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