TIDMSNR
RNS Number : 0799W
Senior PLC
30 July 2018
SENIOR PLC
Interim Results for the half-year ended 30 June 2018
Margin progression in both divisions
FINANCIAL HIGHLIGHTS Half-year to 30 June
2018 2017 change change
(constant
currency)(3)
--------------------------------- --------------- --------------- ------- --------------
REVENUE GBP523.3m GBP510.0m +3% +7%
--------------------------------- --------------- --------------- ------- --------------
OPERATING PROFIT GBP35.8m GBP28.9m +24% +30%
ADJUSTED OPERATING PROFIT (1) GBP43.4m GBP37.5m +16% +21%
ADJUSTED OPERATING MARGIN (1) 8.3% 7.4% +90bps +100bps
--------------------------------- --------------- --------------- ------- --------------
PROFIT BEFORE TAX GBP31.4m GBP24.0m +31% +36%
ADJUSTED PROFIT BEFORE TAX (1) GBP39.0m GBP32.6m +20% +24%
--------------------------------- --------------- --------------- ------- --------------
BASIC EARNINGS PER SHARE 5.90p 4.73p +25%
ADJUSTED EARNINGS PER SHARE (1) 7.36p 6.23p +18%
--------------------------------- --------------- --------------- -------
INTERIM DIVID PER SHARE 2.19p 2.05p +7%
--------------------------------- --------------- --------------- -------
FREE CASH FLOW (2) GBP32.2m GBP29.6m +9%
--------------------------------- --------------- --------------- -------
NET DEBT (2) - JUNE GBP148.8m GBP181.6m -GBP33m
NET DEBT - DECEMBER 2017 GBP155.3m -GBP7m
--------------------------------- --------------- --------------- -------
Headlines
-- Trading slightly ahead of expectations; full year guidance unchanged
-- Margin progression in both Aerospace (+90 bps) (3) and Flexonics
(+130 bps) (3) Divisions
-- Strong free cash inflow of GBP32.2m
-- Interim dividend increased by 6.8% to 2.19 pence per share
-- The Group is well positioned to deliver good growth
Commenting on the results, David Squires, Group Chief Executive
of Senior plc, said:
"Trading across the Group in the first half of 2018 has been
slightly ahead of expectations with margin progression in both
Aerospace and Flexonics and the Group delivered another strong cash
performance.
Order books across most of our business remain strong with a
book-to-bill of 1.2x in the first half of 2018. For the full year
2018, we anticipate year-on-year margin progression for the Group.
At current exchange rates, the Board's expectation of making good
progress in 2018 is unchanged, with performance still expected to
be slightly weighted to the second half.
Looking further ahead, Senior is competitively positioned. We
expect to make continued improvement as more new programmes and
products enter production and ramp-up, and as the benefits from
implementation of the Senior Operating System and cost saving
actions continue to be delivered."
For further information please contact:
Bindi Foyle, Group Finance Director, Senior plc 01923 714725
Gulshen Patel, Director of Investor Relations & Corporate
Communications, Senior plc 01923 714722
Philip Walters, Finsbury Group 020 7251 3801
This release, together with other information on Senior plc, may
be found at: www.seniorplc.com
(1) Adjusted figures are stated before a GBP7.6m charge for amortisation
of intangible assets from acquisitions (H1 2017: GBP8.6m). Adjusted
earnings per share takes account of the tax impact of this item.
See notes 4 and 7 for further information.
(2) See notes 12(b) and 12(c) for derivation of free cash flow and
of net debt, respectively.
(3) H1 2017 results translated using H1 2018 average exchange rates
- constant currency.
The Group's principal exchange rate for the US Dollar applied in
the translation of first-half revenue, profit and cash flow items
at average rates was $1.38 (H1 2017: $1.27) and applied in the
translation of Balance Sheet items at 30 June 2018 was $1.32
(December 2017: $1.35, June 2017: $1.30).
Webcast
There will be a presentation on Monday 30 July 2018 at 11.00am
BST, with a live webcast that is accessible on Senior's website at
www.seniorplc.com/investors. The webcast will be made available on
the website for subsequent viewing.
Note to Editors
Senior is an international manufacturing Group with operations
in 14 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 Interim Management Report ("IMR") has been prepared solely
to provide additional information to enable shareholders to assess
the Group's strategy and business objectives and the potential for
the strategy and objectives to be fulfilled. It should not be
relied upon by any other party or for any other purpose.
This IMR contains certain forward-looking statements. Such
statements have been made by the Directors in good faith based on
information available to them at the time of their approval of this
Report. These statements should therefore be treated with caution
due to the inherent uncertainties, including both economic and
business risk factors, underlying such forward-looking
information.
INTERIM MANAGEMENT REPORT 2018
Overview
Trading across the Group in the first half of 2018 has been
slightly ahead of expectations with margin progression in both
Aerospace and Flexonics and the Group delivered another strong cash
performance.
Group revenue increased by 2.6% to GBP523.3m (H1 2017:
GBP510.0m). Excluding the adverse exchange rate impact of GBP22.4m,
Group revenue was up GBP35.7m (7.3%) on a constant currency basis
with sales increasing across both divisions. The Group's
book-to-bill ratio of 1.2x is encouraging. Revenue growth in the
Aerospace Division was driven by the large commercial aerospace
market. Increased revenue in the Flexonics Division was driven by
higher revenue from truck, off-highway, and industrial markets,
particularly upstream oil and gas.
Adjusted operating profit increased by GBP5.9m (15.7%) to
GBP43.4m (H1 2017: GBP37.5m). Excluding the adverse exchange rate
impact of GBP1.7m, adjusted operating profit increased by 21.2% on
a constant currency basis. The Group's adjusted operating margin
increased by 90 basis points to 8.3%. Both Aerospace and Flexonics
delivered margin improvement from increased revenues and
operational improvements including those derived from the
implementation of the Senior Operating System.
Adjusted profit before tax increased by 19.6% to GBP39.0m (H1
2017: GBP32.6m), or 24.2% on a constant currency basis. Adjusted
earnings per share increased by 18.1% to 7.36 pence (H1 2017: 6.23
pence).
Reported operating profit was GBP35.8m (H1 2017: GBP28.9m),
reported profit before tax was GBP31.4m (H1 2017: GBP24.0m) and
basic earnings per share was 5.90 pence (H1 2017:4.73 pence).
The Group generated free cash inflow of GBP32.2m (H1 2017:
GBP29.6m) after gross investment in capital expenditure of GBP22.0m
(H1 2017: GBP20.6m). Working capital as a percentage of sales
improved to 13.2% at the end of June 2018 (December 2017: 13.4%).
The level of net debt at the end of June 2018 was GBP148.8m
(December 2017: GBP155.3m). This decrease was principally due to
free cash inflow of GBP32.2m partly offset by GBP20.5m dividend
payments, GBP3.5m purchase of shares by the employee benefit trust
and adverse currency movements of GBP1.9m. The ratio of net debt to
EBITDA at the end of June 2018 was 1.2x.
Recognising the underlying strength of the business and its
future prospects, the Board has approved an interim dividend of
2.19 pence per share, an increase of 6.8% over the prior year (H1
2017: 2.05 pence). It will be paid on 30 November 2018 to
shareholders on the register at the close of business on 2 November
2018.
Market conditions
The outlook for the commercial aerospace sector continues to be
strong with good visibility due to the production ramp-up of new,
more efficient, large commercial aircraft programmes. For the first
five months of 2018, air traffic grew by 7% and demand for new
aircraft remains robust with Boeing, Airbus and independent
forecasters continuing to predict air traffic growth in excess of
4% per annum over the next 20 years. Senior has healthy shipset
content on all the key large commercial aircraft platforms. With
significantly higher content on the new engine A320neo, 737 MAX,
A330neo and 777X than the current engine versions, the Group is
expected to grow faster than the large commercial aircraft market
as the new engine versions of single aisle platforms ramp-up in
production and widebody platforms come into service. Additionally,
the 787 and A350 continue to perform well, with production expected
to ramp-up. Good progress has been made on the final stages of
certification for the A330neo with deliveries expected in H2 2018
and the 777X is scheduled to enter service in 2020.
In the regional and business jet market, the first half of 2018
has been positive with Embraer E2-Jet entering into service in
April and Bombardier making progress on the Global 7500 (previously
known as the Global 7000 but recently renamed following an increase
in range), as it prepares for entry into service in the second half
of the year. The C Series, renamed the A220 following the Airbus
and Bombardier partnership, continues to ramp-up deliveries. The
Group is expected to benefit from the Mitsubishi Regional Jet
(MRJ), which is scheduled to enter into service in 2020. In the
defence sector, the US Senate passed the Bipartisan Budget Act of
2018 which secured higher defence discretionary spending for fiscal
years 2018 and 2019 and gave a further commitment to aircraft
procurement programmes. The F-35 Joint Strike Fighter and CH-53K
King Stallion helicopter programmes are expected to grow
significantly over the long term, while the near-term outlook for
the CH-47 Chinook and UH-60 Black Hawk helicopter programmes were
reaffirmed.
Market production of North American heavy-duty diesel trucks
increased 30% in the first half of 2018 compared to first half of
2017. For the full year 2018, market production is forecast to grow
24%. The off-highway market continues to benefit from improved
levels of activity in end markets such as oil and gas and
agriculture. Upstream oil and gas related markets continue to see
increasing drilling activity in North America. With few major
projects being launched, the downstream oil and gas market remains
flat as expected; however, repair and overhaul activities have
remained stable.
Overall, end markets are generally healthy, though we are
watching with care any impact from the ongoing geopolitical trade
discussions.
Operational review
We continue to invest in capacity for both our Aerospace and
Flexonics businesses to enable us to meet increasing customer
demand and to ensure we remain competitive and profitable. In March
2018 we held a ground breaking event at the site of our new
Aerospace factory in Malaysia, which is in close proximity to our
existing operations. This was a direct consequence of winning new
commercial aerospace business and the new facility is anticipated
to be operational during the first half of 2019. In North America,
work is underway to expand the Aerospace Fluid Systems Metal
Bellows facility in Massachusetts to support planned growth as it
continues to perform well. The expansion work is anticipated to
complete in the second half of 2019. Our plans to relocate our
Crumlin operation in South Wales to a dedicated high-tech facility
are proceeding, with construction set to commence in the second
half of 2018 and completing in 2019. The new facility will focus on
design, development, test and qualification of new products, which
will be manufactured around the world in our existing cost
competitive locations. Additionally, we are continuing to review
capacity plans in our Flexonics India business and our Flexonics JV
in China, as both these facilities have continued to win new
long-term business.
In the first six months of this year, Senior has continued to
win additional business in the Aerospace Division with higher
shipset content on platforms such as 777X, A320neo, A220 and F-35.
This additional content builds on the new commercial aerospace
contracts which we announced at the end of last year. At the
request of customers, the introduction of some of the new products
under these contracts will occur in the second half of 2018, rather
than the first half. New product introduction costs therefore, will
be slightly higher due to the additional wins, and will be more
evenly spread throughout 2018 than previously anticipated.
Good progress has been made on cost reduction in the first half
of 2018, particularly on some of our largest new aerospace
programmes. With the ongoing operational improvements Senior is
making, supported by the deployment of the Senior Operating System
across the Group, we anticipate meeting expectations in 2018 and
continue to make good progress over the medium term.
Delivery of Group Strategy
The Group's overall strategy is unchanged; we continue to be
committed to retaining a balance between Aerospace and Flexonics
and to grow both segments of our business. We undertake regular
reviews of the Group's portfolio as we seek to increase shareholder
value by leveraging our current operations, and where appropriate,
acquisitions, disposals or mergers of operations will be considered
to optimise returns on capital.
The Group continues to make good progress against our six
strategic priorities which were identified as key elements of our
business model, driving the creation of shareholder value:
1. Enhance Senior's Autonomous and Collaborative Business
Model.
2. Focus on Growth.
3. Introduce a High Performance Operating System.
4. Competitive Cost Country Strategy.
5. Considered and Effective Capital Deployment.
6. Talent Development.
We continue to implement and deliver our specific plans for 2018
which we laid out on pages 16 and 17 of the Annual Report &
Accounts 2017. We will give a full update on these when we announce
our full year 2018 results.
Outlook
Order books across most of our business remain strong with a
book to bill of 1.2x in the first half of 2018. For the full year
2018, we anticipate year-on-year margin progression for the Group.
At current exchange rates, the Board's expectation of making good
progress in 2018 is unchanged, with performance still expected to
be slightly weighted to the second half.
Looking further ahead, Senior expects to make continued
improvement as more new programmes and products enter production
and ramp-up, and as the benefits from implementation of the Senior
Operating System and cost saving actions continue to be delivered.
Senior is competitively positioned with exposure to strong growing
end markets which enable it to grow organically on a sustainable
basis. Furthermore, Senior's cash-generative nature and robust
financial position provide a solid platform from which the Group
can continue to pursue growth opportunities to complement its
existing portfolio.
DIVISIONAL REVIEW
Aerospace Division
The Aerospace Division represents 69% (H1 2017: 71%) of Group
revenue and consists of 19 operations. These are located in North
America (ten), the United Kingdom (four), continental Europe
(three), Thailand and Malaysia. This Divisional review is on a
constant currency basis, whereby H1 2017 results have been
translated using H1 2018 average exchange rates and excludes the
impact of amortisation of intangible assets from acquisitions. The
Division's operating results are summarised below:
Half-year Half-year
ended ended
30 June 30 June
2018 2017 (1) Change
GBPm GBPm
Revenue 363.5 345.5 +5.2%
Adjusted operating profit 38.0 33.0 +15.2%
Adjusted operating margin 10.5% 9.6% +90bps
(1) H1 2017 results translated using H1 2018 average exchange rates
- constant currency.
Divisional revenue increased by GBP18.0m (5.2%) to GBP363.5m (H1
2017: GBP345.5m) and adjusted operating profit increased by GBP5.0m
(15.2%) to GBP38.0m (H1 2017: GBP33.0m).
Revenue Reconciliation GBPm
H1 2017 revenue 345.5
Large commercial 13.1
Regional & business jets (0.2)
Military (1.5)
Other 6.6
------
H1 2018 revenue 363.5
======
The Division's most important market is large commercial
aircraft where Boeing and Airbus collectively delivered 681
aircraft in the first half of 2018, 3.5% more than the prior year.
Senior's sales in the large commercial aircraft sector increased by
5.9% during the six-month period to 30 June 2018, as the Group
benefited from increased production of the 737 MAX, A320neo, A350,
and 787; however, these increases were partly offset by the decline
in build rates of the 777, A330, A380 and the current engine
versions of the 737 and A320.
The Division's sales to the regional and business jet markets
decreased by 0.6% in the period mainly due to lower production of
the legacy jets.
Total revenue from the military and defence sector decreased by
2.6% during the period, primarily due to reductions in revenue from
legacy military platforms offset partially by the ramp-up of the
Joint Strike Fighter.
Around 10% of the Aerospace Division's revenue was derived from
other markets such as space, non-military helicopters, power and
energy, medical and semi-conductor equipment, where the Group
manufactures products using very similar technology to that used
for certain aerospace products. Revenue derived from these markets
increased by 20.6%, due to strong demand for Senior's proprietary
products for the semi-conductor equipment market.
The divisional adjusted operating margin increased by 90 basis
points to 10.5% (H1 2017: 9.6%), from increased revenues, our focus
on cost reduction and operational improvements.
New product introduction costs in the first half of the year
were slightly lower than anticipated as, at the request of
customers, the introduction of some of the new products under
contracts announced at the end of last year have been rescheduled
to the second half of 2018. Furthermore, in the first six months of
this year, Senior has continued to win additional business and
increased its shipset value on platforms such as 767 (+104%), 777X
(+12%), Embraer E2-Jet (+8%), F-35 (+5%), A320neo (+2%), and A220
(+2%). As a result, we will continue to have a high level of new
product introduction activity in the second half of 2018.
Overall the future prospects for the Group's Aerospace Division
remain strong with good visibility.
Flexonics Division
The Flexonics Division represents 31% (H1 2017: 29%) of Group
revenue and consists of 14 operations which are located in North
America (four), continental Europe (three), the United Kingdom
(two), South Africa, India, Brazil, Malaysia, and China where the
Group also has a 49% equity stake in a land vehicle joint venture.
This Divisional review is on a constant currency basis, whereby H1
2017 results have been translated using H1 2018 average exchange
rates and excludes the impact of amortisation of intangible assets
from acquisitions. The Division's operating results are summarised
below:
Half-year Half-year
ended ended
30 June 30 June
2018 2017 (1) Change
GBPm GBPm
Revenue 160.6 142.6 +12.6%
Adjusted operating profit 12.8 9.6 +33.3%
Adjusted operating margin 8.0% 6.7% +130bps
(1) H1 2017 results translated using H1 2018 average exchange rates
- constant currency.
Divisional revenue increased by GBP18.0m (12.6%) to GBP160.6m
(H1 2017: GBP142.6m) and adjusted operating profit increased by
GBP3.2m (33.3%) to GBP12.8m (H1 2017: GBP9.6m).
Revenue Reconciliation GBPm
H1 2017 revenue 142.6
Truck and off-highway 9.2
Passenger vehicles (1.2)
Industrial 9.4
Other 0.6
------
H1 2018 revenue 160.6
======
Group sales to truck and off-highway markets increased by 19.7%.
Senior's sales to the North American truck and off-highway market
increased by GBP6.8m (20.4%), primarily due to higher sales of EGR
coolers for new vehicles as heavy-duty truck and off-highway
production increased, partly offset by the expected decrease in
sales of service parts for older models. Sales to European truck
and off-highway markets increased by GBP3.4m (44.2%) due to ramp-up
of new programmes. Sales to India and China decreased by GBP1.0m
(17.5%) as growth from the ramp-up of new programmes in India was
offset by lower direct sales to China as some products transitioned
to our China joint venture.
Group sales to passenger vehicle markets decreased by GBP1.2m
(4.2%) in the period. As we previously advised, we elected not to
add new business at low margins with high capital requirements in
passenger vehicle, electing instead to deploy capital in other
parts of the Group with higher returns.
In the Group's industrial markets, sales were up by GBP9.4m
(14.8%) in the period. Sales to oil and gas markets were up GBP5.2m
(18.4%), primarily due to increased drilling activity in upstream
oil and gas related markets, while downstream oil and gas related
activity was flat. Sales to power and energy markets increased by
GBP3.0m (19.1%) due to higher nuclear sales. Sales from other
industrial markets increased by GBP1.2m (6.2%) due to higher
industrial hose and medical sales.
The adjusted operating margin increased by 130 basis points to
8.0% (H1 2017: 6.7%), primarily due to higher demand and volumes
from truck, off-highway and upstream oil and gas coupled with
benefits from our focus on cost management and efficiency
initiatives.
Market production of North American heavy-duty trucks is
forecast to grow year on year in 2018 and the off-highway market
continues to benefit from improved levels of activity in end
markets such as oil and gas and agriculture. Upstream oil and gas
related markets continue to see increasing drilling activity in
North America. With few major projects being launched, the
downstream oil and gas market is expected to remain flat; however,
repair and overhaul activities have remained stable.
Looking further ahead, global emissions standards and
environmental legislation continues to tighten, which coupled with
projected increases in global energy usage, will drive increased
demand for many of the Flexonics Division's products. Senior is
developing solutions for the next generation of more efficient
internal combustion engines, as well as electrified land vehicle
applications. As a result of its global footprint, technical
innovation and customer relationships, the Group remains well
positioned for the future as new Flexonics programmes and products
enter production.
OTHER FINANCIAL INFORMATION
Finance costs
Total finance costs, net of investment income of GBP0.3m (H1
2017: GBP0.1m), reduced to GBP4.4m (H1 2017: GBP4.9m) due to
favourable foreign exchange impact on the translation of interest
charges on US dollar denominated borrowings.
Tax charge
The adjusted tax rate for the period was 21.0% (H1 2017: 19.9%),
being a tax charge of GBP8.2m (H1 2017: GBP6.5m) on adjusted profit
before tax of GBP39.0m (H1 2017: GBP32.6m). After including the tax
benefit of GBP1.5m (H1 2017: GBP2.3m) arising from amortisation of
intangible assets from acquisitions, the reported tax charge was
GBP6.7m (H1 2017: GBP4.2m) resulting in a reported tax rate of
21.3% (H1 2017: 17.5%) on profit before tax.
Earnings per share
The weighted average number of shares, for the purposes of
calculating undiluted earnings per share, reduced to 418.6 million
(H1 2017: 418.9 million). The reduction arose principally from the
purchase of shares by the employee benefit trust to satisfy
anticipated future share awards. Adjusted earnings per share
increased by 18.1% to 7.36 pence (H1 2017: 6.23 pence). Basic
earnings per share increased by 24.7% to 5.90 pence (H1 2017: 4.73
pence). See note 7 of the Condensed Consolidated Interim Financial
Statements for details of the basis of these calculations.
Working capital
Working capital improved by 20 basis points from 13.4% of sales
at 31 December 2017 to 13.2% of sales at 30 June 2018, principally
due to 130 basis points reduction from payables in excess of
receivables, partly offset by increases of 70 basis points from
inventory to support new product introductions and 40 basis points
from exchange differences.
Capital expenditure
Capital expenditure of GBP22.0m (H1 2017: GBP20.6m) was 1.1
times depreciation (H1 2017: 1.0 times), with the majority of
investment related to growth programmes in the Aerospace Division.
Capital expenditure is expected to be higher than depreciation in
the second half of the year, as previously advised, as investments
continue to support future growth programmes already won.
Retirement benefit schemes
The retirement benefit surplus in respect of the Group's UK
defined benefit pension plan increased by GBP14.6m to GBP34.0m (30
June 2017: GBP10.0m; 31 December 2017: GBP19.4m), principally due
to net actuarial gains of GBP10.3m and GBP4.1m cash contributions
in excess of running costs made by the Group. Retirement benefit
deficits in respect of the US and other territories decreased by
GBP0.9m to GBP13.8m (30 June 2017: GBP13.2m; 31 December 2017:
GBP14.7m), principally due to GBP0.8m cash contributions in excess
of service costs made by the Group.
Refinancing
In January 2018, a new GBP27.0m 7-year private placement
carrying interest at the rate of 2.35% per annum was drawn down. A
new $30.0m (GBP22.7m) 10-year private placement carrying interest
at the rate of 4.18% per annum was committed in June 2018 and will
be drawn down in September 2018. These two new private placements
will replace the $75.0m (GBP56.8m) private placement carrying
interest at the rate of 6.84% per annum that matures in October
2018.
Going concern basis
The Directors have made appropriate enquiries and consider that
the Group has adequate resources to continue in operational
existence for the foreseeable future. Accordingly, the Directors
continue to adopt the going concern basis in preparing the
financial statements.
Risks and uncertainties
During the first half of 2018 the principal risks and
uncertainties faced by the Group have been reassessed. Following
the review, two risks set out in detail on pages 26 to 29 of the
Annual Report & Accounts 2017 (available at www.seniorplc.com)
are no longer considered to be principal risks and one principal
risk has been amended. The Group's principal risks and
uncertainties as at 30 June 2018 are summarised as:
Risks and uncertainties Descriptions
Market response (amended, as Significant shipset content has
previously referred to as new been secured on a number of new
aircraft platform delays) aircraft platforms currently under
development or in initial phases
of production. There is a risk that,
as new aircraft platforms begin
to ramp-up and end markets grow,
the business and/or the supply chain
is unable to meet demand due to
capacity constraints and/or quality
issues. Delays in the launch or
ramp-up in production of new platforms
could have a material adverse impact
on the Group's rate of organic growth.
-------------------------------------------
Price-down pressures Customer pricing pressure is an
ongoing challenge within our industries,
driven by the expectations of airlines,
land vehicle operators and governments
seeking to purchase more competitively
priced products in the future. This
may put some pressure on the Group's
future operating margins.
-------------------------------------------
Acquisitions Failure to execute an effective
acquisition and integration programme
would have a significant impact
on the Group's ability to generate
long-term value for shareholders.
-------------------------------------------
Corporate governance breach Corporate governance legislation
(such as the UK Bribery Act and
the US Foreign Corrupt Practices
Act), regulations and guidance (such
as the UK Corporate Governance Code
and global health and safety regulations)
are increasingly complex and onerous.
A serious breach of these rules
and regulations could have a significant
impact on the Group's reputation,
lead to a loss of confidence on
the part of investors, customers
or other stakeholders and ultimately
have a material adverse impact on
the Group's enterprise value.
-------------------------------------------
Financing and liquidity The Group could have insufficient
financial resources to fund its
growth strategy or meet its financial
obligations as they fall due.
-------------------------------------------
Geo-political impact The UK decision to leave the EU,
the imposing of tariffs by the US
Administration and reciprocal actions
by other countries and other likely
geo-political events have created
uncertainty over the future impact
on international trade and the ability
to retain and recruit foreign nationals.
-------------------------------------------
Cyber/Information security The risk that the Group is subjected
to external threats from hackers
or viruses potentially causing critical
or sensitive data to be lost, corrupted,
made inaccessible, or accessed by
unauthorised users, resulting in
operational disruption and/or financial
loss.
-------------------------------------------
Innovation and technological In order to continue to win new
change business and achieve profitable
growth the Group must innovate.
There is a risk that the Group does
not continue to innovate and implement
technological change resulting in
its technology becoming uncompetitive
or obsolete.
-------------------------------------------
New product introduction The ability to introduce new products
in line with the plan at point of
contract award is important if the
Group is to achieve its strategic
objectives. There is a risk that
new programmes or products are not
introduced to schedule, quality
and cost at a time when new programmes
are ramping up. This could result
in delays, cost overruns and disappointed
customers.
-------------------------------------------
The two risks which are no longer considered to be principal
risks are:
Risks and uncertainties Descriptions
Importance of emerging markets Whilst this continues to be monitored,
with the Group successfully increasing
its presence in cost competitive
countries, the focus is on delivering
the ramp-up of volumes on the new
contracts and platforms the Group
has already won.
----------------------------------------
Programme participation The likelihood and impact of this
risk has reduced as a result of
the Group having won positions on
new platforms.
----------------------------------------
Overall, the Board does not anticipate any significant change in
the likely impact of these risks.
Directors' Responsibility Statement
We confirm that to the best of our knowledge:
1. the condensed set of financial statements has been prepared in
accordance with IAS 34 "Interim Financial Reporting" as adopted
by the European Union;
2. the Interim Management Report herein includes a fair review of
the important events during the first six months and description
of the principal risks and uncertainties for the remaining six
months of the year, as required by Rule 4.2.7R of the Disclosure
and Transparency Rules of the United Kingdom's Financial Conduct
Authority; and
3. the Interim Management Report includes as applicable, a fair
review of disclosure of related party transactions and changes
therein, as required by Rule 4.2.8R of the Disclosure and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
By Order of the Board
David Squires Bindi Foyle
Group Chief Executive Group Finance Director
27 July 2018 27 July 2018
INDEPENT REVIEW REPORT TO SENIOR PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2018 which comprises the Condensed
Consolidated Income Statement, the Condensed Consolidated Statement
of Comprehensive Income, the Condensed Consolidated Balance Sheet,
the Condensed Consolidated Statement of Changes in Equity, the
Condensed Consolidated Cash Flow Statement and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2018 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The Directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Robert Brent
for and on behalf of KPMG LLP
Chartered Accountants
London
27 July 2018
Condensed Consolidated Income Statement
For the half-year ended 30 June 2018
Half-year Half-year Year
ended ended ended
30 June 30 June 31 Dec
Notes 2018 2017 2017
GBPm GBPm GBPm
Revenue 3 523.3 510.0 1,023.4
---------- ---------- --------
Trading profit 3 35.4 28.6 64.8
Share of joint venture profit 9 0.4 0.3 0.7
Operating profit (1) 3 35.8 28.9 65.5
Investment income 0.3 0.1 0.2
Finance costs (4.7) (5.0) (9.7)
Loss on disposal 13 - - (3.8)
---------- ---------- --------
Profit before tax (2) 31.4 24.0 52.2
Tax (charge)/credit 5 (6.7) (4.2) 8.1
---------- ---------- --------
Profit for the period 24.7 19.8 60.3
---------- ---------- --------
Attributable to:
Equity holders of the parent 24.7 19.8 60.3
---------- ---------- --------
Earnings per share
Basic (3) 7 5.90p 4.73p 14.39p
---------- ---------- --------
Diluted (4) 7 5.82p 4.70p 14.30p
---------- ---------- --------
(1) Adjusted operating profit 4 43.4 37.5 82.6
(2) Adjusted profit before tax 4 39.0 32.6 73.1
(3) Adjusted earnings per share 7 7.36p 6.23p 14.39p
(4) Adjusted and diluted earnings
per share 7 7.26p 6.20p 14.30p
------------------------------------ --- ------- ------- --------
Condensed Consolidated Statement of Comprehensive Income
For the half-year ended 30 June 2018
Half-year Half-year Year
ended ended ended
30 June 30 June 31 Dec
2018 2017 2017
GBPm GBPm GBPm
Profit for the period 24.7 19.8 60.3
Other comprehensive income:
Items that may be reclassified
subsequently to profit or loss:
(Losses)/gains on foreign exchange
contracts- cash flow hedges during
the period (5.6) 6.6 12.9
Reclassification adjustments for
losses/(profits) included in profit 0.9 (0.9) (1.4)
---------- ---------- --------
(Losses)/gains on foreign exchange
contracts- cash flow hedges (4.7) 5.7 11.5
Exchange differences on translation
of overseas operations 6.1 (10.5) (18.2)
Tax relating to items that may
be reclassified 0.9 (1.2) (2.3)
---------- ---------- --------
2.3 (6.0) (9.0)
Items that will not be reclassified
subsequently to profit or loss:
Actuarial gains on defined benefit
pension schemes 10.3 2.4 5.2
Tax relating to items that will
not be reclassified - (0.2) 0.7
---------- ---------- --------
10.3 2.2 5.9
Other comprehensive income/(expense)
for the period, net of tax 12.6 (3.8) (3.1)
---------- ---------- --------
Total comprehensive income for
the period 37.3 16.0 57.2
---------- ---------- --------
Attributable to:
Equity holders of the parent 37.3 16.0 57.2
---------- ---------- --------
Condensed Consolidated Balance Sheet
As at 30 June 2018 30 June 30 June
Notes 2018 2017 31 Dec 2017
GBPm GBPm GBPm
Non-current assets
Goodwill 8 306.9 309.9 302.4
Other intangible assets 33.9 50.7 41.6
Investment in joint venture 9 2.7 2.0 2.4
Property, plant and equipment 10 265.0 248.3 256.1
Deferred tax assets 2.4 5.9 1.6
Loan to joint venture 9 0.3 0.5 0.3
Retirement benefits 11 34.0 10.0 19.4
Trade and other receivables 0.5 0.5 0.5
-------- -------- ------------
Total non-current assets 645.7 627.8 624.3
-------- -------- ------------
Current assets
Inventories 169.5 156.8 154.5
Loan to joint venture 9 - - 0.2
Current tax receivables 1.4 0.8 1.0
Trade and other receivables 161.3 163.5 154.3
Cash and bank balances 12 34.9 22.3 12.6
Asset classified as held for sale 13 - 4.0 3.9
-------- -------- ------------
Total current assets 367.1 347.4 326.5
-------- -------- ------------
Total assets 1,012.8 975.2 950.8
-------- -------- ------------
Current liabilities
Trade and other payables 200.4 177.5 173.0
Current tax liabilities 21.8 24.8 21.2
Obligations under finance leases 12c) 0.2 0.4 0.3
Bank overdrafts and loans 12c) 56.9 10.0 60.5
Provisions 14 7.1 4.0 5.5
Total current liabilities 286.4 216.7 260.5
-------- -------- ------------
Non-current liabilities
Bank and other loans 12c) 126.8 193.2 106.7
Retirement benefits 11 13.8 13.2 14.7
Deferred tax liabilities 36.4 51.2 34.3
Obligations under finance leases 12c) 0.1 0.3 0.2
Provisions 14 0.3 0.2 0.2
Others 2.5 2.5 2.6
-------- -------- ------------
Total non-current liabilities 179.9 260.6 158.7
-------- -------- ------------
Total liabilities 466.3 477.3 419.2
-------- -------- ------------
Net assets 546.5 497.9 531.6
-------- -------- ------------
Equity
Issued share capital 15 41.9 41.9 41.9
Share premium account 14.8 14.8 14.8
Equity reserve 4.5 2.9 3.9
Hedging and translation reserve 35.6 36.3 33.3
Retained earnings 454.0 403.1 438.8
Own Shares (4.3) (1.1) (1.1)
-------- -------- ------------
Equity attributable to equity holders
of the parent 546.5 497.9 531.6
-------- -------- ------------
Total equity 546.5 497.9 531.6
-------- -------- ------------
Condensed Consolidated Statement of Changes in Equity
For the half-year ended 30 June 2018
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
2017 41.9 14.8 3.0 42.3 400.0 (1.5) 500.5
-------- -------- -------- ------------ --------- -------- -------
Profit for the period - - - - 60.3 - 60.3
Gains on foreign exchange
contracts- cash flow
hedges - - - 11.5 - - 11.5
Exchange differences
on translation of
overseas operations - - - (18.2) - - (18.2)
Actuarial gains on
defined benefit pension
schemes - - - - 5.2 - 5.2
Tax relating to components
of other comprehensive
income - - - (2.3) 0.7 - (1.6)
-------- -------- -------- ------------ --------- -------- -------
Total comprehensive
income for the period - - - (9.0) 66.2 - 57.2
Share-based payment
charge - - 1.9 - - - 1.9
Purchase of shares
held by employee benefit
trust - - - - - (0.1) (0.1)
Use of shares held
by employee benefit
trust - - - - (0.5) 0.5 -
Transfer to retained
earnings - - (1.0) - 1.0 - -
Dividends paid - - - - (27.9) - (27.9)
-------- -------- -------- ------------ --------- -------- -------
Balance at 31 December
2017 41.9 14.8 3.9 33.3 438.8 (1.1) 531.6
-------- -------- -------- ------------ --------- -------- -------
Profit for the period - - - - 24.7 - 24.7
Losses on foreign
exchange contracts-
cash flow hedges - - - (4.7) - - (4.7)
Exchange differences
on translation of
overseas operations - - - 6.1 - - 6.1
Actuarial gains on
defined benefit pension
schemes - - - - 10.3 - 10.3
Tax relating to components
of other comprehensive
income - - - 0.9 - - 0.9
-------- -------- -------- ------------ --------- -------- -------
Total comprehensive
income for the period - - - 2.3 35.0 - 37.3
Share-based payment
charge - - 1.6 - - - 1.6
Purchase of shares
held by employee benefit
trust - - - - - (3.5) (3.5)
Use of shares held
by employee benefit
trust - - - - (0.3) 0.3 -
Transfer to retained
earnings - - (1.0) - 1.0 - -
Dividends paid - - - - (20.5) - (20.5)
-------- -------- -------- ------------ --------- -------- -------
Balance at 30 June
2018 41.9 14.8 4.5 35.6 454.0 (4.3) 546.5
-------- -------- -------- ------------ --------- -------- -------
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
2017 41.9 14.8 3.0 42.3 400.0 (1.5) 500.5
-------- -------- -------- ------------ --------- -------- -------
Profit for the period - - - - 19.8 - 19.8
Gains on foreign exchange
contracts- cash flow
hedges - - - 5.7 - - 5.7
Exchange differences
on translation of
overseas operations - - - (10.5) - - (10.5)
Actuarial gains on
defined benefit pension
schemes - - - - 2.4 - 2.4
Tax relating to components
of other comprehensive
income - - - (1.2) (0.2) - (1.4)
-------- -------- -------- ------------ --------- -------- -------
Total comprehensive
income for the period - - - (6.0) 22.0 - 16.0
Share-based payment
charge - - 0.9 - - - 0.9
Purchase of shares
held by employee benefit
trust - - - - - (0.1) (0.1)
Use of shares held
by employee benefit
trust - - - - (0.5) 0.5 -
Transfer to retained
earnings - - (1.0) - 1.0 - -
Dividends paid - - - - (19.4) - (19.4)
-------- -------- -------- ------------ --------- -------- -------
Balance at 30 June
2017 41.9 14.8 2.9 36.3 403.1 (1.1) 497.9
-------- -------- -------- ------------ --------- -------- -------
Condensed Consolidated Cash Flow Statement
For the half-year ended 30 June 2018
Half-year Half-year Year
ended ended ended
30 June 30 June 31 Dec
Notes 2018 2017 2017
GBPm GBPm GBPm
Net cash from operating activities 12a) 53.8 49.9 110.9
---------- ---------- --------
Investing activities
Interest received 0.1 0.2 0.4
Proceeds on disposal of property,
plant and equipment 0.3 0.1 1.8
Purchases of property, plant and
equipment (21.6) (19.4) (52.3)
Purchases of intangible assets (0.4) (1.2) (2.5)
Proceeds on disposal - - 0.4
Loan repayment by joint venture 9 0.2 0.3 0.3
Net cash used in investing activities (21.4) (20.0) (51.9)
---------- ---------- --------
Financing activities
Dividends paid (20.5) (19.4) (27.9)
New loans 42.0 73.6 78.7
Repayment of borrowings (25.6) (77.8) (115.8)
Repayments of obligations under
finance leases (0.2) (0.3) (0.5)
Purchase of shares held by employee
benefit trust (3.5) (0.1) (0.1)
Net cash used in financing activities (7.8) (24.0) (65.6)
---------- ---------- --------
Net increase/ (decrease) in cash
and cash equivalents 24.6 5.9 (6.6)
Cash and cash equivalents at beginning
of period 9.7 16.8 16.8
Effect of foreign exchange rate
changes 0.5 (0.4) (0.5)
---------- ---------- --------
Cash and cash equivalents at end
of period 12 34.8 22.3 9.7
---------- ---------- --------
Notes to the Condensed Consolidated Interim Financial
Statements
1. General information
These Condensed Consolidated Interim Financial Statements of
Senior plc (the Group), which were approved by the Board of
Directors on 27 July 2018, have been reviewed by KPMG LLP, the
Group's auditor, whose report is set out after the Directors'
Responsibility Statement.
The comparative figures for the year ended 31 December 2017 do
not constitute the Group's statutory accounts for 2017 as defined
in Section 434(3) of the Companies Act 2006. Statutory accounts for
2017 have been delivered to the Registrar of Companies. The
auditor's report on those accounts was 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.
2. Accounting policies
These Condensed Consolidated Interim Financial Statements have
been prepared in accordance with the Disclosure and Transparency
Rules of the Financial Conduct Authority and with IAS 34 "Interim
Financial Reporting" as adopted by the European Union. The
Directors have, at the time of approving these Condensed
Consolidated Interim Financial Statements, a reasonable expectation
that the Group has adequate resources to continue in operational
existence for the foreseeable future, a period of at least 12
months from this reporting date. Accordingly, they continue to
adopt the going concern basis of accounting in preparing these
Condensed Consolidated Interim Financial Statements.
The accounting policies, presentation and methods of computation
adopted in the preparation of these Condensed Consolidated Interim
Financial Statements are consistent with those followed in the
preparation of the Group's Annual Financial Statements for the year
ended 31 December 2017, which were prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union, aside from the adoption of IFRS 9 and IFRS 15
from 1 January 2018.
Additionally, the discount rate and inflation rate used to
measure the UK retirement benefit scheme have been updated in line
with developing market practice following actuarial advice, which
do not have a significant impact on the Condensed Consolidated
Interim Financial Statements.
These Condensed Consolidated Interim Financial Statements do not
include all the information required for full annual financial
statements and should be read in conjunction with the Consolidated
Financial Statements of the Group as at and for the year ended 31
December 2017.
At the date of authorisation of these Condensed Consolidated
Interim Financial Statements, a number of new standards and
amendments to existing standards have been issued, all of which are
effective, apart from IFRS 16, which is effective on 1 January 2019
and has not been adopted early. A summary of the impact review
performed on each standard is given below. None of these changes
will have an effect on net cash from operating activities nor on
free cash flow, apart from IFRS 16, which is explained below.
a) IFRS 9 Financial instruments - This standard covers the
classification, measurement, impairment and derecognition of
financial assets and financial liabilities together with a new
hedge accounting model. It replaced IAS 39 Financial Instruments
from 1 January 2018.
There is no material impact for the Group on transition to the
new standard.
b) IFRS 15 Revenue from Contracts with Customers - This
standard, which has replaced existing revenue standards, requires
the separation of performance obligations within contracts with
customers and the contractual value to be allocated to each of the
performance obligations. Revenue is then recognised as each
performance obligation is satisfied.
The Group has adopted this standard using the cumulative effect
method (without practical expedients), therefore the information
presented for 2017 has not been restated. This involved calculating
the relevant adjustments required for contracts not completed as at
the transition date of 1 January 2018. The impact of the transition
on the Condensed Consolidated Interim Financial Statements for 2018
is immaterial. Market practice and industry interpretations of IFRS
15 are continuing to evolve in 2018. The Group will continue to
monitor these developments and will re-evaluate the transitional
adjustments as necessary, but we do not anticipate any material
adjustments being required given the Group's operating model.
The Group predominantly has one revenue stream relating to
engineered components or systems (products), which are customer
specific, with a secondary revenue stream of funded development
revenue. Both streams have identifiable customer contracts and
pricing specific performance obligations.
c) IFRS 16 Leases - This standard, which will replace IAS 17,
requires lessees to recognise assets and liabilities for all
leases, unless the lease term is 12 months or less (short-term) or
the underlying asset is low value. As at 30 June 2018, the Group
holds a significant number of operating leases which currently,
under IAS 17, are expensed on a straight-line basis over the lease
term.
Retrospective application in the comparative year ending 31
December 2018 is optional. The Group expects that it will not adopt
this optional application and will apply the standard from the
transitional date (1 January 2019) using the modified retrospective
approach, adjusting opening retained earnings and not re-stating
comparatives. An extensive exercise has been conducted to assess
the impact of the new standard. This involves calculating the
right-of-use asset and lease liability based on the present value
of remaining lease payments on all applicable lease contracts as at
the transition date.
The Group previously reported that had the new standard been
adopted for the year ended 31 December 2017, the profit before tax
would change by an immaterial amount, while lease liabilities and
property, plant and equipment were estimated to increase between
GBP50m and GBP70m (2016: GBP50m and GBP70m).
This adoption of the standard does not impact the Group's
principal lending covenant, being the ratio of net debt to EBITDA,
as this is based on frozen GAAP. If the principal lending covenant
was not based on frozen GAAP, the ratio of net debt to EBITDA is
estimated to increase by 0.2x to 0.5x. As a result of this
accounting change and the related classification of certain items
in the cash flow statement, net cash from operating activities and
free cash flow (as defined in note 12b) are expected to increase,
while net cash used in financing activities is expected to
decrease, resulting in a neutral effect on the movement in cash and
cash equivalents. The ranges disclosed reflect the sensitivity of
the adjustment to a +/-3 percentage point movement in the discount
rate used to calculate the present value of the future cash flow
commitments. The discount rate, the renewal of and changes to the
lease portfolio and exchange rates on translation of financial
statements of non-Sterling operations used in estimating the 2017
impact are all subject to change after the estimation date, which
will impact the actual transitional adjustment on the transition
date.
The following practical expedients for IFRS 16 are expected to
be taken on the transition date:
- The Group will not reassess whether existing contracts are, or
contain, a lease and will apply IFRS 16 only to existing contracts
that were previously identified as leases under IAS 17.
- The Group will apply a single discount rate to a portfolio of leases with reasonably similar characteristics.
- The Group will assess whether leases are onerous, using IAS
37, immediately before the transition date as an alternative to
performing an impairment review. The right of use asset will be
adjusted by the amount of any provision for onerous leases
recognised in the statement of financial position immediately
before the transition.
- For leases which have a remaining term of less than 12 months
from the transition date, the Group will treat these leases in the
same way as short-term leases.
- Hindsight will be used to determine the lease term on the
transition date if the contract contains options to extend or
terminate.
There are no other material new standards, amendments to
standards or interpretations which are effective for the half-year
ended 30 June 2018.
The preparation of the Condensed Consolidated Interim Financial
Statements requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets and liabilities, income and expense.
The resulting accounting estimates will, by definition, seldom
equal the related actual results. In preparing these Condensed
Consolidated Interim Financial Statements, the significant
judgements made were the same as those that applied to the
Consolidated Financial Statements for the year ended 31 December
2017, which are available via Senior's website
www.seniorplc.com.
3. Segmental analysis
The Group reports its segment information as two operating
divisions according to the market segments they serve, Aerospace
and Flexonics, which is consistent with the oversight employed by
the Executive Committee. The chief operating decision maker, as
defined by IFRS 8, is the Executive Committee. For management
purposes, the Aerospace Division is managed as two sub-divisions,
Aerostructures and Fluid Systems; however, these are aggregated as
one reporting segment as they service similar markets and customers
in accordance with IFRS 8. The Flexonics Division is managed as a
single division.
Business Segments
Segment information for revenue, operating profit and a
reconciliation to entity net profit is presented below:
Eliminations Eliminations
/ central / central
Aerospace Flexonics costs Total Aerospace Flexonics costs Total
Half-year Half-year Half-year Half-year Half-year Half-year Half-year Half-year
ended ended ended ended ended ended ended ended
30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June
2018 2018 2018 2018 2017 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
External revenue 362.8 160.5 - 523.3 362.3 147.7 - 510.0
Inter-segment
revenue 0.7 0.1 (0.8) - 0.4 0.1 (0.5) -
---------- ---------- ------------ ---------- ---------- ---------- ------------ ----------
Total revenue 363.5 160.6 (0.8) 523.3 362.7 147.8 (0.5) 510.0
---------- ---------- ------------ ---------- ---------- ---------- ------------ ----------
Adjusted trading
profit 38.0 12.8 (7.8) 43.0 34.6 9.8 (7.2) 37.2
Share of joint
venture profit - 0.4 - 0.4 - 0.3 - 0.3
---------- ---------- ------------ ---------- ---------- ---------- ------------ ----------
Adjusted
operating
profit 38.0 13.2 (7.8) 43.4 34.6 10.1 (7.2) 37.5
Amortisation
of intangible
assets from
acquisitions (4.0) (3.6) - (7.6) (4.3) (4.3) - (8.6)
Operating profit 34.0 9.6 (7.8) 35.8 30.3 5.8 (7.2) 28.9
---------- ---------- ------------ ---------- ---------- ------------
Investment income 0.3 0.1
Finance costs (4.7) (5.0)
---------- ----------
Profit before
tax 31.4 24.0
Tax (6.7) (4.2)
---------- ----------
Profit after
tax 24.7 19.8
---------- ----------
Trading profit and adjusted trading profit is operating profit
and adjusted operating profit respectively before share of joint
venture profit. See note 4 for the derivation of adjusted operating
profit.
Segment information for assets and liabilities is presented
below.
30 June 30 June 31 Dec
2018 2017 2017
Assets GBPm GBPm GBPm
Aerospace 686.5 684.4 667.8
Flexonics 248.8 246.2 244.2
Segment assets for reportable segments 935.3 930.6 912.0
Unallocated
Central 4.1 4.1 3.7
Cash 34.9 22.3 12.6
Deferred and current tax 3.8 6.7 2.6
Retirement benefits 34.0 10.0 19.4
Others 0.7 1.5 0.5
-------- -------- -------
Total assets per Balance Sheet 1,012.8 975.2 950.8
-------- -------- -------
30 June 30 June 31 Dec
2018 2017 2017
Liabilities GBPm GBPm GBPm
Aerospace 131.9 122.2 120.3
Flexonics 63.2 53.0 48.1
Segment liabilities for reportable segments 195.1 175.2 168.4
Unallocated
Central 12.0 7.3 11.0
Debt 183.7 203.2 167.2
Finance leases 0.3 0.7 0.5
Deferred and current tax 58.2 76.0 55.5
Retirement benefits 13.8 13.2 14.7
Others 3.2 1.7 1.9
-------- -------- -------
Total liabilities per Balance Sheet 466.3 477.3 419.2
-------- -------- -------
Total revenue is disaggregated by market sectors as follows:
Half-year Half-year Year
ended ended ended
30 June 30 June 31 Dec
2018 2017 2017
GBPm GBPm GBPm
Civil Aerospace 267.7 266.2 533.4
Military Aerospace 57.1 63.1 123.6
Other 38.7 33.4 68.3
---------- ---------- --------
Aerospace 363.5 362.7 725.3
Land Vehicles 83.6 78.2 157.8
Industrial 72.9 65.7 133.3
Other 4.1 3.9 7.7
---------- ---------- --------
Flexonics 160.6 147.8 298.8
Eliminations (0.8) (0.5) (0.7)
Total revenue 523.3 510.0 1,023.4
---------- ---------- --------
4. Adjusted operating profit and adjusted profit before tax
The adjusted operating profit and adjusted profit before tax
measures, derived in accordance with the table below, have been
included to identify the performance of the Group prior to the
impact of amortisation of intangible assets from acquisitions and
loss on disposal of the BWT Ilkeston facility.
These items have been excluded from the adjusted measures in
order to show the underlying current business performance of the
Group in a consistent manner. This also reflects how the business
is managed on a day-to-day basis.
Half-year Half-year Year
ended ended ended
30 June 30 June 31 Dec
2018 2017 2017
GBPm GBPm GBPm
Operating profit 35.8 28.9 65.5
Amortisation of intangible assets from
acquisitions 7.6 8.6 17.1
Adjusted operating profit 43.4 37.5 82.6
---------- ---------- --------
Profit before tax 31.4 24.0 52.2
Adjustments to profit before tax as
above 7.6 8.6 17.1
Loss on disposal - - 3.8
Adjusted profit before tax 39.0 32.6 73.1
---------- ---------- --------
5. Tax charge
Half-year Half-year
ended ended
30 June 30 June
2018 2017
GBPm GBPm
Current tax:
Current year 5.2 6.7
Withholding tax:
Current year 0.1 -
Deferred tax:
Current year 1.4 (2.5)
---------- ----------
6.7 4.2
---------- ----------
Corporation tax for the half-year ended 30 June 2018 is
calculated at 21.3% (H1 2017: 17.5%) on profit before tax. On
adjusted profit before tax, an adjusted tax rate of 21.0% (H1 2017:
19.9%) is charged, representing the estimate of the weighted
average annual corporation tax rate expected for the full financial
year.
6. Dividends
Half-year Half-year
ended ended
30 June 30 June
2018 2017
GBPm GBPm
Amounts recognised as distributions to equity
holders in the period:
Final dividend for the year ended 31 December
2017 of 4.90p (2016: 4.62p) per share 20.5 19.4
---------- ----------
Interim dividend for the year ending 31 December
2018 of 2.19p (2017: 2.05p) per share 9.2 8.5
---------- ----------
The interim dividend was approved by the Board of Directors on
27 July 2018 and has not been included as a liability in these
Interim Condensed Consolidated Financial Statements, in accordance
with the requirements of IFRS.
7. Earnings per share
The calculation of the basic and diluted earnings per share is
based on the following data:
Half-year Half-year
ended ended
30 June 30 June
2018 2017
Number of shares million million
Weighted average number of ordinary shares for
the purposes of basic earnings per share 418.6 418.9
Effect of dilutive potential ordinary shares:
Share options 5.5 2.1
---------- ----------
Weighted average number of ordinary shares for
the purposes of diluted earnings per share 424.1 421.0
---------- ----------
Half-year Half-year Half-year Half-year
ended ended ended ended
30 June 30 June 30 June 30 June
2018 2018 2017 2017
Earnings EPS Earnings EPS
Earnings and earnings per share
("EPS") GBPm pence GBPm pence
Profit for the period 24.7 5.90 19.8 4.73
Adjust:
Amortisation of intangible
assets from acquisitions net
of tax of GBP1.5m (H1 2017:
GBP2.3m) 6.1 1.46 6.3 1.50
Adjusted earnings after tax 30.8 7.36 26.1 6.23
---------- ---------- ---------- ----------
Earnings per share
- basic 5.90p 4.73p
- diluted 5.82p 4.70p
- adjusted 7.36p 6.23p
- adjusted and diluted 7.26p 6.20p
The effect of dilutive shares on the earnings for the purposes
of diluted earnings per share is GBPnil (2017: GBPnil).
The denominators used for all basic, diluted and adjusted
earnings per share are as detailed in the table above.
The adjusted earnings per share, derived in accordance with the
table above, has been disclosed to identify the performance of the
Group prior to the impact of amortisation of intangible assets from
acquisitions. See note 4 for further details.
8. Goodwill
The Group tests goodwill annually for impairment or more
frequently if there are indications that goodwill might be
impaired.
The change in goodwill from GBP302.4m at 31 December 2017 (30
June 2017: GBP309.9m) to GBP306.9m at 30 June 2018 reflects an
increase of GBP4.5m due to foreign exchange differences.
9. Investment in joint venture
During 2012, 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 GBP2.7m (30 June
2017: GBP2.0m; 31 December 2017: GBP2.4m) represents the Group's
share of the joint venture's net assets as at 30 June 2018.
At the half year the Group had provided loans of GBP0.3m (30
June 2017: GBP0.5m; 31 December 2017: GBP0.5m) to the joint
venture, GBPnil (30 June 2017: GBPnil; 31 December 2017: GBP0.2m)
is reported as a current asset and GBP0.3m (30 June 2017: GBP0.5m;
31 December 2017: GBP0.3m) as a non-current asset.
During the half-year to 30 June 2018, GBP0.2m of the loans were
repaid (H1 2017: GBP0.3m).
10. Property, plant and equipment
During the period, the Group invested GBP21.6m (H1 2017:
GBP19.4m) on the acquisition of property, plant and equipment. The
Group also disposed of machinery with a carrying value of GBP0.3m
(H1 2017: GBP0.3m) for proceeds of GBP0.3m (H1 2017: GBP0.1m).
11. Retirement benefit schemes
Retirement benefit obligations of GBP13.8m (30 June 2017:
GBP13.2m; 31 December 2017: GBP14.7m) comprise the Group's US
defined benefit pension funded schemes with a total deficit of
GBP6.5m (30 June 2017: GBP5.9m; 31 December 2017: GBP7.2m) and
other unfunded schemes, with a deficit of GBP7.3m (30 June 2017:
GBP7.3m; 31 December 2017: GBP7.5m).
The retirement benefit asset of GBP34.0m (30 June 2017:
GBP10.0m; 31 December 2017: GBP19.4m) comprises the Group's UK
defined benefit pension funded scheme.
The liability and asset values of the funded schemes have been
assessed by independent actuaries using current market values and
discount rates.
12. Notes to the cash flow statement
a) Reconciliation of operating profit to net cash from operating
activities
Half-year Half-year
ended ended
30 June 30 June
2018 2017
GBPm GBPm
Operating profit 35.8 28.9
Adjustments for:
Depreciation of property, plant and equipment 19.3 19.1
Amortisation of intangible assets 8.6 9.5
Loss on sale of fixed assets - 0.2
Share of joint venture (0.4) (0.3)
Share-based payment charges 1.6 0.9
Pension payments in excess of service cost (4.9) (4.7)
Pension curtailment gain (0.4) -
Increase in inventories (12.8) (6.5)
Increase in receivables (6.2) (13.7)
Increase in payables and provisions 22.0 23.8
Working capital and provisions currency movements 0.4 0.8
Cash generated by operations 63.0 58.0
Income taxes paid (4.8) (2.7)
Interest paid (4.4) (5.4)
---------- ----------
Net cash from operating activities 53.8 49.9
---------- ----------
b) Free cash flow
Free cash flow, a non-statutory item, enhances the reporting of
the cash-generating ability of the Group prior to corporate
activity such as acquisitions, disposals, financing and
transactions with shareholders. It is derived as follows:
Half-year Half-year
ended ended
30 June 30 June
2018 2017
GBPm GBPm
Net cash from operating activities 53.8 49.9
Interest received 0.1 0.2
Proceeds on disposal of property, plant and equipment 0.3 0.1
Purchases of property, plant and equipment (21.6) (19.4)
Purchase of intangible assets (0.4) (1.2)
---------- ----------
Free cash flow 32.2 29.6
---------- ----------
c) Analysis of net debt
At At
1 January Exchange 30 June
2018 Cash flow movement 2018
GBPm GBPm GBPm GBPm
Cash 12.6 21.8 0.5 34.9
Overdrafts (2.9) 2.8 - (0.1)
---------- --------- --------- --------
Cash and cash equivalents 9.7 24.6 0.5 34.8
Debt due within one
year (57.6) 2.1 (1.3) (56.8)
Debt due after one year (106.7) (18.5) (1.6) (126.8)
Finance leases (0.5) 0.2 - (0.3)
Foreign exchange contracts-
held for trading (0.2) - 0.5 0.3
Total (155.3) 8.4 (1.9) (148.8)
---------- --------- --------- --------
Half-year Half-year
ended ended
30 June 30 June
2018 2017
GBPm GBPm
Cash 34.9 22.3
Overdrafts (0.1) -
---------- ----------
Total 34.8 22.3
---------- ----------
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.
13. Disposal and Assets held for sale
During the first half of 2018, the sale agreement that the Group
had entered into to dispose of a property (land and building) in
the Senior Flexonics Bartlett operation did not complete and the
property is no longer marketed for sale. As a result, the property
has been re-classified from held for sale as at 31 December 2017
into property, plant and equipment as at 30 June 2018. The net book
value of the property at 30 June 2018 is GBP3.5m (30 June 2017:
GBP4.0m; 31 December 2017: GBP3.9m). The movement in net book value
for the half year ended 30 June 2018 reflects the depreciation
charge related to the period the property was classified as held
for sale and foreign exchange translation differences.
On 9 September 2017, the Group sold the BWT Ilkeston facility.
The sale enabled management to have greater focus on opportunities
in its core activities. A loss of GBP3.8m arose on disposal after
taking into account exit costs together with fair value of net
assets disposed (GBP4.2m including GBP0.9m of inventories and
GBP0.7m of property, plant and equipment and GBP1.7m of goodwill),
offset by cash consideration of GBP0.4m.
14. Provisions
Current and non-current provisions include warranty costs of
GBP5.4m (30 June 2017: GBP1.8m; 31 December 2017: GBP3.9m),
restructuring costs of GBPnil (30 June 2017: GBP1.6m; 31 December
2017: GBPnil) and other costs, including claims and legal costs
that arise in the ordinary course of business, of GBP2.0m (30 June
2017: GBP0.8m; 31 December 2017: GBP1.8m).
Restructuring costs held at 30 June 2017 related to the closure
of the BWT Ilkeston facility, which was sold during the second half
of 2017.
15. Share capital
Share capital as at 30 June 2018 amounted to GBP41.9m (30 June
2017: GBP41.9m, 31 December 2017: GBP41.9m). No shares were issued
during the period.
16. Contingent Liabilities
Contingent liabilities exist in respect of guarantees provided
by the Group in the ordinary course of business for product
delivery, performance and reliability. Various Group undertakings
are parties to legal actions or claims which arise in the ordinary
course of business, some of which could be for substantial
amounts.
In May 2015, Senior Aerospace Ketema was named as co-defendant
in a putative class action lawsuit and a related lawsuit alleging
property damage filed against Ametek, Inc. in the USA. On 25
January 2017, 27 March 2017 and 1 February 2018, Senior Aerospace
Ketema was named as a co-defendant in similar lawsuits filed by
additional plaintiffs. Each of the lawsuits claim that Ametek had
polluted the groundwater during its tenure as owners of the site
where Senior Aerospace Ketema is currently located, allegedly
causing harm to neighbouring properties and/or creating health
risks. In January and March 2018, separate wage and hour class
action lawsuits were filed against Steico Industries, Inc. and
Senior Aerospace SSP in California, USA, by two former production
workers employed in 2014 and 2016, respectively, alleging breaches
of regulations concerning meal and rest breaks, unpaid wages, and
related penalties.
On 16 November 2017, the European Commission published its
preliminary decision on the Group Financing Exemption in the UK's
Controlled Foreign Company legislation, finding that the
legislation is in breach of the EU State Aid rules. Like many other
multinational groups that have acted in accordance with this UK
legislation, the Group may be affected by the final outcome of this
investigation.
While the outcome of some of these matters cannot precisely be
foreseen, the Directors do not expect any of these arrangements,
legal actions or claims, after allowing for provisions already made
where appropriate, to result in significant loss to the Group.
17. Financial Instruments
Categories of financial instruments
Half-year Half-year
ended ended
30 June 30 June
2018 2017
GBPm GBPm
Carrying value of financial assets:
Cash and cash equivalents 34.9 22.3
Trade receivables 144.3 146.8
Other receivables 1.0 1.9
---------- ----------
Financial assets at amortised cost 180.2 171.0
---------- ----------
Foreign exchange contracts- cash flow hedges 2.0 1.9
Foreign exchange contracts-held for trading 0.3 -
Total financial assets 182.5 172.9
---------- ----------
Carrying value of financial liabilities:
Bank overdrafts and loans 183.7 203.2
Obligations under finance leases 0.3 0.7
Trade payables 119.3 108.9
Other payables 59.4 53.2
---------- ----------
Financial liabilities at amortised cost 362.7 366.0
---------- ----------
Foreign exchange contracts- cash flow hedges 8.9 9.5
Total financial liabilities 371.6 375.5
---------- ----------
Half-year Half-year
ended ended
30 June 30 June
2018 2017
GBPm GBPm
Undiscounted contractual maturity of financial
liabilities at amortised cost:
Amounts payable:
On demand or within one year 242.1 180.2
In the second to fifth years inclusive 44.6 123.0
After five years 104.6 94.3
---------- ----------
391.3 397.5
Less: future finance charges (28.6) (31.5)
---------- ----------
Financial liabilities at amortised cost 362.7 366.0
---------- ----------
The carrying amount is a reasonable approximation of fair value
for the financial assets and liabilities noted above except for
bank overdrafts and loans, where the Directors estimate the fair
value to be GBP185.9m (30 June 2017: GBP209.0m). The fair value has
been determined by applying a make-whole calculation using
prevailing treasury bill yields plus the applicable credit spread
for the Group.
Fair values
The following table presents an analysis of financial
instruments that are measured subsequent to initial recognition at
fair value. All financial instruments are measured at level 2, i.e.
those fair values derived from inputs other than quoted prices that
are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices). There has not
been any transfer of assets or liabilities between levels. There
are no non-recurring fair value measurements.
Half-year Half-year
ended ended
30 June 30 June
2018 2017
GBPm GBPm
Assets:
Foreign exchange contracts - cash flow hedges 2.0 1.9
Foreign exchange contracts- held for trading 0.3 -
---------- ----------
Total assets 2.3 1.9
---------- ----------
Liabilities:
Foreign exchange contracts - cash flow hedges 8.9 9.5
Total liabilities 8.9 9.5
---------- ----------
18. Related party transaction
Bloom Energy Corporation is a related party of the Group as
Susan Brennan, an independent non-executive Director of the Group,
is its Executive Vice-President and Chief Operations Officer. In
the first six months of 2018, the Group sold GBP1.2m (H1 2017:
GBP1.2m) of components to Bloom Energy Corporation. The gross
receivable position as at 30 June 2018 was GBP0.4m (30 June 2017:
GBP0.4m; 31 December 2017: GBP0.5m).
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR DGGDRBXDBGIR
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