Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- TT Electronics PLC (TTGPF, Financial) reported a 1% organic revenue growth, excluding divestments and pass-through revenue adjustments.
- Strong order intake was observed, with a 15% increase over H1 2023 and a book-to-bill ratio of 110%.
- Project Dynamo has identified GBP17 million in potential cost savings and incremental margin improvements.
- The European and Asian regions showed strong growth, with Europe achieving a 74% increase in adjusted operating profit.
- The company declared a 5% increase in the dividend to 2.25p per share, reflecting confidence in future performance.
Negative Points
- North American operations faced significant challenges, with a 14% organic revenue decline due to prolonged destocking in the components business.
- Adjusted operating profit declined by 8% at constant currency, impacted by severance costs and divestments.
- Earnings per share decreased by 12% at constant currency, partly due to higher interest expenses.
- There was a GBP7.8 million free cash outflow in the first half, driven by a GBP21 million working capital outflow.
- The healthcare market experienced a 17% decline at constant currency, affected by the unwind of zero-margin pass-through revenues.
Q & A Highlights
Q: How will TT Electronics handle a sudden demand increase in North America after reducing headcount due to destocking?
A: Peter France, Chief Executive Officer, stated that TT Electronics has a good pool of workforce available and is an employer that people want to return to. They have a waiting list of people wanting to join, so they are not worried about re-recruiting as necessary when demand returns. The expectation is not to bring back all the costs as activity resumes.
Q: With identified cost savings and strong margins in Europe and Asia, is the 12% margin target for 2026 too conservative?
A: Peter France, Chief Executive Officer, acknowledged the potential for higher margins but suggested they will reassess as they approach the target.
Q: Is there a plan to shift from distribution to direct sales in North America to reduce volatility?
A: Peter France, Chief Executive Officer, explained that distribution will remain a significant part of their business model as end users often prefer purchasing through distribution channels. They are influencing end-user pricing, but distribution stock levels are currently causing issues.
Q: Can you provide more details on the 15% organic order increase and its distribution across regions and markets?
A: Peter France, Chief Executive Officer, highlighted strong growth in aerospace and defense, as well as automation and electrification. Healthcare has slowed, and components have seen a stronger order intake compared to last year, although recovery is expected to be gradual.
Q: How is the cultural response to Project Dynamo and the increased cost-saving targets?
A: Peter France, Chief Executive Officer, noted that the focus on efficiency and collaboration has been positively received. While headcount reductions are challenging, they have been managed positively, and many former employees would return if opportunities arise. The aim is to make some of the volume-related savings permanent over time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
