TIDMSPX
RNS Number : 5799G
Spirax-Sarco Engineering PLC
05 March 2015
News Release
Thursday 5(th) March 2015
2014 Preliminary Results
HIGHLIGHTS
Adjusted* 2014 2013 Change Constant
FX
Revenue GBP678.3m GBP689.4m -2% +5%
Adjusted operating
profit* GBP153.0m GBP151.6m +1% +12%
Adjusted operating
profit margin* 22.5% 22.0% +50 bps +140 bps
Adjusted profit
before taxation* GBP151.1m GBP151.1m 0% +12%
Adjusted basic earnings
per share* 140.4p 138.8p +1% +13%
Dividend per share 64.5p 59.0p +9% +9%
Special dividend 120.0p -
per share
*All profit measures exclude certain non-operational items, as
defined in note 2.
Organic measures are at constant currency and exclude
acquisitions
Statutory 2014 2013 Change
------------------------ ---------- ---------- -------
Operating profit GBP148.1m GBP147.0m +1%
Profit before taxation GBP144.8m GBP145.7m -1%
Basic earnings per
share 132.8p 133.4p 0%
-- Organic sales increased over 4%
-- Operating profit ahead in all segments at constant currency
-- Operating margin up 50 bps, despite stiff currency headwind
-- Strong result in Watson-Marlow
-- GBP91m return of capital - 120p per share special dividend
Nick Anderson, Chief Executive, commenting on the results
said:
"The good results in 2014 again demonstrate the fundamental
strengths and resilience of our business, with record profits and
margin improvement achieved against an unhelpful economic
background and a stiff currency headwind. We are increasing
investment and adding resources in support of our growth strategy
and we are confident that, through these actions, we can continue
to outperform our markets and deliver further improvements in our
business."
For further information, please contact:
Nick Anderson, Chief Executive
David Meredith, Finance Director
Tel: 020 7638 9571 at Citigate Dewe Rogerson
until 6.00 p.m.
The meeting with analysts will be available as a live audio
webcast on the Company's website at www.spiraxsarcoengineering.com
or via the following link http://edge.media-server.com/m/p/y5mjm8q7
at 9.00am, and a recording will be posted on the website shortly
after the meeting.
Unless otherwise stated all profit measures exclude certain
non-operational items, as defined in note 2. Organic measures are
at constant currency and exclude acquisitions.
Chairman's Statement
I am pleased to report further progress in 2014 in what remained
a challenging economic environment and against considerable
currency headwinds.
Performance
Sales increased by 5% at constant currency to GBP678.3 million,
including a small contribution of nearly 1% from the acquisition of
BioPure in January 2014. Unfavourable currency movements reduced
sales on translation by 6.4% leaving reported sales down 2%
compared with sales of GBP689.4 million in 2013. We achieved good
organic sales growth in Watson-Marlow and in the Americas, with
modest growth in Asia Pacific and Europe, Middle East and Africa
(EMEA).
Operating profit increased by 12% at constant currency to
GBP153.0 million, with a strong improvement in Watson-Marlow, good
gains in the Americas and a further advance in EMEA and in Asia
Pacific. At reported exchange rates, operating profit was ahead 1%,
having been impacted by a negative currency impact of GBP15
million. The operating profit margin rose to a record 22.5% from
22.0%, despite the stiff currency headwind. Net finance costs
increased and the contribution from our Associate company in India
was 32% lower, giving an increase in pre-tax profit at constant
exchange rates of 12% to GBP151.1 million; a small advance on the
prior year reported pre-tax profit. Adjusted earnings per share
rose by 1% to 140.4p (2013: 138.8p) and by 13% at constant
currency.
We have today announced that the Group has established a
wholly-owned company in India and that we expect to start direct
sales in mid-2015. We have also sold the Group's 49.3% interest in
Spirax Marshall Private Limited in India to our local partners,
with both parties now free to trade under their own respective
names, inside and outside India.
Cash and Dividends
Cash inflow was again strong with good cash conversion and we
finished the year with net cash of GBP52 million.
The interim dividend, which was paid in November 2014, was
raised by 8% to 19.5p per share (2013: 18.0p per share). The Board
is recommending an increase in the final dividend to 45.0p per
share (2013: 41.0p) payable on 29th May 2015 to shareholders on the
register at 1st May 2015. The total ordinary dividend for the year
is therefore 64.5p per share, an increase of 9% over the 59.0p per
share for the prior year.
Following a review of the Company's capital requirements and
recognising the Group's significant cash generation capability, the
Board is also recommending a return of capital to shareholders of
GBP91 million by way of a special dividend of 120p per share in
respect of 2014 (2013: nil). The dividend will be payable on 15th
July 2015 to shareholders on the register at 12th June 2015. This
return represents approximately 4% of the market capitalisation of
the Company and the Board is recommending that this is combined
with an appropriate share consolidation to maintain, as far as
possible, the comparability of the share price before and after the
special dividend.
Governance and Board changes
In May 2014, the Board was pleased to announce the appointment
of Jamie Pike as an independent Non-Executive Director and Senior
Independent Director, bringing his broad industrial and
international business experience to the Board. Jamie replaced
Gareth Bullock who stepped down at the AGM in May 2014, having
completed the nine-year maximum tenure for assured independence.
The Board would like to thank Gareth for his significant
contribution and thoughtful counsel over many years. In consequence
of Mr Bullock stepping down, Dr Krishnamurthy Rajagopal took over
as Chairman of the Remuneration Committee.
Prospects
Our Spirax Sarco steam specialties and Watson-Marlow niche pumps
and associated fluid technology businesses serve numerous different
applications across a wide and diverse range of industries on a
direct sales basis utilising the knowledge and experience of our
1,300 sales and service engineers. This direct sales approach, with
an increasing sector focus, delivers genuine value to customers in
the form of energy savings and emission reductions, water savings,
productivity gains, quality improvements and solutions to difficult
pumping and fluid control problems. Steam is used as the heat
source in many industrial processes and a high proportion of sales
come from customers' operating and maintenance spending. Our
markets therefore reflect general economic conditions and in
particular the rates of growth in industrial production. All these
factors, together with the implementation of our growth strategy to
pursue a relentless focus on customer service, market development,
product development and excellence in manufacturing, mean that we
are able to outperform our market growth, whilst retaining
considerable resilience.
Overall, market conditions in 2014 were lacklustre, with
industrial production growth slowing through the second half of the
year in both developed and developing markets. We achieved good
trading results in part due to a strong performance in
Watson-Marlow, favourable mix and tight overhead controls. Our
assumption is that, overall, the world economy will be no better in
the current year than that seen in 2014. If recent exchange rates
prevail for the full year, there would still be a small translation
headwind to sales of 2% in 2015, as the impact of the weaker euro
outweighs the benefits of the stronger dollar and related
currencies. We are increasing investment and adding resources to
develop the business as we execute our growth strategy, and focus
on our priorities for generating our own growth and outperforming
our markets. These factors, together with our fundamental
strengths, give the Board confidence that we will achieve further
progress in 2015.
Group Chief Executive's Report
Introduction
The good results in 2014 again demonstrate the fundamental
strengths and resilience of our business, with record profits and
margin improvement achieved against an unhelpful economic
background and a stiff currency headwind. Our direct sales business
model leverages the skills and experience of our 1,300 sales and
service engineers across the world, to generate solutions to
customers' energy and water savings, emissions, productivity,
quality and cost problems. In so doing, we reinforce the trusting,
long-term relationships that we have with our customers and further
build our installed base, which underpins the resiliency of our
business that also benefits from the high replacement element to
our sales.
During 2014, we undertook an extensive strategic review that
confirmed both the quality of our business and identified how we
could do better what we already do well. This evolutionary strategy
is captured in our six strategic priorities:
-- Increase direct sales effectiveness through sector focus,
enhancing our customer value propositions;
-- Develop the knowledge and skills of our expert sales and
service teams, enabling them to better understand our customers'
processes and apply engineered solutions to their steam and niche
pumping and fluid path problems;
-- Broaden our global presence, achieving a first-to-market
advantage from early entry into new markets;
-- Leveraging R&D investments, widening our range of new
products and solutions, which is crucial to the long-term growth
and sustainability of our business;
-- Optimise supply chain effectiveness, enhancing product
availability, increasing flexibility, reducing costs and optimising
customer service;
-- Operate sustainably and help improve our customers'
sustainability, which is at the core of our business
operations.
Our focus is on generating our own growth and outperforming our
markets. Our direct sales approach provides opportunities for us to
unlock unrecognised customers' needs, which is especially valuable
in an environment of subdued and slowing global industrial
production growth. Our business is very resilient but not immune to
any market weakness.
We are actively engaged in the implementation of our growth
strategy across the organisation, with the pace of strategy roll
out increasing as we progress priority projects. In addition, we
have strengthened our acquisition strategy and sharpened our target
search criteria with the aim of expanding the capabilities of our
core steam specialties and Watson-Marlow businesses, extending
geographic coverage and increasing our addressable markets into
related areas.
Market environment
Steam provides the heat source across a wide range of industries
and niche peristaltic pumps are used across a range of sectors.
This wide spread, coupled with the fact that a large proportion of
our revenue is derived from customers' operating and maintenance
spend, means that our markets tend to reflect the rates of growth
in industrial production both in individual markets, regionally and
worldwide. The nature of our business is that we generally lag
movements in economic conditions by a couple of quarters. Global
industrial production growth picked up modestly in the second half
of 2013 and into 2014 but has been slowing again since the latter
half of 2014 in both developed and emerging markets.
Whilst the price of oil may influence the cost of energy to our
customers, the correlation of the price of oil to our sales is
weak; payback on energy cost savings being only one of a wide range
of motivations for customers to trade with us. Our direct sales
business model means that our sales engineers work closely with
customers to identify improvements to their steam systems, and
peristaltic pump and associated fluid path systems. Typical
benefits, other than energy savings, include reduced CO(2) e
emissions, water savings, productivity improvements, efficiency
improvements, reduced quality costs and regulatory compliance.
Market conditions in Europe weakened steadily through the year,
with year-on-year growth in industrial production close to zero by
the year-end. This included negative growth all year in France and
Italy, and steadily slowing growth in Germany but with a continued
positive reading in the UK and indeed Spain.
In the Americas, industrial production growth continued at a
healthy pace in North America throughout the period, in contrast to
negative growth through the period in South America, including in
Brazil and Argentina where economic conditions remain
difficult.
In Asia Pacific, industrial production growth was positive but
slowed markedly in the second half of 2014 due to the widely
reported deceleration in China and negative growth in Korea in the
final quarter. Market conditions were, however, good in Australia
and some of our smaller operations in Indonesia and the
Philippines.
Progress in 2014
Group sales increased by just over 5% at constant currency to
GBP678.3 million, comprising organic sales growth of over 4% and
nearly 1% from the acquisition of BioPure Technology Limited in
January 2014. Growth was strongest in Watson-Marlow, with all
geographic regions ahead. In the steam specialties business, the
Americas segment saw good overall organic sales growth, with
progress in North America and a good gain in Latin America, the
latter including the benefit of currency-related price increases in
Argentina. Organic sales were modestly ahead in Europe, Middle East
and Africa (EMEA), with growth in most of the larger operations,
and in Asia Pacific, with Korea performing well.
Sales of GBP678.3 million show a reduction of nearly 2% compared
with sales of GBP689.4 million in 2013, due to unfavourable
currency movements that impacted sales by 6.4% on translation.
Sterling was stronger against every one of our reporting
currencies, compounded by significant currency weakness in a number
of our smaller markets. These stiff currency headwinds have now
largely abated and if recent exchange rates prevail for the full
year, sales in 2015 would show a further net reduction of 2% on
translation into sterling versus 2014 average exchange rates.
Watson-Marlow's brand has been changed to Watson-Marlow Fluid
Technology Group, reflecting the evolution of the business from a
manufacturer of niche peristaltic pumps and tubing, to its current
position as a world leader in niche peristaltic pumps and
associated fluid path technologies. Organic sales growth in
Watson-Marlow of 9% was spread across virtually all product lines,
with new products continuing to make a valuable contribution. There
were increases in both project work and base business, with
progress in most industry sectors except precious metals mining,
where sales were down on the prior year. Geographically, growth was
strongest in Asia, from a relatively smaller base, as we further
penetrate developing markets, and sales were well ahead in North
America and EMEA. The acquisition of BioPure added a further 4% to
sales, taking total constant currency growth of Watson-Marlow to
13%.
Organic sales increased by 3.4% in our steam specialties
business, with higher than average increases in controls and energy
management that are of increasing strategic focus. Higher sales
came from improved base business, reflecting sustained demand from
customers' operating and maintenance activities, while project work
remained broadly flat due to a continued lack of confidence by
customers to invest in higher value expansion, productivity and
energy saving projects. Geographically, organic growth was led by
the Americas, with sales up in North America and well ahead in
Latin America; the latter supported by some currency-driven pricing
gains in Argentina. Organic sales rose modestly in EMEA, due in
part to project work in Italy, and rose in Asia Pacific due largely
to Korea. Sales were flat in China as industrial overcapacity in
many sectors and government initiated anti-corruption measures
across the country, reduced overall levels of project work.
Record operating profit and margins were achieved in 2014. Group
operating profit of GBP153.0 million was 12% higher at constant
currency, with a strong currency headwind reducing the reported
increase to 1% over the prior year operating profit of GBP151.6
million. Watson-Marlow performed very strongly and there were
operating profit increases at constant currency in each of the
steam specialties segments in the Americas, Asia Pacific and
EMEA.
There was a strong increase in operating profit margin, rising
to 22.5% from 22.0%, despite the stiff currency headwind. The Group
benefitted from continued price management actions and broadly flat
raw material and component costs. Improvements in our internal
supply chain enabled a reduced level of subcontract costs and
increased efficiency, and generally business and product mix was
favourable versus the prior year. We continued to invest in product
and market development for the long term, however, we tightened
control of overheads through the second half of the year, as the
world economic growth outlook moderated. Our business is seasonally
biased to the second half and, as expected, this was slightly
accentuated in 2014 by shipment of the larger than normal backlog
built up in the first half year.
Market outlook
We continue to benefit from the many improvements made to our
business in recent years and expect further benefits for all
stakeholders over the coming years as we implement growth
strategies across all aspects of our business to drive
outperformance against our markets.
Industrial production growth prospects have been scaled back for
2015. However, we have an outstanding growth record and a direct
sales business model that offers opportunities for self-help,
whilst deriving a large proportion of revenues from customers'
operating and maintenance budgets, giving a high degree of
resilience to our business in more difficult economic conditions.
We are increasing investment and adding resources in support of our
growth strategy and we are confident that, through these actions,
we can continue to outperform our markets and deliver further
improvements in our business.
Europe, Middle East and Africa (EMEA)
2014 2013 Change Constant
currency
----------- ---------- ---------- -------- ----------
Revenue GBP236.2m GBP244.3m -3% +2%
----------- ---------- ---------- -------- ----------
Operating
profit GBP45.9m GBP48.2m -5% +4%
----------- ---------- ---------- -------- ----------
Operating
margin 19.4% 19.7% -30 bps +30 bps
----------- ---------- ---------- -------- ----------
Market overview
Industrial production growth in EMEA improved towards the end of
2013, albeit to only relatively low levels of around 2%, and this
was sustained through to the middle of 2014. However, since then
industrial production growth progressively slowed, approaching zero
at year-end, making for overall challenging market conditions.
Russia and Ukraine account for just over 1% of Group sales and
events there, together with the imposition of sanctions, caused
increased market uncertainty and some loss of customer confidence
in associated markets in Germany and the Nordic areas. Heightened
security risks and Ebola had an impact on a number of our smaller
markets in Africa. Market conditions in France were very poor but,
in contrast, there has been some improvement in Spain and
conditions have remained positive in the UK. Overall, large project
business saw a decline, although quote levels are encouraging.
Progress in 2014
In EMEA, organic sales grew by 2% to GBP236.2 million. Currency
movements were unfavourable reducing sales on translation by 5%,
with reported sales therefore 3% down compared with the GBP244.3
million in 2013. We made good progress in our larger more developed
markets in Germany, Italy, Spain and the UK, growing overall sales
and profit by more than the segment average and increasing margins.
Italy did particularly well, winning a number of large projects and
the UK did well to grow sales again, following the strong advance
in 2013. France was the only one of our larger more developed
markets to see a decline in sales, reflecting the poor market
conditions, although we are creating a new training centre in
France to boost our capability and technical standing. Our
operations in the Nordic areas performed well increasing sales and
profit, as did Poland and Turkey.
Overall, project business was down in the year, including a
large drop in the refining and petrochemicals sector in Russia that
impacted our business there and which necessitated local
cost-saving measures and a switch in sales focus to more resilient
areas. Lower project work was also reflected in the Middle East,
with the non-repeat of large hospital projects in the prior year.
Generally quote logs in EMEA remain at an encouraging level.
Operating profit increased by 4% at constant currency to GBP45.9
million reflecting the sales increase, the benefit of continued
price management actions, favourable mix and tight control of
costs, especially in the second half year as the economic
environment turned down. Our manufacturing operations in France and
Italy did well, improving service levels and profit, but our UK
steam specialties factory saw lower demand, especially through the
quieter late summer period. Generally, we benefited from stable
purchase costs for materials that mitigated the impact of
unfavourable currency movements, which were large in a number of
countries with the average exchange rate for the Russian rouble
-22%, Turkish lira -16% and South African rand -15%. This was
reflected in the overall reported profit, which declined by 5% from
the prior year's GBP48.2 million. The operating profit margin for
EMEA at 19.4% (2013: 19.7%) was slightly lower but improved by 30
bps at constant currency.
Strategy update
We continued to develop our markets, establishing a new
operating company in the Netherlands and transitioning to a full
operating company in the UAE and Egypt, the latter commencing local
trading in January 2015. We achieved good improvements in stock
management, delivery performance and customer service levels, which
should underpin our largely self-generated growth initiatives.
Resource has been added in a number of areas, including wider
supply chain skills.
Outlook
We remain positive and continue to identify areas where we can
grow and improve our business in EMEA. Markets remain challenging,
with continued unfavourable currency movements and developing
events in Ukraine and Russia creating uncertainty in a number of
markets with strong trading links to Russia, as well as heightened
security concerns in Africa and the Middle East. In February 2015,
we took actions to reduce costs in our UK manufacturing plant and
will incur a one-off cost of GBP1.0 million within ordinary trading
in 2015, but this will be more than compensated by the on-going
reduction in overheads during the remainder of the year.
Asia Pacific
2014 2013 Change Constant
currency
----------- ---------- ---------- -------- ----------
Revenue GBP177.7m GBP182.8m -3% +2%
----------- ---------- ---------- -------- ----------
Operating
profit GBP46.4m GBP48.0m -3% +4%
----------- ---------- ---------- -------- ----------
Operating
margin 26.1% 26.3% -20 bps +50 bps
----------- ---------- ---------- -------- ----------
Market overview
The economic conditions in the region have been mixed, with
continued expansion in some smaller markets such as Indonesia and
Malaysia but with overall industrial production growth slowing
sharply in the second half year. In our largest market in China,
economic growth slowed but was also more balanced as the government
works to partly offset the decline of capital investments that have
accounted for almost half of GDP, with more consumption driven
growth. Independent estimates of Chinese industrial production
growth indicated a slowdown to mid-single digits by the end of
2014, reflecting the overcapacity in many industries, reduced
foreign direct investment and the impact of the Government's
anti-corruption campaign, although the latter is a welcome and
positive development for the medium and longer term. Industrial
production growth turned negative in Korea in the fourth quarter
and there was political turmoil in Thailand following the coup
d'état in May. Generally in the region, pricing and competitive
pressures remain and are greater than elsewhere, although our
direct sales approach and fundamental strengths enabled us to
outperform our markets.
Progress in 2014
Organic sales increased by 2% but at reported exchange rates
sales reduced by 3% from GBP182.8 million to GBP177.7 million due
to unfavourable currency movements versus sterling in all
currencies. As expected, sales growth was stronger in the second
half as a number of large projects in Korea were shipped and the
usual order build from the first half year was unwound. However, we
were not immune from the general economic slowdown across much of
the region in the second half year.
Our business in Korea performed very well, achieving higher
sales, especially in the refining and petrochemical and power
industries for export projects, and through a strong focus on
smaller and mid-sized energy saving and process improvement
opportunities. Our Korean sales team did well with steam system
services and with sales into general industry, although there were
some project delays and postponed investment in the shipbuilding
sector. Profit was well ahead in Korea reflecting the higher sales
and favourable product mix.
In China, sales were flat and profit slightly lower at constant
currency. Project work related to customers' capital investment,
which has been significant in this country approaching 50% of our
sales in prior years, declined reflecting the industrial
overcapacity in the markets we serve, as well as delays caused by
the government's anti-corruption drive. This was compensated for by
refocusing on customers' energy efficiency, process improvement and
maintenance activities, where sales increased. The growth in
overheads slowed markedly but wage pressures continued, which was
partially offset by efficiency improvements and an on-going
increase in the proportion of local manufacture, as production is
expanded in line with our regional manufacturing strategy.
Elsewhere in Asia Pacific, we made good progress in Japan
against a significant 13% currency headwind, with very effective
price management and, similarly, did well in Australia, growing
sales and profit at constant currency. Our new company in Indonesia
became fully operational during the year, completing a myriad of
approvals, and we focused on market development, intensive training
of our expanding sales team and building customer relationships. In
the Philippines, our business performed well in its first full year
as an operating company and we did well in Thailand, against a
difficult market background.
Overall in Asia Pacific, operating profit increased by 4% at
constant currency reflecting favourable mix, price management and
increased regional manufacture, partially offset by increased
market development costs, investment in new IT systems and expanded
office facilities in a number of operations. Unfavourable currency
movements meant that operating profit of GBP46.4 million (2013:
GBP48.0 million) was 3% lower at reported exchange rates. The
operating profit margin was broadly unchanged at 26.1% (2013:
26.3%) and ahead 50 bps at constant currency.
Strategy update
Markets in Asia Pacific continue to exhibit good long-term
growth characteristics. Our strategy, as elsewhere in the world, is
focused on self-generated growth based on making improvements to
our sales effectiveness, with increasing sectorisation and enhanced
delivery performance. Broadening our market presence remains a
priority, with new operations in new territories adding to the
aggressive development of those established in recent years. Our
regional manufacturing strategy and optimisation of the wider
supply chain, is focused on local product availability, cost
effectiveness and flexibility.
Outlook
Overall, regional industrial production growth has progressively
slowed and economic uncertainty persists in our largest market in
China. However, we remain positive about the medium and long-term
growth prospects, with a good exposure to the more resilient
sectors such as foods and healthcare. We expect to benefit from our
investments in market development, especially in Indonesia, and
from a focus on key industries such as foods, beverages and
healthcare, where there are positive dynamics from a growing and
ageing population.
We have announced today the establishment of a wholly owned
company in India that is expected to commence direct sales
operations around mid-2015. This exciting start-up will include
world-class manufacturing and training facilities and is central to
our strategy of accelerating growth in this important market. The
49.3% shareholding in our long-standing Associate Company in India,
Spirax Marshall Private Limited, has been sold to our local partner
for GBP6.5 million and both parties will in future be free to trade
under their respective names within and outside India.
The Americas
2014 2013 Change Constant
currency
----------- ---------- ---------- --------- ----------
Revenue GBP126.2m GBP132.0m -4% +8%
----------- ---------- ---------- --------- ----------
Operating
profit GBP28.0m GBP26.1m +7% +31%
----------- ---------- ---------- --------- ----------
Operating
margin 22.2% 19.8% +240 bps +400 bps
----------- ---------- ---------- --------- ----------
Market overview
Market conditions remained positive in North America through the
year with good growth in industrial production in the USA, although
in Canada the falling oil price impacted the oil tar sands sector.
The position in South America was very different, with overall
negative industrial production in all four quarters, including in
our important markets in Brazil and Argentina. Additionally in
Brazil, the corruption issues at Petrobras impacted project work in
the sector and dented economic confidence in the country.
Elsewhere, economic conditions were mixed in some of our smaller
markets and there was generally a reduction in large projects
across the region.
Progress in 2014
Sales in the Americas increased by 8% at constant currency, with
sales ahead in North America and a good advance in Latin America,
although the latter benefitted from local currency gains in
Argentina from dollar-based pricing. All currencies were weaker
against sterling, including the Brazilian real -12% and Canadian
dollar -11%, and the Argentine peso suffered a significant
devaluation of 35%, which meant that sales of GBP126.2 million
(2013: GBP132.0 million) in the Americas showed a decline of 4% at
reported exchange rates.
In North America, sales efforts were focused towards our target
areas, where we achieved sales growth, and away from less
attractive lower margin project and service work, which registered
a decline. These actions resulted in a favourable mix and much
improved profit and margin performance, albeit at the expense of
some top-line growth. This was underpinned by improved delivery
performance, focused price management and close control of overhead
costs, as we carefully implement important changes in the USA to
expand the total available market, leveraging our direct sales
resource to uncover and capture unrecognised customer needs.
In Latin America, market conditions continued to be difficult in
our two largest markets in Brazil and Argentina, although in
Mexico, market conditions improved. Sales and profit in Brazil were
flat at constant currency, with lower levels of project work in the
refining and petrochemicals sector, reflecting a significant
decline at Petrobras. Profit in Brazil benefited from a positive
sales mix into beverages, pulp and paper, and chemicals, and from
continued cost controls. Trading conditions in Argentina were
challenging, with the currency devaluing, high cost inflation and
regulatory hurdles. Despite this, sales into the domestic and
export markets were modestly ahead in dollar terms and operating
profit was well ahead, even at reported exchange rates, aided by
dollar-based pricing.
Elsewhere in Latin America, our recently established company in
Chile did exceptionally well in its first full year of trading,
building the knowledge of our direct-sales team and winning a large
bakery project. In Mexico, the relocation to our new manufacturing
plant, offices and training centre was completed in the second
quarter and efficiency gains began to be captured.
Overall in the Americas, operating profit increased by 31% at
constant currency. Unfavourable currency movement, including the
devaluation in Argentina, meant that the operating profit of
GBP28.0 million (2013: GBP26.1 million) increased by 7% at reported
exchange rates. The underlying profit increase reflects a positive
sales mix, flat material costs, effective price management,
dollar-based pricing in Argentina and overhead controls. The
operating profit margin improved to 22.2% (2013: 19.8%), with good
gains in both North America and Latin America.
Strategy update
As mentioned above, our new operating company in Chile made an
excellent start and a new company in Peru commenced local trading
in January 2015, continuing the expansion of our direct presence.
Self-generated growth is a strategic focus for all companies,
including a gradual alignment of sales along a sector basis and
intensified training. Regional manufacturing was extended, with the
completion of the new world-class facility in Mexico that was
designed to comply with the highest environmental and
sustainability standards and became fully operational in April
2014. The sustainability of our business was enhanced, with
improvements in profitability, increased return on capital employed
and improved employee welfare following the introduction of
Behaviour Based Safety, initially in the USA.
Outlook
North America accounts for well over half of the sales in the
Americas and market conditions remain positive in the USA, where we
expect to benefit from the changes being made to effectively
increase our total addressable market. In Mexico, the market is
improving but elsewhere in Latin America, industrial production
growth is negative in Brazil, where the focus is on self-generated
growth, and in Argentina, where the economic environment is
difficult and further currency turmoil cannot be ruled out;
elections there later in 2015 create additional uncertainty.
Watson-Marlow Fluid Technology Group
2014 2013 Change Constant
currency
----------- ---------- ---------- --------- ----------
Revenue GBP138.2m GBP130.3m +6% +13%
----------- ---------- ---------- --------- ----------
Operating
profit GBP43.5m GBP39.5m +10% +20%
----------- ---------- ---------- --------- ----------
Operating
margin 31.5% 30.3% +120 bps +190 bps
----------- ---------- ---------- --------- ----------
Market overview
Economic conditions in the various regions of the world were the
same as for the steam specialties business. Market conditions
reflect the different spread of industries served by our
Watson-Marlow niche peristaltic pumps and associated fluid path
technologies business. Water and wastewater markets were
particularly strong, with good growth in the Americas and Asia as
pent-up demand was released, underpinned by good progress with new
product releases and market share gains in metering applications.
General industrial markets were strong, as was OEM in medical
device and clinical diagnostic applications. Our largest sector
biopharmaceutical, accounting for around a third of sales, was
boosted by the acquisition of BioPure Technology Limited. Food and
beverage markets were generally more difficult but strong growth
continued in Asia. Precious metal mining stabilised against the
background of a global decline in capital expenditure in the
industry. Generally, pricing pressures remain in most sectors,
especially in a lower inflation environment.
Progress in 2014
Sales increased by nearly 13% at constant currency, including a
contribution of 4% from the acquisition of BioPure in January 2014.
Sales of GBP138.2 million were 6% ahead of GBP130.3 million in the
comparable period at reported exchange rates, reflecting
unfavourable currency movements that reduced sales on translation
by 6%. Organic sales growth was achieved in all regions and was
widespread across the product range, with a strong advance in
Flexicon filling systems and Watson-Marlow core pumps and tubing.
New product releases contributed well, including extensions to the
new Qdos chemical metering pump range. Overall, there was an
increase in both base business and project work. There was a
seamless integration of BioPure into the Group and we achieved a
smooth transition from BioPure's distribution to our direct sales
in the USA.
In the EMEA region, sales growth was widespread, although sales
were down in Russia. There was good growth in France and Germany,
and a strong performance in Scandinavia. We continued to benefit
from our focused market sector approach across our key industry
sectors, driving a better understanding of how we add value to our
customers' businesses. Growth was strongest in the Asia Pacific
region, although from a relatively smaller base in these developing
markets. There was good growth in China and Korea but in Australia,
sales were marginally down reflecting the difficulties faced by the
local mining sector. The Americas region contributed well, driven
by the USA where the OEM and industrial sectors were strong,
although our business in Brazil was broadly flat, due to the
downturn in the mining sector and weakening industrial production
impinging investment.
Watson-Marlow's operating profit increased by 20% at constant
currency to GBP43.5 million (2013: GBP39.5 million) and was 10%
ahead at reported exchange rates. The profit increase reflects the
higher sales, a good first-time contribution of GBP1.6 million from
BioPure and unusually favourable product mix. The operating profit
margin improved from 30.3% to a very strong 31.5%.
Strategy update
A number of small individual distributors were converted to
direct sales during the year across five product lines in six
countries and product development was increased across all product
lines, with the emphasis on increasing the addressable market size.
Our Global Excellence in Manufacturing (GEM) programme was stepped
up, with a number of plants increasing their proficiency level.
Watson-Marlow's brand has been changed to Watson-Marlow Fluid
Technology Group. This change better reflects the evolution of the
business from a manufacturer of niche peristaltic pumps and tubing,
to its current position as a world leader in niche peristaltic
pumps and associated fluid path technologies. Our business now
encompasses seven distinct brands which, combined, deliver complete
fluid technology solutions to the biopharmaceutical, industrial,
food and beverage, mining, environmental and OEM market sectors.
This change recognises our progressive product and market
diversification, and follows the recent acquisition of BioPure,
which signalled our strategic move to offer a wider range of
solutions to the biotechnology and pharmaceutical markets. Our
Watson-Marlow direct sales companies employ a market sectorised
approach to successfully leverage these new and related products to
grow sales of our niche peristaltic pumps and associated fluid path
technologies.
Outlook
Our market in the USA continues to grow, although there is much
slower growth and more uncertainty in many other markets in Europe
and Latin America in particular. The precious metals mining sector
is expected to remain sluggish, with low levels of project
activity. Our focus remains on growing sales through the expansion
of our addressable markets, the development of new innovative
products that take market share from other pump types and
aggressive geographical expansion of our sector-based direct sales
presence, complemented by related niche acquisitions. We expect to
increase investment in product and market development, and will
have higher system support costs in the current year to support
this growth strategy. The currency headwinds have largely abated
and at current exchange rates, there would be a small negative
impact of 1% in 2015 versus average rates in 2014.
Financial Review
The Group reports under International Financial Reporting
Standards (IFRS) and also uses adjusted figures where the Board
believes that this gives a more representative indication of the
underlying performance. Unless otherwise stated, adjusted figures
are used throughout and exclude the amortisation and impairment of
acquisition-related intangible assets and acquisition and disposal
costs, together with the tax effects of these items.
Good results were achieved in 2014. Sales of GBP678.3 million
(2013: GBP689.4 million) were ahead 5% at constant currency,
comprising organic sales growth of over 4% and a contribution of
nearly 1% from acquisitions, which was more than offset by
unfavourable currency movements that reduced sales on translation
by 6.4%. At reported exchange rates, sales declined by less than
2%. Growth was strongest in Watson-Marlow, with organic sales ahead
9%, boosted by a good first-time contribution from BioPure
Technology Limited acquired in January 2014. Organic sales
increased by over 3% in the steam specialties business, led by an
8% increase in the Americas, with sales ahead in North America and
a good advance in Latin America benefiting from some strong
currency-related price increases in Argentina. In EMEA and Asia
Pacific, organic sales growth was more modest at 2%.
Currency movements were strongly negative with a GBP44.1 million
or 6.4% sales translation headwind in 2014. Sterling was stronger
against every currency in which we operate, including 5% against
both the euro and dollar, and there were individually weak
currencies in a number of developing markets, including the
Argentine peso -35% against sterling on average, the Russian rouble
-22%, Turkish lira -16%, South African rand -15%, Brazilian real
--12% and Canadian dollar -11%. These headwinds have largely
abated, although if recent exchange rates prevailed for the full
year, there would still be a 2% negative sales translation impact
in 2015.
Operating profit increased by 1% from GBP151.6 million to
GBP153.0 million and by over 12% at constant currency. The
statutory operating profit was GBP148.1 million (2013: GBP147.0
million). In addition to a significant impact of GBP11.3 million
from exchange translation, there was a negative exchange
transaction impact of GBP4.1 million, creating a total operating
profit currency headwind of 10.2% or GBP15.5 million for the year.
This impact was spread across all segments with EMEA -GBP4.1
million, Asia Pacific -GBP3.3 million, the Americas -GBP4.8 million
and Watson-Marlow -GBP3.2 million. The factors driving the
underlying operating profit increase of 12% in 2014 were:
-- Benefit and modest leverage from the organic sales increase of over 4%;
-- The continued focus on price management and business mix;
-- Favourable product mix in both the steam specialties and Watson-Marlow businesses;
-- The benefit of broadly flat costs for materials reflecting
subdued prices for raw materials, castings, forgings and other
components;
-- Close control of overhead costs, especially in the second
half year, as industrial production growth slowed in both developed
and developing markets.
The operating profit margin improved from 22.0% to 22.5%,
despite the unfavourable currency headwind, reflecting the above
factors and the very strong margin performance in
Watson-Marlow.
Early in 2015, we took cost reduction actions in our steam
specialties manufacturing operation in the UK, resulting in a
reduction of 43 permanent positions, representing 7% of the
Cheltenham manufacturing workforce. There is a one-off cost of
GBP1.0 million that will be included within adjusted operating
profit in the first half, which will be more than compensated in
2015 by the on-going annualised GBP2.0 million reduction in
overhead, with a further modest full-year effect benefiting
2016.
Interest
Net interest cost increased from GBP2.3 million to GBP3.0
million. Net finance costs under IAS19 in respect of the Group's
defined benefit pension schemes increased by GBP0.2 million to
GBP2.9 million. Net bank interest deteriorated by GBP0.5m due to
the full-year effect on cash balances in 2014 of the GBP78 million
special dividend paid in July 2013, variations in interest rates
and the location of cash balances and borrowings.
Associates
The Group's after tax share of the profits of Associates was
significantly lower at GBP1.2 million (2013: GBP1.7 million) due to
a disappointing 32% decline in the profits from our 49.3% share of
Spirax Marshall in India. The Group's initial 30% interest in the
Econotherm heat pipe technology start-up was increased in two
stages during the year to 39% and further progress was made in
commercialising this innovative heat transfer technology.
Pre-tax profit
The profit before tax at GBP151.1 million was 12% ahead at
constant exchange rates. Unfavourable currency movements meant that
at reported exchange rates, the pre-tax profit was fractionally
ahead of the prior year. The statutory profit before tax was
GBP144.8 million (2013: GBP145.7 million) and includes those
non-operating items, listed below, that have been excluded from the
adjusted profit:
-- A charge of GBP4.1 million (2013: GBP4.0 million) for the
amortisation of acquisition-related intangible assets;
-- Acquisition and disposal costs of GBP0.8 million (2013: GBP0.6 million);
-- A charge of GBP1.5 million (2013: GBP0.8 million) against the
Associate profit comprising GBP0.5 million (2013: GBP0.7 million)
for the amortisation of acquisition-related intangible assets and
GBP1.0 million for the impairment of goodwill and other assets in
respect of the sale of the Group's 49.3% holding in our Associate
company Spirax Marshall in India (2013: GBP0.1 million in respect
of the disposal of the HVAC business of Eirdata).
Taxation
The tax charge on the adjusted profit before tax, excluding
Associates' profit (which is presented on an after-tax basis), was
virtually unchanged at 29.9% (2013: 29.8%). The Group comprises
around 70, mainly small, operating units in over 40 countries,
which reflects the business model that requires a direct sales
presence, with local sales engineers providing solutions direct to
end-users wherever possible, holding local stocks for optimum
customer service levels and invoicing in local currency. The
Group's overall tax rate essentially reflects the blended average
of the tax rates in the many different tax jurisdictions in which
we operate and make profits.
Earnings per share
The Group's strategy is directed at sustainable growth in
shareholder value, with consistent growth in earnings and dividends
per share. Adjusted basic earnings per share increased by 1% to
140.4p (2013: 138.8p) and by 13% at constant currency, including a
small benefit from the reduction in the average number of shares in
issue, due to the full-year effect of the share consolidation in
mid-2013. The statutory earnings per share decreased by less than
1% to 132.8p (2013: 133.4p). The fully diluted earnings per share
were not materially different in either year.
Dividends
The Board is proposing a final dividend of 45.0p per share
(2013: 41.0p per share) payable on 29(th) May 2015 to shareholders
on the register at 1(st) May 2015. Together with the interim
dividend of 19.5p per share (2013: 18.0p), the total Ordinary
dividend is therefore 64.5p per share, which is an increase of 9%
on the 59.0p total Ordinary dividend in 2013. This extends our
dividend record to 47 years, with a compound annual increase of 11%
over that period; the increase over the last ten years has been 12%
pa and over the last five years also 12% pa.
In addition, having reviewed the capital requirements of the
Company and recognising the Group's significant cash generation
capability, the Board is proposing a return of capital to
shareholders of GBP91 million in the form of a special dividend of
120p per share in respect of 2014 (2013: nil). If approved at the
AGM, the special dividend will be paid on 15(th) July 2015 to
shareholders on the register at 12(th) June 2015. This is
equivalent to approximately 4% of the market capitalisation of the
Company and, as is common with a significant return of capital to
shareholders, the Board is recommending that this is combined with
an appropriate share consolidation. This is intended to maintain,
as far as possible, the share price, earnings per share and
dividends per share, before and after the special dividend, and to
remove the impact of the special dividend on employee equity-based
incentives. It is anticipated, therefore, that the market price of
each Ordinary share will remain at a broadly similar level
following the special dividend and share consolidation.
The total dividend in respect of 2014, combining both the
Ordinary and special dividends, will therefore be 184.5p per
share.
Acquisitions and disposals
We continue to actively search for suitable acquisitions
opportunities that meet our strict criteria, in order to supplement
our organic growth strategy. Acquisitions fall into three broad
categories;
-- geographic expansion, typically through the acquisition of a
distributor in a developing market;
-- products that can be integrated into our existing businesses; and,
-- related acquisitions that fit alongside our existing steam
specialties and Watson-Marlow businesses.
Our strong balance sheet and debt capacity provides us with
considerable flexibility.
On 6th January 2014, we announced the acquisition of BioPure
Technology Limited for GBP8.2 million. BioPure specialises in the
design and production of advanced single-use tubing connector
systems for the biopharmaceutical industry, operating as part of
our Watson-Marlow Fluid Technology business. The first-time
contribution from BioPure was ahead of our expectations, with a
very smooth integration in to our Watson-Marlow sector-based sales
structure.
Econotherm continues to make progress in commercialising their
innovative heat pipe technology. In May 2014, the Group invested a
further GBP150,000 and in December 2014, an additional GBP250,000
into the business, taking our interest in this Associate company to
39%.
On 22(nd) May 2014, we completed the purchase of the
thermocompressor business of Transvac Systems Limited for GBP0.9
million. Good progress has been made in bringing in-house this
acquired technology, which can improve steam system efficiency and
is well-suited to our technical sales approach. This acquisition
also included jet heaters and steam jet syphons.
We have announced today that the Group has established a
wholly-owned company in India that will commence direct sales
around mid-year 2015, operating from a new site in Chennai where
investment of GBP11 million in a manufacturing plant, warehouse,
training centre and offices has commenced. On 1st March 2015, we
sold the Group's 49.3% interest in Spirax Marshall Private Limited
for GBP6.5 million to our Indian partners and both parties are now
free to trade under their own respective names inside and outside
India. Spirax Sarco retains sole rights to the Spirax Sarco brands
and product nomenclatures. The disposal proceeds were broadly in
line with the net tangible asset value. To reflect the impending
sale of the business, our Investment in this Associate company as
at 31(st) December 2014 was categorised as an asset held for sale
and an impairment charge of GBP1.0 million was recognised, largely
in respect of goodwill relating to an increase in our shareholding
in 2008 from 40% to 49.3%. This impairment charge is included
within the statutory results for 2014 but has been excluded from
the adjusted trading results, as explained earlier. The Group's
results for 2015 will reflect our 49.3% share of the after tax
profits of the Associate company for January and February 2015 of
GBP0.2 million (2014 full year GBP1.3 million) and an expected
modest trading loss in our newly established direct sales
operation. We anticipate an increasing contribution to Group sales
and profits from India in future years.
Research and development
In the steam specialties business, our research and development
programme was refined to more fully align with the sales growth
strategy. We continue to focus on a smaller number of larger
opportunities centred on our key areas of interest in controls and
thermal energy management, where we have overall smaller market
shares and larger addressable markets. New product development
projects are expected to increasingly reflect the needs of
customers in specific industries, reflecting the gradual move to a
more industry sector-based sales approach.
In our Watson-Marlow niche peristaltic pump and associated fluid
path technologies business, we continue to follow the successful
strategy of focusing on increasing the addressable market size,
with innovative products that take market share from other positive
displacement pump types. There were extensions to the new Qdos pump
range, together with tube and hose developments, where
Watson-Marlow is at the forefront of technological advances.
Overall the Group's total investment in research and development
was GBP9.6 million (2013: GBP9.6 million).
Capital employed
Capital employed 2014 2013
----------------------------------- --------- ---------
GBP'000 GBP'000
----------------------------------- --------- ---------
Property, plant and equipment 176,668 174,218
----------------------------------- --------- ---------
Inventories 98,007 104,164
----------------------------------- --------- ---------
Trade receivables 155,696 145,380
----------------------------------- --------- ---------
Prepayment and other current
assets/(liabilities) (84,134) (79,284)
----------------------------------- --------- ---------
Capital employed 346,237 344,478
----------------------------------- --------- ---------
Intangibles and investment in
Associate/assets held for sale 101,959 97,398
----------------------------------- --------- ---------
Post-retirement benefits (75,779) (72,043)
----------------------------------- --------- ---------
Deferred tax 18,529 18,619
----------------------------------- --------- ---------
Provisions and long-term payables (1,561) (1,318)
----------------------------------- --------- ---------
Net cash 52,493 16,400
----------------------------------- --------- ---------
Net assets 441,878 403,534
----------------------------------- --------- ---------
Adjusted operating profit 152,950 151,626
----------------------------------- --------- ---------
Average capital employed 345,358 341,775
----------------------------------- --------- ---------
Return on capital employed 44.3% 44.4%
----------------------------------- --------- ---------
Total capital employed increased by less than 1% to GBP346
million. At constant exchange rates the increase was just 2%.
Tangible fixed assets increased by 3% at constant currency to
GBP177 million, with increased investment in land and buildings,
including in respect of additional land adjacent to our existing
plant in Shanghai, China, and in a new site at Chennai in India.
Both these sites will now be developed, with a new facility in
India scheduled to be completed in early 2016, and a significant
plant extension in China scheduled for completion in 2017. We will
continue to invest in capital expenditure projects that deliver
good returns through increased efficiency, reduced costs and
flexibility, in support of our wider supply chain strategy. At the
end of 2014, the combined heat and power plant in Cheltenham was
brought on stream, which will reduce our energy usage, reduce our
CO(2) e emissions and improve our sustainability.
Total working capital increased by 2% at constant currency to
GBP170 million. This was due to an increase in trade receivables of
9%, reflecting the higher level of project work shipped in the
final two months of the year, particularly in Asia Pacific. We
continue to roll out improved stock management techniques aimed at
optimising stock levels across both manufacturing units and sales
operations in support of sales growth. Inventory levels reduced by
3% at constant currency, which compares with an increase in sales
of 5% on the same basis. The overall ratio of working capital to
sales nudged up to 25.0% (2013: 24.7%) reflecting the higher
debtors.
Return on capital employed
This is one of our most important key performance indicators and
forms a meaningful element of Executive Directors' annual bonuses.
Effective deployment and efficient use of fixed assets, together
with close control of debtors and optimisation of inventories,
drive improved levels of capital employed. Following the marked
improvement in 2013, the overall return on capital employed was
virtually unchanged at 44.3% (2013: 44.4%). The improvement in
adjusted operating profit was contained to just 1% due to the
considerable currency headwind, excluding which operating profit
was ahead over 12%. Average capital employed (using the average of
opening and closing sterling balance sheet values for the period)
also increased by 1%, although this was much less affected by
currency movements and therefore masked an underlying improvement
in return on capital employed.
Post-retirement benefits
The net post-retirement benefit liability under IAS19 shows a
small increase to GBP75.8 million (2013: GBP72.0 million). The
value of assets held by the Group's various defined benefit pension
arrangements (around 90% of which are held in the main UK defined
benefit pension schemes) increased by 12%, reflecting returns on
assets again above the scheme assumptions and deficit reduction
contributions of GBP3.4 million into the UK schemes in the year.
However, assessed liability values increased by 11% reflecting the
continuing fall in yields on AA Corporate Bonds, the use of which
is mandated under IAS19 to determine the present value of
post-retirement benefit outflows. The main UK schemes were closed
to new members in 2001 but have remained open to future service
accrual. These schemes have been managed for the last three years
under a dynamic de-risking strategy whereby asset and liability
values are monitored on a daily basis by the asset manager and
appropriate asset allocation decisions taken as the funding level
improves against pre-agreed trigger points.
The last actuarial valuation of the UK schemes, as at 31(st)
December 2013, was completed in September 2014 and showed those
schemes to be broadly in balance. As a consequence, deficit
reduction cash contributions by the Company were ceased with effect
from October 2014. This actuarial position compares with a deficit
of GBP42m, as at 31(st) December 2013, under IAS19.
Cash flow and treasury
2014 was another good year for cash flow, founded on a high
conversion of profit into cash through close control of working
capital, whilst continuing to invest in capital expenditure
projects in support of business growth and margin improvement.
Adjusted cash flow 2014 2013
GBP'000 GBP'000
---------------------------------------- ---------- -----------
Operating profit 152,950 151,626
---------------------------------------- ---------- -----------
Depreciation and amortisation 22,703 22,707
---------------------------------------- ---------- -----------
Adjustments (including share
plans) 1,615 2,700
---------------------------------------- ---------- -----------
Working capital changes (14,523) (7,345)
---------------------------------------- ---------- -----------
Net capital expenditure
(including software and
R&D) (31,331) (26,693)
---------------------------------------- ---------- -----------
Cash from operations 131,414 142,995
---------------------------------------- ---------- -----------
Net interest (53) 417
---------------------------------------- ---------- -----------
Tax paid (41,915) (42,318)
---------------------------------------- ---------- -----------
Free cash flow 89,446 101,094
---------------------------------------- ---------- -----------
Net dividends paid (45,109) (119,992)
---------------------------------------- ---------- -----------
Pension deficit reduction
payments and provisions (4,870) (6,985)
---------------------------------------- ---------- -----------
Restructuring costs paid - (1,623)
---------------------------------------- ---------- -----------
Proceeds from issue of shares/buy-back 2,218 (582)
---------------------------------------- ---------- -----------
Acquisitions (9,984) (5,601)
---------------------------------------- ---------- -----------
Cash flow for the year 31,701 (33,689)
---------------------------------------- ---------- -----------
Exchange movements 4,392 (1,587)
---------------------------------------- ---------- -----------
Opening net cash 16,400 51,676
---------------------------------------- ---------- -----------
Net cash at 31(st) December 52,493 16,400
---------------------------------------- ---------- -----------
Adjusted operating cash flow was GBP131.4 million (2013:
GBP143.0 million). Cash conversion was 86%, down from 94% for the
prior year partly due to an increase of GBP4.6 million in capital
expenditure to GBP31.3 million, as we invested in a new site in
India and in additional land adjacent to our existing plant in
China. We would expect capital expenditure in the current year to
increase again to over GBP35 million. Working capital absorbed
GBP14.5 million (2013 GBP7.3 million), due to an increase in trade
debtors reflecting the greater proportion of project work in the
last two months of the year. Our business is vertically integrated
with high value added, where we purchase raw materials in the form
of castings, forgings and components, and manufacture, test, hold
inventories of finished product and sell direct to end-users
wherever possible. This business model means that our working
capital largely comprises debtors and inventories, with a
relatively low value of trade creditors but also delivered a 44.3%
return on capital employed.
Taxation paid was GBP41.9 million, which was similar to the
previous year and close to the tax charge in the profit & loss
account, with tax paid in virtually every one of the 41 countries
in which the Group has operating units. Free cash flow of GBP89.4
million (2013: GBP101.1 million) was therefore generated and
available for dividends to shareholders, acquisitions and other
corporate uses.
Dividend payments were GBP45.1 million reflecting the increase
in the Ordinary dividend, partially offset by the reduction in the
number of shares in issue following the share consolidation. Total
dividend payments in the prior year were GBP120.0 million and
included GBP78.3 million in respect of the 2012 special dividend
paid in July 2013. Pension deficit reduction cash contributions and
provision movements were lower at GBP4.9 million (2013: GBP7.0
million) due to the cessation of such contributions following the
triennial actuarial valuation of the main UK schemes completed
during 2014. There was an outflow of GBP10.0 million for
acquisitions, largely comprising the purchase of BioPure in January
2014. There was an inflow of GBP2.2 million in respect of share
capital comprising an inflow of GBP5.2 million for shares issued
under the Group's various employee share schemes and an outflow of
GBP3.0 million for shares bought back and lodged in the Group's
Employee Benefit Trust, to provide shares for future vesting of
awards under the Group's long-term performance share plan.
We therefore generated an increase in net cash of GBP31.7
million during the year. Currency movements increased net cash
balances by GBP4.4 million, giving closing net cash of GBP52.5
million at 31(st) December 2014, compared with GBP16.4 million a
year earlier.
The Group's profit and loss account and balance sheet are
exposed to movements in a wide range of different currencies. This
stems from our direct sales business model, with a large number of
local operating units. These currency exposures and risks are
managed through a rigorously applied Treasury Policy, typically
using centrally managed and approved simple forward contracts to
mitigate exposures to known cash flows and avoiding the use of
complex derivative transactions. The largest exposures are to the
euro, US dollar, Chinese renminbi and Korean won. Whilst currency
effects can be significant, the structure of the Group provides
mitigation through our regional manufacturing strategy, diverse
spread of geographic locations and through the natural hedge of
having a high proportion of our overhead costs in local currency in
our direct sales operating units.
Capital structure
The Board keeps the capital requirements of the Group under
regular review, maintaining a strong balance sheet to protect the
business and provide flexibility of funding for growth. The Group
generates high returns on capital and our priority is to maximise
reinvestment in the business to generate further returns in the
future. We also prioritise the search for suitable acquisitions
that can expand our geographic reach, deepen our market
penetration, broaden our product range or add to our addressable
markets in related areas. Acquisition targets need to exhibit good
strategic fit and meet strict commercial, economic and return on
investment criteria.
Where cash resources exceed expected future requirements, we
will seek to return capital to shareholders and have today
announced a GBP91 million return via a special dividend of 120p per
share. This is equivalent to approximately 4% of the Company's
share capital and, as is common with a significant return of
capital, is being combined with an appropriate share consolidation.
The purpose of the share consolidation is to maintain, as far as
possible, the comparability of the share price before and after the
special dividend and to remove the impact of the special dividend
on employee equity-based incentives.
STATEMENT OF FINANCIAL POSITION AT 31ST DECEMBER 2014
Note 2014 2013
GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant and equipment 176,668 174,218
Goodwill 47,682 45,765
Other intangible assets 48,123 44,594
Prepayments 402 162
Investment in associates 377 7,039
Deferred tax assets 35,941 34,472
--------- ---------
309,193 306,250
--------- ---------
Current assets
Inventories 98,007 104,164
Trade receivables 155,696 145,380
Other current assets 23,973 19,880
Taxation recoverable 4,420 3,709
Associate held for sale 5,777 -
Bank deposits 24,437 32,901
Cash and cash equivalents 117,981 84,417
--------- ---------
430,291 390,451
--------- ---------
Total assets 739,484 696,701
========= =========
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables 90,754 86,108
Bank overdrafts 461 1,809
Short-term borrowing 40,070 39,338
Current portion of long-term
borrowings 298 298
Current tax payable 22,175 16,927
--------- ---------
153,758 144,480
--------- ---------
Net current assets 276,533 245,971
--------- ---------
Non-current liabilities
Long-term borrowings 49,096 59,473
Deferred tax liabilities 17,412 15,853
Post-retirement benefits 75,779 72,043
Provisions 556 720
Long-term payables 1,005 598
143,848 148,687
--------- ---------
Total liabilities 297,606 293,167
--------- ---------
Net assets 2 441,878 403,534
--------- ---------
Equity
Share capital 19,622 19,568
Share premium account 65,067 59,954
Other reserves (6,486) 11,474
Retained earnings 362,796 311,737
--------- ---------
Equity shareholders' funds 440,999 402,733
Non-controlling interest 879 801
--------- ---------
Total equity 441,878 403,534
--------- ---------
Total equity and liabilities 739,484 696,701
========= =========
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER
2014
Note Adjusted Adj't Total Adjusted Adj't Total
2014 2014 2014 2013 2013 2013
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 2 678,277 - 678,277 689,388 - 689,388
Operating costs (525,327) (4,855) (530,182) (537,762) (4,586) (542,348)
--------- -------- --------- --------- -------- ----------
Operating profit 2 152,950 (4,855) 148,095 151,626 (4,586) 147,040
--------- -------- --------- --------- -------- ----------
Financial expenses (5,229) - (5,229) (4,268) - (4,268)
Financial income 2,246 - 2,246 1,968 - 1,968
--------- -------- --------- --------- -------- ----------
3 (2,983) - (2,983) (2,300) - (2,300)
--------- -------- --------- --------- -------- ----------
Share of profit
of associates 1,151 (1,469) (318) 1,730 (756) 974
--------- -------- --------- --------- -------- ----------
Profit before
taxation 151,118 (6,324) 144,794 151,056 (5,342) 145,714
Taxation 4 (44,857) 636 (44,221) (44,542) 1,148 (43,394)
Profit for
the period 106,261 (5,688) 100,573 106,514 (4,194) 102,320
========= ======== ========= ========= ======== ==========
Attributable
to:
Equity shareholders 106,015 (5,688) 100,327 106,298 (4,194) 102,104
Non-controlling
interest 246 - 246 216 - 216
--------- -------- --------- --------- -------- ----------
Profit for
the period 106,261 (5,688) 100,573 106,514 (4,194) 102,320
========= ======== ========= ========= ======== ==========
Earnings per
share 5
Basic earnings
per share 140.4p 132.8p 138.8p 133.4p
Diluted earnings
per share 139.5p 132.0p 137.8p 132.4p
--------- -------- --------- --------- -------- ----------
Dividends 6
Dividends per
share 64.5p 59.0p
Special dividend
per share 120.0p -
Dividends paid
during the
year (per share) 60.5p 155.0p
--------- -------- --------- --------- -------- ----------
Adjusted figures exclude certain non-operational items as
detailed in note 2
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR
ENDED
31(ST) DECEMBER 2014
The Group
2014 2013
GBP'000 GBP'000
Profit for the year 100,573 102,320
--------------------------------------------- --------- ---------
Items that will not be reclassified
to profit or loss
Remeasurement loss on post-retirement
benefits (5,159) (2,866)
Deferred tax on remeasurement loss
on post-retirement benefits (258) (1,074)
--------------------------------------------- --------- ---------
(5,417) (3,940)
--------------------------------------------- --------- ---------
Items that may be reclassified subsequently
to profit or loss
Foreign exchange translation differences (15,155) (12,875)
Non-controlling interest foreign exchange
translation differences 22 (49)
Profit on cash flow hedges net of
tax (232) 48
--------------------------------------------- --------- ---------
(15,365) (12,876)
--------------------------------------------- --------- ---------
Total comprehensive income for the
year 79,791 85,504
--------------------------------------------- --------- ---------
Attributable to:
Equity shareholders 79,523 85,337
Non-controlling interest 268 167
--------------------------------------------- --------- ---------
Total comprehensive income for the
year 79,791 85,504
--------------------------------------------- --------- ---------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
31ST DECEMBER 2014
GROUP
Share Share Other Retained Equity Non- Total
Capital premium reserves Earnings shareholders' controlling Equity
account funds interest
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1st
January 2014 19,568 59,954 11,474 311,737 402,733 801 403,534
-------------------------- -------- -------- ---------- --------- -------------- ------------ ----------
Profit for the
year - - - 100,327 100,327 246 100,573
Other comprehensive
(expense)/income
Foreign exchange
translation differences - - (15,155) - (15,155) 22 (15,133)
Remeasurement loss
on post-retirement
benefits - - - (5,159) (5,159) - (5,159)
Deferred tax on
remeasurement loss
on post-retirement
benefits - - - (258) (258) - (258)
Profit on cash
flow hedges reserve - - (232) - (232) - (232)
-------------------------- -------- -------- ---------- --------- -------------- ------------ ----------
Total other comprehensive
(expense)/income
for the year - - (15,387) (5,417) (20,804) 22 (20,782)
-------------------------- -------- -------- ---------- --------- -------------- ------------ ----------
Total comprehensive
(expense)/incomefor
the year - - (15,387) 94,910 79,523 268 79,791
-------------------------- -------- -------- ---------- --------- -------------- ------------ ----------
Contributions by
and distributions
to owners of the
Company
Dividends paid - - - (45,715) (45,715) (190) (45,905)
Equity settled
share plans net
of tax - - - 1,864 1,864 - 1,864
Issue of share
capital 110 5,113 - - 5,223 - 5,223
Employee Benefit
Trust shares (56) (2,573) - (2,629) - (2,629)
-------------------------- -------- -------- ---------- --------- -------------- ------------ ----------
Balance at 31(st)
December 2014 19,622 65,067 (6,486) 362,796 440,999 879 441,878
-------------------------- -------- -------- ---------- --------- -------------- ------------ ----------
Other reserves represent the Group's Translation, Cash flow
hedge and Capital redemption reserves.
The non-controlling interest is a 2.5% share of Spirax-Sarco
(Korea) Ltd held by employee shareholders.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
31ST DECEMBER 2013
GROUP
Share Share Other Retained Equity Non- Total
Capital Premium reserves Earnings shareholders' controlling Equity
account funds interest
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1st
January 2013 19,536 56,172 28,098 331,945 435,751 798 436,549
-------------------------- -------- -------- ---------- --------- -------------- ------------ ----------
Profit for the
year - - - 102,104 102,104 216 102,320
Other comprehensive
(expense)/income
Foreign exchange
translation differences - - (12,875) - (12,875) (49) (12,924)
Actuarial loss
on post-retirement
benefits - - - (2,866) (2,866) - (2,866)
Deferred tax on
actuarial loss
on post-retirement
benefits - - - (1,074) (1,074) - (1,074)
Profit on cash
flow hedges reserve - - 48 - 48 - 48
-------------------------- -------- -------- ---------- --------- -------------- ------------ ----------
Total other comprehensive
(expense) for the
year - - (12,827) (3,940) (16,767) (49) (16,816)
-------------------------- -------- -------- ---------- --------- -------------- ------------ ----------
Total comprehensive
income/(expense)
for the year - - (12,827) 98,164 85,337 167 85,504
-------------------------- -------- -------- ---------- --------- -------------- ------------ ----------
Contributions by
and distributions
to owners of the
Company
Dividends paid - - - (120,792) (120,792) (164) (120,956)
Equity settled
share plans net
of tax - - - 2,420 2,420 - 2,420
Issue of share
capital 66 3,782 - - 3,848 - 3,848
Employee Benefit
Trust shares (34) - (3,797) - (3,831) - (3,831)
-------------------------- -------- -------- ---------- --------- -------------- ------------ ----------
Balance at 31(st)
December 2013 19,568 59,954 11,474 311,737 402,733 801 403,534
-------------------------- -------- -------- ---------- --------- -------------- ------------ ----------
Other reserves represent the Group's Translation, Cash flow
hedge and Capital redemption reserves.
GROUP CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER
2014
Note 2014 2013
GBP'000 GBP'000
Cash flows from operating activities
Profit before taxation 144,794 145,714
Depreciation, amortisation and
impairment 26,799 26,678
Share of loss/(profit) of associates 318 (974)
Equity settled share plans 2,374 3,315
Net finance (expense) 2,983 2,300
--------- ----------
Operating cash flow before changes
in working capital and provisions 177,268 177,033
Change in trade and other receivables (20,032) (8,704)
Change in inventories 1,111 (3,573)
Change in provisions and post-retirement
benefits (4,870) (6,985)
Change in trade and other payables 4,398 3,309
--------- ----------
Cash generated from operations 157,875 161,080
Interest paid (2,299) (1,551)
Income taxes paid (41,915) (42,318)
--------- ----------
Net cash from operating activities 113,661 117,211
--------- ----------
Cash flows from investing activities
Purchase of property, plant
and equipment (27,032) (20,451)
Proceeds from sale of property,
plant and equipment 2,980 1,777
Purchase of software and other
intangibles (4,647) (5,240)
Development expenditure capitalised (2,632) (2,779)
Acquisition of businesses (9,984) (5,601)
Bank deposit 9,038 (32,901)
Interest received 2,246 1,968
Dividends received 796 964
--------- ----------
Net cash used in investing activities (29,235) (62,263)
--------- ----------
Cash flows from financing activities
Proceeds from issue of share
capital 5,223 3,848
Purchase of Employee Benefit
Trust shares (3,005) (4,430)
Repaid borrowings (8,995) (4,383)
New borrowings - 57,506
Change in finance lease liabilities 7 (241) (353)
Dividends paid (including minorities) (45,905) (120,956)
--------- ----------
Net cash used in financing activities (52,923) (68,768)
--------- ----------
Net change in cash and cash
equivalents 7 31,503 (13,820)
Net cash and cash equivalents
at beginning of period 82,608 99,445
Exchange movement 3,409 (3,017)
--------- ----------
Net cash and cash equivalents
at end of period 7 117,520 82,608
========= ==========
Bank deposits 24,437 32,901
Borrowings and finance leases (89,464) (99,109)
--------- ----------
Net cash 7 52,493 16,400
========= ==========
1. NOTES TO THE ACCOUNTS
This announcement is based on the Company's financial
statements, which are prepared in accordance with International
Financial Reporting Standards (IFRS) adopted for use in the
European Union (EU) and therefore comply with Article 4 of the EU
IAS legislation and with those parts of the Companies Act 2006 that
are applicable to companies reporting under IFRS.
With the exception of the new standards adopted in the year, as
discussed below, there have been no significant changes in
accounting policies from those set out in the Spirax-Sarco
Engineering plc 2013 Annual Report. The accounting policies have
been applied consistently throughout the years ended 31 December
2013 and 31 December 2014.
During the year, the Group has applied IFRS10 Consolidated
Financial Statements, IFRS 11 Joint Arrangements, IFRS 12
Disclosures of Interests in Other Entities, IAS 27 (as revised in
2011) Separate Financial Statements, IAS 28 (as revised in 2011)
Investments in Associates and Joint Ventures, IFRS 7 Financial
Instrument Disclosures, IAS 32 Financial Instrument Presentation
and IAS 39 Financial Instruments Recognition and Measurement. Their
adoption has not had a material impact on the disclosures or
amounts reported in the accounts.
Having made appropriate enquiries, the Directors consider that
the Group has adequate resources to continue in operational
existence for the foreseeable future and that therefore it is
appropriate to adopt the going concern basis in preparing the
Annual Report.
The Group has processes in place to identify, evaluate and
mitigate the principal risks that could have an impact on the
Group's performance. The principal risks together with a
description of why they are relevant are set out below. Details of
how they link with the Group's strategy and how mitigation is
managed are included in the Group's 2013 Annual Report on pages 26
and 27 and they will be disclosed in the 2014 Annual Report on page
29.
-- Economic and political instability
Economic and political instability creates risks for our locally
based direct operations
-- Significant exchange rate movements
The Group reports its results and pays dividends in sterling.
Operating and manufacturing companies
trade in local currency
-- Loss of manufacturing output at any Group factory
Loss of manufacturing output at any important plant risks
serious disruption to sales operations
-- Breach of legal and regulatory requirements
The Group is subject to many different laws and regulations.
Breaching these laws and regulations could
have serious consequences.
-- Non-compliance with health, safety and environmental legislation
The Group places great emphasis on health, safety and
environmental issues so as to avoid the risk of major problems
-- Defined benefit pension deficit
Defined benefit pension schemes carry risks in relation to
investment performance, security of assets,
longevity and inflation.
-- Failure to respond to technological developments of customer needs
The Group has significantly increased R&D resources in
recent years.
The 2014 financial statements were approved by the Board of
Directors on 4(th) March 2015.
2. SEGMENTAL REPORTING
Analysis by location of operation
2014
Gross Inter- Revenue Total Adjusted Adjusted
Revenue Segment Operating Operating Operating
revenue Profit Profit Margin
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 %
Europe, Middle
East & Africa 274,271 38,039 236,232 44,855 45,929 19.4%
Asia Pacific 182,556 4,894 177,662 46,191 46,418 26.1%
Americas 131,869 5,681 126,188 26,478 27,961 22.2%
Steam Specialties
business 588,696 48,614 540,082 117,524 120,308 22.3%
Watson-Marlow 138,195 - 138,195 41,428 43,499 31.5%
Corporate Expenses (10,857) (10,857)
--------- --------- --------- ----------- ----------- -----------
726,891 48,614 678,277 148,095 152,950 22.5%
Intra Group (48,614) (48,614)
--------- --------- --------- ----------- ----------- -----------
Total 678,277 - 678,277 148,095 152,950 22.5%
========= ========= ========= =========== =========== ===========
Net finance
expense (2,983) (2,983)
Share of profit
of associates (318) 1,151
--------- --------- --------- ----------- ----------- -----------
Profit before
tax 144,794 151,118
========= ========= ========= =========== =========== ===========
2013
Gross Inter- Revenue Total Adjusted Adjusted
Revenue Segment Operating Operating Operating
revenue Profit Profit Margin
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 %
Europe, Middle
East & Africa 286,551 42,240 244,311 47,057 48,205 19.7%
Asia Pacific 187,916 5,142 182,774 48,033 48,033 26.3%
Americas 138,676 6,642 132,034 24,243 26,119 19.8%
Steam Specialties
business 613,143 54,024 559,119 119,333 122,357 21.9%
Watson-Marlow 130,325 56 130,269 37,940 39,502 30.3%
Corporate Expenses (10,233) (10,233)
--------- --------- --------- ----------- ----------- -----------
743,468 54,080 689,388 147,040 151,626 22.0%
Intra Group (54,080) (54,080)
--------- --------- --------- ----------- ----------- -----------
Total 689,388 - 689,388 147,040 151,626 22.0%
========= ========= ========= =========== =========== ===========
Net finance
expense (2,300) (2,300)
Share of profit
of associates 974 1,730
--------- --------- --------- ----------- ----------- -----------
Profit before
tax 145,714 151,056
========= ========= ========= =========== =========== ===========
Net revenue generated by Group companies based in the USA is
GBP109,879,000 (2013: GBP108,937,000), in China is GBP74,266,000
(2013: GBP76,807,000) in the UK is GBP69,206,000 (2013:
GBP71,438,000), and the rest of the world is GBP424,926,000 (2013:
GBP432,206,000)
The total operating profit for each period includes the
non-operational items analysed below:
2014
Amortisation Acquisition Total
and impairment and disposal
of acquisition-related costs
intangible
assets
Europe, Middle
East & Africa (427) (647) (1,074)
Asia Pacific (227) - (227)
Americas (1,430) (53) (1,483)
------------------------ -------------- --------
Steam Specialties
business (2,084) (700) (2,784)
Watson-Marlow (2,012) (59) (2,071)
(4,096) (759) (4,855)
======================== ============== ========
2013
Amortisation Acquisition Total
and impairment and disposal
of acquisition-related costs
intangible
assets
GBP'000 GBP'000 GBP'000
Europe, Middle
East & Africa (629) (519) (1,148)
Asia Pacific - - -
Americas (1,780) (96) (1,876)
------------------------ -------------- --------
Steam Specialties
business (2,409) (615) (3,024)
Watson-Marlow (1,562) - (1,562)
(3,971) (615) (4,586)
======================== ============== ========
Impairment of acquisition related intangible assets was GBPnil
(2013: GBP145,000). The 2013 charge was in relation to the disposal
of the HVAC business of Eirdata in Ireland.
Share of profit of associates
The share of profit of associates analysed between adjusted
income and total (including non-operational items) is as
follows:
2014 2014 2013 2013
Adjusted Total Adjusted Total
GBP'000 GBP'000 GBP'000 GBP'000
Europe, Middle
East & Africa (172) (367) (205) (663)
Asia Pacific 1,323 49 1,935 1,637
Americas - - - -
Steam Specialties
business 1,151 (318) 1,730 974
Watson-Marlow - - - -
---------- --------- ---------- ---------
1,151 (318) 1,730 974
========== ========= ========== =========
Adjusted share of profit of associates excludes amortisation and
impairment of acquisition related intangible assets of GBP1,125,000
(2013: GBP756,000) and in 2014 excludes an impairment of tangible
assets in respect of Spirax Marshall in India of GBP344,000 (2013:
GBP nil)
Net financing income and expense
2014 2013
GBP'000 GBP'000
Europe, Middle East
& Africa (2,310) (1,848)
Asia Pacific 1,215 796
Americas (326) (418)
Steam Specialties
business (1,421) (1,470)
Watson-Marlow (5) (51)
Corporate (1,557) (779)
--------- ---------
(2,983) (2,300)
========= =========
Net assets
2014 2013
Assets Liabilities Assets Liabilities
GBP'000 GBP'000 GBP'000 GBP'000
Europe, Middle
East & Africa 203,729 (94,959) 215,933 (96,942)
Asia Pacific 136,592 (22,831) 119,704 (22,038)
Americas 103,318 (33,244) 102,575 (25,278)
Watson-Marlow 113,066 (17,060) 102,989 (15,210)
---------- ------------ ---------- ------------
556,705 (168,094) 541,201 (159,468)
Liabilities (168,094) (159,468)
Deferred Tax 18,529 18,619
Current Tax payable (17,755) (13,218)
Net Cash 52,493 16,400
---------- ------------ ---------- ------------
Net assets 441,878 403,534
========== ============ ========== ============
Non-current assets in the UK were GBP102,889,000 (2013:
GBP103,589,000)
Capital additions and depreciation, amortisation and
impairment
2014 2013
Capital Depreciation, Capital Depreciation,
additions amortisation additions amortisation
and and
impairment impairment
GBP'000 GBP'000 GBP'000 GBP'000
Europe, Middle
East & Africa 15,301 10,476 10,532 11,859
Asia Pacific 8,657 5,144 6,602 4,707
Americas 4,159 5,335 6,770 5,912
Watson-Marlow 11,271 5,844 7,323 4,200
39,388 26,799 31,227 26,678
=========== ============== =========== ==============
Capital additions include property, plant and equipment of
GBP26,876,000 (2013: GBP21,835,000) and other intangible assets of
GBP12,512,000 (2013: GBP9,392,000) of which GBP5,233,000 (2013:
GBP1,373,000) relates to acquired intangibles from acquisitions in
the period. Capital additions split between the UK and rest of the
world are UK GBP20,902,000 (2013: GBP12,154,000), rest of the world
GBP18,486,000 (2013: GBP19,073,000). Depreciation, amortisation and
impairment include the profit on disposal of fixed assets of
GBP473,000 (2013: GBP467,000)
3. NET FINANCING INCOME AND EXPENSE
2014 2013
GBP'000 GBP'000
Financial expenses
Bank and other borrowing
interest payable (2,310) (1,551)
Interest on pension scheme
liabilities (2,919) (2,717)
--------- ---------
(5,229) (4,268)
--------- ---------
Financial income
Bank interest receivable 2,246 1,968
2,246 1,968
--------- ---------
Net financing (expense) (2,983) (2,300)
========= =========
Net pension scheme financial
income (2,919) (2,717)
Net bank interest (64) 417
--------- ---------
Net financing income (2,983) (2,300)
========= =========
4. TAXATION
2014 2013
GBP'000 GBP'000
Analysis of charge in period
UK corporation tax
Current tax on income for
the period 2,440 1,538
Adjustments in respect
of prior periods 945 136
--------- ---------
3,385 1,674
Double taxation relief (851) (1,538)
--------- ---------
2,534 136
--------- ---------
Foreign tax
Current tax on income for
the period 42,233 40,169
Adjustments in respect
of prior periods 247 (989)
--------- ---------
42,480 39,180
--------- ---------
Total current tax charge 45,014 39,316
Deferred tax - UK (179) 2,127
Deferred tax - Foreign (614) 1,951
--------- ---------
Tax on profit on ordinary
activities 44,221 43,394
--------- ---------
Effective tax rate 30.5% 29.8%
========= =========
The Group's tax charge in future years is likely to be affected
by the proportion of profits arising and the effective tax rates in
the various territories in which the Group operates.
The UK corporation tax charge is calculated after deducting tax
allowable deficit reduction cash contributions to the UK
post-retirement benefit schemes of GBP3,366,000 (2013:
GBP7,302,000) covering all employees in the UK defined benefit
schemes.
5. EARNINGS PER SHARE
2014 2013
GBP'000 GBP'000
Profit attributable to
equity shareholders 100,327 102,104
=========== ===========
Weighted average shares
in issue 75,532,018 76,566,689
Dilution 455,530 549,341
Diluted weighted average
shares in issue 75,987,548 77,116,030
=========== ===========
Basic earnings per share 132.8p 133.4p
=========== ===========
Diluted earnings per share 132.0p 132.4p
=========== ===========
Adjusted profit attributable
to equity shareholders 106,015 106,298
=========== ===========
Basic adjusted earnings
per share 140.4p 138.8p
=========== ===========
Diluted adjusted earnings
per share 139.5p 137.8p
=========== ===========
The dilution is in respect of unexercised share options and the
Performance Share Plan.
6. DIVIDENDS
2014 2013
GBP'000 GBP'000
Amounts paid in the year
Final dividend for the
year ended 31st December
2013
of 41.0p (2012: 37.0p)
per share 30,960 28,942
Special dividend for the
year ended 31st December
2013 of nil (2012: 100.0p)
per share - 78,260
Interim dividend for the
year ended 31st December
2014 of 19.5p (2013: 18.0p)
per share 14,755 13,590
--------- ---------
45,715 120,792
========= =========
Amounts arising in respect
of the year
Interim dividend for the
year ended 31st December
2014 of 19.5p (2013: 18.0p)
per share 14,755 13,590
Proposed final dividend
for the year ended 31st
December 2014 of 45.0p
(2013: 41.0p) per share 34,134 30,903
Proposed special dividend
for the year ended 31st 91,024 -
December 2014 of 120.0p
(2013: nil)
--------- ---------
139,913 44,493
========= =========
7. ANALYSIS OF CHANGES IN NET CASH
At Cash Exchange At
1st Jan flow* movement 31st Dec.
2014 GBP'000 2014
GBP'000 GBP'000 GBP'000
Current portion of long
term borrowings (298) (298)
Non-current portion
of long term borrowings (59,473) (49,096)
Short term borrowing (39,338) (40,070)
--------- --------- ---------- -----------
Total borrowings (99,109) 9,236 409 (89,464)
--------- --------- ---------- -----------
Comprising:
Borrowings (98,041) 8,995 409 (88,637)
Finance Leases (1,068) 241 - (827)
--------- --------- ---------- -----------
(99,109) 9,236 409 (89,464)
--------- --------- ---------- -----------
Cash and cash equivalents 84,417 30,184 3,380 117,981
Bank overdrafts (1,809) 1,319 29 (461)
--------- --------- ---------- -----------
Net cash and cash equivalents 82,608 31,503 3,409 117,520
--------- --------- ---------- -----------
Bank deposits 32,901 (9,038) 574 24,437
--------- --------- ---------- -----------
Net cash 16,400 31,701 4,392 52,493
========= ========= ========== ===========
*GBP1,008,000 of cash was acquired as part of the purchase of
Bio Pure Technology Limited during the year
8. RETURN ON CAPITAL EMPLOYED
Return on capital employed is one of the Group's key performance
indicators, but is a non-statutory measure. An analysis of the
components is as follows:
2014 2013
GBP'000 GBP'000
Property, plant and equipment 176,668 174,218
Prepayments 402 162
Inventories 98,007 104,164
Trade receivables 155,696 145,380
Other current assets 23,973 19,880
Tax recoverable 4,420 3,709
Trade and other payables (90,754) (86,108)
Current tax payable (22,175) (16,927)
Capital employed 346,237 344,478
--------- ---------
Average capital employed 345,358 341,775
========= =========
Operating profit 148,095 147,040
Adjustments (note 2) 4,855 4,586
--------- ---------
Adjusted operating profit 152,950 151,626
--------- ---------
Return on capital employed 44.3% 44.4%
========= =========
9. PURCHASE OF BUSINESSES
2014
Acquisitions
Book Value Fair value Fair value
adjustment
GBP'000 GBP'000 GBP'000
Non-current assets
Property, plant and equipment 829 - 829
Intangibles - 4,395 4,395
829 4,395 5,224
-------------------------------- ----------- ------------ -----------
Current assets
Inventories 283 - 283
Trade receivables 517 - 517
Cash 1,008 - 1,008
-------------------------------- ----------- ------------ -----------
Total assets 2,637 4,395 7,032
-------------------------------- ----------- ------------ -----------
Current liabilities
Trade payables 439 - 439
Deferred tax - 739 739
-------------------------------- ----------- ------------ -----------
Total liabilities 439 739 1,178
-------------------------------- ----------- ------------ -----------
Total net assets 2,198 3,656 5,854
Goodwill - - 4,301
-------------------------------- ----------- ------------ -----------
Total - - 10,155
================================ =========== ============ ===========
Satisfied by
-------------------------------- ----------- ------------ -----------
Cash paid 10,055
-------------------------------- ----------- ------------ -----------
Deferred consideration 100
-------------------------------- ----------- ------------ -----------
10,155
================================ =========== ============ ===========
Cash outflow for acquired
businesses in the Cash
Flow
Cash paid for businesses
acquired in the period 10,055
Less cash acquired (1,008)
Deferred consideration
for businesses acquired
in prior years 937
-------------------------------- ----------- ------------ -----------
Net cash outflow 9,984
================================ =========== ============ ===========
1. The acquisition of Bio Pure Technology Limited, a company
specialising in the design and production of advanced single-use
tubing connector systems for the Biopharmaceutical process industry
based in the UK was completed on 6(th) January 2014. The
acquisition method of accounting has been used. Consideration of
GBP9,255,000 was paid on completion. Separately identified
intangibles are recorded as part of the fair value adjustment. The
goodwill recognised represents the skilled workforce acquired and
the synergies that can be achieved by being part of the Spirax
Group. 100% of voting rights were acquired. Goodwill arising is not
expected to be tax deductible. Bio Pure Technology Limited has
generated GBP4,885,000 of revenue and GBP1,654,000 of pre-tax
profit since acquisition.
2. The acquisition of the UK Transvac thermocompressor business
was completed on 22(nd) May 2014. The acquisition method of
accounting has been used. Consideration of GBP800,000 was paid
during the year with a further GBP100,000 being payable by the end
of May 2015. The payment is dependent upon the delivery of the
assets, designs and training. Separately identified intangibles are
recorded as part of the fair value adjustment. The goodwill
recognised represents the opportunity to sell a wider range of
products to our existing customer base to fully utilise the Group's
applications expertise to expand sales. Goodwill arising is
expected to be tax deductible. The acquisition led to a product
launch in February 2015 from which revenue and profit are
anticipated.
GBP107,000 of acquisition costs were incurred in relation to
these acquisitions. The acquired intangibles relate to customer
relations, technology based assets and marketing based assets.
10. BASIS OF PREPARATION
The financial information set out in this announcement does not
constitute the Company's statutory accounts for the years ended
31st December 2014 or 31st December 2013. Statutory accounts for
2013, which were prepared under accounting standards adopted by the
EU, have been delivered to the registrar of companies and those for
2014 will be delivered following the Company's Annual General
Meeting. The auditors have reported on these accounts; their report
was (i) unqualified, (ii) did not include any references to any
matters to which the auditors drew attention by way of emphasis
without qualifying and (iii) did not contain statements under
sections 498(2) or (3) of the Companies Act 2006.
If approved at the annual general meeting on 11th May 2015, the
final dividend will be paid on 29th May 2015 to shareholders on the
register at 1st May 2015. No scrip alternative to the cash
dividends is being offered.
Copies of the Annual Report will be sent on 20th March 2015 to
shareholders and can be obtained from our registered office at
Charlton House, Cirencester Road, Cheltenham, Gloucestershire GL53
8ER. The report is also available on our website at
www.SpiraxSarcoEngineering.com.
11. RESPONSIBILITYstatement OF THE DIRECTORS ON THE ANNUAL REPORT
The responsibility statement below has been prepared in
connection with the company's full annual report for the year
ending 31(st) December 2014. Certain parts thereof are not included
within this announcement.
We confirm to the best of our knowledge:
-- The financial statements, prepared in accordance with IFRS as
adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position and profit and loss of the
company and the undertakings included in the consolidation taken as
a whole; and
-- 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 they face; and
-- The annual report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary to assess the Company's performance, business model and
strategy.
This responsibility statement was approved by the board of
directors on 4(th) March 2015 and is signed on its behalf by:
N J Anderson Chief Executive D J Meredith Finance Director
12. Cautionary statement
All statements other than statements of historical fact included
in this document, including, without limitation, those regarding
the financial condition, results, operations and businesses of
Spirax-Sarco Engineering plc and its strategy, plans and objectives
and the markets and economies in which it operates, are
forward-looking statements. These forward-looking statements which
reflect management's assumptions made on the basis of information
available to it at this time, involve known and unknown risks,
uncertainties and other important factors which could cause the
actual results, performance or achievements of Spirax-Sarco
Engineering plc or the markets and economies in which we operate to
be materially different from future results, performance or
achievements expressed or implied by such forward-looking
statements. Spirax-Sarco Engineering plc and its directors accept
no liability to third parties in respect of this report save as
would arise under English law. Accordingly, any liability to a
person who has demonstrated reliance on any untrue or misleading
statement or omission shall be determined in accordance with
schedule 10A of the Financial Services and Markets Act 2000. It
should be noted that schedule 10A contains limits on the liability
of the directors of Spirax-Sarco Engineering plc so that their
liability is solely to Spirax-Sarco Engineering plc.
13. EXCHANGE RATE IMPACTS
Whilst not an IFRS disclosure or part of the audited accounts,
set out below is an additional disclosure that highlights the
movements in a selection of average exchange rates between 2014 and
2013.
Average exchange rates to sterling have been as follows:
Average Average
2014 2013 Change
%
Bank of England
sterling index 87.1 81.7 -6%
US$ 1.65 1.57 -5%
Euro 1.24 1.18 -5%
RMB 10.15 9.66 -5%
Won 1,734 1,716 -1%
Real 3.88 3.41 -12%
Argentine Peso 13.32 8.65 -35%
Australian $ 1.83 1.64 -10%
Rouble 64.13 50.12 -22%
Rand 17.85 15.16 -15%
Turkish Lira 3.60 3.01 -16%
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR PKQDQOBKDPNK
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