Final Results

Senior PLC 06 March 2003 Thursday 6 March 2003 Senior plc Results for the year ended 31 December 2002 HIGHLIGHTS Year ended 31 December 2002 2001 TURNOVER FROM CONTINUING OPERATIONS Â£398.7m Â£444.3m OPERATING PROFIT FROM CONTINUING OPERATIONS - BEFORE EXCEPTIONAL ITEMS AND GOODWILL AMORTISATION Â£24.7m Â£34.0m - AFTER EXCEPTIONAL ITEMS AND GOODWILL AMORTISATION Â£17.6m Â£21.0m PROFIT BEFORE TAXATION Â£7.0m Â£9.5m FREE CASH FLOW Â£25.2m Â£28.6m NET BORROWINGS Â£87.4m Â£122.7m UNDERLYING EARNINGS PER SHARE 4.47p 5.51p DIVIDENDS PER SHARE 2.00p 2.00p Commenting on the results, James Kerr-Muir, Chairman of Senior plc, said: 'Despite difficult trading conditions, the Group delivered a resilient performance during 2002 and again substantially reduced debt. We expect 2003 to be another challenging year with manufacturing recession and political uncertainty continuing. Nevertheless, Senior is operationally in much better condition to deal with this period of uncertainty and the lower debt level allows the Group to look forward to the future with renewed confidence.' For further information please contact: Senior plc Graham Menzies, Group Chief Executive 01923 714702 Mark Rollins, Group Finance Director 01923 714738 Finsbury Group Charlotte Hepburne - Scott /Gordon Simpson 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 engineering group with annual sales of around Â£400m and with operations in 12 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 During the course of 2002, the Group faced frequent changes to customer requirements, particularly in the civil aerospace market where the industry adjusted demand levels downwards throughout the year. This was in addition to the recessionary environment experienced in most parts of our business. Nevertheless, the Group continued to implement improvements in the operational aspects of the business and emerged in better managerial order at the end of the year. In addition, and very importantly, the Group net debt was reduced from Â£122.7m at the beginning of 2002 to Â£87.4m at the end - a 29% drop in a difficult trading year and firm evidence of the quality of the underlying businesses and the improving financial position of the Group. Financial Headlines Group turnover from continuing operations fell 10.3% in the year to Â£398.7m and operating profit from continuing operations before goodwill amortisation and exceptional items declined from Â£34.0m to Â£24.7m. Group profit before tax declined from Â£9.5m to Â£7.0m resulting in underlying earnings per share of 4.47p (2001 - 5.51p). Operations Aerospace sales dropped by 16.4% in 2002 to Â£164.6m, (2001 - Â£196.8m), as the full year impact of reduced demand from the civil market was seen. This was mitigated to some extent by improved demand from the military and defence sectors. Operating profits before goodwill amortisation and exceptional items, which had dropped sharply in the first half, recovered a little in the second half to end the year at Â£8.4m (2001 - Â£18.0m). Sales in the Automotive Division declined by 7.2% to Â£148.4m (2001 - Â£160.0m). This was primarily due to some of our product programmes in North America coming to an end. Operating profits before goodwill amortisation and exceptional items were Â£12.7m (2001 - Â£12.8m) with an operating margin, on this basis, of 8.6% (2001 - 8.0%). The Specialised Industrial Division recorded sales of Â£86.1m (2001 - Â£88.5m). The operating margin, before goodwill amortisation and exceptional items, improved from 3.6% to 4.2% with the associated operating profits ahead by 12.5% to Â£3.6m. These results are stated before Â£1.3m (2001 - Â£2.9m) of costs incurred on reorganisation programmes to deal with the adverse market conditions. During the year the Group disposed of its four European expansion joint operations with the proceeds contributing to the debt reduction. Dividend In 2001, dividend levels were amended to bring the dividend cover back to a more appropriate level for the business. In line with this policy the Board is recommending a final dividend of 1.35p per share in respect of 2002, bringing the total dividend for the year to 2.00p per share (2001 - 2.00p). Employees and the Board During the year, Mike Sheppard joined the Board, having worked as an executive within Senior for a number of years. Mike is the chief executive of the Automotive Division and the North American Industrial operations. He is a US citizen and works out of Chicago. Having been elected by the Board during the year he will stand for re-election by the shareholders at the forthcoming Annual General Meeting. Richard Turner, who has been a non executive director of Senior since 1996 has agreed to a further two year term until July 2004 and offers himself for re-election by the shareholders at the Annual General Meeting. During 2002, Richard was awarded the CMG in the Queen's Birthday Honours list and the Group congratulates him upon his award. During 2002 employee numbers were reduced to bring capacity in line with demand and many operational changes and improvements were implemented. In this tough and uncertain period, and throughout all the necessary changes, there has been unstinting enthusiasm and support from our employees, for which we thank them. Outlook It is hoped that the rescheduling of aerospace orders was largely completed in 2002. 2003 has started with a more settled outlook, albeit at this lower level of demand, but at levels that have been planned for by the operations. Barring further market deterioration, we expect some modest recovery in our aerospace performance, helped by new programmes starting volume production and the benefits of operational improvements coming through. Senior Automotive will be impacted by two programme conclusions in 2003 and automotive production volumes in North America and Europe are softening. We remain cautious on the outlook. In Specialised Industrial, trading conditions in North America are reasonable although those in Europe are generally more difficult. We expect 2003 to be another challenging year with manufacturing recession and political uncertainty continuing. Nevertheless, Senior is operationally in much better condition to deal with this period of uncertainty and the lower debt level allows the Group to look forward to the future with renewed confidence. CHIEF EXECUTIVE'S REVIEW The improvement strategy, adopted in 2000 and pursued during 2001, continued unabated during 2002. We worked on improving operational performance in all respects and irrespective of the generally lower level of customer demand. We kept our central costs low and delivered lower costs and reduced working capital in the subsidiaries. We continued to effect disposals amongst the European industrial businesses and most importantly, we again reduced the Group net debt which ended the year at Â£87.4m, a reduction of 29% in the year and a reduction of nearly 50% from when the debt reduction programme started in May 2000. Gross capital expenditure in the year was reduced to 74% of depreciation. However, necessary and justifiable investment was maintained. Indeed, two new factories were opened in the year to relocate Senior Aerospace BWT and Senior Aerospace Ermeto into modern efficient factories. During the course of the year, manufacturing recessionary influences became more obvious in most of the developed, industrialised world. Economic conditions in Germany were particularly weak throughout 2002 with those in the rest of continental Europe and the USA weakening during the period. Canada and, to a lesser extent, the UK were relatively buoyant. The global airline industry continued to react adversely to the economic slowdown and the threat of international terrorism. Whilst there was some recovery in traffic volumes during 2002, airline profitability, particularly in the USA, remains very poor. As a consequence, the major suppliers to the airlines - the aircraft and engine builders who are our customers - continued to adjust their production schedules downwards throughout 2002. Hopefully 2003 will see more settled levels of demand. Senior Automotive encountered mixed market conditions. In Europe, the overall demand for vehicles fell by about 3% but the proportion of diesel engine vehicles continued to climb. In the USA, demand remained higher than we had originally expected primarily because of dealer incentives and cheap financing. As a result vehicle sales remained at healthy levels (16.8m cars and light trucks) and importantly, dealer stocks of vehicles were at the same level in December 2002 as they were in December 2001 - 59 days. Destocking in 2003 should not, therefore, be a significant issue although demand levels are expected to show declines over 2002. In the industrial markets in which we participate, UK construction was satisfactory, semi conductor equipment continued to be severely depressed, oil and gas was slightly better than expected, power generation started well but finished weaker and process plant (e.g. chemicals and steel) remained tough. Prospects We enter 2003, with many business opportunities. In aerospace, the joint strike fighter programme (JSF) at Lockheed Martin is gathering momentum with many of our operations being involved, as they are with the new large Airbus A380. In automotive, volume increases are being seen in our South Africa facility and, in the longer term, diesel engine performance is beginning to attract more interest in the USA, the common rail system having transformed the diesel engine's fortunes in Europe. Throughout the operations, we continue to seek operational performance and management improvements in all areas - lean production, more effective design and rigorous financial routines. Whilst we plan to continue our existing policies and strategies throughout 2003, now the debt level is much lower, we can look forward to being able to review these in the medium term in order to take better advantage of the economic upturn when it comes. Our employees have made valuable contributions during another period of challenge and change and as an acknowledgement of the part they have played the annual report features a selection of the men and women of our organisation, in addition to the hardware traditionally highlighted. AEROSPACE Demand continued to slow during the year and all operations experienced rescheduling by customers resulting, almost without exception, in lower volumes. Consequently, many capacity adjustments needed to be made. The operations responded well to these circumstances. Metal Bellows, which specialises in edge-welded bellows applications, primarily for infinite-life low-maintenance pumps, accumulators and reservoirs, performed exceptionally well despite the semi conductor industry failing to recover. They were helped by an increase in defence and military spending. During the year, medical application volumes increased, installation of a new business computer system began and design engineering proposals were made for substantial work on JSF. In San Diego, California, Senior Aerospace has two machine shops making structural parts for civil and military jet engines as well as the engine mountings into the nacelles on the aeroplanes. At Ketema, the two main customers both adjusted schedules downwards and the company suffered considerable disruption as a result. By the last quarter of the year, however, a degree of stability had returned. At Jet Products, volumes came down significantly, primarily as a result of the Boeing 737 build-rate being halved. As a result of the need to reduce capacity, its small feeder factory was closed and the operations moved into the main facility. Towards the end of the year, the managements of Ketema and Jet Products were amalgamated, not only as a cost reduction measure, but also to instil the very highest standards of manufacturing excellence necessary to profitably meet the demands of this sector of the market. These two operations enter 2003 in good operational shape and with demand slightly ahead of plan. In France, Ermeto moved out of five old buildings into one new modern facility. The prospects for the company continue to be encouraging and it was one of the few operations to grow its sales during the year. At Calorstat, an unsatisfactory loss in 2001 was replaced by a breakeven trading result in 2002 as a result of the cost reduction measures taken. 2003 has an improved outlook as new business from Airbus is in production. Bosman, in Holland, had an eventful year with the rebuilding of the main assembly hall (following the roof collapse in 2001), reductions in customer schedules and a major reduction in its airline repair business. To counter this the company successfully developed aftermarket business for the industrial gas turbine sector. The company ended the year with an encouraging orderbook for 2003. Senior Aerospace has two composite ducting businesses, BWT in the UK and Composites in the USA. BWT suffered a substantial schedule downturn from its main customer, Bombardier, which coincided with BWT moving into a new facility. Together with Composites, BWT is working on the design and development of the cockpit ducting system for the A380, the costs of which are being expensed as incurrred. It is expected that this work will be finished early in 2003. As a result of the relationship on this programme, additional work with Airbus may be secured. Composites had a solid order book throughout 2002 and despite a small reduction in sales over 2001, increased its profit. The key to this was a full year deployment of lean manufacturing techniques. However, their biggest customer, Cessna recently reduced its schedules for 2003. At Bird Bellows, in the UK, a modest reduction in sales for the year was accompanied by a similarly modest reduction in profitability. This company is the sole supplier to Airbus for the flexible wing duct joints and has been nominated for the A380 programme. At SSP, in Los Angeles, schedules strengthened helped by the ramp up of the Rolls-Royce Trent 500 programme and the higher levels of spending on military programmes by the US Government. The financial performance of the company improved and is expected to improve further in 2003. This company is an industry leader in high temperature ducting system design. Modernisation of the existing leasehold facility is anticipated to begin during 2003. Throughout Senior Aerospace, improvements in on-time delivery and inventory turns have been delivered as a result of the strategy to improve operational effectiveness. Further improvements are expected. Capital expenditure for the Division is likely to be significantly less than depreciation in 2003 because, with the industry in the doldrums, the Division needs little additional capacity. However, few programmes in the industry have been cancelled and the sales and engineering staff have remained busy. The principal exception to this was Fairchild Dornier's receivership, when the FD728 development was halted and we had to write off Â£0.3m. Due to our continued engineering activity we do not expect to lose market share whilst the industry awaits an upturn. Instead, we expect to win additional future programmes to allow us to grow again when confidence returns to the aerospace industry. AUTOMOTIVE Senior Automotive operates in two main markets - North America and Europe. Demand in the USA was slightly higher than expected during 2002 and continued to defy the slowing economy throughout the year. Incentives offered by the vehicle manufacturers substantially helped to maintain demand and 2002 ended with modest stocks. In Europe, 2002 saw a 3% fall in overall demand and 2003 is anticipated to be flat at best. Overall we are cautious about economic conditions for 2003. Helped by better than expected demand, Senior Automotive Bartlett, located near Chicago, had a good year with profit and cash flow ahead of plan. Development work on a number of new products continued with a variety of customers. In particular, prototype work has begun on components for common rail diesel engines for vehicles destined for the North American market. This significant development could lead to substantial new business in the future. However, the flexible exhaust connectors for one programme that only commenced shipment in early 2002 has now been removed from the vehicles. This will make the operation's performance difficult to repeat in 2003. At Senior Automotive Blois, in France, performance improved in 2002 over 2001 but not yet to a satisfactory level. Management strengthening and ongoing product rationalisation should enable the business to make further progress in 2003. The demand for common rail diesel engine fuel system components is strong and development work on complete systems continues. We have a technical leadership inherent in this operation which is not yet reflected in its performance. 2002 was the first full year of production at the new greenfield site in Olomouc in the Czech Republic. Disappointingly, the plant did not come into profit as planned in 2002 but it should do in 2003 when further products are transferred from Blois and a new third party programme launches mid-way through the year. Senior Automotive Kassel traded in very weak markets - all current production goes to the industrial sector, primarily the German chemical and solar heating industries - and the operations recorded an unsatisfactory result. Cost reduction measures are being taken. Progress is being made, however, in developing German automotive component business for the future with several promising development programmes underway for heavy truck and fuel control applications, using the Group's hose and bellows technologies. In Brazil, at Senior Automotive Sao Paulo, 2002 turned out to be a better year than 2001, thanks to the cost reduction measures taken in 2001 and a more stable economy. The second half of 2002 was particularly strong as a result of some large industrial projects being completed, shipped and invoiced. Senior Automotive New Delhi made good progress in 2002 and produced another strong performance. The company has continued to win new work for the Indian car assembly market whilst maintaining its supply of aftermarket components to Asia, Europe and the USA. At Senior Automotive Crumlin, 2002 was the second year of change with the product mix moving away from exhaust flexible connectors and more towards exhaust gas control mechanisms. Like Bartlett, new product development is a priority. In South Africa, Senior Automotive Cape Town grew its sales by 48% as a result of the new product lines introduced in 2001 and 2002. Profitability also increased but was hampered by temporary local raw material supply problems. Fortunately not all products specify locally sourced stainless steel. In 2003 it is planned that a new and much larger factory will be commissioned, close to the existing facility, to cope with substantial new business, particularly from Peugeot. We expect to invest around Â£1.5m in this business during 2003. Whilst the automotive industry continues to build a similar number of vehicles, the desire of the car assemblers for lower costs is relentless. Excellent on-time delivery and quality standards are the norm with technical expertise and price the differentiators. Senior Automotive, with its experienced engineering resource, dedication to process and product development and its access to lower cost manufacturing sites in South Africa, India, Czech Republic and Brazil is well placed to face these challenges. SPECIALISED INDUSTRIAL Market conditions were mixed in this sector of our business. Europe was quite weak, particularly in Germany, whilst Canada enjoyed strong conditions. In the USA markets weakened as the year progressed. The business in Canada had a strong year under new leadership and sales, profit and cash flow all improved during 2002. The decision was taken to close a small service factory to further improve performance. The oil and gas markets were healthy and the Canadian steel mills, an important market sector, operated in better market conditions than were enjoyed by steel companies in most other parts of the world. The hose business in Romeoville, Illinois, improved its performance but remained a modest contributor as the semi-conductor market failed to recover. Pathway, with operations in New Braunfels, Texas, and Oakridge, Tennessee, had another good year despite the downturn in the USA power generation original equipment market. The company is the world leader in the design and manufacture of large expansion joints for process plant applications and has the physical capacity to build the largest sizes specified. 2003 is likely to see slightly weaker markets. In Sweden, our Teflon hose business, Habia, generated a decent cash flow in subdued market conditions that led to lower sales and profits. Turnover of the three European metal hose operations, in the UK, Holland and France, reduced a little in aggregate in subdued market conditions. Prospects appear slightly better for 2003 primarily because of the re-equipping of the UK gas distribution infrastructure, a strengthening position in the sea going tanker discharge market for composite hose in Holland and due to lower costs and a rising order book in France. The four businesses that comprised our European expansion joint operations, based in the UK, Denmark, Poland and the Czech Republic, were sold during 2002. At Senior Hargreaves, 2002 started with a good quality orderbook and finished with year on year improvement in sales, profits and cash flow. This business is the UK market leader in the manufacture and installation of air conditioning ducting. Looking forward the commercial construction industry is slowing, whilst medium term opportunities are returning in nuclear decommissioning, public service and infrastructure projects. Overall, the Division improved its quality of earnings during 2002. Sales were down very marginally, but the return on sales (before goodwill amortisation and exceptional items) increased from 3.6% to 4.2% with cash inflow well ahead of operating profit and 12% higher than in 2001. This represented a valuable contribution to the Group's earnings and debt reduction strategy. FINANCE DIRECTOR'S REVIEW Financial Performance In difficult trading conditions, group turnover from continuing operations fell by 10.3% to Â£398.7m (2001 - Â£444.3m). Operating profit on continuing operations after goodwill amortisation and exceptional items fell to Â£17.6m (2001 - Â£21.0m). Profits on ordinary activities before tax were Â£7.0m (2001 - Â£9.5m). The decline in Aerospace Divisional turnover (Â£27.3m on a constant currency basis) was principally as a result of the ongoing slowdown in the Civil Aerospace market, with the operations at Jet Products (Boeing 737 production halved) and BWT (slow down in the regional jet market) seeing the largest percentage declines. New vehicle production in North America held up well but, as anticipated, the Group's automotive turnover in North America fell as programmes ended. Outside North America, automotive turnover rose slightly as growing diesel volumes and new programmes coming on stream in Cape Town more than offset declines in new vehicle production in continental Europe. Turnover in the Specialised Industrial Division, before currency effects, was broadly unchanged. Adverse currency movements accounted for Â£11.2m of the total Â£45.6m (10.3%) reduction in Group turnover. On a constant currency basis, operating profits before exceptional costs and goodwill amortisation were ahead of the prior year by Â£0.5m (16%) in the Specialised Industrial Division and by Â£0.5m (4%) in the Automotive Division. The latter result reflected the achievement of significant cost savings in North America following the merging of management at two operations in late 2001. Underlying profitability in the Aerospace Division fell by 52% (Â£9.1m). Adverse currency movements further reduced the Group result by Â£1.2m compared with 2001. Exceptional Items and Goodwill Amortisation Exceptional charges for the year comprised Â£1.3m of reorganisation and redundancy costs (2001 - Â£2.9m). These arose across a number of operations as employee numbers were reduced in line with demand and a small aerospace satellite factory was closed. A review of the carrying value of fixed assets and goodwill across the Group resulted in no impairment (2001 - Â£4.0m). The small reduction in the goodwill amortisation charge to Â£5.8m (2001 - Â£6.1m) was exchange rate related. Interest Charge The net interest charge for the year of Â£6.6m was 33% lower than the prior year (2001 - Â£9.8m) as a result of the significant reduction in the level of the Group's borrowings and lower interest rates, particularly in the USA. Most of the Group's borrowings are in US $. Interest cover, calculated on operating profits before exceptional items and goodwill amortisation was 3.7 times (2001 - 3.5 times). Taxation The overall Group taxation charge of Â£3.1m comprised a Â£3.6m charge relating to ordinary activities for the year, a net benefit of Â£0.1m relating to prior years and a net reduction in deferred tax liabilities of Â£0.4m. The Group's effective tax rate for 2002, measured on profit before amortisation and impairment of goodwill and before losses on disposal was 18.5% (2001 - 23.2%). A reconciliation of the rate for the year, between the UK corporate tax rate of 30% and the actual charge, is included in the annual accounts. The Group had already adopted Financial Reporting Standard 19 - 'Deferred Tax' in its 2001 results. Earnings and Dividends per Share Underlying earnings per share (after exceptional costs but before amortisation and impairment of goodwill and loss on disposal of operations and fixed assets) was 4.47p (2001 - 5.51p). As noted in the Chairman's Statement, a final dividend of 1.35p per share is proposed to be paid on 29 May 2003 to shareholders on the register on 2 May 2003. Together with the interim dividend of 0.65p, total dividends paid in respect of 2002 would then be 2.00p (2001 - 2.00p). Disposals The Group sold its four European expansion joint businesses (located in Denmark, Poland, the Czech Republic and the United Kingdom) during September 2002 for a total consideration, net of costs, of Â£3.8m. Of this Â£2.8m was received in the year. On turnover of Â£5.7m the operations broke-even at the profit before interest and tax level during the period prior to disposal. A loss of Â£3.5m resulted from the disposal after taking into account the write-off of Â£1.4m of goodwill held on the balance sheet. Cash Flow and Net Borrowings Cash profits, combined with a continuing tight control of working capital and capital expenditure, resulted in Free Cash Flow (operating cash flow from operations after net capital expenditure, interest and tax) of Â£25.2m (2001 - Â£28.6m). After receiving net disposal and acquisition proceeds of Â£2.2m and funding Â£2.5m in dividends the cash generated was used to reduce the Group's borrowings. The majority of the Group's borrowings are in US $, as a policy hedge against the Group's US $ assets, and the weakening US $ ($1.46:Â£ to $1.61: Â£ over the year) reduced the reported sterling borrowings by Â£10.4m. Overall, the Group's net borrowings fell by Â£35.3m to Â£87.4m (2001 - Â£122.7m) during 2002. 2002 2001 Â£m Â£m OPERATING PROFIT 17.6 21.3 DEPRECIATION 17.8 18.4 NET CAPITAL EXPENDITURE (INCLUDING FINANCE LEASES) (11.7) (15.6) GOODWILL AMORTISATION AND IMPAIRMENT 5.8 10.2 WORKING CAPITAL MOVEMENT 2.7 (3.0) NET INTEREST PAID (7.3) (9.7) TAX RECOVERED 0.3 7.0 FREE CASH FLOW 25.2 28.6 NET DISPOSALS AND ACQUISITIONS 2.2 11.5 DIVIDENDS PAID (2.5) (15.0) DIVIDENDS FROM ASSOCIATED UNDERTAKING - 0.2 EFFECT OF EXCHANGE RATES 10.4 (1.5) REDUCTION IN NET BORROWINGS 35.3 23.8 NET BORROWINGS 87.4 122.7 Funding and Liquidity The Group finances its borrowings at Group level through a multi-bank revolving credit facility and the US private placement market. In addition it has a number of other local banking facilities. The policy is to ensure that all projected net borrowing requirements are covered by committed facilities. At the end of 2002 the Group had total facilities of Â£181m (including Â£160m committed) of which Â£80m was unused. The maturity profile of the Â£87.4m of net borrowings at the end of 2002 is: 2003 2004 2005 2006 2007 2008 Â£m (9.1) 32.7 0.2 0.2 15.7 47.7 net cash Interest Rate and Currency Risk Management In addition to funding and liquidity, the Group's main financial risks relate to interest rate fluctuations and foreign currency exposures. The management of all these risks is performed by a centralised treasury department which reports to the Group Finance Director. It operates under the guidance of the Group Treasury Committee, which meets quarterly, and acts according to the laid down objectives, policies and authority levels approved by the Board. It is a Group policy to have the majority of its borrowings subject to fixed interest rates. At the year end Â£65.2m of private placement borrowings (weighted average cost 7.53%), and Â£13.6m of other borrowings were subject to fixed rates, thus resulting in 78% of the Group's gross debt of Â£101.1m being fixed interest in nature. The Group hedges, through currency denominated loans and forward contracts, the majority of the exchange exposures that arise on its net investment in overseas operations. These exchange rate movements are treated as movements on reserves and recorded in the statement of total recognised gains and losses. Whilst the Group does not hedge the effects of currency movements on the translation of its overseas earnings into sterling, it does seek to cover, normally through forward exchange contracts on a rolling 12 month basis, known transaction exposures. Pensions The Group has continued to account for retirement benefits in accordance with SSAP24 and full details are disclosed in the annual accounts. The Group's main defined benefit pension scheme is in the UK. It also has three small USA defined benefit schemes and a range of defined contribution schemes. At the date of the last valuation, on 6 April 2001, the UK plan's assets represented 100% of the benefits that had accrued to members after allowing for future increases in earnings. This position has deteriorated significantly since then as equity markets have fallen steeply. In total the Group charged Â£2.7m (2001 - Â£1.5m) to its profit and loss account in respect of its defined benefit schemes and Â£3.3m (2001 - Â£3.5m) in respect of its defined contribution schemes. Total cash funding of Â£1.6m (2001 - Â£1.4m) was made in respect of all the defined benefit schemes. Whilst the next valuation of the UK plan is not until April 2004, the Group intends to increase its funding in 2003 such that the total cash contributions in respect of all its defined benefit schemes is anticipated to rise by around Â£1.6m, to Â£3.2m p.a. Although not adopted, full disclosure in accordance with FRS 17 (Retirement Benefits) is provided as required in the annual accounts. This shows that, at 31 December 2002, there were total unprovided pension deficits, net of deferred tax of Â£27.6m. Despite nearly 50% of the UK plan's assets being in bonds, which performed well, this represents a deterioration of Â£22.4m in the year as equity values fell sharply and the discount rate used to discount pension liabilities reduced from 6.0% to 5.5%. Had the Group adopted FRS 17, then the 2002 charge to operating profit would have been Â£1.9m. Non Statutory Information Throughout the commentary on the results a number of non statutory numbers are quoted. These include: â€¢ Operating profit before exceptional items and goodwill amortisation - this is used to illustrate the ongoing, underlying trading performance of the Group. Note 1 provides the information to reconcile this to operating profit. â€¢ Underlying earnings per share - this is used to highlight the total performance of the Group prior to the impact of goodwill amortisation and the disposal of assets and discontinued operations. Note 3 provides the information to reconcile this to basic earnings per share. â€¢ Free cash flow - this is used to illustrate the total net cash generation by the Group prior to corporate activity such as acquisitions, disposals and dividend payments. Its derivation is fully documented earlier in this report. Authority to Purchase own shares In order to provide the Group with greater future funding flexibility, the Board intends to put a resolution to the shareholders at the forthcoming Annual General Meeting to give the Group the authority to purchase its own shares. Notwithstanding this resolution, the Board has no current intention of exercising such authority. Going Concern After making enquiries, the directors are of the opinion that the Group has adequate financial resources to continue to operate for the foreseeable future. It is, therefore, appropriate for the accounts to continue to be prepared on a going concern basis. Senior plc Group Profit and Loss Account for the year ended 31 December 2002 2002 2001 Notes Â£m Â£m Turnover Total continuing operations 398.7 444.3 Discontinued operations 5.7 19.4 1 404.4 463.7 Operating profit before exceptional items Continuing operations 24.7 34.0 Amortisation of goodwill (5.8) (6.1) Total continuing operations 18.9 27.9 Discontinued operations - 0.3 18.9 28.2 Exceptional items Reorganisation and rationalisation charges - continuing operations (1.3) (2.9) Impairment of goodwill - (4.0) 1d) (1.3) (6.9) Total operating profit Continuing operations 17.6 21.0 Discontinued operations - 0.3 1 17.6 21.3 Share of operating profit in associated undertaking - 0.3 Amortisation of goodwill on associated undertaking - (0.1) (Loss)/profit on sale of fixed assets - continuing operations (0.5) 0.1 Loss on disposal of discontinued operations (3.5) (0.8) Loss on disposal of associated undertaking - discontinued - (1.5) Profit on ordinary activities before interest and taxation 13.6 19.3 Other interest receivable and similar income 1.1 0.7 Interest payable and similar charges (7.7) (10.5) Profit on ordinary activities before taxation 7.0 9.5 Tax on profit on ordinary activities (3.1) (5.1) Profit for the financial year 3.9 4.4 Dividends 2 (6.1) (6.1) Loss for the year (2.2) (1.7) Earnings per share 3 Basic 1.29p 1.46p Diluted 1.29p 1.45p Underlying 4.47p 5.51p Dividends per share 2 2.00p 2.00p Senior plc Group Balance Sheet At 31 December 2002 Notes 2002 2001 Â£m Â£m Fixed assets Intangible assets - goodwill 85.8 98.4 Tangible assets 89.7 102.7 Investments 0.2 0.2 175.7 201.3 Current assets Stocks 46.3 52.2 Debtors: Amounts falling due after more than one year 2.4 3.6 Debtors: Amounts falling due within one year 73.8 75.1 Cash at bank and in hand 9.6 14.9 132.1 145.8 Creditors: Amounts falling due within one year (86.3) (92.0) Net current assets 45.8 53.8 Total assets less current liabilities 221.5 255.1 Creditors: Amounts falling due after more than one year (97.5) (127.5) Provisions for liabilities and charges (2.7) (2.5) Net assets 121.3 125.1 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 69.4 73.2 Equity shareholders' funds 5 121.3 125.1 Group Statement of Total Recognised Gains and Losses for the year ended 31 December 2002 2002 2001 Â£m Â£m Profit for the financial period 3.9 4.4 Currency translation differences on overseas assets and goodwill (2.3) (1.3) Tax benefits on foreign exchange losses 0.7 0.5 Total recognised gains and losses relating to the year 2.3 3.6 There is no material difference between the profits as reported and those profits restated on an historical cost basis. Senior plc Group Cash Flow Statement for the year ended 31 December 2002 Notes 2002 2002 2001 2001 Â£m Â£m Â£m Â£m Net cash inflow from operating activities 4a) 43.9 46.9 Dividend income from associated undertaking - 0.2 Returns on investments and servicing of finance Interest received 0.6 0.7 Interest paid (7.9) (10.4) Net cash outflow from returns on investments and servicing of finance (7.3) (9.7) Taxation UK corporation tax recovered/(paid) 0.1 (0.4) Overseas tax recovered 0.2 7.4 0.3 7.0 Capital expenditure and financial investments Purchase of tangible fixed assets (11.6) (16.5) Sale of property, plant and equipment 1.4 0.9 Net cash outflow from capital expenditure and financial (10.2) (15.6) investments Acquisitions and disposals Purchase of subsidiary undertakings - deferred consideration (0.6) (0.6) Sale of subsidiary undertakings 2.8 6.6 Sale of associated undertaking - 5.9 Net cash disposed on sale of subsidiary undertakings - (0.4) Net cash inflow from acquisitions and disposals 2.2 11.5 Dividends paid on ordinary shares (2.5) (15.0) Net cash inflow before financing 26.4 25.3 Financing New loans initiated by Group 5.2 32.3 Repayments of existing loans (37.5) (57.6) Cash inflow on forward exchange contracts 0.2 - (32.1) (25.3) Decrease in cash in the period 4b) (5.7) - Senior plc Notes: 1 Segment Information Group turnover, operating profit and net assets are analysed below. The reconciliation of operating profit to profit before taxation is shown in the Group Profit and Loss Account. The reconciling items are considered to be of a Group nature and not directly attributable to individual segments. 2002 discontinued operations reflect the turnover and operating results of Senior Flexonics Bredan A/S, BHC a.s., Senior Flexonics Polska Spolka zo.o and the UK Expansion Joints Division of Senior UK Limited, all of which were sold during 2002. a) By class of business Turnover Turnover Operating Operating Net Net profit profit assets assets 2002 2001 2002 2001 2002 2001 Â£m Â£m Â£m Â£m Â£m Â£m Aerospace 164.6 196.8 4.0 12.8 128.4 147.3 Automotive 148.4 160.0 11.4 6.6 43.6 53.3 Specialised Industrial 86.1 88.5 2.2 1.6 39.2 44.8 Total 399.1 445.3 17.6 21.0 211.2 245.4 Inter-segment sales (0.4) (1.0) - - - - Total continuing operations 398.7 444.3 17.6 21.0 211.2 245.4 Discontinued operations 5.7 19.4 - 0.3 (3.3) 3.6 404.4 463.7 17.6 21.3 207.9 249.0 Operating profits shown above are stated after charging Â£1.3 million (2001 - Â£6.9 million) of exceptional items and Â£5.8 million (2001 - Â£6.2 million) of goodwill amortisation. These are attributed to the segments as follows: Exceptional items Goodwill amortisation 2002 2001 2002 2001 Â£m Â£m Â£m Â£m Aerospace 0.8 1.6 3.6 3.6 Automotive 0.4 5.1 0.9 1.1 Specialised Industrial 0.1 0.2 1.3 1.4 Total continuing operations 1.3 6.9 5.8 6.1 Discontinued - - - 0.1 operations 1.3 6.9 5.8 6.2 b) By geographical market Turnover Turnover Turnover Turnover Operating Operating Net Net by by by by profit by profit by assets assets destination destination origin origin origin origin 2002 2001 2002 2001 2002 2001 2002 2001 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m North America 237.2 278.7 252.5 295.0 15.8 19.9 119.7 143.0 United Kingdom 54.2 54.3 68.0 75.0 1.7 5.4 61.7 64.7 Rest of Europe 91.9 90.2 68.4 65.7 (1.7) (2.2) 24.6 30.1 Rest of World 22.9 28.8 17.3 16.3 1.8 (2.1) 5.2 7.6 Total 406.2 452.0 406.2 452.0 17.6 21.0 211.2 245.4 Inter-segment sales (7.5) (7.7) (7.5) (7.7) - - - - Total continuing operations 398.7 444.3 398.7 444.3 17.6 21.0 211.2 245.4 Discontinued operations 5.7 19.4 5.7 19.4 - 0.3 (3.3) 3.6 404.4 463.7 404.4 463.7 17.6 21.3 207.9 249.0 Operating profits shown above are stated after charging Â£1.3 million (2001 - Â£6.9 million) of exceptional items and Â£5.8 million (2001 - Â£6.2 million) of goodwill amortisation. These are attributed to the segments as follows: Exceptional items Goodwill amortisation 2002 2001 2002 2001 Â£m Â£m Â£m Â£m North America 0.5 2.4 2.9 3.2 United Kingdom 0.2 0.2 2.4 2.4 Rest of Europe 0.6 0.3 0.1 0.1 Rest of World - 4.0 0.4 0.4 Total continuing operations 1.3 6.9 5.8 6.1 Discontinued operations - - - 0.1 1.3 6.9 5.8 6.2 c) Net assets reconciliation 2002 2001 Â£m Â£m Net assets, as above 207.9 249.0 Unallocated assets/(liabilities), net 0.8 (1.2) Net borrowings (87.4) (122.7) Net assets, per Balance Sheet 121.3 125.1 d) Total exceptional items 2002 2001 Â£m Â£m Reorganisation and rationalisation charges - continuing operations 1.3 2.9 Impairment of goodwill, previously recognised on acquisition of Brazilian operations - 4.0 1.3 6.9 2 Dividends The proposed final dividend is at the rate of 1.35p per share (2001 - 0.16p) making 2.00p for the year (2001- 2.00p) and, if approved, will be payable on 29 May 2003 to shareholders on the register at the close of business on 2 May 2003. 3 Earnings per Share The calculations 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 provision of an underlying earnings per share has been included to identify the performance of operations before amortisation and impairment of goodwill, profit or loss on sale of fixed assets and loss on disposal of discontinued operations and associated undertakings. Earnings Earnings Earnings Earnings per share per share 2002 2001 2002 2001 pence pence Â£m Â£m Basic profit on ordinary activities after 1.29 1.46 3.9 4.4 taxation Adjust: Amortisation of goodwill 1.88 2.01 5.8 6.2 Amortisation of goodwill on associated - 0.03 - 0.1 undertaking Impairment of goodwill - 1.30 - 4.0 Loss/(profit) arising on sale of fixed 0.16 (0.03) 0.5 (0.1) assets Loss on disposal of discontinued 1.14 0.26 3.5 0.8 operations Loss on disposal on associated undertaking - 0.48 - 1.5 Underlying earnings 4.47 5.51 13.7 16.9 Weighted average number of - basic 306.5m 306.5m shares - diluted 306.8m 307.1m - underlying 306.5m 306.5m Earnings per share - basic 1.29p 1.46p - diluted 1.29p 1.45p - underlying 4.47p 5.51p 4 Group Cash Flow Statement a) Reconciliation of operating profit to net cash inflow from operating activities 2002 2001 Â£m Â£m Group operating profit 17.6 21.3 Depreciation of tangible fixed assets 17.8 18.4 Amortisation of goodwill 5.8 6.2 Impairment of goodwill - 4.0 Decrease in stocks 3.9 4.9 Decrease in debtors 3.2 12.2 Decrease in creditors (1.1) (20.4) Working capital currency variations (3.3) 0.3 Net cash inflow from operating activities 43.9 46.9 The net cash inflow from operating activities includes an inflow of Â£0.1 million (2001 - Â£1.0 million outflow) in respect of discontinued activities and an outflow of Â£2.1 million (2001 - Â£2.1 million outflow) in respect of exceptional items. b) Reconciliation of net cash flow to movement in net debt 2002 2001 Â£m Â£m Decrease in cash in the period (5.7) - Decrease in loans 32.3 25.3 Net cash inflow on forward contracts (0.2) - Change in net debt resulting from cash flows 26.4 25.3 Non cash items (1.5) - Currency variations on net borrowings 10.4 (1.5) Movement in net debt in the period 35.3 23.8 Net debt at 1 January (122.7) (146.5) Net debt at 31 December (87.4) (122.7) c) Analysis of net debt At Cashflow Non Exchange At 1 January cash movement 31 December 2002 items 2002 Â£m Â£m Â£m Â£m Â£m Cash 14.9 (5.1) - (0.2) 9.6 Overdrafts (1.5) (0.6) - 0.1 (2.0) Debt due within one year (9.8) 9.6 (2.3) 0.1 (2.4) Debt due after one year (125.7) 22.6 2.3 6.2 (94.6) Finance leases (0.6) 0.1 (1.5) (0.1) (2.1) Forward exchange contract gains - (0.2) - 4.3 4.1 Total (122.7) 26.4 (1.5) 10.4 (87.4) Debt due within one year shown above includes short-term bank borrowings of Â£nil million (2001 - Â£0.1 million). The forward exchange contract gains are included within prepayments and accrued income falling due within one year. Non cash items represent an additional finance lease liability entered into in the year (2001 - nil). 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 2002 30.7 3.5 0.7 17.0 17.7 73.2 125.1 Profit for the financial year - - - - - 3.9 3.9 Dividends - - - - - (6.1) (6.1) Currency variations - - - - - (1.6) (1.6) At 31 December 2002 30.7 3.5 0.7 17.0 17.7 69.4 121.3 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 2002 or 2001 but is derived from those accounts. Statutory accounts for 2001 have been delivered to the Registrar of Companies, and those for 2002 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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