Released: 12 March 2024

Full Year Results 2023

Double-digit revenue growth and Adjusted EPS up 57%

Confidence in achieving mid-term targets

TI Fluid Systems plc ("The Group"), a global industry leader in highly engineered automotive fluid storage, carrying and delivery systems and thermal management products and systems, announces its results for the year ended 31 December 2023.

*Adjusted measures are non - IFRS metrics and reconciled in Note 4 and defined in the glossary in Note 15

**Adjusted Net Income and Adjusted Basic EPS definition changed to exclude impact of purchase accounting adjustments, consistent with other metrics, see Note 4

Strong financial performance slightly ahead of expectations:

Delivering on our strategy for sustainable and profitable growth:

Outlook for 2024 - productivity to drive continued progress towards our mid-term objectives:

Our 2024 planning assumptions are based on a modest year-on-year industry volume decline. Automotive production volumes for 2024 are forecast to be slightly higher in North America, flat in China and slightly negative in Europe.

For 2024, we expect flat to low-single digit constant currency revenue growth. Through productivity and efficiency initiatives, we expect to further increase our Adjusted EBIT margin above the 7.4% achieved in 2023. We are targeting strong Adjusted Free Cash Flow conversion of approximately 30% of Adjusted EBITDA.

Building on the significant strides made in 2023, we expect 2024 to be another year of progress towards our goal of achieving revenue of €3.8-4.2 billion[1] by 2026 and returning to a double-digit Adjusted EBIT margin in the mid-term.

Hans Dieltjens, Chief Executive Officer and President, commented:

"We delivered a strong 2023 financial performance with double-digit revenue growth at constant currency and significant Adjusted EBIT margin expansion driven by unrelenting operational and commercial execution. I would like to thank the team for successfully navigating three years of transformation and external challenges.

Our strategic initiatives, outlined in our Taking-The-Turn strategy, are delivering results as we capitalise on the strengths of our conventional portfolio and the opportunities of electrification.

We remain committed to driving innovation and delivering value for our customers, while maintaining a strong focus on sustainability. Our efforts in these areas are helping to strengthen our position as a leader in our industry and are driving long-term growth and success.

Looking ahead, we expect to make further progress towards our mid-term targets during 2024 as we further increase our emphasis on operational efficiency and productivity. We will continue to execute on our strategic plan and remain focused on delivering strong results for our stakeholders. We are confident in our ability to achieve our mid-term targets and remain excited about the opportunities that lie ahead."

Notes

1.        Adjusted EBITDA and net leverage defined in Note 15 in the glossary

Results presentation

TI Fluid Systems plc will host a webcast and audio conference for investors and analysts at 9.00 am UK time on 12 March 2024.

Webcast Link: https://webcast.openbriefing.com/tifluid-fy23/

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Should you wish to pre-register for the audio conference call, please use this link to receive a unique PIN to dial directly into the call.

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

Chief Executive Officer's review

In 2023, we achieved double-digit revenue growth at constant currency, a significant increase in Adjusted EBIT margin and strong cash generation. We also made important progress on the execution of our 'Taking-the-Turn' strategy further positioning TI for a successful transition to electrification.

Strong 2023 performance and progress

In 2023, TI delivered a strong performance, demonstrating the quality, professionalism and commitment of the wider team as the organisation delivered growth in revenue and profitability. This success is a result of the hard work and dedication of our people, and I would like to thank them all for their contribution.

We have made significant progress towards our mid-term financial targets, with revenue growing at 11.1% at constant currency and our Adjusted EBIT margin increasing by 190 basis points to 7.4% as compared to 2022. Our 36% conversion of Adjusted EBITDA to cash reflects our financial discipline. So all in all, we delivered on our promises, with the full year slightly ahead of expectations, even after upgrading our 2023 financial outlook in August.

We also delivered an improvement in our environmental footprint. TI's success is built on innovating and developing products that reduce vehicle emissions and increase efficiency, and we are committed to manufacturing products in a more sustainable manner. Actions to improve our environmental footprint resulted in a double-digit reduction in our Scope 1 & 2 carbon emissions versus a 2021 baseline and we are on plan for our 50% reduction commitment by 2030.

When I became CEO in late 2021, it was clear that we needed to respond to the accelerating pace of the industry transition to electric vehicles (EV). Since then, our Take-the-Turn strategy has driven a significant step up in EV bookings.  As we set out at our Capital Markets Event in September 2023, Taking-the-Turn is the next step to accelerate our strategic execution. We also set mid-term financial targets to grow revenue to €3.8-4.2 billion and return to a double-digit Adjusted EBIT margin. Our Taking-the-Turn strategy and progress towards our financial targets are on track.

Our EV product portfolio leverages our deep expertise in fluid handling and builds on existing technologies, products and strengths. Our product-agnostic portfolio is a key differentiator, particularly brake lines which are truly propulsion agnostic, and our lines and connectors which are used in coolant or refrigerant systems, and where we have decades of experience. Additionally, our connectors, lines and Integrated Thermal Modules support the increased cooling and heating requirements of EVs and are expected to translate into higher EV volume growth in the future.

Finally, conventional products are an integral part of our business, particularly fuel tanks and delivery systems for ICE vehicles. We are focused on maximising their profitability and cash flow, and ensuring we capture the opportunities presented by hybrid vehicles.

EVs are clearly the future, but the shape and pace of the transition are more difficult to predict. We are, therefore, disciplined in how we invest in ICE and EV product lines and are successfully managing the transition within our historic levels of restructuring and capital expenditure.

Our industry

TI operates in a dynamic and rapidly changing industry. In 2023, we again demonstrated our agility by responding to significant industry growth while maintaining our focus on execution. Global light vehicle production volumes recovered sharply, increasing by 9.4% year-on-year to 90.1 million units, driven by strong demand, inventory restocking and easing supply chain shortages.

However, the operating environment was not without its challenges, including persistently high inflation, volatility in customer production schedules, and the UAW strike. Despite this, all regions and propulsion types experienced good growth, with EV volumes increasing 36% year on year, resulting in EVs accounting for 24% of global light vehicle production. BEV production increased 33% to account for 13% of global light vehicle production. Production volumes from the local Chinese OEMs increased 21%, well ahead of overall growth in Chinese light vehicle production of 9.4%.

2023 performance: double-digit revenue growth and significant margin recovery

In 2023, TI achieved 11.1% revenue growth at constant currency, with revenue of €3,516.2 million. This growth was driven by the recovery in industry volumes, inflationary cost recoveries, and the successful launch of new products.

We successfully completed launches across a broad mix of product lines, customers and powertrains across all regions which will drive future growth.

Revenue growth was strongest in Europe & Africa and North America, with constant currency growth rates of 14.2% and 14.3% respectively. In both regions we outperformed light vehicle production (by 300 basis points in Europe & Africa, and by 480 basis points in North America).  In Asia Pacific, constant currency revenue growth was 4.5%, again reflecting industry volume growth, inflationary recoveries and launches.  We underperformed light vehicle production in the region by 450 basis points, due to China where we have lower share with the local OEMs, creating a negative mix effect. As discussed below, we expect launches in 2023 and plans for 2024 will improve our position with local OEMs.

The key financial highlight of the year was the significant recovery in Adjusted EBIT margin to 7.4%, 190 basis points higher year on year. Adjusted EBIT increased 44.2% to €259.6 million from €180.0 million in 2022. This was due to a strong commercial performance and cost actions.

Despite the working capital investment needs of growth, Adjusted Free Cash Flow conversion was 36% of Adjusted EBITDA, better than our track record and prior outlook.

Delivering on our strategic priorities

At our Capital Markets event in September, we outlined our strategy for sustainable and profitable growth. We set clear financial targets based on delivering revenue growth and a return to double-digit Adjusted EBIT margins:

We made substantial progress towards achieving these targets in 2023, but the entire team recognises that more work remains to be done.

Sustainable, long-term revenue growth

TI has a clear strategy for achieving sustainable revenue growth. The key strategic building blocks include expanding our fluid handling business for EVs, strengthening our position in Modules & Systems for EVs, enhancing our position in China and maximising the profitability of our conventional portfolio for ICE vehicles.

Finally, in 2023 we maintained our focus on bookings, which are a key priority and underpin our future success.  We successfully maintained our BEV awards at the same level as 2022 at €1.3 billion (2022: €1.3 billion) of which China represented 33% or €0.4 billion (2022: 35% and €0.4 billion respectively). HEV awards were €0.8 billion (2022: €1.3 billion).  This was a good performance, particularly given the commercial organisation's focus on inflationary cost recoveries. Moreover, our bookings demonstrate that our Taking-The-Turn strategy is delivering important key wins in Thermal Management, Modules & Systems and in China.

Returning to double-digit Adjusted EBIT margins

In 2023, we took an important step towards achieving our targeted double-digit Adjusted EBIT margin. This was driven by commercial activity, volume growth and productivity measures. Productivity included actions taken to optimise our footprint, headcount and purchasing, with a less volatile trading environment helping to drive efficiency gains.  During the year, we invested €13.4 million (2022: €22.8 million) in restructuring, largely related to headcount reductions and footprint optimisation. Cost recoveries also played an important role as we secured compensation for a fair share of inflation borne by TI.

Looking ahead, the three building blocks of our path to a double-digit Adjusted EBIT margin remain unchanged. Conversion of volume growth and mix, recovering costs and driving productivity remain the key three components, combined with launching and winning new EV product lines at historic margins.

Delivering on our sustainability agenda

Sustainability is at the heart of our purpose, commercial strategy and how we run our business.  This starts with our products and a focus on new, cleaner technologies to support customers in producing greener vehicles. In 2023, TI revenues related to battery electric and hybrid vehicles are broadly in-line with the industry, and EV bookings represented over two thirds of total bookings.

Secondly, we improved our own environmental footprint. Greater use of renewable energy and increasing energy efficiency has delivered a double-digit reduction in our Scope 1 & 2 emissions in 2023 compared to a 2021 baseline. We are on track to deliver a planned 50% reduction by 2030.

Thirdly, in 2023, we significantly expanded our safety management system to an additional 27 manufacturing locations. This is building awareness, driving better reporting and improving our health & safety culture.

People and shift to a regional organisation

The regional organisation announced last September improves alignment with customers and industry developments. It is also a better fit with the wider geopolitical environment, including deglobalisation. Our regional leaders are better placed to adapt to changes in their individual markets, particularly the EV transition, which is moving at different speeds in different regions. The regional structure allows a more effective shift in resources between product lines and captures synergies as we transition our portfolio for electrification.

Talent remains a key priority. This starts with developing, retaining and promoting talent from within. At the same time, we seek to bring valuable new skills into the Group through select external appointments. As a result, we have a well-balanced leadership team, with a mix of experienced TI leaders and external appointees with a broad range of skills and diversity of experience.

We continue to embed the 'Six Mindsets for Success' into our culture through consistent reinforcement at internal presentations and alignment with our day-to-day activities. By embracing our Six Mindsets, we will instil a winning culture that is agile and able to adapt in order to ensure success through the industry transition.

Improving returns to shareholders

Our revised capital allocation strategy seeks to optimise shareholder value creation by balancing investment in growth with returns. By moving to a progressive dividend, starting with €35 million, we aim to improve returns and visibility. We are also making progress with the €40 million share buyback announced in August.

Confident in our prospects

Looking ahead, we expect to make further progress in 2024 towards our mid-term financial targets as we continue to execute our strategy. Our flexible business model, committed workforce and propulsion agnostic product portfolio mean we are well-positioned to continue create value for shareholders.

Hans Dieltjens

Chief Executive Officer and President

11 March 2024

Chief Financial Officer's Report

Our strong financial performance demonstrates that we are successfully executing the strategy set out in September. We have achieved double-digit revenue growth at constant currency, a 190 basis point Adjusted EBIT margin expansion, a significant reduction in our tax rate and excellent cash conversion, ahead of target. This ultimately results in an industry-leading return on capital employed of 27.6%.

Additionally, we have advanced strategically through M&A and collaborations. Our balance sheet is strong, with leverage reducing to 1.5x Adjusted EBITDA, and our updated capital allocation policy will ensure we provide more attractive returns whilst maintaining our resilience and flexibility to invest in growth.

With our well-defined strategy, we have a significant opportunity to further create value for shareholders by delivering profitable growth. We have made good progress towards our targets through disciplined execution, and I am confident that we will continue to build on this in 2024.

Double-digit revenue growth

Revenue for the year increased 11.1% at constant currency to €3,516.2 million, driven by industry volume growth, higher prices to compensate for cost inflation and new launches. Growth was broad-based across both segments and all regions. Reported revenue growth was 7.6% due to a foreign exchange headwind from the strengthening of the Euro against key currencies, particularly in the second half.

Revenue by segment and by region €m

Revenue by segment:  Fluid Carrying Systems (FCS) revenue increased 11.6% at constant currency as a result of industry volume growth, inflationary cost recoveries and successful launches of thermal management programmes for hybrid and battery electric vehicles. Fuel Tanks & Delivery Systems (FTDS) revenue increased 10.5% at constant currency, well ahead of the 6.6% growth in its addressable markets. This was driven by inflationary cost recoveries, and our success on hybrid vehicle platforms.

Revenue by region: in Europe & Africa and North America we delivered mid-teens revenue growth at constant currency. In both regions, growth was a result of industry volume growth, inflationary cost recoveries and launches. These more than offset volatility in customer production schedules, particularly for EVs in Europe towards the end of the year. The impact of the UAW strike on our business in the second half was limited. Both regions outperformed light vehicle production.

In Asia Pacific, revenue growth at constant currency was 4.5%, below light vehicle production volume growth due to negative mix effects, specifically market share gains by local Chinese OEMs with whom we are under-represented.

Foreign exchange reduced reported revenue growth by 350 basis points. This is largely related to the strengthening of the Euro against the US dollar, Korean won and Chinese renminbi. Over half of the Group's revenues are denominated in these currencies.

Significant Adjusted EBIT margin recovery

The Group uses several financial measures to manage the business, including Adjusted EBIT, which is a non-IFRS measure, but which has been consistently used by the Group to monitor and measure the underlying operating performance of the business, and to ensure that decisions taken align with the Group's long-term interests. The metrics are also used in certain of our compensation plans and to communicate to our investors. A reconciliation between the reported and adjusted measures is shown in Note 4.

One of the key financial highlights of the year was the significant recovery of the Group's Adjusted EBIT margin, which increased 190 basis points to 7.4% (2022: 5.5%). Adjusted EBIT increased 44.2% to €259.6 million (2022: €180.0 million) with strong operating leverage, converting 32% of incremental revenue into Adjusted EBIT.

The Group benefited from volume growth, inflationary cost recovery agreements with customers in order to recover a fair share of the cost increases borne by TI since 2021, efficiencies in operations and restructuring benefits. These were only partially offset by other factors, including foreign exchange movements.

2023 represents significant progress towards our mid-term goal of returning to a double-digit Adjusted EBIT margin. We entered 2024 with a strong focus on productivity and a pipeline of initiatives in areas such as purchasing and fixed costs.

Statutory Operating profit was €195.8 million (2022: €217.0 million loss), with a material year-on-year improvement due to the non-recurrence of a €317.4 million exceptional impairment charge and improved underlying profitability compared to 2022. The key adjusting items excluded from Adjusted EBIT but included in statutory operating profit are set out below.

Reconciliation of Adjusted EBIT to reported operating profit

The largest adjusting item relates to non-cash depreciation and amortisation on purchasing accounting, mainly relating to Bain's acquisition of the Group in 2015. In order to improve our cost structure and address the constantly evolving needs of our customers, we incurred restructuring costs of €13.4 million (2022: €3.3 million). These costs are in-line with historic levels and the majority are cash-related.

In 2022, the Group realised an exceptional impairment charge of €317.4 million relating to the impairment of goodwill arising from the Bain acquisition and other assets, including property, plant and equipment, other intangibles and right-of-use assets. There are no material impairment charges relating to 2023.

Higher net finance expense

Net finance expense was higher year on year at €74.7 million (2022: €58.7 million). This was due to increased interest rates on the Group's term loans, retirement obligations and leases, partially offset by higher interest income.

In August 2023, we repaid €99.2 million of term loan debt. This reduced the term loan interest costs and crystallised an accelerated fee write-off of €2.8 million.

Reducing effective tax rate

The adjusted income tax expense was €52.0 million (2022: €36.9 million), with the adjusted effective tax rate reducing to 28.1% (2022: 30.4%) on Adjusted Profit Before Tax of €184.9 million (2022: €121.3 million). Historical one-off factors which have resulted in a higher effective tax rate in recent years have largely been addressed. This combined with significantly higher profitability has resulted in an adjusted effective tax rate reducing towards the average of the countries in which we operate. The Group's statutory income tax expense was €37.5 million (2022: €23.4 million).

Earnings per share significantly higher

During 2023, we updated our definition of Adjusted Net Income to include an adjustment for depreciation and amortisation arising on purchase accounting, net of tax. This is consistent with the definition of Adjusted EBIT and therefore in Management's view, this change in definition improves consistency within the adjusted performance measures and provides increased transparency into the performance of the Company. The adjustment to the comparative data for 2022 is an increase of €40 million, and the data is presented including this adjustment.

On this basis, Adjusted Net Income and Adjusted Basic EPS increased 57.5% to €132.8 million and 56.8% to 25.8 Euro cents respectively (2022 restated: €84.3 million and 16.4 Euro cents). The weighted average number of shares for 2023 was 515.6 million (2022: 513.1 million).

On a statutory basis, the Group's Profit for the Year was €83.6 million (2022: loss of €279 million), resulting in Basic Earnings per Share ('EPS') of 16.2 Euro cents for the year (2022: loss of 54.4 Euro cents).

Maintaining cash discipline: 36% Adjusted Free Cash Flow conversion

The Group uses Adjusted Free Cash Flow as its primary operating measure of cash flow performance. Strong cash flow discipline resulted in Adjusted Free Cash Flow conversion of 36% of Adjusted EBITDA, ahead of the Group's circa 30% target.

Adjusted Free Cash flow increased 79% to €140.7 million (2022: €78.4 million), reflecting strong profitability and excellent working capital management. Our working capital ratio improved significantly to 8.7% (2022: 10.3%) due to receivables and inventory management. As a result, the Group's working capital outflow was only €11.1 million (2022: €22.7 million outflow) despite double-digit revenue growth. Group tax payments increased to €66.5 million (2022: €58.3 million).

Our capex needs are modest, at 3.5% of revenue in 2023, with €124.4 million (2022: €117.9 million) largely consisting of maintenance capex and thermal growth investments. The net cash outflow on restructuring was €14.3 million (2022: €23.6 million), predominantly related to severance payments.

Free cash flows of €104.2 million (2022: €50.9 million) were offset by financing cash outflows of €162.5 million, the largest item being the €99.2 million prepayment of our USD term loan. The €18.6 million cash outflow for acquisitions relates to Cascade Engineering Europe (including payment of an existing trading balance with Cascade). Other financing cash flows include total dividend cash outflow of €19.8 million (2022: €12.6 million) and a further €6.3 million outflow as part of the ongoing share buyback programme announced in August 2023.

Very strong return on capital employed ('ROCE')

The Group's 'ROCE' increased to an industry-leading level of 27.6% (2022:18.3%). This demonstrates our discipline in deploying capital effectively to maximise value creation.

Improving returns for shareholders: progressive dividend and share buyback

Under the Group's revised capital allocation policy, TI has adopted a progressive dividend policy. This seeks to improve the quantum and visibility of shareholder returns, starting with a dividend of €35.0 million for 2023 (2022: €13.1 million). An interim dividend of 2.30 Euro cents per share, or €11.8 million, was paid in September 2023. The Board intends to recommend a final dividend of 4.53 Euro cents per share, or €23.2 million.

The Group has made good progress with its €40.0 million share buyback. As at 31 December 2023, 3.8 million shares had been purchased for a total of €5.8 million and cancelled.

Composition of net debt

Additionally, the Group has a revolving facility of up to €203.7 million expiring in July 2026. This was largely undrawn at year end apart from €4.2 million used to issue letters of credit.

Strong balance sheet and liquidity

Net debt at 31 December 2023 was €595.0 million (2022: €624.9m), with the reduction versus the prior year reflecting cash generation. At year end, the Group's net leverage ratio reduced to 1.5x Adjusted EBITDA (2022: 1.9x), driven by higher Adjusted EBITDA and lower net debt.

The Group's debt is on attractive terms, secured until 2026 and 2029, and with almost 60% drawn facilities at a fixed rate of 3.75%. As announced in August, the prepayment of €99.2 million of USD term loan using available cash has reduced gross leverage. The Group's strong balance sheet provides flexibility to invest in growth in combination with attractive shareholder returns.

Total available liquidity (cash plus available facilities) on 31 December 2023 was €616.2 million (2022: €699.9 million) with the reduction due primarily to the €99.2 million term loan repayment.

The Group excludes IFRS 16 lease liabilities from its net debt and leverage ratio - if these were included, net debt would be €727.5 million (2022: €774.5 million) and net leverage would be 1.9x times Adjusted EBITDA (2022: 2.3x).

The Group operates funded and unfunded defined benefit schemes across multiple territories. All major plans are closed to new entrants, but a few allow for future accrual. Schemes are subject to periodic actuarial valuations. As at 31 December 2023, the Group's net liability position was €103.9 million (2022: €104.2 million) with asset performance offsetting lower discount rates.

Outlook for 2024 - productivity to drive continued progress towards our mid-term objectives:

Our 2024 planning assumptions are based on a modest year-on-year industry volume decline. Automotive production volumes for 2024 are forecast to be slightly higher in North America, flat in China and slightly negative in Europe.

For 2024, we expect flat to low-single digit constant currency revenue growth. Through productivity and efficiency initiatives, we expect to further increase our Adjusted EBIT margin above the 7.4% achieved in 2023. We are targeting strong Adjusted Free Cash Flow conversion of approximately 30% of adjusted EBITDA.

Building on the significant strides made in 2023, we expect 2024 to be another year of progress towards our goal of achieving revenue of €3.8-4.2 billion[3] by 2026 and returning to a double-digit Adjusted EBIT margin in the mid-term.

Alexander de Bock

Chief Financial Officer

11 March 2024

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.

September 2023 general meeting results update

In accordance with Provision 4 of the UK Corporate Governance Code, we are providing an update on the feedback received and any actions the company intends to take following the outcome of voting at the September 2023 General Meeting.

The General Meeting was held to seek approval of a Rule 9 Waiver in order to allow the Company to exercise the Buy Back Authority granted by shareholders at the 2023 AGM, specifically in respect of a share buyback programme of up to €40 million which formed part of the Group's revised capital allocation policy.

Approval of the Rule 9 Waiver was granted, with 62.45% of Independent shareholders present and voting at the General Meeting in September voting in favour. Following this, the Company actively engaged with shareholders representing over two thirds of votes cast against. Feedback received indicates that votes cast against reflected, principally, opposition to the granting of Rule 9 waivers in general due to concerns over the resultant risk of creeping control. Whilst the Company acknowledges that certain of its shareholders will be obliged to follow their internal voting guidelines and may have objections to the granting of Rule 9 waivers on principle, the Company considers that it remains in the best interest of shareholders to seek shareholder approval of a Rule 9 waiver at its 2024 AGM in order to complete the current €40 million share buyback programme.

TABLE OF CONTENTS

Group Financial Statements

Consolidated Income Statement

For the year ended 31 December 2023

Refer to Note 4 for reconciliation to adjusted performance measures (APMs).

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2023

Consolidated Balance Sheet

As at 31 December 2023

Consolidated Statement of Changes in Equity

For the year ended 31 December 2023