Half Year Results
Spirax-Sarco Engineering PLC
06 September 2007
2007 Half Year Results
Six months to 30th June
Statutory 2007 2006 Change
Revenue £200.1m £185.9m +8%
Operating profit £31.4m £28.2m +11%
Profit before taxation £33.0m £30.0m +10%
Earnings per share 28.8p 26.2p +10%
Dividend per share 8.3p 7.5p +11%
Six months to 30th June
Adjusted* 2007 2006 Change
Revenue £200.1m £185.9m +8%
Operating profit £31.6m £28.3m +12%
Operating profit margin 15.8% 15.2%
Profit before taxation £33.1m £30.1m +10%
Earnings per share 29.1p 26.3p +11%
Dividend per share 8.3p 7.5p +11%
* Excludes £0.2m amortisation of acquired intangible assets (2006: £0.1m)
• Well spread sales growth of 8% including 12% organic.
• Operating profit up 12% and up 21% at constant exchange rates.
• Operating profit margin for H1 increased to 15.8%.
• Net debt unchanged despite £5.5m special pension contributions.
• Interim dividend increase of 11%.
Commenting on the results, the Chairman, Mike Townsend, said:
'The successful performance during the first half of the year was affected by
adverse currency movements and there is currently expected to be an additional,
though smaller, effect in the second half of the year. Despite this, given
continuing favourable trading conditions, we look forward to further progress,
albeit against a stronger second half in 2006.'
Enquiries:
Marcus Steel - Chief Executive
David Meredith - Director-Finance
Tel: 020 7638 9571 at Citigate Dewe Rogerson until 6.00 p.m.
Note: Operating profit, pre-tax profit and EPS figures exclude the
amortisation of acquired intangible assets of £0.2 million in 2007 (2006: £0.1
million).
The Chairman, Mike Townsend, comments as follows:
'I have pleasure in reporting a strong set of results for the first half of
2007. Global trading conditions have remained positive although, as indicated
in March, the continued strength of sterling exerted downward pressure on the
results, which were nevertheless another record with a 12% operating profit
increase in sterling. The US dollar, together with currencies in Asia, remained
weak against sterling and the euro.
We have continued to focus on the development of our two specialist businesses
in the industrial steam using market and the peristaltic pumping market. Both
businesses produced good growth in sales and profits in sterling terms, and the
growth at constant exchange rates is better still.
Group sales in the half year were £200.1 million, up 8% from £185.9 million in
2006. Within this increase, organic sales growth was 12%, the negative exchange
effect was 5% and there was a contribution from the small acquisition we made in
July 2006.
We increased operating profits by 12% (21% at constant currency) from £28.3
million to £31.6 million in 2007. The operating profit margin in the first half
increased from 15.2% in 2006 to 15.8% in 2007 despite the adverse exchange
transaction impact, which reduced the margin by about 3/4%. We also continue to
experience higher material and energy costs, but these were more than offset by
the effects of the organic sales growth and efficiency gains.
The net finance income was £0.9 million in 2007, which compares with £1.2
million in the same period in 2006. The reduction arises mainly as a result of
the share buy-back in 2006 amounting to £18 million. The profit from Associates
was £0.6 million in the period (2006: £0.6 million). Profit before tax was
£33.1 million as against £30.1 million in 2006, an increase of 10%, which
includes an adverse exchange movement effect of £2.8 million.
The tax charge was 34% (2006: 33%) and the profit attributable to shareholders
increased by 9% to £22.1 million. Earnings per share in the period were 29.1p,
which compares with 26.3p in the first half of 2006, an increase of 11%.
TRADING
Our two businesses, the industrial steam business and peristaltic pumping
business, are world leaders in their niche markets. Spirax Sarco and
Watson-Marlow Bredel are continuously developing their product offerings and
both are recognised experts in the application of their products to customers'
processes in order to improve plant performance, generally by a combination of
reducing energy consumption, increasing output and improving quality. Our
philosophy of partnership with our customers has enabled us to deliver a robust
performance in the first half of 2007, with record sales and profits.
We achieved good organic sales growth of 10% to £22.4 million in the UK market,
although manufacturing output remains subdued in the economy as a whole. The
growth came from targeted opportunities, such as sales of services and heat
exchange systems, and energy saving projects for our customers. The UK
operating profit of £7.6 million compares with £5.7 million in a quiet first
half of 2006, with a strong profit increase in our factories where there was
healthy demand from worldwide markets.
The business momentum continued in Continental Europe, where economic conditions
have been benign and sales growth has been widespread. The Spirax Sarco
operations increased sales of packaged solutions and controls, and sales to the
pulp and paper industry amongst others were strong. We also increased sales
coverage in a number of countries. Sales in the region increased by 10% to
£75.7 million and by 13% at constant exchange rates. The Spirax Sarco operating
companies in Germany, Italy, Norway, Spain and Sweden all produced good growth.
Our expanding young company in Russia continued its strong growth and profit
record. The Watson-Marlow Bredel business grew sales and profits in most
markets. Operating profit in Continental Europe increased by 19% (24% at
constant currency) to £12.1 million.
The good growth performance continued in Asia, although the comparison with 2006
has been adversely affected by exchange rate movements, with sterling being
stronger against most of the Asian currencies, particularly the Yen. Sales in
the region were £39.3 million, an increase of 8% (15% at constant exchange
rates). Our operating companies in China, Japan, Korea and Malaysia all grew
well with some good orders from the oil and petrochemicals industry. Sales in
India (an Associate) were flat and profits lower, although some significant
shipments are due to be made in the second half of the year. Operating profit
in Asia was 3% ahead at £6.7 million, although at constant currency the increase
was 18%. The operating profit margin was held back by the impact of the
exchange transaction effect.
In North America, sales increased by 2% in sterling to £38.4 million, including
a small contribution following the acquisition of UltraPure in the USA completed
in July 2006. The weakness of the US dollar has had a substantial effect on the
figures and the underlying growth was a good 10%. The economic background in
North America was broadly favourable. The Spirax Sarco business in the USA
increased sales and profits with growth in sales of newer products and increased
business with the pharmaceutical industry. Sales growth by Watson-Marlow Bredel
was held back as a result of fewer projects and profits were lower due to the
exchange effect on the cost of products purchased from our factories in Europe.
Our operation in Canada made good gains and in Mexico (an Associate) we made
excellent progress in the period. The operating profit in North America at £2.8
million was 23% lower than in the same period in 2006 but 8% ahead at constant
exchange rates. The 2007 profit was also impacted by losses associated with the
integration of UltraPure, the small pure steam business acquired in 2006.
Sales in the Rest of the World (South America, Africa and Australasia) increased
by 6% to £24.3 million. Here, too, exchange movements have had a noticeable
effect with the Argentine Peso and South African Rand being relatively weak;
the sales growth in constant currency was 13%. All the operations increased
sales, particularly of controls and services, and in boiler water treatment.
Australia and New Zealand increased sales and profits, as did Brazil following a
weak first half of 2006. Despite solid sales growth, profits in Argentina were
down slightly as increasing inflationary pressures pushed up costs. There was a
weak performance in Spirax Sarco South Africa, not helped by softness of the
Rand. Operating profits in the region increased by 7% to £2.5 million; at
constant currency, the profit increase was 25%.
BALANCE SHEET AND CASH FLOW
Capital employed increased during the first half of 2007 by only 2% to £204
million. This arose from a 5% increase in working capital and roughly unchanged
net fixed assets. Capital expenditure in the half year was £6.4 million; the
figure in the second half of the year is expected to be higher as we continue to
invest to underwrite future development both in terms of sales and efficiency.
Most of the £9 million outflow associated with the new plant in China will take
place in 2008. The post-retirement benefits liability recognised in the balance
sheet decreased by £27 million in the first half year to £2.5 million at 30th
June. The improvement reflects the benefit from favourable investment returns,
bond yield movements and the final special pension contribution of £5.5 million,
completing the £20 million special contribution to the main defined benefit
pension funds started in 2006. Despite this and after payment of the 2006 final
dividend, with the strong underlying cash flow, net debt was virtually unchanged
in the half year and at 30th June was £7.2 million.
DIVIDEND
The Board has declared an interim dividend of 8.3p (2006: 7.5p) per ordinary
share, an increase of 11%, which will be paid on 9th November 2007 to
shareholders on the register at the close of business on 12th October 2007. No
scrip alternative to the cash dividend is being offered in respect of the 2007
interim dividend.
PROSPECTS
The successful performance during the first half of the year was affected by
adverse currency movements and there is currently expected to be an additional,
though smaller, effect in the second half of the year. Despite this, given
continuing favourable trading conditions, we look forward to further progress,
albeit against a stronger second half in 2006.'
Note: Operating profit, pre-tax profit and EPS figures exclude the
amortisation of acquired intangible assets of £0.2 million in 2007 (2006: £0.1
million).
GROUP INCOME STATEMENT
Notes Six months Six months Year ended
to 30th June to 30th June 31st December
2007 2006 2006
£'000 £'000 £'000
Revenue 2 200,120 185,855 384,249
Operating costs (168,711) (157,643) (322,308)
Operating profit 2 31,409 28,212 61,941
Financial expenses (6,722) (5,798) (11,722)
Financial income 7,667 6,967 13,757
Net financing income 3 945 1,169 2,035
Share of profit of associates 620 636 1,368
Profit before taxation 32,974 30,017 65,344
Taxation 4 (11,089) (9,804) (21,278)
Profit for the period 21,885 20,213 44,066
Attributable to:
Equity holders of the parent 21,837 20,099 43,919
Minority interest 48 114 147
Profit for the period 21,885 20,213 44,066
Earnings per share
Basic earnings per share 5 28.8p 26.2p 57.7p
Diluted earnings per share 5 28.6p 26.0p 57.1p
Dividends
Dividend paid per share 19.0p 17.0p 24.5p
Dividend proposed per share 8.3p 7.5p 19.0p
£'000 £'000 £'000
Dividend paid 14,413 13,047 18,715
Dividend proposed 6,303 5,685 14,370
GROUP BALANCE SHEET
Notes 30th June 30th June 31st December
2007 2006 2006
£'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 88,185 85,349 88,802
Goodwill 17,815 15,328 17,541
Other intangible assets 8,853 8,187 8,866
Prepayments 316 443 352
Investment in associates 7,235 3,498 3,790
Deferred tax 5,312 13,922 13,738
127,716 126,727 133,089
Current assets
Inventories 71,823 68,512 67,707
Trade receivables 87,394 81,623 90,023
Other current assets 11,477 10,212 8,382
Tax recoverable 1,363 869 1,746
Cash and cash equivalents 6 23,271 21,498 22,085
195,328 182,714 189,943
Total assets 323,044 309,441 323,032
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables 50,192 45,050 50,372
Bank overdrafts 6 5,154 8,366 3,986
Short term borrowing 6 7,133 1,881 5,934
Current portion of long term borrowings 6 65 6,688 4,669
Current tax payable 6,565 6,423 7,445
69,109 68,408 72,406
Net current assets 126,219 114,306 117,537
Non-current liabilities
Long term borrowings 6 18,145 2,374 14,050
Deferred tax 6,527 8,044 6,386
Post-retirement benefits 2,546 32,080 29,592
Provisions 857 759 876
28,075 43,257 50,904
Total liabilities 97,184 111,665 123,310
Net assets 225,860 197,776 199,722
Equity
Share capital 19,299 19,292 19,296
Share premium account 47,267 47,128 47,228
Other reserves (2,452) 3,276 (1,850)
Retained earnings 160,614 127,404 133,835
Equity attributable to equity holders of the parent 7 224,728 197,100 198,509
Minority interest 1,132 676 1,213
Total equity 225,860 197,776 199,722
Total equity and liabilities 323,044 309,441 323,032
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
Six months Six months Year ended
to 30th June to 30th June 31st December
2007 2006 2006
£'000 £'000 £'000
Actuarial gain on post-retirement benefits 20,450 11,436 (2,939)
Deferred tax on actuarial gain on post retirement
benefits (6,207) (3,282) 1,142
Foreign exchange translation differences (577) (4,541) (9,574)
Losses on cash flow hedges (24) 263 170
Income and expense recognised directly in equity 13,642 3,876 (11,201)
Profit for the period 21,885 20,213 44,066
Total recognised income and expense for the period 35,527 24,089 32,865
Attributable to
Equity holders of the parent 35,479 23,975 32,718
Minority interest 48 114 147
Total recognised income and expense for the period 35,527 24,089 32,865
GROUP CASH FLOW
Notes Six months Six months Year ended
to 30th June to 30thJune 31st December
2007 2006 2006
£'000 £'000 £'000
Cash flows from operating activities
Profit before taxation 32,974 30,017 65,344
Depreciation and amortisation 6,958 6,794 13,364
Share of profit of associates (620) (636) (1,368)
Equity settled share plans 844 664 860
Net finance income (945) (1,169) (2,035)
Operating profit before changes in working
capital and provisions 39,211 35,670 76,165
Increase in trade and other receivables (916) (3,267) (12,662)
Increase in inventories (4,407) (5,651) (6,248)
Decrease in provisions and post-retirement
benefits (5,581) (1,014) (15,887)
Decrease in trade and other payables (167) (775) 5,184
Cash generated from operations 28,140 24,963 46,552
Interest paid (880) (395) (1,137)
Income taxes paid (8,767) (8,416) (16,484)
Net cash from operating activities 18,493 16,152 28,931
Cash flows from investing activities
Purchase of property, plant & equipment (5,741) (6,751) (17,935)
Proceeds from sale of property, plant & equipment 360 409 660
Purchase of software (649) (227) (1,678)
Development expenditure capitalised (822) (543) (989)
Acquisition of businesses (744) (1,601) (3,969)
Interest received 261 634 983
Dividends received 227 126 477
Net cash used in investing activities (7,108) (7,953) (22,451)
Cash flows from financing activities
Proceeds from issue of share capital 42 1,611 1,132
Proceeds from reissue of treasury shares 1,695 - 2,696
Treasury shares purchased - (13,721) (18,082)
Increase in borrowings 6 1,264 (22,814) (7,544)
Increase in finance lease liabilities 6 26 (110) (88)
Dividends paid (14,497) (13,047) (18,843)
Net cash used in financing activities (11,470) (48,081) (40,729)
Net decrease in cash and cash equivalents 6 (85) (39,882) (34,249)
Cash and cash equivalents at beginning of period 6 18,099 53,093 53,093
Exchange movement 6 103 (79) (745)
Cash and cash equivalents at end of period 6 18,117 13,132 18,099
Borrowings and finance leases 6 (25,343) (10,943) (24,653)
Net borrowings 6 (7,226) 2,189 (6,554)
NOTES TO THE ACCOUNTS
1. BASIS OF PREPARATION
The half year consolidated financial statements of Spirax-Sarco Engineering plc
and its subsidiaries (the 'Group') have been prepared on the basis of the
accounting policies set out in the 2006 Spirax-Sarco Engineering plc Annual
Report.
The comparative figures for the year ended 31st December 2006 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 2006 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 financial statements for the six months
ended 30th June 2007, which are unaudited, were authorised for issue by the
Board on 6th September 2007.
2. SEGMENTAL REPORTING
Primary segment Six months Six months Year ended
to 30th June to 30th June 2006 31st Dec.
2007 £'000 2006
£'000 £'000
Revenue by geographical location of operation
UK & Republic of Ireland 58,574 53,484 107,922
Continental Europe 93,616 85,197 172,382
North America 38,766 37,743 80,610
Asia 36,228 34,198 72,208
Rest of the world 24,319 24,228 48,273
Intra-Group sales (51,383) (48,995) (97,146)
200,120 185,855 384,249
Six months Six months Year ended
to 30th June to 30th June 31st Dec
2007 2006 2006
£'000 £'000 £'000
Operating profit by geographical location
of operation
UK & Republic of Ireland 7,546 5,721 10,957
Continental Europe 12,093 10,179 22,435
North America 2,680 3,578 8,732
Asia 6,669 6,496 15,120
Rest of the world 2,421 2,238 4,697
31,409 28,212 61,941
Six months Six months Year ended
to 30th June to 30th June 31st December
2007 2006 2006
£'000 £'000 £'000
Revenue by geographical location of customers
UK & Republic of Ireland 22,414 20,468 40,695
Continental Europe 75,703 68,529 138,299
North America 38,393 37,647 79,956
Asia 39,345 36,305 77,138
Rest of the world 24,265 22,906 48,161
200,120 185,855 384,249
Secondary segment Six months Six months Year ended
to 30th June to 30th June 31st December
2007 2006 2006
£'000 £'000 £'000
Revenue by business operation
Spirax Sarco 174,056 161,225 332,655
Watson-Marlow Bredel 26,064 24,630 51,594
Group revenue 200,120 185,855 384,249
3. NET FINANCING INCOME
Six months Six months Year ended
to 30th June to 30th June 31st December
2007 2006 2006
£'000 £'000 £'000
Financial expenses
Bank and other borrowing interest payable (880) (398) (1,137)
Interest on pension scheme liabilities (5,842) (5,400) (10,585)
(6,722) (5,798) (11,722)
Financial income
Bank interest receivable 264 635 1,038
Expected return on pension scheme assets 7,403 6,332 12,719
7,667 6,967 13,757
Net financing income 945 1,169 2,035
Net pension scheme financial income 1,561 932 2,134
Net bank interest (616) 237 (99)
Net financing income 945 1,169 2,035
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
2007 2006 2006
£'000 £'000 £'000
United Kingdom corporation tax - 1,196 141
Overseas taxation 8,884 7,939 16,482
Deferred taxation 2,205 669 4,655
11,089 9,804 21,278
5. EARNINGS PER SHARE
Six months Six months Year ended
to 30th June to 30th June 31st December
2007 2006 2006
£'000 £'000 £'000
Earnings 21,837 20,099 43,919
Weighted average shares in issue 75,760,224 76,669,026 76,161,612
Dilution 687,007 772,879 733,050
Diluted weighted average shares in issue 76,447,231 77,441,905 76,894,662
Basic earnings per share 28.8p 26.2p 57.7p
Diluted earnings per share 28.6p 26.0p 57.1p
The dilution is in respect of unexercised share options and the performance
share plan.
6. ANALYSIS OF CHANGES IN NET BORROWINGS
At Cash flow Exchange At
1st Jan 2007 movement 30 th June 2007
£'000 £'000 £'000 £'000
Current portion of long term borrowings (4,669) (65)
Non-current portion of long term borrowings (14,050) (18,145)
Short term borrowing (5,934) (7,133)
Total borrowings (24,653) (25,343)
Comprising:
Borrowings (24,300) (1,264) 598 (24,966)
Finance Leases (353) (26) 2 (377)
(24,653) (1,290) 600 (25,343)
Cash and cash equivalents 22,085 1,175 11 23,271
Bank overdrafts (3,986) (1,260) 92 (5,154)
Net cash and cash equivalents 18,099 (85) 103 18,117
Net borrowings (6,554) (1,375) 703 (7,226)
7. GROUP STATEMENT OF CHANGES IN EQUITY
Six months Six months Year ended
to 30th June to 30th June 31st December
2007 2006 2006
£'000 £'000 £'000
Shareholders' funds at beginning of period 198,509 197,618 197,618
Total recognised income and expense for the period 35,479 23,975 32,718
Dividends paid (14,413) (13,047) (18,715)
Increased investment in associated company 2,705 - -
Equity settled share plans net of tax 711 664 1,142
Proceeds of issue of share capital 42 1,611 1,132
Treasury shares purchased - (13,721) (18,082)
Treasury shares reissued 2,852 - 3,777
Loss on the reissue of treasury shares (1,157) - (1,081)
Equity attributable to equity holders of parent at end
of period 224,728 197,100 198,509
8. CAPITAL EMPLOYED
An analysis of the components of capital employed is as follows:
30th June 30th June 31st December
2007 2006 2006
£'000 £'000 £'000
Property, plant and equipment 88,185 85,349 88,802
Prepayments 316 443 352
Inventories 71,823 68,512 67,707
Trade receivables 87,394 81,623 90,023
Other current assets 11,477 10,212 8,382
Tax recoverable 1,363 869 1,746
Trade and other payables (50,192) (45,050) (50,372)
Current tax payable (6,565) (6,423) (7,445)
203,801 195,535 199,195
9. Copies of the Interim Report will be sent on 7th September 2007 to
shareholders and can be obtained from our registered office at Charlton House,
Cirencester Road, Cheltenham, Gloucestershire GL53 8ER. From 7th September 2007
the Interim Report will be available on our website at
www.SpiraxSarcoEngineering.com.
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