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CREATING VALUE FOR
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TT Electronics plc
Annual Report and Accounts 2021
“We are a global provider of design-led,
advanced electronics technologies for
performance-critical applications in
specialised markets.
We solve technology challenges for
a sustainable world. We do this by
delivering solutions for our customers
that enable products that are cleaner,
smarter and healthier, and that will
benefit our planet and people for
future generations.”
Richard Tyson
CEO
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IN THIS REPORT
CONTENTS
Strategic report
In this Annual Report
TT at a glance
Chairman’s statement
Chief Executive’s Q&A
Executive Leadership Team
Our business model
Our markets
• Healthcare
• Aerospace & defence
• Automation & electrification
Our strategy
CFO review
Key performance indicators
Stakeholder engagement
Our people, environment and communities
Section 172 statement
Risk management
Principal risks and uncertainties
Going concern
Non-financial information statement
Governance and Directors’ report
Governance at a glance
Board of Directors and Company Secretary
Chairman’s introduction to governance
Leadership and Company purpose
Nominations Committee report
Audit Committee report
Remuneration Committee report
Our executive remuneration at a glance
Remuneration Policy overview
Annual report on remuneration
Other statutory disclosures
Statement of Directors’ responsibilities
Financial statements
Independent auditor’s report
Consolidated income statement
Consolidated statement
of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the Consolidated financial statements
Company statement of financial position
Company statement of changes in equity
Notes to the Company financial statements
Five year record
Reconciliation of KPIs and non IFRS measures
Shareholder information
Glossary
IFC
2
4
6
11
14
16
16
20
24
28
31
42
44
46
62
64
67
71
72
74
76
78
81
87
92
98
102
106
108
119
121
123
133
134
135
136
137
138
191
192
193
200
201
208
210
CONTENTS
1
2
Our 2021 performance highlights
REVENUE
ORGANIC REVENUE GROWTH
2020: £431.8m
ADJUSTED OPERATING PROFIT
£476.2m
£34.8m
7.3%2020: 6.4%
ADJUSTED OPERATING PROFIT MARGIN
2020: £27.5m
STATUTORY OPERATING PROFIT
10%2020: (12%)
£19.3m
4.1%2020: 1.5%
STATUTORY OPERATING PROFIT MARGIN
2020: £6.6m
ADJUSTED EPS
14.5p
2020: 11.7p
STATUTORY EPS
7.3p2020: 0.8p
Throughout this Annual Report we refer to a number of Alternative Performance Measures (APMs) which have been adopted by the Directors to provide further information on underlying
trends and the performance and position of the Group. Details of these APMs and a reconciliation to statutory measures can be found on pages 201 to 207.
1
2
CHAIRMAN'S STATEMENT
TT is built on passion, skills, experience and opportunity.
The Board is delighted with the progress the business has
made this year.
Read more on page 4
CHIEF EXECUTIVE’S Q&A
Alongside a strong trading performance, we have
continued to execute our strategy and invest for future
growth including R&D, our significant self-help programme,
and successful M&A.
Read more on page 6
RETURN ON INVESTED CAPITAL
DIVIDEND PER SHARE
9.1%2020: 7.7%
5.6p
4.5%2020: 4.8%
R&D INVESTMENT AS A % OF SALES
2020: 4.7p
Read more on page 31
CFO REVIEW
We are making tangible progress towards double-digit adjusted
operating margins and, as a result, we are confident that TT’s
momentum will continue.
Read more on page 46
OUR PEOPLE, ENVIRONMENT
AND COMMUNITIES
We have made significant progress on environment, social and
governance (ESG) and sustainability matters in recent years as
the Group has been transformed.
REDUCTION IN SCOPE 1&2 CARBON EMISSIONS
25%2020: 22%
Read more on page 74
GOVERNANCE
Good governance enables TT to pursue its strategy with more
pace and less risk.
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report
Strategic report | TT at a glance
TT AT A GLANCE
Our global reach
WHO
WE ARE
TT Electronics is a global
provider of design-led,
advanced electronics
technologies for performance-
critical applications in
specialised markets.
Our purpose
We solve technology challenges
for a sustainable world.
We service our global
markets from 26 design
and manufacturing
facilities and offices in
the UK, North America,
Sweden and Asia.
Global breakdown
North and Central America: 10 primary locations
38% of Group revenue
United Kingdom: 9 primary locations
21% of Group revenue
Asia and Rest of World: 6 primary locations
24% of Group revenue
Rest of Europe: 1 primary location
17% of Group revenue
Pie chart and figures above represent revenue by destination
Our strategy
People and culture
Our strategy is designed to leverage our assets and
differentiators to unlock TT’s potential and create
sustainable value for all our stakeholders.
Read more on page 28
Our talented team of design, engineering and
manufacturing experts operate in a supportive culture
that champions expertise, innovation, problem solving
and doing the right thing.
Read more on page 46
Our customers
Responsible business
Our customers range from start-up businesses to
global multi-nationals operating in the healthcare,
aerospace, defence, automation, electrification,
electronics and energy sectors. We aim to work as
part of the customer’s team, with our products and
services integral to customers’ designs.
Read more on page 44
We are committed to having a positive impact on
the world around us: creating value and enhancing
sustainability through our products; the way we do
business, including how we look after our employees;
and by reducing our environmental footprint.
This commitment is described in our purpose
and embedded in our strategy as one of our four
strategic priorities.
Read more on page 46
2
TT Electronics plc Annual Report and Accounts 2021
Target markets
Read more about our target markets on page 16
% of Group revenue
Healthcare
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.
Aerospace & defence
We provide solutions for high-
reliability applications across
a broad range of platforms
operating on land, air and sea.
Automation & electrification
Customers rely on us to
help solve their toughest
automation and electrification
challenges, streamlining their
supply chains, increasing their
efficiency, and helping them
bring smart, new products
to market.
Our market breakdown
25% – Healthcare
18% – Aerospace & defence
39% – Automation &
electrification
18% – Other
Our divisions
Read more on about our divisions on page 34
% of Group revenue
Power and Connectivity
Designs and manufactures
power application products
for power efficiency and
connectivity devices which
enable the capture and
wireless transfer of data to
optimise electronic systems.
Our key capabilities
Global Manufacturing
Solutions
Provides manufacturing
services and engineering
solutions for our product
divisions and to customers
that often require a lower
volume and higher mix
of products, including
complex integrated product
assemblies and engineering
services such as value-
engineering and designing
testing solutions.
Sensors and Specialist
Components
Works with customers to
develop high-specification,
standard and customised
solutions including sensors
and power management
devices that improve the
precision, speed and reliability
of applications.
Our Divisional breakdown
30% – Power and
Connectivity
46% – Global
Manufacturing Solutions
24% – Sensors and
Specialist Components
Power
We design and manufacture
customised, highly efficient
power management devices.
Connectivity
Our products support
the digitisation of
industrial processes,
smart infrastructure
and automation.
Sensing
Our solutions improve
the precision, speed and
reliability of critical aspects of
customer applications.
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report Strategic report | Chairman’s statement
CHAIRMAN’S STATEMENT
CREATING
VALUE...
4
TT Electronics plc Annual Report and Accounts 2021
TT is built on passion, skills,
experience and opportunity.
The Board is delighted with the
progress made by the business
this year.
Warren Tucker
Chairman
As I head into my third year as
Chairman of TT, I am delighted to say
that the values and characteristics that
attracted me to the Group continue
to drive success and have further
strengthened in 2021.
TT is built on passion, skills, experience
and opportunity. We are strongly
positioned in three growing markets,
with a high-quality leadership team,
in-depth global reach, and R&D and
manufacturing capabilities that
differentiate us from competitors.
Strong capital discipline is enabling
continued investment in growth
opportunities, including those in the
sustainability space, through our focus
on enabling cleaner, smarter and
healthier products and applications.
We have successfully navigated the
COVID-19 pandemic and are moving
forward at pace with our strategy.
The Board is delighted with the progress
made by the business this year.
I would like to thank all of our employees
who have worked tirelessly to innovate,
deliver for our customers and inspire
and support each other with passion
and integrity. This is a great company,
serving markets that align with our
purpose, and I am excited about what
we can achieve in the future.
TT’s strategic priorities
• Technology investment and R&D
to drive growth and consolidate
customer positions.
• Margin enhancement through
portfolio change, operational
leverage and self-help actions.
• Targeted and complementary.
M&A to expand technology
capabilities and customer and
market reach.
• Integration of ESG and
sustainability matters into
decision-making and business
practices, from product
development to recruitment.
Read more about our strategy
on page 28
2021 performance
Momentum is building in the business.
This year’s strong trading performance
has been driven by extremely high order
intake, organic revenue growth in all
divisions, and by pricing and operational
improvements. Group adjusted operating
margin returned to pre-COVID levels, and
we continue to make progress towards
our target of double-digit margins. We
also saw free cash flow improvement
in the second half despite supply chain
headwinds and inventory investment to
support our record order book.
We have continued to execute on our
four strategic priorities to create value.
Technology investment and a pipeline
of new products are critical drivers of
future growth. We invested £11.4 million
in R&D in 2021, taking our R&D spend
to £74.1 million over seven years. We
have taken further action to enhance
margins, including through our self-help
programme to reduce our footprint
and fixed cost base. Our M&A activity
targets higher-margin businesses
which will build scale and enhance our
capabilities and market access. We have
successfully integrated the two power
supply businesses acquired in 2020
and we were pleased to announce the
further strengthening of our positions on
long-term defence platforms through the
acquisition of Ferranti Power and Control
at the beginning of 2022.
Our employees
Our employees are talented, dedicated
and inspiring and they are critical to our
current and future success. The Board
is extremely proud of the culture that
TT has built. We are a can-do business
with people that care deeply about
one another, learning and growing, and
achieving more for the customer. Our
responsibility as leaders is to nurture that
culture and invest in meeting employee
needs from safety and wellbeing to
equality, diversity and inclusion (ED&I).
I am pleased to note our continuing
strong performance in safety, including
the management of COVID-19, as well
as the active ED&I programme we have
across the Group.
ESG matters at TT
We have made significant progress on ESG and sustainability matters in recent
years as the Group has been transformed and these considerations have been
placed at the heart of strategic and day-to-day decision-making at all levels of
the organisation. This way of operating reduces risk and provides significant
opportunities to develop our business model. ESG progress has formed part of
Directors’ remuneration since 2020.
We solve technology challenges for a sustainable world and our products
address resource scarcity, improve energy efficiency, support renewables and
drive productivity, connectivity and health.
We also seek to have a wider positive impact on society by understanding and
prioritising employee needs, doing business responsibly, and reaching out to
our local communities.
We have set ambitious targets for reducing our environmental footprint,
including targeting Net Zero Scope 1 & 2 emissions by 2035 and targeting
reductions in single-use plastics, waste to landfill and in our Scope 3 emissions.
Read more about ESG matters from page 46
The Board and governance
Dividend
We have benefited significantly from an
extended period of Board continuity with
no changes to either the composition of
the Board or its principal Committees
during 2021. I firmly believe that good
governance enables a company to
pursue its strategy with more pace and
less risk. This is what we have put in
place at TT. Our strong governance and
risk management frameworks have
enabled us to steer a course through
the pandemic and, at the same time,
strengthen the foundations of the
business while investing in the levers of
future growth.
I would like to thank members of the
Board for their counsel and contribution
during the year and for their strong
commitment to our honest, open,
challenging and collegiate approach.
Given the strong trading momentum we
are seeing, and the positive outlook for
2022 and beyond, the Board is proposing
a final dividend of 3.8 pence per share,
giving a total dividend of 5.6 pence per
share for the year.
Outlook
As our CEO, Richard Tyson, explains
on page 6, the TT business has been
transformed in the last seven years.
We, and by extension TT’s stakeholders,
are now in a position to reap further
the benefits of that transformation.
We began 2022 with a record order
book and the Board is confident that
we will make further good progress
in our financial, operational and ESG
performance in 2022.
Warren Tucker
Chairman
8 March 2022
…FOR OUR
WORLD
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Financial statementsGovernance and Directors' reportStrategic report Strategic report | Chief Executive’s Q&A
A WORD WITH OUR CEO
Q&A
I am incredibly proud of
the many talented people
we have in the business.
There is lots to be excited
about as we look forward.
Richard Tyson
CEO
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TT Electronics plc Annual Report and Accounts 2021
We delivered a strong trading
performance in 2021 with very good
revenue and profit growth and, as
expected, a meaningful step forwards
towards double-digit adjusted margins.
The growth in revenue and the strong
order intake across all divisions reflect
our strong customer relationships,
momentum in our pipeline and the
positive structural trends evident in our
end markets. This performance has
been delivered despite further COVID-19
disruption and significant supply chain
and cost headwinds. Alongside a
strong trading performance, we have
continued to execute our strategy and
invest for future growth including R&D,
our significant self-help programme, and
successful M&A.
We have started 2022 with a record
order book, which gives us the
confidence and the visibility to achieve
our growth plans for the coming year,
whilst continuing to manage the ongoing
cost and supply chain challenges in
partnership with our customers. We
continue to enhance the quality of our
businesses and, coupled with good
customer wins, strength in our target
markets, and the commercial aerospace
recovery still to come, we believe
the Group is in a strong position for
the future.
Q
It looks like there is real momentum in
the business. Do you agree?
Yes, I am really pleased with how we
have repositioned the business over
the last six years. The Group has been
transformed: we have shifted our focus
on to very attractive end markets;
expanded our technology capabilities;
and created a growth platform. This
strategy is now delivering good growth
across healthcare, defence, automation
and electrification. Commercial
aerospace is starting to show early signs
of recovery and we believe this market
will provide a good underpin to medium-
term growth.
We are winning an increased share of
wallet with our existing customers, partly
through cross-selling our expertise and
aided by our strong service and delivery
track records. Cross-selling has been
enhanced through our active Business
Development Council, a network spread
across all TT divisions, and incentivised
to bring in cross-division opportunities.
We are gaining significant traction here
and I believe there is more to come.
Targeted and complementary M&A – Torotel
A key rationale for the acquisition of Torotel
was to create scale in our North American
power solutions business. Not only does
Torotel bolster our power capabilities, but it also
brought R&D resources and additional Tier 1
OEM relationships to the Group. The acquisition
leverages our exposure to US defence primes,
and, through the TT network, we are able to
bring Torotel’s skillset to the European market.
The business is margin enhancing, another key
criterion for M&A.
We have completed and integrated a number of
such acquisitions in the last few years, and these
have led to the development of a standard set
of tools and commonality of process (including
governance) for successful integration. We are
continually improving these standards for even
more efficient application in future acquisitions.
We have also provided additional investment
to Torotel to expand its product offering and
create new revenue synergies. New contract
wins have been secured on both existing and
new programmes, including for a major defence
supplier for whom we will be providing complex
cable assemblies and a further contract utilising
our radar electronics expertise.
The Torotel integration process was completed
six months ahead of plan and the acquisition is on
track to deliver the planned cost synergies and our
return on invested capital (ROIC) target, with scope
to enhance these further.
We are also adding new customers –
over 30 in the year, a number of which
we would hope to become key accounts.
We are being increasingly successful at
winning multi-year programmes which
provides excellent long-term certainty
on revenues.
As we entered 2022, our order book was
at unprecedented levels across all of our
divisions, providing excellent visibility
for the year ahead. Yes, customers are
giving us more clarity as we deal with
supply chain challenges together, but it is
also reflective of new customers and the
longer-term nature of our relationships.
There is lots to be excited about as we
look forwards.
Q
Of what are you most proud in TT’s
2021 performance?
I am incredibly proud of the many
talented people we have in the business
and the resilience our teams have shown
as we faced new COVID-19 waves and
variants. In 2021, COVID-19 issues
have been additionally complicated
and exacerbated by the global supply
chain challenges. Despite this we
have delivered a year of impressive
growth. Our employee engagement
score, from our annual survey in Q3,
puts TT amongst the best industrial
companies globally for engagement
using the independent Best Companies
Ltd benchmark.
We also delivered revenue and adjusted
operating margins back at 2019 levels on
a constant currency basis and this is an
achievement I am very proud of.
In 2021 we delivered strong top line
growth of 14% (organic revenue growth
of 10%) whilst building a record order
book. This puts us in a strong position
for another year of good growth in 2022,
with excellent visibility. I am proud that
the strategy we put in place is unlocking
the potential of the Group in terms of
growth, and that we remain on track to
achieve a double-digit Group adjusted
operating margin in 2023, and to keep
margins moving on from there.
I am also pleased with the great
progress we have made again this year
in sustainability, which is at the heart
of how we think about the future of
the Group and our strategic decision-
making. The Group’s focus on three
core markets is enabling us to fulfil our
purpose and invent products for our
customers that not only help them to
succeed, but that support sustainability
and are more sustainable themselves.
Our team has really engaged with
reducing our environmental footprint
and we have achieved a further 25%
reduction in Scope 1 & 2 CO2 emissions
during 2021, which represents a 41%
reduction against our 2019 benchmark
data and significant progress already
towards our medium-term goal of
achieving Net Zero on these emissions
by 2035. Within each of our global
locations it is also great to see the
enthusiastic prioritisation of local
agendas, including reducing single-
use plastics and waste to landfill and
engagement with our communities,
including the promotion of STEM
careers. We feel strongly about the
role TT can play in ESG matters and in
creating value for our world.
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report Strategic report | Chief Executive’s Q&A
Demonstrating the success of our strategy
We have transformed the Group over the last
six years, realigning our business to structurally
growing, higher-added value markets and
substantially reducing our exposure to lower
growth, cyclical areas. Our adjusted operating
margin has evolved significantly through our
focus on increasing the proportion of higher-
margin products in the portfolio, drop through
from organic revenue growth, and restructuring
and footprint rationalisation. We have made
tangible progress towards delivering double-
digit operating margins in the future, supported
by continued investment in R&D, and customer
partnerships to bring higher-growth, more
sustainable products to market.
ESG and sustainability matters have also seen
significantly greater focus and integration into
decision-making and business practices. Our
safety culture has matured through a focus
on standards and safe behaviours so that our
people are protected, and we are investing in
growing skills and expertise at all levels of the
organisation. Our ambitious environmental
transition has led to a 41% reduction in Scope 1
& 2 emissions over the last two years.
MARKET REALIGNMENT
Transformation to serve markets with structural growth drivers
2015
2021
TT market breakdown
TT market breakdown
13% – Medical
25% – Healthcare
12% – Aerospace & defence
18% – Aerospace & defence
30% – Industrial
45% – Transportation
39% – Automation &
electrification
18% – Other
Q
How much of your order book strength
is pull forward versus genuine growth?
Q
Do you see opportunities to grow in
the end markets you are exposed to?
We have focused on working even more
closely with our customers during this
period of supply chain challenges. We
have been asking diligent questions to
ensure that orders placed are "real" and
that there is minimal double ordering;
in certain circumstances we have
also amended our commercial terms
to give us greater protection. Orders,
particularly for custom parts, are now
often non-refundable, non-returnable and,
increasingly, non-reschedulable to ensure
that we are working to genuine customer
requirements. We are also taking money
upfront and require customers to commit
contractually to pay for inventory in
advance on certain products.
We had a record order book into 2022,
with increased visibility into H2, including
GMS fully booked.
Our primary focus areas for growth
and investment are in the end markets
of healthcare, aerospace & defence,
and automation & electrification
which includes products that address
resource scarcity, improve energy
efficiency, support renewables and drive
productivity, connectivity and health.
In healthcare markets in 2021 we believe
there has been an element of rebound
effect as elective procedures previously
cancelled have been reinstated. We
believe this is a good medium- to long-
term growth market in the region of 5-7%
CAGR, and we know that some of our
key customers in this area have growth
targets in excess of this. We would be
keen to add further scale in this market.
One area of our expertise achieving great
traction is surgical navigation using
robotics for minimum invasive surgeries.
We have been developing new, smaller
and more accurate sensors to support
these robotic applications.
We estimate aerospace & defence end
markets offer medium-term growth of
3-4% CAGR. We have recently won a
contract to participate in the main UK
army vehicle programme for the next
10 to 20 years, which I believe is clear
evidence of our capabilities. We started
to see the first signs of recovery in
civil aerospace in 2021, for both wide
and single aisle planes, but do not
expect a return to meaningful growth
before 2023.
In automation & electrification, we see
through-cycle growth of 4-6% CAGR
in areas such as industrial automation
and robotics, smart infrastructure, and
metering, all of which should grow faster
than GDP. And, with the onset of 5G and
further proliferation of electronics to
deliver connectivity across a range of
markets, we believe this area offers us
exciting growth opportunities.
The majority of our products contribute
to delivering the global sustainability
agenda and are enablers used by
our customers to achieve their own
sustainability goals. Our connectivity,
sensing, power and manufacturing
solutions all enable end use products
that are cleaner (smaller, lighter and
more power efficient), smarter (through
factory automation and productivity
and in connectivity for smart city
infrastructure) and healthier, providing
improved patient outcomes and
wellbeing (such as through remote
health monitoring and diagnostics).
8
TT Electronics plc Annual Report and Accounts 2021
EVOLUTION OF ADJUSTED OPERATING MARGIN
MATURED SAFETY CULTURE
+300bps
2021 adjusted operating
margin vs 2015
55 three day lost-time incidents
in 2021 vs 29 in 2015
SIGNIFICANT INVESTMENT IN R&D
REDUCTION IN SCOPE 1 & 2 CARBON EMISSIONS
£74mTotal R&D spend 2015-2021
41%2021 vs 2019
Q
As we come through the pandemic
and you focus on delivering the growth
strategy do you think organisational
changes will be required? How are you
continuing to look after the team?
In TT we have a strong culture of
expertise and set out to attract, promote
and retain talented people who share our
values. The wellbeing of our colleagues
continues to be high on the leadership
team’s agenda. I am mindful of the
ongoing constraints on capacity across
parts of the business but am confident
we can continue to operate in a COVID-
safe environment. We managed well in
the initial stages of the pandemic but, as
parts of our business have been dealing
with the impact for two years now,
we will increasingly focus on wellness
initiatives. Our devolved business model
allows our individual sites to work
out and implement the things most
important to them within our framework.
We continue to invest in personal
development, apprentices and
harnessing young talent. Following
the success of our InTTernship
programme in the US in 2021, where we
hired 14 students for the Summer, we
recruited around half of them in various
engineering roles. We are extending the
programme in 2022.
Talent lies in all groups and locations,
which is why we are acutely focused on
equality, diversity and inclusion matters,
both in the way we recruit and the way
we behave. While I am pleased that we
are a balanced business overall in terms
of gender diversity, with 53% female
employees, we continue to focus on
improving the picture in the higher levels
of the organisation. We have recently
launched a Leadership Programme for
women which includes joint workshops
with senior male leaders as well as
mentoring and advocacy.
We believe engagement is an important
part of delivering our strategy and
the 2* status achieved in our recent
employee engagement survey is
testament to the TT Way. A 2* rating
from Best Companies demonstrates that
TT Electronics is committed to achieving
top levels of workplace engagement by
valuing and investing in our organisation
and our people.
Our people drive our success. We
undertake quarterly talent reviews
at a site level and annual reviews
at a divisional and functional level;
going forward these will occur on a
biannual basis.
Q
Can you describe your margin
progress and potential?
The Group’s run rate adjusted operating
margin in 2021 was 8.1%, excluding the
start-up costs related to Virolens, which
is in line with our pre-COVID adjusted
operating margin.
We have made tangible progress
towards a double-digit Group adjusted
operating margin which incorporates the
operational leverage achieved on organic
growth and the benefit of our self-
help initiatives (operational efficiency)
and we reiterate our expectation that
we will achieve this short-term goal
in 2023. Adding high-quality, higher-
margin businesses through acquisition
and delivering synergies can enhance
margins further.
Within our divisions, we believe self-
help improvement will be a key driver
of margin in Sensors and Specialist
Components, and growth and greater
leverage will be key in Power and
Connectivity. Our GMS business has
an historical margin target of 7-8%,
but we are confident that with the
transformation of this business it is
capable of delivering a higher margin
over time.
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report Strategic report | Chief Executive’s Q&A
Q
Historically, GMS has been perceived
as a lower-margin business; how has
the transformation been achieved?
In GMS we undertake low-volume, high-
mix manufacture of complex electronic
assemblies to our customers’ designs,
with added value through design for
manufacture and testing. Our GMS
business has been transformed over
the last few years given that it was a
low-growth, high-churn, 3-4% margin
business just four years ago. As I
mentioned above, GMS has shifted to
delivering margins of c.8%. We have
worked hard to expand the customer
base, add engineering services and
deliver more complex assemblies with
a higher value add, and this has also
reduced customer churn. GMS is also
central to our cross-selling activities.
Our GMS business ended 2021 with a
full order book for 2022 and has a great
future ahead.
Q
Can you talk through your
environmental priorities?
Sustainability is embedded in our
strategy and much of what we do for
our customers on a day in, day out basis
is focused on enabling them to create
products that are cleaner, smarter and
healthier or that bring those benefits to
the world.
In our own operations there is lots
going on as we continue with our three
environmental focus areas of reducing
our carbon emissions, diverting our
waste from landfill and reducing the use
of single-use plastics.
I am pleased that we have delivered a
further 25% reduction in Scope 1 & 2 CO2
emissions in 2021. This means that we
have now achieved a 41% reduction in
emissions against our 2019 benchmark
carbon levels. Part of the reduction in
2021 has been achieved from switching
our US locations onto renewable energy
tariffs; this is on top of the 22% reduction
we achieved in 2020 following switching
our UK locations to green energy. We
have a Net Zero target for our Scope 1 &
2 emissions by 2035, at the latest, and
have recently added an additional interim
target of a 50% reduction (against 2019
emission levels) by the end of 2023.
All of our sites that can access
renewable energy have switched or
will switch. Renewable tariff options
are not currently possible at our sites
in China and Mexico and, here, we
are working on projects to ensure we
can meet our targets. In 2022 we will
undertake feasibility studies for possible
solar projects.
We are also committed to providing
a safe working environment for
our employees.
We have begun scoping and assessing
our Scope 3 emissions and will initially
focus on areas which we believe are
significant and measurable. We have
signed up with CDP (formerly the
Carbon Disclosure Project) as a supply
chain partner as measurement and
disclosure are critical elements of our
journey to achieve Net Zero. CDP has
been developing its proven global carbon
disclosure systems for over 20 years
and is the international gold standard
for environmental reporting. Through
partnership with CDP we will measure,
declare and combat carbon emissions in
our supply chain. We already participate
in the CDP, scoring C for our most
recent submission, and we make our
first disclosure under the Task Force on
Climate-related Financial Disclosures
(TCFD) recommendations in this Annual
Report (see page 59).
Q
How has the business dealt with the
challenges in global supply chains?
The headwinds we have faced from
supply chain challenges and increased
costs, whether freight, power or people
related strengthened as we progressed
through the second half of 2021. We
have invested in our inventory position to
support our future growth and manage
the supply chain constraints. More than
ever, we have prioritised staying close
and partnering with our customers, but
we have also been mindful to protect
ourselves commercially and reduce risk.
Here, I believe we benefit from being in
different parts of the supply chain across
the TT divisions.
Our Supply Chain Council is
collaborating across the business to
meet our customers’ needs and we
have developed software tools and data
analytics to enhance parts availability
and sourcing. We have also added
resource on procurement to ensure we
can continue to differentiate ourselves
through the service we provide.
The challenges have served to
demonstrate the importance of more
localised supply chains. We anticipate
these supply chain issues continuing
through 2022.
Q
Are you able to pass on the input cost
increases you have experienced?
On the whole we have been able to pass
on our cost increases, albeit with a lag
and, on our multi-year contracts, we have
had to engage with customers to agree
pricing changes. We are operating in an
environment at the moment where there
is an understanding that if the customer
wants a product it will come at a price
and pricing discussions with customers
have been on a real-time basis.
In 2021 the business faced increases in
freight costs, which we have looked to
pass on in the form of freight surcharges.
Resins and metals, such as palladium
used in the Sensors and Specialist
Components business, have doubled
in price. We have also experienced
wage and logistics increases from
overtime (as we worked around power
rationing in China) or expediting orders.
Overall, we believe our pricing actions
and operational improvements are
offsetting cost increases.
We believe that around 1.5 to 2% of the
revenue growth delivered in the year
can be attributed to the price increases
we have implemented to recover
cost headwinds.
Q
How is the self-help programme
progressing?
Our formal self-help programme is
progressing really well and nearing
completion. We also have a continuous
operational efficiency programme with
the objective of delivering the most
efficient ongoing configuration of our
global footprint. The formal programme
is expected to deliver as anticipated,
with an increased run rate of £13-14
million by 2023, of which circa £6 million
was achieved in 2021, so there is an
additional £5-6 million to come. The
cash cost to deliver the programme is
expected to be £18.8 million.
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TT Electronics plc Annual Report and Accounts 2021
A strong team
3
2
5
4
1
Our Executive Leadership Team
Members of TT’s Executive Leadership Team (ELT) are experienced and passionate leaders with the deep knowledge and
range of skills necessary to deliver continued success for the Group and value for stakeholders. The ELT meets monthly
and has a weekly check-in call. It is the principal decision-making body below the Board.
1
2
3
4
5
Richard Tyson
Chief Executive Officer
Mark Hoad
Chief Financial Officer
Joined: 2014
Joined: 2015
Relevant skills and
experience:
Richard has more than 30
years’ experience in global
engineering technology
businesses. He previously
held senior positions at
Cobham plc.
See full biography
on page 76
Relevant skills and
experience:
Mark is a chartered
accountant and has
25 years’ experience in
international finance roles
including as Financial
Controller and then CFO at
BBA Aviation plc.
See full biography
on page 76
Lynton Boardman
General Counsel and
Company Secretary
Joined: 2012
Relevant skills and
experience:
Lynton qualified as a
lawyer with Simmons &
Simmons. He was formerly
head of legal at Syngenta
Crop Protection (EMEA)
and General Counsel and
Company Secretary at
QinetiQ Group plc.
See full biography
on page 76
Michael Leahan
Chief Operating Officer
Sarah Hamilton-Hanna
Chief People Officer
Joined: 2017
Joined: 2019
Relevant skills and
experience:
Michael has over 30 years’
experience in operational
roles in the aerospace &
defence industry including
holding senior positions at
Marotta Controls, Lucas
Aerospace and Fairchild
Controls.
Relevant skills and
experience:
Sarah has spent more
than 17 years in HR
and is experienced in
business transformation,
organisational
development and talent
management. She was
formerly global HR lead
for the food and beverage
solutions division of Tate
& Lyle.
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report
Strategic report | Chief Executive’s Q&A
During the year we closed sites in
Barbados and Carrollton, Texas and
transferred manufacturing from Corpus
Christi in Texas and Lutterworth in
the UK to other existing TT sites. We
have sold the freehold Covina site
and have recently made the decision
that the business from this site will be
integrated into our Torotel site in Kansas
City. We believe this provides us with
an additional opportunity to create
efficiencies and improve the ROIC of
both acquisitions combined.
Q
On the subject of M&A, how has the
Torotel acquisition delivered? What
was the rationale for the Ferranti
acquisition?
Torotel has been part of the TT Group for
just over a year now and we are delighted
with the progress we have made across
all metrics including establishing new
customer relationships, delivering on
cross-selling opportunities and financial
targets. In aerospace & defence, a cross-
selling opportunity from the Torotel
business generated over $2 million
(over £1.5 million) in orders for complex,
ruggedised wire harness assemblies.
We are on track to hit our required ROIC
acquisition hurdles and the mid-teens
margin is accretive to our overall Group
margin.
I am excited about what the Ferranti
Power and Control business will bring
to the Group. This "carve out" brings
talented engineers with an excellent
reputation for delivering mission-critical
power and control sub-assemblies to
top tier global customers. The business
steps up our aerospace & defence
power capabilities in Europe, creating
scale and a platform for growth with
attractive customer positions. Ferranti
is well aligned with our global strategy
of becoming a world leader in power
conversion and power management
and a great example of the type of M&A
opportunities we seek.
Q
What is your strategy for capital
allocation? Does the business have the
firepower to deliver further M&A?
Q
How is your M&A pipeline looking?
In terms of competing uses for our
capital, we prioritise organic investment,
including R&D and capex for automation
and efficiency improvements, we
maintain a progressive dividend
policy and then pursue targeted,
complementary acquisitions which
provide us with an opportunity to
accelerate our strategy and growth
opportunities. These are especially
attractive when they add to our
capabilities and allow us to access
more markets or deepen customer
relationships. We target leverage within
a range of 1-2x EBITDA. It is also worth
noting that during 2021 we put in place
private placement debt which diversified
our funding sources and brought longer
maturity money into the funding mix.
We ended the 2021 financial year
with leverage at 1.7x as the working
capital inflow we had expected ahead
of the second half was constrained
by component availability and the
need to limit supply chain challenges
by holding higher levels of inventory.
Looking forward, we have around £40
million of headroom, sufficient for a
decent sized bolt-on acquisition. As
the self-help programme nears its end
and is successfully delivered, our free
cash flow will improve, and this will add
to our natural de-leveraging, improving
the creation of investment capacity.
Furthermore, our pension has been well
managed and de-risked such that we
can see a path, over the medium term,
to executing a buyout and reducing the
cash currently consumed on pension
funding and running costs, and investing
it back into growing the business.
We look to create value through M&A
by extending our technical capabilities,
leveraging access to customers and
growth markets, and building scale to
optimise our operations and supply
chain. We have a pipeline of targets we
believe will deliver on these attributes
and most opportunities remain in
our target valuation range. While we
acknowledge some valuations are
prohibitive, there are still opportunities to
create value.
Q
Why do you believe customers
choose TT?
Our engineers have the ability to respond
to our customers’ unique technology
challenges through designing one-off
solutions or customising products
that meet their needs. We seek out
customers who value what we do and
with whom we can work long term.
R&D is high on our capital allocation
priority list – we are often "designed
in" so our components, products and
engineering services are integral to our
customers’ designs.
We have a global manufacturing
footprint (our mantra being "think global,
act local") with the flexibility to switch
production between geographies if
required, depending on capacity and
customer requirements, with centres
of excellence in the UK, North America
and China.
In 2021 we have really stepped up our
Voice of the Customer initiative which
focuses on engaging with and seeking
feedback from our customers on how
we can improve our service and the way
we work.
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TT Electronics plc Annual Report and Accounts 2021
Q
What are your priorities as you look
into 2022?
We entered 2022 in a very strong
position in terms of the cover for our
budgeted revenue growth provided by
our order book. One of our short-term
priorities will be to deliver on this order
book to customer expectations, even
in the face of the expected ongoing
supply chain challenges.
We expect these challenges will be a
feature of our business environment
through 2022.
Our strategy is delivering as intended.
Our focus end markets provide us
with good levels of structural growth
particularly in healthcare and automation
& electrification, while our differentiated
offer and partnering approach will
enhance this accessible growth through
a greater share of customer spend.
While we will lead in sustainable growth
in 2022, we also expect to progress on
our journey to double digit-margins.
Building real partnerships
TT’s success is built on engaging deeply with our
customers and becoming real partners making a critical
contribution to their teams and their products.
In February 2022 we were delighted to announce the
further extension of our partnership and an exclusive
manufacturing agreement with Radwave Technologies,
Inc which will propel growth and accelerate time-to-market
for Radwave’s innovative electromagnetic (EM) tracking
platform for surgical navigation. Radwave’s EM tracking
technology enables medical device customers to easily
incorporate accurate, reliable and customisable tracking
features into their diagnostic and therapeutic products.
The partnership is a great example of collaboration between
a customer and two of our divisions.
TT Minneapolis began working with Radwave in early 2021
to develop sensor technologies for the EM tracking system.
Together with Radwave’s system, TT’s sensor technologies
deliver a high degree of accuracy and precision, even in
challenging settings where other EM technologies may
be limited by interference or sensing volume constraints.
In Spring 2021, our Cleveland facility teamed up with
Minneapolis to support Radwave on the system’s control
unit, one of the key intelligent technologies within the EM
tracking platform which requires complex printed circuit
board assembly (PCBA), full equipment assembly and
calibration. By Summer 2021, an agreement had been
reached for TT to manufacture both the tracking sensors
and the control unit.
Both businesses recognised the opportunity to partner
further in this growing area of the healthcare market and
we have since collaborated on the launch of a full EM
sensor tracking portfolio. This is being jointly marketed to
a wide variety of medical device OEMs to improve patient
outcomes in disciplines including electrophysiology,
cardiology, ENT, interventional pulmonology, orthopaedics,
interventional radiology, robotic surgery and endoscopy.
The agreement announced in February 2022 will see
TT partner with Radwave on R&D and complete system
manufacturing for the next five years.
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report Strategic report | Our business model
OUR BUSINESS MODEL
CREATING VALUE
FOR OUR WORLD
Our assets
What makes us different
Engineering and manufacturing capability
– We have deep domain knowledge in our markets
and years of experience.
– We have a particular skill in product design and
manufacture to make customers’ end products
smaller, lighter and more energy efficient.
– We specialise in low-volume and high-mix
products, enabling us to offer the customisation
and flexibility our customers require.
– Our global footprint enables us to serve
customers around the world.
Research and development
– We have R&D capability around the world with IP
and specialist product development skills.
– Our agile development model enables us to bring
new products to market quickly.
– We have the know-how and experience to comply
with complex regulatory approvals.
Access to our customers
– We have excellent customer credibility, often working
in partnership with customers over many years.
– We seek out customers who value what we do and
with whom we can work long term to add value.
– We have a business development organisation that
fosters inter-Group collaboration and cross-selling.
People and culture
– Our people are talented designers, engineers and
manufacturing experts passionate about what
they do.
– Our teams are caring, supportive and service-
driven. Behaviour is shaped by the TT Way values
which guide how we work with each other and
our stakeholders.
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
14
TT Electronics plc Annual Report and Accounts 2021
Four key themes differentiate us from
competitors, and we are focused on
extending this differentiation:
Cleaner, smarter, healthier
Our target markets of healthcare, aerospace
& defence, and automation & electrification
have strong long-term structural growth
potential. This growth is supported by
megatrends pushing for the development of
cleaner, smarter and healthier products and
applications as we move towards a more
sustainable world.
Culture of expertise
Our teams are passionate about finding
solutions to the world’s toughest
technology challenges and delivering for
customers. We champion knowledge, skills,
innovation, problem solving and service in
four key areas: power; connectivity; sensing;
and manufacturing & engineering. We set
out to attract, promote and retain the best,
diverse, talented people and we are focused
on developing expertise at all levels of
the organisation.
Design-led technology
We design and manufacture bespoke
technology solutions for specific customer
applications, creating one-off solutions;
customising and packaging products;
and creating modular platforms built
for customisation. We work from initial
concept to production at scale, and from
single component to complete device
manufacture. We seek single source and
designed-in development opportunities that
enable us to move up the value chain and
create long-term revenue streams.
Real partners
Our success has been built on engaging
deeply with our customers and becoming
real partners. Customer intimacy enables
us to leverage our capabilities to respond
to their unique requirements and become a
critical contributor to their teams and their
products. We retain a flexible approach that
enables us to support customers as and
when they need us.
We are a business with high-quality assets and a
differentiated market offer, aligned with key global
megatrends. We are creating value for our world by helping
our customers to succeed, inventing products that support
sustainability and that are more sustainable themselves,
investing in and creating opportunities for our people, and
doing business responsibly.
Our strategy
The value we create
Our strategy is designed to leverage our assets and differentiators to
unlock TT’s potential and create continuous value for all our stakeholders.
It is enabled by strong capital discipline: a focus on cash generation and
careful use of the balance sheet to facilitate continued investment in the
quality of our assets and TT’s exposure to long-term growth markets.
TECHNOLOGY
INVESTMENT AND R&D
to drive growth
and consolidate
customer positions
MARGIN
ENHANCEMENT
through portfolio change,
operational leverage and
self-help actions
OUR
STRATEGIC
PRIORITIES
INTEGRATION OF ESG
and sustainability matters
into decision-making
and business practices,
from product development
to recruitment
TARGETED AND
COMPLEMENTARY M&A
to expand technology
capabilities and customer
and market reach
Read more about our strategy on page 28
Customers and suppliers
– We help our customers succeed
by providing critical products
and services and solving tough
technology challenges.
– £74.1 million investment in R&D
since 2015.
– We treat our suppliers fairly in line with
our TT Way values.
Our people
– We are focused on employee safety
and wellbeing.
– We invest in our people to grow
their skills and experience and create
new opportunities.
– We are committed to creating a work
environment where everyone can be
themselves every day.
– We have strong employee
engagement evidenced by annual
improvements in our engagement
survey score since 2014.
Environment and our communities
– Our solutions contribute to cleaner,
smarter and healthier products.
– 41% reduction in Scope 1 & 2 emissions
in two years.
– Targeting Net Zero Scope 1 & 2
emissions by 2035.
– Targeting 50% reduction in Scope 1
& 2 emissions by 2023 vs 2019.
– We are committed to social
responsibility and ethical business
practices.
– We support our teams to undertake
STEM educational outreach in their
communities.
Shareholders
– 14.5p adjusted earnings per share
– Medium-term target of double-
digit annual adjusted earnings per
share growth.
– 5.6p dividend per share.
Read more about our stakeholders
and how we engage with them on
page 44
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report Strategic report | Our markets
OUR MARKETS: CREATING VALUE IN
HEALTHCARE
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.
The past two years have
reinforced the importance of
public health to the smooth
functioning of society.
Efforts to improve healthcare
infrastructure have intensified
globally, with wellness and
longevity a top priority for
consumers. These forces
serve to accelerate the pace of
innovation within the healthcare
ecosystem. Given the central
role that electronics play in
advancing medical technology,
the COVID-19 pandemic has
strengthened many of the
tailwinds which have long
supported the market.
Market trends and drivers
The global medical device
manufacturing market is expected to
have grown by over 6% in 2021. This
attractive growth is characteristic of
healthcare. While certain sub-segments
of the market, such as elective surgery
equipment, have not been immune
to the idiosyncratic progress of the
pandemic, return to growth is a hallmark
of healthcare’s inelastic demand profile.
The medium- and long-term outlook for
the global medical device manufacturing
market is equally optimistic, with an
expected CAGR of 5-7% to 2025.
Notable drivers include technological
advancement, the increasing ageing
population, and rising patient awareness.
Technology has prompted many
end users to overhaul or update their
medical manufacturing systems. As
this is a costly process, end users are
increasingly seeking trusted third-party
partners, such as TT, to service these
needs. Additionally, we are well placed
to capitalise on increasing demand
for high-complexity products which
is structurally driven by technological
advancement. We therefore continue to
expect favourable shifts in product mix
towards high-value, high-margin devices
suited to our capabilities. Finally, these
dynamics are supported by consistent
increases in life expectancy with the
world’s population of over 60s expected
to double by 2050.
16
TT Electronics plc Annual Report and Accounts 2021
Contribution to Group
25%of Group revenue
progress in areas of drug discovery,
vaccine production, and more. And,
through developing smaller, lighter,
more precise surgical devices, we are
reducing the size of incisions, shortening
recovery times, and improving overall
patient outcomes. In addition, by
improving the portability and ease of
use of diagnostics, we are increasing
the availability of medical imaging to
point-of-care facilities. This promotes
earlier detection and better monitoring,
hence supporting measures taken
to address the rising prevalence of
cancer, cardiac, neurological, and
musculoskeletal disorders.
While there is emphasis on addressing
supply chain challenges across
the Group, the urgency of ensuring
healthcare products are delivered in
a timely manner is top of mind given
the human cost associated with such
issues. We are proactively working
with customers to mitigate global
shortages and extend visibility into
future demand. At the same time, we are
able to leverage our globally integrated
manufacturing footprint to mitigate local
issues and seamlessly deliver products
by collaborating across the network.
We believe that enhanced dialogue and
continued performance under adversity
has deepened our relationships with
key customers.
Expected market growth
5-7%Healthcare market 2021-25 CAGR
Our response
The pandemic created an opportunity
to demonstrate to customers the extent
of TT’s agility by maintaining quality
standards while rapidly and flexibly
scaling production of urgently needed
products. Over the past year we have
sought to capitalise on that positive
momentum. Our strategy has been
tailored to bolster our technical expertise
and capability in areas which OEMs
find most complex to navigate, such as
where significant engineering precision
is required or there are constraints due to
regulatory compliance.
Notable focus areas for the Group
include life sciences and laboratory
equipment, surgical devices, medical
implants, and diagnostics and imaging
equipment. In line with our purpose,
we are energised by the tangible
contributions we can make to health
and quality of life in society. By
supporting our life sciences partners,
we are collectively improving laboratory
automation systems and enabling
samples to be collected and analysed
with minimal human intervention, the
benefits of which are improved data
reliability and accuracy, minimised
wastage, and time-efficient experiments.
Ultimately, this is enhancing scientific
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report Strategic report | Our markets
TECHNOLOGY
SHAPING THE
FUTURE OF
HEALTHCARE
TT Electronics in action
What we do
Market revenue by division
Our power, connectivity,
and sensor technologies
span the modern
surgical suite; from
patient monitoring and
therapeutic devices
to surgical navigation,
diagnostic equipment
and life sciences.
Our products 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.
Our market breakdown
13% – Power and Connectivity
86% – Global Manufacturing Solutions
1% – Sensors and Specialist
Components
18
TT Electronics plc Annual Report and Accounts 2021
Advanced interventional and
surgical devices
• Surgical navigation technology for
ablation and resection procedures
• Implantable pacemakers and
defibrillators
• Neuromodulators
• Implant programmers and chargers
• Ventricular assist systems
• Robotic assisted surgery
TT Electronics in action
Innovative diagnostic and
Imaging
Direct patient care and
monitoring
• Ultrasound, X-ray and MRI machines
• Radiotherapy equipment for cancer
treatment
• Patient monitoring equipment,
including remote applications
• Anaesthesia machines
• Sensor-enabled diagnostic devices
• Surgical lighting
• Cardiopulmonary perfusion equipment
• Ventilators and defibrillators
• Fluid monitoring
• Wearable technologies
Laboratory and life sciences
• Therapeutic drug monitoring
• Gene sequencing
• Immuno-assay
• Pill counting and dispensing
• Portable hemodialysis systems
• Scientific instrumentation
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Financial statementsGovernance and Directors' reportStrategic report Strategic report | Our markets
OUR MARKETS: CREATING VALUE IN
AEROSPACE
& DEFENCE
We provide solutions for high-
reliability applications across
a broad range of platforms
operating on land, air and
sea. Growth for TT is driven
by increasing electrification
of these platforms, which
supports fuel efficiency
and safety.
The global defence market
has shown strong resilience
in recent years. Moderate
expansion is expected to
continue as governments invest
to maintain state-of-the-art
capabilities. While commercial
aerospace has been impacted
by the COVID-19 pandemic,
recovery is expected in the next
3-5 years.
Contribution to Group
18%of Group revenue
Market trends and drivers
The resilience of the defence market,
with a core feature being its moderate
correlation to broader economic
conditions, has been exemplified by
recent history. In 2021 the global defence
electronics manufacturing market is
expected to have expanded by over 2%.
This is a pace reflective of the past seven
years, all of which have seen consistent,
moderate expansion. Moreover, it is
expected that this market will continue to
progress steadily in the coming years at
a CAGR of 3–4% to 2025.
A central long-term growth driver is the
desire of governments to maintain state-
of-the-art capabilities. In the US, the
market is being driven by investment in
R&D and long-term projects such as the
fifth generation F-35 JSF and the B21.
This reflects the US military’s increasing
focus on "near peer" competitors such as
Russia and China. The US DoD budget is
set to increase by 3.7% to $768.2 billion
in FY2022. It is expected that global
defence budgets will remain constant
rather than contract despite inflationary
pressures, record high budget deficits,
and the potential fiscal consolidation this
could provoke. In aggregate, we continue
to remain optimistic that our exposure to
the defence market will provide growing,
high-margin business for decades
to come.
Throughout 2021 the commercial
aerospace market has been
characterised by the gradual alleviation
of travel restrictions following the onset
of the pandemic. While it is positive that
air travel volumes will exceed those
of the lows seen in 2020, the effects
of the pandemic are lingering. Under
base case expectations, where some
form of travel restrictions continue, it is
expected that demand for small- and
medium-sized aircraft will not recover to
pre-COVID levels until 2024-5. Whilst the
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TT Electronics plc Annual Report and Accounts 2021
Expected market growth
3-4%Aerospace & defence market 2021-25 CAGR
future course of the pandemic is unclear,
on balance, the prevailing sentiment
in the aviation community is one of
cautious optimism.
Irrespective of short-term uncertainty, we
continue to see positive long-term trends
that suit our capabilities. Fundamentally,
the need for more efficient, safer, and
environmentally friendly aircraft remains.
This drives demand for increasingly
advanced electronic systems and
applications. This is complemented by
further tailwinds comprised of a growing,
globalised middle-class population who
exhibit greater propensity to travel.
As travel patterns gradually return to
pre-pandemic levels, we expect a strong
civil aerospace recovery in the next
three to five years, driven primarily by
narrowbody aircraft deliveries, of at least
double-digit CAGR growth 2021-25.
Our response
Within commercial aerospace we are
focused on increasing the electronic
content of aircraft. Over the near term,
this means opportunities lie in helping
our customers with the adoption of
hybrid models, mid-life electrification
initiatives and electronics updates.
Presently we are focused on electrically
powered sub-systems such as Human
Machine Interface (HMI), avionics and
actuation. Our ultimate ambition is
to enable wholly electrically powered
aircraft; as technology progresses
we believe that we are well positioned
to support customers throughout
this transition.
In defence, our central focus is on
supporting our customers to reduce
size, weight, power and cost (SWaP-C),
while simultaneously enhancing
command, control, communications,
computing, intelligence, surveillance and
reconnaissance (C4ISR) capabilities. We
have found success recently in providing
more integrated, design-led solutions. In
these products we have demonstrated
greater capacity to deliver SWAP-C
improvements, and this is resonating
with customers. A recent example is
the delivery of a significant increase in
the power density of DC-DC converters
for a major prime. We expect this to
drive favourable shifts in product mix
moving forward.
TT Electronics plc Annual Report and Accounts 2021
21
Financial statementsGovernance and Directors' reportStrategic report Strategic report | Our markets
PERFORMANCE-
ENHANCING
SOLUTIONS FOR
SAFE FLIGHT
TT Electronics in action
What we do
Market revenue by division
From cockpit displays to
engine controls and defence
systems, our solutions
optimise performance and
reliability in the harshest
and most demanding
conditions, while our interior
solutions enhance the
passenger experience.
Our products provide size,
weight and efficiency
benefits for applications
such as power conversion,
actuation and control for
mission-critical systems
on a broad range of
military and commercial
platforms globally.
Our market breakdown
69% – Power and Connectivity
27% – Global Manufacturing Solutions
4% – Sensors and Specialist
Components
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TT Electronics plc Annual Report and Accounts 2021
Precision guidance and
defensive aids systems
• Laser targeting and inertial navigation
systems
• Precision guidance systems
• Radar jammers
Aircraft interiors
• Passenger Control Units
• Cabin signage
• Mood & ambient lighting
TT Electronics in action
Communication, navigation
and radar systems
Engine controls and
fuel systems
Cockpit avionics and
flight controls
• Global positioning systems (GPS)
• Engine control unit
• Avionics and display units
• Radar systems
• Fuel distribution systems
• Communications, navigation and
• Engine ice protection
identification
• Auxiliary power units
• Flight controls
• Landing gear
• Joystick controls
• Wing de-icing
TT Electronics plc Annual Report and Accounts 2021
23
Financial statementsGovernance and Directors' reportStrategic report Strategic report | Our markets
OUR MARKETS: CREATING VALUE IN
AUTOMATION &
ELECTRIFICATION
Expected market growth
4-6%Automation & electrification
market 2021-25 CAGR
Market trends and drivers
Globally, the electronics manufacturing
market is estimated to have grown by
over 3% in 2021. New order growth
and the pace of job creation remain
close to the highs reached mid-year;
however, the short-term outlook has
been tempered by supply chain issues,
inflation, and prospective monetary
tightening. Ultimately, this is expected to
delay rather than halt the recovery and
sentiment is one of patient optimism.
Over the longer term we continue to see
structural growth drivers aligned with
our capabilities. A key force underpinning
growth in automation & electrification
markets is the increasing focus on
sustainability. With the backdrop
of increasingly stringent regulation
to reduce environmental impacts
across supply chains, sustainability
is a significant positive trend. Shifting
towards electricity as the major fuel
powering industrial systems is a key
imperative for organisations looking
to reduce their carbon footprints.
Additionally, the increasing digitisation
of industrial processes and proliferation
of connected devices in areas such
as smart infrastructure, robotics and
automation is promoting improved
energy management, efficiency and
reliability. As many of our products are
enabling devices, the demand profile is
highly attractive. This is reflected in the
market outlook, with a CAGR of 4-6%
expected to 2025.
Customers rely on us to
help solve their toughest
automation and electrification
challenges, streamlining their
supply chains, increasing their
efficiency and helping them
bring smart, new products
to market.
Automation & electrification
markets continue to show
encouraging signs of recovery
from the disruption caused
by the pandemic. Given the
wide scope of these markets,
performance correlates
strongly with global economic
growth more broadly. Key
indicators include GDP growth
and the Purchasing Managers’
Index (PMI) which improved
sharply in 2021, producing the
strongest recovery in 50 years.
Contribution to Group
39%of Group revenue
24
TT Electronics plc Annual Report and Accounts 2021
Our response
We are continuing to invest in developing
capabilities which exemplify our low-
volume, high-mix approach to address
the needs of high-end industrial and
connectivity markets. Within automation,
we are focusing on products which will
enable the full potential of innovation
in this space. Irrespective of the final
form industrial processes take, we are
positioning our business to become
embedded within the fabric of this
technology. A key focus, for instance, is
enhancing our optoelectronic sensors
offer. Our sensor products improve
the connectivity of manufacturing
operations, promoting access to
information throughout the supply chain
and supporting the collection of quality
real-time data. Within electrification,
our priority is in developing capabilities
which will support increasing energy
efficiency and connectivity. Core
focus areas include complex systems
integrations and AC and DC power
conversion technologies. We are
increasingly able to develop complete,
high-value products and durable
components featuring higher voltages.
These are supporting our customers by
improving legacy designs and enhancing
their ability to meet complex, high-
bandwidth requirements.
TT Electronics plc Annual Report and Accounts 2021
25
Financial statementsGovernance and Directors' reportStrategic report Strategic report | Our markets
EMPOWERING SMART
INFRASTRUCTURE TO
STREAMLINE PROCESSES
AND IMPROVE LIVES
TT Electronics in action
What we do
Market revenue by division
From clean energy and
smart home applications
to more efficient factory
equipment and connected
asset tracking, our
technologies enable the
Internet of Things (IoT)
and innovations that are
creating a smarter and
cleaner world.
Our market breakdown
28% – Power and Connectivity
50% – Global Manufacturing Solutions
22% – Sensors and Specialist
Components
26
TT Electronics plc Annual Report and Accounts 2021
TT Electronics in action
Smart infrastructure and
industrial connectivity
Factory automation and
electrification
• Transportation communication systems
• Industrial robotics and automation
• Railway signalling systems and
temperature control
equipment
• Power monitoring
• Rolling stock power systems
• Industrial safety and security controls
• Asset tracking and inventory
management systems
• Smart packaging and labelling
equipment
• Communication and cloud service
• Electric vehicle inverter technology
connectivity
• Electric vehicles and charging stations
Clean energy and smart cities
• 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
• Energy-efficient home appliances
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report Strategic report | Our strategy
OUR STRATEGY
MOVING AT PACE
Strategic priority
2021 achievements
2022 actions
Technology investment and R&D
to drive growth and consolidate
customer positions
We prioritise organic investment in the
business, including R&D to maintain
and drive our differentiation in the
market and our offer to customers.
R&D is critical if we are to stay ahead of
customer needs and continue to meet
the challenges they set us.
– R&D investment at c.5% of revenue to
bring higher-growth, more sustainable
products to market.
– Continued support for life science
partners on laboratory automation
and efficiency.
– Ongoing development of products
supporting smaller, lighter and
more precise surgical devices and
surgical navigation.
– Ongoing focus on integrated, design-
led solutions that support the
electrification and increased efficiency
of aerospace platforms.
– Continued focus on developing
capabilities that support
increasing energy efficiency and
connectivity in industrial processes
and infrastructure.
– £11.4 million R&D investment in
the year.
– Order intake in 2021 at 137% of
revenue and record order book as
we enter 2022.
– Development of smaller, more
accurate sensors supporting
minimally invasive robotic surgical
navigation.
– Partnering with the Aerospace
Techology Institute (ATI) on power
conversion for increased electrification
of aerospace platforms.
– Contract for power assemblies on UK
army Boxer vehicle programme.
– Selected as hardware partner for
Telenor to support IoT upgrades from
2G and 3G cellular.
– Expansion of Voice of the Customer
initiative to engage more deeply with
customer needs on products, service
and future R&D. See below.
– Virolens COVID-19 screening device
gained registration with the UK
Medicines and Healthcare products
Regulatory Agency (MHRA).
Meeting the unique requirements of our customers
Our Voice of the Customer (VoC) programme was pioneered by
the GMS division more than seven years ago. It has been deployed
Group-wide since 2020 and is a powerful tool in our efforts to
understand precisely what our customers want and need and build
stronger relationships.
The programme is continuously evolving and improving, and our
teams are extremely supportive, having seen the benefits of the
initiative in their day-to-day interactions, customer retention, and
growth in customer accounts.
VoC comprises a semi-annual customer satisfaction survey which
focuses on the various stages of the customer journey and allows
the respondent to provide detailed information on their dealings with
TT. This helps us to identify strengths and weaknesses and address
areas where we are not meeting expectations. The survey is supported
by a 24/7 feedback service for issues that require quick resolution.
This appears as a button in the customer facing team members’
email signature.
As the programme has grown, we have begun actively collaborating
with customers to drive response rates to the survey. This has included
a recent joint promotion with one of our strategic accounts with the
results analysed by both parties to drive continuous improvement in
the relationship.
28
TT Electronics plc Annual Report and Accounts 2021
With the Group strongly positioned in its three target markets we are now able
to move forward at pace to unlock TT’s potential. Our strategy is supported by
strong capital discipline, enabling continued investment in the quality of our
assets and growing our exposure to long-term growth markets.
Strategic priority
2021 achievements
2022 actions
Margin enhancement through
portfolio change, operational leverage
and self-help actions
We are focused on activities which
will enable the Group to consistently
achieve double-digit operating
margins in the medium term. This has
included increasing the proportion
of higher-margin products in the
portfolio, drop through from organic
revenue growth, and restructuring and
footprint rationalisation.
– Complete delivery of self-help
programme. Run rate expected to
increase to £13-14 million in 2023.
– Integrate Ferranti Power and Control
– Complete Covina business
integration into Torotel.
– Continue to move business
positioning up the value chain to
capture margin.
– Continued supply chain management
and inventory investment to mitigate
supply chain challenges and ensure
we pass on costs.
– Identify further automation and
efficiency improvement activities
through Group operations team.
– Deploy further Group operational
policies and standards including
BE Lean and Sales Inventory and
Operations Planning (SIOP).
– 7.3% adjusted operating profit margin
achieved in 2021. Run rate of 8.1%
excluding Virolens.
– Self-help programme delivering as
planned. £6 million benefits achieved
in 2021. Closure of sites in Barbados,
Carrollton and Corpus Christi and
transfer of manufacturing from
Lutterworth, UK to Bedlington and to
our new facility in Plano, Texas. Sale
of Covina and Corpus Christi sites.
– Operational leverage from organic
revenue growth.
– Inorganic expansion in higher-margin
technology.
– Expansion of specialist Group
operations team to accelerate
operational best practice including
Health, Safety, Environment (HSE);
Continuous Improvement (CI) and
process excellence; integration of
acquisitions; and governance.
– Continued transformation of the GMS
division through higher value add
services and complex assemblies.
– Continued with ongoing activities to
drive operational efficiency across
the organisation.
– Supply chain management and
inventory investment to mitigate
supply chain challenges and ensure
we pass on costs.
Targeted and complementary M&A to
expand technology capabilities and
customer and market reach
We seek to maintain an M&A pipeline
to build scale, expand our capabilities
to increase our exposure to market
sectors with high growth potential and
higher margins, and enhance value.
– Successful integration of Torotel
– Acquisition of Ferranti Power and
acquisition with anticipated
cost synergies and cross-selling
opportunities coming through.
– Continued to scope M&A
opportunities that are a good fit and
in target valuation range to enhance
pipeline.
– Maintained financial headroom to
convert opportunities.
Control (announced in January 2022),
adding further technology capability,
IP and scale to our Power Solutions
business, including positions on long-
term defence platforms.
– Integrate Ferranti and Torotel
customer proposition more closely
with other businesses and provide
higher-value customer offerings.
– Maintain and convert pipeline of
additional opportunities that meet
our acquisition criteria.
– Continue to manage financial
leverage to support the execution of
M&A opportunities.
TT Electronics plc Annual Report and Accounts 2021
29
Financial statementsGovernance and Directors' reportStrategic report Strategic report | Our strategy
Strategic priority
2021 achievements
2022 actions
Integration of ESG and sustainability
matters into decision-making and
business practices, from product
development to recruitment
We are well positioned to benefit from
and support sustainability megatrends.
Our products address resource scarcity,
improve energy efficiency, support
renewables and drive productivity,
connectivity and health. We aim to
produce them more sustainably with
a focus on ethical sourcing practices
and the work we are doing to reduce
the impact of our operations on
the environment.
We maintain a strong governance
framework and processes across
the organisation and seek to have
a wider positive impact on society
by understanding and prioritising
employee needs, doing business
responsibly and reaching out to our
local communities.
– New contracts to support a
– Roll out ED&I training to all
employees.
– Consider introduction of ED&I KPIs.
– Launch of UK graduate recruitment
programme.
– Transition remaining sites to
renewable energy tariffs where they
are available.
– Undertake feasibility studies for
possible solar projects.
– Undertake feasibility studies for
renewable electricity projects in
Mexico and China.
– Launch Group-wide Sustainability
Policy.
– Set baseline for measuring Scope
3 emissions under significant
categories and clarify intention for
reductions.
– Partnership with CDP to measure
and reduce carbon emissions in our
supply chain.
– Further work on reducing the use
of single-use plastics and waste
to landfill.
– Detailed climate risk and
opportunities scenario analysis.
– Begin collecting data on other
greenhouse gases.
– Internal audit to verify
environmental data.
range of customer products and
infrastructure, including high
performance electric vehicles,
more efficient aircraft, offshore
renewable energy, micro turbines,
and surgical robotics.
– Continuing high levels of employee
engagement as demonstrated in our
2021 employee engagement survey.
– Continued maturing safety culture
through the introduction of 15 global
minimum standards based on ISO
45001 thinking and our analytical
safety reporting tool.
– ED&I roadmap launched Group-wide.
– Continued our STEM education
community outreach work.
– Became corporate partners of
the Institute of Environmental
Management & Assessment (IEMA).
– Switch to renewable electricity tariffs
for sites able to access them.
– 25% reduction in operational Scope
1 & 2 emissions during the year and
41% reduction vs 2019.
– Committed to Net Zero Scope 1 & 2
emissions by 2035 with a short-term
target of 50% reduction by the end of
2023 vs 2019.
– Greater focus on reducing use of
single-use plastics and diverting
waste to landfill.
– Undertook Group-wide climate risk
and opportunities assessment. Read
more on page 51.
– Introduction of site environmental
action plans.
30
TT Electronics plc Annual Report and Accounts 2021
CFO REVIEW
BUILDING
MOMENTUM
PHOTO TO BE RETOUCHED
We are making tangible
progress towards double-digit
adjusted operating margins,
and we are confident that TT’s
momentum will continue.
Mark Hoad,
Chief Financial Officer
Overview
Group revenue for the year at £476.2
million was 14 per cent higher than the
prior year at constant currency and 10 per
cent higher on an organic basis. There
was a strong improvement in our financial
performance with adjusted operating
profit up by 31 per cent compared to
2020, reflecting the benefits of growth
and our self-help programme.
In common with the broader industry,
we have experienced supply chain
challenges with extended lead times,
component shortages and notable
cost inflation. These have been largely
mitigated through price increases,
although there can be a lag effect.
During the year, we adapted software
tools and data analytics to enhance
visibility of parts availability and sourcing
in certain areas, helping to mitigate the
impact of cost increases and lead-time
extensions for our customers. We expect
these cost headwinds and supply chain
challenges to continue through 2022 but
are confident of our ability to manage
these, in partnership with our customers,
and deliver on our growth plans.
There has been exceptionally strong
order intake across the Group, reflecting
underlying strength in our markets and
new customer wins, as well as customers
committing earlier to secure capacity.
Order intake for 2021 was 137 per cent
of revenue. The order book at the end of
February 2022 is at record levels.
Adjusted operating profit was £34.8
million, 31 per cent higher than the prior
year at constant currency. The adjusted
operating margin was 7.3 per cent and,
excluding the start-up costs related to
Virolens, the adjusted run rate margin
was 8.1 per cent. After the impact of
adjusting items, including restructuring
and acquisition and disposal costs, the
Group’s full year statutory operating
profit was £19.3 million.
During the year we invested in our
self-help programme to support margin
improvement, and in inventory to
support our high levels of growth, our
increased customer order book and
supply chain constraints on certain
TT Electronics plc Annual Report and Accounts 2021
31
Financial statementsGovernance and Directors' reportStrategic report Strategic report | CFO review
Results for the year ended 31 December 2021
£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
Adjusted results1
Statutory results
Change
Change
constant FX
10%
27%
14%
31%
90bps
100bps
32%
24%
36%
28%
2021
476.2
34.8
7.3%
31.5
14.5p
5.6p
9.1%
65%
2020
431.8
27.5
6.4%
23.8
11.7p
4.7p
7.7%
130%
2021
476.2
19.3
4.1%
16.0
7.3p
5.6p
(1.3)
102.5
1.7x
2020
431.8
6.6
1.5%
2.9
0.8p
4.7p
14.4
83.8
1.6x
1 Throughout the Annual Report we refer to a number of Alternative Performance Measures which have been adopted by the Directors to provide further information on underlying
trends and the performance and position of the Group. Details of these APMs and a reconciliation to statutory measures can be found on pages 201 to 207.
component parts. Cash conversion of 65
per cent (2020: 130 per cent) reflected
this investment and included a working
capital outflow totalling £14.7 million. This
investment was partially offset by realising
£9.1 million of proceeds from property
disposals. On a statutory basis, cash flow
from operating activity was £14.3 million
(2020: £28.2 million). There was a free
cash outflow of £1.3 million (2020: £14.4
million inflow). Dividend payments totalled
£11.4 million (2020: £ nil).
We ended the year with net debt of
£102.5 million (2020: £83.9 million),
including IFRS 16 lease liabilities of
£22.6 million (2020: £15.9 million). We
have a strong balance sheet, and this
includes a defined benefit pension
scheme fully funded on an actuarial and
self-sufficiency basis. At 31 December
2021 leverage was 1.7 times (2020: 1.6
times), within the Board’s target leverage
range of 1-2 times.
Our return on invested capital improved
to 9.1 per cent in 2021, increasing by
140 basis points due to the growth in
adjusted operating profit.
Financial review
Revenue
Group revenue was £476.2 million
(2020: £431.8 million). This included
a £15.2 million contribution from
acquisitions and adverse currency
translation of £12.7 million. Group revenue
was 14 per cent higher than the prior year
at constant currency and 10 per cent
higher on an organic basis. Sales volumes
in key markets, with the notable exception
of commercial aerospace, have rebounded
and the strength of our order book, at an
all-time high, and pipeline of new business
opportunities gives us confidence that this
momentum will continue.
Operating profit and margin
The Group’s adjusted operating profit
was £34.8 million (2020: £27.5 million)
and statutory operating profit was
£19.3m (2020: £6.6 million) after a
charge for items excluded from adjusted
operating profit of £15.5 million (2020:
£20.9 million) including:
• Restructuring costs of £7.8 million
(2020: £14.5 million) comprising £5.9 million
relating to the restructure of the North
America Resistors business, £1.5 million
relating to the closure of our Lutterworth
site, and £2.4 million relating to the other
elements of our self-help programme.
These costs were partially offset by a
gain of £1.7 million from the disposal of
freehold properties at Covina and Corpus
Christi (2020: £1.2 million property gain). In
addition to this there was a net gain of £0.3
million relating to pension projects.
• Acquisition and disposal costs totalled £7.7
million (2020: £6.4 million) comprising £2.6
million (2020: £3.2 million) of integration
and acquisition costs relating primarily
to the Torotel integration and the Ferranti
acquisition, which completed early in 2022.
Amortisation of intangible assets arising
on business combinations was £5.1 million
(2020: £4.2 million). In 2020 there was a
£1.0 million credit due to the release of the
warranty and claims provision relating to
the Transportation business.
The adjusted operating margin of 7.3 per
cent (2020: 6.4 per cent) includes the start-
up costs to establish the Virolens product
line. Excluding these costs, the adjusted
run-rate operating margin was 8.1 per cent.
This improvement reflects operational
leverage on our sales growth and the
benefits of our self-help programme and
was delivered despite increases in input
costs linked to supply chain constraints,
which we are in the process of recovering
through price increases.
Finance costs
The net finance cost was £3.3 million
(2020: £3.7 million).
Tax
The Group’s overall tax charge was
£3.2 million (2020: £1.6 million), including
a £3.0 million credit (2020: £2.7 million
credit) on items excluded from adjusted
profit. The adjusted tax charge was
£6.2 million (2020: £4.3 million), resulting
in an effective adjusted tax rate of
19.6 per cent (2020: 18.1 per cent).
Earnings per share
Basic earnings per share (EPS) was
7.3 pence (2020: 0.8 pence) reflecting
the increase in operating profit and
the reduction in adjusting items set
out above. Adjusted EPS increased to
14.5 pence (2020: 11.7 pence), reflecting
the improved adjusted operating profit
in the period.
Cashflow
Adjusted operating cash inflow was
£39.5 million (2020: £49.0 million inflow).
Improved profitability was more than
offset by a working capital outflow of
£14.7 million (2020: £3.6 million inflow),
including a £42.6 million investment in
inventory to support the strong order
book and to deal with supply chain
constraints. Capital and development
expenditure increased to £16.8
million (2020: £13.2 million) reflecting
investment to support growth and as
part of the self-help programme. This
resulted in adjusted operating cash
conversion of 65 per cent (2020: 130 per
cent). On a statutory basis, cash flow
from operating activity was £14.3 million
(2020: £28.2 million).
There was a free cash outflow of
£1.3 million (2020: inflow £14.4 million),
net of £5.9 million of restructuring and
acquisition related costs (2020: £8.1 million),
32
TT Electronics plc Annual Report and Accounts 2021
Consistent with the Group’s borrowing
agreements, which exclude the
impact of IFRS 16, Leases, leverage
ratio was 1.7 times at 31 December
2021 (31 December 2020: 1.6 times).
Net interest cover was 13.5 times
(31 December 2020: 12.6 times). The
Group’s debt covenants state that the
leverage ratio must not exceed 3.0
times and that interest cover must be
more than 4.0 times.
Dividend
Given our strong trading performance in
2021 and the positive outlook for 2022
and beyond, the Board is proposing a
final dividend of 3.8 pence per share.
The total cash cost of this dividend
will be approximately £6.7 million.
This, when combined with the interim
dividend of 1.8 pence per share gives
an increased total dividend of 5.6 pence
(2020: 4.7 pence per share). Payment
of the dividend will be made on 20 May
2022, to shareholders on the register at
29 April 2022.
Outlook
We continue to enhance the quality of
our businesses and are making tangible
progress towards double-digit adjusted
operating margins. We have started
2022 with a record order book, which
gives us the confidence and the visibility
to achieve our growth plans for the year
whilst continuing to manage the ongoing
cost and supply chain challenges in
partnership with our customers.
As a result, we are confident that TT’s
momentum will continue, with the
outlook for financial performance
in 2022 in line with management
expectations, although we are mindful
of increased geopolitical uncertainty.
With good customer wins, strength in
our target markets, and the commercial
aerospace recovery still to come, we
believe the Group is in a strong position
for the future.
relating to the self-help programme and
acquisition costs associated with the
Covina and Torotel acquisitions. Cash
restructuring costs were net of £9.1 million
of property disposal proceeds. Pension
contribution payments in the year totalled
£5.5 million (2020: £5.4 million).
Investments in acquisitions totalled
£0.5 million (2020: £48.7 million) relating
to deferred consideration on a prior year
acquisition. The spend in 2020 reflected
the acquisition of Covina, 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. In
2020 there was £20.2 million of equity
issuance, which primarily related
to the Torotel acquisition placing.
Dividend payments totalled £11.4 million
(2020: £ nil).
Cash flow, net debt and leverage
The table below sets out Group cash
flows and net debt movement.
At 31 December 2021 the Group’s net
debt was £102.5 million (31 December
2020: £83.9 million), including £22.6
million of lease liabilities (31 December
2020: £15.9 million).
Cash flow and net debt
£ million
Adjusted operating profit
Depreciation and amortisation
Impairment of intangibles
Net capital expenditure1
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/acquired
Acquisitions & disposals2
Other
Increase in net debt
Opening net debt
New, acquired, modified and surrendered leases
Borrowings acquired
FX and other
Closing net debt
2021
34.8
16.1
–
(14.9)
(1.9)
(14.7)
3.3
22.7
65%
(8.7)
(3.9)
(5.9)
(5.5)
(1.3)
(11.4)
3.9
1.4
(0.5)
(0.5)
(8.4)
(83.9)
(10.8)
–
0.6
2020
27.5
17.0
0.2
(9.9)
(3.3)
3.6
0.7
35.8
130%
(3.8)
(4.1)
(8.1)
(5.4)
14.4
–
4.1
20.2
(45.7)
(1.8)
(8.8)
(69.1)
(2.6)
(3.0)
(0.4)
(102.5)
(83.9)
1
2
In 2021 ‘Restructuring, acquisition and disposal related costs’ comprises proceeds on surplus property disposals of £9.1 million.
In 2020 ‘Restructuring, acquisition and disposal related costs’ exclude a £3.8 million payment for a debt-like item which crystallised upon acquisition of Torotel and which has
been presented within ‘acquisitions and disposals.’ This £3.8 million is an acquisition related cost.
TT Electronics plc Annual Report and Accounts 2021
33
Financial statementsGovernance and Directors' reportStrategic report Strategic report | CFO review
CFO REVIEW CONTINUED
POWER AND
CONNECTIVITY
Overview
Revenue breakdown
Revenue increased by £15.1
million to £140.2 million
(2020: £125.1 million). There
was a £15.2 million revenue
contribution from Torotel which
we acquired in November 2020
and there was an adverse
currency effect of £3.4 million.
Organic revenue was 3 per cent
higher with growth in defence,
healthcare and automation &
electrification whilst aerospace
volumes declined, particularly
in Q1 2021, against Q1 2020
which was not impacted by
COVID-19.
of Group revenue
30%
10
1,559
Primary locations
Employees
Revenue by market (%)
11% – Healthcare
Revenue by geography (%)
32% – UK
37% – Automation and electrification
42% – North America
42% – Aerospace and defence
10% – Distribution sales channel
15% – Rest of Europe
11% – Asia and RoW
Financial highlights
2021
2020
Change
Change
constant fx
Revenue
£140.2m
£125.1m
Adjusted operating profit1
£7.8m
£10.3m
12%
(24)%
15%
(21)%
Adjusted operating
profit margin1
5.6%
8.2%
(260)bps
(250)bps
1 Adjusting items are not allocated to divisions for reporting purposes. For further discussion of these items please
refer to Note 6.
Adjusted operating profit reduced
by £2.5 million to £7.8 million
(2020: £10.3 million). Included
within this was a profit contribution of
£1.5 million from the Torotel acquisition.
The adjusted operating margin was
5.6 per cent (2020: 8.2 per cent) which
was impacted in part by a lag in the
recovery of higher material and freight
costs, given the longer cycle nature of
the division. Run rate divisional margins
were 8.3 per cent excluding the start-
up costs incurred in relation to the
Virolens project.
Operational excellence initiatives
included the closure of the division’s
Lutterworth, UK site, and manufacturing
has been transferred to Bedlington, UK.
The closure consolidates the division’s
operations further within its existing
operational footprint. We also initiated
the footprint rationalisation at Covina,
with the business being consolidated
into the Torotel site at Kansas City, as
one power business. The full benefits
of these actions will be realised in 2023
and will support additional investment
in R&D.
34
TT Electronics plc Annual Report and Accounts 2021
The Virolens production line was
completed during the year and the
product received its first regulatory
approval from the MHRA in Great Britain.
While we understand dialogue continues
with other regulators there have been no
further approvals.
There have been some notable contract
awards during the year, including:
• Our engineering team in Minneapolis,
Minnesota collaborated with Radwave
Technologies, an innovative surgical
navigation tracking technology
company to develop smaller, more
accurate sensor coils which support
new procedures in structural heart
and orthopaedic healthcare. This
example is evidence of the success of
our cross-selling efforts as our GMS
business will also provide complete
system manufacturing under an
exclusive five-year contract. We also
reached an agreement to become
Radwave’s exclusive provider of
navigation sensors and early in 2022
further extended our partnership to the
manufacturing of control unit and field
generating antenna.
• In aerospace & defence, a cross
selling opportunity that TT brought to
the Torotel business generated over
$2 million (over £1.5 million) in orders
in 2021 for complex, ruggedised wire
harness assemblies. We won through
partnering with a major customer and
investing in the capabilities needed
to succeed in this market. We are
now positioned to partner with other
aerospace and defence customers to
provide this product. With a second
aerospace and defence prime, TT
used its supply chain expertise to
significantly reduce lead times and
was the only supplier positioned to
secure critical materials and meet
programme requirements.
• In October, we were awarded a contract
with a major defence prime, RBSL, for
the main UK army vehicle programme
for the next 10-20 years. We will
provide complex high reliability power
electronics assemblies to the Boxer
vehicles. The multi-year contract worth
over £5 million is centred around the
development of two types of primary
power assemblies and secures us a
spot within the mechanised infantry
vehicle supply chain. We will lead
the design, production and delivery
of the battery control units enabling
increased efficiency of the vehicle
power management system as well as
the command display units providing
signalling and communications
functionality on every Boxer vehicle.
In January 2022 we were delighted
to complete the £9 million acquisition
of Ferranti Power and Control (P&C),
based in Greater Manchester, which
designs and manufactures mission-
critical complex power and control
sub-assemblies for blue chip customers
in high-reliability and high-performance
end markets, primarily aerospace and
defence. One of the principal benefits
of the acquisition is that it brings
highly skilled employees who provide
full-service capabilities from design,
assembly, manufacturing, and testing
including environmental stress screening
and inspection through to service.
Ferranti P&C adds further technology
capability, IP and scale to our Power
business with valuable long-term
customer relationships and programmes
with leading global aerospace, defence
and industrial OEMs operating in highly
regulated markets with significant barriers
to entry through necessary industry
accreditations and customer approvals.
The acquisition is expected to be
modestly earnings enhancing, to generate
mid-teens operating margins and to
generate a return on invested capital in
excess of the Group’s WACC in year one.
We expect to generate cost synergies of
circa £0.4 million by year three.
TT Electronics plc Annual Report and Accounts 2021
35
Financial statementsGovernance and Directors' reportStrategic report Strategic report | CFO review
CFO REVIEW CONTINUED
GLOBAL
MANUFACTURING
SOLUTIONS
Overview
Revenue breakdown
Revenue increased by
£22.6 million to £220.1 million
(2020: £197.5 million) including
an adverse currency effect of
£4.1 million, with organic revenue
14 per cent higher. The organic
revenue performance reflects
good growth from our existing
customer base and a particularly
strong performance in the Asia
region, particularly from our
healthcare and automation &
electrification end markets.
of Group revenue
46%
6
1,590
Primary locations
Employees
Revenue by market (%)
47% – Healthcare
43% – Automation and electrification
10% – Aerospace and defence
0% – Distribution sales channel
Revenue by geography (%)
21% – UK
38% – North America
13% – Rest of Europe
28% – Asia and RoW
Financial highlights
2021
2020
Change
Change
constant fx
Revenue
£220.1m
£197.5m
Adjusted operating profit1
£18.3m
£15.0m
11%
22%
14%
24%
Adjusted operating
profit margin1
8.3%
7.6%
70bps
60bps
1 Adjusting items are not allocated to divisions for reporting purposes. For further discussion of these items please
refer to Note 6.
This division has performed incredibly
well in 2021, reflecting our robust
platform and targeted move towards
customers who value our partnership
and who are winners in their own growth
markets. Work on positioning this
business as a partner to our customers
to win long-term incremental business
is reflected in our order book growth.
The addition of GMS capability to the
Kuantan site in Malaysia, back in 2020,
has added value through the expansion
of our high-level assembly capabilities
to a variety of key customers. The order
book is such that the division is fully
booked for 2022.
36
TT Electronics plc Annual Report and Accounts 2021
Adjusted operating profit increased
by £3.3 million to £18.3 million (2020:
£15.0 million). The increase reflects
operational leverage on the organic
growth delivered and benefits from our
self-help programme, including factory
efficiencies. The adjusted operating
profit margin improved to 8.3 per cent
(2020: 7.6 per cent).
During the year, in the face of increasing
supply chain headwinds, we adapted
software tools and data analytics to
enhance visibility of parts availability
and sourcing helping to mitigate the
impact of cost increases and lead time
extensions for our customers. Despite
this intense focus, inventory levels at the
year-end were impacted by increasing
lead times on critical component parts.
There have been a number of
significant new customer awards
during 2021 which will impact future
years, as follows:
• GMS won a contract with a world-
leading life sciences customer for
machines used in spectrometry
elemental isotope analysis to
understand the chemistry and
composition of materials in healthcare
and life sciences. We won the contract
from an underperforming competitor
based on our service and product
quality. Demand from this customer
continues to be driven by post
pandemic growth in healthcare and life
sciences technology markets
• We won a contract with a new
customer, Azenta Life Sciences,
based on our reputation with another
medical prime. We are engaging on
multiple services including value add
and vertical integration. Azenta was
looking for a manufacturing partner
in Asia where a substantial amount
of its life sciences revenue is realised,
which could help mitigate global supply
chain risks.
• A contract has been awarded with
a long-standing customer to create
a complete end-to-end supply chain
solution for a next generation silicon
carbon (SiC) inverter, a key component
used in high performance electric
vehicles. TT collaborated with this
customer through the early design
phase of the project and has been
appointed the exclusive manufacturing
partner for the SiC inverter.
• A new project with a renewable energy
provider to provide solutions for voltage
converters in offshore substations.
This continues a ten-year collaboration
to provide manufacturing solutions for
multiple renewable energy projects.
• We are providing complex high-level
assembly solutions for a customer’s
innovative micro-turbine generator
technology that powers some of the
largest mobile networks and TowerCos
worldwide. TT is supporting this
customer to provide cleaner, energy
solutions that are transforming the off-
grid telecoms power sector, providing
clean, affordable and reliable power.
TT Electronics plc Annual Report and Accounts 2021
37
Financial statementsGovernance and Directors' reportStrategic report Strategic report | CFO review
CFO REVIEW CONTINUED
SENSORS AND
SPECIALIST
COMPONENTS
Overview
Revenue breakdown
Revenue increased by £6.7
million to £115.9 million
(2020: £109.2 million) net of
an adverse currency effect of
£5.2 million. Organic revenue
was 11 per cent higher, with
the division’s exposure to the
automation & electrification
market the driver of increased
demand.
of Group revenue
24%
5
1,520
Primary locations
Employees
Revenue by market (%)
1% – Healthcare
Revenue by geography (%)
8% – UK
36% – Automation and electrification
36% – North America
3% – Aerospace and defence
60% – Distribution sales channel
25% – Rest of Europe
31% – Asia and RoW
Financial highlights
2021
2020
Change
Change
constant fx
Revenue
£115.9m
£109.2m
Adjusted operating profit1
£16.4m
£9.4m
6%
74%
11%
82%
Adjusted operating
profit margin1
14.2%
8.6%
560bps
550bps
1 Adjusting items are not allocated to divisions for reporting purposes. For further discussion of these items please
refer to Note 6.
This business is in the sweet spot of
enabling our customers to reach their
sustainability goals with components for
smart energy and city infrastructure and
factory automation.
Despite usually having limited visibility,
the order book in this division has
increased significantly reflecting strong
underlying demand but also, in part,
customers committing orders further
ahead to protect their supply chains and
responding to lead time extensions.
Adjusted operating profit increased
by £7.0 million to £16.4 million (2020:
£9.4 million). Operating profit reflects
the benefits of our self-help programme,
some of which was achieved ahead of
schedule, and the strong operational
leverage on our revenue growth. We
benefited from our agility in adapting our
38
TT Electronics plc Annual Report and Accounts 2021
• We recently launched a revolutionary
optical sensory array FlexSenseTM
designed to optimise optical encoder
applications for evolving automation and
healthcare markets. This product meets
customer requirements for customised,
high-end optical encoder sensors which
can be configured for higher resolution,
faster response and smaller footprint.
It also enables acceleration of time-to-
market and manufacturing throughput
for our customers.
• We have a proven track record for
providing quality resistors for a
technology and innovation customer.
This customer awarded a contract for
current sense and fusible resistors to
ensure the safety of its battery pack for
its industry-leading, high-reliability and
high-specification products.
pricing strategies including timely price
increases to offset ongoing material
and freight cost increases. The adjusted
operating profit margin was up 560 bps
to 14.2 per cent (2020: 8.6 per cent).
As part of the Group’s ongoing self-help
programme, the closures of the sites in
Barbados, Carrollton and Corpus Christi,
Texas were completed in the year and
we moved to our new facility in Plano,
Texas. We have invested in capacity
and improved yields which are enabling
volumes to be produced at higher rates
and are focused on improving our
customer experience.
There were a number of favourable
developments during the year which
will benefit the business, including:
• We won a contract for defibrillator
resistors which involved a collaboration
between our engineers in the UK with
our sales capabilities in Asia. The win
includes production as well as test
equipment charges.
TT Electronics plc Annual Report and Accounts 2021
39
Financial statementsGovernance and Directors' reportStrategic report • 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 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
2021
651.9
577.5
78.4
(3.9)
74.5
2020
641.2
605.8
35.4
(4.9)
30.5
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 2021
using the projected unit credit method.
Further details of the Group’s defined
benefit schemes are in Note 21
on page 178 of the Consolidated
Financial Statements.
Strategic report | CFO review
CFO REVIEW CONTINUED
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 67 to 70, and
the overall risk profile of the Group.
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 2021, TT Electronics plc had
£209.5 million of distributable reserves,
sufficient to pay dividends for the
foreseeable future. The parent Company
Balance Sheet is set out on page 191.
Given the strong performance in 2021
and the positive outlook for 2022 and
beyond, the Board is proposing a final
dividend of 3.8 pence per share, which
gives a total dividend of 5.6 pence, up
19% compared to prior year. Payment
of the dividend will be made on 20 May
2022, to shareholders on the register at
29 April 2022.
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 £74.5 million (2020: £30.5
million). The main driver of this was a
rise in corporate bond yields reducing
the Scheme’s benefit obligation and
an increase in the fair value of assets
due to investment performance. The
surplus also increased due to company
contributions paid of £5.5 million, as the
contribution plan continued, targeting
self-sufficiency and further de-risking.
During the year, the Group completed
a Pension Increase Exchange (PIE)
exercise where eligible current pensioner
members were offered the option to
exchange their future non-statutory
pension increases for an additional
amount of level pension. The effect of
this exercise was to increase the net
accounting surplus by £0.3 million after
deducting work carried out during the
year to cleanse the scheme data. These
activities are part of the Group’s ongoing
effort to reduce risk and uncertainty,
effectively manage the liabilities, and
improve the scheme data as we look
towards an ultimate buyout of the UK
pension liabilities.
Net accounting pension surplus
The Group has developed a strategy to
manage the financial risk associated
with its defined benefit schemes
as follows:
• 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 the scheme’s
funding position has improved, so the
scheme’s investment strategy has
been gradually de-risked to reduce
scheme volatility.
• The Group has in place financial
hedging that aims to remove the
majority of interest rate and inflation
related risks. As the scheme funding
has improved the level of hedging
has been increased. We are now fully
hedged on a self-sufficiency basis,
which means that we are now over-
hedged on an accounting basis. At the
current level the approximate impact
on the reported surplus accounting
position of a 10bps fall in interest
rates would be a circa £1 million
improvement in the position (which
would be otherwise be a circa £9
million deterioration if the hedge were
not in place) thereby reducing volatility.
Conversely, a 10bps rise in interest
rates would result in a circa £1 million
reduction in accounting surplus, all else
being equal. 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.
40
TT Electronics plc Annual Report and Accounts 2021
year maturities with an average interest
rate of 2.9% and covenants in line with
our bank facility. The private placement
complements, at an attractive rate, the
Group’s existing bank revolving credit
facility, diversifying our sources of debt
funding and providing us with a stable,
long-term financing structure.
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
2021
2020
Income Statement
Average rate
$/£
RMB/£
1.38
8.90
Balance Sheet
Closing Rate
$/£
RMB/£
1.35
8.63
1.28
8.87
1.37
8.94
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.
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 71 for the Going concern
statement
The Group’s leverage is usually
expressed in terms of its net debt/
adjusted EBITDA ratio. The Group’s main
financial covenants in its RCF and PP
notes state 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
1.7 times is within the Group’s target
range of 1-2 times. 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.
On this basis, net debt/adjusted EBITDA
was 1.7 times at 31 December 2021
(31 December 2020: 1.6 times). Interest
cover at 31 December 2021 was 13.5
times (31 December 2020: 12.6 times).
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.
A further summary of the Group’s
borrowings and maturities are set out in
Note 19 on page 168 of the Consolidated
Financial Statements.
Financial risk management
and treasury policies
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.
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. The Group manages
transactional foreign exchange positions
by hedging a minimum of 75 per cent of
expected net cash flow exposures for
the next 12 months and 50 per cent of
expected net cash flow exposures for the
period from 12 to 24 months.
More details of the Group’s Treasury
operations are set out in Note
20 on page 169 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.
Net debt and gearing
At 31 December 2021 the Group’s net
debt was £102.5 million (31 December
2020: £83.9 million), including £22.6
million of lease liabilities (31 December
2020: £15.9 million).
At 31 December 2021 the Group had
available undrawn committed and
uncommitted facilities of £272.4 million.
The Group’s borrowings are in the form
of a multi-currency Revolving Credit
Facility (RCF) and private placement
fixed rate loan notes (PP). The RCF
matures in November 2023, with no
short-term re-financing risk for the
Group. In August 2021, TT agreed a
debut £75 million PP issue with three
institutional investors. The funds were
received in December 2021 and the
issue is evenly split between 7 and 10
TT Electronics plc Annual Report and Accounts 2021
41
Financial statementsGovernance and Directors' reportStrategic report Strategic report | Key Performance Indicators
HOW WE ARE PERFORMING
OUR KPIs
Financial
KPI description and why
it is important
Medium-term
target
Five-year
performance chart
2021 progress
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.
Sustainable organic revenue growth
is an indicator of value creation. It
reflects a combination of conditions
in our markets and our success in
gaining market share from serving our
customers better.
Adjusted operating profit margin (%)
Adjusted operating profit as
a percentage of revenue. 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.
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.
Adjusted EPS summarises the overall
financial performance of the Group,
including revenue growth, operating
margin, the cost of debt finance, and the
rate of underlying taxation.
Cash conversion (%)
Adjusted operating cash flow including
capital expenditure, divided by adjusted
operating profit. Cash conversion
measures how effectively profit is
converted into cash and, within this,
reflects the management of working
capital and capital expenditure. A
high level of cash conversion aids
investment in the business, enables the
Group to deliver increased returns for
shareholders, and supports a strong
balance sheet.
3-5% organic
revenue growth
annually over the
medium term
10.0% 2020: (12)% Organic revenue was
10.0% higher reflecting the
post-COVID recovery and
good growth in our focus
end markets.
2021
2020
(12)%
2019
2018
2017
10%
4%
6%
5%
Double-digit
margin by 2023
7.3%
2021
2020
2019
2018
2017
14.5p
2021
2020
2019
2018
2017
65%
2021
2020
2019
2018
2017
Double-digit
adjusted EPS
growth annually at
constant currency
over the medium
term
90%+ cash
conversion
annually over the
medium term
7.3%
2020: 6.4% Adjusted operating margin
increased 90 bps to 7.3%
reflecting operational
leverage on good top line
growth and the benefits of
our self-help programme.
Run rate margin of 8.1%,
excluding Virolens costs.
8.0%
6.4%
6.7%
7.8%
2020: 11.7p Adjusted EPS was 14.5
pence, primarily reflecting
the higher adjusted operating
profit in the period.
14.5p
11.7p
17.8p
16.2p
10.9p
2020: 130% Cash conversion reduced to
65%
130%
103%
88%
98%
65% as a result of the Group’s
investment in inventory to
support the strong order
book and to deal with supply
chain constraints. Capital and
development expenditure
also increased to support
growth and as part of the
self-help programme.
Our KPIs include a number of Alternative Performance Measures (APMs) which have been adopted by the Directors to provide further information on underlying trends and the performance
and position of the Group. Details of these APMs and a reconciliation to statutory measures can be found on pages 201 to 207.
42
TT Electronics plc Annual Report and Accounts 2021
Financial
KPI description and why
it is important
Medium-term
target
Five-year
performance chart
2021 progress
Exceed the cost
of holding assets
with year-on-year
increases
9.1%
2021
2020
2019
2018*
2017*
2020: 7.7% ROIC increased to 9.1%
due to the volume-driven
profit increase.
9.1%
7.7%
10.8%
11.5%
10.6%
* Excluding IFRS 16 impacts.
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. Return
on invested capital is a measure of
how efficiently the Group is utilising
its assets, relative to profitability, in
generating shareholder returns.
Non-financial
KPI description and why
it is important
Medium-term
target
Five-year
performance chart
2021 progress
R&D investment as a % of sales
R&D cash investment as a percentage
of revenue. This metric excludes GMS
which is a manufacturing services
business and has no R&D. A consistent
and sustainable level of R&D investment
enables us to introduce new products
that increase our revenue and deliver
on our purpose to solve technology
challenges for a sustainable world.
Safety performance (number of three
day lost-time incidents)
The number of workplace health
and safety incidents that resulted in
employees, contractors or visitors
needing to be off work for three days
or more. The number of incidents
measures how well we are executing
on our commitment to raise safety
standards globally and protect our
people on our journey to zero harm.
Employee engagement score
Results from a Best Companies Ltd
third-party survey which gathers
anonymous employee feedback and
scores against eight success factors.
Having engaged employees is crucial to
attracting and maintaining the talent we
need to execute our strategy. We have
changed to report the more accurate
total index score this year.
Maintain R&D
investment at
around 5 per
cent of revenue
annually over the
medium term
Year-on-year
reduction in
incidents,
ultimately leading
to zero harm
Survey-on-
survey increase
in the Group’s
engagement
score over the
medium term
Scope 1 & 2 emissions
Total amount of carbon dioxide
equivalent tonnes (tCO2e) of Scope 1
& 2 emissions from operations. Details
of the calculation method are set out
on page 58. Reducing our Scope 1 & 2
emissions is a critical part of reducing
our environmental footprint.
Annual reductions
vs our 2019
baseline
50% reduction
2019
by 2023 vs 2019
2018
Net Zero by 2035
2017
2020
20161
4.5%
2021
2020
2019
2018
2017
5
2021
2020
2019
2018
2017
2020: 4.8% We have continued to invest
in line with our target of 5% of
product sales. Our total R&D
investment over seven years
is £74 million.
4.5%
4.8%
5.1%
5.1%
4.6%
2020: 5 We had five three day lost-
time incidents in 2021, in line
with the previous year. We
continue to focus on building
a strong safety culture across
the Group which has included
the recent introduction of 15
global minimum standards
based on ISO 45001 & ISO
14001 thinking.
5
5
4
7
17
718.5
2020: 694.8 Our Best Companies
2021
2020
2019*
2018
2017
718.5
694.8
Interim pulse surveys
678.8
656.0
* No employee engagement survey was
undertaken in 2019
Index engagement score
increased again in 2021
to 718.5 in line with the
two star "outstanding
companies to work for" Best
Companies Ltd benchmark.
More than 80% of our
employees participated in
the 2021 survey.
2021
15,740
41% reduction since 2019 We delivered a further
decrease in Scope 1 & 2
emissions in 2021 driven by
the transition of our UK sites
to renewable energy tariffs,
site-specific energy reduction
activities and the closure of
some sites.
Data available from 2019 only.
26,657
20,875
2020
2019
TT Electronics plc Annual Report and Accounts 2021
43
Financial statementsGovernance and Directors' reportStrategic report
Strategic report | Stakeholder engagement
ENGAGING WITH OUR
STAKEHOLDERS
Stakeholder
Our activities that affect them
Engagement with our
stakeholders is key to the long-
term success of our business.
We use the knowledge and
feedback gained from our
stakeholders to push our
business forward and respond
to key requirements and
challenges in the industries
in which we operate.
The Board fully understands its role
in this process and regularly reviews
the Group’s key stakeholders and
the impacts our activities have on
these groups. The Board encourages
open and purposeful engagement so
that they can use clear and honest
feedback to assist in their decision-
making processes. The nature of Board
meetings allows information about our
stakeholders to flow from the workforce,
through commercial teams and senior
management to the Board and back
down the organisational structure.
The Board also actively seeks feedback
from external advisers to help form its
strategic decisions.
This section shows how the Board
engages with stakeholders. More
information on the Board’s approach to
S172 can be found on page 62, which
sets out as an example decisions
taken by the Board in the context of
an M&A integration process and how
consideration of stakeholder views and
needs influenced these decisions.
CUSTOMERS
AND SUPPLIERS
EMPLOYEES
INVESTORS
SOCIETY
44
TT Electronics plc Annual Report and Accounts 2021
– R&D
– Products, including those supporting
environmental sustainability
– Operations and production pipeline
– Safety, environmental quality control
and reliability
– Legal and regulatory compliance
– Payment practices
– Responsible business practices
– Culture and purpose
– TT Way values and conducting
business with integrity
– Safety and wellbeing
– Training and development
– Group employment policies
– Engagement activities
– ED&I
– Environmental sustainability
– Financial performance
– Leadership
– Governance and transparency
– Sustainability
– Reputation
– Communication
– Products that solve technology
challenges for a sustainable world
– Responsible business practices
– Environmental practices and
sustainability
– Employment training and
apprenticeships
– ED&I focus
– Local supply chains
– Supporting local communities
– CEO and Board regularly receive
– Day-to-day contact on supply chain,
reports from divisions and internal
Councils on key customer and
supplier initiatives.
– The Board reviews and approves
payment practices.
– The Board reviews and approves
responsible business practices
and targets.
products and service.
– R&D partnerships.
– Collaboration across divisions to meet
customer needs including through our
Business Development and Supply
Chain Councils.
– Continued focus on cleaner,
smarter and healthier solutions.
– New product launches.
– New contract wins including
Radwave (see page 13).
– Expansion of Voice of the
Customer programme
– Voice of the Customer formal feedback.
(see page 28).
– Supplier assessments.
– Review of technology roadmap.
– Oversight of Group culture.
– Regular communication activities.
– HSE updates at each Board meeting.
– Employee engagement survey.
– Non-executive Director, CEO and CFO
– Site employee forums and Town Halls
site visits.
with ELT members.
– CEO and Senior Independent Director
– Be Inspired recognition scheme.
– Training and development activities
aligned to business and employee needs.
– ED&I Councils at many sites.
– Career conversations and personal
performance development plans.
Read more on pages 40 and 52
(SID) are members of the People,
Social, Environmental and Ethics
(PSEE) Committee.
– Oversight of ED&I roadmap.
– Review of employee engagement
survey findings.
– Approval of environmental
sustainability targets.
Read more on page 83
– Regular report to the Board on
investor views including around
environmental sustainability.
– Chairman and SID availability to
shareholders.
– Remuneration consultation activities.
– Results, Annual Report and AGM.
Read more on page 86
– Appropriate governance policies.
– Simplified and consistent
– Alignment of business with Group strategy.
– Engaging employees with Group strategy.
– Collection of data supporting ESG strategy.
– Oversight of Group strategy including
– Legal and regulatory compliance.
ESG strategy and performance.
– The Board reviews and approves
responsible business practices
and targets.
– Responsible business practices including
environmental practices and approach to
– Continued focus on cleaner,
modern slavery.
smarter and healthier solutions.
– CEO and SID are members of the
communities.
PSEE Committee.
– STEM education activities in local
– Charitable initiatives in local communities.
Read more on pages 49 and 61
– CFO and Chief People Officer
visits to new sites at Plano and
Kansas City.
– Actions following 2020 and
2021 engagement surveys.
– Leadership development
workshops.
– Driving new ED&I strategy at
Group and site level.
– Mindfulness and wellbeing
activities.
– Investment in sales and
business development
capability.
– Ambitious environmental
sustainability targets.
messaging.
– Ambitious environmental
sustainability targets.
– Focus on how our technology
enables customers to
make products that meet
sustainability goals.
– Continued consideration
of findings of investor
perception study.
– Ambitious environmental
sustainability targets.
– New product launches
that support efficiency and
sustainability.
– Driving new ED&I strategy at
Group and site level
– InTTernship and graduate
programme and apprentices.
CUSTOMERS
AND SUPPLIERS
EMPLOYEES
INVESTORS
SOCIETY
– R&D
– Products, including those supporting
environmental sustainability
– Operations and production pipeline
– Safety, environmental quality control
and reliability
– Legal and regulatory compliance
– Payment practices
– Responsible business practices
– Culture and purpose
– TT Way values and conducting
business with integrity
– Safety and wellbeing
– Training and development
– Group employment policies
– Engagement activities
– ED&I
– Environmental sustainability
– Financial performance
– Leadership
– Governance and transparency
– Sustainability
– Reputation
– Communication
– Products that solve technology
challenges for a sustainable world
– Responsible business practices
– Environmental practices and
sustainability
– Employment training and
apprenticeships
– ED&I focus
– Local supply chains
– Supporting local communities
How we engage at Board level
How we engage across the Group
How we delivered
on feedback this year
– CEO and Board regularly receive
– Day-to-day contact on supply chain,
reports from divisions and internal
Councils on key customer and
supplier initiatives.
– The Board reviews and approves
payment practices.
– The Board reviews and approves
responsible business practices
and targets.
products and service.
– R&D partnerships.
– Collaboration across divisions to meet
customer needs including through our
Business Development and Supply
Chain Councils.
– Voice of the Customer formal feedback.
– Supplier assessments.
– Oversight of Group culture.
– HSE updates at each Board meeting.
– Non-executive Director, CEO and CFO
– Regular communication activities.
– Employee engagement survey.
– Site employee forums and Town Halls
site visits.
with ELT members.
– CEO and Senior Independent Director
(SID) are members of the People,
Social, Environmental and Ethics
(PSEE) Committee.
– Oversight of ED&I roadmap.
– Review of employee engagement
survey findings.
– Approval of environmental
sustainability targets.
Read more on page 83
– Regular report to the Board on
investor views including around
environmental sustainability.
– Chairman and SID availability to
shareholders.
– Remuneration consultation activities.
– Results, Annual Report and AGM.
Read more on page 86
– Be Inspired recognition scheme.
– Training and development activities
aligned to business and employee needs.
– ED&I Councils at many sites.
– Career conversations and personal
performance development plans.
Read more on pages 40 and 52
– Appropriate governance policies.
– Alignment of business with Group strategy.
– Engaging employees with Group strategy.
– Collection of data supporting ESG strategy.
– Oversight of Group strategy including
ESG strategy and performance.
– The Board reviews and approves
responsible business practices
and targets.
– Legal and regulatory compliance.
– Responsible business practices including
environmental practices and approach to
modern slavery.
– STEM education activities in local
– CEO and SID are members of the
communities.
PSEE Committee.
– Charitable initiatives in local communities.
Read more on pages 49 and 61
– Continued focus on cleaner,
smarter and healthier solutions.
– New product launches.
– New contract wins including
Radwave (see page 13).
– Expansion of Voice of the
Customer programme
(see page 28).
– Review of technology roadmap.
– CFO and Chief People Officer
visits to new sites at Plano and
Kansas City.
– Actions following 2020 and
2021 engagement surveys.
– Leadership development
workshops.
– Driving new ED&I strategy at
Group and site level.
– Mindfulness and wellbeing
activities.
– Investment in sales and
business development
capability.
– Ambitious environmental
sustainability targets.
– Simplified and consistent
messaging.
– Ambitious environmental
sustainability targets.
– Focus on how our technology
enables customers to
make products that meet
sustainability goals.
– Continued consideration
of findings of investor
perception study.
– Ambitious environmental
sustainability targets.
– Continued focus on cleaner,
smarter and healthier solutions.
– New product launches
that support efficiency and
sustainability.
– Driving new ED&I strategy at
Group and site level
– InTTernship and graduate
programme and apprentices.
TT Electronics plc Annual Report and Accounts 2021
45
Financial statementsGovernance and Directors' reportStrategic report Strategic report | Our people, environment and communities
OUR PEOPLE, ENVIRONMENT AND COMMUNITIES
A POSITIVE
IMPACT
46
TT Electronics plc Annual Report and Accounts 2021
We are committed to having a
positive impact on the world
around us: creating value
and enhancing sustainability
through our products; the way
we do business, including
how we look after our
employees; and by reducing our
environmental footprint. This
commitment is described in
our purpose and embedded in
our strategy as one of our four
strategic priorities.
We have made significant progress on
environment, social and governance
(ESG) and sustainability matters in
recent years as the Group has been
transformed and these considerations
have been placed at the heart of
strategic and day-to-day decision-
making at all levels of the organisation.
This way of operating reduces risk and
provides significant opportunities to
develop our business model.
Our activities in these areas are critical
to our stakeholders, particularly
our customers and our employees.
We want our teams to be proud of
working for a business that behaves
ethically and seeks to continuously
improve performance.
Read more about governance in the
Governance and Directors’ report
from page 74
Our purpose
We solve technology
challenges for a
sustainable world
We do this by delivering solutions
for our customers that enable
products that are cleaner,
smarter and healthier and that
will benefit our planet and people
for future generations.
See page 28 for our strategic
priorities
Alignment with the UN Sustainable Development Goals
Our business activities and the way we operate are closely aligned to six of the UN’s 17 Sustainable Development Goals.
UN Sustainable
Development Goals
Our contribution
– Our products help to diagnose and treat disease earlier, contributing to better life outcomes
for patients.
– We are committed to the safety, health and wellbeing of our employees.
– We contribute to the wellbeing of our local communities through our community activities.
– We are committed to equal opportunities for all persons. We have 53% women in our organisation,
and we prioritise the recruitment and development of female leaders.
– We are actively working on ED&I and education initiatives to attract more women into our sector
and support women to progress in their careers.
– Our products are enabling customers to accelerate cleaner energy technologies including electric
vehicles, offshore wind and micro turbines.
– We have moved or we are moving to renewable electricity tariffs at all sites able to access them
and we are scoping options, including onsite renewable energy systems, for sites that cannot.
– We are a global employer of talented design, engineering and manufacturing experts.
– We are passionate about encouraging young people to consider STEM careers and, in turn, make
their own contribution to industry and innovation in the future.
– Our products are enabling our customers to operate more efficiently and to develop smart
infrastructure that is changing the way we live.
– We conduct business with integrity, transparency, and professionalism.
– We are driven by the concept of zero harm in terms of the safety of our people and this extends to
our approach to managing our impact on the environment.
– We are reducing our consumption of single-use plastics and waste sent to landfill.
– We develop, design, engineer and manufacture our products to use raw materials and other
resource inputs in the most efficient way, including using recycled materials.
– We are targeting Net Zero for Scope 1 & 2 emissions by 2035.
– We are focused on moving to renewable electricity (our biggest driver of emissions) at all sites as
soon as possible and investing in projects that will contribute to meaningful reductions in usage
and self generation.
– We are beginning to measure and target reductions in our most significant indirect emissions
(Scope 3).
– Our products are enabling customers to meet their own climate goals.
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report Strategic report | Our people, environment and communities
Our products
Our culture – the way we do business
Our culture is critically important; it makes
TT a great place to work and a great
company to work with, enabling us to
attract and retain talented people and build
strong partnerships with our customers.
Our behaviour is shaped by our TT Way
values which guide how, from the top
down, we work with each other and
our stakeholders. We hold ourselves to
high ethical and business standards,
conducting business with integrity,
transparency and professionalism and
building relationships based on trust.
This is supported by our internal focus
on performance and expertise to drive
innovation, operate more efficiently, and
provide excellent service to customers.
We are also driven by the concept
of zero harm in our safety culture
and this extends to our approach
to environmental sustainability
matters where our teams are driving
an ambitious agenda to reduce our
environmental footprint.
Finally, we promote a work environment
where people can be themselves,
do their best work every day, and
achieve their ambitions. We treat our
employees with care and respect and
are committed to equality, diversity
and inclusivity.
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
Our culture is overseen and supported
by the Board. While some aspects of our
culture, such as ethics and safety, are
aligned and reinforced by policy, others
are governed by frameworks originated
at the centre which empower our sites to
work appropriately in their jurisdictions
and according to local norms.
Read more on the Board’s oversight of
culture matters on page 83
TT technologies address key
sustainability megatrends in
our target markets and bring
environmental and social benefits
to society. Our components and,
ultimately, products address
resource scarcity, improve energy
efficiency, support renewables
and drive productivity, connectivity
and health through their use in
customer applications.
Cleaner
– Products supporting renewable
energy generation and cleaner,
more efficient homes and
industrial processes
– Advanced electronics for
aerospace applications that
enable safer, lighter and more
environmentally friendly aircraft
– Solutions supporting vehicle
electrification, fuel economy
and sustainable transport
Smarter
– Electronics for sophisticated
automation and connectivity
applications in homes,
businesses and infrastructure
– Solutions for smart metering
technology and smart grids
– Industrial robotics and
sensors that improve
manufacturing processes
Healthier
– High-reliability solutions
for diagnostic, surgical and
direct patient care including
surgical navigation and
implantable devices
– Electronics for laboratory
automation that support data
reliability, accuracy and time-
efficient procedures
Our cleaner, smarter, healthier
focus is a key differentiator of our
customer offer and drives our
approach not only to R&D but
to the way we develop, design,
engineer and manufacture our
products and use raw materials
and other resource inputs in the
most efficient way.
48
TT Electronics plc Annual Report and Accounts 2021
Ethics
The fundamental principles of fairness,
honesty and common sense lie at the
heart of our corporate standards. We
have one ethical standard worldwide
which seeks to create an environment
where our business can flourish within
an appropriate compliance and risk
management framework.
Our Statement of Values and Business
Ethics Code sets out these standards
and covers a wide range of ethical
matters including the working
environment, standards of behaviour,
avoiding conflicts of interest, hospitality
and entertainment, bribery, intellectual
property protection and fair competition.
We do not tolerate fraud, corrupt
practices or behaviour not in line with
our standards and have in place effective
systems and processes to detect and
deal with contraventions of the Business
Ethics Code.
Any concerns relating to matters
covered by the Business Ethics Code
and behaviour more generally can be
reported, either to management or by
using our anonymous, multi-lingual
whistleblower reporting facility on our
ethics and integrity portal. Reports
are investigated in detail and any
significant concerns are reported to the
Audit Committee.
Day-to-day oversight of ethical matters
is undertaken by our People, Social,
Environmental and Ethics (PSEE)
Committee, which is chaired by our
CEO, Richard Tyson and includes, as
members, TT’s SID, Jack Boyer, our Chief
People Officer, Sarah Hamilton-Hanna
and our Group General Counsel, Lynton
Boardman. For the purposes of the UK
Corporate Governance Code, Jack Boyer
is the designated NED for engagement
with the workforce. See page 85 for
further details. An Ethics Committee
made up of the TT Executive Leadership
Team can also be convened on an as-
needed basis.
Mandatory ethics training is provided for
relevant employees on an annual basis.
This covers different aspects of ethics
including anti-bribery and corruption, IT
and cyber security, export controls and
information management.
Regulatory requirements are different
around the world, so we have a core
structure which Group businesses comply
with, beyond which they are empowered
to tailor their approach to local needs.
The nature of our business and the markets
we work in means that legal and regulatory
compliance is a principal risk for TT.
Read more on page 67
Supply chain
We procure from a wide network of
suppliers and distributors through global
supply chains. It is important to us
that our suppliers share our values and
our approach, and we seek out those
that do.
Our Corporate and Social
Responsibilities – Supplier Expectations
policy sets out our required standard
with regard to supplier social and
environmental practices, including
modern slavery and the need for
environmental improvement plans. From
this year, the policy has been included in
supplier purchase orders. Our policy is
available on the TT website.
We carry out regular assessments of
our suppliers to ensure compliance
with our requirements and we will
not do business with suppliers that
violate them.
Read more about our approach to
human rights and modern slavery on
page 61
TT Electronics plc Annual Report and Accounts 2021
49
Financial statementsGovernance and Directors' reportStrategic report Strategic report | Our people, environment and communities
Reducing our environmental footprint
Scope 1 & 2 emissions
We believe that business has a
significant role to play in addressing
environmental issues, including
climate change.
Over and above our focus on cleaner,
smarter and healthier products, we
have an ambitious agenda to reduce
our environmental footprint and
carbon emissions.
We are primarily targeting the
areas where we have the greatest
environmental impact, principally energy
use in our operations, with an additional
focus on reducing single-use plastics
and waste to landfill. Energy use, in
particular electricity use, is the largest
contributor to our Scope 1 & 2 emissions
and we are tackling this with projects
to reduce use, switching to renewable
tariffs where we are able to, and to onsite
renewable sources where we do not
have access to these tariffs.
We have an environmental sustainability
and energy management strategy to
direct and manage our progress and
each of our sites conducts a detailed
annual environmental review to identify
its sustainability improvement plan for
the year ahead. Environmental risks
arising from these reviews are added to
site operational risk registers.
We have implemented a global reporting
tool at all sites to track resource use
and all sites are required to submit
data every month. The tool is aligned
with the Greenhouse Gas (GHG)
Protocol Corporate Standard and with
the Streamlined Energy and Carbon
Reporting (SECR) guidelines and provides
data on the sources of our emissions
which assists planning and enables
greater transparency in our disclosures.
Find our environmental sustainability
data on page 58
Net Zero by
Reduction since 2019
2035
41%
50%reduction targeted by 2023
vs 2019
Figures are for total Scope 1 & 2
emissions and not normalised
to revenue
recognised organisation, working
specifically for transparent carbon
disclosure, with a strong specialism in
supply chain.
Single-use plastics and waste
to landfill
While we have not yet implemented
formal targets to reduce single-use
plastics and waste to landfill, these two
areas are an important part of our local
efforts and reporting. We are currently
developing robust verification methods
for this data, introducing additional
guidelines for reporting, and ensuring
that all sites are participating in our
reporting and reduction efforts. Our UK
sites have been leading the way and
we are using their knowledge to drive
cultural change elsewhere.
Read more in the environment section
starting on page 58
To deepen knowledge around the
Group we became corporate partners
of the IEMA (Institute of Environmental
Management & Assessment), the
professional body for UK sustainability
specialists, in 2021. We intend to use
IEMA resources to develop a green skills
training programme that will be deployed
across the Group in future years.
Our VP, Group HSE, Karen White holds
Chartered Environmentalist (CEnv)
accreditation with the Society of the
Environment and is a full member of the
IEMA. In 2021, she was invited to join the
IEMA’s Assessment Coaching panel as a
full Assessment Coach to mentor other
sustainability professionals.
Group environmental targets
We are moving at pace to reduce our
carbon emissions. In the last two years
we have reduced our overall Scope
1 & 2 emissions by 41% and we have
developed a plan targeting a 50%
reduction by 2023 against our 2019
baseline and Net Zero for Scope 1 & 2
emissions by 2035, at the latest.
To demonstrate our commitment, Scope
1 & 2 emissions were added to our Group
KPIs in 2020 and they are aligned with
executive remuneration objectives and
flowed through the organisation.
All sites that are able to purchase
electricity on renewable tariffs are now
either doing so or a switch is planned in
the future; further progress will therefore
be driven by: energy reduction projects,
including investment in more efficient
infrastructure and processes; tracking
and transitioning the use of other energy
types; and undertaking of feasibility
studies for possible solar projects.
To continue to improve and ensure
transparency in our disclosures and
progress in 2022 we will undertake a
formal internal audit of our data and
will begin collecting data on other
greenhouse gases.
Scope 3 indirect emissions
We recognise that indirect emissions
from our business activities also
contribute to our environmental
footprint. During 2021 we have assessed
the significance of Scope 3 categories
and established a methodology for
data capture. We will expand this work
in 2022 to consider nine of the most
significant categories for TT and define
a potential roadmap to Net Zero for
some of them. We will partner with CDP
on the supply chain element of these
emissions. CDP is an internationally
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TT Electronics plc Annual Report and Accounts 2021
Governance and risk management
ESG matters including culture, strategy,
compliance, risk and internal controls
are governed as part of our overall
governance and risk management
frameworks, ultimately overseen by
the Board. An update on key health,
safety and environmental (including
sustainability) metrics is provided
at each Board meeting and in-depth
reviews are undertaken on at least an
annual basis.
See our governance structure on
page 75
Environmental governance
Oversight of and decision-making on our
environmental strategy and performance
is provided by the PSEE Committee
and both the Committee Chair and the
Non-executive Director representative
on the Committee report to the Board
on these matters. The Committee is
advised by our Sustainability Council
which comprises a mix of senior
corporate managers and representatives
from each division and provides on-the-
ground insight and specialist advice
as well as enabling the sharing of best
practice and ideas across the Group.
We also appointed a Group Sustainability
Director in 2021.
Responsibility for local planning and
performance lies with our site managers
who work with our site environmental
champions and employee green teams
to formulate and deliver projects and
engage employees with our local and
global agendas.
Risk management
Climate and environmental risks are
considered as part of our overall risk
management processes. We identify
environmental risks at site level as part
Climate risk assessment
of our site operational risk assessments.
These risk assessments are reviewed
and consolidated at divisional and then
Group level and significant identified
risks are placed on the Group risk
register. The Group register is reviewed
by the Risk Committee and the Board on
a regular basis.
Sustainability, climate change and
the environment is considered to be a
principal risk for the Group in terms of
reputation in the event that we fail to
appropriately manage the environmental
impact of our operations and our
products, and relationships with our
stakeholders deteriorate as a result.
See page 67 for our principal risks and
mitigating actions
Climate risk and opportunities
In addition to our formal risk
management process, in 2021 the Board
considered a Group climate risk and
opportunities assessment informed by
bottom-up assessments made at a site
and divisional level.
The assessment looked at both
physical (climatic impact of higher
average temperatures on our physical
operations) and transition (changes in
technology, markets, policy, regulation,
and consumer sentiment resulting from
the transition to a low-carbon economy)
risks to the TT business model.
Each identified risk was reviewed under
three headings: likelihood; impact; and
materiality (see table below). Materiality
will be assessed further and in more
depth in 2022 through a detailed
scenario analysis, looking at short-,
medium- and long-term time frames and
alternative temperature scenarios.
Risk (physical or
transition)
Assessment –
likelihood
Assessment –
impact
Materiality
Acute (P)
Chronic (P)
Policy and legal (T)
Low
Low
Low
Medium
Medium
High
Technology (T)
Low
Medium
Market (T)
Reputation (T)
Medium
Medium
High
High
Low
Low
Short-term Low;
potentially increasing
over time as legislation
increases
Low + considered an
opportunity
Medium
Short-term Low/
Medium, likely
increasing over time
+ considered an
opportunity
The assessment also considered
how the Group was approaching
opportunities both in its current markets
and the opportunity to expand into
the broader sustainable products
marketplace. The Board also reviewed
opportunities to reduce the Group’s
footprint under the headings resource
efficiency and energy sourcing, and
considered the resilience of the Group’s
overall position given its geographic and
market spread.
Based on this work we consider physical
risk from climate change to be financially
immaterial for the Group at this stage
given our activities and footprint and
that risks arising from the transition to a
low-carbon economy can and are being
appropriately mitigated.
As described throughout this report,
our business model, key capabilities
and cleaner, smarter, healthier focus
position the Group to benefit from the
opportunities presented by the global
transition to a low-carbon economy.
Task Force on Climate-related
Financial Disclosures (TCFD)
We fully support the need for
businesses to be transparent on
climate and environmental matters
as a driver of change. We set out how
our disclosures comply with the TCFD
recommendations on page 59.
External recognition
We are pleased to continue to
receive external recognition for
ESG matters.
We received a rating of AA
in the 2022 MSCI ESG Ratings
assessment, placing TT in
the leading companies in its
sector group.
We also participate in CDP’s
annual climate change survey.
We received a C (Awareness
level) rating in 2021 for our
2020 data submission.
TT Electronics plc Annual Report and Accounts 2021
51
Financial statementsGovernance and Directors' reportStrategic report Strategic report | Our people, environment and communities
OUR PEOPLE
SAFE AND
EMPOWERED
Our people can do remarkable
things. Their talent and
commitment to our business is
a critical driver of TT’s success.
We strive to keep them healthy
and safe, give them a sense
of belonging and pride in our
company, and empower them
to think big.
As a vital resource, it is important
that the employee voice is heard at
the highest levels of the organisation.
The results of our regular employee
engagement survey are reviewed by the
Board so that findings can be acted upon
and TT’s SID, Jack Boyer, participates
directly in people matters through his
membership of the PSEE Committee.
These strong links and others described
in the diagram below ensure that we
appropriately address the needs of
our most important stakeholders, and
our teams are fully engaged with our
business goals.
‘Our people and our culture
are our competitive advantage,
and the way we deliver is
as important as what we
deliver. We are passionate
about supporting every one
of our 4,700 employees, and
empowering them to make
a difference every day.’
Sarah Hamilton-Hanna,
Chief People Officer
Board
Leadership meetings/
conference/divisional reviews
People, Social, Environmental
and Ethics Committee
y
e
v
r
u
s
t
n
e
m
e
g
a
g
n
E
Councils
Sustainability,
Sales,
R&D, Ops,
Procurement
Employee
engagement
per site
e
n
i
l
i
l
p
e
h
g
n
w
o
b
e
l
t
s
h
W
l
i
Site Town
Halls,
including
Q&A
Personal
objectives
and
business
targets
l
k
a
T
T
T
d
r
a
o
B
e
h
t
/
d
r
a
h
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i
i
s
t
i
s
v
e
t
i
s
d
r
a
o
B
/
D
E
N
Employees
52
TT Electronics plc Annual Report and Accounts 2021
Safety and wellbeing
The safety and wellbeing of our teams is
a core value for everyone at TT and we
have in place tools and support systems
that underpin both physical and mental
health in our pursuit of zero harm.
Safety performance is a Group KPI and
has improved significantly over the last
six years. Local safety performance
drives a proportion of management
discretionary incentive payments and
introducing our safety practices is a key
activity when we acquire new sites.
We continue to observe COVID-safe
practices at all of our sites. These
have been constantly reviewed as
the pandemic has evolved and local
guidance has changed, and it is
recognised that wellbeing activities and
mental health support are vital after two
years of restrictions and uncertainty.
We are really proud that our employees
have worked together to keep
themselves, their colleagues and their
communities safe during the many
challenges of the COVID-19 pandemic,
whilst also delivering for our customers.
We were delighted that 16 of our HSE
specialists based in the UK, USA and
China were recognised by The Royal
Society for the Prevention of Accidents
as COVID workplace champions
for keeping clients, colleagues and
communities safe. This recognition
celebrates the contribution of all of our
4,700 employees.
During 2021, we had no site closures
caused by cluster cases of employees
with COVID-19.
Our site HSE (Health, Safety,
Environment) professionals report to
our site general managers with a dotted
line to our VP, Group HSE who leads
progressive HSE programmes and acts
as support for the whole business. We
have global HSE standards and toolkits
and use annual HSE improvement plans
to direct progress at each site.
Within our mature safety framework,
we are now primarily focused on safety
leading indicators and prevention such
as hazard identification, reporting near
misses and behavioural based training.
To support our efforts, we have
developed an analytical safety reporting
tool that provides data on causation
and incorporates an investigation tool
that enables sites to mitigate issues
quickly and, at Group level, guides the
development of resources including
training and communication materials.
Our HSE dashboards are used in a Board
report every month.
Total number of three day
lost-time incidents
5
2021
2020
2019
2018
2017
5
5
4
7
2020: 5
17
Number of sites achieving zero harm
(no three day lost-time incidents)
during the year
28/31*
2020: 26/31
2021
2020
2019
28/31*
26/31
23/28
* Includes sites that were closed during the year.
Site regulatory compliance audits are
performed by an external third party
every three years.
External certification was maintained for
11 sites to ISO 14001 and six to ISO 45001.
We also introduced 15 global minimum
standards based on ISO 45001 and ISO
14001 thinking and will be internally
auditing against these standards.
Safety performance
Safety performance is quantified as the
number of occupational injuries resulting
in three or more days’ absence for an
employee, contractor or site visitor.
This benchmark is applied to all TT
locations worldwide and is more stringent
than the Lost Time Incident (LTI)
requirement for UK reporting which is
seven days absence.
Wellbeing
Looking after our employees’ physical
and mental health is both the right thing
to do and enables team members to do
their best work every day. Engagement
with our purpose and the concept
of meaningful work is important for
wellbeing, as is providing resources
and support for employees who may
be struggling.
At TT we do both and we measure how
employees feel about this as part of our
engagement survey. Specific initiatives
are led by our sites and include mental
health first aiders; a wellness action plan
tool that managers and employees can
use to drive adjustments for people to
be well at work; mindfulness materials
and seminars; vaccination campaigns;
occupational and general health drop
ins; and onsite breast and cervical
cancer screening.
Our Juarez, Mexico site is very proud
to be part of a government-backed
campaign to eradicate gender-based
violence in the workplace. The agreement
is part of the ‘Orange the World’
campaign to eliminate violence against
women and improve the quality of life of
women and their children in the country.
The arrangement will provide advice,
education and support to our employees.
TT Electronics plc Annual Report and Accounts 2021
53
Financial statementsGovernance and Directors' reportStrategic report
Strategic report | Our people, environment and communities
Employee engagement
We truly believe that creating
environments where everyone is
engaged and gets to be their best and do
their best every day is key to the culture
and success of TT Electronics.
great place to work for everyone. We
are pleased to score in line with the two
star “outstanding companies to work
for” Best Companies Ltd benchmark,
with more than 80% of employees
participating in the survey.
Engagement creates a positive
working environment, pride in the
organisation, clarity on the opportunity
for personal and career growth, and an
understanding of individual contribution
to the success of the whole. These
objectives are articulated in our TT
Way values.
We are pleased to have achieved
strong levels of engagement, as
demonstrated by the results of our most
recent employee engagement survey
in October 2021 in which more than
80% of employees participated.
The survey measures how our
employees feel about working for TT,
using a scale of 1 (low) to 7 (high)
against eight factors determined by our
survey partner, Best Companies Ltd.
Eight factors of engagement:
My manager
Leadership
My company
Personal growth
My team
Fair deal
Wellbeing
Giving something back
Our engagement results increased
again year-on-year as a result of work at
all of our sites to respond to employee
feedback and continue to make TT a
Results of the survey drive Group HR
planning and local planning in the
form of targeted action plans created
by line managers in response to their
results. Engagement scores also drive a
proportion of management discretionary
incentive payments.
In addition to the Group-wide survey
which is undertaken every 12-18 months
we use pulse surveys for latest feedback
and an indication of progress.
Communication
As described in the diagram on page
52 we communicate frequently and
openly with employees using a range
of methods. These include weekly
email updates, a quarterly newsletter
celebrating success around the Group
translated into all our global languages,
and twice-yearly Town Halls with
members of the Executive Leadership
Team at our sites.
In November 2021 when travel
restrictions were relaxed, Chief Financial
Officer, Mark Hoad and Chief People
Officer, Sarah Hamilton-Hanna were
delighted to be able to visit two of our
newest US sites – the new facility in
Plano and recently acquired Torotel,
Kansas City – to meet our teams in
person and answer questions.
Development and careers
We continue to invest in the training and
development of our people, equipping
them with the skills to do their jobs
well and further their careers with TT.
Investing in our talent pipeline and
nurturing young talent enables us to
“grow our own” leaders and innovators
and drive expertise and passion across
all disciplines. A key recent area of
investment has been in sales and
business development capability.
Our line managers hold regular career
conversations with direct reports
and create personal performance
development plans that align with wider
site/division/Group objectives. We use
a five-point performance scale to guide
performance conversations and give
clarity to employees.
During 2021 we continued to hold
leadership development workshops
and find new talent through our
apprenticeship and intern programmes.
In the UK we have apprentices in
engineering, maintenance, operations,
finance and business administration.
Our US Summer 2021 InTTernship
programme led to the recruitment of six
graduate engineers.
At the beginning of 2022 we launched
a UK graduate programme which will
give participant trainees the opportunity
to work across three of our sites –
Bedlington, Hartlepool and Cardiff –
and gain a range of experience.
Growing our own talent
TT’s intern, apprentice and graduate programmes enable us
to find and nurture young talent to provide the critical skills our
business needs.
Our Summer InTTernship programme for US graduates went from
strength to strength in 2021 when we hired 14 students in roles
covering a range of disciplines including HR, lean engineering,
manufacturing engineering, design engineering and supply chain.
At the end of the Summer, we extended job offers to seven of the
interns and we were delighted to have six join us in permanent roles
at our sites in Minneapolis, Kansas City and Covina.
We are now actively recruiting for 18 intern positions in 2022 and
the programme has been extended to roles in marketing and
finance as well as operational positions. Our marketing teams have
been very involved in promoting the programme including through
an internship page on the TT website and resources on LinkedIn.
Students that accept the offer will also enjoy a special TT swag bag
delivered to them at college.
54
TT Electronics plc Annual Report and Accounts 2021
Equality, diversity and inclusion
We have discovered a real passion for
ED&I matters in recent years as a driver
of employee engagement and talent
acquisition and retention.
We believe that everyone should be
treated fairly and have access to equal
opportunities in a workplace that is
tolerant, respectful and ensures dignity
for all. As set out in our employment
policies, no employee, applicant,
contractor or temporary worker should
be treated less favourably or victimised
or harassed on the grounds of disability,
sex, marital or civil partnership status,
race, nationality, colour, ethnicity, religion
or similar philosophical belief, sexual
orientation, gender identity, age or any
other distinction other than merit.
Our ED&I strategy is led by a special
committee and divisional working
groups and we now have ED&I Councils
at many sites. Our new ED&I policy and
roadmap which sets out our approach
to ED&I and expected behaviour has
been circulated to employees and we
report progress through our usual
communication channels.
The policy explains our approach
to equality, diversity and inclusion
including such matters as
harassment, victimisation and bullying,
recruitment and promotion, religious
accommodations, gender confirmation
and workplace adjustments; the
expected standards for employees and
their responsibilities; and how we will
deal with infringements of the policy.
Recent areas of progress include more
inclusive hiring practices using balanced
shortlists and diverse panels; ensuring
no bias in job descriptions; a new flexible
working policy; and the introduction of
an enhanced maternity leave policy. We
have also created a gender transition
guide for managers to help them support
employees who are transitioning and
ensure they feel supported and safe in
the workplace. We also held workshops
in micro-aggressions, allyship and
inclusive language at some of our sites.
Our sites are encouraged to hold ED&I
events appropriate for their locations.
2021 saw an active Pride Month at
many sites, recognition of International
Day of Persons with Disabilities, and
the celebration of Black History Month,
which included a very popular and
humbling creative poetry competition
in the US. Many of our sites held
celebrations for International Women’s
Day in March.
ED&I training will be rolled out to all
employees in 2022 and we will build on
our progress with practical activities
such as Inclusive Leadership workshops
for managers as well as exploring how
we might best implement and measure
progress against ED&I-related KPIs.
Gender diversity
We are pleased to have two female
Board members and one female
member on our ELT team of five and,
in total, we have more female than male
employees. We are keen to see more
women in leadership roles and, to this
end, have recently launched a Leadership
Programme for women, which includes
joint workshops with senior male leaders
as well as mentoring and advocacy.
Our Women’s Business Forum, launched
in 2019, continues to support female
leaders in the business.
Gender diversity at 31 December 2021
Employees – full-time equivalents
Male
Female
Board of Directors
Executive Leadership Team (ELT)
Senior managers (ex-ELT)*
All employees:
UK and Europe
USA
Mexico and Caribbean
Asia
Total
4
4
71
758
389
505
564
2,216
2
1
14
390
312
672
1,147
2,521
Our UK Gender Pay Gap report is published annually on the TT website.
* Senior managers (ex-ELT) includes TT’s Group senior leaders, our divisional and functional leadership teams, and
Directors of subsidiary Companies.
Reward and recognition
Being fairly rewarded and having
contributions recognised is very
important to our employees.
Our Be Inspired recognition scheme
recognises teams and individuals who
demonstrate our TT Way values with
monthly, quarterly and annual awards.
Participation in the awards is high, driven
by the desire of our teams to recognise
their colleagues. Our awards attracted
nearly 2,300 nominations in 2021, with
each winner receiving a sum of money
and a site celebration.
Siti Nur Fadzrin Binti Ramli, Production
Design Engineer, Power Solutions,
Kuantan, Malaysia was recognised
in our Be Inspired scheme for playing
a big part in the site winning a
transformer manufacturing contract
with a new customer.
Over and above salary we ensure that all
employees are able to participate in site
specific pay-for-performance schemes,
be it site profit share schemes or
annual incentive schemes and we have a
Group SAYE scheme for UK employees.
Metrics for performance-based
schemes are usually based around profit
and customer service.
Footprint reduction
Our formal self-help footprint and fixed
cost reduction programme will be
completed in 2022. Regrettably the
programme meant the loss of some
employees as sites were closed and
activities transferred. Whilst closing
sites is difficult for those impacted and
their communities, we are proud of the
support we have offered to ensure our
employees could continue their careers
elsewhere. The “Life after Lutterworth”
programme of employee support and
assistance during a site closure has
become a blueprint for us to use across
the Group.
TT Electronics plc Annual Report and Accounts 2021
55
Financial statementsGovernance and Directors' reportStrategic report Strategic report | Our people, environment and communities
ENVIRONMENT AND COMMUNITIES
AMBITIOUS
TARGETS
Understanding and managing the impact of our business
operations on the environment and our local communities is
an important part of the way we do business. We are making
excellent headway with our ambitious commitment to achieving
Net Zero Scope 1 & 2 emissions by 2035 and are achieving good
momentum in our other environmental focus areas.
Having been a local employer for many years at many of our sites,
our teams are keen supporters of creating social value in their
communities and encouraging more people into STEM education
and careers.
During 2021 we developed a roadmap
to achieve Net Zero Scope 1 & 2
emissions by 2035. Reducing emissions
from 2022 will require investment in
a range of project types or a change
in local government approaches to
provide renewables in Mexico, China
and Malaysia. We will be launching a
new Sustainability policy in 2022.
Our self-help footprint reduction
programme is also making a
contribution to reducing overall
energy use and emissions.
Safe operation of our sites
Safely operating our sites to mitigate
potential environmental risk is
embedded into our processes. Risk
assessments are undertaken as part
of the normal course of business and
we have clear processes for the control
of potentially hazardous substances,
including safe storage, handling, use
and disposal. Many of our sites have ISO
14001 accreditation for environmental
management. This is independently
assessed on a regular basis as well as
through internal environmental audits.
We comply with all global environmental
legislation and, where required, have
the appropriate permit controls in
place. All sites also have environmental
emergency containment plans to deal
with incidents should they occur.
Environment
We are focused on change and investment projects in the areas which will have the most material impact on our environmental
footprint. For this reason, we are prioritising the following areas:
The safe operation of
our sites to ensure no
environmental damage
from leaks, hazardous
materials etc.
Reducing energy use
(primarily electricity, the
largest component of our
energy use) through more
efficient operating processes,
equipment and infrastructure.
Switching to clean and lower
or zero carbon external
electricity sources.
Investing in alternative
renewable electricity
solutions where renewable
tariffs are not possible.
Finding solutions for
other energy types, e.g.
gas heating.
Reducing significant indirect
emissions (Scope 3).
Reducing use of single-use
plastics.
Reducing waste to landfill.
56
TT Electronics plc Annual Report and Accounts 2021
Renewable electricity
We have now switched 11 manufacturing
sites to renewable electricity. Our sites in
Mexico, China and Malaysia do not have
access to these tariffs and will require
investment in alternative solutions. In
2022 we will undertake feasibility studies
for onsite solar projects.
Site environmental action plans
During 2021, each of our sites was
tasked with preparing a detailed list
of potential projects with deliverables
aligned with our Group environmental
strategy. These were reviewed centrally,
and 12 key themes emerged:
Our key themes
Lighting
Further roll-out of LED
lighting
EV charging
EV charging for company
and employee cars
Waste electricity
Eliminating wasted
electricity, e.g. stopping air
leaks
Shift patterns
Managing shift patterns
New machines
Replacing inefficient
legacy equipment
Recycling
Increasing recycling
Building space
Reorganising space to
save heating/lighting
Employee incentives
Employee incentives
Gas boilers/heaters
Solutions to replace gas
heating systems
Sub-metering
Packaging
Eliminating single use
plastic packaging and
increasing recyclable/
reusable packaging
Compressors
Replacement of
compressors
Sites have gone on to create action
plans to achieve many of their proposed
projects, with knowledge on the various
themes being shared across the
Group via the Sustainability Council.
Themes that will benefit from a Group
approach, for example sub-metering,
are being turned into workstreams for
further development.
2021 reduction in Scope 1 & 2
emissions
vs 2020 vs 2019
2021 reduction in Scope
1 & 2 emissions tCO2e
Intensity ratio tCO2e/£m
revenue
25%
41%
32%
41%
Completed site carbon reduction
projects include:
Building space
Suzhou, China – a
new ceiling in the site’s
Integration II workshop
will reduce energy use
by around 10% due to
a reduction in lighting,
heating, ventilation and air
conditioning requirements.
Waste electricity
Juárez, Mexico –
compressed air leaks
are the largest source of
waste in multi-compressor
systems and can account
for up to 30% of an
installed air compressor’s
energy consumption. The
site is now using a special
ultrasonic camera
to detect these air leaks
which will reduce the site’s
energy bills.
EV charging
Sheffield, UK – a new
vehicle charging point has
been installed for use by
employees changing to
electric vehicles.
The primary drivers of our Scope 1 & 2
emissions reductions in 2021 were:
– the move to green electricity tariffs
at all but one of our UK sites in
October 2020;
– local site energy saving projects and
capital investment in energy efficiency
including lighting and controls and
installation of new heating/cooling
systems; and
– the closure of four sites during the year.
Our US sites switched to green electricity
tariffs in 2021 and this will drive
reductions in 2022.
Scope 3 emissions
During 2021 we undertook an
assessment of 15 Scope 3 (indirect
emissions) categories to identify those
that were relevant and most significant
for TT. We are now putting in place
systems and processes to collect data
on the four most significant categories
to establish baselines on which to base
future reduction targets, including a plan
to reach Net Zero. These categories are:
– Purchased goods and services
(category 1)
– Upstream transportation and
distribution (category 4)
– Downstream transportation and
distribution (category 9)
– Waste generated in operations
(category 5)
Further consideration will be given in
2022 to five more categories: capital
goods (category 2), business travel
(category 6), employee commuting
(category 7), use of sold products
(category 11), and end of life treatment
of sold products (category 12).
Work on our Scope 3 emissions will see
us engaging with a range of stakeholders
including suppliers, customers, external
specialists and a third-party assessor
to validate the data. As noted above,
we have already agreed to partner with
CDP on the supply chain element of
these emissions.
TT Electronics plc Annual Report and Accounts 2021
57
Financial statementsGovernance and Directors' reportStrategic report Strategic report | Our people, environment and communities
Waste to landfill
We are also reducing our waste to landfill
by reducing overall waste and increasing
the amount we recycle. The majority of
sites are now segregating their waste
streams to increase the amount of
waste that can be recycled, including
cardboard, paper, metal, hazardous
waste, wood and plastic. More than
59% of waste from the 16 sites that are
tracking data was recycled in 2021. Our
intention is to reduce like-for-like weight
annually. We are delighted that three
of our manufacturing sites are already
sending zero waste to landfill.
Single-use plastics
We are reducing our reliance on single-
use plastics and replacing them with
more sustainable products. The majority
of single-use plastics in our business
are used in packaging products for
shipment to customers and, working
with customers, sites are switching to
recyclable bubble wrap, pallet wrap and
other packaging materials. We do not
purchase single-use plastic bottles at
any of our sites.
In 2020 we began sharing best practice
around the Group and key sites began
reporting the quantity of single-use
plastics purchased, with the intention
of reducing like-for-like weight annually.
On a like-for-like site comparison we
saw a 16% fall in the weight of single-
use plastics purchased in 2021 vs
2020. We are now focused on ensuring
that all sites are reporting this data
going forward.
Water
While water use is not a key driver of our
environmental footprint, we recognise
that water is a precious global resource
and should be managed as such. We
therefore monitor our water use and
seek to minimise it wherever possible,
as well as directing wastewater to useful
activities such as irrigation.
Total water use m3
104,024 130,760
2021
2020
Energy use and Scope 1 & 2 emissions reporting
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 manufacturing
processes are not included within
these figures as they are a negligible
proportion of overall emissions, but we
intend to measure these as we move
forward. 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.
For Scope 1 emissions, we include our
total owned and leased vehicle direct
emission impact. Our carbon emission
factors for grid electricity are calculated
according to the “market-based method”.
We have improved the precision of our
2019-21 Scope 1 & 2 carbon emissions
data by using regional emissions factors
rather than an emissions factor for the
UK. This has led to a change in the data
disclosed in 2019 and 2020.
Scope 1
Emissions from activities which the Group owns
or controls, including the combustion of fuel and
operation of facilities
Scope 2
Emissions from the purchase of electricity, heat,
steam and cooling for own use
Total gross Scope 1 & 2 emissions
Revenue £m
Intensity ratio: gross Scope 1 & 2 tCO2e/£m
revenue
2021 tCO2e
2020 tCO2e
2019 tCO2e
Previously
955
Previously
14,785
15,740
476.2
1,259
1,259
11,259
19,616
20,875
431.8
770
1,479
14,935
25,178
26,657
478.2
33.1
48.3
55.7
Acquisitions are currently included in emissions data from the January after the acquisition is completed. Our global
reporting tool has enabled us to improve the consistency and reliability of our data as we move forward and, from
2022, we will report emissions data for acquisitions from the point of acquisition.
2021 energy use and Scope 1 & 2 emissions by source
and by geography
United
Kingdom
2,518
412
236
13,083
16,249
564
50
614
100.2
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)
Total Scope 1 & 2
emissions (tonnes CO2e)
Revenue (£million)
Intensity ratio: Scope 1
& 2 tCO2e/£m revenue
Rest of
Europe
North
America
1,592
Asia
–
–
1
–
15
16
–
–
–
78.6
35
370
22,039
10,798
5,640
–
29,306
11,168
300
90
8,932
5,802
9,232
182.7
5,892
113.3
Rest of
World
–
–
5
–
5
–
1
1
Total
4,110
818
33,078
18,738
56,744
955
14,785
15,740
1.4
476.2
6.1
–
50.5
52.0
0.9
33.1
In 2021 the UK was responsible for 28.6% of Group energy use and 3.9% of Scope 1
& 2 emissions.
58
TT Electronics plc Annual Report and Accounts 2021
Task Force on Climate-Related Financial Disclosures
TT currently considers climate-related
risk to be financially immaterial in
the context of the Company’s overall
financial statements.
TT has complied with the requirements
of LR 9.8.6R by including climate-
related financial disclosures consistent
with the TCFD recommendations and
recommended disclosures, except
for in relation to the recommendation
to describe the resilience of the
organisation’s strategy, taking into
consideration different climate-related
scenarios, including a 2°C or lower
scenario. A full scenario analysis has not
yet been undertaken.
These disclosures are summarised with
directions to the relevant content in this
Annual Report in the table below.
Additional climate risk scenario analysis
is planned to be undertaken during 2022.
Should this prompt additional climate-
related disclosures, these will be made in
the Company’s 2022 Annual Report.
Recommendation
2021 status
a. Describe the Board’s
• Climate and other ESG-related matters including strategy,
Governance
Disclose the
organisation’s
governance
around climate-
related risks and
opportunities.
oversight of climate-related
risks and opportunities.
b. Describe management’s
role in assessing and
managing climate-related
risks and opportunities.
Further action
in 2022
The Group’s governance
framework for climate-
related risk will continue to
operate as described.
• ESG and sustainability
matters will continue
to be an important
part of the Group’s
business model and
strategy, which includes
a focus on capturing the
opportunities from the
transition to a low-carbon
economy.
• Our upcoming 2022
annual strategic planning
process will consider
climate-related impacts
on each of our divisional
strategies, which will then
be incorporated into our
existing risk assessment
process.
See our risk management
process on page 64
compliance, risk and internal controls are governed as part of our
overall governance and risk management frameworks, ultimately
overseen by the Board.
See our governance structure on page 75
See our risk management process on page 64
• An update on key environmental (including sustainability) metrics
is provided at each Board meeting and in-depth reviews are
undertaken on at least an annual basis.
• Oversight of and decision-making on our environmental strategy,
including addressing risk and identifying Group opportunities is
provided by our People, Social, Environmental and Ethics (PSEE)
Committee which is chaired by our CEO. The Committee is
advised by our Sustainability Council.
See page 51 for detail on the PSEE Committee and
Sustainability Council
• Opportunities relating to climate change are identified as part of our
usual strategic planning processes and are reviewed by the Board.
• In 2021, in addition to our usual risk management processes,
the Board considered a Group climate risk and opportunities
assessment.
See page 51
• Sustainability, climate change and the environment is considered
to be a principal risk for the Group in reputation terms in the event
that we fail to appropriately manage the environmental impact
of our operations and our products and relationships with our
stakeholders deteriorate as a result.
• The Group has taken a range of short- and long-term actions to
mitigate this risk.
See Our people, environment and communities from page 46
See Principal risks and uncertainties on page 67
• We consider our strategy to be resilient. The Group’s purpose
is to solve technology challenges for a sustainable world. Our
business model, key capabilities and cleaner, smarter, healthier
focus position the Group to benefit from the opportunities
presented by the global transition to a low-carbon economy.
See Our business model on page 14
See Our markets on page 16
• Integrating ESG and sustainability matters into decision-making
and business practices is also one of our four strategic priorities.
This includes managing the Group’s impact on the environment.
See Our strategy on page 28
• Our 2021 Group climate risk and opportunities assessment
considered how the Group was approaching opportunities both
in its current markets and the opportunity to expand into the
broader sustainable products marketplace.
See Climate risk and opportunities on page 51
TT Electronics plc Annual Report and Accounts 2021
59
Strategy
Disclose the
actual and
potential
impacts of
climate-related
risks and
opportunities
on the
organisation’s
businesses,
strategy,
and financial
planning
where such
information is
material.
a. Describe the climate-related
risks and opportunities the
organisation has identified
over the short, medium and
long term.
b. Describe the impact of climate-
related risks and opportunities
on the organisation’s
businesses, strategy and
financial planning.
c. Describe the resilience of
the organisation’s strategy.
Taking into consideration
different climate-related
scenarios, including a 2°C
or lower scenario.
Financial statementsGovernance and Directors' reportStrategic report
Strategic report | Our people, environment and communities
Recommendation
2021 status
Risk
management
Disclose
how the
organisation
identifies,
assesses,
and manages
climate-related
risks.
a. Describe the organisation’s
processes for identifying and
assessing climate-related risks.
b. Describe the organisation’s
processes for managing
climate-related risks.
c. Describe how processes for
identifying, assessing, and
managing climate-related
risks are integrated into
the organisation’s overall
risk management.
• Climate-related risks are identified, assessed and managed
as part of our overall governance and risk management
frameworks.
See our risk management process on page 64
See Principal risks and uncertainties on page 67
• Our 2021 Group climate risk and opportunities assessment
was informed by bottom-up assessments made at a site and
divisional level. The assessment looked at both physical and
transitional risks to the Group’s business model and considered
likelihood, impact and materiality.
See Climate risk and opportunities on page 51
Metrics and
targets
Disclose the
metrics and
targets used
to assess
and manage
relevant
climate-related
risks and
opportunities
where the
information
is material.
a. Disclose the metrics used
by the organisation to
assess climate-related risks
and opportunities in line
with its strategy and risk
management processes.
b. Disclose Scope 1, Scope 2
and, if appropriate, Scope
3 GHG emissions, and the
related risks.
c. Describe the targets used by
the organisation to manage
climate-related risks and
opportunities and performance
against targets.
• The Group does not use specific metrics in relation to climate-
related risk over and above our standard metrics used for risk
management and business planning purposes.
• The Group’s principal risks are identified as those that may have
an impact on achievement of the Group’s strategic objectives
within the next six to twelve months.
See our risk management process on page 64
• The 2021 Group climate risk and opportunities assessment
considered physical and transitional risks on the basis of
likelihood, impact and materiality in the medium term.
See Climate risk and opportunities on page 51
• Scope 1 & 2 GHG emissions are disclosed. GHG emissions have
been a KPI since 2020.
See Energy use and Scope 1 & 2 emissions reporting on page 58
• In 2021 the Group set a target to achieve Net Zero Scope 1 & 2
emissions by 2035 and will invest appropriately to achieve it.
• A short-term target has been set for 2023.
• Each of our sites has prepared an environmental action plan
with deliverables aligned with the Group’s overall environmental
strategy.
See Our people, environment and communities from page 46
See Site environmental action plans on page 57
• In 2021 the Group undertook an assessment of 15 Scope 3
emissions categories to identify which were the most relevant
and significant.
See Scope 3 emissions on page 57
Further action
in 2022
• Climate-related risks will
continue to be identified,
assessed, and managed
as part of the Group’s
overall governance
and risk management
frameworks.
• The materiality of the
physical and transition
risks identified in the
2021 Group climate
risk and opportunities
assessment will be
assessed further and in
more depth through a
detailed scenario analysis,
looking at short-, medium-
and long-term time
frames and alternative
temperature scenarios.
• Should this prompt
additional climate-related
disclosures, these will be
made in the Company’s
2022 Annual Report.
• To ensure transparency
in our disclosures and
progress in 2022 we
will undertake a formal
internal audit of our Scope
1 & 2 data collection
priorities and controls
and will begin collecting
data on other greenhouse
gases.
• We will formalise our
anticipated roadmap to
Net Zero Scope 1 & 2
emissions by 2035.
• We will put in place
systems and processes
to collect data on our
assessment of our
four most significant
categories of Scope 3
emissions to establish
baselines on which to
base future reduction
targets, including a plan to
reach Net Zero.
• Consideration will be
given to metrics and
targets for a further five
Scope 3 categories.
See Scope 3 emissions
on page 57
60
TT Electronics plc Annual Report and Accounts 2021
Communities
We encourage our teams to take an
active role in their local communities,
whether fundraising and volunteering for
chosen charities or committing time and
resources to promoting STEM education
and careers.
STEM skills
STEM skills are in high demand, and
this will only grow in the future. Our
teams of engineering, technology and
manufacturing experts are passionate
advocates for the development of
STEM skills and engaging with the next
generation of potential talent.
Many of our employees give up their
time to develop local STEM partnerships
to promote careers in electronics
and related fields, undertaking talks,
demonstrations and attending careers
fairs to interest and educate young
people in the sector. Across the world
we also aid school curriculums directly
by supporting science projects and
engineering competitions to highlight
the importance of STEM subjects in
everyday life.
In line with our internal focus on ED&I we
are particularly keen to encourage more
women and under-represented groups to
take up STEM subjects and careers.
What we did
In October 2021 five Minneapolis colleagues
took time out to deliver presentations to around
160 STEM students at a local secondary
school. As well as an overview of our business
they discussed engineering careers and shared
advice on what the students should work on to
best prepare themselves for the future.
Number of STEM students
participating
160
Volunteering and charitable giving
Each site chooses a local charity to
support through the year and our
“Hours for giving” programme enables
employees to take five hours paid leave
per year to support local causes. In 2021
nearly 3,000 hours were taken under the
programme.
It is TT’s policy not to make political
donations.
What we did
At the beginning of 2021 Bedlington accounts
team member Doreen Blunt, volunteered
to support the UK COVID-19 vaccination
programme by assisting 70- and 80-year-old
patients unable to register for their vaccine
online. Doreen ensured the patients knew the
process and could access vaccinations as soon
as they became available.
In May, members of our Suzhou, China team
took part in a charity walk and raised RMB
17,000 (£2,040) for Suzhou Little Red Cap,
a local children’s home.
RMB raised
17k
In July, Juarez, Mexico, Quality Engineer
Benjamin de la Rosa, collected and donated
126 bikes to children from the Tarahumara
Indigenous community to enable them to cycle
to school instead of walking several kilometres.
Before donating the bikes, Benjamin and the
team repaired them to ensure they were all in
good working order.
Bikes repaired and donated
126
In October 2021 a team from our Sheffield, UK,
site took part in the Great British Beach Clean,
spending two hours collecting litter from a local
beach and the surrounding area.
Human rights
Upholding human rights is the
responsibility of everyone at TT and, as
part of our ethics framework, human
rights are treated as an equal priority
to other business issues. Our Human
Rights Code is taken from the industry
standard (Responsible Business Alliance
Code of Conduct) and covers expected
standards for the treatment of all
workers associated with TT. The Code is
supported by our Modern Slavery Policy
(see below).
Modern slavery
We procure from a wide network of
suppliers and distributors through
global supply chains. It is recognised
that the rights of individual workers
can, potentially, be violated within these
supply chains and other partnerships.
Our Corporate and Social
Responsibilities – Supplier Expectations
policy sets out our required standard of
suppliers and includes modern slavery.
We also have a Modern Slavery Policy
which is available on our website and
applies to all persons working for TT and
its subsidiaries or acting on its behalf in
any capacity.
Our approach to addressing the
challenge of modern slavery is to
ensure that there is transparency in
our own business and throughout our
supply chains. We expect the same
high standards from all our contractors,
suppliers, distributors and other business
partners, consistent with our obligations
under the Modern Slavery Act 2015.
We include specific prohibitions in our
contracting processes against the use of
forced, compulsory or trafficked labour,
or any other activity that amounts to
an unreasonable restriction on the free
movement of workers, and we expect
that our suppliers will hold their own
suppliers to the same high standards.
We may terminate our relationship with
any third party if they are found to be in
breach of this policy.
We also publish a Modern Slavery
Statement annually, which is available
on our website.
TT Electronics plc Annual Report and Accounts 2021
61
Financial statementsGovernance and Directors' reportStrategic report Strategic report | Section 172 statement
SECTION 172
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, whilst having regard to the factors set out in Section 172 including the interests of our other stakeholders.
The Board has identified who its key stakeholders are and has considered how it engages with these groups (see pages 44 to 45).
Throughout the year, the Board considered how stakeholders are affected by key decisions.
The principal decisions taken by the Board in 2021 centred around: (i) M&A/integration, (ii) Site rationalisation, (iii) US Private
Placement transaction; (iv) managing TT’s response to the COVID-19 pandemic, including supply chain challenges; (v) delivering
2021 growth; (vi) further refinement of the Strategic Growth Plan, (vii) development of an enhanced equity/IR story; (viii) creating
a new organisational design structure; (ix) strong sustainability/ESG focus; (x) enhancing TT’s ED&I position; and (xi) pension
risk mitigation.
The following example shows how the Board considered and engaged with stakeholders during the integration of Torotel, Inc
(Torotel) into the Group.
Workstream 1: Rapid integration of Torotel into the Group
A. Why?
• To support delivery of the
business case timeline.
• To ensure the retention of key
talent/engineering capability
within the Group.
• To ensure that Torotel staff
immediately became part of
the TT family.
• To maximise/accelerate cross-
business sales and technology
transfer opportunities.
• To mitigate any loss of value
from Torotel as a newly
acquired entity following the
COVID-19 outbreak.
• To ensure the long-term success
of the acquired business.
D. Outcomes
• The formal integration
programme was successfully
completed within a three-
month period, with certain
activities targeted for expedited
implementation post-closing.
• Employee Terms & Conditions
were amended, where
required, to align with TT
remuneration structures.
• Signage at Torotel facilities
was changed to include the
TT Electronics logo on Day 1 of
operations post-acquisition to
help drive cultural change.
B. Stakeholders involved:
C. Board decisions taken as
employees
• Senior Torotel employees
became an integral part of
the TT integration team from
the outset.
• Key engagement and culture-
based activities were planned
pre-closing; TT Electronics
Group policies (HR, compliance,
ethics etc.) were rolled out
within 30 days of closing.
• TT’s main communication
platforms were made available
to Torotel staff within the
same timescale, including
TT Talk (the weekly pan-TT
news platform), BE TT (the
behaviours and training portal)
and BE Inspired (TT’s rewards
and recognition system) to
promote cultural engagement.
• Members of the ELT visited
the Torotel site in November
2021, once COVID-19 travel
restrictions to the US had been
lifted, which included a Town
Hall session with staff.
a result
• A dedicated senior project
manager was appointed to lead
the integration programme.
Following completion of the
project they were appointed
as TT North American
Operations Director, to promote
lessons learned across TT’s
three divisions.
• A multi-disciplinary TT/Torotel
project integration team was
established to monitor progress
on key activities (financial, HR,
IT, legal/compliance etc.) against
aggressive timelines, with specific
priority actions reviewed on a
weekly basis.
• A twice-monthly acquisition
review exercise was conducted
involving the CEO, CFO, EVP
Corporate Development and
key divisional personnel for the
Power and Connectivity division,
including the integration project
lead, using a standard integration
reporting pack.
• A feedback loop was established
to the ELT on a monthly basis,
and Board at each scheduled
meeting, to allow monitoring of
key initiatives, including HR.
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TT Electronics plc Annual Report and Accounts 2021
Section 172 Statement
Workstream 2: Customer/supplier/site footprint focus
A. Why?
• To ensure the retention of the
Torotel customer and supplier
base post-acquisition.
• To promote the cross-selling of
Torotel technologies into TT’s
existing customer base.
• To promote the cross-selling
of TT technologies into Torotel’s
existing customer base.
• To optimise the customer
cost profile and
technological reach across
the combined businesses.
• To ensure the long-
term success of the
acquired business.
B. Stakeholders involved:
customers/suppliers
• Priority customers/suppliers
were identified from the due
diligence process conducted
pre-acquisition.
• Early engagement with
customers/suppliers became
a key part of the integration
plan in order to reinforce
TT’s customer commitment,
understand the operational
dynamics at Torotel, and identify
cross-selling opportunities.
• Immediate and longer-
term supplier cost savings
opportunities were
identified from the initial
due diligence exercise.
C. Board decisions taken as
a result
• The Board reviewed a technology
roadmap for TT’s power solutions
capabilities in January 2021
and prioritised key capability
areas, including electromagnetic
expertise acquired with Torotel.
• In H1 2021, the Board identified
opportunities to combine the
facilities and operations of the
two acquisitions completed in
2020 (i.e. Torotel and the power
supply business located in Covina,
California) and authorised the sale
process for the Covina site.
• The Board subsequently
authorised the transfer of TT’s
Covina operations to Torotel’s
Kansas facility to promote
the long-term success of the
business, which involved close
consultation with both Torotel
and Covina employees.
Workstream 3: Compliance/IR focus
A. Why?
• To ensure that regulatory issues
did not become an impediment
to the rapid integration of
Torotel into the wider Group
post-acquisition.
• To ensure the investor/analyst
community understood the
benefits delivered from the
Torotel acquisition and the
progress made in delivering the
business case following the
2020 equity raise.
• To ensure an effective
framework for regulatory
compliance is in place.
• To maintain high standards
of business conduct.
B. Stakeholders involved:
C. Board decisions taken as
shareholders/
regulators
• US regulators, such as the
Securities and Exchange
Commission (SEC), which was
the governing regulatory body
for Torotel pre-acquisition and
Directorate of Defense Trade
Controls (DDTC).
• Institutional investors and
analysts have been regularly
updated on the progress
made in the Torotel integration
programme as part of the
twice-yearly reporting round
and one-on-one IR sessions
throughout 2021.
a result
• The Board prioritised early
engagement with US regulators to
ensure that regulatory factors did
not become a gating item in the
Torotel integration plan.
• As part of the heightened focus
on the TT IR strategy in 2021, the
Board prioritised the positioning of
TT’s power solutions capabilities
with investors, including the
benefits derived from the
Torotel acquisition.
D. Outcomes
• Torotel was able to secure a
significant new contract win in
2021 in the harness assembly
space, which aligned with the
acquisition case and technology
roadmap for the combined
businesses and TT’s desire to
create a new centre of excellence
for this technology application
in Kansas.
• Torotel was able to leverage
improved supplier terms,
previously only available to TT,
including reduced freight costs.
• The Covina facility was sold at
a price of $8.55 million in June
2021, which included a leaseback
arrangement allowing continued
occupation at the site until June
2022. These sale proceeds
have been reinvested in future
growth opportunities.
• A detailed project plan has been
developed for the transfer of
operations from Covina into
Kansas to provide a dedicated,
single site solution in the US
for customers operating in the
power solutions domain. The
transfer process to Kansas
remains on track to conclude
by the end of H1 2022, which is
focused on increased investment
at the facility and the creation
of enhanced opportunities
for employees.
D. Outcomes
• Key regulatory workstream items,
including the deregistration of
Torotel as an SEC-listed company
and bringing Torotel into the TT
export controls group, through
engagement with the DDTC,
were rapidly concluded.
• The successful delivery of the
Torotel acquisition and the rapid
delivery of the business case/
synergies gave the Executive
Leadership Team credibility to
pursue further M&A opportunities.
• The transaction provides the
ability to showcase the acquired
business from an IR perspective
and reinforces cross-selling
opportunities with other parts
of the Group.
• The acquisition supports profit
enhancement towards the
Group target of 10%+ operating
margin levels.
TT Electronics plc Annual Report and Accounts 2021
63
Financial statementsGovernance and Directors' reportStrategic report Strategic report | Risk management
RISK MANAGEMENT
FOR THE
SUCCESSFUL
DELIVERY OF
OUR STRATEGY
During the course of the year risk
appetite has been considered using a
review of the overall Group risk heatmap,
with deep dives into specific risks and
topic areas. Each risk is considered as to
whether or not it currently falls within the
Group’s appetite for that risk.
As part of the year-end risk assessment
with the Board, it was confirmed that
all of the principal risk areas continue
to be within Board and Executive
management’s appetite for that risk.
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) and the Audit
Committee. 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 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.
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TT Electronics plc Annual Report and Accounts 2021
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
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 the ESG agenda which has been
reported to the Board through our
People, Social, Environmental and Ethics
Committee (PSEE) which is attended by
the Senior Independent Director. There
continues to be a 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. The risks in relation to
these areas are captured in two principal
risks, “sustainability, climate change and
the environment” and “health and safety”.
We have set out our approach and
our progress in these areas in the Our
people, environment and communities
section of this report from page 46.
The Board monitors the Company’s
internal control systems and has
reviewed their effectiveness in 2021.
The review process considered all
material controls including, (i) the
information relating to the general
controls environment as outlined in
the Internal Audit reports submitted to
the Audit Committee at each meeting
(which includes a detailed annual review
exercise); (ii) financial controls; (iii)
compliance controls; (iv) the key outputs
of the controls framework programme;
and (v) management actions in relation
to internal and external audit findings.
The Board found that the Group operates
a sound system of internal control and
did not recommend any specific actions.
Macroeconomic environment and supply chain
While there is an acknowledgement
of continued uncertainty around
geopolitical and macroeconomic
risk during 2021 and into 2022, the
Group continues to take appropriate
mitigating actions to address this. The
ongoing focus on strategic direction
and market has significantly improved
the Group’s overall resilience to these
external factors.
The Group has experienced a number
of challenges in relation to supply chain
lead times, component shortages and
costs, and mitigating this has been
a significant focus for all divisions in
2021. A robust process and controls
environment, alongside forward-looking
indicators and supply chain tools, has
supported this process. The Group
has also taken strategic decisions to
purchase additional materials, building
inventory in certain key areas to enable
delivery against a strong customer
order book.
TT Electronics plc Annual Report and Accounts 2021
65
Financial statementsGovernance and Directors' reportStrategic report Strategic report | Risk management
Impact of COVID-19
The COVID-19 outbreak continued to
impact every site across the world during
the course of 2021. However, because of
the action taken by the Group, the overall
impact at a site level has continued to
be minimised. A set of COVID-secure
working practices is 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 2022.
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 2024, taking into account
the Group’s current position and the
potential impact of the principal risks
and uncertainties set out on pages 67
to 70 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 2024.
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 & defence, and automation
& 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 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 alongside our ability to
obtain a private placement post-COVID
at a competitive rate) that the Group will
be able to refinance its existing facility
agreements on materially equivalent
terms in advance of the maturity date
of November 2023.
The Group’s refinancing risk has been
reduced by diversifying our sources of
debt financing. In December 2021 the
Group accessed £75 million of long-term
private placement debt.
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 2024.
This is encapsulated in the five-year
period business plan prepared annually
and reviewed by the Board and aligns
with the business cycle including
product development and order intake
trends. 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.
66
TT Electronics plc Annual Report and Accounts 2021
This severe but plausible events stress
testing included consideration of the
potential impact of the Group’s principal
risks and uncertainties outlined on
pages 67 to 70. 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.
PRINCIPAL
RISKS AND
UNCERTAINTIES
Risk description
Potential impact
Mitigating action
Change in the year
General
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
Commercial
Contractual risks
Potential liabilities from
defects in performance-
critical products
that often operate in
extreme environments
• Reputational impact
• Deterioration in
customer relationships
• Liability claims
• Reduction in revenue,
profitability and cash
generation
Reduced risk – whilst there
remains some market
volatility (particularly
around the supply chain)
and COVID-19 continues to
create some uncertainty,
the business has performed
well in the year, showing
good growth and starting
2022 with a strong order
book in place.
No change
• 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
• 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
• Continuing to enhance
and deepen expertise in
contract management
across the Group
TT Electronics plc Annual Report and Accounts 2021
67
Financial statementsGovernance and Directors' reportStrategic report Strategic report | Risk management
Risk description
Potential impact
Mitigating action
Change in the year
• Increased cost in product
• Close collaboration with key
development
customers
• Delay in achieving projected
• Active monitoring of costs
No change
revenue
• Inability to meet the latest
requirements due to a step
change in technology
and milestones
• Target R&D more effectively
• Implementation of standard
project management
disciplines
Commercial
Research and development
Delay in new product
development which is
intended to support
revenue growth
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
• 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
to encourage regular
objectives and performance
discussions. See Our people
on page 52
• Regular review of key
supplier financial health and
product quality
• Monitoring of relevant
commodity and precious
metals pricing
• Review of spend patterns to
identify opportunities
• Inventory build on key
components where
considered necessary to
mitigate some of the supply
chain risk
Increased risk – the robust
employment market has
meant recruitment and
retention can be challenging
in certain parts of the
business, combined with the
impact of wage inflation.
Increased risk – the supply
chain environment continues
to be challenging, with the
impact of COVID-19 on
suppliers, combined with
extended delivery times and
key component shortages.
Supplier resilience
Potential failure of critical
suppliers; product delivery
delays; inability to meet
customer commitments
• Reduction in revenue,
profitability and cash
generation
68
TT Electronics plc Annual Report and Accounts 2021
Risk description
Potential impact
Mitigating action
Change in the year
Operational
IT systems and information
IT security breaches or
disruption, unauthorised
access or mistaken
disclosure of information
• Reputational impact,
business disruption and
potential deterioration in
customer relationships
M&A and integration
Realisation of financial
benefit of acquisitions
• 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
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 appropriately
manage the environmental
impact of our operations
and products
• Reputational impact
and potential deterioration
in our relationships with
our stakeholders
Increased risk – whilst
investment and improvements
continue to be made in this
area, the net risk profile has
been increased to better
reflect the increasing external
cyber threat.
Reduced risk – recent
acquisitions continue to be
integrated successfully. M&A
experience across the Group
has been further improved.
No change – see Our
people, environment and
communities from page 46
for details of our approach
and progress during the year.
• Regular analysis of
cyber security and data
management
• IT strategy reviewed by
management and the Board
• Information security policies
updated recently
• Investment through
recruitment of additional
IT security and enterprise
resource planning
(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
• Lessons learned activities
are built into future plans
• Health, Safety and
Environmental and
Sustainability Councils
responsible for sharing
Group-wide best practice,
monitoring 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
• Progress made in reducing
our carbon emissions
through transitioning to
renewable energy contracts
TT Electronics plc Annual Report and Accounts 2021
69
Financial statementsGovernance and Directors' reportStrategic report Strategic report | Risk management
Risk description
Potential impact
Mitigating action
Change in the year
Operational
Health and safety
The manufacturing industry
is inherently dangerous.
Managing the impact on our
employees, sites and the
environment of these risks
Legal
Legal and regulatory
compliance
Intentional or inadvertent
non-compliance with
legislation including laws
and regulations covering
export control, anti-bribery
and competition
• 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.
• Health, Safety and
Environmental Council
responsible for Group-
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
No change – whilst the risk of
COVID-19 remains, a strong
framework of processes and
controls exists at all sites
and these have successfully
enabled production to
continue uninterrupted (where
local regulations permitted)
in COVID-secure working
environments. Underlying
health and safety incidents
remain very low.
• 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
70
TT Electronics plc Annual Report and Accounts 2021
12 months after the approval of these
financial statements. 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.
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 these accounts.
Accordingly, the financial statements
have been prepared on a going
concern basis.
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 IFC to 73. The Strategic Report
analyses the financial position of the
Group, its cash flows, liquidity position
and borrowing facilities. In addition, Note
20 to the financial statements includes
the Group’s objectives, policies and
processes for managing its capital; its
financial risk management objectives;
details of its financial instruments and
hedging activities; and its exposures to
credit risk and liquidity risk.
The Group has experienced continued
improvement in trading momentum and
strong growth on our 2020 numbers.
The structural growth markets we
have selected to focus on have moved
back towards their long-term growth
trajectory, the benefits of our strategic
repositioning and focus on building close
relationships with our clients can be
seen in both the order book and financial
performance of the Group.
The Group’s financial position remains
strong, at 31 December 2021 it had:
• £318.9 million of total borrowing
and lease liability facilities available
(comprising committed facilities of
£272.2 million net of £1.3 million loan
arrangement fees, uncommitted
facilities of £39.1 million representing
overdraft lines and an undrawn
accordion facility of £30 million; and
finance leases of £7.6 million). The
Group’s primary source of finance is
the £180 million committed revolving
credit facility (RCF); at 31 December
2021 £73.4 million of this facility had
been drawn down. The Group’s RCF
will mature in November 2023. In
August 2021, TT agreed a debut issue
of £75 million of private placement
fixed rate loan notes with three
institutional investors. The funds were
received in December 2021 and the
issue is evenly split between 7 and 10
year maturities with an average interest
rate of 2.9% and covenants in line with
our bank facility. The private placement
complements, at an attractive rate, the
Group’s existing bank revolving credit
facility, diversifying our sources of debt
funding and providing us with a stable,
long-term financing structure.
• A leverage ratio (banking covenant
defined measure) of 1.7 times at 31
December 2021 compared to a RCF
covenant maximum of 3.0 times.
Interest cover (banking covenant
defined measure) of 13.5 times
compared to a RCF 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 2022.
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 2021.
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.
The Group’s downside stress test
scenario has been sensitised for supply
chain challenges and inflationary
pressure which shows a reduction in
revenue and operating profit compared
to the latest forecast. Despite this
further reduction these projections
show that the Group should remain
well within its facilities headroom and
within bank covenants for the next
TT Electronics plc Annual Report and Accounts 2021
71
Financial statementsGovernance and Directors' reportStrategic report Strategic report | Non-Financial Information Statement
NON-FINANCIAL
INFORMATION
STATEMENT
Reporting
requirement
Key stakeholder
group impacted
Our approach
and key policies
Outcomes
in 2021
Further
information
Environmental
matters
Employees,
customers
and suppliers,
community, investors
Employees
Employees
We solve technology
challenges for a sustainable
world by delivering solutions
that enable products that are
cleaner, smarter and healthier
and that will benefit our
planet and people for future
generations. We have linked
our purpose statement to the
development of our internal
culture and to what we do
for our customers.
We have set ambitious
targets to reduce the
environmental footprint of
our business.
Key policies:
Statement of Values and
Business Ethics Code.1
Health, Safety and
Environmental Policy.
Our employees are the
foundation on which TT is
built. We strive to keep them
healthy and safe, give them a
sense of pride and belonging,
and empower them to
think big.
Key policies:
The TT Way values.
Statement of Values and
Business Ethics Code.1
Health, Safety and
Environmental Policy.
ED&I policy and roadmap.
Grievance Policy and
Disciplinary Policy.
Whistleblower Policy.1
Gender Pay Gap Report.1
Investment in R&D at 4.5 per
cent of revenue in our product
businesses2 to bring new and
improved products to market.
Prepared roadmap to
achieve Net Zero Scope 1 & 2
emissions by 2035.
Carbon dioxide equivalent
tonnes (tCO2e) of Scope 1 & 2
emissions from operations fell
to 15,740, 41% lower than our
2019 baseline.
See Our strategy on
pages 28 to 30
See Our people,
environment and
communities on
pages 46 to 61
See Environment on
pages 56 to 60
See Principal risks
and uncertainties on
pages 67 to 70
Switch to renewable energy
tariffs at sites that are able
to access them.
Five three day lost-time health
and safety incidents.2
See Our people on
pages 52 to 55
See Principal risks
and uncertainties on
pages 67 to 70
Employee engagement
score increased again to
718.5 in line with the two star
"outstanding companies to
work for" Best Companies
Ltd benchmark.
A gender balanced permanent
workforce with 53 per cent
women and 47 per cent men
at 31 December 2021.
Our ED&I policy and
roadmap was circulated to
all employees and we have
an ED&I programme running
across the Group.
Continued success of our BE
Inspired recognition scheme.
72
TT Electronics plc Annual Report and Accounts 2021
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 can be found in this Annual Report and on our website. Additional non-financial
information can be found in the Our People, environment and communities section of the Report.
Reporting
requirement
Key stakeholder
group impacted
Our approach
and key policies
Outcomes
in 2021
Social matters
Employees,
community
As a responsible, global
organisation we are
committed to having a
positive impact on the
world around us through
our products, the way we
do business and by reducing
our environmental footprint.
Key policies:
Statement of Values and
Business Ethics Code.1
Community and Charity
Support, Our Guiding
Principles.
Health, Safety and
Environmental Policy.
Many of our employees
give up their time to develop
local STEM partnerships
to promote careers in
electronics and related
fields, undertaking talks,
demonstrations and
attending careers fairs to
interest and educate young
people in the sector.
Our "Hours for giving"
programme enables
employees to take five hours
paid leave per year to support
local causes. In 2021 nearly
3,000 hours were taken under
the programme.
Further
information
See Our people,
environment and
communities on
pages 46 to 61
See Principal risks
and uncertainties on
pages 67 to 70
Respect for
human rights
Employees,
customers and
suppliers, community
Upholding human rights is
part of our ethics framework
and is the responsibility of
everyone at TT.
Anti-corruption
and anti-bribery
Employees,
customers
and suppliers,
community, investors
Key policies:
Statement of Values and
Business Ethics Code.1
Modern Slavery Policy.1
Modern Slavery Statement.1
The fundamental principles
of fairness, honesty and
common sense lie at the
heart of our corporate
standards. We do not tolerate
fraud, corrupt practices or
behaviour not in line with
our standards.
Key policies:
Statement of Values and
Business Ethics Code.1
Whistleblower Policy.1
See Our people,
environment and
communities on
pages 46 to 61
No human rights
violations have been
identified during 2021.
We reaffirm annually our
commitment to opposing
slavery through the
publication of our Modern
Slavery Statement.
Mandatory ethics training
is provided for relevant
employees on an annual
basis.
See Our people,
environment and
communities on
pages 46 to 61
See Principal risks
and uncertainties on
pages 67 to 70
Any ethical concerns can
be reported to management
or to our anonymous
whistleblower reporting
facility. Reports are
investigated in detail and
any significant concerns
are reported to the
Audit Committee.
1 Documents are on the TT Electronics website (www.ttelectronics.com).
2 Group KPIs – see pages 42 to 43 for more information.
The table above corresponds to our key stakeholder groups set out on pages 44 to 45. 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 14 to 15), our principal risks and how we manage them (see pages 67 to 70) and our KPIs, including
our non-financial KPIs, (see pages 42 to 43) and the reasons why they are important.
The 2021 Strategic report, from pages IFC to 73, has been reviewed and was approved by the Board of Directors on 8 March 2022.
Richard Tyson
Chief Executive Officer
Mark Hoad
Chief Financial Officer
TT Electronics plc Annual Report and Accounts 2021
73
Financial statementsGovernance and Directors' reportStrategic report
Governance | Governance at a glance
GOVERNANCE AT A GLANCE
A SNAPSHOT OF
OUR LEADERSHIP
Board statistics
Board diversity – gender
Board composition
Board attendance (%)
100
NED independence (%)*
100
Female representation (%)
33
Site engagement activities
3
* excluding Chairman
Our Board split
4 – Male
2 – Female
Skills and expertise
6 Board members
1 – Independent Non-executive
Chairman
2 – Executive Directors
3 – Independent Non-executive Directors
6
6
3
3
Strategy/Growth
M&A
Aerospace and
defence sector
Medical sector
4
3
3
1
Operations/
Supply chain
Financial management
Investor relations
Talent and succession
Board tenure in years
1
Warren Tucker
Jack Boyer
Alison Wood
Anne Thorburn
2
5
5
74
TT Electronics plc Annual Report and Accounts 2021
Leadership structure
Board
Audit
Committee
Nominations
Committee
Remuneration
Committee
Committee
report on
page 92
Committee
report on
page 87
Committee
report on
page 98
Chief Executive Officer
Chief Financial Officer
Executive Leadership Team
Disclosure Committee
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
Reviews potential
existence of and manages
the disclosure of
inside information
Maintains project
insider lists
People, Social,
Environmental and Ethics
Committee
Health and safety
Environmental
Human Resources
Employee engagement
with the Board
Local communities
Ethics
Read more from page 46
Risk Committee
Senior Leadership Team
Diversity & Inclusion 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
Reviews and discusses key strategic
and operational matters
Information-sharing between a wider
group of senior executives
Reviews and develops Equality,
Diversity and Inclusion (ED&I)
Policy and strategic priorities
Provides an ED&I framework
Considers and scrutinises cross-
divisional topics
Information-sharing across the
business units
Delegation
Reporting
Councils
Research &
Development
Business Development
Operations
Supply Chain
HSE
Sustainability
TT Electronics plc Annual Report and Accounts 2021
75
Financial statementsGovernance and Directors' reportStrategic report Governance | Board of Directors and Company Secretary
A BLEND OF SKILLS AND EXPERIENCE
THE RIGHT TEAM
N R
Warren Tucker
Chairman
RI P
RI
Richard Tyson
Chief Executive Officer
Mark Hoad
Chief Financial Officer
Joined: 2020
Joined: 2014
Joined: 2015
Current external appointments:
• Non-executive director and chair of
the audit committee of Tate & Lyle plc
(UK listed)
Current external appointments:
• Non-executive director
of the Vitec Group plc (UK listed)
• Governor of St Swithuns’ Independent
• Trustee on the board of Magna
School for Girls in Hampshire
Learning Partnership
Relevant skills and experience:
• Strategy/growth
• M&A/financing
• Equity and debt capital markets
• Financial and risk management
• International business
• Manufacturing/engineering
• Operations/supply chain
• Aerospace & defence sector
• Investor relations
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:
• Non-executive director of Reckitt
Benckiser Group plc and the Foreign,
Commonwealth and Development Office
• Chief financial officer of Cobham plc
Past appointments:
• Member of the executive committee
and president of the Aerospace &
Security division of Cobham plc
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
Board attendance
Attendance 2021
Warren Tucker
Richard Tyson
Mark Hoad
Jack Boyer
Alison Wood
Anne Thorburn
Board
7 of 7
7 of 7
7 of 7
7 of 7
7 of 7
7 of 7
Audit
Committee
Nominations
Committee
Remuneration
Committee
2 of 2
4 of 4
4 of 4
4 of 4
4 of 4
2 of 2
2 of 2
2 of 2
4 of 4
4 of 4
76
TT Electronics plc Annual Report and Accounts 2021
Our 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
Read more on page 75
A N R P
R A N
A N
P RI
Jack Boyer OBE
Senior Independent
Non-executive Director
Alison Wood
Independent Non-executive
Director
Anne Thorburn
Independent Non-executive
Director
Lynton Boardman
General Counsel and
Company Secretary
Joined: 2016
Joined: 2016
Joined: 2019
Joined: 2012
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
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:
• Non-executive director of
Ricardo plc (UK listed)
• Senior independent director
and chair of remuneration
committee of Elcogen plc
• Chair of the University
of Bristol
• Member of the board of the
Henry Royce Institute for
Advanced Materials
Relevant skills and
experience:
• Strategy/growth
• Corporate finance and
investment
• M&A
• Technology/innovation
• International business
• Manufacturing/engineering
• Product technology
• Operations/supply chain
• 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
Current external
appointments:
• Non-executive director
and chair of remuneration
committee of Capricorn
Energy plc (UK listed) and
Oxford Instruments plc
(UK listed)
• Non-executive director of
British Standards Institution
(BSI)
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:
• 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,
THUS plc and Costain
Group plc
TT Electronics plc Annual Report and Accounts 2021
77
Financial statementsGovernance and Directors' reportStrategic report Governance | Chairman’s Introduction to Governance
CHAIRMAN’S INTRODUCTION TO GOVERNANCE
BUILDING A STRONG
GOVERNANCE
FOUNDATION
TT’s governance platform – dealing
with the COVID-19 reality
In last year’s Annual Report, we
described the processes and systems
we had put in place to limit the impact
of the COVID-19 outbreak on Group
operations, which covered priority
areas such as Health and Safety,
remote working (to meet local legal
requirements) and modified customer/
supply chain activities. This embedded
governance platform (supported by
dedicated reporting structures) has
served TT well in the year, by providing
a ready-made framework through
which we have managed the ongoing
COVID-19 threat, whilst also refocussing
our attention on growth opportunities
and keeping our people safe. This has
resulted in a fundamental shift in Board
emphasis in the past year, involving a
move away from the tactical challenges
of keeping manufacturing sites
operational to a more strategic focus
on investment-led growth.
This change of focus in 2021 has
required TT’s governance processes
to evolve still further and give the
business the necessary bandwidth to
meet the record customer order levels
experienced in 2021 – all at a time of
unprecedented supply chain disruption.
More specifically, the Board has been
active in supporting a range of initiatives
in 2021 to promote TT’s growth agenda,
as follows:
• Strengthening the balance sheet
through the execution of the US Private
Placement (PP) transaction and targeted
site divestments (as described in more
detail in the Strategic report on page 41);
Page
78
81
87
92
98
119
What’s inside
Content
Chairman’s introduction
Leadership and Company purpose
Nominations Committee report
Audit Committee report
Remuneration Committee report
Other statutory disclosures
78
TT Electronics plc Annual Report and Accounts 2021
Key highlights
• TT’s robust governance structures have provided an effective platform to
support our strong business recovery in the post-COVID environment.
• Our clear strategic direction and strong focus on priority operational initiatives
have been enhanced by a coherent and stable Board structure.
• Face-to-face meetings between Board members and wider staff/stakeholder
engagement activity have been prioritised to allow insight into front-
line operations, facilitate in-depth decision-making and promote active
consideration of talent/succession planning.
• An external Board evaluation exercise has laid the foundation for future
governance, in support of the strategic growth plan.
• Enhancing TT’s operational and
employee-related structures in key
areas such as sustainability and ED&I
(as described in more detail in the Our
people, environment and communities
section on page 46);
• Prioritisation of rapid and efficient
M&A integration, following the
acquisitions of the Covina Power
Solutions business and Torotel, Inc.
(as described in more detail in our
Section 172 Statement on page 62);
• The increased focus on talent
management, retention and
succession planning (as described
in more detail in the Nominations
Committee report on page 87).
Coherent and stable Board structure –
promoting diversity
TT has benefited significantly from an
extended period of Board continuity,
with no changes having been made
in the composition of the Board or its
principal Committees during 2021. It
is my view that the core strength of
our governance structures has been a
major contributory factor to the excellent
financial performance and operational
recovery that we have witnessed in 2021,
building on the foundations laid in the
prior year, and supported by the honest,
open and collegiate way in which the
Board continues to operate.
We have two female members of
the Board who have been NEDs
throughout 2021, chairing our Audit
and Remuneration Committees
and representing 50% of our NEDs.
Nevertheless, we are mindful of
the proposals set out in the FCA’s
consultation document on Diversity
and Inclusion, which proposes a higher
level of female representation on UK
listed company boards (beyond TT’s
current position of one-third) and an
increased focus on wider areas of
diversity, including ethnicity. These
considerations have been factored into
the external Board evaluation exercise
we conducted in 2021, the key outputs of
which are described on page 89. Having
considered these issues in detail, the
outcome of TT’s external evaluation
exercise was that the structure of the
Board remained fit for purpose, given
the diversity of experience, approach,
mindset and thinking around the Board
table. The Board concluded that none
of the outputs of the evaluation exercise
had identified an immediate need to
launch a recruitment process to secure
an additional Board member, although
this issue would be kept under regular
review by the Committee going forward.
For more detail on TT’s approach to
ED&I across the organisation, see page
55 of the Our people section.
Board and stakeholder engagement –
a new approach in 2021
The evaluation exercise conducted in
2020 highlighted the Board’s concern
that the lockdown environment (and
the absence of face-to-face dialogue)
had made decision-making more
challenging following the COVID-19
outbreak, particularly as this provided
less opportunity for the Board to engage
in “unstructured” debate on key strategic
topics. This has been a key area of focus
in 2021, as travel restrictions eased
from May onwards, with face-to-face
meetings having been held for each
of the Board meetings that followed
(although this was too late to allow an
“in-person” AGM for 2021).
The Board has taken every opportunity
during 2021 to engage in more depth on
key strategic topics, which has included:
• Inviting ELT and other senior leaders
to attend Board dinners (and, in the
case of the US leadership team, a
specially-convened breakfast event)
covering important topics such as staff
wellbeing and talent management;
• Face-to-face dialogue with key advisers
(including TT’s brokers) in areas such
as M&A strategy and development of
the IR story;
• Board visits to the Hartlepool and
Bedlington sites in 2021, with the
original plan to visit TT’s facilities in
Kansas and Plano in 2021 having
been postponed as a result of ongoing
COVID-related US travel restrictions;
• A specially-convened Board review
of the new COO reporting structure
established in Q3 under Michael
Leahan’s leadership;
• More active engagement with key
stakeholders, which included the BEIS
consultation on Audit and Governance
Reform and discussion with TT’s main
institutional shareholders on proposed
remuneration arrangements for
Executive Directors;
• NED attendance by videoconference
on “employee voice” sessions with staff
at the Dongguan site and, separately,
with employees identified as “high
potential” performers.
We will ensure that Board visits to TT
sites and engagement with employees
at all levels of the organisation remains
a top priority for 2022.
Further information on our employee
engagement framework, including the
role of our SID in managing feedback on
stakeholder engagement with the Board,
is set out on page 52.
Board evaluation and conclusion
I am delighted that the operational
resilience we witnessed last year
has been maintained in 2021, with
our effective governance structures
having played a pivotal role in creating
a platform for sustainable growth. I am
also immensely proud that, despite the
ongoing COVID-related challenges we
have experienced in year, the Board was
able to increase its focus on delivering
effective engagement with employees,
senior management and our wider
stakeholder group. Once again, I am
indebted to my Board colleagues,
the senior management team and
our exceptional group of employees
for delivering a year of record order
book growth and strategic progress,
which is reinforced by the impressive
results achieved in the 2021 employee
engagement exercise.
As indicated on page 89, the external
Board evaluation programme we
conducted in 2021 has proved to be an
extremely valuable exercise. This will
form the basis for our future planning
around our governance processes, to
position TT to derive maximum benefit
from the growth opportunities we see
ahead of us.
TT Electronics plc Annual Report and Accounts 2021
79
Financial statementsGovernance and Directors' reportStrategic report Governance | Chairman’s Introduction to Governance
UK Corporate Governance Code
Compliance statement
TT is committed to achieving and maintaining the highest standards of corporate governance. As at 31 December 2021,
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 reason for this non-compliance with provision 38 of the Code is that the Company has existing
contractual agreements with the Executive Directors at a different rate to the wider workforce which required adjustment
over time. 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
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 and 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
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TT Electronics plc Annual Report and Accounts 2021
Read more on page
6-13
28-30, 46-48, 82
83
86
54
44-45
86
85
75
76-77
88
76-77
74
89
89
92
92
94
64-65
95
67-70
106-107
104
105
LEADERSHIP AND COMPANY PURPOSE
BOARD
ACTIVITIES
During the financial year
the Board discussed and
implemented the following
key actions:
Strategy
People
• Managing growth in the post-COVID environment
(includes monitoring site impact)
• Strategic planning
• Virolens investment activity/regulatory progress
• Review of medical strategy
• Site rationalisation activity – closure of Barbados/
Tunisia/Carrollton/Corpus Christi; opening of Plano;
transfer of Lutterworth operations to Bedlington (with
associated new investment) and transfer of Covina
operations to Kansas City
• Development of Power Solutions technology roadmap
IR
• Organisational design (i.e. creation of COO)
• Pensions review (GMP equalisation; data cleansing)
• ED&I planning/development (including staff wellbeing
arrangements post-COVID)
• Talent management and succession planning
ESG/engagement
• IR focus and development of revised “equity story”;
includes appointment of new co-broker and investor
feedback analysis (run by Rothschild)
• Sustainability planning/development (including
new Sustainability Council, KPIs and dashboards);
MSCI AA rating
• Site visits – Hartlepool/Bedlington
• Employee engagement via videoconference at selected
sites (e.g. Dongguan)
Financing
• Private placement (completed December 2021)
M&A
Operations
• M&A integration activity (Torotel)
• M&A – Ferranti Power and Control acquisition; in
addition, detailed consideration was given to five M&A
opportunities, each linked to TT growth strategy which
the Board decided not to proceed with
• Customer engagement (i.e. record order book/deeper
customer relationships and opportunity pipeline)
• Supply chain challenges (impact on inventory
management/working capital)
TT Electronics plc Annual Report and Accounts 2021
81
Financial statementsGovernance and Directors' reportStrategic report Governance | Leadership and Company purpose
Company purpose, strategy
and values
Relationship between purpose,
strategy and values
The Board’s main role is to provide
oversight and leadership of the
Group, to determine and ensure the
implementation of the Group’s strategy,
and to maintain the highest standards
of corporate governance. Underpinning
these aspects of the Board’s
responsibilities lies the principal aim
of ensuring the sustainable, long-term
success of the Company.
The Board understands the relationship
between the Company’s purpose,
strategy and values and their importance
to the long-term success of the Group.
Along with strategy, purpose and
culture are regular discussion points
at Board meetings.
The Company’s purpose statement is:
We solve technology challenges for a
sustainable world.
The Board considers that this purpose
is an appropriate reflection of the Group’s
culture, strategic direction and impact
on the world.
Why?
Our corporate purpose describes why we do what we do and aligns the whole
of the Company.
What?
Our strategy defines what we do for both our employees and our wider
stakeholders. The Company’s strategy is clearly defined and regularly
reviewed by the Board. The multi-year strategic plan is discussed in detail
and is approved annually, based on the Company’s activities; its progress on
delivering strategic priorities; and challenges identified within the business and
in the wider macroeconomic environment.
How?
The Company’s values, culture and behaviours drive how we execute our
relationships with internal and external stakeholders and our strategic vision.
Our TT Way values (see page 14) describe our culture and set out how we
expect our employees, from the top down, to conduct business and act with
integrity, transparency and professionalism.
Good governance sets the tone for the culture of TT. The Board and Executive
Directors strive to promote an atmosphere of openness and trust throughout
the Group.
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TT Electronics plc Annual Report and Accounts 2021
Board oversight of culture matters – our TT Way values
We do the right thing
From ethics within our workforce and
safety matters, to consideration of
our wider impact on the environment
and our communities, we pride
ourselves on doing the right thing
and encourage others to do the
same. Our customers benefit from
our focus on providing cleaner,
smarter and healthier solutions to
technology challenges.
We bring out the best in each other
Our people are our greatest asset.
We know that supporting development,
promoting wellbeing, ED&I and
collaborating with our colleagues leads
to better performance for our people
and our business.
We achieve more together
– Statement of Values and Business Ethics Code
– Whistleblowing reports
– Safety metrics
– Employee support during COVID-19 pandemic
– Integration of ESG and sustainability matters into decision-making and
business practices as a strategic priority
– Net Zero Scope 1 & 2 target by 2035 and other environmental impact
reduction work
– Anti-bribery and corruption policies
– Modern Slavery policy
– Global supplier standards for social and environmental practices
– Human Rights Code
– Gender Pay Gap reports
– Leadership programmes
– Succession planning/talent reviews
– Remuneration schemes and employee benefits
– Cross-divisional working and information sharing
– ED&I initiatives including our Women in Leadership programme, strong
focus on LGBTQ+ initiatives and awareness programmes, for example,
Black History Month
Throughout the business, our people
are encouraged to share their ideas
and feed back to improve the way we
work. Our culture of openness and
transparency is demonstrated through
the reporting systems we have in place
and the two-way conversations we have
with our employees, our customers and
our suppliers.
– Best practice sharing across the Group
– Ensuring transparency in reporting systems
– Employee engagement survey
– Voice of the Customer surveys
– SID (Jack Boyer) reports back from the PSEE Committee to the Board
on stakeholder engagement processes
– Group-wide incentives
TT Electronics plc Annual Report and Accounts 2021
83
Financial statementsGovernance and Directors' reportStrategic report Governance | Leadership
We champion expertise
Our talented team of design, engineering
and manufacturing experts operate in
a supportive culture that champions
knowledge, skills, innovation, problem
solving and service. We cannot achieve
our purpose without passionate support
for technical expertise in the business
– from R&D and manufacturing to
marketing and sales.
We get the job done, well
TT’s strong business performance is an
indicator of getting the job done, but our
success is based on a culture of pride
within our organisation to do the best
job we can. From the boardroom to our
manufacturing sites, decision-making is
based on achieving the best results the
TT Way.
– Focus on capabilities – power; connectivity; sensing; and manufacturing and
engineering
– R&D investment as a percentage of sales – 5% target
– Targeted and complementary M&A to expand technology capabilities
– BE Inspired awards for individual achievements
– Focus on training and apprenticeship initiatives
– Strategic decisions for long-term success
– Strong capital discipline and financing to ensure continued availability of funds
to invest in the business
– Successful integration of acquisitions
– Customer feedback and Voice of Customer surveys
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, including emerging risks,
and the effectiveness of the Group’s
system of internal control as set out on
pages 67 to 70.
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.
Four additional meetings were held in
the year to progress the Board’s work
on IR matters, discuss organisational
changes, review the US PP financing
arrangement, review the trading update
and discuss M&A projects. The Board
has held two principal meetings to date
during 2022. The NEDs meet, without
the Executive Directors present, at the
end of each scheduled Board meeting,
as a standing agenda item.
During 2021, it was important for the
Directors to maintain a level of flexibility
around the Board calendar to ensure
that we were able to respond to the
government guidelines and best practice
as and when the COVID-19 restrictions
changed. The first half of 2021 saw the
Board continue with electronic meetings,
which had proved to work successfully
in 2020, to ensure the safety of all
Board members and to allow for travel
restrictions that were in place. As the
year progressed, the Board was able to
meet in person and complete site visits
to Hartlepool and Bedlington in the UK.
Unfortunately the planned Board visits
to the Torotel site in Kansas and the
new Plano facility in Texas had to be
postponed due to COVID-related travel
restrictions, but it is hoped that these
visits will be rescheduled for 2022.
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TT Electronics plc Annual Report and Accounts 2021
The main events in the Board calendar
are the approval of the half-year and
full-year results, the Board site visits, the
review of the multi-year strategic plan
and the approval of the budget towards
the end of the year. At each meeting
during 2021 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. The non-
standard areas of focus for the Board in
2021 are shown on page 81.
Division of responsibilities
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
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 financial, business and corporate
matters so they can participate in Board decisions
effectively;
– Facilitating the effective contribution of NEDs;
– Ensuring constructive relations between Executive
and Non-executive Directors;
– Ensuring effective communication with shareholders; and
– Ensuring the performance of individual Directors, the
Board as a whole, and its Committees are evaluated at
least once a year.
Chief Executive Officer
Maintains responsibility for:
– The operations of the Group;
– Developing Group objectives and strategy, having
regard to the Group’s responsibilities to its shareholders,
customers, employees and other stakeholders;
– Successful implementation and achievement of
strategies and objectives, as 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; and
– Setting Group human resource policies, including
management development and succession planning for
the senior management team.
Leadership structure
Details of TT’s Board of Directors are
set out on pages 76 and 77 of this
report. The leadership structure chart
on page 75 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 Code.
Directors’ interests
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 2021),
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.
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. As such, he is the
designated NED for the purposes of
engagement with the workforce under
the Code. This includes the outcomes of
our employee engagement activities as
described on page 54 and sustainability
initiatives described from page 56. 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 leadership structure
chart on page 75.
The Directors of the Company at 31 December 2021 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 2021, 31 December 2021
and 7 March 2022:
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 114.
7 March
2022 Ordinary
shares
31 December
2021 Ordinary
shares
1 January
2021 Ordinary
shares
60,075
910,454
711,149
95,514
–
60,075
910,454
711,149
95,514
–
60,075
873,530
683,127
95,514
–
Warren Tucker
Richard Tyson
Mark Hoad
Jack Boyer
Alison Wood
Anne Thorburn
60,000
60,000
60,000
TT Electronics plc Annual Report and Accounts 2021
85
Financial statementsGovernance and Directors' reportStrategic report Going concern
The Directors have reviewed the budgets
for 2022 and the projections for 2023
and 2024 developed during the 2021
annual strategic planning cycle. They
have assessed the future funding
requirements of the Group as outlined
on page 66 of this report. Based on
this, the Directors are satisfied that
the Group has adequate resources to
continue in operational existence for
12 months from the date of approval
of these financial statements. For
this reason, they continue to adopt
the going concern basis in preparing
the financial statements.
Governance | Board activities
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.
Each member of the Board, including
the SID, 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 87.
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.
Relations with shareholders
The full list of engagement activities
and our relations with shareholders
during the year are set out on pages 44
to 45. The Chair of the Audit Committee
engaged with certain shareholders on
ESG matters during 2021. The Chair of
the Remuneration Committee engaged
with shareholders in relation to changes
to the performance conditions for the
2020 LTIP awards which were proposed
at the 2021 AGM. See page 99 of the
Remuneration Committee report for
more information.
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TT Electronics plc Annual Report and Accounts 2021
COMPOSITION, SUCCESSION AND EVALUATION
Key activities during the year
NOMINATIONS
COMMITTEE
REPORT
Membership
Warren Tucker (Chair)
Jack Boyer
Alison Wood
Anne Thorburn
Contents
Principal responsibilities
Key activities during the year
Q&A with the Chair
2021 review
Board composition
Equality, diversity and inclusion
Board and Committee performance
evaluation
2022 Board objectives
Directors’ performance evaluation
p87
p87
p87
p88
p88
p89
p89
p90
p91
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 NEDs (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.
• No changes to the composition of the
Board or Committees.
• Detailed review of succession planning
at Executive Director and ELT level
(plus a management layer below).
• In-depth review of talent (“high
potential” and talent gaps) at a senior
management level.
• Oversight of the COO appointment
process and the governance changes
implemented as a result.
• Board-level requirements
considered as part of evaluation
exercise, factoring in succession
and diversity considerations.
Q&A
Q
In last year’s Annual Report,
various criteria were highlighted
as being important in the
selection process for the new
Chairman, which included the
need to maintain a culture of
openness and transparency, in
a low-ego environment. To what
extent do you think this has been
achieved?
On joining TT, I benefited
enormously from the fact that
these important characteristics
were already in place as part of
our Board DNA. Far be it for me to
comment on my own performance
since joining the Board; however,
the collegiate, honest and frank
approach taken by the Board to
decision-making was very much
in evidence from the external
feedback we received as part
of the 2021 Board evaluation
exercise. I feel this has been an
important factor in the strong
financial performance and
operational recovery we have
witnessed following the COVID-19
outbreak in 2020.
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Q
There have been no changes to
the composition of the Board in
2021. Is that a good thing or not?
Looking at 2021 in isolation, this
was a time when all companies
required strong, stable leadership
and, as such, I firmly believe
this has been a good thing. It is
also worth pointing out that the
average length of tenure of the
NEDs is less than four years.
That having been said, there
is no room for complacency,
which is why we regularly test
to see we have the right skills
and competencies in place to
meet the evolving needs of TT’s
business. We did not identify
any gaps for 2021; however, the
independent feedback we have
received from the evaluation
exercise means that we now have
some external input to consider,
which the Committee will give
attention to in the coming year.
Q
Why did the Nominations
Committee focus on the
governance structure
underpinning the newly created
COO role in 2021?
The new COO role was created
to give key parts of the business
autonomy to grow, which included
a key focus on medical and
defence markets in the US. At the
same time, we wanted to ensure
that our Executive Directors were
given the necessary freedom and
resources to focus on other priority
areas, such as promoting further
the IR story and significant M&A.
The Committee’s objective here
was to ensure that the governance
structure underpinning this new
arrangement was optimised to
provide maximum opportunity
for future success.
2021 review
The Committee held two meetings
in 2021, during which the Committee
undertook a detailed evaluation of the
current structure of the Board to ensure
that it remained balanced and effective,
with diverse skills, knowledge and
experience. Consideration was also given
to the future requirements of the Board
on each of these fronts. The Committee
concluded that TT had in place a group
of highly experienced Directors, with
the skills and competencies necessary
to meet the strategic and operational
needs of the business. As a result, no
changes to the composition or structure
of the Board or its principal Committees
were recommended in 2021, nor was it
considered necessary to prioritise the
recruitment of any new NEDs in the
immediate future, given the diversity
of experience, approach, mindset and
thinking on the Board.
As part of its remit to have oversight
of succession planning activities,
the Committee undertook a detailed
review of TT’s talent management
programme in Q4, which covered the
senior management team (operating at
ELT level and a layer below), together
with selected members of the wider
leadership group. Attention was also
focused on “high-performing” individuals
across the organisation, who had been
identified as possessing the capability
to progress into senior management
roles over the medium to long term.
This review exercise identified several
candidates across the business with
the potential for promotion to ELT and/
or Executive Director roles in the future,
with talent development also being
highlighted as a key priority area for the
Group going forward. The Committee
Board composition
Throughout 2021, the Board comprised
two Executive Directors (Richard Tyson
and Mark Hoad) and four NEDs. There
were no changes in Board composition
during 2021, nor in relation to the
membership of Board Committees. We
provide full details of each Director’s
Board and Committee meeting
attendance on page 76 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 NEDs are also
considered to be independent as defined
by the Code.
agreed, as part of this process, to find
opportunities for the NEDs to meet
with key individuals identified in the
Group-wide succession plan, on a face-
to-face basis (wherever possible). The
Committee also took the opportunity
to review wellbeing initiatives across the
Group in the post-COVID environment
as part of this process.
In addition to the activities referenced
above:
• The Committee spent time reviewing
the proposed new COO reporting
structure (under Michael Leahan’s
leadership), together with the key
roles/responsibilities and governance
framework underpinning it, which
included an analysis of senior manager
reporting lines into the COO and the
overall structure of the North American
business units;
• All Board members completed a
conflicts of interest questionnaire,
which involved tracking the number
of external appointments held by
each Director, including the number of
chairmanships and executive director
roles held, to avoid suggestions of
“over-boarding”. No points of concern
were identified by the Committee from
this process; and
• The Committee assessed its
performance in 2021 by reviewing key
activities during the year against its
terms of reference. It was concluded
that the Committee had performed
satisfactorily and was structured
appropriately to provide effective
support to the Board.
In accordance with the Company’s
Articles of Association and the Code,
Directors must 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 and the
Company’s Articles of Association.
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.
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Details of the number of employees,
senior managers and Directors of each
gender are given in the Our people
section on page 55.
For more detail on TT’s approach to
ED&I across the organisation, see page
55 of the Our people section.
Equality, diversity and inclusion (ED&I)
In 2020, the Company 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 55 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.
At all times during 2021, the Committee
has sought to ensure that the Board
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. Female representation
on the Board 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.
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 2021. The decision
was taken in the year to undertake an
external evaluation exercise for 2021,
with Russell Reynolds (RR) being
selected as the independent facilitator
to conduct this project on behalf of
the Board*.
The lifting of COVID restrictions in the
latter part of the year was a key factor in
the Board’s decision to use an external
process for 2021, which provided
increased scope to conduct the
evaluation in person and thereby derive
maximum value from the exercise.
Succession and diversity considerations
formed a key part of the process of
evaluating the future requirements of
the Board and its Committees; indeed,
the evaluation process highlighted the
need to ensure that succession and
diversity were actively monitored by the
Committee at both a Board and senior
leadership level and remained firmly on
the Board agenda. The Board is mindful
of the current initiatives on promoting
diversity, including the FTSE
“Women Leaders Campaign”, the FCA
consultation on changes to the UK
Listing Rules, and the Parker Review
on ethnic diversity of boards, and is
supportive of these initiatives.
* The Board appointed RR as the external search firm
used in the recruitment of Warren Tucker as
Non-executive Chairman in 2020 (as disclosed in the
2019 Annual Report) and the firm has also been used in
previous Board-level engagements. RR was also the
preferred choice to undertake the 2021 Board evaluation
work, on the basis of its expertise in this area and its
relative familiarity with TT’s operations. The team of RR
consultants used for the 2021 Board evaluation exercise
was entirely separate from the RR personnel used in
previous recruitment exercises.
October 2021
November 2021
January 2022
Appointment/
briefing
RR engaged
to design and
execute the
2021 evaluation
process.
Warren Tucker
led the briefing
discussions
with RR.
Individual
evaluation
RR questionnaires
completed by
Board members.
RR interviews
with each Board
member.
Non-Board ELT
members invited
to participate in
evaluation.
Board
observation
RR attended the
full Board meeting
held in November
2021 to assess
overall Board
interaction and
dynamics.
Evaluation
report
RR presented their
report to the Board
at the January
2022 meeting
and discussed it
in detail with the
Board members.
Board
discussion
Detailed
discussions
within the Board
to assess the
key findings
and identify
improvement
opportunities.
Internal
interviews
One-to-one
interviews
between the
Chairman and
Committee Chairs,
and also between
the Chairman
and all Directors
(including the CEO
and the SID), to
discuss individual
contributions
during 2021.
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Key conclusions
The evaluation report which was
presented to the Board by RR
evaluated Board performance across
a range of key assessment criteria,
including strategic thinking (pragmatic
vs disruptive), Board dynamics
(collaborative vs independent),
stakeholder engagement (internal vs
external) and governance (conformance
vs performance). The report also
assessed the skills base of each Board
member, covering a range of core areas,
including strategic thinking/planning,
M&A, stakeholder value creation,
governance, people/HR/culture and
US experience.
The evaluation exercise highlighted
the extremely positive Board
dynamics experienced by the NEDs
and the Executive Directors alike. It
was concluded that the Board was
highly effective in discharging its
responsibilities and benefited from
a “low ego/high trust” culture, with a
strong focus on TT values and no topics
considered “off-limits”. In particular, it
was noted that:
• The Board scored highly on all key
assessment criteria used by RR,
with ratings of at least five (out of
a maximum score of six) on each
individual measure. Strategic thinking,
overall Board dynamics and the
Board’s approach to governance were
recognised as the highest overall
scoring areas.
• The evaluation exercise demonstrated
a flexible approach to Board-level
decision-making and an ability to
adapt behaviours on a case-by-case
basis, depending on the business at
hand (e.g. a “transacting” approach
to investment decisions, shifting to
“challenge”-based behaviours for key
strategic issues).
• Cultural factors are actively monitored
(including reputational risks and
organisational conduct), which is
assisted by the characteristics of
openness, trust and mutual support
at the Board level, whilst encouraging
positive challenge and conflict
(where necessary).
• The review process confirmed that the
Board had delivered on its prior year
objective of increasing the level of face-
to-face dialogue (as COVID restrictions
eased in the year), which had resulted
in a more in-depth analysis of strategic
priorities and a strong execution
focus/alignment in areas such as
sustainability and investor relations
(including the development of the
TT equity story).
The RR review exercise recognised the
positive gender diversity at the Board
level (and a range of different styles
and approaches that allowed the Board
to work effectively as a group), whilst
also acknowledging the lower levels of
cultural and ethnic diversity. As a result,
it was agreed that any future recruitment
activity would be focused on fostering a
continued strong level of diversity in the
make-up of the Board.
Having considered these issues in
detail, the overall outcome of TT’s
external evaluation exercise was that the
Board was operating in a very effective
manner and that the structure of the
Board remained fit for purpose, given
the diversity of experience, approach,
mindset and thinking around the Board
table. The Board concluded that none
of the outputs of the evaluation exercise
had identified an immediate need to
launch a recruitment process to secure
an additional Board member, although
this issue would be kept under regular
review by the Nominations Committee
going forward.
2022 Board objectives
Following the conclusion of the 2021
Board evaluation exercise, the Board
objectives for the year ahead are set
out below:
• NEDs and Executive Directors to
continue to operate in an engaged,
constructive, open, supportive and
challenging manner.
• Strong focus on strategic development
and execution, whilst demonstrating
agility in response to new operational
challenges.
• Driving forward TT’s sustainability
platform, for the benefit of all
stakeholders.
• Enhanced focus on HR priorities,
including succession/retention, talent
management and ED&I.
• Continued focus on ensuring employee
and wider stakeholder engagement
through face-to-face meetings
(wherever possible).
• The evaluation review highlighted
that each Board member possessed
the requisite skills and experience
in each of the core areas relevant
to TT’s operations. Accordingly, the
Board concluded that the composition
of the Board (and its Committees)
remained fit for purpose, with diversity
of experience, approach, mindset and
thinking around the Board table.
In summary, the Board concluded from
the evaluation exercise that it (and its
Committees) had performed well on all
fronts in 2021 and that the performance
of each Director was highly effective,
whilst giving due commitment to his
or her role.
Discussion points and areas of focus
The 2021 evaluation review highlighted
several developmental areas for
further consideration, which included
the following:
• A very high degree of Board alignment
was evidenced on the core strategy
for the Group; however, the evaluation
process highlighted the need to ensure
that our strategic planning remained
alert to potential shifts in the macro
environment and we retained the agility
to react accordingly.
• Whilst the continued focus on succession
planning was a key finding from the
prior year’s evaluation review, the need
to prioritise the attraction/retention
of top talent was again considered a
priority area for 2022, particularly given
the impact of the pandemic in creating
organisational fatigue.
• The evaluation review reinforced the
Board’s coverage of core skills and
experience relevant to TT’s operations;
however, several additional areas were
identified where (depending on the
evolution of strategic positioning) there
might be a need to develop or introduce
additional capabilities in the future. The
Board agreed to keep these potential
developmental areas under review in
the future.
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TT Electronics plc Annual Report and Accounts 2021
Directors’ performance evaluation
In accordance with the Code, the
performance of individual Directors was
evaluated during 2021.
fed back to the Chairman by the Senior
Independent Director for discussion.
For the NEDs, 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 NED. 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 NEDs, led by the Senior
Independent Director, and, with input
from the Chief Executive Officer and
Chief Financial Officer, met privately to
discuss this, with the outcomes being
At the beginning of the year, we set
each Executive Director challenging
performance objectives, and
reviewed progress against these
as the year progressed.
Both of 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 NEDs
at a private meeting held to discuss this
and any other matters which the NEDs
wished to raise.
Warren Tucker
Chair, Nominations Committee
8 March 2022
TT Electronics plc Annual Report and Accounts 2021
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AUDIT, RISK AND INTERNAL CONTROL
Key activities during the year
AUDIT
COMMITTEE
REPORT
• Assess content of the Auditor’s
independence report in providing both
audit and non-audit services, including
the Auditor fee structure.
• Review the remit, planned
scope of activities, performance
and effectiveness of Internal
Audit function.
• Review changes to accounting
policies and procedures, decisions of
judgement affecting financial reporting
and compliance with accounting
standards and company law (including
FRC recommendations).
• Review risk management/assurance
processes, including the principal
risks and internal control findings
highlighted by management or
internal/external audit.
• Monitor the Company’s systems and
controls for the prevention of bribery
and fraud.
• Review Group whistleblowing
arrangements and procedures.
Membership
Anne Thorburn (Chair)
Jack Boyer
Alison Wood
Contents
Principal responsibilities
Key activities during the year
Q&A with the Chair
Procedural and governance matters
2021 review
Significant issues
p92
p92
p92
p93
p93
p96
Principal responsibilities
• Monitor the integrity of the financial
statements (including significant
reporting/accounting issues, going
concern/viability statements, and
fair, balanced and understandable
reporting process) and the Group
results announcements.
• Recommend appointment and
remuneration of the Auditor, assess
effectiveness and monitor provision of
non-audit services.
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TT Electronics plc Annual Report and Accounts 2021
• Key areas of accounting judgement
considered in detail, including: (i)
Virolens related assets on the balance
sheet; (ii) intangible assets relating
to acquisitions; (iii) the Group’s
defined benefit obligation in relation
to pensions.
• Continued attention on the transition
process to the new Auditor (in the
first full year following Deloitte’s
appointment), particularly
in light of ongoing COVID-19
lockdown restrictions.
• Detailed consideration of findings from
the risk/assurance reviews undertaken
by the Internal Audit function, including
roll-out of the shared services model
for the finance team and outcome of
reviews at key sites.
• Engagement with stakeholders
on priority issues for the business,
including the BEIS consultation on
Audit and Governance Reform.
• Detailed review of climate-related risks
(and associated TCFD disclosures), in
light of new regulatory requirements.
• Response to FRC request for
information on two specific technical
accounting matters arising from
its review of the 2020 Annual
Report, which were resolved to the
FRC’s satisfaction (see page 94 for
more details).
Q&A
Q
Now that Deloitte has completed
its first full audit cycle, what
are your thoughts on how the
external Auditor transition
process has worked in practice?
2021 was clearly a challenging
year, as the ongoing COVID-19
lockdown restrictions experienced
in H1 continued to limit the amount
of face-to-face activity (compared
to what would typically be seen
in an external audit programme).
However both the internal and
external audit functions have
worked hard to maintain the
positive momentum created from
the original handover process
from KPMG to Deloitte. Overall,
having conducted the Auditor
effectiveness survey in 2021,
which indicated an improvement
compared to the prior year, the
Committee is confident that this
transition process has been well
managed and that the quality of
the external audit has not been
compromised by remote working.
Q
Did the COVID-19 “stay-at-home”
measures in place during the
first half of 2021 impose any
significant challenges to the
delivery of the audit programme
during the year?
As stated above, the continuing
COVID-19 lockdown arrangements
presented some logistical
challenges in 2021, but we
benefited significantly from
having put in place a series of
remote working practices during
2020, such that the 2021 audit
process felt much more like
business-as-usual. As the year
progressed, the audit programme
was able to revert to more of
an in-person approach, to allow
wider testing of specific site and
Group-level audit issues. Overall,
the Committee considers it has
been able to review key areas
of audit judgement in sufficient
depth in 2021, despite lockdown
restrictions, but will continue to
focus on priority areas, building
on the good practices that have
evolved over the past two years.
Q
Why did you feel it was
necessary to respond to the
BEIS consultation on Audit and
Governance Reform?
TT takes its governance
responsibilities extremely seriously
and welcomes the opportunity to
enhance its audit, internal controls
and wider governance processes
in the interests of our stakeholder
groups. We felt that many of
the BEIS reform proposals were
helpful and would not present
too much of a stretch for TT
with the Controls Framework
structure we already have in place.
However, in a few key areas the
Committee considered that the
recommendations were inherently
vague and were unlikely to
provide a cost-effective basis for
enhancing governance structures.
Procedural and governance matters
Meetings of the Committee are
structured on the following basis:
• The Committee meets with the
Auditor at the close of each meeting,
without Executives being present. The
Committee also has the opportunity to
meet with the internal audit function at
each meeting on the same basis.
• The CFO, the Group Director of
Financial Control, the Company
Secretary and Auditor representatives
attend each Committee meeting, at
which they present reports and provide
analysis on key areas of accounting
judgement. At the request of the
Committee, the Chairman and the CEO
also attend for part of the scheduled
Committee meetings.
• The Director of Financial Projects
and Risk presents on the progress on
the internal audit plan (undertaken
in conjunction with PwC under the
directed outsource arrangement)
and updates on the Group’s risk
management framework, to allow
members to review principal
risks and the effectiveness of risk
management processes.
In relation to Governance considerations:
• The Committee Chair, Anne Thorburn,
fulfils the Code requirement of at least
one member of the Committee having
recent and relevant financial experience
(as a former CFO of several listed
companies and as audit committee
chair of Diploma PLC since 2015);
• The structures and methodologies that
were put in place in 2020 to address
the COVID-19 “stay-at-home” measures
were retained in the current year, to
ensure that both internal and external
audit activities could be fully completed
and to support the transition to the
new Auditor;
• The Committee undertook an
evaluation of external Auditor
performance in 2021, which included
input from the heads of finance across
the Group’s operations. Through
this process, several limited areas
for improvement were identified and
shared with the Auditor; however, this
process indicated an improvement in
overall Auditor performance in 2021;
and
• The Committee assessed its
performance in 2021 by reviewing key
activities during the year against its
terms of reference. It was concluded
that the Committee had performed
satisfactorily in the year and was
structured appropriately to provide
effective support to the Board.
2021 review
The Committee held four scheduled
meetings during 2021. A summary
of the key financial reporting and
judgement issues considered by the
Committee during 2021 is set out in
the table on page 96. In addition, as
part of the Committee’s planning for
the 2021 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 UK listed
companies published in October 2021.
assets on the balance sheet; (iv) Group
tax rates and provisioning (with the
Committee concluding that, as a result
of new processes adopted during the
year, the level of judgemental analysis
applied in this area for the current
year had been significantly reduced);
(v) an in-depth review of the Group’s
GDPR/data privacy and anti-bribery/
corruption controls, and (vi) the viability/
going concern position for the Group
(reflecting current year trading and the
new US PP arrangement).
Specific audit matters considered by
the Committee in 2021 included: (i) the
Group’s defined benefit obligation with
respect to pensions; (ii) the acquisition
intangible asset impairment reviews
conducted at the half-year and full-year
stages (with the Technology Products
Division being the principal area of focus,
but with the Committee concluding
that sufficient headroom was available
based on projected future trading); (iii)
the carrying amount of Virolens- related
The Committee also reviewed the
outputs of the internal audit projects
conducted during 2021, which are
undertaken both on a site-specific
basis (with each principal TT site being
reviewed at least once every three years)
and for targeted functional areas, which
for 2021 included IT implementation, HR
and talent management, procurement
and supply chain and project assurance.
The Committee has continued to pay
close attention in the past year to the
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report The FRC has recognised in its latest
correspondence that the Company
may wish to refer to the exchange of
correspondence with the FRC in this
Annual Report but may do so only
on the basis that we make clear the
inherent limitations of the FRC’s review,
including the fact that: (i) the review is
based on the content of TT’s Annual
Report (without detailed knowledge
of TT’s business or an understanding
of the underlying transactions entered
into by the Company); (ii) the FRC
provides no assurance that TT’s
Annual Report is correct in all material
respects; and (iii) the FRC (including
its officers, employees and agents)
accepts no liability for reliance on its
correspondence, whether to TT or
any third party (including investors
and shareholders).
The Committee appreciates the
opportunity to engage with the FRC
and deliver further improvement in
our disclosures.
Governance | Audit Committee report
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 Group’s migration to a
shared service environment, post-COVID
trading, the financial integration of
businesses having only recently adopted
the Controls Framework and the impact
of behavioural factors on the controls
environment. For further details of TT’s
risk management and internal controls
structures see pages 64 to 70.
During 2021, the Risk Committee
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. For further details of the Board’s
approach to assessing the Group’s risk
appetite, see page 64.
In the fourth quarter, the Committee
undertook a detailed review of
the Group’s climate-related risks
and opportunities, with particular
reference to the new TCFD disclosure
Misstatements
requirements. A summary of the outputs
of this review exercise is set out on page
51. A further, more detailed scenario
analysis will be undertaken in 2022.
FRC review
On 12 August 2021, we received a
request for information from the FRC,
which was addressed to the Company’s
Chairman. This information request
focused on two specific areas, being
share-based payments and deferred
tax and the related disclosures made
in the 2020 Annual Report.
TT provided detailed responses to
the queries raised by the FRC and
the FRC wrote to the Group CFO on 6
December 2021, confirming that TT’s
responses had enabled the FRC to
close its enquiries.
In its correspondence, the FRC
highlighted the requirement for the
recognition of deferred tax in relation to
certain hedging instruments, clarification
in respect of classification of share-
based payments and the footnote
disclosures of share-based payments
and deferred tax. The Company has
carefully considered the suggested
disclosures proposed by the FRC and
these have been fully reflected in this
Annual Report. None of the FRC’s
queries required restatement of prior
year financial results or position.
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 that 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 NEDs, the external
Auditor and other external advisers.
On careful review of the Annual Report
for the year ended 31 December 2021,
and the basis for the statement made
by the Board on “Fair, balanced and
understandable” on page 122, 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.
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TT Electronics plc Annual Report and Accounts 2021
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
Policy on non-audit services
The Company has an established policy
regarding the provision of non-audit
services by external auditors, which
was last refreshed in 2021. This policy
provides that non-audit services may
be obtained from the most appropriate
source, having regard to expertise,
availability, knowledge and cost as
confirmation that they comply with
the whitelist of permitted services as
set out in the Revised Ethical standard
2019. 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
that fees for non-audit services will
not exceed those for audit services,
paid to the same service provider, for
has formally reviewed the independence
of the Auditor as part of the 2021
review. Deloitte has provided a letter to
the Committee confirming it remains
independent within the meaning of the
relevant regulations and in accordance
with its professional standards.
The Committee also reviewed the
quality and effectiveness of the audit
programme during the year, as described
on page 97.
more than two consecutive years,
unless specifically recommended by
the Audit Committee and agreed by the
Board. The overriding preference of the
Committee is not to engage the Auditor
for additional non-assurance services,
unless there are compelling reasons to
the contrary, such as capability, time
or cost.
In 2021, the total fees paid to Deloitte
were £1.4 million, while no other non-
audit service fees were paid to Deloitte
in the year. This includes £0.1 million
paid to Deloitte for their review of the
Company’s interim results. Accordingly,
during 2021, non-audit service fees paid
to Deloitte represented seven per cent
of audit service fees paid to them during
the same period.
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 138 to 148. The
Committee received and reviewed
reports from management and
the external Auditor setting out the
significant issues in relation to the
2021 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 2021; 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.
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report Governance | Audit Committee report
Significant issues
Significant issue
Committee actions/work undertaken
Adjusted profit (see Note 6)
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 7)
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 13)
The Committee has reviewed
management’s computation of the
present value of future cash flows
from the five year plan and outer years.
These have been compared to the
carrying amounts in order to test for
impairment, (refer to Note 13 to the
Group Financial Statements)
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.
Virolens (see Note 1g)
The Committee reviewed
management’s assessment of the
recoverability of the Virolens related
assets held at 31 December 2021.
Other items
Legal and restructuring provisions
(see Note 18)
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.
The Committee challenged the items that were excluded from adjusted 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
adjusted profit.
Management confirmed to the Committee that the provisions recorded
at 31 December 2021 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 2021 to
be appropriate.
The Committee reviewed the reasonable possible change disclosure for the IoT
Solutions CGU and challenged management’s assumptions and sensitivities. The
Committee confirmed both the disclosures and assumptions were appropriate.
The Committee reviewed the going concern and viability assessment over the
three-year period based upon 2022 budget and the strategic plan to 2024.
The Committee confirmed that the application of the going concern basis for the
preparation of the financial statements continued to be appropriate.
The Auditor explained to the Committee the work they had conducted and the
results of their audit procedures on going concern and viability.
The Committee considers management’s conclusion that no impairment is required for
2021 (with the exception of the trade receivables) to be appropriate.
The Committee reviewed the key sources of estimation uncertainty disclosure for Virolens.
The Committee confirmed both the disclosures and assumptions were appropriate.
The Auditor explained to the Committee the work they had conducted and the results
of their audit procedures on the assessment of the recoverability of the Virolens
related assets.
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 2021 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 18.
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TT Electronics plc Annual Report and Accounts 2021
Committee activities in 2021
Financial reporting
Governance
• 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.
• Reviewed the fair, balanced and understandable
process for the financial reports.
• Reviewed and discussed 2021 H1 and year-end
accounting issues.
• Reviewed and responded to the BEIS consultation
on Audit and Governance Reform.
• Responded to the FRC request regarding our 2020
Annual Report and financial statements.
• Reviewed Terms of Reference.
• Received and considered whistleblowing matters
reported through the Group’s multi-lingual, anonymous
ethics and integrity portal.
• Undertook an evaluation on the effectiveness of
the Committee.
• Considered new areas of audit disclosure under UK
legislation/regulation.
Internal audit and risk and assurance
External audit
• Received a report at each meeting on the internal
• Discussed and approved the external audit plan and
audit and risk assurance plan.
• Reviewed internal audit planned activity.
• Agreed the remit of the internal audit programme
of work.
• Considered the results of the 2021 internal
audit activities.
• Reviewed and approved the 2022 internal audit plan.
• Conducted the annual review of the Group’s
internal auditor.
• Reviewed systems and controls for the prevention
of bribery and fraud and in relation to GDPR.
Anne Thorburn
Chair, Audit Committee
8 March 2022
audit fee.
• Reviewed external Auditor planned activity.
• Reviewed and confirmed both the independence of the
external Auditor as part of the 2021 review, and non-
audit fees.
• Assessed the quality and effectiveness of the audit
programme, including the performance of the Auditor
relative to prior year.
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report Key activities during the year
• We re-engaged shareholders following
the 2021 AGM for feedback following
the shareholder consultation on the
2020 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.
• We sought to support our lowest
paid UK colleagues with higher salary
increases in April 2021 and redesigned
their incentive scheme with the aim
of improving payments, total reward
opportunity and engagement.
• We concluded a strategic review of
remuneration practices in our growth
markets and, in line with established
local market practice, introduced a
hybrid LTI model for US below-Board
leadership roles.
• We reviewed performance measures
in our incentives, including the use of
alternative financial measures and
ESG sustainability measures aimed at
driving material improvement in the
Group’s environmental footprint.
• We considered remuneration
outcomes to ensure they remain
fair, appropriate, and in line with our
remuneration principles and the strong
Company performance.
• Short-term Investment Plan (STIP)
payments are between on target
and maximum reflecting the strong
year of growth in both revenue, profit
and margin.
• Long-term Incentive Plan (LTIP)
vested at only 18.3 per cent reflecting
the impact of the pandemic on the
momentum of the business and the
halt in progress during 2020 as a result
of a pause in our end markets.
Governance | Remuneration Committee report
INTRODUCTION TO OUR:
REMUNERATION
COMMITTEE
REPORT
Membership
Principal responsibilities
Alison Wood (Chair)
Warren Tucker
Jack Boyer
Contents
Principal responsibilities and
Key activities
Annual statement
Remuneration at a glance
Remuneration Policy overview
Annual report on remuneration
Implementation of the Policy for 2022
Implementation of the Policy for 2021
Total single figure remuneration
Salary and benefits
Short-term incentive for 2021
Long-term incentive
Directors’ share interests
p98
p100
p102
p106
p108
p108
p110
p110
p110
p111
p112
p114
• 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 respect of
the last financial year and for the
current year.
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TT Electronics plc Annual Report and Accounts 2021
Q
During the year the Committee
reviewed the performance measures
for future LTIP awards. Are there
any immediate changes for
remuneration in 2022?
Shareholder consultation during the
year solicited a range of feedback on
the types of long-term performance
measures employed. Shareholder
feedback was supportive of the
current remuneration structures
whilst also making a number of
possible suggestions. The core
themes remained focused on
shareholder return measures such
as TSR, profit measures such as
EPS, with some interest in returns on
equity/capital employed measures
such as return on capital employed.
We reviewed the feedback, sector
trends on performance measures
and, importantly, the applicability to
this phase of the Group’s strategy. We
concluded that the LTIP performance
measures for 2022 would remain
based on EPS and TSR. During this
year’s Remuneration Policy review
we will again consider the overall
mix of measures including the use
of ESG and returns on equity/capital
employed.
Q&A
Q
At the 2021 AGM, shareholders
voted to pass the advisory vote
on the Directors’ remuneration
report but 23% did not support
the resolution. What feedback
did you subsequently receive
from shareholders?
In line with the provisions of
the Code, we engaged with our
largest shareholders to gain an
understanding of the reasons behind
the votes against. Prior to the 2021
AGM, we undertook a significant
consultation exercise with our
largest institutional investors and
the key advisory bodies. While most
investors were supportive of the
Committee’s proposals, a minority
of shareholders did not support
the proposed amendment of the
performance conditions for the 2020
LTIP awards to a single measure of
total shareholder return (TSR) given
the uncertainty around earnings and
the benefit of being more fully aligned
with shareholder outcomes, and/
or the 2020 STIP award where the
entire award was deferred into shares.
Following the AGM, the vast majority
of investors reiterated their support
for the remuneration decisions taken
by the Committee with no material
additional feedback received.
Q
The pandemic had a material impact on
end markets impacting the motivation/
attainability of long-term performance
measures and their effectiveness with
respect to retention. What actions have
been taken to improve motivation and
retention of critical roles/key talent?
The Group’s talent and succession
approaches ensure that the Board
retains a strong oversight of the
retention risks for critical roles and
key talent. As a Committee we have
continued to consider the effectiveness
of remuneration-based retention
arrangements which have been
materially impacted by the pandemic.
The review was extended this year to go
deeper into the organisation and take
account of a broader set of critical roles,
and the Committee subsequently has
taken appropriate action to strengthen
retention. To date, our actions to
retain critical roles and key talent have
remained effective.
Q
What actions have the Committee
taken to ensure that performance
targets are appropriately stretching
during the period of volatility
and unpredictability arising from
the pandemic?
Our role as a Committee includes
encouraging enhanced performance
and rewarding contribution to the
Group’s success. This year a major
consideration has been the setting of
motivational yet stretching performance
targets whilst recognising the continuing
uncertainty that COVID-19 brings.
The Committee decided to delay the
setting of the 2021 LTIP performance
targets to enable a more appropriate
and stretching performance range to
be set to include the expectation for a
significant recovery in earnings per share
(EPS) over the three-year performance
period. We remain mindful of the
perception of windfall gains and will
ensure incentive outcomes are reflective
of the wider stakeholder experience.
The Committee also reviews total
remuneration outcomes to ensure that
they are fair, appropriate and in line with
our principles.
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report Governance | Remuneration Committee report
Annual statement
On behalf of the Board, I am pleased to
introduce the Directors’ remuneration
report for the year ended 31 December
2021. 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
and the implementation of the Policy
in the year ended 31 December 2021
and the proposed implementation
of the Policy for the current financial
year. The Policy operated as intended
during the year with no changes.
Context for the year
2021 has been a year of strong growth
and recovery demonstrating the strength
of the business and its strategy, despite
the impact of the COVID-19 pandemic
continuing in the year. The Committee,
together with the Board, continues to
be impressed by the resilience and
dedication of our incredible employees
helping to keep our facilities safe and
operational throughout the year. Against
the backdrop of the ongoing pandemic
the performance of the Group has been
even more encouraging and enabled
us to confirm the resumption of the
dividend in the early part of the year.
The year has not been without its
challenges from COVID-19, with
continued uncertainty in commercial
aerospace, supply chain challenges
and changes to the dynamics of
employment markets. The Group has
navigated these challenges without the
need to access any coronavirus support
from the UK Government during 2021.
As previously disclosed, the Group
repaid all Coronavirus Job Retention
Scheme payments in early 2021 which
had been fully accrued in 2020; the
Company did not utilise any other UK
Government support.
In October 2021, we undertook our
regular Group-wide employee survey
and we were delighted with the
results, with improved feedback from
colleagues across a number of our
facilities and our Group rating further
improved our standing as a two star
employer, continuing to benchmark
the Company alongside the very best
global corporations in terms of employee
engagement. As previously disclosed,
we have updated our purpose to better
reflect our core values of sustainability
and wellbeing. Employees continued
to give strong feedback in respect
of these areas and the actions taken
to improve sustainable, safe and
supportive workplaces.
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 Group. The
Committee continues to be mindful
of the impact of the pandemic on
remuneration and has 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 2021, and the proposed
Policy implementation for 2022, are set
out in detail in this report.
Business performance
Since 2015, the Group has undergone
significant transformation and is
continuing to become a higher-quality,
better-balanced business aligned to
structural growth markets. COVID-19
tested our business model and strategy
which displayed the resilience we have
developed in the Group.
The Group entered 2021 with good
order book momentum and on a
sound financial footing following
the actions taken in 2020. The year
has been one of high performance,
growth and recovery with record order
books, strong momentum, and good
margin progression. This has been as
a result of management offsetting the
significant incremental headwinds on
material costs, freight and COVID-19
disruption via pricing and efficiency
actions. Cash-flow management has
been robust in the context of being
tested during the year, in particular by
tightness in the supply chain requiring
extra inventory investment to ensure
delivery performance to customers
was maintained. However, a series
of actions have maintained balance
sheet strength enabling the acquisition
of the Power and Control business
of Ferranti Technologies Ltd in early
2022. The business is now positioned
for further acceleration of our strategy
and margin growth.
Overall, the recovery and performance
has been strong:
• Adjusted profit before tax was
£31.5 million, up by 32 per cent.
• Free cash flow was a £1.3 million
outflow.
• Adjusted EPS was 14.5 pence, up by
24 per cent.
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TT Electronics plc Annual Report and Accounts 2021
that the threshold EPS performance
measure was not met. TSR
performance over the three-year period
was slightly ahead of the median rank
threshold performance hurdle which
meant that this half of the awards
vested at 36.6 per cent, as presented
on page 112.
• The 2019 LTIP awards vest in March
2022 based on performance against
EPS and TSR. Similar to the 2018
LTIP awards, EPS performance was
forecast to vest in full until the onset
of the COVID-19 pandemic, whilst the
growth in 2021 and the recovery have
been significant, the threshold EPS
performance measure was not met due
to the pause in the growth momentum
caused by the pandemic. The TSR
performance measure concludes in
March 2022 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 112.
Performance-related remuneration for 2021
In determining the Executive Directors’
remuneration outcomes in the context
of the challenges of the ongoing
pandemic, the Committee has focused
on balancing the principles of: aligning
pay with performance; ensuring the
appropriate level of motivation and
focus required to deliver the next phase
of the Group strategy; and reviewing
remuneration outcomes in the context
of our stakeholder experience. The
Committee believes that the following
outcomes are a fair reflection of
business performance and the personal
performance of the Executive Directors.
In respect of performance-related
remuneration outcomes for the wider
workforce, short-term incentive awards
continue to recognise performance and
the attainment of relevant business
performance measures in 2021. This
ensures alignment with the approach
for the Executive Directors:
• The 2021 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
2021, adjusted profit before tax
grew 32 per cent to £31.5 million;
in line with the increase in full-year
earnings expectations announced
with the H1 2021 results, the full-year
profit performance was ahead of the
maximum performance target, net
of £3.8 million of Virolens start-up
costs. Free cash flow performance
was robust and we maintained
balance sheet strength even in the
context of the material challenges
experienced from the supply chain,
the expected investment in the final
phase of the self-help programme and
the investment in Virolens start-up
to create the potential for a material
growth opportunity. The impact of
these investments was mitigated
through the accelerated disposal of
freehold property and, as a result,
the Group’s leverage was maintained
compared to the end of 2020. The
business delivered cash conversion of
65 per cent and a free cash outflow of
£1.3 million being between the target
and maximum performance levels.
The Executive Directors delivered
another year of strong leadership
with significant progress against the
Group’s strategic objectives. The
combined performance led to an
incentive achievement of 97 per cent
of the maximum for the CEO and CFO.
Eighty per cent of the award will be paid
in cash and 20 per cent deferred into
shares per the Remuneration Policy.
Details of the short-term incentive
performance targets and performance
achieved is presented on page 111.
• The 2018 LTIP awards vested in
March 2021. The awards were based
on two equally weighted measures,
absolute adjusted EPS and relative
TSR performance. As reported last
year, until the onset of the COVID-19
pandemic, EPS performance was
forecast to achieve significant vesting.
However, the impact of the pandemic
on the business momentum and
progress linked to this award meant
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report Governance | Remuneration Committee report
OUR EXECUTIVE REMUNERATION AT A GLANCE
Business performance
£32.6m £1.3m 14.5p
Above
median rank
Adjusted profit before tax1
Group free cash outflow1
Adjusted earnings per share2 Total shareholder return2
1 Target and actual performance are assessed at constant budget exchange rates.
2 EPS performance measure relates to the 2019 LTIP award (performance period of 1 January 2019 to 31 December 2021), TSR performance measure to the 2018 LTIP award
(performance period of 14 March 2018 to 13 March 2021).
Performance outcomes
The Committee believes that incentive outcomes are a fair reflection of business performance and of the personal
performance of the Executive Directors. The Committee did not apply judgement or exercise discretion to performance-related
remuneration during the year.
Short-term incentive plan
Long-term incentive plan
97% 0%
97% 18.3% 0%
Formulaic outcome
(% of maximum)
Committee
judgement/discretion
(% of maximum)
Final outcome
(% of maximum)
Formulaic outcome
(% of maximum)
Committee
judgement/discretion
(% of maximum)
18.3%
Final outcome
(% of maximum)
Financial objectives (% weighting)
Performance dimensions (% weighting)
Adjusted profit before tax (50%)
Group free cash flow (25%)
KPI
KPI
50%
Adjusted earnings per share (50%)
24.6%
Total shareholder return (50%)
0%
KPI
KPI
36.6%
Strategic objectives (% weighting)
ESG development (7.5%)
Stakeholder equity story (10%)
Leverage reduction (7.5%)
KPI
KPI
KPI
7.5%
10%
5%
Total remuneration for 2021
Richard Tyson, Chief Executive Officer
Mark Hoad, Chief Financial Officer
£1.31m
2020: £1.00m
40% – Salary and benefits
6% – Pension
45% – Short-term incentive
9% – Long-term incentive
£0.98m
2020: £0.76m
40% – Salary and benefits
6% – Pension
45% – Short-term incentive
9% – Long-term incentive
46% fixed 54% variable
Alignment with stakeholders
46% fixed 54% variable
Share ownership requirement:
200% of salary for Executive
Directors.
Short-term incentive
Awards subject to a 20% mandatory
deferral into shares with a two-year
holding period.
Workforce alignment
Executive remuneration set in
the context of wider workforce
remuneration.
Post-employment share ownership
Shares to the value of 100% of
salary to be held until two years after
cessation of employment.
200%
CEO
CFO
480%
500%
Long-term incentive
Awards delivered in shares and
subject to mandatory two-year
holding period.
Remuneration principles flow through
the Group to ensure alignment.
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TT Electronics plc Annual Report and Accounts 2021
Executive Director remuneration for 2022
Looking ahead to the review of the
Remuneration Policy which will be
undertaken during the year and the
challenges posed by the ongoing
pandemic, the Committee believes
the existing incentive design and
performance measures remain
appropriate for 2022.
• Base salaries for the Executive
Directors were increased by 2.5 per
cent on 1 January 2022. Wider UK
workforce increases are expected to
average around 3-4 per cent.
• Executive Directors’ pension
allowances will align with those
available to the wider UK workforce
from the end of 2022.
• The STIP will remain unchanged,
building on our momentum to grow
our profitability and deliver good free
cash flow to support the ongoing
strategic development of the Group.
The STIP will be based on Group
adjusted profit before tax (50%), Group
free cash flow (25%) and strategic
objectives (25%). The opportunity
remains at 125 per cent of salary
with at least 20 per cent of any award
deferred into shares for two years.
Strategic objectives continue to reflect
the creation of sustainable value for
stakeholders with a continued focus
on ESG development, execution
of the Company inorganic growth
strategy and a focus on our people
talent development.
• LTIP awards are planned to be made in
March 2022. Performance targets are
anticipated to be based on two equally
weighted performance measures: EPS
and TSR. Award levels for the CEO and
CFO are expected to be 150 per cent
and 135 per cent of salary respectively.
LTIP awards will be subject to a two-
year post-vesting holding period.
Our Executive Director remuneration framework
Short-term incentive plan
Long-term incentive plan
50%
Adjusted profit
before tax1
+
25%
25%
50%
Adjusted
EPS1
+
50%
Relative
TSR
Performance measure and weighting
Performance measure and weighting
50% – Adjusted profit before tax1
25% – Group free cash flow1
25% – Strategic objectives
50% – Adjusted EPS1
50% – Relative TSR
1 Target and actual performance are assessed at constant budget exchange rates.
What they measure
• Sustainable growth in the Group's
profitability per share over three
years.
• Performance of the Group's share
price and dividend performance
relative to a peer group over three
years.
What they measure
• Operational performance
encompassing our strategic priorities
of strategic business development
and operational excellence.
• Cash flow performance,
encompassing our cash conversion
and cash generation for capital
reinvestment.
• Progress of the Group's strategic
aims to deliver sustainable growth in
stakeholder value.
• All incentives are subject to malus and
clawback provisions.
• In-employment shareholding guidelines
apply (200% of salary) and post-
employment shareholding guidelines
(100% of salary) apply for two years.
TT Electronics plc Annual Report and Accounts 2021
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Pay in the wider workforce
• The Committee spends considerable
time on matters relating to
remuneration across the workforce.
This provides important context to
frame decision-making on Executive
Director remuneration as well as
ensuring that reward principles are
consistently applied throughout the
organisation and reward practices are
aligned and complementary.
• TT Electronics’ overarching
remuneration is designed to underpin
the Group’s core purpose and
delivery of strategic priorities, the
framework is commonly applied
across the Group and supports the
people strategy to create an inclusive,
equitable and performance-related
organisational culture. Where
practicable, remuneration practices
are aligned with those of the Executive
Directors to ensure alignment of focus
and motivation.
• During the year, a revised site
incentive scheme has been launched,
which applies to the majority of our
workforce, ensuring that we continue
to have alignment in our remuneration
principles and our strategic priorities.
• In addition to existing site employee
forums, we built on our existing
mechanisms to engage the workforce
on our remuneration principles and
how these align with our remuneration
arrangements. Pilot sessions have
been run in three of our UK sites
to ensure their success, clarity
and engagement.
• NED virtual site visits and re-
establishment of in-person site visits
continue to allow for open and frank
dialogue directed by feedback and
priority areas from our employees.
Employee voice in the boardroom
Board site
visits, and direct
engagement with
the workforce
and the SLT
Reward focus
sessions
run at sites
Remuneration
arrangements
across the
workforce
Reward/
culture-related
feedback also
shared with the
Remuneration
Committee
Other sources
of feedback on
total employee
experience
including
designated NED
Information
flow
Remuneration
Committee
Board
• For 2021, the median CEO pay ratio
has increased from 40:1 in 2020 to
52:1. This reflects our remuneration
principles, with the majority of CEO
remuneration based on variable
performance-related pay and the
wider workforce having the majority
of remuneration based on fixed pay.
In particular the increase in ratio
results from a higher STIP award for
2021 reflecting the strong growth and
recovery of the business whilst a lower
LTIP vesting reflects the longer-term
impact of the pandemic.
• 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 culture and 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.
• Across the Company we are broadly
evenly split by gender, however, we
acknowledge that there remain long-
term objectives to further improve
diversity amongst our professional and
management roles. We are making
progress by championing a female-
friendly workplace and targeting
our talent processes to improve
our diversity. We are starting to see
improved representation of female
employees in professional, manager
and leadership roles. Details of our UK
Gender Pay disclosures can be found
on www.ttelectronics.com.
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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 remuneration
outcomes we reflect on whether
the Company’s overall performance
and stakeholder experiences are
appropriately represented by the
performance measures we have set,
by taking into account performance
against non-financial measures,
ESG matters, the demonstration of
leadership qualities, living our values
and conversations with our major
shareholders where relevant.
• The Committee did not apply
judgement or exercise discretion to
performance-related remuneration
in respect of 2021.
• 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.
• We welcome shareholder engagement
and are committed to shareholder
consultation with respect to the
material application of discretion, such
as that taken ahead of the 2021 AGM.
The year ahead
Assessing remuneration outcomes
Formulaic incentive outcomes
Total single figure remuneration
Underlying financial performance
Stakeholder experience
Customers
and
suppliers
Employees
Society
Environmental
Investors
Other inputs e.g. HSE
Requirement for judgement/discretion
Fair and appropriate remuneration outcomes
As the Company continues to transform, the Committee, working with management, will continue to assess and ensure
our arrangements remain fit for purpose. In particular, in 2022, the Committee will undertake a review of the Remuneration
Policy for approval at the 2023 AGM to ensure the alignment of remuneration arrangements with TT’s strategy, business
results and market demands.
Alison Wood
Chair, Remuneration Committee
8 March 2022
TT Electronics plc Annual Report and Accounts 2021
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REMUNERATION POLICY
OVERVIEW
Key Policy objectives
The remuneration principles shown
below informed the design of our current
Remuneration Policy which:
• Enables us to attract, retain and
motivate high-calibre executive talent
in a challenging and competitive
business environment to promote the
strategic and financial performance of
the business;
• Delivers an appropriate balance
between fixed and variable
compensation for each Executive;
• Places a strong emphasis on
performance, both short and
longer term;
• Strongly aligns to the achievement of
strategic objectives and the delivery of
sustainable value to shareholders; and
• 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, taking
account of prevailing market and
economic conditions and remuneration
levels across the Group.
Alignment with the Code
The table below details how the Committee addresses the factors set out within Provision 40 of the Code, which align well with
our principles:
Clarity
Simplicity
Risk
Predictability
Proportionality
Alignment to culture
• We are mindful
to avoid overly
complex
remuneration
structures. Our
arrangements
include market
standard short- and
long-term incentive
designs, each of
which are explained
in detail.
• No complex or
artificial structures
are required to
operate incentive
plans.
• Participants in
incentive plans
receive annual
communications
to confirm
award levels and
performance
measures. During
the year one-to-
one conversations
were held with our
senior leaders in
respect of their
total remuneration
opportunity.
• The Committee
undertakes an
annual review of
risks. Identified
risks are considered
with appropriate
mitigation
strategies or
tolerance levels
agreed.
• The Committee
considers that
the structure of
variable incentive
arrangements does
not encourage
unnecessary risk
taking.
• The Committee
considers the
effective risk
management
throughout the
delivery of variable
incentive plans,
applying reasonable
discretion to
override formulaic
outturns as
appropriate.
• Clawback and
malus provisions
are in place across
all incentive plans
and are clearly
communicated.
• Our Policy
clearly outlines
the maximum
award levels and
vesting outcomes
applicable to our
variable incentive
plans. Possible
reward outcomes
can be easily
quantified, and
these are reviewed
by the Committee.
• Performance is
reviewed regularly
so there are no
surprises at the end
of performance
periods.
• Our approach to
decision-making
ensures pay
outcomes are fair,
proportionate and
do not reward poor
performance.
• Our remuneration
principles place a
strong emphasis
on performance,
both short and
long-term to deliver
a sustainable
business in the long
term. This is a key
part of our purpose
and informs our
approach to target
setting, operation
of discretion and
setting of strategic
objectives.
• Our remuneration
principles underpin
our Remuneration
Policy for the
Executive Directors
and that of the
wider workforce
to ensure cultural
alignment through
the Group and that
performance aligns
with our TT Way
values.
• There is a robust
link between the
delivery of strategic
business objectives
and performance
outcomes in our
variable incentive
plans. Performance
is assessed on
a broad basis,
including a
combination
of financial,
operational, ESG
and strategic
progress which
ensures there is no
undue focus on a
single metric which
may be to the
detriment of other
stakeholders.
• The Committee
has appropriate
discretion to
override formulaic
outturns if they
are deemed
inappropriate in
light of the wider
performance of
the Group and
considering the
experience of
stakeholders.
• The Remuneration
Policy sets out
the terms for
remuneration
including limits
in terms of
quantum, the
measures which
can be used and
discretions which
could be applied if
appropriate.
• We believe in
being open and
transparent.
Detailed
disclosures of
the relevant
performance
assessments
and outcomes
are provided so
stakeholders can
assess whether
remuneration
paid to Executives
is appropriate.
We continually
review feedback to
enhance the clarity
and transparency
of the report.
• We welcome
stakeholder
engagement and
are committed
to shareholder
consultation in
respect of the
material application
of discretion, such
as that undertaken
during the year.
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TT Electronics plc Annual Report and Accounts 2021
Remuneration Policy
A summary of the Policy is outlined below. The Remuneration Policy was approved by over 91 per cent of shareholders
at the 2020 AGM. The Policy supports and rewards the achievement of the Group’s strategy to deliver profitable and
sustainable growth over the short and longer term. 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 2022
Element
Maximum
2022
2023
2024
2025
2026
Fixed Pay
Salary
Market competitive.
Increases set with
reference to the wider
workforce.
Salary paid.
Benefits
Market competitive.
Benefits paid.
Pension
Variable Pay Short-term
incentive plan
Aligned to those
available to majority
of local workforce
for newly appointed
Executives. 15% of
salary for existing
Executive Directors and
aligned to the workforce
from the end of 2022.
CEO/CFO 125% of
salary. 80% cash and
20% in deferred shares.
Pension
provision paid.
Annual
performance
conditions
apply. Majority
weighting on
Group financial
targets, minority
to strategic
objectives.
Cash
element
paid
(80% of
incentive).
Two-year share
deferral
(20% of incentive).
Long-term
incentive plan
CEO 150% of salary,
CFO 135% of salary.
Two-year holding period.
Based on financial and/or shareholder
value creation measures over three-year
performance periods.
Two-year holding
period.
Governance Malus
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.
(withholding)
and clawback
(recovery)
Share
ownership
requirement
Post-
employment
share
ownership
200% of salary.
Executive Directors required to build and maintain the share
ownership requirement.
100% of salary.
Holding requirement for shares until two years after cessation of
employment.
TT Electronics plc Annual Report and Accounts 2021
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ANNUAL REPORT ON
REMUNERATION
Implementation of the Remuneration Policy for the year ending 31 December 2022
A summary of how the Directors’ Remuneration Policy will be applied during the year ending 31 December 2022 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 2.5
per cent effective 1 January 2022, a level which is below the expected average increase for the wider UK workforce.
Executive
Richard Tyson
Mark Hoad
2022
£497,526
£373,215
2021
Increase
£485,391
£364,112
2.5%
2.5%
The Group’s UK employees, in general, are expected to receive pay rises averaging 3-4 per cent depending on location,
promotional increases and individual performance.
Pension and benefits
The Executive Directors have agreed that their pension allowance (currently 15 per cent of salary) will be aligned with those
available to the wider UK workforce by 31 December 2022 by way of a single reduction.
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 Group’s strategy. For 2022,
the maximum short-term incentive opportunity will remain 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)
Paid
in cash
Awarded
in shares
6.25%
3.125%
n/a
62.5%
31.25%
31.25%
125%
80%
20%
Weighting
50%
25%
25%
100%
Targets are set taking account of internal and external forecasts relating to the Group’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 majority of targets for the 2022 STIP are currently considered to be commercially sensitive; the targets and respective
levels of achievement will be disclosed in the 2022 Directors’ remuneration report. The strategic objectives reflect the creation
of sustainable value for all our stakeholders with a focus on ESG development, Group strategic development and people
development. 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.
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TT Electronics plc Annual Report and Accounts 2021
Long-term Incentive Plan
LTIP awards are expected to be granted in March 2022. For 2022 the performance measures will remain unchanged. Vesting is
intended to be based on performance against the following equally weighted measures over three-year performance periods:
Performance measure
Adjusted EPS compound annual growth on a constant currency
basis over the three-year performance period
Relative TSR performance against the FTSE SmallCap
(excluding Investment Trusts)
Weighting
Threshold
(25% vesting)
Maximum
(50% vesting)
50%
5%
12%
50%
Median rank
Upper quartile
rank or above
The performance measures ensure the alignment of senior management and shareholder interests. Target ranges for the 2022
awards have been set taking into account the latest internal and external forecasts for the business, including both economic and
political uncertainty and TT’s principal risks. The Committee believes that the EPS growth targets pose a similar level of stretch to
those of prior years, with maximum performance aligning with upper quartile growth forecasts and following the significant year
of recovery in 2021.
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
2022
150%
135%
2021
150%
150%
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, NED base fee and NED additional fees increased by 2.5 per cent effective 1 January 2022, a level which is
below the average expected increase for the wider UK workforce.
Chairman
Base fee
Additional fees
Senior Independent Director
Audit Committee Chair
Remuneration Committee Chair
2022
2021
Increase
£187,268
£182,700
£46,968
£45,822
£8,200
£8,200
£8,200
£8,000
£8,000
£8,000
2.5%
2.5%
2.5%
2.5%
2.5%
TT Electronics plc Annual Report and Accounts 2021
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Implementation of the Remuneration Policy for the year ended 31 December 2021
Single figure for total remuneration (audited)
Directors’ remuneration for the year ended 31 December 2021 was as follows:
£’000
Executive Directors
Richard Tyson
Mark Hoad
Chairman
Warren Tucker1
Non-executive Directors
Jack Boyer2
Anne Thorburn3
Alison Wood
Salary/
fees
Taxable
benefits
Pension
Total
fixed pay
Short-term
Incentive4
Long-term
Incentive5
Malus and
clawback
Other6
Total
variable
pay
Single
total
figure
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
485
454
364
341
183
126
54
47
54
48
54
50
37
25
32
21
73
68
55
51
595
547
451
413
183
126
54
47
54
48
54
50
589
219
442
164
119
237
82
181
3
3
711
456
527
345
1,306
1,003
978
758
183
126
54
47
54
48
54
50
1 Warren Tucker was appointed to the Board on 2 April 2020.
2 Jack Boyer was appointed SID on 6 May 2020.
3 Anne Thorburn was appointed Chair of the Audit Committee on 6 May 2020.
4 Executive Directors’ short-term incentive awards are subject to deferral into share in the Company. The STIP value includes the incentive paid in both cash and deferred into shares. In line
with the Remuneration Policy 20% of the 2021 award will be deferred into shares. The Committee applied discretion to the 2020 award and decided it was appropriate to defer the full
award into shares. Deferred awards are not subject to any further performance conditions.
5 LTIP values shown in the single figure include dividend equivalents. The 2021 single figure is comprised of the EPS element of the 2019 award and the TSR element of the 2018 award; the
2020 figure is comprised of the EPS element of the 2018 award and the TSR element of the 2017 award. Further detail is contained on page 112. The value attributable to share price
appreciation in the 2021 single figure value for the CEO and CFO was £(12,000) and £(8,000) respectively. The Committee did not exercise any discretion to vesting outcomes in relation to
the impact of share price movements.
6 The Executive Directors exercised their 2018 Sharesave options during the year. The value shown is the gain on exercise.
Base salary/fees
Base salaries for the Executive Directors were reviewed in December 2020 and were increased by 1.5 per cent with effect from
1 January 2021. Base fees for the Chairman and NEDs were also increased by 1.5 per cent with effect from 1 January 2021. The
SID fee was aligned with the other Chair fees which remained unchanged.
Fixed pay to the Directors in 2020 included a 20 per cent salary/fee reduction for a three-month period that was volunteered by
the Directors in response to the COVID-19 pandemic and the actions taken by the Group to reduce costs and protect cash flows.
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 in 2020 were 20 per cent lower during the period of the voluntary salary reduction in relation to the impacts
of the COVID-19 pandemic.
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TT Electronics plc Annual Report and Accounts 2021
Short-term incentive
Short-term incentive opportunity was up to 125 per cent of salary. Performance was assessed against Group adjusted profit
before tax (up to 62.5 per cent of salary) and Group free cash flow (up to 31.25 per cent of salary) measured at constant budget
exchange rates and strategic objectives (up to 31.25 per cent of salary) as measured over the 2021 financial year.
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.
Maximum
potential
(% of salary) Achievement
9.375%
✓✓✓✓
Strategic
objective
ESG development
Performance
commentary
Full audit and update completed on emission tracking, verifying
20% carbon reductions in 2020. Carbon reduction plans have been
established per site.
Environmental progress delivered in accordance with plans to deliver
on carbon net neutral commitments by 2035 with a cumulative
41% reduction in carbon emissions since 2019 and plans for further
reduction in 2022. Further progress enables commitments to be
revised to Net Zero carbon for Scope 1 & 2 emissions by at least
2035. Position on Scope 3 emissions has been reviewed enabling
a more encompassing evaluation.
Sustainability strategy has been established to deliver the Group’s long-
term targets and further embed sustainability across the Company.
ED&I strategy rolled out across the Group to further support
improvements in diversity with steps taken during the year to
accelerate improvements in the gender diversity of our senior
leadership group.
Development of our
investment proposition
Process for a joint broker completed with appointment of Barclays
Capital which is now fully integrated.
12.5%
✓✓✓✓
Progressive cash flow
management beyond
planned activity for the year
9.375%
✓✓✓
Investment proposition refreshed and communicated to existing and
prospective institutional investors resulted in heightened investor
interest with five new shareholders holding 10%+ of our share capital.
Cash flow management has been robust with tightness in the supply
chain requiring extra inventory investment. Balance sheet strength
was enhanced and maintained through a series of additional actions
enabling both the acquisition of the Power and Control business of
Ferranti Technologies Ltd and the investment in Virolens start-up
and inventory, which continues to offer significant potential benefits
for stakeholders.
Progressive actions undertaken delivered additional cash flow
of approximately £10 million which included the sale of surplus
land freeholdings across our US sites. Portfolio strategy identified
potential disposals with one significantly progressed but was
undermined by the uncertainty in the future revenue streams of
the business due to customer mergers and the ongoing economic
disruption caused by the pandemic.
✓ underperforming, ✓✓ performing, ✓✓✓ outperforming, ✓✓✓✓ stretch
The formulaic outcomes of the short-term incentive awards for financial and strategic performance in 2021 are summarised
below.
Short-term incentive payments for 20211
Performance measure
Group adjusted profit before tax
Group free cash flow
Strategic objectives
2021 short-term incentive award2
Threshold
potential
(% of salary)
Maximum
potential
(% of salary)
Required for
threshold
bonus (£m)
Required for
maximum
bonus (£m)
Outturn for
incentive plan
purposes (£m)
Achievement
(% of salary)
0%
3.125%
n/a
62.5%
31.25%
31.25%
125%
25.5
(5.8)
As outlined
31.0
(1.2)
32.6
(1.3)
62.5%
30.8%
28.13%
121.43%
1 Short-term incentives are measured using constant budget exchange rates.
2 Short-term incentive award is part paid in cash (80%) and part in deferred shares for two-years (20%) in line with Remuneration Policy.
TT Electronics plc Annual Report and Accounts 2021
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Summary
The Executive Directors have delivered another year of strong leadership with significant progress against the strategic
objectives. The Company has protected and supported employees, customers and the supply chain through the impacts of the
ongoing volatility from the pandemic.
We were pleased to see the agility, commitment and contribution of the Executive Directors reflected in our financial performance
with 2021 being a year of high performance, growth and recovery with record order books, strong momentum, and good margin
progression. Accordingly, at the H1 results the Company announced an increase in full-year earnings expectations. Cash flow
management has been robust with additional inventory investment to manage tightness in the supply chain and maintain
customer delivery performance. An additional series of unbudgeted actions maintained our balance sheet strength enabling
the acquisition of the Power and Control business of Ferranti Technologies Ltd and investment in the Virolens start-up which
continues to offer significant potential benefits for stakeholders. The actions taken during the year ensure that the business is
positioned for further acceleration of our strategy and margin growth.
In carrying out the review of the strategic objectives, the Committee determined that performance was generally at the stretch
performance level. Progress on the sustainability and environmental strategy place ESG at the core of our strategy and purpose;
and positions TT ahead of many of our peers enabling commitments to be revised to Net Zero carbon for Scope 1 & 2 emissions
by at least 2035.
The Committee considered whether the formulaic outcome of the financial and strategic assessment was reflective of the
performance of the Group during 2021 and was satisfied that the outcome was a fair reflection of business and personal
performance and that no discretion was required. In line with the Remuneration Policy 80 per cent of the award will be a cash
payment and 20 per cent deferred into shares for two years.
Long-term incentive
The LTIP awards over conditional shares granted in 2018 and 2019 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 2018 and 2019 LTIP awards had performance periods that ended on or by 31 December 2021 which are
included in the single figure for total remuneration for 2021.
Award year and performance measure
2018 LTIP award1: Relative TSR
performance against the FTSE SmallCap
(excluding Investment Trusts)
Threshold
(25% vesting)
Maximum
(100% vesting)
Median
rank
Upper quartile
rank or above
2019 LTIP award2: EPS compound annual growth
over the three-year performance period
6%
13.5%
Outcome
53rd percentile
(Between
median and
upper quartile)
(3.6)%
(Below
threshold)
Percentage
of maximum
achievement
36.6%
0%
1 2018 LTIP award (vested March 2021): The EPS performance period ended on 31 December 2020 and performance was below the threshold performance hurdle as described in last
year’s remuneration report and included in the 2020 single figure of remuneration. The TSR performance period for this award ended on 14 March 2021 and vested between the median
and upper quartile performance targets as indicated in the above table. The vested value of the shares subject to the TSR performance measure is included in the 2021 single figure for
total remuneration; shares at vesting were valued at 217.0p.
2 2019 LTIP award (vests March 2022): The EPS performance period for this award ended on 31 December 2021 and vesting of the EPS component was not achieved as indicated in the
above table. The TSR performance period ends in March 2022 and the value of the vested awards subject to the TSR performance measures will be included in the 2022 single figure for
total remuneration.
Other
No disclosures occurred during the period.
Malus and clawback
No malus or clawback events occurred during 2021.
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TT Electronics plc Annual Report and Accounts 2021
Long-term incentives granted during the financial year (audited)
LTIP awards over conditional shares were granted to Executive Directors on 16 March 2021. As outlined in last year’s report, the
Committee felt it appropriate to align the awards for the Executive Directors to ensure that they are adequately tied into the longer-
term performance of the Company. The one-off increase in award for Mark Hoad recognised his continued strong contribution
and his importance to the development of the Group and ongoing value to all stakeholders. 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)
Share price at
date of grant
(pence)1
150%
150%
208.25
208.25
Number
of shares over
which award
was granted
349,621
262,265
Face value
of award
(£)
728,087
546,168
% of award
that would vest
at threshold
performance
Performance
period end date
25%
25%
16/03/2024
16/03/2024
1 The share price used to determine the number of shares granted was the average share price over the four 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 2021 award was 6 per cent higher than that of the 2020 award. As such the Committee believes that
windfall gains would not apply to this award as a result of any share price volatility at the time of grant.
Performance measures for LTIP awards granted during the financial year (audited)
The setting of performance measures attributable to the 2021 awards to Executive Directors were delayed until after the grant
date in line with the Investment Association addendum to its guidance on shareholder expectations during the COVID-19
pandemic to ensure that targets were appropriately stretching. Performance measures and targets were set within six months
of the date of grant; performance is subject to the two equally weighted measures of EPS and TSR as follows:
Performance measures
EPS compound annual growth over the three-year
period on a constant currency basis
Relative TSR performance against the FTSE
SmallCap (excluding Investment Trusts)
Weighting
Threshold
(25% vesting)
Maximum
(100% vesting)
50%
10%
18.0%
50%
Median
rank
Upper quartile
rank or above
To better manage some of the uncertainty resulting from the pandemic and to ensure that EPS performance targets were
appropriately stretching, the EPS performance targets will be measured on a constant currency basis going forward. In light of the
expected recovery during the three-year performance period and of the constant currency change the threshold and maximum
performance targets were set at a significantly higher level than historical growth targets.
The Committee is mindful of the perception of windfall gains and retains discretion to adjust formulaic incentive vesting
outcomes to ensure they reflect underlying business performance and shareholder interests.
Deferred short-term incentive awards
During the year the Executive Directors were awarded conditional shares as deferred bonus awards in relation to the 2020 STIP
outcome. As disclosed in last year’s report, the Committee applied its discretion to defer the full 2020 STIP award into shares.
Details of the awards are summarised in the table below. No performance conditions apply to these awards.
Executive
Richard Tyson
Mark Hoad
Date of grant
16/03/2021
16/03/2021
16/03/2021
16/03/2021
Number
of shares
awarded
Share price at
date of grant
(pence)1
Face value of
award
(£)
Date of vesting
84,047
21,011
63,047
15,761
208.25
208.25
208.25
208.25
175,028
16/03/2022
43,755
16/03/2023
131,295
16/03/2022
32,822
16/03/2023
1 The share price used to determine the number of shares granted was the average share price over the four trading days prior to grant.
TT Electronics plc Annual Report and Accounts 2021
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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 2021.
Executive
Richard Tyson
Total outstanding
Mark Hoad
Total outstanding
Date
of grant
1 January
2021
Granted
during
the year
Lapsed
Vested
31 December
2021
14/03/2018
294,1522
240,279
53,873
Market value at
31 December
2021
(£)1
Market
price at
grant date
(pence)
11/03/2019
355,9933
13/03/2020 365,9834
16/03/2021
349,621
14/03/2018
202,4462
165,369
37,077
11/03/2019 240,3403
13/03/2020
247,0854
16/03/2021
262,265
355,993
365,983
349,621
911,342
936,916
895,030
1,071,597
2,743,288
240,340
247,085
262,265
749,690
615,270
632,538
671,398
1,919,206
Vesting
date
14/03/2021
11/03/2022
13/03/2023
16/03/2024
14/03/2021
11/03/2022
13/03/2023
16/03/2024
232
202
196
208
232
202
196
208
1 Calculated as the total number of shares awarded multiplied by the share price on 31 December 2021 of 256 pence. 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 previously, 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.
4 The sole performance condition attached to the award is TSR performance against the FTSE SmallCap (excluding Investment Trusts) during the three-year performance period from the
date of award. 25% of the shares will vest at median performance increasing on a straight-line basis to 100% vesting at the upper quartile of the comparator group. As previously disclosed,
the award was granted shortly before the onset of the COVID-19 pandemic subject to equally weighted EPS and TSR performance conditions. Following consultation with shareholders,
the EPS performance condition was removed and the full weighting was allocated to the existing TSR performance condition.
TT Electronics plc Sharesave scheme
Executive
Date
of grant
1
January
2021
Granted
during the
year
Lapsed Exercised 1
31 December
2021
Market
value at
31 December
2021
(£)2
Market
price at
grant date
(pence)
Richard Tyson
01/10/2018
8,372
8,372
0
215
29/09/2021
7,964
7,964
2,389
226
Mark Hoad
01/10/2018
8,372
8,372
0
215
29/09/2021
7,964
7,964
2,389
226
Vesting
date
01/11/2021–
30/04/2022
01/11/2024–
30/04/2025
01/11/2021–
30/04/2022
01/11/2024–
30/04/2025
1 During the year both Executive Directors exercised their share options over the maturing 2018 Sharesave contracts. The gain made on exercise was £2,869 for both the CEO and CFO.
2 The potential gain at 31 December 2021 represents the total number of shares under the option multiplied by 256.0 pence, being the share price on 31 December 2021.
Payments to past Directors (audited)
No payments were made in 2021.
Payments for loss of office (audited)
No payments were made in 2021.
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TT Electronics plc Annual Report and Accounts 2021
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 2021, the Executive Directors
were compliant with the requirement.
Beneficially
owned at
1 January
2021
Beneficially
owned at
31 December
2021
Unvested share
awards subject
to Company
performance
conditions
Unvested
deferred bonus
share plan
awards as at
31 December
2021
Outstanding
share awards
under all
employee share
plans as at
31 December
2021
Shareholding
as a % of
salary at
31 December
20211
Value of
beneficially
owned at
31 December
2021
(£)
873,530
683,127
910,454
711,149
1,071,597
749,690
105,058
78,808
7,964
7,964
480%
500%
2,330,762
1,820,541
60,075
60,075
95,514
0
60,000
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 Calculated using the share price as at close of business on 31 December 2021 of 256 pence and the basic salary as at the same date.
There have been no changes to shareholdings between 31 December 2021 and the date of this report.
Post cessation of employment, the Executive Directors are required to hold for two years the lower of half of the share ownership
requirement or the shareholding at cessation.
The closing middle market prices for an ordinary share of 25 pence of the Company on 31 December 2020 and 31 December
2021 as derived from the Stock Exchange Daily Official List were 205 pence and 256 pence respectively. During 2021, the middle
market price of TT Electronics plc ordinary shares ranged between 199 pence and 290 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
14/01/2014
12 months
12 months Rolling contract
01/01/2015
09/12/2014
12 months
12 months Rolling contract
06/05/2020
02/04/2020
1 month
1 month Rolling contract
10/06/2016
10/06/2016
11/07/2016
11/07/2016
01/07/2019
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 2021
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Performance graph and table
The following graph shows the cumulative TSR of the Company over the last 10 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 TSR is measured for the purposes of the LTIP. In addition, the Company is a constituent of the Index.
The graph shows the value, by 31 December 2021, of £100 invested in TT Electronics plc on 31 December 2011 compared with
the value of £100 invested in the FTSE SmallCap Index (excluding Investment Trusts).
400
350
300
250
200
150
100
50
0
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
Dec 18
Dec 19
Dec 20
Dec 21
TT Electronics (Re-based to 100)
FTSE SmallCap excluding Investment Trusts (Re-based to 100)
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)
2012
1,684
50.0
94.0
2013
1,154
53.0
89.6
20141
20142
249
401
0.0
39.6
25.0
n/a
2015
1,151
90.8
0.0
2016
1,152
2017
1,794
100.0
100.0
0.0
50.0
2018
2,189
93.3
100.0
2019
1,430
64.0
86.5
2020
1,003
45.8
50.0
2021
1,306
97.1
18.3
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.
Annual percentage change in remuneration of Directors and 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 years ended 31 December 2020 and 2021. Going forward,
this disclosure will build up over time to cover a rolling five-year period.
Executive Directors
Richard Tyson
Mark Hoad
Chairman
Warren Tucker3
Non-executive Directors
Jack Boyer4
Alison Wood
Anne Thorburn5
Average UK TT Electronics parent employee6
2021 change in
salary/fees (%)
2021 change in
benefits (%)1
2021 change in
STIP
2020 change in
salary/fees (%)2
2020 change in
benefits (%)
2020 change in
STIP
6.8%
6.7%
1.5%
14.9%
8.0%
12.5%
2.9%
48.0%
52.0%
169.4%
169.4%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
6.8%
108.4%
(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
(28.5)%
(28.5)%
n/a
n/a
n/a
n/a
6.1%
(39.4)%
1 Benefit data is calculated on the same basis as the benefits data in the single figure table and includes benefits in kind and benefits taken in cash but excludes any pension allowances.
2 Salary/fees paid to Directors in 2020 included a 20% reduction for a three-month period that was volunteered by the Directors in response to the COVID-19 pandemic and the actions
taken by the Group to reduce costs and protect cash flows.
3 Warren Tucker was appointed to the Board as Chairman on 2 April 2020. For comparison purposes the figure shown is the change in the Chairman fee over the period excluding the
three-month impact of the 20% fee reduction volunteered by Directors during 2020 in response to the COVID-19 pandemic.
4 Jack Boyer was appointed SID on 6 May 2020.
5 Anne Thorburn was appointed Chair of the Audit Committee on 6 May 2020.
6 Average parent Company employee based on employees who were employed throughout the two-year comparison period.
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TT Electronics plc Annual Report and Accounts 2021
The Directors received salary/fee increases of 1.5 per cent in January 2021, a level below that generally received across the UK
workforce. The majority of the increase in respect of salaries/fees is related to the 20 per cent voluntary reduction for a three-
month period in 2020 as part of the cost reduction and cash flow protection actions in response to the COVID-19 pandemic.
The change in average salaries across parent Company employees was in part due to increases received during the annual salary
review and increases in relation to promotions, progression in role and market realignment in response to specific retention risks.
Chief Executive Officer pay ratio
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.
Year
2021
20201
2019
Methodology used
Lower quartile
Median
Upper quartile
Option B
Option B
Option B
62:1
54:1
63:1
52:1
40:1
55:1
34:1
29:1
38:1
1 The 2020 ratio was 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 was based on the April 2020 snapshot date during which time approximately 14% of employees were on furlough.
We have chosen to use Option B of the available methodologies as permitted under The Companies (Miscellaneous Reporting)
Regulations 2018. Given the complexity of the Group, this approach enables us to use our existing Gender Pay reporting
datasets as the foundation for our calculations. We determined the hourly rates at each quartile of our 5 April 2021 Gender
Pay data then calculated the average annual salary and total remuneration for representative employees at each quartile.
Representative employees must have been employed on 31 December 2021 and employee data is based on full-time equivalent
pay and calculated in accordance with the single figure of remuneration. Adjustments may be made to ensure that quartiles are
representative; no adjustments were required for 2021.
Across the UK, the majority (80 per cent) 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. The
quartile data is considered to be broadly representative of total remuneration across the workforce in the UK.
The change in the median CEO pay ratio is attributable to changes in the remuneration of the CEO and of the company’s
UK employees as a whole. 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, notwithstanding the impact of COVID-19 on total remuneration
outcomes in 2020 and 2021. Context to the CEO total remuneration is set out on in detail in this report. In particular the CEO
pay ratio results from a higher STIP award for 2021 reflecting the strong growth and recovery of the business in the year whilst
the lower LTIP vesting reflects the pause in the growth momentum of the Company caused by the pandemic. The Committee
believes that the pay ratio is appropriate and is reflective of the performance of the Group and the roles undertaken by employees
in the UK.
The following table summarises the representative salary and single figure of total remuneration pay quartiles of UK employees.
Salary
Single figure of total remuneration
Relative importance of spend on pay
Lower quartile
Median
Upper quartile
£19,969
£20,968
£23,531
£25,058
£35,663
£38,025
A year-on-year comparison of the relative importance of spend on pay with significant distributions to shareholders and others is
shown below.
Staff costs for the Group (£m)
Dividends relating to the period (£m)
Share buyback (£m)
2021
134.7
9.8
0
2020
Change
130.1
8.2
0
3.5%
16.8%
0%
TT Electronics plc Annual Report and Accounts 2021
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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. FIT was appointed by the Committee
following an adviser review in 2019. 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 Group 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 of the developments
in good governance, advice relating to share schemes, 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 £39,477.
The Group’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 ELT. The Committee is also supported by the Group General
Counsel and Company Secretary who acts as Secretary to the Committee, the CFO, the Chief People Officer, 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.
Shareholder voting
At the AGM held on 13 May 2021, 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
May 2020
109,271,441
Directors’ remuneration report
May 2021
101,152,644
For and
Discretionary
(%)
Against
91.89%
77.46%
9,642,007
29,430,685
Against
(%)
Withheld
Total
votes
8.11%
13,273,878
132,187,326
22.54%
10,173,399
140,756,728
A full schedule in respect of shareholder voting on the above and all resolutions at the 2021 AGM is available at www.ttelectronics.com.
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 Group’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 2021 AGM, shareholders voted to pass the advisory vote on the Directors’ remuneration report but 22.5 per cent did not
support the resolution. In line with the provisions of the Code, we engaged with our largest shareholders to gain an understanding
of the reasons behind their votes. Prior to the 2021 AGM, we undertook a significant consultation exercise with our largest
institutional investors and the key advisory bodies and, while most investors were supportive of the Committee’s proposals, a
minority did not support the proposed amendment of the performance conditions for the 2020 LTIP awards and/or the 2020
STIP award where the entire award was deferred into shares. Following the AGM, the vast majority of investors reiterated their
support for the remuneration decisions taken by the Committee with no material additional feedback received.
The Directors’ remuneration report has been approved by the Board on 8 March 2022 and signed on its behalf by:
Alison Wood
Chair, Remuneration Committee
8 March 2022
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TT Electronics plc Annual Report and Accounts 2021
OTHER
STATUTORY
DISCLOSURES
This Annual Report and
Accounts includes the
Directors’ report and the
audited financial statements
for the year ended 31 December
2021. 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
Page 208
Current and future dividend waiver
Page 120
Employee engagement
Page 54
Future developments in the business
Page 6-13
Going concern
Scope 1 & 2 emissions
Section 172 statement
Share capital
Subsidiary undertakings
Viability statement
Page 71
Page 58
Page 62
Page 208
Page 197
Page 66
Results and dividend
The Group’s profit on ordinary activities
after taxation was £12.8 million
(2020: £1.3 million). The audited
financial statements of the Group and
the Company are set out on pages 133
to 207. Further details of the Group’s
activities are set out in the Strategic
report on pages IFC to 73 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 2021 are set out on page
40 and Note 8 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.
Important events since the end of the
financial year
On 7 January 2022, the Company’s
wholly-owned subsidiary, TT Electronics
Power Solutions (UK) Limited, completed
an Asset Purchase Agreement to acquire
the Power and Control business based
in Greater Manchester, UK, of Ferranti
Technologies Ltd, a subsidiary of Elbit
System UK Ltd. The consideration for
the transaction was £9.0 million in cash
subject to customary post-completion
working capital adjustments.
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 and
reappointed at the 2021 AGM. See page
92 for further details on the Auditor
transition process.
The Auditor’s responsibilities are set
out on page 130 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.
In August 2021, the Group agreed a
debut issue of £75 million of private
placement fixed rate loan notes with
three institutional investors. The PP
transaction completed in December
2021, whereupon funds were received
by the Group, with the issue being evenly
split between seven- and ten- year
maturities with an average interest
rate of 2.9%. This PP transaction also
contains change of control provisions
which, in the event of a change in
ownership of the Company, could again
result in renegotiation or withdrawal
of funds.
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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.
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 this 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, (addressing
such issues as modern slavery) 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 72 to 73.
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 2022. During 2021,
this authority was 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
13 May 2021, the Company was given
authority to purchase up to 17,482,574
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 the 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 8 March 2022
and signed on its behalf by:
Lynton Boardman
Group General Counsel and Company
Secretary
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 2021, the Trustee held
1,064,565 shares with a nominal value of
£266,141.25 and an aggregate purchase
price of £0.28 per share, representing
0.604 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 1,064,565. 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.
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STATEMENT OF
DIRECTORS’
RESPONSIBILITIES
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. The
financial statements also comply
with International Financial Reporting
Standards (IFRSs) as issued by the IASB.
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 2021
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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
8 March 2022
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TT Electronics plc Annual Report and Accounts 2021
INDEPENDENT AUDITOR’S REPORT
TO THE
MEMBERS OF
TT ELECTRONICS PLC
We have audited the financial
statements which comprise:
2. Basis for opinion
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 (‘FRC’) 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 we have
not provided any non-audit services
prohibited by the FRC’s Ethical Standard
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.
• the consolidated income statement;
• the consolidated statement of
comprehensive income;
• the consolidated and parent company
balance sheets;
• the consolidated and parent company
statements of changes in equity;
• the consolidated cash flow
statement; and
• the related Notes 1 to 31 of the
consolidated financial statements and
the related Notes 1 to 15 of the parent
company financial statements.
The financial reporting framework that
has been applied in the preparation
of the Group financial statements is
applicable law, United Kingdom adopted
international accounting standards
and IFRSs as issued by the IASB. 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).
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 2021
and of the Group’s profit for the
year then ended;
• the Group financial statements
have been properly prepared
in accordance with United
Kingdom adopted international
accounting standards and
International Financial Reporting
Standards (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 financial statements have
been prepared in accordance
with the requirements of the
Companies Act 2006.
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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
• Recoverability of assets related to the Virolens product.
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
Scoping
Significant changes
in our approach
The materiality that we used for the Group financial statements was £1.6 million which was determined
based on 6% of the adjusted income before tax after amortisation.
Our Group audit scope focused on audit work at 22 components representing 79% of the Group’s revenue,
89% of the Group’s adjusted operating profit and 88% of the Group’s net assets.
Our key audit matters have evolved from the prior year as discussed below:
In the prior year we identified a key audit matter relating to “Uncertain tax provisions”. This has not been
identified as an area where significant audit effort is required for the current year’s audit as there have
been no significant developments in key provisions that would lead to a change in judgements made.
We have a identified a new key audit matter relating to “Recoverability of assets related to the Virolens
product”. We have spent a significant amount of audit effort assessing the recoverability of the
Virolens related assets which is dependent upon the success of the new technology and commercial
demand for the product which is underpinned by obtaining regulatory approvals. The inherent future
uncertainty has elevated the risk of recoverability.
4. Conclusions relating to going concern
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 including forecast financial covenants;
• 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 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.
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5. Key audit matters
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 2021 is £156.5 million (2020: £155.7 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. The impairment review for the IoT Solutions cash
generating unit (‘CGU’) was particularly sensitive to reasonable changes in assumptions. This CGU
accounts for goodwill of £27.6 million (2020: £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. We note that the risk has
increased in 2021 as a result of estimates taken in the following factors:
• the effect on future cash flows of (a) success of the new product launches reaching management
forecast levels, (b) the pace of recovery from COVID-19 and global supply chain issues, and (c) ability to
improve operating profit margin in light of rising material/freight costs; and
• 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 13 to the financial
statements in relation to the sensitivities reflecting the risks inherent in the value in use calculations
used in performing the impairment review to support the valuation of goodwill and also in Note 1g of the
financial statements in relation to the key sources of estimation uncertainty which includes the reasonably
possible change disclosure for this CGU.
Refer also to page 96 of the Audit Committee report.
How the scope of
our audit responded
to the key audit
matter
We obtained an understanding of the relevant controls over the valuation of goodwill, in particular controls
over the future cash flows including the discount and growth rates 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 underpinned management’s forecasts.
Specifically, our work included, but was not limited to:
• challenging management’s key assumptions relating to the 2022 forecast and later forecast periods with
reference to the recent and historical performance of the IoT Solutions business, expected order book
levels, our knowledge of the businesses, benefits from current and prior year restructuring activity from
the Group’s self-help programme and the status of new product launches;
• challenging management’s assumptions around the impact of global supply chain issues and COVID-19,
and assessing management’s ability to recover such costs;
• challenging management on revenue forecast growth rates including the recovery of revenues against a
variety of external market reports
• retrospective review of performance against budget, including consideration of post year end actual
against budget;
• benchmarking long term growth rates to applicable macro-economic and market data;
• involving our valuation specialists to challenge the discount rate applied, by benchmarking 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 their mathematical accuracy;
• checking the application of the input assumptions, and testing its compliance with IAS 36;
• assessing and re-performing management’s sensitivity analysis to assess the key assumptions which
have a significant effect on the model;
• challenging management on the key drivers of the value in use model 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 including whether the IoT goodwill is appropriately disclosed
in the financial statements as an area with key sources of estimation certainty and reasonably possible
change disclosure has been included which appropriately reflects the sensitivity in the IoT’s CGU
impairment review.
Key observations
We determined that the assumptions applied in the impairment model were within acceptable ranges
and that the overall position adopted was reasonable. We assessed that the disclosures including the
impairment assessment of goodwill for the IoT Solutions CGU are appropriate.
TT Electronics plc Annual Report and Accounts 2021
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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 £15.5 million
(2020: £20.9 million) have been made to the statutory operating profit of £19.3 million (2020: £6.6 million)
to derive adjusted operating profit of £34.8 million (2020: £27.5 million).
Adjusting items in 2021 include:
• Restructuring costs £9.7 million;
• Amortisation of intangible assets arising on business combinations (£5.1 million);
• Gain on property disposals (£1.7 million);
• Pension costs (£1.5 million) and Gain on pension increase exchange exercise (£1.8 million);
• Torotel and Covina integration costs (£1.5 million); and
• Other acquisition related costs (£1.1 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. Therefore, 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 Group’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.
Explanations of each adjustment are set out in Note 6 to the financial statements. Refer also to page 96 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 alternative performance measures, and challenging in particular
the inclusion of those items that recur annually;
• focusing our challenge on restructuring activities within adjusted items which had increased level of
judgement applied by management in assessing them as adjusting in nature and therefore there was an
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;
• testing a sample of adjusting items by agreeing to source documentation and evaluating the
classification of the individual costs against the Group’s definition of adjusting items and whether
reasonable when considering ESMA and FRC guidance; 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.
How the scope of
our audit responded
to the key audit
matter
Key observations
The value of adjusting items results in a material difference between the statutory and adjusted results.
Whilst we note that the majority of adjusting items recur from period to period, their classification and
presentation is reasonable and consistent with the Group’s policy.
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5.3. Recoverability of assets related to the Virolens product
Key audit matter
description
As at 31 December 2021, the Group held £4.8 million (2020: £4.5 million) on the balance sheet relating
to assets linked to a new COVID-19 testing machine known as Virolens. These assets include Inventory,
Property, plant and equipment (‘PPE’), Capitalised R&D and Trade receivables.
MHRA (UK regulatory authorities) have already approved the Virolens technology however the
recoverability of these Virolens assets is dependent upon future regulatory approvals by FDA (U.S. Food
and Drug Administration) and other regulatory bodies, commercial demand and other use of such assets
should the aforementioned regulatory approvals not be obtained. There is a wide range of potential
financial outcomes for the future of Virolens.
Notwithstanding these uncertainties, management believes that the opportunity that this technology
could create for the Group carries future value which is further protected by the Group’s exclusive
manufacturing agreement with its technology development partner.
No impairment has been recorded for the Inventory, PPE or Capitalised R&D balances associated with
Virolens due to the anticipation of future revenue from the technology. Long outstanding receivables have
been provided for in line with the accounting policy.
Given the magnitude of these Virolens balances and the continued uncertainty of future economic
benefits from the technology, management has added a key source of estimation uncertainty to
highlight this risk to readers in Note 1g of the financial statements. Refer also to page 96 of the Audit
Committee report.
We obtained an understanding of the relevant controls over the valuation of assets associated with
Virolens, in particular management review controls over the Virolens position paper.
We assessed management’s Virolens accounting paper, underlying analysis and supporting documents
and assessed the reasonableness of the assumptions which underpinned management’s assessment.
Specifically, our work included challenging management’s key assumptions relating to the recoverability of
Virolens assets, this included but was not limited to:
• reviewing the evidence of approval of Virolens technology by MHRA (UK regulatory authorities) as well as
reviewing available evidence of the current status of submission for approval of the FDA (U.S. Food and
Drug Administration) and other regulatory bodies;
• reviewing available evidence of commercial interest in the technology from potential customers;
• reviewing the exclusive manufacturing agreement with the Virolens technology development partner;
• independently assessing the likelihood of recovery of the Virolens asset balances including consideration
of the future potential pipeline of orders for the product and other use of such assets should the
aforementioned regulatory approvals not be obtained;
• consideration of any contradictory evidence and impact on the assessment performed; and
• assessing the adequacy of the disclosures in the financial statements.
How the scope of
our audit responded
to the key audit
matter
Key observations
We determined that the assumptions applied in the Virolens asset recoverability assessment and
the carrying amount of the Virolens related assets are reasonable. We assessed that the disclosures
are appropriate.
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6. Our application of materiality
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:
Materiality
Basis for
determining
materiality
Group financial statements
Parent company financial statements
£1.6 million (2020: £1.2 million)
£0.6 million (2020: £0.8 million)
6% of adjusted income before tax after amortisation
as disclosed in Note 6 of the financial statements.
We considered other measures such as adjusted
profit before tax and statutory profit before tax.
Parent company materiality equates to 0.2%
of net assets which is capped at 60% of group
performance materiality in order to address the
risk of aggregation when combined with other
businesses.
Materiality for the current year represents:
• 0.3% of revenue (2020: 0.3%);
• 4.6% of adjusted profit before tax (2020: 4.4%); and
• 0.5% of net assets (2020: 0.4%).
In the prior period, due to the earnings volatility as a
result of COVID-19, we used a blended approach in
our determination of materiality which equated to
7% of adjusted income before tax after amortisation.
We considered the financial measures that were most
relevant to users of the financial statements and
concluded that the adjusted profit measure provided
a stable materiality level which is commensurate with
the current size and scale of the Group.
Rationale for the
benchmark applied
Materiality
This is consistent with the prior period.
We believe that use of a balance sheet measure
was appropriate given that the parent acts as a
holding company.
Adjusted income £26.3 million
Group materiality
Group materiality £1.6m
Component materiality range £0.4m-£0.6m
Audit committee reporting threshold £80k
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
Parent company financial statements
65% (2020: 65%) of Group materiality
65% (2020: 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
reduced impact of COVID-19; and
• the low number of uncorrected misstatements identified in the previous year.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £80k (2020: £60k),
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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7. An overview of the scope of our audit
7.1. Identification and scoping of components
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 72 (2020: 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 the UK head office.
Our Group audit scope focused on audit work at 22 components (2020: 23 components) representing 79% (2020: 78%) of the
Group’s revenue, 89% (2020: 90%) of the Group’s adjusted operating profit and 88% (2020: 86%) of the Group’s net assets.
Each component was set a specific component materiality, considering its relative size and any component-specific risk factors
such as the location of components. The component materialities applied were in the range £0.4 million to £0.6 million (2020:
£0.3 million to £0.4 million).
We tested the consolidation process at the parent company level and conducted analytical procedures for entities not subject to
detailed audit work to confirm our conclusion that there were no material misstatements in the aggregated financial information
Revenue
21%
33%
Adjusted operating profit
Net assets
11%
12%
46%
28%
28%
61%
60%
Full scope Audit of specific account balances Review at group level
7.2. Our consideration of climate-related risks
Climate change and the transition to a low carbon economy (“climate change”) were considered in our audit where they have
the potential to directly or indirectly impact key judgements and estimates within the Group financial statements. The Group
continues to develop its assessment of the potential impacts of climate change, as explained in the Our people, environment and
communities section on pages 59 to 60. Management have identified sustainability, climate change and the environment as a
principal risk to the business. Management assessed that there is no material impact to the financial statements arising from
climate change and this has been disclosed in Note 1g of the financial statements.
We performed the following procedures to address the climate-related risks:
• We held discussions with management to obtain an understanding of the process for considering the impact of climate-related
risks and controls that are relevant to the entity.
• We performed our own qualitative risk assessment of the potential impact of climate change on the Group’s account balances
and classes of transaction and did not identify any reasonably possible risks of material misstatement.
• With the involvement of our Environmental, Social & Governance ("ESG") specialist team, we assessed the climate change
related disclosures including TCFD in the financial statements against regulatory requirements and market peers.
• We also considered whether information included in the climate related disclosures in the Annual Report were materially
consistent with the financial statements and our knowledge obtained in the audit.
7.3. Working with other auditors
Given the Group’s geographical presence across the world, we directed and supervised our many component audit teams in the
execution of our audit referral instructions, as summarised below:
• Due to intermittent restrictions on working practices caused by COVID-19 the majority of the audit work was executed remotely.
Limited sites were visited due to the restrictions on travel. The Group engagement team had online interaction with the
Group’s largest and most complex businesses during 2021 with a particular focus on locations where work was performed on
significant or material components.
• In addition to the above, the Group engagement partner 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.
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8. Other information
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.
We have nothing to report in this regard.
9. Responsibilities of Directors
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 classification of adjusting items. In common with all audits under ISAs (UK),
we are also required to perform specific procedures to respond to the risk of management override.
130
TT Electronics plc Annual Report and Accounts 2021
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.
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; 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 significant 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 86;
• 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 66;
• the Directors' statement on fair, balanced and understandable set out on page 94;
• the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 64;
• the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems
set out on page 65; and
• the section describing the work of the Audit Committee on pages 92 to 97.
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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
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 2 years, covering the years ending 31 December 2020 and 31 December 2021.
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.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these financial
statements form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National
Storage Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard ((‘ESEF RTS’). This auditor’s
report provides no assurance over whether the Annual Financial Report has been prepared using the single electronic format
specified in the ESEF RTS.
Robert Knight (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London/United Kingdom
8 March 2022
132
TT Electronics plc Annual Report and Accounts 2021
Consolidated income statement
for the year ended 31 December 2021
£million (unless otherwise stated)
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit
Analysed as:
Adjusted operating profit
Restructuring and other
Acquisition and disposal related costs
Finance income
Finance costs
Profit before taxation
Taxation
Profit for the period attributable to the owners of the Company
EPS attributable to owners of the Company (pence)
Basic
Diluted
Note
3
3
6
6
4
4
7
9
9
2021
476.2
(360.6)
115.6
(26.9)
(69.4)
19.3
34.8
(7.8)
(7.7)
1.1
(4.4)
16.0
(3.2)
12.8
7.3
7.2
2020
431.8
(332.7)
99.1
(24.6)
(67.9)
6.6
27.5
(14.5)
(6.4)
0.6
(4.3)
2.9
(1.6)
1.3
0.8
0.8
TT Electronics plc Annual Report and Accounts 2021
TT Electronics plc Annual Report and Accounts 2021 133
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Financial statementsGovernance and Directors' reportStrategic report
Financial statements | Consolidated statement of comprehensive income
Consolidated statement of comprehensive income
for the year ended 31 December 2021
£million
Profit for the year
Other comprehensive income 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
(Loss)/gain on hedge of net investment in foreign operations
(Loss)/gain on cash flow hedges taken to equity less amounts recycled to the income
statement
Deferred tax gain on movements in cash flow hedge reserves
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 period attributable to the owners of the Company
2021
12.8
2020
1.3
3.4
−
(0.2)
(3.2)
0.5
35.8
(11.4)
37.7
(5.0)
0.3
0.7
7.1
−
8.6
(2.1)
10.9
134 TT Electronics plc Annual Report and Accounts 2021
134
TT Electronics plc Annual Report and Accounts 2021
Consolidated statement of financial position
At 31 December 2021
£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
2021
2020 1
11
12
13
14
7
20
21
15
16
20
29
19
28
20
17
18
19
28
20
7
21
17, 18
22
22
19.6
50.4
156.5
51.7
11.3
0.6
78.4
368.5
141.8
86.2
2.6
4.0
68.3
302.9
671.4
1.1
4.1
1.3
133.9
7.1
2.5
150.0
147.1
18.5
0.7
20.2
3.9
1.0
191.4
341.4
330.0
44.1
22.6
33.2
7.1
221.0
328.0
2.0
330.0
12.4
53.0
155.7
57.1
8.9
1.8
35.4
324.3
98.2
71.3
3.0
5.8
70.2
248.5
572.8
2.3
3.6
1.1
90.2
7.5
6.6
111.3
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
1 Goodwill, deferred tax assets and trade and other receivables amounts at 31 December 2020 have been restated for the finalisation of the acquisition accounting with respect to
Torotel, Inc. as described in note 13.
Approved by the Board of Directors on 8 March 2022 and signed on their behalf by:
Richard Tyson
Director
Mark Hoad
Director
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report
Financial statements | Consolidated statement of changes in equity
Consolidated statement of changes in equity
for the year ended 31 December 2021
£million
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
At 31 December 2020
Profit for the year
Other comprehensive income
Exchange differences on translation
of foreign operations
Loss on hedge of net investment in
foreign operations
Loss on cash flow hedges taken to
equity less amounts recycled to
income statement
Deferred tax on gain on movement in
cash flow hedges
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
New shares issued
Other movements
Share
premium
Translation
Reserve
Other
reserves
Retained
earnings
Sub-
total
Non-
controlling
interest
4.1
−
34.0
−
(0.5)
187.4
266.0
Share
capital
41.0
−
−
−
−
−
−
−
−
−
−
−
−
7.1
−
−
(5.0)
0.3
0.7
−
−
−
−
−
−
−
−
−
−
(4.0)
7.1
−
−
2.6
43.6
−
−
17.6
21.7
−
−
−
30.0
(0.8)
(0.3)
−
5.5
1.3
1.3
−
−
−
−
8.6
(2.1)
7.8
−
−
−
(5.0)
0.3
0.7
7.1
8.6
(2.1)
10.9
(0.8)
(0.3)
20.2
195.2
296.0
2.0
298.0
43.6
21.7
30.0
5.5
195.2
12.8
296.0
12.8
2.0
−
298.0
12.8
3.4
(0.2)
−
−
−
−
−
−
(3.2)
0.5
−
−
−
−
−
−
3.4
(0.2)
(3.2)
0.5
35.8
35.8
(11.4)
(11.4)
3.2
(2.7)
37.2
37.7
−
−
−
−
−
−
−
−
−
−
0.5
−
−
−
−
−
−
−
−
−
−
−
0.9
−
−
−
−
−
−
−
3.8
0.5
−
−
7.1
(11.4)
−
−
(0.3)
0.3
(11.4)
3.8
0.5
1.1
0.3
221.0
328.0
2.0
330.0
Total
268.0
1.3
(5.0)
0.3
0.7
7.1
8.6
(2.1)
10.9
(0.8)
(0.3)
20.2
2.0
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
3.4
(0.2)
(3.2)
0.5
35.8
(11.4)
37.7
(11.4)
3.8
0.5
1.1
0.3
At 31 December 2021
44.1
22.6
33.2
136 TT Electronics plc Annual Report and Accounts 2021
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TT Electronics plc Annual Report and Accounts 2021
Consolidated statement of cash flows
For the year ended 31 December 2021
£million
Cash flows from operating activities
Profit for the year
Taxation
Net finance costs
Restructuring and other
Acquisition related costs
Adjusted operating profit
Adjustments for:
Depreciation
Amortisation of intangible assets
Impairment of property, plant and equipment and intangible assets
Share based payment expense
Other items
(Increase)/decrease in inventories
(Increase)/decrease in receivables
Increase/(decrease) 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
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
Net cash flow used in investing activities
Cash flows from financing activities
Issue of share capital
Interest paid
Repayment of borrowings
Proceeds from borrowings
Capital payment of lease liabilities
Other items
Dividends paid by the Company
Net cash flow (used in) / from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange differences
Cash and cash equivalents at end of year
Cash and cash equivalents comprise:
Cash at bank and in hand
Bank overdrafts
Note
2021
2020
7
11, 12
14
12, 14
12
14
14
22
8
24, 29
24, 29
24, 29
12.8
3.2
3.3
7.8
7.7
34.8
13.6
2.5
−
3.8
1.1
(42.6)
(15.7)
42.0
39.5
(5.5)
(15.0)
19.0
(4.7)
14.3
(14.6)
9.3
(1.9)
(0.5)
(0.5)
−
(8.2)
1.4
(4.0)
(86.9)
96.4
(3.9)
(0.5)
(11.4)
(8.9)
(2.8)
69.0
1.0
67.2
68.3
(1.1)
67.2
1.3
1.6
3.7
14.5
6.4
27.5
14.0
3.0
0.2
1.0
(0.3)
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
(51.9)
20.2
(3.5)
(27.2)
49.8
(4.1)
(1.8)
−
33.4
9.7
60.2
(0.9)
69.0
70.2
(1.2)
69.0
TT Electronics plc Annual Report and Accounts 2021
TT Electronics plc Annual Report and Accounts 2021 137
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Financial statementsGovernance and Directors' reportStrategic report
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 34 to 39. The
Consolidated Financial Statements of the Group for the year ended 31 December 2021 were authorised in accordance with
a resolution of the Directors of TT Electronics Plc on 8 March 2022.
These consolidated financial statements are presented in pounds sterling, which is also the functional currency of the Company.
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. The financial statements have also been prepared in accordance with
International Financial Reporting Standards as issued by the IASB.
The financial statements set out on pages 133 to 207 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 2021 and the Group’s financial
performance for the year ended 31 December 2021.
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.
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.
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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 201 to 207 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 73. The Strategic Report analyses the financial position of the Group, its cash flows,
liquidity position and borrowing facilities. In addition, note 20 to the financial statements includes the Group’s objectives, policies
and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging
activities; and its exposures to credit risk and liquidity risk.
The Group has experienced continued improvement in trading momentum and strong growth on our 2020 numbers. The structural
growth markets we have selected to focus on have moved back towards their long-term growth trajectory, the benefits of our
strategic repositioning and focus on building close relationships with our clients can be seen in both the order book and financial
performance of the Group.
The Group’s financial position remains strong, at 31 December 2021 it had:
• £318.9 million of total lease liabilities and borrowing facilities available comprising committed facilities of £276.3 million
(net of £1.3 million loan arrangement fees and inclusive of £22.6 million of finance leases), uncommitted facilities of £42.6 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 2021 £73.4 million of this facility had been drawn down.
The Group’s RCF will mature in November 2023. In August 2021, TT agreed a debut issue of £75 million of private placement
fixed rate loan notes with three institutional investors. The funds were received in December 2021 and the issue is evenly split
between 7 and 10 year maturities with an average interest rate of 2.9% and covenants in line with our bank facility. The private
placement complements, at an attractive rate, the Group’s existing bank RCF, diversifying our sources of debt funding and
providing us with a stable, long-term financing structure.
• A leverage ratio (banking covenant defined measure) of 1.7 times at 31 December 2021 compared to a RCF covenant maximum
of 3.0 times. Interest cover (banking covenant defined measure) of 13.5 times compared to a RCF 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 growth in 2022. 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 2021.
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.
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1 Basis of preparation continued
The Group’s downside stress test scenario has been sensitised for supply chain challenges and inflationary pressure which shows
a reduction in revenue and operating profit compared to the latest forecast. Despite this further reduction these projections show
that the Group would remain well within its facilities headroom and within bank covenants for the next 12 months after the approval
of these financial statements. 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.
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 these accounts. 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:
• ‘Interest Rate Benchmark Reform – Phase 2’ (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
At the start of the year the Group was exposed to the following interest rate benchmarks within its hedge accounting relationships
and borrowings, which are subject to interest rate benchmark reform: GBP LIBOR and USD LIBOR (“IBORs”). The hedging
instruments are interest rate swaps (see note 20a) and the hedged items are Sterling and US Dollar floating rate debt (see note 19).
On 4 January 2022 the Group transitioned away from GBP LIBOR to be replaced by GBP SONIA. There will be no impact of this
transition. As USD LIBOR will still be in use up until mid-2023 the Group does not expect to transition away from USD LIBOR within
the next 12 months.
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:
• COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16)
• Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37)
• Annual Improvements to IFRS Standards 2018-2020
• Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)
• Reference to the Conceptual Framework (Amendments to IFRS 3)
• IFRS 17 Insurance
• Classification of liabilities as current or non-current (Amendments to IAS 1)
• Amendments to IFRS 17
• Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
• Definition of Accounting Estimate (Amendments to IAS 8)
• Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction – Amendments to IAS 12 Income Taxes
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continued
1 Basis of preparation continued
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 2021 did not have any material impact on the financial position or performance of the Group.
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.
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 2021 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 13 – Goodwill in relation to the IoT Solutions cash generating unit (“CGU”). The carrying amount of goodwill at
31 December 2021 was £156.5 million (2020: £155.7 million). Determining whether goodwill is impaired requires an estimation
of the value in use of the 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.
At 31 December 2021 and 31 December 2020, the Group recognised no impairment loss in respect of goodwill. Further
information, including a sensitivity analysis on the key assumptions, is provided in note 13. The carrying amount of the IoT
Solutions CGU’s goodwill was £27.6 million (2020: £27.6 million). Due to the impact of current supply chain challenges, as
explained in note 13, IoT Solutions CGU shows headroom of £5.8 million and is sensitive to a reasonably possible change
in assumptions; discount rate, long-term growth rate, successful launch of new products and short term operating cash flow.
At 31 December 2021 and 31 December 2020, 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 13.
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1 Basis of preparation continued
• Note 7 – Taxation. Accruals for tax contingencies require management to make judgements and estimates in relation to tax
authority audits 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 2021 includes tax provisions of £6.9 million (2020: £6.4 million).
The Group believes the range of reasonable possible outcomes in respect of these exposures is tax liabilities of up to £9.0 million
(2020: £8.2 million).
• Note 21 – Defined benefit pension obligations. At 31 December 2021 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.
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 plans’ defined benefit obligations. Whilst actual movements
might be different to sensitivities shown, there is a reasonably possible change that could occur. At
31 December 2021, the retirement benefit plan was in a surplus of £74.5 million (2020: £30.5 million). Note 21 outlines the
significant assumptions and associated sensitivities.
• Virolens. The carrying amount of Virolens related assets at 31 December 2021 was £4.8 million (2020: £4.5 million). The assets
consist of inventory, property, plant and equipment, and capitalised development expenditure. The value of these assets is
dependent upon the success of the Virolens product, requiring management to estimate the future cash flows in a range of
possible outcomes. The key sources of estimation uncertainty are our customers’ ability to obtain regulatory approval and
potential end customers converting expressions of interest into firm funded orders. Our customer continues to progress with
regulatory approvals and global interest remains strong given new COVID strains and vaccine limitations (efficacy and supply).
If regulatory approval is not obtained it is likely the assets related to Virolens will require impairment.
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 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; terms vary by customer, but the two most common
arrangement are at the time of dispatch and at the time of delivery. 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, the calculated interest income on pensions assets for schemes
which are in surplus and net foreign exchange gains or losses on cash balances and loans receivables. Interest income is
recognised using the effective interest rate. Net foreign exchange gains or losses on other monetary assets or liabilities are
recognised either within other income or cost of sales, depending on what the underlying monetary asset or liability relates to.
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2 Summary of significant accounting policies continued
c) Finance costs
Finance costs comprise interest expense on borrowings which are not capitalised under the borrowing costs policy, the calculated
interest expense on pension liabilities for schemes which are in deficit, the interest costs on lease liabilities and net foreign
exchange gains or losses on external loans. Net foreign exchange gains or losses on other monetary assets or liabilities are
recognised either within other income or cost of sales, depending on what the underlying monetary asset or liability relates to.
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.
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.
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2 Summary of significant accounting policies continued
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 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.
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.
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2 Summary of significant accounting policies continued
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.
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) 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.
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.
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2 Summary of significant accounting policies continued
Trade payables are carried at the amounts expected to be paid to counterparties and are held at amortised cost.
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.
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. Cash and cash equivalents are initially
recognised at fair value and subsequently are measured at amortised cost because they meet the ‘Solely Payments of Principal
and Interest’ (SPPI) test
In determining estimated fair value, investments are valued at quoted bid prices on the trade date.
Derivatives and hedge accounting
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 reclassified to 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.
When hedging the forecast acquisition of the business for the FX risk, once the transaction happens, the Group removes directly
from the cash flow hedge reserve accumulated gains or losses on hedging instruments and include them within goodwill as a
'basis adjustment.
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. Receivables written off are still subject to enforcement activity and pursued by the Group.
p) Income tax
Income tax for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent
that it relates to items charged or credited directly to equity, in which case it is recognised in equity. Current tax expense is the
expected tax payable on the taxable income for the year and any adjustment to tax payable in respect of previous years.
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2 Summary of significant accounting policies continued
q) 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.
r) 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 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.
s) 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
retained earnings.
TT Electronics plc Annual Report and Accounts 2021
TT Electronics plc Annual Report and Accounts 2021 147
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Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
2 Summary of significant accounting policies continued
t) 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.
u) 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.
148 TT Electronics plc Annual Report and Accounts 2021
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TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
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 or an aggregation of operating segments in accordance with IFRS 8
‘Operating Segments’. The chief operating decision maker is the Chief Executive Officer. 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; Power and Connectivity is an aggregation of two operating segments
due to similarities in products and markets served;
• 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 the section titled ‘Reconciliation of
non IFRS measure’ 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 arms 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 of which they are part.
a) Income statement information – continuing operations
£million
Sales to external
customers
Adjusted operating
profit
Add back: adjustments
made to operating profit
(note 6)
Operating profit
Net finance costs
Profit before taxation
£million
Sales to external customers
Adjusted operating profit
Add back: adjustments made to
operating profit (note 6)
Operating profit
Net finance costs
Profit before taxation
Power and
Connectivity
Global
Manufacturing
Solutions
Sensors and
Specialist
Components
Total
Operating
Segments
Corporate
Total
2021
140.2
7.8
220.1
18.3
115.9
476.2
−
476.2
16.4
42.5
(7.7)
34.8
Power and
Connectivity
125.1
10.3
Global
Manufacturing
Solutions
Sensors and
Specialist
Components
197.5
15.0
109.2
9.4
Total
Operating
Segments
431.8
34.7
Corporate
−
(7.2)
(15.5)
19.3
(3.3)
16.0
2020
Total
431.8
27.5
(20.9)
6.6
(3.7)
2.9
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report
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
2021
219.6
162.8
121.4
503.8
78.4
89.2
671.4
Assets
2020
216.9
119.6
110.2
446.7
35.4
90.7
572.8
2021
39.0
84.3
30.4
153.7
3.9
183.8
341.4
Liabilities
2020
29.1
58.3
22.2
109.6
4.9
160.3
274.8
Unallocated assets of £89.2 million (2020: £90.7 million) comprise deferred tax of £11.3 million (2020: £9.1 million), cash and cash
equivalents of £68.3 million (2020: £70.2 million) and income tax of £2.6 million (2020: £3.0 million) and assets associated with the
central corporate function of £7.0 million (2020: £8.3 million).
Unallocated liabilities of £183.8 million (2020: £160.3 million) comprise borrowings (excluding leases and overdrafts) of
£147.1 million (2020: £135.9 million), overdrafts of £1.1 million (2020: £1.2 million), deferred tax of £20.2 million (2020: £8.6 million),
income tax of £7.1 million (2020: £7.5 million) and liabilities associated with the central corporate function of £8.3 million
(2020: £7.1 million).
£million
Power and Connectivity
Global Manufacturing Solutions
Sensors and Specialist Components
Total
Capital expenditure
Depreciation and amortisation
2021
6.1
1.7
9.2
17.0
2020
3.1
2.6
4.3
10.0
2021
5.6
4.8
5.7
16.1
2020
5.2
5.2
6.6
17.0
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
Asia
Rest of the World
2021
100.2
78.6
182.7
113.3
1.4
476.2
2020
100.2
74.8
164.9
88.8
3.1
431.8
Revenue from services is less than 1% of Group revenues. All other revenue is from the sale of goods.
150 TT Electronics plc Annual Report and Accounts 2021
150
TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
3 Segmental reporting continued
Non-current assets
The carrying amount of non-current assets, excluding deferred tax assets, derivatives 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
1 Revenue by market in 2020 has been restated following a reclassification of end markets for several key customers.
4 Finance costs and finance income
£million
Interest income
Net interest income on pension schemes in surplus
Finance income
Interest expense
Interest on lease liabilities
Net interest expense on pension schemes in deficit
Amortisation of arrangement fees
Finance costs
Net finance costs
2021
116.3
0.3
144.8
4.4
12.4
278.2
2021
118.8
85.5
186.3
85.6
476.2
2020
118.9
0.4
143.5
4.4
11.0
278.2
2020 1
100.4
91.9
157.9
81.6
431.8
2021
2020
0.2
0.9
1.1
3.1
0.8
0.1
0.4
4.4
3.3
0.1
0.5
0.6
3.0
0.8
0.1
0.4
4.3
3.7
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
5 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 (gains)/losses recognised within operating profit
Cost of inventories recognised as an expense
Research and development
Staff costs (see note 10)
Restructuring (excluded from adjusted operating profit)
Acquisition and disposal related costs (excluded from adjusted operating profit)
Remuneration of Group Auditor:
– audit of these financial statements
– audit of financial statements of subsidiaries of the Company
– assurance and other services 2
Government grants
Share-based payments
Profit on disposal of property, plant and equipment (excluded from adjusted operating profit)
2021
9.9
3.7
7.6
(4.1)
360.6
10.2
135.3
7.8
7.7
0.6
0.7
0.1
(0.2)
3.8
(1.7)
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)
1
Included within amortisation of intangible assets is £5.1 million (2020: £4.2 million) reported within items excluded from adjusted operating profit. The remaining charge is within
administrative expenses.
2 Assurance and other services of £0.1 million relate to £80 thousand for the half year review (2020: £94 thousand relating to the half year review and £173 thousand relating to
due diligence).
152 TT Electronics plc Annual Report and Accounts 2021
152
TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
6 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
Pension increase exchange exercise
Other items
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
Ferranti Power and Control acquisition costs
Other acquisition and disposal related costs
Tax losses relating to the disposal of the transportation division
Total items excluded from adjusted measure
Adjusted measure
Operating
profit
19.3
(9.7)
1.7
(1.5)
1.8
(0.1)
(7.8)
(5.1)
−
(1.5)
(0.2)
(0.5)
(0.4)
−
(7.7)
(15.5)
34.8
2021
Tax
Operating profit
(3.2)
1.2
(0.2)
0.2
(0.2)
−
1.0
(0.3)
−
0.6
0.1
0.2
0.1
1.3
2.0
3.0
(6.2)
6.6
(14.8)
1.2
(0.9)
−
−
(14.5)
(4.2)
1.0
(1.3)
(1.3)
−
(0.6)
−
(6.4)
(20.9)
27.5
2020
Tax
(1.6)
1.8
−
0.1
−
−
1.9
0.4
(0.1)
0.2
0.2
−
0.1
−
0.8
2.7
(4.3)
Restructuring and other £7.8 million (2020: £14.5 million)
Restructuring costs charged in the period primarily relate to cost of the Group’s self help programme which began in 2020 and it is
expected to conclude in 2022. To date the total income statement expense of the self help programme has been £21.0 million and
with the total cost estimated to be £23.4 million.
Within the costs above there was £5.9 million of costs relating to the restructure of the US resistors business, £1.5 million relating
to the closure of our facility in Lutterworth, UK, £1.1 million relating to the restructure of the US Power North America business,
£0.9m relating to the closure of our facility in Tunis, Tunisia and £0.4 million of other costs.
Gains on property disposals of £1.7 million (2020: £1.2 million Lutterworth site, UK) relates to the sale of property in Covina, USA
(£1.3 million), Corpus Christi, USA (£0.6 million) and Olathe, USA (£0.2 million loss).
A £1.8 million gain was realised on a ‘Pensions Increase Exchange’ exercise whereby eligible current pension members were offered
the option to exchange their non statutory pension increases for an additional amount of level pension. Pension costs of £1.5
million relate to data cleanse work as we work towards a buyout of the scheme.
2020’s restructuring and other costs amounted to £14.5 million, primarily related to restructuring of the Group’s footprint, gain from
property disposals and costs relating 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.
Acquisition and disposal related costs £7.7 million (2020: £6.4 million)
Acquisition and disposal related costs charged in the period relate to amortisation of acquired intangible assets (£5.1 million),
integration costs of Torotel, Inc. (£1.5 million, Torotel was acquired in 2020), acquisition costs of Ferranti Power and Control
(£0.5 million), integration costs of Covina (£0.2 million) and other acquisitions and disposal costs primarily relating to terminated
deals (£0.4 million). A £1.3 million credit has been recognised in the period on tax losses arising in relation to the disposal of the
transportation division due to the statute of limitations being reached.
TT Electronics plc Annual Report and Accounts 2021
TT Electronics plc Annual Report and Accounts 2021 153
153
Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
6 Adjusting items continued
2020’s acquisition related costs amounted to £6.4 million and primarily related to amortisation of acquired intangible assets
(£4.2 million), acquisition and integration costs of Covina (£1.3 million), acquisition and integration costs of Torotel, inc.
(£1.3 million) a credit related to settlement against a warranty claim provision on the disposal of the transportation division
in 2017, (£1.0m), and other costs (£0.6m).
7 Taxation
a) Analysis of the tax charge for the year
£million
2021
2020
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
Total tax charge in the income statement
5.1
(0.9)
4.2
(0.4)
0.8
(1.4)
(1.0)
3.2
5.1
(3.4)
1.7
(0.5)
(0.4)
0.8
(0.1)
1.6
The applicable tax rate for the period is based on the UK standard rate of corporation tax of 19% (2020: 19%). Overseas taxation is
calculated at the rates prevailing in the respective jurisdictions. The Group’s effective tax rate for the year was 20.0% (the adjusted
tax rate was 19.6%, see section ‘Reconciliation of KPIs and non IFRS measures’).
The enacted UK tax rate applicable since 1 April 2017 to current year profits is 19%. An increase in UK rate has been enacted to
occur from 1 April 2023 to 25%. The impact on deferred tax as a result of this change was £5.9 million of which £0.8 million was
recognised in the income statement and £5.1 million was recognised within equity.
Included within the total tax charge above is a £3.0 million credit relating to items reported outside adjusted profit (2020: £2.7 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% (2020: 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
Current year tax losses and other items not recognised
Adjustment to value of deferred tax assets
Total tax charge reported in the income statement
2021
16.0
3.0
0.8
0.7
2.2
(0.9)
(1.2)
(1.4)
3.2
2020
2.9
0.6
(0.4)
1.4
2.6
(3.4)
0.1
0.7
1.6
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.
154 TT Electronics plc Annual Report and Accounts 2021
154
TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
7 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 2021 includes tax provisions of £6.9 million (2020: £6.4 million). The Group believes the
range of reasonable possible outcomes in respect of these exposures is tax liabilities of up to £9.0 million (2020: £8.2 million.
c) Deferred tax
The amounts of deferred taxation assets/(liabilities) provided in the financial statements are as follows:
A deferred tax asset of £6.7 million has been recognised 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 costs excluded from adjusted measures which the Group does not
expect to recur in future periods. The Group completed a five year forward looking strategic plan covering the periods from 2022
to 2026 in which it was forecast that all divisions would show increasing profitability. 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
Tax losses
Unremitted overseas earnings
Share-based payments
Cash flow hedges
Short-term temporary differences
Net deferred tax asset/(liability)
Deferred tax assets
Deferred tax liabilities
Net deferred tax asset/(liability)
As at 1 January
2021
Continuing
operations
Recognised on
acquisition
Recognised in
equity/ OCI
Net exchange
translation
As at 31
December 2021
(10.6)
1.7
(0.5)
(5.7)
1.0
7.5
(2.0)
0.7
−
8.4
0.5
8.9
(8.6)
0.5
(0.8)
(0.2)
−
(1.8)
0.1
1.9
(0.3)
0.7
−
1.3
0.9
−
−
−
−
−
(0.2)
−
−
−
(0.1)
(0.3)
−
−
−
(11.4)
−
−
−
0.5
0.5
−
(10.4)
−
−
−
−
−
0.1
−
−
−
0.3
0.4
(11.4)
1.5
(0.5)
(18.9)
1.1
9.3
(2.3)
1.9
0.5
9.9
(8.9)
11.3
(20.2)
(8.9)
TT Electronics plc Annual Report and Accounts 2021
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155
Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
7 Taxation continued
Deferred tax
Intangible assets
Description
Deferred tax relating to intangible assets created on acquisitions by the Group. This
excludes any internally generated intangibles relating to product development costs.
Property, plant and equipment
Deferred tax relating to temporary differences in the value of property, plant and equipment
between Group accounting and local accounting and/or tax returns
Deferred development costs
Deferred tax relating to deferred development costs
Retirement benefit obligations
Deferred tax relating to retirement benefit obligations
Inventories
Tax losses
Unremitted overseas earnings
Deferred tax relating to temporary differences between the local book value and Group
consolidated value of inventory
Deferred tax relating to recognised tax losses carried forwards for offset against future
profits of the Group
Deferred tax relating to the repatriation of subsidiary profits to the Group's ultimate
holding company
Share based payments
Deferred tax relating to share based payment
Short term temporary differences
Deferred tax relating to temporary differences between Group accounts and local accounts
or tax return arising where a tax deduction is received on payment of an amount either
between Group companies or to external unconnected third parties rather than on an
accounting basis. This includes product development costs.
£million
Intangible assets
Property, plant and equipment
Deferred development costs
Retirement benefit obligations
Inventories
Tax losses
Unremitted overseas earnings
Share-based payments
Short-term temporary 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
0.2
(0.2)
0.4
(1.1)
(0.5)
3.9
(0.4)
(0.3)
(2.1)
(0.1)
(2.2)
(0.1)
−
−
−
0.3
−
−
1.2
(0.8)
−
−
−
(2.1)
−
−
−
(0.3)
−
(2.4)
0.2
0.1
0.1
−
−
(0.3)
0.1
−
(0.1)
0.1
(9.0)
1.9
(1.0)
(2.5)
1.5
3.6
(1.7)
1.3
9.4
3.5
8.1
(4.6)
3.5
As at 31
December
2020
(10.8)
1.7
(0.5)
(5.7)
1.0
7.5
(2.0)
0.7
8.4
0.3
8.9
(8.6)
0.5
At 31 December 2021, 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
0.4
Expiring
within 6−10
years
−
Unlimited
71.1
Total
71.5
Tax losses of £58.2 million are subject to substantial limitations in the type of profits they can be offset against and no such capital
disposals are currently anticipated.
At 31 December 2020, the gross amount and expiry date of losses available for carry forward were as follows:
£million
Losses for which no deferred tax asset has been recognised
Expiring
within
5 years
0.7
Expiring
within 6−10
years
−
Unlimited
77.0
Total
77.7
At 31 December 2021, the Group had no other items for which no deferred tax assets have been recognised (2020: £nil).
156 TT Electronics plc Annual Report and Accounts 2021
156
TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
8 Dividends
Final dividend paid for prior year
Interim dividend declared for current year
2021
pence
per share
4.70
1.80
2021
£million
8.2
3.2
2020
pence
per share
−
−
2020
£million
−
−
The Directors recommend a final dividend of 3.8 pence per share. The Group has a progressive dividend policy. The final dividend
will be paid on 20 May 2022 to shareholders on the register on 29 April 2022.
9 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
Earnings per share
Basic
Diluted
2021
2020
7.3
7.2
0.8
0.8
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 (unless otherwise stated)
Group
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 6)
Adjusted earnings
Adjusted earnings per share (pence)
Adjusted diluted earnings per share (pence)
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
2021
174.8
3.3
178.1
2021
2020
12.8
7.8
7.7
(3.0)
25.3
14.5
14.2
1.3
14.5
6.4
(2.7)
19.5
11.7
11.6
2020
166.5
1.6
168.1
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
10 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
2021
2020
4,075
270
287
4,632
1,597
1,456
1,579
4,632
2021
103.1
24.0
3.0
1.4
3.8
135.3
2021
2.3
2021
4.0
0.1
1.8
5.9
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
130.1
2020
1.8
2020
3.0
0.1
0.3
3.4
158 TT Electronics plc Annual Report and Accounts 2021
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TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
11 Right-of-use assets
£million
Cost
At 1 January 2020
Additions
Lease reassessment
Businesses acquired
Net exchange adjustment
At 1 January 2021
Additions
Disposals
Net exchange adjustment
At 31 December 2021
Depreciation
At 1 January 2020
Depreciation charge
Impairment
Net exchange adjustment
At 1 January 2021
Depreciation charge
Impairment
Disposals
Net exchange adjustment
At 31 December 2021
Net book value
At 31 December 2021
At 31 December 2020
Land and
buildings
Other
Right-of-use
assets
31.6
0.4
1.3
2.0
(0.4)
34.9
10.5
(4.4)
0.5
41.5
19.8
2.8
1.0
(0.3)
23.3
3.4
0.1
(4.4)
0.2
22.6
18.9
11.6
1.6
0.2
−
−
−
1.8
0.3
(0.1)
−
2.0
0.6
0.4
−
−
1.0
0.3
−
(0.1)
0.1
1.3
0.7
0.8
33.2
0.6
1.3
2.0
(0.4)
36.7
10.8
(4.5)
0.5
43.5
20.4
3.2
1.0
(0.3)
24.3
3.7
0.1
(4.5)
0.3
23.9
19.6
12.4
All impaired assets have been impaired down to a recoverable amount of £nil.
Additions during the year relate to a new site in Plano, US (£6.3 million), lease renewals in Suzhou, China (£2.1 million), Boston,
US (£0.8 million) and other locations throughout the Group (£1.6 million).
In 2020 the Group identified indicators of impairment due to the planned relocation of our office in Carrollton, US (£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.
The Group only leases land and buildings for use in trading activities. Lease liabilities are disclosed in note 20. Contractual
cashflows for these leases are disclosed in note 20e.
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
12 Property, plant and equipment
£million
Cost
At 1 January 2020
Additions
Businesses acquired
Disposals
Net exchange adjustment
At 1 January 2021
Additions
Disposals
Net exchange adjustment
At 31 December 2021
Depreciation and impairment
At 1 January 2020
Depreciation charge
Impairment
Disposals
Net exchange adjustment
At 1 January 2021
Depreciation charge
Impairment
Disposals
Net exchange adjustment
At 31 December 2021
Net book value
At 31 December 2021
At 31 December 2020
Land and
buildings
Plant and
equipment
28.2
1.2
6.3
(5.5)
(0.5)
29.7
7.9
(13.5)
0.1
24.2
13.2
1.2
−
(3.5)
(0.1)
10.8
1.1
−
(5.7)
0.1
6.3
17.9
18.9
179.8
8.1
0.9
(9.2)
(2.6)
177.0
6.7
(13.2)
1.3
171.8
143.7
9.6
1.0
(9.0)
(2.4)
142.9
8.8
(0.1)
(13.2)
0.9
139.3
32.5
34.1
Total
208.0
9.3
7.2
(14.7)
(3.1)
206.7
14.6
(26.7)
1.4
196.0
156.9
10.8
1.0
(12.5)
(2.5)
153.7
9.9
(0.1)
(18.9)
1.0
145.6
50.4
53.0
All impaired assets have been impaired down to a recoverable amount of £nil.
Included within land and buildings is one investment property with a carrying value of £nil (2020: £1.1 million, two properties) and
a fair value of £0.7 million (2020: £1.8 million, two properties). Rental income of £0.2 million (2020: £0.1 million) was recognised
within other income in relation to these properties.
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.
160 TT Electronics plc Annual Report and Accounts 2021
160
TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
13 Goodwill
£million
Cost
At 1 January 2020
Additions
Net exchange adjustment
At 31 December 2020
Remeasurement of acquired fair values
Adjusted balance as at 31 December 2020
Net exchange adjustment
At 31 December 2021
136.1
23.7
(2.9)
156.9
(1.2)
155.7
0.8
156.5
In June 2021 the Group received new information about conditions which were present at the time of the acquisition of Torotel, Inc,
namely that the PPP loan from the US government Covid-19 support scheme that was recognised in full on the acquisition balance
sheet, was waived. The Group has updated the acquisition balance sheet to reflect this new information. The effect on the acquired
balance sheet and the Group’s consolidated statement of financial position as at 31 December 2020 was to decrease goodwill by
£1.4 million with a corresponding increase in other receivables.
During the year it was determined that the deferred tax asset on the acquisition balance sheet for Torotel, Inc. was overstated
by £0.2 million. The Group has updated the acquisition balance sheet to reflect this new information. The effect on the acquired
balance sheet and the Group’s consolidated statement of financial position as at 31 December 2020 was to increase goodwill by
£0.2 million with a corresponding decrease in deferred tax assets.
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 CGUs in the divisions shown below:
£million
Power and Connectivity:
Power Solutions 2
IoT Solutions
Global Manufacturing Solutions:
Global Manufacturing Solutions
Sensors and Specialist Components:
Resistors
Sensors 1
2021
2020
57.0
27.6
18.4
30.5
23.0
156.5
56.7
27.6
18.2
30.1
23.1
155.7
In the prior year the Sensors CGU comprised of the Optoelectronics CGU and the Roxspur CGU with respective goodwill of £21.0 million and £2.1 million.
1
2 The carrying value of Goodwill attributable to the Power Solutions CGU at 31 December 2020 has been restated following the finalisation of the acquisition accounting.
The Group tests goodwill impairment annually or more frequently if there are indications that goodwill might be impaired. Effective
from the year ended 31 December 2021, the date of the annual impairment test has been moved to 30 September 2021 to better
align with internal forecasting and review processes. The key assumptions used in the 30 September impairment testing were
reassessed at 31 December, however, there were no further indicators of value decline that necessitated further consideration.
TT Electronics plc Annual Report and Accounts 2021
TT Electronics plc Annual Report and Accounts 2021 161
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Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
13 Goodwill continued
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.
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, 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 Electronics 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. The discount rates used in the annual impairment test for the year ended
31 December 2021, which was performed on 30 September 2021 are shown below:
Pre-tax
discount rate
Long term
growth rate
Period of
forecast (years)
Pre-tax discount
rate
Long term
growth rate
Period of
forecast (years)
2021
2020
Power Solutions
IoT Solutions
Global Manufacturing Solutions
Resistors
Sensors 1
12.2%
12.2%
13.2%
13.3%
13.8%
1.7%
1.6%
1.8%
1.6%
1.7%
5
5
5
5
5
11.6%
11.5%
13.3%
12.9%
11.8%
1.7%
1.8%
2.2%
1.7%
1.6%
3
5
3
3
3
1
In the prior year the Sensors CGU comprised of the Optoelectronics CGU and the Roxspur CGU with respective long term growth rates of 1.6% and 1.6%, and pre-tax discount factors
of 13.8% and 11.5%.
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.
Key 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 pandemic resulted in supply chain
challenges within the markets in which the Group operates and are restricting the level of growth in the near term. Inflationary
pressure on materials is assumed to be largely passed on in the base case.
162 TT Electronics plc Annual Report and Accounts 2021
162
TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
13 Goodwill continued
Sensitivity analysis has been performed on the key assumptions; operating cash flow projections, revenue growth rates and
discount rate. Cash flows can be impacted by changes to sales prices, direct costs and replacement capital expenditure; individually
they are not significant assumptions. Forecast sales growth rates are based on past experience adjusted for the strategic direction
and near-term investment priorities. 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 committed restructuring
projects and cash conversion based on historical experience.
The Directors have not identified changes in significant assumptions that would cause the carrying value of recognised goodwill
to exceed its recoverable amount except for IoT Solutions.
Due to reduced forecast revenues resulting from the short-term supply chain challenges, an indicator of impairment was identified
in respect of goodwill allocated to IoT Solutions.
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, and post Covid-19 demand recovery in the short and
medium term. These forecasts exclude any potential benefits from the Virolens® rapid COVID-19 screening device given the
wide range of possible outcomes.
IoT Solutions CGU shows headroom of £5.8 million above the £60.0 million carrying amount, including £27.6m of goodwill.
The growth rates assume that demand for our product remains 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. The IoT Solutions CGU’s forecasts are reliant upon
its ability to execute on new business opportunities and technologies. The order book has grown significantly in the last 12 months
so the near term focus is on execution. Delays, cancellations, and adjustments to the scheduled level of demand will impact the
carrying value of the goodwill. 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
12.2% to 13.1% or from 1.6% to 0.3% respectively would reduce headroom to £nil. A reduction in operating cash flow of 9.0 per cent
in all forecast periods 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.
A reduction in terminal revenue of 15.2 per cent and terminal operating profit of 2.0 per cent (driven by project delivery delays
or lower than anticipated margin) would reduce headroom to £nil.
A failure to deliver the successful launch of new products and exploit potential market share could impact margin and cash flow
assumptions. A reduction in the terminal operating margin of 2.7 per cent and terminal cash conversion of 10.0 per cent in
combination would reduce headroom to £nil.
TT Electronics plc Annual Report and Accounts 2021
TT Electronics plc Annual Report and Accounts 2021 163
163
Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
14 Other intangible assets
£million
Cost
At 1 January 2020
Additions
Businesses acquired
Net exchange adjustment
At 1 January 2021
Additions
Disposals
Net exchange adjustment
At 31 December 2021
Amortisation
At 1 January 2020
Charge for the year
Impairment
Net exchange adjustment
At 1 January 2021
Charge for the year
Impairment
Disposals
Net exchange adjustment
At 31 December 2021
Net book value
At 31 December 2021
At 31 December 2020
Product
development
costs
Patents,
licences
and
other
Customer
relationships
13.7
3.3
0.2
(0.5)
16.7
1.9
(0.1)
0.1
18.6
5.5
1.0
3.6
(0.4)
9.7
0.9
−
(0.1)
0.1
10.6
8.0
7.0
33.4
0.8
1.3
(0.1)
35.4
0.5
(0.1)
0.1
35.9
28.7
2.3
−
−
31.0
2.5
−
(0.1)
0.2
33.6
2.3
4.4
52.8
−
11.8
(0.7)
63.9
−
(0.5)
0.2
63.6
14.4
3.9
−
(0.1)
18.2
4.2
0.2
(0.5)
0.1
22.2
41.4
45.7
Total
99.9
4.1
13.3
(1.3)
116.0
2.4
(0.7)
0.4
118.1
48.6
7.2
3.6
(0.5)
58.9
7.6
0.2
(0.7)
0.4
66.4
51.7
57.1
All impaired assets have been impaired down to a recoverable amount of £nil.
Included within the amortisation charge for the year is £5.1 million (2020: £4.2 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 6. The composition
of customer relationships and the years remaining until they are fully amortised is shown below.
In 2020, 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 6. £2.0 million arose
in the Sensors and Specialist Components segment and £1.4 million arose in the Power and Connectivity segment.
164 TT Electronics plc Annual Report and Accounts 2021
164
TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
14 Other intangible assets continued
Customer relationships held on the balance sheet are summarised below.
£million
Stadium Group
Aero Stanrew
Torotel
Precision Inc.
Covina
Roxspur
Others
At 31 December 2021
£million
Stadium Group
Aero Stanrew
Torotel
Precision Inc.
Covina
Roxspur
Others
At 31 December 2020
15 Inventories
£million
Raw materials
Work in progress
Finished goods
Net book
value
Years
remaining
11.3
9.0
20.9
10.7
12.2
0.6
14.5
10.0
7.3
5.6
3.3
0.3
0.4
41.4
Net book value
Years remaining
15.8
11.1
7.5
6.1
3.6
0.9
0.7
45.7
2021
92.6
26.3
22.9
141.8
12.3
10.0
21.9
11.7
13.2
1.6
2020
53.2
26.4
18.6
98.2
Inventories are stated after a provision for obsolescence of £18.3 million (2020: £20.2 million). The directors do not consider there
to be a material difference between net book value and replacement cost for inventories.
16 Trade and other receivables
£million
Trade receivables
Prepayments
VAT and other taxes receivable
Amounts owed by non-controlling interests
Other receivables
2021
72.9
6.3
2.9
2.0
2.1
86.2
2020 1
58.2
4.3
2.7
2.0
4.1
71.3
1
Other receivables has been increased by £1.4 million following new information about conditions present at the time of acquisition of Torotel, Inc as described in note 13.
Loss allowance for expected credit losses in respect of trade receivables and amounts owed by non-controlling interests are shown
in note 20d(ii) and note 20d(iii) respectively.
TT Electronics plc Annual Report and Accounts 2021
TT Electronics plc Annual Report and Accounts 2021 165
165
Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
17 Trade and other payables
£million
Current liabilities
Trade payables
Taxation and social security
Accruals
Deferred income
Goods received not invoiced
Other payables
£million
Non-current liabilities
Accruals
2021
2020
77.7
4.0
26.4
16.1
7.6
2.1
133.9
2021
0.2
51.1
4.7
21.0
3.8
4.9
4.7
90.2
2020
0.1
Deferred income primarily represents pre funded inventory which is expected to be converted into finished goods and sold within
12 months. All of the brought forward balance carried over from 2020 was converted into finished goods and sold to the end
customer within the year.
18 Provisions
£million
At 1 January 2020
Utilised
Released
Arising during the year
Exchange differences
At 1 January 2021
Utilised
Released
Transfer
Arising during the year
Exchange differences
At 31 December 2021
£million
Non-current
Current
Property
Reorganisation
Legal, warranty
and other
0.8
−
−
0.1
−
0.9
−
(0.1)
−
−
−
0.8
1.9
(3.8)
(0.1)
6.3
(0.2)
4.1
(3.2)
(0.2)
−
0.8
(0.1)
1.4
4.5
(0.8)
(1.3)
0.1
−
2.5
(0.3)
(1.4)
(0.2)
0.6
(0.1)
1.1
2021
0.8
2.5
3.3
Total
7.2
(4.6)
(1.4)
6.5
(0.2)
7.5
(3.5)
(1.7)
(0.2)
1.4
(0.2)
3.3
2020
0.9
6.6
7.5
166 TT Electronics plc Annual Report and Accounts 2021
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TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
18 Provisions continued
Property
Property provisions of £0.8 million (2020: £0.9 million) relate to dilapidation provisions.
Reorganisation
The reorganisation provision of £1.4 million (2020: £4.1 million) includes £0.5 million (2020: £3.6 million) in respect of self-help
programmes which commenced in 2020 to consolidate our footprint including the closure of Barbados, Corpus Christi, US and
Lutterworth sites, the moving of Carrollton and £0.6m relating to the closure of Covina. A further £0.3 million (2020: £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 6, 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 £3.2 million relates to severance costs of £3.1 million as part of the self-help programme, and £0.1 million of other
costs (including Boone). In 2020, the utilisation of £3.8 million related 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
Legal, warranty and other claims represent the best estimate for the cost of settling outstanding product and other claims, and
warranty provisions created on the disposal of businesses.
The utilisation of £0.3 million relates to other items. In 2020, the utilisation of £0.8 million related to retention payments entered into
on the date of acquisition to employees of acquired businesses (£0.5 million) and other items (£0.3 million).
The release of £1.4 million reflects a £0.6 million reduction in the provision relating to specific claims and a £0.8 million reduction
in the Group’s warranty claim provision: reflecting a lower historical experience of claims both in volume and exposure. The transfer
of £0.2 million reflects a movement to other creditors. In 2020, the release of £1.3 million included a £1.0 million 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.
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.
TT Electronics plc Annual Report and Accounts 2021
TT Electronics plc Annual Report and Accounts 2021 167
167
Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
19 Borrowings and lease obligations
£million
At 31 December 2021
£180 million multi-currency revolving credit facility
Unsecured loan note
Unsecured loan note
Overdrafts
Lease liabilities
Loan arrangement fee
Total
At 31 December 2020
£180 million multi-currency revolving credit facility
2023
2023
GBP
USD
Overdrafts
Lease liabilities
Other external loans
Loan arrangement fee
Total
Maturity
Currency of
denomination
Current
Non-current
Total
2023
2023
2028
2031
GBP
USD
GBP
GBP
52.0
21.4
37.5
37.5
−
18.5
(1.3)
52.0
21.4
37.5
37.5
1.1
22.6
(1.3)
165.6
170.8
117.0
19.7
−
12.3
0.3
(1.1)
148.2
117.0
19.7
1.2
15.9
1.4
(1.1)
154.1
1.1
4.1
−
5.2
−
−
1.2
3.6
1.1
−
5.9
In December 2021 the Group issued £75.0 million of unsecured loan notes with £37.5 million maturing in seven years and
£37.5 million maturing in 10 years respectively to a collection of three counterparties. The average interest rate on the loan notes
is 2.9 per cent.
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
2021, £73.4 million (31 December 2020: £136.7 million) of the facility was drawn down. Arrangement fees with amortised cost
of £1.3 million (2020: £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 GBP LIBOR, or USD LIBOR depending on the currency of denomination of
the loan. On 4 January 2022 the Group transitioned away from GBP LIBOR to be replaced by GBP SONIA.
There will be no impact of this transition. As USD LIBOR will still be in use up until mid 2023 the Group does not expect to transition
away from USD LIBOR in the next 12 months.
Undrawn facilities
At 31 December 2021, the total lease liabilities and borrowing facilities available to the Group net of £1.3 million of loan
arrangement fees (2020: £1.1 million) amounted to £318.9 million (2020: £237.3 million). At 31 December 2021, the Group had
available £110.1 million (2020: £46.6 million) of undrawn committed borrowing facilities (comprising the main facility £106.6 million
(2020: £43.2 million) and China £3.5 million (2020: £3.4 million) and £38.0 million (2020: £39.2 million) of undrawn uncommitted
borrowing facilities, representing overdraft lines and the accordion facility.
168 TT Electronics plc Annual Report and Accounts 2021
168
TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
20 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 2o.
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 forward currency contracts have been designated as cash flow hedges and the
effective portion of the mark to market valuation of these derivatives at 31 December 2021 is taken to the hedging reserve within
equity. Currency basis spread that is not designated is taken to the income statement.
The Group have designated £21.4 million ($29.0 million) (2020: £19.7 million ($29.0 million)) of loans in a net investment hedge of
USD net assets. No ineffectiveness was recorded (2020: £nil) and a gain of £0.3m (2020: £0.7m gain) 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 2021 was an accumulated loss of £0.3 million (2020: accumulated loss of £1.0 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 interest rate
hedging instruments are floating to fixed rate interest rate swaps used to manage the Group’s interest cost.
At 31 December 2021, the Group had a net derivative financial asset of £2.6 million (2020: £5.7 million net asset).
TT Electronics plc Annual Report and Accounts 2021
TT Electronics plc Annual Report and Accounts 2021 169
169
Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
20 Financial risk management continued
Foreign exchange (FX) hedges
Notional
Amount
(£m)
Average
Hedged Rate
Fair value
(£m)
31 December 2021
USD:CNY
USD:MXN
USD:GBP
EUR:GBP
USD:MYR
CNY:GBP
GBP:USD
CNY:EUR
HKD:CNY
GBP:EUR
GBP:SEK
Other
Total
31 December 2020
USD:CNY
USD:GBP
USD:MXN
EUR:GBP
GBP:EUR
HKD:CNY
USD:MYR
GBP:USD
CNY:GBP
Other
Total
6.70
22.03
1.35
1.13
4.17
9.08
1.03
7.89
0.85
0.87
11.63
−
7.02
0.77
23.43
0.90
1.12
0.89
4.19
1.27
0.11
65.6
23.9
23.3
10.8
8.6
6.1
5.5
3.4
3.2
2.7
2.6
−
155.7
62.3
26.5
17.8
16.9
9.9
7.6
7.4
7.3
6.0
4.0
165.7
3.0
0.4
(0.1)
0.3
−
(0.3)
(0.1)
(0.3)
0.1
(0.1)
(0.1)
0.1
2.9
3.3
1.2
2.3
(0.1)
0.1
0.3
0.2
(0.4)
(0.1)
(0.1)
6.7
Type of hedge
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
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
CFH − Forward rate
CFH − Forward rate
CFH is an abbreviation for cash flow hedge.
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 December 2021 was £2.6 million (2020: accumulated
gain of £6.4 million). 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 2021.
Hedges with a notional amount of £24.8 million (2020: £42.8 million) are due within 12 months with the remainder maturing within
24 months.
170 TT Electronics plc Annual Report and Accounts 2021
170
TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
20 Financial risk management continued
Interest rate swaps
31 December 2021
USD
GBP
31 December 2020
USD
GBP
Notional
amount
(£m)
5.1
19.0
24.1
5.1
19.0
24.1
Fair value
(£m)
Type of hedge
(0.1)
(0.2)
(0.3)
(0.3)
(0.7)
(1.0)
CFH − IBOR
CFH − IBOR
CFH − IBOR
CFH − IBOR
At the start of the year the Group was 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 (see note 19). On 4 January 2022 the Group transitioned away from GBP LIBOR to be replaced by GBP
SONIA. There will be no impact of this transition. As USD LIBOR will still be in use up until mid 2023 the Group does not expect to
transition away from USD LIBOR in the next 12 months.
The Group hedges approximately 30% of the interest rate exposure of the Group. At 31 December 2021 the Group held interest rate
swap instruments to fix the cost of GBP LIBOR and USD 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 1.5%
until the swaps terminate in November 2023.
The average cost of the debt for the Group is expected to be approximately 3.3% over the next 12 months. The interest rate swaps
are designated as cash flow hedges and were highly effective throughout 2021. The fair value of the contracts as at
31 December 2021 is disclosed in the table above. For the year ending 31 December 2021 an accumulated loss of £0.4 million
(2020: £0.2 million) was reclassified from the cash flow hedge reserve and included in the income statement as part of finance
costs. A gain on the movement in fair value of the hedging instruments of £0.3 million (2020: loss 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
2021 was a debit of £0.3 million (2020: debit of £1.0 million). 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 2021 (2020: £nil) or is expected to be recognised in
future periods.
TT Electronics plc Annual Report and Accounts 2021
TT Electronics plc Annual Report and Accounts 2021 171
171
Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
20 Financial risk management continued
b) Foreign exchange risk
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.
The Group’s exposure to foreign currency before the impact of hedging is shown below:
£million
GBP
USD
Euro
Other
Total
31 December 2021
Trade and other receivables
Cash and cash equivalents
Borrowings
Lease liabilities
Trade and other payables
Net Derivative financial instruments
Total
31 December 2020
Trade and other receivables
Cash and cash equivalents
Borrowings
Lease liabilities
Trade and other payables
Net Derivative financial instruments
Total
0.1
−
−
−
(0.4)
(0.1)
(0.4)
−
−
−
−
(0.3)
0.1
(0.2)
21.3
4.0
(21.4)
−
(19.5)
(0.1)
(15.7)
13.6
7.8
(19.7)
−
(9.9)
4.1
(4.1)
2.1
1.2
−
(0.1)
(1.4)
(0.3)
1.5
1.8
2.6
−
(0.1)
(1.1)
(0.1)
3.1
0.6
1.6
−
(1.2)
(2.9)
3.1
1.2
0.6
1.1
−
(1.3)
(2.8)
1.6
(0.8)
24.1
6.8
(21.4)
(1.3)
(24.2)
2.6
(13.4)
16.0
11.5
(19.7)
(1.4)
(14.1)
5.7
(2.0)
A 10% strengthening of GBP against the following currencies at 31 December 2021 would have increased 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 2021 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.
£million
US dollar
Euro
2021
0.6
0.2
2020
1.2
0.3
A 10% strengthening of GBP against the following currencies at 31 December 2021 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
2021
(2.1)
(0.0)
2020
(1.6)
(0.0)
10% weakening of GBP against the above currencies at 31 December 2021 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.
172 TT Electronics plc Annual Report and Accounts 2021
172
TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
20 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
Derivative financial instruments
Total financial assets
Financial liabilities
Borrowings
Lease liabilities
Trade and other payables
Derivative financial instruments
Total financial liabilities
Floating
rate
Fixed
rate
Non-interest
bearing
−
16.0
−
16.0
(50.4)
−
−
(0.3)
(50.7)
−
−
−
−
(99.1)
(22.6)
−
−
(121.7)
74.9
52.3
4.6
131.8
1.3
−
(111.9)
(1.7)
(112.3)
Floating
rate
Fixed
rate
Non-interest
bearing
−
60.7
−
60.7
(113.8)
−
−
(1.0)
(114.8)
−
3.9
−
3.9
(25.5)
(15.9)
−
−
(41.4)
60.2
5.6
7.6
73.4
1.1
−
(77.1)
(0.9)
(76.9)
2021
total
74.9
68.3
4.6
147.8
(148.2)
(22.6)
(111.9)
(2.0)
(284.7)
2020
total
60.2
70.2
7.6
138.0
(138.2)
(15.9)
(77.1)
(1.9)
(233.1)
At 31 December 2021, 43% of borrowings was at a fixed rate when including the effect of derivatives (2020: 18% 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 or SONIA).
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 2021, 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
£0.3 million (2020: £0.4 million). The impact on equity would be materially the same.
TT Electronics plc Annual Report and Accounts 2021
TT Electronics plc Annual Report and Accounts 2021 173
173
Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
20 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.
During the year there was £1.9 million of impairments of trade receivables as at 31 December 2021 (2020: £0.3 million) recognised
within admin expenses. 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 2021 by geographic areas was:
£million
Europe (including UK)
North America
Asia
Rest of the World
(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
2021
32.7
26.7
13.2
0.3
72.9
Gross
52.9
4.8
0.5
0.5
58.7
2020
26.0
22.6
8.8
0.8
58.2
2020
Impairment
(0.1)
−
(0.2)
(0.2)
(0.5)
Gross
66.0
6.6
0.3
2.1
75.0
2021
Impairment
(0.2)
−
(0.2)
(1.7)
(2.1)
174 TT Electronics plc Annual Report and Accounts 2021
174
TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
20 Financial risk management continued
The movement in the provision for impairment in respect of trade receivables during the year was as follows:
£million
At 1 January
Released to income statement
Charged to income statement
Utilised
At 31 December
2021
(0.5)
0.2
(1.9)
0.2
(2.0)
2020
(0.4)
0.2
(0.3)
−
(0.5)
(iii) Credit risk related to other financial assets and cash deposits
Credit risk relating to the Group’s other financial assets, principally comprising cash and cash equivalents, amounts owed by non
controlling interests 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 credit risk of the counterparties is between AA- and A- on the S&P’s long term credit risk scale. The same process
is undergone for counterparts with which the Group enters into hedging agreements. As such credit risk on these financial assets
(cash and cash equivalents and derivatives) is calculated as £nil.
The expected credit risk model was applied to other receivables as described in note 2o 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
2021
2.0
68.3
4.6
2020
2.0
70.2
7.6
TT Electronics plc Annual Report and Accounts 2021
TT Electronics plc Annual Report and Accounts 2021 175
175
Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
20 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 2021, the Group had £110.1 million of undrawn committed borrowing facilities (2020: £46.6 million) and
£38.0 million (2020: £46.6 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:
£million
31 December 2021
Borrowings (excl overdrafts)
Overdrafts
Lease liabilities
Trade and other payables
Derivatives settled gross
Interest rate swaps
31 December 2020
Borrowings (excl overdrafts)
Overdrafts
Lease liabilities
Trade and other payables
Derivatives settled gross
Interest rate swaps
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
(147.1)
(1.1)
(22.6)
(111.9)
(1.7)
(0.3)
(172.0)
(1.1)
(27.0)
(112.1)
(41.9)
(1.1)
−
(1.1)
−
−
−
−
(0.7)
−
(1.2)
(111.3)
(5.7)
(0.2)
(4.1)
−
(3.2)
(0.6)
(22.1)
(0.5)
(77.9)
−
(4.2)
(0.1)
(14.1)
(0.5)
(284.7)
(355.2)
(1.1)
(119.1)
(30.5)
(96.8)
(2.2)
−
(3.4)
(0.1)
−
−
(5.7)
(137.0)
(1.2)
(15.9)
(77.1)
(0.9)
(1.0)
(233.1)
(146.9)
(1.2)
(27.0)
(77.1)
(26.2)
(1.7)
(280.1)
−
(1.2)
−
−
−
−
(1.2)
(0.8)
−
(1.2)
(72.9)
(3.2)
(0.1)
(78.2)
(3.4)
−
(3.2)
(4.2)
(15.9)
(0.5)
(27.2)
(3.4)
−
(4.2)
−
(7.1)
(0.6)
(139.3)
−
(3.4)
−
−
(0.5)
(15.3)
(143.2)
(2.2)
−
(2.9)
−
−
−
(5.1)
−
−
(2.9)
−
−
−
(2.9)
(2.2)
−
(2.7)
−
−
−
(4.9)
−
−
(2.7)
−
−
−
(2.7)
(82.7)
−
(9.4)
−
−
−
(92.1)
−
−
(9.4)
−
−
−
(9.4)
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).
176 TT Electronics plc Annual Report and Accounts 2021
176
TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
20 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 (excluding unsecured loan notes)
Unsecured loan notes
Held at fair value
Derivative financial instruments (assets)
Derivative financial instruments (liabilities)
Deferred consideration for acquisition of Power
Partners Inc.
Held at depreciated cost
Investment properties
At 31 December 2021
31 December 2020
Fair value
hierarchy
Carrying
value
Fair value
n/a
n/a
n/a
2
3
2
2
3
3
68.3
74.9
(111.9)
(73.2)
(75.0)
4.6
(2.0)
−
−
68.3
74.9
(111.9)
(73.2)
(71.5)
4.6
(2.0)
−
0.7
Carrying
value
70.2
60.2
(77.1)
(138.2)
−
7.6
(1.9)
(0.4)
1.1
Fair value
70.2
60.2
(77.1)
(138.2)
−
−
7.6
(1.9)
(0.4)
−
1.8
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 (£4.6 million) and liabilities (£2.0 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 unsecured loan notes has been derived from available market data for borrowings of similar terms and
maturity period.
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 £102.5 million (2020: £83.9 million). Included within the debt facilities are certain financial covenants
related to IFRS (excluding IFRS 16 update, and after the application of other covenant defined adjustments) net debt divided by
adjusted EBITDA. 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 2021
TT Electronics plc Annual Report and Accounts 2021 177
177
Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
21 Retirement benefit schemes
Defined contribution schemes
The Group operates 401(k) plans in North America and defined contribution arrangements in the rest of the world. The assets of
these schemes are held independently of the Group. The total contributions charged by the Group in respect of defined contribution
schemes were £3.0 million (2020: £3.2 million).
Defined benefit schemes
At 31 December 2021 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.
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 the scheme’s funding position has improved, so the scheme’s investment strategy has been
gradually de-risked to reduce scheme volatility.
• The Group has in place financial hedging that aims to remove the majority of interest rate and inflation related risks. As the
scheme funding has improved the level of hedging has been increased. We are now fully hedged on a self-sufficiency basis, which
means that we are now over-hedged on accounting basis. At the current level the approximate impact on the reported accounting
position of a 10bps fall in interest rates would be a circa £1 million improvement in the position (which would be otherwise a circa
£9 million deterioration if the hedge were not in place) thereby reducing volatility. Conversely, a 10bps rise in interest rates would
result in a circa £1 million reduction in accounting surplus, all else equal. 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. As the scheme’s funding position has improved, so the scheme’s investment strategy has been gradually de-risked to
reduce scheme volatility.
• 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 circa 90% of the inflation linked liabilities measured on an buyout basis. The target hedge level is kept under
review and any change would be in consultation with the Group.
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.
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.
178 TT Electronics plc Annual Report and Accounts 2021
178
TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
21 Retirement benefit schemes continued
Analysis has shown that the COVID-19 related excess deaths over 2020 and 2021 have typically reduced a pension scheme’s
liabilities by around 0.1%, with defined benefit pension scheme members often less affected by COVID-19 than the general UK
population. Nonetheless, it is possible that the longer term implications of COVID-19 in terms of economic shock, delayed
healthcare treatments and long COVID could result in slower longevity improvements than anticipated before the pandemic.
These negative impacts could outweigh other potential positive changes such as greater attention to healthcare and healthier
individual behaviours. 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 £5.7 million and £4.4 million in the years 2022 and 2023 respectively.
The next triennial valuation of the TT Group scheme is due as at 5 April 2022.
In the year ended 31 December 2021 the Group made contributions of £5.5 million to the TT Group (1993) scheme and £nil to the
Southern & Redfern Ltd Retirement Benefits Schemes.
In addition, the Company has set aside £0.6 million under a legal agreement to be utilised in agreement with the Trustee for
reducing the long-term liabilities of the TT Group scheme.
The Trustee and Company agreed that the Trustee should undertake an exercise during 2021, whereby eligible current pensioner
members were offered an option to exchange their non-statutory pension increase benefits for an additional amount of level
pension. In the year ended 31 December 2021, a £1.8 million credit was recognised as a result of this exercise.
An actuarial valuation of the USA defined benefit schemes was carried out by independent qualified actuaries in 2021 using the
projected unit credit method. Pension scheme assets are stated at their market value at 31 December 2021.
An analysis of the pension surplus/(deficit) by scheme is shown below:
£million
TT Group (1993)
Southern & Redfern
USA schemes
Net surplus
2021
78.4
−
(3.9)
74.5
2020
35.4
−
(4.9)
30.5
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.
TT Electronics plc Annual Report and Accounts 2021
TT Electronics plc Annual Report and Accounts 2021 179
179
Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
21 Retirement benefit schemes continued
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
2021
TT Group
2020
1.80
3.60
3.40
3.00
1.40
3.10
2.95
2.40
The mortality tables applied by the actuaries at 31 December 2021 for the TT Group (1993) 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 2020 projection model. The assumptions are equivalent to life expectancies as
follows: Current pensioner aged 65: 87 years (male), 89 years (female). Future retiree currently aged 40: 89 years (male),
91 years (female).
Risk and sensitivity
A decrease in the discount rate by 0.1% per annum increases the liabilities by approximately £9.1 million. An increase by 0.1% per
annum in the inflation rate increases the liabilities by approximately £2.9 million. An increase in the life expectancy of 1 year
increases the liabilities by approximately £25.2 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.
The amounts recognised in respect of the pension surplus in the Consolidated balance sheet are:
£million
Equities
UK
Overseas
Government bonds
UK
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
2021
2020
0.9
4.8
35.7
149.2
208.1
7.0
120.8
37.1
20.2
14.9
53.2
651.9
(577.4)
74.5
6.2
4.1
93.2
183.0
135.0
7.3
97.1
30.0
11.4
15.6
65.8
648.7
(618.2)
30.5
180 TT Electronics plc Annual Report and Accounts 2021
180
TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
21 Retirement benefit schemes continued
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
Net gain on pension projects (excluded from adjusted operating profit)
Net interest credit
2021
(1.7)
0.3
0.9
2020
(1.7)
−
0.4
Amounts recognised in the consolidated statement of comprehensive income are a gain of £35.8 million (2020: gain of £8.6 million)
which comprises of; the actual return on scheme assets, a gain of £11.3 million (2020: gain of £70.9 million) and the remeasurement of
the schemes obligations, a decrease of £24.5 million (increase of £62.3 million).
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
2021
618.2
(1.8)
9.6
(1.2)
(13.2)
(10.1)
(24.2)
0.1
577.4
564.7
0.9
11.8
577.4
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
TT Electronics plc Annual Report and Accounts 2021
TT Electronics plc Annual Report and Accounts 2021 181
181
Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
21 Retirement benefit schemes continued
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
22 Share capital and other reserves
Share capital
£million
Issued and fully paid
176,244,624 (2020: 174,580,743) ordinary shares of 25p each
2021
648.7
10.5
11.3
7.3
(1.7)
−
(24.2)
−
651.9
2020
583.1
11.6
70.9
7.2
(1.7)
(0.1)
(22.2)
(0.1)
648.7
2021
2020
44.1
43.6
During the period the Company issued 653,834 ordinary shares as a result of share options being exercised under the Sharesave
scheme and Share Purchase plans.
The performance conditions of the Long-term Incentive Plan awards issued in 2018 and Restricted Share Plan awards issued in
2019, 2020 and 2021 were met and shares were allocated to award holders from existing shares held by an Employee Benefit Trust
for £nil consideration. 191,651 new shares were issued at par value of 25 pence to settle the vesting of part of the 2018 scheme.
818,396 new issue shares were issued at par value of 25 pence in anticipation of vesting of the 2019 scheme in 2022.
The aggregate consideration received for all share issues during the year was £1.4 million, which was represented by a
£0.5 million increase in share capital and a £0.9 million increase in share premium.
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.
182 TT Electronics plc Annual Report and Accounts 2021
182
TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
22 Share capital and other reserves continued
Other reserves
£million
At 1 January 2020
Share based payment charge
Awards made to employees
Deferred tax on share based
payments
Gain on cash flow hedges taken to
equity less amounts taken to income
statement
At 1 January 2021
Share based payment charge
Awards made to employees
Deferred tax on share based
payments
Issue of new shares
Loss on cash flow hedges taken to
equity less amounts recycled to
income statement
Deferred tax on gain on cash flow
hedges
Other movement
At 31 December 2021
Share Based
Payment
Reserve
Employee
Benefit Trust
Share options
reserve
Hedging
Reserve
Merger
reserve
0.2
1.0
(4.0)
(0.3)
−−
(3.1)
3.8
(0.2)
0.5
−
−
−
0.3
1.3
(2.4)
−
2.2
−
−
(0.2)
−
0.2
−
(0.3)
−
−
−
(0.3)
(2.2)
1.0
(1.8)
(0.3)
−
(3.3)
3.8
−
0.5
(0.3)
−
−
0.3
1.0
(1.7)
−
−
−
7.1
5.4
−
−
−
−
(3.2)
0.5
−
2.7
3.4
−
−
−
−
3.4
−
−
−
−
−
−
−
3.4
Total
(0.5)
1.0
(1.8)
(0.3)
7.1
5.5
3.8
−
0.5
(0.3)
(3.2)
0.5
0.3
7.1
TT Electronics plc Annual Report and Accounts 2021
TT Electronics plc Annual Report and Accounts 2021 183
183
Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
23 Share-based payment plans
The Company has the following share-based payment plans in operation at 31 December 2021:
• Long-term Incentive Plan (“LTIP”) for senior executives;
• Restricted Share Plan (“RSP”) for certain senior executives; and
• Sharesave plans for UK employees and a Share Purchase plan for US employees.
The LTIP and RSP schemes have been classified as equity settled schemes. The terms of the LTIP and RSP schemes state that the
Group has the right as to how to settle these awards and it is the Group’s intention to settle these with equity. At the date of vesting
the Group will settle the awards either with new issue shares or shares purchased on the market at an earlier point in time.
The Group offers the employees the option for the Group to settle the tax liability, which the employee would incur upon receipt of
the award, on behalf of the employee with the relevant tax authority. In this circumstance the Group may choose to pay, in cash, the
tax liability due on behalf of the employee to the tax authority and the employee would receive the remaining value of their award in
equity. In 2021 the Group paid £0.3 million to settle the employees’ tax liabilities (2020: £1.5 million). The Group estimates that the
future cashflows associated with the above would remain consistent in future years with the 2020 outflows. The Group also offers
the employee the option for the Group to sell the remaining shares on the employees’ behalf and to forward that cash to the
employee, although the Group is not compelled to do so no matter what the employee chooses. In 2021 £36.6 thousand was used for
these purposes (2020: £1.8 million). The Group estimates that the future cashflows associated with the above would remain
consistent in future years with the 2021 outflows. These arrangements do not change the assessment that the share-based
payments are equity settled.
The Sharesave scheme has also been classified as an equity settled scheme. The rules of this scheme state that the participant
must always be paid in equity and that neither party can request settlement in any other way.
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
2021
2020
Number of
share awards
5,031,921
1,806,500
(1,246,053)
(213,075)
5,379,293
Number of
share awards
4,697,301
2,003,776
(106,490)
(1,562,666)
5,031,921
−
−
During 2021 grants of awards were made under the LTIP for the issue of shares in 2024. 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 113.
On 16 March 2021 and 1 October 2021 grants of awards were made under the LTIP for the issue of up to 1,763,817 and 42,683
shares respectively in 2024.
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.
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.
184 TT Electronics plc Annual Report and Accounts 2021
184
TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
23 Share-based payment plans continued
The following table lists the inputs to the model:
Grant date
2021
16 March 2021
1 October 2021
2020
13 March 2020
17 September 2020
Number of
awards
Fair value at
grant date
Share price at
grant date
Exercise price
Expected
volatility
Vesting period
(years)
1,763,817
42,683
1,981,406
22,370
218.4p
215.8p
161.3p
175.8p
256.0p
253.0p
194.5p
212.0p
£nil
£nil
£nil
£nil
39%
39%
35%
35%
3.0
3.0
3.0
3.0
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 16 March 2021 49,717 (13 March 2020: 48,070) 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 16 March 2021 LTIP grant.
The performance conditions of the LTIP grants made in 2018 that reached the end of their performance periods in 2021 were
partially met and shares were allocated to award holders from existing shares held by an Employee Benefit Trust for £nil
consideration.
b) Restricted Share Plan
During the year the Group granted 1,018,880 shares (2020: 1,367,814) under the restricted plan. Awards are typically subject to
continuing employment with no other vesting criteria.
Details of the restricted share plan awards outstanding during the year are as follows:
At 1 January
Granted
Forfeited/Lapsed
Exercised/Vested
At 31 December
Exercisable at 31 December
2021
2020
Number of
share awards
Number of
share awards
1,485,970
1,018,880
(61,862)
(249,806)
284,106
1,367,814
−
(165,950)
2,193,182
1,485,970
−
−
TT Electronics plc Annual Report and Accounts 2021
TT Electronics plc Annual Report and Accounts 2021 185
185
Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
23 Share-based payment plans ccoonnttiinnuueedd
The following table lists the inputs to the model:
Grant date
2021
21 January 2021
3 February 2021
5 February 2021
16 March 2021
16 March 2021
18 August 2021
24 September 2021
1 October 2021
1 November 2021
Grant date
2020
13 January 2020
17 September 2020
17 September 2020
17 September 2020
24 September 2020
24 September 2020
24 September 2020
5 November 2020
Number of
awards
Fair value at
grant date
Share price at
grant date
Exercise price
Expected
volatility
Vesting period
(years)
Vesting criteria
20,000
54,290
135,467
185,153
237,425
14,613
273,747
92,341
5,844
208.0p
201.0p
203.0p
206.0p
206.0p
277.0p
278.0p
253.0p
252.0p
208.0p
201.0p
203.0p
206.0p
206.0p
277.0p
278.0p
253.0p
252.0p
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
39%
39%
39%
39%
39%
39%
39%
39%
39%
2.7
0.9
1.1
3.0
3.0
1.7
3.0
3.0
3.0
Note 1
Note 2
Note 2
Note 1
Note 1
Note 1
Note 1
Note 1
Note 1
Number of
awards
Fair value at
grant date
Share price at
grant date
Exercise price
Expected
volatility
Vesting period
(years)
Vesting criteria
79,597
184,321
249,222
141,933
99,891
19,284
531,474
20,000
250.0p
212.0p
212.0p
212.0p
190.0p
190.0p
190.0p
205.0p
250.0p
212.0p
212.0p
212.0p
190.0p
190.0p
190.0p
205.0p
£nil
£nil
£nil
£nil
£nil
£nil
£nil
£nil
35%
35%
35%
35%
35%
35%
35%
35%
1.2
2.0
3.0
2.6
2.0
2.3
3.3
3.0
Note 1
Note 3
Note 4
Note 1
Note 3
Note 4
Note 1
Note 1
Note 1 – these awards are subject to continuing employment with the Group.
Note 2 – these awards are subject to continuing employment with the Group as well as achievement of certain personal objectives.
Note 3 – these awards are 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.
Note 4 – these awards are 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.
186 TT Electronics plc Annual Report and Accounts 2021
186
TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
23 Share-based payment plans continued
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. All Sharesave scheme awards are accounted for as equity
settled.
Details of the save as you earn share plan awards outstanding during the year are as follows:
At 1 January
Granted
Forfeited
Exercised
At 31 December
Exercisable at 31 December
The fair value of the shares at grant date was as follows:
Date price set
31 August 2018
30 August 2019
30 August 2020
7 September 2021
pence
Fair value at grant date
2021
2020
Number of
share awards
Number of
share awards
2,760,427
459,495
(384,156)
(370,612)
1,874,080
1,599,526
(341,672)
(371,507)
2,465,154
2,760,427
73,563
149,172
Market price
Option price
Fair value
260.0p
237.0p
187.0p
271.0p
215.0p
190.0p
151.0p
226.0p
76.0p
83.5p
84.0p
110.9p
2021
110.9
Options
outstanding
72,966
608,156
1,355,936
466,853
2020
84.0
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 charge of £0.5 million (2020: £0.1 million credit)
arising from the above share scheme plans was £3.8 million (2020: £1.0 million).
TT Electronics plc Annual Report and Accounts 2021
TT Electronics plc Annual Report and Accounts 2021 187
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Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
24 Reconciliation of net cash flow to movement in net debt
Net cash of £67.2 million (2020: £69.0 million) comprises cash at bank and in hand of £68.3 million (2020: £70.2 million) and
overdrafts of £1.1 million (2020: £1.2 million).
£million
At 1 January 2020
Cash flow
Businesses acquired
Repayment of borrowings
Proceeds from borrowings
Payment of lease liabilities
Reassessment of lease liabilities
New leases
Amortisation of loan arrangement fees
Exchange differences
At 31 December 2020
Cash flow
Repayment of borrowings
Proceeds from borrowings
Payment of lease liabilities
New leases
Net movement in loan arrangement fees
Exchange differences
At 31 December 2021
Net cash
Lease liabilities
Borrowings
Net debt
60.2
9.7
−
−
−
−
−
−
(0.9)
69.0
(2.8)
−
−
−
−
−
1.0
67.2
(17.6)
−
(2.0)
−
−
4.1
(0.1)
(0.5)
−
0.2
(15.9)
−
−
−
3.9
(10.8)
−
0.2
(22.6)
(111.7)
−
(3.0)
27.2
(49.8)
−
−
−
(0.4)
0.7
(137.0)
−
86.9
(96.4)
−
−
0.2
(0.8)
(147.1)
(69.1)
9.7
(5.0)
27.2
(49.8)
4.1
(0.1)
(0.5)
(0.4)
−
(83.9)
(2.8)
86.9
(96.4)
3.9
(10.8)
0.2
0.4
(102.5)
188 TT Electronics plc Annual Report and Accounts 2021
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TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Notes to the Consolidated financial statements
continued
25 Changes in liabilities arising from financing activities
£million
At 1 January 2020
Cash movements
Cash flows
Non cash movements
Businesses acquired
Fair value movements
Interest accrued
Exchange differences
At 1 January 2021
Cash movements
Cash flows
Non cash movements
Fair value movements
Interest accrued
New leases
Exchange differences
At 31 December 2021
Lease liabilities
Borrowings
Interest rate
swaps
(17.6)
(111.7)
(0.5)
4.9
(20.1)
0.2
(2.0)
−
(1.4)
0.2
(3.0)
−
(2.9)
0.7
(15.9)
(137.0)
4.7
(6.7)
−
(0.8)
(10.8)
0.2
(22.6)
−
(2.6)
−
(0.8)
Liabilities
arising from
financing
activities
(129.8)
−
(15.0)
−
(5.0)
(0.7)
(4.3)
0.9
(153.9)
(1.6)
0.3
(3.4)
(10.8)
(0.6)
−
(0.7)
−
−
(1.0)
0.4
0.3
−
−
−
(147.1)
(0.3)
(170.0)
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report
Notes to the Consolidated financial statements
Continued
26 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 18, the Directors consider the likelihood of any other claims giving rise to a significant liability to
be remote.
27 Capital commitments
£million
Contractual commitments for the purchase of property, plant and equipment
2021
3.1
2020
5.2
28 Leases
The total cash outflow for leases is £4.7 million (2020: £4.9 million) comprising lease repayments of £3.9 million (2020:
£4.1 million), interest on lease liabilities of £0.8 million (2020: £0.8 million). The income statement cost of short term and low
value leases was £0.1 million (2020: £0.2 million).
Interest on lease liabilities is shown in note 4, the maturity of the lease liabilities is shown in note 20(e) and the corresponding
assets to which the lease liabilities relate are shown in note 11.
29 Cash and cash equivalents
Within cash and cash equivalents the Group has set aside £0.6 million (2020: £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 21
to the Group financial statements.
30 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 10.
31 Subsequent events
On 7 January 2022 the Group acquired the Power and Control business of Ferranti Technologies Ltd, from Elbit System UK Ltd.
Cash consideration of £9.0 million and an initial adjustment of £1.0 was paid in January 2022 and the acquisition is subject to
further adjustments dependant on the level of working capital.
Ferranti Power and Control, based in Oldham, Greater Manchester, designs and manufactures mission-critical complex power
and control sub-assemblies for blue chip customers in high-reliability and high-performance end markets, primarily aerospace
and defence. The acquisition brings highly skilled employees who provide full-service capabilities from design, assembly,
manufacturing, and testing including environmental stress screening and inspection through to service. Ferranti Power and Control
adds further technology capability, IP and scale to our Power business with valuable long-term customer relationships and
programmes with leading global aerospace, defence and industrial OEMs operating in highly regulated markets with significant
barriers to entry through necessary industry accreditations and customer approvals.
The provisional fair values of the identifiable assets and liabilities include goodwill (representing the Group’s view of the future
earning’s growth potential) and intangible assets of £8 million, inventory of £3 million, accounts receivable of £2 million and
accounts payable of £3 million.
Given the limited time between the acquisition and the signing of these accounts, the fair valuation of acquired assets and liabilities
is incomplete at the date of these financial statements.
190 TT Electronics plc Annual Report and Accounts 2021
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TT Electronics plc Annual Report and Accounts 2021
Financial statements | Notes to the Consolidated financial statements
Company statement of financial position
at 31 December 2021
£million
Non current assets
Right-of-use assets
Property, plant and equipment
Intangible assets
Investments
Deferred tax asset
Pensions
Debtors
Total fixed assets
Current assets
Debtors
Cash at bank and in hand
Total current assets
Current liabilities
Lease liabilities
Creditors
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
2021
2020
2
2
2
3
11
10
4
4
13
6
5
6
11
7
7
8
9
0.6
0.6
1.6
174.2
3.4
78.4
113.7
372.5
14.4
2.3
16.7
0.2
9.0
9.2
7.5
0.6
19.6
20.2
359.8
44.1
22.6
1.0
3.4
288.7
359.8
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
288.9
43.6
21.7
(3.3)
3.4
223.5
288.9
The Company reported a profit for the financial year ended 31 December 2021 of £53.1 million (2020: loss of £14.9 million).
Approved by the Board of Directors on 8 March 2022 and signed on their behalf by:
Richard Tyson
Director
Mark Hoad
Director
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report
Financial statements | Company statement of changes in equity
Company statement of changes in equity
for the year ended 31 December 2021
£million
At 1 January 2020
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
Share-based payments
Deferred tax on share-based
payments
New shares issued
At 31 December 2020
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
Deferred tax on share-based
payments
New shares issued
At 31 December 2021
Share
capital
41.0
−
−
−
−
−
−
2.6
43.6
−
−
−
−
−
−
4.1
−
−
−
−
−
−
17.6
21.7
−
−
−
−
−
−
−
0.5
44.1
−
0.9
22.6
Share
premium
Merger
reserve
Share options
reserve
Profit and loss
account
3.4
−
(2.2)
231.1
(14.9)
Total
277.4
(14.9)
9.5
(2.2)
(7.6)
(0.8)
(0.3)
20.2
288.9
53.1
9.5
(2.2)
(7.6)
−
−
−
223.5
53.1
34.8
34.8
(11.3)
76.6
(11.3)
76.6
(11.4)
−
−
−
(11.4)
3.8
0.5
1.4
288.7
359.8
−
−
−
−
−
−
3.4
−
−
−
−
−
−
−
−
3.4
−
−
−
(0.8)
(0.3)
−
(3.3)
−
−
−
−
3.8
0.5
−
1.0
192 TT Electronics plc Annual Report and Accounts 2021
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TT Electronics plc Annual Report and Accounts 2021
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 2021 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 10 – 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 2021, the retirement benefit plan was in a surplus of £78.4 million
(31 December 2020: £35.4 million). Note 21 of the Consolidated financial statements outlines the significant assumptions
and associated sensitivities. The pension surplus has been calculated using the assumptions set out in note 21 of the
Consolidated financial statements;
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 86.
c) Investments
Fixed asset investments in subsidiaries are carried at cost less provision for impairment.
d) 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.
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report
Financial statements | Notes to the Company financial statements
Notes to the Company financial statements
Continued
2 Non Current Assets
£million
Cost
At 1 January 2021
Additions
At 31 December 2021
Depreciation
At 1 January 2021
Depreciation charge
At 31 December 2021
Net book value
At 31 December 2021
At 31 December 2020
Intangible
Assets
Plant,
equipment and
vehicles
Right-of-use
assets
19.2
0.2
19.4
16.7
1.1
17.8
1.6
2.5
1.2
−
1.2
0.4
0.2
0.6
0.6
0.8
1.2
−
1.2
0.4
0.2
0.6
0.6
0.8
Intangible assets solely relate to software, within this balance is software which is under construction of £0.2 million.
3 Investments
£million
Cost
At 1 January 2021
At 31 December 2021
Provisions
At 1 January 2021
At 31 December 2021
Net book value
At 31 December 2021
At 31 December 2020
Subsidiary undertakings
253.0
253.0
78.8
78.8
174.2
174.2
The Company’s subsidiary undertakings and their locations are shown in note 15. Shareholdings are held indirectly for all principal
operating subsidiary undertakings.
4 Debtors
£million
Current debtors
Amounts owed by subsidiary undertakings
Prepayments, accrued income and other receivables
Amounts due within one year
Non Current debtors
Amounts owed by subsidiary undertakings
Amounts due later than one year
Total
2021
2020
13.3
1.1
14.4
113.7
113.7
128.1
195.6
2.1
197.7
−
−
197.7
194 TT Electronics plc Annual Report and Accounts 2021
194
TT Electronics plc Annual Report and Accounts 2021
Notes to the Company financial statements
continued
4 Debtors continued
‘Amounts owed by subsidiary undertakings’ have been considered for impairment using the 12 months expected credit loss model
because there was no change in credit risk since initial recognition. The expected credit loss is considered immaterial because the
probability of default is negligible.
As at 31 December 2021 £113.7 million of debtors have been classified as non current due to management’s expectation that these
will not be settled within 12 months. As at 31 December 2020 £197.7 million of debtors were classified as current based on
management’s expectation that all debts due from subsidiaries would be settled within the next 12 months due to managements
plan to reduce the intercompany balances between subsidiaries within the Group within the next financial year.
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 2020
Capital repayments
At 31 December 2021
7 Share capital
£million
Issued, called up and fully paid
176,244,624 (2020: 174,580,743) ordinary shares of 25p each
2021
2020
2.1
1.3
0.9
4.7
9.0
Current lease
liabilities
Non-current
lease liabilities
0.2
−
0.2
0.8
(0.2)
0.6
2.3
115.5
0.8
3.3
121.9
Total
1.0
(0.2)
0.8
2021
2020
44.1
43.6
During the period the Company issued 653,834 ordinary shares as a result of share options being exercised under the Sharesave
scheme and Share Purchase plans.
The performance conditions of the Long-term Incentive Plan awards issued in 2018 and Restricted Share Plan awards issued in
2019, 2020 and 2021 were met and shares were allocated to award holders from existing shares held by an Employee Benefit Trust
for £nil consideration. 191,651 new shares were issued at par value of 25 pence to settle the vesting of part of the 2018 scheme.
818,396 new issue shares were issued at par value of 25 pence in anticipation of vesting of the 2019 scheme in 2022.
The aggregate consideration received for all share issues during the year was £1.4 million, which was represented by a
£0.5 million increase in share capital and a £0.9 million increase in share premium.
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.
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report
Financial statements | Notes to the Company financial statements
Notes to the Company financial statements
Continued
8 Share-based payments
Details of share-based payments are shown in note 23 of the Consolidated financial statements. Any charge associated with share-
based payments made to employees of subsidiaries are recharged out to the relevant subsidiaries within the same
financial year.
9 Profit for the year
As permitted by Section 408 of the Companies Act 2006, the Company has elected not to present its profit and loss account for the
year. The profit after tax of the Company for the year was £53.1 million (2020: loss of £14.9 million). The auditor’s remuneration for
audit services is disclosed in note 5 to the Consolidated financial statements.
10 Pension schemes
Defined benefit scheme
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 £5.7 million and £4.4 million to be paid in the years 2022 and 2023.
In the year ended 31 December 2021 the Group made contributions of £5.5 million (2020: £5.3 million) to the TT Group scheme.
In addition, the Company has set aside £0.6 million (2020: £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 21 to the
Consolidated financial statements.
Defined contribution scheme
The Company operates a Group personal pension plan for employees and pays contributions to administered pension insurance
plans. The Company has no further payment obligation once the contributions have been paid. Payments to the defined
contribution scheme are charged as an expense as they are incurred. The total contributions charged by the Company including
employee salary exchange contributions in respect of the year ended 31 December 2021 were £0.6 million (2020: £0.6 million).
11 Deferred tax
The deferred tax asset of £3.4 million comprises £1.8 million in respect of share-based payments (2020: £0.7 million) the
movement in which has been recognised in equity (£0.5 million) and profit (£0.6 million) ; £1.1 million in respect of non-current
assets (2020: £1.3 million) the movement in which has been recognised in profit (£0.2 million); and £0.5 million in respect of tax
losses (2020: £1.1 million) the movement in which has been recognised in profit (£0.6 million).
The deferred tax liability of £19.6 million is in respect of the pension asset (2020: £6.6 million), the movement in which has been
recognised in equity (£11.3 million) and profit (£1.7 million).
12 Employee information
The average number of full time equivalent employees (including Directors) during the year was 65.
13 Cash at bank and in hand
Within cash and cash equivalents the Group has set aside £0.6 million (2020: £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 21 to
the Group financial statements.
14 Related party transactions
During 2021 and 2020, the Company did not have any related party transactions other than with wholly owned subsidiaries.
196 TT Electronics plc Annual Report and Accounts 2021
196
TT Electronics plc Annual Report and Accounts 2021
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 Asia Pte Ltd
TT Electronics Sweden AB
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
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
Stadium IGT Limited
Stadium Power Limited 2
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)
(18)
(16)
(16)
(16)
(16)
(16)
(16)
(16)
(16)
(16)
(16)
(16)
(16)
(16)
(16)
(16)
(16)
(16)
(16)
(19)
(16)
(16)
(16)
(16)
(16)
TT Electronics plc Annual Report and Accounts 2021
TT Electronics plc Annual Report and Accounts 2021 197
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Financial statementsGovernance and Directors' reportStrategic report
Financial statements | Notes to the Company financial statements
Notes to the Company financial statements
continued
15 Subsidiary undertakings continued
Name of subsidiary undertaking
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 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 Electronics Power Solutions (UK) Limited
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
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
Torotel, Inc
Torotel Products, Inc
TT Electronics Integrated Manufacturing Services, Inc
TT Electronics Power Solutions (US), Inc
TT Group Industries, Inc.
198 TT Electronics plc Annual Report and Accounts 2021
198
TT Electronics plc Annual Report and Accounts 2021
Registered office/principal
place of business
(16)
(16)
(16)
(16)
(16)
(16)
(16)
(16)
(20)
(16)
(16)
(16)
(16)
(16)
(16)
(16)
(16)
(16)
(16)
(15)
(19)
(15)
(15)
(16)
(21)
(16)
(16)
(16)
(22)
(23)
(22)
(24)
(22)
(25)
(26)
(27)
(27)
(28)
(23)
(22)
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) 2 Shenton Way, #18-01 SGX Centre 1, 068804, Singapore
(14) Gullfossgatan 3, 164 40 Kista, Sweden
(15) Abercynon, Mountain Ash, Rhondda Cynon Taff, CF45 4SF, Wales
(16) Fourth Floor, St Andrews House, West Street, Woking, Surrey, GU21 6EB, England
(17) Unit 1, Tregwilym Industrial Estate, Rogerstone, Newport, Gwent, NP10 9YA, Wales
(18) Unit 1 Gratton Way, Roundswell Business Park, Barnstaple, Devon, EX31 3AR, England
(19) Coventry Road, Lutterworth, Leicestershire, LE17 4JB, England
(20) London Road, Fairford, Gloucestershire, GL7 4DS, England
(21) Welwyn Electronics Park, Bedlington, Northumberland, NE22 7AA, England
(22) Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States
(23) CT Corporation System, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801, United States
(24) Corporation Service Company, 211 East 7th Street, Suite 620, Austin, TX 78701-3218, United States
(25) 43 Broad Street, Suite B206, Hudson, MA01749, United States
(26) 1700 Freeway Boulevard, Minneapolis, MN 55430, United States
(27) 520 N Rogers Road, Olathe, KS66062, United States
(28) 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
UK Registered Subsidiaries exempt from audit
The following UK subsidiaries will take advantage of the audit exemption set out within section 479A of the Companies Act 2006 for
the year ended 31 December 2021. The following entities are 100% owned and have a single class of ordinary share with a nominal
value of £1, unless otherwise stated. All subsidiaries below are registered at Fourth floor, St Andrews House, West Street, Woking
GU21 6EB, United Kingdom.
Name of subsidiary undertaking
AB Electronic Components Limited
Automotive Electronic Systems Limited 1
Crystalate Electronics Limited
Midland Electronics Limited
TT Asia Holdings Limited
TT Electronics Group Holdings Limited 1, 2
1 Shares held directly by TT Electronics plc
2 Single class of ordinary share with a nominal value of £0.25.
Company number
00578077
01518303
00691591
00675333
02464046
00299275
TT Electronics plc Annual Report and Accounts 2021
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199
Financial statementsGovernance and Directors' reportStrategic report
Financial statements | Five year record
Five year record
£million (unless otherwise stated)
Revenue
Operating profit 2
Adjusted operating profit 1
Profit before taxation 3
Adjusted profit before taxation 1, 4
Earnings (continuing) 3
Adjusted earnings 1, 4
Earnings per share − continuing (pence) 3
Adjusted earnings per share (pence) 1, 4
Dividends – paid and proposed
Dividend per share – paid and proposed (pence)
Average number of shares in issue
Net (debt)/funds
Total equity 3, 4
2021
476.2
19.3
34.8
16.0
31.5
12.8
25.3
7.3
14.5
9.9
5.6
174.8
(102.5)
330.0
2020
431.8
6.6
27.5
2.9
23.8
1.3
19.5
0.8
11.7
8.2
4.7
166.5
(83.9)
298.0
2019 3, 4
2018 3
2017 2
478.2
16.9
38.1
13.2
34.4
12.4
29.0
76.0
17.8
11.4
7.0
163.1
(69.1)
268.0
429.5
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
361.1
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
1 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.
2 Results for 2017 have been re-presented for IFRS 15
3 Profit measures for 2019 and equity for 2019 and 2018 have been restated.
4 Equity for 2019 has been restated for an adjustment to the assessment of IFRS15.
200 TT Electronics plc Annual Report and Accounts 2021
200
TT Electronics plc Annual Report and Accounts 2021
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 6. 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 6
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 6
Adjusted operating profit as a percentage of revenue.
To provide a measure of the operating profits excluding the
impact 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.
Earnings per share
See note 9 for the
reconciliation and
calculation of
adjusted earnings
per share
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.
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report
Financial statements | Reconciliation of KPIs and non IFRS measures
Reconciliation of KPIs and non IFRS measures
Continued
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
Definition and purpose
See note 9 for the
reconciliation and
calculation of
adjusted diluted
earnings per share
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.
Organic
revenue
Revenue
See note APM 1
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 and foreign
exchange impacts.
Adjusted
effective tax
charge
Effective tax charge See note APM 2
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.
Return on
invested
capital
None
See note APM 3
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.
202 TT Electronics plc Annual Report and Accounts 2021
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TT Electronics plc Annual Report and Accounts 2021
Reconciliation of KPIs and non IFRS measures
continued
Statement of financial position measures:
Alternative
Performance
Measure
Net debt
Closest equivalent
statutory measure
Note reference to
reconciliation to
statutory measure
Cash and cash
equivalents less
borrowings and lease
liabilities
Reconciliation of
net cash flow to
movement in net
debt (note 24)
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.
Net capital and
development
expenditure
(net capex)
Dividend per
share
None
See note APM 4
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.
Dividend per share
Not applicable
Amounts payable by dividend in terms of pence per share.
Provides the dividend return per share to shareholders.
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report
Financial statements | Reconciliation of KPIs and non IFRS measures
Reconciliation of KPIs and non IFRS measures
Continued
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.
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.
Cash
conversion
None
See note APM 9
Adjusted operating cash flow post capex (less any property
disposals which were part of restructuring programmes) divided
by adjusted operating profit.
None
See note APM 10
R&D cash
spend as a
percentage
of revenue
Cash conversion measures how effectively we convert profit
into cash and tracks the management of our working capital and
capital expenditure.
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.
204 TT Electronics plc Annual Report and Accounts 2021
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TT Electronics plc Annual Report and Accounts 2021
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
Safety
performance
Not applicable
Not applicable
APM 1 − Organic revenue:
£million
2021 revenue
Acquisitions
2021 revenue (excluding acquisitions)
2020 revenue
Foreign exchange impact
2020 revenue at 2021 exchange rates
Organic revenue increase (%)
£million
2020 revenue
Acquisitions
2020 revenue (excluding acquisitions)
2019 revenue
Foreign exchange impact
2019 revenue at 2020 exchange rates
Organic revenue decline (%)
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).
A company is awarded between zero and three stars based on
the employee feedback.
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.
Power and
Connectivity
Global
Manufacturing
Solutions
Sensors and
Specialist
Components
140.2
15.2
125.0
125.1
(3.4)
121.7
3%
220.1
−
220.1
197.5
(4.1)
193.4
14%
115.9
−
115.9
109.2
(5.2)
104.0
11%
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%)
TToottaall
476.2
15.2
461.0
431.8
(12.7)
419.1
10%
Total
431.8
11.1
420.7
478.2
(1.4)
476.8
(12%)
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report
Financial statements | Reconciliation of KPIs and non IFRS measures
Reconciliation of KPIs and non IFRS measures
Continued
APM 2 – Effective tax charge:
£million
Adjusted operating profit
Net interest
Adjusted profit before tax
Adjusted tax
Adjusted effective tax rate
APM 3 – Return on invested capital:
£million
Adjusted operating profit
Average invested capital
Return on invested capital
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
(Increase)/decrease in inventories
(Increase)/decrease in receivables
Increase/(decrease) 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
2021
34.8
(3.3)
31.5
(6.2)
2020
27.5
(3.7)
23.8
(4.3)
19.6%
18.1%
2021
34.8
382.4
9.1%
2020
27.5
357.3
7.7%
2021
(14.6)
9.3
(1.9)
(0.5)
(7.7)
2021
34.8
−
13.6
2.5
−
1.1
(42.6)
(15.7)
42.0
39.5
(5.5)
(15.0)
19.0
(4.7)
14.3
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
(5.4)
(15.1)
28.5
(0.3)
28.2
206 TT Electronics plc Annual Report and Accounts 2021
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TT Electronics plc Annual Report and Accounts 2021
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
(Increase)/decrease in inventories
(Increase)/decrease in receivables
Increase/(decrease) in payables and provisions
Items reported within other items in the statutory cashflow:
Increase in provisions over trade receivables
Working capital cashflow
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
Payment of lease liabilities
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 post capex and excluding property disposals
Cash conversion
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
2021
39.5
(14.6)
9.3
(1.9)
(0.5)
31.8
2021
(42.6)
(15.7)
42.0
1.6
(14.7)
2021
14.3
−
(8.2)
0.5
−
(3.9)
(4.0)
(1.3)
2021
34.8
31.8
(9.1)
22.7
65%
2021
256.1
11.4
4.5%
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%
2020
234.3
11.2
4.8%
TT Electronics plc Annual Report and Accounts 2021
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Financial statementsGovernance and Directors' reportStrategic report
Additional information | Shareholder Information
SHAREHOLDER
INFORMATION
Ex-dividend date for final dividend
28 April 2022
Record date for final dividend
29 April 2022
AGM and trading update
13 May 2022
Final dividend payment
20 May 2022
2022 half-year results
4 August 2022
Preliminary announcement
of 2022 results
March 2023
Annual Report 2022
April 2023
Dividends
See page 40 for details on the dividend
amount per share.
Annual General Meeting (AGM)
In 2021, compulsory measures imposed
by the UK Government limiting non-
essential travel and sizable gatherings
meant that attendance at the AGM
was restricted to a limited number
of shareholders (being shareholder
Directors of the Company and the
Company Secretary, sufficient in number
to form the necessary quorum), with
other shareholders being encouraged to
vote by proxy and to submit questions
in advance by email. The next AGM will
be held on 13 May 2022 at 10.00 a.m.
Details of the AGM procedure for 2022
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 22 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
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
208
TT Electronics plc Annual Report and Accounts 2021
Additional information
ShareGift
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 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
7 March 2022 and 31 December 2021.
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.
BlackRock, Inc
Aberforth Partners LLP
Schroders plc
Slater Investments Ltd
M&G plc
Polar Capital LLP
Aberdeen Asset Management Ltd
NN Group N.V.
Franklin Templeton Management Ltd
7 March 2022
31 December 2021
Number
16,966,544
14,832,779
8,942,311
8,915,000
8,764,166
8,539,130
7,835,077
7,815,000
7,590,000
%
9.7
9.1
5.1
5.1
5.0
4.9
4.8
4.8
4.6
Number
16,966,544
14,832,779
8,942,311
–
8,764,166
8,539,130
7,835,077
7,815,000
7,590,000
%
9.7
9.1
5.1
–
5.0
4.9
4.8
4.8
4.6
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 03456 037 037 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.
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.
TT Electronics plc Annual Report and Accounts 2021
209
Additional information | Glossary
GLOSSARY
AC
AGM
APM
B-21
BE Inspired
BEIS
BE Lean
BE TT
bn
bps
CAGR
CDP
COO
CEO
CFO
CGU
CI
CPI
CREST
DC
DDTC
DoD
EBITDA
EBT
ED&I
EICC
ELT
EPS
ERP
ESG
EU
EV
EVP
FBU
FCA
FRC
FRS
FTSE
FX
FY
GAAP
GBP
GDP
GDPR
GMP
GHG
GMS
H&S
H
HFM
HMI
HR
HSE
IAS
IASB
IFRS
IoT
IR
Alternating Current
Annual General Meeting
Alternative Performance Measure
B-21 Raider aircraft
a TT employee performance initiative
Department for Business, Energy & Industrial Strategy
a TT initiative to improve operational efficiency
Build Expertise in TT
billion
basis point
Compound annual growth rate
Carbon Disclosure Project
Chief Operating Officer
Chief Executive Officer
Chief Financial Officer
Cash Generating Unit
Continuous Improvement
Consumer Prices Index
Certificateless Registry for Electronic Share Transfer
Direct Current
Directorate of Defense Trade Controls
Department of Defense
Earnings Before Interest, Taxes,
Depreciation and Amortisation
Employee Benefit Trust
Equality, Diversity and Inclusion
Electronics Industry Citizenship Coalition
Executive Leadership Team
Earnings Per Share
Enterprise Risk Management
Environmental, Social and Governance
European Union
Electric Vehicle
Executive Vice President
Fair, Balanced and Understandable
Financial Conduct Authority
Financial Reporting Council
Financial Reporting Standards
Financial Times Stock Exchange
Foreign Exchange
Financial Year
Generally Accepted Accounting Principles
Pounds Sterling (£)
Gross Domestic Product
General Data Protection Regulation
Guaranteed Minimum Pension
Greenhouse Gas
Global Manufacturing Solutions
Health and safety
Half (year)
Hyperion Financial Management
Human Machine Interface
Human Resources
Health Safety & Environmental
International Accounting Standards
International Accounting Standards Board
International Financial Reporting Standards
Internet of Things
Investor Relations
210
TT Electronics plc Annual Report and Accounts 2021
ISO
IT
JSF
KPI
LIBOR
LLP
LTIP
M&A
M/m
MHRA
MRI
MSCI
MWh
NED
OECD
International Organisation for Standardisation
Information Technology
Joint Strike Fighter aircraft
Key Performance Indicator
London Interbank Offered Rate
Limited liability partnership
Long Term Incentive Plan
Mergers and Acquisitions
million
Medicines and Healthcare products
Regulatory Agency
Magnetic Resonance Imaging
Morgan Stanley Capital International
Megawatt-hour
Non-Executive Director
Organisation for Economic
Co-operation and Development
Original Equipment Manufacturer
Profit Before Tax
Printed Circuit Board Assembly
Public Limited Company
Purchasing Managers’ Index
Private Placement
People, Social, Environmental and Ethics
Quarter (year)
Research and Development
Responsible Business Alliance
Revolving Credit Facility
Chinese Yuan
Regulatory News Service
Return On Capital Employed
Return on Invested Capital
Retail Price Index
Restricted Share Plan
Sensors & Specialist Components
Save As You Earn
Securities Exchange Commission
Streamlined Energy and Carbon Reporting
Senior Independent Director
Sales, Inventory and Operations Planning
Short Term Incentive Plan
Science, Technology, Engineering and Mathematics
Task Force on Climate-related 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 values
United Kingdom of Great Britain and Northern Ireland
United Nations
Underlying Earnings Before Interest,
Taxes, Depreciation and Amortisation
United States of America
Weighted Average Cost of Capital
OEM
PBT
PCBA
PLC
PMI
PP
PSEE
Q
R&D
RBA
RCF
RMB
RNS
ROCE
ROIC
RPI
RSP
S&SC
SAYE
SEC
SECR
SID
SIOP
STIP
STEM
TFCD
the Board
the Code
the Company
the Directors
the Group
TSR
TT
TT Way
UK
UN
Underlying EBITDA
US/USA
WACC
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 Council® (FSC®) chain-of custody certified.
The Forest Stewardship Council® is dedicated to the promotion of responsible forest
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This Report is recyclable and Bio-degradable’
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2
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2
1
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