I retire from Senior at a time when the Group is well
positioned, financially, operationally and managerially, to benefit
from the healthy number of opportunities in front of it,
particularly in the large commercial aerospace market where build
rates are increasing and significant new programmes are due to go
into production in the near to medium term. Clearly, global
uncertainties remain, notably in the European financial sector,
which might possibly lead to reduced demand for some of the Group's
products or result in sudden swings in exchange rates, with the US
dollar to the pound sterling rate being particularly important to
Senior. Nevertheless, against this backdrop, Senior's future
prospects remain healthy.
The large commercial aircraft sector, Senior's most important,
is a truly global market with the growing economies in Asia helping
to boost the order book of Boeing and Airbus to record levels, of
around eight years at 2011 build rates. Consequently, Boeing and
Airbus have recently indicated that they expect their combined 2012
aircraft deliveries to be around 15% above 2011 levels and that,
because of the already announced increases in build rates, volumes
will increase at a healthy pace over the following two to three
years. The entry into service of Boeing's 787 in the final quarter
of 2011 was particularly important for Senior, given the Group's
significant content on the aircraft and Boeing's stated aim to be
building at least ten per month by 2014. Airbus now expects the
A350, on which the Group has an increasingly healthy content, to
enter service in around two years' time so providing further growth
momentum. In respect to the longer-term outlook, Boeing and Airbus
have recently announced the future development of more
fuel-efficient versions of their narrow-bodied aircraft, which is
providing Senior with an opportunity to increase its content on
these high volume programmes; early progress has been encouraging.
The Group's recent acquisitions of Damar and Weston, whose
activities are focused in the growing and visible large commercial
aircraft sector, further underpin Senior's growth potential.
In 2011, deliveries of business jets were only just over half of
2008 peak levels and, although a significant near-term pick-up in
demand is not likely, gradual longer-term growth can reasonably be
expected as the global economy improves. In the regional jet
market, Embraer's production outlook appears broadly stable whilst
Bombardier has announced a reduction in production levels for 2012.
Bombardier is, however, optimistic of improved activity when its
CSeries aircraft, on which Senior has over $400k of content per
aircraft, starts production during 2013. In addition, the recently
developed Chinese, Japanese and Russian regional jets are each
projected to provide growth for Senior as they enter service, and
increase build rates, over the coming years.
To date, announcements of cuts in military and defence spending
have not materially affected the future build rates of the Group's
two main military programmes, the C-130J military air transport
aircraft and the Black Hawk helicopter, which are currently
expected to remain at healthy levels for at least the next two
years, supported by strong export demand. Looking further ahead,
market share gains and the medium-term entry into service of the
Joint Strike Fighter and A400M can be expected to provide growth
opportunities.
In the Flexonics Division, demand for many of the Group's
products, both in the land vehicle and industrial sectors, is
driven by ever-tightening environmental legislation and global
economic growth, with the majority of the Division's activities
based outside of Europe. More specifically, the near-term outlook
for the North American medium- and heavy- duty truck market appears
good, with the Group currently investing in additional capacity to
fulfil increasing customer demand, whilst in Europe new programme
wins are partially off-setting the continuing weak demand for
passenger vehicles. In the European truck market, the Group
continues to gain market share, albeit from a low base. Having a
global footprint, and being able to support their customers'
world-wide needs, is increasingly important for suppliers to the
land vehicle market. Senior is generally well placed in this
regard, with the exception of China where expansion opportunities
are currently being developed. On the industrial side of the
Flexonics Division, the global market for large expansion joints is
expected to improve slightly from the levels seen in 2011, with the
Group's order book currently higher than at the same time last
year. Demand for specialist ducting to the UK nuclear industry is
also holding up well. Elsewhere, short-term order books are normal
for many of the other industrial products in the Division and so
future activity levels are much harder to predict.
Overall, the current year has started in line with the Board's
expectations and prospects for the remainder of 2012 and beyond
remain encouraging.
Martin Clark
Chairman
OPERATING AND FINANCIAL REVIEW
To the members of Senior plc
This Operating and Financial Review ("OFR") has been prepared
solely to provide additional information to enable shareholders to
assess the Company's objectives and strategies and the potential
for these to be fulfilled. The OFR should not be relied upon by any
other party for any other purpose.
The OFR contains certain forward-looking statements. Such
statements have been made by the Directors in good faith based on
the information available to them at the time of their approval of
this Report, and should be treated with caution due to the inherent
uncertainties underlying any such forward-looking information.
This OFR has been prepared for the Group as a whole and
therefore gives greatest emphasis to those matters that are
significant to Senior plc and its subsidiary undertakings when
viewed as a whole. The OFR is organised under the following
headings:
-- Business Model and Operations
-- Strategy, Business Objectives and Key Performance Indicators
-- Acquisitions
-- Financial Review
-- Divisional Review
-- Outlook
-- Risks and Uncertainties
-- Resources
-- Corporate Social Responsibility
Business Model and Operations
Senior is an international, market-leading, engineering
solutions provider with operations in 12 countries. Senior designs,
manufactures and markets high-technology components and systems for
the principal original equipment producers in the worldwide
aerospace, defence, land vehicle and energy markets.
The Group is split into two Divisions, Aerospace and Flexonics,
and operates in the following five key market sectors:
Sectors Division Description
Fluid conveyance Aerospace Design and manufacture of metallic
systems and non-metallic air and hydraulic
system solutions
Structures Aerospace Provision of precision engineered
structural components and higher value
assemblies for airframes and nacelles
Gas turbine engines Aerospace Manufacture of complex critical components
for demanding aero-engine operating
conditions
Land vehicle emission Flexonics Design, development and manufacture
control of engineered fuel system and emission
control products for medium- and heavy-duty
trucks, off-road and passenger vehicles
Industrial process Flexonics Design and delivery of low-maintenance
control control systems and products for demanding
temperature and pressure environments
in the petrochemical, power and energy,
HVAC and renewable energy industries
Many of the Group's products are used to satisfy the increasing
requirement for emission control and environmentally driven
solutions in its principal end markets, as well as the growing
desire for improvements in operating costs, particularly fuel
efficiency in developing new aircraft platforms, gas turbine and
land vehicle engine applications. These trends are expected to
drive an inherent increase in underlying demand for, and further
development of, many of the Group's core products for the
foreseeable future.
The Group is a market-leading engineering solutions provider for
its customers, delivering quality products on time, utilising its
design and manufacturing engineering capabilities to optimise
customer value and working responsively to fulfil customer
needs.
The Group's principal underlying aerospace market demand drivers
are global passenger air miles, air freight demand, large
commercial and regional and business jet build rates, and military
aerospace programme spending (in particular by the US Government).
Within land vehicle and industrial markets, the principal demand
drivers are passenger vehicle sales in Europe, medium- and
heavy-duty diesel truck sales in North America and capital project
spending in the global petrochemical and power generation
industries. Long-term forecasts for trends in these demand drivers
are generally positive, which are anticipated to provide the
foundation for future sustainable growth in revenue, profitability
and associated cash flows from the Group's organic product
portfolio.
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