ANNUAL RESULTS

RNS Number : 3831Z

TT electronics PLC

15 March 2012

 



15 March 2012

TT electronics plc
("TT" or "the Group")

A global provider of performance critical technology solutions to leading manufacturers

Annual Results for the financial year ending 31 December 2011

HIGHLIGHTS

Continuing operations £million	2011	2010	Change
Revenue	591.3	555.5	+6.4%
Operating profit*	34.2	24.9	+37.3%
Operating profit margin*	5.8%	4.5%	+130bps
Profit before taxation and exceptional items	29.5	20.6	+43.2%
Profit before taxation	31.8	25.1	+26.7%
Earnings per share*	13.3 pence	9.0 pence	+47.8%
Dividend per share	4.4 pence	2.8 pence	+57.1%
Net cash / (debt)	15.2	(9.9)	+£25.1m

                * before exceptional items

·      Significant improvement in operating performance reflecting continuing realignment to higher growth markets.

·      Further progress in operating profit margins.

·      Strong operating cash generation and proceeds from disposals, resulting in closing net cash of
£15.2 million (2010: net debt of £9.9 million).

·      Significant improvements in the Group's competitive position, with growth in key customer accounts and sharper focus on product management and innovation.

·      Major programmes being implemented to reduce the cost base and align the Group's global manufacturing footprint with key growth markets.

Geraint Anderson, Group Chief Executive, said today:

"We made further progress in 2011, improving operating margins and ending the year with net cash of
£15.2 million.  We increased our focus on our electronics businesses with the successful sale of the last business in the General Industrial division. 

The Group is well positioned to create value for all stakeholders by delivering innovative technology solutions focused on markets with strong underlying growth drivers where the deployment of electronics is being driven by increasing demands in terms of performance and reliability."

For further information, please contact:

TT electronics plc Geraint Anderson, Group Chief Executive Shatish Dasani, Group Finance Director	Tel:  [phone]
Hudson Sandler Andrew Hayes/Andrew Leach/Wendy Baker	Tel:  [phone]

There will be an analysts' meeting at 8.30am today.  For further information please contact Hudson Sandler.

Chairman's statement

I am pleased to report that TT electronics has delivered another set of improved results. Revenue from continuing operations increased to £591.3 million (2010: £555.5 million), an increase of 7.2 per cent at constant exchange rates, with an increase in operating profit before exceptional items of 37.3 per cent to £34.2 million (2010: £24.9 million). The Group ended the year with net cash of £15.2 million (2010: net debt £9.9 million). Headline EPS was 13.3 pence (2010: 9.0 pence).

During the year we made significant progress on improving the Group's competitive position. We strengthened relationships with our customers and sharpened our approach to product management and innovation, ensuring our resources are focused on delivering solutions for markets where we can create the most value. We delivered improved operating margins whilst continuing to invest for the future, including major programmes to align our manufacturing footprint with our global customers and to reduce our cost base.

The programme to realise value from the General Industrial division has been successfully concluded with the sale of the last remaining business completed in July.

The actions we have taken and the ongoing investments we are making provide a solid foundation for the future. Focusing on our electronics businesses, we have a clear vision of the value that we bring to our customers through the delivery of innovative solutions based on our core technologies and engineering expertise. We are successfully building our position in markets with strong underlying growth drivers and in which the use of complex electronics is increasing to meet demands for improvements in performance.

We continue to strive for best practice in corporate governance as set out later in this report. In particular, we completed a thorough review of the Group's risk management and internal audit processes. This identified a number of areas for improvement including the reorganisation of the risk and internal audit function and the appointment of a new Group Head of Risk and Assurance. Stephen King joined the Group as an independent non-executive Director with effect from 24 October 2011 bringing significant finance experience, combined with extensive knowledge of global manufacturing businesses. Stephen is a member of the Audit and Nominations Committees and will succeed David Crowther as Chairman of the Company's Audit Committee at the conclusion of the 2012 Annual General Meeting.

David Crowther will be retiring from the Board following the conclusion of the Annual General Meeting in May 2012 after seven years as a non-executive Director. On behalf of my fellow Directors I would like to thank David for his valuable contribution to the Group, including his leadership as Chairman of the Audit Committee, during a period of significant change.

In recognition of the strong performance in 2011 and the Board's continued confidence in the Group's future prospects, the Board is pleased to recommend a final dividend of 3.2 pence which, when combined with the interim dividend of 1.2 pence, gives a total of 4.4 pence per share for the full year (2010: 2.8 pence per share), representing an increase of 57 per cent.

Our ability to provide critical solutions for major customers in markets with strong fundamental growth dynamics, coupled with the investments we are making to improve our competitive position, provide confidence that the Group will make further progress in 2012.

 

Sean Watson

Chairman

14 March 2012

Operating review

The Group is now more focused following completion of the sale of the General Industrial businesses.  As an electronics group we have a clear vision to deliver performance critical solutions to world leading manufacturers by turning ideas and technology into innovative products that our customers need.  We are focused on higher growth markets where the use of complex electronics is increasing and underlying demand is being fuelled by the following long-term growth drivers:

Performance:                   As technology evolves, manufacturers are designing increasingly sophisticated products that rely on complex electronics to deliver greater performance in terms of functionality, efficiency and power

Regulation:                       Environmental standards are driving significant investments in new forms of energy generation and its efficient distribution and consumption.  In addition, safety and emissions legislation is resulting in investment in the transportation and aerospace markets to improve performance

Growth and prosperity:     Rising living standards, increasing disposable income, particularly in certain emerging economies, and globalisation is driving demand in the energy, medical, transportation and aerospace markets

We will build upon our existing global footprint to ensure we continue to win new business in all major regions of the world (particularly those with growing economies) and we have a clear set of values that provide a framework within which we expect all of our employees to operate.  We put the customer at the heart of everything we do supported by teamwork, innovation and a passion for excellence, all underpinned by a commitment to invest in our employees and act with integrity at all times.

To supplement organic development we will look to acquire technologies and businesses that have a good fit with our strategy.  These businesses will be technology leaders serving our target markets, will ideally accelerate our geographic growth, particularly in Asia and Latin America, and will share our culture and values.

TT delivered a strong improvement in performance in 2011 with a 37.3 per cent increase in operating profit before exceptional items and ended the year in a net cash position.

Group overview

In 2011 the Group performed strongly. Having deployed our resources to ensure that we put the customer at the heart of our business, it has been encouraging to see this delivering tangible results. We strengthened our relationships with key customers and secured new business in target markets. We have regular reviews with our major customers and, whilst significant opportunity exists for further improvement, we have seen positive progress. We added four customers to our key account programme during the year and aggregate revenue from our key accounts as a group increased by more than 11 per cent. Three of the customers added to the programme are based in Asia and we relocated key members of our management team to China during the year, reflecting the growth potential of this region for the Group.

We have made good progress developing our position in markets which we believe present the greatest opportunity. Revenue from the medical market increased by 35 per cent at constant currency rates due to particularly strong growth in this segment by the IMS division and we also secured a number of new customers in the Components division. The passenger car market remained the largest segment for the Group representing 35 per cent of revenue due to strong demand from Daimler, BMW and VW and from customers in emerging markets. We remain committed to reducing this to below 30 per cent of Group revenue in the medium term by growing our business in other areas more rapidly. Revenue from other transportation markets, including trucks, buses and off-road vehicles grew by more than 37 per cent to approximately £47 million and revenue from industrial markets increased by 9 per cent. Sales to the aerospace segment increased by 43 per cent whilst sales to defence markets decreased by 16 per cent. Revenue from power generation decreased by 6 per cent reflecting lower sales in the Secure Power division. Sales to the telecom and computing markets reduced by 27 per cent reflecting our strategic focus.

We continued to invest in our people, strengthening the divisional management teams and increasing training and development. This included rolling out the first phase of a global management development programme.

We continue to improve our international operational footprint to increase profitability and better support our global business. We are developing regional lower cost manufacturing centres of excellence and our new facility in Romania is expected to begin production in the second quarter of 2012. We are doubling the size of our existing Components division facility in Mexicali, Mexico, to accommodate production lines that are being relocated from other sites, including our facility in Boone, North Carolina, which will be closed by the end of 2012. In addition, the Sensors division is making significant investments to further develop existing operations in India and China, and a new manufacturing operation is being established in Mexico to serve the North and South American markets, with manufacturing due to commence at the end of 2012.

We completed a review of our risk management and internal audit processes which resulted in the re-organisation of the risk and internal audit function and the appointment of a Group Head of Risk and Assurance to ensure that our risk management process is robust, consistently applied across the Group and aligned to the strategy.

In July, we completed the disposal of AEI Compounds Limited, the last remaining business within the General Industrial division, comprising those businesses identified in the Strategic Review in 2009 as non-core and to be run for value. In total, over the years, the Group received more than £30 million net proceeds, considerably exceeding the Board's initial expectations.

Market environment

The broad market recovery seen during 2010 continued into 2011 and we experienced increased demand in the majority of our markets in the first half of the year. There was a sharp increase in orders in certain markets immediately following the Japanese earthquake. This particularly affected our Components and IMS divisions which saw a re-balancing in the latter part of the year as customers reduced inventory and reacted to increasing macroeconomic uncertainty, particularly in Europe. Demand from customers in the passenger car and transportation markets remained robust throughout the year.

Revenue

Revenue from continuing operations increased by 6.4 per cent to £591.3 million (2010: £555.5 million) after including an adverse foreign exchange impact of approximately £4.1 million. Excluding this foreign exchange impact, the underlying growth in revenue was 7.2 per cent, against our target of mid to high single digit growth. Our electronics businesses, comprising the Components, Sensors and IMS divisions represented 86.2 per cent of sales and grew by 4.9 per cent, 14.9 per cent and 9.7 per cent respectively on an underlying basis. Revenue in the Secure Power division fell by 2.3 per cent on an underlying basis as a result of challenging trading conditions in the Mexican and South American markets in the first half of the year.

Operating profit

The strong overall revenue performance, new business at improved margins and the impact of our operational excellence programme resulted in an operating profit from continuing operations (before exceptional items) of £34.2 million, an increase of 37.3 per cent compared to 2010. All divisions delivered higher operating profit margins, with the exception of Secure Power where margins declined slightly. The overall Group operating profit margin increased from 4.5 per cent to 5.8 per cent and significant potential remains to increase margins and achieve the target for the Group of 8 to 10 per cent. The adverse impact of foreign exchange variations on the translation of operating profit was £0.7 million.

Group outlook

We are focused on providing critical technology to markets with strong fundamental growth dynamics where the deployment of complex electronics is increasing. This will drive demand for our solutions even if the macroeconomic environment remains unpredictable. We are investing to improve further the Group's competitive position for the medium and longer term with a number of important projects expected to begin to have a positive impact on overall Group performance towards the end of the year. As a result of this and a sharp increase in orders in certain markets immediately following the Japanese earthquake in the first half of last year, we anticipate that performance in the current year will be more weighted to the second half. The good progress we are making provides confidence that we will meet the performance targets set.

Components

	2011	2010
Revenue	£242.7m	£234.6m
Operating profit*	£14.8m	£10.7m
Operating profit margin*	6.1%	4.6%
Capital employed	£119.7m	£128.3m
Year end headcount	3,219	3,183

*Before exceptional items

The Components division is focused on creating value by delivering innovative electronic solutions with increased functionality, efficiency and control, coupled with best in class service and support worldwide. With facilities in North America, Europe and Asia, a sales presence in all major markets and application engineers strategically located around the world, the division is well positioned to serve customers in all regions.

Strategy

The division targets markets with underlying growth drivers where it can create value based upon its technology and engineering expertise. It works closely with its customers, anticipating their needs, turning ideas and technology into differentiated solutions. It is focused on increasing the pace of new product introduction through improvements in product management and delivering wide ranging operational improvements that make it easier for customers to do business with the division and contribute to increased profitability.

Progress

The division successfully completed the transition to a business unit structure in 2011, creating alignment around key products and technologies, supported by global functions to drive best practices. This new structure is a key enabler for the efficient development of new products and for optimising our manufacturing footprint and supply chains.

The development of the product portfolio is a critical focus. Recognising this, we appointed a Vice President of Marketing (a newly created position) in the third quarter of 2011, responsible for ensuring that our product development plans accurately align with our customers' technology roadmaps. In addition, working in conjunction with the business unit and functional leaders, a new product introduction programme has been implemented that focuses on gathering inputs from our customers to identify their current and future needs. This process will be supplemented in the first half of 2012 by the introduction of a project portfolio management tool which will provide a framework for effectively managing and prioritising the portfolio of development projects and the related spend. All of these actions are designed to increase the value that we capture, the pace of new product introduction and the return on engineering investment, underpinning improvements in revenue and profit in 2012 and beyond.

We are seeing continued benefits from the global sales structure, the investments made in the sales team in 2011 and the focus on growth markets. Our opportunity pipeline doubled from December 2010 to December 2011, with a major proportion of the growth generated through key account activities, improved engagement with channel partners and targeted marketing campaigns linked to specific products and applications. Several contracts were won with new customers in China during the year and we doubled the number of local sales and application engineering resources. In 2012 we are implementing a new campaign process to focus our sales resources on high growth segments where we can offer multiple products and create the greatest value for our customers.

The operations team delivered improvements in efficiency, quality and on-time delivery through the implementation of lean manufacturing principles, six sigma and investments in infrastructure, including in the area of enterprise resource planning. As previously announced, we are opening a new lower cost facility in Romania to accommodate increasing customer demand. The fit out programme is well underway and manufacturing is expected to start in the second quarter of 2012. In August we announced the closure of our facility in Boone, North Carolina as part of the Group's strategy to align its footprint with key customers and increase profitability. We are doubling the size of our facility in Mexicali to accommodate production lines that are being relocated. The full year benefit of this project will be realised from 2013 and is on target to be in the region of £2.5 million per year.

The division's principal competitors include Bourns, Fairchild, Koa, Semikron and Vishay.

Markets

The broad market recovery in 2010 continued in the first half of 2011. The earthquake in Japan led to sharp increases in order patterns as our customers sought to secure component supplies. Demand softened in the latter part of 2011, reflecting a rebalancing of inventory levels and uncertainty caused by the economic crisis in Europe.

Performance

Underlying revenue for the year increased by 4.9 per cent to £246.1 million excluding an adverse foreign exchange impact of 1.4 per cent. Operating profits significantly increased by 38.3 per cent to £14.8 million with the operating profit margin increasing to 6.1 per cent (2010: 4.6 per cent).

Outlook

The continuing macroeconomic issues are creating some uncertainty and we expect our distributors to continue to reduce inventory levels in the first half of the year. However, this is offset by the strong fundamental growth drivers in our markets underpinning an increased demand for electronic components in the medium term. The investments we are making in operational improvements, and the increased pace of new product introductions, will underpin further improvements in performance and will begin to have a positive impact in the second half of the year.

Sensors

	2011	2010
Revenue	£166.9m	£143.5m
Operating profit*	£8.8m	£3.9m
Operating profit margin*	5.3%	2.7%
Capital employed	£47.6m	£52.5m
Year end headcount	1,108	1,069

*Before exceptional items

The division provides sensing solutions for critical applications which require high levels of expertise, precision and reliability, often operating in extremely harsh environments. We are focused primarily on the transportation and industrial markets where our ability to meet these requirements helps our customers to compete and win. The division's principal operations are in Germany, China and India supported by additional engineering and development teams in Eastern Europe and the UK. A new manufacturing operation has been established in Mexico to serve North and South America.

Strategy

We provide sensors that form the heart of critical systems which improve safety, performance and emissions, helping our customers to be more competitive and address increasing levels of regulation and legislation. The division's ability to deliver high performance micro electronic and mechanical solutions that work reliably first time, every time, in extremely harsh environments is a key differentiator. We are focused on sectors which are growing, that value our expertise and where the deployment of sensing technology is increasing to address new challenges. Target markets include transportation, industrial and medical. We are building long-term strategic partnerships with leading companies in each of these markets whilst investing in the further development of our geographic footprint to support them in all major regions. The division is embedding a culture of continuous improvement and using total business excellence to ensure common core processes and standards across all of its operations.

Progress

We made good progress in 2011 securing sensor projects on new vehicle platforms and increasing our market share. In addition we benefited from greater sensor content per vehicle. We achieved strategic wins with BMW, Daimler and VW. These included our nomination as a key sensor partner for VW's latest global engine platform that will be manufactured in Germany, China and Mexico and major new programmes with BMW for our innovative combi-sensor (providing precision pressure and temperature measurement in one smaller package).

We are responding quickly to global opportunities, actively transferring sensor expertise developed over many years in Germany and the UK to our teams in China, India and Mexico. These teams re-package our core technology, developing customised solutions for the local market. Growing our business in the Americas and Asia remains a key strategy and we secured wins with several of the leading Chinese manufacturers during the year, including JAC, Chery and BYD and continued to strengthen our relationship with Hero, Mahindra and Tata in India. It is also notable that a significant proportion of our European revenues are linked to exports by our customers to other regions, principally Asia.

Another key strategy for the division is to modify our core automotive sensing technologies and re-package them for the broader transportation market (including truck, off-highway and rail) and selective industrial and medical applications. The investments we have made are beginning to deliver results, particularly in the transportation market where we increased revenue in 2011 to c£26 million, representing growth of 90 per cent.

The global structure put in place in 2010 was strengthened during the year. The division's Global Operations leader relocated from Germany to China, along with the key account manager for VW, reflecting the region's importance, the need to be close to our customers and our growing global manufacturing presence. In addition we have established a new manufacturing centre in Mexico where we are on track to commence production in 2012. We will continue to strengthen the local and global management teams to enable further growth.

Our manufacturing operations continue to improve productivity, whilst ensuring consistent quality and on-time delivery across all sites, which is critical for our customers. We are implementing common processes, equipment and systems in all of our facilities so that we operate to one global standard. As part of this programme, in 2011 we selected five highly talented individuals to undergo black belt training and become experts in six sigma and lean techniques as we continue our drive for savings and continuous improvement. These individuals, along with the divisional leadership team, are championing the culture change necessary for us to be a best in class sensors business and remain the first choice for our customers.

The division's principal competitors include divisions of Bosch, Continental, CTS and Hella.

Markets

The recovery in the automotive market seen in 2010 continued in 2011 with particularly strong demand for premium passenger cars from emerging markets. Despite more modest growth in Western Europe and the US, our three largest automotive customers all had record years as the premium car market out-performed other sectors. The truck and off-highway segments also showed a good improvement in key regions.

Performance

The division has delivered an excellent performance during 2011. Underlying revenue for the year increased by 14.9 per cent, excluding a foreign exchange benefit of 1.4 per cent, and we grew sales in Europe, Asia and North America. Operating profit more than doubled to £8.8 million with the operating profit margin increasing to 5.3 per cent.

Outlook

Following the growth in 2011, demand in Western Europe for passenger cars is expected to reduce in 2012. The US, China and India are forecast to see good growth. We are very well positioned to capture new business worldwide, both with our major global customers who are growing their market share and with local manufacturers. In addition sensor deployment continues to increase driven by emissions regulations and a desire for greater safety, comfort and performance. Building on our progress in 2011, we are continuing to invest in our people and our global footprint as we secure new programmes that will come into volume production in 2013 and beyond.

IMS

	2011	2010
Revenue	£100.0m	£92.2m
Operating profit*	£5.1m	£4.1m
Operating profit margin*	5.1%	4.4%
Capital employed	£23.5m	£21.8m
Year end headcount	1,133	1,070

*Before exceptional items

All 2010 comparatives restated for inclusion of Abtest Limited

The division draws on its design engineering capabilities, flexibility and world-class facilities to provide high quality electronic manufacturing support to customers in the defence and aerospace, medical and premium industrial sectors. The business has a broad capability from board assembly to full systems integration focused on higher mix, lower volume business.

The division supports its customers from manufacturing operations in China, USA, UK and Malaysia.

Strategy

The division's strategy is to work with customers who are looking for a partner to build their more complex electronic and electromechanical products and who value our ability to provide support, not only throughout the product lifecycle but also across multiple geographic regions. Our global presence, combined with local engineering and customer service is a key differentiator against our regional competitors.

Progress

During the year our continued focus on key markets and accounts, combined with investments in our sales team, resulted in significant new contract wins. In addition to increasing our revenue with many of our major customers, we were particularly pleased to secure a new global customer, Meggitt PLC, bringing significant business for all of our sites.

We successfully managed the supply chain challenges that arose following the Japanese tsunami and the flooding in Thailand. Our procurement teams worked hard with our suppliers, quickly securing the parts required to maintain supply to our customers. Based on our responsiveness and performance, a number of customers have awarded us additional business.

Quality remains a key focus and, in June, our facility in China obtained the NADCAP standard which is widely recognised as the leading quality standard in the aerospace industry. This accreditation is now being replicated at our other sites.

Margins improved as we brought on new business and completed the transition of a number of projects to lower cost manufacturing regions. In addition, we saw a significant improvement in the profitability of our operation in the UK following the re-structuring completed in 2010.

The division's principal competitors include ACW, CTS, EPIC, Neways and Plexus.

Markets

Strong customer demand at the end of 2010 continued into 2011 in all of our markets. The natural disasters in Japan and Thailand resulted in an increase in demand in the second and third quarters as customers placed orders to secure supply for the rest of the year. Reflecting this, demand stabilised in the final quarter with customers looking to manage their year end inventory positions.

Performance

Underlying revenue for the year grew by 9.7 per cent excluding a foreign exchange impact of 1.2 per cent. Progress made with our global customers underpinned this growth and led to an improvement in operating profit before exceptional items which increased to £5.1 million, delivering an operating profit margin of 5.1 per cent.

Outlook

Following a strong year in 2011, we expect to see limited growth in broader market demand in the first half of 2012 due to the ongoing macro economic issues. However, we are focused on specific segments that have good fundamental growth drivers and on further developing our position with key customers.

Secure Power

	2011	2010
Revenue	£81.7m	£85.2m
Operating profit	£5.5m	£6.2m
Operating profit margin	6.7%	7.3%
Capital employed	£22.0m	£15.1m
Year end headcount	730	757

The division provides secure power solutions including generating sets, uninterruptible power supplies and service and support to a wide variety of global industries which require reliable consistent power. Utilising its engineering capability, the division offers bespoke turnkey solutions for major one-off projects and differentiated medium to high power generating sets with a focus on quality, reliability and service.

The division has two principal operations: Ottomotores in Mexico and Dale Power Solutions in the UK. In addition, it has a facility in Brazil and sales and service offices in Scotland and the UAE.

Strategy

The division is focused on providing secure power solutions to industries which face significant economic loss from any disruption in their power supply including the petrochemical, utilities and financial services sectors. The business is expanding in Latin America and the Middle East through investment in the sales organisation and the development of new distributor relationships to take advantage of increasing requirements for standby and continuous power. In addition, the division is continuing to improve its product range with a specific emphasis on solutions targeting the growing number of rental providers and higher power opportunities.

Progress

Ottomotores made solid progress during 2011. A new mid power canopied range of generating sets was introduced with a number of orders secured, including two for customers in Kuwait and Brazil each worth c£1 million. In addition, a major project was delivered in Venezuela for a "mini power plant", reflecting a trend towards utilities and industrial plant developers using banks of mid to high power gensets to deliver large amounts of power in place of supply from the grid. The business strengthened its distributor and dealer network in Venezuela, Guatemala, Ecuador and Chile and made good progress in Brazil where we commenced local product assembly. Dale saw significant success following the launch of the new containerised Secure Power Series product range in late 2010, winning a number of major orders in the UK and Middle East. This is a portable product designed primarily for the growing rental market where the ability to deliver higher power in a limited footprint, combined with reduced noise and emissions, is critical. Additionally, further investment was made in developing export sales channels and there was a significant increase in the number of orders received for the commercial UPS product range first introduced in 2010.

The division's principal competitors include Broadcrown, Caterpillar (including FG Wilson), Chloride and IGSA.

Markets

The Latin American markets, including Mexico, were difficult in the first half of the year with many customers delaying major capital projects. However, we experienced a significant improvement in demand in the second half with a very strong final quarter in terms of both orders and sales. Markets in the UK and Middle East performed well.

Performance

Following a 44.2 per cent increase in full year revenue in 2010, underlying revenue for 2011 reduced by 2.3 per cent to £83.2 million excluding an adverse foreign exchange impact of 1.8 per cent. Operating profits reduced broadly in line with revenue to £5.5 million, delivering an operating profit margin of 6.7 per cent.

Outlook

We anticipate good levels of demand from key export markets in Latin America, the Middle East and North Africa whilst the UK and Europe are expected to continue to be impacted by ongoing uncertainty in the eurozone. The division normally experiences some seasonality in demand with a stronger second half year and we expect this to be the case in the current year. Investments in sales channels, the extension of the product range and the success of the Secure Power Series position the division well for 2012.

Financial review

Measuring our performance

The Group has a clear strategy to improve performance and deliver shareholder value. Key financial performance indicators were identified in the 2009 Annual Report and these are used to monitor progress. Organic revenue growth from continuing operations for 2011 compared to 2010 was 7.2 per cent against the overall target of mid to high single digit growth. The improvement in the Group operating margin to 5.8 per cent represents progress towards the goal of 8 to 10 per cent. The Components, Sensors and IMS divisions all made excellent progress towards their respective operating margin targets, while the operating profit margin in the Secure Power division declined slightly in the year. We remain on course to achieve the overall target margin for the Group of 8 per cent as we exit 2013. Both earnings per share growth and operating cash flow conversion exceeded the targets set whilst the relative total shareholder return was broadly in line with the target level.

Revenue from continuing operations increased by 7.2 per cent to £595.4 million in 2011 at constant exchange rates, and operating profit before exceptional items increased to £34.2 million. Profit before tax and exceptional items was £29.5 million, an increase of 43.2 per cent compared to 2010.

Indicator	Target	2011	2010*
Organic revenue growth	Each year to 2014	7.2%	23.5%
	Mid to high single digits
Operating profit margin	Group - in medium term 8-10%	5.8%	4.5%
	Components - in medium term 10%	6.1%	4.6%
	Sensors - in longer term 10%	5.3%	2.7%
	IMS - in medium term 6-8%	5.1%	4.7%
	Secure Power - in short term 10%	6.7%	7.3%
Operating cash conversion	Each year to 2012	106%	169%
	100%
Earnings per share (EPS) growth	Year on year growth of 3% in excess of RPI	13.3p	9.0p
Relative total shareholder return (TSR)	Above median performance against the FTSE Small Cap (excluding investment trusts)	Third quartile	Upper quartile

* 2010 data is as previously published in the 2010 Annual Report

Exceptional items

The Group reports non-trading income or expenditure as exceptional 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. An exceptional credit of £2.3 million from continuing operations has been recognised during 2011, compared with an exceptional credit of £4.5 million for 2010. The make up is shown below:

£million	2011	2010
Reduction in UK pension liabilities	7.5	-
Restructuring costs	(5.2)	-
Pension curtailment gain from scheme closure	-	4.3
Profit on sale of property interest	-	1.0
Onerous property leases	-	(0.8)
Total	2.3	4.5

Following the UK Government's announcement in 2010 to change the basis of indexation of occupational pension schemes from the Retail Price Index (RPI) to the Consumer Price Index (CPI), the Group has recognised a one-off reduction in the future liabilities of the UK pension scheme of £7.5 million. Restructuring costs principally include the costs associated with the closure of the Components facility in Boone, North Carolina.

Net finance costs

Net finance costs for 2011 were £4.7 million compared to £4.3 million in 2010. Included within this amount is £1.0 million in respect of the net interest expense arising on pension scheme liabilities (2010: £0.5 million) primarily due to a reduction in the discount rate, £0.6 million (2010: £0.6 million) in respect of the amortisation of loan arrangement fees associated with the re-financing undertaken in May 2010 and £0.7 million (2010: £0.4 million) in respect of the interest expense on a minority put/call option relating to a third party minority interest in one of the Group's subsidiaries.

Taxation

The tax charge for the year was £7.3 million (2010: £6.7 million), which represents an effective tax rate of 30.2 per cent on continuing operations excluding exceptional items (2010: 32.4 per cent). The charge arises from the profits generated in overseas countries, in particular in USA, Mexico, China and India. There is a minimal level of tax payable in the UK and Germany due to the availability of tax losses.

Earnings per share and dividends

Headline earnings per share from continuing operations were 13.3 pence which represents an increase of 47.8 per cent over the 2010 figure. Basic earnings per share from continuing operations were 15.8 pence (2010: 11.9 pence).

The Directors recommend a final dividend of 3.2 pence which together with the interim dividend of 1.2 pence gives a total dividend for the year of 4.4 pence per share (2010: 2.8 pence), an increase of 57 per cent. This is in line with the Group's policy of increasing dividends progressively whilst maintaining cover of at least two times underlying earnings per share. The final dividend will be paid on 8 June 2012 to shareholders on the register at 25 May 2012.

Discontinued operations

In July 2011, the Group disposed of AEI Compounds Limited, the last business remaining within the former General Industrial division, for £8.6 million in cash before costs. This business has been classified as a discontinued operation in the Consolidated income statement. Discontinued operations for 2010 comprised AEI Compounds Limited and the other General Industrial businesses which were sold during that year.

Pensions

The Group operates one significant defined benefit scheme in the UK and two overseas defined benefit schemes in the USA and Japan. All of these schemes are closed to new members and the UK and USA schemes were closed to future accrual during 2010.

The assets and liabilities of the Group's defined benefit schemes are summarised below:

£million	2011	2010
Fair value of assets	373.4	333.9
Liabilities	(405.5)	(372.5)
Deficit - UK scheme	(32.1)	(38.6)
Overseas schemes	(3.4)	(2.6)
Total Group deficit	(35.5)	(41.2)

As noted above, during 2011 there was a one-off reduction in the future liabilities of the UK scheme of £7.5 million arising from the UK Government's change to using CPI rather than RPI.

The triennial valuation of the UK scheme as at April 2010 showed a deficit of £39.8 million. A funding agreement is in place with the Trustee fixing deficit contributions at £3.5 million in 2011 and increasing by £0.2 million each year to £4.5 million in 2016. In addition, the Company has agreed to set aside £1.0 million per year for the next three years to be utilised in agreement with the Trustee for reducing the long-term liabilities of the scheme.

Cash flow, borrowings and facilities

Excellent progress has been made in reducing net debt levels. The Group moved into a net cash position of £15.2 million at the end of 2011, compared with a net debt balance of £9.9 million at the end of 2010, and £113.2 million at the end of 2008.

£million (unless otherwise stated)	2011	2010
Underlying operating cash flow	63.0	60.2
Working capital improvement	5.4	5.0
Capital expenditure (including software)	(21.6)	(12.2)
Exceptional restructuring costs	(2.2)	(5.0)
Proceeds from disposal of businesses	8.3	21.7
Net cash/(debt)	15.2	(9.9)
Stock turns (times)	5.7	5.7
Debtor days	42	44
Creditor days	53	55

Underlying operating cash flow for the year was £63.0 million compared with £60.2 million in 2010. This increase was as a result of the improvement in profitability and the continued focus on managing working capital, which reduced by a further £5.4 million in 2011, following reductions made in the prior two years. The divisions successfully managed the impact of the increase in inventory levels following the Japanese earthquake and the Thailand floods, and the adverse working capital cash flow impact at the half year was reversed by year end. As a percentage of sales, trade working capital was a healthy 16 per cent compared with 17 per cent at December 2010 demonstrating our commitment to managing working capital levels. Conversion of operating profit to operating cash flow after capital expenditure was 106 per cent, exceeding the target of 100 per cent conversion.

There was an increase in cash generated from operations of 10.2 per cent to £57.3 million after exceptional restructuring cash costs of £2.2 million and a £3.5 million special payment to the UK pension fund.

Capital expenditure (including software) increased to £21.6 million compared with depreciation of £16.9 million as divisions increased investment levels. Proceeds from the sale of AEI Compounds Limited and the receipt of deferred consideration from previous disposals amounted to £8.3 million. Net cash flow for the year was £25.8 million (2010: £46.6 million).

The Group has in place a committed facility of £60 million to May 2013 with a club of four banks comprising HSBC, The Royal Bank of Scotland, Santander and Fifth Third Bank of the USA. This facility is made up of a term loan amount of £40 million and a revolving credit facility of £20 million. At 31 December 2011, the term loan was fully drawn down and the revolving credit facility was undrawn. During the year a £10 million loan from one of the club banks was repaid. The club facility, together with other bilateral term loans and working capital lines, give the Group facilities of over £100 million, which are adequate for the foreseeable future.

The main financial covenants in the £60 million club facility restrict net debt to be below two times EBITDA before exceptional items. In addition, EBITDA before exceptional items is required to cover net finance charges by 6.25 times, increasing to 6.5 times in the final year of the facility. The covenants are tested quarterly on a rolling 12-month basis and were satisfied comfortably at 31 December 2011:

	Covenant	December 20111
Net debt/EBITDA before exceptional items	<2.0	(0.3)
EBITDA before exceptional items/net finance charges	>6.25	16.0

¹ based on EBITDA and net finance charges for year ended 31 December 2011

The Directors have assessed the future funding requirements of the Group and compared them with the level of available borrowing facilities and are satisfied that the Group has adequate resources for the foreseeable future.

Geraint Anderson                              Shatish D Dasani

Group Chief Executive                         Group Finance Director
14 March 2012                                     14 March 2012

Responsibility statement

Each of the persons who is a director at the date of approval of this report confirms that to the best of his or her knowledge:

·  the Group financial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer and the undertakings included in the consolidation taken as a whole; and

·  the Directors' 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.

On behalf of the Board:

Geraint Anderson                              Shatish D Dasani

Group Chief Executive                         Group Finance Director

14 March 2012                                     14 March 2012

Cautionary statement

This report contains forward-looking statements.  These have been made by the directors in good faith based on the information available to them up to the time of their approval of this report.  The directors can give no assurance that these expectations will prove to have been correct.  Due to the inherent uncertainties, including both economic and business risk factors underlying such forward looking information, actual results may differ materially from those expressed or implied by these forward-looking statements.  The directors undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Consolidated income statement

for the year ended 31 December 2011

£million (unless otherwise stated)	Note	2011	2010*
Continuing operations
Revenue	3	591.3	555.5
Cost of sales		(473.0)	(456.4)
Gross profit		118.3	99.1
Distribution costs		(40.7)	(34.5)
Administrative expenses		(42.8)	(37.6)
Other operating income		1.7	2.4
Operating profit		36.5	29.4
Analysed as:
Operating profit before exceptional items	3a	34.2	24.9
Exceptional items	6	2.3	4.5
Finance income	5	21.1	19.5
Finance costs	5	(25.8)	(23.8)
Profit before taxation		31.8	25.1
Taxation	7	(7.3)	(6.7)
Profit from continuing operations		24.5	18.4
Discontinued operations
Profit from discontinued operations	4	0.5	7.5
Profit for the year attributable to owners of the Company		25.0	25.9
EPS attributable to owners of the Company - basic
From continuing operations (p)	9	15.8	11.9
From discontinued operations (p)	9	0.3	4.8
		16.1	16.7
EPS attributable to owners of the Company - diluted
From continuing operations (p)	9	15.5	11.9
From discontinued operations (p)	9	0.3	4.8
		15.8	16.7

* Re-presented for discontinued operations in accordance with IFRS.

Consolidated statement of comprehensive income

for the year ended 31 December 2011

£million		2011	2010
Profit for the year		25.0	25.9
Other comprehensive income/(loss) for the year after tax
Exchange differences on retranslation of foreign operations		0.9	2.1
Tax on exchange differences		0.1	0.1
Loss on hedge of net investment in foreign operations		(0.6)	(0.9)
Gain/(loss) on cash flow hedges taken to equity less amounts taken to income statement		0.2	(0.2)
Foreign exchange loss on disposals taken to income statement		-	(1.7)
Fair value of minority put option		-	(3.9)
Actuarial loss on defined benefit pension schemes		(6.2)	(5.9)
Tax on actuarial amounts in pension deficit movement		(2.3)	8.1
Total comprehensive income for the year		17.1	23.6

Total comprehensive income is entirely attributable to the owners of the Company.

Consolidated balance sheet

at 31 December 2011

£million	Note	2011	2010
ASSETS
Non-current assets
Property, plant and equipment		90.9	93.5
Goodwill		67.3	66.9
Other intangible assets		11.8	14.7
Deferred tax assets		21.0	20.1
Total non-current assets		191.0	195.2
Current assets
Inventories		83.4	81.4
Trade and other receivables		85.6	92.7
Derivative financial instruments		0.5	0.4
Cash and cash equivalents		69.5	44.8
Total current assets		239.0	219.3
Total assets		430.0	414.5
LIABILITIES
Current liabilities
Borrowings		14.2	5.4
Derivative financial instruments		6.9	0.4
Trade and other payables		113.0	112.9
Income taxes payable		6.1	4.5
Provisions		6.4	3.0
Total current liabilities		146.6	126.2
Non-current liabilities
Borrowings		40.1	49.3
Derivative financial instruments		-	4.3
Deferred tax liability		9.3	8.9
Pensions and other post-employment benefits	11	35.5	41.2
Provisions		0.2	0.1
Other non-current liabilities		6.9	5.4
Total non-current liabilities		92.0	109.2
Total liabilities		238.6	235.4
Net assets		191.4	179.1
EQUITY
Share capital		38.8	38.8
Share premium		0.5	0.4
Share options reserve		3.6	1.6
Hedging and translation reserve		27.2	26.6
Retained earnings		119.3	109.7
Equity attributable to owners of the Company		189.4	177.1
Non-controlling interests		2.0	2.0
Total equity		191.4	179.1

Consolidated statement of changes in equity

for the year ended 31 December 2011

£million	Share capital	Share premium	Share options reserve	Hedging reserve	Translation reserve	Retained earnings	Sub- total	Non-controlling interest	Total
At 1 January 2010	38.7	0.2	1.0	(11.5)	38.7	86.3	153.4	2.4	155.8
Profit for the year	-	-	-	-	-	25.9	25.9	-	25.9
Other comprehensive income
Exchange differences on translation of foreign operations	-	-	-	-	2.1	-	2.1	-	2.1
Tax on exchange differences	-	-	-	-	0.1	-	0.1	-	0.1
Net loss on hedge of net investment in foreign operations	-	-	-	-	(0.9)	-	(0.9)	-	(0.9)
Net loss on cash flow hedges taken to equity less amounts taken to income statement	-	-	-	(0.2)	-	-	(0.2)	-	(0.2)
Foreign exchange loss on disposals taken to income statement	-	-	-	-	(1.7)	-	(1.7)	-	(1.7)
Fair value of minority put option	-	-	-	-	-	(3.5)	(3.5)	(0.4)	(3.9)
Actuarial loss on defined benefit pension scheme	-	-	-	-	-	(5.9)	(5.9)	-	(5.9)
Tax on actuarial amounts in pension deficit movement	-	-	-	-	-	8.1	8.1	-	8.1
Total other comprehensive income	-	-	-	(0.2)	(0.4)	(1.3)	(1.9)	(0.4)	(2.3)
Transactions with owners recorded directly in equity
Equity dividends paid by the Company	-	-	-	-	-	(1.2)	(1.2)	-	(1.2)
Share-based payments	-	-	0.3	-	-	-	0.3	-	0.3
Deferred tax on share-based payments	-	-	0.7	-	-	-	0.7	-	0.7
New shares issued	0.1	0.2	-	-	-	-	0.3	-	0.3
Own shares acquired	-	-	(0.4)	-	-	-	(0.4)	-	(0.4)
At 31 December 2010	38.8	0.4	1.6	(11.7)	38.3	109.7	177.1	2.0	179.1

Consolidated statement of changes in equity (continued)

£million	Share capital	Share premium	Share options reserve	Hedging reserve	Translation reserve	Retained earnings	Sub- total	Non-controlling interest	Total
At 1 January 2011	38.8	0.4	1.6	(11.7)	38.3	109.7	177.1	2.0	179.1
Profit for the year	-	-	-	-	-	25.0	25.0	-	25.0
Other comprehensive income
Exchange differences on translation of foreign operations	-	-	-	-	0.9	-	0.9	-	0.9
Tax on exchange differences	-	-	-	-	0.1	-	0.1	-	0.1
Net loss on hedge of net investment in foreign operations	-	-	-	-	(0.6)	-	(0.6)	-	(0.6)
Net gain on cash flow hedges taken to equity less amounts taken to income statement	-	-	-	0.2	-	-	0.2	-	0.2
Actuarial loss on defined benefit pension scheme	-	-	-	-	-	(6.2)	(6.2)	-	(6.2)
Tax on actuarial amounts in pension deficit movement	-	-	-	-	-	(2.3)	(2.3)	-	(2.3)
Total other comprehensive income	-	-	-	0.2	0.4	(8.5)	(7.9)	-	(7.9)
Transactions with owners recorded directly in equity
Equity dividends paid by the Company	-	-	-	-	-	(5.0)	(5.0)	-	(5.0)
Change in fair value of minority put option	-	-	-	-	-	(1.9)	(1.9)	-	(1.9)
Share-based payments	-	-	1.7	-	-	-	1.7	-	1.7
Deferred tax on share-based payments	-	-	0.3	-	-	-	0.3	-	0.3
New shares issued	-	0.1	-	-	-	-	0.1	-	0.1
At 31 December 2011	38.8	0.5	3.6	(11.5)	38.7	119.3	189.4	2.0	191.4

Consolidated cash flow statement

for the year ended 31 December 2011

£million	Note	2011	2010
Cash flows from operating activities
Profit for the year		25.0	25.9
Taxation		7.3	7.1
Net finance costs		4.7	4.5
Exceptional items		(2.3)	(4.5)
Profit on disposal of discontinued operations		(0.5)	(7.1)
Operating profit from discontinued operations before exceptional items		-	(1.0)
Operating profit from continuing operations before exceptional items		34.2	24.9
Adjustments for:
Depreciation of property, plant and equipment		16.9	21.2
Amortisation of intangible assets		7.6	9.6
Impairment of intangible assets		0.6	-
Other items including share-based payments		(1.7)	(0.5)
Increase in inventories		(5.3)	(6.0)
(Increase)/decrease in receivables		0.8	(15.2)
Increase in payables		9.9	26.2
Operating cash flow before exceptional payments		63.0	60.2
Special payments to pension funds		(3.5)	(3.2)
Exceptional restructuring costs		(2.2)	(5.0)
Net cash generated from operations		57.3	52.0
Income taxes paid		(7.9)	(7.0)
Net cash flow from operating activities		49.4	45.0
Cash flows from investing activities
Interest received		0.3	0.2
Purchase of property, plant and equipment		(21.3)	(10.8)
Proceeds from sale of property, plant and equipment and grants received		2.0	1.7
Development expenditure		(5.3)	(6.0)
Purchase of other intangibles		(0.3)	(1.4)
Disposal of subsidiaries (net of cash in subsidiaries at date of disposal)		7.6	21.7
Deferred consideration received from disposal of subsidiaries in 2010		0.7	-
Net cash flow (used in)/from investing activities		(16.3)	5.4

Consolidated cash flow statement (continued)

£million	Note	2011	2010
Cash flows from financing activities
Issue of share capital		0.1	0.3
Interest paid		(2.4)	(2.9)
Repayment of borrowings		(11.1)	(86.5)
Proceeds from borrowings (2010: net of arrangement costs of £2.0 million)		0.2	59.1
Finance leases		(0.1)	(0.1)
Dividends paid by the Company		(5.0)	(1.2)
Net cash flow used in financing activities		(18.3)	(31.3)
Net increase in cash and cash equivalents		14.8	19.1
Cash and cash equivalents at beginning of year	10	44.2	24.5
Exchange differences	10	(0.2)	0.6
Cash and cash equivalents at end of year	10	58.8	44.2
Cash and cash equivalents comprise
Cash at bank and in hand		69.5	44.8
Bank overdrafts		(10.7)	(0.6)
		58.8	44.2

Notes to the consolidated financial statements

1 General information

The information set out below, which does not constitute full financial statements, is extracted from the audited financial statements of the Group for the year ended 31 December 2011 which:

·  were approved by the Directors on 14 March 2012

·  carry an unqualified audit report which did not contain statements under sections 498(2) or (3) of the Companies Act 2006

·  will be available to the shareholders and the public in April 2012

·  will be filed with the Registrar of Companies following the Annual General Meeting on 15 May 2012

2 Basis of accounting

The consolidated financial statements have been prepared on a historical cost basis modified by the revaluation of financial assets and derivatives held at fair value and by the revaluation of certain property, plant and equipment at the transition date to International Financial Reporting Standards (IFRS). The consolidated financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) of the IASB, as adopted by the European Union, and in accordance with the provisions of the Companies Act 2006.

The financial statements have been prepared using consistent accounting policies, except for the adoption of new accounting standards and interpretations noted below. Adoption of these standards and interpretations did not have a significant impact on the financial position and performance of the Group.

·  "Improvements to IFRSs". The Group adopted the Improvements to IFRSs on 1 January 2011.

·  IAS 24 "Related party disclosures". The Group adopted the amendment to IAS 24 on 1 January 2011. The amendment clarified the definition of a related party.

3 Segmental reporting

For management purposes, the Group is organised into four divisions, as shown below, according to the nature of the products and services provided. Each of these divisions represents an operating segment in accordance with IFRS 8 "Operating segments" and there is no aggregation of segments. The chief operating decision maker is the Board of Directors. The operating segments are:

·  Components - specialist resistive components and microcircuits, connectors and interconnection systems;

·  Sensors - electronic accelerator pedals, engine and wheel speed, temperature and pressure sensors and chassis height sensors;

·  Integrated Manufacturing Services - the provision of global electronics manufacturing capability with logistics and integrated solutions; and

·  Secure Power - standby generation and uninterruptible power systems manufacture and service.

The accounting policies of the reportable segments are the same as the Group's accounting policies.

Following the disposal of AEI Compounds Limited in July 2011, the General Industrial division ceased to exist. This business is shown as a discontinued operation in these financial statements and the 2010 comparative amounts have been re-presented accordingly.

In 2010 Abtest Limited was reported under the General Industrial division, but is now included as part of the Integrated Manufacturing Services division. The comparatives for 2010 have been re-presented accordingly.

The key performance measure of the operating segments is operating profit before exceptional items. The Group reports non-trading income or expenditure as exceptional 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. Segment operating profit represents the profit earned by each segment after allocation of central head office administration costs and is reviewed by the chief operating decision maker.

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 are smaller than the segment which they are part of.

a) Income statement information - continuing operations

					2011
£million	Components	Sensors	Integrated Manufacturing Services	Secure Power	Total
Sales to external customers	242.7	166.9	100.0	81.7	591.3
Segment operating profit before exceptional items	14.8	8.8	5.1	5.5	34.2
Exceptional items					2.3
Operating profit					36.5
Net finance costs					(4.7)
Profit before taxation					31.8

	2010 (re-presented)
£million	Components	Sensors	Integrated Manufacturing Services	Secure Power	Total
Sales to external customers	234.6	143.5	92.2	85.2	555.5
Segment operating profit before exceptional items	10.7	3.9	4.1	6.2	24.9
Exceptional items					4.5
Operating profit					29.4
Net finance costs					(4.3)
Profit before taxation					25.1

There are no significant sales between sectors.

b) Geographic information

Revenue by destination

The Group operates on a global basis. Revenue from external customers by geographical destination is shown below. Management monitor and review revenue by region rather than by individual country given the significant number of countries where customers are based.

£million	2011	2010 (re-presented)
United Kingdom	98.6	95.0
Rest of Europe	250.7	222.4
North America	110.7	102.3
Central and South America	48.7	58.5
Asia	70.5	72.3
Rest of the World	12.1	5.0
Total continuing operations	591.3	555.5
Discontinued operations	12.4	44.2
Total revenue	603.7	599.7

No individual customer accounts for more than 10% of Group revenue. Revenue from services is less than 5% of Group revenues. All other revenue is from the sale of goods.

4 Discontinued operations

On 11 July 2011 the Group disposed of AEI Compounds Limited, the last remaining business within the former General Industrial division, for consideration of £8.6 million in cash before costs.

During the year ended 31 December 2010, the Group disposed of six other businesses, all of which were part of the former General Industrial division.

The results from discontinued operations shown in the consolidated income statement are as follows:

£million	2011	2010 (re-presented)
Revenue	12.4	44.2
Cost of sales	(11.4)	(36.3)
Gross profit	1.0	7.9
Distribution costs	(0.2)	(2.9)
Administrative expenses	(0.8)	(4.0)
Operating profit	-	1.0
Net finance costs	-	(0.2)
Profit before taxation	-	0.8
Taxation	-	(0.4)
Profit after taxation	-	0.4
Profit on disposal of discontinued operations	0.5	7.1
Profit from discontinued operations	0.5	7.5

The profit on disposal of discontinued operations is analysed below:

£million	2011	2010
Gross cash received	8.6	23.5
Less: legal and professional costs	(0.5)	(1.5)
Less: cash disposed of at completion	(0.5)	(0.3)
Net proceeds per consolidated cash flow statement	7.6	21.7
Deferred consideration receivable	0.2	1.0
Less: net assets at completion	(7.3)	(15.6)
	0.5	7.1

The net cash flows from discontinued operations included within the consolidated cash flow statement are shown below:

£million	2011	2010  (re-presented)
Operating activities	0.7	0.9
Investing activities	0.2	(0.6)
Financing activities	2.8	-
Net cash flow	3.7	0.3

5 Finance income and finance costs

£million	2011	2010  (re-presented)
Interest expense	2.2	3.0
Foreign exchange losses	2.3	-
Interest on employee obligations	20.0	19.8
Amortisation of arrangement fees	0.6	0.6
Unwinding of discount factor on minority put option	0.7	0.4
Finance costs	25.8	23.8
Interest income	0.5	0.2
Foreign exchange gains	1.6	-
Expected return on pension scheme assets	19.0	19.3
Finance income	21.1	19.5
Net finance costs	4.7	4.3

 

6 Exceptional items

£million	2011	2010
Continuing operations
Reduction in UK pension liabilities	7.5	-
Restructuring costs	(5.2)	-
Profit on sale of property interest	-	1.0
Onerous property leases	-	(0.8)
Pensions curtailment gain from scheme closure	-	4.3
Total	2.3	4.5

a) Year ended 31 December 2011

For the year ended 31 December 2011, the exceptional items relate to:

·  a one-off reduction of £7.5 million in the future liabilities of the UK pension scheme following the UK Government's announcement to change the basis of indexation of occupational pension schemes from RPI to CPI (see note 11); and

·  restructuring costs of £5.2 million primarily associated with the closure of the Components operation in Boone, North Carolina. This amount includes impairments of fixed assets of £1.8 million, provisions against inventory of £0.6 million and reorganisation provisions of £2.8 million.

b) Year ended 31 December 2010

For the year ended 31 December 2010, the exceptional items relate to:

·  a curtailment gain of £4.3 million arising from the closure of the UK defined benefit scheme to future accrual;

·  profit of £1.0 million arising from the sale of property interests; and

·  a provision of £0.8 million which has been recognised in respect of two vacant properties subject to onerous long-term leases.

The Group reports non-trading income or expenditure as exceptional 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.

 

7 Taxation

a) Analysis of the tax charge for the year

£million	2011	2010
Current tax
Current income tax charge	9.7	11.3
Adjustments in respect of current income tax of previous year	(0.1)	(0.1)
Total current tax charge	9.6	11.2
Deferred tax
Relating to origination and reversal of temporary differences	(2.3)	(4.5)
Total tax charge in the income statement - continuing operations	7.3	6.7

UK tax is calculated at 26.5% (2010: 28%) of taxable profits. Overseas tax is calculated at the tax rates prevailing in the relevant countries. The Group's effective tax rate for the year from continuing operations was 23.0% (30.2% excluding exceptional items).

Included within the £2.3 million deferred tax credit for 2011 is £1.6 million relating to exceptional items.

b) Reconciliation of the total tax charge for the year

£million	2011	2010
Profit before tax from continuing operations	31.8	25.1
Profit before tax multiplied by the standard rate of corporation tax in the UK of 26.5% (2010: 28%)	8.4	7.1
Effects of:
Items not deductible for tax purposes or income not taxable	4.1	1.1
Adjustment to current tax in respect of prior periods	(0.1)	(0.1)
Recognition and utilisation of previously unrecognised tax losses	(4.2)	(2.1)
Current year tax losses and other items not recognised	0.2	0.3
Overseas tax rate differences	0.4	0.4
Other timing differences -exceptional items	(1.6)	-
-other	0.1	-
Total tax charge reported in the income statement - continuing operations	7.3	6.7

The 2010 Emergency Budget and the 2011 Budget announced that the UK corporation tax rate will reduce from 28% to 23% over a period of four years from 2011. The reductions to 26% effective from 1 April 2011 and 25% effective from 1 April 2012 were substantively enacted on 29 March 2011 and 5 July 2011 respectively. As the rate change to 25% was substantively enacted prior to the year end, the closing deferred tax assets and liabilities have been calculated at this rate. The resulting charges or credits have been recognised in the income statement except to the extent that they relate to items previously charged or credited to other comprehensive income or equity. Accordingly, in 2011 £0.1 million has been charged directly to equity.

Had the further tax rate changes been substantively enacted on or before the balance sheet date it would have had the effect of reducing the deferred tax asset by £0.8 million.

8 Dividends

	2011  pence per share	2011 £million	2010 pence  per share	2010 £million
Final dividend for prior year	2.0	3.1	-	-
Interim dividend for current year	1.2	1.9	0.8	1.2
	3.2	5.0	0.8	1.2

The Directors recommend a final dividend of 3.2p which when combined with the interim dividend of 1.2p gives a total dividend for the year of 4.4p per share. The Group's dividend policy is to increase dividends progressively whilst maintaining cover of at least two times underlying earnings per share. The final dividend will be paid on 8 June 2012 to shareholders on the register on 25 May 2012.

9 Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to owners of the Company by the weighted average number of shares in issue during the period. The weighted average number of shares in issue is 154.9 million (2010: 154.8 million).

Headline earnings per share is based on profit for the year from continuing operations before exceptional items and their associated tax effect.

Pence	2011	2010  (re-presented)
Basic earnings per share
Continuing operations	15.8	11.9
Discontinued operations	0.3	4.8
Total	16.1	16.7

Pence	2011	2010  (re-presented)
Diluted earnings per share
Continuing operations	15.5	11.9
Discontinued operations	0.3	4.8
Total	15.8	16.7

The numbers used in calculating headline, basic and diluted earnings per share are shown below.

Headline earnings per share

£million	2011	2010 (re-presented)
Continuing operations
Profit for the period attributable to owners of the Company	24.5	18.4
Exceptional items	(2.3)	(4.5)
Tax effect of exceptional items (see note 7a)	(1.6)	-
Headline earnings	20.6	13.9
Headline earnings per share (pence)	13.3	9.0

The weighted average number of shares in issue is as follows:

Million	2011	2010
Basic	154.9	154.8
Adjustment for share awards	3.6	-
Diluted	158.5	154.8

 

10 Reconciliation of net cash flow to movement in net funds/(debt)

£million	Net cash	Borrowings and finance leases	Net (debt)/funds
At 1 January 2010	24.5	(81.4)	(56.9)
Cash flow	19.1	27.5	46.6
Non-cash items	-	(0.6)	(0.6)
Exchange differences	0.6	0.4	1.0
At 1 January 2011	44.2	(54.1)	(9.9)
Cash flow	14.8	11.0	25.8
Non-cash items	-	(0.5)	(0.5)
Exchange differences	(0.2)	-	(0.2)
At 31 December 2011	58.8	(43.6)	15.2

Net cash includes overdraft balances of £10.7 million (2010: £0.6 million).

11 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 £2.0 million (2010: £1.5 million).

Defined benefit schemes

The Group operates one significant defined benefit scheme in the UK and two overseas defined benefit schemes in the USA and Japan. All of these schemes are closed to new members and, in April 2010, the UK scheme was closed to future accrual following extensive consultation with affected employees being transferred into an enhanced Group defined contribution scheme. A one-off reduction in future liabilities of £4.3 million was recognised as an exceptional item in the consolidated income statement in 2010.

Following the UK Government's announcement in July 2010 to change the basis of statutory minimum indexation of occupational pension schemes from the Retail Price Index (RPI) to the Consumer Price Index (CPI), the Company communicated the impact of this change to affected members in 2011. This has resulted in a one-off reduction in the future liabilities of £7.5 million which has been recognised as an exceptional item within the consolidated income statement (see note 6).

The Company had reached agreement with the Trustee of the UK scheme for additional fixed contributions extending to 2016 based on the actuarial deficit at April 2007 and these arrangements have been confirmed under the actuarial valuation at April 2010. £3.2 million was paid in 2010, £3.5 million was paid in 2011 and further planned contributions amount to: 2012 £3.7 million; 2013 £3.9 million; then increasing by £0.2 million each year to £4.5 million in 2016.

The Group also operates defined benefit schemes in the United States and Japan. Actuarial valuations of the schemes were carried out by independent qualified actuaries in 2007 and 2010 using the projected unit credit method. Pension scheme assets are stated at their market value at 31 December 2011.

An analysis of the pension deficit by country is shown below:

£million	2011	2010
UK	32.1	38.6
USA	3.1	2.2
Japan	0.3	0.4
	35.5	41.2

The principal assumptions used for the purpose of the actuarial valuations for the Group's primary defined benefit scheme, the UK scheme, were as follows:

%	2011	2010
Discount rate	4.7	5.4
Inflation rate	2.7	3.5
Increases to pensions in payment	2.5-3.2	2.5-3.5

A decrease in the discount rate by 0.1% per annum increases the liabilities by approximately £6.8 million. An increase in the inflation rate of 0.1% per annum increases the liabilities by approximately £4.2 million.

The expected percentage long-term rates of return on the main asset classes, net of expenses, set by management having regard to actuarial advice and relevant indices were:

%	2011	2010
Equities	6.8	7.4
Bonds	4.1	4.8
Gilts and swaps	2.5	3.4
Cash	0.1	0.1

The mortality tables applied by the actuaries at 31 December 2011 were S1NA tables adjusted by + one year, with future improvements increasing in line with medium cohort with a 1% p.a. floor.

The amounts recognised in respect of the pension deficit in the Consolidated balance sheet are:

£million	2011	2010
Equities	213.9	199.8
Bonds	78.6	36.8
Gilts and cash	26.9	63.0
Swaps	58.6	38.5
Fair value of assets	378.0	338.1
Present value of funded obligation	(413.5)	(379.3)
Net liability recognised in the Consolidated balance sheet	(35.5)	(41.2)

The schemes' assets do not include the Group's financial instruments nor any property occupied by, or other assets used by the Group. Swaps are liability driven instruments taken out to hedge part of the scheme inflation and interest rate risks.

Amounts recognised in the Consolidated income statement are:

£million	2011	2010
Current service cost	0.1	0.3
Settlement/curtailment gain	-	(4.3)
RPI/CPI change to indexation	(7.5)	-
Interest on employee obligations	20.0	19.8
Expected return on pension scheme assets	(19.0)	(19.3)

Of the current service cost of £0.1 million (2010: £0.3 million), £0.1 million (2010: £0.2 million) is included in cost of sales in the income statement and £nil (2010: £0.1 million) is included in administrative expenses.

The actual return on schemes assets was a gain of £49.3 million (2010: £45.2 million). Actuarial gains and losses are recognised directly in retained earnings and reported in the Consolidated statement of comprehensive income and, since transition to IFRS, amount to a net loss of £36.3 million.

12 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 2011 or 2010 that have affected the financial position or performance of the Group.

Principal risks and risk management process

As a multinational business, operating in diverse industrial markets and jurisdictions, the Group is exposed to a number of potential risks which may have a material effect on its reputation and financial or operational performance. The Board has overall responsibility for risk management and internal controls, supported by the Risk Committee and the Audit Committee.

The Risk Committee reviews risks and assesses and monitors actions to mitigate them. The risks outlined below are those the Group believes are the principal and material risks. The risks are listed in priority order within each area of risk based upon their current relevance to our business. It should be noted that additional risks the Group does not consider material, or of which it is not aware, could have an adverse impact.

Markets and customers

Economic downturn

Potential impact

General economic downturn leading to reduction in customer demand and production volumes.

Mitigation

·  Forward-looking indicators are regularly reviewed to identify deteriorating market conditions.

·  Management structures are in place to enable a rapid response to changing circumstances.

Erosion of customer base

Potential impact

The Group operates in a highly competitive global market and could face a significant erosion of its existing customer base as a result of competition, customer relocation or a reduction in end user demand.

Mitigation

·  The composition of the customer base is reviewed as part of the annual strategic planning process. Plans are established and monitored to diversify it.

·  The key account management programme ensures that major customers are dealt within a co-ordinated manner globally. Regular reviews are held with them to assess performance and identify areas for improvement.

·  Regular feedback from customers is used to drive improvements in performance.

·  Improvements in product development roadmaps ensure that the Group retains and increases its competitive advantage.

Operations

Product warranty

Potential impact

The Group manufactures products that often operate in extreme environments where a serious incident arising from failure could result in liabilities for personal injury and damage to reputation, particularly in the automotive sector which represented 35 per cent of Group revenue in 2011.

Mitigation

·  Comprehensive quality control procedures and rigorous product testing are backed up by an appropriate level of insurance.

·  Processes are in place to audit key suppliers and monitor the quality of materials received.

·  Major contracts are reviewed by the Group General Counsel and we work continuously to build and maintain relationships with all key stakeholders.

·  Group guidelines on acceptable levels of contractual liability are reinforced by legal risk training seminars, specific to each division's business needs.

IT delivery

Potential impact

The Group and operational management depend on timely and reliable information from software systems. A large SAP implementation across the Group is in progress. A major failure in the delivery of the SAP or other IT projects on time and on budget could delay or impact decision making or service to our customers.

Mitigation

·  The Group's IT Steering Committee meets on a monthly basis to review the SAP implementation and all other major IT projects.

·  The Committee is chaired by the Group Chief Executive and members include the Group Finance Director, Group Business Development Director, the Group IT Director and certain Divisional Chief Executives.

·  The Group only sources hardware and software from reputable manufacturers and suppliers and has appropriate disaster recovery plans in place.

Transformation programme

Potential impact

The Group is going through a transformational programme to improve competitive advantage and be more responsive to customers' requirements. This is being achieved by consolidating manufacturing sites, implementing common IT solutions and streamlining processes. For example, the Group is closing a site in Boone, North Carolina, transferring business and product lines to Mexicali, Mexico. Risks associated with such large scale transformation include disruption to the customer base, anticipated benefits not being realised and the loss of key individuals.

Mitigation

·  Strong change management and operational controls with professional project managers recruited to oversee major programmes.

·  Regular project reviews by the senior management team.

·  Close communication with key customers to explain the actions being taken and to understand and address their concerns.

·  Regular talent and performance reviews, supported by monitoring and communication with employees.

Business interruption

Potential impact

Inability to fulfil customer orders resulting in lost sales and reputational damage with a consequential impact on revenue and profit.

Mitigation

·  The spread of businesses offers good protection from individual events.

·  Robust business continuity plans are tested periodically to manage the risk of the loss of a major facility.

Supply chain costs

Potential impact

Reliance on suppliers for key commodities, materials and components, some of which may be available from a limited number of sources. There is a risk of substantial increases in supplier costs driven by commodity pricing.

Mitigation

·  The Group purchasing team co-ordinates activities across the Components, Sensors and IMS divisions through the Group Purchasing Steering Committee which meets monthly.

·  Key material pricing trends are tracked to ensure increases are passed on to customers where possible.

·  An active programme to improve low cost sourcing.

·  Use of commodity price hedging, taking into account the forecast volume of purchases, forward commodity prices and the cost of taking out cover.

Acquisitions

Potential impact

The Group may pursue acquisitions as part of its overall growth strategy. Such acquisitions may not realise expected benefits.

Mitigation

·  Performing robust due diligence.

·  Obtaining representation, warranties and indemnities from vendors where possible.

·  Implementing business integration processes.

Laws and regulations

Compliance

Potential impact

The Group operates in a large number of jurisdictions and, as a consequence, is subject to numerous domestic and international regulations. These include laws and regulations covering export control, anti-bribery and competition. Failure to comply could result in civil or criminal liabilities leading to significant fines and penalties or restrictions being placed upon the Group's ability to trade resulting in reduced sales and profitability, and reputational damage.

Mitigation

·  Robust policy and control framework in place.

·  Cross-division export compliance group formed, led by the Group General Counsel, supported by external advisers as required.

·  Comprehensive anti-bribery programme introduced including an employee declaration supported by online and site specific training.

·  Audit programmes and clear policies issued to all employees.

Finance

Financial risks

Potential impact

The major financial risks faced by the Group are: foreign exchange risk, interest rate risk, credit risk, liquidity risk and commodity price risk. Significant fluctuations in foreign exchange rates, interest rates or commodity prices could have a material adverse impact on the Group's results and financial position if not managed appropriately. The global nature of the Group's business means that it is exposed to financial risks in multiple jurisdictions. The Group is increasing its presence in emerging regions where systems of financial controls may be less developed.

Mitigation

·  The main financial risks are managed by the Group's Treasury department in close liaison with the Group's business divisions and operating companies, under the oversight of a Treasury Committee chaired by the Group Finance Director.

·  The responsibilities of the Group's Treasury department include management of cash resources, debt and capital structure, approval of counterparties and relevant transaction limits and oversight of all significant treasury activities.

 

END

 

 

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