WINNING IN
GROWTH
MARKETS
TT Electronics plc
Annual Report and Accounts 2022
“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. Our
positioning and offering to customers
in markets that are growing well, and
our differentiated customer service,
are driving strong top line growth for
the Group.”
Richard Tyson
CEO
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IN THIS REPORT
CONTENTS
Strategic report
In this Annual Report
TT at a glance
Chairman’s statement
Executive Leadership Team Q&A
Our business model
Our markets
• Healthcare
• Aerospace & defence
• Automation & electrification
Our strategy
CFO review
Key performance indicators
Engaging with our stakeholders
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
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229
Read more on page 4
Read more on page 6
CHAIRMAN’S STATEMENT
The Board is extremely proud of what has been achieved
in 2022 and the expert, ‘can do’ and supportive culture we
have nurtured in the organisation.
EXECUTIVE LEADERSHIP TEAM Q&A
Our teams have executed exceptionally well in the continuing
challenging environment, given the ongoing significant
supply chain and cost headwinds, to deliver a strong trading
performance with very good profit growth.
OUR 2022 PERFORMANCE HIGHLIGHTS
REVENUE
ORGANIC REVENUE GROWTH
£617.0m
2021: £476.2m
ADJUSTED OPERATING PROFIT
ADJUSTED OPERATING PROFIT MARGIN
2021: £34.8m
£47.1m
7.6%
2021: 7.3%
2021: 10%
STATUTORY OPERATING LOSS
20%
£(3.4)m
(0.6)%
STATUTORY OPERATING MARGIN
2021: £19.3m profit
2021: 4.1%
ADJUSTED EPS
STATUTORY EPS
18.2p
2021: 14.5p
(7.5)p
2021: 7.3p
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 220 to 226.
Read more on page 20
Read more on page 22
OUR STRATEGY
Our strategy is designed to generate optimum returns for all
our stakeholders while maintaining strong capital discipline
to facilitate continued investment.
CFO REVIEW
We delivered strong progress during the year with organic
revenue growth of 20% and adjusted operating profit growth
of 19% at constant currency.
RETURN ON INVESTED CAPITAL
2021: 9.1%
DIVIDEND PER SHARE
10.5%
6.3p
3.7%
2021: 4.5%
2021: 5.6p
R&D INVESTMENT AS A % OF SALES
REDUCTION IN SCOPE 1 & 2 CARBON EMISSIONS
23%
2021: 25%
Read more on page 38
OUR PEOPLE, ENVIRONMENT
AND COMMUNITIES
We are committed to having a positive impact on the world
around us through our products and the way we do business.
Read more on page 76
GOVERNANCE
We have a strong governance platform that enables enhanced
decision-making.
TT Electronics plc Annual Report and Accounts 2022
1
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION 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 America: 9 primary locations
38% of Group revenue
United Kingdom: 10 primary locations
21% of Group revenue
Asia: 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 generate optimum returns for all our
stakeholders.
Read more on page 20
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 38
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, driving solutions, and with our
products and services integral to customers’ designs.
Read more on page 12
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 50
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TT Electronics plc Annual Report and Accounts 2022
TARGET MARKETS
Read more about our target markets on page 14
% 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
28% – Healthcare
15% – Aerospace & defence
37% – Automation &
electrification
20% – Distribution sales
channel
OUR DIVISIONS
Read more about our divisions on page 26
% OF GROUP REVENUE
Power and Connectivity
P&C 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
GMS 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
S&SC 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 market breakdown
25% – Power and
Connectivity
52% – Global
Manufacturing Solutions
23% – Sensors and
Specialist Components
POWER
CONNECTIVITY
SENSING
We design and
manufacture
customised, highly
efficient power
management devices.
Our products support
the digitisation of
industrial processes,
smart infrastructure
and automation.
Our solutions improve
the precision, speed
and reliability of critical
aspects of customer
applications.
TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
STRATEGIC REPORT | CHAIRMAN’S STATEMENT
CHAIRMAN’S STATEMENT
WINNING
IN GROWTH…
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TT Electronics plc Annual Report and Accounts 2022
“TT’s strong performance
in 2022 and our confidence
going into 2023 derive from
the positions we have built
in growing markets and our
reputation and relationships
with customers. Teams
across TT have also delivered
exceptionally well in a year
characterised by significant
volatility. The Board is
extremely proud of what
has been achieved and the
expert, ‘can do’ and supportive
culture we have nurtured in
the organisation.”
Warren Tucker
Chairman
Our focus on realigning the business to
structurally growing, higher added-value
markets has transformed TT and its
future potential. Our three target markets
– healthcare, aerospace & defence
and automation & electrification –
continue to grow well, driven by enduring
megatrends including the Net Zero and
climate agenda. Our teams are experts
in these markets and passionate about
designing solutions that respond to
customer needs and delivering on their
expectations. Our top 40 customers
now account for 58% of revenue, but
without overdue concentration, which
is testament to the strong relationships
we have built and our reputation in
the market.
What makes us different?
Our target markets have strong,
long-term structural growth
potential supported by the
megatrends we are aligned to:
cleaner, smarter, healthier.
We have a culture of expertise and
our teams are passionate about
finding solutions to the world’s
toughest technology challenges.
We are focused on design-led
technology, creating bespoke
technology solutions for customer
applications.
Our success has been built
on engaging deeply with our
customers and becoming real
partners.
See our markets on page 14 and
our business model on page 12
As leaders we have set the stage, but
credit for our achievements goes to TT’s
employees. We have again asked a lot of
them this year and they have absolutely
risen to the challenge, working tirelessly
to meet strong demand and supporting
each other while doing so. The Board is
conscious that times have been difficult
for many in 2022 and we are pleased
to have overseen significant growth in
employee support activities – at both
site and Group level – including on
remuneration, financial support, physical
and mental health, and equality, diversity
and inclusion.
I am also delighted to report significant
progress in our environmental
performance. Not only are our
technologies addressing resource
scarcity, improving energy efficiency and
supporting renewables, we are delivering
on our ambitious agenda to reduce our
environmental footprint and carbon
emissions. We have hit our Scope 1 & 2
GHG emissions reduction target a year
early and are poised to move forward
with collecting data and setting targets
for our relevant and measurable Scope 3
emissions in the very near future.
The Board would like to thank every
member of the TT team for their
contribution this year.
Our strategy is designed to generate
optimum returns for stakeholders while
maintaining strong capital discipline,
delivering strong cash generation,
and careful use of the balance sheet
to facilitate continued investment.
We prioritise organic investment, with
a focus on R&D and capital spending
to firmly embed us with customers
and meet the challenges they set us.
This year our R&D cash investment
was £11 million and our pipeline of new
products continued to grow, particularly
in power conversion technologies
and surgical navigation and robotics.
Margin enhancement faced a temporary
headwind this year due to the pass
through of significant cost inflation but
the actions we have taken underpin
our confidence in continuing margin
progression in the future. The integration
of Ferranti Power and Control has been
successful, and we continue to monitor
an active pipeline of opportunities while
we focus on free cash flow generation
and leverage reduction to generate
scope to deliver future M&A. Our fourth
strategic priority to integrate ESG and
sustainability matters into decision-
making continues to move at pace as
demonstrated by the work we have
been doing in our communities, to
support our people, and to accelerate
the decarbonisation of our operations.
2022 PERFORMANCE
PEOPLE AND CULTURE
Top line growth in 2022 was excellent
as we executed on our record order book
and consolidated a significant number
of new customer wins, incremental
business opportunities with existing
customers and market share gains. With
continued book-to-bill well above 100%,
our forward order book has continued to
break records, giving us unprecedented
visibility over almost all of our expected
2023 revenue. Some of this is the fruit
of increased collaboration between our
divisions such as our expanded position
on the UK military’s Boxer vehicle. Our
adjusted operating margin moved ahead
to 7.6% and our double-digit margin
target is in view following the completion
of our self-help programme. All this has
been achieved in a year where we have
faced continuing supply chain issues
and cost inflation.
Our TT culture drives the whole company
and has played an important role in 2022
when we have pulled together to satisfy
strong business growth. Our people care
about what they do and about each other
and work and behave in line with our TT
Way values. This gives us competitive
advantage and is an important factor
in enabling us to attract and retain the
talent we need. We, in turn, care for our
employees by treating them with respect
and creating safe and supportive work
environments where they are valued and
backed to reach their full potential.
Highlights this year have been continued
improvement in our safety record, the
introduction of more support for mental
and financial health, and the launch
of our inaugural Women’s Leadership
Programme. The Board is pleased to be
able to support an increased budget for
our 2023 salary reviews, with distribution
weighted to lower paid employees,
and a cost of living payment to all UK
employees on salaries up to £40,000.
BOARD AND GOVERNANCE
There were no changes to the Board
or its principal Committees in 2022,
but we were delighted to welcome two
new Non-executive Directors to the
Board at the beginning of 2023. Wendy
McMillan will join the Nominations and
Audit Committee and Michael Ord will
join the Nominations and Remuneration
Committees. Both have had outstanding
careers and bring relevant knowledge
and skills from their current and former
executive roles.
We have robust governance practices
at TT which have enabled us to grow
significantly while minimising risk in
a year that has presented a number
of business challenges. We have
navigated safely and thoughtfully, and
I thank members of the Board for their
dedication and counsel. I believe that
we have a terrific team in place to steer
the Group successfully into the future.
DIVIDEND
Given the strong trading performance
in 2022 and our positive outlook for 2023
and beyond, the Board is proposing a
final dividend of 4.3 pence per share.
This, when combined with the interim
dividend of 2.0 pence per share, gives
an increase of 12.5% in our total dividend
to 6.3 pence for the year.
OUTLOOK
As described in the Q&A with our
Executive Leadership team from page 6
the Board believes that TT’s alignment
with global megatrends, our strong
customer relationships and exceptional
visibility on our order book position
us strongly for 2023. We are therefore
confident we will continue to deliver
progress.
Warren Tucker
Chairman
7 March 2023
...MARKETS
TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | CHIEF EXECUTIVE’S Q&A
EXECUTIVE LEADERSHIP TEAM
RICHARD TYSON, CEO
Q
What are you most proud of in 2022?
2022 has been another year of great
progress for TT. Our positioning with
customers who are succeeding in
markets that are growing well, and our
differentiated customer service are
evidenced by our strong top line growth.
We delivered organic, constant currency
revenue growth of 20% and we also
started 2023 with excellent visibility given
a strong order book and with business
in markets providing multi-year product
revenue streams.
Our teams across the Group have
executed exceptionally well in a year
which brought with it significant
volatility and ongoing supply chain
issues characterised by lengthy lead
times, material availability issues and
cost inflation. At the same time, we
have completed our programme of site
rationalisation, with additional benefits
still to come through. I could not be
more proud of my team and how they
have delivered for their customers and
shareholders.
Here at TT we prioritise how we take
care of our teams around the world as
they face these daily challenges and,
particularly, in the last twelve months,
when we have focused additional efforts
and resource on their welfare, not just
physical but also financial through a
range of schemes. As a leadership team
we know that times are difficult, so this
has been important to us.
Our strategy is working and we continue
to unlock the potential of the Group. We
have been winning new customers and
developing relationships that are longer
term and more collaborative. We have
also progressed well on our sustainability
agenda, which has remained central to
strategic decision-making, particularly
when we consider the opportunities
presented by the move to a lower
carbon world.
Finally, I am delighted that we completed
a buy-in of our UK pension scheme.
See page 25 for more information.
Q&A
“I could not be more
proud of my team and
how they have executed
for customers this year.”
Richard Tyson
CEO
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TT Electronics plc Annual Report and Accounts 2022
A STRONG TEAM
3
2
5
4
1
Our Executive Leadership Team
The Executive Leadership Team (ELT) is the principal decision-making body below the Board. We are experienced and
passionate leaders, focused on building on TT’s strong foundations to create a great company and continue to deliver value
for all our stakeholders.
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 an extensive
portfolio of leadership,
managerial and operational
capabilities developed
during his 30-year career
in global engineering
technology businesses.
He previously held senior
positions at Cobham plc.
Relevant skills and
experience:
Mark is a chartered
accountant and has a
deep understanding of
finance and operational
activities. He has 25 years
of experience in finance
roles in global industrial
businesses, including being
CFO at BBA Aviation plc.
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 78
See full biography
on page 78
See full biography
on page 78
Michael Leahan
Chief Operating Officer
Sarah Hamilton-Hanna
Chief People Officer
Joined: 2017
Joined: 2019
Relevant skills and
experience:
Michael has over 30 years
of 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
nearly 20 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.
Q
What is driving the growth you are
seeing?
The strategic expansion of our
capabilities into attractive, structurally
growing end markets with customers
offering partnership and market share
growth is delivering excellent results
for the Group. Our positioning in these
markets with customers that are winning
means demand for our products and
services continues at attractive levels.
The order book reflects our success on
multi-year programmes, our customers
providing more order book visibility
due to longer lead times, and our ability
to win new work.
We have a growing list of large, blue chip
customers with whom we are gaining
further traction and are well positioned
to take a greater share of spend. Our top
40 OEM customers now account for 58%
of Group revenue. As we become more
embedded as strategic partners we
have built greater trust and deeper and
broader relationships, including more
collaboration on solution design.
Demand from our customers is robust
as this focus on building relationships
delivers a longer list of new business
opportunities and a healthy pipeline.
We are delighted that a number of these
have been successfully converted to
50 significant wins in the year which
will produce over £125 million of multi-
year revenues, and ongoing growth and
visibility of our order book. We believe
medium-term market growth rates will
be higher than the CAGR rates we have
historically seen for the totality of our
end markets.
TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | CHIEF EXECUTIVE’S Q&A
The success of our Business
Development Council in driving cross-
selling opportunities is also continuing
to deliver results, as an increasing
number of our customers build
relationships across more than one of
our capabilities. A great example of this
in action is Honeywell. Historically we
did business with Honeywell from our
S&SC division, but we have recently been
selected as a strategic manufacturing
partner to provide engineering support,
manufacturing and full systems
integration for Anthem – Honeywell’s
new integrated cockpit avionics suite.
TT now has around 40 customers each
delivering over £2m revenue per annum.
from our healthcare and automation &
electrification end markets.
In our S&SC business we are really proud
of our growth and margin performance
which demonstrates the commercial
attractiveness of our offering and our
ability to combat input cost inflation
with price increases and efficiencies.
The current S&SC order book length
provides much improved visibility against
typical visibility of 8-12 weeks in this
division. As you would expect, we are
closely monitoring stock levels in our
distributors to look to manage overall
consistency of demand from the broader
customer base.
MICHAEL LEAHAN, COO
Q
Can you give us your 2022 operational
performance highlights?
GMS has performed incredibly well
in 2022 with strong growth from our
existing customer base, particularly
Our operational performance in P&C has
been impacted by lower revenues due
to timing issues on some key aerospace
& defence programmes, as well as the
ramp up of capacity linked to our site
move from Lutterworth to Bedlington
and bringing on additional capacity in
the Minneapolis clean room. We remain
confident that this business can reach
the scale needed to get the operational
leverage benefit given the magnitude
of recent contract wins.
TT EXPANDS WORK ON UK ARMY VEHICLE PROGRAMME INTO GMS
As part of the self-help programme, we
closed six sites and consolidated the
Covina site into the Torotel site at Kansas
City to create one power business in
North America. The programme moves
were completed at the back end of
2022 and the full benefits of the actions
will be realised in 2023. Our new S&SC
facility at Plano, Texas completed its
high volume product qualifications in
December 2022. This process took
longer than anticipated due to the need
to prioritise higher than anticipated levels
of customer demand and we expect to
be operating at higher and more efficient
levels of production in 2023.
We are really pleased with the Ferranti
acquisition, which has contributed well
during its first 12 months with the Group.
The operation will move to new bespoke
facilities, as planned, during 2023.
1
TT’s Power and Connectivity
division secured an initial multi-year
development contract with major
defence prime RBSL for Boxer, the
main UK army vehicle programme
in 2021. The contract covers two
types of high-reliability primary
power assemblies on the infantry
vehicle, with TT leading the design,
production and delivery of the battery
control units and the command
display units providing signalling
and communications functionality.
Subsequently, TT was awarded a
package of electrical cable harnesses
on the same programme.
The Boxer programme will run for
10-20 years and TT has successfully
expanded its involvement in the
vehicle to the GMS division in 2022
through a contract to design and
manufacture printed circuit board
assemblies (PCBAs).
The Boxer is a great example of
TT’s ability to cross-sell opportunities
between divisions based on strong
customer relationships.
1
2
3
1 Electrical cable harnesses
2 Battery control and
command display units
3 PCB Assemblies
8
TT Electronics plc Annual Report and Accounts 2022
RICHARD TYSON, CEO
Q
What are your thoughts on China
and repatriation of supply chains/re-
shoring capabilities?
At TT we benefit from the geographical
diversity of our footprint. This will
be particularly beneficial given the
resurgence of more localised supply
chains as some companies seek
further diversification of their supply
chains. Improved productivity will be
a fundamental enabler of this, and
companies will need to replicate capacity
in an efficient manner. This is where
the strength of our global footprint and
capabilities provides a clear opportunity
to manage the changing dynamics.
We have already implemented a natural,
de-risk strategy with our move into
Malaysia, so while the business in China
has been growing, export growth has
come out of our Malaysia facility.
Furthermore, our North American
manufacturing facilities and innovation
speed are differentiators and are
expected to drive further growth as a
result of geopolitical concerns.
Q
Are you still on track for double digit
margins?
We are confident of achieving our
10 per cent Group operating margin
milestone as we see a gradual reversal
of the pass-through revenue impact on
margin will eliminate inefficiencies and
deliver operational leverage on growth.
Our S&SC business contributes mid-
teens margins as our teams become
even more commercially smart to get
the best value for our technology.
GMS has made incredible progress in
delivering a step change in its margin
profile over recent years, reflecting
the value of the service we bring to
our customers, reliability, and the value
engineering and testing capability we
offer. We believe the GMS margin can
improve incrementally with growth.
In P&C we operate slightly more
fragmented, smaller facilities that are
set up for higher volumes, including for
the anticipated recovery in commercial
aerospace. The drop in its revenues has
therefore impacted margins here more
noticeably, but with growth we should
see strong recovery.
Q
How are you managing to stay ahead
of cost inflation, particularly given the
longevity of the order book?
Q
How resilient are your end markets in
these tougher economic conditions?
We continuously review our pricing to
ensure we recover the inflationary cost
increases we are experiencing, though
there is inevitably a lag in some areas
of the business. We estimate that we
experienced circa £40 million of cost
inflation in 2022, which we have fully
recovered and with inflation being an
ongoing dynamic, so is the process of
pricing and price recovery.
We are mindful that order books in parts
of the business now extend into 2024
and have sought to price in estimated
cost inflation, including for energy and
labour inflation for 2023.
We have deliberately driven TT’s end
market exposure towards markets
exhibiting supportive, structural growth
trends. Our primary focus areas for
growth and investment are healthcare,
aerospace & defence, and automation
& electrification. In these markets we
provide components for products that
address resource scarcity, improve
energy efficiency, support renewables
and drive productivity, connectivity
and health.
Historically, our S&SC business has been
the first to see the impact of tougher
economic conditions. However, given
order book visibility significantly ahead
of the typical 8-12 week lead time, should
market conditions soften we would have
time to take appropriate action.
Q
What are your ambitions for the GMS
business?
In our GMS business we undertake
low-volume, high-mix manufacture of
complex electronic assemblies to our
customers’ designs and provide added
value through design for manufacture
and test capability. The business delivers
an already best-in-class margin, which
is good evidence of our move away
from commoditised manufacturing to
collaborating with customers and our
focus on growing key accounts and
moving to more complex, high-level
assemblies. The GMS margin was
around 4 per cent just five years ago.
It is now consistently around 8 per cent.
GMS historically had a customer churn
rate of 30 per cent but our increasingly
complex work, with greater engineering
content and some IP in test engineering,
has reduced this to c.10 per cent.
We aim to add further IP to achieve
greater value, for example by developing
products in P&C and manufacturing
in GMS and we want to build the
contribution from our new product pull-
through from customers attracted by our
speed to market.
This high ROCE business has been a
great engine of organic growth for TT.
We see this continuing as long lead times
and an uncertain supply chain situation
mean healthcare and aerospace &
defence customers are continuing to
commit production to us to lock in the
capacity they need for the longer term.
Q
Is your Voice of the Customer
programme maturing?
Since 2020 our proactive customer
feedback programme ‘Voice of the
Customer’ has made real progress
(a key aspect of which is the NPS or
Net Promoter Score). All divisional
participation scores have significantly
increased and continuous improvement
plans have been implemented where
we have had low-scoring areas.
As you would expect, extended
lead times and supply chain issues
impacting component availability, and
tricky conversations on pricing as we
push through our cost increases, are
reflected in current customer data;
but we know through our surveys that
our communication, transparency
and commitment is highly valued.
TT Electronics plc Annual Report and Accounts 2022
9
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | CHIEF EXECUTIVE’S Q&A
In healthcare markets, there is an
ongoing need to do more with less, and
market forecasts suggest double digit
growth driven by medical technology
innovation for procedures such as
electromagnetic tracking for surgery, and
for kidney, liver and lung procedures. Our
sensors and coil winding products are
key to this technology.
In defence markets we are yet to see
commitments by various governments
in response to the increasing geopolitical
tensions flow through into programme
spend. Defence spend is typically lumpy
and currently more reflective of pull-
through of product in replenishment
orders relating to Ukraine. Commercial
aerospace markets are now starting to
recover.
Ultimately, we believe there are strong
underlying structural growth drivers in
our end markets and, coupled with the
visibility in our order book, this gives us
confidence that in the near term they will
be resilient and in the medium term we
will likely see good growth. That said, we
are not complacent and continue to be
mindful of risks, with our teams keeping
a close watch on key indicators. There
is more detail on our end markets on
page 14.
MARK HOAD, CFO
Q
What is the cash flow generation
potential of the Group?
TT is a cash generative business, but
leverage is temporarily at the top end
of our range, reflecting the investment
in inventory we have made to execute
our order book and support our high
revenue growth. Longer lead times have
impacted us; we have bought material or
components and we are then holding for
longer, waiting for other parts to arrive to
complete products. We would never have
been able to deliver the growth levels we
have in the past 12 months without this
investment in inventory.
Our leverage position also reflects the
three acquisitions we have completed
over the last two years as we have
successfully deployed capital to
add technology and market reach in
aerospace & defence and the £22.7m
spend on our self-help programme. We
continue to monitor an active pipeline of
opportunities while we focus on free cash
flow generation and leverage reduction to
generate capacity for further M&A.
Our specific actions are driving cashflow
improvement and we are confident in our
trajectory. This was evident in improved
cash generation in the second half
of 2022.
As we look into 2023, we expect to
see free cash flow generation improve
materially. Cash spend on the self-help
programme is complete and there will
be no pension payments (historically
running at c.£6m per annum) due to
the buy-in. Over the next couple of years
we expect to see a steady unwind of
inventory positions as supply chains
start to ease.
TT TO PROVIDE GLOBAL MANUFACTURING SOLUTIONS FOR NEXT-GENERATION AVIONICS PROGRAMME
1 Pilot interface display unit (PIDU)
2 Touch display unit (TDU)
• Distributed processing
module (DPM)
• 8-port switch module
• Remote digital audio unit
(RDAU)
• Surveillance radio (TXD)
• Multi-mode digital radio
(MMDR)
Following several years of prototype
development and supply chain
support, TT has been selected as a
strategic manufacturing partner to
support multiple line replaceable units
(LRUs) that comprise the Honeywell
Anthem avionics suite.
Unveiled to the public in late 2021,
the Honeywell Anthem flight deck is
the industry’s first cloud-connected
cockpit system. Anthem is powered
by a flexible software platform that
can be customised for virtually
every type of aircraft, including
large passenger and cargo planes,
business jets, helicopters, general
aviation aircraft, and the rapidly
emerging class of advanced air-
mobility (AAM) vehicles.
TT will be providing engineering
support, manufacturing, and full
systems integration for this next-
generation avionics program over
the next 12 years.
10
TT Electronics plc Annual Report and Accounts 2022
The need for equality and fairness at
work is a given. Going beyond this, we
consider diversity and inclusion to be a
solution to business challenges rather
than a nice-to-have. If our employees feel
confident and happy at work then they
give their best, and if we listen to diverse
viewpoints we get to solutions quicker.
Our sites know this and get involved in
a wide range of awareness and support
efforts over and above what we provide
from the centre. I am particularly proud
of our efforts to celebrate women and
support female talent to grow their
careers at TT.
Q
What progress have you made on your
carbon reduction plans?
We were delighted to hit our near term
carbon reduction target a year early,
having delivered a 54% reduction in our
Scope 1 & 2 emissions this year vs 2019.
All of our sites have contributed to this
outcome through site-specific plans to
reduce energy use. In addition, we saw
a significant benefit from our move to
a new state-of-the-art manufacturing
facility in Texas and a significant change
in grid emissions data in Mexico as
that country decarbonises electricity
supplies. 45% of our global electricity
consumption is now from renewable
sources, up from zero in 2019.
We have also made great progress on
Scope 3 emissions. Having analysed
all categories, we have put in place
preliminary systems and processes to
collect data on our six most significant
and meaningful categories so that we
can report this data in the future and
determine a route to Net Zero. This has
been a significant piece of work for us.
We recognise that we have work to do
in 2023 on our TCFD disclosures.
Other environmental focus areas include
reducing single-use plastics and waste
to landfill. Read more on these in the
Environment section on page 50.
RICHARD TYSON, CEO
Q
What are your priorities as you look
into 2023?
Our top priority is the execution of the
order book to deliver on the growth we
currently see in all of our end markets.
There is an opportunity for margin
improvement across all of our divisions,
although we expect that technical
headwinds to margin, given the pass-
through costs, will persist in our GMS
business through 2023.
With the self-help programme moves
now complete, we will ensure we reap
the rewards of site rationalisation. In
2022 we worked through site closures,
moving production lines, printers and
furnaces to new facilities and achieving
component and product qualifications.
Our priority in 2023 will therefore be
to see stability in our operations, drive
efficiency and growth while realising
the remaining benefits of the self help
programme.
We will continue to focus on our safety
performance and developing and
supporting our people. After making
significant progress in 2022, we are
committed to further reducing our Scope
1 & 2 emissions and will begin to collect
data on six Scope 3 categories.
TT can continue to deliver strong organic
growth from its existing footprint and we
are therefore focused on improving our
ROIC and continuing to reduce leverage.
While conscious of the wider economic
environment, I believe we are well
positioned to deliver further growth
in 2023 and improved margin and cash
performance.
Q
What are the details of the pension
buy-in?
After many years of improving the
funding position of our UK pension
scheme, we were able to complete a
buy-in with Legal & General for the entire
scheme, removing all related risk for
the Group and our shareholders at no
further cost to TT. This has given us an
immediate £6 million benefit to our free
cash flow in 2022 and an equivalent
annual improvement going forwards.
Importantly, the deal secures the pension
benefits of the circa 5,000 current and
former employees and their dependants.
SARAH HAMILTON-HANNA,
CHIEF PEOPLE OFFICER
Q
People are clearly important to TT.
What are your key achievements
in 2022?
We are focused on attracting and
retaining people who are talented and
can contribute to our success and
who share our values. Looking after
our people is critical and we, of course,
focus on safety, talent and leadership
development and providing interesting
work and strong career paths. 2022 has
also been a year where we have really
progressed our welfare and wellbeing,
and diversity and inclusion agendas for
employees. Financial welfare has been
a particular focus as the cost of living
crisis has impacted individuals. We have
asked a lot of our employees this year
– they have risen to the challenge and
it has been our job to take care of them
in return. We are proud of the help and
support we have been able to give.
Our devolved business model allows
our individual sites to tailor their People
approach with support from the centre.
This means that our teams on the
ground have been able to provide a wide
range of support targeted towards local
needs. Support for mental and physical
health ranges from the provision of
medical services onsite to community
efforts that combine fundraising with
mental health awareness. Read more
in the People section on page 38.
TT Electronics plc Annual Report and Accounts 2022
11
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | OUR BUSINESS MODEL
OUR BUSINESS MODEL
CREATING WINNING
SOLUTIONS
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
12
TT Electronics plc Annual Report and Accounts 2022
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
and 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 by helping our
customers to succeed in growing markets, 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
Our strategy is designed to leverage our assets and differentiators to
generate optimum returns for all our stakeholders while maintaining
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.
OUR
STRATEGIC
PRIORITIES
TECHNOLOGY AND
CAPITAL INVESTMENT
SUPPORTING R&D
and new programmes 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 20
THE VALUE WE CREATE
Customers and suppliers
− We help our customers succeed
by providing critical products
and services and solving tough
technology challenges.
− £81.3 million investment in R&D
since 2015.
− We treat our suppliers fairly in line
with our TT Way values.
Our people
− Employee safety and wellbeing
(physical, mental and financial) is
at the top of our agenda.
− We invest in our people to grow
their skills and experience and create
new opportunities.
− We view equality, diversity and
inclusion (ED&I) as a positive business
driver and we are committed to
creating a work environment where
everyone can be themselves every day.
Environment and our communities
− Our solutions contribute to cleaner,
smarter and healthier products.
− 54% reduction in Scope 1 & 2
emissions in three years.
− Targeting Net Zero Scope 1 & 2
emissions by 2035.
− We are committed to social
responsibility and ethical business
practices.
− We have a fundraising culture and
support our teams to undertake
STEM educational outreach in their
communities.
Shareholders
− 18.2p adjusted earnings per share.
− Increased ROIC by 140bps to 10.5%
− Medium-term target of double-
digit annual adjusted earnings per
share growth.
− 6.3p dividend per share.
Read more about our stakeholders
and how we engage with them on
page 36
TT Electronics plc Annual Report and Accounts 2022
13
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | OUR MARKETS
OUR MARKETS: WINNING SOLUTIONS IN
CONTRIBUTION TO GROUP
HEALTHCARE
28%of Group revenue
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.
Public health is vital to the smooth
functioning of society. Efforts to improve
healthcare infrastructure continue to
intensify globally, with wellness and
longevity a top priority for consumers.
These forces serve to accelerate the
pace of innovation within the healthcare
ecosystem. Electronics play a central
role in advancing progress of medical
technology.
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 also help
deliver therapy directly to patients
during minimally invasive procedures,
through implantable devices, such
as pacemakers and defibrillators.
Implantables are now also competing
with pharmaceutical solutions for issues
like hypertension and sleep apnoea and
support other external applications that
require high-reliability power and sensor-
enabled communication.
Market trends and drivers
The global medical device manufacturing
market is expected to have grown by
around 5% in 2022. The healthcare
market has a relatively inelastic demand
profile, such that there will be an
ongoing need for medical procedures
and monitoring regardless of recession
or pandemic. The medium- and long-
term outlook for the global medical
device manufacturing market is equally
optimistic, with an expected CAGR of
6-8% to 2026.
Notable drivers include the growing
importance of digitalisation, the rising
disease burden of an ageing and
growing population and increasing
patient awareness. We are well placed
to capitalise on increasing demand for
high-complexity products driven by
technological advancement such as
diagnostics, monitoring and surgical
products. COVID placed a renewed
emphasis on the importance of the
biotech and pharma industries and we
therefore continue to expect favourable
shifts in product mix towards high-
value, high-margin devices suited to
our capabilities. These dynamics are
supported by continued increases in life
expectancy, with the world’s population
of over 60s expected to double by 2050.
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. We continue 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.
We are continuing to expand our
involvement in life sciences and
laboratory equipment, supporting
new ultra-low temperature freezers
and gaining momentum in automated
sample storage systems as well as
surgical devices, medical implants and
diagnostics. 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,
less waste, and time-efficient results.
TT sensors attached to surgical
instruments provide real-time positioning
and orientation information and we are a
market leader in the smallest EM micro-
14
TT Electronics plc Annual Report and Accounts 2022
coil sensors for these applications.
By supporting the development of
smaller, lighter and more precise surgical
devices, we are enabling reduced size
of incisions, shortened recovery times,
and improving overall patient outcomes.
Our resistors team is working with major
OEMs to provide non-contact Hall-effect
sensors, optical switches and optical
arrays that can detect the presence of
objects, fluid levels and position sensing
as well. Our sensors are incorporated in
products that promote earlier detection
of disease and better monitoring 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 critical and we are
proactively working with customers to
mitigate global shortages and extend
visibility into future demand. We are able
to leverage our global manufacturing
footprint to mitigate local issues and can
innovate to provide quicker solutions.
We believe that enhanced dialogue and
continued performance under adversity
has deepened our relationships with key
healthcare and life science customers.
MARKET REVENUE BY DIVISION
11% – Power and Connectivity
88% – Global Manufacturing Solutions
1% – Sensors and Specialist Components
TECHNOLOGY
SHAPING THE FUTURE
OF HEALTHCARE
EXPECTED MARKET GROWTH
6-8%
Healthcare market 2022-26 CAGR
WHAT WE DO
TT ELECTRONICS IN ACTION
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.
Direct patient care and
monitoring
− Patient monitoring equipment,
including remote applications
− Anaesthesia machines
− Surgical lighting
− Cardiopulmonary perfusion
equipment
− Ventilators and defibrillators
− Fluid monitoring
− Wearable technologies
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
Innovative diagnostic and
imaging
− Ultrasound, X-ray and MRI
machines
− Radiotherapy equipment for cancer
treatment
− Sensor-enabled diagnostic devices
Laboratory and life sciences
− Therapeutic drug monitoring
− Gene sequencing
− Immuno-assay
− Pill counting and dispensing
− Portable hemodialysis systems
− Scientific instrumentation
TT Electronics plc Annual Report and Accounts 2022
15
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | OUR MARKETS
OUR MARKETS: WINNING SOLUTIONS IN
CONTRIBUTION TO GROUP
AEROSPACE
& DEFENCE
15%
of Group revenue
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.
Market trends and drivers
In 2022 the global defence electronics
manufacturing market is expected to
have expanded by around 3%. This is a
pace reflective of the past seven years, all
of which have seen consistent, moderate
expansion, as governments invest to
maintain state-of-the-art capabilities.
With Russia’s invasion of Ukraine, it is
likely that there will be a pickup in growth
from here, with estimates suggesting an
additional $2 trillion of defence spending
over the next decade, and a $1 trillion
investment in R&D, mostly in the US
and Europe. Despite recessionary fears,
heightened geopolitical tensions mean
forecasts for growth in the defence
market of c.5% per annum are possible –
higher than the CAGR of 3-4% we have
previously cited.
A central long-term growth driver is
the desire of governments to maintain
capabilities. In the US, investment in
R&D and long-term projects such as
the fifth generation F-35 Joint Strike
Fighter and the B21 are driving growth.
The US Department of Defense budget
is set to increase by 14% to $817 billion
in 2023 and it is expected that the global
defence budget will continue to grow
despite inflationary pressures, record
high deficits and fiscal consolidation.
We remain optimistic that our exposure
to the defence market will provide
growing, high-margin business for
decades to come. Recently, we were
awarded a contract from long-term
partner Honeywell Aerospace to support
the design of a new power supply for
next-generation inertial navigation units.
Throughout 2022 the commercial
aerospace market has shown steady
recovery from pandemic levels with the
gradual alleviation of travel restrictions
and release of pent-up demand. Industry
research predicts that this growth will
continue to accelerate over the next 2-3
years as we get back to pre-pandemic
levels. Air traffic is forecast to reach
97% of 2019 levels by the end of 2023,
but demand for small- and medium-
sized aircraft is not expected to recover
to pre-COVID levels until 2024-5. We
are planning for a strong civil aerospace
recovery in the next two to four years,
driven primarily by narrowbody aircraft
deliveries, of at least double-digit
CAGR growth.
Fundamentally, the need for safer, more
efficient and more environmentally
friendly aircraft remains. This drives
demand for increasingly advanced
electronic systems and applications, and
supports our capabilities. We anticipate
further tailwinds given a growing, global
middle-class population who exhibit
greater propensity to travel.
Our response
In commercial aerospace we are
focused on supporting increasing
electronic content of aircraft. In the
near term, this means opportunities lie
in helping customers with the adoption
of hybrid models, mid-life electrification
initiatives and electronics updates.
Presently, we are growing capabilities in
electrical power conversion and related
sub-systems. We are collaborating
with aerospace companies in the
development of high efficiency, high
power density converters as well as
technologies for the next generation
of higher voltage platforms. Recently,
we completed qualification on a Power
Supply unit for the Digital Flight Control
System (DFCS) on the Dassault Falcon
6X aircraft, and we are now working on
the equivalent unit for a new programme.
Our ultimate ambition is in broadening
our position as a supplier of choice in
16
TT Electronics plc Annual Report and Accounts 2022
the increasing electrification of aircraft
and aircraft systems. As technology
progresses, we believe that we are
well positioned to support customers
throughout this transition.
In defence, we are focused on next
generation requirements for high-
density power electronics and electrical
machines through the development
of technologies that reduce size,
weight, power and cost (SWaP-C),
while simultaneously enhancing
command, control, communications,
computing, intelligence, surveillance and
reconnaissance (C4ISR) capabilities. We
have recently found success 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 our product mix
moving forward.
MARKET REVENUE BY DIVISION
67% – Power and Connectivity
27% – Global Manufacturing Solutions
6% – Sensors and Specialist Components
PERFORMANCE-
ENHANCING SOLUTIONS
FOR SAFE FLIGHT
EXPECTED MARKET GROWTH
4-5%
Aerospace & defence market
2022-26 CAGR
WHAT WE DO
TT ELECTRONICS IN ACTION
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.
Cockpit avionics and
flight controls
− Avionics and display units
− Flight controls
− Landing gear
− Joystick controls
− Wing de-icing
Precision guidance and
defensive aids systems
− Laser targeting and inertial
navigation systems
− Precision guidance systems
− Radar jammers
Communication, navigation
and radar systems
− Global positioning systems (GPS)
− Radar systems
− Communications, navigation and
identification
Engine controls and
fuel systems
− Engine control units
− Fuel distribution systems
− Engine ice protection
− Auxiliary power units
Aircraft interiors
− Passenger Control Units
− Cabin signage
− Mood and ambient lighting
TT Electronics plc Annual Report and Accounts 2022
17
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | OUR MARKETS
OUR MARKETS: WINNING SOLUTIONS IN
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.
Automation & electrification markets
continue to show encouraging signs
of recovery from the disruption caused
by the pandemic, and we support the
increased demand for digitalisation
through design and manufacture of
connectivity solutions. Given the wide
scope of these markets, performance
correlates strongly with global economic
growth, with key indicators being GDP
growth and the Purchasing Managers’
Index (PMI), but the digitisation
and proliferation of electronics and
electrification means markets will
grow faster than these indicators.
Market trends and drivers
The electronics manufacturing market
is estimated to have grown by over
10% globally in 2022. Our positioning in
sub-segments such as electrification
and industrial automation are good
contributors to growth. Furthermore,
the increasing trend to the re-shoring
of manufacturing capability, or moves
to regions with less expensive labour,
will increase the demand for Artificial
Intelligence, Augmented Reality, the
Internet of Things, and other aspects of
digitalisation. We see the key drivers of
IoT connectivity being cost efficiency,
better supply chain insight, smart
buildings, fleet management, smart
manufacturing and inventory tracking,
and monitoring and diagnostics, and
believe these structural growth drivers
are aligned with our capabilities.
A key force underpinning growth
in automation & electrification
markets is an 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 5-6%
expected to 2026.
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 transition.
Industrial automation and infrastructure
is a major portion of the Sensors &
Specialist Components division serving
market leaders like Schneider, Siemens,
Rockwell Automation and Delta
Electronics. Our focus is to provide niche
and application-specific components
that make our customers’ applications
safer, greener and smarter.
A key area is enhancing our
optoelectronic sensors offering.
TT sensor products improve the
connectivity of manufacturing
operations, promoting access to
information throughout supply chains
and supporting the collection of quality
real-time data. Within electrification, our
priority is to develop capabilities which
18
TT Electronics plc Annual Report and Accounts 2022
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 voltage throughput. These are
supporting our customers by improving
legacy designs and enhancing their
ability to meet complex, high-bandwidth
requirements
CONTRIBUTION TO GROUP
37%
of Group revenue
MARKET REVENUE BY DIVISION
24% – Power and Connectivity
61% – Global Manufacturing Solutions
15% – Sensors and Specialist
Components
EMPOWERING SMART
INFRASTRUCTURE TO
STREAMLINE PROCESSES
AND IMPROVE LIVES
EXPECTED MARKET GROWTH
5-6%
Automation & electrification
market 2022-26 CAGR
WHAT WE DO
TT ELECTRONICS IN ACTION
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.
Factory automation and
electrification
− Industrial robotics and automation
Smart infrastructure and
industrial connectivity
− Transportation communication
equipment
− Power monitoring
− Industrial safety and security
controls
− Smart packaging and labelling
equipment
systems
− Railway signalling systems and
temperature control
− Rolling stock power systems
− Asset tracking and inventory
management systems
− Electric vehicle inverter technology
− Communication and cloud service
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 2022
19
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | OUR STRATEGY
OUR STRATEGY
BUILDING STRENGTH
AND CREATING VALUE
Our strategy is designed to leverage
our assets and differentiators to
generate optimum returns for all
our stakeholders while maintaining
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 growing our exposure
to long-term growth markets.
OUR
STRATEGIC
PRIORITIES
TECHNOLOGY AND CAPITAL
INVESTMENT SUPPORTING R&D
and new programmes 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
STRATEGIC PRIORITY
2022 ACHIEVEMENTS
2023 ACTIONS
Technology and capital investment
supporting R&D and new programmes
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.
– £22.7 million investment in technology
and capital to support higher-growth,
innovative and sustainable products.
R&D investment at 3.7% of revenue.
– 50 significant contract awards and
very strong growth from 40 largest
key accounts.
– Collaboration with a world leader in
aircraft electrical systems on power
supplies for electric and hybrid electric
aircraft.
– Continue to focus on investment
in new product initiatives and
development to build pipeline and
enable customers to meet their
sustainability agendas.
– Maintain target level of c.5% R&D
investment in the P&C and S&SC
businesses.
– Continue support for life science
partners on laboratory automation
and efficiency.
– Enabling the expansion of the use
– Ongoing development of products
supporting smaller, lighter and more
precise surgical devices and surgical
navigation.
– Capital investment to support growth
opportunity in new programmes and
products across all divisions.
of electromagnetic tracking for new
medical procedures through TT
sensor technology.
– Investment in clean rooms at
Minneapolis and Bedlington to
consolidate customer positions in
healthcare and defence.
– The culmination of several years of
prototype development resulted in
our selection as one of two strategic
manufacturing partners to support
the Honeywell Anthem avionics suite.
20
TT Electronics plc Annual Report and Accounts 2022
OUR STRATEGY
STRATEGIC PRIORITY
2022 ACHIEVEMENTS
2023 ACTIONS
BUILDING STRENGTH
– Completion of self-help programme,
including completing Covina business
integration into Torotel.
– New Plano facility completed final
– Deliver final cost savings from the self-
help programme; expected annual run
rate of £13-14m by the end of 2023.
– Operational improvements to achieve
product qualifications.
– Continued supply chain management
and inventory investment to mitigate
supply chain challenges and ensure
pass on of costs.
– Re-pricing of contracts and pass-
through.
efficiencies, whether through an
easing of the supply chain, an end
to self-help (portfolio rationalisation)
or automation improvements.
– Ongoing management and
collaboration with customers on
cost headwinds.
– Identify further automation and
efficiency improvement activities
through Group operations team.
– Ramp up production through Plano
and within new clean rooms at
Minneapolis and Bedlington.
– Successfully completed the
– Continue to reduce financial
acquisition and integration of the
Ferranti Power and Control business.
– Maintained pipeline of M&A
opportunities.
leverage to create capacity for M&A
opportunities.
– Organic investment opportunities
to take market share and support
our growing customer base.
– Complete relocation of the Ferranti
business to a new flagship Power
Solutions facility.
– Continue to monitor pipeline of M&A
opportunities.
– Continued focus on building out
– Continue to focus on developing
technology and product opportunities
that support energy transition and zero
carbon global goals.
technology and product opportunities
that support energy transition and zero
carbon global goals.
– Significant efforts to support health
and wellbeing (physical, mental and
financial) of employees.
– Salary increases and support
payments targeted towards lower
paid employees. Launched UK salary
finance programme.
– Inaugural Women’s Leadership
Programme.
– Deployed 15 global health, safety and
environmental minimum standards.
– Achieved Scope 1 & 2 emissions
reduction target vs 2019 a year early.
– 45% of electricity now from renewable
sources.
– Significant progress on assessment
of Scope 3 emissions.
– Deployment of employee wellbeing
framework to all sites.
– Divisional and site leadership teams
required to identify one important
equality, diversity and inclusion (ED&I)
objective to work towards for the year.
– Continue to pursue onsite solar
projects where appropriate and
possible.
– Formalise Scope 3 measurement
and build infrastructure to collect
meaningful data and enable target
setting.
– Undertake climate risk and
opportunities scenario analysis.
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.
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.
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.
TT Electronics plc Annual Report and Accounts 2022
21
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION CFO REVIEW
STRONG
PROGRESS
“There has been exceptionally
strong order intake across the
Group, reflecting underlying
growth in our markets and
new customer wins, as well as
customers committing earlier
to secure capacity and give us
greater visibility.”
Mark Hoad,
Chief Financial Officer
OVERVIEW
Revenue for the year was £617.0 million.
This was 22 per cent higher than the
prior year at constant currency and
20 per cent higher on an organic basis,
with a significant acceleration of growth
in the second half of the year. Adjusted
operating profit increased by 35 per
cent and by 19 per cent on a constant
currency basis compared to 2021,
reflecting the benefits of volume growth
and our self-help programme. A much
improved second half performance was
in part driven by the expected recovery
in our P&C division. The business
performance in GMS was ahead of
expectations and S&SC produced
outstanding results over the year.
We continue to experience supply chain
challenges with extended lead times,
component shortages and notable cost
inflation. Through our collaboration with
customers, our investment in inventory
and our actions to source some
components on an expedited basis,
organic revenue growth accelerated
to 31% in the second half of 2022. We
estimate that cost inflation in the year
amounted to circa £40 million. This was
fully recovered by re-pricing our offerings
and working collaboratively with our
customers. Of the increase circa £28
million was cost pass-through. This
relates to materials where there has
been very significant cost inflation which
is being transparently passed on to
customers with no margin mark-up. Even
excluding these pass-through revenues,
organic growth was still an excellent
14 per cent.
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022
£million (unless otherwise stated)
Revenue
Operating profit/(loss)
Operating profit margin
Profit/(loss) before taxation
Earnings/(loss) per share
Return on invested capital
Cash conversion
Free cash flow1
Net debt1
Leverage1
Dividend per share
Adjusted results1
Statutory results
Change
Change
constant FX
30%
35%
22%
19%
30bps
(20)bps
29%
26%
13%
11%
2022
617.0
47.1
7.6%
40.4
18.2p
10.5%
33%
2021
476.2
34.8
7.3%
31.5
14.5p
9.1%
65%
2022
617.0
(3.4)
(0.6)%
(10.1)
(7.5)p
(13.1)
138.4
1.98x
6.3p
2021
476.2
19.3
4.1%
16.0
7.3p
(1.3)
102.5
1.74x
5.6p
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 220 to 226.
There has been exceptionally strong
order intake across the Group, reflecting
underlying growth in our markets
and new customer wins, as well as
customers committing earlier to secure
capacity and give us greater visibility.
Customer demand remains robust,
but we are vigilant to any changes in
demand. Order intake for 2022 was
118 per cent of revenues, which we grew
20 per cent organically. We secured over
50 significant contract wins that will
deliver over £125 million of multi-year
revenues. Our collaborative approach to
deliver solutions based on our technical
expertise has been a key factor in
winning new orders. We are focused on
leveraging expertise across the Group
to pursue cross-selling opportunities
and deepening our relationships with
our top customers. Much of this effort is
led by the GMS division which is integral
to converting these opportunities and
increasingly showcases the capabilities
of the P&C division.
Adjusted operating profit was £47.1
million, 19 per cent higher than the prior
year at constant currency. The adjusted
operating margin was 7.6 per cent.
Excluding zero margin pass-through
revenues, adjusted operating margin was
8.1 per cent. After the impact of adjusting
items, including restructuring, pension,
acquisition and disposal costs, and
non-cash asset impairment, the Group’s
full year statutory operating loss was
£3.4 million. The non-cash impairment
of £23.1 million is shown within the
Power and Connectivity division and is
linked to an increase in discount rates,
coupled with revised forecasts for the
Connectivity business in the context of
a weaker macro-economic environment
and the impact of the evolution of
the COVID pandemic on the potential
demand for COVID testing. Cashflow
impacting adjusting items totalled
£11.1 million.
Adjusted EPS increased to 18.2 pence
(2021: 14.5 pence) reflecting the
improved adjusted operating profit in the
period. Basic earnings per share was a
loss of 7.5 pence (2021: profit 7.3 pence).
The increase in adjusted operating profit
was more than offset by the increase in
non-cash adjusting items.
During the year we completed the cash
spend on our self-help programme to
support margin improvement. We also
invested in inventory to support our
high levels of growth, our increased
customer order book and supply chain
constraints on certain component parts.
Cash conversion of 33 per cent (2021:
65 per cent) reflected this investment
and included a working capital outflow
totalling £38.8 million. The working
capital outflow was mainly a result
of investment in inventory to support
the significant growth in order intake.
This was exacerbated by material cost
inflation and high value pass-through
materials secured with customer
agreement. We had anticipated a modest
improvement in the second half, but
this was adversely impacted by higher
than anticipated receivables due to the
exceptionally strong organic revenue
growth as well as a small number of
larger value receivables which arrived
post year-end.
In 2022 we completed the buy-in of our
UK defined benefit pension scheme. This
buy-in secures pension benefits for circa
5,000 members and their dependents.
The Scheme’s circa £360 million
of liabilities are now matched by an
insurance policy, and TT no longer bears
any investment, longevity, interest rate
or inflation risk in respect of the scheme.
There was a benefit to the Group’s 2022
free cash flow of £6 million and there
is an equivalent annual improvement
to free cash flow in future years. On a
statutory basis, cash flow from operating
activity was £12.7 million (2021: £14.3
million). There was a free cash outflow
of £13.1 million (2021: £1.3 million
outflow). Dividend payments totalled
£10.2 million (2021: £11.4 million). We
ended the year with net debt of £138.4
million (2021: £102.5 million), including
IFRS 16 lease liabilities of £23.1 million
(2021: £22.6 million).
At 31 December 2022 leverage was
2.0 times (2021: 1.7 times), within the
Board’s target leverage range of 1-2
times, and down 0.4 times from June
2022, as anticipated. We are confident
this downward trajectory will continue
as EBITDA increases and as we deliver
a material step-up in free cash flow
in 2023.
Our return on invested capital was 10.5
per cent in 2022, increasing by 140 basis
points due to the growth in adjusted
operating profit, even with the additional
investment in working capital.
TT Electronics plc Annual Report and Accounts 2022
23
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | CFO REVIEW
FINANCIAL REVIEW
Revenue
Group revenue was £617.0 million (2021:
£476.2 million). This included a £7.9
million contribution from acquisitions
and currency translation benefit of £31.5
million. Group revenue was 22 per cent
higher than the prior year at constant
currency and 20 per cent higher on an
organic basis. Excluding the zero margin
pass-through revenues, organic growth
was still 14 per cent, split approximately
11 per cent volume growth and 3 per
cent pricing. Sales volumes across our
key markets have been buoyant and
the strength of our order book, and the
pipeline of new business opportunities,
gives us confidence that growth will
continue. Our order book reached record
levels in the second half of 2022.
Operating profit and margin
The Group’s adjusted operating profit
was £47.1 million (2021: £34.8 million)
and statutory operating loss was £(3.4)
million (2021: £19.3 million profit) after a
charge for items excluded from adjusted
operating profit of £50.5 million (2021:
£15.5 million) including:
– Restructuring and other costs of £20.2
million (2021: £7.8 million) comprising:
• Restructuring costs of £6.4 million
(2021: £8.1 million) including £2.7
million relating to the restructure
of the North America Resistors
business (including pre-production
costs at our new Plano facility),
£2.0 million relating to the closure of
our Lutterworth site, and £1.7 million
relating to relocation of production
facilities in the USA, as part of our
self-help programme; and
• Pension costs of £13.8 million
(2021: £0.3 million credit) relating
to pension projects which included
£11.8 million non-cash settlement
costs for the enhanced transfer value
exercise and £2.0 million of cash
costs associated with this exercise
and the scheme buy-in project.
– Acquisition and disposal costs
totalled £7.2 million (2021: £7.7 million)
comprising £1.2 million (2021: £2.6
million) of integration and acquisition
costs relating primarily to the Ferranti
acquisition, which completed
early in 2022. Amortisation of
intangible assets arising on business
combinations was £6.0 million (2021:
£5.1 million).
Earnings per share
Adjusted EPS increased to 18.2 pence
(2021: 14.5 pence), reflecting the
improved adjusted operating profit in the
period. Basic earnings per share (EPS)
was a loss of 7.5 pence (2021: profit
7.3 pence). The increase in adjusted
operating profit was more than offset by
the increase in non-cash adjusting items
set out above.
– Non-cash impairment costs totalled
£23.1 million (2021: £nil) being an
impairment in respect of the IoT
Technology Products business,
including £5.4 million of assets
associated with the Virolens project.
This impairment is shown within the
Power and Connectivity division and is
linked to an increase in discount rates,
coupled with revised forecasts for the
business in the context of a weaker
macro-economic environment and
impact of the evolution of the COVID
pandemic on the potential demand
for COVID testing.
The adjusted operating margin of 7.6
per cent (2021: 7.3 per cent) reflects
the benefits of growth and our self-help
programme. We successfully offset
increases in input costs through price
increases.
Finance costs and taxation
The net finance cost was £6.7 million
(2021: £3.3 million) with the increase
being mainly due to a combination of
higher base rates and higher drawn debt
levels. The Group’s overall tax charge was
£3.1 million (2021: £3.2 million), including
a £5.3 million credit (2021: £3.0 million
credit) on items excluded from adjusted
profit. The adjusted tax charge was £8.4
million (2021: £6.2 million), resulting in
an effective adjusted tax rate of 20.8 per
cent (2021: 19.6 per cent).
Cashflow
Adjusted operating cash inflow after
capex was £15.7 million (2021: £22.7
million inflow). Improved profitability was
more than offset by a working capital
outflow of £38.8 million (2021: £14.7
million outflow), including a £40.4 million
investment in inventory to support the
strong order book and impacted by
supply chain constraints. Capital and
development expenditure of £14.0 million
(2021: £16.8 million) reflected investment
to support growth and as part of the
self-help programme. This resulted in
adjusted operating cash conversion of
33 per cent (2021: 65 per cent). On a
statutory basis, cash flow from operating
activity was £12.7 million (2021: £14.3
million).
There was a free cash outflow of
£13.1 million (2021: outflow £1.3 million),
net of £11.1 million of restructuring
and acquisition related costs (2021:
£5.9 million), relating to the self-help
programme and acquisition costs
associated with the Ferranti acquisition.
There were no pension contribution
payments in the year (2021: £5.5 million)
due to the buy-in of the UK scheme as
detailed below.
Investments in acquisitions totalled
£8.3 million (2021: £0.5 million) relating
to the Ferranti Power and Control
acquisition in January 2022. Dividend
payments totalled £10.2 million (2021:
£ 11.4 million).
24
TT Electronics plc Annual Report and Accounts 2022
TT is well-aligned with global
megatrends, driving demand from high
growth markets. While we are mindful
of the wider macro environment, we
enter 2023 with good momentum
underpinned by a strong order book.
This unprecedented visibility, coupled
with further benefits of our self-help
programme mean we are confident in our
ability to deliver further progress in 2023.
Net debt
At 31 December 2022 the Group’s net
debt was £138.4 million (31 December
2021: £102.5 million). Included within net
debt was £23.1 million of lease liabilities
(31 December 2021: £22.6 million).
Pension buy-in
In November 2022, the Trustee of the
TT Electronics Pension Scheme (the
“Scheme”) purchased a bulk annuity
insurance policy from Legal & General
Assurance Society Limited, covering all
liabilities required to pay all future defined
benefit pensions for the Scheme’s
circa 5,000 members and any eligible
dependents. The purchase of this
insurance policy was the successful
culmination of extensive work over the
last few years by TT and the Scheme
Trustees. The insurance policy was
purchased using existing assets held
within the Scheme, without the need for
TT to make any additional contributions.
TT is not required to make any future
contributions into the Scheme regarding
defined benefit liabilities and the buy-in
delivers greater security to the Scheme’s
members. The Scheme’s circa £360
million of liabilities are now matched by
the insurance policy, and TT no longer
bears any investment, longevity, interest
rate or inflation risk in respect of the
Scheme. There was an immediate
benefit to the Group’s current year cash
flow of £6 million in 2022 and there is
an equivalent annual improvement to
free cash flow in future years.
Outlook
2022 was a year of strong operational
and financial progress. We delivered
excellent top line growth for the Group
as we executed on our record order
book, which reflected a significant
number of new customer wins,
incremental business opportunities
with existing customers, and market
share gains. Our teams across the
Group have performed exceptionally
well in a year characterised by significant
volatility, ongoing supply chain issues
and cost inflation. At the same time, we
have completed our programme of site
rationalisation and finalised the buy-in
of our UK pension scheme.
CASHFLOW, NET DEBT AND LEVERAGE
£ 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
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
2022
47.1
16.1
–
(11.7)
(2.3)
(38.8)
5.3
15.7
33%
(13.4)
(4.3)
(11.1)
–
(13.1)
(10.2)
4.3
0.4
(8.3)
(3.0)
(29.9)
(102.5)
(2.3)
(0.2)
(3.5)
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
(138.4)
(102.5)
1
In 2021 Restructuring, acquisition and disposal related costs comprised proceeds on surplus property disposals of £9.1 million.
TT Electronics plc Annual Report and Accounts 2022
25
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | CFO REVIEW
CFO REVIEW CONTINUED
POWER AND
CONNECTIVITY
OVERVIEW
REVENUE BREAKDOWN
Revenue increased by £14.0
million to £154.2 million
(2021: £140.2 million) and
includes a £7.9 million revenue
contribution from Ferranti
Power & Control which we
acquired in January 2022 and a
currency benefit of £7.2 million.
Organic revenue was 1 per
cent lower dampened by the
timing of programme revenues,
the closure of the Akron, Ohio
facility and the transfer of
activity from Lutterworth to
Bedlington.
of Group revenue
25%
16Primary locations
1,612
Employees
Revenue by market (%)
13% – Healthcare
Revenue by geography (%)
34% – UK
40% – Aerospace & defence
39% – North America
35% – Automation & electrification
14% – Rest of Europe
12% – Distribution sales channel
13% – Asia/ROW
FINANCIAL HIGHLIGHTS
2022
2021
Change
Change
constant fx
Revenue
£154.2m
£140.2m
Adjusted operating profit1
Adjusted operating
profit margin1
£7.9m
5.1%
£7.8m
5.6%
10%
1%
5%
(9)%
(50)bps
(80)bps
1 Adjusting items are not allocated to divisions for reporting purposes. For further discussion of these items please
refer to Note 7.
Adjusted operating profit increased by
£0.1 million to £7.9 million (2021: £7.8
million). Included within this was a profit
contribution of £1.9 million from the
Ferranti acquisition and there was a
£0.9 million foreign exchange benefit. The
organic reduction in operating profit was
mainly driven by reduced revenues and
site inefficiencies including the impact
of COVID disruptions in the first half.
The operating profit contribution from
the division stepped up materially from
£2.1 million in the first half to £5.8 million
in the second half as anticipated. The
adjusted operating margin was 5.1 per
cent (2021: 5.6 per cent) for the full year
and 6.8 per cent in the second half.
Order intake has been good in the year,
running well ahead of revenues, giving
us confidence of a return to growth in
2023 which will support further margin
improvement. With the consolidation
of activities into the Kansas City site,
following the closure of the Covina
site, combined with the transfer of
activity from Lutterworth to Bedlington
now completed, we are well placed
to benefit from these operational
efficiencies in 2023.
26
TT Electronics plc Annual Report and Accounts 2022
There have been some notable contract
awards during the year, including:
– We were awarded a contract from
long-term partner Honeywell
Aerospace to support the design of a
new power supply for next-generation
inertial navigation units. This
partnership highlights TT’s market
responsiveness, innovation and
long-standing expertise in demanding
defence and military applications.
– Our work on the Boxer programme (the
main UK army vehicle programme)
has expanded with significant
additional contracts wins. Following on
from the power electronics assembly
contract and the subsequent award
for the design and development of
electrical cable harness systems for
the Challenger 3 upgrade project, we
have recently cross sold our expertise
into GMS. We are already contracted
to provide complex, high-reliability
power electronics assemblies to
the Boxer vehicles and 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.
– Recent significant advances have
allowed electromagnetic tracking to
become an emerging technology of
choice for new clinical applications.
This adoption is leading to an upsurge
in related procedure volume. Working
with a new customer, a medical
equipment manufacturer, on its
electromagnetic (EM) tracking system,
which incorporates TT’s EM micro-coil
sensors, we have taken the system
from prototype to full launch and
this tracking system is now used for
diagnosing certain cancers.
– Environmental innovation from
ZapCarbon in combination with
our electronics technology and
IoT powered monitoring expertise
brought to the mass market the
Healthy Homes Sensor. This sensor is
designed for use in social housing as
a means to combat fuel poverty and
unhealthy living conditions. Our battery
operated, cellular connected sensor
can detect unsafe humidity conditions
long before mould occurs thus
improving the health for occupants
of social housing and preventing the
need for costly remediation work.
In January 2022 we completed the
£8.3 million acquisition of Ferranti
Power and Control, 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 the skills to provide
full-service capabilities from design,
assembly, manufacturing, and testing
including environmental stress screening
and inspection through to service.
Ferranti adds further technology
capability, IP and scale to our Power
business. It brings 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.
Ferranti is a mid-teens operating
margin business, and in this, our first
year of ownership, the acquisition has
generated a return on invested capital in
excess of the Group’s WACC. We expect
to generate cost synergies of circa
£0.4 million by year three.
TT Electronics plc Annual Report and Accounts 2022
27
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | CFO REVIEW
CFO REVIEW CONTINUED
GLOBAL
MANUFACTURING
SOLUTIONS
OVERVIEW
REVENUE BREAKDOWN
Revenue increased by £102.9
million to £323.0 million (2021:
£220.1 million) including a
currency benefit of £15.4
million, with organic revenue
37 per cent higher. The organic
revenue performance reflects
strong growth from our existing
customer base, particularly
from our healthcare and
automation & electrification end
markets.
of Group revenue
52%
8Primary locations
1,550
Employees
Revenue by market (%)
47% – Healthcare
Revenue by geography (%)
21% – UK
8% – Aerospace & defence
38% – North America
43% – Automation & electrification
15% – Rest of Europe
2% – Distribution sales channel
26% – Asia/ROW
FINANCIAL HIGHLIGHTS
2022
2021
Change
Change
constant fx
Revenue
£323.0m
£220.1m
Adjusted operating profit1
£25.2m
£18.3m
47%
38%
37%
23%
Adjusted operating
profit margin1
7.8%
8.3%
(50)bps
(90)bps
1 Adjusting items are not allocated to divisions for reporting purposes. For further discussion of these items please
refer to Note 7.
There was strong growth in all
geographic regions. Pass-through
revenue was around £32 million which
has created a technical head wind to
margin progression. Excluding this pass-
through revenue the operating margin
was 8.7 per cent.
This division has again performed
incredibly well in 2022, as momentum
built reflecting the targeted move
towards customers who are winners
in their own markets and provide
opportunity to grow share of wallet.
Work on positioning GMS as a partner to
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.
28
TT Electronics plc Annual Report and Accounts 2022
The division’s planned revenues for 2023
are fully covered for 2023 and it has
started to secure revenue for 2024.
Given the significant increase in revenues
in 2022, GMS will make incremental
capital investment in 2023 to enhance
capacity in existing facilities.
Adjusted operating profit increased by
£6.9 million to £25.2 million (2021: £18.3
million), including a £2.2 million foreign
exchange benefit. The constant currency
increase reflects operational leverage on
the organic growth and the full recovery
of inflationary costs. The adjusted
operating profit margin was 7.8 per cent
(2021: 8.3 per cent), impacted by the
pass-through revenues, without which
margins would have been 8.7 per cent.
The order book growth has been
underpinned by several multi-million-
pound wins, a number of which extend
beyond 12 months. We continue to
see that our power customers require
manufacturing capability and so our
GMS and P&C divisions are partnering to
provide this solution. Packages secured
on the Boxer programme illustrate how
we are able to expand our involvement
in a programme from initial work within
Power and Connectivity to providing
PCBAs through GMS. We continue to
improve our understanding of how to
leverage these opportunities from the
customer perspective.
In late December, TT was delighted
to receive an award for best-in-class
performance as one of AMI’s top
performing suppliers for outstanding
technical and operational achievements
in areas including quality, service, lead
time, delivery, cost and responsiveness.
We believe this award reinforces our
reputation as a trusted partner across
multiple geographies.
Overall, the GMS division is in excellent
shape, the order pipeline is stronger
than ever, and our enhanced customer
relationships and business development
initiatives are delivering revenue and
order book growth. GMS has achieved
a step change in its margin profile over
recent years, reflecting the value of
the service we bring to our customers,
reliability, and the value engineering and
testing capability we offer. We believe
GMS margins can improve incrementally
with growth.
In 2022, a key component of the revenue
and order book growth reflected large,
ongoing programmes with our blue-chip
customers in healthcare and automation,
in addition, there have been a number of
significant new customer awards which
will impact future years. Some examples
include:
– TT has been awarded a substantial
five year agreement with a leading
systems integrator in commercial
aerospace worth circa £50 million,
for the manufacture of complex
electronic assemblies for aircraft
braking systems. This award further
strengthens our longstanding
collaboration with this customer and
reflects its confidence in our expertise
in demanding military and aerospace
applications.
– Following several years of prototype
development and supply chain support,
TT has been selected as a strategic
manufacturing partner to support
multiple line replaceable units (LRUs)
that comprise the Honeywell Anthem
avionics suite. Unveiled in late 2021,
the Honeywell Anthem flight deck is
the industry’s first cloud-connected
cockpit system. Anthem is powered by
a flexible software platform that can
be customised for virtually every type
of aircraft, including large passenger
and cargo planes, business jets,
helicopters, general aviation aircraft
and the rapidly emerging class of
advanced air-mobility (AAM) vehicles.
TT will be providing engineering
support, manufacturing, and full
systems integration for this next-
generation avionics programme over
the next 12 years.
– 2022 saw strong revenue growth
on a number of new projects for a
world-leading life sciences customer.
These included high level assemblies
for a Gas Chromatography Mass
Spectrometer. Such machines are
used in spectrometry elemental
isotope analysis to understand
the chemistry and composition of
materials and healthcare and life
sciences. Other key projects with this
customer include a DNA sequencer
and high-end analytical instruments
for radiation detection.
TT Electronics plc Annual Report and Accounts 2022
29
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | CFO REVIEW
CFO REVIEW CONTINUED
SENSORS AND
SPECIALIST
COMPONENTS
OVERVIEW
REVENUE BREAKDOWN
Revenue increased by
£23.9 million to £139.8 million
(2021: £115.9 million) including
a currency benefit of £8.9
million. Organic revenue
was 12 per cent higher, with
strong growth through the
division’s distribution partners
a key driver.
of Group revenue
23%
5Primary locations
1,809
Employees
Revenue by market (%)
1% – Healthcare
Revenue by geography (%)
7% – UK
4% – Aerospace & defence
37% – North America
24% – Automation & electrification
26% – Rest of Europe
71% – Distribution sales channel
30% – Asia/ROW
FINANCIAL HIGHLIGHTS
2022
2021
Change
Change
constant fx
Revenue
£139.8m
£115.9m
Adjusted operating profit1
£21.8m
£16.4m
21%
33%
12%
20%
Adjusted operating
profit margin1
15.6%
14.2%
140bps
110bps
1 Adjusting items are not allocated to divisions for reporting purposes. For further discussion of these items please
refer to Note 7.
This business is in the sweet spot of
enabling our customers to reach their
sustainability goals with components
for smart energy & city infrastructure and
factory automation.
Historically, order visibility has been very
limited, but more recently the order book
has increased significantly reflecting
strong underlying demand and also
customers committing orders further
ahead to protect their supply chains
and responding to lead time extensions.
We have been careful to adjust our
commercial terms, where possible,
to orders that are non-cancellable,
non-refundable and in some cases,
non-reschedulable.
Adjusted operating profit increased by
£5.4 million to £21.8 million (2021: £16.4
million) with a currency benefit of £1.7
million. The constant currency operating
profit growth reflects the benefits of our
30
TT Electronics plc Annual Report and Accounts 2022
self-help programme and the strong
operational leverage on our revenue
growth. We have benefited from our
agility in adapting our pricing strategies
to offset material and freight cost
increases.
At our new facility in Plano, Texas we
have invested in capacity and having
substantially completed qualification, are
now improving yields which is enabling
volumes to be produced at higher rates.
We are very focused on improving our
customer experience.
There were a number of favourable
developments during the year which
will benefit the business, including:
– We secured repeat business with a
major US defence prime, for a sole
source, opto isolator used on power-
up boards installed as safety critical,
precision navigational aids, for guided
defence systems for a major defence
customer
– The US team secured two different
optical sensor opportunities with a
medical device company, for use in
a blood analyser. These sensors are
used in the disposable test vessel
cartridges designed for the Werfen
GEM 5000 blood gas analyser. The
sensors are critical to detect the
proper loading of the cartridge as its
alignment with the analyser optics, for
spectral measurements, is essential
for proper execution of the test.
– Schneider Electric – We secured
a contract to provide a thick-film
resistor that met the high-reliability
requirements of a Schneider Gas-
insulated switchboard utilised
in electricity distribution. The
end customer for this product is
France’s main electricity distribution
company which supplies 95 per cent
of the market.
TT Electronics plc Annual Report and Accounts 2022
31
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION 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 21 on
page 187 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.
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 69 to 72, 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 2022, TT Electronics plc had
£202.8 million (2021: £251.2 million) of
distributable reserves, sufficient to pay
dividends for the foreseeable future.
The parent Company Balance Sheet
is set out on page 209.
Given our strong trading performance
in 2022 and the positive outlook for 2023
and beyond, the Board is proposing a
final dividend of 4.3 pence per share.
The total cash cost of this dividend will
be approximately £7.6 million. This, when
combined with the interim dividend of 2.0
pence per share gives an increase of 13
per cent in the total dividend to 6.3 pence
(2021: 5.6 pence per share). Payment
of the dividend will be made on 26 May
2023, to shareholders on the register at
28 April 2023.
PENSIONS
In November 2022, the Trustee of the
TT Electronics Pension Scheme (the
“Scheme”) purchased a bulk annuity
insurance policy from Legal and General
Assurance Society Limited, covering all
liabilities required to pay all future defined
benefit pensions for the Scheme’s
circa 5,000 members and any eligible
dependents.
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.
In November 2022, the TT Group
Scheme entered into a bulk annuity
insurance contract with an insurer in
respect of the liabilities of the defined
benefit scheme. This type of deal is also
known as a ‘buy-in’. The insurer, Legal &
General, will pay into the scheme cash
matching the benefits due to members.
This investment decision reduces
the risks in the scheme and provides
additional security for the benefits due
to the members.
The total net accounting surplus under
the Group’s defined benefit pension
schemes was £28.4 million (2021: £74.5
million). The main driver of the decrease
was the remeasurement loss following
the buy-in of the UK scheme’s assets
and the completion of an exercise
whereby deferred members were offered
an enhanced transfer value (ETV)
option. The effect of the ETV exercise
was recognition of a £11.8 million
settlement cost.
Net accounting pension surplus
Prior to the buy-in, the TT Group scheme
exposed the Group to a number of
actuarial risks such as longevity risk,
currency risk, inflation risk, interest rate
risk and market (investment) risk. The
buy-in mitigates the majority of these
risks and the principal risk remaining
is the credit risk associated with Legal
& General, which is assessed to be
very low.
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
2022
396.8
368.4
31.3
(2.9)
28.4
2021
651.9
577.4
78.4
(3.9)
74.5
The next triennial valuation of the
TT Group scheme, as at April 2022, is
expected to be completed by July 2023
and will take account of the new buy-in
policy held by the Trustee.
Further details of the Group’s defined
benefit schemes are in Note 22 on
page 196 of the Consolidated Financial
Statements.
32
TT Electronics plc Annual Report and Accounts 2022
NET DEBT AND GEARING
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
2022
2021
Income Statement
Average rate
$/£
RMB/£
Balance Sheet
$/£
RMB/£
1.23
8.32
1.20
8.36
1.38
8.90
Closing rate
1.35
8.63
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 73 for the Going concern
statement.
At 31 December 2022 the Group’s net
debt was £138.4 million (31 December
2021: £102.5 million). Included within net
debt was £23.1 million of lease liabilities
(31 December 2021: £22.6 million).
Consistent with the Group’s borrowing
agreements, which exclude the impact
of IFRS 16 Leases, leverage ratio was
2.0 times at 31 December 2022 (31
December 2021: 1.7 times). Net interest
cover was 7.4 times (31 December 2021:
13.5 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.
At 31 December 2022 the Group had
available undrawn committed facilities
of £47.4 million. In addition, the Group
had available uncommitted facilities of
£41.2 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 June 2026 and the PP
notes, issued in December 2021, are split
between 7- and 10- year maturities with
covenants in line with our bank facility.
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 states that net debt must be below
3.0 times adjusted EBITDA, and adjusted
EBITDA is required to cover interest
charges, excluding interest on pension
schemes by at least 4.0 times.
Leverage ratio
The Group’s year end leverage ratio
of 2.0 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.
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 20 on page 186 of the Consolidated
Financial Statements.
TT Electronics plc Annual Report and Accounts 2022
33
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | KEY PERFORMANCE INDICATORS
HOW WE ARE PERFORMING
OUR KPIS
FINANCIAL
KPI DESCRIPTION AND
WHY IT IS IMPORTANT
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.
MEDIUM-
TERM
TARGET
FIVE-YEAR
PERFORMANCE
CHART
2022 PROGRESS
LINK TO
STRATEGY
4-6% organic
revenue
growth
annually over
the medium
term
20%
2021: 10%
2022
2021
2020
2019
2018
20%
10%
(12)%
4%
6%
Organic revenue growth
doubled to 20%, reflecting
a significant number
of new customer wins,
incremental business
with existing customers
and continued market
share gains.
‒ TECHNOLOGY
INVESTMENT
AND R&D
Double-digit
margin
7.6%
2021: 7.3%
2022
2021
2020
2019
2018
7.6%
7.3%
6.4%
8.0%
7.8%
Adjusted operating
profit margin was 7.6%,
reflecting the benefits
of growth and the
self-help programme.
Excluding zero margin
pass-through revenues,
adjusted operating
margin was 8.1%.
‒ TECHNOLOGY
INVESTMENT
AND R&D
‒ MARGIN
ENHANCEMENT
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.
Double-digit
adjusted
EPS growth
annually at
constant
currency over
the medium
term
18.2p
2022
2021
2020
2019
2018
2021: 14.5p Adjusted EPS increased
to 18.2p, reflecting the
improved adjusted
operating profit.
18.2p
14.5p
11.7p
17.8p
16.2p
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.
90%+ cash
conversion
annually over
the medium
term
33%
33%
65%
2022
2021
2020
2019
2018
130%
103%
88%
2021: 65% Cash conversion of
33% reflected investment
in inventory to support
high levels of growth,
the increased customer
order book and supply
chain constraints on
certain component parts
(£38.8 million working
capital outflow).
‒ TECHNOLOGY
INVESTMENT
AND R&D
‒ MARGIN
ENHANCEMENT
‒ TARGETED AND
COMPLEMENTARY
M&A
‒ MARGIN
ENHANCEMENT
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 220 to 226.
34
TT Electronics plc Annual Report and Accounts 2022
FINANCIAL
KPI DESCRIPTION AND
WHY IT IS IMPORTANT
MEDIUM-
TERM
TARGET
FIVE-YEAR
PERFORMANCE
CHART
2022 PROGRESS
LINK TO
STRATEGY
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.
Exceed the
cost of holding
assets with
year-on-year
increases
10.5% 2021: 9.1%
2022
2021
2020
2019
2018*
10.5%
9.1%
7.7%
10.8%
11.5%
* Excluding IFRS 16 impacts.
ROIC increased by 140bps
due to the growth in
adjusted operating profit,
even with the additional
investment in working
capital.
‒ TECHNOLOGY
INVESTMENT
AND R&D
‒ MARGIN
ENHANCEMENT
‒ TARGETED AND
COMPLEMENTARY
M&A
NON-FINANCIAL
KPI DESCRIPTION AND
WHY IT IS IMPORTANT
MEDIUM-
TERM
TARGET
FIVE-YEAR
PERFORMANCE CHART
2022 PROGRESS
LINK TO
STRATEGY
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.
Maintain R&D
investment
at around
5 per cent
of revenue
annually over
the medium
term
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.
Year-on-year
reduction in
incidents,
ultimately
leading 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.
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 54. Reducing our
Scope 1 & 2 emissions is a critical part
of reducing our environmental footprint.
Annual
reductions
vs our 2019
baseline.
50% reduction
by 2023 vs
2019 and Net
Zero by 2035
3.7%
2022
2021
2020
2019
2018
2
2022
2
2021
2020
2019
2018
5
5
4
3.7%
2021: 4.5% R&D cash investment was
£11.0 million, representing
3.7% of aggregate revenue
of the product businesses.
Total investment in
technology and capital
to support new product
growth was £22.7 million.
4.8%
4.5%
5.1%
5.1%
Safety performance
improved significantly,
reflecting our continued
focus on global safety
standards and procedures
which included the
implementation of 15
global HSE standards
during the year.
2021: 5
17
2021: 718.5
‒ TECHNOLOGY
INVESTMENT
AND R&D
‒
INTEGRATION
OF ESG
2022
2021
2020
2019*
2018
Interim pulse surveys
718.5
694.8
Interim pulse surveys
678.8
* No employee engagement survey
was undertaken in 2019 or 2022
54% reduction since
2019
2022
2021
2020
2019
12,166
15,740
20,875
26,657
Data available from 2019 only.
We undertake an
employee engagement
survey every 12-18
months. We did not
undertake a survey in
2022.
‒
INTEGRATION
OF ESG
We made excellent
headway on Scope 1 &
2 emissions, hitting our
reduction target a year
early. Primary drivers of
the 23% fall during the
year were the transfer
to Plano, site energy
reduction initiatives and
Mexico grid emissions.
‒
INTEGRATION
OF ESG
TT Electronics plc Annual Report and Accounts 2022
35
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
STRATEGIC REPORT | STAKEHOLDER ENGAGEMENT
ENGAGING WITH OUR
STAKEHOLDERS
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 63, which
sets out examples of decisions taken
by the Board on priority strategic topics
in 2022.
STAKEHOLDER
CUSTOMERS
AND SUPPLIERS
EMPLOYEES
INVESTORS
SOCIETY
36
TT Electronics plc Annual Report and Accounts 2022
OUR ACTIVITIES THAT
AFFECT THEM
– R&D and new product introduction
– Products, including those supporting
environmental sustainability
– Operations and production pipeline
– Safety, environmental quality control
and reliability
– Legal and regulatory compliance
– Payment practices/prompt payment
– Inventory management
– Responsible business practices
– Supply chain management
– Modern slavery review
– Culture and purpose
– TT Way values and conducting
business with integrity
– Safety and wellbeing
– Employee Assistance Programme
– Training and development
– Group employment policies
– Engagement activities
– ED&I
– Environmental sustainability
– Pensions
– Financial performance
– Leadership
– Governance and transparency
– Sustainability/ESG
– Reputation
– Communication
– Pensions buy-in
– RCF extension
– Products that solve technology
challenges for a sustainable world
– Responsible business practices
– Environmental practices and
sustainability
– Employment training and
apprenticeships
– ED&I focus
– Employee Assistance Programme
– 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
– Continued focus on cleaner, smarter and
reports from divisions and internal
chain, products and service.
healthier solutions.
Councils on key customer and
– R&D partnerships.
supplier initiatives.
– The Board reviews and approves
payment times and practices.
– Collaboration across divisions to
meet customer needs including
– New product launches and new contract
wins including Honeywell (see page 10).
– Continued review of Voice of the Customer
through our Business Development
programme (see page 9).
– The Board reviews and approves
and Supply Chain Councils.
responsible business practices
– Voice of the Customer formal
and targets.
feedback.
– Discussions with customers on
– Supplier assessments.
funding of working capital
– Acquisition of Ferranti Power and Control.
– Longer-term collaborative relationships.
– Monitoring of supplier payment times,
global supply chain, inventory management
and export risks.
– Oversight of Group culture.
– HSE updates at each Board
meeting.
– Board , CEO, CFO & ELT site visits.
– CEO and SID are members of the
PSEE Committee.
– Employee engagement
– Oversight of ED&I roadmap.
– Regular engagement pulse
– Various Board/NED visits to TT sites in
surveys.
– Site employee forums and Town
Halls with ELT members.
– Be Inspired recognition scheme.
– Training and development
– Leadership development workshops.
– Driving new ED&I strategy at Group and
US/UK.
site level.
activities aligned to business and
– Investment in sales and business
employee needs.
development capability.
– Mindfulness and wellbeing activities.
– Support for Employee Assistance
– ED&I Councils, inclusive leadership
– Ambitious environmental sustainability
Programme
training and employee courses.
targets.
– Employee forums on Executive
– Financial wellbeing initiatives.
– Board diversity policy to complement
Remuneration
– Approval of environmental
sustainability targets.
– Career conversations and personal
the Group policy.
performance development plans.
– Changes to site footprint.
– Pension buy-in transaction.
– Specific focus on pensions and
Read more on page 38
RCF initiatives.
Read more on page 85
– Regular report to the Board on
investor views including ESG.
– Committee Chair consultations/
Chairman engagement
– Remuneration consultation
activities (see page 101).
– Appropriate governance policies.
– Alignment of business with Group
– Simplified and consistent messaging.
– Ambitious environmental sustainability
strategy.
strategy.
– Engaging employees with Group
– Focus on enabling customers to make
products that meet sustainability goals.
– Collection of data supporting ESG
– Board approval of Pension Scheme buy-in
targets.
– Results, Annual Report and AGM
strategy.
transaction.
– RCF refinancing.
– Board review of strategic plan.
Read more on page 81
– Oversight of Group strategy
including ESG strategy and
performance.
– The Board reviews and approves
responsible business practices
and targets.
PSEE Committee.
– Legal and regulatory compliance.
– Responsible business practices
including environmental practices
and approach to modern slavery.
– Ambitious environmental sustainability
targets.
– Implementation of global reporting tool
for emissions across all sites.
– STEM education activities in local
– Continued focus on cleaner, smarter
– CEO and SID are members of the
– Charitable initiatives in local
– New product launches that support
communities.
communities.
and healthier solutions.
efficiency and sustainability.
– Consistent monitoring of our ESG
– Site switches to renewable energy.
and sustainability programmes.
– Driving ED&I strategy at Board, Group and
– Supply chain partnership with CDP.
site level.
– Collaboration with IEMA.
– Deployment of HSE minimum standards
Read more on page 38
for auditing across TT sites.
– InTTernship, graduate programme
and apprentices.
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 63, which
sets out examples of decisions taken
by the Board on priority strategic topics
in 2022.
STAKEHOLDER
CUSTOMERS
AND SUPPLIERS
EMPLOYEES
INVESTORS
SOCIETY
OUR ACTIVITIES THAT
AFFECT THEM
– R&D and new product introduction
– Products, including those supporting
environmental sustainability
– Operations and production pipeline
– Safety, environmental quality control
and reliability
– Legal and regulatory compliance
– Payment practices/prompt payment
– Inventory management
– Responsible business practices
– Supply chain management
– Modern slavery review
– Culture and purpose
– TT Way values and conducting
business with integrity
– Safety and wellbeing
– Employee Assistance Programme
– Training and development
– Group employment policies
– Engagement activities
– ED&I
– Pensions
– Environmental sustainability
– Financial performance
– Leadership
– Governance and transparency
– Sustainability/ESG
– Reputation
– Communication
– Pensions buy-in
– RCF extension
– Products that solve technology
challenges for a sustainable world
– Responsible business practices
– Environmental practices and
sustainability
– Employment training and
apprenticeships
– ED&I focus
– Employee Assistance Programme
– 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
reports from divisions and internal
Councils on key customer and
supplier initiatives.
– The Board reviews and approves
payment times and practices.
– The Board reviews and approves
responsible business practices
and targets.
– Discussions with customers on
funding of working capital
– Day-to-day contact on supply
chain, 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.
– Continued focus on cleaner, smarter and
healthier solutions.
– New product launches and new contract
wins including Honeywell (see page 10).
– Continued review of Voice of the Customer
programme (see page 9).
– Acquisition of Ferranti Power and Control.
– Longer-term collaborative relationships.
– Monitoring of supplier payment times,
global supply chain, inventory management
and export risks.
– Oversight of Group culture.
– HSE updates at each Board
meeting.
– Board , CEO, CFO & ELT site visits.
– CEO and SID are members of the
PSEE Committee.
– Employee engagement
– Oversight of ED&I roadmap.
– Support for Employee Assistance
Programme
– Employee forums on Executive
Remuneration
– Approval of environmental
sustainability targets.
– Regular engagement pulse
– Various Board/NED visits to TT sites in
surveys.
– Site employee forums and Town
Halls with ELT members.
– Be Inspired recognition scheme.
– Training and development
activities aligned to business and
employee needs.
– ED&I Councils, inclusive leadership
training and employee courses.
– Financial wellbeing initiatives.
– Career conversations and personal
performance development plans.
US/UK.
– 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.
– Board diversity policy to complement
the Group policy.
– Changes to site footprint.
– Pension buy-in transaction.
– Specific focus on pensions and
Read more on page 38
RCF initiatives.
Read more on page 85
– Regular report to the Board on
investor views including ESG.
– Committee Chair consultations/
Chairman engagement
– Remuneration consultation
activities (see page 101).
– Appropriate governance policies.
– Alignment of business with Group
– Simplified and consistent messaging.
– Ambitious environmental sustainability
strategy.
targets.
– Engaging employees with Group
strategy.
– Collection of data supporting ESG
– Focus on enabling customers to make
products that meet sustainability goals.
– Board approval of Pension Scheme buy-in
– Results, Annual Report and AGM
strategy.
transaction.
– RCF refinancing.
– Board review of strategic plan.
Read more on page 81
– Oversight of Group strategy
including ESG strategy and
performance.
– The Board reviews and approves
responsible business practices
and targets.
– CEO and SID are members of the
PSEE Committee.
– Legal and regulatory compliance.
– Responsible business practices
including environmental practices
and approach to modern slavery.
– STEM education activities in local
communities.
– Ambitious environmental sustainability
targets.
– Implementation of global reporting tool
for emissions across all sites.
– Continued focus on cleaner, smarter
and healthier solutions.
– Charitable initiatives in local
– New product launches that support
communities.
– Consistent monitoring of our ESG
and sustainability programmes.
– Supply chain partnership with CDP.
– Collaboration with IEMA.
Read more on page 38
efficiency and sustainability.
– Site switches to renewable energy.
– Driving ED&I strategy at Board, Group and
site level.
– Deployment of HSE minimum standards
for auditing across TT sites.
– InTTernship, graduate programme
and apprentices.
TT Electronics plc Annual Report and Accounts 2022
37
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
STRATEGIC REPORT | OUR PEOPLE, ENVIRONMENT AND COMMUNITIES
OUR PEOPLE, ENVIRONMENT AND COMMUNITIES
A POSITIVE
IMPACT
38
TT Electronics plc Annual Report and Accounts 2022
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 interact with our
communities; 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.
Environment, social and governance
(ESG) and sustainability matters are
integrated into our strategy 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, communities and our
employees. We want our teams to feel
proud of our culture and enjoy working
for TT.
Read more about governance in the
Governance and Directors’ report
from page 76
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.
See page 20 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 and are focused on physical
health, mental health and financial health.
– 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.
– 45% of our electricity comes from renewable sources and we are committed to moving to green
electricity where it is available.
– 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 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 have met our short-term emissions
reduction target a year early.
– We are focused on moving to renewable electricity at all sites and investing in projects that will
contribute to meaningful reductions in usage and self generation.
– We have identified and are beginning to measure 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 2022
39
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | OUR PEOPLE, ENVIRONMENT AND COMMUNITIES
PEOPLE
OUR CULTURE AND VALUES
“We believe that embedding the
right culture in the business is
critical to our ability to deliver
sustainably over time. Our
TT Way values underpin the
behaviours we encourage and
live by every day. Our culture
and values have played an
exceptionally important role
in 2022 when we have asked
a lot of our employees in order
to satisfy strong business
growth and customer needs.”
Sarah Hamilton-Hanna,
Chief People Officer
The TT culture is very important
and drives the whole company. TT
businesses have a similar heart – our
people are proud to work for us and
care about what they do and about
each other. This gives us competitive
advantage and makes TT a great
company to work for and with, enabling
us to attract and retain talented people
and build strong partnerships with our
customers. 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 needs and norms.
For the purposes of the UK Corporate
Governance Code, Jack Boyer is the
designated Non-executive Director for
engagement with the workforce. Read
more on the Board’s oversight of culture
matters on page 85.
Our TT Way values connect us all
and guide how we work with each
other and stakeholders every day.
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 knowledge to drive
innovation, operate more efficiently and
provide excellent service to customers.
We have a duty of care to our employees.
Their safety and wellbeing are at the top
of our agenda, with health and wellbeing
being a big focus for the company during
2022. We treat employees with care
and respect and strive to create work
environments where people are valued,
can be themselves, and where they are
supported to achieve their ambitions.
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 IN ACTION – INTEGRATION OF FERRANTI
In January 2022, TT completed the acquisition of Ferranti
Power and Control (Ferranti) based in Oldham, UK. The
acquisition stepped up TT’s aerospace & defence power
capabilities in Europe and created a platform for growth
in the Power and Connectivity division through its specialist
capabilities and attractive customer positions. For this
reason, it was critically important from the outset that
the highly skilled and long-serving team of this relatively
small business could see the benefit and opportunities
of becoming part of a larger business and feel positive
about joining us.
From the pre-acquisition legal consultation, through the
integration process and, finally, planning relocation to a
new flagship facility six miles away, the integration team
has focused on engaging with the Ferranti team proactively
and meaningfully, acting transparently and with integrity,
and demonstrating TT’s culture and values.
As a result of the integration team’s work, all critical
members of the Ferranti team chose to join TT and the
business is now successfully operating within the Group
and progressing its site move in 2023.
Engagement and onboarding activities:
– Legal consultation and TUPE process sessions
– Site leadership team selected from the Ferranti team
– Employee pulse survey conducted in February 2022 using
similar questions to our global engagement survey
– Survey results discussed openly with employees and
the employee forum and improvement action taken
– Implementation of new processes and reporting protocols
– Executive Leadership Team visit
– Other TT team visits
– Invitations to Ferranti team to visit other TT sites
– Board visit
– Annual UK HR meeting held at Oldham with Gemba-type
walk to talk to team members about what was working
and if more support was needed for integration
– Second pulse survey conducted in October 2022 –
majority of scores increased
– Recruitment need identified and actioned to deal with
increased reporting requirements
– Regular meetings with employees to plan relocation
and design of the new facility
– Change workshops to ready the team for the move
– New apprentice hires to spread skill base and ready
the business for expansion
40
TT Electronics plc Annual Report and Accounts 2022
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 and in line
with our TT Way values.
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 by
telephone or on our ethics and integrity
portal. Reports are investigated in
detail and any significant concerns are
reported to the Audit Committee. Our
Whistleblowing Policy describes how
employees should raise matters of
concern, our approach to dealing with
concerns, and examples of the types
of issue employees should bring to
our attention.
Day-to-day oversight of ethical matters
is undertaken by our People, Social,
Environmental and Ethics (PSEE)
Committee. 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 72
Modern slavery
We recognise that the rights of individual
workers can, potentially, be violated
within our supply chain and other
partnerships. We have had a Modern
Slavery Policy since 2016 which 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 which, along with our Modern
Slavery Policy, is available on our website.
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.
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. The
policy is provided to all suppliers with
purchase orders. 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.
Our Supply Chain Council forum meets
on a monthly basis and comprises
a senior group of executives with
responsibility for global purchasing
and supply chain activities across TT.
The Council considers ethical matters
including modern slavery as part of
its remit.
TT Electronics plc Annual Report and Accounts 2022
41
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | OUR PEOPLE, ENVIRONMENT AND COMMUNITIES
EMPLOYEE ENGAGEMENT AND COMMUNICATION
Engaging employees by continuously
building our culture, communicating,
listening and supporting is an important
part of what we do every day. We are
one team, and this has been especially
important during 2022 when there has
been high demand on the business at
the same time as a difficult economic
environment for our employees.
We communicate frequently and
openly with employees using a range
of methods. These include weekly
email digests, 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. Members of our
Board also take the time to visit our
sites and visited Oldham, Cleveland and
Minneapolis in 2022.
In October 2022, we launched a new
Group intranet, ConnecTT, which
enables employees to communicate
and to easily find and share resources,
news and Group policies. ConnecTT
has also paved the way for the creation
of a range of employee communities.
Some of these communities relate to
work specialisms, others are employee
resource groups supporting our equality,
diversity and inclusion (ED&I) work and
others, including The Pets of TT, The
Kitchen and TT Green Thumbs, are for
engagement and fun.
Communication is also strong at our
individual sites which have regular all-
hands meetings, Gemba walks which
cover safety and wellbeing topics as
well as daily tasks and productivity, team
meetings, and social and fundraising
events. Read more about fundraising in
the Communities section on page 61.
Employee engagement survey
We undertake a Group-wide employee
engagement survey every 12-18 months,
and we use pulse surveys to get the
latest feedback and an indication of
progress. Results from these surveys
drive HR and local planning in the form
of targeted action plans created by
site management in response to their
results. Engagement scores also drive a
proportion of management discretionary
incentive payments.
Board
We did not do an engagement survey in
2022 while we focused on implementing
the actions arising from the 2021 survey.
Our most recent survey in October 2021
showed strong levels of engagement,
delivering a score in line with the two
star “outstanding companies to work for”
Best Companies Ltd benchmark. More
than 80% of employees participated.
We will undertake our next all-employee
survey in June 2023.
The employee voice
It is important that the employee
voice is heard at the highest levels of
the organisation. The results of our
engagement surveys 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. The strong links described in
the diagram below ensure that the Board
is aware of the views and needs of our
most important stakeholders and can
guide company actions accordingly.
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
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42
TT Electronics plc Annual Report and Accounts 2022
TT KANSAS CITY, US EXAMINES MENTAL HEALTH
In May, employees at our Kansas City site dressed in green and enjoyed a walk
together. Green is the colour associated with mental health awareness in the
United States, representing hope, strength, support and encouragement for
sufferers. Later in the month, the team invited a speaker from the local public
health department to discuss mental health, how to recognise symptoms in
yourself and others, and when to reach out for help.
– A fundraising walk in aid of mental
health charity MIND at TT Oldham, UK
– A week of events at TT Juarez, Mexico
which included a ‘gratitude chain’, a
joke contest and karaoke
– The creation of a positivity tree at TT
Bedlington, UK for employees to share
their positive thoughts with peers
Mental health
Mental health is equally important.
Many of our sites have mental health
first aiders who are trained to recognise
triggers and help mobilise support for
employees who may be struggling. Sites
also organise events to raise awareness
of mental health matters and provide
resources covering matters such as
stress management, anxiety and self-
esteem.
For Mental Health Awareness month
in May 2022, we asked employees from
across TT to share their experiences
of mental health issues and their tips
for staying well. Across the month sites
organised a range of activities including:
Wellbeing framework
HEALTH, WELLBEING AND SUPPORT
At TT we see it as a duty to support our
employees to take care of their health.
It is the right thing to do, but it also
supports business needs by ensuring
that our employees are fit and well to be
at work, are not distracted by worries,
and feel supported to give their best. In
periods of high business demand such
as 2022, and with some sites operating
with mandatory overtime, our focus on
health and wellbeing has been critical.
We see a strong crossover between
all types of health – physical, mental
and, at the current time, financial health
– and we have endeavoured to raise
awareness and make conversations on
these matters normal and expected. We
go out of our way to make sure that our
teams have access to what they need,
especially those things that are not top
of mind, or difficult to find time for or
access such as medical assessments.
We know that this support is highly
valued by our employees and is a core
component of our strong culture.
At the current time much of our activity
is driven at site level, but we have
been working on a wellbeing support
framework in the US which we plan to
pilot in 2023.
Physical health
Our physical health support programmes
centre on preventative measures and fun
activities such as team sports and onsite
exercise classes. During 2022 our sites
have made available a range of support
including health screenings, flu shots,
subsidised gym memberships, weekly
fruitbowls, access to private medical
appointments, and sharing for success
lunch time sessions on subjects such
as stopping smoking and menopause.
Many of our sites undertake Gemba
walks every day. These are led by our
senior teams and often include physical
check-ins with employees to review
temperature, ergonomic environment
and body posture, all of which contribute
to good physical and mental health.
In May, TT Dongguan, China
organised on-site physical
examinations for all employees.
113 employees took advantage of
the opportunity, which included a
liver test, a general X-ray, a blood
test, a stomach ultrasound, a skin
cancer check, and an ECG.
TT Electronics plc Annual Report and Accounts 2022
43
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATIONWellbeingPhysicalMental &EmotionalFinancialPhysical workenvironmentRewards and performanceManagereffectivenessWorkingrelationshipsPersonal growthand aspirations
STRATEGIC REPORT | OUR PEOPLE, ENVIRONMENT AND COMMUNITIES
HEALTH, WELLBEING AND SUPPORT CONTINUED
Financial health
Concerns about finances can have a
significant impact on mental health
and we have been focused on giving
employees more support in this area
during 2022 as the cost of living crisis
has increased. We have made a big
effort to raise awareness of financial
health and the benefits we have available
to employees such as our Employee
Assistance Programmes, our UK and US
health plans, our UK and US all employee
share plans and pension/retirement
planning. As described in the reward and
recognition section below we have also
targeted support payments and salary
increases towards lower paid employees.
In the UK we have partnered with a
specialist third party not-for-profit
organisation to offer a cohesive support
package of salary finance options to
help strengthen personal financial
fitness and arrangements. The initiative
was launched UK-wide in August 2022
and was developed in response to
findings in our October 2021 Employee
Engagement Survey and workforce
remuneration sessions. Through the
initiative all UK employees now have
access to:
– Online financial wellbeing content
– A debt consolidation service with lower
interest rates than those in the external
market. While payments come directly
from payroll, the service is confidential
and entirely separate from TT
– An advance payment service to
replace the use of payday loans.
Employees are able to borrow half
of what they have earned so far that
month, again confidentially
– Savings vehicles attached to payroll,
removing the hurdles to building rainy
day savings
– The initiative has been widely
publicised and take up indicates that
employees have found the service
beneficial
MOVING TO A FOUR-DAY WEEK AT BARNSTAPLE, UK
To support a rapidly growing order book and stand out in a difficult recruitment
market, our Barnstaple, UK team chose to think outside of the box and pilot a
four-day week for the majority of employees. Staff reacted positively to the idea
when consulted in the summer of 2022 and a series of groups and forums were
held to iron out the details before launch in October 2022. The arrangement is
seen as benefiting all parties. Employees gain more work life balance by working
longer days Monday to Thursday with the option of working overtime on Fridays
rather than at the weekend. Those that choose not to work overtime have the
Friday free for themselves for leisure time or to meet other commitments. TT
benefits from increased capacity but with a potential reduction in overhead costs
by opening five rather than seven days.
Take up has been high at 85% and employees say that they really value the
change. The pilot concludes in March 2023 at which point it will be fully
evaluated and the model used at other sites if appropriate.
REWARD AND RECOGNITION
Being fairly rewarded and recognised
for your contributions is an important
part of our culture.
During 2022 we sought to support our
employees with the increased cost of
living with measures appropriate to their
region. Inflationary pressures on the
cost of living have been most notable
in the UK, and disproportionately impact
our lower earners. We have undertaken
a variety of pro-active actions, some
of which are described in the financial
wellbeing section above. In the UK,
with the support of the Remuneration
Committee, we reviewed and increased
the 2023 salary review budget, with
distribution once again being weighted
to our lowest paid workers and typical
increases averaging in the range of
6.5 to 7 per cent. We also provided an
additional cost of living support payment
of £300 to all UK employees on salaries
up to £40,000.
Over and above salary we ensure that all
employees are able to participate in site
specific pay-for-performance schemes,
be it our site incentive schemes, or
annual incentive schemes and we
operate attractive all-employee share
plans for UK and US employees.
In line with Corporate Code Provision 41
we piloted reward workforce sessions
in 2021 and continued these in 2022
with refined content and agendas.
The sessions are designed to be open
and transparent and create a safe
environment where participants feel
confident to ask questions. Content
covers TT’s reward principles, the role of
the Remuneration Committee, and how
we achieve alignment of remuneration.
Our BE Inspired recognition scheme
recognises teams and individuals who
demonstrate our TT Way values and
have a positive impact on the business.
Participation is high as our teams are
keen to recognise the successes of their
colleagues. In 2022 the awards attracted
more than 2,300 nominations, with each
winner receiving a sum of money and a
site celebration. We also celebrate long
service and were delighted to be able
to recognise a range of employees who
had served more than 30 years with
TT this year.
44
TT Electronics plc Annual Report and Accounts 2022
SAFETY
Healt h
S
a
f
e
t
y
ZERO
HARM
E
nvironm e
n t
Team safety is a core value for everyone
at TT and our safety framework and
tools have been designed to support
us in our pursuit of zero harm.
Safety performance is a Group KPI
and has improved significantly in
recent years as we have matured our
framework and increased accountability.
Local safety performance drives a
proportion of management discretionary
incentive payments and introducing our
safety practices and standards is a key
activity when we acquire new sites.
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. Our
VP, Group HSE undertakes a quarterly
safety review with each of our divisional
leaders and our site leaders are required
to participate in site safety tours at least
every quarter. Our HSE dashboards are
submitted to the TT Board in a report
every month.
During 2022 we completed the roll out of
our 15 global minimum safety standards
and supporting toolkits. These standards
are based on ISO 45001 and ISO 14001
requirements and are an obligation for
all of our sites. In 2022 all operating sites
were audited to the first six standards as
a transition towards a full HSE internal
audit programme. In 2023 all operating
sites will be audited to all 15 standards as
part of this programme.
Total number of three-day
lost-time incidents
2022: 2
2022
2
2021
2020
2019
2018
5
5
4
2021: 5
17
Number of sites achieving zero harm
(no three-day lost-time incidents)
during the year
2022: 26/28*
2021: 28/31*
2022
2021
2020
26/28*
28/31*
26/31
* Includes sites that were closed during the year.
External certification was achieved/
retained for 12 sites to ISO 14001 and
six to ISO 45001.
Our Kuantan, Malaysia site celebrated
1,000 days with Zero incidents in May
2022. To maintain positive momentum,
the site has introduced a hazard spotting
reward programme to recognise and
reward employees for their continuous
efforts to spot and resolve hazards in
the workplace.
Eleven TT operating sites around
the world have passed the 1,000 day
milestone: Oldham, Sheffield, Hartlepool,
Eastleigh, Cardiff and Fairford in the UK;
Kuantan, Suzhou and Dongguan in Asia;
and Kansas City and Denver in the US.
COVID-19
Throughout 2022 we continued with
appropriate COVID safety measures
at our sites including responding to
increased restrictions in Asia. We
identified no site clusters of infection
during the year.
2022 also saw the launch of our new
HSE Training Academy which initially
focused on providing sessions for our
HSE teams and operational leaders
on expectations and successful
implementation of the standards.
Content within the Academy will
expand over time to cover a range
of HSE core competencies.
All TT sites prepare an annual HSE
improvement action plan to direct
progress. Site regulatory compliance
audits are performed by an external
third party every three years.
To drive further improvements,
we are now focused on safety
leading indicators, deeper employee
engagement in prevention such as
hazard identification and reporting near
misses, and continuously upskilling our
teams in safety matters. We are also
holding targeted safety workshops led by
our occupational health teams and have
designed and implemented a behaviour-
based reporting tool to further improve
our proactive reporting culture.
We have a bespoke analytical safety
reporting tool that provides data on
causation and analysis of hazard,
near miss and behavioural reporting
opportunities. It 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 teams
are able to report hazards and near
misses through our Zero Harm reporting
system in every language and we have
recently introduced a Best in Class
module that enables teams to capture
and share positive health and safety
observations, plans and improvements,
and celebrate success.
In 2023 we will audit to all 15 of our
global minimum safety standards.
We will also deliver additional training
to our HSE teams worldwide.
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.
TT Electronics plc Annual Report and Accounts 2022
45
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
STRATEGIC REPORT | OUR PEOPLE, ENVIRONMENT AND COMMUNITIES
DEVELOPMENT AND CAREERS
Investing in the training and development
of our people enables them to do their
jobs well and build long-term careers
at TT. Given competition in every
marketplace for people and skills, we
are highly focused on ‘growing our own’
leaders and innovators by equipping
our people with the right knowledge,
opportunities and clarity on career paths.
It is rare that we say no to any employee
that has the desire to grow, and we take
pride in the fact that anyone, at any level,
will always be given the opportunity,
encouragement and support to move
through the ranks if they have the
willingness and hunger to succeed.
We have a summer internship
programme, a UK graduate programme,
and more of our sites are beginning to
take on young apprentices as well as
offering mature apprenticeships which
sponsor existing employees who wish
to train for new roles.
Our line managers hold regular career
conversations with their direct reports
and create personal performance
development plans that align with wider
site, division and Group objectives.
We use a five-point performance scale
to guide performance conversations
and give clarity to employees.
Improving line management skills
During 2022, in response to one of
the findings of our October 2021
engagement survey, we launched a new
line management skills programme to
help new and existing line managers
be more effective in that role and better
support those working for them. The
six bite-sized modules were prepared
in consultation with TT’s Divisions to
provide practical and useful material to
support business needs. The modules
are available to all, but are typically
accessed by supervisors, team leaders
and new line managers.
The key principles of the programme are
that it is easy to access, simple, practical,
effective and immediately applicable.
Employees can self-register, sessions are
independent of each other, and they are
recorded and translated for all regions.
There are six modules covering practical
topics for leaders:
– Manager 101 and expectations
– Effective communication (launched
at the beginning of 2023)
– Managing absences and return to
work discussions
– Recruitment
– Performance conversations and
feedback
– Handling difficult conversations
“Interns are a critical part of our
talent development strategy.
Seeking to craft meaningful
experiences, we maintain
intentionally small cohorts and
onboard interns immediately
as real, paid team members.
Each intern has the opportunity
to work on impactful projects
and rotate roles across the
business, which enables
them to develop the skills,
knowledge and experience
they need to forge a fulfilling
post-graduate career. In turn,
we gain fresh perspective and a
richer talent pool of individuals
who are eager to bring their
passion to our business. The
success we’ve seen through
this programme has been
incredible.”
Mike Leahan,
Chief Operating Officer
46
TT Electronics plc Annual Report and Accounts 2022
EQUALITY, DIVERSITY AND INCLUSION
We see equality, diversity and inclusion
(ED&I) as a solution to business
challenges. It is a critical driver of
employee engagement, talent acquisition
and retention as an important and
positive aspect of the employee
experience, and this makes TT a happier
and more productive workplace which
is good for business. We have an
ethnically diverse workforce given
our geographic spread.
The need for equality and fairness is a
given. 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.
Inclusion is fundamental in the
workplace too. When you aren’t able to
be ‘completely yourself’, it’s difficult to
bring your full energy, perspective and
focus as you are hiding a part of your
life that is integral to who you are. When
people feel comfortable and included,
they’re more likely to feel engaged and
happier at work. We want TT to be a
place where people feel included, and
we are proud of the steps we are taking
to get there.
We recognise that it is not always easy
to recruit to increase diversity, so we are
focused on the things that move the dial
for team members – awareness and
understanding, a sense of community,
supporting and celebrating our female
leaders, and creating work environments
where people with disabilities are able
to work safely and effectively.
Our ED&I strategy is led by a special
committee and divisional working
groups, and we have ED&I Councils
at many sites. Our ED&I policy and
roadmap which sets out our approach
to ED&I and expected behaviours has
been circulated to employees and we
report progress through our usual
communication channels, including
a regular page in our Group newsletter.
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.
We do not have Group ED&I KPIs, but
we encourage our divisions and sites to
prepare their own, relevant improvement
plans every year. In 2023 our divisional
and site leadership teams will be asked
to identify one important ED&I objective
to work towards for the year.
Sites are also encouraged to hold ED&I
events appropriate for their locations.
2022 saw an active Pride Month at
many sites, the celebration of Black
History Month in the US, a continued
focus on activities highlighting violence
against women in Mexico, highlighting
of International Disability Month, and
a global celebration of International
Women’s Day in March.
TT Electronics plc Annual Report and Accounts 2022
47
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION Training, tools and events
ED&I 101 training was rolled out
to all employees in 2022 and 14
Inclusive Leadership workshops were
held, attended by more than 900
employees. The workshops focused on
understanding what inclusion means
and how to apply the learning at TT.
They started important and sometimes
challenging conversations and gave
participants an opportunity to ask
questions and listen to the experiences
of others. Employees were also given
the opportunity to hear from specialists
at a series of speaker events through
the year:
– 2015 Everywoman Female
Entrepreneur of the Year Sarah
Pittendrigh spoke on the Power of
Failing;
– Former UK Special Forces Solider Ollie
Ollerton spoke about mental limits;
– Former Wales and British Lions rugby
captain and LGBT advocate Gareth
Thomas spoke on inclusive leadership
and inclusive teams;
– Paralympian Lauren Rowles helped
us understand more about mental
resilience by describing her journey
from able bodied teenager to being
paralysed by illness.
Around 250 employees listened live
to each event, and a recording was
distributed afterwards.
TT Juarez, Mexico highlighted a
local day for non-violence against
women with a series of talks
given by the Municipal Institute for
Women. An information module
was also provided to the site by
the Institute with legal and support
resources, as well as emergency
phone numbers.
After successful events in 2021, TT sites in the US were once again eager
to recognise Black History Month in February. TT Kansas City encouraged
employees to support Black-owned local businesses and TT Dallas hosted an art
contest. Members of our Sheffield, UK team also decided to show their support
in February by organising a celebration of Ethiopian culture covering history,
traditions, religious beliefs and food.
TT Dallas proudly sponsored two buckles (given as prizes to winners) in the
Texas Gay Rodeo held in April 2022. Team member Tom Frey, formerly a
participant in the Steer Wrestling competition, volunteered his time as a gate
operator. This rodeo is part of the IGRA (International Gay Rodeo Association)
and is run completely by volunteers.
48
TT Electronics plc Annual Report and Accounts 2022
STRATEGIC REPORT | TT RUNNING HEADER GENDER DIVERSITY AT 31 DECEMBER 2022
Employees – full-time equivalents
Board of Directors
Executive Leadership Team (ELT)
ELT and direct reports
Senior managers (ex-ELT)*
All employees:
UK and Europe
USA
Mexico and Caribbean
Asia
Total
Men
4
4
25
59
867
456
524
522
2,369
5049
Women
2
1
12
18
487
347
726
1,120
2,680
* Senior managers (ex-ELT) includes TT’s Group senior leaders, our divisional and functional leadership teams,
and Directors of subsidiary Companies.
Evidence-based
– Based on analysis conducted by TT
on attitudes towards women in 2020
– Underpinned by the ShapeTalent
Barriers for Women framework
– Informed by the latest research about
women in leadership roles
Focused
– On topics that matter the most and
have the biggest impact for women
in organisations
– On building understanding between
women and between women and men
Experiential
– Heavy on application and learning
through doing
– Promotes experimentation in
a supportive environment
Includes
– Sponsorship
– Coaching
– Authentic leadership sessions
– Allyship workshop
– Navigating power and politics session
– Listening circles workshop
– Strategic networking session
Gender diversity
We are pleased to have three women
Board members and one woman on our
ELT team of five. In total, we have more
women employees than men. We are
keen to see more women in leadership
roles. Our Leadership Programme for
women is an integral part of our ED&I
strategy and includes joint workshops
with senior male leaders as well as
skills, mentoring and advocacy. We also
have a Women’s Business Forum which
supports female leaders in the business.
Our UK Gender Pay Gap report is
published annually on the TT website.
TT Women’s Leadership Programme
Our inaugural Women’s Leadership
Programme kicked off in 2022 with
two main goals. Firstly, to create a safe
space for women to engage with one
another and develop in the areas that
our analysis and research identified as
areas of challenge for women at work.
Secondly, to create a network of male
and female allies across the business
who can sponsor, mentor, attract and
develop women in and into our business.
13 women and 11 men were selected for
the first cohort and our second cohort
will join the programme in the second
half of 2023. The programme is:
INTERNATIONAL WOMEN’S DAY
In 2022 we celebrated March’s International Women’s
Day right across TT, aiming to celebrate women in the
organisation and highlight the importance of ‘Breaking
the Bias’ to enable women and minority groups to achieve
their goals, advance their careers and contribute their best.
On the day we shared profiles of a wide range of women in
the business and information about training and resources
aimed at supporting female success.
Many of our sites held their own special celebrations
which included collecting donations for a women’s shelter,
testimonies from women, a Wonder Woman programme,
and a site banner featuring the handprints of female team
members.
TT Electronics plc Annual Report and Accounts 2022
49
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | OUR PEOPLE, ENVIRONMENT AND COMMUNITIES
ENVIRONMENT
SUSTAINABILITY
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. We are committed
to developing cleaner, lighter
more efficient and durable
solutions to help combat
climate change, engineering
advanced electronics to benefit
our planet and its people for
future generations.
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.
In producing more sustainable
products for our customers
we are also acutely aware that
our own activities come with
an environmental impact. That
is why we are also leading by
example to optimise our own
operations to reduce TT’s
impact on the environment.
Scope 3 indirect emissions
We expanded our data collection
capabilities in 2022 to measure nine of
the most significant Scope 3 categories
for TT and define a potential roadmap
to Net Zero for some of them. We
partnered with CDP on the supply chain
element of these emissions. CDP is an
internationally recognised organisation,
working specifically for transparent
carbon disclosure. After conducting
this exercise we eliminated three of
the categories for measurement and,
therefore, six Scope 3 categories will
be measured in 2023 and results and
targets will be published once we have
a full year of data and an internal audit
has been conducted.
Further detail on our Scope 3 ambitions
can be found on page 53.
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 77.
Environmental and sustainability
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 Director who provides
on-the-ground insight and specialist
advice as well as enabling the sharing of
best practice and ideas across the Group.
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.
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 continue to make
excellent headway with our ambitious
commitment to achieving Net Zero
Scope 1 & 2 emissions by 2035.
Find our sustainability data on page 54.
Group sustainability targets
We have targeted a 50% reduction in
Scope 1 & 2 emissions by the close of
2023 against our 2019 Baseline, and
Net Zero for Scope 1 & 2 emissions by
2035, at the latest. Due to the focused
efforts of teams across the Group we
have achieved our 50% reduction target
in 2022, one full year early.
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.
In order to continue our emissions
reduction success story, we have all
sites that are able to purchase electricity
on renewable tariffs either doing so or
planning to switch as soon as possible
in the future. All of our sites have
completed this switch except for two
sites with a mixed energy supply (both
renewable and non-renewable) and
seven sites still with non-renewable
supplies (one of which has low electricity
usage). In the case that we cannot move
to renewable supply in the near-term we
will explore other opportunities, including
electricity generated at source for
instance, through the use of solar panels.
We have one such facility progressing
completion of a significant solar panel
installation.
We will also seek and take action to
reduce emissions through: reductions in
actual energy consumption; elimination
of waste energy; use of alternative energy
sources (for example the replacement
of natural gas for heating); switching to
electric vehicles; increased recycling; and
better use of building space.
To continue to improve and ensure
transparency in our disclosures and
progress in 2022 we undertook an
internal audit of our data, as outlined
in last year’s Annual Report. We have
completed our measurement of ‘other
Green House Gases’ and they are not
included within these figures as they
have been found to be a negligible
proportion of overall emissions.
50
TT Electronics plc Annual Report and Accounts 2022
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
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 69 for our principal risks
and mitigating actions.
Climate risk workshop
An initial climate risk and opportunity
workshop has been undertaken which
involved senior leaders from within
TT Electronics and yielded valuable
information on next steps. Additional,
more detailed, climate-related scenario
analysis is planned to be undertaken
during 2023. Should this prompt
additional climate-related disclosures,
these will be made in the Group’s
2023 Annual Report. We have taken
meaningful first steps to quantify the
resilience of the organisation and will
be taking this work forward in 2023.
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 55.
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 2022 for our 2021 data
submission.
TT Electronics plc Annual Report and Accounts 2022
51
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
STRATEGIC REPORT | OUR PEOPLE, ENVIRONMENT AND COMMUNITIES
ENVIRONMENTAL PERFORMANCE AND DISCLOSURES
SCOPE 1 & 2 EMISSIONS
Net Zero by
Reduction since 2019
2035
54%
50%reduction targeted by 2023
vs 2019
Figures are for total Scope 1 & 2
emissions and not normalised
to revenue
“We are proud to say that,
thanks to the great efforts of
our teams, we have achieved
a reduction in our Scope 1 & 2
emissions of 23% year on year
and beaten our 50% reduction
target a full year early.”
Vicki Faith,
Group Head of HSE and Sustainability
We have targeted a 50% reduction in
Scope 1 & 2 emissions, by the close
of 2023, against our 2019 Baseline and
Net Zero for Scope 1 & 2 emissions
by 2035, at the latest. Now that we
have put in place preliminary systems
and processes to collect data on our
six most significant categories of
Scope 3 emissions, we will formalise
the collection of this data to establish
baselines on which to base future
reduction targets, including a plan
to reach Net Zero.
In 2022 we moved a significant
production capacity within Texas, USA,
to a modern state-of-the-art facility in
Plano, also Texas. By investing in this
move and choosing modern green
facilities we have reduced our Scope 1 &
2 emissions for this production capability
by a tremendous 2,600 tCO2e.
We achieved a third year in a row growth
in use of renewables for our electricity
supply and this is now at 45% of total
electricity consumption. TT Electronics
is committed to full use of green
electricity wherever it is available.
RENEWABLE ELECTRICITY
2019 2020 2021 2022
% renewables of total
0
6
36
45
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 commissioned our first solar
panel project for our site in Kuantan. This
is a major installation that will provide
approximately 1M kWhs per annum for
use in the production of our leading-edge
magnetics products in 2023 and beyond.
Every TT site developed and executed
a plan to reduce electricity consumption
in 2022. These plans also focused on
reducing waste and water consumption.
We have seen a significant dividend on
the hard work from our teams as we
have recorded a reduction in electricity
consumption, in absolute terms, in a
year when activity and revenue grew
by a considerable amount.
EXAMPLE PROJECTS
LED lighting in our Suzhou warehouse
Reflective film on windows at Suzhou
Finding air leaks in Juarez
TT has significant manufacturing
capability based in Mexico, primarily
because of the talented people we
have in our teams. We monitor long-
term trends in power generation where
our facilities are located as part of
our strategic planning. Mexico has
seen a significant reduction in grid
emissions recently due to a move to
more renewable energy and a shift from
coal to natural gas. This means that our
emissions in Mexico have been reducing
while our activity has grown.
Although we have had a focus on Scope
2 and electricity supply, we have also
taken action to reduce our Scope 1 direct
emissions. Our site in Sheffield has a
large service team using their vehicles
to attend customer sites for thermal
calibration work. The Sheffield team
began replacing vehicles with electric
vehicles two years ago and the latest all
electric service team vehicles have just
arrived. Sheffield also has an EV charging
point available for all staff to use.
52
TT Electronics plc Annual Report and Accounts 2022
Scope 3 emissions
In 2022 we made significant progress in
the assessment of Scope 3 emissions,
as previously committed.
We assessed all 15 categories and
determined that six categories are not
applicable to TT operations and therefore
will not be measured or reported. These
are: Category 3: Fuel and energy-related
activities; Category 8: Upstream leased
assets; Category 10: Processing of sold
products; Category 13: Downstream
leased assets; Category 14: Franchises;
and Category 15: Investments.
We assessed and made preliminary
measurements on 9 categories and
determined that three of these are
not possible or in any way reasonably
meaningful for us to measure. We will
continue to assess these categories
to ascertain if there might be other
alternative measurement approaches
that could yield meaningful results. As a
result, we will not measure or report the
following categories:
Category 2: Capital goods: In the event
that we make significant capital goods
purchases, we will include the supplier
in our supply chain emissions analysis.
Our capital goods purchases in isolation
are not significant enough to warrant
a specific annual measurement or
reporting.
Category 11: Use of sold products:
We manufacture a very wide range
of products, including high volumes
of electronic components. These
are used in a very large number of
applications and often sold to end users
via a third-party distribution channel.
It is impractical and unrealistic for us
to attempt to measure the emissions
related to these products in use. It should
also be noted that many of our products
do not necessarily consume electricity
themselves during operation.
Category 12: End of life treatment of
sold products: In this instance we face
the same challenge as attempting to
measure emissions due to use of our
products. This is not feasible and would
not yield any meaningful results.
We have assessed and made preliminary
measurements on six categories
that we believe are applicable to our
operations. We commit to formalising
our measurements and building an
infrastructure that allows us to collect
data in a meaningful way that is in line
with the GHG Protocol in 2023. We
will use this data to set a Baseline and
publish emissions reduction targets.
These categories are:
Category 1: Purchased goods and
services
We have implemented a process to
assess and measure our supply chain.
Category 4: Upstream transportation
and distribution
We have partnered with customers,
suppliers and logistics providers to gain
access to emissions data.
Category 5: Waste generated in
operations.
We have constructed a robust system
to measure and report all of our waste
streams at our facilities.
Category 6: Business travel
We have partnered with centralised travel
providers to gain access to emissions
data.
Category 7: Employee commuting
We will calculate these emissions
centrally taking into consideration
employee data and GHG Protocol
guidance.
Category 9: Downstream
transportation and distribution
We have partnered with customers,
suppliers and logistics providers to gain
access to emissions data.
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. Our target for all of our sites
is to send zero waste to landfill and three
sites have already achieved this. Waste
management will now be driven through
our Scope 3 initiatives.
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.
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
127,720
104,024
2022
2021
TT Electronics plc Annual Report and Accounts 2022
53
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | OUR PEOPLE, ENVIRONMENT AND COMMUNITIES
ENERGY USE AND SCOPE 1 & 2 EMISSIONS REPORTING
2022 reduction in Scope
1 & 2 emissions tCO2e
Intensity ratio tCO2e/£m
revenue
vs 2021
vs 2019
23%
54%
40%
65%
The primary drivers of our Scope 1 & 2
emissions reductions in 2022 were:
– The transfer of a facility to Plano,
Texas, USA
– A reduction in energy consumption
driven by site improvement activities
– Reduction in Mexico grid emissions
Our results were calculated centrally
from data collected locally. We use the
market-based method for emissions
calculations and, in line with GHG
Protocol guidelines, we use the following
information in this order of priority:
energy attribute certificates; contracts;
supplier emission rates; residual mix or
grid average emission factors.
Other greenhouse gases are not included
within these figures as they have been
measured and found to be a negligible
proportion of overall emissions. We are
using an operational control boundary for
direct GHG emissions. We have adopted
a cross-sector calculation method in
line with the GHG Protocol Corporate
Standard. For Scope 1 emissions, we
include our total owned and leased
vehicle direct emission impact.
Scope 1 tCO2e
Emissions from activities which the Group owns or controls, including the combustion of
fuel and operation of facilities
Scope 2 tCO2e Emissions from the purchase of electricity, heat, steam and cooling for
own use
Total gross Scope 1 & 2 emissions tCO2e
Revenue £m
Intensity ratio: Gross Scope 1 and 2 tCO2e/£m revenue
2022
2021
2020
2019
897
955
1,259
1,479
11,269
12,166
617
19.7
14,785
15,740
477
33
19,616
20,875
432
48.3
25,178
26,657
478
55.7
2022 ENERGY USE AND SCOPE 1 & 2 EMISSIONS BY SOURCE AND BY GEOGRAPHY
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)
Tonnes of carbon dioxide equivalent
per £million of revenue
United
Kingdom
2,381
573
61
12,151
15,166
580
12
592
130
4.5
Rest of
Europe
North
America
Asia
and ROW
1,673
20
14,750
9,815
26,258
310
4,599
4,909
236
–
31
11,954
–
11,985
7
6,658
6,665
146
–
1
–
16
17
0
–
0
104
0
Total
2022
4,054
625
26,765
21,982
53,426
897
11,269
12,166
617
Total
2021
4,110
818
33,078
18,738
56,744
955
14,785
15,740
477
20.8
45.6
19.7
33
In 2022 the UK was responsible for 28.4% of Group energy use and 4.9% of Scope 1 & 2 emissions.
54
TT Electronics plc Annual Report and Accounts 2022
– Strategy (b)
– Metrics and Targets (b)
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES
Statement of the extent of consistency
with the TCFD framework
At the time of publication, in compliance
with Listing Rule 9.8.6R(8), the Company
has made climate-related financial
disclosures consistent with the TCFD
recommendations and recommended
disclosures against:
Our impact assessment needs to
be reviewed once the improvements
are in place for Strategy (a). Until
this is complete, because we are
not consistent with Strategy (a), we
cannot be consistent with Strategy (b).
This will also be concluded in 2023.
– Governance (all recommended
– Strategy (c)
disclosures)
– Risk management (all recommended
disclosures)
With regard to all other recommendations
and recommended disclosures we
are not, at this time, fully consistent.
We have included our explanation for
this, a description of our current status,
examples of our activities, and our plans
to achieve full consistency. These are:
– Strategy (a)
In order to be fully consistent, we
need to expand upon our existing
risk and opportunities analysis,
specifically: granularity, materiality,
and also to consider geographical
and/or sector relevance. We aim
to do this during 2023.
Transitional challenges in obtaining
relevant data and embedding relevant
modelling and analytical capabilities
are not yet overcome. However, TT
commits to completion of a climate-
related scenario analysis, and thereby
achieving consistency. We aim to do
this during 2023.
– Metrics and Targets (a)
TT utilises a wide range of climate-
related metrics, however, in order to
achieve full consistency we recognise
the need to include additional
metrics consistent with the cross-
industry, climate-related metric
categories (where applicable and in
consideration of alignment with our
own risks, opportunities and business
processes). We aim to complete this
task in 2023.
TCFD
RECOMMENDATION
RECOMMENDED
DISCLOSURE
OUR RESPONSE
We have considered our preparedness
to report our Scope 3 emissions. We
have made significant progress in
2022 and our approach is laid out
clearly in this Annual Report (see
page 53). However, we have not as yet
disclosed Scope 3 emissions data and,
for this reason, we consider ourselves
to be not consistent with the TCFD
requirements at this stage. During
2023 we will focus on formalising
our reporting process to enable
future disclosure.
– Metrics and Targets (c)
Our targets need to be reviewed
once the improvements are in place
for Metrics & Targets (a). Until this
is complete, because we are not
consistent with Metrics & targets (a),
we cannot be consistent with Metrics
& Targets (c). This will be concluded
in 2023.
TT Electronics currently considers
climate-related risk, with currently
available data and analysis, to be
financially immaterial in the context
of the Company’s overall financial
statements.
GOVERNANCE
Disclose the
organisation’s
governance around
climate-related risks
and opportunities.
a. Describe the
Board’s oversight of
climate-related risks
and opportunities.
The Board of Directors is principally responsible for risk management,
supported by the Audit Committee and informed by the executive Risk
Committee. The Board defines risk appetite and monitors the management
of significant risks. Climate-related risks and opportunities are specifically
included in this remit.
Example: During the year the Board performed a horizon scanning exercise
to ensure that all material risks are considered, specifically including climate-
related risks, in the Group risk register.
The Board receives a regular update (minimum seven times per annum),
in the form of a presentation and supplementary written document, on the
status of Group environmental (including sustainability and climate-related
risks and opportunities) issues and also on the progress made against
targets and ongoing action items.
Example: At each Board meeting there is a Group dashboard containing
data for year-on-year reductions in Scope 1 & 2 emissions vs target
and commentary from the Group Sustainability Director on risks and
opportunities.
The Senior Independent Director (SID) is a member of the PSEE Committee
with the purpose of receiving information about the Group’s engagement
with its key stakeholders. This specifically includes sustainability and
climate-related risk and opportunity matters as an agenda item. The
SID reports this information directly to the Board following each PSEE
Committee meeting.
Example: The SID received a mid-year update at the PSEE meeting on the
Group progress to Scope 1 & 2 emissions targets and was given an update
on performance against forecast. Any anomalies were noted and actioned.
ANNUAL REPORT
REFERENCE
Page 66 (Strategic report
– Risk management)
Page 87 (Governance
and Directors’ report –
Leadership)
Page 88 (Governance
and Directors’ report –
Leadership)
Main events in the Board calendar include the review of the multi-year
strategic plan and the approval of the budget. Climate-related risk and
opportunities are specifically included in these review meetings.
Page 84 (Governance
and Directors’ report –
Leadership)
Example: The Chair of TT Electronics, in this year’s Annual Report, clearly
notes that a robust position has “allowed us to devote more Board time
to core strategic priorities for the Group and address key operational
imperatives in areas such as Health and Safety, Sustainability and ED&I”.
TT Electronics plc Annual Report and Accounts 2022
55
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | OUR PEOPLE, ENVIRONMENT AND COMMUNITIES
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES CONTINUED
TCFD
RECOMMENDATION
RECOMMENDED
DISCLOSURE
OUR RESPONSE
ANNUAL REPORT
REFERENCE
GOVERNANCE
CONTINUED
Plans for 2023
b. Describe
management’s role
in assessing and
managing climate-
related risks and
opportunities.
Update the Board on the outcome of the climate-related scenario analysis
exercise to be performed. Expand further the inclusion of climate-related
issues for consideration in response to major capital expense, acquisitions
and divestments.
At the direction of the Board, management are assigned the responsibility
to assess, monitor and manage climate-related risks and opportunities.
Executive management performed a robust assessment of the principal
risks facing the Group. Our management team are fully engaged in the
governance process and monitor progress through monthly reports/
dashboards and more detailed quarterly reviews. We use our existing
structure to manage these processes. In addition, TT has a dedicated
Sustainability Director and has management involvement in the PSEE
Committee, as described in Governance (a).
Example: CEO and CFO participated in a climate-related risk and
opportunities scenario analysis workshop.
Risk identification, assessment and mitigation are performed bottom up,
with more detailed assessment at operational level, as well as through top-
down assessment at the Executive management and Board level, including
climate-related risks and opportunities. Managers at all levels are involved.
Example: The Group Sustainability Director, together with a taskforce of our
managers, performed a detailed assessment of Scope 3 supply chain GHG
emissions and their associated risks and opportunities.
Page 67 (Strategic report
– Risk profile)
Page 66 (Strategic report
– Risk management)
This process includes a bottom-up analysis of key risks and opportunities,
including climate-related, at a divisional level. Risks and opportunities
specific to our divisions are managed in detail.
Page 67 (Strategic report
– Risk profile)
Example: Our divisions are focused on growth in automation & electrification
markets. They have recognised that shifting towards electricity as the major
fuel powering industrial systems is a key imperative for organisations looking
to reduce their carbon footprints.
Plans for 2023
Update management on the outcome of the climate-related scenario
analysis and develop action plans and/or amend business processes.
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.
We have identified sustainability, climate change and the environment as
a principal risk. Specifically, 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.
Example: We have stated our Purpose clearly to our Stakeholders, that
is, 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.
Page 69 (Strategic report
– Principal risks)
Specifically, we recognise that failure to appropriately manage the
environmental impact of our operations and products could cause
reputational impact and potential deterioration in our relationships with
our stakeholders.
Example : Clear, publicly stated, goal for Scope 1 & 2 emissions reduction
to Net Zero in 2035 to mitigate this.
Page 72 (Strategic report
– Principal risks)
56
TT Electronics plc Annual Report and Accounts 2022
TCFD
RECOMMENDATION
RECOMMENDED
DISCLOSURE
OUR RESPONSE
STRATEGY
CONTINUED
We recognise a wide range of product opportunities based on the fact that
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. We are committed to developing cleaner,
lighter, more efficient and durable solutions to help combat climate change,
engineering advanced electronics to benefit our planet and its people for
future generations. 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.
Example: Collaboration with a world leader in aircraft electrical systems on
power supplies for electric and hybrid electric aircraft.
ANNUAL REPORT
REFERENCE
Page 50 (Strategic report
– Our people, environment
and communities –
Environment)
Our principal time horizons are short term (rolling 5 years strategic planning),
medium term (2035) and long term (2050).
Example: Clear, publicly stated timeline of 2035 to achieve Net Zero Scope
1 & 2.
Page 50 (Strategic report
– Our people, environment
and communities –
Environment)
Plans for 2023
Increased granularity and materiality of risks and opportunity analysis in
conjunction with the climate-related scenario analysis, to improve upon
the level of granularity and materiality that we already have. Consider
geographical and/or sector relevance.
b. Describe the impact
of climate-related risks
and opportunities on
the organisation’s
businesses, strategy
and financial planning.
Page 50 (Strategic report
– Our people, environment
and communities –
Environment)
AND
Page 66 (Strategic report
– Risk management)
Page 20 (Strategic report
– Strategic priorities
The impact on our planning, related to our principal risks, has been a
recognition that our own activities come with an environmental impact
and therefore we have implemented a detailed, and publicly stated, plan to
reduce emissions. That is why we are leading by example to optimise our
own operations to reduce TT’s impact on the environment. 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 continue to make excellent headway with our ambitious commitment
to achieving Net Zero Scope 1 & 2 emissions by 2035. We prioritise these
risks through our governance and risk management systems.
Example: We targeted a 50% reduction in Scope 1 & 2 emissions by the
close of 2023 against our 2019 Baseline, and Net Zero for Scope 1 & 2
emissions by 2035, at the latest. Due to the focused efforts of teams across
the Group we have achieved our 50% reduction target in 2022, one full year
early. 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.
The impact on our planning, related to our principal opportunities (solving
technology challenges for a sustainable world) is most evident in our
integration of ESG and sustainability matters into decision-making and
business practices, from product development to recruitment and the
strategic planning process. This integration is a publicly stated strategic
priority for us.
Example: We are collaborating with aerospace companies in the
development of high efficiency, high power density converters as well as
technologies for the next generation of higher voltage platforms. This is a
direct result of our integration of ESG and sustainability (including climate-
related) matters into our decision-making and business processes. Recently,
we completed qualification on a Power Supply unit for the Digital Flight
Control System (DFCS) and we are now working on the equivalent unit for
a new programme. Our ultimate ambition is in broadening our position as
a supplier of choice in the increasing electrification of aircraft and aircraft
systems. As technology progresses, we believe that we are well positioned
to support customers throughout this transition.
Plans for 2023
Improve the clarity of the strategic planning process to more fully reflect
identified climate-related risks and opportunities, using the climate-related
scenario analysis (to be completed) as a source of input and guidance.
TT Electronics plc Annual Report and Accounts 2022
57
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | OUR PEOPLE, ENVIRONMENT AND COMMUNITIES
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES CONTINUED
TCFD
RECOMMENDATION
RECOMMENDED
DISCLOSURE
OUR RESPONSE
STRATEGY
CONTINUED
c. Describe the
resilience of the
organisation’s
strategy, taking into
consideration different
climate-related
scenarios, including a
2°C or lower scenario.
TT has not yet conducted detailed climate-related scenario analysis. We
have begun this journey with a variety of actions, including a workshop in
2022, attended by the CEO and CFO, to assess risk and opportunity in a
range of scenarios. TT commits to completion of this detailed climate related
scenario analysis during 2023. Should this prompt additional climate-related
disclosures, these will be made in the Group’s 2023 Annual Report.
Example: After completion of this workshop, we evaluated the output and
used this as a starting point to enable the completion of a detailed scenario
analysis.
Plans for 2023
Completion of a detailed climate-related scenario analysis during 2023 to aid
detailed assessment of the resilience of TT’s business and strategy.
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.
Climate related risk identification is 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. Ongoing data and information relevant to climate related risks
is supplied through regular Board reports in the form of dashboards and
written submissions. Requirements of guidelines, and those of a regulatory
nature, are monitored on an ongoing basis and we maintain both awareness
and links to professional bodies and organisations such as CDP. Relative
significance, size and scope of climate-related risks is assessed utilising
our risk management procedures. The critical element of this is to determine
materiality through consideration of likelihood, gross impact, mitigation
and net impact. Our risk terminology is consistent throughout and in our
hierarchy we position ‘principal risk’ as those risks that are highlighted in
our Annual Report.
Example: Inclusion of “sustainability, climate change and the environment”
as a principal risk.
Plans for 2023
Increased granularity and materiality of risks and opportunity analysis, once
the climate-related scenario analysis is complete, to improve upon the level
of granularity and materiality that we already have.
b. Describe the
organisation’s
processes for
managing climate-
related risks.
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. Each principal 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.
Example: Regular updates on electricity consumption and therefore
emissions of CO2, highlighted a risk to Scope 2 targets, due to higher-than-
expected levels of activity. This alerted us to a potentially increased level of
risk and triggered our process to deal with the issue enabling us to react with
a detailed plan to reduce electricity consumption. This was successfully
implemented in a number of plants in 2022.
Plans for 2023
Opportunities for improvement: Isolate climate-related risks within the
Group Risk Register to improve clarity.
ANNUAL REPORT
REFERENCE
Page 50 (Strategic report
– Our people, environment
and communities –
Environment)
Page 66 (Strategic report
– Risk management)
Page 67 (Strategic report
– Risk management
framework)
58
TT Electronics plc Annual Report and Accounts 2022
ANNUAL REPORT
REFERENCE
Page 67 (Strategic report
– Risk management
framework)
Page 50 (Strategic report
– Our people, environment
and communities –
Environment)
TCFD
RECOMMENDATION
RECOMMENDED
DISCLOSURE
OUR RESPONSE
RISK
MANAGEMENT
CONTINUED
c. Describe how
processes for
identifying, assessing,
and managing
climate-related risks
are integrated into the
organisation’s overall
risk management.
Climate-related matters are fully integrated into TT’s risk management
processes. The Risk Committee supports the Board and the Audit
Committee in monitoring the exposure to climate-related risks through
regular reviews, including reviewing the effectiveness of risk management
processes and controls. The Risk Committee provides the framework
for managing these risks, regular reviews of principal risks, and risk
management processes. To enable a bottom-up detailed approach, the
divisions provide risk identification, assessment and implementation of risk
management action plans and actions. Business units/site level steering
and reporting teams implement and embed risk management at operational
level. Climate-related risks are included in these standard procedures.
Example: The TT Group Risk Register contains a clear section on
“sustainability and the environment” which includes climate-related risks.
This allows these risks to be monitored as part of our usual business
processes.
Plans for 2023
Increased granularity and materiality of risk analysis, once the climate-
related scenario analysis is complete, to improve upon the level of granularity
and materiality that we already have.
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.
TT uses a wide variety of metrics to assess climate-related risks and
opportunities. Metrics (and reduction targets) for emissions of GHGs play
a key role in reducing our impact on the planet, addressing a principal
risk of reputational damage and bolstering our recognised opportunities
related to our purpose of solving technology challenges for a sustainable
world. Comprehensive emissions statistics are used at monthly divisional
meetings, quarterly Executive reviews and at Board meetings. TT is
committed to measuring and reporting Scope 3 emissions. Examples of
other metrics include: electricity consumption; proportion of electricity
coming from renewable sources; water use; ratings from external agencies
(this year both MSCI and CDP); proportion of revenue as R&D spend on new
products (strategically aligned with sustainability).
With regard to cross-industry climate-related metrics: GHG emissions,
transition risks, climate-related opportunities and capital deployment are
all part of our planning and we have, or intend to have, appropriate metrics.
Remuneration is already linked to climate-related issues. We do not intend
to develop metrics based on internal carbon pricing.
Example: TT reported a 23% reduction in GHG emissions (Scope 1 & 2) year-
on-year in 2022 and a reduction of 54% against our Baseline in 2019. This is
in comparison to our publicly stated target of a 50% reduction vs Baseline by
2023.
Plans for 2023
Develop additional metrics fully consistent with the cross-industry,
climate-related metric categories (where applicable and in consideration
of alignment with our own risks, opportunities and business processes).
TT Electronics plc Annual Report and Accounts 2022
59
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | OUR PEOPLE, ENVIRONMENT AND COMMUNITIES
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES CONTINUED
TCFD
RECOMMENDATION
RECOMMENDED
DISCLOSURE
OUR RESPONSE
METRICS AND
TARGETS
CONTINUED
b. Disclose Scope
1, Scope 2 and, if
appropriate, Scope 3
GHG emissions, and
the related risks.
TT emissions data can be found in full in the Environmental performance
and disclosures section of the Annual Report. In 2022 our Scope 1 emissions
were 897 tCO2e and Scope 2 emissions were 11,269 tCO2e. Our total Scope
1 & 2 emissions were 12,166 tCO2e, 23% less than 2021 and 54% less than
our Baseline in 2019. Our Intensity Ratio was 19.8 tCO2e/£M revenue, a 40%
reduction from 2021 and a 65% reduction from Baseline in 2019. We have
assessed nine categories of Scope 3 emissions in detail and will measure
and report on six of these categories. A detailed explanation can be found
in the Environmental performance and disclosures section of the Annual
Report. TT is fully committed to measuring and reporting relevant Scope 3
emissions and we will be setting a Baseline and reduction targets within two
years. Related principal risk is a failure to address our environmental impact
and thereby damaging our reputation with stakeholders.
Example: TT continues to grow the proportion of electricity use that comes
from renewable sources. We have done this for three years in a row and it is
now 45% of our total electricity consumption.
ANNUAL REPORT
REFERENCE
Page 52 (Strategic report
– Our people, environment
and communities
– Environmental
performance and
disclosures)
Plans for 2023
Measure and report Scope 3 emissions for 2023 and develop a Baseline and
reduction targets by 2024.
c. Describe the
targets used by
the organisation to
manage climate-
related risks and
opportunities and
performance against
targets.
TT uses a wide variety of targets to measure performance and manage
climate-related risks and opportunities. Our key targets used to manage our
environmental impact are critical to address a principal risk of reputational
damage potentially caused by a failure to manage our impact on the
environment. The key targets are: Scope 1 & 2 emissions measured against
a Baseline of 2019, short term target reduction by 50% (2023), medium term
target Net Zero (2035) and long-term target to maintain Net Zero (2050).
Scope 3 emissions have been assessed and we will measure and report in
the future. We will set a Baseline and reduction targets within two years and
include a long-term target of Net Zero by 2050. We have an additional target
to move all sites to renewable electricity supply, whether that is externally
supplied or internally generated (medium term 2035).
Example: Flow down of ESG targets, including sustainability and
climate-related targets, into short term incentive objectives for our wider
management teams.
Page 52 (Strategic report
– Our people, environment
and communities
– Environmental
performance and
disclosures)
AND
Page 34 (Strategic report
–Our KPIs)
Plans for 2023
Develop additional targets fully consistent with the cross-industry, climate-
related metric categories (where applicable and in consideration of alignment
with our own metrics for risk, opportunities and business processes).
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TT Electronics plc Annual Report and Accounts 2022
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. We are particularly keen to
encourage more women and under-represented groups to
take up STEM subjects and careers.
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.
STEM PROGRAMME RETURNS TO KUANTAN
After a three-year absence due to COVID, TT Kuantan,
Malaysia launched its fourth STEM programme in 2022.
The team selected a primary school for indigenous
students located in a rural area around 70 kilometres from
the Kuantan site. As in previous years the team spent a
day at the school, setting up a STEM educational booth
and leading interactive games with the students. A week
later, the students were invited to visit TT for a guided plant
tour. At the close of the programme the team donated a
smart TV, an air conditioner and a camera to the school
to support the students’ continuing education.
TT CLEVELAND, US INTRODUCES A NEW GENERATION
TT Cleveland hosted a group of students from the local
Auburn Career Center for a careers event in 2022. The
students enjoyed a site tour, followed by a presentation
and Q&A about TT and STEM careers. Two female team
members – Helen Cole and Halley English, a graduate of
Auburn Career Center – then shared how their careers had
developed at TT. The event concluded with a pizza party
and swag bags for the students which included a TT Way
values t-shirt to remind them of the day.
TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | OUR PEOPLE, ENVIRONMENT AND COMMUNITIES
VOLUNTEERING AND CHARITABLE GIVING
TT has a big fundraising and volunteering culture – our efforts
bring our employee teams together as well as benefiting our
communities.
In 2022 more than 3,600 hours were taken under the
programme.
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.
Our teams support many other local and national causes
and are able to request matched funding from TT through
the Giving the TT Way programme.
TT CARDIFF, UK RAISES A MASSIVE £10K
On hearing of the plight of Ukrainians affected by the Russian
invasion of Ukraine our Cardiff team pledged to support
them in any way they could. Then began a fundraising
campaign which would ultimately raise more than £5k,
which was matched by TT. Events included a raffle, a bake
sale and a Walk for Ukraine and the team sold pins and
asked other local businesses for donations. Some male
team members even agreed to be waxed and Cardiff’s
two BE Inspired winners generously donated their prizes.
The whole team was exceptionally proud of the result and
went on to challenge all TT employees to plant sunflowers
in TT’s Annual Sunflower Contest in honour of Ukraine, with
an award at the end of the summer for the tallest sunflower.
In August, TT Mexicali held its second ‘Unidos por la
Excelencia’ (United for Excellence) event. The event
recognised elementary school children of TT Mexicali
employees who had received high grades at school.
Due to the generosity of employees, the site was able
to gift scholarships, a gift certificate for school supplies,
a backpack and a shirt with the event’s slogan to these
hard working children.
TT MEXICALI, MEXICO UNIDOS POR LA EXCELENCIA
HELPING SUZHOU FAMILIES
IN NEED
Our Suzhou, China team has been
working with local charity Suzhou
Little Red Cap Association since
2019 to support children of families
in need. Despite COVID restrictions,
our team was still able to hold a
small in-house bazaar in November
this year in which 200 employees
participated, raising CNY3.5k.
The team has now raised more
than CNY30k for Little Red Cap
since 2019.
25 YEARS OF REMEMBRANCE
Adam Bayliss from our Fairford,
UK team has been playing The Last
Post on his cornet at the Fairford
War Memorial Remembrance Day
service for 25 years. This year he
recorded one of his rehearsals to
play on site to mark the Fairford
team’s own two minutes’ silence
on 11 November.
TT DALLAS, US SUPPORTS
LOCAL SHELTER
Our TT Dallas team partnered
with local organisation Hope’s Door
New Beginning Center and raised
nearly $1k in donations through
various bake sales and a fun raffle.
Hope’s Door provides assistance
to individuals and families affected
by domestic abuse and violence.
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TT Electronics plc Annual Report and Accounts 2022
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 36 to 37).
Throughout the year, the Board considered how stakeholders are affected by key decisions.
The principal decisions taken by the Board in 2022 centred around: (i) Board-level engagement (particularly with TT management,
employees, customers and shareholders); (ii) “deep dive” strategic review sessions; (iii) progression of the Defined Benefit Pension
Scheme Buy-in arrangement; (iv) refinancing the Group’s Revolving Credit Facility; and (v) development of TT’s Sustainability/ESG
initiatives.
The following examples describe how the Board addressed its s172 responsibilities (and engaged across a range of stakeholder
groups) in response to these priority initiatives in 2022.
1: BOARD LEVEL ENGAGEMENT WITH TT MANAGEMENT/EMPLOYEES/CUSTOMERS/INVESTORS
Stakeholders involved:
Employees, customers, investors.
A. Why?
– To deepen NED relationships with the ELT,
B. Scope
– Board visit to the Oldham facility, to meet
C. Board decisions/Key outcomes
– Increased understanding of customer
operating needs and TT’s contribution to
maintaining product deliveries (including
inventory management) in challenging supply
chain conditions.
– Greater appreciation of the demands on senior
management and staff (including wellbeing
and stress management) in a high growth,
significant change, inflationary environment,
operating under material supply chain
constraints.
– Increased focus on ED&I initiatives across
the Group (see page 47 for more detail).
– Greater focus on the interplay between
incentives and key strategic imperatives for
the Group (e.g. the linkage between supply
chain constraints and inventory management).
– Promotion of the Power Solutions technology
roadmap and its linkage to GMS manufacturing
capability.
– Investor comments feed into strategic
decision-making and Board priority actions.
senior management and staff at all levels across
the organisation, in order to address the “wider
engagement” post-pandemic action from the
2021 external Board evaluation exercise.
senior management and staff working in the
Ferranti business acquired in January 2022
and to consider progress against the Power
Solutions Strategy.
– To better understand key employee, customer,
supply chain, geographic and technology-based
trends across the Group’s operations.
– To identify opportunities for improved cross-
functional working, particularly between Power
Solutions and the GMS Division.
– To stay ahead of the talent bench strength
requirements for the Group and understand
succession opportunities and individual/
Divisional development priorities.
– To better understand key investor priorities
and drivers of growth.
– Board visit to one of GMS Suzhou’s key
customers, Waters, including a site tour
and Q&A session with senior management,
which (i) provided a deep insight into TT’s
technology/supply chain positioning and
the “strategic partnership” nature of the
customer relationship; and (ii) allowed the
Board to underline its customer support.
– NED visit to TT’s Minneapolis and Cleveland
facilities in the US, attended by the Chairman
and Chair of the Audit Committee, to meet
senior management/staff and better
understand TT’s customer opportunities,
business performance and risk management
activities, at both a site level and across the
EMS market and medical/power solutions
sectors.
– NED “pulse call” with the GMS Suzhou
senior management team, conducted by
video conference, to gain a greater insight
into current operations, performance,
opportunities and challenges at TT’s largest
Asia-based facility.
– Various face-to-face sessions conducted
by the NEDs throughout the year with
site, Divisional and functional heads to
discuss business dynamics and operational
challenges (including Board dinners and ad
hoc meetings).
– CEO/CFO regularly meet with institutional
shareholders.
– IR briefings provided to the Board (including
from brokers) on investor feedback.
– Face-to-face meetings offered (and several
accepted) for institutional investors to meet
with Board/Committee Chairs.
TT Electronics plc Annual Report and Accounts 2022
63
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | SECTION 172 STATEMENT
SECTION 172 STATEMENT
2: “DEEP-DIVE” STRATEGIC REVIEW
Stakeholders involved:
Shareholders, employees, customers/suppliers.
A. Why?
– To undertake an in-depth review of the strategic
positioning of the Group, assessing options
to reposition the business portfolio in light of
customer growth opportunities, ongoing supply
chain constraints, “people” factors and macro-
economic challenges.
– To carefully consider TT’s portfolio of business
units and the extent to which they operated in
the right market segments, with appropriate
levels of investment/resource, aligned with
TT’s growth strategy.
– To address challenging market conditions
and share price pressures across TT’s industry
sector.
B. Scope
– The Board engaged external advisers
to undertake a detailed assessment of
TT’s strategic growth plan and its business
operations and valuation potential.
– The Board considered options to grow key
customer accounts (and ensure continuity
of supply in challenging market conditions),
linked to the Group’s technology road map
and corporate purpose.
– The Board focused on the protection of jobs
and providing salary increases/financial
support to the lowest paid part of the
workforce in an attempt to minimise the
burden of the global cost-of-living crisis.
C. Board decisions/Key outcomes
– Completion of the Ferranti acquisition in
January 2022, to enhance TT’s Power
Solutions capabilities in aerospace & defence.
– Prioritisation of key customer accounts/areas
of greatest growth opportunity, with
appropriate levels of investment being
directed towards ensuring continuity of supply
(including inventory management).
– Focus on ensuring appropriate incentivisation
of key talent, for recruitment/retention
purposes, in a competitive marketplace.
– Financial assistance provided to the lower paid
parts of TT’s workforce by delivering initiatives
such as market-tested salary increases, an
energy support scheme (for UK employees
below certain salary levels) and a Salary
Finance Loan scheme.
C. Board decisions/Key outcomes
– Decision to run a competitive bidding process
(with the scheme trustees) to identify a
preferred insurer to lead the transaction for
the bulk annuity insurance buy-in.
– Execution of the transaction for the bulk
annuity insurance buy-in arrangements
in November 2022.
– Completion of the new RCF facility
in June 2022.
3: PENSION SCHEME BUY-IN/RCF REFINANCING
Stakeholders involved:
Employees, pension holders (current and future), regulators.
A. Why?
– To de-risk the cost/liability profile of TT’s
Defined Benefit scheme and take the
opportunity (created over a number of years
by the collaborative efforts of the Company and
Scheme Trustee) to insure the scheme liabilities
with a bulk annuity insurer.
– To ensure that the Pension Scheme buy-in
arrangements were concluded in a way that
would materially benefit TT and its stakeholders
(including current and future pension
holders), with no stakeholder groups being
disadvantaged.
– To re-finance the Group’s existing debt facility,
well in advance of the scheduled maturity date
of November 2023, to give a further four years
of facility cover, taking advantage of positive
lending conditions at the H1 stage, removing
potential re-financing risk and providing
headline facility cover (when combined with
the existing Private Placement facility) at a
level considered appropriate for the Group’s
future borrowing needs.
B. Scope
– The Board recognised that TT’s Defined
Benefit scheme had operated effectively
in the past few years, in close cooperation
with the trustees, thereby mitigating liability
risks associated with the scheme. The
combination of the scheme investment
strategy, Company cash contributions
and liability management exercises, had
materially reduced the scheme buy-in deficit
to a position where a buy-in was feasible.
– Following the completion of an extensive
data cleansing exercise, the Board
recognised that 2022 represented an optimal
time to launch a buy-in transaction for the
Defined Benefit scheme and worked with
the scheme trustees and advisers to ensure
that all relevant regulatory and transactional
hurdles were addressed, including the
interests of current/future pension holders
and TT’s wider employee base.
– The Board monitored the macro-economic
environment throughout the year and took
the decision in H1 to launch the refinancing
of the Group’s existing RCF, on favourable
commercial terms, anticipating the
potentially adverse impact of geopolitical
uncertainty on debt markets in the H2 period
(see page 32 for more details).
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TT Electronics plc Annual Report and Accounts 2022
4: SUSTAINABILITY/ESG
Stakeholders Involved:
Shareholders, employees, customers/suppliers, regulators.
A. Why?
– To ensure that TT’s ESG strategy, progress to
date and future plans (particularly on Scope 1,
2 and 3 initiatives) is effectively communicated
and understood by TT’s stakeholder groups.
– To ensure that ESG targets are properly reflected
in site-level and Divisional objectives, and short-
term incentive plans (for Executive Directors
and the wider management teams).
– To provide consistent data across the Group to
track and monitor progress on key ESG targets.
– To ensure compliance with the new TCFD
regulatory requirements.
B. Scope
– The Board now receives monthly reports
on the Group’s environmental and safety
performance.
– The Board requested the internal audit team
to undertake a review of the Group’s Scope 1
& 2 emissions data.
– CEO and CFO participated in climate risk and
opportunities scenario analysis workshop.
C. Board decisions/Key outcomes
– The outputs of the progress made by TT
in the past year on its ESG programme is set
out in detail in the People, environment and
communities section on page 38. This section
also includes TT’s key ESG priorities for the
coming years.
– Appointment of external consultants to
facilitate detailed consideration of TT’s
positioning on the new TCFD regulatory
requirements.
– Expansion of Executive Director STIP targets
for 2023 (as agreed by the Remuneration
Committee) to have ESG items separated
from “strategic objectives”, accounting for
10% of the annual bonus award (see the
Remuneration Report for more details).
– Flow down of ESG targets into short-
term incentive objectives for the wider
management teams.
TT Electronics plc Annual Report and Accounts 2022
65
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | RISK MANAGEMENT
RISK MANAGEMENT
ROBUST PRACTICES
IN SUPPORT OF OUR
BUSINESS MODEL
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 co-sourced
arrangement with PwC 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. We now have
a dedicated in-house Head of Internal
Audit & Risk in post who is supported by
an internal compliance team. The team
are currently in the process of refreshing
our Control Framework to further
strengthen control compliance across
the business.
The Head of Internal Audit & Risk
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, including climate-related risks,
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.
All of our manufacturing sites perform
an annual self-assessment against the
control framework and the results inform
the internal audit programme of work
and internal audit plan risk assessment.
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.
During the year we reviewed the Group
risks and performed a horizon-scanning
exercise to ensure that we have
considered all material and emerging
risks in our Group risk register. Each
principal 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.
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TT Electronics plc Annual Report and Accounts 2022
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 performed a robust
assessment of the principal and
emerging 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, including
climate-related risks. 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 and a risk horizon-
scanning exercise is performed annually.
The risk horizon scanning exercise
includes consideration of the emerging
risks facing TT as an electronics
manufacturing business and as a
result if any new emergent risks require
inclusion on the Group risk register. As
a result of the risk horizon scanning
exercise no new emerging risks were
identified that were not already captured
in the Group risk register which flows
through to our principal risks detailed in
this report. The Risk committee reviews
the Group risk register at each meeting to
ensure that the risk profile is appropriate
and includes all relevant risks including
emerging risks as appropriate.
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”.
TT Electronics is committed to achieving
its sustainability objectives, reducing
carbon emissions, and improving
efficiency and we have extended our
climate reporting in line with TCFD
reporting requirements to include climate
scenario analysis. 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 38.
The Board monitors the Company’s
internal control systems and has
reviewed their effectiveness in 2022.
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;
(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.
TT Electronics plc Annual Report and Accounts 2022
67
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | PRINCIPAL RISKS AND UNCERTAINTIES
MACROECONOMIC ENVIRONMENT AND SUPPLY CHAIN
There continues to be challenges as a
result of the geopolitical environment
and disruption to the supply chain.
However, we have grown our order book
to record levels throughout 2022 and
going into 2023 reflecting our successful
positioning in structural growth markets,
new project wins and multi-year
revenues.
The ongoing focus on strategic direction
and markets has significantly improved
the Group’s overall resilience to these
external factors.
The Group continued to experience
challenges in relation to supply chain
lead times, component shortages and
costs, and mitigating this has been
a significant focus for all divisions in
2022. 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.
IMPACT OF COVID-19
During 2022, most of our business have,
consistent with broader society, learned
to operate in a more “business as usual”
manner as regards COVID-19.
China continued to adopt a zero
tolerance approach to COVID-19 through
most of 2022, which had an ongoing
impact on supply chains and logistics
out of China. The relaxation of these
rules saw high levels of infection impact
the country in December and this may
continue through 2023.
Our COVID-secure working practices
and pro-active demand management
VIABILITY STATEMENT AND PROSPECTS
continues to keep our employees safe
whilst managing the needs of our
customers.
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 2025, taking into account
the Group’s current position and the
potential impact of the principal risks
and uncertainties set out on pages 69 to
72 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 2025.
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.
This severe but plausible events’ stress
testing included consideration of the
potential impact of the Group’s principal
risks and uncertainties outlined on
pages 69 to 72. 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.
While the Directors have no reason to
believe the Group will not be viable over a
longer period, the period over which the
Directors consider it possible to form a
reasonable expectation as to the Group’s
longer-term viability, is the three-year
period to 31 December 2025. 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.
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.
68
TT Electronics plc Annual Report and Accounts 2022
PRINCIPAL
RISKS AND
UNCERTAINTIES
Technology investment and R&D
Targeted and complementary M&A
Margin enhancement
Integration of ESG
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)
Sponsor
Richard Tyson
Link to strategy
COMMERCIAL
Contractual risks
Potential liabilities from
defects in performance-
critical products that
often operate in extreme
environments
Sponsor
Richard Tyson
Link to strategy
– Decelerating sales growth
affecting operating profit
– Monitor the wider
economic conditions of our
markets
– Timely financial reporting
to monitor performance
and provide a basis for
corrective action when
required
– Ongoing optimisation of
our cost base and strategic
moves creating a more
resilient portfolio
– Business continuity
and crisis management
planning
– Management structures
in place to enable a rapid
response to changing
circumstances
2021
2022
Risk stabilised. There
continue to be challenges as
a result of the geopolitical
environment and disruption to
the supply chain. However we
have grown our order book to
record levels throughout 2022
and going into 2023 reflecting
our successful positioning in
structural growth markets,
new project wins and multi-
year revenues.
– Reputational impact
– Deterioration in customer
relationships
– Liability claims
– Reduction in revenue,
profitability and cash
generation
2021
2022
No change.
– 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 2022
69
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
STRATEGIC REPORT | PRINCIPAL RISKS AND UNCERTAINTIES
RISK DESCRIPTION
POTENTIAL IMPACT
MITIGATING ACTION
CHANGE IN THE YEAR
– Increased cost in product
– Close collaboration with
development
key customers
– Delay in achieving projected
– Active monitoring of costs
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
2021
2022
No change. R&D spend is one
of our key capital allocation
priorities and we continue
to work in partnership with
our customers to bring
new, innovative products
to market.
COMMERCIAL
Research and development
Delay in new product
development which is
intended to support revenue
growth
Sponsor
Mike Leahan
Link to strategy
OPERATIONAL
People and capability
Ability to attract and retain
high-quality and capable
people
Sponsor
Sarah Hamilton-Hanna
Link to strategy
– Loss of key personnel
– Potential business
disruption
– Breakdown of
communication and
misalignment
– Reduction in revenue,
profitability and cash
generation
Supplier resilience
Potential failure of critical
suppliers; product delivery
delays; inability to meet
customer commitments
Sponsor
Mike Leahan
Link to strategy
70
TT Electronics plc Annual Report and Accounts 2022
2021
2022
Risk stabilised. The US
continues to present
challenges in recruiting talent
which has resulted in salary
inflation but we have seen
attrition stabilise through
the year.
2021
2022
Risk stabilised. Investment
in inventory to support
increased customer demand
and extended material lead
times and shipment delays.
– 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
– Regular talent reviews
across all Divisions and
Group
– Using a feedback
loop utilising surveys
to encourage regular
objectives and
performance discussions.
See Our people on page 38
– 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
– Supply Chain Council
in place
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
Sponsor
Derek Winskill
Link to strategy
M&A and integration
Realisation of financial benefit
of acquisitions
Sponsor
Mike Leahan
Link to strategy
– 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
Health and safety
The manufacturing industry
is inherently dangerous.
Managing the impact on our
employees, sites and the
environment of these risks
Sponsor
Sarah Hamilton-Hanna
Link to strategy
– 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
2021
2022
Risk stabilised. Cyber controls
firmly established to mitigate
cyber risk.
2021
2022
Risk stabilised. Ferranti
acquisition in Oldham in
January 2022 is embedded
within the TT business and
has successfully secured
a seven-year design and
development contract for
power converters for a new
business jet. The award builds
on the existing relationship
between TT and this
customer and strengthens
our order book.
2021
2022
No change.
– 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
– Disaster recovery plans in
case of system failure
– Annual penetration testing
– Internal vulnerability
scanning
– 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 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
– HS&E compliance self-
assessment and external
global H&S audit on a
rolling three-year cycle
across the sites
TT Electronics plc Annual Report and Accounts 2022
71
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
STRATEGIC REPORT | PRINCIPAL GOING CONCERN
RISK DESCRIPTION
POTENTIAL IMPACT
MITIGATING ACTION
CHANGE IN THE YEAR
OPERATIONAL
Sustainability, climate
change and the environment
Our manufactured products
or other activities or decisions
of the Group, including in
relation to climate-related
risks, may not be judged by
our customers, employees,
communities and investors as
being sustainable
Sponsor
Sarah Hamilton-Hanna
Link to strategy
– Failure to appropriately
manage the environmental
impact of our operations
and products
– Reputational impact and
potential deterioration in
our relationships with our
stakeholders
Legal and regulatory
compliance
Intentional or inadvertent non-
compliance with legislation
including laws and regulations
covering export control, anti-
bribery and competition
Sponsor
Lynton Boardman
Link to strategy
– 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
2021
2022
No change. We are
committed to achieving
our sustainability objectives,
reducing carbon emissions,
and improving efficiency and
we are extending climate
reporting to be consistent
with the TCFD reporting
requirements. During 2022,
we reduced our Scope 1 &
2 emissions by 23%; these
are now down 54% from
our 2019 baseline. The
reduction was primarily
related to a site relocation,
the implementation of energy
reduction plans across our
sites and grid emissions in
Mexico. During the year we
made progress assessing our
Scope 3 emissions including
partnering with the Carbon
Disclosure Project (CDP) to
measure carbon emissions in
our supply chain. Our TCFD
statement can be found on
page 55.
2021
2022
No change.
– 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
– Cross-divisional export
compliance group
established and anti-bribery
programme in place
– Export control policy,
procedure and training all
in place and Denied Party
Screening undertaken
– Approach involves risk
assessment, policy,
training, review and
monitoring
– Whistleblower process in
place to ensure issues can
be raised, investigated and
managed
72
TT Electronics plc Annual Report and Accounts 2022
show that the Group should remain
well within its facilities headroom and
within bank covenants for the 12 months
following 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. 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 75.
The Strategic Report analyses the
financial position of the Group, its cash
flows, liquidity position and borrowing
facilities. In addition, note 21 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 2021 results.
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 2022 it had:
– £267.2 million of total borrowing
facilities available (comprising
committed facilities of £226.0 million
and uncommitted facilities of £41.2
million representing overdraft lines and
an accordion facility of £32.6 million).
The Group’s primary source of finance
is the £147.4 million committed
revolving credit facility (RCF) which
was signed in June 2022 to replace the
already existing RCF; at 31 December
2022 £103.6 million of this facility had
been drawn down. The Group’s RCF is
payable on a floating rate basis above
GBP SONIA, USD SOFR or EURIBOR
depending on the currency of the loan
and will mature in June 2026 with
a one-year extension option which
expires in May 2023. In February
2023 £15.0 million of uncommitted
accordion facility was converted into
committed RCF extending the total
committed facilities to £241.0 million.
In December 2021, the Group issued
£75 million of fixed rate loan notes with
three institutional investors; 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.
– A leverage ratio (banking covenant
defined measure) of 2.0 times at 31
December 2022 compared to the
RCF (and PP loan notes) covenant
maximum of 3.0 times. Interest cover
(banking covenant defined measure)
of 7.4 times compared to the RCF
(and PP loan notes) 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 2023.
Under the Group’s base case financial
projections, the Group retains significant
liquidity and covenant headroom
throughout the forecast period, with
both metrics improving from the position
as at 31 December 2022.
The Group’s financial projections have
been stress tested for “business as
usual” risks (such as profit growth,
supply chain pressure and working
capital variances), and the impact of
the following principal risks: general
revenue reduction, contractual risks,
research and development, 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
adequate throughout the forecast period.
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 capacity
constraints which shows a reduction in
revenue and operating profit compared
to the latest forecast. Despite this
further reduction these projections
TT Electronics plc Annual Report and Accounts 2022
73
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | NON-FINANCIAL INFORMATION STATEMENT
NON-FINANCIAL
INFORMATION
STATEMENT
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.
OUR APPROACH
AND KEY POLICIES
OUTCOMES
IN 2022
FURTHER
INFORMATION
ENVIRONMENTAL MATTERS
Stakeholders
impacted:
Employees,
customers
and suppliers,
community,
investors
Our purpose statement is linked to the
development of our internal culture and
to what we do for our customers.
All suppliers receive our policy on social
and environmental practices
Key policies:
Statement of Values and Business
Ethics Code.1
Health, Safety and Environmental Policy.
Corporate and Social Responsibilities –
Supplier Expectations policy
Investment in R&D at 3.7 per cent of
revenue in our product businesses2
to bring new and improved products
to market.
Target of 50% reduction in Scope 1 & 2
emissions achieved in 2022
Data collection capabilities expanded
to include Scope 3 indirect emissions
11 sites have switched to renewable
energy tariffs
AA rating achieved in 2022 MSCI ESG
Ratings assessment
See Our strategy
on pages 20 to 21
See Our people,
environment and
communities on
pages 38 to 62
See Environment
on pages 50 to 60
See Principal risks
and uncertainties
on pages 69 to 72
SOCIAL MATTERS
Stakeholders
impacted:
Employees,
community
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.
Many of our employees volunteer to
develop local STEM partnerships to
promote careers in electronics and
related fields.
See Our people,
environment and
communities on
pages 38 to 62
Key policies:
Statement of Values and Business Ethics
Code.1
We run summer internship programmes,
UK graduate programmes and young and
mature apprenticeships.
See Principal risks
and uncertainties
on pages 69 to 72
Community and Charity Support, Our
Guiding Principles.
Health, Safety and Environmental Policy.
Our “Hours for giving” programme enables
employees to take five hours’ paid leave
per year to support local causes. In 2022
more than 3,600 hours were taken under
the programme.
74
TT Electronics plc Annual Report and Accounts 2022
OUR APPROACH
AND KEY POLICIES
OUTCOMES
IN 2022
FURTHER
INFORMATION
EMPLOYEES
Stakeholders
impacted:
Employees
We strive to keep our employees 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.
Whistleblower Policy.1
Gender Pay Gap Report.1
Two three-day lost-time health and safety
incidents.2
See Our people
on pages 38 to 49
A gender balanced permanent workforce
with 53 per cent women and 47 per cent
men at 31 December 2022.
See Annual Report
on Remuneration
on pages 122 to 135
ED&I 101 training for all employees
ED&I policy for the Board introduced
TT Women’s Leadership Programme
launched
BE Inspired recognition scheme.
New HSE Training Academy launched
See Principal risks
and uncertainties
on pages 69 to 72
Employee assistance programme
26 out of 28 sites achieved zero harm
RESPECT FOR HUMAN RIGHTS
Stakeholders
impacted:
Employees,
customers
and suppliers,
community
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.
Key policies:
Statement of Values and Business Ethics
Code.1
Modern Slavery Policy.1
Human Rights Code
ANTI-CORRUPTION AND ANTI-BRIBERY
No human rights violations have been
identified during 2022.
We reaffirm annually our commitment to
opposing slavery through the publication
of our Modern Slavery Statement.
See Our people,
environment and
communities on
pages 38 to 62
Stakeholders
impacted:
Employees,
customers
and suppliers,
community,
investors
We do not tolerate fraud, corrupt practices
or behaviour not in line with our standards.
Mandatory ethics training is provided for
relevant employees on an annual basis.
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 and in line with
our TT Way values.
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.
See Our people,
environment and
communities on
pages 38 to 62
See Principal risks
and uncertainties
on pages 69 to 72
Key policies:
Statement of Values and Business Ethics
Code.1
Whistleblower Policy.1
No fines, penalties or settlements for
corruption reported in 2022.
1 Documents are on the TT Electronics website (www.ttelectronics.com).
2 Group KPIs – see pages 34 to 35 for more information.
The table above corresponds to our key stakeholder groups set out on pages 36 to 37. 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 12 to 13), our principal risks and how we manage them (see pages 69 to 72)
and our KPIs, including our non-financial KPIs, (see pages 34 to 35) and the reasons why they are important.
The 2022 Strategic report, from pages IFC to 75, has been reviewed and was approved by the Board of Directors on 7 March 2023.
Richard Tyson
Chief Executive Officer
Mark Hoad
Chief Financial Officer
TT Electronics plc Annual Report and Accounts 2022
75
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
STRATEGIC REPORT | BOARD OF DIRECTORS AND COMPANY SECRETARY
GOVERNANCE AT A GLANCE
A SNAPSHOT OF
OUR LEADERSHIP
BOARD STATISTICS
BOARD DIVERSITY – GENDER
BOARD COMPOSITION
Board attendance (%)
NED independence (%)*
100
100
Female representation (%)
Site engagement activities
38
4
* excluding Chairman
Our Board split
3 – Women
5 – Men
SKILLS AND EXPERTISE
8 Board members
1 – Independent Non-executive
Chairman
2 – Executive Directors
5 – Independent Non-executive Directors
8
7
6
2
Strategy/Growth
M&A
Aerospace and
defence sector
Medical sector
5
3
3
Operations/
Supply chain
Financial
management
Investor relations
2
Talent and
succession
BOARD TENURE IN YEARS
Warren Tucker
Jack Boyer
Alison Wood
Anne Thorburn
Wendy McMillan
<1 year
Michael Ord
<1 year
2
3
6
6
76
TT Electronics plc Annual Report and Accounts 2022
LEADERSHIP STRUCTURE
Board
Audit
Committee
Nominations
Committee
Remuneration
Committee
Committee
report on
page 95
Committee
report on
page 90
Committee
report on
page 101
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 on page 88
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 2022
77
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | 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
Current external appointments:
– Non-executive director of Videndum
Current external appointments:
– Non-executive director of De La Rue
the audit committee of Tate & Lyle plc
(UK Listed)
plc (UK Listed)
plc (UK Listed)
– Governor of St Swithuns’ Independent
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
– Non-executive director and chair of
School for Girls in Hampshire
Relevant skills and experience:
– Leadership/Management
– M&A/Integration
– Strategy/Growth
– Operational Excellence
– Supply Chain
– Manufacturing/Engineering
– International Business
– Product Technology
– Risk Management
– Aerospace & Defence Sector
– Investor Relations
Past appointments:
– Member of the Executive Committee
and President of the Aerospace &
Security division of Cobham plc
the audit committee of BCP V Modular
Services Holdings Limited (operating
globally as Modulaire)
– Trustee on the board of Magna
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
Past appointments:
– Non-executive director of Reckitt
Benckiser Group plc and the Foreign,
Commonwealth and Development
Office
– Chief financial officer of Cobham plc
BOARD ATTENDANCE 2022
Attendance 2022
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
4 of 4
4 of 4
3 of 4
4 of 4
4 of 4
4 of 4
4 of 4
4 of 4
3 of 4
4 of 4
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TT Electronics plc Annual Report and Accounts 2022
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
A N R P
R A N
A N
Jack Boyer OBE
Senior Independent
Non-executive Director
Alison Wood
Independent Non-executive Director
Anne Thorburn
Independent Non-executive Director
Joined: 2016
Joined: 2016
Joined: 2019
Current external appointments:
– Non-executive director of Ricardo plc
Current external appointments:
– Non-executive chair of Galliford Try
(UK listed)
– Chair of the University of Bristol
– Non-executive director of the
Department of Education
Holdings plc (UK listed)
– Senior independent director and chair
of remuneration committee of Oxford
Instruments plc (UK Listed)
– Member of the Board of the Henry
– Non-executive director of British
Royce Institute for Advanced Materials
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
Relevant skills and experience:
– Strategy/Growth
– Corporate Finance and Investment
– M&A
– Engineering/Technology/Innovation
– International Business
– Manufacturing/Engineering
– Product Technology
– Operations/Supply Chain
– Aerospace & Defence Sector
– Medical Sector
Past appointments:
– Non-executive director of Elcogen
Group plc, Mitie Group plc and
Laird plc
– Chairman of Ilika plc, AIM-listed Seeing
Machines Limited and the Academies
Enterprise Trust
Current external appointments:
– Senior independent director and chair
of the Audit Committee of Diploma
PLC (UK Listed)
– Board member and chair of the audit
committee of SPT LabTech Limited
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
Past appointments:
– Global director corporate development
– Group finance director of British
Polythene Industries plc
& strategy for National Grid plc
– Non-executive director of BTG plc
– Group strategic development director
for BAE Systems plc
– Non-executive director of Capricorn
Energy plc, Cobham plc, e2v
technologies plc, BTG plc, THUS plc
and Costain Group plc
TT Electronics plc Annual Report and Accounts 2022
79
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | BOARD OF DIRECTORS AND COMPANY SECRETARY
A N
R N
P RI
Wendy McMillan
Independent Non-executive Director
Michael Ord
Independent Non-executive Director
Lynton Boardman
General Counsel and Company
Secretary
Joined: 2023
Joined: 2023
Joined: 2012
Current external appointments:
– Chief executive of Safety Sector,
Current external appointments:
– Group Chief Executive of Chemring plc
Relevant skills and experience:
– A qualified solicitor, Lynton has many
Halma plc
(UK Listed)
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
Past appointments:
– Managing director of business units
– General counsel and company
secretary of QinetiQ Group plc
Relevant skills and experience:
– Strategy/Growth
– M&A/Financing
– Integration
– Corporate Finance & Investment
– Technology/Innovation
– Transformation
– Operational Excellence
– International Business
– Talent/Succession
– Leadership/Management
Relevant skills and experience:
– Strategy/Growth
– Transformation
– Technology/Innovation
– Manufacturing/Engineering
– Product Technology
– Risk Management
– Leadership/Management
– Aerospace & Defence sector
Past appointments:
– Global Commercial Finance Director
of BAE Systems plc
– Trustee of The Education & Training
of Dyson
Foundation
– Member of Executive Committee and
Managing Director for Arqiva
– Independent non-executive director
of the Industry and Parliament Trust
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TT Electronics plc Annual Report and Accounts 2022
CHAIRMAN’S INTRODUCTION TO GOVERNANCE
GOVERNANCE
SUPPORTING OUR
GROWTH AMBITIONS
A governance platform for enhanced
strategic decision-making
In 2022, the Group was faced with
navigating a path through a series of
unprecedented business challenges
(particularly supply chain interruptions)
and yet delivered both record order book
expansion and excellent revenue and
profit growth. Our robust governance
structures have provided a solid platform
to support our business recovery and
growth ambitions. This has allowed us to
devote more board time to core strategic
priorities for the Group and address key
operational imperatives in areas such
as Health and Safety, Sustainability and
ED&I. We have also focused our attention
on ensuring that TT’s corporate purpose
and values link effectively to our culture.
A great example of how this has operated
in practice is shown by the way we have
supported our lower paid employees
in 2022 in meeting the challenge of
the “costs of living” crisis by targeted
assistance payments and loan options.
The Strategic Report highlights the key
decisions that the Board has taken in
2022 in driving forward the business,
which are reinforced in the sections on
stakeholder engagement (on page 36),
our approach to people, environment and
communities (on page 38), and our s172
statement (on page 63). These sections
outline the heightened focus on “people”
initiatives throughout the year, whilst also
ensuring that TT’s sustainability agenda
remained at the heart of our thinking. Of
equal importance was the opportunity
taken by the Board at the start of the year
to conduct a detailed review of the core
growth dynamics of TT’s operations,
including whether there were better ways
of demonstrating the underlying value.
This exercise led the Board to conclude
that TT has positioned itself in markets
with very good structural demand
Page
81
76
78
84
90
95
101
136
TT Electronics plc Annual Report and Accounts 2022
81
WHAT’S INSIDE
Content
Chairman’s introduction
Governance at a glance
The Board
Leadership and Company purpose
Nominations Committee report
Audit Committee report
Remuneration Committee report
Other statutory disclosures
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | CHAIRMAN’S INTRODUCTION TO GOVERNANCE
KEY GOVERNANCE HIGHLIGHTS FOR 2022
– Increased focus on staff and customer engagement, prioritising face-
to-face meetings and NED site visits, in support of delivering operational
improvement, talent/succession progression and enhanced decision-
making, as well as strengthening the linkage of TT’s purpose and values to
Group strategy
– Review and confirmation of TT’s strategic direction, focusing on the pursuit
of revenue and profit growth, talent/succession and prioritisation of key
initiatives, including ED&I, Sustainability and People-based programmes
– Building on the outputs of the 2021 external Board evaluation exercise, steps
were taken to further promote diversity at the Board level and across the
wider Group, reinforcing TT’s coherent and stable governance structures
– Following a thorough external recruitment exercise in 2022, Wendy
McMillan and Mick Ord were appointed as new Non-executive Directors
in January 2023.
drivers, having significant organic and
inorganic opportunities for the business
to pursue over the medium term. The
Board has put in place measures to
monitor the delivery of this organic
potential in 2022, which revealed strong
progress in year, as demonstrated by
the excellent organic growth delivered
across the Group at year end. In addition,
the Board has progressed the initiatives
set out below in year to promote TT’s
growth agenda:
– Continued strengthening of the capital
structure, through the refinancing of
the Group RCF, now extended for a
further four years, to complement
the US Private Placement transaction
delivered at the end of 2021 (as
described in more detail in the
Strategic Report on page 64);
– The de-risking of our UK Pension
Scheme obligations, with the launch
of the bulk annuity insurance buy-in
transaction for the UK Defined Benefit
scheme, working with the scheme
trustees and advisers to achieve
transaction execution in November
2022;
– Completion of the Ferranti Power
and Control acquisition in January
2022, coupled with a targeted focus
on expanding operational capacity at
key sites including Plano, Kansas City,
Suzhou and Kuantan (as described in
more detail in the Strategic Report on
pages 27 and 31); and
– The increased focus on talent
management and succession
planning (as described in more detail
on this page and in the Nominations
Committee Report on page 92).
Board dynamics – promoting diversity
TT has continued to benefit from an
extended period of Board continuity,
with no changes having been made in
the composition of the Board and its
principal Committees during 2022. The
honest, open and collegiate way in which
the Board operates lies at the heart of
our governance structures and how we
operate as a collective group.
Throughout 2022, we have had
two women on the Board, who also
chaired our Audit and Remuneration
Committees and represented 50% of our
Non-executive Directors. Nevertheless,
following the proposed changes to the
UK Listing Rules in 2023 to promote
ED&I , the Nominations Committee
embarked on a recruitment exercise to
appoint one or more additional NEDs,
with a key consideration being gender
and ethnic diversity at the Board level in
the context of these new Listing Rules
requirements. This recruitment exercise
culminated in the appointment of Wendy
McMillan and Mick Ord to the Board in
January 2023, which takes the female
composition of our Board to 37.5%. It is
my belief that the appointment of Wendy
and Mick to the Board, both of whom
have exceptional track records with blue
chip UK listed companies, enhances the
diversity perspective at the Board level
and provides TT with a wider range of
experience and capability in sectors that
are close to TT’s business operations.
For more detail on the approach we are
taking to increasing diversity at the Board
level, and TT’s path to compliance with
the new Listing Rues requirements – see
page 92 of the Nominations Committee
report.
Enhanced stakeholder engagement
One of the main conclusions identified
from last year’s external Board
evaluation exercise was the need to
maintain the strong focus on stakeholder
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TT Electronics plc Annual Report and Accounts 2022
engagement in 2022. As post-COVID
travel restrictions to TT’s principal sites
(outside China) were lifted in 2022,
the Board took steps to engage with
a wide range of stakeholder groups,
in an attempt to better understand the
impact of external macro-economic
factors on the Group’s core business
and ensure the effective linkage of the
Group’s culture and purpose to the
company’s strategic plan. Wherever
possible, meetings were held face to
face, and with a range of important
stakeholder groups, including TT staff
and senior management, customers
and shareholder representatives. These
key stakeholder events in the 2022 Board
schedule included the following:
– A Board visit to the Oldham facility,
to meet senior management and
staff working in the Ferranti business
acquired in January 2022;
– A Board visit to one of GMS Suzhou’s
key customers, Waters, including a
site tour and Q&A session with senior
management, which provided a deep
insight into TT’s technology and supply
chain positioning;
– A NED visit to TT’s Minneapolis
and Cleveland facilities in the US,
attended by the Chairman and
Chair of the Audit Committee, to
meet senior management/staff and
better understand TT’s customer
opportunities in the value-added
manufacturing services and medical/
power solutions sectors;
– A NED “pulse call” with the GMS
Suzhou senior management team,
conducted by video conference, to
gain a greater insight into operations
at TT’s largest Asia-based facility;
– Various face-to-face sessions
conducted by the NEDs throughout the
year with site leaders and divisional/
functional heads to discuss business
dynamics and operational challenges
(through Board dinners and ad hoc
meetings);
– Face-to-face dialogue with key
advisers (including TT’s brokers
and financial advisers) on key areas
of strategic planning and investor
relations, together with targeted
engagement with investors involving
(at separate times) the CEO, CFO,
Chairman, Audit Committee Chair
and Remuneration Committee Chair
(see page 36 for more detail); and
– As part of the annual Board cycle,
the Chairman met with a number
of shareholders who accepted his
invitation to discuss TT’s progress.
The Board believes that these meetings
have been important in setting the
Group’s strategic direction, across
various regions (with different cultural
approaches), reflecting factors such
as cost inflation pressures, continued
COVID business interruption (particularly
in Asia), staff retention/hiring challenges
and the global “cost of living” crisis,
without losing sight of TT’s corporate
purpose. Some examples of how these
factors have impacted the Board’s
decision-making in 2022 are set out
in our s172 Statement on page 63 and
elsewhere throughout the Strategic
Report. In addition, 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 42.
UK Corporate Governance Code
compliance
TT is committed to achieving and
maintaining the highest standards of
corporate governance. Throughout
the year, 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, for which the Group
became compliant on 1 January 2023.
The future Remuneration Policy, to be
put to a shareholder vote at the 2023
AGM, seeks to align both existing and
future Executive Director pension
provision to those available to the
wider UK workforce. 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 Executive
Directors having previously agreed that
their pension provision will align to the
wider UK workforce from 1 January
2023. The Code is available to view at
the website of the Financial Reporting
Council, www.frc.org.uk. The table below
sets out where details and explanations
of the application of the principles of
corporate governance can be found in
this annual report.
Conclusion
In a year of unprecedented external
challenges, TT has once again
demonstrated its resilience and
adaptability in delivering for our
customers, supporting our talented
group of employees and achieving a
strong set of financial results. The Board
has played a key role in setting the tone
and building upon our strong culture to
give TT the best possible opportunity
to deliver sustainable future growth,
focusing investment on key priority
areas. Our embedded governance
structures, coupled with the clear
objective of delivering improvement
in areas such as ED&I, stakeholder
engagement and sustainability, have
been at the heart of our strategic
positioning throughout the past year.
I am grateful to my Board colleagues,
the executive team and our committed
group of outstanding employees for
delivering another year of record order
book growth and strategic progress,
which (supported by our new Board
colleagues) creates a solid foundation
for the year ahead.
UK CORPORATE GOVERNANCE CODE
COMPLIANCE STATEMENT
1. Board leadership and Company purpose
A. Board effectiveness, long-term value and sustainability
B. Purpose, values, strategy and culture
C. Governance framework
D. Stakeholder engagement
E. Workforce policies and practices
2. Division of responsibilities
F. Roles and responsibilities
G. Leadership structure
H. External appointments
I. Board policies and processes
3. Composition, succession and evaluation
J. Appointments, succession planning and ED&I
K. Skills, experience, knowledge and length of service
L. Performance evaluation
4. Audit, risk and internal control
M. Financial reporting, internal and external audit functions
N. Fair, balanced and understandable
O. Internal controls and risk management
Remuneration
P. Policies and practices
Q. Directors’ Remuneration Policy table
R. Remuneration outcomes and performance targets
Read more on page
6-11, 81-83
20-21, 40-42, 85
77
36-37
38-49
87-88
77
89
87-89
90-91
76
93
95, 97, 98
98
66-68
106-111
114-120
122-129
TT Electronics plc Annual Report and Accounts 2022
83
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
STRATEGIC REPORT | LEADERSHIP AND COMPANY PURPOSE
LEADERSHIP AND COMPANY PURPOSE
BOARD
ACTIVITIES
During the financial year
the Board discussed and
implemented the following
key actions:
STRATEGY
PEOPLE
– Managing growth and addressing challenges raised
by global geopolitical events
– Strategic planning for future growth
– Site rationalisation activity – completion of transfer
of Lutterworth operations to Bedlington and Covina
operations to Kansas, sourcing a new site for the
transfer of Ferranti operations, establishing a new site
in Plano, USA
– Development of divisional strategic growth plans
– Divisional Technology Roadmaps
– Customer site visits
IR
– Recruitment and retention processes
– ED&I planning/development at board and senior
management level, including Board-level policy
– Workforce engagement on remuneration and wider
employee engagement activities
– Cost of living initiatives
– Talent management and succession planning
ESG/ENGAGEMENT
– Regular IR updates on share price progression and
movements in major shareholdings
– Investor feedback analysis
– Sustainability planning and progress (including
continued development of our Sustainability Council,
and our global dashboards); MSCI AA rating
– Site visits – Oldham, Cleveland and Minneapolis
– Employee engagement at sites visited and a video
conference engagement session with Suzhou
leadership team
– M&A integration activity (Ferranti Power and Control)
– Internal audit review on Sustainability
FINANCING
– Refinancing of the Revolving Credit Facility
– Regular review of existing and emerging financial risks
– Pension buy-in review
– Tax/Treasury reviews
OPERATIONS
– Customer engagement (i.e. record order book/deeper
customer relationships and opportunity pipeline)
– Board-level CRM and Net Promoter Score review
– Contract wins and commercial bids at each meeting
– Review of supply chain challenges
– Global geopolitical and fiscal events
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TT Electronics plc Annual Report and Accounts 2022
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 86) 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.
TT Electronics plc Annual Report and Accounts 2022
85
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | LEADERSHIP AND COMPANY PURPOSE
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.
– Statement of Values and Business Ethics Code
– Whistleblowing reports
– Safety metrics
– Employee support during cost-of-living crisis
– 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
– ED&I Policy
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.
– Leadership programmes and conferences
– 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
WE ACHIEVE MORE TOGETHER
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 (next event scheduled for 2023)
– Voice of the Customer surveys
– SID (Jack Boyer) reports back from the PSEE Committee to the Board
on stakeholder engagement processes
– Group-wide incentives
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TT Electronics plc Annual Report and Accounts 2022
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.
LEADERSHIP
LEADERSHIP
– Focus on capabilities – power, connectivity, sensing, and manufacturing
and engineering
– R&D investment as a percentage of sales 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
related risk and opportunities, 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 2022 are shown on page 84.
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 66 to 72.
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.
Three additional meetings were held
in the year to progress the Board’s
work on strategic planning, customer
bid approvals and authorisation of the
Pension Scheme buy-in transaction. The
Board has held two principal meetings
to date during 2023. The NEDs meet,
without the Executive Directors present,
at the end of each scheduled Board
meeting, as a standing agenda item.
During 2022, there was a sense of
returning to “business as usual”. The
Board returned to face-to-face meetings
at our offices and sites around the
world, but we have continued to enjoy
the benefits of online meetings and
communicating with our colleagues
and advisers across the globe without
the environmental costs of travelling
for every meeting.
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 2022 the Board discussed
strategic issues (principally focused
on key site rationalisation projects, the
Divisional opportunity pipeline, climate-
TT Electronics plc Annual Report and Accounts 2022
87
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | LEADERSHIP AND COMPANY PURPOSE
Leadership structure
Details of TT’s Board of Directors are
set out on pages 78 to 80 of this report.
The leadership structure chart on page
77 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.
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 November 2022),
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
DIVISION OF RESPONSIBILITIES
engagement with the workforce under
the Code. This includes the outcomes of
our employee engagement activities as
described on page 42 and sustainability
initiatives, including climate-related risk
described from page 50. 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 77.
Chairman, Chief Executive Officer and Senior Independent Director
The division of responsibilities between the Chairman and the Chief Executive Officer has been defined, formalised
in writing, and approved by the Board:
Roles and responsibilities
Chairman
Chief Executive Officer
Senior Independent Director
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.
Maintains responsibility for:
– The operations of the Group;
– Developing Group objectives and
Maintains responsibility for:
– Reviewing the performance of the
Chairman
strategy, having regard to the Group’s
responsibilities to its shareholders,
customers, employees and other
stakeholders;
– Providing a sounding board for the
Chairman on strategic matters/
succession planning
– Supporting the Board on the delivery
of key objectives
– Acting as an intermediary for Board
members and/or an alternative point
of contact for investors (as required)
– Successful implementation and
achievement of strategies and
objectives, as approved by the Board;
– Managing the Group’s risk profile,
including its HS&E/Sustainability
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.
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TT Electronics plc Annual Report and Accounts 2022
DIRECTORS’ INTERESTS
The Directors of the Company 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 2022, 31 December 2022 and 6 March 2023:
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 129.
6 March
2023 Ordinary
shares
31 December
2022 Ordinary
shares
1 January
2022 Ordinary
shares
Warren Tucker
60,075
60,075
Richard Tyson
1,006,666
1,006,666
Mark Hoad
Jack Boyer
Alison Wood
779,446
95,514
–
779,446
95,514
–
60,075
910,454
711,149
95,514
–
Anne Thorburn
60,000
60,000
60,000
Wendy McMillan
Michael Ord
–
–
–
–
–
–
RELATIONS WITH
SHAREHOLDERS
The full list of engagement activities and
our relations with shareholders during
the year are set out on pages 36 to 37.
GOING CONCERN
The Directors have reviewed the budgets
for 2023 and the projections for 2024
and 2025 developed during the 2022
annual strategic planning cycle. They
have assessed the future funding
requirements of the Group as outlined
on page 73 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.
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. All new
external appointments taken on by
Directors in 2022 were pre-approved by
the Board before the effective date of
the appointment. 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 90.
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.
TT Electronics plc Annual Report and Accounts 2022
89
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | NOMINATIONS COMMITTEE REPORT
COMPOSITION, SUCCESSION AND EVALUATION
NOMINATIONS
COMMITTEE
REPORT
MEMBERSHIP
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 the 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.
Warren Tucker (Chair)
Jack Boyer
Alison Wood
Anne Thorburn
Wendy McMillan (joined January 2023)
Mick Ord (joined January 2023)
CONTENTS
Principal responsibilities
Key activities during the year
Q&A with the Chair
2022 review
Board composition
Equality, diversity and inclusion
Board and Committee performance
evaluation
2023 Board objectives
Directors’ performance evaluation
Page 90
Page 90
Page 90
Page 91
Page 92
Page 92
Page 93
Page 94
Page 94
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TT Electronics plc Annual Report and Accounts 2022
KEY ACTIVITIES DURING
THE YEAR
– No changes were made to the
composition of the Board or
Committees during 2022.
– Detailed review of the new FCA Listing
Rules requirements for Board and
senior management ED&I targets.
– First-time adoption of a Board diversity
policy (to complement TT’s existing
Group diversity policy).
– NED recruitment process initiated,
factoring in diversity considerations,
culminating in the appointment of
Wendy McMillan and Mick Ord in
January 2023.
– Succession planning review
conducted at Executive Director and
ELT levels (plus a management layer
below).
– In-depth review of talent (“high
potential” and talent gaps) at a senior
management level.
Q&A
Q
What prompted the Committee
to launch a NED recruitment
exercise in 2022?
As we highlighted in last year’s
annual report, the 2021 Board
evaluation exercise did not identify
an immediate need to launch a
recruitment exercise for additional
Board members; however, it was
agreed that this issue would
be kept under review by the
Nominations Committee in 2022,
particularly given our stated goal
of maintaining a diverse range
of inputs into Board decision
making. During the past year,
the Committee has continued to
reflect on whether the existing
structure of the Board is likely
to meet TT’s future needs, with
reference to the Group’s core areas
of operations and the anticipated
skill sets required in the coming
years. Based on this analysis,
together with the publication of
the new FCA Listing Rule 9.8.6(9)
on board diversity and the fact
that two of our NEDs are now in
their seventh year as Directors
(including the associated transition
process), it was decided to initiate
an externally facilitated recruitment
exercise in 2022, for one or more
NEDs. This process represented
the key priority for the Committee
in the past year.
Q
What did the Committee learn from
this NED recruitment exercise?
to reconsider the diversity profile of
the Board and as a result, an external
recruitment firm was appointed to
assess TT’s Board-level requirements
for the future and develop a diverse list
of potential NED candidates.
Q
How far has TT progressed in terms
of achieving compliance with the new
Listing Rules requirements on ED&I?
Following the publication of LR 9.8.6(9),
the Committee reviewed the extent
to which listed companies (operating
both within and outside the FTSE
350) already met these new FCA
requirements, based on the most
current information available. This
analysis concluded that, whereas
many FTSE 350 companies have
taken significant steps in recent years
to increase the level of female and
ethnic minority board representation,
this has not been the case for FTSE
SmallCap companies, which are
generally less diverse in terms of board
composition and often competing to
access a smaller talent pool. Following
on from last year’s Board evaluation
exercise, it was well understood that
TT’s female representation on the
Board stood at 33 per cent, which was
notably higher than for many FTSE
SmallCap comparator companies.
Nevertheless, the Committee agreed
that 2022 would be an opportune time
The conclusion of this NED
recruitment exercise in 2022 (which is
described in more detail in the section
below) resulted in the appointment
of Wendy McMillan and Mick Ord as
new NEDs and we were delighted
to welcome them both as new
members of the Board in January
2023. This means that the level of
female representation on the TT Board
currently stands at 37.5 per cent, which
is marginally below the FCA stated
target of 40 per cent. We also adopted
a Board-level diversity policy for the
first time in 2022 (to complement TT’s
existing Group-level diversity policy)
and have provided numerical data on
the gender diversity profile of the Board
and senior management in the table
set out on page 49.
We recognise that to date, we have
not met the FCA’s stated future target
that at least one member of the
Board should come from an ethnic
minority background; nor are the
positions of CEO, CFO, Chair or SID
held by a woman. However, each of
the incumbents in these roles have
been in post for a significant period
of time and the positions of Audit and
Remuneration Committee Chairs are
both held by women. It is worth noting
that LR 9.8.6(9) only came into force
in 2022 for listed companies having
a financial year beginning on or after
1 April; as such, the Committee’s
focus in 2022 has been to meet these
new FCA targets as far as possible,
in advance of formal implementation
in 2023. It is perhaps more important
to recognise that the Committee’s
overall objective in this recruitment
exercise has been to enhance the
Board’s diversity of perspective and
secure NEDs capable of contributing
fully to the strategic debate, with
experience and capability in sectors
that are close to TT’s business
operations. In that sense, we firmly
believe that in Wendy and Mick, we
have secured the best candidates
for the new NED roles, who will help
us significantly in progressing TT’s
strategic development. Nonetheless,
the Committee understands the
intent behind LR 9.8.6(9) and remains
committed to maintaining its focus
on increasing the diversity of thinking/
decision-making at the Board level,
whilst also developing a path to
full compliance with LR 9.8.6(9) in
the future as part of its succession
planning activities.
2022 REVIEW
The Committee’s main focus in 2022
has been to manage the process for
recruiting one or more new NEDs,
which ultimately led to the appointment
of Wendy McMillan and Mick Ord in
January 2023. The Q&A section above
provides background information on
the data-gathering exercise which led
to the Committee’s decision to launch
a formal recruitment process in 2022.
This decision was taken in the context of
the Committee’s regular review of Board
composition/diversity; the publication
of LR 9.8.6(9) and the fact that two
of our NEDs are now in their seventh
year as Directors (with the associated
transition process during their final years
in office) were additional relevant factors.
The search process was conducted
following the appointment of an external
recruitment firm, Russell Reynolds,
whose expertise was drawn upon in
developing a detailed role specification
and subsequently, a diverse list of
potential NED candidates. There are
no connections between TT, its directors
and Russell Reynolds that require
disclosure in relation to this recruitment
exercise. The Committee’s strategy was
to leverage the Company’s position as
a purpose-driven organisation, with a
clear commitment to “solving complex
technology challenges for a sustainable
world”, to appeal to a wide range of
candidates from different backgrounds.
Each candidate was assessed against
the agreed role specification, with the
recruitment process being designed to
reduce the perceived risks associated
with appointing individuals from non-
traditional backgrounds, which included
taking references at an earlier stage
(and on a more extensive basis) than is
typically the case. Another key criterion in
the recruitment process was to address
the ways in which each candidate might
contribute to increasing the Board’s
diversity of perspective and add fully
to the strategic debate, based on
experience and skill sets.
The shortlisted group of candidates
were interviewed individually by each of
the NEDs and the CEO. The Committee
retained an open mind at all stages of the
recruitment process as to whether one
or more candidates would ultimately be
offered NED positions with the Company.
As stated in the Q&A section above,
the Committee was mindful of
the requirements of LR 9.8.6(9)
throughout the recruitment exercise,
notwithstanding the fact that these
targets only come into force for TT in
the 2023 reporting round. The extent of
TT’s compliance to date with LR 9.8.6(9)
is also summarised in the Q&A section,
it being noted that a Board-level diversity
policy was also adopted for the first time
in 2022 and we have provided numerical
data on the gender diversity profile of
the Board and senior management in
the table set out on page 49.
TT Electronics plc Annual Report and Accounts 2022
91
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | NOMINATIONS COMMITTEE REPORT
The Committee held four meetings
in 2022, at which (in addition to the
recruitment exercise described above)
the Committee undertook a detailed
review of TT’s talent management
programme, 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
agreed, as part of this process, to find
ongoing opportunities for the NEDs to
meet with key individuals identified in the
Group-wide succession plan, on a face-
to-face basis (wherever possible).
In addition to the activities referenced
above:
– 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 2022 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.
BOARD COMPOSITION
Throughout 2022, the Board comprised
two Executive Directors (Richard Tyson
and Mark Hoad) and four NEDs. There
were no changes in Board composition
during 2022, nor in relation to the
membership of Board Committees. As
described above, Wendy McMillan and
Mick Ord were appointed as new NEDs
in January 2023. We provide full details
of each Director’s Board and Committee
meeting attendance on page 78 and
Directors’ biographies, including the
Committees they serve on and chair,
which can be found on pages 78 to 80.
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.
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
EQUALITY, DIVERSITY AND INCLUSION (ED&I)
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.
In 2020, the Company introduced
its ED&I strategy to the workforce,
setting out our three-step multi-year
programme 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 47 for further information). The
Board (through the PSEE Committee)
receives updates on the progress of
the initiatives launched pursuant to the
Company’s ED&I strategy and monitors
the achievement of targets set in line
with the strategy.
As stated in the Q&A section above, a
Board-level diversity policy was adopted
for the first time in 2022, which requires
the Committee to have regard to issues
such as culture and diversity when
reviewing recruitment practices and
succession planning. This ED&I Board
policy will assist the Committee in
overseeing a diverse pipeline for senior
management and Board positions.
At all times during 2022, the Committee
has sought to ensure that the Board
is balanced and effective, with diverse
skills, knowledge and experience, as
highlighted in the Directors’ biographies
on pages 78 to 80. 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 an objective criteria
of skills, knowledge, independence
and experience. However, we do not
advocate a forced approach to diversity
at any level of the organisation. The
extent of TT’s compliance to date with
LR 9.8.6(9) is set out in the Q&A section
above. Female representation on the
Board currently stands at 37.5 per cent,
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.
A table setting out data on the gender
diversity profile of the Board and senior
management is set out on page 49.
For more detail on TT’s approach to ED&I
across the organisation, see page 47 of
the Our people section.
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TT Electronics plc Annual Report and Accounts 2022
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 2022. Following the
external evaluation exercise undertaken
in 2021, the Board decided to undertake
an internal assessment in 2022 (using
the procedure used most recently in
2020), without the assistance of external
facilitators. The Bo ard allotted part of
a scheduled meeting in year to conduct
the evaluation exercise, using the Board
objectives for 2022 (as outlined in last
year’s annual report) and the outputs of
the previous year’s evaluation exercise
to frame the discussion, which involved
all Board members.
The 2022 evaluation exercise highlighted
the positive Board dynamics experienced
by the NEDs and the Executive
Directors alike. It was concluded that
the Board was effective in discharging
its responsibilities and operated as a
high-performing unit, which continued
to benefit from a “low ego/high trust”
culture. In particular, it was noted that:
– The issues raised from the external
review in 2021 had been incorporated
into the Board’s operations, with
good progress made on the priority
items and incremental improvements
achieved, despite the challenging
economic environment.
– The NEDs are highly committed, both
to TT and the Executive team, with
a strongly inclusive dynamic in the
strategic discussions.
– Each member of the Board is seen as
being appropriately provocative and
challenging on key issues (at different
times and using their own unique
approaches); likewise, the Executive
team is regarded as very transparent
and open. The importance of
maintaining TT’s unique and positive
culture is very much understood and
promoted by the Board.
Key positives for 2022 included: (i) the
delivery of two wide-ranging strategy
reviews (involving good data points,
positive use of advisers and healthy
debate); (ii) the Board continuing to
focus on the key strategic topics
(pitched at the right level); (iii) changes
in external governance requirements
(eg ED&I) being appropriately
controlled and addressed; (iv) timely
progression of talent reviews and
reward discussions in year; (v)
outstanding Board-level support for
an efficient NED recruitment process;
and (vi) good levels of engagement on
succession planning.
– The evaluation process confirmed
that the Board had continued to
deliver on its prior year objective of
increasing the level of face-to-face
dialogue, which had resulted in a
more in-depth understanding of day-
to-day operational issues, thereby
directly benefiting the strategic
review process.
– The evaluation process also
highlighted that each Board member
possessed the requisite skills and
experience in each of the core
areas relevant to TT’s operations,
recognising that the appointment
of the two new NEDs in January
2023 would further enhance the
skill sets and experience around the
Board table. 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 2022 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 2022 evaluation review highlighted
several developmental areas for further
consideration, which included the
following:
– The Board recognised the need
to ensure that strategic planning
remained at the centre of the Board’s
thinking, with the recommendation
that more time be allocated on the
Board agenda for strategic reviews
and discussion.
– The Board concluded that good
progress had been made on
succession planning in 2022;
nevertheless, this remained a
priority objective for the year ahead,
with the need to attract/retain top
talent forming a key part of Board’s
responsibilities.
The review exercise recognised the
positive gender and cultural 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 ethnic diversity. The Board also
recognised the approach taken in year
to address gaps in diversity within its
senior leadership ranks, which included
the recruitment of two new NEDs in
early 2023.
Having considered these issues in detail,
the overall outcome of TT’s 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.
TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | NOMINATIONS COMMITTEE REPORT
2023 BOARD OBJECTIVES
Following the conclusion of the 2022
Board evaluation exercise, the Board
objectives for the year ahead were
agreed, which are set out below:
– NEDs and Executive Directors to
continue to operate in an engaged,
constructive, open, supportive and
challenging manner.
– Creation of more time on the
development of strategic positioning at
both a Group and Divisional level.
– Achieving the successful integration
of the newly appointed NEDs onto the
Board, to allow meaningful input on
key strategic topics from the start of
their appointment (whilst also avoiding
increased pressure on Executive
Directors’ time, wherever possible).
– Continued focus on ensuring
employee, sustainability and wider
stakeholder engagement through
face-to-face meetings (wherever
possible).
Board agenda to focus on strategic
development and execution, including
one meeting dedicated to the
– Increased focus on HR priorities,
including succession/retention, talent
management and ED&I.
DIRECTORS’ PERFORMANCE EVALUATION
In accordance with the Code, the
performance of individual Directors was
evaluated during 2022.
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 fed back to the
Chairman by the Senior Independent
Director for discussion.
At the beginning of the year, we set
each Executive Director challenging
performance objectives, and reviewed
progress against these as the year
progressed.
Both 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
7 March 2023
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TT Electronics plc Annual Report and Accounts 2022
AUDIT, RISK AND INTERNAL CONTROL
AUDIT
COMMITTEE
REPORT
MEMBERSHIP
Anne Thorburn (Chair)
Jack Boyer
Alison Wood
Wendy McMillan
CONTENTS
Principal responsibilities
Key activities during the year
Q&A with the Chair
Procedural and governance matters
2022 review
Significant issues
Page 95
Page 95
Page 95
Page 97
Page 97
Page 99
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.
– 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 the 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.
KEY ACTIVITIES DURING
THE YEAR
– Key areas of accounting judgement
considered in detail, including: (i)
consideration of items excluded from
adjusted profit; (ii) goodwill and the
annual impairment review, including
the impairment identified in the IoT
Solutions cash generating unit (CGU);
(iii) Group tax rates and provisions; and
(iv) going concern and viability.
– Performance assessment of the
external Auditor and overall audit
quality and effectiveness (in the
second full year following Deloitte’s
appointment), identifying areas of
potential improvement for the audit
teams, including opportunities for
accelerating certain audit workstreams
earlier in the year in an attempt to
reduce the workload associated with
the year-end sign-off process.
– Detailed consideration of findings from
the risk/assurance reviews undertaken
by the Internal Audit function, including
structuring the 2022 programme to
align with key Group-level risks.
– Strengthening the Internal Audit
function, including the creation of a
new Internal Compliance team (based
in the UK and US) with a remit to
deliver further improvements in the
Control Framework programme.
– Reviewing the progression of the
proposed BEIS Audit/Governance
reforms, including an assessment of
the key areas of focus for TT, to ensure
a smooth path to compliance with the
new rules, once enacted.
– Ongoing review of climate-related risks
(and associated TCFD disclosures),
in light of the new regulatory
requirements.
Q&A
Q
How is the Internal Audit function
structured? In the Committee’s
view, does the Internal Audit
team have an appropriate range
of skills and capabilities to
meet the ongoing needs of the
business?
We have a designated Head of
Internal Audit and Risk, who sits
within our Group Finance function
and acts as the conduit through
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which the Committee exercises
oversight of risk management and
assurance activities across TT,
including the operation of the Group
Control Framework. We see this as a
key role within TT and were delighted
to recruit a highly experienced
individual in 2022, from one of the “Big
4” accountancy firms, with specialist
expertise in the risk/assurance area
in the context of UK listed companies.
This appointment was made as part of
our succession planning programme,
with the predecessor in role having
taken on a senior Finance position
within one of the Divisional teams.
2022 also saw the creation of a new
Internal Compliance team (comprising
two separate roles, one based in the
UK and the other in the US), with a
focus on providing updates to the
Control Framework (to ensure it
continues to reflect best practice),
together with awareness training and
compliance reviews. The internal
team will also complement some of
the more operational aspects of the
internal audit programme, with TT’s
co-sourced internal audit partner
(PwC) continuing to deliver site
audits, as well as focusing on more
highly specialised compliance areas
(such as IT and Sustainability). We
believe that this structure provides the
Committee with an optimal structure
to exercise oversight over the Group’s
core risk management and assurance
activities, particularly with regards to
the proposed implementation of the
BEIS Audit/Governance reforms.
Q
What is the Committee’s view on
the progress made in 2022 on the
risk and assurance front?
Q
To what extent have the BEIS
proposals on Audit and Governance
reform been part of the Committee’s
agenda during 2022?
The Internal Audit plan each year is
structured to reflect the priority areas
in the Group-level risk framework (see
page 67 for more details). This allows
the Committee to focus its attention on
TT’s higher revenue-generating sites
(at least once every three years), whilst
also providing scope to assess higher
risk areas of operation (including
functional activities) on an “as needed”
basis. The outputs of the 2022 Internal
Audit programme revealed a good
level of compliance across the Group,
with the majority of audit actions
being principally confined to “lower
risk” items and with very few “overdue”
issues having been noted. Challenges
are often associated with recently
acquired business units, where the
higher levels of compliance associated
with a UK listed company environment
typically take time to adapt to.
This will remain a key area of focus for
the Internal Audit team going forward,
as well as ensuring that the Control
Framework is suitably modified (where
appropriate) so as not to impose
an undue administrative burden on
smaller teams working on lower risk
business activities. The Committee
takes a keen interest in ensuring that
the Internal Audit plan aligns carefully
to TT’s Risk Framework and took an
active role in developing the scope of
both the Sustainability and IT Security
reviews in year.
As stated in last year’s report, 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 its
stakeholder groups. The Committee
has continued to track the BEIS
reform proposals during 2022, having
provided a formal response to the
consultation exercise the year before.
We remain of the view that the BEIS
recommendations are helpful in the
round and should not present too
much of an additional burden for TT,
given the governance environment
and Control Framework structure
we already have in place.
However, recognising the likelihood
that the BEIS reforms will be adopted
in 2023 (coming into force for the 2024
reporting season), the Committee has
already started to look at key initiatives
to further strengthen the Group’s
policies and procedures in certain
areas. These include the creation of
the Internal Compliance function to
support work on the effectiveness of
internal controls; more extensive fraud
prevention/detection assessments;
updating our enterprise assurance
mapping; and (building on existing
work on distributable reserves at the
holding company level) consideration
of the distributable reserve position
across the Group’s operations.
Based on the size of our individual
business units, we do not believe that
any of our Group subsidiaries will be
designated as Public Interest Entities
for the purposes of the BEIS reform
proposals.
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PROCEDURAL AND GOVERNANCE MATTERS
Meetings of the Committee are
structured on the following basis:
– The CFO, the Group Financial
Controller, 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 Head of Internal Audit and Risk
presents on the progress of the
internal audit plan (undertaken in
conjunction with PwC under the
co-sourced partnering arrangement)
and provides updates on the Group’s
risk management framework, to allow
members to review principal risks and
the effectiveness of risk management
processes.
– 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.
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 relaxed in
the current year, with a significantly
greater amount of audit work being
undertaken on a “face-to-face” basis;
however, these remote working
practices remained available during
2022 to ensure that both internal
and external audit activities could be
fully completed. The existence of a
co-sourced internal audit arrangement
with PwC, and the use of Deloitte
as external Auditor, meant that local
teams were able to access our sites
in China to perform both internal and
external audit activities, despite the
ongoing restrictions during the year in
relation to travel into and out of China.
– The Committee undertook an
evaluation of external Auditor
performance in 2022, 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 2022.
– The Committee assessed its
performance in 2022 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.
2022 REVIEW
The Committee held four scheduled
meetings during 2022. A summary of the
key financial reporting and judgement
issues considered by the Committee in
2022 is set out in the table on page 99.
In addition, as part of the Committee’s
planning for the 2022 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 “Key matters
for 2021/22 report and accounts”
document.
The Q&A section on page 96 sets out
details of the core areas of activity for
the Committee in 2022. In addition, the
following specific audit matters were
considered by the Committee for the
reporting period: (i) consideration of
items excluded from adjusted profit;
(ii) goodwill and the annual impairment
review, including the impairment
identified in the IoT Solutions cash
generating unit (CGU); (iii) Group
tax rates and provisioning (with the
Committee concluding that, as a result
of processes first adopted in 2021, the
level of judgemental analysis applied in
this area for the current year had been
significantly reduced); and (iv) the going
concern and viability position for the
Group (reflecting current year trading,
the new US PP arrangement and the
RCF refinancing).
The Committee also reviewed the
outputs of the internal audit projects
conducted during 2022, 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 2022 included IT Security,
SAP deployment, TT’s Shared Services
functionality and Sustainability initiatives.
The Committee has continued to pay
close attention in the past year to the
progress made in developing the Group-
wide Control Framework programme
and its application in driving business
performance across TT (as described
in more detail in the Q&A section on
page 96), particularly in the context of
the Group’s migration to a shared service
environment and the financial integration
of acquisitions having only recently
adopted the Control Framework. For
further details of TT’s risk management
and internal controls structures see
pages 66 to 72.
During 2022, 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 66.
In the fourth quarter, the Committee
undertook a workshop review of the
Group’s climate-related risks and
opportunities, with particular reference to
the new TCFD disclosure requirements.
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KEY JUDGEMENTS
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 2022,
and the basis for the statement made
by the Board on “Fair, balanced and
understandable” on page 139, the Audit
Committee recommended to the Board
that, taken as a whole, the Annual Report
is fair, balanced and understandable and
provides the information necessary for
shareholders to assess the Company’s
position and performance, business
model and strategic plan.
AUDITOR’S INDEPENDENCE, OBJECTIVITY AND EFFECTIVENESS
The Audit Committee assesses the
independence of the Auditor annually to
ensure suitable policies and procedures
are in place to safeguard the Auditor’s
independence and objectivity, having
regard to length of tenure, provision of
non-audit services and the existence of
any conflicts of interest. The Committee
POLICY ON NON-AUDIT SERVICES
has formally reviewed the independence
of the Auditor as part of the 2022 review.
Deloitte has provided a statement 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.
The Company has an established policy
regarding the provision of non-audit
services by the external Auditor, 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.
Any arrangement with the auditor that
includes contingent fee arrangements is
not permitted. There is also a restriction
that fees for non-audit services will not
exceed 50% of the annual audit fee which
is more stringent than the FRC imposed
cap of 70% of the average audit fees
paid for the audit of the parent and its
controlled subsidiaries in the last three
years. This limit will only be exceeded
in unusual circumstances and only with
the pre-approval of the Audit Committee.
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 2022, the total fees paid to Deloitte
were £1.7 million, including £0.1 million
for their review of the Company’s interim
results, while no other non-audit service
fees were paid to Deloitte in the year.
Accordingly, during 2022, non-audit
service fees paid to Deloitte represented
six 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 158 to 163. The
Committee received and reviewed
reports from management and
the external Auditor setting out the
significant issues in relation to the 2022
financial statements, as outlined on
page 99. 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 August 2022; 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.
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TT Electronics plc Annual Report and Accounts 2022
SIGNIFICANT ISSUES
SIGNIFICANT ISSUE
COMMITTEE ACTIONS/WORK UNDERTAKEN
Adjusted profit (see Note 7)
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 8)
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 14)
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) and
an impairment identified in the IoT
Solutions Cash Generating Unit (CGU).
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.
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 2022 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 impairment charges
for goodwill and acquired intangibles are required for 2022 other than that
identified in the IoT Solutions CGU. The Committee noted that the impairment
includes assets associated with the Virolens project and reviewed the revised
growth assumptions used in the five year plan, challenging management’s
assumptions and concurring with them.
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 the 2023 budget and the strategic plan to 2025.
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.
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COMMITTEE ACTIVITIES IN 2022
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 outputs of the ongoing BEIS consultation
on Audit and Governance Reform.
– Reviewed Terms of Reference.
– Received and considered whistleblowing matters
reported through the Group’s multi-lingual, anonymous
ethics and integrity portal.
– Reviewed the fair, balanced and understandable process
– Undertook an evaluation on the effectiveness of the
for the financial reports.
Committee.
– Reviewed and discussed 2022 H1 and year-end
– Considered new areas of audit disclosure under
accounting issues.
UK legislation/regulation.
INTERNAL AUDIT AND RISK AND ASSURANCE
EXTERNAL AUDIT
– Received a report at each meeting on progress on
– Discussed and approved the external audit plan
and audit fee.
– Reviewed external Auditor planned activity.
– Reviewed and confirmed both the independence of
the external Auditor as part of the 2022 review, and
non-audit fees.
– Assessed the quality and effectiveness of the audit
programme, including the performance of the Auditor
relative to prior year.
the internal audit and risk assurance plan.
– Reviewed internal audit planned activity and resource.
– Agreed the remit of the internal audit programme
of work.
– Considered the results of the 2022 internal audit
activities.
– Reviewed and approved the 2023 internal audit plan.
– Conducted the annual review of the Group’s internal
audit function.
– Assessment of controls designed to protect against
fraud.
– Ongoing monitoring of the Group’s internal controls
environment throughout the year.
Anne Thorburn
Chair, Audit Committee
7 March 2023
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TT Electronics plc Annual Report and Accounts 2022
INTRODUCTION TO OUR:
REMUNERATION
COMMITTEE
REPORT
MEMBERSHIP
PRINCIPAL RESPONSIBILITIES
Alison Wood (Chair)
Warren Tucker
Jack Boyer
Michael Ord
CONTENTS
– 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.
Principal responsibilities
Key activities during the year
Q&A with Chair
Annual statement
– Approve the design, performance
measures, targets and outturns of
incentive schemes for the Executive
Directors and senior managers.
Page 101
Page 101
Page 102
Page 103
– 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.
2022 Executive Remuneration at a glance Page 105
2023 Remuneration Policy overview
Page 108
Remuneration Policy Report
Annual report on remuneration
Page 112
Page 122
Implementation of the Policy for 2023
Page 122
Implementation of the Policy for 2022
Page 124
Total single figure remuneration
Salary and benefits
Short-term incentive for 2022
Long-term incentive
Directors’ share interests
Page 124
Page 125
Page 125
Page 128
Page 129
KEY ACTIVITIES DURING THE YEAR
– We sought to support our employees
with the increased cost of living which
disproportionately impacts our lowest
earners through a variety of pro-active
actions, including an additional cost of
living support payment to eligible UK
employees.
– In addition, we provided our lowest
paid UK colleagues with higher salary
increases in April 2022 and increased
our salary review budgets for 2023.
– We undertook a thorough review of
remuneration design as part of our
Remuneration Policy review which
will be put to a shareholder vote at
the 2023 AGM. We reviewed the
most appropriate incentive structures
and quantum, the use of and types
of performance measures in our
incentives, and developments in
governance practices.
– We consulted both our major
shareholders (and their representative
bodies) and employee stakeholders
on the proposed changes to
our Remuneration Policy and its
implementation in 2023. We reflected
on both shareholder and employee
feedback in finalising the changes to
the Remuneration Policy, how it will
be implemented for 2023 and the
changes required to wider incentives to
ensure alignment of culture and focus.
– We considered remuneration
outcomes to ensure they remain
fair, appropriate, and in line with our
remuneration principles and Company
performance.
– Our Short-Term Investment Plan
(STIP) awards are ahead of on-target
reflecting the strong profit growth in
extremely challenging circumstances
with multiple headwinds for the
Executive team to manage. Cash flow
performance was creditable but held
back by investment in working capital
to support increased growth and
customer demand.
– Long-Term Incentive Plan (LTIP)
awards granted in 2019 vested in 2022
at 27.4 per cent primarily reflecting
the impact of the pandemic on the
momentum of the business during the
three-year performance period and the
halt in progress during 2020 as a result
of the temporary pause in growth of
our end markets.
TT Electronics plc Annual Report and Accounts 2022
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Q&A
Q
It has been another busy year,
what has pleased you the most
about 2022?
The year has featured many highlights
and positive actions. The COVID-19
pandemic tested the resilience of
our organisational culture and the
strength of our TT Way values. Our
embedded values were central to
our approach during the pandemic,
leading to a series of actions to
make our workplaces safe and
secure and to protect and support
employees who ensured delivery
for our customers. We have brought
our values to the fore once again
this year in seeking to support our
employees with the impact of higher
inflation on costs of living with
appropriate regional responses, whilst
continuing to manage the impact of
COVID-19 to our employees in Asia.
Most notably, cost of living has been
a significant challenge in the UK,
disproportionately impacting our
lower paid employees. Our response
has focused on the active provision
of a range of support measures
encompassing financial, physical
and mental health. Lower paid UK
employees also received a one-off
additional payment to support the
winter months. Further details are
outlined in my annual statement
on page 103.
Despite the cost of living challenge,
our employees have continued to
support their local communities
and fundraise for local and national
causes. The ongoing resilience,
contribution, and dedication of our
employees in all regions has been
remarkable over this prolonged period
of uncertainty. We will continue to
focus on supporting them as they are
critical to the long-term sustainability
and success of TT.
Q
External events continue to make
markets and economic conditions
volatile and uncertain. How does the
Committee approach target setting
in these times?
Target setting is a critical component
of the Committee’s activities to ensure
alignment of strategic progress,
stakeholder outcomes, and the
continued motivation and aspiration of
the Executive team. The effect of volatile
and uncertain economic conditions
where significant events and headwinds
could make performance targets feel
unachievable or, in different times too
easily achievable, reduces stakeholder
and leadership alignment.
As a Committee, we ensure stretching
performance goals are set taking
account of the latest information at the
time they are set. Typically this includes:
internal and external forecasts relating
to the Group’s performance; the key
risks associated with the forecasts,
notably ongoing economic and societal
uncertainty; and the Board’s expectation
of the development of the Group. In
setting the performance targets for
2023, the Committee has considered
the setting of stretching performance
targets that encompass a wider range
of outcomes to limit any motivational
impact of unforeseen external events.
The Committee remains mindful of the
need for stakeholder alignment and the
perception of windfall gains. To ensure
that performance outcomes remain
appropriate, the Committee continues to
be willing to exercise both upwards and
downwards judgement and discretion
when determining remuneration
outcomes for the Executive Directors
where appropriate.
Q
What were the primary considerations
informing the review of the future
Remuneration Policy?
Our role as a Committee is to encourage
enhanced performance and to reward
contribution to the long-term success of
the Group, from which our stakeholders
benefit. The future Remuneration Policy
is intended to apply for the coming three
years, which is expected to be a period of
continued uncertainty, given the current
geopolitical and economic context.
Our Remuneration Policy review was
guided by our remuneration principles
alongside the following three
objectives:
(i)
To better reflect the strategic
importance of ESG within our
remuneration;
(ii) To enable a wider choice of
performance measures in
incentives; and
(iii) To ensure remuneration packages
remain appropriately positioned
in respect of the high calibre
individuals required to deliver the
Group’s strategic priorities and
lead a Company of our scale and
complexity.
Our stakeholder consultation indicated
broad support for these objectives.
In particular, stakeholders were
complimentary about our proposal
in respect of increasing the strategic
focus on ESG matters to ensure
longer-term sustainable value creation.
Q
The Committee undertook
significant engagements with
stakeholders in the creation of the
future Remuneration Policy. How did
their feedback shape the final Policy
proposal?
Ahead of the consultation in 2022,
the Company led a review of our
existing Remuneration Policy and
remuneration design with support
from the Committee’s appointed
independent remuneration
consultants. This review included
an examination of the strategic
alignment of a range of remuneration
structures/approaches alongside
corporate governance developments.
The outcome of this review was
discussed by Committee members,
initially on a confidential one-to-one
basis and then as a Committee, to
define the proposed changes put
to consultation.
The Committee values the input of
stakeholders and consulted with a
broad range in the second half of the
year, including our key shareholders,
the main shareholder representative
bodies and employees whose
remuneration most closely aligns
with that of the Executive Directors.
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TT Electronics plc Annual Report and Accounts 2022
The majority of feedback was
supportive of the aims of the Policy
and positive in respect of the changes
proposed. It was interesting to note
that stakeholder feedback was
principally focused on how the Policy
would be implemented in 2023 rather
than the changes to the Policy. The
key feedback themes and how the
Committee, with the support of the
appointed independent remuneration
ANNUAL STATEMENT
On behalf of the Board, I am pleased to
introduce the Directors’ remuneration
report for the year ended 31 December
2022. The report sets out our philosophy,
together with the key activities and
decisions made by the Remuneration
Committee during the year. The report is
split into the following sections:
CONTEXT FOR THE YEAR
The operating context to our
performance has continued to be
affected by significant external events
and challenges which continue to be
shaped by the COVID-19 pandemic
and more recently, by the conflict in
Ukraine. Despite this difficult external
environment, the Executive team has
navigated the Group with agility, speed
and resilience to deliver another year of
great progress. Our performance has
been underpinned by numerous proof
points of our strategy delivering in 2022
as we continue to unlock the potential
of TT. The dedication and commitment
of our employees continues to be
a key differentiating factor of our
competitive advantage and our operating
performance.
The Committee’s focus for the year
has been on the wider workforce and
responding to the impact of inflation
on our employees and affordability
pressures arising from the cost of living.
As outlined in the Q&A the Company has
undertaken a range of activities across
its geographic footprint displaying the
strength of our values and how they
inform our decision-making.
advisor, incorporated them into the
finalised proposals in early 2023 are
set out on page 106.
who are critical to the ongoing
development of the Company.
The Committee believes that both the
future Remuneration Policy and its
implementation align remuneration
with the principle of delivering long-
term, sustainable value creation for our
stakeholders; and will help to retain, align
and motivate the Executive Directors
The Committee thanks our
stakeholders for their engagement,
support and constructive dialogue
which helped to shape and refine the
final proposal.
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. At-a-glance summaries of the key
remuneration outcomes for the
year, the future Remuneration Policy
and proposed Executive Director
remuneration for 2023.
iii. The future Directors’ Remuneration
Policy, to be proposed to shareholders
at the 2023 AGM (the future Policy or
the 2023 Policy).
iv. The annual report on remuneration
which details the implementation of
the current Policy in the year ended
31 December 2022 and the proposed
implementation of the future Policy
for the current financial year. The
current Policy operated as intended
during 2022 with no changes.
In the UK, this support included:
– Partnering with a financial wellbeing
partner to provide: (i) a financial fitness
questionnaire and online education
resources; (ii) emergency access to
pay advances thereby reducing the
need for payday loans; (iii) access to
longer-term debt and reconciliation
of existing employee debt to reduce
interest repayment charges; and (iv)
the ability to set up savings accounts
direct from payroll to build rainy day
savings.
– Delivering an additional cost of living
support payment of £300 to all UK
employees on salaries up to £40,000.
– Running frequent communications
on our voluntary benefits programme
which incorporates discount on a
range of retailers to help offset some
of the cost of living changes.
– Improving communication and raising
employee awareness of our pan-
UK health cash plan and Employee
Assistance Programme (EAP) which:
(i) enables employees to recover some
day-to-day healthcare costs such as
for vision and dental costs; (ii) ensures
access to GPs via a virtual video call;
and (iii) offers assistance with a range
of counselling services from financial
through to mental health.
– Delivering sessions focused on the
all-employee ShareSave scheme
and retirement savings to ensure
employees are aware of the
choices available to them, including
participation, pausing contributions
and withdrawal.
– Reviewing and increasing the
budget for 2023 salary reviews
with distribution, once again, being
weighted to our lowest paid workers
and increases averaging in the range
of 6.5 to 7 per cent.
Against this backdrop the Committee has
assessed remuneration outcomes and
undertaken a review of the Remuneration
Policy to ensure the continued alignment
of remuneration with the delivery of the
Company strategy.
TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | REMUNERATION COMMITTEE REPORT
BUSINESS PERFORMANCE
The year has once again tested and
proven the success of our strategy to
become a higher-quality, better-balanced
business aligned to structural growth
markets. Our business development
success in customer partnering has
seen new project wins and deeper,
more embedded relationships with key
partners that are longer term and more
collaborative. The effect of which we are
seeing in our record order book and very
strong organic growth. We have also
progressed well on our sustainability
agenda, which has remained central to
strategic decision-making, particularly
when we consider the opportunities
presented by the move to a lower
carbon world.
inclusive environment but more focused
on building a diverse workforce that
can help us achieve our business aims.
We believe this provides our people a
greater voice and platform, especially
when it comes to sustainability, their
safety and well-being. The Committee
was also pleased to see significant
talent development actions during the
year and the establishment of a Global
HSE framework and operational toolkits.
Our progress against our 2035 net zero
for Scope 1 and 2 emissions target
has continued with improvements in
the environmental sustainability of our
facilities through established site carbon
reduction plans and investment in
renewable energy.
Sustainability actions also
continue to improve our safe and
supportive workplaces in which
individuals can bring their best and
authentic selves to work every day.
Our focus on ED&I (rollout of our
global Inclusive Leadership workshops
to over 900 leaders, completion
of our first Women’s Leadership
Programme, targeted workshops
on microaggressions, allyship and
menopause as well as calendar
events focused on key ED&I topics)
has created a culture that is not only
more deliberate about ensuring a more
Across the Group, operational execution
has been impressive despite ongoing
supply chain issues characterised by
lengthy lead times, material availability
and cost inflation. At the same time, our
site rationalisation programme has been
completed, with additional benefits being
realised and more still to come through.
There has been strong organic revenue
growth of 20% at constant currency and
we started 2023 with excellent visibility
from our record order book. We are well
positioned to deliver further growth in
2023 and improved margin and cash
performance.
PERFORMANCE-RELATED REMUNERATION FOR 2022
Free cash flow in the year was managed
in the context of the material supply
chain challenges, and significant working
capital investments to protect customer
delivery and to serve additional customer
demand. The actions to fully de-risk the
UK DB pension scheme assisted our in-
year free cash flow by £6m and provides
an equivalent annual improvement to
free cash flow in future years.
Overall, performance has been very
strong in challenging circumstances:
– Adjusted profit before tax was
£40.4 million, up by 28 per cent;
significantly ahead of the market
consensus.
– Free cash outflow was £13.1 million
as we invested to support high organic
growth will keeping leverage within
our 1-2x target range.
– Adjusted EPS was 18.2 pence, up by
26 per cent.
The Committee adopts a holistic and
rigorous approach to decision-making,
determining Executive Directors’
remuneration in the context of our core
remuneration principles of: aligning
pay with performance; ensuring the
appropriate level of motivation and focus
required to deliver the Group strategy;
and reviewing remuneration outcomes
in the context of our stakeholder
experience.
The Committee believes that the
following remuneration outcomes are
a fair reflection of strong business
performance and excellent growth in
the context of the macro-economic
challenges arising from geopolitics,
supply chain constrains, increased
inflation and the ongoing impacts
from the pandemic, and the personal
performance of the Executive Directors.
In respect of short-term incentive
remuneration outcomes for the wider
workforce, awards continue to recognise
performance and the attainment
of relevant business performance
measures in 2022. This ensures
alignment with the approach for the
Executive Directors.
– The 2022 STIP design for Executive
Directors was 50 per cent Group
adjusted profit before tax, 25 per cent
Group free cash flow and 25 per cent
based on the achievement of strategic
objectives. Financial performance
targets in the STIP exclude movements
in foreign exchange. Performance
against the financial measures of
adjusted profit before tax and free
cash flow were between on-target and
the maximum, and below threshold
respectively. Combined with the
significant progress against the Group’s
strategic objectives, the calculated
outturn on the STIP performance
measures for 2022 is 61% of the
maximum. The Committee believes
that this is an appropriate outcome,
reflecting the stretching budget set, the
strong revenue and profit performance,
resilient cash flow performance whilst
investing to support high organic
growth, and the Group's strategic
performance. Eighty per cent of the
award will be paid in cash and 20 per
cent deferred into shares in accordance
with the current Remuneration Policy.
Details of the short-term incentive
performance targets and performance
achieved are presented on page 125.
– The 2019 LTIP awards vested in March
2022. The awards were based on two
equally weighted measures, absolute
adjusted EPS and relative TSR
performance. As reported last year,
the impact of the pandemic on the
business momentum and progress
linked to this award meant that the
threshold EPS performance measure
was not met. TSR performance over
the three-year period was ahead of
median which meant that this half of
the awards vested at 54.8 per cent.
Further details are presented on
page 128.
– The 2020 LTIP awards are due to
vest in March 2023 based on a sole
TSR performance measure. The TSR
performance period ends in March
2023 and is anticipated to vest close
to the threshold performance targets.
The final vesting will be disclosed in
next year’s Directors’ remuneration
report.
– The Committee did not exercise
judgement or discretion in respect of
the remuneration outcomes for 2022.
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TT Electronics plc Annual Report and Accounts 2022
2022 EXECUTIVE REMUNERATION AT A GLANCE
BUSINESS PERFORMANCE
£40.4m £13.1m Outperforming Above median
rank
Total shareholder return2
Adjusted profit before tax1
Group free cash outflow1
Strategic performance
1 Target and actual performance are assessed at constant budget exchange rates.
2 TSR performance measure of the 2019 LTIP award (performance period of 11 March 2019 to 10 March 2022).
PERFORMANCE OUTCOMES
Short-term incentive plan
Long-term incentive plan
61.2% 0%
61.2% 27.4% 0%
Formulaic outcome
(% of maximum)
Committee
judgement/discretion
(% of maximum)
Final outcome
(% of maximum)
Formulaic outcome
(% of maximum)
Committee
judgement/discretion
(% of maximum)
27.4%
Final outcome
(% of maximum)
Financial objectives (% weighting)
Performance dimensions (% weighting)
Adjusted profit before tax (50%)
Group free cash flow (25%)
KPI
KPI
25%
41%
9%
Total shareholder return (50%)1
KPI
27.4%
26.6%
Strategic objectives (% weighting)
ESG development (10%)
Group Strategy development (7.5%)
People talent development (7.5%)
KPI
KPI
KPI
7%
3%
7% 0.5%
6% 1.5%
1
In line with the disclosures in the 2020 Annual Report and Accounts, 100% of the 2020
LTIP is based on relative TSR performance. The full value of the vested award will be
included in the 2023 single figure of remuneration.
Achieved Not achieved
TOTAL REMUNERATION FOR 2022
Richard Tyson, Chief Executive Officer
Mark Hoad, Chief Financial Officer
£1.19m
2021: £1.31m
44.9% – Salary and benefits
6.2% – Pension
31.9% – Short-term incentive
17.0% – Long-term incentive
£0.89m
2021: £0.98m
46.0% – Salary and benefits
6.3% – Pension
32.2% – Short-term incentive
15.5% – Long-term incentive
51.1% fixed 48.9% variable
ALIGNMENT WITH STAKEHOLDERS
52.3% fixed 47.7% variable
Share ownership requirement:
200% of salary for Executive Directors.
200%
CEO
CFO
335%
346%
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.
Long-term incentive
Awards delivered in shares and
subject to mandatory two-year
holding period.
Remuneration principles flow through
the Group to ensure alignment.
TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
STRATEGIC REPORT | REMUNERATION COMMITTEE REPORT
REMUNERATION POLICY REVIEW
During the year significant thought has
been given to the design of our 2023
Policy. This centred on ensuring the
alignment of remuneration with the
next phase of the Company strategy, in
particular: that incentive structures and
performance measures are strategically
aligned, that the Committee has
sufficient flexibility in incentive design
to support the evolution of the strategy
over the next three years, and that
arrangements are able to attract, retain
and motivate high calibre individuals
that are required to deliver the Group’s
strategic priorities and lead a Company
of our scale and complexity.
Whilst we have undertaken a full
review of our Policy, we concluded
that the existing pay for performance
principle has served us well and we
consider the proposed changes to be
evolutionary. In reviewing the Policy
we have consulted with our major
shareholders, investor bodies and
employees. We were encouraged that
the majority were supportive of both our
reasons for evolutionary change and
the changes to the 2023 Remuneration
Policy with some specific constructive
suggestions. In finalising the changes
we reviewed stakeholder feedback
and endeavoured to incorporate their
views. The Committee thanks our
stakeholders for their engagement,
support and constructive dialogue which
helped to test the rigour of our approach
and improve the final proposals. The
Committee believes that the changes
ensure that the Policy remains “fit for
purpose” to align both stakeholders’
and our Executive Directors’ focus and
interests to deliver the next phase of
the strategy.
The main changes to the Policy, which
are set out in detail in the Remuneration
Policy Report, are summarised as
follows:
– To align the pension provision for
Executive Directors (existing and new)
to those available to the majority of
the workforce in which the Executive
is employed. From 1 January 2023 the
Executive Directors pension provision
reduced from 15 per cent to 7 per cent
of salary.
– To better reflect TT’s wider role in the
global ESG arena and the importance
of our sustainability strategy, we are
increasing the flexibility within our
remuneration to introduce a separate
ESG component into the STIP and
more clearly enabling the ability to
introduce ESG measures into the
LTIP during the Policy period.
EXECUTIVE DIRECTOR REMUNERATION FOR 2023
– To enable a wider choice of
performance measures in incentives
by increasing the flexibility with
respect to performance metrics used
in both the STIP and LTIP, and to
increase flexibility of metric weightings
in the STIP.
– To ensure remuneration packages
remain appropriately positioned in
respect of the high calibre individuals
required to deliver the Group’s strategic
priorities and lead a Company of our
scale and complexity by increasing
variable, performance related pay,
rather than fixed remuneration, with
an increase in STIP opportunity of
25% of salary to 150% of salary.
This change is also fundamental to
enabling additional focus on ESG in
our incentives. To further improve
stakeholder alignment and Executive
Director shareholding the STIP deferral
into shares will increase from 20 per
cent to 30 per cent.
The implementation of the 2023 Remuneration Policy was a core component of our stakeholder consultation and provided the
opportunity for more detailed stakeholder discussion and feedback. That feedback, as outlined in the Q&A, positively tested our
thinking and improved our plans for Executive Director remuneration in 2023. The key themes and outcomes from consultation
were as follows:
Stakeholder theme
Incorporation of feedback
Setting stretching targets to reflect the increase in Executive Director STIP
opportunity from 125% to 150% of salary
Targets will be appropriately stretching reflecting the increase in maximum
opportunity
Wider market practice has shown some companies have faced difficulties
in setting appropriate ESG performance measures in the STIP, and shown
the potential tension between ESG targets and the need to continue to drive
financial performance
Feedback showed divergent views on LTI design and that no one approach to
performance measures would fully satisfy our broad shareholder base. Most
notably, feedback concerned: (a) whether TSR should or should not be included
as a performance measure in long-term incentives; and (b) where included, the
differing preferences for its prominence and weighting in the plan design.
ESG targets in the STIP will be strategically aligned and outturns will be subject
to an underpin alongside the strategic objectives
Reflecting the majority view, a cash-based performance measure will be
included, reflecting the increased strategic importance of strengthening the
balance sheet. To maintain strategic and stakeholder alignment the Committee
currently anticipates that the 2023 LTIP awards will be subject to performance
against EPS (50% weighting), TSR (25% weighting) and operating cash
conversion (25% weighting).
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TT Electronics plc Annual Report and Accounts 2022
The Committee was mindful of the
stakeholder experience, particularly
the context of the wider workforce and
wider society, in finalising the following
arrangements for 2023:
– When determining base salaries
increases for the Executive Directors,
the Committee reviewed the Company
response to support our employees
with the increase in cost of living and
the planned salary increases for the
wider workforce. For the UK, salary
budgets have been increased and will,
once again, deliver higher increases
to our lower paid workers who are
most impacted by higher inflation.
UK workforce increases are expected
to average in the range of 6.5 to 7.5
per cent. For the Executive Directors
base salaries were increased at a rate
lower than the workforce, by 5 per
cent on 1 January 2023. Fees for the
Chairman and Non-executive Directors
were also increased by 5 per cent.
– Executive Directors’ pension
allowances reduced from 15 per cent
to 7 per cent from 1 January 2023 to
align with those available to the wider
UK workforce.
– In keeping with the ambitions of the
2023 Policy, the STIP will evolve from
prior years with the inclusion of a new,
separate higher-profile ESG-based
component to improve the strategic
alignment. The STIP will also continue
to focus on our momentum to grow
our profitability and deliver good free
cash flow of the Group. The STIP will
be based on adjusted profit before tax
(47%), free cash flow (23%), ESG (10%)
and strategic objectives (20%). To
enable the new ESG component and to
ensure remuneration packages remain
appropriately positioned to retain and
attract high calibre individuals, the
opportunity will increase by 25 per
cent of salary to 150 per cent of
salary with at least 30 per cent of
any award deferred into shares for
two years. Further details are
included on page 122.
– LTIP awards are planned to be made
in March 2023. The Committee
anticipates that the 2023 LTIP awards
will evolve from prior year to better
reflect the strategic importance
of delivering improved and stable
operating cashflow to improve the
leverage position in the longer term
whilst continuing to recognise the
importance of delivering sustainable
OUR 2023 EXECUTIVE DIRECTOR REMUNERATION FRAMEWORK
Short-term incentive plan
Long-term incentive plan2
23%
Free cash
flow
47%
Profit before
tax1
+
20%
Strategic
objectives
50%
Adjusted
EPS1
+
10%
ESG
25%
Average
cash
conversion
25%
Relative
TSR
Performance measure and weighting
Performance measure and weighting
47% – Adjusted profit before tax1
50% – Adjusted EPS1
23% – Group free cash flow1
20% – Strategic objectives
10% – ESG objectives
25% – Average operating cash conversion
25% – Relative TSR
1 Target and actual performance are assessed at constant budget exchange rates.
2 LTIP performance measures and weightings shown represent anticipated design for 2023.
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 strategy
to deliver sustainable growth in
stakeholder value.
What they measure
– Sustainable growth in the Group’s
profitability per share over three
years.
– Long-term operational cash
flow efficiency over three years,
supporting cash generation for
capital re-investment.
– The Group’s share price and
dividend performance relative
to a peer group over three years.
– 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.
earnings growth and relative
total shareholder returns. Awards
are anticipated to be subject to
performance against EPS (majority
weighting), TSR (minority weighting)
and operating cash conversion
(minority weighting). Award levels for
the Executive Directors are expected
to be 150 per cent of salary. LTIP
awards will be subject to a two-year
post-vesting holding period. Due to
the ongoing uncertainty and to ensure
performance targets are appropriately
stretching, the setting of performance
measures and targets are expected to
occur at the date of grant. Details of
the targets will be published in the RNS
following the grant.
TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | REMUNERATION COMMITTEE REPORT
2023 REMUNERATION POLICY OVERVIEW
Remuneration objectives and key principles
The Remuneration Policy supports and rewards the achievement of the Group’s strategy to deliver profitable and
sustainable growth over the short and longer term. This is driven and evaluated by how the Group performs against a
variety of strategically aligned KPIs, both financial and non-financial. Our Directors’ Remuneration Policy was last approved
by shareholders at the AGM in 2020 and this overview outlines the proposed key changes which shareholder will be able
to vote on at the 2023 AGM and how this would be applied.
As a Committee, we believe that the proposed evolution of the Policy will be “fit for purpose” to align both stakeholders’
and our Executive Directors’ focus and interests during the next phase of the Company strategy. In proposing the changes,
we have sought feedback from our largest institutional shareholders, the major investor bodies and employees; feedback
themes have been incorporated in our final proposals.
The Policy is set out in full on pages 112 to 121.
Executive Director remuneration for 2023
Element
Maximum
2023
2024
2025
2026
2027
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.
CEO/CFO 150% of
salary. 70% cash and
30% in deferred shares.
Pension
provision paid.
Annual
performance
conditions
apply. Majority
weighting on
Group financial
targets,
minority to ESG
performance
and strategic
objectives.
Cash
element
paid
(70% of
incentive).
Two-year share
deferral (30% of
incentive).
Long-term
incentive plan
CEO 150% of salary,
CFO 150% of salary.
Two-year holding period.
Based on a variety of financial and/
or shareholder value creation and/
or ESG measures over a 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.
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.
(withholding)
and clawback
(recovery)
Share
ownership
requirement
Post-
employment
share
ownership
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TT Electronics plc Annual Report and Accounts 2022
Outline of key Policy changes
Element
Current Policy
Proposed Policy
Rationale
Fixed Pay
Pension
Current policy for Executive
Directors is up to 15% of
salary.
The maximum contribution
for Executive Directors
will be aligned with those
available to the majority of
the workforce in which the
Executive is employed.
Variable Pay Short-term
incentive plan
opportunity
The maximum opportunity
for Executive Directors is
125% of salary.
The maximum opportunity
for Executive Directors is
150% of salary.
Short-term
incentive plan
performance
measures
Based on a combination
of financial and strategic
performance measures with
at least 75% of the incentive
assessed against Group
level financial measures.
Based on a combination
of Group financial (majority
weighting) and strategic
and/or ESG performance
measures (minority
weighting).
Long-term
incentive plan
performance
measures
Awards vest based on a
variety of financial and/or
shareholder value creation
measures.
Awards vest based on a
variety of financial and/or
shareholder value creation
and/or ESG measures.
Governance
Short-term
incentive plan
deferral
20% of any earned incentive
is automatically deferred
pre-tax into shares for a
period of two years.
30% of any earned incentive
is automatically deferred
pre-tax into shares for a
period of two years.
The proposed change is
consistent with the 2018 UK
Corporate Governance Code
and Investment Association
guidance. Details in respect
of reducing the pension
of incumbent Executive
Directors is explained below.
The proposed increase
to the STIP potential
ensures the package
remains competitive
against companies of a
similar size, complexity
and geographical spread,
enables a greater focus on
ESG and enables a greater
proportion of the STIP to be
delivered in deferred shares
(see below).
The proposed change
provides the Committee
with greater flexibility
to operate ESG-based
performance metrics
in addition to strategic
metrics albeit ensuring that
the majority of the STIP
remains on Group-based
financial measures.
The proposed change
provides the Committee
with greater flexibility to
introduce and operate
long-term ESG-based
performance metrics.
The proposed change
increases long-term
alignment with shareholders
and means that almost all
of the increase to the STIP
potential will be deferred
into shares.
TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | REMUNERATION COMMITTEE REPORT
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.
– As described in this report, during the
year the Committee focused on the
response to the impact of inflation on
employees and affordability pressures
arising from the cost of living. The
Committee expects this to remain
a key agenda item for 2023.
– In addition to existing site employee
forums, we built on the feedback
from our 2021 pilot sessions with
the workforce, focused on our
remuneration principles and how
these align with our remuneration
arrangements, to deliver improved
sessions across our UK footprint.
Sessions are design to be open,
transparent and enable constructive
discussion on remuneration to enable
clear and concise feedback of themes
to the Committee.
– NED site visits (in-person for:
Cleveland, Minneapolis, Oldham and
virtual for Suzhou, China) 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
Information
flow
Reward/
culture-related
feedback also
shared with the
Remuneration
Committee
Other sources
of feedback on
total employee
experience
including
designated NED
Remuneration
arrangements
across the
workforce
Remuneration
Committee
Board
– For 2022, the median CEO pay ratio
has decreased from 52:1 in 2021 to
43:1. 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 decrease in ratio results
from: (i) higher workforce earnings
which include the additional payment
to support employees manage the
impacts of high inflation, and (ii) a
lower STIP award to the CEO than in
the prior year reflecting the challenging
external environment and a low LTIP
vesting which continues to reflect the
pause in the growth momentum of the
Company caused by 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 continue
to make progress by championing
a female-friendly workplace and
targeting our talent processes to
improve our diversity. We have started
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 STAKEHOLDER ENGAGEMENT
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 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 financial and non-financial
performance measures we have set.
We also reflect on 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 2022.
– 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.
– During the year we engaged our
investor and employee stakeholders
to consult on our 2023 Remuneration
Policy and how we intended to
implement the Policy in the design
of remuneration for 2023. The
Committee thanks our stakeholders
for their engagement, support and
constructive dialogue which helped
to test the rigour of our approach
and improve the final proposals. We
remain committed to stakeholder
engagements.
THE YEAR AHEAD
As the Company continues to develop, the Committee, working with management, will continue to assess and ensure our
arrangements remain fit for purpose to unlock the potential of the Group. In particular, the Committee looks forward to
assessing the successes of the changes of the 2023 Remuneration Policy and the evolution of performance measures
in our incentives against the aims of the Policy review. The Committee remains mindful of the impact of high inflation on
employees’ cost of living and will ensure this remains an area of focus.
Alison Wood
Chair, Remuneration Committee
7 March 2023
TT Electronics plc Annual Report and Accounts 2022
111
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION – Strongly align to the achievement of
strategic progress and the delivery of
sustainable value to shareholders; and
– 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, maintaining an alignment
of reward outcomes with stakeholder
interests.
– 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.
STRATEGIC REPORT | REMUNERATION POLICY
REMUNERATION POLICY REPORT
OVERVIEW
INTRODUCTION
The following pages detail the Directors’
Remuneration Policy which we intend to
apply, subject to shareholder approval at
the 2023 AGM, and how it differs from
that approved by shareholders at the
2020 AGM.
The Remuneration Policy supports
and rewards the achievement of the
Group’s strategy to deliver profitable and
sustainable growth over the short and
longer term. This is driven and evaluated
by how the Group performs against
a variety of strategically aligned KPIs,
both financial and non-financial. As a
Committee, we believe that the proposed
Policy will be “fit for purpose” to align
both stakeholders’ and our Executive
Directors’ focus and interests during
the next phase of the Company strategy.
In proposing the changes, we have
consulted with our largest institutional
shareholders, the major investor bodies
and employees; feedback themes have
been incorporated in our final proposals.
Summary of the key changes from the
previous Policy
The key differences between the Policy
approved by shareholders in 2020 and
the 2023 Policy are as follows:
– To align the pension provision for
Executive Directors (existing and new)
to those available to the majority of the
workforce in which the Executive is
employed. This is currently 7 per cent
of salary.
– To better reflect the wider role TT
plays in the global ESG arena and
the importance of our sustainability
strategy, we are increasing the
flexibility within our remuneration to
introduce a separate ESG component
into the STIP and more clearly enabling
the ability to introduce ESG measures
into the LTIP during the Policy period.
– To enable a wider choices of
performance measures in incentives
by increasing the flexibility with respect
to performance metrics used in both
the STIP and LTIP, and to increase
flexibility of metric weightings in
the STIP.
– To ensure remuneration packages
remain appropriately positioned to
attract and retain the high calibre
individuals required to deliver the
Group’s strategic priorities and lead a
Company of our scale and complexity
by increasing variable, performance-
related pay, rather than fixed
remuneration, with an increase in STIP
opportunity of 25% of salary to 150% of
salary. This change is also fundamental
to enabling additional focus on ESG
in our incentives. To further improve
stakeholder alignment and Executive
Director shareholding the STIP deferral
into shares will increase from 20 per
cent to 30 per cent.
KEY POLICY OBJECTIVES
Our remuneration principles, shown
below, informed the design of our current
Remuneration Policy which aims to:
– Enable 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;
– Deliver an appropriate balance
between fixed and variable
compensation for each Executive;
– Place a strong emphasis on
performance, both short and
longer term;
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TT Electronics plc Annual Report and Accounts 2022
Alignment with the Code
The table below details how the Committee addresses the factors set out within Provision 40 of the Code, which align with
our principles:
Clarity
– 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,
such as that
undertaken over
the past year.
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.
– Stakeholder
engagements
on remuneration
changes help
to ensure that
proposals remain
simple and easy
to understand.
– 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.
– 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.
– 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.
– The Committee
takes into account
the stakeholder
experience,
particularly the
context of the
wider workforce
and wider society,
when determining
remuneration
outcomes for
the Executive
Directors.
– 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
incentive design,
target setting,
operation of
discretion and
setting of non-
financial strategic
performance
objectives.
TT Electronics plc Annual Report and Accounts 2022
113
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | REMUNERATION POLICY
2023 REMUNERATION POLICY
Operation and scope of Remuneration policy
The future Remuneration policy is intended to apply to the Executive Directors and Non-executive Directors from the close of the
Company’s AGM on 9 May 2023, subject to approval by shareholders.
The Committee has written this Policy principally in relation to remuneration arrangements for the Executive Directors, whilst
taking into account the possible recruitment of a replacement or additional Executive Director during the operation of the Policy,
which is intended to operate for the full three-year Policy term. However, the Committee may after due consideration, seek
to change the Policy during this period if it believes it is appropriate to do so for the long-term success of the Company, after
consultation with stakeholders and having sought shareholder approval at a general meeting.
The Committee reserves the right to make any remuneration payments and/or payments for loss of office (including exercising
any discretions available to it in connection with such payments) notwithstanding that they are not in line with the Policy where the
terms of the payment were agreed:
(i)
before AGM 2014 (the date the Company’s first shareholder-approved Directors’ Remuneration Policy came into effect);
(ii) before the future Policy comes into effect, provided that the terms of the payment were consistent with the shareholder-
approved Directors’ Remuneration Policy in force at the time they were agreed; or
(iii) at a time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment
was not in consideration for the individual becoming a Director of the Company. For these purposes “payments” includes the
Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are
“agreed” at the time the award is granted.
Future Remuneration policy table
Subject to shareholder approval at the Company’s 2023 AGM, the Remuneration Policy for each remuneration element will be
as outlined in the following Policy tables. From time to time, the Committee may consider it appropriate to apply judgement and
discretion in respect of the approved Policy. This is highlighted where relevant in the Policy, and the use of discretion will always be
in the spirit of the approved Policy.
Salary
Purpose and link to
strategy
Operation
No material change
Opportunity
Performance measures
Not applicable, although
the overall performance of
the individual is taken into
account when determining
salary increases.
To provide a core
reward for the role.
Set at an
appropriate level
to attract, motivate
and retain high
calibre individuals
needed to deliver
the Group’s
strategic priorities.
Salary is normally reviewed annually,
typically effective from 1 January each
year. Salaries are normally paid in the
currency of the Executive Director’s
home country.
The Committee considers a number
of factors in setting salaries, including
but not limited to:
– Broader Company policy in respect
of salaries applied to all employees.
– Individual’s role and scope, skills,
experience and performance.
– Competitiveness to independently
sourced data compared to relevant
comparator groups such as
companies of similar complexity,
sector and size.
– Set at a level to ensure an appropriate
level of basic fixed income and avoids
excessive risk arising from over
reliance on variable income.
There is no prescribed
maximum annual increase
although increases are
generally aligned with the
general increase received by
the broader employee base in
which the Executive operates
and market movement.
Higher increases may be
made at the Committee’s
discretion in certain
circumstances such as
a significant change in
responsibility, in the scale of
their role or in the size and
complexity of the Group.
Larger increases may also be
considered for progression
if a Director has been initially
appointed to the Board at a
lower than typical salary.
Current base salary levels
are set out in the Directors’
Annual Remuneration Report.
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TT Electronics plc Annual Report and Accounts 2022
Benefits
Purpose and link to
strategy
To provide market
competitive and
cost-effective
benefits to attract
and retain high
calibre individuals
Operation
Opportunity
Executive Directors are eligible to receive
benefits, which typically may include but
are not limited to:
– Cash allowance in lieu of company car
There is no prescribed maximum as
benefit costs can fluctuate depending on
changes in provider cost and individual
circumstances.
No material change
Performance measures
Not applicable.
Details of the current benefit costs
are set out in the Directors’ Annual
Remuneration Report.
benefit.
– The provision of private medical
insurance, health screening.
– Life assurance, income protection and
critical illness cover.
In line with the policy for other
employees, Executive Directors may be
eligible to receive relocation or overseas
relocation benefits and allowances as
appropriate.
Benefit provision is tailored to reflect
geographic market practice in which the
Executive Director is based and different
policies may apply if Executive Directors
are based in a different country.
Opportunity
The maximum contribution for Executive
Directors will be aligned with those
available to the majority of the workforce
in which the Executive is employed.
No material change
Performance measures
Not applicable.
Pension
Purpose and link to
strategy
Operation
To provide
a market
competitive level
of retirement
income and assist
attraction and
retention.
Pension arrangements for Executive
Directors are structured in accordance
with the provisions available to the
majority of the workforce in which the
Executive is employed.
Executive Directors in the UK are entitled
either to join the defined contribution
pension plan and/or to receive a
cash pension in lieu of the pension
contribution.
In line with market practice, pensionable
pay for Executive Directors in the UK
includes basic salary only.
TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | REMUNERATION POLICY
Short-term incentive plan
Purpose and link to
strategy
To incentivise
and recognise
execution of the
achievement
of the business
strategy on an
annual basis.
Rewards the
achievement
of stretching
annual financial
measures and
strategic business
targets aligned to
business strategy.
Operation
Opportunity
Performance measures
Change to opportunity, increased
deferral into shares, greater
flexibility to operate non-financial
performance measures, such as ESG
The maximum opportunity
for Executive Directors is
150 per cent of basic salary.
For target performance,
the incentive award will be
50 per cent of the maximum
opportunity.
Based on a combination
of Group financial (majority
weighting) and strategic
and/or ESG performance
measures (minority
weighting). The specific
measures and weighting
between measures will
be determined each year
to ensure alignment with
Company strategy and
budgets. The Committee
may use its discretion to set
financial measures that it
considers appropriate in each
financial year.
Specific performance
measures and weightings
will be included in the relevant
year’s Annual Report on
Remuneration.
Performance measures and targets
are typically set at the Committee’s
discretion at the start of each financial
year and are aligned with the strategic
business priorities. Financial targets are
set with reference to the budget.
Incentive awards are assessed and
determined by the Committee based
on performance against the targets.
30 per cent of any earned incentive
is automatically deferred pre-tax
into shares for a period of two years.
Deferred shares are eligible for dividend
equivalents up to the date of vesting and
release. Deferred awards (after any sales
to pay associated tax withholdings) must
be retained until the share ownership
guideline and/or post-cessation of
employment share ownership guidelines
are met.
The Committee may apply judgement
in making appropriate adjustments to
incentive outcomes to ensure they reflect
underlying business performance and
shareholder interests.
Awards are subject to malus and
clawback provisions.
Long-term incentive plan
Purpose and link to
strategy
Operation
Greater flexibility to operate
ESG performance measures
Opportunity
Performance measures
The maximum award which
may be granted under the
LTIP in any one year is up to
150 per cent of basic salary
for the Executive Directors.
The amount that is paid out
for achievement of threshold
performance will be no
more than 25 per cent of the
maximum. The minimum
vesting is zero.
Awards vest based on a
variety of financial and/or
shareholder value creation
and/or ESG measures.
The specific measures and
weighting between measures
will be determined each
year to ensure alignment
with Company strategy
and business plan. The
Committee may use its
discretion to set measures
that it considers appropriate
each year. Specific
performance measures and
weightings will be included
in the relevant year’s Annual
Report.
To incentivise
and recognise
delivery of longer-
term sustainable
business
performance,
aligning Executive
Directors’ interests
with those of
shareholders.
In addition,
to provide a
retention element,
encourage long-
term shareholding
and discourage
excessive risk
taking.
Award of shares, either as nil cost
options or conditional awards, made
annually with vesting dependent on the
achievement of performance conditions
measured over three years. Vested
shares (after any sales to pay tax) are
subject to an additional two-year holding
period.
Performance measures and targets are
set at the Committee’s discretion, there
may be a single target range to be met at
the end of the three-year period or annual
target ranges to be met throughout
the three-year period. Targets are set
for each award with reference to the
business plan.
Awards are eligible for dividend
equivalents up to the date of vesting and
release.
The Committee may apply judgement to
adjust the formulaic vesting outcomes
(either up or down) to ensure they reflect
underlying business performance
and shareholder interests over the
performance period.
Awards are subject to malus and
clawback provisions.
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TT Electronics plc Annual Report and Accounts 2022
No material change
Performance measures
Not applicable.
No material change
Performance measures
Not applicable.
All-employee share plans
Purpose and link to
strategy
Operation
Opportunity
To encourage
employee share
ownership and
increase alignment
with shareholders.
Share ownership
guidelines
Purpose and link to
strategy
To align the
interests of
Executive
Directors
with those of
shareholders.
A number of all-employee share plans
are operated across the Group.
In accordance with prevailing legislative
and plan limits.
Executives are entitled to participate
in all-employee share plans (Sharesave
in the UK, Employee Share Purchase
Plan in the USA) on the same terms as all
other eligible employees.
Operation
Opportunity
Executive Directors are required to build
and maintain significant shareholdings
over time.
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 the in employment requirement
or maintain their actual holding if lower.
The post-cessation requirement will be
calculated based on the basic salary at
the leave date and applies to shares that
vest (after any sales to pay tax) under the
long-term incentive plan and the deferred
share bonus plan (DSBP) following the
2020 AGM.
Malus (withholding) and Clawback (recovery)
No material change
The Committee may apply judgement to adjust formulaic incentive outcomes (either up or down) prior to payment/vesting to
ensure they reflect underlying business performance and shareholder interests. Malus and clawback events include material
misstatement, misconduct of the participant, vesting/payments based on erroneous or misleading data, serious reputational
damage and corporate failure.
The Committee may enact clawback up to three years from the vesting of share awards under the LTIP (2019 awards onwards)
and the DSBP. Clawback of the cash incentive may be enacted up to two years after payment. In the event that clawback is
enacted, the Committee has the discretion to require repayment or to reduce any unvested or unpaid award made under any
Employees’ Share Scheme or the short-term incentive plan. In addition, if a participant in the DSBP is subject to investigation
then the vesting of their award may be delayed until the outcome of that investigation.
TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION No material change
Performance measures
Not applicable.
STRATEGIC REPORT | REMUNERATION POLICY
Future Remuneration Policy Table – Non-executive Directors (NEDs)
Non-executive Director
fees
Purpose and link to
strategy
To attract NEDs
who have a
broad range
of experience
and skills to
oversee the
implementation
of our strategy.
Operation
Opportunity
There is no prescribed maximum fee
level, increases are generally aligned
with the general increase received by
the broader employee base and market
movement.
NED fees (excluding those of the
Chairman) are set by the Chairman and
Executive Directors. The Chairman fee
is set by the Committee.
NEDs receive a basic fee paid monthly
in respect of their Board duties.
Further fees are paid in respect of
Board committee chair fees and the
role of Senior Independent Director.
No additional fees are payable for
membership of a Board committee.
Fees are reviewed annually and set by
reference to independently sourced data
compared to relevant comparator groups
such as companies of similar complexity,
sector and size. Fee reviews are typically
effective from 1 January each year. Fees
are normally paid in the currency of the
Non-executive’s home country.
Non-executives are eligible for the
reimbursement of Company-related
expenses (grossed up for tax where
appropriate) relating to the performance
of their duties including travel,
accommodation and subsistence.
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TT Electronics plc Annual Report and Accounts 2022
NOTES TO THE POLICY TABLE
Performance measures and targets
The Committee believes the choice
of performance measures for the
short-term and long-term incentive
plans represent an appropriate balance
between the short-term and long-term
focus of the Group’s strategic aims and
key performance indicators, as well
as an appropriate balance between
internal and external assessment of
performance. Performance measures
for the short-term incentive are tied to
the Company’s delivery of key financial
metrics and non-financial strategic
objectives. The measures applicable
to the LTIP reward the delivery of long-
term returns to shareholders and the
Group’s financial performance being
consistent with the Company’s objective
of delivering superior levels of long-term
sustainable value to shareholders. When
setting targets, the Committee takes into
account a variety of factors, including but
not limited to, market practice, market
expectations and internal business
plans, and forecasts. In setting the
targets, the Committee ensures that
they are sufficiently stretching and that
there is an appropriate balance between
incentivising Executive Directors to meet
targets for the year, whilst ensuring that
they do not drive unacceptable levels
of risk and encourage inappropriate
behaviours.
Consideration of remuneration
arrangements throughout the Group
In setting the Policy the Committee
considers the remuneration arrangement
across the Group and the relativity of
Executive Director remuneration. When
considering annual salary adjustments,
the Committee takes account of the
expected increases for the broader
employee base.
Remuneration arrangements across the
Group are based on the same principles
that remuneration should support
the delivery of the business strategy
and should be sufficient to attract,
motivate and retain talent. Although the
remuneration offered to the Executive
Directors has a stronger emphasis on
variable performance-related pay than
that offered to other employees, to
the extent practicable, remuneration
practices are cascaded down the
organisation, such that employees
are aligned towards common goals.
The Group operates in a number of
different geographic territories and has
many employees who carry out a range
of diverse roles. The ratio of fixed to
variable pay differs by employee level
and the structure of remuneration varies
by local market, consisting:
– Salary and benefits (including pension/
retirement) are tailored to the local
market.
– Short-term incentive plans are
operated across the Group, typically
on differing metrics aligned to the
Company strategy which may include
financial performance, sales team
KPIs, operational KPIs, HSE, ESG,
individual or team performance.
– Long-term incentive plan awards are
made annually to senior leadership
roles across the Group, typically on
the same terms as those for Executive
Directors or as restricted share
awards.
– All employee share plans are available
to all UK and US employees.
The Committee consulted with a
range of stakeholders in the formation
and finalisation of the 2023 Policy.
Stakeholders included our key
shareholders, shareholder proxy bodies
and our employees whose remuneration
most closely aligns with that of the
Executive Directors. This subset of
employees were selected as being: (i)
those with the most comprehensive
understanding of the company strategy
and the company's KPIs, (ii) whose
remuneration would most likely be
impacted by the proposals, and (iii) best
place to provide constructive feedback
on the proposals.
Recruitment Policy
When considering the recruitment of a
new Executive Director, the Committee
will apply the prevailing Remuneration
Policy at the time of appointment.
The Committee will determine
remuneration on a case-by-case basis
depending on the role, the market
from which they will operate, their skills
and experience. Total remuneration
levels will be set to attract the most
appropriate candidate and will take into
account remuneration levels amongst
relevant comparator groups. Where
appropriate, salaries may initially be set
below mid-market levels to allow for
future development in the role with the
Committee retaining discretion to award
increases in excess of those of the wider
workforce to bring the salary to the
market level over time.
Benefit and pension arrangements will
be set in accordance with the terms
of the approved Remuneration Policy
in force at the time of appointment.
The Committee may also agree that
the Company will meet certain costs
associated with the recruitment, for
example legal fees, and the Committee
may agree to provide relocation benefits.
It is anticipated that new Executive
Directors will participate in short- and
long-term incentive plans on the same
arrangements as existing Directors. In
certain circumstances, the performance
measures associated with these awards,
in the year of joining, may be granted
with different measures and/or targets
to the other Directors.
For an externally appointed Executive
Director, the Company may offer
additional remuneration that it
considers necessary to buy out
current entitlements from the existing
employer that will be lost, as may
be required in order to achieve a
successful recruitment when the
Committee considers these to be in
the best interests of the Company and
stakeholders. The Company is mindful
of the sensitivity relating to recruitment
packages and will seek to minimise
buy-out remuneration. The overriding
principle for any such remuneration
would be that any replacement buy-
out award should be of comparable
commercial value to the terms,
incentives and other compensation
which have been forfeit. In order
to facilitate buy-out arrangements,
existing incentive arrangements will be
used to the extent possible, although
if necessary awards may be granted
as permitted under the Listing Rules
exemption 9.4.2.
For an internal executive Director
appointment or a new Director following
acquisition or merger, any variable pay
element awarded in respect of their prior
role may be determined according to
the original terms, adjusted as relevant
to take into account the appointment. In
addition, any other ongoing remuneration
obligations existing prior to appointment
may continue on their original terms.
TT Electronics plc Annual Report and Accounts 2022
119
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | REMUNERATION POLICY
The Committee retains discretion
to make appropriate remuneration
decisions outside the standard Policy
to meet the individual circumstances
of recruitment when:
If appropriate, on the recruitment of
a new Executive, the Committee may
agree to an initial notice period in excess
of 12 months, reducing to 12 months
over a specified period.
– an interim appointment is made to fill
an Executive Director role on a short-
term basis; or
– exceptional circumstances require
that the Chairman or a Non-executive
Director takes on an executive function
on a short-term basis.
In the event that a Non-executive
Director takes on an executive role for
a temporary period, the Non-executive
Director will be remunerated in line
with the prevailing Executive Director
Remuneration Policy in force at the
time of appointment.
Fees for a new Chairman or Non-
executive Directors will be set in line
with the approved Policy in force at the
time of appointment. It is not intended
that variable pay, day rates or benefits in
kind be offered, although in exceptional
circumstances such remuneration may
be required in currently unforeseen
circumstances.
The Committee will include in future
Remuneration Reports details of the
implementation of the Policy as utilised
during the Policy period in respect of
any such recruitment to the Board.
Service contracts/letters of
appointment
Executive Directors service contracts
are terminable by either party with
12 months’ notice and allow for the
Company to impose a six-month non-
competition clause.
The Chairman and Non-executive
Directors do not have service contracts
but have letters of appointment with the
Company. Notice periods are normally
set at one month for the Chairman and
Non-executive Directors.
Service contracts are available for
inspection at the Company’s registered
office.
Loss of office policy
In the event that an Executive Director’s
employment with the Company
terminates, the following policies and
payments will apply.
Element of Remuneration Loss of office payment policy
Fixed Pay
Up to 12 months’ annual salary payable. The contracts contain provision, at the Board’s discretion,
for payment in lieu of notice. In calculating any termination payment, the Board would take into account
the commercial interests of the Company and apply usual common law and contractual principles.
Short-term
incentive plan
Generally, benefits will continue to apply until cessation. The Committee may make payments in
connection with an existing legal obligation or in respect of any claim relating to the cessation of
employment. This may include fees for outplacement assistance, legal and/or professional advice.
No award would generally be payable if on the date the payment is declared an individual is no longer
employed by the Company, or has received or given notice to leave the Group. However, the Committee
retains discretion to deem an individual a good leaver1, in which case it may provide a time pro-rated
award, determined against the relevant performance conditions. Any award would normally be payable
at the normal payment date. In determining the level of short-term incentive to be paid, the Committee
may, at its discretion, take into account performance up to the date of cessation or over the financial year
as a whole based on appropriate performance measures as determined by the Committee.
Deferred share
bonus plan
Deferred short-term incentive awards are governed by the plan rules which are subject to shareholder
approval.
Unvested awards will normally lapse unless the individual is deemed a good leaver1 in which case the
awards will vest in full on the original vesting date. The Committee retains discretion, in exceptional
circumstances, to determine an early vesting date.
In the event of change of control, awards will vest or may be exchanged for new awards.
Long-term
incentive plan
Long-term incentive plan awards are governed by the plan rules which have been approved by
shareholders.
Unvested awards will normally lapse unless the individual is deemed a good leaver1 in which case
the awards will normally vest on the original vesting date, subject to the satisfaction of the relevant
performance conditions and be pro-rated for time. The Committee retains discretion to determine that
awards vest at cessation (for example in the case of death) and/or to disapply time-based pro-ration.
In the event of change in control, and unless participants agree with the acquiring company to exchange
their awards, awards will vest subject to the satisfaction of the relevant performance conditions and be
pro-rated for time. However, the Committee has discretion to disapply time proration.
1 For example: death, disability, redundancy, retirement, or other circumstances at the discretion of the Committee.
External appointments
Executive Directors, with the prior approval of the Board, may accept one external appointment as a Non-executive Director
of another company. Experience as a board member of another company is considered to be valuable personal development,
which is of value to the Company. The retention of any related fees by the Executive Director or remission to the Company will
be determined on a case-by-case basis.
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TT Electronics plc Annual Report and Accounts 2022
Illustration of total remuneration opportunity
The following charts illustrate the future total remuneration for each Executive Director in respect of the proposed remuneration
opportunity to be granted under the future Remuneration Policy for approval at the 2023 AGM. The charts indicate the minimum,
on-target and maximum remuneration that could be received. Underlying assumptions follow the charts.
Maximum with
50% share price
growth
23%
31%
46% £2,556
Maximum with
50% share price
growth
25%
32%
43% £1,835
Maximum
28%
36%
36% £2,165
Maximum
29%
37%
34% £1,570
On target
44%
28%
28%
£1,381
On target
45%
29%
26% £1,012
Minimum
100% £597
Minimum
100%
£453
0
500
1,000
1,500
2,000
2,500
0
500
1,000
1,500
2,000
2,500
3,000
Richard Tyson
Mark Hoad
Fixed pay
Short-term incentive
Long-term incentive
All scenarios:
– Base salary and pension to be paid in 2023.
– Benefits in kind received in 2022 as shown in the Single Total Figure of Remuneration table.
– Short-term incentive is based on 150 per cent of salary, as proposed under the future Remuneration Policy.
– Long-term incentive is based on the multiples for 2023 of 150 per cent and 135 per cent of salary for the CEO and
CFO respectively.
– Dividend equivalents are not included in respect of deferred awards under the short-term incentive or awards under the long-
term incentive plan.
Fixed:
– Fixed pay consists of salary, pension and benefits in kind as provided under the Remuneration policy.
On-target:
– For the short-term incentive 50 per cent of the maximum would be payable. For the long-term incentive 50 per cent vesting
is assumed.
Maximum:
– It is assumed that the short-term incentive would be payable at maximum and the that the long-term incentive award would
vest in full.
Maximum with share price growth:
Calculated as per the maximum but for the long-term incentive award which includes a 50 per cent share price growth assumption.
Discretion
The Committee has discretion in numerous areas of the Policy as set out in the report. The Committee may also exercise
administrative and operational discretion under incentive plan and share plan rules. The Committee may make minor
amendments to the Policy set out in this Policy Report (for regulatory, exchange control, tax or administrative purposes or to
take account of a change in legislation) without obtaining shareholder approval for that amendment.
The Committee may vary or waive any performance condition(s) if an event occurs which causes it to determine that the original
condition(s) have ceased to be appropriate, provided that any such variation or waiver is fair, reasonable and not materially less
difficult to satisfy than the original condition would have been but for the event in question (in its opinion). The Committee may
also adjust the calculation of performance targets and vesting outcomes (for instance for material acquisitions, investments or
disposals and events not foreseen at the time the targets were set) to ensure they remain a fair reflection of performance over
the relevant period. In the event that the Committee was to make an adjustment of this sort, a full explanation would be provided
in the next Directors’ Annual Remuneration Report. The Committee will also consider shareholder consultation in respect of
material adjustments.
TT Electronics plc Annual Report and Accounts 2022
121
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | ANNUAL REPORT ON REMUNERATION
ANNUAL REPORT ON
REMUNERATION
IMPLEMENTATION OF THE REMUNERATION POLICY FOR THE YEAR ENDING 31 DECEMBER 2023
A summary of how the Directors’ Remuneration Policy will be applied, subject to the approval of the future Remuneration Policy,
during the year ending 31 December 2023 is set out below.
BASIC SALARY
The Remuneration Committee agreed that it would be appropriate to increase the base salaries of the Executive Directors at a
level lower proportionally than general increases across the broader workforce and significantly below inflation. Executive Director
base salaries were increased by 5 per cent effective 1 January 2023. After a review, the budget for the Group’s UK salary review
has been increased and will, once again, be weighted to our lower paid employees. Following on from our cost of living actions
in 2022 salary increases across the UK are expected to average 6.5 to 7.5 per cent depending on location, promotional increases
and individual performance.
Executive
Richard Tyson
Mark Hoad
PENSION AND BENEFITS
2023
£522,402
£391,876
2022
Increase
£497,526
£373,215
5%
5%
The Executive Directors previously agreed that their contractual pension allowance of 15 per cent of salary would be aligned with
those available to the wider UK workforce by 31 December 2022 by way of a single reduction. The revised pension allowance, in
line with those available to the wider UK workforce, is 7 per cent of salary.
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. In line with
the proposed new Policy, the intention is that the maximum short-term incentive opportunity for 2023 will be increased from 125
per cent to 150 per cent of base salary. The bonus deferral into shares will increase from 20 per cent to 30 per cent of the earned
bonus for a period of two years.
The Policy changes provide the Committee with greater flexibility to ensure the selection of performance measures that best
reflect those critical to business needs. The split between financial (majority weighting) and non-financial (minority weighting)
performance measures will remain broadly consistent with prior years, continuing to be principally focused on profit, cash flow
and strategic progress. For 2023, a complementary, separate, and higher-profile component is proposed to be introduced to
better reflect the strategic importance of ESG performance measures to sustainable shareholder value within our remuneration.
Performance measure
Adjusted profit before tax
Group free cash flow
ESG
Strategic objectives
Total
Threshold
opportunity
(% of salary)
Maximum
opportunity
(% of salary)
Paid
in cash
Awarded
in shares
7%
3.5%
n/a
n/a
70%
35%
15%
30%
150%
70%
30%
Weighting
46.7%
23.3%
10%
20%
100%
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TT Electronics plc Annual Report and Accounts 2022
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 2023 STIP are currently considered to be commercially sensitive; the targets and respective levels
of achievement will be disclosed in the 2023 Directors’ remuneration report.
Both the ESG and strategic objectives reflect the importance of sustainable value for all our stakeholders. The ESG objectives
are focused on our environmental sustainability: (i) Scope 1 & 2 carbon emission reduction; (ii) evaluation of the material Scope
3 impacts; (iii) progress towards SBTi verification; and (iv) employee outcomes and support through the next phase of high
inflation. The Committee considered that the people agenda continues to be an area of focus in 2023 and the strategic objectives
encompass: (i) human capital management ensuring smooth employee succession and (ii) a strategic review of customer
strategies and global supply chains to optimise organic growth opportunities.
To the extent that neither the threshold profit before tax or threshold free cash flow target has been met, the Committee will
consider if appropriate, a reduction to the outcomes payable in respect of the strategic objectives and/or the ESG performance
measures, up to and including a reduction to zero.
LONG-TERM INCENTIVE PLAN
LTIP awards are expected to be granted in March 2023. Vesting is intended to be based on performance against the following
measures over the three-year financial performance period.
Performance measure
Adjusted EPS compound annual growth on a constant currency basis over the three-year performance period
Average operating cash conversion over the three-year performance period
Relative TSR performance against the FTSE SmallCap (excluding Investment Trusts)
Weighting
50%
25%
25%
The performance measures ensure the alignment of senior management and shareholder interests. The 2023 awards are
intended to differ from those last year with the inclusion of a cash-based target to reflect the importance of delivering improved
and stable cash generation to improve the leverage position over the longer term.
In light of the ongoing external volatility the setting of the final targets will be delayed until the date of grant, the detail of which
will be published in the RNS following the grant. The setting of the performance target ranges for the 2023 awards will take into
account the latest internal and external forecasts for the business, including both economic and political uncertainty and TT’s
principal risks.
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
2023
150%
150%
2022
150%
135%
For 2023 the Committee anticipate aligning the awards for the Executive Directors. This continues to ensure that the Executive
Directors are adequately tied to the longer-term performance of the Company. The one-off increase in award to Mark Hoad
recognises his strong contribution and his importance to the ongoing development of the Company and ongoing value creation
for stakeholders. The Committee anticipate that future awards will be at the 2022 levels.
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.
TT Electronics plc Annual Report and Accounts 2022
123
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | ANNUAL REPORT ON REMUNERATION
FEES FOR NON-EXECUTIVE DIRECTORS
The Chairman’s fee, NED base fee and NED additional fees increased by 5 per cent effective 1 January 2023, 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
2023
2022
Increase
£196,631
£187,268
£49,316
£46,968
£8,610
£8,610
£8,610
£8,200
£8,200
£8,200
5%
5%
5%
5%
5%
IMPLEMENTATION OF THE REMUNERATION POLICY FOR THE YEAR ENDED 31 DECEMBER 2022
Single figure for total remuneration (audited)
Directors’ remuneration for the year ended 31 December 2022 was as follows:
£’000
Executive Directors
Richard Tyson
Mark Hoad
Chairman
Warren Tucker
Non-executive Directors
Jack Boyer
Anne Thorburn
Alison Wood
Salary/
fees
Taxable
benefits
Pension
Total
fixed pay
Short-term
Incentive1
Long-term
Incentive2
Other3
Total
variable
pay
Single
total
figure
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
498
485
373
364
187
183
55
54
55
54
55
54
38
37
34
32
75
73
56
55
611
595
463
451
187
183
55
54
55
54
55
54
380
589
285
442
203
119
137
82
583
711
422
527
3
3
1,194
1,306
885
978
187
183
55
54
55
54
55
54
1. Executive Directors’ short-term incentive awards are subject to deferral into shares in the Company. The STIP value includes the incentive paid in both cash and deferred into shares. In line
with the current Remuneration Policy 20% of the 2022 award will be deferred into shares and 20% of the 2021 award was deferred into shares. Deferred awards are not subject to any
further performance conditions.
2. LTIP values shown in the single figure include dividend equivalents. The 2022 single figure is comprised solely of the TSR element of the 2019 award; the 2021 figure is comprised of the
EPS element of the 2019 award and the TSR element of the 2018 award. Further detail is contained on page 128. The value attributable to share price appreciation in the 2022 single figure
value for the CEO and CFO was £(4,000) and £(3,000) respectively. The Committee did not exercise any discretion to vesting outcomes in relation to the impact of share price movements.
3. The 2021 single figure includes the exercise of the Executive Directors’ 2018 Sharesave options. The value shown was the gain on exercise.
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TT Electronics plc Annual Report and Accounts 2022
BASE SALARY/FEES
Base salaries for the Executive Directors were reviewed in December 2021 and were increased by 2.5 per cent with effect from
1 January 2022. Base fees for the Chairman, and the base fee and SID/Chair fees for the NEDs were also increased by 2.5 per
cent with effect from 1 January 2022.
The increases were set at a level below those of the wider UK workforce which averaged between 3 and 4 per cent.
TAXABLE BENEFITS
The Executive Directors’ taxable benefits consist of a car allowance and insurance benefits. Costs associated with insurance
benefits reflect the circumstances of each Executive Director and typical increase with age.
PENSIONS
Employer contributions were paid at 15 per cent of base salary, as defined contribution pension and/or a cash supplement.
Employer contributions for 2023 have reduced to 7 per cent of base salary in line with those available to the wider UK workforce.
SHORT-TERM INCENTIVE
Short-term incentive opportunity was capped at 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 2022 financial year.
Short-term incentive payments for 20221
Performance measure
Group adjusted profit before tax
Group free cash flow
Strategic objectives
2022 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)
6.25%
3.125%
n/a
62.5%
31.25%
31.25%
125%
31.1
7.9
As outlined
35.3
17.4
34.7
(14.7)
51.5%
0%
25%
76.5%
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.
The Committee considers that the Executive Directors have delivered another year of strong leadership alongside making
significant strategic progress. Company financial performance has been strong, with organic growth for the year of 20 per cent
reflecting our successful positioning in structural growth markets and new project and customer wins. Adjusted profit before tax
for the year is around the top end of range of analyst consensus expectations with leverage reduced back into the 1-2 times target
range. All delivered against a challenging economic backdrop and ongoing impacts from the pandemic in our supply chains and
associated freight costs, employment markets and inflation. The Group has good momentum, underpinned by a strong order book.
Our stakeholder experience has similarly been strong, lead by a strong focus on our values and purpose. Good customer
outcomes have continued to be delivered and strategic partnerships deepened with agile navigation of the supply chain tightness.
The Executive Directors have continued to focus on making the Company a great place to work and have pro-actively led the
responses to protect employees and to provide support to employees through a range of cost of living actions.
Despite the strong performance of the Group, the STIP award amounted to 61 per cent of the maximum (i.e. 76.5 per cent of
salary), reflecting the strong profit and strategic performance in the face of challenging headwinds. In line with the Remuneration
Policy, 80 per cent of the award will be paid in cash and 20 per cent will be deferred into shares for two years.
TT Electronics plc Annual Report and Accounts 2022
125
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | ANNUAL REPORT ON REMUNERATION
STRATEGIC OBJECTIVES
The strategic objectives of the Executive Directors focused on the creation of sustainable value for all our stakeholders with a
focus on ESG development, evaluation and development of the Group strategy to unlock value, and a focus on our people talent
development. Performance against these objectives are set out in the table below.
Strategic
objective
Target
Committee assessment
(% of salary) Achievement
Maximum
potential
ESG development
Environmental:
Make significant
progress towards
carbon net
zero by 2035
by establishing
a clear plan
to deliver the
achievement of
long-term targets.
Social and
Governance:
Roll out the
Group’s
sustainability
strategy and
vision.
✓✓✓
8.75% of
salary
Environmental: In assessing the target the Committee
noted:
12.5%
– significant progress delivered in accordance with
plans to deliver on carbon net zero commitments
by 2035 with a cumulative 54% reduction in Scope
1 & 2 carbon emissions since 2019 and against our
commitment to deliver a 50% reduction in by the
end of 2023;
– that all sites have established carbon reduction
plans and are working towards their annual carbon
reduction targets;
– in year total gross Scope 1 & 2 tCO2 reduction of 23%
or 3,574 tCO2; Carbon intensity ratio reduced from
33.1 to 19.7 tCO2e/£m;
– the establishment and verification of plans to deliver
our absolute Scope 1 & 2 tCO2 2023 goal and to
offset the impacts of our business growth and
the associated increase in tCo2, with a focus on
countries where renewable energy is not available
e.g. Mexico and China;
– the significant capital investment in projects
underway, including the installation of solar power
in Kuantan, Malaysia.
Social and Governance: In assessing the target the
Committee noted:
– improved site engagement through progress against
improvement actions from the employee survey;
– that 2022 salary budgets continued to target higher
increases to our lower paid employees;
– the Company’s strong response to high inflation and
cost of living impact on our employees, including the
regional responses taken to reflect local employment
market conditions and the multi-faceted approach
taken in the UK where inflation has disproportionately
impacted our lowest paid employees culminating in
an additional cost of living payment;
– the improvements in Board access to the workforce
and key customers with an enhanced number of
board visits during the year and virtual engagements
with China;
– the enhanced retirement security for 5,000 current
and former UK employees and their dependants with
the completion of an annuity buy-in of all UK defined
benefit pension liabilities.
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TT Electronics plc Annual Report and Accounts 2022
Strategic
objective
Group strategy
and portfolio
review
People
development
Target
Committee assessment
(% of salary) Achievement
Maximum
potential
✓✓✓✓
8.75% of
salary
✓✓✓
7.5% of
salary
Agree the scope
of the Group
strategy and
portfolio review
with the Board
and complete the
review to unlock
value potential and
action the agreed
outcomes.
Develop a
clear plan for
successors to
ELT and SLT.
Launch
development
programmes for
Female leadership,
interns and
high potential
employees.
In assessing the target, the Committee noted:
9.375%
– the completion of the strategic portfolio review
including a full review of material actions to unlock
potential value in the Group;
– actions focused on organic growth in the near
term to unlock value via actions to manage our
employment cost base and the removal of UK
defined benefit pension liabilities;
– annualised cost savings of circa £4m offset by in-
year cost phasing, external events and deterioration
of macro market conditions;
– the completion of the acquisition of Ferranti Power
& Control business and the integration actions
delivered.
In assessing the target, the Committee noted:
9.375%
– progress in succession development to ELT with
succession plans in place. Optionality in succession
plans being improved by further specific people
development actions;
– a completed review of key succession and retention
plans with a series of succession-based promotions
to smooth role transitions;
– a review completed of the core operational
leadership team and its expansion with a dedicated
role to lead and enhance customer-centric growth
opportunities;
– roll out of line manager training across the business,
along with inclusive leadership training to all
managers to enhance engagement and line manager
capability;
– Completion of the first women’s leadership
programme, with strong feedback and ongoing
support.
✓ underperforming, ✓✓ performing, ✓✓✓ outperforming, ✓✓✓✓ stretch
TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | ANNUAL REPORT ON REMUNERATION
LONG-TERM INCENTIVE
LTIP awards over conditional shares have typically vested depending on performance against two equally weighted measures
over separate three-year performance periods with EPS performance assessed over a three-year period aligned with the Group’s
financial year and TSR performance assessed 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.
The 2019 LTIP awards had a TSR performance condition, shown below, that ended in March 2022 and is included in the single
figure for total remuneration for 2022. The EPS performance condition within the award ended on 31 December 2021 and was
previously included in the 2021 single figure for total remuneration.
The 2020 LTIP award, following shareholder consultation and as previously disclosed, has a sole TSR performance condition
which will be disclosed in the 2023 single figure of remuneration.
Award year and performance measure
2019 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
Outcome
59 percentile
(Between
median and
upper quartile)
Percentage
of maximum
achievement
54.8%
1 2019 LTIP award (vested March 2022): The EPS performance period for this award ended on 31 December 2021; the vesting of the EPS component was not achieved and was included in
the 2021 single figure for total remuneration. The TSR performance period ended in March 2022 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 2022 single figure for total remuneration; shares at vesting were valued at 197.7p.
Other
No disclosures occurred during the period.
Malus and clawback
No malus or clawback events occurred during 2022.
LONG-TERM INCENTIVES GRANTED DURING THE FINANCIAL YEAR (AUDITED)
LTIP awards over conditional shares were granted to Executive Directors on 14 March 2022. 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%
135%
192.07
192.07
Number
of shares over
which award
was granted
388,550
262,321
Face value
of award
(£)
746,288
503,840
% of award
that would vest
at threshold
performance
Performance
period end date
25%
25%
14/03/2025
14/03/2025
1 The share price used to determine the number of shares granted was the average share price over the three trading days prior to grant.
The Committee is mindful that share price falls can lead to the perception of windfall gains. The share price used to calculate the
number of shares under the 2022 award was 8 per cent lower than that of the 2021 award. The Committee did not believe that
windfall gains would apply to this award as a result of the share price volatility at the time of grant but retains discretion to adjust
formulaic incentive vesting outcomes to ensure they reflect underlying business performance and shareholder interests.
PERFORMANCE MEASURES FOR LTIP AWARDS GRANTED DURING THE FINANCIAL YEAR (AUDITED)
Awards granted to Executive Directors during 2022 are subject to the two equally weighted performance measures of EPS and
TSR as follows:
Performance measures
Adjusted 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%
50%
5%
12%
Median
rank
Upper quartile
rank or above
The performance measures ensure the alignment of the Executive Director and shareholder interests. Target ranges for the 2022
awards were 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 believed 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 EPS base year over which growth is assessed). In line with previous awards, 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.
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TT Electronics plc Annual Report and Accounts 2022
DEFERRED SHORT-TERM INCENTIVE AWARDS
During the year the Executive Directors were awarded conditional shares as deferred bonus share plan awards in relation to the
2021 STIP outcome. 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
14/03/2022
14/03/2022
Number
of shares
awarded
61,374
46,039
Share price at
date of grant
(pence)1
Face value of
award
(£)
Date of vesting
192.07
192.07
117,881
14/03/2024
88,427
14/03/2024
1 The share price used to determine the number of shares granted was the average share price over the three trading days prior to grant.
EXECUTIVE DIRECTOR INTERESTS IN SHARES
The table below sets out details of outstanding LTIP and DBSP share awards held by the Executive Directors at 31 December
2022.
Executive
Scheme1
Date
of grant
1 January
2022
Granted
during
the year
Lapsed
Vested
31 December
2022
Market value at
31 December
2022
(£)2
Market
price at
grant date
(pence)
Richard Tyson
LTIP
11/03/2019 355,9933
258,505
97,488
13/03/2020 365,9834
16/03/2021
349,6215
14/03/2022
388,550
DSBP
16/03/2021
84,0476
84,047
16/03/2021
21,0116
14/03/2022
61,374
–
365,983
349,621
388,550
–
21,011
61,374
–
636,810
608,341
676,077
–
36,559
106,791
Total outstanding
1,186,539
2,064,578
Mark Hoad
LTIP
11/03/2019 240,3403
174,523
65,817
13/03/2020 247,0854
16/03/2021 262,2655
14/03/2022
262,321
DSBP
16/03/2021
63,0476
63,047
16/03/2021
15,7616
14/03/2022
46,039
–
247,085
262,265
262,321
–
15,761
46,039
–
429,928
456,341
456,439
–
27,424
80,108
202
196
208
192
208
208
192
202
196
208
192
208
208
192
Vesting
date
11/03/2022
13/03/2023
16/03/2024
14/03/2025
16/03/2022
16/03/2023
14/03/2024
11/03/2022
13/03/2023
16/03/2024
14/03/2025
16/03/2022
16/03/2023
14/03/2024
Total outstanding
833,471
1,450,240
1 Awards granted under the LTIP are subject to the attainment of stretching performance conditions, awards granted under the DSBP in respect to STIP deferral are not subject to any further
performance conditions.
2 Calculated as the total number of shares awarded multiplied by the share price on 31 December 2022 of 174 pence. The calculation does not take into account dividend equivalents or
the likelihood of vesting.
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 2021 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.
5 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 10% compound per annum,
increasing on a straight-line basis to 100% vesting for EPS growth for the year ending 31 December 2023 of 18% 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.
6 The Committee applied its discretion to defer the full 2020 STIP award into shares with 80% vesting on the first anniversary and the 20% vesting on the second anniversary.
TT Electronics plc Annual Report and Accounts 2022
129
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | ANNUAL REPORT ON REMUNERATION
TT ELECTRONICS PLC SHARESAVE SCHEME
Executive
Date
of grant
1
January
2022
Granted
during the
year
Lapsed
Exercised1
31 December
2022
Market
value at
31 December
2022
(£)1
Market
price at
grant date
(pence)
Richard Tyson
29/09/2021
Mark Hoad
29/09/2021
7,964
7,964
7,964
7,964
0
0
226
226
Vesting
date
01/11/2024–
30/04/2025
01/11/2024–
30/04/2025
1 The market value is the difference between the share price on 31 December 2022 and the option price of 174 pence multiplied by the total number of shares under the option (or £0 if this
difference is negative).
PAYMENTS TO PAST DIRECTORS (AUDITED)
No payments were made in 2022.
PAYMENTS FOR LOSS OF OFFICE (AUDITED)
No payments were made in 2022.
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 2022, the Executive Directors
were compliant with the requirement.
Beneficially
owned at
1 January
2022
Beneficially
owned at
31 December
2022
Unvested share
awards subject
to Company
performance
conditions
Unvested
deferred bonus
share plan
awards as at
31 December
2022
Outstanding
share awards
under all
employee share
plans as at
31 December
2022
Beneficially
owned
shareholding
at 31 December
2022 as a % of
salary1
Value of
beneficially
owned at
31 December
2022
(£)
910,454
711,149
1,006,666
779,446
1,104,154
771,671
82,343
61,769
7,964
7,964
335%
346%
1,751,599
1,356,236
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 2022 of 174 pence and the basic salary as at the same date.
There have been no changes to shareholdings between 31 December 2022 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 2021 and 31 December
2022 as derived from the Stock Exchange Daily Official List were 256 pence and 174 pence respectively. During 2022, the middle
market price of TT Electronics plc ordinary shares ranged between 124.8 pence and 264 pence.
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TT Electronics plc Annual Report and Accounts 2022
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
PERFORMANCE GRAPH AND TABLE
The following graph shows the cumulative TSR of the Company over the last 10 financial years relative to the FTSE Small-Cap
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 2022, of £100 invested in TT Electronics plc on 31 December 2012 compared with
the value of £100 invested in the FTSE SmallCap Index (excluding Investment Trusts).
300
250
200
150
100
50
0
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
Dec 18
Dec 19
Dec 20
Dec 21
Dec 22
TT Electronics (Re-based to 100)
FTSE SmallCap excluding Investment Trusts (Re-based to 100)
TOTAL REMUNERATION FIGURES FOR THE CEO
The total remuneration figures for the Chief Executive Officer during each of the last 10 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)
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
2018
2,189
100.0
100.0
93.3
0.0
50.0
100.0
2019
1,430
64.0
86.5
2020
1,003
45.8
50.0
2021
1,306
97.1
18.3
2022
1,194
61.2
27.4
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.
TT Electronics plc Annual Report and Accounts 2022
131
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | ANNUAL REPORT ON REMUNERATION
WIDER WORKFORCE CONSIDERATIONS
TT Electronics is a diversified business that operates in 26 locations, across 7 countries with more than 5,000 people across our
divisions. Our people are central to our success and we pride ourselves on being a great place to work with a strong purpose and
culture where employees can be themselves, do their best work every day, and achieve their ambitions.
The Committee spends considerable time on matters relating to remuneration across the workforce. This ensuring that: (i) our
reward principles are consistently applied throughout the organisation, (ii) that reward practices are aligned and complementary,
and (iii) provides important context to frame decision-making on Executive Director remuneration.
Fair pay
As an international business we want to ensure that our people are paid fairly for their contribution. Our businesses operate in line
with our principles, set our below, and in compliance with all local laws.
Pay should be appropriate and market competitive
Pay should be explainable, free from
discrimination and easy to understand
Pay should enable employees to share in the
success they create
Appropriate for the employee’s role, responsibility,
experience and skills.
Fixed pay will meet or exceed all legal minimum
standards.
Employees are eligible to receive variable,
performance-related pay.
Pay set in the context of local market conditions.
Pay should be free from bias and should not be
impacted by gender, sexual orientation, ethnicity or
other characteristics.
Performance-related payments are timely and in
accordance with scheme rules.
The business should be able to explain how
employees’ pay has been set and calculated.
Employees should be paid in full and on time.
Performance-related pay is free of bias and subject to
good governance.
Employee engagement
We 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 the Company.
We value the opinions and insights of our people and frequently receive feedback through a variety of means, such as our
engagement survey. Through our PSEE Committee, direct interactions with the workforce by the Committee and via feedback
from our UK workforce engagement sessions on remuneration we ensure oversight of the implementation of our remuneration
principles and understand key employee insights and feedback. Our UK workforce engagement sessions include overviews
of Executive Director remuneration and how remuneration aligns through the organisation. These sessions allow for open and
active discussion on all areas of remuneration. Additionally, during the year we engaged those employees whose remuneration
most closely aligns with the Executive Directors as core stakeholders in the review of the future Remuneration policy.
Inflation and wider workforce remuneration
This year has seen exceptionally high inflation in a number of our locations, especially in the UK, with the lowest paid
disproportionately impacted. The Company response to the impact of inflation on employees and affordability pressures arising
from the cost of living has been a key area of focus for the Committee.
As detailed in this report, the Company has undertaken a range of activities across its geographic footprint displaying the strength
of our purpose, values, how they inform our decision-making and the strength of the culture of the organisation.
Directors’ pay in the context of the Group’s wider pay practices
The Committee’s oversight of the implementation of our remuneration principles and the alignment of remuneration across
the Company, provides important context as to the impact of reward on organisational culture and helps inform decision-making
on Executive Director remuneration.
The following summarises the alignment of remuneration for the wider workforce during 2022. The detail of retirement and
benefits are specific to each location and are shown for the UK.
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TT Electronics plc Annual Report and Accounts 2022
Salary
Short-term incentive
All employees
• Pay increase recommended by site & division.
• Reviewed and approved by head office
(UK Average 3-4% in 2022)
• All employees are eligible for a bonus.
• Site incentive targets: customer delivery,
productivity, quality, HSE
Executive Directors
• Pay rise % below or in line with employee pay
(2.5% in 2022)
• Max 125%, on-target 62.5%
• Targets: profit, cash flow, strategic delivery
Deferred share bonus plan
• Not applicable
• 20% of short-term incentive deferred for 2 years
Long-term incentive
Retirement
Other benefits
CEO PAY RATIO
• Divisional leadership team, three-year
performance period, no holding period
• Targets: typically per Executive Directors
• Max 150%, on target 37.5%
• Three years, two year holding period
• Performance conditions: EPS and TSR
• Up to 7% contribution
• Life cover 4x
• Healthcare
• ShareSave
• Car allowance
(Sales and
senior leadership)
• 15% contribution
• Reducing to 7% for 2023
• Life cover 4x
• Healthcare
• ShareSave
• Car allowance
• Risk benefits
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
2022
2021
20201
2019
Methodology used
Lower quartile
Median
Upper quartile
Option B
Option B
Option B
Option B
51:1
62:1
54:1
63:1
43:1
52:1
40:1
55:1
28:1
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 2022 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 2022 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 2022.
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 ratio. The lower CEO pay ratio results from a number of factors: (i) higher
UK employee remuneration from the actions to support employees manage the impacts of high inflation through targeted salary
increases to lower paid employees and the one-off additional cost of living payment, (ii) lower CEO variable remuneration from
a lower STIP award than in the prior year, reflecting the challenging external environment, and the low vesting of the LTIP which
continues to reflect 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.
Further context to the CEO total remuneration is set out on in detail in this report.
The following table summarises the representative salary and single figure of total remuneration pay quartiles of UK employees.
Salary
Single figure of total remuneration
Lower quartile
Median
Upper quartile
£21,732
£23,331
£25,800
£27,491
£38,837
£43,230
TT Electronics plc Annual Report and Accounts 2022
133
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | ANNUAL REPORT ON REMUNERATION
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, 2021 and 2022. 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
Change in basic salary/fees (%)
Change in benefits (%)
Change in bonus (%)
2021 to
2022
2020 to
2021
2019 to
2020
2021 to
2022
2020 to
2021
2019 to
2020
2021 to
2022
2020 to
2021
2019 to
2020
2.5%
2.5%
6.8%
6.7%
(5.0)%
(5.0)%
5.0%
5.2%
48.0%
52.0%
5.9%
8.0%
(35.5)%
169.4%
(28.5)%
(35.5)%
169.4%
(28.5)%
2.5%
1.5%
n/a
2.5%
2.5%
2.5%
14.9%
8.0%
12.5%
3.3%
(5.0)%
6.0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
9.4%
2.9%
3.8%
10.4%
6.8%
6.1%
(25.7)%
108.4%
(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 each two-year comparison period.
The Directors received salary/fee increases of 2.5 per cent in January 2022, a level below that generally received across the
UK workforce. The majority of the changes in respect of salaries/fees between 2019 and 2021 were 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.
RELATIVE IMPORTANCE OF SPEND ON PAY
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)
2022
164.5
11.1
0
2021
Change
135.3
9.8
0
21.6%
13.3%
0%
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TT Electronics plc Annual Report and Accounts 2022
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, the evolution of the 2023 Policy, 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 £28,990.
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 2022, the proxy votes cast in respect of the resolutions on the 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 2022
128,029,798
For and
Discretionary
(%)
91.89%
88.47%
Against
9,642,007
16,682,114
Against
(%)
8.11%
11.53%
Withheld
Total
votes
13,273,878
132,187,326
3,558,473
148,270,385
A full schedule in respect of shareholder voting on the above and all resolutions at the 2023 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.
The Directors’ remuneration report has been approved by the Board on 7 March 2023 and signed on its behalf by:
Alison Wood
Chair, Remuneration Committee
7 March 2023
TT Electronics plc Annual Report and Accounts 2022
135
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | OTHER STATUTORY DISCLOSURES
OTHER
STATUTORY
DISCLOSURES
Results and dividend
The Group’s loss on ordinary activities
after taxation was £13.2 million (2021:
£12.8 million, profit). The audited
financial statements of the Group and
the Company are set out on pages 149
to 226. Further details of the Group’s
activities are set out in the Strategic
report on pages IFC to 75 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 2022 are set out on page 32
and Note 9 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
There were no important events
affecting the Group which occurred since
31 December 2022.
This Annual Report and
Accounts includes the
Directors’ report and the
audited financial statements for
the year ended 31 December
2022. 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 227
Current and future dividend waiver
Page 137
Employee engagement
Page 42
Future developments in the business Pages 6 to 21
Going concern
Scope 1 & 2 emissions
Section 172 statement
Share capital
Subsidiary undertakings
Viability statement
Page 73
Page 54
Page 63
Page 227
Page 216
Page 68
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 have been
reappointed at each subsequent AGM
(including the 2022 AGM). See page
95 for further details on the Auditor
transition process.
The Auditor’s responsibilities are set
out on page 146 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. The most significant of these
facility agreements (as described below)
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:
PP: 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%.
RCF: In June 2022, the Group entered
into an agreement for a £147.4 million
multicurrency revolving credit facility with
a syndicate of five relationship banks,
taking the maturity date out to four years,
with a one-year extension option.
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TT Electronics plc Annual Report and Accounts 2022
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 9 May 2023. During 2022,
this authority was used in respect of
customary allotments of shares resulting
from the operation of the Group’s share
schemes. As set out in the Notice
of Annual General Meeting which
accompanies this report, the Company is
seeking shareholder approval of revised
authorities this year (in resolutions
17 and 18) in line with the updated
Statement of Principles published by the
Pre-Emption Group in November 2022.
Purchase of own shares
At the Annual General Meeting held on
13 May 2022, the Company was given
authority to purchase up to 17,630,474
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.
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 2022, the Trustee held
479,727 shares with a nominal value of
£119,931.75 and an aggregate purchase
price of £0.89 per share, representing
0.271 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.
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 7 March 2023
and signed on its behalf by:
Lynton Boardman
Group General Counsel and Company
Secretary
There are a number of other agreements
that may be terminable upon a change
of control of the Company and therefore
subject to renegotiation. No such
agreements are considered at present to
be significant in terms of their potential
impact on the business of the Group as a
whole, with the exception of the contract
described below:
Anthem Contract: In November 2022, the
Group’s GMS Division entered into a long-
term contract with Honeywell, pursuant
to which GMS will provide manufacturing
services to enable Honeywell to bring
to market its next generation avionics
cockpit system. This system is designed
to operate with the next generation of
electric aircraft. The long-term contract
has a duration of 12 years and contains
market standard provisions requiring
Honeywell’s consent for the contract
to continue in the event of a change of
control of the Company.
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 40 to 49.
TT Electronics plc Annual Report and Accounts 2022
137
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION STRATEGIC REPORT | OTHER STATUTORY DISCLOSURES
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 UK
adopted 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 UK adopted
international accounting standards;
– 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.
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TT Electronics plc Annual Report and Accounts 2022
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; and
– 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
7 March 2023
TT Electronics plc Annual Report and Accounts 2022
139
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION FINANCIAL STATEMENTS | INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
TO THE
MEMBERS OF
TT ELECTRONICS PLC
We have audited the financial statements
which comprise:
2. BASIS FOR OPINION
– the consolidated income statement;
– the consolidated statement of
comprehensive income;
– the consolidated and parent company
statements of financial position;
– the consolidated and parent company
statements of changes in equity;
– the consolidated statement of cash
flows; and
– the related Notes 1 to 32 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).
We conducted our audit in accordance
with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law.
Our responsibilities under those
standards are further described in the
auditor’s responsibilities for the audit
of the financial statements section
of our report.
We are independent of the group and the
parent company in accordance with the
ethical requirements that are relevant to
our audit of the financial statements in
the UK, including the Financial Reporting
Council’s (the ‘FRC’s’) Ethical Standard
as applied to listed public interest entities,
and we have fulfilled our other ethical
responsibilities in accordance with these
requirements. We confirm that 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.
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 2022
and of the group’s loss 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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TT Electronics plc Annual Report and Accounts 2022
3. SUMMARY OF OUR AUDIT APPROACH
Key audit matters
The key audit matters that we identified in the current year were:
– Impairment of technology products goodwill
– Classification of adjusting items.
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
The materiality that we used for the group financial statements was £2.1 million which was determined
based on 5% of the adjusted income before tax after amortisation.
Our approach to the audit scoping included performing the following: Components representing 49%
of revenue and 24% of net assets were subject to full scope audit procedures;
Components representing 32% of revenue and 56% of net assets were subject to audits of specific
account balances;
Overall, our components subject to full scope and specified account balance audits represented 87%
of adjusted profit before tax after amortisation; and
All remaining parts of the Group were subject to analytical review procedures.
Significant changes
in our approach
In the prior year, we identified a key audit matter relating to the recoverability of assets related to the
Virolens product. In the current year, these assets have been fully impaired and this is no longer a key audit
matter.
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 adjusting items
expense and cash flows, and the achievability of forecasts; these were assessed with reference to external data such as market
growth rates and industry data;
– assessing 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 in the event of any downside scenarios and the feasibility 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.
TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION FINANCIAL STATEMENTS | INDEPENDENT AUDITOR’S REPORT
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 Technology Products goodwill
Key audit matter
description
Total goodwill on the balance sheet at 31 December 2022 is £155.1 million (2021: £156.5 million) arising
from past acquisitions. As required by IAS 36 Impairment of Assets management performs an impairment
review for all cash generating units (‘CGUs’) that have goodwill on an annual basis. An impairment charge
of £17.7million (2021: £nil) was recognised in the IoT Solutions CGU’s goodwill (after impairing Virolens
related assets of £5.4million). Subsequent to the impairment, this CGU accounts for £9.9 million (2021:
£27.6 million) of the Group’s goodwill.
The impairment assessment of goodwill for the IoT Solutions CGU has been identified as a key audit
matter as a result of the subjective nature over the value of impairment recorded during the year, the
quantitative significance of the balance, and the application of management judgement and estimation in
its impairment assessment. The key assumptions driving the subjective nature of the impairment relates
to Revenue Growth, Operating Profit, Discount Rate and Long-Term Growth Rate.
Note 14 to the financial statements discloses the sensitivities reflecting the risks inherent in the value
in use calculations that were used in performing the impairment review. Note 1g discloses this matter
as a key source of estimation uncertainty and reasonably possible changes in the value for this CGU.
Refer also to page 99 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 Group’s forecasting of future cash flows and the determination of CGU specific 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 the forecasts. Specifically,
our work included, but was not limited to:
– challenging the key assumptions relating to the 2023 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, inflationary pressures, benefits from current and prior year restructuring
activity from the Group’s self-help programme, and the status of new product launches;
– 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;
– testing the integrity and mathematical accuracy of the impairment models;
– checking the application of the input assumptions, and testing their compliance with IAS 36;
– assessing and reperforming 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 and long-term growth rates. We considered how movements in these
drivers, either individually or collectively, could impact the level of impairment and the likelihood of such
movements; and
– assessing the appropriateness of the disclosures relating to the IoT Solutions goodwill as an area with
key sources of estimation certainty, and whether a 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 and the resultant overall position
adopted was reasonable including the impairment charge recorded of £17.7 million. We assessed that the
disclosures including the impairment assessment of goodwill for the IoT Solutions CGU are appropriate.
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TT Electronics plc Annual Report and Accounts 2022
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 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 £50.5 million (2021: £15.5 million)
have been made to the statutory operating loss of £3.4 million (2021: £19.3 million profit) to derive adjusted
operating profit of £47.1 million (2021: £34.8 million profit).
Adjusting items in 2022 include:
– Restructuring costs £6.4 million;
– Impairment of IoT goodwill (£17.7million) and Virolens related assets (£5.4million);
– Amortisation of intangible assets arising on business combinations (£6 million);
– Pension Buy in / Enhanced Transfer Value (ETV) exercise (£13.8 million); and,
– Other acquisition related costs (£1.2 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 adjusted financial
information, as this would be misleading to the readers of the financial statements.
There is a risk that items may be classified as adjusting which do not meet the Company’s definitions,
and therefore distort the reported adjusted profit, whether due to manipulation or error; this could also
impact financial covenants reported and management remuneration, hence this is considered a fraud risk.
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 7 to the financial statements and also in note 1 to the
group financial statements in relation to the critical judgements in determining adjusting items. Refer also
to page 99 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;
– challenging management regarding the nature of restructuring related adjusting items and evaluating
whether they fall within management’s accounting policy definition for restructuring related costs for
restructuring costs related to severance, assessing 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 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, we assessed that their
classification and presentation is reasonable and consistent with the Group’s policy.
TT Electronics plc Annual Report and Accounts 2022
143
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION FINANCIAL STATEMENTS | INDEPENDENT AUDITOR’S REPORT
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
£2.1 million (2021: £1.6 million)
£0.7million (2021: £0.6 million)
5.1% of adjusted income before tax after
amortisation as disclosed in note 7 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, consistent with the prior year, in order to
address the risk of aggregation when combined with
other businesses.
Materiality for the current year represents:
This is consistent with the prior period.
Rationale for the
benchmark applied
– 0.3% of revenue (2021: 0.3%);
– 4.5% of adjusted profit before tax (2021: 4.6%);
and
– 0.7% of net assets (2021: 0.5%).
We considered the financial measures that were
most relevant to users of the financial statements
and concluded that the adjusted profit measure
represented the most relevant metric for the purpose
of evaluating financial performance.
We believe that use of a balance sheet measure
was appropriate given that the parent acts as a
holding company.
Adjusted operating profit £41.1m
Group materiality
Group materiality £2.1m
Component materiality range £0.5m–£0.7m
Audit committee reporting threshold £105k
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% (2021: 65%) of group materiality
70% (2021: 65%) of parent company materiality
In determining performance materiality, we considered the following factors:
– our assessment of the respective complexity of the group and the parent company, and nature of the
group’s business model;
– the de-centralised nature of the group’s control environment and its variation across the group; and
– the 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 £105k (2021: £80k),
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 (2021: 72) reporting components in total, each of which is responsible for maintaining their own accounting records
and controls and using an integrated consolidation system to report to UK head office.
Our Group audit scope focused on audit work at 20 components (2021: 22 components). We selected 10 reporting units where
we requested component auditors to perform a full scope audit of the component’s financial information. We also requested
component auditors to audit specified account balances at a further 10 reporting units. Coverage from the in-scope components
represents 81% (2021: 79%) of the Group’s revenue, 87% (2021: 88%) of the Group’s adjusted operating profit and 80% (2021: 88%)
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 £0.5 million to £0.7 million (2021: £0.4
million to £0.6 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 was no significant risk of material misstatement in the aggregated
financial information.
Revenue
19%
32%
Adjusted operating profit
Net assets
13%
20%
24%
49%
26%
61%
Full audit scope Audit of specified account balances Review at group level
56%
7.2. Our consideration of climate-related risks
Climate change and the transition to a low carbon economy 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. Management have identified sustainability, climate change and the
environment as a principal risk to the business.
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.
We performed site visits to a number of our material components to discuss significant matters of the audit, audit procedures
performed, as well as results of work done. The Group engagement team continued to have online interaction with the Group’s
largest and most complex businesses during 2022 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 all component audit
teams 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 each component team’s reporting to us; this was done 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, the Directors and the audit committee about their own identification and
assessment of the risks of irregularities, including those that are specific to the Group’s sector;
– 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, ESG and IT, regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.
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TT Electronics plc Annual Report and Accounts 2022
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.
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 89;
– 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 68;
– the Directors’ statement on fair, balanced and understandable set out on page 98;
– the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 66;
– the section of the Annual report that describes the review of effectiveness of risk management and internal control systems
set out on page 67; and
– the section describing the work of the Audit Committee set out on pages 95 to 100.
TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION FINANCIAL STATEMENTS | INDEPENDENT AUDITOR’S REPORT
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 ended 31 December 2020 and
subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of
the firm is 3 years, covering the years ending 31 December 2020 to 31 December 2022.
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
07 March 2023
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TT Electronics plc Annual Report and Accounts 2022
Consolidated income statement
for the year ended 31 December 2022
£million (unless otherwise stated)
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating (loss)/profit
Analysed as:
Adjusted operating profit
Restructuring and other
Asset impairments
Acquisition and disposal related costs
Finance income
Finance costs
(Loss)/profit before taxation
Taxation
(Loss)/profit for the period attributable to the owners of the Company
Note
3
3
7
7
7
5
5
8
2022
617.0
(481.5)
135.5
(29.6)
(109.3)
(3.4)
47.1
(20.2)
(23.1)
(7.2)
2.3
(9.0)
(10.1)
(3.1)
(13.2)
EPS attributable to owners of the Company (pence)
Basic
Diluted
10
10
(7.5)
(7.5)
2021
476.2
(360.6)
115.6
(29.6)
(69.4)
19.3
34.8
(7.8)
–
(7.7)
1.1
(4.4)
16.0
(3.2)
12.8
7.3
7.2
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Consolidated statement of comprehensive income
for the year ended 31 December 2022
£million
(Loss)/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 on hedge of net investment in foreign operations
Loss on cash flow hedges taken to equity less amounts recycled to the income statement
Deferred tax (loss)/gain on movement in cash flow hedges
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 (loss)/income for the period attributable to the owners of the Company
Note
2022
(13.2)
2021
12.8
26.9
(1.6)
(3.4)
(2.9)
(0.4)
(35.9)
6.5
(24.0)
3.4
–
(0.2)
(3.2)
0.5
35.8
(11.4)
37.7
22
150
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TT Electronics plc Annual Report and Accounts 2022
TT Electronics plc Annual Report and Accounts 2022
FINANCIAL STATEMENTS
Consolidated statement of financial position
at 31 December 2022
£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
2022
2021
12
13
14
15
8
21
22
16
17
21
20
20, 28
21
18
19
20
20, 28
21
8
22
18, 19
23
24
25
19.6
54.8
155.1
53.7
13.2
0.8
31.3
328.5
189.2
120.3
1.1
3.1
65.0
378.7
707.2
3.7
4.4
3.6
173.2
9.6
3.5
198.0
176.6
18.7
0.8
12.4
2.9
0.8
212.2
410.2
297.0
44.1
22.9
55.1
7.3
167.6
297.0
–
297.0
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
Approved by the Board of Directors on 7 March 2023 and signed on their behalf by:
Richard Tyson
Director
Mark Hoad
Director
TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Consolidated statement of changes in equity
for the year ended 31 December 2022
At 31 December 2021
44.1
22.6
33.2
£million
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 the
income statement
Deferred tax 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
At 31 December 2021
Loss for the year
Other comprehensive income
Exchange differences on translation
of foreign operations
Tax on exchange differences
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 movement in cash
flow hedges 1
Remeasurement of defined benefit
pension schemes
Tax on remeasurement of defined
benefit pension schemes
Total comprehensive income/(loss)
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
Dividend to non-controlling interest
Share
capital
43.6
–
Share
premium
Translation
Reserve
Other
reserves
Retained
earnings
21.7
–
30.0
–
5.5
–
195.2
12.8
Sub-
total
296.0
12.8
Non-
controlling
interest
2.0
–
Total
298.0
12.8
–
–
–
–
–
–
–
–
–
–
0.5
–
–
–
–
–
–
–
–
–
–
–
0.9
–
3.4
(0.2)
–
–
–
–
3.2
–
–
–
–
–
–
–
(3.2)
0.5
–
–
(2.7)
–
3.8
0.5
–
–
7.1
–
–
–
–
3.4
(0.2)
(3.2)
0.5
35.8
35.8
(11.4)
37.2
(11.4)
37.7
(11.4)
–
–
(0.3)
0.3
(11.4)
3.8
0.5
1.1
0.3
–
–
–
–
–
–
–
–
–
–
–
–
3.4
(0.2)
(3.2)
0.5
35.8
(11.4)
37.7
(11.4)
3.8
0.5
1.1
0.3
221.0
328.0
2.0
330.0
44.1
22.6
33.2
7.1
221.0
(13.2)
328.0
(13.2)
2.0
–
330.0
(13.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.3
–
–
26.9
(1.6)
(3.4)
–
–
–
–
21.9
–
–
–
–
–
–
–
–
–
(2.9)
–
–
–
–
26.9
(1.6)
(3.4)
(2.9)
0.2
(0.6)
(0.4)
(35.9)
(35.9)
6.5
(2.7)
(43.2)
6.5
(24.0)
(10.2)
4.8
(1.0)
0.3
(0.9)
–
(10.2)
–
–
–
–
–
167.6
297.0
–
–
–
4.8
(1.0)
–
(0.9)
–
7.3
–
–
–
–
–
–
–
–
–
–
–
–
–
(2.0)
–
26.9
(1.6)
(3.4)
(2.9)
(0.4)
(35.9)
6.5
(24.0)
(10.2)
4.8
(1.0)
0.3
(0.9)
(2.0)
297.0
At 31 December 2022
44.1
22.9
55.1
1 During the year £0.6 million was transferred out of retained earnings and into the hedging reserve.
152
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TT Electronics plc Annual Report and Accounts 2022
FINANCIAL STATEMENTS
Consolidated statement of cash flows
for the year ended 31 December 2022
£million
Note
2022
2021
Cash flows from operating activities
(Loss)/Profit for the year
Taxation
Net finance costs
Restructuring costs and non underlying asset impairments
Acquisition related costs
Adjusted operating profit
Adjustments for:
Depreciation
Amortisation of intangible assets
Share based payment expense
Other items
Increase in inventories
Increase in receivables
Increase in payables and provisions
Adjusted operating cash flow
Special payments to pension funds
Restructuring and acquisition related costs
Net cash generated from operations
Net income taxes paid
Net cash flow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment and government grants received
Capitalised development expenditure
Purchase of other intangibles
Acquisitions of businesses
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 to minority shareholders
Dividends paid by the Company
Net cash flow from/(used in) 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
8
7
7
12, 13
15
13
15
15
4
23
25
9
27
27
27
(13.2)
3.1
6.7
43.3
7.2
47.1
13.9
2.2
4.8
0.5
(40.4)
(26.3)
27.9
29.7
–
(11.1)
18.6
(5.9)
12.7
(11.4)
0.3
(2.3)
(0.6)
(8.3)
(22.3)
0.4
(7.5)
(149.3)
174.3
(4.3)
(1.0)
(2.0)
(10.2)
0.4
(9.2)
67.2
3.3
61.3
65.0
(3.7)
61.3
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
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Notes to the Consolidated financial statements
at 31 December 2022
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 26 to 31.
The Consolidated Financial Statements of the Group for the year ended 31 December 2022 were authorised in accordance with
a resolution of the Directors of TT Electronics Plc on 7 March 2023.
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 UK adopted 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 149 to 226 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 2022 and the Group’s financial
performance for the year ended 31 December 2022.
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, impairment charges significant in nature and/or
value, 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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FINANCIAL STATEMENTS
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 224 to 226 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 75. The Strategic Report analyses the financial position of the Group, its cash flows,
liquidity position and borrowing facilities. In addition, note 21 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 2021 results. 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 2022 it had:
• £267.2 million of total borrowing facilities available (comprising committed facilities of £226.0 million and uncommitted facilities
of £41.2 million representing overdraft lines and an accordion facility of £32.6 million). The Group’s primary source of finance is
the £147.4 million committed revolving credit facility (RCF) which was signed in June 2022 to replace the already existing RCF;
at 31 December 2022 £103.6 million of this facility had been drawn down. The Group's RCF is payable on a floating rate basis
above GBP SONIA, USD SOFR or EURIBOR depending on the currency of the loan and will mature in June 2026 with a one-year
extension option which expires in May 2023. In February 2023 £15.0 million of uncommitted accordion facility was converted into
committed RCF extending the total committed facilities to £241.0 million. In December 2021, the Group issued £75 million
of fixed rate loan notes with three institutional investors; 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.
• A leverage ratio (banking covenant defined measure) of 2.0 times at 31 December 2022 compared to the RCF (and PP loan notes)
covenant maximum of 3.0 times. Interest cover (banking covenant defined measure) of 7.4 times compared to the RCF (and PP
loan notes) 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 2023. Under the
Group’s base case financial projections, the Group retains significant liquidity and covenant headroom throughout the forecast
period, with both metrics improving from the position as at 31 December 2022.
The Group’s financial projections have been stress tested for “business as usual” risks (such as profit growth, supply chain pressure
and working capital variances), and the impact of the following principal risks: general revenue reduction, contractual risks, research
and development, 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 adequate throughout during the forecast period. 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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Notes to the Consolidated financial statements
continued
1 Basis of preparation continued
The Group’s downside stress test scenario has been sensitised for supply chain challenges and capacity constraints 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 12 months following 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. 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 considered the following revised standards or
interpretations, however they were deemed not to have a material effect on the financial statements:
• Covid-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16)
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:
• Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts' (Amendments to IFRS 4)
• Classification of liabilities as current or non-current (Amendments to IAS 1)
• Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16)
• Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
• Annual Improvements 2018-2020 Cycle
• Reference to the Conceptual Framework (Amendments to IFRS 3)
• Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37)
• Amendments to IFRS 17
• Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4)
• Initial Application of IFRS 17 and IFRS 9 — Comparative Information (Amendment to IFRS 17)
• Amendments to IAS 12 – Deferred tax related to assets and liabilities arising from a single transaction.
• Amendments to IAS 8 – Definition of accounting estimates.
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 2022 did not have any material impact on the financial position or performance of the Group.
Interest rate benchmark reform
Throughout 2021 the Group was exposed to the following interest rate benchmarks within its hedge accounting relationships and
borrowings, which have been subject to interest rate benchmark reform in 2022: GBP LIBOR and USD LIBOR (“IBORs”). The hedging
instruments are interest rate swaps and the hedged items are Sterling and US Dollar floating rate debt. On 4 January 2022 the
Group transitioned away from GBP LIBOR and replaced this with GBP SONIA. USD LIBOR remained available throughout 2022.
There was no impact of this transition. As described in note 20 the Group underwent a refinancing exercise in June 2022 and is
now exposed to GBP SONIA, USD SOFR and EURIBOR.
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FINANCIAL STATEMENTS
1 Basis of preparation continued
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 2022 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.
• Notes 7 and 14 – Assumptions used to determine the carrying value of goodwill in relation to the IoT Solutions cash generating
unit (“CGU”). The carrying amount of goodwill at 31 December 2022 was £155.1 million (2021: £156.5 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. During the year a full impairment review was performed and an impairment
charge of £17.7 million was recorded in respect of goodwill held in the IoT Solutions CGU which was recognised within the Power
and Connectivity segment. Should the business experience further unforeseen deterioration of results a future impairment may
be required. Further information is provided in note 7 and sensitivity analysis is provided in note 14. Following the impairment,
the carrying amount of the IoT Solutions CGU’s goodwill was £9.9 million (2021: £27.6 million).
• Note 8 – 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 2022 includes tax provisions of £8.4 million (2021: £6.9 million).
The Group believes the range of reasonable possible outcomes in respect of these exposures is tax liabilities of up to
£11.1 million (2021: £9.0 million).
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Notes to the Consolidated financial statements
continued
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
for revenues which are not recognised over time. 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 arrangements are at the time of dispatch and at the time of delivery. Where
revenue is recognised over time this is recognised with regards to completion of performance obligation milestones. 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.
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.
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FINANCIAL STATEMENTS 2 Summary of significant accounting policies continued
Depreciation
The cost of each item of property, plant and equipment is depreciated over its useful life. Depreciation is charged to the income
statement so as to write-off the cost less estimated residual value on a straight-line basis over the estimated useful life of the asset.
Depreciation commences on the date the assets are ready for use within the business and the asset carrying values are reviewed
for impairment when there is an indication that they may be impaired. Freehold land is not depreciated.
The depreciation rates of assets are as follows:
Freehold buildings
Leasehold building improvements
Plant and equipment
50 years
50 years (or over the period of the lease, if shorter)
3 to 10 years
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets that take a substantial period
of time to get ready for their intended use are capitalised as part of the cost of the respective asset.
h) Investment property
Property held to earn rental income rather than for the purpose of the Group’s principal activities is classified as investment
property. Investment property is recorded at cost less accumulated depreciation and any recognised impairment loss. The
depreciation policy is consistent with that described for other Group properties. The assets’ residual values and useful lives
are reviewed, and adjusted, if appropriate, at each balance sheet date.
Investment properties are derecognised when either they have been disposed of or when the investment property is permanently
withdrawn from use and no future economic benefit is expected from its disposal. The difference between the net disposal
proceeds and the carrying amount of the asset is recognised in the income statement in the period of derecognition.
i) Leases
The Group applies IFRS 16 ‘Leases’ and recognises right-of-use assets and lease liabilities for most leases (unless the lease term
is 12 months or less or the underlying asset has a low value).
The Group recognises a lease liability at the lease commencement date, measured as the present value of the future lease
payments, discounted at the incremental borrowing rate. A corresponding right-of-use asset is recognised separately on the face
of the consolidated balance sheet, net of accumulated depreciation and impairment losses.
The Group has applied judgement to determine the lease term for contracts that include renewal options. The assessment of
whether the exercise of such options is reasonably certain impacts the lease term, which 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.
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Notes to the Consolidated financial statements
continued
2 Summary of significant accounting policies continued
l) Other intangible assets
Intangible assets acquired as part of a business combination are stated in the balance sheet at their fair value at the date of
acquisition less accumulated amortisation.
Expenditure on research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding
is recognised in the income statement as incurred. Expenditure on development activities, whereby research findings are applied to
a plan or design for the production of new or substantially improved products and processes, is capitalised if the product or process
is technically and commercially feasible and the Group has sufficient resources to complete development. The expenditure
capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Other development expenditure
is recognised in the income statement as incurred. Capitalised development expenditure is stated at cost less accumulated
amortisation and impairment losses. The carrying values of intangible assets are tested for impairment whenever there is an
indication that they may be impaired.
Customer relationships and contracts are valued on the basis of the net present value of the future additional cash flows arising
from customer relationships with appropriate allowance for attrition of customers.
Acquired computer software licences for use within the Group are capitalised as an intangible asset on the basis of the
costs incurred to acquire and bring to use the specific software. Costs that are directly associated with the implementation of
identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding
costs beyond one year, are recognised as intangible assets. Capitalised software development expenditure is stated at cost less
accumulated amortisation.
The amortisation rates for intangible assets are:
Acquired patents and licences
Product development costs
Customer relationships
Order backlog
Software
up to 10 years
5 years
3 to 22 years
up to 2 years
3 to 5 years
Amortisation is charged on a straight-line basis.
m) Deferred taxation
Deferred taxation is provided on taxable temporary differences between the carrying amounts of assets and liabilities in the
financial statements and their corresponding tax bases. No provision is made for deferred tax which would become payable
on the distribution of retained profits by overseas subsidiaries where the timing of the reversal of the temporary difference can be
controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is measured using
the tax rates expected to apply when the asset is realised, or the liability settled based on tax rates enacted or substantively enacted
by the balance sheet date. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of
an asset or liability unless the related transaction is a business combination or affects tax or accounting profit.
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.
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2 Summary of significant accounting policies continued
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.
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 FX risk on a forecast business combination, the Group includes the accumulated gains or losses on hedging
instruments 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 breaching contract; it being probable that the debtor will enter bankruptcy or financial reorganisation.
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
2 Summary of significant accounting policies continued
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.
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 remeasurements 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.
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FINANCIAL STATEMENTS
2 Summary of significant accounting policies continued
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.
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 recorded within 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.
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
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
KPIs and 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
Power and
Connectivity
154.2
7.9
Global
Manufacturing
Solutions
Sensors and
Specialist
Components
Total Operating
Segments
323.0
25.2
139.8
21.8
617.0
54.9
Corporate
–
(7.8)
Power and
Connectivity
140.2
7.8
Global
Manufacturing
Solutions
Sensors and
Specialist
Components
Total Operating
Segments
220.1
18.3
115.9
16.4
476.2
42.5
Corporate
–
(7.7)
£million
Sales to external customers
Adjusted operating profit
Add back: adjustments made to
operating profit (note 7)
Operating loss
Net finance costs
Loss before taxation
£million
Sales to external customers
Adjusted operating profit
Add back: adjustments made to
operating profit (note 7)
Operating profit
Net finance costs
Profit before taxation
2022
Total
617.0
47.1
(50.5)
(3.4)
(6.7)
(10.1)
2021
Total
476.2
34.8
(15.5)
19.3
(3.3)
16.0
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FINANCIAL STATEMENTS
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
2022
231.0
210.0
148.6
589.6
31.3
86.3
707.2
Assets
2021
219.6
162.8
121.4
503.8
78.4
89.2
671.4
2022
48.1
118.9
31.0
198.0
2.9
209.3
410.2
Liabilities
2021
39.0
84.3
30.4
153.7
3.9
183.8
341.4
Unallocated assets of £86.3 million (2021: £89.2 million) comprise deferred tax of £13.2 million (2021: £11.3 million), cash and cash
equivalents of £65.0 million (2021: £68.3 million), income tax of £1.1 million (2021: £2.6 million) and assets associated with the
central corporate function of £7.0 million (2021: £7.0 million).
Unallocated liabilities of £209.3 million (2021: £183.8 million) comprise borrowings (excluding leases and overdrafts)
of £176.6 million (2021: £147.1 million), overdrafts of £3.7 million (2021: £1.1 million), deferred tax of £12.4 million (2021:
£20.2 million), income tax of £9.6 million (2021: £7.1 million) and liabilities associated with the central corporate function
of £7.0 million (2021: £8.3 million).
£million
Power and Connectivity
Global Manufacturing Solutions
Sensors and Specialist Components
Total
Capital expenditure
Depreciation and amortisation
2022
2021
2022
2021
5.4
2.4
6.5
14.3
6.1
1.7
9.2
17.0
5.5
4.6
6.0
16.1
5.6
4.8
5.7
16.1
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
2022
130.0
104.3
236.6
144.7
1.4
617.0
2021
100.2
78.6
182.7
113.3
1.4
476.2
Revenue from services is less than 1% of Group revenues. All other revenue is from the sale of goods.
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
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 key customers
The Group operates in the following markets:
£million
Healthcare
Aerospace and defence
Automation and electrification
Distribution
2022
103.6
0.2
162.6
5.0
11.8
283.2
2022
172.0
91.7
229.6
123.7
617.0
2021
116.3
0.3
144.8
4.4
12.4
278.2
2021 1
118.8
85.5
172.2
99.7
476.2
1 Revenue by market in 2021 has been represented following a reclassification of end markets for several key customers.
The Group had one customer who contributed greater than 10% of revenues (12%) in 2022 (2021: less than 10%). Revenues from
this customer are recognised within the Global Manufacturing Solutions segment.
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FINANCIAL STATEMENTS
4 Acquisitions
On 7 January 2022 the Group acquired the Power and Control business of Ferranti Technologies Ltd, from Elbit Systems UK Ltd.
Total cash consideration was £8.3 million comprising £10.0 million paid in January 2022 and a final £1.7 million working capital
adjustment received in April 2022.
Had the acquisition been completed on 1 January, the full year revenue, operating loss and adjusted operating profit would have been
unchanged at £617.0 million, £3.4 million and £47.1 million respectively as reported. Ferranti Power and Control’s contribution to the
Group’s 2022 revenue, operating loss and adjusted operating profit was £7.9 million, £0.8 million and £1.9 million respectively.
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, 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 goodwill recognised on acquisition represents the Group’s
view on the future earnings growth potential and technical capabilities of the acquired business. None of the goodwill recognised is
expected to be deductible for income tax purposes. Costs in relation to this acquisition recognised in the statement of profit or loss
amounted to £0.3 million.
The fair values of the identifiable assets (including goodwill) and liabilities are presented below.
The fair value of receivables of £2.1 million is not materially different to the contractual cashflows. The amount expected to not be
collected is £nil.
£million
Non-current assets
Right-of-use asset
Property, plant and equipment
Identifiable intangible assets
Current assets/(liabilities)
Inventory
Trade and other receivables
Trade and other payables
Provisions
Lease liabilities
Deferred tax liabilities
Net assets of acquiree
Consideration paid
Cash consideration
Goodwill
Power and Control business of Ferranti Technologies Ltd
0.2
0.4
5.3
2.2
2.1
(2.5)
(3.0)
(0.2)
(1.2)
3.3
8.3
5.0
The acquisition balance sheet above represents the final acquisition balance after substantially completing the initial measurement
period of 12 months since acquisition. During the final six months of the year there were opening balance sheet adjustments as
compared to the preliminary acquisition balance sheet disclosed with the half year results. These adjustments were to increase
provisions by £0.4 million reduce trade and other receivables by £0.1 million, reduce deferred tax liabilities by £0.1 million and to
increase goodwill by £0.4 million.
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
5 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
2022
2021
0.1
2.2
2.3
7.1
0.8
0.1
1.0
9.0
6.7
0.2
0.9
1.1
3.1
0.8
0.1
0.4
4.4
3.3
Within ‘Amortisation of arrangement fees’ is an expense of £0.5m relating to the acceleration of capitalised loan arrangement fees
following a refinancing activity described in note 20.
6 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
Impairment of goodwill (excluded from adjusted operating profit, note 14)
Impairment of other assets (excluded from adjusted operating profit) 2
Net foreign exchange losses/(gains) recognised within operating profit
Cost of inventories recognised as an expense
Research and development
Staff costs (see note 11)
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 3
Government grants
Share-based payments
Profit on disposal of property, plant and equipment (excluded from adjusted operating profit)
2022
9.6
4.3
8.2
17.7
5.4
1.1
481.5
10.1
164.5
20.2
7.2
0.8
0.8
0.1
(0.1)
4.8
–
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)
1
2
Included within amortisation of intangible assets is £6.0 million (2021: £5.1 million) reported within items excluded from adjusted operating profit. The remaining charge is within
administrative expenses.
Included within impairment of other assets of £5.4 million is £2.8 million in respect of inventories, £1.5 million in respect of plant property and equipment, £0.8 million in respect of
receivables and £0.3 million in respect of capitalised product development costs.
3 Assurance and other services of £0.1 million relate to the half year review (2021: £0.1 million relating to the half year review).
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FINANCIAL STATEMENTS
7 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 restructuring costs
Pension enhanced transfer value exercise
Pension increase exchange exercise
Other items
Asset impairments
Goodwill impairment
Other impairments
Acquisition and disposal related costs
Amortisation of intangible assets arising on business combinations
Torotel acquisition and integration costs
Covina acquisition and integration costs
Ferranti Power and Control acquisition and integration costs
Tax losses relating to the disposal of the transportation division
Other acquisition and disposal related costs
Total items excluded from adjusted measure
Adjusted measure
Operating
profit
(3.4)
(6.4)
–
(2.0)
(11.8)
–
–
(20.2)
(17.7)
(5.4)
(23.1)
(6.0)
(0.1)
–
(1.1)
–
–
(7.2)
(50.5)
47.1
2022
Tax
(3.1)
1.2
–
0.4
2.2
–
–
3.8
–
1.0
1.0
0.3
–
–
0.2
–
–
0.5
5.3
(8.4)
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
(3.2)
1.2
(0.2)
0.2
–
(0.2)
–
1.0
–
–
–
(0.3)
0.6
0.1
0.2
1.3
0.1
2.0
3.0
(6.2)
Restructuring and other £20.2 million (2021: £7.8 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
now substantially complete.
Restructuring costs of £6.4 million comprise £2.7 million relating to the restructure of the North America Resistors business, which
includes pre-production costs at our new Plano facility; £2.0 million relating to closure of our site in Lutterworth, UK, £1.5 million
relating to the relocation of production facilities from Covina, USA to Kansas, USA and £0.2 million relating to the relocation of
production facilities from Medina, USA to Minneapolis, USA.
Pension enhanced transfer value exercise of £11.8 million represents the settlement cost of a liability management exercise
undertaken during the year ahead of the buy-in completed in 2022. Pension restructuring costs of £2.0 million relate to costs
associated with the enhanced transfer value exercise and scheme buy-in (see note 22).
Prior period restructuring costs of £7.8 million primarily comprised £8.0 million, net of a £1.7 million gain on property disposals,
relating to restructuring the Group’s footprint, £1.5 million relating to preparing the Group’s pension scheme for buy-in, £0.1 million
relating to other costs, and a £1.8 million gain relating to 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.
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
7 Adjusting items continued
Asset impairments £23.1 million (2021: £nil)
During the year an impairment of £5.4 million associated with Virolens related assets (£2.8 million of inventory, £1.5 million of plant
and equipment, £0.8 million of other debtors and £0.3 million of product development costs) was recognised, reducing the carrying
value to £nil.
Following a detailed impairment review of goodwill completed during the year an impairment charge of £17.7 million (2021: £nil)
was recognised to reduce the carrying value of the IoT Solutions CGU to the recoverable amount.
The impairments of both Virolens related assets and goodwill were as a result of revised forecasts in the context of a weaker
macro-economic environment and the impact of the evolution of the COVID pandemic on the potential demand for COVID testing.
The impairment charges were recognised within the Power and Connectivity segment.
Acquisition and disposal related costs £7.2 million (2021: £7.7 million)
Acquisition and disposal related costs charged in the year comprise £6.0 million (2021: £5.1 million) of amortisation of acquired
intangible assets; £0.3 million (2021: £0.5 million) of acquisition costs and £0.8 million of integration costs relating to the
acquisition of the Power and Control business of Ferranti Technologies Ltd based in Oldham, UK and £0.1 million of integration
costs of Torotel, Inc. (2021: £1.5 million). The prior period also included £0.4 million of costs of terminated acquisitions and
£0.2 million of integration costs of the aerospace and defence power supply business of Excelitas Technologies Corp based
in Covina, California.
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FINANCIAL STATEMENTS
8 Taxation
a) Analysis of the tax charge for the year
£million
2022
2021
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
Adjustments in respect of deferred tax of previous years
Total deferred tax credit
Total tax charge in the income statement
9.1
(0.5)
8.6
(3.4)
(1.2)
(0.9)
(5.5)
3.1
5.1
(0.9)
4.2
(0.4)
0.8
(1.4)
(1.0)
3.2
The applicable tax rate for the period is based on the UK standard rate of corporation tax of 19% (2021: 19%). Overseas taxation is
calculated at the rates prevailing in the respective jurisdictions. The Group’s effective tax rate for the year was -30.7% (the adjusted
tax rate was 20.8%, 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%. In 2022 the impact on deferred tax as a result of this change was £1.2 million recognised in the
income statement.
Included within the total tax charge above is a £5.3 million credit relating to items reported outside adjusted profit (2021:
£3.0 million credit).
b) Reconciliation of the total tax charge for the year
£million
(Loss)/profit before tax from continuing operations
(Loss)/profit before tax multiplied by the standard rate of corporation tax in the UK of 19% (2021: 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
Adjustments in respect of deferred tax of previous years
Total tax charge reported in the income statement
2022
(10.1)
(1.9)
(1.2)
0.8
8.8
(0.5)
(2.0)
(0.9)
3.1
2021
16.0
3.0
0.8
0.7
2.2
(0.9)
(1.2)
(1.4)
3.2
Items not deductible for tax purposes or income not taxable includes an impairment of IoT Solutions CGU not deductible for tax
purposes of £9.6 million.
The adjustment to current tax in respect of prior periods largely relates to the release of tax provisions in respect of concluded
disputes and uncertainties.
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
8 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 2022 includes tax provisions of £8.4 million (2021: £6.9 million). The Group believes the
range of reasonable possible outcomes in respect of these exposures is tax liabilities of up to £11.1 million (2021: £9.0 million).
c) Deferred tax
The Group completed a five year forward looking strategic plan covering the periods from 2023 to 2027 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 the future.
The amounts of deferred taxation assets/(liabilities) provided in the financial statements are as follows:
£million
Intangible assets
Property, plant and equipment
Deferred development costs
Retirement benefit obligations
Inventories
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 2022
Continuing
operations
Recognised on
acquisition
Recognised in
equity/OCI
Net exchange
translation
As at 31
December 2022
(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)
0.9
(0.6)
0.2
1.8
(0.5)
0.9
0.5
(0.2)
–
2.5
5.5
(1.2)
–
–
–
–
–
–
–
–
–
(1.2)
–
–
–
6.5
–
–
–
(1.0)
(0.4)
(1.6)
3.5
(0.7)
(0.1)
(0.2)
0.2
0.3
0.5
–
–
–
1.9
1.9
(12.4)
0.8
(0.5)
(10.4)
0.9
10.7
(1.8)
0.7
0.1
12.7
0.8
13.2
(12.4)
0.8
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FINANCIAL STATEMENTS
8 Taxation continued
£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
Deferred tax assets
Deferred tax liabilities
Net deferred tax asset
Deferred tax
Intangible assets
At 31
December 2020
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)
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
Cash flow hedges
Deferred tax relating to derivatives designated as cash flow hedges
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.
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
8 Taxation continued
At 31 December 2022, the gross amount and expiry date of losses not recognised for deferred tax purposes but available for carry
forward are as follows:
£million
Expiring
within
5 years
Expiring
within
6 to 10 years
Unlimited
Losses for which no deferred tax asset has been recognised
0.6
–
71.6
Total
72.2
Deferred tax is not recognised on these losses because profit projections do not support the utilisation of these losses.
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 2021, 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
0.4
Expiring
within
6 to 10 years
–
Unlimited
71.1
Total
71.5
At 31 December 2022, the Group had no other items for which no deferred tax assets have been recognised (2021: £nil).
174
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FINANCIAL STATEMENTS
9 Dividends
Final dividend paid for prior year
Interim dividend declared for current year
2022
pence
per share
3.80
2.00
2022
£million
6.7
3.5
2021
pence
per share
4.70
1.80
2021
£million
8.2
3.2
The Directors recommend a final dividend of 4.3 pence per share. The Group has a progressive dividend policy. The final dividend
will be paid on 26 May 2023 to shareholders on the register on 28 April 2023.
10 Earnings per share
Basic earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to owners of the Company by the weighted
average number of shares in issue during the year.
Pence
(Loss)/Earnings per share
Basic
Diluted
2022
2021
(7.5)
(7.5)
7.3
7.2
As the Group made a statutory loss, diluted statutory EPS has been calculated using the basic weighted average number of shares.
The numbers used in calculating adjusted, basic and diluted (loss)/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
(Loss)/profit for the year attributable to owners of the Company
Restructuring and other
Asset impairments
Acquisition and disposal related costs
Tax effect of above items (see note 7)
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 23):
million
Basic
Adjustment for share awards
Diluted
2022
175.8
2.0
177.8
2022
2021
(13.2)
20.2
23.1
7.2
(5.3)
32.0
18.2
18.0
12.8
7.8
–
7.7
(3.0)
25.3
14.5
14.2
2021
174.8
3.3
178.1
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
11 Employee information
The average number of full time equivalent employees (including Directors) during the year from continuing operations was:
Number
By function
Production
Sales and distribution
Administration
By division
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
2022
2021
4,352
296
324
4,972
1,650
1,567
1,755
4,972
2022
124.8
30.5
3.2
1.2
4.8
164.5
2022
2.1
2022
3.5
0.2
2.2
5.9
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
The Schedule 5 requirements of the Accounting Regulations for directors’ remuneration are included within the Directors’
remuneration report on pages 122-135.
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FINANCIAL STATEMENTS
12 Right-of-use assets
£million
Cost
At 1 January 2021
Additions
Disposals
Net exchange adjustment
At 1 January 2022
Additions
Disposals
Business acquired
Net exchange adjustment
At 31 December 2022
Depreciation
At 1 January 2021
Depreciation charge
Impairment
Disposals
Net exchange adjustment
At 1 January 2022
Depreciation charge
Impairment
Disposals
Net exchange adjustment
At 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
Land and
buildings
Other
Right-of-use
assets
34.9
10.5
(4.4)
0.5
41.5
2.3
(0.5)
0.2
2.7
46.2
23.3
3.4
0.1
(4.4)
0.2
22.6
4.0
(0.2)
(0.5)
0.9
26.8
19.4
18.9
1.8
0.3
(0.1)
–
2.0
–
(0.1)
–
(0.4)
1.5
1.0
0.3
–
(0.1)
0.1
1.3
0.3
–
(0.1)
(0.2)
1.3
0.2
0.7
36.7
10.8
(4.5)
0.5
43.5
2.3
(0.6)
0.2
2.3
47.7
24.3
3.7
0.1
(4.5)
0.3
23.9
4.3
(0.2)
(0.6)
0.7
28.1
19.6
19.6
The reversal of impairment during the year of £0.2m relates to the reversal of a previously impaired lease as part of a previous
restructuring programme; the credit has been recognised in the income statement under adjusting items as a restructuring cost.
Additions during the year relate to a new site in Manchester, UK (£1.8 million) and other locations throughout the Group
(£0.5 million).
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 21e.
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
13 Property, plant and equipment
£million
Cost
At 1 January 2021
Additions
Disposals
Net exchange adjustment
At 1 January 2022
Additions
Disposals
Business acquired
Net exchange adjustment
At 31 December 2022
Depreciation and impairment
At 1 January 2021
Depreciation charge
Impairment
Disposals
Net exchange adjustment
At 1 January 2022
Depreciation charge
Impairment
Disposals
Net exchange adjustment
At 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
Land and
buildings
Plant and
equipment
29.7
7.9
(13.5)
0.1
24.2
1.8
(0.3)
–
1.9
27.6
10.8
1.1
–
(5.7)
0.1
6.3
1.2
–
(0.5)
0.3
7.3
20.3
17.9
177.0
6.7
(13.2)
1.3
171.8
9.6
(21.5)
0.4
11.5
171.8
142.9
8.8
(0.1)
(13.2)
0.9
139.3
8.4
1.5
(21.5)
9.6
137.3
34.5
32.5
Total
206.7
14.6
(26.7)
1.4
196.0
11.4
(21.8)
0.4
13.4
199.4
153.7
9.9
(0.1)
(18.9)
1.0
145.6
9.6
1.5
(22.0)
9.9
144.6
54.8
50.4
Included within land and buildings is one investment property with a carrying value of £nil (2021: £nil) and a fair value of
£0.7 million (2021: £0.7 million). Rental income of £0.2 million (2021: £0.2 million) was recognised within other income
in relation to this property.
The impairment charge for the year of £1.5 million (2021: £nil) relates to assets in the IoT Solutions CGU and is reported within
items excluded from adjusted operating profit as described in note 7. All impaired assets have been impaired down to a recoverable
amount of £nil.
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FINANCIAL STATEMENTS
14 Goodwill
£million
Cost
At 1 January 2021
Net exchange adjustment
At 31 December 2021
Additions
Net exchange adjustment
At 31 December 2022
Impairment
At 1 January 2021 and at 31 December 2021
Impairment
At 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
155.7
0.8
156.5
5.0
11.3
172.8
–
17.7
17.7
155.1
156.5
The £5.0 million addition in goodwill in 2022 arose upon the acquisition of Power and Control business of Ferranti Technologies Ltd
and is considered part of the Power Solutions CGU.
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 net of impairment is attributed to the following CGUs in the divisions shown below:
£million
Power and Connectivity:
Power Solutions
IoT Solutions
Global Manufacturing Solutions:
Global Manufacturing Solutions
Sensors and Specialist Components:
Resistors
Sensors
2022
2021
65.6
9.9
19.5
34.2
25.9
155.1
57.0
27.6
18.4
30.5
23.0
156.5
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
14 Goodwill continued
Impairment Testing
The Group tests goodwill impairment annually or more frequently if there are indications that goodwill might be impaired.
The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use
calculations are those regarding the discount rates, growth rates and operating cash flow projections over a forecast period.
The growth rate assumed after this forecast period is based on long-term GDP projections capped at long term growth rates
(which are approximated as long-term inflation rates) of the primary market for the CGU, in perpetuity. Long-term growth rates
are based on long-term forecasts for growth in the 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 2022 are shown below:
Power Solutions
IoT Solutions
Global Manufacturing Solutions
Resistors
Sensors
Pre-tax
discount rate
Long term
growth rate
13.4%
14.3%
13.8%
13.5%
13.2%
1.7%
1.6%
1.9%
1.6%
1.7%
2022
Period of
forecast
(years)
5
5
5
5
5
Pre-tax
discount rate
Long term
growth rate
12.2%
12.2%
13.2%
13.3%
13.8%
1.7%
1.6%
1.8%
1.6%
1.7%
2021
Period of
forecast
(years)
5
5
5
5
5
The date of the annual impairment test was 30 September 2022 to align with internal forecasting and review processes.
Based on the impairment testing performed, an impairment charge of £17.7 million was recorded in 2022 (2021: £nil) in respect of
the IoT Solutions CGU as a result of revised forecasts for the business in the context of a weaker macro-economic environment and
the impact of the evolution of the COVID pandemic on the potential demand for COVID testing, coupled with an increase in discount
rates. The impairment charge is shown as an adjusting item (see note 7) in conjunction with related assets in the IoT Solutions
CGU. No impairment losses have been recognised in the current or prior year in respect of the other CGUs as recoverable amounts
exceed carrying value of assets in respect of those businesses.
Sensitivity analysis has been provided in respect of reasonably possible changes to key assumptions where applicable.
Key assumptions in the value in use test are 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.
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FINANCIAL STATEMENTS
14 Goodwill continued
The recoverable amounts associated with the goodwill balances which are based on these performance projections and current
forecast information do not indicate that any goodwill balance, other than that for IoT Solutions, 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.
Sensitivity Analysis
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.
Other than in the case of the IoT Solutions CGU where an impairment has been recognised, the Directors have not identified
reasonably possible changes in significant assumptions that would cause the carrying value of recognised goodwill to exceed
its recoverable amount.
As discussed in note 1, determination of the recoverable amount involves management judgement on highly uncertain matters,
particularly with regard to future growth prospects in the markets in which the CGUs operate, the level of competition and discount
factors. Revenue forecasts for the IoT Solutions CGU have reduced and a higher discount factor has been applied in 2022. As a
result the recoverable amount of the IoT Solutions CGU was £43.8 million resulting in an impairment to goodwill of £17.7 million.
In accordance with IAS 36 ‘Impairment of Assets’ sensitivity analysis has been carried out as illustrated below:
• a further 1 per cent increase in the discount rate would result in a reduction in value in use (and additional impairment)
of £3.3 million.
• a further 1 per cent decrease in the long-term growth rate (driven by delayed product launches) would result in a reduction
in value in use (and additional impairment) of £2.2 million.
• a further 5 per cent reduction in the terminal value of operating profit (driven by lower than anticipated margin) would result
in a reduction in value in use (and additional impairment) of £1.4 million.
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
15 Other intangible assets
£million
Cost
At 1 January 2021
Additions
Disposals
Net exchange adjustment
At 1 January 2022
Additions
Disposals
Businesses acquired
Net exchange adjustment
At 31 December 2022
Amortisation
At 1 January 2021
Charge for the year
Impairment
Disposals
Net exchange adjustment
At 1 January 2022
Charge for the year
Impairment
Disposals
Net exchange adjustment
At 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
Product
development
costs
Patents,
licences
and
other
Customer
relationships
16.7
1.9
(0.1)
0.1
18.6
2.3
(0.1)
–
1.4
22.2
9.7
0.9
–
(0.1)
0.1
10.6
1.2
0.3
(0.1)
1.1
13.1
9.1
8.0
35.4
0.5
(0.1)
0.1
35.9
0.6
(0.3)
2.3
0.9
39.4
31.0
2.5
–
(0.1)
0.2
33.6
2.8
–
(0.3)
0.9
37.0
2.4
2.3
63.9
–
(0.5)
0.2
63.6
–
–
3.0
2.6
69.2
18.2
4.2
0.2
(0.5)
0.1
22.2
4.2
–
–
0.6
27.0
42.2
41.4
Total
116.0
2.4
(0.7)
0.4
118.1
2.9
(0.4)
5.3
4.9
130.8
58.9
7.6
0.2
(0.7)
0.4
66.4
8.2
0.3
(0.4)
2.6
77.1
53.7
51.7
Included within the impairment charge for the year is £0.3 million (2021: £nil) reported within the Power and Connectivity segment
and within items excluded from adjusted operating profit as described in note 7. All impaired assets have been impaired down to a
recoverable amount of £nil.
Included within the amortisation charge for the year is £6.0 million (2021: £5.1 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 7. The composition
of customer relationships and the years remaining until they are fully amortised is shown below.
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FINANCIAL STATEMENTS
15 Other intangible assets continued
Customer relationships held on the balance sheet are summarised below.
£million
Stadium Group
Aero Stanrew
Torotel
Precision Inc.
Covina
Ferranti Power and Control
At 31 December 2022
£million
Stadium Group
Aero Stanrew
Torotel
Precision Inc.
Covina
Roxspur
Others
At 31 December 2021
16 Inventories
£million
Raw materials
Work in progress
Finished goods
Net book value
Years remaining
13.4
8.9
7.9
5.8
3.5
2.7
42.2
10.3
8.0
19.9
9.7
11.2
12.0
Net book value
Years remaining
14.5
10.0
7.3
5.6
3.3
0.3
0.4
41.4
2022
130.9
34.8
23.5
189.2
11.3
9.0
20.9
10.7
12.2
0.6
–
2021
92.6
26.3
22.9
141.8
Inventories are stated after a provision for obsolescence of £25.8 million (2021: £18.3 million). The directors do not consider there
to be a material difference between net book value and replacement cost for inventories. An impairment of £2.8 million was
recognised in items excluded from adjusted operating profit as described in note 7.
17 Trade and other receivables
£million
Trade receivables
Prepayments
VAT and other taxes receivable
Amounts owed by non-controlling interests
Accrued income
Contract assets
Other receivables
2022
101.3
8.1
3.4
–
1.4
1.7
4.4
120.3
2021
72.9
6.3
2.9
2.0
–
–
2.1
86.2
Loss allowance for expected credit losses in respect of trade receivables and amounts owed by non-controlling interests are shown
in note 21d(ii) and note 21d(iii) respectively.
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
18 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
2022
2021
97.0
4.1
27.9
31.3
10.1
2.8
77.7
4.0
26.4
16.1
7.6
2.1
173.2
133.9
2022
2021
0.1
0.2
Deferred income primarily represents pre-funded inventory which is expected to be converted into finished goods and sold within
12 months. All the brought forward balance carried over from 2021 was converted into finished goods and sold to the end customer
within the year.
19 Provisions
£million
At 1 January 2021
Utilised
Released
Transfer
Arising during the year
Exchange differences
At 1 January 2022
Utilised
Released
Transfer
Arising during the year
Businesses acquired
Exchange differences
At 31 December 2022
£million
Non-current
Current
Property
Reorganisation
Legal, warranty
and other
0.9
–
(0.1)
–
–
–
0.8
–
(0.1)
–
–
–
–
0.7
4.1
(3.2)
(0.2)
–
0.8
(0.1)
1.4
(0.3)
–
(0.7)
–
–
–
0.4
2.5
(0.3)
(1.4)
(0.2)
0.6
(0.1)
1.1
(1.7)
(0.2)
0.5
0.3
3.0
0.1
3.1
2022
0.7
3.5
4.2
Total
7.5
(3.5)
(1.7)
(0.2)
1.4
(0.2)
3.3
(2.0)
(0.3)
(0.2)
0.3
3.0
0.1
4.2
2021
0.8
2.5
3.3
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FINANCIAL STATEMENTS
19 Provisions continued
Property
Property provisions of £0.7 million (2021: £0.8 million) relate to dilapidation provisions.
Reorganisation
Reorganisation provisions relate to committed costs in respect of restructuring programmes, as described in note 7, usually
resulting in cash spend within one year.
The reorganisation provision of £0.4 million (2021: £1.4 million) includes £0.3 million in respect of self-help programmes which
commenced in 2020 to consolidate our footprint. £0.1 million of the utilisation in year relates to severance provisions following
the closure of our facilities in Lutterworth, UK and Covina, US.
A further £0.1 million (2021: £0.3 million) relates to the restructuring programme undertaken in association with the closure
of the Boone, North Carolina operations. Work has been performed to rectify soil contamination that occurred as a result of past
production practices, with £0.2 million utilised during the period. The provision is based upon the Group’s estimate of the scope
of further work which contains inherent uncertainty.
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 provisions with acquired business of £3.0 million relate to provision on the opening balance sheet of the newly acquired
Ferranti Power and Control business to complete onerous contracts. Of the £1.7 million utilisation in year £1.1 million relates
to costs incurred for the completion of acquired onerous contracts in the Ferranti Power and Control business and £0.6 million
relates to other provisions. The £0.2 million provision release during the year primarily relates to lower than anticipated costs for
integration of our 2021 acquisition of Torotel. The £0.3 million costs charged to the income statement in year relate to £0.2 million
local warranty provisions (recognised within admin expenses in the income statement) and £0.1 million for provisions in relation
to the integration of the acquired Ferranti Power and Control business (recognised in acquisition and disposal costs which are
excluded from adjusted operating profit).
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.
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185
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
20 Borrowings and lease obligations
£million
At 31 December 2022
£147.4 million multi-currency revolving credit facility
Unsecured loan note
Unsecured loan note
Overdrafts
Lease liabilities
Loan arrangement fee
Total
At 31 December 2021
£180 million multi-currency revolving credit facility
Unsecured loan note
Unsecured loan note
Overdrafts
Lease liabilities
Loan arrangement fee
Total
Maturity
Currency of
denomination
Current
Non-current
Total
2026
2026
2028
2031
2023
2023
2028
2031
GBP
USD
GBP
GBP
GBP
USD
GBP
GBP
72.0
31.6
37.5
37.5
–
18.7
(2.0)
72.0
31.6
37.5
37.5
3.7
23.1
(2.0)
195.3
203.4
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
3.7
4.4
–
8.1
1.1
4.1
–
5.2
The Group’s primary source of finance is the £147.4 million committed revolving credit facility (RCF), and an uncommitted accordion
facility of £32.6 million, which was signed in June 2022 to replace the previously existing RCF. The Group's RCF is payable on a floating
rate basis above GBP SONIA, USD SOFR or EURIBOR depending on the currency of the loan and will mature in June 2026 with a one
year extension option which expires in May 2023. As at 31 December 2022, £103.6 million (31 December 2021: £73.4 million) of the
facility was drawn down. Arrangement fees with amortised cost of £2.0 million (2021: £1.3 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 SONIA, or USD SOFR 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 was no impact of
this transition.
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.
Undrawn facilities
At 31 December 2022, the total lease liabilities and borrowing facilities available to the Group net of £2.0 million of loan
arrangement fees (2021: £1.3 million) amounted to £288.3 million (2021: £318.9 million). At 31 December 2022, the Group had
available £47.4 million (2021: £110.1 million) of undrawn committed borrowing facilities (comprising the main facility £43.8 million
(2020: £106.6 million) and China £3.6 million (2021: £3.5 million) and £41.2 million (2021: £38.0 million) of undrawn uncommitted
borrowing facilities, representing overdraft lines and the accordion facility.
In February 2023 £15.0 million of accordion was converted from uncommitted into committed facility extending the total
committed facilities available (including lease liabilities) to £262.1 million.
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FINANCIAL STATEMENTS
21 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 2022 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 £31.6 million ($38.0 million) (2021: £21.4 million ($29.0 million)) of loans in a net investment hedge
of USD net assets. No ineffectiveness was recorded (2021: £nil) and a loss of £3.4 million (2021: £0.2 million loss) 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 2022 was an accumulated loss of £3.7 million (2021: accumulated loss
of £0.3 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 2022, the Group had a net derivative financial liability of £0.5 million (2021: £2.6 million net asset).
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187
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
21 Financial risk management continued
Foreign exchange (FX) hedges
Notional
Amount
(£m)
Average
Hedged Rate
Fair value
(£m)
31 December 2022
USD:CNY
USD:MXN
USD:GBP
GBP:USD
EUR:GBP
HKD:CNY
USD:MYR
CNY:GBP
CNY:EUR
GBP:EUR
GBP:SEK
Total
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
74.2
35.2
31.5
20.1
17.0
10.1
9.7
6.8
4.2
1.9
1.3
212.0
65.6
23.9
23.3
10.8
8.6
6.1
5.5
3.4
3.2
2.7
2.6
–
155.7
6.65
21.95
1.07
1.26
0.87
0.88
4.32
8.57
7.50
1.15
12.02
6.70
22.03
1.35
1.13
4.17
9.08
1.03
7.89
0.85
0.87
11.63
–
(1.6)
2.1
(0.9)
0.6
(0.5)
(0.1)
(0.1)
(0.4)
(0.1)
–
(0.1)
(1.1)
3.0
0.4
(0.1)
0.3
–
(0.3)
(0.1)
(0.3)
0.1
(0.1)
(0.1)
0.1
2.9
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 – 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 2022 was an accumulated loss of £1.1 million
(2021: accumulated gain of £2.6 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 year end 31 December 2022.
Hedges with a notional amount of £148.6 million (2021: £27.8 million) are due within 12 months with the remainder maturing within
24 months.
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FINANCIAL STATEMENTS
21 Financial risk management continued
Interest rate swaps
31 December 2022
GBP
31 December 2021
USD
GBP
Notional
amount
(£m)
Fair value
(£m)
19.0
19.0
5.1
19.0
24.1
0.6
0.6
(0.1)
(0.2)
(0.3)
Type of hedge
CFH – SONIA
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 20). On 4 January 2022 the Group transitioned away from GBP LIBOR to be replaced by
GBP SONIA. There was no impact of this transition. As part of the RCF refinance in June 2022 the Group transitioned away from
USD LIBOR to USD SOFR. There was no impact of this transition.
The Group hedges approximately 39% of the interest rate exposure of the Group. At 31 December 2022 the Group held interest rate
swap instruments to fix the cost of GBP SONIA 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 5.1% over the next 12 months. The interest rate swaps are
designated as cash flow hedges and were highly effective throughout 2022. The fair value of the contracts as at 31 December 2022
is disclosed in the table above. For the year ending 31 December 2022 an accumulated loss of £0.1 million (2021: accumulated loss
of £0.4 million) was reclassified from the cash flow hedge reserve and included in the income statement as part of finance costs.
A loss on the movement in fair value of the hedging instruments of £3.0 million (2021: gain of £0.3 million) was recognised within other
comprehensive income. The closing value of the hedging reserve in relation to interest rate swaps on 31 December 2022 was a credit
of £0.6 million (2021: debit of £0.3 million). Swaps with a notional value of £19.0 million will mature in November 2023.
No ineffectiveness was recognised through the income statement in 2022 (2021: £nil) or is expected to be recognised in
future periods.
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189
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
21 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 2022
Trade and other receivables
Cash and cash equivalents
Borrowings
Lease liabilities
Trade and other payables
Net Derivative financial instruments
Total
31 December 2021
Trade and other receivables
Cash and cash equivalents
Borrowings
Lease liabilities
Trade and other payables
Net Derivative financial instruments
Total
–
–
–
–
(0.7)
(1.8)
(2.5)
0.1
–
–
–
(0.4)
(0.1)
(0.4)
23.8
18.6
(32.7)
–
(23.0)
1.2
(12.1)
21.3
4.0
(21.4)
–
(19.5)
(0.1)
(15.7)
1.9
3.3
–
–
(1.3)
(0.1)
3.8
2.1
1.2
–
(0.1)
(1.4)
(0.3)
1.5
0.6
1.8
–
(1.6)
(2.8)
(0.4)
(2.4)
0.6
1.6
–
(1.2)
(2.9)
3.1
1.2
26.3
23.7
(32.7)
(1.6)
(27.8)
(1.1)
(13.2)
24.1
6.8
(21.4)
(1.3)
(24.2)
2.6
(13.4)
A 10% strengthening of GBP against the following currencies at 31 December 2022 would have reduced loss 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 2022 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
2022
1.8
0.4
2021
0.6
0.2
A 10% strengthening of GBP against the following currencies at 31 December 2022 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
2022
(3.0)
–
2021
(2.1)
–
10% weakening of GBP against the above currencies at 31 December 2022 would have had an equal but opposite effect on the
above currencies to the amount shown above, on the basis that all other variables remain constant.
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FINANCIAL STATEMENTS
21 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
2022
total
–
19.4
0.6
20.0
(88.3)
–
–
–
–
–
–
–
(94.0)
(23.1)
–
–
(88.3)
(117.1)
101.3
45.6
3.3
150.2
2.0
–
(135.1)
(4.4)
(137.5)
101.3
65.0
3.9
170.2
(180.3)
(23.1)
(135.1)
(4.4)
(342.9)
Floating
rate
Fixed
rate
Non-interest
bearing
2021
total
–
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)
74.9
68.3
4.6
147.8
(148.2)
(22.6)
(111.9)
(2.0)
(284.7)
At 31 December 2022, 52% of borrowings was at a fixed rate when including the effect of derivatives (2021: 66%).
The interest charged on floating rate financial liabilities is based on the relevant benchmark rate (such as GBP 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 2022, 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 loss 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
£0.6 million (2021: £0.3 million). The impact on equity would be materially the same.
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
21 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 a £0.4 million impairment of trade receivables as at 31 December 2022 (2021: £1.9 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 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
2022
40.2
35.3
25.4
0.4
101.3
Gross
66.0
6.6
0.3
2.1
75.0
2021
32.7
26.7
13.2
0.3
72.9
2021
Impairment
(0.2)
–
(0.2)
(1.7)
(2.1)
Gross
90.1
9.9
1.1
2.3
103.4
2022
Impairment
–
–
–
(2.1)
(2.1)
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FINANCIAL STATEMENTS
21 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
2022
2.1
–
0.4
(0.4)
2.1
2021
0.5
(0.2)
1.9
(0.1)
2.1
(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 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
2022
–
65.0
3.9
2021
2.0
68.3
4.6
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
21 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 2022, the Group had £47.4 million of undrawn committed borrowing facilities (2021: £110.1 million) and £41.2 million
(2021: £38.0 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 2022
Borrowings (excl overdrafts)
Overdrafts
Lease liabilities
Trade and other payables
Derivatives settled gross
Interest rate swaps
31 December 2021
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
(176.6)
(3.7)
(23.1)
(135.1)
(4.4)
0.6
(342.3)
(147.1)
(1.1)
(22.6)
(111.9)
(1.7)
(0.3)
(284.7)
(208.9)
(3.7)
(26.8)
(135.1)
(148.3)
–
–
(3.7)
–
–
–
–
(1.0)
–
(1.2)
(131.8)
(28.4)
–
(5.5)
–
(3.8)
(3.3)
(75.8)
–
(6.0)
–
(4.8)
–
(44.1)
–
(6.0) (107.7)
–
(3.2)
–
–
–
–
(3.7)
–
–
–
(522.8)
(3.7)
(162.4)
(88.4)
(54.9)
(9.7) (110.9)
(172.0)
(1.1)
(27.0)
(112.1)
(41.9)
(1.1)
(355.2)
–
(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)
(119.1)
(30.5)
(96.8)
(2.2)
–
(3.4)
(0.1)
–
–
(5.7)
(2.2)
–
(2.9)
–
–
–
(5.1)
(2.2)
–
(2.1)
–
–
–
(4.3)
(2.2)
–
(2.7)
–
–
–
(4.9)
(80.5)
–
(8.0)
–
–
–
(88.5)
(82.7)
–
(9.4)
–
–
–
(92.1)
f) Fair value of financial assets and liabilities
IFRS 13 “Fair Value Measurement” requires an analysis of those financial instruments that are measured at fair value at the end of
the year in a fair value hierarchy. In addition, IFRS 13 requires financial instruments not measured at fair value but for which fair
value is disclosed to be analysed in the same fair value hierarchy:
• Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices); and
• Level 3 – inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs).
194
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FINANCIAL STATEMENTS
21 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)
Held at depreciated cost
Investment properties
At 31 December 2022
At 31 December 2021
Fair value
hierarchy
Carrying
value
Fair value
Carrying
value
Fair value
n/a
n/a
n/a
2
3
2
2
3
65.0
101.3
(135.1)
(105.3)
(75.0)
3.9
(4.4)
–
65.0
101.3
(135.1)
(105.3)
(55.1)
3.9
(4.4)
0.7
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
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 (£3.9 million) and liabilities (£4.4 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 £138.4 million (2021: £102.5 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 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
22 Retirement benefit schemes
Defined contribution schemes
The Group operates 401(k) plans in North America and defined contribution arrangements in the rest of the world. The assets of
these schemes are held independently of the Group. The total contributions charged by the Group in respect of defined contribution
schemes were £3.2 million (2021: £3.0 million).
Defined benefit schemes
During the year the Group operated two defined benefit schemes in the UK (the TT Group (1993) Pension Scheme and the Southern
& Redfern Ltd Retirement Benefits Schemes) and overseas defined benefit schemes in the USA. These schemes are closed to new
members and the UK schemes are closed to future accrual.
In October 2022 the Trustees of the Southern & Redfern Ltd Retirement Benefits Scheme completed a buy-out of the scheme with a
leading insurer, securing the pensions of members for the future. As a result, the assets (£0.6 million) and liabilities (£0.6 million) of
the scheme have been derecognised. There was no impact on the income statement or OCI as a result of the buy-out.
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.
In November 2022, the Trustees of the TT Group Scheme entered into a bulk annuity insurance contract with an insurer in respect
of the liabilities of the defined benefit scheme. This type of deal is also known as a ‘buy-in’. The insurer, Legal & General, will pay into
the Scheme cash matching the benefits due to members. The Trustee is of the opinion that this investment decision is appropriate,
reduces the risks in the Scheme and provides additional security for the benefits due to members of the Scheme. The Trustee
continues to be responsible for running the Scheme and retains the legal obligation for the benefits provided under the Scheme.
As the buy-in policy is a qualifying insurance asset, the fair value of the insurance policy is deemed to be the present value of the
obligations that have been insured. The policy secured matches the benefits due to Scheme members under the Scheme's Trust
Deed and Rules.
Since the assets of the Scheme were greater than the premium required to secure the liabilities through the buy-in, the Scheme Is
in a net asset position at 31 December 2022 of £31.3 million. The buy-in has resulted in a re-measurement of the Scheme’s assets,
with a total re-measurement loss of £37.5 million recognised in the Group Statement of Comprehensive Income. A “true-up
premium/refund” may be payable to/from the insurer during 2023, subject to a data cleanse exercise to formally agree the final
benefits that are covered by the buy-in contract.
Prior to the buy-in, the TT Group scheme exposed the Group to a number of actuarial risks such as longevity risk, currency risk,
inflation risk, interest rate risk and market (investment) risk. The buy-in mitigates the majority of these risks and the principal risk
remaining is the credit risk associated with Legal & General, which is assessed to be very low. 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.
• Since 2023 the Group had in place financial hedging that aimed to remove the majority of interest rate and inflation related risks.
As the scheme funding has improved the level of hedging has been increased. Following the buy-in the Scheme’s financial and
demographic risks are now fully hedged by the insurer. There will be no material impact on the reported accounting position in future
of a change in interest rates, inflation, or a change in life expectancies, in relation to the Scheme’s liabilities and matching insurance
policy asset. However, a small amount of residual investment risk remains within the surplus assets held by the Trustee.
The Scheme’s investment strategy has been assessed as being low risk as the insured asset matches changes in the assessed
value of the Schemes liabilities due to changes in interest rates, inflationary expectations and longevity expectations. The buy-in
policy therefore matches the term and nature of the liabilities.
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.
196
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FINANCIAL STATEMENTS
22 Retirement benefit schemes continued
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 11 years.
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 last 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 was 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. Due to an improvement in the funding position and favourable insurer pricing during 2022 the Company and Trustee
began investigating in more detail the possibility of securing the Scheme’s liabilities under a buy-in policy. As a result of the plans
to secure the Scheme’s liabilities under the buy-in policy, the Trustees and Company agreed that there was no requirement for any
contributions falling due after 30 September 2022 to be paid to the Scheme after that date. The next triennial valuation of the
TT Group scheme, as at April 2022, is expected to be completed by July 2023 and will take account of the new buy-in policy held
by the Trustee.
In the year ended 31 December 2022 the Group made no funding contributions to the TT Group (1993) scheme or the Southern &
Redfern Ltd Retirement Benefits Schemes.
The Company has set aside £0.2 million 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 2022, whereby deferred members were
offered an enhanced transfer value option. In the year ended 31 December 2022 a £11.8 million settlement cost was recognised
within items excluded from adjusted operating profit as a result of this exercise.
An actuarial valuation of the USA defined benefit schemes was carried out by independent qualified actuaries in 2022 using the
projected unit credit method. Pension scheme assets are stated at their market value at 31 December 2022.
An analysis of the pension surplus/(deficit) by scheme is shown below:
£million
TT Group (1993)
Southern & Redfern
USA schemes
Net surplus
2022
31.3
–
(2.9)
28.4
2021
78.4
–
(3.9)
74.5
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. The ongoing expenses of running the Scheme are now met from the remaining Scheme assets.
TT Electronics plc Annual Report and Accounts 2022
TT Electronics plc Annual Report and Accounts 2022
197
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
22 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
TT Group
2022
5.00
3.30
3.05
2.65
2021
1.80
3.60
3.40
3.00
The mortality tables applied by the actuaries at 31 December 2022 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 2021 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 45: 88 years (male), 91 years (female).
Risk and sensitivity
Following the buy-in, changes in actuarial assumptions will impact the liabilities and insured asset to the same extent, with no
overall impact on the net reporting position. A decrease in the discount rate by 0.1% per annum increases the liabilities and assets
by approximately £4 million. An increase by 0.1% per annum in the inflation rate increases the liabilities and assets by
approximately £2 million. An increase in the life expectancy of 1 year increases the liabilities and assets by approximately
£11 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:
2022
2021
–
4.8
–
15.4
–
–
1.0
14.0
–
357.9
3.7
396.8
(368.4)
28.4
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
Unquoted
Quoted
Unquoted
Fixed
Index-linked
£million
Equities
UK
Overseas
Government bonds
UK
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
198
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FINANCIAL STATEMENTS
22 Retirement benefit schemes continued
The schemes’ assets are unquoted unless otherwise stated and do not include the Group’s financial instruments, 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.
Amounts recognised in the consolidated income statement are:
£million
Scheme administration costs
Net (loss)/gain on pension projects (excluded from adjusted operating profit)
Net interest credit
2022
(1.2)
(13.8)
2.1
2021
(1.7)
0.3
0.9
Amounts recognised in the consolidated statement of comprehensive income are a loss of £35.9 million (2021: gain of £35.8 million)
which comprises of; the actual return on scheme assets excluding interest income, a loss of £215.5 million (2021: gain of £11.3 million)
and the remeasurement of the schemes obligations, a gain of £179.5 million (2021: £24.5 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
2022
577.4
(20.3)
11.9
(0.5)
(197.2)
18.2
(22.6)
1.5
368.4
357.9
–
10.5
368.4
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
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199
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
22 Retirement benefit schemes continued
Changes in the fair value of the schemes’ assets are:
£million
Fair value of schemes’ assets at 1 January
Interest income on defined benefit scheme assets
Return on scheme assets, excluding interest income
Contributions by employer
Pension scheme expenses
Settlements
Benefits paid
Exchange
Fair value of schemes’ assets at 31 December
23 Share capital
Share capital
£million
Issued and fully paid
176,486,627 (2021: 176,244,624) ordinary shares of 25p each
2022
651.9
14.0
(215.4)
1.3
(1.2)
(32.1)
(22.6)
0.9
396.8
2021
648.7
10.5
11.3
7.3
(1.7)
–
(24.2)
–
651.9
2022
2021
44.1
44.1
During the period the Company issued 242,003 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 2019 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.
The aggregate consideration received for all share issues during the year was £382,814 which was represented by a £60,501 increase
in share capital and a £322,314 increase in share premium.
200
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TT Electronics plc Annual Report and Accounts 2022
TT Electronics plc Annual Report and Accounts 2022
FINANCIAL STATEMENTS
24 Other reserves
£million
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 taken to income statement
Deferred tax on gain on cash flow hedges
Other movement
At 1 January 2022
Share based payment charge
Awards made to employees
Deferred tax on share based payments
Funding of employee benefit trust
Loss on cash flow hedges taken to equity
less amounts recycled to income statement
Deferred tax on movement in cash flow hedges
Other movement
At 31 December 2022
Share Based
Payment
Reserve
Employee
Benefit Trust
Share options
reserve
Hedging
Reserve
Merger
reserve
(3.1)
3.8
(0.2)
0.5
–
–
–
0.3
1.3
4.8
(0.8)
(1.0)
–
–
–
–
4.3
(0.2)
–
0.2
–
(0.3)
–
–
–
(0.3)
–
0.4
–
(0.5)
–
–
–
(0.4)
(3.3)
3.8
–
0.5
(0.3)
–
–
0.3
1.0
4.8
(0.4)
(1.0)
(0.5)
–
–
–
3.9
5.4
–
–
–
–
(3.2)
0.5
–
2.7
–
–
–
–
(2.9)
0.2
–
–
3.4
–
–
–
–
–
–
–
3.4
–
–
–
–
–
–
–
3.4
Total
5.5
3.8
–
0.5
(0.3)
(3.2)
0.5
0.3
7.1
4.8
(0.4)
(1.0)
(0.5)
(2.9)
0.2
–
7.3
25 Non-controlling interests
During the year RODCO limited, a subsidiary of TT Electronics Plc which is owned 60% by TT Electronics Plc and 40% Prysmian
Cables & Systems Limited (‘Prysmian’) received payment for a £5.0 million receivable due from TT Electronics Plc and Prysmian
in proportion to their shareholdings.
These funds received were subsequently returned to the shareholders as a dividend, with TT Electronics Plc receiving £3.0 million
and Prysmian receiving £2.0 million. The dividend paid to Prysmian eliminated the non-controlling interest in the opening balance
sheet for the Group.
Below is RODCO’s balance sheet for the year ended 31 December 2022.
£million
ASSETS
Current assets
Trade and other receivables
Total assets
EQUITY
Share capital
Total equity
Equity attributable to TT Electronics Plc
Non-controlling Prysmian Cables & Systems Limited
2022
2021
–
–
–
–
–
–
5.0
5.0
5.0
5.0
3.0
2.0
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
26 Share-based payment plans
The Company has the following share-based payment plans in operation at 31 December 2022:
• 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 2022 the Group paid £0.9 million to settle the employees’ tax liabilities (2021: £0.3 million). The Group estimates that the
future cashflows associated with the above would remain consistent in future years with the 2021 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 2022 £40.0 thousand was used
for these purposes (2021: £36.6 thousand). The Group estimates that the future cashflows associated with the above would remain
consistent in future years with the 2022 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
2022
2021
Number of
share awards
5,379,293
650,871
(1,614,554)
(457,321)
Number of
share awards
5,031,921
1,806,500
(1,246,053)
(213,075)
3,958,289
5,379,293
–
–
During 2022 grants of awards were made under the LTIP for the issue of shares in 2025. 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 128.
On 14 March 2022 grants of awards were made under the LTIP for the issue of up to 650,871 shares in 2025.
On 16 March 2021 grants of awards were made under the LTIP for the issue of up to 1,763,817 shares in 2024.
On 1 October 2021 grants of awards were made under the LTIP for the issue of up to 42,683 shares in 2024.
The fair value of the shares was estimated at the grant date using a Monte Carlo simulation model, considering 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 considers historic dividends and share price fluctuations to predict the distribution of relative share price performance.
202
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FINANCIAL STATEMENTS
26 Share-based payment plans continued
The following table lists the inputs to the model:
Grant date
2022
14 March 2022
2021
16 March 2021
1 October 2021
Number of
awards
Fair value at
grant date
Share price at
grant date
Exercise price
Expected
volatility
Vesting period
(years)
650,871
164.9p
202.5p
1,763,817
42,683
218.4p
215.8p
256.0p
253.0p
£nil
£nil
£nil
37%
39%
39%
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.
During the year nil (16 March 2021: 48,070) notional ‘LTIP’ share awards were granted to senior executives which will ultimately
be settled in cash.
The performance conditions of the LTIP grants made in 2019 that reached the end of their performance periods in 2022 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 1,219,914 shares (2021: 1,018,880) 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
2022
2021
Number of
share awards
Number of
share awards
2,193,182
1,219,914
(476,619)
(646,604)
1,485,970
1,018,880
(61,862)
(249,806)
2,289,873
2,193,182
–
–
During the year 59,874 (2021: 90,989) notional RSP share awards were granted to senior executives which will ultimately be settled
in cash.
The performance conditions of the RSP grants made in 2019 that reached the end of their performance periods in 2022 were partially
met and shares were allocated to award holders from existing shares held by an Employee Benefit Trust for £nil consideration.
TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
26 Share-based payment plans continued
The following table lists the inputs to the model:
Grant date
2022
10 January 2022
14 March 2022
14 March 2022
6 June 2022
20 June 2022
21 November 2022
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
Number of
awards
Fair value at
grant date
Share price at
grant date
Exercise
price
Expected
volatility
14,053
948,429
107,413
49,342
60,677
40,000
264.0p
202.5p
202.5p
200.5p
187.0p
170.0p
264.0p
202.5p
202.5p
200.5p
187.0p
170.0p
£nil
£nil
£nil
£nil
£nil
£nil
37%
37%
37%
37%
37%
37%
Vesting
period
(years)
3.0
3.0
3.0
3.0
3.0
3.0
Vesting
criteria
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
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
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.
204
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FINANCIAL STATEMENTS
26 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
30 August 2019
30 August 2020
7 September 2021
6 September 2022
pence
Fair value at grant date
2022
2021
Number of
share awards
Number of
share awards
2,465,154
1,930,800
(690,808)
44,730
2,760,427
459,495
(384,156)
(370,612)
3,749,876
2,465,154
507,668
73,563
Market price
Option price
Fair value
237.0p
187.0p
271.0p
149.3p
190.0p
151.0p
226.0p
119.5p
83.5p
84.0p
110.9p
67.5p
2022
67.5
Options
outstanding
480,798
1,033,266
329,713
1,906,099
2021
110.9
The Group operates a Stock Purchase Plan for participating US employees. Under the plan employees may purchase the Group’s
shares at a 15% discount to the market price at the date of acquisition, up to a maximum of $6,500 per annum. Employees save
on a monthly basis and shares are purchased each quarter.
The total share-based payment charge for the year excluding a social security credit of £0.2 million (2021: £0.5 million charge)
arising from the above share scheme plans was £4.8 million (2021: £3.8 million).
TT Electronics plc Annual Report and Accounts 2022
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205
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
27 Reconciliation of net cash flow to movement in net debt
Net cash of £61.3 million (2021: £67.2 million) comprises cash at bank and in hand of £65.0 million (2021: £68.3 million) and
overdrafts of £3.7 million (2021: £1.1 million).
£million
At 1 January 2021
Cash flow
Repayment of borrowings
Proceeds from borrowings
Payment of lease liabilities
New leases
Amortisation of loan arrangement fees
Exchange differences
At 31 December 2021
Cash flow
Businesses acquired
Repayment of borrowings
Proceeds from borrowings
Payment of lease liabilities
New leases
Net movement in loan arrangement fees
Exchange differences
At 31 December 2022
Net cash
Lease liabilities
Borrowings
Net debt
69.0
(2.8)
–
–
–
–
–
1.0
67.2
(9.2)
–
–
–
–
–
–
3.3
61.3
(15.9)
–
–
–
3.9
(10.8)
–
0.2
(22.6)
–
(0.2)
–
–
4.3
(2.3)
–
(2.3)
(23.1)
(137.0)
–
86.9
(96.4)
–
–
0.2
(0.8)
(147.1)
–
–
149.3
(174.3)
–
–
0.7
(5.2)
(176.6)
(83.9)
(2.8)
86.9
(96.4)
3.9
(10.8)
0.2
0.4
(102.5)
(9.2)
(0.2)
149.3
(174.3)
4.3
(2.3)
0.7
(4.2)
(138.4)
206
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FINANCIAL STATEMENTS
28 Changes in liabilities arising from financing activities
£million
At 1 January 2021
Cash movements
Cash flows
Non cash movements
Fair value movements
Interest accrued
Net movement in loan arrangement fees
New leases
Exchange differences
At 1 January 2022
Cash movements
Cash flows
Non cash movements
Fair value movements
Business acquired
Interest accrued
Net movement in loan arrangement fees
New leases
Reassessment of lease liabilities
Exchange differences
At 31 December 2022
Lease liabilities
Borrowings
Interest rate
swaps
Liabilities
arising from
financing
activities
(15.9)
(137.0)
(1.0)
(153.9)
4.7
–
(0.8)
–
(10.8)
0.2
(22.6)
(6.7)
–
(2.4)
(0.2)
–
(0.8)
0.4
0.3
–
–
–
–
(1.6)
0.3
(3.2)
(0.2)
(10.8)
(0.6)
(147.1)
(0.3)
(170.0)
5.1
(17.9)
0.1
(12.7)
–
(0.2)
(0.8)
–
(2.3)
–
(2.3)
–
–
(7.1)
0.7
–
–
(5.2)
0.8
–
–
–
–
–
–
0.8
(0.2)
(7.9)
0.7
(2.3)
–
(7.5)
(23.1)
(176.6)
0.6
(199.1)
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207
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the Consolidated financial statements
continued
29 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 19, the Directors consider the likelihood of any other claims giving rise to a significant liability to
be remote.
30 Capital commitments
£million
Contractual commitments for the purchase of property, plant and equipment
2022
2.7
2021
3.1
31 Leases
The total cash outflow for leases is £5.1 million (2021: £4.7 million) comprising lease repayments of £4.3 million (2021: £3.9 million),
interest on lease liabilities of £0.8 million (2021: £0.8 million).
Interest on lease liabilities is shown in note 5, the maturity of the lease liabilities is shown in note 21(e) and the corresponding
assets to which the lease liabilities relate are shown in note 12.
32 Related party transactions
Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note.
No related party transactions have taken place in 2022 or 2021 that have affected the financial position or performance of the Group.
Key management personnel and Directors’ emoluments are disclosed in note 11.
208
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FINANCIAL STATEMENTS
Company statement of financial position
at 31 December 2022
£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: amounts falling due within one year
Total current liabilities
Net current assets
Non current liabilities
Lease liabilities
Deferred tax liability
Total non current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Share options reserve
Merger reserve
Profit and loss account
Shareholders’ funds
Note
2022
2021
2
2
2
3
11
10
4
4
13
6
5
6
11
7
7
8
9
0.5
0.5
0.9
126.4
2.8
31.3
121.2
283.6
20.5
0.5
21.0
0.2
9.0
9.2
11.8
0.5
11.0
11.5
283.9
44.1
22.9
3.9
3.4
209.6
283.9
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
The Company reported a loss for the financial year ended 31 December 2022 of £38.2 million (2021: profit of £53.1 million).
Approved by the Board of Directors on 7 March 2023 and signed on their behalf by:
Richard Tyson
Director
Mark Hoad
Director
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Company statement of changes in equity
at 31 December 2022
£million
At 1 January 2021
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
Loss for the year
Other comprehensive income
Remeasurement of defined benefit
pension schemes
Tax on remeasurement of defined
benefit pension schemes
Total comprehensive expense
Transactions with owners recorded
directly in equity
Dividends paid by the Company
Share-based payments
Deferred tax on share-based
payments
Other movements
New shares issued
Share
capital
43.6
–
–
–
–
–
–
–
0.5
44.1
–
–
–
–
–
–
–
–
–
At 31 December 2022
44.1
Share
premium
21.7
–
Merger
reserve
Share options
reserve
Profit and loss
account
3.4
–
(3.3)
–
223.5
53.1
Total
288.9
53.1
–
–
–
–
–
–
0.9
22.6
–
–
–
–
–
–
–
–
0.3
22.9
–
–
–
–
–
–
–
3.4
–
–
–
–
–
–
–
–
–
3.4
–
–
–
–
3.8
0.5
–
1.0
–
–
–
–
–
4.8
(1.0)
(0.9)
–
3.9
34.8
34.8
(11.3)
76.6
(11.3)
76.6
(11.4)
–
–
–
288.7
(38.2)
(11.4)
3.8
0.5
1.4
359.8
(38.2)
(37.5)
(37.5)
6.8
(68.9)
(10.2)
–
–
–
–
6.8
(68.9)
(10.2)
4.8
(1.0)
(0.9)
0.3
209.6
283.9
210
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TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTS
Notes to the Company financial statements
1 Significant accounting policies
a) Basis of preparation
The financial statements of TT Electronics plc (the “Company”) were prepared in accordance with Financial Reporting Standard 101
Reduced Disclosure Framework (“FRS 101”).
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of
International Financial Reporting Standards, but makes amendments where necessary in order to comply with Companies Act 2006
and has set out below where advantage of the FRS 101 disclosure exemptions has been taken.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures:
• a cash flow statement and related notes;
• disclosures in respect of transactions with wholly owned subsidiaries;
• disclosures in respect of capital management;
• the effects of new but not yet effective IFRSs;
• disclosures in respect of the compensation of key management personnel;
• comparable movement tables for tangible and intangible fixed assets; and
• disclosures in respect of leases
The accounting policies set out in note 2 of the Consolidated financial statements have, unless otherwise stated, been applied in the
preparation of the Company financial statements.
Change in accounting policy
There have been no changes to accounting policies during the year. Adoption of new and amendments to published standards and
interpretations effective for the Group for the year ended 31 December 2022 did not have any impact on the financial position or
performance of the Group.
b) Estimation uncertainty
During the year there were no judgements made by the Directors, in the application of the adopted accounting policies, deemed
to have a significant effect on the financial statements nor were there any estimates deemed to carry a significant risk of material
adjustment in the next year.
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 89.
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 2022
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211
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the company financial statements
continued
2 Non Current Assets
£million
Cost
At 1 January 2022
Disposals
Additions
At 31 December 2022
Depreciation
At 1 January 2022
Disposals
Depreciation charge
At 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
Intangible
Assets
Plant,
equipment and
vehicles
Right-of-use
assets
19.4
(1.6)
0.2
18.0
17.8
(1.6)
0.9
17.1
0.9
1.6
1.2
–
–
1.2
0.6
–
0.1
0.7
0.5
0.6
1.2
–
–
1.2
0.6
–
0.1
0.7
0.5
0.6
Intangible assets solely relate to software, within this balance is software which is under construction of £0.4 million.
Disposals in the year relate to redundant intangible assets which held a carrying value of £nil at the start of the year.
3 Investments
£million
Cost
At 1 January 2022
Disposals
At 31 December 2022
Provisions
At 1 January 2022
Impairment
At 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
Subsidiary undertakings
253.0
(1.0)
252.0
78.8
46.8
125.6
126.4
174.2
During the year an impairment of £46.8 million was recognised to reduce the investment in IoT Solutions UK Limited to its carrying
value of £nil (2021: £46.8 million). The significant assumptions in determining the impairment are the future cash flows and the
discount rate. A 10% improvement in future cashflows would have reduced the impairment by £2.6 million and a 10% worsening
of the cashflows would have increased the impairment by £nil. An increase in the discount rate by 1.0% would have increased the
impairment by £nil and a 1.0% reduction in the discount rate would have decreased the impairment by £4.0 million.
During the year RODCO limited, a subsidiary of TT Electronics Plc which was owned 60% by TT Electronics Plc and 40% Prysmian
Cables & Systems Limited (‘Prysmian’) received payment for a £5.0 million receivable due from TT Electronics Plc and Prysmian
in proportion to their shareholdings.
These funds received were subsequently returned to the shareholders as a dividend with TT Electronics Plc receiving £3.0 million
and Prysmian receiving £2.0 million. The investment in RODCO, with a carrying value of £1.0m as at 31 December 2021 was
eliminated as part of this transaction. The value of the dividend received over and above the value of the investment disposed
of was £2.0 million and recognised within the profit and loss statement.
The Company’s subsidiary undertakings and their locations are shown in note 14. Shareholdings are held indirectly for all principal
operating subsidiary undertakings.
212
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FINANCIAL STATEMENTS
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
2022
2021
19.4
1.1
20.5
121.2
121.2
141.7
13.3
1.1
14.4
113.7
113.7
128.1
‘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 2022 £121.2 million (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.
5 Creditors
£million
Amounts falling due within one year
Trade creditors
Amounts owed to subsidiary undertakings
Taxation and social security
Accruals and deferred income
2022
2021
2.0
1.4
1.4
4.2
9.0
2.1
1.3
0.9
4.7
9.0
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213
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the company financial statements
continued
6 Lease obligations
£million
At 31 December 2021
Capital repayments
At 31 December 2022
7 Share capital
£million
Issued, called up and fully paid
176,486,627 (2021: 176,244,624) ordinary shares of 25p each
Current lease
liabilities
Non-current
lease liabilities
0.2
–
0.2
0.6
(0.1)
0.5
Total
0.8
(0.1)
0.7
2022
2021
44.1
44.1
During the period the Company issued 242,003 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 2019 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.
The aggregate consideration received for all share issues during the year was £382,814 which was represented by a £60,501
increase in share capital and a £322,314 increase in share premium.
8 Share-based payments
Details of share-based payments are shown in note 26 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 loss after tax of the Company for the year was £38.2 million (2021: profit of £53.1 million). The auditor’s remuneration for
audit services is disclosed in note 6 to the Consolidated financial statements.
214
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FINANCIAL STATEMENTS
10 Pension schemes
Defined benefit scheme
In November 2022, the Trustees of the TT Group Scheme entered into a bulk annuity insurance contract with an insurer in respect
of the liabilities of the defined benefit scheme. This type of deal is also known as a ‘buy-in’. The insurer, Legal & General, will pay into
the Scheme cash matching the benefits due to members. The Trustee is of the opinion that this investment decision is appropriate,
reduces the risks in the Scheme and provides additional security for the benefits due to members of the Scheme. The Trustee
continues to be responsible for running the Scheme and retains the legal obligation for the benefits provided under the Scheme.
As the buy-in policy is a qualifying insurance asset, the fair value of the insurance policy is deemed to be the present value of the
obligations that have been insured. The policy secured matches the benefits due to Scheme members under the Scheme's Trust
Deed and Rules.
Since the assets of the Scheme were greater than the premium required to secure the liabilities through the buy-in, the Scheme is
in a net asset position at 31 December 2022 of £31.3 million. The buy-in has resulted in a re-measurement of the Scheme’s assets,
with a total re-measurement loss of £37.5 million recognised in the Company Statement of Changes in Equity. A “true-up
premium/refund” may be payable to/from the insurer during 2023, subject to a data cleanse exercise to formally agree the final
benefits that are covered by the buy-in contract.
The last 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. As a result of the completed buy-in policy, the Trustees and Company agreed that there was no requirement for any
contributions falling due after 30 September 2022 to be paid to the Scheme. The next triennial valuation of the TT Group scheme,
as at December 2022, is expected to be completed by July 2023 and will take account of the new buy-in policy held by the Trustee.
The Group has set aside £0.2 million (2021: £0.6 million) under a legal agreement to be utilised in agreement with the Trustee for
reducing liabilities of the pension scheme.
The Trustee and Company agreed that the Trustee should undertake an exercise during 2022, whereby deferred members were
offered an enhanced transfer value option. In the year ended 31 December 2022 a £11.8 million settlement cost was recognised
as a result of this exercise.
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 2022 were £0.5 million (2021: £0.6 million).
11 Deferred tax
The deferred tax asset of £2.8 million comprises £0.7 million asset in respect of share-based payments (2021: £1.8 million asset)
the movement in which has been recognised in equity (£1.0 million) and profit (£0.1 million); £1.4 million in respect of non-current
assets (2021: £1.1 million asset) the movement in which has been recognised in profit (£0.3 million); and £0.7 million in respect of
tax losses (2021: £0.5 million) the movement in which has been recognised in profit (£0.2 million).
The deferred tax liability of £11.0 million is in respect of the pension asset (2021: £19.6 million liability), the movement in which has
been recognised in equity (£6.8 million) and profit (£2.8 million).
12 Employee information
The average number of full time equivalent employees (including Directors) during the year was 78.
13 Related party transactions
During 2022 and 2021, the Company did not have any related party transactions other than with wholly owned subsidiaries.
TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the company financial statements
continued
14 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
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
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 2
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 2
Sensit Limited 2
Stadium Electrical Holdings Limited 2
Stadium Electronics Limited 2
Stadium IGT Limited
Stadium Power Limited 2
216
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Registered office/principal
place of business
(1)
(2)
(3)
(1)
(4)
(5)
(6)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(16)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
FINANCIAL STATEMENTS
14 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.
Registered office/principal
place of business
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(17)
(14)
(14)
(15)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(14)
(18)
(14)
(14)
(14)
(19)
(19)
(19)
(20)
(19)
(21)
(19)
(22)
(23)
(24)
(24)
(25)
(20)
(19)
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Notes to the company financial statements
continued
14 Subsidiary undertakings continued
Lot 6.05, Level 6, KPMG tower, 8 First Avenue, Bandar Utama 47800 Petaling Jaya, Selangor, Darul Ehsan, Malaysia
4th Building, F Zone, Zheng Wei Science Park, Dongkeng Town, Dongguan City, Guangdong, China
(1)
(2) 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
(3)
(4)
4 place Louis Armand, 75012 Paris, France
(5) Max-Lehner-Strasse 31, 85354, Freising, Germany
(6) Unit A, 3/F, Bamboos Centre, 52 Hung To Road, Kwun Tong, Kowloon, Hong Kong
(7) Via Santa Redegonda N. 11, Milano, Italy
(8)
(9) Ave Circulo de la Amistad No.102, Parque Industrial Mexicali IV, Mexico
(10) Ave Rio Bravo 1551-a, Parque Industrial Rio Bravo, CD. Juarez Chihuahua, Mexico
(11) 2 Shenton Way, #18-01 SGX Centre 1, 068804, Singapore
(12) Gullfossgatan 3, 164 40 Kista, Sweden
(13) Abercynon, Mountain Ash, Rhondda Cynon Taff, CF45 4SF, Wales
(14) Fourth Floor, St Andrews House, West Street, Woking, Surrey, GU21 6EB, England
(15) Unit 1, Tregwilym Industrial Estate, Rogerstone, Newport, Gwent, NP10 9YA, Wales
(16) Unit 1 Gratton Way, Roundswell Business Park, Barnstaple, Devon, EX31 3AR, England
(17) London Road, Fairford, Gloucestershire, GL7 4DS, England
(18) Welwyn Electronics Park, Bedlington, Northumberland, NE22 7AA, England
(19) Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States
(20) CT Corporation System, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801, United States
(21) Corporation Service Company, 211 East 7th Street, Suite 620, Austin, TX 78701-3218, United States
(22) 155 Northboro Road, Suite #9, Southborough, MA 01772, USA
(23) 1700 Freeway Boulevard, Minneapolis, MN 55430, United States
(24) 520 N Rogers Road, Olathe, KS66062, United States
(25) 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 2022. 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
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FINANCIAL STATEMENTS Five year record
£million (unless otherwise stated)
Revenue
Operating profit
Adjusted operating profit 1
Profit before taxation 2
Adjusted profit before taxation 1,2
Earnings (continuing) 2
Adjusted earnings 1,2
Earnings per share – continuing (pence) 2
Adjusted earnings per share (pence) 1,2
Dividends – paid and proposed 5
Dividend per share – paid and proposed (pence) 5
Average number of shares in issue
Net (debt)/funds
Total equity 2,3
2022
617.0
(3.4)
47.1
(10.1)
40.4
(13.2)
32.0
(7.5)
18.2
11.1
6.3
175.8
(138.4)
297.0
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 2,3
2018 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
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.
5 2022 shows the cashflows/value of the proposed 2022 dividend. 2021 and before shows the cashflows/value of the actual dividends relating to that particular year.
TT Electronics plc Annual Report and Accounts 2022
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
Reconciliation of KPIs and non IFRS measures
continued
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 adjusted operating
profit and other adjusted profit measures. 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 7. 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 7
Definition and purpose
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, impairment charges significant in nature and/or
value, 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.
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 7
Adjusted operating profit as a percentage of revenue.
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.
Earnings per share
See note 10 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.
220
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FINANCIAL STATEMENTS
Income statement measures continued:
Alternative
Performance
Measure
Adjusted
diluted
earnings
per share
Closest equivalent
statutory measure
Diluted earnings
per share
Note reference to
reconciliation to
statutory measure
See note 10 for the
reconciliation and
calculation of
adjusted diluted
earnings per share
Organic
revenue
Revenue
See note APM 1
Adjusted
effective tax
charge
Effective tax charge See note APM 2
Return on
invested
capital
None
See note APM 3
Definition and purpose
The profit for the year attributable to the owners of the Group adjusted
to exclude the items not included within adjusted operating profit
divided by the weighted average number of shares in issue during the
year, adjusted for the effects of any potentially dilutive options.
To provide a measure of Earnings per Share excluding the impacts of
significant items such as restructuring or acquisition related activity
and other items such as amortisation of intangibles which may not be
present in peer companies which have grown organically.
This is the percentage change in revenue from continuing
operations in the current year compared to the prior year, excluding
the effects of currency movements, acquisitions and disposals. This
measures the underlying growth or decline of the business.
To provide a comparable view of the revenue growth of the
business from period to period excluding acquisition and foreign
exchange impacts.
Tax charge adjusted to exclude tax on items not included within
adjusted operating profit divided by adjusted profit before tax, which
is also adjusted to exclude the items not included within adjusted
operating profit.
To provide a tax rate which excludes the impact of adjusting items
such as restructuring or acquisition related activity and other items
such as amortisation of intangibles which may not be present in
peer companies which have grown organically.
Adjusted operating profit for the year divided by average invested
capital for the year. Average invested capital excludes pensions,
provisions, tax balances, derivative financial assets and liabilities,
cash and borrowings and is calculated at average rates taking
twelve monthly balances.
This measures how efficiently assets are utilised to generate returns
with the target of exceeding the cost to hold the assets.
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
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 27)
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.
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FINANCIAL STATEMENTS Statement of cash flows measures:
Alternative
Performance
Measure
Adjusted
operating
cash flow
Adjusted
operating
cash flow
post capex
Working
capital
cashflow
Closest equivalent
statutory measure
Note reference to
reconciliation to
statutory measure
Operating cash flow See note APM 5
Definition and purpose
Adjusted operating profit, excluding depreciation of property, plant
and equipment (depreciation of right-of-use assets is not excluded)
and amortisation of intangible assets (amortisation of acquisition
intangibles is not excluded) less working capital and other non-
cash movements.
An additional measure to help understand the Group’s operating
cash generation.
Operating cash flow See note APM 6
Adjusted operating cash flow less net capital and development
expenditure.
An additional measure to help understand the Group’s operating
cash generation after the deduction of capex.
Cashflow –
inventories payables,
provisions and
receivables
See note APM 7
Working capital comprises of three statutory cashflow figures:
(increase)/decrease in inventories, increase/(decrease) in payables
and provisions, and (increase)/decrease in receivables.
To provide users a measure of how effectively the group is
managing its working capital and the resultant impact on liquidity.
Free cash
flow
Net increase/
decrease in cash
and cash
equivalents
See note APM 8
Free cash flow represents cash generated from trading after all
costs including restructuring, pension contributions, tax and interest
payments. Cashflows to settle share based payment 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.
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FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
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
154.2
7.9
146.3
140.2
7.2
147.4
(1%)
323.0
–
323.0
220.1
15.4
235.5
37%
139.8
–
139.8
115.9
8.9
124.8
12%
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%
Total
617.0
7.9
609.1
476.2
31.5
507.7
20%
Total
476.2
15.2
461.0
431.8
(12.7)
419.1
10%
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
2022 revenue
Acquisitions
2022 revenue (excluding acquisitions)
2021 revenue
Foreign exchange impact
2021 revenue at 2022 exchange rates
Organic revenue increase (%)
£million
2021 revenue
Acquisitions
2021 revenue (excluding acquisitions)
2020 revenue
Foreign exchange impact
2020 revenue at 2021 exchange rates
Organic revenue increase (%)
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FINANCIAL STATEMENTS
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
Share based payment expense
Other items
Increase in inventories
Increase in receivables
Increase in payables and provisions
Adjusted operating cash flow
Special payments to pension funds
Restructuring and acquisition related costs
Net cash generated from operations
Net income taxes paid
Net cash flow from operating activities
2022
47.1
(6.7)
40.4
(8.4)
2021
34.8
(3.3)
31.5
(6.2)
20.8%
19.6%
2022
47.1
448.6
10.5%
2021
34.8
382.4
9.1%
2022
(11.4)
0.3
(2.3)
(0.6)
(14.0)
2022
47.1
13.9
2.2
4.8
0.5
(40.4)
(26.3)
27.9
29.7
–
(11.1)
18.6
(5.9)
12.7
2021
(14.6)
9.3
(1.9)
(0.5)
(7.7)
2021
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
TT Electronics plc Annual Report and Accounts 2022
TT Electronics plc Annual Report and Accounts 2022
225
225
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION
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 in inventories
Increase in receivables
Increase 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
Net cash flow from investing activities
Add back: Acquisition of business
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
2022
29.7
(11.4)
0.3
(2.3)
(0.6)
15.7
2022
(40.4)
(26.3)
27.9
–
(38.8)
2022
12.7
(22.3)
8.3
(4.3)
(7.5)
(13.1)
2022
47.1
15.7
–
15.7
33%
2022
294.0
11.0
3.7%
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%
226
226
TT Electronics plc Annual Report and Accounts 2022
TT Electronics plc Annual Report and Accounts 2022
FINANCIAL STATEMENTS
SHAREHOLDER
INFORMATION
Ex-dividend date for final dividend
27 April 2023
Record date for final dividend
28 April 2023
AGM and trading update
9 May 2023
Final dividend payment
26 May 2023
2022 half-year results
3 August 2023
Preliminary announcement
of 2023 results
March 2024
Annual Report 2023
April 2024
DIVIDENDS
See page 32 for details on the dividend
amount per share.
ANNUAL GENERAL MEETING
(AGM)
The next AGM will be held on 9 May
2023 at 4.00 p.m. Details of the AGM
procedure for 2023 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 23 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
TT Electronics plc Annual Report and Accounts 2022
227
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION of whom an order has been made on the
grounds that such person is suffering
from a mental disorder or is otherwise
incapable of managing their affairs;
or (iv) is in favour of not more than
four transferees.
Transfers of uncertificated shares must
be carried out using CREST and the
Directors can refuse to register a transfer
of an uncertificated share in accordance
with the regulations governing the
operation of CREST.
The Directors may decide to suspend
the registration of transfers for up to
30 days a year, by closing the register
of shareholders. The Directors cannot
suspend the registration of transfers
of any uncertificated shares without
obtaining consent from CREST.
There are no other restrictions on
the transfer of ordinary shares in the
Company except: certain restrictions
may from time to time be imposed
by laws and regulations (for example,
insider trading laws or the Market Abuse
Regulations 2015); pursuant to the
Company’s share dealing code whereby
the Directors and certain employees
of the Group require approval to deal
in the Company’s shares; and where a
shareholder with at least a 0.25 per cent
interest in the Company’s certificated
shares has been served with a disclosure
notice and has failed to provide the
Company with information concerning
interests in those shares.
The Company is not aware of any
agreements between shareholders that
may result in restrictions on the transfer
of ordinary shares or on voting rights.
SHARE DEALING SERVICES
Shareview Dealing is a telephone and
internet service provided by Equiniti.
It offers a simple and convenient way
of buying and selling TT Electronics
plc shares.
Log on to www.shareview.co.uk/dealing
or call 03456 037 037 between 8.00 a.m.
and 4.30 p.m., 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
p.m. 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.
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 a.m. to 5.30 p.m., 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 6 March 2023 and 31 December 2022.
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
FIL Limited
Bennbridge Limited
Schroders plc
Slater Investments Ltd
M&G plc
Polar Capital LLP
Aberdeen Asset Management Ltd
NN Group N.V.
Franklin Templeton Management Ltd
6 March 2023
31 December 2022
Number
16,966,544
14,832,779
9,037,571
8,984,103
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
4.9
5.1
5.1
5.0
4.9
4.8
4.8
4.6
Number
16,966,544
14,832,779
9,037,571
8,984,103
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
5.1
5.1
5.0
4.9
4.8
4.8
4.6
228
TT Electronics plc Annual Report and Accounts 2022
GLOSSARY
AC
AGM
APM
BE Inspired
BEIS
bps
Alternating Current
Annual General Meeting
Alternative Performance Measure
A TT employee performance initiative
Department for Business, Energy & Industrial Strategy
Basis point
Command, Control, Communications, Computers,
Integration, Surveillance and Reconnaissance
Compound annual growth rate
Carbon Disclosure Project
Chief Operating Officer
Chief Executive Officer
Chief Financial Officer
Cash Generating Unit
Consumer Prices Index
Certificateless Registry for Electronic Share Transfer
Defined Benefit
Direct Current
Digital Flight Control System
Deferred Share Benefit Plan
Employee Assistance Programme
Earnings Before Interest, Taxes, Depreciation
and Amortisation
Employee Benefit Trust
Equality, Diversity and Inclusion
Electronics Industry Citizenship Coalition
Executive Leadership Team
Electro-Magnetic
Earnings Per Share
Enterprise Resource Planning
Environmental, Social and Governance
European Union
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
Greenhouse Gas
Global Manufacturing Solutions
Global Positioning System
Health and safety
Half (year)
Human Resources
Health Safety & Environmental
International Accounting Standards
International Accounting Standards Board
International Financial Reporting Standards
Internet of Things
Intellectual Property
Investor Relations
International Organisation for Standardisation
Information Technology
Key Performance Indicator
Light Emitting Diode
London Interbank Offered Rate
Limited liability partnership
C4ISR
CAGR
CDP
COO
CEO
CFO
CGU
CPI
CREST
DB
DC
DFCS
DSBP
EAP
EBITDA
EBT
ED&I
EICC
ELT
EM
EPS
ERP
ESG
EU
FBU
FCA
FRC
FRS
FTSE
FX
FY
GAAP
GBP
GDP
GHG
GMS
GPS
H&S
H
HR
HSE
IAS
IASB
IFRS
IoT
IP
IR
ISO
IT
KPI
LED
LIBOR
LLP
LTI
LTIP
M&A
M/m
MRI
MSCI
MWh
NED
NPS
Long-Term Incentive
Long-Term Incentive Plan
Mergers and Acquisitions
Million
Magnetic Resonance Imaging
Morgan Stanley Capital International
Megawatt-hour
Non-Executive Director
Net Promoter Score
Organisation for Economic Co-operation
and Development
Original Equipment Manufacturer
Power & Connectivity
Profit Before Tax
Printed Circuit Board Assembly
Public Limited Company
Purchasing Managers’ Index
The TT Remuneration Policy
Private Placement
People, Social, Environmental and Ethics
Quarter (year)
Questions & Answers
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
Science Based Targets initiative
Streamlined Energy and Carbon Reporting
Senior Independent Director
Sales, Inventory and Operations Planning
Senior Leadership Team
Short-Term Incentive Plan
Science, Technology, Engineering and Mathematics
Size, Weight, Power and Cost
Tonne
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
OECD
OEM
P&C
PBT
PCBA
PLC
PMI
Policy
PP
PSEE
Q
Q&A
R&D
RBA
RCF
RMB
RNS
ROCE
ROIC
RPI
RSP
S&SC
SAYE
SBTi
SECR
SID
SIOP
SLT
STIP
STEM
SWaP-C
t
TFCD
the Board
the Code
the Company
the Directors
the Group
TSR
TT
TT Way
UK
UN
Underlying EBITDA
US/USA
WACC
TT Electronics plc Annual Report and Accounts 2022
229
FINANCIAL STATEMENTSGOVERNANCE & DIRECTORS’ REPORTSTRATEGIC REPORTADDITIONAL INFORMATION 230
TT Electronics plc Annual Report and Accounts 2022
The material used in this Report is Heaven 42. Both the paper manufacturing mill and
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Forest Stewardship Council® (FSC®) chain-of custody certified.
The Forest Stewardship Council® is dedicated to the promotion of responsible forest
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TT Electronics plc
Fourth Floor
St Andrews House
West Street
Woking
Surrey
GU21 6EB
Tel +44(0) 1932 825300
Fax +44(0) 1932 836450
For more information on
our business please visit
www.ttelectronics.com