Interim Results

Spirax-Sarco Engineering PLC
05 September 2002


Spirax-Sarco Engineering plc


                          Thursday 5th September 2002
                              2002 Interim Results


                                                                    Six months to 30th June
                                                          2002              2001*             Change

Turnover                                                  £144.9m           £145.6m           -

Operating profit                                          £20.0m            £19.9m            +1%

Operating profit margin                                   13.8%             13.7%

Profit before taxation                                    £18.9m            £18.4m            +3%

Earnings per share                                        16.7p             16.4p             +2%

Dividend per share                                        5.8p              5.6p              +4%

Operating cash inflow                                     £24.6m            £20.0m

*    2001 figures exclude the profit on disposal of fixed assets and have been
     restated for FRS19 Deferred Tax
     
•       Sales maintained in difficult trading conditions.
•       Pre-tax profit up 3%.
•       Progress in Americas and Asia, Australasia & Africa, offset
        by the UK.
•       Good cashflow continues.
•       Dividend up 4%.

Commenting on the results, the Chairman, Tim Fortune, said:

'The fundamental strengths of the Spirax Sarco Group are its broad customer
base, its large technically trained salesforce, its comprehensive product range
and the benefits customers derive from the use of our steam system equipment and
peristaltic pumps.  Assuming that trading conditions do not deteriorate, we
expect a satisfactory outcome for the full year.'

Enquiries:

Tim Fortune          -           Chairman
Marcus Steel         -           Chief Executive
David Meredith       -           Director-Finance
Tel:  [phone] at Citigate Dewe Rogerson until 6.00 p.m.


The Chairman, Tim Fortune, comments as follows:

'I am pleased to announce a good set of results for the first half of 2002 in
difficult trading conditions.  We maintained the solid start to the year,
underlining the value of our comprehensive service and support, the broad
customer base and the international strengths of our business.

Group turnover at £145 million was marginally below the first six months of
2001.  The overall effect of exchange rate movements was again negative but the
effect was relatively small at less than 1% of sales.  We have benefited from
the investments we have made in a number of sales developments, these have
protected sales levels and, in spite of the trading environment, turnover was
marginally ahead at constant exchange rates.

The operating profit of £20.0 million was 1% higher than the first half of 2001
and the operating profit margin increased slightly to 13.8%.  The charge for
amortisation of goodwill included in the above figure was unchanged at £0.3
million.  There were no non-operating items during this period, although in the
first half of 2001 there was a non-operating profit of £0.6 million on disposal
of fixed assets.

The net interest charge was down by nearly 30% at £1.1 million (2001:  £1.5
million) due to the positive cash flow and lower interest rates.  Profit before
tax was £18.9 million compared with £18.4 million last year before the
non-operating item, an increase of 3%.

The tax charge was 33.1% compared with 32.6% in the first half of 2001.  We have
adopted FRS19 - Deferred Tax and the comparative tax charge and earnings per
share figures have been restated accordingly;  the effect of this change is
minimal.

Earnings per share were 16.7p, which compares with 16.4p in 2001 (17.3p
including the non-operating item), an increase of 2%.



TRADING

The market leading position that we have in our niche markets of industrial and
commercial steam systems and peristaltic pumping has enabled us to produce a
good set of results in a trading environment which was both challenging and
unpredictable.  A combination of the expertise in our large salesforce and the
identifiable benefits which our customers receive through our products and
support was central to the achievement of these results.

In the UK, the economy remained depressed with reduced industrial production and
industrial investment, and sales were flat.  Third party exports were strong,
particularly our embryonic business in Russia.  As anticipated, demand on our UK
factories improved against the second half of 2001 but was still below the first
half of 2001.  Operating profits in the UK were somewhat lower than the same
period in 2001, reflecting the trading environment, higher pension and insurance
costs and, more particularly, stock reduction.  We also increased our investment
in IT systems.    These were mitigated by profit protection measures applied not
only in the UK but Group-wide.

The Continental European economies remained in the doldrums in spite of the weak
euro and projects were at a lower level.  The Watson-Marlow Bredel companies
across Europe and the Spirax Sarco companies in Denmark, Italy, Portugal and
Spain continued to make good progress, as did M&M, acquired at the end of 2000.
Trading was weak in Belgium, Czech, France and Switzerland, and demand on our
factories was lower.  Overall, sales and profits were broadly maintained.

Our performance in the Americas improved in spite of the weak economic
conditions.  The US economy appears to have paused and it is now less clear that
a sustained recovery is underway;  this has had a knock-on effect to some of the
other economies in the Americas.  The economic collapse in Argentina has
naturally severely affected the domestic market, and there is still a risk of '
contagion' elsewhere in Latin America.  Nevertheless, we made progress in the
USA and Brazil, and Canada produced a strong performance.  In Argentina, the
weak domestic business has been more than outweighed by the increased
profitability of exports by our company, which manufactures ball valves for the
Group.  Taking the Americas as a whole, for the first half of 2002 there was a
good improvement in profits and margins.

In Asia, Australasia and Africa, our industrial and commercial markets have been
heavily influenced by the weaknesses in the US and Japanese economies and
activity was generally quiet with a lower level of project business.  Japan and
Korea suffered from currency weakness and sales and profits were lower.  On the
other hand, our Chinese company continued to make excellent progress.  Profits
also grew in most of the other companies in the region, including in Australia
where the integration of Marford, the water treatment company acquired at the
beginning of 2002, is proceeding well.  Overall profits in the region improved,
as did the margin, in spite of the weak local currencies in Korea, South Africa
and Japan.


BALANCE SHEET AND CASH FLOW

Cash flow in the first half of 2002 was strong.  Capital employed (net assets
excluding goodwill and net debt) was up marginally which resulted from a small
increase in working capital less a reduction in net fixed assets.  The 2001 net
assets have been restated downwards by £1.0 million following the adoption of
FRS19 - Deferred Tax.  The cash inflow from operating activities was £24.6
million (2001:  £20.0 million) and capital expenditure was held at £5.3 million
(2001:  £8.4 million) as we balanced caution with the need to continue to invest
in improvements in efficiency and quality in the business.  The acquisition of
Marford in January and the Swedish Watson-Marlow distributorship of Christian
Berner in June resulted in an outflow of £1.2 million.

Overall there was a cash inflow of £1.7 million but this was cancelled out by an
adverse exchange translation effect on net debt of £2.0 million, so that net
debt was £40.8 million at 30th June 2002 compared with £40.5 million at the end
of 2001 and £48.0 million at 30th June 2001.  Net gearing at 28% was virtually
unchanged from the start of the year.  Net interest expense was covered 18 times
by operating profit.


DIVIDEND

The directors have declared an interim dividend for 2002 of 5.8p (2001:  5.6p)



GROUP PROFIT AND LOSS ACCOUNT


                                   
                                          Six months           Six months                 Year ended
                                        to 30th June         to 30th June              31st December
                                                2002                 2001                       2001
                                                               (Restated)                 (Restated)
                                               £'000                £'000                      £'000

Turnover                                     144,879              145,592                    291,942

Operating profit                              19,993               19,876                     40,803
Profit on disposal of fixed assets                 -                  616                        616

Profit before interest                        19,993               20,492                     41,419
Net interest payable                          (1,088)              (1,487)                    (2,778)

Profit before taxation                        18,905               19,005                     38,641
Taxation (note 4)                             (6,254)              (6,002)                   (12,016)

Profit after taxation                         12,651               13,003                     26,625
Minority interests - equity                     (286)                (269)                      (585)

Attributable profit                           12,365               12,734                     26,040
Dividends                                     (4,304)              (4,138)                   (13,752)

Retained profit                                8,061                8,596                     12,288

Earnings per share (note 5)
      before the non-operating item            16.7p                16.4p                      34.4p
      after the non-operating item             16.7p                17.3p                      35.3p

Dividends per share                             5.8p                 5.6p                      18.6p




GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES

    
                                                     Six months           Six months              Year ended
                                                   to 30th June         to 30th June           31st December
                                                           2002                 2001                    2001
                                                                           (Restated)             (Restated)            
                                                          £'000                £'000                   £'000

Profit for the period                                     12,365               12,734                 26,040

Currency translation difference on foreign
currency net investments                                 (4,893)                  568                (5,772)
                                                        
Total recognised gains and losses relating
to the period                                              7,472               13,302                 20,268

Prior year adjustment in respect of the
adoption of FRS19 (note 2)                                 (959)
                                                           
Total recognised gains and losses                          6,513



GROUP BALANCE SHEET


                                                              30th June        30th June         31st December
                                                                   2002             2001                  2001
                                                                               (Restated)            (Restated)
                                                                  £'000            £'000                 £'000

Fixed assets
Intangible assets                                                 9,919            9,146                 8,958
Tangible assets                                                  89,542           91,141                91,906
                                                                 99,461          100,287               100,864

Current assets
Stocks                                                           60,478           68,234                62,840
Debtors                                                          91,098           89,178                88,385
Cash deposits and short term investments                         17,611           22,996                16,147
Cash at bank and in hand                                          4,909            3,298                 4,312
                                                                174,096          183,706               171,684

Creditors
Amounts falling due within one year                            (68,386)         (79,682)              (72,013)

Net current assets                                              105,710          104,024                99,671

Total assets less current liabilities                           205,171          204,311               200,535

Creditors
Amounts falling due after more than one year                   (40,792)         (42,084)              (40,084)

Provisions for liabilities and charges                         (16,075)         (14,214)              (15,336)

Net assets                                                      148,304          148,013               145,115

Capital and reserves
Called up share capital                                          18,507           18,472                18,484
Share premium account                                            33,578           33,208                33,327
Revaluation reserve                                               4,399            4,492                 4,618
Capital redemption reserve                                        1,832            1,832                 1,832
Profit and loss account                                          87,014           86,398                83,626

Shareholders' funds - equity                                    145,330          144,402               141,887
Minority interests - equity                                       2,974            3,611                 3,228
                                                                148,304          148,013               145,115




GROUP CASH FLOW STATEMENT


                                                               Six months      Six months             Year ended
                                                             to 30th June    to 30th June          31st December
                                                                     2002            2001                   2001
                                                                    £'000           £'000                  £'000
RECONCILIATION OF OPERATING PROFIT

TO OPERATING CASH FLOW
Operating profit                                                   19,993           19,876                40,803
Depreciation charges                                                6,271            5,985                12,303
Decrease in stocks                                                  1,701          (3,860)                 (435)
Increase in debtors                                               (2,720)            1,311                   873
Decrease in creditors and provisions                                (628)          (3,274)               (3,573)
Cash inflow from operating activities                              24,617           20,038                49,971


GROUP CASH FLOW STATEMENT

Cash inflow from operating activities                              24,617           20,038                49,971
Net interest paid                                                 (1,129)          (1,443)               (2,720)
Dividends paid by subsidiary undertakings
to minority interests                                               (255)            (304)                 (534)
Taxation                                                          (5,784)          (5,984)              (12,429)
Purchase of tangible fixed assets                                 (5,317)          (8,350)              (18,584)
Sales of tangible fixed assets                                        153            1,451                 1,750
Acquisitions (net of disposals)                                   (1,213)                -                 (404)
Equity dividends paid                                             (9,622)          (9,273)              (13,412)

Cash inflow before use of liquid resources
and financing                                                       1,450          (3,865)                 3,638
Management of liquid resources                                    (1,737)          (5,113)                 1,735
                                                                    (287)          (8,978)                 5,373

Financing
            -  Issue of ordinary share capital                        275            1,186                 1,316
            -  Increase in debt                                       863            8,112               (5,477)
                                                                    1,138            9,298               (4,161)

Increase in cash in the period                                        851              320                 1,212


RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET
DEBT
Increase in cash in the period                                        851              320                 1,212
Cash inflow from increase in debt                                   (863)          (8,112)                 5,477
Cash outflow from increase in liquid
resources                                                           1,737            5,113               (1,735)

Change in net debt resulting from cash flows                        1,725          (2,679)                 4,954
Amortisation of loan expenses                                        (11)             (13)                  (25)
Translation difference                                            (2,045)              293                   206
Movement in net debt in the period                                  (331)          (2,399)                 5,135
Opening net debt                                                 (40,473)         (45,608)              (45,608)
Closing net debt                                                 (40,804)         (48,007)              (40,473)



Notes

1.         Overseas results and cash flows have been translated into sterling at
average rates of exchange for each period.  Foreign currency assets and
liabilities have been translated at period end rates.

2.         The company has this year adopted Financial Reporting Standard 19 -
Deferred Tax and, as a consequence, 2001 half year and full year results have
been restated.

3.         In accordance with Financial Reporting Standard 10, purchased
goodwill arising on consolidation in respect of acquisitions since 1st January
1999 has been capitalised and is being amortised over 20 years.  The charge for
amortisation in the six months to 30th June 2002 was £266,000 (2001:  £250,000).

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


                                               Six months           Six months          Year ended
                                             to 30th June         to 30th June        31st December
                                                     2002                 2001                 2001
                                                                    (Restated)            (Restated)
                                                     £'000              £'000                 £'000

United Kingdom corporation tax                         852              1,162                 1,895
Overseas taxation                                    5,313              4,690                 9,639
Deferred taxation                                      104                132                   587
Adjustment in respect of previous years               (15)                 18                 (105)
                                                     6,254              6,002                12,016
                                                   



5.         The calculation of earnings per share before the non-operating item
is based on earnings of £12,365,000 (2001:  £12,118,000) and the calculation of
earnings per share after the non-operating item is based on earnings of
£12,365,000 (2001:  £12,734,000) together with the weighted average number of
shares in issue during the half year of 73,979,877 (2001:  73,691,340).  For the
full year 2001 the calculation is based on earnings before the non-operating
item of £25,424,000 and after the non-operating item of £26,040,000, together
with the weighted average number of shares in issue during the full year of
73,808,317.

6.         Capital employed is represented by net assets excluding goodwill and
net debt.

7.         This financial information, which is unaudited, does not amount to
full accounts within the meaning of Section 240 of the Companies Act 1985 (as
amended).  Full accounts for 2001 with an unqualified audit report have been
filed with the Registrar of Companies.

8.         Copies of the Interim Report will be sent on 6th September 2002 to
members and can be obtained from our registered office at Charlton House,
Cirencester Road, Cheltenham, Gloucestershire GL53 8ER.  From 9th September 2002
the Interim Report will be available on our website at
www.SpiraxSarcoEngineering.com.



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