Interim Results
Senior PLC
03 August 2006
Thursday 3 August 2006
Senior plc
Interim Results for the half-year ended 30 June 2006
====================================================
FINANCIAL HIGHLIGHTS Half-year to 30 June
2006 2005
-------------------------------------------------------------------------
REVENUE £195.6m £166.9m +17.2%
-------------------------------------------------------------------------
OPERATING PROFIT £11.6m £9.5m +22.1%
-------------------------------------------------------------------------
PROFIT BEFORE TAXATION £8.7m £7.2m +20.8%
-------------------------------------------------------------------------
BASIC EARNINGS PER SHARE 2.24p 1.92p +16.7%
-------------------------------------------------------------------------
ADJUSTED PROFIT BEFORE TAXATION (1) £9.1m £7.4m +23.0%
-------------------------------------------------------------------------
ADJUSTED EARNINGS PER SHARE (1) 2.33p 1.99p +17.1%
-------------------------------------------------------------------------
PROPOSED INTERIM DIVIDEND PER SHARE 0.65p 0.65p
-------------------------------------------------------------------------
FREE CASH FLOW (2) (£2.4m) £1.4m
-------------------------------------------------------------------------
NET BORROWINGS £75.6m £59.1m
-------------------------------------------------------------------------
(1) Adjusted profit before taxation and adjusted earnings per share
arise before a £nil loss on disposal of fixed assets (2005: £0.2m)
and a £0.4m charge for amortisation of intangible assets acquired
on acquisition (2005: £nil).
(2) 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 strong revenue growth
and adjusted profit before taxation 23% ahead of the prior year. With the new
heavy duty diesel engine products going into production before the end of the
year, Sterling Machine making a good start following its acquisition in January
2006 and the commercial aerospace market increasing build rates at a fast pace,
future prospects for the Group remain very encouraging.'
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 aerospace,
diesel-engine, exhaust system and energy markets.
INTERIM STATEMENT
=================
The Group had an excellent first half of the year with adjusted profit before
taxation increasing 23% over the prior year. In Aerospace, revenue grew strongly
as commercial aircraft and engine manufacturers increased build rates at a fast
pace and Sterling Machine began to contribute following its acquisition in
January 2006. In the Flexonics Division, energy markets were strong and
automotive markets were flat, but still healthy. Production of the new heavy
duty diesel engine products is on schedule to commence in the final quarter of
this year. Prospects for the Group remain very encouraging.
Financial Results
-----------------
Senior, in common with all companies listed on security exchanges within the
European Union, now prepares its financial statements according to International
Financial Reporting Standards (IFRS). All figures, including comparatives
(which unless otherwise stated are for the first six months of 2005), have been
prepared in accordance with IFRS.
In the six months to 30 June 2006, Group revenues were £195.6m, an increase of
17.2% over the prior year (2005: £166.9m). Operating profit was £11.6m and
represented a 22.1% increase over the £9.5m reported for the first half of 2005.
When compared to the first six months of 2005, the effect of currency movements
on translating overseas revenues and earnings into sterling was to increase
revenue by £5.6m and operating profit by £0.4m.
In addition to the statutory information, the Group has consistently reported
adjusted figures to better reflect the underlying performance of the business.
These are calculated before: (i) profit/loss on disposal of fixed assets;
(ii) profit/loss on disposal of operations; and (iii) amortisation of intangible
assets arising from acquisitions. In the first half of 2006, the loss on
disposal of fixed assets was £nil (2005: £0.2m) and amortisation of intangible
assets arising from acquisitions was £0.4m (2005: £nil). Adjusted operating
profit was, therefore, £12.0m (2005: £9.7m).
Finance costs consist of interest payable on borrowings of £3.0m (2005: £2.5m)
and interest on defined benefit pension obligations of £0.4m (2005: £0.5m).
The increase was due to higher levels of both borrowings and interest rates.
Investment income fell from £0.7m in the first half of 2005 to £0.5m as the
interest rate differential between the US$ and sterling narrowed.
Profit before tax was £8.7m (2005: £7.2m). Adjusted profit before tax, at £9.1m,
was 23.0% above the prior year (£7.4m). With an effective tax rate of 17.6%
(2005: 17.6%) and an increase in the number of shares in issue, adjusted
earnings per share was 2.33p. This was 17.1% above the 1.99p adjusted earnings
per share reported for the first half of 2005.
Acquisition
-----------
On 27 January 2006 the Group completed the acquisition of Sterling Machine Co.
Inc., a US manufacturer of transmission and rotor-head helicopter components
for military platforms, principally to Sikorsky Aircraft Corporation. The
consideration for the business, including assumed net debt, was US$ 37.6m
(£21.4m) which was funded by the placing of 15 million new Senior plc shares at
60p each (raising £8.8m) and utilisation of the Group's existing borrowing
facilities. During the five month period from the date of acquisition to
30 June 2006, Sterling Machine reported revenue of £5.2m and trading profit
of £0.6m. Further details of the acquisition can be found in Note 8 of these
Interim Financial Statements.
Cash Flow and Borrowings
------------------------
Free cash flow (net cash flow from operating activities after net capital
expenditure, interest and tax but before acquisitions, disposals, share issues
and dividend payments) was an outflow of £2.4m (2005: £1.4m inflow).
Note 9 (b) sets out its calculation. The reduction was mainly due to the ongoing
investment in production equipment, for the new heavy duty diesel products
and increased aerospace capacity, together with increased working capital
requirements arising from higher sales volumes.
Net Debt increased by £13.2m in the six month period to be £75.6m at 30 June 2006.
The increase was due to the free cash outflow of £2.4m, dividend payments of
£4.4m and the acquisition of Sterling Machine (consideration £21.4m). These
outflows were partially offset by proceeds of £8.9m from the issue of new shares,
a non-cash movement of £0.1m and a beneficial currency movement of £6.0m.
The Group has most of its borrowings denominated in US$, as a match against
its US$ assets, and the weakening US$ (from $1.72: £1 at the end of December 2005
to $1.85: £1 at the end of June 2006) caused the reported sterling net debt to
decrease by £6.0m in the six month period.
Dividend
--------
The Board has declared an unchanged interim dividend of 0.65p per share.
This will be paid on 30 November 2006 to shareholders on the share register
at 3 November 2006.
Aerospace Division
------------------
Revenue for the first six months of 2006 increased by 27.9% to £95.3m
(2005: £74.5m) and adjusted operating profit by 28.6% to £8.1m (2005: £6.3m).
Adjusted operating margins remained at 8.5% as the impact of higher raw material
prices was offset by increased volumes.
The wide-bodied and business jet industries continued to increase build rates of
aircraft and engines. Boeing and Airbus collectively delivered 414 aircraft in
the six month period, up 20% from the 344 delivered in the first half of 2005.
Their combined order intake was again ahead of deliveries. Business jet
manufacturers reported similar increases whereas Bombardier and Embraer both
reduced deliveries of their regional jets. The delay in deliveries of the new
Airbus A380 is having only a negligible impact on the performance of the Division.
Overall, the commercial aircraft market is very healthy with all the Group's
aerospace operations benefiting.
The increase in volumes has, however, led to significant increases in the prices
of metals, such as aluminium and titanium, as well as lengthening supplier
lead times. The price increases have largely been passed onto customers thereby
contributing to revenue growth albeit with a detrimental effect on operating margins.
Sterling Machine made a good start within the Group, despite the six-week strike
at its major customer, Sikorsky, which ended in April. Sterling's future prospects
are encouraging with a number of new programmes being won and the capacity of the
factory is currently being expanded by 50%.
Capital expenditure for the Division increased to £3.2m (2005: £1.7m) as new
machining capacity and capability was installed at Jet Products and Ketema,
notably for production of parts for Rolls Royce's Trent 700, 800 and 1000 engines.
Flexonics Division
------------------
Revenue for the Flexonics Division rose by 8.5% to £100.6m (2005: £92.7m) and
adjusted operating profit by 10.9% to £6.1m (2005: £5.5m). Adjusted operating
margins increased to 6.1% (2005: 5.9%).
Demand for passenger vehicles in North America and Europe was broadly flat,
whereas that for commercial trucks increased by around 10% when compared to the
first half of 2005. The petro-chemical and power generation markets were strong,
driven by high oil prices, GDP growth, particularly in Asia, and tightening
emission regulations.
Against this backdrop, Pathway, with its global reach, saw strong revenue growth.
The Group's North America automotive company increased sales, despite the flat
markets, with a number of new programmes going into production.
Elsewhere, Senior Automotive Blois, in France, returned to profitability as
planned and the Group's Brazilian operation benefited from stronger automotive
volumes. Hargreaves' order book strengthened at the same time as activity on the
new Wembley Stadium winds down.
As anticipated, the second quarter of the year saw the arrival of the majority
of the plant and machinery required to put the new heavy duty diesel products
into production in North America. Capital expenditure, at £8.0m for the Division,
was consequently higher, representing 2.3x depreciation. Start up costs were
also incurred and expensed. These products are scheduled to go into production
in the final quarter of the year and by the time they reach full run-rate are
expected to generate over $50m of sales per annum. Additional enquiries continue
to be received on a regular basis.
Outlook
-------
The large commercial aircraft and engine manufacturers have strong order books
and their markets are forecast to continue to grow. Boeing and Airbus have
indicated that they will continue to increase their build rates over the
coming years, with the availability and prices of metals, such as aluminium
and titanium, potentially dictating the rate of increase. The regional jet and
military markets are anticipated to be stable whilst volumes of business jets
are forecast to increase. Following its recent acquisition, prospects for
Sterling Machine are encouraging as its main customer, Sikorsky, is in the
process of substantially increasing the build rate of its helicopters.
The development of new aircraft, such as the Boeing 787 ('Dreamliner'),
Airbus 350X and Airbus 400M also offer significant opportunities for Senior.
Sales of the new heavy duty diesel engine products, which go into production
shortly, are expected to provide a significant improvement to the Flexonics
Division's turnover. Prospects for being awarded additional programmes for
these products remain very good. Elsewhere, automotive markets are expected
to remain stable, but competitive, and the power generation and energy markets
are anticipated to remain healthy, aided by tightening emission standards
and the high price of oil.
Overall, the Group is well placed to deliver healthy future growth.
James Kerr-Muir, Chairman Graham Menzies, Chief Executive
Consolidated income statement
-----------------------------
For the half-year ended 30 June 2006 (unaudited)
Notes Half-year ended Half-year ended Year ended
30 June 2006 30 June 2005 31 Dec 2005
(restated)
£m £m £m
------- ------- --------
Continuing operations
Revenue 3 195.6 166.9 338.6
======= ======= ========
Trading profit 11.6 9.7 19.8
Loss on sale of fixed assets - (0.2) (0.2)
------- ------- --------
Operating profit (1) 3 11.6 9.5 19.6
Investment income 0.5 0.7 1.3
Finance costs (3.4) (3.0) (6.3)
------- ------- --------
Profit before tax (2) 8.7 7.2 14.6
Tax 5 (1.5) (1.3) (2.5)
------- ------- --------
Profit for the period 7.2 5.9 12.1
======= ======= ========
Attributable to:
Equity holders of the parent 7.2 5.9 12.1
======= ======= ========
Earnings per share
Basic 7 2.24p 1.92p 3.94p
======= ======= ========
Diluted 7 2.19p 1.89p 3.87p
======= ======= ========
(1) Adjusted operating profit 4 12.0 9.7 19.8
(2) Adjusted profit before tax 4 9.1 7.4 14.8
The comparative figures for the year ended 31 December 2005 have been restated
to reflect the early 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 half-year ended 30 June 2006 (unaudited)
Half-year ended Half-year ended Year ended
30 June 2006 30 June 2005 31 Dec 2005
(restated)
£m £m £m
------- ------- --------
Initial recognition of
financial instruments - (0.2) (0.2)
(Losses)/gains on cash flow
hedges (1.4) (0.7) 0.5
Gains/(losses) on revaluation
of financial investments 1.9 - (1.8)
Exchange differences on
translation of foreign
operations (5.3) 0.9 4.2
Actuarial gains/(losses)
on defined benefit
pension schemes 1.6 (0.3) 0.2
Tax on items taken directly
to equity 0.5 (0.9) (0.7)
------- ------- --------
Net (loss)/income recognised
directly in equity (2.7) (1.2) 2.2
Amounts transferred to
profit or loss on cash flow
hedges (0.1) (0.1) (0.3)
Profit for the period 7.2 5.9 12.1
------- ------- --------
Total recognised income and
expense for the period 4.4 4.6 14.0
======= ======= ========
Attributable to:
Equity holders of the parent 4.4 4.6 14.0
======= ======= ========
The comparative figures for the year ended 31 December 2005 have been restated
to reflect the early 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 30 June 2006 (unaudited)
Notes 30 June 2006 30 June 2005 31 Dec 2005
(restated)
£m £m £m
------- ------- -------
Non-current assets
Goodwill 85.6 76.1 77.1
Other intangible assets 3.1 1.1 1.1
Property, plant and equipment 80.1 72.7 76.1
Deferred tax assets 0.1 0.1 0.1
Trade and other receivables 3.4 3.9 3.8
------- ------- -------
Total non-current assets 172.3 153.9 158.2
------- ------- -------
Current assets
Inventories 53.9 44.9 47.7
Construction contracts 4.3 5.1 3.4
Trade and other receivables 65.7 62.9 64.9
Cash and cash equivalents 6.5 8.2 8.5
------- ------- -------
Total current assets 130.4 121.1 124.5
------- ------- -------
Total assets 302.7 275.0 282.7
======= ======= =======
Current liabilities
Trade and other payables 70.1 70.8 69.7
Tax liabilities 10.3 10.0 10.0
Obligations under finance leases 0.2 0.2 0.2
Bank overdrafts and loans 13.7 2.3 0.2
------- ------- -------
Total current liabilities 94.3 83.3 80.1
------- ------- -------
Non-current liabilities
Bank and other loans 66.7 62.1 66.3
Retirement benefit obligations 10 37.0 41.2 39.9
Deferred tax liabilities 1.4 1.9 2.1
Obligations under finance leases 1.5 1.7 1.6
Others 0.3 0.2 0.4
------- ------- -------
Total non-current liabilities 106.9 107.1 110.3
------- ------- -------
Total liabilities 201.2 190.4 190.4
======= ======= =======
Net assets 101.5 84.6 92.3
======= ======= =======
Equity
Issued share capital 32.5 30.8 30.9
Share premium account 11.1 3.5 3.8
Equity reserve 0.6 0.3 0.4
Other reserve - 17.0 -
Hedging and translation reserve (1.9) (0.3) 2.4
Retained earnings 60.5 34.6 56.1
Own shares (1.3) (1.3) (1.3)
------- ------- -------
Equity attributable to equity
holders of the parent 101.5 84.6 92.3
------- ------- -------
Total equity 101.5 84.6 92.3
======= ======= =======
The comparative figures for the year ended 31 December 2005 have been restated
to reflect the early 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 half-year ended 30 June 2006 (unaudited)
Notes Half-year ended Half-year ended Year
30 June 2006 30 June 2005 ended
31 Dec
2005
£m £m £m
------- ------- -------
Net cash from operating
activities 9a) 8.4 9.0 16.5
------- ------- -------
Investing activities
Interest received 0.6 0.8 1.4
Proceeds on disposal of
property, plant and equipment - 0.7 0.9
Purchases of property, plant
and equipment (11.3) (9.0) (16.3)
Purchases of intangible assets (0.1) (0.1) (0.3)
Acquisition of subsidiaries 8 (21.4) (0.1) (0.1)
------- ------- -------
Net cash used in investing activities (32.2) (7.7) (14.4)
------- ------- -------
Financing activities
Dividends paid (4.4) (4.1) (6.1)
Repayment of borrowings (1.7) (0.1) (1.0)
Repayments of obligations under
finance leases (0.1) (0.1) (0.3)
Share issues 8.9 0.1 0.5
New loans raised 20.5 5.4 7.1
Net cash outflow on forward contracts (0.9) (0.4) (0.2)
------- ------- -------
Net cash from financing activities 22.3 0.8 -
------- ------- -------
Net (decrease)/increase in cash and
cash equivalents (1.5) 2.1 2.1
Cash and cash equivalents at
beginning of period 8.5 5.9 5.9
Effect of foreign exchange rate changes (0.5) - 0.5
------- ------- -------
Cash and cash equivalents at end
of period 9c) 6.5 8.0 8.5
======= ======= =======
Notes to the consolidated interim financial statements
------------------------------------------------------
For the half-year ended 30 June 2006 (unaudited)
1. General information
The information for the year ended 31 December 2005 does not constitute the
Group's statutory accounts for 2005 as defined in Section 240 of the Companies
Act 1985. Statutory accounts for 2005 have been delivered to the Registrar of
Companies. The Auditors' report on those accounts was unqualified and did not
contain statements under Sections 237(2) or (3) of the Companies Act 1985.
These interim financial statements, which were approved by the Board of
Directors on 2 August 2006, have not been audited or reviewed by the Auditors.
2. Accounting policies
These interim financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS).
The accounting policies adopted are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 31
December 2005, with the exception of the accounting policy, under IAS21, for
exchange differences that arise on re-translation of inter-company loans in a
currency different to that of either counterparty. 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 such exchange differences 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 interim financial
statements have been prepared in accordance with the revised Standard and the
December 2005 comparatives have been adjusted to recognise the gain of £2.0m in
the translation reserve.
3. Business segments
For management purposes, the Group is organised into two operating divisions
according to the market segments that they serve. These divisions are the basis
on which the Group reports its primary segment information. The two divisions
are Aerospace and Flexonics, the latter incorporating both the automotive and
industrial operations previously reported as separate divisions.
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
Half- Half- Half- Half- Half- Half- Half- Half-
year year year year year year year year
ended ended ended ended ended ended ended ended
30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June
2006 2006 2006 2006 2005 2005 2005 2005
£m £m £m £m £m £m £m £m
------ ------ ------ ------ ------- ------ ------- ------
External revenue 95.2 100.4 - 195.6 74.3 92.6 - 166.9
Inter segment revenue 0.1 0.2 (0.3) - 0.2 0.1 (0.3) -
------ ------ ------ ------ ------- ------ ------- ------
Total revenue 95.3 100.6 (0.3) 195.6 74.5 92.7 (0.3) 166.9
====== ====== ====== ====== ======= ====== ====== ======
Adjusted operating
profit (see note 4) 8.1 6.1 (2.2) 12.0 6.3 5.5 (2.1) 9.7
Loss on sale
of fixed assets - - - - (0.2) - - (0.2)
Amortisation of
intangible assets
from acquisition (0.4) - - (0.4) - - - -
----- ------ ------ ------ ------- ------ ------- ------
7.7 6.1 (2.2) 11.6 6.1 5.5 (2.1) 9.5
====== ====== ====== ======= ======= =======
Investment income 0.5 0.7
Finance costs (3.4) (3.0)
------ ------
Profit before tax 8.7 7.2
Tax (1.5) (1.3)
------ ------
Profit after tax 7.2 5.9
====== ======
4. Adjusted operating profit and profit before tax
The provision of adjusted operating profit and 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 disposal of fixed assets and
amortisation of intangible assets acquired on acquisitions.
Half-year ended Half-year ended Year
30 June 2006 30 June 2005 ended
31 Dec 2005
(restated)
£m £m £m
------- ------- -------
Operating profit 11.6 9.5 19.6
------- ------- -------
Loss on sale of fixed assets - 0.2 0.2
Amortisation of intangible assets
from acquisition 0.4 - -
------- ------- -------
Adjustments to operating profit 0.4 0.2 0.2
------- ------- -------
Adjusted operating profit 12.0 9.7 19.8
======= ======= =======
Profit before tax 8.7 7.2 14.6
Adjustments to profit as above
before tax 0.4 0.2 0.2
------- ------- -------
Adjusted profit before tax 9.1 7.4 14.8
======= ======= =======
5. Tax charge
Half-year ended Half-year ended
30 June 2006 30 June 2005
£m £m
------- -------
Current tax:
UK corporation tax - -
Foreign tax 1.5 1.2
------- -------
1.5 1.2
Deferred tax:
Current year - 0.1
------- -------
1.5 1.3
======= =======
Corporation tax for the interim period is charged at 17.2% (2005: 18.1%),
representing the best estimate of the weighted average annual corporation tax
rate expected for the full financial year.
6. Dividends
Half-year ended Half-year ended
30 June 2006 30 June 2005
£m £m
------- -------
Amounts recognised as distributions to equity
holders in the period:
Final dividend for the year ended 31 December 2005
of 1.35p (2004: 1.35p) per share 4.4 4.1
======= =======
Proposed interim dividend for the year ended
31 December 2006 of 0.65p (2005: 0.65p) per share 2.1 2.0
======= =======
The proposed interim dividend was approved by the Board of Directors on 2 August
2006. This proposed dividend 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:
Half-year ended Half-year ended
30 June 2006 30 June 2005
Number of shares m m
------- -------
Weighted average number of ordinary shares
for the purposes of basic earnings per
share 321.4 306.7
Effect of dilutive potential ordinary shares:
Share options 6.7 4.8
------- -------
Weighted average number of ordinary shares
for the purposes of diluted earnings per
share 328.1 311.5
======= =======
Half-year ended Half-year ended
30 June 2006 30 June 2005
Earnings EPS Earnings EPS
Earnings and earnings per share £m pence £m pence
------- ------- ------- -------
Profit for the period 7.2 2.24 5.9 1.92
Adjust:
Loss on sale of fixed assets net
of tax of £nil (2005: £nil) - - 0.2 0.07
Amortisation of intangible
assets from acquisition net
of tax of £0.1m 0.3 0.09 - -
------- ------- ------- -------
Adjusted earnings after tax 7.5 2.33 6.1 1.99
======= ======= ======= =======
Earnings per share
- basic 2.24p 1.92p
- diluted 2.19p 1.89p
- adjusted 2.33p 1.99p
- adjusted and diluted 2.29p 1.96p
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 disposal of fixed assets
- amortisation of intangible assets acquired on acquisitions
8. Acquisitions
On 27 January 2006, the Group acquired 100% of the issued share capital of
Sterling Machine Co., Inc., a manufacturer of precision machined parts for the
aerospace industry, based in Enfield, Connecticut, USA. The cash consideration
was £21.4m, 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 Provisional
pre-acquisition fair value
£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 (0.5) (0.5)
---------- ---------
Net assets acquired 7.8 9.8
==========
Goodwill 11.6
---------
Total consideration 21.4
=========
Consideration satisfied by:
Cash 21.3
Directly attributable costs 0.1
---------
Net cash outflow arising on acquisition 21.4
=========
The fair value adjustments contain some provisional amounts which will be
finalised in the financial statements for the year ended 31 December 2006, by
which time the closing balance sheet will have been agreed with the vendors.
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 £5.2m revenue and £0.6m to the Group's operating
profit from the date of acquisition to 30 June 2006. If the acquisition had been
completed on 1 January 2006, Group revenue for the half-year ended 30 June 2006
would have been £196.1m and Group operating profit would have been £11.6m.
The amounts shown in the consolidated cash flow statement for acquisition of
subsidiaries include £nil (2005 half-year: £0.1m; 2005 year: £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
Half-year ended Half-year ended
30 June 2006 30 June 2005
£m £m
------- -------
Operating profit 11.6 9.5
Adjustments for:
Depreciation of property, plant and equipment 6.0 5.7
Amortisation of intangible assets from acquisition 0.4 -
Amortisation of other intangible assets 0.3 0.3
Share options 0.2 0.2
Loss on disposal of property, plant and equipment - 0.2
Pension payments in excess of service cost (1.4) (1.2)
------- -------
Operating cash flows before movements in
working capital 17.1 14.7
Increase in working capital (4.5) (3.5)
------- -------
Cash generated by operations 12.6 11.2
Income taxes paid (1.1) (0.1)
Interest paid (3.1) (2.1)
------- -------
Net cash from operating activities 8.4 9.0
======= =======
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 and disposals and
transactions with shareholders. It is derived as follows:
Half-year Half-year
ended ended
30 June 30 June
2006 2005
£m £m
------- -------
Net cash from operating activities 8.4 9.0
Interest received 0.6 0.8
Proceeds on disposal of property,
plant and equipment - 0.7
Purchases of property, plant and equipment (11.3) (9.0)
Purchases of intangible assets (0.1) (0.1)
------- -------
Free cash flow (2.4) 1.4
======= =======
c) Analysis of net debt
At Cash flow Non cash Exchange At
1 January items movement 30 June
2006 2006
£m £m £m £m £m
------- ------- ------- ------- -------
Cash and cash equivalents 8.5 (1.5) - (0.5) 6.5
Debt due within one year (0.2) - (13.5) - (13.7)
Debt due after one year (66.3) (18.8) 13.6 4.8 (66.7)
Finance leases (1.8) 0.1 - - (1.7)
Forward exchange contract
(losses)/gains (2.6) 0.9 - 1.7 -
------- ------- ------- ------- -------
Total (62.4) (19.3) 0.1 6.0 (75.6)
======= ======= ======= ======= =======
The forward exchange contract losses shown above are reported as £nil (1 January
2006: £2.8m) in current liabilities within trade and other payables and £nil (1
January 2006: £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.
10. Retirement benefit schemes
Defined benefit schemes
Aggregate post-retirement benefit liabilities are £37.0m (30 June 2005: £41.2m;
31 December 2005: £39.9m). The primary components of this liability are the
Group's UK pension plan and US pension plans, with deficits of £28.8m (30 June
2005: £32.9m; 31 December 2005: £31.3m) and £4.5m (30 June 2005: £5.0m; 31
December 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
The company news service from the London Stock Exchange
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