Final Results - Year Ended 31 December 1999

Senior PLC 22 March 2000 Senior plc Preliminary Results for the year ended 31 December 1999 HIGHLIGHTS * Turnover of continuing operations up 13% to £465.2m. * Operating profit of continuing operations before goodwill and exceptional items largely unchanged at £39.1m (1998: £39.2m if adjusted for Ketema losses). * Precision Tube and Heat Treatment businesses sold for gross proceeds of £56.2m. * Acquisition programme completed at cost of £90.8m. * Cost base lowered across all Divisions at cost of £8.5m. * Final dividend up 4.1% at 3.04p, reflecting confidence in long-term profitability. * Appointment of Graham Menzies as new Group Chief Executive. Speaking today, Dr Alan Watkins, Chairman of Senior said: '1999 was a year of transition for Senior. We increased the Group's focus on Flexonics through the divestment of the majority of the Engineered Products & Services Division and continued to develop our Flexonics business through capital expenditure and a series of acquisitions.' For further information, please contact: Senior plc on 22 March 2000 020 7251 3801 thereafter 01923 775547 Dr A K Watkins, Chairman T B Garthwaite, Group Finance Director Finsbury Limited 020 7251 3801 James Murgatroyd Internet users will be able to view this announcement, together with other information about Senior plc, on the web site: www.seniorplc.com You may receive future Senior plc News Releases by post, fax or e-mail. If you would like to change from the current method please contact Jane Davie at Finsbury Limited, at the telephone number above, or e-mail your request to her at daviej@finsbury.com Notes to Editors: Senior plc is an international engineering group with a market capitalisation of approximately £250m. It is the clear global leader in the design, manufacture and marketing of thin-walled flexible tubing and related high technology products, servicing the aerospace (including space), automotive and specialised industrial markets. Senior plc Preliminary Results for the year ended 31 December 1999 CHAIRMAN'S STATEMENT 1999 was a year of transition for Senior. We increased the Group's focus on Flexonics through the divestment of the majority of the Engineered Products & Services Division and continued to develop our Flexonics business through capital expenditure and a series of acquisitions. Overall, however, 1999 was a disappointing year. The downturn in demand mentioned last year continued and deepened, particularly affecting our Heat Treatment and Precision Tube businesses in the UK, (which we sold in the first half) and many parts of our Specialised Industrial Division. Additionally, as we highlighted in our Interim Statement, demand in the Aerospace Division slowed from mid-year onwards as various civil aircraft and space programmes in North America were re-phased. Profitability was further impacted by start-up costs associated with the increasing number of attractive long-term contracts won by the Group. On 3 December we announced that the Group had discovered accounting irregularities at its Ketema aerospace subsidiary in California. These arose largely in two areas: an overvaluation of inventory related to non-recurring engineering costs and the premature recognition of sales and profits on a major individual contract, which together had inflated Ketema's underlying profitability by a total of $25.4m, $17.0m of which has been estimated to relate to prior years. Following a detailed examination by the Group and its advisers, management changes were implemented and immediate action was taken to restore profitability, including a significant programme of cost reductions. Ketema remains strategically important to the Group and is a growing, high quality, business with a strong order book and an excellent technical reputation. It will continue to play a key role in the international growth of our Aerospace Division. Following the Ketema announcement on 3 December, the Board commissioned its financial advisers to carry out a review of the Group's strategic options to maximise shareholder value. On 1 February 2000 Senior announced that it had received a number of preliminary approaches from interested parties, including from certain of the executive Directors of Senior, concerning a possible offer for the Company. Discussions with a number of parties are ongoing, although there can be no certainty that any transaction will result. Board Changes On 21 March we announced that Andrew Parrish was resigning as Group Chief Executive with immediate effect. This step will allow Mr Parrish to pursue a possible offer for the Company in conjunction with financial backers without any conflict with his previous role as Group Chief Executive. As I have already stated in my opening remarks, at this stage in the process there can be no certainty that any transaction will result. The Board was also pleased to announce on 21 March the appointment of Graham Menzies as Group Chief Executive with immediate effect. Mr Menzies was previously Group Chief Executive of Adwest plc until its sale to Dura Automotive Systems in 1999. Adwest was a tier one automotive components manufacturer with a turnover of £250m, and profits of £21.4m. Mr Menzies holds graduate and post-graduate qualifications in Mechanical Engineering and Machine Tool Technology. He held senior management positions at Stone Platt plc and Fenner plc before joining Adwest in 1985 where he was Director of the Automotive division and Group Managing Director before becoming Group Chief Executive in 1994. He is currently a non-executive director of St Ives plc. Financial Highlights Group turnover for continuing businesses rose 13% to £465.2m (1998: £410.8m), producing operating profit before goodwill amortisation and exceptional items of £39.1m (1998: £47.8m). This represented a return on sales of 8.4% (1998: 11.6%). This result represents a largely unchanged profit performance over prior year if 1998 is adjusted for the estimate of attributable losses at Ketema. The sale of the Precision Tube and Heat Treatment businesses gave rise to losses on disposal of £25.1m, the bulk of which (£21.1m) related to the write- off of the original goodwill not recovered on sale. The disposals significantly reduced the number of Group employees in the UK and this change accelerated the need for an actuarial valuation of the UK pension plan, effective 1 January 1999. Given the requirement at this valuation to reflect lower long-term interest rates, the pension credit previously being amortised reduced from a benefit of £2.4m p.a. (of which £1.4m related to continuing business) in 1998 to £0.4m in 1999. This year has also borne exceptional charges of £31.8m, made up of three elements. The Group wrote off £12.8m to eliminate the original goodwill on the three German Air Systems businesses, part of the former Engineered Products & Services Division, following a review of their realisable value. Secondly, £10.5m has been charged as the estimate of prior years' losses at Ketema. Thirdly, rationalisation and reorganisation costs of £8.5m were incurred as a result of action taken to cut the Group's cost base by reducing the number of manufacturing sites, particularly within Automotive and Specialised Industrial, and to reduce the Group's central management structure to reflect our changing focus and priorities. The Group has therefore recorded a pre-tax loss, after exceptional items and amortisation of goodwill, of £26.8m (1998: profit £49.5m). Loss per share was 10.08p compared with earnings per share of 11.61p in the previous year. Underlying earnings per share was 6.03p (1998: 11.75p). Reflecting the Board's confidence in the long-term profitability of the Group, it is recommending a final dividend of 3.04p making a total for the year of 4.88p (1998: 4.69p). The final dividend, if approved, will be payable on 5 June 2000 to shareholders on the register at the close of business on 2 May 2000. Corporate Development Flexonics' product range and geographical coverage was increased during the year through acquisitions totalling £90.8m, largely comprising Pathway within Specialised Industrial and Cork Industries, Aerospace Ducting Division. Whilst the former is only just beginning to benefit from the positive impact of increasing oil prices on its expansion joint market, the latter is already contributing ahead of initial expectations. During the year both the Heat Treatment and Precision Tube businesses were sold, in line with the established strategy of increasing the Group's focus on our higher margin, higher growth Flexonics business. The Air Systems businesses in the UK and Germany remain in the Group and are now being reported within the Specialised Industrial Division. In November 1999, the Group announced that management resources would now be focused on growing our existing businesses, including recent major acquisitions, and that the ongoing acquisition programme would consequently be substantially reduced. Operations Automotive had a very strong year. Sales were up 11.9% to £154.4m (1998: £138.0m) due to the introduction of AIR tube systems on certain GM models and underpinned by strong passenger car demand in the USA. In Europe the overall vehicle market was weaker. Production at Senior's automotive flexibles factory in South Africa increased substantially during the year. The smaller Waltham Cross facility in the UK was closed and the residual activity merged into the Group's principal European site in Crumlin, South Wales. Demand in the USA continues to be strong, and there are some signs of gradual if patchy improvement in Europe. As reported in January, the Group has won its first order for flexible exhaust connectors from PSA Citroen, for delivery in 2001. Aerospace sales rose 27.8% to £137.0m (1998: £107.2m) primarily reflecting the full year effect of Jet Products (purchased in November 1998) and the contribution from Cork Industries (purchased in September 1999). Given the substantial destocking by US manufacturers and the effects of temporary re- phasing delays on an otherwise buoyant space market, underlying business held up reasonably well. The Group expects to benefit from growth in the regional and business jet programmes anticipated in the second half of 2000 and is actively and successfully exploiting opportunities in Europe for our increased portfolio of precision-engineered aerospace products. In Specialised Industrial, sales of £173.8m (1998: £165.6m) were up 5.0%, although excluding the impact of acquisitions, sales fell by £5.0m. This reflected increasingly difficult market conditions in Europe, and for the petrochemical and semi-conductor markets world-wide, particularly in the first half. Operations and management structure were rationalised, most notably within Air Systems in both UK and Germany, and the Division moves into 2000 on a much lower cost base. Specialised Industrial is currently seeing some modest recovery in demand, both in Europe and in the USA, particularly from the semi-conductor and petrochemical markets. Heat Treatment and Precision Tube were sold in May 1999 for £56.2m. Up to the time of disposal the businesses contributed sales of £31.6m (1998 full year: £98.8m) and operating losses, including rationalisation costs, of £0.8m (1998 full year: profit £4.9m), reflecting a rapidly deteriorating market, largely within the UK manufacturing sector. Cashflow Although cash inflow from operating activities of continued businesses reduced from £60.6m in 1998 to £49.0m, reflecting the lower level of profitability, working capital within the continuing operations demonstrated improved efficiency at 11.1% of sales (1998: 11.9%). Through 1999 the Group maintained an ambitious capital expenditure programme (particularly in Aerospace) which properly reflects our opportunities and has provided the capacity in Aerospace and Automotive to meet the demand reflected in our order books. Capital expenditure within the continuing operations at £30.8m (1998: £27.2m), together with net cash outflow from acquisitions and disposals, has contributed to the Group's net debt increasing to £140.8m (1998: £78.6m), which is more than adequately supported by an ongoing annualised interest cover of over 6 times. Employees Our employees have made an invaluable contribution throughout a most difficult year for the Group, and I would like to extend my thanks to them all, on behalf of the Board, for their efforts during 1999. Outlook Having completed a challenging year of transition there are already, as previously noted, some welcome signs of improved performance across the three Divisions, confirming the underlying business to be in good shape. Prospects for future growth in turnover and profitability remain attractive. The strategic review being carried out in conjunction with our financial advisers is continuing. A further announcement will be made in due course, although there can be no certainty that any of the preliminary approaches which the Board has received will lead to an offer for the Company at a value sufficient to gain a recommendation from the independent Directors. Dr Alan Watkins, Chairman, 22 March 2000 OPERATIONAL REVIEW This was a very tough and challenging year for Senior on several fronts. However the various difficulties we encountered, and the degree of publicity which accompanied them, overshadowed further solid progress towards our key objective of building a focused but global Flexonics business, with leading positions in long-term growth markets. World-wide market demand for Flexonics' technology continued to develop favourably. Our products are used in fluid transfer applications, often in arduous conditions, to minimise noise and vibration, reduce leakage and improve the life and environmental performance of the plant and processes of which they form a part. They are aimed at high value-added markets where the application requires precision engineering, innovative design, meticulous quality and a world-wide servicing capability. These have become Senior's major competitive strengths in our Aerospace, Automotive and Specialised Industrial operations, the latter covering a wide range of markets ranging from medical and micro-turbines to semi-conductors and liquefied natural gas pipelines. Through organic growth and acquisition, we have established some powerful continental and global market positions. Our customer base is continually rationalising and intensifying its search for technically expert, well- invested suppliers who can offer service of consistent, exemplary quality. Senior's truly international spread of activity has made us increasingly attractive as the key supplier of this niche technology to major manufacturing customers. We reinforced this world leadership in the course of 1999 by five acquisitions, on which we spent a total of £90.8m. In the first half, as we reported in September, we invested a total of £11.0m in the purchase of Willcox, a composite hose manufacturer with operations in Europe and North America, and in acquiring 20% of Techno Flex, the leading supplier of flexible hose and bellows in Japan, with low-cost operations elsewhere in Asia. During the second half we invested a further £79.8m buying Hydro-Flex Inc in Canada, Pathway Bellows Inc in the USA and the Aerospace Ducting Division of Cork Industries with operations in the USA and UK. Hydro-Flex was Senior Flexonics' principal competitor in Canada, servicing industrial markets, especially steel plant maintenance. The two businesses have been combined, offering improved critical mass in this relatively small but nonetheless attractive market. Pathway, which we purchased in July, has manufacturing facilities in Tennessee and is the world's leading supplier of expansion joints, with particular strengths in the petrochemical refinery market and in the Far East. Now combined with the Group's former Expansion Joint Division, the renamed SF-Pathway has clear leadership in what is expected to be a rapidly improving market. Cork's Aerospace Ducting Division at £52.0m is Senior's largest ever acquisition and brought into the Group Cork's composite, lightweight ducting technology, enabling Stainless Steel Products (SSP), California, to offer the market a comprehensive range of metal and composite ducting systems for aerospace applications. The acquisition also significantly increased the Group's exposure to the fast-growth regional and business jet markets and to Airbus. Cork's Ducting Division operates on three sites, two in the UK and one in Wichita, Kansas. We expect to retain and develop each of these locations. During May, we disposed of our non-core Precision Tube and Heat Treatment businesses to Tyco and Aalberts Industries respectively for a total of £56.2m. These disposals of non-Flexonics operations significantly reduced our exposure within the weak UK manufacturing sector and generated funds necessary to finance our planned acquisition programme in the second half of the year. In 2000, approximately 96% of total turnover will be represented by Flexonics, compared to some 89% in 1999 and 54% in 1996. Over the last three years, this growth in Flexonics has been accompanied by two other fundamental changes in the Group's shape and character; firstly, a trebling of our aerospace business as a proportion of total sales, to an estimated 33% in 2000 and, secondly, a dramatic shift of emphasis from the UK, which represented 33% of turnover in 1996 (excluding Thermal Engineering), to the North American market, which accounted for 54% of 1999's sales, with the UK having fallen to 14% of continuing business, even post the Cork acquisition. Despite the disappointing profit result in 1999, these major strategic shifts have created a focused, soundly-based and dynamic business, attractively positioned to exploit the growth opportunities in our target markets. We have restructured the senior management of the Group, moving from a geographical to a market focus, with the three major operating Divisions now structured as Aerospace, Automotive and Specialised Industrial. Asia, whilst reported within Specialised Industrial, remains a geographical Division, managed by locally-based staff, and will continue to operate on this basis until we have established the necessary degree of critical mass in the region. We have also substantially reduced the central overhead structure to reflect our changing priorities. In particular, we have recognised the opportunity offered by the disposal of the bulk of the former Engineered Products & Services Division to streamline our corporate structure on both sides of the Atlantic. Additionally, we have reduced the level of resource invested in the Group's acquisition programme, reflecting the increased emphasis on developing the existing business, including our recent acquisitions. The accounting difficulties at Ketema were, clearly, a major setback which undermined the financial performance of the Group in 1999. Urgent action has been taken to lower Ketema's cost base and the total labour force has been reduced by 25%, representing 160 employees. An independent review of the events leading to these difficulties has been carried out by Ernst & Young, the recommendations from which are now being implemented at Ketema and around the Group. We continue to have confidence in the ability of Ketema to grow its aerospace and turbine business profitably in the future. The company has more than doubled its turnover in the three years of Senior's ownership. This rapid growth created an urgent need for the expanded state-of-the-art manufacturing facility completed during the first half and which now provides Ketema with ample capacity to meet market demands. There are encouraging signs too, that fresh funding for the suspended Kistler/Aerojet contract (relating to re- usable satellite launch vehicles) may shortly be secured, enabling this substantial order to be satisfactorily completed. Elsewhere within Aerospace, the cyclical downturn began to gather pace, leading to widespread destocking. Growth in the Division's space market also dipped temporarily as the commercial satellite launch schedules and various US government programmes slowed. Aerospace in Europe, where the Group is rapidly building its presence, continued to grow robustly on the back of Airbus' increasing share of the global commercial jet market. The smaller but high value regional and business jet markets, where Senior is also significantly strengthening its representation, saw good growth world-wide and should continue to develop favourably. The North American commercial jet cycle will continue to edge downwards to 2002 but to a higher plateau than in previous cycles, from which further steady growth is then expected as the Asian market, especially for large aircraft, begins to recover its momentum. During the year, the Division's operations increasingly demonstrated their ability to win substantial long-term contracts for complete systems, often replacing several different smaller suppliers. Certain up-front costs, often heavy, related to development and initial production have been written off as they occurred and impacted on 1999's performance. However, these contracts are expected to produce attractive longer-term profits for the Group. Jet Products, purchased in late 1998, had an encouraging year, given the softening of its North American market, and is now beginning to develop significant European activity. In Automotive, the continuing strength of the North American market (up 8% in volume terms in 1999 to a new record) and our strong market position underpinned another very satisfactory performance. Legislative pressures world-wide, designed to compel improved environmental performance from the industry, continued to tighten. Air inductor reactor (AIR) tubes, newly introduced by General Motors in 1999, are already a significant proportion of our total automotive business and, although 2000 will see some temporary reduction from the initial launch volumes, on customer projections, they will be a major contributor to the Division's expansion from 2003 onwards. The Division made some significant steps forward in the UK (with our first order from Honda), France (with our first order from PSA Citroen), Germany and Italy. The Group expects no significant adverse effects from BMW's recently announced plans to dispose of the bulk of its investment in Rover. Specialised Industrial had a difficult year. This Division has a significantly higher exposure in Europe, where poor levels of manufacturing activity in the major continental economies reduced volumes and margins, particularly at the lower value-added end of our product range. We expect increasingly to move elements of production from high cost environments to existing low cost locations (e.g. India, Poland). A substantial rationalisation programme, both of sites and personnel, reduced the Division's cost base and this process will continue at a more modest level in 2000. Overall, the current year has started more brightly, with several of our key industrial markets, including semi-conductor manufacturing (bellows) and petrochemical refinery projects (expansion joints) now entering a strongly positive cycle after a long period in the doldrums. Sales to the semi- conductor market in North America and Japan in Quarter 4 were running at double the level of twelve months previously. In the petrochemical sector, the substantial expansion joint market follows world oil prices rather than demand. The rapid escalation of oil prices over the last six months to 12 year highs, from previously very depressed levels, has fed a rapid increase in enquiries and, in early 2000, orders, in a business where Senior has established world leadership following its acquisition of Pathway. Senior supplies this market from sites in North America, the UK, Brazil and Denmark. The Asia Division made useful progress from its low base. The overall economy is clearly on the mend, though not yet back to pre-crisis levels. Our investment in Techno Flex, with its wide range of manufacturing facilities within Japan, China and Vietnam, offers a range of attractive strategic options as we develop our presence in the Japanese market. Techno Flex already purchase and distribute product from other Senior operations, for example PTFE components from SF-European Hose (Sweden). In the second half of the year, the Group officially opened our Tokyo sales office, reporting to the Division director in Singapore and operated by local staff with expertise in our major market segments. This is a considerable long-term investment for Senior and is essential if the major commercial opportunity which the Japanese market represents is to be effectively exploited. Asia is believed to represent some 20% of our potential world market (two thirds of this in Japan) but still accounts for less than 2% of Group turnover. FINANCIAL REVIEW Performance The trading performance of the Group, as demonstrated by reference to the operating profit arising from continuing operations before exceptional items and goodwill amortisation, shows profits £8.7m lower than the reported level last year at £39.1m. However, if 1998 is restated to exclude the overstatement of profit at Ketema estimated for last year at £8.6m, the 1998 performance is reduced to £39.2m. On that comparison, the profitability in 1999 was largely unchanged, indicating that the additional contribution from acquisitions during the last two years was offset by lower profitability in the existing businesses. A 'like for like' comparison which adjusts for the impact of acquisitions across both years and measures the results at same exchange rates, confirms profits from underlying businesses to have reduced by 17.2% to £31.7m (1998: £38.3m) on sales 2.0% lower at £388.9m (1998: £396.9m). This performance reflects the difficult market conditions within Specialised Industrial and the flattening demand in Aerospace, offset in part by the continued progress within Automotive, particularly in North America. Exceptional charges of £31.8m, arose during the year. These charges comprise £12.8m required to eliminate the original goodwill on the German Air Systems businesses following a review of their realisable value, £10.5m to reflect an estimate of 1998 and 1997 losses at Ketema (previously masked by accounting irregularities), and reorganisation and rationalisation costs of £8.5m which enabled the Group to lower its after tax cost base. The sale of Precision Tube and Heat Treatment gave rise to losses on disposal of £25.1m of which £21.1m related to the write off of the original goodwill previously charged direct to Reserves. Up to date of sale in May 1999 these discontinued operations reported operating losses including rationalisation costs of £0.8m (1998 full year: profit £4.9m) on sales of £31.6m (1998 full year: £98.8m). The Group has therefore reported an overall loss before tax of £26.8m (1998: profit £49.5m) on sales of £496.8m (1998: £509.6m). The segmental information in Note 1 confirms that the downturn has affected all geographical markets but also highlights the increasing proportion of sales now generated from within more buoyant North America at 60% of continuing operations (1998: 44% of total Group). The Group's effective tax rate, as measured against profit before amortisation and impairment of goodwill and before losses on disposal has decreased to 27.1% (1998: 28.0%) but reflects US tax relief arising on the prior years' losses at Ketema, without which the rate would have been 28.5%. Underlying earnings per share (see Note 3) has reduced from 10.06p (if adjusted for Ketema, previously 11.75p) in 1998 to 6.03p in 1999. Cash Generation Despite the more difficult environment, the Group has continued with its substantial capital expenditure programme, increasing the spend for continuing operations, particularly Aerospace, to £30.8m (1998: £27.2m), which together with net cash outflow from acquisitions and disposals of £36.5m has contributed to the Group's net debt increasing to £140.8m (1998: £78.6m). Whilst this represents gearing of 104% under FRS 10, the Group maintains adequate ongoing annualised interest cover of over 6 times. Treasury The Group maintains prudent and conservative treasury policies. These policies and their compliance are reviewed and monitored by the Group's Treasury Committee which updates the Board on a regular basis. The major treasury related risks are considered to be currency exposures, adequacy of funding and interest rate fluctuations. 1. Currency Exposures (i) Transaction exposure: The Group has a policy of covering the exchange exposures which arise through normal trading on a rolling 12 month basis. As the majority of the Group's businesses trade predominantly in their local currency, the exposure and hence the related hedging activities are not deemed material to the Group. (ii) Overseas earnings: The Group does not hedge the effects of currency variations on the translation of its overseas earnings into sterling. The change in average exchange rates has increased current year reported turnover and operating profit by £3.0m and £0.7m, respectively. (iii) Overseas assets: The Group continues to hedge exchange exposures that arise on translation of its overseas assets (including goodwill) into sterling through forward sale agreements and loans denominated in those currencies. At 31 December 1999 this policy gave rise to the Group having covered 77% of its foreign denominated assets. The total nominal sterling value of forward contracts at the year end was £56.0m (1998: £39.4m). 2. Adequacy of Funding The Group's overall policy is to ensure that, as a minimum, all projected net borrowing requirements are covered by medium and long-term committed facilities, supplemented where appropriate by overdraft facilities. As at the year end the Group had total facilities of £230m (including £165m committed) of which a total of £80m was unused. 3. Interest Rate Fluctuations In managing exposure to interest rate changes the Group operates with a majority of its debt at fixed interest rates. At the year end, US$105m (£65m) was specifically drawn down at fixed interest rates and a further £30m was the subject of fixed interest rate 'swaps', providing a total of 63% of effectively fixed interest bearing debt. In 1998 the Group also fixed the interest position on $50m ahead of completing a $75m private debt placement. This 'interest lock', if 'marked to market' at the year end, together with the 'swaps' explained above would give rise to the disclosure of an additional liability of £1.7m. Assuming no change in the Group's borrowing profile, a global increase in interest rates of 1 per cent would increase the Group's interest charge for 2000 by £0.5m. The interest rates on the debt finance combined with the estimated cost of the equity base produced a weighted average cost of capital for the Group estimated at 11.7% before tax. The Group's return achieved on that capital, after adding back exceptionals and goodwill amortisation, was a gross 12.5% (1998: 19.2%). Senior plc Group Profit and Loss Account For the year ended 31 December 1999 1998 £m £m -------- -------- Turnover Existing operations 446.7 410.8 Acquisitions 18.5 -------- Total continuing operations 465.2 Discontinued operations 31.6 98.8 -------- -------- 496.8 509.6 ======== ======== Operating profit before exceptional items and goodwill amortisation Existing operations 37.5 47.8 Acquisitions 1.6 -------- Total continuing operations 39.1 Discontinued operations (0.2) 5.1 -------- -------- 38.9 52.9 -------- -------- Exceptional items and goodwill amortisation Losses, primarily in respect of prior periods (10.5) - Reorganisation and rationalisation charges - continuing operations (7.9) (0.7) - discontinuing operations (0.6) (0.1) Impairment of goodwill (12.8) - Amortisation of goodwill (3.6) (1.1) -------- -------- (35.4) (1.9) -------- -------- Total operating profit Existing operations 4.1 46.1 Acquisitions 0.2 -------- Total continuing operations 4.3 Discontinued operations (0.8) 4.9 -------- -------- 3.5 51.0 Share of operating profit in associate 0.7 - Amortisation of goodwill arising on acquisition of associate (0.2) - (Loss)/profit on sale of fixed assets - continuing operations (0.3) 0.6 - discontinued operations - 0.3 Loss on disposal of discontinued operations (including goodwill of £21.1m previously written off to reserves) (25.1) - -------- -------- (Loss)/profit on ordinary activities before interest and taxation (21.4) 51.9 Interest receivable 3.1 2.9 Interest payable (8.5) (5.3) -------- -------- (Loss)/profit on ordinary activities before taxation (26.8) 49.5 Tax on profit on ordinary activities (4.1) (14.2) -------- -------- (Loss)/profit for the financial year (30.9) 35.3 Dividends (14.9) (14.3) -------- -------- (Loss)/profit for the year (45.8) 21.0 ======== ======== (Loss)/earnings per share Basic (10.08)p 11.61p Diluted (10.06)p 11.54p Underlying 6.03p 11.75p ======== ======== Dividends per share 4.88p 4.69p ======== ======== Group Statement of Total Recognised Gains and Losses For the year ended 31 December 1999 1998 £m £m -------- -------- (Loss)/profit for the financial year (30.9) 35.3 Currency translation differences on overseas assets and goodwill (4.5) (2.0) Tax on realised foreign exchange profits (0.6) - -------- -------- Total recognised gains and losses relating to the year (36.0) 33.3 ======== ======== There is no material difference between the (losses)/profits as reported and those (losses)/profits restated on an historical cost basis. Senior plc Group Balance Sheet At 31 December 1999 1998 £m £m -------- -------- Fixed assets Intangible assets - goodwill 113.3 53.1 Tangible assets 104.2 125.3 Investments 8.7 0.6 -------- -------- 226.2 179.0 -------- -------- Current assets Stocks 63.1 75.6 Debtors 109.1 121.1 Investments - bank deposits - 8.6 Cash 9.6 23.2 -------- -------- 181.8 228.5 Creditors: Amounts falling due within one year (115.3) (135.7) -------- -------- Net Current assets 66.5 92.8 -------- -------- Total assets less current liabilities 292.7 271.8 Creditors: Amounts falling due after more than one year (154.3) (115.8) Provisions for liabilities and charges (2.7) (3.5) -------- -------- Net assets 135.7 152.5 ======== ======== Capital and reserves Called-up share capital 30.7 30.7 Share premium 3.4 3.1 Other reserves 17.7 19.2 Profit and loss account 83.8 99.3 -------- -------- Shareholders' funds 135.6 152.3 Minority interests - equity 0.1 0.2 -------- -------- Total capital employed 135.7 152.5 ======== ======== Senior plc Group Cash Flow Statement For the year ended 31 December 1999 1999 1998 1998 £m £m £m £m ------ ------ ------ ------ Net cash inflow from operating activities 36.8 75.2 Dividend income from associate 0.1 - Returns on investments and servicing of finance Interest received 1.3 2.4 Interest paid (8.0) (4.6) ------ ------ Net cash outflow from returns on investments and servicing of finance (6.7) (2.2) Taxation UK corporation tax recovered/(paid) 2.9 (2.9) Overseas tax paid (12.0) (11.5) ------ ------ (9.1) (14.4) Capital expenditure and financial investments Purchase of tangible fixed assets (35.6) (37.5) Sale of property, plant and equipment 4.9 2.4 Own shares purchased by the Employee Benefit Trust (0.6) (1.0) Maturity of investments - bank deposits 8.0 3.1 ------ ------ Net cash outflow from capital expenditure and financial investments (23.3) (33.0) Acquisitions and disposals Purchase of subsidiary undertakings (63.7) (63.7) Purchase of associated undertaking (6.8) - Net (debt assumed)/cash acquired with subsidiary undertakings (20.3) (3.8) Sale of businesses 54.1 - Net (cash)/debt disposed on sale of businesses 0.2 - ------ ------ Net cash outflow from acquisitions and disposals (36.5) (67.5) Dividends paid on ordinary shares (14.5) (13.4) Management of liquid resources Maturity of short-term deposits - 7.1 ------ ------ Net cash inflow from management of liquid resources - 7.1 Financing Share issues 0.3 0.1 New loans initiated by Group 83.7 82.7 Repayment of existing loans (45.5) (24.1) ------ ------ 38.2 58.6 ------ ------ (Decrease)/increase in cash in the period (14.7) 10.5 ====== ====== Senior plc Notes: 1 Segment Information Group turnover, operating profit and net assets are analysed as follows: a) By geographical market Turn- Turn- Turn- Turn- Oper- Oper- Net Net over by over by over over ating ating assets assets destin- destin- by by profit profit ation ation origin origin by origin by origin 1999 1998 1999 1998 1999 1998 1999 1998 £m £m £m £m £m £m £m £m ------- ------- ------ ------ ------ ------ ----- ------ North America 255.4 216.5 280.7 225.6 24.1 35.4 86.6 75.4 United Kingdom 66.0 62.9 84.4 85.4 0.9 8.4 32.6 22.2 Rest of Europe 111.2 108.4 88.8 91.6 (4.1) 3.5 28.3 32.1 Rest of World 38.0 26.8 16.5 12.0 (0.2) (0.2) 6.9 4.9 ------ ------ ----- ----- ------ ------ ----- ------ Total 470.6 414.6 470.4 414.6 20.7 47.1 154.4 134.6 Inter- segment sales (5.4) (3.8) (5.2) (3.8) - - - - ------- ------- ------ ------ ------ ------ ----- ------ Total continuing operations 465.2 410.8 465.2 410.8 20.7 47.1 154.4 134.6 Discontinued operations 31.6 98.8 31.6 98.8 (0.8) 5.0 4.5 44.1 ------ ------ ----- ----- ------ ----- ----- ------ 496.8 509.6 496.8 509.6 19.9 52.1 158.9 178.7 Amortisation of goodwill - - - - (3.6) (1.1) - - Impairment of goodwill - - - - (12.8) - - - ------ ------ ----- ----- ------ ----- ----- ------ 496.8 509.6 496.8 509.6 3.5 51.0 158.9 178.7 ====== ====== ===== ===== ====== ===== ===== ====== Discontinued operations reflect the turnover and operating results of the Heat Treatment and Precision Tube businesses sold in May 1999. Operating profit of £3.5 million (1998 - £51.0 million) is stated after charging £10.5 million, primarily in respect of prior years' losses at a North American subsidiary (see below) and £8.5 million (1998 - £0.8 million) in respect of significant reorganisation and rationalisation activities. This comprises North America £1.2 million (1998 - £ nil), UK £4.5 million (1998 - £0.4 million), Rest of Europe £2.2 million (1998 - £0.3 million) and discontinued operations £0.6 million (1998 - £0.1 million). Exceptional adjustments totalling £10.5 million have been made to cost of sales as a result of investigations made following the discovery by the Group of certain accounting irregularities at its Ketema subsidiary in North America. The adjustments relate to an over-valuation of stocks at the end of 1998 following the implementation of a new computerised accounting system and a reassessment of the appropriate level of engineering and other costs relating to contracts which should be carried forward in work-in-progress at that date. Included within administrative expenses is an exceptional write-off of £12.8 million through the Profit and Loss Account relating to the impairment of goodwill, previously written off to reserves, arising on the original acquisition of Nordklima Luft-und Warmetechnik GmbH, Polenz GmbH and the business, trade and assets of KesslerTech. b) Net assets reconciliation 1999 1998 £m £m ------- ------- Net assets, as above 158.9 178.7 Unallocated liabilities, net (3.7) (0.7) Intangible assets - goodwill 113.3 53.1 Investment in associated undertaking 8.0 - Net borrowings (140.8) (78.6) ------- ------- Net assets, per Balance Sheet 135.7 152.5 ======= ======= c) The Group has not presented segmental information by class of business as, in the opinion of the Directors, disclosure of this information would be prejudicial to the interests of the Group. 2 Dividends The proposed final dividend is at the rate of 3.04p per share (1998 - 2.92p) making 4.88p for the year (1998 - 4.69p) and if approved, will be payable on 5 June 2000 to shareholders on the register at the close of business on 2 May 2000. 3 Earnings per Share The calculation of basic earnings per share and underlying earnings per share are shown below and have been based on the weighted average number of shares in issue and ranking for dividend during 1999. Diluted earnings per share allow for future exercise of all outstanding share options. The provision of an underlying earnings per share has been included to identify the performance of operations before losses, primarily in respect of prior periods, impairment and amortisation of goodwill, loss or profit on sale of fixed assets and loss on disposal of discontinued operations. Total Total Underlying Underlying Group Group earnings earnings 1999 1998 1999 1998 £m £m £m £m ------ ------ ------ ------ Operating profit before exceptional items and goodwill amortisation 38.9 52.9 38.9 52.9 Reorganisation and rationalisation charges (8.5) (0.8) (8.5) (0.8) Losses, primarily in respect of prior periods (10.5) - - - Impairment of goodwill (12.8) - - - Amortisation of goodwill (3.6) (1.1) - - Share of operating profit in associate 0.7 - 0.7 - Amortisation of goodwill arising on acquisition of associate (0.2) - - - (Loss)/profit on sale of fixed assets (0.3) 0.9 - - Loss on disposal of discontinued operations (25.1) - - - Interest payable, net (5.4) (2.4) (5.4) (2.4) ------ ------ ------ ------ (Loss)/profit before taxation (26.8) 49.5 25.7 49.7 Taxation (4.1) (14.2) (7.2) (13.9) ------ ------ ------ ------ (Loss)/profit after taxation (30.9) 35.3 18.5 35.8 ====== ====== ====== ====== Weighted average number of shares - basic 306.1m 304.3m 306.1m 304.3m - diluted 306.8m 306.1m (Loss)/earnings per share - basic (10.08)p 11.61p - diluted (10.06)p 11.54p - underlying 6.03p 11.75p 4 Group Cash Flow Statement a) Reconciliation of operating profit to net cash inflow from operating activities 1999 1998 £m £m ------ ------ Group operating profit 3.5 51.0 Depreciation of tangible fixed assets 17.0 15.8 Amortisation of goodwill 3.6 1.1 Impairment of goodwill 12.8 - Decrease/(increase) in stocks 6.9 (4.7) Decrease/(increase) in debtors 0.6 (1.9) (Decrease)/increase in creditors (7.8) 13.6 Working capital currency variations 0.2 0.3 ------ ------ Net cash inflow from operating activities 36.8 75.2 ====== ====== The net cash inflow from operating activities includes an outflow of £12.2 million (1998 - inflow £14.6 million) in respect of discontinued activities. b) Reconciliation of net cash flow to movement in net debt 1999 1999 1998 1998 £m £m £m £m ------- ------- ------- ------- (Decrease)/increase in cash in the period (14.7) 10.5 Increase in loans (38.2) (58.6) Decrease in liquid resources - (7.1) Decrease in current asset investments due after one year (8.0) (3.1) ------- ------- Change in net debt resulting from cash flows (60.9) (58.3) Currency variations on net borrowings (1.3) (1.0) ------- ------- Movement in net debt in the period (62.2) (59.3) Net debt at 1 January (78.6) (19.3) ------- ------- Net debt at 31 December (140.8) (78.6) ======= ======= 5 Reconciliation of Movements in Shareholders' Funds Share Share Other reserves Profit Total Capital Premium ----------------------------- and loss account Revaluation Special Total account £m £m £m £m £m £m £m ------- ------- ------- ------- ------- ------- ------- At 1 January 1999 30.7 3.1 2.2 17.0 19.2 99.3 152.3 Loss for the financial year - - - - - (30.9) (30.9) Dividends - - - - - (14.9) (14.9) Share issues - 0.3 - - - - 0.3 Transfers - - (1.5) - (1.5) 1.5 - Goodwill - - - - - 33.9 33.9 Currency variations - - - - - (5.1) (5.1) ------- ------- ------- ------- ------- ------- ------- At 31 December 1999 30.7 3.4 0.7 17.0 17.7 83.8 135.6 ======= ======= ======= ======= ======= ======= ======= 6 Status of Financial Information The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 December 1999 or 1998 but is derived from those accounts. Statutory accounts for 1998 have been delivered to the Registrar of Companies, and those for 1999 will be delivered following the Company's Annual General Meeting. The Auditors have reported on those accounts; their reports were unqualified and did not contain statements under Sections 235, 237(2) or (3) of the Companies Act 1985.

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