TIDMSNR
RNS Number : 6666R
Senior PLC
04 March 2019
Results for the year ended 31 December 2018
Profitable growth delivered
FINANCIAL HIGHLIGHTS Year ended 31 December change change
(constant
currency)
2018 2017
------------------------------------ ------------ ------------ ---------- -----------
REVENUE GBP1,082.1m GBP1,023.4m +6% +8%
------------------------------------ ------------ ------------ ---------- -----------
OPERATING PROFIT GBP69.9m GBP65.5m +7% +9%
ADJUSTED OPERATING PROFIT (1) GBP91.6m GBP82.6m +11% +13%
ADJUSTED OPERATING MARGIN (1) 8.5% 8.1% +40bps +40bps
------------------------------------ ------------ ------------ ---------- -----------
PROFIT BEFORE TAX GBP61.3m GBP52.2m +17% +19%
ADJUSTED PROFIT BEFORE TAX (1) GBP83.0m GBP73.1m +14% +15%
------------------------------------ ------------ ------------ ---------- -----------
BASIC EARNINGS PER SHARE 11.99p 14.39p -17%
ADJUSTED EARNINGS PER SHARE (1) 16.08p 14.39p +12%
------------------------------------ ------------ ------------ ----------
TOTAL DIVID (PAID AND PROPOSED)
PER SHARE 7.42p 6.95p +7%
------------------------------------ ------------ ------------ ----------
FREE CASH FLOW (2) GBP45.3m GBP58.3m -22%
------------------------------------ ------------ ------------ ----------
NET DEBT (2) GBP153.0m GBP155.3m GBP2.3m
decrease
------------------------------------ ------------ ------------ ----------
Highlights
-- Sales increased to GBP1,082.1m; another record year with constant currency increase of 8%
-- Operating profits rising faster than sales
-- Adjusted profit before tax of GBP83.0m; constant currency year-on-year increase of 15%
-- Adjusted earnings per share of 16.08p; year-on-year increase of 12%
-- Healthy free cash flow of GBP45.3m after investing GBP56.3m
in capital expenditure for further organic growth
-- Full year dividend per share proposed to increase by 7%
-- The Board anticipates that 2019 will be another year of
improvement in performance for the Group
Commenting on the results, David Squires, Chief Executive of
Senior plc, said:
"Senior delivered profitable growth in 2018. We had strong order
intake, with a book-to-bill of 1.1x, and sales reached another
record level. Adjusted profit before tax increased by 15%,
exceeding sales growth of 8%, on a constant currency basis. Free
cash flow remains healthy and Group margins improved as volumes
increased and benefits from ongoing cost reduction efforts were
realised.
2019 trading has started in line with expectations. The Board
anticipates that, even with changeable geopolitical conditions,
2019 will be another year of improvement in performance for the
Group.
Looking further ahead, the Group is well-positioned, financially
robust and expects to continue to make good progress."
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 020 7251 3801
This Release represents the Company's dissemination announcement
in accordance with the requirements of Rule 6.3.5 of the Disclosure
and Transparency Rules of the United Kingdom's Financial Services
Authority. The full Annual Report & Accounts 2018, together
with other information on Senior plc, can be found at:
www.seniorplc.com
The information contained in this Release is an extract from the
Annual Report & Accounts 2018, however, some references to
Notes and page numbers have been amended to reflect Notes and page
numbers appropriate to this Release.
The Directors' Responsibility Statement has been prepared in
connection with the full Financial Statements and Directors' Report
as included in the Annual Report & Accounts 2018. Therefore,
certain Notes and parts of the Directors' Report reported on are
not included within this Release.
(1) Adjusted operating profit and adjusted profit before tax are stated
before GBP15.4m amortisation of intangible assets from acquisitions
(2017 - GBP17.1m), GBP2.4m charge for UK Guaranteed Minimum Pensions
(2017 - GBPnil) and GBP3.9m costs associated with the US class
action lawsuits (2017 - GBPnil). Adjusted profit before tax is
also stated before loss on disposal of GBPnil (2017 - GBP3.8m).
See Note 4 for further details.
(2) See Notes 11b and 11c for derivation of free cash flow and of
net debt, respectively.
EBITDA is defined as adjusted profit before tax, and before interest,
depreciation, amortisation and profit or loss on sale of property
plant and equipment. It also excludes profit or loss before tax from
disposed Operations and is based on frozen GAAP (pre-IFRS 16). This
measure is used for the purpose of assessing covenant compliance and
is reported to the Group Executive Committee.
The US Dollar exchange rate applied in the translation of revenue,
profit and cash flow items at average 2018 rates was $1.34 (2017 -
$1.29) and applied in the translation of Balance Sheet items at 31
December 2018 was $1.28 (31 December 2017 - $1.35). Comparisons on
a constant currency basis are calculated by translating 2017 results
using 2018 average exchange rates.
Annual Report
The full Annual Report & Accounts 2018 is now available
online at www.seniorplc.com. Printed copies will be distributed on
or soon after 15 March 2019.
Webcast
There will be a presentation on Monday 4 March 2019 at 11.00am
GMT, 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 power & energy markets.
Cautionary Statement
This Release contains certain forward-looking statements. Such
statements are made by the Directors in good faith based on the
information available to them at the time of the Release and they
should be treated with caution due to the inherent uncertainties,
including both economic and business risk factors, underlying any
such forward-looking information.
CHIEF EXECUTIVE'S STATEMENT
Overview of 2018 Results
Senior delivered profitable growth in 2018 and generated healthy
free cash flow.
Group revenue increased by 5.7% to another record level of
GBP1,082.1m (2017 - GBP1,023.4m). Excluding the adverse exchange
rate impact of GBP19.8m, Group revenue increased by GBP78.5m (7.8%)
on a constant currency basis as sales grew across both Divisions.
Group order intake in 2018 was encouraging with a book-to-bill of
1.1x. The revenue increase in the Aerospace Division was driven by
growth across all key market sectors, particularly large commercial
aerospace. Increased revenue in the Flexonics Division was driven
by higher revenue from the truck, off-highway and power &
energy markets, particularly in upstream oil & gas and power
generation markets.
We measure the Group on an adjusted basis which excludes Group
items that do not impact the operating performance (see Note 4).
References below therefore focus on these adjusted measures.
Adjusted operating profit increased by GBP9.0m (10.9%) to GBP91.6m
(2017 - GBP82.6m), after charging research and development
expenditure of GBP29.7m, an increase of GBP4.1m (16.0%) over the
prior year. Excluding the adverse exchange rate impact of GBP1.5m,
adjusted operating profit increased by 12.9% on a constant currency
basis. The Group's adjusted operating margin increased by 40 basis
points, to 8.5% for the full year. Margins in the Aerospace
Division were stable as operational efficiencies and learning curve
improvements offset the impact of volume reduction on mature
programmes and product introduction costs on new programmes. Margin
improvement in the Flexonics Division reflected the volume growth
in the truck, off-highway and upstream oil & gas markets.
Adjusted profit before tax increased to GBP83.0m (2017 -
GBP73.1m), up 13.5%, or 15.3% on a constant currency basis.
Adjusted earnings per share increased by 11.7% to 16.08 pence (2017
- 14.39 pence).
Reported operating profit was GBP69.9m (2017 - GBP65.5m) and
reported profit before tax was GBP61.3m (2017 - GBP52.2m). Basic
earnings per share was 11.99 pence (2017 - 14.39 pence), with the
Group benefiting in the prior year from a GBP16.0m exceptional
non-cash tax credit related to US tax reform.
The Group continues to generate healthy cash flows and delivered
free cash inflow of GBP45.3m (2017 - GBP58.3m) after gross
investment in capital expenditure of GBP56.3m (representing 1.4x
depreciation). As previously guided, working capital as a
percentage of sales remained under the target ceiling of 15%, and
was 14.4% at the end of 2018 (2017 - 13.4%). The year over year
increase was to support new product introductions. The level of net
debt at the end of December 2018 reduced to GBP153.0m (December
2017 - GBP155.3m). This decrease was principally due to free cash
inflow of GBP45.3m, offset by GBP29.6m dividend payments, GBP7.2m
purchase of shares by the employee benefit trust and adverse
currency movements of GBP6.7m. The ratio of net debt to EBITDA at
31 December 2018 was 1.1x (31 December 2017 - 1.3x). Return on
capital employed (ROCE) increased by 110 basis points to 13.0%
(2017 - 11.9%).
The Board is proposing a final dividend of 5.23 pence per share.
This would bring total dividends, paid and proposed for 2018 to
7.42 pence per share, representing an increase of 6.8% over the
prior year.
Delivery of Group Strategy
From a strategic perspective, the Group continues to benefit
from retaining a balance between Aerospace and Flexonics, drawing
on shared technology and intellectual property. We are investing in
new technology and product developments that will underpin future
growth in 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.
During 2018, the Group made good progress against our six
strategic priorities which were identified as key elements of our
business model, underpinning the continued delivery 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.
Further details including our plans for 2019 are noted on pages
14 to 17 of the Annual Report & Accounts 2018. However, some of
the 2018 highlights include those set out below.
Under our Focus on Growth strategic priority we have made good
progress on technology projects that will lead to future growth in
the medium and long term:
-- We have commenced investment in our Advanced Additive
Manufacturing Centre in Burbank, California and secured a launch
customer for first parts.
-- We have been developing our thermal management capability to
cool battery packs for electric vehicles. First prototype orders
have been received and initial deliveries made.
-- Our novel RT2i(TM) process for designing and manufacturing
lightweight low pressure ducts has been proven and the first
development and production contract incorporating RT2i(TM) parts
has been secured.
In 2018 we continued with the deployment of the Senior Operating
System across the business with a focus on driving efficiencies and
learning curve improvements through rollout of the best in class
processes and lean manufacturing.
In February 2019, the Group sold its French Flexonics land
vehicle business, Senior Flexonics Blois ("Blois"). Blois' main end
market was European passenger vehicles and the sale enables us to
have greater focus on our core activities.
We will continue to "prune to grow" where it makes sense to do
so while maintaining a disciplined approach to additions to our
portfolio.
Market Conditions
Our Aerospace end markets remain healthy. We are watching with
care for any geopolitical impact from the ongoing trade
discussions, which could impact our Flexonics markets in
particular.
The outlook for the civil commercial aerospace sector continues
to be strong with good visibility due to the production ramp-up of
new aircraft programmes. IATA reported air traffic growth of 6.5%
in 2018 and demand for new aircraft remains robust with Boeing,
Airbus and independent forecasters predicting air traffic to grow
in excess of 4% per annum over the next 20 years. Senior has good
shipset content on all key commercial aircraft platforms. 2018 was
a cross-over year with a significant increase in production of
newer aircraft platforms and a similar significant decrease in
production of mature aircraft platforms. Production of the 737 MAX
and A320neo, as well as the 787 and A350 ramped up during 2018;
however, as anticipated, production of the classic 737, A320, A330
as well as the 777, 747 and A380 ramped-down in the year. The
A330neo entered into service in November 2018 and Airbus delivered
three A330neos in 2018. The 777X is scheduled to enter service in
2020.
In the regional and business jet market, 2018 saw significant
momentum with Embraer's E2-Jet entering into service in April and
Bombardier's Global 7500 securing US certification and entering
into service at the end of 2018. The A220 continues to ramp up
deliveries. The Group expects to benefit from the Mitsubishi
Regional Jet (MRJ), which is scheduled to enter into service in
2020. In the defence sector, market growth is being supported by
the F-35 Joint Strike Fighter, CH-53K King Stallion helicopter and
T-X trainer programmes, which are expected to grow significantly
over the long term, while the near-term outlook for the UH-60 Black
Hawk helicopter programme has been reaffirmed in the Budget Act of
2018.
Our Flexonics Division end markets are less certain and somewhat
dependent on geopolitical factors such as the ongoing trade
discussions between the US and China. Market production of North
American heavy-duty trucks increased 26.9% in 2018. Industry
analysts are currently forecasting a low level of production growth
in this market in 2019, with growth in the first half of the year
partly offset by a decrease in the second half of the year. In the
upstream oil and gas market, we saw improved drilling activity in
the US Permian Basin in 2018, however, output may be restricted in
the first half of 2019 due to infrastructure constraints. These
constraints are currently expected to alleviate in the second half
of 2019. Downstream oil and gas activity remains stable.
Operational Review
To enable us to meet increasing customer demand and to ensure we
remain competitive and profitable, the Group continues to invest in
capacity for both our Aerospace and Flexonics businesses.
-- Construction of our new Aerospace factory in Malaysia is at
an advanced stage. This investment was a direct consequence of
winning new commercial aerospace business and the new facility is
anticipated to be operational during the second half of 2019.
-- To support upcoming planned growth, construction has
commenced on the expansion of the Aerospace Fluid Systems Metal
Bellows facility in Massachusetts. This expansion is anticipated to
complete in the first half of 2020.
-- In 2020 we will also be increasing the footprint of our
Aerospace Fluids Systems BWT facility in the UK from 112,000 sq.
feet to 140,000 sq. feet as a direct consequence of winning new
civil aerospace business.
-- Our plans to relocate our Flexonics Crumlin operation in
South Wales to a new dedicated high-tech, design and development
centre are continuing. We anticipate construction to commence in
the second half of 2019.
In 2018, we continued to balance ongoing cost reduction and
learning curve improvements on newer programmes, with the cost of
further new product introductions and industrialisation. We will
see a similar pattern in 2019 based on the work we have already
won. As we have consistently outlined, any new work packages we
take on meet our return on capital targets and are in line with our
capital deployment strategy.
Outlook
2019 trading has started in line with expectations. Overall, our
visibility in the Aerospace Division remains good and our future
prospects remain strong.
Market conditions in our Flexonics Division are less certain.
After adjusting for the sale of Blois, we expect a slight decline
in Flexonics top line which is potentially due to softer demand in
some of our industrial markets. However, we currently expect margin
progression in this Division in 2019 to offset the sales
decline.
The Board anticipates that, even with changeable geopolitical
conditions, 2019 will be another year of improvement in performance
for the Group. Looking further ahead, the Group is well-positioned,
financially robust and expects to continue to make good
progress.
DAVID SQUIRES
Group Chief Executive
DIVISIONAL REVIEW
Aerospace Division
The Aerospace Division represents 70% (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 2017 results have been translated
using 2018 average exchange rates and on an adjusted basis to
exclude the charge relating to amortisation of intangible assets
from acquisitions. The Division's operating results on a constant
currency basis are summarised below:
2018 2017 (1) Change
GBPm GBPm
Revenue 760.4 711.0 +6.9%
Adjusted operating profit 80.4 75.2 +6.9%
Adjusted operating margin 10.6% 10.6% -
(1) 2017 translated using 2018 average exchange rates - constant
currency.
Divisional revenue increased by GBP49.4m (6.9%) to GBP760.4m
(2017 - GBP711.0m) whilst adjusted operating profit increased by
GBP5.2m (6.9%) to GBP80.4m (2017 - GBP75.2m).
Revenue Reconciliation GBPm
2017 revenue 711.0
Large commercial 31.4
Regional & business jets 7.7
Military 6.0
Other 4.3
------
2018 revenue 760.4
======
Senior's sales in the large commercial aircraft sector increased
by 6.9% during the year. The Group benefited from increased
production of the 737 MAX, A320neo, 787 and A350; however, these
increases were partly offset by decreased production of the 777,
747, A330, A380, and the current engine versions of the 737 and
A320.
The Division's sales to the regional and business jet markets
increased by 11.4% during the year. This reflected the increased
production of the A220 and Embraer E2-Jet which were partially
offset by lower production of legacy jets.
Revenue from the military and defence sector increased by 5.0%
during the year, primarily due to the ramp-up of the Joint Strike
Fighter which was partially offset by the anticipated Black Hawk
build rate reductions.
Around 9% of the Aerospace Division's revenue was derived from
other markets such as space, non-military helicopters, power &
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 6.4%, mainly due to demand for Senior's proprietary
products for the semi-conductor and medical equipment market.
The divisional adjusted operating margin was stable at 10.6%
(2017 - 10.6%). As anticipated, margins were impacted by the
year-on-year volume reductions on mature programmes such as the
777, 747, A330, A380, and the current engine versions of the 737
and A320, and the costs associated with the introduction and
industrialisation of new programmes. The deployment of the Senior
Operating System in 2018 helped to offset these impacts by
delivering efficiency and learning curve improvements.
During 2018, Senior successfully won significant additional
content on platforms such as the 777X (+55%), which is scheduled to
enter service in 2020, and Global 7500 (+91%), which entered into
service in December 2018 and will ramp up over the coming years.
Based on the work we have already won, we will continue to balance
ongoing cost reduction and learning curve improvements on newer
programmes, with the cost of further new product introductions and
industrialisation in 2019.
Overall, the future prospects for the Group's Aerospace Division
are visible and strong.
Flexonics Division
The Flexonics Division represents 30% (2017 - 29%) of Group
revenue and prior to the sale of Blois in February 2019, consisted
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 product joint venture. This
Divisional review is on a constant currency basis, whereby 2017
results have been translated using 2018 average exchange rates and
on an adjusted basis to exclude the charge relating to amortisation
of intangible assets from acquisitions. The Division's operating
results on a constant currency basis are summarised below:
2018 2017 (1) Change
GBPm GBPm
Revenue 322.9 293.3 +10.1%
Adjusted operating profit 26.1 19.7 +32.5%
Adjusted operating margin 8.1% 6.7% +140bps
(1) 2017 results translated using 2018 average exchange rates -
constant currency.
Divisional revenue increased by GBP29.6m (10.1%) to GBP322.9m
(2017 - GBP293.3m) and adjusted operating profit increased by
GBP6.4m (32.5%) to GBP26.1m (2017 - GBP19.7m).
Revenue Reconciliation GBPm
2017 revenue 293.3
Truck and off-highway 17.3
Passenger vehicles (5.0)
Power and energy 16.6
Other 0.7
------
2018 revenue 322.9
======
Group sales to truck and off-highway markets increased by 17.3%.
Senior's sales to the North American truck and off-highway market
increased by GBP14.3m (19.8%), 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 grew by GBP4.0m (21.7%), due to ramp-up of
new programmes. Sales to India and China decreased by GBP1.0m
(10.5%) as growth from the ramp-up in 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 GBP5.0m
(9.2%) in the year. As mentioned previously, 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.
Sales from the Group's power and energy markets increased by
GBP16.6m (12.7%). Sales to oil and gas markets were up GBP6.9m
(11.4%) primarily due to increased drilling activity in upstream
oil and gas related markets in North America, while downstream oil
and gas related activity was stable. Sales to power generation
markets increased by GBP6.9m (21.5%) due to higher North American
and European activity. Sales from other power & energy markets
increased by GBP2.8m (7.3%).
The adjusted operating margin increased by 140 basis points to
8.1% (2017 - 6.7%) principally due to higher demand and volume from
trucks, off-highway and upstream oil and gas. This was also coupled
with benefits from our focus on cost management and efficiency
initiatives.
In February 2019, the Group sold its French Flexonics land
vehicle business, Senior Flexonics Blois ("Blois"). Blois' main end
market was European passenger vehicle and the sale enables us to
have greater focus on our core activities.
Our Flexonics Division end markets are less certain and somewhat
dependent on geopolitical factors such as the ongoing trade
discussions between the US and China. Industry analysts are
currently forecasting a low level of production growth for North
American heavy-duty trucks in 2019, with growth in the first half
of the year partly offset by a decrease in the second half of the
year. In the upstream oil and gas related market output in the
first half of 2019 may be restricted due to infrastructure
constraints in the US Permian Basin, with these expected to
alleviate in the second half of 2019. Downstream oil and gas
activity remains stable for 2019.
After adjusting for the sale of Blois, we expect a slight
decline in Flexonics top line which is potentially due to softer
demand in some of our industrial markets. However, we currently
expect margin progression in this Division in 2019 as a consequence
of our continued focus on cost management and efficiency
initiatives, coupled with our "prune to grow" strategy.
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
Central costs
Central costs increased by GBP0.8m to GBP15.5m (2017 - GBP14.7m)
due to higher share-based payment charges and consultancy and other
costs to strengthen the Group central capabilities, partly offset
by lower legal costs incurred related to actions as described in
Note 15.
Finance costs
Total finance costs, net of investment income of GBP0.6m (2017 -
GBP0.2m) decreased to GBP8.6m (2017 - GBP9.5m) mainly due to
favourable foreign exchange impact on the translation of interest
charges on US Dollar denominated borrowings, the repayment in
October 2018 of $75.0m (GBP58.6m) US private placement carrying a
high interest rate and net IAS 19 pension finance credit of GBP0.2m
(2017 - GBP0.2m charge).
Tax charge
The adjusted tax rate for the year was 19.0% (2017 - 17.5%),
being a tax charge of GBP15.8m (2017 - GBP12.8m) on adjusted profit
before tax of GBP83.0m (2017 - GBP73.1m). The increase in rate is
attributed to changes in the tax treatment of items in the US
following the enactment of the US Tax Cuts and Jobs Act in December
2017, which outweigh the positive benefit from the cut in the US
Federal corporate income tax rate.
The reported tax rate was 18.3% charge (2017 - 15.5% credit),
being a tax charge of GBP11.2m (2017 - GBP8.1m credit) on reported
profit before tax of GBP61.3m (2017 - GBP52.2m). The reported tax
charge for the year included the tax credit of items excluded from
adjusted operating profit of GBP4.6m (2017 - GBP4.9m), and an
exceptional non-cash tax credit related to US tax reform of GBPnil
(2017 - GBP16.0m).
Cash tax paid was GBP6.0m (2017 - GBP4.9m) and is stated net of
refunds received of GBP2.0m (2017 - GBP1.9m) of tax paid in prior
periods. The rate of cash tax paid is lower than our adjusted tax
rate in both years due to accelerated tax relief for capital
expenditure in the US, the availability of tax losses and tax
deductible items that do not affect adjusted profit.
Earnings per share
The weighted average number of shares, for the purposes of
calculating undiluted earnings per share, decreased to 417.8
million (2017 - 418.9 million). The decrease arose principally due
to shares purchased by the employee benefit trust. Adjusted
earnings per share increased by 11.7% to 16.08 pence (2017 - 14.39
pence). Basic earnings per share decreased by 16.7% to 11.99 pence
(2017 - 14.39 pence) primarily due to the benefit of the
exceptional non-cash tax credit in 2017 described above. See Note 7
for details of the basis of these calculations.
Research and development
The Group's expenditure on research and development increased to
GBP29.7m during 2018 (2017 - GBP25.6m). Expenditure was incurred
mainly on funded and unfunded work, which relates to designing and
engineering products in accordance with individual customer
specifications and investigating specific manufacturing processes
for their production. The Group also incurs costs on general
manufacturing improvement processes which are similarly expensed.
Unfunded costs in the year have been expensed, consistent with the
prior year, as they did not meet the strict criteria required for
capitalisation.
Exchange rates
A proportion of the Group's operating profit in 2018 was
generated outside the UK and consequently, foreign exchange rates,
principally the US Dollar against Sterling, can affect the Group's
results.
The 2018 average exchange rate for the US Dollar applied in the
translation of income statement and cash flow items was $1.34 (2017
- $1.29). The exchange rate for the US Dollar applied to the
translation of Balance Sheet items at 31 December 2018 was $1.28
(31 December 2017 - $1.35).
Using 2018 average exchange rates would have decreased 2017
revenue by GBP19.8m and decreased 2017 adjusted operating profit by
GBP1.5m. A 10 cents movement in the GBP:$ exchange rate is
estimated to affect full-year revenue by GBP48m, adjusted operating
profit by GBP5m and net debt by GBP9m.
Cash flow
The Group generated healthy free cash flow of GBP45.3m in 2018
(2017 - GBP58.3m) as set out in the table below:
2018 2017
GBPm GBPm
------------------------------------------------------ -------- --------
Operating profit 69.9 65.5
Depreciation (including amortisation of software) 41.5 40.8
Amortisation of intangibles assets from acquisitions 15.4 17.1
Share of joint venture (0.6) (0.7)
Working capital and provisions movement (11.1) 12.4
Pension payments above service cost (10.3) (9.7)
Other items 11.2 0.4
------------------------------------------------------ -------- --------
Cash generated by operations 116.0 125.8
------------------------------------------------------ -------- --------
Interest paid (net) (8.9) (9.6)
Income tax paid (6.0) (4.9)
Capital expenditure (56.3) (54.8)
Sale of plant, property and equipment 0.5 1.8
------------------------------------------------------ -------- --------
Free cash flow 45.3 58.3
------------------------------------------------------ -------- --------
Dividends paid (29.6) (27.9)
Proceeds on disposal - 0.4
Loan repayment by joint venture 0.5 0.3
Purchase of shares held by employee benefit
trust (7.2) (0.1)
Foreign exchange variations (6.7) 11.0
Movement in non-cash items - 0.8
------------------------------------------------------ -------- --------
Change in net debt 2.3 42.8
Opening net debt (155.3) (198.1)
------------------------------------------------------ -------- --------
Closing net debt (153.0) (155.3)
------------------------------------------------------ -------- --------
Capital expenditure
Gross capital expenditure of GBP56.3m (2017 - GBP54.8m) was 1.4
times depreciation (2017 - 1.3 times), with the majority of
investment related to growth programmes in the Aerospace Division
including ramp up related capacity expansion for 737 Max, A320neo
and A350 as well as investment in setting up our Advance Additive
Manufacturing Centre. The disposal of plant, property and equipment
raised GBP0.5m (2017 - GBP1.8m). Capital expenditure is anticipated
to be higher in 2019, as investments continue to support future
growth programmes already won.
Working capital
Working capital increased by GBP18.9m in 2018 to GBP156.1m (2017
- GBP137.2m) to support new product introductions. Working capital
as a percentage of sales increased by 100 basis points from 13.4%
at 31 December 2017 to 14.4% at 31 December 2018, principally due
to 80 basis points increase from exchange differences and 40 basis
points increase from inventory, partly offset by 20 basis points
reduction from receivables in excess of payables.
Dividend
The Group has a long and stable track record of dividend growth
and the Board intends to continue to pay a progressive dividend
reflecting earnings per share, free cash flow generation and
dividend cover over the medium term.
A final dividend of 5.23 pence per share is proposed for 2018
(2017 - 4.90 pence), payment of which, if approved, would total
GBP21.8m (2017 final dividend - GBP20.5m) and would be paid on 31
May 2019 to shareholders on the register at close of business on 3
May 2019. This would deliver total dividends paid and proposed in
respect of 2018 of 7.42 pence per share, an increase of 6.8% over
2017. At the level recommended, the full-year dividend would be
covered 2.2 times (2017 - 2.1 times) by adjusted earnings per
share. The cash outflow incurred during 2018 in respect of the
final dividend for 2017 and the interim dividend for 2018 was
GBP29.6m (2017 - GBP27.9m).
Goodwill
The change in goodwill from GBP302.4m at 31 December 2017 to
GBP312.9m at 31 December 2018 is due to foreign exchange
differences on translation only.
Retirement benefit schemes
The retirement benefit surplus in respect of the Group's UK
defined benefit pension plan increased by GBP11.5m to GBP30.9m (31
December 2017 - GBP19.4m), principally due to GBP8.2m cash
contributions in excess of running costs made by the Group and
GBP5.1m net actuarial gains. This was partly offset by a GBP2.4m
past service charge in relation to the equalisation of historical
Guaranteed Minimum Pensions (GMPs) for men and women which follows
a High Court ruling in the UK that clarified the legal obligation
on pension schemes. Retirement benefit deficits in respect of the
US and other territories decreased by GBP2.3m to GBP12.4m (31
December 2017 - GBP14.7m).
Net debt
Net debt decreased by GBP2.3m to GBP153.0m at 31 December 2018
(31 December 2017 - GBP155.3m). This decrease was due to GBP45.3m
free cash inflow and GBP0.5m loan repayment by the joint venture,
partially offset by GBP29.6m dividend payments, GBP7.2m purchase of
own shares held by the employee benefit trust and GBP6.7m
unfavourable foreign currency movements.
Funding and Liquidity
As at 31 December 2018, the Group's gross borrowings excluding
finance leases and transaction costs directly attributable to
borrowings were GBP170.8m (31 December 2017 - GBP168.0m), with 68%
of the Group's gross borrowings denominated in US Dollars (31
December 2017 - 78%). Cash and bank balances were GBP17.2m (31
December 2017 - GBP12.6m).
The maturity of these borrowings, together with the maturity of
the Group's committed facilities, can be analysed as follows:
Gross Committed
borrowings (1) facilities
GBPm GBPm
------------------------ ------------ --- ------------
Within one year 2.7 20.0
In the second year 15.6 15.6
In years three to five 29.9 112.8
After five years 122.6 122.6
------------------------ ------------ --- ------------
170.8 271.0
------------------------ ------------ --- ------------
(1) Gross borrowings include the use of bank overdrafts, other loans
and committed facilities, but exclude finance leases of GBP0.2m
and transaction costs directly attributable to borrowings of
(GBP0.8m).
At the year-end, the Group had committed facilities of GBP271.0m
comprising private placement debt of GBP153.8m and revolving credit
facilities of GBP117.2m. The Group is in a strong funding position,
with headroom at 31 December 2018 of GBP118.0m under its committed
facilities.
In January 2018, a new GBP27.0m 7-year private placement
carrying interest at the rate of 2.35% per annum was drawn down and
a new $30.0m (GBP23.4m) 10-year private placement carrying interest
at the rate of 4.18% per annum was drawn down in September 2018.
These two new private placements have replaced the $75.0m
(GBP58.6m) private placement carrying interest at the rate of 6.84%
per annum that matured in October 2018.
In February 2019, the Group refinanced its main UK revolving
credit facilities of GBP80.0m by increasing the committed
facilities to GBP120.0m and extended the maturity to February 2024.
Allowing for this transaction and the related cancellation of
GBP80.0m committed revolving credit facilities (GBP20.0m that had
been due to mature in March 2019 and GBP60.0m that had been due to
mature in November 2021), the weighted average maturity of the
Group's committed facilities is currently 5.3 years.
The Group has GBP0.2m of uncommitted borrowings which are
repayable on demand.
The Group's committed borrowing facilities at 31 December 2018
contain a requirement that the ratio of EBITDA (as defined above)
to net interest costs must exceed 3.5x, and that the ratio of net
debt to EBITDA must not exceed 3.0x. At 31 December 2018, the Group
was operating well within these covenants as the ratio of EBITDA to
net interest costs was 15.2x (31 December 2017 - 13.3x) and the
ratio of net debt to EBITDA was 1.1x (31 December 2017 - 1.3x).
IFRS 16 Leases
Effective for annual periods beginning 1 January 2019, IFRS 16
Leases will replace IAS 17 Leases and requires lessees to recognise
right of use assets and lease liabilities for all leases (be they
operating or financing in classification under IAS 17), unless the
lease term is 12 months or less or the underlying asset is low
value. As at 31 December 2018, the Group holds a significant number
of operating leases which under IAS 17 were expensed on a
straight-line basis over the lease term.
The Group has undertaken a comprehensive review across all lease
commitments and performed the required assessment of its cumulative
adjustment on transition to IFRS 16 on 1 January 2019 and applied
the standard from the transitional date using the modified
retrospective approach and not restating comparatives. As at 1
January 2019, the Group's audited right of use assets were
GBP96.7m, lease liabilities were GBP96.3m and working capital and
non-current liabilities decreased by GBP0.4m in total.
The estimated annual financial impact has also been updated from
prior guidance in order to reflect the lease portfolio and
financial conditions at the date of transition; actual financial
impacts will differ as these conditions change. From the financial
year ending 31 December 2019, depreciation (GBP10.2m annually as
determined at the date of transition) on the right of use assets
will be charged to the Consolidated Income Statement while interest
(GBP3.6m annually as determined at the date of transition) will be
accrued against the lease liabilities. These charges to the
Consolidated Income Statement will be partly offset by operating
lease rentals that will no longer be expensed to the Consolidated
Income Statement (GBP11.3m annually as determined at the date of
transition).
The adoption of IFRS 16 does not impact the Group's lending
covenants, as noted above, as these are currently based on frozen
GAAP.
Brexit
While we do not anticipate a significant direct impact from
Brexit on the Group's activities, we remain alert to the impact any
final deal will have on the macro economic conditions. Our
assessment is that any direct or indirect impact from Brexit will
be limited and not significant given the Group's global
positioning.
Viability statement
In accordance with provision C.2.2 of the UK Corporate
Governance Code, the Directors have concluded that there is a
reasonable expectation as to the Group's longer-term viability and
have continued to adopt the going concern basis in preparing the
Financial Statements. The full viability statement can be found on
page 29 of the Annual Report & Accounts 2018.
Risks and uncertainties
The principal risks and uncertainties faced by the Group are set
out in detail on pages 20 to 25 of the Annual Report & Accounts
2018.
Bindi foyle
Group Finance Director
Responsibility Statement of the Directors in Respect of the
Annual Report & Accounts 2018
We confirm that to the best of our knowledge:
1. the Financial Statements, as included in the Annual Report &
Accounts 2018, prepared in accordance with the applicable set
of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group
and the undertakings included in the consolidation taken as a
whole;
2. the Strategic Report, set out in the Annual Report & Accounts
2018, includes a fair review of the development and performance
of the business and the position of the Group and the undertakings
included in the consolidation taken as a whole, together with
a description of the principal risks and uncertainties that they
face; and
3. the Annual Report & Accounts 2018, taken as a whole, are fair,
balanced and understandable and provide the information necessary
for shareholders to assess the Group's position and performance,
business model and strategy.
By Order of the Board
David Squires Bindi Foyle
Group Chief Executive Group Finance Director
1 March 2019 1 March 2019
Consolidated Income Statement
For the year ended 31 December 2018
Year ended Year ended
2018 2017
Notes GBPm GBPm
Revenue 3 1,082.1 1,023.4
Trading profit 69.3 64.8
Share of joint venture profit 13 0.6 0.7
----------- -----------
Operating profit (1) 3 69.9 65.5
Investment income 0.6 0.2
Finance costs (9.2) (9.7)
Loss on disposal 14 - (3.8)
----------- -----------
Profit before tax (2) 61.3 52.2
Tax (charge)/credit 5 (11.2) 8.1
----------- -----------
Profit for the period 50.1 60.3
=========== ===========
Attributable to:
Equity holders of the parent 50.1 60.3
=========== ===========
Earnings per share
Basic (3) 7 11.99p 14.39p
=========== ===========
Diluted (4) 7 11.83p 14.30p
=========== ===========
(1) Adjusted operating profit 4 91.6 82.6
(2) Adjusted profit before tax 4 83.0 73.1
(3) Adjusted earnings per share 7 16.08p 14.39p
(4) Adjusted and diluted earnings
per share 7 15.87p 14.30p
------------------------------------ ------- -------
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
Year ended Year ended
2018 2017
GBPm GBPm
Profit for the period 50.1 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 (8.0) 12.9
Reclassification adjustments for losses/(profits)
included in profit 1.3 (1.4)
----------- -----------
(Losses)/gains on foreign exchange contracts
- cash flow hedges (6.7) 11.5
Exchange differences on translation of foreign
operations 20.3 (18.2)
Tax relating to items that may be reclassified 1.3 (2.3)
----------- -----------
14.9 (9.0)
Items that will not be reclassified subsequently
to profit or loss:
Actuarial gains on defined benefit pension schemes 5.8 5.2
Tax relating to items that will not be reclassified (0.8) 0.7
----------- -----------
5.0 5.9
Other comprehensive income/(expense) for the
period, net of tax 19.9 (3.1)
----------- -----------
Total comprehensive income for the period 70.0 57.2
=========== ===========
Attributable to:
Equity holders of the parent 70.0 57.2
=========== ===========
Consolidated Balance Sheet
As at 31 December 2018
Year ended Year ended
2018 2017
Notes GBPm GBPm
Non-current assets
Goodwill 8 312.9 302.4
Other intangible assets 26.7 41.6
Investment in joint venture 13 3.0 2.4
Property, plant and equipment 9 285.6 256.1
Deferred tax assets 2.4 1.6
Loan to joint venture 13 - 0.3
Retirement benefits 12 30.9 19.4
Trade and other receivables 0.5 0.5
----------- -----------
Total non-current assets 662.0 624.3
----------- -----------
Current assets
Inventories 177.8 154.5
Loan to joint venture 13 - 0.2
Current tax receivables 2.7 1.0
Trade and other receivables 165.0 154.3
Cash and bank balances 11c) 17.2 12.6
Assets classified as held for sale 14 - 3.9
----------- -----------
Total current assets 362.7 326.5
----------- -----------
Total assets 1,024.7 950.8
=========== ===========
Current liabilities
Trade and other payables 196.0 173.0
Current tax liabilities 21.5 21.2
Obligations under finance leases 0.2 0.3
Bank overdrafts and loans 11c) 2.7 60.5
Provisions 11.3 5.5
Total current liabilities 231.7 260.5
----------- -----------
Non-current liabilities
Bank and other loans 11c) 167.3 106.7
Retirement benefits 12 12.4 14.7
Deferred tax liabilities 42.2 34.3
Obligations under finance leases - 0.2
Provisions 0.2 0.2
Others 2.7 2.6
----------- -----------
Total non-current liabilities 224.8 158.7
----------- -----------
Total liabilities 456.5 419.2
=========== ===========
Net assets 568.2 531.6
=========== ===========
Equity
Issued share capital 10 41.9 41.9
Share premium account 14.8 14.8
Equity reserve 5.7 3.9
Hedging and translation reserve 48.2 33.3
Retained earnings 465.6 438.8
Own shares (8.0) (1.1)
----------- -----------
Equity attributable to equity holders
of the parent 568.2 531.6
----------- -----------
Total equity 568.2 531.6
=========== ===========
Consolidated Statement of Changes in Equity
For the year ended 31 December 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 year
2017 - - - - 60.3 - 60.3
Gains on foreign exchange
contracts - cash flow
hedges - - - 11.5 - - 11.5
Exchange differences
on translation of foreign
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 year
2018 - - - - 50.1 - 50.1
Losses on foreign exchange
contracts - cash flow
hedges - - - (6.7) - - (6.7)
Exchange differences
on translation of foreign
operations - - - 20.3 - - 20.3
Actuarial gains on
defined benefit pension
schemes - - - - 5.8 - 5.8
Tax relating to components
of other
comprehensive income - - - 1.3 (0.8) - 0.5
Total comprehensive
income for the period - - - 14.9 55.1 - 70.0
-------- -------- -------- ------------ --------- ------- -------
Share-based payment
charge - - 3.4 - - - 3.4
Purchase of shares
held by employee benefit
trust - - - - - (7.2) (7.2)
Use of shares held
by employee benefit
trust - - - - (0.3) 0.3 -
Transfer to retained
earnings - - (1.6) - 1.6 - -
Dividends paid - - - - (29.6) - (29.6)
-------- -------- -------- ------------ --------- ------- -------
Balance at 31 December
2018 41.9 14.8 5.7 48.2 465.6 (8.0) 568.2
======== ======== ======== ============ ========= ======= =======
422.1
Consolidated Cash Flow Statement
For the year ended 31 December 2018
Year ended Year ended
2018 2017
Notes GBPm GBPm
Net cash from operating activities 11a) 100.7 110.9
----------- -----------
Investing activities
Interest received 0.4 0.4
Proceeds on disposal of property,
plant and equipment 0.5 1.8
Purchases of property, plant and
equipment (54.6) (52.3)
Purchases of intangible assets (1.7) (2.5)
Proceeds on disposal 14 - 0.4
Loan repayment by joint venture 13 0.5 0.3
Net cash used in investing activities (54.9) (51.9)
----------- -----------
Financing activities
Dividends paid (29.6) (27.9)
New loans 111.9 78.7
Repayment of borrowings (114.3) (115.8)
Repayments of obligations under
finance leases (0.3) (0.5)
Purchase of shares held by employee
benefit trust (7.2) (0.1)
Net cash used in financing activities (39.5) (65.6)
----------- -----------
Net increase/ (decrease) in cash
and cash equivalents 6.3 (6.6)
Cash and cash equivalents at beginning
of period 9.7 16.8
Effect of foreign exchange rate
changes 1.0 (0.5)
----------- -----------
Cash and cash equivalents at end
of period 11c) 17.0 9.7
=========== ===========
Notes to the above Financial Statements
For the year ended 31 December 2018
1. General information
These results for the year ended 31 December 2018 are an excerpt
from the Annual Report & Accounts 2018 and do not constitute
the Group's statutory accounts for 2018 or 2017. Statutory accounts
for 2017 have been delivered to the Registrar of Companies, and
those for 2018 will be delivered following the Company's Annual
General Meeting. The Auditor has reported on both those accounts;
their reports were unqualified, did not draw attention to any
matters by way of emphasis and did not contain statements under
Sections 498(2) or (3) of the Companies Act 2006 or equivalent
preceding legislation.
2. Significant accounting policies
Whilst the financial information included in this Annual Results
Release has been prepared in accordance with International
Financial Reporting Standards (IFRS) adopted by the European Union,
this announcement does not itself contain sufficient information to
comply with IFRS. Full Financial Statements that comply with IFRS
are included in the Annual Report & Accounts 2018 which is
available at www.seniorplc.com, hard copies of which will be
distributed on or soon after 15 March 2019.
During the year, no new accounting standards or amendments to
existing standards became effective which had a material impact on
the Group's Financial Statements. At the date of authorisation of
the Group's 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 cash generated by Operations 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. In accordance with the transitional provisions
in IFRS 9, comparative figures have not been restated with the
exception of certain aspects of hedge accounting. 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, 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 Financial Statements for 2018 is not
material. Market practice and industry interpretations of IFRS 15
are continuing to evolve. 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.
c) IFRS 16 Leases. Effective for annual periods beginning 1
January 2019, IFRS 16 Leases will replace IAS 17 Leases and
requires lessees to recognise right of use assets and lease
liabilities for all leases (be they operating or financing in
classification under IAS 17), unless the lease term is 12 months or
less or the underlying asset is low value. As at 31 December 2018,
the Group holds a significant number of operating leases which
under IAS 17 were expensed on a straight-line basis over the lease
term.
The Group has undertaken a comprehensive review across all lease
commitments and performed the required assessment of its cumulative
adjustment on transition to IFRS 16 on 1 January 2019 and applied
the standard from the transitional date using the modified
retrospective approach and not restating comparatives. As at 1
January 2019, the Group's audited right of use assets were
GBP96.7m, finance lease liabilities were GBP96.3m and working
capital and non-current liabilities decreased by GBP0.4m in
total.
The estimated annual financial impact has also been updated from
prior guidance in order to reflect the lease portfolio and
financial conditions at the date of transition; actual financial
impacts will differ as these conditions change. From the financial
year ending 31 December 2019, depreciation (GBP10.2m annually as
determined at the date of transition) on the right of use assets
will be charged to the Consolidated Income Statement while interest
(GBP3.6m annually as determined at the date of transition) will be
accrued against the lease liabilities. These charges to the
Consolidated Income Statement will be partly offset by operating
lease rentals that will no longer be expensed to the Consolidated
Income Statement (GBP11.3m annually as determined at the date of
transition).
As a result of this accounting change and the related
classification of certain items in the Consolidated Cash Flow
Statement, in the financial year ending 31 December 2019, cash
generated by Operations and free cash flow (as defined in note 11)
are expected to increase by GBP11.3m and GBP7.7m respectively.
Capital repayments of lease liabilities will be classified to net
cash used in financing activities, resulting in a neutral effect on
the movement in cash and cash equivalents.
The adoption of IFRS 16 does not impact the Group's lending
covenants, as these are currently based on frozen GAAP.
d) None of the amendments to existing standards are expected to
have a significant impact on the Financial Statements when they are
adopted. IFRIC 23, which clarifies accounting for uncertainties in
income taxes, is effective on 1 January 2019 and is not expected to
have a significant impact on the Consolidated Financial Statements
of the Group.
3. Segment information
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 in accordance with IFRS 8 as they serve
similar markets and customers. The Flexonics Division is managed as
a single division.
Segment information for revenue, operating profit and a
reconciliation to entity and profit after tax is presented
below:
Eliminations Eliminations
/ central / central
Aerospace Flexonics costs Total Aerospace Flexonics costs Total
Year Year Year Year Year Year Year Year
ended ended ended ended ended ended ended ended
2018 2018 2018 2018 2017 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
External revenue 759.4 322.7 - 1,082.1 724.7 298.7 - 1,023.4
Inter-segment
revenue 1.0 0.2 (1.2) - 0.6 0.1 (0.7) -
---------- ---------- ------------- -------- ---------- ---------- ------------- --------
Total revenue 760.4 322.9 (1.2) 1,082.1 725.3 298.8 (0.7) 1,023.4
========== ========== ============= ======== ========== ========== ============= ========
Adjusted trading
profit 80.4 26.1 (15.5) 91.0 76.6 20.0 (14.7) 81.9
Share of joint
venture profit - 0.6 - 0.6 - 0.7 - 0.7
---------- ---------- ------------- -------- ---------- ---------- ------------- --------
Adjusted
operating
profit (note
4) 80.4 26.7 (15.5) 91.6 76.6 20.7 (14.7) 82.6
UK Guaranteed
Minimum Pensions
(note 4) - - (2.4) (2.4) - - - -
US class action
lawsuits (note
4) - - (3.9) (3.9) - - - -
Amortisation
of intangible
assets from
acquisitions (8.3) (7.1) - (15.4) (8.5) (8.6) - (17.1)
Operating
profit 72.1 19.6 (21.8) 69.9 68.1 12.1 (14.7) 65.5
========== ========== ============= ======== ========== ========== ============= ========
Investment
income 0.6 0.2
Finance costs (9.2) (9.7)
Loss on disposal - (3.8)
-------- --------
Profit before
tax 61.3 52.2
Tax (11.2) 8.1
-------- --------
Profit after tax 50.1 60.3
======== ========
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:
Assets Year ended Year ended
2018 2017
GBPm GBPm
Aerospace 723.1 667.8
Flexonics 244.1 244.2
Segment assets for reportable segments 967.2 912.0
Unallocated
Central 4.0 3.7
Cash 17.2 12.6
Deferred and current tax 5.1 2.6
Retirement benefits 30.9 19.4
Others 0.3 0.5
----------- -----------
Total assets per Consolidated Balance Sheet 1,024.7 950.8
=========== ===========
Liabilities Year ended Year ended
2018 2017
GBPm GBPm
Aerospace 134.7 120.3
Flexonics 58.3 48.1
Segment liabilities for reportable segments 193.0 168.4
Unallocated
Central 14.1 11.0
Debt 170.0 167.2
Finance leases 0.2 0.5
Deferred and current tax 63.8 55.5
Retirement benefits 12.4 14.7
Others 3.0 1.9
----------- -----------
Total liabilities per Consolidated Balance Sheet 456.5 419.2
=========== ===========
Total revenue is disaggregated by market sectors as follows:
Year Year
ended ended
2018 2017
GBPm GBPm
Civil Aerospace 563.6 533.4
Military Aerospace 125.6 123.6
Other 71.2 68.3
-------- --------
Aerospace 760.4 725.3
Land Vehicles 167.0 157.8
Power & Energy 147.8 133.3
Other 8.1 7.7
-------- --------
Flexonics 322.9 298.8
Eliminations (1.2) (0.7)
Total revenue 1,082.1 1,023.4
-------- --------
Other Aerospace comprises Space and Non-Military Helicopters and
other markets, principally including semiconductor, medical, and
industrial applications.
4. Adjusted operating profit and adjusted profit before tax
The presentation of adjusted operating profit and adjusted
profit before tax measures, derived in accordance with the table
below, has been included to identify the performance of the Group
prior to the impact of amortisation of intangible assets from
acquisitions, the UK Guaranteed Minimum Pensions charge, the costs
associated with the US class action lawsuits and loss on disposal
of the BWT Ilkeston facility. The Board has adopted a policy to
separately disclose those items that it considers are outside the
operating results for the particular year under review and against
which the Board measures and assesses the performance of the
businesses.
The adjustments are made on a consistent basis and also reflect
how the business is managed on a day-to-day basis.
The amortisation charge relates to prior years' acquisitions. It
is charged on a straight line basis and reflects a non-cash item
for the reported year. The UK Guaranteed Minimum Pensions charge is
isolated and one-off in nature. The US class action lawsuits
relates to an historic legal matter. None of these charges,
including the loss on the sale of BWT Ilkeston facility in the
prior year, are reflective of in-year performance. They are
therefore excluded by the Board when measuring the operating
performance of the businesses.
Year ended Year ended
2018 2017
GBPm GBPm
Operating profit 69.9 65.5
Amortisation of intangible assets from acquisitions 15.4 17.1
UK Guaranteed Minimum Pensions 2.4 -
US class action lawsuits 3.9 -
Adjusted operating profit 91.6 82.6
=========== ===========
Profit before tax 61.3 52.2
Adjustments to profit before tax as above 21.7 17.1
Loss on disposal - 3.8
Adjusted profit before tax 83.0 73.1
=========== ===========
UK Guaranteed Minimum Pensions
In October 2018 the High Court ruled on the Guaranteed Minimum
Pensions (GMPs) which requires an equalisation payment to be made
to remedy historical discrimination and inequality between male and
female members. GMP has widely been interpreted as the High Court
instructing trustees to make amendments to pension schemes with any
associated payments treated as past service costs (being a plan
amendment i.e. change to benefits entitlement). Accordingly the
resulting GBP2.4m charge has been taken through the Consolidated
Income Statement and presented as an adjusted item, as it is
one-off in nature, relates to past service costs and is therefore
not reflective of in year performance.
US class action lawsuits
As previously reported, in March 2018 a wage and hour class
action lawsuit was filed against Steico Industries, Inc and Senior
Aerospace SSP in California, USA. This alleged breaches of
regulations concerning meal and rest breaks, unpaid wages and
related penalties covering the period 2014 to 2016. Mediations took
place in the second half of 2018, resulting in a Company agreed
settlement and related costs of GBP3.9m, charged to the
Consolidated Income Statement, of which GBP0.2m was paid in 2018.
At 31 December 2018 the carrying amount was a provision of GBP3.9m
which included an adverse exchange effect of GBP0.2m. The charge
has been reported as an adjusted item given its nature and
materiality and the fact that it is related to prior years and not
reflective of in year performance. Court approval of the
settlements for both lawsuits is expected in the second half of
2019.
5. Taxation
Year ended Year ended
2018 2017
GBPm GBPm
Current tax:
Current year 11.7 11.8
Adjustments in respect of prior periods (6.3) (5.7)
----------- -----------
5.4 6.1
----------- -----------
Deferred tax:
Current year 4.5 (15.5)
Adjustments in respect of prior periods 1.3 1.3
----------- -----------
5.8 (14.2)
----------- -----------
Total tax charge/(credit) 11.2 (8.1)
=========== ===========
The adjusted tax rate for the year was 19.0% (2017 - 17.5%),
being a tax charge of GBP15.8m (2017 - GBP12.8m) on adjusted profit
before tax of GBP83.0m (2017 - GBP73.1m). The increase in rate is
attributed to changes in the tax treatment of items in the US
following the enactment of the US Tax Cuts and Jobs Act in December
2017, which outweigh the positive benefit from the cut in the US
Federal corporate income tax rate.
The reported tax rate was 18.3% charge (2017 - 15.5% credit),
being a tax charge of GBP11.2m (2017 - GBP8.1m credit) on reported
profit before tax of GBP61.3m (2017 - GBP52.2m). The reported tax
charge for the year included the tax credit on items excluded from
adjusted operating profit of GBP4.6m (2017 - GBP4.9m), and an
exceptional non-cash tax credit related to US tax reform of GBPnil
(2017 - GBP16.0m).
Cash tax paid was GBP6.0m (2017 - GBP4.9m) and is stated net of
refunds received of GBP2.0m (2017 - GBP1.9m) of tax paid in prior
periods. The rate of cash tax paid is lower than our adjusted tax
rate in both years due to accelerated tax relief for capital
expenditure in the US, other timing differences and tax deductible
items that do not affect adjusted profit.
6. Dividends
Year ended Year ended
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 ended 31 December
2018 of 2.19p (2017 - 2.05p) per share 9.1 8.5
----------- -----------
29.6 27.9
=========== ===========
Proposed final dividend for the year ended 31
December 2018
of 5.23p (2017 - 4.90p) per share 21.8 20.5
=========== ===========
The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting for 2018 on 26 April
2019 and has not been included as a liability in the Financial
Statements.
7. Earnings per share
The calculation of the basic and diluted earnings per share is
based on the following data:
Number of shares Year ended Year ended
2018 2017
million million
Weighted average number of ordinary shares for
the purposes of basic earnings per share 417.8 418.9
Effect of dilutive potential ordinary shares:
Share options 5.7 2.9
----------- -----------
Weighted average number of ordinary shares for
the purposes of diluted earnings per share 423.5 421.8
=========== ===========
Year ended 2018 Year ended 2017
Earnings and earnings per share Earnings EPS Earnings EPS
GBPm pence GBPm pence
Profit for the period 50.1 11.99 60.3 14.39
Adjust:
Amortisation of intangible
assets from acquisitions net
of tax of GBP3.2m (2017 - GBP4.5m) 12.2 2.93 12.6 3.01
UK Guaranteed Minimum Pensions
net of tax of GBP0.4m (2017
- GBPnil) 2.0 0.47 - -
US class action lawsuits net
of tax of GBP1.0m (2017 - GBPnil) 2.9 0.69 - -
Loss on disposal net of tax
of GBPnil (2017 - GBP0.4m) - - 3.4 0.81
Exceptional non-cash tax credit
of GBPnil (2017 - GBP16.0m) - - (16.0) (3.82)
Adjusted earnings after tax 67.2 16.08 60.3 14.39
========= ======= ========= =======
Earnings per share
* basic 11.99p 14.39p
* diluted 11.83p 14.30p
* adjusted 16.08p 14.39p
* adjusted and diluted 15.87p 14.30p
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 presentation of adjusted earnings per share, derived in
accordance with the table above, has been included to identify the
performance of the Group prior to the impact of amortisation of
intangible assets from acquisitions, the UK Guaranteed Minimum
Pensions charge, the costs associated with the US class action
lawsuits, loss on disposal of the BWT Ilkeston facility and
exceptional non-cash tax credit. The Board has adopted a policy to
separately disclose those items that it considers are outside the
earnings for the particular year under review and against which the
Board measures and assesses the performance of the businesses.
The adjustments are made on a consistent basis and also reflect
how the business is managed on a day-to-day basis.
The amortisation charge relates to prior years' acquisitions. It
is charged on a straight line basis and reflects a non-cash item
for the reported year. The UK Guaranteed Minimum Pensions charge is
isolated and one-off in nature. The US class action lawsuits
relates to an historic legal matter. None of these charges,
including the loss on the sale of BWT Ilkeston facility and
exceptional non-cash tax credit in the prior year, are reflective
of in-year performance. They are therefore excluded by the Board
when measuring the earnings of the businesses.
8. Goodwill
Goodwill increased by GBP10.5m during the year to GBP312.9m
(2017 - GBP302.4m) due to exchange translation differences.
9. Property, plant and equipment
During the period, the Group spent GBP54.6m (2017 - GBP52.3m) on
the acquisition of property, plant and equipment. The Group also
disposed of property, plant and equipment with a carrying value of
GBP0.9m (2017 - GBP1.6m) for proceeds of GBP0.5m (2017 -
GBP1.8m).
10. Share capital
Share capital as at 31 December 2018 amounted to GBP41.9m. No
shares were issued during 2018. 1,832 shares were issued during
2017.
11. Notes to the Consolidated Cash Flow statement
a) Reconciliation of operating profit to net cash from operating
activities
Year ended Year ended
2018 2017
GBPm GBPm
Operating profit 69.9 65.5
Adjustments for:
Depreciation of property, plant and equipment 39.5 38.8
Amortisation of intangible assets 17.4 19.1
Loss/(profit) on sale of fixed assets 0.4 (0.2)
Share-based payment charges 3.4 1.9
Pension payments in excess of service cost (10.3) (9.7)
Costs on disposal - (0.8)
Pension curtailment gain (0.4) -
UK Guaranteed Minimum Pensions 2.4 -
Share of joint venture (0.6) (0.7)
Increase in inventories (16.8) (7.9)
Increase in receivables (7.6) (7.6)
Increase in payables and provisions 13.3 27.9
US class action lawsuits 3.7 -
Working capital and provisions currency movements 1.7 (0.5)
----------- -----------
Cash generated by operations 116.0 125.8
Income taxes paid (6.0) (4.9)
Interest paid (9.3) (10.0)
----------- -----------
Net cash from operating activities 100.7 110.9
=========== ===========
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 used as a performance measure
by the Board and Executive Committee and is derived as follows:
Year ended Year ended
2018 2017
GBPm GBPm
Net cash from operating activities 100.7 110.9
Interest received 0.4 0.4
Proceeds on disposal of property, plant and
equipment 0.5 1.8
Purchases of property, plant and equipment (54.6) (52.3)
Purchases of intangible assets (1.7) (2.5)
----------- -----------
Free cash flow 45.3 58.3
=========== ===========
c) Analysis of net debt
At At
1 Jan Exchange 31 Dec
2018 Cash movement 2018
GBPm GBPm GBPm GBPm
Cash and bank balances 12.6 3.6 1.0 17.2
Overdrafts (2.9) 2.7 - (0.2)
-------- ------- --------- --------
Cash and cash equivalents 9.7 6.3 1.0 17.0
Debt due within one year (57.6) 56.8 (1.7) (2.5)
Debt due after one year (106.7) (54.4) (6.2) (167.3)
Finance leases (0.5) 0.3 - (0.2)
Foreign exchange contracts
- held for trading (0.2) - 0.2 -
-------- ------- --------- --------
Total (155.3) 9.0 (6.7) (153.0)
======== ======= ========= ========
Year ended Year ended
2018 2017
GBPm GBPm
Cash and cash equivalents comprise:
Cash and bank balances 17.2 12.6
Bank overdrafts (0.2) (2.9)
----------- -----------
Total 17.0 9.7
=========== ===========
Cash and cash equivalents (which are presented as a single class
of assets on the face of the Consolidated Balance Sheet) comprise
cash at bank and other short-term highly liquid investments with a
maturity of three months or less. The Directors consider that the
carrying amount of cash and cash equivalents approximates to their
fair value.
12. Retirement benefit schemes
Defined Benefit Schemes
Aggregate retirement benefit liabilities are GBP12.4m and the
aggregate retirement benefit surplus is GBP30.9m (2017 - GBP14.7m
liabilities, GBP19.4m surplus). The primary components of these
liabilities and surplus are the Group's UK and US defined benefit
pension schemes, with a surplus of GBP30.9m (2017 - surplus of
GBP19.4m) and deficit of GBP5.2m (2017 - GBP7.2m) respectively, and
a liability on unfunded schemes of GBP7.2m (2017 - GBP7.5m). These
values have been assessed by independent actuaries using current
market values and discount rates.
The retirement benefit surplus in respect of the Group's UK
defined benefit pension funded scheme increased by GBP11.5m to
GBP30.9m (31 December 2017 - GBP19.4m), principally due to GBP8.2m
cash contributions in excess of running costs made by the Group and
GBP5.1m net actuarial gains mainly relating to changes in financial
and demographic assumptions offsetting adverse returns from scheme
assets, partly offset by the past service charge relating to
Guaranteed Minimum Pensions of GBP2.4m. Retirement benefit
obligations in respect of the US and other territories decreased by
GBP2.3m to GBP12.4m (31 December 2017 - GBP14.7m).
13. Investment in joint venture
The Group has a 49% interest in Senior Flexonics Technologies
(Wuhan) Limited, a jointly controlled entity incorporated in China
which was set up in 2012. The Group's investment of GBP3.0m (2017 -
GBP2.4m) represents the Group's share of the joint venture's net
assets as at 31 December 2018.
At the year end the Group had provided loans of GBPnil (2017 -
GBP0.5m) to the joint venture, GBPnil (2017 - GBP0.2m) is reported
as a current asset and GBPnil (2017 - GBP0.3m) as a non-current
asset.
During the year, GBP0.5m of the loans were repaid (2017 -
GBP0.3m repaid), with GBPnil of foreign exchange losses.
14. 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 31 December 2018. The net
book value of the property at 31 December 2018 was GBP3.5m (31
December 2017 - GBP3.9m).
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, GBP0.7m
of property, plant and equipment and GBP1.7m of goodwill), offset
by cash consideration of GBP0.4m.
15. 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.
Subsequently, Senior Aerospace Ketema was named as a co-defendant
in a number of 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. 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.
16. Subsequent events
On 15 February 2019, the Group sold its Flexonics operating
company in France, Senior Flexonics Blois SAS ("Blois"). The sale
enables management to have greater focus on opportunities in its
core activities and to deploy capital in other parts of the Group
with higher returns. For the financial year ended 31 December 2018,
Blois external revenue was GBP19.6m and it incurred an operating
loss of GBP0.9m.
The financial effect of this transaction is being processed.
Currently, the loss on disposal is estimated to be in the range of
GBP6m to GBP8m, after taking into account the fair value of net
assets disposed and an initial estimate of the cost of disposal
offset by an initial cash consideration and the previously recorded
foreign exchange gain that will be recycled to the Consolidated
Income Statement. The actual loss on disposal is subject to change
from this estimate as costs of disposal are incurred and deferred
consideration received. This one-off charge will be presented
separately as an adjusting item in the Consolidated Income
Statement for the year ending 31 December 2019.
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
FR SSIFWFFUSEID
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March 04, 2019 02:00 ET (07:00 GMT)
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