TT Electronics (LSE:TTG) Q2 2026 Earnings Call

0:00 Good morning everyone and welcome to our interim results presentation for 2026. I'm Eric Lakin, CFO, CEO rather, if I got that right, and I'm joining this morning by Ian Ashton who joined us as Chief Financial Officer at the end of June. This is Ian's first set of results with TT and it is great to have him alongside me today. I would also like to thank Richard Webb who has very effectively served as interim CFO and I wish them well for the future. Ian's appointment is one of a number of changes to the board this year. Phil Swash joined as chairman in May and I'm pleased to say he's in the room with us today if any of you wish to meet him afterwards. Also Mary Waldner joined last week as senior independent director and chair of the audit committee. Together these appointments significantly strengthen our experience as we progress in this next phase of TT's journey.

0:57 and I'm delighted to serve with them on the board. Today we'll update you on the progress we've made, the actions we've taken and our priorities for the second half and beyond. When we spoke in March, I described 2025 as a year of transition. It was a year in which we faced real operational challenges, took decisive action to address them and rebuilt the foundations of the business to deliver sustainable, profitable growth. I also said that our focus for 2026 would shift from stabilising the business to executing against a clearly established value creation plan. Six months on, this is what has happened. The first half has been about disciplined execution and delivery and I'm pleased to report this is now translating into tangible results.

1:54 The headlines of the half is a material improvement in profitability. Margin expansion and stronger commercial momentum, reflecting the actions we took during 2025. Improved execution and the delivery of our strategic priorities in the first half. Adjusted operating profit was up 37% to £18.5 million. with operating margin up 230 basis points to 8.1% compared to the first half last year. There are three drivers behind the profit improvement. First, the benefits of the operational actions we took in EMS. The Cleveland turnaround has been implemented and the site delivered consistent profitability throughout the period.

2:40 Second, the return of our components business to profitability driven by underlying business improvement and by the closure of the sites at Plano. which has significantly lost making in the first half of last year. And third, our strategic priorities are delivering. The divisional realignment has been implemented, the cost reduction programme is substantially complete and we have seen strong momentum in order intake right across the group. That order momentum was broad based across multiple sectors and it gives us good visibility of revenue coverage into the second half. To illustrate that, our order book at the end of June was approximately £550 million, which is 20% higher than the same point last year. Reflecting that momentum, and the benefits of our cost programme building through the second half, the Board now expects adjusted operating profit for the year to be ahead of current market expectations.

3:37 In short, we have moved from operational turnaround to disciplined execution and delivery. Let me take you through the framework driving that progress. At the full year we set out four clear priorities that would define our next phase. Divisional realignment, a cost reduction programme, sales transformation and portfolio optimisation. This morning I want to report what they have delivered over the past six years with each of these four initiatives now driving tangible benefits to the group. First, divisional realignments. The transition to a product-led organisation structure was completed in April. The group is aligned around three clear divisions.

4:25 Power, which includes power control, conversion and distribution technologies. EMS, or electronic manufacturing services, with a focus on engineering-led high-mix, low-volume PCB and high-level assemblies. and Components, which as the name implies, supplies individual components including a wide range of resistors, potentiometers and optoelectronics. This structure aligns sites with common technologies and production characteristics and also better reflects how we engage with our customers. To give an example, there are several situations in which we have a new or existing EMS customer that can be supported across multiple EMS sites and we can adapt to their evolving regional supply chain needs such as a recent transfer from China to Malaysia, manufacturing or support requirements for localization.

5:17 In power we have focused investments in our technology roadmap including next generation silicon carbide power modules and additive layer manufactured products both of which were showcased at the recent Farnborough Airshow. The creation of these technology platforms as well as our R&D center of excellence has strengthened global collaboration and our sales pipeline. We are already seeing the benefits. Teams are working more effectively and collaboratively across our global footprint and we have secured new customer wins spanning multiple sites and the result is a more agile, customer-focused organisation. Second, our cost reduction programme. This was substantially completed during the first half and it is progressing as planned. The costs associated with the programme of approximately £3 million were recognised within our operating profit in the first half and were effectively self-funded during the period. So the costs are behind us while the financial benefits will be delivered in the second half.

6:18 We are therefore on track to deliver the previously announced £3 million of net savings during 2026 and from 2027 onwards the annualised benefit is expected to be more than £6 million. This gives us a leaner organisation and enables a more devolved operating model with clearer accountability at the operating company level. It also provides a strong more resilient platform for continued margin expansion. It's important to note that the cost reductions have been focused at the administrative levels. It's vital that we continue to preserve and invest in the crucial capabilities that customers value and provide sustainable competitive advantage including specialist engineering skills, operational and supply chain excellence and commercial talent with relevant domain knowledge to understand customer needs.

7:09 The third component of the framework is sales transformation which is the priority I'm perhaps most encouraged by because it is the one that shifts TT from recovery back to growth. During the period we continue to invest in our commercial organization expanding business development resource especially in North America and China Improving capabilities in strategic selling, driving consistency in pricing in the bid review process, improved deployment of our CRM and strengthened pipeline management. These initiatives are beginning to deliver greater commercial discipline that involves a focus on market segments and applications in which we can add most value and the right to win. It's driving stronger order intake with a book to bill ratio of 112% for the group and a stronger order book across all three divisions.

7:59 We have seen improved conversion of the opportunities in our pipeline and encouraging new customer logos and NBO wins which I'll come on to later. I'll come back to those wins in more detail shortly because they tell important story about the breadth of demand for our technologies. There remains further work to do here but we are building a more disciplined and more effective commercial organisation and the benefits are coming through. Finally, portfolio optimisation. Following the completion of the strategic review of the components business announced with our full year results, we have tested market interest in acquiring the business and we have received an encouraging number of indications of interest. The board is now evaluating a potential divestment and I'll re-emphasise what we said at the full year. Any decision to execute a transaction will remain subject to value and there can be no certainty as to the outcome at this stage.

8:58 we've been very encouraged by the return to profitability of components during the period the business is performing better in a growing market and that strengthens our position whichever route we ultimately take alongside this disciplined capital allocation remains a priority balancing selective investment opportunities to strengthen our core business with further deleveraging and future capital returns taken together these four priorities are doing what with that I'll hand over to Ian who will take you through the financial results in more detail

9:54 Thank you Eric and good morning everybody. I'm very pleased and privileged to be here as CFO of TT. This is a business with great opportunities in very good markets and it's already getting very firmly back on track. That was my belief before I joined and my first two months in the business have more than confirmed it so I'm excited at what's ahead. It's been great to meet many people across the group already to start to benefit from their knowledge and to see their passion for the business and and their own excitement at what's possible in the future. Also a word of thanks from me to Richard who has done a lot of sterling work in his time as interim CFO and has been extremely helpful in enabling a smooth and very effective handover. So the key financial metrics for the half. I won't talk through all of these during the presentation and some I'll look at in more detail in later slides but for now Revenue in H1 showed a modest decline of 2.7% versus the prior year but that was affected by two significant one-off factors that have been flagged previously and absent these sales grew around 4%.

11:05 We expect to see positive organic growth with or without any adjustments for one-offs in H2. Operating profit grew by £5 million or 37%. The key drivers with a strong turnaround in the Cleveland site going from loss making to profit and the benefits of closing the underperforming Plano site. As a consequence the other profitability metrics are also very positive versus the prior year with substantial percentage increases in PVT and EPS and I've referenced on here that these reported numbers are despite an unusually high effective tax rate that's due to the fact we cannot yet recognise a deferred tax asset in respect of US tax losses. Finally I'd also highlight Roic at 18% which is a healthy number and leverage at 1.1 times flat on the 2025 full year after some modest inventory build in H1 but well down on where we were a year ago.

12:00 Revenue. This business has great opportunities and importantly capacity to grow the top line and that will of course be the biggest sustainable driver of value in the future. The headline for H1 was a 2.7% decline at constant currency, as I mentioned, but the underlying picture was positive. This slide shows the simple year-over-year bridge with the movements by division. Power was flat over the prior year. Aerospace and defence, which would be very positive long-term drivers, represent around two-thirds of that business. But as noted on here, there were some customer-driven delays which held the headline revenue number back a bit in the half. Conversely, we expect H2 to be positive. Power sales into industrials and healthcare were positive in the half.

12:46 EMS's headline number, a decline of 8%, was affected by the well-flagged product transfers from Suzhou to Kuantan in the period. Absent that one-off impact, the business grew quite healthily at around 7%. Finally, components delivered growth of 6% despite the approximately 5% impact of the Plano closure. This slide summarizes that 37% constant currency profit growth over and above a very small currency benefit of half a million pounds you can see there. I'll talk through the divisional results in a moment but you can see good year-over-year improvements in EMS and components driving the group improvement in H1, the former due to the strong progress in Cleveland as I mentioned. Power is our highest margin business and generated 14 million pounds profit in the half, albeit it was slightly down on the prior year due to the sales phasing.

13:38 As I said, we're confident that will come back in H2. So I'll now look briefly at the three divisions performance in the period. Firstly, power. I've mentioned the key drives of the sales results. As I said, we expect H2 to be stronger. Agreements recently signed provide good momentum and confidence about the near and longer term, with the near-term outlook corroborated by the robust book-to-bill ratio and the longer term by the strong macro outlook in A&D in particular. The power operating margin of 14% was slightly down on prior year due to the flat sales in the period but it remains healthy and we think there is certainly still scope to improve it over time. Eric will give some detail on some of the commercial successes in the period that give us confidence for H2 and beyond.

14:28 In EMS the top line was distorted by the customer transfer as we said but showed encouraging robust growth absent that one-off factor. and the operating margin is up to 8% not where it needs to be yet but showing very solid progress. The key driver of that improvement has been the turnaround in Cleveland. I've been to that site myself and the management team under new leadership have clearly done an excellent job over the last six to 12 months. There is as always more that can and needs to be done and I'm confident it will be done there but the site was profitable throughout the half and is very much back on track. As with almost all of our sites, they have existing capacity to cope with substantially increased demand. Components was also a positive story in the half, growing well and back to profit.

15:17 The sales growth is being driven by better markets and better execution on our part and we expect the positive momentum to continue. That top line growth, along with the benefits of closing the Plano site, have driven the division back to profitability. We're confident the top line momentum will continue to help drive the margin upwards. And Eric's already commented on the status of the strategic review of the business. I thought it'd be helpful to also include the group sales split by end market and by geography. A&D is the largest segment, weighted heavily to power, followed by auto and electrification, i.e. industrials, and then healthcare. The sales through distribution are largely in the components division, about 80% of that 16% on the chart. So we're well exposed to some strong macro tailwinds.

16:08 Geographically we have good diversification and we're notably well exposed to the currently stronger growing regions of the US and Asia. So some very good opportunities for growth and Eric will talk further on what we're doing to ensure we get after those as effectively and quickly as possible. This slide shows the key elements of the cash flow during the period. The high profit was of course a positive fraction and a half, leading to EBITDA of 24 million. Of the items between that and the free cash flow, the key one is working capital, as highlighted on the slide, which this period saw an outflow of around 13 million. This was driven by increases in inventory in power, ahead of some of the delayed revenue already mentioned, and in EMS at the Kwantan site, as they build inventory to support the new business that has been transferred there from Suzhou.

16:57 Of the other items, the only one I will highlight is the 3.8 million cash spent on restructuring and exceptional items. The majority of that related to the Plano closure and also the closure of the small EMS plant in Mexicali. Due to the lower cash conversion in H1, free cash flow was nil in the period. We certainly expect it to be positive in H2 and therefore the year as a whole. I'd also emphasise that on an LTM basis, i.e. June to June, the cash conversion was at 108%, and Free Cash Inflow was £23 million. Free cash flow generation is of course the key long-term value drive of the business and I believe that's well understood by all of the management teams. It will remain front and centre in all of our decision making.

17:42 As an aside in the appendix to the slide deck there are some more detailed guidance points covering some of the full year 2026 numbers including obviously a few pertaining to cash flow. A quick recap of the key balance sheet metrics and also our current financing. Net debt excluding leases was 52 million pounds at the period end, broadly flat on 2025 year end and well down on a year ago. Leverage at 1.1 times is at a very manageable level but nevertheless we do expect to reduce this further in the second half. We also have good levels of financing in place. The RCF of 105 million pounds was almost all undrawn at the half year. as Eric and Richard reported in March during Q1 this facility was extended to June 2028.

18:27 The private placement notes have maturity dates of 2028 and 2031 both at similar rates that amount to 3.65% on average. We of course very much value our lenders ongoing support and will of course be starting to plan for the two 2028 maturity dates well ahead of time. But in short the group is in robust shape as regards to financing. Finally from me this slide shows the board's current and in certain respects initial thinking on capital allocation which we thought it would be useful to share. To be clear at this stage our focus is on the left hand side of this slide i.e. ensuring the business is generating sustainable and increasing levels of free cash flow. That will in turn allow any organic investment that's needed to drive the business further forwards. So pretty basic we want and intend to get into a virtuous upward spiral of ever improving organic profit and cash performance.

19:23 How we would think about the other ways of deploying cash generated whether from organic performance or for example from a composed disposal if that were to happen is shown on the rest of the slide. Firstly absent anything more transformational that might be considered in the medium or longer term we aim to keep leverage below one and a half times. Obviously we're below that level today and it may also go a bit lower in H2. We'll always keep that under close review and ensure we're doing the right thing for the long-term health of the business. Secondly dividend, we do not currently expect to reinstate the dividend for the 2026 financial year but we'll of course keep that under very close review. We know it is rightly important for some shareholders. It's fair to say that if and when we do reinstate the dividend we'd expect to start at a prudent level and build from there.

20:09 Thirdly portfolio we've discussed components, proceeds of a sale will give us options and flexibility beyond what we have today but the priorities for deploying any proceeds would be as just described and as shown starting from the left. The other aspect of portfolio i.e. bolt-on M&A opportunities is something we intend and need to look at as part of longer-term value creation but to be clear is not an immediate priority. The board will provide greater clarity in the future on its approach to M&A and selective bolt-on acquisitions including the discipline criteria that would underpin any future activity. In summary our capital allocation framework will help ensure a very disciplined focus on unlocking and maximising the substantial value we believe exists in the business and with a clear goal of delivering superior returns for shareholders over time.

21:00 Now that concludes my section and so I'll now hand it back to Eric.

21:14 Thank you Ian. I think what Ian is just taking you through is a materially stronger financial position, significantly improved profitability, better margins and a balance sheet that is increasingly giving us more flexibility. What I'd like to do now is spend a few minutes on the commercial side of the business and point to some clear examples of our strategy working in action. Our investment in the commercial organisation is translating into a stronger pipeline, an increasing rate of customer wins and a growing order backlog. During the period we secured material contract awards with Blue Chip customers across several end markets and post period end we signed a significant multi-year agreement with Rolls-Royce which I'll come back to in a moment.

21:59 In EMS we won two new logos in scientific and analytical instruments. and Empower, we secured a new contract to supply power electronics for subsea oil and gas applications. The commercial pipeline continues to strengthen. We have signed a letter of intent with MBDA, a leading European defence company, based on our credentials in ruggedised power electronics. That could drive significant long-term value. Our power business is engaged on the future combat air system, which has the potential to be one of Europe's largest next-generation defence programmes. We are also engaged on major armoured vehicles including Boxer and Challenger through Rheinmetall BAE Systems and we continue to support the Typhoon and F-35 air defence platforms.

22:46 Against the backdrop of increasing defence investment across Europe and the US and an accelerating focus on delivering critical capability, TT is well positioned to support our customers through the next phase of production growth. What I want to highlight here is the breadth New customer wins for EMS and healthcare and a return to growth in the wafer fab capital market segment demonstrate commercial traction extending beyond aerospace and defense and these wins span each of our three divisions and provide broad-based momentum. I want to bring two of these relationships to life starting with Rolls-Royce. Shortly after the period end we signed a significant multi-year agreement with Rolls-Royce to supply high reliability solutions for all of their wide-body civil aircraft engines throughout their operational lifetime.

23:37 The content is mission-critical power electronics and precision magnetics that support the performance and reliability of those engines. This is not a new relationship. It builds on more than four decades of collaboration between our two businesses. What the agreement does is formalize and extend that partnership and reinforce TT's position as a trusted design and manufacturing partner to one of the most demanding customers in aerospace. For us the significance is twofold. It provides attractive long-term revenue visibility and it demonstrates our ability to convert deep engineering relationships into strategic, long-dated commercial agreements. The second example is a program rather than a customer. We have supported the Eurofighter Typhoon program for almost 30 years through production, upgrade and in-service support. The kind of longevity that provides real long-term revenue visibility. During the first half, we secured further material contract awards on the programme, reinforcing our position on one of Europe's leading air defence platforms.

24:41 What makes Typhoon a useful case study is what comes next. As I mentioned just now, we are engaged on the Future Combat Air System, known as FCAS, supporting the transition from today's Typhoon platform to Europe's next generation combat aircraft. The capability we have built over three decades is precisely what positions us for the programmes that follow. That capability sits across our sites in Manchester, Barnstable, Bedlington and Fairford, highly skilled engineering teams that create a strong foundation for future defence programmes. As you can see, targeted investment in technology and business development capabilities is leading to rising commercial prospects and gives us the confidence to support new aerospace and defence contracts in the future.

25:26 Finally, turning to the outlook. We enter the second half with improving momentum and with increasing pace and effectiveness in execution across the group. Starting with revenue and our markets, we expect revenue to return to organic growth in the second half, supported by a strong order book, which at the end of June is 20% above the same point last year. And demand in aerospace and defence continues to provide a strong foundation for the group, supported by increasing defence investment and a healthy pipeline of programme opportunities. Within EMS, we encourage by increasing commercial activity, improving conditions in healthcare and life sciences, the successful transition of customer production in Asia, and order growth in the semiconductor supply chain.

26:14 Regarding operational performance, a drive for productivity improvements combined with a lean cost structure is supporting profitable growth and margin expansion. Strategically, our focus remains on commercial execution and operational excellence and we continue to optimise the portfolio. The board is evaluating a potential divestment of the components division with any transaction remaining subject to value. With respect to the balance sheet, cash generation is expected to strengthen significantly in the second half with further deleveraging expected for the full year. Reflecting this momentum, together with the benefits of our cost reduction programme building through the second half, The Board now expects adjusted operating profit for this year to be ahead of current market expectations.

27:02 The progress we have made over the past 12 months has transformed TT into a stronger, more resilient business with a clearer strategic focus. Last year we were fixing operational problems. Today we are executing against a clearly defined strategy with improving margins, stronger balance sheet and genuine commercial momentum. I just want to use this opportunity to acknowledge that this is a team sport and the execution of the turnaround would not be possible without the support commitment and expertise of the many great people we have throughout the business which I'm very thankful. There remains a lot more to do and continuous improvement remains a mantra but as I said earlier we have moved from stabilizing the business to executing against a clearly established value creation plan. We are increasingly seeing evidence that our strategy is delivering and that gives us confidence in our ability to deliver growth and long-term value for our shareholders.

27:59 Thank you very much for your time this morning. Ian and I are now very happy to take your questions.

28:16 Good morning, gents. It's Joel Spungen from Investec. I've just got two questions. First of all, on your guidance and when you talk about return to organic growth in the second half, presumably against the minus 2.7, is there any noise in the second half still, either from the customer that transferred to the Kwantan site? Is that now completely out of the numbers for the second half and anything related to Plano, just to sort of help us frame that comment?

28:44 Yeah sure so I'll pick up on that and you can add if it was meant indeed. So with the customer transfer it's complete in the sense that production ceased in Suzhou China at the end of the last year as required by the customer and so all of the capability and the drawings and the manufacturing first articles have all been successfully deployed. The next phase is to ramp up to more Consistent Production Volumes and so it's that ramp up phase in the first half which meant against a high comparative period we've had some impact in the second half in the first half so in the second half there's still a ramp up to be done and there's obviously always with the orders there's always an execution risk with any manufacturing business but we we're quite confident of the trajectory and therefore we won't expect noise as such or to making any such adjustments in the second half to effectively have an adjusted underlying growth we expect the headline growth to be there even taking to account Plano. So Plano obviously is roughly 10 million of sales in total last year. They aren't in the numbers this year but we anticipate even without taking that into account we expect to return to growth in the second half.

30:00 So that 14 million effect in the first half from the customer transfers could be significantly lower in the second half?

30:06 Correct.

30:08 Much less negligible noise year over year from that. So you can sort of take the 4% that we referenced for H1 you know as a sort of underlying number as a you know sort of a reasonable steer as to sort of broadly where we might expect the CH2.

30:23 And then just a more strategic question really just obviously you've announced there's a review of components underway and that's going to be resolved one way or another in the next few months but I was wondering if you could talk about the synergies between the two remaining businesses Power and EMS like How closely knit are they? What benefits do you have from having them under the same roof? Or would it make sense for them to be separate?

30:46 Yeah, excellent. Great question. And it's something I've really spent quite a lot of time getting my arms around since joining. and there's no question in my mind there's a strong synergy and fit between EMS and power which is different from components we've talked about in the past very different characteristics and there's limited cross-selling but for me one of the tests is you look at the intercompany transfers and it's quite material within between power and EMS sites to illustrate the point there's one you know our Kansas site power site in the US their biggest supplier is Cleveland's there's a real advantage and we're seeing that with new opportunities and new customer wins it's a real advantage particularly in aerospace and defense and ITAR compliant sites and so on where we can offer a full package we look at a typical power conversion box dc dc converter it'll have pcbas within it and having that vertically integrated supply it can give a real edge in terms of the design authority the speed to manufacture quality control so it is meaningful and we're also looking at opportunities where there are you speaking to a customer and we're doing some like cross-selling where we could be a power customer or EMS and they oh I didn't appreciate fully that actually you also got capability in an adjacent area so it's very it's very relevant and already and increasingly so in the future.

32:18 Thank you.

32:28 Mornings, Henry Carver from Singer. Just a couple of queries on the sort of new business wins, new contract wins. First of all, you know, the roles one obviously you've been partners with them for a long time. Was that the end of a previous multi-year contract? So with Rolls-Royce it's a four decade partnership and typically it's been a rolling sort of three to five year contract upgrade and this time around is different in that

33:05 under two fans leadership with critical sole source suppliers like us for their engines they're keen to get life of type arrangements so so the support whilst there's still at least two units produced a year of an engine so this is a you know could run this run for multi decades from now and so For us, we're very keen to enter that very long-term relationship, but with the right terms. It's really important to get the visibility, adjusting for inflation, our own material supply. And as part of that, you might expect there was appropriate discussions around pricing. And so it's a true win-win. You don't always see that in business, which is why Rolls-Royce took the very unusual step of having a joint signing with us and publicised us as a strategic supplier because it's a really good relationship it's good for us, it's good for them in addition to that it opens up the path to potential new business as well and new products beyond what we're supplying already, it's currently from two sites, Beddington and Barnstable but we could do more with them and I referenced earlier the potential for crossing the EMS that's a good example of that and sort of extending that into the other new business wins, I'm just trying to

34:21 Thank you very much.

34:36 or a combination of the of the two I guess you know clearly it's a common for sure it's a combination too I think we've and it's a real clearly a real driver for future growth is is getting top line growth it's one thing doing divisional realignment taking out costs improving the bottom line but we need to return back to growth so then a huge amount of focus there's a whole range of initiatives within that and I gave the example of some of those during the voiceover and it is deliberately despite you know taking out costs adding to our business development team we had for example we had no dedicated BD people in China whatever until a few months ago and now we do and not only that we're going to exhibitions we're getting significant leads from going to China exhibitions on the medical device sector in industrials and so we're getting you can tangible see the benefits going from leads to qualified opportunities to order intake now that would be much harder in a difficult market so combining that with a market improvement we're seeing the benefit the same story particularly in the US and then components is another example you'll see that market is recovering it has the last sort of since the beginning of this calendar year which is great and our peers are seeing a similar recovery and high book to bill but if we hadn't taken the action around getting our pricing right, improved marketing, some product innovations, we wouldn't have captured the benefits from that rising market

36:06 as we would have done. So it's certainly a combination of the two.

36:10 Thanks.

36:15 Morning, Toby Thorrington from Equity Development. Three from me please, two on contracts, one on tax I think. Following on from Henry's comment, regarding the Eurofighter material award, could you again clarify whether that's incremental in terms of products supplied, is it incremental in terms of length of contracts, a bit more detail on that would be helpful please?

36:42 Yeah so with Eurofighter it is it's an extension of the existing contracts we have with so Eurofighter we sell through the tier ones typically like BAE systems and so it's extension of that and you know anyone following the the defense market would may not be surprised with a continuation of a very quite an old platform but there's often developments and enhancements so for this example with the power electronics there's always ongoing improvements in the in the weight, in the form factors, in efficiency and so we incorporate those so it's effectively although the airframe is very similar it's an upgrade within that so we're providing in effect it's new products so some of our design engineering is supporting that but it means we can continue with the platform and keep the competition at bay if you will.

37:40 Thank you and in the presentation you briefly mentioned winds in the subsea Oil and gas sector unless you had Baker Hughes on the slide be interested to hear a bit more about that please.

37:54 Yeah I mean I highlight that just because it shows the diversity of our end markets and it's actually quite a quite a significant win for us at a multi-million dollar win and we have and it's with our magnetics businesses so it just highlights there's a lot of quite sophistication in some segments you wouldn't necessarily associate with power electronics but the sort of sensors and controls needed for the subsidy sector is it actually lends itself quite well to what we do and there are and what I like about it is it's a good reference logo but there are other customers out there in this sector that we don't serve and we're talking to today.

38:35 Very high growth sector. Okay thanks and tax one for Ian perhaps you can help us out so small refund in the cash flow in half one liabilities 20 million payable on the balance sheets at the end of the first half can you just give some some kind of fear as to what you think the cash without getting without getting too much into the weeds the the reason for the

39:01 China in particular is the driver of that where we get we get refunds for reasons which frankly I would you know probably don't want to get into right now but there's just the timing issue there predominantly in China which means that as you say very very modest inflow in fact in the first half and then about six million outflow in the second half.

39:17 Okay and normal cash tax relative to P&L tax annual do you think?

39:22 Yeah I mean broadly yes yeah exactly yeah.

39:26 Lovely thank you.

39:32 I am Mark Fielding from RBC. A couple of questions please. Firstly on EMS I think Ian when you were talking in your presentation you referenced the margin improvement but there was still more to do. I mean assuming that there's not been a material shift versus what was GMS before and advise me if I'm wrong on that then. I mean it didn't send much sustainable period of time above sort of 8% margins historically so I'm curious you know just what is the potential and the opportunity on that one.

40:09 So the first part is broadly the same as GMS the one difference is Fairfield before cable harness business is now part of power it's more naturally fitted within power and common customers so effectively EMS is the three sites that do PCBA assembly, high-level assembly and Box Build, so that's Suzhou, Kwantung and Cleveland. It will, if you look at the EMS peers, particularly very high volume companies, Flex, J-Bull, Flexus, where typically it's a high single digit margin EBIT business, but they are higher volume, sort of more high volume, lower mix than us.

40:54 So I won't give any forecast, but I think it will always be a lower margin business than Power. because it doesn't have as much design or engineering content it's more outsourced manufacturing but the flavor we have the high mix engineering lead should mean that we've got the potential to have higher margins in our peers even though some of the listed peers have much more volume so hopefully it gives you a flavor of what's possible but it's never you know it's not going to be reached to the levels of power that we see today.

41:26 I said the same thing about power you know we see there's margin opportunity in both of those businesses and you know not least driven by volume you know there is capacity there to drive more volume and you know just the operating leverage that comes from that and just secondly just on cash flow and cash conversion obviously looking at 70 to 80 percent this year I mean you know

41:49 there's been a lot of moving parts in the group the last couple of years so I suppose just how do we think about the normalization of cash flow the normalization of cash conversion now?

41:58 Yeah I mean about that let's say 70 80 percent we think is I mean clearly as the business grows that will drag a little bit of working capital along with it but you know 80 percent is you know we think is is a sort of sensible assumption going forward they'll always be sort of the odd you know spike up or down but I think that's a reasonable assumption for the and if we do that you know we're clearly throwing off sustainable free cash flow and which gives us some of the options that we talked about.

42:41 Richard Hill from Jefferies. Just one from me. I just want to kind of narrow in on the A&D and looking at your kind of contracts you've pulled out, the JV between BAE and Rymertal, the Boxer Challenger. I wanted to Those are quite UK centric although they have brought in European partners. Is there an opportunity there to kind of explore onto the continent and kind of access some of the larger growth that's there with the UK budget constraints etc that we kind of see here?

43:12 Great question. Yes, yes. I think one of the, we do have it's fair to say UK and US centric proportion of A&D customers and business within the defence supply chain so for example we serve JSF through a UK based tier 1 and they supply the prime in the US there are some challenges with accessing European defence programmes because of work share arrangements and such like so in some cases we'll need to consider partnerships and it could be Commercial Arrangements or it could mean some form of get some sort of footprint in Europe to do that so the one of the reasons we highlighted MBDA partnership and announced that is that's one such example of how we can potentially access very large sizable Future Defence Programme in Continental Europe without necessarily having a physical manufacturing presence locally so we are looking to do more of that so watch this space but I think there's the potential to do more than we currently do.

44:46 Sorry, Bart Fielding. Obviously, just a quick follow-up question. In terms of that strong order book momentum, I suppose, just how do we think about the delivery timeline of the order book? At times in the past, it was quite elongated, sort of multi-year orders, or is this more immediate conversion type stuff?

45:03 Yeah, it's a whole range. So, for example, components and order intake has been very significant, typically time 10 weeks. So that gives us visibility for three months typically. For EMS and power, they're more similar. It can vary a lot. I mean, lead times can be more like six months or so. It depends on the product. It could be if it's engineering-led. Some can be much longer than that. Some can be shorter if it's existing products. And the order book, can include everything from deliveries in a few weeks to multi-year it's a real range but I'd say probably a useful way of looking at it is we've got very good visibility of this year through the calendar year so we effectively for EMS and power got you know we can see we've got the order book coverage for our revenue expectations for the year so it's all about delivery there's no book and ship risk there's a little element around the components type business as you expect but that's that's closing as the year progresses so and then you look at there's a tail of you know orders that go into next year and beyond there's quite a quite a range of durations within that.

46:22 Eric you mentioned talent getting people into the business both in the engineering side but also on the sort of sales and domain knowledge side. How is that going? Is competitive space I suppose from the point of view of what TT offers now as a place to work and the offering, how is that evolving now?

46:43 Yeah, that's a great question. I mean, it certainly helps when we have a bit of a skip in our step and we get improved results because any ambitious... Capable Recruit will look at a business and they want to be part of that journey. And so we've had some good successes in attracting talent around the world. In particular, as I mentioned, the focus on BD has been US and China, the engineering has been throughout. I think one of the selling points, well, first of all, it's an interesting business. We cover multiple sectors we've talked about, whether it's healthcare, semiconductor, capex, A&D, so really exciting programs but the size of the business is quite interesting. It's a similar discussion I had with a number of customers at the Farnborough Airshow so it seemed to resonate.

47:35 We are big enough, we've got really interesting diverse footprints, we've got 20 sites around the world, 16 manufacturing a lot of capabilities we can draw across regions and across different locations for engineering debt so we can support a US aircraft company with engineering R&D capability in the UK etc so it's quite compelling but we are small enough to be agile and responsive so on a customer point of view I'll ensure that you know I'm meeting appropriate people they get senior level airtime and responsiveness they wouldn't get from others and we and they're definitely getting feedback from them around you know compared to some multi-billion companies that don't necessarily adapt to the needs and that also applies for for individual hiring they can join a large typically what I'm seeing is people coming from large companies and they don't necessarily get The sort of time or visibility that they would otherwise get.

48:40 And they can join us, a recent person joined, another BD professional in China that joined from a very large EMS, one of the top three EMS companies in China. Really capable, but he felt he could make much more of a difference with us and also get the right comp and bench incentive plans as well together. So it's not completely straightforward. The US TT brand isn't that well known. Some of the sub-brands are to an extent. but we are making good progress on that and I've seen a couple of examples of engineering engineers recently in Kansas you've got a couple of big firms down the road including Garmin and others a couple have gone and then realized the culture's not where they want to come back again so so I think we are it's an area we're focused on and getting things on LinkedIn you might see but so making good progress there but more to do because it's really important for lifeblood engineering sales operations and supply chain Okay, I think we're all done. Well, thank you very much for coming again and really appreciate the questions and happy to chat to you afterwards.

49:45 Thank you.