Final Results
Senior PLC
01 March 2007
Senior plc
==========
Results for the year ended 31 December 2006
-------------------------------------------
FINANCIAL HIGHLIGHTS Year ended 31 December
2006 2005 (1)
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REVENUE £387.9m £338.6m +14.6%
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OPERATING PROFIT £24.5m £19.6m +25.0%
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PROFIT BEFORE TAX £18.1m £14.6m +24.0%
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BASIC EARNINGS PER SHARE 4.35p 3.75p(3) +16.0%
--------------------------------------------------------------------------------
ADJUSTED PROFIT BEFORE TAX (2) £19.8m £14.8m +33.8%
--------------------------------------------------------------------------------
ADJUSTED EARNINGS PER SHARE (2) 4.65p 3.82p(3) +21.7%
--------------------------------------------------------------------------------
TOTAL DIVIDENDS (PAID AND PROPOSED) PER SHARE 2.000p 1.905p(3) +5.0%
--------------------------------------------------------------------------------
FREE CASH FLOW (4) £5.1m £2.2m
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NET BORROWINGS £96.7m £62.4m
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(1) The figures for 2005 have been restated to reflect the adoption of the
amendment to International Accounting Standard 21 'The Effects of Changes
in Foreign Exchange Rates' issued in December 2005, which was endorsed
by the EU in May 2006. See Note 2 for details.
(2) Adjusted profit before tax and adjusted earnings per share arise before
a £0.4m loss on sale of fixed assets (2005: £0.2m) and a £1.3m charge
for amortisation of intangible assets acquired on acquisition (2005: £nil).
(3) 2005 earnings and dividends per share have been adjusted for the bonus
element of the 2006 rights issue. Previously reported basic earnings per
share was 3.94p, adjusted earnings per share was 4.01p and dividends per
share was 2.000p.
(4) See Note 9 (b) for derivation of free cash flow.
Commenting on the results, James Kerr-Muir, Chairman of Senior plc, said:
'The Group has delivered an excellent set of results with adjusted profit before
taxation 33.8% ahead of the prior year. AMT and Sterling Machine, the two North
American aerospace businesses acquired during 2006, both delivered strong
performances. Their full year contribution, combined with the continuing growth
in build rates of commercial aircraft and the production ramp up of the Group's
new heavy duty diesel engine products, mean prospects for the Group are very
encouraging. Consequently, the Board is pleased to recommend a 5% increase in
the full year dividend, the first increase for seven years.'
For further information please contact:
Graham Menzies, Group Chief Executive, Senior plc 01923 714702
Mark Rollins, Group Finance Director, Senior plc 01923 714738
Adrian Howard, Finsbury Group 020 7251 3801
This announcement, together with other information on Senior plc may be found
at: www.seniorplc.com
Note to Editors:
Senior is an international manufacturing group with operations in 11 countries.
Senior designs, manufactures and markets high technology components and systems
for the principal original equipment producers in the worldwide civil aerospace,
defence, diesel engine, exhaust system and energy markets.
CHAIRMAN'S STATEMENT
=====================
The Group has delivered an excellent set of results with adjusted profit before
taxation 33.8% ahead of the prior year. AMT and Sterling Machine, the two North
American aerospace businesses acquired during 2006, both delivered strong
performances. Their full year contribution, combined with the continuing growth
in build rates of commercial aircraft and the production ramp up of the Group's
new heavy duty diesel engine products, mean prospects for the Group are very
encouraging. Consequently, the Board is pleased to recommend a 5% increase in
the full year dividend, the first increase for seven years.
Financial Results
-----------------
It is pleasing to be able to report progress on all aspects of financial
performance with significant advances being made in top and bottom line growth.
During 2006, Group revenue increased by 14.6% to £387.9m (2005 - £338.6m) and
operating profit increased by 25.0% to £24.5m (2005 - £19.6m) largely due to
increasing build rates of civil aircraft, strong energy markets and the two
acquisitions completed in the year.
Adjusted profit before tax, the measure which the Board believes best reflects
the true underlying performance of the business, increased by 33.8% to £19.8m
(2005 - £14.8m). Adjusted profit before tax is before the loss on sale of fixed
assets of £0.4m (2005 - £0.2m) and a £1.3m (2005 - £nil) charge for amortisation
of intangible assets acquired on acquisition.
Adjusted earnings per share increased by 21.7% to 4.65p (2005 - 3.82p restated
for the bonus element of the rights issue) despite an increased tax charge of
17.7% (2005 - 16.9%) on adjusted profit before tax.
Year end net debt increased to £96.7m (2005 - £62.4m) largely as a consequence
of the acquisitions, which were funded by debt as well as new equity, and the
ongoing investment in the manufacturing capacity and capability of the Senior
Group. The majority of the debt is designated in US dollars, with the level of
year end debt benefiting from the weakening of the US dollar against the UK
pound during 2006.
Dividend
--------
The Board is recommending an increase in the dividend, the first for seven
years. It is proposed that the final dividend to be paid for 2006 is 1.381p per
share (2005 - 1.286p restated for the bonus element of the rights issue) an
increase of 7.4%. When added to the restated 0.619p interim dividend, this will
bring the full year dividend to 2.000p, an increase of 5.0% over the restated
1.905p for 2005. The final dividend, if approved, will be paid on 31 May 2007 to
shareholders on the register at close of business on 4 May 2007. With
encouraging prospects for the Group, the Board anticipates following a
progressive dividend policy going forward.
Acquisitions
------------
During 2006, Senior acquired two businesses to add to its existing aerospace
interests. Both were privately owned and located in the USA. These
acquisitions met certain key criteria namely: aerospace by preference; good
growth prospects in existing markets; profitable and immediately enhancing to
Group earnings per share without the need to assume synergistic benefits. Both
the acquired businesses have performed in line with expectations during their
time within the Group.
Sterling Machine Co., Inc. was purchased by Senior at the end of January 2006
for £21.5m. The company is a machine shop working in titanium, nickel and
magnesium alloys that manufactures flight critical components primarily for the
Sikorsky Aircraft Corporation. It is located in Enfield, Connecticut, USA, and is
a well invested business housed in a facility built in 2003. Sikorsky, a
builder of mainly military helicopters, is outsourcing more of its component
manufacture as it increases its build rate to meet a strong order-book.
Increasing numbers of helicopters are flying in various operational roles and
the result is a growing demand for spares. Sterling Machine continues to be
focussed on growing its level of business service to Sikorsky and, following its
acquisition, new machining centres have been ordered to increase capacity and
the factory floor space increased by 50%. We anticipate that Sterling Machine
will continue to maintain its growth momentum.
Aerospace Manufacturing Technologies, Inc. (AMT) was acquired at the end of
October 2006 for £60.0m. The business is located in Arlington, Washington
State, USA, in the Seattle area. AMT is a machine shop, working almost
exclusively in the manufacture of aluminium structural parts for Boeing civil
aircraft. It has substantial content on current Boeing production aircraft -
the 737, 777 and 747. The company is exceptionally well invested with a
substantial number of state-of-the-art four and five-axis computer controlled
machining centres. AMT is set to continue to grow as a result of increases in
the build rates of Boeing's existing aircraft and also the launch of the new,
highly successful, Boeing 787 ('Dreamliner') on which AMT has substantial
content. As a result, capacity expansion has been sanctioned with new machining
centres being ordered. Additional land, adjacent to the existing facility, has
already been purchased and plans for new factory space are currently under
consideration.
Trading
-------
Senior's operations are organised into two similar sized operating divisions -
Aerospace with twelve operating subsidiaries and Flexonics with eleven. Both
Divisions are focussed on manufacturing components and systems for the original
equipment manufacturers. There is little aftermarket content and the Group's
operations generally deliver to the required production schedules of their
customers. All products are engineered for specific applications, so levels of
demand are essentially driven by the success, or otherwise, of customers'
individual product lines.
Aerospace
---------
In Aerospace, the civil market, particularly for large commercial aircraft (35%
of Divisional sales) and business jets (9%), continued to be very strong.
Whilst 2005 had been a memorable year for order intake by the large civil
aircraft builders and their engine suppliers, 2006 turned out to be almost as
good with Boeing delivering 398 civil airliners and booking new orders for
1,044, and Airbus delivering 434 and booking 790. The result is that both
aircraft manufacturers currently have around six year order books, at 2006
delivery rates.
The Aerospace Division has substantial exposure to the new highly successful
Boeing 787, due into service in late 2008, both on the aircraft itself and its
engines, but only limited exposure to the large Airbus A380, which has suffered
extensive production delays. The defence and military sector (27% of Divisional
sales in 2006) was relatively stable throughout the year.
The two acquisitions made in 2006 immediately contributed positively to the
fortunes of the Division. In addition to the investment in the newly acquired
businesses, capital expenditure is running at a higher rate than in recent years
throughout the Aerospace Division, as build rates increase throughout the
industry and new aircraft programmes ramp up.
The result of all this activity was an increase in the Aerospace Division's
sales of 27.1% to £197.0m (2005 - £155.0m at constant currency i.e. 2005 results
translated using 2006 average exchange rates) and an adjusted operating profit
increase of 48.8% to £19.2m (2005 - £12.9m at constant currency).
Flexonics
---------
In Flexonics, the automotive markets in which the Group operates showed little
change in demand. In North America, 16.0 million light vehicles were produced
in 2006 compared to 16.4 million in 2005. In Western Europe, 18.4 million light
vehicles were built compared to 18.0 million in 2005. Consequently, the Group's
automotive volumes remained at about the same level in 2006 as in 2005, but with
the manufacturing base continuing to move away from the US, UK and France to the
Czech Republic, South Africa, Brazil and India.
An important stage in the business development of this Division has been
reached. Following nearly four years of product development and two years of
production process development and capital investment, sales of the new products
for North American built heavy duty diesel engines have commenced. This is
incremental business for the Division's North American operation and takes the
Division into a new market sector where demand is being driven by the need for
lower engine emissions from 2007 onwards. This market sector continues to offer
good opportunities for future growth.
Energy markets (power generation, oil and gas and process plant) were rewarding
in 2006, driven by the industrialisation of China and India and the high demand
for many basic commodities. As 2006 ended, the Group saw continued development
of these energy markets, the return of some nuclear market activity and
completion of the site work on the troublesome Wembley Stadium ducting contract.
Overall, Flexonics reported sales growth of 5.1% to £191.5m (2005 - £182.2m at
constant currency). Adjusted operating profits increased by 8.3% to £11.8m (2005
- £10.9m at constant currency). The increases were achieved despite the flat
automotive markets, as a number of new automotive programmes were won, the new
heavy duty diesel products commenced production in the final quarter of the year,
energy markets were strong and the site-work on Wembley was completed.
Employees and the Board
-----------------------
I would like to extend a warm welcome to all the new employees joining Senior as
well as thanking the Group's employees for another year of unstinting effort and
commitment, a year in which their endeavours have resulted in a significant step
forward in the performance and the value of the Senior Group. It is particularly
important that the Group has the right people in the right roles, given the
geographical diversity of the Group and its lean structure, and I am pleased
that the Group has made significant progress in this area over recent years.
Having been on the Board of Senior for ten years, the past six as Chairman, I am
planning to retire sometime during 2007. I am delighted that Martin Clark, a
non-executive Director of six years, has agreed to become Chairman when I
leave. The recruitment of a new non-executive Director is well advanced with an
appointment anticipated prior to my retirement.
I am proud of the advances Senior has made whilst I have been Chairman, but most
of all I am proud of the achievements of the Group's employees.
Outlook
-------
The Senior Group enters 2007 with almost universally larger order-books across
its operations than it had a year ago. Demand from customers continues at an
encouraging level.
The aerospace industry continues to thrive, the Group's new heavy duty diesel
products are in production and energy markets are strong. The challenges of
recruiting the necessary skills to grow our business, the availability and
pricing of raw materials and the fluctuations in the major currencies in which
Senior trade are all still present. These are not, however, new challenges for
Senior or its management.
Trading in the first two months of 2007 has been in line with the Board's
expectations and I expect that 2007 will deliver further meaningful growth.
James Kerr-Muir
BUSINESS REVIEW
===============
Operations
==========
Senior is an international manufacturing group with operations in 11 countries.
Senior designs, manufactures and markets high technology components and systems
for the principal original equipment producers in the worldwide civil aerospace,
defence, diesel engine, exhaust system and energy markets. The Group is split
into two Divisions, Aerospace and Flexonics.
Aerospace
---------
Following the acquisition of two aerospace businesses in the year, Sterling
Machine and Aerospace Manufacturing Technologies (AMT), the Aerospace Division
is now the larger of the Group's two divisions consisting of twelve operating
companies, seven of which are located in the USA with the remainder in Europe.
In 2006, the Division's main products were engine structures and mounting
systems (30% of Divisional sales), metallic ducting systems (25%), composite
ducting systems (14%), helicopter machined parts (7%), fluid control systems
(6%) and airframe and other structural parts (3%). 15% of Divisional sales are
to non-aerospace, but related technology, markets. In 2007, sales of airframe
and other structural parts are expected to represent a much greater portion of
Divisional sales as AMT was only owned by Senior for the final two months of
2006.
Flexonics
---------
The Flexonics Division has 11 operations and was formed at the beginning of
2006, from the consolidation of the Automotive (eight operations) and Industrial
(three operations) Divisions, for managerial, technical and market related
reasons. The 11 operations are located in North America (three), Europe
(five), South Africa, India and Brazil. In 2006 the Division's sales comprised
of flexible mechanisms for vehicle exhaust systems (32% of Divisional sales),
diesel fuel distribution pipework (13%), cooling and emission control components
(12%), expansion joints and ducting for the heating and ventilation market
(11%), expansion joints / control bellows / hoses for the power market (11%),
for the oil and gas and chemical processing industries (7%) and for other
industrial markets (14%). 2007 is anticipated to see an increasing percentage of
sales coming from the diesel fuel distribution pipework and the cooling and
emission control component sectors as production of the Group's new heavy duty
diesel products ramp up.
Acquisitions
============
The Group completed two acquisitions in the year, the first for over six years.
The acquired businesses are both leading suppliers to the aerospace industry.
Sterling Machine Co., Inc. was acquired on 27 January 2006 for $38.0m (£21.5m)
including costs and assumed net debt. Sterling Machine is a pre-eminent
manufacturer of transmission and rotor-head helicopter components for military
platforms, principally to Sikorsky Aircraft Corporation. The business is located
in Enfield, Connecticut, USA. The purchase consideration was funded through the
combination of a placing of 15 million new Senior plc shares at 60.0 pence each,
raising £8.8m net of costs, and utilisation of the Group's existing borrowing
facilities. Sterling Machine performed strongly during its first eleven months
with the Group.
A second aerospace business, Aerospace Manufacturing Technologies, Inc.
(AMT) located north of Seattle in Washington State, USA, was acquired on 27
October 2006. It manufactures aluminium structural parts (mainly for Boeing
commercial aircraft) utilising state-of-the-art four-axis, five-axis and
long-bed machining centres. AMT's key programmes are the Boeing 737 and 777 both
of which have large order books and increasing build rates. AMT is also well
positioned on the new Boeing 787 ('Dreamliner') which is scheduled for delivery
to its first customer during 2008 and which already has around 450 customer
orders. AMT was acquired for a total consideration, including assumed debt, the
net asset purchase price adjustment and acquisition costs, of $113.9m (£60.0m).
The purchase consideration was funded through a 1 for 5 rights issue at 42.0
pence per share, which raised £25.9m net of expenses, together with the partial
utilisation of the Group's new five year £80.0m revolving credit facility. AMT
performed strongly during its first two months of ownership by Senior and, with
its significant involvement on the B787, its prospects are excellent.
Financial Review
================
Summary
-------
A summary of the Group's operating results are set out in the table below. A
more detailed review of each Division is included in the section titled
'Divisional Review'.
Revenue Adjusted Op Profit (1) Margin
-------------- ------------- ---------------
2006 2005 2006 2005 2006 2005
£m £m £m £m % %
Aerospace 197.0 156.2 19.2 13.0 9.7 8.3
Flexonics 191.5 183.0 11.8 11.1 6.2 6.1
Inter-segment
sales (0.6) (0.6) - - - -
Central costs - - (4.8) (4.3) - -
-------- -------- ------- ------- ------- -------
Group Total 387.9 338.6 26.2 19.8 6.8 5.8
-------- -------- ------- ------- ------- -------
(1) Adjusted operating profit is the profit before loss on sale of fixed
assets, amortisation of intangible assets arising on acquisitions, interest and
tax. It may be reconciled to the operating profit shown in the consolidated
income statement as follows:
2006 2005
£m £m
Operating profit per financial statements 24.5 19.6
Loss on sale of fixed assets 0.4 0.2
Amortisation of acquisition intangible assets 1.3 -
-------- --------
Adjusted operating profit 26.2 19.8
-------- --------
Group revenue grew by 14.6%, aided in part by the two acquisitions, with the
commercial aerospace, oil and gas and chemical processing markets all
particularly strong. Adjusted operating profit rose by 32.3% principally due to
the gearing benefit of increased sales and the strong performances from the
newly acquired businesses. Operating margins consequently increased to 6.8%, a
full percentage point higher than in the prior year.
The Group's free cash flow and net debt for 2006 and the prior year were:
2006 2005
£m £m
Free cash flow 5.1 2.2
Net debt 96.7 62.4
Free cash flow is the total net cash flow generated by the Group prior to
corporate activity such as acquisitions, disposals, financing and transactions
with shareholders. It may be derived from the figures contained in the financial
statements as follows:
2006 2005
£m £m
Net cash from operating activities 22.3 16.5
Interest received 1.3 1.4
Proceeds on disposal of tangible fixed assets 2.2 0.9
Purchases of tangible fixed assets (20.1) (16.3)
Purchase of intangible assets (0.6) (0.3)
-------- --------
Free cash flow 5.1 2.2
-------- --------
Net debt increased from £62.4m to £96.7m largely due to the purchase of the two
aerospace businesses.
Revenue
-------
Group revenue increased by £49.3m (14.6%) to £387.9m (2005 - £338.6m) with the
two aerospace acquisitions responsible for £18.8m of the increase. If the effect
of the acquisitions and the small adverse year-on-year exchange effect (£2.0m)
are excluded then underlying revenue grew by 9.7% on a constant currency basis.
In 2006, 57% of Group sales originated from North America, 14% from the United
Kingdom, 20% from the rest of Europe and 9% from the rest of the World.
Operating profit
----------------
Group operating profit increased by 25.0% to £24.5m (2005 - £19.6m). Adjusted
operating profit, that before loss on sale of fixed assets of £0.4m (2005 -
£0.2m) and amortisation of intangible assets arising on acquisition of £1.3m
(2005 - £nil), increased by £6.4m (32.3%) to £26.2m (2005 - £19.8m). If the
effects of the acquisitions (£3.8m profit) and foreign currency (£0.3m adverse
impact) are excluded then underlying adjusted operating profit increased by
14.9% on a constant currency basis.
Finance costs
-------------
Finance costs, net of investment income of £0.9m (2005 - £1.3m), increased to
£6.4m (2005 - £5.0m) as global interest rates rose, particularly in North America
and the UK, and the Group's debt level increased as a result of the two
acquisitions undertaken in the year.
Profit before tax
-----------------
Adjusted profit before tax increased by 33.8% to £19.8m (2005 - £14.8m).
Reported profit before tax increased to £18.1m (2005 - £14.6m).
Tax charge
----------
The total tax charge increased to £2.9m (2005 - £2.5m) as the Group's taxable
profits increased. If the tax benefits arising from the loss on sale of fixed
assets and amortisation of intangible assets from acquisitions totalling £0.6m
(2005 - £nil) are added back then the underlying tax charge of £3.5m (2005 -
£2.5m) represents an underlying rate of 17.7% (2005 - 16.9%) on the adjusted
profit before tax of £19.8m (2005 - £14.8m).
Earnings per share
------------------
15 million ordinary shares were issued in January 2006, by way of a share
placing, to help fund the acquisition of Sterling Machine and nearly 65
million ordinary shares were issued in October 2006, through a 1 for 5 rights
issue, to help fund the acquisition of AMT. As a consequence the weighted
average number of shares, for the purposes of calculating undiluted earnings per
share in 2006, was 349.8m (2005 - 322.2m restated to take account of the bonus
element of the rights issue). Having taken this into account, adjusted earnings
per share increased by 21.7% to 4.65p (2005 - 3.82p restated for the bonus
element of the rights issue). Basic earnings per share increased to 4.35p (2005
- 3.75p restated).
Dividends
---------
A final dividend of 1.381p per share is proposed for 2006. This would bring the
full year dividend to 2.000p per share which would represent a 5.0% increase
over the prior year's 1.905p per share as restated for the bonus element of the
rights issue.
For ease of reference the reported and restated dividends for 2006 and 2005,
together with their costs are set out in the table below.
2006 2005
-------------------- --------------------
Restated Reported Restated Reported
Pence per share
Interim 0.619p 0.650p 0.619p 0.650p
Final (2006 proposed) 1.381p n/a 1.286p 1.350p
--------- ----------
Total 2.000p 1.905p
--------- ----------
+5.0%
Cost
Interim £2.1m £2.0m
Final (2006 proposed) £5.4m £4.4m
--------- ----------
Total £7.5m £6.4m
--------- ----------
+17.2%
Research and development and capital expenditure
------------------------------------------------
The Group spent £8.5m on research and development during 2006 (2005 - £8.3m). In
addition, £20.7m (2005 - £16.6m) was invested in capital expenditure mainly to
bring the new heavy duty diesel engine products into production in North America
and, as build rates for civil aircraft continued to rise, to add machining
capacity and capability at a number of the Group's aerospace operations.
Capital structure
-----------------
The Group's consolidated balance sheet at 31 December 2006 may be summarised as
follows:
Assets Liabilities Net Assets
£m £m £m
Property, plant and equipment 87.6 - 87.6
Goodwill and intangible assets 126.1 - 126.1
Current assets and liabilities 139.8 (92.3) 47.5
Other non-current assets and liabilities 3.8 (3.7) 0.1
Post-retirement obligations - (37.5) (37.5)
--------------------------------------------------------------------------------
Total before net debt 357.3 (133.5) 223.8
Net debt 8.2 (104.9) (96.7)
--------------------------------------------------------------------------------
Total at 31 December 2006 365.5 (238.4) 127.1
--------------------------------------------------------------------------------
Total at 31 December 2005 282.7 (190.4) 92.3
--------------------------------------------------------------------------------
Net assets increased by 37.7% in the year to £127.1m (2005 - £92.3m) and net
assets per share by 9.4% to 32.6 pence (2005 - 29.8 pence). There were 389.9m
ordinary shares in issue at the end of 2006 (2005 - 309.3m)
Cash flow
---------
The Group's free cash flow, whose derivation is set out in the table below,
increased to £5.1m (2005 - £2.2m) on the back of increased operating profits and
despite the £4.3m investment in working capital (as revenue increased) and net
capital expenditure of £18.5m being nearly 1.5x the depreciation level of £12.6m
(excluding £1.3m of amortisation of intangible assets acquired on acquisition).
2006 2005
£m £m
Operating profit 24.5 19.6
Depreciation and amortisation 13.9 12.0
Working capital movement (4.3) (6.9)
Pension payments above service cost (3.4) (2.8)
Other items 0.8 0.4
-------------------------------------------------------------------------------
Operating cash flow 31.5 22.3
-------------------------------------------------------------------------------
Interest paid (net) (5.3) (3.5)
Tax paid (2.6) (0.9)
Capital expenditure (20.7) (16.6)
Sale of fixed assets 2.2 0.9
-------------------------------------------------------------------------------
Free cash flow 5.1 2.2
-------------------------------------------------------------------------------
Dividends (6.5) (6.1)
Acquisitions and disposals (79.7) (0.1)
Share issues 34.8 0.5
Foreign exchange variations 11.7 (7.8)
Non-cash movements 0.3 (0.5)
Opening net debt (62.4) (50.6)
-------------------------------------------------------------------------------
Closing net debt (96.7) (62.4)
-------------------------------------------------------------------------------
Acquisitions, and the related share issues, played a major part in the Group's
2006 cash flow with the respective amounts shown in the table above being
analysed as follows:
Acquisitions Share
and Disposals Issues
£m £m
Sterling Machine (21.5) 8.8 Share Placing
AMT (60.0) 25.9 Rights Issue
less - cash acquired 0.5 -
- deferred consideration 1.2 -
Other 0.1 0.1
---------- ----------
(79.7) 34.8
---------- ----------
Net debt
--------
Net debt rose by £34.3m in the year to £96.7m (2005 - £62.4m). The increase was
mainly due to the utilisation of additional borrowings to help fund the two
acquisitions (£45.1m) being partly offset by an exchange benefit of £11.7m.
Around 95% of the Group's gross borrowings are denominated in US $. The US $
weakened in 2006 from US$1.72 : £1 at the beginning of the year to US$1.96 : £1
at the year end, causing the reported sterling net debt amount to reduce
significantly.
Liquidity
---------
As at 31 December 2006, the Group's gross borrowings, excluding finance leases,
were £103.3m (2005 - £66.5m). The maturity of these borrowings, together with
the maturity of the Group's committed facilities, can be analysed as follows:
Gross Borrowings Committed Facilities
£m £m
Within one year 13.1 12.8
In the second year 38.4 50.1
In years three to five 51.3 80.0
After five years 0.5 -
---------- ----------
103.3 142.9
---------- ----------
In anticipation of $25m (£12.8m) of loan notes maturing in June 2007, the Group
issued $30m (£15.3m) of new loan notes, with a maturity of ten years and
carrying a fixed interest rate of 5.85%, on 31 January 2007.
Changes in accounting policies
------------------------------
There have been no changes in accounting policies in the current year.
Going concern basis
-------------------
After making enquiries, the Directors have formed a judgement, at the time of
approving the financial statements, that there is a reasonable expectation that
the Group has adequate resources to continue in operational existence for the
foreseeable future. For this reason, the Directors continue to adopt the going
concern basis in preparing the financial statements.
Divisional Review
=================
The Group consists of two Divisions, Aerospace and Flexonics, whose performances
are discussed below. It should be noted that, in order to make appropriate
comparisons, the results for 2005 have been translated at constant currency
using 2006 average exchange rates.
Aerospace Division
------------------
2006 2005 Change
£m £m
--------------------------------------------------------------------------------
Revenue 197.0 155.0 (1) +27.1%
Adjusted operating profit 19.2 12.9 (1) +48.8%
Operating margin 9.7% 8.3% -
--------------------------------------------------------------------------------
(1) 2005 results translated using 2006 average exchange rates.
In the Aerospace Division (twelve operations following the acquisition of
Sterling Machine and AMT), revenue grew by £42.0m (27.1%) to £197.0m (2005 -
£155.0m at constant currency) with the acquisitions contributing £18.8m.
Adjusted operating profit (that before profit/loss on sale of fixed assets
and amortisation of intangible assets arising on acquisition) increased by £6.3m
(48.8%) to £19.2m (2005 - £12.9m at constant currency) with the two acquisitions
accounting for £3.8m of the increase.
The Division's results benefited from the continuing strong growth in the build
rate of civil aircraft with the combined large commercial, regional and business
jet markets accounting for 57% of 2006 Divisional sales. The market for large
commercial aircraft was particularly strong with Boeing and Airbus together
delivering 25% more aircraft in 2006 (832) than in 2005 (668). Their order
intakes were also extremely strong, at 2.2x delivery levels, so leaving a
combined order book of 4,988 aircraft at the year end, 25% above the level at
the start of 2006 (3,986 aircraft). The six year order books, at current
delivery rates, represent a very healthy picture for the future with both Airbus
and Boeing forecasting to increase build rates further in the coming years.
Elsewhere, the regional jet market was weak but the business jet market very
strong and the military market (27% of Divisional sales) was stable.
Flexonics Division
------------------
2006 2005 Change
£m £m
--------------------------------------------------------------------------------
Revenue 191.5 182.2(1) +5.1%
Adjusted operating profit 11.8 10.9(1) +8.3%
Operating margin 6.2% 6.0% -
--------------------------------------------------------------------------------
(1) 2005 results translated using 2006 average exchange rates.
In the Flexonics Division, the eleven operations saw combined revenue grow by
£9.3m (5.1%) to £191.5m (2005 - £182.2m at constant currency) with strong energy
markets but generally flat automotive markets. Whilst sales of the new heavy
duty diesel engine products began in the final months of the year, the volumes
were not significant.
Adjusted operating profit for the Division increased by 8.3% to £11.8m (2005 -
£10.9m at constant currency) as strong energy markets and operational
improvements more than offset the impact of flat automotive demand and the start
up costs associated with the introduction of the diesel engine products in North
America.
Automotive production levels in North America declined by 2.3% in 2006, to 16.00
million vehicles (2005 - 16.37 million), whereas Western Europe saw a 2.1%
increase to 18.37 million vehicles (2005 - 18.00 million). The outlook for 2007
is for continuing flat demand with further erosion of the sales of the
'Big Three' (General Motors, Ford and Daimler Chrysler) in North America.
In 2006 they had 56.5% of the market (2005 - 59.6%). The outlook in France
remains challenging.
However, overall prospects for the Flexonics Division remain good given strong
energy markets, the continued industrialisation of China and India, growing
volumes in the European truck market and the fact that production of the new
heavy duty diesel engine products in North America is now ramping up. The Group's
North American plant is expected to have total sales in excess of £20m in 2008
for its diesel fuel lines, diesel common rail and diesel exhaust gas recycling
cooler products. Completion of the troublesome Wembley ducting contract in
January 2007 should also enhance year-on-year profitability.
Outlook
=======
The commercial aerospace industry, representing 57% of the Aerospace Division's
2006 sales, continues to thrive. The most important sector within this category
is the large commercial sector, principally Boeing, Airbus, and the engine
manufacturers (GE and Rolls-Royce) and their respective supplier bases. Boeing
and Airbus have together received orders for 3,891 aircraft in the last two
years, against the 1,500 aircraft delivered. This has resulted in their
collective order book increasing from 2,597 aircraft at the beginning of 2005 to
4,988 at the end of 2006 (a six year order book at 2006 delivery rates). As a
consequence they have been increasing their build rates (2006 saw a 25% increase
in deliveries) and are forecasting further increases of around 10% per annum
over the next two years. The business jet sector is seeing similar buoyant
market conditions to that of the large commercial sector whilst the regional jet
market (typically 30 to 90 seat aircraft) is now stabilising after a few years
in decline. The military/defence sector, 27% of 2006 Aerospace Divisional sales,
is healthy but stable.
In the Flexonics Division, the Group increased its sales of flexible exhaust
connectors, (32% of 2006 Divisional sales), largely because its Brazilian
operation began production on a number of new programmes. The global market for
this product is expected to stay competitive, not helped by increases in the
price of stainless steel, with demand in North American and European markets
remaining broadly unchanged. The industrial markets in which the Group operates,
e.g. power, oil and gas, chemical processing and HVAC, are generally in a
healthy condition with strong future growth anticipated for many of them.
Industrial markets represented 43% of the Flexonics Division's 2006 sales.
It is anticipated that the strong commercial aerospace market, healthy
industrial markets and stable automotive markets, will provide a strong foundation
for the Group's future growth but the weakened US $ and higher stainless steel
prices will remain as challenges. Three other areas in particular further underpin
the Board's overall confidence as to the positive future for the Group:
the ramping up, through 2007, of the North American heavy duty diesel engine
products (2008 is expected to see sales in excess of £20m); full year
contributions from the two aerospace acquisitions (AMT was owned for only two
months in 2006 and Sterling Machine for eleven); and, the highly successful
Boeing 787 ('Dreamliner') going into production in late 2007 (the Group has
significant content on this aircraft and its engines).
Trading in the first two months of 2007 has been in line with the Board's
expectations and 2007 is expected to deliver further meaningful growth.
Thereafter, the Group's prospects remain very encouraging.
Graham Menzies Mark Rollins
Group Chief Executive Group Finance Director
Consolidated income statement
-----------------------------
For the year ended 31 December 2006
Notes Year ended Year ended
2006 2005
(restated)
£m £m
Continuing operations ------- --------
Revenue 3 387.9 338.6
======= ========
Trading profit 24.9 19.8
Loss on sale of fixed assets (0.4) (0.2)
------- --------
Operating profit (1) 3 24.5 19.6
Investment income 0.9 1.3
Finance costs (7.3) (6.3)
------- --------
Profit before tax (2) 18.1 14.6
Tax 5 (2.9) (2.5)
------- --------
Profit for the period 15.2 12.1
======= ========
Attributable to:
Equity holders of the parent 15.2 12.1
======= ========
Earnings per share
Basic 7 4.35p 3.75p
======= ========
Diluted 7 4.25p 3.69p
======= ========
(1) Adjusted operating profit 4 26.2 19.8
(2) Adjusted profit before tax 4 19.8 14.8
The comparative figures for 2005 have been restated to reflect adoption of the
amendment to International Accounting Standard 21 'The Effects of Changes in
Foreign Exchange Rates' issued in December 2005, which was endorsed by the EU
in May 2006. See Note 2 for details.
Consolidated statement of recognised income and expense
-------------------------------------------------------
For the year ended 31 December 2006
Year ended Year ended
2006 2005
(restated)
£m £m
------- --------
Initial recognition of financial instruments - (0.2)
(Losses)/gains on cash flow hedges (0.4) 0.5
Gains/(losses) on revaluation of financial instruments 3.5 (1.8)
Exchange differences on translation of foreign operations (10.5) 4.2
Actuarial (losses)/gains on defined benefit
pension schemes (1.0) 0.2
Tax on items taken directly to equity (0.7) (0.7)
------- --------
Net (loss)/ income recognised directly in equity (9.1) 2.2
Amounts transferred to profit or loss on cash flow hedges - (0.3)
Profit for the period 15.2 12.1
------- --------
Total recognised income and expense for the period 6.1 14.0
======= ========
Attributable to:
Equity holders of the parent 6.1 14.0
======= ========
The comparative figures for 2005 have been restated to reflect adoption of the
amendment to International Accounting Standard 21 'The Effects of Changes in
Foreign Exchange Rates' issued in December 2005, which was endorsed by the EU
in May 2006. See Note 2 for details.
Consolidated balance sheet
--------------------------
As at 31 December 2006
Notes Year ended Year ended
2006 2005
(restated)
£m £m
------- -------
Non-current assets
Goodwill 111.0 77.1
Other intangible assets 15.1 1.1
Property, plant and equipment 87.6 76.1
Deferred tax assets 0.1 0.1
Trade and other receivables 3.7 3.8
------- -------
Total non-current assets 217.5 158.2
------- -------
Current assets
Inventories 69.8 47.7
Construction contracts 3.5 3.4
Trade and other receivables 67.5 64.9
Cash and cash equivalents 7.2 8.5
------- -------
Total current assets 148.0 124.5
------- -------
Total assets 365.5 282.7
======= =======
Current liabilities
Trade and other payables 82.1 69.7
Tax liabilities 10.2 10.0
Obligations under finance leases 0.2 0.2
Bank overdrafts and loans 13.1 0.2
------- -------
Total current liabilities 105.6 80.1
------- -------
Non-current liabilities
Bank and other loans 90.2 66.3
Retirement benefit obligations 10 37.5 39.9
Deferred tax liabilities 3.3 2.1
Obligations under finance leases 1.4 1.6
Others 0.4 0.4
------- -------
Total non-current liabilities 132.8 110.3
------- -------
Total liabilities 238.4 190.4
======= =======
Net assets 127.1 92.3
======= =======
Equity
Issued share capital 39.0 30.9
Share premium account 11.2 3.8
Equity reserve 0.8 0.4
Distributable reserve 19.4 -
Hedging and translation reserve (5.9) 2.4
Retained earnings 64.0 56.1
Own shares (1.4) (1.3)
------- -------
Equity attributable to equity holders of
the parent 127.1 92.3
------- -------
Total equity 127.1 92.3
======= =======
The comparative figures for 2005 have been restated to reflect adoption of the
amendment to International Accounting Standard 21 'The Effects of Changes in
Foreign Exchange Rates' issued in December 2005, which was endorsed by the EU
in May 2006. See Note 2 for details.
Consolidated cash flow statement
--------------------------------
For the year ended 31 December 2006
Notes Year ended Year ended
2006 2005
£m £m
------- -------
Net cash from operating activities 9a) 22.3 16.5
------- -------
Investing activities
Interest received 1.3 1.4
Disposal of subsidiary 0.1 -
Proceeds on disposal of property, plant and equipment 2.2 0.9
Purchases of property, plant and equipment (20.1) (16.3)
Purchases of intangible assets (0.6) (0.3)
Acquisition of Sterling Machine 8 (21.5) -
Acquisition of AMT, net of cash acquired 8 (58.3) -
Acquisition of subsidiaries - (0.1)
------- -------
Net cash used in investing activities (96.9) (14.4)
------- -------
Financing activities
Dividends paid (6.5) (6.1)
Repayment of borrowings (7.1) (1.0)
Repayments of obligations under finance leases (0.2) (0.3)
Share issues 34.8 0.5
New loans raised 53.1 7.1
Net cash outflow on forward contracts (0.2) (0.2)
------- -------
Net cash from financing activities 73.9 -
------- -------
Net (decrease)/increase in cash and cash equivalents (0.7) 2.1
Cash and cash equivalents at beginning of period 8.5 5.9
Effect of foreign exchange rate changes (0.8) 0.5
------- -------
Cash and cash equivalents at end of period 9c) 7.0 8.5
======= =======
Notes to the preliminary financial statements
------------------------------------------------------
For the year ended 31 December 2006
1. General Information
The Preliminary Announcement of results for the year ended 31 December 2006 is
an excerpt from the forthcoming 2006 Annual Report and does not constitute the
Group's statutory accounts of 2006 nor 2005. Statutory accounts for 2005 have
been delivered to the Registrar of Companies, and those for 2006 will be
delivered following the Company's Annual General Meeting. The Auditors have
reported on both those accounts; their reports were unqualified and did not
contain statements under Sections 237(2) or (3) of the Companies Act 1985.
2. Accounting policies
Whilst the financial information included in this preliminary announcement 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. The company expects to
publish full financial statements that comply with IFRS on 13 March 2007.
At the time of preparation of the Group's annual financial statements for 2005
the EU had not endorsed an amendment to IAS 21 which required exchange
differences that arise on re-translation of inter-company loans in a currency
different to that of either counterparty to be taken to reserves and
consequently a gain of £2.0m was recognised in the income statement in respect
of such loans, under IAS 21 as then endorsed. In May 2006 the EU endorsed the
amendment to IAS 21 and consequently these financial statements have been
prepared in accordance with the revised Standard and the 2005 comparatives have
been adjusted to recognise the gain of £2.0m in the translation reserve.
3. Segmental analysis
Under IFRS, segmental detail is presented according to a primary segment and a
secondary segment. The Group's primary segmental analysis is based on the
industries that it serves, Aerospace and Flexonics. The secondary analysis is
presented according to geographic markets comprising North America, Europe
(split between the UK and Rest of Europe) and the Rest of the World. This is
consistent with the way the Group manages itself and with the format of the
Group's internal financial reporting.
a) Business segments
Segment information for revenue, operating profit and a reconciliation to entity
net profit is presented below.
Eliminations/ Eliminations/
Central Central
Aerospace Flexonics costs Total Aerospace Flexonics costs Total
Year Year Year Year Year Year Year Year
ended ended ended ended ended ended ended ended
2006 2006 2006 2006 2005 2005 2005 2005
(restated)
£m £m £m £m £m £m £m £m
------ ------ ------ ------ ------ ------ ------ ------
External revenue 196.6 191.3 - 387.9 155.8 182.8 - 338.6
Inter-segment revenue 0.4 0.2 (0.6) - 0.4 0.2 (0.6) -
------ ------ ------ ------ ------ ------ ------ ------
Total revenue 197.0 191.5 (0.6) 387.9 156.2 183.0 (0.6) 338.6
====== ====== ====== ====== ====== ====== ====== ======
Adjusted operating
profit (see note 4) 19.2 11.8 (4.8) 26.2 13.0 11.1 (4.3) 19.8
Profit/ (loss) on sale
of fixed assets 0.5 (0.9) - (0.4) (0.2) - - (0.2)
Amortisation of
intangible assets
from acquisitions (1.3) - - (1.3) - - - -
------ ------ ------ ------ ------ ------ ------ ------
Operating profit 18.4 10.9 (4.8) 24.5 12.8 11.1 (4.3) 19.6
====== ====== ====== ====== ====== ======
Investment income 0.9 1.3
Finance costs (7.3) (6.3)
------ ------
Profit before tax 18.1 14.6
Tax (2.9) (2.5)
------ ------
Profit after tax 15.2 12.1
====== ======
Segment information for assets, liabilities, property, plant and equipment and
intangible assets and depreciation and amortisation is presented below.
Additions Depn Additions Depn
to PPE and and to PPE and and
Assets Liabilities intangibles amort Assets Liabilities intangibles amort
Year Year Year Year Year Year Year Year
ended ended ended ended ended ended ended ended
2006 2006 2006 2006 2005 2005 2005 2005
£m £m £m £m £m £m £m £m
------ ------ ------ ------ ------ ------ ------ ------
Aerospace 227.8 35.1 7.6 6.8 143.0 25.9 3.1 5.2
Flexonics 124.5 37.8 13.0 7.0 125.9 31.7 13.5 6.7
------ ------ ------ ------ ------ ------ ------ ------
Sub total continuing
operations 352.3 72.9 20.6 13.8 268.9 57.6 16.6 11.9
Unallocated corporate
amounts 13.2 165.5 0.1 0.1 13.8 132.8 - 0.1
------ ------ ------ ------ ------ ------ ------ ------
Total 365.5 238.4 20.7 13.9 282.7 190.4 16.6 12.0
======= ====== ====== ====== ====== ====== ====== ======
b) Geographical segments
The Group's operations are principally located in North America and Europe.
The following table provides an analysis of the Group's sales by geographical
market, irrespective of the origin of the goods/services. The carrying amount of
segment assets, and additions to property, plant and equipment and intangible
assets, are analysed by the geographical area in which the assets are located.
Additions Additions
Sales Segment to PPE and Sales Segment to PPE and
revenue assets intangibles revenue assets intangibles
Year Year Year Year Year Year
ended ended ended ended ended ended
2006 2006 2006 2005 2005 2005
£m £m £m £m £m £m
------- ------- ------- ------- ------- -------
North America 210.7 219.7 15.2 178.5 137.9 10.6
UK 41.3 62.5 1.2 40.7 62.3 1.7
Rest of Europe 104.0 52.4 3.2 94.2 51.4 2.9
Rest of World 31.9 17.7 1.0 25.2 17.3 1.4
------- ------- ------- ------- ------- -------
Sub total
Continuing operations 387.9 352.3 20.6 338.6 268.9 16.6
Unallocated corporate
amounts - 13.2 0.1 - 13.8 -
------- ------- ------- ------- ------- -------
Total 387.9 365.5 20.7 338.6 282.7 16.6
======= ======= ======= ======= ======= =======
The carrying value of segment assets all relate to continuing operations.
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 gains or losses arising from the sale of fixed assets and
amortisation of intangible assets acquired on acquisitions.
Year ended Year ended
2006 2005
(restated)
£m £m
------- -------
Operating profit 24.5 19.6
------- -------
Loss on sale of fixed assets 0.4 0.2
Amortisation of intangible assets from acquisition 1.3 -
------- -------
Adjustments to operating profit 1.7 0.2
------- -------
Adjusted operating profit 26.2 19.8
======= =======
Profit before tax 18.1 14.6
Adjustments to profit as above before tax 1.7 0.2
------- -------
Adjusted profit before tax 19.8 14.8
======= =======
5. Tax charge
Year ended Year ended
2006 2005
£m £m
------- -------
Current tax:
Foreign tax 3.6 2.3
Adjustments in respect of prior periods (0.7) (0.2)
------- -------
2.9 2.1
------- -------
Deferred tax:
Current year 0.8 0.7
Adjustments in respect of prior periods (0.8) (0.3)
------- -------
- 0.4
------- -------
2.9 2.5
======= =======
UK Corporation tax is calculated at 30% (2005: 30%) 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 Year ended
2006 2005
£m £m
------- -------
Amounts recognised as distributions to
equity holders in the period:
Final dividend for the year ended 31 December 2005
of 1.286p (2004: 1.286p) per share 4.4 4.1
Interim dividend for the year ended 31 December 2006
of 0.619p (2005: 0.619p) per share 2.1 2.0
------- -------
6.5 6.1
======= =======
Proposed final dividend for the year ended
31 December 2006 of 1.381p (2005: 1.286p) per share 5.4 4.2
======= =======
The proposed final dividend is subject to approval by shareholders at the Annual
General Meeting and has not been included as a liability in these financial
statements.
The dividend per share figures for dividends already paid has been adjusted to
take account of the bonus element of the 2006 rights issue.
The final dividend paid for the year ended 31 December 2005 of £4.4m included
dividends paid on the 15m ordinary shares issued in January 2006.
7. Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
Year ended Year ended
2006 2005
Number of shares m m
------- -------
Weighted average number of ordinary shares for the
purposes of basic earnings per share 349.8 322.2
Effect of dilutive potential ordinary shares:
Share options 7.9 5.9
------- -------
Weighted average number of ordinary shares for the
purposes of diluted earnings per share 357.7 328.1
======= =======
The weighted average number of shares for 2005 has been adjusted to take account
of the bonus element of the 2006 rights issue.
Year ended 2006 Year ended 2005
(restated)
Earnings EPS Earnings EPS
Earnings and earnings per share £m pence £m pence
------- ------- ------- -------
Profit for the period 15.2 4.35 12.1 3.75
Adjust:
Loss on sale of fixed assets net
of tax of £0.1m (2005: £nil) 0.3 0.07 0.2 0.07
Amortisation of intangible assets
from acquisition net of tax of
£0.5m (2005:£nil) 0.8 0.23 - -
------- ------- ------- -------
Adjusted earnings after tax 16.3 4.65 12.3 3.82
======= ======= ======= =======
Earnings per share
- basic 4.35p 3.75p
- diluted 4.25p 3.69p
- adjusted 4.65p 3.82p
- adjusted and diluted 4.56p 3.75p
The effect of dilutive shares on the earnings for the purposes of diluted
earnings per share is £nil (2005: £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:
- gains or losses arising from the sale of fixed assets
- amortisation of intangible assets acquired on acquisitions
8. Acquisitions
Sterling Machine Co., Inc.
On 27 January 2006, the Group acquired 100% of the issued share capital of
Sterling Machine Co., Inc., ('Sterling Machine') a manufacturer of precision
machined parts for the aerospace industry, based in Enfield, Connecticut, USA.
The cash consideration was £21.5m, including costs, of which £1.2m related to
the purchase of property. The acquisition was funded in part by the placing of
15m ordinary shares generating net proceeds of £8.8m, the balance being funded
by the Group's existing revolving credit facilities.
Set out below is a summary of the net assets acquired and details of the fair
value adjustments:
Carrying values Fair value
pre-acquisition
£m £m
---------- ----------
Intangible assets - 2.7
Property, plant and equipment 2.1 2.1
Inventories 3.8 3.4
Trade and other receivables 2.4 2.1
Trade and other payables (1.1) (1.1)
---------- ----------
Net assets acquired 7.2 9.2
==========
Goodwill 12.3
----------
Total consideration 21.5
==========
Consideration satisfied by:
Cash paid 21.3
Directly attributable costs 0.2
----------
Net cash outflow arising on acquisition 21.5
==========
The intangible assets acquired as part of the acquisition relate to customer
contracts. Goodwill represents the value of the assembled workforce and its
contribution to anticipated future profitability arising from additional capital
investment.
Sterling Machine contributed £12.7m revenue and £2.4m to the Group's operating
profit from the date of acquisition to 31 December 2006.
Aerospace Manufacturing Technologies, Inc.
------------------------------------------
On 27 October 2006, the Group acquired 100% of the issued share capital of
Aerospace Manufacturing Technologies, Inc., ('AMT') a manufacturer of structural
aluminium parts for the commercial aerospace industry, based in Arlington,
Washington State, USA. The cash consideration was £60.0m, including costs, of
which £1.2m was paid in February 2007. The acquisition was funded in part
through a rights issue generating net proceeds of £25.9m, the balance being
funded by the Group's new revolving credit facility.
Set out below is a summary of the net assets acquired and details of the fair
value adjustments:
Carrying values Provisional
pre-acquisition Fair value
£m £m
---------- ----------
Intangible assets - 13.2
Property, plant and equipment 8.8 10.8
Inventories 7.2 7.2
Trade and other receivables 4.5 4.5
Cash and cash equivalents 0.5 0.5
Trade and other payables (3.7) (3.7)
Deferred tax liability - (0.8)
---------- ----------
Net assets acquired 17.3 31.7
==========
Goodwill 28.3
----------
Total consideration 60.0
==========
Consideration satisfied by:
Cash (including £1.2m deferred consideration) 59.1
Directly attributable costs 0.9
----------
Total consideration 60.0
Less deferred consideration (1.2)
Less cash acquired (0.5)
----------
Net cash outflow arising on acquisition 58.3
==========
The fair value adjustments contain some provisional amounts which will be
finalised in the financial statements for the year ending 31 December 2007.
The intangible assets acquired as part of the acquisition relate to customer
contracts. Goodwill represents the value of the assembled workforce and its
contribution to anticipated future profitability arising from additional capital
investment.
AMT contributed £6.1m revenue and £1.4m to the Group's operating profit from the
date of acquisition to 31 December 2006.
If both the above acquisitions had been completed on 1 January 2006, Group
revenue for the year ended 2006 would have been £415.7m and Group operating
profit would have been £30.4m.
The amounts shown in the consolidated cash flow statement for acquisition of
subsidiaries include £nil (2005 - £0.1m) relating to deferred consideration
payable in respect of previous acquisitions.
9. Notes to the cash flow statement
a) Reconciliation of operating profit to net cash from operating activities
Year ended Year ended
2006 2005
£m £m
------- -------
Operating profit from continuing operations 24.5 19.6
Adjustments for:
Depreciation of property, plant and equipment 12.1 11.5
Amortisation of intangible assets 1.8 0.5
Share options 0.4 0.2
Loss on disposal of property, plant and equipment 0.4 0.2
Pension payments in excess of service cost (3.4) (2.8)
------- -------
Operating cash flows before movements in working capital 35.8 29.2
Increase in inventories (11.5) (9.3)
Decrease/(increase) in receivables 3.6 (8.1)
Increase in payables 9.0 7.9
Working capital currency movements (5.4) 2.6
------- -------
Cash generated by operations 31.5 22.3
Income taxes paid (2.6) (0.9)
Interest paid (6.6) (4.9)
------- -------
Net cash from operating activities 22.3 16.5
======= =======
Cash and cash equivalents comprise:
Cash 7.2 8.5
Bank overdrafts (0.2) -
------- -------
Total 7.0 8.5
======= =======
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.
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 Year ended
2006 2005
£m £m
------- -------
Net cash from operating activities 22.3 16.5
Interest received 1.3 1.4
Proceeds on disposal of property, plant and equipment 2.2 0.9
Purchases of property, plant and equipment - cash (20.1) (16.3)
Purchase of intangible assets (0.6) (0.3)
------- -------
Free cash flow 5.1 2.2
======= =======
c) Analysis of net debt
At 1 Jan Cash Non cash Exchange At 31 Dec
2006 flow items movement 2006
£m £m £m £m £m
------- ------- ------- -------- -------
Cash 8.5 (0.5) - (0.8) 7.2
Overdrafts - (0.2) - - (0.2)
------- ------- ------- -------- -------
Cash and cash equivalents 8.5 (0.7) - (0.8) 7.0
Debt due within one year (0.2) - (12.7) - (12.9)
Debt due after one year (66.3) (46.0) 13.0 9.1 (90.2)
Finance leases (1.8) 0.2 - - (1.6)
Forward exchange contract losses (2.6) 0.2 - 3.4 1.0
------- ------- ------- -------- -------
Total (62.4) (46.3) 0.3 11.7 (96.7)
======= ======= ======= ======== =======
The forward exchange contract losses shown above are reported as £nil (2005:
£2.8m) in current liabilities within trade and other payables and £1.0m (2005:
£0.2m) in current assets within trade and other receivables.
Non cash items shown above relate to the recognition of financial instruments
under IAS 39 and the reclassification of debt which became due within one year.
On 31 January 2007 new loan notes of $30m (£15.3m) were issued with a
maturity of ten years, carrying interest at the rate of 5.85%, to refinance the
$25m (£12.8m) loan notes which are due to mature in June 2007.
10. Retirement benefit schemes
Defined Benefit Schemes
Aggregate post-retirement benefit liabilities are £37.5m (2005: £39.9m). The
primary components of this liability are the Group's UK pension plan and US
pension plans, with deficits of £30.8m (2005: £31.3m) and £3.2m (2005: £4.9m)
respectively. These values have been assessed by an independent actuary using
current market values and discount rates.
This information is provided by RNS
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