1st Mar 2007 07:03
Senior PLC01 March 2007 Senior plc========== Results for the year ended 31 December 2006------------------------------------------- FINANCIAL HIGHLIGHTS Year ended 31 December 2006 2005 (1)-------------------------------------------------------------------------------- REVENUE £387.9m £338.6m +14.6% -------------------------------------------------------------------------------- OPERATING PROFIT £24.5m £19.6m +25.0%-------------------------------------------------------------------------------- PROFIT BEFORE TAX £18.1m £14.6m +24.0%-------------------------------------------------------------------------------- BASIC EARNINGS PER SHARE 4.35p 3.75p(3) +16.0%-------------------------------------------------------------------------------- ADJUSTED PROFIT BEFORE TAX (2) £19.8m £14.8m +33.8%-------------------------------------------------------------------------------- ADJUSTED EARNINGS PER SHARE (2) 4.65p 3.82p(3) +21.7%-------------------------------------------------------------------------------- TOTAL DIVIDENDS (PAID AND PROPOSED) PER SHARE 2.000p 1.905p(3) +5.0%-------------------------------------------------------------------------------- FREE CASH FLOW (4) £5.1m £2.2m-------------------------------------------------------------------------------- NET BORROWINGS £96.7m £62.4m-------------------------------------------------------------------------------- (1) The figures for 2005 have been restated to reflect the adoption of the amendment to International Accounting Standard 21 "The Effects of Changes in Foreign Exchange Rates" issued in December 2005, which was endorsed by the EU in May 2006. See Note 2 for details. (2) Adjusted profit before tax and adjusted earnings per share arise before a £0.4m loss on sale of fixed assets (2005: £0.2m) and a £1.3m charge for amortisation of intangible assets acquired on acquisition (2005: £nil). (3) 2005 earnings and dividends per share have been adjusted for the bonus element of the 2006 rights issue. Previously reported basic earnings per share was 3.94p, adjusted earnings per share was 4.01p and dividends per share was 2.000p. (4) See Note 9 (b) for derivation of free cash flow. Commenting on the results, James Kerr-Muir, Chairman of Senior plc, said: "The Group has delivered an excellent set of results with adjusted profit beforetaxation 33.8% ahead of the prior year. AMT and Sterling Machine, the two NorthAmerican aerospace businesses acquired during 2006, both delivered strongperformances. Their full year contribution, combined with the continuing growthin build rates of commercial aircraft and the production ramp up of the Group'snew heavy duty diesel engine products, mean prospects for the Group are veryencouraging. Consequently, the Board is pleased to recommend a 5% increase inthe full year dividend, the first increase for seven years." For further information please contact:Graham Menzies, Group Chief Executive, Senior plc 01923 714702Mark Rollins, Group Finance Director, Senior plc 01923 714738Adrian Howard, Finsbury Group 020 7251 3801 This announcement, together with other information on Senior plc may be foundat: www.seniorplc.com Note to Editors: Senior is an international manufacturing group with operations in 11 countries.Senior designs, manufactures and markets high technology components and systemsfor the principal original equipment producers in the worldwide civil aerospace,defence, diesel engine, exhaust system and energy markets. CHAIRMAN'S STATEMENT===================== The Group has delivered an excellent set of results with adjusted profit beforetaxation 33.8% ahead of the prior year. AMT and Sterling Machine, the two NorthAmerican aerospace businesses acquired during 2006, both delivered strongperformances. Their full year contribution, combined with the continuing growthin build rates of commercial aircraft and the production ramp up of the Group'snew heavy duty diesel engine products, mean prospects for the Group are veryencouraging. Consequently, the Board is pleased to recommend a 5% increase inthe full year dividend, the first increase for seven years. Financial Results----------------- It is pleasing to be able to report progress on all aspects of financialperformance with significant advances being made in top and bottom line growth. During 2006, Group revenue increased by 14.6% to £387.9m (2005 - £338.6m) andoperating profit increased by 25.0% to £24.5m (2005 - £19.6m) largely due toincreasing build rates of civil aircraft, strong energy markets and the twoacquisitions completed in the year. Adjusted profit before tax, the measure which the Board believes best reflectsthe true underlying performance of the business, increased by 33.8% to £19.8m(2005 - £14.8m). Adjusted profit before tax is before the loss on sale of fixedassets of £0.4m (2005 - £0.2m) and a £1.3m (2005 - £nil) charge for amortisationof intangible assets acquired on acquisition. Adjusted earnings per share increased by 21.7% to 4.65p (2005 - 3.82p restatedfor the bonus element of the rights issue) despite an increased tax charge of17.7% (2005 - 16.9%) on adjusted profit before tax. Year end net debt increased to £96.7m (2005 - £62.4m) largely as a consequenceof the acquisitions, which were funded by debt as well as new equity, and theongoing investment in the manufacturing capacity and capability of the SeniorGroup. The majority of the debt is designated in US dollars, with the level ofyear end debt benefiting from the weakening of the US dollar against the UKpound during 2006. Dividend-------- The Board is recommending an increase in the dividend, the first for sevenyears. It is proposed that the final dividend to be paid for 2006 is 1.381p pershare (2005 - 1.286p restated for the bonus element of the rights issue) anincrease of 7.4%. When added to the restated 0.619p interim dividend, this willbring the full year dividend to 2.000p, an increase of 5.0% over the restated1.905p for 2005. The final dividend, if approved, will be paid on 31 May 2007 toshareholders on the register at close of business on 4 May 2007. Withencouraging prospects for the Group, the Board anticipates following aprogressive dividend policy going forward. Acquisitions------------ During 2006, Senior acquired two businesses to add to its existing aerospaceinterests. Both were privately owned and located in the USA. Theseacquisitions met certain key criteria namely: aerospace by preference; goodgrowth prospects in existing markets; profitable and immediately enhancing toGroup earnings per share without the need to assume synergistic benefits. Boththe acquired businesses have performed in line with expectations during theirtime within the Group. Sterling Machine Co., Inc. was purchased by Senior at the end of January 2006for £21.5m. The company is a machine shop working in titanium, nickel andmagnesium alloys that manufactures flight critical components primarily for theSikorsky Aircraft Corporation. It is located in Enfield, Connecticut, USA, and isa well invested business housed in a facility built in 2003. Sikorsky, abuilder of mainly military helicopters, is outsourcing more of its componentmanufacture as it increases its build rate to meet a strong order-book.Increasing numbers of helicopters are flying in various operational roles andthe result is a growing demand for spares. Sterling Machine continues to befocussed on growing its level of business service to Sikorsky and, following itsacquisition, new machining centres have been ordered to increase capacity andthe factory floor space increased by 50%. We anticipate that Sterling Machinewill continue to maintain its growth momentum. Aerospace Manufacturing Technologies, Inc. (AMT) was acquired at the end ofOctober 2006 for £60.0m. The business is located in Arlington, WashingtonState, USA, in the Seattle area. AMT is a machine shop, working almostexclusively in the manufacture of aluminium structural parts for Boeing civilaircraft. It has substantial content on current Boeing production aircraft -the 737, 777 and 747. The company is exceptionally well invested with asubstantial number of state-of-the-art four and five-axis computer controlledmachining centres. AMT is set to continue to grow as a result of increases inthe build rates of Boeing's existing aircraft and also the launch of the new,highly successful, Boeing 787 ("Dreamliner") on which AMT has substantialcontent. As a result, capacity expansion has been sanctioned with new machiningcentres being ordered. Additional land, adjacent to the existing facility, hasalready been purchased and plans for new factory space are currently underconsideration. Trading------- Senior's operations are organised into two similar sized operating divisions -Aerospace with twelve operating subsidiaries and Flexonics with eleven. BothDivisions are focussed on manufacturing components and systems for the originalequipment manufacturers. There is little aftermarket content and the Group'soperations generally deliver to the required production schedules of theircustomers. All products are engineered for specific applications, so levels ofdemand are essentially driven by the success, or otherwise, of customers'individual product lines. Aerospace--------- In Aerospace, the civil market, particularly for large commercial aircraft (35%of Divisional sales) and business jets (9%), continued to be very strong.Whilst 2005 had been a memorable year for order intake by the large civilaircraft builders and their engine suppliers, 2006 turned out to be almost asgood with Boeing delivering 398 civil airliners and booking new orders for1,044, and Airbus delivering 434 and booking 790. The result is that bothaircraft manufacturers currently have around six year order books, at 2006delivery rates. The Aerospace Division has substantial exposure to the new highly successfulBoeing 787, due into service in late 2008, both on the aircraft itself and itsengines, but only limited exposure to the large Airbus A380, which has sufferedextensive production delays. The defence and military sector (27% of Divisionalsales in 2006) was relatively stable throughout the year. The two acquisitions made in 2006 immediately contributed positively to thefortunes of the Division. In addition to the investment in the newly acquiredbusinesses, capital expenditure is running at a higher rate than in recent yearsthroughout the Aerospace Division, as build rates increase throughout theindustry and new aircraft programmes ramp up. The result of all this activity was an increase in the Aerospace Division'ssales of 27.1% to £197.0m (2005 - £155.0m at constant currency i.e. 2005 resultstranslated using 2006 average exchange rates) and an adjusted operating profitincrease of 48.8% to £19.2m (2005 - £12.9m at constant currency). Flexonics--------- In Flexonics, the automotive markets in which the Group operates showed littlechange in demand. In North America, 16.0 million light vehicles were producedin 2006 compared to 16.4 million in 2005. In Western Europe, 18.4 million lightvehicles were built compared to 18.0 million in 2005. Consequently, the Group'sautomotive volumes remained at about the same level in 2006 as in 2005, but withthe manufacturing base continuing to move away from the US, UK and France to theCzech Republic, South Africa, Brazil and India. An important stage in the business development of this Division has beenreached. Following nearly four years of product development and two years ofproduction process development and capital investment, sales of the new productsfor North American built heavy duty diesel engines have commenced. This isincremental business for the Division's North American operation and takes theDivision into a new market sector where demand is being driven by the need forlower engine emissions from 2007 onwards. This market sector continues to offergood opportunities for future growth. Energy markets (power generation, oil and gas and process plant) were rewardingin 2006, driven by the industrialisation of China and India and the high demandfor many basic commodities. As 2006 ended, the Group saw continued developmentof these energy markets, the return of some nuclear market activity andcompletion of the site work on the troublesome Wembley Stadium ducting contract. Overall, Flexonics reported sales growth of 5.1% to £191.5m (2005 - £182.2m atconstant currency). Adjusted operating profits increased by 8.3% to £11.8m (2005- £10.9m at constant currency). The increases were achieved despite the flatautomotive markets, as a number of new automotive programmes were won, the newheavy duty diesel products commenced production in the final quarter of the year,energy markets were strong and the site-work on Wembley was completed. Employees and the Board----------------------- I would like to extend a warm welcome to all the new employees joining Senior aswell as thanking the Group's employees for another year of unstinting effort andcommitment, a year in which their endeavours have resulted in a significant stepforward in the performance and the value of the Senior Group. It is particularlyimportant that the Group has the right people in the right roles, given thegeographical diversity of the Group and its lean structure, and I am pleasedthat the Group has made significant progress in this area over recent years. Having been on the Board of Senior for ten years, the past six as Chairman, I amplanning to retire sometime during 2007. I am delighted that Martin Clark, anon-executive Director of six years, has agreed to become Chairman when Ileave. The recruitment of a new non-executive Director is well advanced with anappointment anticipated prior to my retirement. I am proud of the advances Senior has made whilst I have been Chairman, but mostof all I am proud of the achievements of the Group's employees. Outlook------- The Senior Group enters 2007 with almost universally larger order-books acrossits operations than it had a year ago. Demand from customers continues at anencouraging level. The aerospace industry continues to thrive, the Group's new heavy duty dieselproducts are in production and energy markets are strong. The challenges ofrecruiting the necessary skills to grow our business, the availability andpricing of raw materials and the fluctuations in the major currencies in whichSenior trade are all still present. These are not, however, new challenges forSenior or its management. Trading in the first two months of 2007 has been in line with the Board'sexpectations and I expect that 2007 will deliver further meaningful growth. James Kerr-Muir BUSINESS REVIEW=============== Operations========== Senior is an international manufacturing group with operations in 11 countries.Senior designs, manufactures and markets high technology components and systemsfor the principal original equipment producers in the worldwide civil aerospace,defence, diesel engine, exhaust system and energy markets. The Group is splitinto two Divisions, Aerospace and Flexonics. Aerospace--------- Following the acquisition of two aerospace businesses in the year, SterlingMachine and Aerospace Manufacturing Technologies (AMT), the Aerospace Divisionis now the larger of the Group's two divisions consisting of twelve operatingcompanies, seven of which are located in the USA with the remainder in Europe.In 2006, the Division's main products were engine structures and mountingsystems (30% of Divisional sales), metallic ducting systems (25%), compositeducting systems (14%), helicopter machined parts (7%), fluid control systems(6%) and airframe and other structural parts (3%). 15% of Divisional sales areto non-aerospace, but related technology, markets. In 2007, sales of airframeand other structural parts are expected to represent a much greater portion ofDivisional sales as AMT was only owned by Senior for the final two months of2006. Flexonics--------- The Flexonics Division has 11 operations and was formed at the beginning of2006, from the consolidation of the Automotive (eight operations) and Industrial(three operations) Divisions, for managerial, technical and market relatedreasons. The 11 operations are located in North America (three), Europe(five), South Africa, India and Brazil. In 2006 the Division's sales comprisedof flexible mechanisms for vehicle exhaust systems (32% of Divisional sales),diesel fuel distribution pipework (13%), cooling and emission control components(12%), expansion joints and ducting for the heating and ventilation market(11%), expansion joints / control bellows / hoses for the power market (11%),for the oil and gas and chemical processing industries (7%) and for otherindustrial markets (14%). 2007 is anticipated to see an increasing percentage ofsales coming from the diesel fuel distribution pipework and the cooling andemission control component sectors as production of the Group's new heavy dutydiesel products ramp up. Acquisitions============ The Group completed two acquisitions in the year, the first for over six years.The acquired businesses are both leading suppliers to the aerospace industry. Sterling Machine Co., Inc. was acquired on 27 January 2006 for $38.0m (£21.5m)including costs and assumed net debt. Sterling Machine is a pre-eminentmanufacturer of transmission and rotor-head helicopter components for militaryplatforms, principally to Sikorsky Aircraft Corporation. The business is locatedin Enfield, Connecticut, USA. The purchase consideration was funded through thecombination of a placing of 15 million new Senior plc shares at 60.0 pence each,raising £8.8m net of costs, and utilisation of the Group's existing borrowingfacilities. Sterling Machine performed strongly during its first eleven monthswith the Group. A second aerospace business, Aerospace Manufacturing Technologies, Inc.(AMT) located north of Seattle in Washington State, USA, was acquired on 27October 2006. It manufactures aluminium structural parts (mainly for Boeingcommercial aircraft) utilising state-of-the-art four-axis, five-axis andlong-bed machining centres. AMT's key programmes are the Boeing 737 and 777 bothof which have large order books and increasing build rates. AMT is also wellpositioned on the new Boeing 787 ("Dreamliner") which is scheduled for deliveryto its first customer during 2008 and which already has around 450 customerorders. AMT was acquired for a total consideration, including assumed debt, thenet asset purchase price adjustment and acquisition costs, of $113.9m (£60.0m).The purchase consideration was funded through a 1 for 5 rights issue at 42.0pence per share, which raised £25.9m net of expenses, together with the partialutilisation of the Group's new five year £80.0m revolving credit facility. AMTperformed strongly during its first two months of ownership by Senior and, withits significant involvement on the B787, its prospects are excellent. Financial Review================ Summary------- A summary of the Group's operating results are set out in the table below. Amore detailed review of each Division is included in the section titled"Divisional Review". Revenue Adjusted Op Profit (1) Margin -------------- ------------- --------------- 2006 2005 2006 2005 2006 2005 £m £m £m £m % % Aerospace 197.0 156.2 19.2 13.0 9.7 8.3Flexonics 191.5 183.0 11.8 11.1 6.2 6.1Inter-segment sales (0.6) (0.6) - - - -Central costs - - (4.8) (4.3) - - -------- -------- ------- ------- ------- ------- Group Total 387.9 338.6 26.2 19.8 6.8 5.8 -------- -------- ------- ------- ------- ------- (1) Adjusted operating profit is the profit before loss on sale of fixedassets, amortisation of intangible assets arising on acquisitions, interest andtax. It may be reconciled to the operating profit shown in the consolidatedincome statement as follows: 2006 2005 £m £m Operating profit per financial statements 24.5 19.6Loss on sale of fixed assets 0.4 0.2Amortisation of acquisition intangible assets 1.3 - -------- -------- Adjusted operating profit 26.2 19.8 -------- -------- Group revenue grew by 14.6%, aided in part by the two acquisitions, with thecommercial aerospace, oil and gas and chemical processing markets allparticularly strong. Adjusted operating profit rose by 32.3% principally due tothe gearing benefit of increased sales and the strong performances from thenewly acquired businesses. Operating margins consequently increased to 6.8%, afull percentage point higher than in the prior year. The Group's free cash flow and net debt for 2006 and the prior year were: 2006 2005 £m £m Free cash flow 5.1 2.2Net debt 96.7 62.4 Free cash flow is the total net cash flow generated by the Group prior tocorporate activity such as acquisitions, disposals, financing and transactionswith shareholders. It may be derived from the figures contained in the financialstatements as follows: 2006 2005 £m £m Net cash from operating activities 22.3 16.5Interest received 1.3 1.4Proceeds on disposal of tangible fixed assets 2.2 0.9Purchases of tangible fixed assets (20.1) (16.3)Purchase of intangible assets (0.6) (0.3) -------- -------- Free cash flow 5.1 2.2 -------- -------- Net debt increased from £62.4m to £96.7m largely due to the purchase of the twoaerospace businesses. Revenue------- Group revenue increased by £49.3m (14.6%) to £387.9m (2005 - £338.6m) with thetwo aerospace acquisitions responsible for £18.8m of the increase. If the effectof the acquisitions and the small adverse year-on-year exchange effect (£2.0m)are excluded then underlying revenue grew by 9.7% on a constant currency basis.In 2006, 57% of Group sales originated from North America, 14% from the UnitedKingdom, 20% from the rest of Europe and 9% from the rest of the World. Operating profit---------------- Group operating profit increased by 25.0% to £24.5m (2005 - £19.6m). Adjustedoperating profit, that before loss on sale of fixed assets of £0.4m (2005 -£0.2m) and amortisation of intangible assets arising on acquisition of £1.3m(2005 - £nil), increased by £6.4m (32.3%) to £26.2m (2005 - £19.8m). If theeffects of the acquisitions (£3.8m profit) and foreign currency (£0.3m adverseimpact) are excluded then underlying adjusted operating profit increased by14.9% on a constant currency basis. Finance costs------------- Finance costs, net of investment income of £0.9m (2005 - £1.3m), increased to£6.4m (2005 - £5.0m) as global interest rates rose, particularly in North Americaand the UK, and the Group's debt level increased as a result of the twoacquisitions undertaken in the year. Profit before tax----------------- Adjusted profit before tax increased by 33.8% to £19.8m (2005 - £14.8m).Reported profit before tax increased to £18.1m (2005 - £14.6m). Tax charge---------- The total tax charge increased to £2.9m (2005 - £2.5m) as the Group's taxableprofits increased. If the tax benefits arising from the loss on sale of fixedassets and amortisation of intangible assets from acquisitions totalling £0.6m(2005 - £nil) are added back then the underlying tax charge of £3.5m (2005 -£2.5m) represents an underlying rate of 17.7% (2005 - 16.9%) on the adjustedprofit before tax of £19.8m (2005 - £14.8m). Earnings per share------------------ 15 million ordinary shares were issued in January 2006, by way of a shareplacing, to help fund the acquisition of Sterling Machine and nearly 65million ordinary shares were issued in October 2006, through a 1 for 5 rightsissue, to help fund the acquisition of AMT. As a consequence the weightedaverage number of shares, for the purposes of calculating undiluted earnings pershare in 2006, was 349.8m (2005 - 322.2m restated to take account of the bonuselement of the rights issue). Having taken this into account, adjusted earningsper share increased by 21.7% to 4.65p (2005 - 3.82p restated for the bonuselement of the rights issue). Basic earnings per share increased to 4.35p (2005- 3.75p restated). Dividends--------- A final dividend of 1.381p per share is proposed for 2006. This would bring thefull year dividend to 2.000p per share which would represent a 5.0% increaseover the prior year's 1.905p per share as restated for the bonus element of therights issue. For ease of reference the reported and restated dividends for 2006 and 2005,together with their costs are set out in the table below. 2006 2005 -------------------- -------------------- Restated Reported Restated ReportedPence per shareInterim 0.619p 0.650p 0.619p 0.650pFinal (2006 proposed) 1.381p n/a 1.286p 1.350p --------- ----------Total 2.000p 1.905p --------- ---------- +5.0%CostInterim £2.1m £2.0mFinal (2006 proposed) £5.4m £4.4m --------- ----------Total £7.5m £6.4m --------- ---------- +17.2% Research and development and capital expenditure------------------------------------------------ The Group spent £8.5m on research and development during 2006 (2005 - £8.3m). Inaddition, £20.7m (2005 - £16.6m) was invested in capital expenditure mainly tobring the new heavy duty diesel engine products into production in North Americaand, as build rates for civil aircraft continued to rise, to add machiningcapacity and capability at a number of the Group's aerospace operations. Capital structure----------------- The Group's consolidated balance sheet at 31 December 2006 may be summarised asfollows: Assets Liabilities Net Assets £m £m £m Property, plant and equipment 87.6 - 87.6Goodwill and intangible assets 126.1 - 126.1Current assets and liabilities 139.8 (92.3) 47.5Other non-current assets and liabilities 3.8 (3.7) 0.1Post-retirement obligations - (37.5) (37.5)--------------------------------------------------------------------------------Total before net debt 357.3 (133.5) 223.8Net debt 8.2 (104.9) (96.7)--------------------------------------------------------------------------------Total at 31 December 2006 365.5 (238.4) 127.1--------------------------------------------------------------------------------Total at 31 December 2005 282.7 (190.4) 92.3-------------------------------------------------------------------------------- Net assets increased by 37.7% in the year to £127.1m (2005 - £92.3m) and netassets per share by 9.4% to 32.6 pence (2005 - 29.8 pence). There were 389.9mordinary shares in issue at the end of 2006 (2005 - 309.3m) Cash flow--------- The Group's free cash flow, whose derivation is set out in the table below,increased to £5.1m (2005 - £2.2m) on the back of increased operating profits anddespite the £4.3m investment in working capital (as revenue increased) and netcapital expenditure of £18.5m being nearly 1.5x the depreciation level of £12.6m(excluding £1.3m of amortisation of intangible assets acquired on acquisition). 2006 2005 £m £m Operating profit 24.5 19.6Depreciation and amortisation 13.9 12.0Working capital movement (4.3) (6.9)Pension payments above service cost (3.4) (2.8)Other items 0.8 0.4-------------------------------------------------------------------------------Operating cash flow 31.5 22.3-------------------------------------------------------------------------------Interest paid (net) (5.3) (3.5)Tax paid (2.6) (0.9)Capital expenditure (20.7) (16.6)Sale of fixed assets 2.2 0.9-------------------------------------------------------------------------------Free cash flow 5.1 2.2-------------------------------------------------------------------------------Dividends (6.5) (6.1)Acquisitions and disposals (79.7) (0.1)Share issues 34.8 0.5Foreign exchange variations 11.7 (7.8)Non-cash movements 0.3 (0.5)Opening net debt (62.4) (50.6)-------------------------------------------------------------------------------Closing net debt (96.7) (62.4)------------------------------------------------------------------------------- Acquisitions, and the related share issues, played a major part in the Group's2006 cash flow with the respective amounts shown in the table above beinganalysed as follows: Acquisitions Share and Disposals Issues £m £m Sterling Machine (21.5) 8.8 Share PlacingAMT (60.0) 25.9 Rights Issueless - cash acquired 0.5 - - deferred consideration 1.2 -Other 0.1 0.1 ---------- ---------- (79.7) 34.8 ---------- ---------- Net debt-------- Net debt rose by £34.3m in the year to £96.7m (2005 - £62.4m). The increase wasmainly due to the utilisation of additional borrowings to help fund the twoacquisitions (£45.1m) being partly offset by an exchange benefit of £11.7m.Around 95% of the Group's gross borrowings are denominated in US $. The US $weakened in 2006 from US$1.72 : £1 at the beginning of the year to US$1.96 : £1at the year end, causing the reported sterling net debt amount to reducesignificantly. Liquidity--------- As at 31 December 2006, the Group's gross borrowings, excluding finance leases,were £103.3m (2005 - £66.5m). The maturity of these borrowings, together withthe maturity of the Group's committed facilities, can be analysed as follows: Gross Borrowings Committed Facilities £m £m Within one year 13.1 12.8In the second year 38.4 50.1In years three to five 51.3 80.0After five years 0.5 - ---------- ---------- 103.3 142.9 ---------- ---------- In anticipation of $25m (£12.8m) of loan notes maturing in June 2007, the Groupissued $30m (£15.3m) of new loan notes, with a maturity of ten years andcarrying a fixed interest rate of 5.85%, on 31 January 2007. Changes in accounting policies------------------------------ There have been no changes in accounting policies in the current year. Going concern basis------------------- After making enquiries, the Directors have formed a judgement, at the time ofapproving the financial statements, that there is a reasonable expectation thatthe Group has adequate resources to continue in operational existence for theforeseeable future. For this reason, the Directors continue to adopt the goingconcern basis in preparing the financial statements. Divisional Review================= The Group consists of two Divisions, Aerospace and Flexonics, whose performancesare discussed below. It should be noted that, in order to make appropriatecomparisons, the results for 2005 have been translated at constant currencyusing 2006 average exchange rates. Aerospace Division------------------ 2006 2005 Change £m £m-------------------------------------------------------------------------------- Revenue 197.0 155.0 (1) +27.1%Adjusted operating profit 19.2 12.9 (1) +48.8%Operating margin 9.7% 8.3% --------------------------------------------------------------------------------- (1) 2005 results translated using 2006 average exchange rates. In the Aerospace Division (twelve operations following the acquisition ofSterling Machine and AMT), revenue grew by £42.0m (27.1%) to £197.0m (2005 -£155.0m at constant currency) with the acquisitions contributing £18.8m. Adjusted operating profit (that before profit/loss on sale of fixed assetsand amortisation of intangible assets arising on acquisition) increased by £6.3m(48.8%) to £19.2m (2005 - £12.9m at constant currency) with the two acquisitionsaccounting for £3.8m of the increase. The Division's results benefited from the continuing strong growth in the buildrate of civil aircraft with the combined large commercial, regional and businessjet markets accounting for 57% of 2006 Divisional sales. The market for largecommercial aircraft was particularly strong with Boeing and Airbus togetherdelivering 25% more aircraft in 2006 (832) than in 2005 (668). Their orderintakes were also extremely strong, at 2.2x delivery levels, so leaving acombined order book of 4,988 aircraft at the year end, 25% above the level atthe start of 2006 (3,986 aircraft). The six year order books, at currentdelivery rates, represent a very healthy picture for the future with both Airbusand Boeing forecasting to increase build rates further in the coming years.Elsewhere, the regional jet market was weak but the business jet market verystrong and the military market (27% of Divisional sales) was stable. Flexonics Division------------------ 2006 2005 Change £m £m -------------------------------------------------------------------------------- Revenue 191.5 182.2(1) +5.1%Adjusted operating profit 11.8 10.9(1) +8.3%Operating margin 6.2% 6.0% --------------------------------------------------------------------------------- (1) 2005 results translated using 2006 average exchange rates. In the Flexonics Division, the eleven operations saw combined revenue grow by£9.3m (5.1%) to £191.5m (2005 - £182.2m at constant currency) with strong energymarkets but generally flat automotive markets. Whilst sales of the new heavyduty diesel engine products began in the final months of the year, the volumeswere not significant. Adjusted operating profit for the Division increased by 8.3% to £11.8m (2005 -£10.9m at constant currency) as strong energy markets and operationalimprovements more than offset the impact of flat automotive demand and the startup costs associated with the introduction of the diesel engine products in NorthAmerica. Automotive production levels in North America declined by 2.3% in 2006, to 16.00million vehicles (2005 - 16.37 million), whereas Western Europe saw a 2.1%increase to 18.37 million vehicles (2005 - 18.00 million). The outlook for 2007is for continuing flat demand with further erosion of the sales of the "Big Three" (General Motors, Ford and Daimler Chrysler) in North America. In 2006 they had 56.5% of the market (2005 - 59.6%). The outlook in France remains challenging. However, overall prospects for the Flexonics Division remain good given strongenergy markets, the continued industrialisation of China and India, growingvolumes in the European truck market and the fact that production of the newheavy duty diesel engine products in North America is now ramping up. The Group'sNorth American plant is expected to have total sales in excess of £20m in 2008for its diesel fuel lines, diesel common rail and diesel exhaust gas recyclingcooler products. Completion of the troublesome Wembley ducting contract inJanuary 2007 should also enhance year-on-year profitability. Outlook======= The commercial aerospace industry, representing 57% of the Aerospace Division's2006 sales, continues to thrive. The most important sector within this categoryis the large commercial sector, principally Boeing, Airbus, and the enginemanufacturers (GE and Rolls-Royce) and their respective supplier bases. Boeingand Airbus have together received orders for 3,891 aircraft in the last twoyears, against the 1,500 aircraft delivered. This has resulted in theircollective order book increasing from 2,597 aircraft at the beginning of 2005 to4,988 at the end of 2006 (a six year order book at 2006 delivery rates). As aconsequence they have been increasing their build rates (2006 saw a 25% increasein deliveries) and are forecasting further increases of around 10% per annumover the next two years. The business jet sector is seeing similar buoyantmarket conditions to that of the large commercial sector whilst the regional jetmarket (typically 30 to 90 seat aircraft) is now stabilising after a few yearsin decline. The military/defence sector, 27% of 2006 Aerospace Divisional sales,is healthy but stable. In the Flexonics Division, the Group increased its sales of flexible exhaustconnectors, (32% of 2006 Divisional sales), largely because its Brazilianoperation began production on a number of new programmes. The global market forthis product is expected to stay competitive, not helped by increases in theprice of stainless steel, with demand in North American and European marketsremaining broadly unchanged. The industrial markets in which the Group operates,e.g. power, oil and gas, chemical processing and HVAC, are generally in ahealthy condition with strong future growth anticipated for many of them.Industrial markets represented 43% of the Flexonics Division's 2006 sales. It is anticipated that the strong commercial aerospace market, healthyindustrial markets and stable automotive markets, will provide a strong foundationfor the Group's future growth but the weakened US $ and higher stainless steel prices will remain as challenges. Three other areas in particular further underpinthe Board's overall confidence as to the positive future for the Group: the ramping up, through 2007, of the North American heavy duty diesel engine products (2008 is expected to see sales in excess of £20m); full year contributions from the two aerospace acquisitions (AMT was owned for only two months in 2006 and Sterling Machine for eleven); and, the highly successful Boeing 787 ("Dreamliner") going into production in late 2007 (the Group has significant content on this aircraft and its engines). Trading in the first two months of 2007 has been in line with the Board's expectations and 2007 is expected to deliver further meaningful growth. Thereafter, the Group's prospects remain very encouraging. Graham Menzies Mark RollinsGroup Chief Executive Group Finance Director Consolidated income statement----------------------------- For the year ended 31 December 2006 Notes Year ended Year ended 2006 2005 (restated) £m £mContinuing operations ------- --------Revenue 3 387.9 338.6 ======= ========Trading profit 24.9 19.8Loss on sale of fixed assets (0.4) (0.2) ------- --------Operating profit (1) 3 24.5 19.6Investment income 0.9 1.3Finance costs (7.3) (6.3) ------- --------Profit before tax (2) 18.1 14.6Tax 5 (2.9) (2.5) ------- --------Profit for the period 15.2 12.1 ======= ========Attributable to: Equity holders of the parent 15.2 12.1 ======= ========Earnings per share Basic 7 4.35p 3.75p ======= ======== Diluted 7 4.25p 3.69p ======= ======== (1) Adjusted operating profit 4 26.2 19.8(2) Adjusted profit before tax 4 19.8 14.8 The comparative figures for 2005 have been restated to reflect adoption of the amendment to International Accounting Standard 21 "The Effects of Changes in Foreign Exchange Rates" issued in December 2005, which was endorsed by the EU in May 2006. See Note 2 for details. Consolidated statement of recognised income and expense------------------------------------------------------- For the year ended 31 December 2006 Year ended Year ended 2006 2005 (restated) £m £m ------- --------Initial recognition of financial instruments - (0.2)(Losses)/gains on cash flow hedges (0.4) 0.5Gains/(losses) on revaluation of financial instruments 3.5 (1.8)Exchange differences on translation of foreign operations (10.5) 4.2Actuarial (losses)/gains on defined benefitpension schemes (1.0) 0.2Tax on items taken directly to equity (0.7) (0.7) ------- --------Net (loss)/ income recognised directly in equity (9.1) 2.2 Amounts transferred to profit or loss on cash flow hedges - (0.3)Profit for the period 15.2 12.1 ------- --------Total recognised income and expense for the period 6.1 14.0 ======= ========Attributable to:Equity holders of the parent 6.1 14.0 ======= ======== The comparative figures for 2005 have been restated to reflect adoption of the amendment to International Accounting Standard 21 "The Effects of Changes in Foreign Exchange Rates" issued in December 2005, which was endorsed by the EUin May 2006. See Note 2 for details. Consolidated balance sheet-------------------------- As at 31 December 2006 Notes Year ended Year ended 2006 2005 (restated) £m £m ------- -------Non-current assets Goodwill 111.0 77.1Other intangible assets 15.1 1.1Property, plant and equipment 87.6 76.1Deferred tax assets 0.1 0.1Trade and other receivables 3.7 3.8 ------- ------- Total non-current assets 217.5 158.2 ------- -------Current assetsInventories 69.8 47.7Construction contracts 3.5 3.4Trade and other receivables 67.5 64.9Cash and cash equivalents 7.2 8.5 ------- ------- Total current assets 148.0 124.5 ------- ------- Total assets 365.5 282.7 ======= ======= Current liabilities Trade and other payables 82.1 69.7Tax liabilities 10.2 10.0Obligations under finance leases 0.2 0.2Bank overdrafts and loans 13.1 0.2 ------- ------- Total current liabilities 105.6 80.1 ------- ------- Non-current liabilities Bank and other loans 90.2 66.3Retirement benefit obligations 10 37.5 39.9Deferred tax liabilities 3.3 2.1Obligations under finance leases 1.4 1.6Others 0.4 0.4 ------- ------- Total non-current liabilities 132.8 110.3 ------- ------- Total liabilities 238.4 190.4 ======= ======= Net assets 127.1 92.3 ======= ======= Equity Issued share capital 39.0 30.9Share premium account 11.2 3.8Equity reserve 0.8 0.4Distributable reserve 19.4 -Hedging and translation reserve (5.9) 2.4Retained earnings 64.0 56.1Own shares (1.4) (1.3) ------- ------- Equity attributable to equity holders ofthe parent 127.1 92.3 ------- ------- Total equity 127.1 92.3 ======= ======= The comparative figures for 2005 have been restated to reflect adoption of the amendment to International Accounting Standard 21 "The Effects of Changes in Foreign Exchange Rates" issued in December 2005, which was endorsed by the EU in May 2006. See Note 2 for details. Consolidated cash flow statement-------------------------------- For the year ended 31 December 2006 Notes Year ended Year ended 2006 2005 £m £m ------- -------Net cash from operating activities 9a) 22.3 16.5 ------- ------- Investing activities Interest received 1.3 1.4Disposal of subsidiary 0.1 -Proceeds on disposal of property, plant and equipment 2.2 0.9Purchases of property, plant and equipment (20.1) (16.3)Purchases of intangible assets (0.6) (0.3)Acquisition of Sterling Machine 8 (21.5) -Acquisition of AMT, net of cash acquired 8 (58.3) -Acquisition of subsidiaries - (0.1) ------- ------- Net cash used in investing activities (96.9) (14.4) ------- ------- Financing activities Dividends paid (6.5) (6.1)Repayment of borrowings (7.1) (1.0)Repayments of obligations under finance leases (0.2) (0.3)Share issues 34.8 0.5New loans raised 53.1 7.1Net cash outflow on forward contracts (0.2) (0.2) ------- ------- Net cash from financing activities 73.9 - ------- ------- Net (decrease)/increase in cash and cash equivalents (0.7) 2.1Cash and cash equivalents at beginning of period 8.5 5.9Effect of foreign exchange rate changes (0.8) 0.5 ------- ------- Cash and cash equivalents at end of period 9c) 7.0 8.5 ======= ======= Notes to the preliminary financial statements------------------------------------------------------ For the year ended 31 December 2006 1. General Information The Preliminary Announcement of results for the year ended 31 December 2006 isan excerpt from the forthcoming 2006 Annual Report and does not constitute theGroup's statutory accounts of 2006 nor 2005. Statutory accounts for 2005 havebeen delivered to the Registrar of Companies, and those for 2006 will bedelivered following the Company's Annual General Meeting. The Auditors havereported on both those accounts; their reports were unqualified and did notcontain statements under Sections 237(2) or (3) of the Companies Act 1985. 2. Accounting policies Whilst the financial information included in this preliminary announcement hasbeen prepared in accordance with International Financial Reporting Standards(IFRS) adopted by the European Union, this announcement does not itselfcontain sufficient information to comply with IFRS. The company expects topublish full financial statements that comply with IFRS on 13 March 2007. At the time of preparation of the Group's annual financial statements for 2005the EU had not endorsed an amendment to IAS 21 which required exchangedifferences that arise on re-translation of inter-company loans in a currencydifferent to that of either counterparty to be taken to reserves andconsequently a gain of £2.0m was recognised in the income statement in respectof such loans, under IAS 21 as then endorsed. In May 2006 the EU endorsed theamendment to IAS 21 and consequently these financial statements have beenprepared in accordance with the revised Standard and the 2005 comparatives havebeen adjusted to recognise the gain of £2.0m in the translation reserve. 3. Segmental analysis Under IFRS, segmental detail is presented according to a primary segment and asecondary segment. The Group's primary segmental analysis is based on theindustries that it serves, Aerospace and Flexonics. The secondary analysis ispresented according to geographic markets comprising North America, Europe(split between the UK and Rest of Europe) and the Rest of the World. This isconsistent with the way the Group manages itself and with the format of theGroup's internal financial reporting. a) Business segments Segment information for revenue, operating profit and a reconciliation to entitynet profit is presented below. Eliminations/ Eliminations/ Central Central Aerospace Flexonics costs Total Aerospace Flexonics costs Total Year Year Year Year Year Year Year Year ended ended ended ended ended ended ended ended 2006 2006 2006 2006 2005 2005 2005 2005 (restated) £m £m £m £m £m £m £m £m ------ ------ ------ ------ ------ ------ ------ ------External revenue 196.6 191.3 - 387.9 155.8 182.8 - 338.6Inter-segment revenue 0.4 0.2 (0.6) - 0.4 0.2 (0.6) - ------ ------ ------ ------ ------ ------ ------ ------Total revenue 197.0 191.5 (0.6) 387.9 156.2 183.0 (0.6) 338.6 ====== ====== ====== ====== ====== ====== ====== ====== Adjusted operatingprofit (see note 4) 19.2 11.8 (4.8) 26.2 13.0 11.1 (4.3) 19.8Profit/ (loss) on sale of fixed assets 0.5 (0.9) - (0.4) (0.2) - - (0.2) Amortisation of intangible assets from acquisitions (1.3) - - (1.3) - - - - ------ ------ ------ ------ ------ ------ ------ ------ Operating profit 18.4 10.9 (4.8) 24.5 12.8 11.1 (4.3) 19.6 ====== ====== ====== ====== ====== ====== Investment income 0.9 1.3Finance costs (7.3) (6.3) ------ ------Profit before tax 18.1 14.6Tax (2.9) (2.5) ------ ------Profit after tax 15.2 12.1 ====== ====== Segment information for assets, liabilities, property, plant and equipment andintangible assets and depreciation and amortisation is presented below. Additions Depn Additions Depn to PPE and and to PPE and and Assets Liabilities intangibles amort Assets Liabilities intangibles amort Year Year Year Year Year Year Year Year ended ended ended ended ended ended ended ended 2006 2006 2006 2006 2005 2005 2005 2005 £m £m £m £m £m £m £m £m ------ ------ ------ ------ ------ ------ ------ ------Aerospace 227.8 35.1 7.6 6.8 143.0 25.9 3.1 5.2Flexonics 124.5 37.8 13.0 7.0 125.9 31.7 13.5 6.7 ------ ------ ------ ------ ------ ------ ------ ------Sub total continuing operations 352.3 72.9 20.6 13.8 268.9 57.6 16.6 11.9 Unallocated corporate amounts 13.2 165.5 0.1 0.1 13.8 132.8 - 0.1 ------ ------ ------ ------ ------ ------ ------ ------Total 365.5 238.4 20.7 13.9 282.7 190.4 16.6 12.0 ======= ====== ====== ====== ====== ====== ====== ====== b) Geographical segments The Group's operations are principally located in North America and Europe. The following table provides an analysis of the Group's sales by geographicalmarket, irrespective of the origin of the goods/services. The carrying amount ofsegment assets, and additions to property, plant and equipment and intangibleassets, are analysed by the geographical area in which the assets are located. Additions Additions Sales Segment to PPE and Sales Segment to PPE and revenue assets intangibles revenue assets intangibles Year Year Year Year Year Year ended ended ended ended ended ended 2006 2006 2006 2005 2005 2005 £m £m £m £m £m £m ------- ------- ------- ------- ------- -------North America 210.7 219.7 15.2 178.5 137.9 10.6UK 41.3 62.5 1.2 40.7 62.3 1.7Rest of Europe 104.0 52.4 3.2 94.2 51.4 2.9Rest of World 31.9 17.7 1.0 25.2 17.3 1.4 ------- ------- ------- ------- ------- -------Sub totalContinuing operations 387.9 352.3 20.6 338.6 268.9 16.6Unallocated corporateamounts - 13.2 0.1 - 13.8 - ------- ------- ------- ------- ------- -------Total 387.9 365.5 20.7 338.6 282.7 16.6 ======= ======= ======= ======= ======= ======= The carrying value of segment assets all relate to continuing operations. 4. Adjusted operating profit and adjusted profit before tax The provision of adjusted operating profit and adjusted profit before tax, derived in accordance with the table below, has been included to identify the performanceof operations, from the time of acquisition or until the time of disposal, priorto the impact of gains or losses arising from the sale of fixed assets andamortisation of intangible assets acquired on acquisitions. Year ended Year ended 2006 2005 (restated) £m £m ------- -------Operating profit 24.5 19.6 ------- -------Loss on sale of fixed assets 0.4 0.2Amortisation of intangible assets from acquisition 1.3 - ------- -------Adjustments to operating profit 1.7 0.2 ------- -------Adjusted operating profit 26.2 19.8 ======= ======= Profit before tax 18.1 14.6Adjustments to profit as above before tax 1.7 0.2 ------- -------Adjusted profit before tax 19.8 14.8 ======= ======= 5. Tax charge Year ended Year ended 2006 2005 £m £m ------- -------Current tax:Foreign tax 3.6 2.3Adjustments in respect of prior periods (0.7) (0.2) ------- ------- 2.9 2.1 ------- -------Deferred tax:Current year 0.8 0.7Adjustments in respect of prior periods (0.8) (0.3) ------- ------- - 0.4 ------- ------- 2.9 2.5 ======= ======= UK Corporation tax is calculated at 30% (2005: 30%) of the estimated assessableprofit for the year. Taxation for other jurisdictions is calculated at the ratesprevailing in the respective jurisdictions. 6. Dividends Year ended Year ended 2006 2005 £m £m ------- -------Amounts recognised as distributions to equity holders in the period:Final dividend for the year ended 31 December 2005 of 1.286p (2004: 1.286p) per share 4.4 4.1 Interim dividend for the year ended 31 December 2006of 0.619p (2005: 0.619p) per share 2.1 2.0 ------- ------- 6.5 6.1 ======= ======= Proposed final dividend for the year ended 31 December 2006 of 1.381p (2005: 1.286p) per share 5.4 4.2 ======= ======= The proposed final dividend is subject to approval by shareholders at the AnnualGeneral Meeting and has not been included as a liability in these financialstatements. The dividend per share figures for dividends already paid has been adjusted totake account of the bonus element of the 2006 rights issue. The final dividend paid for the year ended 31 December 2005 of £4.4m includeddividends paid on the 15m ordinary shares issued in January 2006. 7. Earnings per share The calculation of the basic and diluted earnings per share is based on thefollowing data: Year ended Year ended 2006 2005Number of shares m m ------- -------Weighted average number of ordinary shares for thepurposes of basic earnings per share 349.8 322.2 Effect of dilutive potential ordinary shares:Share options 7.9 5.9 ------- -------Weighted average number of ordinary shares for thepurposes of diluted earnings per share 357.7 328.1 ======= ======= The weighted average number of shares for 2005 has been adjusted to take accountof the bonus element of the 2006 rights issue. Year ended 2006 Year ended 2005 (restated) Earnings EPS Earnings EPSEarnings and earnings per share £m pence £m pence ------- ------- ------- ------- Profit for the period 15.2 4.35 12.1 3.75Adjust: Loss on sale of fixed assets netof tax of £0.1m (2005: £nil) 0.3 0.07 0.2 0.07 Amortisation of intangible assets from acquisition net of tax of£0.5m (2005:£nil) 0.8 0.23 - - ------- ------- ------- ------- Adjusted earnings after tax 16.3 4.65 12.3 3.82 ======= ======= ======= ======= Earnings per share - basic 4.35p 3.75p - diluted 4.25p 3.69p - adjusted 4.65p 3.82p - adjusted and diluted 4.56p 3.75p The effect of dilutive shares on the earnings for the purposes of dilutedearnings per share is £nil (2005: £nil). The denominators used for all basic, diluted and adjusted earnings per share areas detailed in the "Number of shares" table above. The provision of an adjusted earnings per share, derived in accordance with thetable above, has been included to identify the performance of operations, fromthe time of acquisition or until the time of disposal, prior to the impact ofthe following items: - gains or losses arising from the sale of fixed assets- amortisation of intangible assets acquired on acquisitions 8. Acquisitions Sterling Machine Co., Inc. On 27 January 2006, the Group acquired 100% of the issued share capital ofSterling Machine Co., Inc., ("Sterling Machine") a manufacturer of precisionmachined parts for the aerospace industry, based in Enfield, Connecticut, USA.The cash consideration was £21.5m, including costs, of which £1.2m related tothe purchase of property. The acquisition was funded in part by the placing of15m ordinary shares generating net proceeds of £8.8m, the balance being fundedby the Group's existing revolving credit facilities. Set out below is a summary of the net assets acquired and details of the fairvalue adjustments: Carrying values Fair value pre-acquisition £m £m ---------- ----------Intangible assets - 2.7Property, plant and equipment 2.1 2.1Inventories 3.8 3.4Trade and other receivables 2.4 2.1Trade and other payables (1.1) (1.1) ---------- ----------Net assets acquired 7.2 9.2 ==========Goodwill 12.3 ----------Total consideration 21.5 ==========Consideration satisfied by:Cash paid 21.3Directly attributable costs 0.2 ----------Net cash outflow arising on acquisition 21.5 ========== The intangible assets acquired as part of the acquisition relate to customercontracts. Goodwill represents the value of the assembled workforce and itscontribution to anticipated future profitability arising from additional capitalinvestment. Sterling Machine contributed £12.7m revenue and £2.4m to the Group's operatingprofit from the date of acquisition to 31 December 2006. Aerospace Manufacturing Technologies, Inc.------------------------------------------ On 27 October 2006, the Group acquired 100% of the issued share capital ofAerospace Manufacturing Technologies, Inc., ("AMT") a manufacturer of structuralaluminium parts for the commercial aerospace industry, based in Arlington,Washington State, USA. The cash consideration was £60.0m, including costs, ofwhich £1.2m was paid in February 2007. The acquisition was funded in partthrough a rights issue generating net proceeds of £25.9m, the balance beingfunded by the Group's new revolving credit facility. Set out below is a summary of the net assets acquired and details of the fairvalue adjustments: Carrying values Provisional pre-acquisition Fair value £m £m ---------- ----------Intangible assets - 13.2Property, plant and equipment 8.8 10.8Inventories 7.2 7.2Trade and other receivables 4.5 4.5Cash and cash equivalents 0.5 0.5Trade and other payables (3.7) (3.7)Deferred tax liability - (0.8) ---------- ----------Net assets acquired 17.3 31.7 ==========Goodwill 28.3 ----------Total consideration 60.0 ==========Consideration satisfied by:Cash (including £1.2m deferred consideration) 59.1Directly attributable costs 0.9 ----------Total consideration 60.0Less deferred consideration (1.2)Less cash acquired (0.5) ----------Net cash outflow arising on acquisition 58.3 ========== The fair value adjustments contain some provisional amounts which will befinalised in the financial statements for the year ending 31 December 2007. The intangible assets acquired as part of the acquisition relate to customercontracts. Goodwill represents the value of the assembled workforce and itscontribution to anticipated future profitability arising from additional capitalinvestment. AMT contributed £6.1m revenue and £1.4m to the Group's operating profit from thedate of acquisition to 31 December 2006. If both the above acquisitions had been completed on 1 January 2006, Grouprevenue for the year ended 2006 would have been £415.7m and Group operatingprofit would have been £30.4m. The amounts shown in the consolidated cash flow statement for acquisition ofsubsidiaries include £nil (2005 - £0.1m) relating to deferred considerationpayable in respect of previous acquisitions. 9. Notes to the cash flow statement a) Reconciliation of operating profit to net cash from operating activities Year ended Year ended 2006 2005 £m £m ------- -------Operating profit from continuing operations 24.5 19.6 Adjustments for: Depreciation of property, plant and equipment 12.1 11.5Amortisation of intangible assets 1.8 0.5Share options 0.4 0.2Loss on disposal of property, plant and equipment 0.4 0.2Pension payments in excess of service cost (3.4) (2.8) ------- -------Operating cash flows before movements in working capital 35.8 29.2 Increase in inventories (11.5) (9.3)Decrease/(increase) in receivables 3.6 (8.1)Increase in payables 9.0 7.9Working capital currency movements (5.4) 2.6 ------- -------Cash generated by operations 31.5 22.3 Income taxes paid (2.6) (0.9)Interest paid (6.6) (4.9) ------- ------- Net cash from operating activities 22.3 16.5 ======= =======Cash and cash equivalents comprise:Cash 7.2 8.5Bank overdrafts (0.2) - ------- -------Total 7.0 8.5 ======= ======= Cash and cash equivalents (which are presented as a single class of assets onthe face of the balance sheet) comprise cash at bank and other short-term highlyliquid investments with a maturity of three months or less. b) Free cash flow Free cash flow, a non statutory item, highlights the total net cash generated bythe Group prior to corporate activity such as acquisitions, disposals, financingand transactions with shareholders. It is derived as follows: Year ended Year ended 2006 2005 £m £m ------- -------Net cash from operating activities 22.3 16.5Interest received 1.3 1.4Proceeds on disposal of property, plant and equipment 2.2 0.9Purchases of property, plant and equipment - cash (20.1) (16.3)Purchase of intangible assets (0.6) (0.3) ------- -------Free cash flow 5.1 2.2 ======= ======= c) Analysis of net debt At 1 Jan Cash Non cash Exchange At 31 Dec 2006 flow items movement 2006 £m £m £m £m £m ------- ------- ------- -------- -------Cash 8.5 (0.5) - (0.8) 7.2Overdrafts - (0.2) - - (0.2) ------- ------- ------- -------- -------Cash and cash equivalents 8.5 (0.7) - (0.8) 7.0Debt due within one year (0.2) - (12.7) - (12.9)Debt due after one year (66.3) (46.0) 13.0 9.1 (90.2)Finance leases (1.8) 0.2 - - (1.6)Forward exchange contract losses (2.6) 0.2 - 3.4 1.0 ------- ------- ------- -------- -------Total (62.4) (46.3) 0.3 11.7 (96.7) ======= ======= ======= ======== ======= The forward exchange contract losses shown above are reported as £nil (2005:£2.8m) in current liabilities within trade and other payables and £1.0m (2005:£0.2m) in current assets within trade and other receivables. Non cash items shown above relate to the recognition of financial instrumentsunder IAS 39 and the reclassification of debt which became due within one year. On 31 January 2007 new loan notes of $30m (£15.3m) were issued with amaturity of ten years, carrying interest at the rate of 5.85%, to refinance the$25m (£12.8m) loan notes which are due to mature in June 2007. 10. Retirement benefit schemes Defined Benefit Schemes Aggregate post-retirement benefit liabilities are £37.5m (2005: £39.9m). Theprimary components of this liability are the Group's UK pension plan and USpension plans, with deficits of £30.8m (2005: £31.3m) and £3.2m (2005: £4.9m)respectively. These values have been assessed by an independent actuary usingcurrent market values and discount rates. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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