11 April 2022

TI Fluid Systems plc

(the "Company")

Annual Report and Accounts 2021 and Annual General Meeting 2022

The Company announces that today it has released the below listed documents: 

·    Annual Report and Accounts for the financial year ended 31 December 2021 ('Annual Report and Accounts 2021')

·    Notice of the Annual General Meeting 2022 ('AGM')

·    Form of Proxy for the AGM

In accordance with Listing Rule 9.6.1, these documents have been submitted to the National Storage Mechanism and will shortly be available for inspection at new National Storage Mechanism ('NSM') https://data.fca.org.uk/#/nsm/nationalstoragemechanism and on the Company's website at www.tifluidsystems.com.

The AGM is scheduled to be held at 9:00 am on Wednesday 18 May 2022 at the offices of Latham & Watkins (London) LLP, 99 Bishopsgate, London EC2M 3XF and will start at 9 am. Shareholder registration will be available from 8.30 am. 

In December 2021, Jeffrey Vanneste, Independent Non‑Executive Director and current Chair of the Audit & Risk Committee, indicated his intention to step down following the AGM but has agreed, at the request of the Board, to stand for re‑election in order to provide additional time for an orderly transition to a new Audit & Risk Committee Chair.  The process to recruit a new Audit and Risk Committee Chair is proceeding well, and an appointment is expected to be made in due course, at which point Jeff would step down from the Board.

Enquiries:

About TI Fluid Systems plc

TI Fluid Systems (LSE: TIFS) is a leading global manufacturer of fluid storage, carrying and delivery systems primarily for the light duty automotive market. With nearly 100 years of automotive fluid systems experience, TI Fluid Systems has manufacturing facilities in 104 locations in 29 countries serving all major global OEMs.

Appendix

The information below, which is extracted from the Annual Report and Accounts 2021, is included solely for the purpose of complying with DTR 6.3.5 and the requirements it imposes on issuers as to how to make public annual financial reports. It should be read in conjunction with the Company's preliminary results announcement released on 15 March 2022. This announcement is not a substitute for reading the full Annual Report and Accounts 2021. Page, note and section references in the text below refer to page numbers, note and section references in the Annual Report and Accounts 2021.

Statement of Directors' responsibilities in respect of the financial statements

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. Additionally, the Financial Conduct Authority's Disclosure Guidance and Transparency Rules require the Directors to prepare the Group financial statements in accordance with international financial reporting standards adopted by the UK Endorsement Board.

The Directors have also chosen to prepare the Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including Financial Reporting Standard (FRS) 101 Reduced Disclosure Framework.

Under company law, Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period.

In preparing the financial statements, the Directors are required to:

·    select suitable accounting policies and then apply them consistently;

·    state whether applicable UK-adopted international accounting standards have been followed for the group financial statements and United Kingdom Accounting Standards, comprising FRS 101 have been followed

·    for the company financial statements, subject to any material departures disclosed and explained in the financial statements;

·    make judgements and accounting estimates that are reasonable and prudent; and

·    prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors' Remuneration report comply with the Companies Act 2006.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmations

The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's and Company's position and performance, business model and strategy.

Each of the Directors, whose names and functions are listed in the Board of Directors section of this report confirm that, to the best of their knowledge:

·    the Group and Company financial statements, which have been prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit of the Group and profit of the Company

·    the Strategic Review includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces

This responsibility statement was approved by the Board of Directors on 14 March 2022 and is signed on its behalf:

By order of the Board

Hans Dieltjens, Chief Executive Officer and President

Ronald Hundzinski, Chief Financial Officer

Principal risks and uncertainties 

Strategic developments and market volatilities dominate our risk landscape

The Board is responsible for the Group's system of risk management and internal controls. The Audit & Risk Committee supports the Board by advising on the Group's overall risk appetite, tolerance and strategy, current risk exposures and future risk strategy.

A review of the Group's risk management framework used to assess and manage business-critical risks was presented to the Audit & Risk Committee in March 2022. Our 2022 risk assessment focussed on a management review process involving senior executive management from both divisional and corporate functions. The Board and the Audit & Risk Committee were satisfied that a balanced and robust assessment of the Group's principal risks had been undertaken.

The Group's global operations remain exposed to a number of risks which could, either on their own, or in combination with others, have an adverse impact on the Group's results, strategy, business performance and reputation which, in turn, could impact upon shareholder returns. The following section highlights the major risks that may affect the Group's ability to deliver the strategy, as set out on pages 26-27.

The management and mitigation activities described below will help to reduce the impact or likelihood of the major risk occurring, although the Board recognises it will not be possible to eliminate these risks entirely. The Board also recognises there could be risks that may be unknown or that may be judged to be insignificant at present, but may later prove to be significant.

The impact of the COVID-19 pandemic over the last two years has dramatically demonstrated that the world is more volatile than ever before, and this volatility continues to provide many operating performance challenges for us and the automotive industry generally. Disruption to our customers' production activity levels, the efficiency and operations of the automotive market supply chain and the availability of resources, both human and material, remain significant challenges. Nonetheless, we believe that the continuing impact of COVID-19 into 2022 will not introduce new risks beyond those risks that we have already identified.

In addition to those existing challenges the Group is now faced with a period of significant inflationary pricing pressure across all aspects of our operations. Furthermore, as described in our TCFD commentary on pages 64-68, climate change, while not currently expected to create fundamentally new risks to our business, is certainly driving the pace and potential severity of many of the principal risks that are already being managed. Specifically, climate change is increasing our technology and product development risk as the rate of vehicle electrification accelerates across the industry and broadening our business continuity risk as we seek to transition to lower carbon, more efficient manufacturing operations and address physical risks to our facilities. As we respond by actioning our Take the Turn (T3) strategy, our technological agility to develop and adapt our product offerings to meet the EV requirements of our customers will come under heightened pressure. Vehicle electrification also has a significant human capital aspect to it - the need to reskill and recruit engineering resource better and more able to support necessary product development. Continual regulatory change is now a business constant that arises across all aspects of the environmental, social and governance spectrum.

The importance of certain constituent elements of our risk profile, e.g. raw material sourcing and pricing, product offering, financial resilience, and operational leverage, continue to take on heightened relevance. However, we currently believe that none have heightened into strategic long-term risks.

Developing risks

The Board recognises that an essential part of risk management is the ability to monitor and respond to new and emerging risks.

As the Board has continued to review and refine the Group's approach to vehicle electrification, operational sustainability and talent development - all of which are embodied in the Take the Turn (T3) strategy - it has been conscious of any new strategic risks that may need to be factored into its consideration, including, but not limited to, the technological obsolescence risk associated with the Group's ICE product lines (i.e., fuel tanks, fuel pumps, and fuel lines), the need for rapid product portfolio changes along with securing new product capabilities and the challenges of securing the right talent and skills mix across the organisation. If the Group chooses to address the need to enhance the Group's product capabilities other than organically then this may necessitate additional resources and expertise and would naturally come with management and value delivery risk.

The Board remains acutely aware of the changing market dynamics that will continue to arise from climate change and the growing demand for BEVs. The Board feels that the T3 strategy will position the Group well to respond positively to these market changes. However, it is recognised that increased frequency of future climate-related risk events (severe storms, floods, rising sea levels) and the transition to a low carbon economy may also adversely impact asset values and financial performance over time and as such will continue to be monitored and mitigated where practical to do so.

Currently widening geopolitical fractures may result in global business disruptions. Competition and political tension between the United States and China is increasing whilst there are political tensions within Europe. Russia's recent tragic military invasion of Ukraine further demonstrates the fragility of international relations and the consequential adverse impact on the automotive supply chain and world financial markets. Therefore, potential exists for these geopolitical tensions to lead to significant disruptions in how the automotive sector operates and does business and hence create risk for the Group.

On reflection, the Board continues to believe that the current year risk assessment has been sufficiently robust and confirms that are no new distinct risks that are material to the Group at the date of this report.

The Board expects executive management to enhance its current enterprise risk assessment processes from 2022 onwards to be supportive to the strategic change agenda and continuing volatile operational risk landscape.

Principal risks

Global light vehicle production volumes

Description

The Group has 104 manufacturing locations in 29 countries on five continents and a substantial amount of its revenue is closely linked to the economic cycle, the general macroeconomic environment and the trends in product offerings from the vehicle manufacturers.

Impact

Historically, there has been close correlation between economic growth and global light vehicle production volumes. The cost structure of the business, operating across manufacturing facilities in 104 locations, means that a large reduction in revenue will have an impact on profitability. The transition from ICEs as the predominant vehicle powertrain towards HEVs and BEVs will continue to necessitate changes in our product portfolio offering.

Controls and mitigation

·    The Group's presence in 29 countries supplying a wide range of customers acts as a hedge to neutralise localised economic volatility

·    The Group has an extensive manufacturing presence in emerging and other low cost markets which currently have relatively low rates of light vehicle penetration per head of population and are believed to have strong growth potential

·    Although the Group's products are primarily for light vehicles, it operates across both a broad geographic footprint and a diversified range of vehicle platforms, brands and models

·    A proportion of the Group's workforce in a number of local markets are employed on temporary contracts, which provides some flexibility in the cost base

·    The Group monitors closely and responds to any changes in customer demand on a local or Group-wide basis. Active development of new and enhanced products to response to the transition to full electrification remains a major focus. More detail is given in the Product Development and changes in technology section below

Product quality

Description

The Group's business is based on the repeatable supply and delivery of components and parts to an agreed specification and time.

Impact

Failure to meet customer requirements or specifications can have financial consequences, such as the loss of a customer, warranty claims and product liability, and cause long-term damage to the Group's reputation.

Controls and mitigation

·    The Group operates rigorous quality control systems designed to ensure a high-quality standard for all products, including testing and validation during the design and production phases

·    The Group collaborates with key customers to evaluate and improve quality control standards and to confirm the compliance of its manufacturing processes with customers' quality standards

·    Quality systems and processes operated at local manufacturing level are subject to oversight by divisional quality teams

·    Where necessary, the Group's manufacturing facilities maintain relevant industry accreditations, such as TS 16949

·    The Group monitors the field performance of its products in order to seek to continuously improve product quality

Competition and customer pricing pressure

Description

This risk encompasses a number of identified global trends in the markets in which the Group operates. The Group operates in a dynamic competitive environment and faces competition from other manufacturers and suppliers of automotive components in each of the market segments in which it operates. The Group may be subject to pressure from customers to reduce costs on current contracts.

Impact

The Group's customers face constant pressure to lower their selling and production costs to be competitive against their peers and may require reductions in the selling price of the Group's systems and components over the term of a vehicle platform or model. Commercial activity by competitors, or changes in their products or technologies, could impact upon the Group's market share and profitability. The environment for bidding and securing new contract awards from OEM customers is competitive with the increasing need to balance the economics of recovering current inflationary impacts with securing increased penetration on new BEV business.

Controls and mitigation

·    The Group seeks to offset pricing pressure by achieving improved operating efficiencies and cost reductions

·    A growing trend by customers to standardise and globalise vehicle platforms has the potential to minimise the Group's exposure to the cancellation of any single vehicle platform or model

·    The Group has a strong reputation and industry-leading technology which supports its status as a key supplier to its customers

·    The Group engages in extensive and regular dialogue and has strong commercial and engineering relationships with key customers

·    The Group uses market intelligence and competitor analysis to support its market activities and inform investment decisions

·    Across the Group there is an emphasis on research and development and improving the technical content of products

·    The Group also leverages a robust screening process to evaluate new business proposals

·    The Group is considered to be a top supplier or strategic supplier by many of its OEM customers

Business continuity

Description

The Group's business is based upon reliable, high-volume manufacturing across all its locations in order to supply products to customers, often on a just-in-time basis. Business continuity encompasses a number of areas of risk to the Group, including fire, flood and other casualties, equipment breakdown, key supplier failure, exposure to price fluctuations of key raw materials, maintaining stable labour relations, and ensuring the reliability of the Group's business management systems and IT infrastructure. In addition, the Group is exposed to risks from accidents and incidents arising from health and safety failures.

Impact

A loss of production capability at a facility could lead to an inability to supply customers, reduce volumes and/or increase claims made against the business. In periods of high demand or in the event of supplier difficulties, availability of raw materials may be constrained which could interrupt production or result in price increases, all of which could have an impact on the profitability of the Group's operations. In certain circumstances the loss of a supplier, or supplier quality failing, could lead to an inability to obtain materials and sub-components necessary to supply products in a timely or efficient manner. As our product portfolio pivots in response to the electrification trend the capability and capacity of our current supply base to respond may heighten risk.

The loss of systems capability at a Group facility, as a result of IT failure or cyber-attack, could impact the Group's ability to operate one or more plants and supply its customers. Injuries arising from health and safety incidents could result in lost time, reduce employee morale and possible changes in working practices. Serious incidents can also have a detrimental impact on the Group's reputation.

Controls and mitigation

·    The Group continues to expand its business continuity planning ('BCP') to enhance the localised continuity planning strategy operated at each facility

·    The Group's global network of facilities provides a degree of backup capacity

·    The Group maintains a scheduled programme of maintenance and inspection of all equipment

·    The wide geographic spread of operations, purchasing and supply chain functions allows the Group to use a range of techniques to address potential supply disruption, such as long-term purchase contracts, dual sourcing and ongoing research and development into alternative materials and solutions

·    In certain markets the Group uses preferred suppliers for key components and materials

·    The Group maintains casualty, property and business interruption insurance

·    The Group participates in a number of works councils and other represented employee forums and seeks to establish and maintain good relationships with its employees and unions

·    The Group continues to assess and strengthen its cyber security programme. The Group has continued to expand its systems penetration testing and data security audits

·    The Group's decentralised IT systems worldwide provide some resilience against the loss of production or systems capability to the Group as a whole

·    IT has a disruption recovery plan for the organisation

·    The Group has an embedded health and safety culture and operates a global health and safety policy, with local health and safety operations in place in each manufacturing facility

·    In 2020 our health and safety protocols were enhanced in response to COVID-19 such as to facilitate safe return to our operating facilities when permitted. Our IT infrastructure has been able to support the seamless operation of our worldwide office and administrative functions when remote working has been in place

·    Health and safety performance is monitored regularly by each division and by the Group

Product development and changes in technology

Description

The automotive industry is subject to changes in technology and the Group's products are subject to changes in regulatory requirements to reduce emissions and increase fuel economy. Operating across numerous markets and territories requires compliance with a wide variety of regulations. Changes in consumer demand, e.g. the popularity of a particular vehicle type, model, platform or technology such as HEVs and BEVs, may also impact on demand for the Group's products. In addition, the Group's products have performance-critical applications and have high levels of technical content and know-how.

Impact

Failure to keep up with changes in technology in the light vehicle automotive industry or in competitive technologies may render certain existing products obsolete or less attractive as well as damage the Group's market position and reputational strength. Failure to comply with all relevant regulatory requirements could affect the Group's reputation and/or its ability to operate in certain markets or territories. Changing environmental regulations could affect demand for certain products. The Group's technologies and intellectual property rights need to be kept current through continuous improvement and research and development and are susceptible to theft, infringement, loss and/or replication by competitors.

Controls and mitigation

·    The Group is engaged in continued investment in alternative engineering solutions and the development of more advanced designs and innovative products to ensure compliance with changes to environmental regulations and customer demand

·    The Group has developed and is actioning an engineering skills transition plan to ensure our engineering resource has the necessary skills to support an enhanced electric vehicle product offering

·    The Group has an international network of technical centres which focus on research and development

·    The Group seeks to maintain close relationships and technical partnerships with key customers

·    The Group has established regional application centres which focus on application engineering worldwide

·    Both Group and divisional management monitor and assess relevant regulatory requirements and the likelihood and impact of any changes

·    The Group's products, materials and processes are continually developed and enhanced through research and development and technical input

·    The Group actively registers, manages and enforces its intellectual property rights

·    The Group operates in the automotive industry where performance-critical technology evolves and is adopted in a deliberate and measured manner

Operating globally and regulatory compliance

Description

The Group has operations globally, with manufacturing facilities in 29 countries across five continents. The markets in which the Group operates are covered by a range of different regulatory systems and complex compliance requirements and may also be subject to cycles, structural change and other external factors, such as changes in tariffs, customs arrangements and other regulations. In addition, operating across a number of territories exposes the Group to currency exchange rate variations.

Impact

A substantial downturn in one or more key markets could have a material adverse impact on the Group's profitability, cash flow and carrying value of its assets. Significant changes to the different regulatory systems and compliance requirements in and between the countries and regions in which the Group operates may have a negative impact on the Group's operations in a particular country or market. The accelerating pace of change towards full electrification of vehicles is expected to continue to bring tightening legislative requirements. High foreign exchange volatility may increase financing costs.

Controls and mitigation

·    The Group's international footprint provides some protection against a downturn in particular territories or regions

·    The markets and any changes to the regulatory environment in which the Group operates, including tariffs and trade policies, are continually monitored and assessed

·    Changes to the Group's investment strategy and cross-border relocation might result from a significant change in the regulatory environment in a particular country or region

·    The Board is actively monitoring the opportunities and threats posed by climate change, via the ESG Steering Committee, to both the Group's product offering and its operations and proactively refocusing development and engineering work in this area

·    The Group's treasury policy covers, inter alia, the use of currency contracts, investment hedging policy and regular reporting of foreign exchange exposure

·    Focus throughout the Group on adherence to our Code of Business Conduct ('COBC'), including ongoing training and review of policies and procedures

Key personnel dependencies

Description

The future success of the Group is dependent upon the continued services of key personnel and the acquisition of new talent to address skills gap as our end markets and product offerings change over time. Succession and change management planning is a routine consideration given some of the Group's key global positions at all levels, including business unit, division and Group.

Impact

The Group competes globally to attract and retain personnel in a number of key roles. A lack of new talent with new skills, the inability to retain and develop existing talent, replace retiring senior management or effectively manage leadership transitions could hinder the Group's operations and strategy delivery. A loss of key personnel, with associated intellectual property and know-how, could disrupt our business and strategy. In a number of local markets the Group may experience a shortage of skilled and experienced personnel for certain key roles. Global social trends and events may focus current and potential employees on the desirability of our businesses as a place of employment.

Controls and mitigation

·    The Group applies bespoke terms and conditions of employment for key personnel where appropriate

·    The Group has in place incentive arrangements, including bonuses, pensions and long-term incentive plans

·    The Group continues to enhance its activities to further embrace equality and diversity across its operations. Culture awareness training is ongoing across our organisation

·    A new, skills focussed, training and development initiative is being rolled out across the Group in 2022

·    The Group operates established recruitment and development programmes

·    Succession plans continue to be reviewed for relevant key positions

Related Party Transactions

Related Party Transactions and Controlling Parties

Certain funds managed by Bain Capital, through BC Omega Holdco Ltd, which represent affiliates of and funds advised by Bain Capital LLC, have been the Group's ultimate controlling party since incorporation up until 15 April 2021, when it was announced that approximately 10% of the holding of BC Omega Holdco Ltd was sold, via a placing, reducing its holding in the ordinary share capital of TI Fluid Systems plc to 44.4%. TI Fluid Systems plc did not receive any proceeds from the placing.

On 10 November 2021, an additional 7.7% of the holding in the Group held by BC Omega Holdco Ltd was sold, via a placing, reducing its holding in the ordinary share capital of TI Fluid Systems plc to 36.7%.

As a result, at 31 December 2021 there is now no ultimate controlling party of TI Fluid Systems plc.

The Group did not procure products and materials from companies in which the funds managed by Bain Capital, had investment interests in either the current or prior year, nor did it incur any management charges.

Transactions with Group Companies

Balances and transactions between Group companies have been eliminated on consolidation, and are not disclosed in this note except for subsidiaries that are not wholly owned. Transactions with those companies are made on the Group's standard terms of trade.

The Group held a 73% interest in Hanil Tube Corporation, until 8 December 2021 when the Group purchased the remaining 27% for a total consideration in cash of KRW21,000 million (€15.5 million). See Note 25 for further details. Hanil Tube Corporation made sales within the Group during the year up to the point of this transaction of €5.8 million (year-ended 31 December 2020: €6.8 million).

The Group holds 97% of the shares in Bundy India Ltd. At 31 December 2021, Bundy India Ltd had trade and loan receivables net of payables to other Group undertakings amounting to €0.6 million (2020: €4.1 million net trade and loan payables) and made sales within the Group during the year of €2.4 million (2020: €6.1 million).

Transactions with Associate

The Group held one associated undertaking, SeAH FS Co., Ltd ('SeAH FS'). On 8 December 2021 the Group disposed in full of its 20% holding in the issued ordinary shares in the company for KRW21,000 million (€15.5 million). Refer to Note 19 for further details. Purchases from associates in the year up to the point of disposal were €7.4 million (year-ended 31 December 2020: €8.1 million).

END