Senior plc, an international manufacturer of high technology components and systems, principally for the worldwide aerospace, defence, land vehicle and energy markets, issues this trading update for the four months since 1 July 2015 and announces the acquisition of Steico Industries, Inc for a total consideration of $90m (£59.2m)(1).
Markets & Operations
In the Aerospace Division, activity in the Group’s most important market, large commercial aircraft, increased with Boeing and Airbus delivering a combined 448 aircraft in the Period, 2% ahead of 2014. However, at the same time, there have been reducing levels of activity in the regional, business jet and commercial helicopter markets. Margins in the aerospace division have been impacted in the Period due to costs associated with temporary activities to protect customer schedules together with continuing declines in income received from machined waste aluminium, as revert prices continued to fall.
In the Flexonics Division, growth in North American heavy truck production has slowed in the Period and demand for agricultural and mining vehicles continues to be weak. Industrial markets, particularly oil and gas related, have continued to weaken, compounded by de-stocking across the sector.
Year to date cash generation remains healthy with net debt at the end of October of £154.8m. As expected, this is higher than at the end of June due to the normal seasonal increase in working capital, continued investment in capital expenditure in support of organic growth, and adverse currency impacts.
US Private Placement
On 30 October 2015, Senior issued $80m (£52.6m)(1) of new loan notes through a private placement offer. The issuance consists of two tranches, carrying a weighted average fixed coupon rate of 3.67% per annum, with $20m maturing in October 2022 and $60m maturing in October 2025. These new funds in part replace $25m of loan notes with a coupon rate of 6.42% that matured and were repaid on 8 October 2015. The remainder will be used to finance the acquisition of Steico detailed below.
The Group now has committed borrowing facilities of £261.4m, with a weighted average maturity of 3.9 years. This represents an increase in maturity profile of 1.5 years.
Given the financial performance in the Period and the challenging conditions in some of our end markets, the Board currently anticipates 2015 adjusted profit before tax(2) to be around the lower end of current market expectations(3).
The Group remains well positioned for the future as new Aerospace and Flexonics programmes and products enter production, albeit certain of our end markets are likely to remain challenging in 2016. Senior’s continuing investment in state-of-the-art production equipment, and new facilities in Asia and Mexico is helping the Group to remain highly competitive. Together with the Group’s cash generative nature and solid funding position, this gives the Board confidence in the long-term prospects for the Group.
The 2015 full year results will be announced on Monday 29 February 2016.
Senior is pleased to announce that it has entered into an agreement to acquire 100% of the issued share capital of Steico Industries, Inc from its majority shareholder Mr Troy G. Steiner and two other minority shareholders for a cash consideration of $75m (£49.3m)(1) on a debt free/cash free basis.
In addition, Senior has agreed to acquire Steico’s trading facilities from Oceanside Industrial Properties LLC, for $15m (£9.9m)(1).
Steico is a leading manufacturer of precision tube and duct assemblies for the commercial and defence aerospace industries, located in Oceanside, California, USA. Steico employs 208 people, operating from a state-of-the-art 112,000 sq.ft., vertically integrated facility. Steico has established itself as a trusted manufacturing partner to major original equipment manufacturers (OEMs) and first tier suppliers in the aerospace industry.
Steico brings new and adjacent capabilities to the Group and enables Senior’s Aerospace Fluid Systems Division to offer the full range of tube and duct assemblies covering a wider scope of aerospace fluid systems. With content on key growth platforms such as the Boeing 737 MAX, Airbus A350 and Joint Strike Fighter, the business is expected to outgrow end markets. Steico will form part of the Aerospace Fluid Systems Division with the current management team staying with the business following acquisition.
In the year ended 31 December 2014, Steico reported revenues of $36.9m (£24.3m)(1) and trading profit before interest, tax and depreciation of $6.6m (£4.3m)(1). In 2015, Steico is on track to deliver revenues of $37.7m (£24.8m)(1) and trading profit before interest, tax and depreciation of $7.5m (£4.9m)(1). Gross assets of the business, including the properties, are approximately $32.7m (£21.5m)(1).
The transaction will be funded using the Group’s existing borrowing facilities, including the recent private placement noted above. The acquisition is expected to be immediately accretive to earnings and is anticipated to cover its cost of capital in the second full year of ownership.
Commenting on the acquisition, David Squires, Senior’s Group Chief Executive, said:
“I am very pleased to announce the acquisition of Steico and to welcome all of its employees to the Group. Steico represents an important addition to Senior’s Aerospace Division, broadening our product offering and enabling Senior to respond to our customers’ desire for us to offer more complete fluid systems work packages. Under Troy Steiner’s leadership, Steico has an impressive track record of growth and that is expected to continue based on strong customer relationships which are underpinned by long term contracts. The joint capabilities of the two companies combined with Senior’s wider market access and financial strength, are expected to further enhance the future growth prospects for Senior’s Aerospace Division.”