TT Electronics Q&A: Continued good revenue improvement with strong cash performance (LON:TTG)

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 improved trading performance, cash performance & dividend, strategic multi-year initiatives and external recognition for their work in ESG issues and sustainable products.

Q1: Richard, could you give us a summary of the improvement in TT Electronics’ trading towards the back end of 2020?

A1: As you know, we’ve released our trading update this morning and in that we’ve talked about continued good revenue improvement, frankly. So, we’ve had sequential improvement quarter on quarter since the pandemic hit in Q2 and November and December was back to only 4% organic decline and has steadily improvement so we’re really very close to being back to where we were at the end of 2019.

Really encouraging recovery rate for the business and that’s supplemented with some strong order demand so the order and market demand has been encouraging across all of our key markets which, as you know, we believe there’s good structural growth in those markets for us in the medium term. It’s certainly showing these markets are proving resilient and demand is coming back nicely so the book is positive and the order book is pretty much in line with where we were this time in 2019.

Encouraging progress really in the top line as we look in ’21.

Q2: Mark, that leads me onto your cash position. Just remind us what you’ve said there and what does the current profit and cash performance mean for the company’s 2020 dividend?

A2: We’re really pleased with our strong cash performance, it’s a big focus area for us throughout the year and we’ve been driving it hard in the second half of the year. We’ve delivered a working capital inflow for the year so that means we’re going to be reporting really good cash conversion. The group’s net debt, including leases, has ended the year at about £84 million and that’s well ahead of analyst expectations and all that means that we expect net debt to underlying EBITDA on a bank covenant basis to be around 1.8 times.

As far as dividends are concerned, in the statement today we’ve reconfirmed our intention to resume dividends and we’ll be making a dividend recommendation with the final results in March.

Q3: It looks like some of you more strategic multi-year initiatives are also making progress. Richard, can you just give us a bit more detail on that?

A3: I think it’s just been a great year of strategic progress for the group, when you consider what’s been delivered in the middle of the pandemic and clearly, a large portion of the business having to been stuck in their territory, not able to travel around as much as we would be, the traction with customers, the strategic initiatives we have internally has been great.

So, I’d probably point to the self-help programme is now about halfway through, all actions on track, risks have been reduced nicely and benefits are firmly on track at the £11 million/£12 million run-rate by 2023. So, really good line of sight to our journey to double-digit margins and beyond.

We also managed to make another acquisition during the year so we brought in the Torotel team in November, that integration has started really nicely, the team well on board inside TT and contributing. That’s on the back of already integrating our power solutions business in Covina earlier on in 2020 so acquisitions and integration is helping the supplement the plan going forward which is a core strategic initiative.

On the business development front, it’s felt like the relationship with our strategic partners have definitely got stronger, we’ve seen opportunities coming out of the pandemic with some of them, particularly in the medical and defence arena. We mentioned earlier on in the year the project we’ve been working on for the COVID testing device for Virolens which is continuing to move along in the background and we’re getting on with the work that is necessary to work towards regulatory approval with trials ongoing.

Q4: It’s been a great year of progress and we know that TT Electronics’ management is passionate about ESG issue too and have been working with customers to provide increasingly sustainable products as well as working to enhance the sustainability of the company’s operations. Richard, are you seeing external recognition now for the work you’ve been doing?

A4: Yes, it’s nice of you to point that out in terms of the work we’ve been doing on it. As you know, we believe we have a strategy that’s positioning the company to be providing goods, products and services that are really focussed around the trends around sustainability, about electrification, power efficiency and power reduction, productivity, and connectivity. So, we are helping with our customers to enable cleaner and smarter environment and ultimately improve wellbeing.

We ourselves have set goals of targeting carbon neutrality by 2035 but in reality, we’re driving for that as soon as we can and also set some stretching internal metrics for improvement across the environmental spectrum.

So, it was great to see that we’ve now had a bit of that recognised with our MSCI rating being moved up now to ‘AA’ so in the top 12% of companies in our peer group globally. So, it’s really nice to see a bit of recognition for that now and firmly on our ESG path going forward.

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