TIDMTIFS

RNS Number : 3435T

TI Fluid Systems PLC

20 March 2019

TI Fluid Systems plc - Full year results 2018

20 March 2019

TI Fluid Systems plc

Results for the 12 months ended 31 December 2018

TI Fluid Systems plc, a leading global manufacturer of automotive fluid storage, carrying and delivery systems for light vehicles announces its 2018 results.

Group Highlights:

-- Successfully executing our hybrid electric vehicle ("HEV") and electric vehicle ("EV") strategy creating organic growth opportunities.

o Significant EV awards and expected additional orders for the design, engineering and supply of thermal products with two leading high volume European Original Equipment Manufacturers ("OEMs")

o Lifetime revenue opportunity of approximately EUR700 million (customer planning volumes)

o Strategic progress in advancing share position of the HEV pressurised fuel tank market and continuing to win thermal awards on available key EV platforms with Korean and Chinese OEMs

   --      Strong financial results in 2018 

-- Revenue growth of 2.0% year over year (at constant currency) or 3.1% above global light vehicle production growth volumes

   --      Solid Adjusted EBIT of EUR373.5 million and margin of 10.8% 
   --      Profit for the year growth of EUR24.9 million to EUR140.1 million 

-- Adjusted Net Income growth of EUR19.2 million or 14.1% to EUR155.2 million with Adjusted Basic EPS of 29.9 euro cents

   --      Significant Adjusted Free Cash Flow of EUR146.2 million 

-- Final dividend proposal of 5.94 euro cents per share, making 8.96 euro cents for the full year

-- Refinanced borrowing facilities repaying 8.75% senior unsecured notes using cash and additional term loan reducing interest expense by EUR10 million per annum

William L. Kozyra, Chief Executive Officer and President, commented:

"2018 was a great year for TI Fluid Systems. Despite a slight softening in global light vehicle production growth, we achieved strong organic growth, solid profit margins and free cash flow generation. The excellent progress delivered in executing our HEV and EV strategy in 2018, as well as our approach of continued and disciplined organic growth has positioned the Group well for 2019 and beyond.

We continue to work on new design and engineering thermal management and pressurised tank opportunities with our existing customers as the electric market continues to progress. We are confident that our business model will continue to deliver consistent, strong financial performance along with attractive returns."

Results presentation

TI Fluid Systems plc is holding a presentation to analysts and investors at 09:00am UK time on 20 March 2019 at the offices of FTI Consulting, 200 Aldersgate Street, London EC1A 4HD.

Analysts wishing to attend should contact FTI Consulting to register. Analysts unable to attend in person may listen to the presentation live by using the details below. Questions will only be taken at the event.

Conference Call Dial-In Details:

UK: +44 (0) 330 336 9105

Conference Code: 9808024

The presentation will be at 7:00am UK time from www.tiautomotive.com. An audio recording will be available on our website in due course.

Capital Markets Event

TI Fluid Systems plc is hosting a Capital Markets Event in London at 2:00pm UK time on 17 May 2019.

The event will be hosted by Bill Kozyra, CEO and Timothy Knutson, CFO, and will include product demonstrations as well as presentations from our Executive Vice Presidents of our two segments, Fluid Carrying Systems ("FCS") and Fuel Tank and Delivery Systems ("FTDS"). The presentations will be available on the TI Fluid Systems website from 2:00pm that day.

Enquiries

TI Fluid Systems plc

Alpna Amar

Investor Relations

Tel: +44 (0)1865 871824

FTI Consulting

Richard Mountain

Nick Hasell

Tel: +44 (0) 20 3727 1340

Chief Executive Officer's review:

2018 was another year of strong organic growth for the Group. Although, global light vehicle production volume slightly declined by 1.1% compared to the prior year, we delivered a solid financial performance in 2018 with revenue of EUR3,473 million (+2.0% at constant currency), or 3.1% above global light vehicle production growth. If we include the impact of currency translation, revenue slightly declined by 0.5%

We also continued to generate strong Adjusted EBITDA of EUR484 million (13.9% margin) and Adjusted EBIT of EUR374 million (10.8% margin). Profit for the year was EUR140 million (2017: EUR115 million).

Adjusted Free Cash Flow amounted to EUR146 million (2017: EUR119 million). This high level of cash generation supports our strong organic business growth opportunities, deleveraging and return of capital to shareholders through our dividend policy.

Strategy Update

Organic growth opportunities in EVs and HEVs has been a key focus for the Group. We are extremely proud of the significant progress on this strategy in 2018.

Utilise the Group's market position strengths in our key product areas

We are the #1 supplier of brake and fuel lines globally with approximately 34% market share. In 2018, the Group was able to leverage its technology, customer relationships and global footprint in brake and fuel lines to be awarded significant orders for the design, engineering and supply of thermal management products with two leading high volume OEMs for global EV platforms.

Combining these awards with expected orders for thermal products on these OEM platforms, we anticipate that TI Fluid Systems will have approximately 50% share of these combined EV platforms. We believe this represents a total lifetime revenue opportunity of approximately EUR700 million based on customer planning volumes.

It is worth noting, that these thermal awards are expected to last for the eight to ten year life of the vehicles. A few of these EV platforms are expected to begin production in 2019 and 2020. Beyond these important awards, we have received other EV thermal product awards with Korean and Chinese OEMs.

We continue to advance our thermal system development discussions with key EV OEM producers. For example, we recently completed a thermal system design project focused on light weight nylon components and optimised fluid management for a large European OEM.

These thermal awards demonstrate the Group's competencies as a leading fluid handling supplier and experienced partner to the global OEMs. This strong award level further demonstrates that as the EV market develops, our business strengths should ultimately position us to have similar share in thermal products with the share position in our brake and fuel line business today.

I am very pleased with the progress our company and employees have made in 2018 to demonstrate that we will be a leading supplier of fluid products for HEVs and EVs today and in the future.

We are the #3 supplier of plastic fuel tanks globally with 15% market share. The Group has been able to capitalise on its strong fuel tank technology leadership positions to progress its strategy for plug-in hybrid electric vehicles (PHEV).

In 2018, the Group launched its PHEV pressurised plastic fuel tank for a leading European OEM in China. The plastic fuel tank utilises our proprietary technology to meet the new increased fuel vapour pressure requirements of HEVs. It also minimises permeation by insertion of special components into the tank during the manufacturing process. The total lifetime units of this fuel tank is estimated at 950,000 units based on customer planning volumes.

We are pleased that with our recent wins in pressurised fuel tanks, our PHEV tank share is trending to greater than 20%, which is higher than our existing fuel tank market share.

We are leveraging our fluid system competencies to adapt our products and support electrification trends, which continue to be great growth opportunities for us.

Maintain balanced customer, platform, regional and product diversification

The Group has a diversified base of vehicle platforms and nameplates to which we supply our products. The Group's products are found in most of the highest volume vehicle nameplates across North America, Europe and China.

In 2018, we generated approximately 40% of our revenue in Europe, 30% in North America and 30% in Asia Pacific and Latin America.

We believe that the Group's reputation for engineering and manufacturing high quality, reliable, performance-critical products for the top global OEMs has also generated strong local relationships. The Group has a highly diversified customer base of global and local OEMs with no single customer representing more than 12% of revenue in 2018.

Through our experience and history, we have familiarity with each of our OEM customer's unique engineering, design and development processes. We have long-standing relationships with OEMs and a reputation for developing leading technology and high quality products.

Our geographical diversity combined with our customer diversity and innovative technologies continues to position us to be awarded new and replacement business at higher content levels.

Continue enhancing the Group's position as an advanced technology leader in automotive fluid systems to meet industry megatrend changes

The Group has specialised in fluid systems for almost a century and we have advanced technology development centres and regional application engineering centres to focus our research, development and application engineering.

As the requirements of OEMs have continued to advance, the Group has capitalised on its deep knowledge of fluid components, lighter weight material and systems architecture to provide our OEM customers with more advanced designs and products to facilitate meeting consumer expectations and local regulatory requirements for reduced emissions and improved fuel economy.

The Group has introduced a number of first-to-market technologies and received various customer and industry awards.

We are also pleased to announce that the Group has been nominated for a 2019 Automotive News Premier Automotive Suppliers Contribution in Excellence ("PACE") Innovation Award for our pressurised fuel tank addressing the PHEV market.

Continued focus on automotive megatrends

The growing HEV and EV market trends provides significant content expansion opportunities aligned with the Group's strength in fluid systems.

In particular, HEVs typically contain all the standard brake and fuel line components found on a traditional ICE vehicle and also require more advanced low emission pressurised fuel tanks together with additional thermal management systems.

In addition, both HEV and EVs also require these higher content thermal fluid systems to heat and cool the battery, chassis and electronic components. The Group has developed products to address these new requirements e.g. thermal heating and cooling tubes, loops and lightweight nylon materials.

We believe that these advanced components and systems have the potential to significantly increase the fluid handling content in HEV and EVs compared to the content for a more traditional ICE vehicle. Additional thermal management products are also expected and required for autonomous vehicles.

We expect further progress in meeting our HEV and EV goals in 2019.

Capitalise on the Group's strong customer relationships, global footprint and excellent position in China

The Group has established trusted relationships over many decades with major OEMs by leveraging its strong technical capabilities, global manufacturing footprint, local management teams and long history as a leading provider of automotive fluid systems. These relationships extend globally as the Group's OEM customers have expanded into emerging markets.

In addition, our extensive low-cost global footprint provides a competitive advantage in winning replacement and new business with a competitive manufacturing model. We have manufacturing facilities near OEM assembly plants in 114 locations across 28 countries in 5 continents. This manufacturing footprint is a distinct advantage for the Group and its customers.

In 2018, 19% of our revenue was generated from China where we have wholly-owned operations in 16 locations and a #1 market position in brake and fuel lines. We continue to use this strong position to generate growth opportunities for our plastic fuel tank and thermal management products.

Deliver strong growth, profitability and cash flow generation

The Group has consistently demonstrated leading financial metrics and performance with strong revenue growth, profitability and cash flow generation. Our experienced management team has a track record of managing volume fluctuations e.g. the impact of the new emissions testing in Europe and lower production in China that the market experienced in the second half of 2018. By successfully adjusting costs in line with our customers' production schedules, we were able to deliver consistent margins and strong cash flow generation for our stakeholders.

Looking ahead

The excellent progress delivered in executing our HEV and EV strategy in 2018, as well as our approach of continued and disciplined organic growth has positioned the Group well for 2019 and beyond.

We continue to work on new design and engineering for thermal management products and pressurised tank opportunities with our customers as the electrification market continues to progress. We are confident that our business model will continue to deliver consistent, leading financial performance along with attractive returns.

Our people

The Group's strong performance is attributed to the dedication of our 28,700 employees across the globe. I would like to thank them for their commitment and contribution throughout the year.

We look forward to reporting our progress over the coming months.

Chief Financial Officer's Report:

The Group delivered another year of strong performance in 2018. Revenues increased by 2.0% year over year on a constant currency basis to EUR3.5 billion and exceeded global light vehicle production growth by 3.1%. Revenue slightly declined by 0.5% at reported rates.

We generated solid Adjusted EBIT of EUR374 million with a margin of 10.8%, which is broadly consistent with the prior year. We delivered Adjusted Net Income of EUR155.2 million for the year, an increase of 14.1%. Adjusted Basic EPS was 29.9 euro cents, an increase of 14.0%. The Group also achieved strong Adjusted Free Cash Flow of EUR146.2 million, a year over year increase of 23.3%.

Table 1: Key performance measures EURm

 
                                                                                         % Change 
                                                                                      at constant 
                                         2018         2017     Change    % Change        currency 
 Revenue                          3,472.8      3,490.9      (18.1)       (0.5)%         2.0% 
 Adjusted EBIT                      373.5        383.5      (10.0)       (2.6)%        (0.2)% 
 Adjusted EBIT margin                10.8%        11.0%      (0.2)% 
 Profit for the Year                140.1        115.2       24.9        21.6%         27.1% 
 Adjusted Net Income                155.2        136.0       19.2        14.1% 
 Adjusted Basic EPS (EUR cents)      29.9         26.2        3.7        14.0% 
 Adjusted Free Cash Flow            146.2        118.6       27.6        23.3% 
 

Automotive Markets

Global light vehicle production volume remains the most significant factor in our financial performance.

Global and regional light vehicle production volumes softened by 1.1% in 2018 to 94.1 million vehicles compared to the prior year as shown in table 2.

Table 2: Global light vehicle production volumes: millions of units

 
                                                  2018    % Change 
 Europe, including Middle East and Africa         24.5    (1.2)% 
 Asia Pacific                                     49.2    (1.4)% 
 North America                                    17.0    (0.7)% 
 Latin America                                     3.4     3.1% 
                                                 -----  ------ 
 Total global volumes                             94.1    (1.1)% 
                                                 =====  ====== 
 Source: IHS Markit, February 2019 and Company estimates. 
  Change percentages calculated using unrounded data. 
 

Revenue

Our revenue in each of the regions and by segment is included in table 3.

Table 3: Revenue by region and by segment EURm

 
                                     2018     2017  Change    % Change        % Change 
                                                                           at constant 
                                                                              currency 
 Total Group Revenue              3,472.8  3,490.9  (18.1)    (0.5)%         2.0% 
 By Region 
 Europe and Africa                1,398.6  1,389.7    8.9      0.6%          0.8% 
 Asia Pacific                     1,032.2  1,024.6    7.6      0.7%          3.3% 
 North America                      971.9    995.3  (23.4)    (2.4)%         2.1% 
 Latin America                       70.1     81.3  (11.2)   (13.8)%         6.8% 
 By segment 
 Fluid Carrying Systems ("FCS")   2,026.7  2,057.1  (30.4)    (1.5)%         1.5% 
 Fuel Tank and Delivery Systems 
  ("FTDS")                        1,446.1  1,433.8   12.3      0.9%          2.8% 
 

Group revenue in 2018 was EUR3.5 billion, which at constant currency is a 2.0% year over year increase and 310 basis points above year over year reduction in global light vehicle production of 1.1%. Revenue growth above vehicle production changes was solid across all regions primarily due to new business related launches, and favourable ramp impacts.

In Europe and Africa, year over year revenue growth at constant currency was 0.8%, or 200 basis points above year over year change in light vehicle production of (1.2)%. 2018 Europe and Africa revenue growth is mostly attributable to launches of new FTDS business and related favourable ramp impacts including tooling revenue.

In Asia Pacific year over year revenue growth at constant currency was 3.3%, or 470 basis points above year over year change in light vehicle production volume of (1.4)%. While China volumes declined on a year over year basis, revenue increased with new business in tanks and thermal.

In North America, year over year revenue growth at constant currency was 2.1% or 280 basis points above year over year change in light vehicle production volume of (0.7)% . Growth above market was primarily due to powertrain.

On a year over year basis at constant currency growth rates, the Fluid Carrying Systems ("FCS") division's revenue expanded 1.5% to EUR2,027 million, and the Fuel Tank and Delivery Systems ("FTDS") division's revenue grew 2.8% to EUR1,446 million.

When comparing 2018 to 2017 changes, currency exchange rates had a net unfavourable impact of EUR88 million on revenue due mostly to strengthening of the Euro against the US dollar, Chinese renminbi and South Korean won. Accordingly, revenue slightly declined by 0.5% to EUR3,473 million at reported rates.

Adjusted EBITDA*, Adjusted EBIT* and Profit for the Year

We use several financial measures to manage our business, including Adjusted EBITDA and Adjusted EBIT, which are non-IFRS measures, but are measures of profitability, that have been used consistently by the Group and are also used as metrics in certain of our compensation plans. Table 4 shows a reconciliation between Profit for the year, Adjusted EBITDA and Adjusted EBIT.

Table 4: Calculation of Adjusted EBITDA* and Adjusted EBIT* EURm

 
                                                         2018      2017 
                                                         EURm      EURm 
 Profit for the year                                   140.1   115.2 
 Income tax expense                                     77.0    42.8 
                                                      ------   ----- 
 Profit before tax                                     217.1   158.0 
 Net finance expense                                    64.5   115.3 
 Share of profit of associates                          (0.5)   (0.3) 
                                                      ------   ----- 
 Operating profit                                      281.1   273.0 
 Depreciation and impairment of PP&E                   101.5    98.8 
 Amortisation and impairment of intangible assets       95.6    96.1 
 Share of profit of associates                           0.5     0.3 
                                                      ------   ----- 
 EBITDA                                                478.7   468.2 
 Exceptional items - administrative expenses               -    40.2 
 Net foreign exchange gains                             (1.2)  (24.6) 
 Bain management fee                                       -     3.9 
 Dividend received from associates                       0.2     0.4 
 Restructuring costs                                     7.1     2.9 
 Share of profit of associates                          (0.5)   (0.3) 
                                                      ------   ----- 
 Adjusted EBITDA                                       484.3   490.7 
 Less: 
 Depreciation and impairment of PP&E                  (101.5)  (98.8) 
 Amortisation and impairment of intangible assets      (95.6)  (96.1) 
 Add back: 
 Depreciation uplift arising on purchase accounting     15.7    15.5 
 Amortisation uplift arising on purchase accounting     70.6    72.2 
                                                      ------   ----- 
 Adjusted EBIT                                         373.5   383.5 
                                                      ======   ===== 
 

* See Non - IFRS measures

Our Adjusted EBITDA and Adjusted EBIT margins for the year were broadly consistent with the prior year.

However, while we continued to see increases in raw material costs such as steel and resin, we were able to successfully offset these with customer pricing and operational efficiencies. The Group was also slightly impacted by the recent US tariffs on steel.

Adjusted EBIT was EUR374 million and Adjusted EBIT margin was 10.8%, in line with the Group's expectations.

By division, FCS Adjusted EBIT was EUR241 million with Adjusted EBIT margin of 11.9%. FCS continues to achieve strong margins. The slight year over year decline in margin reflected the impact of ramp ups and launch activity in our North America region which was partially offset by operational efficiencies.

FTDS Adjusted EBIT increased by EUR20 million to EUR133 million with Adjusted EBIT margin of 9.2%. The increase in margin reflects the benefit of higher volumes, mix and strong operational performance.

Profit for the year grew by EUR25 million to EUR140 million. The principal drivers for the increase were EUR33 million lower finance expense due to lower post IPO leverage and reduced interest rates, lower net exceptional items of EUR29 million, partially offset by lower net foreign exchange gains of EUR23 million.

Exceptional Items

Exceptional items are defined as those items that, by virtue of their nature, size and expected frequency, warrant separate additional disclosure in the financial information in order to fully understand the underlying performance of the Group.

In 2018 we incurred exceptional finance costs of EUR11.8 million associated with the repayment of the unsecured senior notes and additional term loan debt in July 2018.

During 2017, the majority of exceptional costs were in relation to the IPO. Exceptional administrative costs in 2017 included net IPO costs of EUR25.7 million, share based payment costs prior to the IPO of EUR11.1 million and restructuring costs of EUR3.4 million related to the exit of our operations in Australia.

In 2017 we also incurred exceptional finance costs of EUR17.7 million associated with the repayment premium related to the unsecured senior notes and an EUR8.7 million non--cash charge associated with previously capitalised debt issuance fees in connection with the debt principal amounts paid down with a portion of the IPO proceeds.

As a result of the US Tax Cuts and Jobs Act of 2017, we recognised an exceptional deferred tax asset of EUR25.4 million in 2017.

Table 5: Exchange Rates

Table 5 shows the movement in exchange rates for currencies most relevant to our operations:

 
 Key euro exchange       2018      2017                   2018       2017 
  rates               Average   Average    % Change   Year-end   Year-end    % Change 
-------------------  --------  --------  ----------  ---------  ---------  ---------- 
 US dollar              1.181     1.129    4.6%          1.147      1.201    (4.5)% 
-------------------  --------  --------  -----       ---------  ---------  ------ 
 Chinese renminbi       7.805     7.631    2.3%          7.890      7.815     1.0% 
-------------------  --------  --------  -----       ---------  ---------  ------ 
 South Korean won       1,299     1,276    1.8%          1,278      1,282    (0.3)% 
-------------------  --------  --------  -----       ---------  ---------  ------ 
 

Net Foreign Exchange Gains

Net foreign exchange gains were EUR1.2 million in 2018 compared to EUR24.6 million in 2017. Foreign exchange gains include non-trade items related to foreign currency translation and fair value movement in foreign exchange forward contracts. We aim to naturally hedge our operational transactions by earning revenues and incurring costs in the same currency to the extent possible, but will engage in forward foreign exchange contracts to the extent necessary to mitigate our exposure.

Net Finance Expense

Net finance expense for the year was EUR64.5 million, a decrease of EUR50.8 million, or 44.1% compared with 2017. The reduction was largely due to lower exceptional financing charges, the full year impact of the reduced post-IPO leverage as well as the interest savings following the repayment of the 8.75% unsecured senior notes in July 2018.

Taxation

Income tax expense before exceptional items was EUR77.0 million, an increase of EUR8.8 million from the prior year.

Accordingly, the 2018 Adjusted Effective Tax Rate increased to 32.2% (2017: 28.8%). The 2017 Adjusted Effective Tax Rate benefited from a credit on the unwind of a deferred tax liability relating to withholding tax in China. Absent this tax benefit, the Adjusted Effective Tax Rate remained largely consistent.

The rate was calculated by adjusting for the impact of UK losses, the prior year tax adjustments and for the year 2017 only, the impact of the US Tax Cuts and Jobs Act 2017.

Proforma Adjusted Basic EPS*

Adjusted Basic Earnings per Share ("EPS") calculation has been presented on a proforma basis, based on Adjusted Net Income and the 519.9 shares in issue at 31 December 2018, as opposed to the statutory measure, which is based on an average including the pre-IPO period. Therefore, the proforma basis is a more relevant metric for shareholders of the Group.

Accordingly, the Proforma Adjusted Basic EPS for 2018 was 29.85 euro cents per share, 14.0% higher than the 26.18 euro cents in 2017.

*See Non-IFRS measures

Adjusted Net Income*

The calculation of Adjusted Net Income is shown in table 6a.

Table 6a: Adjusted Net Income* EURm

 
                                                  2018      2017 
 Adjusted EBITDA (see table 4)                  484.3   490.7 
 Less: 
   Net finance expense before exceptional 
    items                                       (52.7)  (88.9) 
   Income tax expense before exceptional 
    items                                       (77.0)  (68.2) 
   Depreciation and impairment of PP&E         (101.5)  (98.8) 
   Amortisation and impairment of intangible 
    assets                                      (95.6)  (96.1) 
   Non-controlling interests share of 
    profit                                       (2.3)   (2.7) 
                                               ------   ----- 
 Adjusted Net Income                            155.2   136.0 
                                               ======   ===== 
 

*See Non-IFRS measures

Table 6b: Reconciliation of Profit for the Year to Adjusted Net Income* EURm

 
                                          2018      2017 
 Profit for the year                    140.1   115.2 
 Less: 
 Non-controlling interests share of 
  profit                                 (2.3)   (2.7) 
 Net foreign exchange gains              (1.2)  (24.6) 
 Add back: 
 Exceptional items - administration 
  expenses                                  -    40.2 
 Exceptional items - finance expenses    11.8    26.4 
 Exceptional items - tax credit             -   (25.4) 
 Other reconciling items**                6.8     6.9 
                                        -----   ----- 
 Adjusted Net Income                    155.2   136.0 
                                        =====   ===== 
 

** Other reconciling items include non-exceptional restructuring charges, the Bain management charge (in 2017) and adjustments for associate income.

Adjusted Net Income was EUR155.2 million in 2018, an increase of 14.1% from EUR136.0 million in 2017, driven by higher profit for the year. In 2017, EUR24.6 million of foreign exchange gains as well as exceptional administration and finance charges of EUR40.2 million and EUR26.4 million, respectively, were incurred relating to the IPO and subsequent debt repayment. These have been adjusted for as reflected in Table 6b.

Dividend

The Board's dividend policy is to target an annual dividend of approximately 30% of Adjusted Net Income, one third payable following half year results and two thirds following the Group's final results.

Consequently, the Board is recommending a final dividend of 5.94 euro cents per share, amounting to EUR30.9 million. This final dividend together with the interim dividend of 3.02 euro cents per share paid in August 2018, makes a total dividend for the 2018 financial year of 8.96 euro cents per share, and amounts to EUR46.6 million. Subject to shareholder approval at the Annual General Meeting on 16 May 2019, the final dividend will be paid on 31 May 2019. The dividend will be converted to Sterling at a fixed rate on 26 April 2019, the Dividend Record Date.

Adjusted Free Cash Flow*

We also use Adjusted Free Cash Flow as an operating measure of our cash flows.

Table 7a: Adjusted Free Cash Flow* EURm

 
                                                            2018       2017 
   Net cash generated from operating activities           297.0    237.4 
   Net cash used by investing activities                 (149.5)  (140.9) 
                                                         ------   ------ 
   Free Cash Flow                                         147.5     96.5 
   Add back: IPO costs (included in net cash generated 
    from operations)                                        3.1     22.1 
   Deduct: 
     Cash received on settlement of derivatives            (2.7)       - 
     Amounts received in cash from Financial Assets 
      at FVTPL (included in net cash generated from 
      operations)                                          (1.7)       - 
                                                         ------   ------ 
   Adjusted Free Cash Flow                                146.2    118.6 
                                                         ======   ====== 
 

Table 7b: Reconciliation of Adjusted EBITDA to Adjusted Free Cash Flow* EURm

 
                                                      2018       2017 
 Adjusted EBITDA (see note 3)                       484.3    490.7 
 Less: 
   Net cash interest paid                           (62.5)   (87.7) 
   Cash taxes paid                                  (88.2)   (88.9) 
   Payment for property, plant and equipment       (115.8)  (118.8) 
   Payment for intangible assets                    (35.8)   (25.1) 
   Movement in working capital                      (27.5)   (26.2) 
   Movement in retirement benefit obligations        (5.2)   (13.4) 
   Exceptional cash paid (IPO and restructuring)     (3.1)   (25.9) 
   Movement in provisions and other                   1.3     (8.2) 
                                                   ------   ------ 
 Free Cash Flow                                     147.5     96.5 
 Add back: 
   Cash received on settlement of derivatives        (2.7)       - 
   IPO cash costs in Net Cash from Operations         3.1     22.1 
   Amounts received in cash from Assets at FVTPL     (1.7)       - 
                                                   ------   ------ 
 Adjusted Free Cash Flow                            146.2    118.6 
                                                   ======   ====== 
 

*See Non-IFRS measures

In 2018, we generated Adjusted Free Cash Flow of EUR146.2 million, an increase of EUR27.6 million on the prior year. The cash flow was higher than the Group's expectations. Adjusted Free Cash Flow significantly increased as a result of operations remaining strongly cash generative, lower interest payments, reduced IPO related exceptional payments and a reduction in retirement benefit obligations and provisions as well as the timing of some customer payments.

Retirement Benefits

We operate funded and unfunded defined benefit schemes across multiple jurisdictions with the largest being the US pension and retiree healthcare schemes. We also have significant schemes in the UK, Canada and Germany. While all of our significant plans are closed to new entrants, a few allow for future accruals. Our schemes are subject to periodic actuarial valuations. Our net unfunded position decreased by EUR14.2 million to EUR148.2 million at the end of 2018 principally due to an increase in US discount rates.

Net Debt and Net Leverage

Net debt as at 31 December 2018 was EUR822.4 million, a reduction of EUR68.7 million from 31 December 2017. The Group repaid its 8.75% unsecured senior notes in July 2018 as outlined below. The net leverage ratio was 1.7 times Adjusted EBITDA at the end of 2018, (2017: 1.8 times).

In July 2018, the Group successfully refinanced its borrowing facilities by obtaining additional loans of EUR115.0 million Euros and $41.0 million (EUR35.0 million) USD. With these incremental term loans as well as cash generated from operations we repaid all amounts under the Group's former 8.75% unsecured senior facilities that amounted to $220.5 million (EUR188.4 million). The additional term loans have the same rate of interest as the existing term loan and are subject to the same maturity on 30 June 2022. The annualised interest saving is estimated at EUR10 million.

In addition, the Group was able to successfully extend the maturities of the revolving credit facility and asset backed loan by 3 years to 30 June 2023.

In March 2019, the Group paid down a further $56.5 million (EUR50.0 million) against its USD term loan.

Liquidity

Our principal sources of liquidity have historically been cash generated from operating activities and amounts available under our credit facilities, that currently consist of a revolving facility under our cash flow credit agreement of $125 million (EUR109.0 million) and an asset backed loan ("ABL") facility of $100 million (EUR87.2 million). The availability under both facilities as of 31 December 2018 was EUR184.6 million.

Outlook

For 2019, we expect revenue growth in excess of global light vehicle production volume levels excluding the impact of currency movements. We expect consistent Adjusted EBIT margin with the prior year and Adjusted Free Cash Flow similar to or slightly lower than the prior year. We plan to reduce net leverage through strong cash flow generation and to maintain a consistent dividend policy.

IFRS 16 "Leases"

For the financial year 2019, a new accounting standard IFRS 16 "Leases" comes into effect.

Under IFRS 16, the concept of operating leases will be eliminated and these leases will be accounted for in the same manner as finance leases. Finance leases are capitalised on the balance sheet. Accordingly, operating lease costs are expected to decrease whereas depreciation and interest expenses related to the lease liability are expected to increase. The preliminary impact of IFRS 16 is expected to improve Adjusted EBITDA, slightly improve Adjusted EBIT and increase net debt. In addition, the net impact on cash is expected to be nil as lease payments will be unchanged. The Group expects to recognise lease liabilities of between EUR134 million and EUR174 million on 1 January 2019.

Non-IFRS Measures

In addition to the results reported under IFRS, we use certain non-IFRS financial measures to monitor and measure performance of our business and operations and the profitability of our divisions. In particular, we use Adjusted EBIT, Adjusted EBITDA, Adjusted Net Income, Adjusted Basic EPS, Adjusted Free Cash Flow and Adjusted Effective Tax Rate. These non-IFRS measures are not recognised measurements of financial performance or liquidity under IFRS, and should be viewed as supplemental and not replacements or substitutes for any IFRS measures. Such measures are also utilised by the Board of Directors as targets in determining compensation of certain executives and key members of management.

Adjusted EBITDA is defined as profit for the year adjusted for income tax expense, net finance expense, depreciation, amortisation and impairment of PP&E and intangible assets, net foreign exchange gains/ losses and other reconciling items. Other reconciling items includes adjustments for restructuring costs, the Bain management fee and adjustment for associate income.

Adjusted EBIT is defined as Adjusted EBITDA less depreciation (including PP&E impairment) and amortisation (including intangible impairment) arising on tangible and intangible assets before adjusting for any purchase price adjustments to fair values arising on acquisitions.

Adjusted Net Income is defined as Adjusted EBITDA less net finance expense before exceptional items, income tax expense before exceptional items, depreciation and amortisation (including PP&E and intangible asset impairments) and non-controlling interests share of profit.

Adjusted Basic EPS is defined as Adjusted Net Income divided by the number of shares in issue at the current balance sheet date.

Adjusted Free Cash Flow is defined as cash generated from operating activities, less cash used by investing activities, adjusted for acquisitions, movements in financial assets at fair value through the profit or loss, cash payments related to IPO costs and cash received on settlement of derivatives.

Adjusted Income Tax before Exceptional items is defined as Income tax before Exceptional Items adjusted for the tax impact of prior year tax provisions and adjustments.

Adjusted Profit before Income Tax is defined as profit before income tax adjusted for UK losses.

Adjusted Effective Tax Rate is defined as Adjusted Income Tax before Exceptional Items as a percentage of Adjusted Profit before Income Tax.

Consolidated Income Statement

For the year ended 31 December

 
                                                                2018         2017 
 Continuing operations                              Notes       EURm         EURm 
--------------------------------------------------                    ----------- 
 Revenue                                              3     3,472.8    3,490.9 
-------------------------------------------------- 
 Cost of sales                                             (2,938.2)  (2,928.5) 
--------------------------------------------------  -----  --------   -------- 
 Gross profit                                                 534.6      562.4 
--------------------------------------------------  -----  --------   -------- 
 Distribution costs                                          (102.4)    (103.7) 
-------------------------------------------------- 
 Administrative expenses before exceptional items            (164.5)    (177.8) 
-------------------------------------------------- 
     Exceptional items                                5           -      (40.2) 
--------------------------------------------------         --------   -------- 
 Administrative expenses after exceptional items             (164.5)    (218.0) 
--------------------------------------------------         --------   -------- 
 Other income                                                  12.2        7.7 
-------------------------------------------------- 
 Net foreign exchange gains                                     1.2       24.6 
--------------------------------------------------  -----  --------   -------- 
 Operating profit                                             281.1      273.0 
--------------------------------------------------  -----  --------   -------- 
 Finance income                                       6        14.3       11.2 
-------------------------------------------------- 
 Finance expense before exceptional items             6       (67.0)    (100.1) 
-------------------------------------------------- 
     Exceptional items                                5       (11.8)     (26.4) 
--------------------------------------------------         --------   -------- 
 Finance expense after exceptional items              6       (78.8)    (126.5) 
--------------------------------------------------         --------   -------- 
 Net finance expense after exceptional items          6       (64.5)    (115.3) 
-------------------------------------------------- 
 Share of profit of associates                                  0.5        0.3 
--------------------------------------------------  -----  --------   -------- 
 Profit before income tax                                     217.1      158.0 
--------------------------------------------------  -----  --------   -------- 
 Income tax expense before exceptional items          7       (77.0)     (68.2) 
-------------------------------------------------- 
     Exceptional items                                5           -       25.4 
--------------------------------------------------  -----  --------   -------- 
 Income tax expense after exceptional items           7       (77.0)     (42.8) 
--------------------------------------------------  -----  --------   -------- 
 Profit for the year                                          140.1      115.2 
--------------------------------------------------  -----  --------   -------- 
 Profit for the year attributable to: 
-------------------------------------------------- 
 Owners of the Parent Company                                 137.8      112.5 
-------------------------------------------------- 
 Non-controlling interests                                      2.3        2.7 
--------------------------------------------------  -----  --------   -------- 
                                                              140.1      115.2 
--------------------------------------------------  -----  --------   -------- 
 Total earnings per share (euro cents) 
--------------------------------------------------  -----  ---------  ----------- 
 Basic                                                        26.53      29.55 
 Diluted                                                      26.44      29.52 
--------------------------------------------------  -----  --------   -------- 
 

Consolidated Statement of Comprehensive Income

For the year ended 31 December

 
                                                                   2018      2017 
                                                          Notes    EURm      EURm 
--------------------------------------------------------  -----  ------  -------- 
 Profit for the year                                             140.1   115.2 
-------------------------------------------------------- 
 Other comprehensive income/(expense) 
-------------------------------------------------------- 
 Items that will not be reclassified to profit 
  or loss 
-------------------------------------------------------- 
 - Re-measurements of retirement benefit obligations              16.9     7.3 
-------------------------------------------------------- 
 - Income tax (expense)/credit on retirement 
  benefit obligations before exceptional items              7     (4.3)    0.1 
-------------------------------------------------------- 
     Exceptional items                                      7        -   (15.0) 
--------------------------------------------------------         -----   ----- 
 - Income tax expense on retirement benefit obligations 
  after exceptional items                                         (4.3)  (14.9) 
--------------------------------------------------------  -----  -----   ----- 
                                                                  12.6    (7.6) 
--------------------------------------------------------  -----  -----   ----- 
 Items that may be subsequently reclassified 
  to profit or loss 
 - Currency translation                                           11.8   (75.2) 
 
 - Cash flow hedges                                               (0.3)   12.1 
 
 - Net investment hedges                                          (7.2)   (3.2) 
--------------------------------------------------------  -----  -----   ----- 
                                                                   4.3   (66.3) 
--------------------------------------------------------  -----  -----   ----- 
 Other comprehensive income/(expense) for the 
  year, net of tax                                                16.9   (73.9) 
--------------------------------------------------------  -----  -----   ----- 
 Total comprehensive income for the year                         157.0    41.3 
--------------------------------------------------------  -----  -----   ----- 
 Attributable to: 
 - Owners of the Parent Company                                  154.6    38.9 
 
 - Non-controlling interests                                       2.4     2.4 
--------------------------------------------------------  -----  -----   ----- 
 Total comprehensive income for the year                         157.0    41.3 
--------------------------------------------------------  -----  -----   ----- 
 

Consolidated Balance Sheet

At 31 December

 
                                                            2018        2017 
                                                 Notes      EURm        EURm 
-----------------------------------------------  -----  --------  ---------- 
 Non-current assets 
----------------------------------------------- 
 Intangible assets                                      1,229.8   1,273.9 
----------------------------------------------- 
 Property, plant and equipment                            706.5     686.8 
----------------------------------------------- 
 Investments in associates                                 19.6      19.2 
----------------------------------------------- 
 Derivative financial instruments                           5.4       8.3 
----------------------------------------------- 
 Deferred income tax assets                        7       34.9      51.0 
----------------------------------------------- 
 Trade and other receivables                               14.8      13.4 
-----------------------------------------------  -----  -------   ------- 
                                                        2,011.0   2,052.6 
-----------------------------------------------  -----  -------   ------- 
 Current assets 
 Inventories                                              352.8     329.3 
 Trade and other receivables                              578.3     588.3 
 Current income tax assets                                  4.4       8.2 
 Derivative financial instruments                           8.5       5.3 
 Financial assets at fair value through profit 
  and loss                                                  1.2       2.9 
 Cash and cash equivalents                                360.1     287.2 
-----------------------------------------------  -----  -------   ------- 
                                                        1,305.3   1,221.2 
-----------------------------------------------  -----  -------   ------- 
 Total assets                                           3,316.3   3,273.8 
-----------------------------------------------  -----  -------   ------- 
 Equity 
 Share capital                                              6.8       6.8 
 Share premium                                              1.4     404.3 
 Other reserves                                          (126.3)   (130.5) 
 Accumulated profits                                    1,175.7     640.9 
-----------------------------------------------  -----  -------   ------- 
 Equity attributable to owners of the Parent 
  Company                                               1,057.6     921.5 
-----------------------------------------------  -----  -------   ------- 
 Non-controlling interests                                 22.5      20.3 
-----------------------------------------------  -----  -------   ------- 
 Total equity                                           1,080.1     941.8 
-----------------------------------------------  -----  -------   ------- 
 Non-current liabilities 
 Trade and other payables                                  17.1      17.6 
 Borrowings                                        9    1,179.3   1,178.2 
 Derivative financial instruments                          45.3      72.4 
 Deferred income tax liabilities                   7      141.6     159.8 
 Retirement benefit obligations                           148.2     162.4 
 Provisions                                                 4.9       5.5 
-----------------------------------------------  -----  -------   ------- 
                                                        1,536.4   1,595.9 
-----------------------------------------------  -----  -------   ------- 
 Current liabilities 
 Trade and other payables                                 608.4     637.6 
 Current income tax liabilities                            60.2      69.6 
 Borrowings                                        9        4.4       3.0 
 Derivative financial instruments                           2.8       3.4 
 Provisions                                                24.0      22.5 
-----------------------------------------------  -----  -------   ------- 
                                                          699.8     736.1 
-----------------------------------------------  -----  -------   ------- 
 Total liabilities                                      2,236.2   2,332.0 
-----------------------------------------------  -----  -------   ------- 
 Total equity and liabilities                           3,316.3   3,273.8 
-----------------------------------------------  -----  -------   ------- 
 

Consolidated Statement of Changes in Equity

 
                         Ordinary     Share      Other  Accumulated              Non-controlling       Total 
                           shares   premium   reserves      profits     Total          interests      equity 
                             EURm      EURm       EURm         EURm      EURm               EURm        EURm 
-----------------------  --------  --------  ---------  -----------  --------  -----------------  ---------- 
 Balance at 1 January 
  2018                        6.8    404.3     (130.5)       640.9     921.5           20.3         941.8 
 Profit for the year            -        -          -        137.8     137.8            2.3         140.1 
 Other comprehensive 
  income for the year           -        -        4.2         12.6      16.8            0.1          16.9 
-----------------------  --------  -------   --------   ----------   -------   ------------  ---  ------- 
 Total comprehensive 
  income for the year           -        -        4.2        150.4     154.6            2.4         157.0 
-----------------------  --------  -------   --------   ----------   -------   ------------  ---  ------- 
 Share option cost              -        -          -          4.0       4.0              -           4.0 
 Dividends paid                 -        -          -        (22.5)    (22.5)          (0.2)        (22.7) 
 Capital reduction              -   (404.3)         -        404.3         -              -             - 
 Shares issued                  -      1.4          -         (1.4)        -              -             - 
-----------------------  --------  -------   --------   ----------   -------   ------------  ---  ------- 
 Balance at 31 December 
  2018                        6.8      1.4     (126.3)     1,175.7   1,057.6           22.5       1,080.1 
-----------------------  --------  -------   --------   ----------   -------   ------------  ---  ------- 
 
 
                      Ordinary     Share      Other          Accumulated            Non-controlling      Total 
                        shares   premium   reserves     profits/(losses)   Total          interests     equity 
                          EURm      EURm       EURm                 EURm    EURm               EURm       EURm 
--------------------  --------  --------  ---------  -------------------  ------  -----------------  --------- 
 Balance at 1 
  January 
  2017                  493.7          -     (64.5)             36.2      465.4           19.0        484.4 
 Profit for the year         -         -          -            112.5      112.5            2.7        115.2 
 Other comprehensive 
  loss for the year          -         -     (66.0)             (7.6)     (73.6)          (0.3)       (73.9) 
--------------------  --------  --------  --------   ---------------      -----   ------------       ------ 
 Total comprehensive 
  (expense)/income 
  for 
  the year                   -         -     (66.0)            104.9       38.9            2.4         41.3 
--------------------  --------  --------  --------   ---------------      -----   ------------  ---  ------ 
 Share option cost           -         -          -             11.3       11.3                   -    11.3 
 Dividends paid              -         -          -                    -       -          (1.1)        (1.1) 
 Capital reduction     (488.7)         -          -            488.7           -                  -          - 
 Share capital 
  raised 
  on initial public 
  offering                1.6     423.0           -                    -  424.6                   -   424.6 
 Shares issued to 
  Directors 
  and certain 
  employees               0.2       1.0           -             (0.2)       1.0                   -     1.0 
 Share capital 
  issuance 
  costs                      -    (19.7)          -                    -  (19.7)                  -   (19.7) 
--------------------  --------  -------   ---------  -------------------  -----   -----------------  ------ 
 Balance at 31 
  December 
  2017                    6.8     404.3     (130.5)            640.9      921.5           20.3        941.8 
--------------------  -------   -------   --------   ---------------      -----   ------------  ---  ------ 
 

Consolidated Statement of Cash Flows

For the year ended 31 December

 
                                                               2018       2017 
                                                     Notes     EURm       EURm 
---------------------------------------------------  -----  -------  --------- 
 Cash flows from operating activities 
--------------------------------------------------- 
 Cash generated from operations                       10     449.6    415.9 
--------------------------------------------------- 
 Interest paid                                               (64.4)   (89.6) 
--------------------------------------------------- 
 Income tax paid                                             (88.2)   (88.9) 
---------------------------------------------------  -----  ------   ------ 
 Net cash generated from operating activities                297.0    237.4 
---------------------------------------------------  -----  ------   ------ 
 Cash flows from investing activities 
 Payment for property, plant and equipment                  (115.8)  (118.8) 
 Payment for intangible assets                               (35.8)   (25.1) 
 Proceeds from the sale of property, plant and 
  equipment                                                    0.2      1.1 
 Interest received                                             1.9      1.9 
---------------------------------------------------  -----  ------   ------ 
 Net cash used by investing activities                      (149.5)  (140.9) 
---------------------------------------------------  -----  ------   ------ 
 Cash flows from financing activities 
 Proceeds from issue of new share capital                        -    424.6 
 Share capital issuance costs                                    -    (19.7) 
  Proceeds from new borrowings                               150.0        - 
 Fees paid on proceeds from new borrowings                    (2.2)       - 
 Fees paid on repricing of loans                                 -     (1.6) 
 Voluntary repayments of borrowings                         (188.4)  (363.6) 
 Fees paid on voluntary repayments of borrowings              (8.2)   (17.7) 
 Scheduled repayments of borrowings                           (5.4)   (11.1) 
 Dividends paid                                              (22.5)       - 
 Dividends paid to non-controlling interests                  (0.2)    (1.1) 
---------------------------------------------------  -----  ------   ------ 
 Net cash (used by)/generated from financing 
  activities                                                 (76.9)     9.8 
---------------------------------------------------  -----  ------   ------ 
 Increase in cash and cash equivalents                        70.6    106.3 
---------------------------------------------------  -----  ------   ------ 
 Cash and cash equivalents at the beginning of 
  the year                                                   287.2    196.2 
 Currency translation on cash and cash equivalents             2.3    (15.3) 
---------------------------------------------------  -----  ------   ------ 
 Cash and cash equivalents at the end of the 
  year                                                       360.1    287.2 
---------------------------------------------------  -----  ------   ------ 
 

Notes

   1.    General Information 

On 25 October 2017, TI Fluid System plc's shares were listed on the London Stock Exchange following a global offer of 519.4 million ordinary shares of 255p each.

The Group's full financial statements have been approved by the Board of Directors and reported on by the auditors on 19 March 2019. A copy of the statutory accounts for the year ended 31 December 2017 has been delivered to the Registrar of Companies, and those for the year ended 31 December 2018 will be delivered in due course. The independent auditors' report on the full financial statements for the year ended 31 December 2017 was unqualified and did not contain an emphasis of matter paragraph or any statement under section 498 of the Companies Act 2006.

   2.    Basis of Preparation 

The consolidated financial information included within this announcement has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union, the UK Companies Act 2006 applicable to companies reporting under IFRS, and International Financial Reporting Interpretations Committee ("IFRIC") interpretations issued and effective at the time of preparing the financial information. The financial information in this preliminary announcement does not, however comply with all disclosure requirements.

The consolidated financial information has been prepared under the historical cost convention, except for the fair valuation of assets and liabilities of subsidiary companies acquired, and financial assets and liabilities at fair value through profit or loss ("FVTPL") (including derivative instruments not in hedging relationships).

The preparation of the financial information in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management's reasonable knowledge of the amount, event or actions, actual results may differ from those estimates.

IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers' were adopted by the Group for the first time have had no material impact on the Group's financial information for the financial reporting year beginning 1 January 2018.

The Group will apply IFRS 16 'Leases' from its mandatory adoption date of 1 January 2019 in the 2019 consolidated financial statements. The simplified transition approach is expected to be applied. Comparative amounts for the year ended 31 December 2018 will not be restated. All right-of-use assets will be measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses). The Group intends to apply the practical expedient to grandfather the definition of a lease on transition. This means that it will apply IFRS 16 to all contracts entered into before 1 January 2019 and identified as leases, in accordance with IAS 17 and IFRIC 4. Lease liabilities of between EUR 134.0 million and EUR174.0 million on 1 January 2019 and a net nil deferred tax adjustment are expected to be recognised.

   3.    Segment Reporting 

In accordance with the provisions of IFRS 8 Operating Segments, the Group's segment reporting is based on the management approach with regard to segment identification; under which information regularly provided to the chief operating decision maker ("CODM") for decision making purposes forms the basis of the disclosure. The Company's CODM is the Chief Executive Officer and the Chief Financial Officer. The CODM evaluates the performance of the Company's segments primarily on the basis of revenue, Adjusted EBITDA, and Adjusted EBIT, both non-IFRS measures.

Two operating segments have been identified by the Company: Fluid Carrying Systems ("FCS") and Fuel Tank and Delivery Systems ("FTDS").

Revenue, Adjusted EBITDA and Adjusted EBIT by Segment:

 
                                       2018         2017 
                                       EURm         EURm 
------------------------------  -----------  ----------- 
 Revenue 
 - FCS - External               2,026.7      2,057.1 
 - FTDS - External              1,446.1      1,433.8 
------------------------------  -------      ------- 
 Total                          3,472.8      3,490.9 
------------------------------  -------      ------- 
 Adjusted EBITDA 
 - FCS                            291.1        319.9 
 - FTDS                           193.2        170.8 
------------------------------  -------      ------- 
 Total                            484.3        490.7 
------------------------------  -------      ------- 
 Adjusted EBITDA % of revenue 
 - FCS                             14.4%        15.5% 
 - FTDS                            13.4%        11.9% 
------------------------------  -------      ------- 
 Total                             13.9%        14.1% 
------------------------------  -------      ------- 
 Adjusted EBIT 
 - FCS                            241.0        271.1 
 - FTDS                           132.5        112.4 
------------------------------  -------      ------- 
 Total                            373.5        383.5 
------------------------------  -------      ------- 
 Adjusted EBIT % of revenue 
 - FCS                             11.9%        13.2% 
 - FTDS                             9.2%         7.8% 
------------------------------  -------      ------- 
 Total                             10.8%        11.0% 
------------------------------  -------      ------- 
 
   4.    Research and development expenditure 

Research and development expenditure before third party income, comprised:

 
                                               2018     2017 
                                               EURm     EURm 
--------------------------------------------  -----  ------- 
 Research and development expenses             40.8   43.0 
 Capitalised development expenses              35.4   33.6 
--------------------------------------------  -----  ----- 
 Total research and development expenditure    76.2   76.6 
--------------------------------------------  -----  ----- 
 
   5.    Exceptional Items 
 
                                                      2018      2017 
                                                      EURm      EURm 
--------------------------------------------------  ------  -------- 
 Share option costs prior to the IPO                    -   (11.1) 
--------------------------------------------------          ----- 
 Restructuring costs                                    -    (3.4) 
--------------------------------------------------          ----- 
 IPO 2016 expenses                                      -     1.5 
--------------------------------------------------          ----- 
 IPO 2017 expenses                                      -   (27.2) 
--------------------------------------------------  -----   ----- 
 Administrative expenses                                -   (40.2) 
--------------------------------------------------  -----   ----- 
 Early redemption premium on voluntary repayments 
  of borrowings                                      (8.2)  (17.7) 
 Unamortised issuance discounts and fees expensed 
  on voluntary repayments of borrowings              (3.6)   (8.7) 
--------------------------------------------------  -----   ----- 
 Finance expense                                    (11.8)  (26.4) 
--------------------------------------------------  -----   ----- 
 Income tax expense                                     -    25.4 
--------------------------------------------------  -----   ----- 
 Total exceptional expense recognised in Income 
  Statement                                         (11.8)  (41.2) 
--------------------------------------------------  -----   ----- 
 Income tax benefit recognised in Statement of 
  Comprehensive Income                                  -   (15.0) 
--------------------------------------------------  -----   ----- 
 Total exceptional expense                          (11.8)  (56.2) 
--------------------------------------------------  -----   ----- 
 

Share option costs incurred prior to the IPO in October 2017 are considered exceptional as they represent compensation arrangements made to incentivise staff in relation to transactions undertaken by the Group and its shareholders.

Restructuring costs of EUR3.4 million in the prior year relate to the exit of operations in Australia.

IPO expenses for the prior year consist of EUR27.2 million in relation to costs incurred during 2017, offset by a EUR1.5 million reversal in the carried forward 2016 accrual. These costs were incurred in preparing the Company for the IPO.

The exceptional net finance expense relates to voluntary repayments of borrowings and comprises an early redemption premium of EUR8.2 million (2017: EUR17.7 million) and the expense of unamortised issuance discounts and fees of EUR3.6 million (2017: EUR8.7 million). See Note 9 for additional details.

As a result of the US Tax Cuts and Jobs Act of 2017, the Group recognised EUR15 million of exceptional deferred tax benefit in the Statement of Comprehensive Income in 2017.

   6.    Finance Income and Expense 
 
                                                                     2018       2017 
                                                                     EURm       EURm 
-----------------------------------------------------------------  ------  --------- 
 Finance income 
 Interest on short-term deposits, other financial assets 
  and other interest income                                          1.9      1.9 
 Fair value gain on derivatives and foreign exchange 
  contracts not in hedged relationships                              9.0      9.3 
 Net interest income on release of specific uncertain 
  tax positions                                                      3.4        - 
-----------------------------------------------------------------  -----   ------ 
 Finance income                                                     14.3     11.2 
-----------------------------------------------------------------  -----   ------ 
 Finance expense 
 Interest payable on term loans including expensed 
  fees                                                             (51.7)   (56.9) 
 Interest payable on unsecured senior notes including 
  expensed fees                                                     (9.3)   (33.3) 
 Net interest expense of retirement benefit obligations             (4.4)    (5.7) 
 Fair value net losses on financial instruments: ineffectiveness    (0.6)    (3.2) 
 Utilisation of discount on provisions and other finance 
  expense                                                           (1.0)    (1.0) 
-----------------------------------------------------------------  -----   ------ 
 Finance expense excluding exceptional items                       (67.0)  (100.1) 
-----------------------------------------------------------------  -----   ------ 
 Early redemption premium on voluntary repayments of 
  borrowings                                                        (8.2)   (17.7) 
 Unamortised issuance discounts and fees expensed on 
  voluntary repayments of borrowings                                (3.6)    (8.7) 
 Exceptional finance expense                                       (11.8)   (26.4) 
-----------------------------------------------------------------  -----   ------ 
 Total finance expense                                             (78.8)  (126.5) 
-----------------------------------------------------------------  -----   ------ 
 Total net finance expense after exceptional items                 (64.5)  (115.3) 
-----------------------------------------------------------------  -----   ------ 
 
 
 Fees included in interest payable under the effective    2018     2017 
  interest method                                         EURm     EURm 
-------------------------------------------------------  -----  ------- 
 Fees included in interest payable on term loans         (6.5)  (7.5) 
 Fees included in interest payable on unsecured senior 
  notes                                                  (0.4)  (1.4) 
-------------------------------------------------------  ----   ---- 
 
 
                                                       2018     2017 
 Fees expensed in exceptional net finance expense      EURm     EURm 
----------------------------------------------------  -----  ------- 
 Fees expensed in respect of term loans                  -   (4.2) 
 Fees expensed in respect of unsecured senior notes   (3.6)  (4.5) 
----------------------------------------------------  ----   ---- 
 
   7.    Income Tax 

Income Tax Expense

 
                                                            2018      2017 
                                                            EURm      EURm 
--------------------------------------------------------  ------  -------- 
 Current tax on profit for the year                       (96.5)  (89.6) 
-------------------------------------------------------- 
 Adjustments in respect of prior years                     14.2    (5.1) 
--------------------------------------------------------  -----   ----- 
 Total current tax expense                                (82.3)  (94.7) 
--------------------------------------------------------  -----   ----- 
 Origination and reversal of temporary deferred tax 
  differences                                               5.3    26.5 
 Exceptional - impact of change in US tax rate                -    25.4 
--------------------------------------------------------  -----   ----- 
 Total deferred tax benefit                                 5.3    51.9 
--------------------------------------------------------  -----   ----- 
 Income tax expense - Income Statement                    (77.0)  (42.8) 
--------------------------------------------------------  -----   ----- 
 Origination and reversal of temporary deferred tax 
  differences                                              (4.3)    0.1 
 Exceptional - impact of change in US tax rate                -   (15.0) 
--------------------------------------------------------  -----   ----- 
 Income tax expense - Statement of Comprehensive Income    (4.3)  (14.9) 
--------------------------------------------------------  -----   ----- 
 Total income tax expense                                 (81.3)  (57.7) 
--------------------------------------------------------  -----   ----- 
 
 
 Previously de-recognised deferred tax assets in the    2018   2017 
  year                                                  EURm   EURm 
-----------------------------------------------------  -----  ----- 
 Income Statement                                          -    4.7 
 Statement of Comprehensive Income                         -    2.0 
-----------------------------------------------------  -----  ----- 
 Previously de-recognised deferred tax assets in the 
  year                                                     -    6.7 
-----------------------------------------------------  -----  ----- 
 

Deferred tax assets originating from tax loss carry forwards mainly relate to Canada and France as at 31 December 2018. Forecasts for Canada and France demonstrate several years of continued future profitability and all have consistent expectations of future financial performance. As a result management believe that the current tax losses will be utilised.

For 2017 only, as a result of the US Tax Cuts and Jobs Act of 2017, the Group recognised EUR25.4 million of exceptional deferred tax benefit in the Income Statement and EUR15.0 million of exceptional deferred tax charge in the Statement of Comprehensive Income to reflect the new U.S. corporate tax rate of 21% and other tax reform changes, offset by a EUR0.6 million one-time transition tax on accumulated foreign earnings.

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the UK statutory tax rate applicable to profits of the consolidated entities as follows:

 
                                                               2018      2017 
                                                               EURm      EURm 
-----------------------------------------------------------  ------  -------- 
 Profit before income tax                                    217.1   158.0 
-----------------------------------------------------------  -----   ----- 
 Income tax calculated at UK statutory tax rate of 19.00% 
  (2017: 19.25%) applicable to profits in respective 
  countries                                                  (41.2)  (30.4) 
 Tax effects of: 
 Overseas tax rates (excluding associates)                   (18.9)  (23.1) 
 Income not subject to tax - other and UK foreign exchange 
  gain                                                        11.3    14.1 
 Expenses not deductible for tax purposes - other and 
  UK non-deductible interest                                 (17.1)  (25.7) 
 Expenses not deductible for tax purposes - transaction 
  costs                                                          -    (9.0) 
 Temporary differences on unremitted earnings                 (3.1)    5.9 
 Specific tax provisions                                      (3.5)   (2.2) 
 Unrecognised deferred tax assets                            (11.2)   (7.5) 
 Other taxes                                                  (9.7)  (11.5) 
 Adjustment in respect of prior years - current tax 
  adjustments                                                 14.2    (5.1) 
 Adjustment in respect of prior years - deferred tax 
  adjustments                                                 (1.0)   16.2 
 Impact of changes in tax rate                                 0.2     2.2 
 Exceptional - impact of change in US tax rate                   -    25.4 
 Double tax relief and other tax credits                       3.0     7.9 
-----------------------------------------------------------  -----   ----- 
 Income tax expense - Income Statement                       (77.0)  (42.8) 
-----------------------------------------------------------  -----   ----- 
 Deferred tax (expense)/credit on re-measurement of 
  retirement benefit obligations                              (4.3)    0.1 
 Exceptional - impact of change in US tax rate                   -   (15.0) 
-----------------------------------------------------------  -----   ----- 
 Income tax expense - Statement of Comprehensive Income       (4.3)  (14.9) 
-----------------------------------------------------------  -----   ----- 
 Total tax expense                                           (81.3)  (57.7) 
-----------------------------------------------------------  -----   ----- 
 

Other taxes comprised various local taxes of EUR2.4 million (2017: EUR4.2 million) including US Transition Tax, together with taxes withheld on dividend, interest and royalty remittances totalling EUR7.3 million (2017: EUR7.3 million).

Factors that may affect future tax charges include the continued non-recognition of deferred tax assets in certain territories as well as the existence of tax losses in certain territories which could be available to offset future taxable income in certain territories and for which no deferred tax asset is currently recognised.

Deferred Tax Assets and Liabilities

 
                                   2018       2017 
                                   EURm       EURm 
------------------------------  -------  --------- 
 Deferred tax assets              34.9     51.0 
 Deferred tax liabilities       (141.6)  (159.8) 
------------------------------  ------   ------ 
 Net deferred tax liabilities   (106.7)  (108.8) 
------------------------------  ------   ------ 
 

Movement on Net Deferred Tax Liabilities

 
                                                              2018       2017 
                                                              EURm       EURm 
---------------------------------------------------------  -------  --------- 
 At 1 January                                              (108.8)  (151.6) 
 Income Statement benefit                                     5.3     26.5 
 Exceptional Income Statement benefit - impact of change 
  in US tax rate                                                -     25.4 
 Tax on remeasurement of retirement benefit obligations      (4.3)     0.1 
 Exceptional tax on remeasurement of retirement benefit 
  obligations - impact of change in US tax rate                 -    (15.0) 
 Currency translation                                         1.1      5.8 
---------------------------------------------------------  ------   ------ 
 At 31 December                                            (106.7)  (108.8) 
---------------------------------------------------------  ------   ------ 
 

Earnings Per Share

Pro forma adjusted Adjusted Basic earnings per share

For the purpose of Pro forma Adjusted Basic EPS for the years ended 31 December 2018 and 31 December 2017, the average number of ordinary shares is stated as if the shares issued in the year occurred at the beginning of the financial year.

Pro forma Adjusted Basic EPS is defined as Adjusted Net Income divided by the number of shares in issue at the current balance sheet date.

 
                                                   2018        2017 
                                                   (pro        (pro 
 EUR (in cents)                                  forma)      forma) 
---------------------------------------------  --------  ---------- 
 Pro forma Adjusted Basic Earnings per Share      29.85     26.18 
---------------------------------------------  --------  -------- 
 
 

Earnings used in pro forma adjusted basic earnings per share

 
                                                     2018        2017 
                                                     (pro        (pro 
 EURm                                              forma)      forma) 
-----------------------------------------------  --------  ---------- 
 Earnings used in Pro forma Adjusted Basic EPS      155.2     136.0 
-----------------------------------------------  --------  -------- 
 
 

Pro forma adjusted basic weighted average number of ordinary shares

 
                                                            2018        2017 
                                                            (pro        (pro 
 Number of shares (in millions)                           forma)      forma) 
------------------------------------------------------  --------  ---------- 
 Pro forma average number of ordinary shares as at 1 
  January                                                  519.9     519.4 
 Pro forma average number of ordinary shares as at 31 
  December                                                 519.9     519.4 
------------------------------------------------------  --------  -------- 
 
   8.    Borrowings 
 
                                                    2018       2017 
                                                    EURm       EURm 
-----------------------------------------------  -------  --------- 
 Non-current: 
 Secured loans: 
     Main borrowing facilities                   1,179.1    996.3 
     Other loans                                     0.2      0.2 
 Unsecured notes                                       -    179.7 
 Finance leases                                        -      2.0 
-----------------------------------------------  -------  ------- 
 Total non-current borrowings                    1,179.3  1,178.2 
-----------------------------------------------  -------  ------- 
 Current: 
 Secured loans: 
     Main borrowing facilities                       2.3      1.5 
     Other loans                                     0.1      0.1 
 Finance leases                                      2.0      1.4 
-----------------------------------------------  -------  ------- 
 Total current borrowings                            4.4      3.0 
-----------------------------------------------  -------  ------- 
 Total borrowings                                1,183.7  1,181.2 
-----------------------------------------------  -------  ------- 
 Main borrowing facilities and unsecured notes   1,181.4  1,177.5 
 Finance leases and other loans                      2.3      3.7 
-----------------------------------------------  -------  ------- 
 Total borrowings                                1,183.7  1,181.2 
-----------------------------------------------  -------  ------- 
 

The main borrowing facilities and unsecured notes are shown net of issuance discounts and fees of EUR23.8 million (2017: EUR31.3 million).

Movement in Total Borrowings

 
                                                                  Main borrowing        Finance 
                                                                      facilities         leases 
                                                      Unsecured    and unsecured      and other           Total 
                                          Term loan       notes            notes          loans      borrowings 
                                               EURm        EURm             EURm           EURm            EURm 
---------------------------------------  ----------  ----------  ---------------  -------------  -------------- 
 At 1 January 2018                           997.8       179.7          1,177.5         3.7          1,181.2 
 Accrued interest                             45.2         8.9             54.1         0.5             54.6 
 Scheduled payments                          (49.2)       (8.9)           (58.1)       (1.9)           (60.0) 
 Fees expensed                                 6.5         0.4              6.9           -              6.9 
 New borrowings                              150.0           -            150.0           -            150.0 
 Fees paid on proceeds from new 
  borrowings                                  (2.2)          -             (2.2)          -             (2.2) 
 Voluntary repayments of borrowings              -      (188.4)          (188.4)          -           (188.4) 
 Fees expensed on voluntary repayments 
  of borrowings                                  -         3.6              3.6           -              3.6 
 Currency translation                         33.3         4.7             38.0           -             38.0 
---------------------------------------  ---------   ---------   --------------   ---------      ----------- 
 At 31 December 2018                       1,181.4           -          1,181.4         2.3          1,183.7 
---------------------------------------  ---------   ---------   --------------   ---------      ----------- 
 
 
                                                               Main borrowing       Finance 
                                                                   facilities        leases 
                                                    Unsecured   and unsecured     and other          Total 
                                         Term loan      notes           notes         loans     borrowings 
                                              EURm       EURm            EURm          EURm           EURm 
---------------------------------------  ---------  ---------  --------------  ------------  ------------- 
 At 1 January 2017                        1,277.8      416.3         1,694.1        4.6         1,698.7 
 Accrued interest                            49.4       31.9            81.3        0.8            82.1 
 Scheduled payments                         (59.6)     (31.9)          (91.5)      (1.7)          (93.2) 
 Fees expensed                                7.5        1.4             8.9              -         8.9 
 Fees on repricing of loans                  (1.6)  -                   (1.6)             -        (1.6) 
 Voluntary repayments of borrowings        (166.5)    (197.1)         (363.6)             -      (363.6) 
 Fees expensed on voluntary repayments 
  of borrowings                               4.2        4.5             8.7              -         8.7 
 Currency translation                      (113.4)     (45.4)         (158.8)             -      (158.8) 
---------------------------------------  --------   --------   -------------   ------------  ---------- 
 At 31 December 2017                        997.8      179.7         1,177.5        3.7         1,181.2 
---------------------------------------  --------   --------   -------------   --------      ---------- 
 

Currency Denomination of Borrowings

 
                       2018       2017 
                       EURm       EURm 
------------------  -------  --------- 
 US dollar            759.9    868.0 
 Euro                 423.8    313.2 
------------------  -------  ------- 
 Total borrowings   1,183.7  1,181.2 
------------------  -------  ------- 
 

Maturity of borrowings

 
                                 2018       2017 
                                 EURm       EURm 
----------------------------  -------  --------- 
 Less than one year               4.4      3.0 
 Between one and five years   1,179.3    998.5 
 After five years                   -    179.7 
----------------------------  -------  ------- 
 Total borrowings             1,183.7  1,181.2 
----------------------------  -------  ------- 
 

2015 agreements

The 2015 agreements comprise a package of secured loans (consisting of a term loan, an asset-backed loan, and a revolving credit facility) and unsecured senior notes.

The amounts outstanding under the agreements are:

 
                                                     2018        2017 
                                                     EURm        EURm 
-----------------------------------------------  --------  ---------- 
 Principal outstanding: 
 US term loan                                      776.4     707.5 
 Euro term loan                                    428.8     317.7 
-----------------------------------------------  -------   ------- 
 Main borrowing facilities (term loan)           1,205.2   1,025.2 
-----------------------------------------------  -------   ------- 
 Unsecured senior notes                                -     183.6 
-----------------------------------------------  -------   ------- 
 Total principal outstanding                     1,205.2   1,208.8 
-----------------------------------------------  -------   ------- 
 Issuance discounts and fees                       (23.8)    (31.3) 
-----------------------------------------------  -------   ------- 
 Main borrowing facilities and unsecured notes   1,181.4   1,177.5 
-----------------------------------------------  -------   ------- 
 

The term loan initially comprised tranches of $1,065.0 million and EUR325.0 million. On 31 October 2017, the Group voluntarily repaid $194.0 million (EUR166.5 million) of its US term loan. No penalties were incurred as a result of the early payment. On 16 July 2018, the Group successfully executed a repayment and modification of its external borrowings. The balance of 8.75% unsecured senior notes of $220.5 million (EUR188.4 million) was repaid using a combination of EUR115.0 million of additional borrowing under the euro term loan, $41.0 million (EUR35.0 million) of additional borrowing under the US term loan and EUR38.4 million of existing cash. Interest rates and maturity dates of the Euro and US term loans remained unchanged.

The principal outstanding of the US term loan in US dollars at 31 December 2018 was $890.7 million (2017: $849.7 million).

The interest payable on the US dollar term loan was US$ LIBOR (minimum 0.75% p.a.) +2.75% p.a., and the interest payable on the euro term loan was EURIBOR (minimum 0.75% p.a.) +3.0% p.a until 23 January 2018. On 23 January 2018, the Group met certain borrowings criteria which enabled it to reduce the interest rate payable on the US term loan by 0.25% p.a. to US$ LIBOR (minimum 0.75% p.a.) +2.5% p.a., and the euro term loan by 0.25% p.a. to EURIBOR (minimum 0.75% p.a.) +2.75% p.a., both effective from 30 December 2017.

The US dollar tranche was repayable in amounts of $2.7 million per quarter until 31 October 2017. On 31 October 2017, the Group made a voluntary repayment of this loan of $194.0 million as a result of which no further capital payments are due on the US dollar tranche until the balance falls due on 30 June 2022. The euro tranche was repayable in amounts of EUR0.8 million per quarter in the prior year and for the first six months of 2018. Following the modification of the Groups' borrowings on 16 July 2018, the euro tranche was increased and is now repayable in amounts of EUR1.1 million per quarter, with the balance also falling due on 30 June 2022.

On 6 October 2015 the Group entered into hedging transactions with a number of financial institutions which effectively converted borrowings of $400.0 million at floating interest rates into EUR355.0 million at a fixed interest rate of 4.2%, thereby reducing foreign currency exposure for future cash flows and locking in lower long-term Euro fixed interest rates.

Initial issuance discounts and fees of EUR63.3 million arising from the 2015 agreements were capitalised in 2015. Following the repricing of the term loans on 27 January 2017, new fees capitalised in 2017 were EUR1.6 million; bringing the total fees capitalised under the 2015 agreements to EUR64.9 million at 31 December, 2017. Following the Group's repayment and modification of its external borrowings on 16 July 2018 as described above, a further EUR2.2 million of directly attributable incremental fees were capitalised bringing the total fees capitalised to EUR67.1 million. All capitalised fees are expensed using the effective interest rate method over the remaining terms of the facilities. As a result of the Group's voluntary repayment of its unsecured senior notes in July 2018, unamortised transaction costs of $4.2 million (EUR3.6 million) were released and recognised as exceptional finance expenses in the year.

The asset-backed loan ("ABL") provides up to $100.0 million depending upon the level of inventories and trade receivables in the Group's US and Canadian businesses. The facility is also available to be used to issue letters of credit on behalf of TI Group Automotive Systems LLC, a subsidiary undertaking. Drawings under the facility bear interest at US$ LIBOR +1.50% p.a. unless the drawings are below $50.0 million when the rate is US$ LIBOR +1.25% p.a. The revolving credit agreement provides a facility of up to $125.0 million. Drawings under this facility bear interest in a range of US$ LIBOR +3.0% to US$ LIBOR + 3.5% p.a. depending on the Group's leverage ratios. Following the July 2018 refinancing, both facilities are now due to expire on 23 July 2023.

The net undrawn facilities under the agreements are shown below:

 
                                                2018             2017 
                                               $m    EURm      $m      EURm 
 Asset-backed loan: 
     Availability                           89.7    78.2    86.5    72.0 
     Utilisation for letters of credit      (3.0)   (2.6)   (3.1)   (2.6) 
 Net undrawn asset-backed loan facility     86.7    75.6    83.4    69.4 
 Revolving credit agreement                125.0   109.0   125.0   104.1 
-----------------------------------------  -----   -----   -----   ----- 
 Main borrowings: net undrawn facilities   211.7   184.6   208.4   173.5 
-----------------------------------------  -----   -----   -----   ----- 
 

Other Secured Loans

Subsidiaries in Italy and Spain have granted security over certain of their assets in return for credit facilities from their banks. The loans have total amortisation repayments of EUR0.1 million per annum payable quarterly (2017: EUR0.2 million). The loan in Italy was fully repaid during the year.

Total Undrawn Borrowing Facilities

 
                                      2018     2017 
                                      EURm     EURm 
-----------------------------------  -----  ------- 
 Floating rate: 
 Expiring within one year              6.0    5.8 
 Expiring after more than one year   184.6  173.5 
-----------------------------------  -----  ----- 
                                     190.6  179.3 
-----------------------------------  -----  ----- 
 Fixed rate: 
 Expiring within one year              3.9    3.9 
-----------------------------------  -----  ----- 
                                       3.9    3.9 
-----------------------------------  -----  ----- 
 Total at the end of the year        194.5  183.2 
-----------------------------------  -----  ----- 
 

Movements in Net Borrowings

 
                                                                      Non-cash changes 
---------------------------  -----------   ---------   -------------------------------  -------- 
                                                                                              At 31 
                             At 1 January                                     Currency     December 
                                     2018  Cash flows    Fees expensed     translation         2018 
                                     EURm        EURm             EURm            EURm         EURm 
---------------------------  ------------  ----------  ---------------                  ----------- 
 Cash and cash equivalents         287.2        70.6             -             2.3         360.1 
 Financial assets at FVTPL           2.9        (1.7)            -               -           1.2 
 Borrowings                     (1,181.2)       46.0         (10.5)          (38.0)     (1,183.7) 
---------------------------  -----------   ---------   -----------      ----------      -------- 
 Total net borrowings             (891.1)      114.9         (10.5)          (35.7)       (822.4) 
---------------------------  -----------   ---------   -----------      ----------      -------- 
 
 
                                                                      Non-cash changes 
---------------------------  -----------   ----------  -------------------------------  ------------- 
                             At 1 January                                     Currency    At 31 December 
                                     2017  Cash flows    Fees expensed     translation              2017 
                                     EURm        EURm             EURm            EURm              EURm 
---------------------------  ------------  ----------                                   ---------------- 
 Cash and cash equivalents         196.2        106.3                -       (15.3)             287.2 
 Financial assets at FVTPL           2.9    -                        -   -                        2.9 
 Borrowings                     (1,698.7)       376.3        (17.6)          158.8           (1,181.2) 
---------------------------  -----------   ----------  -----------      ----------      ------------- 
 Total net borrowings           (1,499.6)       482.6        (17.6)          143.5             (891.1) 
---------------------------  -----------   ----------  -----------      ----------      ------------- 
 
   9.    Cash Generated from Operations 
 
                                                       2018      2017 
                                                       EURm      EURm 
---------------------------------------------------  ------  -------- 
 Profit for the year                                 140.1   115.2 
 Income tax expense before exceptional items          77.0    68.2 
 Exceptional income tax benefit                          -   (25.4) 
---------------------------------------------------  -----   ----- 
 Profit before income tax                            217.1   158.0 
---------------------------------------------------  -----   ----- 
 Adjustments for: 
 Depreciation, amortisation and impairment charges   197.1   194.9 
 Losses/(gains) on disposal of PP&E and intangible 
  assets                                               0.6    (0.2) 
 Share option cost                                     4.0    11.3 
 Shares issued to Directors and certain employees        -     1.0 
 Net finance expense after exceptional items          64.5   115.3 
 Unremitted share of profit from associates           (0.3)    0.1 
 Net foreign exchange gains                           (1.2)  (24.6) 
 Changes in working capital: 
     Inventories                                     (21.7)  (51.4) 
     Trade and other receivables                      17.4   (20.2) 
     Trade and other payables                        (23.2)   45.3 
 Change in provisions                                  0.5    (0.2) 
 Change in retirement benefit obligations             (5.2)  (13.4) 
---------------------------------------------------  -----   ----- 
 Total                                               449.6   415.9 
---------------------------------------------------  -----   ----- 
 

10. Events After the Balance Sheet Date

In March 2019, the Group paid down $56.5 million (EUR50.0 million) against its US dollar term loan.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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March 20, 2019 03:00 ET (07:00 GMT)

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