Final Results

RNS Number : 1686G
Senior PLC
02 March 2015
 



Results for the year ended 31 December 2014

11% increase in adjusted PBT at constant currency.  Group outlook remains encouraging.

FINANCIAL HIGHLIGHTS

Year ended 31 December

% change

% change
(constant
currency)


2014


2013



REVENUE

£820.8m


£775.1m

+6%

 +11%

OPERATING PROFIT

£89.6m


£93.3m

-4%

+2%

ADJUSTED OPERATING PROFIT (1)

£111.6m


£107.6m

+4%

+10%

ADJUSTED OPERATING MARGIN (1)

13.6%


13.9%

-0.3ppts

-0.2ppts

PROFIT BEFORE TAX

£80.6m


£83.8m

-4%

+2%

ADJUSTED PROFIT BEFORE TAX (1)

£102.6m


£98.1m

+5%

+11%

BASIC EARNINGS PER SHARE

15.25p


17.22p

-11%


ADJUSTED EARNINGS PER SHARE (1)

19.84p


19.00p

+4%


TOTAL DIVIDENDS (PAID AND PROPOSED) PER SHARE

5.63p


5.12p

+10%


FREE CASH FLOW (2)

£57.8m


£63.8m

-9%


NET DEBT (2)

£105.0m


£59.2m

£45.8m
increase


 

(1)

Before acquisition costs of £0.6m (2013 - £0.4m), amortisation of intangible assets arising on acquisitions of £7.2m (2013 - £4.2m), impairment of inventory relating to the suspended L85 aircraft programme of £1.8m (2013 - £nil), restructuring costs of £1.5m (2013 - £1.9m), goodwill impairment charge of £9.4m (2013 - £12.7m), reversal of contingent consideration payable of £nil (2013 - £3.8m) and pension curtailment charge of £1.5m (2013 - £1.1m gain).

(2)

See Notes 11b and 11c for derivation of free cash flow and of net debt, respectively.

The Group's principal exchange rates for the US dollar and the Euro, applied in the translation of revenue, profit and cash flow items at average rates were $1.65 (2013 - $1.57) and €1.24 (2013 - €1.18), respectively.  The US dollar and Euro rates applied to the balance sheet at 31 December 2014 were $1.56 (2013 - $1.66) and €1.29 (2013 - €1.20), respectively.

Group Highlights

-

A healthy set of results delivering continued growth

-

Adjusted profit before tax of £102.6m, 5% ahead of prior year (11% on a constant currency basis)

-

Strong organic growth in large commercial aerospace and North American heavy trucks

-

Good cash flows resulted in a prudent level of net debt, after funding the Upeca acquisition

-

Upeca brings new capabilities and geographic exposure to the Group

-

Full year dividend proposed to increase by 10%

-

New CEO, David Squires, appointed and joining Senior on 1st May 2015

-

Group outlook remains encouraging

Commenting on the results, Mark Rollins, Chief Executive of Senior plc, said:

"2014 was another year of healthy progress.  Adjusted profit before tax increased by 5% and adjusted earnings per share by 4%, largely driven by organic revenue growth in large commercial aerospace, a good performance from the Flexonics Division and the first contribution from Upeca, which was acquired in April 2014.  Continued positive operating cash flows resulted in a net debt to EBITDA ratio of 0.8 times at year-end, leaving the Group well placed for future organic and acquisitive growth.  This strong financial position, combined with a healthy outlook for the Group's most important market sector, large commercial aircraft, gives the Board the confidence to recommend a 10% increase in the full year dividend for 2014."

For further information please contact:

Mark Rollins, Group Chief Executive, Senior plc

01923 714738

Derek Harding, Group Finance Director, Senior plc

01923 714722

Bindi Foyle, Head of Investor Relations & Leadership Development, Senior plc

01923 714725

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 2014, together with other information on Senior plc, may be found at: www.seniorplc.com

The information contained in this Release is an extract from the Annual Report & Accounts 2014, however, some references to Note and page numbers have been amended to reflect Note 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 2014.  Therefore, certain Notes and parts of the Directors' Report reported on are not included within this Release.

Note to Editors

Senior is an international manufacturing Group with operations in 14 countries.  It is listed on the main market of the London Stock Exchange (symbol SNR).  Senior designs, manufactures and markets high technology components and systems for the principal original equipment producers in the worldwide aerospace, defence, land vehicle and energy markets.

Cautionary Statement

This 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 underlying any such forward-looking information.

CHAIRMAN'S STATEMENT

"Senior delivered a HEALTHY performance during 2014 AND IS WELL POSITIONED FOR THE FUTURE"

2014 Performance

Senior delivered another year of progress in 2014, with adjusted profit before tax increasing to £102.6m, up 5%, or 11% on a constant currency basis, over the prior year.  This was mainly due to encouraging organic revenue growth in the large commercial aerospace and North American heavy-duty truck markets, operational improvements in the Flexonics Division and inclusion of the newly acquired Upeca Technologies ("Upeca").  Elsewhere, the previously discussed challenges and costs associated with the industrialisation of new aerospace programmes continued throughout the year and certain industrial markets, such as Brazil and Europe, remained weak.  Further, on 20 January 2015, Bombardier informed all of its suppliers of the suspension of its Learjet 85 ("L85") business jet programme which resulted in the Group taking non-cash non-recurring exceptional charges of £1.8m and recognising a £9.4m goodwill impairment in 2014.

Group cash generation was good, with free cash flow of £57.8m for the year resulting in a strong financial position for the Group at the end of 2014.  Accordingly, the Board is proposing a final dividend of 3.96 pence per share which would bring total dividends, paid and proposed, for 2014 to 5.63 pence per share.  The increase of 10% over 2013 is ahead of the increase in adjusted earnings per share reflecting the Group's encouraging prospects and dividend cover of 3.5 times.

These underlying results reflect Senior's strong niche market positions, its focus on tough-to-make, highly engineered products and the continued emphasis on serving its customers by delivering excellent operational performance where on-time delivery, quality and value are all key measures.

Acquisitions

As well as growing organically, Senior seeks to increase shareholder value through the acquisition of capabilities adjacent to its existing portfolio.  This strategy continued in 2014 with the acquisition of Upeca, a Malaysian-based manufacturer of high-precision engineered components serving the aerospace and energy sectors.  Upeca has two manufacturing facilities in Malaysia, one selling to the aerospace industry and the other to the energy market, and a third facility in China, which specialises in energy applications.  Upeca employs around 650 people and the Board is delighted to welcome these employees to the Group.

Sustainability

Environmental stewardship and corporate responsibility are values core to Senior and performance in these areas is increasingly important to our investors, customers and employees.  As the Group expands, the responsibility to improve the environmental performance and strengthen the focus on safety within newly acquired businesses is a key operational aim.  Consequently, this year's annual report includes examples of how Senior creates value through its acquisitions by making them more efficient, environmentally responsible and safer businesses.  This year the Group achieved its long-term goal of improving the energy efficiency of its operations, the single largest component of Senior's carbon-footprint, and remains on track to achieve its long-term target for safety.

Changes to the Board

In August 2014, it was announced that Mark Rollins, Group Chief Executive, had decided to retire from a full-time executive career during the first half of 2015.  Following a thorough recruitment process, undertaken by the Board's independent directors, David Squires was announced as his successor in January this year.

David joins Senior from Cobham plc ("Cobham"), where he is currently its Chief Operating Officer.  David will join Senior and the Board on 1 May 2015 as Group Chief Executive-designate, before taking over as Group Chief Executive on 1 June 2015 when Mark Rollins leaves the Group.  David clearly has the depth and breadth of experience, together with the personality and drive, to lead Senior through the next stage of its development.  I am confident Senior will continue to make strong progress under his leadership.  In particular, his 25 years of experience in the global aerospace and defence industry, working in both developing and larger organisations, will be a significant benefit to Senior as it grows and increases its profile with its customers.

Mark Rollins has made an enormous contribution to Senior in a career spanning 17 years, including 15 years on the Board, initially as Group Finance Director and then, for the past seven years, as Group Chief Executive.  In this time, Senior has been transformed from a lowly rated, industrial conglomerate to a quality global engineering business, focused on the aerospace, defence, land vehicle and energy markets.  The Group's financial performance and market capitalisation have increased significantly during this period and Mark leaves the Group in good health, with encouraging prospects for continued, long-term growth.  On behalf of the Board, I would like to thank Mark for his dedicated and successful service throughout his Senior career and to wish him all the very best for a long and fulfilling retirement.

Employees

Senior's continued strength is a reflection of the quality of the people within the Group.  Senior now employs over 7,400 people with around 1,200 located in Asia, demonstrating the ever-increasing global nature of the Group.  On behalf of the Board, I would like to thank all of the Group's employees for their significant contribution to Senior's success over the past year.

Strategy

The Group continues to operate in its five strategic market sectors: three in Aerospace (Fluid Conveyance Systems, Gas Turbine Engines and Structures) and two in Flexonics (Land Vehicle Emission Control and Industrial Process Control), with each strategic market sector offering deliverable growth opportunities.  The Group's strategy has proven to be successful over recent years and, whilst evolving as the Group gets larger and market conditions change, it continues to provide a solid foundation for the Group's future growth aspirations.

Outlook

Overall, progress is expected to be made across the Group's operations during 2015, with the growing large commercial aircraft market, the healthy North American heavy-truck market and the Group's growing presence in Asia being the anticipated key drivers.  The challenges associated with the successful industrialisation of new aerospace programmes and weak industrial sales in Brazil and Europe are, however, expected to continue into 2015.  In addition, the recent suspension by Bombardier of its L85 business jet programme is expected to have an adverse impact on the ongoing performance of one of the Group's smaller aerospace operations.

Looking further ahead, a number of new aerospace programmes going into production and build-rate increases, together with economic recovery and expected market share gains in both the Aerospace and Flexonics Divisions, mean the outlook for Senior remains encouraging.

CHARLES BERRY

Chairman

CHIEF EXECUTIVE'S STATEMENT

"2014 SAW CONTINUED progress in delivering the Group's strategy, LEAVING senior WITH ENCOURAGING PROSPECTS FOR THE FUTURE"

2014 Financial Results Summary

2014

2013

Change

Constant
currency


Revenue

£820.8m

£775.1m

+6%

+11%

(1)

Adjusted operating profit

£111.6m

£107.6m

+4%

+10%

(2)

Adjusted operating margin

13.6%

13.9%

-0.3ppts

-0.2ppts

(3)

Adjusted profit before tax

£102.6m

£98.1m

+5%

+11%


Adjusted earnings per share

19.84p

19.00p

+4%



Total dividend per share

5.63p

5.12p

+10%



Free cash flow

£57.8m

£63.8m

-9%



Net debt

£105.0m

£59.2m

£46m
increase



 

(1)

Organic revenue (excluding acquisitions) increased by 5% on a constant currency basis.

(2)

Organic adjusted operating profit (excluding acquisitions) increased by 4% on a constant currency basis.

(3)

Organic adjusted operating margin (excluding acquisitions) is 13.7% (2013 - 13.8% on a constant currency basis).

The Group delivered another healthy set of results in 2014, with the commercial aerospace market continuing to see strong growth and demand improving in the Group's North American heavy-truck market.  Group revenue increased by £45.7m (5.9%) to £820.8m (2013 - £775.1m).  Excluding a year-on-year unfavourable exchange impact of £37.1m, underlying revenue from organic operations, excluding acquisitions, increased by 5.4% on a constant currency basis.

Adjusted operating profit increased by £4.0m (3.7%) to £111.6m (2013 - £107.6m).  Incremental operating profit from acquisitions of £5.2m was more than offset by an unfavourable exchange impact of £5.7m.  Organic adjusted operating profit increased by 4.4%, on a constant currency basis, mainly due to the increase in organic operations' revenue and operational improvements in the Flexonics Division.  This more than offset the costs associated with the ongoing industrialisation of new aerospace programmes, although the Group's adjusted operating margin of 13.6% in 2014 (2013 - 13.9%) was impacted.

Group reported operating profit decreased by 4.0% to £89.6m (2013 - £93.3m).  A reconciliation between reported and adjusted operating profit is included in the Financial Review.

The underlying tax rate in 2014 was 19.5% (2013 - 19.7%) and adjusted earnings per share increased by 4.4% to 19.84 pence (2013 - 19.00 pence).

The Group continues to be strongly cash generative and delivered free cash flow of £57.8m in 2014 (2013 - £63.8m), after net capital expenditure of £30.9m (2013 - £28.8m).  The level of net debt at the end of 2014 was £105.0m (2013 - £59.2m), higher than at the start of the year primarily due to the acquisition of Upeca in April 2014 for £74.4m.  The year end net debt level represents 0.8 times EBITDA and leaves the Group well placed to fund future organic and acquisitive growth.

Delivery of Group Strategy

The Group continued to make good progress during 2014 in delivering its strategy.

The acquisition of Upeca in April strengthens Senior's presence for aerospace and energy products in the fast-growing Asian region, enabling the Group to better meet its customers' requirements for in-region suppliers and cost-competitive solutions.  Upeca has two manufacturing facilities in Malaysia, one selling to the aerospace industry and the other to the energy market, and a third facility in China, which specialises in energy applications.

Organic investment in growing market share and winning new programmes remains a key strategic focus for Senior.  The Group's customers increasingly operate on a global basis and it is important that Senior is able to support them across the world.  In Asia, construction work is well advanced on the new 196,000 sq.ft. facility in Thailand, with £1m invested in 2014 and a further £9m expected over the next two years.  This facility, which will include processing capabilities, is scheduled to be operational in the middle of 2015.  In India, the Group has recently signed a lease on a new 26,000 sq.ft. facility to support a recently won EGR cooler contract for a customer who has established a new production operation in India.  It is anticipated that £1m will be invested during 2015 to support this programme.  In North America, an additional 59,000 sq.ft. leased facility has been constructed for the Group's SSP operation in California to meet the future A320neo and CSeries production demands.  £0.3m was invested during the year and a further £3.7m is anticipated to be required over the next two years.  In July 2014, the Group announced that it was to set up a satellite factory adjacent to Boeing's facility in South Carolina, to assemble Boeing 787 parts.  This facility opened in February 2015 and represents an investment of around £1m.  More generally across the Group, investment in production equipment to meet the growing volumes in the commercial aerospace industry is increasing, with the next 12 months expected to see capital expenditure levels running at a modestly higher rate than recently.

Operating in successful end markets and being aligned with the right customers is key to Senior's future growth prospects.  The Group's most important market is large commercial aircraft, now representing 38% of Group sales, where Boeing and Airbus collectively delivered 1,352 aircraft in 2014, 6% more than the prior year, and booked a record 2,888 net orders.  Their combined order book of 12,175 aircraft represents a very healthy nine years' production at current build rates, meaning good growth can be expected in the future.

In industries where customers have choices with whom they do business, Senior's on-time delivery and quality record and its cost-competitiveness are key to the Group gaining market share and winning work on new programmes.  Accordingly, great focus is placed at each operation on using Lean principles, such as Kaizen events, to deliver operational improvements to reduce costs, improve product flow, optimise use of resources and improve safety.  Senior's financial strength allows the Group to remain at the forefront in this regard with increases in the shipset value on the B737, B787, A320, A330, B777, A380 and A350 during 2014.  This was achieved as new awards and the inclusion of Upeca more than offset the effects of customer pricing pressures.  Furthermore, the Group now has 20% more content on the B737 MAX and 37% more on the A320neo than the current B737 and A320 aircraft, respectively, providing tangible evidence of Senior's success in delivering its strategy.

Recruiting and developing good leaders is arguably the most critical aspect to the Group's future success.  Senior's culture is one of empowered entrepreneurial leadership operating within a fixed control framework, where timely communication of both good and bad news is expected, and success is recognised and fairly rewarded.  Over the past six years, the Group Development Programme, which is personally important to me, has been successfully expanded and increasingly focused on leadership development.  During 2014, the Programme was further enhanced with the introduction of a senior executive programme for potential future leaders and "Driving Innovation" workshops for all of the Group's operating company CEOs, both held in conjunction with Ashridge Business School.

Corporate Responsibility

Corporate responsibility is a key part of how we do business at Senior and I am pleased to report continued progress in 2014.

We continue to improve our people training and development programmes and are increasing our cross-Group collaboration and sharing of best practices.  During the year, we introduced a Zero Harm initiative which is designed to further strengthen and embed the Group's safety culture.  Whilst 2014's safety record showed a marginal decline compared to the prior year, the Group's sustained focus on safety has resulted in the 2014 lost time injury rate being only 59% of the level reported in 2006, when the current safety programme was introduced.

Senior further reduced its carbon emissions in 2014, on an underlying basis excluding the acquisition of Upeca, and the environmental metrics also demonstrated healthy improvement, as the Group invested to reduce energy and water consumption.  Sustainability drives demand for many of our services and operating in an ethical and responsible manner is integral to our customer relationships.

The Group actively encourages its businesses to invest and support local communities and sponsor good causes and I am particularly proud of our staff for the contributions that they have made locally during 2014.

Retirement

After 15 years on the Board of Senior plc, I have, as announced in August 2014, taken the personal decision to retire from Senior and a full-time executive career.  The Board has now appointed my successor, David Squires, and I will be leaving the Group at the end of May 2015.  Whilst every business has challenges, it is pleasing to be leaving at a time when Senior is in good financial shape, with encouraging future prospects and a capable and stable management team in place.  In David, the Group has a new leader with the requisite personality, experience and energy to drive the business forward and I wish him the very best for the future.

Senior has come a long way in recent years and is a well-respected name in the industries in which it participates, something I take great pleasure in having been lucky enough to be part of.  This achievement is largely down to the high calibre of Senior's employees and I would like to take this opportunity to personally thank my colleagues, both past and present, for their hard work, dedication and support throughout my many enjoyable years at Senior.

Market Conditions

The production ramp-up of the A350, together with Boeing's and Airbus's plans to increase the build rates of their B787, B737 and A320 aircraft, mean the outlook for the large commercial aerospace sector, the Group's most important market, is both strong and visible.  In particular, the Group can expect to benefit from the greater content it has on the new-engine versions of the high-volume narrow-bodied aircraft, the A320neo and B737 MAX, which are scheduled to enter service in 2015 and 2017, respectively; production of the A330 is, however, planned to decrease in 2016.  Having world-class aerospace facilities in Asia is also expected to lead to increases in market share.  Consequently, the Group was pleased to achieve recent contract awards on the A350 and A320 at the newly acquired Upeca facility in Malaysia, and to be progressing as planned in bringing additional A350 and B787 work into production in Thailand during 2015.  Against this growing backdrop, pricing pressure remains a challenge, but is being managed in line with expectations.

Elsewhere in the Aerospace Division, the Group expects to benefit from the entry into service of Bombardier's CSeries aircraft, on which the Group has significant content, towards the end of 2015.  Senior also has good content on the Mitsubishi Regional Jet and Embraer E2-Jet, which are scheduled to enter service in 2017 and 2018, respectively.  After some difficult years, the outlook for military and defence, representing 12% of Group sales in 2014, appears to be stabilising with the rate of decline reducing in the second half of 2014.  Whilst Western Government spending in the military arena remains under pressure, increasing build rates on programmes such as the Joint Strike Fighter and the A400M military transporter should at least provide partial mitigation in the future.

New product introductions and build-rate ramps are constant themes across the Aerospace Division, with the challenges they bring expected to continue to impact a number of Senior's businesses, particularly SSP, during 2015 as the costs of the development activities are expensed as incurred.  In addition, Bombardier's decision to suspend activity on its L85 business jet programme is expected to have an adverse impact on the Group's small Composites business based in Wichita, USA.

In Flexonics, the outlook for Senior's "on-highway" land vehicle operations remains encouraging, with volumes of heavy-duty trucks and passenger vehicles increasing in a number of the Group's key markets during 2014 and expected to do so, albeit at a slower rate, in 2015.  Visibility of "off-highway" land vehicles for use in agricultural markets and mining operations is less clear as the slowing GDP growth rate in China impacts commodity prices.  These lower commodity prices are, however, likely to benefit the Group as stainless steel prices remain relatively benign.  The recent decline in the oil price, the ongoing difficulties at Petrobras and increased uncertainty in the eurozone means some softening in the Group's industrial activity is anticipated, particularly in Brazil and Germany.  Nevertheless, given a solid order-book, the first half of 2015 should see healthy sales of large expansion joints in North America.  Over the longer term, environmental legislation continues to tighten, which can be expected to provide greater demand for many of the Flexonics Division's products.

Around 80% of the Group's profits are generated outside of the UK and, consequently, exchange rates can significantly affect the Group's results.  Although the likely effect of foreign exchange movements is difficult to predict, the impact is expected to be beneficial at current exchange rates.

Outlook

Staying focused on customer alignment, operational excellence and our people, will enable Senior to continue to grow organically.  In addition, Senior's cash-generative nature and strengthening market and financial position provide a solid platform from which the Group can continue to pursue acquisitive growth opportunities to complement its existing portfolio.

Overall, progress is expected to be made across the Group during 2015 and, at current exchange rates, the Board anticipates the Group to perform in line with its expectations.  Senior also remains well positioned to make further progress in 2016 and beyond.

Mark Rollins

Group Chief Executive

DIVISIONAL REVIEW

AEROSPACE DIVISION

Senior continues to enjoy strong demand from the large commercial aircraft sector, where order books are at record levels.  The regional jet market is showing signs of improvement, while the business jet market remains satisfactory.  As anticipated, after recent declines, the military and defence sector is now stabilising.

Capabilities

●

Design and manufacture of systems for delivery of air, hydraulic fluids and fuel to critical airborne system functions in composite and metallic materials.

●

Design and manufacture of maintenance-free solutions for harsh operating environments.

●

Precision machining of complex products and assemblies for airframe structures and systems.

●

Provision of engine core, ancillary systems and related structural products to major gas turbine engine manufacturers.

●

Manufacturing hot- and cold-formed components, complex fabricated assemblies and thermal insulation heat shields and systems.

●

Global footprint enables in-region supply and cost-competitive solutions.

Large commercial aircraft

●

Organic revenue growth of 10%, underpinned by market share gains and increasing build rates of Airbus and Boeing large commercial aircraft platforms.

●

Upeca acquisition brings new capabilities and geographic exposure.

●

Boeing delivered 114 B787s in 2014 with production now at 10 per month, moving to 12 per month in 2016.

●

Record net order intake for Boeing and Airbus in 2014, not only for the re-engined B737 MAX and A320neo, but also the current engine versions of these platforms.

●

Build rate of A320 to increase to 50 per month in 2017 and B737 to increase to 52 per month in 2018.

●

First Airbus A350 was delivered in December 2014, with 32 expected in 2015.

●

At current build rates it will take over nine years to fulfil existing OEM order books.

Regional and business jets

●

Organic revenue from regional jet sector increased by 11%, with improvements coming from the Bombardier CRJ series and Superjet 100.

●

Senior's regional jet market revenue is expected to increase in the medium term as new platforms come to market, such as the Bombardier CSeries, Mitsubishi MRJ and Embraer E2-Jet.

●

Organic business jet revenue decreased by 4% due to lower large jet market deliveries.

●

Bombardier suspended development of its L85 business jet programme in January 2015.

Military aerospace

●

Organic revenue decreased by 7%, reflecting the anticipated reduction in demand for the V22 Osprey helicopter and the Eurofighter Typhoon.

●

2015 military revenue is expected to be more stable as the end of C-17 production, declines in V22 Osprey and CH47 Chinook are offset by increases in build rates of A400M.

●

Western Government spending in the military arena remains under pressure.

●

Beyond 2015, Joint Strike Fighter is scheduled to ramp-up significantly and A400M to reach full rate production.

Business Review

The Aerospace Division represents 65% (2013 - 65%) of Group revenue and consists of 19 operations.  These are located in North America (10), the United Kingdom (4), continental Europe (3), Thailand and Malaysia.

On 8 April 2014, Senior completed the acquisition of Upeca for a consideration of £59.1m plus the assumption of £15.3m of net debt.  One-third of Upeca's revenue is derived from the aerospace market which is generated by a stand-alone aerospace-focused facility.  This operation is now managed as part of Senior Aerospace Structures.

Elsewhere, construction work is well advanced on new facilities in Thailand and at SSP.  A new facility supporting Boeing's 787 operations in South Carolina opened in February 2015.

As previously reported in October 2014, the Group's Mexican Aerospace facility suffered a fire which destroyed one of its two buildings.  Thanks to the significant efforts of local management and employees, 85% of the operation's revenue was back in production within 3 weeks, with the remainder expected to come on stream during the first half of 2015.

In November 2013, the decision was taken to merge Capo Industries into the Group's Ketema operation.  This decision resulted in an exceptional provision of £1.9m being charged in 2013.  As discussed at the time of the 2014 interim results, the consolidation of the businesses took longer and was more costly than expected and the provision was fully utilised during 2014.  In addition, a further £1.5m exceptional cost was charged in 2014.  The merger has now been successfully completed and no further merger costs are expected.

The Aerospace Division's main products are airframe and other structural parts (30% of 2014 divisional sales), engine structures and mounting systems (29%), metallic ducting systems (17%), composite ducting systems (6%), fluid control systems (6%) and helicopter machined parts (4%).  The remaining 8% of divisional sales were to non-aerospace markets, including energy, semi-conductor and medical.

The Division's largest customers include Rolls-Royce, representing 17% of 2014 divisional sales, Boeing (17%), Spirit Aero Systems (11%), United Technologies (8%), Airbus (5%), and Bombardier (5%).

The Aerospace Division's operating results on a constant currency basis are summarised below:

2014


2013

(1)

Change


£m


£m



Revenue

536.6


486.4


+10.3%

Adjusted operating profit

77.9


73.7


+5.7%

Operating margin

14.5%


15.2%


-0.7ppts

(1)

2013 translated using 2014 average exchange rates.

Divisional revenue increased by £50.2m (10.3%) to £536.6m (2013 - £486.4m)(1) and adjusted operating profit increased by £4.2m to £77.9m (2013 - £73.7m)(1).  Excluding the impact of acquisitions, organic revenue for the Division increased by £24.6m (5.1%) and adjusted operating profit increased by £1.4m (1.9%).

The operating margin declined by 0.7 percentage points to 14.5% (2013 - 15.2%).  This margin reduction was broadly anticipated, reflecting expensed development costs as incurred.  During the year, the Group also experienced a number of operational challenges associated with industrialising a greater number of new commercial aerospace programmes.  In most cases, these challenges were in line with expectations, however, at our SSP operation in California the impact was greater than anticipated.

Revenue Reconciliation

£m

2013 Revenue

486.4

Large Commercial

26.4

Regional & Business Jets

0.7

Military

(7.7)

Other

5.2

2014 Organic

511.0

Acquisitions

25.6

2014 Revenue

536.6

59% (2013 - 55%) of the Aerospace Division's revenues are derived from the large commercial aerospace market, comprising the aircraft manufactured by Airbus and Boeing and the engines that go on those aircraft.  This market remained very strong during 2014, with Boeing and Airbus collectively delivering 1,352 aircraft, a 6% increase over the prior year (2013 - 1,274 deliveries).  Boeing and Airbus also recorded record aircraft orders during 2014 which, at a combined net order intake of 2,888 aircraft (2013 - 2,858 aircraft), was well ahead of aircraft deliveries for the fifth year in succession.  As a consequence, their combined order book grew by 1,536 aircraft during 2014 to 12,175 aircraft at the end of the year, representing over nine years of deliveries at current production rates.  On an organic basis, Senior grew its sales to the large commercial aircraft market by 10% during 2014.

Senior's largest revenue programme is the Boeing 737.  During the year, it was announced that the build rate for this aircraft will be increased to 52 per month in 2018.  It is currently produced at a rate of 42 per month, and is set to increase to 47 per month in 2017.  This is encouraging as Senior continues to grow its shipset content on this aircraft, and on the B737 MAX, the re-engined, more fuel-efficient version due to come into service in 2017.  At the same time, the A320neo, the narrow-bodied re-engined aircraft from Airbus, is stated to be on-track for its first delivery in Q4 2015.  Once again, Senior has a higher shipset content on the A320neo.  This aircraft is also being built at 42 per month today with increases to 46 per month in 2016 and 50 per month in 2017 announced.

Senior won additional content in the period on the A350 and B787, two significant future programmes for the Group.  The acquisition of Upeca also contributed meaningful content on these two key programmes.  Qatar Airways took delivery of the first Airbus A350 in late December 2014 and, with a further 779 on order at the end of December 2014, the build rate of this aircraft is now increasing.  During 2014, Boeing's B787 maintained a production rate of 10 per month, with Boeing planning to increase the build rate to 12 per month in 2016 and 14 per month in 2019.  Production of the A330 is, however, expected to decline from the current 9 per month to 6 per month in 2016.

In the regional jet market (5% of divisional revenue), the Bombardier CSeries and Mitsubishi Regional Jet programmes, on which Senior has significant content, continued to edge closer to their expected first customer deliveries in the second half of 2015 and 2017, respectively.  The Group also made encouraging progress by winning meaningful content on Embraer's new E2 regional jet, which is due into service in 2018.  Senior's sales to the business jet market (8% of divisional revenue) declined during the year, with the Group seeing a decrease in organic revenue of 4% mainly due to lower sales of large business jets.  The suspension of L85 is expected to have an adverse ongoing impact on the profitability of the Group's small Composites business based in Wichita, USA.

Revenue from the military and defence sector (18% of divisional revenue) (2013 - 21%), declined by 7% during the period on an organic basis.  This was primarily due to the anticipated build rate reductions for V22 Osprey and C-17, along with the absence of significant development activity on the A400M and one-off catch-up volumes for the CH-47 (Chinook) helicopter, both of which had benefited the prior year.

Around 10% of the Aerospace Division's revenue was derived from other markets such as space, non-military helicopters, power and energy, medical and semi-conductor, where the Group manufactures products using similar technology to that used for certain aerospace products.  Organic revenues in these markets were £5.2m (10.0%) higher than in 2013, due to growth in non-military helicopter and energy activities.

FLEXONICS DIVISION

Senior's principal end-market exposures in the Flexonics Division are medium- and heavy-duty diesel engine markets in North America, passenger cars in Europe and global industrial process control markets including petrochemical, HVAC and power and energy markets.

Capabilities

●

Development and production of emission control and fuel distribution products for the truck and off-road transport sector and for selected passenger car applications.

●

Design and manufacture of engineered expansion joints and dampers for industrial process control applications, to meet an increasingly stringent regulatory environment.

●

An integrated global footprint, providing customer proximity and lower cost.

Land vehicle emission control

●

Truck and off-highway sales increased by 13%, with growth in the North American truck market and the continued ramp-up of new programmes in Europe.

●

Continued progress and further investment in our joint venture in China.  Production of heavy-duty diesel engine common rails improved and production of flexible exhaust connectors commenced just before the year end.

●

Further investment was made in Mexico to supply flexible exhaust connectors and engine bellows to a key customer's local Mexican production plant as well as its US facilities.

●

Sales in the passenger vehicle sector increased by 4%, due to improved demand in many European markets and growth in China, offset partially by weaker demand in Brazil and India.

Industrial process control

●

Organic industrial revenues were marginally ahead of the prior year, as expansion joints for a large North American petrochemical project began shipment in the final quarter of the year.  This helped offset weaker sales in the power and energy, HVAC and renewables markets, particularly in Brazil and Germany.

●

The Group expects to benefit in the first half of 2015 from the remaining shipments on the project above, although the outlook for industrial sales outside North America is expected to be weaker.

●

Upeca acquisition brings additional customers, new machining capabilities and greater geographic exposure to the Flexonics Division.

Business Review

The Flexonics Division represents 35% (2013 - 35%) of Group revenue and consists of 13 operations which are located in North America (4), continental Europe (3), the United Kingdom, South Africa, India, Brazil, Malaysia and China.  In addition, the Group holds a 49% shareholding in a joint venture in China.

As discussed in the Aerospace Division Review, Senior completed the acquisition of Upeca Technologies in April 2014.  Approximately two-thirds of Upeca's revenue is derived from industrial markets, principally oil and gas, with the revenue generated from two dedicated facilities, one located near Kuala Lumpur, Malaysia and the other in Tianjin, China.  These operations are now managed together under the leadership of a single CEO as part of the Senior Flexonics Division.  These two industrial businesses performed well throughout their first period under Senior's ownership.

During 2014, the Group established new reporting lines between the Group's Chicago-located Bartlett operation and its Indian operation.  These arrangements closely mirror the existing management structure for the Flexonics operation in Mexico, which today acts as a complementary factory for Bartlett, providing proximity and lower costs for certain customers.  This recent change in management approach in India is already delivering benefits and opportunities for the Group, through best practice sharing and extensive industry knowledge.  As an example, the Group has recently won an EGR cooler contract for a Western customer who is in the process of establishing a production operation in India, with Senior taking on a lease on a new 26,000 sq.ft. facility near New Delhi to support them.  It is anticipated that £1m will be invested during 2015 to deliver this programme.

55% of the Flexonics Division's revenues in 2014 were derived from demand for land vehicle components, 44% from industrial markets and 1% from aerospace markets.

The land vehicle sales comprise cooling and emission control components (24% of 2014 divisional sales), flexible mechanisms for vehicle exhaust systems (13%), diesel fuel distribution pipework (15%) and off-highway hydraulics (3%).  The industrial product revenue is derived from the power and energy markets (17%), oil and gas and chemical processing industries (15%), HVAC and solar markets (3%) and a range of other markets (9%).  1% of sales is to the aerospace markets.

The Division's largest individual end users are land vehicle customers, including Cummins (representing 17% of 2014 divisional sales), Caterpillar (9%), Ford (4%), PSA (4%), and Renault (4%).  Individual industrial customers rarely account for more than 1 or 2% of divisional sales and, given the generally bespoke and project nature of the Group's industrial products, the customers vary significantly each year.  Emerson (5%) and Bloom Energy (3%) were the largest industrial customers in the period with much of the Emerson revenue being due to the Upeca acquisition.  Woodward (1%) accounted for the vast majority of aerospace revenue within the Flexonics Division in 2014.

The Flexonics Division's operating results on a constant currency basis are summarised below:

2014


2013

(1)

Change


£m


£m



Revenue

284.6


252.4


+12.8%

Adjusted operating profit

43.5


37.4


+16.3%

Operating margin

15.3%


14.8%


+0.5ppts

(1)

2013 results translated using 2014 average exchange rates.

Divisional revenue increased by £32.2m (12.8%) to £284.6m (2013 - £252.4m)(1) and adjusted operating profit increased by £6.1m to £43.5m (2013 - £37.4m)(1).  Excluding the incremental contribution from the Upeca acquisition completed in April 2014 (£17.2m), organic revenue increased by £15.0m (5.9%) while adjusted operating profit increased by £3.7m (9.9%).

The operating margin increased to 15.3% (2013 - 14.8%), primarily due to operational improvements at the Bartlett facility and a further reduction in losses at the Group's French land vehicle operation.  Underlying margins in organic operations improved by 0.6 percentage points to 15.4% (2013 - 14.8%).

Revenue Reconciliation

£m

2013 Revenue

252.4

Truck and off-highway

11.8

Passenger vehicles

2.3

Industrial

0.9

2014 organic

267.4

Acquisitions

17.2

2014 Revenue

284.6

2014 saw generally better economic conditions compared to recent years, particularly in North America.  Total Group sales to truck and off-highway markets (36% of divisional revenue) increased by 13% on a constant currency basis.  This was mainly driven by improvements in the North American truck market where sales increased by 11% due to greater demand for high pressure rails, exhaust bellows and EGR coolers for new vehicles.  As anticipated, sales of EGR coolers for the spare parts market were lower in 2014 as product longevity improved following technological advances made by Senior.  The final quarter of 2014 saw some weakness in the off-highway agriculture and mining market with slowing demand from China thought to be the principal reason.  Senior's sales to the European truck market increased by 18% in 2014, albeit from a low base, as new emission-led programmes came into production.  This was a pleasing performance given that the actual European truck market was weak, and down by 7%, as European economies showed little growth.

Sales to passenger vehicle markets (19% of divisional revenue) improved by 4% on a constant currency basis as the Group's principal European markets improved from the 17-year low seen in 2013.  Outside of Europe and North America, passenger vehicle sales were 12% lower as greater demand in China, largely a new market for Senior, was offset by weakness in Brazil and India.

In the Group's industrial markets (44% of divisional revenue), sales were up 17% on a constant currency basis, primarily due to £17m of acquired revenue from Upeca.  On an underlying organic basis, sales increased by 1%, with the incremental sales from a large industrial expansion joint order for a North American petrochemical project being mostly offset by weaker sales in the power generation, HVAC and renewables markets, principally in Brazil and Germany.

FINANCIAL REVIEW

"Our balance sheet remains strong AND The Group continues to be cash generative and well placed to meet its future growth aspirations."

Financial Summary

A summary of the Group's operating results is set out in the table below.

Revenue


Adjusted
operating
profit

(1)

Margin


2014

2013


2014

2013


2014

2013


£m

£m


£m

£m


%

%

Aerospace

536.6

506.6


77.9

76.5


14.5

15.1

Flexonics

284.6

269.3


43.5

40.4


15.3

15.0

Share of results of joint venture

-

-


(0.3)

(0.3)


-

-

Inter-segment sales

(0.4)

(0.8)


-

-


-

-

Central costs

-

-


(9.5)

(9.0)


-

-

Group total

820.8

775.1


111.6

107.6


13.6

13.9

 

(1)

See table below for reconciliation of adjusted operating profit to reported operating profit

Financial Detail

Revenue

Group revenue increased by £45.7m (5.9%) to £820.8m (2013 - £775.1m).

Excluding the incremental full-year effect of acquisitions made in 2013: Thermal acquired in November 2013 (£15.6m); Atlas acquired in February 2013 (£0.4m); the current year contribution of Upeca acquired in April 2014 (£26.8m) and a year-on-year unfavourable exchange impact of £37.1m, underlying revenue from organic operations increased by 5.4% on a constant currency basis.

In 2014, 62% of sales originated from North America, 16% from the UK, 12% from the Rest of Europe and 10% from the Rest of the World.

Operating profit

Adjusted operating profit increased by £4.0m (3.7%) to £111.6m (2013 - £107.6m).  Incremental operating profit from acquisitions of £5.2m was more than offset by an unfavourable exchange impact of £5.7m.  Organic adjusted operating profit increased by 4.4%, on a constant currency basis.

The Group achieved an operating margin of 13.6% in 2014 (2013 - 13.9%).  Whilst the Flexonics Division delivered improved margins, mainly due to operational improvements at the Bartlett facility and reduced losses at its French land-vehicle operation, the Aerospace Division operating margin declined.  This margin reduction was broadly as anticipated and largely reflects customer pricing pressure and expensed development costs as incurred.  During the year, the Group also experienced a number of operational challenges associated with industrialising new commercial aerospace programmes, with those at SSP being greater than anticipated.

Adjusted operating profit may be reconciled to the operating profit that is shown in the Consolidated Income Statement as follows:

2014

£m


2013

£m

Adjusted operating profit

111.6


107.6

Exceptional pension (charge)/credit

(1.5)


1.1

Reversal of contingent consideration payable

-


3.8

Impairment of goodwill(2)

(9.4)


(12.7)

Restructuring costs(1)

(1.5)


(1.9)

Write-down of L85 inventory(2)

(1.8)


-

Amortisation of intangible assets from acquisitions

(7.2)


(4.2)

Acquisition costs

(0.6)


(0.4)

Operating profit per Financial Statements

89.6


93.3

 

(1)

In November 2013, the decision was taken to merge Capo Industries into the Group's Ketema operation.  This decision resulted in exceptional provisions of £1.9m in 2013.  During 2014, this provision was fully utilised and a further £1.5m charged.

(2)

On 20 January 2015, the Group was notified by Bombardier that it had suspended, for an indefinite period of time, the development of its L85 business jet programme.  This post balance sheet event triggered a one-off £1.8m write-down of inventory and a £9.4m impairment of goodwill, both of which have been recognised as an exceptional charge in 2014.

Total Group reported operating profit decreased by 4.0% to £89.6m (2013 - £93.3m).

Finance costs

Total finance costs, net of investment income of £0.1m (2013 - £0.2m), decreased by 5.3% to £9.0m (2013 - £9.5m).

Net interest costs on borrowings remained constant at £8.1m (2013 - £8.1m) with the additional interest costs associated with the acquisition of Upeca being offset by savings resulting from the repayment of $35.0m of US private placement debt in October 2014.

Pension-related finance charges decreased to £0.9m in 2014 (2013 - £1.4m), principally due to the improved funding position at the start of the year compared to 2013.

Profit before tax

Adjusted profit before tax increased by 4.6% to £102.6m (2013 - £98.1m).  Reported profit before tax from continuing operations decreased by 3.8% to £80.6m (2013 - £83.8m).  The reconciling items between these two measures are shown in the table above.

Exchange rates

Around 80% of the Group's profits are generated outside of the UK and, consequently, exchange rates can significantly affect the Group's results.  Exchange rates used for the currencies most relevant to the Group's operations are:

Profit and loss - average rates


Balance sheet - period end rates


2014

2013

Change


2014

2013

Change

£: US Dollar

1.65

1.57

-4.8%


1.56

1.66

+6.4%

£: Euro

1.24

1.18

-4.8%


1.29

1.20

-7.0%

Using 2014 average rates would have decreased 2013 sales by £37.1m and decreased 2013 operating profit by £5.7m.  A 10 cents movement in the £:$ exchange rate is estimated to affect full-year sales by £31m, operating profit by £4.0m and net debt by £6m.  A 10 cents movement in the £:€ exchange rate is estimated to affect full-year sales by £7m, operating profit by £0.4m and net debt by £nil.

Tax charge

The reported tax rate in 2014 was 21.2% (2013 - 14.8%), being a charge of £17.1m (2013 - £12.4m) on reported profit before tax of £80.6m (2013 - £83.8m).

Adjusting for the tax on items excluded from adjusted operating profit of £2.9m (2013 -£6.9m), the underlying tax rate for the year was 19.5% (2013 -19.7%), being a charge of £20.0m (2013 - £19.3m) on adjusted profit before tax of £102.6m (2013 - £98.1m).

Earnings per share

The weighted average number of shares, for the purposes of calculating undiluted earnings per share, increased to 416.3 million (2013 - 414.7 million).  Adjusted earnings per share increased by 4.4% to 19.84 pence (2013 - 19.00 pence).  Basic earnings per share decreased by 11.4% to 15.25 pence (2013 - 17.22 pence).

Dividends

A final dividend of 3.96 pence per share is proposed for 2014 (2013 - 3.60 pence), payment of which, if approved, would total £16.6m (2013 final dividend - £15.0m) and would be paid on 29 May 2015 to shareholders on the register at close of business on 1 May 2015.  This would bring the total dividends paid and proposed in respect of 2014 to 5.63 pence per share, an increase of 10% over 2013, ahead of the increase in adjusted earnings per share.  At the level recommended, the full-year dividend would be covered 3.5 times (2013 - 3.7 times) by adjusted earnings per share.  The cash outflow incurred during 2014 in respect of the final dividend for 2013 and the interim dividend for 2014 was £21.9m (2013 - £19.9m).

Research and development

The Group's expenditure on research and development decreased to £11.5m during 2014 (2013 - £12.9m).  Expenditure was incurred mainly on designing and engineering products in accordance with individual customer specifications and developing specific manufacturing processes for their production.

Capital structure

The Group's Consolidated Balance Sheet at 31 December 2014 is summarised as follows:

2014


2013


£m


£m

Goodwill and other intangible assets

290.8


242.5

Investment in JV

0.7


1.0

Property, plant and equipment

167.6


142.6

Other long-term assets

7.3


7.5

Non-current assets

466.4


393.6

Working capital

107.6


84.1

Current tax liabilities (net)

(12.7)


(14.5)

Loan to JV

0.7


-

Net current assets (excluding current debt & cash)

95.6


69.6

Retirement benefit obligations

(19.8)


(25.6)

Net borrowings

(105.0)


(59.2)

Other long-term liabilities

(25.6)


(16.9)

Net assets

411.6


361.5

Net assets per share increased by 13.2% to 98.4 pence (2013 - 86.9 pence).  There were 418.1 million ordinary shares in issue at the end of 2014 (2013 - 415.9 million).

Goodwill

On 20 January 2015, the Group was notified by Bombardier of the decision to suspend, for an indefinite period of time, the development of its L85 business jet programme.  This post balance sheet event triggered a subsequent review of the carrying value of goodwill at the Group's Composites business in Wichita, USA.  As a result, a goodwill impairment charge of £9.4m was taken in 2014.  This impairment is excluded from adjusted profit before tax.

Capital expenditure

Gross capital expenditure increased by 4.7% in 2014 to £31.1m (2013 - £29.7m), principally representing investment in future growth programmes and necessary replacement and compliance expenditure.  The Group's operations remain well capitalised.  The disposal of assets no longer required raised £0.2m (2013 - £0.9m).  A moderately higher level of capital expenditure is anticipated for 2015, with the extent dependent primarily on the timing of build rate increases in the large commercial aircraft segment and the Group securing the expected new programme wins in both Divisions.

Working capital

Working capital increased by £23.5m in 2014 to £107.6m.  £6.4m of this increase was acquired with Upeca.  The remaining increase is the result of higher levels of inventory associated with the ongoing industrialisation of new aerospace programmes combined with an extension of payment terms by a number of key customers.

Retirement benefit obligations

Retirement benefit obligations, as calculated in accordance with IAS 19, decreased by £5.8m to £19.8m (2013 - £25.6m) principally due to the positive impact of £9.1m cash contributions in excess of service costs, asset returns above expectation and a decrease in the inflation assumptions during the year.  These were partially offset by a decrease in the assumed discount rate and incurring a £1.5m curtailment charge, following the closure to future accrual of the Senior plc Pension Plan at the end of 6 April 2014.

Cash flow

The Group generated significant free cash flow of £57.8m in 2014 (2013 - £63.8m) as set out in the table below.

2014


2013


£m


£m

Operating profit from continuing operations

89.6


93.3

32.1


26.5

0.3


0.3

(16.5)


(19.1)

(9.1)


(7.7)

9.4


12.7

-


(3.8)

Other items

4.0


4.3

Cash generated from operations

109.8


106.5

Interest paid (net)

(8.4)


(7.9)

(12.7)


(6.0)

(31.1)


(29.7)

Sale of fixed assets

0.2


0.9

Free cash flow

57.8


63.8

Dividends

(21.9)


(19.9)

(60.1)


(30.5)

(14.3)


(0.2)

-


(0.5)

(1.1)


-

1.1


0.1

(0.7)


(0.9)

(6.6)


(0.2)

Opening net debt

(59.2)


(70.9)

Closing net debt

(105.0)


(59.2)

Funding and Liquidity

As at 31 December 2014, the Group's gross borrowings excluding finance leases were £117.5m (2013 - £111.6m), with 87% of the Group's gross borrowings denominated in US dollars (31 December 2013 - 99%).  Cash and bank balances were £13.2m (31 December 2013 - £53.1m).

The maturity of these borrowings, together with the maturity of the Group's committed facilities, can be analysed as follows:

Gross
borrowings

(1)

Committed
facilities


£m

 

£m

Within one year

24.1


16.0

In the second year

-


-

In years three to five

80.6


136.8

After five years

12.8


12.8


117.5


165.6

 

(1)

Gross borrowings include the use of bank overdrafts, other loans and committed facilities, but exclude finance leases of £0.7m.

At the year-end, the Group had committed facilities of £165.6m with a weighted average maturity of 3.7 years.  These facilities comprise private placement debt of £96.1m and two revolving credit facilities of £60.0m and £9.5m, respectively.  During the year, the Group renegotiated the £60.0m revolving credit facility, which was due to expire in 2016, achieving an extension to 2019 on more commercially favourable terms.

The Group is in a strong funding position, with headroom of £60.6m under its facilities.

The Group has £8.1m of uncommitted borrowings which are payable on demand and is due to repay a committed private placement loan of $25.0m (£16.0m) which matures in October 2015.

The Group's committed borrowing facilities contain a requirement that the ratio of EBITDA (adjusted profit before interest, tax, depreciation and amortisation) to net interest costs must exceed 3.5x, and that the ratio of net debt to EBITDA must not exceed 3.0x.  At 31 December 2014, the Group was operating well within these covenants as the ratio of EBITDA to net interest costs was 16.2x (31 December 2013 - 15.4x) and the ratio of net debt to EBITDA was 0.8x (31 December 2013 - 0.5x).

Going Concern

The Group is profitable, cash generative and well funded with net debt of £105.0m compared to £165.6m of committed borrowing facilities.

However, economic conditions inevitably vary and so potentially create uncertainty.  For this reason, a sensitivity analysis has been performed on the Group's forecasts and projections, to take account of reasonably possible changes in trading performance.  This analysis shows that the Group will be able to operate well within the level of its current committed borrowing facilities and banking covenants under all reasonably foreseeable scenarios.  As a consequence, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future, and the Board has continued to adopt the going concern basis in preparing the Group's Annual Report & Accounts 2014.

Changes in accounting policies

The accounting policies adopted in the Financial Statements are consistent with those followed in the preparation of the Group's Annual Report & Accounts 2013, except for the adoption of Standards and Interpretations that are effective for the current financial year.  These are highlighted in Note 2 of the Financial Statements, and do not have a material impact on the presentation of the Group's results.

Related party transactions

The Group's related party transactions are between the Company and its subsidiaries, and have been eliminated on consolidation.

Derek Harding

Group Finance Director

RISKS AND UNCERTAINTIES

Integrated Risk Management and Group Risk Philosophy

The Board is ultimately responsible for managing risk, and for the implementation of effective risk management procedures and internal control systems.  Across the Group, these are designed to align with the UK Corporate Governance Code's guidance on Risk Management and Internal Control.  The Audit Committee is responsible for reviewing the effectiveness of the Group's internal control systems that were in operation during the year, and the fulfilment of this responsibility is described in the Audit Committee report on pages 40 to 43.

An integrated risk management framework continues to evolve within the Group, aimed at improving the efficiency and effectiveness of the Group's risk management procedures.  Senior's risk philosophy, embodied in a Risk Philosophy Statement which has been rolled out across the Group, is based around an acknowledgement that profits are in part the reward for risk taking, and therefore risk should be embraced and managed effectively within each business unit.  The Group aims to take a relatively conservative approach to risk management, targeting a developmental approach that is evolutionary rather than revolutionary.  Pursuit of opportunities is encouraged, within an effective risk management framework, as an essential component of a high-performance culture.  It is acknowledged that strong risk management procedures are likely to enhance senior leadership decision-making capabilities, strengthen accountability and enhance stewardship of the Group's assets.  In turn this can be expected to result in management teams being able to embrace increased levels of risk and pursue more opportunities, which should also allow the Group to increase its rate of performance delivery without exceeding its risk appetite.

The Group aims to embed its risk management procedures within its existing business processes and corporate governance structure, rather than impose an inefficient administrative burden on its operations.  At a minimum, the Group aims to ensure that any individually significant event that:

1)

has or may result in the potential to compromise its ability to achieve its objectives; or

2)

could lead to a material breach of policies and procedures; or

3)

could impact the delivery of earnings materially at a local operational level

is identified, reported on and dealt with through the Group's risk management procedures.

Risk Assessment and Risk Reporting Procedures

The Group has a well-established annual process for identifying, evaluating and managing its significant risks.  This process starts in April each year with a risk review and assessment conducted at each of the Group's operations, facilitated by local senior management.  A Principal Risk list is generated from each review, with individual risks assigned to the categories of Strategic, Operational, Compliance or Financial Reporting in nature.  Local management is required to record details of controls that are in place to mitigate each risk, make an assessment of the residual likelihood and impact of each risk having a material impact on the operation's ability to achieve its objectives, and to record any improvement measures that are targeted to strengthen the operation's internal control environment around each risk.  The results of these reviews are consolidated at divisional level with an accompanying divisional overlay, and divisional Principal Risk lists are then reviewed by the Executive Committee.

Following review by the Executive Committee, a risk questionnaire is compiled and circulated to each Board member, who is required to make an individual assessment of the potential significance of each risk.  Completed questionnaires are reviewed and discussed at the Group's June Board meeting, following which a Group Principal Risk list is compiled and presented for review and discussion by the Board at the July Board meeting.  The final step in the process is an update of all Principal Risks as part of the annual budget-setting process and ultimately presented to the Board at its January meeting.  In between formal updates, the Board monitors progress in the management of individual risks via ongoing regular executive and divisional reporting procedures and review and discussion at Board meetings.

Principal Group risks

Overall, the Group's risk profile was largely unchanged in 2014 when compared to 2013.  The principal potential risks and uncertainties, together with actions that are being taken to mitigate each risk, are set out below.

Risk

Management actions to mitigate risk

 

New aircraft platform delays


 

Significant shipset content has been secured on a number of new aircraft platforms currently under development or in initial phases of production.  These include the Airbus A350, A320neo, the Boeing 737 MAX, Bombardier's CSeries regional jet and L85 business jet.  Delays in the launch or ramp-up in production of these platforms could have a material adverse impact on the Group's rate of organic growth.

 

Note: On 20 January 2015, the Group was notified by Bombardier of the decision to suspend, for an indefinite period of time, the development of its L85 business jet programme.

The Group monitors programme development and launch timing of new aircraft platforms very closely, utilising internal customer relationships and market intelligence.

A cautious approach is taken to both capital investment in new programmes, to minimise the time between installation and utilisation of new capital equipment, and to the projected build rates and associated revenue in financial projections.

The growing breadth of Senior's exposure to a comprehensive and diverse range of aerospace and land vehicle platforms, together with its broad exposure in global industrial markets, means that the Group's future organic growth profile is not overly dependent on any individual new aircraft platform.

 

importance of emerging markets


 

Customers' desire to move manufacture of components to lower-cost countries could render the Group's operations uncompetitive and have an adverse impact on profitability.  In addition, certain customers require global programme support as they respond to increasing domestic demand in a number of these emerging markets.

The Group's strategy of developing a portfolio of high value‑added engineering manufacturing companies has meant that over time it has generally evolved away from products where the direct threat of lower-cost country manufacture is significant.

The Group successfully employs a strategy of retaining commercial and engineering expertise close to customers' locations, principally in North America and Europe.  This enables effective support to be readily given to its customers, whilst increasing manufacturing at above-average growth rates in lower-cost country locations where it makes sense to do so and with customer agreement.

The Group has an increasing presence in emerging markets via its facilities in Mexico, Thailand, Czech Republic, South Africa, Brazil, India and China.  This footprint was expanded during 2014 with the acquisition of Upeca, with operations in Malaysia and China.

Each of these operations, individually and in combination, has a healthy number of viable opportunities for further expansion either to supply domestic markets or to support customers' increasingly global needs.

 

Price-Down Pressures

 

Customer pricing pressure is an ongoing challenge within our industries, driven by the expectations of airlines, land vehicle operators and Governments seeking to purchase more competitively priced products in the future.  This will continue to put pressure on the Group's future operating margins.

The Group works closely with its customers to find innovative ways to produce products at a lower cost thus helping them to meet pricing challenges.

The Group is able to consider bundles of products that in total help achieve customer pricing challenges.

Where appropriate, the Group is able to pass work to some of its lower-cost facilities such as Mexico, Thailand, Czech Republic, South Africa, Brazil, India, China and Malaysia with a view to help satisfy customer challenges.

 

Acquisitions


 

Failure to execute an effective acquisition programme would have a significant impact on the Group's ability to generate long-term value for shareholders.

Consistently strong free cash flow generation gives the Group capacity to continue to execute a targeted acquisition programme.

The Group has a well-established acquisition framework that includes proven valuation, due diligence and integration processes.

Post-acquisition reviews are performed on key acquisitions, comprising a full retrospective review of each deal process, integration effectiveness, operational performance compared to expectation and sharing of lessons learned with the Board and across the senior management team.

 

Strategy


 

An appropriately formulated, communicated and effectively executed strategy is essential in order to avoid the risk of inappropriate allocation of resources and failure to deliver on long-term performance goals.

Focus is placed on the strategic planning process, to ensure that the Group formulates the most appropriate strategy to capitalise, over time, on the significant breadth of potential growth opportunities in its chosen market sectors.

The process includes regular strategy sessions at operational, Executive Committee and Board level.

 

Programme participation


 

Long-term growth in demand, including participation in future development programmes in the Group's major markets, is an essential foundation for future growth.  Failure to secure profitable new programme wins could have a severe impact on the Group's long-term performance.

The Group has developed a portfolio of businesses that are exposed to markets which exhibit fundamental long-term growth characteristics.

Customer value is driven through constructive and co‑operative relationships with key customers in each market, providing innovative customer solutions and quality products delivered on time and in line with specifications.

The Group ensures that its operations are sufficiently well capitalised to be able to bid competitively on new programme opportunities, and maintains close control over operating costs to ensure that operations remain competitive on existing programmes.

The Group utilises an internal contract approval process, comprising both financial and non-financial analyses, to ensure that bids are submitted and won at acceptable margin levels.

 

Employee Retention


An inability to attract, develop and retain high-quality individuals in key management positions could severely affect the long-term success of the Group.

Capable, empowered and highly engaged individuals are a key asset of the business.  The strong reputation of the Group helps attract experienced senior executives from within the industry.

The Group sponsors the development and training of key managers, at all levels, through an increasingly comprehensive in‑house management development programme.

Senior management turnover ratios remain low, a further indication of success in this important area.

Corporate Governance Breach


Corporate governance legislation (such as the UK Bribery Act and the US Foreign Corrupt Practices Act), regulations and guidance (such as the UK Corporate Governance Code and global health and safety regulations) are increasingly complex and onerous.  A serious breach of these rules and regulations could have a significant impact on the Group's reputation, lead to a loss of confidence on the part of investors, customers or other stakeholders and ultimately have a material adverse impact on the Group's enterprise value.

The Group has well-established governance policies and procedures in all key areas, including a Group Code of Business Conduct, anti-bribery procedures, a Health and Safety Charter, and various policies and procedures over the review and reporting of risk management and internal control activities.

The Group Finance Director, the Group Company Secretary and the Head of Internal Audit collectively retain principal responsibility for reviewing governance changes that may have an impact on the Group.

Governance updates are provided to the Board and Executive Committee at appropriate intervals, and to key operational management.  Recent examples of developments in this area include formulation of a Business Continuity Framework, IT Policy Guidelines, and anti‑bribery training.

financing and liquidity


The Group could have insufficient financial resources to fund its growth strategy or meet its financial obligations as they fall due.

The Group's overall treasury risk management programme focuses on the unpredictability of financial markets, and seeks to minimise potential adverse effects on the Group's financial performance.

Compliance with financial policies and exposure limits are reviewed by the Group's Treasury Committee on a regular basis.

The Group enters into forward foreign exchange contracts to hedge the exchange risk arising on operations' trading activities in foreign currencies, however, it does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, and by continuously monitoring forecast and actual cash flows, matching the maturity profiles of financial assets and liabilities and paying close attention to the projected level of headroom under the covenants contained in its committed borrowing facilities.

During 2014 cash conversion remained strong and a tranche of private placement debt was repaid in October.  The Group also re-negotiated its £60m revolving credit facility, which was due to expire in 2016, achieving an extension to 2019 on more commercially favourable terms.  For further details see Note 20 of the Annual Report & Accounts 2014.

Global cyclical downturn


The potential adverse impact on the Group of significant demand declines in key markets arising from the consequences of either future sovereign debt issues, ongoing government austerity measures, and/or political instability remains significant.

The Group is well positioned in its key aerospace, industrial, and emission-related sectors of land vehicle markets, where increasingly stringent legislation should ensure that long‑term demand for the Group's products remains healthy.

Through diversity of its end-market exposures and a robust financing position, the Group remains well placed to be able to withstand potential negative consequences that may arise from a further global cyclical downturn.

Statement of Directors' Responsibilities

We confirm that to the best of our knowledge:

1.

the Financial Statements, prepared in accordance with IFRS as adopted by the European Union, 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;

2.

the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

3.

the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

By Order of the Board

Mark Rollins

Derek Harding

Group Chief Executive

Group Finance Director

27 February 2015

27 February 2015

Consolidated Income Statement

For the year ended 31 December 2014


Notes


Year ended
2014
£m


Year ended
2013
£m

Continuing operations







Revenue


3


820.8


775.1

Trading profit before one-off items




102.6


104.4

Goodwill impairment


8


(9.4)


(12.7)

Reversal of contingent consideration payable




-


3.8

Write-down of L85 inventory


15


(1.8)


-

Restructuring costs




(1.5)


(1.9)

Trading profit




89.9


93.6

Share of joint venture loss


14


(0.3)


(0.3)

Operating profit (1)


3


89.6


93.3

Investment income




0.1


0.2

Finance costs




(9.1)


(9.7)

Profit before tax (2)




80.6


83.8

Tax


5


(17.1)


(12.4)

Profit for the period




63.5


71.4

Attributable to:







Equity holders of the parent




63.5


71.4

Earnings per share







Basic (3)


7


15.25p


17.22p

Diluted (4)


7


15.06p


17.00p

 

(1) Adjusted operating profit


4


111.6


107.6

(2) Adjusted profit before tax


4


102.6


98.1

(3) Adjusted earnings per share


7


19.84p


19.00p

(4) Adjusted and diluted earnings per share


7


19.59p


18.76p

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2014

Year ended
2014
£m


Year ended
2013
£m

Profit for the period

            63.5


71.4

Other comprehensive income:




Items that may be reclassified subsequently to profit and loss:




Losses on cash flow hedges during the period

(2.3)


(2.4)

Reclassification adjustments for losses included in profit and loss

0.6


1.5

Losses on cash flow hedges

(1.7)


(0.9)

Exchange differences on translation of foreign operations

7.9


(7.8)

Tax relating to items that may be reclassified

0.2


(0.3)


6.4


(9.0)

Items that will not be reclassified subsequently to profit and loss:




Actuarial (losses) / gains on defined benefit pension schemes

(0.9)


4.3

Tax relating to items that will not be reclassified

0.4


(2.1)


(0.5)


2.2

Other comprehensive expense for the period, net of tax

5.9


(6.8)

Total comprehensive income for the period

69.4


64.6

Attributable to:




Equity holders of the parent

69.4


64.6

Consolidated Balance Sheets

As at 31 December 2014


Notes


Year ended
2014
£m


Year ended
2013
£m

Non-current assets







Goodwill


8


262.5


225.9

Other intangible assets




28.3


16.6

Investment in joint venture


14


0.7


1.0

Property, plant and equipment


9


167.6


142.6

Deferred tax assets




6.5


7.0

Loan to joint venture


14


0.4


-

Trade and other receivables




0.4


0.5

Total non-current assets




466.4


393.6

Current assets







Inventories




119.3


99.4

Loan to joint venture


14


0.7


-

Trade and other receivables




137.7


114.3

Cash and bank balances


11c)


13.2


53.1

Total current assets




270.9


266.8

Total assets




737.3


660.4

Current liabilities







Trade and other payables




146.8


127.4

Current tax liabilities




13.3


15.1

Obligations under finance leases




0.3


0.4

Bank overdrafts and loans




24.1


21.2

Provisions




2.0


1.6

Total current liabilities




186.5


165.7

Non-current liabilities







Bank and other loans


11c)


93.4


90.4

Retirement benefit obligations


12


19.8


25.6

Deferred tax liabilities




24.8


16.5

Obligations under finance leases




0.4


0.3

Others




0.8


0.4

Total non-current liabilities




139.2


133.2

Total liabilities




325.7


298.9

Net assets




411.6


361.5

Equity







Issued share capital


10


41.8


41.6

Share premium account




14.8


13.8

Equity reserve




5.7


5.2

Hedging and translation reserve




(7.2)


(13.6)

Retained earnings




359.0


316.4

Own shares




(2.5)


(1.9)

Equity attributable to equity holders of the parent




411.6


361.5

Total equity




411.6


361.5

Statement of Changes in Equity

For the year ended 31 December 2014                        All equity is attributable to equity holders of the parent

Issued
share
capital

Share
premium
account

Equity
reserve

Hedging
and
translation
reserve

Retained
earnings

Own
shares

Total
equity


£m

£m

£m

£m

£m

£m

£m

Balance at 1 January 2013

41.4

13.7

3.8

(4.6)

259.6

(1.0)

312.9

Profit for the year 2013

-

-

-

-

71.4

-

71.4

Losses on cash flow hedges

-

-

-

(0.9)

-

-

(0.9)

Exchange differences on translation of foreign operations

-

-

-

(7.8)

-

-

(7.8)

Actuarial gains on defined benefit pension schemes

-

-

-

-

4.3

-

4.3

Tax relating to components of other comprehensive income

-

-

-

(0.3)

(2.1)

-

(2.4)

Total comprehensive income for the period

-

-

-

(9.0)

73.6

-

64.6

Issue of share capital

0.2

0.1

(0.2)

-

-

-

0.1

Share-based payment charge

-

-

3.0

-

-

-

3.0

Tax relating to share-based payments

-

-

-

-

1.7

-

1.7

Purchase of shares held by employee benefit trust

-

-

-

-

-

(0.9)

(0.9)

Transfer to retained earnings

-

-

(1.4)

-

1.4

-

-

Dividends paid

-

-

-

-

(19.9)

-

(19.9)

Balance at 31 December 2013

41.6

13.8

5.2

(13.6)

316.4

(1.9)

361.5

Profit for the year 2014

-

-

-

-

63.5

-

63.5

Losses on cash flow hedges

-

-

-

(1.7)

-

-

(1.7)

Exchange differences on translation of foreign operations

-

-

-

7.9

-

-

7.9

Actuarial losses on defined benefit pension schemes

-

-

-

-

(0.9)

-

(0.9)

Tax relating to components of other comprehensive income

-

-

-

0.2

0.4

-

0.6

Total comprehensive income for the period

-

-

-

6.4

63.0

-

69.4

Issue of share capital

0.2

1.0

(0.1)

-

-

-

1.1

Share-based payment charge

-

-

2.3

-

-

-

2.3

Tax relating to share-based payments

-

-

-

-

(0.1)

-

(0.1)

Purchase of shares held by employee benefit trust

-

-

-

-

-

(0.7)

(0.7)

Use of shares held by employee benefit trust

-

-

-

-

(0.1)

0.1

-

Transfer to retained earnings

-

-

(1.7)

-

1.7

-

-

Dividends paid

-

-


-

-

(21.9)

-

(21.9)

Balance at 31 December 2014

41.8

14.8

5.7

(7.2)

359.0

(2.5)

411.6

422.1

Cash Flow Statement

For the year ended 31 December 2014


Notes


Year ended
2014
£m


Year ended
2013
£m

Net cash from operating activities


11a)


88.6


92.4

Investing activities







Interest received




0.1


0.2

Proceeds on disposal of property, plant and equipment




0.2


0.9

Purchases of property, plant and equipment




(29.6)


(28.7)

Purchases of intangible assets




(1.5)


(1.0)

Acquisition of Upeca


13


(60.1)


-

Acquisition of Thermal


13


-


(28.1)

Acquisition of Atlas




-


(2.4)

Loan to joint venture




(1.1)


-

Investment in joint venture




-


(0.5)

Net cash used in investing activities




(92.0)


(59.6)

Financing activities







Dividends paid




(21.9)


(19.9)

Repayment of borrowings




(34.5)


(0.2)

Repayments of obligations under finance leases




(1.4)


(0.5)

Share issues




1.1


0.1

Purchase of shares held by employee benefit trust




(0.7)


(0.9)

New loans raised




16.1


-

Net cash used in financing activities




(41.3)


(21.4)

Net (decrease)/increase in cash and cash equivalents




(44.7)


11.4

Cash and cash equivalents at beginning of period



53.1


43.9

Effect of foreign exchange rate changes




0.1


(2.2)

Cash and cash equivalents at end of period


11c)


8.5


53.1

Notes to the above Financial Statements

For the year ended 31 December 2014

1. General information

These results for the year ended 31 December 2014 are an excerpt from the Annual Report & Accounts 2014 and do not constitute the Group's statutory accounts for 2014 or 2013.  Statutory accounts for 2013 have been delivered to the Registrar of Companies, and those for 2014 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 2014 which is available at www.seniorplc.com, hard copies of which will be distributed on or soon after 13 March 2015.

The accounting policies adopted are consistent with those followed in the preparation of the Group's Annual Report & Accounts 2014 which are unchanged from those adopted in the Group's Annual Report & Accounts 2013, except as described below.

In the current financial year, the Group has adopted the following standards and amendments:

IFRS 10 establishes a single basis to determine whether an entity should be included in the consolidated financial statements.  This standard does not change the Group's conclusion on control and therefore does not represent a material impact on the Group's Financial Statements.

IFRS 11 introduces an amended approach to joint arrangements and provides guidance on how to account for joint operations and joint ventures.  This standard does not change the Group's conclusion on its joint venture and therefore does not represent a material impact on the Group's Financial Statements.

IFRS 12 provides disclosure requirements for all forms of interest in other entities.  The required enhanced disclosures are included, where applicable, in the Group's Financial Statements.

IFRS 10, IFRS 11 and IFRS 12: Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities - Transition Guidance provides additional relief by limiting the requirements to provide comparative information to only the preceding comparative period.  This guidance does not represent a material impact on the Group's Financial Statements.

IAS 19 amendments permit contributions to be recognised as a reduction in the service cost in the period in which the related service is rendered if the amount of contribution from an employee or third party is independent of the number of years of service.  As the Group's largest defined benefit plan is closed to future accruals this amendment does not represent a material impact on the Group's Financial Statements.

IAS 27 contains the accounting and disclosure requirements for investments in subsidiaries, joint arrangements and associates when preparing separate financial statements.  This standard has no material impact on the Group's Financial Statements.

IAS 28 prescribes the accounting for associates and joint ventures.  This standard does not represent a material impact on the Group's Financial Statements.

Annual Improvements to IFRSs 2010-2012 Cycle and Annual Improvements to IFRSs 2011-2013 Cycle incorporate necessary, but non-urgent, amendments to 11 International Financial Reporting Standards.  The amendments most relevant to the Group are:

IFRS 2: Share Based Payments amends the definition of "vesting condition" and "market condition" and adds a definition of "performance condition" and "service condition".  This amendment does not currently represent a material impact on the Group's Financial Statements.

IFRS 9: Operating Segment requires an entity to disclose the judgements made by management in applying the aggregation criteria to operating segments.  The enhanced disclosure is included in the Group's Financial Statements.

The remaining nine amendments in Annual Improvements to IFRSs 2010-2012 Cycle and Annual Improvements to IFRSs 2011-2013 Cycle do not currently impact the Group's Financial Statements.

The following amendments to Standards and Interpretations are also effective from the current financial year, but currently do not impact the Group's operations: IFRS 10, IFRS 12 and IAS 27 (Amendments) Investment Entities, IAS 39 (Amendments) Novation of Derivatives and Continuation of Hedge Accounting and IFRIC 21 Levies.

3. Segment information

The Group reports its segment information as two operating Divisions according to the market segments they serve, Aerospace and Flexonics.  For management purposes, the Aerospace Division is managed as two sub-divisions, Aerostructures and Fluid Systems, in order to enhance management oversight; however, these are aggregated as one reporting segment as they service similar markets and customers in accordance with IFRS 8.  The Flexonics Division is managed as a single division.

Segment information for revenue, operating profit and a reconciliation to entity net profit is presented below.

Aerospace

Flexonics

Elimination
/ central
costs

Total


Aerospace

Flexonics

Elimination
/ central
costs

Total


Year
ended
2014
£m

Year
ended
2014
£m

Year
ended
2014
£m

Year
ended
2014
£m


Year
ended
2013
£m

Year
ended
2013
£m

Year
ended
2013
£m

Year
ended
2013
£m

Continuing operations










External revenue

536.5

284.3

-

820.8


506.1

269.0

-

775.1

Inter-segment revenue

0.1

0.3

(0.4)

-


0.5

0.3

(0.8)

-

Total revenue

536.6

284.6

(0.4)

820.8


506.6

269.3

(0.8)

775.1

Continuing adjusted trading profit

77.9

43.5

(9.5)

111.9


76.5

40.4

(9.0)

107.9

Share of joint venture loss

-

(0.3)

-

(0.3)


-

(0.3)

-

(0.3)

Continuing adjusted operating profit

77.9

43.2

(9.5)

111.6


76.5

40.1

(9.0)

107.6

Exceptional pension  (charge)/credit

-

-

(1.5)

(1.5)


-

-

1.1

1.1

Reversal of contingent consideration payable

-

-

-

-


-

3.8

-

3.8

Impairment of goodwill

(9.4)

-

-

(9.4)


(12.7)

-

-

(12.7)

Restructuring costs

(1.5)

-

-

(1.5)


(1.9)

-

-

(1.9)

Amortisation of intangible assets from acquisitions

(4.8)

(2.4)

-

(7.2)


(3.0)

(1.2)

-

(4.2)

Write-down of L85 inventory

(1.8)

-

-

(1.8)


-

-

-

-

Acquisition costs

(0.3)

(0.3)

-

(0.6)


(0.4)

-

-

(0.4)

Operating profit

60.1

40.5

(11.0)

89.6


58.5

42.7

(7.9)

93.3

Investment income




0.1





0.2

Finance costs




(9.1)





(9.7)

Profit before tax




80.6





83.8

Tax




(17.1)





(12.4)

Profit after tax



63.5





71.4











Adjusted operating profit (Note 4)



111.6





107.6

Segment information for assets and liabilities is presented below.

Assets

Year ended
2014
£m


Year ended
2013
£m

Aerospace

293.0


251.5

Flexonics

130.7


103.7

Corporate

3.0


2.3

Segment assets for reportable segments

426.7


357.5

Unallocated




Goodwill

262.5


225.9

Intangible customer relationships

25.1


14.3

Cash

13.2


53.1

Deferred and current tax

7.1


7.6

Others

2.7


2.0

Total assets per balance sheet

737.3


660.4

 

Liabilities

Year ended
2014
£m


Year ended
2013
£m

Aerospace

84.7


74.6

Flexonics

51.2


37.3

Corporate

11.2


14.1

Segment liabilities for reportable segments

147.1


126.0

Unallocated




Debt

117.5


111.6

Finance leases

0.7


0.7

Deferred and current tax

38.1


31.6

Retirement benefit obligations

19.8


25.6

Others

2.5


3.4

Total liabilities per balance sheet

325.7


298.9

4. Adjusted operating profit and adjusted profit before tax

The provision of adjusted operating profit and adjusted profit before tax, derived in accordance with the table below, has been included to identify the performance of operations, from the time of acquisition or until the time of disposal, prior to the impact of amortisation of intangible assets acquired on acquisitions, reversal of contingent consideration payable, impairment charges, restructuring costs, exceptional pension charge or credits, acquisition costs, and write-down of L85 inventory.

Year ended
2014
£m


Year ended
2013
£m

Operating profit

89.6


93.3

Exceptional pension charge/(credit)

1.5


(1.1)

Reversal of contingent consideration payable

-


(3.8)

Impairment of goodwill

9.4


12.7

Restructuring costs

1.5


1.9

Amortisation of intangible assets from acquisitions

7.2


4.2

Write-down of L85 inventory

1.8


-

Acquisition costs

0.6


0.4

Adjustments to operating profit

22.0


14.3

Adjusted operating profit

111.6


107.6

Profit before tax

80.6


83.8

Adjustments to profit as above before tax

22.0


14.3

Adjusted profit before tax

102.6


98.1





5. Tax charge

Year ended
2014
£m


Year ended
2013
£m

Current tax:




Current year

12.4


12.6

Adjustments in respect of prior periods

(0.5)


(3.7)


11.9


8.9

Deferred tax:




Current year

6.2


0.3

Adjustments in respect of prior periods

(1.0)


3.2


5.2


3.5


17.1


12.4

UK Corporation tax is calculated at an effective rate of 21.5% (2013 - 23.25%) of the estimated assessable profit for the year.  Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

6. Dividends

Year ended
2014
£m


Year ended
2013
£m

Amounts recognised as distributions to equity holders in the period:




Final dividend for the year ended 31 December 2013 of 3.60p (2012 - 3.27p) per share

15.0


13.6

Interim dividend for the year ended 31 December 2014 of 1.67p (2013 - 1.52p) per share

6.9


6.3


21.9


19.9

Proposed final dividend for the year ended 31 December 2014
of 3.96p (2013 - 3.60p) per share

16.6


15.0

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting 2015 and has not been included as a liability in these 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
2014
million


Year ended
2013
million

Weighted average number of ordinary shares for the purposes of basic earnings per share

416.3


414.7

Effect of dilutive potential ordinary shares:




Share options

5.3


5.4

Weighted average number of ordinary shares for the purposes of diluted earnings per share

421.6


420.1

 

Year ended 2014

Year ended 2013

Earnings and earnings per share

Earnings
£m

EPS
pence

Earnings
£m

EPS
pence

Profit for the period from continuing operations

63.5

15.25

71.4

17.22

Adjust:





Amortisation of intangible assets from acquisitions net of tax of £1.3m (2013 - £1.4m)

5.9

1.42

2.8

0.67

Acquisition costs net of tax of £nil (2013 - £nil)

0.6

0.14

0.4

0.10

Reversal of contingent consideration payable net of tax of £nil (2013 - £nil)

-

-

(3.8)

(0.92)

Goodwill impairment charge net of tax of £nil (2013 - £5.1m)

9.4

2.26

7.6

1.83

Exceptional pension charge/(credit) net of tax of £0.3m (2013 - £0.4m)

1.2

0.29

(0.7)

(0.17)

Write-down of L85 inventory net of tax of £0.7m (2013 - £nil)

1.1

0.26

-

-

Restructuring costs net of tax of £0.6m (2013 - £0.8m)

0.9

0.22

1.1

0.27

Adjusted earnings after tax

82.6

19.84

78.8

19.00

Earnings per share





-     basic


15.25p


17.22p

-     diluted


15.06p


17.00p

-     adjusted


19.84p


19.00p

-     adjusted and diluted


19.59p


18.76p

The effect of dilutive shares on the earnings for the purposes of diluted earnings per share is £nil (2013 - £nil).

The denominators used for all basic, diluted and adjusted earnings per share are as detailed in the "Number of shares" table above.

The provision of an adjusted earnings per share, derived in accordance with the table above, has been included to identify the performance of operations, from the time of acquisition or until the time of disposal, prior to the impact of the following items:

·              amortisation of intangible assets acquired on acquisitions;

·              exceptional pension charge or credits;

·              acquisition costs;

·              reversal of contingent consideration payable;

·              impairment charges;

·              restructuring costs; and

·              write-down of L85 inventory.

8. Goodwill

Goodwill increased by £36.6m during the year to £262.5m (2013 - £225.9m) due to goodwill arising on the acquisition of Upeca of £36.5m, an increase of £1.3m relating to the 2013 acquisition of Thermal (see Note 13), an impairment charge of £9.4m relating to the Group's Composites business in Wichita, USA (see Note 15) and exchange translation differences of £8.2m.

9. Property, plant and equipment

During the period, the Group spent £29.6m (2013 - £28.7m) on the acquisition of property, plant and equipment.  The Group also disposed of property, plant and equipment with a carrying value of £0.2m (2013 - £0.9m) for proceeds of £0.2m (2013 - £0.9m).

10. Share capital

Share capital as at 31 December 2014 amounted to £41.8m.  During 2014, the Group issued 786,950 shares at an average price of 146.8p per share under share option plans raising £1.1m.  1,358,809 shares were also issued during 2014 under the Senior plc 2005 Long-Term Incentive Plan.

11. Notes to the cash flow statement

a) Reconciliation of operating profit to net cash from operating activities

Year ended
2014
£m


Year ended
2013
£m

Operating profit

89.6


93.3

Adjustments for:




Depreciation of property, plant and equipment

24.1


21.6

Amortisation of intangible assets

8.0


4.9

Impairment of goodwill

9.4


12.7

Reversal of contingent consideration payable

-


(3.8)

Restructuring costs

1.5


1.9

Share options

2.5


3.5

Pension payments in excess of service cost

(9.1)


(7.7)

Share of joint venture

0.3


0.3

Exceptional pension charge/(credit)

1.5


(1.1)

Operating cash flows before movements in working capital

127.8


125.6

Increase in inventories

(11.5)


(8.6)

Increase in receivables

(13.6)


(9.2)

Increase/(decrease) in payables

8.6


(1.3)

Working capital currency movements

(1.5)


-

Cash generated by operations

109.8


106.5

Income taxes paid

(12.7)


(6.0)

Interest paid

(8.5)


(8.1)

Net cash from operating activities

88.6


92.4

b) Free cash flow

Free cash flow, a non-statutory item, highlights the total net cash generated by the Group prior to corporate activity such as acquisitions, disposals, financing and transactions with shareholders.  It is derived as follows:

Year ended
2014
£m


Year ended
2013
£m

Net cash from operating activities

88.6


92.4

Interest received

0.1


0.2

Proceeds on disposal of property, plant and equipment

0.2


0.9

Purchases of property, plant and equipment

(29.6)


(28.7)

Purchase of intangible assets

(1.5)


(1.0)

Free cash flow

57.8


63.8

c) Analysis of net debt

At
1 Jan
2014
£m

Cash flow
£m

Non-cash
items
£m

Assumed
on
acquisition
£m

Exchange
movement
£m

At
31 Dec
2014
£m

Cash

53.1

(40.0)

-

-

0.1

13.2

Overdrafts

-

(4.7)

-

-

-

(4.7)

Cash and cash equivalents

53.1

(44.7)

-

-

0.1

8.5

Debt due within one year

(21.2)

31.5

(16.0)

(12.9)

(0.8)

(19.4)

Debt due after one year

(90.4)

(13.1)

16.0

-

(5.9)

(93.4)

Finance leases

(0.7)

1.4

-

(1.4)

-

(0.7)

Total

(59.2)

(24.9)

-

(14.3)

(6.6)

(105.0)

 

Year ended
2014
£m


Year ended
2013
£m

Cash and cash equivalents comprise:




Cash

13.2


53.1

Bank overdrafts

(4.7)


-

Total

8.5


53.1

Cash and cash equivalents (which are presented as a single class of assets on the face of the Balance Sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.  The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair value.

12. Retirement benefit schemes

Defined Benefit Schemes

Aggregate retirement benefit liabilities are £19.8m (2013 - £25.6m).  The primary components of this liability are the Group's UK and US defined benefit pension schemes, with deficits of £9.4m (2013 - £15.6m) and £4.7m (2013 - £4.3m) respectively, and a liability on unfunded schemes of £5.7m (2013 - £5.7m).  These values have been assessed by independent actuaries using current market values and discount rates.  The decrease in the liability from £25.6m at 31 December 2013 to £19.8m at 31 December 2014 is principally due to the positive impact of £9.1m cash contributions in excess of service costs, asset returns above expectation and a decrease in the inflation assumptions during the year partially offset by a decrease in the discount rate and a £1.5m curtailment charge following the closure to future accrual of the Senior plc Pension Plan at the end of 6 April 2014.

13. Acquisitions

Thermal Engineering Limited

As noted in the Annual Report & Accounts 2013, on 29 November 2013 the Group acquired 100% of the issued share capital of Thermal Engineering Ltd and its parent company Thermal Engineering Holding Ltd (collectively "Thermal").  On reviewing the financial exposures during 2014, the fair value of financial liabilities increased by £1.3m resulting in a corresponding increase in goodwill of £1.3m.

Upeca Technologies Sdn. Bhd.

On 8 April 2014, the Group acquired 100% of the issued share capital of UPECA Technologies Sdn. Bhd., and its 100%-owned subsidiaries UPECA Flowtech Sdn. Bhd., UPECA Engineering (Tianjin) Co. Ltd, UPECA Valve Automation Sdn. Bhd. and UPECA Engineering Sdn. Bhd., together with its 75%-owned subsidiary UPECA Aerotech Sdn. Bhd. (collectively "Upeca").  The Group also subsequently acquired the remaining 25% minority interest in UPECA Aerotech Sdn. Bhd.  Upeca is located in Selangor, Malaysia and Tianjin, China and manufactures high-precision engineered components serving the aerospace and energy sectors.  Upeca's capabilities are highly complementary to Senior's existing portfolio, strengthening the Group's aerospace and energy market presence in the increasingly important South East Asian region.  The consideration was £59.1m plus the assumption of £15.3m of net debt and the acquisition was funded by the Group's existing debt facilities.

Set out below is a provisional summary of the net assets acquired:

Recognised amounts of identifiable assets acquired and liabilities assumed:

£m

Identifiable intangible assets

17.8

Property, plant and equipment and computer software

15.1

Inventories

4.7

Financial assets, excluding cash and cash equivalents

7.5

Cash and cash equivalents

4.9

Financial liabilities excluding bank overdraft and other borrowings

(5.8)

Bank overdraft and other borrowings

(20.2)

Deferred tax liability

(1.4)

Net assets acquired

22.6

Goodwill

36.5

Total consideration

59.1

Consideration satisfied by:


Cash paid

59.1

Net cash outflow arising on acquisition:


Cash consideration

59.1

Add: overdraft net of cash and cash equivalents acquired

1.0

Net cash outflow arising on acquisition

60.1

The goodwill of £36.5m represents the premium paid in anticipation of future profitability from assets that are not capable of being separately identified and separately recognised such as the assembled workforce as well as the expectation that the Group will be able to leverage its wider market access and strong financial position to generate sustainable financial growth beyond what Upeca would have potentially achieved as a stand-alone company.  None of the goodwill is expected to be deductible for tax purposes.

The intangible assets acquired as part of the acquisition relate mainly to customer contracts and relationships, the fair value of which is dependent on estimates of attributable future revenues, profitability and cash flows, and are being amortised over five years.

13. Acquisitions continued

The financial assets acquired include trade receivables with a provisional fair value of £6.8m and a gross contractual value of £6.8m, all of which is currently expected to be collectible.

Acquisition-related costs of £0.6m are included in administrative expenses within trading profit in the Group's Consolidated Income Statement for the year ended 31 December 2014.

The fair value of the acquired identifiable assets and liabilities is provisional pending finalisation of the fair value exercise.

Upeca contributed £26.8m of external revenue and £4.1m to the Group's operating profit from the date of acquisition to 31 December 2014.  If the acquisition had been completed on 1 January 2014, continuing Group revenue for the 12 months ended 31 December 2014 would have been £828.8m and continuing Group operating profit would have been £90.9m.

14. Investment in joint venture

During 2012, the Group set up and has a 49% interest in Senior Flexonics Technologies (Wuhan) Limited, a jointly controlled entity incorporated in China.  The Group's investment of £0.7m represents the Group's share of the joint venture's net assets as at 31 December 2014.

During 2014, the Group provided a loan of £1.1m to the joint venture.  This is reported as £0.7m within current assets and £0.4m in non-current assets.

15. Post balance sheet events

On 20 January 2015, the Group was notified by Bombardier of the decision to suspend, for an indefinite period of time, the development of its L85 business jet programme.  This post balance sheet event triggered a one-off £1.8m impairment of inventory and a £9.4m impairment of goodwill both of which have been recognised as exceptional charges in 2014.


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