Interim Results

Spirax-Sarco Engineering PLC 07 September 2006 Spirax-Sarco Engineering plc Thursday 7th September 2006 2006 Interim Results Six months to 30th June 2006 2005 Change Revenue £185.9m 166.6m +12% Operating profit £28.2m £25.0m +13% Operating profit margin 15.2% 15.0% Profit before taxation £30.0m £26.0m +16% Earnings per share 26.2p 23.0p +14% Dividends per share 7.5p 6.8p +10% Net cash £2.2m £1.5m • Continuing good growth in Asia and North America • Noticeable improvement in Continental Europe • Margin growth despite higher material and energy costs and the Brazilian result • Pre-tax profit up 16% • Interim dividend up 10% • Continuing bolt-on acquisitions Commenting on the results, the Chairman, Mike Townsend, said: 'The good results in the first half of the year were achieved against a relatively positive market background and favourable currency movements. If the US dollar remains weak, as seems likely, the exchange gains would largely unwind in the second half of 2006 and there are some doubts about the sustainability of the current positive business environment, particularly in the USA. Nevertheless there continue to be good sales prospects for the second half of the year and we expect a further good performance.' Enquiries: Marcus Steel - Chief Executive David Meredith - Director-Finance Tel: 020 7638 9571 at Citigate Dewe Rogerson until 6.00 p.m. The Chairman, Mike Townsend, comments as follows: 'I am pleased to report another good set of results reflecting a continuation of the positive start to the year that we reported in March. The growth has been based on the underlying strengths of our specialised businesses, which have been operating in a mainly healthy global economic environment. There was sales growth in Asia, North America, Europe and the Rest of the World, but demand in the UK market was weaker. We increased our investments to take advantage of the identified growth opportunities for our industrial steam and peristaltic pumping businesses, improving the knowledge and service provided to our customers to improve the efficiency of their plants. Sales in the first half were £185.9 million, up from £166.6 million; an increase of 12%. This comprised organic growth of 6%, exchange gains which contributed 4%, and the extra sales from the three small acquisitions that we made in South Africa and the USA in 2005 and 2006 accounted for the balance. Operating profit increased by 13% from £25.0 million in the first half of 2005 to £28.2 million in 2006. The operating margin was 15.2% compared with 15.0% in the first half of 2005. The benefits of the organic growth and exchange gains were reduced by higher material and energy input costs, a lower margin in Brazil and increased IFRS costs, chiefly share-based payments and the amortisation of acquired intangible assets. Net finance income increased to £1.2 million from £0.6 million in 2005 as a result of the strong cash flow over the last year, as well as from stronger net finance income relating to pension funds. The Group's share of profits of Associates increased to £0.6 million in 2006 from £0.4 million in 2005. Pre-tax profit increased by 16% to £30.0 million including £2.2 million due to favourable exchange rate movements. The tax charge of 32.7% was the same as 2005 and the profit attributable to equity shareholders increased by 16% to £20.1 million. Earnings per share increased by 14% to 26.2p compared with 23.0p in the corresponding period last year. TRADING Our Spirax Sarco and Watson-Marlow Bredel businesses are focused on their respective steam specialty and peristaltic pumping markets. They lead the world in the provision of knowledge, service and products to their target markets and have a diverse range of customers across the globe, working with them to improve the quality of their output and to reduce costs. The UK market remains subdued; industrial production and investment showed no sign of improvement, with only a few exceptions such as the pharmaceutical and oil & petrochemical industries. Sales declined by 3% to £20.5 million. The operating profit of £5.7 million was 15% lower than the prior year as the factories invested in longer term efficiency improvements and incurred higher material and energy costs. The Continental European economies generally improved in the first half of 2006 and confidence among our industrial customers strengthened. Our companies performed well as the various sales initiatives and recent product releases allowed both Spirax Sarco and Watson-Marlow Bredel to increase market penetration and sales rose by 10% to £68.5 million. There were particularly strong results in the Czech Republic, Germany and Spain, and in Alitea's pump sales to OEMs. Belgium, Italy and the Hygromatik humidifier business all produced good growth although sales were lower in Sweden and in Norway following exceptional project sales in 2005. The factories in Europe also benefited from strong demand from our Asian sales operations. Although the French market remains weak, our companies increased sales and profits. Our young company in Russia generated strong sales growth and good profits, which promises well. Operating profit in Continental Europe increased by 19% to £10.2 million. The impact from exchange rate movements was small. There was a continuation of the strong performance in Asia with good sales to the oil & petrochemical and pharmaceutical markets. The regional sales increased by 20% to £36.3 million and operating profit rose by 53% to £6.5 million from £4.2 million. Good increases in shipments and profits were delivered in China, India (an Associate), Korea, Malaysia and the other South East Asian markets; sales in Japan also improved. The relatively new Watson-Marlow Bredel operations in China and Korea performed well. At constant exchange rates, sales increased by 13% and profit by 26%, the sterling figures being particularly influenced by the continued strength of the Korean Won. The North American operations' sales increased by 16% to £37.6 million; at constant exchange rates the increase was 9%, half of which came from our two new metering businesses - EMCO acquired in June 2005 and AFTCO in April 2006. Both these businesses are being integrated into the Spirax Sarco business in the USA, where combined sales and operating profits increased well. The Watson-Marlow Bredel sales in the USA were flat mainly due to the non-repeat of a large OEM project in 2005; the underlying business was up, with good sales to the industrial sector. Our Mexican operation, which is accounted for as an Associate, continued its good progress with both sales and profits increasing strongly. The North American operating profit increased by 38% to £3.6 million; at constant exchange rates the increase was 16%. In the Rest of the World (mainly South America, Africa and Australasia), sales increased by 12% to £22.9 million, which includes the benefit of exchange movements and the South African acquisition. In Brazil, as we indicated in March, the market was difficult and, despite our sales initiatives there, turnover fell and profits were sharply lower. Sales in Argentina held up despite a fragile domestic market. While global demand for ball valves made in Argentina helped overall sales, profits were flat. In South Africa, the integration of the Mitech control valve business, acquired in June 2005, is proceeding on plan and overall sales and profits were ahead, as they were in New Zealand. Operating profit in the Rest of the World was £2.2 million compared with £2.9 million in the first half of 2005, the reduction being due to the lower profit in Brazil. BALANCE SHEET AND CASH FLOW Capital employed in the business increased by 5% from a year earlier to £196 million. Capital expenditure was £7.0 million, which is close to the long-term norm. We are continuing to invest in the Spirax Sarco and Watson-Marlow Bredel businesses to ensure their future expansion and improved efficiency. Dividend payments were £13.0 million during the half year. In April, we completed the acquisition of AFTCO, the small metering business in the USA, for £1.6 million. We also made £1.0 million extra contributions to the Group's pension funds in the period. Since the end of the half year we have, as indicated in March, made a special pension contribution of £14.5 million and we have acquired 80% of Ultrapure in the USA for £2.7 million. At the time of the 2005 results in March we announced our intention to buy back up to 2 million shares, to be used to satisfy all outstanding share based remuneration requirements. By the end of June we had acquired 1.5 million shares for £13.7 million. At 30th June, the net cash position was therefore £2.2 million as against £19.0 million at 31st December 2005 and £1.5 million at 30th June 2005. The net liability in respect of post-retirement benefits decreased by £14 million in the first half of the year to £32 million due to higher bond yields and improved investment performance; the special contribution, mentioned above, will further enhance the funding position. DIVIDEND The Board has declared an interim dividend of 7.5p (2005: 6.8p) per ordinary share, an increase of 10%, which will be paid on 10th November 2006 to shareholders on the register at the close of business on 13th October 2006. No scrip alternative to the cash dividend is being offered in respect of the 2006 interim dividend. BOARD CHANGES On 30th June, Graham Marchand retired from the Board. He joined the company in 1987 and, at various times, has overseen our Spirax Sarco operations in Europe, the Americas and the UK. We thank Graham for his excellent and consistent contribution to the Group's performance over that time and his retirement has been well earned. We welcomed Mark Vernon, who has been General Manager of Spirax Sarco Inc. in the USA, to the Board on 1st July. Mark joined the Group in 2003 and brought with him a wealth of experience in the controls industry. We look forward to Mark's contribution to the future prosperity of the Group. PROSPECTS The good results in the first half of the year were achieved against a relatively positive market background and favourable currency movements. If the US dollar remains weak, as seems likely, the exchange gains would largely unwind in the second half of 2006 and there are some doubts about the sustainability of the current positive business environment, particularly in the USA. Nevertheless there continue to be good sales prospects for the second half of the year and we expect a further good performance.' Spirax-Sarco Engineering plc GROUP INCOME STATEMENT Six months Six months Year ended to 30th June to 30th June 31st December 2005 2006 2005 £'000 £'000 £'000 Revenue 185,855 166,611 349,100 Operating costs (157,643) (141,580) (293,930) Operating profit 28,212 25,031 55,170 Financial expenses (5,798) (5,613) (11,450) Financial income 6,967 6,180 12,378 Net financing income 1,169 567 928 Share of profit of associates 636 384 861 Profit before taxation 30,017 25,982 56,959 Taxation (9,804) (8,488) (18,772) Profit for the period 20,213 17,494 38,187 Attributable to: Equity holders of the parent 20,099 17,392 38,036 Minority interest 114 102 151 Profit for the period 20,213 17,494 38,187 Earnings per share Basic earnings per share 26.2p 23.0p 50.0p Diluted earnings per share 26.0p 22.8p 49.6p Dividends Dividend paid per share 17.0p 15.1p 21.9p Dividend proposed per share 7.5p 6.8p 17.0p £'000 £'000 £'000 Dividend paid 13,047 11,459 16,684 Dividend proposed 5,685 5,188 13,093 Spirax-Sarco Engineering plc GROUP BALANCE SHEET 30th June 30th June 31st December 2005 2006 2005 £'000 £'000 £'000 ASSETS Non-current assets Property, plant and equipment 85,349 84,306 85,752 Goodwill 15,328 14,122 15,033 Other intangible assets 8,187 8,411 8,357 Prepayments 443 356 396 Investment in associates 3,498 3,061 3,371 Deferred tax 13,922 20,972 18,536 126,727 131,228 131,445 Current assets Inventories 68,512 61,186 64,216 Trade receivables 81,623 78,978 83,303 Other current assets 11,081 10,376 8,688 Cash and cash equivalents 21,498 46,799 56,929 182,714 197,339 213,136 Total assets 309,441 328,567 344,581 EQUITY AND LIABILITIES Current liabilities Trade and other payables 45,050 44,157 46,843 Bank overdrafts 8,366 7,953 3,836 Short term borrowing 1,881 - 1,498 Current portion of long term borrowings 6,688 7,605 25,010 Current tax payable 6,423 5,063 7,326 68,408 64,778 84,513 Net current assets 114,306 132,561 128,623 Non-current liabilities Long term borrowings 2,374 29,765 7,540 Tax payable - 60 - Deferred tax 8,044 7,966 7,728 Post-retirement benefits 32,080 54,059 45,807 Provisions 759 715 747 43,257 92,565 61,822 Total liabilities 111,665 157,343 146,335 Net assets 197,776 171,224 198,246 Equity Share capital 19,292 19,053 19,238 Share premium account 47,128 42,289 46,154 Other reserves 1,833 6,139 7,554 Retained earnings 128,847 102,880 124,672 Equity attributable to equity holders of the parent 197,100 170,361 197,618 Minority interest 676 863 628 Total equity 197,776 171,224 198,246 Total equity and liabilities 309,441 328,567 344,581 Spirax-Sarco Engineering plc GROUP STATEMENT OF TOTAL RECOGNISED INCOME AND EXPENSE Six months Six months Year ended to 30th June to 30th June 31st December 2005 2006 2005 £'000 £'000 £'000 Actuarial gain on post-retirement benefits 8,154 (8,403) (6,032) Foreign exchange translation differences (4,541) 2,652 6,907 Gains on cash flow hedges 263 (23) 6 Income and expense recognised directly in equity 3,876 (5,774) 881 Profit for the period 20,213 17,494 38,187 Total recognised income and expense for the period 24,089 11,720 39,068 Attributable to Equity holders of the parent 23,975 11,618 38,917 Minority interest 114 102 151 Total recognised income and expense for the period 24,089 11,720 39,068 Spirax-Sarco Engineering plc GROUP CASH FLOW Six months Six months Year ended to 30th June to 30th June 31st December 2005 2006 2005 £'000 £'000 £'000 Cash flows from operating activities Profit before taxation 30,017 25,982 56,959 Depreciation and amortisation 6,794 6,142 13,151 Share of profit of associates (636) (384) (861) Equity settled share plans 664 436 576 Net finance income (1,169) (567) (928) Operating profit before changes in working capital and provisions 35,670 31,609 68,897 Increase in trade and other receivables (3,267) (3,701) (2,814) Increase in inventories (5,651) (1,899) (3,224) Decrease in provisions and post-retirement benefits 436 (1,014) (4,045) Decrease in trade and other payables (775) 242 1,371 Cash generated from operations 24,963 26,687 60,185 Interest paid (395) (759) (1,677) Income taxes paid (8,416) (9,529) (16,789) Net cash from operating activities 16,152 16,399 41,719 Cash flows from investing activities Purchase of property, plant & equipment Proceeds from sale of property, plant & equipment (6,751) (5,861) (11,692) 409 492 850 Purchase of software (227) (111) (1,139) Development expenditure capitalised (543) (600) (1,070) Acquisition of businesses (1,601) (4,943) (5,866) Interest received 634 896 1,860 Dividends received 126 47 351 Net cash used in investing activities (7,953) (10,080) (16,706) Cash flows from financing activities Proceeds from issue of share capital 1,611 4,518 8,568 Treasury shares purchased (13,721) - - Repayment of borrowings (22,814) (3,917) (7,728) Payment of finance lease liabilities (110) (187) (372) Dividends paid (13,047) (11,537) (16,796) Net cash used in financing activities (48,081) (11,123) (16,328) Net decrease in cash and cash equivalents (39,882) (4,804) 8,685 Cash and cash equivalents at beginning of period 53,093 43,914 43,914 Exchange movement (79) (264) 494 Cash and cash equivalents at end of period 13,132 38,846 53,093 Borrowings and finance leases (10,943) (37,370) (34,048) Net cash 2,189 1,476 19,045 NOTES TO THE ACCOUNTS 1. BASIS OF PREPARATION The interim consolidated financial statements of Spirax-Sarco Engineering plc and its subsidiaries have been prepared on the basis of the accounting policies set out in the 2005 Spirax-Sarco Engineering plc Annual Report. The comparative figures for the year ended 31st December 2005 do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The consolidated statutory accounts for Spirax-Sarco Engineering plc in respect of the year ended 31st December 2005 have been reported on by the company's auditors and delivered to the registrar of companies. The report of the auditors was unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985. The interim financial statements for the six months ended 30th June 2006 were authorised for issue by the Board on 7th September 2006. 2. SEGMENTAL REPORTING Primary segment Six months Six months Year ended to 30th June 2006 to 30th June 2005 31st Dec. £'000 £'000 2005 £'000 Revenue by geographical location of operation UK & Republic of Ireland 53,484 51,754 102,479 Continental Europe 85,197 77,503 156,050 North America 37,743 32,990 73,220 Asia 34,198 27,518 61,263 Rest of the world 24,228 20,775 45,949 Intra-Group sales (48,995) (43,929) (89,861) 185,855 166,611 349,100 Six months Six months Year ended to 30th June to 30th June 31st Dec. 2006 2005 2005 £'000 £'000 £'000 Operating profit by geographical location of operation UK & Republic of Ireland 5,721 6,728 10,881 Continental Europe 10,179 8,550 18,733 North America 3,578 2,599 7,938 Asia 6,496 4,234 11,430 Rest of the world 2,238 2,920 6,188 28,212 25,031 55,170 Profit from operations figures reflect the allocation of UK incurred central support costs to the segments to which the expenses relate. Segmental profits for the six months to June 2005 were prepared on a different basis and have now been restated to reflect this change. Six months Six months Year ended to 30th June to 30th June 31st December 2005 2006 2005 £'000 £'000 £'000 Revenue by geographical location of customers UK & Republic of Ireland 20,468 21,040 40,084 Continental Europe 68,529 62,356 125,343 North America 37,647 32,583 73,056 Asia 36,305 30,146 65,841 Rest of the world 22,906 20,486 44,776 185,855 166,611 349,100 Secondary segment Six months Six months Year ended to 30th June to 30th June 31st December 2005 2006 2005 £'000 £'000 £'000 Revenue by business operation Spirax Sarco 161,225 144,219 302,627 Watson-Marlow Bredel 24,630 22,392 46,473 Group revenue 185,855 166,611 349,100 3. NET FINANCING INCOME Six months Six months Year ended to 30th June to 30th June 31st December 2005 2006 2005 £'000 £'000 £'000 Financial expenses Bank and other borrowing interest payable (398) (787) (1,704) Interest on pension scheme liabilities (5,400) (4,826) (9,746) (5,798) (5,613) (11,450) Financial income Bank interest receivable 635 899 1,869 Expected return on pension scheme assets 6,332 5,281 10,509 6,967 6,180 12,378 Net financing income 1,169 567 928 Net pension scheme financial income 932 455 763 Net bank interest 237 112 165 Net financing income 1,169 567 928 4. TAXATION 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 2006 2005 2005 £'000 £'000 £'000 United Kingdom corporation tax 1,196 1,304 2,947 Overseas taxation 7,959 6,601 15,565 Deferred taxation 669 576 575 Prior year adjustment (20) 7 (315) 9,804 8,488 18,772 5. EARNINGS PER SHARE Six months Six months Year ended to 30th June to 30th June 31st December 2006 2005 2005 £'000 £'000 £'000 Earnings 20,099 17,392 38,036 Weighted average shares in issue 76,669,026 75,619,180 76.119,005 Dilution 772,879 638,139 577,169 Diluted weighted average shares in issue 77,441,905 76,257,319 76,696,174 Basic earnings per share 26.2p 23.0p 50.0p Diluted earnings per share 26.0p 22.8p 49.6p The dilution is in respect of unexercised share options and the performance share plan. 6. ANALYSIS OF CHANGES IN NET CASH At Cash flow Exchange At 1st Jan 2006 movement 30 th June 2006 £'000 £'000 £'000 £'000 Current portion of long term borrowings (25,010) (6,688) Non-current portion of long term borrowings (7,540) (2,374) Short term borrowing (1,498) (1,881) Total borrowings (34,048) (10,943) Comprising: Borrowings (33,600) 22,814 184 (10,602) Finance Leases (448) 110 (3) (341) (34,048) 22,924 181 (10,943) Cash and cash equivalents 56,929 (34,930) (501) 21,498 Bank overdrafts (3,836) (4,952) 422 (8,366) Net cash and cash equivalents 53,093 (39,882) (79) 13,132 Net cash 19,045 (16,958) 102 2,189 7. GROUP STATEMENT OF CHANGES IN EQUITY Six months Six months Year ended to 30th June to 30th June 31st December 2005 2006 2005 £'000 £'000 £'000 Shareholders' funds at beginning of period as previously reported - 163,913 - IFRS adjustment to deferred tax - 1,509 - Shareholders' funds at beginning of period as adjusted 197,618 165,422 165,422 Total recognised income and expense for the period 23,975 11,618 38,917 Dividends paid (13,047) (11,459) (16,684) Net proceeds of issue of shares 1,611 4,518 8,568 Treasury shares purchased (13,721) - - Equity settled share plans 664 262 1,395 Equity attributable to equity holders of parent at end of period 197,100 170,361 197,618 8. CAPITAL EMPLOYED An analysis of the components of capital employed is as follows: Six months Six months Year ended to 30th June to 30th June 31st December 2005 2006 2005 £'000 £'000 £'000 Property, plant and equipment 85,349 84,306 85,752 Prepayments 443 356 396 Inventories 68,512 61,186 64,216 Trade receivables 81,623 78,978 83,303 Other current assets 11,081 10,376 8,688 Trade and other payables (45,050) (44,157) (46,843) Current tax payable (6,423) (5,063) (7,326) Non-current tax payable - (60) - 195,535 185,922 188,186 9. Copies of the Interim Report will be sent on 8th September 2006 to shareholders and can be obtained from our registered office at Charlton House, Cirencester Road, Cheltenham, Gloucestershire GL53 8ER. From 8th September 2006 the Interim Report will be available on our website at www.SpiraxSarcoEngineering.com. This information is provided by RNS The company news service from the London Stock Exchange
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