Senior Reports 5% Rise in Revenue in Nine Months Amidst Challenges in Aerospace Sector

Key Points:

1. Senior reported a 5% year-on-year increase in revenue for the nine months ending September 2024, driven by a 13% growth in aerospace revenue.
2. The Group faces temporary challenges in the commercial aerospace sector due to production issues at Boeing and supply chain difficulties at Airbus.
3. Senior has implemented cost and cash management measures to mitigate impacts while maintaining a strong order book and positive outlook for future growth.

Senior plc (LSE:SNR), an international manufacturer renowned for its high-technology components and systems for the aerospace and defence, land vehicle, and power and energy markets, has released a trading update for the nine months ending September 2024. The Group has demonstrated robust order intake, maintaining a healthy book-to-bill ratio of 1.13, and has experienced a 5% year-on-year increase in revenue on a constant currency basis. However, specific divisions have faced contrasting performance metrics, particularly within the Flexonics segment, which saw a reduction of 9% compared to the previous year.

Group and Division Performance

The aerospace sector has been a standout performer, with a year-on-year revenue growth of 13%, primarily driven by a resurgence in commercial aerospace. Civil aviation continues to flourish, as evidenced by a 12% increase in total demand measured in Revenue Passenger Kilometers (RPKs) for the first eight months of 2024, according to the International Air Transport Association (IATA). The organization forecasts that air travel demand will double by 2040, creating significant opportunities for new aircraft orders. Both Boeing and Airbus are planning to ramp up their production rates in response to this demand, and Senior Aerospace is poised to benefit from this growth due to its robust order book and ongoing business acquisitions.

However, the commercial aerospace manufacturing sector is currently grappling with significant temporary challenges. Boeing's production rates for the 737 MAX have been curtailed due to regulatory oversight following an incident earlier this year, although the company has expressed confidence in reaching a monthly production rate of 38 by year-end. Compounding these issues, a strike involving Boeing employees in Puget Sound has continued for four weeks, affecting operations tied closely to Boeing and its Tier 1 suppliers. Airbus has similarly reported supply chain difficulties, particularly concerning engines and interiors. One Tier 1 supplier to Airbus has indicated they will reduce scheduled deliveries from Senior in the fourth quarter of 2024, with plans to return to normal delivery rates in the second quarter of 2025.

Market Insights and Mitigating Actions

The Flexonics division’s performance reflects expected slowdowns in land vehicle markets, particularly in North America and Europe, with forecasts indicating a 7% decline in North American heavy-duty truck production and a 20% drop in European production for 2024. Additionally, demand in upstream oil and gas sectors remains subdued, although downstream oil and gas and nuclear sectors continue to show solid demand.

In response to the current market challenges, Senior plc has implemented several cost and cash management strategies aimed at mitigating risks. These actions include aligning workforce levels to match capacity with demand through both temporary furloughs and permanent layoffs, cutting discretionary spending, re-scheduling material deliveries to align with anticipated demand, and postponing non-essential capital expenditures. Despite these measures, the Group reassures stakeholders that it remains well within its covenant limits.

Outlook for the Future

Looking ahead, Senior plc maintains its expectations for the full year, with a belief that the aerospace division will continue to grow year-on-year, even though the performance in the second half is anticipated to be lower than the first half due to the identified customer-related challenges. The company emphasizes that the issues highlighted in the trading update are temporary and that its future growth is secured by a strong order book and strategic positioning within its markets.

The Group remains optimistic about achieving improved operational efficiencies and enhanced pricing agreements, which are expected to drive further growth in the aerospace division beyond 2024. Additionally, Senior plc is confident in its ability to outperform the key end markets serviced by its Flexonics division, bolstered by its robust market position and ongoing investments in innovation.