TT Electronics have now released their full year results for the year ending 2013.  After a review, the group has changed their reporting structure.  The divisions are now Sensing & Control (sensors, covert physical variables and controls that input from the sensor and instruct systems); Components (specialist resistive and magnetic components and microcircuits, connectors and interconnection systems) and Integrated Manufacturing Services (the provision of electronics manufacturing capability with logistics and integrated solutions).  The sensing and control products can be found in a number of different applications.  In vehicles, the group has 4 to 6 steering and throttle products in electronic power steering control, position and torque sensors and intelligent throttle control.  There are 8 to 10 applications in the engine, including an electronic pump control, cam and crank speed and position, temperature and pressure.  There are 3 to 5 products in Transmission including smart gear detection and control, bearing wear, fluid pressure, level and temperature and transmission control.  The 6 to 8 applications in braking and suspension include ABS speed, smart chassis height and position, and brake fluid level and pressure.  The 8 to 12 applications in the exhaust system include as temperature and pressure, NOx sensing and Urea/ad blue level and condition. Industry is a market that the group is targeting for growth with 10 to 50 applications in compressors, 25 to 40 applications in CNC machines, 10 to 50 applications in conveyors, 5 to 10 applications in motors/speed drives and 5 to 10 applications in power supply. Revenues were up overall but within this a £25.6M increase in sensing and control sales, and a £38.9M increase in Integrated Manufacturing Services revenue were slightly counteracted by a £9.2M fall in Components Revenue.  As far as costs were concerned, staff costs were up £9.2M and other cost of sales increased by £37.3M. This meant that gross profit was £8M higher than last year.   Distribution costs increased by £1M and Admin expenses were up by £5M but there were a number of one-off costs that increased over last year, including £3.1M relating to the S&C Improvement plan and an extra £4.8M of other restructuring costs.  These restructuring costs contributed to an operating profit some £6.4M lower than in 2012.  After this, there were a number of improvements in finance income/costs.  There was a net £1.4M gain due to foreign exchange, £600K less due to the amortisation of arrangement fees and the lack of £700K due to the unwinding of a finance liability.  Despite a lower tax change, profit from continuing operations was still some £2.3M lower than last year, more than accounted for by the one-off charges.  When the profit from discontinued operations are added on, profit this year of £13M was £9.4M worse than in 2012. Overall total assets increased by £15.1M.  This increase was driven by an £11.8M hike in inventories and a £7.7M increase in trade receivables, somewhat counteracted by £5.8M fall in deferred tax assets and a £4.6M fall in cash levels.  Total liabilities were also up slightly as a £15.2M increase in borrowings and an £11.9M hike in trade payables were mitigated by a £16.3M reduction in pension liabilities and a £7.7M fall in the liability set aside to settle a minority interest.  The provisions are predominantly expected restructuring costs and certain claims. Overall then, net assets increased by £12.2M whereas net tangible assets increased by a slightly more modest £8.6M to £121.3M – all in all, a decent increase. Before movements in working capital, cash profits increased by £3.3M.  A large increase in inventories and receivables due to an increase in customer orders in the IMS division in the final quarter was only partially counteracted by an increase in payables so the operating cash flow before exceptionals was £42.8M, £2.6M less than in 2012.  Last year there was an £8.5M cash outflow from discontinued operations which did not re-occur in 2013 but there was a £2M increase in exceptional costs and nearly £4M in special payments to the pension fund, with three similar payments expected in the next three years, so the net cash income from operations was £3.5M higher than last year at £30.3M.  The bulk of this, £20.3M, was spent on the purchase of property, plant and equipment and when compared to last year more was also spent on intangible assets.  The group also spent £8.3M on acquisitions (relating to the purchase of the minority interest in Padmini in India and deferred consideration on last year’s acquisition of ACW), which was higher than last year and had a cash outflow of £4.1M disposing of subsidiaries, relating to 2012’s disposal of Ottomotores and the completion balance sheet agreement, compared to an income of £43.9M in 2012.  The other major expense was an £8M cash outflow on dividends and in order to pay for all this expense, the group had to increase borrowings by £17.4M and there was still a £3.8M cash outflow overall, which I have to say is a little disappointing. During the year the group completed the acquisition of the 49% minority interest in Padmini TT Electronics for £8.3M in cash with a further £500K of deferred consideration.   Last year the group disposed of Ottomotores Do Brasil Energia for £29M.  During this year the completion balance sheet, including net debt, was agreed with the buyer and £4.1M was settled by the group. As can be seen from the income statement and cash flow statement, there were once again quite a large number of one-off items relating to the restructuring.  These include items under the S&C Operational Improvement plan relating to the Sensing and control division: the closure of the facility at Fullerton, USA and transfer of production to Mexico at a cost of £300K; the closure of sales offices in France, Italy and Japan at a cost of £2.3M; and consultancy costs of £500K.  Other restructuring costs included the closure of the loss making connectors business in the US at a cost of £2M; the closure and relocation of the ACW Technology facilities from Southampton to Wales at a cost of £1.1M; the transfer of production lines from Germany and Austria, and start-up costs in Romania at a cost of £1.3M; the relocation of production facilities in Malaysia at a cost of £500K; £600K relating to the creation of the new organisational structure; and £400K incurred in securing certain supply chain activities.  This is quite a list but the group have been quite transparent about the costs so I am satisfied they are genuine exceptional items.  Over three years the plan is expected to have an exceptional cost of £30M and will hopefully eventually provide savings of £8M per annum from the second half of 2015. Underlying operating profit for the Sensing and Control sector was up by £700K to £17.3M and the group saw a high level of order bookings, especially during the second half of the year.  Revenue growth was experienced in all key markets and sales in China increased substantially as TT focused on this region but margins in the division overall were affected by the transfer of product lines to Romania, the investment in the engineering centre in India and some higher demand for lower margin products, along with some supplier volatility and price competition which, despite some cost control, gave the short impact margin decrease seen above.  During the year the segment made a number of new business wins for products such as new speed sensor products, pedal throttle controls, high temperature sensors, industrial position sensors and intelligent power modules with particular new opportunities in China, India, Korea and Germany.  In the division the group is increasing investment in R&D, new product availability and sales capabilities in Germany. As part of the cost reduction exercise the group has transferred 22 product lines so far to the new Romanian factory and going forward current production in California will be moved to Mexico and production lines in Werne, Germany will also be moved, most likely to Romania.  Despite contraction in the market, the truck business experienced a 15% increase and after a slow start to the year, industrial demand improved and a return to growth is predicted next year.  Going forward the group expect modest growth from the top three German car OEMs as demand in emerging regions slows slightly.  In the industrial business, the generally improving global outlook is expected to filter through to a slightly increased demand, although any revenue growth will be partially offset by reductions in low margin business.  Due to the transfer of several lines to lower cost geographies next year, there will be a period where production takes place in both locations, leading to exceptional operational inefficiencies. Underlying operating profit for Components fell by £1.8M to £4.1M.    The division was affected by lower demand in the first half of the year, particularly for industrial resistors and connectors for the military markets but conditions improved in the second half, which, when combined with some cost cutting measures meant that performance was much improved.  In the Resistors business, the group opened a new R&D facility in the US which increases the capacity to develop and test new resistor products, the first of which will be launched in 2014.  The Power and Hybrid business is focused on aerospace and defence markets and following a difficult start to the year, a new management structure improved performance in the second half of the year. During the year the division was offered a major new defence contract and was awarded supplier of the year by a Rolls Royce division.  The connectors business underwent a significant restructuring during the year and has increased focus on the military, rail and certain industrial markets and a facility in North America was closed down.  The group also established a new Magnetics business which should lead to some interesting contracts going forward.  Next year management expect to deliver growth and improved profitability due to the measures taken this year to cut costs, as well as the improvement in the market for these products that was seen during the second half of this year. Underlying operating profit for the Integrated Manufacturing Services business increased by £2.6M to £8.8M.  New business growth of £30M was good despite difficult market conditions with additional growth achieved due to the acquisition of ACW with key wins in the Aerospace market.  The cable harness offerings were consolidated from the two sites in the UK and the US to increase competitive position in the market.  The consolidation of the ACW acquisition continued during the period with the planned exit of the Southampton facility and the closure of the Malaysian factory to consolidate operations in China.  A facility was also established in Romania to further expand the best cost footprint in Europe.  During the period the target markets remained challenging, although there were signs of marked improvement as the year finished.  The division experienced particular success in the aerospace and defence markets.  Going forward, the group will ramp up production in Romania and continue to strengthen competitive position in key markets. Overall the slow orders that were experienced in the second half of last year continued into the first half of this year.  Throughout the year orders improved, however, and the second half was much stronger and the order book showed a positive trend, providing encouragement for 2014. The resistors business expanded its portfolio of fusing resistor products recognised by the safety agency UL.  These components are for use in the safety function of a fuse used in applications for preventing fire and smoke in air conditioning systems in conjunction with Belimo.  The IMS division secured new business with the Shanghai Avionics Corp in the aerospace market.  The Sensing and Control division has developed new products to bring efficiency and comfort to a range of pedal gear assemblies for e-bikes and has been providing products for GE Healthcare for patient monitoring equipment in anaesthesia, respiratory data and hemodynamics. The Sensing and Control division has strengthened its team in Asia to drive growth in the region and in particular in South Korea.  As such, Hyundai has now signed a mutual cooperation agreement for future collaboration in sensors and pedal products.  The group will also be supporting Hyundai on a global basis, not just in Korea.  Another project that the division has been working on is to provide the IR and custom assembly to detect the presence of an ID badge for the Datacard group. Having completed the acquisition of the Indian joint venture, the board are looking for further targets, particularly those that would broaden their Sensing & Control product offering and expand market presence in the Truck, Off road, Industrial and Aerospace areas and whilst the board were close to agreeing terms for one acquisition, this failed to materialise in the end. After the end of the balance sheet date the group announced that it is planning to relocate manufacturing operations in Werne, Germany to lower cost regions.  At the same time they will be increasing investment in its R&D facility there. During the period the CEO, Geraint Anderson, announced that he was moving on and will be replaced by Richard Tyson who joins from Cobham where he was a member of the executive committee and president of its aerospace and security division.  The positive trend in the order bookings in the second half of the year continued into Q1 of 2014 and due to the cost controls being implemented, the group are targeting gross margins in the double digits next year. The group is currently in the midst of a reorganisation and as such, in the short term it will continue to incur one-off charges at least for the next two years.  Sales were up across all segments except Components, which saw an improvement in the second half of the year but operating profit was down due to the increased restructuring costs.  Net Assets improved due to the higher working capital levels and a reduction in the pension liability whilst cash flow was affected by the previously mentioned working capital flows and higher capital expenditure costs which meant there was a cash outflow during the period.  Improved working capital flows in the last quarter resulted in a net cash position of £26.9M at the end of the year.  At the current share price, including the one-off items, the P/E ratio is a hefty 24.9, although this is expected to reduce to 14.3 next year.  The dividend yield is currently 2.6%, which represents an increase of 8% over last year, rising to 2.8% in 2014.  I feel this share is currently probably correctly priced so will not take a position just yet. On the 9^th May the group released a statement covering the first four months of the year.  Sales were in line with expectations and ahead of last year by 3% on a constant currency basis (although sales were flat on current exchange rates.  Implementation of the improvement plan continued to progress with moves taking place from the Fullerton, USA facility to Mexico and  consultation was initiated regarding the proposed transfer of manufacturing from Werne in Germany to Romania.  The consolidation and closure of some sales offices is on course to be completed during the second half of the year.  In the Sensing and Control business, the group is launching its latest range of intelligent optical sensors using Complementary Metal Oxide Semiconductor technology of the next few months.  The Resistors business is on track to launch a new series of thin chip resistors and the IMS business secured a contract with Shanghai Avionics to provide manufacturing services to support its avionics system.  Not a bad update but it is not enough to prompt me to buy.

On the 14th July the group announced the acquisition of Roxspur Measurement & Control ltd.  They are a UK supplier of temperature, flow, pressure and level sensors, together with calibration services for critical applications serving customers in oil & gas, power generation, water management and materials processing.  An initial consideration of £7.5M was paid in cash with a further contingent consideration of £2.5M payable in 2016 based on the performance of the business.  Last year the acquired group had an operating profit of £900K.