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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
All right. Good morning, everyone. Thanks for listening in. I appreciate it's an early start this morning, and welcome to TT's 2020 Results Presentation. No one could have predicted how 2020 would turn out. We came into the year with good momentum. The main impact from COVID hit in Q2, but we dealt with it really well. Having got on top of the issues, we pressed on with an eye firmly on the future and delivered significant strategic progress and further strengthened the quality of the business.We've invested around GBP 60 million in near-term and future growth. And we acquired Torotel and Covina, which are already adding value to the group. And we've continued to invest in technology and R&D to support future organic growth. We've built even closer customer relationships and increased our pipeline of new business opportunities.We've also been recognized for our work on ESG, a better CDP score and receiving an improved AA rating from MSCI, demonstrating that ESG runs through every part of our business. The second half showed good recovery, which strengthened in Q4 and an encouraging last few months. This means we're starting 2021 in really good shape. Firstly, I think it's important to recognize that we had a good 2020 despite the unprecedented challenges the pandemic dealt us. Our employees have been amazing throughout. And I'm exceptionally proud of how they have dealt with what was thrown at them. I have no doubt that we benefited from our early experience in China. Our team over there were quick to respond, understood the challenge and got COVID protocols in place.These early experiences were incredibly important, and the learning was rolled out right across the balance of our locations worldwide. This meant the teams running our sites were able to rapidly respond to what was happening on the ground. They could look after staff, get things done for our customers, and one of the most important results being we have had no site-based COVID transmissions at all. Now equally important was helping our customers. We were flexible, supportive and continued to deliver. As a result, we've seen increased opportunities and have even stronger relationships. This is TT operating at its best and demonstrates our culture in action. For some time now, we've been building a responsible business with a strong ESG focus as a core part of our purpose and strategy. Whilst today, I'm going to talk more later about how we benefit from the structural growth aligned to sustainability, I thought it would be helpful to bring together all we are doing inside the group for you. On this slide, you can see a range of the priorities and goals we have set as part of our sustainability strategy and the progress we're making on them. And I'm pleased to say that our employees have recognized these actions. The engagement survey result has significantly improved and exceeded our ambitions. We've moved up to a 2-star rating, which benchmarks TT alongside the very best global businesses.We've done all that, and we're working towards the goal of becoming net carbon neutral by 2035. And we've already delivered a 20% reduction in CO2 emissions, and the site rationalization program will improve this further. This picture really demonstrate what -- demonstrates what TT is all about, the way in which we've looked to build an inclusive, diverse and supportive environment for our people. As many of you know, TT today is very different to 2015 when Mark and I joined the group. We've done a huge amount with the portfolio. We exited automotive, raising GBP 120 million in cash, and deployed the capital into faster-growing market segments with higher margin potential. We now have over 80% of the business focused on strategic growth areas, selling direct to our OEM customers. The result has been a transformation out of traditional automotive and general industrial markets, moving into structural growth areas of health care, aerospace and defense and now automation and electrification, much better describing the sectors in which our direct customers operate.More of our business is being done direct with OEMs, and we have more partnerships and engineering teams embedded in our customers. As a result, we're typically designed in, and increasingly, these are higher-value solutions. We've got a business that can deliver sustainable revenue growth, improving margins with plenty more to go at. And this is supported by strong capital discipline with our focus on cash generation and careful use of our balance sheet to reinvest in the business. Here, you can see the results of our strategy and our track record before the temporary impact of COVID. We turned this into a growth business. Operating profit and margins were both nearly doubled. Cash conversion has averaged over 100%, and we delivered consistent improvement in return on invested capital. Clearly, 2020 has been impacted by the pandemic, but the second half saw a recovery building which strengthened in Q4, which underpins our view that we are emerging stronger after COVID and even more confident about the future. So with that, I'll hand over to Mark to talk you through the numbers and our momentum into '21, before I come back and show you where we take TT from here.
Thank you, Richard, and good morning, everyone. Clearly, 2020 threw out some pretty significant challenges. But as we told you at the time of the interim results, the impact of the pandemic on TT was mainly felt in Q2. And as expected, we've seen real improvement trends in the second half and delivered a strong Q4 recovery, which has increased our confidence as we look forward. Full year revenue was down by 12% organically, made up of a 14% organic reduction in the first half and 9% in the second half with an improving trend each month. Adjusted operating profit for the year was GBP 27.5 million compared to GBP 38.1 million in 2019. This includes the impact of a 2019 noncash adjustment identified through the year-end close associated with the timing of overhead recognition in one of our sites in GMS. As a result, 2019 operating profit has been reduced by GBP 1.9 million of costs, which were being recognized in 2020. So 2020 operating profit is above our original expectations by this amount.2020 numbers represent the true performance for the year, and what you see here is a valid comparison of performance between the 2 years. Reductions in discretionary spend and the initial benefits from our self-help program meant that operational leverage was only 21%, and the reduction in margin was kept to 150 basis points. Discretionary savings of around GBP 6 million will go back into the business over the course of 2021 and 2022. We've given cash generation more attention than ever. Despite the reduction in profit, we've delivered a 48% improvement in free cash flow, supported by working capital inflow and discipline around capital expenditure. Net debt and leverage both increased in the year, in large part, driven by the acquisitions of Covina and Torotel, but we've already started to reduce leverage. Compared to the 1.8x pro forma leverage at the time of the Torotel acquisition, we were down to 1.6x net debt to EBITDA by the end of the year. The full impact of the reduction in operating profit now fed through into our return on invested capital. And as profit recovers, so return on invested capital will recover, too. Given the good recovery we're seeing and the positive outlook for 2021 and beyond, we've repaid the U.K. government furlough support, and we're resuming dividends as planned with the Board proposing a dividend of 4.7p per share, which is 2.5x covered by adjusted EPS of 11.7p. So moving on then to see how that revenue and profit performance has played out in the divisions. In Power and Connectivity, revenue reduced by 9% on a constant currency basis and 17% organically, reflecting reduced demand from commercial aerospace customers and in the automation and electrification market, which was in part due to a pause in demand due to COVID restrictions. The inorganic contribution from Power Partners, Covina and Torotel was GBP 11.1 million of revenue and GBP 1.3 million of operating profit, and all 3 businesses are falling in line with or ahead of our original expectations.The second half of the year saw sequential improvement in revenue and in operating profit and margin as the benefits of our cost actions started to come through. These include headcount reductions in our facilities in Barnstaple, U.K. and Kuantan, Malaysia. And work to close our site in Lutterworth in the U.K. is progressing to plan as we look to optimize our cost base for 2021 and beyond. Next, Global Manufacturing Solutions, where revenues were down by 7% organically for the full year. A 10% reduction in the first half improved to a 4% reduction in the second half. The division benefited across the year from a ramp-up of revenues on defense contracts won in 2019, and health care revenues improved in the second half. As I mentioned upfront, in GMS, we've restated 2019's numbers for a timing adjustment found through the year-end. You can, therefore, see that despite the reduction in revenues, the team did a great job controlling costs, driving factory efficiencies, and there was some benefit late in the year from self-help actions in our Cardiff facility that will continue into 2021. This is a business that's been transformed in its quality and the contribution it's making to the group. Although discretionary costs will need to go back into the business, we think margins can be sustained at the level seen in 2020. Finally, Sensors and Specialist Components. Here, revenue was down by 14% organically with reductions in demand across end markets. As we explained with our interim results, it was in this division where we saw the greatest impact on revenue and profit from capacity reductions due to COVID restrictions. There were 3 temporary site closures. And in Mexico, we had to keep the vulnerable workforce out for an extended period of time, which affected both of our sites there. Both capacity and the revenue trend improved through the second half. This division is working through the most complex elements of the self-help program. Here, we're closing our Barbados facility in the first half of 2021. Our facilities in Corpus Christi and Carrollton, Texas are being consolidated into a new site in Plano, Texas, and we're transferring various product lines into our sites in Mexicali, Mexico and Bedlington in the northeast of England. Moving on to cash flow and net debt. As I said, we've been very focused on cash generation throughout 2020. But as Richard mentioned earlier, we've also had an eye on the future in how we take the business forward. We've continued to improve the quality of the business through acquisition. Acquisition investment was GBP 48.7 million relating to Covina and Torotel as well as a modest earn-out payment on the Power Partners acquisition. The Torotel acquisition was partly funded by a GBP 20 million equity placing. This took pro forma net debt to adjusted EBITDA to 1.8x.But we've been laser-focused and delivered strong free cash flow, up 48% compared to 2019, despite the reduction in operating profit. We've been very disciplined in the way we've deployed our CapEx spend, and our focus on working capital and inventory reduction really gained traction in the second half of the year. And as a result, there was a full year working capital inflow of GBP 3.6 million, including an inventory reduction of GBP 4.2 million. This resulted in operating cash conversion of 130%. And thanks to that second half free cash flow, leverage reduction is underway, as I said earlier. We ended the year at 1.6x, and we expect it to come down further in 2021. So that's 2020 cash flow.Turning to guidance for 2021, I've set out here some items to help, and there are just a few that I want to call out. I'll give you an update on our self-help program on the next slide. The restructuring spend for the program is expected to be around GBP 9 million this year, and we have another GBP 3 million to spend on pension projects and the Torotel integration. Pension contributions continue at the previously agreed rate. These contributions, alongside the investment strategy, are yielding real benefits. We've told you previously that the scheme was fully funded on an actuarial basis. We've now moved to fully funded on a self-sufficiency basis, which brings us another step closer towards being able to think about buyouts. And lastly, with the recent strength of sterling, at current spot rates of around $1.40 and CNY 9 to the pound, we'll have something like a GBP 15 million foreign exchange headwind to revenue and GBP 2 million to operating profit. I've touched on the self-help program as little as we've gone through the divisions. Overall, the program is progressing very well with around 70% of the planned headcount reduction already completed as at the end of 2020. There is still a lot of heavy-lifting to be done in 2021, including a large part of planned product line transfers. However, we remain very confident of the benefits set out previously.The makeup of the spend has moved around a little bit between CapEx and restructuring. We've sold our Lutterworth site for GBP 3 million in 2020, a year ahead of plan. But overall, the planned spend of GBP 18 million of cash for the project remains unchanged. The project's expenditure will be largely completed this year. We're on track to deliver GBP 11 million to GBP 12 million of run rate benefits in 2023. And we see GBP 5 million of incremental benefits coming through in 2021, supporting margin progression. Building on that, I just wanted to reflect here on the path that we see to margin improvement from here. Richard showed you earlier the margin improvement we delivered between 2015 and 2019. Looking forward, margin improvement will come from 4 areas. First, we see recovery from the impact of COVID coming through over the next 12 months or so. Next, I've talked about the self-help program and the benefits that will bring.Third, we've got good momentum in the business. Richard will talk about this some more shortly, but we expect our markets to grow by 3% to 5% a year over the medium term, and we'll benefit from growth and from moving up the value chain. And finally, M&A can also be an important part of this as we look to add higher-margin businesses and deliver synergy benefits. Overall, we're very confident in our ability to get to 10% margin over the next couple of years or so and to go on from there. So before I hand back to Richard to summarize, although 2020 did throw out significant challenges, we've seen improving trends in the second half and delivered a strong Q4 recovery. Operating profit and margins were protected through our cost actions. We delivered strong free cash flow, up 48% over prior year, helped by working capital inflow. We've continued to improve the quality of the business, adding to our North American power capabilities with the acquisitions of Covina and Torotel.And while margins have taken a temporary step backwards because of COVID, we expect them to recover quickly, and we have a clear path to get to 10% margin and beyond, supported by our self-help program, which is on track. All of this is reflected in the resumption of dividend payments with the Board proposing a dividend of 4.7p per share, reflecting the good recovery we're seeing and the positive outlook for 2021 and beyond. With that, I'll hand back to Richard.
Great. Thanks, Mark. So what I'm now going to show you is how we are delivering sustainable growth. First, the trends we are exposed to and how our products address them; second, some examples of what we've been doing with our customers; and third, what growth we expect from our end markets; and fourth, how we're using M&A to build on this, all of which reinforces our confidence in a great future for TT. We deliver technology which enables solutions that make the world cleaner, smarter and healthier. Megatrends such as climate change, digital transformation and demographic and social change are so fundamental and irreversible in nature that they will continue to support our growth for many years to come. They are directly aligned to the technology solutions that TT provides. We continue to see significant climate events and record temperatures. Climate change is clearly not something we can ignore, and we are addressing that in our own business. Clear targets have been set to reduce carbon footprint and move towards carbon neutral. But it's much more than our actions and ensuring we are a good corporate citizen. It is a key driver of demand for us. Our power technology helps aircraft and vehicles become more electric, more efficient and reduce fossil fuel consumption. To support a sustainable world, we need to work smarter. We provide smart energy solutions that help energy reduction in our homes, offices and factories. And our products and technology are integral to delivering improved productivity and infrastructure, health care and automating the workplace. In health care, we are now delivering products which enable improved lab analysis, minimally invasive surgery and improved diagnostics like MRI scanners, leading to better patient outcomes. We believe the pandemic has accelerated these trends and will drive the adoption of new technology. We are investing in R&D, customer efforts and acquisition capital in areas of the market that are expected to benefit from these structural growth trends and bring growth to TT. Here, I want to give you an example of how we carefully and thoughtfully built a key customer account, combining capabilities across TT to deliver material organic growth. This example pretty much sums up our whole strategies. This customer is a multibillion-dollar corporate. And today, they contribute GBP 9 million of annual revenue, about 5x more than they did 3 years ago. In the aerospace and defense business, we have moved from originally only selling components to now partnering on higher-value assemblies, including their next-generation navigation avionics through to power modules for space satellites. It's a great example of how we can cross-sell capabilities from all TT divisions and get ourselves designed in. This started with our Sensors and Specialist Components division, and now the relationship spans the whole group. And we have introduced our recent acquisitions, Covina and Torotel, too. Today, the customer relationship is way more strategic, and we invest together our R&D, all because they now see TT as a true partner. Here is another example of how we've moved up the value chain and leveraged customer relationships. This customer is a key player in automation and productivity in the U.S., and we work together developing solutions for digital security products. It's a long-standing customer where we were able to demonstrate our broader capabilities, which enabled us to move further up the value chain. We started with just a sensor, moved to a high-level sensor assembly and then introduced our GMS team who now manufactures more complex assemblies for them.We have codesigned generations of products, which leads to being designed in for life of program and have now supported 6 new product program launches over the last few years. So again, we have great synergy generated across the business, resulting in us expecting strong growth from this customer in 2021 and beyond. Finally, here is a more recent example linked to how we generate value from acquisitions. Precision is a business that does some really clever things with some really unique technology, like the stimulation device used to treat Parkinson's disease you can see here in the picture. With TT support and investment, the business is now moving up the value chain from super-clever, implantable devices such as pacemakers and hearing implants to higher-level assemblies using similar technology integrated into probes that facilitate minimally invasive surgery. This is meaning more value add for our customers and increased growth.We have supported investment in the development of this technology, and TT's backing has extended Precision's customer reach and giving customers the confidence to work with a business that was too small to rely on prior to acquisition. As a result, we see Precision exceeding our original business plan and now looking to cross-sell with GMS. Three great examples of how we deliver growth, and there are many more. So to put together the long-term trends and the actions on growth that I've just talked about, this is what we expect to see from our end markets over the medium term. We have a well-balanced business with markets growing at attractive rates that give us confidence we're focused in the right areas. Overall, this means we believe, in the medium term, our markets can deliver a blended growth rate of 3% to 5% per annum, a real opportunity for us, and we would expect to make the most of it. A large part of our effort has gone into building closer relationships with our customers, understanding their needs and developing real partnerships where we can so we can really understand what they value from TT. We work together in the early design cycle. We collaborate with our engineering teams. And as a result, we have more designed-in solutions, leading to higher-value revenues. A major part of this has been over GBP 60 million of investment in R&D to build the right capabilities for the right customers in better growth markets. Our efforts to reshape the business has meant the cash we've generated can be redeployed to fuel further investment in M&A, improving the quality of the business and our exposure to growth markets supported by the structural trends I've been explaining. We've built a value-creation model through M&A, using a clear focus to bring in capabilities we want and our well-developed integration playbook and cultural fit assessment to make sure the acquisitions are a success.Over 5 years and 7 acquisitions, we've consolidated fragmented niches to create value for TT and our shareholders. And Torotel is proving to be an excellent example of this. The potential looks really exciting. We got our hands on the business back in November, and we have gotten with the integration progress quickly. Torotel brings a scale in the U.S. defense market, adding to the access we got from the acquisition of Covina earlier on in the year. These businesses move TT up the value chain with higher margins and sole source positions with customers. Our engineering teams work together, resulting in designed-in life-of-program revenues. An early customer engagement has led to a pipeline of incremental new opportunities worth more than $5 million already. Cost synergies of $600,000 have been confirmed, and operational improvement planning is already underway with an eye to improving margins further. No question, it's been a great start and exciting future ahead with the Torotel team on board. So we've made a strong start to 2021, building on the recovery in Q4. In the last few months, we've been winning new orders and projects, increasing our order book to record levels, meaning we are well set for growth this year. I've shown you how we're exposed to global megatrends and how we've repositioned the business to benefit from the long-term structural growth in our markets. We're continuing to invest for growth through R&D and through acquisition, building on the success of the businesses we have integrated into TT. Self-help program is moving along nicely. Confidence in the savings is high, and that's a key part of our margin improvement. So I'm delighted to say that we are resuming dividends, reflecting the fact that growth and our self-help actions give us confidence for 2021 and beyond. So what I would like you to take away from today is how confident and excited we are about our future. We're positioned in markets, which mean we can grow revenues that have been between 3% and 5% a year over the medium term. We're going to keep improving margins to 10% and beyond. And our cash generation will be strong, supporting continued investment in technology and acquisitions for growth. TT is very well set for 2021 and beyond. Thanks very much for listening this morning. And with that, I'm going to pass over to the moderator, who's going to start the process of taking your questions. Thank you.
[Operator Instructions] We'll now take our first question from Mark Davies Jones from Stifel.
A couple, if I may. Could you give us a bit more color in terms of the sort of relative rate of recovery in the market? Particularly, I guess I'm interested in the automation and electrification business, whether there's any scope for some restocking coming through there. I know we've talked a lot about destocking through last year.
Yes. Yes.
And is there any chance that, that accelerates for us? And then on the health care side, could you just touch on how that looks coming out of COVID? Are there areas that are seeing acceleration given the amount of spending going in there? Or are there any areas that perhaps got artificially boosted last year and might slow a bit? Just the moving parts of that would be helpful, too.
Yes, sure, Mark. So first one on the automation and electrification, I think we've -- as we pointed to, we saw recovery gathering momentum in Q4, and that has continued into this year. I think we see it as a broad-based recovery across all parts of the globe and both parts of that market for us. And I think it's fair to say there is some potential for restocking, but we're not seeing that in the order book dynamics right now. It appears to be from everything we hear from end customers and anyone else that's sort of in the value chain above us that it's actual demand coming out of COVID recovery. And if you like, if I'd just point back to where we were coming into COVID, there was good momentum in these markets. And we think that's basically just taking a pause in Q2, and it's coming back. And covering health care, that improved in the final quarter. It's continued Q1 and Q2 -- sorry, January and February as well. There were clearly some parts of that market that got boosted in the early phase of COVID last year. We had some benefit from that, but it's not really that material in the total revenue stream of our health care business. I mean it was nice to have, but there's others that are coming back as well. So net-net, health care, we see coming back into growth nicely this year.
And then maybe one on margins. There's quite a few moving parts here with the GMS cost piece moving around and, obviously, some changes to the detail of some of the self-help program. But in terms of the path from here to double-digit margins, in terms of the phasing of that, has anything changed in your thinking? Or is that very much kind of on track to what you were thinking?
No. I think as we sort of laid out in the slides, Mark, we see it very much as on track. We are confident getting there by 2023. And the shape is relatively even across the years. I think the only thing is that means that perhaps you get slightly greater increase in margin in -- from '22 to '23 is that in '21 and '22, we've got some discretionary costs to go back in that we took out in 2020. So that slightly holds the margin progression back in each of those 2 years.
Great. And if I can ask one final one. No comment on Virolens. Is that because there's nothing to say at the moment? Or is that just something that we should sort of flip?
Yes. No, I mean, we just added a little bit more color in the statement, Mark, as this continues to progress. We -- from what we see, we think iAbra appear to be making good progress through the regulatory requirements. Clearly, there's multiple jurisdictions, a number of activities operationally going on -- have been going on around the world. But in recent weeks, there does seem to have been some pretty good progress. So we're sort of -- as we've said, there's a wide range of outcomes. And until we get through one of those milestones of a regulatory approval, there's no certainty of financial impact to TT. But we definitely think there's still a place for COVID screening devices alongside a global vaccination program.
[Operator Instructions] We'll now take our next question from Rory Smith from Investec.
It's great to see the evolution in the end market breakdown there as well as your progress of the value chain as you've sort of been speaking to. So I apologize for the focus of this question. But on the shorter-cycle business, particularly in expenses, right, it's still sort of 50% of revenues, I was wondering -- I suppose you've answered this slightly in Mark's question, but I was wondering if you can just add a little bit more color on, I guess, customer inventory levels in that particular part of the business.
Sure.
And also, if your own lead times are coming in or going out. And whether you're seeing sort of any pressures on supply chains more generally. Any component shortages or anything of that nature, that would be really helpful.
Okay, no problem. Yes, sure. So the broad-based distribution partner segment which we point to 16% of the revenues is, as you point out, Rory, mostly Sensors and Specialist Components. Inventories, we saw come down actually gradually, not lots, but a bit during the pandemic. And as yet, as I sort of answered to Mark, we're not seeing inventories go up again yet, so that it appears to be end demand that is pulling parts.It's clear overall, globally, though, that there is significant demand in electronics generally. So that is certainly in the minds of customers. And in terms of lead times, more generally, we're seeing peers and some competitors move lead times out quite significantly in some parts of the market. We're doing our best to hold on to lead times, but I suspect there will be some drift during the months -- the few months ahead. And if we flip it into -- as we move up the value chain, clearly, we have more of this in our supply chain as well. But we're well versed in managing that, as you all know, across some of the businesses we've had for a very long period of time and continue to manage and plus our supply chain appropriately. But we're not at this stage seeing anything that is causing us sort of shortages and inability to satisfy customers.
We will now move to our next question from Mark Fielding from Royal Bank of Canada.
A couple of questions from me, please. The first one, in terms of the GMS business, I mean I just note in the statement, the comment about doing additional manufacturing for the Power and Connectivity division as a result of the ongoing sort of collaboration there. I mean how much of your manufacturing right now is internally focused? And maybe how do you see that evolving over the next 5 years or so? I mean is this going to be a much bigger shift? Or is it just little bits and pieces at the side? And then the second question from me would be in terms of just the new product side of saying, obviously, a lot of commentary around this in the statement. I mean how much do you think COVID impacted the new product benefits? And what would you typically think would be the incremental benefit of new products on an ongoing basis to sort of sales going forward?
Okay, Mark, thanks. I mean, so first point on GMS, I think -- I guess one point I hope people are starting to take away is that this division as part of TT has transformed in its own right over the last 2 to 3 years. It's got a much better customer mix. It's a much higher quality, doing much more complex work and further up the value chain. So therefore, in its own right, it is contributing much better margins as well.You rightly pointed out, we are noting in various parts of the statement that they're doing work for the divisions, relatively small overall in terms of materiality at this stage, but it is growing. And it is part of the strategy to do more of it. And we would expect that to increase, particularly with some of these businesses that we've acquired that are higher at the value chain. We would expect GMS to be able to do more of that work or, indeed, these -- and if I sort of spin that onto the new product question, as we design and launch new products like power supplies, that's exactly what GMS does for some of those new customers we brought in for them. So we'd expect to be able to use that capacity efficiency and capability. So that will help everybody going forward. The new product introduction question, it's a good one. I think we've seen the opportunity pipeline of 4 new business and new products and new programs in the new business pipeline be really, really vibrant and get better and better as everybody sort of emerged from that sort of Q2, whether you call it a lockdown one, crisis, hiatus at this point. As people got focused on the future, I'm more confident more new products and program activity was coming back on stream. And we saw a broadening of opportunity for us, which really just goes down to the fact that we believe the structural growth markets we positioned ourselves in are going to be higher growth. They're supported by the sustainability megatrends, and we think our customers have gotten more confident coming out of COVID and ready to sort of relaunch programs they perhaps just put on pause when going into the crisis. So I think it's really encouraging for revenues going forward and why we feel confident about our ability to extract the opportunity from the market growth that we pointed to.
[Operator Instructions] We'll now take our next question from Richard Paige from Numis.
Just one straightforward question from me, hopefully. Obviously, throughout the presentation and the transition strategically in the business, you've moved to dealing with longer-term customer [ with them ] as well. What does that mean for your visibility across the -- revenue visibility across the group out of today versus...
Sorry, Rich, you faded out. Now versus a few years ago or versus...
Yes, versus really in the last 2 or 3 years or so.
Okay. I think there's 2 points, I think, to draw on there. I think the first one is that customers and markets and programs that we've been shifting the business towards have got better visibility. The -- a number of the new business wins and the programs we've talked about in the release this morning, I think pretty much all of them are in the sort of 5- to 10-plus-year brackets of program time scale or product time scale. So once we're designed into those programs, we've got life of revenue -- life-of-program revenue for us. And so that gives us better forecast visibility regardless. And then, I guess, just pull it straight back to the statement and the words we've used in there for order intake, the recent order intake strength and recovery with a record order book is giving us the best visibility Mark and I have ever had at TT. We're now 80% covered for the year ahead, and that would have been just touching 70% probably in the best time we've had before. And so hence, there's strong confidence in growth this year and the future beyond.
We will now take our next question from Anthony Plom from Berenberg.
I just had a couple of questions. I suppose on -- just the first one. Richard, you mentioned more of the business is now direct to OEMs. I don't know if you can put a number on that and maybe just how that's trended over the past couple of years.And then linked to that, I know you've obviously changed the end-market disclosures. So I suppose, can we take from that, that about GBP 69 million of sales are direct to distributors? Or is there sort of additional distribution channels within the other end markets? And then secondly, maybe to Mark. The IoT Solutions business, I guess, not a massive amount of headroom, but it doesn't look like that, that should be a risk in 2021. I don't know if you can just touch on that maybe?
I think the simple answer is, yes, you can take the distribution segment as being direct to distributors, and that's what we sell it -- that's the amount of revenue we sell in that way. The rest is direct to OEMs, which has been all part of the strategy, getting more embedded in these better customers or better-fit customers for TT with growth potential. So -- and that has shifted over time to being a better, richer mix for us. So probably a good 10 to 15 percentage points over the growth of the last few years.
And then on your question on distribution. And so yes, GBP 69 million is the right number. I mean, so we've basically got all of the revenue that goes through any distribution, be it broad line or the more specialist distribution partners that we work with, that's all gone into that bucket. The specialist distribution partners, there's a -- that's a much more active sell from them. So actually, it's probably you might see this better quality than the broad-line distributors, but we've put that all in that one grouping in any case.
I think there's just one other point I'd make, actually, on the customers, Anthony, is that there's been quite a switch in customers within that percentage. Does that make sense as well?
Yes.
Those that have been much more based in industrial, general projects, month-to-month type stuff through to ones that are more longer-term partnerships.
And then on your question, Anthony, on your question on IoT Solutions, I think you're probably referring there to the goodwill disclosure. So we are pretty comfortable with where IoT Solutions is going. Like the rest of the business, they experienced an uptake in the order book as well as having some really nice success. They've worked hard over the last couple of years on the platform product launches that we've talked about previously, and they're starting to get some really nice customer wins and some really good take-up of that -- of those products. So that, again, gives us confidence of the shape of revenue and profit recovery for them.
We will now move to our next question from Andrew Douglas from Jefferies.
Just a quick question on M&A. You talked about M&A in the statement, and it's clearly part of the strategy. Can you talk to me about your pipeline and sellers' expectations in terms of price and whether they're kind of matching yours? And I'm also just working on the assumption that given one -- just over 1.5x net debt to EBITDA, you can probably take that up to 2, which means you've got, I don't know, GBP 40 million or GBP 50 million of fire power. Is that fair? Or is there still -- or is there potentially larger acquisitions out there that you would contemplate going forward?
Okay, Andy, thanks. So yes, clearly, hopefully, we've conveyed this morning that we see a lot of organic growth opportunity for the group in the places that we've now positioned the business. But we see -- we do see opportunity from complementing that with M&A. I think we've shown that we can integrate business as well, extend our capabilities, grow business, deliver cost and operational synergy and, therefore, create value. So we do see it as part of our journey going forward. The opportunity pipeline, I think, varies if you've asked the question during the second half of 2020. And clearly, we were delighted to bring Torotel in. But that was part of what we described as a more vibrant pipeline of targets that were out there, similarly, on the other side of the sort of early part -- early phase of the pandemic. So that continues to be the case as ever valuations and prices expectations range. But I think we've shown that we can find targets, seek them out, create a relationship and deliver targets at good value that where we can create value from them. So we still think that's a good opportunity. And yes, on leverage, we are, as Mark is saying, laser-focused on reducing the leverage, generating cash and creating more headroom. But Mark, I don't know if you want to add to that?
Yes. I mean, Andy, obviously, I guess, a couple of things. One is we've been very clear this last year that given being in the middle of a pandemic, we weren't prepared to take the leverage up as high as 2x. As Richard said, we've also shown that we can drive cash performance. And so we took leverage down from the 1.8x pro forma at the time of the Torotel acquisition to 1.6x by the year-end. I guess the other thing you're clearly going to take away from this is that our confidence around 2021 is increasing. So where we would be prepared to take leverage to this year is clearly a judgment around where we are in the pandemic and the shape of recovery. But yes, if you assume that we would be prepared to go to 2x, then M&A capacity would be around GBP 50 million.
As there are no further questions, I'd like to hand the call back to Richard Tyson, CEO, for any closing remarks.
Okay, guys, well, listen, thanks for spending the time with us this morning. I know it's a busy morning, and we appreciate your attention and questions.So I guess, just to leave you with one thing, we really do feel that COVID has caused a temporary pause to our -- to the strong improvements we've been delivering during Q2 last year, and the recovery gathered pace through the second half. We've got a record order book exposed to megatrends driving growth, and we've got a clear path to double-digit margins and beyond once we get there.So thanks for your attention. Appreciate you being here, and have a good day.