Tt_Electronics

April 2010 FANA Module – Assignment 1 Analysis of TT Electronics PLC. Yasser Elkhouly Dubai Center Assignment Ref: Student ID: 7474987 FANA/JAN10/1 mcyihye2 2009 Key ratios Return on Equity (%) Operating Margin (%) Source: Annual Report (FYE09, 08). 2008 2009 2008 Gearing (%) Operational Gearing (%) 2009 5.4 4.6 0.0 1.3 25.3 23.3 32.1 25.1 - LSE. Ticker: TTG - Sector: Electronic & Electrical Equipment SWOT Analysis Strengths - Sound Geographic Diversification. - Selective Acquisition Strategy. - Effective Operation Restructuring. - Reducing Exposure to Automotives. - World-class Engineering Capability. - 2009, Notable Control of WC & Net Debt. Opportunities - New Strategic Initiatives. - High-growth Application-specific Markets. Weaknesses - Excess Capacity Pressures Margins. - Depending on a Relatively Few Number of OEM Customers. - Secure Power, not a natural fit. - Disparate Technology Versions Adopted by Acquired Entities. Threats - Cyclical Automotive Industry. - Uncertainties related to Technology Development & its Transfer. - Exposed to FOREX and Interest Rates Movements. - Competing against Manufacturers in Asia. About the Business TT Electronics headquartered in leafy Weybridge, is a global manufacturing and technology company. It sells a bewildering variety of electronic components to the world's leading manufacturers in the automotive, defence, aerospace, telecommunications, computing and industrial electronics markets. A main market share and has sales of £500 million. A global business, it has manufacturing, engineering and sales support facilities in North America, Europe, the UK, Mexico, Barbados, Malaysia, Japan, Singapore, Hong Kong, India and China. Effective January 1st. 2009, TT is organized into five business areas: 2009 Sales by segment • Components: focusing on the delivery engineered, markets aerospace, transit. of niche, bespoke including medical, and highly electronic military, industrial, mass Sensors 21% Secure Pow er 12% General Industries 14% components for a number of end IMS 15% Com ponents 38% telecommunications • Sensors: provides wide range of automotive sensors and systems primarily to German automotive OEMs. • Integrated Manufacturing Services (IMS): offers integrated supply chain solutions to its customers, focused on higher value added services for lower volume, complex build and assembly electronic projects. • • Secure Power: provides generator sets, uninterruptible power supply products and bespoke secure power solutions. General Industries: additional businesses that are involved in the manufacture of electrical fuse gear, specialist compounds and fine wire. TT currently focuses on components and sensors, where bespoke products differentiate TT, providing higher margins, and where it has greater market share. Yasser Elkhouly – 7474987 Dubai Assignment ref: FANA/Jan10/1 2 Strategic Analysis TT’s strategic initiatives are focused around strengthening its business platforms, pursuing technology leadership, globalizing its asset base, and driving business efficiency. - Strengthening Business Platforms TT seeks to strengthen its business platforms through a combination of internal growth initiatives, acquisitions of new businesses and periodic divestitures. The net result has, over time, changed the mix of the company’s business to incorporate higher growth and margin opportunities. TT seeks to position its business platforms to maintain an average 5-8% underlying sales growth through the business cycle. In general, the Components, Sensors, IMS and Secure Power segments incorporate technology features that offer higher organic growth opportunities while the General Industrial (AEI Compounds, Abtest, Magnetics) segment unlikely to deliver material growth and only managed for value. Strengthening the business platforms will undoubtedly require continued use of acquisitions, and could include businesses in adjacent spaces to the company’s current operations. The pace, scale and effectiveness of the company’s execution of acquisitions will be a critical element in future stability. - Technology Leadership While it was not clearly indicated, on any source, the exact spend of R&D over time, management statements continue to emphasis on the magnitude of investing in new products and technologies that will contribute to future revenues. TT is gradually working to leverage the effectiveness of its general spending through increasing use of engineering centers in low cost countries such as China and India. Worthy to note that, information availability about sales derived from new products (less than 3 years) would have helped to represent a valid indicator of their R&D effectiveness. - Globalization of Asset Base As part of the effort to diversify its business, TT has placed added emphasis on activities outside of mature markets in Europe and North America. Approximately Yasser Elkhouly – 7474987 Dubai Assignment ref: FANA/Jan10/1 3 11%1 of TT’s investment in PPE at the end of fiscal 2008 was located in regions out side Europe & North America. The notion that Asia, Latin America and other developing markets will demonstrate faster rates of industrial growth than the U.S. and Europe makes it critical that TT position its business to expand in these markets. Not to do so would risk erosion of the company’s market position on a global basis. The company’s emphasis on globalizing its asset base, as exhibited by doubling the asset base to these regions from 2004 to 2008, could lead to reduce its reliance on developed markets to a reasonable level. - Driving Business Efficiency In the current difficult economic environment, TT’s focus on driving business efficiency has been of particular importance in supporting profitability. TT continuously evaluates its operations for opportunities to lower costs, and over time has expanded its use of lower cost manufacturing sites in China, India and Malaysia. During 2008 the group began to exit certain automotive segments that it believes are no longer economic such as AB Electronics and AB Automotive. In 2009 there was also a fundamental realignment of the cost base in Europe and the overall workforce had been reduced by 19% compared to 2007 levels. In total this process accumulated costs of £21.8mn over the past two years, with a prospectus to realize £31mn annual savings starting 2010. Further restructuring activity is likely in 2010 as TT seeks to drive business efficiency, although restructuring charges are not likely to approach the level seen in the past two years. 1 Based on carrying amount of segment assets Yasser Elkhouly – 7474987 Dubai Assignment ref: FANA/Jan10/1 4 SWOT Analysis Strengths Sound geographic diversification The company operates in a diverse geographical market and distributes products in different regions with manufacturing facilities in over 12 countries. In 2009, 57% of the company’s revenues were from UK and Rest of Europe. The Revenue By Geo-Location £ mn 250 200 150 100 50 0 UK ROE NA ROW company classifies its geographic locations into 4 regions namely UK, Rest of Europe (ROE), North America (NA) and Rest of the World (ROW). ROE contributed for 39% of total revenues in 2009, followed by NA 27%, UK 18% and ROW 16%. TT presence in geographically insulates the diverse markets 2007 2008 2009 company’s operations and revenues from the risks of economic downturn in any single market. Selective Acquisition Strategy with Focus on Technology TT adopts prudent acquisition strategy targets businesses that complements its growing objectives and can achieve significant cost synergies. During 2008 the Group acquired two UK based companies supplying the aerospace and defence industries. In April 2008 TT purchased New Chapel Electronics for a consideration of £5.2mn. In August 2008 TT acquired assets comprising the majority of the business of Semelab Limited for £9.7mn. Both would expand and enhance TT's products portfolio in UK and European markets and contribute to top line growth. Also, during 2007 the group purchased the patents to expand the use of Autopad® for fuel level sensing and Digital Angular Position Sensing for steering applications. Padmini TT electronics of India joint venture is also in line with the company’s strategy of investing in the low cost base countries, and to position the company to leverage its scale and capabilities in customer development and product Yasser Elkhouly – 7474987 Dubai Assignment ref: FANA/Jan10/1 5 supply. During 2008, TT announced that it has secured a contract to supply speed sensors for the Indian conglomerate Tata's car, Tata Nano, representing a major breakthrough this market. Restructuring operation provides cost synergies The group is moving more of its manufacturing operations to China as part of a plan to save £30m on an annualized basis. 1,507 jobs had been cut, between June 2009 and December 2009, and factories in Essex and south Wales closed, manufacturing from Kent factories WT Henley and AB Electronics to China is being transferred. Reducing exposure to automotives enhancing performance on the long term TT Reducing its reliance on the automotive industry by boosting its presence in the defence, media and aerospace sectors. Early 2009, Management had set a medium term objective to reduce reliance on the automotive market from 40 per cent of revenue in 2008 to a targeted range of 25-30%. Sales by Market (2008) Sales by Market (2009) 2% 13% 11% 3% 9% 13% 34% ` 39% 40% ` 36% Automotives Medical Defence & Aerospace Industrial Telecom & Comp. Automotives Medical Defence & Aerospace Industrial Telecom & Comp. - World-class engineering capability Through its divisions, TT provides a comprehensive range of advanced technology, application-specific engineered solutions and standard products, supported by world-class manufacturing facilities and application engineering teams. Yasser Elkhouly – 7474987 Dubai Assignment ref: FANA/Jan10/1 6 - 2009 – Notable control of working capital and net debt 2009 2008 56.9 113 73 62 77 91 70 75 The group has cut its net debt from £113m at the start of 2009 to £60m, by Net Debt (£mn) cutting working capital and omitting the WC dividend for the year (3.69p), which Debtors days provided potential for further positive Creditors days earnings momentum. Weaknesses Excess capacity pressure margins Stock Turn days Evident by the permanently closure of facilities, and lay off employees in the past two years. Closures or lay-offs resulted in recording restructuring charges such as severance, other exit costs, and asset impairments2. Disparate Technology Versions Adopted by Acquired Entities Significant upgrades usually needed to adjust technologies in acquired entities, which usually exhibit unexpected costs. The noise of such issue could be, also, extended to significant effects of selling inconsistent quality to customers. Secure Power, not a natural fit The secure power product appears at odds with overall strategy; TT has no technological or manufacturing superiority within this field and lacks an obvious competitive advantage. However, it still delivers double-digit margins and is a cash cow. Depending on a relatively few number of OEM customers for large amounts of sales Few automotive OEM customers accounted for large proportion of sales. The loss of one or more significant customers, a decline in sales to significant customers, failure to collect receivables could harm the business. 2 More about margins will follow within ratio analysis section. Yasser Elkhouly – 7474987 Dubai Assignment ref: FANA/Jan10/1 7 Threats Vulnerability to a highly cyclical automotive industry Back in 2006, automotive accounted for 40% of TT's sales, earned mostly from its key customers such as General Motors and Volkswagen, had experienced falling volumes. In 2009, the supply industry was even hit harder as OEMs destocked their inventories. As a result, the fall in car production was steeper than the decline in demand, with production volumes falling to their lowest level in 14 years. Recent turbulence in its core automotives market (36%-FY2009 sales) was partially responsible for its diminishing sales, with the Sensors segment reporting an operating loss before tax and exceptional items of £3.9mn – down from £1.1mn operating profit in 2008. Industry is characterized by uncertainties related to technology development Majority of TT revenues are dependable on the worldwide electronics industry, which is characterized by significant economic cycles and fluctuations in product demand. A significant downturn in the electronics industry could result in decreased demand for TT manufacturing services and could lower sales and gross margins. Exposed to foreign exchange and interest rates hits With operations and net assets overseas, principally in the US, Europe and the Far East, positive movement in sterling can weaken the balance sheet. The group is continuously trying to mitigate these risks through forward foreign exchange contracts to reduce currency exposures on sales and purchasing transactions for the short term. TT also purchases interest rate caps of its short and medium term borrowings. These caps are designated as hedges of the interest assets expense and outstanding are loans. The Group’s financial liabilities 80 60 40 20 0 Financial assets FV of borrowings Trade & other creditors Financial Assest & Liabilities 2009 by CCY (£mn Equiv.) £ $ € Other Yasser Elkhouly – 7474987 Dubai Assignment ref: FANA/Jan10/1 8 sensitive to movements in currency exchange rates against sterling, as such increases costs of these instruments. Competing against manufacturers in Asia, where production costs are lower These competitors may gain market share in key market segments, which may have an adverse effect on the pricing of TT products. Opportunities High-growth Application-specific Markets - TT electronics Components Europe is refining its product portfolio to allow greater emphasis on high growth sectors including medical, defence and aerospace and renewable energy markets. To improve future business performance, an increased focus on developing market leading positions in additional growth product segments such as visible optical devices, power and RF semiconductors is underway. Additionally, prospective to penetrate the burgeoning hybrid vehicle market is significantly promising. Strategic Initiatives TT made good progress during the year in strengthening the senior management team and creating a structure to enable a clear focus on delivery and accountability. A number of initiatives have been implemented to improve the way they interface with customers, most notably within the Components division. In addition, they have introduced virtual market teams to drive growth in key areas. In addition to transferring some operations to China and India, where cheap manufacturing costs, would take effect in all business segments of its global operations. Yasser Elkhouly – 7474987 Dubai Assignment ref: FANA/Jan10/1 9 Ratio Analysis (PERL Framework) FYE 2008, 2009 (source: TT reports) KEI ROACE ROTA Gross Margin Operating Margin Net Margin 14.1%,10.6% 5.6%, 1.7% 17.7%, 15.9% 4.6%, 1.3% 2%, loss FAT(x) Asset Utilization (x) Debtor Age (days) Creditors Age (days) Stock turnover (days) 2.4, 2.5 1.2, 1.3 70, 62 75, 77 91, 73 KPI Current Ratio (x) Acid Test (x) OCF/Maturing oblig. 1.5, 1.7 0.7, 1.0 24%, 57% KRI Gearing Interest Cover (x) Beaver Failure 25.3%, 31.1% 4.6, 1.1 Operational Gearing 23%, 25% 0.3, 0.8 KLI Performance TT has been adversely affected by drop in all of its segments. As nearly 60% of its sales generated by sensors and components units exhibited falling margins (ex. EBIT margins were down by 4.6% and 2% respectively), group margins have been correspondingly affected. High exposure to automotive companies (39, 36% in 2008 and 2009) had a down-sliding effect on revenues generated by mentioned segments as a result of reduced demand. Importantly, while TT's consolidated EBITDA margin has declined from a satisfactory level of 8.6% in 2008 to 6.1% in 2009, the degree of erosion was not more significant than that seen in many peer companies. TT’s ROTA of 1.7% for 2009 was also down from 5.6% in 2008 due to the deterioration in margins – didn't exceed 10% in the last 6 years. TT produced relatively weak return metrics (including 0% ROE) going along with a fairly modest financial leverage deployed in its capital structure. These low returns went quite consistent across TT's portfolio of businesses. Historically the main two segments (components and sensors) reported return on segment assets (operating income before allocation of corporate expenses to Yasser Elkhouly – 7474987 Dubai Assignment ref: FANA/Jan10/1 10 segment assets) within 10%. Despite that, TT's was able to keep pace of its cost structure achieving consistent levels of gross margin of 16-20% during the last six years. These metrics have moderated starting 2008 and amplified with the 2009 downturn. Generally, accomplishing most of the restructuring plan (started by 2008 end) combined by improving economic conditions, TT’s business segments can retain strong positions and performance should rebound. More over, the relatively high difference between the gross and net margins may indicate that TT is only taking a mall proportion of its turnover to its bottom line. In such a case, attention should be paid to the level of non-manufacturing costs within its business. Efficiency TT cash conversion cycle improved significantly during FY 2009 reaching to 58 days from 84 days, mainly attributed (around 80%) to enhancing stock turnover age from 91 days to 73 days. Such a favorite position along with a recovery period (2010), TT can benefit from needing less finance for WC - especially with prospectus of sales expansion. TT historically, has kept asset utilization ratios and fixed assets turnover under consistent adequate levels averaging at 1.3x and 2.5x respectively. Risk TT’s leverage has a consistent moderate trend over the last six years as disbursements for capital expenditures and acquisitions didn't exceed free cash flow. TT used to distribute dividends at same level every year returning almost fixed amount of £15.6mn to its shareholder, which had to be financed by debt during 2006 and 2007 only. Apparently, last year's change in gearing (25.3%2008 to 31.1%-2009) was largely caused by declining profits and stripping around £50mn out of retained earnings account (for restructuring and loan settlement). Still at 30% level TT wouldn’t appear to be over exposed to financial risk. Yasser Elkhouly – 7474987 Dubai Assignment ref: FANA/Jan10/1 11 TT’s interest coverage has generally been comforting in the range of 5-9 times and within satisfactory average of industrial companies. Despite settling significant amount of debt during 2009, sluggish revenues had its downward effect on interest coverage hitting risky levels of 1.1 times. Generally, the gearing and interest ratios combined with the TT's cash generation abilities from its operations confirm a relatively solid position covering indebtedness (Beaver ratio 0.8 at end of 2009). As such the, may be, only concern is the fixed costs increase during structuring activities, which led to operational gearing to increase by 6.6% during the last six years. As the economic recovery begins to take hold, the company will be faced with needs to fund possible working capital growth, new capital investment requirements, potential acquisition opportunities and potential pressure for shareholder returns through revisiting the dividends halt decision. Liquidity TT has historically generated substantial amounts of cash flow from operations due to its solid margins and relatively stable base of businesses. Yet the company has also shown a tendency to return a significant portion of its cash flow to shareholders through dividends (not less than 30% since 2004). Early 2009, as part of restructuring plans, TT BOD announced that they don't have intentions to distribute dividends for 2009 which have partially contributed to a significant FCF surplus. TT's liquidity profile, with a 1.7x current ratio and 1x acid ratio, is considered strong and is characterized by robust cash flow generation and committed bank facilities. For 2010, the company's cash from operations will likely be less than that has been achieved in 2009, as working capital associated with any pick-up in sales volumes and production activity could require incremental investment. Worthy to mention that, approaching debt maturities include £70mn in April 2011 could potentially put TT liquidity under stress test (current OCF to maturing obligations sets comfortably at 56.8%). Yasser Elkhouly – 7474987 Dubai Assignment ref: FANA/Jan10/1 12 WACC Estimation Despite the multi currencies dominated debt drawn by TT in previous years, most of its long term debt comprises of medium term loans granted by HSBC in UK. Accordingly, it was appropriate to use UK economic data to estimate the company's costs of equity and debt in order to estimate TT's WACC. [1] Using CAPM to Estimate Cost of Equity • • Using return on UK Benchmark Gilt Yields (1 month treasury note) of 0.53% as risk free rate (Rf) (source FT, April 4th, 2010). Estimating a forward equity risk premium (ERP) as follows: a. FTSE ASI dividend yield 3.12% (source FT, April 1st, 2010 and date). b. Nominal GDP "forward looking" (g = 4.55%) representing long term growth potentials of UK economy. This rate was derived from a real GDP and inflation data provided by BOE, and calculated as follows: UK Latest Inflation & GDP projection Inflation target 2% Achievable Real GDP in the range of 2.5% Courtesy to BOE, "Inflation report Feb.,2010" Nominal GDP growth =(1+ Real GDP)(1+ Inflation)–1 =(1+.025)x(1+.02)–1 =0.0455=4.55% c. ERP =FTSE ASI dividends yieldx(1+g)+g =0.0312x(1+.0455)+0.0455 =0.0781=7.81% Yasser Elkhouly – 7474987 Dubai Assignment ref: FANA/Jan10/1 13 • Estimating Raw β by regressing the returns of 60 monthly closing prices and the corresponding FTSE ASI returns, which gives Raw β = 2.2793. A relatively high raw β could be attributed to a moderate residual volatility of TT returns compared to FTSE ASI returns during study period. Accordingly, in a step to enhance estimates, we adjust β to accommodate for differences in TT financial structure over this period. Current Opening Debt Shares in issue Share price Tax rate 70.4 1548 0.955 0.3 55.7 Average gearing 1548 1.65 0.3 Gearing 0.0323 0.0236 0.0150 Rayn β = 0.371+ Raw β x (1-avg, gearing) (1- current gearing) x 0.636 Raw  β Adjusted β (B M LU E) • 2.279Dim son β 1.818 Ryan β 3.489 1.833 Finally, we compensate for the variables in the CAPM to calculate the estimated TT Cost of Equity as follows: y = a + bx % E ( ri ) % E (r% = RF + β i [E (rm ) − Rf ] i) % E (rm ) [E (r%) − Rf ] m RF βi = 1 βi E(r)=0.0053+(1.833x0.0781) TT Cost of Equity = 0.1485 = 14.85% 3 Excel table is uploaded for verification. Yasser Elkhouly – 7474987 Dubai Assignment ref: FANA/Jan10/1 14 [2] Estimating Cost Of TT Debt • Term to Maturity TT outstanding debt comprise of a £70mn multi currency medium term revolving facility drawn in Sterling on June 2009 and should be repaid on April 2011 (a 2 years tenor). • Estimating the Current Yield As previously stated that TT raises most of its debt in UK market, it would appropriate to use the current UK curve showing the rate of return required on UK Gilts at different durations. Source: ft.com The yield curve suggests that the risk free rate of return on debt held by TT for a tenor of 2 years is 0.98%. • Figuring out the Yield Spread Hence TT debt is not rated by one of the major rating agencies, Kaplan Urwitz model (traded) could be used to predict the company's rating likelihood as follows: Score (traded) = 5.67+0.0011F+5.13π-2.36S-2.85L+0.007C-0.87β-2.90σU Where (according to FYE2009 full year detailed press release): F firm size determined by Total Assets = Profitability π (Net Loss/Total Assets) = Debt status S = Gearing L (Long Term Debt/Total Assets) = Interest Cover C (Cash Flow before Tax & Interest/Interest Payable) = Systematic Risk β (raw equity beta) = Unsystematic Risk σ U (std for error from market model) = Score (traded) = £393.7mn -19.6/393.7 = -4.99% 0 (Unsubordinated) 70.4/393.7 = 17.88% 72.1/3.6= 20.03 2.279 0.6369 1.65 Yasser Elkhouly – 7474987 Dubai Assignment ref: FANA/Jan10/1 15 The model predicts that TT is at the lower end of the Baa rating level. Accordingly, a two years tenor at this rating level could suggest (according to Moody's Credit Trends on March 25th, 2010) a yield of 3.64% on debts similar to TT's. [3] WACC WACC = (1-Tc) rd (MVD/MV) + re (MVE/MV) Market value of TT equity = Share price (£95.5)xTotal Number of shares (1.548mn)=£147.83mn TT MV=MVE+MVD=£147.83mn+£70.4mn=£218.23mn MVE/MV=147.83/218.23=0.68 MVD/MV=70.4/218.23=0.32 WACC=(1-0.30)x0.0364x0.32+0.1485x0.68 WACC=.008+0.101=0.109 WACC = 0.109 = 10.9% (approx. 11%) Worthy to note that, recent financial statements indicate that, TT uses a conservative 10% to discount their future cash flows. Yasser Elkhouly – 7474987 Dubai Assignment ref: FANA/Jan10/1 16 Financial Statements & Ratios Yasser Elkhouly – 7474987 Dubai Assignment ref: FANA/Jan10/1 17 Divisonal Breakdown Sensors & Electronic Systems FYE (£mn) Sales EBIT EBIT margin Sales EBIT EBIT margin Sales EBIT EBIT margin Sales EBIT EBIT margin Sales EBIT EBIT margin Sales EBIT EBIT margin Sales EBIT EBIT margin Sales EBIT EBIT margin Sales EBIT EBIT margin Sales EBIT EBIT margin Sales EBIT EBIT margin Sales EBIT EBIT margin 2005 195.0 9.1 4.7% 129.6 8.7 6.7% 60.3 2.0 3.3% 50.4 4.6 9.1% 130.0 5.5 4.2% 2006 184.8 11.6 6.3% 139.9 11.4 8.1% 72.1 1.3 1.8% 63.1 5.4 8.6% 140.4 6.5 4.6% 2007 182.3 10.0 5.5% 131.2 10.0 7.6% 92.2 4.1 4.4% 2008 2009 Electronic Components 2006 & 2006 segmentation Electronic Manufacturing Services Power Systems Power Transmission Secure Power & Industrial 2007 segmentation 139.2 13.6 9.8% 125.9 1.1 0.9% 192.1 9.7 5.0% 103.4 6.0 5.8% 65.9 7.8 11.8% 97 2.4 2.5% 565.3 29.9 5.3% 600.3 36.2 6.0% 544.9 37.7 6.9% 584.3 27.0 4.6% 105.4 -3.9 -3.7% 190.8 5.9 3.1% 75.1 2.4 3.2% 59.1 4.8 8.1% 69.2 -2.7 -3.9% 499.6 6.5 1.3% Sensors Components 2008 & 2009 segmentation IMS Secure Power General Industries Group TT Income Statment FYE (£mn) 2004 2005 2006 2007 2008 2009 Group Sales Cost of Sales Gross Profit Gross margin 573.1 -459.9 113.2 19.8% 565.3 -460.3 105.0 18.6% 600.3 -485.5 114.8 19.1% 544.9 -437.0 107.9 19.8% 584.3 -480.8 103.5 17.7% 499.6 -420.4 79.2 15.9% Operating Expenses EBIT (before exceptional items) EBIT margin -78.5 34.7 6.1% -75.1 29.9 5.3% -78.6 36.2 6.0% -70.2 37.7 6.9% -76.5 27.0 4.6% -72.7 6.5 1.3% Dep. & Amort. of Tangible Assets EBITDA EBITDA margin 29.4 64.1 11.2% 26.8 56.7 10.0% 23.2 59.4 9.9% 21.7 59.4 10.9% 23.4 50.4 8.6% 24.1 30.6 6.1% Net exceptional items EBIT (post exceptional items) 0 34.7 2.1 32.0 8.8 45.0 0.0 37.7 -3.8 23.2 -14.2 -7.7 Net Interest Pretax profit -4.7 30.0 -5.2 26.8 -5.7 39.3 -4.4 33.3 -5.9 17.3 -5.7 -13.4 Taxation Profit after tax -9.9 20.1 -8.5 18.3 -11.3 28.0 -9.3 24.0 -5.7 11.6 -2.4 -15.8 Profit/Loss from disc. Operations Net Profit Net margin -1.7 18.4 3.2% -5.3 13.0 2.3% 0.0 28.0 4.7% -11.8 12.2 2.2% 0.0 11.6 2.0% 0.0 -15.8 -3.2% Change in: (%) Sales Gross profit EBIT (before exceptional items) EBITDA Net profit/Loss -1.4% -7.2% -13.8% -11.5% 6.2% 9.3% 21.1% 4.8% -9.2% -6.0% 4.1% 0.0% -56.4% 7.2% -4.1% -28.4% -15.2% -14.5% -23.5% -75.9% -39.3% -29.3% 115.4% -4.9% -236.2% TT Balance Sheet FYE (£mn) 2004 2005 2006 2007 2008 2009 Assets Non-current Assets PPE Goodwill Other Intangibles Financial assets - Investments Deferred tax assets Total non-current assets Current Assets Property Inventories Receivables Financial Assets (derivatives) Cash & Cash Equiv. Total current assets 136.3 42.4 17.4 1 23.2 220.3 118.0 52.5 15.7 0.0 30.0 216.2 108.6 53.1 16.0 0.0 21.0 198.7 112.0 52.3 17.3 0.0 4.2 185.8 137.4 74.5 23.6 0.0 5.5 241.0 111.3 65.9 17.6 0.0 4.9 199.7 0.1 99.6 103.8 0.3 5.5 209.3 93.9 95.1 0.0 24.0 213.0 99.8 104.6 0.6 9.5 214.5 91.0 95.1 0.0 7.6 193.7 120.0 111.5 0.0 10.1 241.6 83.9 85.1 0.3 24.7 194.0 Total Assets Liabilities Current Liabilities ST Borrowings Financial Derivatives Payables Current tax payables Provision for liabilities Total Current Liabilities Non-current Liabilities LT Borrowings Defered tax provision Post employment benefits Provision for liabilities Other non-current liabilities Total Non-current Liabilities 429.6 429.2 413.2 379.5 482.6 393.7 17.1 0 90.1 7 2.1 116.3 4.0 0.4 94.8 4.9 1.6 105.7 11.5 0.0 87.3 1.3 0.9 101.0 16.8 0.7 81.9 0.0 0.3 99.7 51.2 2.9 99.4 3.1 5.6 162.2 11.2 0.5 88.7 1.7 8.9 111.0 55.7 8.7 70.9 1.6 9.7 146.6 67.1 6.1 90.2 1.0 7.4 171.8 69.0 5.4 72.6 0.7 7.5 155.2 65.8 6.0 17.4 0.7 7.6 97.5 72.1 8.7 18.6 0.1 8.0 107.5 70.4 5.9 43.7 0.2 6.7 126.9 Total Liabilities Net Assets Equity Share Capital Share Premium Reserves Hedging & Translation Reserve Retained Earnings Minority Interest 262.9 277.5 256.2 197.2 269.7 237.9 166.7 151.7 157.0 182.3 212.9 155.8 38.7 56.0 27.6 -2.9 44.4 2.9 38.7 0.0 0.5 3.5 107.0 2.0 38.7 0.0 0.8 -6.1 121.6 2.0 38.7 0.2 1.1 -1.5 141.8 2.0 38.7 0.2 1.2 35.8 134.6 2.4 38.7 0.2 1.0 27.2 86.3 2.4 Total Equity 166.7 151.7 157.0 182.3 212.9 155.8 TT Cash Flow Statement FYE (£mn) 2004 2005 2006 2007r 2008r 2009 EBITDA WC Movements Inventories Chg. Receivables Chg. Payables Chg. Net Movements In WC Payments to Pension Fund Other Restructuring/Adjustments Cash from Operating Activities Tax Paid Net Interest Paid 64.1 -1.1 -4.0 5.4 0.3 -3.1 8.4 69.7 -15.8 -3.5 56.7 5.1 12.1 0.1 17.3 -9.3 -6.4 58.3 -8.7 -3.4 59.4 -0.8 -5.6 -14.0 -20.4 -7.0 0.1 32.1 -7.0 -3.8 59.4 -4.2 0.4 -2.6 -6.4 -15.7 5.6 42.9 -7.3 -4.7 50.4 -6.6 0.0 1.0 -5.6 -2.2 3.6 46.2 -3.6 -3.8 30.6 31.1 22.2 -6.1 47.2 -2.2 -3.5 72.1 -5.3 -3.8 Net Cash from Operating Activities CAPEX Proceeds from sale of PPE FCF (before dividends) Dividends Paid FCF Other Development Expenduture Net Cash from Sale of Subsidiaries Out flow for Aquision of subsuduaries 50.4 -24.6 8.2 34.0 -15.6 18.4 -10.8 0.0 -1.3 46.2 -15.6 21.3 51.9 -15.6 36.3 -8.7 7.8 -10.1 21.3 -20.6 7.1 7.8 -15.6 -7.8 -8.6 0.0 -14.7 30.9 -29.4 7.1 8.6 -15.6 -7.0 -10.1 10.8 0.0 38.8 -21.9 5.1 22.0 -15.6 6.4 -10.9 0.9 -13.9 63.0 -9.4 5.7 59.3 0.0 59.3 -6.9 0.0 -1.0 Net Cash Flow Post Invest. Activities Equity Financing Net Debt Movements F.X. Change Dividends Paid 21.9 0.0 10.2 1.0 -15.6 40.9 0.0 7.2 -0.6 -15.6 -15.5 0.0 10.0 -0.5 -15.6 9.3 0.2 0.3 -0.1 -15.6 -1.9 0.0 11.0 -0.5 -15.6 51.4 0.0 -14.8 0.1 0.0 Net Movement in Cash during the Year Cash at Beginning of Year 17.5 -27.1 31.9 -9.6 -21.6 22.3 -5.9 0.7 -7.0 -5.2 36.7 -12.2 Cash at End of Year -9.6 22.3 0.7 -5.2 -12.2 24.5 Change in: (%) OCF CAPEX FCF (Before dividends) FCF -8.3% -53.9% -36.6% 32.1% 52.6% -85.0% 97.3% -121.5% 45.1% 25.6% 62.4% 42.7% -25.5% -57.1% 10.3% 155.8% 169.5% -10.3% -191.4% 826.6% Extracted Ratios Margins growth Y-O-Y Gross Margin Operating Margin EBITDA Margin Net Margin -6.0% 3.0% -12.6% 14.0% -10.3% -1.3% -28.4% 102.8% 3.5% 14.7% 10.2% -52.0% -10.5% -10.5% -33.2% -71.8% -20.9% -29.0% -11.3% -259.3% COP ratio 1.3 1.2 2.8 1.9 1.3 0.5 PERL Framework Performance ROACE ROE RFCE ROTA Gross Margin Operating Margin EBITDA Margin Net Margin 11.0% 15.8% 8.1% 19.8% 6.1% 11.2% 3.2% 15.7% 8.6% 13.8% 7.0% 18.6% 5.3% 10.0% 2.3% 13.4% 17.8% 18.2% 8.8% 19.1% 6.0% 9.9% 4.7% 15.3% 6.7% 20.3% 9.9% 19.8% 6.9% 10.9% 2.2% 14.1% 5.4% 11.2% 5.6% 17.7% 4.6% 8.6% 2.0% 10.6% 0.0% 3.3% 1.7% 15.9% 1.3% 6.1% -3.2% Efficiency FAT Asset Utilization Ratio Debtor Age (days) Creditor Age (days) Stock Turnover (days) Cash conversion cycle Risk Gearing Interest Cover Operational Gearing Beaver Failure Ratio 2.6 1.3 66 72 79 74 2.6 1.3 61 75 74 61 3.0 1.5 64 66 75 73 2.9 1.4 64 68 76 71 2.4 1.2 70 75 91 85 2.5 1.3 62 77 73 58 25.0% 7.4 18.5% 0.7 30.7% 5.7 24.9% 0.6 30.5% 6.4 25.2% 0.3 26.5% 8.6 23.9% 0.4 25.3% 4.6 23.3% 0.3 31.1% 1.1 25.1% 0.8 Liquidity Current Ratio Acid Test Cash Asset Ratio Cash Exhaustion Ratio Operating CF to Maturing Obligations 1.8 0.9 0.0 3.7 43.3% 2.0 1.1 0.2 16.4 43.7% 2.1 1.1 0.1 6.1 21.1% 1.9 1.0 0.1 5.5 31.0% 1.5 0.7 0.1 6.6 23.9% 1.7 1.0 0.2 18.3 56.8%