Monday 4 August 2008

Senior plc

Interim Results for the half-year ended 30 June 2008

Senior delivers a 66% increase in adjusted profit before tax

1)   Adjusted figures are stated before loss on disposal of fixed assets of £nil (2007 - £0.2m), a £2.1m charge for

      amortisation of intangible assets acquired on acquisitions (2007 - £1.7m) and the release of a provision

     set up on a previous acquisition of £nil (2007 - £0.5m). Adjusted earnings per share excludes the tax impact

     of these items.

2)   See Note 10 (b) for derivation of free cash flow.

Commenting on the results, Martin Clark, Chairman of Senior plc, said:

"Senior has delivered another excellent set of results with a 66% increase in adjusted profit before tax and 262% increase in free cash flow. These results clearly demonstrate the Group's strong cash generative nature, driven by strong demand in key markets and underpinned by a tight operational focus.  Looking forward, a record backlog of orders at Boeing and Airbus, continued strong demand in the energy sector and opportunities arising from further tightening of emission legislation give us confidence in the Group's future prospects.  The Board is, therefore, pleased to announce a 29% increase in the interim dividend."

For further information please contact:

This announcement, together with other information on Senior plc may be found at: www.seniorplc.com 

Note to Editors:

Senior is an international manufacturing group with operations in 11 countries. Senior designs, manufactures and markets high technology components and systems for the principal original equipment producers in the worldwide civil aerospace, defence, diesel engine, exhaust system and energy markets.

  INTERIM REPORT 

Chairman's statement

Senior has delivered another excellent set of results. In the first half of 2008 adjusted profit before tax was £29.3m, a 66% increase over the first half of 2007.  Adjusted Group operating margin increased significantly, from 9.0% to 11.9%, as the benefits of internal efficiency improvement initiatives were realised and volumes increased as a result of strong demand in the Group's key aerospace and industrial markets.  Free cash flow improved by 262% to £24.6m, clearly demonstrating the Group's strong cash generative nature.  Looking forward, demand prospects in the Group's main markets remain encouraging and the Board is consequently pleased to announce a 29% increase in the interim dividend.

Financial results

Group revenue increased by 18% to £279.9m (H1 2007 - £237.8m) and operating profit increased by 57% to £31.3m (H1 2007 - £20.0m), largely due to high levels of activity in the aerospace and industrial markets and positive contributions from the acquisitions of Absolute Manufacturing in December 2007 and Capo Industries in January 2008.  Excluding the impact of acquisitions, organic operations' revenue increased by 12%.

Adjusted profit before tax, the measure which the Board believes most accurately reflects the true underlying performance of the business, increased by 66% to £29.3m (H1 2007 - £17.7m). Adjusted profit before tax measures profit before the loss on sale of fixed assets, the charge for amortisation of intangible assets arising on acquisitions and the benefit of any release of provisions set up on previous acquisitions.

Adjusted earnings per share increased by 57% to 5.50p (H1 2007 - 3.50p). This was achieved despite an increased underlying tax charge of 26.3% (H1 2007 - 23.2%), principally due to the higher level of Group taxable profits arising from the USA.

The Group's net debt increased to £121.7m at 30 June 2008 (31 December 2007 - £94.8m).  The main reasons for this increase were the acquisition of Capo Industries in January 2008, for £44.5m, and continuing capital investment within the Aerospace Division. The strong cash generative nature of the Group was demonstrated in the period as significantly higher profit levels combined with good working capital management offset much of the cash flow effect of the investments.  Total committed borrowing facilities of over £180m were in place at the period end, providing a healthy level of headroom.  

These results demonstrate the Group's continuing success in implementing its strategy of increasing its exposure to aerospace and selected industrial markets.

The financial results are discussed in greater detail in the Interim Management Report which follows this statement.

Operations

Revenue in the Aerospace Division increased by 23% to £152.2m (H1 2007 - £123.6m) and adjusted operating profit increased by 38% to £22.2m (H1 2007 - £16.1m). The results were achieved as a result of strong organic growth and healthy contributions from Absolute Manufacturing and Capo Industries, the Group's most recent acquisitions.  Adjusted operating profit margins in the Aerospace Division increased to 14.6% (H1 2007 - 13.0%). This performance reflects increases in demand across the aerospace markets, particularly for new commercial aircraft, the success of production efficiency initiatives and the ongoing focus on cost control. Boeing and Airbus delivered 486 aircraft in the period, up 8% over the first half of 2007 (451 aircraft). Their combined intake of 957 net orders in the first half of the year was almost twice the rate of deliveries, resulting in a combined order book of over 7,300 aircraft at the end of June 2008. This seven year order book, and the fact that over 85% of the backlog is for delivery to airlines outside North America, indicates the current and future projected strength of the commercial aerospace market.

The Flexonics Division delivered a particularly strong performance, with revenue increasing by 12% to £128.1m (H1 2007 - £114.4m) and adjusted operating profit increasing by a very significant 75% to £14.2m (H1 2007 - £8.1m).  Adjusted operating profit margins increased from 7.1% to 11.1%, an excellent result. The main drivers of this improvement were increased demand for expansion joints in energy and other industrial markets, together with efficiency improvements in the production of heavy duty diesel engine components in North America.  Whilst total North American passenger vehicle demand was weak, sales of smaller front-wheel-drive vehicles, on which Senior has significantly higher content per vehicle, were relatively strong as end-users purchased more fuel-efficient vehicles due to the high cost of oil. In addition, increased volumes of automotive components manufactured in the Group's Brazilian and South African facilities had a positive impact on the comparative performance.

Dividend

The interim dividend is being increased by 29% to 0.90 pence per share (H1 2007 - 0.70p), and will be paid on 28 November 2008 to shareholders on the register at the close of business on 31 October 2008.  The Board anticipates continuing to follow a progressive dividend policy in the future.

Employees and the Board

These excellent results would not have been achieved without the dedication and hard work of Senior's employees, and I would like to thank them for their continuing enthusiasm and hard work on behalf of the Group.

The first half of 2008 has seen some significant changes in the composition of the Board and, on behalf of the Board and all of his colleagues, I would like to express thanks to Graham Menzies, who retired at the AGM in April 2008, for his performance in the role of Group Chief Executive for the past eight years. During that period Graham demonstrated outstanding leadership skills, transforming the business and building the foundation for the next stage of its evolution. In that context, I am delighted that the Board has chosen to promote Mark Rollins from his former role as Group Finance Director into the role of Group Chief Executive. Mark also played an instrumental role over the past eight years and I look forward to his future strong leadership of the Group.  

I am also delighted to have welcomed two new members to the Board on 1 May 2008.  Simon Nicholls joined as the Group's Finance Director from Hanson Plc. Simon held a number of senior financial positions in Hanson, and this solid financial pedigree together with his most recent experience in the role of Chief Financial Officer of Hanson North America will be particularly beneficial to the Group.  The other new member of the Board is Michael Steel, who joined as a Non-Executive director. Michael brings a wealth of experience in the aerospace industry, where latterly he was President of the Mechanical Systems business of GE Aviation Systems.

Outlook

The commercial aerospace industry continues to perform strongly, with the record order books of Boeing and Airbus representing over seven years of production at current build rates.  The order books for wide-bodied commercial aircraft continue to increase, despite higher oil prices,   largely due to the strength of the aerospace markets outside North America, particularly those in the Middle East, Asia and China. The new aircraft are also lighter and more fuel efficient than the older aircraft they are replacing.  Deliveries of Boeing's 787 Dreamliner will commence in 2009 and this programme, the most valuable in Senior's history, will provide a significant future benefit.  Demand for regional and business jets also remains strong and military programmes are stable.  As a result, the outlook for the Group's Aerospace Division remains encouraging.  

Demand in many of the industrial sectors served by the Flexonics Division remains strong, underpinning the improved performance in this segment of the Division.  Energy markets are forecast to remain healthy, with the Group benefiting from this and from the increasing demand for renewable energy and nuclear generating capacity. Further, whilst truck and passenger vehicle markets are likely to remain soft in the immediate future, the Group's product bias towards components for smaller more fuel-efficient passenger vehicles, together with further tightening in emission laws in Europe and North America, will present additional growth opportunities.

Overall, the continued increase in build rates of new aircraft, together with the Group's diversified product exposure in Flexonics, gives the Board confidence in the future prospects for the Group.

Martin Clark  Chairman

INTERIM MANAGEMENT REPORT

To the members of Senior plc

This Interim Management Report ("IMR") has been prepared solely to provide additional information to enable shareholders to assess the Company's strategies and the potential for those strategies to be fulfilled. It should not be relied upon by any other party or for any other purpose.

This IMR 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 their approval of this report, and they should be treated with caution due to the inherent uncertainties underlying such forward-looking information.

This IMR has been prepared for the Group as a whole and therefore gives greatest emphasis to those matters which are significant to Senior plc and its subsidiary undertakings when viewed as a whole. The IMR discusses the following aspects of the business: operations; long-term strategy and business objectives; the results for the six months ended 30 June 2008; risks and uncertainties facing the Group during the second half of the 2008 financial year; and the future outlook for the Group.

Operations

Senior is an international manufacturing group with operations in 11 countries. Senior designs, manufactures and markets high technology components and systems for the principal original equipment producers in the worldwide civil aerospace, defence, diesel engine, exhaust system and energy markets. Major customers include Boeing, Airbus, UTC, GE, Rolls-Royce, General Motors, Ford, PSA and Cummins. The Group is split into two Divisions, Aerospace and Flexonics. The Aerospace Division (54% of Group sales) consists of 14 operating companies (nine in North America and five in Europe) whilst the Flexonics Division (46% of Group sales) has 11 operating companies (three in North America, five in Europe and three in the Rest of the World).

Aerospace markets continued to grow during the period. In commercial aerospace, representing 62% of the Aerospace Division's sales, Boeing and Airbus delivered a combined 486 aircraft, an increase of 8% over the same period last year and in line with expectations, whilst demand from regional and business jet manufacturers also remained encouragingly strong. The military sector (23% of Divisional sales) remained stable as expected.  

In the Flexonics Division, activity levels in the oil and gas, chemical processing and power generation industries were buoyant and demand for Senior's recently introduced heavy duty diesel engine components increased despite an overall market decline. Automotive markets were generally uninspiring, in particular the SUV and light truck segments in North America. However, the Group's principal exposure in the automotive market is to smaller more fuel-efficient front-wheel-drive vehicles where demand is more robust.

Long-term strategy and business objectives

The Group's long-term strategy and business objectives, set out in detail on page 9 of the 2007 Annual Report, are centred on four key elements. In summary, these are: targeted investment in new product development; exceeding customer expectations; focused value-adding acquisitions; and creation of an entrepreneurial culture with strong internal controls amongst the operating businesses.  

The above key elements are supported by five financial performance measures and two non- financial measures. The Group made excellent progress against each of these in the first half of 2008, as follows:

• Organic sales growth was 12%, well above the target of inflation;

• Adjusted earnings per share increased by 57%, again well above the target of inflation;

• Return on revenue margin increased to 11.9%, well ahead of the 9.0% achieved in the first half of 2007;

• Free cash flow increased in the first half of 2008 to £24.6m (H1 2007 - £6.8m), easily supporting the proposed interim dividend increase of 29%;

• The Group's return on capital employed increased from 19.2% in 2007 to 25.6% in the first half of 2008 and remains well in excess of the stated target of 15%;

• Total CO2 emissions decreased by 16%, from 110 tonnes in 2007 to 92 tonnes per £m of revenue in the first half of 2008; and

• The lost time injury frequency rate improved to an annualised 1.98 days per 100 employees, from 2.55 days in 2007, a reduction of 22%.

Results for the six months ended 30 June 2008

A summary of the Group's operating results, on a constant currency basis (i.e. H1 2008 and H1 2007 results both translated at 2008 first half average exchange rates), are set out below: