Senior Regulatory News (SNR)

3 Mar 2008 07:01

Senior PLC03 March 2008 Senior plc========== Results for the year ended 31 December 2007------------------------------------------- Group delivers 91% increase in adjusted profit before tax. FINANCIAL HIGHLIGHTS Year ended 31 December 2007 2006-------------------------------------------------------------------------------- REVENUE £470.7m £387.9m +21% -------------------------------------------------------------------------------- OPERATING PROFIT £41.5m £24.5m +69% -------------------------------------------------------------------------------- PROFIT BEFORE TAX £34.3m £18.1m +90% -------------------------------------------------------------------------------- BASIC EARNINGS PER SHARE 7.17p 4.35p +65% -------------------------------------------------------------------------------- ADJUSTED PROFIT BEFORE TAX (1) £37.8m £19.8m +91% -------------------------------------------------------------------------------- ADJUSTED EARNINGS PER SHARE (1) 7.71p 4.65p +66% -------------------------------------------------------------------------------- TOTAL DIVIDENDS (PAID AND PROPOSED) PER SHARE 2.40p 2.00p +20% -------------------------------------------------------------------------------- FREE CASH FLOW (2) £18.5m £5.1m +263% -------------------------------------------------------------------------------- NET BORROWINGS £94.8m £96.7m -------------------------------------------------------------------------------- (1) Adjusted profit before tax and adjusted earnings per share arise before a £0.7m loss on sale of fixed assets (2006 - £0.4m), a £3.3m charge for amortisation of intangible assets acquired on acquisitions (2006 - £1.3m) and the release of a provision set up on a previous acquisition of £0.5m (2006 - £nil). Adjusted earnings per share excludes the tax impact of these items. (2) See Note 9(b) for derivation of free cash flow. Commenting on the results, Martin Clark, Chairman of Senior plc, said: "The Group has delivered an outstanding set of results, with adjusted profitbefore tax 91% ahead of the prior year and free cash flow 263% better. Thecontinuing growth in build rates of commercial aircraft, improving profitabilityof the heavy duty diesel engine products, continuing strength of the globalenergy markets, and the future contributions from Absolute Manufacturing andCapo Industries, the North American aerospace businesses acquired in recentmonths, mean prospects for the Group are very encouraging. Consequently, theBoard is pleased to recommend a 20% increase in the full year dividend". For further information please contact: Graham Menzies, Group Chief Executive, Senior plc 01923 714702Mark Rollins, Group Finance Director, Senior plc 01923 714738Adrian Howard, Finsbury Group 020 7251 3801 This announcement, together with other information on Senior plc may be foundat: 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 systemsfor the principal original equipment producers in the worldwide aerospace,defence, diesel engine and energy markets. CHAIRMAN'S STATEMENT==================== The Group has delivered an outstanding set of results, with adjusted profit before tax 91% ahead of the prior year and free cash flow 263% better.AMT and Sterling Machine, the two North American aerospace businesses which wereacquired during 2006, both delivered very strong performances in 2007. The newheavy duty diesel products for the North American market went into fullproduction in the year and made an increasing contribution as the yearprogressed. Demand in the energy sector continued at an exceptional level. Twofurther aerospace companies, Absolute Manufacturing, Inc. ("Absolute") and CapoIndustries, Inc. ("Capo") joined the Group in December 2007 and January 2008,respectively. This backdrop, together with the record order books of the civilaircraft manufacturers, means prospects for the Group are very encouraging and,consequently, the Board is pleased to recommend a 20% increase in the full yeardividend. Financial Results----------------- Significant progress was made in almost all aspects of performance during 2007with revenue, profit and cash flow all showing very healthy increases over 2006. Group revenue increased by 21% to £470.7m (2006 - £387.9m) and operating profitincreased by 69% to £41.5m (2006 - £24.5m), largely due to the increased buildrates for civil aircraft, strong energy markets, the new heavy duty dieselproducts going into production, and full year contributions from AMT andSterling Machine. Group revenue increased by 18% and adjusted operating profitincreased by 57%, on a constant currency basis and before the benefit ofacquisitions. Adjusted profit before tax, the measure which the Board believes best reflectsthe true underlying performance of the business, increased by 91% to £37.8m(2006 - £19.8m). Adjusted profit before tax is before the loss on sale of fixedassets of £0.7m (2006 - £0.4m), a £3.3m (2006 - £1.3m) charge for theamortisation of intangible assets acquired on acquisitions and the benefit ofthe release of a provision of £0.5m (2006 - £nil) originally set up on aprevious acquisition. Adjusted earnings per share increased by 66% to 7.71p (2006 - 4.65p), after anincreased underlying tax charge of 20.6% (2006 - 17.7%). Year-end net debt reduced to £94.8m (2006 - £96.7m), despite the acquisition ofAbsolute for £7.0m, and the ongoing investment in increased manufacturingcapacity and capability across the Group. Dividend-------- In 2006, the Board sanctioned the first dividend increase for seven years andsignalled its intention to adopt a progressive dividend policy. Given theexcellent results in 2007 and encouraging future prospects, the Board isrecommending a further increase in the dividend. It is proposed that the finaldividend for 2007 be 1.70 pence per share (2006 - 1.381p), an increase of 23%.When added to the 0.70p interim dividend, this will bring the full year dividendto 2.40p, an increase of 20% over the 2.00p for 2006. The final dividend, ifapproved, will be paid on 30 May 2008 to shareholders on the register at closeof business on 2 May 2008. Acquisitions------------ The key criteria considered by Senior for any acquisition are: compatibleproducts in familiar markets, healthily profitable with good growth prospects, astrong management team and Group earnings enhancing prior to any synergisticbenefits. In 2006 two companies, both meeting these criteria, joined the Group.Sterling Machine, a key supplier to Sikorsky, grew full year revenue by 20% in2007. AMT was purchased towards the end of 2006 and grew full year revenue by29% in 2007. AMT is a key supplier of machined parts for Boeing civil aircraft. In early December 2007, Absolute was purchased for $14.4m from its privateowners. Absolute specialises in high tolerance, high surface finish parts foraircraft tyre pressure monitoring systems, flap and door movement sensorhousings and for laser guidance housings, both for commercial applications andnight vision defence industry equipment. The company is a machine shop workingin aluminium, titanium and a variety of stainless steels and is located inArlington, Washington State, USA. Absolute is a well invested and fast growingbusiness and is managed by Andy Lubresky, one of its founders and former owners. At the end of January 2008, Capo was purchased for $85.0m from its privateowners, David and Karen Feltch. David continues to head the business now that itis part of Senior. The company's high performance components are used primarilyin auxiliary power units for large civil airliners and for propulsion enginesfor business jets. Located near Los Angeles, California, USA, Capo is a wellinvested machine shop specialising in the 5-axis machining of titanium and steelalloys. Prospects for the business are very encouraging. I welcome their respective managements and employees to the Group. Trading------- The Group is organised into two Divisions - Aerospace, now with fourteenoperations, and Flexonics with eleven. Both Divisions are focussed onmanufacturing components and systems for original equipment manufacturers. Thereis little aftermarket content and the Group's operations generally deliver tothe required production schedules of its customers. Products are normally singlesourced and engineered for specific applications. Aerospace--------- The market for civil aircraft continues to be very strong both for largecommercial airliners (43% of divisional sales) and business jets (9%). Regionaljets (11%) also began to strengthen during 2007. 2007 was an outstanding yearfor order intake of large civil aircraft. Airbus and Boeing together booked netorders for 2,754 new aircraft (2006 - 1,834), delivered 894 (2006 - 832) andended the year with an order-book of 6,848 aircraft (31 December 2006 - 4,988).At current build rates this equates to a seven-and-a-half year order-book.Overall, the military aerospace market, representing 22% of divisional sales,was stable with increasing shipments to Sikorsky offset by a reduction in thelevel of US Government spares. The Aerospace Division has exposure to a wide range of customers in theindustry. It has substantial work on the Airbus A380 (now in service) and whilstdemand in 2007 was low, due to its well documented production delays, schedulesin 2008 are now increasing. The new Boeing 787 (the "Dreamliner") has alsoexperienced delays. Whilst it is not due into service until 2009, the aircraftis very much in demand, with Boeing having booked 817 orders for the Dreamlinerby the end of 2007. This aircraft represents the largest ever individualprogramme for Senior Aerospace, so substantial growth can be anticipated as itsproduction rate gathers momentum during 2008 and beyond. Demand from customers almost universally increased during 2007. Capitalexpenditure of £10.9m (2006 - £7.6m) was incurred to increase capacity andcapability and to bring new products into production. Sterling Machine and AMTboth made outstanding contributions in their first full year in the Group.Absolute made an inaugural contribution in the last month of the year and weexpect it, and Capo, to contribute positively to the Division's performancethroughout 2008. The result of this strong activity was an increase of 25% in the AerospaceDivision's sales to £246.2m (2006 - £197.0m) and an increase in adjustedoperating profit of 74% to £33.4m (2006 - £19.2m). The divisional operatingmargin increased by nearly four full percentage points to 13.6% (2006 - 9.7%). Flexonics--------- The markets serviced by this Division were generally healthy during 2007. Theenergy sector was particularly buoyant and the Group's world leading position inthe design, manufacture and installation of expansion joints, as used in mostprocess plant pipeline systems, proved to be highly beneficial. Currently at amodest level, sales into the renewable energy market increased markedly,particularly for solar farms. The new heavy duty diesel products, developed over the previous three years,went into full production in 2007 as tighter emission legislation came intoeffect in the USA. Although the level of demand for heavy trucks was subdued,this new market is incremental business for Senior and proved to be anincreasingly valuable contributor as the year progressed. Having put the newdiesel products into production in late 2006, the Division's capital expenditurereduced to £8.5m (2006 - £13.0m) but remained above depreciation. The new dieselcomponents provide a solid platform for further generations of products andmarket penetration in the future. The passenger car sector was slightly betterthan expected for Senior, despite flat markets in Europe and USA. The Flexonics Division, without making any acquisitions during the year,increased annual sales by 17% to £225.0m (2006 - £191.5m) and increased adjustedoperating profit by 47% to £17.4m (2006 - £11.8m). The operating margin for theDivision increased to 7.7% (2006 - 6.2%). The contributing factors to thisorganic growth largely remain in place as we enter 2008. Employees and the Board----------------------- As well as warmly welcoming all new employees to Senior, I would like to thankeveryone for another year of unstinting effort, commitment, energy andinitiative. Without the endeavours of its employees, the Group would not havemade such a dramatic step forward in 2007. It is important that Senior has the right people in the right roles, especially given the lean nature of its organisation and its semi-autonomous subsidiaries. This is particularly key in executive Board positions, so I am pleased to congratulate Mark Rollins on his appointment as the new Group Chief Executive, effective 17 March 2008. Mark has been an exceptional Executive Director for the past eight years and I look forward to working alongside him in the future. Recruitment of his replacement, as Group Finance Director, is making good progress. Finally, I would like to extend sincere thanks to Graham Menzies, who retiresfrom Senior at the forthcoming AGM after eight successful years as its GroupChief Executive. Throughout this period, Graham has provided determined, skilfuland energetic leadership, transforming the Group into a much better businessthan the one he inherited. He leaves with the Group in terrific shape, and theBoard and his colleagues wish him a long, healthy and happy retirement. Outlook------- The commercial aerospace market (63% of the Senior Aerospace Division's sales)goes from strength to strength with Boeing and Airbus increasing the rate ofproduction of their aircraft, on the back of record order books. The militaryaerospace market remains healthy. Absolute and Capo are now making their firstcontributions to Group profitability. The industrial markets of the Flexonics Division, such as power generation andoil and gas, have remained strong going into 2008 and prospects are good foranother excellent year. The heavy duty diesel products continue to improve theircontribution with our customers anticipating volume growth towards the end of theyear. 2008 can, therefore, be expected to deliver further meaningful growth. Tradingin the first two months of 2008 has been ahead of the Board's expectations. Martin Clark BUSINESS REVIEW=============== Operations---------- Senior is an international manufacturing group with operations in 11 countries.Senior designs, manufactures and markets high technology components and systemsfor the principal original equipment producers in the worldwide aerospace,defence, diesel engine, exhaust system and energy markets. The Group is splitinto two Divisions, Aerospace and Flexonics. Aerospace--------- Following the recent acquisition of two aerospace businesses, AbsoluteManufacturing, Inc. ("Absolute") in December 2007 and Capo Industries, Inc.("Capo") at the end of January 2008, the Aerospace Division now consists of 14operating companies, nine of which are located in the USA, two in the UnitedKingdom and three in continental Europe. In 2007, the Division's main productswere engine structures and mounting systems (27% of divisional sales), metallicducting systems (19%), airframe and other structural parts (16%), compositeducting systems (12%), helicopter machined parts (7%) and fluid control systems(5%). 14% of divisional sales were to non-aerospace, but related technology,markets. Sales of airframe and other structural parts increased significantlyduring 2007 (3% of divisional sales in 2006) as AMT had only been owned bySenior for the final two months of 2006. The Division's largest customersinclude Boeing, representing 12% of 2007 divisional sales, United Technologies,GE, Airbus, Rolls-Royce, Goodrich and Bombardier. Flexonics---------- The Flexonics Division has 11 operations. These are located in North America(three), the United Kingdom (two), continental Europe (three), South Africa,India and Brazil. In 2007, the Division's sales comprised of flexible mechanismsfor vehicle exhaust systems (29% of divisional sales), cooling and emissioncontrol components (15%), diesel fuel distribution pipework (14%) and expansionjoints and ducting for the heating and ventilation market (11%). Expansionjoints, control bellows and hoses for the power and boiler market accounted for12% of divisional sales, for the oil and gas and chemical processing industries(5%) and for other industrial markets (14%). In 2007, an increased percentage ofsales came from diesel fuel distribution pipework and cooling and emissioncontrol component sectors as production of the Group's new heavy duty dieselproducts ramped up. Whilst the Division's three largest end users remainautomotive customers (General Motors, PSA and Ford), the percentage ofdivisional sales coming from the automotive market fell to 47% (2006 - 55%) withsales to the heavy duty diesel engine market (e.g. Cummins, Caterpillar andSiemens) growing to 11% of divisional sales (2006 - 2%). Acquisitions------------ Since the Group last reported, two acquisitions have been completed. Absolute was acquired on 10 December 2007 for $14.4m (£7.0m). Absolutespecialises in the machining of high tolerance and high surface finish parts inaluminium, titanium and a variety of stainless steels. Activities includemachining parts for aircraft tyre pressure monitoring systems, flap and doormovement sensor housings and laser guidance housings for both commercialapplications and night vision defence industry equipment. The business had salesof $14m in 2007 and continues to be managed by one of its former owners. It islocated in Arlington, north of Seattle in Washington State, USA. The purchaseconsideration was funded through the utilisation of the Group's existingborrowing facilities. Capo was acquired after the year-end, on 25 January 2008. Capo is located inChino, close to Los Angeles, California, USA. In 2007 it had sales of $36m. Capospecialises in the 5-axis machining of titanium and steel alloys primarily forauxiliary power units on large commercial aircraft and for propulsion engines onbusiness jets. Capo was acquired for $85m (£42.9m) plus costs, potentialdeferred consideration of $5m (£2.5m), contingent upon the operating profitachieved in 2008, and the assumption of certain acquisition - related taxliabilities. The total amount payable in respect of the acquisition, estimatedat a maximum of £47.1m, is to be funded through the utilisation of the Group'sexisting borrowing facilities. In order to maintain a satisfactory level ofheadroom, a short-term £20m loan facility was entered into during January 2008.The company continues to be run by the same management team that was in placeprior to its acquisition by Senior. The two aerospace businesses acquired in 2006, Sterling Machine and AMT, bothhad excellent performances in 2007. Financial Review================ Summary------- A summary of the Group's operating results are set out in the table below.Further detail on the performance of each Division is included in the sectiontitled "Divisional Review". Revenue Adjusted Op Profit (1) Margin ---------------------------------------------------------- 2007 2006 2007 2006 2007 2006 £m £m £m £m % % Aerospace 246.2 197.0 33.4 19.2 13.6 9.7Flexonics 225.0 191.5 17.4 11.8 7.7 6.2Inter-segment sales (0.5) (0.6) - - - -Central costs - - (5.8) (4.8) - - ------- ------- ------- ------- ------- ------- Group Total 470.7 387.9 45.0 26.2 9.6 6.8 ------- ------- ------- ------- ------- ------- (1) Adjusted operating profit is the profit before interest and tax and before the loss on disposal of fixed assets, amortisation of intangible assets arising on acquisitions and the release of a provision set up on a previous acquisition. Adjusted operating profit may be reconciled to the operating profit shown in the Consolidated Income Statement as follows: 2007 2006 £m £m Operating profit per financial statements 41.5 24.5Loss on sale of fixed assets 0.7 0.4Release of provision set up on acquisition (0.5) -Amortisation of acquisition intangible assets 3.3 1.3 -------- -------- Adjusted operating profit 45.0 26.2 -------- -------- With the commercial aerospace and energy markets particularly strong, Grouprevenue grew by 21%, aided by full year contributions from the two businessesacquired in 2006. 2007 revenue also benefited from the ramp up of the heavy dutydiesel products which went into production at the end of 2006. Adjustedoperating profit rose by 72% principally due to the gearing benefit of increasedsales, strong performances from the newly acquired businesses and a significantlyincreased contribution from one of the Flexonics' operations, Pathway. Operatingmargins consequently increased significantly to 9.6%, nearly three percentagepoints higher than in the prior year (6.8%). The Group's free cash flow and net debt for 2007 and the prior year were: 2007 2006 £m £m Free cash flow 18.5 5.1Net debt 94.8 96.7 Free cash flow is the total net cash flow generated by the Group prior tocorporate activity such as acquisitions, disposals, financing and transactionswith shareholders. It may be derived from the figures contained in the FinancialStatements as follows: 2007 2006 £m £m Net cash from operating activities 35.3 22.3Interest received 0.8 1.3Proceeds on disposal of tangible fixed assets 1.9 2.2Purchases of tangible fixed assets (19.0) (20.1)Purchases of intangible assets (0.5) (0.6) -------- -------- Free cash flow 18.5 5.1 -------- -------- The reduction in net debt to £94.8m (£96.7m) was achieved after having fundedthe acquisition of Absolute (£7.0m). Revenue------- Group revenue increased by £82.8m (21%) to £470.7m (2006 - £387.9m) with thefull year contribution from AMT, which was acquired on 27 October 2006,responsible for £33.1m of the increase. If the effect of acquisitions (anincrease in reported revenue of £35.4m) and the adverse year-on-year exchangeeffect (£19.0m) are excluded then underlying revenue grew by 18% on a constantcurrency basis. In 2007, 60% of Group sales originated from North America, 19%from the rest of Europe, 12% from the United Kingdom and 9% from the rest of theworld. Operating profit---------------- Group operating profit increased by 69% to £41.5m (2006 - £24.5m). Adjustedoperating profit increased by £18.8m (72%) to £45.0m (2006 - £26.2m). Adjustedoperating profit is that before loss on disposal of fixed assets of £0.7m (2006- £0.4m), amortisation of intangible assets arising on acquisitions of £3.3m(2006 - £1.3m) and the release of a provision originally set up on a previousacquisition. If the effects of the acquisitions (an increase in reportedoperating profit of £8.2m) and foreign currency effects (£1.8m adverse) areexcluded then underlying adjusted operating profit increased by 57% on aconstant currency basis. Finance costs------------- Finance costs, net of investment income of £1.0m (2006 - £0.9m), increased to£7.2m (2006 - £6.4m) mainly due to the average level of the Group's debtincreasing, principally as a result of the acquisition of AMT in October 2006. Profit before tax----------------- Adjusted profit before tax increased by 91% to £37.8m (2006 - £19.8m). Reportedprofit before tax increased to £34.3m (2006 - £18.1m). Tax charge---------- The total tax charge increased to £6.4m (2006 - £2.9m) as the taxable profits ofthe Group increased. The net tax benefits, arising on the loss on sale of fixedassets, amortisation of intangible assets from acquisitions and release of theprovision originally set up on a previous acquisition, totalled £1.4m (2006 -£0.6m). If these are added back then the underlying tax charge of £7.8m (2006 -£3.5m) represented an underlying rate of 20.6% (2006 - 17.7%) on the adjustedprofit before tax of £37.8m (2006 - £19.8m). The increase in the underlying taxrate was mainly due to the increased proportion of the Group's profits beinggenerated in the USA, where the Group's tax rate is approximately 38%. TheGroup's underlying tax rate is expected to increase further in 2008 as thistrend continues. Earnings per share------------------ Largely due to the rights issue undertaken in the autumn of 2006, in connectionwith the acquisition of AMT, the weighted average number of shares, for thepurposes of calculating undiluted earnings per share, increased to 389.0 million(2006 - 349.8 million). Taking this into account, adjusted earnings per shareincreased by 66% to 7.71p (2006 - 4.65p). Basic earnings per share increased by65% to 7.17p (2006 - 4.35p). Dividends--------- A final dividend of 1.700p per share is proposed for 2007 (2006 final dividend -1.381p) which would cost £6.6m (2006 final dividend cost £5.4m). This wouldbring the full year dividend to 2.400p per share, a 20% increase over the prioryear's 2.000p per share. The cash outflow incurred in 2007, in respect of thefinal dividend for 2006 and the interim dividend for 2007, was £8.1m (2006 -£6.5m). Research and development------------------------ Following the start of production of the heavy duty diesel products in late2006, the Group's expenditure on research and development slightly reduced to£8.2m during 2007 (2006 - £8.5m). Expenditure is mainly incurred in designingand engineering products in accordance with individual customer specificationsand developing specific manufacturing processes for their production. Capital expenditure------------------- £19.5m was invested in capital expenditure in 2007 (2006 - £20.7m) to increasecapacity and capability in both the Aerospace and Flexonics Divisions. £1.9m(2006 - £2.2m) was raised through the disposal of assets no longer required. Ahigher level of capital expenditure is anticipated for 2008 as the Group investsin additional capacity to meet the demands of the growing aerospace market. Capital structure----------------- The Group's Consolidated Balance Sheet at 31 December 2007 may be summarised asfollows: Assets Liabilities Net Assets £m £m £m Property, plant and equipment 93.6 - 93.6Goodwill and intangible assets 126.2 - 126.2Current assets and liabilities 160.5 (98.8) 61.7Other non-current assets and liabilities 3.6 (4.1) (0.5)Post-retirement obligations - (36.3) (36.3)------------------------------------------------------------------------------- Total before net debt 383.9 (139.2) 244.7Net debt 9.2 (104.0) (94.8)------------------------------------------------------------------------------- Total at 31 December 2007 393.1 (243.2) 149.9------------------------------------------------------------------------------- Total at 31 December 2006 365.5 (238.4) 127.1------------------------------------------------------------------------------- Net assets increased by 18% in the year to £149.9m (2006 - £127.1m) and netassets per share also increased by 18% to 38.4p (2006 - 32.6p). There were 390.8million ordinary shares in issue at the end of 2007 (2006 - 389.9 million).Post-retirement obligations decreased to £36.3m (2006 - £37.5m) because of thenet effect of the benefit of a higher rate of 5.9% being used to discount the UKScheme liabilities (2006 - 5.3%) and the inclusion of an additional £7.0m of UKScheme liabilities in respect of prior years. The additional liabilities, (which only came to light during 2007) relate to the equalisation of pension ages for men and women which took place in the early 1990's. Cash flow--------- The Group's free cash flow, whose derivation is set out in the table below,increased by 263% to £18.5m (2006 - £5.1m) largely because of the increasedoperating profits. An investment of £9.6m (2006 - £4.5m) was made in workingcapital, as revenue increased, whilst net capital expenditure of £17.6m (2006 -£18.5m) remained ahead of the depreciation level of £14.6m (2006 - £12.6m),excluding £3.3m (2006 - £1.3m) of amortisation of intangible assets acquired onacquisition. 2007 2006 £m £m Operating profit 41.5 24.5Depreciation and amortisation 17.9 13.9Working capital movement (9.6) (4.5)Pension payments above service cost (3.0) (3.4)Other items 1.7 1.0-------------------------------------------------------------------------------Operating cash flow 48.5 31.5-------------------------------------------------------------------------------Interest paid (net) (6.2) (5.3)Tax paid (6.2) (2.6)Capital expenditure (19.5) (20.7)Sale of fixed assets 1.9 2.2-------------------------------------------------------------------------------Free cash flow 18.5 5.1-------------------------------------------------------------------------------Dividends (8.1) (6.5)Acquisitions and disposals (8.1) (79.7)Share issues 0.2 34.8Foreign exchange variations (0.8) 11.7Non-cash movements 0.2 0.3Opening net debt (96.7) (62.4)-------------------------------------------------------------------------------Closing net debt (94.8) (96.7)------------------------------------------------------------------------------- Net debt-------- Net debt decreased by £1.9m in the year to £94.8m (2006 - £96.7m). The decreasewas achieved after having paid a net £8.1m in respect of acquisitions anddisposals, with the acquisition of Absolute at £7.0m being the main element. Atthe year end, around 75% of the Group's gross borrowings (31 December 2006 -95%) were in US$. Unlike 2006, when the US$ weakened significantly against the £causing an £11.7m reduction in net debt, the US$ ended the year close to thelevel it started at, such that the effect of all exchange rate movements on netdebt in 2007 was minimal. Liquidity--------- As at 31 December 2007, the Group's gross borrowings, excluding finance leases,were £99.8m (2006 - £103.3m). The maturity of these borrowings, together withthe maturity of the Group's committed facilities, can be analysed as follows: Gross Borrowings(1) Committed Facilities £m £m Within one year 41.5 37.7In the second year - -In years three to five 25.0 91.5After five years 33.3 32.7 ---------- ---------- 99.8 161.9 ---------- ---------- (1) Gross borrowings include the use of bank overdrafts, other loans and committed facilities. Upon the acquisition of Capo in January 2008, the Group entered into a new £20m364-day bilateral facility, with one year term out, in order to provideadditional headroom under its borrowing facilities. $75m (£37.7m) of loan notesmature in October 2008 and it is anticipated that these will be partiallyrefinanced at their maturity. Going concern basis------------------- After making enquiries the Directors have formed the judgement, at the time ofapproving the Financial Statements, that there is a reasonable expectation thatthe Group has adequate resources to continue in operational existence for theforeseeable future. For this reason, the Directors have continued to adopt thegoing concern basis in preparing the Financial Statements. Changes in accounting policies------------------------------ There have been no changes in accounting policies in the current year. Divisional Review----------------- The Group consists of two divisions, Aerospace and Flexonics, whose performancesare discussed below. It should be noted that, in order to make appropriatecomparisons, the results for 2006 have been translated at constant currencyusing 2007 average exchange rates. Aerospace Division 2007 2006 Change £m £m ------------------------------------------------------------------------------- Revenue 246.2 185.8(1) +33%Adjusted operating profit 33.4 18.1(1) +85%Operating margin 13.6% 9.7% - (1) 2006 results translated using 2007 average exchange rates. The revenue of the Aerospace Division grew by £60.4m (33%) to £246.2m (2006 -£185.8m at constant currency). The year-on-year effect of acquisitions was£36.9m at constant currency, with Sterling Machine acquired January 2006, AMTacquired October 2006 and Absolute acquired December 2007. Elsewhere, thecontinuing aerospace businesses increased revenue by 14% over 2006. 63% of the Division's sales are to the commercial aerospace markets, with 43% tothe wide-bodied sector (namely Boeing, Airbus and the associated enginebuilders). The results for 2007 consequently benefited from the ongoing stronggrowth in the build rates of aircraft for these markets. Boeing and Airbustogether delivered 7% more aircraft in 2007 (894) than in 2006 (832). Moreimportantly, in 2007 their order intakes were at record levels (2,754 aircraftcombined), such that the combined order book increased by 37% to 6,848 aircraft(31 December 2006 - 4,988) during the year. The seven-and-a-half year orderbook, at current delivery rates, represents a very healthy picture for thefuture with both Airbus and Boeing forecasting to increase build rates furtherin the coming years. In the regional jet market, Embraer had higher deliveries for the first time inthree years (169 aircraft against 130 in 2006) whilst Bombardier received orders(a net 250 aircraft) at twice the level of deliveries (125 aircraft). Elsewhere,the business jet market was very strong at 1,138 deliveries, some 29% higherthan in 2006 (885 deliveries) whilst, overall, the military market was stablewith increased volumes of helicopter parts to Sikorsky being largely offset byreduced demand for aircraft spares from the US Government. Adjusted operating profit (that before profit/loss on disposal of fixed assetsand amortisation of intangible assets arising on acquisitions) increased by£15.3m (85%) to £33.4m (2006 - £18.1m at constant currency) with acquisitionsaccounting for £8.5m of the increase (at constant currency). Excludingacquisitions, divisional adjusted operating profit improved by 47% compared to2006. The divisional operating margin increased by nearly four full percentagepoints to 13.6% (2006 - 9.7%). This was mainly due to wide spread operationalimprovements, the gearing benefit of having increased production in existingfacilities and the fact that the acquired businesses had a higher than averageoperating margin. In 2007, capital expenditure for the Aerospace Division increased to £10.9m(2006 - £7.6m), as production capacity and capability was added to meet thedemands of the growing industry. This represented 1.6x (2006 - 1.4x) thedepreciation level. Flexonics Division 2007 2006 Change £m £m ------------------------------------------------------------------------------- Revenue 225.0 183.7(1) +22%Adjusted operating profit 17.4 11.1(1) +57%Operating margin 7.7% 6.0% - (1) 2006 results translated using 2007 average exchange rates. Revenue for the Flexonics Division grew by £41.3m (22%) to £225.0m (2006 -£183.7m at constant currency) mainly due to the ramping up of the heavy dutydiesel products in North America, that had gone into production in late 2006,the strong global energy and power markets and a growing presence in the truckexhaust market in Europe. Light vehicle markets in North America and Europe weresubdued, being down 2.5% and up 0.5% respectively. Whilst sales of heavy/mediumtrucks in North America were very weak (371,000 against 545,000 in 2006), thismarket was new for Senior and hence sales of the new heavy duty diesel productswere mostly incremental to the Group. Senior should benefit in the future whenvolumes in the heavy/medium truck markets get closer to historic levels. The additional volumes, an improving contribution from the heavy duty dieselproducts, improved factory performances and capacity versus demand constraintsin a number of markets resulted in adjusted operating profit for the Divisionincreasing by 57% to £17.4m (2006 - £11.1m at constant currency). All the growthwas organic, as no acquisitions have been undertaken in this Division in recentyears. As a result, the operating margin of the Flexonics Division for 2007increased by 1.7 percentage points to 7.7% (2006 - 6.0%). 2005 and 2006 had seen significant levels of capital expenditure being incurredto put the heavy duty diesel products into production. With the start ofproduction occurring in late 2006, capital expenditure for the Divisiondecreased to £8.5m or 1.1x depreciation in 2007 (2006 - £13.0m or 1.9xdepreciation). Outlook------- The commercial aerospace market (63% of the Aerospace Division's sales) goesfrom strength to strength. Boeing and Airbus both received record orders in 2007and, with their order books now representing over seven times currentdeliveries, they are each seeking to increase the rate of production of a numberof their aircraft in future years. In addition, the Airbus A380, on which theGroup has a sales value of around £170k per plane, started to be delivered tocustomers during 2007 after a period of delay. Production is now ramping up andthe Group's sales to this programme are expected to recommence in earnest aroundthe middle of 2008. Whilst the first flight of the Boeing 787 (the "Dreamliner")has been delayed for a few months, and is now scheduled for the middle of 2008,the programme represents substantial future revenue growth for Senior. The Grouphas an average of £410k of revenue on each aircraft, a record for Senior, andwith 817 orders already having been booked by Boeing by the end of 2007 theprogramme can be expected to ramp up to over 100 aircraft per year in a fewyears time. Prospects for the remaining aerospace sectors are generally healthy. Productionof business jets is expected to continue at least at current levels for theimmediate future, the combined order book for the regional jet manufacturers isstrengthening and the military market is anticipated to remain stable in thenear future, with production of a number of programmes such as the Airbus A400Mand Lockheed's Joint Strike Fighter (Senior has around £125k per aircraft)starting up. These are all expected to boost growth in the coming years. Inaddition, the Aerospace Division will benefit from the inclusion of the resultsof Absolute (acquired December 2007) and Capo (acquired January 2008). The industrial markets of the Flexonics Division, such as power generation, oiland gas, chemical processing, steel processing plants, and alternative energy(such as nuclear, solar and wind) have each remained strong going into 2008 andprospects are good for another excellent year. The markets for light vehiclesare generally stable, albeit well below historic highs. Whilst sales of heavy/medium trucks in North America were at low levels during 2007, this was thefirst full year of production of the Group's new heavy duty diesel productswhich consequently all represented incremental business for the Division. Ourcustomers are expecting volumes to increase towards the later part of 2008.Increasing vehicle volumes combined with ever tighter vehicle emissionlegislation offer significant opportunity for the Group. In addition, a smallbut increasing market is developing for the Group's products in alternativeenergy where the Flexonics Division already supplies to the nuclear industry inNorth America and Europe and to the solar and wind generation industries inEurope. The Group has many growth opportunities ahead of it, the more immediate of whichare the contributions from Absolute and Capo, the general strength of thecommercial aerospace market, the production ramp up of the A380 and B787programmes, a continual improvement in the contribution from the heavy dutydiesel products and the continuing strength of the general global industrialmarkets. Trading in the first two months of 2008 has been ahead of the Board'sexpectations and the Board expects 2008 to deliver further meaningful growth.Prospects remain encouraging for subsequent periods. Consolidated Income Statement----------------------------- For the year ended 31 December 2007 Notes Year ended Year ended 2007 2006Continuing operations £m £m ------- --------Revenue 3 470.7 387.9 ======= ========Trading profit 42.2 24.9Loss on sale of fixed assets (0.7) (0.4) ------- --------Operating profit (1) 3 41.5 24.5Investment income 1.0 0.9Finance costs (8.2) (7.3) ------- --------Profit before tax (2) 34.3 18.1Tax 5 (6.4) (2.9) ------- --------Profit for the period 27.9 15.2 ======= ========Attributable to:Equity holders of the parent 27.9 15.2 ======= ========Earnings per shareBasic 7 7.17p 4.35p ======= ========Diluted 7 7.00p 4.25p ======= ======== (1) Adjusted operating profit 4 45.0 26.2(2) Adjusted profit before tax 4 37.8 19.8 Consolidated Statement of Recognised Income and Expense------------------------------------------------------- For the year ended 31 December 2007 Year ended Year ended 2007 2006 £m £m ------- -------- Gains/(losses) on cash flow hedges 0.5 (0.4)(Losses)/gains on revaluation of financial instruments (2.6) 3.5Exchange differences on translation of foreign operations 3.2 (10.5)Actuarial losses on defined benefit pension schemes (0.8) (1.0)Tax on items taken directly to equity 2.1 (0.7) ------- -------- Net income/(loss) recognised directly in equity 2.4 (9.1)Amounts transferred to profit or loss on cash flow hedges (0.4) -Profit for the period 27.9 15.2 ------- -------- Total recognised income and expense for the period 29.9 6.1 ======= ======== Attributable to: Equity holders of the parent 29.9 6.1 ======= ======== Consolidated Balance Sheet-------------------------- As at 31 December 2007 Notes Year ended Year ended 2007 2006 £m £m ------- -------Non-current assets Goodwill 114.3 111.0Other intangible assets 11.9 15.1Property, plant and equipment 93.6 87.6Deferred tax assets 0.1 0.1Trade and other receivables 3.5 3.7 ------- ------- Total non-current assets 223.4 217.5 ------- ------- Current assets Inventories 79.4 69.8Construction contracts 2.9 3.5Trade and other receivables 78.7 67.5Cash and cash equivalents 8.7 7.2 ------- ------- Total current assets 169.7 148.0 ------- ------- Total assets 393.1 365.5 ======= ======= Current liabilities Trade and other payables 92.5 82.1Tax liabilities 9.0 10.2Obligations under finance leases 0.2 0.2Bank overdrafts and loans 41.5 13.1 ------- ------- Total current liabilities 143.2 105.6 ------- ------- Non-current liabilities Bank and other loans 58.3 90.2Retirement benefit obligations 10 36.3 37.5Deferred tax liabilities 3.3 3.3Obligations under finance leases 1.3 1.4Others 0.8 0.4 ------- ------- Total non-current liabilities 100.0 132.8 ------- ------- Total liabilities 243.2 238.4 ======= ======= Net assets 149.9 127.1 ======= ======= Equity Issued share capital 39.1 39.0Share premium account 11.3 11.2Equity reserve 1.6 0.8Distributable reserve 19.4 19.4Hedging and translation reserve (4.4) (5.9)Retained earnings 84.3 64.0Own shares (1.4) (1.4) ------- ------- Equity attributable to equity holdersof the parent 149.9 127.1 ------- ------- Total equity 149.9 127.1 ======= ======= Consolidated Cash Flow Statement-------------------------------- For the year ended 31 December 2007 Notes Year Year ended ended 2007 2006 £m £m ------- ------- Net cash from operating activities 9a) 35.3 22.3 ------- ------- Investing activities Interest received 0.8 1.3Disposal of subsidiary 0.1 0.1Proceeds on disposal of property,plant and equipment 1.9 2.2Purchases of property, plant andequipment (19.0) (20.1)Purchases of intangible assets (0.5) (0.6)Acquisition of Sterling Machine - (21.5)Acquisition of AMT, net of cashacquired (1.2) (58.3)Acquisition of Absolute 8 (7.0) - ------- ------- Net cash used in investing activities (24.9) (96.9) ------- ------- Financing activities Dividends paid (8.1) (6.5)Repayment of borrowings (61.0) (7.1)Repayments of obligations underfinance leases (0.2) (0.2)Share issues 0.2 34.8New loans raised 55.9 53.1Net cash inflow/(outflow) on forwardcontracts 0.4 (0.2) ------- ------- Net cash (used in)/from financing activities (12.8) 73.9 ------- ------- Net decrease in cash and cash equivalents (2.4) (0.7) Cash and cash equivalents at beginning of period 7.0 8.5 Effect of foreign exchange rate changes 0.3 (0.8) ------- ------- Cash and cash equivalents at end of period 9c) 4.9 7.0 ======= ======= Notes to the Preliminary Financial Statements--------------------------------------------- For the year ended 31 December 2007 1. General Information The Preliminary Announcement of results for the year ended 31 December 2007 isan excerpt from the forthcoming 2007 Annual Report and does not constitute theGroup's statutory accounts for 2007 or 2006. Statutory accounts for 2006 havebeen delivered to the Registrar of Companies, and those for 2007 will bedelivered following the Company's Annual General Meeting. The Auditors havereported on both those accounts; their reports were unqualified and did notcontain statements under Sections 237(2) or (3) of the Companies Act 1985. 2. Accounting policies Whilst the financial information included in this Preliminary Announcement hasbeen prepared in accordance with International Financial Reporting Standards(IFRS) adopted by the European Union, this announcement does not itself containsufficient information to comply with IFRS. The Company expects to publish fullFinancial Statements that comply with IFRS on 14 March 2008. The accounting policies adopted are consistent with those followed in the preparation of the Group's 2007 Annual Report which are unchanged from those adopted in the Group's 2006 Annual Report. 3. Segmental analysis Under IFRS, segmental detail is presented according to a primary segment and asecondary segment. The Group's primary segmental analysis is based on theindustries that it serves, Aerospace and Flexonics. The secondary analysis ispresented according to geographic markets comprising North America, Europe(split between the UK and Rest of Europe) and the Rest of the World. This isconsistent with the way the Group manages itself and with the format of theGroup's internal financial reporting. a) Business segments Segment information for revenue, operating profit and a reconciliation to entitynet profit is presented below. Eliminations/ Eliminations/ Central Central Aerospace Flexonics costs Total Aerospace Flexonics costs Total Year ended Year ended Year ended Year ended Year ended Year ended Year ended Year ended 2007 2007 2007 2007 2006 2006 2006 2006 £m £m £m £m £m £m £m £m ------ ------ ------ ------ ------- ------ ------ ------External revenue 245.9 224.8 - 470.7 196.6 191.3 - 387.9Inter-segmentrevenue 0.3 0.2 (0.5) - 0.4 0.2 (0.6) - ------ ------ ------ ------ ------- ------ ------ ------Total revenue 246.2 225.0 (0.5) 470.7 197.0 191.5 (0.6) 387.9 ====== ====== ====== ====== ======= ====== ====== ======Adjusted operatingprofit (see note 4) 33.4 17.4 (5.8) 45.0 19.2 11.8 (4.8) 26.2(Loss)/profit on sale of fixed assets (0.3) (0.4) - (0.7) 0.5 (0.9) - (0.4)Release of provisionfrom previousacquisition - 0.5 - 0.5 - - - -Amortisation of intangible assets from acquisitions (3.3) - - (3.3) (1.3) - - (1.3) ------ ------ ------ ------ ------- ------ ------ ------ Operating profit 29.8 17.5 (5.8) 41.5 18.4 10.9 (4.8) 24.5 ====== ====== ====== ======= ====== ====== Investment income 1.0 0.9Finance costs (8.2) (7.3) ------ ------ Profit before tax 34.3 18.1Tax (6.4) (2.9) ------ ------ Profit after tax 27.9 15.2 ====== ====== Segment information for assets, liabilities, additions to property, plant and equipment and intangible assets and depreciation and amortisation is presented below. Additions Depn Additions Depn to PPE & and to PPE & and Assets Liabilities intangibles amort Assets Liabilities intangibles amort Year ended Year ended Year ended Year ended Year ended Year ended Year ended Year ended 2007 2007 2007 2007 2006 2006 2006 2006 £m £m £m £m £m £m £m £m ------ ------ ------ ------ ------ ------ ------ ------ Aerospace 237.4 35.4 10.9 10.1 227.8 35.1 7.6 6.8Flexonics 140.5 47.7 8.5 7.7 124.5 37.8 13.0 7.0 ------ ------ ------ ------ ------ ------ ------ ------Sub total continuingoperations 377.9 83.1 19.4 17.8 352.3 72.9 20.6 13.8 Unallocated corporateamounts 15.2 160.1 0.1 0.1 13.2 165.5 0.1 0.1 ------ ------ ------ ------ ------ ------ ------ ------Total 393.1 243.2 19.5 17.9 365.5 238.4 20.7 13.9 ====== ====== ====== ====== ====== ====== ====== ====== b) Geographical segments The Group's operations are principally located in North America and Europe. The following table provides an analysis of the Group's sales by geographicalmarket, irrespective of the origin of the goods/services. The carrying amount ofsegment assets, and additions to property, plant and equipment and intangibleassets, are analysed by the geographical area in which the assets are located. Additions Additions Sales Segment to PPE and Sales Segment to PPE and revenue assets intangibles revenue assets intangibles Year ended Year ended Year ended Year ended Year ended Year ended 2007 2007 2007 2006 2006 2006 £m £m £m £m £m £m ------- ------ ------- ------- ------- -------North America 267.3 235.8 13.1 210.7 219.7 15.2UK 50.3 61.4 1.7 41.3 62.5 1.2Rest of Europe 115.5 58.7 3.4 104.0 52.4 3.2Rest ofWorld 37.6 22.0 1.2 31.9 17.7 1.0 ------- ------ ------- ------- ------- ------Sub total continuingoperations 470.7 377.9 19.4 387.9 352.3 20.6Unallocatedcorporateamounts - 15.2 0.1 - 13.2 0.1 ------- ------ ------- ------- ------- -------Total 470.7 393.1 19.5 387.9 365.5 20.7 ======= ====== ======= ======= ======= ======= The carrying values of segment assets all relate to continuing operations. 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 theperformance of operations, from the time of acquisition or until the time ofdisposal, prior to the impact of gains or losses arising from the sale of fixedassets, release of a provision from a previous acquisition and amortisation ofintangible assets acquired on acquisitions. Year ended Year ended 2007 2006 £m £m ------- -------Operating profit 41.5 24.5 ------- ------- Loss on sale of fixed assets 0.7 0.4Release of provision from previous acquisition (0.5) -Amortisation of intangible assets from acquisitions 3.3 1.3 ------- ------- Adjustments to operating profit 3.5 1.7 ------- ------- Adjusted operating profit 45.0 26.2 ======= ======= Profit before tax 34.3 18.1Adjustments to profit as above before tax 3.5 1.7 ------- ------- Adjusted profit before tax 37.8 19.8 ======= ======= 5. Tax charge Year ended Year ended 2007 2006 £m £m ------- -------Current tax:Foreign tax 5.6 3.6Adjustments in respect of prior periods (0.1) (0.7) ------- ------- 5.5 2.9 ------- -------Deferred tax:Current year 1.9 0.8Adjustments in respect of prior periods (1.0) (0.8) ------- ------- 0.9 - ------- ------- 6.4 2.9 ======= ======= UK Corporation tax is calculated at 30% (2006 - 30%) of the estimated assessableprofit for the year. Taxation for other jurisdictions is calculated at the ratesprevailing in the respective jurisdictions. 6. Dividends Year ended Year ended 2007 2006 £m £m ------- -------Amounts recognised as distributions to equity holders inthe period:Final dividend for the year ended 31 December 2006 of 1.381p (2005 - 1.286p) per share 5.4 4.4 Interim dividend for the year ended31 December 2007 of 0.700p (2006 - 0.619p) per share 2.7 2.1 ------- ------- 8.1 6.5 ======= ======= Proposed final dividend for the year ended 31 December 2007 of 1.700p (2006 - 1.381p) per share 6.6 5.4 ======= ======= The proposed final dividend is subject to approval by shareholders at the AnnualGeneral Meeting and has not been included as a liability in these FinancialStatements. 7. Earnings per share The calculation of the basic and diluted earnings per share is based on thefollowing data: Year ended Year ended 2007 2006Number of shares m m ------- ------- Weighted average number of ordinary shares for thepurposes of basic earnings per share 389.0 349.8 Effect of dilutive potential ordinary shares:Share options 9.5 7.9 ------- ------- Weighted average number of ordinary shares for thepurposes of diluted earnings per share 398.5 357.7 ======= ======= Year ended 2007 Year ended 2006 Earnings EPS Earnings EPSEarnings and earnings per share £m pence £m pence ------- ------- ------- ------- Profit for the period 27.9 7.17 15.2 4.35Adjust:Loss on sale of fixed assets netof tax of £0.3m (2006 - £0.1m) 0.4 0.10 0.3 0.07 Release of provision from acquisition net of tax of £0.2m (2006 - £nil) (0.3) (0.08) - -Amortisation of intangible assetsfrom acquisitions net of tax of£1.3m (2006 - £0.5m) 2.0 0.52 0.8 0.23 ------- ------- ------- ------- Adjusted earnings after tax 30.0 7.71 16.3 4.65 ======= ======= ======= ======= Earnings per share - basic 7.17p 4.35p - diluted 7.00p 4.25p - adjusted 7.71p 4.65p - adjusted and diluted 7.53p 4.56p The effect of dilutive shares on the earnings for the purposes of dilutedearnings per share is £nil (2006 - £nil). The denominators used for all basic, diluted and adjusted earnings per share areas detailed in the "Number of shares" table above. The provision of an adjusted earnings per share, derived in accordance with thetable above, has been included to identify the performance of operations, fromthe time of acquisition or until the time of disposal, prior to the impact ofthe following items: - gains or losses arising from the sale of fixed assets - release of provision from previous acquisition - amortisation of intangible assets acquired on acquisitions 8. Acquisitions Absolute Manufacturing, Inc. On 10 December 2007, the Group acquired 100% of the issued share capital ofAbsolute Manufacturing, Inc. ("Absolute"), a manufacturer of precision machinedparts principally for the aerospace industry, based in Arlington, WashingtonState, USA. The cash consideration was £7.0m, including costs. The acquisitionwas funded by the Group's existing debt facilities. Set out below is a summary of the net assets acquired and details of the fairvalue adjustments: Carrying values Provisional pre-acquisition fair value £m £m ---------- ---------- Intangible assets 0.6 0.2Property, plant and equipment 1.4 2.0Inventories 0.9 1.0Trade and other receivables 0.3 0.3Trade and other payables (0.2) (0.6) ---------- ----------Net assets acquired 3.0 2.9 ==========Goodwill 4.1 ---------- Total consideration 7.0 ========== Consideration satisfied by:Cash paid 6.9Directly attributable costs 0.1 ----------Net cash outflow arising onacquisition 7.0 ========== The fair value adjustments contain some provisional amounts which will befinalised in the Financial Statements for the year ending 31 December 2008. The intangible assets acquired as part of the acquisition relate to customercontracts, the fair value of which is dependent on estimates of attributable future revenues, profitability and cash flows. Goodwill represents the value of the assembled workforce and its contribution to anticipated future profitability arising from additional capital investment. Absolute contributed £0.3m revenue and £0.1m to the Group's operating profitfrom the date of acquisition to 31 December 2007. If the above acquisition had been completed on 1 January 2007, Group revenue forthe year ended 2007 would have been £476.9m and Group operating profit wouldhave been £42.7m. Capo Industries, Inc. On 25 January 2008, the Group acquired 100% of the issued share capital of CapoIndustries, Inc. ("Capo"), a manufacturer of highly engineered, complexsuper-alloy components primarily for the aero-engine market, based in Chino nearLos Angeles, California, USA. The cash consideration was £44.6m, including costs, of which £1.5m is payable later in 2008. The acquisition was funded by the Group's existing debt facilities and a new £20.0m short-term facility. Set out below is a summary of the net assets acquired and details of the fairvalue adjustments: Carrying values Provisional pre-acquisition fair value £m £m ---------- ---------- Intangible assets - 5.1Property, plant and equipment 5.4 6.2Inventories 3.8 4.0Trade and other receivables 1.9 1.9Trade and other payables (2.2) (2.2) ---------- ----------Net assets acquired 8.9 15.0 ==========Goodwill 29.6 ---------- Total consideration 44.6 ========== Consideration satisfied by:Cash (including £1.5m deferred consideration) 44.4Directly attributable costs 0.2 ----------Total consideration 44.6 ========== The fair value adjustments contain some provisional amounts which will befinalised in the Financial Statements for the year ending 31 December 2008. The intangible assets acquired as part of the acquisition relate to customercontracts, the fair value of which is dependent on estimates of attributable future revenues, profitability and cash flows. Goodwill represents the value of the assembled workforce and its contribution to anticipated future profitability arising from additional capital investment. In addition to the deferred consideration of £1.5m, a further £2.5m may be payable contingent upon Capo's 2008 performance. This amount has not been included in the above calculation as the targets are very stretching and their achievement is not thought probable. 9. Notes to the cash flow statement a) Reconciliation of operating profit to net cash from operating activities Year ended Year ended 2007 2006 £m £m ------- ------- Operating profit from continuing operations 41.5 24.5 Adjustments for:Depreciation of property, plant and equipment 14.1 12.1Amortisation of intangible assets 3.8 1.8Share options 1.5 0.6Loss on disposal of property, plant and equipment 0.7 0.4Release of provision from previous acquisition (0.5) -Pension payments in excess of service cost (3.0) (3.4) ------- ------- Operating cash flows before movements in workingcapital 58.1 36.0 Increase in inventories (8.7) (11.5)(Increase)/decrease in receivables (10.0) 3.6Increase in payables 8.4 8.8Working capital currency movements 0.7 (5.4) ------- ------- Cash generated by operations 48.5 31.5 Income taxes paid (6.2) (2.6)Interest paid (7.0) (6.6) ------- ------- Net cash from operating activities 35.3 22.3 ======= ======= Cash and cash equivalents comprise:Cash 8.7 7.2Bank overdrafts (3.8) (0.2) ------- -------Total 4.9 7.0 ======= ======= Cash and cash equivalents (which are presented as a single class of assets onthe face of the Balance Sheet) comprise cash at bank and other short-term highlyliquid investments with a maturity of three months or less. b) Free cash flow Free cash flow, a non-statutory item, highlights the total net cash generated bythe Group prior to corporate activity such as acquisitions, disposals, financingand transactions with shareholders. It is derived as follows: Year ended Year ended 2007 2006 £m £m ------- ------- Net cash from operating activities 35.3 22.3Interest received 0.8 1.3Proceeds on disposal of property, plant andequipment 1.9 2.2Purchases of property, plant and equipment - cash (19.0) (20.1)Purchase of intangible assets (0.5) (0.6) ------- -------Free cash flow 18.5 5.1 ======= ======= c) Analysis of net debt At At 1 January Cash Non-cash Exchange 31 December 2007 flow items movement 2007 £m £m £m £m £m ------- ------- ------- -------- ------- Cash 7.2 1.1 - 0.4 8.7Overdrafts (0.2) (3.5) - (0.1) (3.8) ------- ------- ------- -------- -------Cash and cashequivalents 7.0 (2.4) - 0.3 4.9Debt due within oneyear (12.9) 12.5 (37.6) 0.3 (37.7)Debt due after one year (90.2) (7.4) 37.8 1.5 (58.3)Finance leases (1.6) 0.2 - (0.1) (1.5)Forward exchange contract losses 1.0 (0.4) - (2.8) (2.2) ------- ------- ------- -------- -------Total (96.7) 2.5 0.2 (0.8) (94.8) ======= ======= ======= ======== ======= The forward exchange contract losses shown above are reported as £2.7m (2006 -£nil) in current liabilities within trade and other payables and £0.5m (2006 -£1.0m) in current assets within trade and other receivables. Non-cash items shown above relate to the recognition of financial instrumentsunder IAS 39, and the reclassification of debt which became due within one year. In January 2008, a new £20m bilateral 364 day facility, with an option to extendby one year, was established with the Group's principal UK clearing bankers. This facility is to provide increased headroom following the acquisition of Capo Industries, Inc. 10. Retirement benefit schemes Defined Benefit Schemes Aggregate post-retirement benefit liabilities are £36.3m (2006 - £37.5m). Theprimary components of this liability are the Group's UK pension plan and USpension plans, with deficits of £30.5m (2006 - £30.8m) and £2.0m (2006 - £3.2m)respectively. These values have been assessed by an independent actuary usingcurrent market values and discount rates. 11. Events after the balance sheet date On 25 January 2008, the Group acquired 100% of the issued share capital of CapoIndustries, Inc. Further details of the acquisition are provided in Note 8. This information is provided by RNS The company news service from the London Stock Exchange