TT Electronics Q&A “really really well placed for the future” (LON:TTG)

TT Electronics plc (LON:TTG) Chief Executive Officer Richard Tyson and Chief Financial Officer Mark Hoad caught up with DirectorsTalk to discuss how the company performed in 2020, their approach to ESG, improving margins to 10% plus, key drivers for future growth and how the company is positioned for the future.

Q1: Richard, how would you summarise for 2020 for TT Electronics?

A1: Well, 2020 really was quite a year. Our team noted really really well to deal with the pandemic, most of the impact for us came in Q2 and business really has recovered very well as the year went on.

We got a grip of the challenges that COVID presented us and frankly, pressed on with actions to grow and improve the business so I have to just have to take a moment to give a huge thanks to the team. They kept everyone safe and kept delivering our products, in particular our critical products, to our customers.

No doubt though, we definitely benefitted from our early experience in China, the team were quick to respond, understand the challenges and get COVID protocols in place. Learning from these experiences was really invaluable and we got that spread right across the group quickly and helped us to get to grips with things.

In terms of improvements overall, we’ve invested heavily in growth this year, £11 million on R&D in markets that are driven by sustainability, underlying structural growth drivers in healthcare, aerospace and defence and automate electrification. We also spent £49 million on two  acquisitions, most recently Torotel and at the start of the year Covina, both of those bring new technologies to the company, they’re moving us further up the value chain which means higher margins and they’re embedding well.

Overall, frankly, a year where we continue to improve the quality of the business and we feel we’re really really well placed for the future.

Q2: Being a responsible business with a clear sustainability strategy is increasingly important to investors, what’s the company’s approach to ESG and can you point us to some progress and results?

A2: We’ve always been passionate about getting our people engaged, it’s fundamental to what we do and this has been recognised by our survey results this year where we’ve been benchmarked amongst the very best companies for employee engagement worldwide. It was great to see big improvements, exceeding our ambitions and becoming what is a 2-star company against our rated goal of being a 1-star, 3-star being the best you can be.

Doing the right thing for the environment as well, we’ve talked about the importance of our strategy positioning us in parts of the market that benefit from demand from sustainability. Internally, we made a step change towards our goal of becoming carbon neutral by 2035, we’ve delivered 20% reduction in CO2 emissions and we’re confident that the project’s ongoing across the group will reduce this further. That’s been recognised by external agencies so an improved rated from CDP and we achieved an improved AA rating from MSCI.

Q3: Mark, how will the company improve margins to 10% plus?

A3: We see a very clear path to get to 10% margins and beyond. That margin improvement will come from four areas:

First, we see recovery from the temporary acts of COVID coming through over the next 12 months or so.

Second, we’re making good progress with our self-help programme, that’s going to deliver £11-12 million of run-rate benefits by 2023 and there’s £5 million of incremental benefits going to come through this year, helping the margin progression.

Thirdly, we’ve got good momentum in the business and we expect our markets to grow around 3-5% a year so we’ll get benefit from growth and moving up the value chain.

Lastly, M&A can also play a part as we look to add higher margin businesses and deliver synergy benefits from acquisitions.

Q4: Richard, you’ve transformed the portfolio of the group over the last few years, what are the key drivers for future growth for the company?

A4: Having done all the work on really shifting the portfolio from being focussed on passenger car, automotive business, and general industrial customers, it’s great to be able to say that the company is now all about the need to make the world cleaner, smarter and healthier to live in.

So, those megatrends such as climate change, digital transformation, demographic, and social change are so fundamental that they’re going to continue to support growth for many years to come.

It’s been all about, for us, aligning the technology solutions we deliver to support these trends so:

  • Cleaner is all about energy efficiency, reducing CO2 emissions,
  • Smarter is about accuracy, automation, and productivity,
  • Healthier is about improving patient outcomes.

So, our power technology helps aircraft and vehicles become more electric and we provide smart technology solutions to reduce energy reduction in homes, offices, and factories and in healthcare, we’ve got products to improve lab analysis, minimally invasive surgery, and improved diagnostics.

Overall, we believe the pandemic has really accelerated these trends and is going to drive the addition of new technology to underpin our future growth.

Q5: Finally, Richard, how is TT Electronics positioned for the future?

A5: We see pace of the recovery taking hold in the second half of last year and the trends improving into 2021.

As we talked, we are positioned in structural growth markets, we will be able to grow revenues of 3-5% a year over the medium term and we’re going to keep improving margins to 10% and beyond.

The cash generation will be strong and that’ll support continued investment in technology and acquisitions for growth.

So, we’re excited about our future and we’re very well set for 2021 and beyond.

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