Spirax Sarco Plc Interim Results 2012

RNS Number : 5000K

Spirax-Sarco Engineering PLC

22 August 2012

 



 

News Release

Wednesday 22^nd August 2012

2012 Half Year Results

Six months ended 30^th June

Adjusted*	2012	2011	Change	Constant FX
Revenue	£313.5m	£307.7m	+2%	+4%
Adjusted operating profit*	£58.2m	£61.2m	-5%	-3%
Adjusted operating profit margin*	18.6%	19.9%
Adjusted profit before taxation*	£59.3m	£63.0m	-6%	-4%
Adjusted earnings per share*	53.5p	56.6p	-5%	-3%
Dividend per share	16.0p	14.8p	+8%	+8%

Statutory	2012	2011	Change
Operating profit	£50.8m	£59.2m	-14%
Profit before taxation	£51.7m	£60.8m	-15%
Earnings per share	46.3p	54.1p	-14%

*All profit measures exclude certain non-operational items, as defined in note 1.

·         Organic sales up 5%

·         Continued good growth in Asia Pacific, especially China

·         Restructuring in Europe to improve efficiency - annualised £5 million cost reduction

·         Improved cash flow performance

·         Dividend increased 8%

·         Stronger than usual seasonal profit bias expected in the second half

Commenting on the results, Mark Vernon, Group Chief Executive, said:

We are pleased to report an organic sales increase of 5%, with continued good growth in Asia Pacific.  Operating profit was 3% lower in constant currency and, as noted in our Interim Management Statement (IMS) in May, reflected higher material costs, the impact of lower volumes in our main European factories and the economic downturn in Latin America.  We expect economic conditions in Europe to remain challenging and we are therefore implementing cost reduction actions that will yield annual cost savings of £5 million, progressively taking effect during the second half of this year and being fully realised in 2013.  The Group has a resilient business model with good exposure to emerging markets and we continue to generate our own sales growth.  The second half has started well with stronger organic sales growth of 10% in July, benefiting from a relatively healthy order book.  This, together with the expected cost benefits, means that we expect a greater than normal seasonal bias to the second half sales and operating profit, and given no further deterioration in market conditions or negative movements in average exchange rates, the Board expects to make progress in 2012.

For further information, please contact:

Mark Vernon, Chief Executive

David Meredith, Finance Director

Tel: [phone] at Citigate Dewe Rogerson

There will be a live audio webcast of the Analysts presentation today at 9.00am hosted on the Company website at http://www.media-server.com/m/p/mx2qty97.  Please note that this will be a listen only facility.  An archive of the webcast and presentation will be available via the same link later today.

Unless otherwise stated, the figures quoted in the text below are based on the Adjusted Group results.

REVIEW OF OPERATIONS

We are pleased to report that sales for the first half year increased to £313.5 million (2011: £307.7 million).  The organic sales increase was 5%, partially offset by unfavourable currency movements of 2% and a small impact from two small business disposals in mid-2011, giving an overall reported increase in sales of 2%. 

Adjusted operating profit was £58.2 million (2011: £61.2 million), a reduction of 3% in constant currency.  The reduction in profit in the first half year, which lowered the operating profit margin to 18.6% (2011: 19.9%), resulted from the difficult economic situation in Europe, lower volumes in our main European factories, unfavourable exchange movements of £1.4 million, and higher investment of £2.5 million in product development and market penetration to support future growth.  Also, as expected, material costs in the first half year were higher than in the comparable period last year impacting profits by an estimated £1.5 million, but this will moderate as we progress through 2012.  These factors are largely as reflected in our Interim Management Statement in May 2012.

In the first half of 2012, we saw broadly favourable market conditions in most of Asia Pacific.  Our operations continued to perform strongly and sales increased 9% at constant currency, with particularly good sales and profit growth in China.  Operating profit in the region increased 7% at constant currency.  

Market conditions were generally good in North America in the first half and we saw an uptick in day-to-day maintenance spending in the US in the second quarter.  Economic growth in Latin America slowed sharply with industrial production continuing to contract in Brazil.  Overall sales in the Americas increased 7% in the first half at constant currency but operating profit was marginally down, reflecting unfavourable currency movements, the economic slowdown in Latin America and a less favourable product mix in the US.   

Overall market conditions in Europe were weak in the first half, although we saw a modest improvement in the second quarter.  Our European manufacturing operations felt the impact of the lower sales volume in the region and also the impact of lower production as we unwound some of the stock increase from 2011.  These issues, in addition to the unfavourable currency movements and increased R&D investment, meant that EMEA operating profits in the first half year were 14% lower against a 1% sales decrease at constant currency. 

Market conditions in our Watson-Marlow peristaltic pumps business were broadly similar to the steam specialties business, although sales increased at a much higher rate in the Americas due to good growth in Latin America.  Total Watson-Marlow sales increased 8% at constant currency but operating profit was up just 2% as the first half included exceptional product development expense that is not expected to repeat in the second half, and as we continued to invest in sales development with the addition of sales resource.

We believe that the challenging economic conditions in Europe will persist and are therefore implementing cost reduction actions that will result in a lower headcount in many of our European operations.  The associated one-off cost is £5.5 million, which has all been taken as an exceptional charge in the first half and is excluded from adjusted operating profit.  Annualised savings of £5 million are expected to begin to take effect during the second half of this year and be fully realised in 2013.

Net finance income reduced to £0.2 million from £0.6 million in the first half of 2011 due to deterioration in respect of defined benefit pension funds.  The Group's share of the after-tax profit of our Associate company in India was lower at £0.8 million (2011: £1.3 million) due to a reduction in oil and petrochemical project activity and lower volumes through the manufacturing plant.

Adjusted pre-tax profit was £59.3 million (2011: £63.0 million), a reduction of 4% at constant currency.  The pre-tax profit for the first half year on a statutory basis, including the headcount reduction costs and the amortisation of acquisition-related intangible assets, was £51.7 million (2011: £60.8 million).  The overall tax rate, based on the adjusted profit before tax excluding the Associate profit, was lower at 30.2% (2011: 31.1%).  Adjusted basic earnings per share reduced from 56.6p to 53.5p.

Trading

Our markets generally reflect changes in global economic activity and movements in industrial production.  Our business is geographically well spread across a range of industries and diverse customer base, and the Group's large, highly trained direct field sales force is expert at providing a broad range of engineered solutions to improve the energy and operating efficiency of our customers' manufacturing plants.  These fundamental strengths are the pillars of our robust and resilient business model that affords protection, but not immunity, against economic adversity. 

In the first half year, routine maintenance spending by our customers was generally stable but at what we believe to be unsustainably low levels in our developed markets.  Project orders increased in the first half but we have seen more project shipment delays as customers have responded to increased economic uncertainty.  The Group has a good exposure to emerging markets (38% of total sales and 51% of operating profit in the first half of 2012) that collectively outperformed our developed markets-sales in our emerging markets increased nearly 8% year-on-year (at constant currency) and we continue to selectively add sales resource in these markets to build our presence and maximise future growth opportunities.  Our order book, which is typically comparatively short, is at a relatively healthy level as we enter the second half of 2012. 

Sales increased by 3% at constant currency in our steam specialties business as we saw solid growth in our core products, indicative of higher maintenance spending, and as Asia Pacific continued its strong growth trajectory.  Sales of control products and pre-fabricated heat exchange packages slowed as customers reduced plant expenditures for energy recovery and operating efficiency.  Our Watson-Marlow business saw broad based sales growth of 8% at constant currency, with good gains in the Americas and across all product lines.  Sales are benefiting from the on-going conversion of distribution to direct sales and we are particularly pleased with the improving sales of our Flexicon and MasoSine products, acquisitions that were made within the past few years.  

Steam Specialties Business

EMEA

	2012	2011	Change	Constant Currency
Revenue	£115.2m	£122.7m	-6%	-1%
Operating profit	£16.1m	£20.5m	-21%	-14%
Operating margin	14.0%	16.7%	-270bps	-210bps

Sales in Europe, Middle East and Africa (EMEA) at £115.2 million (2011: £122.7 million) declined by 6%.  Organic sales increased by 1%, with the weak euro impacting growth by 5% on translation into sterling and two small business disposals in mid-2011 reducing sales by a further 2%.  Overall, operating profit in EMEA was down 21% to £16.1 million compared with £20.5 million in the comparable period last year; currency movements were strongly negative and at constant currency the decline was 14%.  Operating profit margin was lower at 14.0% (2011: 16.7%).

Overall trading conditions have remained particularly difficult in our more mature European markets, although our German operations again achieved higher profits even as the rate of sales growth slowed.  Our French company posted modest year-on-year sales growth but considerably higher profits due to good cost control.  Year-on-year sales and profits in the UK domestic sales operation and in Spain were lower.  Sales and profits were flat in Italy in the period.  Scandinavia saw mixed sales growth but overall profits increased nicely as costs were controlled. 

Profits in our emerging markets in EMEA were lower in constant currency, partially reflecting continued investments in sales resource to position the business for future sales growth, and lower demand in some markets in Eastern Europe and Africa.  Year-on-year sales comparisons in the first half for the emerging markets in EMEA were challenging.  However, there is minimal seasonality in these markets and sequentially, emerging market orders in the first half of 2012 increased 11% on the second half of 2011, with notably strong trends in the Middle East, both sequentially and year-on-year.

Southern Europe accounted for 9% of first half Group sales and declined 1% in constant currency versus the comparable period. This was similar to elsewhere in Europe, reflecting the fact that our business has not yet recovered to 2008 levels and overall maintenance spending in these markets remains at what was already a very low rate.

Profits were significantly lower in our main European manufacturing operations in the UK and France.  A double digit volume decline in throughput impacted profit by £2.2 million from planned destocking in our internal supply chain and from reduced demand in our European sales companies.  In addition, we again increased R&D spending (although this is expected to slow in the second half year) and we saw higher material costs compared to the first half of 2011, although the year-on-year impact of material costs inflation is expected to fade in the second half. 

We are implementing cost reduction actions in many of our European operations that will yield annualised cost savings of £5 million and which will progressively take effect during the second half of this year and be fully realised in 2013.

Asia Pacific

	2012	2011	Change	Constant Currency
Revenue	£72.7m	£65.2m	+11%	+9%
Operating profit	£18.0m	£15.6m	+16%	+7%
Operating margin	24.8%	23.9%	+90bps	-50bps

Sales in Asia Pacific rose by 11% from £65.2 million to £72.7 million.  Exchange rate movements have been generally favourable and at constant currency sales growth was 9% against a backdrop of market conditions that have remained broadly positive.  Asia Pacific operating profit increased by 16% to £18.0 million, up 7% at constant currency, and the operating profit margin improved from 23.9% to 24.8%.

China, which is our largest business in the region and an increasingly important contributor to the Group, continued to make good progress in expanding sales and profits, having a good exposure to local consumption in the domestic Chinese economy, including the important food and beverage sector.  Our manufacturing plant in Shanghai is performing well, with output increasing across a wider range of products to meet domestic and regional demand.  Business levels in Korea have been positive but sales reflect some project shipments being delayed into the second half and profits were therefore lower on flat year-on-year sales.  We achieved good growth in Southeast Asia and have continued to add sales resource in the region to expand sales coverage and exploit newly emerging markets.  Our smaller businesses in New Zealand and Thailand performed very well with success in the food and beverage and hospital sectors.  Sales of core steam specialties products were much higher in Asia Pacific, consistent with economic development in the region, and flow metering, boilerhouse and heat recovery product sales were also higher as customers increase their focus on energy management. 

Americas

	2012	2011	Change	Constant Currency
Revenue	£66.3m	£63.9m	+4%	+7%
Operating profit	£11.7m	£12.6m	-7%	-1%
Operating margin	17.6%	19.7%	-210bps	-140bps

Sales in the Americas increased by 4% but excluding the impact of weaker currencies in Latin America, particularly the Brazilian real, growth was 7%.   Overall, operating profit in the Americas reduced by 7% from £12.6 million to £11.7 million; excluding the impact of unfavourable exchange rate movements the reduction was 1%.  The operating profit margin was 17.6% (2011: 19.7%).

Market conditions in the first half were broadly positive in North America, supported by good demand from oil sands developments in Western Canada and higher project orders in the US along with a meaningful increase in routine maintenance business in the second quarter.  Although sales in North America were up, profits were down marginally (at constant currency) due largely to product mix in the US.   It should be noted that in the second half of 2011 our US business benefited from a large non-repeating flow metering project as part of the energy management programme of the US Federal Government, making for a very tough comparison for the balance of this year. 

Market conditions in Latin America were mixed but our results in the region were heavily influenced by the continued contraction in industrial production in Brazil, where sales and profit were lower in the first half year.  The local Argentine economy remains fragile but our sales there were markedly higher and we achieved modest sales growth in Mexico.  Despite significantly unfavourable currency headwinds in Latin America that reduced sales on translation by nearly 8%, our businesses in the region did well overall to produce only a modest reduction in sales and profits, as we focussed sales effort on the more resilient sectors and costs were closely controlled.  Following the purchase of 100% ownership of our Mexican business in 2010, we are integrating the manufacturing operations into our Americas manufacturing strategy and plan to build a larger manufacturing plant in Monterrey that we expect to start production in 2014.

Watson-Marlow

	2012	2011	Change	Constant Currency
Revenue	£59.3m	£55.9m	+6%	+8%
Operating profit	£16.1m	£16.1m	0%	+2%
Operating margin	27.1%	28.8%	-170bps	-190bps

Sales increased by 6% (up 8% at constant currency) from £55.9 million to £59.3 million.  Watson-Marlow operating profit was flat at £16.1 million but was ahead 2% at constant currency.  The operating profit margin was down from 28.8% to 27.1% reflecting the increased investment in market penetration and significantly higher new product development expense associated with two new products that were recently introduced.  Product development expense is expected to reduce in the second half of this year.

Market conditions overall were positive in the period, although Europe was weak, similar to the steam specialties business.  Growth was achieved in all geographic regions with the largest contribution coming from the Americas, including strong growth in Latin America. 

Sales growth was underpinned by good OEM business for our Alitea microflow pumps and Flexicon automated filling systems.  In addition, good double-digit sales growth was achieved in MasoSine that is benefiting from the conversion of distribution to a direct sales approach, and in tubing.  The biopharmaceuticals market has remained strong and we saw good gains in food and beverage, and in precious metals processing.  The general industrial market for Watson-Marlow and Bredel products was weak with significant price pressure.  Watson-Marlow launched two significant new products in the first half that will continue the broadening of our addressable market and increase market share.  The most important of these is our innovative "Qdos" pump that has been fitted with revolutionary pump head technology and secondly a new low-duty Bredel hose pump to address less demanding fluid transfer applications more cost effectively.    

Balance sheet and cash flow

We exercised good control over working capital in the first half.  Capital employed was £351 million at 30^th June 2012 compared with the £353 million at the start of the year, an increase of 1% at constant currency.  We still have further opportunity to unwind the increase in working capital in 2011 caused by the disruption during the manufacturing site consolidation in Cheltenham and implementation of our regional manufacturing strategy.  Investment in fixed assets fell from the very high level over the last three years and was £13 million in the first six months, including additional manufacturing equipment in China as production expanded.  Working capital increased by 5% this year at constant currency reflecting the usual seasonal pattern and a 15% reduction in trade creditors as purchases of materials have declined. 

Our balance sheet remains strong with good cash generation.  Taxation payments were £18.2 million and dividend payments absorbed £26.8 million, an increase of 15%.  The net cash balance was £9.2 million at 30^th June 2012 compared with £12.3 million at 31^st December 2011 and £12.2 million at 30^th June 2011.

Adjusted cash flow	30th June 2012 £'000	30th June 2011 £'000
Adjusted operating profit	58,209	61,156
Depreciation & amortisation (excl. acq'n intangible assets)	10,593	9,422
Adjustments (including share plans)	1,400	1,236
Working capital changes (excl. restructuring creditors)	(8,765)	(28,023)
Cash from operations	61,437	43,791
Net Interest	369	(134)
Income taxes paid	(18,238)	(18,714)
Net capital expenditure (including software and development)	(12,909)	(20,774)
Free cash flow	30,659	4,169
Net dividends paid	(26,801)	(23,288)
Post-retirement deficit reduction payments and provisions	(4,713)	(3,969)
Proceeds from issue of shares	1,942	2,657
Acquisitions	(2,061)	(3,130)
Exceptional restructuring costs paid	(1,056)	0
Cash flow for period	(2,030)	(23,561)
Exchange movements	(1,012)	1,371
Opening net cash	12,269	34,392
Closing net cash at 30th June	9,227	12,202

Principal risks and uncertainties

The Group has in place a robust risk management process to identify, evaluate and manage the identified risks that could impact the Group's performance.  The current risks, their potential impact and details of the measures taken to manage them, are set out in the 2011 Annual Report on pages 26 to 27.  The Group has reviewed these risks and concluded that they represent the current position and remain relevant for the second half of the financial year.  A summary of the relevant key risks and uncertainties is:

·     Product failure

·     Loss of manufacturing output

·     Safety and health

·     Product development

·     Breach of regulatory requirements

·     Defined pension scheme deficits

·     Acquisition integration

·     Economic and political instability

In the area of economic and political instability, the Group continues to carefully monitor developments in the Eurozone.  Our overall geographic diversity limits the impact of any instability in any particular region and the proportion of Group sales that originate in the higher risk countries of Greece, Ireland, Italy, Portugal and Spain remains at around 10% of Group sales.  Sales in Greece are immaterial.  There are no significant liquidity or funding risks in relation to these countries and we continue to monitor developments closely.

Going concern

After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  For this reason they continue to adopt the going concern basis in preparing the consolidated financial statements.

Dividend

The Board has declared an interim dividend of 16.0p (2011: 14.8p) per ordinary share, an increase of 8%.  The dividend will be paid on 9th November 2012 to shareholders on the register at the close of business on 12th October 2012.  The final dividend of 34.2p per share in respect of 2011 was paid on 18th May 2012 at a cash cost of £26.6 million.

Director appointment

As recently reported, the Board is pleased to welcome Dr Trudy Schoolenberg as an independent non-executive director who has wide international and operational experience.  Dr Schoolenberg has held several senior management positions at the Shell Pernis refinery, the largest refinery in Europe, and also served as Head of Strategy for Shell Chemicals.  We look forward to her strong contribution.

Outlook

The Group has a resilient business model with good exposure to emerging markets and we continue to generate our own growth through our direct sales approach, expanding our addressable markets and progressively increasing market share.  However, the global economy has clearly slowed and the near-term outlook has become more uncertain, which is reflected in a decline in the rates of growth in industrial production in many of our markets, particularly in Europe and Latin America.   

Organic sales growth of 5% was achieved in the first six months.  The second half year has started well with stronger organic sales growth of 10% in July, benefiting from a relatively healthy order book, which is typically comparatively short, and relatively stable on-going demand.  This, together with cost reduction benefits and an expected moderation in material cost inflation during the second half year, is expected to result in a greater than normal seasonal bias to second half sales and operating profit.  Given no further deterioration in market conditions or negative movement in average exchange rates, the Board expects to make progress in 2012.

GROUP INCOME STATEMENT

	Six months to 30th  June 2012			Six months to 30th June 2011			Year ended 31st December 2011
	Adjusted £'000	Adj't £'000	Total £'000	Adjusted £'000	Adj't £'000	Total £'000	Adjusted £'000	Adj't £'000	Total £'000
Revenue (note1)	313,480	-	313,480	307,721	-	307,721	649,991	-	649,991
Operating costs	(255,271)	(7,432)	(262,703)	(246,565)	(1,987)	(248,552)	(516,031)	(4,462)	(520,493)
Operating profit  (note 1)	58,209	(7,432)	50,777	61,156	(1,987)	59,169	133,960	(4,462)	129,498
Financial expenses	(8,380)	-	(8,380)	(8,654)	-	(8,654)	(17,515)	-	(17,515)
Financial income	8,599	-	8,599	9,230	-	9,230	18,592	-	18,592
Net financing income (note 2)	219	-	219	576	-	576	1,077	-	1,077
Share of profit of associate	835	(166)	669	1,280	(189)	1,091	2,132	(366)	1,766
Profit before taxation	59,263	(7,598)	51,665	63,012	(2,176)	60,836	137,169	(4,828)	132,341
Taxation (note 3)	(17,646)	2,043	(15,603)	(19,203)	224	(18,979)	(40,215)	1,112	(39,103)
Profit for the period	41,617	(5,555)	36,062	43,809	(1,952)	41,857	96,954	(3,716)	93,238
Attributable to:
Equity holders of the parent	41,567	(5,555)	36,012	43,734	(1,952)	41,782	96,765	(3,716)	93,049
Minority      interest	50	-	50	75	-	75	189	-	189
Profit for the period	41,617	(5,555)	36,062	43,809	(1,952)	41,857	96,954	(3,716)	93,238
Earnings per share
Basic earnings per share (note 4)	53.5p		46.3p	56.6p		54.1p	124.8p		120.0p
Diluted earnings per share (note 4)	53.1p		46.0p	55.9p		53.4p	123.2p		118.4p
Dividends
Dividend  per share (note 5)			16.0p			14.8p			49.0p
Dividend paid per share (note 5)			34.2p			30.0p			69.8p

 

Adjusted figures exclude certain non-operational items as detailed in note 1.

 

GROUP STATEMENT OF COMPREHENSIVE INCOME

	Six months to 30th June 2012 £'000	Six months to 30th June 2011 £'000	Year ended 31st December 2011 £'000
Profit for the period	36,062	41,857	93,238
Actuarial loss on post-retirement benefits	(201)	(459)	(18,736)
Deferred tax on actuarial loss on post-retirement benefits	240	(17)	5,776
Foreign exchange translation differences	(7,097)	9,820	(11,094)
Non-controlling interest foreign exchange translation differences	(3)	23	(119)
Loss on cash flow hedges	(212)	(297)	(270)
Total recognised income and expense for the period	28,789	50,927	68,795
Attributable to
Equity holders of the parent	28,742	50,829	68,725
Minority interest	47	98	70
Total recognised income and expense for the period	28,789	50,927	68,795

GROUP BALANCE SHEET

	Notes	30th June 2012 £'000	30th June 2011 £'000	31st December 2011 £'000
ASSETS
Non-current assets
Property, plant and equipment		172,024	168,391	174,648
Goodwill		44,749	45,516	45,347
Other intangible assets		40,047	41,685	39,903
Prepayments		41	109	148
Investment in associate		8,569	10,178	8,280
Deferred tax		38,707	37,370	37,417
		304,137	303,249	305,743
Current assets
Inventories		116,617	115,714	116,325
Trade receivables		130,055	133,871	142,484
Other current assets		21,315	21,537	17,054
Tax recoverable		1,144	1,220	1,973
Cash and cash equivalents	7	77,214	73,271	60,172
		346,345	345,613	338,008
Total assets		650,482	648,862	643,751
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables		81,149	88,122	88,632
Bank overdrafts	7	3,527	1,129	4,194
Short term borrowing	7	16,139	22,990	37,280
Current portion of long term borrowings	7	504	62	73
Current tax payable		9,123	9,440	11,449
		110,442	121,743	141,628
Net current assets		235,903	223,870	196,380
Non-current liabilities
Long term borrowings	7	47,817	36,888	6,356
Deferred tax		17,469	15,735	17,941
Post-retirement benefits		66,730	59,258	71,925
Other payables and provisions		2,856	4,768	5,781
		134,872	116,649	102,003
Total liabilities		245,314	238,392	243,631
Net assets		405,168	410,470	400,120
Equity
Share capital		19,484	19,386	19,418
Share premium account		54,138	50,323	52,262
Other reserves		32,099	60,295	39,408
Retained earnings		298,772	279,647	288,243
Equity attributable to equity holders of the parent		404,493	409,651	399,331
Minority interest		675	819	789
Total equity		405,168	410,470	400,120
Total equity and liabilities		650,482	648,862	643,751

GROUP CASH FLOW

	Notes	Six months to 30th June 2012 £'000	Six months to 30thJune 2011 £'000	Year ended 31st December 2011 £'000
Cash flows from operating activities
Profit before taxation		51,665	60,836	132,341
Depreciation and amortisation		12,410	11,409	20,828
Share of profit of associate		(669)	(1,091)	(1,766)
Equity settled share plans		1,492	1,236	2,182
Net finance income		(219)	(576)	(1,077)
Operating cash flow before changes in working capital and provisions		64,679	71,814	152,508
Change in trade and other receivables		4,862	144	(10,084)
Change in inventories		(2,645)	(18,130)	(22,561)
Change in trade and other payables		(6,515)	(10,037)	(297)
Change in provisions and post-retirement benefits		(4,713)	(3,969)	(10,915)
Cash generated from operations		55,668	39,822	108,651
Interest paid		(362)	(599)	(1,381)
Income taxes paid		(18,238)	(18,714)	(33,433)
Net cash from operating activities		37,068	20,509	73,837
Cash flows from investing activities
Purchase of property, plant & equipment		(8,992)	(19,882)	(42,814)
Proceeds from sale of property, plant & equipment		760	926	5,560
Purchase of software & other intangibles		(3,038)	(578)	(3,424)
Development expenditure capitalised		(1,639)	(1,240)	(2,717)
Acquisition of businesses		(2,061)	(3,130)	(3,387)
Interest received		731	465	1,048
Dividends received		-	-	1,461
Net cash used in investing activities		(14,239)	(23,439)	(44,273)
Cash flows from financing activities
Proceeds from issue of share capital		1,942	2,104	4,075
Proceeds from reissue of treasury shares		-	553	288
Change in borrowings	7	20,525	20,758	5,341
Payment of finance lease liabilities	7	(33)	(39)	(76)
Dividends paid (including minorities)		(26,801)	(23,288)	(54,166)
Net cash used in financing activities		(4,367)	88	(44,538)
Net increase in cash and cash equivalents	7	18,462	(2,842)	(14,974)
Cash and cash equivalents at beginning of period	7	55,978	73,496	73,496
Exchange movement	7	(753)	1,488	(2,544)
Cash and cash equivalents at end of period	7	73,687	72,142	55,978
Borrowings and finance leases	7	(64,460)	(59,940)	(43,709)
Net cash	7	9,227	12,202	12,269

 

GROUP STATEMENT OF CHANGES IN EQUITY

Six months to 30^th June 2012

	Share Capital £000	Share Premium Account £000	Other Reserve £000	Retained earnings £000	Equity shareholders' funds £000	Non-controlling interest £000	Total equity £000
Shareholders' funds at beginning of period	19,418	52,262	39,408	288,243	399,331	789	400,120
Total recognised income and expense for the period	-	-	(7,309)	36,051	28,742	47	28,789
Dividends paid	-	-	-	(26,640)	(26,640)	(161)	(26,801)
Equity settled share plans net of tax	-	-	-	1,118	1,118	-	1,118
Proceeds of issue of share capital	66	1,876	-	-	1,942	-	1,942
Equity attributable to equity holders of parent at end of period	19,484	54,138	32,099	298,772	404,493	675	405,168

Six months to 30th June 2011

	Share Capital £000	Share Premium Account £000	Other Reserve £000	Retained earnings £000	Equity shareholders' funds £000	Non-controlling interest £000	Total equity £000
Shareholders' funds at beginning of period	19,329	48,276	50,772	260,351	378,728	796	379,524
Total recognised income and expense for the period	-	-	9,523	41,306	50,829	98	50,927
Dividends paid	-	-	-	(23,213)	(23,213)	(75)	(23,288)
Equity settled share plans net of tax	-	-	-	915	915	-	915
Proceeds of issue of share capital	57	2,047	-	-	2,104	-	2,104
Treasury shares reissued	-	-	-	2,260	2,260	-	2,260
Loss on the reissue of treasury shares	-	-	-	(1,972)	(1,972)	-	(1,972)
Equity attributable to equity holders of parent at end of period	19,386	50,323	60,295	279,647	409,651	819	410,470

For the year ended 31st December 2011

	Share Capital £000	Share Premium Account £000	Other Reserve £000	Retained earnings £000	Equity shareholders' funds £000	Non-controlling interest £000	Total equity £000
Shareholders' funds at beginning of period	19,329	48,276	50,772	260,351	378,728	796	379,524
Total recognised income and expense for the period	-	-	(11,364)	80,089	68,725	70	68,795
Dividends paid	-	-	-	(54,089)	(54,089)	(77)	(54,166)
Equity settled share plans net of tax	-	-	-	1,604	1,604	-	1,604
Proceeds of issue of share capital	89	3,986	-	-	4,075	-	4,075
Treasury shares reissued	-	-	-	2,260	2,260	-	2,260
Loss on the reissue of treasury shares	-	-	-	(1,972)	(1,972)	-	(1,972)
Equity attributable to equity holders of parent at end of period	19,418	52,262	39,408	288,243	399,331	789	400,120

NOTES TO THE ACCOUNTS

1.    SEGMENTAL REPORTING

       

Analysis by location of operation

Six months to 30^th June 2012

	Gross revenue £'000	Inter- segment revenue £'000	Revenue £'000	Total operating profit £'000	Adjusted operating profit £'000	Adjusted operating margin %
Europe, Middle East & Africa	135,649	20,431	115,218	10,887	16,098	14.0%
Asia Pacific	74,527	1,867	72,660	18,049	18,049	24.8%
Americas	69,225	2,955	66,270	10,457	11,655	17.6%
Steam Specialties business	279,401	25,253	254,148	39,393	45,802	18.0%
Watson-Marlow	59,539	207	59,332	15,062	16,085	27.1%
Corporate Expenses				(3,678)	(3,678)
	338,940	25,460	313,480	50,777	58,209	18.6%
Intra-Group	(25,460)	(25,460)
Net Revenue	313,480	-	313,480	50,777	58,209	18.6%

Six months to 30^th June 2011

	Gross revenue £'000	Inter- segment revenue £'000	Revenue £'000	Total operating profit £'000	Adjusted operating profit £'000	Adjusted operating margin %
Europe, Middle East & Africa	143,582	20,841	122,741	20,232	20,450	16.7%
Asia Pacific	67,568	2,357	65,211	15,584	15,584	23.9%
Americas	67,317	3,458	63,859	11,705	12,589	19.7%
Steam Specialties business	278,467	26,656	251,811	47,521	48,623	19.3%
Watson-Marlow	56,262	352	55,910	15,208	16,093	28.8%
Corporate Expenses				(3,560)	(3,560)
	334,729	27,008	307,721	59,169	61,156	19.9%
Intra-Group	(27,008)	(27,008)
Net Revenue	307,721	-	307,721	59,169	61,156	19.9%

Year ended 31st December 2011

	Gross revenue £'000	Inter- segment revenue £'000	Revenue £'000	Total operating profit £'000	Adjusted operating profit £'000	Adjusted operating margin %
Europe, Middle East & Africa	291,440	41,335	250,105	41,754	42,461	17.0%
Asia Pacific	152,813	5,712	147,101	37,795	37,795	25.7%
Americas	141,661	7,283	134,378	25,686	27,397	20.4%
Steam Specialties business	585,914	54,330	531,584	105,235	107,653	20.3%
Watson-Marlow	119,391	984	118,407	32,379	34,423	29.1%
Corporate Expenses				(8,116)	(8,116)
	705,305	55,314	649,991	129,498	133,960	20.6%
Intra-Group	(55,314)	(55,314)
Net Revenue	649,991	-	649,991	129,498	133,960	20.6%

Non-operational items

The Group uses adjusted figures as key performance measures in addition to those reported under adopted IFRS.  The Group's management believes these measures provide valuable additional information for users of the financial statements in understanding the Group's performance.  Adjusted operating profit excludes certain non-operational items which are analysed below:

	30th June 2012 £'000	30th June 2011 £'000	31st Dec. 2011 £'000
Exceptional restructuring costs	(5,523)	-	-
Amortisation of acquisition-related intangible assets	(1,817)	(1,987)	(4,044)
Acquisition and disposal costs	(92)	-	(418)
	(7,432)	(1,987)	(4,462)

 

Net assets

	30th June 2012		30th June 2011		31st December 2011
	Assets £'000	Liabilities £'000	Assets £'000	Liabilities £'000	Assets £'000	Liabilities £'000
Europe, Middle East & Africa	222,043	(89,565)	231,125	(99,497)	225,513	(99,655)
Asia Pacific	110,658	(16,739)	104,309	(15,020)	109,098	(17,282)
Americas	106,838	(30,835)	103,100	(23,682)	112,203	(35,082)
Watson-Marlow	93,878	(13,596)	98,467	(13,949)	97,376	(14,320)
	533,417	(150,735)	537,001	(152,148)	544,190	(166,339)
Liabilities	(150,735)		(152,148)		(166,339)
Deferred tax	21,238		21,635		19,476
Current tax payable	(7,979)		(8,220)		(9,476)
Net cash	9,227		12,202		12,269
Net assets	405,168		410,470		400,120

Capital additions and depreciation and amortisation

	30th June 2012		30th June 2011		31st December 2011
	Capital additions £'000	Depreciation and amortisation £'000	Capital additions £'000	Depreciation and amortisation £'000	Capital additions £'000	Depreciation and amortisation £'000
Europe, Middle East & Africa	7,107	4,896	12,175	4,692	22,945	6,834
Asia Pacific	3,328	2,004	3,613	1,549	7,894	3,468
Americas	1,937	3,076	4,131	2,833	10,260	5,803
Watson-Marlow	1,515	2,434	3,143	2,335	5,038	4,723
	13,887	12,410	23,062	11,409	46,137	20,828

Capital additions include property, plant and equipment at 30th June 2012 of £9,258k, at 30th June 2011 of £20,124k and at 31st December 2011 of £39,662k, and other intangible assets at 30th June 2012 of £4,629k, at 30th June 2011 of £2,938k and at 31st December 2011 of £6,475k.  Depreciation and amortisation includes amortisation of acquisition-related intangible assets.

2.    NET FINANCING INCOME

	Six months to 30th June 2012 £'000	Six months to 30th June 2011 £'000	Year ended 31st December                          2011 £'000
Financial expenses
Bank and other borrowing interest payable	(652)	(599)	(1,381)
Interest on pension scheme liabilities	(7,728)	(8,055)	(16,134)
	(8,380)	(8,654)	(17,515)
Financial income
Bank interest receivable	564	465	1,048
Expected return on pension scheme assets	8,035	8,765	17,544
	8,599	9,230	18,592
Net financing income	219	576	1,077
Net pension scheme financial income	307	710	1,410
Net bank interest	(88)	(134)	(333)
Net financing income	219	576	1,077

3.    TAXATION

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

	Six months to 30th June 2012 £'000	Six months to 30th June 2011 £'000	Year ended 31st December 2011 £'000
United Kingdom corporation tax	249	528	(231)
Overseas taxation	17,117	15,582	35,564
Deferred taxation	(1,763)	2,869	3,770
	15,603	18,979	39,103

4.    EARNINGS PER SHARE

	Six months to 30th June 2012 £'000	Six months to 30th June 2011 £'000	Year ended 31st December  2011 £'000
Profit attributable to equity holders of the parent	36,012	41,782	93,049
Weighted average shares in issue	77,727,330	77,263,716	77,557,190
Dilution	542,204	1,014,442	1,016,946
Diluted weighted average shares in issue	78,269,534	78,278,158	78,574,136
Basic earnings per share	46.3p	54.1p	120.0p
Diluted earnings per share	46.0p	53.4p	118.4p
Adjusted profit attributable to equity holders of the parent	41,567	43,734	96,765
Basic adjusted earnings per share	53.5p	56.6p	124.8p
Diluted adjusted earnings per share	53.1p	55.9p	123.2p

The dilution is in respect of unexercised share options and the performance share plan.

5.    DIVIDENDS

	Six months to 30th June 2012 £'000	Six months to 30th June 2011 £'000	Year ended 31st December  2011 £'000
Amounts paid in the period
Final dividend for the year ended 31st December 2011  of 34.2p (2010:  30.0p) per share	26,640	23,213	23,213
Special dividend for the year ended 31st December 2010 of 25.0p per share	-	-	19,383
Interim dividend for the year ended 31st December 2011 of 14.8p per share	-	-	11,493
	26,640	23,213	54,089
Amounts arising in respect of the period
Interim dividend for the year ended 31st December 2012 of 16.0p (2011:  14.8p) per share	12,471	11,478	11,493
Final dividend for the year ended 31st December 2011  of 34.2p (2010:  30.0p) per share	-	-	26,579
	12,471	11,478	38,072

No scrip alternative to the cash dividend is being offered in respect of the 2012 interim dividend.

6.    EMPLOYEE BENEFITS

Pension plans

The Group is accounting for pension costs in accordance with International Accounting Standard 19.

The disclosures shown here are in respect of the Group's Defined Benefit Obligations.  Other plans operated by the Group were either Defined Contribution plans or were deemed immaterial for the purposes of IAS 19 reporting.  Full IAS 19 disclosure for the year ended 31st December 2011 is included in the Group's Annual Report.

The amounts recognised in the balance sheet are as follows:

	Total
	30th June 2012 £'000	30th June 2011 £'000	31st December 2011 £'000
Post-retirement benefits	(66,730)	(59,258)	(71,925)
Deferred tax	18,577	16,600	20,332
Net pension liability	(48,153)	(42,658)	(51,593)

7.    ANALYSIS OF CHANGES IN NET CASH

	At 1st Jan 2012 £'000	Cash flow £'000	Exchange movement £'000	At 30 th June 2012 £'000
Current portion of long term borrowings	(73)			(504)
Non-current portion of long term borrowings	(6,356)			(47,817)
Short term borrowing	(37,280)			(16,139)
Total borrowings	(43,709)			(64,460)
Comprising:
Borrowings	(43,552)	(20,525)	(263)	(64,340)
Finance leases	(157)	33	4	(120)
	(43,709)	(20,492)	(259)	(64,460)
Cash and cash equivalents	60,172	17,879	(837)	77,214
Bank overdrafts	(4,194)	583	84	(3,527)
Net cash and cash equivalents	55,978	18,462	(753)	73,687
Net cash	12,269	(2,030)	(1,012)	9,227

During the period since 31st December 2011 various borrowing facilities totalling £28.4m have matured and have been replaced with new facilities totalling £60.0m.  £15.0m of these facilities mature in 2013 and £45.0m in 2015.

8.   CAPITAL EMPLOYED

An analysis of the components of capital employed is as follows:

	30th June 2012 £'000	30th June 2011 £'000	31st December 2011 £'000
Property, plant and equipment	172,024	168,391	174,648
Prepayments	41	109	148
Inventories	116,617	115,714	116,325
Trade receivables	130,055	133,871	142,484
Other current assets	21,315	21,537	17,054
Tax recoverable	1,144	1,220	1,973
Trade and other payables	(81,149)	(88,122)	(88,632)
Current tax payable	(9,123)	(9,440)	(11,449)
	350,924	343,280	352,551

9.    RELATED PARTY TRANSACTIONS

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Full details of the Group's other related party relationsips, transactions and balances are given in the Group's financial statements for the year ended 31st December 2011.  There have been no material changes in these relationships in the period up to the end of this report.

No related party transactions have taken place in the first half of 2012 that have materially affected the financial position or the performance of the Group during that period.

10.  BASIS OF PREPARATION

Spirax-Sarco Engineering plc is a company domiciled in the UK.  The half year condensed consolidated financial statements of Spirax-Sarco Engineering plc and its subsidiaries (the 'Group') have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.  The accounting policies applied are the same as those set out in the 2011 Spirax-Sarco Engineering plc Annual Report.

These condensed consolidated half year financial statements do not include all the information required for full annual statements and should be read in conjunction with the 2011 Annual Report.  The comparative figures for the year ended 31st December 2011 do not constitute the Group's statutory accounts for that financial year.  The consolidated statutory accounts for Spirax-Sarco Engineering plc in respect of the year ended 31st December 2011 have been reported on by the company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the companies Act 2006.

The consolidated financial statements of the Group in respect of the year ended 31^st December 2011 are available upon request from Mr A. J. Robson, General Counsel and Company Secretary, Charlton House, Cheltenham, Gloucestershire, GL53 8ER, United Kingdom or on www.spiraxsarcoengineering.com.

The financial statements for the six months ended 30th June 2012, which have not been audited or reviewed by the auditors, were authorised by the Board on 22nd August 2012.

The interim report has been prepared solely to provide additional information to shareholders as a body to assess the Group's strategies and the potential for those strategies to succeed.  This interim report should not be relied upon by any other party or for any other purpose.

CAUTIONARY STATEMENTS

This interim report contains forward-looking statements.  These have been made by the directors in good faith based on the information available to them up to the time of their approval of this report.  The directors can give no assurance that these expectations will prove to have been correct.  Due to the inherent uncertainties, including both economic and business risk factors underlying such forward-looking information, actual results may differ materially from those expressed or implied by these forward-looking statements.  The directors undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

RESPONSIBILITY STATEMENT

The directors confirm that to the best of their knowledge:

·      this financial information has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

·      the interim management report includes a fair review of the information required by:

(a)  DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year.

(b)  DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.

The directors of Spirax-Sarco Engineering plc on 22nd August 2012 are listed in the 2011 Annual Report on pages 32 and 33 except for Nicholas Anderson and James Whalen who were appointed to the Board with effect from 15th March 2012 and Trudy Schoolenberg who was appointed with effect from 1st August 2012.

M E Vernon
Chief Executive
22^nd August 2012

D J Meredith
Director Finance
22^nd August 2012

on behalf of the Board

 

END

 

 

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