TT Electronics plc

Thank you for being here at short notice, and thank you for being on the webcast if you're listening live or on record. I have to say it's been quite a long year and a short night, but we are now here, so I'd like to just start by acknowledging that 2024 was a difficult year for TT. Notwithstanding that, actually there were lots of positive spots. We had excellent performance in Europe, excellent performance in Asia. Our cash flow has really stepped up and helped our balance sheet. And we've completed what I think are very close to the final steps in sealing off and closing down and taking the risk out of our pension scheme. And there's been many other achievements as well. On the other hand, we've had plenty of challenges and a few opportunities to exploit. I'd like to thank Peter France for all of his contribution in 2024 and before. I'd like to thank the leadership team and I'd like to thank everyone in TT for navigating those challenges and delivering what in the circumstances was a good outcome. As you know, the accounts were delayed. But they are now resolved, signed, and we are announcing our results today. And that means we can put even more focus on delivering 2025. Eric's kindly agreed to step up as acting CEO. And as I'm sure all of you know, Mark is retiring today. He's done an incredible, is it nine or 10 years service and overseen the transformation of the company. the pension scheme and provided us with a platform for growth. On behalf of the company, the board and all of our stakeholders, I'd really like to express our deep gratitude and thanks. And we wish you well with your non-executive director roles and your extra leisure time. So looking forwards, I think our operations are stabilising. We still have good end markets, but as everyone knows, we are operating in extraordinary macroeconomic uncertainty. And the board is very focused on delivering the 2025 outlook, making the business more predictable, generating yet more cash flow in the year, and exploiting the value drivers that we do have as a business. So I'm not going to say much more. There'll be an update on the 30th of June when we hold our AGM. And I'd now like to hand over to Mark for the results and Eric for the business update. And, of course, we'll all be available for Q&A at the end. Thank you.

Great. Thank you. Thank you, Juan. Okay, one sec. Yeah, thank you, Warren. Good morning, everyone. I'd like to welcome you, everyone in the room, and those on the webcast to the 2024 final results presentation. I'd just like to start, however, by thanking Warren and the board for the opportunity as acting CEO, and it's a privilege to lead and serve what is fundamentally a good business with solid prospects, and I fundamentally believe that. I'd also like to thank Mark for the professionalism and effective handover as CFO designate over the past three months. And finally, thank Peter, with whom it was a pleasure to work with and I very much appreciated his support. so there's clearly been a number of challenges that the business has had to navigate this year and we'll cover how we've addressed them and how we are addressing them throughout this presentation despite the challenges we have made good strategic progress against many areas of the business and have implemented a number of changes at the start of the year that has made a positive impact including reorganising the management structure, refreshing our strategy, divesting three sites described as Project Albert, and introducing Project Dynamo as our improvement programme. And the progress we have made leaves us well-placed for the future. So looking at the performance of the business, overall we saw a small organic revenue decline, but delivered strong operational and margin improvements in Asia and Europe, offset by North America. European margin was up 440 basis points to 14.4%, driven by operational leverage on revenue growth and good efficiency improvements, and the Asian margin was up a similar amount, 410 basis points to 15.2%, again driven by good efficiency improvements. This positive progress was offset by the North America region, where destocking in the components market led to significant volume and revenue shortfalls. We also had the operational issues in Kansas and Cleveland that impacted our results more than anticipated. As a result, we have recognized non-cash goodwill and asset write-down costs of 52.2 million and made a prior year negative restatement of 5.7 million pounds. Encouragingly, overall, we saw good order intake in 2024, up 9% organically over 2023, and book to bill in the period was a positive 103%. The work on inventory has also gone really well, and the inventory work stream delivered a £13 million reduction in inventory, supporting our excellent cash conversion of 117% and leverage of 1.8 times, within our target range of 1 to 2 times. Our strong free cash flow was boosted by a further £11 million net pension surplus refund to TT in 2024. Mark has made significant progress on concluding the pension issue, overcoming a huge £270 million buyout deficit over his 10 years within the group. A remarkable achievement. Looking forward now, our focus is to lift profitability and margin through a combination of operational improvement and driving the top line. In terms of operational improvement, we have taken action across the business. In particular, our plans in Kansas have well progressed, and we are seeing the results coming through. In Cleveland, the improvement plan is underway, but the full benefit will take longer to realise than originally anticipated. I'll add more colour on a later slide, along with further details of operational improvements and cost savings at that site. Project Dynamo continues to provide the catalyst for operational efficiency improvement, growth and innovation, and I remain confident that this will support our financial plans. We have a clear action plan driving performance towards delivery of our median term financial framework. However, in the short term, components demand improvement remains difficult to forecast. We have seen the evolving tariff arrangements by the USA, as well as potential retaliatory actions by other nations, create more uncertainty in the market. As a result, we now expect adjusted operating profit to be in the range 32 million pounds to 40 million pounds. Furthermore, the Board has concluded that it is prudent to pause the dividend and will not be recommending a final dividend for 2024. We've also announced this morning we're conducting a strategic assessment of the components business and looking at options to maximise shareholder value. The management team and the Board are committed to driving group performance towards our medium-term goals and taking the necessary actions to deliver long-term value creation. I'll now hand over to Mark for the final time to take you through the financial results.

Thank you, Eric, and good morning, everyone. Clearly, it has been a challenging year, and I will set out clearly the performance of the North American region. But I also want to make sure you do get a clear understanding of the things that Warren alluded to that have gone really well in the year, the performance of the other two regions and the cash generation. So here we've set out the overall financial metrics for the business, and as we did at the half year, we've shown you the numbers both including and excluding the contribution from the Albert divestment. Revenue was down by 13% on a constant currency basis, but 5% excluding the divestment. And if you adjust for the impact of pass-through revenues, down 2% on a like-for-like basis. You can see the moving parts in the bridge on the bottom right-hand side of the slide. Adjusted operating profit declined by 17% at constant currency and 13% excluding the divestment. The comparison to 2023 reflects the restatement of the comparative year that Eric just referenced and as we highlighted in our announcement of the 25th of February. The adjusted operating profit is net of £2.3 million of severance costs split roughly 75% in the first half and 25% in the second half. Adjusted operating margins dropped by 60 basis points at constant currency to 7.1% and excluding the divestment were 7.4%. Earnings per share declined by 30% at constant currency due to the reduction in operating profit together with a small increase in interest expense due to higher interest rates and a slightly higher tax rate of 28.3%. On a more positive note, there was a £27.7 million free cash inflow with significant improvement in the second half of the year. Full-year cash conversion was 117%, supported by discipline over capital expenditure and a £13 million reduction in inventory. We also received a further pension surplus refund earlier than planned. The UK refund net of the US buyout that we discussed in the first half contributed £9.4 million to free cash flow. So £18.3 million of free cash generation from trading performance and £9.4 million from the good work we've been doing on the pension schemes. And as a result, leverage has remained within our target range despite the reduction in EBITDA. As cash generation continues, we expect to see further reduction in leverage by the end of this year. Retail and invested capital declined due to the reduction in operating profits. And finally, as Eric has just said, the board has decided to pause the final dividend given the current broad macroeconomic uncertainty and associated business risks. So before we move on to the performance of the regions, this is the end market growth which shows very similar themes to the half year. This slide shows the revenues and growth by market excluding the divestment of the Albert sites from both periods. Healthcare was down 14% at constant currency. Roughly half of the reduction relates to the unwind of zero margin pass-through revenues, all affecting the Asia region. As in the first half, the balance of the reduction impacted Europe and North America, reflecting softer life sciences demand and the end of certain contracts in North America as we've prioritised certain aerospace and defence customers. Aerospace and defence continues to grow strongly, albeit not quite at the 40% that we delivered in the first half, with the main benefit in Europe, but we did also see growth with some key customers in North America. Automation and electrification declined by 1% at constant currency, but was marginally up, excluding pass-through revenues, with Asia benefiting from growth in metro rail and semiconductor equipment demand, while Europe and Asia were both down on components demand. And finally, distribution, which is where we have continued to experience our main challenges. The 27% decline is very consistent with what we saw in the first half, with the biggest impact in the North America region. Inventory levels did reduce in 2024, but as we've said previously, we anticipate a longer recovery path and aren't assuming any revenue growth in components in 2025. So moving on to the regional performance, As at the half year, in the appendix, you'll find the results based on the old divisional structure. So starting with a real bright spot, the European region, which built on a strong first half performance to deliver a 14% revenue increase on an organic basis and a 64% increase in adjusted operating profit excluding the divestment. Adjusted operating margins in the prior year were reported at 7%, but have now improved to 14.4% excluding divestments. 290 basis points of that improvement was a result of the divestment, but the vast majority, 440 basis points, came from organic improvement. And that splits roughly one-third related to operational leverage on growth and two-thirds from substantial efficiency improvements, evidence of Project Dynamo in action. Clearly, North America has faced a far more difficult year with the challenging market backdrop related to the industry-wide destocking in components, along with our own execution challenges in Kansas City and Cleveland. The loss of high contribution components margins, along with factory inefficiencies and roughly £2 million of severance costs taken above the line, meant the operating profit dropped by 115% on a 17% revenue reduction. This equates to around a 50% operational leverage impact, excluding the severance costs. It's these challenges, along with an updated view of recovery, that resulted in the £52 million non-cash write-down of goodwill and fixed assets in this region. Order intake in year was 10% up on 2023, giving book to build up right around one times. But as a result, we're not anticipating revenue growth in North America in 2025. This is in part links to the deferral of some revenues in the Cleveland order book out of 2025 into 2026. That said, we do expect improvements as a result of our self-help actions. and Eric will update you shortly on the status of the operation improvement activities for the Kansas City and Cleveland sites. Finally, Asia, which, like Europe, again delivered very strong profit improvement. On a constant currency basis, revenue was down by 7%, but adjusting for the divestment and the unwind of zero margin pass-through, revenues were up by 6%. Pass-through revenues reduced to £5 million in 2024 and are expected to drop to nil in 2025. Adjusted operating profit increased by 26% in constant currency and 34% excluding the divestment. Operating margins improved by 410 basis points excluding the divestment with a similar profile to Europe in terms of growth versus efficiency benefits. With partial revenues now much lower, the impact on margins is far less pronounced, down to about 40 basis points. As we look into 2025, already well into 2025, it will be a busy year for the region as we prepare to transfer some revenues from China into Malaysia at the request of one of our customers. All of the preparation work will be done in 2025, and that will entail incurring around £2 million of one-off costs in adjusted operating profit in the year. And these one-off costs are expected to offset additional efficiencies we would otherwise see in the year. Finally, and to end on a positive note, I've shown here our cash flow waterfall. I said at our interim results that there were the signs of structural improvement in cash flow that we've talked about previously. This has been borne out in our second half cash performance. You may recall that in the first half, we had a working capital outflow of 21 million pounds. We said at the time we expected to get back to a modest working capital outflow for the year, supported by inventory reduction, and that's exactly what's happened. We generated a 15 million pound inventory reduction in the second half, giving us a 13 million pound reduction in inventory for the year overall. This, combined with discipline over capital expenditure, resulted in full-year cash conversion of 117%. Exceptional cash costs were only £0.6 million. So in a difficult year, free cash flow from the base business was £18.3 million. This was complemented by a £9.4 million inflow related to pensions. In the first half, we completed the buyout of the larger US defined benefit scheme, which dealt with that exposure at a cash cost of £1.8 million. In December, we received a further refund from the UK scheme of £15 million gross or £11.2 million net of tax. This follows the £3.2 million net payment received in December of 2023. At the end of December, there was still a surplus on the balance sheet of £7 million, which is expected to cover any remaining true-up payments to the insurer, LNG, and the remaining costs of the scheme through to wind-up, which should happen over the next 12 months, give or take. net debt excluding leases reduced by 25 million pounds to 80 million pounds and we ended the year with a leverage of one point times within our target range and we expect to see further improvement by the end of 2025. this is my 21st and last set of results with tt The business has changed an awful lot over the last 10 years, from a business when I started making £21 million of profits with a £270 million pension deficit to one which, even with its challenges, is more profitable, is cash generative, and with good opportunity for improvement. I will continue to follow TT with interest. With that, I'll hand back to Eric.