27th Jul 2015 12:04
LONDON (Alliance News) - Senior PLC on Monday said it saw diverging currency translation impacts in the first half, as its pretax profit rise was wiped out by an adverse effect but its revenue was helped by favourable currency movements.
The FTSE 250-listed manufacturing company, which makes components and systems for the aerospace, defence and energy markets, said its pretax profit for the first half was GBP45 million, a slight reduction on the GBP45.1 million it posted a year earlier. In constant currencies, its pretax profit increased by 5%.
Profit for the group was also pulled lower by continued costs associated with its aerospace programmes, volume reductions in established programmes like the Airbus A330 jet platform, lower prices for machined waste aluminium, and volume reductions for the Sikorsky, Bombardier and Sukhoi jet and helicopter programmes. Those issues meant Senior's adjusted operating margin fell by 70 basis points to 12.9%.
Senior said its revenue in the half was up to GBP434.5 million from GBP400.4 million, though this would have been reduced to only a 4% rise, from the 9% reported increase, if measured in constant currencies. In addition to the favourable currency translation effects, revenue was driven higher by the contribution from acquisitions. The group said revenue growth in commercial aerospace was offset by weaker energy market conditions.
Senior said it will pay an interim dividend of 1.84 pence per share, up 10% year-on-year.
"Senior has delivered a solid set of results in the first half of 2015. Revenue and adjusted profits have increased and free cash flow remains healthy despite more challenging conditions in some of our end markets," said David Squires, Senior's chief executive.
"In response to these market headwinds, we are taking appropriate mitigating actions and anticipate some improvement in profitability in the second half of this year at current exchange rates. The group remains well positioned for the future as new Aerospace and Flexonics programmes and products enter production," Squires added.
Senior said the prospects for the engine market for single-aisle and wide-body aircraft means the outlook for the large commercial aerospace sector looks both strong and visible. But, as it had anticipated, Senior saw lower equipment sales in the first half to the off-highway vehicle, mining and agriculture markets thanks to an indirect impact from lower oil and commodity prices, particularly in North America.
A more direct impact of the low oil and commodity price environment also was felt by the company in the first half, with activity at its Lymington Precision Engineering and Upeca Flexonics flow control products business suffering from de-stocking by resources sector companies.
Senior said revenue in its aerospace division was up by 3.2% in the half, but its adjusted operating profit fell by 8.9% thanks to a 170-basis-point deterioration in margins, hit by costs associated with the Airbus, Sikorsky and Bombardier programmes, though it does expect some improvement in profitability in the second half.
Revenue in Senior's Flexonics division rose by 5.4%, with adjusted operating profit up 6.7%, though the rise in revenue was driven entirely by the addition of the Upeca Flexonics and Lymington Precision Engineering businesses. Stripping out the contribution they made, revenue in the division was down by 4% in the half, with weakness in its off-highway market sales and passenger vehicle markets.
Investec and N+1 Singer both think the challenges facing Senior will carry into the second half of 2015, but both advised holding onto the company as they still consider it a quality business.
N+1 Singer awaits further clarity on the plans of Chief Executive Squires, who joined Senior only in June.
By Sam Unsted; [email protected]; @SamUAtAlliance
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