TIDMTTG
RNS Number : 4463L
TT Electronics PLC
19 July 2017
19 July 2017
Certain information contained in this announcement constituted
inside information (as defined by Article 7 of Regulation (EU) No
596/2014) prior to its release as part of this announcement.
TT Electronics plc
('TT Electronics' or 'the Company')
Proposed disposal of the Transportation Sensing and Control
division to AVX Corporation for GBP118.8m in cash
TT Electronics, a global provider of engineered electronics for
performance critical applications, announces that it has entered
into a conditional agreement for the sale of its Transportation
Sensing and Control division (the 'TS&C Division') to AVX
Corporation, through its subsidiary AVX Limited, for a cash
consideration of GBP118.8 million on a cash free, debt free basis
(the 'Disposal'). As a result of the Disposal, TT Electronics will
be in a much stronger position to focus on its strategy of
investing in structural growth markets where there is increasing
electronic content, with the benefit of significantly enhanced
financial capacity.
Highlights:
-- Total consideration of GBP118.8 million, payable in cash on completion
o an attractive valuation of approximately 11.1x the TS&C
Division's FY16 underlying EBIT
-- Following the Disposal, TT Electronics will benefit from:
o improved geographic and market balance;
o a higher operating margin;
o enhanced financial capacity; and
o additional management focus on the remaining business
-- Net cash proceeds arising from the Disposal will be used to:
o pay down the Company's existing net debt, and
o fund further investment to accelerate growth through capital
investments and acquisitions
-- Pattern of trade across the remaining business has been good;
order book remains strongly ahead
-- Progressive dividend policy unchanged
-- Completion expected in Q4 2017
The Disposal is conditional, amongst other things, upon
anti-trust clearance, approval from TT Electronics shareholders and
the amount of the intra-group debt owing from the TS&C Division
to the retained TT Electronics group being no greater than EUR65
million. A circular containing further details of the Disposal and
a notice convening a general meeting will be sent to TT
Electronics' shareholders in due course.
Richard Tyson, CEO, commented:
"This is an important step for TT. Having returned the TS&C
Division to growth and profitability faster than expected, we
believe it will be better positioned to achieve its full potential
under the ownership of AVX. Now is the right time to realise the
value of the TS&C Division for the benefit of TT and our
shareholders.
Following the disposal, TT will be a higher margin, higher
quality business, with an improved geographic and market balance.
We will continue to focus on structural growth markets where there
is increasing electronic content. Having improved our financial
capacity, we will continue our proven strategy of deploying our
resources to enhance TT's potential and drive growth and value for
shareholders."
For further information please
contact:
TT Electronics plc Tel: +44 (0)1932
825 300
Richard Tyson, Chief Executive Officer
Mark Hoad, Chief Financial Officer
Emma Darke, Head of Investor Relations and Communications
MHP Tel: +44 (0)20
3128 8100
Tim Rowntree / Katie Hunt / Ivana Petkova /
Hannah Winter
A webcast for analysts will be held at 08:15 (BST) this morning.
Conference call number: UK: +44 (0)330 336 9413 pin: 9650975
weblink:
http://webcasting.brrmedia.co.uk/broadcast/596c7390cb754d51a2c451cf
Note to editors: The TS&C Division's underlying* EBIT for
the twelve months to 31 December 2016 was GBP10.7m before the
allocation of central costs of GBP7.5m and its underlying profit
before tax and statutory loss before tax were GBP0.1 million and
GBP(1.8) million respectively. The value of gross assets was
GBP127.1 million.
* Profit/loss excluding the impacts of significant restructuring
programmes, significant one-off asset impairments and business
acquisition and divestment related activity
Gleacher Shacklock LLP (Gleacher Shacklock) has acted as
financial adviser to TT Electronics on this transaction. Gleacher
Shacklock, which is authorised and regulated in the United Kingdom
by the Financial Conduct Authority, is acting exclusively for TT
Electronics plc and for no one else in connection with the Disposal
and will not be responsible to anyone other than TT Electronics plc
for providing the protections afforded to its clients or for
providing advice in relation to the Disposal, the contents of this
announcement or any other matter referred to in this
announcement.
Numis Securities Limited (Numis), which is authorised and
regulated in the United Kingdom by the Financial Conduct Authority,
is acting exclusively for TT Electronics as sponsor for the
Disposal and for no-one else in connection with the subject matter
of this announcement. Numis will not be responsible to anyone other
than TT Electronics for providing the protections afforded to its
clients or for providing advice in relation to the subject matter
of this announcement or the Disposal. To the fullest extent
permitted by law, neither Numis nor any of its connected persons
owe any duty to the recipient whether in contract, in tort
(including negligence), under statute or otherwise with respect to
or in connection with the recipient's use of this announcement.
Introduction
TT Electronics, a global provider of engineered electronics for
performance critical applications, announces that it has entered
into a conditional agreement for the sale of its Transportation
Sensing and Control division to AVX Corporation, through its
subsidiary AVX Limited, for a cash consideration of GBP118.8
million on a cash free, debt free basis.
The Disposal is a Class 1 transaction for TT Electronics under
the Listing Rules and is therefore conditional, amongst other
things, upon the approval of TT Electronics' shareholders. A
circular containing further details of the Disposal and a notice
convening a general meeting will be sent to TT Electronics'
shareholders in due course.
Background to and reasons for the Disposal
TT Electronics' strategy is to build leading positions in
markets with structural growth drivers where there is increasing
electronic content. TT Electronics is focused on areas of the
market where its industry expertise and focused research and
development ('R&D') investment create strong and differentiated
capabilities which are valued by TT Electronics' customers to solve
their most complex challenges. The directors of the Company (the
'Directors') believe that this, in turn, will create profit growth
and will position TT Electronics to create long term value for TT
Electronics' shareholders. TT Electronics' business has been
repositioned and delivered operational efficiency improvements,
driving strong organic profit growth and good cash generation. This
performance has been supplemented by the positive contribution from
Aero Stanrew, a business that TT Electronics acquired in December
2015 and has since successfully integrated.
Under strong leadership, the TS&C Division has made
significant progress, delivering strong sales growth and positive
operating margins in 2016. The TS&C Division has:
-- turned-around and returned to profit;
-- re-focused R&D efforts on sensing and control for safety,
fuel efficiency and emission control;
-- achieved sales success in faster growing geographies; and
-- broadened its customer base.
The Directors believe that the market offers strong growth
potential for the products provided by the TS&C Division and
the improved prospects for the TS&C Division should continue in
the medium term. Nevertheless, the Directors believe that the
TS&C Division would have significantly improved prospects to
enhance its potential by working with a partner like AVX
Corporation that can expand access in particular to the US and Far
East markets.
The Directors further believe that the opportunities for the
TS&C Division, its management and employees, will benefit from
belonging to a larger participant with significant financial
resources.
Prospects of TT Electronics and its subsidiary undertakings
following completion of the Disposal (the 'Continuing Group')
The Directors believe that TT Electronics has positioned itself
as a global provider of highly engineered electronics focused on
areas of the market that have attractive structural growth drivers,
as follows:
-- industrial: electronics future-proofing next generation
technology including 'smarter home', 'factory 4.0' and higher
specification consumer products;
-- aerospace and defence: more electrical components and power
systems on aircraft, leading to a demand for electrical components
with reduced size, weight and power consumption;
-- transportation: increasing electronic content in the rail,
truck and selected areas of the automotive market, as a result of
the market trend towards electric and hybrid electric vehicles;
and
-- medical: increased demand for more sophisticated diagnostic,
imaging and monitoring equipment, creating a constant drive towards
improved patient safety.
TT Electronics develops differentiated offerings using its
engineering expertise and targeted R&D efforts in these higher
growth areas of the market. The Directors believe that TT
Electronics' strategy will make the Continuing Group increasingly
balanced across its end-markets and geographies, with good
opportunities for organic product investment and inorganic growth.
The strategy is expected to move TT Electronics to be a higher
margin, higher quality business in the medium term and drive
increasing growth and value for its shareholders.
The Disposal provides TT Electronics with:
-- realised value now for the TS&C Division at an attractive
price reflecting its quality and prospects;
-- significant cash resources for the Continuing Group to
promote growth and further value enhancement for shareholders;
and
-- greater management focus on the Continuing Group and the ability to accelerate its strategy.
Information on the TS&C Division
The TS&C Division develops both sensors and control
solutions for automotive original equipment manufacturers and tier
one suppliers, including powertrain providers for passenger cars
and trucks. The TS&C Division also operates within the
two-wheeler market and develops a wide range of products for
multiple applications on a vehicle, from power controls, gear
position and pedal sensors to fluid and emission sensors, with
almost all of them focused on the safety and driver assistance
features required by customers.
The TS&C Division operates in nine locations worldwide:
Austria, China, Germany, India, Mexico, Romania, South Korea, the
UK and the USA, comprising R&D and manufacturing sites and
sales offices. For the year ended 31 December 2016, the TS&C
Division employed an average of 1,679 people, 180 of whom were in
product development, reflecting the division's strong R&D
focus.
In the financial year ended 31 December 2016, the TS&C
Division generated GBP237.4 million of revenue compared to GBP205.9
million for the year ended 31 December 2015, and GBP3.2 million of
underlying operating profit compared to a GBP1.4 million underlying
operating loss for the year ended 31 December 2015. The 2016
operating profit is reported after the allocation of GBP7.5 million
of central costs (2015: GBP6.7 million). The 2015 and 2016
underlying operating profit numbers do not reflect restructuring or
acquisition related costs.
Principal terms and conditions of the Disposal
An agreement between TT Electronics, AVX Limited and AVX
Corporation was entered into on 19 July 2017, pursuant to which TT
Electronics has agreed to procure that certain subsidiaries within
the Continuing Group will sell to AVX Limited the entire issued
share capitals of the companies that make up the TS&C Division.
In addition, certain shareholder loans owed from the TS&C
Division to the Continuing Group will be transferred to AVX
Limited.
The consideration for the Disposal is GBP118.8 million on a cash
free, debt free basis and is payable in cash on completion of the
Disposal ('Completion').
The Disposal is expected to complete in Q4 2017. Completion is
conditional upon, among other things, anti-trust clearances having
been obtained (or the Disposal otherwise being deemed cleared)
under German, Austrian, Hungarian and Slovakian anti-trust law (to
the extent required), the approval of the Company's shareholders at
a general meeting of the Company and the amount of the intra-group
debt owing from the TS&C Division to the Continuing Group being
no greater than EUR65 million as at completion. The tax costs
associated with reducing the intra-group debt to satisfy the
above-mentioned condition are expected to be up to EUR10.9 million
and this cost will be borne by TT Electronics.
A termination fee in the amount of approximately GBP3.0 million
will become payable by TT Electronics to AVX Limited if the
Disposal is not approved by the Company's shareholders at a general
meeting of the Company. In no circumstance shall the termination
fee payable by TT Electronics (inclusive of VAT) exceed one per
cent. of the market capitalisation of TT Electronics.
Use of proceeds, financial effects of the Disposal and strategy
of the Continuing Group
Following Completion, the Continuing Group will use the net
proceeds of the Disposal (being GBP100.7 million after tax costs
and fees and expenses) to repay all of the Continuing Group's
existing bank debt (net debt being GBP55.4 million and gross
indebtedness being GBP102.6 million as at 31 December 2016),
leaving the Continuing Group in a net cash position with resultant
interest savings. Thereafter, the Continuing Group intends to
deploy its capital and resources, including the proceeds of the
Disposal, in line with the adopted capital allocation framework
(described below).
Notwithstanding the significant reduction in the Continuing
Group's aggregate profits as a result of the disposal of the
TS&C Division, the Continuing Group's financial capacity will
be greatly improved taking into account the removal of the TS&C
Division's material working capital requirements and the proceeds
from the Disposal with which the Company's existing bank debt will
be repaid, resulting in a net cash position. The disposal of the
lower margin TS&C Division will also result in the Continuing
Group being a higher margin business.
The board of directors of the Company (the 'Board') intends to
continue its proven strategy to invest in the business in order to
drive growth. It is intended that this investment will include both
capital investments within existing operations as well as making
acquisitions that fit with the Continuing Group's strategy and meet
the Board's financial criteria. The Board is currently examining a
number of acquisition opportunities and remains committed to making
value creative investments to support the acceleration of the
Group's strategy.
The Board's objective is to maximise long term shareholder
returns through a disciplined deployment of the TT Electronics
Group's capital and resources. To support this, the Board has
adopted the following capital allocation framework:
-- Investment for organic growth: TT Electronics will invest in
R&D and capital projects to support TT Electronics' strategy of
targeting structural growth markets where there is increasing
electronic content and where TT Electronics has a competitive
advantage.
-- Regular returns to shareholders: the Board recognises the
importance of the regular semi-annual dividend to TT Electronics'
shareholders, having maintained the dividend through 2014 and 2015
and increased the 2016 dividend. It is the Board's current
intention, all other things being equal, to at least maintain this
level of dividend for the financial year ended 31 December
2017.
-- Acquisitions in line with strategy: The Board believes that
TT Electronics has a well-defined and disciplined approach to
acquisitions. The Board continues to explore acquisition
opportunities to accelerate growth in attractive markets where the
TT Electronics Group can use its expertise to expand its market
presence and/or enhance its offerings to customers, as it has with
the successful recent acquisition of Aero Stanrew. The Board is
rigorous in its approach to acquisition investment appraisal,
applying a 12 per cent. pre-tax return on invested capital hurdle
rate on all acquisition projects.
-- Leverage and treatment of excess capital: the Board is
committed to maintaining an efficient balance sheet, appropriate to
the Continuing Group's medium term investment requirements.
Accordingly, the Board has adopted a medium term leverage target of
up to 2.0x net debt/EBITDA (excluding pension deficits), although
the Board is prepared to move above this range temporarily if
circumstances warrant it. The Board will regularly review the
Continuing Group's balance sheet and medium term investment
opportunities in light of this policy, and return excess capital to
shareholders if and when the Board considers it appropriate.
The Board intends to keep the Continuing Group's capital
structure under regular review. As stated above, the Board is
currently examining a number of organic investment and acquisition
opportunities and remains committed to making value creative
investments to support the acceleration of the Group's
strategy.
In the year ended 31 December 2016, the TT Electronics Group
reported revenues of GBP569.9 million and profit before tax of
GBP23.2 million, and the TS&C Division reported revenues of
GBP237.4 million and underlying operating profit of GBP3.2 million,
after the allocation of GBP7.5 million of central costs, and this
underlying operating profit does not reflect restructuring or
acquisition related costs. These GBP7.5 million of central costs,
which relate primarily to management and functional support, will
be retained by the Continuing Group. While the Board expects to
make GBP1 million of annualised efficiency savings in the short
term, it is intended that the bulk of this skill and capacity will
be retained by the Continuing Group to support the future growth
and development of the business. Going forward, the Board expects
that in the near term the Continuing Group will have an underlying
effective tax rate of 20-22 per cent., reflecting the changed
geographic spread of the operations and the mix of the business
post the Disposal.
The Board maintained the level of the dividend for the financial
year ended 31 December 2015 despite falling profitability during
2015. For the financial year ended 31 December 2016 the Board paid
a total dividend of 5.6 pence per share. This reflects the strong
performance of the Group in 2016. It is the Board's current
intention, all other things being equal, to at least maintain this
level of dividend for the financial year ended 31 December
2017.
Expected timetable to Completion
A circular containing further details of the Disposal and a
notice convening a general meeting will be sent to TT Electronics
shareholders in due course. Completion is expected to occur in Q4
2017.
A copy of this announcement will be available on TT Electronics'
website at www.ttelectronics.com
The person responsible for arranging release of this
announcement on behalf of TT Electronics is Lynton Boardman, Group
General Counsel and Company Secretary.
Important notices
This announcement contains statements which are, or may be
deemed to be, "forward-looking statements" which are prospective in
nature. All statements other than statements of historical fact are
forward-looking statements. They are based on current expectations
and projections about future events, and are therefore subject to
risks and uncertainties which could cause actual results to differ
materially from the future results expressed or implied by the
forward-looking statements. Often, but not always, forward-looking
statements can be identified by the use of forward-looking words
such as "plans", "expects", "is expected", "is subject to",
"budget", "scheduled", "estimates", "forecasts", "intends",
"anticipates", "believes", "targets", "aims", "projects" or words
or terms of similar substance or the negative thereof, are
forward-looking statements, as well as variations of such words and
phrases or statements that certain actions, events or results
"may", "could", "should", "would", "might" or "will" be taken,
occur or be achieved. Such statements are qualified in their
entirety by the inherent risks and uncertainties surrounding future
expectations. Forward-looking statements include statements
relating to (a) future capital expenditures, expenses, revenues,
earnings, economic performance, indebtedness, financial condition,
dividend policy, losses and future prospects, (b) business and
management strategies and the expansion and growth of TT
Electronics' operations, and (c) the effects of global economic
conditions on TT Electronics' business.
Such forward-looking statements involve known and unknown risks
and uncertainties that could significantly affect expected results
and are based on certain key assumptions. Many factors may cause
actual results, performance or achievements of TT Electronics to be
materially different from any future results, performance or
achievements expressed or implied by the forward-looking
statements. Important factors that could cause actual results,
performance or achievements of TT Electronics to differ materially
from the expectations of TT Electronics, include, among other
things, general business and economic conditions globally, industry
trends, competition, changes in government and other regulation and
policy, including in relation to the environment, health and safety
and taxation, labour relations and work stoppages, interest rates
and currency fluctuations, changes in its business strategy,
political and economic uncertainty and other factors as may be
identified in Part 2 (Risk Factors) of the circular to be published
in relation to the Disposal. Such forward-looking statements should
therefore be construed in light of such factors. Neither TT
Electronics nor any of its directors, officers or advisers provides
any representation, assurance or guarantee that the occurrence of
the events expressed or implied in any forward-looking statements
in this announcement will actually occur. You are cautioned not to
place undue reliance on these forward-looking statements, which
speak only as of the date hereof. Other than in accordance with its
legal or regulatory obligations (including under the UK Listing
Rules and the Disclosure and Transparency Rules), TT Electronics is
not under any obligation and TT Electronics expressly disclaims any
intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise.
This information is provided by RNS
The company news service from the London Stock Exchange
END
DISGSGDRXDBBGRC
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