Last checked at 16 Dec 2008 07:00
Senior plc
Trading Update
Senior plc ("Senior" or "the Group"), an international manufacturer of high technology components and systems, principally for the aerospace, defence, land vehicle and energy markets, issues this trading update ahead of its financial year end on 31 December.
Trading
The Group's adjusted profit before tax(1) for the first eleven months of 2008 shows a significant improvement over the prior year and the outcome for the full year 2008, after the restructuring costs of £1.7m detailed below, is expected to be in line with the current market consensus of approximately £55m. This would be some 45% ahead of the £37.8m achieved in 2007. Approximately £2.7m of the anticipated year on year increase is due to beneficial currency movements arising from the translation of overseas profits into pounds sterling.
Aerospace Division
Activity in the Group's aerospace operations has been healthy with the Division's 2008 operating profit(4) expected to show an increase of approximately 30% over the prior year, to between £43.5m and £44.0m (2007: £33.4m). New programme wins, increases in build rates, improved operational efficiencies and beneficial exchange rates are all driving the improvement. The anticipated result is particularly pleasing given that Boeing, the Group's largest customer, was on strike for two months during the second half of the year.
During the first eleven months of 2008, Airbus and Boeing delivered a combined 771 aircraft and saw their order books increase significantly, as their combined net order intake of 1,401 aircraft was 1.8x the delivery level. They now have eight year order books at current production rates, although some airlines are now deferring the timing of their orders. During the second half of 2008, Senior successfully launched a new $16m p.a. programme for the Boeing 737 demonstrating the Group's enhanced assembly capabilities. Additional opportunities in higher value-added assembly work can now be anticipated. Boeing's new 787 aircraft, on which the Group has significant content, is now due for its first flight in the second quarter of 2009 and for delivery to customers to start in the first quarter of 2010.
Elsewhere, the business jet market remains at satisfactory levels but the regional jet market is showing signs of weakening, with Embraer recently announcing a reduction in future build rates of around 20%. Senior's presence in the defence market continues to grow with notable programme wins on Lockheed's C130 military transport aircraft and Sikorsky's Black Hawk helicopter.
With much of the Group's aerospace management team having been through a downturn in 2002 (following "9/11"), and nine out of the fourteen operations in the Division being located in North America, the Group is well placed to implement appropriate rationalisation plans, in a timely and cost efficient manner, in the event that the aerospace markets do soften. To-date, this has not been necessary.
Flexonics Division
The operating profit(4) of the Flexonics Division in 2008 is expected to be in the range £25.5m to £26.0m, after the £1.7m of restructuring costs detailed below. This is approximately 48% ahead of the £17.4m achieved in 2007.
Around 50% of the revenue of the Flexonics Division, and a greater percentage of its operating profit, are now derived from a wide range of industrial markets. The performance of the industrial businesses within the Flexonics Division has been strong throughout 2008, with three of the larger operations recently seeing significant order intake for 2009 and beyond. Senior Flexonics Pathway had a record order book at the end of November, Senior Hargreaves recently booked a £16m contract for the supply of product to the nuclear industry over the next three years and the Group's German operation is providing increasing volumes to the solar power generation market. These activities bode well for the future prospects of the Division.
Land vehicle markets (automobiles, light and heavy trucks and off-road vehicles) are very weak across the globe and any meaningful improvement is unlikely to occur until later in 2009 at the earliest. There was a severe and rapid deterioration in land vehicle markets during the second half of the year and consequently prompt mitigating actions were taken by the Group. These mitigating actions, together with stronger than anticipated industrial markets, price increases, other operational efficiency improvements, raw material cost savings, and beneficial exchange rates are each contributing to the Division's strong 2008 performance. Employee numbers will have fallen by around 350 people (12%) in the Flexonics Division during the final quarter of the year as the operations are restructured commensurate with the much lower volumes being seen in the land vehicle markets. The cost (all to be taken in 2008) of this headcount reduction is estimated at £1.7m with over £4.5m of cost savings expected to be forthcoming in 2009.
Cash Flow and Funding Position
Cash generation is running slightly ahead of expectations, with free cash flow(2) for the full year 2008 expected to be close to £35m, nearly twice the level achieved in 2007 (£18.5m). The Group is well funded, following the successful re-financing in early October, with £216m(3) of committed facilities in place at the end of November. These loan facilities have a weighted average maturity of 6.4 years. The next major refinancing is not due until July 2012 and the Group continues to operate comfortably within its banking covenants. A large portion of the Group's borrowings, and forward contracts relating to the Group's balance sheet hedging policy, are denominated in US$ and its recent strengthening against pounds sterling has resulted in an increase in the Group's reported net debt to £169m(3) at the end of November. Net interest costs for 2008 are expected to be around £6.7m (2007: £6.4m).
Outlook
Senior enters 2009 with strong order books at its largest industrial operations, generally healthy aerospace markets and continuing weak land vehicle markets. Overall, market activity is anticipated to be marginally lower in 2009 than in 2008, but cost savings from the recent headcount reductions, new aerospace programme wins, the absence of the Boeing strike, favourable exchange movements and raw material cost savings can all be expected to benefit the Group in 2009. At the current £:US$ exchange rate, the benefit to the Group's 2009 adjusted profit before tax(1) would be significant.
Cash generation is fundamental, particularly given current market uncertainty, and the Board is highly focussed on its delivery. Working capital and capital expenditure controls have been enhanced and incentive schemes modified to increase the focus on cash generation. The Board remains vigilant and ready to take action, if required, to protect the cash generative nature of the Group. Having the majority of its operations in North America means the Group is capable of rapid and cost effective implementation of such actions.
The Group's components and systems are generally targeted at more cost effective aircraft, lower emission engines for land vehicles and a wide-range of industrial markets, including renewable energy, power generation and medical. Exposure to these longer-term growth markets, together with the Group's strong cash generative nature and solid funding position, gives the Board confidence in the long-term future prospects for the Group.
The announcement of the Group's preliminary 2008 results is scheduled to be on Monday 2 March 2009.
Notes:
(1) Adjusted profit before tax is that before loss/profit on sale of fixed assets and amortisation of intangible assets arising on acquisitions.
(2) Free cash flow is that before dividend payments and cash flows associated with acquisitions, disposals and share issues.
(3) The sterling amounts indicated (3) assume an exchange rate of £1 : US$1.53.
(4) Divisional operating profits are stated before central costs, interest, profit/loss on the sale of fixed assets and amortisation of intangible assets arising on acquisitions.
Further information
Mark Rollins, Group Chief Executive, Senior plc +44 (0) 1923 714738Simon Nicholls, Group Finance Director, Senior plc +44 (0) 1923 714722Clare Strange, Finsbury Group +44 (0) 20 7251 3801
About Senior
Senior is an international manufacturing group with operations in 11 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. It employs approximately 5,500 people worldwide. Further information on Senior plc, may be found at: www.seniorplc.com
Cautionary Statement
This announcement 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 announcement and they should be treated with caution due to the inherent uncertainties underlying any such forward-looking information.