9 August 2021

TI Fluid Systems plc

Results for the six months ended 30 June 2021

TI Fluid Systems plc (TIFS), a leading global manufacturer of automotive fluid storage, carrying and delivery systems and thermal management products and systems for light vehicles announces its results for the six-month period ended 30 June 2021.

*Management basis metrics are Non - IFRS measures as defined on pages 19 to 20

** No equivalent GAAP measure - see table 8a for reconciliation to statutory cash flow items

Group Highlights:           

•             Successfully demonstrating the Group's continued resilient performance within the ongoing light vehicle production recovery and volatile production schedules impacted by supply chain disruption:

•         Revenue of €1,522.5 million outperformed global light vehicle production by 3.5% at constant currency and grew 28.7% at actual exchange rates

•         Robust Adjusted EBIT margin of 8.4%; Operating Profit is returning to normalised levels due to recovering revenues and the non-repeat of the prior period exceptional impairment charge

•         Significant Adjusted Free Cash Flow generation of €46.3 million and net cash generated from operating activities of €98.8 million

•         Strong balance sheet and liquidity with cash position of €469.4 million at 30 June 2021

•         Issue of €600.0 million Bond repayable in 2029, with the proceeds used to reduce the term loan facilities. Term loans extended from 2024 to 2026

•         The fixed cost reduction programme which commenced last year continues to be executed

•         Continued execution of our organic growth strategy and strategic focus on battery electric vehicles ("BEVs") and hybrid electric vehicles ("HEVs")

•         Approximately 50% of first half 2021 total new business wins were on HEV and BEV platforms

•         The Group estimates to have its product content on more than half of 94 key BEVs recently identified to come to market in Europe and North America between 2020 and 2028. Approximately 40% of these BEVs also have TIFS thermal product content*

•         Awarded a high volume pressure resistant fuel tank programme with a Japanese supplier in Asia Pacific

•         Successfully launching HEV and BEV vehicle programmes with European, North American and Asian OEMS across all major light vehicle production regions

*Company estimates / JP Morgan Europe Equity Research: JP Morgan Electric Cars - The EV Revolution is underway 6 April 2021

•         2021 interim dividend of 1.93 euro cents per share, which could represent a full year pay-out in line with our 30% of Adjusted Net Income dividend policy (and dividend cover of 4.5x Adjusted Basic EPS)

•         As discussed in our 2020 Annual Report, we have begun a variety of initiatives to progress and better communicate our various sustainability activities, including increasing focus and accountability at all levels of the organization with respect to Environmental, Social and Governance ('ESG') matters. To that end, the Board formed our ESG Steering Committee in March 2021 to provide oversight and guidance on our ESG strategy, policies, and processes. Now, the company is pleased to announce its updated goal to reduce its greenhouse gas (GHG) emissions by 37.5% by 2039 compared to 2019. This new target is consistent with the Paris Agreement and is designed to meet the 'Well Below the 2 Degree' scenario and supports the UN Sustainable Development Goal 13 Climate Action.

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

"The first six months of 2021 saw the continued recovery of global light vehicle production volumes from the impacts of the 2020 COVID-19 pandemic. We continued to deliver strong revenue outperformance, robust profit and significant positive free cash flow generation despite headwinds from volatile production schedules caused by supply side shortages of microchips for our OEM customers. Our balance sheet, liquidity and cash positions remain strong. In addition to having received the London Stock Exchange Green Economy Mark which recognises the Group's strong revenue generation from the supply of products that contribute to the green economy by helping make vehicles cleaner, we are also pleased to announce our updated goal to reduce our greenhouse gas (GHG) emissions significantly by 2039 which represents our ongoing effort to do our part to make the world a better place to live. We continue to make steady progress in our growth strategy for fluid systems and continue to win significant HEV and BEV programmes with multiple customers across all major production regions. We are well positioned on BEVs launching in the market today and over 2021-2028 we have a leading share of new thermal product content on key BEV programmes coming to market. We continue to win new business awards with our advanced pressure resistant plastic fuel tank technology and continue with new collaboration projects with key customers, including in China, to reduce weight, and maximise efficiency in the vehicle through integrated thermal products and systems. The Group remains well positioned for the automotive megatrends of reduced emissions and electrification.

The Group continued to demonstrate its ability to outperform global light vehicle production in H1 2021.  We remain confident in our strategy, business model resilience, operating flexibility and strength in our ability to generate positive profit and positive free cash flow in H1 2021."

Outlook

The Group had strong performance through the first half of 2021. While annual global light vehicle production volumes are forecast to return to pre-Covid levels by the end of 2022, IHS-Markit's current 2021 global light vehicle production volume forecasts (approximately 82 million units) may be optimistic given ongoing microchip and other supply related constraints impacting specific OEM plant production scheduling. However, despite this potential volume softness for the second half of 2021, our annual outlook guidance issued on 16 March 2021 remains unchanged. We remain confident that our full year 2021 revenue will outperform global light vehicle production volumes. We also continue to target a high single digit adjusted EBIT margin for 2021 as well as Adjusted Free Cash Flow that will support our dividend policy targeting a pay-out of approximately 30% of Adjusted Net Income.

Results presentation

TI Fluid Systems plc will host a teleconference for analysts and investors at 9.00 am UK time on 9 August 2021.

Analysts wishing to join may listen to the presentation live by using the details below.

Conference Call Dial-In Details:

UK: +44 (0) 330 336 9105

Conference Code:  3223555

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

Enquiries 

TI Fluid Systems plc

David J Royce

Investor Relations

Tel: +1 (248) 376 8624

FTI Consulting

Richard Mountain

Nick Hasell

Tel: +44 (0)20 3727 1340

Chief Executive Officer's review

Global light vehicle production volumes continued to recover and we are able to report strong performance for the first half of 2021 despite the ongoing impact of microchip supply shortages on our OEM customers production schedules. Management continues to take meaningful actions to protect the business and make the Group even stronger and more competitive in the future.

Half year 2021 performance

Global light vehicle production volume increased by 29.2% in the first six months of 2021, compared to the first half of 2020. We delivered revenue of €1,522.5 million (32.7% at constant currency), or 3.5% above global light vehicle production. If we include the impact of currency translation, revenue increased by 28.7%.

We also continued to generate strong Adjusted EBITDA of €198.5 million (13.0% margin) and Adjusted EBIT of €127.8 million (8.4% margin). Adjusted Net Income for the period was €45.4 million (H1 2020: €(39.7) million loss) and positive Adjusted Free Cash Flow amounted to €46.3 million (H1 2020: €34.9 million). The increase in reported Net Profit for the period was due to the better trading conditions and also the exceptional impairment charge of €304.6 million in H1 2020 which was not repeated in H1 2021.

Our ability to maintain our strong revenue outperformance and financial performance with robust margins and excellent positive cash flow given the ongoing recovery and production schedule volatility demonstrates the Group's consistent resilience and the strength of our strategy, business model and experienced management team and focus.

Strategy update

In 2021, we expect to continue our success as a leading global manufacturer of highly engineered fluid storage, carrying and delivery systems for light vehicles through the execution of our strategy. Our financial performance benefits from our commitment, focus and dedication to designing and producing products that help make vehicles greener, the environment cleaner and the world a better place to live. This is core to our business model and strategy. We also continue to benefit from operational flexibility and our balanced and diversified customer, platform and regional profile. We remain confident in our focus on electrification and our HEV and BEV strategy which is progressing very well and is clearly evidenced by our ability to transition strongly in new business wins on HEV and BEV and to have product content on approximately half of the 94 key BEV platforms identified to come to market in Europe and North America between 2021 and 2028. This further demonstrates our successful transition to an electrified world by validating the Group having thermal product content on approximately 40% of these 94 BEVs. We also continue to win new business awards for our advanced pressure resistant plastic fuel tank technology on hybrid electric vehicles. We are proud of this continuing accomplishment and trajectory.

We continue to build on and invest in our leadership in technology, global manufacturing and competitive cost structure to support long-term revenue growth and outperformance, profitability and positive cash flow generation.

Over the longer term, we expect to benefit not only as global light vehicle production returns to growth, but also from increased demand for our advanced fluid handling products and systems and higher content opportunities driven by the underlying megatrends of emission reduction, increased fuel efficiency and electrification. These megatrends have been and will continue to be front and centre for our sector.

We will continue to prioritise variable and fixed cost management and capital allocation to deliver sustainable growth and continued strong financial performance.

We believe the Group's strong and diversified customer relationships, extensive global footprint and long trusted reputation as a leading fluid systems provider has contributed to several thermal BEV collaboration activities and agreements, HEV and BEV production contracts and will support continued growth in these markets for many years to come. We continue to successfully invest in the transition to electrification.

I remain excited about the path we are on and the Group's future.

Updated Greenhouse Gas (GHG) Reduction Target

As discussed in our 2020 Annual Report, we have begun a variety of initiatives to progress and better communicate our various sustainability activities, including increased focus and accountability at all levels of the organisation with respect to Environmental, Social, and Governance ('ESG') matters. To that end, the Board formed our ESG Steering Committee in March 2021 to provide oversight and guidance on our ESG strategy, policies, and processes. Now, we are pleased to announce our updated goal to reduce our GHG emissions by 37.5% compared to 2019 by 2039. This updated GHG reduction target is based on an absolute contraction approach, meaning that we will use the actual mass of emissions from our baseline year of 2019 and strive to reduce that mass to the target level by 2039. In 2019, the Group emitted approximately 314k tonnes of CO2(e) Scope 1 and 2 combined emissions. As such, we will seek to achieve a maximum of 196k tonnes of total CO2(e) emissions by 2039. Our updated target is consistent with the Paris Agreement and is designed to meet the 'Well Below 2 Degree' scenario and supports the UN Sustainable Development Goal 13 Climate Action.  Consistent with, and as an extension of, our updated GHG reduction target, we ultimately aspire to become carbon neutral.

Our people

The Group relies on the skills and expertise of its excellent employees worldwide, and the H1 2021 results would not have been achieved without the commitment and dedication of our entire global team. We are proud to have a strong senior management team whose deep experience, leadership and determination remains critical during these continued uncertain times. I would like to recognise, sincerely thank and continue to hope all can remain healthy as things continue to improve moving forward.

Our experienced management team has a track record of execution and delivery and will continue to manage through the near term challenges in 2021.

Bill Kozyra

Chief Executive Officer and President

6 August 2021

Chief Financial Officer's Report

In the first half of 2021, we have continued to build on the momentum created by the recovery of global volume production from the unprecedented rapid decline in global light vehicle production volumes experienced in H1 2020 influenced by the COVID-19 pandemic. With our robust revenue growth outperforming global light vehicle production, we delivered margin expansion and continue to demonstrate strong cash generation. In April 2021, we refinanced and extended the maturities of our borrowing facilities to underpin our strong liquidity position and lower the cost of debt.

Table 1: Key Performance measures €m

*Management basis metrics are Non - IFRS measures as defined on pages 19 to 20

**No equivalent GAAP measure - see table 8a for reconciliation to statutory cash flow items

Global light vehicle production remains the principal driver of the Group's performance. In the first half of 2021, global light vehicle production increased significantly to 39.4 million vehicles or by 29.2% compared to the prior period as the world continues to emerge from the adverse COVID-19 market impacts.

Revenue increased by €374.9 million, or 32.7% period over period on a constant currency basis, to €1,522.5 million, outperforming global light vehicle production by 3.5% in the period. If we include the negative currency impact of €35.6 million, reported revenue increased by €339.4 million, or 28.7% period over period.

We generated Adjusted EBIT of €127.8 million with a margin of 8.4%, an increase of 610bps from the prior period Adjusted EBIT margin. The increase in margin is directly related to the conversion of higher sales due to the ongoing recovery from the impacts of COVID-19 in the prior period. On an 'as reported' basis, we achieved an operating profit of €76.5 million compared to an operating loss of €311.9 million in the prior period mainly due to the conversion of higher sales and the exceptional impairment charge of €304.6 million recognised in H1 2020. This is discussed in more detail in the Operating Profit, Adjusted EBITDA and Adjusted EBIT section of this report.

Adjusted Net Income rose €85.1 million to €45.4 million, compared to €(39.7) million in the prior period. The reported profit for the half year was €11.1 million compared to €320.8 million loss in the corresponding half of 2020. Basic EPS was 1.96 Euro cents (H1 2020: (61.66) Euro cents) and Adjusted Basic EPS was 8.75 Euro cents, an increase from (7.61) Euro cents in the first half of 2020. In spite of the volatility in customer production scheduling, driven by supply chain disruptions, the first half of 2021 was also another period of impressive cash flow performance, where we delivered Adjusted Free Cash Flow of €46.3 million (H1 2020: €34.9 million). This strong cash performance was offset by cash outflows from financing, resulting in our reported cash and cash equivalent balances decreasing by €32.6 million (H1 2020: increasing by €141.3 million) before currency translation, mostly related to our dividend payment and a period end cash balance of €469.4 million (H1 2020: €485.8 million). We ended the period with net debt of €621.2 million (31 December 2020: €590.0 million).

Automotive Markets

Global light vehicle production volumes increased significantly by 29.2% in H1 2021 to 39.4 million vehicles as shown in table 2 - signalling strong recovery after the unprecedented fall due to the impact of COVID-19 in H1 2020. The recovery was across all major regions of the world.

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

Revenue

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

Table 3: Revenue by region and by segment €m

Group revenue in H1 2021 was €1,522.5 million, an increase of 32.7% period over period at constant currency and when compared to the global light vehicle production increase of 29.2% over the same period resulted in a 3.5% outperformance primarily driven by HEV/BEV launches in Europe.

In Europe and Africa, revenue at constant currency increased by 37.4% period over period compared to a light vehicle production increase of 28.4%, an outperformance of 9.0%. This strong outperformance was driven by the successful launch of new HEV/BEV programmes for both FTDS and FCS, as well as a full trading period compared to H1 2020 when the region experienced wide ranging factory shutdowns.

In Asia Pacific, revenue at constant currency increased by 26.9% period over period compared to light vehicle production increase of 27.2%, for a slight underperformance of 0.3%. This underperformance was driven by the timing of programme ramp downs in FTDS, which offset the benefit of new launches.

In North America, revenue at constant currency increased by 30.7% period over period compared to light vehicle production increase of 32.0%, reflecting a slight underperformance of 1.3%. The main impact for this region was programme ramp downs in the FCS division mainly caused by our de-emphasis of Powertrain, and the continued impact of our lower share of the full-size full-frame trucks and SUV platforms of the North American market primarily in the United States. FTDS NA experienced strong growth due to new business launches and ramp ups, outperforming the market in that region by 21.0%.

FCS revenue increased by €186.5 million, 29.8% at constant currency from the prior period to €813.1 million, an outperformance of 0.6% when compared to global light vehicle production. The strong FCS revenue growth is driven by successful launches of thermal programmes in Europe and Asia Pacific. The division has been impacted by the Group's de-emphasis on Powertrain which has resulted in programme ramp downs in North America region, offsetting the benefit of new thermal launches.

FTDS revenue at constant currency increased by 36.2% to €709.4 million, outperforming global light vehicle production by 7.0%, primarily driven by new business launches in Europe and North America. Overall Asia Pacific outperformance slowed down due to programme ramp downs.

Revenue increased by 28.7% to €1,522.5 million at reported rates due to a net adverse currency exchange rate impact of €35.6 million compared with the prior period. This was mostly due to strengthening of the Euro against the US dollar, partially offset by the weakening in other key currencies in countries where the Group has manufacturing operations. Table 4 below sets out the movement in exchange rates most relevant to our operations.

Table 4: Exchange Rates

Operating profit, Adjusted EBITDA* and Adjusted EBIT* 

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 give insight into the operating performance of the business. The metrics are also used in certain of our compensation plans and to communicate to our investors. Table 5 shows a reconciliation between the reported measure, operating profit, Adjusted EBITDA and Adjusted EBIT.

Table 5: Calculation of Adjusted EBITDA* and Adjusted EBIT* €m

* See Non-IFRS measures on pages 19 to 20

The operating profit of €76.5 million (H1 2020: €311.9 million loss) represents a significant increase on the prior year principally as there was no repeat of the first half 2020 exceptional impairment charge of €304.6 million which was recognised following a full impairment review triggered by the significant change in projected volumes and forecast cash flows projected at that time. Further details of the Group's impairment indicators assessment that confirms that no further charge is required can be found in Note 7. The latest global light vehicle production volume projections indicate volumes return to 2019 levels slightly earlier in the forecast period than the data used for the June 2020 impairment review. Our future cash forecasts are also ahead of those used to underpin the impairment charge recognised. As market uncertainties still remain, we have not reversed any of the impairment charge recognised.

The restructuring programme started in 2020 continues to be implemented in 2021, and in this regard we incurred further restructuring charges of €17.6 million in the period related to permanent headcount reductions across all our businesses and the planned closure and downsizing of manufacturing plants in Europe, North America and Latin America. At the end of H1 2021 there was a restructuring provision of €18.5 million (H1 2020: €11.0 million).

Adjusted EBITDA has recovered to €198.5 million (H1 2020: €109.7 million) and Adjusted EBITDA margin was 13.0% (H1 2020: 9.3%) with the major impact being the increase of operating profit due to the conversion on higher revenue. Our operating costs have increased at a slower pace compared to revenue growth mainly due to efficiency gains from running relatively good factory capacities in 2021, and the temporarily suppressed costs due to the benefit of working from home across most of our administrative functions.   We continue to see challenge in the supply chain relating to pricing pressure and inflation of input costs for metals and resin.

Adjusted EBIT was €127.8 million (H1 2020: €27.6 million) and Adjusted EBIT margin was 8.4% (H1 2020: 2.3%). This change was impacted by higher Adjusted EBITDA as described previously. During the period there were programme specific impairment charges of €1.2 million (H1 2020: €4.1 million).

By segment, FCS Adjusted EBIT grew by €55.5 million to €69.6 million (H1 2020: €14.1 million) with Adjusted EBIT margin of 8.6% (H1 2020: 2.2%). The period over period margin growth reflects the strong rebound from COVID-19 impacts, particularly in Europe and Asia Pacific. The segment particularly benefited from efficiency gains in labour and other costs incurred during the factory shutdown period in H1 2020.

FTDS Adjusted EBIT increased by €44.7 million to €58.2 million (H1 2020: €13.5 million) with Adjusted EBIT margin of 8.2% (H1 2020: 2.5%). The increase in margin reflects the conversion of the significantly higher revenues in H1 2021.  Asia Pacific margin also remains strong, benefiting from new business launches in the fuel tanks business.

As a direct consequence of unwinding the Group's hedging programme in March 2020 to release 'in the money' contractual positions to cash, the Group has borne the translation impact on unhedged non-Euro currency inter-company loan positions. This is the primary constituent of the €7.6 million foreign exchange loss arising in the period.  The refinancing completed in April 2021 sought to rebalance the currency split of the external borrowings to reduce the unhedged exposures.

Net finance expense

Net finance expense, before exceptional items for the period was €30.8 million, a decrease of €9.9 million from the prior period. The decrease was mainly due to fair value net losses on financial instruments and derivatives that were incurred in the first half of 2020. As a result of the refinancing carried out in April 2021, an exceptional expense of €11.6 million associated with the capitalised fee write off has been incurred. The expected annual saving of the reduced interest expense as a result of the refinancing in April 2021 is expected to be approximately €9.0 million.

Taxation

The Group income tax charge for the first half of 2021 is €24.6 million based on Group Profit Before Tax of €44.5 million.  This period over period increase in the tax charge of €27.3 million is primarily due to a significant period over period increase in profit. The H1 2021 Effective Tax Rate is 55.2% (H1 2020: 5.6%) There were no significant changes to uncertain tax positions during the period.

The H1 2021 Adjusted Effective Tax Rate is 34.6% (H1 2020: 40.8%). The Adjusted Effective Tax Rate is calculated by adjusting for the impact of UK losses, the impact of the share of associates loss and the prior period tax movements. 

Table 6 shows the calculation of the Effective and Adjusted Effective Tax Rates.

Table 6: Calculation of Effective and Adjusted Effective Tax rates* €m

Amounts in the table below do not include the exceptional charge of €11.6 million and exceptional tax benefit of €2.8 million.

*See Non-IFRS measures on pages 19 to 20

** UK accounting loss is not tax effected due to the UK historical tax loss position

Adjusted Net Income* and profit for the period

Adjusted Net Income is a component of the Adjusted Basic EPS calculation and is also used to guide our dividend policy calculation. The calculation of Adjusted Net Income is shown in table 7a.

Table 7a: Adjusted Net Income* €m

Table 7b: Reconciliation of profit for the period to Adjusted Net Income* €m

*See Non-IFRS measures on pages 19 to 20

Adjusted Net Income was €45.4 million in H1 2021, a significant increase from a €(39.7) million loss in H1 2020, primarily driven by the flow through of higher revenues as a result of the rebound in global light vehicle production volumes.

Basic EPS and Adjusted Basic EPS*

On a statutory basis, Basic Earnings per Share ('EPS') was 1.96 Euro cents for the period (H1 2020: (61.66) Euro cents), reflecting the significantly improved profit for the period. Adjusted Basic EPS calculation is based on Adjusted Net Income and the weighted average number of shares issued. Adjusted Basic EPS was 8.75 Euro cents per share for the period (H1 2020: (7.61) Euro cents per share) reflecting the increase in Adjusted Net Income as noted above. 

*See Non-IFRS measures on pages 19 to 20

Dividend

The Company'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.

The Group paid a dividend of 6.74 Euro cents per share, amounting to €35.0 million on 19 February 2021 based on the overall strength of the Group's financial position and prospects. The Group is committed to resuming its stated annual dividend policy and the Board has decided to recommend a 2021 interim dividend of 1.93 Euro cents per share, amounting to €10.0 million. The Board continues to believe that dividends represent an important part of the Group's shareholder value proposition and that the Company's dividend policy is both affordable and sustainable within its wider capital allocation framework.

The Group continues to remain confident in its business model, cost flexibility, strong cash generation, experienced management team, and successful transition to electrification.

Cash Flow performance

The Group uses Adjusted Free Cash Flow as its primary operating measure of cash flow performance. 

Table 8a: Adjusted Free Cash Flow* €m

Table 8b: Reconciliation of Adjusted EBITDA to Adjusted Free Cash Flow* €m

*See Non-IFRS measures on pages 19 to 20

In H1 2021, we generated Adjusted Free Cash Flow of €46.3 million (H1 2020: €34.9 million). The Adjusted EBITDA generated by the Group was used to fund investment in capital equipment and intangibles. There was a €13.3 million increase in property, plant and equipment and intangibles expenditure showing a return to pre-COVID-19 capital expenditure. Tax cash payments were €7.1 million higher due to higher taxable profits. The outflow from working capital of €37.1 million was driven by the increase in working capital balances due to the recovery of activity levels compared to last year. The net cash outflow on restructuring was €10.1 million, predominantly severance payments (H1 2020: €7.6 million). In H1 2020 €16.6 million was received from foreign exchange hedges which were closed out in March 2020.

Free cash flows of €36.2 million (H1 2020: €43.9 million) were offset by cash outflows from financing of €68.8 million (H1 2020: €97.4 million in flows), resulting in a reported decrease in cash and cash equivalents of €32.6 million (H1 2020: increase of €141.3 million). Financing outflows include the net impact of the H1 2021 refinancing and other borrowing repayments of €17.8 million (H1 2020: €110.7 million), and €16.0 million (H1 2020: €12.8 million) lease principal repayments.

The 2021 dividend cash outflow amounted to €35.0 million (H1 2020: €nil).

Retirement benefits

We operate funded and unfunded defined benefit schemes across multiple jurisdictions with the largest being the US pension and retiree healthcare schemes, which represent 52% of our net unfunded position at 30 June 2021 (H1 2020: 60%). We also have funded schemes in the UK and Canada 1% (H1 2020: 2%) and Germany 20% (H1 2020: 16%). While all our major plans are closed to new entrants, a few allow for future accrual. Our schemes are subject to periodic actuarial valuations. Our net unfunded position decreased by €21.4 million from December 2020 to €139.3 million at 30 June 2021 due primarily to discount rates differential period-on-period and overall pension investment performance.

Net debt* and net leverage*

Net debt, a non-IFRS measure, as at 30 June 2021 was €621.2 million, a slight increase of €31.2 million from the prior year end. On 16 April 2021, the Group successfully completed the issue of a €600.0 million unsecured bond. The proceeds were used to pay down the existing term loans, in addition the term loan interest rates were lowered and the maturity dates increased from December 2024 to December 2026. These facilities also include an additional $225.0 million revolving credit facility with an undrawn amount of $222.2 million (€187.5 million) at 30 June 2021. Full details of these changes are given in Note 8. These changes resulted in incremental costs of €14.7 million which were capitalised, as well as reduced interest costs, the annual impact of which is estimated at €9.0 million. The annual fee amortisation after these changes is €4.2 million. Issuance fees and discounts of €25.4 million on the loans are carried forward for future amortisation.

The Group's net leverage ratio, also a non-IFRS measure, was 1.5 times Adjusted EBITDA as at 30 June 2021 (31 December 2020: 1.8 times); the decrease reflects the higher Adjusted EBITDA.

The Group excludes IFRS 16 lease liabilities from its net debt and net leverage ratio. If the IFRS 16 lease liabilities were to be included, the Group's net debt would be €777.6 million (31 December 2020: € 741.0 million) and net leverage ratio would be 1.9 times Adjusted EBITDA (31 December 2020: 2.2 times).

*See Non-IFRS measures on pages 19 to 20

Liquidity and Going Concern

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 $225.0 million (€189.9 million). The refinancing completed in April 2021 maintains existing levels of liquidity, lowered our cost of debt and extended debt maturities to December 2026. Total available liquidity (cash plus available facilities) on 30 June 2021 was €656.9 million (31 December 2020: €666.5 million).

The Directors have reviewed the likely performance of the Group for the period to 31 December 2022 by reference to an outlook using the approved Budget and Medium Term Plan, updated for actual year to date performance and current projections as a base case scenario (global light vehicle volume assumptions - 2021: 83.0 million units, 2022: 87.2 million units). The 2022 volumes used are lower than the current IHS global light vehicle production forecast of 90.7 million reflecting some modelling caution and alignment with the assumptions made during our Budget and Medium Term Plan. The Directors' assessment has been made with reference to the Group's current position and prospects, the Group's existing committed finance facilities, the Group's strategy, business model and the potential impact of the principal risks and how these are managed, as detailed in the strategic report contained within the 2020 Annual Report.

In making their assessment, the Directors reviewed a base case forecast covering the period to 31 December 2022 prepared using a global light vehicle production volume forecast which takes account of the short-term challenges associated with the current supply chain issues and showed liquidity (cash plus undrawn banking facilities) of €836 million at the end of the review period. The base model was stress tested to assess the adverse impact of the crystallisation of the principal risks likely to have a significant financial impact in the period to December 2022. This severe but plausible downside scenario assumed:

•     8.1% lower global production volumes in 2021 compared to the data used in the base model, volumes used - 2021: 77.0 million units, 2022: 87.2 million units, (Risk: Global Light Vehicle production volumes)

•     5% operating margin reduction caused by operational inefficiencies increased arising from customer schedule changes (Risk: Competitor and Customer Pricing Pressure)

•     0.5% sales price reduction (Risk: Competitor and Customer Pricing Pressure)

•     €20 million annual warranty charge (Risk: Product quality)

Available liquidity on 30 June 2021 was €657 million. The impact of the severe but plausible downside scenario would be to reduce available liquidity as per the base case to €701 million at the end of the review period, €135m lower than the base case. In both the base case and the severe but plausible downside scenarios, there were no covenant breaches.

A reverse stress test was attempted to determine the level of global light vehicle production which would extinguish all cash. It was found that only a reduction of 40% in 2021 and 80% in 2022 compared to the base case (volumes used - 2021: 49.9 million units, 2022: 17.2 million units) for the period under review, excluding any mitigating actions would be required to use all the Group's cash without utilising the $225 million revolving credit facility. This contrasts with the 2020 global light vehicle production drop to 74.6 million, a drop 16.1% compared to 2019. As a result, the Directors do not believe that a drop of 40% in 2021 and 80% drop in 2022 is likely and therefore do not regard this as a probable outcome.

The Directors have concluded, after reviewing the future funding requirements for the Group over the period to the end of 2022 by reference to the headroom on the committed banking facilities and the expected performance of the Group, that it is appropriate for the financial statements to be prepared on a going concern basis with no material uncertainties.

Principal Risks and Uncertainties

The executive management and Directors have considered the principal risks and uncertainties of the Group and have determined, on balance, that those reported in the 2020 Annual Report and Accounts remain relevant for the remaining half of the financial year. Current operating challenges from volatile customer production volumes and supply chain disruptions in the automotive industry are not thought to represent prolonged long-term risks though they will persist into the second half and potentially into 2022. The Directors continue to monitor and consider the COVID-19 landscape and related risks stemming from the pandemic as well as reviewing the developing risks identified in our 2020 Annual Report - product portfolio redundancies, technological obsolescence, product pivoting, climate change and the microchip related supply chain disruptions. We continue to believe that these do not represent separate new principal risks and uncertainties at this time. Details of the Group's Principal Risks and Uncertainties are available in the 2020 Annual Report and Accounts available on our website www.tifluidsystems.com.

Outlook

The Group had strong performance through the first half of 2021. While annual global light vehicle production volumes are forecast to continue to return to pre-Covid levels by the end of 2022, IHS-Markit's current 2021 global light vehicle production volume forecasts (approximately 82 million units) may be optimistic given ongoing microchip and other supply-related constraints impacting specific OEM plant production scheduling. However, despite this potential volume softness for the second half of 2021, our annual outlook guidance issued on 16 March 2021 remains unchanged. We remain confident that our full year 2021 revenue will outperform global light vehicle production volumes. We continue to target a high single digit adjusted EBIT margin for 2021 as well as Adjusted Free Cash Flow that will support our dividend policy targeting a pay-out of approximately 30% of Adjusted Net Income.

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.  Such measures are also utilised by the Board as targets in determining compensation of certain executives and key members of management, as well as in our communications with investors. 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.

EBITDA is defined as profit or loss before tax before net finance expense, depreciation, amortisation and exceptional impairment of tangible and intangible assets.

Adjusted EBITDA is defined as EBITDA adjusted for exceptional administration costs, net foreign exchange gains/(losses), net restructuring charges and associate share of profits or losses and dividends received from associates.

Adjusted EBIT is defined as Adjusted EBITDA less depreciation, amortisation and impairment arising on tangible and intangible assets net of depreciation and amortisation arising on purchase price accounting.

Constant currency refers to the statement of prior period results at current exchange rates to eliminate fluctuations in translation rates and achieve a like for like comparison.

Revenue outperformance is defined as the growth in revenue at constant currency compared to the growth in global light vehicle production volumes.

Operating profit margin is defined as operating profit expressed as a percentage of revenue.

Adjusted Net Income is defined as Profit or Loss for the period attributable to the ordinary shareholders before exceptional items adjusted to reflect associate dividends received and eliminate the impact of net restructuring charges and foreign exchange gains or losses.

Adjusted Basic EPS is defined as Adjusted Net Income divided by the weighted average number of shares in issue in the period.

Free Cash Flow is defined as the total of net cash generated from operating activities and net cash used by investing activities.

Adjusted Free Cash Flow is defined as Free Cash Flow adjusted for cash movements in financial assets at fair value through the profit or loss, cash payments related to IPO costs, net cash flows relating to restructuring and settlement of derivatives. The restructuring cash adjustment is made to align the treatment of restructuring with the other Adjusted measures and is applied retrospectively.

Adjusted Income Tax before Exceptional items is defined as income tax before exceptional items adjusted for the tax impact of prior period 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.

Net debt is defined as the total of current and non-current borrowings excluding lease liabilities, net of cash and cash equivalents and financial assets at fair value through the profit and loss.

Net leverage is defined as net debt divided by last 12 months Adjusted EBITDA.

Ronald Hundzinski

Chief Financial Officer

6 August 2021

Cautionary Statement

This announcement contains certain forward-looking statements with respect to the financial condition, results of operations and business of TI Fluid Systems plc (the "Group"). The words "believe", "expect", "anticipate", "intend", "estimate", "forecast", "project", "will", "may", "should" and similar expressions identify forward-looking statements. Others can be identified from the context in which they are made. By their nature, forward-looking statements involve risks and uncertainties, and such forward-looking statements are made only as of the date of this presentation. Accordingly, no assurance can be given that the forward-looking statements will prove to be accurate and you are cautioned not to place undue reliance on forward-looking statements due to the inherent uncertainty therein. Past performance of the Company cannot be relied on as a guide to future performance. Nothing in this announcement should be construed as a profit forecast.

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