Annual Report and Accounts 2020 & AGM 2021
6 April 2021
TI Fluid Systems plc
Annual Report and Accounts 2020 and Annual General Meeting 2021
The Company announces that today it has released the below listed documents:
· Annual Report and Accounts for the financial year ended 31 December 2020 ('Annual Report and Accounts 2020')
· Notice of the Annual General Meeting 2021 ('AGM')
· Form of Proxy for the AGM
In accordance with Listing Rule 9.6.1, these documents have been submitted to the National Storage Mechanism and will shortly be available for inspection at new National Storage Mechanism ('NSM') https://data.fca.org.uk/#/nsm/nationalstoragemechanism and on the Company's website at www.tifluidsystems.com.
The AGM is scheduled to be held at 9:00 am on Thursday 13 May 2021 at 2020 Taylor Road, Auburn Hills, Michigan 48326, United States.
TI Fluid Systems plc
+1 (248) 376 8624
David J Royce
+44 (0)20 3727 1340
+44 (0)1865 871855
About TI Fluid Systems plc
TI Fluid Systems plc, (LSE: TIFS) is a leading global manufacturer of highly engineered automotive fluid storage, carrying and delivery systems primarily for the light duty automotive market. With nearly 100 years of automotive fluid systems experience, TI Fluid Systems has manufacturing facilities in 107 locations across 28 countries serving all major global OEMs.
The information below, which is extracted from the Annual Report and Accounts 2020, is included solely for the purpose of complying with DTR 6.3.5 and the requirements it imposes on issuers as to how to make public annual financial reports. It should be read in conjunction with the Company's preliminary results announcement released on 16 March 2021. This announcement is not a substitute for reading the full Annual Report and Accounts 2020. Page, note and section references in the text below refer to page numbers, note and section references in the Annual Report and Accounts 2020.
Statement of Directors' responsibilities in respect of the financial statements
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Company financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. Additionally, the Financial Conduct Authority's Disclosure Guidance and Transparency Rules require the Directors to prepare the Group financial statements in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
Under company law, Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. In preparing the financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently
· state whether for the Group and Company, international accounting standards in conformity with the requirements of the Companies Act 2006 and, for the Group, international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union have been followed, subject to any material departures disclosed and explained in the financial statements
· make judgements and accounting estimates that are reasonable and prudent
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business
The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors' Remuneration report comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's and Company's position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the Board of Directors section of this report confirm that, to the best of their knowledge:
· the Group and Company financial statements, which have been prepared in accordance with IFRSs adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group and profit of the Company
· the Strategic Review includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces
This responsibility statement was approved by the Board of Directors on 15 March 2021 and is signed on its behalf:
By order of the Board
William L. Kozyra, Chief Executive Officer and President
Ronald Hundzinski, Chief Financial Officer
Principal risks and uncertainties
A stable risk profile outlook having weathered 2020 turbulence
The Board is responsible for the Group's system of risk management and internal controls. The Audit & Risk Committee supports the Board by advising on the Group's overall risk appetite, tolerance and strategy, current risk exposures and future risk strategy.
A review of the Group's risk management framework used to collate, report and manage business-critical risks was presented to the Audit & Risk Committee in March 2021. The Board has concluded that a robust assessment of the Group's principal risks had been undertaken.
The Group's global operations are exposed to a number of risks which could, either on their own, or in combination with others, have an adverse impact on the Group's results, strategy, business performance and reputation which, in turn, could impact upon shareholder returns. The following section highlights the major risks that may affect the Group's ability to deliver the strategy, as set out on pages 36-37.
The management and mitigation activities described below will help to reduce the impact or likelihood of the major risk occurring, although the Board recognises it will not be possible to eliminate these risks entirely. The Board also recognises there could be risks that may be unknown or that may be judged to be insignificant at present, but may later prove to be significant.
As indicated in our 2019 Annual Report, the COVID-19 pandemic did introduce operating performance challenges for us and the automotive industry generally. Disruption to our customers' production activity levels, the efficiency and operations of the automotive market supply chain and the availability of resources was significant at various points during the year. We expressed our belief in March 2020 that any prolonged or more significant impact from COVID-19 would manifest itself in the principal risks we had already identified. This belief was borne out by events in 2020 as our identified risk mitigation actions enabled us to manage the uncertain conditions that followed the spread of the virus. Whilst the importance of certain constituent elements of our risk profile, e.g. supplier strength and dependency, financial resilience, operational leverage, took on heightened relevance during 2020, they did not develop into heightened strategic long-term risks. We believe that the continuing impact of the pandemic into 2021 will not introduce new risks beyond those risks that we have already identified.
Global light vehicle production volumes
The Group has 107 manufacturing locations in 28 countries on five continents and a substantial amount of its revenue is closely linked to the economic cycle, the general macroeconomic environment and the trends in product offerings from the vehicle manufacturers.
Historically, there has been close correlation between economic growth and global light vehicle production volumes. The cost structure of the business, operating across manufacturing facilities in 107 locations, means that a large reduction in revenue will have an impact on profitability. The movement from the use of the Internal Combustion Engine as the predominant vehicle power source towards full electrification of vehicles will continue to necessitate changes in our product portfolio.
Controls and mitigation
· The Group's presence in 28 countries supplying a wide range of customers acts as a hedge to neutralise localised economic volatility
· The Group has an extensive manufacturing presence in emerging and other low cost markets which currently have relatively low rates of light vehicle penetration per head of population and are believed to have strong growth potential
· Although the Group's products are primarily for light vehicles, it operates across both a broad geographic footprint and a diversified range of vehicle platforms, brands and models
· A proportion of the Group's workforce in a number of local markets are employed on temporary contracts, which provides some flexibility in the cost base
· The Group monitors closely and responds to any changes in customer demand on a local or Group-wide basis. Active development of new and enhanced products to response to the transition to full electrification remains a major focus. More detail is given in the Product Development and changes in technology section below
The Group's business is based on the repeatable supply and delivery of components and parts to an agreed specification and time.
Failure to meet customer requirements or specifications can have financial consequences, such as the loss of a customer, warranty claims and product liability, and cause long-term damage to the Group's reputation.
Controls and mitigation
· The Group operates rigorous quality control systems designed to ensure a high-quality standard for all products, including testing and validation during the design and production phases
· The Group collaborates with key customers to evaluate and improve quality control standards and to confirm the compliance of its manufacturing processes with customers' quality standards
· Quality systems and processes operated at local manufacturing level are subject to oversight by divisional quality teams.
· Where necessary, the Group's manufacturing facilities maintain relevant industry accreditations, such as TS 16949
· The Group monitors the field performance of its products in order to seek to continuously improve product quality
Competition and customer pricing pressure
This risk encompasses a number of identified global trends in the markets in which the Group operates. The Group operates in a dynamic competitive environment and faces competition from other manufacturers and suppliers of automotive components in each of the market segments in which it operates. The Group may be subject to pressure from customers to reduce costs on current contracts. The environment for bidding and securing new contract awards from OEMs is competitive.
The Group's customers face constant pressure to lower their selling and production costs to be competitive against their peers and may require reductions in the selling price of the Group's systems and components over the term of a vehicle platform or model. Commercial activity by competitors, or changes in their products or technologies, could impact upon the Group's market share and profitability.
Controls and mitigation
· The Group seeks to offset pricing pressure by achieving improved operating efficiencies and cost reductions
· A growing trend by customers to standardise and globalise vehicle platforms has the potential to minimise the Group's exposure to the cancellation of any single vehicle platform or model
· The Group has a strong reputation and industry-leading technology which supports its status as a key supplier to its customers
· The Group engages in extensive and regular dialogue and has strong commercial and engineering relationships with key customers
· The Group uses market intelligence and competitor analysis to support its market activities and inform investment decisions
· Across the Group there is an emphasis on research and development and improving the technical content of products
· The Group also leverages a robust screening process to evaluate new business proposals
· The Group is considered to be a top supplier or strategic supplier by many of its OEM customers
The Group's business is based upon reliable, high-volume manufacturing across all its locations in order to supply products to customers, often on a just-in-time basis. Business continuity encompasses a number of areas of risk to the Group, including fire, flood and other casualties, equipment breakdown, key supplier failure, exposure to price fluctuations of key raw materials, maintaining stable labour relations, and ensuring the reliability of the Group's business management systems and IT infrastructure. In addition, the Group is exposed to risks from accidents and incidents arising from health and safety failures.
A loss of production capability at a facility could lead to an inability to supply customers, reduce volumes and/or increase claims made against the business. In periods of high demand or in the event of supplier difficulties, availability of raw materials may be constrained which could interrupt production or result in price increases, all of which could have an impact on the profitability of the Group's operations. In certain circumstances the loss of a supplier, or supplier quality failing, could lead to an inability to obtain materials and sub-components necessary to supply products in a timely or efficient manner. As our product portfolio pivots in response to the electrification trend the capability and capacity of our current supply base to respond may heighten risk.
The loss of systems capability at a Group facility, as a result of IT failure or cyber-attack, could impact the Group's ability to operate one or more plants and supply its customers. Injuries arising from health and safety incidents could result in lost time, reduce employee morale and possible changes in working practices. Serious incidents can also have a detrimental impact on the Group's reputation.
Controls and mitigation
· The Group continues to expand its business continuity planning ('BCP') to enhance the localised continuity planning strategy operated at each facility
· The Group's global network of facilities provides a degree of backup capacity
· The Group maintains a scheduled programme of maintenance and inspection of all equipment
· The wide geographic spread of operations, purchasing and supply chain functions allows the Group to use a range of techniques to address potential supply disruption, such as long-term purchase contracts, dual sourcing and ongoing research and development into alternative materials and solutions
· In certain markets the Group uses preferred suppliers for key components and materials
· The Group maintains casualty, property and business interruption insurance
· The Group participates in a number of works councils and other represented employee forums and seeks to establish and maintain good relationships with its employees and unions
· The Group continues to assess and strengthen its cyber security programme. The Group has continued to expand its systems penetration testing and data security audits
· The Group's decentralised IT systems worldwide provide some resilience against the loss of production or systems capability to the Group as a whole
· IT has a disruption recovery plan for the organisation
· The Group has an embedded health and safety culture and operates a global health and safety policy, with local health and safety operations in place in each manufacturing facility
· In 2020 our health and safety protocols were enhanced in response to COVID-19 such as to facilitate safe return to our operating facilities when permitted. Our IT infrastructure has been able to support the seamless operation of our worldwide office and administrative functions when remote working has been in place
· Health and safety performance is monitored regularly by each division and by the Group
Product development and changes in technology
The automotive industry is subject to changes in technology and the Group's products are subject to changes in regulatory requirements to reduce emissions and increase fuel economy. Operating across numerous markets and territories requires compliance with a wide variety of regulations. Changes in consumer demand, e.g. the popularity of a particular vehicle type, model, platform or technology such as HEVs and BEVs, may also impact on demand for the Group's products. In addition, the Group's products have performance-critical applications and have high levels of technical content and know-how.
Failure to keep up with changes in technology in the light vehicle automotive industry or in competitive technologies may render certain existing products obsolete or less attractive as well as damage the Group's market position and reputational strength. Failure to comply with all relevant regulatory requirements could affect the Group's reputation and/or its ability to operate in certain markets or territories. Changing environmental regulations could affect demand for certain products. The Group's technologies and intellectual property rights need to be kept current through continuous improvement and research and development and are susceptible to theft, infringement, loss and/or replication by competitors.
Controls and mitigation
· The Group is engaged in continued investment in alternative engineering solutions and the development of more advanced designs and innovative products to ensure compliance with
· changes to environmental regulations and customer demand
· The Group has an international network of four technical centres which focus on research and development
· The Group seeks to maintain close relationships and technical partnerships with key customers
· The Group has established eight regional application centres which focus on application engineering worldwide
· Both Group and divisional management monitor and assess relevant regulatory requirements and the likelihood and impact of any changes
· The Group's products, materials and processes are continually developed and enhanced through research and development and technical input
· The Group actively registers, manages and enforces its intellectual property rights
· The Group operates in the automotive industry where performance-critical technology evolves and is adopted in a deliberate and measured manner
Operating globally and regulatory compliance
The Group has operations globally, with manufacturing facilities in 28 countries across five continents. The markets in which the Group operates are covered by a range of different regulatory systems and complex compliance requirements and may also be subject to cycles, structural change and other external factors, such as changes in tariffs, customs arrangements and other regulations. In addition, operating across a number of territories exposes the Group to currency exchange rate variations.
A substantial downturn in one or more key markets could have a material adverse impact on the Group's profitability, cash flow and carrying value of its assets. Significant changes to the different regulatory systems and compliance requirements in and between the countries and regions in which the Group operates may have a negative impact on the Group's operations in a particular country or market. The accelerating pace of change towards full electrification of vehicles is expected to bring tightening legislative requirements. High foreign exchange volatility may increase financing costs.
Controls and mitigation
· The Group's international footprint provides some protection against a downturn in particular territories or regions
· The markets and any changes to the regulatory environment in which the Group operates, including tariffs and trade policies, are continually monitored and assessed
· Changes to the Group's investment strategy and crossborder relocation might result from a significant change in the regulatory environment in a particular country or region
· The Board is actively monitoring the opportunities and threats posed by climate change to both the Group's product offering and its operations and proactively refocusing development and engineering work in this area
· The Group's treasury policy covers, inter alia, the use of currency contracts, investment hedging policy and regular reporting of foreign exchange exposure
· Focus throughout the Group on adherence to our Code of Business Conduct ('COBC'), including ongoing training and review of policies and procedures
Key personnel dependencies
The future success of the Group is dependent upon the continued services of key personnel. Succession is a routine consideration given some of the Group's key global positions at all levels, including business unit, division and Group.
The Group competes globally to attract and retain personnel in a number of key roles. A lack of new talent, the inability to retain and develop existing talent, or replace retiring senior management could hinder the Group's operations and strategy. A loss of key personnel, with associated intellectual property and know-how, could disrupt our business and strategy. In a number of local markets the Group may experience a shortage of skilled and experienced personnel for certain key roles. Global social trends and events may focus current and potential employees on the desirability of our businesses as a place of employment.
Controls and mitigation
· The Group applies bespoke terms and conditions of employment for key personnel where appropriate
· The Group has in place incentive arrangements, including bonuses, pensions and long-term incentive plans
· The Group is enhancing its activities to further embrace equality and diversity across its operations. Culture awareness training is ongoing across our organisation
· The Group operates established recruitment and development programmes
· Succession plans continue to be reviewed for relevant key positions
The Board recognises that an essential part of risk management is the ability to monitor and respond to new and emerging risks. Throughout 2020 the Board met regularly to consider and respond to the developing operational and financing challenges posed as the result of the spread of the COVID-19 pandemic. These discussions were also conscious of any new strategic risks that were starting to emerge. Such strategic discussions focus on risks that may arise in terms of technological obsolescence, product portfolio redundancies and customer (OEM) consolidation. The Board is acutely aware of the changing market dynamics that may arise from climate change and the growing demand for hybrid and battery electric vehicles. The Board feels that the Group is well positioned to respond positively to these market changes based on its technology, thermal product portfolio and electrification strategy. The current year robust assessment is that there are no new risks that are material to the Group.
There has been notable commentary so far in 2021 about the impact on the automotive industry of the current supply problems relating to micro-chips. The Board has been monitoring these developments and believe that these issues will only represent a short-term impact on automotive volume levels and that this does not represent a material risk to our Group at this stage.
The Board intends to continue to assess emerging risks.
Related Party Transactions
Related Party Transactions and Controlling Parties
Transactions with Affiliates of the funds managed by Bain Capital
The 'funds managed by Bain Capital' represent affiliates of and funds advised by Bain Capital LLC. During the year, the Group did not procure products and materials from companies in which the funds managed by Bain Capital, the Group's ultimate controlling party since 30 June 2015, had investment interests (2019: €0.2 million). These transactions were completed on the basis of normal commercial terms.
The Group does not incur management charges from Bain Capital LLC.
Transactions with Group Companies
Balances and transactions between Group companies have been eliminated on consolidation, and are not disclosed in this note except for subsidiaries that are not wholly owned. Transactions with those companies are made on the Group's standard terms of trade.
The Group holds 73% of the shares in Hanil Tube Corporation ('Hanil') which is located in South Korea. At 31 December 2020, Hanil had trade and loan receivables net of payables from other Group undertakings amounting to €31.4 million (2019: €25.6 million) and made sales within the Group during the year of €6.8 million (2019: €7.3 million).
The Group holds 97% of the shares in Bundy India Ltd. At 31 December 2020, Bundy India Ltd had trade and loan payables net of receivables to other Group undertakings amounting to €4.1 million (2019: €6.1 million) and made sales within the Group during the year of €6.1 million (2019: €8.4 million).
Ultimate controlling party
The funds managed by Bain Capital, via BC Omega Holdco Ltd, have been the Company's ultimate controlling party since its incorporation.
Transactions with Associates
Amounts owed to associates
Purchases from associates in the year
Transactions with related parties other than subsidiaries are attributable solely to the ordinary business activities of the respective company and were conducted on an arm's-length basis.