Final Results

Spirax-Sarco Engineering PLC 15 March 2004 Spirax-Sarco Engineering plc Charlton House Cheltenham Glos. GL53 8ER News Release Telephone: 01242 521361 Fax: 01242 581470 www.SpiraxSarcoEngineering.com Monday 15th March 2004 2003 PRELIMINARY ANNOUNCEMENT HIGHLIGHTS Year to 31st December 2003 2002 Change Turnover £314.1m £296.4m +6% Operating profit * £45.8m £42.7m +7% Operating profit margin * 14.6% 14.4% Profit before taxation * £44.6m £40.7m +10% Operating cash inflow £53.4m £58.6m Earnings per share 38.5p 35.3p +9% Dividends per share 20.1p 19.3p +4% Net gearing 9% 15% * after deducting goodwill amortisation of £0.7m (2002: £0.6m) • Organic sales growth of 5% • Progress in all four regions, notably Asia • Operating profit up 7% despite exchange rate impacts • Pre-tax profit up 10% and EPS up 9% • Strong cash flow - lower net debt and interest Tim Fortune, Chairman, commenting on prospects said:- 'Although some indicators are showing signs of economic recovery, in many places the evidence on the ground is tenuous, particularly in Europe. Nevertheless, our sales development initiatives are progressing and business levels in our companies around the world have started the year in line with expectations. In recent months, exchange rate movements have been unfavourable which, if maintained, will naturally affect our profits in 2004. Subject to exchange rates, given the fundamental strengths of the Group, we expect to make further progress in 2004.' 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: 'I am pleased to announce another good set of results in 2003. Sales increased by 6% to £314 million and profit before tax increased by 10% to £44.6m; a good performance, achieved after charging a £11/4 million net cost of closing the Spanish factory and a £1 million negative exchange impact. Earnings per share improved by 9% to 38.5p and cash flow was also strong.' The Chief Executive, Marcus Steel, reports: 'TRADING The Spirax-Sarco Engineering Group made good progress in the second half of 2003 with sales up 6% and trading profit up 12%. The full year, therefore, finished well with 6% growth in sales and a trading profit increase of 7% after taking account of the impact of the factory closure cost, a robust performance considering global trading conditions. The UK economy was subdued, and industrial investment and production suffered from a lack of business confidence. The economies of the euro zone remained in a depressed state and showed little sign of recovery during the year. In Asia, the economies maintained their encouraging level of activity, particularly in China and India which continued to expand their GDP. China now ranks among our ten largest operations. In North and South America, the markets were restrained and the only market that grew significantly was Argentina. The movement of exchange rates in 2003 as against 2002 has been unusually disruptive in that there have been opposing movements, with the US dollar and related currencies weakening against sterling and the euro strengthening. This has had a significant effect on our regional results in sterling; the overall effect, which was mitigated by the global spread of our business, was an adverse impact on profits of only £1 million. Virtually all of this was due to the transaction effect of supplying product from Europe to our selling companies in the US and Asian (i.e. dollar-related) markets for sale in local currency. This transaction impact has, of course, squeezed the profit margin in 2003 compared with 2002. Turnover grew in the year to £314 million from £296 million, an increase of 6% which includes organic growth of a little over 5%, the remainder being a net exchange gain and a small contribution by the Watson-Marlow Bredel acquisition in South Africa. The organic increase in sales was achieved in all geographic regions but with particular success in Asia and South America. The growth arose from a combination of sales and marketing initiatives and product developments, with increased sales of our steam system services and prefabricated modular units in the Spirax Sarco business and release of new generation pumps and tubing by Watson-Marlow Bredel. We also increased our sales coverage with more sales and service engineers. Operating profit grew by over 7% from £42.7 million to £45.8 million, which includes the adverse exchange rate impact of £1 million. Underlying profits grew in all geographic regions. In Continental Europe, the profit growth was achieved after charging the cost of the factory closure in Spain, although the comparable figures for 2002 included the French reorganisation cost. In the UK, the growth was offset by a small exchange hit and, in the Americas, good growth was more than eliminated by the large effect of exchange movements. There was also strong organic profit growth in Asia, Australasia and Africa which was reduced by exchange movements because several of the currencies in this territory weakened with the US dollar. The operating profit margin increased from 14.4% to 14.6%. Subject to exchange, the Group's trading margin improvement will continue to come both from organic growth and cost controls, particularly material resourcing and efficiency improvements. At the end of 2002 we completed the purchase, for £1.4 million, of Ampe, a small Italian subcontract supplier of pneumatic and electronic actuators and instrumentation. In April 2003 we also completed the acquisition, for £1.2 million, of the South African distributor of Watson-Marlow Bredel products. Both of these additions to the Group performed well and ahead of expectations. United Kingdom Sales in the UK domestic market grew by only 1% in 2003 to £39.2 million. This was in the face of difficult trading conditions, with pressure on industrial customers who are, if anything, reducing capacity and were very cautious and unwilling to commit to capital spending. Our sales engineers were able to capitalise on the government's programme to improve the National Health Service and succeeded in increasing our sales to hospitals. Demand on our factories, particularly from outside the UK, remained firm. The raw material cost reduction programme continued, as did the implementation of productivity improvements, for instance the design of the new Watson-Marlow 300 and 500 series pumps has radically reduced the manufacturing labour content. Operating profits in the UK of £8.0 million were unchanged, with the underlying increase of 5%, being offset by the impact of unfavourable exchange rate movements. Continental Europe Third party sales in Continental Europe increased by 10% to £117.4 million which was boosted by the strength of the euro. The underlying increase at constant exchange rates was 2% which more accurately reflects the weak state of the European markets generally which are suffering from over-regulation and seem unlikely to be able to regain any dynamism in the near future. Our own management teams in Europe have been pushing ahead with the identified sales and marketing opportunities for their individual markets in order to overcome the lack of market activity. In the Czech Republic, Norway, Poland and France, the Spirax Sarco sales companies improved sales, as have most of the Watson-Marlow sales companies in Europe, and Hygromatik in the humidifier market. Against this, the operations in Belgium, Denmark, Portugal, Switzerland and Bredel in the Netherlands saw a reduction in their sales, mainly because of a lack of market confidence regarding future prospects, and our German company did well to maintain sales levels. Our relatively new organisation in Russia pushed sales ahead with satisfactory margins; it is early days but this looks promising for the future. The factories in France and the Netherlands were busy, with steady demand for their products from our selling companies worldwide. Operating profits in Europe of £16.4 million benefited from the euro's strength and rose by 21% compared with £13.6 million in 2002. The profit margin improved from 10.6% to 11.2%, due to exchange transaction gains. In Italy, we achieved another good profit improvement boosted by the useful contribution from the Ampe acquisition. The performance of our French company improved following the management changes, the cost of which was charged in the second half of 2002. The overall result was that the underlying Continental European profits increased in 2003 in spite of the cost of the closure of the Spanish factory, which totalled £11/4 million for the year net of cost savings post-closure. Asia, Australasia and Africa The markets in this region were more buoyant than in other parts of the world, particularly driven by China and India where economic activity provided a good base for our two operating companies to expand their businesses; both made excellent progress during the year and grew sales and profits. Overall third party sales in the region were £73.3 million, an increase of 12%. Throughout the region, we built on our strengths of technical selling and implemented sales development plans which included service and modular unit initiatives. We also increased the number and spread of our salesforce. In Japan, our company increased sales well against a market background which remained difficult. Our Korean company also grew its business in an increasingly tight market but operating profits were lower due to unfavourable exchange rate movements and competitive pressures. Our Taiwanese team pushed sales ahead in spite of a cautious market which is starting to show some signs of recovery. In Australia and Thailand, conditions were tough and sales and profits were lower. Elsewhere, we made gains in Malaysia, New Zealand and Singapore but in South Africa results were down, mitigated by the benefit of the stronger Rand. The recently acquired Watson-Marlow Bredel operation in South Africa made a good start. The regional operating profit of £11.0 million increased by 12% from £9.8 million in 2002 in spite of being adversely affected by exchange rate movements as several of the currencies weakened with the US dollar. The operating profit margin in the region fell to 16.3% from 16.6% the previous year, as a result of margin pressures due to increased cost of sales driven by exchange, competitive pressures particularly in Korea and the investment in increased sales coverage in the region. Excluding the impact of exchange movements, underlying operating profits in the region grew strongly by 19%. Americas Organic sales growth in the Americas was 7% in local currency, a good performance. However, in sterling, sales declined by 1% to £84.2 million. The markets in the Americas were generally quiet although Brazil and Argentina benefited from export driven activity. Our Spirax Sarco operation in the USA performed well in the domestic market and increased sales and profits in local currency. We pushed ahead with a number of sales initiatives, notably steam system services, prefabricated units and growth in the newer product areas such as controls. The Watson-Marlow Bredel business in the USA also performed well during the year but was not able to repeat the exceptional project sales achieved in 2002. Sales did increase in local currency but profits were impacted by the weakening of the dollar as a significant proportion of sales are sourced from the Netherlands and the UK. Elsewhere in the Americas, our companies in Brazil and Argentina grew sales and profits as a result of concentration on our support and technical strengths which help the customer to improve efficiency. The Argentine economy is fragile but has recovered well since the crash at the end of 2001 and we are expanding our manufacturing facility which produces valves for the rest of the Group. In Mexico, the economy is still depressed and our sales and profits were lower; we have re-organised the management with a view to revitalising the company. In Canada, our company continues to turn in a strong performance. The regional operating profit was £10.3 million compared with £11.3 million in 2002, a reduction in sterling of 9% on sales down 1%, the reduced profit margin being a result of the weak US dollar. In constant currency terms, sales grew by 7% and operating profit advanced by 19% with underlying margins also ahead of the previous year. Interest, tax and dividends The net interest charge for the year fell to £1.2 million from £2.0 million in 2002 as a result of the good cash flow and the resultant lower net debt. Profit before tax for the year was £44.6 million compared with £40.7 million last year, an increase of nearly 10%. Amortisation of goodwill was £0.7 million (2002: £0.6 million). The tax charge at 34% was similar to the charge in 2002. Minority interests were slightly higher at £0.8 million (2002: £0.7 million) due to increased profits from India, partly offset by lower profits in Mexico. Earnings per share rose by 9% to 38.5p from 35.3p. The Board is recommending a final dividend of 14.1p per share which, with the interim dividend of 6.0p per share, gives a total for the year of 20.1p, an increase of 4%. The cost of the interim and final dividends is £15.0 million, which is covered 1.9 times by earnings. No scrip alternative to the cash dividend is being offered. BALANCE SHEET AND CASH FLOW Capital employed (net assets excluding goodwill and net debt) increased to £167 million at 31st December 2003 compared with £162 million a year earlier, an increase of 3% which was below the increase in business levels of 6%. Working capital continues to be closely controlled with a relatively small increase in stocks and debtors. Fixed asset additions were £12.4 million, in line with the depreciation charge for the year; we would expect expenditure on fixed assets to be higher in 2004. The overall return on capital employed improved again from 26% to 28% during the year. Cash flow was again good. The cash inflow from operating activities at £53.4 million compares with the exceptionally strong £58.6 million in 2002. Taxation payments were higher than usual, catching up following the low payments in the previous year, and there was an outflow of £1.9 million in respect of acquisitions. During the year, net debt was reduced by £9.1 million resulting from good trading cash flows, although there was an adverse impact of £0.8 million from exchange rate movements. Net debt at 31st December 2003 was therefore £14.4 million, down from £22.7 million a year earlier. Gearing improved to 9% (2002: 15%). International Accounting Standards will be applied from 2005 with comparative figures under the new basis for 2004. The areas likely to be affected for Spirax Sarco are pensions, share based payments, goodwill and R&D. We continue to take appropriate steps to ensure that the Group is ready to implement the required changes. LOOKING FORWARD 2003 was another year of growth and progress for the Spirax Sarco Group, with an improvement in the operating profit margin that was reduced by the exchange rate movements. The Watson-Marlow Bredel business is the world leader in the industrial use of peristaltic pumps, both in terms of market share and technology. The market is growing as the peristaltic principle becomes more widely applied and the product is being constantly developed by our team who are moving the range forward in performance, functionality, ease of use and simplicity of design and manufacture. New products are being introduced, including the switch to in-house tubing which gives assurance of supply and quality, and there are good sales opportunities, particularly in the hygienic applications associated with pharmaceutical, biotechnology and food industries. The Spirax Sarco business leads the very fragmented industrial and commercial steam using market, and although we are the world leader we have a relatively small overall market share. There is good potential to grow even in the major developed markets such as USA, Germany and Japan (where we do not have a large share of the market across our broad product range), and in newer less developed markets such as China and Russia which are still at an early stage of the growth cycle. We have product opportunities, not only through the development of the hardware range but also through selling our knowledge by providing a range of services and prefabricated units. We will also continue our longstanding process of increasing the number of technically qualified sales and service engineers around the world. As in the past, we aim to make acquisitions which complement our businesses and enhance the sales and profit of the Group. Our aim is for long term steady growth in sales, profits and dividends and we have the capability and potential to achieve this in the future, as we have for many years. The Chairman comments as follows: 'These good results and the consistent performance we have achieved in the past reflect the fundamental strengths of the Group - our broad geographical spread, the wide industrial applications for our focused but comprehensive product range and the technical knowledge of our salesforce and all those people who make the product and support the business worldwide. My thanks go to all these dedicated people without whose skills and hard work the Group could not operate. As previously announced, Michael Smith retired from the Board with effect from 31st May 2003. Michael brought a great depth of experience and understanding of manufacturing to Spirax. The Board wishes to put on record its thanks for Michael's contribution during his 17 years with the company. The Board was pleased to welcome Neil Daws as Director-Supply from 1st June 2003. Neil has many years experience as an engineer with Spirax Sarco, having started as an apprentice and worked in many parts of the business including production, product design and development, and customer service. We look forward to Neil making a significant contribution to the Group's future growth and prosperity. The Board has given considerable thought to the July 2003 Combined Code and is taking steps to ensure that the Group complies with the requirements of the Code throughout 2004 or, where we consider it inappropriate to comply, to provide a full explanation. PROSPECTS Although some indicators are showing signs of economic recovery, in many places the evidence on the ground is tenuous, particularly in Europe. Nevertheless, our sales development initiatives are progressing and business levels in our companies around the world have started the year in line with expectations. In recent months, exchange rate movements have been unfavourable which, if maintained, will naturally affect our profits in 2004. Subject to exchange rates, given the fundamental strengths of the Group, we expect to make further progress in 2004.' The audited trading results for the Group for the year ended 31st December 2003 (together with the comparative figures for 2002) are set out below:- SPIRAX-SARCO ENGINEERING PLC Group Profit and Loss Account for the year ended 31st December 2003 2003 2002 £'000 £'000 Turnover 314,087 296,363 Operating costs (268,337) (253,689) Operating profit 45,750 42,674 Net interest payable (1,186) (1,981) Profit on ordinary activities before taxation 44,564 40,693 Taxation on profit on ordinary activities (15,138) (13,887) Profit on ordinary activities after taxation 29,426 26,806 Minority interests - equity (788) (681) Profit for the financial year attributable to shareholders 28,638 26,125 Dividends (15,028) (14,350) Retained profit for the financial year 13,610 11,775 Earnings per share (basic) 38.5p 35.3p Earnings per share (diluted) 38.2p 35.2p Dividends per share - Interim 6.0p 5.8p - Final 14.1p 13.5p - Total 20.1p 19.3p SPIRAX-SARCO ENGINEERING plc Group Balance Sheet at 31st December 2003 2003 2002 £'000 £'000 Fixed assets Intangible assets 11,123 10,384 Tangible assets 88,089 88,593 99,212 98,977 Current assets Stocks 60,695 57,588 Debtors 90,515 87,130 Cash deposits and short term investments 38,197 31,796 Cash at bank and in hand 4,977 4,882 194,384 181,396 Creditors Amounts falling due within one year (86,727) (73,859) Net current assets 107,657 107,537 Total assets less current liabilities 206,869 206,514 Creditors Amounts falling due after more than one year (25,376) (41,035) Provisions for liabilities and charges (17,677) (16,186) Net assets 163,816 149,293 Capital and reserves Called up share capital 18,690 18,575 Share premium account 35,996 34,380 Revaluation reserve 4,350 4,216 Capital redemption reserve 1,832 1,832 Profit and loss account 99,782 87,328 Shareholders' funds - equity 160,650 146,331 Minority interests - equity 3,166 2,962 163,816 149,293 SPIRAX-SARCO ENGINEERING plc Group Cash Flow Statement for the year ended 31st December 2003 2003 2002 £'000 £'000 RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOW Operating profit 45,750 42,674 Depreciation and amortisation charges 13,824 12,492 Increase in stocks (2,558) 3,858 Increase in debtors (1,677) (2,241) Decrease in creditors and provisions (1,913) 1,779 Cash inflow from operating activities 53,426 58,562 GROUP CASH FLOW STATEMENT Cash inflow from operating activities 53,426 58,562 Returns on investments and servicing of finance (1,493) (2,441) Taxation (16,269) (11,605) Capital expenditure (11,912) (11,339) Acquisitions and disposals (1,909) (1,386) Equity dividends paid (14,517) (13,930) Cash inflow before use of liquid resources & financing 7,326 17,861 Management of liquid resources (6,012) (15,918) 1,314 1,943 Financing - Issue of ordinary share capital 1,731 1,144 - Decrease in debt (8,759) (4,492) (7,028) (3,348) Decrease in cash in the period (5,714) (1,405) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Decrease in cash in the period (5,714) (1,405) Cash outflow from decrease in debt 8,759 4,492 Cash outflow from increase in liquid resources 6,012 15,918 Decrease in net debt resulting from cash flows 9,057 19,005 Amortisation of loan expenses - (21) Translation difference (748) (1,177) Decrease in net debt in the period 8,309 17,807 Net debt at 1st January (22,666) (40,473) Net debt at 31st December (14,357) (22,666) SPIRAX-SARCO ENGINEERING plc Group Statement of Total Recognised Gains and Losses for the year ended 31st December 2003 2003 2002 £'000 £'000 Profit for the financial year 28,638 26,125 Currency translation differences on foreign currency net investments (1,022) (8,475) Total recognised gains and losses relating to the year 27,616 17,650 SPIRAX-SARCO ENGINEERING plc Group Reconciliation of Movement in Shareholders' Funds for the year ended 31st December 2003 2003 2002 £'000 £'000 Shareholders' funds at 1st January 146,331 141,887 Profit for the financial year 28,638 26,125 Dividends (15,028) (14,350) Net proceeds of issue of shares 1,731 1,144 Currency translation differences (1,022) (8,475) Shareholders' funds at 31st December 160,650 146,331 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:- 2003 2002 % * % change £'000 £'000 change at constant exchange rates United Kingdom 39,215 38,928 +1 +1 Continental Europe 117,390 106,490 +10 +2 The Americas 84,207 85,385 -1 +7 Asia, Australasia and Africa 73,275 65,560 +12 +12 314,087 296,363 +6 +5 and by reference to the geographical location of the Group's operations is as follows:- 2003 2002 % * % change £'000 £'000 change at constant exchange rates United Kingdom 92,370 89,435 +3 +3 Continental Europe 146,408 127,403 +15 +5 The Americas 87,962 89,768 -2 +7 Asia, Australasia and Africa 67,145 58,843 +14 +16 393,885 365,449 +8 +7 Intra-group sales (79,798) (69,086) +16 +13 Sales to third parties 314,087 296,363 +6 +5 3. Operating profit, analysed by reference to the geographical location of the Group's operations, is as follows:- 2003 2002 % * % change £'000 £'000 change at constant exchange rates United Kingdom 8,021 8,014 - +5 Continental Europe 16,439 13,561 +21 +2 The Americas 10,335 11,336 -9 +19 Asia, Australasia and Africa 10,955 9,763 +12 +19 45,750 42,674 +7 +10 * The percentage change at constant exchange rates is calculated by applying 2003 average exchange rates to the 2002 results and, in respect of operating profit, also includes an estimate of the transaction effect. 4. Net interest payable:- 2003 2002 £'000 £'000 Interest payable: Bank loans and overdrafts 1,653 1,823 Other loans 644 906 2,297 2,729 Interest receivable (1,111) (748) 1,186 1,981 5. Taxation:- 2003 2002 £'000 £'000 Analysis of charge in period UK corporation tax Current tax on income for the period 10,152 8,059 Adjustments in respect of prior periods (137) 60 10,015 8,119 Double taxation relief (7,393) (5,244) 2,622 2,875 Foreign tax Current tax on income for the period 12,810 11,357 Adjustments in respect of prior periods (360) (243) 12,450 11,114 Total current tax charge 15,072 13,989 Deferred tax 66 (102) Tax on profit on ordinary activities 15,138 13,887 6. The calculation of earnings per share (basic) is based on earnings of £28,638,000 (2002: £26,125,000) as shown in the Group profit and loss account, divided by the weighted average number of shares in issue during the year of 74,432,975 (2002: 74,072,923). The calculation of earnings per share (diluted) is based on the earnings shown above and the weighted average number of shares in issue diluted by 521,701 (2002: 121,943) to 74,954,676 (2002: 74,194,866). The dilution is in respect of unexercised share options. 7. If approved at the annual general meeting on 13th May 2004, the final dividend will be paid on 21st May 2004 to shareholders on the register at 23rd April 2003. 8. The analysis of net assets by reference to the geographical location of the Group's operations is as follows:- 2003 2002 £'000 £'000 United Kingdom 47,575 47,178 Continental Europe 60,901 61,271 The Americas 35,868 33,909 Asia, Australasia and Africa 38,806 34,483 183,150 176,841 Cash at bank and in hand (4,977) (4,882) 178,173 171,959 Net debt (14,357) (22,666) Net assets 163,816 149,293 9. Analysis of changes in net debt. 1st Jan Cash Exchange 31st Dec 2003 Flow movement 2003 £'000 £'000 £'000 £'000 Cash in hand and at bank 4,882 (83) 178 4,977 Overdrafts (6,794) (5,631) (177) (12,602) (5,714) Debt due within a year (12,542) (7,119) (53) (19,714) Debt due beyond a year (38,491) 15,481 (976) (23,986) Finance leases (1,517) 397 (109) (1,229) 8,759 Current asset investments 31,796 6,012 389 38,197 Total (22,666) 9,057 (748) (14,357) 10. Financial Reporting Standard 17 - Retirement Benefits Whilst the Group continues to account for pension costs in accordance with Statement of Standard Accounting Practice 24 - Accounting for Pension Costs, under FRS17 - Retirement Benefits the following transitional disclosures are also given: The actuarial valuations of the Group's defined benefit schemes were carried out at various dates between 31st December 2001 and 31st December 2003. The results produced at earlier valuation dates were updated to the 31st December 2003 by independent qualified actuaries. Overseas UK pensions Total pensions & medical £'000 £'000 £'000 Total market value of schemes' assets 110,700 14,700 125,400 Present value of the schemes' liabilities (140,000) (27,500) (167,500) Deficit in the schemes (29,300) (12,800) (42,100) Related deferred tax asset 8,800 2,200 11,000 Net pension liability (20,500) (10,600) (31,100) If the above amounts had been recognised in the accounts, the Group's net assets and profit and loss account reserve at 31st December 2003 would be as follows:- Total £'000 Net assets 163,816 Unprovided pension liability * (29,900) Adjusted net assets including pension liability 133,916 Profit and loss account reserve 99,782 Unprovided pension liability * (29,900) Adjusted profit and loss account reserve 69,882 * The net pension liability of £31,100,000 calculated in accordance with FRS17 compares with the net pension provision currently recorded of £1,200,000. 11. The financial information set out above does not constitute the company's statutory accounts for the years ended 31st December 2003 or 2002 but is derived from those accounts. Statutory accounts for 2002 have been delivered to the registrar of companies, and those for 2003 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. This information is provided by RNS The company news service from the London Stock Exchange

Companies

Spirax Group plc (SPX)
UK 100
FTSE quotes by TradingView

Latest directors dealings

All directors dealings today