TIDMSNR
RNS Number : 5362Y
Senior PLC
25 February 2013
Results for the year ended 31 December 2012
Record results, with adjusted profit before tax up 17% to
GBP91.1m. Group outlook remains encouraging.
FINANCIAL HIGHLIGHTS Year ended 31 December
2012 2011
------------------------------------- ------------ ----------- ---------
REVENUE GBP729.8m GBP640.7m +14%
------------------------------------- ------------ ----------- ---------
OPERATING PROFIT GBP94.5m GBP83.0m +14%
ADJUSTED OPERATING PROFIT (1) GBP101.4m GBP88.3m +15%
ADJUSTED OPERATING MARGIN (1) 13.9% 13.8% +0.1ppts
------------------------------------- ------------ ----------- ---------
PROFIT BEFORE TAX GBP86.7m GBP72.7m +19%
ADJUSTED PROFIT BEFORE TAX (1) GBP91.1m GBP78.0m +17%
------------------------------------- ------------ ----------- ---------
BASIC EARNINGS PER SHARE 17.11p 13.68p +25%
ADJUSTED EARNINGS PER SHARE (1) 17.75p 14.55p +22%
------------------------------------- ------------ ----------- ---------
TOTAL DIVIDENDS (PAID AND PROPOSED)
PER SHARE 4.65p 3.80p +22%
------------------------------------- ------------ ----------- ---------
FREE CASH FLOW (2) GBP57.6m GBP55.6m +4%
------------------------------------- ------------ ----------- ---------
NET DEBT (2) GBP70.9m GBP93.0m GBP22m
decrease
------------------------------------- ------------ ----------- ---------
CONTINUING OPERATIONS:
------------------------------------- ------------ ----------- ---------
REVENUE GBP712.0m GBP622.3m +14%
------------------------------------- ------------ ----------- ---------
OPERATING PROFIT GBP93.7m GBP82.0m +14%
------------------------------------- ------------ ----------- ---------
PROFIT BEFORE TAX GBP83.4m GBP71.7m +16%
------------------------------------- ------------ ----------- ---------
(1) Adjusted figures include the results from discontinued
operations up to the date of disposal but are stated before loss on
disposal of fixed assets of GBP0.1m (2011 - GBP0.3m), a GBP4.3m
charge for amortisation of intangible assets acquired on
acquisitions (2011 - GBP4.4m), a GBP1.9m pension curtailment charge
(2011 - GBPnil), acquisition costs of GBP0.6m (2011 - GBP0.6m) and
profit on disposal of business of GBP2.5m (2011 - GBPnil). Adjusted
earnings per share takes account of the tax impact of these
items.
(2) See Notes 11(b) and 11(c) for derivation of free cash flow
and of net debt, respectively.
The Group's principal exchange rates for the US dollar and the
Euro, applied in the translation of revenue, profit and cash flow
items at average rates were $1.59 (2011 - $1.60) and EUR1.23 (2011
- EUR1.15), respectively. The US dollar and Euro rates applied to
the balance sheet at 31 December 2012 were $1.63 (2011 - $1.55) and
EUR1.23 (2011 - EUR1.20), respectively.
Group Highlights
- Robust underlying end market demand in both the Aerospace and
Flexonics Divisions
- A third consecutive year of record Group operating margins, now
13.9%
- Adjusted profit before tax of GBP91.1m, 17% ahead of the prior
year
- Strong cash flows resulting in a continued prudent level of net
debt
- Excellent performance from Weston in first full year of ownership
- GAMFG acquisition expands strategic customer base and precision
machining capabilities in Flexonics
- Portfolio optimisation and Flexonics margin enhancement via disposal
of Senior Hargreaves
- Full year dividend proposed to increase by 22%, in line with
the growth in adjusted EPS
- Group outlook remains encouraging
Commenting on the results, Mark Rollins, Group Chief Executive
of Senior plc, said:
"2012 saw Senior deliver another year of record results.
Adjusted profit before tax increased by 17% and adjusted earnings
per share by 22%, driven by revenue growth and a strong first
year's performance from the recently acquired Weston business.
Continued healthy operating cash flows resulted in a net debt to
EBITDA ratio of only 0.6 times at year-end, leaving the Group well
placed to fund future organic and acquisitive growth. Trading has
been in line with expectations since the start of 2013 and this,
combined with healthy longer-term prospects for the Group, gives
the Board the confidence to recommend a 22% increase in the full
year dividend for 2012, in line with the increase in adjusted
earnings per share."
For further information please contact:
Mark Rollins, Group Chief Executive, Senior plc 01923 714738
Simon Nicholls, Group Finance Director, Senior
plc 01923 714722
Philip Walters, RLM Finsbury Group 020 7251 3801
This Release represents the Company's dissemination announcement
in accordance with the requirements of Rule 6.3.5 of the Disclosure
and Transparency Rules of the United Kingdom's Financial Services
Authority. The full Annual Report & Accounts 2012, together
with other information on Senior plc, may be found at:
www.seniorplc.com
The information contained in this Release is an extract from the
Annual Report & Accounts 2012, however, some references to Note
and page numbers have been amended to reflect Note and page numbers
appropriate to this Release.
The Directors' Responsibility Statement has been prepared in
connection with the full Financial Statements and Directors' Report
as included in the Annual Report & Accounts 2012. Therefore,
certain Notes and parts of the Directors' Report reported on are
not included within this Release.
Note to Editors
Senior is an international manufacturing Group with operations
in 13 countries. It is listed on the main market of the London
Stock Exchange (symbol SNR). 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.
Cautionary Statement
This Release contains certain forward-looking statements. Such
statements are made by the Directors in good faith based on the
information available to them at the time of the Release and they
should be treated with caution due to the inherent uncertainties
underlying any such forward-looking information.
CHAIRMAN'S STATEMENT
Senior delivered another strong operating performance during
2012, my first year as Chairman of the Company, and I am pleased to
report adjusted profit before tax of GBP91.1m, an increase of 17%
over the prior year. Weston, the aerospace business acquired
towards the end of 2011, delivered a better than expected first
year's performance. Group cash generation also remained strong.
Accordingly, in line with the Group's dividend policy, the Board is
proposing a final dividend of 3.27 pence per share. This would
bring total dividends, paid and proposed, for 2012 to 4.65 pence
per share, an increase of 22% over 2011.
These record results reflect the Group's strong niche market
positions and the positive effect of the continual operational
focus across the Group's 30 operating companies, 25 of which I have
visited since joining the Board of Senior in March 2012. In each
case the enthusiasm and quality of the Group's employees, the
standard of the factories and the culture of continuous improvement
were good to experience first-hand. Equally encouraging is the work
being undertaken at many of the operations in developing products
for new programmes and winning market share on others although a
number of these opportunities, because of the long-term nature of
Senior's business, will not bring meaningful revenue for some years
yet.
GAMFG Precision ("GA") is one of the operations I have not yet
visited, the company having only been acquired by Senior in
November 2012. GA, located in Wisconsin, USA, represents an
excellent strategic addition to the Group, with a well-established
reputation for high-precision machining for the off-road heavy-duty
diesel engine market as well as a growing presence in the
commercial aerospace industry. Atlas Composites ("Atlas"), a small
UK-based developer of structural composite solutions for the
Formula 1 and aerospace markets, is the most recent operation to
join Senior, being acquired for GBP2.4m in February 2013. It, like
GA, brings new capabilities to the Group. Senior Hargreaves, the
Group's only construction market related business, was sold in
October 2012 as part of the Group's strategic management of its
operating company portfolio. On behalf of the Board, I would like
to extend a warm welcome to the employees of GA and Atlas and to
thank all the Group's employees for their dedicated hard work
during 2012.
I would also like to extend the Board's thanks and appreciation
to Simon Nicholls, the Group's Finance Director for the past five
years, who leaves Senior at the end of April 2013 to take up a
similar role at Cobham plc. Simon has made a significant
contribution to the success of the Group during this time and we
wish him well in his future career. Recruitment of his successor is
progressing well.
The Group operates in five strategic market sectors: three in
Aerospace and two in Flexonics, with each sector offering healthy,
and deliverable, growth opportunities. The Group's strategy has
been successful over recent years and, whilst the strategic
planning process continues to evolve as the Group gets larger and
market conditions change, it continues to provide a solid
foundation for the Group's future growth aspirations.
As we enter the start of a new year, Senior's most important
end-market, large commercial aerospace, remains strong and,
although some other markets are anticipated to be more challenging,
the Group continues to expect to make further progress during 2013.
Looking further ahead, a healthy number of new aerospace programmes
going into production, together with expected market share gains in
both the Aerospace and Flexonics Divisions, mean the outlook for
Senior remains encouraging.
Charles Berry
Chairman
CHIEF EXECUTIVE'S STATEMENT
2012 Financial Results Summary
Total Group revenue increased by 14% to GBP729.8m (2011 -
GBP640.7m) with Weston, the aerospace business acquired at the end
of November 2011, delivering sales of GBP59.6m (2011 - GBP4.1m) in
its first full year in the Group. If Senior Hargreaves, which was
sold in October 2012, is excluded then revenue from continuing
operations increased by 14% to GBP712.0m (2011 - GBP622.3m).
Similarly, reported operating profit from continuing operations
increased by 14% to GBP93.7m (2011 - GBP82.0m) and profit before
tax from continuing operations increased by 16% to GBP83.4m (2011 -
GBP71.7m).
Adjusted operating profit and adjusted profit before tax, the
measures which the Board believes most accurately reflects the true
underlying performance of the business, increased by 15% to
GBP101.4m (2011 - GBP88.3m) and by 17% to GBP91.1m (2011 -
GBP78.0m) respectively. A full derivation of these measures is set
out in the Financial Review. Weston was responsible for around half
of the Group's improvement in adjusted operating profit. Adjusted
operating margin increased, for the third year in a row, to 13.9%
(2011 - 13.8%).
A lower underlying tax rate of 20.4% (2011 - 25.0%), offset
partially by an increase in the number of shares in issue, helped
adjusted earnings per share increase by 22% to 17.75 pence (2011 -
14.55 pence). Basic earnings per share rose by 25% to 17.11 pence
(2011 - 13.68 pence).
Once again, the Group demonstrated its highly cash-generative
nature by delivering free cash flow of GBP57.6m (2011 - GBP55.6m)
after increased net investment in capital expenditure of GBP26.0m
(2011 - GBP21.8m). As a result, the level of net debt at the end of
2012 of GBP70.9m was substantially below the GBP93.0m at the start
of the year, even after expending GBP28.1m on the acquisition of GA
in November 2012. This year-end net-debt level represents 0.6 times
(31 December 2011 - 0.8 times) earnings before interest, tax,
depreciation and amortisation ("EBITDA"), leaving the Group well
placed to fund future organic and acquisitive growth.
Dividend
The Board is recommending a final dividend of 3.27 pence per
share (2011 - 2.65 pence) which, if approved, would cost GBP13.5m
(2011 final dividend - GBP10.7m) and would be paid on 31 May 2013
to shareholders on the register at close of business on 3 May 2013.
This would bring the total dividends, paid and proposed, in respect
of 2012 to 4.65 pence per share, an increase of 22% over 2011 in
line with the increase in adjusted earnings per share. At the level
recommended, the full-year dividend would be covered 3.8 times
(2011 - 3.8 times) by adjusted earnings per share.
Delivery of Group Strategy
The Group operates in five strategic market sectors: three in
Aerospace - Structures, Fluid Conveyance Systems and Gas Turbine
Engines, and two in Flexonics - Land Vehicle Emission Control and
Industrial Process Control. Each strategic market sector offers
healthy, and deliverable, growth opportunities. Senior's products
are typically single sourced, highly engineered and require
advanced manufacturing processes for their production.
The Group Business Model and Group Strategy are set out in more
detail below, with significant progress being made during 2012 in
delivering the stated strategy. In addition to the progress made in
improving the financial performance of the Group and increasing
shareholder value, the Group continued to enhance its operating
company portfolio, invest in new product development, technologies
and geographies and reinforce its entrepreneurial culture whilst
still maintaining a strong control framework.
The acquisitions of GA and Atlas have added further
high-precision machining and structural composite capabilities to
the Group. When combined with the global reach, financial strength
and key customer relationships of the existing Senior operations,
these acquisitions offer significant additional commercial
synergies that will enhance the performance of the Aerospace and
Flexonics Divisions over the coming years. The disposal of Senior
Hargreaves, the Group's only construction market related business,
has provided further focus to the Flexonics Division's activities
as well as improving its adjusted operating margin, which at 15.4%
for 2012, is now on a par with the performance of the Aerospace
Division.
2012 also saw notable progress on extending the Group's global
footprint: a joint venture was set up in Wuhan, China, for the
production of heavy-duty diesel engine common rails for the
domestic Chinese truck market; an exhaust connector manufacturing
cell began production in Mexico to serve a local heavy-truck
manufacturer; and significant investment was made in Thailand to
increase aerofoil machining capacity for existing and future
customers.
Successfully delivering targeted acquisitions is one of the
Group's six key growth drivers, with the others being: higher
global GDP; gaining market share; the impact of increasing
environmental legislation; winning healthy content on new
programmes; and the increase in the build rate of large commercial
aircraft, which market represents 33% of Group revenue. As
explained in the Divisional Business Reviews good progress was made
during 2012 in taking products from the design and development
stage through to initial production on a number of new programmes
and towards winning further meaningful market share in both
Divisions. A number of these opportunities are expected to be
awarded during 2013.
Whilst the achievements of Senior over recent years provide
tangible evidence of success in implementing the Group's stated
strategy, it is very important that this strategy continues to
evolve and be updated as the Group grows and markets, technology
and global economics change. As a consequence, 2012 saw an
increased emphasis on the strategic planning process with
improvements being made at the operating company, Divisional and
Group level. This focus is expected to continue during 2013.
Employees and the Board
As a result of healthy organic growth and the acquisition of GA,
the Group's headcount increased to 6,171 at the end of 2012 (31
December 2011 - 5,878). Excluding the effect of GA and the disposal
of Senior Hargreaves, underlying headcount increased by 126 people
or 2% of the workforce.
The Group's employees are one of its most valuable assets, with
the financial and operational progress made during 2012, and
earlier years, largely due to their hard work and dedication. In
recognition, Senior has sought to improve employee development at
all levels of the organisation, from increasing the frequency and
range of shop-floor health and safety "tool-box talks" to expanding
the Group Development Programme for its future leaders and
investing in specialist strategic leadership courses for its most
senior executives. Employee development, together with a renewed
focus on the recruitment and succession planning processes, will
remain an important focus for the Group in the future.
As planned, Charles Berry joined the Board on 1 March 2012 and
took over from Martin Clark as the Company's Chairman at the
conclusion of the Group's Annual General Meeting on 27 April 2012.
Martin had served on the Board for 11 years, the last five as its
Chairman, firstly assisting the Group's turnaround as a
non-executive Director and then ably supporting the executive
management team in successfully growing the business during his
tenure as Chairman. Charles brings a broad experience of listed
companies and industrial markets, most recently as Chairman of Drax
Group plc, and has made a strong contribution to the governance and
strategic direction of Senior in his first year with the Group.
After five years as the Group Finance Director, Simon Nicholls
has decided to take up a similar role with Cobham plc, starting at
the end of April 2013. Simon has made a significant contribution to
the success of Senior during this time and I, together with my
executive colleagues, have enjoyed and appreciated working
alongside him. We wish him well in his future career. The
recruitment process for his replacement is progressing well with an
appointment expected to be made from outside the Group in due
course.
Outlook
The first few weeks of 2013 have seen the Group perform in line
with the Board's expectations. The Flexonics Division is benefiting
from solid sales to the North American heavy-truck market, but
being impacted by weakening European passenger vehicle production,
and the Aerospace Division is seeing healthy volumes from large
commercial aircraft but a continuing decline in the military and
defence market. Engineering activity remains high as work gathers
pace to design and produce products for early stage test aircraft
and engines for new aircraft programmes, such as the CSeries,
A320neo, and A350, and also exhaust gas recycling ("EGR") cooler
prototypes for potential new heavy-truck engine customers. These
high levels of engineering cost are anticipated to peak in the
first half of 2013. The construction of a new UK facility to
accommodate Weston's growing aerospace structures business is due
to be completed in spring 2013 and the business relocated over the
following months, with the majority of the costs being incurred in
the first half. The Board consequently expects a stronger operating
performance in the second half of the year than the first, on the
assumption that North American heavy-truck volumes gradually
improve from current levels, aircraft build rates, notably the
Boeing 787, ramp up as planned and the expected orders for large
industrial expansion joints materialise in the coming months.
Overall, the Board continues to anticipate that the Group will
perform in line with its expectations and make further progress in
2013.
Looking further ahead, the new aircraft programmes mentioned
above, along with others on which the Group has, or can expect to
have, healthy content such as the A400M military transporter, Joint
Strike Fighter, Mitsubishi Regional Jet and Boeing 737 MAX, are all
anticipated to come into service in the coming years and provide
strong growth opportunities for the Group. In Flexonics,
substantial progress has been made in positioning the Group to win
another EGR cooler customer, the acquisition of GA is already
presenting cross-selling opportunities and a healthy number of
large expansion joint projects are now reaching the tendering
stage.
Customers in both Divisions are increasingly looking at
consolidating their supply chain and placing more work with
suppliers like Senior who are financially strong, operationally
focused and have a global footprint, with the Group's operations in
Mexico, China and Thailand generating healthy levels of interest at
present. Environmental legislation also continues to tighten across
the globe, driving greater demand for the Group's land vehicle
products and the development of more fuel-efficient passenger
aircraft on which Senior has potential content.
As well as the organic growth opportunities mentioned above,
Senior's cash-generative nature and strengthening market and
financial position provide a solid platform from which the Group
can continue to pursue acquisitive growth opportunities on a
targeted basis. Such activity has proven to be successful in recent
years, providing growth and enhancing shareholder value, and the
opportunity remains for it to continue to be so in the future when
carried out in a controlled and prudent manner.
Whilst Senior will undoubtedly face challenges as it pursues its
growth agenda, the opportunities and reputation that the Group is
developing mean the prospects for the future remain
encouraging.
Mark Rollins
Group Chief Executive
BUSINESS MODEL
The Group's business model is designed to create long-term
sustainable growth in shareholder value. It comprises six key
elements and is supported by the Group's core values, culture and
common control framework. The six key elements are:
1. Operational Excellence
Senior's long-standing emphasis on operational excellence is
based on the principles of Lean, striving at all times for continuous
improvement and the elimination of non-value-added activities
and processes. Success in this area is one of the principal reasons
for the Group's significant improvement in financial performance
over recent years.
2. Optimising Customer Value and Fulfilling Expectations
The Group seeks to deliver competitive products utilising its
engineering expertise to optimise customer value and fulfil their
expectations whilst continuing to meet its performance objectives.
3. Effective Business Development
Provision of innovative, market-leading solutions for customers
in the Group's chosen principal market sectors (each exhibiting
fundamental macro long-term growth characteristics), is the key
driver of effective business development. This consistently creates
new opportunities for additional programme wins and market share
gains, often for products or systems that assist the improvement
of fuel efficiency in aircraft and land vehicle engines, or to
help meet increasingly stringent global emission control regulations.
4. Investing in Personnel Development
Continually developing the capabilities and competencies of its
personnel, to support its primary performance objectives, is
critical to Senior's future success. The Group has increased
its investment in management development and training significantly
in recent years, seeking to enhance underlying performance and
in particular strengthen business development and operational
management whilst also maintaining the strength of Senior's underlying
entrepreneurial culture.
5. Developing AN Integrated Global Footprint
Senior continues to develop an integrated global commercial and
operational footprint to enable it to supply key programmes to
its OEM customers cost-effectively and to meet growing domestic
demand in emerging markets.
6. Expanding Capabilities
The Group's strong level of free cash flow generation allows
it to target a select number of complementary strategic acquisitions
in growth markets to expand its capabilities, accelerate growth
and enhance its asset portfolio.
STRATEGY
The Group's primary performance objective is to create long-term
sustainable growth in shareholder value. It aims to achieve this
objective through the development of a portfolio of collaborative
high value-added engineering manufacturing companies within its
five market sector framework, that are capable of producing
sustainable real growth in operating profit and cash flow, and that
consistently exceed the Group's cost of capital. At Group level,
there are four key principles to Senior's strategy:
1. OPTIMISING VALUE
Optimising the value of the Group's existing operations portfolio
by consistently meeting customer expectations through advanced
process engineering and excellent operational execution, leading
to market differentiation and continued growth in organic revenue,
operating margins and cash flow delivery.
The Group has enjoyed increasing success in recent years, driving
value creation through the implementation of its operational
excellence initiatives based around Lean principles and sustained
superior performance in the eyes of its customers. This is the
principal reason that, at 13.9% in 2012, the Group's adjusted
operating margin is at record levels, having more than doubled
since 2006.
2. TARGETED INVESTMENT
Targeted investment in new product development, technologies
and geographic regions, for markets having higher than average
growth potential, to further enhance organic growth opportunities.
Many of the Group's products are developed to help customers
achieve their objectives for improved operating costs, particularly
fuel efficiency in aircraft platforms and land vehicle engine
applications, and to meet increasingly stringent global emission
regulations. The Group's level of investment in these growth
areas and on expanding its geographic footprint, which now includes
Thailand and China, continues to increase.
3. PORTFOLIO ENHANCEMENT
Portfolio enhancement through focused acquisitions and disposal
of non-core assets, with decisions in both cases being subject
to strict financial criteria, the operation's long-term outlook
and the Group's anticipated funding position.
The Group has a good track record of acquiring and successfully
integrating new businesses, and also of rationalising and enhancing
the overall asset portfolio through disposals, utilising a framework
that has been developed as part of the strategic planning process.
The key enabler of this programme is the significant balance
sheet capacity that has been generated in recent years through
strong free cash flow generation. In 2012, the Group acquired
one business and made one disposal, both in the Flexonics Division,
and a small Aerospace acquisition was completed in February 2013.
Further details of these transactions are given in the Divisional
Review and Notes 13, 14 and 16.
4. CORPORATE CULTURE
Creating an entrepreneurial culture within a strong control framework
and continuously striving for improvements amongst its operating
businesses, whilst operating in a legal, safe and socially responsible
manner.
The Group's culture is based around empowerment of its autonomous
operations within a well-defined control framework, whilst also
promoting collaboration to support best practice sharing and
to provide more complete customer programme solutions. Governance
procedures are designed to allow each operation to embrace and
manage key risks effectively, and to comply with all legal and
regulatory requirements, without imposing an unnecessary administrative
burden. They also aim to ensure that all employees act at all
times safely, with integrity and in an ethical manner. Further
details are contained in the Corporate Social Responsibility
report on pages 32 to 34 of the Annual Report and Accounts 2012.
STRATEGIC OBJECTIVES
The application of the Group's four key principles in strategy
formulation and implementation outlined above has resulted in the
development of the following strategic objectives in each of the
Group's five key market sectors. The Group's progress against these
objectives is also included in the table below:
Strategic objectives Progress
------------------------------------------------------------- -------------------------------------------------------------
Structures
------------------------------------------------------------- -------------------------------------------------------------
* Extend customer base via increased collaboration * New programme wins with Bell Helicopters in Mexico
and Connecticut, and Woodward in Washington state
* Continue focus on operational excellence to drive
customer value and increase market share * Acquired land in Thailand for potential expansion of
Structures operation in SE Asia
* Develop capabilities and build a business of
increased scale in Thailand * Additional hard metal and precision machining and
process capabilities have been acquired. Adding
further processing capabilities is under review
* Expand process capabilities to enhance added value
for customers
* Potential exists for complementary expansion into
structural composites
* Invest in new technologies to complement growth
------------------------------------------------------------- -------------------------------------------------------------
Fluid conveyance systems
------------------------------------------------------------- -------------------------------------------------------------
* Growth through content on new platforms * Development contracts for ducting components secured
for the engines that will power the A320neo and B737
MAX, due to enter service in 2015 and 2017
* Further develop strategic customer relationships respectively
* Successful introduction of new programmes * Increased investment in engineering and programme
management to ensure new programmes enter production
profitably
* Expand engineered product portfolio
* Acquisition of Atlas in February 2013 brings
* Acquire new or adjacent technologies additional and adjacent composite capabilities
------------------------------------------------------------- -------------------------------------------------------------
Gas turbine engines
------------------------------------------------------------- -------------------------------------------------------------
* Target higher value-added engineered or flight * First rotating parts won as part of outsourcing
critical parts (e.g. rotating) contract from Rolls-Royce. Further products being
targeted at other customers
* Develop cross-business customer relationships
* Acquisition of GA brings new precision machining
capabilities to enhance potential cross-business
* Further develop low-cost country footprint customer relationships
* Secure further content on engines for next generation * New programme aerofoils now being manufactured in
narrow body and wide body commercial aircraft Thailand, with additional opportunities being
developed with existing and new customers
* Expand process capabilities via new technology
investment or acquisition * Development contracts for fuel system components
secured for the engines that will power the A320neo
and B737 MAX.
------------------------------------------------------------- -------------------------------------------------------------
Land vehicle emission control
------------------------------------------------------------- -------------------------------------------------------------
* Develop product portfolio as emission regulation * Continued investment in heat exchanger technology
thresholds increase resulting in increased presence on latest generation
of heavy-duty diesel engines, via EGR coolers, in
North American and European markets
* Invest further in emerging market footprint, in
growth markets
* Investment in emerging market operations to support
new programme wins for EGR tubes and other components
* Capitalise on expanded capabilities following as emission regulations are tightened
acquisition of GA
* Acquisition of GA brings significant opportunities
* Continue to invest and expand in heavy-duty for cross-business commercial synergies with existing
truck/off-highway sector businesses in both on-road and off-road applications
* Investment in passenger car niches to support * New joint venture in China brings further expansion
development of global platform capabilities of global footprint to support global platform
requirement for existing and new land vehicle
customers
------------------------------------------------------------- -------------------------------------------------------------
Industrial process control
------------------------------------------------------------- -------------------------------------------------------------
* Expand global presence via offshore partners for * Collaboration between Group operations in USA, Canada
large projects and Brazil results in improved competitiveness and
execution
* Secure growth from tightening emission standards in
developed markets * Increase in new work awarded as a result of emission
regulations enacted in the US leads to additional
damper contract awards
* Seek proprietary adjacent products
* Increased sales of fuel cell components in USA
* Participate in new technology developments and
applications (e.g. combined heat and power,
concentrated solar power) * Focus on additional proprietary adjacent products in
existing and emerging markets
* Additional concentrated solar power contracts awarded
in Europe and USA
------------------------------------------------------------- -------------------------------------------------------------
The Group uses five financial and two non-financial metrics to
measure progress in implementing its strategy (as described more
fully above). The Group's financial objectives are as follows:
-- to achieve organic sales growth in excess of the rate of inflation;
-- to increase adjusted earnings per share on an annual basis by
more than the rate of inflation;
-- to increase the Group's return on revenue margin each year;
-- to generate sufficient cash to enable the Group to fund future
growth and to follow a progressive dividend policy; and
-- to maintain an overall return on capital employed in excess of
the Group's cost of capital and to target a pre-tax return in
excess of 15%.
These financial objectives are supported by two non-financial
objectives:
-- to reduce the Group's rate of energy intensity by 10% in the
five-year period to 2015; and
-- to reduce the number of recordable injuries which incur lost
time by 20% in the five-year period to 2015.
Senior delivered record profits in 2012 and all of the Group's
financial targets were met. The Group's energy intensity target was
also met and the Group remains on track to meet its 2015 safety
improvement goal, although progress in 2012 was below expectations.
Further details of the Group's performance record in this regard,
including its long-term performance trends, are shown on pages 32
to 34 of the Annual Report and Accounts 2012.
A summary of the year-on-year movements in these Key Performance
Indicators ("KPIs"), the main drivers of the changes and the
respective link to the key strategic principles outlined above, are
described below.
KPI Growth Progress Principle
--------------------------- ---------------- ------------------------------------------- ---------
Organic revenue
--------------------------- ---------------- ------------------------------------------- ---------
The main drivers of organic revenue
growth in the Aerospace Division
were increased build rates on
large commercial aircraft programmes,
as well as additional demand in
the Group's business jet programmes
and in military markets on the
Joint Strike Fighter programme.
In Flexonics, demand for truck
engine components in North America
improved and increases in organic
revenue were also achieved in
GBP648.8m global petrochemical and in US
(2011 - GBP612.7m) +6% power and energy markets. 1,2
--------------------------- ---------------- ------------------------------------------- ---------
Adjusted earnings per
share
--------------------------- ---------------- ------------------------------------------- ---------
Increased revenue, resulting from
the Weston acquisition and strong
underlying market demand in most
of the Group's end-markets, combined
with continued effective operational
execution and a reduced tax rate,
arising principally due to changes
in geographical profit mix, resulted
in a significant increase in adjusted
17.75 pence earnings per share in 2012 of
(2011 - 14.55 pence) +22% 22%. 1,2
--------------------------- ---------------- ------------------------------------------- ---------
Return on revenue margin
--------------------------- ---------------- ------------------------------------------- ---------
A record Group adjusted operating
profit margin of 13.9% was achieved
in 2012. The increase was primarily
attributable to improved operational
efficiency across the Group, but
in particular in the Flexonics
Division, which resulted in the
positive impact of increases in
revenue being translated into
13.9% +0.1 improved underlying Group profitability. 1,2
(2011 - 13.8%) PPTS
--------------------------- ---------------- ------------------------------------------- ---------
Net cash from operating
activities
--------------------------- ---------------- ------------------------------------------- ---------
The Group's cash conversion was
again very strong, with net cash
from operating activities increasing
by 8% to a record level of GBP83.3m
in 2012. The main drivers of this
result were the increase in Group
profitability, and continued effective
control over working capital which
remains below 10% of annualised
sales. As a result, the Group
has been able to fund an increased
level of capital expenditure of
GBP83.3m 1.3 times depreciation and propose
(2011 - GBP77.1m) +8% a 22% increase in the annual dividend. 1,2,3
--------------------------- ---------------- ------------------------------------------- ---------
Return on capital employed
--------------------------- ---------------- ------------------------------------------- ---------
The Group maintained its record
level of return on capital employed
in 2012 close to 27%. This was
achieved through a combination
of earnings enhancements and continued
balance sheet efficiency, in particular
increased earnings from acquisitions,
effective allocation of capital
expenditure and asset utilisation
on profitable growth programmes,
as well as continued effective
control over working capital requirements
26.9% +0.1 at operational level. 1,2,3,4
(2011 - 26.8%) PPTS
--------------------------- ---------------- ------------------------------------------- ---------
Carbon dioxide emissions
--------------------------- ---------------- ------------------------------------------- ---------
Through more efficient use of
resources and improved asset utilisation,
the Group continues to make good
progress on its published five-year
target of improving energy efficiency
by 10% between 2011 and 2015.
92 tonnes / GBPm revenue This is the seventh consecutive
(2011 - 94 tonnes / GBPm year that Senior has reduced its
revenue) 2% improve-ment environmental impact. 4
--------------------------- ---------------- ------------------------------------------- ---------
Lost time injury frequency
rate
--------------------------- ---------------- ------------------------------------------- ---------
The number of lost time injuries
increased to 1.36 per 100 employees
in 2012, due to the inclusion
of acquired businesses and an
increase in incidents in organic
operations in the Flexonics Division.
This disappointing result is the
first annual increase since the
Group launched its current HSE
programme in 2006. The Group continues
to take a proactive approach to
the health and safety of all employees,
as described more fully in the
Corporate Social Responsibility
Increased report on pages 32 to 34 of the
by 0.38 Annual Report and Accounts 2012,
1.36 incidents per 100 incidents and despite the increase in incidents
employees p.a. per 100 this year has more than halved
(2011 - 0.98 incidents employees the number of lost time injury
per 100 employees p.a.) p.a. incidents since 2006. 4
--------------------------- ---------------- ------------------------------------------- ---------
The Group has had considerable success in implementing its
strategy in recent years. A summary of the movements in the Group's
KPIs since 2006 is set out in the table below:
Average annual movement
2006 to 2012
Organic revenue growth (1) +5% p.a.
Adjusted earnings per share growth (2) +28% p.a.
Return on revenue margin increase (3) +1.2 ppts p.a.
Net cash from operating activities (4) +30% p.a.
Return on capital employed increase (5) +2.2 ppts p.a.
CO(2) emissions / GBPm revenue (6) -3% p.a.
0.24 fewer incidents
Lost time injury frequency rate (7) p.a.
(1) Organic revenue growth is the rate of growth in Group revenue,
at constant exchange rates, excluding the effect of acquisitions
and disposals.
(2) Adjusted earnings per share is the profit after taxation (adjusted
for the profit or loss on disposal of fixed assets, amortisation
of intangible assets arising on acquisitions, acquisition costs,
pension curtailment charge and profit on disposal of business)
divided by the average number of shares in issue in the period.
(3) Return on revenue margin is the Group's adjusted operating profit
divided by its revenue.
(4) Net cash from operating activities is the Group's free cash
flow before interest and net capital expenditure.
(5) Return on capital employed is the Group's adjusted operating
profit divided by the average of the capital employed at the
start and end of the period. Capital employed is total assets
less total liabilities, except for those of an interest-bearing
nature.
(6) CO(2) emissions / GBPm revenue is an estimate of the Group's
carbon dioxide emissions in tonnes divided by the Group's revenue
in GBPm.
(7) Lost time injury frequency rate is the number of OSHA (or equivalent)
recordable injury or illness cases involving days away from
work per 100 employees.
All KPIs were calculated as the simple average of year-on-year movements
in these KPIs over the period 2006 - 2012.
DIVISIONAL REVIEW
Aerospace Division
Market Overview
Demand in the large commercial aircraft sector, Senior's largest
aerospace market exposure, remains strong with order books at
record levels.
Large commercial aircraft
-- Total revenue growth of 50% including acquisitions, with organic
revenue growth of 15% underpinned by increasing build rates in
Airbus and Boeing large commercial aircraft platforms
-- Build rates on most major platforms expected to increase in 2013
and beyond
-- Boeing delivered 46 B787s in 2012 as the build rate increased
to five per month during the year as planned
-- Strong order intake for Boeing and Airbus again in 2012, in particular
for re-engined narrow body A320neo and B737 MAX platforms, where
total orders now stand at 2,798 aircraft, and which are due for
delivery in 2015 and 2017 respectively
-- Total OEM order books remain at record levels, representing over
seven years of production at current build rates
Military aerospace
-- Revenue increased by 7%, reflecting a robust footprint on well-established
platforms and increased activity on new programmes such as the
F-35 Joint Strike Fighter
-- Demand on the Group's main military programmes, the C-130J transport
aircraft and the Black Hawk helicopter, held up well for most
of the year although began to weaken in the fourth quarter
-- Short-term outlook on a number of platforms is weaker, with likelihood
of reduced build rates due to downward pressure on US defence
expenditure
-- Healthy shipset content on new programmes such as the A400M transport
aircraft, the P-8A Poseidon naval reconnaissance aircraft and
the F-35 Joint Strike Fighter should partially mitigate the impact
of any reduction in funding that may affect established programmes
Regional and business jets
-- Business jet revenue growth of 12%, ahead of the market, due
to increased demand from large cabin platforms (e.g. Bombardier
Challenger and Gulfstream G650)
-- Revenue from regional jet sector broadly unchanged with markets
weaker but Senior's performance aided by recoverable development
expenditure on new platforms
-- Continued modest recovery in business jet sector is forecast
for 2013, with regional demand remaining subdued
-- Senior's regional jet market revenue is likely to increase in
the medium-term as new platforms come to market, such as the
Bombardier CSeries and Mitsubishi MRJ
Business Review
The Aerospace Division consisted of 18 operations throughout
2012. These are located in North America (11), the United Kingdom
(three), continental Europe (three) and Thailand. In addition,
after the year-end, the Group acquired Atlas Composites Limited
("Atlas"), a small UK-based developer and manufacturer of composite
structural products, bringing new capabilities into the Group.
In 2012, the Division accounted for 66% (2011 - 61%) of
continuing Group revenue.
The Aerospace Division's main products are engine structures and
mounting systems (28% of 2012 divisional sales), airframe and other
structural parts (25%), metallic ducting systems (18%), helicopter
machined parts (7%), composite ducting systems (7%) and fluid
control systems (5%). The remaining 10% of divisional sales were to
non-aerospace, but related technology markets, including the
energy, semi-conductor and medical markets. The Division's largest
customers include Boeing, representing 16% of 2012 divisional
sales, Rolls-Royce (15%), United Technologies (11%), Spirit
AeroSystems (10%), Airbus (4%), Bombardier (4%) and GKN (3%).
Increasing build rates of large commercial aircraft, together
with the inclusion of Weston for the first time, resulted in the
Aerospace Division delivering a healthy performance during
2012.
2012 2011 (1) Change
GBPm GBPm
Revenue 470.5 382.4 +23%
Adjusted operating profit 72.1 59.9 +20%
Operating margin 15.3% 15.7% -0.4ppts
(1) 2011 results translated using 2012 average exchange rates.
Divisional revenue increased by GBP88.1m (23%) to GBP470.5m
(2011 - GBP382.4m at constant currency) and adjusted operating
profit increased by GBP12.2m to GBP72.1m (2011 - GBP59.9m at
constant currency). Excluding the impact of acquisitions, revenue
for the Division increased by 7% and adjusted operating profit
increased by 10%. Whilst the operating margin declined slightly to
15.3% (2011 - 15.7%), this was principally due to the inclusion of
the currently lower margin Weston business as, excluding the effect
of acquisitions, the margin increased to 16.0% (2011 - 15.7%).
51% of the Aerospace Division's revenues are derived from the
large commercial aerospace market, comprising the aircraft
manufactured by Airbus and Boeing and the engines that go on those
aircraft. This market remained very strong during 2012 with Boeing
and Airbus collectively delivering 1,189 aircraft, an 18% increase
over the prior year (2011 - 1,011 deliveries). Boeing and Airbus
also recorded strong aircraft orders during 2012 which, at a
combined net order intake of 2,036 aircraft (2011 - 2,224
aircraft), was well ahead of aircraft deliveries for the third year
in succession. As a consequence, their combined order book grew by
nearly 850 aircraft during 2012 to 9,055 aircraft at the end of the
year, representing well over seven years of deliveries at current
production rates. Due to the strong markets and a full-year
contribution from Weston, Senior grew its sales to the large
commercial aircraft market by 50% during 2012, with organic growth
being 15%.
Equally encouraging was the success Senior had in winning
additional content on the A350 and B787, two significant future
programmes for the Group with the Airbus A350 due to fly for the
first time during 2013 and Boeing planning to double the production
rate of the B787 from the current 5 per month to 10 per month by
early 2014. Whilst Boeing has temporarily stopped delivering the
B787 to its customers, pending an investigation into an electrical
fault, both they and their customers remain highly confident in the
long-term future of the B787 aircraft, given its enhanced
fuel-economy and passenger comfort. As a consequence, Boeing
continues to manufacture the aircraft at the planned production
rate and, to date, there has been no effect on the Aerospace
Division's financial performance.
The smaller Airbus A320 and Boeing 737 aircraft are the highest
volume commercial aircraft platforms, representing 73% (by number)
of all commercial aircraft delivered during 2012, and as a result
they are currently the most important programmes for Senior by
value. Both aircraft are currently being redesigned to accommodate
modern, more fuel-efficient, aircraft engines with the new aircraft
being designated as the A320neo and B737 MAX, respectively. These
aircraft, which are scheduled to come into service in 2015 and 2017
respectively, represent an excellent opportunity for Senior to
increase its shipset content. Encouraging progress was made in this
regard during 2012, with the Group now anticipating having at least
50% more content on the A320neo than the A320 and for the B737 MAX
content to be greater than that on the current B737.
The Aerospace Division recorded a 7% increase in revenue from
the military and defence sector during 2012, despite the declining
end-markets in North America and Europe, with the F-35 Joint Strike
Fighter seeing increased activity for Senior and the Weston
acquisition making an initial contribution. Whilst the 2012 outcome
was highly satisfactory, the Group saw revenue from the Black Hawk
helicopter programme start to decline in the second half of the
year and an announcement that production volumes for the C-130J
military transport aircraft would decrease by at least 35% in 2013.
These are the Group's two highest-value military programmes and it
is unlikely that growing volumes on other platforms, such as the
A400M transporter and P-8A reconnaissance aircraft, will fully
offset these reductions in the near future. As a result, it is
expected that the military and defence sector, which represented
25% of Aerospace divisional revenue in 2012, will decline in its
relative importance during 2013.
The business jet sector represented around 9% of divisional
sales in 2012 and due to the Group's greater exposure to newer and
larger business jets, rather than smaller and older aircraft,
revenue derived from this sector increased by 12% over 2011,
despite 2012 deliveries of business jet aircraft declining by 3% to
672 aircraft (2011 - 696 aircraft). The 2012 delivery level is now
approximately half the level seen at the peak in 2008, when 1,315
business jets were delivered, with the expectation that the
industry will now see a slow and gradual improvement over the
coming years. In the regional jet sector, a beneficial mix and
revenue being earned from development work on new programmes, such
as the Mitsubishi regional jet, meant that the Group recorded
broadly unchanged revenue in 2012, despite the two largest
manufacturers, Bombardier and Embraer, seeing a 24% decline in
their combined regional jet deliveries. Bombardier's largest ever
commercial aircraft, the CSeries, is due to fly for the first time
during 2013 and because the Group has a large content on this
aircraft ($448k per aircraft), its potential future commercial
success would be advantageous for the Group.
Around 11% of the Aerospace Division's revenue is derived from
other markets such as space, non-military helicopters, power and
energy, medical and semi-conductor where the Group manufactures
products using very similar technology to that used for certain
aerospace products. Overall, these markets were slightly lower in
2012, with power and energy and semi-conductor seeing some
year-on-year weakness.
Flexonics Division
Market Overview
Senior's principal end-market exposures in the Flexonics
Division are to medium- and heavy-duty diesel engine markets in
North America, passenger cars in Europe and to global industrial
process control markets including petrochemical, HVAC and power and
energy markets.
Land vehicle emission control
-- Total truck and off-highway sales increased by 20% principally
due to increased production of medium- and heavy-duty truck engines
in North America
-- Group sales to European truck programmes grew by 5% despite weak
end markets
-- Expansion of capabilities via acquisition of GA in November 2012,
bringing precision machining capabilities and potential customer
synergies
-- Formation of a joint venture in China is an important expansionary
step for the Group's footprint in emerging markets
-- The Group commenced assembly of flexible exhaust connectors in
Mexico to supply a key customer's local production plant and
its US facilities
-- Sales in the passenger car sector declined by 13% due to reduced
demand in European markets and slight declines for the Group's
products in Brazil and the USA
Industrial process control
-- Industrial revenues increased by 8% reflecting robust demand
in petrochemical markets in Asia and the start of a potential
recovery in demand in US power generation markets
-- First damper order delivered in Brazil, into the steel industry.
Further opportunities are in development
-- European industrial markets remained subdued for most of the
year
-- Disposal of non-core Senior Hargreaves in October 2012 enhances
the return from the industrial portfolio and significantly reduces
the Group's exposure to European HVAC markets
-- Additional contracts were won for concentrated solar power plants
in the USA and Europe for the benefit of 2012 and 2013
Business Review
Following the acquisition of GAMFG Precision ("GA") in November
2012 and the setting up of the Chinese joint venture in August
2012, the Flexonics Division now has 12 operations. These are
located in North America (four), continental Europe (three), the
United Kingdom, South Africa, India, Brazil and China.
In 2012, the Flexonics Division accounted for 34% (2011 - 39%)
of continuing Group revenue. The percentage of Group sales arising
from the passenger vehicle sector declined to 8% in 2012 (2011 -
12%) with sales to the heavy-duty diesel engine market increasing
to 10% (2011 - 9%). Sales to industrial markets represented 16% of
Group revenue in 2012 (2011 - 18%).
The land vehicle sales comprise cooling and emission control
components (26% of 2012 divisional sales), flexible mechanisms for
vehicle exhaust systems (17%), diesel fuel distribution pipework
(9%) and off-highway hydraulics (1%). The industrial product
revenue is derived from the power and boiler markets (19%), oil and
gas and chemical processing industries (13%), HVAC and solar
markets (5%) and a range of other markets (10%).
The Division's largest individual end users are land-vehicle
customers, including Cummins (representing 19% of 2012 divisional
sales), Ford (5%), PSA (5%), General Motors (4%), Renault (3%) and
Caterpillar (3%). Individual industrial customers rarely account
for more than one or two per cent of divisional sales and, given
the generally bespoke and project nature of the Group's industrial
products, the customers vary significantly each year. Bloom Energy
and a single expansion joint project in Tianjin, China, each
accounted for 3% of divisional sales in 2012.
Many of the Flexonics Division's end-markets saw little growth
during 2012 due to generally challenging global economic
conditions, particularly in Europe, and so it is pleasing to report
a much improved financial performance for the Division.
Continuing Operations 2012 2011 (1) Change
GBPm GBPm
Revenue 242.0 230.7 +5%
Adjusted operating profit 37.3 33.3 +12%
Operating margin 15.4% 14.4% +1.0ppts
(1) 2011 results translated using 2012 average exchange rates.
The table above is for continuing operations only and excludes
the GBP0.8m of adjusted operating profit generated by Senior
Hargreaves prior to its sale in October 2012 (2011 full year -
GBP1.0m). On this basis, divisional revenue grew by 5% to GBP242.0m
(2011 - GBP230.7m) with the acquisition of GA in November 2012 and
the growth in heavy truck and petrochemical markets more than
offsetting a marked decline in the demand for passenger vehicles in
Europe. This mix change, combined with operational improvements and
favourable raw material pricing, resulted in adjusted operating
profit increasing by 12% to GBP37.3m (2011 - GBP33.3m). It is
particularly notable that the operating margin for the Division, on
a continuing basis, rose to a record level of 15.4% in 2012 (2011 -
14.4%).
Overall, Group sales to truck and off-highway markets increased
by 20% whilst Group sales to passenger vehicle markets declined by
13%. The Flexonics Division's main land vehicle market exposures
are to the North American truck market (8% of Group sales in 2012,
with Cummins being responsible for the vast majority) and the
European passenger vehicle market (6% of Group sales, with the
largest customers being PSA, Ford and Renault). These two markets
fared quite differently during 2012: North American medium- and
heavy-duty truck sales increased by 14% over 2011, with the first
half of 2012 being stronger than the second; whereas European
passenger vehicle demand fell by 8%, to reach its lowest level
since 1995. Within this weak market, the Group's three largest
European land vehicle customers reported a collective sales decline
of 15%. Elsewhere, passenger vehicle demand was up by over 10% in
North America, and slightly ahead in India and Brazil, whereas
European truck demand mirrored that of passenger vehicles in
falling by 8%. Against this backdrop the Group's German operation's
recent success in winning new programmes meant that its sales to
the medium- and heavy-duty truck market actually increased by
5%.
Despite generally weak land vehicle markets, tightening emission
legislation, combined with the Group's operational excellence and
product development skills, mean market-share opportunities
regularly arise. The Group's operation in the Czech Republic is
already benefiting from new programme wins from existing customers,
and the French operation, having been awarded work from new
customers such as Jaguar Land Rover and Liebherr during 2012, is
expected to benefit in the coming years. 2012 also saw good
progress being made in North America towards winning a second major
customer, in addition to Cummins, for the Group's EGR cooler
product.
Largely due to the successful delivery of a very large expansion
joint project to China for the petrochemical industry, total
divisional industrial market revenue increased by 8% over the prior
year. Outside Europe, where demand was generally weak, most
industrial markets remained at satisfactory levels with the Group
benefiting in North America from increased demand for its fuel-cell
bellows as well as its damper control products, where the benefits
of selling on a global basis through the wider Senior sales network
are now being seen. Whilst global industrial project activity
continues at encouraging levels, which bodes well for the
longer-term future, the short-term nature of the order book means
that the 2013 outcome for a number of the Group's industrial
businesses remains dependent upon the timing, as well as the size
and nature, of the anticipated project awards.
FINANCIAL REVIEW
Financial Summary
A summary of the Group's operating results is set out in the
table below. Further detail on the performance of each Division is
set out above.
Adjusted
Operating
Revenue Profit (1) Margin
-------------- -------------- -----------
2012 2011 2012 2011 2012 2011
GBPm GBPm GBPm GBPm % %
Aerospace 470.5 382.6 72.1 59.6 15.3 15.6
Flexonics 242.0 240.1 37.3 35.0 15.4 14.6
Share of results
of joint venture - - (0.1) - - -
Inter-segment sales (0.5) (0.4) - - - -
Central costs - - (8.7) (7.3) - -
------ ------ ------ ------ ---- -----
Continuing operations 712.0 622.3 100.6 87.3 14.1 14.0
Discontinued 17.8 18.4 0.8 1.0 4.5 5.4
------ ------ ------ ------ ---- -----
Group total 729.8 640.7 101.4 88.3 13.9 13.8
====== ====== ====== ====== ==== =====
(1) Adjusted operating profit is the profit before interest and
tax and before profit or loss on disposal of fixed assets, amortisation
of intangible assets arising on acquisitions, acquisition costs,
pension curtailment charge and profit on disposal of business.
Adjusted operating profit may be reconciled to the operating
profit that is shown in the Consolidated Income Statement as
follows:
2012 2011
GBPm GBPm
Operating profit per Financial Statements 93.7 82.0
Profit for the period from discontinued operations 3.3 1.0
Loss on sale of fixed assets 0.1 0.3
Exceptional pension charge 1.9 -
Amortisation of intangible assets from acquisitions 4.3 4.4
Acquisition costs 0.6 0.6
Profit on disposal of business (2.5) -
------ -----
Adjusted operating profit 101.4 88.3
====== =====
Total Group revenue increased by 14% (GBP89.1m) in 2012
including the adverse impact of foreign exchange movements (16%
revenue increase on a constant currency basis). This increase
included GBP63.2m from acquisitions: GBP55.6m related to 11 months'
incremental revenue from the acquisition of Weston which had taken
place at the end of November 2011; GBP4.0m being three months'
incremental revenue from the acquisition of Damar AeroSystems at
the end of March 2011; and GBP3.6m due to the acquisition of GA in
November 2012. In addition, total Group revenue includes
discontinued operations revenue of GBP17.8m (2011 - GBP18.4m) from
Senior Hargreaves Limited which was sold in October 2012. Excluding
acquisitions and discontinued operations, revenue in the Group's
organic operations (at constant currency) increased by 6%.
In aerospace markets, the Group benefited from increasing build
rates in the large commercial aircraft sector and an increase in
demand from the Group's main programmes in the business jet sector.
Revenue in the military sector increased slightly, in particular on
the F-35 Joint Strike Fighter programme, with build rates in the
Group's key military platforms remaining satisfactory for the
majority of the year, although weakening in the fourth quarter.
Regional jet markets remained subdued, with total revenue largely
unchanged in this sector. Total revenue in land vehicle markets
increased overall although activity levels were mixed, with strong
increases in North American truck markets, notably in the first
half of the year, but a further decline in European passenger
vehicle registrations throughout the year. Passenger vehicle
markets in India continued to grow steadily but declined marginally
overall in Brazil. Activity levels in the Group's industrial
markets were positive, with increases in demand for large expansion
joints experienced in global petrochemical markets and for dampers
in US power & energy markets.
The Group's free cash flow and net debt for 2012 and the prior
year were:
2012 2011
GBPm GBPm
Free cash flow 57.6 55.6
Net debt 70.9 93.0
Net debt : EBITDA ratio 0.6x 0.8x
Free cash flow is the total net cash flow generated by the Group
prior to corporate activity such as acquisitions, disposals,
financing and transactions with shareholders; it is calculated as
follows:
2012 2011
GBPm GBPm
Net cash from operating activities 83.3 77.1
Interest received 0.3 0.3
Proceeds on disposal of tangible fixed assets 0.1 0.3
Purchases of tangible fixed assets (25.3) (21.1)
Purchases of intangible assets (0.8) (1.0)
------- -------
Free cash flow 57.6 55.6
======= =======
The Group generated significant free cash flow of GBP57.6m in
2012 (2011 - GBP55.6m), a strong performance for the year, and
marginally ahead of 2011 despite an increase in capital expenditure
on future growth programmes in the commercial aerospace and
heavy-duty diesel engine sectors. The principal drivers of the
positive underlying cash performance were the increase in operating
profits combined with sustained tight controls over working capital
levels, ultimately resulting in an excellent level of cash
conversion. The free cash flow performance was after the Group had
contributed a further GBP13.7m in excess of service costs (2011 -
GBP7.8m) into its defined benefit pension plans in the UK and the
USA, including a one-off voluntary contribution of GBP6.0m
following the disposal of Senior Hargreaves Limited.
The strong cash flow enabled the Group to fund the GA
acquisition from existing cash and debt facilities, for a total
initial consideration of GBP28.1m, and still resulted in a
satisfactory decline in net debt of GBP22.1m during the year
(including favourable foreign exchange movements of GBP4.1m). Net
debt at the year-end was GBP70.9m (2011 - GBP93.0m).
Financial Detail
Revenue
Group revenue increased by GBP89.1m (14%) to GBP729.8m (2011 -
GBP640.7m), including GBP17.8m (2011 - GBP18.4m) from a
discontinued operation, Senior Hargreaves, which was sold in
October 2012. Excluding this, total Group revenue from continuing
operations increased by GBP89.7m (14%) including an incremental
GBP63.2m from three acquisitions: GA acquired in November 2012, and
the full year effect of the acquisitions of Weston made in November
2011 and Damar AeroSystems in March 2011. If the effect of
acquisitions and a year-on-year adverse exchange impact of GBP9.6m
are excluded, underlying revenue from organic operations increased
by 6% on a constant currency basis. In 2012, 66% of sales from
continuing operations originated from North America, 14% from the
UK, 13% from the Rest of Europe and 7% from the Rest of the
World.
Operating profit
Adjusted operating profit increased by GBP13.1m (15%) to
GBP101.4m (2011 - GBP88.3m), due to a combination of the increase
in organic operations' revenue, further operational improvements
and year-on-year acquisition contributions of GBP6.4m. Adjusted
operating profit includes GBP0.8m operating profit from Senior
Hargreaves (2011 - GBP1.0m), but is before finance costs, loss on
disposal of fixed assets of GBP0.1m (2011 - GBP0.3m), acquisition
costs of GBP0.6m (2011 - GBP0.6m), amortisation of intangible
assets arising on acquisitions of GBP4.3m (2011 - GBP4.4m) and an
exceptional pension charge of GBP1.9m relating to the disposal of
Senior Hargreaves (2011 - GBPnil). The Group suffered adverse
foreign currency movements of GBP1.4m on translation of comparative
profits and, if these are excluded together with the incremental
profit contribution of GBP6.4m from acquisitions, underlying
adjusted operating profit from organic operations increased by 10%
on a constant currency basis. The Group achieved a record operating
margin of 13.9% in 2012 (2011 - 13.8%), with underlying margin
improvements in both the Aerospace and Flexonics Divisions. These
were achieved through a combination of the positive impacts of
increased volumes in key core markets, in particular the large
commercial aircraft market, and further benefits from operational
efficiency improvements, in particular in North American truck
operations.
Total Group reported operating profit from continuing operations
increased by 14% to GBP93.7m (2011 - GBP82.0m), after charges for
the amortisation of intangible assets from acquisitions,
acquisition costs, loss of disposal of fixed assets and an
exceptional pension charge as described above.
Finance costs
Total finance costs, net of investment income of GBP0.3m (2011 -
GBP0.3m), were unchanged at GBP10.3m (2011 - GBP10.3m). Net
interest costs on borrowings fell slightly to GBP7.7m (2011 -
GBP7.9m) mainly due to an increased level of average cash deposits
during the year. The Group has fixed rate, fully-drawn US private
placement facilities of $185m (GBP113.5m) which attract a fixed
interest payment each year. The Group's total net debt was below
this level for the whole of 2012 and 2011. Fluctuations in the
Group's net interest costs only therefore arise due to changes in
cash amounts on deposit, deposit interest rates and variations in
the rate of foreign exchange translation, principally between the
Pound Sterling and the US dollar.
Pension-related finance charges increased to GBP2.6m in 2012
(2011 - GBP2.4m), principally due to a decrease in the expected
rate of return on assets, as an increasing proportion of the
Group's pension assets are invested in fixed income securities as
part of the continuing implementation of liability-driven
investment strategies in the Group's defined benefit pension
plans.
Profit before tax
Adjusted profit before tax increased by 17% to GBP91.1m (2011 -
GBP78.0m). Reported profit before tax from continuing operations
increased by 16% to GBP83.4m (2011 - GBP71.7m). The reconciling
items between these two measures are shown in Note 4.
Tax charge
The total tax charge decreased to GBP16.8m (2011 - GBP17.7m),
despite the increase in the Group's taxable profits. Net tax
benefits of GBP1.8m (2011 - GBP1.8m) arose from the loss on sale of
fixed assets, acquisition costs, amortisation of intangible assets
from acquisitions and the exceptional pension charge in 2012. If
these are added back, the resultant tax charge of GBP18.6m (2011 -
GBP19.5m) represented an underlying rate of 20.4% (2011 - 25.0%) on
the adjusted profit before tax of GBP91.1m (2011 - GBP78.0m). The
decrease in the underlying tax rate arose mainly due to a decrease
in the tax rate in the USA, a favourable tax ruling in the Czech
Republic and an increase in deferred tax assets recognised in the
UK arising from the capitalisation of certain historical UK losses
that are now anticipated to be available for use following the
acquisition of Weston in 2011.
Earnings per share
The weighted average number of shares, for the purposes of
calculating undiluted earnings per share, increased to 408.5
million (2011 - 402.0 million). Adjusted earnings per share
increased by 22% to 17.75 pence (2011 - 14.55 pence). Basic
earnings per share increased by 25% to 17.11 pence (2011 - 13.68
pence). See Note 7 for details of the basis of these
calculations.
Dividends
A final dividend of 3.27 pence per share is proposed for 2012
(2011 - 2.65 pence), which would cost GBP13.5m (2011 final dividend
- GBP10.7m). This would bring the full-year dividend to 4.65 pence
per share, 22% above the prior year. The cash outflow incurred
during 2012 in respect of the final dividend for 2011 and the
interim dividend for 2012 was GBP16.4m (2011 - GBP13.1m).
Research and development
The Group's expenditure on research and development increased to
GBP12.8m during 2012 (2011 - GBP11.8m). Expenditure was incurred
mainly on designing and engineering products in accordance with
individual customer specifications and developing specific
manufacturing processes for their production.
Capital expenditure
Gross capital expenditure increased by 18% in 2012 to GBP26.1m
(2011 - GBP22.1m), principally representing investment in future
growth programmes and necessary replacement and compliance
expenditure. The Group's operations remain well capitalised. The
disposal of assets no longer required raised GBP0.1m (2011 -
GBP0.3m). A higher level of capital expenditure is anticipated for
2013, although the extent will be dependent primarily on the level
of build rate increases in the large commercial aircraft segment
and the Group securing the expected new programme wins in both
Divisions.
Capital structure
The Group's Consolidated Balance Sheet at 31 December 2012 may
be summarised as follows:
Assets Liabilities Net Assets
GBPm GBPm GBPm
Property, plant and equipment 134.8 - 134.8
Goodwill and intangible assets 238.8 - 238.8
Investment in joint venture 0.8 - 0.8
Current assets and liabilities 192.4 (140.8) 51.6
Other non-current assets and liabilities 13.0 (18.1) (5.1)
Retirement benefit obligations - (37.1) (37.1)
------- ------------ -----------
Total before net debt 579.8 (196.0) 383.8
Net debt 44.5 (115.4) (70.9)
------- ------------ -----------
Total at 31 December 2012 624.3 (311.4) 312.9
======= ============ ===========
Total at 31 December 2011 589.3 (313.0) 276.3
======= ============ ===========
Net assets increased by 13% in the year to GBP312.9m (2011 -
GBP276.3m), in the main as a result of retained profits of
GBP69.9m. Net assets per share increased by 10% to 75.6 pence (2011
- 68.7 pence). There were 413.9 million ordinary shares in issue at
the end of 2012 (2011 - 402.2 million).
Retirement benefit obligations, as calculated in accordance with
IAS 19, increased by GBP2.6m to GBP37.1m (2011 - GBP34.5m)
principally due to the negative impact of an increase in plan
liabilities resulting from a decrease in the discount rate used to
discount plan liabilities and a GBP1.9m curtailment charge in
respect of the Senior Hargreaves disposal, partially offset by the
positive impact of an increase in the value of fixed income assets
in the plans and GBP13.7m of cash contributions in excess of
service costs.
Cash flow
The Group generated significant free cash flow (whose derivation
is set out in the table below) of GBP57.6m in 2012, GBP2.0m above
the GBP55.6m achieved in 2011. The main driver of the year's
performance was cash generated from operations of GBP99.8m, which
is stated after taking into account additional pension
contributions in excess of service costs of GBP13.7m (2011 -
GBP7.8m), including a one-off voluntary payment of GBP6.0m
following the disposal of Senior Hargreaves, and a working capital
outflow of GBP10.2m (2011 - GBP4.6m outflow).
The positive cash flow from operations was offset by increased
net capital expenditure of GBP26.0m (2011 - GBP21.8m) and tax and
interest payments of GBP16.2m (2011 - GBP18.9m).
2012 2011
GBPm GBPm
Operating profit from continuing operations 93.7 82.0
Discontinued operations profit before tax 0.8 1.0
Depreciation and amortisation 25.1 23.0
Share of loss in joint venture 0.1 -
Working capital movement (10.2) (4.6)
Pension payments above service cost (7.7) (7.8)
Additional discretionary pension payments (6.0) -
Other items 4.0 2.7
------- -------
Cash generated from operations 99.8 96.3
------- -------
Interest paid (net) (7.6) (8.2)
Tax paid (8.6) (10.7)
Capital expenditure (26.1) (22.1)
Sale of fixed assets 0.1 0.3
------- -------
Free cash flow 57.6 55.6
------- -------
Dividends (16.4) (13.1)
Acquisitions (28.1) (68.6)
Investment in joint venture (0.9) -
Proceeds on disposal of subsidiary 4.5 -
Share issues 2.3 -
Purchase of shares held by employee benefit
trust (1.0) -
Finance lease assumed on acquisition and entered
into - (0.9)
Foreign exchange variations 4.1 (2.3)
Opening net debt (93.0) (63.7)
------- -------
Closing net debt (70.9) (93.0)
======= =======
Net debt
Net debt decreased by GBP22.1m in the year to GBP70.9m (2011 -
GBP93.0m). The main reason for this reduction was the increase in
cash generated by operations, which itself was driven by the
underlying positive impact of increased profitability and sustained
low levels of working capital. The principal elements of other
expenditure that partially offset this increase were expenditure on
acquisitions and the Group's new joint venture in China totalling
GBP29.0m (2011 - GBP68.6m), and gross capital expenditure of
GBP26.1m (2011 - GBP22.1m). At the year-end, net debt comprised
gross borrowings (including finance leases of GBP1.0m) of
GBP115.4m, with 99% of the Group's gross borrowings in US dollars
(31 December 2011 - 98%), and cash and cash equivalents of GBP44.5m
(31 December 2011 - GBP29.3m).
The Group's committed borrowing facilities contain a requirement
that the ratio of EBITDA (adjusted profit before interest, tax,
depreciation and amortisation) to net interest costs must exceed
3.5x, and that the ratio of net debt to EBITDA must not exceed
3.0x. At 31 December 2012, the Group was operating well within
these covenants as the ratio of EBITDA to net interest costs was
15.7x (31 December 2011 - 13.7x) and the ratio of net debt to
EBITDA was 0.6x (31 December 2011 - 0.8x).
Liquidity
As at 31 December 2012, the Group's gross borrowings excluding
finance leases were GBP114.4m (2011 - GBP120.7m). The maturity of
these borrowings, together with the maturity of the Group's
committed facilities, can be analysed as follows:
Gross Committed
Borrowings (1) Facilities
GBPm GBPm
Within one year 0.8 -
In the second year 21.6 21.5
In years three to five 33.7 115.5
After five years 58.3 58.3
------------ ------------
114.4 195.3
============ ============
(1) Gross borrowings include the use of bank overdrafts, other loans
and committed facilities, but exclude finance leases of GBP1.0m.
At the year-end, the Group had committed facilities of GBP195.3m
with a weighted average maturity of 4.1 years. The Group is in a
strong funding position, with headroom of GBP124.4m under these
facilities and no borrowings due for repayment until a private
placement loan of GBP21.5m matures in October 2014.
Going concern basis
The Group's business activities, performance and position are
set out above in the Financial Review and the Divisional Business
Reviews. These include a description of the financial position of
the Group, its cash flows, liquidity position and borrowing
facilities. In addition, a review of the principal risks and
uncertainties that are likely to affect the Group's future
development is set out below. A summary of the Group's policies and
processes in respect of capital and financial risk management,
including foreign exchange and liquidity risks, is included in Note
22 of the Annual Report & Accounts 2012.
The Group meets its day-to-day working capital and other funding
requirements through a combination of long-term funding, in the
form of revolving credit and private placement facilities, and
short-term overdraft borrowing. At 31 December 2012, 98% of the
Group's gross debt was financed via revolving credit and private
placement facilities, with an average maturity of 4.1 years. The
Group is profitable, cash generative and well funded with net debt
of GBP70.9m compared to GBP195.3m of committed borrowing
facilities, and has no major borrowing facility renewal before
October 2014.
However, economic conditions inevitably vary and so potentially
create uncertainty, particularly over the level of demand for the
Group's products and the exchange rate between the Pound Sterling
and the US dollar. This exchange rate is important to the Group's
financial performance given that around 66% of the Group's profits
in 2012 were earned in the USA and 99% of its gross borrowings at
31 December 2012 were denominated in US dollars. For these reasons,
a sensitivity analysis has been performed on the Group's forecasts
and projections, to take account of reasonably possible changes in
trading performance together with foreign exchange fluctuations
under the hedging policies that are in place. This analysis shows
that the Group will be able to operate well within the level of its
current committed borrowing facilities and banking covenants under
all reasonably foreseeable scenarios. As a consequence, the
Directors have a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence
for the foreseeable future, and the Board has continued to adopt
the going concern basis in preparing the Group's Annual Report
& Accounts 2012.
Changes in accounting policies
The accounting policies adopted in the Financial Statements are
consistent with those followed in the preparation of the Group's
Annual Report & Accounts 2011, except for the adoption of
Standards and Interpretations that are effective for the current
financial year. These are highlighted in Note 2 of the Financial
Statements, and do not have a material impact on the presentation
of the Group's results.
Related party transactions
The Group's related party transactions are between the Company
and its subsidiaries, and have been eliminated on
consolidation.
Risks and Uncertainties
Integrated risk management and Group risk philosophy
The Board is ultimately responsible for managing risk, and for
the implementation of effective risk management procedures and
internal control systems. Across the Group, these are designed to
align with the UK Corporate Governance Code's guidance on Risk
Management and Internal Control. The Audit Committee is responsible
for reviewing the effectiveness of the Group's internal control
systems that were in operation during the year, and the fulfilment
of this responsibility is described in the Audit Committee Report
on pages 42 and 43 of the Annual Report and Accounts 2012.
An integrated risk management framework continues to evolve
within the Group, aimed at improving the efficiency and
effectiveness of the Group's risk management procedures. This
initiative is sponsored by the Board, aligned with industry best
practice and is designed to take account of the Group's internal
culture. As a result of this initiative, examples of process areas
previously identified for increased focus are strategic planning
and objective setting, and the Group's approach to internal audit,
business continuity, IT policies, internal controls over financial
reporting and risk reporting. Good progress has been made with the
implementation of these process improvements which are becoming
embedded in the Group's operations.
Senior's risk philosophy, embodied in a Risk Philosophy
Statement which has been rolled out across the Group, is based
around an acknowledgement that profits are in part the reward for
risk taking, and therefore risk should be embraced and managed
effectively within each business unit. The Group aims to take a
relatively conservative approach to risk management, targeting a
developmental approach that is evolutionary rather than
revolutionary. Pursuit of opportunities is encouraged, within an
effective risk management framework, as an essential component of a
high-performance culture. It is acknowledged that strong risk
management procedures are likely to enhance senior leadership
decision-making capabilities, strengthen accountability and enhance
stewardship of the Group's assets. In turn this can be expected to
result in management teams being able to embrace increased levels
of risk and pursue more opportunities, which should also allow the
Group to increase its rate of performance delivery without
exceeding its risk appetite.
The Group aims to embed its risk management procedures within
its existing business processes and corporate governance structure,
rather than impose an inefficient administrative burden on its
operations. At a minimum, the Group aims to ensure that any
individually significant event that:
i) has or may result in the potential to compromise its ability
to achieve its objectives; or
ii) could lead to a material breach of policies and procedures; or
iii) could impact the delivery of earnings materially at a local operational
level
is identified, reported on and dealt with through the Group's risk
management procedures.
Risk assessment and risk reporting procedures
The Group has a well-established annual process for identifying,
evaluating and managing its significant risks. This process starts
in April each year with a risk review and assessment conducted at
each of the Group's operations, facilitated by local senior
management. A Principal Risk list is generated from each review,
with individual risks assigned to the categories of Strategic,
Operational, Compliance or Financial Reporting in nature.
Management is required to record details of controls that are in
place to mitigate each risk, make an assessment of the residual
likelihood and impact of each risk having a material impact on the
operation's ability to achieve its objectives, and to record any
improvement measures that are targeted to strengthen the
operation's internal control environment around each risk. The
results of these reviews are consolidated at divisional level with
an accompanying divisional overlay, and divisional Principal Risk
lists are then submitted for review and discussion by the Executive
Committee.
Following review by the Executive Committee, a risk
questionnaire is compiled and circulated to each Board member, who
is required to make an individual assessment of the potential
significance of each risk. Completed questionnaires are
subsequently reviewed and discussed at the Group's June Board
meeting each year, following which a Group Principal Risk list is
compiled and presented for review and discussion by the Board at
the July Board meeting. The final step in the process is an update
of all Principal Risk lists, which is performed late in each
calendar year by each operation as part of the annual
budget-setting process and ultimately presented to the Board at its
January meeting. In between formal updates, the Board monitors
progress in the management of individual risks via regular
Executive and Divisional reporting procedures and review and
discussion of these reports at Board meetings.
Principal Group risks
Overall, the Group's risk profile is largely unchanged in 2012
compared to 2011. The principal potential risks and uncertainties
which could have a material impact on the Group's future
performance and ability to deliver on its stated strategic
objectives, together with actions that are being taken to mitigate
each risk, are set out below.
Risk Management actions to mitigate risk
------------------------------------ -------------------------------------------------------------
Strategy
------------------------------------ -------------------------------------------------------------
An appropriately formulated,
communicated and effectively * Additional focus has been placed on the strategic
executed strategy is essential planning process, to ensure that the Group formulates
to avoid the risk of inappropriate the most appropriate strategy to capitalise, over
allocation of resources time, on the significant breadth of potential growth
and failure to deliver opportunities in its chosen market sectors.
on long-term performance
goals.
* The process now includes more regular strategy
sessions at operational, Executive Committee and
Board level.
* The annual Capital Markets day includes presentation
of the Group's strategy to enhance further the
external communication process. This presentation is
available on the Company's website.
------------------------------------ -------------------------------------------------------------
Global cyclical downturn
------------------------------------ -------------------------------------------------------------
The potential adverse
impact on the Group of * The Group is well positioned in its key aerospace,
significant demand declines industrial, and emission-related sectors of land
in key markets, arising vehicle markets, where increasingly stringent
from the consequences legislation should ensure that long-term demand for
of either sovereign debt the Group's products remains healthy.
issues, newly implemented
government austerity measures
and/or political instability * The Group's financing position improved again in 2012
in the Middle East, remains as cash conversion remained strong, and with no major
significant. borrowing facilities expiring before October 2014.
* Through diversity of its end-market exposures and a
robust financing position, the Group remains well
placed to be able to withstand potential negative
consequences that may arise from a further global
cyclical downturn.
------------------------------------ -------------------------------------------------------------
Programme participation
------------------------------------ -------------------------------------------------------------
Long-term growth in demand,
including participation * The Group has developed a portfolio of businesses
in future development that are exposed to markets which exhibit fundamental
programmes in the Group's long-term growth characteristics.
major markets, is an essential
foundation for future
growth. Failure to secure * Customer value is driven through constructive and
profitable new programme co-operative relationships with key customers in each
wins could have a severe market, providing innovative customer solutions and
impact on Group performance. quality products delivered on time and in line with
specifications.
* The Group ensures that its operations are
sufficiently well capitalised to be able to bid
competitively on new programme opportunities, and
maintains close control over operating costs to
ensure that operations remain competitive on existing
programmes.
* The Group utilises an internal contract approval
process, comprising both financial and non-financial
analyses, to ensure that bids are submitted and won
at acceptable margin levels.
* The above are all critical components that ensure
continued profitable participation in existing and
future development programmes.
------------------------------------ -------------------------------------------------------------
Acquisitions
------------------------------------ -------------------------------------------------------------
Failure to execute an
effective acquisition * Consistently strong free cash flow generation gives
programme would have a the Group capacity to continue to execute a targeted
significant impact on acquisition programme.
the Group's ability to
generate long-term value
for shareholders. * The Group has a well-established acquisition
framework that includes proven valuation, due
diligence and integration processes.
* Post-acquisition reviews are performed on all
acquisitions, comprising a full retrospective review
of each deal process, integration effectiveness,
operational performance compared to expectation and
sharing of lessons learned with the Board and across
the senior management team.
------------------------------------ -------------------------------------------------------------
New aircraft platform
delays
------------------------------------ -------------------------------------------------------------
Significant shipset content
has been secured on a * The Group monitors programme development and launch
number of new aircraft timing of new aircraft platforms very closely,
platforms currently under utilising internal customer relationships and market
development or in initial intelligence.
phases of production.
These include the Boeing
787 Dreamliner, Bombardier's * A cautious approach is taken to both capital
CSeries regional jet and investment in new programmes, to minimise the time
the Airbus A350. Delays between installation and utilisation of new capital
in the launch or ramp equipment, and to the projected build rates and
up in production of these associated revenue in financial projections.
platforms could have a
material adverse impact
on the Group's rate of * The growing breadth of Senior's exposure to a
organic growth. comprehensive and diverse range of aerospace and land
vehicle platforms, together with its broad exposure
in global industrial markets, means that the Group's
future organic growth profile is not overly dependent
on any individual new aircraft platform.
------------------------------------ -------------------------------------------------------------
Employee retention
------------------------------------ -------------------------------------------------------------
An inability to attract,
develop and retain high-quality * Capable, empowered and highly engaged individuals are
individuals in key management a key asset of the business. The Group is able to
positions could severely attract experienced senior executives from within the
affect the long-term success industry, in part attributable to its culture which
of the Group. is described in the Business Model above.
* The Group sponsors the development and training of
key managers, at all levels, through an increasingly
comprehensive in-house management development
programme.
* Senior management turnover ratios remain low, a
further indication of success in this important area.
------------------------------------ -------------------------------------------------------------
Importance of emerging
markets
------------------------------------ -------------------------------------------------------------
Customers' desire to move
manufacture of components * The Group's strategy of developing a portfolio of
to low cost countries high value-added engineering manufacturing companies
could render the Group's has meant that over time it has generally evolved
operations uncompetitive away from products where the direct threat of
and have an adverse impact low-cost country manufacture is significant.
on profitability. In addition,
certain customers require
global programme support * The Group successfully employs a strategy of
as they respond to increasing retaining commercial and engineering expertise close
domestic demand in a number to customers' locations, principally in North America
of these emerging markets. and Europe. This enables effective support to be
readily given to its customers whilst increasing
manufacturing at above-average growth rates in
low-cost country locations where it makes sense to do
so and with customer agreement.
* The Group has an increasing presence in emerging
markets via its facilities in Mexico, Thailand, Czech
Republic, South Africa, Brazil, India and China. Each
of these operations, individually and in combination,
has a healthy number of viable opportunities for
further expansion either to supply domestic markets
or to support customers' increasingly global needs.
------------------------------------ -------------------------------------------------------------
Financing and liquidity
------------------------------------ -------------------------------------------------------------
The Group could have insufficient
financial resources to * The Group's overall treasury risk management
fund its growth strategy programme focuses on the unpredictability of
or meet its financial financial markets, and seeks to minimise potential
obligations as they fall adverse effects on the Group's financial performance.
due.
* Compliance with Financial Policies and exposure
limits are reviewed by the Group's Treasury Committee
on a regular basis.
* The Group enters into forward foreign exchange
contracts to hedge the exchange risk arising on
operations' trading activities in foreign currencies
and does not enter into or trade financial
instruments, including derivative financial
instruments, for speculative purposes.
* The Group manages liquidity risk by maintaining
adequate reserves, banking facilities and reserve
borrowing facilities, and by continuously monitoring
forecast and actual cash flows, matching the maturity
profiles of financial assets and liabilities and
paying close attention to the projected level of
headroom under the covenants contained in its
committed borrowing facilities. For further details
see Note 22 of the Annual Report and Accounts 2012.
------------------------------------ -------------------------------------------------------------
Corporate governance breach
------------------------------------ -------------------------------------------------------------
Corporate governance legislation,
(such as the UK Bribery * The Group has well-established governance policies
Act and the US Foreign and procedures in all key areas, including a Group
Corrupt Practices Act), Code of Business Conduct, Health and Safety Charter,
regulations and guidance anti-bribery procedures and various policies and
(such as the UK Corporate procedures over the review and reporting of risk
Governance Code and global management and internal control activities.
health and safety regulations)
are increasingly complex
and onerous. A serious * The Group Finance Director, the Group Company
breach of these rules Secretary and the Head of Internal Audit collectively
and regulations could retain principal responsibility for maintaining and
have a significant impact reporting on governance changes that may have an
on the Group's reputation, impact on the Group.
lead to a loss of confidence
on the part of investors,
customers or other stakeholders * Periodic governance updates are provided to the Board
and ultimately have a and Executive Committee at appropriate intervals, and
material adverse impact to key operational management. Recent examples of
on the Group's enterprise developments in this area include formulation of a
value. Business Continuity Framework, IT Policy Guidelines,
and anti-bribery training.
------------------------------------ -------------------------------------------------------------
Directors' Responsibility Statement
We confirm that to the best of our knowledge:
1. the Financial Statements, prepared in accordance with IFRS as
adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position and profit or loss of
the Company and the undertakings included in the consolidation
taken as a whole; and
2. the Directors' Report includes a fair review of the development
and performance of the business and the position of the Company
and the undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and
uncertainties that they face.
By Order of the Board
Mark Rollins Simon Nicholls
Group Chief Executive Group Finance Director
22 February 2013 22 February 2013
Consolidated Income Statement
For the year ended 31 December 2012
Year ended Year ended
2012 2011
Notes GBPm GBPm
Continuing operations
Revenue 3 712.0 622.3
=========== ===========
Trading profit 93.9 82.3
Loss on sale of fixed assets (0.1) (0.3)
Share of joint venture loss (0.1) -
----------- -----------
Operating profit (1) 3 93.7 82.0
Investment income 0.3 0.3
Finance costs (10.6) (10.6)
----------- -----------
Profit before tax (2) 83.4 71.7
Tax 5 (16.8) (17.7)
----------- -----------
Profit for the period from continuing
operations 66.6 54.0
=========== ===========
Discontinued operations
----------------------------------------- ------ ----------- -----------
Operating profit 14 0.8 1.0
Profit on disposal 14 2.5 -
----------------------------------------- ------ ----------- -----------
Profit for the period from discontinued
operations 3.3 1.0
----------- -----------
Profit for the period 69.9 55.0
=========== ===========
Attributable to:
Equity holders of the parent 69.9 55.0
=========== ===========
Earnings per share
From continuing and discontinued
operations
Basic (3) 7 17.11p 13.68p
=========== ===========
Diluted (4) 7 16.69p 13.21p
=========== ===========
From continuing operations
Basic 7 16.30p 13.43p
=========== ===========
Diluted 7 15.90p 12.97p
=========== ===========
(1) Adjusted operating profit 4 101.4 88.3
(2) Adjusted profit before tax 4 91.1 78.0
(3) Adjusted earnings per share 7 17.75p 14.55p
(4) Adjusted and diluted earnings
per share 7 17.31p 14.05p
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2012
Year ended Year ended
2012 2011
GBPm GBPm
Profit for the period 69.9 55.0
----------- -----------
Other comprehensive income:
Gains / (losses) on cash flow hedges during
the period 1.2 (2.3)
Reclassification adjustments for losses included
in profit or loss 0.8 0.2
----------- -----------
Gains / (losses) on cash flow hedges 2.0 (2.1)
Gains on revaluation of financial instruments - 0.1
Exchange differences on translation of foreign
operations (11.1) (1.4)
Actuarial losses on defined benefit pension
schemes (12.3) (1.8)
----------- -----------
Other comprehensive expense (21.4) (5.2)
Tax relating to components of other comprehensive
income 2.6 8.8
----------- -----------
Other comprehensive (expense) / income for the
period, net of tax (18.8) 3.6
----------- -----------
Total comprehensive income for the period 51.1 58.6
=========== ===========
Attributable to:
Equity holders of the parent 51.1 58.6
=========== ===========
Consolidated Balance Sheet
As at 31 December 2012
Year ended Year ended
2012 2011
Notes GBPm GBPm
Non-current assets
Goodwill 8 220.1 209.9
Other intangible assets 18.7 16.9
Investment in joint venture 15 0.8 -
Property, plant and equipment 9 134.8 126.4
Deferred tax assets 12.5 9.0
Trade and other receivables 0.5 0.7
----------- -----------
Total non-current assets 387.4 362.9
----------- -----------
Current assets
Inventories 91.2 90.3
Construction contracts - 1.0
Trade and other receivables 101.2 105.8
Cash and cash equivalents 11c) 44.5 29.3
-----------
Total current assets 236.9 226.4
-----------
Total assets 624.3 589.3
===========
Current liabilities
Trade and other payables 122.4 135.1
Current tax liabilities 12.3 9.2
Obligations under finance leases 0.5 0.6
Bank overdrafts and loans 0.8 1.0
Provisions 6.1 5.5
----------- -----------
Total current liabilities 142.1 151.4
----------- -----------
Non-current liabilities
Bank and other loans 11c) 113.6 119.7
Retirement benefit obligations 12 37.1 34.5
Deferred tax liabilities 17.6 6.0
Obligations under finance leases 0.5 1.0
Others 0.5 0.4
----------- -----------
Total non-current liabilities 169.3 161.6
-----------
Total liabilities 311.4 313.0
===========
Net assets 312.9 276.3
=========== ===========
Equity
Issued share capital 10 41.4 40.2
Share premium account 13.7 12.3
Equity reserve 3.8 2.7
Hedging and translation reserve (4.6) 4.5
Retained earnings 259.6 216.6
Own shares (1.0) -
----------- -----------
Equity attributable to equity holders
of the parent 312.9 276.3
----------- -----------
Total equity 312.9 276.3
=========== ===========
Statement of Changes in Equity
For the year ended 31 December 2012 All equity is attributable
to equity holders of the parent
Hedging
Issued Share and
share premium Equity translation Retained Own Total
capital account reserve reserve earnings shares equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 January
2011 40.1 12.3 2.2 6.2 165.1 - 225.9
Profit for the year 2011 - - - - 55.0 - 55.0
Losses on cash flow hedges - - - (2.1) - - (2.1)
Gains on revaluation
of financial instruments - - - 0.1 - - 0.1
Exchange differences
on translation of foreign
operations - - - (1.4) - - (1.4)
Actuarial losses on defined
benefit pension schemes - - - - (1.8) - (1.8)
Tax relating to components
of other comprehensive
income - - - 1.7 7.1 - 8.8
-------- -------- --------- ------------ --------- ------- -------
Total comprehensive income
for the period - - - (1.7) 60.3 - 58.6
Issue of share capital 0.1 - (0.1) - - - -
Share-based payment charge - - 1.5 - - - 1.5
Tax relating to share-based
payments - - - - 3.4 - 3.4
Transfer to retained
earnings - - (0.9) - 0.9 - -
Dividends paid - - - - (13.1) - (13.1)
-------- -------- --------- ------------ --------- ------- -------
Balance at 31 December
2011 40.2 12.3 2.7 4.5 216.6 - 276.3
======== ======== ========= ============ ========= ======= =======
Profit for the year 2012 - - - - 69.9 - 69.9
Gains on cash flow hedges - - - 2.0 - - 2.0
Exchange differences
on translation of foreign
operations - - - (11.1) - - (11.1)
Actuarial losses on defined
benefit pension schemes - - - - (12.3) - (12.3)
Tax relating to components
of other comprehensive
income - - - - 2.6 - 2.6
-------- -------- --------- ------------ --------- ------- -------
Total comprehensive income
for the period - - - (9.1) 60.2 - 51.1
Issue of share capital 1.2 1.4 (0.3) - - - 2.3
Share-based payment charge - - 2.0 - - - 2.0
Tax relating to share-based
payments - - - - (1.4) - (1.4)
Purchase of shares held
by employee benefit trust - - - - - (1.0) (1.0)
Transfer to retained
earnings - - (0.6) - 0.6 - -
Dividends paid - - - - (16.4) - (16.4)
-------- -------- --------- ------------ --------- ------- -------
Balance at 31 December
2012 41.4 13.7 3.8 (4.6) 259.6 (1.0) 312.9
======== ======== ========= ============ ========= ======= =======
Cash Flow Statement
For the year ended 31 December 2012
Notes Year ended Year ended
2012 2011
GBPm GBPm
Net cash from operating activities 11a) 83.3 77.1
----------- -----------
Investing activities
Interest received 0.3 0.3
Proceeds on disposal of property,
plant and equipment 0.1 0.3
Purchases of property, plant and
equipment (25.3) (21.1)
Purchases of intangible assets (0.8) (1.0)
Acquisition of GAMFG 13 (28.1) -
Acquisition of Weston - (53.0)
Acquisition of Damar - (15.6)
Proceeds on disposal of subsidiary 14 4.5 -
Investment in joint venture (0.9) -
Net cash used in investing activities (50.2) (90.1)
----------- -----------
Financing activities
Dividends paid (16.4) (13.1)
Repayment of borrowings (0.2) (0.2)
Repayments of obligations under
finance leases (0.6) (0.4)
Share issues 2.3 -
Purchase of shares held by employee (1.0) -
benefit trust
Net cash inflow on forward contracts - 0.2
----------- -----------
Net cash used in financing activities (15.9) (13.5)
----------- -----------
Net increase / (decrease) in cash
and cash equivalents 17.2 (26.5)
Cash and cash equivalents at beginning
of period 28.5 55.9
Effect of foreign exchange rate
changes (1.8) (0.9)
----------- -----------
Cash and cash equivalents at end
of period 11c) 43.9 28.5
=========== ===========
Notes to the above Financial Statements
For the year ended 31 December 2012
1. General information
These results for the year ended 31 December 2012 are an excerpt
from the Annual Report & Accounts 2012 and do not constitute
the Group's statutory accounts for 2012 or 2011. Statutory accounts
for 2011 have been delivered to the Registrar of Companies, and
those for 2012 will be delivered following the Company's Annual
General Meeting. The Auditor has reported on both those accounts;
their reports were unqualified, did not draw attention to any
matters by way of emphasis and did not contain statements under
Sections 498(2) or (3) of the Companies Act 2006 or equivalent
preceding legislation.
2. Significant accounting policies
Whilst the financial information included in this Annual Results
Release has been prepared in accordance with International
Financial Reporting Standards ("IFRS") adopted by the European
Union, this announcement does not itself contain sufficient
information to comply with IFRS. Full Financial Statements that
comply with IFRS are included in the Annual Report & Accounts
2012 which is available at www.seniorplc.com, hard copies of which
will be distributed on or soon after 8 March 2013.
The accounting policies adopted are consistent with those
followed in the preparation of the Group's Annual Report &
Accounts 2012 which are unchanged from those adopted in the Group's
Annual Report & Accounts 2011, except as described below.
In the current financial year, the Group has adopted IFRS 7
(Amendment) "Disclosures - Transfers of Financial Assets".
IFRS 7 (Amendment) requires enhanced disclosures for
transactions involving transfers of financial assets. This
amendment does not currently affect the Group's disclosures on
Financial Instruments.
The following amendments to Standards are also effective from
the current financial year but currently do not impact the Group's
Financial Statements: IFRS 1 (Amendments) "Removal of Fixed Dates
for First-Time Adopters" and "Severe Hyperinflation" and IAS 12
(Amendment) "Deferred Tax: Recovery of Underlying Assets".
3. Segment information
The Group reports its segment information as two operating
Divisions according to the market segments they serve, Aerospace
and Flexonics. For management purposes, the Aerospace Division is
managed as two sub-divisions, Aerostructures and Fluid Systems, in
order to enhance management oversight; however, these are
aggregated as one reporting segment in accordance with IFRS 8. The
Flexonics Division is managed as a single division.
Segment information for revenue, operating profit and a
reconciliation to entity net profit is presented below.
Elimination Elimination
/ Central / Central
Aerospace Flexonics costs Total Aerospace Flexonics costs Total
Year Year Year Year Year Year Year Year
ended ended ended ended ended ended ended ended
2012 2012 2012 2012 2011 2011 2011 2011
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Continuing
operations
External revenue 470.3 241.7 - 712.0 382.4 239.9 - 622.3
Inter-segment
revenue 0.2 0.3 (0.5) - 0.2 0.2 (0.4) -
---------- ---------- ------------ ------- ---------- ---------- ------------ -------
Total revenue 470.5 242.0 (0.5) 712.0 382.6 240.1 (0.4) 622.3
========== ========== ============ ======= ========== ========== ============ =======
Continuing
adjusted trading
profit 72.1 37.3 (8.7) 100.7 59.6 35.0 (7.3) 87.3
Share of joint
venture loss - (0.1) - (0.1) - - - -
---------- ---------- ------------ ------- ---------- ---------- ------------ -------
Continuing
adjusted operating
profit 72.1 37.2 (8.7) 100.6 59.6 35.0 (7.3) 87.3
Loss on sale
of fixed assets - (0.1) - (0.1) - (0.3) - (0.3)
Exceptional
pension charge - - (1.9) (1.9) - - - -
Amortisation
of intangible
assets from
acquisitions (4.1) (0.2) - (4.3) (4.4) - - (4.4)
Acquisition
costs - (0.6) - (0.6) (0.6) - - (0.6)
---------- ---------- ------------ ------- ---------- ---------- ------------ -------
Operating
profit 68.0 36.3 (10.6) 93.7 54.6 34.7 (7.3) 82.0
========== ========== ============ ======= ========== ========== ============ =======
Investment
income 0.3 0.3
Finance costs (10.6) (10.6)
------- -------
Profit before
tax 83.4 71.7
Tax (16.8) (17.7)
------- -------
Profit for
the period
from continuing
operations 66.6 54.0
Discontinued
operations
----------------------- ---------- ---------- ------------ ------- ---------- ---------- ------------ -------
Operating
profit 0.8 1.0
Profit on
disposal 2.5 -
----------------------- ---------- ---------- ------------ ------- ---------- ---------- ------------ -------
Profit for
the period
from discontinued
operations 3.3 1.0
------- -------
Profit after
tax and discontinued
operations 69.9 55.0
======= =======
Continuing
operations
adjusted operating
profit 100.6 87.3
Discontinued
operations
adjusted operating
profit 0.8 1.0
------- -------
Adjusted operating
profit (Note
4) 101.4 88.3
======= =======
Segment information for assets and liabilities is presented
below.
Assets Year ended Year ended
2012 2011
GBPm GBPm
Aerospace 219.5 221.1
Flexonics 107.4 97.2
Corporate 1.8 1.3
----------- -----------
Segment assets for reportable segments 328.7 319.6
Unallocated
Goodwill 220.1 209.9
Intangible customer relationships 16.7 14.9
Cash 44.5 29.3
Deferred and current tax 12.8 9.2
Assets relating to discontinued operations - 5.8
Others 1.5 0.6
----------- -----------
Total assets per balance sheet 624.3 589.3
=========== ===========
Liabilities Year ended Year ended
2012 2011
GBPm GBPm
Aerospace 63.3 73.0
Flexonics 41.8 44.2
Corporate 21.1 18.2
----------- -----------
Segment liabilities for reportable segments 126.2 135.4
Unallocated
Debt 114.4 120.7
Finance leases 1.0 1.6
Deferred and current tax 29.9 15.2
Retirement benefit obligations 37.1 34.5
Liabilities relating to discontinued operations - 3.6
Others 2.8 2.0
----------- -----------
Total liabilities per balance sheet 311.4 313.0
=========== ===========
4. Adjusted operating profit and adjusted profit before tax
The provision of adjusted operating profit and adjusted profit
before tax, derived in accordance with the table below, has been
included to identify the performance of operations, from the time
of acquisition or until the time of disposal, prior to the impact
of gains or losses arising from the sale of fixed assets,
amortisation of intangible assets acquired on acquisitions,
exceptional pension charges, gains or losses from disposal of
operations and acquisition costs.
Year ended Year ended
2012 2011
GBPm GBPm
Operating profit from continuing operations 93.7 82.0
Operating profit from discontinued operations 0.8 1.0
----------- -----------
Operating profit 94.5 83.0
----------- -----------
Loss on sale of fixed assets 0.1 0.3
Exceptional pension charge 1.9 -
Amortisation of intangible assets from acquisitions 4.3 4.4
Acquisition costs 0.6 0.6
----------- -----------
Adjustments to operating profit 6.9 5.3
----------- -----------
Adjusted operating profit 101.4 88.3
=========== ===========
Profit before tax from continuing operations 83.4 71.7
Profit before tax from discontinued operations 3.3 1.0
----------- -----------
Profit before tax 86.7 72.7
----------- -----------
Adjustments to profit as above before tax 6.9 5.3
Profit on disposal of discontinued operations (2.5) -
----------- -----------
Adjustments to profit before tax 4.4 5.3
----------- -----------
Adjusted profit before tax 91.1 78.0
=========== ===========
5. Tax charge
Year ended Year ended
2012 2011
GBPm GBPm
Current tax:
Current year 14.4 14.4
Adjustments in respect of prior periods 0.7 (0.9)
----------- -----------
15.1 13.5
----------- -----------
Deferred tax:
Current year 3.7 4.7
Adjustments in respect of prior periods (2.0) (0.5)
----------- -----------
1.7 4.2
----------- -----------
16.8 17.7
=========== ===========
UK Corporation tax is calculated at an effective rate of 24.5%
(2011 - 26.5%) of the estimated assessable profit for the year.
Taxation for other jurisdictions is calculated at the rates
prevailing in the respective jurisdictions.
6. Dividends
Year ended Year ended
2012 2011
GBPm GBPm
Amounts recognised as distributions to equity
holders in the period:
Final dividend for the year ended 31 December
2011 of 2.65p (2010 - 2.12p) per share 10.7 8.5
Interim dividend for the year ended 31 December
2012 of 1.38p (2011 - 1.15p) per share 5.7 4.6
----------- -----------
16.4 13.1
=========== ===========
Proposed final dividend for the year ended 31
December 2012
of 3.27p (2011 - 2.65p) per share 13.5 10.7
=========== ===========
The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting 2013 and has not been
included as a liability in these Financial Statements.
7. Earnings per share
The calculation of the basic and diluted earnings per share is
based on the following data:
Number of shares Year ended Year ended
2012 2011
Million Million
Weighted average number of ordinary shares for
the purposes of basic earnings per share 408.5 402.0
Effect of dilutive potential ordinary shares:
Share options 10.3 14.3
----------- -----------
Weighted average number of ordinary shares for
the purposes of diluted earnings per share 418.8 416.3
=========== ===========
Year ended 2012 Year ended 2011
Earnings and earnings per share Earnings EPS Earnings EPS
GBPm pence GBPm pence
Profit for the period from
continuing operations 66.6 16.30 54.0 13.43
Profit for the period from
discontinued operations 3.3 0.81 1.0 0.25
--------- ------- --------- -------
Profit for the period from
continuing and discontinued
operations 69.9 17.11 55.0 13.68
Adjust:
Amortisation of intangible
assets from acquisitions net
of tax of GBP1.6m (2011 - GBP1.6m) 2.7 0.66 2.8 0.70
Acquisition costs net of tax
of GBP0.1m (2011 - GBPnil) 0.5 0.12 0.6 0.15
Loss on sale of fixed assets
net of tax of GBP0.1m (2011
- GBP0.2m) - - 0.1 0.02
Exceptional pension charge 1.9 0.47 - -
Profit on disposal of discontinued
operations (2.5) (0.61) - -
Adjusted earnings after tax 72.5 17.75 58.5 14.55
========= ======= ========= =======
Earnings per share
* basic from continuing operations 16.30p 13.43p
* basic from continuing and discontinued operations 17.11p 13.68p
* diluted from continuing operations 15.90p 12.97p
* diluted from continuing and discontinued operations 16.69p 13.21p
* adjusted 17.75p 14.55p
* adjusted and diluted 17.31p 14.05p
The effect of dilutive shares on the earnings for the purposes
of diluted earnings per share is GBPnil (2011 - GBPnil).
The denominators used for all basic, diluted and adjusted
earnings per share are as detailed in the "Number of shares" table
above.
The provision of an adjusted earnings per share, derived in
accordance with the table above, has been included to identify the
performance of operations, from the time of acquisition or until
the time of disposal, prior to the impact of the following
items:
-- gains or losses arising from the sale of fixed assets
-- amortisation of intangible assets acquired on acquisitions
-- exceptional pension charges
-- profit on disposal of discontinued operations
-- acquisition costs
8. Goodwill
Goodwill increased by GBP10.2m during the year to GBP220.1m
(2011 - GBP209.9m) due to goodwill arising on the acquisition of GA
of GBP17.7m (see Note 13), an increase of GBP0.1m relating to the
2011 acquisition of Weston, and exchange translation differences of
GBP7.6m.
9. Property, plant and equipment
During the period, the Group spent GBP25.3m (2011 - GBP21.1m) on
the acquisition of property, plant and equipment. The Group also
disposed of property, plant and equipment with a carrying value of
GBP0.2m (2011 - GBP0.6m) for proceeds of GBP0.1m (2011 -
GBP0.3m).
10. Share capital
Share capital as at 31 December 2012 amounted to GBP41.4m.
During 2012, the Group issued 8,923,725 shares at an average price
of 25.28p per share under share option plans raising GBP2.3m.
2,679,044 shares were also issued during 2012 under the Senior plc
2005 Long-Term Incentive Plan.
11. Notes to the cash flow statement
a) Reconciliation of operating profit to net cash from operating
activities
Year ended Year ended
2012 2011
GBPm GBPm
Operating profit from continuing operations 93.7 82.0
Operating profit from discontinued operations 0.8 1.0
----------- -----------
Operating profit 94.5 83.0
Adjustments for:
Depreciation of property, plant and equipment 20.1 18.0
Amortisation of intangible assets 5.0 5.0
Share options 2.3 2.5
Loss on disposal of property, plant and equipment 0.1 0.3
Pension payments in excess of service cost (13.7) (7.8)
Share of joint venture 0.1 -
Exceptional pension charge 1.9 -
----------- -----------
Operating cash flows before movements in working
capital 110.3 101.0
Increase in inventories (3.9) (7.3)
Decrease / (increase) in receivables 2.6 (13.8)
(Decrease) / increase in payables (8.9) 16.5
Working capital currency movements (0.3) (0.1)
----------- -----------
Cash generated by operations 99.8 96.3
Income taxes paid (8.6) (10.7)
Interest paid (7.9) (8.5)
----------- -----------
Net cash from operating activities 83.3 77.1
=========== ===========
b) Free cash flow
Free cash flow, a non-statutory item, highlights the total net
cash generated by the Group prior to corporate activity such as
acquisitions, disposals, financing and transactions with
shareholders. It is derived as follows:
Year ended Year ended
2012 2011
GBPm GBPm
Net cash from operating activities 83.3 77.1
Interest received 0.3 0.3
Proceeds on disposal of property, plant and
equipment 0.1 0.3
Purchases of property, plant and equipment -
cash (25.3) (21.1)
Purchase of intangible assets (0.8) (1.0)
----------- -----------
Free cash flow 57.6 55.6
=========== ===========
c) Analysis of net debt
At At
1 Jan Non-cash Exchange 31 Dec
2012 Cash flow items movement 2012
GBPm GBPm GBPm GBPm GBPm
Cash 29.3 17.0 - (1.8) 44.5
Overdrafts (0.8) 0.2 - - (0.6)
-------- ---------- --------- --------- --------
Cash and cash equivalents 28.5 17.2 - (1.8) 43.9
Debt due within one
year (0.2) 0.2 (0.2) - (0.2)
Debt due after one
year (119.7) - 0.2 5.9 (113.6)
Finance leases (1.6) 0.6 - - (1.0)
Forward contracts - - - - -
-------- ---------- ---------
Total (93.0) 18.0 - 4.1 (70.9)
======== ========== ========= ========= ========
Year ended Year ended
2012 2011
GBPm GBPm
Cash and cash equivalents comprise:
Cash 44.5 29.3
Bank overdrafts (0.6) (0.8)
----------- -----------
Total 43.9 28.5
=========== ===========
Cash and cash equivalents (which are presented as a single class
of assets on the face of the Balance Sheet) comprise cash at bank
and other short-term highly liquid investments with a maturity of
three months or less. The Directors consider that the carrying
amount of cash and cash equivalents approximates to their fair
value.
12. Retirement benefit schemes
Defined Benefit Schemes
Aggregate retirement benefit liabilities are GBP37.1m (2011 -
GBP34.5m). The primary components of this liability are the Group's
UK and US defined benefit pension schemes, with deficits of
GBP23.3m (2011 - GBP25.3m) and GBP8.4m (2011 - GBP4.2m)
respectively, and a liability on unfunded schemes of GBP5.4m (2011
- GBP5.0m). These values have been assessed by independent
actuaries using current market values and discount rates. The
increase in the liability from GBP34.5m at 31 December 2011 to
GBP37.1m at 31 December 2012 is largely due to the recognition of
an actuarial loss of GBP12.3m (due mainly to the reduction in
discount rate for both the UK and US Defined Benefit funded plans),
the net pension finance charge of GBP2.6m and recognition of
GBP1.9m curtailment charge in respect of the Senior Hargreaves
Limited disposal, offset partially by recognition of contributions
in excess of service costs of GBP13.7m.
13. Acquisitions
On 2 November 2012, the Group acquired 100% of the issued share
capital of GAMFG Precision LLC and its parent company GAMCO
Acquisition Company (collectively "GA"). GA is located in Franklin,
Wisconsin, USA and specialises in the machining of precision
components for fuel systems, pumps and hydraulic systems primarily
for off-road heavy-duty diesel engine applications, but with a
growing presence in the aerospace industry. Its largest customer is
Caterpillar Inc., with Sauer Danfoss Inc., Parker Hannifin
Corporation and Woodward Inc. also important purchasers of GA
product. GA's components and capabilities are highly complementary
to Senior's existing portfolio; largely in the land vehicle
emission control segment today but increasingly with its aerospace
operations in the future. The cash consideration was GBP28.1m and
the acquisition was funded by the Group's existing debt
facilities.
Set out below is a provisional summary of the net assets
acquired:
GBPm
Recognised amounts of identifiable assets acquired and liabilities
assumed:
Identifiable intangible assets 6.3
Property, plant and equipment 10.2
Inventories 1.7
Financial assets, excluding cash and cash equivalents 3.2
Financial liabilities (2.7)
Deferred tax liability (4.7)
------
Net assets acquired 14.0
Goodwill 17.7
------
Total consideration 31.7
------
Consideration satis ed by:
Cash paid 28.1
Deferred consideration payable 3.6
------
Total consideration 31.7
------
Net cash outflow arising on acquisition:
Cash consideration paid to date 28.1
Net cash outflow arising on acquisition 28.1
======
The goodwill of GBP17.7m represents the premium paid in
anticipation of future profitability from assets that are not
capable of being separately identified and separately recognised
such as the assembled workforce as well as the Group's ability to
generate significant future value from expanding GA's currently
limited aerospace activities through utilisation of the Group's
existing relationships and experience in the aerospace industry.
GBP1.8m of the goodwill is expected to be deductible for tax
purposes.
The intangible assets acquired as part of the acquisition relate
mainly to customer contracts and relationships, the fair value of
which is dependent on estimates of attributable future revenues,
profitability and cash flows and are being amortised over 5.2
years.
The financial assets acquired include trade receivables with a
fair value of GBP3.1m and a gross contractual value of GBP3.1m, all
of which is expected to be collectible.
The deferred consideration payable of GBP3.6m is made up of
GBP3.7m contingent consideration offset by GBP0.1m reduction for
closing working capital. The contingent consideration arrangement
requires further payment by the Group to GA's former owners of 6
times any EBITDA achieved by GA in excess of GBP4.7m in 2013, up to
a maximum undiscounted payment of GBP63.0m. The potential
undiscounted amount of all future payments that the Group could be
required to make under this arrangement is between GBPnil and
GBP63.0m. The fair value of the contingent consideration
arrangement of GBP3.7m was estimated based on management's best
estimate of GA's 2013 performance at the acquisition date.
Acquisition related costs of GBP0.3m are included in
administrative expenses within trading profit in the Group's
Consolidated Income Statement for the year ended 31 December
2012.
The fair value of the acquired identifiable assets and
liabilities is provisional pending finalisation of the fair value
exercise.
GA contributed GBP3.6m of external revenue and GBP0.1m to the
Group's operating profit from the date of acquisition to 31
December 2012. If the acquisition had been completed on 1 January
2012, continuing Group revenue for the 12 months ended 31 December
2012 would have been GBP743.6m and continuing Group operating
profit would have been GBP96.7m.
14. Discontinued operations
On 16 October 2012, the Group disposed of the entire share
capital of Senior Hargreaves Limited to the M&W Group.
The results of the discontinued operation, which have been
included in the Consolidated Income Statement, were as follows:
Year ended Year ended
2012 2011
GBPm GBPm
Revenue 17.8 18.4
Expenses (17.0) (17.4)
----------- -----------
Operating Profit 0.8 1.0
Profit on disposal 2.5 -
Tax - -
----------- -----------
Profit for the period from discontinued operations 3.3 1.0
=========== ===========
During the year, Senior Hargreaves Limited contributed GBPnil
(2011 - GBP1.7m) to the Group's net operating cash flows, paid
GBP0.1m (2011 - GBP0.1m) in respect of investing activities and
paid GBP2.0m (2011 - GBP1.0m) in respect of financing
activities.
The net assets of Senior Hargreaves Limited at the date of
disposal were as follows:
GBPm
Property, plant and equipment 1.5
Inventories 0.8
Debtors 3.5
Creditors (3.1)
Bank overdraft (0.7)
Profit on disposal 2.5
------
Total consideration 4.5
------
Satisfied by:
Cash and cash equivalents 4.5
======
15. Investment in joint venture
During the year, the Group set up and has a 49% interest in
Senior Flexonics Technologies (Wuhan) Limited, a jointly controlled
entity incorporated in China. The Group's investment of GBP0.8m
represents the Group's share of the joint venture's net assets as
at 31 December 2012.
16. Post balance sheet event
On 8 February 2013, the Group acquired 100% of the issued share
capital of Atlas Composites Limited and its parent company
Castlegate 408 Limited (collectively "Atlas"). Atlas, based in
Ilkeston, Derbyshire, UK, designs and manufactures composite
structures, components and tooling for aerospace, motor sport,
defence and communications markets. The cash consideration, net of
cash acquired of GBP0.1m, was GBP2.4m and the acquisition was
funded from the Group's existing debt facilities.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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