TIDMSPX
RNS Number : 5936G
Spirax-Sarco Engineering PLC
09 August 2016
News Release
Tuesday 9(th) August 2016
2016 Half Year Results
5% organic sales growth against flat industrial production
growth
Six months ended 30(th) June 2016
Adjusted* 2016 2015 Reported Organic**
Revenue GBP344.0m GBP320.0m +8% +5%
Adjusted operating profit* GBP77.5m GBP65.8m +18% +16%
Adjusted operating profit
margin* 22.5% 20.6% +190 bps +210 bps
Adjusted profit before
taxation* GBP76.2m GBP65.5m +16%
Adjusted earnings per
share* 73.1p 60.5p +21%
Dividend per share 22.5p 20.8p +8%
Statutory 2016 2015 Reported
Revenue GBP344.0m GBP320.0m +8%
Operating profit GBP74.7m GBP59.4m +26%
Profit before taxation GBP73.4m GBP57.3m +28%
Earnings per share 70.2p 52.2p +34%
Dividend per share 22.5p 20.8p +8%
*All adjusted profit measures exclude certain non-operational
items, which total GBP2.8m for the six months ended 30(th) June
2016, as defined in Note 2.
** References to "organic" are at constant currency excluding
the effects of acquisitions and disposals.
-- Organic sales growth of 5%
-- Adjusted operating profit up 18%
-- Adjusted operating margin increased 190 bps
-- Growth in both the Steam Specialties and Watson-Marlow businesses
-- 90% cash conversion and interim dividend growth of 8%
Commenting on the results, Nicholas Anderson, Group Chief
Executive, said:
"We are very pleased with the 5% organic sales growth and
increase in adjusted operating profit of 18%, against flat global
industrial production growth rates. Despite challenging conditions,
we have seen organic sales growth in all divisions of the Steam
Specialties business and Watson-Marlow is having another very
strong year.
In percentage growth terms, our first half results benefited
from a relatively weak second quarter comparator and the carryover
of some large orders from last year. As a result we would expect
lower organic growth rates in the second half of the year. Reported
growth will benefit from weaker sterling but will be less
influenced by acquisitions. The slower growth rate, reduced profit
contribution from Argentina, investment for future growth and the
Hiter acquisition, should narrow the half on half margin expansion
this year, resulting in a lower second half profit margin than in
2015.
We anticipate that our markets will remain challenging in the
second half of this year. We are seeing the benefits of investments
in our strategy for growth and have a robust, resilient and
geographically diverse business model, which coupled with a strong
balance sheet positions us well to navigate the current economic
environment. The Board remains confident that the Group will make
further progress in 2016."
For further information, please contact:
Nicholas Anderson, Group Chief Executive
Kevin Boyd, Group Finance Director
Tel: 020 7638 9571 at Citigate Dewe Rogerson
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/eny4ymha
at 09:00 BST, and a recording will be posted on the website shortly
after the meeting. For access from any IOS Apple or Android mobile
device please use the following QR code:
Unless otherwise stated, the figures quoted in the text below
are based on the adjusted Group results (see Note 2). References to
"organic" changes are like-for-like excluding acquisitions,
disposals and the effects of exchange rate movements.
REVIEW OF OPERATIONS
2015 Exchange Organic Acquisitions 2016 Organic Reported
and Disposals
----------- ---------- --------- --------- --------------- ---------- -------- ---------
Revenue GBP320.0m GBP4.4m GBP17.0m GBP2.6m GBP344.0m +5% +8%
----------- ---------- --------- --------- --------------- ---------- -------- ---------
Operating
profit GBP65.8m GBP0.3m GBP10.6m GBP0.8m GBP77.5m +16% +18%
----------- ---------- --------- --------- --------------- ---------- -------- ---------
Operating +210
margin 20.6% 22.5% bps +190 bps
----------- ---------- --------- --------- --------------- ---------- -------- ---------
Organic sales
Strong organic sales growth of 5% was achieved in the first half
of the year, helped in part by comparison to a relatively weak
performance in the second quarter of the prior year. Acquisitions,
net of disposals, enhanced sales by almost 1%, while favourable
currency movements increased sales on translation by over 1% when
compared with first half 2015 average exchange rates. Sales of
GBP344.0 million were therefore significantly ahead of the prior
year (2015: GBP320.0 million) at reported exchange rates.
Global industrial production growth rates, which drive our
underlying markets, have progressively slowed over the past year to
a very low or zero growth environment in both developed and
emerging markets. Whilst this continues to cause a drag on business
activity, we remain focused on continuing to execute our strategic
actions to outperform our markets, as demonstrated by our strong
half year performance.
Organic sales growth reached 4% in our Steam Specialties
business following an exceptionally strong late spring versus a
weak comparative period in 2015. Asia Pacific performed well,
achieving organic sales growth of 8%, despite the continued
challenging economic conditions in these markets, driven by strong
performance in China and shipment of project orders carried over
from 2015 in Korea. The Americas delivered organic sales growth of
5% driven by Latin America, with Argentina benefiting from its
dollar-based pricing following the currency devaluation in late
2015. This has been partially offset by a reduction in underlying
volumes in Brazil due to the difficult economic conditions. Organic
sales declined by 1% in North America. While in Europe, Middle East
and Africa (EMEA) we saw an increase in organic sales of 1%.
Watson-Marlow saw organic sales rise by 10%, with expansion in all
geographic regions, especially Asia Pacific.
Profits
Group adjusted operating profit was up 16% on an organic basis,
helped by the operational gearing effects of a particularly strong
second quarter. In the Steam Specialties business, operating profit
was 16% higher on an organic basis reflecting the sales growth and
strong cost control. EMEA performed well, with operating profit
ahead 11% organically while in Asia Pacific organic operating
profit growth was 14%. Overall in the Americas operating profit was
28% higher organically, again aided by the currency devaluation in
Argentina. Watson-Marlow performed exceptionally well, increasing
operating profit organically by 21% as a result of the strong sales
growth. At reported exchange rates, the Group adjusted operating
profit of GBP77.5 million was 18% higher (2015: GBP65.8
million).
Net financial expense increased to GBP1.3 million from GBP0.6
million reflecting the reduction in interest received from reduced
bank deposits. Income from Associate companies declined by GBP0.3m
due to the sale in March 2015 of our investment in India ahead of
the start-up of our wholly owned direct sales and manufacturing
operation there.
Adjusted pre-tax profit increased by 16% at constant and
reported exchange rates to GBP76.2 million (2015: GBP65.5 million).
The pre-tax profit for the first half year on a statutory basis was
GBP73.4 million (2015: GBP57.3 million). The 2015 statutory pre-tax
profit included a one-off charge of GBP3.8 million in respect of
the closure of our metering manufacturing facility in the USA, a
net charge of GBP1.7 million in respect of exchange translation
losses from prior years and a small gain on disposal, relating to
the sale of the Group's 49.3% interest in our Associate company
Spirax Marshall in India. The statutory pre-tax profit includes the
amortisation of acquisition-related intangible assets.
The overall tax rate, based on the adjusted profit before tax
and excluding the Associate profit, was slightly lower at 29.6%
(2015: 30.4%) which we anticipate will prevail for the full
year.
Currency impacts
During 2016, the currency headwind experienced for the last
couple of years reversed, increasing sales on translation by over
1% compared with first half 2015 average exchange rates. Gains from
the stronger dollar, euro and renminbi have far outweighed the
impact of weaker currencies in Russia, South Africa and Latin
America, including the significant devaluation in Argentina. In
relation to operating profit, the total impact of favourable
exchange movements in the first half of 2016, including both
translation and transaction effects was broadly neutral.
Since the result of the UK Referendum on EU membership, sterling
has depreciated strongly against almost all currencies, however it
had a minimal positive impact on our trading results for the 6
months ended 30(th) June 2016. If spot rates at 30(th) June 2016
prevail for the remainder of the year, the translation and
transaction impact on sales and operating profit for the full year,
compared with the full year 2015 exchange rates, would be 6%. Note
14 includes a table of the Group's significant exchange rates.
Earnings per share
Adjusted basic earnings per share increased by 21% to 73.1p
(2015: 60.5p), 17% due to an increase in profits and 4% due to a
lower average number of shares resulting from the share
consolidation that took place on 15(th) June 2015. Basic earnings
per share on a statutory basis were 70.2p (2015: 52.2p).
Dividends
The Board has declared an interim dividend of 22.5p (2015:
20.8p) per ordinary share, an increase of 8%. The dividend will be
paid on 11(th) November 2016 to shareholders on the register at the
close of business on 14(th) October 2016. The final dividend of
48.2p per share in respect of 2015 was paid on 27(th) May 2016 at a
cash cost of GBP35.4 million.
Trading
Our businesses serve very diverse markets across a wide range of
different industries, geographic regions, customers and products.
As steam is so widely used across so many applications, our markets
broadly reflect changes in global economic conditions and, in
particular, movements of industrial production growth rates. Our
Watson-Marlow business benefits from a similar diversity of
markets. The Group's direct sales business model brings to bear our
highly trained sales engineers on the solution of customers' energy
and water saving, CO(2) reduction, productivity, quality and
sustainability issues, to help meet our stated goal of
outperforming our markets.
Global industrial production growth, which we typically lag by a
few quarters, progressively slowed through 2015 to a zero growth
environment, with global growth levels currently flat. The slowdown
of industrial production growth has been particularly marked in
China and other emerging markets where we have long had a strong
presence. Industrial recessionary conditions continue in Latin
America, while China has seen its industrial production growth rate
rebound modestly to just above zero in the first half of 2016. The
industrial production slowdown has also been evident in the
developed markets of North America where a contraction of around 1%
has occurred in recent quarters, while in Europe industrial
production growth rates have stayed relatively stable at around
1%.
In the first half of 2016, sales in our Steam Specialties
business were up 4% on an organic basis driven by a higher volume
of sales in Asia Pacific, particularly in China and Korea, and
Latin America. The disposal of M&M Italy which occurred in July
2015 reduced reported sales by 1%. The operating profit margin in
our Steam Specialties business was higher at 21.3% organically,
compared with 19.2% in the first half of last year, due to
continued overhead cost control, lower material costs, the benefits
of the measures taken in the first half of 2015 to reduce costs in
the UK and USA manufacturing plants and the one-off benefits from
Argentina's strong devaluation in late 2015.
Sales in our Watson-Marlow business increased 17% at constant
currency and by 10% on an organic basis, with strong contributions
from all geographic regions. Recent acquisitions - Asepco, Flow
Smart and the manufacturing and distribution rights of MasoSine
pumps in Japan - have performed strongly, integrating smoothly into
the Watson-Marlow business and culture. BioPure, acquired in 2014,
achieved double digit growth, well ahead of expectations. Sales
increased across almost all industry sectors and new products have
again contributed well. The operating profit margin in
Watson-Marlow increased to 32.9% from 29.9% as a result of
operational gearing, control of overheads and favourable material
costs.
The potential implications of the UK's EU Referendum on the
Group remain to be seen; visibility is particularly uncertain and
much will depend upon the outcome of negotiations once Article 50
of the EU's Lisbon Treaty is invoked. However, early macro
indicators are of a slow-down in UK investments which may lead to
some UK project delays in the second half, but at this stage it is
too early to assess this definitively.
As a Group we are well-placed to mitigate challenges and
capitalise on opportunities that arise as a result of the
Referendum. More than 90% of Group sales are generated outside of
the UK, we have a well-spread global manufacturing base and a
diverse customer base across widespread industries and geographies.
In the Group as a whole, approximately 35% of goods sold are
manufactured in the UK.
We continue to implement our strategy for growth, which was set
out in our 2015 Annual Report. Our strategy builds on the
foundation of our robust, direct sales business model and focuses
on doing better what we already do well, so that we can achieve
growth that outperforms our markets. We are seeing the benefits of
our strategic focus, with above market growth in several of our
priority sectors, supply chain efficiency improvements and
increased selling effectiveness. In February we opened our first
sectorised manufacturing unit in Cheltenham, UK, dedicated
exclusively to Clean Steam products for the Food & Beverage,
Pharmaceutical and Healthcare sectors.
Governance and Board changes
As previously announced, David Meredith retired at the
conclusion of the AGM on 10(th) May 2016 and was replaced by Kevin
Boyd, who joined the Company on 11(th) April 2016. Kevin brings
with him a wealth of experience as a Finance Director with a strong
international track record. Kevin is both a Chartered Accountant
and a Chartered Engineer and was most recently Group Finance
Director of Oxford Instruments plc. Previous experience included
Group Finance Director of Radstone Technology plc and senior
finance positions with TI Group (now Smiths Group plc). Kevin is a
Non-Executive Director of EMIS Group plc.
Spirax Sarco Steam Specialties business
Europe, Middle East and Africa (EMEA)
2015 Exchange Organic Disposal 2016 Organic Reported
----------- ---------- --------- -------- ---------- ---------- --------- ----------
Revenue GBP111.8m GBP2.7m GBP0.8m (GBP3.2m) GBP112.1m +1% +0%
----------- ---------- --------- -------- ---------- ---------- --------- ----------
Operating
profit GBP21.3m GBP0.2m GBP2.2m (GBP0.6m) GBP23.1m +11% +8%
----------- ---------- --------- -------- ---------- ---------- --------- ----------
Operating
margin 19.0% 20.6% +180 bps +160 bps
----------- ---------- --------- -------- ---------- ---------- --------- ----------
Europe, Middle East and Africa (EMEA) had a solid first half,
with a notably improved second quarter, compensating for a slow
start to the year. Sales, at GBP112.1 million, were 1% up on an
organic basis. Exchange movements were positive, increasing sales
on translation by 2% and operating profit by 1% versus the first
half of last year. At reported rates, operating profit was up 8%,
benefiting from lower material costs, currency gains, continued
price management initiatives and control of overheads, as well as
the savings from the headcount reduction measures taken in the
Steam Specialties UK manufacturing operations in the first half of
2015. This strong profit growth on flat sales delivered an
operating profit margin of 20.6% (2015: 19.0%).
Economic conditions in EMEA have been relatively stable
throughout most of the period, albeit with industrial production
growth rates remaining at very low levels of close to 1% in the
region as a whole, and at zero in many of our markets.
Performance across Europe was mixed on an organic basis, with
sales up in France and Germany but down in Italy and the UK,
against a tough compararator. Operating profit was ahead in our
larger markets of Germany, France, Italy and the UK. Russia
continues to improve on the slow first half of last year and we
have seen strong performances in a number of our smaller
operations, notably the Czech Republic, Denmark, Sweden,
Netherlands and Egypt.
In the first half of 2015 action was taken to reduce costs in
our UK Steam Specialties manufacturing operation with headcount
reduction incurring one-off costs of GBP1.0 million. Annualised
benefits of GBP2.2 million commenced from April 2015. As expected,
these annualised benefits have been fully realised and contributed
a GBP1.6 million profit increase in the first half of this year. We
will continue to focus on efficiency gains, customer service levels
and improvements to the wider supply chain.
Asia Pacific
2015 Exchange Organic Acquisition/ 2016 Organic Reported
Disposal
----------- --------- --------- -------- ------------- --------- --------- ---------
Revenue GBP74.3m GBP1.4m GBP6.3m - GBP82.0m +8% +10%
----------- --------- --------- -------- ------------- --------- --------- ---------
Operating
profit GBP15.5m GBP0.3m GBP2.3m - GBP18.1m +14% +17%
----------- --------- --------- -------- ------------- --------- --------- ---------
Operating
margin 20.9% 22.0% +110 bps +110 bps
----------- --------- --------- -------- ------------- --------- --------- ---------
Sales in Asia Pacific were up 8% on an organic basis to GBP82.0
million and up 10% at the more favourable reported exchange rates.
Economic conditions have continued to weaken across the region and
industrial production growth rates remain weak in China and Korea,
after a slight improvement in the first quarter. Despite these
tough economic conditions, performance in China and Korea was
strong with increased sales and operating profit as we continue to
reap the benefits of the successful implementation of our strategy.
Operating profit of GBP18.1 million was up 17% (2015: GBP15.5
million) at reported currency and up 14% on an organic basis. The
operating profit margin was 22.0% (2015: 20.9%).
Our largest sales and profit contributor, which accounted for
over 10% of Group sales in 2015, is China, where over-capacity and
reduced investments in the manufacturing sector persist, in general
reducing large project orders. Despite this we had a very strong
first half in China with sales and profits up as we benefited from
a few larger projects for the oil and gas sector, while we
continued to grow with smaller, self-generated opportunities. We
expect our industrial markets in China to continue with very low
levels of growth for the remainder of 2016. We aim to continue
mitigating this by leveraging our strength in some of the more
resilient sectors such as Food & Beverages, Pharmaceuticals and
Healthcare, and maximising the benefits of our powerful direct
sales business model.
In Korea, our second largest territory in Asia Pacific, sales
and profit were higher on an organic basis, despite a challenging
economic climate with industrial production output currently flat.
The large project order book carried over from 2015 started
unwinding, as expected, in the first half of 2016. Additionally, a
focus on smaller self-generated projects, particularly in the
Pharmaceutical and Electronics industries, provided opportunities
for some good orders and contributed to sales growth.
Elsewhere in Asia Pacific, we achieved improved results in
Malaysia, Japan and the Philippines but saw downturns in Indonesia
and New Zealand. Our new company in Vietnam, which began trading in
January, performed in line with our expectations.
In March 2015 we completed the separation from our long-standing
joint venture in India via the sale of the Group's 49.3% interest
in Spirax Marshall. Our new wholly owned manufacturing and direct
sales operation commenced trading in the second half of 2015 and
has made a small contribution to sales in the first half of 2016.
As expected, the company made an operating loss during the first
half, as we continue to incur start-up costs to develop the
business. The state-of-the art manufacturing, training and office
facilities in Chennai are now complete and limited manufacturing
commenced in June. We are seeing a steadily improving trend of
business as our brand value becomes better understood. The local
availability of manufactured stock, with IBR (Indian Boiler
Regulation) approved products and world-class service levels,
position us well to penetrate the market. Industrial production
growth has slowed in India in recent quarters, but we believe the
long-term prospects are good and we look forward to sales growing
over the coming years.
We remain positive on the Asia Pacific region, despite
continuing economic weakness, as we implement our strategy and
focus on self-generated growth opportunities in key markets,
outperform in existing markets, and invest for growth in new
ones.
Americas
2015 Exchange Organic Acquisition/ 2016 Organic Reported
Disposal
----------- --------- ---------- -------- ------------- --------- --------- ---------
Revenue GBP61.0m (GBP2.1m) GBP2.7m GBP61.6m +5% +1%
----------- --------- ---------- -------- ------------- --------- --------- ---------
Operating
profit GBP11.8m (GBP1.3m) GBP2.9m GBP13.4m +28% +14%
----------- --------- ---------- -------- ------------- --------- --------- ---------
Operating
margin 19.3% 21.7% +400 bps +240 bps
----------- --------- ---------- -------- ------------- --------- --------- ---------
On an organic basis, sales increased by 5% in the Americas to
GBP61.6 million and by 1% at reported exchange rates (2015: GBP61.0
million), despite a tough economic climate. Exchange losses on
translation of sales from weaker currencies in Latin America were
partially offset with exchange gains in North America due to the
stronger dollar. In particular, in Argentina the peso is down 34%
due to the devaluation at the end of 2015, the Brazilian real down
14% and the US dollar up 8%. North America saw a slight decline in
sales on an organic basis, however, organic sales in Latin America
were significantly ahead, driven largely by the benefit of US
dollar pricing in Argentina. Total operating profit was up 28% on
an organic basis and 14% at reported currency to GBP13.4 million
(2015: GBP11.8 million) reflecting higher margin sales in Argentina
and the savings from the closure of the small manufacturing site in
Colorado, USA in 2015. This contributed to a higher operating
profit margin of 21.7% (2015: 19.3%).
Economic conditions in North and Latin America have been
challenging with negative industrial production growth rates in the
period. Latin America has been in an industrial recession since
2014 with strongly negative industrial production growth rates
during this period. Brazil's industrial output continued to
contract at low double digit rates in recent quarters and Argentina
also contracted in 2016. The recessionary conditions in Argentina
were anticipated and we have increased investment in sales,
operations and marketing in preparation for the future and a more
business-friendly environment.
Sales were slightly lower on an organic basis in North America,
where industrial production growth rates have steadily worsened
through the period, negatively impacting distributors; however
profits improved due to better pricing and cost reduction action
taken. In Canada, depressed oil prices continue to weigh heavily on
the upstream investments in the Tar Sands. Maintenance and repairs
performed well but were significantly affected in May by the Fort
McMurray Wildfires. We anticipate an upturn as sites reopen in the
second half of the year. Our journey towards higher direct sales
continues in the USA, whilst maintaining and strengthening our
distribution relationships. Despite challenging conditions, we
continue to invest heavily in our sales organisation and we are
seeing the benefits of this in the Food & Beverage and
Pharmaceutical market sectors in particular, as we uncover
opportunities to help them become more sustainable and increase
operational efficiency.
In June 2015, we completed the closure of our small meter
manufacturing facility in Colorado, USA which resulted in an
operating gain of GBP0.7 million in the first half of 2016.
One-off, mostly non-cash, closure costs of GBP3.8 million were
incurred in 2015 and were excluded from the adjusted operating
profit but were charged against profit in the 2015 statutory
reported results.
Our performance in Latin America was mixed, on an organic basis,
with a strong decline in sales and profit in Brazil; investments
for growth in Colombia, following the acquisition of 2015; and a
good performance in Mexico, Chile and our fledgling company in
Peru. Operating profit in Latin America benefited strongly in the
first half of 2016 from Argentina's currency devaluation in late
2015, as US dollar-denominated prices rose ahead of input
replacement costs. This non-recurring gain, estimated at GBP1.5
million, is not expected to repeat in the second half of 2016.
On 1(st) July we acquired the assets of Hiter Indústria e
Comércio de Controles Termo-Hidráulicos Ltda (Hiter), a process
control valve manufacturer based in Sorocaba, Brazil, for a total
purchase consideration of GBP3.9 million which was paid in cash
from existing Group resources. Hiter is highly synergistic with
Spirax Sarco's successful Brazilian steam and process fluid
applications business. The Hiter brand has a well established
reputation in Brazil with a large installed base and had net sales
of over GBP7 million in 2015. Following the acquisition, Spirax
Sarco becomes the only significant manufacturer of both control and
safety valves in Brazil.
Hiter has undergone significant change in recent years,
resulting in a December 2015 announcement to close the company,
effective March 2016. The assets have been acquired by a new Spirax
Sarco subsidiary, Hiter Controls Engenharia Ltda, which will
commence trading in the fourth quarter of 2016. It is anticipated
that the start-up and pre-operating losses incurred in 2016 will
reach GBP1.2 million on negligible sales. After re-establishing
Hiter's market position during 2017, this business is expected to
make a positive contribution to Group earnings from 2018.
Although an economic pick-up in the region is not expected until
at least 2017, overall our position in Latin America remains
strong. Our longevity of trading in these markets, strong brand
reputation, local manufacturing capabilities and continued
investment in people, skills and operations position us well to
manage and prosper in these difficult trading conditions.
Watson-Marlow
2015 Exchange Organic Acquisitions 2016 Organic Reported
----------- --------- --------- -------- ------------- --------- --------- ---------
Revenue GBP72.8m GBP2.5m GBP7.2m GBP5.8m GBP88.3m +10% +21%
----------- --------- --------- -------- ------------- --------- --------- ---------
Operating
profit GBP21.8m GBP1.1m GBP4.7m GBP1.4m GBP29.0m +21% +33%
----------- --------- --------- -------- ------------- --------- --------- ---------
Operating
margin 29.9% 32.9% +300 bps +300 bps
----------- --------- --------- -------- ------------- --------- --------- ---------
Sales increased by 17% at constant currency including first time
contributions from our new business in Japan, established in July
2015; Flow Smart, acquired in November 2015; and a full half year
contribution from Asepco, acquired in April 2015. On an organic
basis sales grew 10%. The acquisitions have performed strongly,
ahead of expectations, integrating smoothly into the Watson-Marlow
business and culture and growing sales by GBP5.8 million. Exchange
rates increased sales on translation by GBP2.5 million in the first
half, giving a total reported sales increase of 21% from GBP72.8
million to GBP88.3 million. Reported operating profit also
increased, by 33% from GBP21.8 million to GBP29.0 million,
including a GBP1.4 million contribution from acquisitions and an
exchange benefit of 5%. The operating profit margin was 32.9%, up
from 29.9% in the prior year. On an organic basis the operating
profit increased by 21%.
We delivered good growth in the Biopharm, OEM and General
Industrial markets. Mining was stable with new business in Asia
Pacific more than off-setting weakness in Africa, but Food &
Beverage was down against a particularly strong compare. New
products continued to contribute well. During the period, we
launched the Qdos 120, the third model in the innovative range of
peristaltic metering pumps, and the Watson-Marlow 530 pump. We
retain an active pipeline of new product developments for launch in
the forthcoming quarters.
All geographic regions contributed to the sales growth on an
organic basis. Exceptional growth was achieved in Asia Pacific,
driven by China and our new operating company in Taiwan. Excluding
acquisitions, strong growth in the Americas was led by the USA.
Strong growth was also sustained in EMEA, particularly in France,
Germany and Russia, with the region continuing to benefit from the
increased sector focus and direct sales expansion over recent
years.
Balance sheet and cash flow
Capital employed of GBP385 million at 30(th) June 2016 increased
by 3% on an organic basis, versus the equivalent position at 31(st)
December 2015. Investment in fixed assets was greater than the
level of disposals and depreciation in the first half year as we
continued to invest in our new plants in India and China. As these
facilities reach completion we would expect capital spending to be
at a similar level to last year.
Cash generation remains a priority, with 90% cash conversion in
the first half and we continue to operate with a strong balance
sheet. Currency movements increased net cash balances by GBP5.4
million on translation. Net cash at 30(th) June 2016 was GBP20.6
million compared with GBP4.8 million at 31(st) December 2015. Net
cash at 30(th) June 2015 was GBP53.5 million, prior to the payment
of the special dividend of GBP91 million, paid in July 2015. A
final dividend of GBP35.4 million for the year ended 31(st)
December 2015 was paid in May 2016.
Following the result of the UK Referendum on EU membership,
sterling has depreciated strongly against almost all currencies and
this has had a significant impact on the balance sheet. Translating
the 31(st) December 2015 balance sheet at exchange rates prevailing
at 30(th) June 2016 increases net assets at 31(st) December 2015 by
GBP50 million.
In addition to the direct translation impact of "Brexit", bond
yields have fallen significantly since 31(st) December 2015 which
has significantly contributed to the retirement benefit deficit
increasing by GBP40.1 million to GBP113.8 million (31(st) December
2015: GBP73.7 million). Our exposure on forward contracts has also
been impacted by the movement in exchange rates with a fair value
liability of GBP2.6 million at 30(th) June 2016 (31(st) December
2015: GBP0.2 million liability).
Adjusted cash flow 30(th) June 30(th) June
2016 2015
GBPm GBPm
--------------------------------------------- ------------ ------------
Adjusted operating profit 77.5 65.8
Depreciation (excluding amortisation of
acquisition intangible assets) 12.6 12.3
--------------------------------------------- ------------ ------------
Adjusted earnings before interest, tax,
depreciation and amortisation 90.1 78.1
Share plans 1.3 1.5
Working capital changes (5.1) (1.6)
Net capital expenditure (including software
and development) (16.8) (13.4)
--------------------------------------------- ------------ ------------
Cash from operations 69.5 64.6
Net Interest 0.1 0.7
Income taxes paid (27.3) (24.2)
Free cash flow 42.3 41.1
Net dividends paid (35.5) (34.2)
Provisions and post-retirement deficit
reduction payments 2.7 (0.6)
Proceeds from issue of shares 1.0 1.9
Acquisitions and disposals (0.1) (0.6)
Other items (0.5)
Cash flow for period 10.4 7.1
Exchange movements 5.4 (6.1)
Opening net cash 4.8 52.5
--------------------------------------------- ------------ ------------
Closing net cash at 30(th) June 20.6 53.5
--------------------------------------------- ------------ ------------
Principal risks and uncertainties
The Group has a robust risk management process in place to
identify, evaluate and manage the identified risks that could
impact the Group's performance. The current risks, together with an
explanation of the impact and mitigation actions, are set out in
the 2015 Annual Report on pages 32 to 33. The Group has reviewed
these risks and concluded that they represent the current position
and remain relevant for the second half of the financial year. A
summary of the relevant key risks and uncertainties is:
-- Economic and political instability
Economic and political instability creates risks for our locally
based direct operations, including the impact of regime changes
-- 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
-- Defined benefit pension deficit
Defined benefit pension schemes carry risks in relation to
investment performance, security of assets, longevity and
inflation
-- 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
A major health and safety incident could cause total or partial
closure of a manufacturing facility
-- Product specification failure
Failure to meet customers' specific technical requirements could
result in disruption and potential loss to an end users' plant or
facility.
The Board has reviewed the risks associated with the results of
the UK Referendum on EU membership and concluded that our
contingency plans provide sufficient cover for issues arising as a
result of the "Brexit" vote. The following principal risks have
been, and are likely to continue be, affected by the Referendum
result:
-- Economic and political instability - remains the Group's
greatest principal risk; the Group's resilient business model,
diverse customer base and wide geographic spread help to reduce
risk from local or regional economic and political instability
-- Significant exchange rate movements - remains a significant
risk; current exchange gains from weaker sterling
-- Defined benefit pension deficit - increased risk; defined
benefit pension liability has increased as a result of lower bond
yields.
The Group's resilient business model has proven strong and
defensive in the long term and has enabled the business to prosper
even in challenging market conditions. Over 90% of revenues and
profits are generated outside of the UK and the Group is
well-prepared and well-placed to take on the challenges and
identify the opportunities resulting from a UK exit from the
EU.
Outlook
We continue to invest in the implementation of our strategy,
which is enhancing our ability to outperform our markets and
generate our own growth. In our Steam Specialities business we
derive a significant proportion of our revenue from small project
orders which are largely self-generated as our highly skilled sales
engineers identify opportunities to provide engineered solutions
that meet end-users' needs for energy and water savings, emissions
reduction, productivity and quality improvements, regulatory
compliance and cost reductions. We also have a large installed
product base which requires regular maintenance and repair, and a
strong brand reputation across the markets and industries that we
serve, making our business resilient during difficult economic
times.
Our markets are strongly influenced by industrial production
growth rates, which our business tends to lag by a few quarters.
Growth rates of global industrial production have progressively
slowed in recent years and the world is now in a zero growth
environment. Despite this, we have achieved good organic sales
growth in parts of Asia Pacific and Latin America in the Steam
Specialties business, while our Watson-Marlow business continues
performing strongly across all geographies.
Currency headwinds abated and turned into a tailwind in the
first half of 2016. The devaluation of sterling following the UK
Referendum, further strengthened this tailwind and if spot rates at
the 30(th) June 2016 prevail for the remainder of the year we would
benefit from a 6% impact on sales and operating profit.
In percentage growth terms, our first half results benefited
from comparison with a relatively weak second quarter last year and
the carryover from the prior year of some large project orders in
Korea. The non-repeat of these factors should reduce our organic
growth rates in the second half of this year. In addition, reported
growth, while benefiting from weaker sterling, will be less
influenced by acquisitions due to their inclusion in the prior year
comparatives. The slower growth rate, combined with a reduced
profit contribution from Argentina, a step up of investment for
future growth and the Hiter acquisition, should narrow the first
half to second half margin expansion this year. This would result
in a lower second half profit margin than for the same period of
the previous year.
We anticipate that our markets will remain challenging in the
second half of this year. We are seeing the benefits of investments
in our strategy for growth and have a robust, resilient and
geographically diverse business model, which coupled with a strong
balance sheet positions us well to navigate the current economic
environment. The Board remains confident that the Group will make
further progress in 2016.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Notes 30(th) 30(th) 31(st) December
June June 2015
2016 2015
GBPm
GBPm GBPm
ASSETS
Non-current assets
Property, plant and equipment 185.3 164.7 169.9
Goodwill 59.7 45.5 54.1
Other intangible assets 57.4 46.7 54.8
Prepayments 5.7 0.5 5.5
Investment in Associate 0.1 0.2 0.1
Deferred tax assets 42.0 35.9 33.0
------- ------- ----------------
350.2 293.5 317.4
------- ------- ----------------
Current assets
Inventories 104.1 98.8 92.5
Trade receivables 160.7 133.2 152.1
Other current assets 25.2 25.0 20.4
Taxation recoverable 9.3 4.6 9.5
Assets of business held for sale - 9.3 -
Cash and cash equivalents 8 109.0 86.6 99.8
------- ------- ----------------
408.3 357.5 374.3
------- ------- ----------------
Total assets 758.5 651.0 691.7
======= ======= ================
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables 88.8 76.3 84.3
Provisions 2.0
Special dividend 91.0
Bank overdrafts 8 16.3 0.2 3.9
Short-term borrowing 8 5.7 6.3 10.1
Current portion of long-term borrowings 8 0.3 0.3 0.3
Liabilities directly associated
with assets classified as held for
sale 2.5
Current tax payable 14.4 12.3 21.1
------- ------- ----------------
127.5 188.9 119.7
------- ------- ----------------
Net current assets 280.8 168.6 254.6
------- ------- ----------------
Non-current liabilities
Long-term borrowings 8 66.1 26.4 80.7
Deferred tax liabilities 18.4 16.6 17.7
Post-retirement benefits 7 113.8 75.0 73.7
Provisions 1.9 0.4 1.2
Long term payables 0.3 0.8 0.4
------- ------- ----------------
200.5 119.2 173.7
------- ------- ----------------
Total liabilities 328.0 308.1 293.4
======= ======= ================
Net assets 430.5 342.9 398.3
======= ======= ================
Equity
Share capital 19.7 19.7 19.7
Share premium account 70.7 66.9 69.7
Other reserves 21.3 (23.2) (18.7)
Retained earnings 318.0 278.7 326.8
------- ------- ----------------
Equity shareholders' funds 429.7 342.1 397.5
Non-controlling interest 0.8 0.8 0.8
------- ------- ----------------
Total equity 430.5 342.9 398.3
======= ======= ================
Total equity and liabilities 758.5 651.0 691.7
======= ======= ================
CONSOLIDATED INCOME STATEMENT
Six months to 30(th) Six months to 30(th) Year ended 31(st)
June 2016 June 2015 December 2015
Adjusted* Adj't Total Adjusted* Adj't Total Adjusted* Adj't Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue (Note
2) 344.0 - 344.0 320.0 - 320.0 667.2 - 667.2
Operating
costs (266.5) (2.8) (269.3) (254.2) (6.4) (260.6) (514.8) (9.6) (524.4)
---------- ------ -------- ---------- ------ -------- ---------- ------- --------
Operating
profit (Note
2) 77.5 (2.8) 74.7 65.8 (6.4) 59.4 152.4 (9.6) 142.8
---------- ------ -------- ---------- ------ -------- ---------- ------- --------
Financial
expenses (1.9) - (1.9) (2.0) - (2.0) (3.6) - (3.6)
Financial
income 0.6 - 0.6 1.4 - 1.4 2.1 - 2.1
---------- ------ -------- ---------- ------ -------- ---------- ------- --------
Net financing
expense (Note
3) (1.3) - (1.3) (0.6) - (0.6) (1.5) - (1.5)
---------- ------ -------- ---------- ------ -------- ---------- ------- --------
Share of
profit of
Associates - - - 0.3 (1.8) (1.5) 0.2 (1.8) (1.6)
---------- ------ -------- ---------- ------ -------- ---------- ------- --------
Profit before
taxation 76.2 (2.8) 73.4 65.5 (8.2) 57.3 151.1 (11.4) 139.7
---------- ------ -------- ---------- ------ -------- ---------- ------- --------
Taxation
(Note 4) (22.6) 0.7 (21.9) (19.8) 1.9 (17.9) (45.0) 2.0 (43.0)
---------- ------ -------- ---------- ------ -------- ---------- ------- --------
Profit for
the period 53.6 (2.1) 51.5 45.7 (6.3) 39.4 106.1 (9.4) 96.7
========== ====== ======== ========== ====== ======== ========== ======= ========
Attributable
to:
Equity
shareholders 53.5 (2.1) 51.4 45.7 (6.3) 39.4 105.9 (9.4) 96.5
Non-controlling
interest 0.1 - 0.1 - - - 0.2 - 0.2
---------- ------ -------- ---------- ------ -------- ---------- ------- --------
Profit for
the period 53.6 (2.1) 51.5 45.7 (6.3) 39.4 106.1 (9.4) 96.7
========== ====== ======== ========== ====== ======== ========== ======= ========
Earnings
per share
Basic earnings
per share
(Note 5) 73.1p 70.2p 60.5p 52.2p 142.6p 129.9p
Diluted earnings
per share
(Note 5) 72.8p 70.0p 60.2p 52.0p 141.9p 129.4p
========== ====== ======== ========== ====== ======== ========== ======= ========
Dividends
Dividends
per share
(Note 6) 22.5p 20.8p 69.0p
========== ====== ======== ========== ====== ======== ========== ======= ========
Dividend
paid (per
share) (Note
6) 48.2p 45.0p 185.8p
========== ====== ======== ========== ====== ======== ========== ======= ========
*Adjusted figures exclude certain non-operational items as
detailed in Note 2. All amounts relate to continuing operations.
The Notes on pages 16 to 25 form an integral part of the Interim
Condensed Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2015
2016 2015
GBPm
GBPm GBPm
Profit for the period 51.5 39.4 96.7
----------- ----------- -----------------
Items that will not be reclassified
to profit or loss
Remeasurement gain/(loss) on post-retirement
benefits (33.2) 1.3 5.7
Deferred tax on remeasurement loss
on post-retirement benefits 7.3 (1.0) (0.6)
----------- ----------- -----------------
(25.9) 0.3 5.1
----------- ----------- -----------------
Items that may be reclassified subsequently
to profit or loss
Foreign exchange translation differences 39.6 (18.3) (14.1)
Profit/(loss) on cash flow hedges (2.4) - -
net of tax
37.2 (18.3) (14.1)
=========== =========== =================
Total comprehensive income for the
period 62.8 21.4 87.7
Attributable to:
Equity shareholders 62.7 21.4 87.5
Non-controlling interest 0.1 - 0.2
----------- ----------- -----------------
Total comprehensive income for the
period 62.8 21.4 87.7
=========== =========== =================
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period ended Share Share Other Retained Equity Non-controlling Total
30(th) June 2016 Capital Premium Reserves earnings shareholders' interest equity
Account funds
GBPm
GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1(st) January
2016 19.7 69.7 (18.7) 326.8 397.5 0.8 398.3
--------- --------- ---------- ---------- --------------- ---------------- --------
Profit for the period - - - 51.4 51.4 0.1 51.5
--------- --------- ---------- ---------- --------------- ---------------- --------
Other comprehensive
(expense)/income:
Foreign exchange
translation
differences - - 39.6 - 39.6 - 39.6
Remeasurement gain/(loss)
on post-retirement
benefits - - - (33.2) (33.2) - (33.2)
Deferred tax on
remeasurement
loss on post-retirement
benefits - - - 7.3 7.3 - 7.3
Profit/(Loss) on cash
flow hedges reserve - - (2.4) - (2.4) - (2.4)
--------- --------- ---------- ---------- --------------- ---------------- --------
Total other comprehensive
income/(expense) for
the period - - 37.2 (25.9) 11.3 - 11.3
--------- --------- ---------- ---------- --------------- ---------------- --------
Total comprehensive
income for the period - - 37.2 25.5 62.7 0.1 62.8
--------- --------- ---------- ---------- --------------- ---------------- --------
Contributions by and
distributions to owners
of the Company:
Dividends paid - - - (35.4) (35.4) (0.1) (35.5)
Equity settled share
plans net of tax - - - 1.1 1.1 - 1.1
Issue of share capital - 1.0 - - 1.0 - 1.0
Employee Benefit Trust
Shares - - 2.8 - 2.8 - 2.8
--------- --------- ---------- ---------- --------------- ---------------- --------
Balance at 30(th) June
2016 19.7 70.7 21.3 318.0 429.7 0.8 430.5
========= ========= ========== ========== =============== ================ ========
Other reserves represent the Group's translation, cash flow
hedge, capital redemption and Employee Benefit Trust reserves. The
non-controlling interest is a 2.5% share of Spirax-Sarco (Korea)
Ltd held by employee shareholders.
For the period ended Share Share Other Retained Equity Non-controlling Total
30(th) June 2015 Capital Premium Reserves earnings shareholder's interest equity
Account funds
GBPm
GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1(st) January
2015 19.6 65.1 (6.5) 362.8 441.0 0.9 441.9
--------- --------- ---------- ---------- --------------- ---------------- --------
Profit for the period - - - 39.4 39.4 - 39.4
--------- --------- ---------- ---------- --------------- ---------------- --------
Other comprehensive
(expense)/income:
Foreign exchange
translation
differences - - (18.3) - (18.3) - (18.3)
Remeasurement gain on
post-retirement benefits - - - 1.3 1.3 - 1.3
Deferred tax on
remeasurement
gain on post-retirement
benefits - - - (1.0) (1.0) - (1.0)
Total other comprehensive
income/(expense) for
the period - - (18.3) 0.3 (18.0) - (18.0)
--------- --------- ---------- ---------- --------------- ---------------- --------
Total comprehensive
income/(expense) for
the period - - (18.3) 39.7 21.4 - 21.4
--------- --------- ---------- ---------- --------------- ---------------- --------
Contributions by and
distributions to owners
of the Company:
Dividends paid - - - (34.1) (34.1) (0.1) (34.2)
Special dividend accrued - - - (91.0) (91.0) - (91.0)
Equity settled share
plans net of tax - - - 1.3 1.3 - 1.3
Issue of share capital 0.1 1.8 - - 1.9 - 1.9
Employee Benefit Trust
Shares - - 1.6 - 1.6 - 1.6
--------- --------- ---------- ---------- --------------- ---------------- --------
Balance at 30(th) June
2015 19.7 66.9 (23.2) 278.7 342.1 0.8 342.9
========= ========= ========== ========== =============== ================ ========
For the year ended 31(st) Share Share Other Retained Equity Non-controlling Total
December 2015 Capital Premium Reserves earnings shareholders' interest equity
Account funds
GBPm
GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1(st) January
2015 19.6 65.1 (6.5) 362.8 441.0 0.9 441.9
--------- --------- ---------- ---------- --------------- ---------------- --------
Profit for the year - - - 96.6 96.6 0.1 96.7
--------- --------- ---------- ---------- --------------- ---------------- --------
Other comprehensive
(expense)/income:
Foreign exchange
translation
differences - - (14.1) - (14.1) - (14.1)
Remeasurement loss on
post-retirement benefits - - - 5.7 5.7 - 5.7
Deferred tax on
remeasurement
loss on post-retirement
benefits - - - (0.6) (0.6) - (0.6)
Total other comprehensive
income/(expense) for
the year - - (14.1) 5.1 (9.0) - (9.0)
--------- --------- ---------- ---------- --------------- ---------------- --------
Total comprehensive
income/(expense) for
the year - - (14.1) 101.7 87.6 0.1 87.7
--------- --------- ---------- ---------- --------------- ---------------- --------
Contributions by and
distributions to owners
of the Company:
Dividends paid - - - (140.3) (140.3) (0.2) (140.5)
Equity settled share
plans net of tax - - - 2.6 2.6 - 2.6
Issue of share capital 0.1 4.6 - - 4.7 - 4.7
Employee Benefit Trust
Shares - - 1.9 - 1.9 - 1.9
Balance at 31(st) December
2015 19.7 69.7 (18.7) 326.8 397.5 0.8 398.3
========= ========= ========== ========== =============== ================ ========
CONSOLIDATED STATEMENT OF CASH FLOWS
Notes Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2015
2016 2015
GBPm
GBPm GBPm
Cash flows from operating activities
Profit before taxation 73.4 57.3 139.7
Depreciation, amortisation and
impairment 15.3 16.6 29.3
Profit on disposal of fixed
assets - - (0.5)
Share of profit of Associates - (0.2) -
Acquisition, disposal and closure
of businesses 0.1 1.8 2.0
Equity settled share plans 1.3 1.5 3.3
Net finance expense 1.3 0.6 1.5
Operating cash flow before changes
in working capital and provisions 91.4 77.6 175.3
Change in trade and other receivables (0.1) 9.9 (1.9)
Change in inventories (2.6) (4.9) 3.5
Change in provisions and post-retirement
benefits 2.7 (0.6) 0.7
Change in trade and other payables (2.4) (5.0) (2.6)
----------- ----------- -----------------
Cash generated from operations 89.0 77.0 175.0
Interest paid (0.6) (0.7) (1.3)
Income taxes paid (27.3) (24.2) (43.4)
----------- ----------- -----------------
Net cash from operating activities 61.1 52.1 130.3
=========== =========== =================
Cash flows from investing activities
Purchase of property, plant
& equipment (14.1) (11.3) (26.0)
Proceeds from sale of property,
plant & equipment 0.7 1.2 2.4
Sale of businesses - 6.5 13.3
Purchase of software and other
intangibles (2.3) (2.0) (4.8)
Development expenditure capitalised (1.1) (1.3) (2.4)
Acquisition of businesses (0.1) (7.1) (23.6)
Bank deposits - 24.6 24.3
Interest received 0.7 1.4 2.1
----------- ----------- -----------------
Net cash used in investing activities (16.2) 12.0 (14.7)
=========== =========== =================
Cash flows from financing activities
Proceeds from issue of Share
Capital 1.0 1.9 4.7
Repaid borrowings 8 (20.4) (57.0) (79.4)
New borrowings 8 0.3 0.8 81.3
Change in finance lease liabilities 8 (0.2) (0.2) (0.4)
Dividends paid (including minorities) (35.5) (34.2) (140.5)
----------- ----------- -----------------
Net cash used in financing activities (54.8) (88.7) (134.3)
=========== =========== =================
Net change in cash and cash
equivalents 8 (9.9) (24.6) (18.7)
Net cash and cash equivalents
at beginning of period 8 95.9 117.5 117.5
Exchange movement 8 6.7 (6.4) (2.9)
----------- ----------- -----------------
Net cash and cash equivalents
at end of period 8 92.7 86.5 95.9
Borrowings and finance leases 8 (72.1) (33.0) (91.1)
----------- ----------- -----------------
Net Cash at the end of the period 8 20.6 53.5 4.8
=========== =========== =================
NOTES TO THE ACCOUNTS
1. BASIS OF PREPARATION
Spirax-Sarco Engineering plc is a company domiciled in the UK.
The Condensed Consolidated Interim Financial Statements of
Spirax-Sarco Engineering plc and its subsidiaries (the Group) for
the six months ended 30(th) June 2016 have been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU. The accounting policies applied are consistent with those
set out in the 2015 Spirax-Sarco Engineering plc Annual Report.
These Condensed Consolidated Interim Financial Statements do not
include all the information required for full annual statements and
should be read in conjunction with the 2015 Annual Report. The
comparative figures for the year ended 31(st) December 2015 do not
constitute the Group's statutory Financial Statements for that
financial year as defined in Section 434 of the Companies Act 2006.
The statutory Consolidated Financial Statements for Spirax-Sarco
Engineering plc in respect of the year ended 31(st) December 2015
have been reported on by the Company's auditor and delivered to the
registrar of companies. The report of the auditor was (i)
unqualified, (ii) did not include a reference to any matters to
which the auditor drew attention by way of emphasis without
qualifying their report, and (iii) did not contain a statement
under Section 498 (2) or (3) of the Companies Act 2006. The
Consolidated Financial Statements of the Group in respect of the
year ended December 2015 are available upon request from Mr A. J.
Robson, General Counsel and Company Secretary, Charlton House,
Cheltenham, Gloucestershire, GL53 8ER, United Kingdom or on
www.spiraxsarcoengineering.com.
The Condensed Consolidated Interim Financial Statements for the
six months ended 30(th) June 2016, which have not been audited or
reviewed by the auditor, were authorised by the Board on 8(th)
August 2016.
The Half Year Report and Interim Financial Statements (Half Year
Report) has been prepared solely to provide additional information
to shareholders as a body to assess the Group's strategies and the
potential for those strategies to succeed. This Half Year Report
should not be relied upon by any other party or for any other
purpose.
GOING CONCERN
Having made enquiries and reviewed the Group's plans and
available financial facilities, the Board has a reasonable
expectation that the Group has adequate resources to continue its
operational existence for the foreseeable future. For this reason,
it continues to adopt the going concern basis in preparing the
Condensed Consolidated Interim Financial Statements. There are no
key sensitivities identified in relation to this conclusion.
NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
There are a number of new standards, amendments to standards and
interpretations that are not yet effective for the period ended
30(th) June 2016 and have, therefore, not been applied in preparing
these Condensed Consolidated Interim Financial Statements. None of
these are anticipated to have a significant impact on the
Consolidated Income Statement or Consolidated Statement of
Financial Position.
SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of Interim Financial Statements, in conformity
with adopted IFRS, requires management to make judgements,
estimates and assumptions that affect the application of accounting
policies and the reported amount of assets and liabilities, income
and expense. Actual results may differ from these estimates. In
preparing these Condensed Consolidated Interim Financial
Statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
Consolidated Financial Statements for the year ended 31(st)
December 2015.
The Directors have considered the facts and circumstances as at
30(th) June 2016 and concluded that there are no indicators of
impairments that require an impairment review to be undertaken on
goodwill at the Interim Statement of Financial Position date. The
annual impairment review will be undertaken later in 2016
consistent with the timing in previous years.
CAUTIONARY STATEMENTS
This Half Year Report contains forward-looking statements. These
have been made by the Directors in good faith based on the
information available to them up to the time of their approval of
this Report. The Directors can give no assurance that these
expectations will prove to have been correct. Due to the inherent
uncertainties, including both economic and business risk factors
underlying such forward-looking information, actual results may
differ materially from those expressed or implied by these
forward-looking statements. The Directors undertake no obligation
to update any forward-looking statements, whether as a result of
new information, future events, or otherwise.
RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge:
-- this Condensed set of Interim Financial Statements has been
prepared in accordance with IAS 34 Interim Financial Reporting as
adopted by the EU;
-- the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
Condensed Financial Statements, and a description of the principal
risks and uncertainties for the remaining six months of the
financial year.
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year that have materially affected
the financial position or performance of the entity during that
period, and any changes in the related party transactions described
in the last annual report that could do so.
The Directors of Spirax-Sarco Engineering plc on 8(th) August
2016 are the same as those listed in the 2015 Annual Report on
pages 68 and 69 with the exception of David Meredith who retired at
the conclusion of the AGM on 10(th) May 2016 and Kevin Boyd who was
appointed on 11(th) May 2016.
N. J. Anderson
Group Chief Executive
8(th) August 2016
K. J. Boyd
Group Finance Director
8(th) August 2016
On behalf of the Board
2. SEGMENTAL REPORTING
As required by IFRS 8, Operating Segments, the following
segmental information is presented in a consistent format with
management information considered by the Board.
Analysis by location of operation
Six months to 30(th) Inter- Total Adjusted Adjusted
June 2016 Gross segment operating operating operating
revenue revenue Revenue profit profit margin
GBPm GBPm GBPm GBPm GBPm %
Europe, Middle East
& Africa 130.1 (18.0) 112.1 22.8 23.1 20.6%
Asia Pacific 83.7 (1.7) 82.0 17.8 18.1 22.0%
Americas 64.9 (3.3) 61.6 12.4 13.4 21.7%
---------- --------- ---------- ----------- ----------- -----------
Steam Specialties
business 278.7 (23.0) 255.7 53.0 54.6 21.3%
Watson-Marlow 88.3 - 88.3 27.8 29.0 32.9%
Corporate expenses (6.1) (6.1)
---------- --------- ---------- ----------- ----------- -----------
367.0 (23.0) 344.0 74.7 77.5 22.5%
Intra-Group (23.0) 23.0
---------- --------- ---------- ----------- ----------- -----------
Total 344.0 - 344.0 74.7 77.5 22.5%
---------- --------- ---------- ----------- ----------- -----------
Net finance expense (1.3) (1.3)
Profit before tax 73.4 76.2
========== ========= ========== =========== =========== ===========
Six months to 30(th) Inter- Total Adjusted Adjusted
June 2015 Gross segment operating operating operating
revenue revenue Revenue profit profit margin
GBPm GBPm GBPm GBPm GBPm %
Europe, Middle East
& Africa 128.6 16.8 111.8 20.7 21.3 19.0%
Asia Pacific 76.5 2.2 74.3 15.2 15.5 20.9%
Americas 64.0 2.9 61.1 7.3 11.7 19.3%
---------- --------- ---------- ----------- ----------- -----------
Steam Specialties business 269.1 21.9 247.2 43.2 48.5 19.6%
Watson-Marlow 72.8 - 72.8 20.7 21.8 29.9%
Corporate expenses (4.5) (4.5)
---------- --------- ---------- ----------- ----------- -----------
341.9 21.9 320.0 59.4 65.8 20.6%
Intra-Group (21.9) (21.9)
---------- --------- ---------- ----------- ----------- -----------
Total 320.0 - 320.0 59.4 65.8 20.6%
---------- --------- ---------- ----------- ----------- -----------
Net finance expense (0.6) (0.6)
Share of profit/(loss)
of Associates (1.5) 0.3
---------- --------- ---------- ----------- ----------- -----------
Profit before tax 57.3 65.5
========== ========= ========== =========== =========== ===========
Year ended 31(st) Inter- Total Adjusted Adjusted
December 2015 Gross segment operating operating operating
revenue revenue Revenue profit profit margin
GBPm GBPm GBPm GBPm GBPm %
Europe, Middle East
& Africa 253.7 34.3 219.4 41.4 42.7 19.5%
Asia Pacific 176.3 4.5 171.8 44.2 44.7 26.0%
Americas 128.9 5.5 123.4 21.6 27.1 22.0%
---------- --------- ---------- ----------- ----------- -----------
Steam Specialties
business 558.9 44.3 514.6 107.2 114.5 22.3%
Watson-Marlow 152.6 - 152.6 45.6 47.9 31.4%
Corporate expenses (10.0) (10.0)
---------- --------- ---------- ----------- ----------- -----------
711.5 44.3 667.2 142.8 152.4 22.8%
Intra-Group (44.3) (44.3)
---------- --------- ---------- ----------- ----------- -----------
Total 667.2 - 667.2 142.8 152.4 22.8%
---------- --------- ---------- ----------- ----------- -----------
Net finance expense (1.5) (1.5)
Share of profit/(loss)
of Associates (1.6) 0.2
---------- --------- ---------- ----------- ----------- -----------
Profit before tax 139.7 151.1
========== ========= ========== =========== =========== ===========
Non-operational items
The Group uses adjusted figures as key performance measures in
addition to those reported under adopted IFRS. The Group's
management believes these measures provide valuable additional
information for users of the Financial Statements in understanding
the Group's performance. Adjusted operating profit excludes certain
non-operational items which are analysed below:
Six months to Six months Year ended
30(th) June to 31(st) December
2016 30(th) June 2015
2015
GBPm GBPm
GBPm
Amortisation and impairment
of acquisition-related intangible
assets (2.7) (2.2) (4.7)
Loss on closure of USA metering
unit - (3.8) (3.8)
Profit on disposal of M&M less
recycled exchange losses - - (0.3)
Acquisition and disposal costs (0.1) (0.4) (0.8)
Total non-operational items (2.8) (6.4) (9.6)
============== ============= =================
Share of profit of Associates
An analysis of the share of profit of Associates is shown
below:
Six months to Six months Year ended
30(th) June to 31(st) December
2016 30(th) June 2015
2015
GBPm GBPm
GBPm
Share of adjusted profit - 0.3 0.2
--------------- ------------- -----------------
Non-operational items
Amortisation and impairment of
acquisition-related intangible
assets - (0.1) (0.1)
Final adjustment to previous
tangible asset impairment write
offs - 0.1 0.1
Exchange translation differences
recycled under IAS 21 - (1.8) (1.8)
--------------- ------------- -----------------
Total non-operational items - (1.8) (1.8)
--------------- ------------- -----------------
Total Associates - (1.5) (1.6)
=============== ============= =================
Net assets
At 30(th) June At 30(th) June At 31(st) December
2016 2015 2015
Assets Liabilities Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm GBPm GBPm
Europe, Middle East
& Africa 196.8 (115.6) 196.0 (96.0) 182.8 (91.2)
Asia Pacific 152.8 (27.6) 122.8 (18.1) 140.3 (30.4)
Americas 112.2 (43.9) 94.2 (21.4) 102.4 (24.0)
Watson-Marlow 136.5 (19.8) 110.1 (18.8) 123.9 (14.0)
-------- ------------ -------- ------------ -------- ------------
598.3 (206.9) 523.1 (154.3) 549.4 (159.6)
Liabilities (206.9) (154.3) (159.6)
Special dividend - (91.0) -
Deferred tax 23.6 19.3 15.3
Current tax payable (5.1) (7.7) (11.6)
Net cash 20.6 53.5 4.8
-------- ------------ -------- ------------ -------- ------------
Net assets 430.5 342.9 398.3
======== ============ ======== ============ ======== ============
Capital additions, depreciation and amortisation
Six months to Six months to Year ended
30(th) June 2016 30(th) June 2015 31(st) December
2015
Capital Depreciation Depreciation Depreciation
additions and amortisation Capital and amortisation Capital and amortisation
additions additions
GBPm GBPm GBPm GBPm
GBPm GBPm
Europe, Middle
East & Africa 5.3 5.8 6.0 5.7 13.0 11.1
Asia Pacific 7.6 3.3 2.0 2.9 11.0 5.5
Americas 2.6 2.6 1.7 4.8 10.4 4.9
Watson-Marlow 2.0 3.6 5.2 3.2 11.9 7.3
Group total 17.5 15.3 14.9 16.6 46.3 28.8
=========== ================== ============ =================== ============ ==================
Capital additions include property, plant and equipment at
30(th) June 2016 of GBP14.1m; at 30(th) June 2015 of GBP8.8m; and
at 31(st) December 2015 of GBP26.3m; and other intangible assets at
30(th) June 2016 of GBP3.4m; at 30(th) June 2015 of GBP6.1m; and at
31(st) December 2015 of GBP20.0m of which at 30(th) June 2016
GBPnil; at 30 June 2015 GBP2.9m and 31(st) December 2015 GBP12.8m
relates to acquired intangibles from acquisitions in the
period.
3. NET FINANCING INCOME AND EXPENSE
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2015
2016 2015
GBPm
GBPm GBPm
Financial expenses
Bank and other borrowing interest
payable (0.6) (0.7) (1.3)
Net interest on pension scheme
liabilities (1.3) (1.3) (2.3)
----------- ----------- -----------------
(1.9) (2.0) (3.6)
----------- ----------- -----------------
Financial income
Bank interest receivable 0.6 1.4 2.1
Net financing expense (1.3) (0.6) (1.5)
=========== =========== =================
Net pension scheme financial expense (1.3) (1.3) (2.3)
Net bank interest - 0.7 0.8
----------- ----------- -----------------
Net financing expense (1.3) (0.6) (1.5)
=========== =========== =================
4. TAXATION
Taxation has been estimated at the rate expected to be incurred
in the full year
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2015
2016 2015
GBPm
GBPm GBPm
UK corporation tax 1.1 0.4 0.9
Foreign taxation 22.4 18.8 43.6
Deferred taxation (1.6) (1.3) (1.5)
----------- ----------- -----------------
Total Taxation 21.9 17.9 43.0
=========== =========== =================
5. EARNINGS PER SHARE
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2015
2016 2015
Profit attributable to equity shareholders
(GBPm) 51.4 39.4 96.5
=========== =========== =================
Weighted average shares in issue
(million) 73.3 75.5 74.3
Dilution (million) 0.3 0.3 0.3
----------- ----------- -----------------
Diluted weighted average shares
in issue (million) 73.6 75.8 74.6
=========== =========== =================
Basic earnings per share 70.2p 52.2p 129.9p
=========== =========== =================
Diluted earnings per share 70.0p 52.0p 129.4p
=========== =========== =================
Adjusted profit attributable to
equity shareholders (GBPm) 53.5 45.7 105.9
=========== =========== =================
Basic adjusted earnings per share 73.1p 60.5p 142.6p
=========== =========== =================
Diluted adjusted earnings per share 72.8p 60.2p 141.9p
=========== =========== =================
The dilution is in respect of unexercised share options and the
Performance Share Plan.
6. DIVIDS
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2015
2016 2015
GBPm
GBPm GBPm
Amounts paid in the period:
Final dividend for the year ended
31(st) December 2015 of 48.2p (2014:
45.0p) per share 35.4 34.1 34.1
Special dividend for the year ended
31(st) December 2014 of 120.0p
(2013: nil) per share - - 91.0
Interim dividend for the year ended
31(st) December 2015 of 20.8p (2014:
19.5p) per share - - 15.2
----------- ----------- -----------------
Total dividends paid 35.4 34.1 140.3
=========== =========== =================
Amounts arising in respect of the
period:
Interim dividend for the year ended
31(st) December 2016 of 22.5p (2015:
20.8p) per share 16.5 15.2 15.2
Final dividend for the year ended
31(st) December 2015 of 48.2p (2014:
45.0p) per share - - 35.4
Total dividends arising 16.5 15.2 50.6
=========== =========== =================
The interim dividend for the year ended 31(st) December 2016 was
approved by the Board after the 30(th) June 2016. It is therefore
not included as a liability in these Interim Condensed Consolidated
Financial Statements. No scrip alternative to the cash dividend is
being offered in respect of the 2016 interim dividend.
7. POST-RETIREMENT BENEFITS
The Group is accounting for pension costs in accordance with IAS
19. The disclosures shown here are in respect of the Group's
Defined Benefit Obligations. Other plans operated by the Group were
either Defined Contribution plans or were deemed immaterial for the
purposes of IAS 19 reporting. Full IAS 19 disclosure for the year
ended 31(st) December 2015 is included in the Group's Annual
Report.
The amounts recognised in the balance sheet are as follows:
At 30(th) At 30(th) At 31(st)
June 2016 June December
2015 2015
GBPm
GBPm GBPm
Retirement benefit liability recognised
in the balance sheet (113.8) (75.0) (73.7)
Related deferred tax asset 27.3 16.9 18.0
----------- ---------- ----------
Net pension liability (86.5) (58.1) (55.7)
=========== ========== ==========
8. ANALYSIS OF CHANGES IN NET CASH
At 1(st) Cash flow Exchange At 30(th)
Jan movement June
2016 2016
GBPm GBPm
GBPm GBPm
Current portion of long-term
borrowings (0.3) (0.3)
Non-current portion of long-term
borrowings (80.7) (66.1)
Short-term borrowing (10.1) (5.7)
--------- ---------- ---------- ----------
Total borrowings (91.1) 20.3 (1.3) (72.1)
========= ========== ========== ==========
Comprising:
Borrowings (90.6) 20.1 (1.3) (71.8)
Finance leases (0.5) 0.2 - (0.3)
--------- ---------- ---------- ----------
(91.1) 20.3 (1.3) (72.1)
========= ========== ========== ==========
Cash and cash equivalents 99.8 1.4 7.8 109.0
Bank overdrafts (3.9) (11.3) (1.1) (16.3)
--------- ---------- ---------- ----------
Net cash and cash equivalents 95.9 (9.9) 6.7 92.7
========= ========== ========== ==========
Net cash 4.8 10.4 5.4 20.6
========= ========== ========== ==========
9. CAPITAL EMPLOYED
The Board uses certain non-statutory measures to help it
effectively monitor the performance of the Group. Capital employed
is a key measure.
At 30(th) At 30(th) At 31(st)
June June December 2015
2016 2015 GBPm
GBPm GBPm
Property, plant and equipment 185.3 164.7 169.9
Prepayments 5.7 0.5 5.5
Inventories 104.1 98.8 92.5
Trade receivables 160.7 133.2 152.1
Other current assets 25.2 25.0 20.4
Tax recoverable 9.3 4.6 9.5
Capital employed element of business - 4.6 -
held for sale
Trade, other payables and current
provisions (90.8) (76.3) (84.3)
Current tax payable (14.4) (12.3) (21.1)
---------- ---------- ---------------
Capital employed 385.1 342.8 344.5
========== ========== ===============
10. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this Note.
Full details of the Group's other related party relationships,
transactions and balances are given in the Group's Financial
Statements for the year ended 31(st) December 2015. There have been
no material changes in these relationships in the period up to the
end of this report.
No related party transactions have taken place in the first half
of 2016 that have materially affected the financial position or the
performance of the Group during that period.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table compares amounts and fair values of the
Group's financial assets and liabilities:
At 30(th) June At 30(th) June At 31(st) December
2016 2015 2015
Carrying Fair Carrying Fair Carrying Fair
Value Value Value Value Value Value
GBPm GBPm GBPm GBPm GBPm GBPm
Financial assets
Cash and cash
equivalents 109.0 109.0 86.6 86.6 99.8 99.8
Trade and other
receivables 172.9 172.9 142.4 142.4 162.5 162.5
--------- ------- --------- ------- ----------- --------
Total financial
assets 281.9 281.9 229.0 229.0 262.3 262.3
========= ======= ========= ======= =========== ========
Financial liabilities
Bank loans 71.8 71.8 32.3 32.3 90.6 90.6
Finance lease
obligations 0.3 0.3 0.6 0.6 0.5 0.5
Bank overdrafts 16.3 16.3 0.2 0.2 3.9 3.9
Derivative financial
liabilities 2.6 2.6 - - 0.2 0.2
Trade payables 23.2 23.2 20.9 20.9 24.0 24.0
Other payables 29.2 29.2 23.9 23.9 27.3 27.3
------ ------ ----- ----- ------ ------
Total financial
liabilities 143.4 143.4 77.9 77.9 146.5 146.5
====== ====== ===== ===== ====== ======
There are no other assets or liabilities measured at fair value
on a recurring or non-recurring basis for which fair value is
disclosed.
Fair values of financial assets and financial liabilities
Fair values of financial assets and liabilities at 30th June
2016 are not materially different from book values due to their
size or the fact that they were at short-term rates of interest.
Fair values have been assessed as follows:
Derivatives
Forward exchange contracts are marked to market by discounting
the future contracted cash flows using readily available market
data.
Interest-bearing loans and borrowings
Fair value is calculated based on discounted expected future
principal and interest cash flows.
Finance lease liabilities
The fair value is estimated as the present value of future cash
flows, discounted at market interest rates for homogeneous lease
agreements.
Trade and other receivables/payables
For receivables/payables with a remaining life of less than one
year, the notional amount is deemed to reflect the fair value.
The Group uses forward currency contracts to manage its exposure
to movements in foreign exchange rates. The forward contracts are
designated as hedge instruments in a cash flow hedging
relationship. At 30(th) June 2016 the Group had contracts
outstanding to purchase GBP14.0m with euros, GBP7.1m with US
dollars, GBP1.3m with Swiss francs, GBP0.9m with Korean won,
GBP0.8m with Danish krone, GBP0.6m with Japanese yen, GBP0.2m with
Norwegian krone, GBP0.1m with Czech koruna and EUR2.8m with US
dollars. Derivative financial instruments are measured at fair
value. The fair value at the end of the reporting period is a
GBP2.6m liability (31(st) December 2015: GBP0.2m liability).
Financial instruments fair value disclosure
Fair value measurements are classified into three levels,
depending on the degree to which the fair value is observable.
-- Level 1 fair value measurements are those derived from quoted
prices in active markets for identical assets and liabilities
-- Level 2 fair value measurements are those derived from other
observable inputs for the asset or liability; and
-- Level 3 fair value measurements are those derived from
valuation techniques using inputs that are not based on observable
market data.
We consider that the derivative financial instruments fall into
level 2. There have been no transfers between levels during the
period.
12. CAPITAL COMMITMENTS
Capital expenditure contracted for but not provided for at
30(th) June 2016 was GBP4.0m (31(st) December 2015: GBP7.4m). All
capital commitments related to property, plant and equipment.
13. PURCHASE OF BUSINESSES
On 1(st) July we acquired the assets of Hiter Indústria e
Comércio de Controles Termo- Hidráulicos Ltda (Hiter), a process
control valve manufacturer based in Sorocaba, Brazil, for a total
purchase consideration of GBP3.9 million which was paid in cash
from existing Group resources. At the date these Interim Condensed
Consolidated Financial Statements were authorised for issue, the
acquisition accounting had not been finalised but will be included
and disclosed in the 2016 Annual Report.
14. EXCHANGE RATES
Set out below is an additional disclosure (not required by IAS
34) that highlights movements in a selection of average exchange
rates between half year 2016 and half year 2015.
Average Average Change %
Half year Half year
2016 2015
----------- ----------- ---------
Bank of England sterling index 86.5 90.6 +5%
----------- ----------- ---------
US$ 1.42 1.53 +8%
Euro 1.29 1.36 +5%
Renminbi 9.33 9.53 +2%
Won 1,677 1,685 +0%
Real 5.26 4.53 -14%
Argentine Peso 20.38 13.49 -34%
Rouble 98.76 89.74 -9%
About Spirax Sarco
Spirax-Sarco Engineering plc is the world leader in each of its
two businesses, Spirax Sarco for steam specialties and
Watson--Marlow Fluid Technology Group for niche peristaltic pumps
and associated fluid path technologies. The steam specialties
business provides a broad range of fluid control products,
engineered packages, site services and systems expertise for a
diverse range of industrial and institutional customers. The
company helps its customers to improve production efficiency,
reduce energy costs, water usage and emissions, improve product
quality and enhance the safety of their operations. Watson-Marlow
Fluid Technology Group offers the ideal solution for a wide variety
of demanding fluid path applications with highly accurate,
controllable and virtually maintenance free pumps and associated
technologies. The Group is headquartered in Cheltenham, England,
has strategically located manufacturing plants around the world and
employs approximately 4,900 people, of whom over 1,300 are direct
sales and service engineers. Its shares have been listed on the
London Stock Exchange since 1959 (symbol: SPX).
Further information can be found at
www.spiraxsarcoengineering.com
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