Unless stated otherwise, amounts and comparisons with prior year are calculated at constant currency (Constant Exchange Rate 'CER') and, where we refer to 'underlying' this is defined as being before separately disclosed items (see note 2 in the Governance and financials report).

In FY2015, our business delivered its strongest trading performance ever. In FY2016, we have built on that success story by going on to achieve profitable top line growth of 6.8%"

Our Group performance

2016
CER
2016
AER
2015Growth at
CER
Growth at
AER
Revenue£165.3m£161.4m£154.7m6.8%4.3%
Gross profit ('GP')£48.9m£48.0m£44.9m9.0%6.9%
GP%29.5%29.7%29.0%+50bps+70bps
Underlying operating profit ('UOP')£17.2m£16.8m£15.3m12.8%10.0%
UOP %10.4%10.4%9.9%+50bps+50bps
Underlying profit before tax£16.4m£16.0m£14.3m14.8%11.8%
Underlying diluted EPS10.22p9.99p8.68p17.7%15.1%

Profitable top line growth of 6.8%

Acquired Growth

Profitable top line growth

Organic

1.6%

2.5%

2.7%

In FY2015, our business delivered its strongest trading performance ever. In FY2016, we have built on that success story by going on to achieve profitable top line growth of 6.8% and Actual Exchange Rate ('AER') revenues of £161.4m.

The biggest driver of our organic growth has come from our multinational OEMs, contributing 3% to our overall revenue growth. On the non-organic side, growth reflects a mix of:

  • A first full year of trading from VIC, Italy (acquired 30 May 2014)
  • A first six months of trading from TR Kuhlmann, Germany (acquired 1 October 2015)

Both acquisitions are performing very well. VIC has achieved over 13% organic revenue growth against the prior year, with three record breaking trading months in FY2016. TR Kuhlmann, our newest addition to the TR family, is already slightly ahead of expectations in its first six months and over 12% up on the 1 October 2015 to 31 March 2016 period (pre-acquisition).

Gross profit margins remain strong at 29.5% (2015: 29.0%). Underlying operating margins have continued to improve to 10.4% (2015: 9.9%) reflecting our ongoing commitment to operational efficiencies. All of this has helped our underlying PBT to increase by 11.8% at AER, driving a strong increase in our underlying diluted EPS at AER of 15.1% to 9.99p (2015: 8.68p).

Our underlying PBT has increased by 14.8%, driving a strong increase in our underlying diluted EPS of 15.1% to 9.99p (2015: 8.68p)"

Dividend progression

Dividend progression bar

Interim

Final

Dividend cover

Dividend cover
With a proven track record, a strong balance sheet and a confident strategy for growth we remain committed to a progressive dividend policy"

Dividend policy

With a proven track record, a strong balance sheet and a confident strategy for growth we remain committed to a progressive dividend policy.

As a result the Directors are proposing, subject to shareholder approval, a final dividend of 2.00p per share. This, together with the interim dividend of 0.80p (paid on 15 April 2016), brings the total for the year to 2.80p per share, an increase of 33.3% on the prior year (2015: 2.10p). The final dividend will be paid on 14 October 2016 to shareholders on the register at the close of business on 16 September 2016. The ordinary shares will become ex-dividend on 15 September 2016.

The 2016 final proposed dividend means that since 2010 dividends have grown from 0.50p to 2.80p, representing a compound annual growth rate ('CAGR') of 53.8%.

At the same time, dividend cover has fallen, now representing cover of 3.6x. For the medium term, we believe an appropriate level of cover will continue to be in the range of 3x to 4x. As is always the case, the actual dividend each year will need to take in to account our ongoing strategy of investment driven growth, any acquisitions and the working capital requirements of a growing business.

Share price — recovery to growth

The significant increase in our share price over the last five years illustrates the TR story of successful recovery (compound annual growth rate: 23.1%)"
Share price chart
By far the biggest driver of the Group's growth in FY2016 has been across our European businesses where revenues have increased significantly by 24.9% to £57.8m"

Revenue

By far the Group's biggest revenue growth in FY2016 has been across our European businesses with a significant increase of 24.9% to £57.8m. Non-organic growth has driven 14.0% (£6.5m) of that increase, in conjunction with very strong organic growth of 10.9% from increased trading levels in our existing businesses.

In Asia, the overall trading position has been more stable, with an increase in organic revenues of 1.1% (£0.4m).

In Singapore, growth has been very strong at 9.4% (£1.1m) reflecting a significant growth in the domestic appliances sector sales. In contrast, our Malaysian operations have struggled in FY2016 against a backdrop of falling customer demand and domestic market weakness. This has led to a decrease in revenues of 8.3% (£0.9m).

In the UK, revenue has decreased by 2.0% (£1.3m), reflecting a slight H2 2016, whilst in the USA trading is in line with the prior year at £4.3m.

Revenue by region (CER)

£165.3m

Revenue by region 2016

2016

UK £64.1m (-2.0%)

Europe £57.8m (+24.9%)

Asia £39.1m (+1.1%)

USA £4.3m (-0.7%)

£154.7m

Revenue by region 2015

2015

UK £65.4m

Europe £46.3m

Asia £38.7m

USA £4.3m

Underlying operating margins have continued to improve to 10.4% (2015: 9.9%) reflecting our ongoing commitment to operational efficiencies and a 50bps gross margin improvement"

Gross profit

The Group's gross margin has increased by 50bps to 29.5% (AER 70bps to 29.7%; 2015: 29.0%). This reflects a very strong underlying margin improvement in Asia due in part to capacity increases especially out of our Singapore site. However, this has been offset by a fall in the gross margins in Europe to 26.5% (2015: 28.2%), largely due to unfavourable movements in the average €:US$ rate, reducing gross margins in our Italian operations.

Underlying operating profit

Underlying operating margins have increased to 10.4% (2015: 9.9%).In Asia, underlying operating margins have increased significantly, to 17.3% (2015: 14.8%) reflecting the improvements in margin noted above. In the UK, foreign exchange translation gains on monetary items in the balance sheet, in conjunction with ongoing operating efficiencies, have helped to drive a 70bps increase to 9.6% (2015: 8.9%).

In Europe, overall underlying operating margins have been negatively impacted by the noted foreign exchange movements, leading to a decrease to 12.7% (2015: 14.0%). In the US, operating margins have increased to 8.7% (2015: 7.6%) reflecting gross margin improvements in the region.

Underlying operating profit and margin by region (CER)*

£17.2m

(10.4%)

Underlying operating profit

2016

UK £6.2m (9.6%)

Europe £7.3m (12.7%)

Asia £6.7m (17.3%)

USA £0.4m (8.7%)

£15.3m

(9.9%)

Underlying operating profit

2015

UK £5.8m (8.9%)

Europe £6.5m (14.0%)

Asia £5.7m (14.8%)

USA £0.3m (7.6%)

† After deducting central costs

* Before separately disclosed items which are shown in the financial statements

Net financing costs (AER)

Despite an increase in average net debt to £16.8m (FY 2015: £14.5m), interest costs have decreased by 18.1% or £0.2m. This cost reduction has been driven out of a reduced reliance on asset based lending in the UK and Italy, a fall in the average EURIBOR rate and a decrease in the level of non-utilisation fees incurred on our revolving credit facilities.

Taxation (AER)

The Effective Tax Rate ('ETR') has reduced significantly in the year to 21.8% (2015: 29.2%). The largest single fall, of 4.5%, arose on the recognition of a deferred tax asset of £0.6m in our US business. Given the positive trading position in the US, we consider it probable that this asset will be recoverable against future taxable profits and have therefore brought it on to the balance sheet. Excluding this, our normalised ETR has reduced to 26.3% as corporation tax rates continue to reduce around the world, most specifically in the UK.

The underlying business remains strongly cash generative, achieving an underlying EBITDA to cash conversion percentage of 88.9% (2015: 50.2%)"

Earnings per share (EPS)

Our strong gross margin and improved underlying operating profits have led to an impressive increase in our underlying diluted EPS of 15.1% AER to 9.99p (2015: 8.68p).

Shareholder equity (AER)

As at 31 March 2016, the Group's shareholders' equity has increased significantly to £83.8m (2015: £71.7m). This £12.1m uplift is made up of retained earnings of £9.6m, share issues totalling £0.2m and a substantial foreign exchange reserve gain of £2.2m which arose due to the rapid weakening in Sterling in the last few months of the financial year.

Net debt

Our net debt position at year end increased by £2.6m to £16.0m (2015: £13.4m). The key reasons for that increase are our recent acquisitions and ongoing investment driven growth strategy.

As the result of the successful achievement of performance conditions, set at the time of the acquisition, the maximum deferred earn out payment was made in July for VIC of £3.4m (€5.0m). In addition, on the 1 October 2015, we paid the initial consideration of £4.9m (€6.8m) to acquire TR Kuhlmann in Germany. Over the past 12 months, our investment driven growth strategy has led to further capital expenditure of £2.3m, predominantly, as previously highlighted, in our manufacturing sites in Taiwan, Malaysia and Italy.

Outside of these investments, the underlying business remains strongly cash generative, achieving an underlying EBITDA to cash conversion of 88.9% (2015: 50.2%). This is despite the fact that in FY2016, we continued to reverse the final £2.5m of the VIC non-recourse debt factoring that we inherited on acquisition in May 2014.

Excluding the impact of the de-factoring, we have seen a net decrease in our working capital levels of £0.6m at CER, even with the overall increase in the Group's trading.

Net debt bridge

Waterfall chart

* Including provisions

With our geographical spread, our balanced sector mix and our clear strategies for growth, the Board is optimistic for the current year and the Group's longer term prospects"

Banking facilities to support growth

Amended facilities are in the process of being agreed with our main Group bankers, HSBC. Negotiations are substantially complete, subject to the finalisation of contractual terms with credit approval already obtained.

In summary, the amendments will reduce the Group's reliance on the Asset Based Lending ('ABL'), increase our available Revolving Credit Facility ('RCF'), decrease the overall cost structure and extend the maturity profile of a proportion of our borrowings to better reflect the Group's core funding and investment requirements.

As a result of the above changes, unutilised available facilities will increase by c.£5.0m, helping to support our strategy of investment driven growth. In addition, an accordion facility of £20.0m is being written in to the agreement, providing potential flexibility to debt finance further acquisitions in the future.

Looking ahead

Group outlook

In FY2016 we have seen another year of strong trading, making this our sixth year of continuous growth.

For us, Europe, Asia and the USA all remain key areas for growth both organically and non-organically. Our enquiry pipeline is strong, whilst our core organic strategy of focusing on our multinational OEMs looks set to continue to deliver growth. FY2017 will be the first full year of trading from our latest acquisition, TR Kuhlmann, and we are already starting to see opportunities coming through as the result of us working together.

On the manufacturing side, the investments we are making to increase capacity and the focus we are putting on making better use of existing capacity, specifically in our Malaysian sites, should start to impact positively on results in the next year and beyond.

Our investment in the UK business, in to both senior sales resource and driving further operational efficiencies, is expected to continue to build on profitability in this region.

Looking ahead there are some macroeconomic factors that we cannot control, including the ongoing volatility in the foreign currency and raw material markets. However, building on the strong performance delivered last year and, with our geographical spread, balanced sector mix and our clear strategies for growth, the Board is optimistic for the current year and the Group's longer term prospects.

Business reviewBusiness-review-one-2016.jpg

UK

40% of Group revenue

The UK has produced a solid year of trading, although revenues have decreased slightly by 2.0% (£1.3m), underlying operating margins have increased to 9.6% (2015: 8.9%). This has led to a £0.3m increase in profitability at the underlying operating profit level. Covering a broad range of sectors across the UK, we have also seen a record number of enquiries being logged on our enquiry portal in 2015/16.

After a good start to the year, we witnessed a slight softening in customer demand. Actual results have shown a marginal improvement in the last quarter, with higher sales starting to come back through at our Scotland and Uckfield sites. Belfast continued its rapid growth phase for the second year running.

Our transactional and EU distributor sales teams have also enjoyed growth this year, although some margins were impacted through foreign exchange.

Continuous improvement

The recent efficiency consolidation of sites in Uckfield/Poole and the Midlands and the roll-out of Lean-Lift technology (automated 'fast pick' vertical storage machines) has continued to improve our profitability which, coupled with a foreign exchange gain, has led to a 70bps increase in the underlying operating margin year on year.

A roll-out programme is planned for installing further Lean-Lifts into the hubs. Through 'dead space' utilisation and a reduction in travel and picking times, this should allow us to grow our business without the need for extra premises or people.

Looking ahead

The UK management team remain optimistic regarding the opportunities that lie ahead.

The overall UK industrial fastener market is worth £1.2bn, £600m of which is estimated to be comparable to our business with TRUK currently having around a 10% market share. As the result of our investment for growth strategy, we have employed additional resource within sales, telemarketing, engineering and supplier development, making us well positioned to capitalise on further prospects.

We are also delighted to announce the recent appointment of Kevin de Stadler as Director of Sales for UK & Ireland who joined TRUK in May 2016. Kevin is responsible for delivering strategy, sales management and leadership, new business development and key account management within the UK.

Succession planning has been central to our activities this year and this focus will continue to provide opportunities and development experiences for our people. Some moves within our operational structure are already beginning to create progression opportunities to help develop 'leaders for the future'.

With planned investment for growth and 90% of the market still to go for, we look forward to what the future can bring.

UK mapDave Fisk

Dave Fisk |
TR UK Managing Director

Revenue

Revenue Uk

Underlying operating profit*

Underlying operating profit

2016 AER

2015

* Before separately disclosed items which are shown in the financial statements

Europe

33% of Group revenue

This has been an extremely positive year for TR in Europe with an impressive 24.8% increase in revenue to £57.8m (AER 16.7% to £54.0m) (2015: £46.3m).

This increase reflects a solid performance from our existing locations, which has been well supplemented by the acquisition of TR Kuhlmann as well as additional non-organic revenue arising from VIC's first full year of trading within the Group.

Organic growth

Sales growth has been strong across a number of locations, most specifically in Holland and Sweden where revenues increased by more than 10%. In both cases, this growth has been largely driven out of additional sales to multinational OEMs in the automotive sector and is a good example of how our core organic strategy of focusing on our multinational OEM customers is continuing to bear fruit.

VIC has continued to outperform our expectations in terms of organic revenues, with an increase of 13.3% on the previous year (£2.6m). With virtually all of this additional revenue coming through from the domestic appliances sector, this ongoing trend is helping the Group to maintain a balanced sector split.

Non-organic growth

Non-organic growth has driven 14.0% (£6.5m) of the revenue increase. This is made up of additional sales of £4.0m arising in VIC in April and May 2015 and the first six months of trading in TR Kuhlmann generating revenues of £2.5m.

Margins

The fall in underlying operating margins in the region to 12.7% (AER fall to 12.7%) (2015: 14.0%) has been largely the result of gross margin reductions in VIC, where profitability has been negatively impacted by adverse movements in the €:US$ exchange rate. Across the rest of the region margins have remained broadly in line.

Looking ahead

Europe continues to provide a key opportunity for growth, both in terms of the on-going development of our existing businesses and from potential future acquisitions with hotspots already identified in Spain and Eastern Europe.

The integration of TR Kuhlmann is set to continue to build on the successes achieved to date, while additional investment is underway at VIC, both to increase manufacturing capacity and sales resource so as to support further growth at our biggest European site.

In terms of profitability, we are starting to see the impact of more positive movements on the €:US$ exchange rate. If this situation continues then this should benefit gross margin improvements in Europe in the coming months.

Europe mapGeoff Budd

Geoff Budd |
TR Europe Managing Director

Revenue

Revenue Europe

Underlying operating profit*

Underlying operating profit Europe

2016 CER

2016 AER

2015

* Before separately disclosed items which are shown in the financial statements

USA

3% of Group revenue

This region has produced a steady year of trading with both revenues and underlying operating profits having remained broadly stable at £4.3m and £0.4m (2015: £4.3m and £0.3m). The increase in the underlying operating margin to 8.7% (2015: 7.6%) reflects improvement in the gross margin reflecting a shift in the sales mix towards a higher margin product.

Where TR USA has excelled is in setting the stage for the future. Our core organic strategy of focusing on our multinational OEMs has provided us with a stable foundation to continue to organically grow these accounts. We have particularly enjoyed growth in the automotive sector with the team in Houston making tremendous inroads into building local relationships with top Tier 1 automotive customers based in the USA, further contributing to TR's Group goal of being recognised as a 'global solution provider' to multinational OEMs. It is these relationships that have helped build up a pipeline of new automotive business wins that will underpin steady growth over the coming years. This will be further supported by our ongoing investment for growth in the automotive sector, including putting engineering support into Michigan, where many of the automotive Tier 1's headquarters are located.

We are particularly proud of the fact that TR USA, with the support of TR globally, was recently recognised as 'Supplier of the Year' award with one of the top Tier 1 automotive customers in the world.

A second driver to our future growth will be Mexico. What multinational OEMs have recognised is that TR has been located strategically in Houston to serve both the USA and Mexico segments of their supply chains. The ability to get product to all segments of North America in three days or less, TR's ability to manage the customer's supply chain, and TR's ability to provide engineering support, all combine to give our multinational OEM customers savings to the bottom line in more ways than just the cost of the product. Being able to support supply chains in Mexico will be a key asset for the future as this region is seen more and more as a viable alternative to manufacturing in Asia. We have structured ourselves internally to take advantage of this trend, investing heavily in both employees and our supply chain, to enable us to continue to push our strategy of supporting multinational OEMs in Mexico.

USA mapGary Badzioch

Gary Badzioch |
TR Fastenings Inc Operations Director

Revenue

Revenue USA

Underlying operating profit*

Underlying operating profit USA

2016 CER

2016 AER

2015

* Before separately disclosed items which are shown in the financial statements

Asia

24% of Group revenue

TR Asia has produced a strong set of results, with underlying operating profits at CER and AER increasing significantly at by 17.5% to £6.7m (2015: £5.7m) to secure a margin of 17.3% (2015: 14.8%). Against this growth in profitability, revenues have stayed broadly stable, with a 1.0% increase to £39.1m (AER £38.6m) (2015: £38.7m).

During the year we witnessed a series of changes to trading conditions in the region with oil price reductions, concerns over the Chinese economy and a sharp downturn in the strength of the Asian currencies towards the end of the first half. However, despite these unsettled external conditions the region has experienced strong growth particularly in the domestic appliances sector.

TR Formac, Singapore has seen the largest revenue growth at 9.4% (£1.1m) coupled with a gross margin increase. This impressive result has been mainly driven out of additional sales to our multinational OEM customers and increased capacity.

Singapore continues to lead the Asian sites, contributing 34% of total sales to the region. The micro-screw, self-clinch fastener and complex part products have earned numerous awards and TR Singapore is recognised as an outstanding supplier/manufacturer with zero defect capability.

PSEP, Malaysia in contrast had a slower year due to weak domestic demand and a highly competitive domestic automotive market. Revenues have fallen by 8.4% (£0.8m), although underlying operating profits have remained broadly stable reflecting a strong level of cost control as revenues have reduced.

SFE, Taiwan has used its industry reputation of high quality manufacture and delivery to continue to grow with support from Europe and the USA. Trading levels have increased by 4.1% and underlying operating margins have improved as a result.

Across the rest of the region, amongst our distribution businesses in Shanghai, India and Thailand, we have seen some reduction in trading levels. This is predominantly due to a slower than expected production start at one of our key multinational OEMs in the automotive sector. Excluding this one specific issue, we have not felt any significant impacts coming out of the reported weaknesses in the wider Chinese economy.

Looking ahead

The opportunities for growth across the region remain positive. The investment in to additional capacity at our Taiwanese factory is already delivering results with the growth we have seen in 2016. The £1.0m investment in a state-of-the-art parts former at PSEP is completed, so we can expect to see further capacity utilisation starting to flow through in the coming year.

In addition to this investment, our renewed focus on working closer together as a Group, means we will be in a stronger position to drive utilisation of our existing capacity in Asia, while helping to cover fixed costs more effectively and generate increased margins on our external sales.

Looking beyond organic growth, Asia is a region of great interest to us for potential acquisitions. As a result, at both a Group and local level, we continue to actively identify and review acquisition opportunities as they arise.

Asia mapCharlie Foo

Charlie Foo |
TR Asia Managing Director

Revenue

Revenue Asia

Underlying operating profit*

Underlying operating profit Asia

2016 CER

2016 AER

2015

* Before separately disclosed items which are shown in the financial statements