TT Electronics (LON:TTG) Chief Executive Officer Richard Tyson caught up with DirectorsTalk for an exclusive interview to discuss the recent trading update, good visibility going forward, the Excelitas acquisition and what we can expect in the coming months.
Q1: You’ve just issued a trading update to the end of October 209 with revenues 12% ahead of last year on a constant currency basis. You must be pleased with the level of organic growth in those last 0 months?
A1: Yes, that’s right. We issued our trading update this morning and delighted to be reporting yet again on a continuation of the strong progress, both top line and the organic development of the group which has been principally driven by our Power and Connectivity and Global Manufacturing Solutions divisions.
Revenue and profit really strongly up, revenues 12% at constant currency and that’s 5% organic growth, right up there with the peer group as far as we can tell. Really nice to see the order intake strength continuing, nicely ahead of prior year and a good backlog going into next year as well. This was really as a result of the significant business development activity we’ve been doing with our customers, winning a number of multi-year, multi-million pound contracts.
So, really improving the quality of the revenue stream and the visibility for the whole of TT Electronics so that’s been principally in aerospace, defence and medical where the organic growth has been driven from so very pleased with that.
Our third division, our Sensors division, has continued pretty much in the same way as we saw in Q2 where demand has been a bit more subdued in the broader industrial markets, pretty much as you’ve seen for a lot of others out there. We’ve been proactive in managing our costs, just getting those adjusted and we will be taking some additional restricting costs through Q4, just to make sure that’s appropriately set going into next year as we anticipate that uncertainty of demand remaining a bit volatile as we look into 2020 for that division.
Overall, great shape, the group is in a good position going into 2020.
Q2: As you pointed out, the group’s order book is ahead of the prior year and that you’ve got good visibility. What can you tell us about your pipeline?
A2: We’ve been working now for a couple of years completely reshaping the way we do business development and our customer interfacing in TT, focussing on trying to target the business customers in the right market segments with the most growth opportunity for what we’re offering. That’s been principally, as I said, in the aerospace, defence and medical market segments where we think we see the most opportunity for growth.
So, that activity and the targeting of those customers that seem to be doing really well in these markets as well as believing in TT’s capability mean that we’ve secured a number of new sole source market positions on platforms like the A350 and the F35 in aerospace and defence. In medical, the life sciences diagnostics market space, there’s the demand for MRI scanners and electronics in laboratory equipment is really strongly growing and we seem to be in there with the right customers who believe in the strategic partnership we’re putting together.
That’s resulted in larger contracts, multi-year visibility and, as I said, our order books at a record level for us, even despite some of the softness in the Sensors division so heading into next year with the best visibility we’ve had.
Q3: You’ve recently agreed to acquire an aerospace and defence power supply business, how will this fit in with your existing business and what enhancements will it bring?
A3: The strategy we’ve been working on for the last few years, after we sold our transportation division, has been to redeploy that capital into businesses that have a strong fit in power supply, electronics or connectivity or sensing.
Here, we’ve got the opportunity to expand our power electronics from what is principally a UK-based business into North America where there is the largest market for defence electronics in the world.
The core part of our strategy was to try and make this move and we’re delighted that Excelitas has agreed to divest their power supply business unit, which is based in Covina in California, and that gives us access to a number of new prime contractors in US defence and a small amount of business on A350 as well. It gives us that platform that we can build growth at and take our existing UK capability into the North American market.
So, we’ve bought the business for $17.7 million, it’s got to go through the usual regulatory approvals which we would expect to complete in Q1 so we’re really looking forward to having them as part of the team and accelerating this strategy even further.
Q4: You’ve delivered good growth and progress in this update so what can we expect over the coming months from TT Electronics?
A4: I think the one thing you can see through the performance continuously through this year is the strategy we’ve been working on for the last few years is really delivering. Execution is good and the benefits we’re getting out of those, principally those two main markets and the customers that we’re working with there has been excellent.
We’re just going to continue working to drive TT to be a higher quality revenue stream, better visibility, better margin, a better balanced group with the increasing exposure to those markets and less impact from the slightly more cyclical industrial space.
As I say, we’re adding to that with acquisitions as we go, we’re going to make really good progress in the performance in 2019 and we expect that to continue into 2020, despite a more challenging macroeconomic backdrop.
So, we think the group is in good shape, it’s going well and the team is really excited about the future.