RNS No 4554u
SENIOR ENGINEERING GROUP PLC
4th September 1997
SENIOR ENGINEERING GROUP plc ("SENIOR")
INTERIM RESULTS - HIGHLIGHTS
for the half-year ended 30th June 1997
SENIOR, a specialist international engineering group, today
announces its Interim Results for the half-year ended 30th
June 1997.
Half-Year Half-Year Year
June 1997 June 1996 Change 1996
#m #m #m
------ ------- ------- -------
TURNOVER
Continuing operations 233.9 231.5 +1.1% 451.3
Discontinued operations 5.7 60.5 123.5
------ ------- ------- -------
239.6 292.0 -17.9% 574.8
------ ------- ------- -------
OPERATING PROFIT
Continuing operations 19.7 17.0 +15.8% 35.9
Discontinued operations - - (2.0)
------ ------- ------- -------
19.7 17.0 +15.8% 33.9
------ ------- ------- -------
EARNINGS/(LOSS) PER SHARE 5.04p 3.80p +32.6% (1.29)p
------ ------- ------- -------
UNDERLYING EARNINGS PER SHARE 4.67p 3.72p +25.5% 7.64p
------ ------- ------- -------
DIVIDENDS PER SHARE 1.60p 1.44p +11.1% 3.82p
------ ------- ------ -------
* Flexonics provides organic growth in operating profit of 36.9%.
* Growth in underlying earnings per share +25.5%.
* Balance Sheet remains strong with gearing of only 18.6%.
* Dividend increased by 11.1% and paid as a foreign income
dividend.
Commenting on the results, Dr Alan Watkins, Chairman of Senior said:
"I am pleased to report a period of significant
improvement in the profitability of the Group,
particularly in our North American operations which now
provide over 70% of the Group's operating profits.
Flexonics continues to gather momentum... and looks set to
produce a strong contribution for the year... Overall, we
continue to be confident of another year of real progress
for the Group."
For further information, please contact:
SENIOR ENGINEERING GROUP plc
Dr AK Watkins, Chairman on 4.9.97 between 11.30 and
15.30 0171 253 2252
AR Parrish, Group Chief Executive thereafter 01923 775547
TB Garthwaite, Group Finance Director
Ludgate Communications
Tim Davis 0171 253 2252
SENIOR ENGINEERING GROUP plc
INTERIM STATEMENT 1997
OVERVIEW
I am pleased to report a period of significant improvement in
the profitability of the Group, particularly in our North
American operations which now provide over 70% of the Group's
operating profits.
Although sales from continuing operations were largely
unchanged at #233.9m (1996 - #231.5m), operating profits rose
15.8% from #17.0m to #19.7m, increasing the margin on sales
from 7.4% to 8.4%. This improvement, together with
exceptional income of #1.5m (arising out of an insurance claim
in respect of a fire in the Flexonics factory at Dourdan,
France) and significantly lower interest charges, have given
rise to an increase in profits before taxation of 29.6% from
#16.2m to #21.0m.
Given that the Group's sales are largely achieved in the
country of manufacture, the impact of exchange rate movements
predominantly arises from the currency translation of overseas
results. With the strengthening of sterling during the
period, reported sales and operating profits have been reduced
by 6.2% and 5.6% respectively, with an overall adverse impact
on profit before tax of #1.0m.
The interim dividend is to be paid on this occasion as a
Foreign Income Dividend ("FID") saving the Group #1.2m in
Advance Corporation Tax ("ACT") in the full year. The tax
charge has therefore been reduced from 30% in 1996 to 27%
expected for 1997. Earnings per share show a substantial
improvement from 3.80p to 5.04p, an overall increase of 32.6%.
Underlying earnings per share, which eliminates one-off
specified exceptionals and the impact of discontinued
operations, have increased by 25.5% from 3.72p to 4.67p.
Your Board has declared an interim dividend of 1.60p, an
increase of 11.1% compared to last year's 1.44p. The dividend
will be paid on 28th November 1997 to shareholders on the
register at 31st October 1997. Further consideration will be
given to the possible opportunity of also recommending a FID
for the final dividend, with corresponding cash benefits from
utilising ACT paid and written off in prior years.
Operating cash flow increased substantially from #4.4m in the
first half of 1996 to #23.4m in the period under review,
before investing in near record levels of capital expenditure
of #10.0m (1996 - #9.9m), still largely within Flexonics.
After acquisition costs of #19.1m (Ketema, Inalsa and Nitrotec
Services) the Group's Balance Sheet remained strong with net
debt of #24.4m representing gearing of 18.6%.
OPERATIONAL REVIEW
Flexonics
Thin walled, corrugated and tubular metallic products, focused
on the Automotive, Aerospace and Industrial sectors. Turnover
#162.0m (#150.0m); operating profit #17.7m (#13.1m).
Flexonics has delivered another excellent performance with
organic growth in operating profit, excluding acquisitions, of
36.9%. This improvement, reflecting significantly increased
efficiencies in the USA, has lifted overall margins from 8.8%
to 10.9%.
As predicted last year, the Automotive sector, which
represents 47.7% of Flexonics' sales (#77.3m), saw a reduced
number of new model launches during the period, yet
nonetheless increased its sales by 15.2%. Capital expenditure
in the first half year totalled #3.7m, with the new South
African operation expected to be ready to deliver product in
the third quarter of this year.
The Aerospace sector, which is now identified separately and
represents 25.3% of Flexonics sales at #41.0m, is gathering
momentum, with organic sales growth of 17.8%. The acquisition
for $23.5m of Ketema, who design and manufacture a range of
complex, high-technology components for the space and
aerospace markets, is already making a contribution to
earnings and is expected to provide significant growth in the
second half year. In June, we announced the intended
acquisition of Bosman Powersource in Holland, another
manufacturer of highly specialised products used in the
aerospace, space and land based turbine markets, for #1.9m.
The due diligence process is continuing.
The Industrial sector, representing the balance of 27.0% of
Flexonics' sales at #43.7m, has operated in generally less
buoyant markets, particularly in Europe, which is reflected in
a modest (4.7%) overall reduction in sales. Progress is being
made in reducing costs in line with demand while maximising
the product opportunities across the geographical spread of
the division, particularly with PTFE ("Teflon TM"). The
formation in June of the Indian operation (Inalsa Flexonics),
at a cost of #2.2m, will also assist Flexonics' drive into
the fast developing Asian and Pacific Rim markets.
Engineered Products & Services
Precision welded tube, air systems (heating, ventilation and
air conditioning equipment) and heat treatment (surface
treatment of metals). Turnover #73.1m (#83.1m); operating
profit #2.0m (#3.9m).
The Precision Tube and Air Systems businesses have operated in
particularly challenging markets. Precision Tube, with sales
of #36.5m, will not see the efficiency benefits of new capital
equipment until December, but has already announced major
structural changes within the workforce at all levels to
reduce costs. Air Systems, with sales of #29.4m, has
experienced the considerable adverse impact in Germany of an
unusually cold and wet summer on the air conditioning business
and this more than offset considerable improvements achieved
in previously underperforming businesses in the UK.
The performance of the Heat Treatment business is, as
predicted, recovering with UK sales returning to early 1996
levels at #7.2m, providing significantly improved profits
overall (+57.2%) and margins of 15.1% (1996 - 8.5%). In June,
we announced the acquisition of Nitrotec Services for #3.0m.
This company provides a range of unique heat treatment
processes both directly and under licence, around the world.
Investment is currently being made into expanding capacity in
the currently small, but potentially attractive, Hot
Isostatic Pressing (HIPping) operation via a licence agreement
with a Californian manufacturer. The new equipment will
become operational in the fourth quarter.
There remains significant potential to improve the overall
performance and returns from this division through
strengthened management, improving efficiencies and raising
the standards of quality and service. Carl Francis, currently
President - Specialist Equipment with Siebe plc, has been
appointed Division Director - Engineered Products & Services
and will take up his new appointment on 16th September.
THE BOARD
In June we announced the further strengthening of the Board
with the appointment of two new executive directors.
Bill Kowal, Division Director - Flexonics North America, is
responsible for Flexonics in North America and the northern
Pacific Rim. His appointment underlines the importance of both
the Flexonics business and of North America which will this
year become Senior's largest market.
Glenn Timms was appointed Director - Corporate Development.
He joined the Group from Guinness PLC where he was Head of
Corporate Finance and is responsible for developing and
implementing Senior's global acquisition programme.
OUTLOOK
Following an excellent performance in the first half of the
year, Flexonics continues to gather momentum and now,
representing 90% of the Group's operating profits, looks set
to produce another strong contribution for the year. Although
Engineered Products & Services' results remained generally
disappointing, the benefits of the current rationalisation and
investment projects will begin to flow through during the next
twelve months. Overall, we continue to be confident of
another year of real progress for the Group.
Dr A K Watkins
Chairman
4th September 1997
SENIOR ENGINEERING GROUP plc
GROUP RESULTS
for the half-year ended 30th June 1997 (Unaudited)
Half-Year Half-Year Year
June 1997 June 1996 1996
Notes #000's #000's #000's
------- ------- -------
TURNOVER
Continuing operations 222,756 231,488 451,250
Acquisitions 11,186
-------
233,942
Discontinued operations 2 5,647 60,510 123,564
------- ------- -------
1 239,589 291,998 574,814
------- ------- -------
OPERATING PROFIT
Continuing operations 18,657 17,076 35,896
Acquisitions 1,077
-------
19,734
Discontinued operations 2 - (30) (1,950)
------- ------- -------
1 19,734 17,046 33,946
Profit on sale of fixed
assets in continuing
operations 1,544 300 520
Loss on disposal of
discontinued operations - - (29,300)
------- ------- -------
PROFIT ON ORDINARY
ACTIVITIES BEFORE INTEREST
AND TAXATION 21,278 17,346 5,166
Interest payable, net (271) (1,131) (2,491)
------- ------- -------
PROFIT ON ORDINARY
ACTIVITIES BEFORE TAXATION 21,007 16,215 2,675
Tax on profit on
ordinary activities 3 (5,672) (4,702) (6,575)
------- ------- -------
PROFIT/(LOSS) ON ORDINARY
ACTIVITIES AFTER TAXATION 15,335 11,513 (3,900)
DIVIDENDS (4,880) (4,405) (11,651)
------- ------- -------
PROFIT/(LOSS) FOR THE
PERIOD 10,455 7,108 (15,551)
------- ------- -------
EARNINGS/(LOSS)
PER SHARE 4 5.04p 3.80p (1.29)p
------- ------- -------
UNDERLYING EARNINGS
PER SHARE 4 4.67p 3.72p 7.64p
------- ------- -------
DIVIDENDS PER SHARE 1.60p 1.44p 3.82p
------- ------- -------
SENIOR ENGINEERING GROUP plc
SUMMARISED GROUP BALANCE SHEET
as at 30th June 1997 (Unaudited)
30th June 30th June 31st Dec.
1997 1996 1996
Notes #000's #000's #000's
FIXED ASSETS ------- ------- -------
Tangible assets 83,274 94,857 87,820
Investments 841 - 947
------- ------- -------
84,115 94,857 88,767
------- ------- -------
NET CURRENT ASSETS
Stocks 61,594 76,990 64,476
Debtors 5 110,644 128,711 118,077
Creditors and
provisions (101,080) (115,058) (121,656)
------- ------- -------
71,158 90,643 60,897
------- ------- -------
NET BORROWINGS (24,395) (41,869) (20,529)
------- ------- -------
NET ASSETS 130,878 143,631 129,135
------- ------- -------
CAPITAL AND RESERVES
Share capital 30,450 30,366 30,417
Share premium 87,594 87,068 87,390
Reserves 12,834 26,197 11,328
------- ------- -------
SHAREHOLDERS' FUNDS 130,878 143,631 129,135
------- ------- -------
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
for the half-year ended 30th June 1997 (Unaudited)
Half-Year Half-Year Year
June 1997 June 1996 1996
#000's #000's #000's
------- ------- -------
At beginning of period 129,135 140,934 140,934
Profit/(loss) for
the period 15,335 11,513 (3,900)
Dividends (4,880) (4,405) (11,651)
Arising on share issues 237 1,018 1,391
Goodwill (8,347) (5,403) 7,071
Currency variations (602) (26) (3,526)
Property revaluation - - (1,184)
------- ------- -------
At end of period 130,878 143,631 129,135
------- ------- -------
SENIOR ENGINEERING GROUP plc
SUMMARISED GROUP CASH FLOW STATEMENT
for the half-year ended 30th June 1997 (Unaudited)
Half-Year Half-Year Year
June 1997 June 1996 1996
#000's #000's #000's
------- ------- -------
GROUP OPERATING PROFIT 19,734 17,046 33,946
Depreciation 8,034 8,451 16,326
Increase in working capital (4,329) (21,135) (7,332)
------- ------- -------
NET CASH INFLOW FROM OPERATING
ACTIVITIES 23,439 4,362 42,940
Interest paid, net (674) (888) (2,072)
Dividends paid (7,247) (6,771) (11,150)
Tax paid (2,519) (2,490) (7,626)
------- ------- -------
NET CASH INFLOW/(OUTFLOW)
BEFORE INVESTING AND FINANCING
ACTIVITIES 12,999 (5,787) 22,092
Purchase of tangible fixed
assets (9,946) (9,853) (18,391)
Sale of property, plant and
equipment 1,488 2,816 3,211
Acquisition of businesses (19,145) (7,802) (8,874)
Disposal of business 10,767 - -
Proceeds from share issues, net 237 1,018 1,391
Currency variations on net
borrowings (266) 519 2,822
------- ------- -------
(INCREASE)/DECREASE IN NET DEBT (3,866) (19,089) 2,251
NET DEBT AT BEGINNING OF PERIOD (20,529) (22,780) (22,780)
------- ------- -------
NET DEBT AT END OF PERIOD (24,395) (41,869) (20,529)
------- ------- -------
SENIOR ENGINEERING GROUP plc
NOTES TO THE ACCOUNTS
for the half-year ended 30th June 1997 (Unaudited)
1. Segment Information
Turnover Operating Profit
Half-Year Half-Year Year Half-Year Half-Year Year
June 1997 June 1996 1996 June 1997 June 1996 1996
#000's #000's #000's #000's #000's #000's
------- ------- ------- ------- ------- ------
Flexonics 162,058 149,995 292,844 17,694 13,135 27,477
------- ------- ------- ------- ------- ------
Engineered
Products
& Services
Precision
Tube 36,510 39,421 76,477 995 1,930 3,683
Air
Systems 29,367 35,475 69,663 (46) 1,317 3,041
Heat
Treatment 7,224 8,201 14,814 1,091 694 1,695
------- ------- ------- ------- ------- ------
73,101 83,097 160,954 2,040 3,941 8,419
------- ------- ------- ------- ------- ------
Total 235,159 233,092 453,798 19,734 17,076 35,896
Inter-segment
sales (1,217) (1,604) (2,548) - - -
------- ------- ------- ------- ------- ------
Total
continuing
operations 233,942 231,488 451,250 19,734 17,076 35,896
Discontinued
operations 5,647 60,510 123,564 - (30) (1,950)
------- ------- ------- ------- ------- ------
239,589 291,998 574,814 19,734 17,046 33,946
------- ------- ------- ------- ------- ------
2. Discontinued operations reflect the turnover and operating
results of the Thermal Engineering Division sold in January
1997.
3. Tax on profit on ordinary activities for the half-year to
30th June 1997 has been charged at 27% being the estimated
rate applicable for the year ended 31st December 1997 (1996
actual excluding the loss on disposal of the Thermal
Engineering Division - 30%).
4. Earnings per share have been calculated on the weighted
average number of shares in issue during the period of 304.4m
(1996 half-year - 303.1m; 1996 year - 303.5m).
Underlying earnings per share has been included to identify
the performance of the continuing operations before
exceptional items and reflects an estimated tax rate of 27%
for the year (1996 actual - 31%).
5. Debtors include an interest bearing secured loan note of
#10.0m arising in respect of deferred consideration on the
sale of the Thermal Engineering Division and is repayable in
three equal instalments between 2003 and 2005.
6. The results for the year ended 31st December 1996 are an
abridged version of the Group's full accounts for that year
which received an unqualified auditors' report and which have
been filed with the Registrar of Companies.
SENIOR ENGINEERING GROUP plc
INTERIM DIVIDEND FOR 1997 TO BE PAID AS A FOREIGN INCOME
DIVIDEND
The interim dividend for 1997 declared today is to be paid as
a Foreign Income Dividend ("FID"), providing a benefit to the
Company of #1.22m in relievable Advance Corporation Tax
("ACT").
When a UK company pays a dividend it must account for ACT to
the Inland Revenue and this can be set-off against that
company's UK corporation tax liability. As a substantial
portion of this Group's profits are earned and taxed overseas,
the Company has a comparatively small UK corporation tax
liability. The ACT which the Company has to pay on its
dividends has in the recent past exceeded the amount it can
set against UK corporation tax and has been written-off. By
paying a FID as declared the Company will be able to obtain
relief of #1.22m of ACT arising on the interim dividend and if
future FIDs are paid before 6th April 1999 then it should be
possible to utilise unrelieved ACT of up to #4.25m which the
Company has paid and written-off in prior years.
Unlike conventional dividends, FIDs do not entitle recipients
to tax credits; however, the absence of a tax credit will not
affect the position of an individual shareholder who is liable
to income tax. Furthermore, as a result of changes introduced
by the Finance (No. 2) Act 1997, a number of other categories
of shareholders will now be unaffected by receiving a FID
instead of a conventional dividend. Pension funds (as defined
in Section 231A of the Income and Corporation Taxes Act 1988)
can no longer claim payment of tax credits relating to
dividends. Similarly, no claims for payment of such tax
credits can be made by insurance companies as regards
dividends that relate to pensions business or by members of
Lloyd's as regards dividends in respect of shares held in
their premiums trust funds. In addition, companies can no
longer claim payments of tax credits by setting losses against
franked investment income.
An election that the interim dividend be treated as a FID will
mean that claims for payment of tax credits cannot be made by
recipients of the dividend who are entitled to make claims
under certain tax treaties, who are individuals whose
liability to income tax on the dividend and the related tax
credit (had the dividend not been treated as a FID) would have
been less than the tax credit, who are charities or who hold
shares in the Company through Personal Equity Plans. However,
given the significant benefit to the Company's earnings and
therefore to the value of the Group generally, the Board
believes that the payment of this interim dividend as a FID is
in the best interests of the Group and its shareholders as a
whole.
While consideration will be given to recommending that the
final dividend for 1997 should also be paid as a FID in due
course, the Company reserves the right to pay the interim
dividend payable on 28th November 1997 as a conventional
dividend in the event that circumstances arise as a result of
which in the Board's opinion, payment of the dividend as a FID
would no longer be in the best interests of the Company or the
shareholders as a whole.
An explanatory letter will be sent to shareholders with the
Interim Report on 8th September 1997.
END
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