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.
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