2011 Half Year Results

RNS Number : 8168M

Spirax-Sarco Engineering PLC

23 August 2011

 



Spirax-Sarco Engineering plc	Charlton House Cheltenham Glos. GL53 8ER
News Release	Telephone:  [phone] Fax:  [phone] www.SpiraxSarcoEngineering.com

Tuesday 23^rd August 2011                

2011 Half Year Results

Six months ended 30^th June

Adjusted*	2011	2010	Change	Constant FX
Revenue	£307.7m	£277.0m	+11%	+11%
Adjusted operating profit*	£61.2m	£53.5m	+14%	+14%
Adjusted operating profit margin*	19.9%	19.3%
Adjusted profit before taxation*	£63.0m	£54.9m	+15%	+15%
Adjusted earnings per share*	56.6p	49.8p	+14%	+14%
Dividend per share	14.8p	13.0p	+14%

Statutory	2011	2010	Change
Operating profit	£59.2m	£60.1m	-2%
Profit before taxation	£60.8m	£61.3m	-1%
Earnings per share	54.1p	58.5p	-8%

*All profit measures exclude the amortisation of acquisition-related intangible assets of £2.2 million (2010: £1.6 million), of which £0.2 million (2010: £0.2 million) relates to Associates.  2010 excludes the profit on revaluation of investment of £8.2m arising from the acquisition of a company previously treated as an Associate and professional costs of £0.2 million in relation to acquisitions.

·     Record sales up 11% (10% organic) - growth in all segments

·     Operating profit margin improved to 19.9%

·     Pre-tax profit up 15%

·     Completed equipment relocations for Cheltenham manufacturing site consolidation

·     High first-half capital investment (£20 million)

·     Strong balance sheet

Commenting on the results, Mark Vernon, Group Chief Executive, said:

We are pleased to report another set of record results for the first six months of 2011, with good sales growth and improvement in the operating profit margin to 19.9%.  Our continued investments in geographic market penetration and new product development have contributed to the good organic sales growth of 10% in the first half of the year and to market share gains and expansion of our addressable markets.  Rates of industrial production growth returned to more normal levels in the first half of the year, with the pace of economic growth slowing from the rapid expansion of 2010. 

The widespread use of steam means that our markets tend to reflect general economic conditions and industrial production, and we are increasingly alert to the impact on these from uncertainty relating to the financial markets and the parlous state of government finances in many countries.  If the growth rate of the world economy slows, we expect to be resilient but not immune.  Given no overall deterioration in our markets or significant adverse currency movements, the Board remains confident in the prospects for the Group this year and the progress we expect to achieve.

For further information, please contact:

Mark Vernon, Chief Executive

David Meredith, Finance Director

Tel: [phone] at Citigate Dewe Rogerson

There will be a live audio webcast of the Analysts presentation today at 10.00am hosted on the Company website at http://www.media-server.com/m/p/prgn9a9y.   Please note that this will be a listen only facility.  An archive of the webcast and presentation will be available via the same link later today.

Unless otherwise stated, the figures quoted in the text below are based on the Adjusted Group results.

REVIEW OF OPERATIONS

We are pleased to report another set of record results for the first six months of 2011, with good sales growth and improvement in the operating profit margin to 19.9%.

Sales at £307.7 million were ahead 11%, including 1% from acquisitions, with further progress in all segments.  Overall currency movements were immaterial and the organic sales growth of 10% was again led by emerging markets and Watson-Marlow.

Adjusted operating profit for the first half of the year grew by 14% from £53.5 million to £61.2 million and the margin rose from 19.3% to 19.9%.  We benefited from operational leverage on the higher sales and the inclusion of Mexico in this year's half-year results, partially offset by increased investments in sales development and R&D, higher material prices and one-off costs from the manufacturing site consolidation in Cheltenham.  The adjusted operating margin for the steam specialties business segment advanced to 19.3% from last year's 18.6% and the adjusted operating margin for the Watson-Marlow pumps segment was unchanged at 28.8% due to the negative impact of currency transaction effects.

Net finance income was £0.6 million compared with net expense of £0.4 million in the first half of 2010 due to an improvement relating to the defined benefit pension funds.  The Group's share of the after-tax profit of Associates was lower at £1.3 million (2010: £1.8 million) largely due to our Mexican operation becoming a wholly-owned subsidiary in May 2010.

Adjusted pre-tax profit rose 15% from £54.9 million to £63.0 million.  The pre-tax profit for the first half of the year, on a statutory basis, was little changed at £60.8 million.  The overall tax rate, based on the adjusted profit before tax excluding the Associate profit, was marginally lower at 31.1% (2010: 31.4%).  Adjusted basic earnings per share increased by 14% from 49.8p to 56.6p.

Trading

During the first half of the year, market conditions improved and the rates of industrial output growth returned to more normal levels.  Our robust business model and good execution have enabled the Group to continue to deliver growth ahead of our markets as we focus on energy saving, emissions reduction and process improvements for our diverse range of industrial and commercial customers.  Our continued investments in geographic market penetration and new product developments have contributed to the good organic sales growth of 10% in the first half of the year and to market share gains and expansion of our addressable market.  Effectively managing the high cost of energy and meeting stringent environmental regulation are of increasing importance to our customers, who value the highly skilled direct sales and service resources we can bring to bear in providing them with tailored engineering recommendations and solutions. 

In our steam specialties business, we achieved good sales growth across all product ranges and geographic markets driven by increased customer spending on maintenance and small capital improvement projects.  Combined sales growth of prefabricated heat exchange packages, controls, services and flow meters considerably outpaced the growth of the traditional steam specialties products, in line with our emphasis on new products, engineered packages and services opportunities that have higher inherent growth potential. 

Market conditions for Watson-Marlow pumps generally reflect those of the steam specialties business and we achieved good sales growth.  Our comparatively small pumps presence in emerging markets provides the opportunity for improved prospects in these important growth markets. 

We continue to aggressively progress the implementation of our global manufacturing strategy.  Our new, significantly larger, plant in China completed its first full year of operation and output is steadily rising with the addition of new equipment and localisation of more production.  In June, we completed the extensive physical moves in the Cheltenham manufacturing site consolidation and the reorganisation of our French factory, and expect to see the progressive cost savings as the new manufacturing processes are bedded down.  As expected, material costs have been higher than in the first half of 2010, although these have been mostly offset by price increases and other actions.

Steam Specialties Business

EMEA

	2011	2010	Change	Constant Currency
Revenue	£122.7m	£112.8m	+9%	+8%
Operating profit	£20.5m	£18.6m	+10%	+8%
Operating margin	16.7%	16.5%

Sales in Europe, Middle East and Africa (EMEA) increased by 9% from £112.8 million to £122.7 million, including a 1% benefit from exchange movements.  We continue to see a two-speed recovery in our EMEA steam specialties segment, with good growth in Germany, Scandinavia, Eastern Europe, the Middle East and Africa and slower growth and relatively low project activity throughout most of our other core European markets.  Sales growth resulted mostly from higher sales of instrumentation products, prefabricated packages and steam system services.  Emerging European markets did well and sales in Russia and Poland were strongly ahead, as were sales in the Middle East and Northern Africa.  Our South African business also did well benefiting from increased sales, good cost control and favourable currency movements.  M&M, our small specialist valve business, continued its recovery with excellent results in the first half year.  There was good growth in Germany with higher demand from both domestic and export oriented customers.  However, trading conditions remained more difficult in our other core continental European markets in France, Italy and Spain, where combined sales and profit were only marginally ahead.  Market conditions also remain difficult in the UK, but sales and profit increased as order backlog was reduced.  Our manufacturing operations in the UK and France saw lower profits due to increased material costs and additional costs relating to the site consolidation in Cheltenham and the reorganisation of manufacturing operations in both units.  Overall operating profit in EMEA increased by 10% from £18.6 million to £20.5 million and at constant currency the profit increase was 8%.  The operating profit margin edged up to 16.7% (2010: 16.5%).

Asia Pacific

	2011	2010	Change	Constant Currency
Revenue	£65.2m	£56.7m	+15%	+12%
Operating profit	£15.6m	£13.1m	+19%	+14%
Operating margin	23.9%	23.0%

Sales in Asia Pacific increased by 15% from £56.7 million to £65.2 million.  We benefited from sterling being weaker against virtually all currencies in the region and, at constant currency, sales were up 12%.  We saw good sales growth across virtually all product lines, including higher sales of traditional steam specialties products and controls.  China, our largest operation in the region, continued to make strong progress in all product areas as we invested to expand our network of sales offices and added sales resource.  The new manufacturing plant in Shanghai is performing well with output accelerating.  Korean sales and profits were ahead and we saw good results from several of our smaller operations throughout the region.  Our Asia Pacific segment results are driven to a great extent by the performance of our businesses in China and Korea.  Our Chinese business is focused on serving domestic industries geared more towards local consumption and therefore we remain confident in the future growth prospects but in Korea we expect lower domestic oil and petrochemicals project activity.  Notably, our small Japanese business performed remarkably well in moderately improving its profit performance against the background of the devastating earthquake and tsunami in March.  Overall, the Asia Pacific operating profit increased 19%, or 14% at constant currency, and the margin improved further to 23.9% (2010: 23.0%). 

Americas

	2011	2010	Change	Constant Currency
Revenue	£63.9m	£59.0m	+8%	+11%
Operating profit	£12.6m	£10.9m	+15%	+20%
Operating margin	19.7%	18.5%

Sales in the Americas increased by 8% from £59.0 million to £63.9 million.  At constant currency, sales were up 11%, half of which was attributable to the inclusion of our Mexico operation, which became a full subsidiary in May 2010.  The US dollar was weaker against sterling and the Argentinian peso continues to depreciate as inflation worries persist but these impacts were mitigated by the continued strength of the Brazilian real.  Market conditions in North America have normalised with a return of project activity in Western Canada and cautious spending patterns for replacement equipment and capital improvement projects in the US.  Sales growth in the Americas was buoyed by higher sales of flow meters in the US and increased sales of traditional steam specialties products throughout the region.  In North America, we saw particularly strong sales growth in Canada, continuing the rebound in the second half of last year from the return of some project work.  Sales and profit growth continued in our Latin American operations but at a less frenetic pace than in 2010, with good profit gains and strong operating margins in Brazil and Mexico, but with lower profit in Argentina.   Overall operating profit in the Americas grew well, rising by 15% from £10.9 million to £12.6 million, with a further improvement in the operating profit margin from 18.5% to 19.7% as we benefited from higher sales, good cost controls, the inclusion of Mexico and the good performance in Brazil.

Watson-Marlow Pumps 

	2011	2010	Change	Constant Currency
Revenue	£55.9m	£48.5m	+15%	+17%
Operating profit	£16.1m	£14.0m	+15%	+19%
Operating margin	28.8%	28.8%

Sales increased by 15% from £48.5 million to £55.9 million with a negative impact on translation from the weaker US dollar, offset by the benefit from the small acquisition of our Australasian distributorships in June 2010.  Watson-Marlow pumps achieved widespread sales growth as we continued to expand our geographic coverage with more direct sales people in both developed and emerging markets, accelerated our industry sector-focused sales approach and capitalised on the further integration and development of acquisitions made in recent years.  Sales growth was strong in industrial and mining markets but with some weakness in water & wastewater due to pressures on government finances, particularly in the USA.  There was a good performance across EMEA with strong growth in tubing and Bredel products, although Germany did not repeat the large OEM demand in the first half of last year.  Sales grew nicely in the Americas with a good contribution from Flexicon products and our new direct selling operations in Mexico and Argentina.  Asia Pacific continued its rapid growth, including the benefit from the integration of recent acquisitions and the introduction of a broader range of the pump product portfolio into the region.  Segment operating profit increased by 15% from £14.0 million to £16.1 million, or 19% at constant currency, and the operating profit margin was unchanged at 28.8% despite the negative impact of currency transaction effects.

Balance Sheet and Cash Flow

Capital employed of £343 million at 30^th June 2011 increased by 13% at constant currency compared with 31^st December 2010.  Investment in fixed assets, at over £20 million, continued at a high level as we completed the significant elements of the manufacturing site consolidation in Cheltenham.  Capital investments will continue at a lower level for the on-going implementation of the regional manufacturing strategy, with additional equipment in China and the Americas.  Working capital rose by 20% at constant currency reflecting the good sales growth and due to seasonal patterns, higher levels of raw materials and an increase in buffer stocks related to the manufacturing reorganisation in Cheltenham.

Net cash balances reduced by £22.2 million in the first half year reflecting the usual seasonal pattern, high capital expenditure and 18% increase in dividend payments.  We operate with a strong balance sheet that enables us to reinvest in the business and the net cash balance at 30^th June 2011 was £12.2 million (31^st December 2010 £34.4 million).

Principal Risks and Uncertainties

The Group has an established risk management process which operates within the corporate governance framework, details of which are set out in note 10 which is followed by a Directors' Responsibility Statement.

Dividend

The Board has declared an interim dividend of 14.8p (2010: 13.0p) per ordinary share, an increase of 14%.  The dividend will be paid on 11^th November 2011 to shareholders on the register at the close of business on 14^th October 2011.  The final dividend of 30.0p per share in respect of 2010 was paid on 18^th May 2011 at a cash cost of £23.2 million.  In addition, the 25.0p per share special dividend for 2010 was paid to shareholders on 8^th July 2011 at a cash cost of £19.3 million.

Director Retirement

Tony Scrivin retired from the Board on 31^st July 2011.  The Board extends its deep gratitude to Tony for his valuable contributions to the Group over 48 years of distinguished service, most recently as director for the Group's Europe, Middle East and Africa segment. 

Outlook

Rates of industrial production growth returned to more normal levels in the first half of the year, with the pace of economic growth slowing from the rapid expansion of 2010.  The widespread use of steam means that our markets tend to reflect general economic conditions and industrial production, and we are increasingly alert to the impact on these from uncertainty relating to the financial markets and the parlous state of government finances in many countries.  If the growth rate of the global economy slows, we expect to be resilient but not immune.  However, our historic organic sales growth has generally been well ahead of market growth as we have invested for sales growth and market penetration, particularly in emerging markets, and have further increased expenditure in new product development.   Additionally, the high cost of energy, increasing environmental pressures to reduce emissions and water consumption, and on-going trends towards increased outsourcing by customers, are all positives for our business.  We have a robust business model built on providing tailored customer solutions to a wide range of industry sectors through our highly trained direct sales force, with a very good exposure to emerging markets.

We achieved good results in the first half of the year.  In July, demand grew at mid-single digits and sales growth continued at a slightly reduced pace than in the first half of the year.  Given no overall deterioration in our markets or significant adverse currency movements, the Board remains confident in the prospects for the Group this year and the progress we expect to achieve.

Spirax-Sarco Engineering plc

GROUP BALANCE SHEET

	Notes	30th June 2011 £'000	30th June 2010 £'000	31st December 2010 £'000
ASSETS
Non-current assets
Property, plant and equipment		168,391	139,511	155,553
Goodwill		45,516	43,996	43,985
Other intangible assets		41,685	44,211	42,097
Prepayments		109	919	76
Investment in associates		10,178	7,789	9,235
Deferred tax		37,370	43,139	37,741
		303,249	279,565	288,687
Current assets
Inventories		115,714	93,065	96,115
Trade receivables		133,871	116,008	137,350
Other current assets		21,537	15,441	15,227
Tax recoverable		1,220	1,506	1,627
Cash and cash equivalents	7	73,271	65,550	74,481
		345,613	291,570	324,800
Total assets		648,862	571,135	613,487
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables		88,122	82,885	95,544
Bank overdrafts	7	1,129	758	985
Short term borrowing	7	22,990	2,626	1,126
Current portion of long term borrowings	7	62	57	12,799
Current tax payable		9,440	8,494	11,661
		121,743	94,820	122,115
Net current assets		223,870	196,750	202,685
Non-current liabilities
Long term borrowings	7	36,888	41,874	25,179
Deferred tax		15,735	14,422	16,217
Post-retirement benefits		59,258	89,576	63,428
Other payables and provisions		4,768	7,349	7,024
		116,649	153,221	111,848
Total liabilities		238,392	248,041	233,963
Net assets		410,470	323,094	379,524
Equity
Share capital		19,386	19,323	19,329
Share premium account		50,323	48,025	48,276
Other reserves		60,295	42,524	50,772
Retained earnings		279,647	212,488	260,351
Equity attributable to equity holders of the parent		409,651	322,360	378,728
Minority interest		819	734	796
Total equity		410,470	323,094	379,524
Total equity and liabilities		648,862	571,135	613,487

Spirax-Sarco Engineering plc

GROUP INCOME STATEMENT

	Six months to 30th  June 2011			Six months  to 30th June 2010			Year ended 31st December 2010
	Adjusted £'000	*Adj't £'000	Total £'000	Adjusted £'000	*Adj't £'000	Total £'000	Adjusted £'000	*Adj't £'000	Total £'000
Revenue (note1)	307,721	-	307,721	276,959	-	276,959	589,746	-	589,746
Operating costs	(246,565)	(1,987)	(248,552)	(223,456)	6,627	(216,829)	(470,621)	2,271	(468,350)
Operating profit  (note 1)	61,156	(1,987)	59,169	53,503	6,627	60,130	119,125	2,271	121,396
Financial expenses	(8,654)	-	(8,654)	(8,658)	-	(8,658)	(17,206)	-	(17,206)
Financial income	9,230	-	9,230	8,233	-	8,233	16,613	-	16,613
Net financing income (note 2)	576	-	576	(425)	-	(425)	(593)	-	(593)
Share of profit of associates	1,280	(189)	1,091	1,774	(195)	1,579	3,081	(391)	2,690
Profit before taxation	63,012	(2,176)	60,836	54,852	6,432	61,284	121,613	1,880	123,493
Taxation (note 3)	(19,203)	224	(18,979)	(16,674)	235	(16,439)	(37,280)	441	(36,839)
Profit for the period	43,809	(1,952)	41,857	38,178	6,667	44,845	84,333	2,321	86,654
Attributable to:
Equity holders        of the parent	43,734	(1,952)	41,782	38,100	6,667	44,767	84,134	2,321	86,455
Minority      interest	75	-	75	78	-	78	199	-	199
Profit for the period	43,809	(1,952)	41,857	38,178	6,667	44,845	84,333	2,321	86,654
Earnings per share
Basic earnings per share (note 4)	56.6p		54.1p	49.8p		58.5p	109.5p		112.5p
Diluted earnings per share (note 4)			53.4p			57.8p			111.2p
Dividends
Dividend  per share (note 5)			14.8p			13.0p			43.0p
Special dividends per share (note 5)			-			-			25.0p
Dividend paid per share (note 5)			30.0p			25.6p			38.6p

 

*       Adjustments relate to amortisation and impairment of acquisition-related intangibles, acquisition costs and in 2010 profit on revaluation of investment arising from the acquisition of a company previously treated as an Associate (see note 1). 

GROUP STATEMENT OF COMPREHENSIVE INCOME

	Six months to 30th June 2011 £'000	Six months to 30th June 2010 £'000	Year ended 31st December 2010 £'000
Profit for the period	41,857	44,845	86,654
Actuarial loss on post-retirement benefits	(459)	(18,721)	(230)
Deferred tax on actuarial loss on post-retirement benefits	(17)	5,461	220
Foreign exchange translation differences	9,820	(716)	7,703
(Loss)/gain on cash flow hedges net of tax	(297)	(87)	(258)
Total recognised income and expense for the period	50,904	30,782	94,089
Attributable to
Equity holders of the parent	50,829	30,704	93,890
Minority interest	75	78	199
Total recognised income and expense for the period	50,904	30,782	94,089

GROUP STATEMENT OF CHANGES IN EQUITY

Six months to 30^th June 2011

	Share Capital      £000	Share Premium Account         £000	Translation Reserve £000	Cash Flow hedge reserve £000	Capital Redemp-tion Reserve £000	Retained Earnings £000	Total Equity £000
Shareholders' funds at beginning of period	19,329	48,276	49,023	(83)	1,832	260,351	378,728
Total recognised income and expense for the period	-	-	9,820	(297)	-	41,306	50,829
Dividends paid	-	-	-	-	-	(23,213)	(23,213)
Equity settled share plans net of tax	-	-	-	-	-	915	915
Proceeds of issue of share capital	57	2,047	-	-	-	-	2,104
Treasury shares reissued	-	-	-	-	-	2,260	2,260
Loss on the reissue of treasury shares	-	-	-	-	-	(1,972)	(1,972)
Equity attributable to equity holders of parent at end of period	19,386	50,323	58,843	(380)	1,832	279,647	409,651

Six months to 30^th June 2010

	Share Capital £000	Share Premium Account £000	Translation Reserve £000	Cash Flow hedge reserve £000	Capital Redemp-tion Reserve £000	Retained Earnings £000	Total Equity £000
Shareholders' funds at beginning of period	19,310	47,601	41,320	175	1,832	196,481	306,719
Total recognised income and expense for the period	-	-	(716)	(87)	-	31,507	30,704
Dividends paid	-	-	-	-	-	(19,673)	(19,673)
Equity settled share plans net of tax	-	-	-	-	-	806	806
Proceeds of issue of share capital	13	424	-	-	-	-	437
Treasury shares reissued	-	-	-	-	-	4,339	4,339
Loss on the reissue of treasury shares	-	-	-	-	-	(972)	(972)
Equity attributable to equity holders of parent at end of period	19,323	48,025	40,604	88	1,832	212,488	322,360

For the year ended 31^st December 2010

	Share Capital £000	Share Premium Account £000	Translation Reserve £000	Cash Flow hedge reserve £000	Capital Redemp-tion Reserve £000	Retained Earnings £000	Total Equity £000
Shareholders' funds at beginning of period	19,310	47,601	41,320	175	1,832	196,481	306,719
Total recognised income and expense for the period	-	-	7,703	(258)	-	86,445	93,890
Dividends paid	-	-	-	-	-	(29,701)	(29,701)
Equity settled share plans net of tax	-	-	-	-	-	1,605	1,605
Proceeds of issue of share capital	19	675	-	-	-	-	694
Treasury shares reissued	-	-	-	-	-	10,453	10,453
Loss on the reissue of treasury shares	-	-	-	-	-	(4,932)	(4,932)
Equity attributable to equity holders of parent at end of period	19,329	48,276	49,023	(83)	1,832	260,351	378,728

GROUP CASH FLOW

	Notes	Six months to 30th June 2011 £'000	Six months to 30thJune 2010 £'000	Year ended 31st December 2010 £'000
Cash flows from operating activities
Profit before taxation		60,836	61,284	123,493
Depreciation, amortisation and impairment		11,409	10,294	22,565
Share of profit of associates		(1,091)	(1,579)	(2,690)
Profit on revaluation of investment on acquisition		-	(8,204)	(8,175)
Equity settled share plans		1,236	1,115	2,229
Net finance income		(576)	425	593
Operating cash flow before changes in working capital and provisions		71,814	63,335	138,015
Change in trade and other receivables		144	846	(14,321)
Change in inventories		(18,130)	(4,261)	(7,188)
Change in trade and other payables		(10,037)	(425)	8,102
Change in provisions and post-retirement benefits		(3,969)	(3,741)	(11,445)
Cash generated from operations		39,822	55,754	113,163
Interest paid		(599)	(735)	(1,315)
Income taxes paid		(18,714)	(14,925)	(30,362)
Net cash from operating activities		20,509	40,094	81,486
Cash flows from investing activities
Purchase of property, plant & equipment		(19,882)	(10,870)	(33,338)
Proceeds from sale of property, plant & equipment		926	489	3,423
Purchase of software & other intangibles		(578)	(510)	(1,148)
Development expenditure capitalised		(1,240)	(1,046)	(1,805)
Acquisition of businesses		(3,130)	(2,479)	(3,526)
Interest received		465	418	996
Dividends received		-	1,779	1,779
Net cash used in investing activities		(23,439)	(12,219)	(33,619)
Cash flows from financing activities
Proceeds from issue of share capital		2,104	437	694
Proceeds from reissue of treasury shares		553	3,367	5,521
Change in borrowings	7	20,758	(10,256)	(15,194)
Payment of finance lease liabilities	7	(39)	(7)	(42)
Dividends paid (including minorities)		(23,288)	(19,743)	(29,767)
Net cash used in financing activities		88	(26,202)	(38,788)
Net increase in cash and cash equivalents	7	(2,842)	1,673	9,079
Cash and cash equivalents at beginning of period	7	73,496	61,635	61,635
Exchange movement	7	1,488	1,484	2,782
Cash and cash equivalents at end of period	7	72,142	64,792	73,496
Borrowings and finance leases	7	(59,940)	(44,557)	(39,104)
Net cash	7	12,202	20,235	34,392

 

 

NOTES TO THE ACCOUNTS

1.   SEGMENTAL REPORTING

     

Analysis by location of operation

Six months to 30^th June 2011

	Gross revenue £'000	Inter- segment revenue £'000	Revenue £'000	Total operating profit £'000	Adjusted operating profit £'000	Adjusted operating margin %
Europe, Middle East & Africa	143,582	20,841	122,741	20,232	20,450	16.7%
Asia Pacific	67,568	2,357	65,211	15,584	15,584	23.9%
Americas	67,317	3,458	63,859	11,705	12,589	19.7%
Steam Specialties business	278,467	26,656	251,811	47,521	48,623	19.3%
Watson-Marlow	56,262	352	55,910	15,208	16,093	28.8%
Corporate Expenses				(3,560)	(3,560)
	334,729	27,008	307,721	59,169	61,156	19.9%
Intra-Group	(27,008)	(27,008)
Net Revenue	307,721	-	307,721	59,169	61,156	19.9%

Six months to 30^th June 2010

	Gross revenue £'000	Inter- segment revenue £'000	Revenue £'000	Total operating profit £'000	Adjusted operating profit £'000	Adjusted operating margin %
Europe, Middle East & Africa	130,772	17,984	112,788	18,041	18,616	16.5%
Asia Pacific	58,362	1,667	56,695	13,061	13,061	23.0%
Americas	62,080	3,099	58,981	18,893	10,917	18.5%
Steam Specialties business	251,214	22,750	228,464	49,995	42,594	18.6%
Watson-Marlow	48,700	205	48,495	13,177	13,951	28.8%
Corporate Expenses				(3,042)	(3,042)
	299,914	22,955	276,959	60,130	53,503	19.3%
Intra-Group	(22,955)	(22,955)
Net Revenue	276,959	-	276,959	60,130	53,503	19.3%

Year ended 31^st December 2010

	Gross revenue £'000	Inter- segment revenue £'000	Revenue £'000	Total operating profit £'000	Adjusted operating profit £'000	Adjusted operating margin %
Europe, Middle East & Africa	266,646	36,646	230,000	33,712	36,834	16.0%
Asia Pacific	135,454	3,940	131,514	34,252	34,252	26.0%
Americas	131,221	6,036	125,185	31,317	24,263	19.4%
Steam Specialties business	533,321	46,622	486,699	99,281	95,349	19.6%
Watson-Marlow	103,475	428	103,047	29,143	30,804	29.9%
Corporate Expenses				(7,028)	(7,028)
	636,796	47,050	589,746	121,396	119,125	20.2%
Intra-Group	(47,050)	(47,050)
Net Revenue	589,746	-	589,746	121,396	119,125	20.2%

The total operating profit for each period is after crediting or charging the adjustments analysed below:

	30th June 2011 £'000	30th June 2010 £'000	31st Dec. 2010 £'000
Gain on revaluation of Associate	-	8,204	8,175
Amortisation of acquisition-related intangible assets	(1,987)	(1,412)	(3,562)
Acquisition costs	-	(165)	(198)
Impairment of acquisition-related intangible assets	-	-	(2,144)
	(1,987)	6,627	2,271

Net assets

	30th June 2011		30th June 2010		31st December 2010
	Assets £'000	Liabilities £'000	Assets £'000	Liabilities £'000	Assets £'000	Liabilities £'000
Europe, Middle East & Africa	231,125	(99,497)	191,050	(124,049)	205,006	(106,154)
Asia Pacific	104,309	(15,020)	90,436	(12,463)	102,178	(18,267)
Americas	103,100	(23,682)	93,032	(28,335)	99,537	(26,949)
Watson-Marlow	98,467	(13,949)	86,422	(14,963)	92,919	(14,628)
	537,001	(152,148)	460,940	(179,810)	499,640	(165,998)
Liabilities	(152,148)		(179,810)		(165,998)
Deferred tax	21,635		28,717		21,524
Current tax payable	(8,220)		(6,988)		(10,034)
Net cash	12,202		20,235		34,392
Net assets	410,470		323,094		379,524

Capital additions and depreciation and amortisation

	30th June 2011		30th June 2010		31st December 2010
	Capital additions £'000	Depreciation and amortisation £'000	Capital additions £'000	Depreciation and amortisation £'000	Capital additions £'000	Depreciation and amortisation £'000
Europe, Middle East & Africa	12,175	4,692	5,894	5,075	19,249	13,206
Asia Pacific	3,613	1,549	2,658	1,169	8,938	774
Americas	4,131	2,833	13,363	1,827	17,968	3,953
Watson-Marlow	3,143	2,335	1,095	2,223	3,330	4,632
	23,062	11,409	23,010	10,294	49,485	22,565

Capital additions include property, plant and equipment at 30^th June 2011 of £20,142K, at 30^th June 2010 of £10,243K and at 31^st December 2010 of £34,892K, and other intangible assets at 30^th June 2011 of £1,867K, at 30^th June 2010 of £12,767K and at 31^st December 2010 of £14,593K.  Depreciation and amortisation includes amortisation of acquisition-related intangible assets.

2.   NET FINANCING INCOME

	Six months to 30th June 2011 £'000	Six months to 30th June 2010 £'000	Year ended 31st December 2010 £'000
Financial expenses
Bank and other borrowing interest payable	(599)	(731)	(1,315)
Interest on pension scheme liabilities	(8,055)	(7,927)	(15,891)
	(8,654)	(8,658)	(17,206)
Financial income
Bank interest receivable	465	418	996
Expected return on pension scheme assets	8,765	7,815	15,617
	9,230	8,233	16,613
Net financing income	576	(425)	(593)
Net pension scheme financial income	710	(112)	(274)
Net bank interest	(134)	(313)	(319)
Net financing income	576	(425)	(593)

3.   TAXATION

Taxation has been estimated at the rate expected to be incurred in the full year

	Six months to 30th June 2011 £'000	Six months to 30th June 2010 £'000	Year ended 31st December 2010 £'000
United Kingdom corporation tax	528	647	10
Overseas taxation	15,582	14,995	33,188
Deferred taxation	2,869	797	3,641
	18,979	16,439	36,839

4.   EARNINGS PER SHARE

	Six months to 30th June 2011 £'000	Six months to 30th June 2010 £'000	Year ended 31st December 2010 £'000
Profit attributable to equity holders of the parent	41,782	44,767	86,455
Weighted average shares in issue	77,263,716	76,540,641	76,869,249
Dilution	1,014,442	846,775	865,396
Diluted weighted average shares in issue	78,278,158	77,387,416	77,734,645
Basic earnings per share	54.1p	58.5p	112.5p
Diluted earnings per share	53.4p	57.8p	111.2p
Adjusted profit attributable to equity holders of the parent	43,734	38,100	84,134
Basic adjusted earnings per share	56.6p	49.8p	109.5p

The dilution is in respect of unexercised share options and the performance share plan.

5.   DIVIDENDS

	Six months to 30th June 2011 £'000	Six months to 30th June 2010 £'000	Year ended 31st December 2010 £'000
Amounts paid in the period
Final dividend for the year ended 31st December 2010  of 30.0p (2009:  25.6p) per share	23,213	19,673	19,673
Interim dividend for the year ended 31st December 2010 of 13.0p per share	-	-	10,028
	23,213	19,673	29,701
Amounts arising in respect of the period
Interim dividend for the year ended 31st December 2011 of 14.8p (2010:  13.0p) per share	11,478	10,003	10,028
Final dividend for the year ended 31st December 2010  of 30.0p (2009:  25.6p) per share	-	-	23,154
Proposed special dividend for the year ended 31st December 2010 of 25.0p (2009: nil) per share	-	-	19,295
	11,478	10,003	52,477

No scrip alternative to the cash dividend is being offered in respect of the 2011 interim dividend.

6.   EMPLOYEE BENEFITS

      Pension plans

The Group is accounting for pension costs in accordance with International Accounting Standard 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 2010 is included in the Group's Annual Report.

The defined benefit plan expense is recognised in the income statement as follows:-

	UK Pensions		Overseas pensions & medical		Total
	Six months to 30th June 2011 £'000	Six months to 30th June 2010 £'000	Six months to 30th June 2011 £'000	Six months to 30th June 2010 £'000	Six months to 30th June 2011 £'000	Six months to 30th June 2010 £'000	Year ended 31st December 2010 £'000
Current service cost	(2,239)	(3,000)	(833)	(1,169)	(3,072)	(4,169)	(7,024)
Settlement,curtailment	-	-	-	-	-	-	(553)
Interest on schemes' liabilities	(6,776)	(6,500)	(1,279)	(1,427)	(8,055)	(7,927)	(15,891)
Expected return on schemes' assets	7,779	6,800	985	1,015	8,764	7,815	15,617
Total expense recognised in income statement	(1,236)	(2,700)	(1,127)	(1,581)	(2,363)	(4,281)	(7,851)

The expense is recognised in the following line items in the income statement:

	Six months to 30th June 2011 £'000	Six months to 30th June 2010 £'000	Year ended 31st December 2010 £'000
Operating costs	(3,072)	(4,169)	(7,577)
Financial expenses	(8,055)	(7,927)	(15,891)
Financial income	8,764	7,815	15,617
Total expense recognised in income statement	(2,363)	(4,281)	(7,851)

The amounts recognised in the balance sheet are determined as follows:

	UK Pensions		Overseas pensions & medical		Total
	30th June 2011 £'000	30th June 2010 £'000	30th June 2011 £'000	30th June 2010 £'000	30th June 2011 £'000	30th June 2010 £'000	31st December 2010 £'000
Fair value of schemes' assets	220,384	181,830	28,244	26,594	248,628	208,424	239,910
Present value of schemes' liabilities	(256,359)	(241,240)	(51,527)	(56,760)	(307,886)	(298,000)	(303,338)
Retirement benefit liability recognised in the balance sheet	(35,975)	(59,410)	(23,283)	(30,166)	(59,258)	(89,576)	(63,428)
Related deferred tax	9,713	16,635	6,887	8,308	16,600	24,943	17,886
Net pension liability	(26,262)	(42,775)	(16,396)	(21,858)	(42,658)	(64,633)	(45,542)

Share based payments

The charge to the income statement in respect of share-based payments is made up as follows:-

	Six months to 30th June 2011 £'000	Six months to 30th June 2010 £'000	Year ended 31st December 2010 £'000
Share Option Schemes	400	340	695
Performance Share Plan	440	384	767
Employee Share Ownership Plan	396	391	767
	1,236	1,115	2,229

7.   ANALYSIS OF CHANGES IN NET CASH

	At 1st Jan 2011 £'000	Cash flow £'000	Exchange movement £'000	At 30 th June 2011 £'000
Current portion of long term borrowings	(12,799)			(62)
Non-current portion of long term borrowings	(25,179)			(36,888)
Short term borrowing	(1,126)			(22,990)
Total borrowings	(39,104)			(59,940)
Comprising:
Borrowings	(38,869)	(20,758)	(106)	(59,733)
Finance Leases	(235)	39	(11)	(207)
	(39,104)	(20,719)	(117)	(59,940)
Cash and cash equivalents	74,481	(2,647)	1,437	73,271
Bank overdrafts	(985)	(195)	51	(1,129)
Net cash and cash equivalents	73,496	(2,842)	1,488	72,142
Net cash	34,392	(23,561)	1,371	12,202

8.   CAPITAL EMPLOYED

An analysis of the components of capital employed is as follows:

	30th June 2011 £'000	30th June 2010 £'000	31st December 2010 £'000
Property, plant and equipment	168,391	139,511	155,553
Prepayments	109	919	76
Inventories	115,714	93,065	96,115
Trade receivables	133,871	116,008	137,350
Other current assets	21,537	15,441	15,227
Tax recoverable	1,220	1,506	1,627
Trade and other payables	(88,122)	(82,885)	(95,544)
Current tax payable	(9,440)	(8,494)	(11,661)
	343,280	275,071	298,743

9.   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 2010.  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 2011 that have materially affected the financial position or the performance of the Group during that period.

10. BASIS OF PREPARATION

Spirax-Sarco Engineering plc is a company domiciled in the UK. The half year condensed consolidated financial statements of Spirax-Sarco Engineering plc and its subsidiaries (the 'Group') have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. The accounting policies applied are the same as those set out in the 2010 Spirax-Sarco Engineering plc Annual Report, with the following exceptions:

These condensed consolidated half year financial statements do not include all the information required for full annual statements and should be read in conjunction with the 2010 Annual Report. The comparative figures for the year ended 31^st December 2010 do not constitute the Group's statutory accounts for that financial year. The consolidated statutory accounts for Spirax-Sarco Engineering plc in respect of the year ended 31^st December 2010 have been reported on by the company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors 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 31^st December 2010 are available upon request from Mr. W.G. Stebbings, Company Secretary and Solicitor, Charlton House, Cheltenham, Gloucestershire, GL53 8ER, United Kingdom or on www.SpiraxSarcoEngineering.com

The financial statements for the six months ended 30^th June 2011, which have not been audited or reviewed by the auditors, were authorised for issue by the Board on 23^rd August 2011.  In presenting these financial statements the comparative balance sheet for the period ended 30^th June 2010 includes a restatement between current and non-current liabilities to achieve a more comparable presentation with current figures.

The interim 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 interim report should not be relied upon by any other party or for any other purpose.

CAUTIONARY STATEMENTS

This interim 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.

PRINCIPAL RISKS AND UNCERTAINTIES

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remainder of the financial year and could cause actual results to differ materially from expected and historical results. The principal risks and uncertainties are strategic, commercial, operational and financial. Ultimately these affect our ability to deliver our prime financial objective, which is to provide enhanced value to shareholders through consistent growth in earnings per share and dividends per share as a result of maintaining our world leading position and investing in our businesses for growth. More details of the key risks facing the Group's businesses are included on page 20 and page 34 of the Group's Annual Report for the year ended 31^st December 2010. Details of further potential risks and uncertainties arising since the issue of the previous statutory financial statements are included within the Review of Operations as appropriate.

GOING CONCERN

After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the consolidated financial statements.

RESPONSIBILITY STATEMENT

The directors confirm that to the best of their knowledge:

·      this financial information 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; and

(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 23^rd August 2011 are listed in the 2010 Annual Report on pages 26 and 27 except for Tony Scrivin who retired from the Board effective 31^st July 2011 after 48 years service with the Group.

M E Vernon
Chief Executive
23^rd August 2011

D J Meredith
Director Finance
23^rd August 2011

on behalf of the Board

 

END

 

 

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