how in the acquired business.
On 10 November 2020 the Group acquired the entire equity share capital of Torotel Inc. for an initial cash consideration of
$37.0 million (£27.9 million) and a further $1.0 million (£0.7 million) was paid for a derivative financial instrument to hedge the
consideration. Acquisition costs including integration costs are disclosed in note 8. The enterprise value of the consideration
was $43.4 million (£32.9 million) which consisted of the $37.0 million (£27.9 million) paid in cash and the assumption of net cash
excluding PPP loans, cash paid out for fees and cash paid for bonuses which crystallised upon acquisition totalling $6.4 million
(£4.8 million).
The fair value of the net assets acquired were £7.3 million, including intangible assets relating primarily to the business’ customer
relationships of £9.0 million, resulting in goodwill recognised on acquisition of £21.4 million (of which £nil will become tax
deductible). From the date of acquisition to the period end the business generated revenue of £2.4 million, operating loss of
£0.2 million adjusted operating profit of £0.2 million and an adjusted operating cash inflow of £0.4 million. The goodwill acquired
is not deductible for tax purposes.
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Financial statements
Notes to the consolidated financial statements
continued
4 Acquisitions continued
Torotel is a Kansas, US-based designer and manufacturer of high-reliability power and electro-magnetic assemblies and
components designed for harsh environments, primarily for defence markets. The acquisition broadens TT’s power electronics
capabilities in the US, further increasing its scale in this important market. It adds recurring revenue streams from largely sole
source positions on multi-year growth programmes and brings attractive cross-selling opportunities. The goodwill recognised on
acquisition represents the Group’s view of the future earnings growth potential and technical know-how in the acquired business.
Had the acquisition been completed on 1 January, the Group’s full year revenue, operating profit and adjusted operating profit would
have been £448.8 million, £8.1 million and £29.0 million respectively, compared to £431.8 million, £6.6 million and £27.5 million
as reported.
In August 2020 Torotel, Inc. applied for PPP loans, a US government COVID-19 support scheme, of $1.9 million (£1.4 million) to
be forgiven. To date the Group has not received confirmation that the application was successful therefore the liability has been
recognised in full in the provisional acquisition balance sheet. In the event the application is successful $1.9 million (£1.4 million)
of acquired debt will be forgiven under the scheme and the provisional accounting will be updated.
The fair value and gross contractual value of the financial assets acquired with the aerospace and defence power supply business
of Excelitas Technologies Corp and Torotel Inc. included receivables of £1.8 million and £1.8 million respectively. Management’s
best estimate of the cashflows which will be collected was £1.8 million for the aerospace and defence power supply business of
Excelitas Technologies Corp and £1.7 million for Torotel, Inc.
£million
Non-current assets
Right-of-use asset
Property, plant and equipment
Identifiable intangible assets
Deferred tax assets
Current assets/(liabilities)
Inventory
Trade and other receivables
Trade and other payables
Deferred tax liabilities
Lease liabilities
Cash and cash equivalents
Borrowings
Consideration Paid
Cash consideration net of the impact of hedging
Goodwill
The aerospace
and defence
power supply
business of
Excelitas
Technologies
Corp
Torotel, Inc.
(Provisional)
−
5.4
4.1
−
1.3
1.8
(0.5)
−
−
−
−
12.1
14.4
2.3
2.0
1.8
9.0
0.2
3.2
1.8
(6.3)
(0.8)
(2.0)
1.4
(3.0)
7.3
28.7
21.4
On 22 March 2019 the Group acquired the entire equity share capital of Power Partners Inc. for an initial $1.6 million (£1.2 million),
an additional $0.7 million (£0.5 million) was paid in the period based on business performance. In 2020 a further $0.6 million
(£0.5 million) was paid based on business performance. A further $0.5 million (£0.4 million) may still become payable.
The acquisition enhances our technology capabilities in power products and improves our medical market access accelerating our
organic technology roadmap and US medical market presence. The goodwill recognised on acquisition represents the Group’s view
of the future earnings growth potential of the acquired businesses.
5 Discontinued operations
The 2019 profit from discontinued operations shown in the consolidated income statement relates to release of tax and divestment
provisions of £3.4 million held in respect of disposals completed in earlier years. The 2019 cash flow from discontinued operations
included in the consolidated cash flow statement relates to tax arising on disposal of subsidiaries.
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144 TT Electronics plc Annual Report and Accounts 2020
TT Electronics plc Annual Report and Accounts 2020
Financial statements
6 Finance costs and finance income
£million
Interest income
Interest income on pension surplus
Finance income
Interest expense
Interest on lease liabilities
Interest expense on pension liabilities
Amortisation of arrangement fees
Finance costs
Net finance costs
7 Profit for the year
Profit from continuing operations for the year is stated after charging/(crediting):
£million
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation of intangible assets [1]
Net foreign exchange losses
Cost of inventories recognised as an expense
Research and development
Staff costs (see note 12)
Restructuring (excluded from adjusted operating profit)
Acquisition and disposal related costs (excluded from adjusted operating profit)
Remuneration of Group Auditors:
– audit of these financial statements
– audit of financial statements of subsidiaries of the Company
– assurance and other services [3]
Government grants
Share-based payments
Profit on disposal of property, plant and equipment (excluded from adjusted operating profit)
2020
2019
0.1
0.5
0.6
3.0
0.8
0.1
0.4
4.3
3.7
2020
10.8
3.2
7.2
2.1
332.7
9.2
130.1
14.5
6.4
0.5
0.7
0.3
(1.6)
1.0
(1.2)
0.1
0.8
0.9
3.0
1.0
0.2
0.4
4.6
3.7
2019
Restated [2]
10.4
3.5
8.6
2.5
363.3
11.5
135.6
12.8
3.6
0.5
0.6
0.1
(0.1)
2.9
−
1
Included within amortisation of intangible assets is £4.2 million (2019: £4.5 million) reported within items excluded from adjusted operating profit. The remaining charge is within
administrative expenses.
‘Cost of inventories recognised as an expense’ has been restated in the comparative period as described in note 1h.
2
3 Assurance and other services of £267 thousand comprising £94 thousand relating to the half-year review and £173 thousand relating to due diligence (2018: £42 thousand comprising
£39 thousand relating to the half-year review and £3 thousand for assistance with a UK grant review).
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Financial statements
Notes to the consolidated financial statements
continued
8 Adjusting items
As described in note 1c, adjusted profit measures are an alternative performance measure used by the Board to monitor the
operating performance of the Group.
£million
As reported
Restructuring and other
Restructuring
Property disposals
Pension Costs
Acquisition and disposal related costs
Amortisation of intangible assets arising on business combinations
Release of warranty and claims provision
Torotel acquisition and integration costs
Covina acquisition and integration costs
Other acquisition related costs
Total items excluded from adjusted measure
Adjusted measure
2020
2019 Restated [1]
Operating profit
Tax
Operating profit
6.6
(1.6)
16.9
(14.8)
1.2
(0.9)
(14.5)
(4.2)
1.0
(1.3)
(1.3)
(0.6)
(6.4)
(20.9)
27.5
1.8
−
0.1
1.9
0.4
(0.1)
0.2
0.2
0.1
0.8
2.7
(4.3)
(12.2)
−
(1.0)
(13.2)
(4.5)
−
(0.3)
(0.5)
(2.7)
(8.0)
(21.2)
38.1
Tax
(0.8)
2.9
−
0.2
3.1
1.0
−
−
0.1
0.4
1.5
4.6
(5.4)
1 ‘Operating profit’ and ‘Tax’ as reported have been restated in the comparative period as described in note 1h.
Restructuring and Other £14.5 million (2019: £13.2 million)
Restructuring costs charged in the period primarily relate to costs arising on the restructuring of the Group’s footprint, product
rationalisation and headcount reduction programme to reduce the Group’s fixed costs. Within the costs above there was
£6.3 million relating to severance costs and provisions, £3.4 million of intangible asset write downs, £2.0 million of right-of-use
asset and plant, property and equipment write downs, £1.6 million relating to inventory write downs and £1.5 million of other
costs primarily relating to project team costs and final costs of projects completed in 2020. Income from property disposals of
£1.2 million (2019: £nil) relates to the sale of property in Lutterworth, UK. Pension costs of £0.9 million (2019: £1.0 million with
£0.4 million relating to past service charge and £0.6 million relating to other pension restructuring costs) primarily relate to the
pension past service charge as a result of UK pensions schemes having to equalise male and female members’ benefits in respect
of guaranteed minimum pensions (‘GMP’). 2019’s restructuring costs amounted to £12.2 million, primarily related to restructuring
of the Group’s footprint, and the support of the Stadium synergy plan.
Acquisition and disposal related costs £6.4 million (2019: £8.0 million)
Acquisition and disposal related costs charged in the period relate to amortisation of acquired intangible assets (£4.2 million),
acquisition and integration costs of the aerospace and defence power supply business of Excelitas Technologies Corp based in
Covina, California (£0.6 million acquisition costs, £0.7 million integration costs), acquisition and integration costs of Torotel, inc.
(£1.2 million acquisition costs, £0.1 million integration costs) a credit related to the release of a product quality warranty claim
provision relating to the disposal of the Transportation, Sensing, and Control Division in 2017, following a full and final settlement
(£1.0 million), and other costs (£0.6 million). 2019’s acquisition related costs amounted to £8.0 million and primarily related to
amortisation of acquired intangible assets, the integration of Stadium Group and Precision Inc., and acquisition costs related
to Power Partners Inc. the aerospace and defence power supply business of Excelitas Technologies Corp and Torotel, Inc.
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Financial statements
9 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
Change in tax rate
Recognition of previously unrecognised deferred tax assets
Total deferred tax (credit)/charge
Total tax charge in the income statement
1 The deferred tax charge has been restated in the comparative period as described in note 1h.
2020
5.1
(3.4)
1.7
(0.5)
(0.4)
0.8
(0.1)
1.6
2019
Restated [1]
3.7
(3.1)
0.6
1.0
0.1
(0.9)
0.2
0.8
The enacted UK tax rate applicable from 1 April 2017 is 19% and due to changes in Government policy in the period this remains the
UK rate as the enacted rate drop, originally legislated to occur from 1 April 2020 to 17%, has been reversed. The applicable tax rate
for the period is based on the UK standard rate of corporation tax of 19% (2019: 19%). Overseas taxation is calculated at the rates
prevailing in the respective jurisdictions. The Group’s effective tax rate for the year was 55.2% (the adjusted tax rate was 18.1%,
see note 8).
On 3 March 2021 the UK Government announced changes to the UK corporate tax system and an increase in tax rate from the
fiscal year 2023 to 25% from the currently enacted rate of 19%. The change in tax rate will result in a change to the level of deferred
tax held in respect of the Group’s UK operations and may impact the Group’s effective tax rate in future years. The Group, to date,
has not identified any other significant tax charges or credits arising from the proposed legislation.
Included within the total tax charge above is a £2.7 million credit relating to items reported outside adjusted profit (2019:
£4.6 million).
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 19% (2019: 19%)
Effects of:
Impact on deferred tax arising from changes in tax rates
Overseas tax rate differences
Items not deductible for tax purposes or income not taxable
Adjustment to current tax in respect of prior periods
Recognition of previously unrecognised deferred tax assets
Current year tax losses and other items not recognised
Adjustment to value of deferred tax assets
Total tax charge reported in the income statement
2020
2.9
0.6
(0.4)
1.4
2.6
(3.4)
−
0.1
0.7
1.6
2019
Restated [1]
13.2
2.5
0.1
1.0
1.6
(3.1)
(0.9)
(0.4)
−
0.8
1
‘Profit before tax’ and the tax charge have been restated in the comparative period as described in note 1h.
The adjustment to current tax in respect of prior periods largely relates to the release of tax provisions in respect of concluded
disputes and uncertainties.
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Financial statements
Notes to the consolidated financial statements
continued
9 Taxation continued
The overall aim of the Group’s tax strategy is to support business operations by ensuring a sustainable tax rate, mitigating tax
risks in a timely and cost-efficient way and complying with tax legislation in the jurisdictions in which the Group operates. It is
however inevitable that the Group will be subject to routine tax audits or is in ongoing disputes with tax authorities in the multiple
jurisdictions it operates within. This is much more likely to arise in situations involving more than one tax jurisdiction. Differences
in interpretation of legislation, of global standards (e.g. OECD guidance) and of commercial transactions undertaken by the group
between different tax authorities are one of the main causes of tax exposures and tax risks for the group.
In order to manage the risk to the Group an assessment is made of such tax exposures and provisions are created using the best
estimate of the most likely amount to be incurred within a range of possible outcomes. The resolution of the Group’s tax exposures
can take a considerable period of time to conclude and, in some circumstances, it can be difficult to predict the final outcome.
The current tax liability at 31 December 2020 includes tax provisions of £6.4 million (2019: £7.3 million). The Group believes the
range of reasonable possible outcomes in respect of these exposures is tax liabilities of up to £8.2 million (2019: £7.4 million).
c) Deferred tax
The amounts of deferred taxation assets/(liabilities) provided in the financial statements are as follows:
The deferred tax asset includes losses of £7.3 million in respect of territories where the group has made net tax losses in the
current year. The net tax losses have been driven by one-off exceptional costs which the Group does not expect to recur in future
periods. Therefore, a deferred tax asset is recognised on the basis that it is considered probable that net taxable profits will be
recognised in these territories in future
£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
Net deferred tax asset
Deferred tax assets
Deferred tax liabilities
Net deferred tax asset
At
31
December
2019
Continuing
operations
Recognised
on
acquisition
Recognised
in equity/
OCI
Net
exchange
translation
As at
31
December
2020
(9.0)
1.9
(1.0)
(2.5)
1.5
3.9
3.6
(1.7)
1.3
5.5
3.5
8.1
(4.6)
3.5
0.2
(0.2)
0.4
(1.1)
(0.5)
2.9
3.9
(0.4)
(0.3)
(5.0)
(0.1)
(2.0)
(0.1)
−
−
−
0.9
0.3
−
−
0.3
(0.6)
−
−
−
(2.1)
−
−
−
−
(0.3)
−
(2.4)
0.2
0.1
0.1
−
−
(0.1)
(0.3)
0.1
−
−
0.1
(10.6)
1.7
(0.5)
(5.7)
1.0
7.6
7.5
(2.0)
0.7
0.8
0.5
9.1
(8.6)
0.5
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Financial statements
9 Taxation continued
£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 [1]
Net deferred tax asset
Deferred tax assets [1]
Deferred tax liabilities
Net deferred tax asset [1]
At
31
December
2018
Impact of
adoption of
IFRS 16
Adjusted
balance at
1 January
2019
Continuing
operations
Recognised
on
acquisition
Recognised
in equity/
OCI
Net
exchange
translation
As at
31
December
2019
(9.5)
2.1
(1.1)
(2.8)
1.0
4.0
2.8
(1.2)
1.3
4.9
1.5
6.3
(4.8)
1.5
−
−
−
−
−
−
−
−
−
0.8
0.8
(9.5)
2.1
(1.1)
(2.8)
1.0
4.0
2.8
(1.2)
1.3
5.7
2.3
0.7
(0.4)
0.2
(1.5)
0.5
0.1
1.0
(0.5)
(0.1)
(0.2)
(0.2)
(0.2)
−
−
−
−
−
−
−
−
−
(0.2)
−
−
−
1.7
−
−
−
−
0.1
−
1.8
−
0.2
(0.1)
0.1
−
(0.2)
(0.2)
−
−
−
(0.2)
(9.0)
1.9
(1.0)
(2.5)
1.5
3.9
3.6
(1.7)
1.3
5.5
3.5
8.1
(4.6)
3.5
1
‘Deferred tax assets’ has been restated for the year ended 31 December 2018 and 31 December 2019 as described in note 1h.
At 31 December 2020, the gross amount and expiry date of losses available for carry forward are as follows:
£million
Losses for which no deferred tax asset has been recognised
Expiring within 5
years
Expiring within
6−10 years
0.7
−
Unlimited
77.0
Total
77.7
At 31 December 2019, the gross amount and expiry date of losses available for carry forward were as follows:
£million
Expiring within
5 years
Expiring within
6−10 years
Losses for which no deferred tax asset has been recognised
0.5
−
Unlimited
70.8
Total
71.3
At 31 December 2020, the Group had no other items for which no deferred tax assets have been recognised (2019: £nil).
10 Dividends
Final dividend for prior year
Interim dividend for current year
2020
pence per share
2020
£million
2019
pence per share
−
−
−
−
−
−
4.55
2.10
6.65
2019
£million
7.4
3.4
10.8
The Directors recommend a final dividend of 4.7 pence per share. The Group has a progressive dividend policy. The final dividend
will be paid on 21 May 2021 to shareholders on the register on 30 April 2021.
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Financial statements
Notes to the consolidated financial statements
continued
11 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 year.
Pence
Basic earnings per share
Continuing operations
Discontinued operations
Total
Pence
Diluted earnings per share
Continuing operations
Discontinued operations
Total
1 EPS has been recalculated in the comparative period as described in note 1h.
The numbers used in calculating adjusted, basic and diluted earnings per share are shown below.
Adjusted earnings per share is based on the adjusted profit after interest and tax.
Adjusted earnings per share:
£million
Continuing operations
Profit for the year attributable to owners of the Company
Restructuring and other
Acquisition and disposal related costs
Tax effect of above items (see note 8)
Adjusted earnings
Adjusted earnings per share (pence)
Adjusted diluted earnings per share (pence)
2020
0.8
−
0.8
2020
0.8
−
0.8
2020
1.3
14.5
6.4
(2.7)
19.5
11.7
11.6
2019
Restated [1]
7.6
2.1
9.7
2019
Restated [1]
7.5
2.0
9.5
2019
Restated [1]
12.4
13.2
8.0
(4.6)
29.0
17.8
17.4
1
‘Profit for the year’, ‘Adjusted earnings’ and EPS have been restated in the comparative period as described in note 1h.
The weighted average number of shares in issue is as follows (new shares issued in the year described in Note 24):
Million
Basic
Adjustment for share awards
Diluted
2020
166.5
1.6
168.1
2019
163.1
3.3
166.4
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Financial statements
12 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
Power and Connectivity
Global Manufacturing Solutions
Sensors and Specialist Components
Total
Aggregate emoluments, including those of Directors, for the year were:
£million
Wages and salaries
Social security charges
Employers’ pension costs
Defined benefit pension costs
Share based payments expense
Remuneration in respect of the Directors was as follows:
£million
Emoluments
The remuneration of key management during the year was as follows:
£million
Short-term benefits
Pension and other post-employment benefit expense
Share based payments
2020
2019
3,987
293
298
4,578
1,447
1,475
1,656
4,578
2020
103.1
21.7
3.2
1.1
1.0
4,178
347
288
4,813
1,478
1,546
1,789
4,813
2019
105.2
23.0
3.5
1.0
2.9
130.1
135.6
2020
1.8
2020
3.0
0.1
0.3
3.4
2019
2.7
2019
4.7
0.1
1.9
6.7
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Financial statements
Notes to the consolidated financial statements
continued
13 Right-of-use assets
£million
Cost
At 1 January 2019
Transfer
Additions
Businesses acquired
Net exchange adjustment
At 1 January 2020
Additions
Lease reassessment
Businesses acquired
Net exchange adjustment
At 31 December 2020
Depreciation
At 1 January 2019
Transfer
Depreciation charge
Impairment
Net exchange adjustment
At 1 January 2020
Depreciation charge
Impairment
Net exchange adjustment
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
Land and
buildings
Other
Right-of-use
assets
31.4
−
0.4
0.2
(0.4)
31.6
0.4
1.3
2.0
(0.4)
34.9
14.3
−
3.0
2.7
(0.2)
19.8
2.8
1.0
(0.3)
23.3
11.6
11.8
0.9
0.5
0.2
−
−
1.6
0.2
−
−
−
1.8
−
0.1
0.5
−
−
0.6
0.4
−
−
1.0
0.8
1.0
32.3
0.5
0.6
0.2
(0.4)
33.2
0.6
1.3
2.0
(0.4)
36.7
14.3
0.1
3.5
2.7
(0.2)
20.4
3.2
1.0
(0.3)
24.3
12.4
12.8
In 2020 the Group identified indicators of impairment due to the planned relocation of our office in Carrollton, Texas (£0.9 million)
and the planned closure of one of our facilities in Barbados (£0.1 million), both within the Sensors and Specialist Components
segment. A total of £1.0 million was recognised within items excluded from adjusted profit. Lease reassessment of £1.3 million
largely relates to a change in judgement on our Cleveland facility’s lease term following the annual strategic growth plan.
In 2019 the Group identified indicators of impairment due to the closures of our office in Brea, California (£0.3 million), a UK facility
within IoT Solutions (£0.5 million) and the planned closure of one of our facilities in Mexicali, Mexico (£1.9 million). As a result, an
impairment of £2.7 million was recognised within items excluded from adjusted operating profit, £2.2 million within the Sensors
and Specialist Components segment and £0.5 million within the Power and Connectivity segment.
In 2019, assets with a net book value of £0.4 million previously treated as plant and equipment held under finance leases were
transferred from property, plant and equipment.
154
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Financial statements
14 Property, plant and equipment
£million
Cost
At 1 January 2019
Additions
Disposals
Transfers
Net exchange adjustment
At 1 January 2020
Additions
Businesses acquired
Disposals
Net exchange adjustment
At 31 December 2020
Depreciation and impairment
At 1 January 2019
Depreciation charge
Impairment
Disposals
Transfers
Net exchange adjustment
At 1 January 2020
Depreciation charge
Impairment
Disposals
Net exchange adjustment
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
Land and
buildings
Plant and
equipment
27.9
2.3
(1.3)
−
(0.7)
28.2
1.2
6.3
(5.5)
(0.5)
29.7
11.8
1.2
1.9
(1.3)
−
(0.4)
13.2
1.2
−
(3.5)
(0.1)
10.8
18.9
15.0
180.2
11.6
(6.6)
(0.5)
(4.9)
179.8
8.1
0.9
(9.2)
(2.6)
177.0
144.6
9.2
0.1
(6.4)
(0.1)
(3.7)
143.7
9.6
1.0
(9.0)
(2.4)
142.9
34.1
36.1
Total
208.1
13.9
(7.9)
(0.5)
(5.6)
208.0
9.3
7.2
(14.7)
(3.1)
206.7
156.4
10.4
2.0
(7.7)
(0.1)
(4.1)
156.9
10.8
1.0
(12.5)
(2.5)
153.7
53.0
51.1
Included within land and buildings are two investment properties with a combined carrying value of £1.8 million (2019: £0.7 million)
and a combined fair value of £1.8 million (2019: £0.7 million). The increase in both carrying and fair value was due to an investment
property acquired as part of the acquisition of Torotel, Inc.
In 2020 the Group identified indicators of impairment within plant and equipment as a result of divisional restructuring in the
Sensors and Specialist Components division (£0.6 million) and the planned closure of the operation in Lutterworth, UK in the
Power and Connectivity division (£0.4 million). A total of £1.0 million was recognised within items excluded from adjusted profit.
In 2019 the Group identified indicators of impairment due to the planned closure of one of our facilities in Mexicali, Mexico in the
Sensors and Specialist Components division. As a result, an impairment of £2.0 million was recognised within items excluded from
adjusted operating profit.
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Financial statements
Financial statements
Notes to the consolidated financial statements
continued
15 Goodwill
£million
Cost
At 1 January 2019
Additions
Net exchange adjustment
At 1 January 2020
Additions
Net exchange adjustment
At 31 December 2020
137.9
0.9
(2.7)
136.1
23.7
(2.9)
156.9
The goodwill generated as a result of acquisitions represents the premium paid in excess of the fair value of all net assets, including
intangible assets, identified at the point of acquisition. The future improvements applied to the acquired businesses, achieved
through a combination of revised strategic direction, operational improvements and investment are expected to result in improved
profitability of the acquired businesses during the period of ownership. The combined value achieved from these improvements
is expected to be in excess of the value of goodwill acquired.
Goodwill is attributed to the following cash-generating units in the divisions shown below:
£million
Power and Connectivity:
Power Solutions [1]
IoT Solutions
Global Manufacturing Solutions:
Global Manufacturing Solutions
Sensors and Specialist Components:
Resistors [2]
Optoelectronics
Roxspur
2020
2019
57.9
27.6
18.2
30.1
21.0
2.1
156.9
35.1
27.6
18.6
31.1
21.6
2.1
136.1
1
2
Includes the newly acquired aerospace and defence power supply business of Excelitas Technologies Corp based in Covina, California, and Torotel, Inc.
In the prior year the Resistors CGU comprised of the Variable Components CGU and the Resistors CGU with respective goodwill of £28.9 million and £2.2 million.
The Group tests goodwill impairment 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 flow projections over a forecast period.
The growth rate assumed after this forecast period is based on long-term GDP projections capped at long term growth rates (which
are approximated as long term inflation rates) of the primary market for the CGU, in perpetuity. Long-term growth rates are based
on long-term forecasts for growth in the sectors and geography in which the group of CGUs operates. Long-term growth rates are
determined using long-term growth rate forecasts that take into account the international presence and the markets in which each
business operates.
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.
156
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Financial statements
15 Goodwill continued
In determining the cost of equity, the Capital Asset Pricing Model (“CAPM”) has been used. Under CAPM, the cost of equity is
determined by adding a risk premium, based on an industry adjustment (“Beta”), to the expected return of the equity market above
the risk-free return. The relative risk adjustment reflects the risk inherent in each group of CGUs relative to all other sectors and
geographies on average.
The cost of debt is determined using a risk-free rate based on the cost of government bonds, and an interest rate premium
equivalent to a corporate bond with a similar credit rating to TT Plc.
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.
Management has detailed plans in place reflecting the latest Budget and strategic growth plan. The pre-tax discount rates and
periods of management approved forecasts are shown below:
Power Solutions
IoT Solutions
Global Manufacturing Solutions
Resistors [1]
Optoelectronics
Roxspur
Pre-tax
discount rate
Long term
growth rate
Period of
forecast (years)
Pre-tax
discount rate
Long term
growth rate
Period of
forecast (years)
2020
2019
11.6%
11.5%
13.3%
12.9%
13.7%
11.8%
1.7%
1.8%
2.2%
1.7%
1.8%
1.6%
3
5
3
3
3
3
11.5%
11.7%
12.3%
note 1
13.8%
11.4%
1.7%
2.0%
2.4%
note 1
1.6%
1.6%
5
5
5
5
5
5
1
In the prior year the Resistors CGU comprised of the Variable Components CGU and the Resistors CGU with respective long term growth rates of 1.6% and 1.6%, and pre-tax discount
factors of 13.8% and 12.8%.
No impairment losses have been recognised in the current or prior year as recoverable amounts exceed the total carrying value
of assets for all of the CGUs.
Assumptions in the value in use test is the projected performance of the CGUs based on sales growth rates, cash flow forecasts
and discount rate. Forecast sales growth rates are based on past experience adjusted for the strategic direction and near-term
investment priorities within each CGU. The key assumptions include externally obtained growth rates in the key markets disclosed
in note 3 and customer demand for product lines. Cash flow forecasts are determined based on historic experience of operating
margins, adjusted for the impact of changes in product mix and cost-saving initiatives, including the impact of our restructuring
projects and cash conversion based on historical experience.
The recoverable amounts associated with the goodwill balances which are based on these performance projections and based on
current forecast information do not indicate that any goodwill balance is impaired. If a company’s actual performance does not
meet these projections this could lead to an impairment of the goodwill in future periods. The COVID-19 pandemic is having a
significant impact on global end markets in which certain of the Group’s businesses operate which has resulted in reduced levels
of headroom at the point of forecast, in particular the IoT Solutions CGU.
Sensitivity analysis has been performed on the key assumptions; operating cash flow projections and discount rate. Cash flows can
be impacted by changes to sales projections, sales prices, direct costs and replacement capital expenditure; individually they are
not significant assumptions.
The Directors have not identified changes in significant assumptions that would cause the carrying value of recognised goodwill
to exceed its recoverable amount, with the exception of IoT Solutions CGU.
At 31 December 2020, due to reduced forecast revenues resulting from the COVID-19 pandemic, an indicator of impairment was
identified in respect of goodwill allocated to all CGUs, with the most significant impact on IoT Solutions.
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Governance and Directors' reportFinancial statementsStrategic report
Financial statements
Financial statements
Notes to the consolidated financial statements
continued
15 Goodwill continued
IoT Solutions CGU operates in markets with strong growth fundamentals and the short term forecasts for the IoT Solutions CGU
include revenue and margin growth from successful product launches in the short and medium term. However, these forecasts
exclude any potential benefits from the Virolens® rapid COVID-19 screening device given operational trials and validation testing
are ongoing and the wide range of possible outcomes.
IoT Solutions CGU shows headroom of £6.1 million above the £60.2 million carrying amount, including £27.6m of goodwill.
The growth rates assume that demand for our product 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.
In accordance with IAS 36 ‘Impairment of Assets’ the Group performed sensitivity analysis on the estimates of recoverable amounts
and found that the excess of recoverable amount over the carrying amount of the IoT Solutions CGU would be reduced to £nil as a
result of a reasonably possible change in assumptions.
Sensitivity analysis has been carried out and a reasonably possible change in the discount rate and long-term growth rate from
11.5% to 12.3% or from 1.8% to 0.5% respectively would reduce headroom to £nil. A reduction in operating cash flow of 9.2%
would also reduce headroom to £nil. Management does not consider that the relevant change in these assumptions would have
a consequential effect on other key assumptions.
Product
development
costs
Patents,
licences and
other
Customer
relationships
10.2
3.9
−
−
(0.4)
13.7
3.3
0.2
(0.5)
16.7
3.9
1.8
−
(0.2)
5.5
1.0
3.6
(0.4)
9.7
7.0
8.2
33.0
0.7
0.1
(0.2)
(0.2)
33.4
0.8
1.3
(0.1)
35.4
25.9
3.2
(0.2)
(0.2)
28.7
2.3
−
−
31.0
4.4
4.7
52.5
−
0.7
−
(0.4)
52.8
−
11.8
(0.7)
63.9
10.9
3.6
−
(0.1)
14.4
3.9
−
(0.1)
18.2
45.7
38.4
Total
95.7
4.6
0.8
(0.2)
(1.0)
99.9
4.1
13.3
(1.3)
116.0
40.7
8.6
(0.2)
(0.5)
48.6
7.2
3.6
(0.5)
58.9
57.1
51.3
16 Other intangible assets
£million
Cost
At 1 January 2019
Additions
Businesses acquired
Disposals
Net exchange adjustment
At 1 January 2020
Additions
Businesses acquired
Net exchange adjustment
At 31 December 2020
Amortisation
At 1 January 2019
Charge for the year
Disposals
Net exchange adjustment
At 1 January 2020
Charge for the year
Impairment
Net exchange adjustment
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
158
156 TT Electronics plc Annual Report and Accounts 2020
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Financial statements
16 Other intangible assets continued
Of the £3.6 million impairment charge for the year £3.4 million arose because of restructuring and has been excluded from adjusted
operating profit by removing the charge from administrative expenses as described in note 8. £2.0 million arose in the Sensors and
Specialist Components segment and £1.4 million arose in the Power and Connectivity segment.
Included within the amortisation charge for the year is £4.2 million (2019: £4.5 million) included within items excluded from
adjusted profit as the charge relates to intangibles acquired upon acquisition of businesses.
Customer relationships are intangible assets recognised upon acquisition which are amortised over long periods of time and are
summarised below. The amortisation charge is excluded from adjusted operating profit as described in note 8. The composition
of customer relationships and the years remaining until they are fully amortised is shown below.
£million
Stadium Group
Aero Stanrew
Torotel
Precision Inc.
Covina
Roxspur
Others
At 31 December 2020
£million
Stadium Group
Aero Stanrew
Precision Inc.
Roxspur
Others
At 31 December 2019
Net book value
Years remaining
12.3
10.0
21.9
11.7
13.2
1.6
15.8
11.1
7.5
6.1
3.6
0.9
0.7
45.7
Net book value
Years remaining
13.3
11.0
12.7
2.6
17.1
12.2
6.8
1.4
0.9
38.4
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Financial statements
Financial statements
Notes to the consolidated financial statements
continued
17 Inventories
£million
Raw materials
Work in progress
Finished goods
1
‘Raw materials’ has been restated following an inventory restatement as further described in note 1h
18 Trade and other receivables
£million
Trade receivables
Prepayments
VAT and other taxes receivable
Amounts owed by non-controlling interests [1]
Other receivables
2020
53.2
26.4
18.6
98.2
2020
58.2
4.3
2.7
2.0
2.7
69.9
2019
Restated [1]
57.6
21.1
21.4
100.1
2019
66.4
4.8
2.7
2.0
2.7
78.6
1
‘Amounts owed by non-controlling interests’ relates to £2.0 million owed by a non-controlling interest in subsidiary Rodco Limited which is payable on demand. No provision has been
recognised against the balance as the cashflows have been assessed as fully recoverable.
Loss allowance for expected credit losses in respect of trade receivables are shown in note 22(d)(ii).
19 Trade and other payables
£million
Current liabilities
Trade payables
Taxation and social security
Accruals
Deferred income
Goods received not invoiced
Other payables
1
‘Other payables’ has been restated for an adjustment to meet the requirements of IFRS 15 as further described in note 1h.
£million
Non-current liabilities
Accruals
2020
51.1
4.7
21.0
3.8
4.9
4.7
90.2
2019
Restated [1]
50.9
5.0
24.3
11.6
5.7
3.2
100.7
2020
2019
0.1
0.2
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Financial statements
20 Provisions
£million
At 1 January 2019
Utilised
Released
Arising during the year
Exchange differences
At 1 January 2020
Utilised
Released
Arising during the year
Exchange differences
At 31 December 2020
1
‘Provisions’ has been restated further described in note 1h.
£million
Non-current
Current
1
‘Provisions’ has been restated as further described in note 1h.
Property
Reorganisation
Legal, warranty
and other
Total
Restated [1]
1.1
(0.1)
(0.2)
0.1
(0.1)
0.8
−
−
0.1
−
0.9
0.9
(0.5)
−
1.6
(0.1)
1.9
(3.8)
(0.1)
6.3
(0.2)
4.1
4.9
(0.4)
(0.7)
0.7
−
4.5
(0.8)
(1.3)
0.1
−
2.5
2020
0.9
6.6
7.5
6.9
(1.0)
(0.9)
2.4
(0.2)
7.2
(4.6)
(1.4)
6.5
(0.2)
7.5
2019
Restated [1]
0.8
6.4
7.2
The reorganisation provision of £4.1 million includes £3.6 million in respect of self-help programmes to consolidate our footprint
including the closure of Barbados, Corpus Christi (Texas, US) and Lutterworth (UK) sites, the moving of Carrollton (Texas, US)
£0.1 million and £0.1 million in respect of facility and product line rationalisation. A further £0.3 million relates to the restructuring
programme undertaken in association with the closure of the Boone, North Carolina operations. Reorganisation provisions relate
to committed costs in respect of restructuring programmes, as described in note 8, usually resulting in cash spend within one year.
Work has been performed to rectify soil contamination that occurred as a result of past production practices, with £0.1 million
utilised during the period. The provision is based upon the Group’s estimate of the scope of further work which contains inherent
uncertainty.
The utilisation of £3.8 million relates to severance costs of £3.3 million as part of the self-help programme, £0.2 million in respect
of the Brea, California office closure, £0.1 million for the closure of our Taishan, China facility and £0.2 million of other costs
(including Boone).
Legal, warranty and other claims represent the best estimate for the cost of settling outstanding product and other claims, warranty
provisions created on the disposal of businesses and provision for the cost of acquisitions.
The release of £1.3 million includes £1.0 million related to the release of a product quality warranty claim provision relating to the
disposal of the Transportation, Sensing, & Control Division in 2017, following a full and final settlement and £0.3 million of other
costs largely relating to retention payments entered into on the date of acquisition to employees of acquired businesses.
The utilisation of £0.8 million relates to retention payments entered into on the date of acquisition to employees of acquired
businesses (£0.5 million) and other items (£0.3 million).
Property provisions of £0.9 million (2019: £0.8 million) relate to dilapidation provisions.
In 2019, the utilisation relates to a customer claim in Kuantan, Malaysia (£0.3 million), costs associated with the acquisition
of Stadium (£0.1 million) and costs associated with the disposal of the Transportation Sensing and Control division in 2017
(£0.1 million). The release of £0.5 million relates to surplus costs provided on the disposal of the Transportation Sensing and
Control division in 2017 and surplus property costs relating to a vacant site. The charge to the income statement (£0.7 million)
relates to costs incurred in the integration of the Stadium and Precision businesses.
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Notes to the consolidated financial statements
continued
20 Provisions continued
The Group has, on occasion, been required to enforce commercial contracts and to defend itself against proceedings brought by other
parties. Provisions are made for the expected costs associated with such matters, based on past experience of similar items and other
known factors, taking into account professional advice received, and represent management’s best estimate of the likely outcome.
The timing of utilisation of these provisions is frequently uncertain, reflecting the complexity of issues and the outcome of various court
proceedings and negotiations. Contractual and other provisions represent the Directors’ best estimate of the cost of settling future
obligations although there is a higher degree of judgement involved. Unless specific evidence exists to the contrary, these provisions are
shown as current.
No provision is made for proceedings which have been or might be brought by other parties against Group companies unless
management, taking into account professional advice received, assesses that it is more likely than not that such proceedings may
be successful. Contingent liabilities associated with such proceedings have been identified, but the Directors are of the opinion that
any associated claims that might be brought can be resisted successfully, and therefore the possibility of any material outflow in
settlement in excess of amounts provided is assessed as remote.
The timing of the utilisation of these amounts is uncertain as they are subject to commercial negotiation and legal process in
different jurisdictions. Where possible the Group has purchased insurance cover to protect itself from these exposures.
21 Borrowings and lease obligations
£million
At 31 December 2020
£180 million multi-currency revolving credit facility
Overdrafts
Lease liabilities
Other external loans
Loan arrangement fee
Total
At 31 December 2019
Maturity
Currency of
denomination
Current
Non-current
Total
2023
2023
GBP
USD
−
−
1.2
3.6
1.1
−
5.9
−
−
9.6
3.8
−
117.0
19.7
−
12.3
0.3
(1.1)
148.2
95.5
17.7
−
13.8
(1.5)
13.4
125.5
117.0
19.7
1.2
15.9
1.4
(1.1)
154.1
95.5
17.7
9.6
17.6
(1.5)
138.9
£180 million multi-currency revolving credit facility
2023
2023
GBP
USD
Overdrafts [1]
Lease liabilities
Loan arrangement fee
Total
1
‘Cash and cash equivalents’ and ‘Borrowings’ have been restated to meet the presentational requirements of IAS 32 as described in note 1h.
In May 2016 the Group signed a five-year £150 million multi-currency revolving credit facility and a further uncommitted
incremental accordion facility of £30 million. In December 2018 the Group entered into an agreement to extend the facility with
a syndicate of six banks comprising Barclays Bank, Bank of Ireland, Comerica Bank, Fifth Third Bank, HSBC Bank and National
Westminster Bank. The maturity date of the facility was extended from May 2021 to November 2023. In addition, the facility size
was increased from £150 million to £180 million, with the uncommitted accordion facility of £30 million. As at 31 December 2020,
£136.7 million of the facility was drawn down. Arrangement fees with amortised cost of £1.1 million have been netted off against
these borrowings.
The interest margin payable on the facility is based on the Group’s compliance with financial covenants, Net debt/adjusted EBITDA
(bank covenant) and is payable on a floating basis above £LIBOR, €LIBOR or $LIBOR depending on the currency of denomination
of the loan.
Undrawn facilities
At 31 December 2020, the total borrowing facilities available to the Group amounted to £237.3 million (2019: £238.6 million).
At 31 December 2020, the Group had available £46.6 million (2019: £70.1 million) of undrawn committed borrowing facilities
(comprising the main facility £43.2 million (2019: £66.8 million) and China £3.4 million (2019: £3.3 million) and £39.2 million
(2019: £39.2 million) of undrawn uncommitted borrowing facilities, representing overdraft lines and the accordion facility.
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Financial statements
22 Financial risk management
The main risks arising from the Group’s financial instruments are foreign exchange risk, interest rate risk, credit risk and liquidity
risk. These risks arise from exposures that occur in the normal course of business and are managed by the Group’s Treasury
department in close co-operation with the Group’s business divisions and operating companies, under the oversight of a Treasury
Committee which is chaired by the Chief Financial Officer. 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 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(p).
a) Derivatives, other financial instruments and risk management
The Group uses derivative financial instruments to manage certain exposures to fluctuations in exchange rates and interest rates.
The Group does not hold any speculative financial instruments.
The Group is exposed to transactional and translation foreign exchange risk. Transactional foreign exchange risk arises from sales
or purchases by a Group company in a currency other than that company’s functional currency. Translational foreign exchange risk
arises on the translation of profits earned in overseas currencies into GBP and the translation of net assets denominated in
overseas currencies into GBP, the Group’s functional currency.
To mitigate transactional foreign exchange risk, wherever possible, Group companies enter into transactions in their functional
currencies with customers and suppliers. When this is not possible, hedging strategies are undertaken through the use of forward
currency contracts for up to two years ahead.
The Group have designated £19.7 million (2019: £17.7 million) of loans in a net investment hedge of USD net assets. No
ineffectiveness was recorded (2019: £nil) and a gain of £0.7m (2019: £0.7m) was taken to the translation reserve. The amount
accumulated in this reserve in respect of gains/losses arising on hedging instruments designated in net investment hedges up
to 31 December 2020 was an accumulated loss of £0.3 million (2019: accumulated loss of £0.2 million).
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 when appropriate and pre-approved by the Treasury Committee.
The forward currency contracts have been designated as cash flow hedges and the mark to market valuation of these derivatives
at 31 December 2020 is taken to the hedging reserve within equity. The interest rate hedging instruments are floating to fixed rate
interest rate swaps used to manage the Group’s interest cost. At 31 December 2020, the Group had a net derivative financial asset
of £5.7 million (2019: £1.2 million liability).
Further during the year ending 31 Dec 2020, the Group hedged foreign exchange exposure arising on the USD consideration from
the acquisition of Torotel, Inc. using a foreign exchange option. This option was designated in a cash flow hedge relationship
and resulted in adjustments to goodwill of £0.7 million (see Note 4).
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Notes to the consolidated financial statements
continued
22 Financial risk management continued
Foreign exchange (FX) hedges
31 December 2020
Notional Amount
(£m)
Average Hedged
Rate
Fair value
(£m)
Type of hedge
USD:CNY
USD:GBP
USD:MXN
EUR:GBP
GBP:EUR
HKD:CNY
USD:MYR
GBP:USD
CNY:GBP
Other
Total
31 December 2019
USD:CNY
USD:GBP
USD:MXN
EUR:GBP
GBP:EUR
USD:MYR
GBP:USD
CNY:GBP
Other
Total
7.02
0.77
23.43
0.90
1.12
0.89
4.19
1.27
0.11
6.88
0.76
20.30
0.87
1.14
4.14
1.30
0.11
62.3
26.5
17.8
16.9
9.9
7.6
7.4
7.3
6.0
4.0
165.7
55.6
30.1
7.0
18.8
7.1
5.1
9.7
7.0
3.3
143.7
CFH − Forward rate
CFH − Forward rate
CFH − Forward rate
CFH − Forward rate
CFH − Forward rate
CFH − Forward rate
CFH − Forward rate
CFH − Forward rate
CFH − Forward rate
CFH − Forward rate
3.3
1.2
2.3
(0.1)
0.1
0.3
0.2
(0.4)
(0.1)
(0.1)
6.7
(1.1)
CFH − Forward rate
−
0.3
0.5
CFH − Forward rate
CFH − Forward rate
CFH − Forward rate
(0.1)
CFH − Forward rate
−
(0.3)
0.1
(0.1)
(0.7)
CFH − Forward rate
CFH − Forward rate
CFH − Forward rate
CFH − Forward rate
The most common exchange rate risk is the transaction risk the Group takes when it invoices a customer or purchases from
suppliers in a different currency to the underlying functional currency of the business. The Group policy is to review transactional
foreign exchange exposures and place contracts on a quarterly basis. To the extent the cash flows associated with a transactional
foreign exchange risk are committed the Group will hedge 100%. The notional values of the hedged transactions are disclosed in
the above table. The group’s policy is to hedge these transactions on a 1:1 ratio. Foreign currency basis spread of the derivative
item is not designated and is therefore recognised in the income statement. The potential sources of ineffectiveness are timing
of forecast transaction and credit risk. There was no hedge ineffectiveness incurred during the period.
The closing value of the hedging reserve in relation to FX hedges on 31 Dec 2020 was £6.4 million (2019: accumulated loss of
£1.2 million). Despite the COVID-19 pandemic and the impact on the fair value of the instruments the transactions that have been
designated as the hedged item in a cash flow hedge relationship are still considered highly probable forecasted transactions,
during the year and at the yearend 31 December 2020.
Hedges with a notional amount of £42.8 million are due within 12 months with the remainder maturing within 24 months.
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Financial statements
22 Financial risk management continued
Interest rate swaps
31 December 2020
USD
GBP
31 December 2019
USD
GBP
Notional amount
(£ms)
Fair value
(£ms)
Type of
hedge
5.1
19.0
24.1
5.1
19.0
24.1
(0.3) CFH − LIBOR
(0.7) CFH − LIBOR
(1.0)
(0.2) CFH − LIBOR
(0.3) CFH − LIBOR
(0.5)
The Group hedges approximately 20% of the interest rate exposure of the Group. The Group holds interest rate swap instruments to
fix the cost of LIBOR on borrowings under the bank facility. Under the terms of the swaps on the bank borrowings and excluding the
bank margin, the Group will pay a weighted average fixed cost of approximately 1.6% until the swaps terminate in November 2023.
The average cost of the debt for the Group is expected to be approximately 2.0% over the next 12 months. The interest rate
swaps are designated as cash flow hedges and were highly effective throughout 2020. The fair value of the contracts as at
31 December 2020 is disclosed in the table above. A net charge of £0.2 million was recognised within finance costs for the year
ended 31 December 2020 (2019: £0.1 million) in the income statement with respect to the hedged items. For the year ending
31 December 2020 an accumulated loss of £0.2 million (2019: £0.1 million) was reclassified from the cash flow hedge reserve
and included in the income statement as part of finance costs. A loss on the movement in fair value of the hedging instruments
of £0.7 million was recognised within other comprehensive income. The closing value of the hedging reserve in relation to
interest rate swaps on 31 December 2020 was a debit of £1.0 million (2019: debit of £0.5 million). Swaps with a notional value
of £19.0 million and $7.0 million mature in May 2021. Swaps with a notional value of £19.0 million and $7.0 million mature in
November 2023.
No ineffectiveness was recognised through the Income Statement in 2020 (2019: £nil) or is expected to be recognised in
future periods.
The Group is exposed to the following interest rate benchmarks within its hedge accounting relationships, which are subject to
interest rate benchmark reform: GBP LIBOR and USD LIBOR (“IBORs”). The hedged items are Sterling and US Dollar floating rate
debt. The Group has closely monitored the market and the output from various industry working groups managing the transition
to new benchmark interest rates. The FCA has made it clear that, at the end of 2021, it will no longer seek to persuade, or compel
banks to submit to LIBOR.
In response to the announcements, the Group will begin dialogue with its banking group in respect of IBOR reform, with the
expectation that the banking facility will transition to updated referenced benchmarked rates prior to the end of 2021. Details of the
hedging instruments and hedged items in scope of the IFRS 9 amendments due to interest rate benchmark reform by hedge type
are above. Only the hedges which mature after March 2021 will be impacted by the IBOR reform.
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Notes to the consolidated financial statements
continued
22 Financial risk management continued
b) Foreign exchange risk
The Group’s exposure to foreign currency before the impact of hedging is shown below:
£million
31 December 2020
Trade and other receivables
Cash and cash equivalents
Borrowings
Lease liabilities
Trade and other payables
Derivative financial instruments
Total
31 December 2019
Trade and other receivables
Cash and cash equivalents [1]
Borrowings [1]
Lease liabilities
Trade and other payables
Derivative financial instruments
Total
GBP
USD
Euro
Other
Total
−
−
−
−
(0.3)
0.1
(0.2)
−
0.6
−
−
(0.1)
0.1
0.6
13.6
7.8
(19.7)
−
(9.9)
4.1
(4.1)
15.8
10.8
(21.4)
−
(9.7)
(1.4)
(5.9)
1.8
2.6
−
(0.1)
(1.1)
(0.1)
3.1
2.8
1.5
−
(0.2)
(1.5)
0.3
2.9
0.6
1.1
−
(1.3)
(2.8)
1.6
(0.8)
0.1
2.5
−
(1.7)
(2.9)
0.1
(1.9)
16.0
11.5
(19.7)
(1.4)
(14.1)
5.7
(2.0)
18.7
15.4
(21.4)
(1.9)
(14.2)
(0.9)
(4.3)
1
‘Cash and cash equivalents’ and ‘Borrowings’ have been restated to meet the presentational requirements of IAS 32 as further described in note 1h.
A 10% strengthening of GBP against the following currencies at 31 December 2020 would have increased/(decreased) profit after
tax by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.
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. The Group’s policy is to hedge 75%
of foreign currency cash flows and the below analysis is after the impact of hedging.
£million
US dollar
Euro
2020
0.1
(0.1)
2019
0.3
0.1
A 10% strengthening of GBP against the following currencies at 31 December 2020 would have decreased equity by the amounts
shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The Group finances
operations by obtaining funding through external borrowings and, where they are in foreign currencies, these borrowings may be
designated as net investment hedges. This enables gains and losses arising on retranslation of these foreign currency borrowings
to be charged to other comprehensive income, providing a partial offset in equity against the gains and losses arising on translation
of the net assets of foreign operations. This has been considered in the analysis below.
£million
US dollar
Euro
2020
7.6
0.1
2019
5.1
0.1
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.
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Financial statements
22 Financial risk management continued
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 Group’s objective is to manage this interest rate exposure through the use of interest rate derivatives.
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
Lease liabilities
Trade and other payables
Derivative financial instruments
Total financial liabilities
£million
Financial assets
Trade and other receivables
Cash and cash equivalents [1]
Derivative financial instruments
Total financial assets
Financial liabilities
Borrowings [1]
Lease liabilities
Trade and other payables [2]
Derivative financial instruments
Total financial liabilities
Floating
rate
Fixed
rate
Non-interest
bearing
−
60.7
−
60.7
(113.8)
−
−
−
−
3.9
−
3.9
(25.5)
(15.9)
−
−
(113.8)
(41.4)
60.2
5.6
7.6
73.4
1.1
−
(77.1)
(1.9)
(77.9)
Floating
rate
Fixed
rate
Non-interest
bearing
−
69.8
−
69.8
(98.5)
−
−
−
−
−
−
−
(24.3)
(17.6)
−
−
(98.5)
(41.9)
68.4
−
0.9
69.3
1.5
−
(81.1)
(2.1)
(81.7)
2020
total
60.2
70.2
7.6
138.0
(138.2)
(15.9)
(77.1)
(1.9)
(233.1)
2019
total
68.4
69.8
0.9
139.1
(121.3)
(17.6)
(81.1)
(2.1)
(222.1)
1
2
‘Cash and cash equivalents’ and ‘Borrowings’ have been restated to meet the presentational requirements of IAS 32 as described in note 1h.
‘Trade and other payables’ have been restated as further described in note 1h.
At 31 December 2020, 18% of borrowings was at a fixed rate when including the effect of derivatives (2019: 20% of borrowings
including the effect of derivatives and finance leases).
The interest charged on floating rate financial liabilities is based on the relevant benchmark rate (such as LIBOR). Interest on
financial instruments classified as fixed rate is fixed until the maturity of the instrument.
Considering the net debt position of the Group at 31 December 2020, any increase in interest rates would result in a net loss in the
consolidated income statement, and any decrease in interest rates would result in a net gain. The effect on profit after tax of a 1%
movement in interest rate, based on the year end floating rate borrowings, with all other variables held constant, is estimated to be
£0.4 million.
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Notes to the consolidated financial statements
continued
22 Financial risk management continued
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.
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 ongoing basis. Letters of credit or payments in advance are obtained where customer credit quality is not
considered strong enough for open credit. The Group operates the expected credit losses model when applying credit risk
to receivables.
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, in the main, hedged through forward foreign currency
exchange contracts.
There were no material impairments of trade receivables as at 31 December 2020 or 2019. 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
Asia
Rest of the World
2020
26.0
22.6
8.8
0.8
58.2
2019
35.9
17.9
12.1
0.5
66.4
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Financial statements
22 Financial risk management continued
(ii) Impairment losses
The ageing of trade receivables at 31 December was:
£million
Not past due
Past due 1 – 60 days
Past due 61 – 120 days
More than 120 days
Gross 2020 Impairment
Gross 2019 Impairment
52.9
4.8
0.5
0.5
58.7
(0.1)
−
(0.2)
(0.2)
(0.5)
56.4
9.7
0.6
0.1
66.8
2020
(0.4)
0.2
(0.3)
(0.5)
−
(0.1)
(0.2)
(0.1)
(0.4)
2019
(0.3)
0.1
(0.2)
(0.4)
The movement in the provision for impairment in respect of trade receivables during the year was as follows:
£million
At 1 January
Released
Charged to income statement
At 31 December
(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 monitored by the Group’s Treasury department. The Group’s policy on investment of cash and deposits are
to only hold cash deposits with banks with a credit rating of investment grade and are reviewed on a regular basis to take account
of developments in financial markets. Currently the Group has 12 counterparties to which it has credit risk exposure. The same
process is undergone for counterparts with which the Group enters into hedging agreements. As such credit risk on these financial
assets is calculated as £nil.
The expected credit risk model was applied to other receivables as described in note 2p where the credit risk was deemed
immaterial.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at 31
December was:
£million
Amounts owed by non-controlling interests
Cash and cash equivalents
Derivative financial instruments
1
‘Cash and cash equivalents’ has been restated to meet the presentational requirements of IAS 32 as further described in note 1h.
2020
2.0
70.2
7.6
2019
Restated [1]
2.0
69.8
0.9
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Financial statements
Notes to the consolidated financial statements
continued
22 Financial risk management continued
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 2020, the Group had £46.6 million of undrawn committed borrowing facilities (2019: £70.1 million) and
£39.2 million (2019: £39.2 million) of undrawn uncommitted borrowing facilities.
Contractual cashflows of financial liabilities
The following are the contractual maturities of financial liabilities including contractual future interest payments and commitment fees:
Carrying
value
Contractual
Cash Flows On demand
Under 3
months
3 to 12
months
1 to 2
years
2 to 3
years
3 to 4
years
4 to 5
years
Over 5
years
(137.0)
(146.9)
(1.2)
(15.9)
(1.2)
(27.0)
(77.1)
(0.9)
(1.0)
(77.1)
(26.2)
(1.7)
−
−
−
−
−
(1.2)
(0.8)
(3.4)
(3.4)
(139.3)
−
−
−
−
−
−
−
−
(1.2)
(3.2)
(4.2)
(3.4)
(2.9)
(2.7)
−
−
(9.4)
(72.9)
(3.2)
(0.1)
(4.2)
(15.9)
(0.5)
−
(7.1)
(0.6)
−
−
−
−
(0.5)
(233.1)
(280.1)
(1.2)
(78.2)
(27.2)
(15.3)
(143.2)
(2.9)
(2.7)
(9.4)
£million
31 December 2020
Borrowings
(excl overdrafts)
Overdrafts
Lease liabilities
Trade and other
payables
Derivatives settled gross
Interest rate swaps
31 December 2019
Borrowings
(excl overdrafts)
Overdrafts
(111.7)
(125.4)
−
(9.6)
(9.6)
(9.6)
−
−
(3.2)
(2.4)
(2.4)
(117.4)
−
−
−
(1.2)
(3.5)
(4.1)
(3.1)
Lease liabilities
Trade and other
payables [1]
Derivatives settled gross
Interest rate swaps
(17.6)
(19.1)
(81.1)
(1.6)
(0.5)
(81.1)
(63.4)
(2.2)
−
−
−
−
(79.8)
(10.2)
(0.1)
(0.7)
(0.6)
(26.3)
(26.9)
(0.4)
(0.6)
1
‘Trade and other payables’ has been restated for an adjustment to meet the requirements of IFRS 15 as described in note 1h.
(222.1)
(300.8)
(9.6)
(91.3)
(34.1)
(34.6)
−
(2.4)
−
−
(0.5)
−
−
(2.2)
(2.6)
−
−
−
−
−
−
(120.3)
(2.2)
(2.6)
−
−
(0.6)
(6.1)
f) Fair value of financial assets and liabilities
IFRS 13 “Fair Value Measurement” requires an analysis of those financial instruments that are measured at fair value at the end
of the year in a fair value hierarchy. In addition, IFRS 13 requires financial instruments not measured at fair value but for which
fair value is disclosed to be analysed in the same fair value 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).
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Financial statements
22 Financial risk management continued
Set out below is a comparison by class of the carrying amounts and fair value of the Group’s financial instruments that are carried
in the financial statements.
£million
Held at amortised cost
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Borrowings
Lease liabilities
Held at fair value
Derivative financial instruments (assets)
Derivative financial instruments (liabilities)
Deferred consideration for acquisition of Power Partners [2]
Held at depreciated cost
Investment properties
Fair value
hierarchy
Carrying
value
2020
Fair
value
Carrying
value
2019
Restated [1]
Fair
value
n/a
n/a
n/a
2
n/a
2
2
3
3
70.2
60.2
(77.1)
(138.2)
(15.9)
7.6
(1.9)
(0.4)
70.2
60.2
69.8
68.4
69.8
68.4
(77.1)
(81.1)
(81.1)
(138.2)
(121.3)
(121.3)
(15.9)
(17.6)
(17.6)
7.6
(1.9)
(0.4)
0.9
(2.1)
(0.9)
0.9
(2.1)
(0.9)
1.8
1.8
0.7
0.7
1
‘Cash and cash equivalents’, ‘Borrowings’, and ‘Trade and other payables’ have been restated as further described in note 1h.
2 Deferred consideration held within ‘Other payables’ which arose upon acquisition of Power Partners is further described in note 4.
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 borrowings is estimated by discounting future cash flows using rates currently available for debt and remaining
maturities;
• the fair value of derivative financial instrument assets (£7.6 million) and liabilities (£1.9 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 2); and
• the fair value of investment properties are based on market valuations obtained through third party valuations (level 3).
• The fair value of deferred consideration for the acquisition of Power Partners Inc is based upon the estimated amount payable
to the seller as a result of the expected performance of Power Partners Inc as forecast by the Group. Due to materiality, the
disclosures required by IFRS 13 for the level 3 items were not provided.
g) Capital management
The overriding 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 has
a progressive dividend policy.
The Group has net debt of £83.9 million (2019: £69.1 million). Included within the debt facilities are certain financial covenants
related to frozen IFRS net debt/adjusted. Adjusted EBITDA is EBITDA adjusted to exclude the items not included within adjusted
operating profit/net finance charges for which compliance certificates are produced on a 12 month rolling basis every half year.
All financial covenants were fully complied with during the year and up to the date of approval of the financial statements.
TT Electronics plc Annual Report and Accounts 2020
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171
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Financial statements
Financial statements
Notes to the consolidated financial statements
continued
23 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 continuing operations in respect of defined
contribution schemes were £3.1 million (2019: £3.5 million).
Defined benefit schemes
At 31 December 2020 the Group operated two defined benefit schemes in the UK (the TT Group (1993) Pension Scheme and the
Southern & Redfern Ltd Retirement Benefits Schemes) and overseas defined benefit schemes in the USA. These schemes are
closed to new members and the UK schemes are closed to future accrual.
In the year ended 31 December 2019, in order to improve governance of the UK pension schemes, as well as drive cost efficiency,
the Stadium Group Retirement Benefits Plan (1974) was merged into the TT Group (1993) Pension Scheme (the TT Group scheme)
with effect from 29 March 2019.
The TT Group scheme commenced in 1993 and increased in size in 2006, 2007 and 2019 through the mergers of former UK schemes
following a number of acquisitions. The parent company is the sponsoring employer in the TT Group scheme. The TT Group
scheme is governed by TTG Pension Trustees Limited (the “Trustee”) that has control over the operation, funding and investment
strategy in consultation with the Group.
The TT Group scheme exposes the Group to actuarial risks such as longevity risk, currency risk, inflation risk, interest rate risk and
market (investment) risk. The Group is not exposed to any unusual, entity specific or scheme specific risks, but given the material
nature of the TT Group scheme, the Group has developed a comprehensive strategy covering the following areas to manage the
financial risk associated with it:
• Maintaining a long term working partnership with the Trustee to ensure strong governance of risks within the TT Group scheme.
The TT Group scheme is a long term undertaking and is managed accordingly, in order to provide security to members’ benefits
and value for money to the Group.
• A prudent investment strategy is pursued by seeking risk-rewarded long term returns whilst removing the majority of liability
mismatching unrewarded risks. As such, the Group has in place financial hedging that aims to remove the majority of interest
rate and inflation related risks. At the current level there is no significant impact on the reported accounting deficit of a 10bps fall
in interest rates (which would be otherwise a circa £10 million increase if the hedge were not in place) thereby reducing volatility.
This strategy has been in place for a number of years protecting the TT Group scheme’s position since December 2013 when
yields commenced a prolonged decline.
• The Group recognises that seeking rewarded risk returns in its investment strategy could lead to short term fluctuations in
funding levels depending on market conditions. The Group considers that by maintaining a good relationship with the Trustee,
it will be able to utilise flexibility in the funding regime to even out the impact of short term market underperformance to enhance
predictability of Group pension contributions. This creates a suitable balance between the needs of the TT Group scheme, the
Group, and the Members.
The Trustee’s investment strategy mitigates the majority of these risks. Market (investment) risk is addressed by diversification
across asset classes and managers within those asset classes. With regard to currency risk, where possible the Scheme fully
hedges its currency risk with respect to fixed income and alternative assets, through investing in currency-hedged vehicles.
The Scheme has equity exposure held on both a hedged, and unhedged basis. Whilst there is no specific currency hedging policy
in place, the Scheme aims to hedge between 30-70% of its non-sterling currency exposure with respect to equity investments.
In addition, the Trustee has a framework in place to hedge a proportion of the Scheme’s interest rate and inflation exposures.
This framework is managed by investing in both physical and, for efficiency, derivative investments; and has a target to hedge 80%
of the interest rate and 85% of the inflation linked liabilities measured on an economic basis. The target hedge level is kept under
review and any change would be in consultation with the Group.
During the year ending 31 December 2020, global financial markets have experienced and may continue to experience, significant
volatility resulting from the spread of a COVID-19. The outbreak of COVID-19 has resulted in travel and border restrictions,
quarantines, supply chain disruptions, lower consumer demand and general market uncertainty. The effects of COVID-19 have and
continue to adversely affect the global economy and the economies of certain nations which may negatively impact investment
returns generally. The Scheme’s investment strategy has been assessed as being low risk as it largely matches changes in the
assessed value of the Schemes liabilities due to changes in interest rates and inflationary expectations.
172
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TT Electronics plc Annual Report and Accounts 2020
Financial statements
23 Retirement benefit schemes continued
The Trustee does not currently hedge the longevity risk, although prudent assumptions are made regarding anticipated longevity
for the purposes of the statutory funding actuarial valuation.
The weekly monitoring evidence published by the CMI during the COVID-19 pandemic indicates that COVID-19 has caused
significant excess mortality during 2020, corresponding to around a 13% increase in annual mortality relative to 2019. The longer-
term implications of COVID-19 on mortality expectations are unclear. It is possible to make arguments for faster improvements
in mortality rates (e.g. due to survivors of COVID-19 being “healthier” than the previous population or increased spending on
healthcare as a result of the pandemic), or for slower improvements in mortality rates (e.g. due to the “ripple effect” of delayed
medical interventions or the possible adverse economic impact of recession on health and wellbeing). The Trustees and Company
keep the potential implications of this risk under review.
The Trustee, in conjunction with the Group, has a duty to ensure that the TT Group scheme has an appropriate funding strategy
in place that meets any local statutory requirements. The objective, which has been negotiated and agreed between the Group and
the Trustee, is that the TT Group scheme should target and then maintain 100% funding on a basis that should ensure benefits
can be paid as they fall due. Any shortfall in the assets relative to the funding target will be financed over a period that ensures
the contributions are reasonably affordable to the Group.
The weighted average duration of the TT Group scheme defined benefit obligation is around 16 years.
The Trustee allocates the TT Group scheme’s assets across a range of investments to help diversify and manage risks. In particular
a significant portion of the assets are in investments that aim to broadly match the term and nature of the liabilities.
UK legislation requires the Trustee to carry out a statutory funding valuation at least every three years and to target full funding
against a basis that prudently reflects the TT Group scheme’s risk exposure.
The triennial valuation of the TT Group scheme as at April 2019 showed a net surplus of £0.3 million against the Trustee’s statutory
funding objective. As the scheme was fully funded at the 2019 triennial valuation date, there is no requirement for the Company
to pay pension contributions. In addition to the statutory funding objective, the Trustee and Company agreed to move towards
a ‘self-sufficiency’ funding target, under which once full funding is achieved the likelihood of the Trustee requiring subsequent
contributions from the Company is significantly reduced. To support the scheme’s long-term funding target of self-sufficiency
the Company agreed to pay additional fixed contributions of £5.5 million, £5.7 million and £4.4 million in the years 2021 to
2023 respectively.
In the year ended 31 December 2020 the Group made contributions of £5.3 million to the TT Group scheme and £0.1 million to
the Southern & Redfern Ltd Retirement Benefits Schemes.
In the year ended 31 December 2019, the outstanding deficit contribution payments due under the Stadium Group Retirement
Benefits Plan (1974)’s recovery plan were accelerated and £3.4 million was paid into the scheme immediately prior to the merger.
The total payments made in the year ended 31 December 2019 in respect of UK defined benefit schemes was £8.6 million.
In addition, the Company has set aside £2.5 million under a legal agreement to be utilised in agreement with the Trustee for
reducing the long-term liabilities of the TT Group scheme.
A High Court judgment regarding the equalisation of GMP was published on 26 October 2018. The judgment itself related to the
Lloyds Banking Group’s pension schemes and requirements to equalise scheme benefits, to address the inherent inequality
between genders caused by GMP legislation. GMP is the minimum benefit that must be provided by a pension scheme to a member
who had been contracted out of the State Earnings-Related Pension Scheme (SERPS) between 6 April 1978 and 5 April 1997.
This ruling has implications for all occupational pension schemes; including the Group’s UK schemes; that were contracted out
of SERPS on a defined benefit basis between 17 May 1990 and 5 April 1997.
In the year ended 31 December 2019 £0.4 million was recognised for the potential cost of the GMP equalisation. These allowances
have been recognised in the income statement within items excluded from adjusted operating profit. The assumptions
underpinning the estimate were based on market conditions at the time of the judgement, namely a discount rate of 2.8%,
RPI inflation of 3.4%, CPI inflation of 2.4% and using S2 mortality tables.
Following a High Court ruling on 20 November 2020, transfers out of the Plan between May 1990 and October 2018 need to be
revisited and equalised for GMP (if applicable). In the year ended 31 December 2020 an additional £1.0 million was recognised
as an allowance for potential cost of the GMP equalisation of historic transfers out of the Scheme. These allowances have been
recognised in the income statement within items excluded from adjusted operating profit.
TT Electronics plc Annual Report and Accounts 2020
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173
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Governance and Directors' reportFinancial statementsStrategic report
Financial statements
Financial statements
Notes to the consolidated financial statements
continued
23 Retirement benefit schemes continued
An actuarial valuation of the USA defined benefit schemes was carried out by independent qualified actuaries in 2020 using the
projected unit credit method. Pension scheme assets are stated at their market value at 31 December 2020.
An analysis of the pension surplus/(deficit) by scheme is shown below:
£million
TT Group (1993)
Southern & Redfern
USA schemes
Net surplus
2020
35.4
−
(4.9)
30.5
2019
21.2
−
(4.6)
16.6
Given the nature of the Group’s control of the TT Group under the Scheme rules, the Group considers that it has an unconditional
right to refund of surplus in the event of the Scheme’s wind-up. Based on these rights, any pension surpluses have been recognised
in full under IFRIC 14.
The principal assumptions used for the purpose of the actuarial valuations for the Group’s primary defined benefit schemes
were as follows:
%
Discount rate
Inflation rate (RPI)
Increases to pensions in payment (LPI 5% pension increases)
Increases to deferred pensions (CPI)
TT Group
TT Group
2020
1.40
3.10
2.95
2.40
2019
2.00
3.10
3.00
2.20
The mortality tables applied by the actuaries at 31 December 2020 for the TT Group Scheme were S2 tables with 105%
(male)/106% (female) weighting for pensioners and 108% (male)/105% (female) weighting for non-pensioners with a 1.5% long-term
rate of improvement in conjunction with the CMI 2019 projection model. The assumptions are equivalent to life expectancies
as follows:
Current pensioner aged 65: 87 years (male), 89 years (female).
Risk and sensitivity
Future retiree currently aged 40: 89 years (male), 91 years (female). A decrease in the discount rate by 0.1% per annum increases
the liabilities by approximately £10.3 million. An increase by 0.1% per annum in the inflation rate increases the liabilities by
approximately £5.1 million. An increase in the life expectancy of 1 year increases the liabilities by approximately £26.8 million.
The sensitivities above consider the impact of the single change shown, with the other assumptions unchanged. The inflation
sensitivities allow for the consequential impact on the relevant pension increase assumptions. The sensitivity analyses have been
determined based on a method that extrapolates the impact on the defined benefit obligation as a result of reasonable changes
in key assumptions occurring at the end of the reporting period.
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172 TT Electronics plc Annual Report and Accounts 2020
TT Electronics plc Annual Report and Accounts 2020
Financial statements
23 Retirement benefit schemes continued
The amounts recognised in respect of the pension deficit in the Consolidated balance sheet are:
£million
Equities
UK
Overseas
Government bonds
UK
Quoted
Unquoted
Quoted
Unquoted
Fixed
Index-linked
Overseas
Corporate bonds
Cash and cash equivalents
Derivatives
Insured assets
Other
Fair value of assets
Present value of defined benefit obligation
Net surplus recognised in the consolidated balance sheet
2020
2019
−
6.2
4.1
93.2
183.0
135.0
7.3
97.1
30.0
11.4
15.6
65.8
−
8.7
3.8
106.1
172.6
116.7
8.3
73.8
17.9
4.0
15.6
55.6
648.7
(618.2)
30.5
583.1
(566.5)
16.6
The schemes’ assets are unquoted unless otherwise stated and do not include the Group’s financial instruments nor any property
occupied by, or other assets used by the Group. All of the funds included in the asset split are pooled investment vehicles for which
due diligence has been completed. We have classified all of the Scheme’s investments other than the cash held at the custodian,
government bonds and the exchange traded funds (ETFs) as unquoted assets. Derivatives include 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
Scheme administration costs
Past service cost and settlements (excluded from adjusted operating profit)
Net interest credit
2020
1.7
0.8
0.4
2019
1.0
0.4
0.6
Amounts recognised in the consolidated statement of comprehensive income are a gain of £8.6 million (2019: loss of £9.1 million)
which comprises of; the actual return on scheme assets, a gain of £70.9 million (2019: gain of £51.8 million) and the
remeasurement of the schemes obligations, an increase of £62.3 million (increase of £60.9 million).
TT Electronics plc Annual Report and Accounts 2020
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175
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Governance and Directors' reportFinancial statementsStrategic report
2020
566.5
0.8
11.2
5.0
57.3
−
(22.2)
(0.4)
618.2
604.8
1.0
12.4
618.2
2020
583.1
11.6
70.9
7.2
(1.7)
(0.1)
(22.2)
(0.1)
648.7
2019
525.1
0.4
14.9
(5.2)
70.7
(4.6)
(34.2)
(0.6)
566.5
553.3
1.0
12.2
566.5
2019
541.6
15.5
51.8
9.8
(1.0)
(0.1)
(34.2)
(0.3)
583.1
Financial statements
Financial statements
Notes to the consolidated financial statements
continued
23 Retirement benefit schemes continued
Changes in the present value of the defined benefit obligation are:
£million
Defined benefit obligation at 1 January
Past service charge and settlements
Interest on obligation
Remeasurements:
Effect of changes in demographic assumptions
Effect of changes in financial assumptions
Effect of experience adjustments
Benefits paid
Exchange
Defined benefit obligation at 31 December
TT Group (1993)
Southern & Redfern
USA schemes
Changes in the fair value of the schemes’ assets are:
£million
Fair value of schemes’ assets at 1 January
Interest income on defined benefit scheme assets
Return on scheme assets, excluding interest income
Contributions by employer
Pension scheme expenses
Annuity purchase loss
Benefits paid
Exchange
Fair value of schemes’ assets at 31 December
176
174 TT Electronics plc Annual Report and Accounts 2020
TT Electronics plc Annual Report and Accounts 2020
Financial statements
24 Share capital and other reserves
Share capital
£million
Issued and fully paid
174,580,743 (2019: 164,038,978) ordinary shares of 25p each
2020
2019
43.6
41.0
On the 22 September 2020 the Group issued 10,000,000 ordinary shares to fund the acquisition of Torotel. The consideration
received was £19.5 million (after fees of £0.5 million which were recorded within share premium) which was represented by a
£2.5 million increase in share capital and a £17.0 million increase in share premium.
During the period the Company issued 455,265 ordinary shares as a result of share options being exercised under the Sharesave
scheme and Share Purchase plans. The aggregate consideration received was £0.7 million, which was represented by a £0.1 million
increase in share capital and a £0.6 million increase in share premium.
The performance conditions of the Long-term Incentive Plan awards issued in 2017 and Restricted Share Plan awards issued in
2018, 2019 and 2020 were met and shares were allocated to award holders from existing shares held by an Employee Benefit Trust
for £nil consideration. 86,500 new shares were also issued at par value of 25 pence to settle the vesting of part of the 2017 scheme.
Other reserves
£million
At 1 January 2019
Share based payment charge
Awards made to employees − equity
settled
Awards made to employees − cash
settled
Deferred tax on share based payments
Purchase of shares
Sales of shares
Gain on cash flow hedges taken to
equity less amounts taken to income
statement
At 31 December 2019
Share based payment charge
Awards made to employees − equity
settled
Awards made to employees − cash
settled
Deferred tax on share based payments
Gain on cash flow hedges taken to
equity less amounts taken to income
statement
At 31 December 2020
Share Based
Payment Reserve
Employee
Benefit Trust
Share
options reserve
1.8
3.0
(1.9)
(2.8)
0.1
−
−
−
0.2
1.0
(2.2)
(1.8)
(0.3)
−
(3.1)
(2.5)
−
1.9
−
(2.5)
0.7
−
(2.4)
2.2
−
−
−
(0.2)
(0.7)
3.0
−
(2.8)
0.1
(2.5)
0.7
−
(2.2)
1.0
−
(1.8)
(0.3)
−
(3.3)
Hedging
Reserve
(1.8)
Merger
reserve
3.4
−
−
−
−
−
−
0.1
(1.7)
−
−
−
−
7.1
5.4
−
−
−
−
−
−
−
3.4
−
−
−
−
−
3.4
Total
0.9
3.0
−
(2.8)
0.1
(2.5)
0.7
0.1
(0.5)
1.0
−
(1.8)
(0.3)
7.1
5.5
TT Electronics plc Annual Report and Accounts 2020
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Governance and Directors' reportFinancial statementsStrategic report
Financial statements
Financial statements
Notes to the consolidated financial statements
continued
25 Share-based payment plans
The Company has the following share-based payment plans in operation at 31 December 2020:
• Long-term Incentive Plan (“LTIP”) for senior executives;
• Restricted Share Plan for certain senior executives; and
• Sharesave plans for UK employees and a Share Purchase plan for US employees.
a) Long-term Incentive Plans
Details of the LTIP awards outstanding during the year are as follows:
At 1 January
Granted
Forfeited
Exercised/Vested
At 31 December
Exercisable at 31 December
2020
2019
Number of
share awards
Number of
share awards
4,697,301
5,425,034
2,003,776
2,030,515
(106,490)
(1,076,673)
(1,562,666)
(1,681,575)
5,031,921
4,697,301
−
−
During 2020 grants of awards were made under the LTIP for the issue of shares in 2023. An 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 100.
On 13 March 2020 and 17 September 2020 grants of awards were made under the LTIP for the issue of up to 1,981,406 and 22,370
shares respectively in 2023.
On 16 January 2019, 11 March 2019 and 13 December 2019 grants of awards were made under the LTIP for the issue of up to
84,798 shares, 1,922,225 shares and 23,492 shares respectively in 2022.
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 (years)
Shares with a
17 September
2020
grant date
22,370
175.8p
212.0p
£nil
35%
2.8
2020
Shares with a
13 March
2020
grant date
1,981,406
161.3p
194.5p
£nil
35%
2.2
Shares with a
13 December
2019
grant date
23,492
193.4p
235.0p
£nil
35%
3.0
Shares with a
11 March
2019
grant date
1,922,225
166.3p
202.0p
£nil
35%
2.2
2019
Shares with a
16 January
2019
grant date
84,798
164.6p
197.8p
£nil
33%
0.1
178
176 TT Electronics plc Annual Report and Accounts 2020
TT Electronics plc Annual Report and Accounts 2020
Financial statements
25 Share-based payment plans continued
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 historical share price movements.
On 13 March 2020 48,070 (11 March 2019: 45,761) notional share awards were granted to senior executives which will ultimately
be settled in cash. This award is subject to the same vesting criteria as the 13 March 2020 LTIP grant.
The performance conditions of the LTIP grants made in 2016 that reached the end of their performance periods in 2019 were met
and shares were allocated to award holders from existing shares held by an Employee Benefit Trust for £nil consideration.
b) Restricted Share Plan
On 16 January 2019 the Group granted 92,926 shares under the restricted plan. The award is subject to continuing employment
with the Group, 57,157 shares vested in June 2019 with the remaining 35,769 shares vesting in June 2020.
On 11 March 2019 the Group granted 82,750 shares under the restricted plan. The award is subject to continuing employment
with the Group, vesting in March 2020.
On 26 April 2019 the Group granted 51,458 shares under the restricted plan. The award is subject to continuing employment
with the Group, with one half vesting in February 2020 and half vesting in February 2021.
On 8 August 2019 the Group granted 9,677 shares under the restricted plan. The award is subject to continuing employment
with the Group, vesting in July 2021.
On 13 January 2020 the Group granted 79,597 shares under the restricted plan. The award is subject to continuing employment
with the Group, 10,612 shares vested in November 2020, 31,839 will vest in January 2021, 5,307 in November 2021 and 31,839
in January 2022.
On 17 September 2020 the Group granted 184,321 shares under the restricted plan. The award is subject to continuing employment
with the Group, and its vesting percentage will be reduced by the percentage which the EPS element of the 2018 LTIP scheme
vests. 184,321 shares will vest in September 2022.
On 17 September 2020 the Group granted 249,222 shares under the restricted plan. The award is subject to continuing employment
with the Group, and its vesting percentage will be reduced by the percentage which the EPS element of the 2019 LTIP scheme
vests. 249,222 shares will vest in September 2023.
On 17 September 2020 the Group granted 141,933 shares under the restricted plan. The award is subject to continuing employment
with the Group, with 51,633 vesting in September 2022 and 90,300 vesting in September 2023.
On 24 September 2020 the Group granted 99,891 shares under the restricted plan. The award is subject to continuing employment
with the Group, and its vesting percentage will be reduced by the percentage which the EPS element of the 2018 LTIP scheme
vests. 99,891 shares will vest in September 2022.
On 17 September 2020 42,092 notional share awards were granted to senior executives which will ultimately be settled in cash.
This award is subject to the same vesting criteria as the 17 September 2020 grants with 32,092 awards being subject to clawback
based upon the vesting of the EPS element of the 2018 and 2019 LTIP schemes.
On 24 September 2020 the Group granted 19,284 shares under the restricted plan. The award is subject to continuing employment
with the Group and additional performance obligations, vesting in December 2022.
On 24 September 2020 the Group granted 531,474 shares under the restricted plan. The award is subject to continuing employment
with the Group, vesting in December 2023.
On 5 November 2020 the Group granted 20,000 shares under the restricted plan. The award is subject to continuing employment
with the Group, with one half vesting in September 2022 and the other half vesting in September 2023.
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179
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Governance and Directors' reportFinancial statementsStrategic report
Financial statements
Financial statements
Notes to the consolidated financial statements
continued
25 Share-based payment plans continued
Details of the restricted share plan awards outstanding during the year are as follows:
At 1 January
Granted
Vested
At 31 December
Exercisable at 31 December
2020
2019
Number of
share awards
Number of
share awards
284,106
1,367,814
104,452
236,811
(165,950)
(57,157)
1,485,970
284,106
−
−
c) Sharesave schemes
The Group operates a Sharesave scheme for participating employees in the UK under a three-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 £6,000 in any one year. Monthly contributions are saved with Lloyds Bank 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 three years from commencement of the savings contract. Options become exercisable on completion of the three-year term
or within six months of leaving in certain circumstances.
The fair value of the shares at grant date was as follows:
Date price set
24 August 2017
31 August 2018
30 August 2019
30 August 2020
Details of the Sharesave awards outstanding during the year are as follows:
At 1 January
Granted
Forfeited
Exercised
At 31 December
Exercisable at 31 December
Market price
Option price
220.5p
260.0p
237.0p
187.0p
178.0p
215.0p
190.0p
151.0p
Options
outstanding
77,114
404,674
696,993
1,581,646
2020
2019
Number of share
awards
Number of share
awards
1,874,080
1,867,255
1,599,526
874,391
(341,672)
(244,662)
(371,507)
(622,904)
2,760,427
1,874,080
149,172
25,458
The Group operates 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 a social security credit of £0.1 million (2019: £0.6 million charge)
arising from the above share scheme plans was £1.0 million (2019: £3.0 million).
180
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TT Electronics plc Annual Report and Accounts 2020
Financial statements
26 Reconciliation of net cash flow to movement in net debt
£million
As at 1 January 2019
Adjustment on initial application of IFRS 16
Adjusted balance as at 1 January 2019
Cash flow
Businesses acquired
Proceeds from borrowings
Payment of lease liabilities
New leases
Amortisation of loan arrangement fees
Lease disposal
Exchange differences
At 1 January 2020
Cash flow
Businesses acquired
Repayment of borrowings
Proceeds from borrowings
Payment of lease liabilities
Reassessment of lease liability
New leases
Amortisation of loan arrangement fees
Exchange differences
At 31 December 2020
Net cash
Lease liabilities
Borrowings
Net debt
40.6
−
40.6
21.6
−
−
−
−
−
−
(2.0)
60.2
9.7
−
−
−
−
−
−
−
(0.9)
69.0
(0.6)
(21.3)
(21.9)
−
(0.2)
−
4.4
(0.7)
−
0.4
0.4
(17.6)
−
(2.0)
−
−
4.1
(0.1)
(0.5)
−
0.2
(81.7)
−
(81.7)
−
−
(30.4)
−
−
(0.4)
−
0.8
(111.7)
−
(3.0)
27.2
(49.8)
−
−
−
(0.4)
0.7
(41.7)
(21.3)
(63.0)
21.6
(0.2)
(30.4)
4.4
(0.7)
(0.4)
0.4
(0.8)
(69.1)
9.7
(5.0)
27.2
(49.8)
4.1
(0.1)
(0.5)
(0.4)
−
(15.9)
(137.0)
(83.9)
Net cash of £69.0 million (2019: £60.2 million) comprises cash at bank and in hand of £70.2 million (2019: £69.8 million)
and overdrafts of £1.2 million (2019: £9.6 million).
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Financial statements
Financial statements
Notes to the consolidated financial statements
continued
27 Changes in liabilities arising from financing activities
£million
As at 1 January 2019
Adjustment on initial application of IFRS 16
Adjusted balance as at 1 January 2019
Cash movements
Cash flows
Non cash movements
Businesses acquired
Fair value movements
Other movements
Exchange differences
At 1 January 2020
Cash movements
Cash flows
Non cash movements
Businesses acquired
Fair value movements
Other movements
Exchange differences
At 31 December 2020
Lease liabilities
Borrowings
Interest rate
swaps
Liabilities arising
from financing
activities
(0.6)
(21.3)
(21.9)
(81.7)
−
(81.7)
(0.1)
−
(0.1)
(82.4)
(21.3)
(103.7)
5.4
(27.5)
0.1
(22.0)
(0.2)
−
(1.3)
0.4
−
−
(3.3)
0.8
(17.6)
(111.7)
−
(0.5)
−
−
(0.5)
4.9
(20.1)
0.2
(2.0)
−
(1.4)
0.2
(3.0)
−
(2.9)
0.7
(15.9)
(137.0)
−
(0.7)
−
−
(1.0)
(0.2)
(0.5)
(4.6)
1.2
(129.8)
−
(15.0)
−
(5.0)
(0.7)
(4.3)
0.9
(153.9)
182
180 TT Electronics plc Annual Report and Accounts 2020
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Financial statements
28 Contingent liabilities
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 20, 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
2020
5.2
2019
1.2
The Group has contractual commitments of £5.2 million primarily relating to purchase orders and contracts for the development
and improvement of sites as part of the Group’s restructuring activities.
30 Leases
The total cash outflow for leases is £4.9 million (2019: £5.6 million) comprising lease repayments of £4.1 million (2019:
£4.4 million), interest on lease liabilities of £0.8 million (2019: £1.0 million). The income statement cost of short term and low
value leases was £0.2 million (2019: £0.2 million).
Interest on lease liabilities is shown in note 6, the maturity of the lease liabilities is shown in note 22(e) and the corresponding
assets to which the lease liabilities relate are shown in note 13.
31 Cash and cash equivalents
Within cash and cash equivalents the Group has set aside £2.5 million (2019: £2.5 million) under a legal agreement to be utilised
in agreement with the Trustee for reducing liabilities of the pension scheme. Further details of the scheme are provided in note 23
to the Group financial statements.
32 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 2021 or 2020 that have affected the financial position or performance of
the Group.
Key management personnel and Directors’ emoluments are disclosed in note 12.
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Governance and Directors' reportFinancial statementsStrategic report
Financial statements
Financial statements
Company statement of financial position
at 31 December 2020
£million
Fixed assets
Right-of-use assets
Tangible assets
Intangible assets
Investments
Deferred tax asset
Pensions
Total fixed assets
Current assets
Debtors
Cash at bank and in hand
Total current assets
Current liabilities
Lease liabilities
Creditors: amounts falling due within one year
Total current liabilities
Net current assets
Non current liabilities
Lease liabilities
Deferred tax liability
Total non current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Share options reserve
Merger reserve
Profit and loss account
Shareholders’ funds
Note
2020
2019
2
2
2
3
11
10
4
13
6
5
6
11
7
7
8
9
0.8
0.8
2.5
174.2
3.1
35.4
216.8
197.7
3.9
201.6
0.2
121.9
122.1
79.5
0.8
6.6
7.4
1.0
1.0
3.6
189.3
2.9
21.2
219.0
190.7
2.6
193.3
0.2
130.1
130.3
63.0
1.0
3.6
4.6
288.9
277.4
43.6
21.7
(3.3)
3.4
223.5
288.9
41.0
4.1
(2.2)
3.4
231.1
277.4
The Company reported a loss for the financial year ended 31 December 2020 of £14.9 million (2019: profit of £153.6 million).
Approved by the Board of Directors on 9 March 2021 and signed on their behalf by:
Richard Tyson
Director
Mark Hoad
Director
184
182 TT Electronics plc Annual Report and Accounts 2020
TT Electronics plc Annual Report and Accounts 2020
Financial statements
Company statement of changes in equity
at 31 December 2020
£million
At 1 January 2019
Profit for the year
Other comprehensive income
Remeasurement of defined benefit
pension schemes
Tax on remeasurement of defined
benefit pension schemes
Total comprehensive income
Transactions with owners recorded
directly in equity
Dividends paid by the Company
Share-based payments
Purchase of shares
Sale of shares
Deferred tax on share-based payments
New shares issued
At 31 December 2019
Loss for the year
Other comprehensive income
Remeasurement of defined benefit
pension schemes
Tax on remeasurement of defined
benefit pension schemes
Total comprehensive income
Transactions with owners recorded
directly in equity
Share-based payments
Deferred tax on share-based payments
New shares issued
At 31 December 2020
Share capital
Share premium
Merger reserve
Share options
reserve
Profit and loss
account
40.8
−
3.4
−
3.4
−
(0.7)
−
95.1
153.6
Total
142.0
153.6
−
−
−
−
−
−
−
0.2
41.0
−
−
−
−
−
−
2.6
43.6
−
−
−
−
−
−
−
0.7
4.1
−
−
−
−
−
−
17.6
21.7
−
−
−
−
−
−
−
−
3.4
−
−
−
−
−
−
−
3.4
−
−
−
−
0.2
(2.5)
0.7
0.1
−
(2.2)
−
−
−
(0.8)
(0.3)
−
(3.3)
(8.3)
(8.3)
1.6
146.9
1.6
146.9
(10.9)
−
0.7
(0.7)
−
−
231.1
(14.9)
9.5
(2.2)
(7.6)
−
−
−
223.5
(10.9)
0.2
(1.8)
−
0.1
0.9
277.4
(14.9)
9.5
(2.2)
(7.6)
(0.8)
(0.3)
20.2
288.9
TT Electronics plc Annual Report and Accounts 2020
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Financial statements
Financial statements
Notes to the Company financial statements
1 Significant accounting policies
a) Basis of preparation
The financial statements of TT Electronics plc (the “Company”) were prepared in accordance with Financial Reporting Standard 101
Reduced Disclosure Framework (“FRS 101”).
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements
of International Financial Reporting Standards, but makes amendments where necessary in order to comply with Companies
Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the
following disclosures:
• a Cash Flow Statement and related notes;
• disclosures in respect of transactions with wholly owned subsidiaries;
• disclosures in respect of capital management;
• the effects of new but not yet effective IFRSs;
• disclosures in respect of the compensation of Key Management Personnel;
• comparable movement tables for tangible and intangible fixed assets; and
• disclosures in respect of leases
The accounting policies set out in Note 2 of the Consolidated financial statements have, unless otherwise stated, been applied
in the preparation of the Company financial statements.
Change in accounting policy
There have been no changes to accounting policies during the year. Adoption of new and amendments to published standards
and interpretations effective for the Group for the year ended 31 December 2020 did not have any impact on the financial position
or performance of the Group.
b) Estimation uncertainty
Judgements made by the Directors, in the application of these accounting policies that have significant effect on the financial
statements and estimates with a significant risk of material adjustment in the next year are as follows:
• Note 23 – Defined benefit pension obligations. The defined benefit obligations in respect of the plans are discounted at rates
set by reference to market yields on high quality corporate bonds. Significant estimation is required when setting the criteria
for bonds to be included in the population from which the yield curve is derived. The most significant criteria considered for
the selection of bonds to include are the issue size of the corporate bonds, quality of the bonds and the identification of outliers
which are excluded. In addition, assumptions are made in determining mortality and inflation rates to be used when valuing
the plan’s defined benefit obligations. Whilst actual movements might be different to sensitivities shown, there is a reasonably
possible change that could occur. At 31 December 2020, the retirement benefit plan was in a surplus of £35.4 million
(31 December 2019: £21.2 million). Note 23 outlines the significant assumptions and associated sensitivities. The pension
deficit has been calculated using the assumptions set out in note 23 of the Consolidated financial statements;
• An impairment of £15.1 million (2019: £nil) was recognised to reduce the investment in Aero Stanrew Limited to its carrying value
of £23.7 million. The significant assumptions in determining the impairment are the future cash flows and the discount rate.
A 10% improvement in future cash flows would have reduced the impairment by £3.0 million and a 10% worsening of cashflows
would have increased the impairment by £3.0 million. An increase in the discount rate by 1.0% would have increased the
impairment by £2.9 million and a 1.0% reduction in the discount rate would have decreased the impairment by £3.6 million.
Details of the Directors’ assessment of the Company’s ability to continue in operational existence for at least twelve months from
the date of signing these financial statements are shown in note 1 of the Consolidated financial statements and in the Governance
and Directors’ Report on page 82.
d) Investments
Fixed asset investments in subsidiaries are carried at cost less provision for impairment.
e) 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.
186
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TT Electronics plc Annual Report and Accounts 2020
Financial statements
2 Fixed assets
£million
Cost
At 1 January 2020
Additions
At 31 December 2020
Depreciation
At 1 January 2020
Depreciation charge
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
3 Fixed asset investments
£million
Cost
At 1 January 2020
At 31 December 2020
Provisions
At 1 January 2020
Impairment
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
Intangible
Assets
Plant,
equipment
and vehicles
Right-of-use
assets
18.9
0.3
19.2
15.3
1.4
16.7
2.5
3.6
1.2
−
1.2
0.2
0.2
0.4
0.8
1.0
1.2
−
1.2
0.2
0.2
0.4
0.8
1.0
Subsidiary undertakings
253.0
253.0
63.7
15.1
78.8
174.2
189.3
An impairment of £15.1 million (2019: £nil) was recognised to reduce the investment in Aero Stanrew Limited to its carrying value
of £23.7 million.
The significant assumptions in determining the impairment are the future cash flows and the discount rate. A 10% improvement
in future cash flows would have reduced the impairment by £3.0 million and a 10% worsening of cashflows would have increased
the impairment by £3.0 million. An increase in the discount rate by 1.0% would have increased the impairment by £2.9 million
and a 1.0% reduction in the discount rate would have decreased the impairment by £3.6 million.
The Company’s subsidiary undertakings and their locations are shown in note 15. Shareholdings are held indirectly for all principal
operating subsidiary undertakings.
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Financial statements
Financial statements
Notes to the Company financial statements
continued
4 Debtors
£million
Amounts falling due within one year
Amounts owed by subsidiary undertakings
Prepayments, accrued income and other receivables
2020
2019
195.6
2.1
197.7
190.0
0.7
190.7
‘Amounts owed by subsidiary undertakings’ are payable on demand. The balance has been considered for impairment using the
expected credit losses model but due to the insignificant credit risk no impairment was recognised.
5 Creditors
£million
Amounts falling due within one year
Trade creditors
Amounts owed to subsidiary undertakings
Taxation and social security
Accruals and deferred income
6 Lease obligations
£million
At 31 December 2019
Capital repayments
At 31 December 2020
7 Share capital
£million
Issued, called up and fully paid
2020
2019
2.3
115.5
0.8
3.3
2.4
122.1
1.0
4.6
121.9
130.1
Current lease
liabilities
Non-current
lease liabilities
0.2
−
0.2
1.0
(0.2)
0.8
Total
1.2
(0.2)
1.0
2020
2019
174,580,743 (2019: 164,038,978) ordinary shares of 25p each
43.6
41.0
On the 22 September 2020 the Group issued 10,000,000 ordinary shares to fund the acquisition of Torotel. The consideration
received was £19.5 million (after fees of £0.5 million which were recorded within admin expenses) which was represented by
a £2.5 million increase in share capital and a £17.0 million increase in share premium.
During the period the Company issued 455,265 ordinary shares as a result of share options being exercised under the
Sharesave scheme and Share Purchase plans. The aggregate consideration received was £0.7 million, which was represented
by a £0.1 million increase in share capital and a £0.6 million increase in share premium.
The performance conditions of the Long-term Incentive Plan awards issued in 2017 and Restricted Share Plan awards issued
in 2018, 2019 and 2020 were met and shares were allocated to award holders from existing shares held by an Employee Benefit
Trust for £nil consideration. 86,500 new shares were also issued at par value of 25 pence to settle the vesting of part of the
2017 scheme.
8 Share-based payments
Details of share-based payments are shown in note 25 of the Consolidated financial statements.
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 loss after tax of the Company for the year was £14.9 million (2019: £153.6 million). The auditor’s remuneration for audit
services is disclosed in note 7 to the Consolidated financial statements.
188
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TT Electronics plc Annual Report and Accounts 2020
Financial statements
10 Pension schemes
Defined benefit scheme
In the year ending 31 December 2019 the TT Group pension scheme merged with the Stadium Group pension scheme and the
Company assumed the net liabilities of £1.0 million for no consideration at that date.
The triennial valuation of the TT Group scheme as at April 2019 showed a net surplus of £0.3 million against the Trustee’s funding
objective compared with a deficit of £46.0 million at April 2016. As the scheme was fully funded at the 2019 triennial valuation date,
there is no requirement for the Company to pay pension contributions. In addition to the statutory funding objective, the Trustee
and Company have agreed to move towards a ‘self-sufficient’ funding target, under which once full funding is achieved the
likelihood of the Trustee requiring subsequent contributions from the Company is significantly reduced. To support the scheme’s
long-term funding target of self-sufficiency the Company has agreed to pay additional fixed contributions extending to 2023 to the
TT Group scheme. These planned contributions amount to £5.5 million, £5.7 million and £4.4 million to be paid in the years 2021
to 2023.
In the year ended 31 December 2020 the Group made contributions of £5.3 million to the TT Group scheme.
In addition, the Company has set aside £2.5 million under a legal agreement to be utilised in agreement with the Trustee for
reducing the long-term liabilities of the scheme. Further details of the scheme are provided in note 23 to the Group 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 including
employee salary exchange contributions in respect of the year ended 31 December 2020 were £0.6 million (2019: £0.6 million).
11 Deferred tax
The deferred tax asset of £3.1 million comprises £0.7 million in respect of share-based payments (2019: £1.3 million) the
movement in which has been recognised in equity (£0.3 million) and profit (£0.3 million) ; £1.3 million in respect of non-current
assets (2019: £1.2 million) the movement in which has been recognised in profit (£0.1 million); and £1.1 million in respect of tax
losses (2019: £0.4 million) the movement in which has been recognised in profit (£0.7 million).
The deferred tax liability of £6.6 million is in respect of the pension asset (2019: £3.6 million), the movement in which has been
recognised in equity (£2.2 million) and profit (£0.8 million).
12 Employee information
The average number of full time equivalent employees (including Directors) during the year was 64.
13 Cash at bank and in hand
Within cash and cash equivalents the Group has set aside £2.5 million (2019: £2.5 million) under a legal agreement to be utilised
in agreement with the Trustee for reducing liabilities of the pension scheme. Further details of the scheme are provided in note 23
to the Group financial statements.
14 Related party transactions
During 2020 and 2019, the Company did not have any related party transactions other than with wholly owned subsidiaries.
TT Electronics plc Annual Report and Accounts 2020
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Governance and Directors' reportFinancial statementsStrategic report
Financial statements
Financial statements
Notes to the Company financial statements
continued
15 Subsidiary undertakings
The following entities are 100% owned with only ordinary shares in issue, unless otherwise stated. The country of incorporation
matches the country in which the registered office/principal place of business is located.
Name of subsidiary undertaking
TT Electronics Ltd
Dongguan Arlec Electrical Products Co. Limited (capital contribution)
Shanghai Hongbian Electronics Co. Limited (capital contribution)
TT Electronics Integrated Manufacturing Services (Suzhou) Co., Ltd
Ying Si Ke Electrical Products Co. Limited (capital contribution)
TT Electronics SAS
TT Electronics GmbH
Precision International Holdings Limited
Stadium Asia Limited
STMC Limited
TT Electronics Srl
BI Technologies Corporation SDN BHD (ordinary and preference shares)
BI Technologies S.A. de C.V.
Optron de Mexico S.A. de C.V.
TT Electronics Roxspur (Poland) Sp. z o. o.
TT Electronics Asia Pte Ltd
TT Electronics Sweden AB
Aero Stanrew SARL
AB Connectors Limited
AB Electronic Components Limited
Abtest Limited
Aero Stanrew Group Limited (ordinary and preference shares) 1, 2
Aero Stanrew Limited
Automotive Electronic Systems Limited 1
BI Technologies Limited 2
Cable Realisations Limited (in liquidation)
Commendshaw Limited 1
Controls Direct Limited 2
Crystalate Electronics Limited
Dale Electric International Limited 1, 2
Deltight Washers Limited 2
Ferrus Power Limited 2
Fox Industries Limited 2
Hale End Holdings Limited 2
Kingslo Limited 2
KRP Power Source (UK) Limited 2
Linton and Hirst Group Limited 2
Midland Electronics Limited
MMG Linton and Hirst Limited 2
Nulectrohms Limited 2
Rodco Limited (60% owned) 1,2
Roxspur Measurement & Control Limited
Semelab Limited
Sensit Limited 2
Stadium Electrical Holdings Limited 2
Stadium Electronics Limited 2
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188 TT Electronics plc Annual Report and Accounts 2020
TT Electronics plc Annual Report and Accounts 2020
Registered
office/principal
place of
business
(1)
(2)
(3)
(4)
(2)
(5)
(6)
(7)
(8)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(20)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(21)
(18)
(18)
(18)
Financial statements
15 Subsidiary undertakings continued
Name of subsidiary undertaking
Stadium IGT Limited
Stadium Power Limited
Stadium United Wireless Limited 2
Stadium Wireless Devices Limited 2
Stadium Zirkon UK Limited 2
Stontronics Limited 2
The Brearley Group Limited 2
TT Asia Holdings Limited
TT Automotive Electronics Limited 2
TT Electronics Advanced Technology Centre (Nottingham) Limited
TT Electronics Europe Limited 1,2
TT Electronics Fairford Limited
TT Electronics Group Holdings Limited 1
TT Electronics Holdco Limited
TT Electronics Integrated Manufacturing Services Limited
TT Electronics IoT Solutions Limited 1
TT Group Limited 2
TT Power Solutions Limited 2
TTE Trustees Limited 1,2
TTG Investments Limited 1
TTG Nominees Limited 1,2
TTG Pension Trustees Limited 1,2
TTG Properties Limited 1
TT-UR Precision Resistors Limited
Valuegolden Limited 2
Welwyn Components Limited
Welwyn Electronics Limited 2
Wolsey Comcare Limited 2
Zirkon Holdings Limited 2
AB Interconnect, Inc.
Apsco Holdings, Inc
BI Technologies Corporation
Cletronics N.A. Inc,
International Resistive Company Inc
International Resistive Company of Texas, LLC
Optek Technology Inc
Power Partners, Inc
Precision, Inc
Stadium Group, Inc
Torotel, Inc
Torotel Products, Inc
TT Electronics Integrated Manufacturing Services, Inc
TT Electronics Power Solutions (US), Inc
TT Group Industries, Inc.
Registered
office/principal
place of
business
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(22)
(18)
(18)
(19)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(18)
(23)
(18)
(18)
(18)
(24)
(24)
(24)
(25)
(24)
(26)
(24)
(27)
(28)
(25)
(29)
(29)
(30)
(25)
(24)
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Governance and Directors' reportFinancial statementsStrategic report
Financial statements
Financial statements
Notes to the Company financial statements
continued
15 Subsidiary undertakings continued
(1) Newton Industrial Park, Christchurch, Barbados, West Indies
4th Building, F Zone, Zheng Wei Science Park, Dongkeng Town, Dongguan City, Guangdong, China
(2)
(3) Room 404-A69, East of Building 1, 29 Jia Tai Road, China (Shanghai) Pilot Free Trade Zone, China
158-24 Hua Shan Road, Snd Suzhou, 215129, China
(4)
(5)
4 place Louis Armand, 75012 Paris, France
(6) Max-Lehner-Strasse 31, 85354, Freising, Germany
(7) Room RA21, 6th Floor, Woon Lee Commercial Building, No. 7-9 Austin Avenue, Tsim Sha Tsui, Kowloon, Hong Kong
(8) Unit A, 3/F, Bamboos Centre, 52 Hung To Road, Kwun Tong, Kowloon, Hong Kong
(9) Via Santa Redegonda N. 11, Milano, Italy
(10) Lot 6.05, Level 6, KPMG tower, 8 First Avenue, Bandar Utama 47800 Petaling Jaya, Selangor, Darul Ehsan, Malaysia
(11) Ave Circulo de la Amistad No.102, Parque Industrial Mexicali IV, Mexico
(12) Ave Rio Bravo 1551-a, Parque Industrial Rio Bravo, CD. Juarez Chihuahua, Mexico
(13) Williama Heerleina Lindleya St. 16, Warsaw, 02-013, Poland
(14) 2 Shenton Way, #18-01 SGX Centre 1, 068804, Singapore
(15) Gullfossgatan 3, 164 40 Kista, Sweden
(16) 60 avenue de l’Uma, La Soukra 2036, Tunisia
(17) Abercynon, Mountain Ash, Rhondda Cynon Taff, CF45 4SF, Wales
(18) Fourth Floor, St Andrews House, West Street, Woking, Surrey, GU21 6EB, England
(19) Unit 1, Tregwilym Industrial Estate, Rogerstone, Newport, Gwent, NP10 9YA, Wales
(20) Unit 1 Gratton Way, Roundswell Business Park, Barnstaple, Devon, EX31 3AR, England
(21) Coventry Road, Lutterworth, Leicestershire, LE17 4JB, England
(22) London Road, Fairford, Gloucestershire, GL7 4DS, England
(23) Welwyn Electronics Park, Bedlington, Northumberland, NE22 7AA, England
(24) Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States
(25) CT Corporation System, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801, United States
(26) Corporation Service Company, 211 East 7th Street, Suite 620, Austin, TX 78701-3218, United States
(27) 43 Broad Street, Suite B206, Hudson, MA01749, United States
(28) 1700 Freeway Boulevard, Minneapolis, MN 55430, United States
(29) 520 N Rogers Road, Olathe, KS66062, United States
(30) CT Corporation System, 4400 Easton Commons Way, Suite 125, Columbus, OH43219, United States
1 Shares held directly by TT Electronics plc
2 Dormant UK subsidiary
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190 TT Electronics plc Annual Report and Accounts 2020
TT Electronics plc Annual Report and Accounts 2020
Financial statements
Five year record
£million (unless otherwise stated)
Revenue
Operating profit [5]
Adjusted operating profit [3] [5]
Profit before taxation [5]
Adjusted profit before taxation [3] [5]
Earnings (continuing) [5]
Adjusted earnings [3] [5]
Earnings per share − continuing (pence) [5]
Adjusted earnings per share (pence) [3] [5]
Dividends – paid and proposed
Dividend per share – paid and proposed (pence)
Average number of shares in issue
Net (debt)/funds
Total equity [4] [5]
2020
431.8
2019 [4] [5]
478.2
2018 [5]
429.5
2017 [1]
361.1
2016 [2] [5]
332.7
6.6
27.5
2.9
23.8
1.3
19.5
0.8
11.7
8.2
4.7
16.9
38.1
13.2
34.4
12.4
29.0
7.6
17.8
11.4
7.0
166.5
(83.9)
298.0
163.1
(69.1)
268.0
16.5
33.4
14.6
31.5
13.0
26.2
8.0
16.2
10.5
6.5
161.8
(41.7)
280.1
20.0
24.3
17.7
22.0
15.7
19.4
9.7
10.9
9.4
5.8
161.7
47.0
267.5
18.8
20.6
14.3
16.1
11.9
10.3
7.3
6.4
9.0
5.6
162.2
(55.4)
233.4
Notes
1 Results for 2017 have been restated for IFRS 15.
2 Results for 2016 have been restated for IFRS 15 and re-presented to exclude discontinued operations.
3 Adjusted operating profit, profit before taxation, adjusted earnings and adjusted earnings per share exclude the impact of restructuring costs, asset impairments and acquisition
and disposal related costs.
4 Equity for 2019 has been restated for an adjustment to the assessment of IFRS15 as described in note 1h.
5 Profit measures for 2019 and equity for 2019 and 2018 have been as described in note 1h.
TT Electronics plc Annual Report and Accounts 2020
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191
Governance and Directors' reportFinancial statementsStrategic report
Financial statements
Financial statements
Reconciliation of KPIs and non IFRS measures
In accordance with the Guidelines on APMs issued by the European Securities and Markets Authority (ESMA), additional
information is provided on the APMs used by the Group below.
To assist with the understanding of earnings trends, the Group has included within its financial statements APMs including
adjusted operating profit and adjusted profit. The APMs used are not defined terms under IFRS and therefore may not be
comparable to similar measures used by other companies. They are not intended to be a substitute for, or superior to,
GAAP measures.
Management uses adjusted measures to assess the operating performance of the Group, having adjusted for specific items as
detailed in note 8. They form the basis of internal management accounts and are used for decision making, including capital
allocation, with a subset also forming the basis of internal incentive arrangements. By using adjusted measures in segmental
reporting, this enables readers of the financial statements to recognise how incentive performance is targeted. Adjusted measures
are also presented in this announcement because the Directors believe they provide additional useful information to shareholders
on comparable trends over time. Finally, this presentation allows for separate disclosure and specific narrative to be included
concerning the adjusting items; this helps to ensure performance in any one year can be more clearly understood by the user
of the financial statements.
Income statement measures:
Alternative
Performance
Measure
Adjusted
operating
profit
Closest equivalent
statutory measure
Operating profit
Note reference to
reconciliation to
statutory measure
Adjusting items as
disclosed in note 8
Definition and purpose
Operating profit from continuing operations excluding the impacts
of significant restructuring programmes; significant one-off items
including property disposals, business acquisition and divestment
related activity; and the amortisation of intangible assets recognised
on acquisition. Business acquisition and divestment related items
include the writing off of the pre-acquisition profit element of
inventory written up on acquisition, other direct costs associated
with business combinations and adjustments to contingent
consideration related to acquired businesses. Costs arising from
significant changes in footprint (including movement of production
facilities) and significant costs of management changes are
also excluded.
To provide a measure of the operating profits excluding the impacts
of significant items such as restructuring or acquisition related activity
and other items such as amortisation of intangibles which may not
be present in peer companies which have grown organically.
Adjusted
operating
margin
Adjusted
earnings
per share
Operating profit
margin
Adjusting items as
disclosed in note 8
Adjusted operating profit as a percentage of revenue.
Earnings per share
See note 11 for the
reconciliation and
calculation of
adjusted earnings
per share
To provide a measure of the operating profits excluding the impacts
of significant items such as restructuring or acquisition related activity
and other items such as amortisation of intangibles which may not
be present in peer companies which have grown organically.
The profit for the year attributable to the owners of the Group adjusted
to exclude the items not included within adjusted operating profit
divided by the weighted average number of shares in issue during
the year.
To provide a measure of Earnings per Share excluding the impacts of
significant items such as restructuring or acquisition related activity
and other items such as amortisation of intangibles which may not
be present in peer companies which have grown organically.
194
192 TT Electronics plc Annual Report and Accounts 2020
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Financial statements
Income statement measures continued:
Alternative
Performance
Measure
Adjusted
diluted
earnings
per share
Closest equivalent
statutory measure
Diluted earnings
per share
Note reference to
reconciliation to
statutory measure
See note 11 for the
reconciliation and
calculation of
adjusted diluted
earnings per share
Organic
revenue
Revenue
See note APM 1
Effective tax charge See note APM 2
Adjusted
effective tax
charge
None
See note APM 3
Return on
invested
capital
Definition and purpose
The profit for the year attributable to the owners of the Group adjusted
to exclude the items not included within adjusted operating profit
divided by the weighted average number of shares in issue during
the year, adjusted for the effects of any potentially dilutive options.
To provide a measure of Earnings per Share excluding the impacts
of significant items such as restructuring or acquisition related activity
and other items such as amortisation of intangibles which may not
be present in peer companies which have grown organically.
This is the percentage change in revenue from continuing operations
in the current year compared to the prior year, excluding the effects
of currency movements, acquisitions and disposals. This measures
the underlying growth or decline of the business.
To provide a comparable view of the revenue growth of the business
from period to period excluding acquisition impacts.
Tax charge adjusted to exclude tax on items not included within
adjusted operating profit divided by adjusted profit before tax, which
is also adjusted to exclude the items not included within adjusted
operating profit.
To provide a tax rate which excludes the impact of adjusting items
such as restructuring or acquisition related activity and other items
such as amortisation of intangibles which may not be present in peer
companies which have grown organically.
Adjusted operating profit for the year divided by average invested
capital for the year. Average invested capital excludes pensions,
provisions, tax balances, derivative financial assets and liabilities,
cash and borrowings and is calculated at average rates taking
12 monthly balances.
This measures how efficiently assets are utilised to generate returns
with the target of exceeding the cost to hold the assets
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Financial statements
Financial statements
Reconciliation of KPIs and non IFRS measures
continued
Statement of financial position measures:
Alternative
Performance
Measure
Net debt
Closest equivalent statutory
measure
Cash and cash
equivalents less
borrowings and lease
liabilities
Note reference to
reconciliation to statutory
measure
Reconciliation of
net cash flow to
movement in net
(debt)/ funds
(note 26)
Leverage (bank
covenant)
Cash and cash
equivalents less
borrowings
N/A
Definition and purpose
Net debt comprises cash and cash equivalents and borrowings
including lease liabilities.
This is additional information provided which may be helpful
to the user in understanding the liquidity and financial structure
of the business.
Leverage is the net debt defined as per the banking covenants
(net debt (excluding lease liabilities) adjusted for certain terms
as per the bank covenants) divided by EBITDA excluding items
removed from adjusted profit and further adjusted for certain
terms as per the bank covenants.
Provides additional information over the Group’s financial
covenants to assist with assessing solvency and liquidity.
Purchase of property, plant and equipment net of government
grants (excluding property disposals), purchase of intangibles
(excluding acquisition intangibles) and capitalised development.
A measure of the Group’s investments in capex and development
to support longer term growth.
None
See note APM 4
Net capital and
development
expenditure
(net capex)
Dividend per
share
Dividend per share
Not applicable
Amounts payable by dividend in terms of pence per share.
Provides the dividend return per share to shareholders.
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Financial statements
Statement of cash flows measures:
Alternative
Performance
Measure
Adjusted
operating
cash flow
Adjusted
operating
cash flow
post capex
Working
capital
cashflow
Closest equivalent
statutory measure
Note reference to
reconciliation to
statutory measure
Operating cash flow See note APM 5
Definition and purpose
Adjusted operating profit, excluding depreciation of property, plant
and equipment (depreciation of right-of-use assets is not excluded)
and amortisation of intangible assets (amortisation of acquisition
intangibles is not excluded) less working capital and other non-cash
movements.
An additional measure to help understand the Group’s operating
cash generation.
Operating cash flow See note APM 6
Adjusted operating cash flow less net capital and development
expenditure.
An additional measure to help understand the Group’s operating
cash generation after the deduction of capex.
Cashflow –
inventories payables,
provisions and
receivables
See note APM 7
Working capital comprises of three statutory cashflow figures:
(increase)/decrease in inventories, increase/(decrease) in payables
and provisions, and (increase)/decrease in receivables.
To provide users a measure of how effectively the group is managing
its working capital and the resultant impact on liquidity.
Free cash
flow
Net increase/
decrease in cash and
cash equivalents
See note APM 8
Free cash flow represents cash generated from trading after all costs
including restructuring, pension contributions, tax and interest
payments. Cashflows to settle LTIP schemes are excluded.
Cash
conversion
None
See note APM 9
Free cash flow provides a measure of how successful the company
is in creating cash during the period which is then able to be used by
the Group at its discretion.
Adjusted operating cash flow post capex (less any property disposals
which were part of restructuring programmes) divided by adjusted
operating profit
Cash conversion measures how effectively we convert profit into
cash and tracks the management of our working capital and
capital expenditure.
None
R&D cash spend
as a percentage
of revenue
See note APM 10
R&D cash spend and R&D investment as a percentage of revenue
excludes Global Manufacturing Solutions which is a manufacturing
services business and therefore has no R&D.
To provide a measure of the company’s expenditure on R&D relative
to its overall size which may be helpful in considering the Group’s
longer term investment in future product pipeline.
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Governance and Directors' reportFinancial statementsStrategic report
Financial statements
Financial statements
Reconciliation of KPIs and non IFRS measures
continued
Non-financial measures:
Alternative
Performance
Measure
Employee
engagement
Closest equivalent
statutory measure
Note reference to
reconciliation to
statutory measure
Definition
Not applicable
Not applicable
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 (as surveyed by Best Companies Ltd).
Safety
performance
Not applicable
Not applicable
Provides a measure of employee sentiment and engagement.
Safety performance is defined as 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 our facilities worldwide, reflecting our
commitment to raising standards globally.
Provides users additional information about the Group’s commitment
and achievements in the area of health and safety.
APM 1 − Organic revenue:
£million
2020 revenue
Acquisitions
2020 revenue (excluding acquisitions)
2019 revenue
Foreign exchange impact
2019 revenue at 2020 exchange rates
Organic revenue decline (%)
APM 2 – Effective tax charge:
£million
Adjusted operating profit
Net interest
Adjusted profit before tax
Adjusted tax
Adjusted effective tax rate
Power and
Connectivity
Global
Manufacturing
Solutions
Sensors and
Specialist
Components
125.1
11.1
114.0
138.2
(0.1)
138.1
(17%)
197.5
−
197.5
213.2
(1.1)
212.1
(7%)
109.2
−
109.2
126.8
(0.2)
126.6
(14%)
2020
27.5
(3.7)
23.8
4.3
2020
Total
431.8
11.1
420.7
478.2
(1.4)
476.8
(12%)
2019
Restated [1]
38.1
(3.7)
34.4
(5.4)
18.1%
15.7%
1
‘Adjusted operating profit’ and ‘adjusted tax’ have been restated in the comparative period as described in note 1h.
198
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Financial statements
APM 3 – Return on invested capital:
£million
Adjusted operating profit
Average invested capital
Return on invested capital
2020
27.5
357.3
7.7%
2019
Restated [1]
38.1
352.1
10.8%
1
‘Adjusted operating profit’, ‘Average invested capital’ and ‘Return on invested capital’ have been restated in the comparative period as described in note 1h.
APM 4 − Net capital and development expenditure (net capex):
£million
Purchase of property, plant and equipment
Proceeds from sale of investment property, plant and equipment and
capital grants received
Capitalised development expenditure
Purchase of other intangibles
Net capital and development expenditure
APM 5 − Adjusted operating cash flow:
£million
Adjusted operating profit
Adjustments for:
Depreciation
Amortisation of intangible assets
Impairment of property, plant and equipment and intangible assets
Other items
Decrease/(increase) in inventories
Decrease/(increase) in receivables
(Decrease)/increase in payables and provisions
Adjusted operating cash flow
2020
(9.3)
3.4
(3.3)
(0.8)
(10.0)
2020
27.5
−
14.0
3.0
0.2
0.7
4.2
11.2
(11.8)
49.0
2019
(14.0)
0.4
(3.9)
(0.7)
(18.2)
2019
Restated [1]
38.1
−
13.9
4.1
−
2.5
(7.6)
(4.0)
10.4
57.4
1
‘Adjusted operating profit’ and ‘Decrease/(increase) in receivables’ have been restated in the comparative period as described in note 1h.’Adjusted operating cash flow’
remains unchanged.
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Financial statements
Financial statements
Reconciliation of KPIs and non IFRS measures
continued
APM 6 − Adjusted operating cash flow post capex:
£million
Adjusted operating cash flow
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment and government grants received
Capitalised development expenditure
Purchase of other intangibles
Adjusted operating cash flow post capex
APM 7 – Working capital cashflow:
£million
Decrease/(increase) in inventories
Decrease/(increase) in receivables
(Decrease)/increase in payables and provisions
Working capital cashflow
1
‘Decrease/(increase) in inventories’ and ‘Working capital cashflow’ have been restated in the comparative period as described in note 1h.
APM 8 – Free cash flow:
£million
Net cash flow from operating activities
Add back: Bonus paid to employees of Torotel which crystallised upon acquisition
Net cash flow from investing activities
Add back: Acquisition of business
Add back: Cash with acquired businesses
Add back: Tax arising from disposal of subsidiaries
Payment of lease liabilities previously reported as operating leases
Interest paid
Free cash flow
APM 9 – Cash conversion:
£million
Adjusted operating profit
Adjusted operating cash flow post capex
Exclude: Property disposal proceeds as part of restructuring programmes
Adjusted operating cash flow used to calculate cash conversion
Cash conversion
1
‘Adjusted operating profit’ and ‘Cash conversion’ have been restated in the comparative period as described in note 1h.
APM 10 − R&D cash spend as a percentage of revenue:
£million
Revenue (excluding GMS)
R&D cash spend
R&D cash spend as a percentage of revenue
2020
49.0
(9.3)
3.4
(3.3)
(0.8)
39.0
2020
4.2
11.2
(11.8)
3.6
2020
28.2
3.8
(51.9)
43.3
(1.4)
−
(4.1)
(3.5)
14.4
2020
27.5
39.0
(3.2)
35.8
130%
2019
57.4
(14.0)
0.4
(3.9)
(0.7)
39.2
2019
Restated [1]
(7.6)
(4.0)
10.4
(1.2)
2019
35.9
−
(21.7)
2.4
(0.1)
1.2
(4.0)
(4.0)
9.7
2019
Restated [1]
38.1
39.2
−
39.2
103%
2020
234.3
11.2
4.8%
2019
265.0
13.5
5.1%
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TT Electronics plc Annual Report and Accounts 2020
SHAREHOLDER INFORMATION
Ex-dividend date for final dividend
29 April 2021
Record date for final dividend
30 April 2021
AGM and trading update
13 May 20201
Final dividend payment
21 May 2021
2021 half-year results
5 August 2021
Preliminary announcement of 2021 results
March 2022
Annual Report 2021
April 2022
Dividends
See page 47 for details on the dividend
amount per share.
Annual General Meeting ("AGM")
In 2020, the UK Government’s “Stay at
Home measures” resulted in attendance
at the AGM in person being limited to
two shareholders (the CFO and the
Company Secretary), with shareholders
being encouraged to vote by proxy and
to submit questions in advance by email.
The next AGM will be held on 13 May
2021 at 11.30am. Details of the AGM
procedure for 2021 are set out in detail
in the enclosed Notice of Annual General
Meeting.
Articles of Association
The Company’s Articles of Association
may only be amended by special
resolution approved at a general meeting
of the shareholders.
Share capital
The Company’s issued share capital
comprises a single class of share capital
divided into ordinary shares of 25 pence
each. All issued shares are fully paid. The
share capital during the year is shown
in note 24 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, a copy of which
can be obtained from Companies House
in the United Kingdom or by writing to the
Group General Counsel and Company
Secretary. Subject to applicable statutes,
shares may be issued with such rights
and restrictions as the Company may
decide by ordinary resolution, 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.
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. You
can find further details regarding voting
at the Annual General Meeting in the
Notice of the Annual General Meeting
which accompanies this document.
None of the ordinary shares carries 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 their 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
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
TT Electronics plc Annual Report and Accounts 2020
199
Additional information | Shareholder information continued
A daily postal dealing service is also
available and a form, together with
terms and conditions, can be obtained
by calling 0371 384 2248*. Commission
is 1.90 per cent with a minimum
charge of £70.
Shareholder enquiries
Equiniti maintains 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 0371 384 2396*
(or +44 121 415 7047 if calling from
outside the United Kingdom)
Equiniti also offers a range of
shareholder information on-line at
www.shareview.co.uk
Website
Information on the Group’s financial
performance, activities and share price is
available at www.ttelectronics.com
* Lines are open from 8.30 am to 5.30 pm, Monday to
Friday (except bank holidays).
ShareGift
ShareGift is a charity share donation
scheme for shareholders, administered
by The Orr Mackintosh Foundation.
It is especially for those who may
wish to dispose of a small parcel
of shares whose value makes it
uneconomical to sell on a commission
basis. Further information can be
obtained at www.sharegift.org or
from Equiniti.
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.
If you would like any multiple accounts
combined into one account, please
write to Equiniti Limited at the address
given on this page.
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
8 March 2021 and 31 December 2020.
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.
8 March 2021
31 December 2020
BlackRock, Inc
Aberforth Partners LLP
M&G plc
Polar Capital LLP
Aberdeen Asset Management Ltd
NN Group N.V.
Number
16,966,544
14,832,779
8,417,742
8,628,496
7,835,077
7,815,000
Franklin Templeton Management Ltd
7,590,000
%
9.7
9.1
5.1
5.0
4.8
4.8
4.6
Number
16,893,315
14,832,779
8,417,742
8,628,496
7,835,077
7,815,000
7,590,000
%
9.7
9.1
5.1
5.0
4.8
4.8
4.6
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
grounds 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 or the Market Abuse
Regulations 2015); 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.
Share dealing services
Shareview Dealing is a telephone and
internet service provided by Equiniti.
It offers 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 8.00 am
and 4.30 pm, Monday to Friday (except
bank holidays), for more information
about this service and for details of the
rates and charges. Please note that
telephone lines remain open until 6.00
pm for enquiries.
200 TT Electronics plc Annual Report and Accounts 2020
Additional information | Glossary
GLOSSARY
AGM
BE Inspired
BE Lean
BE TT
BD
bn
bps
CAGR
CBI
CDP
CEO
CFO
CGU
CNI
CPI
CREST
DC
EBT
ED&I
ELT
FX
EICC
ELT
EPS
ESG
EU
EVP
FBU
FRC
FRS
FTSE
GAAP
GBP
GDP
GHG
GMS
GPS
H&S
H
HFM
HR
HSE
IAS
IASB
IFRS
IoT
IT
KPI
Annual General Meeting
a TT initiative to deliver improved
employee performance
a TT initiative to improve operational efficiency
Build Expertise in TT
Business Development
billion
basis point
Compound Annual Growth Rate
Confederation of British Industry
Carbon Disclosure Project
Chief Executive Officer
Chief Financial Officer
Cash Generating Unit
Communications, Navigation and Identification
Consumer Prices Index
Certificateless Registry for Electronic
Share Transfer
Direct Current
Employee Benefit Trust
Equality, Diversity and Inclusion
Executive Leadership Team
Foreign Exchange
Electronics Industry Citizenship Coalition
Executive Leadership Team
Earnings Per Share
Environmental, Social and Governance
European Union
Executive Vice President
Fair, Balanced and Understandable
Financial Reporting Council
Financial Reporting Standards
Financial Times Stock Exchange
Generally Accepted Accounting Principles
Pounds Sterling (£)
Gross Domestic Product
Greenhouse Gas
Global Manufacturing Solutions
Global Positioning System
Health & Safety
Half (year)
Hyperion Financial Management
Human Resources
Health Safety & Environmental
International Accounting Standards
International Accounting Standards Board
International Financial Reporting Standards
Internet of Things
Information Technology
Key Performance Indicator
LED
LVA
LIBOR
LLP
LTIP
M&A
M
MRI
MSCI
MWh
NED
NPI
OECD
OEM
PBT
PLC
PPE
PSEE
Q
R&D
RBA
RCF
REGO
RiSK
RMB
RNS
ROIC
RPI
RSP
SEC
SERC
STIP
STEM
TETS
TFCD
the Board
the Code
the Company
the Directors
the Group
TSR
TT
TT Way
UK
UN
Underlying
EBITDA
USA/US
Light Emitting Diode
Left Ventricular Assist
London Interbank Offered Rate
Limited liability partnership
Long Term Incentive Plan
Mergers and Acquisitions
million
Magnetic Resonance Imaging
Morgan Stanley Capital International
Megawatt-hour
Non-Executive Director
New Product Introduction
Organisation for Economic
Co-operation and Development
Original Equipment Manufacturer
Profit Before Tax
Public Limited Company
Personal Protective Equipment
People, Social, Environmental and Ethics
Quarter (year)
Research and Development
Responsible Business Alliance
Revolving Credit Facility
Renewable Energy Guarantees of Origin
Risk in the Supply Chain
Chinese Yuan
Regulatory News Service
Return on Invested Capital
Retail Price Index
Restricted Share Plan
Securities Exchange Commission
Streamlined Energy and Carbon Reporting
Short Term Incentive Plan
Science, Technology, Engineering
and Mathematics
Transcutaneous Energy Transfer System
Task Force on Climate Financial Disclosures
The Board of Directors of TT Electronics plc
UK Corporate Governance Code
TT Electronics plc
The Directors of TT Electronics plc
TT Electronics plc and its subsidiaries
Total Shareholder Return
TT Electronics plc
TT’s aspired culture
United Kingdom of Great Britain and Northern Ireland
United Nations
Underlying Earnings Before Interest, Taxes,
Depreciation and Amortisation
United States of America
Designed and produced by
The material used in this Report is Heaven 42. Both the paper manufacturing mill and the printer
are registered to the Environmental Management System ISO14001 and are Forest Stewardship
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TT Electronics plc
Fourth Floor
St Andrews House
West Street
Woking
Surrey
GU21 6EB
Tel +44(0) 1932 825300
Fax +44(0) 1932 836450
For more information on
our business please visit
www.ttelectronics.com