Annual Report and Accounts 2019 and AGM 2020

RNS Number : 9578I

TI Fluid Systems PLC

07 April 2020

 

7 April 2020

TI Fluid Systems plc

(the "Company")

Annual Report and Accounts 2019 and Annual General Meeting 2020

The Company announces that today it has released the below listed documents: 

· Annual Report and Accounts for the financial year ended 31 December 2019 ("Annual Report and Accounts 2019");

· Notice of the Annual General Meeting 2020 ("AGM"); and 

· Form of Proxy for the AGM.

In accordance with Listing Rule 9.6.1, these documents have been submitted to the National Storage Mechanism and will shortly be available for inspection at new National Storage Mechanism ('NSM') https://data.fca.org.uk/#/nsm/nationalstoragemechanism and on the Company's website at   www.tifluidsystems.com .

The AGM is scheduled to be held at 9:00 am EST on Thursday 14 May 2020 at 2020 Taylor Road, Auburn Hills, Michigan 48326, United States.

Enquiries:
TI Fluid Systems plc	[phone]
David J Royce
Investor Relations
FTI Consulting	[phone]
Richard Mountain
Nick Hasell
Matthew Paroly	[phone]
Company Secretary

About TI Fluid Systems plc

TI Fluid Systems plc, (LSE: TIFS) is a leading global manufacturer of highly engineered automotive fluid storage, carrying and delivery systems primarily for the light duty automotive market. With nearly 100 years of automotive fluid systems experience, TI Fluid Systems has manufacturing facilities in 108 locations across 28 countries serving all major global OEMs.

Appendix

The information below, which is extracted from the Annual Report and Accounts 2019, is included solely for the purpose of complying with DTR 6.3.5 and the requirements it imposes on issuers as to how to make public annual financial reports. It should be read in conjunction with the Company's preliminary results announcement released on 17 March 2020. This announcement is not a substitute for reading the full Annual Report and Accounts 2019. Page, note and section references in the text below refer to page numbers, note and section references in the Annual Report and Accounts 2019.

Statement of Directors' responsibilities in respect of the financial statements

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and parent company financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. 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 the profit or loss of the group and parent company for that period. In preparing the financial statements, the directors are required to:

· select suitable accounting policies and then apply them consistently

· state whether applicable IFRS as adopted by the European Union have been followed for the group financial statements and IFRSs as adopted by the European Union have been followed for the company financial statements, subject to any material departures disclosed and explained in the financial statements

· make judgements and accounting estimates that are reasonable and prudent; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and parent company will continue in business.

The directors are also responsible for safeguarding the assets of the group and parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group and parent company's transactions and disclose with reasonable accuracy at any time the financial position of the group and parent company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.

The directors are responsible for the maintenance and integrity of the parent company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmations

The directors consider that 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 and parent company's position and performance, business model and strategy.

Each of the directors, whose names and functions are listed in the Board of Directors section of this report confirm that, to the best of their knowledge:

· the parent company financial statements, which have been prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the company

· the group financial statements, which have been prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the group; and

· the Strategic Review includes a fair review of the development and performance of the business and the position of the group and parent company, together with a description of the principal risks and uncertainties that it faces.

In the case of each director in office at the date the Directors' Report is approved:

· so far as the director is aware, there is no relevant audit information of which the group and parent company's auditors are unaware; and

· they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the group and parent company's auditors are aware of that information.

This responsibility statement was approved by the Board of Directors on 16 March 2020 and is signed on its behalf by:

William L. Kozyra, Chief Executive Officer and President

Ronald Hundzinski, Chief Financial Officer

Principal risks and uncertainties 

The Board is responsible for the Group's system of risk management and internal controls. The Audit & Risk Committee supports the Board by advising on the Group's overall risk appetite, tolerance and strategy, current risk exposures and future risk strategy.

A review of the Group's risk management framework used to collate, report and manage business critical risks was presented to the Audit & Risk Committee in March 2020. The Board has concluded that a robust assessment of the Group's principal risks had been undertaken.

TI Fluid Systems' global operations are exposed to a number of risks which could, either on their own, or in combination with others, have an adverse impact on the Group's results, strategy, business performance and reputation which, in turn, could impact upon shareholder returns. The following section highlights the major risks that may affect the Group's ability to  deliver the strategy, as set out on pages 28 to 31, including an assessment of any change in risk assessment this year.

The management and mitigation activities described below will help to reduce the impact or likelihood of the major risk occurring, although the Board recognises it will not be possible to eliminate these risks entirely. The Board also recognises there could be risks that may be unknown or that may be judged to be insignificant at present, but may later prove to be significant.

Global light vehicle production volumes Risk Trend - No Change

Description

TI Fluid Systems has 108 manufacturing locations in 28 countries on five continents and a substantial amount of its revenue is closely linked to the economic cycle and the general macroeconomic

environment.

Impact

Historically, there has been close correlation between economic growth and the global light vehicle production volumes. The cost structure of the business, operating across manufacturing facilities in 108 locations, means that a large reduction in revenue will have an impact on profitability.

Controls and mitigation

· TI Fluid Systems' presence in 28 countries supplying a wide range of customers acts as a hedge to neutralise localised economic volatility.

· The Group has an extensive manufacturing presence in emerging and other low-cost markets which currently have relatively low rates of light vehicle penetration per head of population and are believed to have strong growth potential.

· Although the Group's products are primarily for light vehicles, it operates across both a broad geographic footprint and a diversified range of vehicle platforms, brands and models.

· A proportion of the Group's workforce in a number of local markets are employed on temporary contracts, which provides some flexibility in the cost-base.

· The Group monitors closely and responds to any changes in customer demand on a local or Group-wide basis.

Product quality Risk Trend - No Change

Description

TI Fluid Systems' business is based on the repeatable supply and delivery of components and parts to an agreed specification and time.

Impact

Failure to meet customer requirements or specifications can have financial consequences, such as the loss of a customer, warranty claims and product liability, and cause long-term damage to the Group's reputation.

Controls and mitigation

· TI Fluid Systems operates rigorous quality control systems designed to ensure a high-quality standard for all products, including testing and validation during the design and production phases.

· The Group collaborates with key customers to evaluate and improve quality control standards and to confirm the compliance of its manufacturing processes with customers'

· quality standards.

· Quality systems and processes operated at local manufacturing level are subject to oversight by divisional quality teams.

· Where necessary, the Group's manufacturing facilities maintain relevant industry accreditations, such as TS 16949.

· The Group monitors the field performance of its products in order to seek to continuously improve product quality.

Competition and customer pricing pressure Risk Trend - No Change

Description

This risk encompasses a number of identified global trends in the markets in which TI Fluid Systems operates. The Group operates in a dynamic competitive environment and faces competition from other manufacturers and suppliers of automotive components in each of the market segments in which it operates. The Group may be subject to pressure from customers to reduce costs on current contracts. The environment for bidding and securing new contract awards from OEMs is competitive.

Impact

The Group's customers face constant pressure to lower their selling and production costs to be competitive against their peers and may require reductions in the selling price of the Group's systems and components over the term of a vehicle platform or model. Commercial activity by competitors, or changes in their products or technologies, could impact upon the Group's market

share and profitability.

Controls and mitigation

· The Group seeks to offset pricing pressure by achieving improved operating efficiencies and cost reductions.

· A growing trend by customers to standardise and globalise vehicle platforms has the potential to minimise the Group's exposure to the cancellation of any single vehicle platform

· or model.

· TI Fluid Systems has a strong reputation and industry-leading technology which supports its status as a key supplier to its customers.

· The Group engages in extensive and regular dialogue and has strong commercial and engineering relationships with key customers.

· The Group uses market intelligence and competitor analysis to support its market activities and inform investment decisions.

· Across the Group there is an emphasis on research and development and improving the technical content of products.

· The Group also leverages a robust screening process to evaluate new business proposals.

· The Group is considered to be a top supplier or strategic supplier by many of its OEM customers.

Business continuity Risk Trend - No Change

Description

TI Fluid Systems' business is based upon reliable, high-volume manufacturing across all its locations in order to supply products to customers, often on a just-in-time basis. Business continuity encompasses a number of areas of risk to the Group, including fire, flood and other casualties, equipment breakdown, key supplier failure, exposure to price fluctuations of key raw materials, maintaining stable labour relations, and ensuring the reliability of the Group's business management systems and IT infrastructure. In addition, the Group is exposed to risks from accidents and incidents arising from health and safety failures.

Impact

A loss of production capability at a facility could lead to an inability to supply customers, reduce volumes and/or increase claims made against the business. In periods of high demand or in the event of supplier difficulties, availability of raw materials may be constrained which could interrupt production or result in price increases, all of which could have an impact on the profitability of the Group's operations. In certain circumstances the loss of a supplier, or supplier quality failing, could lead to an inability to obtain materials and sub-components necessary to supply products in a timely or efficient manner.

The loss of systems capability at a Group facility, as a result of IT failure or cyber-attack, could impact the Group's ability to operate one or more plants and supply its customers. Injuries arising from health and safety incidents could result in lost time, reduce employee morale and possible changes in working practices. Serious incidents can also have a detrimental impact on the Group's reputation.

Controls and mitigation

· The Group continues to expand its business continuity planning (BCP) to enhance the localised continuity planning strategy operated at each facility.

· The Group's global network of facilities provides a degree of backup capacity.

· The Group maintains a scheduled programme of maintenance and inspection of all equipment.

· The wide geographic spread of operations, purchasing and supply chain functions allows the Group to use a range of techniques to address potential supply disruption, such as long-term purchase contracts, dual sourcing and ongoing research and development into alternative materials and solutions.

· In certain markets the Group uses preferred suppliers for key components and materials.

· The Group maintains casualty, property and business interruption insurance, including cyber incident coverage.

· The Group participates in a number of works councils and other represented employee forums and seeks to establish and maintain good relationships with its employees and unions.

· The Group continues to assess and strengthen its cyber security programme. In 2019 the Group introduced enhanced systems penetration testing and data security audits.

· The Group's decentralised IT systems worldwide provide some resilience against the loss of production or systems capability to the Group as a whole.

· IT has developed and implemented a disruption recovery plan for the organisation.

· The Group has an embedded health and safety culture and operates a global health and safety policy, with local health and safety operations in place in each manufacturing facility.

· Health and safety performance is monitored regularly by each division and by the Group.

Product development and changes in technology Risk Trend - No Change

Description

The automotive industry is subject to changes in technology and the Group's products are subject to changes in regulatory requirements to reduce emissions and increase fuel economy. Operating across numerous markets and territories requires compliance with a wide variety of regulations. Changes in consumer demand, e.g. the popularity of a particular vehicle type, model, platform or technology such as HEVs and EVs, may also impact on demand for the Group's products. In addition, the Group's products have performance-critical applications and have high levels of technical content and know-how.

Impact

Failure to keep up with changes in technology in the light vehicle automotive industry or in competitive technologies may render certain existing products obsolete or less attractive as well as damage the Group's market position and reputational strength. Failure to comply with all relevant regulatory requirements could affect the Group's reputation and/or its ability to operate in certain markets or territories. Changing environmental regulations could affect demand for certain products. The Group's technologies and intellectual property rights need to be kept current through continuous improvement and research and development and are susceptible to theft, infringement, loss and/or replication by competitors.

Controls and mitigation

· The Group is engaged in continued investment in alternative engineering solutions and the development of more advanced designs and innovative products to ensure compliance with changes to environmental regulations and customer demand.

· TI Fluid Systems has an international network of four technical centres which focus on research and development.

· The Group seeks to maintain close relationships and technical partnerships with key customers.

· The Group has established eight regional application centres which focus on application engineering worldwide.

· Both Group and divisional management monitor and assess relevant regulatory requirements and the likelihood and impact of any changes.

· The Group's products, materials and processes are continually developed and enhanced through research and development and technical input.

· TI Fluid Systems actively registers, manages and enforces its intellectual property rights.

· The Group operates in the automotive industry where performance-critical technology evolves and is adopted in a deliberate and measured manner.

Operating globally and regulatory compliance Risk Trend - No Change

Description

TI Fluid Systems has operations globally, with manufacturing facilities in 28 countries across five continents. The markets in which the Group operates are covered by a range of different regulatory systems and complex compliance requirements and may also be subject to cycles, structural change and other external factors, such as changes in tariffs, customs arrangements and other regulations. In addition, operating across a number of territories exposes the Group to currency exchange rate variations.

Impact

A substantial downturn in one or more key markets could have a material adverse impact on the Group's profitability, cash flow and carrying value of its assets. Significant changes to the different regulatory systems and compliance requirements in and between the countries and regions in which the Group operates may have a negative impact on the Group's operations in a particular country or market. The risks associated with Brexit are not considered material to the Group. High foreign exchange volatility may increase financing costs.

Controls and mitigation

· The Group's international footprint provides some protection against a downturn in particular territories or regions.

· The markets and any changes to the regulatory environment in which TI Fluid Systems operates, including tariffs and trade policies, are continually monitored and assessed.

· Changes to the Group's investment strategy and cross-border relocation might result from a significant change in the regulatory environment in a particular country or region.

· The Group's treasury policy covers, inter alia, the use of currency contracts, investment hedging policy and regular reporting of foreign exchange exposure.

· Focus throughout the Group on adherence to our Code of Business Conduct (COBC), including ongoing training and review of policies and procedures.

Key personnel dependencies Risk Trend - No Change

Description

The future success of TI Fluid Systems is dependent upon the continued services of key personnel. Succession is a routine consideration given some of the Group's key global positions at all levels, including business unit, division and Group.

Impact

TI Fluid Systems competes globally to attract and retain personnel in a number of key roles. A lack of new talent, the inability to retain and develop existing talent, or replace retiring senior management could hinder the Group's operations and strategy. A loss of key personnel, with associated intellectual property and know-how, could disrupt our business and strategy. In a number of local markets the Group may experience a shortage of skilled and experienced personnel for certain

key roles.

Controls and mitigation

· The Group applies bespoke terms and conditions of employment for key personnel where appropriate.

· The Group has in place incentive arrangements, including bonuses, pensions and long-term incentive plans.

· The Group operates established recruitment and development programmes.

· Succession plans continue to be reviewed for relevant key positions.

Developing risks

The Board recognises that an essential part of risk management is the ability to monitor and respond to new and emerging risks. The existence of new and developing strategic risks potentially impacting the Group was considered at its May 2019 Board as part of its annual business strategy review and discussed further at the March 2020 Board meeting. The primary focus of these discussions was on risks that may arise in terms of technological obsolescence and customer (OEM) consolidation. The current year assessment was that neither of these new risks were material to the Group but would be monitored.

The dramatic developments in recent months concerning COVID-19 have also been a focus for the Board at the start of 2020. The COVID-19 outbreak represents a current operating performance challenge for us and the automotive industry generally. It also has the potential to impact, beyond the immediate term, the performance of the Group as further disruption may impact our customer's production activity levels, the efficiency and operations of the automotive market supply chain and the availability of resources generally.

At present it is difficult to assess likely developments arising as a result of COVID-19. We believe in terms of our assessment of our principal risks that any prolonged or more significant impact from COVID-19 would manifest itself in the risks already noted above.

The Board intends to continue and enhance its assessment of emerging risks.

Related Party Transactions

Transactions with Affiliates of the funds managed by Bain Capital

The 'funds managed by Bain Capital' represent affiliates of and funds advised by Bain Capital LLC.

During the year, the Group procured products and materials totalling €0.2 million (2018: €0.3 million) from companies in which the funds managed by Bain Capital, the Group's ultimate controlling party since 30 June 2015, had investment interests.

These transactions were completed on the basis of normal commercial terms.

The Group does not incur management charges from Bain Capital LLC.

Transactions with Group Companies

Balances and transactions between Group companies have been eliminated on consolidation, and are not disclosed in this note except for subsidiaries that are not wholly owned. Transactions with those companies are made on the Group's standard terms of trade.

The Group holds 73% of the shares in Hanil Tube Corporation ('Hanil') which is located in South Korea. At 31 December 2019, Hanil had trade and loan receivables net of payables from other Group undertakings amounting to €25.6 million (2018: €23.6 million) and made sales within the Group during the year of €7.3 million (2018: €7.6 million).

The Group holds 97% of the shares in Bundy India Ltd. At 31 December 2019, Bundy India Ltd had trade and loan payables net of receivables to other Group undertakings amounting to €6.1 million (2018: €7.2 million) and made sales within the Group during the year of €8.4 million (2018: €9.8 million).

Ultimate controlling party

 The funds managed by Bain Capital, via BC Omega Holdco Ltd, have been the Company's ultimate controlling party since its incorporation. 

Transactions with Associates

Transactions with related parties other than subsidiaries are attributable solely to the ordinary business activities of the respective company and were conducted on an arm's-length basis.

	2019 €m	2018 €m
Amounts owed to associates	1.3	1.9
Purchases from associates in the year	10.5	13.7

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