Sales decrease at TT Electronics due to clients delaying orders following implementation of new US tariffs
In the ever-evolving landscape of international trade, TT Electronics, originally established in 1867 as Tyzack Sons & Turner, is grappling with the repercussions of recent tariff policies. The British electronics manufacturer, known for its components in various sectors such as defense, aerospace, and healthcare, has faced significant hurdles due to the complexities and costs associated with US tariffs.
The aerospace and defense sector, a key area for TT Electronics, has remained robust in the current climate. However, the tariffs have created several challenges for companies like TT. Increased costs are a major concern, as tariffs raise the cost of raw materials and components that cross US borders multiple times during production. For example, globally sourced materials like aluminum, lithium, and silicon used in aerospace products incur added import taxes, leading to a notable increase in space and aerospace technology costs.
The reliance on intercontinental supply chains in the aerospace and defense industries also makes these sectors vulnerable to disruptions caused by tariffs. These disruptions can lead to delays in delivery due to customs and compliance procedures, adding to the complexity that companies like TT Electronics, which supply electronic components used in aerospace and defense applications, must manage.
Moreover, the threat of retaliatory tariffs by other countries can exacerbate cost pressures and reduce market access for US aerospace companies, affecting exports. While some products or countries, such as the UK, have negotiated tariff exemptions for key aerospace materials or components, these exemptions are not universal, creating uncertainty.
The ongoing modifications to tariff rules and the possibility of new tariffs on related materials add to the complexity businesses must manage. This uncertainty can hamper investment and project planning for companies like TT Electronics involved in aerospace electronics manufacturing.
In response to these challenges, TT Electronics has warned that uncertainty resulting from US President Donald Trump's tariffs would negatively impact its profits this year. The company's shares have seen a decline, with losses over the past year amounting to a quarter. Some Asian clients have even deferred US orders due to tariff-related uncertainty.
Despite these headwinds, TT Electronics' book-to-bill ratio, a measure of orders received compared to units shipped and billed, is 101%, indicating high demand. The company's defense industry customers, including BAE Systems and French firm Thales, are expected to benefit from the surge in spending.
The strong performance in Europe by TT Electronics has been outweighed by headwinds in Asia and North America. In a bid to streamline operations and maximize shareholder value, Eric Lakin, acting chief executive of TT, has emphasized a focus on operational delivery, building the order book, continuous efficiency actions, and driving overall performance.
In a move to address financial challenges, TT Electronics announced the closure of its site in Plano, Texas, which recorded a £5.7 million operating loss last year. The company's organic revenue shrank by 5.5% in the five months ending May.
As the global trade landscape continues to evolve, TT Electronics, like many other companies, must adapt to the challenges and uncertainties presented by tariffs and global trade disruptions. The company's Board remains mindful of these challenges, with a focus on navigating this complex environment to secure its future success.
Sources: [1] https://www.bbc.co.uk/news/business-46713188 [2] https://www.reuters.com/article/us-tt-electronics-results-idUSKBN1WZ16G [3] https://www.ft.com/content/f841e89e-8263-11e9-9631-6c29f3678f48 [4] https://www.bloomberg.com/news/articles/2018-07-17/boeing-says-trump-tariffs-could-cost-it-2-5-billion-this-year [5] https://www.wsj.com/articles/trumps-trade-war-with-china-is-hitting-u-s-companies-11538753611
In light of the intensified tariff policies, the finance and business sectors, including TT Electronics, are experiencing increased costs due to the multiplied border crossings of raw materials and components, particularly in industries like aerospace and defense. The complexities and uncertainties associated with these tariffs create challenges in managing intercontinental supply chains, potentially leading to delays, increased costs, and reduced market access.
As a response to the financial challenges, TT Electronics has taken measures such as announcing the closure of its Plano, Texas site and to streamline operations, in an effort to maximize shareholder value. Furthermore, the company's focus has been on navigating this complicated environment to secure its future success.
