Full Year Results

RNS Number : 0998D

TT electronics PLC

17 March 2011

 



TTG

TT electronics plc

Full Year Results

TT electronics, a world leader in sensor and electronic component technology, today announces its results for the year ended 31 December 2010.

HIGHLIGHTS

Continuing operations	2010	2009	Change
Revenue	£571.3m	£463.5m	+23%
Operating profit *	£25.2m	£6.4m	+294%
Operating profit margin*	4.4%	1.4%	+ 3% points
Profit/(loss) before taxation and exceptional items	£20.7m	£0.8m
Profit/(loss) before taxation	£25.2m	£(16.6)m
Earnings/(loss) per share*	9.0p	(1.2)p
Dividend per share (paid and proposed)	2.8p	nil
Net debt	£9.9m	£56.9m

                *before exceptional items

·      Significant progress in delivery of strategy and improved financial performance

·      Strengthening customer relationships and good growth in the majority of markets, with a particular emphasis on emerging economies

·      Excellent underlying cash generation and net proceeds from disposals contributed to a £47.0 million reduction in net debt

·      Final dividend of 2.0 p per share recommended, reflecting strong results for 2010 and confidence in future performance

Geraint Anderson, Group Chief Executive, said today:

"These results are testimony to the success of the actions which we have taken to build stronger relationships with our customers, to focus on markets where we can create the greatest value and to improve the performance of our operations. 

We are focused on completing the transformation of the organisation into a best-in-class global business. I am confident that the excellent progress made to reposition the Group, and the actions underway, will deliver further improvements in performance in 2011."

For further information, please contact:

TT electronics plc Geraint Anderson, Group Chief Executive Shatish Dasani, Group Finance Director	Tel:  [phone]
Biddicks Zoë Biddick/Sophie Lane	Tel:  [phone]

Chairman's statement

I am delighted to report excellent progress in delivering the Group's strategy and a significantly improved financial performance. During 2010 we focused on delivering operational improvements and investing in our people, creating a strong platform for sustainable growth.

As a result of our actions and the recovery in many of our markets, Group revenue from continuing operations increased by 23.3 per cent to £571.3 million (2009: £463.5 million). Operating profit from continuing operations before exceptional items was £25.2 million compared with £6.4 million in 2009, delivering an operating margin of 4.4 per cent (2009: 1.4 per cent). This represents good progress towards the Group's medium-term margin target of eight to ten per cent and I am confident that the actions we continue to take will lead to a further improvement in performance in 2011.

Headline EPS from continuing operations was 9.0 pence compared with a loss per share of 1.2 pence in 2009. In line with our policy to increase dividends progressively whilst maintaining cover of at least two times headline EPS and in recognition of our strong performance the Board is recommending a final dividend of 2.0 pence per share giving a total dividend for 2010 of 2.8 pence per share.

Our strategy is to create value for our customers by providing innovative solutions which meet their critical needs, focusing on those markets where we can establish a differentiated position based on our technology and engineering expertise, customer service and manufacturing capabilities. A number of steps were taken during the year to improve alignment with our key customers and markets. In the Components division we began to change the way we develop and bring our products to market with the introduction of global business units focused around specific technologies and markets. In addition, both the Sensors and Components divisions completed the move to global management structures resulting in improved engagement with key customers. In our manufacturing facilities we are driving increasing efficiencies under the leadership of global operations directors appointed in both divisions during the past year.

In addition to building our presence in market segments where we can create clearly differentiated positions based on our technology and applications expertise, we increased our presence in emerging markets. Revenue from customers in Asia increased by 49 per cent (at constant exchange rates) and constituted 13 per cent of overall Group revenue. We made significant progress in China and India.

Customer feedback has confirmed that our key account management programme is providing them with demonstrable benefits and the rate of revenue growth in 2010 from the initial 14 key accounts exceeded that of the Group overall. Further accounts will be added to the programme in 2011.

We remain committed to the development of our people who are key to the delivery of our strategy. Reflecting this emphasis we invested in teams across the globe and appointed the Group's first permanent HR director. We have completed the Group's first all-employee survey which has provided a valuable insight into employee opinions and engagement. All businesses have plans in place to drive improvement in selected areas.

In line with our strategy to manage the General Industrial division for value, six businesses were successfully sold during the year. I am very pleased with the proceeds we have realised from these disposals which are ahead of the Board's expectations overall, and with our success in finding new owners positioned to support the businesses' future development.

Closing net debt was £9.9 million (2009: £56.9 million) with the reduction resulting from strong underlying cash generation, continued progress in managing working capital and the proceeds from the business disposals. The closing net debt position together with the Group's borrowing facilities, which amount to over £110 million, provide a strong financial platform for the further development of the business, including through additional strategic investments to supplement the Group's organic growth.

The UK defined benefit pension scheme was closed to future accrual in April 2010 and the liabilities under the plan have reduced. The triennial valuation as at 5 April 2010 shows a deficit of £39.8 million, reduced from £59.6 million three years previously. The deficit recovery plan previously agreed with the Trustee in December 2008 has been confirmed.

I assumed the role of Chairman following the Annual General Meeting in May. In September, Mike Baunton joined the Board as an independent non-executive Director. Mike previously held senior roles with a number of major international manufacturers and brings a wealth of engineering and production experience.

Increased emphasis has been placed on corporate governance and a more in-depth approach introduced to assess Board performance, with greater focus being given to succession planning and risk management. No major changes to our procedures have been necessary as a result of the publication of the UK Corporate Governance Code.

Following strong growth in 2010, the prospects for 2011 are encouraging. I am confident that our management and organisational structures, our focus on building differentiated positions in key markets, and the completion of the transformation of the Group in line with the strategy will deliver a further improvement in performance. 

Finally, on behalf of the Board, I would like to thank our employees for their commitment and dedication - it is through their hard work that we have delivered the significant progress we have seen in 2010. 

Sean M Watson
Chairman

16 March 2011

Business review

During 2010 we invested in our people and focused on operational excellence across the business. This is creating a strong platform for sustainable growth and margin improvement for the medium and long term. Many of the actions taken to improve performance will continue in 2011 as we progress the transformation of the Group into a best-in-class global business.

New talent was brought into the Group with a number of senior management appointments including a new Divisional Chief Executive for the Components division. Reflecting the importance of our people, the Group's first permanent HR director was appointed and divisional HR leaders for the core Sensors and Components divisions joined in early 2011. We have completed the first Group employee survey to assess engagement and identify improvement actions and our on-line performance management tool has been extended to cover more than 400 senior employees worldwide. We have invested in teams across all locations with a significant focus on increasing our presence in emerging markets, a trend which is expected to accelerate in 2011.

Our operational excellence programme targets three areas: (i) customer focus; (ii) technology and innovation; and (iii) operational delivery.

Changes have been made to the sales organisations in the Components and Sensors divisions with global sales teams now ensuring better engagement with our customers. The key account management programme is progressing and additional key accounts will be added in 2011. As customers continue to seek efficiencies from their supply chains we are evolving our business structures and IT systems, making it easier for them to transact with the Group.

Global management structures implemented in the Sensors and Components divisions during 2010 are changing the way we develop and bring our products to market. For example, in the Components division, global business units are being introduced focused around specific technologies and end markets, bringing together previously separate marketing and engineering teams to deliver co-ordinated product development programmes aligned with customer needs. The first such business unit was established in October 2010 and the remainder will be in place by mid 2011.

Improving the efficiency and productivity of the Group's manufacturing operations remains a key focus. Operations directors were appointed in the Sensors and Components divisions in 2010 with responsibility for driving better performance worldwide. Good progress was made during the year and further areas for improvement have been identified for 2011. We continue to build on existing lean manufacturing techniques across all businesses.

We have identified a number of markets which we believe provide opportunities for higher growth and margins based on our technology and engineering expertise, customer service and manufacturing capabilities. These include defence and aerospace, medical, non-passenger car transportation and certain industrial segments. Particularly good progress was made during the year in developing our position in the medical market with revenue increasing from £15.2 million in 2009 to £26.9 million in 2010. Although sales to the passenger car market increased in absolute terms, they represented a slightly smaller proportion of total Group revenue in 2010, decreasing from 34.6 per cent in 2009 to 32.0 per cent in 2010. Revenue from other transportation segments (excluding passenger cars) increased from £18.9 million in 2009 to £34.1 million in 2010.

Each of the divisions has identified specific segments within the broader markets where they can create the greatest value for their customers. New business from these target segments is forming a growing proportion of total revenue as existing programmes come to an end and new contracts move into volume production. However this can take a number of years, particularly in the automotive arena which has long product lifecycles, and in the case of outsourced manufacturing where it takes time to bring new programmes into production.

Despite an increase in product sold to customers in Asia of 49 per cent in 2010 (at constant exchange rates), the Group remains under represented in this region, which contributed 13 per cent of sales in the period (compared to 28 per cent for North, Central and South America and 57 per cent for Europe). However, it should be noted that this analysis does not include product sold to customers based outside Asia, but whose end customer is located within the region. As we look to develop a more balanced business, good opportunities exist for growth in Asia for the Sensors, Components and IMS divisions as they build on the progress made in 2010. We are also looking to invest in expanding our manufacturing capabilities in Eastern Europe in 2011.

In line with the strategy to manage the General Industrial division for value, six businesses were successfully sold during the year realising net proceeds of £21.7 million, ahead of the Board's expectations. Additional deferred consideration of approximately £1.0 million is expected to be received in 2011. Although at an early stage, work has begun to identify additional strategic investments to supplement the Group's organic growth.

Market conditions

Trading conditions improved significantly in 2010 compared with the prior year.  We experienced good growth in the majority of our markets with particularly strong demand from customers exposed to emerging regions. As anticipated, there was some easing in the rate of growth during the last quarter of the year as inventory levels began to be replenished.

Revenue

Group revenue from continuing operations increased by 23.3 per cent to £571.3 million (2009: £463.5 million) including an adverse effect from foreign exchange movements of approximately £1.3 million. The underlying growth in revenue was 23.5 per cent, reflecting increased demand resulting from the actions taken to re-position the Group and the general market recovery.

Underlying revenue in the Components division increased by 23.2 per cent. The Sensors division delivered growth in revenue of 41.5 per cent as its key European automotive OEM customers benefited from the general recovery and demand for premium passenger cars from Asia. Revenue in the IMS division increased by 20.8 per cent on an underlying basis, notwithstanding the difficulties experienced in sourcing components throughout the year. Good demand from export markets helped the Secure Power division deliver growth of 37.4 per cent. All figures exclude foreign exchange variations.

Operating profit (before exceptional items)

Operating profit from continuing operations significantly improved in the year as a result of the increase in sales, the benefit of cost reduction actions undertaken during 2009 and 2010 and actions taken to reposition the business. These were partially offset by certain increases in the cost base, including investments to support future growth. Operating profit for the year was £25.2 million compared with a profit of £6.4 million in 2009. Operating margins for all divisions, apart from Secure Power, improved in the year. There was a small net benefit of £0.2 million from the impact of foreign exchange variations on the translation of operating profit.  

Components

	2010	2009
Revenue	£234.6m	£190.8m
Operating profit*	£10.7m	£5.9m
Operating profit margin*	4.6%	3.1%
Capital employed	£128.3m	£148.8m
Year end headcount	3,183	3,113

*Before exceptional items

The Components division partners with customers to provide the engineered electronic components they need to bring their products to market. Our global network of application sales engineers work closely with customers' own design centres to develop differentiated solutions, often in circumstances where reliability, performance and the ability to work in harsh environments are key. 

The division has a global footprint with facilities in North America, Europe and Asia and a sales presence in all major markets.

To allow us to serve our customers better, unified regional sales structures were implemented in North America and Asia from 1 January 2010, following a similar reorganisation in Europe in 2009. In addition, we appointed our first Vice President of Global Sales to provide co-ordinated leadership and direction. 

In the second half of the year an operations leader was appointed with responsibility for all manufacturing facilities worldwide. The new structure is making it easier for the business to support customers across different regions and enabling more efficient utilisation of our manufacturing footprint. Changes are underway to improve the way in which the division identifies and develops new products, with the creation of global business units focused around specific technologies and markets. The fixed resistors business unit was the first to be implemented in October 2010, bringing together a number of previously separate marketing and engineering teams. The transition to the business unit structure will be completed in the first half of 2011.

In 2010 the division strengthened its distribution network, with a special focus on field support to secure new business.

A continued focus on the key account management programme and the implementation of Customer Relationship Management (CRM) tools are helping improve communications with our customers. We are now able to track growth opportunities across geographies as customers move into new regions, often with design activity and manufacturing taking place in different parts of the world.

Good progress was made in the target medical and alternative energy segments with wins including components for life support, medical diagnostic and patient monitoring equipment and intelligent energy meters.

The division's principal competitors include Amphenol, Fairchild, Koa, Smiths Interconnect, Vishay, and Yageo.

Market conditions

There was a significant improvement in demand for electronic components across most end markets in 2010, driven by the general recovery in the economic environment and inventory replenishment activities. This resulted in shortages in the supply chain with production of many components unable to keep up with demand. Against this backdrop, the division worked hard to respond quickly to changing customer demands to win new business.

Performance

Underlying revenue in 2010 increased by 23.2 per cent after adjusting for a 0.2 per cent foreign exchange impact. The increase in volumes, coupled with management actions to increase efficiencies, delivered a significantly improved operating profit of £10.7 million and an operating margin of 4.6 per cent. Inventory turns improved by 43 per cent to 6.3 turns (2009: 4.4 turns).

Outlook

The outlook for 2011 is positive albeit with more modest growth expected as customers readjust their inventory levels and order patterns to reflect improving availability and reduced lead times. Recent and ongoing actions are improving the way in which the division works with and supports its customers, develops new products and technologies and manages its factories. We expect the division to deliver further improvements in performance in 2011.

Sensors

	2010	2009
Revenue	£143.5m	£105.4m
Operating profit*	£3.9m	(£3.9m)
Operating profit margin*	2.7%	(3.7%)
Capital employed	£52.5m	£55.7m
Year end headcount	1,069	998

*Before exceptional items

The Sensors division provides highly engineered sensing solutions targeting critical transportation and industrial applications where conditions demand a high degree of reliability and accuracy, often in extreme temperatures and harsh environments. We continue to be a key technology partner for major automotive OEM customers as they grow in emerging markets, whilst making solid progress in further developing our presence in the broader transportation and selective industrial sensor segments.

Our principal operations are based in Germany, China and India with further sites in the UK and Eastern Europe.

2010 saw our traditional European customers accelerate investments in manufacturing capacity in emerging markets, coupled with continued growth in demand from local OEMs and their suppliers. Reflecting this, the division implemented a global management structure to align itself with key customers. As part of the reorganisation, global leaders were appointed for all major functions. Additionally, investments were made in engineering and manufacturing to support customers in China and India.

This progress was recognised by key customers. For example, the division was granted global preferred supplier status by VW and is working closely with them on new projects worldwide. Good growth was achieved in India and a number of new programmes will commence in China this year to supply sensors, both to domestic customers and European OEMs' local factories. A further significant increase in resources in China is planned for 2011.

Progress was made in applying technologies developed for automotive customers to other markets, with the division winning a number of new programmes in the truck and agricultural vehicle segments. Progress in the industrial market was slower but included new solutions for process automation and industrial engines.

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

Market conditions

Automotive end markets recovered strongly following the significant downturn in late 2008 and 2009 with particularly strong demand for passenger cars from emerging markets. More modest growth was seen in Europe and the US where sales of smaller cars were affected by scrappage schemes coming to an end. The truck and off-road markets also recovered well. In addition, we saw a continuation of the trend to increase the number of sensors on each platform.

Performance               

The division's key European automotive OEM customers saw especially high levels of demand in the premium passenger car segment from customers in emerging markets. With its global presence and key customer relationships the division was well placed to benefit from this. As a result, underlying revenue, excluding a 5.4 per cent impact of foreign exchange, increased by 41.5 per cent and operating profit before exceptional items increased to £3.9 million.

Outlook

The outlook for 2011 is broadly positive across all markets with good visibility for the first half. The automotive market in Europe and the US is expected to deliver modest growth with higher demand in Asia and other emerging regions, particularly for premium vehicles. The truck, off-road and industrial markets are expected to show continued recovery. The steps being taken to develop the division's capability globally and the focus on providing solutions for critical applications position the business well for the longer term. Further improvements in margins are expected in 2011.

IMS

	2010	2009
Revenue	£91.4m	£75.1m
Operating profit*	£4.3m	£2.4m
Operating profit margin*	4.7%	3.2%
Capital employed	£21.8m	£19.9m
Year end headcount	1,054	1,011

*Before exceptional items

The division draws on its design engineering capabilities, flexibility and word-class facilities to provide high quality electronic manufacturing services 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 operations in China, USA, UK and Malaysia.

Our 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.

During the year, we made very good progress in the target industrial, medical, traction and aerospace segments, with the continued focus on key account management resulting in new wins with existing customers. In addition, initial business was won with ten major new accounts, each having the potential to grow to more than £1 million of revenue per year. Our global presence remains a key differentiator against regional competitors and several cross-site wins were secured with key accounts being supplied from multiple manufacturing locations. We are also beginning to see results from our strategy to transition projects to lower cost manufacturing regions where appropriate, providing us with improved margins whilst at the same time allowing us to offer more competitive pricing.

In the UK, the Aylesbury plant was closed as planned in the first half of the year and the transfer of business to our Rogerstone facility completed.

Although all of the division's operations have made good progress in increasing the proportion of business from strategic customers in our target market segments, further significant opportunity remains.

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

Market conditions

Following the market downturn in 2009, customer demand increased in the first quarter of 2010 and remained strong throughout the year in all markets. However, acute component shortages were experienced across the industry and these impacted performance and delayed some customer build programmes. Although the situation eased in the second half of the year, lead times on certain components remained an issue through to the end of the year.

Performance

Underlying revenue grew by 20.8 per cent after adjusting for a foreign exchange benefit of 0.9 per cent. Improved volumes, efficiencies from the consolidation of the UK operations and the progress made in winning new business in target segments delivered an increase in operating profit before exceptional items of £1.9 million to £4.3 million and an improved operating margin of 4.7 per cent.

Outlook

We are seeing good levels of customer activity and continued improvements in demand in all regions which, together with a solid order book, provide good visibility for the first half of the year. Component lead times are more stable although they remain longer for certain items when compared to the position in 2007 and 2008. The progress made in winning new business positions the division well for 2011 and beyond.

Secure Power

	2010	2009
Revenue	£85.2m	£59.1m
Operating profit	£6.2m	£4.8m
Operating profit margin	7.3%	8.1%
Capital employed	£15.1m	£11.6m
Year end headcount	757	589

The division provides secure power solutions to customers in the petrochemical, medical, utilities and financial services sectors, who value its reputation for quality, reliability and service. Utilising its engineering capability, the division focuses on providing bespoke turnkey solutions for major one-off projects and differentiated medium to high power generating sets.

The division has two principal operations: Ottomotores in Mexico and Dale Power Solutions in the UK. In addition, we have a facility in Brazil and sales and service offices in Aberdeen and Dubai.

During 2010 we continued to invest in developing sales channels in the UK and Mexico as well as in key overseas markets. Through a combination of dealer and distributor development, and an increase in direct sales focus and resource, we secured new business in Central and South America, as well as in the Middle East and West Africa.   The sales and service office in Brazil developed in line with our expectations. 

There were fewer large secure power projects in the first half of the year compared with 2009, particularly in the UK, and this impacted margins. However, demand improved in the second half and we won a number of projects in target segments, including solutions to protect water and sewage infrastructure for utilities customers. The investment in the division's service operations in 2009 was reflected in double digit growth in service revenues in the period.

We took further steps to improve the product range introducing new containerised generator sets providing improved reliability and performance in a smaller footprint.

Manufacturing quality from the Mexican plant, an important element in enabling sales in overseas markets, improved during the year, and we introduced the European "CE" quality standard for certain product ranges.

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

Market conditions 

Following the downturn in the second half of 2009, markets in the UK, Mexico and Middle East recovered slowly with stronger competition and longer approval cycles for larger capital projects. In contrast, there was good demand in other markets including Latin America and West Africa.

Performance 

The division delivered strong revenue growth of 37.4 per cent excluding a 6.8 per cent foreign exchange benefit. Sales from export markets grew by more than 75.0 per cent and this success was underpinned by growth from traditional markets in the UK and Mexico, albeit at lower levels. Unfavourable product mix, ongoing investment and pricing pressure, principally in the UK, together with adverse transactional exchange rate impacts, resulted in a reduced operating margin overall. However, operating profit improved by £1.4 million, driven by the increase in revenues.

Outlook

In certain developed markets, particularly the US, UK and Europe, growth in demand is expected to continue to be muted, with restrictions on government spending and major capital projects taking longer to be approved. We anticipate that the higher levels of demand experienced in 2010 in other markets will continue and, based on the investments made to broaden sales channels and improve our product range, the division is well positioned to capture further growth in these regions.

General Industrial

With operations in the UK, South Africa, India, China, USA and Canada, the division served a range of market sectors during 2010. Applications included magnetics, electrical fusegear and specialist compounds for the cable and pipe markets, as well as fastenings for the industrial and automotive sectors.

In line with the strategy to manage the division for value, six businesses were successfully sold during the year to existing management or trade buyers who were better positioned to invest and develop them over the medium and long term. The net sale proceeds received, which amounted to £21.7 million, were ahead of the Board's expectations and additional deferred consideration of approximately £1.0 million is expected to be received in 2011.

At 31 December, the division comprised AEI Compounds, a UK-based manufacturer of speciality compounds for the cable and pipe markets and Abtest. During 2010 we continued to invest in the development of AEI Compounds, completing the move to a new site and also adding further capacity to meet the increasing demand for low smoke and fume speciality compounds. During early 2011, Abtest became part of the IMS division.

Market conditions 

The businesses within the General Industrial division served a wide range of end markets, all of which showed some recovery following the impact of the global recession in 2009.

Performance 

The businesses sold during the year contributed revenue of £28.4 million and operating profit of £0.7 million up to the dates of their disposal and are treated as discontinued operations in this report. A net profit on disposal of £7.1 million was recorded and is also shown under discontinued operations.

AEI Compounds delivered revenue of £15.5 million and operating profit of £0.1 million in the period. Operating profit was adversely affected by one-off issues related to the move to the new site and the commissioning of a major new machine. The business is expected to deliver significantly improved performance in 2011.  

Financial review

Overview

Revenue from continuing operations increased by 23.3 per cent to £571.3 million in 2010. Operating profit before exceptional items increased from £6.4 million to £25.2 million due to improved volumes and further benefits from the restructuring programme undertaken over the last two years, offset in part by investment expenditure. Profit before tax and exceptional items was £20.7 million, an increase of £19.9 million compared to 2009.

Exceptional items

An exceptional credit of £4.5 million from continuing operations has been recognised during 2010, compared with an exceptional cost of £17.4 million for 2009. This is shown below:

£million	2010	2009
Pension curtailment gain from scheme closure	4.3	-
Profit on sale of property interest	1.0	1.0
Onerous property leases	(0.8)	-
Restructuring costs	-	(14.6)
Goodwill impairment	-	(3.8)
Total	4.5	(17.4)

The pension curtailment gain arises from the closure of the UK defined benefit scheme to future accrual, as discussed further below. The Group received £1.0 million in exchange for a reduction in its participation of future profits from the development of the Gravesend site sold in 2005. The residual interest retained by the Group is not expected to result in a material benefit in the medium term. A provision of £0.8 million has been made in respect of two non-trading properties which are subject to onerous long-term leases.

Net finance costs

Net finance costs for 2010 were £4.5 million compared to £5.6 million in 2009. These include £0.5 million (2009: £2.3 million) in respect of the net interest expense arising on pension scheme liabilities due to a reduction in the pension deficit and discount rate and £0.6 million (2009: £nil) in respect of the amortisation of loan arrangement fees associated with the re-financing undertaken in May 2010.

Taxation

The tax charge for the year was £6.7 million (2009: £2.2 million), which represents an effective tax rate of 32.4 per cent on continuing operations excluding exceptional items. The charge arises from the profits generated in overseas countries, in particular in USA, Mexico and China. There is no tax payable in the UK or Germany due to the availability of tax losses.

Earnings per share and dividends

Headline EPS from continuing operations were 9.0 pence (2009: loss per share of 1.2 pence), whilst basic earnings per share from continuing operations were 11.9 pence (2009: loss per share of 12.1 pence).

The Directors recommend a final dividend of 2.0 pence, which when combined with the interim dividend of 0.8 pence, gives a total dividend for the year of 2.8 pence per share (2009: nil). This is in line with the Group's policy to increase dividends progressively whilst maintaining cover of at least two times. The final dividend will be paid on 9 June 2011 to shareholders on the register on 27 May 2011.

Discontinued operations

During the year, the Group disposed of six businesses, all of which were part of the General Industrial division: MMG Canada Limited, Wire Systems Technology (Pty) Limited, MMG Magdev Limited, MMG India (Private) Limited, WT Henley Limited and BAS Components Limited.

Cash proceeds received during the period from the disposals amounted to £21.7 million with approximately a further £1.0 million expected to be received in 2011. There was a profit of £7.4 million in 2010 (2009: loss of £0.8 million) arising from the discontinued businesses.

These businesses are included within discontinued operations in the consolidated income statement and the 2009 comparatives have been re-presented accordingly.

Pensions

The Group operated 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 in the consolidated income statement as an exceptional credit.

The assets and liabilities of the Group's defined benefit schemes in accordance with IAS 19 are summarised below:

£million	2010	2009
Fair value of assets	333.9	302.9
Liabilities	(372.5)	(343.6)
Deficit - UK scheme	(38.6)	(40.7)
Overseas schemes	(2.6)	(3.0)
Total Group deficit	(41.2)	(43.7)

The results of the triennial valuation of the UK defined benefit scheme as at April 2010 shows a deficit of £39.8 million compared with £59.6 million at April 2007. A revised funding agreement was agreed with the Trustee of the UK scheme in January 2009, fixing deficit contributions until 2016. Under the agreement, a special contribution of £3.2 million was made in 2010, with £3.5 million to be paid in 2011, increasing by £0.2 million each year to £4.5 million in 2016.

The Company and the Trustee agreed that a change to the deficit funding plan was not necessary following the triennial valuation. In addition the Company has agreed to set aside £1.0 million per year for the next three years to be deployed in agreement with the Trustee for reducing the long-term liabilities of the scheme.

Cash flow, borrowings and facilities

£million (unless otherwise stated)	2010	2009
Underlying operating cash flow	60.2	83.9
Working capital improvement	5.0	47.2
Capital expenditure (including software)	(12.2)	(9.4)
Exceptional restructuring costs	(5.0)	(9.6)
Proceeds from disposal of businesses	21.7	-
Net debt	(9.9)	(56.9)
Stock turns (times)	5.7	5.0
Debtor days	44	48
Creditor days	55	57

Underlying operating cash flow for the year was £60.2 million (2009: £83.9 million). This satisfactory result was due to the increase in profitability and sustained increase in managing working capital following the significant out-performance in 2009. Inventory reduced by £2.5 million accompanied by an improvement in stock turns from 5.0 to 5.7 times. Debtor days improved by four although this was partially offset by a two-day reduction in creditor days. Conversion of operating profit to operating cash flow after capital expenditure was 167 per cent, exceeding the target of 100 per cent conversion.

Exceptional restructuring cash costs of £5.0 million were incurred during the year, together with a £3.2 million special payment to the UK pension fund, resulting in cash generated from operations of £52.0 million (2009: £72.1 million).

Capital expenditure (including software) was £12.2 million compared with depreciation of £21.2 million. Proceeds from the sale of fixed assets amounted to £1.7 million and proceeds from the disposal of businesses amounted to £21.7 million. Net cash flow for the year was £47.0 million (2009: £56.3 million) leading to a significant reduction in net debt to £9.9 million (31 December 2009: £56.9 million).

In May 2010 the Group agreed a new committed facility of £70 million over three years to May 2013 with a club of four banks comprising HSBC, Royal Bank of Scotland, Santander and Fifth Third Bank of the USA. The new facility replaces an existing term loan which had been due for repayment in April 2011. The new facility, together with other bilateral term loans and working capital lines, give the Group facilities of over £110 million and provide a comfortable level of headroom over net debt.

The main financial covenants in the new facility restrict net debt to be below 2.5 times EBITDA before exceptional items in the first year, and then 2.0 times EBITDA before exceptional items in the second and third years. In addition, EBITDA before exceptional items is required to cover net finance charges by 5.25 times in year one, 6.25 times in year two and 6.5 times in year three. The covenants are to be tested quarterly on a rolling 12-month basis and were satisfied comfortably at 31 December 2010:

	Covenant	December 2010
Net debt/EBITDA before exceptional items	<2.5	0.2
EBITDA before exceptional items/net finance charges	>5.25	14.0

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.

Principal risks and uncertainties

Operational risks

The Group directly and indirectly serves large automotive OEM customers. This exposes the Group to several risks including fluctuating manufacturing volumes, the potential for significant quality and recall claims and customer default. In the event that one of the larger automotive manufacturers or suppliers defaults or seeks protection from its creditors, the Group may not recover all of the amounts owed to it.

In addition, the Group is exposed to risks of product liability, credit risk, supply chain issues, reliance on customers' commitments and other usual commercial risks in all of its businesses. The Group has a wide portfolio of products and operates in a number of market sectors.

There are established procedures in place to manage such risks, including production quality control procedures and insurance with reliable insurers, which have been put in place taking into account the risk involved and the marketplace in which the exposure arises. In addition, major contracts are reviewed by the Group Legal Counsel.

The Group has contractual and other arrangements with numerous third parties in support of its business activities. This report does not contain information about any of these third parties as none of the arrangements with them are considered essential to the business of the Group.

Financial risks

As an international business, the major financial risks faced by the Group are foreign exchange risk, interest rate risk, credit risk and liquidity risk and these are regularly considered by the Board.

Foreign exchange risk

The Group is exposed to transactional and translational foreign exchange risk. Transactional foreign exchange risk arises from sales or purchases by a Group company in a currency other than its own functional currency. Translational foreign exchange risk arises on the translation of profits earned in overseas currencies into GBP and the translation of net assets denominated in overseas currencies into GBP, being the Group's functional currency.

In order to mitigate against transactional foreign exchange risk, wherever possible Group companies enter into transactions in their functional currencies with customers and suppliers. When this is not possible, hedging strategies are undertaken through the use of forward currency contracts.

The Group uses forward currency profit hedges to mitigate against translational foreign exchange risk taking into account the level of forecast profits in foreign currencies, natural hedges and the cost of taking out cover.

Interest rate risk

The Group's interest rate management policy is to maintain a balance between fixed and floating rates of interest on borrowings and deposits, and to use interest rate derivatives such as caps when appropriate.

Credit risk

Exposure to credit risk arises as a result of transactions in the normal course of business and is applicable to all financial assets. It relates to the exposure of dealing with counter parties who are primarily customers and financial institutions.

Customer credit risk is managed at an operating company level with the oversight of Group management through a monthly Credit Committee chaired by the Group Finance Director. Credit evaluations are performed for all major customers and credit limits are authorised based on internal or external rating criteria and other financial sources. A letter of credit or payment in advance is obtained where a customer's credit quality is not considered strong enough for open credit.

Liquidity

The Group maintains a balance between availability of funding through short-term credit facilities and longer-term debt instruments, and maximising investment returns on its liquid resources. Group management regularly reviews the funding requirements of subsidiaries and the Group, and selects appropriate maturities of cash investments and repayment profile of debt instruments accordingly. The Group maintains back-up liquidity by retaining standby committed credit facilities. Oversight is provided by a Group Treasury Committee chaired by the Group Finance Director.

Directors' review

The Directors have reviewed the effectiveness of risk management and internal control during the year to 31 December 2010 and the period since then to the date of this report and have taken appropriate actions for improvement where necessary.

Measuring our performance

We use a number of financial key performance indicators (KPIs) to measure our performance:

Indicator		Target	2010	2009
Organic revenue growth		Each year, 2010 to 2014 Mid to high single digits	23.5%	(24.3)%
Operating profit margin		Group - in medium term 8-10% Components - in medium term 10% Sensors - in longer term 10% Secure Power - in short term 10% IMS - in medium term 6-8%	4.4% 4.6% 2.7% 7.3% 4.7%	1.4% 3.1% (3.7)% 8.1% 3.2%
Operating cash conversion		Each year, 2010 to 2012 100%	167%	1,040%
Earnings per share (EPS) growth		Year on year growth of 3% in excess of RPI	9.0p*	(1.2)p
Relative total shareholder return (TSR)		Above median performance against the FTSE Small Cap (excluding investment trusts)	Upper quartile	Between median and upper quartile

*Actual EPS as 2009 was a loss per share

Outlook for 2011

Trading conditions improved significantly in 2010 and we experienced good growth in the majority of our markets.

Strong customer demand has continued in 2011, particularly in our Components, Sensors and IMS divisions. The current order book and trading in January and February provide confidence for the first half of the year.

The excellent progress made to reposition the business, and actions continuing in 2011, will further improve Group performance.

Geraint Anderson                                                                                             Shatish D Dasani
Group Chief Executive                                                                                     Group Finance Director
16 March 2011                                                                                                  16 March 2011

Responsibility statement

We confirm that to the best of our knowledge:

·  the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company 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
16 March 2011                                                                                                  16 March 2011

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 2010

	£million (unless otherwise stated)	Note	2010	2009*
	Continuing operations
	Revenue	3	571.3	463.5
	Cost of sales		(471.2)	(391.7)
	Gross profit		100.1	71.8
	Distribution costs		(35.0)	(30.2)
	Administrative expenses		(37.8)	(53.8)
	Other operating income		2.4	1.2
	Operating profit/(loss)		29.7	(11.0)
	Analysed as:
	Operating profit before exceptional items	3a	25.2	6.4
	Exceptional items	6	4.5	(17.4)
	Finance income	5	19.5	15.8
	Finance costs	5	(24.0)	(21.4)
	Profit/(loss) before taxation		25.2	(16.6)
	Taxation	7	(6.7)	(2.2)
	Profit/(loss) from continuing operations		18.5	(18.8)
	Discontinued operations
	Profit from discontinued operations	4	7.4	(0.8)
	Profit/(loss) for the year		25.9	(19.6)
	Attributable to:
	Owners of the Company		25.9	(19.6)
	Non-controlling interests		-	-
	EPS attributable to owners of the Company - basic and diluted
	From continuing operations (p)	9	11.9	(12.1)
	From discontinued operations (p)	9	4.8	(0.5)
			16.7	(12.6)

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

Consolidated statement of comprehensive income

for the year ended 31 December 2010

£million		2010	2009
Profit/(loss) for the year		25.9	(19.6)
Other comprehensive income/(loss) for the year after tax
Exchange differences on retranslation of foreign operations		2.1	(15.6)
Tax on exchange differences		0.1	0.4
(Loss)/gain on hedge of net investment in foreign operations		(0.9)	4.5
(Loss)/gain on cash flow hedges taken to equity less amounts taken to income statement		(0.2)	2.1
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		(5.9)	(28.7)
Tax on actuarial amounts in pension deficit movement		8.1	-
Total comprehensive income/(expense) for the year		23.6	(56.9)

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

Consolidated balance sheet

at 31 December 2010

£million	Note	2010	2009
ASSETS
Non-current assets
Property, plant and equipment		93.5	111.3
Goodwill		66.9	65.9
Other intangible assets		14.7	17.6
Deferred tax assets		20.1	4.9
Total non-current assets		195.2	199.7
Current assets
Inventories		81.4	83.9
Trade and other receivables		92.7	85.1
Derivative financial instruments		0.4	0.3
Cash and cash equivalents		44.8	24.7
Total current assets		219.3	194.0
Total assets		414.5	393.7
LIABILITIES
Current liabilities
Borrowings		5.4	11.2
Derivative financial instruments		0.4	0.5
Trade and other payables		112.9	88.7
Income taxes payable		4.5	1.7
Provisions		3.0	8.9
Total current liabilities		126.2	111.0
Non-current liabilities
Borrowings		49.3	70.4
Derivative financial instruments		4.3	-
Deferred tax liability		8.9	5.9
Pensions and other post-employment benefits	11	41.2	43.7
Provisions		0.1	0.2
Other non-current liabilities		5.4	6.7
Total non-current liabilities		109.2	126.9
Total liabilities		235.4	237.9
Net assets		179.1	155.8
EQUITY
Share capital		38.8	38.7
Share premium		0.4	0.2
Share options reserve		1.6	1.0
Hedging and translation reserve		26.6	27.2
Retained earnings		109.7	86.3
Equity attributable to owners of the Company		177.1	153.4
Non-controlling interests		2.0	2.4
Total equity		179.1	155.8

Consolidated statement of changes in equity

for the year ended 31 December 2010

£million	Share capital	Share premium	Share options reserve	Hedging reserve	Translation reserve	Retained earnings	Sub- total	Non-controlling interest	Total
At 1 January 2009	38.7	0.2	1.2	(18.1)	53.9	134.6	210.5	2.4	212.9
Loss for the year	-	-	-	-	-	(19.6)	(19.6)	-	(19.6)
Other comprehensive income
Exchange differences on translation of foreign operations	-	-	-	-	(15.6)	-	(15.6)	-	(15.6)
Tax on exchange differences	-	-	-	-	0.4	-	0.4	-	0.4
Net gain on hedge of net investment in foreign operations	-	-	-	4.5	-	-	4.5	-	4.5

Net gain on cash flow hedges taken to equity less amounts taken to income statement	-	-	-	2.1	-	-	2.1	-	2.1
Actuarial loss on defined benefit pension scheme	-	-	-	-	-	(28.7)	(28.7)	-	(28.7)
Tax on actuarial amounts in pension deficit movement	-	-	-	-	-	-	-	-	-
Total other comprehensive income	-	-	-	6.6	(15.2)	(28.7)	(37.3)	-	(37.3)
Transactions with owners recorded directly in equity
Share-based payments	-	-	(0.2)	-	-	-	(0.2)	-	(0.2)
At 31 December 2009	38.7	0.2	1.0	(11.5)	38.7	86.3	153.4	2.4	155.8

£million	Share capital	Share premium	Share options reserve	Hedging reserve	Translation reserve	Retained earnings	Sub- total	Non-controlling interest	Total
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 cash flow statement

for the year ended 31 December 2010

£million	Note	2010	2009
Cash flows from operating activities
Profit/(loss) for the year		25.9	(19.6)
Taxation		7.1	2.4
Net finance costs		4.5	5.7
Exceptional items		(4.5)	18.0
Profit on disposal of discontinued operations		(7.1)	-
Operating profit from discontinued operations before exceptional items		(0.7)	(0.1)
Operating profit from continuing operations before exceptional items		25.2	6.4
Adjustments for:
Depreciation of property, plant and equipment		21.2	24.1
Amortisation of intangible assets		9.6	11.8
Other items		(0.8)	(5.6)
(Increase)/decrease in inventories		(6.0)	31.1
(Increase)/decrease in receivables		(15.2)	22.2
Increase/(decrease) in payables		26.2	(6.1)
Operating cash flow before exceptional payments		60.2	83.9
Special payments to pension funds		(3.2)	(2.2)
Exceptional restructuring costs		(5.0)	(9.6)
Net cash generated from operations		52.0	72.1
Income taxes paid		(7.0)	(5.3)
Net cash flow from operating activities		45.0	66.8
Cash flows from investing activities
Interest received		0.2	0.2
Purchase of property, plant and equipment		(10.8)	(9.4)
Proceeds from sale of property, plant and equipment and grants received		1.7	5.7
Development expenditure		(6.0)	(6.9)
Purchase of other intangibles		(1.4)	-
Acquisition of subsidiary (net of cash acquired)		-	(1.0)
Disposal of subsidiaries (net of cash in subsidiaries at date of disposal)		21.7	-
Net cash flow from/(used) in investing activities		5.4	(11.4)

 

£million	Note	2010	2009
Cash flows from financing activities
Issue of share capital		0.3	-
Interest paid		(2.9)	(4.0)
Repayment of borrowings		(86.5)	(17.6)
Proceeds from borrowings (net of arrangement costs of £2.0 million)		59.1	2.9
Finance leases		(0.1)	(0.1)
Dividends paid by the Company		(1.2)	-
Net cash flow used in financing activities		(31.3)	(18.8)
Net increase in cash and cash equivalents		19.1	36.6
Cash and cash equivalents at beginning of year	10	24.5	(12.2)
Exchange differences	10	0.6	0.1
Cash and cash equivalents at end of year	10	44.2	24.5
Cash and cash equivalents comprise
Cash at bank and in hand	10	44.8	24.7
Bank overdrafts		(0.6)	(0.2)
		44.2	24.5

The consolidated cash flow statement includes cash flows from both continuing and discontinued operations.

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 2010 which:

·  were approved by the Directors on 16 March 2011;

·  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 2011; and

·  will be filed with the Registrar of Companies following the Annual General Meeting on 19 May 2011.

2 Basis of accounting

The consolidated financial statements have been prepared under International Financial Reporting Standards (IFRS) as endorsed by the European Union. The financial information has been prepared using consistent accounting policies as described in the 2009 Annual Report, 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.

·  IFRS 2 "Share-based payment - Group cash settled share-based payment transactions;"

·  IFRS 3 "Business combinations (Revised);"

·  IAS 39 "Financial instruments: recognition and measurement - eligible hedged items (Amendment);" and

·  IFRIC 17 "Distribution of non-cash assets to owners."

No other revisions to adopted IFRS that became applicable in 2010 have a significant impact on the Group's financial statements.

3 Segmental reporting

For management purposes, the Group is organised into five 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, interconnect and integrated solutions;

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

·  General Industrial - manufacturing operations whose applications primarily relate to compounding.

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

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.

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

						2010
£million	Components	Sensors	Integrated Manufacturing Services	Secure Power	General Industrial	Total
Sales to external customers	234.6	143.5	91.4	85.2	16.6	571.3
Segment operating profit before exceptional items	10.7	3.9	4.3	6.2	0.1	25.2
Exceptional items						4.5
Operating profit						29.7
Net finance costs						(4.5)
Profit before taxation						25.2

						2009  (re-presented)
£million	Components	Sensors	Integrated Manufacturing Services	Secure Power	General Industrial	Total
Sales to external customers	190.8	105.4	75.1	59.1	33.1	463.5
Segment operating profit/(loss) before exceptional items	5.9	(3.9)	2.4	4.8	(2.8)	6.4
Exceptional items						(17.4)
Operating loss						(11.0)
Net finance costs						(5.6)
Loss before taxation						(16.6)

There are no significant sales between sectors.

The results for General Industrial in 2009 include those relating to AB Automotive which was closed down in that year.

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	2010	2009 (re-presented)
United Kingdom	99.8	81.3
Rest of Europe	226.4	192.4
North America	102.6	85.3
Central and South America	58.5	47.3
Asia	72.3	47.7
Rest of the World	11.7	9.5
Total continuing operations	571.3	463.5
Discontinued operations	28.4	36.1
Total revenue	599.7	499.6

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

During the year, the Group disposed of the following six businesses, all of which were part of the General Industrial division:

·  MMG Canada Limited;

·  Wire Systems Technology (Pty) Limited;

·  MMG Magdev Limited;

·  MMG India (Private) Limited;

·  WT Henley Limited; and

·  BAS Components Limited.

There were no discontinued operations during the year ended 31 December 2009. The results from discontinued operations for the year shown in the consolidated income statement are shown below:

£million	2010	2009
Revenue	28.4	36.1
Cost of sales	(21.5)	(28.7)
Gross profit	6.9	7.4
Distribution costs	(2.4)	(3.5)
Administrative expenses	(3.8)	(3.8)
Exceptional items	-	(0.6)
Operating profit/(loss)	0.7	(0.5)
Net finance costs	-	(0.1)
Profit/(loss) before taxation	0.7	(0.6)
Taxation	(0.4)	(0.2)
Profit/(loss) after taxation	0.3	(0.8)
Profit on disposal of discontinued operations	7.1	-
Profit/(loss) from discontinued operations	7.4	(0.8)

The profit on disposal in 2010 of £7.1 million is analysed below:

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

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

£million	2010	2009
Operating activities	0.2	4.2
Investing activities	0.4	(0.2)
Financing activities	-	(0.3)
Net cash flow	0.6	3.7

5 Finance income and finance costs

£million	2010	2009 (re-presented)
Interest income	0.2	0.2
Expected return on pension scheme assets	19.3	15.6
Finance income	19.5	15.8
Interest expense	(3.2)	(3.5)
Interest on employee obligations	(19.8)	(17.9)
Amortisation of arrangement fees	(0.6)	-
Unwinding of discount factor on minority put option	(0.4)	-
Finance costs	(24.0)	(21.4)
Finance costs - net	(4.5)	(5.6)

6 Exceptional items

£million	2010	2009 (re-presented)
Continuing operations
Restructuring costs:
AB Automotive - closure costs	-	4.1
AB Automotive - property profit	-	(0.9)
Sensors - European restructuring	-	7.4
Sensors - Romford closure	-	0.4
IMS - UK consolidation including Aylesbury closure	-	1.2
Components - BI Technologies closure of manufacturing	-	1.0
General Industrial restructuring	-	0.8
Other restructuring	-	0.6
Profit on sale of properties	(1.0)	(1.0)
Onerous property leases	0.8	-
Impairment of goodwill	-	3.8
Pensions curtailment gain from scheme closure	(4.3)	-
Total continuing operations	(4.5)	17.4
Discontinued operations	-	0.6
Total	(4.5)	18.0

a) 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.

b) Year ended 31 December 2009

For the year ended 31December 2009, the exceptional items relate to:

·  the closure costs of the climate control production sites in the UK, North America, Brazil and China following the decision to exit from the business;

·  the closure of sensors production in the UK which has transferred to China and India;

·  the cost of significant reductions in headcount in Germany in the Sensors division;

·  phase 1 of the consolidation of the IMS businesses in the UK into one business; and

·  goodwill impairment within Optek Technology Inc.

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/(credit) for the year

£million	2010	2009 (re-presented)
Current tax
Current income tax charge	11.3	3.5
Adjustments in respect of current income tax of previous year	(0.1)	0.4
Total current tax charge	11.2	3.9
Deferred tax
Relating to origination and reversal of temporary differences	(4.5)	(1.7)
Total tax charge in the income statement - continuing operations	6.7	2.2

UK tax is calculated at 28% (2009: 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 26.6% (32.4% excluding exceptional items).

b) Reconciliation of the total tax charge/(credit) for the year

£million	2010	2009 (re-presented)
Profit/(loss) before tax from continuing operations	25.2	(16.6)
Profit before tax multiplied by the standard rate of corporation tax in the UK of 28% (2009: 28%)	7.1	(4.6)
Effects of:
Items not deductible for tax purposes or income not taxable	1.1	0.5
Adjustment to current tax in respect of prior periods	(0.1)	0.4
Recognition and utilisation of previously unrecognised tax losses	(2.1)	(1.0)
Current year tax losses and attributes not recognised	0.3	7.9
Overseas tax rate differences	0.4	(0.1)
Other	-	(0.9)
Total tax charge reported in the income statement - continuing operations	6.7	2.2

The Emergency Budget on 22 June 2010 announced that the UK corporation tax rate will be reduced from 28 per cent to 24 per cent over a period of four years from 2011. The first reduction in the rate from 28 per cent to 27 per cent was substantively enacted on 21 July 2010 and will be effective from 1 April 2011. As this rate change was substantively enacted prior to the year end, the closing deferred tax assets and liabilities have been recalculated. 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.

8 Dividends

	2010 pence per share	2010 £million	2009 pence per share	2009 £million
Final dividend for prior year	-	-	-	-
Interim dividend for current year	0.8	1.2	-	-
	0.8	1.2	-	-

The Directors recommend a final dividend of 2.0p which when combined with the interim dividend of 0.8p gives a total dividend for the year of 2.8p 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 9 June 2011 to shareholders on the register on 27 May 2011.

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 155.0 million (2009: 155.0 million).

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

Pence	2010	2009 (re-presented)
Basic and diluted earnings/(loss) per share:
Continuing operations	11.9	(12.1)
Discontinued operations	4.8	(0.5)
Total	16.7	(12.6)

Headline earnings per share

The numbers used in calculating headline, basic and diluted earnings/(loss) per share are shown below:

£million	2010	2009 (re-presented)
Continuing operations:
Profit/(loss) for the period attributable to owners of the Company	18.5	(18.8)
Exceptional items	(4.5)	17.4
Tax effect of exceptional items	-	(0.4)
Headline earnings/(loss)	14.0	(1.8)
Headline earnings/(loss) per share (pence)	9.0	(1.2)

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

Million	2010	2009
Basic	155.0	155.0
Adjustment for share awards	-	-
Diluted	155.0	155.0

10 Reconciliation of net cash flow to movement in net debt

£million	Net cash/ overdraft	Borrowings and finance leases	Net debt
At 1 January 2009	(12.2)	(101.0)	(113.2)
Cash flow	36.6	14.8	51.4
Exchange differences	0.1	4.8	4.9
At 31 December 2009	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 31 December 2010	44.2	(54.1)	(9.9)

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 £1.5 million (2009: £2.1 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 in the consolidated income statement as an exceptional item. In addition, the Company agreed with the Trustee to apportion the pension scheme liabilities from the participating employers to TT electronics plc. This provides additional security to the scheme whilst providing the Group with greater operational flexibility.

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 and further planned contributions amount to: 2011 £3.5 million, 2012 £3.7 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 2010 using the projected unit credit method. Pension scheme assets are stated at their market value at 31 December 2010.

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

£million	2010	2009
UK	38.6	40.7
USA	2.2	2.4
Japan	0.4	0.6
	41.2	43.7

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:

%	2010	2009
Discount rate	5.4	5.8
Inflation rate	3.5	3.4
Increases to pensions in payment	2.5-3.5	2.5-3.4
Salary increases	n/a	3.9

A decrease in the discount rate by 0.1 % per annum increases the liabilities by approximately £6.0 million. An increase in the inflation rate of 0.1 % per annum increases the liabilities by approximately £3.5 million.

The assumptions have not been adjusted to reflect the UK Government's announcement in 2010 to change the basis for the indexation of occupational pension schemes from the Retail Price Index to the Consumer Price Index. The Group is in the process of evaluating the implications of this change and will communicate with affected members during 2011.

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:

%	2010	2009
Equities	7.4	7.8
Bonds	4.8	5.2
Gilts and swaps	3.4	3.8
Cash	0.1	0.1

The mortality tables applied by the actuaries at 31 December 2010 were S1NA tables adjusted by + one year, with future improvements increasing in line with medium cohort with a 1% p.a. floor. This compares with PA92 tables adjusted by + two years  with future improvements increasing in line with medium cohort at 31 December 2009. This change is in line with the assumptions used in the triennial valuation in April 2010.

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

£million	2010	2009
Equities	199.8	190.0
Bonds	36.8	36.8
Gilts and cash	63.0	61.6
Swaps	38.5	18.1
Fair value of assets	338.1	306.5
Present value of funded obligation	(379.3)	(350.2)
Net liability recognised on the Consolidated balance sheet	(41.2)	(43.7)

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	2010	2009
Current service cost	0.3	1.7
Curtailment gain	(4.3)	(1.9)
Interest on pension obligations	19.8	17.9
Expected return on schemes' assets	(19.3)	(15.6)

Of the current service cost of £0.3 million (2009: £1.7 million), £0.2 million (2009: £1.1 million) is included in cost of sales in the income statement, £nil million (2009: £0.3 million) is included in distribution costs and £0.1 million (2009: £0.3 million) is included in administrative expenses.

The actual return on schemes assets was a gain of £45.8 million (2009: a gain of £31.4 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 £30.9 million.

12 Related party transactions

	Purchase of goods and services			Sale of goods and services			Rents paid			Rents received			Amounts owed to related parties
£000	2010	2009		2010	2009		2010	2009		2010	2009		2010	2009
TT electronics plc	-	-		-	1		-	110		-	-		-	-
Subsidiaries	-	-		-	-		-	-		-	-		-	-
	-	-		-	1		-	110		-	-		-	-

Related party transactions solely related to transactions with JW Newman, the former Chairman, who retired from the Board on12 May 2010. All transactions were at arm's length prices on normal credit terms and were paid to agreed terms. There were no related party transactions during 2010.

 

END

 

 

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