Final Results
Spirax-Sarco Engineering PLC
11 March 2002
SPIRAX-SARCO ENGINEERING PLC
2001 PRELIMINARY ANNOUNCEMENT
HIGHLIGHTS
11 March 2002 Year to 31st December
2001 2000 Change
Turnover £291.9m £278.1m +5%
Operating profit* £40.8m £43.4m -6%
Operating profit margin 14.0% 15.6%
Profit before taxation £38.0m £41.2m -8%
(before the disposal of fixed assets)
Earnings per share 34.6p 37.4p -7%
(before the disposal of fixed assets)
Dividends per share 18.6p 18.0p +3%
Net gearing 28.3% 33.8%
* After charging goodwill amortisation of £0.5m (2000: £0.4m)
• Sales growth 5%
•Good progress in Americas
•Lower profits in UK manufacturing units
•Strong cash flow
•EPS down 7%, dividend up 3%
Tim Fortune, Chairman, commenting on prospects said:-
'...We remain cautious on the outlook as it is far from clear whether the global
economy will recover during the year; however we have made a solid start to
2002'
Enquiries:
Tim Fortune - Chairman
Marcus Steel - Chief Executive
David Meredith - Director Finance
Tel: 020 7638 9571 at Citigate Dewe Rogerson until 6.00 p.m.
SPIRAX-SARCO ENGINEERING plc
PRELIMINARY RESULTS
SUMMARY
The Chairman, Tim Fortune, says:
'In 2001, the Group achieved a satisfactory growth in sales despite adverse
trading conditions. Operating profit fell by 6%, a creditable performance given
the increasingly tough operating environment. After the strong start to the year
in sales, the second half, and particularly the final quarter, saw a distinct
weakening with a consequent effect on the operating profit.
The weak state of the world's major economies, notably the USA and Japan, had a
depressing effect elsewhere and hence on the resilience of the markets in which
we operate. Turnover increased by 5% in the year to £292 million, as compared
with £278 million in 2000. The full year effect of the acquisition, in October
2000, of M&M International, our Italian based solenoid valve and piston actuated
valve manufacturer, added 2% to sales. Organic growth was 3%, which was well
spread with increases in the UK and Continental Europe. We made good overall
progress in the Americas, helped by more favourable exchange rates, but in Asia,
Australasia and Africa good underlying growth was cancelled out by adverse
exchange rate movements. The overall sales increase was the result of the
technical support that we give to our customers in our niche markets and the
implementation of sales plans and product developments, which also have the
potential to deliver more growth in the future.'
The Chief Executive, Marcus Steel, reports:
TRADING
'After a good first quarter, business levels slowed particularly towards the end
of the year. As a result, the sales and profits in the second half of 2001 were
only slightly ahead of the first half - this is different from our usual profile
where, due to seasonal influences, our second half is normally noticeably better
than the first half. The slow-down in the US economy and the further decline in
the Japanese economy, which has been in a parlous state for some years, have
clearly depressed most of the Asian economies which rely heavily on exports to
the USA and Japan. The European economies have also suffered from similar
pressures. Industrial production declined sharply in the major economies, which
is a good indicator of the state of the markets in which we operate. The Mexican
economy remains in recession following its severe downturn in the last quarter
of 2000. On the other hand, the Chinese market continued to grow and remains a
good opportunity for us.
Turnover grew by 5% in 2001 including organic growth of 3% overall, comprising
5% growth in the first half and 1% growth in the second half. In addition, the
acquisition, in October 2000, of M&M International, the Italian based solenoid
valve and piston actuated valve manufacturer, contributed 2% to the sales
growth. Overall exchange rate effects were negligible but included good gains
from the strength of the US dollar and some benefit from the slight
strengthening of the euro, largely offset by currency weakness in Asia and South
America. The increase in sales worldwide came in spite of the difficult trading
conditions and was achieved by pushing ahead with a number of specific sales
plans and investing in additional sales and marketing resources. We also
released a number of new products such as the new intelligent valve positioner
and steam traps for the Japanese market and, at the end of the year, Watson-
Marlow Bredel released the first phase of the completely redesigned core range
of peristaltic pumps which offers improved specification and performance at no
extra cost.
Operating profit fell by 6% from £43.4 million in 2000 to £40.8 million in 2001.
This resulted partly from the slowing sales in the second half of the year and
from a reduction of stocks in our overseas selling companies. These two factors
disproportionately reduced the short-term demand on the factories, particularly
in the UK, and impacted manufacturing profits. In Mexico, our sales were
depressed and profits were down by £1 million (half of which is eliminated in
the minority interests). Elsewhere, profits were flat in Continental Europe and
an underlying improvement in profits in Asia, Australasia and Africa was more
than offset by an exchange rate hit. There was a good profit increase in the
Americas, helped by favourable exchange rate movements. The performance of our
company in South Carolina continued to improve with good gains in sales and
profits.
The operating profit margin fell to an historically low 14.0% (2000: 15.6%), the
biggest contributing factor being the fall in profits in the UK manufacturing
units. A number of factors have pushed our margins down over the last few years,
but the underlying commercial strength remains. Recovery of the margin will come
not only from business growth but also from already identified cost reductions
which will take full effect over the next twelve to twenty-four months.
On 18th January 2002 we completed the acquisition of Marford Engineering, in
Australia, for £1 million. Marford is a water treatment chemicals specialist and
will help us to develop our boiler water treatment business in Australia.
United Kingdom
UK domestic sales were up 4% with both the Spirax Sarco and Watson-Marlow Bredel
businesses showing growth, but the market became generally more difficult as the
year progressed and the selling companies did well to largely maintain their
profits. Watson-Marlow Bredel grew their profits in the UK. As already
mentioned, the Spirax Sarco factories suffered from the slow-down in third party
sales (worldwide) and the effect of de-stocking in many of our overseas sales
companies in the second half of the year, all of which had a disproportionate
effect on the overall UK profits. Short-term actions were taken to reduce costs
in order to minimise the impact. Total UK operating profits fell from £11.9
million to £8.6 million.
The large majority of products sold by the Group worldwide are made outside the
UK. Over the years, rising volumes of raw materials have also been sourced from
outside the UK, much of which comes from Asia. This is a trend which is well
established and will accelerate over the next two years.
Continental Europe
The turnover in Continental Europe increased by 8%, of which 3% was due to the
acquisition of M&M. The Watson-Marlow Bredel business grew well across Europe.
The Spirax Sarco business also made sales gains overall with strong performances
in Germany, Switzerland, most Nordic countries and the Czech Republic. In
France, Italy, Portugal and Spain, the trading conditions were tough and sales
and profits were down. M&M was integrated into the Group during 2001 and made a
good contribution to the result; the sales of piston actuated valves, for which
we acquired the company, have been ahead of expectation and offer good future
potential. The French factory experienced reasonable demand, in spite of the de-
stocking in our selling companies, and maintained profits.
The overall profit in Continental Europe was flat at £13.4 million. The currency
conversion of the companies in 'euroland' was well prepared and has gone
smoothly.
International (markets outside Americas and Europe)
After starting the year strongly in the International region, business levels
slowed steadily and finished with organic growth of 5%, which was matched by
negative exchange rate movements, leaving the sterling value of business in the
region largely unchanged. In Korea, the economy was weak and market conditions
were tough and sales were lower which, with the impact of the weak Won, meant
that profits were well down. Australia, Malaysia, South Africa and Thailand also
saw little or no growth. Taiwan declined further, however, our company in China
made excellent progress, and increased sales and profits. In Japan, we again
grew the business in spite of the increasingly depressed market and we increased
the investments in our company there. The generally weaker currencies in the
region meant that an underlying profit increase of 9% was turned into a 6%
reduction in sterling terms, being down to £9.3 million from £9.9 million in
2000.
Americas
Sales in the Americas increased by 6%, including organic growth of 2%. The
strength of the US dollar gave good exchange gains which were partly offset by
currency weakness in South America. In the USA, the Spirax Sarco company made
further good increases in sales and profits. The Watson-Marlow Bredel company in
the USA experienced a small downturn in sales and profits as business hesitated
after the excellent performance in 2000. Our company in Brazil had a good year,
as did the Canadian company. The economy in Mexico remained in recession
throughout 2001, sales and profits were well down on the previous year, and
action was taken to reduce the cost base to mitigate the impact. The Argentine
company also suffered the effects of another year of economic recession. In
December, the Argentine government defaulted on its debts and the economy
collapsed; here, too, we cut back on our costs and have taken steps to protect
our position, which is helped by our company exporting more than 60% of its
sales. The overall profit in the Americas increased by 17% from £8.1 million to
£9.5 million.
Interest, tax and dividends
The net interest charge of £2.8 million increased from £2.2 million in 2000 due
to the full year effect of the acquisition of M&M and of the shares bought back
in 2000. The net interest expense was covered fifteen times by operating profit.
A net gain of £0.6 million on disposal of property has been included as a non-
operating item. Profit before tax for the year was £38.6 million, and before the
non-operating item was £38.0 million (2000: £41.2 million). Amortisation of
goodwill was £0.5 million (2000: £0.4 million).
The tax charge was 30.9% compared with 32.0% in 2000. The underlying tax charge,
before the non-operating item, was 31.4% (2000: 30.1%). Minority interests were
substantially lower at £0.6 million due to greatly reduced profits in Mexico.
Earnings per share, before the non-operating item, were 34.6p compared with
37.4p in 2000, a reduction of 7%. The Board is recommending a final dividend of
13.0p per share which, with the interim dividend of 5.6p per share, gives a
total for the year of 18.6p, an increase of 3.3%. The cost of the interim and
final dividends is £13.8 million, which is covered 1.9 times by earnings before
the non-operating item. No scrip dividend alternative is being offered.
BALANCE SHEET AND CASH FLOW
Capital employed (net assets excluding goodwill and net debt) increased to
£177.6 million at 31st December 2001 from £174.6 million a year earlier, at
constant exchange an increase of 4%. Fixed asset additions of £17.5 million were
similar to the level in 2000 and included new training centres in France and
Italy, redevelopment of Watson-Marlow Bredel's facility in the Netherlands and
continued investment in our manufacturing plants aimed at increasing efficiency,
improving safety and reducing costs. Working capital, comprising stocks plus
debtors less creditors, rose by an underlying 3%. Stock levels were reduced in
our sales companies, offset by increases in the UK and French manufacturing
units. Debtors and creditors were both lower, reflecting the slow-down in
business activity, particularly through the second half.
The cash flow for the year was strong. The cash inflow from operating activities
improved to £50.0 million from £43.4 million in 2000. Net debt was £40.5 million
at 31st December 2001 compared with £45.6 million a year earlier and net gearing
reduced to 28% (2000: 34%).
The interim disclosure requirements of FRS17 (Retirement Benefits), which are
included in the notes to the accounts, show a small decline in the funding
position of the Group's defined benefit pension schemes under the prescribed
FRS17 valuation basis.
LOOKING FORWARD
The Spirax Sarco commercial and industrial steam business and the Watson-Marlow
Bredel peristaltic pumping business both operate in niche markets where they are
the world leader. Spirax Sarco has a relatively small share of the steam
specialty market in spite of being the largest single supplier, and there is a
great deal of potential for growth. The Watson-Marlow Bredel peristaltic pumping
business is operating in an expanding market where the peristaltic principle,
with its many attractions, is used in more and more applications, a trend which
should continue.
Both businesses are developing new products to enhance their ranges and are
constantly updating their ranges to improve product performance and reduce
costs. There are opportunities for geographical growth with the world's biggest
economies offering good potential, as do the less developed economies.
In addition to these outward looking opportunities, there are also ways for us
to improve our internal performance in order to enhance our competitiveness and
profitability, such as raising productivity and resourcing of materials. We can
also improve the cross-fertilisation of sales experiences and successes across
the world, as we are in a unique position with our global coverage and
comprehensive product ranges. All of this offers the prospect of continued
steady long-term growth in our well established markets.'
PROSPECTS
The Chairman comments as follows:
'In these difficult market conditions, our knowledge, service and products are
needed more than ever by our customers to maintain and develop their businesses.
It is clear that there is good potential to continue to grow by capitalising on
the fundamental strengths of our market leading position. Tight controls and
cost reduction actions, which are under way, will bring progressive benefits. We
remain cautious on the outlook as it is far from clear whether the global
economy will recover during the year; however we have made a solid start to
2002.'
The audited trading results for the Group for the year ended 31st December 2001
(together with the comparative figures for 2000) are set out below:
2001 2000
£'000 £'000
Turnover 291,942 278,148
Operating costs (251,139) (234,778)
Operating profit 40,803 43,370
Profit/(loss) on disposal of fixed assets 616 (990)
Profit before interest 41,419 42,380
Net interest payable (2,778) (2,213)
Profit on ordinary activities before taxation 38,641 40,167
Taxation on profit on ordinary activities (11,926) (12,867)
Profit on ordinary activities after taxation 26,715 27,300
Minority interests - equity (585) (933)
Profit for the financial year 26,130 26,367
Dividends (13,752) (13,301)
Retained profit for the financial year 12,378 13,066
Earnings per share before the disposal of fixed assets 34.6p 37.4p
Earnings per share after the disposal of fixed assets 35.4p 35.4p
Dividends per share 18.6p 18.0p
SPIRAX-SARCO ENGINEERING plc
Group Balance Sheet at 31st December 2001
2001 2000
£'000 £'000
Fixed assets
Intangible assets 8,958 9,299
Tangible assets 91,906 89,114
100,864 98,413
Current assets
Stocks 62,840 64,166
Debtors 86,199 88,768
Cash deposits and short term investments 16,147 18,111
Cash at bank and in hand 4,312 2,961
169,498 174,006
Creditors
Amounts falling due within one year (72,013) (81,204)
Net current assets 97,485 92,802
Total assets less current liabilities 198,349 191,215
Creditors
Amounts falling due after more than one year (40,084) (42,060)
Provisions for liabilities and charges (12,191) (10,891)
Net assets 146,074 138,264
Capital and reserves
Called up share capital 18,484 18,398
Share premium account 33,327 32,097
Revaluation reserve 4,618 4,653
Capital redemption reserve 1,832 1,832
Profit and loss account 84,585 77,944
Shareholders' funds - equity 142,846 134,924
Minority interests - equity 3,228 3,340
146,074 138,264
SPIRAX-SARCO ENGINEERING plc
Group Cash Flow Statement for the year ended 31st December 2001
2001 2000
£'000 £'000
RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOW
Operating profit 40,803 43,370
Depreciation and amortisation charges 12,303 11,216
Increase in stocks (435) (4,220)
Decrease in debtors 873 (10,046)
Decrease in creditors and provisions (3,573) 3,073
Cash inflow from operating activities 49,971 43,393
GROUP CASH FLOW STATEMENT
Cash inflow from operating activities 49,971 43,393
Returns on investments and servicing of finance (3,254) (2,878)
Taxation (12,429) (11,993)
Capital expenditure (16,834) (10,248)
Acquisitions (404) (7,408)
Equity dividends paid (13,412) (13,104)
Cash inflow before use of liquid resources & financing 3,638 (2,238)
Management of liquid resources 1,735 4,877
5,373 2,639
Financing - Issue of ordinary share capital 1,316 897
- Share buy-back - (5,851)
- Decrease in debt (5,477) 1,840
(4,161) (3,114)
Increase in cash in the period 1,212 (475)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Increase in cash in the period 1,212 (475)
Cash outflow from decrease in debt 5,477 (1,840)
Cash inflow from decrease in liquid resources (1,735) (4,877)
Change in net debt resulting from cash flows 4,954 (7,192)
Amortisation of loan expenses (25) (25)
Finance leases - (732)
Finance leases acquired with subsidiary - (619)
Translation difference 206 (2,237)
Movement in net debt in the period 5,135 (10,805)
Net debt at 1st January 2001 (45,608) (34,803)
Net debt at 31st December 2001 (40,473) (45,608)
SPIRAX-SARCO ENGINEERING plc
Group Statement of Total Recognised Gains and Losses
for the year ended 31st December 2001
2001 2000
£'000 £'000
Profit for the financial year 26,130 26,367
Currency translation differences on foreign
currency net investments (5,772) 1,049
Total recognised gains and losses relating
to the year 20,358 27,416
SPIRAX-SARCO ENGINEERING plc
Group Reconciliations of Movement in Shareholders' Funds for the year
ended 31st December 2001
2001 2000
£'000 £'000
Shareholders' funds at 1st January 134,924 125,763
Profit for the financial year 26,130 26,367
Dividends (13,752) (13,301)
Share buy-back - (5,851)
Net proceeds of issue of shares 1,316 897
Currency translation differences (5,772) 1,049
Shareholders' funds at 31st December 142,846 134,924
Notes:
1. Foreign currency assets and liabilities are translated into sterling at
rates of exchange ruling at 31st December. Trading results of overseas
subsidiary undertakings have been translated into sterling at average rates of
exchange ruling during the year.
2. The analysis of turnover by reference to the geographical location of
customers is as follows:-
2001 2000
£'000 £'000
United Kingdom 38,869 37,507
Continental Europe 101,406 94,190
The Americas 87,770 83,079
Asia, Australasia and Africa 63,897 63,372
291,942 278,148
and by reference to the geographical location of the Group's operations is as follows:
2001 2000
£'000 £'000
United Kingdom 85,733 86,802
Continental Europe 125,589 114,091
The Americas 92,267 88,050
Asia, Australasia and Africa 57,137 57,255
360,726 346,198
Intra-group sales (68,784) (68,050)
Sales to third parties 291,942 278,148
3. Operating profit, analysed by reference to the geographical location of
the Group's operations, is as follows:-
2001 2000
£'000 £'000
United Kingdom 8,603 11,878
Continental Europe 13,414 13,468
The Americas 9,498 8,139
Asia, Australasia and Africa 9,288 9,885
40,803 43,370
4. Net interest payable:
2001 2000
£'000 £'000
Interest payable:
Bank loans and overdrafts 2,478 2,483
Other loans 1,310 930
3,788 3,413
Interest receivable (1,010) (1,200)
2,778 2,213
5. Taxation:
2001 2000
£'000 £'000
United Kingdom corporation tax 6,069 9,024
Deduct double taxation relief (4,174) (5,766)
1,895 3,258
Overseas taxation 9,639 8,734
Deferred taxation 497 1,108
12,031 13,100
Adjustment in respect of previous years (105) (233)
11,926 12,867
No tax is payable on the non-operating item (2000: £488,000 payable)
6. The calculation of earnings per share before the disposal of fixed assets
is based on earnings of £25,514,000 (2000: £27,845,000) and the calculation of
earnings per share after the disposal of fixed assets is based on earnings of
£26,130,000 (2000: £26,367,000), as shown in the Group profit and loss account,
divided by the weighted average number of shares in issue during the year of
73,808,317 (2000: 74,531,906).
7. If approved at the annual general meeting on 9th May 2002, the final
dividend will be paid on 17th May 2002 to shareholders on the register at 19th
April 2002.
8. The analysis of net assets by reference to the geographical location of the
Group's operations is as follows:-
2001 2000
£'000 £'000
United Kingdom 48,706 43,847
Continental Europe 58,940 53,974
The Americas 47,582 52,322
Asia, Australasia and Africa 35,631 36,690
190,859 186,833
Cash at bank and in hand (4,312) (2,961)
Capital employed 186,547 183,872
Net debt (40,473) (45,608)
Net assets 146,074 138,264
Return on capital employed is based on operating profit of £40,803,000
(2000: £43,370,000) before deducting goodwill amortisation of £507,000
(2000: £363,000), and average net assets as shown above excluding net goodwill
of £8,958,000 (2000: £9,299,000) and net debt as shown above.
9. Analysis of changes in net debt.
1st Jan Cash Other Exchange 31st Dec
2001 Flow non-cash movement 2001
changes
£'000 £'000 £'000 £'000 £'000
Cash in hand and at bank 2,961 1,446 - (95) 4,312
Overdrafts (3,990) (234) - 125 (4,099)
1,212
Debt due within a year (21,691) 3,679 - 189 (17,823)
Debt due beyond a year (39,570) 2,139 (25) 181 (37,275)
Finance leases (1,429) (341) - 35 (1,735)
5,477
Current asset investments 18,111 (1,735) - (229) 16,147
Total (45,608) 4,954 (25) 206 (40,473)
10. The financial information set out above does not constitute the
company's statutory accounts for the years ended 31st December 2001 or 2000 but
is derived from those accounts. Statutory accounts for 2000 have been delivered
to the registrar of companies, and those for 2001 will be delivered following
the company's annual general meeting. The auditors have reported on those
accounts, their reports were unqualified and did not contain statements under
section 237 (2) or (3) of the Companies Act 1985.
11. FRS17 disclosures
The most recent actuarial valuations of the Groups defined benefit schemes were
carried out at various dates between 31st December 2000 and 31st December 2001.
The results produced at earlier valuation dates were updated to the 31st
December 2001 by independent qualified actuaries.
The financial assumptions used at 31st December 2001 were:-
Assumptions weighted by value of liabilities
% per annum
UK Overseas Post-retirement
pensions pensions medical
Rate of increase in salaries 3.5 4.2
Rate of increase in pensions 2.5 2.0
Discount rate 5.8 6.5 7.3
Rate of price inflation 2.5 N/A
Medical trend rate 6.0
Assumptions weighted by market value of
assets
% per annum
UK Overseas
pensions pensions
Expected rate of return on
assets (aggregate) 7.0 7.6
Bonds 5.1 6.4
Equities 7.8 7.9
Other 5.3 5.8
The assets in the schemes at 31st December 2001 were:
Market value
UK Overseas Post-retirement
pensions pensions medical
£'000 £'000 £'000
Total in aggregate 109,600 16,700
Bonds 22,900 500
Equities 77,800 14,400
Other 8,900 1,800
The following amounts at 31st December 2001 were measured in accordance with the
requirements of FRS17:
UK Overseas Post-retirement
pensions pensions medical
£'000 £'000 £'000
Total market value of schemes' assets 109,600 16,700 -
Present value of the schemes' liabilities 116,600 27,400 800
Deficit in the schemes (7,000) (10,700) (800)
Related deferred tax asset 2,100 1,980 240
Net pension liability (4,900) (8,720) (560)
If the above amounts had been recognised in the accounts the Group's net assets
and profit and loss account reserve at 31st December 2001 would be as follows:
£'000
Net assets excluding pension liability 146,074
Pension liability (5,096)
Net assets including pension liability 140,978
Profit and loss account reserve excluding pension liability 84,585
Pension liability (5,096)
Profit and loss account reserve 79,489
The net pension liability of £14,180,000 calculated in accordance with FRS17
compares with the pension provision currently recorded of £9,084,000.
This information is provided by RNS
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