TIDMSNR
RNS Number : 5845E
Senior PLC
02 March 2020
Results for the year ended 31 December 2019
Robust Full Year Results and Strong Free Cash Flow
Performance
FINANCIAL HIGHLIGHTS Year ended 31 December change change
(constant
currency)(5)
2019 2018 (1)
------------------------------------ ------------ ------------ ---------- --------------
REVENUE GBP1,110.7m GBP1,082.1m +3% -1%
------------------------------------ ------------ ------------ ---------- --------------
OPERATING PROFIT GBP61.6m GBP69.9m -12% -16%
ADJUSTED OPERATING PROFIT (2) GBP89.4m GBP91.6m -2% -6%
ADJUSTED OPERATING MARGIN (2) 8.0% 8.5% -50bps -50bps
------------------------------------ ------------ ------------ ---------- --------------
PROFIT BEFORE TAX GBP28.7m GBP61.3m -53% -55%
ADJUSTED PROFIT BEFORE TAX (2) GBP78.5m GBP83.0m -5% -9%
------------------------------------ ------------ ------------ ---------- --------------
BASIC EARNINGS PER SHARE 7.04p 12.81p -45%
ADJUSTED EARNINGS PER SHARE (2) 16.17p 16.08p +1%
------------------------------------ ------------ ------------ ----------
TOTAL DIVID (PAID AND PROPOSED)
PER SHARE 7.51p 7.42p +1%
------------------------------------ ------------ ------------ ----------
FREE CASH FLOW (3) GBP58.3m GBP45.3m +29%
------------------------------------ ------------ ------------ ---------- --------------
NET DEBT post IFRS 16 (3) GBP229.6m GBP249.1m -GBP20m Net debt
decrease / EBITDA
1.1x
------------------------------------ ------------ ------------ ---------- --------------
ROCE post IFRS 16 (4) 11.1% 11.6% -50bps
------------------------------------ ------------ ------------ ---------- --------------
Highlights
-- Sales of GBP1,110.7m despite facing market challenges
-- Adjusted profit before tax of GBP78.5m
-- Adjusted earnings per share of 16.17p; year-on-year increase
of 1%
-- Strong free cash flow of GBP58.3m; net debt/EBITDA of 1.1x
-- Full year dividend per share proposed to increase by 1%
-- Leadership rating of "A-" for the Carbon Disclosure Project ("CDP")
2019
-- Prune To Grow strategy delivered three disposals in 2019
Commenting on the results, David Squires, Chief Executive of
Senior plc, said:
"Senior delivered robust full year results for 2019 with
adjusted earnings per share growth and a strong free cash flow
performance. This result has been achieved in a period where the
business has faced challenges caused by the grounding of the Boeing
737 MAX fleet. It is clear that our performance in 2020 will
continue to be affected by the 737 MAX situation and the Company is
taking all necessary actions to mitigate the impact.
We are closely monitoring the development of the coronavirus
(COVID-19), including the potential impact of any macroeconomic
disruption on our end markets, our supply chain and those of our
customers.
However, we entered 2020 with a robust balance sheet and a
continued focus on cost, efficiency and cash generation. We are
taking firm actio ns to restructure the business and have every
confidence in returning to growth in 2021."
For further information please contact:
Bindi Foyle, Group Finance Director, Senior plc 01923 714725
Jennifer Ramsey, Interim 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 2019, 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 2019, 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 2019. Therefore,
certain Notes and parts of the Directors' Report reported on are
not included within this Release.
(1) The comparative figures for 2018 have been restated for an accounting
policy change for deferred tax, following a recent change in accepted
practice (see Note 2 and 5). The Group has also adopted IFRS 16
Leases in 2019 and as permitted the comparative figures have not
been restated for this standard (see Note 2 and 16) except for
net debt(3) and ROCE(4) shown in the Financial Highlights above.
(2) Adjusted operating profit and adjusted profit before tax are stated
before GBP13.1m amortisation of intangible assets from acquisitions
(2018 - GBP15.4m), GBP12.1m restructuring (2018 - GBPnil), GBPnil
charge for UK Guaranteed Minimum Pensions (2018 - GBP2.4m) and
GBP2.6m costs associated with US class action lawsuits (2018 -
GBP3.9m) see Note 4 for further detail. Adjusted profit before
tax is also stated before loss on disposal of businesses of GBP22.0m
(2018 - GBPnil) see Note 4 for further detail. Adjusted earnings
per share is also stated before exceptional non-cash tax credit
of GBP3.6m (2018 restated - GBP3.4m) see Note 2, 5 and 7 for further
detail. Adjusted operating margin is the ratio of adjusted operating
profit to revenue.
(3) See Note 11b and 11c for derivation of free cash flow and of net
debt, respectively.
(4) Return on capital employed ("ROCE") is derived from annual adjusted
operating profit (as defined in Note 4) divided by the average
of the capital employed at the start and end of that twelve-month
period, capital employed being total equity plus net debt (as
derived in Note 11c). 2018 ROCE post IFRS 16 is shown for comparative
purposes and it has been derived by applying the 2019 transitional
and annual impact of IFRS 16 (as shown in Note 16) on the 2018
figures.
(5) 2018 results translated using 2019 average exchange rates - constant
currency.
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 adjusted profit or loss before
tax from disposed businesses 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 Group's principal exchange rate for the US Dollar applied in the
translation of income statement and cash flow items at average 2019
rates was $1.28 (2018 - $1.34) and applied in the translation of balance
sheet items at 31 December 2019 was $1.33 (31 December 2018 - $1.28).
Annual Report
The full Annual Report & Accounts 2019 is now available
online at www.seniorplc.com . Printed copies will be distributed on
or soon after 13 March 2020.
Webcast
There will be a presentation on Monday 2 March 2020 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 13 countries. It is listed on the main market of the London
Stock Exchange (symbol SNR). Senior designs, manufactures and
markets high technology components and systems for the principal
original equipment producers in the worldwide aerospace, defence,
land vehicle and 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 2019 Results
Senior delivered robust full year results and strong free cash
flow performance
Senior has delivered robust full year results for 2019 with
adjusted earnings per share growth and a strong free cash flow
performance. This result has been delivered in a period where the
business has faced challenges caused by the grounding of the Boeing
737 MAX fleet.
Group revenue was GBP1,110.7m (2018 - GBP1,082.1m). Excluding
favourable exchange rate impact of GBP34.8m, and the year-on-year
effect of disposals of GBP20.9m in constant currency, Group revenue
increased by GBP14.7m (1.4%) with revenue growth in Aerospace and
lower revenue from Flexonics year-on-year. Group order intake in
2019 was encouraging with a book-to-bill of 1.05x. The revenue
increase in the Aerospace Division was driven by growth in both
civil aerospace and defence markets. The Group was able to mitigate
some of the 737 MAX revenue impact through stronger sales on other
civil and military programmes . Flexonics revenue was lower as a
result of disposals and softer end markets, particularly in land
vehicles and upstream oil and gas markets, offset partly by
improved repair and overhaul activity in the power & energy
sector.
We measure Group performance on an adjusted basis, which
excludes Group items that do not impact the underlying performance
(see Note 4). References below therefore focus on these adjusted
measures. Adjusted operating profit decreased by GBP2.2m (2.4%) to
GBP89.4m (2018 - GBP91.6m) . Excluding the favourable exchange rate
impact of GBP3.8m, adjusted operating profit decreased by 6.3% on a
constant currency basis .
T he Group's adjusted operating margin decreased by 50 basis
points, to 8.0% for the full year, with some improvement in
Flexonics and, as anticipated, lower margins in the Aerospace
Division. Margin improvement in the Flexonics Division reflected
the benefits from our continued focus on cost management and
efficiency initiatives, our Prune To Grow activity and favourable
mix. The operating margin in the Aerospace Division was lower as
increases from operational efficiencies and learning curve
improvements were more than offset by the impact of the 737 MAX
production rate decrease, start-up costs in our new Malaysia
facility and adverse mix between mature and new programmes. Central
costs decreased by GBP2.0m to GBP13.5m (2018 - GBP15.5m)
principally due to lower share-based payment charges, as well as
our focus on cost management activities including lower consultancy
costs.
Net finance costs increased by GBP2.3m to GBP10.9m (2018 -
GBP8.6m) with an underlying decrease more than offset by a GBP3.5m
increase related to the adoption of IFRS 16 Leases, which
introduces a new accounting interest charge. Adjusted profit before
tax decreased to GBP78.5m (2018 - GBP83.0m), down 5.4%, or 9.1% on
a constant currency basis. The Group benefited from a one-off
reduction in the effective tax rate for 2019, resulting in an
adjusted tax rate of 14.5% for the year (2018 - 19.0%). Adjusted
earnings per share increased by 0.6% to 16.17 pence (2018 - 16.08
pence).
Reported operating profit was GBP61.6m (2018 - GBP69.9m) and
reported profit before tax was GBP28.7m (2018 - GBP61.3m). Basic
earnings per share was 7.04 pence (2018 restated - 12.81
pence).
The Group has continued to focus on generating strong free cash
flow and delivered free cash inflow of GBP58.3m (2018 - GBP45.3m)
after gross investment in capital expenditure of GBP64.8m
(representing 1.5x depreciation, prior to the impact of IFRS 16).
Working capital as a percentage of sales was 13.3% at the end of
2019 ( 2018 - 14.4%) , comfortably below our target ceiling of
15%.
Net debt during the course of the year reduced by GBP19.5m to
GBP229.6m at the end of December 2019. The adoption of IFRS 16 from
1 January 2019 increased opening net debt by GBP96.1m, therefore
net debt at the beginning of the year was GBP249.1m. The
improvement in 2019 was principally due to free cash inflow of
GBP58.3m and favourable currency movements of GBP7.3m with GBP31.2m
dividend payments, GBP6.3m purchase of shares by the employee
benefit trust, a GBP3.7m net outflow from disposal activity and
GBP2.9m restructuring cash outflow. The adoption of IFRS 16 does
not impact the Group's lending covenants as these are currently
based on frozen GAAP and, on this basis, t he ratio of net debt to
EBITDA at 31 December 2019 was unchanged at
1.1x (31 December 2018 - 1.1x). The financial position of the Group remains robust.
Return on capital employed (ROCE) decreased by 50 basis points
to 11.1% (2018 - 11.6%, on a post IFRS 16 basis) and was in excess
of the Group's cost of capital. The decrease in ROCE was a result
of the reduction in adjusted operating profit compared to prior
year, with capital employed (post IFRS 16) remaining stable.
T he Board is proposing to maintain a final dividend of 5.23
pence per share. This would bring total dividends, paid and
proposed for 2019 to 7.51 pence per share, representing an increase
of 1.2% over the prior year.
Market Conditions
The civil aerospace market has been impacted by the grounding of
the Boeing 737 MAX fleet following the Lion Air and Ethiopian
Airlines tragic air accidents. As a consequence, in mid-April 2019
Boeing reduced the programme build rate from 52 airplanes per month
to 42 per month. In December 2019, Boeing announced the temporary
suspension of 737 MAX production beginning in January 2020, pending
the certification and return to service of the airplane. Spirit
AeroSystems, who manufacture the 737 MAX fuselage, also announced
suspension of 737 MAX production effective January 2020. Production
rates at CFM International, who manufacture the LEAP-1B engine for
the 737 MAX, are also likely to be reduced.
Overall, demand for air travel in 2019 recorded another year of
growth with IATA reporting an increase of 4.2% and passenger load
factors registering an all-time high of 82.6%. Furthermore, the
demand for new aircraft, in particular for single aisle 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.
As anticipated, production in 2019 of the A320neo, 767, 787,
A350, A330neo, A220, Embraer 190/195-E2 and Bombardier Global 7500
ramped up and production of the classic 737, A320, A330, 777 and
A380 ramped-down. The narrow-body aircraft market remains well
supported by long term air traffic growth, as production ramp-up of
the Airbus A320neo continues and with Airbus now saying that they
see a clear path to further increase the monthly production rate by
one or two aircraft in both 2022 and 2023.
In January 2020, Boeing successfully conducted the first flight
of the 777X and reaffirmed their first deliveries for 2021.
However, there has been some softening in demand for the wide-body
platforms. Boeing announced a reduction in production rate of the
787 platform from 14 airplanes per month to 12 per month and, in
early 2020, a further cut to 10 per month from early 2021. In
February 2019 Airbus also announced that production of A380 would
stop after fulfilment of the current order book. In February 2020,
Airbus explained that they expect A330 deliveries of approximately
40 aircraft per year from 2020, which equates to a build rate of
around 3.5 per month. They also clarified that the A350 build rate
will stay between 9 and 10 per month.
Mitsubishi Aircraft rebranded the former MRJ90 as the SpaceJet
M90 with first deliveries to commence in 2021 and expects the
M100's (redesign of the stretched MRJ70) entry into service in
2023. The Bombardier Global 7500 was certified by EASA in February
2019 and the first 11 aircraft were delivered in 2019. The first
Bombardier Global 6500 business jet entered into service in
September 2019.
In the defence sector, the US market remains robust and global
military spending continues to increase. Key growth programmes
include F-35 as well as new aircraft such as the CH-53K King
Stallion helicopter and the USAF T-7A Red Hawk. Mature programmes
such as the C-130 transport aircraft and UH-60 Black Hawk
helicopter continue in series production.
In our Flexonics Division, market production of North American
heavy-duty diesel trucks increased 5.5% in 2019 compared to 2018
with growth of 22.1% in H1 2019 and a decline of 9.0% in H2 2019.
Industry analysts are currently forecasting a downturn in the North
American heavy-duty diesel truck market in 2020, with ACT Research
forecasting a 34% decline in 2020 and Cummins forecasting a 40%
decline. The North American medium-duty diesel truck market is also
forecast to decline by 11% in 2020. For the upstream oil and gas
market the US rig count decreased 25% in 2019 and is expected to
contract further in 2020. However, international offshore is
expected to grow and other power and energy sectors are forecast to
be stable in 2020.
We are closely monitoring the development of the coronavirus
(COVID-19), including the potential impact of any macroeconomic
disruption to our end markets, our supply chain and those of our
customers.
Delivery of Group Strategy
Senior is focused on delivering improved returns for
shareholders and is targeting a pre-tax ROCE in excess of 13.5%
over the medium term on a post IFRS 16 basis. The Group benefits
from its balance between Aerospace and Flexonics, drawing on shared
technology and intellectual property in its fluid conveyance and
thermal management businesses.
The Group is making good progress against our six strategic
priorities which were identified as key elements of our business
model, underpinning the continued delivery of improved 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 2020 are noted on pages
18 to 19 of the Annual Report & Accounts 2019.
We continue to invest in new technology and product development
which will support the higher medium-term returns we are targeting.
As planned, we established our Advanced Additive Manufacturing
Centre in Burbank, California, USA in 2019. The Centre is focused
on designing and manufacturing metallic additive products to reduce
cost, weight, and overall cycle time. It collaborates across Senior
with new design possibilities and opportunities for additive
manufacturing to contribute to cost reduction efforts on
established programs. We are already manufacturing first parts for
customer specific applications and the first qualified flight
worthy hardware will be delivered in 2020. Additive is a key
technology initiative, particularly well placed to enhance the
design and manufacture of Senior's products.
We have secured our first development contracts for electric
vehicle application s and in 2020 we expect to commence series
production of our 70kW battery cooler and secure source selection
for our newly developed inverter chill plate.
Technology development of our composite the rmoplastic aerospace
ducting product, RT2i(TM), has progressed well over the past year
as we have advanced composite and component complexity and
transitioned from development to production activities. We expect
product qualification of the first shipset with the launch customer
during 2020, with series production ramping up thereafter.
It is Senior's policy to review its portfolio on an ongoing
basis and evaluate all of its operating businesses in terms of
their strategic fit within the Group. In December 2019, Senior
confirmed that it has been reviewing all strategic options for its
Aerostructures business, which includes an early stage assessment
of a potential divestment of the division. That review continues
and there can be no certainty that it will lead to a
transaction.
All investment decisions Senior makes follow our disciplined
capital deployment approach which focusses on creating value for
our stakeholders.
The Group's Prune To Grow activities in 2019 included the
disposal of three more non-core businesses:
-- In February 2019, the Group sold its French Flexonics land vehicle
business, Senior Flexonics Blois SAS ("Blois"). Blois' main end
market was European passenger vehicles.
-- In September 2019, the Group disposed of its Flexonics operating
company in Brazil, Senior Flexonics Brasil Ltda ("São Paulo"),
serving the local automotive and power & energy markets.
-- In October 2019, the Group sold its Aerospace business unit Senior
Aerospace Absolute Manufacturing ("Absolute"), based in Washington
state, USA which focused on small build-to-print precision machined
components.
These transactions enable us to focus on opportunities in our
core activities and to deploy capital in other parts of the Group
with higher returns. These three disposed businesses represented
less than 2% of Group revenue in 2019 (3% of Group revenue in 2018)
and the transactions are slightly accretive to the Group's adjusted
earnings for 2019. We will continue our Prune To Grow activity
where appropriate, while maintaining a disciplined approach to
additions into our portfolio.
Operational Review
As noted in Market Conditions above, in mid-April 2019, Boeing
reduced the 737 MAX programme build rate from 52 airplanes per
month to 42 per month at a time when the supply chain had geared up
for an increase to rate 57. In January 2020, Boeing suspended
production of 737 MAX temporarily, pending the certification and
return to service of the airplane. Spirit AeroSystems, who
manufacture the 737 MAX fuselage, continued production at rate 52
through to the end of 2019 but has also announced suspension of 737
MAX production effective January 2020. Spirit does not expect to
achieve a production rate of 52 shipsets per month until late 2022.
CFM International, who manufacture the LEAP-1B engine for the 737
MAX, reduced production of the engine to rate 42 in the second half
of 2019 and will also cut production rates for 2020. Senior
currently has $267k of shipset content on the 737 MAX.
We currently expect all of our 737 MAX customers to align around
a new build rate and ramp profile over the course of 2020 and 2021
with a steady increase in rates over the next four years.
Against this backdrop, Senior's operating businesses took action
to mitigate the impact of these 737 MAX related production
decreases in 2019, for example by switching production to
alternative product where there was strong order cover. We also
implemented cost-reduction plans, as detailed in the Restructuring
section which follows, as well as plans to improve cash generation,
with particular focus on managing capital expenditure and improving
working capital. We continue to align our resources to our
customers' reduced 737 MAX production schedules. As a consequence,
we have increased our restructuring activity and have reviewed our
capital expenditure plans in the light of our revised
expectations.
Outside of our actions to address the 737 MAX challenges, we
continue to invest in our operational facilities to support planned
growth. In November 2019, our Aerospace Fluid Systems business,
Metal Bellows, opened a facility extension in Massachusetts, USA to
support the strong growth we are seeing in that business across its
aerospace, defence and industrial markets. In June 2019, we opened
our second Aerospace facility in Kuala Lumpur, Malaysia, which has
been established in response to customer contract wins,
particularly on Airbus but also for Boeing platforms. Following
several years of high capital investment to support growth, we are
now past the peak investment phase and can expect future capital
investment to be at more normal levels.
We are making solid progress as we continue to achieve cost
reduction and learning curve improvements on newer programmes and
are seeing improving returns in those businesses where new product
introduction and industrialisation activity is near completion.
As we have previously outlined, any new work packages that we
secure are expected to meet or exceed our return on capital targets
and are in line with our capital deployment strategy. Similarly,
when bidding for renewals of existing work we ensure our pricing
discipline is firm, preferring to forego sales if the returns are
not sufficient to meet our expectations. As we noted in our Trading
Update on 7 November 2019, while we have successfully renewed a
number of important long-term contracts in 2019, we decided not to
renew certain contracts that did not meet our returns
requirement.
We continue to embed the Senior Operating System across the
group with all businesses now regularly undertaking kaizen events
and lean activities focused on cost reduction, cycle time reduction
and inventory reduction.
Environmental Social and Governance ("ESG") matters are a high
priority for Senior and we have made good progress in 2019. Amongst
the highlights, from an environmental perspective Senior achieved a
Leadership rating of "A-" from the globally recognised Carbon
Disclosure Project ("CDP"): the only UK company in our sector to
achieve a Leadership rating. Furthermore, we achieved the same
Leadership rating from CDP for our work on supplier engagement. The
Board is committed to supporting The Paris Agreement under which
the central aim is to strengthen the global response to the threat
of climate change by keeping a global temperature rise this century
well below 2 degrees Celsius above pre-industrial levels and to
pursue efforts to limit the temperature increase even further to
1.5 degrees Celsius. The Group has established stretching
science-based targets for Scope 1 and 2 emissions as defined under
this Agreement, with active plans in place to achieve these
targets. Furthermore, the Board has committed to finalise Scope 3
emissions targets in the first half of 2020 that will support the
more ambitious 1.5 degrees Celsius target.
From a safety perspective Senior improved its Lost Time Injury
Illness Rate from 0.50 to 0.44 - the fourth successive year of
meaningful improvement. The Board has set a stretching target of
0.30 for 2023. The improvement has come about through the
implementation of a tailored behavioural safety programme which was
jointly developed by Senior and the world-renowned Keil Centre.
Senior continues to focus on Diversity and Inclusion and is an
active participant in The Hampton Alexander Review and 30% Club,
both of which focus on gender diversity on Boards and senior
leadership teams. In 2019, women represented 38% of our Board and
33% of our Executive Team.
Restructuring
We are taking actions to mitigate the challenges associated with
lower sales anticipated in 2020. As previously announced, we have
implemented a restructuring programme across the Group, which
includes:
-- Aligning direct headcount to match capacity to sales demand profile.
-- Further efficiency improvements resulting in overhead cost reductions.
-- Transferring major work packages to South East Asia, to take
advantage of our global footprint and cost competitive country
strategy.
-- Closure of Senior Aerospace AMT's South Carolina facility.
In our Trading Update on 7 November 2019, we noted that these
activities were expected to result in a total adjusted
restructuring charge of around GBP20m with a restructuring cash
outflow of GBP15m to be incurred over 2019 and 2020. However, in
light of Boeing's temporary halt in production of the 737 MAX and
assumptions around reduced production rates and the slower ramp up,
we now expect the total adjusted restructuring charge to increase
to around GBP23m, taking into account additional headcount
reductions as we match capacity to demand.
In 2019, the Group recognised an adjusted restructuring charge
of GBP12.1m. This comprised GBP4.4m related to Group headcount
reduction of 5% in H2 2019, with 8% reduction in Flexonics and 4%
reduction in Aerospace; GBP3.4m for write-down of inventory
primarily relating to contracts that had ended; GBP2.9m related to
impairment and disposal of fixed assets including the closure of
AMT's South Carolina facility; and GBP1.4m was for other associated
costs including the transfer of work packages to our cost
competitive site in Thailand. Total cash outflow in 2019 for these
activities was GBP2.9m with GBP4m of savings delivered, mainly
related to lower headcount.
A cash outflow of GBP12m is expected to be incurred for these
restructuring activities in 2020, including additional headcount
reductions particularly in Aerospace. The total adjusted charge of
this restructuring programme is expected to be largely recovered in
2020 and 2021, with savings of around GBP20m expected to be
delivered in 2020.
Outlook
The outlook for the Aerospace Division remains consistent with
the position set out in the market update of 31 January 2020, with
Aerospace revenue in 2020 currently expected to be around 20% below
2019 levels and we expect to return to growth in 2021. Performance
in 2020 will be weighted more to the second half than normal
because of the 737 MAX situation.
Current economic forecasts suggest that Flexonics cyclical end
markets will continue to decline in 2020, before starting to
recover in 2021. We therefore expect Flexonics revenue to be lower
in 2020 compared to 2019.
The impact of the anticipated sales reduction in both divisions
will only be partially mitigated by savings from the restructuring
programme and therefore margins in both divisions in 2020 are
likely to be lower than those achieved in 2019.
We are closely monitoring the development of the coronavirus
(COVID-19), including the potential impact of any macroeconomic
disruption on our end markets, our supply chain and those of our
customers.
However, we entered 2020 with a robust balance sheet and a
continued focus on cost, efficiency and cash generation. We are
taking firm actions to restructure the business and have every
confidence in returning to growth in 2021.
DAVID SQUIRES
Group Chief Executive
DIVISIONAL REVIEW
Aerospace Division
The Aerospace Division represents 75% (2018 - 70%) of Group
revenue and consists of 18 operations. These are located in North
America (nine), the United Kingdom (four), continental Europe
(three), Thailand and Malaysia. This Divisional review is on a
constant currency basis, whereby 2018 results have been translated
using 2019 average exchange rates and on an adjusted basis to
exclude the charge relating to amortisation of intangible assets
from acquisitions and restructuring. The Division's operating
results on a constant currency basis are summarised below:
2019 2018 (1) Change
GBPm GBPm
Revenue 835.4 788.8 +5.9%
Adjusted operating profit 76.4 83.7 -8.7%
Adjusted operating margin 9.1% 10.6% -150bps
(1) 2018 translated using 2019 average exchange rates - constant
currency.
Divisional revenue increased by GBP46.6m (5.9%) to GBP835.4m
(2018 - GBP788.8m) whilst adjusted operating profit decreased by
GBP7.3m (8.7%) to GBP76.4m (2018 - GBP83.7m).
Revenue Reconciliation GBPm
2018 revenue 788.8
Civil aerospace 34.7
Military 19.1
Other (5.4)
Disposal of business (1.8)
------
2019 revenue 835.4
======
The revenue increase in the Aerospace Division was driven by
growth in both civil aerospace and defence markets. The Group was
able to mitigate some of the 737 MAX revenue impact through
stronger sales on other civil and military programmes. The
Aerospace Division was impacted by the grounding of the Boeing 737
MAX fleet. Multiple Senior businesses supply product on this
programme to various customers including Boeing, Spirit and the
Leap 1B engine companies. At the point at which the fleet was
grounded in April 2019, the whole supply chain was poised to
increase rates from 52 shipsets per month to 57. Following the
grounding, Boeing reduced the build rate to 42 per month. In
December 2019, Boeing announced it would temporarily halt
production from January 2020 and asked its suppliers including
Senior to also pause production. In late January 2020, Boeing
announced its working assumption of the return to service of the
737 MAX from mid-year 2020, with production restarting ahead of
that date at reduced rates and with a slower ramp-up, taking into
consideration the 400 completed but undelivered aircraft that
Boeing has stored. Senior is working with its customers to support
the resumption of production and rate ramp, which may vary by
individual customer and Senior business as they work through their
stored inventory.
Senior's sales in the civil aerospace sector increased by 6.0%
during the year with the Group benefiting from increased production
of the A320neo, 767, 787, A350, A330neo, A220, Embraer 190/195-E2
and Bombardier Global 7500. However, these increases were partly
offset by the anticipated decline in build rates of the 777, A330,
A380 and the current engine versions of the 737, A320 and ERJ
190/195. As noted above, the Group's sales onto the 737 MAX
programme were impacted by the production rate decrease from
mid-April 2019 and customers managing their inventory into year
end. We were able to mitigate some of this revenue impact at
businesses that had strong order cover on other programmes.
Total revenue from the military and defence sector increased by
14.7% during the period, primarily due to the ramp-up of the Joint
Strike Fighter, CH-53 K King Stallion and higher demand for other
defence products.
Revenue 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, decreased
by GBP5.4m.
As anticipated, the divisional adjusted operating margin
decreased by 150 basis points to 9.1% (2018 - 10.6%) as increases
from operational efficiencies, learning curve improvements and
restructuring savings were more than offset by the impact of the
737 MAX production rate decrease, start-up costs in our new
Malaysia facility and adverse mix between mature and new
programmes.
As previously stated, in October 2019, the Group completed the
sale of Senior Aerospace Absolute Manufacturing ("Absolute"), part
of our Aerostructures sub-division, focused on small build-to-print
precision machined components. This reflected our continued Prune
To Grow strategy.
Flexonics Division
The Flexonics Division represents 25% (2018 - 30%) of Group
revenue and consists of 12 operations which are located in North
America (four), continental Europe (two), the United Kingdom (two),
South Africa, India, 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 2018
results have been translated using 2019 average exchange rates and
on an adjusted basis to exclude the charge relating to amortisation
of intangible assets from acquisitions and restructuring. The
Division's operating results on a constant currency basis are
summarised below:
2019 2018 (1) Change
GBPm GBPm
Revenue 275.8 329.3 -16.2%
Adjusted operating profit 26.1 26.7 -2.2%
Adjusted operating margin 9.5% 8.1% +140bps
(1) 2018 results translated using 2019 average exchange rates -
constant currency.
Divisional revenue decreased by GBP53.5m (16.2%) to GBP275.8m
(2018 - GBP329.3m) and adjusted operating profit decreased by
GBP0.6m (2.2%) to GBP26.1m (2018 - GBP26.7m).
Revenue Reconciliation GBPm
2018 revenue 329.3
Land vehicles (30.7)
Power & energy (3.1)
Disposal of businesses (19.7)
-------
2019 revenue 275.8
=======
As previously stated, we sold the Flexonics operating business
in France, Senior Flexonics Blois SAS ("Blois"), on 15 February
2019. Blois' main end market was European passenger vehicles. In
September 2019, the Group disposed of its Flexonics operating
company in Brazil, Senior Flexonics Brasil Ltda ("São Paulo"),
serving the local automotive and power & energy markets. These
disposals reflect our Prune To Grow strategy and enable us to have
greater focus on our core activities and to deploy capital in other
parts of the Group that have higher returns.
Group sales to land vehicle markets decreased by 20.4%. Senior's
sales to the North American truck and off-highway market decreased
by GBP22.4m (24.7%), primarily due to lower off-highway market
production and the second half reduction in truck production. Sales
to the rest of world truck and off-highway markets decreased by
GBP3.1m (11.8%), due to the softening of the truck and off-highway
markets in Europe and China. Group sales to passenger vehicle
markets decreased by GBP5.2m (15.5%) in the period, reflecting
lower end market demand in Europe and India.
In the Group's power & energy markets, sales decreased by
GBP3.1m (2.0%) in the year. Sales to oil and gas markets decreased
by GBP4.1m (6.0%), primarily due to weakness in the North American
fracking market in upstream oil and gas, while downstream oil and
gas benefitted from increased repair and overhaul activity. Sales
to power generation markets increased by GBP0.9m (2.2%) due to
higher sales into nuclear power in North America.
The adjusted operating margin increased by 140 basis points to
9.5% (2018 - 8.1%) reflecting the benefits from our continued focus
on cost management and efficiency initiatives, our Prune To Grow
activity, with the disposals of Blois and São Paulo, and favourable
mix with higher revenue from downstream oil and gas repair and
overhaul activity.
The Group has two operations in China, a wholly owned facility
in Tianjin and a joint venture in Wuhan. These operations represent
less than 1% of Group revenue. We are following official advice
regarding operational procedures to manage the impact of the
Coronavirus outbreak. Safeguarding the welfare of our employees is
our first priority.
Current economic forecasts suggest that our Flexonics cyclical
end markets will continue to decline in 2020, before starting to
recover in 2021. Industry analysts are forecasting a downturn in
the North American heavy-duty diesel truck market in 2020, with ACT
Research forecasting a 34% decline in 2020 and Cummins forecasting
a 40% decline. The North American medium-duty diesel truck market
is also forecasting to decline by 11% in 2020. For the upstream oil
and gas market, North America onshore is expected to see a double
digit decrease in 2020; however, international offshore is expected
to grow. Downstream oil and gas activity is forecast to be stable
in 2020.
Looking further ahead, the truck, off-highway and passenger
vehicle sectors continue to present growth opportunities for the
Flexonics Division. Senior is developing solutions for electric
land vehicle applications as well as the next generation of more
efficient internal combustion engines ("ICE").
Our fluid conveyance and thermal management expertise is being
used to develop fluid and air handling products such as coolant
tubes for electric motors and batteries and exhaust bellows for
hybrids, plug in hybrids and for ICEs where they are used as a
range extender for battery powered electric vehicles.
We have secured the first contract for our Battery Heat
Exchanger technology which will enter series production this year
and is being developed with several customers for off-highway,
passenger vehicle and stationary power applications. We have also
developed industry leading Electronic Heat Exchangers: copper and
aluminium chill plates for use in hybrid vehicles and electric
power charging stations.
Our newly developed radial fin exhaust gas recirculation cooler
products currently exceed or match commercial vehicle industry
benchmarks for CO(2) reduction, efficiency and durability and we
are working with multiple OEMs for diesel, natural gas and hybrid
applications. We expect to launch the first production for highly
demanding applications in 2024.
OTHER FINANCIAL INFORMATION
Finance costs and investment income
Total finance costs, net of investment income of GBP0.9m (2018 -
GBP0.6m) increased to GBP10.9m (2018 - GBP8.6m) mainly due to
GBP3.5m (2018 - GBPnil) interest charge on IFRS 16 lease
liabilities partly offset by IAS 19 pension finance credit of
GBP0.7m (2018 - GBP0.2m), favourable foreign exchange impact on the
translation of interest charges on US Dollar denominated
borrowings, and new issuances of loan notes in 2018 which carry
lower interest rates than the loan notes that matured in October
2018. IFRS 16 does not require the comparative statements to be
restated for interest charges on the associated lease
liabilities.
Tax charge
The adjusted tax rate for the year was 14.5% (2018 - 19.0%),
being a tax charge of GBP11.4m (2018 - GBP15.8m) on adjusted profit
before tax of GBP78.5m (2018 - GBP83.0m). The reduction in rate is
attributed to the recognition of prior year adjustments in the US
as the impact on the Group of US Tax reform following the enactment
of the US Tax Cuts and Jobs Act in December 2017 becomes clearer;
as well as clarification as to the treatment for tax purposes of
historical profits in our Malaysian aerospace business.
The reported tax rate was 1.7% credit, being a tax credit of
GBP0.5m on reported profit before tax of GBP28.7m. The reported tax
credit for the year included the tax credit of items excluded from
adjusted operating profit of GBP8.3m and an exceptional non-cash
tax credit of GBP3.6m to recognise a deferred tax asset, following
a recent change in accepted practice in terms of the tax treatment
related to restricted interest deductions in the US.
This recent change in accepted practice in terms of the tax
treatment related to restricted interest deductions in the US has
led to the comparative figures for 2018 being restated to reflect
the recognition of a non-cash deferred tax asset of GBP3.4m.
Therefore the reported tax charge for 2018 has reduced from the
originally stated GBP11.2m to GBP7.8m. See Note 2. The 2018
restated reported tax rate was 12.7%, being a tax charge of GBP7.8m
on reported profit before tax of GBP61.3m. This included the tax
credit of items excluded from adjusted operating profit of GBP4.6m
and an exceptional non-cash deferred tax credit, as noted above, of
GBP3.4m.
Cash tax paid was GBP5.3m (2018 - GBP6.0m) and is stated net of
refunds received of GBP0.8m (2018 - GBP2.0m) 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 and tax deductible items that do not affect
adjusted profit.
The adoption of IFRIC 23 has resulted in the recognition of tax
liabilities and interest thereon of GBP4.8m which have been
recognised through opening reserves.
Earnings per share
The weighted average number of shares, for the purposes of
calculating undiluted earnings per share, decreased to 415.0
million (2018 - 417.8 million). The decrease arose principally from
shares purchased by the employee benefit trust. Adjusted earnings
per share increased by 0.6% to 16.17 pence (2018 - 16.08 pence).
Basic earnings per share decreased by 45.0% to 7.04 pence (2018
restated - 12.81 pence). See Note 7 for details of the basis of
these calculations.
Research and design
The Group's expenditure on research and design was GBP28.1m
during 2019 (2018 - GBP29.7m). 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 2019 was
generated outside the UK and consequently, foreign exchange rates,
principally the US Dollar against Sterling, can affect the Group's
results.
The 2019 average exchange rate for the US Dollar applied in the
translation of income statement and cash flow items was $1.28 (2018
- $1.34). The exchange rate for the US Dollar applied to the
translation of Balance Sheet items at 31 December 2019 was $1.33
(31 December 2018 - $1.28).
Using 2019 average exchange rates would have increased 2018
revenue by GBP34.8m and increased 2018 adjusted operating profit by
GBP3.8m. A 10 cents movement in the GBP:$ exchange rate is
estimated to affect full-year revenue by GBP55m, adjusted operating
profit by GBP5m and net debt by GBP10m.
Cash flow
The Group generated strong free cash flow of GBP58.3m in 2019
(2018 - GBP45.3m) as set out in the table below:
2019 2018
GBPm GBPm
----------------------------------------------------- -------- --------
Operating profit 61.6 69.9
Amortisation of intangible assets from acquisitions 13.1 15.4
Restructuring 12.1 -
US class action lawsuits 2.6 3.9
UK Guaranteed Minimum Pension - 2.4
----------------------------------------------------- -------- --------
Adjusted operating profit 89.4 91.6
----------------------------------------------------- -------- --------
Depreciation (including amortisation of software) 54.6 41.5
Working capital and provisions movement, net
of restructuring items 3.4 (11.1)
Pension payments above service cost (8.7) (10.3)
Other items (1) 0.0 4.3
Interest paid, net (11.0) (8.9)
Income tax paid, net (5.3) (6.0)
Capital expenditure (64.8) (56.3)
Sale of plant, property and equipment 0.7 0.5
----------------------------------------------------- -------- --------
Free cash flow 58.3 45.3
----------------------------------------------------- -------- --------
Dividends paid (31.2) (29.6)
Disposal costs and net debt left in the businesses (3.7) -
in excess of proceeds
Loan repayment by joint venture - 0.5
Purchase of shares held by employee benefit
trust (6.3) (7.2)
Restructuring cash paid (2.9) -
Foreign exchange variations 7.3 (6.7)
IFRS 16 non-cash additions and modifications (2.0) -
before disposals
----------------------------------------------------- -------- --------
Change in net debt 19.5 2.3
Opening net debt (2019 stated after IFRS 16
lease liabilities) (249.1) (155.3)
----------------------------------------------------- -------- --------
Closing net debt (2019 stated after IFRS 16
lease liabilities) (229.6) (153.0)
----------------------------------------------------- -------- --------
Other items comprises GBP1.8m share-based payment charges (2018
(1) - GBP3.4m), (GBP0.4m) share of joint venture (2018 - (GBP0.6m)),
(GBP1.4m) working capital and provision currency movements (2018
- GBP1.7m), GBPnil loss on sale of fixed assets (2018 - GBP0.4m),
GBPnil pension curtailment gain (2018 - (GBP0.4m)), and GBPnil
US class action lawsuits payments (2018 - GBP0.2m).
Capital expenditure
Capital expenditure of GBP64.8m (2018 - GBP56.3m) was 1.5 times
depreciation (excluding impact of IFRS 16) (2018 - 1.4 times), with
the majority of investment related to growth programmes in the
Aerospace Division including our second facility in Malaysia, the
expansion of our Metal Bellows facility in Massachusetts and our
technology investment in our Advanced Additive Manufacturing
Centre. The disposal of plant, property and equipment raised
GBP0.7m (2018 - GBP0.5m). Following several years of high capital
investment to support growth, we are now past the peak investment
phase and can expect future capital investment to be at more normal
levels.
Working capital
Working capital decreased by GBP8.7m in 2019 to GBP147.4m (2018
- GBP156.1m) mainly due to a reduction in inventories as changes in
receivables and payables broadly offset each other. Working capital
as a percentage of revenue decreased by 110 basis points from 14.4%
at 31 December 2018 to 13.3% at 31 December 2019 due to 100 basis
points decrease from exchange and other differences and 10 basis
points decrease from receivables in excess of payables.
Dividend
The Group has a long and stable track record of dividend growth
and the Board follows a progressive dividend policy 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 2019
(2018 - 5.23 pence per share), payment of which, if approved, would
total GBP21.7m (2018 final dividend - GBP21.7m) and would be paid
on 29 May 2020 to shareholders on the register at close of business
on 1 May 2020. This would deliver total dividends paid and proposed
in respect of 2019 of 7.51 pence per share, an increase of 1.2%
over 2018. At the level recommended, the full-year dividend would
be covered 2.2 times (2018 - 2.2 times) by adjusted earnings per
share. The cash outflow incurred during 2019 in respect of the
final dividend for 2018 and the interim dividend for 2019 was
GBP31.2m (2018 - GBP29.6m).
Goodwill
The change in goodwill from GBP312.9 at 31 December 2018 to
GBP297.1m at 31 December 2019 is due to foreign exchange
differences on translation of GBP7.7m and the removal of goodwill
of disposed businesses of GBP8.1m .
Retirement benefit schemes
The retirement benefit surplus in respect of the Group's UK
defined benefit pension plan ("the UK Plan") increased by GBP18.0m
to GBP48.9m (31 December 2018 - GBP30.9m) due to GBP6.9m cash
contributions by the Group, in excess of running costs; GBP10.1m
net actuarial gains; and GBP1.0m net interest income. Retirement
benefit deficits in respect of the US and other territories
decreased by GBP4.6m to GBP7.8m (31 December 2018 - GBP12.4m),
principally due to the disposal of Blois whose retirement benefit
liability was GBP1.7m and cash contributions in excess of running
and service costs made by the Group of GBP1.8m.
The latest triennial actuarial valuation of the UK Plan as at 5
April 2019 showed a deficit of GBP10.2m (5 April 2016 - deficit of
GBP37.4m). As a result, and effective from April 2019, the Group's
deficit reduction cash contributions to the UK Plan have reduced
from an annual amount of GBP8.1m to an annual amount of GBP5.5m.
The Group continues to contribute GBP0.5m per annum towards plan
administration costs. These contributions are payable over the
three year period to March 2022 and are subject to review and
amendment as appropriate at the next funding valuation in 2022.
Net debt
Net debt which includes IFRS 16 lease liabilities decreased by
GBP19.5m to GBP229.6m at 31 December 2019 (1 January 2019 -
GBP249.1m). This decrease was due to GBP58.3m of strong free cash
inflow and GBP7.3m favourable foreign currency movements, partially
offset by GBP31.2m dividend payments, GBP6.3m purchase of own
shares held by the employee benefit trust, GBP3.7m net outflows
from disposals (costs and cash left in the businesses net of
proceeds), GBP2.9m restructuring cash paid, and GBP2.0m non-cash
changes in lease liabilities due to additions and
modifications.
Funding and Liquidity
As at 31 December 2019, the Group's gross borrowings excluding
leases and transaction costs directly attributable to borrowings
were GBP163.0m (31 December 2018 - GBP170.8m), with 64% of the
Group's gross borrowings denominated in US Dollars (31 December
2018 - 68%). Cash and bank balances were GBP15.8m (31 December 2018
- GBP17.2m).
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 15.7 15.0
In the second year 6.8 36.5
In years three to five 22.0 135.0
After five years 118.5 118.5
------------------------ ------------ --- ------------
163.0 305.0
------------------------ ------------ --- ------------
(1) Gross borrowings include the use of bank overdrafts, other loans
and committed facilities, but exclude leases of GBP83.7m and
transaction costs directly attributable to borrowings of (GBP1.3m).
At the year-end, the Group had committed facilities of GBP305.0m
comprising private placement debt of GBP148.5m and revolving credit
facilities of GBP156.5m. The Group is in a strong funding position,
with headroom at 31 December 2019 of GBP159.1m under its committed
facilities.
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.
The weighted average maturity of the Group's committed
facilities is currently 4.4 years.
The Group has GBP0.7m of uncommitted borrowings which are
repayable on demand.
The Group's committed borrowing facilities at 31 December 2019
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 (restated at average exchange rates for the financial year,
and before IFRS 16 lease liabilities) to EBITDA must not exceed
3.0x. At 31 December 2019, the Group was operating well within
these covenants as the ratio of EBITDA to net interest costs was
16.9x (31 December 2018 - 15.2x) and the ratio of net debt to
EBITDA was 1.1x (31 December 2018 - 1.1x).
IFRS 16 Leases
Effective for annual periods beginning 1 January 2019, IFRS 16
Leases has replaced 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), with
optional application for those leases with a term of 12 months or
less and where the underlying asset is low value. As at 31 December
2018, the Group held a significant number of operating leases which
under IAS 17 were expensed on a straight-line basis over the lease
term.
On transition to IFRS 16 on 1 January 2019, the Group recognised
right-of-use assets of GBP96.7m, lease liabilities of GBP96.3m,
with working capital and non-current liabilities decreasing by
GBP0.4m in total. Right-of-use assets were initially measured equal
to the lease liabilities, adjusted by prepaid or accrued lease
payments.
The adoption of IFRS 16 from 1 January 2019 resulted in GBP10.2m
increase in depreciation, GBP11.3m reduction in lease expenses and
GBP3.5m increase in finance costs recognised in the Consolidated
Income Statement during the year ended 31 December 2019; and
GBP82.3m right-of-use assets and GBP83.7m lease liabilities
recognised in the Consolidated Balance Sheet at 31 December
2019.
In the Consolidated Cash Flow Statement during the year ended 31
December 2019, cash generated by operations and free cash flow (as
defined in Note 11b) has increased by GBP11.3m and GBP7.8m,
respectively, as a result of IFRS 16; while capital repayments of
lease liabilities are 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.
UK withdrawal from the European Union
While we do not anticipate a significant direct impact from
Brexit on the Group's activities, we remain alert to the impact any
final post transition period deal will have on macroeconomic
conditions. Our assessment is that any direct or indirect impact
from Brexit will be limited given the Group's global
positioning.
Viability statement
In accordance with provisions 30 and 31 of the 2018 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 39 of the Annual Report & Accounts 2019.
Risks and uncertainties
The principal risks and uncertainties faced by the Group are set
out in detail on pages 24 to 29 of the Annual Report & Accounts
2019.
Bindi foyle
Group Finance Director
Responsibility Statement of the Directors in Respect of the
Annual Report & Accounts 2019
We confirm that to the best of our knowledge:
1. the Financial Statements, as included in the Annual Report &
Accounts 2019, 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 company
and the undertakings included in the consolidation taken as a
whole; and
2. the Strategic Report, set out in the Annual Report & Accounts
2019, includes a fair review of the development and performance
of the business and the position of the issuer and the undertakings
included in the consolidation taken as a whole, together with
a description of the principal risks and uncertainties that they
face.
We consider the Annual Report & Accounts 2019, taken as a
whole, is fair, balanced and understandable and provides 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
28 February 2020 28 February 2020
Consolidated Income Statement
For the year ended 31 December 2019
Year ended Year ended
2019 2018
(restated)
Notes GBPm GBPm
Revenue 3 1,110.7 1,082.1
Trading profit 61.2 69.3
Share of joint venture profit 13 0.4 0.6
----------- ------------
Operating profit (1) 3 61.6 69.9
Investment income 0.9 0.6
Finance costs (11.8) (9.2)
Loss on disposal of businesses 14 (22.0) -
----------- ------------
Profit before tax (2) 28.7 61.3
Tax credit/(charge) 5 0.5 (7.8)
----------- ------------
Profit for the period 29.2 53.5
=========== ============
Attributable to:
Equity holders of the parent 29.2 53.5
=========== ============
Earnings per share
Basic (3) 7 7.04p 12.81p
=========== ============
Diluted (4) 7 7.01p 12.63p
=========== ============
(1) Adjusted operating
profit 4 89.4 91.6
(2) Adjusted profit before
tax 4 78.5 83.0
(3) Adjusted earnings
per share 7 16.17p 16.08p
(4) Adjusted and diluted
earnings per share 7 16.10p 15.87p
----------------------------- ------- -------
The comparative figures for 2018 have been restated for an
accounting policy change for deferred tax, following a recent
change in accepted practice - see Note 2 and 5.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2019
Year ended Year ended
2019 2018
(restated)
GBPm GBPm
Profit for the period 29.2 53.5
----------- ------------
Other comprehensive income:
Items that may be reclassified subsequently
to profit or loss:
Gains/(losses) on foreign exchange contracts
- cash flow hedges during the period 7.2 (8.0)
Reclassification adjustments for (profits)/losses
included in profit (1.0) 1.3
----------- ------------
Gains/(losses) on foreign exchange contracts
- cash flow hedges 6.2 (6.7)
Foreign exchange gain recycled to the Income
Statement on disposal of businesses (3.0) -
Exchange differences on translation of overseas
operations (11.5) 20.5
Tax relating to items that may be reclassified (1.2) 1.3
----------- ------------
(9.5) 15.1
Items that will not be reclassified subsequently
to profit or loss:
Actuarial gains on defined benefit pension schemes 11.1 5.8
Tax relating to items that will not be reclassified (2.1) (0.8)
----------- ------------
9.0 5.0
Other comprehensive (expense)/income for the
period, net of tax (0.5) 20.1
----------- ------------
Total comprehensive income for the period 28.7 73.6
=========== ============
Attributable to:
Equity holders of the parent 28.7 73.6
=========== ============
The comparative figures for 2018 have been restated for an
accounting policy change for deferred tax, following a recent
change in accepted practice - see Note 2 and 5.
Consolidated Balance Sheet
As at 31 December 2019
Year ended Year ended
2019 2018
(restated)
Notes GBPm GBPm
Non-current assets
Goodwill 8 297.1 312.9
Other intangible assets 12.9 26.7
Investment in joint venture 13 3.3 3.0
Property, plant and equipment 9 369.3 285.6
Deferred tax assets 1.7 2.4
Retirement benefits 12 48.9 30.9
Trade and other receivables 0.5 0.5
----------- ------------
Total non-current assets 733.7 662.0
----------- ------------
Current assets
Inventories 169.3 177.8
Current tax receivables 3.5 2.7
Trade and other receivables 133.6 165.0
Cash and bank balances 11c) 15.8 17.2
Total current assets 322.2 362.7
----------- ------------
Total assets 1,055.9 1,024.7
=========== ============
Current liabilities
Trade and other payables 157.3 196.0
Current tax liabilities 26.6 21.5
Lease liabilities 0.2 0.2
Bank overdrafts and loans 11c) 15.7 2.7
Provisions 19.9 11.3
Total current liabilities 219.7 231.7
----------- ------------
Non-current liabilities
Bank and other loans 11c) 146.0 167.3
Retirement benefits 12 7.8 12.4
Deferred tax liabilities 32.8 38.6
Lease liabilities 83.5 -
Provisions 1.6 0.2
Others 4.9 2.7
----------- ------------
Total non-current liabilities 276.6 221.2
----------- ------------
Total liabilities 496.3 452.9
=========== ============
Net assets 559.6 571.8
=========== ============
Equity
Issued share capital 10 41.9 41.9
Share premium account 14.8 14.8
Equity reserve 5.5 5.7
Hedging and translation reserve 38.9 48.4
Retained earnings 472.5 469.0
Own shares (14.0) (8.0)
----------- ------------
Equity attributable to equity holders
of the parent 559.6 571.8
----------- ------------
Total equity 559.6 571.8
=========== ============
The comparative figures for 2018 have been restated for an
accounting policy change for deferred tax, following a recent
change in accepted practice - see Note 2 and 5.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019 All equity is attributable
to equity holders of the parent
Hedging
and
Issued Share translation Retained Total
share premium Equity reserve earnings Own equity
capital account reserve (restated) (restated) shares (restated)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 January
2018 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 overseas
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
Prior year restatement
for deferred tax (Note
2) - - - 0.2 3.4 - 3.6
Total comprehensive
income for the period - - - 15.1 58.5 - 73.6
-------- -------- -------- ------------ ----------- ------- -----------
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 48.4 469.0 (8.0) 571.8
======== ======== ======== ============ =========== ======= ===========
Profit for the year
2019 - - - - 29.2 - 29.2
Gains on foreign exchange
contracts - cash flow
hedges - - - 6.2 - - 6.2
Foreign exchange gain
recycled to the Income
Statement on disposal
of businesses - - - (3.0) - - (3.0)
Exchange differences
on translation of overseas
operations - - - (11.5) - - (11.5)
Actuarial gains on
defined benefit pension
schemes - - - - 11.1 - 11.1
Tax relating to components
of other
comprehensive income - - - (1.2) (2.1) - (3.3)
Total comprehensive
income for the period - - - (9.5) 38.2 - 28.7
-------- -------- -------- ------------ ----------- ------- -----------
IFRIC 23 Opening balance
adjustment - Note 2) - - - - (4.8) - (4.8)
Share-based payment
charge - - 1.8 - - - 1.8
Tax relating to share-based
payments - - - - (0.4) - (0.4)
Purchase of shares
held by employee benefit
trust - - - - - (6.3) (6.3)
Use of shares held
by employee benefit
trust - - - - (0.3) 0.3 -
Transfer to retained
earnings - - (2.0) - 2.0 - -
Dividends paid - - - - (31.2) - (31.2)
-------- -------- -------- ------------ ----------- ------- -----------
Balance at 31 December
2019 41.9 14.8 5.5 38.9 472.5 (14.0) 559.6
======== ======== ======== ============ =========== ======= ===========
422.1
The comparative figures for 2018 have been restated for an
accounting policy change for deferred tax, following a recent
change in accepted practice - see Note 2 and 5.
Consolidated Cash Flow Statement
For the year ended 31 December 2019
Year ended Year ended
2019 2018
Notes GBPm GBPm
Net cash from operating activities 11a) 115.9 100.7
----------- -----------
Investing activities
Interest received 0.2 0.4
Proceeds on disposal of property,
plant and equipment 0.7 0.5
Purchases of property, plant and
equipment (63.0) (54.6)
Purchases of intangible assets (1.8) (1.7)
Proceeds on disposal of businesses
net of cash balances 14 (4.8) -
Loan repayment by joint venture 13 - 0.5
Net cash used in investing activities (68.7) (54.9)
----------- -----------
Financing activities
Dividends paid (31.2) (29.6)
New loans 62.4 111.9
Repayment of borrowings (65.6) (114.3)
Repayment of lease liabilities (7.8) (0.3)
Purchase of shares held by employee
benefit trust (6.3) (7.2)
Net cash used in financing activities (48.5) (39.5)
----------- -----------
Net (decrease)/increase in cash
and cash equivalents (1.3) 6.3
Cash and cash equivalents at beginning
of period 17.0 9.7
Effect of foreign exchange rate
changes (0.6) 1.0
----------- -----------
Cash and cash equivalents at end
of period 11c) 15.1 17.0
=========== ===========
Notes to the above Financial Statements
For the year ended 31 December 2019
1. General information
These results for the year ended 31 December 2019 are an excerpt
from the Annual Report & Accounts 2019 and do not constitute
the Group's statutory accounts for 2019 or 2018. Statutory accounts
for 2018 have been delivered to the Registrar of Companies, and
those for 2019 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 2019 which is
available online at www.seniorplc.com . Printed copies will be
distributed on or soon after 13 March 2020 .
The Board has adopted a new accounting policy related to
deferred tax asset (DTA) recognition. This is in connection with
corporate interest restrictions in the US and follows specific
guidance issued in December 2019 that specifically addressed DTA
recognition for carried forward interest deductions where the US
entity also recognises deferred tax liabilities related to timing
differences. Previously, the accounting policy followed was not to
recognise a DTA on the basis that there would be no cash tax
benefit to the Group. The new accounting policy recognises a DTA to
the extent that sufficient taxable temporary differences exist at
the balance sheet date. There is no change to the expected cash
benefit. The new policy aligns with the new guidance and has been
accounted for as a voluntary change in accounting policy as
required by IAS 8.
The impact is a credit of GBP3.6m in the year ended 31 December
2019 in respect of the DTA recognised. The comparative amounts have
been restated accordingly with a deferred tax credit of GBP3.4m
excluded from adjusted earnings after tax with a consequential
decrease in the net deferred tax liability held at 31 December
2018. The impacts in both years have been excluded from adjusted
earnings after tax due to the comparable size to the overall tax
charge in both 2018 and 2019. As the impact is related to an
accounting policy change, and there is no change to the expected
tax cash benefit, the credit has been excluded in our adjusted
earnings per share calculation.
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. A summary
of the impact from each standard is given below. Only IFRS 16 will
have an effect on net cash from operating activities and free cash
flow, which is explained in Note 16.
a) IFRS 16 Leases - Effective for annual periods beginning 1
January 2019, IFRS 16 Leases replaced 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), with optional application for those leases with a term of
12 months or less or where the underlying asset is low value. The
Group has performed the required assessment of its cumulative
adjustment on transition to IFRS 16 with effect from 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. A
reconciliation between the IAS 17 operating lease commitments
disclosed in the Consolidated Financial Statements of the Group as
at 31 December 2018 and Lease liabilities recognised on 1 January
2019 is shown in Note 16. The adoption of IFRS 16 does not impact
the Group's lending covenants, as these are currently based on
frozen GAAP.
b) IFRIC 23 Uncertainty over income tax treatments - This
interpretation clarifies the application of the recognition and
measurement requirements of IAS 12 where there is uncertainty over
income tax treatments. Accordingly the Directors reassessed the
basis of the risk provisions for tax uncertainties to apply the
principles of IFRIC 23, and on 1 January 2019 have recognised
additional current tax liabilities of GBP3.8m, together with GBP1m
of associated interest, as an opening retained earnings
adjustment.
There are no other material new standards, amendments to
standards or interpretations which are effective for the year ended
31 December 2019.
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 ended ended ended Year ended ended ended
ended 2019 2019 2019 ended 2018 2018 2018
2019 GBPm GBPm GBPm 2018 GBPm GBPm GBPm
GBPm GBPm (restated)
External
revenue 835.2 275.5 - 1,110.7 759.4 322.7 - 1,082.1
Inter-segment
revenue 0.2 0.3 (0.5) - 1.0 0.2 (1.2) -
---------- ---------- ------------- -------- ---------- ---------- ------------- -----------
Total revenue 835.4 275.8 (0.5) 1,110.7 760.4 322.9 (1.2) 1,082.1
========== ========== ============= ======== ========== ========== ============= ===========
Adjusted
trading
profit 76.4 26.1 (13.5) 89.0 80.4 26.1 (15.5) 91.0
Share of joint
venture
profit - 0.4 - 0.4 - 0.6 - 0.6
---------- ---------- ------------- -------- ---------- ---------- ------------- -----------
Adjusted
operating
profit (Note
4) 76.4 26.5 (13.5) 89.4 80.4 26.7 (15.5) 91.6
Amortisation
of intangible
assets from
acquisitions (7.1) (6.0) - (13.1) (8.3) (7.1) - (15.4)
Restructuring
(Note 4) (5.6) (6.5) - (12.1) - - - -
UK Guaranteed
Minimum
Pensions
(Note 4) - - - - - - (2.4) (2.4)
US class
action
lawsuits
(Note
4) - - (2.6) (2.6) - - (3.9) (3.9)
Operating
profit 63.7 14.0 (16.1) 61.6 72.1 19.6 (21.8) 69.9
========== ========== ============= ======== ========== ========== ============= ===========
Investment
income 0.9 0.6
Finance costs (11.8) (9.2)
Loss on
disposal
of businesses
(Note 14) (22.0) -
-------- -----------
Profit before
tax 28.7 61.3
Tax (Note
5) 0.5 (7.8)
-------- -----------
Profit after tax 29.2 53.5
======== ===========
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
2019 2018
GBPm GBPm
Aerospace 764.3 723.1
Flexonics 215.3 244.1
Segment assets for reportable segments 979.6 967.2
Unallocated
Central 5.7 4.0
Cash 15.8 17.2
Deferred and current tax 5.2 5.1
Retirement benefits 48.9 30.9
Others 0.7 0.3
----------- -----------
Total assets per Consolidated Balance Sheet 1,055.9 1,024.7
=========== ===========
Liabilities Year ended Year ended
2019 2018
(restated)
GBPm GBPm
Aerospace 185.8 134.7
Flexonics 56.1 58.3
Segment liabilities for reportable segments 241.9 193.0
Unallocated
Central 16.2 14.1
Debt 161.7 170.0
Lease liabilities - 0.2
Deferred and current tax 59.4 60.1
Retirement benefits 7.8 12.4
Others 9.3 3.1
----------- ------------
Total liabilities per Consolidated Balance Sheet 496.3 452.9
=========== ============
Following the adoption of IFRS 16 on 1 January 2019,
right-of-use assets and lease liabilities are shown under segment
assets and liabilities, respectively, for reportable segments.
Total revenue is disaggregated by market sectors as follows:
Year Year
ended ended
2019 2018
GBPm GBPm
Civil Aerospace 618.0 563.6
Military Aerospace 149.7 125.6
Other 67.7 71.2
-------- --------
Aerospace 835.4 760.4
Land Vehicles 123.4 167.0
Power & Energy 152.4 155.9
Flexonics 275.8 322.9
Eliminations (0.5) (1.2)
Total revenue 1,110.7 1,082.1
-------- --------
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, have been included to identify the performance of the Group
prior to the impact of amortisation of intangible assets from
acquisitions, restructuring, the UK Guaranteed Minimum Pensions
charge, the costs associated with the US class action lawsuits and
loss on disposal of businesses. The Board has adopted a policy to
separately disclose those items that it considers are outside the
results for the particular year under review and against which the
Board measures and assesses the performance of the business.
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 Group implemented a restructuring
programme in 2019. The UK Guaranteed Minimum Pensions charge is
isolated and one-off in nature. The US class action lawsuits relate
to historic legal matters. None of these charges, including the
loss on disposal of businesses, are reflective of in-year
performance. They are therefore excluded by the Board and Executive
Committee when measuring the performance of the businesses.
Year ended Year ended
2019 2018
GBPm GBPm
Operating profit 61.6 69.9
Amortisation of intangible assets from acquisitions 13.1 15.4
Restructuring 12.1 -
UK Guaranteed Minimum Pensions - 2.4
US class action lawsuits 2.6 3.9
Adjusted operating profit 89.4 91.6
=========== ===========
Profit before tax 28.7 61.3
Adjustments to profit before tax as above 27.8 21.7
Loss on disposal of businesses 22.0 -
Adjusted profit before tax 78.5 83.0
=========== ===========
Restructuring
In 2019, as part of a strategic review, the Group has reviewed
the portfolio of programmes and in particular where there is risk
over the level of Senior's contribution to production in future
periods and in recognition of the challenges in some of our
Flexonics and Aerospace markets. The restructuring involves
headcount reductions and other efficiency improvements. As a
result, GBP12.1m has been charged to the Consolidated Income
Statement and presented as an adjusted item as it is not reflective
of in-year performance. The total charge comprises GBP4.4m
headcount reduction and GBP1.4m consultancy and other costs. For
certain specific programmes, and in conjunction with the focus on
restructuring, management has also identified inventory and
property, plant and equipment that have been impaired in 2019 with
a total charge of GBP3.4m and GBP2.9m respectively. These relate to
programmes where Senior will no longer participate, and where there
are no alternative uses for the inventory or assets. Total cash
outflow in 2019 is GBP2.9m (see Note 11b). A restructuring
provision of GBP2.9m is held on the Consolidated Balance Sheet at
the year-end in current liabilities, which is expected to be
utilised in 2020.
UK Guaranteed Minimum Pensions
In October 2018 the High Court ruled on the Guaranteed Minimum
Pensions (GMPs) which required 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 was taken through the Consolidated Income
Statement in 2018 and presented as an adjusted item, as it is
one-off in nature, relates to past service costs and is therefore
not reflective of 2018 performance.
US class action lawsuits
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. In February 2020, the
Company agreed settlement and related costs of GBP2.6m, which is
charged to the Consolidated Income Statement in 2019. At 31
December 2019, the carrying amount is a provision of GBP2.5m, which
includes a favourable exchange effect of GBP0.1m. The charge was
reported as an adjusted item in 2019 given its nature and
materiality and the fact that it is related to prior years and not
reflective of 2019 performance. Court approval of the settlements
is expected in 2020.
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 in 2018, 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 was reported as an adjusted item in 2018 given its nature
and materiality and the fact that it is related to prior years and
not reflective of 2018 performance. Court approval of the
settlements for both lawsuits is expected in the first half of
2020.
5. Taxation
Year ended Year ended
2019 2018
(restated)
GBPm GBPm
Current tax:
Current year 11.1 11.7
Adjustments in respect of prior periods (4.1) (6.3)
----------- ------------
7.0 5.4
----------- ------------
Deferred tax:
Current year (5.4) 1.1
Adjustments in respect of prior periods (2.1) 1.3
----------- ------------
(7.5) 2.4
----------- ------------
Total tax (credit)/charge (0.5) 7.8
=========== ============
The adjusted tax rate for the year was 14.5% (2018 - 19.0%),
being a tax charge of GBP11.4m (2018 - GBP15.8m) on adjusted profit
before tax of GBP78.5m (2018 - GBP83.0m). The reduction in rate is
attributed to the recognition of prior year adjustments in the US
as the impact on the Group of US Tax reform following the enactment
of the US Tax Cuts and Jobs Act in December 2017 becomes clearer;
as well as clarification as to the treatment for tax purposes of
historical profits in our Malaysian aerospace business.
The comparative figures for 2018 have been restated to reflect
the recognition of a deferred tax credit of GBP3.4m, which has had
the effect of reducing the total tax charge from GBP11.2m as
originally stated to GBP7.8m. The current year tax charge similarly
includes a credit for deferred tax of GBP3.6m. See Note 2.
The reported tax rate was 1.7% credit (2018 restated - 12.7%
charge), being a tax credit of GBP0.5m (2018 restated - GBP7.8m
charge) on reported profit before tax of GBP28.7m (2018 -
GBP61.3m). The reported tax charge for the year included the tax
credit of items excluded from adjusted operating profit of GBP8.3m
(2018 - GBP4.6m) and a non-cash deferred tax credit of GBP3.6m
(2018 restated - GBP3.4m) to recognise a deferred tax asset,
following a recent change in accepted practice in terms of the tax
treatment related to restricted interest deductions in the US.
Cash tax paid was GBP5.3m (2018 - GBP6.0m) and is stated net of
refunds received of GBP0.8m (2018 - GBP2.0m) 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 and tax deductible items that do not affect
adjusted profit.
The Group has received confirmation that the contingent
liability disclosed in the Annual Report & Accounts 2018 in
respect of the European Commission's investigation into certain
aspects of the UK's rules for Controlled Foreign Company taxation
constituting State Aid no longer applies to the Group.
6. Dividends
Year ended Year ended
2019 2018
GBPm GBPm
Amounts recognised as distributions to equity
holders in the period:
Final dividend for the year ended 31 December
2018 of 5.23p (2017 - 4.90p) per share 21.7 20.5
Interim dividend for the year ended 31 December
2019 of 2.28p (2018 - 2.19p) per share 9.5 9.1
----------- -----------
31.2 29.6
=========== ===========
Proposed final dividend for the year ended 31
December 2019
of 5.23p (2018 - 5.23p) per share 21.7 21.8
=========== ===========
The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting for 2019 on 24 April
2020 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
2019 2018
million million
Weighted average number of ordinary shares for
the purposes of basic earnings per share 415.0 417.8
Effect of dilutive potential ordinary shares:
Share options 1.8 5.7
----------- -----------
Weighted average number of ordinary shares for
the purposes of diluted earnings per share 416.8 423.5
=========== ===========
Year ended 2019 Year ended 2018
Earnings and earnings per share Earnings EPS Earnings EPS
(restated) (restated)
GBPm pence GBPm pence
Profit for the period 29.2 7.04 53.5 12.81
Adjust:
Amortisation of intangible
assets from acquisitions net
of tax of GBP2.9m (2018 - GBP3.2m) 10.2 2.45 12.2 2.93
Restructuring net of tax of
GBP3.0m (2018 - GBPnil) 9.1 2.20 - -
UK Guaranteed Minimum Pensions
net of tax of GBPnil (2018
- GBP0.4m) - - 2.0 0.47
US class action lawsuits net
of tax of GBP0.7m (2018 - GBP1.0m) 1.9 0.46 2.9 0.69
Loss on disposal of businesses
net of tax of GBP1.7m (2018
- GBPnil) 20.3 4.89 - -
Non-cash deferred tax credit
of GBP3.6m (2018 restated -
GBP3.4m) (3.6) (0.87) (3.4) (0.82)
Adjusted earnings after tax 67.1 16.17 67.2 16.08
========= ======= ============ ============
Earnings per share
* basic 7.04p 12.81p
* diluted 7.01p 12.63p
* adjusted 16.17p 16.08p
* adjusted and diluted 16.10p 15.87p
The comparative figures for 2018 have been restated for an
accounting policy change for deferred tax, with no impact before 1
January 2018. Before the restatement basic, diluted, adjusted, and
adjusted and diluted EPS was 11.99p, 11.83p, 16.08p and 15.87p
respectively (See Note 2 and 5).
The effect of dilutive shares on the earnings for the purposes
of diluted earnings per share is GBPnil (2018 - 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, restructuring, the UK
Guaranteed Minimum Pensions charge, the costs associated with the
US class action lawsuits, loss on disposal of businesses and
non-cash deferred 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 business. See
Note 4 for further details.
8. Goodwill
Goodwill decreased by GBP15.8m during the year to GBP297.1m
(2018 - GBP312.9m) due to exchange translation differences of
GBP7.7m and the disposal of businesses of GBP8.1m.
9. Property, plant and equipment
During the period, the Group spent GBP63.0m (2018 - GBP54.6m) on
the acquisition of property, plant and equipment. The Group also
disposed of property, plant and equipment with a carrying value of
GBP0.7m (2018 - GBP0.9m) for proceeds of GBP0.7m (2018 -
GBP0.5m).
On transition to IFRS 16 on 1 January 2019, the Group recognised
GBP96.7m of right-of-use assets. At 31 December 2019, the
right-of-use assets were GBP82.3m (see Note 16).
10. Share capital
Share capital as at 31 December 2019 amounted to GBP41.9m. No
shares were issued during 2018 and 2019.
11. Notes to the Consolidated Cash Flow statement
a) Reconciliation of operating profit to net cash from operating
activities
Year ended Year ended
2019 2018
GBPm GBPm
Operating profit 61.6 69.9
Adjustments for:
Depreciation of property, plant and equipment 52.5 39.5
Amortisation of intangible assets 15.2 17.4
Loss on sale of fixed assets - 0.4
Share-based payment charges 1.8 3.4
Pension payments in excess of service cost (8.7) (10.3)
Costs on disposal of businesses (3.4) -
Pension curtailment gain - (0.4)
UK Guaranteed Minimum Pensions - 2.4
Share of joint venture (0.4) (0.6)
Increase in inventories (1.9) (16.8)
Decrease/(increase) in receivables 24.5 (7.6)
(Decrease)/increase in payables and provisions (12.9) 13.3
Restructuring impairment of property, plant
and equipment 2.9 -
US class action lawsuits 2.6 3.7
Working capital and provisions currency movements (1.4) 1.7
----------- -----------
Cash generated by operations 132.4 116.0
Income taxes paid (5.3) (6.0)
Interest paid (11.2) (9.3)
----------- -----------
Net cash from operating activities 115.9 100.7
=========== ===========
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, restructuring, disposal of
businesses, 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
2019 2018
GBPm GBPm
Net cash from operating activities 115.9 100.7
Costs on disposal of businesses 3.4 -
Restructuring cash paid 2.9 -
Interest received 0.2 0.4
Proceeds on disposal of property, plant and
equipment 0.7 0.5
Purchases of property, plant and equipment (63.0) (54.6)
Purchases of intangible assets (1.8) (1.7)
----------- -----------
Free cash flow 58.3 45.3
=========== ===========
c) Analysis of net debt
IFRS
At 16 At 1 At
31 December Opening January Cash Exchange Other movements 31 December
2018 Balance 2019 flow movement (1) 2019
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Cash and bank
balances 17.2 - 17.2 (0.8) (0.6) - 15.8
Overdrafts (0.2) - (0.2) (0.5) - - (0.7)
------------ --------- --------- ------ --------- ---------------- ------------
Cash and cash
equivalents 17.0 - 17.0 (1.3) (0.6) - 15.1
Debt due within
one year (2.5) - (2.5) 2.5 0.6 (15.6) (15.0)
Debt due after
one year (167.3) - (167.3) 0.7 5.0 15.6 (146.0)
Lease liabilities (0.2) (96.1) (96.3) 7.8 2.3 2.5 (83.7)
Total (153.0) (96.1) (249.1) 9.7 7.3 2.5 (229.6)
------------ --------- --------- ------ --------- ---------------- ------------
(1) Other movements include lease additions and modifications of
GBP2.0m, leases disposed on disposal of businesses of GBP4.5m and
Non-Cash items of GBP15.6m.
Year ended Year ended
2019 2018
GBPm GBPm
Cash and cash equivalents comprise:
Cash and bank balances 15.8 17.2
Overdrafts (0.7) (0.2)
----------- -----------
Total 15.1 17.0
=========== ===========
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.
12. Retirement benefit schemes
Defined Benefit Schemes
Aggregate retirement benefit liabilities are GBP7.8m and the
aggregate retirement benefit surplus is GBP48.9m (31 December 2018
- GBP12.4m liabilities, GBP30.9m surplus). The primary components
of these liabilities and surplus are the Group's UK and US defined
benefit pension schemes, with a surplus of GBP48.9m (31 December
2018 - surplus of GBP30.9m) and deficit of GBP2.0m (31 December
2018 - GBP5.2m) respectively, and a liability on unfunded schemes
of GBP5.8m (31 December 2018 - GBP7.2m). 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 GBP18.0m to
GBP48.9m (31 December 2018 - GBP30.9m), principally due to GBP6.9m
cash contributions in excess of running costs made by the Group and
GBP10.1m net actuarial gains mainly relating to favourable returns
from scheme assets offsetting changes in financial and demographic
assumptions. Retirement benefit obligations in respect of the US
and other territories decreased by GBP4.6m to GBP7.8m (31 December
2018 - GBP12.4m).
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 GBP3.3m
represents the Group's share of the joint venture's net assets as
at 31 December 2019 (2018 - GBP3.0m). The loan provided by the
Group to the joint venture was repaid in full during 2018 and the
balance outstanding at 31 December 2019 was therefore GBPnil (31
December 2018 - GBPnil).
14. Disposal of businesses
In February 2019, the Group sold its Flexonics operating company
in France, Senior Flexonics Blois SAS ("Blois") that focused on the
European passenger vehicles end market. In September 2019, the
Group disposed its Flexonics operating company in Brazil, Senior
Flexonics Brasil Ltda ("São Paulo"), serving the local automotive
and power & energy markets. In October 2019, the Group sold its
Aerospace business unit Senior Aerospace Absolute Manufacturing
("Absolute") based in Washington state, USA that focused on small
build-to-print precision machined components. These transactions
fit with the Prune To Grow strategy and enable 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 year ended 31 December 2019, the external revenue of
these disposed businesses was GBP16.1m (31 December 2018 -
GBP36.9m) and their adjusted operating loss was GBP2.4m (31
December 2018 - GBP2.4m). A charge of GBP22.0m arose on disposal
after taking into account GBP0.9m of professional fees incurred in
connection with disposal activities and the fair value of net
assets disposed after costs (GBP27.7m including GBP8.1m of
goodwill, GBP11.9m of property, plant and equipment, GBP5.4m of
inventories, GBP7.7 of cash balances, GBP4.5m of lease liabilities)
offset by cash considerations of GBP2.9m, deferred consideration of
GBP0.7m and previously recorded foreign exchange gain that has been
recycled to the Income Statement of GBP3.0m.
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.
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. IFRS 16 transitional impact
On transition to IFRS 16 on 1 January 2019, the Group recognised
right-of-use assets of GBP96.7m, lease liabilities of GBP96.3m,
with working capital and non-current liabilities decreasing by
GBP0.4m in total. Right-of-use assets were initially measured equal
to the lease liabilities, adjusted by prepaid or accrued lease
payments.
The adoption of IFRS 16 from 1 January 2019 resulted in GBP10.2m
increase in depreciation, GBP11.3m reduction in lease expenses and
GBP3.5m increase in finance costs recognised in the Consolidated
Income Statement during the year ended 31 December 2019; and
GBP82.3m right-of-use assets and GBP83.7m lease liabilities
recognised in the Consolidated Balance Sheet at 31 December
2019.
In the Consolidated Cash Flow Statement during the year ended 31
December 2019, cash generated by operations and free cash flow (as
defined in Note 11b) has increased by GBP11.3m and GBP7.8m
respectively as a result of IFRS 16; while capital repayments of
lease liabilities are 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.
When measuring lease liabilities, the Group discounted lease
payments using incremental borrowing rates (IBR), determined on a
lease portfolio basis at 1 January 2019. The weighted average of
all IBRs at 1 January 2019 was 3.9%.
The table below reconciles the IAS 17 operating lease
commitments disclosed in the Consolidated Financial Statements of
the Group as at 31 December 2018 to the IFRS 16 Lease liabilities
recognised on 1 January 2019:
Reconciliation of IAS 17 to IFRS 16
GBPm
Operating lease commitments at 31 December 2018 65.9
-----------------
Recognition exemption for:
Short term leases (0.4)
Low value leases -
Maintenance fees (1.3)
Extension/Termination options reasonably certain
to be exercised 74.5
-----------------
Undiscounted IFRS 16 commitments at 31 December
2018 138.7
Discounting using incremental borrowing rates
at 1 January 2019 (42.6)
-----------------
Additional lease liabilities recognised at 1 January
2019 96.1
Finance leases at 31 December 2018 0.2
-----------------
Total Lease liabilities at 1 January 2019 96.3
-----------------
The following practical expedients and elections for IFRS 16
were taken on the transition date:
-- the Group did not reassess whether existing contracts are, or
contain, a lease and applied IFRS 16 only to existing contracts
that were previously identified as leases under IAS 17;
-- the Group applied a single discount rate to a portfolio of leases
with reasonably similar characteristics; and
-- leases with a remaining term of less than 12 months from the
transition date and low value leases are expensed on a straight
line basis to the Consolidated Income Statement.
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
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