Released: 9 August 2022

 

 TI Fluid Systems plc

Half Year Results 2022

 

Results in line with expectations despite market challenges

Strong growth in EV bookings

Confirms full year 2022 outlook

 

 

TI Fluid Systems plc (TIFS), a leading global manufacturer of automotive fluid storage, carrying and delivery systems and thermal management products and systems for light vehicles announces its results for the six-month period ended 30 June 2022.

	Management basis*          /                 Statutory basis
€m	H1 2022	H1 2021	Change		H1 2022	H1 2021	Change
Revenue	1,559.5	1,522.5	37.0		1,559.5	1,522.5	37.0
% Change at constant / actual rates			(2.4)%				2.4%
Adjusted EBIT / Operating Profit	83.7	127.8	(44.1)		48.3	76.5	(28.2)
Margin	5.4%	8.4%	(3.0)%		3.1%	5.0%	(1.9)%
Adjusted Net Income  / Profit  for the Period	9.0	45.4	(36.4)		0.5	11.1	(10.6)
Adjusted Basic EPS / Basic EPS (€ cents)	1.75	8.75	(7.00)		0.10	1.96	(1.86)
Adjusted Free Cash Flow**	(1.6)	46.3	(47.9)
Dividend (€ cents)	1.00	1.93	(0.93)		1.00	1.93	(0.93)

 

*Management basis metrics are Non - IFRS measures as defined on pages 18 to 20

** No equivalent GAAP measure - see table 8a for reconciliation to statutory cash flow items

 

Group Highlights:           

•             The Group has successfully navigated through significant headwinds from cost inflation and lower global light vehicle production (GLVP) volumes during the first half of the year

-         H1 2022 revenue of €1,559.5 million, growing 2.4% versus H1 2021

-         At constant currency, H1 2022 revenue fell by 2.4%, underperforming  GLVP by  (60) basis points

-       At constant currency, Q2 revenue outperformed the market by 330 basis points

-         Adjusted EBIT margin of 5.4%, modestly lower than H2 2021  as anticipated 

-         Statutory Operating Profit margin of 3.1%, including restructuring costs and Russia impairment charges

-         Adjusted Free Cash Flow outflow of €(1.6) million and net cash generated from operating activities of €40.2 million

•         The balance sheet remains strong with a cash position of €457.4 million at 30 June 2022

•         Continued and successful execution of our organic growth strategy and strategic focus on developing thermal products and systems for new battery electric vehicles (BEVs) and hybrid electric vehicles (HEVs)

-         New business BEV awards in H1 2022 of €600 million on lifetime revenue basis

-         Key awards include thermal business wins for two high volume global platforms with European and American customers

-         Successful launch of various thermal programs in Asia and North America

•          2022 interim dividend of 1.00 euro cents per share, which is in line with our annual dividend policy of 30% of Adjusted Net Income.

 

Hans Dieltjens, Chief Executive Officer and President, commented:

"The first half of 2022 has been marked by several challenges in the automotive industry. The shortage of microchips and other supplies, the Russian invasion of Ukraine and the COVID lockdowns in China have significantly hindered OEM production. Additionally, these macroeconomic factors have exacerbated the cost increase pressures, with inflation at levels not seen since the 1990s. Despite the challenging environment, the Group delivered an adjusted EBIT margin of 5.4% and maintained a strong balance sheet position. 

 

We continue to see the success of our Take the Turn (T³) strategy to address electrification through the development of an expanded line of thermal products for greener HEV and BEV vehicles. Our FCS division, that represents the majority of our electrification business, has significantly outperformed the market by 420 basis points supported by various launches in thermal products.

 

In addition, we had €600 million of new lifetime sales business bookings for BEVs during the first six months of the year as well as significant HEV bookings.

 

Finally, in April 2022 the Group opened its first of five E-Mobility Innovation Centres (e-MIC) in Rastatt, Germany. These technical centres are a crucial element in providing customer support and demonstrate our ability to design, develop and manufacture an expanded line of thermal products for electric vehicle platforms, including offering increasingly modular systems.

 

I continue to be very grateful to our workforce for supporting the Group's many achievements during the first half of this year through their dedication, focus and hard work as the Group, along with the industry as a whole manages through a variety of difficult economic, social and geo-political challenges."

 

Outlook

While market uncertainties and economic risks persist, we anticipate that full year production volumes will be at, or slightly above 2021 levels, as microchip availability gradually improves, and that inflationary cost increases will continue, albeit at a slower pace. We continue to make good progress with customer negotiations for cost recoveries.  As such, we expect the Group's margins to recover during H2 2022.

 

Based on our H1 2022 results and current view of H2 2022, we are maintaining our previously issued full year 2022 outlook guidance. We expect to achieve revenue outperformance vs GLVP, margins slightly below 2021 levels and historical levels of cash flow conversion.

 

Results presentation

TI Fluid Systems plc will host a teleconference for analysts and investors at 11.30 am UK time on 9 August 2022.

Analysts wishing to join may listen to the presentation live by using the details below.

 

Conference Call Dial-In Details:

UK: +44 (0) 330 165 4012

Conference Code:  3480120

 

The presentation will be available at 7:00 am UK time from www.tifluidsystems.com. An audio recording will be available on our website in due course.

 

Enquiries 

TI Fluid Systems plc

Pilar Riesco

Investor Relations

Tel: +34 607 577 830

 

FTI Consulting

Richard Mountain

Nick Hasell

Tel: +44 (0)20 3727 1340

 

Chief Executive Officer's review

 

Global light vehicle production volumes for H1 2022 were 1.8% below the same period in 2021. The microchip shortages, the Russian invasion of Ukraine and the China Covid-19 lockdowns are still hindering the ability of OEMs to fulfil consumer demand. These events have also led to an inflationary environment that has created significant challenges to the business.

 

Despite these headwinds, the Group's H1 2022 revenue increased by 2.4% at actual rates compared to H1 2021, with a roughly flat performance to market on a constant currency basis (60 bps below GLVP).

 

Our ability to maintain a robust revenue profile and financial performance given the ongoing issues demonstrates the Group's consistent resilience and the strength of our strategy, business model and experienced management team.

 

Half year 2022 performance

 

Global light vehicle production volume decreased by 1.8% in the first six months of 2022, compared to the first half of 2021. We delivered revenue of €1,559.5 million, which was an increase of 2.4% compared to the first half of 2021. At constant currency, revenue was 2.4% lower than the first half of 2021, or 60 bps below global light vehicle production.

 

We also continued to generate strong Adjusted EBITDA of €160.1 million (10.3% margin) and Adjusted EBIT of €83.7 million (5.4% margin). Adjusted Net Income for the period was €9.0 million (H1 2021: €45.4 million), Profit for the period was €0.5 million (H1 2021: €11.1 million), and Adjusted Free Cash Flow amounted to €(1.6) million (H1 2021: €46.3 million).

 

Strategy update

 

The Group continues to successfully implement its Take The Turn (T³) Strategy which is built on our commitment, focus and dedication to designing and producing products that help make vehicles greener, the environment cleaner and the world a better place to live. We also continue to benefit from operational flexibility and our balanced and diversified customer, platform and regional profile.  

 

We are pleased with our continued business bookings for both HEV and BEV platforms, with €600 million of BEV bookings in H1 2022. We are also making great progress with Korean OEMs and are increasing our business wins with Chinese OEMs.  We continue to win new business awards for our advanced pressure resistant plastic fuel tank technology on HEVs.

 

Building on the Group's long trusted reputation as a leading fluid systems provider, we opened our first E-Mobility Innovation Centre (e-MIC) in Rastatt, Germany, where we collaborate with our OEM customers to develop new thermal products and systems that meet their needs and offer new solutions for electric vehicles.

 

We will continue our financial discipline on cost management and capital allocation to deliver sustainable growth and financial performance, balancing the investment of our new products with the cash generation in existing products.

 

Our people

 

Our employees, their knowledge and commitment are essential to achieve our challenging targets. The Group continues its deep engagement with employee development with a focus on inclusion. To further expand our employees' existing skills and expertise worldwide, we offer curated learning paths which will enable them to adapt to the evolving EV markets.  

 

I remain excited about the future of the Company as the automotive industry shifts to electrified mobility.  

 

Hans Dieltjens

Chief Executive Officer and President

8 August 2022

 

 

Chief Financial Officer's Report

 

The first half of 2022 has been characterised by the persistent global macroeconomic headwinds arising from continued supply chain pressures in the form of cost inflation and dampened demand due to the continuing microchip shortages, plus the impact of the Ukraine situation on our European businesses. We continue to operate in a challenging environment and delivered revenue growth at actual rates. Although our margins have been impacted by the cost pressures as well as further COVID-19 related shutdowns in China, we are proud of the gains we continue to make with our cost rationalisation initiatives across the business and the progress being made on recovering the costs from our customers recognising there is timing lag due to the negotiation process.

 

Table 1: Key Performance measures €m

	Management basis*         /                Statutory basis
	H1 2022	H1 2021	Change		H1 2022	H1 2021	Change
Revenue	1,559.5	1,522.5	37.0		1,559.5	1,522.5	37.0
% Change at constant / actual rates			(2.4)%				2.4%
Adjusted EBITDA	160.1	198.5	(38.4)
Margin	10.3%	13.0%	(2.7)%
Adjusted EBIT / Operating Profit	83.7	127.8	(44.1)		48.3	76.5	(28.2)
Margin	5.4%	8.4%	(3.0)%		3.1%	5.0%	(1.9)%
Adjusted Net Income / Profit  for the period	9.0	45.4	(36.4)		0.5	11.1	(10.6)
Adjusted Basic EPS / Basic EPS (€ cents)	1.75	8.75	(7.00)		0.10	1.96	(1.86)
Adjusted Free Cash Flow **	(1.6)	46.3	(47.9)
Dividend (€ cents)	1.00	1.93	(0.93)		1.00	1.93	(0.93)

 

*Management basis metrics are Non - IFRS measures as defined on pages 18 to 20

**No equivalent GAAP measure - see table 8a for reconciliation to statutory cash flow items

 

Global light vehicle production continues to be the principal driver of the Group's performance. In the first half of 2022, global light vehicle production decreased to 38.7 million vehicles or by 1.8% compared to the prior period mainly impacted by persistent supply chain shortages, COVID-19 related shutdowns and the war in Ukraine.

 

Group revenue decreased by €37.5 million, or 2.4% period over period on a constant currency basis, to €1,559.5 million, underperforming global light vehicle production by (60) bps in the period. If we include the positive currency impact of €74.5 million, reported revenue increased by €37.0 million, or 2.4% period over period.  For Q2 2022 revenue was €804.5 million (Q2 2021: €772.5 million) which outperformed global light vehicle production by 330 bps at constant currency.

 

We generated Adjusted EBIT of €83.7 million with a margin of 5.4%, a decrease of 300 bps from the prior period Adjusted EBIT margin. The decrease in margin is directly related to the conversion of lower volumes as well as ongoing inflationary and cost pressures which have increased our operating costs. Recovery of these costs is a priority for our management team and good progress has been made both in recovering historic amounts and also setting future prices on a sustainable basis. On a statutory basis, we achieved an operating profit of €48.3 million compared to €76.5 million in the prior period mainly due to the conversion of lower sales and the time lag on recoveries. This is discussed in more detail in the Operating Profit, Adjusted EBITDA and Adjusted EBIT section of this report.

 

Adjusted Net Income was €9.0 million compared to €45.4 million in the prior period. The reported profit for the half year was €0.5 million compared to €11.1 million in the corresponding half of 2021. Basic EPS was 0.10 Euro cents (H1 2021: 1.96 Euro cents) and Adjusted Basic EPS was 1.75 Euro cents, a decrease from 8.75 Euro cents in the first half of 2021. The volatile production environment had an adverse impact on working capital management and in turn our adjusted free cash flow generation, which was €(1.6) million compared to €46.3 million in H1 2021. Cash generated from operating activities was offset by cash outflows from investing and financing activities, mainly capex, lease and dividend payments, resulting in our reported cash and cash equivalent balances decreasing by €(53.9) million (H1 2021:  €(32.6) million) before currency translation, and a period end cash balance of €457.4 million (December 2021: €499.1 million). We ended the period with net debt excluding the IFRS16 lease liability of €664.1 million (31 December 2021: €600.3 million).

 

Automotive Markets

Global light vehicle production volumes decreased by 1.8% in H1 2022 to 38.7 million vehicles as shown in table 2 - driven by the macroeconomic headwinds of high inflation, supply chain disruptions, COVID-19 related lockdowns and the war in Ukraine.  Volumes decreased across all major regions except North America.

 

Table 2: Global light vehicle production volumes: millions of units

	H1 2022	% Change
Europe, including Middle East and Africa	9.0	(9.7) %
Asia Pacific	21.3	(0.2) %
North America	7.1	4.7%
Latin America	1.3	(0.5) %
Total global volumes	38.7	(1.8) %
Source: IHS Markit, July 2022 and Company estimates Change percentages calculated using unrounded data

 

Revenue

Our revenue in each of the regions and by segment is included in table 3.

 

Table 3: Revenue by region and by segment €m

	H1 2022	H1 2021	Change	% Change	% Change at constant currency
Total Group Revenue	1,559.5	1,522.5	37.0	2.4%	(2.4) %
By Region
Europe and Africa	596.4	622.4	(26.0)	(4.2) %	(4.3) %
Asia Pacific	515.2	519.3	(4.1)	(0.8) %	(6.9) %
North America	424.3	356.5	67.8	19.0%	8.0%
Latin America	23.6	24.3	(0.7)	(2.9) %	(14.5)%
By segment
Fluid Carrying Systems ("FCS")	876.9	813.1	63.8	7.8%	2.4%
Fuel Tank and Delivery Systems ("FTDS")	682.6	709.4	(26.8)	(3.8)%	(7.8)%

 

Group revenue in H1 2022 was €1,559.5 million, a decrease of 2.4% period over period at constant currency and when compared to the global light vehicle production decrease of 1.8% over the same period resulted in a 60 bps underperformance primarily driven by the disproportionate impact of COVID-19 lockdowns in China.

 

In Europe and Africa, revenue at constant currency decreased by 4.3% period over period compared to a light vehicle production decrease of 9.7%, an outperformance of 540 bps. This strong outperformance was driven by the continuing launches of new HEV/BEV programmes for both FTDS and FCS, which offset the slow ramp up of some programs as a result of the Ukraine crisis.

 

In Asia Pacific, revenue at constant currency decreased by 6.9% period over period compared to light vehicle production decrease of 0.2%, for an underperformance of (670) bps. This underperformance was driven by the disproportionate impact of lockdowns and higher growth of BEV volumes in China where we are under indexed.

 

In North America, revenue at constant currency increased by 8.0% period over period compared to light vehicle production increase of 4.7%, reflecting an outperformance of 330 bps. The main impact for this region was new business launches and programme ramp ups in the FCS division, which outperformed the market in that region by 730 bps.

 

FCS revenue increased by €20.5 million, 2.4% at constant currency from the prior period to €876.9 million, an outperformance of 420 bps when compared to global light vehicle production. The strong FCS revenue growth is driven by successful launches of thermal programmes in Europe and North America.

 

FTDS revenue at constant currency decreased by 7.8% to €682.6 million, underperforming global light vehicle production by (600) bps, primarily driven by higher BEV growth in Asia Pacific where there is less FTDS content, as well as ramp downs in North America. Tooling revenue was significantly lower due to delays in the timing of programme ramp ups.

 

Revenue increased by 2.4% to €1,559.5 million at actual rates due to a net positive currency exchange rate impact of €74.5 million compared with the prior period. This was mostly due to weakening of the Euro against the US dollar and other key currencies in countries where the Group has manufacturing operations. Table 4 below sets out the movement in exchange rates most relevant to our operations.

 

Table 4: Exchange Rates

Key Euro exchange rates	H1 2022 Average	H1 2021 Average	% Change	30 June 2022 Period End	30 June 2021 Period End	% Change
US dollar	1.093	1.205	(9.3)%	1.047	1.185	(11.6)%
Chinese renminbi	7.079	7.797	(9.2)%	7.013	7.651	(8.3)%
South Korean won	1,348	1,347	0.1%	1,354	1,340	1.0%

 

Operating Profit, Adjusted EBITDA* and Adjusted EBIT* 

We use several financial measures to manage our business, including Adjusted EBITDA and Adjusted EBIT, which are non-IFRS measures, but are measures of profitability that have been used consistently by the Group and give insight into the operating performance of the business. The metrics are also used in certain of our compensation plans and to communicate to our investors. Table 5 shows a reconciliation between the reported measure, operating profit, Adjusted EBITDA and Adjusted EBIT.

 

Table 5: Calculation of Adjusted EBITDA* and Adjusted EBIT* €m

	H1 2022	H1 2021
Operating profit	48.3	76.5
Depreciation and impairment of PP&E	50.6	47.1
Depreciation and impairment of right-of-use assets	15.3	14.7
Amortisation and impairment of intangible assets	37.4	35.0
Share of loss of associates	-	(1.2)
EBITDA	151.6	172.1
Net foreign exchange (gains) /losses	(3.2)	7.6
Net restructuring costs	11.5	17.6
Share of loss of associates	-	1.2
Other reconciling adjustments	0.2	-
Adjusted EBITDA	160.1	198.5
Less:
Depreciation and impairment of PP&E	(50.6)	(47.1)
Depreciation and impairment of right-of-use assets	(15.3)	(14.7)
Amortisation and impairment of intangible assets	(37.4)	(35.0)
Add back:
Depreciation uplift arising on purchase accounting	4.9	5.3
Amortisation uplift arising on purchase accounting	22.0	20.8
Adjusted EBIT	83.7	127.8

* See Non-IFRS measures on pages 18 to 20

The operating profit of €48.3 million (H1 2021: €76.5 million) reflects the challenging operating conditions being experienced in 2022 due to inflationary pressures impacting our input costs and pricing pressures impacting recoveries. Management is making good progress on negotiating for compensation for the inflationary cost increases and also resetting purchase order prices for future business.

 

The restructuring and cost rationalisation programme started in 2020 continues to be implemented through 2022 and we are now starting to see the benefits across the business. We incurred further restructuring charges of €11.5 million in the period related to permanent headcount reductions across all our businesses and the planned closure and downsizing of manufacturing plants in Europe. During the period we have written down the assets in our Russian businesses and incurred costs of €6.0 million which are included in the restructuring charge. At the end of H1 2022 there was a restructuring provision of €9.6 million (December 2021: €15.8 million). 

 

Adjusted EBITDA in the first half of the year was €160.1 million (H1 2021: €198.5 million) and Adjusted EBITDA margin was 10.3% (H1 2021: 13.0%) with the major impact being the increase in operating costs as mentioned above. We continue to see challenge in the supply chain relating to pricing pressure and inflation of input costs for metals, resin, labour and utilities.

 

Adjusted EBIT was €83.7 million (H1 2021: €127.8 million) and Adjusted EBIT margin was 5.4% (H1 2021: 8.4%). This change was impacted by lower Adjusted EBITDA. During the period there were programme specific impairment charges of €0.7 million (H1 2021: €1.2 million).

 

By segment, FCS Adjusted EBIT was €46.1 million compared to €69.6 million in H1 2021, with Adjusted EBIT margin of 5.3% (H1 2021: 8.6%). The period over period margin reduction reflects increasing inflation on metal and resin, components and labour, as well as the lag on recoveries. These impacts have offset the fixed cost savings arising from efficiency gains and restructuring benefits.

 

FTDS Adjusted EBIT was €37.6 million compared to €58.2 million in H1 2021, with Adjusted EBIT margin of 5.5% (H1 2021: 8.2%). The reduction in margin reflects the conversion of lower revenues in the period, as well as increased operating costs and delayed recoveries.

 

Net finance expense

Net finance expense for the period was €28.5 million, a decrease of €2.3 million from the prior period (excluding the exceptional write-off of unamortised issue costs in the prior period). The decrease was due to the refinancing carried out in April 2021, reflecting the more favourable terms compared to the previous debt facilities.

 

Taxation

The income tax charge for the first half of 2022 is €19.3 million based on Group profit before tax of €19.8 million. This period over period decrease in the tax charge of €5.3 million is primarily due to a significant period over period decrease in profit. However, there was also an increase in the tax charge due to the H1 2022 establishment of tax valuation allowances in Argentina, Russia and South Africa which increased the H1 2022 tax charge and Effective Tax Rate. The H1 2022 Effective Tax Rate is 97.5% (H1 2021: 55.2%) There were no significant changes to uncertain tax positions during the period.

 

The H1 2022 Adjusted Effective Tax Rate is 46.4% (H1 2021: 34.6%). The Adjusted Effective Tax Rate is calculated by adjusting for the impact of UK losses, the impact of the share of associate loss and the prior period tax movements. 

 

Table 6 shows the calculation of the Effective and Adjusted Effective Tax Rates.

 

Table 6: Calculation of Effective and Adjusted Effective Tax rates* €m

Amounts in the table below do not include the H1 2021 exceptional charge of €11.6 million and exceptional tax benefit of €2.8 million.

	H1 2022			H1 2021
	Profit before tax	Tax charge	Tax rate	Profit before tax	Tax charge	Tax rate
Statutory basis	19.8	(19.3)	97.5%	44.5	(24.6)	55.2%
Add back:
Share of associate loss	-			1.2
UK accounting loss**	22.2	-		26.3	-
	42.0	(19.3)	46.0%	72.0	(24.6)	34.2%
Less:
Prior period deferred tax charge		1.4			-
Prior period corporate tax benefit		(1.6)			(0.3)
Adjusted	42.0	(19.5)	46.4%	72.0	(24.9)	34.6%

*See Non-IFRS measures on pages 18 to 20

** UK accounting loss is not tax effected due to the UK historical tax loss position

 

 

Adjusted Net Income* and profit for the period

Adjusted Net Income is a component of the Adjusted Basic EPS calculation and is also used to guide our dividend policy calculation. The calculation of Adjusted Net Income is shown in table 7a.

 

Table 7a: Adjusted Net Income* €m

	H1 2022	H1 2021
Adjusted EBITDA (see table 5)	160.1	198.5
Less:
Net finance expense before exceptional items	(28.5)	(30.8)
Income tax expense before exceptional items	(19.3)	(24.6)
Depreciation and impairment of PP&E	(50.6)	(47.1)
Depreciation and impairment of right-of-use assets	(15.3)	(14.7)
Amortisation and impairment of intangible assets	(37.4)	(35.0)
Non-controlling interests' share of profit	-	(0.9)
Adjusted Net Income	9.0	45.4

 

Table 7b: Reconciliation of profit for the period to Adjusted Net Income* €m

	H1 2022	H1 2021
Profit for the period	0.5	11.1
Less:
Non-controlling interests' share of profit	-	(0.9)
Net foreign exchange (gains)/ losses	(3.2)	7.6
Add back:
Exceptional finance expenses	-	11.6
Exceptional deferred tax credit	-	(2.8)
Net restructuring costs	11.5	17.6
Share of loss of associates	-	1.2
Other reconciling adjustments	0.2	-
Adjusted Net Income	9.0	45.4

*See Non-IFRS measures on pages 18 to 20

 

Adjusted Net Income was €9.0 million in H1 2022 compared to €45.4 million in H1 2021, primarily driven by the flow through of lower revenues and increased operating costs.

 

Basic EPS and Adjusted Basic EPS*

On a statutory basis, Basic Earnings per Share ('EPS') was 0.10 Euro cents for the period (H1 2021: 1.96 Euro cents), reflecting the reduced profit for the period. Adjusted Basic EPS calculation is based on Adjusted Net Income and the weighted average number of shares issued. Adjusted Basic EPS was 1.75 Euro cents per share for the period (H1 2021: 8.75 Euro cents per share) reflecting the decrease in Adjusted Net Income as noted above. 

*See Non-IFRS measures on pages 18 to 20

 

Dividend

The Company's dividend policy is to target an annual dividend of approximately 30% of Adjusted Net Income, one third payable following half year results and two thirds following the Group's final results.

 

The Group paid a final dividend in respect of the 2021 financial year of 1.46 Euro cents per share, amounting to €7.5 million on 23 June 2022. The Group is committed to its stated annual dividend policy and the Board has recommended a 2022 interim dividend of 1.00 Euro cents per share, amounting to €5.1 million. The Board continues to believe that dividends represent an important part of the Group's shareholder value proposition and that the Company's dividend policy is both affordable and sustainable within its wider capital allocation framework.

Cash Flow performance

The Group uses Adjusted Free Cash Flow as its primary operating measure of cash flow performance. 

Table 8a: Adjusted Free Cash Flow* €m

	H1 2022	H1 2021
Net cash generated from operating activities	40.2	98.8
Net cash used by investing activities	(56.3)	(62.6)
Free Cash Flow*	(16.1)	36.2
Deduct:
Amounts received in cash from Financial Assets at FVTPL (included in net cash generated from operations)	(0.7)	-
Add back:
Net restructuring cash spend	12.2	10.1
Tax paid on the gain on the disposal of associated undertakings	3.0	-
Adjusted Free Cash Flow*	(1.6)	46.3

 

Table 8b: Reconciliation of Adjusted EBITDA to Adjusted Free Cash Flow* €m

	H1 2022	H1 2021
Adjusted EBITDA	160.1	198.5
Less:
Net cash interest paid	(24.1)	(22.6)
Cash taxes paid	(25.3)	(28.0)
Payment for property, plant and equipment	(39.9)	(42.2)
Payment for intangible assets	(15.3)	(21.7)
Movement in working capital	(54.4)	(37.1)
Movement in retirement benefit obligations	(2.6)	(1.2)
Movement in provisions and other	(14.6)	(9.5)
Free Cash Flow*	(16.1)	36.2
Deduct:
Amounts received in cash from Assets at FVTPL	(0.7)	-
Add back:	-	-
Restructuring cash spend	12.2	10.1
Tax paid on the gain on the disposal of associated undertakings	3.0	-
Adjusted Free Cash Flow*	(1.6)	46.3

*See Non-IFRS measures on pages 18 to 20

 

In H1 2022, Adjusted Free Cash Flow was €(1.6) million (H1 2021: €46.3 million). The Adjusted EBITDA generated by the Group was used to fund investment in capital equipment and intangibles. There was a €8.7 million decrease in property, plant and equipment and intangibles expenditure. Tax cash payments were €2.7 million lower due to lower profits. The outflow from working capital of €54.4 million was driven by the increase in working capital balances due to the increased level of uncertainty leading to holding higher levels of inventory and increased receivables particularly in our China operations which suffered from sudden COVID related shutdowns and in Europe which has been impacted by short notice customer call off changes as a result of parts shortages from Ukraine. The net cash outflow on restructuring was €12.2 million, predominantly severance payments (H1 2021: €10.1 million) and included €1.1 million relating to the suspension of trading activities in Russia.

 

Cash outflows from financing were €37.8 million (H1 2021: €68.8 million), and together with free cash outflows of €16.1 million (H1 2021: €36.2 million inflows), resulted in a reported decrease in cash and cash equivalents before currency translation of €53.9 million (H1 2021: €(32.6) million). Financing outflows include purchase of own shares of €11.4 million (H1 2021: nil), borrowing repayments of €2.7 million (H1 2021: €17.8 million including fees), €16.2 million (H1 2021: €16.0 million) lease principal repayments and €7.5 million dividend payments (H1 2021: €35.0 million).

 

Retirement benefits

We operate funded and unfunded defined benefit schemes across multiple jurisdictions with the largest being the US pension and retiree healthcare schemes, which represent 57% of our net unfunded position at 30 June 2022 (H1 2021: 52%). We also have funded schemes in Germany 18% (H1 2021: 20%), UK and Canada nil% (H1 2021: 1%). While all our major plans are closed to new entrants, a few allow for future accrual. Our schemes are subject to periodic actuarial valuations. Our net unfunded position decreased by €19.3 million from December 2021 to €108.8 million at 30 June 2022 due primarily to discount rates differential period-on-period and overall pension investment performance.

 

Net debt* and net leverage*

Net debt, a non-IFRS measure, as at 30 June 2022 was €664.1 million, an increase of €63.8 million from the prior year end. The facilities also include a $225.0 million revolving credit facility with an undrawn amount of $223.1 million (€213.1 million) at 30 June 2022. Full details of the facilities are given in Note 8.  Issuance fees and discounts of €23.0 million on the loans are carried forward for future amortisation.

 

The Group's net leverage ratio, also a non-IFRS measure, was 2.1 times last twelve months Adjusted EBITDA of €314.5 million as at 30 June 2022 (31 December 2021: 1.7 times, last twelve months Adjusted EBITDA of €352.9 million); the increase reflects the lower Adjusted EBITDA.

 

The Group excludes IFRS 16 lease liabilities from its net debt and net leverage ratio. If the IFRS 16 lease liabilities were to be included, the Group's net debt would be €808.8 million (31 December 2021: €750.2 million) and net leverage ratio would be 2.6 times Adjusted EBITDA (31 December 2021: 2.1 times).

 

*See Non-IFRS measures on pages 18 to 20

 

Liquidity and Going Concern

Our principal sources of liquidity have historically been cash generated from operating activities and amounts available under our credit facilities, that currently consist of a revolving facility under our cash flow credit agreement of $225.0 million (€214.9 million). Total available liquidity (cash plus available facilities) on 30 June 2022 was €670.5 million (31 December 2021: €695.3 million).

 

The Directors have reviewed the likely performance of the Group for the period to 31 December 2023 by reference to an outlook using the approved Budget and Medium-Term Plan, updated for actual year to date performance and current projections as a base case scenario (global light vehicle volume assumptions - 2022: 78.0 million units, 2023: 84.3 million units). The volumes used are lower than the current IHS global light vehicle production forecast of 80.8 million units for 2022 and 87.3 million units for 2023 reflecting some modelling caution and alignment with the assumptions made during our Budget and Medium-Term Plan which assumed a slower recovery to normalised production volumes in light of the continued supply chain shortages. The Directors' assessment has been made with reference to the Group's current position and prospects, the Group's existing committed finance facilities, the Group's strategy, business model and the potential impact of the principal risks and how these are managed, as detailed in the strategic report contained within the 2021 Annual Report.

 

In making their assessment, the Directors reviewed a base case forecast covering the period to 31 December 2023 prepared using a global light vehicle production volume forecast which takes account of the short-term challenges associated with the current supply chain issues and showed liquidity (cash plus undrawn banking facilities) of €804 million at the end of the review period. The base model was stress tested to assess the adverse impact of the crystallisation of the principal risks likely to have a significant financial impact in the period to December 2023. This severe but plausible downside scenario assumed:

•     A further 10% lower global production volumes in Q4 2022 and 2023 compared to the data used in the base model, volumes used - 2022: 75.9 million units, 2023: 75.9 million units, (Risk: Global Light Vehicle production volumes)

•     10% increase in direct costs caused by inflationary pressures (commodities and energy costs), environmental strategy implementation costs and customer price reduction pressures from schedule changes (Risk: Competition and Customer Pricing Pressure, and Business Continuity)

•     A further 0.5% sales price reduction in addition to reduction already assumed in the base case (Risk: Competition and Customer Pricing Pressure)

•     €25 million additional annual supply chain disruption costs (Risk: Business Continuity)

 

The other principal risks were not considered to have a significant sustained financial impact.

 

The impact of the severe but plausible downside scenario would be to reduce available liquidity as per the base case to €523 million at the end of the review period, €281 million lower than the base case. In both the base case and the severe but plausible downside scenario, no breach of covenant is projected for the review period.

 

A reverse stress test was performed to determine the level of global light vehicle production which would extinguish all cash. It was found that even a 100% volume reduction from October 2022 through 2023 compared to the base case (volumes used - 2022: 58.0 million units, 2023: 0 units) would not use up the existing cash, and the $225 million revolving credit facility would not be utilised. This contrasts with the 2020 global light vehicle production low of 74.6 million, a drop of 16.1% to compared to 2019. As a result, the Directors do not believe that a catastrophic 100% volume drop in 2023 is likely and therefore do not regard this as a probable outcome.

 

The current banking facilities were also considered and specifically the available headroom under the downside scenario and their availability during the review period as well as any associated covenants. The downside model showed the availability of significant liquidity headroom without use of the revolving credit facility. The only covenant measure that exists is a leverage ratio which must be below 3.8x Adjusted EBITDA when the revolving facility is drawn over 35%, there were no covenant breaches in the review period.

 

The Directors have concluded after reviewing the future funding requirements for the Group over the period to the end of 2023 by reference to the headroom on the committed banking facilities and the expected performance of the Group, that it is appropriate for the financial statements to be prepared on a going concern basis with no material uncertainties.

 

Principal Risks and Uncertainties

The executive management and Directors have considered the principal risks and uncertainties of the Group and have determined, on balance, that those reported in the 2021 Annual Report and Accounts remain relevant for the remaining half of the financial year. Current operating challenges from volatile customer production volumes and supply chain disruptions in the automotive industry are not thought to represent prolonged long-term risks though they will persist into the second half and into 2023. In addition, the Directors noted that the increasing inflationary pressure on our input costs has posed, and will continue to pose, challenges on the business in the short and potentially medium term. An associated risk is our ability to recover increased costs from the customers as the supply chain rebalances over the short and medium term. In the first half of 2022, we have been able to recover part of the cost increases from the customers and realign prices accordingly, but the challenge of inflationary pressure will continue, requiring careful management.

 

Furthermore, the Directors noted a potential risk with regard to energy availability (in particular natural gas) as a result of recent political and economic tensions within Europe following Russia's invasion of Ukraine. The macro environment is still evolving, and the Company is assessing the potential exposure and mitigation.

 

The Directors continue to monitor and consider the current COVID-19 landscape and related risks stemming from the pandemic as well as reviewing the developing risks identified in our 2021 Annual Report - product portfolio redundancies, technological obsolescence, product pivoting, climate change and increasing geopolitical tensions and conflict. We continue to believe that these do not represent separate new principal risks and uncertainties at this time.

 

Details of the Group's Principal Risks and Uncertainties are available in the 2021 Annual Report and Accounts available on our website www.tifluidsystems.com.

 

Outlook

While market uncertainties and economic risks persist, we anticipate that full year production volumes will be at, or slightly above 2021 levels, as microchip availability gradually improves, and that inflationary cost increases will continue, albeit at a slower pace. We continue to make good progress with customer negotiations for cost recoveries.  As such, we expect the Group's margins to recover during H2 2022.

 

Based on our H1 2022 results and current view of H2 2022, we are maintaining our previously issued full year 2022 outlook guidance. We expect to achieve revenue outperformance vs GLVP, margins slightly below 2021 levels and historical levels of cash flow conversion. 

 

Non-IFRS measures

In addition to the results reported under IFRS, we use certain non-IFRS financial measures to monitor and measure performance of our business and operations and the profitability of our Divisions.  Such measures are also utilised by the Board as targets in determining compensation of certain executives and key members of management, as well as in our communications with investors. In particular, we use Adjusted EBIT, Adjusted EBITDA, Adjusted Net Income, Adjusted Basic EPS, Adjusted Free Cash Flow, Constant Currency, Net Debt and Adjusted Effective Tax Rate. These non-IFRS measures are not recognised measurements of financial performance or liquidity under IFRS, and should be viewed as supplemental and not replacements or substitutes for any IFRS measures.

 

EBITDA is defined as profit or loss before tax, net finance expense, depreciation, amortisation and impairment of tangible and intangible assets, and share of associate profits or losses.

 

Adjusted EBITDA is defined as EBITDA adjusted for exceptional operating costs, net foreign exchange gains/(losses), net restructuring charges, share of associate profits or losses, associate dividends received and the impact of any business acquisitions or disposals.

 

Adjusted EBIT is defined as Adjusted EBITDA less depreciation, amortisation and non-exceptional impairment on tangible and intangible assets (except those included in restructuring costs) net of depreciation and amortisation on purchase price accounting.

 

Constant currency refers to the statement of prior period results at current exchange rates to eliminate fluctuations in translation rates and achieve a like for like comparison.

 

Revenue outperformance/underperformance is defined as the change in revenue at constant currency compared to the change in global light vehicle production volumes.

 

Operating profit margin is defined as operating profit expressed as a percentage of revenue.

 

Adjusted Net Income is defined as Profit or Loss for the period attributable to the ordinary shareholders before exceptional items adjusted to reflect associate dividends received and eliminate the impact of net restructuring charges, foreign exchange gains or losses and the impact of any business acquisitions or disposals.

 

Adjusted Basic EPS is defined as Adjusted Net Income divided by the weighted average number of shares in issue in the period.

 

Free Cash Flow is defined as the total of net cash generated from operating activities and net cash used by investing activities.

 

Adjusted Free Cash Flow is defined as Free Cash Flow adjusted for cash movements in financial assets at fair value through profit or loss ('FVTPL'), net cash flows relating to restructuring, settlement of derivatives and the impact of any business acquisitions or disposals. The restructuring cash adjustment is made to align the treatment of restructuring with the other adjusted measures.

 

Adjusted Income Tax before Exceptional items is defined as income tax before exceptional items adjusted for the tax impact of prior period tax provisions and adjustments, UK accounting losses and tax arising on the impact of any business acquisitions or disposals.

 

Adjusted Profit before Income Tax is defined as profit before income tax adjusted for UK losses, share of associate loss, and the impact of any business acquisitions or disposals.

 

Adjusted Effective Tax Rate is defined as adjusted income tax before exceptional items as a percentage of adjusted profit before income tax.

 

Net debt is defined as the total of current and non-current borrowings excluding lease liabilities, net of cash and cash equivalents and financial assets at fair value through profit or loss.

Net leverage is defined as net debt divided by Adjusted EBITDA of the last twelve months.

 

Ronald Hundzinski

Chief Financial Officer

8 August 2022

 

Cautionary Statement

 

This announcement contains certain forward-looking statements with respect to the financial condition, results of operations and business of TI Fluid Systems plc (the "Group"). The words "believe", "expect", "anticipate", "intend", "estimate", "forecast", "project", "will", "may", "should" and similar expressions identify forward-looking statements. Others can be identified from the context in which they are made. By their nature, forward-looking statements involve risks and uncertainties, and such forward-looking statements are made only as of the date of this presentation. Accordingly, no assurance can be given that the forward-looking statements will prove to be accurate and you are cautioned not to place undue reliance on forward-looking statements due to the inherent uncertainty therein. Past performance of the Company cannot be relied on as a guide to future performance. Nothing in this announcement should be construed as a profit forecast.

 

 

TABLE OF CONTENTS

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
	Condensed Consolidated Income Statement
	Condensed Consolidated Statement of Comprehensive Income
	Condensed Consolidated Balance Sheet
	Condensed Consolidated Statement of Changes in Equity
	Condensed Consolidated Statement of Cash Flows
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
	1	Summary of Significant Accounting Policies
	2	Segment Reporting
	3	Finance Income and Expenditure
	4	Income Tax
	5	Earnings Per Share
	6	Property, Plant and Equipment
	7	Intangible Assets and Impairments
	8	Borrowings
	9	Fair Values of Financial Assets and Liabilities
	10	Retirement Benefit Obligations
	11	Restructuring and Other Provisions
	12	Cash Generated from Operations
	13	Commitments and Contingencies
	14	Related Party Transactions
Independent review report
Directors' Responsibility Statement