Final Results

Senior PLC 14 March 2002 Thursday 14 March 2002 Senior plc Results for the year ended 31 December 2001 HIGHLIGHTS Year ended 31 December 2001 2000 TURNOVER FROM CONTINUING OPERATIONS Â£452.8m Â£466.5m OPERATING PROFIT FROM CONTINUING OPERATIONS - BEFORE EXCEPTIONAL ITEMS AND GOODWILL AMORTISATION Â£34.3m Â£46.4m - AFTER EXCEPTIONAL ITEMS AND GOODWILL AMORTISATION Â£21.2m Â£26.8m PROFIT BEFORE TAXATION Â£9.5m Â£0.8m FREE CASH FLOW - PRE DIVIDENDS AND DISPOSAL OF BUSINESSES Â£28.6m Â£19.7m NET BORROWINGS Â£122.7m Â£146.5m EARNINGS PER SHARE BASED ON PROFIT BEFORE GOODWILL AMORTISATION AND DISPOSAL OF BUSINESSES 5.51p 5.87p* DIVIDEND PER SHARE 2.00p 4.88p * 2000 restated for FRS19 'Deferred Tax' Commenting on the results, James Kerr-Muir, Chairman of Senior plc said: 'The Group has demonstrated a resilient performance in what has been one of its toughest years for trading. We have continued to make progress towards the strategic goals set out in May 2000, by rationalising the business through disposals and by improving efficiency and productivity levels to rebuild profitability. Net debt has been reduced significantly and the measures taken to control costs ahead of the downturn meant the impact on our operational performance was mitigated. We enter 2002 with many business development opportunities and this, together with our strengthening financial position, means we are in much better shape to take advantage of future recovery in our markets.' For further information please contact: Senior plc Graham Menzies, Group Chief Executive 01923 714702 Mark Rollins, Group Finance Director 01923 714738 Finsbury Group James Murgatroyd / Charlotte Festing 020 7251 3801 Internet users will be able to view this announcement on the web site: www.seniorplc.com . Note to Editors: Senior is an international manufacturing group with annual sales of around Â£450m and with operations in 15 countries. Senior designs, manufactures and markets high technology components and systems for the principal original equipment producers in the worldwide aerospace, automotive and specialised industrial markets. Senior's policy is to enhance shareholder value by improving operating performance and customer service levels and by developing its market positions in the aerospace and automotive industries. CHAIRMAN'S STATEMENT In a year of major challenges in its markets, Senior continued to make progress towards the strategic goals set out in May 2000 by rationalising the business through disposals and by improving efficiency and productivity levels to rebuild profitability. Net debt has been reduced significantly and the measures taken to control costs ahead of the downturn meant the impact on our operational performance was mitigated. During the year we disposed of our loss making UK air systems company, our remaining German air systems company, the two industrial businesses in Australia and New Zealand and our investment in the Japanese associate, Techno Flex. Our small industrial operation in Singapore was closed. Management teams have been restructured across the Group, and important operating improvements have been achieved in virtually all areas of the business. Given the market conditions in 2001, these improvements have not been reflected in profits for the year, but the businesses are in much better shape to weather the current market slowdown and to take advantage of the economic recovery when it comes. The Group's borrowings have been reduced substantially. With the proposed reduction in the final dividend and continuing tight control on capital expenditure, we expect a further reduction in borrowings this year. Financial Highlights Group turnover from continuing businesses fell 2.9% in the year to Â£452.8 million, and operating profit from continuing operations before goodwill amortisation and exceptional items declined from Â£46.4 million in 2000 to Â£34.3 million. Group profit before taxation increased to Â£9.5m (2000 - Â£0.8m). Underlying earnings per share of 5.51p were 6.1% below the comparable figure for 2000. Free cash flow improving to Â£28.6m (2000 - Â£19.7m) together with disposal proceeds resulted in Group net debt falling by Â£23.8m to end the year at Â£122.7m. Operations Aerospace sales rose 9.0% to Â£196.8m (2000 - Â£180.5m) with the strengthening US$ providing a benefit and the majority of the operations, particularly Ketema and BWT, seeing volume increases. Operating profits before exceptional costs and goodwill amortisation increased by 2.9% to Â£18.0m (2000 - Â£17.5m) as the profit generated from the increased sales volume was partly offset by start-up costs in Mexico and the higher costs associated with the now disbanded market development team. Sales in the Automotive Division fell by 18.1% to Â£129.0m (2000 - Â£157.5m). This was due to the performance in North America where sales were down by 26.3% (Â£28.1m) as our customers reduced their finished vehicle inventories and the full year effect of a major programme ending in late 2000 was seen. Sales outside North America were broadly unchanged over 2000. Operating profits before exceptional costs and goodwill amortisation declined by 52.7% to Â£11.3m (2000 - Â£23.9m) because of the decline in volumes in North America and the start-up costs associated with the new facility in the Czech Republic. Specialised Industrial Divisional sales of Â£128.0m (2000 - Â£129.4m) and operating profits of Â£5.0m (2000 - Â£5.0m) were largely unchanged over the prior year. Dividend We announced in our trading statement on 8 October 2001 that the Board would be recommending to shareholders a change in the final dividend to bring dividend cover back to more appropriate levels for the business. The Board is, therefore, recommending to shareholders a final dividend of 0.16p per share, which will be paid on 30 May 2002 to shareholders on the register on 3 May 2002, bringing the total dividend for the year to 2.00p per share, compared with 4.88p the previous year. The full impact of the dividend reduction will be felt in the final dividend for 2001 as we had previously announced an unchanged interim dividend just before the events of 11 September. The Board intends to bring the balance between the interim and final dividend payments back to a more normal basis in 2002, paying an interim dividend of approximately one-third of the expected total dividend for the year. Employees and the Board As well as reducing headcount this year to bring our costs in line with a level of sales lower than that budgeted, we implemented many operating improvements across the Group. We particularly appreciate the positive attitude and co-operation of our employees and thank them for their contribution to the Group during this very tough period. Dr Alan Watkins and John Hudson retired from the Board following the 2001 Annual General Meeting in May. Alan Watkins had been a non-executive Director for eight years, and Chairman since 1996, and John Hudson had served on the Board since 1991. Both made major contributions to the Company, over a period which included some exceptionally difficult times, and I thank them on behalf of the Board. I became Chairman on Dr Watkins' retirement. The Board having regard to the valuable contribution made by Richard Turner since his appointment in 1996 intends to offer him an appointment for a further two years when his current term as a non-executive Director ends in July 2002. Outlook The rescheduling of aerospace orders seen towards the end of 2001 resulted in a number of customers reviewing and reducing their inventory levels. Consequently demand for our products on a number of programmes reduced significantly and this is impacting the early months of 2002. However, we are already seeing demand picking up as the destocking ends and the second quarter of 2002 is anticipated to be better than the first. The slow start is likely to result in Aerospace being less profitable in the first half of the year than the second. Automotive volumes in the first two months of 2002 are at satisfactory levels in both North America and Europe. It is hoped that the recent tentative signs of the global economic recovery will mean this continuing for the remainder of the year. In Specialised Industrial, Pathway and Hargreaves have had a solid start to the year whilst the other businesses have generally encountered lower volumes but increasing enquiry activity. In economic and business terms, the impact of the events of 11 September may have been to accelerate the downturn in the business cycle, especially in the aerospace markets, rather than to create it. While we expect 2002 to be another challenging year, the strategic, management and culture changes which have been implemented over the last two years have put the Group in a far better position to weather this period of uncertainty and to emerge from it stronger than before. James Kerr-Muir CHAIRMAN 13 March 2002 CHIEF EXECUTIVE'S REVIEW 2001 turned out to be a very difficult year for manufacturers in the markets in which Senior operates and included the shock of 11 September which substantially affected world markets, particularly aerospace. We continue, however, to seek to enhance shareholder value in all circumstances and at all times. Senior entered 2001 with a clear strategy that had been set out and first implemented during 2000. The policy was, and is, to improve operational performance, reduce operating costs, reduce head office expenses and look for organic growth. The reduction in the level of debt continues to be a priority and good progress to this end was made in 2001. These policies, which remain in place, mitigated the impact to Senior of the dramatic market changes witnessed in 2001. We were correct to have commenced our cost reduction and cash containment programmes when we did. During the course of the year, the general economic condition in the USA continued to weaken and this was reflected in demand deteriorating at our industrial businesses as the year progressed. Towards the end of 2001 demand in this sector also began to weaken in Europe. More specifically, the semi-conductor industry stopped almost completely in March and the inevitable overstocking by our customers has meant that it is only at the beginning of 2002 that we are seeing a modest recovery. Senior Automotive suffered a significant shortfall in demand in the first half as a direct result of destocking by its customers in the USA. The number of light vehicles sold in the USA in 2000 was 17.4 million - an all time record, but finished goods stock in January 2001 was also an all time record at 90 days. By June 2001, this had been reduced to 57 days, which meant an 18% reduction in build rate and, therefore, reduction in demand for component suppliers such as ourselves. 2002 has started with 59 days of stock and we have planned for 15.5 million vehicles to be sold in the US market during the year (2001 - 17.1 million vehicles). During 2001, the airline industry began to exhibit typical signs of overcapacity with many of the carriers announcing losses and an expectation of at least a pause in demand for new aircraft developing. After 11 September, the industry reduced demand dramatically and very quickly. Senior acted by making the protection of cash flow a priority and by implementing further managerial cost reductions and curtailing some business development activity. As part of this process decisions were taken to reposition the dividend and to reassess the level of capital expenditure for 2002. The ratio of Group capital expenditure to depreciation was reduced to 95% in 2000 and further reduced to 90% in 2001. It is planned to be around 70% in 2002. In current market conditions, these levels of capital expenditure are appropriate for the business. 2001 has seen the opening of brand new facilities for Senior Aerospace in Saltillo, Mexico and for Senior Automotive in Olomouc, Czech Republic. 2002 will see both Senior Aerospace BWT and Senior Aerospace Ermeto relocated into new factories. At the end of 2001, the net debt for the Group dropped to Â£122.7 million. This is a 24% reduction from its peak in June 2000 and it is planned to fall further in 2002 as a result of the policies now in place. We enter 2002 with many business development opportunities. Our low cost factories are increasingly attractive to our customers. The aerospace industry still has a highly fragmented supply base and the current downturn is driving rationalisation plans amongst our customers, which is resulting in new opportunities for Senior Aerospace. In Senior Automotive, product development has potentially brought a new range of engineered components and sub-systems closer to production. We have continued to strive to improve all aspects of our business in 2001, irrespective of market conditions. We plan to continue with our existing policies and strategies in 2002, in what may turn out to be more settled, but subdued, market conditions. AEROSPACE The events of 11 September which created the enforced downturn in the aerospace market could not have been predicted. We are, however, continuing to improve our own operational performance and new business opportunities are potentially better than they were a year ago. Demand reduced dramatically immediately following 11 September and is still in the process of settling at new and lower levels. The need to address the new circumstances resulted in a cost reduction programme across all operations involving manpower reductions and a reversal of the strategy to find growth in the aftermarket. At Ketema, recovery continued and the Saltillo facility in Mexico was brought on stream. This facility is now operational, receiving the necessary quality accreditations from customers and attracting a lot of attention from the industry because of its low cost base. Extension of the Mexican facility is being studied as a result of the current opportunities for incremental business. GE and Rolls-Royce, however, reduced their schedules significantly at the beginning of 2002. Under new leadership, Jet Products had an outstanding year up until September, when its prime exposure to Boeing resulted in sales demand being reduced significantly. The year saw the initial impact of lean principles in the operation, with a reduction of stock and work in progress of 30%. Efforts to broaden the customer base have resulted in new products coming on stream. At SSP, the new management team continued to improve performance in all respects. The operational improvement initiatives here are starting to produce major improvements in factory efficiency and on time delivery. This business benefits from a significant proportion of defence and military work and its demand outlook is solid. The ductwork for the Rolls-Royce Trent 500 is now coming on stream. There are two composite businesses in Senior Aerospace which design and manufacture low-temperature ducting products for heating and air conditioning distribution in aircraft. Until September, performance was outstanding at BWT in the UK, because of its prime exposure to the regional jet market, which continued to expand. Its new factory will be occupied in the spring of 2002 to accommodate increased future demand. Its sister business in Wichita achieved much in 2001 under the energetic leadership of a new team, including the introduction of a substantial lean programme and the recovery of its delivery performance with its largest customer Cessna, who now has listed it as a 'go forward' supplier. Together, these two companies have won their first contract for the Airbus A380 to design and supply the cockpit ducting - essentially for avionics cooling. Bosman in Rotterdam supplies original equipment parts for both jet engines and land based gas turbines and provides an aftermarket service to airlines to repair components for their fleets. In August 2001, a freak rainstorm caused the main roof in the factory to collapse, but a magnificent effort by the workforce recovered production as quickly as possible. All this resulted in a small loss. Demand in 2002 will be helped by increased work on land based gas turbines. In France, Calorstat traded at a loss - an unsatisfactory performance - not helped by significant delays in new product introduction. A cost reduction programme has been implemented and 2002 will benefit from the Airbus metallic duct business now on stream. Its sister company Ermeto improved its performance year on year and it has won additional aerospace and industrial business to mitigate the volume downturn from its biggest customer Snecma. This business is shortly due to move to a new facility close to the five separate buildings from which it operates at the moment. Metal Bellows, located in Sharon, Massachusetts, has some 25% of its business in the semi-conductor industry. This stopped dead at the end of March whilst the balance of its business, in aerospace, slowed after September. The performance of the company, in these circumstances, was excellent. As a result of the market changes, the proposed factory expansion was postponed but the upgrade of the company computer infrastructure is in progress. New product development efforts have resulted in many opportunities to win new business in 2002 as the semi-conductor industry starts to show signs of recovery. Senior Aerospace entered 2001 with many opportunities to secure new business and enters 2002 with possibly more opportunities as the industry seeks cost reductions and economies of scale and some other suppliers develop financial difficulties. In addition, with the A380 and the Lockheed Martin Joint Striker Fighter going ahead, there is plenty of scope for our operations to win new business. Whilst current demand is lower, the unexecuted order book remains ahead of the position a year ago. Throughout the operations, efficiency improvement and cost cutting measures are being put into effect to reduce inventory and improve on-time delivery. Operational improvements are expected to continue, irrespective of the level of demand from our customers. AUTOMOTIVE In the USA, we expect 2002 to see overall demand for vehicles lower than 2001 but without the severe production adjustments witnessed in 2001. The European market appears to continue to be stable. The focus on product development is yielding many opportunities. Contrary to what was believed at the beginning of 2001, there was no recovery following the first quarter when customers put into effect a substantial destocking programme that crippled component demand in the US operation of Senior Automotive. Thereafter, the year proceeded with weak demand until October and November, when there was a recovery following the introduction of interest-free incentives by the motor manufacturers to stimulate the market. It is likely that this will have pulled orders forward from 2002. The facility in Bartlett, Chicago reduced headcount in 2001 and late in the year had its sister industrial business, on the same site, merged into it under one management team to reduce overhead cost. During 2001, however, much product development work was maintained. In June 2002, deliveries of exhaust flexes for the new Ford Expedition and Lincoln Navigator models will commence. This is a major development and it is anticipated that they will also be fitted to other Ford and GM vehicles. A flexible exhaust catalyst is on trial with one of our major customers. The first order has been received for our patented exhaust gas recycling cooler. Fuel products have been offered to North American diesel engine makers including high pressure fuel lines, fuel filler pipes, fuel rail dampers and flexible fuel rails. These programmes will yield new business in the future. The operation in Sao Paulo, Brazil, performed well in very difficult circumstances with the local economy slowing up progressively during the year, forcing a reduction in manpower and cost-base of the business. The signs are now of an improving economy once again. Senior Automotive New Delhi produced a very strong performance. This operation supplies aftermarket products - mainly flexible exhaust connectors - to the USA and Europe, but has recently won new business direct with the Indian car assembly market on Fiat and Mitsubishi models. At Senior Automotive Blois, France, the demand for 'common rail' diesel engine tube sets continued to swamp the installed capacity and 2001 was spent strengthening the management and rationalising the operations. This plant is focussed on fuel pipework production, with many other products now transferred out - turbo oil feed and drain tubes and exhaust gas recycling tubes to Crumlin in the UK and aluminium air conditioning pipework to Olomouc in the Czech Republic. Blois is expected to return to profit in 2002. During the year, additional 'common rail' diesel fuel pipework was won at Renault, Peugeot, Fiat and Isuzu. The new plant in Olomouc is planned to begin to contribute profits in 2002. The building has been completed on cost and on time and the production equipment is in the process of being transferred from France. Initially, this plant will produce pipework for automotive air conditioning systems but we anticipate developing production of other products in due course. Senior Automotive has never successfully penetrated the German submarket. During 2001, the decision was made to retain the Berghofer industrial business located in Kassel, Germany, as a platform for automotive product engineering. Work has already begun with fuel pump dampers and fuel injection bellows for Bosch. The Crumlin operation in the UK had another year of change with product being transferred to Cape Town and being brought in from Blois. The company produced a good financial performance and under new leadership, coped very well with all the changes. New business was won at Volvo, Opel, Ford and Volkswagen. Cape Town in South Africa doubled the number of product lines in production during 2002. This caused a degree of disruption but the operation continued to perform excellently in all respects. Senior Automotive has dealt with some substantial challenges in 2001, both external and internal. The outlook for 2002 and beyond is encouraging, helped by the product development work that continues and the strong market positions held in the exhaust and fuel sectors. As ever, cost control, on-time delivery and quality standards are acknowledged as essential to maintain progress in the automotive industry. SPECIALISED INDUSTRIAL Pathway performed very well in a solid power generation market but, with the exception of UK construction for Hargreaves, almost all other industrial markets proved to be disappointing. In line with Group strategy five industrial businesses were disposed of during the year. Market conditions in North America were very mixed and, with the exception of the power generation sector, deteriorated during the course of the year. Canada was mainly impacted by the very weak demand for steel, but maintained profitability with good cost control. In the USA, the Romeoville hose operation had a very difficult year with demand reducing across the range of industries it services, perhaps with the exception of oil and gas. At the Flexonics operation in Bartlett, Chicago, the semi-conductor business stopped at the end of March and, in the summer, both its micro-turbine customers stopped taking components as their markets failed to develop as they had envisaged. Consequently, it was decided to merge this industrial operation into the automotive business located on the same site to achieve a substantial cost saving. A major piece of new business, however, was successfully introduced when an existing customer awarded Bartlett the production of an additional blood oxygenator bellows. Pathway, with plants in Texas and Tennessee, had an excellent year with substantially improved results. Cost reduction, a reliable market and a well developed marketing strategy all contributed to the outcome and it is anticipated that 2002 will see continued progress in this business. Pathway designs and manufactures large expansion joints for industrial process plant and enters 2002 with strong land based gas turbine OEM business and significant orders in the nuclear and petrochemical industries. Improvements in performance were seen at Habia, the Teflon business in Sweden and Bredan, the European expansion joint business in Denmark with its sister companies in the Czech Republic, Poland and the UK. Both are under new leadership. Of particular note was the excellent performance of the UK expansion joint business in its inaugural year. In the European hose businesses in the UK, Holland and France, demand weakened as the year progressed. Throughout Europe, all the industrial businesses saw demand slacken as 2001 ended. Senior Hargreaves in the UK had a solid year and enters 2002 with an enhanced order book helped by contracts with the UK government and on the Canary Wharf development. This business has consistently contributed profits and cash to the Group over many years and it is anticipated that it will continue to do so. Businesses disposed of during the year included Polenz (Germany), Senior Air Systems (UK), Australia, New Zealand and the minority interest in Techno Flex (Japan). Singapore was closed and Berghofer transferred to Senior Automotive. Throughout the Specialised Industrial Division and throughout all the operations within Senior, management has continued to maintain clear direction of individual businesses to improve the quality, performance and value of each of them. 2001 turned out to be one of the most difficult years ever and many thanks are due to the unstinting efforts of all employees throughout Senior. Graham Menzies CHIEF EXECUTIVE FINANCE DIRECTOR'S REVIEW Operating in difficult economic climates, the Group achieved a significant reduction in net debt. Senior's strengthening financial position and increasing organic growth opportunities provide a solid platform for the Group's long-term success. Financial Performance Turnover of continuing operations fell by 2.9% to Â£452.8m (2000 - Â£466.5m) and operating profits on continuing operations before goodwill amortisation and exceptional items fell by 26.1% to Â£34.3m (2000 - Â£46.4m). Profits on ordinary activities before tax increased significantly to Â£9.5m (2000 - Â£0.8m). Turnover in the Aerospace Division increased as volumes rose at Ketema, which benefited from its new Mexican facility, and BWT where the regional jet market was strong prior to 11 September. Turnover in the Automotive Division fell dramatically in the USA due to the combined effects of lower vehicle production, as the manufacturers reduced inventory levels, and a number of programmes coming to an end. Outside North America Automotive turnover was slightly ahead. In difficult economic markets the Specialised Industrial Division recorded largely unchanged turnover with Pathway, benefiting from the strong power generation market, seeing an improved performance but operations exposed to the steel and semi-conductor industries recording a decline. The continued strengthening of the US$ benefited all three Divisions when the results were translated into sterling. The reduction in North American Automotive turnover was by far the most significant reason for the decline in the Group's underlying profitability. This, together with the start up costs of the new facility in Olomouc and operational difficulties in the growing French operation, resulted in the Automotive Division's underlying profits falling to around half the prior year's level. Operating profits, at constant exchange rates, were broadly unchanged in both the Aerospace and Specialised Industrial Divisions which, given the difficult market conditions and the start-up costs associated with the Mexican Aerospace facility, were creditable performances. Exceptional Items Exceptional charges of Â£6.9m (2000 - Â£14.7m) were incurred in the year. They comprised Â£2.9m of reorganisation and redundancy costs associated with the cost reduction measures largely taken following the events of 11 September and a Â£4.0m impairment charge following a review of the carrying value of fixed assets and goodwill across the Group, which resulted in a provision being made against the carrying value of the goodwill arising on the acquisition of the Brazilian operations. Interest Charge The net interest charge for the year of Â£9.8m (2000 - Â£9.3m) was up on the prior year primarily as the result of interest receivable on the Thermal Loan Note ceasing at the end of 2000 when the Note was settled. Interest payable actually fell by Â£0.8m as a result of the reduced level of debt and lower variable interest rates. Interest cover, calculated on profits before exceptional items, interest, tax and goodwill amortisation was 3.5 times (2000 - 5.1 times). Tax The Group adopted Financial Reporting Standard 19 - 'Deferred Tax' during 2001. As required, the prior year results were restated with the 2000 tax charge increasing by Â£0.4m to Â£0.9m and the deferred tax asset at 31 December 2000 increasing by Â£0.4m to Â£5.4m. The Group's effective tax rate for 2001, measured on profit before amortisation and impairment of goodwill and before losses on disposal was 23.2% (2000 - 21.6% restated for FRS19). Earnings and Dividends Underlying earnings per share (after exceptional costs but before amortisation and impairment of goodwill and loss on disposal of operations) was 5.51p (2000 - 5.87p restated for FRS19). The Board has recommended a final dividend of 0.16p per share bringing the total dividend for the year to 2.00p (2000 - 4.88p). The reduction in the year's dividend reflects the Board's desire, which was communicated to shareholders on 8 October 2001, to return dividend cover to more traditional levels. Disposals During 2001 the Group disposed of a number of its Specialised Industrial Operations: Polenz GmbH (March); Senior Air Systems (June); Senior Flexonics Australia Pty. Limited and Senior Flexonics New Zealand Limited (both October). In addition, the Group's 20% shareholding in its only associated undertaking, Techno Flex Company Limited, was sold (June) and the Group's small operation in Singapore was closed (December). Total losses of Â£2.3m were incurred on these disposals (including goodwill of Â£3.6m previously written off). Full details are shown in Note 25 of the Accounts. Cash Flow and Net Debt 2001 2000 Â£m Â£m OPERATING PROFIT (AFTER GOODWILL AND EXCEPTIONAL ITEMS) 21.3 25.0 DEPRECIATION OF TANGIBLE FIXED ASSETS 18.4 18.3 IMPAIRMENT AND AMORTISATION OF GOODWILL 10.2 6.1 WORKING CAPITAL MOVEMENT (3.0) 0.7 CASH FLOW FROM OPERATING ACTIVITIES 46.9 50.1 CAPITAL EXPENDITURE (16.5) (17.4) PROCEEDS FROM SALE OF FIXED ASSETS 0.9 0.6 NET INTEREST PAID (9.7) (8.7) TAX RECOVERED/(PAID) 7.0 (4.9) FREE CASH FLOW 28.6 19.7 A continuing tight control on capital expenditure, and significant tax recoveries in the USA, resulted in Free Cash Flow (operating cash flow from operations after net capital expenditure, interest and tax) improving to Â£28.6m (2000 - Â£19.7m). This cash flow and net disposal and acquisition proceeds of Â£11.5m were utilised to finance the dividend payments of Â£15.0m and to reduce Group net debt which fell by Â£23.8m (2000 - Â£5.7m increase in net debt). At the year end net debt was Â£122.7m (31 December 2000 - Â£146.5m), representing gearing of 98.1% (2000 - 118.0%). Retirement Benefits The Group continued to account for retirement benefits in accordance with SSAP 24. The Group's main defined benefit pension scheme is in the UK whilst it also has a number of smaller defined benefit schemes in the USA. The UK plan is normally valued on a triennial basis but, because of the significant changes in membership in 1999 and 2000, the plan valuation was brought forward one year to 6 April 2001. At this date the actuarial value of assets held was Â£115m which represented 100% of the benefits that had accrued to members after allowing for future increases in earnings. The US plans are valued annually and had assets of Â£16.1m at 31 December 2001. Financial Reporting Standard 17 - 'Retirement Benefits' came into effect during the year requiring companies to bring employer sponsored defined benefit pension schemes into their accounts. Whilst full implementation is not required until the end of 2003, disclosure of certain information, including the pension scheme asset or liability, is required as at the end of 2001. The disclosures required by FRS17, which are given in Note 24 of the Accounts, are based on the most recent actuarial valuations which have been updated by the actuary to 31 December 2001 in accordance with the calculation methodology prescribed by FRS17. This methodology requires assets to be valued at market rates at a single point in time (the balance sheet date) and liabilities to be discounted back to the balance sheet date at the long-term high quality (AA) corporate bond rate effective at the balance sheet date. As equity and bond prices and the AA corporate bond rate are all liable to substantial and short-term changes, the pension asset/liability calculated under FR17 is likely to be volatile. The particular conditions existing at 31 December 2001 resulted in FRS17 plan deficits of Â£5.4m and Â£2.3m in the UK and USA respectively. Financial Risk Management and Treasury Policies The Group's principal financial risks relate to funding and liquidity, interest rate fluctuations and currency exposures. The management of these risks is performed by a centralised treasury department which reports to the Group Finance Director and operates according to the objectives, policies and authority levels approved by the Board. Funding and Liquidity The Group's operations are financed by a combination of retained profits, equity and borrowings. Borrowings are normally raised at Group level and lent onto operating subsidiaries on commercial terms. The Group's policy in respect of external debt funding is to ensure that, as a minimum, all projected net borrowing requirements are covered by committed facilities. As at the year end the Group had total facilities of Â£213m (including Â£185m committed), of which a total of Â£75m was unused. Interest Rate Risk Management The Group seeks to operate with the majority of debt at fixed rates. At the year end, $105m (Â£72m) was drawn down at fixed interest rates (weighted average interest rate of 7.53%) and a further Â£22m was the subject of fixed interest rate 'swaps' thus providing a total of 67% of fixed interest bearing net debt. Currency Risk Management The Group covers, through forward exchange contracts on a rolling 12 month basis, exchange exposures which arise through normal trading and it hedges, largely through currency denominated loans, the majority of exchange exposures that arise on the translation into sterling of the Group's overseas assets (including balance sheet goodwill). The Group does not hedge the effects of currency variations on the translation of its overseas earnings into sterling. Mark Rollins FINANCE DIRECTOR Group Profit and Loss Account For the year ended 31 December 2001 2000 restated Â£m Â£m Turnover Continuing operations 452.8 466.5 Discontinued operations 10.9 38.9 463.7 505.4 Operating profit before exceptional items Continuing operations 34.3 46.4 Amortisation of goodwill (6.2) (6.1) Total continuing operations 28.1 40.3 Discontinued operations 0.1 (0.6) 28.2 39.7 Exceptional items Reorganisation and rationalisation charges - continuing operations (2.9) (8.0) - discontinued operations - (1.2) Other exceptional items (4.0) (5.5) (6.9) (14.7) Total operating profit Continuing operations 21.2 26.8 Discontinued operations 0.1 (1.8) 21.3 25.0 Share of operating profit in associated undertaking 0.3 1.3 Amortisation of goodwill on associated undertaking (0.1) (0.3) Profit on sale of fixed assets - continuing operations 0.1 - Loss on disposal of discontinued operations (0.8) (15.9) (including goodwill of Â£3.6m previously written off to reserves) Loss on disposal of associated undertaking - discontinued (1.5) - Profit on ordinary activities before interest and taxation 19.3 10.1 Other interest receivable and similar income 0.7 2.0 Interest payable and similar charges (10.5) (11.3) Profit on ordinary activities before taxation 9.5 0.8 Tax on profit on ordinary activities (5.1) (0.9) Profit/(loss) for the financial year 4.4 (0.1) Dividends (6.1) (15.0) Loss for the year (1.7) (15.1) Earnings/(loss) per share Basic 1.46p (0.08)p Diluted 1.45p (0.08)p Underlying 5.51p 5.87p Dividends per share 2.00p 4.88p The restatement of 2000 relates only to the adoption of Financial Reporting Standard No.19 'Deferred Tax'. Group Balance Sheet At 31 December 2001 2000 restated Â£m Â£m Fixed assets Intangible assets - goodwill 98.4 112.2 Tangible assets 102.7 106.9 Investments 0.2 8.0 201.3 227.1 Current assets Stocks 52.2 60.7 Debtors: Amounts falling due after more than one year 3.6 3.4 Debtors: Amounts falling due within one year 75.1 107.6 Cash at bank and in hand 14.9 16.4 145.8 188.1 Creditors: Amounts falling due within one year (92.0) (125.5) Net current assets 53.8 62.6 Total assets less current liabilities 255.1 289.7 Creditors: Amounts falling due after more than one year (127.5) (162.1) Provisions for liabilities and charges (2.5) (3.5) Net assets 125.1 124.1 Capital and reserves Called-up share capital 30.7 30.7 Share premium 3.5 3.5 Other reserves 17.7 17.7 Profit and loss account 73.2 72.1 Equity shareholders' funds 125.1 124.0 Minority interests - equity - 0.1 Total capital employed 125.1 124.1 Group Statement of Total Recognised Gains and Losses For the year ended 31 December 2001 2000 restated Â£m Â£m Profit/(loss) for the financial year 4.4 (0.1) Currency translation differences on overseas assets and goodwill (1.3) 2.6 Tax benefits on foreign exchange losses 0.5 - Total recognised gains and losses relating to the year 3.6 2.5 Prior year adjustment (FRS19 'Deferred Tax') 0.4 Total gains and losses recognised since last annual accounts 4.0 There is no material difference between the profits/(losses) as reported and those profits/(losses) restated on an historical cost basis. Group Cash Flow Statement For the year ended 31 December 2001 2001 2000 2000 Â£m Â£m Â£m Â£m Net cash inflow from operating activities 46.9 50.1 Dividend income from associated undertaking 0.2 0.2 Returns on investments and servicing of finance Interest received 0.7 2.7 Interest paid (10.4) (11.4) Net cash outflow from returns on investments and servicing of finance (9.7) (8.7) Taxation UK corporation tax paid (0.4) - Overseas tax recovered/(paid) 7.4 (4.9) 7.0 (4.9) Capital expenditure and financial investments Purchase of tangible fixed assets (16.5) (17.4) Sale of property, plant and equipment 0.9 0.6 Net cash outflow from capital expenditure and financial investments (15.6) (16.8) Acquisitions and disposals Purchase of subsidiary undertakings - deferred consideration (0.6) (1.0) Sale of subsidiary undertakings 6.6 (2.2) Sale of associated undertaking 5.9 - Net cash disposed on sale of subsidiary undertakings (0.4) (0.6) Net cash inflow/(outflow) from acquisitions and disposals 11.5 (3.8) Dividends paid on ordinary shares (15.0) (15.0) Financing Share issues - 0.1 New loans initiated by Group 32.3 38.9 Repayment of existing loans (57.6) (34.7) (25.3) 4.2 Increase in cash in the period - 5.4 Notes: 1 Segment Information Group turnover, operating profit and net assets are analysed as follows: a) By class of business Turnover Turnover Operating Operating Net Net profit profit assets assets 2001 2000 2001 2000 2001 2000 restated Â£m Â£m Â£m Â£m Â£m Â£m Aerospace 196.8 180.5 12.8 6.8 147.3 147.2 Automotive 129.0 157.5 5.5 19.6 43.5 49.0 Specialised 128.0 129.4 2.9 0.4 61.3 66.7 Industrial Total 453.8 467.4 21.2 26.8 252.1 262.9 Inter-segment (1.0) (0.9) - - - - sales Total continuing 452.8 466.5 21.2 26.8 252.1 262.9 operations Discontinued 10.9 38.9 0.1 (1.8) (3.1) 1.8 operations 463.7 505.4 21.3 25.0 249.0 264.7 Operating profits shown above are stated after charging Â£6.9 million (2000 - Â£14.7 million) of exceptional items and Â£6.2 million (2000 - Â£6.1 million) of goodwill amortisation. These are attributed to the segments as follows: Exceptional items Goodwill amortisation 2001 2000 2001 2000 Â£m Â£m Â£m Â£m Aerospace 1.6 7.2 3.6 3.5 Automotive 4.7 3.1 1.1 1.2 Specialised Industrial 0.6 3.2 1.5 1.4 Total continuing operations 6.9 13.5 6.2 6.1 Discontinued operations - 1.2 - - 6.9 14.7 6.2 6.1 b) By geographical market Turnover Turnover Turnover Turnover Operating Operating Net Net by by by by profit profit assets assets destination destination origin origin by by origin origin 2001 2000 2001 2000 2001 2000 2001 2000 restated Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m North America 279.1 291.0 295.0 313.1 19.9 24.7 143.0 148.8 United Kingdom 56.1 55.9 76.7 79.0 5.5 3.3 65.2 69.0 Rest of Europe 96.9 89.0 73.4 65.7 (2.1) (2.2) 36.3 31.6 Rest of World 29.3 37.9 16.3 16.0 (2.1) 1.0 7.6 13.5 Total 461.4 473.8 461.4 473.8 21.2 26.8 252.1 262.9 Inter- segment sales (8.6) (7.3) (8.6) (7.3) - - - - Total continuing operations 452.8 466.5 452.8 466.5 21.2 26.8 252.1 262.9 Discontinued operations 10.9 38.9 10.9 38.9 0.1 (1.8) (3.1) 1.8 463.7 505.4 463.7 505.4 21.3 25.0 249.0 264.7 2001 discontinued operations reflect the turnover and operating results of Polenz GmbH, Senior Air Systems, Senior Flexonics Australia Pty. Limited and Senior Flexonics New Zealand Limited, all of which were sold during 2001, and Senior Flexonics (Singapore) Pte. Limited which was closed in 2001. Operating profits shown above are stated after charging Â£6.9 million (2000 - Â£14.7 million) of exceptional items and Â£6.2 million (2000 - Â£6.1 million) of goodwill amortisation. These are attributed to the segments as follows: Exceptional items Goodwill amortisation 2001 2000 2001 2000 Â£m Â£m Â£m Â£m North America 2.4 9.1 3.2 3.0 United Kingdom 0.2 2.4 2.4 2.4 Rest of Europe 0.3 1.7 0.2 0.2 Rest of World 4.0 0.3 0.4 0.5 Total continuing operations 6.9 13.5 6.2 6.1 Discontinued operations - 1.2 - - 6.9 14.7 6.2 6.1 c) Net assets reconciliation 2001 2000 restated Â£m Â£m Net assets, as above 249.0 264.7 Unallocated liabilities, net (1.2) (1.9) Investment in associated undertaking - 7.8 Net borrowings (122.7) (146.5) Net assets, per Balance Sheet 125.1 124.1 d) Total exceptional items 2001 2000 Â£m Â£m Reorganisation and rationalisation charges - continuing operations 2.9 8.0 - discontinued operations - 1.2 Write-off of non contractually guaranteed development engineering cost - 4.0 Strategic review cost - 1.5 Impairment of goodwill, previously recognised on acquisition of Brazilian operations 4.0 - (see below) 6.9 14.7 The impairment review was based on a comparison of the carrying value, including goodwill, to a net present value calculation based on current cash flow projections discounted at a rate appropriate to such an investment (20%). 2 Dividends The proposed final dividend is at the rate of 0.16p per share (2000 - 3.04p) making 2.00p for the year (2000 - 4.88p) and, if approved, will be payable on 30 May 2002 to shareholders on the register at the close of business on 3 May 2002. 3 Earnings per Share The calculation of basic earnings per share and underlying earnings per share are shown below and have been based on the weighted average number of ordinary shares in issue and ranking for dividend during the year. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all dilutive potential ordinary shares. The Group has only one category of dilutive potential ordinary shares in the current year, being those share options granted where the exercise price is less than the average price of the Company's ordinary shares during the year. The prior year diluted earnings per share has been restated to a loss per share to take account of the earnings restatement caused by the adoption of FRS19. However, it has not been adjusted for the theoretically dilutive effect of those share options granted where the exercise price is more than the average price of the Company's ordinary shares, as it is not considered that this provides any meaningful information. The provision of an underlying earnings per share has been included to identify the performance of operations before amortisation and impairment of goodwill, profit on sale of fixed assets and losses on disposal of discontinued operations and associated undertakings. Earnings Earnings Earnings Earnings per share per share 2001 2000 2001 2000 restated restated pence pence Â£m Â£m Basic profit/(loss) on ordinary activities after taxation 1.46 (0.08) 4.4 (0.1) Adjust: Amortisation of goodwill 2.01 1.99 6.2 6.1 Amortisation of goodwill on associated undertaking 0.03 0.09 0.1 0.3 Impairment of goodwill 1.30 - 4.0 - Profit arising on sale of fixed assets (0.03) - (0.1) - Loss on disposal of discontinued operations 0.26 5.19 0.8 15.9 Loss on disposal on associated undertaking 0.48 - 1.5 - Taxation attributable to above adjustments - (1.32) - (4.1) Underlying earnings 5.51 5.87 16.9 18.1 Weighted average number of shares - basic 306.5m 306.4m - diluted 307.1m 306.8m - underlying 306.5m 306.4m Earnings/(loss) per share - basic 1.46p (0.08)p - diluted 1.45p (0.08)p - underlying 5.51p 5.87p 4 Group Cash Flow Statement a) Reconciliation of operating profit to net cash inflow from operating activities 2001 2000 Â£m Â£m Group operating profit 21.3 25.0 Depreciation of tangible fixed assets 18.4 18.3 Amortisation of goodwill 6.2 6.1 Impairment of goodwill 4.0 - Decrease in stocks 4.9 1.3 Decrease/(increase) in debtors 12.2 (8.6) (Decrease)/increase in creditors (20.4) 4.0 Working capital currency variations 0.3 4.0 Net cash inflow from operating activities 46.9 50.1 The net cash inflow from operating activities includes an outflow of Â£0.4 million (2000 - Â£2.5 million) in respect of discontinued activities b) Reconciliation of net cash flow to movement in net debt 2001 2000 Â£m Â£m Increase in cash in the period - 5.4 Decrease/(increase) in loans 25.3 (4.2) Change in net debt resulting from cash flows 25.3 1.2 Currency variations on net borrowings (1.5) (6.9) Movement in net debt in the period 23.8 (5.7) Net debt at 1 January (146.5) (140.8) Net debt at 31 December (122.7) (146.5) c) Analysis of net debt At 1 Cashflow Exchange At 31 January movement December 2001 2001 Â£m Â£m Â£m Â£m Cash 16.4 (1.3) (0.2) 14.9 Overdrafts (2.8) 1.3 - (1.5) Debt due within one year (3.5) (6.3) - (9.8) Debt due after one year (156.2) 31.8 (1.3) (125.7) Finance leases (0.4) (0.2) - (0.6) Total (146.5) 25.3 (1.5) (122.7) Debt due within one year shown above includes short-term bank borrowings of Â£0.1 million (2000 - Â£2.1 million). 5 Reconciliation of Movements in Shareholders' Funds Group Share Share Other reserves Profit Total capital premium Revaluation Special Total and loss account account Â£m Â£m Â£m Â£m Â£m Â£m Â£m At 1 January 2001 as previously reported 30.7 3.5 0.7 17.0 17.7 71.7 123.6 Prior year adjustment - - - - - 0.4 0.4 (FRS19 'Deferred Tax') At 1 January 2001 as restated 30.7 3.5 0.7 17.0 17.7 72.1 124.0 Profit for the financial year - - - - - 4.4 4.4 Dividends - - - - - (6.1) (6.1) Goodwill - - - - - 3.6 3.6 Currency variations - - - - - (0.8) (0.8) At 31 December 2001 30.7 3.5 0.7 17.0 17.7 73.2 125.1 6 Status of Financial Information The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 December 2001 or 2000 but is derived from those accounts. Statutory accounts for 2000 have been delivered to the Registrar of Companies, and those for 2001 will be delivered following the Company's Annual General Meeting. The Auditors have reported on those accounts; their reports were unqualified and did not contain statements under Sections 237 (2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange

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