RNS Number : 2889B
Senior PLC
03 March 2014
 



Results for the year ended 31 December 2013

Strong results, with adjusted profit before tax up 8% to £98.1m.  Group outlook remains encouraging.

FINANCIAL HIGHLIGHTS

Year ended 31 December





2013


2012




REVENUE

£775.1m


£729.8m


+6%


OPERATING PROFIT

£93.3m


£94.5m


-1%

 

ADJUSTED OPERATING PROFIT (1)

£107.6m


£101.4m


+6%


ADJUSTED OPERATING MARGIN (1)

13.9%


13.9%


-


PROFIT BEFORE TAX

£83.8m


£86.7m


-3%


ADJUSTED PROFIT BEFORE TAX (1)

£98.1m


£91.1m


+8%


BASIC EARNINGS PER SHARE

17.22p


17.11p


+1%


ADJUSTED EARNINGS PER SHARE (1)

19.00p


17.75p


+7%


TOTAL DIVIDENDS (PAID AND PROPOSED) PER SHARE

5.12p


4.65p


+10%


FREE CASH FLOW (2)

£63.8m


£57.6m


+11%


NET DEBT (2)

£59.2m


£70.9m


£12m
decrease


CONTINUING OPERATIONS:







                REVENUE

£775.1m


£712.0m


+9%


                OPERATING PROFIT

£93.3m


£93.7m


-

 

                PROFIT BEFORE TAX

£83.8m


£83.4m


-


(1)          Adjusted figures include the results from discontinued operations up to the date of disposal but are stated before loss on disposal of fixed assets of £nil (2012 - £0.1m), a £4.2m charge for amortisation of intangible assets acquired on acquisitions (2012 - £4.3m), a £1.1m pension curtailment credit  (2012 - £1.9m charge), acquisition costs of £0.4m (2012 - £0.6m), reversal of contingent consideration payable of £3.8m credit (2012 - £nil), impairment of goodwill of £12.7m (2012 - £nil), restructuring costs of £1.9m (2012 - £ nil), and profit on disposal of business of £nil (2012 - £2.5m).  Adjusted earnings per share takes account of the tax impact of these items.

(2)          The comparative amounts for 2012 include the results from discontinued operations (Senior Hargreaves) up to date of disposal.

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

The Group's principal exchange rates for the US dollar and the Euro, applied in the translation of revenue, profit and cash flow items at average rates were $1.57 (2012 - $1.59) and €1.18 (2012 - €1.23), respectively.  The US dollar and Euro rates applied to the balance sheet at 31 December 2013 were $1.66 (2012 - $1.63) and €1.20 (2012 - €1.23), respectively.

Group Highlights

-

Strong set of results against a challenging economic backdrop

-

Group operating margins maintained at 13.9%

-

Adjusted profit before tax of £98.1m, 8% ahead of the prior year

-

Strong cash flows resulting in a continued prudent level of net debt

-

Good organic revenue growth of 15% in commercial aerospace

-

Atlas and Thermal acquisitions bring new capabilities to the Group

-

Positive contribution from GA in the first full year of ownership

-

Full-year dividend proposed to increase by 10%

-

Group outlook remains encouraging

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

"2013 saw Senior deliver another strong set of results.  Adjusted profit before tax increased by 8% and adjusted earnings per share by 7%, largely driven by organic revenue growth in commercial aerospace and a full year's contribution from GA acquired towards the end of 2012.  Continued healthy operating cash flows resulted in net debt of £59.2m at the year-end, leaving the Group well placed to fund future organic and acquisitive growth.  The year has started satisfactorily with 2014 underlying performance anticipated to be in line with the Board's expectations."

For further information please contact:

Mark Rollins, Group Chief Executive, Senior plc

01923 714738

Derek Harding, Group Finance Director, Senior plc

01923 714722

Philip Walters, RLM Finsbury Group

020 7251 3801

This Release represents the Company's dissemination announcement in accordance with the requirements of Rule 6.3.5 of the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.  The full Annual Report & Accounts 2013, together with other information on Senior plc, may be found at: www.seniorplc.com

The information contained in this Release is an extract from the Annual Report & Accounts 2013, however, some references to Note and page numbers have been amended to reflect Note and page numbers appropriate to this Release.

The Directors' Responsibility Statement has been prepared in connection with the full Financial Statements and Directors' Report as included in the Annual Report & Accounts 2013.  Therefore, certain Notes and parts of the Directors' Report reported on are not included within this Release.

Note to Editors

Senior is an international manufacturing Group with operations in 13 countries.  It is listed on the main market of the London Stock Exchange (symbol SNR).  Senior designs, manufactures and markets high technology components and systems for the principal original equipment producers in the worldwide aerospace, defence, land vehicle and energy markets.

Cautionary Statement

This Release contains certain forward-looking statements.  Such statements are made by the Directors in good faith based on the information available to them at the time of the Release and they should be treated with caution due to the inherent uncertainties underlying any such forward-looking information.

CHAIRMAN'S STATEMENT

2013 Performance

Senior delivered another strong operating performance during 2013, with adjusted profit before tax increasing by 8% to £98.1m, largely as a result of organic revenue growth in large commercial aerospace and the inclusion of GAMFG Precision ("GA"), a precision-machining business acquired towards the end of 2012. Group cash generation also remained strong, with free cash flow of £63.8m being 11% ahead of the prior year.  Accordingly, the Board is proposing a final dividend of 3.60 pence per share.  This would bring total dividends, paid and proposed, for 2013 to 5.12 pence per share, an increase of 10% over 2012 and slightly ahead of the increase in adjusted earnings per share, reflecting the Group's encouraging prospects and healthy dividend cover.

These best ever results, achieved against an often challenging economic backdrop, reflect Senior's strong niche market positions, its focus on tough-to-make, highly engineered products and the continued emphasis on serving its customers by delivering excellent operational performance where on-time delivery, quality and value are all key measures.  In this regard, one of the privileges of being the Chairman of Senior is being able to undertake visits to the individual operating companies, meeting the Group's enthusiastic and dedicated employees and witnessing, first-hand, the ever improving standard of the factories and the embedded culture of continuous improvement across the Group.

Acquisitions

As well as growing organically, Senior also seeks to increase shareholder value through the acquisition of capabilities adjacent to its existing portfolio and two UK-based businesses were acquired during 2013.  Atlas Composites ("Atlas"), a developer of structural composite solutions for the Formula 1 and aerospace markets, was acquired for £2.4m in February and Thermal Engineering ("Thermal") joined the Group at the end of November for £28.3m.  Thermal specialises in manufacturing hot- and cold-formed components, complex fabricated assemblies and thermal insulation heat shields and systems for the aerospace market.  Both businesses have made encouraging starts with Senior and I would like to extend a warm welcome to their employees.

Sustainability

Employees, customers, suppliers and investors want to work with businesses that operate safely, ethically, fairly and in a way that minimises environmental impact.  Accordingly, Senior places its values and corporate responsibility programmes at the heart of how it runs its businesses and it is, therefore, pleasing to report continued success at reducing employee injury rates, water usage and carbon emissions during 2013.

Changes to the Board

2013 saw a number of changes to the Board.  In September, Derek Harding was appointed as Group Finance Director, succeeding Simon Nicholls who had left at the end of April after five years with the Group to take up a similar position at Cobham plc.  Derek, a Chartered Accountant, joined Senior from Wolseley plc, where he had worked for 11 years in a broad range of head office and operating company financial roles and he brings extensive experience and a fresh perspective to the Group.

As part of Board succession planning, two of the Group's non-executive Directors, David Best and Ian Much, who would have served for seven and eight years respectively by the end of 2013, indicated early in the year their desire to step down from the Board around the end of 2013.  In order to ensure a smooth handover, two new non-executive Directors, Celia Baxter and Giles Kerr, were recruited and joined the Board at the beginning of September.  Giles, who will take over as Chair of the Audit Committee in April 2014 when David Best steps down from the Board, is currently the Director of Finance at Oxford University and was previously Group Finance Director of Amersham plc.  Celia, the Director of Group HR of Bunzl plc, became the Chair of the Remuneration Committee when Ian Much left the Group in December 2013.

Senior has made significant progress in recent years and I would like to extend the Board's thanks to Ian, David and Simon for their strong contribution during this time.

Employees

Senior's strong results are a reflection of the quality of people across the Group and, on behalf of the Board, I would like to thank all the Group's employees for their significant contribution to Senior's success over the past year.

Outlook

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

The year has started satisfactorily and, with the large commercial aerospace market remaining strong and some early signs of an economic recovery taking place, progress is expected to be made across the Group's operations during 2014.  However, volatile foreign exchange movements add more uncertainty to the reported Group outcome for the year.  Looking further ahead, a healthy number of new aerospace programmes going into production, together with further economic recovery and expected market share gains in both the Aerospace and Flexonics Divisions, mean the outlook for Senior remains encouraging.

Charles Berry

Chairman

CHIEF EXECUTIVE'S STATEMENT

2013 Financial Results Summary

2013 was another year of solid progress for Senior.

Total Group revenue increased by 6.2% to £775.1m (2012 - £729.8m).  Revenue from continuing operations (excluding the sale of Senior Hargreaves in October 2012, which contributed £17.8m of revenue in 2012), increased by £63.1m (8.9%), including an incremental £33.9m from three acquisitions: Thermal acquired in November 2013 (£1.0m); Atlas acquired in February 2013 (£3.0m); and the full year effect of the acquisition of GA in November 2012 (£29.9m).

If the effect of acquisitions and a year-on-year favourable exchange impact of £5.4m are excluded, underlying revenue from organic operations increased by 3.3% on a constant currency basis.  In 2013, 66% of sales from continuing operations originated from North America, 15% from the UK, 12% from the Rest of Europe and 7% from the Rest of the World.

Adjusted operating profit increased by £6.2m (6.1%) to £107.6m (2012 - £101.4m), due to a combination of the increase in organic operations' revenue, further operational improvements and year-on-year acquisition contributions of £2.3m.  Overall exchange rate movements had no impact on 2013 adjusted operating profit compared to 2012.  Adjusted profit before tax increased by £7.0m (7.7%) to £98.1m (2012 - £91.1m).

Excluding acquisitions, underlying adjusted operating profit from organic continuing operations increased by 4.7% on a constant currency basis.  The Group achieved an adjusted operating margin of 13.9% in 2013 (2012 - 13.9%).

Total Group reported operating profit from continuing operations was broadly similar to the prior year at £93.3m (2012 - £93.7m).

The underlying tax rate in 2013 was 19.7% (2012 - 20.4%) and adjusted earnings per share increased by 7.0% to 19.00 pence (2012 - 17.75 pence).  Basic earnings per share rose by 1.0% to 17.22 pence (2012 - 17.11 pence).

The Group continues to be highly cash-generative and delivered free cash flow of £63.8m (2012 - £57.6m) after increased net investment in capital expenditure of £28.8m (2012 - £26.0m).  As a result, the level of net debt at the end of 2013 of £59.2m was comfortably below the £70.9m at the start of the year, even after spending £30.5m on acquisitions and investing a further £0.5m in the Group's joint venture in China during 2013.  This year-end net debt level leaves the Group well placed to fund future organic and acquisitive growth.

The Board is recommending a final dividend of 3.60 pence per share (2012 - 3.27 pence).  If approved, this will bring the total dividends, paid and proposed, in respect of 2013 to 5.12 pence per share, an increase of 10% over 2012, slightly ahead of the increase in adjusted earnings per share.

Delivery of Group Strategy

Significant progress was made in delivering the strategy during 2013 with: the Group's portfolio enhanced through two acquisitions; a healthy level of business being won on new programmes and market share gains being secured on existing platforms; the Group's culture of operational excellence providing high levels of customer satisfaction and safer, more efficient factories; and the Group's employees working enthusiastically and innovatively to deliver a strong performance in 2013 and to enhance the growth prospects for the Group.

The acquisitions of Atlas and Thermal in 2013 have added the complementary capabilities of structural composites and hot-forming and aerospace insulation to the Group.  When combined with the global reach, customer relationships and financial strength of the existing Senior operations, these additional capabilities are expected to provide healthy long-term growth opportunities for the Aerospace Division.  Indeed, Atlas is already working together with Senior Aerospace BWT to provide cabin air-supply ducting systems for the future Bombardier CSeries, Mitsubishi Regional Jet and Embraer E2-Jet aircraft.

Operating in successful end markets and being aligned with the right customers is an important determinate to Senior's future growth prospects.  The Group's most important market is large commercial aircraft, now representing 36% of Group sales, where Boeing and Airbus collectively delivered 1,274 aircraft in 2013, 7% more than the prior year, and booked 2,858 net orders.  Their combined order book of 10,639 aircraft represents a very healthy eight years' production at current build rates, meaning good growth can be expected in the future.  The Group's customers increasingly operate on a global basis and it is important that Senior is able to support them across the world.  Accordingly, during 2013 further investment was made in the Group's Chinese Joint Venture, with heavy-duty engine common-rail production commencing at the year end, and a new factory set up in Mexico to serve the North American land-vehicle market for flexible exhaust connectors.  In Aerospace, having world class production capabilities in Asia will be very important in the future as the region represents the fastest growing air-passenger market in the world.

In its Thailand facility, Senior has a good foundation to build upon to meet this customer demand, with 2014 planned to see the construction of significant additional capacity, including the installation of a specialist treatments facility, at a total cost of some £6m over the next three years.

In industries where customers have choices with whom they do business, Senior's on-time delivery and quality record and its cost competitiveness are key to the Group gaining market share and winning work on new programmes.  Accordingly, great focus is placed at each operation on using "lean" principles, such as Kaizen events, to deliver operational improvements to reduce costs, improve product flow, optimise use of resources and improve safety.  Investment in modern equipment and fit-for-purpose facilities, such as the new factory built for the structures business at Senior Aerospace Weston in 2013, are also ongoing requirements in an environment where technology and customer expectations are always advancing.  Senior's financial strength allows the Group to remain at the forefront in this regard with increases in the shipset value on the B787 and A350 during 2013, and the fact that the Group now has 30% more content on the B737 MAX and 56% more on the A320neo than the current B737 and A320 aircraft respectively, providing tangible evidence of Senior's success in delivering its strategy.

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

Whilst the historic performance of Senior over recent years, and the strong platform the Group has built for the future, clearly demonstrates healthy progress in implementing the Group's strategy, the Board is cognisant of the need for strategy to evolve as markets and technologies change and the Group gets larger and more complex.  As a consequence, the Board and Executive team increased their focus on strategy during 2013 and can be expected to do so throughout 2014.

Corporate Responsibility

Corporate Responsibility is a key part of how we do business at Senior and I am pleased to report excellent progress on a number of fronts this year.

We have enhanced our training and development programme and improved collaboration and sharing of good practices across the Divisions.  During the year, we also improved the communication of our anti-bribery and corruption measures and strengthened compliance through our internal audit processes.  The Group has further reduced its carbon emissions and our core environmental metrics also demonstrated healthy improvement, as we invest to reduce energy and water consumption.  Sustainability drives demand for many of our services and operating in an ethical and responsible manner is integral to our customer relationships.  Improvements have also been made to our health and safety programme through the roll-out of technical standards for the core health and safety risks.  These have helped to identify potential hazards and contributed towards improving our two key safety metrics, as detailed later.

Outlook

The year has started satisfactorily and, with the large commercial aerospace market remaining strong and some early signs of an economic recovery taking place, progress is expected to be made across the Group's operations during 2014.  The second half of the year is expected to benefit in particular from civil aircraft build rates continuing their upward trend, the A350 aircraft being delivered to customers and an anticipated large expansion joint contract commencing delivery.  However, whilst solid progress is expected to be made locally in 2014, volatile foreign exchange movements add more uncertainty as to the reported Group outcome for the year.

Looking further ahead, the entry into service of the A350 in late 2014, and its subsequent production ramp-up, together with Boeing's and Airbus' plans to increase the build rates of their B787, B737 and A320 aircraft, mean the outlook for the large commercial aerospace sector is both strong and visible.  This is Senior's most important market, representing 36% of Group revenue in 2013.  However, price pressure remains ongoing across the commercial aerospace industry and is being managed in line with expectations.  As well as increases in build rates, Senior expects to benefit from the greater content it has on the new-engine versions of the high volume narrow-bodied aircraft, the A320neo and B737 MAX, which are scheduled to enter service in 2015 and 2017, respectively.  Having a world-class aerospace facility in Asia is also expected to lead to increases in market share as the recent contract awards to the Group's Thailand operation, from Rolls-Royce for the A350 XWB engine and from Spirit AeroSystems on the B787, clearly demonstrate.  This facility is now being significantly expanded.

Whilst a much smaller part of the Group, prospects also remain encouraging in the regional and business jet sector, with Bombardier's CSeries aircraft, on which the Group has healthy content, commencing its test programme during 2013 and Senior winning the low-pressure ducting package for the Embraer E2-Jet.  Less encouraging, is the outlook for military and defence, representing 14% of Group sales in 2013, with increases in the build rates of new programmes, such as the A400M military transporter and the P-8 naval reconnaissance aircraft, not expected to entirely offset the impact of reduced defence spending by the USA and European Governments.

In Flexonics, the longer term outlook for Senior's land vehicle operations is showing some early signs of improvement, with volumes of passenger vehicles in Europe anticipated to gradually improve from the six-year low seen in 2013, production of heavy-duty engine common-rails now commencing in China, and the Group's global footprint leading to more customer enquiries for flexible exhaust connectors.  Progress also continues to be made in winning additional heavy-duty exhaust gas recycling cooler programmes, although this has been slower than hoped for and the much improved life of the current product is resulting in lower revenue from spare-parts.  Whilst the future level of the Group's industrial activity is less visible, given its often one-off project nature, the Group's industrial end-markets such as power generation, oil and gas, chemical processing, medical and semi-conductor are likely to grow broadly in line with global economic activity. In addition, environmental legislation continues to tighten across the globe which can be expected to provide greater demand for the Group's products.

As well as the organic growth opportunities mentioned above, Senior's cash-generative nature, strengthening market and financial position provide a solid platform from which the Group can continue to pursue acquisitive growth opportunities on a targeted basis.

Consequently, whilst Senior will undoubtedly face a number of challenges as it pursues its growth agenda, the Group's reputation and opportunities it is developing, mean the prospects for the future remain encouraging.

Mark Rollins

Group Chief Executive

DIVISIONAL REVIEW

Aerospace Division

Market Overview

Senior continues to enjoy strong demand from the large commercial aircraft sector, where order books are at record levels.  The regional and business jet markets are satisfactory but, as anticipated, the military and defence sector remains challenging.

Capabilities

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

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

Precision machined complex products and assemblies for airframe structures and systems.

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

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

Large commercial aircraft

Revenue growth of 15% underpinned by increasing build rates of Airbus and Boeing large commercial aircraft platforms.

Build rates on many platforms will increase in 2014 and beyond.

Boeing delivered 65 B787s in 2013 with production now at 10 per month.

Strong order intake for Boeing and Airbus again in 2013, not only for re-engined narrow body A320neo and B737 MAX platforms, but also the A350 and B787.

Airbus A350 testing is going to plan with first delivery into service expected before the end of 2014.

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

Regional and business jets

Business jet revenue growth of 8%, ahead of the market, due to increased demand from large cabin platforms (e.g. Bombardier Global 5000/6000 and Gulfstream G650).

Revenue from regional jet sector increased by 13% with improvements coming from the Bombardier CRJ series.

Continued modest recovery in business jet sector is forecast for 2014, with regional jet demand remaining stable.

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

Military aerospace

Revenue decreased by 11%, reflecting the anticipated reduction in demand for the Black Hawk helicopter and the C-130J transport aircraft.

Build rates in 2014 will be broadly in line with the 2013 exit rate following downward pressure on US and European defence expenditure.

Further declines in build rates of certain programmes such as the Black Hawk and the V22 Osprey helicopter are expected after 2014.

Healthy shipset content on the A400M transport aircraft and build rate increases for this and the P-8 naval reconnaissance aircraft should partially mitigate the otherwise lower demand.

Business Review

The Aerospace Division represents 65% (2012 - 66%) of Group revenue and consists of 19 operations.  These are located in North America (eleven), the United Kingdom (four), continental Europe (three) and Thailand.

On 8 February 2013, the Group acquired Atlas Composites Limited ("Atlas"), a small UK-based developer and manufacturer of composite structural products, for £2.4m.  Atlas brings complementary capabilities into the Group and is managed through one of the Group's existing UK operations, Senior Aerospace BWT.

On 28 November 2013, the Group acquired Thermal Engineering Holding Limited ("Thermal"), an aerospace components manufacturer, for consideration of £28.3m (including the repayment of £6.5m of debt).  Thermal specialises in manufacturing hot- and cold-formed components, complex fabricated assemblies and thermal insulation heat shields and systems.

In November 2013, the decision was taken to merge Capo Industries into our Ketema operation.  This decision has resulted in one-off costs of £1.9m charged in 2013; savings of over £1.2m p.a. are anticipated from 2015.  In Thailand, the Group is expanding capacity threefold and adding processing capability at a total cost of £6m over the next three years.

The Aerospace Division's main products are engine structures and mounting systems (30% of 2013 divisional sales), airframe and other structural parts (27%), metallic ducting systems (18%), composite ducting systems (6%), fluid control systems (5%) and helicopter machined parts (5%).  The remaining 9% of divisional sales were to non-aerospace, but related technology markets, including the energy, semi-conductor and medical markets.

The Division's largest customers include Rolls-Royce representing 17% of 2013 divisional sales, Boeing (17%), Spirit AeroSystems (10%), United Technologies (8%), Airbus (5%), Bombardier (5%), Safran (2%), GKN (2%) and GE (2%).

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


2013


2012

(1)

Change


£m


£m



Revenue

506.6


476.2


+6.4%

Adjusted operating profit

76.5


72.8


+5.1%

Operating margin

15.1%


15.3%


-0.2ppts

(1)

2012 results translated using 2013 average exchange rates.

Divisional revenue increased by £30.4m (6.4%) to £506.6m (2012 - £476.2m) (1) and adjusted operating profit increased by £3.7m to £76.5m (2012 - £72.8m) (1).  Excluding the impact of acquisitions, organic revenue for the Division increased by £26.4m (5.5%) and the increase in adjusted operating profit was the same at £3.7m.

The operating margin declined slightly to 15.1% (2012 - 15.3%).  This was mainly attributable to: the notable effect of the reduction in military and non-aerospace revenue on two of the Group's operations; costs associated with the Weston factory relocation; and increased investment in engineering necessary to deliver a higher than usual level of new aircraft programmes at the Group's operation in Los Angeles.

Reconciliation of 2012 to 2013 Revenue

£m

2012 Revenue

476

Large Commercial

36

Regional & Business Jets

6

Military

(13)

Other

(2)

2013 Organic

503

Acquisitions

4

2013 Revenue

507

55% (2012 - 51%) of the Aerospace Division's revenues are derived from the large commercial aerospace market, comprising the aircraft manufactured by Airbus and Boeing and the engines that go on those aircraft.  This market remained very strong during 2013, with Boeing and Airbus collectively delivering 1,274 aircraft, a 7% increase over the prior year (2012 - 1,189 deliveries).  Boeing and Airbus also recorded strong aircraft orders during 2013 which, at a combined net order intake of 2,858 aircraft (2012 - 2,036 aircraft), was well ahead of aircraft deliveries for the fourth year in succession.  As a consequence, their combined order book grew by 1,584 aircraft during 2013 to 10,639 aircraft at the end of the year, representing over eight years of deliveries at current production rates.  Senior grew its sales to the large commercial aircraft market by 15% during 2013.

Senior won additional content in the period on the A350 and B787, two significant future programmes for the Group.  The Airbus A350, which flew for the first time in June, is expected to commence customer deliveries late in 2014 and Boeing's B787 production rate is now at 10 per month.

Equally encouraging was the progress Senior made in increasing its content on the A320neo and B737 MAX, the re-engined, more fuel-efficient versions of the two highest volume commercial aircraft platforms.  These aircraft are scheduled to come into service in 2015 and 2017, respectively.  The Group already has 56% more content on the A320neo than the A320 and 30% more content on the B737 MAX than on the current B737.

Overall, the production of regional and business jet aircraft remained weak, but broadly stable.  Against this backdrop, Senior's revenue derived from the business jet sector (9% of divisional revenue) increased by 8% in the period, due to increased activity on newer and larger business jet programmes.  In the regional jet sector (4% of divisional revenue), Group revenue was 13% higher as a result of a strong second half, particularly with increases in Bombardier's CRJ series and increased invoicing for engineering costs and development parts.  Bombardier's largest ever passenger aircraft, the CSeries, flew for the first time in 2013, although testing challenges have resulted in some delays.  The Group has significant content on this aircraft ($501k per aircraft) and its future commercial success would be advantageous for the Group.

Revenue from the military and defence sector fell by 11% in 2013, reducing its contribution to Divisional revenue from 25% to 21%.  This was due to the anticipated reduction in production volumes for the C-130J military transport aircraft and the Black Hawk helicopter, as well as lower spares demand for the latter.  These declines were partially offset by growing volumes on newer platforms, such as the A400M transporter, P-8 reconnaissance aircraft and Joint Strike Fighter.

Around 11% of the Aerospace Division's revenue was derived from other markets such as space, non-military helicopters, power and energy, medical and semi-conductor, where the Group manufactures products using very similar technology to that used for certain aerospace products.  Overall, revenues in these markets were £0.7m higher than 2012, with £2.3m of acquisition contribution offsetting £1.6m of organic decline from weaker semi-conductor and power and energy markets.

Flexonics Division

Market Overview

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

Capabilities

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

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

Land vehicle emission control

Full year contribution of GA, acquired in November 2012, bringing precision-machining capabilities and potential customer synergies.

Organic truck and off-highway sales increased by 2%, with growth in the European markets offset by weakness in North America and India.

Good progress and further investment in our joint venture in China. Production of heavy-duty diesel engine common rails started at the end of 2013 and exhaust flex production is expected to commence in 2014.

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

Sales in the passenger car sector declined by 1%, due to reduced demand in many European markets as well as in Brazil and India.  North America and China saw healthy growth.

The Group's operations in the Czech Republic and South Africa benefited from new programme wins from existing and new customers.

Industrial process control

Organic Industrial revenues were down 3% year on year, as a result of weaker performance in the petrochemical sector, offset partially by strong sales in the power and energy market.

In 2012, the Group's petrochemical business enjoyed the benefits of a very large expansion joint project in Tianjin, China, which was not repeated in 2013.

The Group expects to benefit in H2 2014 from an anticipated large expansion joint project for a US Catofin plant.

Additional contracts were won in 2012 for concentrated solar power plants in the USA and Europe for the benefit of 2013, although as Governmental subsidies continue to decline this activity is due to reduce in 2014.

Business Review

The Flexonics Division represents 35% (2012 - 34%) of Group revenue and consists of 12 operations which are located in North America (four), continental Europe (three), the United Kingdom, South Africa, India, Brazil and a joint venture in China.

56% of the Flexonics Division's revenues in 2013 were derived from demand for land-vehicle components, 42% from industrial markets and 2% from aerospace markets.

The land vehicle sales comprise cooling and emission control components (25% of 2013 divisional sales), flexible mechanisms for vehicle exhaust systems (14%), diesel fuel distribution pipework (14%) and off-highway hydraulics (3%).  The industrial product revenue is derived from the power and energy markets (19%), oil and gas and chemical processing industries (8%), HVAC and solar markets (5%) and a range of other markets (10%).

The Division's largest individual end users are land-vehicle customers, including Cummins (representing 16% of 2013 divisional sales), Caterpillar (8%), Ford (5%), PSA (4%), and Renault (3%).  Individual industrial customers rarely account for more than one or two per cent of divisional sales and, given the generally bespoke and project nature of the Group's industrial products, the customers vary significantly each year. Bloom Energy (6%) and Abengoa (2%) were the largest industrial customers in the period.  Woodward (2%) accounted for the majority of aerospace revenue within the Flexonics division in 2013.

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

Continuing operations

2013


2012

(1)

Change


£m


£m



Revenue

269.3


241.7


+11.4%

Adjusted operating profit

40.4


36.6


+10.4%

Operating margin

15.0%


15.1%


-0.1ppts

(1)

2012 results translated using 2013 average exchange rates.

Divisional revenue increased by £27.6m (11.4%) to £269.3m (2012 - £241.7m) (1) and adjusted operating profit increased by £3.8m to £40.4m (2012 - £36.6m) (1).  Excluding the incremental contribution from the GA acquisition (completed in November 2012), organic revenue declined by £2.3m (1.0%) while adjusted operating profit increased by £1.5m (4.1%).

The operating margin declined slightly to 15.0% (2012 - 15.1%), primarily due to the inclusion of the lower-margin GA business.  Underlying margins in organic operations improved by 0.8 percentage points to 15.9% (2012 - 15.1%) as a result of improved operational efficiencies and favourable raw material pricing.

Reconciliation of 2012 to 2013 Revenue

£m

2012 Revenue

242

Truck and off-highway

1

Passenger vehicles

(1)

Industrial

(3)

2013 organic

239

Acquisitions

30

2013 Revenue

269

Sales to the truck and off-highway market increased by 37%, primarily due to the full year contribution of GA, acquired in November 2012.  GA has a particular focus on machined components for fuel systems, pumps and hydraulic systems for off-road medium- and heavy-duty diesel applications.  Organic sales to this market increased by 2%, with strong sales to the European truck market up £4.0m (35%) as new programmes ramped up.  This was partially offset by weakness in North America and India, where organic sales decreased by £2.1m (4%) and £0.4m (43%), respectively.

During 2013, the Group continued to work towards winning a second major customer, in addition to Cummins, for the Group's EGR cooler product.  Whilst the anticipated opportunity recently failed to materialise, the Group remains confident that new customers and applications can be developed, as illustrated by the recent award of a cooler for natural gas engines on commercial vehicles.

Sales to the passenger vehicle market declined by 1% in 2013, primarily as a result of continued weakness in the European passenger car market (where new car registrations reduced by 1.7%).  The Group was also impacted by the decline in the Indian and Brazilian domestic passenger vehicle markets but saw revenue increase to North America and China.

Despite generally weak land vehicle markets, tightening emission legislation, combined with the Group's operational excellence and product development skills, mean market share opportunities regularly arise.  The Group's operations in the Czech Republic and South Africa benefited from new programme wins from existing and new customers, resulting in increased volumes in turbo oil drain products and exhaust products, creating positive momentum that has helped offset some of the weakness observed elsewhere in the marketplace.

Further investment of £0.5m was made in the Group's joint venture in China, where manufacture of heavy-duty diesel common rails started at the end of 2013 and the production of exhaust flexes is scheduled to commence during 2014.  Progress of this operation continues to be pleasing.

The Division's Industrial activities were down 3% year on year on an organic basis as a result of a weaker performance from the petrochemical sector, partially offset by strong sales to the power and energy market.

Power and energy growth was driven by increases in demand for products for concentrated solar power plants and fuel cell bellows, although this business is anticipated to decline in 2014 as Governmental subsidies decline and a lower cost fuel cell bellow is introduced.  In addition, during 2012, the Group's petrochemical business enjoyed the benefits of a large expansion joint project in Tianjin, China which was not repeated in 2013.  The Group expects to benefit in H2 2014 from an anticipated large expansion joint project for a US Catofin plant.

FINANCIAL REVIEW

Financial Summary

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


Revenue


Adjusted
Operating
Profit

(1)

Margin


2013

2012


2013

2012


2013

2012


£m

£m


£m

£m


%

%

Aerospace

506.6

470.5


76.5

72.1


15.1

15.3

Flexonics

269.3

242.0


40.4

37.3


15.0

15.4

Share of results of joint venture

-

-


(0.3)

(0.1)


-

-

Inter-segment sales

(0.8)

(0.5)


-

-


-

-

Central costs

-

-


(9.0)

(8.7)


-

-

Continuing operations

775.1

712.0


107.6

100.6


13.9

14.1

Discontinued

-

17.8


-

0.8


-

4.5

Group total

775.1

729.8


107.6

101.4


13.9

13.9

 

(1)

See table below.

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

 

2013

 

2012

 

£m

 

£m

Adjusted operating profit

107.6

 

101.4

Profit for the period from discontinued operations

-

 

(3.3)

Loss on sale of fixed assets

-

 

(0.1)

Exceptional pension credit / (charge)

1.1

 

(1.9)

Reversal of contingent consideration payable

3.8

 

-

Impairment of goodwill

(12.7)

 

-

Restructuring costs

(1.9)

 

-

Amortisation of intangible assets from acquisitions

(4.2)

 

(4.3)

Acquisition costs

(0.4)

 

(0.6)

Profit on disposal of business

-

 

2.5

Operating profit per Financial Statements

93.3

 

93.7

Financial Detail

Revenue

Group revenue increased by £45.3m (6.2%) to £775.1m (2012 - £729.8m).

Total Group revenue from continuing operations (excluding the sale of Senior Hargreaves in October 2012, which contributed £17.8m of revenue) increased by £63.1m (8.9%) including an incremental £33.9m from three acquisitions: Thermal acquired in November 2013 (£1.0m); Atlas acquired in February 2013 (£3.0m); and the full year effect of the acquisition of GA made in November 2012 (£29.9m).

If the effect of acquisitions and a year-on-year favourable exchange impact of £5.4m are excluded, underlying revenue from organic operations increased by 3.3% on a constant currency basis.  In 2013, 66% of sales from continuing operations originated from North America, 15% from the UK, 12% from the Rest of Europe and 7% from the Rest of the World.

Operating profit

Adjusted operating profit increased by £6.2m (6.1%) to £107.6m (2012 - £101.4m), due to a combination of the increase in organic operations' revenue, further operational improvements and year-on-year acquisition contributions of £2.3m.  There was no year-on-year foreign exchange impact.

If the incremental profit contribution of £2.3m from acquisitions is excluded, underlying adjusted operating profit from organic continuing operations increased by 4.7% on a constant currency basis.  The Group achieved an operating margin of 13.9% in 2013 (2012 - 13.9%).

Total Group reported operating profit from continuing operations was broadly similar to the prior year at £93.3m (2012 - £93.7m).

Finance costs

Total finance costs, net of investment income of £0.2m (2012 - £0.3m), decreased by 7.8% to £9.5m (2012 - £10.3m).  Net interest costs on borrowings increased to £8.1m (2012 - £7.7m) mainly due to the foreign exchange impact on Group borrowing facilities.  The Group has fixed rate, fully-drawn, US private placement facilities of $185m (£111.4m) which attract a fixed interest payment each year.  The Group's total net debt was below this level for the whole of 2013 and 2012.  Therefore, fluctuations in the Group's net interest costs only arise due to changes in cash amounts on deposit, deposit interest rates and variations in the rate of foreign exchange translation, principally between the Pound Sterling and the US dollar.

Pension-related finance charges decreased to £1.4m in 2013 (2012 - £2.6m), principally due to a mandated change in accounting policy whereby the interest cost and expected return on plan assets has been replaced with a net interest charge on the net defined benefit liability, as detailed in Note 2.  Essentially, the expected rate of return on assets has been replaced by the discount rate and scheme running costs (£0.8m in 2013 and 2012) are now recognised within operating profit.  Given that an increasing proportion of the Group's pension assets are invested in fixed income securities as part of the continuing implementation of liability-driven investment strategies in the Group's defined benefit pension plans, this new accounting requirement led to a net reduction in finance costs relating to retirement benefits.  A reduction in the discount rate at the start of the year also led to a reduction in the pension-related finance charges.

Profit before tax

Adjusted profit before tax increased by 7.7% to £98.1m (2012 - £91.1m).  Reported profit before tax from continuing operations increased by 0.5% to £83.8m (2012 - £83.4m).  The reconciling items between these two measures are shown in Note 4.

Tax charge

The total tax charge decreased to £12.4m (2012 - £16.8m), despite the increase in the Group's taxable profits.  Net tax benefits of £6.9m (2012 - £1.8m) arose from the amortisation of intangible assets from acquisitions, impairment of goodwill, exceptional pension credit and restructuring costs.  If these are added back, the resultant tax charge of £19.3m (2012 - £18.6m) represented an underlying rate of 19.7% (2012 - 20.4%) on the adjusted profit before tax of £98.1m (2012 - £91.1m).

Earnings per share

The weighted average number of shares, for the purposes of calculating undiluted earnings per share, increased to 414.7 million (2012 - 408.5 million).  Adjusted earnings per share increased by 7.0% to 19.00 pence (2012 - 17.75 pence).  Basic earnings per share increased by 0.6% to 17.22 pence (2012 - 17.11 pence).  See Note 7 for details of these calculations.

Dividends

A final dividend of 3.60 pence per share is proposed for 2013 (2012 - 3.27 pence), payment of which, if approved, would total £15.0m (2012 final dividend - £13.6m) and would be paid on 30 May 2014 to shareholders on the register at close of business on 2 May 2014.  This would bring the total dividends paid and proposed in respect of 2013 to 5.12 pence per share, an increase of 10% over 2012 and slightly ahead of the increase in adjusted earnings per share.  At the level recommended, the full-year dividend would be covered 3.7 times (2012 - 3.8 times) by adjusted earnings per share.  The cash outflow incurred during 2013 in respect of the final dividend for 2012 and the interim dividend for 2013 was £19.9m (2012 - £16.4m).

Research and development

The Group's expenditure on research and development increased slightly to £12.9m during 2013 (2012 - £12.8m).  Expenditure was incurred mainly on designing and engineering products in accordance with individual customer specifications and developing specific manufacturing processes for their production.

Capital expenditure

Gross capital expenditure increased by 14% in 2013 to £29.7m (2012 - £26.1m), principally representing investment in future growth programmes and necessary replacement and compliance expenditure.  The Group's operations remain well capitalised.  The disposal of assets no longer required raised £0.9m (2012 - £0.1m).  A higher level of capital expenditure is anticipated for 2014, although the extent will be dependent primarily on the timing of build rate increases in the large commercial aircraft segment and the Group securing the expected new programme wins in both Divisions.

Capital structure

The Group's Consolidated Balance Sheet at 31 December 2013 may be summarised as follows:


Assets


Liabilities


Net Assets


£m


£m


£m

Property, plant and equipment

142.6


-


142.6

Goodwill and intangible assets

242.5


-


242.5

Investment in joint venture

1.0


-


1.0

Current assets and liabilities

213.7


(144.1)


69.6

Other non-current assets and liabilities

7.5


(16.9)


(9.4)

Retirement benefit obligations

-


(25.6)


(25.6)

Total before net debt

607.3


(186.6)


420.7

Net debt

53.1


(112.3)


(59.2)

Total at 31 December 2013

660.4


(298.9)


361.5

Total at 31 December 2012

624.3


(311.4)


312.9

Net assets increased by 15.5% in the year to £361.5m (2012 - £312.9m), in the main as a result of an increase in working capital of £19.1m, in property, plant and equipment of £7.8m and goodwill of £5.8m and by a reduction in the retirement benefit obligation of £11.5m and in net debt of £11.7m.  These positive movements were partially offset by an increase in the net deferred tax liability of £4.4m and an increase in current tax liability of £2.8m.  Net assets per share increased by 14.9% to 86.9 pence (2012 - 75.6 pence).  There were 415.9 million ordinary shares in issue at the end of 2013 (2012 - 413.9 million).

Pensions

Retirement benefit obligations, as calculated in accordance with IAS 19, decreased by £11.5m to £25.6m (2012 - £37.1m) principally due to the positive impact of an increase in the value of assets, with asset returns in excess of expectations, £7.7m cash contributions in excess of service costs and a £1.1m curtailment credit in respect of the closure of one of the US pension schemes, partially offset by an increase in inflation assumptions.

Following consultation with the members of the Senior plc Pension Plan, the Group has decided to close the Plan to future accrual from April 2014.

Cash flow

The Group generated significant free cash flow (whose derivation is set out in the table below) of £63.8m in 2013, £6.2m above the £57.6m achieved in 2012.  The main driver of the year's performance was cash generated from operations of £106.5m, which is stated after taking into account additional pension contributions in excess of service costs of £7.7m (2012 - £13.7m), and a working capital outflow of £19.1m (2012 - £10.2m outflow).

The positive cash flow from operations was offset by net capital expenditure of £28.8m (2012 - £26.0m) and tax and interest payments totalling £13.9m (2012 - £16.2m).

The strong cash flow enabled the Group to fund the acquisitions of Atlas and Thermal from existing cash and debt facilities, for total consideration (net of cash acquired) of £2.4m and £28.1m, respectively, and still resulted in a satisfactory decline in net debt of £11.7m during the year.  Net debt at the year-end was £59.2m (2012 - £70.9m).

 

2013

 

2012

 

£m

 

£m

Operating profit from continuing operations

93.3

 

93.7

Discontinued operations profit before tax

-

 

0.8

Depreciation and amortisation

26.5

 

25.1

Share of loss in joint venture

0.3

 

0.1

Working capital movement

(19.1)

 

(10.2)

Pension payments above service cost

(7.7)

 

(7.7)

Additional discretionary pension payments

-

 

(6.0)

Impairment of goodwill

12.7

 

-

Reversal of contingent consideration payable

(3.8)

 

-

Other items

4.3

 

4.0

Cash generated from operations

106.5

 

99.8

Interest paid (net)

(7.9)

 

(7.6)

Tax paid

(6.0)

 

(8.6)

Capital expenditure

(29.7)

 

(26.1)

Sale of fixed assets

0.9

 

0.1

Free cash flow

63.8

 

57.6

Dividends

(19.9)

 

(16.4)

Acquisitions

(30.5)

 

(28.1)

Investment in joint venture

(0.5)

 

(0.9)

Proceeds on disposal of subsidiary

-

 

4.5

Share issues

0.1

 

2.3

Purchase of shares held by employee benefit trust

(0.9)

 

(1.0)

Foreign exchange variations

(0.4)

 

4.1

Opening net debt

(70.9)

 

(93.0)

Closing net debt

(59.2)

 

(70.9)

Net debt

Net debt decreased by £11.7m in the year to £59.2m (2012 - £70.9m).  The main reason for this reduction was cash generated from operations of £106.5m (2012 - £99.8m), partially offset by expenditure on acquisitions of £30.5m and investing a further £0.5m in the Group's joint venture in China totalling £31.0m (2012 - £29.0m), and gross capital expenditure of £29.7m (2012 - £26.1m).  At the year-end, net debt comprised gross borrowings (including finance leases of £0.7m) of £112.3m (31 December 2012 - £115.4m), with 99% of the Group's gross borrowings in US dollars (31 December 2012 - 99%), and cash and cash equivalents of £53.1m (31 December 2012 - £44.5m).

The Group's committed borrowing facilities contain a requirement that the ratio of EBITDA (adjusted profit before interest, tax, depreciation and amortisation) to net interest costs must exceed 3.5x, and that the ratio of net debt to EBITDA must not exceed 3.0x.  At 31 December 2013, the Group was operating well within these covenants as the ratio of EBITDA to net interest costs was 15.4x (31 December 2012 - 15.7x) and the ratio of net debt to EBITDA was 0.5x (31 December 2012 - 0.6x).

Liquidity

As at 31 December 2013, the Group's gross borrowings excluding finance leases were £111.6m (2012 - £114.4m).  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

21.2


21.0

In the second year

15.1


27.3

In years three to five

63.3


123.3

After five years

12.0


12.0


111.6


183.6

 

(1)

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

At the year-end, the Group had committed facilities of £183.6m with a weighted average maturity of 3.1 years.  The Group is in a strong funding position, with headroom of £124.4m under these facilities and no borrowings due for repayment until a private placement loan of £21.0m matures in October 2014.

Goodwill

A goodwill impairment charge of £12.7m was taken in the first half of 2013 in respect of the January 2008 acquisition of Capo Industries, as the anticipated recovery in its key business and regional jet engine markets has not yet materialised and expectations for future operating margins are consequently lower.  In November 2013, the decision was taken to merge Capo Industries into our Ketema operation.  This decision has resulted in one-off costs of £1.9m being taken in 2013; savings of £1.2m p.a. are anticipated from 2015.  In addition, the contingent consideration of £3.8m is no longer payable to the sellers of GA and was consequently released to profit in the period.  Both the goodwill impairment charge and contingent consideration amounts are excluded from adjusted profit before tax.

Going concern basis

The Group's business activities, performance and position are set out above in the Financial Review and the Divisional Business Reviews.  These include a description of the financial position of the Group, its cash flows, liquidity position and borrowing facilities.  In addition, a review of the principal risks and uncertainties that are likely to affect the Group's future development is set out below.  A summary of the Group's policies and processes in respect of capital and financial risk management, including foreign exchange and liquidity risks, is included in Note 21 of the Annual Report & Accounts 2013.

The Group meets its day-to-day working capital and other funding requirements through a combination of long-term funding, in the form of revolving credit and private placement facilities, and short-term overdraft borrowing.  At 31 December 2013, 99% of the Group's gross debt was financed via revolving credit and private placement facilities, with an average maturity of 3.1 years.  The Group is profitable, cash generative and well funded with net debt of £59.2m compared to £183.6m of committed borrowing facilities, and has no major borrowing facility renewal before October 2014.

However, economic conditions inevitably vary and so potentially create uncertainty, particularly over the level of demand for the Group's products and the exchange rate between the Pound Sterling and the US dollar.  This exchange rate is important to the Group's financial performance given that around 66% of the Group's profits in 2013 were earned in the USA and 99% of its gross borrowings at 31 December 2013 were denominated in US dollars.  For these reasons, a sensitivity analysis has been performed on the Group's forecasts and projections, to take account of reasonably possible changes in trading performance together with foreign exchange fluctuations under the hedging policies that are in place.  This analysis shows that the Group will be able to operate well within the level of its current committed borrowing facilities and banking covenants under all reasonably foreseeable scenarios.  As a consequence, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future, and the Board has continued to adopt the going concern basis in preparing the Group's Annual Report & Accounts 2013.

Changes in accounting policies

The accounting policies adopted in the Financial Statements are consistent with those followed in the preparation of the Group's Annual Report & Accounts 2012, except for the adoption of Standards and Interpretations that are effective for the current financial year.  These are highlighted in Note 2 of the Financial Statements, and do not have a material impact on the presentation of the Group's results.

Related party transactions

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

Derek Harding

Group Finance Director

OUR BUSINESS MODEL

How we create value

Senior's primary strategic objective is to create long-term sustainable growth in shareholder value. This is achieved through a culture of empowerment of autonomous, but collaborative, operations working within a well defined control framework.

The major elements of value creation for the Group can be classified into four primary drivers as follows:

Portfolio - Developing our portfolio of autonomous, but collaborative, business units.

The Senior portfolio provides:

31 operations in 13 countries covering 5 market sectors

A culture of collaborative autonomy

Complementary capabilities

The opportunity to share best practices

Leverage of customer relationships

An integrated global footprint

Financial strength supporting investment and innovation for customer benefit

Customer Alignment - Working with our customers to provide innovative market leading solutions.

Effective customer alignment means:

Putting the customer first

Exceeding expectations

Increasing market share

Being on the right programmes and platforms

Continuing to expand capabilities

Creating sustainable long term growth

Optimising value for all stakeholders

Operational Excellence - Being passionate about operational excellence, driving continuous improvement.

Effective operational excellence results in:

Quality products delivered on time

The provision of cost-competitive solutions

Efficient levels of working capital

A safe working environment

A reduction in environmental impact

Good governance and risk management

Satisfied customers placing more work with Senior

People - Recruiting and developing our people, to deliver sustainable growth.

Our people make the difference. They operate in a culture of:

Empowerment of local management

"Tell it as it is" philosophy

Integrity and high ethical standards

Maintaining a safe and healthy workplace

Ongoing personal development throughout the business

Investing in local communities

Developing strong customer relationships

STRATEGIC OBJECTIVES

The application of the group's four key elements of value creation has resulted in the development of the following strategic objectives in each of the group's five key market sectors.  The Group's progress against these objectives is also included in the table below:

 

Strategic objectives

Progress

Structures


·      Extend customer value proposition via increased collaboration

·      Continue to focus on operational excellence to drive customer satisfaction and increase market share

·      Develop capabilities and build a business of increased scale in Thailand

·      Expand process capabilities to enhance added value for customers

·      Invest in new technologies necessary for substantial growth

·      New programme wins with Boeing and Spirit have resulted from leveraging existing relationships within the Group

·      On time delivery improvements have been achieved through continuous focus and improvement programmes

·      New facility being built in Thailand for expansion of Structures operation in SE Asia including a specialist treatment capability

·      Developing additional treatment capabilities where it makes sense, for example, currently evaluating magnesium hard coatings

·      New Weston UK facility is driving operational excellence using new technologies such as Viper grinding

·      A 3D printing working party has been established to monitor developments in this area

Fluid conveyance systems


·      Continue to develop products for new platforms

·      Further develop strategic customer relationships

·      Successful execution of new development programmes

·      Expand engineered product portfolio

·      Acquire new or adjacent technologies

·      Development contracts for ducting components secured for the engines that will power the A320neo and B737 MAX, due to enter service in 2015 and 2017, respectively

·      Additional contracts won for ECU related ducts on the new Embraer E2-Jet

·      Continued investment in engineering and programme management to ensure new programmes enter production profitably

·      Acquisitions of Atlas in February 2013 and Thermal in November 2013 bring additional capabilities to Senior

·      Work has commenced on expanding the facilities at SSP in order to satisfy increased customer demand

Gas turbine engines


·      Target higher value-added engineered or flight critical parts (e.g. rotating)

·      Develop cross-business customer relationships

·      Further develop low-cost country footprint

·      Secure additional content on engines for next generation narrow-body and wide-body commercial aircraft

·      Expand process capabilities via new technology investment

·      First rotating parts in production as part of outsourcing contract from Rolls-Royce.  GE 737 MAX centre frame is in development at Ketema

·      Further investment in Thailand results in additional opportunities being developed with existing and new customers. The business has recently won content on Rolls-Royce's XWB and Trent 1000 engines

·      Engine-rings and engine control bellows contracts secured in 2013

Land vehicle emission control


·      Develop product portfolio as emission regulation thresholds increase globally

·      Build programmes with new truck and off-highway customers

·      Invest further in emerging market footprint, in growth markets

·      Investment in passenger car niches to support development of global platform capabilities

·      Development of a new design heavy-duty cooler has resulted in orders for natural gas applications as well as mid-range and smaller engine applications

·      China JV assisted with a win for orders of flexes which will be satisfied by our operations in Cape Town and Brazil

·      The production of common rails has commenced within China and is expected to increase during H2 of 2014

·      New programme wins mean the Group's French land vehicle operation is expected to see improving financial performance in the future

Industrial process control


·      Expand global presence as emerging markets add local refining and processing facilities

·      Secure growth from tightening emission standards in developed markets

·      Seek proprietary adjacent products

·      Participate in new technology developments and applications (e.g. combined heat and power fuel cells, concentrated solar power, micro turbines)

·      Secure new major process projects as their capital funding becomes available

·      Collaboration between Group operations in USA, Canada and Brazil is resulting in improved competitiveness and broadening of product offerings

·      Increase in new work awarded as a result of tightening emission regulations leads to additional damper and fabric expansion joint contracts

·      Increased sales of fuel cell components in USA in 2013, although new lower cost Senior design is expected to be introduced in 2014

·      Anticipate large expansion joint contract for US Catofin project

 

 

KEY PERFORMANCE INDICATORS

The Group uses five financial and two non-financial metrics to measure progress in implementing its strategy (as described more fully above).  The Group's financial objectives are as follows:

to achieve organic sales growth (at constant exchange rates) in excess of the rate of inflation;

to increase adjusted earnings per share on an annual basis by more than the rate of inflation;

to increase the Group's return on revenue margin each year;

to generate sufficient cash to enable the Group to fund future growth and to follow a progressive dividend policy; and

to maintain an overall return on capital employed in excess of the Group's cost of capital and to target a pre-tax return in excess of 15%.

These financial objectives are supported by two non-financial objectives:

to reduce the Group's rate of energy intensity by 10% in the five-year period to 2015; and

to reduce the number of recordable injuries which incur lost time by 20% in the five-year period to 2015.

Senior continued to deliver strong operating performance in 2013 and met four out of five of the Group's financial targets.  During 2013 improvements were made in the Group's energy and water intensity performance and lost time injury rates were also significantly reduced.  The Group remains on track to meet its 2015 safety, energy and water usage improvement goals.  Further details of the Group's performance record in this regard, including its long-term performance trends, are shown on pages 10 and 11 of the Annual Report & Accounts 2013.

A summary of the year-on-year movements in these Key Performance Indicators ("KPIs") and the main drivers of the changes are described below.

KPI


Main drivers of change

Organic revenue



£741.2m

(2012 - £717.4m)

+3.3%

The main drivers of organic revenue growth in the Aerospace Division were increased build rates on large commercial aircraft programmes, offset partially by lower military volumes.  In Flexonics, demand for truck engine components in Europe marginally improved but European passenger vehicle markets were weaker and the large one-off project for expansion joints in 2012 was not repeated in 2013.

Adjusted earnings per share



19.00 pence

(2012 - 17.75 pence)

+7.0%

Increased revenue, resulting from strong market demand in large commercial aerospace and the incremental contribution of the acquisition of GA, combined with continued effective operational execution and a slight reduction in the tax rate, resulted in a healthy increase in adjusted earnings per share in 2013.

Return on revenue margin



13.9%

(2012 - 13.9%)

Consistent with 2012

 

A record Group adjusted operating profit margin was achieved in 2012.  This was repeated in 2013 with improved operational efficiencies and favourable raw material pricing in Flexonics, offset by facility move and higher development costs in new programmes in Aerospace.

Net cash from operating activities



£92.4m

(2012 - £83.3m)

+10.9%

The Group's cash conversion was again very strong, with net cash from operating activities increasing to a record level in 2013.  The main driver of this result was the increase in Group earnings.  As a result, the Group has been able to fund an increased level of capital expenditure of 1.3 times depreciation, continue to make strategic acquisitions and propose a 10% increase in the annual dividend.

Return on capital employed



26.7%

(2012 - 26.9%)

-0.2

PPTS

The Group's return on capital employed reduced slightly in 2013.  The impact of increased earnings was offset by increased capital expenditure and additional working capital requirements due to growth in large commercial aerospace and anticipated growth in North American trucks in Flexonics.

Carbon dioxide emissions



85 tonnes / £m revenue

(2012 - 92 tonnes / £m revenue)

7.6% improvement

Through more efficient use of resources and improved asset utilisation, the Group continues to make good progress on its published five-year target of improving energy efficiency by 10% between 2011 and 2015.  This is the eighth consecutive year that Senior has reduced its environmental impact.

Lost time injury frequency rate



0.95 incidents per 100 employees p.a.

(2012 - 1.36 incidents per 100 employees p.a.)

30.1% improvement

The number of lost time injuries reduced significantly in 2013. This represents good progress, reversing the disappointing results of 2012. The Group continues to take a proactive approach to the health and safety of all employees and has reduced the number of lost time injury incidents by 63% since 2007.

RISKS AND UNCERTAINTIES

Integrated risk management and Group risk philosophy

The Board is ultimately responsible for managing risk, and for the implementation of effective risk management procedures and internal control systems.  Across the Group, these are designed to align with the UK Corporate Governance Code's guidance on Risk Management and Internal Control.  The Audit Committee is responsible for reviewing the effectiveness of the Group's internal control systems that were in operation during the year, and the fulfilment of this responsibility is described in the Audit Committee Report on pages 36 to 39 of the Annual Report & Accounts 2013.

An integrated risk management framework continues to evolve within the Group, aimed at improving the efficiency and effectiveness of the Group's risk management procedures.  This initiative is sponsored by the Board, aligned with industry best practice and is designed to take account of the Group's internal culture.  As a result of this initiative, examples of process areas previously identified for increased focus were strategic planning and objective setting, and the Group's approach to internal audit, business continuity, IT policies, internal controls over financial reporting and risk reporting.  Good progress has been made with the implementation of these process improvements, which are becoming embedded in the Group's operations.

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

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

i)

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

ii)

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

iii)

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

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

Risk assessment and risk reporting procedures

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

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

Principal Group risks

Overall, the Group's risk profile was largely unchanged in 2013 when compared to 2012.  The principal potential risks and uncertainties which could have a material impact on the Group's future performance and ability to deliver on its stated strategic objectives, together with actions that are being taken to mitigate each risk, are set out below.

 

Risk

Management actions to mitigate risk

Price-Down Pressures


Customer pricing pressure is expected to increase, driven by the expectations of airlines and Governments of purchasing more competitively priced aircraft in the future.

This can be expected to put pressure on the Group's future operating margins.

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

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

·      Where appropriate, the Group is able to pass work to some of its lower cost facilities such as Thailand and Mexico with a view to help satisfy customer challenges.

Importance of emerging markets


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

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

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

·      The Group has an increasing presence in emerging markets via its facilities in Mexico, Thailand, Czech Republic, South Africa, Brazil, India and China.  Each of these operations, individually and in combination, has a healthy number of viable opportunities for further expansion either to supply domestic markets or to support customers' increasingly global needs.

Acquisitions


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

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

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

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

Strategy


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

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

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

·      A Capital Markets day, held in October, included a presentation on certain aspects of the Group's strategy to enhance further the external communication process.  This presentation is available on the Company's website.

Programme participation


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

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

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

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

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

New aircraft platform delays


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

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

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

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

Employee retention


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

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

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

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

Corporate governance breach


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

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

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

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

Financing and liquidity


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

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

·      Compliance with Financial Policies and exposure limits are reviewed by the Group's Treasury Committee on a regular basis.

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

·      The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, and by continuously monitoring forecast and actual cash flows, matching the maturity profiles of financial assets and liabilities and paying close attention to the projected level of headroom under the covenants contained in its committed borrowing facilities.  For further details see Note 21 of the Annual Report & Accounts 2013.

Global cyclical downturn


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

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

·      The Group's financing position improved again in 2013 as cash conversion remained strong, with no major borrowing facilities expiring before October 2014.

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

Statement of Directors' Responsibilities

We confirm that to the best of our knowledge:

1.

the Financial Statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

2.

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

3.

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

By Order of the Board

Mark Rollins

Derek Harding

Group Chief Executive

Group Finance Director

28 February 2014

28 February 2014

Consolidated Income Statement

For the year ended 31 December 2013


 

Notes

 

Year ended
2013
£m


Year ended
2012
£m

Continuing operations







Revenue


3


775.1


712.0

Trading profit before one-off items




104.4


93.9

Goodwill impairment


8


(12.7)


-

Reversal of contingent consideration payable




3.8


-

Restructuring costs




(1.9)


-

Trading profit




93.6


93.9

Loss on sale of fixed assets




-


(0.1)

Share of joint venture loss




(0.3)


(0.1)

Operating profit (1)


3


93.3


93.7

Investment income




0.2


0.3

Finance costs




(9.7)


(10.6)

Profit before tax (2)




83.8


83.4

Tax


5


(12.4)


(16.8)

Profit for the period from continuing operations




71.4


66.6

Discontinued operations







Operating profit


14


-


0.8

Profit on disposal


14


-


2.5

Profit for the period from discontinued operations




-


3.3

Profit for the period




71.4


69.9

Attributable to:







Equity holders of the parent




71.4


69.9

Earnings per share







From continuing and discontinued operations







Basic (3)


7


17.22p


17.11p

Diluted (4)


7


17.00p


16.69p

From continuing operations







Basic


7


17.22p


16.30p

Diluted


7


17.00p


15.90p

 

(1) Adjusted operating profit


4


107.6


101.4

(2) Adjusted profit before tax


4


98.1


91.1

(3) Adjusted earnings per share


7


19.00p


17.75p

(4) Adjusted and diluted earnings per share


7


18.76p


17.31p

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2013


Year ended
2013
£m


Year ended
2012
£m

Profit for the period

71.4


69.9

Other comprehensive income:




Items that may be reclassified subsequently to profit and loss:




(Losses) / gains on cash flow hedges during the period

(2.4)


1.2

Reclassification adjustments for losses included in profit and loss

1.5


0.8

(Losses) / gains  on cash flow hedges

(0.9)


2.0

Exchange differences on translation of foreign operations

(7.8)


(11.1)

Tax relating to items that may be reclassified

(0.3)


(0.5)


(9.0)


(9.6)

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




Actuarial gains / (losses) on defined benefit pension schemes

4.3


(12.3)

Tax relating to items that will not be reclassified

(2.1)


3.1


2.2


(9.2)

Other comprehensive expense for the period, net of tax

(6.8)


(18.8)

Total comprehensive income for the period

64.6


51.1

Attributable to:




Equity holders of the parent

64.6


51.1

Consolidated Balance Sheet

As at 31 December 2013



Notes


Year ended
2013
£m


Year ended
2012
£m

Non-current assets







Goodwill


8


225.9


220.1

Other intangible assets




16.6


18.7

Investment in joint venture


15


1.0


0.8

Property, plant and equipment


9


142.6


134.8

Deferred tax assets




7.0


12.5

Trade and other receivables




0.5


0.5

Total non-current assets




393.6


387.4

Current assets







Inventories




99.4


91.2

Trade and other receivables




114.3


101.2

Cash and cash equivalents


11c)


53.1


44.5

Total current assets




266.8


236.9

Total assets




660.4


624.3

Current liabilities







Trade and other payables




127.4


122.4

Current tax liabilities




15.1


12.3

Obligations under finance leases




0.4


0.5

Bank overdrafts and loans




21.2


0.8

Provisions




1.6


6.1

Total current liabilities




165.7


142.1

Non-current liabilities







Bank and other loans


11c)


90.4


113.6

Retirement benefit obligations


12


25.6


37.1

Deferred tax liabilities




16.5


17.6

Obligations under finance leases




0.3


0.5

Others




0.4


0.5

Total non-current liabilities




133.2


169.3

Total liabilities




298.9


311.4

Net assets




361.5


312.9








Equity







Issued share capital


10


41.6


41.4

Share premium account




13.8


13.7

Equity reserve




5.2


3.8

Hedging and translation reserve




(13.6)


(4.6)

Retained earnings




316.4


259.6

Own shares




(1.9)


(1.0)

Equity attributable to equity holders of the parent




361.5


312.9

Total equity




361.5


312.9

Statement of Changes in Equity

For the year ended 31 December 2013                        All equity is attributable to equity holders of the parent


Issued
share
capital

Share
premium
account

Equity
reserve

Hedging
and
translation
reserve

Retained
earnings

Own
shares

Total
equity


£m

£m

£m

£m

£m

£m

£m

Balance at 1 January 2012

40.2

12.3

2.7

4.5

216.6

-

276.3

Profit for the year 2012

-

-

-

-

69.9

-

69.9

Gains on cash flow hedges

-

-

-

2.0

-

-

2.0

Exchange differences on translation of foreign operations

-

-

-

(11.1)

-

-

(11.1)

Actuarial losses on defined benefit pension schemes

-

-

-

-

(12.3)

-

(12.3)

Tax relating to components of other comprehensive income

-

-

-

-

2.6

-

2.6

Total comprehensive income for the period

-

-

-

(9.1)

60.2

-

51.1

Issue of share capital

1.2

1.4

(0.3)

-

-

-

2.3

Share-based payment charge

-

-

2.0

-

-

-

2.0

Tax relating to share-based payments

-

-

-

-

(1.4)

-

(1.4)

Purchase of shares held by employee benefit trust

-

-

-

-

-

(1.0)

(1.0)

Transfer to retained earnings

-

-

(0.6)

-

0.6

-

-

Dividends paid

-

-

-

-

(16.4)

-

(16.4)

Balance at 31 December 2012

41.4

13.7

3.8

(4.6)

259.6

(1.0)

312.9

Profit for the year 2013

-

-

-

-

71.4

-

71.4

Losses on cash flow hedges

-

-

-

(0.9)

-

-

(0.9)

Exchange differences on translation of foreign operations

-

-

-

(7.8)

-

-

(7.8)

Actuarial gains on defined benefit pension schemes

-

-

-

-

4.3

-

4.3

Tax relating to components of other comprehensive income

-

-

-

(0.3)

(2.1)

-

(2.4)

Total comprehensive income for the period

-

-

-

(9.0)

73.6

-

64.6

Issue of share capital

0.2

0.1

(0.2)

-

-

-

0.1

Share-based payment charge

-

-

3.0

-

-

-

3.0

Tax relating to share-based payments

-

-

-

-

1.7

-

1.7

Purchase of shares held by employee benefit trust

-

-

-

-

-

(0.9)

(0.9)

Transfer to retained earnings

-

-

(1.4)

-

1.4

-

-

Dividends paid

-

-

-

-

(19.9)

-

(19.9)

Balance at 31 December 2013

41.6

13.8

5.2

(13.6)

316.4

(1.9)

361.5

 

Cash Flow Statement

For the year ended 31 December 2013


 

Notes

 

Year ended
2013
£m

 

Year ended
2012
£m

Net cash from operating activities


11a)


92.4


83.3

Investing activities







Interest received




0.2


0.3

Proceeds on disposal of property, plant and equipment




0.9


0.1

Purchases of property, plant and equipment




(28.7)


(25.3)

Purchases of intangible assets




(1.0)


(0.8)

Acquisition of Thermal (net of cash acquired of £0.2m)


13


(28.1)


-

Acquisition of Atlas


13


(2.4)


-

Acquisition of GA




-


(28.1)

Proceeds on disposal of subsidiary


14


-


4.5

Investment in joint venture




(0.5)


(0.9)

Net cash used in investing activities




(59.6)


(50.2)

Financing activities







Dividends paid




(19.9)


(16.4)

Repayment of borrowings




(0.2)


(0.2)

Repayments of obligations under finance leases




(0.5)


(0.6)

Share issues




0.1


2.3

Purchase of shares held by employee benefit trust




(0.9)


(1.0)

Net cash used in financing activities




(21.4)


(15.9)

Net increase in cash and cash equivalents




11.4


17.2

Cash and cash equivalents at beginning of period



43.9


28.5

Effect of foreign exchange rate changes




(2.2)


(1.8)

Cash and cash equivalents at end of period


11c)


53.1


43.9

Notes to the above Financial Statements

For the year ended 31 December 2013

1. General information

These results for the year ended 31 December 2013 are an excerpt from the Annual Report & Accounts 2013 and do not constitute the Group's statutory accounts for 2013 or 2012.  Statutory accounts for 2012 have been delivered to the Registrar of Companies, and those for 2013 will be delivered following the Company's Annual General Meeting.  The Auditor has reported on both those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under Sections 498(2) or (3) of the Companies Act 2006 or equivalent preceding legislation.

2. Significant accounting policies

Whilst the financial information included in this Annual Results Release has been prepared in accordance with International Financial Reporting Standards ("IFRS") adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS.  Full Financial Statements that comply with IFRS are included in the Annual Report & Accounts 2013 which is available at www.seniorplc.com, hard copies of which will be distributed on or soon after 14 March 2014.

The accounting policies adopted are consistent with those followed in the preparation of the Group's Annual Report & Accounts 2013 which are unchanged from those adopted in the Group's Annual Report & Accounts 2012, except as described below.

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

IFRS 7 (Amendments) improves disclosure in netting arrangements associated with financial assets and financial liabilities.  This amendment does not represent a material impact on the Group's Financial Statements.

IFRS 13 defines fair value and replaces the requirements contained in individual accounting standards.  The standard does not change the requirements regarding which items should be measured or disclosed at fair value and as such has no material impact on the Group's Financial Statements.

IAS 1 (Amendments) improves how items of other income should be presented in the statement of other comprehensive income (OCI).  Other than having to separate items of OCI into items that may be reclassified subsequently to the profit or loss account and those that will not be reclassified to the profit or loss account, these amendments do not materially impact the Group's Financial Statements.

IAS 19 (Amendments) changes the accounting and valuation of defined benefit plans and termination benefits.  The interest cost and expected return on plan assets has been replaced with a net interest charge on the net defined benefit liability and scheme running costs are now recognised within operating profit.  The amendments also enhance the disclosure requirements of defined benefit plans.  The impact of retrospectively applying the accounting changes is not considered to have a material impact on the Group's Financial Statements and so the prior year results have not been restated.  If the changes were applied retrospectively as at 31 December 2012, the Group's profit before tax for 2012 would have increased by £0.7m.  The required enhanced disclosures are presented in the Annual Report & Accounts 2013.

IAS 32 (Amendments) addresses inconsistencies relating to the offsetting of financial assets and financial liabilities criteria.  This amendment does not represent a material impact on the Group's Financial Statements.

IAS 36 (Amendments) clarifies the disclosure requirements of changes made by the introduction of IFRS 13.  The Group has early adopted this standard.

The Annual Improvements to IFRSs 2009 - 2011 Cycle incorporated necessary, but non-urgent, amendments to five International Financial Reporting Standards.  The amendments most relevant to the Group are:

IAS 1 "Presentation of Financial Statements" amendments clarify the requirement for additional comparative information and do not represent a material impact on the Group's Financial Statements.

IAS 34 "Interim Financial Reporting" amendments clarify the disclosure requirements for segment information and fair value of Financial Instruments.  The Interim Financial Statements as at 30 June 2013 reflected these amendments, where applicable.

The remaining three amendments in the Improvements to IFRSs 2009 - 2011 Cycle do not currently impact the Group's Financial Statements.

The following amendments to Standards and Interpretations are also effective from the current financial year, but currently do not impact the Group's Financial Statements: IFRS 1 (Amendments) "Government Loans" and IFRIC 20: Stripping Costs in the Production of a Surface Mine are currently not relevant to the Group's operations.

3. Segment information

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

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


Aerospace

Flexonics

Elimination
/ Central
costs

Total


Aerospace

Flexonics

Elimination
/ Central
costs

Total


Year
ended
2013
£m

Year
ended
2013
£m

Year
ended
2013
£m

Year
ended
2013
£m


Year
ended
2012
£m

Year
ended
2012
£m

Year
ended
2012
£m

Year
ended
2012
£m

Continuing operations










External revenue

506.1

269.0

-

775.1


470.3

241.7

-

712.0

Inter-segment revenue

0.5

0.3

(0.8)

-


0.2

0.3

(0.5)

-

Total revenue

506.6

269.3

(0.8)

775.1


470.5

242.0

(0.5)

712.0

Continuing adjusted trading profit

76.5

40.4

(9.0)

107.9


72.1

37.3

(8.7)

100.7

Share of joint venture loss

-

(0.3)

-

(0.3)


-

(0.1)

-

(0.1)

Continuing adjusted operating profit

76.5

40.1

(9.0)

107.6


72.1

37.2

(8.7)

100.6

Loss on sale of fixed assets

-

-

-

-


-

(0.1)

-

(0.1)

Exceptional pension credit / (charge)

-

-

1.1

1.1


-

-

(1.9)

(1.9)

Reversal of contingent consideration payable

-

3.8

-

3.8

-

-

-

-

-

Impairment of goodwill

(12.7)

-

-

(12.7)


-

-

-

-

Restructuring costs

(1.9)

-

-

(1.9)


-

-

-

-

Amortisation of intangible assets from acquisitions

(3.0)

(1.2)

-

(4.2)


(4.1)

(0.2)

-

(4.3)

Acquisition costs

(0.4)

-

-

(0.4)


-

(0.6)

-

(0.6)

Operating profit

58.5

42.7

(7.9)

93.3


68.0

36.3

(10.6)

93.7

Investment income




0.2





0.3

Finance costs




(9.7)





(10.6)

Profit before tax




83.8





83.4

Tax




(12.4)





(16.8)

Profit for the period from continuing operations



71.4





66.6

Discontinued operations









Operating profit




-





0.8

Profit on disposal




-





2.5

Profit for the period from discontinued operations



-





3.3

Profit after tax and discontinued operations



71.4





69.9











Continuing operations adjusted operating profit



107.6





100.6

Discontinued operations adjusted operating profit



-





0.8

Adjusted operating profit (Note 4)



107.6





101.4

Segment information for assets and liabilities is presented below.

Assets

Year ended
2013
£m


Year ended
2012
£m

Aerospace

251.5


219.5

Flexonics

103.7


107.4

Corporate

2.3


1.8

Segment assets for reportable segments

357.5


328.7

Unallocated




Goodwill

225.9


220.1

Intangible customer relationships

14.3


16.7

Cash

53.1


44.5

Deferred and current tax

7.6


12.8

Others

2.0


1.5

Total assets per balance sheet

660.4


624.3

 

Liabilities

Year ended
2013
£m


Year ended
2012
£m

Aerospace

74.6


63.3

Flexonics

37.3


41.8

Corporate

14.1


21.1

Segment liabilities for reportable segments

126.0


126.2

Unallocated




Debt

111.6


114.4

Finance leases

0.7


1.0

Deferred and current tax

31.6


29.9

Retirement benefit obligations

25.6


37.1

Others

3.4


2.8

Total liabilities per balance sheet

298.9


311.4

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, amortisation of intangible assets acquired on acquisitions, reversal of contingent consideration payable, impairment charges, restructuring costs, exceptional pension credit or charge, gains or losses from disposal of operations and acquisition costs.


Year ended
2013
£m


Year ended
2012
£m

Operating profit from continuing operations

93.3


93.7

Operating profit from discontinued operations

-


0.8

Operating profit

93.3


94.5

Loss on sale of fixed assets

-


0.1

Exceptional pension (credit)/charge

(1.1)


1.9

Reversal of contingent consideration payable

(3.8)


-

Impairment of goodwill

12.7


-

Restructuring costs

1.9


-

Amortisation of intangible assets from acquisitions

4.2


4.3

Acquisition costs

0.4


0.6

Adjustments to operating profit

14.3


6.9

Adjusted operating profit

107.6


101.4

Profit before tax from continuing operations

83.8


83.4

Profit before tax from discontinued operations

-


3.3

Profit before tax

83.8


86.7

Adjustments to profit as above before tax

14.3


6.9

Profit on disposal of discontinued operations

-


(2.5)

Adjustments to profit before tax

14.3


4.4

Adjusted profit before tax

98.1


91.1





5. Tax charge


Year ended
2013
£m


Year ended
2012
£m

Current tax:




Current year

12.6


14.4

Adjustments in respect of prior periods

(3.7)


0.7


8.9


15.1

Deferred tax:




Current year

0.3


3.7

Adjustments in respect of prior periods

3.2


(2.0)


3.5


1.7


12.4


16.8

UK Corporation tax is calculated at an effective rate of 23.25% (2012 - 24.5%) 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
2013
£m


Year ended
2012
£m

Amounts recognised as distributions to equity holders in the period:




Final dividend for the year ended 31 December 2012 of 3.27p (2011 - 2.65p) per share

13.6


10.7

Interim dividend for the year ended 31 December 2013 of 1.52p (2012 - 1.38p) per share

6.3


5.7


19.9


16.4

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

15.0


13.5

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting 2014 and has not been included as a liability in these Financial Statements.
7. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

Number of shares

Year ended
2013
million


Year ended
2012
million

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

414.7


408.5

Effect of dilutive potential ordinary shares:




Share options

5.4


10.3

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

420.1


418.8

 


Year ended 2013

Year ended 2012

Earnings and earnings per share

Earnings
£m

EPS
pence

Earnings
£m

EPS
pence

Profit for the period from continuing operations

71.4

17.22

66.6

16.30

Profit for the period from discontinued operations

-

-

3.3

0.81

Profit for the period from continuing and discontinued operations

71.4

17.22

69.9

17.11

Adjust:





Amortisation of intangible assets from acquisitions net of tax of £1.4m (2012 - £1.6m)

2.8

0.67

2.7

0.66

Acquisition costs net of tax of £nil (2012 - £0.1m)

0.4

0.10

0.5

0.12

Reversal of contingent consideration payable net of tax of £nil (2012 - £nil)

(3.8)

(0.92)

-

-

Goodwill impairment charge net of tax of £5.1m (2012 -£nil)

7.6

1.83

-

-

Loss on sale of fixed assets net of tax of £nil (2012 - £0.1m)

-

-

-

-

Exceptional pension (credit) /charge net of tax of £0.4m (2012 - £nil)

(0.7)

(0.17)

1.9

0.47

Profit on disposal of discontinued operations

-

-

(2.5)

(0.61)

Restructuring costs net of tax of £0.8m (2012 - £nil)

1.1

0.27

-

-

Adjusted earnings after tax

78.8

19.00

72.5

17.75

Earnings per share





-     basic from continuing operations


17.22p


16.30p

-     basic from continuing and discontinued operations


17.22p


17.11p

-     diluted from continuing operations


17.00p


15.90p

-     diluted from continuing and discontinued operations


17.00p


16.69p

-     adjusted


19.00p


17.75p

-     adjusted and diluted


18.76p


17.31p

The effect of dilutive shares on the earnings for the purposes of diluted earnings per share is £nil (2012 - £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;

·              exceptional pension credit or charge;

·              profit on disposal of discontinued operations;

·              acquisition costs;

·              reversal of contingent consideration payable;

·              impairment charges; and

·              restructuring costs.

8. Goodwill

Goodwill increased by £5.8m during the year to £225.9m (2012 - £220.1m) due to goodwill arising on the acquisition of Thermal of £19.0m and Atlas £1.7m, an increase of £0.3m relating to the 2012 acquisition of GA (see Note 13), net of an impairment charge of £12.7m relating to Capo Industries and exchange translation differences of £2.5m.

As noted in the Group's Interim Report 2013, Capo Industries has been impacted by the subdued business jet market since 2008, and taking into account that the anticipated recovery in this, and the regional jet engine markets, has not yet materialised and expectations for future operating margins are consequently lower, an impairment review for this CGU was performed at 30 June 2013.  The recoverable amount was determined from a value in use calculation.  The calculation used the cash flow forecasts derived from the most recent forecasts at the time, as approved by management for the next five years, and cash flows thereafter were extrapolated based on estimated growth rates that did not exceed independently sourced estimated long-term average growth rates for the aerospace industry.  Different probability weighted scenarios, where the compound annual sales growth over the initial five-year period ranged from management's base case of 18.1% to 3.6% were considered.  Beyond this combined five-year period, cash flows were projected to grow at a compound annual growth rate of 3.6% from 2019 to 2031, with reference to Boeing and Bombardier 20-year market projections, and 2.5% per annum thereafter.  The pre-tax rate used to discount the forecast cash flows was 10.8%.  As at 30 June 2013, before impairment testing, goodwill of £29.9m was allocated to Capo Industries within Aerospace.  As a result of the impairment test noted above, an impairment loss of £12.7m was recognised against Capo Industries goodwill, leaving a balance of £15.3m at 31 December 2013 after taking account of foreign exchange movements.  This impairment loss has been included within trading profit in the Consolidated Income Statement.

As at 31 December 2013 a further impairment review has been performed for this CGU and as noted in the Financial Review in the Group's Annual Report & Accounts 2013 further cost savings are anticipated following the restructuring of Capo Industries with Ketema.  The recoverable amount of Capo Industries at 31 December 2013 is £22.9m.  Management therefore believes that any reasonable possible change in any of the key assumptions would not cause the impaired carrying amount of Capo Industries to exceed its recoverable amount.

9. Property, plant and equipment

During the period, the Group spent £28.7m (2012 - £25.3m) on the acquisition of property, plant and equipment.  The Group also disposed of property, plant and equipment with a carrying value of £0.9m (2012 - £0.2m) for proceeds of £0.9m (2012 - £0.1m).

10. Share capital

Share capital as at 31 December 2013 amounted to £41.6m.  During 2013, the Group issued 42,422 shares at an average price of 144.85p per share under share option plans raising £0.1m.  2,039,740 shares were also issued during 2013 under the Senior plc 2005 Long-Term Incentive Plan.

11. Notes to the cash flow statement

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


Year ended
2013
£m


Year ended
2012
£m

Operating profit from continuing operations

93.3


93.7

Operating profit from discontinued operations

-


0.8

Operating profit

93.3


94.5

Adjustments for:




Depreciation of property, plant and equipment

21.6


20.1

Amortisation of intangible assets

4.9


5.0

Impairment of goodwill

12.7


-

Reversal of contingent consideration payable

(3.8)


-

Restructuring costs

1.9


-

Share options

3.5


2.3

Loss on disposal of property, plant and equipment

-


0.1

Pension payments in excess of service cost

(7.7)


(13.7)

Share of joint venture

0.3


0.1

Exceptional pension (credit) / charge

(1.1)


1.9

Operating cash flows before movements in working capital

125.6


110.3

Increase in inventories

(8.6)


(3.9)

(Increase) / decrease in receivables

(9.2)


2.6

Decrease in payables

(1.3)


(8.9)

Working capital currency movements

-


(0.3)

Cash generated by operations

106.5


99.8

Income taxes paid

(6.0)


(8.6)

Interest paid

(8.1)


(7.9)

Net cash from operating activities

92.4


83.3

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
2013
£m


Year ended
2012
£m

Net cash from operating activities

92.4


83.3

Interest received

0.2


0.3

Proceeds on disposal of property, plant and equipment

0.9


0.1

Purchases of property, plant and equipment

(28.7)


(25.3)

Purchase of intangible assets

(1.0)


(0.8)

Free cash flow

63.8


57.6

c) Analysis of net debt


At
1 Jan 2013
£m

Cash flow
£m

Non-cash
items
£m

Assumed
on
acquisition
£m

Exchange
movement
£m

At
31 Dec
2013
£m

Cash

44.5

10.8

-

-

(2.2)

53.1

Overdrafts

(0.6)

0.6

-

-

-

-

Cash and cash equivalents

43.9

11.4

-

-

(2.2)

53.1

Debt due within one year

(0.2)

0.2

(21.2)

-

-

(21.2)

Debt due after one year

(113.6)

-

21.2

-

2.0

(90.4)

Finance leases

(1.0)

0.5

-

(0.2)

-

(0.7)

Total

(70.9)

12.1

-

(0.2)

(0.2)

(59.2)

 


Year ended
2013
£m


Year ended
2012
£m

Cash and cash equivalents comprise:




Cash

53.1


44.5

Bank overdrafts

-


(0.6)

Total

53.1


43.9

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

12. Retirement benefit schemes

Defined Benefit Schemes

Aggregate retirement benefit liabilities are £25.6m (2012 - £37.1m).  The primary components of this liability are the Group's UK and US defined benefit pension schemes, with deficits of £15.6m (2012 - £23.3m) and £4.3m (2012 - £8.4m) respectively, and a liability on unfunded schemes of £5.7m (2012 - £5.4m).  These values have been assessed by independent actuaries using current market values and discount rates.  The decrease in the liability from £37.1m at 31 December 2012 to £25.6m at 31 December 2013 is largely due to the recognition of an actuarial gain of £4.3m, higher than expected asset returns, the recognition of contributions in excess of service costs of £7.7m, and the recognition of a £1.1m curtailment credit following closure of one of the US schemes to future accruals from December 2013, offset partially by the net pension finance charge of £1.4m.

13. Acquisitions

GAMFG Precision LLC

As noted in the 31 December 2012 Annual Report & Accounts, on 2 November 2012, the Group acquired 100% of the issued share capital of GAMFG Precision LLC and its parent company GAMCO Acquisition Company (collectively "GA").  On finalisation of the fair value exercise, property, plant and equipment on acquisition was reduced by £0.3m, with an increase in goodwill previously recognised of £0.3m.

The contingent consideration of £3.8m is no longer payable to the sellers of GA and consequently this amount has been released to the income statement during 2013.

Atlas Composites Limited

On 8 February 2013, the Group acquired 100% of the issued share capital of Atlas Composites Limited and its parent company Castlegate 408 Limited (collectively "Atlas").  Atlas, based in Ilkeston, Derbyshire, UK, designs and manufactures composite structures, components and tooling for aerospace, motorsport, defence and communications markets.  The cash consideration, net of cash acquired of £0.1m, was £2.4m and the acquisition was funded from the Group's existing debt facilities.

Goodwill of £1.7m has been recognised on acquisition and represents the premium paid in anticipation of future profitability from assets that are not capable of being separately identified and separately recognised such as the assembled workforce as well as the Group's ability to generate future value from expanding Atlas' aerospace activities through utilisation of the Group's existing relationships and experience in the aerospace industry.

Atlas contributed £3.0m of external revenue and made an operating loss of £0.1m from the date of acquisition to 31 December 2013.  If the acquisition had been completed on 1 January 2013, continuing Group revenue for the 12 months ended 31 December 2013 would have been £775.5m and continuing Group operating profit would have remained unchanged at £93.3m.

Thermal Engineering Limited

On 29 November 2013, the Group acquired 100% of the issued share capital of Thermal Engineering Limited and its parent company Thermal Engineering Holding Limited (collectively "Thermal").  Thermal is located in Royston, Hertfordshire, UK and specialises in manufacturing hot- and cold-formed components, complex fabricated assemblies and thermal insulation heat shields and systems for the aerospace industry.

Thermal's capabilities are highly complementary to Senior's existing portfolio, providing additional capability to the Group in the areas of Hot-Forming and Insulation.  The consideration was £28.3m, before netting of £0.2m of cash acquired, and the acquisition was funded by the Group's existing debt facilities.

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

Recognised amounts of identifiable assets acquired and liabilities assumed:

£m

Identifiable intangible assets

1.8

Property, plant and equipment

4.5

Inventories

2.0

Financial assets, excluding cash and cash equivalents

4.8

Cash and cash equivalents

0.2

Financial liabilities

(3.6)

Deferred tax liability

(0.4)

Net assets acquired

9.3

Goodwill

19.0

Total consideration

28.3

Consideration satisfied by:


Cash paid

21.8

Repayment of debt

6.5

Net cash outflow arising on acquisition:


Cash consideration paid to date

28.3

Less: Cash and cash equivalents acquired

(0.2)

Net cash outflow arising on acquisition

28.1

The goodwill of £19.0m represents the premium paid in anticipation of future profitability from assets that are not capable of being separately identified and separately recognised such as the assembled workforce as well as the expectation that the Group will be able to leverage its wider market access and strong financial position to generate sustainable financial growth beyond what Thermal would have potentially achieved as a stand-alone company. None of the goodwill is expected to be deductible for tax purposes.

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

The financial assets acquired include trade receivables with a fair value of £4.6m and a gross contractual value of £4.6m, all of which is expected to be collectible.

Acquisition related costs of £0.2m are included in administrative expenses within trading profit in the Group's Consolidated Income Statement for the year ended 31 December 2013.

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

Thermal contributed £1.0m of external revenue and £0.1m to the Group's operating profit from the date of acquisition to 31 December 2013.  If the acquisition had been completed on 1 January 2013, continuing Group revenue for the 12 months ended 31 December 2013 would have been £791.3m and continuing Group operating profit would have been £94.3m.

14. Discontinued operations

On 16 October 2012, the Group disposed of the entire share capital of Senior Hargreaves Limited to the M&W Group.

The results of the discontinued operation, which have been included in the Consolidated Income Statement, were as follows:


Year ended
2013
£m


Year ended
2012
£m

Revenue

-


17.8

Expenses

-


(17.0)

Operating Profit

-


0.8

Profit on disposal

-


2.5

Tax

-


-

Profit for the period from discontinued operations

-


3.3

During the year, Senior Hargreaves Limited contributed £nil (2012 - £nil) to the Group's net operating cash flows, paid £nil (2012 - £0.1m) in respect of investing activities and paid £nil (2012 - £2.0m) in respect of financing activities in relation to inter-Group loans and dividends.

15. Investment in joint venture

During 2012, the Group set up and has a 49% interest in Senior Flexonics Technologies (Wuhan) Limited, a jointly controlled entity incorporated in China.  The Group's investment of £1.0m represents the Group's share of the joint venture's net assets as at 31 December 2013.


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