TT Electronics delivers strong growth in H1 with a record order intake

TT Electronics plc (LON:TTG) has announced its interim results for the half-year ended 30 June 2022.


·    Revenue up 10% on a constant currency basis, 8% on an organic basis, reflects our successful positioning in structural growth markets and new project wins

·    Book to bill of 144% and record order intake, with 23 new significant contract wins in the half delivering over £60m of multi-year revenues.

·    Order book more than double pre-pandemic levels and up 55% vs. prior year

·    Adjusted operating profit up 5% at constant currency

·    Pricing action offsetting inflationary pressures

·    Investment in inventory to support increased customer demand, extended material lead times and shipment delays impacting cash flow and leverage, as anticipated

·    Statutory operating profit down 4% at £8.9m, statutory basic EPS of 2.3p

·   Interim dividend increased 11% to 2.0p per share reflecting confidence in full year outlook and future prospects


·    Sales momentum strong and continuing;

·    2022 expected revenues already fully covered and

·    orderbook creating a step-change in visibility of revenue for 2023

·    Clear line of sight to delivering our unchanged, full year expectations with Group performance benefitting from an acceleration in growth, pricing action and the completion of our self-help programme

·    Improved H2 profit and cash generation supports expectations that net debt to adjusted EBITDA will be within 1-2 times target range at year-end

£ million (unless otherwise stated)Adjusted Results1

H1 2022
Adjusted Results1

H1 2021
Adjusted Results1

Adjusted Results1

Constant fx
Statutory Results

H1 2022
Statutory Results

H1 2021
Operating profit18.315.915%5%8.99.3
Operating profit margin6.8%6.7%10bps(30)bps3.3%3.9%
Profit before tax15.014.16%(3)%5.67.5
Basic earnings per share6.6p6.5p2%(8)%2.3p3.3p
Return on invested capital (20212)8.93%9.1%(20)bps
Cash conversion(55)%(7)%
Free cash flow1(23.5)(10.3)
Net debt (202121142.0102.5
Leverage (20212)12.4x1.7x
Dividend per share2.0p1.8p

Richard Tyson, TT Electronics Chief Executive Officer, said:

“We have delivered strong growth in the first half, in a challenging execution environment, reflecting our ability to win new business and good demand in our target end markets. We have secured a record order intake, with more customer wins and continue to expand our pipeline of new business opportunities, many on long term programmes.

Our order book fully covers the increased revenue expected in the second half. This, coupled with pricing actions to recover inflation and further benefits from our self-help programme, means our outlook for the full year is unchanged. While conscious of the wider macro environment, we are well positioned to deliver an improved margin and cash performance in the second half, and further growth in 2023.”



We have delivered a good performance in the first half with strong revenue growth, as our teams continue to execute in a challenging environment. Order demand has continued at record levels with increased multi-year programme wins over recent reporting periods. The Group’s order book now stands at £6661 million, up 55 per cent at constant currency compared to a year ago, and more than double pre-pandemic levels. This strength reflects both our collaborative approach with customers and the momentum in the end markets in which we operate, creating a step-change in visibility and giving us confidence in further attractive organic growth. Constant currency revenue growth was 10 per cent in the half, despite some programme timing, COVID-19 and supply chain issues.

The Group’s operating performance was led by outstanding results from our Sensors and Specialist Components (S&SC) division which is delivering strong top line growth and the benefits of this, and our self-help actions, are evidenced by excellent profit and margin growth. Global Manufacturing Solutions (GMS) delivered strong growth which offset the impact of temporary headwinds. We expect GMS margins to show improvement in the second half. The first half Power and Connectivity (P&C) performance was, as expected, impacted by timing of revenues; we have clear line of sight to deliver an improved second half performance as these effects reverse and we execute on our strong order book, and as pricing actions continue to take effect.

Demand from our customers is strong as our focus on building close, long-term relationships further up the value chain and collaborating on design-led solutions delivers.  This is evidenced by new business, with 23 significant new wins in the half delivering over £60 million of multi-year revenues, and the ongoing growth and visibility in our order book.

We believe our collaborative approach to deliver solutions based on our technical expertise has been a key factor in winning new orders. With long lead times and an uncertain supply chain situation, customers are looking to commit to us to lock in capacity for the longer term. We are focused on leveraging expertise across the Group to pursue cross selling opportunities. Much of this effort is led by the GMS division which is integral to converting these opportunities and increasingly GMS showcases the capabilities of the P&C division.

Spend on our self-help programme will be complete this year; the closure of six sites is already complete, and we are in the process of consolidating the Covina site into the Torotel site at Kansas City, which will create one power business in North America. Production will cease in December 2022 and the full benefits of these actions will be realised in 2023. The new facility in Plano, Texas is now up and running and in the final phase of qualifying products for customers. This process has taken a little longer than planned due to the unprecedented levels of demand, which has required the prioritisation of resources to support customers.  We still expect all qualification activities to complete in 2022.

We are delighted with the Ferranti Power and Control (Ferranti) acquisition which completed in January 2022. The business is performing in line with our expectations and has already secured new orders under our ownership and is also set to benefit from the extension of demand for programmes which had been expected to tail off over the next few years.

1 at current FX spot rates

Results and operations

Group revenue for the period was £269.2 million, up 10 per cent on a constant currency basis and 8 per cent on an organic basis. The Group’s adjusted operating profit for the period was £18.3 million, 5 per cent higher than the prior period on a constant currency basis.

Our results in the first half reflect a strong revenue performance in both our GMS and S&SC businesses. Revenue in our P&C business was moderated by programme phasing and the Lutterworth closure.  Cost inflation has been largely mitigated through price increases, including to the existing order book, and operational efficiencies, enhanced through our self-help programme.

The adjusted operating margin in the first half was 6.8 per cent (H1 2021: 6.7 per cent) and we remain on track to deliver a second half margin improvement. We have clear line of sight to an improved P&C performance as some of the external factors which impacted the first half are moderating, allowing us to execute on our strong order book, and as pricing actions take effect. After the impact of adjusting items, including restructuring and acquisition related costs, the Group’s half year statutory operating profit was £8.9 million (H1 2021: £9.3 million) and operating margin was 3.3 per cent (H1 2021: 3.9 per cent).

Cash conversion was impacted by a working capital outflow totalling £33.0 million, reflecting our decision to invest in additional inventory to protect the rapidly growing order book, thus supporting our customers and enhancing our relationships with them. During the first half we have agreed improved terms with some customers to mitigate the impact of the working capital investment we have committed to support their orders. We expect to see improved cash conversion in the second half of the year. Adjusted operating cash outflow post capital expenditure during the period was £10.0 million (H1 2021: £1.1 million outflow, excluding property disposals). On a statutory basis, cash flow from operating activity was an outflow of £12.3 million (H1 2021: £5.0 million outflow).

At 30 June 2022 net debt was £142.0 million, (31 December 2021: £102.5 million), including IFRS 16 lease liabilities of £23.4 million (31 December 2021: £22.6 million), and as previously indicated leverage increased to 2.4x (31 December 2021: 1.7x). We expect leverage to reduce over the course of the second half and to be within our target range of 1-2 times by December 2022.

In January 2022 we were delighted to complete the £8.3 million acquisition of Ferranti, based in Greater Manchester, which designs and manufactures mission-critical complex power and control sub-assemblies for blue chip customers in high-reliability and high-performance end markets, primarily aerospace and defence. One of the principal benefits of the acquisition is that it brings highly skilled employees who provide full-service capabilities from design, assembly, manufacturing, and testing including environmental stress screening and inspection through to service.

Ferranti adds further technology capability and scale to our Power business with valuable long-term customer relationships and programmes with leading global aerospace, defence and industrial OEMs operating in highly regulated markets with significant barriers to entry through necessary industry accreditations and customer approvals.

Momentum across the Group has been strong with the order book for 2022 fully covering expected revenues and we now have materially improved visibility of revenues for 2023 compared to the same point last year.


Strong trading momentum reinforces our confidence in full year expectations and the Group’s future prospects. As a result, the Board is declaring an interim dividend of 2.0 pence per share, an increase of 11 per cent. The total cost of this dividend will be approximately £3.5 million. Payment of the dividend will be made on 13 October 2022, to shareholders on the register at 23 September 2022.



The Power and Connectivity division develops and manufactures power application products and connectivity devices which enable the capture and wireless transfer of data. We collaborate with our customers to develop innovative solutions to optimise their electronic systems.

H1 2022H1 2021ChangeChange constant fx1
Adjusted operating profit1£2.1m£3.6m(42)%(48)%
Adjusted operating margin13.1%5.3%(220) bps(260)bps

See note 1c on page 26 for an explanation of alternative performance measures.  Adjusting items are not allocated to divisions for reporting purposes.  For further discussion of these items please refer to note 6 on page 31 of this document.

Revenue increased by £0.6 million to £68.8 million (H1 2021: £68.2 million) and included a £3.7 million contribution from the acquisition of Ferranti, which has performed well in its first few months with TT. Organic revenue was 7 per cent lower due to the timing of programme revenues and the closure of the Lutterworth facility. A COVID-19 shutdown in Dongguan delayed deliveries into the second half.

Adjusted operating profit reduced by £1.5 million to £2.1 million (H1 2021: £3.6 million) and the adjusted operating margin was 3.1 per cent (H1 2021: 5.3 per cent after £2.9 million of Virolens start-up costs). There was a £0.4 million foreign exchange benefit and the constant currency reduction in operating profit was mainly driven by reduced revenues. As previously noted, during the first half we experienced a COVID-19 shutdown, impacting our Dongguan facility for approximately 4-6 weeks and while the local teams were quick to re-establish production levels once restrictions were lifted, congestion in the local supply chains caused inefficiencies which impacted our performance in the half.

Overall order intake remains good though revenues from commercial aerospace are lumpy and taking longer to return, despite a resumption in order intake, in part due to our wide body weighting which is lagging the narrow body recovery.

As we look into the second half, we are confident of an improved performance as we deliver on our strong order book, work through the COVID-19 inefficiencies and realise the benefits of the pricing initiatives from the first half.

There have been some significant awards during the period, which gives us confidence as we look forward including:

·    A three year contract with a new customer for our Kansas facility with an existing TT aerospace and defence customer for a transformer for an Air and Missile Defence Radar (AMDR). This new customer chose to work with us over the competition because of our strong relationship, engineering expertise, product quality and ability to meet schedule changes.

·    Following on from the power electronics assembly contract win with a major defence prime, RBSL, for the main UK army vehicle programme Boxer, we have been awarded a package of electrical cable harnesses for the same Boxer programme. We have also had further success with the award of a contract to design and develop electrical cable harness systems for the Challenger 3 upgrade project, a combat vehicle being upgraded as the British Army’s new main battle tank. TT will lead the design, development, manufacturing, and initial fitment trials of the various cable assemblies. This contract extends out to 2024.

·    Our recently acquired Ferranti business in Oldham has successfully secured a design and development contract for power converters for a new business jet. The seven-year contract (two years of development and five years of production) worth over £6 million in sales, will see us supply Permanent Magnet Alternator Converters (PMAC) with the potential for further orders dependent on demand for the aircraft. The award builds on the existing relationship between TT and this business jet OEM


The Global Manufacturing Solutions division provides manufacturing services and engineering solutions for our product divisions and to customers that often require a lower volume and higher mix of different products. We manufacture complex integrated product assemblies for our customers and provide engineering services including designing testing solutions and value-engineering.

H1 2022H1 2021ChangeChange constant fx1
Adjusted operating profit1£9.4m£8.5m11%1%
Adjusted operating margin16.9%7.8%(90)bps(120) bps

See note 1c on page 26 for an explanation of alternative performance measures.  Adjusting items are not allocated to divisions for reporting purposes.  For further discussion of these items please refer to note 6 on page 31 of this document.

Revenue grew by £25.7 million to £135.3 million (H1 2021: £109.6 million). We have delivered organic growth of 17 per cent, reflecting partnerships with our key long term relationship customers and recent project wins. Pass through revenue was around £10 million in the first half which causes a technical head wind to margin progression. We are currently anticipating a similar level of pass through revenue in the second half.

All of our GMS sites are fully booked for the year and the order book growth has been underpinned by several multi-million pound wins, a number of which extend beyond 12 months. We continue to see that our power customers require manufacturing capability and so our GMS and P&C divisions are partnering to provide this solution. We continue to improve our understanding of how to leverage these opportunities from the customer perspective.

Adjusted operating profit increased by £0.9 million to £9.4 million (H1 2021: £8.5 million) including a £0.8 million foreign exchange benefit. The adjusted operating profit margin was 6.9 per cent (H1 2021: 7.8 per cent) in part reflecting our previous guidance that the higher than normal level of cost pass through to customers would be a headwind to short term margin progression. We expect to deliver an enhanced margin from the GMS division in the second half of the year.

The considerable sales momentum has resulted in customer awards across our key markets from new and existing customers. Notable wins and growth areas include the following:

·   We have secured a sizeable contract win from a life sciences lab equipment customer who needed a manufacturing partner for a blood analyser. The contract is over a two-year period and is worth over £2 million in sales. This is a relatively new customer to TT that initially awarded us some low volume requirements in 2021, allowing us to prove our capability and build trust. It was a win for TT’s North America site in Cleveland which has a strong presence in medical and life science products. The site has the medical ISO13485 accreditation and is FDA registered. Our S&SC division also secured a small win with the same customer in April.

·    Also in healthcare, our Suzhou facility has added a new medical lab equipment customer. Our healthcare credentials, especially in life sciences, and our ability to offer manufacturing capacity in a low-cost region helped us to win the order. This is a multi-year contract worth over £2.5 million in sales.

·    In the UK we have secured work for a new division of an existing defence and security customer to provide solutions for embedded encryption. The client needed a reliable manufacturing partner for a new programme and the £2.5 million sales win further strengthens our strategic partnership with this long-standing customer.

·   Our Cleveland facility has received a new award with an existing industrial customer for high level assemblies (HLA) on a new programme for semiconductors. The customer was looking for the right partner to help meet accelerating semi-conductor demand and chose TT on the back of the proven partnership and confidence in our team and Cleveland facility. Our vertical integration strategy and HLA capabilities were key to winning this award.

Overall, the GMS division is in excellent shape, the order pipeline is stronger than ever, and our enhanced customer relationships and business development initiatives are delivering revenue and order book growth.


The Sensors and Specialist Components division works with customers to develop high specification, standard and customised solutions, including sensors and power management devices. Our solutions improve the precision, speed and reliability of critical aspects of our customers’ applications.

H1 2022H1 2021ChangeChange constant fx1
Adjusted operating profit1£10.6m£7.4m43%34%
Adjusted operating margin116.3%12.8%350 bps320 bps

See note 1c on page 26 for an explanation of alternative performance measures.  Adjusting items are not allocated to divisions for reporting purposes.  For further discussion of these items please refer to note 5 on page 31 of this document.

Revenue increased by £7.3 million to £65.1 million (H1 2021: £57.8 million). Organic revenue was 8 per cent higher. Despite typically short order visibility in this division, we are already covered for the balance of this year’s revenue and are starting to build the order book for 2023. We have been careful to adjust our commercial terms, where possible, to orders that are non-cancellable, non-refundable and in some cases, non-reschedulable. We are seeing very strong demand from the healthcare market and through the distributors.

Adjusted operating profit increased by £3.2 million to £10.6 million (H1 2021: £7.4 million) including a

£0.5 million foreign exchange benefit. The results of the self-help programme continue to benefit the performance of the division and this, together with an attractive drop through on volume growth and favourable product mix, is reflected in a further step up in adjusted operating profit margin to 16.3 per cent (H1 2021: 12.8 per cent).

Prices are under continuous review to ensure we recoup cost inflation, including higher freight costs where there can be a short-term lag in recovery, and we continue to win new orders at the higher price points.

We constantly monitor inventory levels within the distributors, the channel through which 67 per cent of our sales are sourced. Distributor inventory levels for our products are currently 5 per cent lower than at the start of 2020.

There have been a number of key developments during the first half of the year including:

·    We have recently been awarded a contract to supply sensors for an Electric Power Assisted Steering (EPAS) System for a leading manufacturer of steering and suspension systems. This system will be used in three and four-wheeler small commercial electric vehicles. Our sales and engineering team worked closely with the customer’s engineering team from inception to ensure our sensors accurately measured the torque applied by the driver on the steering wheel.

·    Our Asia Pacific sales team won a three-year optoelectronics contract with a new medical customer, for optical sensors to be used in liquid level detection in a quantum fluorescence immunoanalyser.

·    The U.S. team secured two different optical sensor opportunities with a medical device company, for use in a blood analyser. These sensors are used in the disposable test vessel cartridges designed for the Werfen GEM 5000 blood gas analyser. The sensors are critical to detect the proper loading of the cartridge as its alignment with the analyser optics, for spectral measurements, is essential for proper execution of the test.


Creating value through technology investment

Working in partnership with our customers to bring new, innovative products to market that provide sustainable solutions is key to driving future growth. Investment in R&D is therefore one of our top capital allocation priorities. During the period we invested £5.4 million (H1 2021: £5.8 million) in R&D spend, representing 4.0 per cent (H1 2021: 4.6 per cent) of aggregate revenue of our product businesses.

We are developing, with customers, a pipeline of new products to bring to market. A selection of notable examples from H1 include:

·    A recent agreement with our long-term partner Honeywell Aerospace was reached to proceed with the design of a new power supply for next-generation inertial navigation units for its aerospace and defence customers. This is a result of TT’s strong focus on innovation and our investment in engineering capability.

·    TT continues to work with a world leader in aircraft electrical systems on power supplies for electric and hybrid electric aircraft. This is supported by grant funding from the Aerospace Technology Institute and we have moved to the first stage of hardware validation for a new, high efficiency DC-DC power converter.

·    TT is partnering alongside medical device providers to expand the use of electromagnetic tracking for new medical procedures. Prototypes are being developed for use in cardiac procedures and we are also involved in the design of robotically assisted endoscopy using our sensor technology.

Creating value through margin enhancement

Margin enhancement continues to be a key focus. A number of factors will drive margins higher in the future:

·   Operational leverage from organic revenue growth: the benefits of our strategic repositioning to build closer, more embedded customer relationships and completing more design led work with a focus on cross selling is supporting strong growth

·    Reductions in overheads: the self-help programme which will be completed this year and remains on track to generate full run rate benefits of £13-14 million per annum from 2023 onwards

·   Acquisition-led enhancement of margin, through technology offerings and market positions: the recent acquisition of the Ferranti businesses is already making a healthy contribution to the Group’s margins and delivering absolute profit improvement.

A noticeable characteristic of the new orders we are winning is the number from customers wanting more integrated, design led solutions. In addition to winning new higher quality orders from existing customers, we have also won work from eleven new customers in the first half of the year.

We are well advanced through the various projects which make up our self-help programme and cash spend will complete in this calendar year. The physical transfer of manufacturing from the Lutterworth site to Bedlington was completed during 2021 and we are well advanced on the establishment of a new clean room and qualification process. Our new facility in Plano, Texas houses the former activities from Carrollton and Corpus Christi and is now operational, though the qualification process has taken slightly longer than expected. The integration of the Covina business into the Torotel site in Kansas City is in progress as planned.

The cash cost of the Group self-help programme is now expected to be circa £21 million, as a result of the longer Plano qualification times. The project spend will be completed this year. We remain on track to deliver £2 million of incremental benefits in 2022 taking the annual run rate benefits in 2022 to £10 million and are confident of achieving the programme’s £13-14 million of run-rate benefits in 2023.

Creating value from mergers and acquisitions

M&A is an important part of our growth proposition as we look to add higher margin businesses that enhance TT’s capability in our key markets.  

In January 2022 we completed the acquisition of Ferranti Power and Control, based in Greater Manchester, which designs and manufactures mission-critical complex power and control sub-assemblies for blue chip customers in high-reliability and high-performance aerospace and defence end markets. One of the principal benefits of this acquisition is that it brings highly skilled employees who provide full-service capabilities from design, assembly, manufacturing and testing including environmental stress screening and inspection through to service. The integration of the Ferranti business into our P&C division is on track and planning for the relocation of the business out of the Elbit facility is underway. We were pleased to have recently secured a win for a power electronic assembly contract for a new business jet. Ferranti is also set to benefit from the extension of demand for programmes which had been expected to tail off over the next few years.

Environmental, social and governance (ESG)

Not only do we develop, design, engineer and manufacture products that enable reduced environmental impacts for our customers, but we are also optimising our own operations to reduce our impact on the environment.

We have set ourselves a target to be Net Zero by 2035 for our Scope 1 & 2 emissions and we are undertaking a range of actions to deliver like-for-like reductions in our annual emissions, in accordance with our carbon reduction roadmap. In the near term, we have made a commitment to deliver a 50 per cent reduction in Scope 1 & 2 carbon emissions by the end of 2023, against our 2019 baseline.

As we look forward, further reductions in our carbon emissions will require other measures such as infrastructure and process projects to reduce electricity consumption and investment in solar power or a change in the approach of local Governments to provide renewables in Asia and Mexico. We are undertaking feasibility studies for possible solar projects.

For our Scope 3 emissions we are assessing areas of materiality for the Group. We believe our top four most significant, and measurable categories are transportation (upstream and downstream), purchased goods and services, and waste. Our corporate partnership with the Carbon Disclosure Project (CDP) Supply Chain Management team will help measure the supply chain element of our emissions.


Our order book fully covers the increased revenue expected in the second half. This, coupled with pricing actions to recover inflation and further benefits from our self-help programme, means our outlook for the full year is unchanged. While conscious of the wider macro environment, we are well positioned to deliver an improved margin and cash performance in the second half, and further growth in 2023.


Group revenue was £269.2 million (H1 2021: £235.6 million). Group revenue was 10 per cent higher than in the same period last year on a constant currency basis. Sales volumes in all key markets, with the exception of commercial aerospace, are buoyant and the order book and forward pipeline of new business opportunities gives us confidence that this momentum will continue.

The Group reported an adjusted operating profit of £18.3 million (H1 2021: £15.9 million) with the improvement driven by revenue growth and benefits from the Group’s self-help programme. Statutory operating profit for the period was £8.9 million (H1 2021: £9.3 million) after a charge of £9.4 million (H1 2021: £6.6 million) for items excluded from adjusted operating profit including:

·    Restructuring and other costs of £5.5 million (H1 2021: £2.6 million), comprising £4.5 million relating to the self-help programme and pension project costs of £1.0 million

·    Acquisition and disposal related costs of £3.9 million (H1 2021: £4.0 million), comprising £3.1 million of amortisation of acquired intangible assets; £0.2 million of acquisition costs and £0.4 million of integration costs relating to the acquisition of Ferranti; £0.1 million of integration costs of Torotel, Inc. and £0.1 million of costs of terminated acquisitions.

The Group generated an adjusted operating margin of 6.8 per cent (H1 2021: 6.7 per cent). This was delivered whilst dealing with increased costs to execute on high levels of growth and increases in input costs linked to supply chain constraints. We are having considerable success at recovering the latter through price increases.

The net finance cost was higher at £3.3 million (H1 2021: £1.8 million) due to a higher level of borrowing over the half year, increasing interest rates and non-cash accelerated amortisation of fees, associated with the previous RCF. The Group’s overall tax charge was £1.5 million (H1 2021: £1.7 million). The tax charge on adjusted profit before tax was £3.4 million (H1 2021: £2.8 million), resulting in an effective adjusted tax rate of 22.8 per cent (H1 2021: 19.6 per cent) with the increase due to a higher proportion of profits coming from higher rate jurisdictions.

Basic earnings per share (EPS) reduced to 2.3 pence (H1 2021: 3.3 pence). Adjusted EPS increased to 6.6 pence (H1 2021: 6.5 pence), reflecting the improvement in adjusted operating profit partly offset by a higher interest and tax charge.

Adjusted operating cash flow post capital expenditure was lower with a £10.0 million outflow (H1 2021: £1.1 million outflow excluding property disposals) which was primarily due to a £33.0 million working capital outflow (H1 2021: £18.9 million outflow), reflecting further strong growth and the maintenance of higher inventory levels in response to supply chain constraints. This resulted in operating cash conversion of (55) per cent (H1 2021: (7) per cent). On a statutory basis, cash flow from operating activity was an outflow of £12.3 million (H1 2021: £5.0 million outflow).

There was a free cash outflow of £23.5 million (H1 2021: £10.3 million outflow), including £7.0 million of restructuring and acquisition related payments (H1 2021: £0.6 million after £5.8 million proceeds of property disposals). There were no pension contribution payments in the period (H1 2021: £2.7 million) while we finalise new escrow arrangements to avoid the risk of a trapped surplus in the future. The total net accounting surplus under the Group’s defined benefit pension schemes was £91.6 million (31 December 2021: £74.5 million) with the increase due to increases in yields on corporate bonds in the half year causing the scheme obligation to decrease.

As at 30 June 2022 the Group’s net debt was £142.0 million (31 December 2021: £102.5 million), including £23.4 million of lease liabilities (31 December 2021: £22.6 million). Leverage, consistent with the bank covenants, was 2.4 times at 30 June 2022 (31 December 2021: 1.7 times).

The Group has recently re-financed its bank revolving credit facility with a syndicate of five relationship banks at commercially attractive rates. This £147.4 million facility has a four-year tenor with one year extension option and complements last year’s debut issue of £75 million of private placement fixed rate loan notes.

Summary of Adjusted results

To assist with the understanding of earnings trends, the Group has included within its non-GAAP alternative performance measures including adjusted operating profit and adjusted profit. Further information is contained in the ‘Reconciliation of KPIs and non IFRS measures’ on pages 37 to 43.

A summary of the Group’s adjusted results, and a reconciliation of statutory to adjusted profit numbers are set out below:

£ millionH1 2022H1 2021 
Operating profit18.315.9
Operating margin6.8%6.7%
Net finance expense(3.3)(1.8)
Profit before tax15.014.1
Tax rate22.8%19.6%
Profit after tax11.611.3
Weighted average number of shares175.7 million174.7 million

Reconciliation of Adjusted results

£ millionNoteH1 2022H1 2021
Operating profit 8.99.3
Adjusted to exclude:   
Restructuring and other items  
Property disposals21.3
Pension restructuring costs3(1.0)(0.6)
Acquisition related costs  
Amortisation of intangible assets arising on business combinations (3.1)(2.5)
Torotel acquisition and integration costs (0.1)(0.9)
Ferranti acquisition and integration costs4(0.6)
Covina acquisition and integration costs         (0.2)     
   Other acquisition related costs5(0.1)(0.4)
Total operating reconciling items (9.4)(6.6)
Adjusted operating profit 18.315.9
Profit / (loss) before tax 5.67.5
Total operating reconciling items (as above) 9.46.6
Adjusted profit before tax 15.014.1
Taxation charge on adjusted profit (3.4)(2.8)
Adjusted profit after taxation 11.611.3

Restructuring and other costs charged in the period comprise:

Note 1: Restructuring costs charged in the period primarily relate to costs arising on the restructuring of the Group’s footprint, product rationalisation and headcount reduction programme to reduce the Group’s fixed costs which was initiated in 2020. Restructuring costs of £4.5 million comprise £2.6 million relating to the restructure of the North America Resistors business; £1.0 million relating to closure of our site in Lutterworth, UK, £0.7 million relating to the relocation of production facilities from Covina, USA to Kansas, USA and £0.2 million relating to the relocation of production facilities from Medina, USA to Minnesota, USA.  Prior period costs of £3.3 million comprise £2.0 million relating to the restructure of the North America Resistors business; £0.8 million relating to closure of our site in Lutterworth, UK and £0.5 million relating to the closure of our site in Tunis, Tunisia.

Note 2: Gain on disposal of the Covina property

Note 3: Other pension costs relating to costs associated with liability management exercises and cleansing of scheme data. Prior period costs relate primarily to the equalisation of male and female members’ benefits in respect of guaranteed minimum pensions.

Note 4: Comprises £0.2 million of acquisition costs and £0.4 million of integration costs relating to the acquisition of the Power and Control business of Ferranti Technologies Ltd. based in Oldham, UK.

Note 5: Costs of unannounced and terminated acquisitions

Cash flow, net debt and leverage

The table below sets out Group cash flows and net debt movement:

£ millionH1 2022H1 2021 
Adjusted operating profit18.315.9
Depreciation and amortisation7.98.0
Working capital movement(33.0)(18.9)
Net capital expenditure(5.0)(6.2)
Capitalised development expenditure(1.0)(1.0)
Adjusted Operating Cash Flow post capex and excluding property disposals(10.0)(1.1)
Restructuring and acquisition costs1(7.0)(0.6)
Net interest and tax(4.6)(4.0)
Lease payments(1.9)(1.9)
Retirement benefit schemes(2.7)
Free Cash Flow(23.5)(10.3)
Lease payments1.91.9
Equity issued0.20.3
Acquisitions & disposals(8.3)(0.5)
Increase in net debt(36.6)(16.9)
Opening net debt(102.5)(83.9)
Other non-cash (new leases and lease reassessments)(1.1)(7.1)
Closing net debt(142.0)(107.3)

1In the prior year, restructuring, acquisition and disposal related costs includes the net proceeds of the Covina property sale (£5.8 million).

At 30 June 2022 the Group’s net debt was £142.0 million (31 December 2021: £102.5 million).  Included within net debt was £23.4 million of lease liabilities (31 December 2021: £22.6 million). 

Consistent with the Group’s borrowing agreements, which exclude the impact of IFRS 16 leases, leverage ratio was 2.4 times at 30 June 2022 (31 December 2021: 1.7 times). Net interest cover was 9.4 times (31 December 2021: 13.5 times).  The Group’s debt covenants state that the leverage ratio must not exceed 3.0 times and that interest cover must be more than 4.0 times.

Principal risks and uncertainties

The Group has an established, structured approach to identifying and assessing the impact of financial and operational risks on its business, which is reviewed and updated quarterly. The principal risks and uncertainties for the remainder of the financial year are not expected to change materially from those included on pages 67 and 70 of the Annual Report and Accounts 2021. The risks identified relate to the following areas: general revenue reduction due to geopolitical instability and COVID-19, contractual risks; research and development; people and capability; supplier resilience due to increased lead times and COVID-19; IT systems and information; M&A and integration, sustainability, climate change and the environment, health and safety, legal and regulatory compliance. Further information in relation to the Group’s financial position and going concern is included on page 18.

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.

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