TIDMSNR
RNS Number : 6007S
Senior PLC
10 July 2020
10 July 2020
Senior plc: Post-close market update - Robust cash performance
in the period
Senior plc ("Senior" or the "Group"), an international
manufacturer of high technology components and systems, principally
for the worldwide aerospace & defence, land vehicle and power
& energy markets, today issues this market update following the
close of the six-month financial period ending 30 June 2020.
Summary
-- Robust cash performance in the period. Generated GBP3m net
cash inflow in the face of significant disruption to our
end markets
-- Net debt expected to be GBP239m at 30 June 2020, with GBP162m
headroom on our committed borrowing facilities, an improvement
of GBP3m from 31 December 2019
-- All our manufacturing sites are operational with appropriate
health and safety measures in place
-- The FAA and Boeing commenced formal 737 MAX certification
tests on 29 June 2020
Liquidity
As well as delivering a robust operating cash flow performance
in H1 2020 we have increased our financial flexibility, with
appropriate covenant relaxations from all of our lenders in
relation to the June and December 2020 testing periods and
confirmed eligibility for the Bank of England's Covid Corporate
Financing Facility.
The Group continues to undertake extensive scenario testing for
2020 based on a variety of end market assumptions and, under all
scenarios tested, the Group has sufficient liquidity under its
existing committed facilities.
Trading update
In our Market Update on 24 April 2020, we reported that trading
for the three months ended 31 March 2020 was slightly ahead of our
expectations coming into the year, despite the tangible impact of
the Coronavirus (COVID-19) during March. As expected, in the second
quarter that impact was more pronounced with aviation, land vehicle
and power and energy markets severely affected. As a result,
activity significantly slowed across both our Aerospace and
Flexonics Divisions, as customers temporarily closed their
facilities and lowered production rates.
We now expect Group revenue in H1 2020 will be around 30% lower
than H1 2019 and consequently, margins will be significantly
lower.
The Group's underlying cash performance has been robust with a
net cash inflow of GBP3m in the period. This is due to our focus on
conserving cash through careful management of capital expenditure
and working capital, especially inventory. Net debt at the end of
June 2020 is expected to be around GBP239m (including capitalised
leases of GBP84m and adverse currency movements of GBP12m) with
GBP162m of headroom on our committed borrowing facilities, an
improvement of GBP3m from 31 December 2019.
At the time of our Full Year 2019 Results in early March 2020,
we advised our expectation was for Aerospace revenue in 2020 to be
around 20% below 2019 levels as a consequence of Boeing's temporary
halt in 737 MAX production and our decision to not renew certain
contracts which did not meet our returns requirements. In addition
to the above, the impact of COVID-19 has led to severe end market
disruption and, as a consequence, we now expect Aerospace sales in
H1 2020 to be around 31% lower than H1 2019. On a quarterly
constant currency basis, Aerospace sales are expected to have
declined 22% in Q1 and 40% in Q2, year-on-year.
Economic forecasts at the time of our Full Year 2019 Results
suggested that Flexonics' cyclical end markets would decline in
2020, before recovering in 2021, and Flexonics revenue was expected
to be to be lower in 2020 compared to 2019. At that time, ACT
Research forecasted the North American heavy-duty diesel truck
market to decline 34% in 2020 and in the upstream oil and gas
market the US rig count was expected to contract in 2020. With the
additional impact of COVID-19 on the land vehicle and the oil and
gas markets, we now expect Flexonics sales in H1 2020 to be around
27% lower than the same period in 2019. On a quarterly constant
currency basis, Flexonics sales are expected to have declined 23%
in Q1 and 33% in Q2, year-on-year.
Market Update
In civil aerospace, the impact of the pandemic led to a severe
decline in global air traffic, reaching a low in April 2020, down
94% year-on-year. As a result, many airlines have cut capacity,
retired older aircraft and looked to defer deliveries of new
aircraft. Civil aircraft and engine OEMs have announced significant
cuts to programme production rates. Further disruption has been
caused by temporary customer production closures and rebalancing of
inventory throughout the supply chain; an activity that is
continuing.
In Flexonics many of our customers temporarily shut production
facilities and reduced output once reopened. In the first five
months of 2020 North American truck production was down 54%
year-on-year. The huge decline in air and land travel contributed
to an excess of crude oil supply over demand of more than 20m
barrels per day, negative oil future prices and, as a consequence,
the mothballing of some upstream exploration capacity.
Throughout the period, other growing markets important to
Senior, such as defence, semi-conductor equipment and medical,
remained healthy, representing approximately 20% of Group sales in
H1 2020.
Management actions
In 2019, in order to counter the anticipated decline in Group
sales, a restructuring plan was initiated which was communicated in
November 2019, including the alignment of headcount to anticipated
demand; further efficiency improvements leading to overhead
reductions; the closure of Senior Aerospace AMT's South Carolina
facility; the transfer of major work packages to South East Asia.
These actions have all been implemented and are delivering the
expected benefits.
In addition, as outlined above, the pandemic has led to a
significant decline in some of the Group's end markets. Whilst we
are doing everything possible to sustain jobs, all likely scenarios
involve a prolonged contraction of some of our end markets which
means that we have extended and broadened the scope of the
restructuring activities to further reduce costs. At the end of
June 2019 Group headcount was approximately 8,200. Between June
2019 and December 2019 Group headcount reduced approximately 5%(1)
. We have reduced headcount by a further 12% in H1 2020. In
addition, globally there is approximately 19% of the remaining
workforce on furlough.
We have taken advantage of the period in which customers were
closed to accelerate the planned transfer of work packages to South
East Asia. In addition, where possible we are redeploying equipment
to better utilise it within the Group, for example for use on our
growing military aerospace work instead of civil aerospace.
Reflecting the additional actions which we are taking, we now
expect the total restructuring charge to be up to GBP35m, an
increase from the GBP23m we had advised at our Full Year 2019
results. Cumulative savings will now be around GBP35m in 2020,
increasing from the estimated GBP20m advised at the time of our
Full Year 2019 results.
The associated cash outflow is expected to be up to GBP25m, an
increase from GBP15m expected at the Full Year 2019 Results.
In addition, we anticipate recognising a significant non-cash
reduction in the carrying value of certain intangible assets under
International Accounting Standard (IAS) 36 as at 30 June 2020.
More details of these updated restructuring plans, costs and
savings will be provided in our Interim Results.
Outlook
In civil aerospace, the significant reduction in production
rates seen in the second quarter is expected to continue in the
second half of 2020 and into 2021. While it is likely to take
several years for air traffic to return to 2019 levels, the demand
for air travel is expected to continue to grow in the medium and
long term. The lower operating cost and better sustainability of
new aircraft, on which Senior has significant content, will
continue to be a necessity for the airline industry.
In Flexonics, we are not anticipating meaningful improvement in
our end markets in the second half of 2020. The latest ACT forecast
is for the North American heavy-duty market to decline 61% in 2020,
with a return to growth in 2021. In Oil & Gas we are expecting
the significantly lower equipment demand to be maintained for the
remainder of the year.
Whilst we expect that the structural long-term drivers of our
end markets will remain in place, trading for the rest of 2020
continues to be impacted by COVID-19. As a result, guidance for
2020 remains suspended.
David Squires, Group Chief Executive of Senior plc said:
"The Coronavirus pandemic has had a profound effect on our
markets and customers since March and the impact will be with us
for some time to come. Throughout, our highest priority was, and
remains, the health and welfare of our employees. They have worked
tirelessly and skilfully in response to the changing environment,
which, in turn, has allowed business continuity to be the very best
it could be. In the face of these extraordinary conditions, the
Group has focused relentlessly and effectively on cash preservation
and liquidity.
Based on our analysis of economic and industry expert forecasts,
and our customers response to those, we expect the difficult
conditions to remain for many months to come. Our original
restructuring programme has progressed in line with plans. Whilst
we are doing everything possible to sustain jobs, regrettably
market conditions are such that we have extended and broadened the
scope of that restructuring and we will provide more details of
that at our interim results.
However, we remain confident that in the medium term, our
differentiated offering in fluid conveyance and thermal management
products, our global footprint and our positioning in attractive
and diverse end markets will help to ensure that we emerge strongly
as the recovery starts to take shape".
Senior intends to announce its 2020 interim results on Monday 3
August 2020.
Notes
This announcement contains inside information.
This excludes the reduction in headcount of 207 as a result
(1) of the divestment of Senior Flexonics Brazil and Senior Aerospace
Absolute in H2 2019.
Further information
Group Finance Director, Senior +44 (0) 1923 714
Bindi Foyle plc 725
Director of Investor Relations, +44 (0) 1923 714
Jennifer Ramsey Senior plc 722
+44 (0) 7796 708
Richard Webster-Smith Finsbury 551
About Senior
Senior is an international manufacturing group with operations
in 13 countries. It is listed on the main market of the London
Stock Exchange (symbol SNR). Senior designs, manufactures and
markets high technology components and systems for the principal
original equipment producers in the worldwide aerospace &
defence, land vehicle and power & energy markets. Further
information on Senior plc may be found at: www.seniorplc.com
Cautionary Statement
This announcement contains certain forward-looking statements.
Such statements are made by the Directors in good faith, based on
the information available to them at the time of the announcement,
and they should be treated with caution due to the inherent
uncertainties underlying any such forward-looking information.
This information is provided by RNS, the news service of the
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contact rns@lseg.com or visit www.rns.com.
END
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