Final Results

TT electronics PLC 28 March 2006 TT ELECTRONICS FOCUSES ON FUTURE GROWTH TT electronics is a world leader in sensors and electronic component technology and today announces its preliminary results for the year to 31 December 2005. KEY POINTS • Group revenue of £565.3 million (2004: £573.1 million). • Operating profit was £32.0 million (2004: £34.7 million). • The acquisition of Dage Limited, which has performed well ahead of expectations, provides us with a facility in China where we are manufacturing for the Chinese and other worldwide markets. • Our sensor business continues to be successful and new product ranges have been well received. • The electrical division performed strongly and the Mexican power system operation expanded to meet increased demand. • The elimination of loss making operations during 2005 will provide a platform for improved future profitability. • The group generated cash from operations of £49.6 million (2004: £53.9 million) and gearing at the year end improved to 31 per cent (2004: 40 per cent). • The Board is recommending a maintained final dividend of 6.36p per share bringing the total for the year to 10.05p (2004: 10.05p). John Newman, Executive Chairman, said today: 'TT electronics has emerged from a year of consolidation during which we have eliminated certain loss making businesses. 'We are encouraged by the strong performance in China - an operation which we have already expanded. This enables us to continue the transfer of our manufacturing to a lower cost environment and provides access to the rapidly growing Chinese market. TT electronics now employs 38 per cent of its total global workforce in low cost economies. 'We remain focused on the global markets for sensors and electronic components which are expected to show sustained long term growth. We continue to drive technological innovation as evidenced by the introduction of our range of Autopad (R) inductive sensors and light emitting displays. These have been well received by our customers and we expect them to provide future growth. TT electronics is in good shape to make further acquisitions and has started 2006 with a strong order intake.' Enquiries: TT electronics plc John W Newman, Executive Chairman: Tel: 01932 856 647 Biddicks Zoe Biddick: Tel: 020 7448 1000 Chairman's statement The year has been one of consolidation resulting in the group closing four factories based in the UK and Europe. The group has continued its policy of transferring production to its low labour cost factories particularly in China and Malaysia. Dage Limited and its subsidiaries, now trading as TT electronic integrated systems were acquired in March 2005 and are performing well ahead of expectations. As a result, we now have a facility in China where we will be manufacturing group products for the Chinese and worldwide markets. Revenue for the year to December 2005 was £565.3 million compared to £573.1 million in 2004. Operating profit before exceptional gain was £29.9 million (2004: £34.7 million). Exceptional gain was £2.1 million (2004: £nil) resulting in operating profit for the year of £32.0 million (2004: £34.7 million). Finance costs (net) were £5.2 million (2004: £4.7 million), comprising £3.1 million of bank and finance lease interest and £2.1 million relating to pension fund accounting. Profit before tax was £26.8 million compared with £30.0 million in 2004. Taxation charge in the year was £8.5 million (2004: £9.9 million) at an effective rate of 32 per cent (2004: 33 per cent). The electronic sector will benefit from the demand for Autopad(R) sensors. We have taken orders in excess of £100 million which include new applications for our sensors. The electrical sector is benefiting from the demand for standard diesel generating sets manufactured in Mexico, in particular a £10 million order awarded by a new customer in Central America. The exceptional items comprise the net gain on the sale of the Gravesend property after related closure costs, the profit on sale of Houchin Aerospace, and the costs of closure of the climate control business based in France. The Gravesend property was sold in March 2005 for an initial payment of £12.5 million, with expected further payments to be received on the disposal of the site following planning consent and onward sale. The power cable division on that site has been closed at a cost of £3.1 million. The French climate control business has been closed at a cost of £6.7 million due to unacceptable low margins. These low margins arose from production inefficiencies on inherited loss making contracts and new business which could only be achieved at unacceptable margins due to competition from lower labour cost areas. The discontinued operation is the cessation of manufacturing at Prestwick Circuits Limited, our printed circuit board manufacturer. Competition from Far East suppliers at significantly lower selling prices has caused the closure of this business after a number of years of losses. The group's pension schemes showed an increased deficit, despite the rise in the stock market and additional cash contributions made by the group in the year, due to the effect of exceptionally low long-term interest yields and longer life expectancy. Since the year end the Company has entered into a formal commitment to fund over a ten year period part of this deficit. TT electronics continues to be a strong generator of cash. At the year end, the group's net indebtedness had reduced to £47.1 million from £67.3 million at the end of last year. We have successfully renegotiated our five year bank loan facility which was due to expire in June 2006 for a new £70 million five year bank loan facility commencing November 2005. The Board of TT electronics recommends a final dividend of 6.36p per share which, following the 3.69p interim dividend, provides a total dividend for the year of 10.05p, the same as last year. TT electronics' employees contribute enormously to the group's performance and I would like to thank them for all their efforts throughout the year. The successful future of TT electronics is based on product innovation and the continuing move of manufacturing to low labour cost countries. TT electronic integrated systems in China will assist in this strategy. With reduced borrowings, the group is in good shape to make further acquisitions which, together with our new technology, will enable TT electronics to grow in the future. John W Newman Executive Chairman 27 March 2006 Business review Summary ----------------------------------------- -------- ------- 2005 2004 £million £million ----------------------------------------- -------- ------- Revenue 565.3 573.1 Operating profit (1) 29.9 34.7 Capital employed 197.7 232.6 ----------------------------------------- -------- ------- Return on capital employed 15% 15% ----------------------------------------- -------- ------- (1) Operating profit is stated before exceptional gain of £2.1 million. TT electronics operates in two main sectors, electronic and electrical. The electronic sector supplies sensors and systems, components and electronic manufacturing services to major customers in the automotive, aerospace and industrial markets worldwide. The electrical sector provides services and equipment for the generation and distribution of electrical power. 2005 was a year of rationalisation. The group announced the closure of four manufacturing operations during the year: the French climate control facility, two power transmission cable factories and the printed circuit board factory in the UK. These operations were loss making and the Board took the view that profitability in the long-term was unlikely. In addition, the group sold Houchin Aerospace Limited for a total cash sum of £8.0 million. Demand for the group's electronic products overall showed a small growth with sensors and electronic manufacturing services combining to more than offset the decline in components. The electrical sector revenue reduced due to the factory closures and business disposals. Total Group - sector analysis ----------------------------------------- -------- ------- 2005 2004 £million £million ----------------------------------------- -------- ------- Revenue Sensors and electronic systems 195.0 191.5 Electronic components 129.6 137.1 Electronic manufacturing services 60.3 50.7 ----------------------------------------- -------- ------- Electronic sector 384.9 379.3 ----------------------------------------- -------- ------- Power systems 50.4 56.0 Power transmission 130.0 137.8 ----------------------------------------- -------- ------- Electrical sector 180.4 193.8 ----------------------------------------- -------- ------- Group total 565.3 573.1 ----------------------------------------- -------- ------- Operating profit(1) Sensors and electronic systems 9.1 18.2 Electronic components 8.7 8.1 Electronic manufacturing services 2.0 1.6 ----------------------------------------- -------- ------- Electronic sector 19.8 27.9 ----------------------------------------- -------- ------- Power systems 4.6 3.8 Power transmission 5.5 3.0 ----------------------------------------- -------- ------- Electrical sector 10.1 6.8 ----------------------------------------- -------- ------- Group total 29.9 34.7 ----------------------------------------- -------- ------- (1) Operating profit is stated before exceptional gain of £2.1 million. The revenue for 2005 was £565.3 million (2004: £573.1 million). The electronic sector revenue grew from £379.3 million to £384.9 million and the electrical sector revenue reduced from £193.8 million to £180.4 million. The increase in electronics followed the acquisition in March 2005 of the business of Dage Limited, now TT electronic integrated systems, which contributed £21.7 million of revenue. The reduced revenue in the electrical sector was due to the sale of Houchin Aerospace Limited in July and the closure of the cables businesses at Bootle and Gravesend. Operating profit before exceptional items reduced from £34.7 million to £29.9 million with margins in all sectors other than power systems under pressure. The operating profit includes the trading losses of AB Automotive (France) SAS and the power cables factory at Gravesend which together amount to £4.8 million. Closure costs of £6.7 million have been incurred and treated as part of the exceptional items detailed on page 6. These losses have now been eliminated. The group operating margin excluding these losses and exceptional items was 6.1 per cent, the same as last year. Sensors and electronic systems 2005 2004 £million £million ----------------------------------------- -------- ------- Revenue 195.0 191.5 Operating profit (1) 9.1 18.2 Capital employed 66.4 94.1 ----------------------------------------- -------- ------- Return on capital employed 14% 19% ----------------------------------------- -------- ------- Number of employees 2,804 2,841 ----------------------------------------- -------- ------- (1)Operating profit is stated before exceptional gain. Sensor sales within Europe grew due to our exposure to the successful German vehicle manufacturing industry, contrasting with sales in North America which declined. Our newly developed inductive sensor Autopad(R) technology has been successful. New business has been won from German OEMs for a range of applications including chassis, pedal, throttle air management and steering. Particularly exciting is the new steering sensor development whereby both steering torque and angle can be accurately measured within a single, cost effective, non-contact sensor package. The initial production runs for the first of these new applications are scheduled to start in late 2006. The climate control operations within electronic systems had another difficult year. Manufacturing has been transferred from the UK to our North American climate control facility in line with the plan to improve our service to the OEMs. These operations have now returned to profitability with a very clear focus upon operational performance and internal cost reduction. Unfortunately the French climate control operation generated further significant losses during the year and it was decided that the facility should close. This is a complex and emotional process in France, but even so progress to closure was successful, and the operation ceased manufacture in March 2006. Performance from Optek Technology our optoelectronic business, remained strong. New products launched during the year included surface mount infra red light emitting diodes and a complete range of visible light emitting displays. These new products made a useful contribution to turnover in the year and we are expecting substantial growth over the coming years. Electronic components 2005 2004 £million £million ----------------------------------------- -------- ------- Revenue 129.6 137.1 Operating profit 8.7 8.1 Capital employed 82.4 83.5 ----------------------------------------- -------- ------- Return on capital employed 11% 10% ----------------------------------------- -------- ------- Number of employees 2,597 2,752 ----------------------------------------- -------- ------- Overall, the global market for passive electronic components remained broadly flat. We saw some declines due to end of life programmes, plus difficult market conditions in the UK for our traditional resistive products which caused a decline in profitability in our UK component operations. Our hybrid microcircuits facility based in Austria was particularly successful in 2005. Sales, predominantly to the German automotive industry, grew as the product range was expanded into new areas, notably electronic control over electrically powered water pumps for car cooling systems and the control circuitry for solar sensors. The decision was taken during the year to discontinue manufacturing operations at our printed circuit board facility, Prestwick Circuits Limited, based in Scotland. Future growth in electronic components is anticipated to come from emerging markets, predominantly in the Far East. To meet this expected demand, additional sales personnel have been employed in Hong Kong, China, Japan, Korea and India. Our components, which were originally incorporated into assemblies manufactured by our customers in high cost economies, are carefully monitored as they migrate production to low cost manufacturing sources to ensure that our components continue to be used. Electronic manufacturing services 2005 2004 £million £million ----------------------------------------- -------- ------- Revenue 60.3 50.7 Operating profit 2.0 1.6 Capital employed 9.4 (5.4) ----------------------------------------- -------- ------- Return on capital employed 21% 100+% ----------------------------------------- -------- ------- Number of employees 739 465 ----------------------------------------- -------- ------- The major highlight in this sector was the acquisition of the business of Dage Limited, now TT electronic integrated systems, with plants in the UK and China. Performance from both operations has exceeded estimates made at the time of acquisition, and the Chinese facility has been expanded with the addition of another 4,000 square metre factory. This operation will form the basis for product transfers from higher cost UK and USA based group companies to low cost manufacturing sources and access to the rapidly growing Chinese market. New contract manufacturing operations at our Malaysian factory commenced volume manufacture during 2005. A second production line was transferred to Malaysia during the year to support the award of a telephone systems contract worth in excess of £8 million. The UK operations maintained steady performance although one site saw a substantial downsizing following the transfer of manufacture to Malaysia. Further rationalisation of our UK operations can be expected during 2006. Power systems 2005 2004 £million £million ----------------------------------------- -------- ------- Revenue 50.4 56.0 Operating profit(1) 4.6 3.8 Capital employed 1.0 2.7 ----------------------------------------- -------- ------- Return on capital employed 100+% 100+% ----------------------------------------- -------- ------- Number of employees 569 611 ----------------------------------------- -------- ------- (1)Operating profit is stated before exceptional gain. In anticipation of a contract award from a customer based in Central America, the Mexican power generator manufacturing operations were expanded with the addition of a 5,000 square metre factory site. Shipments of this new major contract have now started and are expected to be valued at over £10 million during 2006. Business during 2005 remained at a high level primarily due to demand from China. The UK uninterruptible power supply and generator service businesses continued to expand and improve their profitability. In August 2005 Houchin Aerospace Limited was sold for a cash consideration of £8 million. Power transmission 2005 2004 £million £million ----------------------------------------- -------- ------- Revenue 130.0 137.8 Operating profit(1) 5.5 3.0 Capital employed 38.5 57.7 ----------------------------------------- -------- ------- Return on capital employed 14% 5% ----------------------------------------- -------- ------- Number of employees 1,464 1,688 ----------------------------------------- -------- ------- (1)Operating profit is stated before exceptional gain. UK based manufacturing operations at our power and mineral cable factories were closed during the year. The cables business based at Birtley, UK has improved both revenue and profits assisted by the high demand for cables from the house building industry. The electrical accessories business had a very successful year with new management in place. New product development, together with the transfer of much of the material sourcing and product manufacture to the Far East, will ensure a profitable future. Exceptional gain The group sold the site of the Gravesend cables factory for an initial consideration of £12.5 million. There are further cash proceeds expected the amount of which depend on the value of the onward sale to a land developer. TT electronics will receive 100 per cent of the additional consideration up to an aggregate total of £20 million and a reducing proportion of the consideration thereafter. The cost of sale, being the carrying cost of the land and buildings, has all been charged against the initial sale proceeds and any additional proceeds will be accounted for as cash and profit, subject only to further legal and professional costs. This onward sale is not likely to occur until 2007. The closure costs associated with this site were £3.1 million. Costs of £6.7 million have been incurred in the closure of the French climate control factory. Furthermore this business incurred trading losses of £3.7 million during 2005, which have been included in operating profit. Houchin Aerospace Limited, the aircraft standby power generation business, was sold for £8 million and the profit on sale of £4.1 million is included in the exceptional gain. Discontinued operation The group has discontinued the manufacture of printed circuit boards at its factory in Scotland. This business incurred substantial losses and, despite management's efforts, the competition from low labour cost sources in the Far East rendered a return to profitability unlikely. This business is shown as the discontinued operation with losses after tax credits of £5.3 million. Finance costs The bank and finance lease interest paid (net of bank interest receivable) was £3.6 million (2004: £3.2 million). This arose in a period of increasing interest rates, lower average net borrowings of the group following strong cash generation and the proceeds from disposals less the cash cost of the acquisition. Net finance costs include the credit for the expected return on pension funds' assets and the charge for the unwinding of the discount used in arriving at the present value of the pension schemes' liabilities. The net of these overall amounts to £2.5 million (2004: £2.3 million). Taxation The group taxation charge of £5.2 million (2004: £9.1 million) is a 29 per cent charge on profit after exceptional items, finance costs and the discontinued operation. The rate of taxation reflects the aggregate effect of the pre-tax losses and exceptional closure costs in France for which no tax relief has been accounted (although a tax claim has been made), the profit on sale of Houchin Aerospace Limited which does not suffer a capital gains tax charge and some partial relief of the capital gain on the sale of land. The group rate of tax excluding these items would have been 28 per cent. Pensions During 2005, the group operated nine defined benefit pension schemes in the UK and two overseas, all of which are closed to new entrants. Calculated on an IAS 19 basis, the total of these schemes' liabilities was £335.9 million and assets £245.7 million, resulting in a deficit of £90.2 million. The group intends to eliminate the deficit as re-measured each year over the next ten years and additional cash contributions of £9.3 million were made in 2005 bringing the total cash contributions for 2005 to £14.1 million (2004: £8.7 million). Despite the increase in asset value following the strengthening of stock market values, the deficit has increased as a result of the decrease in the discount rate being applied to the schemes liabilities and by longer life expectancy. The Board continues to recognise the increasing cost of pensions and is actively reviewing its options. Since the year end, the pension schemes of TT electronics plc, Prestwick Circuits Limited and four other smaller schemes have been merged. This will reduce the cost of administration of these small schemes. Treasury matters 2005 2004 ----------------------------------------- -------- ------- Net interest paid cover - times 9 11 ----------------------------------------- -------- ------- The group maintains central control over its treasury function so as to maintain a cost efficient and risk averse source of borrowing facilities more than sufficient for the needs of the operations around the world. It has policies and procedures which are monitored and controlled through monthly meetings of the treasury committee. In November 2005, the group arranged a new mid-term borrowing facility for £70 million over five years in the UK to replace the facility which was due to mature in June 2006. A further facility for $20 million over two years was set up in the USA. These, together with overdraft facilities with major clearing banks in the countries where the group operates, form the basis of the group's external finance arrangements. The risks to the group's business arising from fluctuations in foreign exchange rates, interest rates and the cost of certain key materials are managed by the use of forward contracts and swaps. Similarly, the effect of changes in foreign currency exchange rates on the translation of overseas assets and trading results is minimised by use of forward currency contracts. The net effect of changes since 2004 in foreign currency rates used to translate the sales and operating profit of the group's overseas companies were reductions of £2.9 million and £0.1 million respectively. Cash flow and working capital 2005 2004 £million £million ----------------------------------------- -------- ------- Total net borrowings 47.1 67.3 Cash generated from operations 49.6 53.9 Capital expenditure 15.6 24.6 ----------------------------------------- -------- ------- Days Days ----------------------------------------- -------- ------- Debtors 50 54 Creditors 44 49 Inventory 74 79 ----------------------------------------- -------- ------- During the year the group reduced total net borrowings by £20.2 million from £67.3 million. The proceeds on the disposal of Houchin Aerospace Limited and the land at the Gravesend site totalled £20.5 million and expenditure on the acquisition of Dage Limited amounted to £9.7 million. Tight financial control is maintained on the working capital at each operating company and a central credit control function monitors the group's debtors, reporting monthly to a central credit control committee. Generally the bad debt experience of the group has been good but in October 2005 certain parts of Delphi Inc. entered the Chapter 11 process in the USA. Delphi Inc. was and continues to be a large customer of TT electronics and the realisability of this trade receivable has been carefully considered and a provision of £1.6 million has been made against the risk of non-payment. Capital expenditure on property, plant and equipment totalled £15.6 million (2004: £24.6 million). There are several major projects underway, mainly for new automotive products, which will require an increased amount of capital expenditure in 2006. All capital expenditure over £20,000 is authorised by an executive Director before being committed to by the operating companies. The group's net gearing has improved to 31 per cent (2004: 40 per cent). Accounting and reporting This is the first Annual Report presented using International Financial Reporting Standards (IFRS). TT electronics issued a report in July 2005 in which the changes to the results of the first half and the full year 2004 and the balance sheets at December 2003 and 2004 and June 2004 were set out and explained. The Interim Report issued in September 2005 and the consolidated results for the full year 2005 set out in this Annual Report have been prepared using international accounting policies consistent with those used in that earlier report. Financial information in respect of the Company is not required to be reported under IFRS and has therefore been prepared under UK GAAP. Dividends The balance sheet requirement under either IFRS or current UK GAAP is to report a final dividend as a liability only after that dividend has been approved. No proposed dividend is therefore included in the balance sheet. The proposal to declare an unchanged final dividend of 6.36p per share (2004: 6.36p per share) forms part of the resolutions for the forthcoming Annual General Meeting. Outlook The completion of 2005's rationalisation of the group has eliminated the major loss making operations and will provide a platform for improved future profitability. Work to transfer certain product ranges to lower cost manufacturing sources will continue throughout the current year and beyond. The group currently employs 38 per cent of its workforce in low labour cost economies, and the Board believes this proportion will continue to increase. The automotive market in which we operate remains challenging. Our sales to the successful German automotive market remain higher than those to the troubled North American market. We continue to develop new technologies to support growth in our main markets; Autopad(R) is an excellent example of our success in this area. The commitment of our people across the world remains key to our success. We expect the closure of the loss making operations to have a positive effect on the profitability of our global operations and we have started 2006 with a strong order intake. Neil A Rodgers Roderick W Weaver Chief Executive Finance Director 27 March 2006 27 March 2006 Consolidated income statement for the year ended 31 December 2005 Before 2005 2004 exceptional Exceptional items items* Total Total Note £million £million £million £million ------------------------- ----- --------- --------- -------- ------- Continuing operations Revenue 2 565.3 - 565.3 573.1 Cost of sales (460.3) - (460.3) (459.9) ------------------------- ----- --------- --------- -------- ------- Gross profit 105.0 - 105.0 113.2 Distribution costs (40.5) - (40.5) (41.0) Administrative expenses (35.2) (9.8) (45.0) (35.3) Other operating expenses (1.0) - (1.0) (3.8) Other operating income 1.6 11.9 13.5 1.6 ------------------------- ----- --------- --------- -------- ------- Operating profit 3 29.9 2.1 32.0 34.7 Finance income 12.0 - 12.0 10.8 Finance costs (17.2) - (17.2) (15.5) ------------------------- ----- --------- --------- -------- ------- Profit before taxation 3 24.7 2.1 26.8 30.0 Taxation (8.1) (0.4) (8.5) (9.9) ------------------------- ----- --------- --------- -------- ------- Profit for the year from continuing activities 3 16.6 1.7 18.3 20.1 ------------------------- ----- --------- --------- -------- ------- Discontinued operation Loss for the year from discontinued operation 5 (5.3) (1.7) ------------------------- ----- --------- --------- -------- ------- Profit for the year attributable to shareholders 13.0 18.4 ------------------------- ----- --------- --------- -------- ------- *Details of exceptional operating items are given in note 4. There were no exceptional items in 2004. Earnings per share 7 From continuing and discontinued operations - basic 8.4p 11.9p - diluted 8.3p 11.8p From continuing operations - basic 11.8p 13.0p - diluted 11.7p 12.9p Consolidated balance sheet at 31 December 2005 Note 2005 2004 £million £million ------------------------------ -------- ---------- --------- Assets Non-current assets Property, plant and equipment 118.0 136.3 Goodwill 52.5 42.4 Other intangible assets 15.7 17.4 Financial assets - investment - 1.0 Deferred tax assets 30.0 23.2 ----------------------------- -------- ---------- --------- Total non-current assets 216.2 220.3 ----------------------------- -------- ---------- --------- Current assets Property - 0.1 Inventories 93.9 99.6 Trade and other receivables 95.1 103.8 Financial assets - 0.3 Cash and cash equivalents 24.0 5.5 ----------------------------- -------- ---------- --------- Total current assets 213.0 209.3 ----------------------------- -------- ---------- --------- Total assets 429.2 429.6 ----------------------------- -------- ---------- --------- Liabilities Current liabilities Short term borrowings 4.0 17.1 Financial liabilities 0.4 - Trade and other payables 94.8 90.1 Current tax payable 4.9 7.0 Provision for liabilities 1.6 2.1 ----------------------------- -------- ---------- --------- Total current liabilities 105.7 116.3 ----------------------------- -------- ---------- --------- Non-current liabilities Long term borrowings 67.1 55.7 Deferred tax provision 6.1 8.7 Pensions and other post employment benefits 12 90.2 70.9 Provision for liabilities 1.0 1.6 Other non-current liabilities 7.4 9.7 ----------------------------- -------- ---------- --------- Total non-current liabilities 171.8 146.6 ----------------------------- -------- ---------- --------- Total liabilities 277.5 262.9 ----------------------------- -------- ---------- --------- Net assets 151.7 166.7 ----------------------------- -------- ---------- --------- Equity Share capital 38.7 38.7 Share premium account - 56.0 Capital redemption reserve - 4.4 Merger reserve - 23.0 Share options 0.5 0.2 Hedging and translation reserve 3.5 (2.9) Retained earnings 107.0 44.4 Minority interests 2.0 2.9 ----------------------------- --------- ---------- --------- Total equity 8 151.7 166.7 ----------------------------- --------- ---------- --------- Consolidated cash flow statement for the year ended 31 December 2005 Note 2005 2004 £million £million ------------------------------------ ------ -------- -------- Operating activities Profit for the year 13.0 18.4 Adjustments for: Finance costs 6.1 5.5 Taxation 5.2 9.1 Depreciation of property, plant and equipment 26.8 29.4 Amortisation of intangible assets 10.4 9.2 Share based payment expense 0.3 0.1 Gain on disposal of property, plant and equipment (12.0) (2.8) Gain on disposal of subsidiary (4.1) - Other non cash items (0.2) 2.9 Additional payments to pension funds (9.3) (3.1) ------------------------------------ ------ -------- -------- Operating cash flow before movements in working capital 36.2 68.7 Decrease in property assets 0.1 1.7 Decrease in financial derivatives 0.7 0.8 Decrease/(increase) in inventories 5.1 (1.1) Decrease/(increase) in receivables 12.1 (4.0) Increase in payables 0.1 5.4 Exchange differences 4.0 (1.8) ------------------------------------ ------ -------- -------- Cash generated from operations 58.3 69.7 Tax paid (8.7) (15.8) ------------------------------------ ------ -------- -------- Net cash from operating activities 49.6 53.9 ------------------------------------ ------ -------- -------- Cash flows from investing activities: Purchase of property, plant and equipment (15.6) (24.6) Proceeds from sale of property, plant and equipment and grants received 21.3 8.2 Development expenditure (8.7) (10.8) Acquisition of subsidiaries net of cash acquired 10 (10.1) (1.3) Net cash proceeds from sale of subsidiary 11 7.8 - Loan repayment - 6.0 ------------------------------------ ------ -------- -------- Net cash used in investing activities (5.3) (22.5) ------------------------------------ ------ -------- -------- Cash flows from financing activities: Interest paid (net) (3.4) (3.5) Net changes in long-term borrowings and finance lease liabilities 7.2 4.2 Dividends paid (15.6) (15.6) ------------------------------------ ------ -------- -------- Net cash used in financing activities (11.8) (14.9) ------------------------------------ ------ -------- -------- Net increase in cash and cash equivalents 9 32.5 16.5 Cash and cash equivalents at beginning of period (9.6) (27.1) Exchange difference (0.6) 1.0 ------------------------------------ ------ -------- -------- Cash and cash equivalents at end of period 22.3 (9.6) ------------------------------------ ------ -------- -------- Cash and cash equivalents comprise: Cash and cash equivalents 24.0 5.5 Bank overdrafts (1.7) (15.1) ------------------------------------ ------ -------- -------- 9 22.3 (9.6) ------------------------------------ ------ -------- -------- Consolidated statement of recognised income and expense for the year ended 31 December 2005 2005 2004 £million £million ----------------------------------------- -------- ------- Profit for the year 13.0 18.4 Exchange differences on net foreign currency investments 5.7 (2.7) Income tax on foreign currency exchange differences 0.7 (0.2) Actuarial net loss on defined benefit pension schemes (26.0) (10.2) Deferred tax on actuarial loss 7.8 2.5 ----------------------------------------- -------- ------- Total recognised income and expense for the year attributable to shareholders 1.2 7.8 ----------------------------------------- -------- ------- Notes to the financial statements 1. Basis of accounting The consolidated financial statements have been prepared under International Financial Reporting Standards (IFRS). The restatement of 2004 financial information from UK Generally Accepted Accounting Practice (GAAP) to IFRS was circulated to shareholders on 22 July 2005 and is available on the group's website. The information set out below, which does not constitute full financial statements within the meaning of S240 CA, 1985 is extracted from the audited financial statements of the group for the year ended 31 December 2005 which: - were approved by the Directors on 27 March 2006 - carry an unqualified audit report, which did not contain statements under S237 CA, 1985 - will be posted to shareholders and available to the public in April 2006 - will be filed with the Registrar of Companies following the Annual General Meeting on 17 May 2006 2. Revenue By sector 2005 2004 £million £million -------------------------------------- -------- ------- Electronic - sensors and electronic systems 195.0 191.5 - electronic components 129.6 137.1 - electronic manufacturing services 60.3 50.7 -------------------------------------- -------- ------- Total electronic 384.9 379.3 -------------------------------------- -------- ------- Electrical - power systems 50.4 56.0 - power transmission 130.0 137.8 -------------------------------------- -------- ------- Total electrical 180.4 193.8 -------------------------------------- -------- ------- Total 565.3 573.1 -------------------------------------- -------- ------- By destination 2005 2004 £million £million -------------------------------------- -------- ------- United Kingdom 161.1 176.9 Rest of Europe 199.9 208.8 North America 131.7 116.1 Rest of the World 72.6 71.3 -------------------------------------- -------- ------- Total 565.3 573.1 -------------------------------------- -------- ------- 3. Profit by sector 2005 2004 £million £million ------------------------------------- -------- -------- Electronic - sensors and electronic systems 9.1 18.2 - electronic components 8.7 8.1 - electronic manufacturing services 2.0 1.6 ------------------------------------- -------- -------- Total electronic 19.8 27.9 ------------------------------------- -------- -------- Electrical - power systems 4.6 3.8 - power transmission 5.5 3.0 ------------------------------------- -------- -------- Total electrical 10.1 6.8 ------------------------------------- -------- -------- Total 29.9 34.7 Exceptional operating items (note 4) 2.1 - ------------------------------------- -------- -------- Operating profit - total 32.0 34.7 Finance income 12.0 10.8 Finance costs (17.2) (15.5) ------------------------------------- -------- -------- Profit before tax 26.8 30.0 Income tax expense (8.5) (9.9) ------------------------------------- -------- -------- Profit for the year from continuing operations 18.3 20.1 ------------------------------------- -------- -------- 4. Exceptional items 2005 2004 £million £million ------------------------------------- -------- -------- Profit on sale of the Gravesend site 7.8 - Closure costs of Gravesend cables operation (3.1) - ------------------------------------- -------- -------- Net gain on closure of Gravesend cables operation 4.7 - Profit on sale of Houchin Aerospace Limited 4.1 - Closure costs of AB Automotive (France) SAS (6.7) - ------------------------------------- -------- -------- 2.1 - ------------------------------------- -------- -------- The profit on sale of the Gravesend site has been calculated based on initial sales proceeds of £12.5 million; further proceeds may be received based on the development of the site. Closure costs of the Gravesend cables operation comprise £1.6 million of redundancy costs and £1.5 million of other costs. Houchin Aerospace Limited, a wholly owned subsidiary, was sold on 1 August 2005, see note 11 for further details. AB Automotive (France) SAS is to close in 2006. Closure costs committed to at 31 December 2005 comprise £3.5 million of redundancy costs, £0.9 million for plant and equipment write downs, £1.1 million for the loss on onerous contracts and £1.2 million for other costs. Exceptional items analysed by sector: 2005 2004 £million £million ------------------------------------- -------- -------- Sensors and electronic systems (6.7) - Power systems 4.1 - Power transmission 4.7 - ------------------------------------- -------- -------- 2.1 - ------------------------------------- -------- -------- 5. Discontinued operation On 9 September 2005 the group announced the discontinuance of manufacturing operations at Prestwick Circuits Limited, a printed circuit board manufacturer. The result for the year for Prestwick Circuits Limited was: 2005 2004 £million £million ------------------------------------ --------- -------- Loss before finance costs (7.7) (1.7) Finance costs (0.9) (0.8) ------------------------------------ --------- -------- Loss before taxation (8.6) (2.5) Income tax credit 3.3 0.8 ------------------------------------ --------- -------- Loss for the year (5.3) (1.7) ------------------------------------ --------- -------- 6. Dividends The following dividends have been paid in the year: 2005 2005 2004 2004 pence per £million pence per £million share share ----------------------- --------- -------- -------- -------- Final dividend for prior year 6.36 9.9 6.36 9.9 Interim dividend for current year 3.69 5.7 3.69 5.7 ----------------------- --------- -------- -------- -------- 10.05 15.6 10.05 15.6 ----------------------- --------- -------- -------- -------- The Directors propose that a final dividend of 6.36p will be paid to shareholders on 26 May 2006. This dividend is subject to the approval of shareholders at the Annual General Meeting and has not been included as a liability in these accounts. The total estimated cost of the dividend to be paid is £9.9 million. 7. Earnings per share From continuing and discontinued operations: 2005 2004 pence pence per share per share ------------------------------------- -------- -------- Basic 8.4 11.9 Diluted 8.3 11.8 ------------------------------------- -------- -------- Earnings per share has been calculated by dividing the profit attributable to shareholders by the weighted average number of shares in issue during the year. The numbers used in calculating basic and diluted earnings per share are reconciled below: 2005 2004 £million £million ------------------------------------- -------- -------- Profit for the year attributable to shareholders: Earnings basic and diluted 13.0 18.4 ------------------------------------- -------- -------- Weighted average number of shares in issue 2005 2004 million million ------------------------------------- -------- -------- Basic 154.8 154.8 Adjustment for share options 1.4 1.5 ------------------------------------- -------- -------- Diluted 156.2 156.3 ------------------------------------- -------- -------- 2005 2004 pence pence per share per share ------------------------------------- -------- -------- From continuing operations: Basic 11.8 13.0 Diluted 11.7 12.9 ------------------------------------- -------- -------- 2005 2004 £million £million ------------------------------------- -------- -------- Profit for the year attributable to shareholders 13.0 18.4 Add loss for the year from discontinued operation 5.3 1.7 ------------------------------------- -------- -------- Earnings from continuing operations 18.3 20.1 ------------------------------------- -------- -------- The denominators are the same as shown above for both basic and diluted earnings per share. 8. Shareholders equity £million ------------------------------------- -------------- At 1 January 2004 174.4 Profit for the year 18.4 Exchange differences on net foreign currency investments (2.7) Income tax on foreign currency exchange differences (0.2) Actuarial net loss on defined benefit pension schemes (10.2) Deferred tax on actuarial loss 2.5 Dividends paid (15.6) Share based payments 0.1 ------------------------------------- -------------- At 31 December 2004 166.7 Profit for the year 13.0 Exchange differences on net foreign currency investments 5.7 Income tax on foreign currency exchange differences 0.7 Actuarial net loss on defined benefit pension schemes (26.0) Deferred tax on actuarial loss 7.8 Dividends paid (15.6) Share based payments 0.3 Distribution to minority interest (0.9) ------------------------------------- -------------- At 31 December 2005 151.7 ------------------------------------- -------------- 9. Reconciliation of net cash flow to movement in net debt Loans and Net cash/ finance lease (overdraft) obligations Net debt £million £million £million -------------------------- --------- ---------- ---------- At 31 December 2004 (9.6) (57.7) (67.3) Cash flow 32.5 (7.2) 25.3 Disposal - 0.7 0.7 Exchange differences (0.6) (5.2) (5.8) -------------------------- --------- ---------- ---------- At 31 December 2005 22.3 (69.4) (47.1) -------------------------- --------- ---------- ---------- 10. Acquisition of subsidiaries On 10 March 2005 the group acquired the entire share capital of Dage Limited and its subsidiaries, an electronic manufacturing services business located in the UK and China. The Dage Limited subsidiaries now trade as TT electronic integrated systems. The purchase consideration was £10.3 million for net assets at fair value of £5.4 million. The net assets included cash of £0.8 million and, after costs of £0.2 million, there was a cash outflow of £9.7 million. Deferred consideration of £0.4 million was paid in respect of the acquisition in 2003 of the business of Demo de Commande SA. 11. Disposal of subsidiary On 1 August 2005, the group announced the disposal of Houchin Aerospace Limited, a supplier of standby power generation equipment. The sales proceeds were £8.0 million for net assets of £3.9 million. On disposal the company retained £0.2 million of cash balances. 12. Defined benefit pension plans The group operates defined benefit pension plans mainly in the UK. The most recent actuarial valuations have been updated by the actuaries to assess the assets and liabilities of the plans at 31 December 2005. The principal assumptions used for the purpose of the actuarial valuations were as follows: 2005 2004 % % ----------------------------- ------------- ----------- Discount rate 4.9 5.6 Inflation rate 2.6 2.6 Increases to pensions in payment 2.5-2.6 2.5-3.0 Salary increases 3.2 3.2 ----------------------------- ------------- ----------- The expected long-term rates of return on the main asset classes, net of expenses, set by management having regard to actuarial advice and relevant indices at 31 December 2005 were: 2005 2004 % % ----------------------------- ------------- ----------- Equities 6.9 7.0 Bonds 4.3 5.0 Gilts and cash 3.6 4.0 ----------------------------- ------------- ----------- On the above basis the amounts recognised on the group balance sheet are: 2005 2004 £million £million ----------------------------- ------------- ---------- Equities 170.5 154.6 Bonds 2.9 4.0 Gilts and cash 72.3 44.9 ----------------------------- ------------- ---------- Fair value of assets 245.7 203.5 Present value of funded obligation (335.9) (274.4) ----------------------------- ------------- ---------- Net liability recognised on the balance sheet (90.2) (70.9) ----------------------------- ------------- ---------- Changes in the present value of the defined benefit obligation are: 2005 2004 £million £million ----------------------------- ------------- ---------- Opening defined benefit obligation 274.4 242.9 Current service cost 4.8 5.2 Interest on obligation 15.3 14.1 Plan participant contributions 2.0 2.3 Change in actuarial estimates and assumptions 47.6 19.1 Exchange differences 0.3 (0.5) Benefits paid (8.5) (8.7) ----------------------------- ------------- ---------- Closing defined benefit obligation 335.9 274.4 ----------------------------- ------------- ---------- Changes in the fair value of plan assets are: 2005 2004 £million £million ----------------------------- ------------- ---------- Opening fair value of plan assets 203.5 180.8 Expected return on plan assets 12.8 11.8 Excess of actual over expected returns 21.6 8.9 Contributions by employer 14.1 8.7 Contributions by employees 2.0 2.3 Exchange differences 0.2 (0.3) Benefits paid (8.5) (8.7) ----------------------------- ------------- ---------- Closing fair value of plan assets 245.7 203.5 ----------------------------- ------------- ---------- The experience adjustments arising on the plan assets and liabilities are reported in the Statement of recognised income and expense and are as follows: 2005 2004 £million £million ----------------------------- ------------- ---------- Experience adjustments on plan liabilities (47.6) (19.1) ----------------------------- ------------- ---------- Experience adjustments on plan assets 21.6 8.9 ----------------------------- ------------- ---------- This information is provided by RNS The company news service from the London Stock Exchange

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