Senior PLC — Annual Report 2016

Dec 31, 2016

SENIOR PLC ANNUAL REPORT & ACCOUNTS 2016

WHO WE ARE

Senior is an international, market-leading, engineering solutions provider with 33 operations in 14 countries.

Senior designs, manufactures and markets hightechnology components and systems for the principal original equipment producers in the worldwide aerospace, defence, land vehicle and energy markets.

The Group is split into two divisions, Aerospace and Flexonics, servicing five key sectors.

To find out more visit www.seniorplc.com

Cautionary statement

The Annual Report & Accounts 2016 contains certain forward-looking statements. Such statements are made by the Directors in good faith based on the information available to them at the date of this Report and they should be treated with caution due to the inherent uncertainties underlying any such forward-looking statements.

FINANCIAL HIGHLIGHTS

(1) A reconciliation of adjusted profit before tax to reported profit before tax is on page 89. (2) See Notes 32b and 32c for derivation of free cash flow and of net debt respectively.

The Group's principal exchange rates for the US dollar and the Euro, applied in the translation of revenue, profit and cash flow items at average rates were \$1.36 (2015 – \$1.53) and €1.23 (2015 – €1.37) respectively. The US dollar and Euro rates applied to the balance sheet at 31 December 2016 were \$1.24 (2015 – \$1.47) and €1.17 (2015 – €1.36) respectively.

STRATEGIC REPORT

• 1 Financial Highlights
• 2 Group at a Glance
• 4 2016 at a Glance
• 8 Chairman's Statement
• 10 Chief Executive's Statement
• 12 Market Overview
• 14 Our Business Model
• 16 Areas of Strategic Focus
• 18 2016 Performance
• 20 Financial Review
• 24 Risks and Uncertainties
• 30 Corporate Responsibility
• 34 Key Performance Indicators

GOVERNANCE

• 36 Board of Directors
• 38 Executive and HSE Committees
• 40 Report of the Directors
• 42 Corporate Governance Report
• 45 Nominations Committee Report
• 46 Audit Committee Report
• 51 Remuneration Report: Annual Statement 53 2016 Remuneration Report at a Glance 55 Policy 61 Annual Report on Remuneration

71 Statement of Directors' Responsibilities

STRATEGIC REPORT

GOVERNANCE

• 72 Independent Auditor's Report to the
• 76 Consolidated Income Statement
• 76 Consolidated Statement of
• Comprehensive Income 77 Consolidated Balance Sheet

Members of Senior plc

FINANCIAL STATEMENTS

• 78 Consolidated Statement of Changes
• in Equity
• 79 Consolidated Cash Flow Statement 80 Notes to the Consolidated
• Financial Statements
• 112 Company Balance Sheet
• 113 Company Statement of Changes in Equity 114 Notes to the Company Financial
• Statements
• 119 Five-year Summary

ADDITIONAL INFORMATION

• 120 Group Undertakings
• 123 Additional Shareholder Information
• 124 2017 Financial Calendar
• 124 Officers and Advisers

ADDITIONAL INFORMATION

GROUP AT A GLANCE

The Group aims to create long-term sustainable growth in shareholder value through a culture of empowerment of autonomous and collaborative operations working within an effective control framework. Our vision is to be a trusted and collaborative high value-added engineering and manufacturing company producing sustainable growth in operating profit, cash flow and shareholder value.

(1) At constant currency

AEROSPACE

with a range of products

turbine engines.

WHERE WE OPERATE

AEROSPACE/ FLEXONICS

North America	10	4
Brazil		1
Continental Europe	3	3
UK	4	2
South Africa		1
India		1
Malaysia	1	1
Thailand	1
China		1

MARKETS

45% Large Commercial Aircraft 14% Military/Defence Aerospace 7% Regional & Business Jets 2% Space & Non Military Helicopter

Aerospace Division 73%

5% Other Aerospace Division

2% GKN

1% GE

Division

2% Bombardier 2% Honeywell

22% Other Aerospace

5% Passenger Vehicles

5% Oil & Gas

4% Power & Energy

1% Heating, Ventilation & Solar

3% Other Industrial

4% Cummins 2% Caterpillar 1% Renault 1% Faurecia

1% PSA

Flexonics Division 27%

5% Other Land Vehicle

2% Emerson

1% Schlumberger

10% Other Industrial & Aerospace

FLEXONICS

Serving markets with products for land vehicle emission control and industrial process control applications.

READ MORE

Read the Group Chief Executive's Statement of the year on pages 10 to 11

LAND VEHICLE EMISSION CONTROL

12% Boeing

9% Spirit 4% UTC

3% Airbus 3% Safran

10% Rolls-Royce

CUSTOMERS

3% Lockheed Martin

• Exhaust gas recycling coolers
• Fuel mixing and distribution systems
• Flexible couplings

INDUSTRIAL PROCESS CONTROL

• Engineered expansion joints, dampers and diverters
• Flexible hose assemblies and control bellows
• Fuel cells and heat exchangers
• Precision-machined components

NADCAP

approved modern treatments line in Thailand.

2016 AT A GLANCE

During 2016, the Group made good progress in the six areas of specific strategic focus. Here is a selection of highlights from the year.

ENHANCE SENIOR'S AUTONOMOUS AND COLLABORATIVE BUSINESS MODEL

Implemented engagement guidelines to help optimise the transfer of work to cost competitive locations and to facilitate higher level solutions to meet customer needs.

Customer Relationship Managers appointed during the year for key customers.

READ MORE ON PAGE 16

FOCUS ON GROWTH

Established a Group-wide technology council to focus on advanced engineering and manufacturing methods such as additive manufacturing.

Steico successfully integrated into the Group.

READ MORE ON PAGE 16

COMPETITIVE COST COUNTRY STRATEGY

Opened new airframe structures facility in Thailand in June 2016.

Ramping up cooler and common rail production at our facilities in India and Mexico.

READ MORE ON PAGE 17

196,000 FACILITY IN THAILAND SQ. FT.

NEW

STEICO SUCCESSFULLY INTEGRATED INTO THE GROUP

Following the acquisition of Steico Industries, Inc. (Steico) in December 2015, the Group's newly developed integration playbook was deployed to ensure that the post-acquisition integration was effective for both Senior and Steico. In addition to rolling out Senior's ethics and compliance programmes, comprehensive integration plans were established focusing on financial, tax and treasury, human resources, export compliance, IT and health, safety and environment controls and procedures.

In April 2016 a two-day conference was held at Steico to demonstrate its state-of-the-art vertically integrated facility to other operations around the Group. Steico's engineering and tool design team demonstrated the functionality of their Stereolithography "SLA" 3D printers and their use in producing assembly fixtures and tooling.

The integration is now complete with the business operating within the Group's governance and control framework. Steico's performance is continuously monitored against the due diligence plan with regular oversight from the Group's Executive Committee.

THAILAND CAPACITY TRIPLES AS NEW FACILITY COMES ONLINE

Senior Aerospace Thailand's new 196,000 sq.ft. facility was officially opened on 23 June 2016 by Mrs Hirunya Suchinai, Secretary General of the Thailand Board of Investment and Mr Brian Davidson, British Ambassador to Thailand. This facility houses a new NADCAP approved modern treatments line enabling the company to machine, carry out full surface treatment processes and assemble airframe structures, all under one roof. Having successfully received Boeing approval for the treatment process in 2016, Senior Aerospace Thailand continues to expand its capabilities and plans to attain Airbus approval in 2017, enabling it to serve both large commercial aircraft manufacturers.

2016 AT A GLANCE CONTINUED

SUCCESSION PLANNING

Over 50% of senior leadership roles including our new Chief Executive of Aerospace Structures were filled internally

Comprehensive succession plans in place for all key leadership roles, reviewed and agreed collectively by the Executive Committee

Number of employees % A: Total Group B: Executive Committee C: plc Board

A
	81% Male	19% Female
B
	78% Male	22% Female
C
	71% Male	29% Female

GROUP DEVELOPMENT PROGRAMME

47 leaders and aspiring leaders attended the Senior leadership development programmes, one of which was the Ashridge advance management programme

EMPLOYEE ROADSHOWS

Employees across the Group benefited from presentations by Executive Committee members, accompanied by local management, of the Group and local operations' results and vision for the future

EGR COOLER PRODUCTION LAUNCHED IN INDIA

Our new facility in New Delhi, India successfully initiated EGR cooler production in 2016. The local team is also overseeing the installation and launch of a £2.5m common rail production line that will begin production in early 2017. The new plant features best-inclass Lean Manufacturing principles to enable efficient production, operator safety and ergonomics, and energy conservation. The two new cooler and rail products allow Senior to gain a strong position as the Indian BS IV emissions standards are rolled out.

INTRODUCE A HIGH PERFORMANCE OPERATING SYSTEM

Implemented a new and more intensive business review process.

Updated the Group's reporting systems to incorporate best-in-class digital dashboard.

Established Group-wide balanced scorecard with KPIs.

READ MORE ON PAGE 16

CONSIDERED AND EFFECTIVE CAPITAL DEPLOYMENT

Invested £52.8m in organic capital expenditure to support growth programmes.

Dividend increased by 6.0% to 6.57 pence per share (total paid and proposed).

Working capital stabilised at 15.1% of revenue at the end of the year.

READ MORE ON PAGE 17

TALENT DEVELOPMENT

Jane Johnston joined Senior in May 2016 as Group HR Director, responsible for developing a collaborative approach to HR across Senior's autonomous business model and internal communications.

READ MORE ON PAGE 17

FLEXONICS MEXICO FACILITY DOUBLES IN SIZE

The Flexonics Saltillo, Mexico facility underwent significant growth in 2016, doubling in headcount and manufacturing footprint (to 65,000 sq. ft.) and more than doubling the revenue shipped from the site. With the introduction of fuel systems components and alternative energy products, the Saltillo plant enhanced its manufacturing capabilities by adding precision machining, clean room assembly, annealing and vacuum brazing capabilities. The Saltillo team now manufactures over 100 different products for customers across North America, the United Kingdom, China, Japan and Brazil.

£52.8m

investment in capital expenditure for further organic growth.

50%+

of senior leadership roles were filled internally.

CHAIRMAN'S STATEMENT

2016 WAS A CHALLENGING YEAR; SENIOR REMAINS WELL POSITIONED FOR FUTURE GROWTH

CHARLES BERRY CHAIRMAN

DIVIDEND GROWTH 6% Increase in paid and proposed dividends.

SAFETY IMPROVEMENT 10% Improvement in lost time incident rate.

EMPLOYEES 7,454 Employees worldwide.

2016 PERFORMANCE

Senior delivered revenue of £917.0m, up 8% over the prior year, but down 2% on a constant currency basis. Growth from the Aerospace Division was more than offset by lower Flexonics revenue due to difficult market conditions. Adjusted profit before tax decreased to £75.3m, down 24%, or 31% on a constant currency basis, over the prior year. This was mainly due to significant declines in the Flexonics Division reflecting the challenging market conditions in the truck and off-highway, and oil and gas sectors. Margins in the Aerospace Division were also impacted by the volume reductions on mature programmes and the ramp-up of new aircraft production programmes.

Group cash generation remains strong, with free cash flow of £48.5m for the year resulting in a resilient financial position for the Group at the end of 2016.

DIVIDEND

The Board is proposing a final dividend of 4.62 pence per share which would bring total dividends, paid and proposed, for 2016 to 6.57 pence per share. The increase of 6% over 2015 despite the decrease in earnings per share reflects the Group's encouraging medium-term prospects and dividend cover of 2.2 times adjusted earnings per share.

GOVERNANCE

The Board recognises the importance of setting the right tone from the top of the organisation, and this is reflected in the work undertaken to implement a holistic corporate framework. During 2016, the Group adopted a revised Senior Code of Conduct and refreshed its Anti-Bribery and Corruption Act training. The Board has continued to maintain oversight of capital allocation, performance and risk management. During 2016, a number of improvements were undertaken to improve the robustness of the Group's risk management processes, including aligning the Group's risk assessment process more closely with the Group's strategic planning process. These have been explained on pages 24 to 29 of this Annual Report.

SAFETY

As a Board we are committed to the safety and well-being of our employees. Our goal is to eliminate occupational injury and illness through our Zero Harm strategy so everyone returns home safely at the end of the day. The Board has established ambitious 2020 targets for improvements in safety and environmental impact. In 2016 we made good progress towards these goals with a 10% improvement in lost time incident rate and a 16% reduction in total recordable injury rate.

SUSTAINABILITY

Environmental stewardship and corporate responsibility are values core to Senior and performance in these areas is increasingly important to our investors, customers and employees. Operating with integrity in an ethical, environmentally and socially sustainable manner is core to the future success of the Group. During 2016 the Group made good progress towards achieving its 20/20 Vision Sustainability and further details can be found on pages 30 to 33 of this Annual Report.

THE BOARD

As previously announced, there were two changes to the Board during 2016. On 1 January 2016, Susan Brennan was appointed as an Independent non-executive Director. Susan has more than 25 years of international manufacturing experience, including automotive vehicle, powertrain and components assembly and is currently Chief Operations Officer at Bloom Energy. Andy Hamment retired from the Board following the conclusion of the Company's AGM on 22 April 2016.

I would like to extend the Board's thanks and appreciation to Derek Harding, the Group's Finance Director, who will be leaving Senior after four years. Derek has made a significant contribution to Senior and we wish him well in his future career.

EMPLOYEES

Senior's continued strength is a reflection of the quality of the people within the Group. At the end of 2016, Senior employed 7,454 people with 1,386 located in Asia, demonstrating the ever-increasing global nature of the Group. On behalf of the Board, I would like to thank all of the Group's employees for their significant contribution to Senior and for maintaining such a positive attitude during the challenging trading environment faced by the Group over the past year.

STRATEGY

The Group's primary performance objective is to create long-term sustainable growth in shareholder value. It aims to achieve this objective through a culture of empowerment of autonomous and collaborative operations working within an effective control framework. Senior's high value-added engineering manufacturing companies operate within its five market sector framework: three in the Aerospace Division (Fluid Conveyance Systems, Gas Turbine Engines and Structures) and two in the Flexonics Division (Land Vehicle Emission Control and Industrial Process Control), with each strategic market sector offering deliverable growth opportunities.

The Group's strategy, whilst evolving as market conditions change, continues to provide a solid foundation for Senior's future growth aspirations.

Chairman

VALUES

SAFETY

We operate safely, protecting people and the environment

INTEGRITY

We operate with integrity and in an ethical manner

CUSTOMER FOCUS

We put the customer at the heart of everything we do

RESPECT AND TRUST

We work together with mutual respect and trust

ACCOUNTABILITY

We do what we say

EXCELLENCE

We continually strive to do better in every aspect of our business

ADDITIONAL INFORMATION

CHIEF EXECUTIVE'S STATEMENT

SENIOR'S 2016 RESULTS REFLECT A YEAR OF CONTINUED CHALLENGES IN SOME OF OUR END MARKETS

DAVID SQUIRES GROUP CHIEF EXECUTIVE

OVERVIEW OF 2016 RESULTS

Group revenue increased by 7.9% to £917.0m (2015 – £849.5m). This included a favourable exchange rate impact of £82.4m and a beneficial incremental impact from acquisitions of £30.7m. Underlying Group revenue from organic operations was down £45.6m (4.9%) on a constant currency basis as growth from the Aerospace Division was offset by declines in the Flexonics Division, reflecting the challenging market conditions faced by the truck and off-highway and industrial businesses.

Adjusted operating profit decreased by £22.2m (20.6%) to £85.6m (2015 – £107.8m). This included a favourable exchange rate impact of £10.7m and £3.1m of year-on-year operating profit contributed by acquisitions. Adjusted operating profit from organic operations decreased by 30.4% on a constant currency basis, primarily reflecting the market-led reductions in volume of the high margin segments of the Flexonics Division. As previously disclosed, margins in the Aerospace Division were impacted during 2016 by year-on-year volume reductions on mature programmes (A330, Global 5000/6000, G550), the delayed ramp-up of new aircraft production programmes (A320neo and CSeries) and

certain supplier issues which impacted some of our US and UK operations. The previously reported price increase negotiations were concluded by the end of 2016. The Group's adjusted operating margin reduced by 3.4 percentage points to 9.3%.

In Flexonics we have continued to focus on cost reduction and efficiency improvement actions, while in Aerospace we have also focused on reducing costs, both internally and in our external supply chain, particularly on our newer programmes. This is important for margin improvement as our mix continues to change from more mature programmes to new airframe and engine products.

Adjusted profit before tax decreased to £75.3m (2015 – £99.3m), down 24.2%, or 31.0% on a constant currency basis. Adjusted earnings per share decreased by 24.3% to 14.37 pence (2015 – 18.98 pence).

The Group continues to generate healthy cash flows and delivered free cash inflow of £48.5m (2015 – £51.7m) after gross investment in capital expenditure of £52.8m (1.5x depreciation). This investment in capital equipment is essential in our business to meet increasing order levels from our Aerospace customers. The level of net debt at the end of December 2016 was £198.1m (December 2015 – £194.6m) and the ratio of net debt to EBITDA was 1.7x, comfortably below the Group's bank covenant level of 3.0x.

Recognising the underlying strength of the business and its future prospects, the Board is proposing a final dividend of 4.62 pence per share. This would bring total dividends, paid and proposed for 2016 to 6.57 pence per share, representing an increase of 6% over the prior year.

DELIVERY OF GROUP STRATEGY

The Group's overall strategy remains unchanged and we remain committed to retaining the balance between Aerospace and Flexonics and to grow both segments of our business. We undertake regular reviews of the portfolio of the Group as we seek to increase shareholder value by leveraging our current operations and, where appropriate, acquisitions, disposals or mergers of operations will be considered.

During 2016, the Group made good progress against our six strategic priorities which were identified as key elements of our business model, driving the creation of shareholder value. Further details including our plans for 2017 are noted on pages 16 and 17 of this Annual Report.

MARKET CONDITIONS

Aerospace markets continue to be generally buoyant while land vehicle and industrial markets remain challenging.

The production ramp-up of new engine option large commercial aircraft means the outlook for the commercial aerospace sector is both strong and visible. Air traffic grew by 6% in 2016 and demand for new aircraft remains robust with Boeing, Airbus and independent forecasters predicting air traffic to grow in excess of 4% per annum over the next 20 years. Senior has healthy shipset content on all the key large commercial aircraft platforms and has further increased its content on the new engine versions during 2016. With significantly higher content on the new engine A320neo, 737 MAX and A330neo than the current engine versions, the Group is expected to outgrow the market, as these new engine versions come into service and production ramps up. Customer deliveries of the A320neo began in January 2016, whilst the 737 MAX and A330neo are scheduled to enter service in 2017 and 2018 respectively.

In the regional jet market, the first CSeries was delivered in June 2016. Senior has significant content on the CSeries and is also expected to benefit from the Embraer E2-Jet which is anticipated to enter into service in 2018. Senior also has good content on the Mitsubishi MRJ and although the recently announced delay of entry into service to 2020 is disappointing, this is expected to be a good growth platform for us in the future. In the defence sector, military spending has stabilised and Senior is well positioned on the key growth platforms, particularly the Joint Strike Fighter which is now ramping up.

In the Flexonics Division, market conditions in North American truck and off-highway and oil and gas markets remain challenging. Production of North American heavy-duty diesel trucks

declined 29% in 2016 and is forecast to decline further in 2017. Oil and gas related markets remain challenging in the near term due to reduced or postponed investment in the sector. However, whilst we are yet to see improvements in our order book, it is encouraging to see oil prices increasing following OPEC's agreement to cut production and rig counts are now increasing in North America as shale production starts to increase. Furthermore, we are encouraged by the potential for major investments in US infrastructure and are monitoring developments with interest.

Senior Flexonics continues to bid for and win new opportunities with existing and new customers. In order to remain competitive, reduce costs and support our global customer base, more work is being directed to cost competitive Flexonics facilities in India, the Czech Republic, Malaysia, Mexico and China. As a consequence, when the cyclical markets do pick up, Senior is expected to see strengthening performance from an ever-more lean and competitive business.

OPERATIONAL REVIEW

In response to the challenging market conditions faced by the Flexonics Division during 2016, there has been continuing focus on near-term cost management actions, as well as an acceleration of longer-term structural cost improvement initiatives.

Near-term cost management actions have included headcount reductions, reduced overtime, discretionary spend reduction and supply chain cost out activity. In Flexonics, total employee costs have reduced by 14% from end of June 2015 to end of 2016. In certain businesses most affected by the challenging market conditions, headcount has reduced by over 20%.

Longer-term structural cost improvements are centred around Senior's cost competitive country strategy. Production continues to be transferred to new facilities in India, Mexico and the Czech Republic. For example, our Flexonics Crumlin site in the UK will be established as a specialist technology, development and test centre in a smaller, less expensive facility whilst the production of legacy and new programmes has moved to India and other cost competitive locations. We have built up manufacturing capability in India and Mexico to produce common rail and cooler products, not just because of the lower cost base, but because many of the products built there are subsequently delivered to local customer facilities. Plans have also been approved to expand our existing highly efficient Flexonics plant in the Czech Republic.

On the Aerospace side, Senior's global footprint continues to provide opportunities for growth, as a result of the Group's investment in our Aerospace facilities across three continents. Our new 196,000 sq.ft. facility in Thailand was officially opened on 23 June 2016 with key customers in attendance, and we are encouraged by the opportunities for organic growth that this facility brings.

New state-of-the-art high speed and high performance equipment has been installed at many of our sites around the world in response to increasing customer demand. This new equipment gives a step function improvement in set-up times and machining speeds, which in turn reduces costs and helps our operating businesses to be highly competitive and operationally efficient.

In our October trading statement, we identified specific issues that were affecting our Aerospace Division performance. The transitioning impact of reductions in mature programmes and slower ramp-up of new programmes were in line with our expectations as 2016 concluded. However, the recently announced reductions in 777 build rate and ongoing declines in the business jet market will continue into 2017. The supplier-related issues which were referenced have largely been addressed as anticipated. Similarly, the price increase negotiations were concluded by the end of 2016.

In response to the decline in build rates of some of our more profitable mature programmes, such as the 777, cost reduction efforts are being re-doubled to improve the returns on some of our newer work packages. Whilst not materially significant to the Group, the changing mix within the Aerospace Division will mean that the margin improvement curve is likely to be shallower and longer than previously anticipated.

The integration of Steico Industries, Inc. (Steico) is now complete and has benefited from the new post-acquisition integration process. We are pleased with its positive contribution to the Group in 2016. There is a strong pipeline of new business opportunities which gives confidence that we will see good commercial and military growth from this latest addition to our aerospace business.

In response to market challenges and business opportunities, we are streamlining parts of the business where it makes sense to do so. In our Flexonics business in Chicago we have entered into a sale agreement and leaseback of a significantly reduced footprint. In our Flexonics São Paulo business we are reducing the footprint and headcount to reflect market conditions. We are assessing options for the

future of our Aerospace Fluid Systems BWT Ilkeston site and in January 2017 started consultation with employees. In San Diego we are combining our Aerospace Structures Ketema and Jet Products businesses under one leadership team. These streamlining actions are anticipated to cost £4.0m in 2017, delivering savings of £1.0m in 2017 and annualised savings of £4.0m from 2018. We will continue to implement operational actions on a business by business basis where appropriate.

OUTLOOK

2017 has started much as 2016 finished. Order books across our Aerospace businesses and in some Flexonics businesses are strong, though some of our Flexonics businesses continue to trade at historically low levels. In Aerospace we expect further revenue growth in 2017. Whilst we expect the first half of the year to be impacted by the transition from more mature programmes to new airframe and engine products, we anticipate improved profit in the second half of the year, driven by increasing revenues and operational improvements as we focus on reducing costs, particularly on our newer programmes. We expect Aerospace performance in 2017 to be broadly in line with 2016 at current exchange rates and with allowance for costs of the streamlining actions now underway. Challenging market conditions in some of our Flexonics markets, including truck, off-highway and oil and gas, mean that the outlook for Flexonics remains somewhat uncertain. Whilst we anticipate that late 2017 should be an inflexion point for our Flexonics businesses as truck and off-highway markets recover in 2018 and investment in industrial projects increases, current trends suggest Flexonics performance to be marginally lower in 2017 compared to 2016.

Looking further ahead, Senior expects to make progress from 2018 onwards as new programmes and products enter production and margins recover as the benefits of the operational improvement initiatives and cost saving actions are delivered. Staying focused on customer alignment, operational excellence and investing in organisational capability and leadership talent will enable Senior to continue to grow organically over the longer-term. Furthermore, Senior's cash-generative nature and robust financial position provide a solid platform from which the Group can continue to pursue growth opportunities to complement its existing portfolio.

David Squires

Group Chief Executive

MARKET OVERVIEW

Senior designs, manufactures and markets hightechnology components and systems for the principal original equipment producers in the worldwide aerospace, defence, land vehicle and energy markets.

AEROSPACE KEY MARKETS

Large Commercial Aircraft (45% of Group) Senior continues to enjoy strong demand from the large commercial aircraft sector, where Boeing and Airbus order books represent over eight years' production at current build rates. Senior has healthy shipset content on all the key large commercial aircraft platforms and will benefit from expected increases in build rates of all the key platforms. Senior has also secured significantly higher content on the new engine versions of the leading narrow-bodied aircraft than the current versions, thus allowing the Group to outgrow the market, as these new engine versions come into service and production ramps up.

The charts below illustrate the growth in Senior's shipset values over the past decade and the estimated annual production volumes of the major platforms.

Forecast annual growth in global passenger air traffic is the key driver of demand for new commercial aircraft, and hence for many of Senior's core aerospace products. Boeing, Airbus and independent forecasters are predicting air traffic to grow in excess of 4% per annum over the next 20 years.

Regional and Business Jets (7% of Group) The Group's regional jet market revenue (4% of Group) is expected to benefit in the medium term as new platforms come to market and production ramps up, such as the Bombardier CSeries, Mitsubishi MRJ and Embraer E2-Jet. Senior has significantly higher shipset content on these new platforms than legacy regional jets. Customer deliveries of the CSeries commenced in 2016, whilst the E2-Jets and MRJ are anticipated to enter into service from 2018 and 2020 respectively.

Senior's business jet revenue (3% of Group) comes mainly from the larger sized business jets which are facing some challenging markets in the short term. The Group is anticipated to benefit from the production ramp-up of HondaJet, which commenced customer deliveries in December 2015, and Bombardier Global 7000 and 8000, which are anticipated to enter into service from 2018.

Military Aerospace (14% of Group)

European and US defence budgets are starting to rise as a result of increased geo-political tensions, and Senior's revenue from the military and defence sector is expected to benefit from the Joint Strike Fighter, which is scheduled to ramp up significantly between now and the end of the end decade. Production of the A400M is also ramping up; however, production of the Black Hawk helicopter is expected to decrease over the short to medium term.

SHIPSET VALUE PROGRESSION(1) LARGE COMMERCIAL AIRCRAFT

ESTIMATED ANNUAL PRODUCTION

SOURCE: Customers, Teal Group and internal estimates (1) Estimates include 737 MAX and A320neo respectively

WORLD AIR TRAFFIC

FLEXONICS KEY MARKETS

Land Vehicles (14% of Group)

Demand for the majority of the Group's products in the land vehicles market is linked to the increasingly stringent global requirements for reduced carbon emissions. This arises in the form of reduction targets for emissions from cars, trucks and off-highway vehicles and through increased fuel efficiency from their engines. The chart below highlights the deployment of emissions standards in major geographies.

In the truck and off-highway sector (9% of Group), Senior's revenue arises predominantly from North American markets, where markets are expected to remain challenging in the near term. Production of North American heavyduty diesel trucks declined significantly in 2016 and is forecast to decline again in 2017 as a result of excess truck capacity. Beyond 2017, production is anticipated to improve in the medium to longer term as demand for replacement capacity is driven by regulatory changes. The off-highway market, particularly for agricultural and mining vehicles, declined significantly in 2016 and is expected to remain weak in 2017 from the indirect impacts of lower oil and commodity prices.

In the passenger car sector (5% of Group), Senior's revenue arises predominantly from European markets. This market sector is forecast to remain stable in the medium term, as illustrated in the chart below.

In the medium to longer term, demand for the Group's products in these land vehicle sectors is anticipated to increase as a result of growth in GDP and as emissions regulations continue to tighten, particularly in geographies outside North America and Europe. Senior is developing new heat exchanger and other exhaust gas recycling solutions for the next

generation of heavy-duty diesel engines, as well as mid to smaller range engines and alternative energy applications. The Group is also pursuing potential growth opportunities in a number of emerging markets.

Industrial (13% of Group)

Senior designs and manufactures products for global industrial process control markets including petrochemical, HVAC and power and energy markets, to meet an increasingly stringent regulatory environment. In the near term, industrial markets, particularly oil and gas related, are continuing to be impacted by lower oil prices as investment in the sector is reduced or postponed, compounded by destocking across the sector. However, it is encouraging to see oil prices and rig counts increasing in recent months.

Over the longer term, projected increases in global energy usage, tightening emission control regulations and emerging changes in power generation will drive increased global demand for the Group's industrial products.

GLOBAL EMISSIONS STANDARDS

REGION	2015	2016	2017	2018	2019
Light-Duty Engines – Car & Truck
BRAZIL	PROCONVE L-6
CHINA		China 4			China 5
EUROPE			Euro 6
INDIA		BS III		BS IV	BS V
US		Tier 2		Tier 3
Heavy – Duty Engines – On Highway
BRAZIL	PROCONVE P-7
CHINA	China IV
EUROPE	Euro VI
INDIA	BS III BS IV			BS V
US	EPA2013
Engines – Off Road
BRAZIL	PROCONVE MAR-I
CHINA	Stage III
EUROPE	Stage IV Stage V
INDIA	BS III
US		Tier 4

LAND VEHICLE PRODUCTION FORECAST

SOURCE: IHS

OIL PRICE AND US RIG COUNT DECLINES

WORLD ENERGY DEMAND

SOURCE: BP Energy Outlook 2035

OUR BUSINESS MODEL

HOW WE CREATE VALUE

Senior's primary strategic objective is to create long-term sustainable growth in shareholder value.

This is achieved through a culture of empowerment of autonomous and collaborative operations working within an effective control framework. The major elements of value creation for the Group can be classified as follows:

Developing our portfolio of autonomous and collaborative operations. The Senior portfolio provides:

OUR ASSETS OUR APPROACH

CUSTOMER ALIGNMENT

Working with our customers to provide innovative marketleading solutions.

Effective customer alignment means:

STRONG CUSTOMER RELATIONSHIPS

The Group seeks to deliver competitive products utilising its engineering expertise to optimise customer value and exceed expectations whilst continuing to meet performance objectives. This is achieved through advanced process engineering and excellent operational execution, leading to market differentiation and continued growth in organic revenue, operating margins and cash flow delivery.

BEING ON THE RIGHT PLATFORMS

Investment is targeted in new product development, technologies and geographic regions as these markets higher than average growth potential, which will further enhance organic growth opportunities. Many of the Group's products are developed to help customers achieve their objectives for improved operating costs, particularly fuel efficiency in aircraft platforms and land vehicle engine applications, and to meet increasingly stringent global emission regulations.

EXPANDING CAPABILITIES

The Group's customers increasingly operate on a global basis and it is important that Senior is able to support them across the world. In industries where customers have choices with whom they do business, Senior's on-time delivery and quality record and its cost competitiveness are key to the Group gaining market share.

OUR DIVERSIFIED BUSINESS MODEL

Our business model is diversified by geography, customer, product and market, giving us a key strategic advantage.

OPERATIONAL EXCELLENCE

Being passionate about operational excellence, driving continuous improvement.

Effective operational excellence results in:

ETHICS AND SAFETY AT THE HEART OF WHAT WE DO

Senior is committed to conducting its business with integrity, honesty and fairness and operating with the highest degree of ethical standards in everything it does. Governance procedures are designed to allow each operation to embrace and manage operational excellence effectively, and to comply with all legal and regulatory requirements, without imposing an unnecessary administrative burden. They also aim to ensure that employees act safely at all times, with integrity and in an ethical manner.

CONTINUOUS IMPROVEMENT

Driving value creation through the implementation of operational excellence initiatives based around Lean principles and sustained superior performance in the eyes of its customers. Success through delivering operational improvements as part of the annual planning cycle, using Kaizen events and other Lean practices to reduce costs, improve product flow and velocity and optimise use of resources.

REDUCING ENVIRONMENTAL IMPACT

Reducing the Group's environmental impact helps to reduce cost and to improve efficiencies and make us more agile. The Group's main impacts on the environment are: energy consumption (and associated CO2 emissions), waste generation and recycling, and water consumption. All of the Group's operations develop energy conservation projects, tailored to their main energy consumption, and regularly monitor performance through energy usage. Senior's Lean programme also continues to help reduce energy demand by improving the efficiency of how the Group manufactures and streamlines the process to eliminate waste.

AREAS OF STRATEGIC FOCUS

1

3

AUTONOMOUS AND COLLABORATIVE BUSINESS MODEL

2 FOCUS ON GROWTH

HIGH PERFORMANCE OPERATING SYSTEM

4 COMPETITIVE COST COUNTRY STRATEGY

5 CONSIDERED AND EFFECTIVE CAPITAL DEPLOYMENT

6 TALENT DEVELOPMENT

SEE NEXT PAGE FOR MORE DETAIL

GEOGRAPHY We sell in 14 countries

CUSTOMER We sell to all major aerospace and flexonics manufacturers

PRODUCT We offer 14 major categories of product lines

MARKET Our products serve 12+ markets

AREAS OF STRATEGIC FOCUS

The following six strategic priorities were identified as key elements of our business model, which will drive the creation of shareholder value. They will receive specific attention and focus over the coming years.

1 ENHANCE SENIOR'S AUTONOMOUS AND COLLABORATIVE BUSINESS MODEL 2 FOCUS ON GROWTH 3 INTRODUCE A HIGH PERFORMANCE

WHAT IT IS	Senior's business model is one of empowering and holding accountable our businesses, operating within a clearly defined divisional structure, to develop and deliver business plans in line with overall Group strategy. Increasing collaboration amongst business in the Group is a priority to ensure economies of scale are realised whilst maintaining the autonomous business structure. Business leaders throughout Senior are actively embracing collaboration activities with priorities set at Group level in consultation with the businesses.	Senior's end markets grow naturally at around 4% through the cycle. We believe it is possible to outgrow our end markets and we seek to do that both organically and through acquisition by: • Growing market share, particularly with key customers; • Focusing on innovation; • Geographical expansion; and • Seeking out and exploiting adjacent opportunities organically and through acquisition.	Senior is implementing a high performance operating system of its own, drawing on the many excellent practices from across the Group. The key elements of this system include: • An operational toolkit incorporating best practice processes such as lean and continuous improvement techniques; supplier management; new product introduction; 5/6S methodology; factory visual management systems; risk and financial management; and • A strengthened business review process utilising a balanced scorecard incorporating KPIs with focus on performance, growth, operational excellence and talent development.
WHAT WE'VE DONE	• Implemented engagement guidelines to help optimise the transfer of work to cost competitive locations and to facilitate higher level solutions to meet customer needs; • Customer Relationship Managers appointed during the year for key customers; • Updated management incentive schemes to encourage greater collaboration: all senior managers across the Company now have part of their incentive tied to Group performance as well as their business unit; and • Rolled out "Spark", an online Group wide interactive communication tool.	• Customer Relationship Managers appointed during the year for key customers; • Established a Group-wide technology council to focus on advanced engineering and manufacturing methods such as additive manufacturing; • New production programmes were launched in India, Mexico, Malaysia and Thailand; and • Steico successfully integrated into the Group.	• Implemented a new and more intensive business review process; updated the Group's reporting systems to incorporate best-in-class real-time digital dashboard; and established Group-wide balanced scorecard with KPI's; • Established a procurement council to leverage our global spend; initial focus on consumables generating significant savings; and • Some progress made towards introducing best practice operational toolkit and processes, with plans to develop further in 2017.
OUR PLANS FOR 2017	• Focus front end collaboration efforts on multi-site business opportunities; • Deliver supply chain savings from Procurement Council collaboration; and • Further improve safety practices across the Group in line with 2020 objective including the launch of a Senior behavioural safety standard.	• Extend successful Customer Relationship Manager approach to other customers; • Target growth in new orders from specific key customers in support of their cost down activities; • Win more new business for our cost competitive Asian businesses; and • Further investments in 3D printing/ additive manufacturing capability.	• Introduce best practice lean manufacturing processes and toolkit; • Undertake targeted performance improvement workshops in underperforming businesses; and • Deliver savings on indirect and direct material through Group-wide procurement council and by utilising Senior's cost competitive sources.

OPERATING SYSTEM

GOVERNANCE

4 COMPETITIVE COST COUNTRY STRATEGY

Enhance Senior's global footprint to ensure our businesses stay competitive at a capability and cost level, with key investments in Thailand, Malaysia, China, India, Mexico and the Czech Republic to help ensure we meet our customers' cost and price challenges whilst protecting margins. We are actively moving products and establishing increasingly sophisticated capabilities in these competitive cost economies to free up capacity in our European and North American factories, which is needed to satisfy anticipated increasing levels of demand.

5 CONSIDERED AND EFFECTIVE CAPITAL DEPLOYMENT

Senior understands the importance of considered and effective capital deployment in the interest of maximising the creation of shareholder value. All significant investments undertaken by Senior are assessed using a rigorous investment appraisal process and are supported by a business case. The Group has a financial objective to maintain an overall return on capital employed in excess of the Group's cost of capital and to target a pre-tax return in excess of 15%.

6 TALENT DEVELOPMENT

Senior has a skilled workforce and some highly experienced entrepreneurial business leaders. We are bringing renewed focus to further developing leadership talent and upgrading functional capability across the Group. We are ensuring robust succession plans are in place across our businesses. We are working with capable external partners to deliver tailored training and development programmes for Senior's top talent.

• Opened new airframe structures facility in Thailand in June 2016;
• Ramping up cooler and common rail production at our facilities in India and Mexico; and
• Approved the construction of a facility expansion in the Czech Republic to support new Flexonics programmes.
• Disposed loss making small commodity composites business based in Wichita;
• Invested £52.8m in organic capital expenditure to support growth programmes;
• Dividend increased by 6% to 6.57 pence per share (total paid and proposed); and
• Working capital stabilised at 15.1% of revenue at the end of the year.
• Jane Johnston joined Senior in May 2016 as Group HR Director, responsible for HR strategy across the Group;
• Continued to work with external partners such as Ashridge, to deliver advanced leadership development for our top talent from around the world; and

• Improved succession planning process.

• Continue to ramp up new and transferred Aerospace programmes in Thailand and Malaysia;

• Ramp up cooler production in Cape Town;
• Transfer various fluid systems and structures work packages to Aerospace Mexico; and
• Expand facility in the Czech Republic support new Flexonics programmes.
• Continue to invest in organic capital expenditure to support future growth;
• Continue to pay a progressive dividend reflecting earnings per share and free cash flow generation over the medium term; and
• Maintain the level of working capital as a percentage of revenue.
• Implement Group-wide Performance Development Review process for senior managers; and
• Collaborate across the Group on recruitment and selection.

2016 PERFORMANCE

AEROSPACE

REVENUE £665.2m 2015:(1) £629.9m. Change: +5.6%.

ADJUSTED OPERATING PROFIT £74.8m 2015:(1) £83.6m. Change: –10.5%.

ADJUSTED OPERATING MARGIN 11.2%

2015:(1) 13.3%. Change: –2.1ppts.

REVENUE RECONCILIATION

DIVISIONAL REVIEW

The Aerospace Division represents 73% (2015 – 68%) of Group revenue and consists of 19 operations. These are located in North America (ten), the United Kingdom (four), continental Europe (three), Thailand and Malaysia. The Division's operating results on a constant currency basis are summarised left:

Divisional revenue increased by £35.3m (5.6%) to £665.2m (2015 – £629.9m(1)) whilst adjusted operating profit decreased by £8.8m (10.5%) to £74.8m (2015 – £83.6m(1)). Excluding the incremental contribution of Steico, acquired in December 2015 (revenue of £26.4m; adjusted operating profit of £3.4m), organic revenue for the Division increased by £8.9m (1.4%) whilst adjusted operating profit decreased by £12.2m (14.6%) compared to 2015.

The Division's most important market is large commercial aircraft where Boeing and Airbus collectively delivered 1,436 aircraft in 2016, 2.8% more than the prior year. Senior's sales in the large commercial aircraft sector increased by 11.9%(1) during the year, with organic growth, excluding acquisition, being 9.3%(1). The Group benefited from increased production of the A350 and A320neo, which began customer deliveries in January 2016; however, these increases were partly offset by decreased production of the 747, the comparative impact of the declines in A330 build rates from last year, and the planned reduction in work share on the Trent 1000 engine.

The Division's sales to the regional jet market, excluding acquisition, increased by 24.1%(1) in the year, mainly as a result of increased production of Bombardier's CSeries, which commenced customer deliveries in June 2016, and increased non-recurring engineering revenue from the Mitsubishi Regional Jet programme, which is expected to commence deliveries to customers in 2020. Revenue derived from the business jet sector declined by 30.9%(1), on an organic basis, during the year due to previously announced reductions in build rates of Bombardier's Global 5000/6000 and Gulfstream's G550 programmes.

Excluding acquisition, organic revenue from the military and defence sector decreased by 10.2%(1) in the year, primarily due to lower Joint Strike Fighter content as a work package was dual sourced as previously noted, and the anticipated build rate reductions for Black Hawk, V-22 and Eurofighter. This was offset partially by increases in production of the C-130, A400M and P-8. Including the contribution from the acquisition of Steico, particularly on the Joint Strike Fighter, total revenue from the military and defence sector decreased by 1.3%(1) in the year.

Around 9% of the Aerospace Division's revenue was derived from other markets such as space, non-military helicopters, power and energy, medical and semiconductor equipment, where the Group manufactures products using very similar technology to that used for certain aerospace products. Excluding acquisition, revenue derived from these markets decreased by 8.1%(1), mainly due to weaker power and energy markets, which also adversely impacted sales of non-military helicopters.

The divisional adjusted operating margin declined by 2.1 percentage points to 11.2% (2015 – 13.3%(1)). Margins were impacted by the year-on-year volume reductions on mature programmes such as the A330, Global 5000/6000 and G550, the ramp-up of new aircraft production programmes such as the A320neo, A350 and CSeries and certain supplier issues that impacted some of our US and UK operations. The previously reported price increase negotiations were concluded by the end of 2016. The Group remains focused on reducing costs, both internally and in our external supply chain, particularly on our newer programmes.

During 2016, Senior successfully won additional content on A320neo, 737 MAX, A330neo and A350, all of which are forecasting significant increases in production over the coming years. Customer deliveries of the A320neo began in January 2016, whilst the 737 MAX and A330neo are scheduled to enter service in 2017 and 2018 respectively. Meaningful content was also secured on the 777X, which is scheduled to enter service in 2020. The Group will also benefit from the Joint Strike Fighter, which is scheduled to ramp up significantly between now and the end of the decade.

Overall, the future prospects for the Group's Aerospace Division are visible and remain strong.

(1) 2015 translated using 2016 average exchange rates – constant currency.

FLEXONICS

REVENUE £252.1m 2015:(1) £302.4m. Change: –16.6%.

ADJUSTED OPERATING PROFIT £20.7m 2015:(1) £43.5m. Change: –52.4%.

ADJUSTED OPERATING MARGIN

8.2% 2015:(1) 14.4%. Change: –6.2ppts.

DIVISIONAL REVIEW

The Flexonics Division represents 27% (2015 – 32%) of Group revenue and consists of 14 operations which are located in North America (four), continental Europe (three), the United Kingdom (two), South Africa, India, Brazil, Malaysia and China where the Group also has a 49% equity stake in a land vehicle joint venture. The Division's operating results on a constant currency basis are summarised left:

Divisional revenue decreased by £50.3m (16.6%) to £252.1m (2015 – £302.4m(1)) and adjusted operating profit declined by £22.8m (52.4%) to £20.7m (2015 – £43.5m(1)). Excluding the incremental contribution of Lymington Precision Engineers (LPE), acquired at the end of March 2015 (revenue of £4.3m; adjusted operating loss of £0.3m), organic revenue for the Division declined by £54.6m (18.1%) and adjusted operating profit decreased by £22.5m (51.7%).

Group sales to truck and off-highway markets decreased by 20.3%(1). Senior's sales to the North American truck and off-highway market decreased by £23.4m (28.5%(1)), primarily due to lower sales of EGR coolers for new vehicles as market production of Class 8 trucks declined 29.4% and off-highway sales were impacted by weaker demand for agricultural and mining vehicles. Sales to European truck and offhighway markets grew by £0.9m (6.4%(1)), in line with market production. The Group also benefited by £2.4m (80.0%(1)) increased sales from new truck and off-highway programmes in India and China.

Group sales to passenger vehicle markets decreased by 10.7%(1) in the year. Senior's sales to the European market decreased by £1.8m (4.4%(1)) as growth in market production levels was offset by some programmes coming to end of life. Group sales to North American passenger vehicle markets decreased by £3.4m (60.7%(1)) as certain programmes also came to end of life. Elsewhere, weaker market demand in Brazil was offset by growth in India from new programme launches.

In the Group's industrial markets, organic sales excluding the incremental contribution from LPE were down 20.3%(1). As anticipated, organic sales to petrochemical markets were down £23.4m (34.9%(1)) due to lower demand and the non-repeat of the large industrial expansion joint orders for North American and South Korean petrochemical projects from 2015. Organic sales to power and energy markets decreased by £9.4m (22.4%(1)) due to continued weakness in North American coal and gas fired power generation markets and

the year-on-year impact of lower revenue from fuel cell dielectrics. Elsewhere, the Group benefited from higher sales to solar and other renewables markets.

The adjusted operating margin decreased to 8.2% (2015 – 14.4%(1)). On an organic basis, excluding acquisition, the margin declined by 5.9 percentage points to 8.5% principally due to the market-led volume reductions in truck, off-highway and oil and gas markets, the high margin sectors of the Division. The Group continues to focus on cost management and efficiency initiatives.

Production of North American heavy-duty diesel trucks is forecast to decline further in 2017, largely as a result of excess truck capacity; however, market recovery is anticipated in 2018 as demand and capacity are expected to equalise towards the end of 2017. In the off-highway market, the Group anticipates benefiting from new product launches in 2017, with volumes ramping up over the coming years. Whilst there has been some stabilisation of the oil price in recent months, the pace and timing of recovery in industrial markets, particularly oil and gas related, is still somewhat uncertain as investment in new capital projects is likely to remain subdued in 2017.

Looking further ahead, global environmental legislation continues to tighten and, coupled with projected increases in global energy usage, will drive increased demand for many of the Flexonics Division's products. Senior is developing solutions for the next generation of diesel engines, as well as alternative energy applications. As a result of its global footprint, technical innovation and customer relationships, the Group remains well positioned for the future as new Flexonics programmes and products enter production.

(1) 2015 results translated using 2016 average exchange rates – constant currency.

FINANCIAL REVIEW

SENIOR DELIVERED FREE CASH FLOW OF £48.5M IN A CHALLENGING YEAR

DEREK HARDING GROUP FINANCE DIRECTOR

FINANCIAL SUMMARY

A summary of the Group's operating results (at reported currency) is set out in the table below. Further detail on the performance of each Division is set out in the Divisional Review.

		Revenue		Adjusted operating profit(1)		Margin
	2016 £m	2015 £m	2016 £m	2015 £m	2016 %	2015 %
Aerospace	665.2	575.0	74.8	76.8	11.2	13.4
Flexonics	252.1	274.9	20.7	39.4	8.2	14.3
Share of results of joint venture	–	–	0.7	0.4	–	–
Inter-segment sales	(0.3)	(0.4)	–	–	–	–
Central costs	–	–	(10.6)	(8.8)	–	–
Group total	917.0	849.5	85.6	107.8	9.3	12.7

(1) See table below for reconciliation of adjusted operating profit to reported operating profit

Adjusted operating profit may be reconciled to the operating profit that is shown in the Consolidated Income Statement as follows:

	2016 £m	2015 £m
Adjusted operating profit	85.6	107.8
Amortisation of intangible assets from acquisitions	(19.8)	(12.2)
Goodwill impairment	–	(18.8)
Impairment of assets held for sale	–	(1.8)
Loss on sale and write-down of fixed assets	–	(1.5)
Acquisition costs	–	(1.2)
Operating profit per Financial Statements	65.8	72.3

FINANCIAL DETAIL

Revenue

Group revenue increased by 7.9% to £917.0m (2015 – £849.5m). This included a favourable exchange impact of £82.4m and the beneficial incremental impact from two acquisitions of £30.7m (£26.4m from Steico acquired in December 2015 and £4.3m from LPE acquired in March 2015). Excluding the year-on-year effect of acquisitions and favourable exchange, Group revenue from organic operations was down £45.6m on a constant currency basis. In 2016, 62% of revenue originated from North America, 15% from the UK, 12% from the Rest of Europe and 11% from the Rest of the World.

Operating profit

Adjusted operating profit decreased by £22.2m (20.6%) to £85.6m (2015 – £107.8m), with the Group achieving an adjusted operating margin of 9.3% (2015 – 12.7%). This included a favourable exchange impact of £10.7m and the year-on-year adjusted operating profit contributed by acquisitions of £3.1m (Steico £3.4m and LPE £0.3m loss). If the effect of acquisitions and exchange movements are excluded, adjusted operating profit from organic operations decreased by 30.4% on a constant currency basis.

Finance costs

Total finance costs, net of investment income of £0.2m (2015 – £0.3m) and including IAS 19 pension finance cost of £0.2m (2015 – £0.5m), increased to £10.3m (2015 – £8.5m) due to the adverse foreign exchange impact on the translation of interest on US dollar denominated borrowings, increased borrowings following the acquisition of LPE and Steico, and a higher blended interest rate on committed facilities during 2016.

Research and development

The Group's expenditure on research and development increased to £18.7m during 2016 (2015 – £16.3m). Expenditure was incurred mainly on designing and engineering products in accordance with individual customer specifications and developing specific manufacturing processes for their production.

Profit before tax

Adjusted profit before tax decreased by £24.0m (24.2%) to £75.3m (2015 – £99.3m). On a constant currency basis, adjusted profit before tax decreased by 31.0% (2015 – £109.1m). Reported profit before tax decreased £8.3m to £55.5m (2015 – £63.8m). The reconciling items between adjusted and reported profit before tax are shown in Note 9 to the Financial Statements.

REVENUE GROWTH

7.9%

Group revenue increased by 7.9% to £917.0m.

OPERATING MARGIN

9.3% The Group's operating margin is 9.3%.

Exchange rates

Around 96% of the Group's profits are generated outside the UK and, consequently, exchange rates can significantly affect the Group's results. Exchange rates used for the currencies most relevant to the Group's operations are:

	Profit and loss – average rates
	2016	2015	£ Impact
£: US Dollar	1.36	1.53	+12.5%
£: Euro	1.23	1.37	+11.4%
	Balance sheet – period end rates
	2016	2015	£ Impact
£: US Dollar	1.24	1.47	+18.5%
£: Euro	1.17	1.36	+16.2%

Using 2016 average exchange rates would have increased 2015 revenue by £82.4m and increased 2015 adjusted operating profit by £10.7m. A 10 cents movement in the £:\$ exchange rate is estimated to affect full-year revenue by £41m, operating profit by £4.4m and net debt by £14m. A 10 cents movement in the £:€ exchange rate is estimated to affect full-year revenue by £8m, operating profit by £0.5m and net debt by £0.4m.

Tax charge

The adjusted tax rate for the year was 20.1% (2015 – 20.0%), being a tax charge of £15.1m (2015 – £19.9m) on adjusted profit before tax of £75.3m (2015 – £99.3m). Over the medium term our tax rate is likely to increase as the mix of our business changes and we respond to legislative changes arising from the OECD's Base Erosion Profit Shifting (BEPS) project. Cash tax paid as a percentage of adjusted profit before tax was 3.6% (2015 – 8.0%). The rate of cash tax paid is lower than our adjusted tax rate in both years due to the availability of tax losses, accelerated tax relief for capital expenditure and tax deductible items that do not affect adjusted profit. During 2016, refunds of £3.5m of tax paid in prior periods were also received. Our reported tax rate, including tax credit on items excluded from adjusted operating profit of £5.0m (2015 – £4.6m), was 18.2% (2015 – 24.0%), being a tax charge of £10.1m (2015 – £15.3m) on reported profit before tax of £55.5m (2015 – £63.8m).

Tax policy

The Group acts with integrity in all tax matters, in accordance with the Group's ethics and business conduct programme. It is the Group's obligation to pay the amount of tax legally due and to observe all applicable rules and regulations in the jurisdictions in which it operates. While meeting this obligation, the Group also has a responsibility to its shareholders to plan, manage and control tax costs. The Group seeks to achieve this by conducting business affairs in a way that is efficient from a tax perspective, including maintaining appropriate levels of debt in the countries we operate in and claiming available tax credits and incentives. The Group is committed to building constructive working relationships with the tax authorities of the countries in which it operates.

Earnings per share

The weighted average number of shares, for the purposes of calculating undiluted earnings per share, increased to 418.8 million (2015 – 418.3 million). The increase arose principally from the vesting of shares awarded under the Group's Long-Term Incentive Plan in 2015. Adjusted earnings per share decreased by 24.3% to 14.37 pence (2015 – 18.98 pence). Basic earnings per share decreased by 6.5% to 10.84 pence (2015 – 11.59 pence). See Note 12 to the Financial Statements for details of the basis of these calculations.

Cash flow

The Group generated free cash flow of £48.5m in 2016 (2015 – £51.7m) as set out in the table below:

	2016 £m	2015 £m
Operating profit	65.8	72.3
Depreciation and
amortisation	54.0	40.0
Share of joint venture	(0.7)	(0.4)
Working capital
movement	(0.4)	(12.0)
Pension payments
above service cost	(8.8)	(8.8)
Goodwill impairment	–	18.8
Other items	3.3	5.5
Cash generated by
operations	113.2	115.4
Interest paid (net)	(10.0)	(7.9)
Income tax paid	(2.7)	(7.9)
Capital expenditure	(52.8)	(48.6)
Sale of fixed assets	0.8	0.7
Free cash flow	48.5	51.7
Dividends	(26.4)	(24.3)
Disposal/acquisitions	1.3	(103.9)
Debt assumed with
acquisition	–	(3.7)
Loan to joint venture	0.5	(0.1)
Purchase of shares held
by employee benefit
trust	(1.1)	(0.9)
Foreign exchange
variations	(26.3)	(8.4)
Opening net debt	(194.6)	(105.0)
Closing net debt	(198.1)	(194.6)

Capital expenditure

Gross capital expenditure increased by 8.6% in 2016 to £52.8m (2015 – £48.6m), principally due to investment in future growth programmes and necessary replacement and compliance expenditure. The Group's operations remain well capitalised. The disposal of assets no longer required raised £0.8m (2015 – £0.7m). Similar capital expenditure is anticipated for 2017, with the extent dependent primarily upon the timing of build rate increases in the large commercial aircraft segment and the Group securing the expected new programme wins in both Divisions.

Working capital

Working capital increased by £10.6m in 2016 to £138.5m (2015 – £127.9m). The increase is primarily due to foreign currency movements.

FINANCIAL REVIEW CONTINUED

Dividend

The Group has a long track record of dividend growth and the Board intends to continue to pay a progressive dividend reflecting earnings per share and free cash flow generation over the medium term.

A final dividend of 4.62 pence per share is proposed for 2016 (2015 – 4.36 pence), payment of which, if approved, would total £19.3m (2015 final dividend – £18.3m) and would be paid on 26 May 2017 to shareholders on the register at close of business on 28 April 2017. This would bring the total dividends paid and proposed in respect of 2016 to 6.57 pence per share, an increase of 6% over 2015. At the level recommended, the full-year dividend would be covered 2.2 times (2015 – 3.1 times) by adjusted earnings per share. The cash outflow incurred during 2016 in respect of the final dividend for 2015 and the interim dividend for 2016 was £26.4m (2015 – £24.3m).

Goodwill

The change in goodwill from £284.5m at 31 December 2015 to £318.8m at 31 December 2016 reflects an increase of £34.3m due to foreign exchange differences.

Retirement benefit obligations

Aggregate retirement benefit liabilities at 31 December 2016 were £10.4m in excess of the value of pension assets, representing a decrease in the net deficit of £2.2m from 31 December 2015. The Group's UK defined benefit pension plan reached a surplus of £4.0m (31 December 2015 – £0.6m deficit), primarily due to contributions made by the Group of £8.7m (2015 – £8.7m) offsetting adverse actuarial movements and running costs. The deficit in North America and other territories increased by £2.4m (2015 – £1.6m) to £14.4m.

Net debt

Net debt increased by £3.5m to £198.1m at 31 December 2016 (31 December 2015 – £194.6m). This increase was due to £26.3m unfavourable foreign currency movements, £26.4m dividend payments and £1.1m purchase of own shares offset by £48.5m free cash inflow, £0.5m loan repayment from the joint venture and £1.3m proceeds from the disposal of Senior Aerospace Composites.

Funding and Liquidity

As at 31 December 2016, the Group's gross borrowings excluding finance leases were £214.6m (2015 – £207.2m), with 86% of the Group's gross borrowings denominated in US dollars (31 December 2015 – 75%). Cash and bank balances were £17.5m (31 December 2015 – £14.4m).

The maturity of these borrowings, together with the maturity of the Group's committed facilities, can be analysed as follows:

	Gross borrowings(1) £m	Committed facilities £m
Within one year(2)	44.9	44.2
In the second year	79.1	97.6
In years three to five	26.1	96.1
After five years(2)	64.5	64.5
	214.6	302.4

(1) Gross borrowings include the use of bank overdrafts, other loans and committed facilities, but exclude finance leases of £1.0m.

(2) \$30m (£24.2m) private placement was repaid at its due date in January 2017 by drawing a new €28m (£23.9m) 10-year private placement.

At the year-end, the Group had committed facilities of £302.4m with a weighted average maturity of 3.5 years. These facilities comprise private placement debt of £165.3m, a term loan of £20.0m, and revolving credit facilities of £117.1m. The Group is in a strong funding position, with headroom at 31 December 2016 of £104.3m under its facilities.

In January 2017, the Group repaid a \$30m (£24.2m) private placement at its due date by drawing a new €28m (£23.9m) 10-year private placement. Following this transaction, the weighted average maturity of its committed facilities has increased to 4.3 years.

The Group has £0.7m of uncommitted borrowings which are repayable on demand.

The Group's committed borrowing facilities contain a requirement that the ratio of EBITDA (adjusted profit before interest, tax, depreciation and amortisation) to net interest costs must exceed 3.5x, and that the ratio of net debt to EBITDA must not exceed 3.0x. At 31 December 2016, the Group was operating well within these covenants as the ratio of EBITDA to net interest costs was 11.8x (31 December 2015 – 16.7x) and the ratio of net debt to EBITDA was 1.7x (31 December 2015 – 1.4x). For some covenants the ratio of net debt to EBITDA at 31 December 2016 reduces to 1.5x due to the required restatement of the 31 December 2016 net debt at average 2016 exchange rates.

Derek Harding

Group Finance Director

VIABILITY STATEMENT

In accordance with provision C.2.2 of the UK Corporate Governance Code, published by the Financial Reporting Council in September 2014, the Directors have assessed the prospects of the Group over the three-year period to 31 December 2019. The Directors believe this period reflects the normal planning cycle of its business operations and adequately covers customer lead times for both new and expansion investment.

Whilst the Directors have no reason to believe the Group will not be viable over a longer period, given the inherent uncertainty involved, the period over which the Directors consider it possible to form a reasonable expectation as to the Group's longer-term viability, based on the stress-testing and scenario planning discussed below, is the three-year period to 31 December 2019. This period – essentially the period used for the Group's mid-term business plans – has been selected because it presents the Board and therefore readers of the Annual Report & Accounts 2016 with a reasonable degree of confidence whilst still providing an appropriate longer-term outlook.

In its assessment of the viability of the Group, the Directors have considered each of the Group's principal risks and uncertainties detailed on pages 27 to 29 and in particular the risks associated with potential delays in the launch or ramp-up in production of new aircraft platforms.

The Directors have adopted a scenario approach supported by financial modelling. The "Base Case Scenario", comprising the Group Budget for 2017 and the Group's Strategy for 2018 and 2019 before future acquisitions, is flexed to reflect the probability weighted and cumulative estimated effects of the Group's principal risks and uncertainties. In addition, the Directors have also carried out a Reverse Stress Analysis by modelling the point at which future viability becomes uncertain.

The scenarios are designed to be severe but plausible, and take account of the availability and likely effectiveness of the mitigating actions that could be taken to avoid or reduce the impact or occurrence of the underlying risks and that realistically would be achieved in the circumstances. In considering the likely effectiveness of such actions, the conclusions of the Board's regular monitoring and review of risk and internal control systems, as discussed on pages 24 to 26, is taken into account.

The Directors consider that this stress-testing based assessment of the Group's prospects is reasonable in the circumstances of the inherent uncertainty involved.

Based upon the robust assessment of the principal risks facing the Group and their stress-testing based assessment of the Group's prospects, all of which are described on page 24, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period to 31 December 2019 subject to Senior retaining the ability to acquire funding over the three-year period to 2019 in order to refinance committed facilities as they fall due, which is expected to be the case.

GOING CONCERN

As a consequence of the work undertaken to support the viability statement above, the Directors have continued to adopt the going concern basis in preparing the Financial Statements.

CASH FLOW

The Group generated £48.5m of free cash flow.

NET DEBT: EBITDA

1.7x The ratio of net debt to EBITDA is 1.7 times.

RISKS AND UNCERTAINTIES

OVERALL APPROACH

Senior plc's risk philosophy is based around an acknowledgement that profits are in part the reward for risk-taking. Business objectives cannot be achieved without assuming some degree of risk, and therefore risk should be embraced and managed effectively.

The Group's Risk Management Philosophy:

• aims to take a relatively conservative approach to risk management;
• targets an approach that is one of evolution rather than revolution;
• encourages pursuit of opportunities, within an effective risk management framework, as an essential component of a high performance culture;
• acknowledges that stronger and more effective risk management procedures will result in management teams being capable of embracing increased levels of risk and pursuing more opportunities;
• effectively implemented, should allow Senior to increase its rate of performance delivery without exceeding its risk appetite;
• is designed to enhance senior leadership decision-making capabilities, strengthen accountability and enhance stewardship of the Group's assets; and
• is a critical factor in enabling management teams to deliver against performance and organisational objectives, collectively the Group's business objectives.

The Group aims to embed its risk management procedures within its existing business processes and corporate governance structure, rather than impose an additional administrative burden on its operations. The implementation of this Risk Management Philosophy is supported by an appropriate balance of policies, procedures (including a mandatory Corporate Framework, comprising key group policies and a revised Code of Conduct) and performance metrics that are reported on regularly and designed to enable the effective monitoring of progress against agreed objectives.

At a minimum, the Group aims to ensure that any individually significant event that:

• has or may result in the potential to compromise its ability to achieve its business objectives; or
• could lead to a material breach of policies and procedures; or
• could impact the delivery of earnings materially at a local operational level

is identified, reported on and actioned through the Group's risk management procedures.

Risk events may occur in one or more of the following categories: Strategic, Operational, Financial or Compliance.

Within each operation, responsibility for the implementation of procedures to comply with the Group's risk philosophy and risk management framework rests with the senior management team, which is accountable to the operation's CEO and Divisional CEO.

The Group Executive Management Committee has responsibility for oversight of all Group operations and implementation of risk management at a Divisional level, and the Senior plc Board is ultimately accountable the implementation of effective risk management procedures across the Group.

RISK MANAGEMENT PROCESS

During 2016, a number of improvements were undertaken to improve the robustness of the Group Risk Assessment Process.

A Head of Risk and Assurance joined the business in April 2016. This is a new role for the Group. The Group Risk Assessment Process has been aligned more closely with the Group Strategic Planning Process. Risk mapping has been introduced to provide the linkage between key strategic actions, key risks and the controls in place to manage the risk. Following improvements to the Divisional and Group-level Risk Assessments in 2015, good progress has been made in implementing the further controls identified. Detailed analysis of each key risk and further actions required is refreshed on an annual basis.

Senior's annual Risk Management and Assessment Process is based on a framework developed by the Committee of Sponsoring Organisations of the Treadway Commission (COSO). The COSO framework is globally recognised as the definitive standard against which operations measure their risk management and internal control systems. It outlines five components that, in an effective system, work to support the achievement of an entity's mission, strategy and related business objectives. These are:

• Control Environment;
• Risk Assessment;
• Control Activities;
• Information and Communication; and
• Monitoring.

The foundation of Senior's Risk Management approach is a half-yearly Risk Assessment Review, although risks are continuously monitored by the Executive Committee and the Board. In addition, all entities complete an Annual Controls Self-Assessment, which is designed to highlight any significant gaps in the internal control system and require development of improvement initiatives.

Risk is considered to be the fact that the outcome of a future event is typically uncertain, and consequently the result may not be as planned. The outcome may be favourable or adverse to the one planned. Hence risk assessment and risk management should be considered in the light of both positive and negative outcomes. The possibility of a missed opportunity is also a risk. The outcome may be impacted by both internal and external factors, some of which we may have little or no influence over. Hence, it is important to assess the relative impacts of the various influencing factors and manage those that can be managed, whilst acknowledging, but not ignoring, those that can't be.

Risk management is the process by which the key objectives and the risks in achieving them are identified, evaluated, prioritised and controlled.

Senior's operations have an increased awareness of risk management and have processes that promote consideration of risk as part of day-to-day management. This is evidenced by:

• an open culture which encourages consultation throughout the Group;
• challenging debate and a multi-disciplinary approach to acceptance of new business;
• identification of the factors constraining current performance and formulation of related corrective actions;
• devolved responsibility for identifying and managing risk;
• simple and straightforward early warning mechanisms e.g. key performance indicators (financial and non-financial); and
• consistent and reliable reporting systems.

RISK FRAMEWORK

• High Impact a potential impact > 10% of budgeted OP or 2.5% of revenue.
• Medium Impact a potential impact > 5% of budgeted OP or 1.5% of revenue.
• Low Impact a potential impact < 5% of budgeted OP or 1% of revenue.

The risk assessment process is designed to provide a basis for the regular review of the operating environment and an opportunity to assess whether the correct level of resources are being targeted at the most appropriate areas. In doing so, the intention is to encourage proactive management and reduce the time spent in "firefighting" mode. This should lead to fewer surprises and a greater understanding of the Group's competitive advantage, together with the ability to take advantage of it.

In summary, the Senior Risk Management process is illustrated to the left.

The process is led by the CEOs at each level in the organisation, although full management team involvement is required.

The first review is carried out as a stand-alone management meeting with all functional managers present. Each manager prepares an initial risk assessment covering his or her own area of responsibility, but potentially all areas of influence. This is presented to the meeting for constructive challenge. The CEOs then take the role of arbiter and devil's advocate, and are responsible for ensuring the completeness of the review and the prioritisation of the items coming out of it.

The review documentation is laid out according to broad functional areas, which may not necessarily align with the management structure at each operation. Hence it is the responsibility of the CEO to ensure that all areas of the business are covered in appropriate detail.

The typical questions to be asked and debated for each functional area are:

• Have there been any problems in the past?
• How is the area controlled and can it be improved?
• What impact would it have on the business and what is the probability of things going wrong?
• Can either the likelihood or severity of the impact of things going wrong be managed?
• Should an action plan be devised?

Once the review has been undertaken and risks identified, these are then assessed against the framework opposite.

The impact is not only considered in current year financial terms, but also in more strategic terms, which encompasses the need to build relationships with all stakeholders including employees, customers and suppliers for the longer-term success of the business.

ADDITIONAL INFORMATION

RISKS AND UNCERTAINTIES CONTINUED

OUR INTEGRATED GROUP RISK AND ASSURANCE FRAMEWORK

Top down and bottom up approach on risk

Oversight from the Board and Executive Committee on all risk identification, assessment and mitigation is undertaken at all levels within the Group.

Three lines of defence on assurance

• The Third Line of Defence Independent Assurance
• The Second Line of Defence Operational Oversight
• The First Line of Defence Operational Management

PRINCIPAL GROUP RISKS

Following a thorough review of the Group's risk profile, the relative ranking of some risks has changed. As a result, when compared with 2015, two new principal risks have been added and one, global cyclical downturn, is no longer considered to be a principal risk. The principal potential risks and uncertainties, together with actions that are being taken to mitigate each risk, are set out below:

RISK	MANAGEMENT ACTIONS TO MITIGATE RISK
NEW AIRCRAFT PLATFORM DELAYS	2 3
Significant shipset content has been secured on a number of new aircraft platforms currently under development or in initial phases of production. These include the	• The Group monitors programme development and launch timing of new aircraft platforms very closely, utilising internal customer relationships and market intelligence. • A cautious approach is taken to both capital investment in new programmes, to minimise the time between installation and utilisation of new capital equipment, and to the projected build
Airbus A350, A320neo, the Boeing 737 MAX and Bombardier's CSeries regional jet. Delays in the launch or ramp-up in production of these platforms could have a material adverse impact on the Group's rate of organic growth.	rates and associated revenue in financial projections. • The growing breadth of Senior's exposure to a comprehensive and diverse range of aerospace and land vehicle platforms, together with its broad exposure in global industrial markets, means that the Group's future organic growth profile is not overly dependent on any individual new aircraft platform.
IMPORTANCE OF EMERGING MARKETS	2 3 4 5
Customers' desire to move manufacture of components to lower-cost countries could	• The Group's strategy of developing a portfolio of high value-added engineering manufacturing companies has meant that over time it has generally evolved away from products where the direct threat of lower-cost country manufacture is significant.
render the Group's operations uncompetitive and have an adverse impact on profitability. In addition, certain customers require global programme support as they respond to increasing domestic demand in a number of these emerging markets.	• The Group successfully employs a strategy of retaining commercial and engineering expertise close to customers' locations, principally in North America and Europe. This enables effective support to be readily given to its customers, whilst increasing manufacturing at above-average growth rates in lower-cost country locations where it makes sense to do so and with customer agreement.
	• The Group has an increasing presence in emerging markets via its facilities in Mexico, Thailand, the Czech Republic, South Africa, Brazil, India, Malaysia and China.
	• Each of these operations, individually and in combination, has a healthy number of viable opportunities for further expansion either to supply domestic markets or to support customers' increasingly global needs.
PRICE-DOWN PRESSURES	1 3 4
Customer pricing pressure is an ongoing challenge within our industries, driven by the	• The Group works closely with its customers to find innovative ways to produce products at a lower cost, thus helping them to meet pricing challenges.
expectations of airlines, land vehicle operators and governments seeking to purchase more	• The Group is able to consider bundles of products that in total help achieve customer pricing challenges.
competitively priced products in the future. This will continue to put pressure on the Group's future operating margins.	• Where appropriate, the Group will actively pass work to some of its lower-cost facilities such as Mexico, Thailand, the Czech Republic, South Africa, Brazil, India, China and Malaysia with a view to helping satisfy customer challenges.

PRINCIPAL GROUP RISKS CONTINUED

RISK	MANAGEMENT ACTIONS TO MITIGATE RISK
ACQUISITIONS	2 5
Failure to execute an effective acquisition and integration programme would have a significant impact on the Group's ability to	• Consistently strong free cash flow generation gives the Group capacity to continue to execute a targeted acquisition programme.
generate long-term value for shareholders.	• The Group has a well-established acquisition framework that includes proven valuation, due diligence and integration processes.
	• Acquisitions are integrated into the Group efficiently and effectively using a 'Post-Acquisition Playbook'.
	• Post-acquisition reviews are performed on key acquisitions, comprising a full retrospective review of each deal process, integration effectiveness, operational performance compared with expectation and sharing of lessons learned with the Board and across the senior management team.
STRATEGY	1 2 4 5 6
An appropriately formulated, communicated and effectively executed strategy is essential in order to avoid the risk of inappropriate	• Focus is placed on the strategic planning process to ensure that the Group formulates the most appropriate strategy to capitalise, over time, on the significant breadth of potential growth opportunities in its chosen market sectors.
allocation of resources and failure to deliver on long-term performance goals.	• The process includes regular strategy sessions at operational, Executive Committee and Board level.
PROGRAMME PARTICIPATION	1 2 3 4
Long-term growth in demand, including participation in future development	• The Group has developed a portfolio of businesses that are exposed to markets which exhibit fundamental long-term growth characteristics.
programmes in the Group's major markets, is an essential foundation for future growth. Failure to secure profitable new programme	• Customer value is driven through constructive and co-operative relationships with key customers in each market, providing innovative customer solutions and quality products delivered on time and in line with specifications.
wins could have a severe impact on the Group's long-term performance.	• The Group ensures that its operations are sufficiently well capitalised to be able to bid competitively on new programme opportunities, and maintains close control over operating costs to ensure that operations remain competitive on existing programmes.
	• The Group utilises an internal contract approval process, comprising both financial and non financial analyses, to ensure that bids are submitted and won at acceptable margin levels.
EMPLOYEE RETENTION	6
An inability to attract, develop and retain high-quality individuals in key management	• Empowering capable and highly engaged individuals. The strong reputation of the Group helps attract experienced senior executives from within the industry.
positions could severely affect the long-term success of the Group.	• The Group sponsors the development and training of key managers, at all levels, through an increasingly comprehensive in-house management development programme.
	• Maintaining senior management turnover ratios at a low level, a further indication of success in this important area.
	• Strengthening the succession planning process.

RISK MANAGEMENT ACTIONS TO MITIGATE RISK
CORPORATE GOVERNANCE BREACH	1
Corporate governance legislation (such as the UK Bribery Act and the US Foreign Corrupt Practices Act), regulations and guidance (such as the UK Corporate Governance Code and global health and safety regulations) are increasingly complex and onerous. A serious breach of these rules and regulations could have a significant impact on the Group's reputation, lead to a loss of confidence on the part of investors, customers or other stakeholders and ultimately have a material adverse impact on the Group's enterprise value.	• The Group has well-established governance policies and procedures in all key areas, including a Group Code of Business Conduct, anti-bribery procedures, a Health and Safety Charter, and various policies and procedures over the review and reporting of risk management and internal control activities. • The Group Finance Director, the Group Company Secretary and the Head of Risk and Assurance collectively retain principal responsibility for reviewing governance changes that may have an impact on the Group. • Governance updates are provided to the Board and Executive Committee at appropriate intervals, and to key operational management. Recent examples of developments in this include formulation of a Business Continuity Framework, IT Policy Guidelines, and anti-bribery training. • In 2016, the Group's Code of Conduct was enhanced and reissued. All employees have received training on the Code of Conduct and this will be repeated on an annual basis.
FINANCING AND LIQUIDITY	2 3 5
The Group could have insufficient financial resources to fund its growth strategy or meet its financial obligations as they fall due.	• The Group's overall treasury risk management programme focuses on the unpredictability of financial markets, and seeks to minimise potential adverse effects on the Group's financial performance. • Compliance with financial policies and exposure limits are reviewed by the Group's Treasury Committee on a regular basis. • The Group enters into forward foreign exchange contracts to hedge the exchange risk arising on operations' trading activities in foreign currencies; however, it does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. • The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, and by continuously monitoring forecast and actual cash flows, matching the maturity profiles of financial assets and liabilities and paying close attention to the projected level of headroom under the covenants contained in its committed borrowing facilities.
GEO-POLITICAL IMPACT N	2 4
The UK decision in June 2016 to leave the EU, the election of a new President in the US and other likely geo-political events has created uncertainty over the future impact on international trade and the ability to retain and recruit foreign nationals.	• The Board ensures that it is kept informed of Brexit and US trade developments so that it can assess the impact on the Group and take action as appropriate. • The Group is reviewing the impact of Brexit on its employees and future retention and recruitment strategies.
CYBER/INFORMATION SECURITY N	1
The risk that the Group is subjected to external threats from hackers or viruses potentially causing critical or sensitive data to be lost, corrupted, made inaccessible, or accessed by unauthorised users, resulting	• The Group has security controls in place including policies and procedures. • Ongoing monitoring of developments in cyber security threats. • Educating employees about key cyber risks. • Reviewing impact of the General Data Protection Regulation on the Group.

in financial loss.

CORPORATE RESPONSIBILITY

OPERATING IN AN ETHICAL, ENVIRONMENTALLY AND SOCIALLY SUSTAINABLE MANNER IS A KEY DRIVER IN VALUE CREATION

20/20 OBJECTIVES

In 2015, we launched our 20/20 vision for sustainability, a five-year strategy, following an assessment of materiality with our key stakeholders. Our vision has three core themes: Workplace, Environment and Community.

WORKPLACE

HEALTH & SAFETY ETHICS

Objectives

Continue towards our goal of zero harm through effective management systems, employee engagement and defining safe behaviours.

Progress

A 10% reduction in our Lost Time Injury Rate and a 16% reduction in our Total Recordable Injury Rate compared with 2015.

Behavioural Safety Steering Committee formed to define safer behaviours for all our sites.

EMPLOYEE ENGAGEMENT SUPPLY CHAIN

Objectives

Develop a Group HR Framework with improvement objectives for learning, diversity and equality.

Progress

The Group has placed greater emphasis on succession planning and completed a robust review process across the leadership teams in all our operating business units. This has strengthened the Group's development programmes and resulted in a number of key roles being filled internally. We continue to focus on diverse shortlists for all leadership roles and have increased the number of women on the Board and the Executive Committee.

Objectives

Act in accordance with Senior's business principles and values, upholding a zero tolerance approach to bribery and corruption.

Progress

New Code of Conduct was published and implemented. Rolled out the ethics and compliance programmes training across the Group.

Objectives

Implement a Responsible Supply Chain Management Policy and communicates it to all suppliers.

Progress

A Responsible Sourcing Policy has been adopted. Key suppliers have been included in the assessment process.

ENVIRONMENT

CARBON EMISSIONS WATER CONSUMPTION

Objectives

Reduce carbon emissions through improved energy consumption and efficiency measures.

Progress

Emissions of CO2 (tonnes per £m revenue) have decreased from 85 in 2015 to 81 for 2016.

WASTE RECYCLED CERTIFICATION

Objectives

Reduce the overall quantity of waste generated and improve proportion of materials reused and recycled.

Progress

More than 80% of waste produced is recycled, 75% in 2014.

Objectives

Limit the environmental impacts of our products and processes through more efficient water consumption.

Progress

Water consumption for 2016 was 0.30 Megalitres/£m turnover compared with 0.31 in 2015.

Objectives

Establish formalised environmental management systems in all businesses to reduce the environmental impacts.

Progress

All legacy Senior businesses now have certification under IS0 14001. The remaining businesses are progressing well.

COMMUNITY

COMMUNITY GIVING

Objectives

Establish positive and meaningful relationships with all the communities in which Senior operates and provide financial support to local charities and good causes.

Progress

Our businesses continue to interact in a positive way with communities local to the facility.

WORKPLACE

HEALTH & SAFETY

The health, safety and welfare of our people continues to be our utmost priority. We have seen a reduction in our Lost Time Injury Rate of around 10% with a 16% reduction in our total recordable injury rate compared with 2015. No fatal injuries were recorded in any of our Senior businesses in 2016.

Over the last year, our Zero Harm programme has matured with all our businesses active in training and coaching staff in the ethos: "all workplace injuries and illnesses are preventable". In addition to this, our businesses have communicated and implemented our Ten Golden Rules through workshop training events.

The number of Corporate Safety reviews increased in 2016. 33 businesses received a thorough inspection ranging from two to three days. Actions from the inspections are tracked and recorded centrally.

Machinery guarding has been a focus point in 2016. A significant effort has resulted in a thorough risk assessment of our manufacturing equipment; identified improvements are nearing completion with the remaining equipment scheduled for early 2017.

2016

• Focus on machine safety
• Reduced Lost Time Injury Rate
• Increased number of Safety Reviews
• Formed a Behavioural Safety
• Steering Committee

2017

• Extend the Zero Harm programme with a Behavioural Safety element
• Continue focus on machinery safety
• Review Contractor Management
• Enhance our Safety review process

INJURY RATES

CORPORATE RESPONSIBILITY CONTINUED

The highest ethical standard

Senior remains committed to the highest standard of ethics and a zero tolerance towards bribery and corruption. Our ethics and business conduct programme commits us to conducting business fairly, impartially and in compliance with local laws and regulations and to acting with integrity and honesty in our business relationships. The programme is underpinned by the Code of Conduct, which provides a clear framework on which to base decisions when conducting day-to-day business. It does this by:

• clearly setting out the behaviour expected of all employees;
• providing guidelines which help employees to apply our values; and
• enabling employees to raise a concern or ask a question if in doubt.

Acting ethically is an enabler of our business, providing competitive advantage by strengthening long-term relationships and protecting the Group's reputation.

We use various forms of communication and training, both in-person and through electronic media, to embed the ethics and integrity requirement across the Group. We investigate any alleged violations or complaints and take the necessary action. A register of reported incidents is maintained by the Group Company Secretary and the Board receives regular updates.

The Group recognises that the use of thirdparty intermediaries can increase potential bribery and corruption risks within the markets in which we operate. All external sales agents working on behalf of Senior across the world are required to operate in compliance with the Code of Conduct. The Code requires a pre-appointment due diligence and risk assessment to be undertaken, prior to engaging or re-appointing any sales agent and requires them to be issued with the Code, ensuring that they understand, acknowledge and accept its requirements.

2016 update

• Published and implemented a new Code of Conduct.
• Appointed a new ethics training provider.
• The Code of Conduct training was completed by all employees in the Group.
• The employees who have outward-facing roles have also completed the Preventing Bribery and Corruption training.
• Rolled out the ethics and compliance programmes to LPE and Steico Industries, both acquired in 2015.
• Strengthened and reissued the Group Agents Policy.
• Issued our Responsible Supply Chain Management Policy to all suppliers.

Our plans for 2017

• Continue to improve and evolve the Group's ethics programme with annual Group-wide training programmes and a closer alignment of the business conduct programme with human resources, legal and internal audit activities.
• Progress the findings of our internal review, strengthening our responsible business practices.

EMPLOYEE ENGAGEMENT

Our operating businesses are focused on creating a positive and productive work environment that allows people to do their best work, contribute to continuous improvement and deliver to our customers as well as developing as individuals. Feedback is gathered via employee opinion surveys, skip level meetings, Lean Manufacturing Gemba walks, performance reviews and development discussions and all-hands meetings. Action plans are developed and implemented based on the employee feedback gathered.

A Corporate Responsible Sourcing Policy been developed in 2016. The businesses have communicated the requirements to

all key suppliers. In some cases, audits of suppliers have taken place.

The Responsible Sourcing Policy has 10 key principles:

Principle 1. Integrity

Principle 2. Employee benefits/wages

Principle 3. Working hours

Principle 4. Discrimination

Principle 5. Exclusion of child labour

Principle 6. Free to form and join trade unions or refrain from doing so

Principle 7. Workers' health and safety is protected

Principle 8. Workers have access to fair procedures and remedies

Principle 9. No harsh or inhumane treatment of employees

Principle 10. Environmental impacts are managed.

The Board has approved a Modern Slavery Act Transparency Statement in compliance with section 54 of the Modern Slavery Act 2015, which is available to view on the Company's website.

Upeca Technologies Sdn Bhd Safe Work Culture Event

ENVIRONMENT

Senior recognises the importance of minimising the environmental impact of our activities in all our business activities. The Group Environmental programme includes the monitoring of key environmental aspects, communication of regulatory developments that may affect our operations and shared training as well as internal and external auditing of environmental management systems. It is the Group's requirement for our businesses to achieve certification under ISO 14001 and good progress has been made on accreditation with our new sites and acquisitions. We currently have two sites (recent acquisitions) progressing towards certification; the remaining businesses have all achieved accreditation to ISO 14001.

Our focus in 2016 has continued to be on the key aspects of energy consumption (and associated CO2 emissions), waste and water. This is set to continue into 2017.

CARBON EMISSIONS

Senior continues to participate in the Carbon Disclosure Project (CDP). CDP is a not-for-profit organisation which manages a global disclosure system for investors, companies, cities, states and regions, helping organisations to understand and control their environmental impacts. Senior makes an annual disclosure to CDP detailing carbon intensity from our activities. The scores grading system for 2016 has been changed; for this year we achieved a score within the "managing" band. In 2017 we plan to work with CDP on aspects of the highest "leadership" banding.

Our Scope 1 and 2 emissions have been independently verified in accordance with the International Standard on Assurance Engagements 3410 'Assurance engagements on greenhouse gas statements' (ISAE 3410).

Our businesses continue to achieve further reductions in energy usage with focus on energy efficiency projects including, compressed air generation, high efficiency heating and lighting. In 2016, our energy intensity improved by 5%.

Our Pathway Texas business engaged in a project with the local university. Engineering students conducted a detailed study identifying energy usage by process in order to identify energy saving opportunities. The students benefited from working in an industrial environment.

WATER CONSUMPTION

We continue to monitor and report on water usage. Businesses incorporate water saving initiatives as they continue to refine production processes. The Senior facility in the Czech Republic initiated a project to optimise the washing process. This has resulted in a reduction of water usage and associated costs with processing of waste water.

WASTE RECYCLED

In 2016, we recycled 81% of our waste with a number of our businesses achieving zero waste to landfill where local conditions are favourable to recycling opportunities. The total amount of waste produced by the Group reduced by 15%.

CO² TO TURNOVER

ENERGY INTENSITY

FINANCIAL STATEMENTS

SUMMARY OF ENVIRONMENTAL PERFORMANCE

	2013	2014	2015	2016
Energy efficiency (MWh/£m revenue)	204	202	194	184
Scope 1 GHG (tCO2e)	9,466	11,475	12,092	10,906
Scope 2 GHG (tCO2e)	51,151	56,787	56,482	59,578
Scope 3 GHG (tCO2e)	5,631	2,796	4,130	4,089
Tonnes CO2 emitted per £m of revenue	85.47	86.14	85.58	81.28
Water usage (in megalitres)	275	314	264	288
Percentage of waste recycled or recovered	71%	81%	82%	81%
Water usage per £m of revenue	0.36	0.38	0.31	0.30

STRATEGIC REPORT

KEY PERFORMANCE INDICATORS

The Group uses five financial and two non-financial metrics to measure progress in implementing its strategy.

The Group's financial objectives are as follows:

• to achieve organic revenue growth (at constant exchange rates) in excess of the rate of inflation;
• to increase adjusted earnings per share on an annual basis by more than the rate of inflation;
• to increase the Group's return on revenue margin each year;
• to generate sufficient cash to enable the Group to fund future growth and to follow a progressive dividend policy; and
• to maintain an overall return on capital employed in excess of the Group's cost of capital and to target a pre-tax return in excess of 15%.

These financial objectives are supported by two non-financial objectives:

• to reduce the Lost Time Injury Rate (per 100 employees ) to 0.5 by 2020; and
• to reduce the Group's energy intensity (tonnes CO2 per £m revenue) to 77 by 2020.

The Group collects its environmental data in accordance with the guidelines specified by the Global Reporting Initiative (GRI), to the extent that this is currently practicable, and has applied the greenhouse gas conversion factors contained within the GRI Guidelines and the Defra/DECC's 2016 Conversion Factors for Company Reporting. The Group has used the financial control approach to define its organisational boundary and reports data from its wholly-owned or majority-owned operations. Billed or metered sources represent the basis of the majority of our greenhouse gas emissions.

2016 was a challenging year for the Group and as a result only one out of five of the Group's financial targets was met. However, good progress was made towards the two nonfinancial objectives and the Group was pleased to see CO2 emissions and Lost Time Injury Rates decrease in 2016. The Group remains on track to meet its 2020 safety, energy and water usage improvement goals. Further details of the Group's performance record in this regard, including its long-term performance trends, are shown on pages 30 to 33.

A summary of the year-on-year movements in these key performance indicators (KPIs) and the main drivers of the changes are described opposite.

ORGANIC REVENUE (£M)

15 16

Organic revenue increased in the Aerospace Division due to increased build rates on large commercial aircraft programmes, offset partly by lower revenue from business jet and certain military programmes. In Flexonics, conditions were much tougher and resulted in lower demand for truck and off-highway engine components. Industrial markets were also down, impacted by continued weakness in oil and gas power generation markets.

RETURN ON REVENUE MARGIN (%)

-3.4ppts 13.6 12.7 9.3

14 15 16

During the year, the Group experienced a number of factors that reduced the margin. Aerospace margins were impacted by volume reductions on mature programmes, the ramp-up of new aircraft production programmes and certain supplier issues. Margins in Flexonics were impacted by the market-led reductions in volume of the high margin segments of the Division.

ADJUSTED EARNINGS PER SHARE (P)

Lower revenue at a lower margin results in a decline in adjusted profit before tax of 24.2% to £75.3m. The Group's tax rate was unchanged at 20% whilst the weighted number of basic shares increased by 0.5m to 418.8m resulting in a 24.3% reduction in adjusted earnings per share.

NET CASH FROM

The Group's cash conversion remains , despite challenging trading conditions. The Group has been able to fund an increased level of capital expenditure of 1.5 times depreciation and proposes a 6% increase in the annual dividend.

The Group's return on capital employed reduced in 2016 to 12.9% due to the impact of lower earnings compounded by increased capital expenditure.

CARBON DIOXIDE EMISSIONS (TONNES/£M REVENUE)

The Group has achieved a 5% reduction in carbon dioxide emissions (CO2e) per £m revenue, a credible performance in challenging market conditions.

LOST TIME INJURY FREQUENCY RATE (INCIDENTS PER 100 EMPLOYEES P.A.)

The Group continued to focus on the Zero Harm programme, training and implementing the "Ten Golden Rules" of safety. In 2016, a credible 10% reduction in the Lost Time Injury Rate and a 16% reduction in the total Recordable Injury Rate were achieved. In 2017, the Zero Harm programme will continue, with increased focus on behavioural elements to achieve our 2020 goal.

Approval

The Strategic Report from pages 1 to 35 was approved by the Board of Directors on 24 February 2017 and signed on its behalf by

David Squires

Group Chief Executive

BOARD OF DIRECTORS

1. CHARLES BERRY Chairman

Appointment to the Board

Charles Berry was appointed to the Board in March 2012 and became non-executive Chairman and Chairman of the Nominations Committee on 27 April 2012.

External Appointments

He is Chairman of The Weir Group PLC. He retired from the board of Drax Group plc in April 2015.

Previous Experience

He was an executive Director of Scottish Power plc from 1999 to 2005 and Chief Executive of its UK Operations between 2000 and 2005. Prior to joining Scottish Power, he was Group Development Director of Norwest Holst, a subsidiary of Compagnie General des Eaux, and held management positions within subsidiaries of Pilkington plc. He is a former non-executive director and Chairman of Eaga plc, Thus Group plc and Drax Group PLC and a former non-executive director of Impax Environmental Markets PLC and Securities Trust of Scotland plc.

Qualifications

BSc (Hons) in Electrical Engineering and MSc in Management.

2. CELIA BAXTER

Independent non-executive Director

Appointment to the Board

Celia Baxter joined the Board on 2 September 2013 and became Chair of the Remuneration Committee in December 2013.

External Appointments

She is a non-executive director of N.V. Bekeart S.A. She retired as the Director of Group HR of Bunzl plc in September 2016.

Previous Experience

Her early HR career was with Ford Motor Company and KPMG. She has held executive HR positions with Hays plc, Enterprise Oil Plc and Tate & Lyle Plc.

Qualifications

Doctor of Philosophy (PhD) and Member of Chartered Institute of Personnel & Development.

3. SUSAN BRENNAN

Independent non-executive Director

Appointment to the Board

Susan Brennan joined the Board in January 2016.

External Appointments

She is the Executive Vice-President and the Chief Operations Officer of Bloom Energy.

Previous Experience

She served as VP of Manufacturing at Nissan North America, Inc. and as Director of global manufacturing at Ford, where she led a global business office for Ford's assembly, powertrain and stamping plants.

Qualifications

BSc in Microbiology.

4. DEREK HARDING

Group Finance Director

Appointment to the Board

Derek Harding joined the Board on 2 September 2013. As previously announced, Derek will be leaving Senior to join Shop Direct; he will remain in post until his successor is appointed, which is expected to be later this year.

Previous Experience

He joined Senior from Wolseley plc, where he had worked for 11 years, most recently as Finance Director of Wolseley UK. Prior to this, he undertook a number of group roles including Director of Group Strategy & Investor Relations and Head of Mergers & Acquisitions. He qualified as a Chartered Accountant with PricewaterhouseCoopers in 1998, following which he fulfilled audit and transaction services roles in the UK and USA before joining Wolseley in 2002.

Qualifications

BSc (Hons) in Banking & Finance and a Chartered Accountant.

5. GILES KERR

Independent non-executive Director

Appointment to the Board

Giles Kerr joined the Board on 2 September 2013. Giles became Chairman of the Audit Committee in April 2014.

External Appointments

He is Director of Finance of Oxford University and is a non-executive director of BTG Plc, PayPoint plc and Adaptimmune Therapeutics plc; he was appointed to the board of Adaptimmune Therapeutics in November 2016.

Previous Experience

Giles held a number of positions with Amersham PLC within finance and corporate development, culminating in his role as Group Finance Director. He was formerly a Partner with Arthur Andersen & Co.

Qualifications

BA (Hons) in Economics and a Chartered Accountant.

6. DAVID SQUIRES

Group Chief Executive

Appointment to the Board

David Squires was appointed to the Board on 1 May 2015 and became Group Chief Executive on 1 June 2015.

Previous Experience

He has spent most of his working life in the Aerospace Industry, initially with Hughes Aircraft Company, then Marconi Electronic Systems, BAE Systems plc and Eaton Corporation. He worked for Cobham plc in 2004 and re-joined in 2009; he was Cobham's Chief Operating Officer and President of its Mission Systems division when he left to take up his appointment with Senior in 2015.

Qualifications

BA in Business Management Studies and a Member of the Chartered Institute of Purchasing Supply.

7. MARK E. VERNON

Senior Independent non-executive Director

Appointment to the Board

Mark E. Vernon joined the Board in April 2011. Mark became Senior Independent Director, when Andy Hamment retired from the Board in April 2016.

External Appointments

He is a Director of LiqTech International, Inc.

Previous Experience

He was the Group Chief Executive of Spirax-Sarco Engineering plc until his retirement in January 2014. He has had a long career in the industrial engineering industry, serving previously as Group Vice-President of Flowserve's Flow Control Business Unit, Vice-President of Durco International and President of Valtek International, a global controls business.

Qualifications

BSc in Chemistry.

8. ANDREW BODENHAM

Group Company Secretary

Andrew Bodenham joined as Group Company Secretary in 2002. He acts as Secretary to the Senior plc Board and its Committees and also sits on the Group's Treasury Committee and the Executive Committee.

Qualifications

LLB (Hons) and a Chartered Secretary.

ANDY HAMMENT

Andy Hamment joined the Board in April 2011 and was the Senior Independent Director from December 2013 until he retired from the Board in April 2016.

FINANCIAL STATEMENTS

BOARD AND COMMITTEE MEMBERSHIP

Membership and the attendance record of the full Board Meetings and its full Committee Meetings are shown in the table below:

	Main Board	Audit Committee	Nominations Committee	Remuneration Committee
Chair	Charles Berry	Giles Kerr	Charles Berry	Celia Baxter
Total number of meetings	7	4	2	3
Charles Berry	7/7	–	2/2	3/3
Celia Baxter	7/7	4/4	2/2	3/3
Susan Brennan	7/7	4/4	1/2	3/3
Andy Hamment(1)	2/2	1/1	1/1	1/1
Derek Harding	7/7	–	–	–
Giles Kerr	7/7	4/4	2/2	3/3
David Squires	7/7	–	–	–
Mark E. Vernon	7/7	3/4	2/2	3/3

(1) Andy Hamment – Senior Independent non-executive Director until he retired from the Board on 22 April 2016.

EXECUTIVE COMMITTEE

1. DAVID SQUIRES

See biography on page 37.

2. DEREK HARDING

See biography on page 37.

3. LAUNIE FLEMING

A US citizen, he has worked for the Group for around 19 years. Launie joined the Executive Committee upon his appointment as Chief Executive of Aerospace Fluid Systems in September 2008. Prior to that appointment, he had been Chief Executive of Senior Aerospace SSP.

4. JERRY GOODWIN*

A US citizen, he joined the Group in June 2007 as the Chief Executive of Senior Aerospace AMT. He was appointed Chief Executive of Aerospace Structures in December 2010. Prior to joining Senior, Jerry served as Vice-President and General Manager at C & D Zodiac, a composites aerospace manufacturing company.

5. MIKE SHEPPARD

A US citizen, he has worked for the Group for over 30 years and is the Chief Executive of Flexonics. A qualified engineer, Mike's previous positions within the Group included operational roles at the two largest Flexonics businesses, Pathway and Bartlett.

6. BINDI FOYLE

A Chartered Accountant, Bindi joined the Group in 2006 as the Group Financial Controller. In 2014, she was appointed Head of Investor Relations & Leadership Development and in October 2016 became the Group's Director of Investor Relations & Corporate Communications. Prior to joining Senior, she had held a number of finance positions at Amersham plc and GE Healthcare.

7. DAVID BEAVAN

David took up the role of Director of Business Development & Strategy (formerly the Head of Business Development) in April 2014. He joined the Group in 2004, when he was appointed the Chief Executive of Senior Aerospace BWT. Prior to joining Senior, David had general management experience within automotive and commercial aircraft 1st tier supplier industries.

8. ANDREW BODENHAM

See biography on page 37.

9. JANE JOHNSTON

A Fellow of the Chartered Institute of Personnel and Development, Jane has considerable experience heading up HR functions across a range of global geographies. She has worked in a number of different sectors including, technology, drug development, construction, and professional services and, prior to joining Senior, was Group HR Director at Pace plc.

EXECUTIVE COMMITTEE

The Executive Committee, although not formally appointed as a Committee of the Board, oversees the running of all Senior Group operations.

The purpose of the Executive Committee is to assist the Group Chief Executive in the performance of his duties, including:

• the development and implementation of strategy, operational plans, policies, procedures and budgets;
• the monitoring of operating and financial performance;
• the assessment and control of risk;
• the prioritisation and allocation of resources; and
• the monitoring of competitive forces in each area of operation.

The Committee is also responsible for the consideration of all other matters not specifically reserved for consideration by the Board. A report on the activities of the Executive Committee is provided to the Board by the Group Chief Executive at each Board meeting.

The Committee is comprised of two members of the Board, David Squires and Derek Harding, together with Launie Fleming (Chief Executive of Aerospace Fluid Systems), Jerry Goodwin* (Chief Executive of Aerospace Structures), Mike Sheppard (Chief Executive of Flexonics), David Beavan (Director of Business Development & Strategy), Bindi Foyle (Director of Investor Relations & Corporate Communications), Andrew Bodenham (Group Company Secretary) and Jane Johnston (Group HR Director), who was appointed to the Group in May 2016.

* Jerry Goodwin was the Chief Executive of Aerospace Structures until he left the Group on 31 January 2017 and was succeeded by Joe Mockus as Chief Executive of Aerospace Structures on 1 February 2017.

HEALTH, SAFETY & ENVIRONMENT (HSE) COMMITTEE

The HSE committee is also not formally appointed as a Committee of the Board, but officially oversees all health, safety and environmental matters across the Group.

Throughout 2016, the members of this committee were: David Squires (Chairman of the committee), Mike Sheppard (Chief Executive of Flexonics), Jerry Goodwin* (Chief Executive of Aerospace Structures) and Launie Fleming (Chief Executive of Aerospace Fluid Systems). Mark Roden (Group HSE & Sustainability Director) was appointed to the Group and to the committee in September 2016; prior to Mark's appointment, the Group HSE Adviser attended HSE committee meetings to provide interim HSE support and advice during 2016. The committee met three times during the year.

REPORT OF THE DIRECTORS

The Directors present their Report and supplementary reports, together with the audited Financial Statements for the year ended 31 December 2016.

ACTIVITIES AND BUSINESS REVIEW

Senior plc is a holding company. The nature of the Group's operations and its principal activities are set out in the Strategic Report on pages 1 to 19. Its group undertakings are shown on pages 120 to 122. The Strategic Report includes details of the market overview; key growth drivers; Senior's business model; strategic objectives; risks and uncertainties; key performance indicators and a summary of the Group's 2016 performance.

ACQUISITIONS AND DISPOSALS

On 21 December 2015, the Group entered into a sale agreement to dispose of its Senior Aerospace Composites business, which was based in Wichita, Kansas. The sale was completed on 16 February 2016.

RESULTS AND DIVIDENDS

The results for the year are shown in the Consolidated Income Statement on page 76.

An interim dividend of 1.95 pence per share (2015 – 1.84 pence) has already been paid and the Directors recommend a 2016 final dividend of 4.62 pence per share (2015 – 4.36 pence). The final dividend, if approved, will be payable on 26 May 2017 to shareholders on the register at the close of business on 28 April 2017. This would bring the total dividend for the year to 6.57 pence per share (2015 – 6.20 pence).

SHARE CAPITAL

The Company has one class of ordinary share, which carries no right to a fixed income. Each share carries the right to vote at general meetings of the Company. There were no changes to the Company's issued share capital in 2016.

Shares in issue at
1 January 2016	419,416,250
Senior plc Long-Term
Incentive Plan	0
Senior plc Savings-Related
Share Option Plan	0
Shares in issue at
31 December 2016	419,416,250

Further share capital details are given in Note 25.

Details of employee share plans are set out on pages 106 and 107.

There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Company's Articles of Association and prevailing legislation. The Directors are not aware of any agreements between holders of the Company's shares that may result in restrictions on the transfer of securities or on voting rights. No person has any special rights of control over the Company's share capital, and all issued shares are fully paid.

With regard to the appointment and replacement of Directors, the Company is governed by its Articles of Association, the UK Corporate Governance Code, the Companies Act 2006 and related legislation. The Articles may be amended by special resolution of the shareholders. The powers of Directors are described in the Matters Reserved for the Senior plc Board, which may be found on the Company's website. Each year, shareholder approval is sought to renew the Board's authority to allot relevant securities.

There are also a number of other agreements that take effect, alter or terminate upon a change of control of the Company, such as commercial contracts, bank loan agreements, property lease arrangements, and employee share plans. None of these are considered to be significant in terms of their likely impact on the business of the Group as a whole. Furthermore, the Directors are not aware of any agreements between the Company and its Directors or employees that provide for compensation for loss of office or employment that occurs because of a takeover bid.

FINANCIAL INSTRUMENTS

Note 20 contains disclosures on financial instruments.

DIRECTORS

Details of the Directors who served throughout the year can be found on pages 36 and 37. The Directors' interests in the shares of the Company are included in the Directors' Remuneration Report on page 67. No Director has any interest in contracts with the Company or its subsidiary undertakings.

The provisions of the UK Corporate Governance Code require that all Directors of FTSE 350 companies should be subject to annual election by shareholders. Celia Baxter, Charles Berry, Susan Brennan, Giles Kerr, David Squires and Mark E. Vernon will all stand for re-election at the AGM in April 2017. Derek Harding is to step down from the Board in 2017, as previously announced. Andy Hamment retired from the Board in April 2016.

BOARD DIVERSITY

Senior remains committed to all aspects of Board diversity including gender, experience, background and personal attributes and will keep under review its balance and composition. The appointments of Celia Baxter to the Board in 2013 and Susan Brennan in 2016 mean that Senior now has increased female representation on its Board.

DIRECTORS' INDEMNITIES

Qualifying third-party indemnity provisions for the benefit of the Directors were renewed by the Company during the year and remain in force at the date of this Report.

RESEARCH AND DEVELOPMENT

In 2016, the Group incurred £18.7m (2015 – £16.3m) on research and development. Product development and improving manufacturing techniques represent the primary focus of the Group's research and development activities.

POLITICAL DONATIONS

No political donations were made by the Group during the year.

EMPLOYEES

The Group promotes the dissemination of relevant information, so that employees are kept regularly advised of Group and local operation developments. Where appropriate, local briefing sessions are held concerning such matters as Group development, corporate ethics, health and safety, pension plans and healthcare benefits.

GREENHOUSE GAS EMISSIONS

The Group has followed the reporting requirements on greenhouse gas emissions, contained in the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013; details of the Group's greenhouse gas emissions can be found on page 33.

MAJOR SHAREHOLDINGS

The Company had been notified that the following shareholders were interested in 3% or more of the issued share capital of the Company:

	%
Standard Life Investments	9.53
Allianz Global Investors (Germany)	9.28
Henderson Global Investors	4.73
Schroder Investment Management	4.13
Legal & General Investment
Management	4.09
Aberforth Partners	3.99
BlackRock	3.83
European Value Partners	3.19
Allianz Global Investors (UK)	3.13

So far as is known, no other shareholder had a notifiable interest amounting to 3% or more of the issued share capital of the Company, and the Directors believe that the close company provisions of the Income and Corporation Taxes Act 1988 (as amended) do not apply to the Company.

COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE

The statement of compliance with the provisions of the UK Corporate Governance Code issued by the Financial Reporting Council is set out on page 42.

REMUNERATION REPORT AND POLICY

The Directors' Remuneration Policy was approved by shareholders at the 2014 AGM. The Directors have proposed a small number of amendments to the Policy and the updated Directors' Remuneration Policy is to be put to shareholder vote at the AGM to be held on Friday 21 April 2017. The updated Directors' Remuneration Policy is set out on pages 55 to 60.

The Annual Report on Remuneration is also to be put to shareholder vote at the forthcoming AGM.

ANNUAL GENERAL MEETING

The Notice of Meeting describes the business to be considered at the AGM to be held at 11.30 am on Friday 21 April 2017 at Glazier's Hall, 9 Montague Close, London Bridge, London SE1 9DD.

ACQUISITION OF THE COMPANY'S OWN SHARES

The Company purchased no ordinary shares of 10p each in the capital of the Company during the year. At the end of the year, the Directors had authority, under the shareholders' resolutions dated 22 April 2016, to make market purchases of the Company's shares up to an aggregate nominal amount of £42m, which represented approximately 10% of the issued share capital of the Company. A resolution to renew this authority will be proposed at the forthcoming AGM.

AUDITOR

• Each of the persons who is a Director of the Company at the date of approval of this Annual Report confirms that so far as the Director is aware, there is no relevant audit information of which the Company's Auditor is unaware;
• and the Director has taken all steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.

This information is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.

As set out in the Annual Report & Accounts 2015, the Group undertook a formal tender of its external audit during the first half of 2016. The process began in March 2016 with a selected number of audit firms receiving an invitation to tender. Deloitte LLP, the Group's external Auditor from 2000 to 2016, was not invited to tender due to the longevity of its appointment. Following conclusion of the tender process, the Board recommends that KPMG LLP be appointed as the Group's external Auditor for the financial year commencing 1 January 2017. Resolutions to appoint the Company's Auditor and to authorise the Directors to set the Auditor's remuneration will be proposed at the forthcoming AGM.

By Order of the Board

Andrew Bodenham

Group Company Secretary 24 February 2017

CORPORATE GOVERNANCE REPORT

CHAIRMAN'S LETTER

I am pleased to present the Group's Corporate Governance Report for 2016 on behalf of the Board. This report is intended to provide shareholders with a clear and meaningful explanation of what governance means to the Board and how this guides its decision-making process. Good corporate governance is taken seriously across the Group; the Board sets the tone and takes the lead on all governance matters.

I am pleased to confirm that the Board reviewed the requirements of the UK Corporate Governance Code in 2016 and I confirm that the Company complies, and will continue to do so.

CHARLES BERRY CHAIRMAN

CORPORATE GOVERNANCE REPORT

This Corporate Governance Report describes the manner in which the Company has applied the Main Principles of the UK Corporate Governance Code (the Corporate Governance Code).

STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE

The Company has been in compliance with the Principles set out in Sections A to E of the Corporate Governance Code throughout the year.

APPLICATION OF THE PRINCIPLES OF THE CORPORATE GOVERNANCE CODE

The Principles of good corporate governance are detailed in the Corporate Governance Code under five areas. These Principles have each been reviewed by the Directors and are commented upon as follows:

Section A: Leadership

The Board is structured under a non-executive Chairman, and currently includes two executive Directors and four independent non-executive Directors, who were selected for appointment because of their wide industrial and commercial experience. In addition, the Company has an Executive Committee, chaired by the Group Chief Executive, comprising the executive Directors and other key executives within the Group. Details of the members of the Board and of the Executive Committee are summarised on pages 36 to 39.

The Directors consider that an effective Board is in place which leads and controls the Group, with clear divisions of responsibility between the running of the Board and the running of the Group's businesses.

The Board is responsible for strategic decisions affecting the Group, including the setting of commercial strategy and the approval of Group budgets and financial statements. It also approves significant financial and contractual commitments made by the Group. The Board's Terms of Reference more fully describe the responsibilities of the Board and may be found on the Company's website.

The Board delegates a certain number of its responsibilities to the Audit, Remuneration, Nominations, and Health, Safety & Environment Committees. The Group Chief Executive, together with the Executive Committee, is responsible for the implementation of the decisions made by the Board and for the day-to-day conduct of the Group's operations.

The Board meets formally on a regular basis (seven times in 2016); in addition, there were four meetings of the Audit Committee in 2016, together with six meetings of the Remuneration Committee and two meetings of the Nominations Committee. There was full attendance at every Board meeting and Committee of the Board during the year. Other Committees are appointed by the Board to deal with treasury matters and specific issues such as acquisitions and disposals.

The minutes arising from all Committee meetings are made available to the Board. Procedures are in place to ensure that all Directors are properly briefed, so that decisions taken by the Board are based on the fullest, up-to-date, available information. The nonexecutive Directors are encouraged to visit the Group's operations to meet the local management teams and discuss any issues that they may face. At every Board meeting, there are reviews of operational, financial and administrative matters. Health, safety and environmental performance is reviewed by the Board on a regular basis; social and ethical issues, the agreement of budgets and levels of insurance cover are reviewed whenever appropriate.

There is a procedure by which all Directors can obtain independent professional advice at the Company's expense in furtherance of their duties, if required.

Section B: Effectiveness

The Company's Nominations Committee leads the process for Board appointments, and supervises management development and succession planning. It also makes recommendations to the Board on all new Board appointments and re-appointments, further details of which can be found on page 45. The Committee, which consists entirely of non-executive Directors, is chaired by Charles Berry; its composition is shown on page 37, and its Terms of Reference may be found on the Company's website. The Board considers all non-executive Directors of the Company to be independent, having taken into account a list of relationships and circumstances that may appear relevant in determining independence, in accordance with the Corporate Governance Code.

When appointing new Directors, the Nominations Committee is fully cognisant of the benefits of diversity; the Board's policy on diversity is described on page 45.

Following a recruitment process in 2015, Susan Brennan was appointed to the Board on 1 January 2016. A summary of the Directors' biographies appears on pages 36 and 37. All Directors receive induction upon joining the Board and are encouraged to update their knowledge and skills on a regular basis.

To enable the members of the Board and its Committees to discharge their duties effectively, the Group Company Secretary seeks to ensure that all relevant information is provided to the Directors in a timely manner, in advance of meetings.

In 2016, an external evaluation of the Board and its Committees was commissioned; the formal review was undertaken by Independent Audit Limited. The review's findings showed that the Board operated effectively throughout the period and made some suggestions for its future development. The findings will be used to help support the development of the Board as the Group continues with its strategy to grow profitability, both organically and by acquisition. Independent Audit Limited has no other connection with the Company.

In addition, in 2016 the Chairman undertook a review of the performance of individual Directors; this process involved one-on-one appraisal interviews. The results of the evaluation process are used to improve Board performance and to determine the training needs of the Directors. Mark E. Vernon, in consultation with the Directors, undertook an evaluation of the Chairman's performance, and concluded that Charles Berry provided effective leadership of the Board. Based on the results of the performance evaluation process, the Chairman considers that all members of the Board, the Board collectively, and its Committees, continue to contribute effectively to the running of the Company.

In compliance with the Corporate Governance Code, all Directors offered themselves for re-election at the Company's 2016 AGM, with the exception of Andy Hamment, who retired from the Board following the conclusion of the 2016 AGM. At the 2017 AGM, with the exception of Derek Harding who is stepping down from the Board in 2017, all Directors will again offer themselves for re-election.

Section C: Accountability

The Board determines the nature and extent of the significant actions necessary to achieve its strategic objectives and maintains a sound system of internal control. The Company's Audit Committee reports to and, for certain matters, advises the Board of Directors. The Audit Committee Report on pages 46 to 50 describes the role and activities of the Audit Committee, together with the significant issues that it considered in relation to the 2016 Financial Statements and its relationship with the internal and external Auditors.

The Group undertook a formal tender of its external audit during the first half of 2016, with a selected number of audit firms receiving an invitation to tender. Deloitte LLP, the Group's external Auditor from 2000 to 2016, was not invited to tender due to the longevity of its

appointment. Following conclusion of the tender process, the Board has recommended that KPMG LLP be appointed as the Group's external Auditor for the financial year commencing 1 January 2017; this is to be put to shareholder vote at the 2017 AGM.

Communicating the Code of Conduct and operating with integrity

Senior trains its employees on the requirements of its Code of Conduct (the Code) upon induction, educating them on what they can and cannot do, and how to address any ethical dilemmas they may face. The Code is reissued periodically to remind employees of the required level of conduct. The Group's ethical procedures and Code were reviewed in the light of the UK Bribery Act 2010 and anti-bribery training was rolled out across the Group in 2012. An enhanced Code of Conduct training programme was rolled out across the Group to all employees in 2016 and subsequently all new employees. Also in 2016, Preventing Bribery & Corruption training was provided to employees who had outwardfacing roles in management, finance, procurement, sales and human resources.

The Board verifies compliance with the Code through its internal audit programme, ensuring that employees have received the mandatory training and its businesses operate with integrity at all times and in compliance with the Code.

Operating with integrity and in an ethical manner builds trust with customers and other stakeholders and underpins the Board's strategic objectives.

Human rights

The Group recognises the importance of the Universal Declaration of Human Rights and adheres to the core principles and values defined within it. The majority of countries in which Senior operates have their own laws banning child labour and promoting human rights. Senior monitors the ages of its workforce across the world to ensure compliance and identify any potential succession issues.

Senior does not restrict any of its employees in any of the countries in which it operates from joining a trade union if they wish to do so. Senior also works closely with its suppliers to ensure that they at least meet internationally recognised minimum requirements for workers' welfare and conditions of employment.

Reporting and investigating concerns and whistle-blowing

The Company encourages Group employees to discuss any ethical concerns that they may have with local management.

As part of its internal control procedures, the Company has a Whistle-blowing Policy that is communicated throughout the Group. This policy provides employees with the opportunity to report suspected unethical or illegal corporate conduct confidentially and anonymously. All reports of suspected unethical or illegal corporate conduct are independently investigated and tracked from inception to resolution and, where necessary, actions are taken to rectify any weakness in systems that may have been identified. These actions, and the overall integrity of the reporting system, are subject to regular scrutiny by the Audit Committee. This process is also available to third parties, such as suppliers and customers. Subject to confidentiality considerations, the outcome of each investigation is provided, insofar as it is possible, to the complainant.

Mark E. Vernon became the Senior Independent Director, when Andy Hamment retired from the Board in April 2016. This position provides employees and third parties with an alternative channel of communication to resolve issues if they have a concern that the Chairman, Group Chief Executive or Group Finance Director have failed to resolve the issues, or where such contact with them is not appropriate.

Managing external sales agents

The Board recognises the potential bribery and corruption risks posed by the markets in which the Group operates and, in particular, the use of third-party intermediaries it engages. All external sales agents and representatives working on behalf of Senior across the world are required to operate in compliance with the Code of Conduct. Local management conducts a due diligence and risk assessment process prior to engaging or re-appointing any sales agents and issues them with the Code, ensuring that they understand, acknowledge and accept its requirements. In 2016, the Board updated the Code of Conduct and further improved the guidance it provided to the Group's operations, giving detailed information on how they should conduct due diligence and risk assess sales agents.

Managing gifts and hospitality

The Board recognises that gifts and hospitality have the potential to create a conflict of interest, or the perception of a conflict of interest. As a result, there is a Group policy restricting the receiving and giving of gifts and hospitality from, and to, third parties. This policy requires that all gifts and hospitality must be recorded. The Head of Risk & Assurance assesses compliance with the Group's gifts and hospitality policy during audit visits.

CORPORATE GOVERNANCE REPORT CONTINUED

Details of the electronic poll voting for the AGM 2016 are set out in the table below:

Resolution		For & Discretion (votes)	Against (votes)	Abstentions (votes)	Total (votes)
1	To Receive Report and Financial Statements	337,181,485	1,662,160	107,847	338,843,645
2	To Approve Remuneration Report	323,794,490	4,652,261	10,504,741	328,446,751
3	To Declare a Final Dividend	338,950,959	100	433	338,951,059
4	To Elect David Squires	338,715,875	218,263	17,354	338,934,138
5	To Elect Susan Brennan	338,815,668	8,177	127,647	338,823,845
6	To Re-elect Charles Berry	334,110,386	4,825,606	15,500	338,935,992
7	To Re-elect Celia Baxter	337,679,979	1,145,287	126,226	338,825,266
8	To Re-elect Derek Harding	337,858,265	1,077,727	15,500	338,935,992
9	To Re-elect Giles Kerr	336,912,539	2,008,160	30,793	338,920,699
10	To Re-elect Mark E. Vernon	338,735,536	200,023	15,933	338,935,559
11	To Re-appoint Deloitte LLP	338,339,844	508,751	102,897	338,848,595
12	To Determine Auditor's Remuneration	338,819,776	128,416	3,300	338,948,192
13	To Update Rules of Sharesave Scheme	338,437,534	380,919	133,039	338,818,453
14	General Power to Allot Shares	331,577,721	7,354,468	19,303	338,932,189
15	Disapplication of Pre-emption Rights	333,299,185	5,643,788	8,519	338,942,973
16	Authority to Purchase Own Shares	334,501,359	4,448,813	1,320	338,950,172
17	To Retain 14-Day Notice Period	331,177,168	7,758,124	16,200	338,935,292

Improvements for 2017

In 2017, an advanced ethics training course will be rolled out to all employees of the Group.

Section D: Remuneration

The Remuneration Report on pages 51 to 70 describes the Board's approach to remuneration matters. The Directors' Remuneration Policy was approved by shareholders at the Company's AGM in 2014. The Directors have proposed a small number of amendments to the Policy and the updated Directors' Remuneration Policy is to be put to shareholder vote at the 2017 AGM.

Section E: Relations with shareholders

The Company maintains regular contact with its institutional shareholders and continued to consult with its major shareholders during 2016. Twice a year, the Group Chief Executive, Group Finance Director and Director of Investor Relations & Corporate Communications undertake a series of meetings with the Company's major shareholders, following the announcement of the full-year and interim results, to discuss both the Board's strategic objectives and the detailed performance of

the business. During 2016, the Company's non-executive Chairman also attended the full-year and interim results announcements made to analysts, in February and July respectively.

During 2016, the Chairman met with five shareholders. The Senior Independent Director is also available to attend meetings with major shareholders upon request, so providing an alternative channel of communication between the Company and its shareholders.

The Company makes constructive use of its AGMs to communicate with its private shareholders. A presentation on the Company's annual performance was given following completion of the formal business at the 2016 AGM, and a copy of the presentation, together with other investor relations material, is available on the Company's website.

The total issued share capital of the Company as at 1 March 2016 (the date of the Notice of Meeting for the 2016 AGM), was 419.4 million ordinary shares of 10p each. The total number of proxy votes received for the 2016 AGM

represented approximately 80.78% (2015 – 77.36%) of the issued share capital of the Company. All resolutions put to shareholders at the 2016 AGM were passed on a poll.

Details of the electronic poll voting received by the Company for the 2016 AGM resolutions are set out in the table below.

Details of the votes to be received by the Company for the 2017 AGM resolutions will be made available on the Company's website following the close of the meeting.

Charles Berry

Chairman 24 February 2017

NOMINATIONS COMMITTEE REPORT

OVERVIEW

The Nominations Committee is chaired by myself, and comprises all non-executive Directors. The Group Company Secretary acts as Secretary to the Committee. Senior members of management and advisers are invited to attend meetings when deemed appropriate. There were two scheduled meetings of the Committee in 2016. Two members constitute a quorum for the Nominations Committee. There was full attendance at both of the meetings of the Nominations Committee held in 2016. The Committee's attendance records are shown on page 37.

The Committee is tasked with administering the process for appointments, considering succession planning, regularly reviewing such processes and overseeing the composition of the Board. The Nominations Committee's Terms of Reference can be found on the Company's website.

The Nominations Committee enlists external consultancy firms to assist in the appointment of Directors to the Board. The Company provides the appointed firm with a role description, together with the required skills and personal attributes to be considered. The firm filters a list of candidates down to a number of those that it feels meet the skills and attributes required, then conducts preliminary interviews with the selected candidates. The candidates are then referred to Senior for interview, together with a written analysis on each candidate, with each candidate being interviewed by a number of members of the Board. The final recruitment decision is taken by the Board as a whole.

Following the appointment of a Director, a full and comprehensive induction programme is provided by the Company. Within the induction process, areas such as financial forecasts, Group strategy and philosophy are explained, together with other relevant topics. Visits to the Group's operations are also undertaken, involving the new Director meeting local management teams and learning about the key issues faced by each operation.

The Nominations Committee and the Board have been taking due regard of Lord Davies' review into Women on Boards (February 2011) and the Hampton-Alexander Review: FTSE Women Leaders (November 2016). As a member of the steering group of the Hampton-Alexander Review, I am pleased to report that the Board is supportive of the aim to increase the level of female representation in Board and senior leadership positions. Following the appointment of Susan Brennan, a US citizen, to the Board in January 2016, two of the seven Directors are female (29%). Following the appointment of Jane Johnston as Group HR Director in May 2016, two of the nine members of the Executive Committee are female (22%). The Board remains committed to further promoting diversity and equality of all kinds throughout the Group, regardless of geography or position, notwithstanding engineering employers have traditionally employed a larger proportion of male employees. The Committee regularly discusses the benefits of diversity with regard to the Board and its Committees.

After the year had ended, the Board announced that Derek Harding, Group Finance Director, would be moving on to perform the role of Group Finance Director of Shop Direct. I would like to wish him well in his new role and thank him for his strong leadership contribution over the past four years. The process to recruit and select his replacement has commenced and Derek will remain in post until his successor is appointed, which the Board expects to be later this year.

SUCCESSION PLANNING

The Committee regularly considers the issue of succession planning for the various Board-level roles. The Group increased its focus on maximising the potential of its employees and improving succession planning. The Executive Committee, supported by the Group HR Director, conducted an extensive review of senior executive succession planning. The review identified key employees who were considered to be, or could be developed into becoming, critical to the success of the Group, so that appropriate plans are in place to ensure there was an appropriate mix of employees within the Group who could fill key roles in the short and longer term.

APPOINTMENT OF NON-EXECUTIVE DIRECTOR

The Nominations Committee continues to look at bringing additional skills and experience to the Board through the recruitment of new non-executive Directors. When recruiting the most recently appointed non-executive Director, the Committee was keen to ensure that the chosen candidate would have the right personality to fit the Group's culture and the

necessary skills and experience to deliver continued strong results, both financially and operationally, in order to develop and oversee the future progression of the Group. A comprehensive recruitment process was undertaken with the support of Korn Ferry.

The Committee, after taking into account all relevant factors, recommended to the Board that Susan Brennan, the Chief Operating Officer of Bloom Energy Corporation in the USA, be appointed as a non-executive Director. The Board agreed with the Committee's recommendation and Susan Brennan accepted the appointment in December 2015, commencing on 1 January 2016.

RETIREMENT OF NON-EXECUTIVE DIRECTOR

At the conclusion of the Annual General Meeting held on 22 April 2016, Andy Hamment retired as a non-executive Director of the Company and Senior Independent Director. Mark E. Vernon, appointed to the Board in April 2011 became the Senior Independent Director upon Andy Hamment's retirement. The Board considers that Mark's industry and Board experience makes him a suitably skilled Senior Independent Director.

I would like to take this opportunity to thank Andy for his guidance and strong contribution to the Group's success during his time as a Director of Senior.

INDEPENDENCE

The Nominations Committee and the Board still consider all of the non-executive Directors to be fully independent and free from conflicting interests which may cause difficulties whilst carrying out their duties. Senior considers the non-executive Directors to be proactive in contributing their respective experiences and skills gained from various industries.

Conflicts of interests are fully disclosed by Directors upon appointment and are reviewed on an annual basis.

Following the changes made in 2016, I am confident that we have the desired diversity of skills, people, experience and a positive attitude that will guide us in delivering shareholder value and forging a positive direction for the year ahead.

This Report was reviewed and approved by the Nominations Committee and signed on its behalf by:

Charles Berry

Chairman of the Nominations Committee 24 February 2017

AUDIT COMMITTEE REPORT

DEAR SHAREHOLDER

The Audit Committee has been established by the Board and consists entirely of independent non-executive Directors. The primary role of the Audit Committee is to maintain the integrity of the financial reporting of the Group and to ensure appropriate risk management and internal control procedures. To enable the Audit Committee to fulfil this role, its main responsibilities include:

• considering and making recommendations to the Board, and ultimately shareholders for approval, of the appointment of the external Auditor, the audit fee, initiating tender processes in accordance with regulatory requirements, and any questions relating to the resignation or dismissal of the external Auditor;
• assessing annually the independence and objectivity of the external Auditor, its compliance with regulatory requirements and authorising the provision, if any, of non-audit services;
• monitoring the integrity of the half-year and annual Accounts and related formal Company announcements, and reviewing significant financial reporting judgements contained within them, before their submission to the Board;
• reviewing the Company's statement on the Annual Report prior to endorsement by the Board, that taken as a whole the Annual Report is fair, balanced and understandable and provides the information necessary to assess the business model, strategy and performance;
• discussing with the external Auditor issues and reservations, if any, arising from the interim review and final audit and any other matters the external Auditor may raise;
• reviewing and approving the terms of the management representation letter addressed to the external Auditor;

• reviewing the longer term viability of the Group;

• reviewing the effectiveness of the internal audit function; considering the major findings of internal audit activities and management's response; ensuring coordination between the internal audit function and the external Auditor and ensuring that the former is adequately resourced and has appropriate standing within the Group;

• reviewing the effectiveness of the Group's internal controls and risk management systems ensuring that the process is active and dynamic;
• understanding the strategy at both Group and operational levels to ensure that business risks and other relevant issues are effectively identified and communicated to the Board;
• ensuring the Company's corporate ethics, anti-bribery and compliance procedures are up to date in terms of addressing the potential risks of fraud and misconduct;
• assessing the Audit Committee's capabilities in relation to diversity, risk experience and the financial expertise of its members;
• understanding the implications of forthcoming changes to accounting standards, including the new revenue and financial instrument standards, to be implemented from 2018, and the new leasing standard to be implemented no later than 2019;
• assessing potential IT, cyber security and social media issues in order to manage the Company's reputational and business continuity risks;
• reviewing the Group's Whistle-blowing Policy, to ensure that appropriate procedures are in place for employees to raise, in confidence, any concerns that they may have relating to suspected malpractice, illegal acts, omissions or other unethical corporate conduct, regarding financial or other matters; and ensuring that arrangements are in place for investigation of such matters and follow-up action; and
• considering any other topics specifically delegated to the Committee by the Board from time to time.

The Audit Committee is required to report its findings to the Board, identifying any matters where it considers that action or improvement is needed, and to make recommendations as to the steps taken.

COMPOSITION OF THE AUDIT COMMITTEE

Member	Appointment date
Giles Kerr	2 September 2013
(Committee Chair)
Celia Baxter	2 September 2013
Susan Brennan	1 January 2016
Mark E. Vernon	22 April 2016
Andy Hamment	8 April 2011 to
	22 April 2016

There was full attendance at each of the four meetings of the Audit Committee held in 2016.

Two members constitute a quorum for the Audit Committee. The Group Company Secretary acts as Secretary to the Audit Committee.

Collectively, the members of the Audit Committee have significant commercial and financial experience at a senior management level. Giles Kerr has the recent and relevant financial experience required by the UK Corporate Governance Code to chair the Audit Committee. For details of the qualifications of members of the Audit Committee, please refer to the Board of Directors' biographies shown on pages 36 and 37.

AUDIT COMMITTEE'S TERMS OF REFERENCE

The Board expects the Audit Committee to have an understanding of:

• the principles, contents and developments in financial reporting, including the applicable accounting standards and statements of recommended practice;
• the key aspects of the Group's operations, including corporate policies, its products and services, Group financing, and systems of internal control;
• the matters that could influence or distort the presentation of accounts and key figures;
• the principles of, and developments in, company law, sector-specific laws and other relevant corporate legislation;
• the roles of internal and external auditing and risk management; and
• the regulatory framework for the Group's businesses.

The full Terms of Reference of the Audit Committee may be found on the Company's website.

ACTIVITIES OF THE AUDIT COMMITTEE

The Audit Committee met on 22 February 2016 to consider the 2015 year-end report and during the subsequent 12 months conducted the following business on the meeting dates indicated below:

Meeting date	26 May 2016	26 July 2016	27 October 2016	22 February 2017
Items	• Considered audit tender proposals from the shortlisted firms seeking to provide external audit services to the Company. • Agreed to recommend to the Board that KPMG LLP be the Group's proposed external Auditor for the financial year, commencing 1 January 2017.	• Considered the external Auditor's Interim Review for the half-year ended 30 June 2016. • Reviewed and approved the terms of the management representation letter addressed to the external Auditor. • Reviewed key accounting judgements. • Discussed the Group's Announcement of the 2016 Interim Results together with the slides for the analysts' presentation. • Reviewed and agreed the basis for going concern to be adopted for the 2016 Interim Results. • Reviewed and agreed the change in allocation of goodwill to cash-generating units. • Received and considered Risk & Assurance and Mapping reports presented by the Group's Head of Risk & Assurance. • Received and considered an Internal Audit Report submitted by PwC. • Received and discussed a report on cyber security within the Group and the measures available to further enhance security. • Held a private meeting with the external Auditor, without executive management being present.	• Discussed and approved the external Auditor's audit planning report, including the scope of work, audit approach and fees for the 2016 audit. • Considered potential areas requiring key accounting judgements. • Considered the appropriate level of materiality and noted the implication of applying different levels of materiality; the Audit Committee agreed to reduce the level to 5% of profit before tax excluding amortisation of acquired intangibles. • Received an update from the external Auditor on accounting, reporting and corporate governance developments. • Considered the Group's Risk & Assurance Strategic Plan and a preliminary view of the 2017 assurance activity. • Received and considered assurance reports on visits made to Senior Aerospace Ketema and Senior Aerospace Mexico. • Noted the external performance evaluation of the Audit Committee which was being undertaken by Independent Audit Limited. • Discussed the progress of the external Audit transition from Deloitte to KPMG LLP. • Agreed the Audit Committee Terms of Reference to remain appropriate. • Reviewed the Group Whistle blowing Policy and agreed no changes were required. • Received a tax update on the impact of UK reforms and possible implications for the Group on its future Effective	• Reviewed and accepted the Report to the Audit Committee on the 2016 audit made by the external Auditor. • Reviewed key accounting judgements, including consideration of those significant risks outlined on page 48. • Reviewed and discussed the Group's Preliminary Announcement and the Annual Report & Accounts 2016. • Reviewed the longer-term viability of the Group and agreed the viability statement on page 23. • Reviewed and agreed the going concern basis to be adopted for the 2016 Accounts. • Approved the Audit Committee Report for 2016. • Reviewed the effectiveness of the Group's risk management and internal control systems and disclosures made in the Annual Report & Accounts 2016. • Reviewed the Notice of Meeting for the 2017 AGM and the Proxy Form for the 2017 AGM. • Received and considered a report presented by the Group Finance Director, which included the proposed 2017 internal audit plan, and approved the Group Internal Audit Charter. • Held a separate private meeting with the external Auditor, without executive management being present. • Reviewed the implications of forthcoming changes to accounting standards.

The Audit Committee normally invites the non-executive Chairman, Group Chief Executive, Group Finance Director, Group Financial Controller and senior representatives of the internal audit function¹ and the external audit firm to attend its meetings, although it reserves the right to request any of these individuals to withdraw from any meeting.

The Audit Committee also holds separate discussions with the Head of Risk & Assurance(1) and the external Auditor without executive management being present. In addition, the Chairman of the Audit Committee holds separate meetings with the internal and external Auditors during the course of the year to discuss both routine and business-relevant matters.

Periodically, the Audit Committee's Terms of Reference are reviewed to take into account current views on good practice and any recent amendments to the UK Corporate Governance Code. In October 2015, the Audit Committee adopted its Terms of Reference, following their approval by the Board of Directors.

AUDIT COMMITTEE REPORT CONTINUED

SIGNIFICANT RISKS CONSIDERED BY THE AUDIT COMMITTEE

Significant risks considered by the Committee	How the risk was addressed by the Committee
Goodwill impairment The carrying value of goodwill relies on assumptions and judgements made by executive management. Management performed an annual impairment assessment at 31 December 2016 for all groups of cash generating units to which goodwill is allocated.	The Audit Committee recognises the carrying value of goodwill as a key area of judgement and as such closely reviews executive management's assumptions relating to the achievability of the long term business plans and the macroeconomic and related modelling assumptions underlying the valuation process for each group of cash generating units.
	These were further discussed with the external Auditor.
	Following the annual impairment assessment of all groups of cash generating units, the Audit Committee was satisfied that no charge for impairment of goodwill was required.
Inventory net realisable value Inventory held covers a wide range of products in both the Aerospace and Flexonics Divisions. The ability of the Group to sell this inventory	The Audit Committee recognises the risk that the Group may not recover the full cost of inventory via future sales, and may not hold appropriate provisions against obsolete and slow moving inventory.
at a value above its carrying value in the future can be adversely affected by many factors.	In addition, a significant change in production costs or in the execution to deliver planned cost savings in relation to specific work packages could result in unavoidable costs associated with one or more work packages to exceed the economic benefits expected to be achieved. This is a key area of judgement and as such the Audit Committee carefully considers executive management's assumptions relating to the achievability of these plans.
	These were further discussed with the external Auditor.
	The Audit Committee believes there are no reportable issues arising from this significant area.
Other provisions Provisions or accruals are held where management considers there is an obligation, payment is probable and the amount payable can	The Audit Committee considered the basis upon which management had made its accounting judgements to determine the level of other provisions. These were further discussed with the external Auditor.
be reliably estimated. Provisions held by the Group include but are not limited to:	The Audit Committee believes there are no reportable issues arising from these significant areas.
• those held against legal claims or product warranties; and • central UK and US tax provisions.

EXTERNAL AUDIT

Independence of the external Auditor and policy on non-audit services

To fulfil its responsibility regarding the independence of the external Auditor, the Audit Committee reviewed:

• a report from the external Auditor describing the arrangements that had been made to identify, report and manage any conflicts of interest and to maintain its independence;
• the overall extent of non-audit services provided by the external Auditor; and
• the FRC's Audit Inspection Unit public report on Deloitte LLP.

The Audit Committee's policy in respect of services provided by the external Auditor is as follows:

• the external Auditor is invited to provide services which, in its position as Auditor, it must or is best placed to undertake. This includes formalities relating to borrowings, shareholder and other circulars, various other regulatory reports and certain work in respect of larger acquisitions and disposals;
• the Auditor may provide tax compliance and advice where it is best suited. In all material cases, such work is put out to tender; and
• other services may not be provided where precluded by ethical standards or where the Audit Committee believes that it would compromise audit independence and objectivity.

All proposed contracts for services to be provided by the Auditor in excess of £25,000 require the Audit Committee's approval.

Fees for each category of non-audit work undertaken in the year are shown in the table below:

	Fees
	£m
Other tax advisory services	0.3
Total non-audit fees	0.3
Non-audit fees as a %
of total audit fees	33%

In 2016, the Audit Committee considered that it was beneficial for the Company to retain Deloitte for this non-audit work because of the firm's expertise in this area and knowledge of the Group. The Audit Committee continues to closely monitor the nature and level of such non-audit work, in order to balance objectivity and value for money.

Policy on tendering

As set out in the Annual Report & Accounts 2015, the Group undertook a formal tender of its external audit during the first half of 2016, led by the Audit Committee. The process began in March 2016 with a selected number of audit firms receiving an invitation to tender; Deloitte LLP, the Group's current external Auditor, was not invited to tender due to the longevity of its appointment. The process involved access to a data room, detailed meetings with management, selected site visits and a final presentation to the Audit Committee by each shortlisted firm. Following its conclusion, the Board has proposed the appointment of KPMG LLP as the Group external Auditor for the financial year commencing 1 January 2017, subject to approval by shareholders at the Annual General Meeting to be held in April 2017. Deloitte has completed the external audit for the year ended 31 December 2016 and a hand over process is currently under way.

The Board extends its appreciation to Deloitte for its contribution over many years.

Assessment of external audit effectiveness

As in prior years, the Audit Committee reviewed the effectiveness of the external Auditor process, by assessing a range of key areas. In 2016, the Secretary presented the Audit Committee with a framework of questions to facilitate a debate and to assist the Audit Committee in assessing the level of Auditor effectiveness. The framework required Audit Committee members to consider which areas of performance needed future focus by the Auditor, the areas where the Auditor was meeting expectations and those where the Auditor was considered to have a special strength.

The Audit Committee discussed: the audit partner and the team as a whole; the audit planning approach and its execution; the role of executive management in the audit process; and communications by the Auditor to the Audit Committee and how it supported the work of the Audit Committee. The Audit Committee also discussed what insights the Auditor had provided and where it had added value to the overall audit process. The Committee concluded that the Auditor had challenged the thinking of the Company and the Audit Committee on a number of significant issues and maintained its independence.

Following completion of the assessment process, the Audit Committee concluded that it was satisfied with the effectiveness of the external Auditor for 2016. As discussed, the Board has proposed that KPMG LLP be appointed external Auditor for the financial year commencing 1 January 2017, in order to maintain auditor independence and comply with FRC and EU guidance on audit tendering.

AUDIT COMMITTEE REPORT CONTINUED

INTERNAL AUDIT

The Audit Committee is required to assist the Board in fulfilling its responsibilities relating to the effectiveness, resourcing and plans of the Group internal audit function.

During 2016, a new role, of Head of Risk & Assurance, was created reporting to the Group Finance Director with a dotted line to the Chair of the Audit Committee. The Head of Risk & Assurance joined the Group in April 2016. She is responsible for overseeing the risk management activities of the Group and its internal audit function.

The Group's 2016 Risk and Assurance Plan was delivered utilising a co-source partner, PwC, and with internal resources. In the first half of 2016, PwC completed the work commenced in 2015 by conducting a number of internal audits and recommending updates to the Group's Minimum Financial Controls. In the second half, Internal Audits were conducted by the Head Risk & Assurance supported by internal resources from across the Group. During the year, the Head of Risk & Assurance developed a Group Risk & Assurance Strategic Plan, which is designed to evolve and build on the foundations of the Group's existing risk and assurance plan. In 2016, as set out on pages 24 to 29, the Group further strengthened its risk management procedures and these have been reviewed by the Audit Committee.

The non-executive Directors are actively encouraged to visit the Group's operating businesses unaccompanied by executive Directors. This enables them to meet the local management teams and employees and also undertake site tours to review matters including production methods, health and safety and the status of internal audit findings. In 2016, a total of 33 site visits were undertaken by the Chairman and non-executive Directors. These visits by the non-executive Directors are viewed by the Audit Committee as making a positive contribution to the internal control framework.

CONCLUSION

As a result of its work during the year, the Audit Committee has concluded that it has acted in accordance with its Terms of Reference. At its meeting held on 22 February 2017, the Audit Committee considered each section of the Annual Report & Accounts 2016, and the document as a whole, as proposed by the Company; it reached a conclusion and advised the Board that it considered the Annual Report & Accounts 2016 to be fair, balanced and understandable and that it provided the information necessary for shareholders to assess the Company's business model and strategy. The Chairman of the Audit Committee will be available at the 2017 AGM to answer any questions about the work of the Committee.

APPROVAL

This Report was reviewed and approved by the Audit Committee and signed on its behalf by:

Giles Kerr

Chairman of the Audit Committee 24 February 2017

REMUNERATION REPORT: ANNUAL STATEMENT

DEAR SHAREHOLDER

As Chair of the Remuneration Committee I am pleased to present our Remuneration Report for the financial year ended 31 December 2016. This statement provides context to the Committee's decision-making during the year, summarises key points from the Report including those relating to performance and incentive plan outcomes, and outlines the activities of the Committee.

Business performance context

Senior's primary strategic objective of creating long-term sustainable growth in shareholder value has remained constant during 2016. Senior's culture of empowerment of autonomous, but collaborative, operations working within a well-defined control framework is a key element to realising its strategic goals.

The year under review has been challenging, with financial performance held back by some key factors which are discussed in the Chairman's Statement and Chief Executive's Review, primarily:

• Aerospace performance was impacted by volume reductions on mature programmes, the ramp-up of new aircraft production programmes and certain supplier issues; and
• Flexonics performance continued to reflect the challenging market conditions in truck and off-highway and oil and gas markets.

Notwithstanding these challenges, the fundamentals of the business remain strong and the Company continues to make progress:

• Aerospace production programmes are continuing to ramp up, and two of the previously reported price increase negotiations have concluded satisfactorily and many new business opportunities are in discussion with key customers; and
• In Flexonics, good progress has been made to transfer production to new facilities in cost competitive countries and we have continued to secure positions on new programmes and platforms, and therefore are well positioned to resume growth when markets recover.

Incentive outcomes for the year

As set out in the Annual Report of Remuneration, remuneration outcomes for the year were as follows:

• Annual Bonus Plan: Awards for the year at 31.0% of maximum reflect the continued ability of the Group to generate free cash whilst significantly increasing investment in the Group. The Group generated £48.5m of free cash after funding £52.8m of capital investment for future growth of the Group. Net cash from operating activities increased to £100.3m in the year as detailed on page 35 of the annual report. However, due to the challenging business environment, the Company's Adjusted Earnings per share targets have not been achieved.
• Long-Term Incentive Plan (the LTIP): Awards made in 2014 reached the end of their threeyear performance period. The threshold performance targets relating to Adjusted EPS and Total Shareholder Returns (TSR) have not been achieved and therefore none of the awards will vest.
• Total remuneration outcomes are below 'target': On the basis of these variable pay outcomes, total actual remuneration for the year for the Group Chief Executive and the Group Finance Director will be at the lower end of the remuneration ranges (as illustrated in the Application of Remuneration Policy chart on page 53 overleaf).

The Committee considered that the outcome of the incentive plans as a whole appropriately reflected the challenging year that had been faced by the Company and is satisfied that the remuneration framework reinforces the link between pay and performance and therefore rewards senior executives appropriately.

Key Committee activities during the year

In addition to the responsibilities of the Committee (which are described in summary on page 61), the Committee spent time on the following matters during the year:

• Review of the performance conditions of the Long-Term Incentive Plan:

In December 2016, the Committee reviewed the performance conditions for shares to be granted in 2017 under the LTIP, details of which can be seen on page 70, and agreed that the EPS condition should remain unchanged from 2016. However, with regard to the TSR performance condition, the Committee agreed that, taking into account the current market conditions, the maximum vesting of awards granted in 2017 should be at upper quartile TSR performance rather than upper quintile performance. In making these amendments, the Committee considered the new targets were no less challenging in the light of current circumstances and within the approved Remuneration Policy.

• Review of the performance conditions of the Annual Bonus Plan:

The Committee reviewed the key performance indicators (KPIs) for the 2016 annual bonus and it was agreed that the adjusted earnings per share and free cash flow conditions were still appropriate and that the target levels were stretching without encouraging inappropriate levels of risk. The Committee had planned to review the structure of the incentive arrangements during 2016 to ensure that the performance indicators remain appropriate. However, a full review was delayed due to the recruitment of a Group HR Director and a review of the performance management system prior to considering any changes to incentives across the Company. It is now planned that any potential changes would be proposed, consulted on as appropriate in 2017 and implemented in 2018.

It was agreed that in 2017, the bonus performance condition should be amended to provide more weighting of the Adjusted EPS target relative to the free cash flow target and that the free cash flow target should be only an annual measure.

REMUNERATION REPORT: ANNUAL STATEMENT CONTINUED

• Review of the Remuneration Policy

The current Remuneration Policy has been in place since 2014. The Committee, with input from our external adviser, considered whether the current arrangements were still appropriate and effective and whether any changes were appropriate for the future. As a consequence, the Committee agreed that:

• Overall the current Remuneration Policy remains appropriate, providing alignment between Group performance and Directors' remuneration.
• The Remuneration Policy includes many 'good practice' expectations and is supported by most shareholders. The Committee is aware of the momentum to require executive Directors to hold 150% to 200% of salary in Company shares. We shall consider this matter during the 2017 review of the incentive arrangements as discussed above.
• However, it was agreed that a small number of minor amendments to technical/administrative matters contained in the Remuneration Policy, as described below, should be clarified:
• Benefits (non-executive Directors and executive Directors): Ability to reimburse the tax payable (grossed up) business expenses captured as taxable benefits due to HMRC challenge (i.e. travel to main place of work).
• Long-Term Incentive Plan: Facility to grant or settle an LTIP in cash if the Company is, for example, in a prolonged close period.

Shareholder consultation

As detailed in my statement last year, I wrote to our largest shareholders in December 2015 with regard to the changes to some elements of the Group Finance Director's remuneration which were within Policy, namely the quantum of his LTIP award and pension allowance. The Remuneration Report gained 98.58% approval at the 2016 Annual General Meeting.

In December 2016, I wrote again to our largest shareholders to advise them of the limited number of small amendments to technical/ administrative matters contained in the proposed updated Remuneration Policy. To date, most shareholders were supportive of the proposed changes.

Any proposals resulting from the 2017 incentive review would be the subject of in-depth consultation with major shareholders during 2017 and if appropriate would once again be subject to shareholder vote.

Implementation of policy for the year ahead

Due to the performance of the Company in 2016, the Group Chief Executive and Group Finance Director did not feel it appropriate for their salaries to be increased at the present time. The Chairman and the non-executive Directors also requested that their fees remain unchanged. The Remuneration Committee acknowledged their request but intends to review the salaries of the Group Chief Executive and Group Finance Director later in 2017. Other Company employees have not been affected by this decision. The Board will also review the fees of the Chairman and non-executive Directors later in 2017.

Shareholders will be asked to approve the updated Remuneration Policy and the Annual Report on Remuneration, in accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (the 2013 Regulations), at the 2017 Annual General Meeting.

Celia Baxter

Chair of the Remuneration Committee

2016 REMUNERATION REPORT AT A GLANCE

OVERVIEW OF OUR REMUNERATION FRAMEWORK

Element of remuneration	Key features
Salary and employment benefits	Market competitive to attract and retain high-quality executives (including fully expensed car,
	private medical insurance, life insurance and defined contribution retirement benefits)
Annual bonus:	Rewards achievement against annual performance objectives:
Adjusted EPS	• Maximum bonus is 105% of salary
Free cash flow	• 1 ⁄3 of any award is paid in shares, deferred for three years
	• Group Chief Executive and Group Finance Director target: 50% of salary
Long-Term Incentive Plan:	Supports the Company's longer-term strategic aims to create sustainable growth in shareholder
Adjusted EPS (50%)	value and to incentivise, motivate and retain senior talent:
TSR (50%)	• Max award is 200% of salary but normal awards are 150% of salary
	• 25% vesting at 'threshold'
Shareholding requirements	Equivalent to 100% of Executive Directors' salary
Clawback and malus provisions	Unvested Deferred Bonus Award subject to clawback
	Long-Term Incentive Plan subject to clawback and malus during the period of three years
	following the date of vesting

PERFORMANCE HIGHLIGHTS AND INCENTIVE OUTCOMES

				Achieved (% of
Annual bonus		Target	Actual	maximum)
Performance condition
Free cash flow
Interim		£2.73m	£17.3m	100%
Full year		£41.06m	£48.5m	78.0%
Adjusted EPS
Internal target		17.89p	14.37p	0%
Year-on-year growth		18.98p	14.37p	0%
	Bonus award to Group Chief Executive and Group Finance Director: 31.0% of maximum
Long-Term Incentive Plan (2014 award) Targets (threshold – stretch)		Actual
Adjusted EPS (50%)	4% – 10% compound annual average growth above RPI	-9.9% (below threshold)
	over three years
Total Shareholder Return (50%)	TSR ranking: 6.5 (maximum threshold)	25 ranking (below threshold)

No awards vesting

APPLICATION OF REMUNERATION POLICY

The chart below shows how the composition of each of the executive Directors' packages varies at different levels of performance under the Remuneration Policy and also includes the value of remuneration actually delivered for the year ended 31 December 2016. The assumptions noted for 'target' performance in the graph below are provided for illustration purposes only.

15.5 (minimum threshold)

This chart is based on the following assumptions

	Threshold	Target	Maximum
Fixed pay		Salary is the basic salary as at 1 January 2017
		The value of Benefits and Pension is taken from
		the single total figure of remuneration for 2016
Annual	Nil	Approximately 50%	100% of the
bonus		of the maximum	maximum payout
		payout
Long-term	Nil	25% vesting under	100% vesting
share		the LTIP (i.e. 25%	under the LTIP
awards		of 2017 basic	(i.e. 100% of 2017
		salary) and set	basic salary) and set
		out at face value,	out at face value,
		with no share price	with no share price
		growth or dividend	growth or dividend
		assumptions	assumptions

(1) For valid comparison, Derek Harding's Long-Term Share Awards figure excludes vested shares from his Sign-on Award.

2016 REMUNERATION REPORT AT A GLANCE CONTINUED

PROPOSED CHANGES FOR THE YEAR AHEAD

A small number of technical/administrative amendments to the Remuneration Policy are to be presented to shareholders for approval at the 2017 AGM:

• Benefits (non-executive Directors and executive Directors) Provide the Company with the ability to reimburse the tax payable (grossed up) for any business expenses deemed to be a taxable benefit due to HMRC challenge (i.e. travel to main place of work).
• Long-Term Incentive Plan Amend the Policy to provide the Company with the flexibility to grant or settle an LTIP in cash if the Company is, for example, in a prolonged close period.

Following the recruitment of a Group HR Director in 2016, a review of the performance management system for senior executives was undertaken. During 2017, the Group's incentives structure is also to be reviewed, with shareholders being consulted on any proposed changes. Subject to shareholder support, any changes to the incentives structure would be implemented in 2018.

About this Report

The Report on Remuneration on pages 61 to 70 is produced in accordance with the 2013 Regulations and the relevant provisions of the Listing Rules of the Financial Conduct Authority. Parts of the Annual Report on Remuneration are subject to audit, these provide details of the Directors' emoluments, shareholdings, Long-Term Incentive Plan awards and pension benefits for the year ended 31 December 2016 and the Committee's intentions for 2017.

We have structured the rest of the Report as follows:

• Remuneration Policy:
• Policy for executive Directors
• Policy for non-executive Directors
• How shareholder views are taken into account
• Legacy arrangements
• Discretions of the Remuneration Committee.
• Annual Report on Remuneration

REMUNERATION REPORT: POLICY

In determining remuneration for the executive Directors and other senior managers, the Remuneration Committee seeks to maintain a competitive programme which enables the Company to attract and retain the highest calibre of executive.

Performance-related elements of remuneration form a significant proportion of the total remuneration package of each executive Director, details of which are set out below. These performance-related elements, which take into account the Company's risk policies and systems, are designed to align the Directors' interests with those of shareholders and to reward executive Directors for performance at the highest levels.

POLICY FOR EXECUTIVE DIRECTORS

The table below summarises the Committee's policy for the remuneration of executive Directors which was approved by shareholders at the 2014 AGM and became binding from that date, except for those matters highlighted in bold which are to be added to the policy in 2017. The updated policy will be presented to shareholders for approval at the 2017 AGM on 21 April 2017 and, subject to shareholder approval, the updated policy will come into effect.

Element	Purpose and link to strategy	Operation	Maximum	Performance assessment
Salary	• Reflects the performance of the individual, his or her skills and experience over time and the responsibilities of the role • Provides an appropriate level of basic fixed pay avoiding excessive risk arising from over-reliance on variable income	• Will normally be reviewed annually with effect from 1 January • Benchmarked periodically against companies with similar characteristics and sector companies • Normally positioned within a range around the mid-market level taking into account the experience and performance in the role of the individual, complexity of the role, market competitiveness and the impact of salary increases on total remuneration	• Other than to reflect change in the size and complexity of the role/Company, the Committee will have regard to the basic salary percentage increases taking place across the Company more generally when determining salary increases for the executive Directors • No maximum salary cap	• Individual performance in the role and Group performance are among the factors taken into consideration when awarding increases
Bonus	• Incentivises annual delivery of corporate financial and non financial goals • Delivery of a proportion of bonus in deferred shares provides alignment with shareholders and assists with retention	• Up to 70% of salary paid in cash with up to a further 35% of salary paid as a conditional award of deferred shares • Maximum bonus only payable for achieving demanding targets • Deferred shares are released three years after award but are subject to forfeiture by a "bad leaver" • Executives are entitled to receive the value of dividend payments that would have otherwise been paid in respect of vested deferred shares • All bonus payments are at the discretion of the Committee • Different performance conditions may be set when recruiting an executive Director • The Committee may review the performance conditions from time to time • The Committee has the discretion in certain circumstances to grant and/or settle an award in cash. In practice, this will only be used in exceptional circumstances for executive Directors	• Overall maximum of 105% of salary	• The Committee determines performance conditions and weightings at the start of each year • For 2016, the financial metrics included free cash flow (first half and full-year performance against budget) and adjusted earnings per share (year on-year growth and performance compared to budget) measured over a year • The Committee may include non financial metrics up to 25% of the overall award • Performance below threshold results in zero payment. Payment rises from 0% to 100% of the maximum opportunity for levels of performance between the threshold and maximum targets • Typically, threshold is around 90% of target, and on-target performance delivers approximately 50% of the maximum opportunity • Subject to clawback at the Committee's discretion over unvested deferred shares in the event of material misstatement or gross misconduct and, if required, over any unvested LTIP awards

SENIOR PLC ANNUAL REPORT & ACCOUNTS 2016 55

REMUNERATION REPORT: POLICY CONTINUED

Element	Purpose and link to strategy	Operation	Maximum	Performance assessment
Long-Term Incentive Plan (LTIP)	• Incentivises sustained performance over the longer term • The use of longer term performance targets and delivery of awards in shares rewards the achievement of the Company's strategic goals and increases in shareholder value	• Annual grants of performance shares which vest subject to performance measured over three years and continued service • Executives are entitled to receive the value of dividend payments that would have otherwise been paid in respect of vested deferred shares • All awards are subject to the discretions contained in the plan rules • The Committee may review the performance conditions from time to time • The Committee has the discretion in certain circumstances to grant and/ or settle an award in cash. In practice, this will only be used in exceptional circumstances for executive Directors	• 150% of salary • 200% of salary in exceptional circumstances, such as upon recruitment	• The Committee determines performance conditions and weightings at the start of each year, providing that the targets are not materially less challenging • For 2016, the awards were based on a mix of: – Relative Total Shareholder Return (50% of the award); and – Group adjusted earnings growth targets (50% of the award) • In respect of each performance element, performance below the threshold target results in zero vesting. Vesting of each performance element starts at the 25% threshold and rises to 100% for maximum level of performance • Subject to clawback at the Committee's discretion during the period of three years following the date of vesting
All-Employee Share Schemes	• Employees including executive Directors are encouraged to become shareholders through the operation of the Sharesave Plan, the HMRC approved all employee share plans	• The Sharesave Plan has standard terms under which participants can normally enter a savings contract in return for which they are granted options to acquire shares at the market value of the shares at the start of the performance period • The rules for this plan were first approved by shareholders at the 2006 AGM and the updated rules were approved at the 2016 AGM	• Employees can normally elect for a three-year savings contract under standard terms and within HMRC limits • The option price for Sharesave awards can be set at a discount of up to 20% to the market value of the shares at the start of the savings contract, although no awards granted under the 2006 Sharesave Plan have been set at a discount	• N/A
Pension	• Provides competitive retirement benefits for the Group's employees	• The executive Directors may participate in the Senior plc Group Flexible Retirement Plan (Senior GFRP), a contract-based, money purchase pension plan and/or receive cash allowances • Bonuses are not included in calculating retirement benefits	• 20% of basic salary either as a Company contribution to Senior GFRP or as salary in lieu of pension	• N/A
Other benefits	• Provides a competitive package of benefits that assists with recruitment and retention	• Benefits include provision of a fully expensed car or car allowance, private medical insurance, life insurance and income protection, tax equalisation and relocation benefits • Any reasonable business-related expenses (including tax thereon) can be reimbursed	• The value of benefits is based on the cost to the Company and is not predetermined • There is no monetary cap on other benefits	• N/A
Shareholding guidelines	• Aligns executive Directors' interests with that of other shareholders in the Company	• Executive Directors to retain at least 50% of the shares that vest under the LTIP and Deferred Bonus Award, after allowing for tax liabilities, until a shareholding equivalent in value to 100% of base salary is built up	• N/A	• N/A

RECRUITMENT OF EXECUTIVE DIRECTORS

Salaries for newly appointed Directors will be set to reflect their skills and experience, the Company's intended pay positioning and the market rate for the role.

Where it is appropriate to offer a below median salary initially, the Committee will have the discretion to allow phased salary increases over time for newly appointed Directors, even though this may involve increases in excess of the rate for the wider workforce and inflation.

Benefits will be provided in line with those offered to other employees, with national or international relocation expenses/arrangements (e.g. schooling, tax equalisation) provided for if necessary.

The aggregate incentive offered to new recruits will be no higher than that outlined in the Policy report on pages 55 and 56. The Remuneration Committee has flexibility to grant share awards of up to 200% of salary upon recruitment. Different performance measures may be set initially for the annual bonus and LTIP, taking into account the responsibilities of the individual, and the point in the financial year that they joined.

Current entitlements (benefits, bonus, share schemes) may be bought out on terms that are no more favourable than a like-for-like basis (with a comparable time horizon, fair value and subject to performance conditions). Existing incentive arrangements will be used to the fullest extent possible, although awards may also be granted outside these schemes if necessary and as permitted under the Listing Rules. In the case of an internal hire, any outstanding variable pay awarded in relation to the previous role will be allowed to pay out according to its terms of grant (adjusted as relevant to take into account the Board appointment).

RATIONALE BEHIND PERFORMANCE METRICS AND TARGETS

The performance-related elements take into account the Company's risk policies and systems and are designed to align the Directors' interests with those of shareholders. Variable pay elements aim to reward executive Directors for performance at the highest levels and, as such, the Committee aims to set targets that are both stretching and achievable. All targets are set on a sliding scale. The Committee reviews the annual bonus measures set for all the Company's senior executives (not only the executive Directors) every year in order to ensure that they are aligned with the Company's strategy and annual goals and to ensure that bonus arrangements amongst the Company's senior executive team are consistent.

The annual bonus may include a mix of financial and non-financial measures reflecting the key annual priorities of the Group. The financial metrics currently include two of the Company's KPIs: free cash flow, which is a key measure of the business's ability to fund future acquisitions; and Adjusted EPS, which will reflect the Group's ability to expand into new regions and product markets and increase the profitability of the existing operations. If non-financial measures are selected, these may include reference to the Group's environmental, safety and organisational goals.

The measures currently used in the LTIP are Adjusted EPS and relative TSR. Adjusted EPS is a measure of the Company's overall financial success and TSR provides an external assessment of the Company's performance against its competitors. It also aligns the rewards received by executives with the returns received by shareholders. The Committee will review the choice of performance measures and the appropriateness of the performance targets prior to each LTIP grant. In particular, the Adjusted EPS targets are reviewed prior to each grant by taking account of internal and external expectations of future Adjusted EPS growth for the business. The Committee reserves the discretion to set different targets for future awards, without consulting with shareholders, providing that, in the opinion of the Committee, the new targets are no less challenging in light of the circumstances at the time than those used previously. The targets for awards granted under this Remuneration Policy are set out in the Annual Report on Remuneration.

RELATIONSHIP BETWEEN EXECUTIVE DIRECTOR AND EMPLOYEE PAY

The Remuneration Policy for the executive Directors is designed with regard to the policy for employees across the Group as a whole. There are some differences in the structure of the Remuneration Policy for the executive Directors and other senior employees, which the Remuneration Committee believes are necessary to reflect the different levels of responsibility of employees across the Company and reflect different market norms for different roles. The key differences in remuneration policy between the executive Directors and employees across the Group are the increased emphasis on performance-related pay and the inclusion of a share-based long-term incentive plan for executive Directors.

Executive Directors are provided with a competitive package of benefits that includes (depending on role) participation in the Group's occupational pension arrangements, provision of a fully expensed car or car allowance, private medical insurance, life insurance and income protection.

The majority of Senior's managers are eligible to participate in annual bonus arrangements with challenging targets tied to the performance of their employing entity and Division.

Long-term incentives are provided to the most senior executives and those anticipated as having the greatest potential to influence performance levels within the Company. A lower aggregate incentive quantum operates at below executive level with levels driven by the impact of the role and market comparatives.

In order to encourage wider employee share ownership, the Company operates a Sharesave Plan in which employees in the UK, North America and continental Europe, including executive Directors, may participate.

HOW EMPLOYEES' PAY IS TAKEN INTO ACCOUNT WHEN SETTING EXECUTIVE DIRECTOR REMUNERATION

The Committee also reviews the salaries of corporate, divisional and senior operational managers and therefore is fully cognisant of pay levels in the Group when determining the pay of the executive Directors.

In addition, the Committee's policy is that salary increases for the executive Directors and senior executives should not normally be greater than the general level of increases awarded to other senior managers in Europe and North America, other than when an executive changes role or when it is necessary in order to ensure levels of remuneration remain market competitive. Increases for the general workforce in Europe and North America for 2017 were approximately 3.4% (2016 – approximately 2.4%).

The Company did not consult with employees when drawing up the Directors' Remuneration Policy set out in this part of the Remuneration Report.

REMUNERATION REPORT: POLICY CONTINUED

POLICY ON OUTSIDE APPOINTMENTS

The Remuneration Committee believes that it is beneficial both for the individual and the Company for an executive Director to take up one external non-executive appointment. Fees paid for the appointment may be retained by the executive.

EXECUTIVE DIRECTORS' SERVICE AGREEMENTS AND LOSS OF OFFICE PAYMENTS

The table below summarises the key provisions of each executive Director's contract:

Provision	Detailed terms
Employment contract dates	David Squires – 5 January 2015
	Derek Harding – 27 March 2013
Notice period	12 months from both the Company and the executive Director
Termination payment	Contracts may be terminated without notice by the payment of a sum equal to the sum of salary due for the unexpired notice period, and the value of pension contributions and other benefits such as use of company car, life cover and private healthcare
	There are no provisions in the agreements, or otherwise, for additional termination payments
	Payments may be made in monthly instalments and, in these circumstances, there is a requirement for the Director to mitigate loss
Change of control	There are no enhanced provisions in relation to a change of control

Copies of the executive Directors' service contracts are available from the Group Company Secretary at the Company's Registered Office during normal business hours. The Committee's policy in the event of early termination of employment is set out below.

POLICY ON PAYMENT FOR DEPARTURE FROM OFFICE

On termination of an executive Director's service contract, the Committee will take into account the departing executive Director's duty to mitigate his or her loss when determining the amount of compensation. The Committee's policy in respect of the treatment of executive Directors leaving the Group is described below and is designed to support a smooth transition from the Company, taking into account the interests of shareholders:

Component of pay	Voluntary resignation or termination for cause	Death, ill health, disability, retirement excluding redundancy	Departure on agreed terms
Base salary, pension and benefits	Paid for the proportion of the notice period worked	Paid up to the date of death or leaving, including any untaken holidays prorated to such date. In the case of ill health, a payment in lieu of notice may be made and, according to circumstances, may be subject to mitigation. In such circumstances, some benefits such as company car or medical insurance may be retained until the end of the notice period
Annual bonus cash	Cessation of employment during a bonus year will normally result in no cash bonus being paid	Cessation of employment during a bonus year or after the year-end but prior to the normal bonus payment date will result in cash and deferred bonus being paid and prorated for the relevant portion of the financial year worked and performance achieved	Treatment will normally fall between the two treatments described in
Annual bonus deferred shares	Unvested deferred share awards will lapse	In the case of the death of an executive Director, all deferred shares will be transferred to the estate as soon as possible after death. In all other cases, subject to the discretion of the Committee, unvested deferred shares will be transferred to the individual on a date determined by the Committee	the previous columns, subject to the discretion of the Committee and the terms of any termination agreement
LTIP share awards	Unvested LTIP share awards will lapse	Subject to the discretion of the Committee, unvested LTIP share awards will remain subject to the relevant performance conditions and normally be measured at the original vesting date. The awards will normally be prorated for the relevant proportion of the performance period worked. However, in the case of the death of an executive Director, the Committee will determine the extent of vesting within 12 months of the date of death
Options under Sharesave	As per HMRC regulations	As per HMRC regulations
Other	None	Statutory payments and disbursements such as any legal costs and outplacement fees

Notes

a) The Committee will have the authority to settle any legal claims against the Company e.g. for unfair dismissal etc that might arise on termination.

b) There are no enhanced provisions in relation to a change of control.

POLICY FOR NON-EXECUTIVE DIRECTORS

Element to strategy Operation	Maximum	assessment
Non-executive • Takes account of • The Chairman is paid a single fee for all his responsibilities Directors and recognised practice as determined by the Remuneration Committee. The non Chairman fees executive Directors are paid a basic fee. The Senior Independent and set at a level that is sufficient to attract Director and the Chairs of the Audit and Remuneration and retain high Committees receive additional fees to reflect their extra calibre non-executive responsibilities Directors • When reviewing fee levels, account is taken of market movements in non-executive Director fees, Board Committee responsibilities, ongoing time commitments and the general economic environment • Fee increases, if applicable, are normally effective from 1 January • The Chairman and non-executive Directors do not participate in any pension, bonus, share incentive or other share option plans • The remuneration of the non-executive Directors is determined by the Board of Directors. The non-executive Directors do not participate in any discussion or decisions relating to their own remuneration • Any reasonable business-related expenses (including tax thereon) can be reimbursed	• Other than when a non-executive Director changes role or where benchmarking indicates fees require realignment, fee increases will not normally exceed the general level of increases for the Group's employees	• N/A

NON-EXECUTIVE DIRECTORS' LETTERS OF APPOINTMENT

The Chairman and non-executive Directors do not have service agreements but the terms of their appointment, including the time commitment expected, are recorded in letters of appointment. The Chairman's appointment may be terminated on providing 12 months' notice by either party. The appointments of the other non-executive Directors may be terminated by the Company or non-executive Director on providing one month's notice. Copies of the Chairman's and non-executive Directors' letters of appointment are available from the Company Secretary at the Company's Registered Office during normal business hours.

NON-EXECUTIVE DIRECTORS' TERMS OF APPOINTMENT

Name	Date original term commenced	Date current term commenced	Expected expiry date of current term
Charles Berry (Chairman)	Joined the Board March 2012 and	–	–
	became Chairman in April 2012
Celia Baxter	September 2013	September 2016	September 2019
Susan Brennan	January 2016	–	December 2018
Giles Kerr	September 2013	September 2016	September 2019
Mark E. Vernon	April 2011	April 2017(1)	April 2018

(1) The second three-year term of appointment of Mark E. Vernon had been due to expire in April 2017. In February 2017, the Nominations Committee agreed to extend his appointment for another 12 months, expiring in April 2018.

REMUNERATION REPORT: POLICY CONTINUED

HOW SHAREHOLDER VIEWS ARE TAKEN INTO ACCOUNT

The Remuneration Committee considers shareholder feedback received in relation to the AGM each year and guidance from shareholder representative bodies more generally. Shareholders were consulted in 2013 when formulating the Remuneration Policy and in 2016 when updating the Policy. Consultation with shareholders was constructive and did not result in any significant changes being made to the Remuneration Policy.

The Committee consults proactively with its major shareholders and intends to continue working closely with shareholders in future.

LEGACY ARRANGEMENTS

For the avoidance of doubt, having received shareholder approval at the 2014 AGM of this Policy Report, authority was given to the Company to honour any commitments entered into with current or former Directors (such as the payment of a pension or the unwinding of legacy share schemes) that have been disclosed to shareholders in previous remuneration reports and the recruitment arrangements entered into with Derek Harding.

DISCRETIONS OF THE REMUNERATION COMMITTEE

The Committee operates the Group's various incentive plans according to their respective rules and in accordance with HMRC rules where relevant. To ensure the efficient administration of these plans, the Committee may apply certain operational discretions. These include the following:

• selecting the participants for the annual bonus plan and LTIP awards;
• determining the timing of grants and/or payments;
• determining the quantum of grants and/or payments (within the limits set out in the policy table commencing on page 55);
• adjusting the constituents of the TSR comparator group;
• determining the extent of vesting based on the assessment of performance;
• determining "good leaver" status and the extent of vesting in the case of the LTIP and deferred shares;
• determining the extent of vesting in the case of the LTIP in the event of a change of control;
• making the appropriate adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events, variation of capital and special dividends); and
• undertaking the annual review of weighting of performance measures, and setting targets for the annual bonus plan and LTIP from year to year.

The Committee may vary the performance conditions to apply to LTIP awards if an event occurs which causes the Committee to consider that it would be appropriate to amend the performance conditions, provided the Committee considers the varied conditions are fair and reasonable and not materially less challenging than the original conditions would have been but for the event in question.

REMUNERATION REPORT: ANNUAL REPORT ON REMUNERATION

SUMMARY OF THE COMMITTEE'S TERMS OF REFERENCE

The Terms of Reference of the Remuneration Committee, available in full on the Company's website, are summarised below:

• determine and agree with the Board the framework or broad policy for the remuneration of the Chairman of the Board, the executive Directors and other members of the executive management as it is designated to consider;
• within the terms of the agreed policy and in consultation with the Chairman and/or Group Chief Executive, as appropriate, determine the total individual remuneration package of the Chairman, each executive Director, and other designated senior executives including bonuses, incentive payments and share options or other share awards;
• approve the design of, and determine targets for, any performancerelated pay plans operated by the Company and approve the total annual payments made under such plans;
• review the design of all share incentive plans for approval by the Board and shareholders. For any such plans, determine each year whether awards will be made and, if so, the overall amount of such awards, the individual awards to executive Directors, and other designated senior executives and the performance targets to be used;
• determine the policy for, and scope of, pension arrangements for each executive Director and other designated senior executives;
• ensure that contractual terms on termination, and any payments made, are fair to the individual and the Company, that failure is not rewarded and that the duty to mitigate loss is recognised; and
• oversee any major changes in employee benefits structures throughout the Group.

MEMBERS

The Remuneration Committee consists entirely of non-executive Directors.

Member	Number of meetings during term	Number of meetings attended
Celia Baxter – Chair(1)	3	3
Charles Berry(1)	3	3
Susan Brennan(2)	3	3
Andy Hamment(3)	3	2
Giles Kerr	3	3
Mark E. Vernon	3	3

(1) The full Committee met three times in 2016. In addition, authority was delegated to two members of the Committee, Celia Baxter and Charles Berry, to hold three additional meetings to confirm the grant and vesting of share awards.

(2) Susan Brennan – Appointed Independent non-executive Director on 1 January 2016. (3) Andy Hamment – Senior Independent non-executive Director until he retired from the Board on 22 April 2016.

OTHER ATTENDEES AT REMUNERATION COMMITTEE MEETINGS

The Group Chief Executive and Group HR Director attend meetings by invitation and the Group Company Secretary acts as secretary to the Committee but no executive Director or other employee is present during discussions relating to his or her own remuneration.

ADVISERS

Before recommending proposals for Board approval, the Remuneration Committee may seek advice from external remuneration consultants to ensure that it is fully aware of comparative external remuneration practice as well as shareholder, legislative and regulatory developments. The Committee also considers publicly available sources of information relating to executive remuneration.

All advisers to the Remuneration Committee are appointed and instructed by the Committee. During the year, the Committee was advised by New Bridge Street (part of Aon plc) in relation to ad hoc remuneration matters, and Slaughter and May in relation to the updating of the Senior plc 2006 Savings-Related Share Option Scheme rules. New Bridge Street and Slaughter and May have no other connection with the Company. During 2016, the Company incurred fees of £9,446 from New Bridge Street, and £4,500 from Slaughter and May and these costs were based on a combination

of hourly rates and fixed fees for specific items of work.

The Committee does not have a formal policy of subjecting its remuneration consultants to a regular fixed-term rotation, although the Committee remains cognisant of the need to achieve objective advice and good value whilst also benefiting from the consultants' knowledge of the Company. The Committee is satisfied that the advice it has received during 2016 has been objective and independent.

REMUNERATION REPORT: ANNUAL REPORT ON REMUNERATION CONTINUED

PRINCIPAL ACTIVITIES AND MATTERS ADDRESSED DURING 2016

The Committee has a calendar of standard items within its remit and in addition it held in-depth discussions on specific topics during the year. The Committee typically meets four times each year, or more as required. The full Committee met three times in 2016. In addition, authority was delegated to two members of the Committee, Celia Baxter and Charles Berry, to hold three additional meetings to confirm the grant and vesting of share awards. The table below shows the standard items considered at each meeting, leading up to the meeting in February where the key decisions regarding performance, outcomes and grants for the coming year are determined.

	Standard agenda items	Ad hoc items
February	Review of performance and outcomes under the Annual
	Bonus and Deferred Bonus Award.
	Review of performance and vesting under long-term incentives.
	Determining incentive structure for the next
	financial year including finalisation of targets.
	Review of Remuneration Report.
March	Confirmation of LTIP and Deferred Bonus Awards.
May	Granting of Sharesave award.
July	Review of Remuneration Policy	Granting of LTIP award following appointment
		of Group HR Director.
September		Vesting of third and final tranche of a conditional
		share award for Derek Harding.
		Review of pension policy for executives
		and senior managers.
December	Review and approval of Directors' and senior managers'	Review Directors' Remuneration Policy.
	salary and total remuneration packages for the following
	financial year.
	Performance update on outstanding incentive and
	bonus awards.
	Review of Long-Term Incentive Plan participants
	for the next financial year.
	Review of the Chairman's fee.

STATEMENT OF VOTING AT GENERAL MEETING

At last year's AGM, held on 22 April 2016, votes on the Directors' Remuneration Report were cast as follows:

						Reason for vote against,	Action taken
	Voting	For	Against	Total	Withheld(1)	if known	by Committee
Remuneration Report	Votes	323,794,490	4,652,261	328,446,751	10,504,741	N/A	N/A
	%	98.58%	1.42%	100.0%	N/A

(1) A vote withheld is not a vote in law and is not counted in the calculation of the proportion of votes cast 'For' and 'Against' a resolution.

SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED INFORMATION)

The following table shows a single total figure of remuneration in respect of qualifying services for the 2016 financial year for each executive Director, together with comparative figures for 2015. Aggregate Directors' emoluments are shown at the end of the Single Total Figure of Remuneration section.

										Pension benefits
		Salaries		Taxable						including
		and		benefits and				Long-term		cash in lieu of
		fees(1) £000s		allowances(2) £000s		Bonus(3) £000s		incentives(4) £000s		pension £000s		Other(5) £000s		Total £000s
	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
Executives
David Squires(1)	475	307	22	16	155	46	0	0	95	61	43	313	790	743
Derek Harding	325	315	15	15	106	47	0	108	63	55	0	0	509	540
Total remuneration	800	622	37	31	261	93	0	108	158	116	43	313	1,299	1,283
Non-executives
Charles Berry
(Chairman)	155	151	1	2	–	–	–	–	–	–	–	–	156	153
Celia Baxter	52	50	–	–	–	–	–	–	–	–	–	–	52	50
Susan Brennan(6)	43	–	1	–	–	–	–	–	–	–	–	–	44	–
Andy Hamment(7)	16	47	–	–	–	–	–	–	–	–	–	–	16	47
Giles Kerr	52	50	–	–	–	–	–	–	–	–	–	–	52	50
Mark E. Vernon	48	42	1	4	–	–	–	–	–	–	–	–	49	46
Total remuneration	366	340	3	6	–	–	–	–	–	–	–	–	369	346

(1) David Squires' 2015 Salaries and fees total reflects him joining part way through the year, on 1 May 2015.

(2) Taxable benefits include the provision of a fully expensed company car or car allowance and private medical insurance. The amount in respect of Mark E. Vernon, a US-based Director, relates to the cost of travel to Board meetings in the UK. Until April 2015, HMRC regulations required Mark E. Vernon's flights to attend Board meetings to be treated by the Company as home-to-office travel, which meant these air travel costs were treated as taxable benefits. From April 2015, air travel was no longer deemed to be home-to office travel and therefore from that date the only costs recognised in the table included accommodation and travel costs incurred within the UK.

(3) Awards under the deferred bonus award, the Enhanced SMIS, in respect of 2016 performance will be granted in March 2017. The deferred bonus element that is to be granted in the form of shares to David Squires and Derek Harding in March 2017 is included in the Bonus figure and will be equivalent in value to 10.85% of 2016 base salary, namely £51,538 and £35,263 respectively.

(4) The performance conditions attached to Derek Harding's 2014 LTIP Award were not achieved and no shares will vest under this award in March 2017. The 2015 comparator figure for his 2013 LTIP Award had been omitted from the figure shown in the Annual Report and Accounts 2015. Consequently, his 2015 total figures have been restated to reflect the inclusion of this share award. Further details on the performance conditions can be found on page 65.

(5) David Squires received a Recruitment Award in 2015 which consisted of 4,770 shares with a value of £14,906 and long-term incentive awards with a face value of £287,500. In addition, he received a re-location allowance of £11,212 in 2015 and £43,375 in 2016.

(6) Susan Brennan was appointed to the Board on 1 January 2016.

(7) Andy Hamment's 2016 total reflects him leaving part way through the year, on 22 April 2016.

REMUNERATION REPORT: ANNUAL REPORT ON REMUNERATION CONTINUED

FEES RECEIVED FOR OUTSIDE APPOINTMENTS

Neither David Squires nor Derek Harding hold outside appointments for which they are remunerated.

ANNUAL FEES OF NON-EXECUTIVE DIRECTORS

The non-executive Directors do not participate in any pension, bonus, share incentive or other share option plans. Their remuneration reflects both the time given and the contribution made by them to the Company's affairs during the year, including membership or chairmanship of the Board or its Committees. The remuneration of the non-executive Directors is determined by the Board of Directors. The non-executive Directors do not participate in any discussion or decisions relating to their own remuneration. Annual fees for the non-executive Directors were increased on 1 January 2016 and are shown below:

	2016	2015	Percentage
Fees	£	£	change
Chairman	155,000	150,600	2.9%
Non-executive Director	43,250	42,250	2.4%
Chair of Audit Committee(1)	9,000	8,000	12.5%
Chair of Remuneration Committee(1)	9,000	8,000	12.5%
Senior Independent Director(1)	6,250	5,000	25%

(1) A benchmarking exercise found the fees paid for the Chairs of the Audit and Remuneration Committees and for the role of Senior Independent Director were below the rates paid for such roles in similar organisations and consequently increases in excess of inflation were considered appropriate. After these increases, the fees remain the lower quartile.

SENIOR MANAGERS' EMOLUMENTS

In addition to setting the remuneration of the executive Directors, the Remuneration Committee oversees the remuneration of other senior managers.

The table below shows the cumulative benefits of the three Divisional CEOs, the three Divisional CFOs and the four most senior corporate managers.

	2016 Total £000s	2015 Total £000s
Short-term employee benefits	2,391	2,175
Post-employment benefits	194	196
Share-based payments	286	682
Total	2,871	3,053

PERFORMANCE AGAINST PERFORMANCE TARGETS FOR ANNUAL BONUS (AUDITED INFORMATION)

Bonuses are earned by reference to the financial year and paid in March following the end of the financial year. Consistent with recent years, the bonuses accruing to the executive Directors in respect of 2016 have been determined by adjusted EPS and free cash flow performance as set out in the table below.

A summary of the measures, weightings and performance achieved is provided in the table below:

	2016					2015
	Target	Maximum	Actual achieved	Maximum bonus achievable	Percentage of maximum achieved	Bonus payable (% of 2016 salary)(1)	Maximum bonus achievable	Percentage of maximum achieved	Bonus payable (% of 2015 salary)(1)
Free cash flow targets Interim Full year	£2.73m £41.06m	£9.26m £54.27m	£17.3m £48.5m	15.00% 22.50%	100.00% 78.00%	15.00% 17.55%	15.00% 22.50%	100.00% 0.00%	15.00% 0.00%
Adjusted EPS targets Internal target Year-on-year growth	17.89p 18.98p	19.68p 19.64p	14.37p 14.37p	45.00% 22.50%	0.00% 0.00%	0.00% 0.00%	22.50% 45.00%	0.00% 0.00%	0.00% 0.00%
Totals				105.00%	31.00%	32.55%	105.00%	14.30%	15.00%

(1) When bonus is payable, this is paid two-thirds in cash and one-third in deferred shares. The deferred share element of the 2015 bonus was awarded on 4 March 2016 based on a share price of £2.13 and shall ordinarily vest on the third anniversary of the award on 4 March 2019. The deferred element of the 2016 bonus shall be awarded in March 2017 and the details disclosed in the 2017 Remuneration Report.

David Squires joined the Board on 1 May 2015 and received a prorated 2015 bonus to reflect the time served during the year.

For the free cash flow targets, bonus becomes payable at 90% of the targets, for the internal Adjusted EPS target, bonus becomes payable at 95% of target and for the year-on-year growth Adjusted EPS target, bonus becomes payable at 100% of target.

TOTAL PENSION ENTITLEMENTS (AUDITED INFORMATION)

Executive Directors are able to participate in the Senior plc Group Flexible Retirement Plan (Senior GFRP), a contract-based Group personal pension arrangement with Standard Life, or receive a pension allowance of up to 20% of unrestricted salary.

Derek Harding joined the Senior GFRP on 2 September 2013 and, from 1 April 2016, he received the cash allowance alternative. His single figure remuneration for pension benefits in 2016 of £62,813 (2015 – £54,750) consisted of: for the period to 31 March 2016, a contribution of £7,500 (2015 – £30,000) made to the Senior GFRP on his behalf; and a cash allowance of £55,313 (2015 – £24,750). No salary cap is applied in the calculation of Senior GFRP contribution rates for executive Directors; there is a choice of contribution rates for executive Directors, namely 3% executive, 15% employer; or 5% executive, 20% employer.

David Squires' single figure remuneration for pension benefits in 2016 consisted of a cash allowance of £95,000 (2015 – £61,333), this being 20% of his salary received.

PAYMENTS FOR LOSS OF OFFICE (AUDITED INFORMATION)

There were no payments made in the year for loss of office.

PERFORMANCE AGAINST PERFORMANCE CONDITIONS FOR LTIP VESTING

The performance conditions and constituents of the TSR comparator group are set out below.

By reference to performance in the financial year (audited information)

2014 Award, vesting March 2017

				Percentage
Performance condition	Target (25% vesting)	Maximum (100% vesting)	Actual	of total award achieved
Total shareholder return ranking (50% of Award)	15.5	6.5	25	0.0%
Annual average growth above RPI in adjusted earnings per share (50% of Award)	4%	10%	-9.9%	0.0%

Neither performance condition for the 2014 Awards was achieved and so none of the following awards shall vest in 2017:

	Number of shares awarded	Percentage vesting	Number of shares vesting	Value of shares vesting £000s
David Squires(1)	60,000	0%	0	0
Derek Harding	103,222	0%	0	0

(1) David Squires' Sign-on Award included a long-term incentive award over 60,000 shares which mirror the rules and performance conditions attaching to the LTIP award made to other Senior executives on 21 March 2014. These awards were subject to malus and clawback provisions.

SCHEME INTERESTS AWARDED DURING THE FINANCIAL YEAR (AUDITED INFORMATION)

				Percentage vesting at		Performance
Directors	Scheme	Basis of award	Face value £000s	threshold performance	Number of shares	period end date
David Squires	LTIP	Annual award	713	25%	334,507	31 December 2018
Derek Harding	LTIP	Annual award	488	25%	228,873	31 December 2018

The face value of the awards was calculated using the closing share price on 3 March 2016 of 213.0p, being the trading day immediately prior to the date of the award.

REMUNERATION REPORT: ANNUAL REPORT ON REMUNERATION CONTINUED

CURRENT POSITION ON OUTSTANDING LTIP AWARDS (NON-AUDITED INFORMATION)

The following tables show the current position against performance targets for LTIP awards outstanding from 2015 and 2016.

		Conditional share awards in 2016		Conditional share awards in 2015
Performance condition	Target (25% vesting)	Maximum (100% vesting)	Actual to date	Target (25% vesting)	Maximum (100% vesting)	Actual to date
Total shareholder return ranking	15.5	6.5	28	15.5	6.5	27
Annual average growth above RPI in adjusted earnings per share(1)				4%	10%	-15.6%
Growth in adjusted earnings per share over performance period(2)	10%	25%	-24.3%

(1) Actual to date figure of -15.6% represents the annual average growth rate over the first two years of the three-year performance period for the 2015 LTIP award.

(2) Actual to date figure of -24.3% represents the growth in the Adjusted EPS during the first year of the three-year performance period for the 2016 LTIP award.

The TSR comparator group applicable to the 2016 LTIP award consists of manufacturing companies within the following FTSE All Share sectors: Aerospace & Defence; Automobiles & Parts; Electronic & Electrical Equipment; and Industrial Engineering. The constituent comparator companies for the 2016 award, broadly similar to those used for each year of award from 2009 onwards, are listed below:

Avon Rubber	GKN	Qinetiq Group	Ultra Electronics
BAE Systems	Halma	Renishaw	Vitec Group
Bodycote	Hill & Smith	Rolls-Royce Group	Volex
Chemring Group	IMI	Rotork	Weir Group
Cobham	Meggitt	Severfield-Rowen	Xaar
Dialight	Melrose	Spectris
e2v technologies	Morgan Advanced Materials	Spirax-Sarco
Fenner	Oxford Instruments	TT Electronics

TSR is averaged over three months prior to the start and end of the performance period.

SHAREHOLDER DILUTION

Percentage of issued shares

The Company complies with the dilution guidelines contained within The Investment Association Principles of Executive Remuneration.

At 31 December 2016, awards outstanding and shares issued in the previous 10 years under all share plans (the Senior plc 2005 Long-Term Incentive Plan (the 2005 LTIP), the Senior plc 2014 Long-Term Incentive Plan (the 2014 LTIP), and the 2006 Savings-Related Share Option Plan (the Sharesave Plan)) amounted to 5.75% of the issued ordinary share capital of the Company. At 31 December 2016, awards outstanding and shares issued in the previous 10 years under executive (discretionary) plans (the LTIP) amounted to 3.00% of the issued ordinary share capital of the Company.

During 2016, all share awards were satisfied using market-purchased shares. The Remuneration Committee monitors the flow rates of the Company's share plans, in particular before new share awards are made, to ensure the flow rates remain within the Investment Association dilution guidelines.

STATEMENT OF DIRECTORS' SHAREHOLDING AND SHARE INTERESTS (AUDITED INFORMATION)

The Remuneration Committee encourages Directors to own shares in the Company and, in support of this policy, it expects executive Directors to retain at least 50% of the shares that vest under the LTIP, after allowing for tax liabilities, until a shareholding equivalent in value to 100% of base salary is built up. Based on the executive Directors' 2016 base salaries, David Squires had a holding of 8.8% of base salary and Derek Harding had a holding of 71.0% of base salary in the Company's shares.

Deferred share awards are not taken into account for these purposes. Shares are valued using the Company's closing share price on 31 December 2016 of 194.3p.

The table below shows how each Director complies with this requirement.

	Number of shares owned outright (including		Additional shares not counting towards shareholding guidelines Unvested awards, subject to performance conditions
100% of 2016 basic salary)	persons) at 31 December	Share ownership requirements met	LTIP award(1)	One-off award(2)	Sharesave	Deferred share award
						7,198
167,267	118,719	No – 71.0%	428,307	–	6,734	32,798
	Number of shares required to be held (equivalent to 244,467	connected 21,410	No – 8.8%	553,833	60,000	Unvested awards, not subject to performance conditions 4,054

	Number of shares owned outright (including connected persons) at 1 January	Shares vested during 2016	Shares retained from 2016 vested shares	Number of shares owned outright (including connected persons) at 31 December
Executive Directors
David Squires	14,770	6,640	6,640	21,410
Derek Harding	86,520	64,016	32,199	118,719
Non-executive Directors
Charles Berry	10,000	–	–	10,000
Celia Baxter	10,000	–	–	10,000
Susan Brennan	0	–	–	0
Andy Hamment(3)	19,877	–	–	–
Giles Kerr	10,000	–	–	10,000
Mark E. Vernon	18,200	–	–	18,200

(1) Neither performance condition attached to Derek Harding's 2014 LTIP award over 103,222 shares (included within the 428,307 shares above) were achieved; this award (that was due to vest in March 2017) shall lapse in full.

(2) Neither performance condition attached to David Squires' One-off Award over 60,000 shares (which mirrors the performance conditions for the 2014 LTIP award) were achieved; this award (that was due to vest in March 2017) shall lapse in full.

(3) Andy Hamment's shareholding when he retired from the Board on 22 April 2016 was 19,877.

REMUNERATION REPORT: ANNUAL REPORT ON REMUNERATION CONTINUED

PERFORMANCE GRAPH

Share price performance

The closing middle market price of the shares at 31 December 2016 was 194.3p (2015 – 229.7p). During 2016, the shares traded in the range of 171.6p to 242.0p.

Senior plc total shareholder return

The following graph compares the total shareholder return of the Company's shares against the FTSE All-Share, Aerospace & Defence index, and the FTSE250 Index over an eight-year period (where dividends are included gross of tax). This graph allows a comparison to be made against organisations facing broadly similar economic and market conditions as the Company.

REMUNERATION OF GROUP CHIEF EXECUTIVE

	2009	2010	2011	2012	2013	2014	2015(2)(3)	2016
CEO single figure of total
remuneration (£000s)	578	899	1,805	1,529	1,726	1,316	1,020	790
Annual variable element
award rates against maximum
opportunity (%)	38(1)	100	100	92	65	54	14	31
Long-term incentive vesting rates
against maximum opportunity (%)	100	82	100	100	100	91.8	21	0

(1) Given the difficult time faced by many of the Group's employees in 2009, Mark Rollins chose to waive, in full, his entitlement to his 2009 performance bonus.

(2) The single total figure of remuneration in relation to 2015 has been restated from the figure shown in the 2015 Annual Report & Accounts to reflect the difference in the value of the second tranche of David Squires' One-off Award on the actual date of vesting as detailed in Note 34e on page 107 of these Accounts.

(3) During 2015, Mark Rollins retired from the Board on 31 May 2015 and David Squires was appointed a Director on 1 May 2015. The CEO single figure of total remuneration includes the combined 2015 values for Mark Rollins and David Squires.

PERCENTAGE CHANGE IN REMUNERATION OF THE GROUP CHIEF EXECUTIVE

The table below shows how the percentage change in David Squires' salary, benefits and bonus between 2015 and 2016 compares with the percentage change in the average of each of those components of pay for a group of employees. The Committee has selected the Group's senior managers in Europe and North America, as the operations in these territories deliver approximately 90% of the Group's revenue, and these senior managers have broadly similar structured remuneration packages. Businesses acquired by Senior during the year and leavers and joiners in either year have been excluded to prevent distortion.

	Salary	Taxable benefit(2)	Bonus
	Percentage	Percentage	Percentage
	change	change	change
Group Chief Executive(1)	3.3%	0.1%	123.2%(3)
Pay of senior managers in Europe and the USA	3.4%	0.0%(2)	11.9%

(1) David Squires joined the Board on 1 May 2015. For the purpose of making a valid comparison, the salary increase is based on the change in full basic salary of David Squires from £460,000 in 2015 to £475,000 in 2016.

(2) For the purposes of making a more valid comparison, the comparator group for the Taxable benefit figure consisted of UK-based senior managers who had a broadly similar benefits structure as David Squires that included the use of a company car and receipt of private healthcare. The percentage change of the Group Chief Executive is based on David Squires' 2016 benefits and his annualised 2015 benefits.

(3) The Group Chief Executive bonus compares the 2015 bonus of David Squires before it was prorated to reflect him joining on 1 May 2015 of £69,000 and his 2016 bonus of £154,000.

Relative importance of spend on pay

The following table sets out the percentage change in profit, dividends and overall spend on pay in the financial year ended 31 December 2016 compared with the financial year ended 31 December 2015.

	2016 2015		Percentage
	£m	£m	change
Employee remuneration costs (excluding social security)(1)	233.2	211.0	+10.5%
Adjusted profit before tax	75.3	99.3	-24.2%
Dividends paid	26.4	24.3	+8.6%

(1) Steico Industries was acquired in December 2015; 2016 was the first full year of including this operation's employee costs. Senior Aerospace Composites was sold in December 2015.

2017 REMUNERATION (AUDITED INFORMATION)

The Remuneration Policy was implemented at the AGM in 2014 and continues to apply in 2017 until the updated Remuneration Policy, containing a small number of minor amendments to the Policy approved at the AGM in 2014, is approved by shareholders at the AGM in April 2017.

Salaries and fees for 2017

As the Company's financial performance had not met market expectations during 2016, the Board determined that there would be no increases in the salaries and fees for the Directors with effect from 1 January 2017, but, if the Group's financial performance was seen to improve during H1 2017, the Remuneration Committee and Board would be minded to apply an increase later in the year. No additional fees are payable for Committee membership.

	2017	2016	Percentage
Executives	£	£	change
David Squires	475,000	475,000	0.0%
Derek Harding	325,000	325,000	0.0%
Non-executives
Chairman	155,000	155,000	0.0%
Non-executive Directors	43,250	43,250	0.0%
Chair of Audit Committee	9,000	9,000	0.0%
Chair of Remuneration Committee	9,000	9,000	0.0%
Senior Independent Director(1)	9,000	6,250	44.0%

(1) A benchmarking exercise found the fee paid for the role of the Senior Independent Director was below the rate paid for the role in similar organisations and consequently the Board agreed that the Senior Independent Director's fee would increase to the same level of fee paid to the Committee Chairs.

REMUNERATION REPORT: ANNUAL REPORT ON REMUNERATION CONTINUED

Weighting of annual bonus KPIs for 2017

The individual weightings of the KPIs for the executive Directors for the annual bonus are as set out in the following table. It was agreed that in 2017, the bonus performance condition should be amended to provide more weighting of the Adjusted EPS target relative to the free cash flow target and that the free cash flow target should be only an annual measure.

		2017		2016
	Maximum possible cash award	Enhanced SMIS – maximum share award	Maximum possible cash award	Enhanced SMIS – maximum share award
Free cash flow targets:
Interim			10.0%	5.0%
Full year	20.0%	10.0%	15.0%	7.5%
Adjusted EPS targets:
Internal target	34.0%	17.0%	30.0%	15.0%
Year-on-year growth	16.0%	8.0%	15.0%	7.5%
Totals	70.0%	35.0%	70.0%	35.0%

The actual targets are currently considered commercially sensitive because of the information that this provides to the Company's competitors. Full disclosure of the 2017 targets will be disclosed in the 2017 Annual Report.

PERFORMANCE CONDITIONS FOR 2017 AWARDS

Conditional share awards to be granted in 2017.

The performance conditions for awards which will be made in 2017 will again be based on growth in Adjusted EPS (50% weighting) and relative TSR measured against a peer group (50% weighting). The TSR performance maximum threshold for 2017 differs from that applied for 2016 awards, as set in the table below:

		2017		2016
	Weighting	Target (25% vesting)	Maximum (100% vesting)	Target (25% vesting)	Maximum (100% vesting)
Total Shareholder Return ranking	50%	Median or higher	Upper quartile or higher	Median or higher	Upper quintile or higher
Adjusted earnings per share	50%	10% growth over 3-year performance period	25% growth over 3-year performance period	10% growth over 3-year performance period	25% growth over 3-year performance period

The TSR group applicable to the 2017 LTIP awards will broadly reflect the list of the 2016 LTIP award constituent comparator companies shown on page 66.

APPROVAL OF THE DIRECTORS' REMUNERATION REPORT

The Directors' Remuneration Report was approved by the Board on 24 February 2017.

Signed on behalf of the Board

Celia Baxter

Chair of the Remuneration Committee 24 February 2017

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law, the Directors are required to prepare the Group Financial Statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the Parent Company Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including FRS 101 Reduced Disclosure Framework. Under company law, the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing the Parent Company Financial Statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and
• prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

In preparing the Group Financial Statements, International Accounting Standard 1 requires that Directors:

• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
• provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and
• make an assessment of the Group's ability to continue as a going concern.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

• 1. the Financial Statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
• 1. the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
• 1. the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

By Order of the Board

David Squires Derek Harding

Group Chief Executive Group Finance Director 24 February 2017 24 February 2017

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF SENIOR PLC

OPINION ON FINANCIAL STATEMENTS OF SENIOR PLC

In our opinion:

• the Financial Statements give a true and fair view of the state of the Group and of the Company's affairs as at 31 December 2016 and of the Group's profit for the year then ended;
• the Group Financial Statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union;
• the Company Financial Statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 101 Reduced Disclosure Framework; and
• the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Consolidated Financial Statements, Article 4 of the IAS Regulation.

The Group Financial Statements that we have audited comprise:

• the Consolidated Income Statement;
• the Consolidated Statement of Comprehensive Income;
• the Consolidated and Company Balance Sheets;
• the Consolidated Cash Flow Statement;
• the Consolidated and Company Statements of Changes in Equity; and
• the Notes to the Consolidated and Company Financial Statements 1 to 55.

The financial reporting framework that has been applied in the preparation of the Consolidated Financial Statements is applicable law and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the Company Financial Statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 101 Reduced Disclosure Framework.

SUMMARY OF OUR AUDIT APPROACH

Key risks

The key risks that we identified for reporting in the current year were:

• Goodwill impairment in Flexonics
• Inventory net realisable value
• Provision for uncertain tax positions in the US

Materiality

The materiality that we used in the current year was £3.7m which was determined on the basis of 5.0% of profit before tax adjusted to exclude amortisation of intangible assets from acquisitions.

Scoping

The scope of our audit was driven by our risk assessment and understanding of the business. This consisted of 20 components subjected to full scope or statutory audits, 4 components were subjected to specified audit procedures and the residual subjected to analytical procedures at the Group level.

The components at which full audits or specified audit procedures were performed accounted for 86% revenue coverage and 98% of profit before tax on 2016 reported performance.

Significant changes in our approach

We reassessed the benchmark used to determine materiality. Previously this was based on profit before tax, excluding goodwill impairment and impairment of assets held for sale. In the current year our materiality is calculated on the basis of profit before tax excluding the amortisation of intangible assets from acquisitions.

We have also lowered the percentage applied to the benchmark from 7.3% in the prior year to 5.0% in the current year.

GOING CONCERN AND THE DIRECTORS' ASSESSMENT OF THE PRINCIPAL RISKS THAT WOULD THREATEN THE SOLVENCY OR LIQUIDITY OF THE GROUP

As required by the Listing Rules we have reviewed the Directors' statement regarding the appropriateness of the going concern basis of accounting contained within Note 2 to the Financial Statements and the Directors' statement on the longer-term viability of the Group contained within the Strategic Report on page 23.

We are required to state whether we have anything material to add or draw attention to in relation to:

• the Directors' confirmation on page 23 that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity;
• the disclosures on pages 27 to 29 that describe those risks and explain how they are being managed or mitigated;
• the Directors' statement on page 23 about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the Group's ability to continue to do so over a period of at least twelve months from the date of approval of the Financial Statements; and
• the Directors' explanation on page 23 as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

We confirm that we have nothing material to add or draw attention to in respect of these matters.

We agreed with the Directors' adoption of the going concern basis of accounting and we did not identify any such material uncertainties. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group's ability to continue as a going concern.

INDEPENDENCE

We are required to comply with the Financial Reporting Council's Ethical Standards for Auditors and confirm that we are independent of the Group and we have fulfilled our other ethical responsibilities in accordance with those standards.

We confirm that we are independent of the Group and we have fulfilled our other ethical responsibilities in accordance with those standards. We also confirm we have not provided any of the prohibited non-audit services referred to in those standards.

OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT

The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team.

In the current year, we focussed our goodwill risk on the Flexonics division, which is reflective of the challenges faced by the end markets of this division. Our inventory risk focussed on the net realisable value of inventory associated with significant work packages experiencing cost pressure and our tax risk focussed on the provision of uncertain tax positions.

We have not assessed the prior year risk associated to acquisition accounting as the Group made no acquisitions during the current year.

RISK DESCRIPTION HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE RISK

KEY OBSERVATIONS

Goodwill impairment in Flexonics

The Group has a material goodwill balance, arising from past acquisitions, with a carrying value of £318.8m of which £78.6m relates to the Flexonics division as disclosed in Note 13. During 2016, declining revenue in the truck and off highway markets, particularly for agricultural and mining vehicles, combined with the continued slowdown in the oil and gas market, have negatively impacted the performance of the Flexonics division.

The Directors assess the valuation of goodwill which relies on key assumptions and judgements made by them concerning the estimated value of future cash flows, associated discount rates, and growth rates based on their view of future business prospects on an annual basis. The extent of the judgement involved presents the risk that the carrying value has not been adjusted appropriately to reflect the adverse market conditions described above. This is consistent with the key sources of estimation and uncertainty as discussed in Note 2.

We challenged management's key assumptions used in the Flexonics impairment model for goodwill by focusing on, but not limited to:

• considering the cash flow projections through assessing the accuracy of historical budgeting by comparing them with historically achieved results and benchmarking the consistency of the cash flow projections with industry data and trends;
• engaging our internal valuation specialists to review the inputs used to determine the discount rates applied by comparing them against available external market data;
• benchmarking the perpetuity rates against industry and GDP growth rates; and
• reviewing their adopted sensitivities to assess whether they reflect a reasonable possible change.

Based on our procedures we agreed with the Directors' assessment that the goodwill allocated to the Flexonics division did not require impairment as at 31 December 2016.

STRATEGIC REPORT

Inventory net realisable value

The Group held an inventory balance at the year-end of £154.4m, as disclosed in Note 17 which relates to the Aerospace and Flexonics divisions. Due to cost pressures especially on early stage production, products may be sold at a margin which impacts the valuation of inventory under IAS 2 Inventories. Inventory is a material balance for the Group which requires management judgement in determining whether the cost of inventory on hand is lower than its net realisable value at year-end. There are a small number of work packages that are experiencing cost pressures and therefore management has had to consider whether there are any indications of onerous contractual obligations.

We have tested a sample of inventory items at each in scope component to assess whether the cost of inventory is in excess of its net realisable value. We have also challenged management's assessment of the profitability of work packages experiencing cost pressures. This was done by assessing the key underlying judgements made and sensitivities run by management around labour costs, overheads and the learning curve associated with these work packages. We also agreed underlying performance to approved forecasts and held discussions with both finance and non-finance staff to consider any contradictory evidence. We also assessed whether indicators exist of any other significant work packages that are not actively monitored by management or may have indicators of cost pressure.

conclusions reached, by management in determining the exposure to work packages experiencing cost pressures to be reasonable based on the information available. Further to this we did not identify any other significant work packages that are experiencing cost pressure at the other components in our scope.

Based on our procedures, no issues were identified which raised material concern on inventory net realisable value. We found that the judgements made, and

Provision for uncertain tax positions in the US

As the Group operates in a number of different tax jurisdictions, management judgement is required to determine tax provisions across the Group principally in the US. As set out in Note 21 to the Financial Statements the Group is carrying a provision of £19.7m (2015: £17.7m) for uncertain tax positions. Determination of tax provisions is subject to inherent judgement in assessing the probable outflow of taxes that will be borne by the entity relating to matters where the relevant tax authority's final assessment of the tax treatment is uncertain. The transfer pricing tax risk provision held is a key risk due to the subjective nature of the arm's length principle which the payment should adhere to.

We assessed the tax provisions in conjunction with our internal tax experts and challenged management's judgements in order to determine whether the provisions have been recorded accurately and completely based on our knowledge of tax law and practical implementation risk.

Our assessment included consideration of prior year open computations, the Group's transfer pricing and financing arrangements, correspondence with tax authorities and the general tax environment and attitude of tax authorities. In particular, we also evaluated management's assessment of uncertainties in light of the closure of tax authority audits during the year.

Based on our procedures we concur that the overall provision recognised by management, including that relating to the provision for uncertain tax positions, is appropriate given the tax risks faced by the Group.

These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF SENIOR PLC CONTINUED

OUR APPLICATION OF MATERIALITY

We define materiality as the magnitude of misstatement in the Financial Statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows:

Group materiality

£3.7m (2015: £6.1m)

Basis for determining materiality

5% of profit before tax excluding amortisation of intangible assets from acquisitions. The principal reason for the reduction in materiality is due to a reduction in the benchmark used to assess materiality and the Group's lower performance year-on-year.

In the prior-year, the benchmark used to determine materiality was 7.3% of profit before tax excluding goodwill impairment and impairment of assets held for sale.

Rationale for the benchmark applied

We used a profit-based measure as our benchmark for determining materiality on the basis that profit is a key performance indicator used by the market and is comparable with the Group's peers.

In the current year we determined that, due to historically high volumes of acquisitions made by the Group, the most relevant key performance indicator was profit before tax excluding amortisation of intangible assets from acquisition. This basis is consistent with management's focus on adjusted metrics to evaluate financial performance.

We also lowered the benchmark applied to 5.0% which brings our basis for determining materiality in line with the Group's peers.

We agreed that we would report to the Audit Committee all audit differences we identified in excess of £120,000 (2015: £120,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the Financial Statements.

AN OVERVIEW OF THE SCOPE OF OUR AUDIT

The Group operates in 14 countries spread across five continents with the largest footprint being in North America, the UK and the rest of Europe. Our Group audit was scoped based on our understanding of the Group and its environment, including Group-wide controls, and assessing the risks of material misstatement at the Group level. We have considered components on the basis of their contribution to Group revenue and profitability, as well as those that require local statutory audits in their jurisdiction.

Based on that assessment, we focused our Group audit scope primarily on the audit work at 24 locations. 20 of these were subject to a full scope or statutory audit, whilst the remaining 4 were subject to an audit of specified audit procedures where the extent of our testing was based on our assessment of the risks of material misstatement and of the materiality of the Group's operations at those locations.

These 24 locations account for 86% (2015: 89%) of the Group's revenue and 98% (2015: 98%) of the Group's profit before tax. They were also selected to provide an appropriate basis for undertaking audit work to address the risks of material misstatement identified above. Our audit work at the 24 locations was executed at levels of materiality applicable to each individual entity which were lower than Group materiality and ranged from £1.5m to £1.9m (2015: £2.4m to £3.1m).

At the Parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject to audit or audit of specified account balances.

The Group audit team continued to follow a programme of planned visits that has been designed so that a senior member of the Group audit team visits the Group's components on a rotation basis. In the current year we visited locations in the UK, USA and South East Asia.

In years when we do not visit a significant component we include the component audit team in our team briefing, discuss their risk assessment, and review documentation of the findings from their work.

The Group audit team led a global audit team briefing in October 2016 to share the audit strategy and to ensure component teams understood the referral instructions. Subsequently, the Group audit team maintained contact with the component teams to provide guidance and supervision of work. A member of the Group audit team also attended the final audit meetings held with local management at each component either in person or telephonically.

OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006

• In our opinion, based on the work undertaken in the course of the audit: • the part of the Directors' Remuneration Report to be audited has
• been properly prepared in accordance with the Companies Act 2006; • the information given in the Strategic Report and the Directors'
• Report for the financial year for which the Financial Statements are prepared is consistent with the Financial Statements; and
• the Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report and the Directors' Report.

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION

Adequacy of explanations received and accounting records

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or
• the Company Financial Statements are not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

Directors' remuneration

Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors' remuneration have not been made or the part of the Directors' Remuneration Report to be audited is not in agreement with the accounting records and returns.

We have nothing to report arising from these matters.

Corporate Governance Statement

Under the Listing Rules we are also required to review part of the Corporate Governance Statement relating to the Company's compliance with certain provisions of the UK Corporate Governance Code. We have nothing to report arising from our review.

Our duty to read other information in the Annual Report Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:

• materially inconsistent with the information in the audited Financial Statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or
• otherwise misleading.

In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the Directors' statement that they consider the Annual Report is fair, balanced and understandable and whether the Annual Report appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed.

We confirm that we have not identified any such inconsistencies or misleading statements.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR

As explained more fully in the Directors' Responsibilities Statement, the Directors are responsible for the preparation of the Financial Statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Financial Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). We also comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated professional standards review team.

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS

An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's and the Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the Financial Statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited Financial Statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Mark Mullins FCA (Senior statutory auditor) for and on behalf of Deloitte LLP

Chartered Accountants and Statutory Auditor London, United Kingdom 24 February 2017

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2016

		Year ended	Year ended
	Notes	2016 £m	2015 £m
Revenue	3	917.0	849.5
Trading profit before one-off items		65.1	94.0
Goodwill impairment	13	–	(18.8)
Impairment of assets held for sale		–	(1.8)
Trading profit		65.1	73.4
Loss on sale and write-down of fixed assets		–	(1.5)
Share of joint venture profit	15	0.7	0.4
Operating profit(1)	5	65.8	72.3
Investment income	7	0.2	0.3
Finance costs	8	(10.5)	(8.8)
Profit before tax(2)		55.5	63.8
Tax	10	(10.1)	(15.3)
Profit for the period		45.4	48.5
Attributable to:
Equity holders of the parent		45.4	48.5
Earnings per share
Basic(3)	12	10.84p	11.59p
Diluted(4)	12	10.83p	11.47p
(1) Adjusted operating profit	9	85.6	107.8
(2) Adjusted profit before tax	9	75.3	99.3
(3) Adjusted earnings per share	12	14.37p	18.98p
(4) Adjusted and diluted earnings per share	12	14.36p	18.78p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2016

		Year ended	Year ended
	Notes	2016 £m	2015 £m
Profit for the period		45.4	48.5
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Losses on cash flow hedges during the period		(9.8)	(5.6)
Reclassification adjustments for losses included in profit		0.7	3.8
Losses on cash flow hedges	28	(9.1)	(1.8)
Foreign exchange gain recycled to the Income Statement on disposal of business		(0.4)	–
Exchange differences on translation of foreign operations	28	62.6	(4.3)
Tax relating to items that may be reclassified	10	2.1	0.4
		55.2	(5.7)
Items that will not be reclassified subsequently to profit or loss:
Actuarial losses on defined benefit pension schemes	35	(5.1)	(1.1)
Tax relating to items that will not be reclassified	10	0.5	0.8
		(4.6)	(0.3)
Other comprehensive income/(expense) for the period, net of tax		50.6	(6.0)
Total comprehensive income for the period		96.0	42.5
Attributable to:
Equity holders of the parent		96.0	42.5

CONSOLIDATED BALANCE SHEET

As at 31 December 2016

	Year ended 2016 Notes £m	Year ended 2015 £m	ST RA
Non-current assets			TEG
Goodwill	318.8 13	284.5	IC R
Other intangible assets	60.5 14	72.1
Investment in joint venture	1.7 15	1.1	EPO
Property, plant and equipment	254.2 16	206.6	RT
Deferred tax assets	6.6 21	6.7
Loan to joint venture	0.9 15	1.1
Retirement benefit asset	4.0 35	–
Trade and other receivables	0.3 18	0.3
Total non-current assets	647.0	572.4
Current assets
Inventories	154.4 17	126.9	GO
Loan to joint venture	– 15	0.1	VE
Current tax receivables	0.7 21	5.1	RN
Trade and other receivables	152.5 18	140.6	AN
Cash and bank balances	17.5 32c	14.4	CE
Assets classified as held for sale	4.2 31	1.8
Total current assets	329.3	288.9
Total assets	976.3	861.3
Current liabilities
Trade and other payables	164.8 23	138.2
Current tax liabilities	21.5 21	20.5
Obligations under finance leases	0.5 22	0.8
Bank overdrafts and loans	44.9 19	28.6
Provisions	3.6 24	1.4	FIN
Liabilities classified as held for sale	– 31	1.1	AN
Total current liabilities	235.3	190.6	CIA
Non-current liabilities			L S
Bank and other loans	169.7 19	178.6	TAT
Retirement benefit obligations	14.4 35	12.6	EM
Deferred tax liabilities	55.2	46.9	EN
Obligations under finance leases	21 0.5	1.0	TS
Others	22 0.7	0.7
Total non-current liabilities	240.5	239.8
Total liabilities	475.8	430.4
Net assets	500.5	430.9
			AD
Equity			DIT
Issued share capital	41.9 25	41.9	ION
Share premium account	14.8 26	14.8	AL
Equity reserve	3.0 27	4.5	INF
Hedging and translation reserve	42.3 28	(12.9)	OR
Retained earnings	400.0 29	384.7	MA
Own shares	(1.5) 30	(2.1)	TIO
Equity attributable to equity holders of the parent	500.5	430.9	N
Total equity	500.5	430.9

The Financial Statements of Senior plc (registered number 282772) were approved by the Board of Directors and authorised for issue on 24 February 2017. They were signed on its behalf by:

Director Director

David Squires Derek Harding

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2016

		All equity is attributable to equity holders of the parent
		Issued share	Share premium	Equity	Hedging and translation	Retained	Own	Total
		capital	account	reserve	reserve	earnings	shares	equity
	Notes	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2015		41.8	14.8	5.7	(7.2)	359.0	(2.5)	411.6
Profit for the year 2015		–	–	–	–	48.5	–	48.5
Losses on cash flow hedges	28	–	–	–	(1.8)	–	–	(1.8)
Exchange differences on translation of foreign operations	28	–	–	–	(4.3)	–	–	(4.3)
Actuarial losses on defined benefit pension schemes	35	–	–	–	–	(1.1)	–	(1.1)
Tax relating to components of other comprehensive income	10	–	–	–	0.4	0.8	–	1.2
Total comprehensive income for the period		–	–	–	(5.7)	48.2	–	42.5
Issue of share capital		0.1	–	(0.1)	–	–	–	–
Share-based payment charge	34	–	–	2.2	–	–	–	2.2
Tax relating to share-based payments	10	–	–	–	–	(0.2)	–	(0.2)
Purchase of shares held by employee benefit trust	30	–	–	–	–	–	(0.9)	(0.9)
Use of shares held by employee benefit trust	30	–	–	–	–	(1.3)	1.3	–
Transfer to retained earnings	29	–	–	(3.3)	–	3.3	–	–
Dividends paid	11	–	–	–	–	(24.3)	–	(24.3)
Balance at 31 December 2015		41.9	14.8	4.5	(12.9)	384.7	(2.1)	430.9
Profit for the year 2016		–	–	–	–	45.4	–	45.4
Losses on cash flow hedges	28	–	–	–	(9.1)	–	–	(9.1)
Foreign exchange gain recycled to the Income Statement
on disposal of business	28	–	–	–	(0.4)	–	–	(0.4)
Exchange differences on translation of foreign operations	28	–	–	–	62.6	–	–	62.6
Actuarial losses on defined benefit pension schemes	35	–	–	–	–	(5.1)	–	(5.1)
Tax relating to components of other comprehensive income	10	–	–	–	2.1	0.5	–	2.6
Total comprehensive income for the period		–	–	–	55.2	40.8	–	96.0
Share-based payment charge	34	–	–	1.1	–	–	–	1.1
Purchase of shares held by employee benefit trust	30	–	–	–	–	–	(1.1)	(1.1)
Use of shares held by employee benefit trust	30	–	–	–	–	(1.7)	1.7	–
Transfer to retained earnings	29	–	–	(2.6)	–	2.6	–	–
Dividends paid	11	–	–	–	–	(26.4)	–	(26.4)
Balance at 31 December 2016		41.9	14.8	3.0	42.3	400.0	(1.5)	500.5

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2016

		Year ended	Year ended
	Notes	2016 £m	2015 £m
Net cash from operating activities	32a	100.3	99.4
Investing activities
Interest received		0.2	0.2
Proceeds on disposal of property, plant and equipment		0.8	0.7
Purchases of property, plant and equipment	16	(50.7)	(46.4)
Purchases of intangible assets	14	(2.1)	(2.2)
Proceeds on disposal of business	31	1.3	–
Acquisition of Steico		–	(60.3)
Acquisition of LPE		–	(43.6)
Loan to joint venture	15	0.5	(0.1)
Net cash used in investing activities		(50.0)	(151.7)
Financing activities
Dividends paid	11	(26.4)	(24.3)
New loans		39.2	179.9
Repayment of borrowings		(58.7)	(98.2)
Repayments of obligations under finance leases		(0.8)	(0.6)
Purchase of shares held by employee benefit trust		(1.1)	(0.9)
Net cash (used in)/from financing activities		(47.8)	55.9
Net increase in cash and cash equivalents		2.5	3.6
Cash and cash equivalents at beginning of period		11.6	8.5
Effect of foreign exchange rate changes		2.7	(0.5)
Cash and cash equivalents at end of period	32c	16.8	11.6

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL INFORMATION

Senior plc is a company incorporated in England and Wales under the Companies Act. The address of the registered office is given on the inside back cover. The nature of the Group's operations and its principal activities are set out in Note 4 and on pages 1 to 35.

Items included in the Financial Statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). These Financial Statements are presented in Pounds Sterling, which is the Company's functional and the Group's presentation currency.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of accounting

These Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the European Union and they therefore comply with Article 4 of the EU IAS Regulation. They have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. They have also been prepared on the going concern basis as set out in the Financial Review on pages 20 to 23. The Directors have, at the time of approving these Financial Statements, a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. Therefore, they continue to adopt the going concern basis of accounting in preparing these Financial Statements.

Changes in accounting policies

During the year, no new accounting standards or amendments to existing standards became effective which had a material impact on these Financial Statements. At the date of authorisation of these Financial Statements, a number of new standards and amendments to existing standards have been issued but are not yet effective and, for IFRS 16, not yet endorsed by the EU. They have not been adopted early in these Financial Statements. A summary of the impact review performed on each standard is given below. None of these changes will have an effect on net cash from operating activities nor on free cash flow.

a) IFRS 9 Financial instruments. Effective for annual periods beginning 1 January 2018, EU endorsed in 2016.

This standard covers the classification, measurement, impairment and derecognition of financial assets and financial liabilities together with a new hedge accounting model. It will replace IAS 39 Financial Instruments. The Group does not expect the transition to this standard to have a material impact on the Financial Statements.

b) IFRS 15 Revenue from Contracts with Customers. Effective for annual periods beginning 1 January 2018, EU endorsed in 2016.

This standard requires the separation of performance obligations within contracts with customers and the contractual value to be allocated to each of the performance obligations. Revenue is then recognised as each performance obligation is satisfied. This standard will replace existing revenue recognition standards.

Retrospective application in the comparative year ending 31 December 2017 is optional. The Group expects that it will not take this optional application and will apply the standard from the transitional date using the cumulative effect method. This involves calculating the relevant adjustments required for contracts not completed as at the transition date of 1 January 2018.

An initial impact assessment has been performed by reviewing all contract types across the Group. This assessment highlighted that if the standard were to be applied in 2016, the cumulative impact on adoption would not be material to either the Group's reported revenue or profit before tax. The majority of this required adjustment would relate to contracts in the Aerospace Division where customer contributions of goods may be received to facilitate the Group's fulfilment of the customer contracts. The standard requires such goods to be treated as non-cash consideration and recognised at their fair value in revenue and cost of sales when the performance obligations in the customer contracts are met. This introduces timing differences when comparing to the current recognition. There is no impact on the timing of receipt of cash consideration, which is determined within the underlying customer contracts. The required adjustment expected at the transition date will be impacted by future changes such as customer contract renewals, terminations and modifications, as well as exchange rate fluctuations.

The process of implementation is complex, as all Divisions will be affected and may need to implement new information systems and processes to collect the required information. The Group will continue to monitor the impact until the transition date, providing further quantitative and qualitative measures as progress is made on implementation planning.

c) IFRS 16 Leases. Effective for annual periods beginning 1 January 2019, subject to EU endorsement.

This standard, which will replace IAS 17, requires lessees to recognise assets and liabilities for all leases, unless the lease term is 12 months or less or the underlying asset is low value. As at 31 December 2016, the Group holds a significant number of operating leases which currently, under IAS 17, are expensed on a straight-line basis over the lease term (see Note 33).

Retrospective application in the comparative year ending 31 December 2018 is optional. The Group expects that it will not take this optional application and will apply the standard from the transitional date using the modified retrospective approach, adjusting opening retained earnings and not re-stating comparatives. This involves calculating the right-of-use asset and lease liability based on the present value of remaining lease payments on all applicable lease contracts as at the transition date.

The Group has initiated a process to collect operating lease information across all the Divisions in order to assess the cumulative adjustment on transition. Based on an initial analysis, were the new requirements adopted in 2016, profit before tax would decrease by an immaterial amount, whilst lease liabilities and property, plant and equipment are estimated to increase between £50m and £70m. This is expected to result in an increase of the Group's principal lending covenant, the ratio of net debt to EBITDA by 0.2x to 0.5x, except where it is determined at constant accounting standards. The ranges disclosed reflect the sensitivity of the adjustment to a +/-3 percentage point movement in the discount rate used to calculate the present value of the future cash flow commitments. The discount rate, the renewal of and changes to the lease portfolio and exchange rates on translation of financial statements of non-Sterling operations are all subject to change in future years, which will impact the actual transitional adjustment as at the expected transition date.

The Group will continue to monitor the impact until the transition date, providing further quantitative and qualitative measures as progress is made on implementation planning.

2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED

d) None of the amendments to existing standards are expected to have a significant impact on the Financial Statements when they are adopted.

Basis of consolidation

The Consolidated Financial Statements incorporate the Financial Statements of Senior plc and the entities controlled by it (its subsidiaries) made up to 31 December 2016. Control is achieved when Senior plc has the power to govern the financial and operating policies of an invested entity so as to obtain benefits from its activities.

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred for each acquisition is the aggregate of the fair values (at the date of exchange) of assets transferred, liabilities incurred or assumed, and equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed are measured initially at their fair values at the acquisition date. On an acquisition-byacquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets.

The results of subsidiaries acquired or disposed of during the year are included in the Consolidated Income Statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

The results of joint ventures are accounted for using the equity accounting method.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Goodwill

Goodwill arising on consolidation is measured as the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the Group's share of the identifiable net assets acquired. It is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately through the Consolidated Income Statement and is not subsequently reversed.

If the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree is less than the fair value of the net assets acquired (i.e. bargain purchase), the difference is credited to the Consolidated Income Statement in the period of acquisition.

Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units (CGUs) that are expected to benefit from that business combination. CGUs to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Goodwill arising on acquisitions prior to the date of transition to IFRS has been retained at the previous UK GAAP amount subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods provided in the normal course of business, net of discounts, VAT and other sales-related taxes.

Revenue from the sales of goods is recognised on delivery in accordance with the terms and conditions of sale, which is when the significant risks and rewards of ownership and effective control of the goods has passed to the customer, recovery of the consideration is probable, and the amount of revenue and associated costs can be measured reliably.

Funded development revenue is recognised based upon fair value of work performed to the Balance Sheet date and assessed with reference to completed contract milestones which have been accepted by the customer.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

Dividend income from investments is recognised when the shareholders' legal rights to receive payment have been established.

Leasing

Leases are classified as finance leases whenever the terms of the lease substantially transfer all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the Balance Sheet as a finance lease obligation. Lease payments are apportioned between finance charges and a reduction of the lease obligation in order to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the Income Statement.

Rentals payable under operating leases are expensed on a straight-line basis over the term of the relevant lease.

Benefits received and receivable as incentives to enter into an operating lease are also spread on a straight-line basis over the lease term.

Foreign currencies

Transactions in currencies other than the functional currency are recorded at the rates of exchange prevailing on the date of the transaction. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured at historical cost in a foreign currency are not retranslated. Gains and losses arising on retranslation are included in net profit or loss for the period, except for exchange differences arising on non-monetary assets and liabilities where the changes in fair value are recognised directly in equity, subject to meeting the requirements under IAS 21.

In order to hedge its exposure to certain foreign exchange risks, the Group enters into forward contracts (see section below on derivative financial instruments and hedging for details of the Group's accounting policies in respect of such derivative financial instruments).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED

On consolidation, the assets and liabilities of the Group's overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange rate differences arising, if any, are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised as income or expense in the period in which the operation is disposed of.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate on the relevant balance sheet date.

The exchange rates for the major currencies applied in the translation of results were as follows:

	Average	Average	Year-end	Year-end
	rates	rates	rates	rates
	2016	2015	2016	2015
US dollar	1.36	1.53	1.24	1.47
Euro	1.23	1.37	1.17	1.35

Government grants

Government grants received for items of a revenue nature are recognised as income over the period necessary to match them with the related costs and are deducted in reporting the related expense.

Government grants relating to investment in property, plant and equipment are deducted from the initial carrying value of the related capital asset.

Operating profit

Operating profit is stated before investment income and finance costs relating to external borrowings and retirement benefit obligations.

Retirement benefit costs

Payments to defined contribution retirement plans are charged as an expense as they fall due. Payments made to state-managed retirement benefit plans are dealt with as payments to defined contribution plans where the Group's obligations under the plans are equivalent to those arising in a defined contribution retirement plan.

For defined benefit retirement plans, the cost of providing benefits is determined using the Projected Unit Method, with full actuarial valuations being carried out on a triennial basis, and updated at each balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised outside the Income Statement and are presented in the Statement of Comprehensive Income.

Past service cost is recognised immediately to the extent that the benefits are already vested. Otherwise, it is amortised on a straight-line basis over the period until the benefits become vested.

The retirement benefit obligation recognised in the Balance Sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service costs, and as reduced by the fair value of scheme assets. Any net asset resulting from this calculation is limited to the past service cost plus the present value of available refunds and reductions in future contributions to the plan.

Taxation

Current tax payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Provisions for tax uncertainties are included within current tax liabilities on the balance sheet. There are transactions and activities that the Group engages in where the ultimate tax determination is uncertain and a provision may be made against the tax benefit. For example, the Group seeks to price transactions between Group companies as if they were unrelated parties in compliance with OECD transfer pricing principles and the laws of the relevant jurisdictions and this involves a degree of uncertainty. Provisions against uncertainties are established based on management judgement of the range of likely tax outcomes in open years and in consideration of the strength of technical arguments. When making this assessment, the Group utilises specialist in-house tax knowledge and experience and takes into consideration specialist tax advice by third-party advisers on specific items.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the Financial Statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the Group's taxable profit nor its accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying value of deferred tax assets is reviewed at each balance sheet date and reduced to the extent it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been enacted at the balance sheet date. Deferred tax is charged or credited in the Income Statement, except when it relates to items charged or credited to Other Comprehensive Income or directly to equity, in which case the deferred tax is also dealt with in Other Comprehensive Income or equity.

Property, plant and equipment

Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the Balance Sheet at their historical cost, or at modified historical cost, being a revaluation undertaken in 1988 which has been taken as the effective cost on transition to IFRS. Land and buildings were revalued to fair value at the date of revaluation.

The Group does not intend to conduct annual revaluations.

Fixtures, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.

2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED

Depreciation is charged to write off the cost of an asset on a straight-line basis over the estimated useful life of the asset, and is charged from the time an asset becomes available for its intended use. Annual rates are as follows:

Freehold land	Nil
Freehold buildings	2%
Leasehold buildings	over their expected useful lives on the same
	basis as owned assets or, where shorter,
	over the lease term.
Plant and equipment	5% – 33%

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset at disposal and is recognised in the income statement.

Other intangible assets

Other intangible assets include computer software and intangible assets acquired as part of a business combination.

The cost of acquiring computer software (including associated implementation and development costs where applicable) is classified as an intangible asset. Costs associated with maintaining computer software programs are recognised as an expense as incurred. Capitalised computer software is amortised over its estimated useful life of between three and five years on a straight-line basis, and is stated at cost less accumulated amortisation and impairment losses.

Intangible assets acquired as part of a business combination principally comprise customer relationships, contracts and trade names. They are shown at fair value at the date of acquisition less accumulated amortisation at the rates of between three and five years on a straightline basis.

Internally generated intangible assets – research and development expenditure

An internally generated intangible asset arising from the Group's development activities is recognised if all the following conditions are met:

• i. an asset is created that can be separately identified;
• ii. it is probable that the asset created will generate future economic benefits; and
• iii. the development cost of the asset can be measured reliably.

Internally generated intangible assets are amortised on a straight-line basis over their useful lives.

Development work is also carried out on a funded basis. In such circumstances the costs are accumulated in inventory and are recognised when the related billings are made. Any amounts held in inventory are subject to normal inventory valuation principles. Otherwise, expenditure on research and development activities is recognised as an expense in the period in which it is incurred.

Impairment of tangible and intangible assets excluding goodwill

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cashgenerating unit to which the asset belongs.

The recoverable amount is the higher of the fair value less the costs to sell and the value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Inventories

Inventories are stated at the lower of cost and net realisable value. Costs comprise direct materials and, where applicable, direct labour costs and an appropriate allocation of production overheads. Cost is calculated using the first-in, first-out method. Net realisable value represents the estimated selling price less the estimated costs of completion and the costs to be incurred in marketing, selling and distribution.

Financial instruments

Financial assets and liabilities are recognised when the Group becomes a party to the contractual provisions of the relevant instrument and derecognised when it ceases to be a party to such provisions.

Financial instruments are classified as cash and cash equivalents, bank overdrafts and loans, obligations under finance leases, trade receivables, trade payables, deferred consideration receivable, other receivables and other payables, as appropriate.

Non-derivative financial assets are categorised as "loans and receivables" and non-derivative financial liabilities are categorised as "other financial liabilities". Derivative financial assets and liabilities that are not designated and effective as hedging instruments are categorised as "financial assets at fair value through profit or loss" and "financial liabilities at fair value through profit or loss", respectively. The classification depends on the nature and purpose of the financial assets and liabilities and is determined at the time of initial recognition.

Trade receivables

Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. These are recognised in the Income Statement when there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the asset is impaired. The carrying amount of the asset is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in the Income Statement. Trade receivables are derecognised when factored, without recourse, through third-party financial institutions (the Factors). The risks and rewards of ownership and right to receive cash flows of the trade receivables are transferred to the Factors.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Non-derivative financial liabilities

Non-derivative financial liabilities are stated at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised financial liability and of allocating interest over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. For borrowings, their carrying value includes accrued interest payable, as well as unamortised issue costs.

Equity instruments

Equity instruments issued by the Company are recorded at the value of the proceeds received, net of direct issue costs.

Derivative financial instruments and hedging

The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group uses foreign exchange contracts and, on occasion, interest rate swap contracts to hedge these exposures. The use of financial derivatives is governed by the Group's Treasury Policies as approved by the Board of Directors, which provides written principles on the use of derivatives. The Group does not use derivative financial instruments for speculative purposes.

Certain derivative instruments do not qualify for hedge accounting. These are categorised as at "fair value through profit or loss" and are stated at fair value, with any resultant gain or loss recognised in the Income Statement.

The Group designates certain hedging instruments in respect of foreign currency risk as cash flow hedges. At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents, both at hedge inception and on an ongoing basis, whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item.

Changes in the fair value of derivative financial instruments that are designated and are effective as a cash flow hedge are recognised directly in equity and the ineffective portion is recognised immediately in the Income Statement. If the cash flow hedge of a firm commitment or forecasted transaction results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or a liability, amounts deferred in equity are recognised in the Income Statement in the same period in which the hedged item affects net profit or loss.

For an effective hedge of an exposure to changes in fair value, the hedged item is adjusted for changes in fair value attributable to the risk being hedged with the corresponding entry in the Income Statement. Gains or losses from remeasuring the derivative are also recognised in the Income Statement. If the hedge is effective, these entries will offset in the Income Statement.

Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the Income Statement as they arise.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the Income Statement for the period.

Gains and losses accumulated in equity are recognised in the Income Statement on disposal of the foreign operation.

Assets and disposal groups held for sale

Assets are classified as held for sale if their carrying amount will be recovered by sale rather than by continuing use in the business. Where a group of assets and their directly associated liabilities are to be disposed of in a single transaction, such disposal groups are also classified as held for sale. For this to be the case, the asset or disposal group must be available for immediate sale in its present condition, and management must be committed to and have initiated a plan to sell the asset or disposal group which, when initiated, was expected to result in a completed sale within 12 months. Assets that are classified as held for sale are not depreciated. Assets or disposal groups that are classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. They are not discounted to present value if the effect is not material.

Provisions for restructuring costs are recognised when the Group has a detailed formal plan for the restructuring and the plan has been communicated to the affected parties. Provisions for the expected cost for warranty obligations under local sale of goods legislation are recognised at the date of sale of the relevant products.

Share-based payments

The Group has applied the requirements of IFRS 2 Share-based payments.

The Group has issued equity-settled share-based payments to certain employees. The fair value (excluding the effect of non-market-related conditions), as determined at the grant date, is expensed on a straightline basis over the vesting period, based on the Group's estimate of the number of shares that will eventually vest and adjusted for the effect of non-market-related conditions.

Fair value is measured by use of a Black-Scholes model for the share option plans, and a binomial model for the share awards under the 2005 Long-Term Incentive Plan.

The liability in respect of equity-settled amounts is included in equity.

Critical accounting judgements

The following key accounting judgements have been made when applying the Group's accounting policies:

Retirement benefit obligations

The UK Plan retirement benefit obligation is discounted at a rate set by reference to market yields at the end of the reporting period on high quality corporate bonds. Significant judgement is required when setting the criteria for bonds to be included in the population from which the yield curve is derived. The most significant criteria considered for the selection of bonds include the issue size of the corporate bonds, quality of the bonds and the identification of outliers which are excluded. Management follows actuarial advice from a third party when determining these judgements. The carrying amount of Group's retirement benefit obligations at 31 December 2016 was a liability of £14.4m and an asset of £4.0m (2015 – net liability of £12.6m). Further details and sensitivities from changes in estimates are set out in Note 35.

Key sources of estimation and uncertainty

When applying the Group's accounting policies, management must make assumptions and estimates concerning the future that affect the carrying amounts of assets and liabilities at the balance sheet date and the amounts of revenue and expenses recognised during the period. Such assumptions are based upon factors including historical experience, the observance of trends in the industries in which the Group operates, and information available from the Group's customers and other external sources. Accounting estimates will, by definition, seldom equal the related actual results. The key sources of estimation and uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year include:

Goodwill impairment testing

There is inherent subjectivity in impairment testing of the Group's goodwill balance of £318.8m at 31 December 2016 which is significant. The estimates in relation to goodwill impairment testing relate primarily to the achievability of the long-term business plans and the macroeconomic and related modelling assumptions underlying the valuation process for each group of cash generating units. Further details are set out in Note 13.

Inventory net realisable value

Management assesses the carrying value of inventory to ensure that it is held at lower of cost and net realisable value. Where necessary, management makes an estimate to write-down inventory to its net realisable value. The Group held an inventory balance at the year-end of £154.4m (2015 – £126.9m).

The Group holds a number of customer work packages in the Aerospace Division, which are tested for onerous conditions at each Balance Sheet date. A significant change in production costs or in the execution to deliver planned cost savings in the next financial year could result in unavoidable costs associated with one or more of these work packages to exceed the economic benefits expected to be received over their life. In such cases, a provision for the resulting present obligation will be recognised.

Income taxes

In determining the Group provisions for income tax and deferred tax, it is necessary to consider transactions in a small number of key tax jurisdictions for which the ultimate tax determination is uncertain. To the extent that the final outcome differs from the tax that has been provided, adjustments will be made to income tax and deferred tax provisions held in the period the determination is made. The carrying amount of net current tax liability and deferred tax liability at 31 December 2016 was £20.8m (2015 – £15.4m) and £48.6m (2015 – £40.2m), respectively. Further details on these estimates are set out in Notes 10 and 21

3. REVENUE

An analysis of the Group's revenue is as follows:

	Year ended 2016	Year ended 2015
	£m	£m
Sale of goods	917.0	849.5

4. SEGMENT INFORMATION

The Group reports its segment information as two operating Divisions according to the market segments they serve, Aerospace and Flexonics. For management purposes, the Aerospace Division is managed as two sub-divisions, Aerostructures and Fluid Systems, in order to enhance management oversight; however, these are aggregated as one reporting segment as they service similar markets and customers in accordance with IFRS 8. The Flexonics Division is managed as a single division.

The accounting policies of the reportable segments are the same as the Group's accounting policies described in Note 2 and the sales between segments are carried out at arm's length. Adjusted operating profit, as described in Note 9, is the key measure reported to the Group's Executive Committee for the purpose of resource allocation and assessment of segment performance. Investment income, finance costs and tax are not allocated to segments, as this type of activity is driven by the central tax and treasury function.

Segment assets include directly attributable computer software assets, property, plant and equipment, and working capital assets. Goodwill, intangible assets from acquisitions, cash, deferred and current tax and other financial assets (except for working capital) are not allocated to segments for the purposes of reporting financial performance to the Group's Executive Committee.

Segment liabilities include directly attributable working capital liabilities. Debt, finance leases, retirement benefit obligations, deferred and current tax and other financial liabilities (except for working capital) are not allocated to segments for the purposes of reporting financial performance to the Group's Executive Committee.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

4. SEGMENT INFORMATION CONTINUED

Segment information for revenue, operating profit and a reconciliation to entity and net profit is presented below:

			Eliminations/				Eliminations/
	Aerospace	Flexonics	central costs	Total	Aerospace	Flexonics	central costs	Total
	Year ended	Year ended	Year ended	Year ended	Year ended	Year ended	Year ended	Year ended
	2016	2016	2016	2016	2015	2015	2015	2015
	£m	£m	£m	£m	£m	£m	£m	£m
External revenue	665.1	251.9	–	917.0	574.9	274.6	–	849.5
Inter-segment revenue	0.1	0.2	(0.3)	–	0.1	0.3	(0.4)	–
Total revenue	665.2	252.1	(0.3)	917.0	575.0	274.9	(0.4)	849.5
Adjusted trading profit	74.8	20.7	(10.6)	84.9	76.8	39.4	(8.8)	107.4
Share of joint venture profit	–	0.7	–	0.7	–	0.4	–	0.4
Adjusted operating profit	74.8	21.4	(10.6)	85.6	76.8	39.8	(8.8)	107.8
Amortisation of intangible assets
from acquisitions	(11.3)	(8.5)	–	(19.8)	(5.3)	(6.9)	–	(12.2)
Goodwill Impairment	–	–	–	–	–	(18.8)	–	(18.8)
Impairment of assets held for sale	–	–	–	–	(1.8)	–	–	(1.8)
Loss on sale and write-down of
fixed assets	–	–	–	–	(1.1)	(0.4)	–	(1.5)
Acquisition costs	–	–	–	–	(0.4)	(0.8)	–	(1.2)
Operating profit	63.5	12.9	(10.6)	65.8	68.2	12.9	(8.8)	72.3
Investment income				0.2				0.3
Finance costs				(10.5)				(8.8)
Profit before tax				55.5				63.8
Tax				(10.1)				(15.3)
Profit after tax				45.4				48.5
Adjusted operating profit (Note 9)				85.6				107.8

Segment information for assets, liabilities, additions to non-current assets and depreciation and amortisation is presented below:

	Year ended 2016	Year ended 2015
Assets	£m	£m
Aerospace	422.2	346.6
Flexonics	146.2	128.9
Segment assets for reportable segments	568.4	475.5
Unallocated
Central	3.8	4.4
Goodwill	318.8	284.5
Intangible assets from acquisitions	54.7	67.9
Cash	17.5	14.4
Deferred and current tax	7.3	11.8
Retirement benefit asset	4.0	–
Others	1.8	2.8
Total assets per balance sheet	976.3	861.3
	Year ended 2016	Year ended 2015
Liabilities	£m	£m
Aerospace	117.4	91.3
Flexonics	41.6	37.8
Segment liabilities for reportable segments	159.0	129.1
Unallocated
Central	6.8	9.4
Debt	214.6	207.2
Finance leases	1.0	1.8
Deferred and current tax	76.7	67.4
Retirement benefit obligations	14.4	12.6
Others	3.3	2.9
Total liabilities per balance sheet	475.8	430.4

4. SEGMENT INFORMATION CONTINUED

	Additions to	Additions to	Depreciation	Depreciation
	non-current	non-current	and	and
	assets	assets	amortisation	amortisation
	Year ended	Year ended	Year ended	Year ended
	2016	2015	2016	2015
	£m	£m	£m	£m
Aerospace	40.1	38.2	34.8	23.5
Flexonics	12.2	9.7	19.0	16.3
Sub-total	52.3	47.9	53.8	39.8
Central	0.5	0.7	0.2	0.2
Total	52.8	48.6	54.0	40.0

The Group's revenues from its major products are presented below:

	Year ended	Year ended
	2016	2015
	£m	£m
Aerospace – Structures	379.8	340.6
Aerospace – Fluid Systems	285.3	234.3
Aerospace total	665.1	574.9
Land vehicles	127.2	138.6
Industrial and others	124.7	136.0
Flexonics total	251.9	274.6
Group total	917.0	849.5

Revenue of approximately £110.2m (2015 – £99.2m) arose from sales to the Group's largest customer and revenue of approximately £99.6m (2015 – £86.7m) arose from sales to the Group's second largest customer.

Geographical information

The Groups' operations are located principally in North America and Europe.

The following table provides an analysis of the Group's sales by geographical market, irrespective of the origin of the goods. The carrying values of segment non-current assets are analysed by the geographical area in which the assets are located.

			Segment	Segment
	Sales	Sales	non-current	non-current
	revenue	revenue	assets	assets
	Year ended	Year ended	Year ended	Year ended
	2016	2015	2016	2015
	£m	£m	£m	£m
USA	448.4	416.7	360.5	309.9
UK	175.7	160.9	141.6	145.1
Rest of the World	292.9	271.9	138.3	110.7
Sub-total	917.0	849.5	640.4	565.7
Unallocated amounts	–	–	6.6	6.7
Total	917.0	849.5	647.0	572.4

The unallocated amounts on non-current assets relate to deferred tax assets.

5. OPERATING PROFIT

Operating profit can be analysed as follows:

	Year ended	Year ended
	2016	2015
	£m	£m
Revenue	917.0	849.5
Cost of sales	(716.5)	(643.9)
Gross profit	200.5	205.6
Distribution costs	(5.3)	(4.2)
Administrative expenses	(130.1)	(128.0)
Loss on sale and write-down of fixed assets	–	(1.5)
Share of joint venture profit	0.7	0.4
Operating profit	65.8	72.3

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

5. OPERATING PROFIT CONTINUED

Operating profit for the period has been arrived at after charging:

	Year ended	Year ended
	2016	2015
	£m	£m
Net foreign exchange losses	1.5	2.6
Research and development costs	18.7	16.3
Depreciation of property, plant and equipment	32.5	26.5
Amortisation of intangible assets included in administration expenses	21.5	13.5
Cost of inventories recognised as expense	716.5	643.9
Provision for impairment for doubtful receivables	1.4	0.3
Staff costs (see Note 6)	270.9	247.5

All research and development costs were expensed during the year, as no costs met the criteria specified in Note 2 Significant Accounting Policies.

The analysis of the Auditor's remuneration is as follows:

	Year ended 2016 £m	Year ended 2015 £m
Fees payable to the Company's Auditor and its associates for the audit of the Company's annual accounts	0.2	0.2
Fees payable to the Company's Auditor and its associates for other services to the Group
– The audit of the Company's subsidiaries	0.7	0.6
Total audit fees	0.9	0.8
– Other taxation advisory services	0.3	0.2
Total non-audit fees	0.3	0.2

Fees payable to Deloitte LLP and its associates for non-audit services to the Company are not required to be disclosed because the Consolidated Financial Statements are required to disclose such fees on a consolidated basis.

Details of the Company's policy on the use of auditors for non-audit services, the reasons why the Auditor was used rather than another supplier and how the Auditor's independence and objectivity was safeguarded are set out in the Audit Committee Report on pages 46 to 50. No services were provided pursuant to contingent fee arrangements.

6. STAFF COSTS

The average monthly number of employees (including Directors) was:

	Year ended 2016 Number	Year ended 2015 Number
Production	6,419	6,471
Distribution	45	45
Sales	279	297
Administration	654	634
Total	7,397	7,447
	Year ended 2016 £m	Year ended 2015 £m
Their aggregate remuneration comprised:
Wages and salaries	233.2	211.0
Social security costs	27.5	24.8
Other pension costs – defined contribution (see Note 35a)	9.2	8.7
Other pension (credits)/costs – defined benefit (see Note 35e)	(0.1)	0.7
Share-based payments (see Note 34)	1.1	2.3
Aggregate remuneration	270.9	247.5

7. INVESTMENT INCOME

	Year ended	Year end
	2016	2015
	£m	£m
Interest on bank deposits	0.1	0.2
Other interest income	0.1	0.1
Total income	0.2	0.3

8. FINANCE COSTS

Year ended		Year end
	2016	2015
	£m	£m
Interest on bank overdrafts and loans	1.4	1.3
Interest on other loans	8.8	6.9
Interest on finance leases	0.1	0.1
Net finance cost of retirement benefit obligations (Note 35e)	0.2	0.5
Total finance costs	10.5	8.8

9. ADJUSTED OPERATING PROFIT AND ADJUSTED PROFIT BEFORE TAX

The provision of adjusted operating profit and adjusted profit before tax measures, derived in accordance with the table below, has been included to identify the performance of the Group prior to the impact of amortisation of intangible assets from acquisitions. In the year ended 31 December 2015, goodwill impairment, impairment of assets held for sale, loss on sale and write-down of fixed assets and acquisition costs were also included.

These items have been excluded from the adjusted measures in order to show the underlying current business performance of the Group in a consistent manner. This also reflects how the business is managed on a day-to-day basis.

	Year ended	Year end
	2016	2015
	£m	£m
Operating profit	65.8	72.3
Amortisation of intangible assets from acquisitions	19.8	12.2
Goodwill impairment	–	18.8
Impairment of assets held for sale	–	1.8
Loss on sale and write-down of fixed assets	–	1.5
Acquisition costs	–	1.2
Adjustments to operating profit	19.8	35.5
Adjusted operating profit	85.6	107.8
Profit before tax	55.5	63.8
Adjustments to profit as above before tax	19.8	35.5
Adjusted profit before tax	75.3	99.3

10. TAXATION

	Year ended 2016 £m	Year ended 2015 £m
Current tax:
Current year	10.8	11.3
Adjustments in respect of prior periods	(4.2)	(1.0)
	6.6	10.3
Deferred tax (Note 21):
Current year	3.8	5.4
Adjustments in respect of prior periods	(0.3)	(0.4)
	3.5	5.0
Total tax charge	10.1	15.3

The Finance (No.2) Act 2015 and Finance Act 2016 provide for reductions in the main rate of corporation tax from 20% to 19% for the financial year beginning 1 April 2017 and to 17% for the financial year beginning 1 April 2020. UK deferred tax at the balance sheet date has been calculated at enacted tax rates that are expected to apply to the period when assets are realised or liabilities are settled.

UK corporation tax is calculated at an effective rate of 20.0% (2015 – 20.25%) of the estimated assessable profit for the year. Included within the total tax charge is £0.1m (2015 – £0.1m) in respect of current year UK Corporation Tax. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

The prior year adjustment to current tax of £4.2m has resulted primarily from adjustments recorded due to the expiration of statutes of limitations and closure of tax authority audits.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

10. TAXATION CONTINUED

The total charge for the year can be reconciled to the profit per the Consolidated Income Statement as follows:

	Year ended 2016 £m	Year ended 2016 %	Year ended 2015 £m	Year ended 2015 %
Profit before tax	55.5		63.8
Expected tax at the UK standard corporation tax rate 20.0%/20.25%	11.1		12.9
Goodwill impairment with no associated tax effect	–		6.6
Effect of different statutory rates of overseas jurisdictions	3.3		2.3
Tax incentives and credits	(2.1)		(2.2)
Non-tax deductible expenses including acquisition costs	0.8		0.8
Deferred tax impact of unrecognised timing differences including losses	2.1		–
Derecognition of tax losses on which a deferred tax asset was previously provided	1.7		–
Impact of share options	0.4		0.5
Effect of difference in treatment of financing activities between jurisdictions	(5.5)		(7.1)
Other permanent differences	2.6		2.5
Effect of changes in statutory tax rates on deferred tax assets and liabilities	–		0.2
Withholding taxes	0.3		0.3
Effect of taxation of associates and joint ventures reported within operating profit	(0.1)		(0.1)
Adjustments in respect of prior periods	(4.5)		(1.4)
Tax charge and effective tax rate for the year	10.1	18.2%	15.3	24.0%

In addition to the amount charged to the Consolidated Income Statement, the following amounts relating to tax have been recognised directly in other comprehensive income:

	Year ended 2016 £m	Year ended 2015 £m
Deferred tax:
Items that will not be reclassified subsequently to profit and loss
Tax on actuarial losses	0.5	0.8
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations	2.1	0.4
Total tax credit recognised directly in other comprehensive income	2.6	1.2
Deferred tax (Note 21)	2.6	1.2

In addition to the amount charged to the Consolidated Income Statement and Other Comprehensive Income, the following amounts relating to tax have been recognised directly in equity:

	Year ended 2016 £m	Year ended 2015 £m
Current tax:
Excess tax deductions related to share-based payments in exercised options	–	0.4
Deferred tax:
Excess tax deductions related to share-based payments in exercised options	–	0.3
Change in estimated excess tax deductions related to share-based payments	–	(0.9)
Total tax charge recognised directly in equity	–	(0.2)

11. DIVIDENDS

	Year ended	Year ended
	2016	2015
	£m	£m
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2015 of 4.36p (2014 – 3.96p) per share	18.3	16.6
Interim dividend for the year ended 31 December 2016 of 1.95p (2015 – 1.84p) per share	8.1	7.7
	26.4	24.3
Proposed final dividend for the year ended 31 December 2016 of 4.62p (2015 – 4.36p) per share	19.3	18.3

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting for 2016 on 21 April 2017 and has not been included as a liability in these Financial Statements.

12. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share is based on the following data:

		2016 Million	Year ended 2015 Million
		418.8	418.3
		0.5	4.4
		419.3	422.7
Earnings £m	EPS pence	Earnings £m	EPS pence
45.4	10.84	48.5	11.59
			2.39
			4.25
			0.26
			0.22
–	–	1.1	0.27
60.2	14.37	79.4	18.98
	10.84p		11.59p
	10.83p		11.47p
	14.37p		18.98p
	14.36p		18.78p
	14.8 – – –	Year ended 2016 3.53 – – –	Year ended 2015 10.0 17.8 1.1 0.9

The effect of dilutive shares on the earnings for the purposes of diluted earnings per share is £nil (2015 – £nil).

The denominators used for all basic, diluted and adjusted earnings per share are as detailed in the table above.

The provision of adjusted earnings per share, derived in accordance with the table below, has been included to identify the performance of the Group prior to the impact of amortisation of intangible assets from acquisitions. In the year ended 31 December 2015, goodwill impairment, impairment of assets held for sale, loss on sale and write-down of fixed assets and acquisition costs were also included.

These items have been excluded from the adjusted measures in order to show the underlying current business performance of the Group in a consistent manner. This also reflects how the business is managed on a day-to-day basis.

13. GOODWILL

Year ended	Year ended
2016 £m	2015 £m
Cost
At 1 January 336.3	293.4
Exchange differences 42.1	4.6
Recognised on acquisition of subsidiaries –	38.3
At 31 December 378.4	336.3
Accumulated impairment losses
At 1 January 51.8	30.9
Impairment charge in the year –	18.8
Exchange differences 7.8	2.1
At 31 December 59.6	51.8
Carrying amount at 31 December 318.8	284.5

Goodwill has been reallocated to the group of CGUs (CGU groups) within the two Aerospace sub-divisions (Aerostructures and Fluid Systems) and Flexonics with effect from 1 January 2016, reflecting the way management now exercises oversight and monitors the Group's performance. The table below highlights the carrying amount of goodwill allocated to these CGU groups, all of which are considered significant in comparison with the total carrying amount of goodwill.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

13. GOODWILL CONTINUED

	Year ended	Year ended
	2016	2015
	£m	£m
Aerostructures	164.4	143.4
Fluid Systems	75.8	71.8
Flexonics	78.6	69.3
Total	318.8	284.5

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The 2016 goodwill impairment review was undertaken as at 31 December 2016. The recoverable amounts are determined from value in use calculations. The key assumptions on which the value in use calculations are based relate to business performance over the next five years, long-term growth rates beyond 2021 and the discount rates applied. The key judgements are the level of revenue and operating margins anticipated and the proportion of operating profit converted into cash flow in each year. The forecast compound annual growth rate in revenue to 2021 are in the range from 6% to 10%.

Forecasts are based on the most recent financial budgets and strategies, as approved by management for the next four years and supplemented by forecasts of performance for a further one year. These estimates, where appropriate, take account of the current economic environment as set out in the Strategic Report on page 1 to 35. Cash flows thereafter have been extrapolated based on estimated long-term growth rates. For Aerostructures and Fluid Systems, cash flows extrapolated beyond 2021 are based on growth rates of 3.0% per annum which do not exceed the long-term average growth rate forecasts for the aerospace market as included in market outlooks from Boeing, Airbus and Bombardier. For Flexonics, cash flows extrapolated beyond 2021 are based on world long-term forecast GDP growth for advanced economies of 1.6% per annum.

The cash flow forecasts have also been adjusted to reflect risks specific to each CGU group and discounted to present value using the Group's pre-tax weighted average cost of capital (WACC) of 9.4% (2015 – 9.7%) which is the measurement used by management in assessing investment appraisals. The specific risk adjustments to the cash flow forecasts are equivalent to increasing the pre-tax discount rate from the WACC by 0.9 percentage points for Aerostructures and Fluid Systems and 1.7 percentage points for Flexonics.

Sensitivities have also been considered for each CGU group in relation to the value in use calculations: the long-term growth rate assumption was reduced to 1 percentage point and the discount rate was increased by a 1 percentage point. This did not result in the carrying amount of the CGU groups exceeding their recoverable amount.

14. OTHER INTANGIBLE ASSETS

	Year ended 2016 Intangible assets from acquisitions £m	Year ended 2016 Computer software and others £m	Year ended 2016 Total £m	Year ended 2015 Intangible assets from acquisitions £m	Year ended 2015 Computer software and others £m	Year ended 2015 Total £m
Cost
At 1 January	122.1	13.4	135.5	65.9	11.1	77.0
Additions	–	2.1	2.1	–	2.2	2.2
Disposals	–	(0.2)	(0.2)	–	(0.2)	(0.2)
Acquired on acquisition of subsidiaries	–	–	–	56.3	–	56.3
Disposed on disposal of subsidiaries	–	(0.6)	(0.6)	–	–	–
Exchange differences	14.0	2.6	16.6	(0.1)	0.3	0.2
At 31 December	136.1	17.3	153.4	122.1	13.4	135.5
Amortisation
At 1 January	54.2	9.2	63.4	40.8	7.9	48.7
Charge for the year	19.8	1.7	21.5	12.2	1.3	13.5
Disposals	–	(0.2)	(0.2)	–	(0.2)	(0.2)
Disposed on disposal of subsidiaries	–	(0.6)	(0.6)	–	–	–
Exchange differences	7.4	1.4	8.8	1.2	0.2	1.4
At 31 December	81.4	11.5	92.9	54.2	9.2	63.4
Carrying amount at 31 December	54.7	5.8	60.5	67.9	4.2	72.1

15. INVESTMENT IN JOINT VENTURE

The Group has a 49% interest in Senior Flexonics Technologies (Wuhan) Limited, a jointly controlled entity incorporated in China, which was set up in 2012. Senior Flexonics Technologies (Wuhan) Limited is a precision manufacturer of automotive components.

The results of the joint venture are accounted for using equity accounting.

The Group's investment of £1.7m represents the Group's share of the joint venture's net assets as at 31 December 2016.

The following amounts represent the aggregate amounts relating to the revenue and expenses and assets and liabilities of Senior Flexonics Technologies (Wuhan) Limited for the years ended 31 December 2016 and December 2015.

	2016	2015
	£m	£m
Revenue	7.8	5.3
Expenses	(6.5)	(4.5)
Profit	1.3	0.8
Total assets	7.4	5.6
Total liabilities	(4.0)	(3.4)
Net assets	3.4	2.2
Group's share of profit	0.7	0.4
Group's share of net assets	1.7	1.1

At the year-end, the Group had provided loans of £0.9m (2015 – £1.2m) to the joint venture; £nil (2015 – £0.1m) is reported as a current asset and £0.9m (2015 – £1.1m) as a non-current asset.

During the year, £0.5m of the loans were repaid (2015 – £0.1m issued), offset by £0.2m of foreign exchange gains.

16. PROPERTY, PLANT AND EQUIPMENT

	Year ended		Year ended		Year ended		Year ended
	2016 Freehold	Year ended 2016	2016 Plant	Year ended	2015 Freehold	Year ended 2015	2015 Plant	Year ended
	land and	Leasehold	and	2016	land and	Leasehold	and	2015
	buildings	buildings	equipment	Total	buildings	buildings	equipment	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Cost or valuation
At 1 January	87.6	3.6	356.4	447.6	73.3	2.3	320.8	396.4
Additions	2.9	0.2	47.6	50.7	6.4	0.5	39.5	46.4
Acquired on acquisition of subsidiaries	–	–	–	–	10.1	0.5	9.8	20.4
Exchange differences	15.2	0.5	63.0	78.7	1.0	0.4	4.4	5.8
Disposals	–	–	(13.7)	(13.7)	(0.7)	(0.1)	(15.3)	(16.1)
Reclassified as held for sale	(8.8)	–	–	(8.8)	(2.5)	–	(2.8)	(5.3)
At 31 December	96.9	4.3	453.3	554.5	87.6	3.6	356.4	447.6
Accumulated depreciation and impairment
At 1 January	22.4	2.0	216.6	241.0	22.5	1.5	204.8	228.8
Charge for the year	2.4	0.3	29.8	32.5	1.8	0.2	24.5	26.5
Impairment loss	–	–	–	–	0.2	–	0.4	0.6
Exchange differences	4.5	0.4	39.4	44.3	0.5	0.4	2.8	3.7
Eliminated on disposals	–	–	(12.9)	(12.9)	(0.6)	(0.1)	(13.2)	(13.9)
On assets reclassified as held for sale	(4.6)	–	–	(4.6)	(2.0)	–	(2.7)	(4.7)
At 31 December	24.7	2.7	272.9	300.3	22.4	2.0	216.6	241.0
Carrying amount at 31 December	72.2	1.6	180.4	254.2	65.2	1.6	139.8	206.6

The carrying amount of the Group's land and buildings and plant and equipment includes an amount of £1.4m (2015 – £2.5m) in respect of assets held under finance leases.

At 31 December 2016, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to £4.9m (2015 – £11.5m).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

17. INVENTORIES

	Year ended	Year ended
	2016	2015
	£m	£m
Raw materials	46.3	35.5
Work-in-progress	76.7	62.8
Finished goods	31.4	28.6
	154.4	126.9
Add: Inventories classified as held for sale	–	0.6
Total	154.4	127.5

Inventory write-downs recognised as an expense in 2016 were £1.4m (2015 – £0.5m).

18. TRADE AND OTHER RECEIVABLES

Trade and other receivables at 31 December comprise the following:

	Year ended	Year ended
	2016	2015
	£m	£m
Non-current assets
Other receivables	0.3	0.3
	0.3	0.3
Current assets
Trade receivables	133.5	126.6
Value added tax	2.1	1.2
Currency derivatives	1.5	1.1
Prepayments	12.3	8.7
Other receivables	3.1	3.0
	152.5	140.6
Total trade and other receivables	152.8	140.9
Add: trade receivables classified as held for sale	–	0.6
Total	152.8	141.5

Credit risk

The Group's principal financial assets are bank balances and cash and trade receivables. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies.

The Group's credit risk is primarily attributable to its trade receivables. The amounts presented in the Balance Sheet are net of allowances for doubtful receivables. There are no other credit or impairment losses for other classes of financial assets.

Further disclosures on credit risk are included in Note 20.

The average credit period taken on sales of goods is 54 days (2015 – 58 days). An allowance has been made for estimated irrecoverable amounts from the sale of goods of £2.2m (2015 – £1.4m). In determining the recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. Of the trade receivables balance at the end of the year, £4.9m (2015 – £8.7m) is due from the Group's largest customer and £20.6m (2015 – £15.2m) is due from the Group's second largest customer. The Group has no other significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. Accordingly, the Directors believe that there is no further credit provision risk in excess of the allowance for doubtful receivables.

18. TRADE AND OTHER RECEIVABLES CONTINUED

	Year ended 2016	Year ended 2015
	£m	£m
Movements in allowance for doubtful receivables:
At 1 January	1.4	1.4
Provision for impairment	1.4	0.3
Amounts written off as uncollectible	(0.4)	(0.2)
Amounts recovered	(0.2)	(0.1)
At 31 December	2.2	1.4

Ageing analysis of past due but not impaired trade receivables: Up to 30 days past due 13.8 17.7 31 to 60 days past due 3.1 4.4 61 to 90 days past due 1.4 0.9 91 to 180 days past due 1.0 1.2 Total past due but not impaired 19.3 24.2 Not past due 114.2 103.0 Total current trade receivables 133.5 127.2 Less: reclassified as held for sale – (0.6)

There are no items past due in any other class of financial assets except for trade receivables.

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable above. The Group does not hold any collateral as security.

Total 133.5 126.6

19. BANK OVERDRAFTS AND LOANS

	Year ended	Year ended
	2016	2015
	£m	£m
Bank overdrafts	0.7	2.8
Bank loans	48.6	65.0
Other loans	165.3	139.4
	214.6	207.2
The borrowings are repayable as follows:
On demand or within one year	44.9	28.6
In the second year	79.1	56.6
In the third to fifth years inclusive	26.1	67.6
After five years	64.5	54.4
	214.6	207.2
Less: amount due for settlement within 12 months
(shown under current liabilities)	(44.9)	(28.6)
Amount due for settlement after 12 months	169.7	178.6

Analysis of borrowings by currency

31 December 2016

		Pound		US
	Total	Sterling	Euros	dollars	Others
	£m	£m	£m	£m	£m
Bank overdrafts	0.7	–	–	–	0.7
Bank loans	48.6	30.0	–	18.6	–
Other loans	165.3	–	–	165.3	–
	214.6	30.0	–	183.9	0.7

31 December 2015

	Total £m	Pound Sterling £m	Euros £m	US dollars £m	Others £m
Bank overdrafts	2.8	3.4	(0.5)	(0.6)	0.5
Bank loans	65.0	48.3	–	16.7	–
Other loans	139.4	–	–	139.4	–
	207.2	51.7	(0.5)	155.5	0.5

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

19. BANK OVERDRAFTS AND LOANS CONTINUED

The weighted average interest rates paid were as follows:

	Year ended	Year ended
	2016	2015
	%	%
Bank loans and overdrafts	1.25	1.00
Other loans	5.47	5.47

Bank loans and overdrafts of £49.3m (2015 – £67.8m) are arranged at floating rates, thus exposing the Group to cash flow interest rate risk. Other borrowings are mainly arranged at fixed interest rates and expose the Group to fair value interest rate risk. No interest rate swaps were taken out in 2015 or 2016.

The Directors estimate the fair value of the Group's borrowings to be as follows:

	Year ended	Year ended
	2016	2015
	£m	£m
Bank loans and overdrafts	49.3	67.8
Other loans	172.9	150.0
	222.2	217.8

The fair value of Other loans has been determined by applying a make-whole calculation using the prevailing treasury bill yields plus the applicable credit spread for the Group.

The other principal features of the Group's borrowings are as follows:

Bank overdrafts are repayable on demand. The effective interest rates on bank overdrafts are determined based on appropriate LIBOR rates plus applicable margin.

The Group's main loans are unsecured guaranteed loan notes in the US private placement market, revolving credit facilities and term loans.

• a) Loan notes of \$95m, 2016 (£76.6m) (2015 £64.6m) were taken out in October 2008. Notes of \$75m carry interest at the rate of 6.84% and are due for repayment in October 2018. Notes of \$20m carry interest at the rate of 6.94% and are due for repayment in October 2020.
• b) Loan notes of \$30m, 2016 £24.2m (2015 £20.4m) were taken out in January 2007 and were repaid in January 2017. The loan notes carried interest at the rate of 5.85% per annum. These loan notes were replaced by new €28m loan notes maturing on 1 February 2027, carrying interest at the rate of 1.51% per annum.
• c) Loan notes of \$20m, 2016 £16.1m (2015 £13.6m) were taken out in October 2015 and are due for repayment in October 2022. The loan notes carry interest at the rate of 3.42% per annum.
• d) Loan notes of \$60m, 2016 £48.4m (2015 £40.8m) were taken out in October 2015 and are due for repayment in October 2025. The loan notes carry interest at the rate of 3.75% per annum.

The Group also has three revolving credit facilities.

A committed £60m five-year syndicated multi-currency facility was entered into in November 2014, and amended and extended in October 2016 for five years. As at 31 December 2016, £nil was drawn under the facility. At 31 December 2015, £3m was drawn under this facility.

A committed \$50m single bank (£40.3m) loans and letter of credit facility was amended in July 2016 and matures in June 2018. This facility was increased from \$40m to \$50m in July 2016. There were \$23.1m (£18.6m) loans drawn under the facility on 31 December 2016 and \$23.8m (£16.2m) loans drawn on 31 December 2015 and there were letters of outstanding credit of \$4.0m (£3.2m) (2015 – £3.2m).

A committed £20m two-year syndicated sterling facility was entered into in March 2015. As at 31 December 2016, £10m (2015 – £20m) was drawn under this facility. This facility was amended and extended in October 2016 and matures in March 2019.

The Group also had two term loans which were taken out in March 2015, a £20m one-year term loan and a £5m one-year term loan. The £20m loan was extended in March 2016 for a further year and the £5m loan was repaid in March 2016.

As at 31 December 2016, the Group had available £88.5m (2015 – £64.8m) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.

20. FINANCIAL INSTRUMENTS

Capital risk management

The Group manages its capital structure to safeguard its ability to continue as a going concern whilst maximising the return to stakeholders through the optimisation of the balance between debt and equity. In considering the appropriate level of net debt, the Group pays close attention to the cash generation potential of the Group, measured by adjusted profit before interest, tax, depreciation and amortisation (EBITDA). The Group also monitors capital on the basis of a gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as the total of bank and other loans and obligations under finance leases, less cash and cash equivalents. Total capital is the equity shown in the Consolidated Balance Sheet.

20. FINANCIAL INSTRUMENTS CONTINUED

All the Group's external borrowing facilities have a requirement for the ratio of net debt to EBITDA to be less than 3.0x. Internally, the Group aims for this ratio to be between 0.5x and 1.5x. At 31 December 2016, net debt was 1.7x the Group's level of EBITDA (31 December 2015 – 1.4x). In addition, all borrowing facilities contain the requirement for EBITDA interest cover (the number of times net interest is covered by the Group's EBITDA) to be in excess of 3.5x. At 31 December 2016, EBITDA was 11.8x the level of net interest (31 December 2015 – 16.7x). Therefore, the Group currently has considerable funding headroom.

The Group's strategy in respect of gearing is to target a long-term gearing ratio within the range of 50% to 70%. Ratios outside this range may still be considered to be acceptable, in certain circumstances. The gearing ratio for the Group at the end of 2016 was 40% (2015 – 45%). The cash generated by the Group in recent years has led to the gearing ratio being lower than the targeted range.

Financial risk management

The Group's activities expose it to a variety of financial risks including foreign exchange risk, interest rate risk, credit risk and liquidity risk. The Group's overall treasury risk management programme focuses on the unpredictability of financial markets, and seeks to minimise potential adverse effects on the Group's financial performance.

The Group uses derivative financial instruments to hedge certain risk exposures. The use of financial derivatives is governed by the Group's policies approved by the Board, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies and exposures limits is reviewed by the Group's Treasury Committee on a regular basis. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

Foreign exchange risk management

The Group enters into forward foreign exchange contracts to hedge the exchange risk arising on the operations' trading activities in foreign currencies. Where commented on below, the sensitivity analysis of the Group's exposure to foreign currency risk at the reporting date has been determined based on the change taking place at the beginning of the financial year and left unchanged throughout the reporting period, with all other variables held constant (such as interest rates). The sensitivity assumptions are based on analysis reviewed by the Group's Treasury Committee.

Translation risk

The Group derived 85% of its revenue from businesses outside the United Kingdom, with 62% relating to operations in North America. Fluctuations in the value of the US dollar and other currencies in relation to Pound Sterling have had, and may continue to have, a significant impact on the results of the Group's operations when reported in Pound Sterling. The Group decided not to hedge this translation risk. In addition, the majority of assets are denominated in foreign currency, particularly in US dollars. In order to provide a hedge against volatility in the value of these assets compared with the Group's earnings, and hence provide a natural hedge against the Group's principal lending covenant (the ratio of net debt to EBITDA), the Group aims to borrow in foreign currencies in similar proportions to its generation of foreign currency EBITDA, where practical and economic. A 10% appreciation (or depreciation) of all other currencies against Pound Sterling would have increased (or decreased) 2016 Group operating profit by £8.5m (£6.0m of which would have been due to the US dollar movement) and would have increased (or decreased) net equity by £39.2m (£21.0m of which would have been due to the US dollar movement).

Transaction risk

The Group has a number of transaction-related foreign currency exposures, particularly between the US dollar and Pound Sterling, Baht and Ringgit. The Group seeks to hedge transaction-related exposures mainly on a rolling 15- to 18-month forward basis, but in some cases for periods of up to 60 months and applies hedge accounting where the forwards can be designated in a qualifying cash flow hedge relationship. Based on the net of the annual sales and purchase-related exposures, all transaction-related foreign currency exposures to Group profit after hedging in existence at 31 December 2016 are immaterial. The impact on net equity is determined by the unrecognised portion of open forward contracts at the year-end. A 10% appreciation (or depreciation) of the US dollar against Pound Sterling, Baht and Ringgit would have decreased (or increased) net equity by £9.3m, £1.8m and £1.0m, respectively.

Interest rate risk management

The Group has a policy of maintaining approximately 60% of its borrowing costs at fixed interest rates. The Group generally borrows long term in fixed rates but at times may borrow at floating rates and swap into fixed depending on credit market conditions. Occasionally, a portion of fixed debt interest is swapped into floating rates. The combination of maintaining an acceptable balance of fixed and floating rate debt, and the Group's policy of borrowing in foreign currency in proportion to its generation of foreign currency earnings, provides an effective hedge against the impact of interest rate and foreign currency volatility on total interest costs. As at year-end 2016, the percentage of debt at fixed interest was 77% (2015 – 68%).

The following sensitivity analysis of the Group's exposure to interest rate risk in 2016 has been retrospectively determined based on the exposure to applicable interest rates on financial assets and liabilities held throughout the financial year, with all other variables held constant (such as foreign exchange rates). The sensitivity assumptions are based on analysis reviewed by the Group's Treasury Committee. If variable interest rates had been 0.5% lower (or higher), the Group's net profit would have increased (or decreased) by £0.3m. Any fixed interest debt is held to maturity and not fair value adjusted through the profit and loss. An increase (or decrease) of 0.5% in the US dollar market interest rate for the fixed rate debt held up to maturity would have decreased (or increased) the fair value of the Group's borrowings by £4.3m. The Group's sensitivity to interest rates has remained broadly consistent with the prior period due to the high proportion of fixed debt.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

20. FINANCIAL INSTRUMENTS CONTINUED

Credit risk management

The Group's credit risk is primarily attributable to its trade receivables. The credit quality of customers is assessed taking into account their financial position, past experience and other factors. Further details on determining the recoverability of trade receivables is provided in Note 18. The Group is guarantor under the lease of one building in the UK, which arose on the disposal of a former Group-owned subsidiary in 2001.

Credit risk on liquid funds and derivative financial instruments is limited because the counterparties are financial institutions with high credit ratings assigned by international credit rating agencies. The carrying amount of financial assets recorded in the Financial Statements, which is net of impairment losses, represents the Group's maximum exposure to credit risk.

Liquidity risk management

Liquidity risk reflects the risk that the Group will have insufficient resources to meet its financial liabilities as they fall due. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Cash flow forecasts are produced monthly, together with appropriate capacity planning and scenario analysis, to ensure that bank covenant and liquidity targets will be met. The Directors also regularly assess the balance of capital and debt funding of the Group, as part of a process to satisfy the Group's long-term strategic funding requirements.

As noted in the Financial Review on pages 20 to 23, the Group is currently in a well-funded position, with significant headroom under its committed borrowing facilities. It is considered unlikely that the Group will face any significant funding issues in the foreseeable future.

Categories of financial instruments

	Year ended	Year ended
	2016	2015
	£m	£m
Carrying value of financial assets:
Cash and cash equivalents	17.5	14.4
Trade receivables	133.5	126.6
Other receivables	3.4	3.3
Loans and receivables at amortised cost	154.4	144.3
Currency derivatives used for hedging	1.5	1.1
Total financial assets	155.9	145.4
Carrying value of financial liabilities:
Bank overdrafts and loans	214.6	207.2
Obligations under finance leases	1.0	1.8
Trade payables	87.2	81.4
Other payables	54.1	44.3
Other financial liabilities at amortised cost	356.9	334.7
Currency derivatives used for hedging	15.8	5.6
Total financial liabilities	372.7	340.3
Undiscounted contractual maturity of other financial liabilities:

Amounts payable: On demand or within one year 195.6 163.3 In the second to fifth years inclusive 122.9 144.6

After five years 72.3 63.0 390.8 370.9 Less: future finance charges (33.9) (36.2) Other financial liabilities at amortised cost 356.9 334.7

The carrying amount is a reasonable approximation of fair value for the financial assets and liabilities noted above except for bank overdrafts and loans, disclosure of which is included within Note 19.

An ageing analysis of trade receivables is disclosed within Note 18.

20. FINANCIAL INSTRUMENTS CONTINUED

Forward foreign exchange contracts

The Group enters into forward foreign exchange contracts to hedge the exchange risk arising on the operations' trading activities in foreign currencies. At the balance sheet date, total notional amounts and fair values of outstanding forward foreign exchange contracts that the Group have committed are given below:

	Year ended	Year ended
	2016 £m	2015 £m
Notional amounts:
Foreign exchange contracts – cash flow hedges	187.9	80.5
Foreign exchange contracts – held for trading	23.8	–
Total	211.7	80.5
Less: amounts maturing within 12 months	(85.7)	(49.0)
Amounts maturing after 12 months	126.0	31.5
Contractual maturity:
Cash flow hedges balances due within one year:
Outflow	81.5	71.2
Inflow	(77.0)	(67.6)
Cash flow hedges balances due between one and two years:
Outflow	28.4	5.6
Inflow	(25.2)	(5.9)
Cash flow hedges balances due between two and five years:
Outflow	59.3	13.4
Inflow	(50.4)	(12.8)
Held for trading balances due within one year:
Outflow	23.9	–
Inflow	(23.8)	–
Fair values:
Foreign exchange contracts – cash flow hedges	(14.1)	(4.5)
Foreign exchange contracts – held for trading	(0.2)	–
Total liability	(14.3)	(4.5)

These fair values are based on market values of equivalent instruments at the balance sheet date, comprising £1.5m (2015 – £1.1m) assets included in trade and other receivables and £15.8m (2015 – £5.6m) included in trade and other payables. The fair value of currency derivatives that are designated and effective as cash flow hedges amounting to £12.9m loss (2015 – £3.8m loss) has been deferred in equity.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

20. FINANCIAL INSTRUMENTS CONTINUED

Fair values

The following table presents an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 – 3 based on the degree to which the fair value is observable:

Level 1 those fair values derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 those fair values derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3 those fair values derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

There has not been any transfer of assets or liabilities between levels. There are no non-recurring fair value measurements. Level 2 fair values are derived from future cash flows of open forward contracts at 31 December, translated by the difference between contractual rates and observable forward exchange rates.

31 December 2016	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Assets
Foreign exchange contracts – cash flow hedges	–	1.5	–	1.5
Total assets	–	1.5	–	1.5
Liabilities
Foreign exchange contracts – cash flow hedges	–	15.6	–	15.6
Foreign exchange contacts – held for trading	–	0.2	–	0.2
Total liabilities	–	15.8	–	15.8
31 December 2015	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Assets
Foreign exchange contracts – cash flow hedges	–	1.1	–	1.1
Total assets	–	1.1	–	1.1
Liabilities
Foreign exchange contracts – cash flow hedges	–	5.6	–	5.6
Total liabilities	–	5.6	–	5.6

An amount of £0.7m loss (2015 – £3.8m loss) has been transferred to the Consolidated Income Statement, and is included within trading profit, in respect of contracts which matured during the period. There was no ineffectiveness to be recorded from foreign exchange cash flow hedges. An amount of £nil (2015 – £nil) has been recognised in the Consolidated Income Statement in respect of foreign exchange contracts held for trading.

The hedged forecast transactions denominated in foreign currency are expected to occur at various dates during the next 60 months. Amounts deferred in equity are recognised in the Income Statement in the same period in which the hedged items affect net profit or loss, which is generally within 12 months from the balance sheet date.

Current tax

The current tax receivable of £0.7m (2015 – £5.1m) includes excess tax paid to tax authorities that is expected to be recovered within 12 months by way of offset against future tax liabilities or refund as well as research and development tax credits receivable.

The majority of the Group's taxable profits arise in countries, including the US, where the estimated tax liabilities are paid in on account instalments during the year to which they relate and are largely paid at the balance sheet date. The current tax liability of £21.5m (2015 – £20.5m) represents £1.8m (2015 – £2.8m) tax due on profits of the current and prior years as well as £19.7m (2015 – £17.7m) provisions for tax uncertainties that could by their nature fall due within 12 months. The provision for tax uncertainties has increased during the year due to the effects of exchange translation.

The Group recognises provisions in respect of tax for items which are considered to have a range of possible tax outcomes. These uncertainties exist due to a number of factors including differing interpretations of local tax laws, uncertainties arising from the OECD's BEPS project actions and the determination of appropriate arm's length pricing in accordance with OECD transfer pricing principles on internal transactions and financing arrangements. The nature of the assumptions made by management when calculating the carrying amounts relate to the estimated tax which could be payable as a result of differing interpretations and decisions by tax authorities in respect of transactions and events whose treatment for tax purposes is uncertain. Provisions at the balance sheet date are held in respect of multiple years.

Deferred tax liabilities and assets

The following are the major deferred tax liabilities and (assets) recognised by the Group and movements thereon during the current and prior reporting period:

	Accelerated	Unrealised	Goodwill and	Retirement	Other
	tax	FX	intangible	benefit	temporary	Tax
	depreciation	gains	amortisation	obligations	differences	losses	Total
	£m	£m	£m	£m	£m	£m	£m
At 1 January 2015	19.7	0.8	19.6	(5.0)	(13.0)	(3.8)	18.3
(Credit)/charge to income	(1.5)	0.5	0.6	0.7	1.3	3.2	4.8
(Credit)/charge to other comprehensive income	–	(0.4)	–	0.4	–	(1.2)	(1.2)
Charge/(credit) directly to equity	–	–	–	–	0.9	(0.3)	0.6
Amounts arising on acquisitions	1.7	–	17.1	–	(1.2)	(1.4)	16.2
Effect of change in tax rates	0.2	–	–	–	–	–	0.2
Exchange differences	0.9	(0.3)	1.2	(0.1)	(0.4)	–	1.3
At 1 January 2016	21.0	0.6	38.5	(4.0)	(12.4)	(3.5)	40.2
(Credit)/charge to income	(1.2)	(0.5)	(0.6)	1.4	0.9	3.5	3.5
Credit to other comprehensive income	–	(2.1)	–	(0.5)	–	–	(2.6)
Exchange differences	4.2	0.2	6.0	(0.7)	(2.2)	–	7.5
As at 31 December 2016	24.0	(1.8)	43.9	(3.8)	(13.7)	–	48.6

Other temporary differences include balances arising from temporary differences in relation to provisions, accruals, deferred compensation and share-based payments.

Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:

	Year ended	Year ended
	2016	2015
Deferred tax liabilities	55.2	46.9
Deferred tax assets	(6.6)	(6.7)
	48.6	40.2

At the balance sheet date, the Group had unused tax losses of £26.7m (2015 – £18.1m) available for offset against future profits. A deferred tax asset has been recognised in respect of £nil (2015 – £11.6m) of such losses due to the unpredictability of future taxable profit streams. Included in unrecognised tax losses are losses of £3.1m (2015 – £nil) that will expire over a period of one to nine years. Other losses may be carried forward indefinitely.

At the balance sheet date, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred tax liabilities have been recognised was £0.3m (2015 – £nil) with temporary differences not recognised of £24.4m (2015 – £18.6m). As the Group is in a position to control the timing of the reversal of the temporary differences, amounts are recognised only to the extent that it is probable that such differences will reverse in the foreseeable future.

In addition, at the balance sheet date the Group had deductible temporary differences, in respect of share-based payments of £0.1m (2015 – £0.2m) for which no deferred tax asset has been recognised. Deferred tax assets have not been recognised in respect of these differences due to the unpredictability of future profit streams in the entities concerned.

At the balance sheet date, the Group had £5.0m (2015 – £5.0m) of surplus ACT previously written off, for which no deferred tax asset has been recognised as it is unlikely to be recovered in the foreseeable future due to the UK earnings profile. The Group also has £16.1m (2015 – £16.1m) of unused capital losses, as reduced by gains rolled over, available for offset against future capital gains for which no deferred tax asset has been recognised as no such capital gains are anticipated to arise in the foreseeable future.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

22. OBLIGATIONS UNDER FINANCE LEASES

			Present value of minimum
	Minimum lease payments		lease payments
	Year ended 2016 £m	Year ended 2015 £m	Year ended 2016 £m	Year ended 2015 £m
Amounts payable under finance leases:
Within one year	0.6	0.8	0.5	0.8
In the second to fifth years inclusive	0.5	1.1	0.5	1.0
After five years	–	–	–	–
	1.1	1.9	1.0	1.8
Less: future finance charges	(0.1)	(0.1)	–	–
Present value of lease obligations	1.0	1.8	1.0	1.8
Less: amount due for settlement within 12 months (shown under current liabilities)			(0.5)	(0.8)
Amount due for settlement after 12 months			0.5	1.0

It is the Group's policy to lease certain of its buildings and fixtures and equipment under finance leases. Approximately 82% of the outstanding obligations represent leases which were acquired as part of the acquisition of Lymington in 2015, which expire between 2017 and 2020. The most significant lease, representing approximately 34% (2015 – 26%) of the Group's obligations, expires in 2020. For the year ended 31 December 2016, the average effective borrowing rate was 3.7% (2015 – 3.8%). Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

The fair value of the Group's lease obligations approximates to their carrying amount.

The Group's obligations under finance leases are secured by the lessors' charges over the leased assets.

An analysis of the present value of lease obligations by currency is as follows: Pound Sterling £0.8m (2015 – £1.4m), US dollars £0.1m (2015 – £0.2m) and Others £0.1m (2015 – £0.2m).

23. TRADE AND OTHER PAYABLES

Trade and other payables at 31 December comprise the following:

Year ended	Year ended
2016 £m	2015 £m
Current liabilities
Trade payables 87.2	81.4
Social security and PAYE 6.5	5.9
Value added tax 1.2	1.0
Currency derivatives 15.8	5.6
Other payables and accruals 54.1	44.3
Total trade and other payables 164.8	138.2
Add: trade and other payables classified as held for sale –	1.1
Total 164.8	139.3

The Directors consider that the carrying amount of trade payables approximates to their fair value.

The average credit period taken for trade purchases is 55 days (2015 – 57 days).

24. PROVISIONS

	Warranties	Other	Total
	£m	£m	£m
At 1 January 2015	1.7	0.3	2.0
Additional provision in the year	1.0	–	1.0
Utilisation of provision	(0.9)	–	(0.9)
Release of unused amounts	(0.4)	(0.3)	(0.7)
At 1 January 2016	1.4	–	1.4
Additional provision in the year	2.4	1.0	3.4
Utilisation of provision	(0.7)	–	(0.7)
Release of unused amounts	(0.9)	–	(0.9)
Exchange differences	0.3	0.1	0.4
At 31 December 2016	2.5	1.1	3.6
Included in current liabilities	2.5	1.1	3.6

Provisions for warranty costs are based on an assessment of future claims with reference to past experience.

25. SHARE CAPITAL

	Year ended 2016 £m	Year ended 2015 £m
Authorised:
750 million ordinary shares of 10p each	75.0	75.0
Issued and fully paid:
419.4 million ordinary shares of 10p each	41.9	41.9

At 31 December 2015, the issued and fully paid up share capital was 419.4 million ordinary shares of 10p each.

No shares were issued during 2016.

The Company has one class of ordinary shares which carry no right to fixed income.

26. SHARE PREMIUM ACCOUNT

Year ended	Year ended
2016	2015
£m	£m
Balance at 1 January 14.8	14.8
Movement in year –	–
Balance at 31 December 14.8	14.8

27. EQUITY RESERVE

	Year ended	Year ended
	2016	2015
	£m	£m
Balance at 1 January	4.5	5.7
Transfer to retained earnings reserve	(2.6)	(3.3)
Movement in year	1.1	2.1
Balance at 31 December	3.0	4.5

The transfer to retained earnings reserve is in respect of equity-settled share-based payments that vested during the year.

The movement in the year includes £1.1m (2015 – £2.2m) in respect of the share-based payment charge for the year, and £nil (2015 – £0.1m) release in respect of the shares issued in the year under the 2005 Long-Term Incentive Plan.

28. HEDGING AND TRANSLATION RESERVES

	Hedging	Translation		Hedging	Translation
	reserve	reserve	Total	reserve	reserve	Total
	Year ended	Year ended	Year ended	Year ended	Year ended	Year ended
	2016	2016	2016	2015	2015	2015
	£m	£m	£m	£m	£m	£m
Balance at 1 January	(41.4)	28.5	(12.9)	(39.6)	32.4	(7.2)
Exchange differences on translation of overseas operations	–	62.6	62.6	–	(4.3)	(4.3)
Foreign exchange gain recycled to the Income Statement on
disposal of business	–	(0.4)	(0.4)	–	–	–
Change in fair value of hedging derivatives	(9.1)	–	(9.1)	(1.8)	–	(1.8)
Tax on items taken directly to equity	–	2.1	2.1	–	0.4	0.4
Balance at 31 December	(50.5)	92.8	42.3	(41.4)	28.5	(12.9)

29. RETAINED EARNINGS

	Year ended	Year ended
	2016	2015
	£m	£m
Balance at 1 January	384.7	359.0
Dividends paid	(26.4)	(24.3)
Net profit for the year	45.4	48.5
Pension actuarial loss	(5.1)	(1.1)
Transfer from equity reserve	2.6	3.3
Transfer from own share reserve	(1.7)	(1.3)
Tax on deductible temporary differences	0.5	0.6
Balance at 31 December	400.0	384.7

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

30. OWN SHARES

Year ended		Year ended
	2016	2015
	£m	£m
Balance at 1 January	(2.1)	(2.5)
Transfer to retained earnings reserve	1.7	1.3
Purchase of new shares	(1.1)	(0.9)
Balance at 31 December	(1.5)	(2.1)

The own shares reserve represents the cost of shares purchased in the market and held by the Senior plc Employee Benefit Trust to satisfy options under the Group's share option schemes (see Note 34).

31. ASSETS HELD FOR SALE

On 14 November 2016, the Group entered into a sale agreement to dispose of a property (land and building) in the Senior Flexonics Bartlett operation, which is based in Illinois, USA and is included in the Flexonics Division. The sale will enable Senior Flexonics Bartlett to consolidate the use of its facilities.

The property has been classified as held for sale and presented separately in the Balance Sheet.

On 21 December 2015, the Group entered into a sale agreement to dispose of its Senior Aerospace Composites operation which is based in Wichita, Kansas, USA and was included in the Aerospace Division. The sale, which was completed on 16 February 2016, enabled management to place greater focus on opportunities in its core activities in the Aerospace and Flexonics Divisions. During the year ended 31 December 2016, a loss of £nil (2015 – £nil) arose on disposal after taking into account the fair value of net assets disposed after exit costs of £1.7m offset by a net cash consideration of £1.3m and the previously recorded foreign exchange gain that has been recycled to the Income Statement of £0.4m.

The major categories of assets and liabilities classified as held for sale are as follows:

	Year ended	Year ended
	2016	2015
	£m	£m
Property, plant and equipment	4.2	0.6
Inventories	–	0.6
Trade and other receivables	–	0.6
Total assets classified as held for sale	4.2	1.8
Trade and other payables	–	1.1
Total liabilities classified as held for sale	–	1.1
Net assets classified as held for sale	4.2	0.7

32. NOTES TO THE CASH FLOW STATEMENT

a) Reconciliation of operating profit to net cash from operating activities

	Year ended 2016	Year ended 2015
	£m	£m
Operating profit	65.8	72.3
Adjustments for:
Depreciation of property, plant and equipment	32.5	26.5
Amortisation of intangible assets	21.5	13.5
Loss on sale and write-down of fixed assets	–	1.5
Goodwill impairment	–	18.8
Impairment of assets held for sale	–	1.8
Share options	1.1	2.3
Pension payments in excess of service cost	(8.8)	(8.8)
Costs on disposal of business	(0.3)	–
Pension curtailment gain	(1.0)	–
Share of joint venture	(0.7)	(0.4)
Operating cash flows before movements in working capital	110.1	127.5
(Increase)/decrease in inventories	(6.4)	3.6
Decrease in receivables	7.3	5.3
Decrease in payables and provisions	(1.3)	(20.9)
Working capital currency movements	3.5	(0.1)
Cash generated by operations	113.2	115.4
Income taxes paid	(2.7)	(7.9)
Interest paid	(10.2)	(8.1)
Net cash from operating activities	100.3	99.4

32. NOTES TO THE CASH FLOW STATEMENT CONTINUED

b) Free cash flow

Free cash flow, a non-statutory item, enhances the reporting of the cash-generating ability of the Group prior to corporate activity such as acquisitions, disposals, financing and transactions with shareholders. It is derived as follows:

	Year ended	Year ended
	2016	2015
	£m	£m
Net cash from operating activities	100.3	99.4
Interest received	0.2	0.2
Proceeds on disposal of property, plant and equipment	0.8	0.7
Purchases of property, plant and equipment	(50.7)	(46.4)
Purchase of intangible assets	(2.1)	(2.2)
Free cash flow	48.5	51.7

c) Analysis of net debt

	At 1 January 2016 £m	Cash flow £m	Non-cash items £m	Exchange movement £m	At 31 December 2016 £m
Cash	14.4	0.3	–	2.8	17.5
Overdrafts	(2.8)	2.2	–	(0.1)	(0.7)
Cash and cash equivalents	11.6	2.5	–	2.7	16.8
Debt due within one year	(25.8)	5.9	(20.4)	(3.9)	(44.2)
Debt due after one year	(178.6)	13.6	20.4	(25.1)	(169.7)
Finance leases	(1.8)	0.8	–	–	(1.0)
Total	(194.6)	22.8	–	(26.3)	(198.1)

	Year ended 2016 £m	Year ended 2015 £m
Cash and cash equivalents comprise:
Cash	17.5	14.4
Bank overdrafts	(0.7)	(2.8)
Total	16.8	11.6

Cash and cash equivalents (which are presented as a single class of assets on the face of the Balance Sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less. The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair value.

33. OPERATING LEASE ARRANGEMENTS

The Group as lessee
	Year ended	Year ended
	2016	2015
	£m	£m
Minimum lease payments under operating leases recognised in the Consolidated Income Statement for the year	9.8	9.0

The Group also received £0.5m under sub-leases recognised in the Consolidated Income Statement for the year (2015 – £0.7m).

At 31 December, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

	Year ended 2016 £m	Year ended 2015 £m
Within one year	9.7	8.9
In the second to fifth years inclusive	24.8	25.8
After five years	15.0	18.5
	49.5	53.2

The total of future minimum sub-lease payments expected to be received by the Group under non-cancellable sub-leases at the end of 2016 was £0.6m (2015 – £1.1m).

Operating lease payments principally represent rentals payable by the Group for certain of its manufacturing properties. The four most significant leases, representing 38% (2015 – 40%) of the Group's commitment, expire in 2026, 2027 and two in 2024.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

34. SHARE-BASED PAYMENTS

The Group recognised total expenses of £1.1m (2015 – £2.3m) related to share-based payments, of which £1.1m (2015 – £2.2m) related to equity-settled share-based payments, and £nil (2015 – £0.1m) related to social security costs on share-based payments. As at 31 December 2016, the Group had a liability of £nil (2015 – £0.1m) arising from share-based payments relating to social security costs.

a) 2005 Long-Term Incentive Plan

Equity-settled Long-Term Incentive Plans

On 4 March 2016, 1,942,424 shares were awarded under the 2005 Long-Term Incentive Plan. On 2 August 2016, a further 84,481 shares were awarded. Awards under this plan have a three-year vesting period, subject to earnings per share (EPS) and total shareholder return (TSR) performance conditions being met. Half the awards have an attaching performance target for EPS growth over the three-year performance period of at least 4% per annum above RPI. The other half of the awards begin to vest if the Group's TSR falls in the top half of a comparator group at the end of the three-year performance period. Vesting levels increase with higher performance. The awards are settled by delivering shares to the participants.

The estimated fair value for the awards granted in the year with EPS conditions is 213.0p, which is the share price at the date of grant. The estimated fair value for the awards granted in the year with TSR conditions is 102.7p per share reflecting an adjustment of 52% to the fair value of the awards with EPS conditions due to the stringent TSR condition.

These fair values were calculated by applying a binomial option pricing model. This model incorporates a technique called "bootstrapping", which models the impact of the TSR condition. The model inputs at the date of grant were the share price of 213.0p, expected volatility of 26% per annum, and the performance conditions as noted above. Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous three years.

The following share awards were outstanding as at 31 December 2016 and 2015:

	Year ended	Year ended
	2016	2015
	Number of	Number of
	shares	shares
Outstanding at 1 January	3,105,711	3,696,602
Granted	2,026,905	1,058,222
Exercised		(247,967) (1,332,508)
Forfeited	(1,188,263)	(316,605)
Outstanding at 31 December	3,696,386	3,105,711

b) Enhanced SMIS Deferred Share Award

On 4 March 2016, 193,573 shares were awarded under the Enhanced SMIS Deferred Share Award. Shares earned under this award have a three-year deferral period and would be subject to forfeiture by a "bad leaver" over that deferral period. There are no performance criteria for this award. The awards are settled by delivering shares to the participants.

The estimated fair value for the awards granted in the year is 213.0p per share, which is the share price at the date of grant.

The following share awards were outstanding as at 31 December 2016 and 2015:

	Year ended	Year ended
	2016	2015
	Number of	Number of
	shares	shares
Outstanding at 1 January	646,338	1,063,383
Granted	193,573	217,839
Exercised	(278,543)	(634,665)
Forfeited	(60,640)	(219)
Outstanding at 31 December	500,728	646,338

34. SHARE-BASED PAYMENTS CONTINUED

c) Savings-Related Share Option Plan

The Company operates a Savings-Related Share Option Plan for eligible employees across the Group. There are no performance criteria for this arrangement and options are issued to all participants in accordance with the HM Revenue & Customs rules for such savings plans. Savings-Related Share Options were last issued on 30 April 2016.

The following options were outstanding as at 31 December 2016 and 2015:

	Year ended 2016		Year ended 2015
	Number of share options	Weighted average exercise price	Number of share options	Weighted average exercise price
Outstanding at 1 January	3,099,863	283.24p	2,065,028	244.34p
Granted	3,120,489	222.00p	1,533,181	335.80p
Exercised	–	–	(3,952)	244.40p
Forfeited	(2,068,318)	268.76p	(493,144)	284.43p
Expired	(18,632)	244.40p	(1,250)	144.40p
Outstanding at 31 December	4,133,402	244.43p	3,099,863	283.24p
Exercisable at 31 December	553,697	244.40p	–	–

No share options were exercised in 2016. The weighted average share price at the date of exercise for share options exercised during 2015 was 279.78p. The options outstanding at 31 December 2016 had an exercise price of 222.00p, 335.80p and 244.40p per share, and a weighted average remaining contractual life of 2.4 years. The options outstanding at 31 December 2015 had exercise prices of 335.80p and 244.40p per share, and a weighted average remaining contractual life of 1.8 years.

d) One-off share award

On 3 September 2013, a one-off award over 82,720 shares was granted under the terms of a share award agreement agreed in connection with Derek Harding's recruitment as Group Finance Director, in order partly to compensate him for forgoing entitlements from his previous employer. During the year ² /9 of the one-off award vested, with ³ /9 having vested in 2015 and ⁴ /9 having vested in 2014.

The following share awards were outstanding as at 31 December 2016 and 2015:

	Year ended	Year ended
	2016	2015
	Number of	Number of
	shares	shares
Outstanding at 1 January	18,383	45,956
Granted	–	–
Exercised	(18,383)	(27,573)
Forfeited	–	–
Outstanding at 31 December	–	18,383

e) Other share awards

On 1 May 2015, one-off awards over 96,770 shares were granted to David Squires in connection with his appointment as Group Chief Executive comprising an award over 4,770 shares that was exercised on appointment and two long-term incentive awards over 32,000 and 60,000 shares that mirror the rules and performance conditions attaching to the LTIP awards made to other Senior executives on 25 March 2013 and 21 March 2014 respectively under the Senior plc 2005 Long-Term Incentive Plan. For the 32,000 share award, 6,640 shares vested on 25 March 2016; the remaining awards will ordinarily vest, subject to the achievement of the associated performance conditions on, or after 21 March 2017.

The following share awards were outstanding as at 31 December 2016 and 2015:

	Year ended	Year ended
	2016	2015
	Number of	Number of
	shares	shares
Outstanding at 1 January	92,000	–
Granted	–	96,770
Exercised	(6,640)	(4,770)
Forfeited	(25,360)	–
Outstanding at 31 December	60,000	92,000

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

35. RETIREMENT BENEFIT SCHEMES

The Group operates a number of pension plans in the UK, North America and Europe. These include both defined contribution arrangements and defined benefit arrangements. The Senior plc Pension plan, which is a funded scheme in the UK and closed to future accrual at the end of 5 April 2014, has the largest pension obligation in the Group and Company. This plan provides benefits based on final pensionable emoluments for the employees of the Group and Company. The latest full actuarial valuation was carried out as at 5 April 2016 and, for the purposes of accounting under IAS19, this valuation has been rolled forward to 31 December 2016.

In addition, the Group operates two defined benefit plans in the US, one of which was closed to future accrual from October 2009. The second plan was closed to future participants from September 2013, and the Executive section was also closed to future accruals from December 2013. Separate disclosure is made for the funded UK and US defined benefit arrangements. In both the UK and US, the assets of funded plans are held in separate trustee administered funds managed by independent financial institutions and have pension costs assessed by consulting actuaries using the Projected Unit Method. The Trustees are required to act in the best interests of the plans' beneficiaries.

The Group also has a small number of unfunded post-retirement plans, including a closed healthcare scheme in the US. Separate disclosure is provided for these arrangements.

Further details on the arrangement of the UK plan are given below.

For the Senior plc Pension Plan in the UK, the Trustee is Senior Trustee Limited. The appointment of the Directors to the Board is determined by the plan's Trust documentation. There is a policy that at least one-third of all Directors should be nominated by members of the plan. Currently, there are two member-nominated Directors and four Directors who have been nominated by the Company, of which the Chairman and one other Director are viewed as independent. The investment strategy for the plan is decided by the Trustees. The primary investment objective is for the plan to be able to meet benefit payments as they fall due. The UK Plan's average duration is around 16 years and benefits are expected to be paid for the next 60 to 70 years. In setting this strategy, the Trustees consider a wide range of asset classes, the risk and rewards of a number of possible asset allocation options, the sustainability of each asset class within each strategy, and the need for appropriate diversification between different asset classes. The primary investment objective is implemented by setting strategic asset allocations using a "linear de-risking" approach. Under this approach, the scheme's current asset strategy of 70% invested in low-risk matching assets (such as LDI and bonds) and 30% in higher-risk return seeking assets (such as equities) is expected to be linearly moved into 100% matching assets over the period from April 2021 to April 2036. The Trustees continue to review their investment strategy and have also implemented a switching mechanism to secure any outperformances of equities relative to bonds, by selling equities to buy bonds.

The UK Plan is in a surplus position as at 31 December 2016. Cash contributions to the UK Plan are set by agreement between the Company and the Trustees of the UK Plan. These are set in accordance with legislation and take account of the intention to further reduce the risk associated with the UK Plan's investment strategy, as set out above. The contributions were last reviewed as at 5 April 2016 and were based on a forecast deficit at that time, as part of the 2016 triennial actuarial valuation. The contributions are expected to be reviewed again at the next actuarial valuation in 2019. The Group has agreed with the Trustees of the UK Plan to make continued contributions over an eight-year period from April 2013 to March 2021. The estimated amount of contributions expected to be paid during 2017 to the UK Plan is £8.7m (£8.1m of which is to fund the past service deficit and £0.6m in respect of administrative expenses), and to the US funded plans is £nil.

The Group is ultimately responsible for making up any shortfall in the UK Plan over a period agreed with the Trustees. To the extent that actual experience is different from that assumed, the funding position will be better or worse than anticipated. As such, the contributions required by the Group could vary in the future. The two key risks faced by pension schemes are longevity (i.e. members living longer than expected) and investment risk (i.e. the scheme's assets perform poorly relative to the liabilities).

The surplus position on the UK Plan is recognised as an asset on the Company Balance Sheet on the grounds that the Company has an unconditional right to a refund, assuming the gradual settlement of Plan liabilities over time until all members have left. In considering this, the Company has taken into account that the Trustees do not have unilateral powers to wind up the Plan or modify benefits.

Amendments to the current version of IFRIC14 are currently being considered. At this stage, the Company believes that the above accounting treatment will not be affected by the current exposure draft of the revised IFRIC14.

35. RETIREMENT BENEFIT SCHEMES CONTINUED

a) Defined contribution schemes

The Group has a number of different defined contribution and government-sponsored arrangements in place in the countries in which it operates. None of these are individually material to the Group and the aggregate cost of such schemes for the period was £9.2m (2015 – £8.7m).

b) Defined benefit schemes

The amount included in the Balance Sheet arising from the Group's obligations in respect of its defined benefit plans is set out below.

	31 December 2016					31 December 2015
	UK plans funded £m	US plans funded £m	Unfunded plans £m	Total £m	UK plans funded £m	US plans funded £m	Unfunded plans £m	Total £m
Present value of defined benefit
obligations	(297.4)	(54.5)	(7.0)	(358.9)	(256.0)	(48.5)	(5.5)	(310.0)
Fair value of plan assets	301.4	47.1	–	348.5	255.4	42.0	–	297.4
Plan surplus/(deficit) per
balance sheet	4.0	(7.4)	(7.0)	(10.4)	(0.6)	(6.5)	(5.5)	(12.6)

c) Movements in the present value of defined benefit obligations were as follows:

	31 December 2016					31 December 2015
	UK plans funded £m	US plans funded £m	Unfunded plans £m	Total £m	UK plans funded £m	US plans funded £m	Unfunded plans £m	Total £m
At 1 January	256.0	48.5	5.5	310.0	267.3	46.6	5.7	319.6
Current service costs	–	0.4	0.5	0.9	–	0.4	0.3	0.7
Interest cost	9.3	2.1	0.1	11.5	9.2	1.8	0.1	11.1
Experience on benefit obligations	(6.9)	(0.3)		(7.2)	(1.9)	(0.3)	–	(2.2)
Actuarial losses/(gains) – financial	57.6	0.3	0.2	58.1	(8.0)	(1.2)	(0.1)	(9.3)
Actuarial losses/(gains) – demographic	(5.8)	2.8		(3.0)	–	0.1	–	0.1
Benefits paid	(12.8)	(2.4)	(0.3)	(15.5)	(10.6)	(1.7)	(0.2)	(12.5)
Curtailment credit	–	(5.7)		(5.7)	–	–	–	–
Exchange differences	–	8.8	1.0	9.8	–	2.8	(0.3)	2.5
At 31 December	297.4	54.5	7.0	358.9	256.0	48.5	5.5	310.0

d) Movements in the fair value of plan assets were as follows:

		31 December 2016
	UK plans funded £m	US plans funded £m	Unfunded plans £m	Total £m	UK plans funded £m	US plans funded £m	Unfunded plans £m	Total £m
At 1 January	255.4	42.0	–	297.4	257.9	41.9	–	299.8
Interest on plan assets	9.4	1.9	–	11.3	9.0	1.6	–	10.6
Actual return on plan assets less
interest	41.4	1.4	–	42.8	(8.9)	(3.6)	–	(12.5)
Contributions from employer	8.7	1.5	–	10.2	8.7	1.3	–	10.0
Curtailment charge	–	(4.7)	–	(4.7)	–	–	–	–
Benefits paid	(12.8)	(2.4)	–	(15.2)	(10.6)	(1.7)	–	(12.3)
Running costs	(0.7)	(0.1)	–	(0.8)	(0.7)	–	–	(0.7)
Exchange differences	–	7.5	–	7.5	–	2.5	–	2.5
At 31 December	301.4	47.1	–	348.5	255.4	42.0	–	297.4

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

35. RETIREMENT BENEFIT SCHEMES CONTINUED

e) Amounts recognised in the Income Statement in respect of these defined benefit schemes are as follows:

		31 December 2016			31 December 2015
	UK plans funded £m	US plans funded £m	Unfunded plans £m	Total £m	UK plans funded £m	US plans funded £m	Unfunded plans £m	Total £m
Current service cost included within
operating profit	–	0.4	0.5	0.9	–	0.4	0.3	0.7
Running costs	0.7	0.1	–	0.8	0.7	–	–	0.7
Curtailment credit	–	(1.0)	–	(1.0)	–	–	–	–
Charge/(credit) included within
operating profit	0.7	(0.5)	0.5	0.7	0.7	0.4	0.3	1.4
Included within finance costs	(0.1)	0.2	0.1	0.2	0.2	0.2	0.1	0.5
Amount recognised in the Income
Statement	0.6	(0.3)	0.6	0.9	0.9	0.6	0.4	1.9

The curtailment gain of £1m (2015 – £nil) relates to the part closure of both US funded plans.

f) Amounts recognised in other comprehensive income are as follows:

		31 December 2016			31 December 2015
	UK plans funded £m	US plans funded £m	Unfunded plans £m	Total £m	UK plans funded £m	US plans funded £m	Unfunded £m	Total £m
Net actuarial gain/(losses) in the year due to:
– Change In financial assumptions – Change in demographic	(57.6)	(0.3)	(0.2)	(58.1)	8.0	1.1	0.1	9.2
assumptions – Experience adjustments on benefit	5.8	(2.8)	–	3.0	–	–	–	–
obligations Actual return on plan assets less	6.9	0.3	–	7.2	1.9	0.3	–	2.2
interest on benefit obligations	41.4	1.4	–	42.8	(8.9)	(3.6)	–	(12.5)
Gains/(losses) recognised in other comprehensive income	(3.5)	(1.4)	(0.2)	(5.1)	1.0	(2.2)	0.1	(1.1)

Actuarial losses of £5.1m (2015 – £1.1m losses) have been recognised in the Statement of Comprehensive Income. The cumulative amount of actuarial losses recognised in the Statement of Comprehensive Income as at 31 December 2016 is £53.4m (2015 – £48.3m).

g) Assets and assumptions in funded plans

	UK plans funded		US plans funded
	2016 £m	2015 £m	2016 £m	2015 £m
Fair value of plan assets
Equities	78.5	73.7	–	–
Bonds	99.5	85.8	47.1	42.0
Gilts	120.0	94.4	–	–
Cash and net current assets	3.4	1.5	–	–
Total	301.4	255.4	47.1	42.0
Actual return on plan assets	50.8	0.1	3.3	(2.0)

35. RETIREMENT BENEFIT SCHEMES CONTINUED

The UK Plan assets are held exclusively within instruments with quoted market prices in an active market with the exception of the holdings in insurance policies.

The UK Plan does not invest directly in property occupied by the Company or in financial securities issued by the Company.

		UK plans funded		US plans funded
	2016	2015	2016	2015
Major assumptions (per annum %)
Inflation	3.20%	2.80%	N/A	N/A
Increase in salaries	N/A	N/A	N/A	N/A
Increase in pensions	3.00%	2.80%	0.00%	0.00%
Increase in deferred pensions	3.20%	2.80%	0.00%	0.00%
Rate used to discount plan liabilities	2.60%	3.70%	4.00%	4.10%
Life expectancy of a male aged 65 at the year-end	22.0	22.1	20.8	19.3
Life expectancy of a male aged 65, 20 years after the year-end	23.7	23.8	22.5	20.5

Benefits under the US funded plans are not linked to inflation.

For the UK Plan, the estimated impact on the plan deficit at 31 December 2016 for changes in assumptions is as follows:

	Increase in plan deficit
	£m
0.5% decrease in the discount rate	25.0
One-year increase in life expectancy	9.0
0.5% increase in inflation	16.0

These sensitivities have been calculated to show the movement in the defined benefit obligation in isolation, and assuming no other changes in market conditions at the accounting date. This is unlikely in practice – for example, a change in discount rate is unlikely to occur without any movement in the value of the assets held by the Plan.

h) Other post-retirement liabilities

This balance comprises an unfunded German pension plan £3.6m (2015 – £3.0m), unfunded closed pension and post-retirement healthcare plans in the USA £0.4m (2015 – £0.4m) and provision for post-retirement payments in France of £2.9m (2015 – £2.1m).

The closed pension and post-retirement healthcare plans in the US have been valued on a Projected Unit Method using a discount rate of 4.0%. As at 31 December 2016, no more participants were eligible for medical benefits under the plan. The German plan has been subject to formal actuarial valuation on a Projected Unit Method with the following assumptions: discount rate 1.84%, salary growth 0.0% and pension increase 1.75%. In France, the provision arises from a legal obligation to make payments to retirees in the first two years post-retirement. Hence, it is not subject to discounting to the same extent as the other longer-term post-retirement liabilities.

36. CONTINGENT LIABILITIES

Contingent liabilities exist in respect of guarantees provided by the Group in the ordinary course of business for product delivery, performance and reliability. Various Group undertakings are parties to legal actions or claims which arise in the ordinary course of business, some of which could be for substantial amounts. In May 2015, Senior Aerospace Ketema was named as co-defendant in a putative class action lawsuit and a related lawsuit alleging property damage filed against Ametek, Inc. in the US. The lawsuit claims that Ametek had polluted the groundwater during its tenure as owners of the site where Senior Aerospace Ketema is currently located. While the outcome of some of these matters cannot precisely be foreseen, the Directors do not expect any of these arrangements, legal actions or claims, after allowing for provisions already made, to result in significant loss to the Group.

COMPANY BALANCE SHEET

As at 31 December 2016

		Year ended	Year ended
	Notes	2016 £m	2015 £m
Non-current assets
Investment in subsidiaries	39	259.9	259.9
Property, plant and equipment	40	0.4	0.4
Other intangible assets	38	0.4	0.2
Debtors: amounts due after more than one year	41	4.5	3.2
Total non-current assets		265.2	263.7
Current assets
Debtors: amounts due within one year	41	173.4	154.6
Pension surplus asset	53	4.0	–
Cash at bank and in hand	50	1.5	–
Total current assets		178.9	154.6
Total assets		444.1	418.3
Creditors: amounts falling due within one year
Trade and other creditors	43	65.0	80.7
Borrowings	42	49.5	34.6
Current tax		0.2	0.2
Total creditors: amounts falling due within one year		114.7	115.5
Creditors: amounts falling due after more than one year
Borrowings	42	151.1	162.4
Retirement benefit obligations	53	–	0.6
Deferred tax liability	52	0.4	–
Total creditors: amounts falling due after more than one year		151.5	163.0
Total liabilities		266.2	278.5
Net assets		177.9	139.8
Capital and reserves
Called up share capital	44	41.9	41.9
Share premium account	45	14.8	14.8
Equity reserve	46	3.0	4.5
Hedging and translation reserve	47	(0.3)	(0.3)
Profit and loss account	48	120.0	81.0
Own shares	49	(1.5)	(2.1)
Total shareholders' funds		177.9	139.8

The Financial Statements of Senior plc (registered number 282772) were approved by the Board of Directors and authorised for issue on 24 February 2017. They were signed on its behalf by:

David Squires Derek Harding

Director Director

COMPANY STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2016

						All equity is attributable to equity holders of the Company
		Called	Share		Hedging and	Profit and
	Notes	up share capital £m	premium account £m	Equity reserve £m	translation reserve £m	loss account £m	Own shares £m	Total equity £m
Balance at 1 January 2015		41.8	14.8	5.7	(0.3)	115.1	(2.5)	174.6
Loss for the year 2015		–	–	–	–	(12.8)	–	(12.8)
Actuarial gains on defined benefit pension schemes	35f	–	–	–	–	1.0	–	1.0
Total comprehensive income for the period		–	–	–	–	(11.8)	–	(11.8)
Issue of share capital		0.1	–	(0.1)	–	–	–	–
Share-based payment charge	46	–	–	2.2	–	–	–	2.2
Purchase of shares held by employee benefit trust	49	–	–	–	–	–	(0.9)	(0.9)
Use of shares held by employee benefit trust	49	–	–	–	–	(1.3)	1.3	–
Transfer to profit and loss account	48	–	–	(3.3)	–	3.3	–	–
Dividends paid	11	–	–	–	–	(24.3)	–	(24.3)
Balance at 31 December 2015		41.9	14.8	4.5	(0.3)	81.0	(2.1)	139.8
Profit for the year 2016		–	–	–	–	68.0	–	68.0
Actuarial losses on defined benefit pension schemes		–	–	–	–	(3.5)	–	(3.5)
Total comprehensive income for the period		–	–	–	–	64.5	–	64.5
Share-based payment charge	46	–	–	1.1	–	–	–	1.1
Purchase of shares held by employee benefit trust	49	–	–	–	–	–	(1.1)	(1.1)
Use of shares held by employee benefit trust	49	–	–	–	–	(1.7)	1.7	–
Transfer to profit and loss account	48	–	–	(2.6)	–	2.6	–	–
Dividends paid	11	–	–	–	–	(26.4)	–	(26.4)
Balance at 31 December 2016		41.9	14.8	3.0	(0.3)	120.0	(1.5)	177.9

SENIOR PLC ANNUAL REPORT & ACCOUNTS 2016 113

NOTES TO THE COMPANY FINANCIAL STATEMENTS

37. ACCOUNTING POLICIES

Basis of accounting (Company only)

The Company is incorporated in England and Wales under the Companies Act. The Company meets the definition of a qualifying entity under FRS 100 (Financial Reporting Standard 100) issued by the Financial Reporting Council. Accordingly, the Company has adopted FRS 101 Financial Reporting Standard 101 Reduced Disclosure Framework as issued by the Financial Reporting Council.

As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share-based payments, financial instruments, fair value measurements, capital management, presentation of a cash flow statement and disclosure of related party transactions.

The Financial Statements have been prepared on the historical cost basis. They have also been prepared on the going concern basis. The principal accounting policies adopted are the same as those set out in Note 2 to the Consolidated Financial Statements, except in respect of investments in subsidiaries, which are stated at cost less, where appropriate, provisions for impairment.

38. OTHER INTANGIBLE ASSETS

	Year ended	Year ended
	2016 Computer	2015 Computer
	software	software
	£m	£m
Cost
At 1 January	0.5	0.3
Additions	0.3	0.2
At 31 December	0.8	0.5
Amortisation
At 1 January	0.3	0.2
Charge for the year	0.1	0.1
At 31 December	0.4	0.3
Carrying amount at 31 December	0.4	0.2

39. INVESTMENTS IN SUBSIDIARIES

A list of the significant investments in subsidiaries, including the name, country of incorporation, and proportion of ownership interest is given on pages 120 to 122.

	Year ended	Year ended
	2016	2015
	£m	£m
At 1 January	259.9	259.9
Additional investment in subsidiaries	–	–
At 31 December	259.9	259.9

40. PROPERTY, PLANT AND EQUIPMENT

Year ended	Year ended
	2016 2015
Plant and equipment	Plant and equipment
	£m £m
Cost
At 1 January	0.7 0.7
Additions	0.1 0.2
Disposals	– (0.2)
At 31 December	0.8 0.7
Accumulated depreciation
At 1 January	0.3 0.3
Charge for the year	0.1 0.1
Eliminated on disposals	– (0.1)
At 31 December	0.4 0.3
Carrying amount at 31 December	0.4 0.4

41. DEBTORS

Trade and other debtors at 31 December comprise the following:

	Year ended	Year ended
	2016	2015
	£m	£m
Debtors: amounts due after more than one year
Due from subsidiaries	4.5	3.2
	4.5	3.2

Debtors: amounts due within one year
Value added tax	0.1	0.1
Prepayments and accrued income	1.2	1.1
Due from subsidiaries	172.1	153.4
	173.4	154.6
Total debtors	177.9	157.8

The Directors consider that the carrying amount of debtors approximates to their fair value. The maximum exposure to credit risk at the reporting date is the fair value of each class of debtor above. The Company does not hold any collateral as security.

The carrying amount of amounts due from subsidiaries approximates to their fair value. There are £0.1m past due or impaired debtor balances (2015 – £nil).

42. BORROWINGS

Year ended	Year ended
2016	2015
£m	£m
Bank overdrafts 5.3	9.6
Bank loans 30.0	48.0
Other loans 165.3	139.4
200.6	197.0
The borrowings are repayable as follows:
On demand or within one year 49.5	34.6
In the second year 60.5	40.4
26.1 In the third to fifth years inclusive	67.6
After five years 64.5	54.4
200.6	197.0
Less: amount due for settlement within 12 months
(shown under current liabilities) (49.5)	(34.6)
Amount due for settlement after 12 months 151.1	162.4

Analysis of borrowings by currency

31 December 2016

		Pound		US
	Total	Sterling	Euros	dollars	Others
	£m	£m	£m	£m	£m
Bank overdrafts	5.3	5.3	–	–	–
Bank loans	30.0	30.0	–	–	–
Other loans	165.3	–	–	165.3	–
	200.6	35.3	–	165.3	–

31 December 2015

	Total £m	Pound Sterling £m	Euros £m	US dollars £m	Others £m
Bank overdrafts	9.6	7.9	–	1.7	–
Bank loans	48.0	48.0	–	–	–
Other loans	139.4	–	–	139.4	–
	197.0	55.9	–	141.1	–

NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED

42. BORROWINGS CONTINUED

The weighted average interest rates paid were as follows:

	Year ended	Year ended
	2016	2015
	%	%
Bank loans and overdrafts	1.25	1.00
Other loans	5.47	5.47

Bank loans and overdrafts of £35.3m (2015 – £57.6m) are arranged at floating rates, thus exposing the Company to cash flow interest rate risk. Other borrowings are mainly arranged at fixed interest rates and expose the Company to fair value interest rate risk. No interest rate swaps were taken out in 2015 or 2016.

The Directors estimate the fair value of the Company's borrowings to be as follows:

	Year ended	Year ended
	2016	2015
	£m	£m
Bank loans and overdrafts	35.3	57.6
Other loans	172.9	150.0
	208.2	207.6

43. TRADE AND OTHER CREDITORS

Trade and other creditors at 31 December comprise the following:

	Year ended	Year ended
	2016	2015
	£m	£m
Creditors: amounts falling due within one year
Trade creditors	0.4	0.6
Social security and PAYE	0.1	0.1
Other creditors and accruals	3.5	3.2
Foreign currency derivatives	0.2	–
Due to subsidiaries	60.8	76.8
Total trade and other creditors	65.0	80.7

The Directors consider that the carrying amount of trade creditors approximates to their fair value.

44. CALLED UP SHARE CAPITAL

	Year ended 2016 £m	Year ended 2015 £m
Authorised:
750 million ordinary shares of 10p each	75.0	75.0
Called up and fully paid:
419.4 million ordinary shares of 10p each	41.9	41.9

At 31 December 2015, the issued and fully paid up share capital was 419.4 million ordinary shares of 10p each.

No shares were issued during 2016.

The Company has one class of ordinary shares, which carry no right to fixed income.

45. SHARE PREMIUM ACCOUNT

Year ended	Year ended
2016	2015
£m	£m
Balance at 1 January 14.8	14.8
Movement in year –	–
Balance at 31 December 14.8	14.8

46. EQUITY RESERVE

	Year ended	Year ended
	2016	2015
	£m	£m
Balance at 1 January	4.5	5.7
Transfer to profit and loss account	(2.6)	(3.3)
Movement in year	1.1	2.1
Balance at 31 December	3.0	4.5

The transfer to retained earnings reserve is in respect of equity-settled share-based payments that vested during the year.

The movement in the year includes £1.1m (2015 – £2.2m) in respect of the share-based payment charge for the year, and £nil (2015 – £0.1m) release in respect of the shares issued in the year under the 2005 Long-Term Incentive Plan.

47. HEDGING AND TRANSLATION RESERVES

	Hedging	Translation		Hedging	Translation
	reserve	reserve	Total	reserve	reserve	Total
Year ended		Year ended	Year ended	Year ended	Year ended	Year ended
	2016	2016	2016	2015	2015	2015
	£m	£m	£m	£m	£m	£m
Balance at 1 January and 31 December	–	(0.3)	(0.3)	–	(0.3)	(0.3)

48. PROFIT AND LOSS ACCOUNT

	Year ended	Year ended
	2016	2015
	£m	£m
Balance at 1 January	81.0	115.1
Dividends paid	(26.4)	(24.3)
Net profit/(loss) for the year	68.0	(12.8)
Pension actuarial (loss)/gain	(3.5)	1.0
Transfer from equity reserve	2.6	3.3
Transfer from own share reserve	(1.7)	(1.3)
Balance at 31 December	120.0	81.0

£7.5m (2015 – £7.5m) of the Company's retained earnings are considered undistributable.

In accordance with Section 408 of the Companies Act 2006, the Company has not presented its own Statement of Comprehensive Income, including the Income Statement and related notes.

49. OWN SHARES

	Year ended	Year ended
	2016	2015
	£m	£m
Balance at 1 January	(2.1)	(2.5)
Transfer to profit and loss account	1.7	1.3
Purchase of new shares	(1.1)	(0.9)
Balance at 31 December	(1.5)	(2.1)

The own shares reserve represents the cost of shares purchased in the market and held by the Senior plc Employee Benefit Trust to satisfy options under the Group's share option schemes (see Note 34).

The nominal value of each share is £0.1 (2015 – £0.1). The total number of treasury shares at 31 December 2016 is 615,176 (2015 – 1,386,720).

50. CASH AT BANK AND IN HAND

	Year ended 2016 £m	Year ended 2015 £m
Cash and cash equivalents comprise:
Cash	1.5	–
Bank overdrafts	(5.3)	(9.6)
Total	(3.8)	(9.6)

Cash at bank and in hand held by the Company (which are presented as a single class of assets on the face of the Balance Sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less. The Directors consider that the carrying amount of cash and cash equivalents approximate to their face value.

NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED

51. OPERATING LEASE ARRANGEMENTS

					The Company as lessee
--	--	--	--	--	-----------------------

Year ended	Year ended
2016	2015
£m	£m
Minimum lease payments under operating leases recognised in the Income Statement for the year 0.1	0.1

At 31 December, the Company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

	Year ended	Year ended
	2016	2015
	£m	£m
Within one year	0.1	0.1
In the second to fifth years inclusive	0.5	0.5
After five years	0.8	0.9
	1.4	1.5

As at the date of approving the accounts, the Company has guaranteed £1.0m (2015 – £1.0m) of annual lease commitments of certain current and previous subsidiary entities.

52. DEFERRED TAX

The following are the major deferred tax liabilities and (assets) recognised by the Company and movements thereon during the current and prior reporting period:

As at 31 December 2016	(0.2)	0.7	(0.1)	0.4
(Credit)/charge to income	(0.2)	0.7	(0.1)	0.4
At 1 January 2016	–	–	–	–
	£m	£m	£m	£m
	tax depreciation	benefit obligations	based payments	Total
	Accelerated	Retirement	Share

At 31 December 2015, the Company had deductible temporary differences, for which no deferred tax asset was recognised, in respect of retirement benefit obligations of £0.6m, share-based payments of £0.8m and accelerated book depreciation of £0.8m.

Deferred tax assets and liabilities are offset where the Company has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:

Year ended		Year ended
	2016	2015
	£m	£m
Deferred tax liabilities	0.4	–

At the balance sheet date, the Company has unused capital losses of £15.6m (2015 – £15.6m) available for offset against future capital gains. No deferred tax asset has been recognised as no such capital gains are anticipated to arise in the foreseeable future.

53. RETIREMENT BENEFIT SCHEMES

The Company's defined benefit scheme obligations are shown in Note 35 in the "UK plans funded" column.

54. RELATED PARTY TRANSACTIONS

The remuneration of the Directors and senior managers, who are the key management personnel of the Group, is set out in the Remuneration Report on pages 51 to 70.

55. SHARE-BASED PAYMENTS

The Company has a number of share-based payment arrangements that existed during 2016, the details of which can be found in Note 34.

For the savings-related share option plan, no shares were exercised in 2016 or 2015. The options outstanding at 31 December 2016 had an exercise price of 222.00p, 335.80p and 244.40p per share, and a weighted average remaining contractual life of 2.2 years. The options outstanding at 31 December 2015 had exercise prices of 335.80p and 244.40p per share, and a weighted average remaining contractual life of 1.3 years.

FIVE-YEAR SUMMARY

	2016	2015	2014	2013	2012
Group income statement	£m	£m	£m	£m	£m
Revenue
Continuing operations	917.0	849.5	820.8	775.1	712.0
Discontinued operations	–	–	–	–	17.8
	917.0	849.5	820.8	775.1	729.8
Adjusted operating profit
Continuing operations	85.6	107.8	111.6	107.6	100.6
Discontinued operations	–	–	–	–	0.8
	85.6	107.8	111.6	107.6	101.4
Amortisation of intangible assets from acquisitions	(19.8)	(12.2)	(7.2)	(4.2)	(4.3)
Loss on sale and write-down of fixed assets	–	(1.5)	–	–	(0.1)
Goodwill impairment	–	(18.8)	(9.4)	(12.7)	–
Impairment of assets held for sale	–	(1.8)	–	–	–
Acquisition costs	–	(1.2)	(0.6)	(0.4)	(0.6)
Write-down of L85 inventory	–	–	(1.8)	–	–
Restructuring costs	–	–	(1.5)	(1.9)	–
Exceptional pension (charge)/credit	–	–	(1.5)	1.1	(1.9)
Reversal of contingent consideration payable	–	–	–	3.8	–
Operating profit	65.8	72.3	89.6	93.3	94.5
Investment income/finance costs, net	(10.1)	(8.0)	(8.1)	(8.1)	(7.7)
Net finance cost of retirement benefit obligations	(0.2)	(0.5)	(0.9)	(1.4)	(2.6)
Profit on disposal of discontinued operations	–	–	–	–	2.5
Profit before tax	55.5	63.8	80.6	83.8	86.7
Tax	(10.1)	(15.3)	(17.1)	(12.4)	(16.8)
Profit for the year	45.4	48.5	63.5	71.4	69.9
Depreciation and amortisation of intangibles	54.0	40.0	32.1	26.5	25.1
Gross capital expenditure (including finance lease assets)	52.8	48.6	31.1	29.7	26.1
Basic earnings per share	10.84p	11.59p	15.25p	17.22p	17.11p
Diluted earnings per share	10.83p	11.47p	15.06p	17.00p	16.69p
Adjusted earnings per share	14.37p	18.98p	19.84p	19.00p	17.75p
Dividends in respect of years – per share	6.57p	6.20p	5.63p	5.12p	4.65p
– value	27.5	26.0	23.5	21.3	19.3
Group balance sheet
Non-current assets	647.0	572.4	466.4	393.6	387.4
Net current assets	94.0	98.3	84.4	101.1	94.8
Non-current liabilities	(240.5)	(239.8)	(139.2)	(133.2)	(169.3)
Net assets	500.5	430.9	411.6	361.5	312.9
Net borrowings	(198.1)	(194.6)	(105.0)	(59.2)	(70.0)
Group cash flow
Net cash from operating activities	100.3	99.4	88.6	92.4	83.3
Interest received	0.2	0.2	0.1	0.2	0.3
Proceeds from disposal of property, plant and equipment	0.8	0.7	0.2	0.9	0.1
Purchase of property, plant and equipment – cash	(50.7)	(46.4)	(29.6)	(28.7)	(25.3)
Purchase of intangible assets	(2.1)	(2.2)	(1.5)	(1.0)	(0.8)
Free cash flow	48.5	51.7	57.8	63.8	57.6
Dividends paid	(26.4)	(24.3)	(21.9)	(19.9)	(16.4)
Acquisitions less disposals	1.3	(103.9)	(60.1)	(30.5)	(23.6)
Investment in joint venture	–	–	–	(0.5)	(0.9)
Loan to joint venture	0.5	(0.1)	(1.1)	–	–
Share issues	–	–	1.1	0.1	2.3
Purchase of shares held by employee benefit trust	(1.1)	(0.9)	(0.7)	(0.9)	(1.0)
(Decrease)/increase in loans Decrease in finance leases	(19.5) (0.8)	81.7 (0.6)	(18.4) (1.4)	(0.2) (0.5)	(0.2) (0.6)
Increase/(decrease) in cash and cash equivalents	2.5	3.6	(44.7)	11.4	17.2

ADDITIONAL INFORMATION GOVERNANCE FINANCIAL STATEMENTS STRATEGIC REPORT

GROUP UNDERTAKINGS

Companies	Business Units	Locations	Country of Incorporation	Registered Office
Senior UK Limited	Senior Aerospace Bird Bellows	Congleton	England & Wales	59/61 High Street, Rickmansworth, Hertfordshire, WD3 1RH, UK
	Senior Aerospace BWT	Macclesfield and Ilkeston
	Senior Flexonics Crumlin	Crumlin
	Senior Aerospace Weston	Colne
	Senior Aerospace Thermal Engineering	Royston
Lymington Precision Engineers Co. Limited	Senior Flexonics Lymington	Lymington	England & Wales	Gosport Street, Lymington, Hampshire, SO41 9EE, UK
Senior do Brasil Ltda	Senior Flexonics Sao Paulo	Sao Paulo, Brazil	Brazil	Praca Arquiteto Faustino Roncoroni, No 1 Rod. Castelo Branco, Km 54 Dist. Industrial Aracariguama, SP CEP 18147-00, C.P. 101001, Brazil
Senior Flexonics Czech s.r.o.	Senior Flexonics Czech	Olomouc, Czech Republic	Czech Republic	Olomouc, Prómyslová 733/9, postcode 779 00, Czech Republic
Senior Aerospace Ermeto SAS	Senior Aerospace Ermeto	Blois, France	France	ZA Euro Val de Loire, 8, Rue du Clos Thomas 8, F-41330, Fosse, France
Senior Calorstat SAS	Senior Aerospace Calorstat	Dourdan, France	France	Z.I. La Gaudree, Rue des Soufflets, BP 58, F-91410, Dourdan, France
Senior Flexonics Blois SAS	Senior Flexonics Blois	Blois, France	France	22 Boulevard de I'lldustrie CS 13320, F-41033 Blois, France
Senior Flexonics GmbH	Senior Flexonics Kassel	Kassel, Germany	Germany	Frankfurter Strasse 199, 34121 Kassel, Germany
Senior India Private Limited	Senior Flexonics New Delhi	New Delhi, India	India	Plot No. 89, Secotr 8, IMT Manesar Gurgaon - 122050, Haryana, India
Senior Aerospace Bosman B.V.	Senior Aerospace Bosman	Rotterdam, Netherlands	Netherlands	Bergen 6, 2993LR Barendrecht, The Netherlands
Senior Operations (Canada) Limited	Senior Flexonics Canada	Brampton, Ontario	Canada	134 Nelson Street West, Brampton, CA-Ontario L6X 1C9, Canada
Senior Flexonics SA (Pty) Limited Senior Flexonics Cape Town		Cape Town, South Africa	South Africa	11 Thor Circle, Viking Place, Thornton 7460, Cape Town, South Africa
Senior Operations LLC	Senior Aerospace Absolute Manufacturing	Arlington, Washington	USA	Corporation Trust Center, 1209 Orange Street,
	Senior Aerospace AMT	Arlington, Washington		Wilmington, DE 19801, USA
	Senior Aerospace Jet Products	San Diego, California
	Senior Aerospace Ketema	El Cajon, California
	Senior Aerospace Metal Bellows	Sharon, Massachusetts
	Senior Aerospace Damar	Monroe, Washington
	Senior Aerospace SSP	Burbank, California
	Senior Aerospace Connecticut	Enfield, Connecticut
	Senior Flexonics Bartlett	Bartlett, Illinois
	Senior Flexonics GA	Franklin, Wisconsin
	Senior Flexonics Pathway	New Braunfels, Texas
		& Maine, Delaware

Companies	Business Units	Locations	Country of Incorporation	Registered Office
Steico Industries, Inc.	Senior Aerospace Steico	Oceanside, California	USA	818 W. 7th Street, Ste. 930,
	Industries			Los Angeles, CA 90017, USA
Senior Aerospace	Senior Aerospace Thailand	Chonburi, Thailand	Thailand	789/115-116 Moo 1, Pinthong
(Thailand) Limited				Industrial Estate, Sainhongkor
				Lamchabang Road, Tambol
				Nhongkam, Amphur Sriracha,
				ChonBuri Province 20230,
				Thailand
Upeca Aerotech Sdn Bhd	Senior Aerospace Upeca	Selangor, Malaysia	Malaysia	10th Floor, Menara Hap Seng,
Upeca Flowtech Sdn Bhd	Senior Flexonics Upeca			No.1 & 3 Jalan P. Ramlee,
				50250 Kuala Lumpur, Malaysia
Upeca Engineering (Tianjin)	Senior Flexonics Upeca (China)	Tianjin, China	China	No.12 Quanhe Road, Wu Qing
Co Ltd				Development Area, Tianjin
				301700, PR China
Flexonics Limited			England & Wales	59/61 High Street, Rickmansworth, Hertfordshire,
				WD3 1RH, UK
Lymington Precision Engineering			England & Wales	Gosport Street, Lymington,
(LPE) Limited				Hampshire, SO41 9EE, UK
Senior Aerospace Limited			England & Wales	59/61 High Street,
Senior Americas One Limited				Rickmansworth, Hertfordshire,
Senior Americas Two Limited				WD3 1RH, UK
Senior Automotive Limited
Atlas Composites Limited
Senior Engineering
Investments Limited
Senior Five Limited
Senior Finance Four Limited
Senior Finance Six Limited
Senior Finance Seven Limited
Senior Flexonics Limited
Senior Trustee Limited Thermal Engineering
Holding Limited
Thermal Engineering Limited

GROUP UNDERTAKINGS CONTINUED

Companies	Business Units	Locations	Country of Incorporation	Registered Office
Senior France SAS			France	Zi la Gaudree, Rue des Soufflets, F-91410 Dourdan, France
Senior Investments (Deutschland) GmbH Senior Operations GmbH			Germany	Frankfurter Strasse 199, 34121 Kassel, Germany
Senior Holdings LLC			USA	Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801, USA
Senior Aerospace GmbH Senior Investments GmbH Senior IP GmbH			Switzerland	Fronwagplatz 10, CH-8200 Schaffhausen, Switzerland
Flexonics, Inc. Senior Investments LLC Senior US Holdings Inc			USA	Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801, USA
Upeca Engineering Sdn Bhd			Malaysia	8.03, 8th Floor, Plaza First Nationwide, 161, Jalan Tun H.S. Lee, 50000 Kuala Lumpur, Malaysia
Upeca Technologies Sdn Bhd			Malaysia	10th Floor, Menara Hap Seng, No.1 & 3 Jalan P. Ramlee, 50250 Kuala Lumpur, Malaysia
Upeca Valve Automation Sdn Bhd			Malaysia	8.03, 8th Floor, Plaza First Nationwide, 161, Jalan Tun H.S. Lee, 50000 Kuala Lumpur, Malaysia

Senior Aerospace and Flexonics Business Units in Mexico are operated by a third party under a contract manufacturing agreement.

Senior Aerospace Composites, a business unit of Senior Operations LLC, was sold on 16 February 2016.

The Group has a 49% interest in Senior Flexonics Technologies (Wuhan) Limited, a jointly controlled entity incorporated in China.	China	No. 5 Road, no. 1 East Industrial Park, East Lake High Tech Development Zone, Wuhan,
		Hubei Province 430223, PR China

All Group undertakings are wholly and directly owned by subsidiary undertakings of Senior plc, and in every case the principal country of operation is the country of incorporation.

ADDITIONAL SHAREHOLDER INFORMATION

ANALYSIS OF SHAREHOLDERS AT 31 DECEMBER 2016

		Shareholders		Issued shares
	Number	%	Millions	%
By category
Corporate bodies	909	30.75	408.35	97.36
Other shareholders	2,047	69.25	11.07	2.64
	2,956	100.00	419.42	100.00
By range of holdings
1 – 24,999	2,554	86.40	9.19	2.19
25,000 – 49,999	99	3.35	3.45	0.82
50,000 – 249,999	137	4.63	16.01	3.82
250,000 – 499,999	42	1.42	14.48	3.45
500,000 – 999,999	52	1.76	38.01	9.06
1,000,000 – and over	72	2.44	338.28	80.66
	2,956	100.00	419.42	100.00

The number of shares in issue at 31 December 2016 was 419,416,250.

Share Registrars

All shareholder records are maintained by Equiniti and all correspondence should be addressed to the Registrar, Senior plc at the Equiniti address shown on the inside back cover, quoting the reference number starting with 0228 detailed on your dividend vouchers. The registrar should be notified regarding changes to name or address, loss of share certificate, or request for, or change to, a dividend mandate.

Equiniti provides a range of shareholder information on-line. Shareholders can check their holdings, update details and obtain practical help on transferring shares at: www.shareview.co.uk.

Instead of payment by post to your registered address, dividends can be paid through the BACS system direct into a UK bank or building society account, with the dividend voucher still sent to your registered address. If you wish to use this facility and have not previously applied, please apply direct to Equiniti and request a dividend mandate form. Shareholders who are currently receiving duplicate sets of Company mailings, as a result of any inconsistency in name or address details, should write direct to Equiniti so holdings can be combined, if appropriate.

CREST proxy voting

CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the Annual General Meeting to be held on 21 April 2017 and any adjournment(s) thereof by using the procedures described in the CREST manual. Further details relating to voting via CREST may be found on the 2017 AGM Notice of Meeting and Form of Proxy.

2017 FINANCIAL CALENDAR

THE KEY EVENTS FOR SENIOR IN 2017 ARE SET OUT BELOW

Some of the dates are indicative only and may be subject to change.

Monday 27 February Announcement of the 2016 Final Results.

Publication of the Annual Report & Accounts 2016 at www.seniorplc.com

Friday 10 March Publication of the Annual Report & Accounts 2016.

Friday 21 April Annual General Meeting.

Thursday 27 April Shares ex-dividend for the 2016 final dividend.

Friday 28 April Record date for shareholders on register to receive 2016 final dividend.

Friday 26 May Payment of the 2016 final dividend.

Monday 31 July Announcement of the 2017 interim results.

Thursday 19 October Shares ex-dividend for the 2017 interim dividend.

Friday 20 October Record date for shareholders on register to receive 2017 interim dividend.

Thursday 30 November Payment of the 2017 interim dividend.

OFFICERS AND ADVISERS

SECRETARY AND REGISTERED OFFICE

Andrew Bodenham Senior plc 59/61 High Street, Rickmansworth, Hertfordshire WD3 1RH

Registered in England and Wales No. 00282772

REGISTRARS

Equiniti Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA

AUDITOR

For the financial year ended 31 December 2016: Deloitte LLP 2 New Street Square, London EC4A 3BZ

For the financial year commencing 1 January 2017: KPMG LLP(1)

15 Canada Square, London E14 5GL

(1) Subject to shareholder approval at the 2017 AGM.

SHAREGIFT

If you have only a small number of shares which would cost more for you to sell than they are worth, you may wish to consider donating them to the charity ShareGift (Registered Charity 1052686) which specialises in accepting such shares as donations. The ShareGift Transfer Form may be obtained from Equiniti, the Company's Registrars, at www.shareview.co.uk. There are no implications for Capital Gains Tax purposes (no gain or loss) on gifts of shares to charity and it is also possible to obtain income tax relief. Further information about ShareGift may be obtained on 020 7930 3737 or from www.ShareGift.org.

SOLICITORS

Slaughter and May One Bunhill Row, London EC1Y 8YY

PRINCIPAL UK CLEARING BANKERS

Lloyds Banking Group plc 25 Gresham Street, London EC2V 7HN

FINANCIAL ADVISERS

Lazards & Co., Limited 50 Stratton Street, London W1J 8LL

STOCKBROKERS

Jefferies Hoare Govett Vintners Place 68 Upper Thames Street London EC4V 3BJ

Designed by Printed by Park Communications

SENIOR PLC

59/61 High Street Rickmansworth Hertfordshire WD3 1RH United Kingdom www.seniorplc.com T +44 (0) 1923 775547 F +44 (0) 1923 775583