TT Electronics plc (LON:TTG) Chief Executive Officer Richard Tyson and Chief Financial Officer Mark Hoad caught up with DirectorsTalk for an exclusive interview to discuss the fantastic momentum across the business, how they expect margins to develop going forward and what the future looks like for the company.
Q1: This looks to be a fantastic momentum across the business, could you just tell us what’s driving it?
A1: We’re delighted with a really strong first half performance, as you know, where TT Electronics has positioned itself into structural growth markets that have moved back towards their long-term growth trajectory underpinned by the mega trends for sustainability and ESG drivers and the markets are coming back strongly.
We’ve got really good momentum across the whole business, on top of the market’s rebounding, we’re winning new customers, new multi-year contracts, and that in the first half has resulted in 12% organic growth.
Really the standout is the order intake performance on top of that intake has been incredibly strong, with a book to bill of 134%. Our order book is at record levels, giving us full visibility in 2021 to improve organic growth expectations for the year now. Also the order book building nicely for 2022 with again, visibility better than we’ve ever had before, supporting confidence in good growth for next year, too.
Q2: Mark, underlying margins look to be back to 2019 levels. Can you just give us some detail on what’s behind this and how you expect margins to develop going forward?
A2: We’re really pleased that run rate margins have got back to 8% so quickly and so we’re getting some really good operational leverage on the revenue growth that we’re delivering and we’ve got the self-help program where the benefits are coming through as expected and we’re on track to deliver the full benefits of the project. Not just that, we now know that we can deliver those benefits at a lower cost than we had originally planned.
Then there’s acquisitions, the total acquisition is performing really, really well and it’s already delivering mid-teen margins. Those run rate margins are after removing the start-up costs associated with the Virolens project but they’re a good proxy for the future performance of the business as those Virolens costs come down significantly in the second half of the year.
So, the growth in the order book that Richard just talked about, the self-help actions and the growth that’s coming through, give us improved visibility and confidence in our path to deliver double digit margins.
Q3: Just talking about confidence, you’re making good progress Richard, what does the future look like for TT Electronics?
A3: The future looks great. Mark touched a little bit on the help from acquisitions, we’re delighted with the performance of Torotel that came in only eight months ago and we’re on track to hit ROIC hurdles there with opportunity to go further.
Having upgraded our expectations at the AGM in May and, as we just talked about, the strength and momentum building as we enter the second half, order book already covering upgraded revenue expectations for the year.
The self-help programme is on track to be largely completed in the second half of the year and we expect to deliver that now at a lower cost and as a result, adjusted margins will improve in the second half and we expect to deliver overall improved full year results.
So, really the business is in great shape and we could not be more excited about the future we’ve got in front of us.
