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TT Electronics plc (LSE:TTG), a global engineer and manufacturer of electronic solutions for critical applications, has provided an update on its current trading conditions and outlook for 2024. The Group has faced operational inefficiencies at two of its North American sites, leading to significant revenue and profitability impacts. Despite these setbacks, the rest of the Group continues to perform in line with expectations, and TT remains focused on its medium-term goals.
North American Operational Issues Impact Revenue and Profitability
TT Electronics’ North American operations have encountered efficiency problems, affecting both revenue and profit. Due to delays in executing the order book and higher production costs, the Group now expects a revenue shortfall of £15 million to £20 million in the second half of 2024. This shortfall, combined with increased product rework costs, is forecast to reduce North American operating profit by £13 million to £18 million.
To address these challenges, TT has put in place corrective actions, including improved factory planning and layout. While these measures aim to rectify the issues during the remainder of 2024 and into early 2025, they are not expected to fully mitigate the impact within this financial year.
In addition, recent order intake in North America has shifted, with many orders now scheduled for 2025 delivery, contrary to expectations for 2024 execution. This change, especially in TT's high-margin components business, has exacerbated the financial impact in the region.
Revised FY 2024 Outlook
As a result of these operational challenges, TT Electronics has revised its full-year 2024 guidance. Group adjusted operating profit is now expected to fall between £37 million and £42 million, lower than previous forecasts. The Group also anticipates reduced free cash flow due to the decreased profitability, with leverage now expected to be around or slightly above the top end of its 1-2x range by December 2024.
Despite these short-term difficulties, the rest of TT Electronics’ global operations are performing as expected, and the Group remains confident in its ability to meet medium-term targets.
Project Dynamo: Accelerating Operational Improvements
TT Electronics has already initiated operational improvements under its Project Dynamo initiative. In light of current performance issues, these improvement actions will be accelerated to drive the necessary changes in efficiency and cost reduction. The company plans to implement further cost-cutting measures in Q4 2024, with the benefits expected to enhance the Group’s performance in 2025.
Medium-Term Confidence Remains Strong
Despite the short-term headwinds in North America, TT Electronics is maintaining its medium-term goals, including a 12% operating margin target by 2026. The Board remains optimistic about the Group’s ability to navigate the current challenges and deliver on its strategic objectives over the coming years.
