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Spirax-Sarco Engng (SPX)

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Thursday 08 March, 2012

Spirax-Sarco Engng

Preliminary Results

RNS Number : 9220Y
Spirax-Sarco Engineering PLC
08 March 2012
 



2011 Preliminary Results

 
HIGHLIGHTS

 

Adjusted*

2011

2010

Change

Constant FX

Revenue

£650.0m

£589.7m

+10%

+10%

Adjusted operating profit*

£134.0m

£119.1m

+12%

+12%

Adjusted operating profit margin*

20.6%

20.2%



Adjusted profit before taxation*

£137.2m

£121.6m

+13%

+13%

Adjusted earnings per share*

124.8p

109.5p

+14%

+14%

Dividend per share

49.0p

43.0p

+14%

+14%

Special dividend per share


25.0p



 

Statutory

2011

2010

Change

Operating profit

£129.5m

£121.4m

+7%

Profit before taxation

£132.3m

£123.5m

+7%

Earnings per share

120.0p

112.5p

+7%

 

*All profit measures exclude certain non-operational items, as defined in note 2.

 

·     Sales up 10% - widespread growth

·     Operating profit margin of 20.6% - tenth consecutive year of improvement

·     Good operational gearing

·     Emerging markets 47% of Group operating profit

·     Watson-Marlow sales up 15%

·     Total dividend up 14%

 

Mark Vernon, Chief Executive, commenting on the results said:

 

I am pleased to report that the Group delivered another year of strong results and achieved good sales and profit growth across all business segments.  Against a backdrop of macro-economic uncertainty, our robust business model has resilient characteristics that help to insulate the Group's performance against economic headwinds, and we have continued to invest in market penetration, geographic expansion in emerging markets and new product development to enhance our mid and long-term growth prospects.

 

Our fundamental strengths give the Board confidence that the Group will make further progress this year.

 

 

For further information, please contact:

 

Mark Vernon, Chief Executive

David Meredith, Finance Director

Tel:  020 7638 9571 at Citigate Dewe Rogerson until 6.00 p.m.

 

 

The meeting with analysts will be available as a live audio webcast on the Company's website at www.spiraxsarcoengineering.com or via the following link http://www.media-server.com/m/p/37zzrod9 at 9.00am, and a recording will be posted on the website shortly after the meeting.

 

Unless otherwise stated all profit measures exclude certain non-operational items, as defined in note 2.

 

 

 

OVERVIEW OF PRELIMINARY RESULTS

 

Sales increased from £589.7 million to £650.0 million, an increase of over 10%.  Organic sales growth was nearly 10%, led by Watson-Marlow and Asia Pacific but with all segments contributing to the strong performance; there was a very small contribution from favourable currency movements and acquisitions.

 

Operating profit rose by 12% from £119.1 million to £134.0 million, with all segments benefiting from the increased sales.  The operating profit margin improved from 20.2% to 20.6%, the tenth consecutive year of improvement.  The operating profit margin was 20.8% excluding the impact of the manufacturing reorganisation and disposal gain in Cheltenham.

 

Net finance income was £1.1 million compared with net finance charges of £0.6 million in 2010, largely due to an improvement in respect of the defined benefit pension schemes.  The Group's share of the after-tax profits of Associates reduced from £3.1 million to £2.1 million.

 

Pre-tax profit increased 13% from £121.6 million to £137.2 million and earnings per share rose by 14% from 109.5p to 124.8p.

 

The statutory pre-tax profit, after charging the amortisation of acquisition-related intangible assets and acquisition and disposal costs, was £132.3 million.  This compares with £123.5 million in 2010, which also included an exceptional revaluation gain in Mexico and the impairment of acquisition-related intangible assets.

 

The Board is recommending a 14% increase in the final dividend to 34.2p per share payable on 18th May 2012 to shareholders on the register at the close of business on 20th April 2012.  This, together with the interim dividend of 14.8p per share paid in November 2011, makes a total dividend of 49.0p per share.  This represents an increase of 14% on the ordinary dividends of 43.0p per share for 2010; additionally, a special dividend of 25.0p per share in respect of 2010 was paid in July 2011.  The cost of the interim and final dividends is £38.1 million, which is covered 2.5 times by earnings.

 

We continue to operate with a strong balance sheet and finished the year with net cash of £12.3m.

 

Prospects

 

The global economy and rates of industrial production growth slowed in the second half of 2011 due in part to the underlying uncertainty created by the European debt crisis.  Market conditions for our business broadly reflect changes in global economic activity and, more particularly, movements in industrial production.  We see continued challenging market conditions broadly across Europe but opportunities in most of our emerging markets.

 

Against this backdrop, our robust business model has resilient characteristics that help to insulate the Group's performance against economic headwinds and we have continued to invest in market penetration, geographic expansion and new product development to enhance our mid and long-term growth prospects.

 

Our fundamental strengths give the Board confidence that the Group will make further progress this year.

 

BUSINESS REVIEW

 

Current environment

 

In the early part of 2011, the global economy looked to be returning to a more normal growth pattern as the pace of global industrial production growth moderated following the steep rebound from recession.  However, increased uncertainty from the sovereign debt issues in Europe, which escalated through the autumn of 2011, has weighed on the global economy, resulting in slowing industrial production growth, especially in Europe, where a number of economies are now back in recession. In the second half of the year, our markets generally reflected these trends and overall demand growth slowed but with continued relative strength in most of our emerging markets contrasting with difficult market conditions broadly across Europe. 

 

During the year, maintenance spending increased in our developed markets but remains at comparatively low levels, with maintenance spending in many markets not yet recovered from the sharp falls accompanying the 2008-09 recession.  Large-scale project orders, although a relatively small percentage of our total revenues, were up significantly from 2010 levels and particularly benefited our Watson-Marlow USA business in the fourth quarter.

 

Our customers are spread across a wide range of industries and institutions, and market conditions for our businesses tend to reflect the general level of economic activity and, in particular, movements in industrial production.  However, we have a resilient business model and we continue to work to create our own opportunities based on increasing customer preferences for our wide range of engineering solutions and to further invest in market penetration, particularly in emerging markets that are expected to exhibit relatively stronger economic growth, and in new product development.

 

Trading

 

Group sales increased by over 10% to £650.0 million (2010: £589.7 million).  Organic sales growth was nearly 10%, well spread across all segments with a very small contribution from favourable currency movements and acquisitions. 

 

Sales increased by 9% in the Spirax Sarco steam specialties business to £531.6 million and by 8% at constant exchange rates.  The full-year benefit from our Mexican business (previously a 49% owned Associate until May 2010) was largely offset by a reduction in sales resulting from two small business disposals.  In the steam specialties business, sales were ahead in all three geographic segments and across nearly all product lines as customers increased overall spending on maintenance and small capital improvement projects.  We achieved significantly higher sales of flow metering products as a result of a large non-repeating project related to the US Federal Government's energy management programme, and higher sales of energy services.  Watson-Marlow pumps sales grew strongly, rising by 15% to £118.4 million (+15% at constant currency) with all regions contributing well and growth in all product ranges.

 

Group operating profit was a record £134.0 million (2010: £119.1 million), an increase of 12%, as we benefited from good operational gearing on the higher sales.  We increased our investment in the development of emerging markets with additional sales resource and also stepped up our investments in Research & Development, with a focus on increased innovation and on strategically important growth areas in flow metering, controls, heat transfer, wireless communications and advanced pumping technologies.  Material costs for the year rose by more than inflation but were largely offset by our own price increases and continued material cost mitigation actions.  The reorganisation of our manufacturing operations in the UK and France took longer than expected to complete and disruption costs of £2.7 million were incurred, mostly in the second half.  The results for the year include a net benefit of £1.5 million largely reflecting a gain on disposal of property in Cheltenham.  The effects of currency movements on operating profit were overall immaterial.  The operating profit margin improved from 20.2% to 20.6%.

 

EMEA

                                 2011                2010                Change           Constant ccy

Revenue                   £250.1m          £230.0m          +9%                +7%

Operating profit        £42.5m            £36.8m            +15%              +13%

Operating margin     17.0%              16.0%              +100 bps         +80 bps

 

Sales increased by 9% to £250.1 million (2010: £230.0 million) and by 7% at constant currency.  Organic sales increased by 8% adjusting for a reduction in sales following the disposal of the Mitech control valve business in South Africa and the M&M solenoid valve distribution business in Spain.  Sales growth continued at a similar pace throughout the year, although underlying demand slowed in the second half and second half sales benefited from the shipment of backlog carried forward from the first half.  Our core European businesses in France, Italy, Spain and the UK saw overall slower growth, with low levels of project activity and maintenance spending by customers.  Our markets in these countries remain difficult, although we saw higher levels of OEM sales during the year.  After an exceptional year in 2010, sales growth in Germany moderated in 2011 and profits were a little lower but we achieved strong growth in Scandinavia, Eastern Europe, the Middle East and Africa.  Our emerging markets in EMEA (over 20% of segment sales) performed very well, delivering more than 60% of the profit growth for the segment in 2011.  We have continued to increase sales resources to support future growth, particularly in the Middle East and also in Russia, which had an outstanding year in 2011 and is now one of our largest businesses within EMEA.  We saw a decline in demand in our small, emerging markets in Africa in the second half of the year and a slower rate of growth in our Middle East markets but we see good long-term growth prospects in that part of the world.

 

Operating profit rose by 15% to £42.5 million (2010: £36.8 million).  The good sales growth in most emerging markets in EMEA was reflected in profit improvements in these operations as we benefited from operational gearing on the higher sales.  The profit increase in our core European companies was more muted with a focus on efficiency and cost control, and also reflective of the slower sales growth.  The segment results include a one-off benefit of £1.5 million, comprising a gain of £1.7 million on the disposal of property in Cheltenham (net of relocation costs) and a charge of £0.2 million in respect of an inventory write-down on disposal of the Mitech products business in South Africa.  The 2010 results included a tangible asset write-down of £1.2 million in respect of the reorganisation of the Mitech business.  Shipments increased from our manufacturing operations but profits were lower.  The physical reorganisation of our manufacturing plants in Cheltenham, UK and Châtellerault, France was largely completed by mid-year 2011.  However, the new manufacturing layouts and process flow changes took longer than expected to bed down and disruption costs of £2.7 million for sub-contracting and implementation costs were incurred, mostly in the second half.  The operating profit margin in EMEA increased from 16.0% to 17.0%, reflecting an underlying improvement in our sales operations driven by the sales growth and cost control.

 

Asia Pacific

                                 2011                2010                Change           Constant ccy

Revenue                   £147.1m          £131.5m          +12%              +9%

Operating profit        £37.8m            £34.3m            +10%              +7%

Operating margin     25.7%              26.0%              -30 bps            -50 bps

 

Sales increased by 12% to £147.1 million (2010: £131.5 million).  Sterling was generally weaker against the regional currencies and at constant currency the sales increase was 9%.   Sales growth was widespread, with the exception of Japan and Korea, and good sales growth was achieved in all major product lines, with particularly strong growth in our core product range due to increased project activity.  The pace of overall sales growth was lower in the second half of 2011 against a tougher comparable period (+10% in the second half versus +15% in the first half), especially in Korea where, as expected, sales and profits were marginally lower as the exceptional projects in 2010 were not wholly replicated in 2011.  Underlying demand in Asia Pacific has been reasonably consistent through the year, although the floods in Thailand slowed the growth in orders there in the second half and our markets in Japan have not yet recovered from the effects of the devastating earthquake and tsunami early in 2011.  Our Chinese business, our largest operation in the region and together with our Watson-Marlow China business now representing 9% of total Group sales, continued to make excellent progress and we had another record year of sales and profits.  The factory in Shanghai that opened in June 2010 is performing well and the ramp-up in production was accelerated to support both domestic and regional growth in Southeast Asia.  We have continued to invest in additional sales resource in the region to support future growth and expand our geographic presence.  Current market conditions are varied throughout the region but we see broad strength across Southeast Asia and we remain confident about our prospects in China due to our high percentage of sales to industries supporting domestic consumption.  Quote logs across the region are healthy. 

 

Operating profit increased 10% to £37.8 million (2010: £34.3 million).  Currency movements were favourable in 2011 and at constant currency the rise was 7%, although the underlying profit increase was 13%, excluding the £2.0 million gain in 2010 on the disposal of our former premises in China.  All our businesses, with the exception of Korea, achieved double-digit profit increases.  We were especially pleased with the improvement in our small Japanese business under a new management team, against the background of the natural disasters in March and lower year-on-year sales.  The operating profit margin in Asia Pacific declined slightly from 26.0% in 2010 to 25.7%, although there was an underlying improvement and a small currency benefit, offset by the one-off gain adding to the 2010 margin.

 

Americas

                                 2011                2010                Change           Constant ccy

Revenue                   £134.4m          £125.2m          +7%                +10%

Operating profit        £27.4m            £24.3m            +13%              +17%

Operating margin     20.4%              19.4%              + 100 bps        +130 bps

 

Sales increased by 7% to £134.4 million (2010: £125.2 million).  Overall currency movements were unfavourable, particularly the weaker dollar and Argentinean peso, and sales increased 10% at constant currency.  This includes the benefit from the inclusion of our Mexican business, which continues to perform well and which became a full subsidiary from May 2010,  and the organic sales growth was 7%.  In North America, growth continued from significantly higher sales of flow metering products and installation services for a large non-repeating project as part of the energy management programme of the US Federal Government, the return of project activity in the oil sands developments of Western Canada and higher energy services sales from a modest recovery in steam system maintenance spending at US refineries.  The combined steam specialties and Watson-Marlow businesses in the United States now represent 17% of total Group sales.  We see generally stable market conditions in North America with the US economy improving and we remain encouraged by our near-term prospects in Canada due to the resurgence of investment in the oil sands developments in Western Canada.  In Latin America, industrial production growth slowed sharply in the second half, turning negative in Brazil and overall market conditions have become tougher, consistent with the global slowdown.  Against a tough comparative year in 2010, underlying sales growth in Latin America was more muted; our Brazilian company did very well to sustain its strong sales and profit performance achieved in 2010 with tight cost controls and higher operating efficiencies.  In Argentina, our company increased sales but profit was reduced, reflecting increased costs as inflation remains very high amidst a fragile economic environment. 

 

Operating profit in the Americas increased by 13% to £27.4 million (2010: £24.3 million) driven by the US, although all operations contributed to the profit increase except Argentina.   Currency movements were overall unfavourable and increased the landed cost of products imported for sale in the region; at constant currency, operating profit was ahead 17%, including the full-year contribution from Mexico, which accounted for a quarter of this increase.  The operating profit margin improved from 19.4% to 20.4%.

 

Watson-Marlow Pumps

                                 2011                2010                Change           Constant ccy

Revenue                   £118.4m          £103.0m          +15%              +15%

Operating profit        £34.4m            £30.8m            +12%              +15%

Operating margin     29.1%              29.9%              -80 bps            -10 bps

 

Sales growth of 15% was achieved, including a very small impact on translation from overall negative currency movements, in particular the US dollar.  Growth continued at a strong pace throughout the year (+14% in the second half at constant currency versus +17% in the first half) and was widespread with good sales increases in all operations and across all product lines, including good progress being made in the development of acquisitions made in recent years.  Investment in sales resources was significantly increased to fuel future growth and drive our important industry sector-focused sales approach, with direct sales people added in all regions and strongly focused on emerging markets.  In EMEA, there was good growth in tubing, Bredel products and across most industry segments, and we continued to convert recently acquired product lines from distribution to direct sales, positioning ourselves for future growth.  In Asia Pacific, our business in China continued to grow strongly and the prior year acquisitions of the distributorships in Australia and New Zealand performed well.  In addition, we established a new direct sales company in India.  In the Americas, the USA saw exceptional project activity in the fourth quarter, Brazil did well in the year and there was good growth from our fledgling operations in Mexico and Argentina.  Market conditions remain relatively robust in the precious metals processing industries and we see continued strength in our biopharmaceuticals markets.  However, the US water & wastewater markets are much more challenging due to tightened state and municipal budgets and US construction markets have not yet recovered.  We see good prospects for growth in our small but rapidly growing Asian and Latin American markets but see more challenging market conditions in Europe similar to the steam specialties business.

 

Watson-Marlow Pumps operating profit grew by 12% to £34.4 million (2010: £30.8 million) and by 15% at constant currency.  Investment in Research & Development was again significantly increased as we further expand the application capability of peristaltic pumps and develop advanced pumping technologies that we expect to launch in 2012.  As a result, we continue to progressively widen our addressable markets and see good long-term growth prospects for our business.  The very strong operating profit margin of 29.1% in 2011 declined slightly from 29.9% in 2010, almost all due to unfavourable currency movements.

 

Financial review

 

Spirax Sarco uses adjusted figures as key performance measures in addition to those reported under IFRS, as the directors believe that these are more representative of the underlying performance.  Adjusted figures are used unless otherwise stated and in 2011 they exclude the amortisation of acquisition-related intangibles assets, acquisition and disposal costs, and contingent consideration fair-value adjustments, together with the associated tax effects on these items.  Additionally, adjusted figures in 2010 excluded the impairment of acquisition-related intangible assets and the exceptional non-cash revaluation gain in respect of the acquisition of our former Associate company in Mexico.

 

Sales increased by just over 10% to £650.0 million (2010 £589.7 million) and were well spread across all segments.  The full-year benefit to sales of the prior-year acquisition in Mexico was virtually matched by the reduction in sales following the two small business disposals in South Africa and Spain.  Movements in exchange rates benefited sales on translation by less than 1%, giving organic sales growth of nearly 10%.

 

Operating profit grew by 12% to £134.0 million (2010: £119.1 million).  The effect of movements in exchange rates, both on translation and transaction, was a small overall gain to operating profit of just £0.2 million; there were modest gains in EMEA and Asia Pacific, largely offset by an exchange impact in the Americas and Watson-Marlow Pumps.  Rises in material costs were largely matched by our own price increases and other actions to mitigate costs.  2011 was the third successive year of significant increase in R&D expenditure, with a more modest increase expected in 2012.

 

In the second half of the year, we recognised a £1.5 million benefit in the adjusted operating profit comprising a gain of £1.7 million, net of relocation costs, relating to our two former manufacturing sites in Cheltenham, following the reorganisation of manufacturing on to our expanded main site at Runnings Road, and a charge of £0.2 million in respect of an inventory write-down on disposal of the Mitech products business in South Africa.  The second half year also included the impact of further disruption costs of approximately £2 million, primarily for subcontracting, relating to the delay in bedding down the new manufacturing layout and process flow changes in Cheltenham and bringing customer service levels back to normal.  The full-year impact of this disruption was £2.7 million.  The operating profit in 2010 included a gain of £2.0 million on the disposal of our former premises in China and a charge of £1.2 million in relation to the decision to rationalise the product ranges manufactured in South Africa.  The operating profit margin rose, for a tenth consecutive year, from 20.2% to 20.6% as we benefited from operational gearing, increasing overheads by less than the increase in sales, and despite the impact of the manufacturing reorganisation costs.

 

Interest

 

Net finance income was £1.1 million compared with a net finance charge of £0.6 million in 2010.  The turnaround was due to the improvement in the net finance position in respect of the Group's defined benefit pension schemes following the increase in scheme asset values in 2010.

 

Associates

 

The Group's share of the after-tax profit of our Associate company in India was £2.1 million.  This compares with Associates income of £3.1 million in 2010, which also included the results of our Mexican Associate until May 2010 when it became a wholly-owned subsidiary.  Sales in India were moderately ahead but profits were down due to increased investment in sales development and manufacturing improvements.

 

Pre-tax profit

 

The profit before tax increased by 13% to £137.2 million (2010: £121.6 million).  The statutory profit before tax rose by 7% to £132.3 million (2010: £123.5 million) and includes a charge of £4.4 million (2010: £4.0 million) in respect of the amortisation of acquisition-related intangible assets and acquisition and disposal costs of £0.4 million (2010: £0.2 million).  In addition, the statutory profit before tax for 2010 also included the exceptional non-cash revaluation gain of £8.2 million in respect of Mexico and an impairment charge of £2.1 million in respect of acquisition-related intangible assets.

 

Taxation

 

The tax charge, on the adjusted pre-tax tax profit, excluding Associates, was lower at 29.8% compared with 31.5% in the previous year due to declining corporate tax rates, a favourable mix of profits, lower withholding tax and the utilisation of capital losses against the gain on disposal of premises in the UK.

 

Earnings per share

 

The Group's prime financial objective is to provide enhanced value to shareholders through consistent growth in earnings per share and dividends per share.  The adjusted basic earnings per share increased by 14% to 124.8p (2010: 109.5p).  The statutory basic earnings per share were 120.0p (2010: 112.5p).  The fully diluted earnings per share were not materially different in either year.

 

Dividends

 

The proposed final dividend is increased by 14% to 34.2p per share (2010: 30.0p).  Together with the interim dividend of 14.8p per share, this gives a total dividend for the year of 49.0p, which represents an increase of 14% over the total ordinary dividends of 43.0p per share in 2010 and extends the very long history of increasing dividends; over the last 44 years, dividends have increased by a compound 11% per annum.  In addition, a special dividend of 25.0p per share was paid in respect of 2010, returning nearly £20 million to shareholders.

 

Acquisitions and disposals

 

There were no material acquisitions during the year, although sales benefited by 0.5% from the full year effect of the consolidation of our Mexican operation, which had been an Associate company until May 2010.  This benefit was broadly matched by reduced sales following the disposal in August 2011 of the Mitech products business in South Africa for a nominal sum and in July 2011 of the very small M&M valve distribution business in Spain.  Intangible assets of £0.2 million (2010: £11.6 million) and goodwill of £0.1 million (2010: £7.3 million) were recognised during the year.

 

Research and development

 

Investment was again significantly increased and total R&D spending (including Capitalised Development costs) rose by 29% to £11.5 million, adding additional design engineers and enhancing the blend of skills.  A new Steam Technology Centre was created in Cheltenham bringing our UK steam research and development resources together on one site for the first time, fostering improvements in communication, teamwork and innovation.  New test facilities were also created with three times the capacity and at significantly elevated temperature, pressure and flow capabilities, which we believe are unmatched by similar facilities anywhere in the world.  Watson-Marlow's R&D focus was on innovative new pump designs and tubing materials that have the potential to expand our addressable market.

 

Capital employed

 

Total capital employed rose to £353 million, an increase of 20% at constant currency.  Investment in fixed assets was a record £43 million as we completed the manufacturing consolidation from three sites on to one expanded site in Cheltenham and accelerated the installation of new production equipment in China, to ramp-up production in our new factory, and in the Americas.  Working capital, comprising inventories, debtors and creditors, increased by 27% at constant currency to £178 million.  Inventory levels rose by £20 million or 24% at constant currency reflecting the increase in business activity, the creation of buffer stocks in respect of production transfers as part of our regional manufacturing strategy, in particular to China, and also a temporary increase in response to the second half-year delays in bedding down the reorganised manufacturing layout and processes in Cheltenham.  Trade debtors increased by 6% at constant currency, which was less than the growth in sales, as we improved our average debtor day ratios.  Creditors overall reduced by £7 million or 5% at constant currency due mainly to reduced capital creditors, timing differences and lower bonus accruals.  The improving trend over the last five years in the ratio of working capital to sales was interrupted this year by an increase to 27.4%.

 

Return on capital employed

 

The return on capital employed declined marginally from 42.1% to 41.1%.  The adjusted operating profit was 12% ahead of the prior year but this was broadly matched by an increase of 15% in average capital employed (using the average of opening and closing sterling balance sheets for the year).  Capital expenditure is expected to be at a relatively high level in 2012, although below the exceptional level in 2011, as we build the new warehouse in Cheltenham and continue investments in Asia and the Americas in support of our regional manufacturing strategy to deliver a faster, more flexible supply of products to these markets.

 

 

Capital Employed

           2011

          £'000

          2010

         £'000

Property, plant and equipment

      174,648

     155,553

Inventories

      116,325

       96,115

Trade receivables

      142,484

     137,350

Prepayments and other current assets/(liabilities)

      (80,906)

     (90,275)

Capital employed

      352,551

     298,743

Intangibles and investment in associate

        93,530

       95,317

Post-retirement benefits

      (71,925)

     (63,428)

Deferred tax

        19,476

       21,524

Provisions and long-term payables

        (5,781)

       (7,024)

Net cash/(borrowings)

        12,269

       34,392

Net assets

      400,120

     379,524

Return on capital employed



Operating profit

      129,498

     121,396

Adjustments

          4,462

       (2,271)

Adjusted operating profit

      133,960

     119,125

Average capital employed

      325,647

     283,290

Return on capital employed

         41.1%

       42.1%

 

Post-retirement benefits

 

The net post-retirement benefits liability shown on the balance sheet increased from £63.4 million (£45.5 million net of deferred tax) to £71.9 million (£51.6 million net of deferred tax).  Asset values reflect a shortfall in the return on assets, partially offset by deficit reduction cash contributions in the year that added to pension scheme assets.  Liability values rose reflecting the reduction in bond yields which pushed up the discounted value of liabilities.

 

Most of the asset and liability values relate to the UK defined benefit pension schemes that were closed to new entrants in 2001.  During the year, the second stage of changes took effect that was started in 2010, to reduce accrual rates or increase member contributions.  Also during the year, a dynamic de-risking strategy was implemented for the management of the assets of the main UK pension schemes under which asset and liability values are monitored on a daily basis by the asset manager and appropriate asset allocation decisions taken as the funding level improves against pre-agreed trigger points.

 

The triennial valuations of the main UK schemes as at 31st December 2010 were completed during the year.  These show a deterioration versus the position at the end of 2007 but an improvement on the interim valuation results at the end of 2008 and 2009.  The triennial valuation resulted in a continuation of the previously agreed deficit reduction cash contributions of £7.9 million in respect of 2011, but with a shortening of the contribution periods that now progressively reduce this amount in stages to nil by 2018, three years earlier than previously.

 

Cash flow

 

Adjusted cash flow

          2011

         £'000

          2010

         £'000

Operating profit

     133,960

     119,125

Depreciation and amortisation

       16,784

       16,859

Adjustments (including share plans)

         1,764

         2,031

Working capital changes

     (32,942)

     (13,407)

Cash from operations

     119,566

     124,608

Net interest paid

          (333)

          (319)

Income taxes paid

     (33,433)

     (30,362)

Net capital expenditure (including software and development)

     (43,395)

     (32,868)

Free cash flow

       42,405

       61,059

Net dividends paid

     (52,705)

     (27,988)

Post-retirement deficit reduction payments and provisions

     (10,915)

     (11,445)

Proceeds from issue of shares

         4,363

         6,215

Acquisitions

       (3,387)

       (3,526)

Cash flow for the year

     (20,239)

       24,315

Exchange movements

       (1,884)

         2,044

Opening net cash

       34,392

         8,033

Closing net cash at 31st December

       12,269

       34,392

 

Free cash flow (before dividends, acquisitions, pensions deficit payments and share capital changes) generated in the year declined from £61.1 million in 2010 to £42.4 million.  This reflected, firstly, the exceptionally high level of capital investment in our manufacturing plants to improve customer service, increase efficiency and reduce costs.  Net capital expenditure, including capitalised development costs was £43.4 million (2010: £32.9 million).  Secondly, this reflected a cash outflow of £32.9 million in respect of working capital, in particular the increased inventory levels as explained earlier, some of which is expected to reverse to the benefit of cash flows in 2012.

 

Dividend payments were significantly higher at £52.7 million (2010: £28.0 million) reflecting the double-digit increase in the ordinary dividends paid in the year and the special dividend of 25.0p per share in respect of 2010, rewarding shareholders with an additional £19.3 million in dividend payments in July 2011.  There was a cash outflow of £7.9 million in pension deficit reduction contributions and £3.4 million in deferred purchase consideration for acquisitions in prior years, which was partly offset by a cash inflow of £4.4 million in respect of shares issued during the year under the Group's various share schemes.  There was therefore a cash outflow of £20.2 million for the year.  Exchange movements reduced net cash balances on translation by £1.9 million and we finished the year with a net cash balance of £12.3 million (2010: £34.4 million).

 

Risks and uncertainties

 

The Group has in place a robust risk management process to identify, evaluate and manage the identified risks that could impact on the Group's performance.  Risks and uncertainties are reviewed regularly and, additionally, using external consultants every three years, most recently in 2011.  Details of the complete list of principal risks and uncertainties (shown below), their likely impact and the mitigation will be set out in the 2011 Annual Report and Accounts.

 

-     Risk of product failure

-     Loss of manufacturing output at any Group factory

-     Non-compliance with health, safety and environmental legislation

-     Failure to respond to technological developments or customer needs

-     Breach of regulatory requirements

-     Defined benefit pension deficit

-     Failure to realise acquisition objectives

-     Economic and political instability

 

 

Spirax-Sarco Engineering plc

 

GROUP BALANCE SHEET AT 31ST DECEMBER 2011

 


   Note

2011

£'000

2010

£'000

 

ASSETS




Non-current assets




Property, plant and equipment


174,648

155,553

Goodwill


45,347

43,985

Other intangible assets


39,903

42,097

Prepayments


148

76

Investment in associate


8,280

9,235

Deferred tax assets


37,417

37,741



305,743

288,687





Current assets




Inventories


116,325

96,115

Trade receivables


142,484

137,350

Other current assets


17,054

15,227

Taxation recoverable


1,973

1,627

Cash and cash equivalents


60,172

74,481



338,008

324,800

Total assets


643,751

613,487





EQUITY AND LIABILITIES




Current liabilities




Trade and other payables


88,632

95,544

Bank overdrafts


4,194

985

Short term borrowing


37,280

1,126

Current portion of long term borrowings


73

12,799

Current tax payable


11,449

11,661



141,628

122,115

Net current assets


196,380

202,685





Non-current liabilities




Long term borrowings


6,356

25,179

Deferred tax liabilities


17,941

16,217

Post-retirement benefits


71,925

63,428

Provisions


1,509

912

Long term payables


4,272

6,112



102,003

111,848

Total liabilities


243,631

233,963

Net assets

       2

400,120

379,524





Equity




Share capital

       

19,418

19,329

Share premium account


52,262

48,276

Other reserves


39,408

50,772

Retained earnings


288,243

260,351

Equity shareholders funds


399,331

378,728

Non-controlling interest


789

796

Total equity


400,120

379,524

Total equity and liabilities


643,751

613,487

 

 

Spirax-Sarco Engineering plc

 
GROUP INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2011

 


Note

Adjusted

2011

£'000

Adj't

2011

£'000

Total

2011

£'000

Adjusted

2010

£'000

Adj't

2010

£'000

Total

2010

£'000

 

Revenue

2

649,991

-

649,991

589,746

-

589,746

Operating costs


(516,031)

(4,462)

(520,493)

(470,621)

2,271

(468,350)

Operating profit

2

133,960

(4,462)

129,498

119,125

2,271

121,396









Financial expenses


(17,515)

-

(17,515)

(17,206)

-

(17,206)

Financial income


18,592

-

18,592

16,613

-

16,613


3

1,077

-

1,077

(593)

-

(593)









Share of profit of associates


2,132

(366)

1,766

3,081

(391)

2,690

Profit before taxation


137,169

(4,828)

132,341

121,613

1,880

123,493









Taxation

4

(40,215)

1,112

(39,103)

(37,280)

441

(36,839)









Profit for the period


96,954

(3,716)

93,238

84,333

2,321

86,654









Attributable to:








Equity shareholders


96,765

(3,716)

93,049

84,134

2,321

86,455

Non-controlling interest


189

-

189

199

-

199

Profit for the period


96,954

(3,716)

93,238

84,333

2,321

86,654









Earnings per share

5







Basic earnings per share


124.8p


120.0p

109.5p


      112.5p

Diluted earnings per share


123.2p


118.4p

108.2p


      111.2p

Dividends

6







Dividends per share




49.0p



        43.0p

Special dividend per share




-



        25.0p

Dividends paid during the year (per share)




 

69.8p



 

        38.6p

                                                                                                                                                  

*Adjusted figures exclude certain non-operational items as detailed in note 2.

    

 

Spirax-Sarco Engineering plc
 
GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31ST DECEMBER 2011

 


The Group


2011

£'000

2010

£'000

 

Profit for the period

93,238

86,654

Actuarial loss on post-retirement benefits

(18,736)

(230)

Deferred tax on actuarial loss on post-retirement benefits

5,776

220

Foreign exchange translation differences

(11,094)

7,703

Non-controlling interest foreign exchange translation differences

(119)

18

(Loss) on cash flow hedges net of tax

(270)

(258)

Total comprehensive income for the period

68,795

94,107




Attributable to:



  Equity shareholders

68,725

93,890

  Non-controlling interest

70

217

Total comprehensive income for the period

68,795

94,107

 

 

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST DECEMBER 2011

 

GROUP

 


Share

Capital

 

 

£'000

Share

premium

account

 

£'000

Other

reserves

 

 

£'000

Retained

Earnings

 

 

£'000

Equity

shareholders'

funds

 

£'000

Non-controlling

interest

 

£'000

Total

Equity

 

 

£'000

 

Balance at 1st January 2011

19,329

48,276

50,772

260,351

378,728

796

379,524

Total comprehensive income 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

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)

Balance at 31st December 2011

19,418

52,262

39,408

288,243

399,331

789

400,120

 

Other reserves represent the Group's Translation, Cash flow hedge and Capital redemption reserves.

 

 

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST DECEMBER 2010

 

GROUP

 


Share

Capital

 

 

£'000

Share

premium

account

 

£'000

 

Other

reserves

 

 

£'000

Retained

Earnings

 

 

£'000

Equity

shareholders'

funds

 

£'000

Non-controlling

interest

 

£'000

Total

Equity

 

 

£'000

Balance at 1st January 2010

19,310

47,601

43,327

196,481

306,719

645

307,364

Total comprehensive income for the period

 

-

 

-

 

7,445

 

86,445

 

93,890

 

217

 

94,107

Dividends paid

-

-

           -

(29,701)

(29,701)

(66)

(29,767)

Equity settled share plans net of tax

-

-

           -

1,605

1,605

-

1,605

Issue of share capital

19

675

           -

-

694

-

694

Treasury shares reissued

-

-

           -

10,453

10,453

-

10,453

Loss on the reissue of treasury shares

-

-

           -

(4,932)

(4,932)

-

(4,932)

Balance at 31st December 2010

19,329

48,276

50,772

260,351

378,728

796

379,524

 

Other reserves represent the Group's Translation, Cash flow hedge and Capital redemption reserves.

 

 

Spirax-Sarco Engineering plc

 

GROUP CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2011

 


Note

2011

£'000

2010

£'000

 

Cash flows from operating activities




Profit before taxation


132,341

123,493

Depreciation, amortisation and impairment


20,828

22,565

Share of profit of associates


(1,766)

(2,690)

Gain on revaluation of investment on acquisition


-

(8,175)

Equity settled share plans


2,182

2,229

Net finance (income)/expense


(1,077)

593

Operating cash flow before changes in working capital and provisions


 

152,508

 

138,015

Change in trade and other receivables


(10,084)

(14,321)

Change in inventories


(22,561)

(7,188)

Change in provisions and post retirement benefits


(10,915)

(11,445)

Change in trade and other payables


(297)

8,102

Cash generated from operations


108,651

113,163

Interest paid


(1,381)

(1,315)

Income taxes paid


(33,433)

(30,362)

Net cash from operating activities


73,837

81,486





Cash flows from investing activities




Purchase of property, plant and equipment


(42,814)

(33,338)

Proceeds from sale of property, plant and equipment


5,560

3,423

Purchase of software and other intangibles


(3,424)

(1,148)

Development expenditure capitalised


(2,717)

(1,805)

Acquisition of businesses


(3,387)

(3,526)

Interest received


1,048

996

Dividends received


1,461

1,779

Net cash used in investing activities


(44,273)

(33,619)





Cash flows from financing activities




Proceeds from issue of share capital


4,075

694

Proceeds from reissue of treasury shares


288

5,521

Change in borrowings

7

5,341

(15,194)

Payment of finance lease liabilities

7

(76)

(42)

Dividends paid (including minorities)


(54,166)

(29,767)

Net cash used in financing activities


(44,538)

(38,788)





Net change in cash and cash equivalents

7

(14,974)

9,079

Cash and cash equivalents at beginning of period


73,496

61,635

Exchange movement


(2,544)

2,782

Cash and cash equivalents at end of period

7

55,978

73,496





Borrowings and finance leases


(43,709)

(39,104)

Net cash

7

12,269

34,392

 

 

 

 

NOTES TO THE ACCOUNTS

 

1.   Foreign currency assets and liabilities are translated into sterling at rates of exchange ruling at 31st December.  Trading results of overseas subsidiary undertakings have been translated into sterling at average rates of exchange ruling during the year.

     

 

2.   SEGMENTAL REPORTING

 

Analysis by location of operation

 

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)





Total

649,991

-

649,991

129,498

133,960

20.6

 

 

2010


Gross

Revenue

 

£'000

Inter-

Segment

revenue

£'000

Revenue

 

 

£'000

 

Total

Operating

Profit

£'000

Adjusted

Operating

Profit

£'000

Adjusted

Operating

Margin

%

Europe, Middle East & Africa

266,646

36,646

230,000

33,712

36,834

16.0

Asia Pacific

135,454

3,940

131,514

34,252

34,252

26.0

Americas

131,221

6,036

125,185

31,317

24,263

19.4

Steam Specialties business

533,321

46,622

486,699

99,281

95,349

19.6

Watson-Marlow

103,475

428

103,047

29,143

30,804

29.9

Corporate Expenses




(7,028)

(7,028)



636,796

47,050

589,746

121,396

119,125

20.2

Intra Group

(47,050)

(47,050)





Total

589,746

-

589,746

121,396

119,125

20.2

 

 

Net revenue generated by Group companies based in the USA is £109,807,000 (2010: £101,805,000), in the UK is £66,091,000 (2010:  £58,949,000),  and the rest of the world is £474,093,000 (2010:  £428,992,000)

 

 

The total operating profit for each period includes the non-operational items  analysed below:

 

2011


Amortisation of

acquisition-

related

intangible

assets

Acquisition

and

disposal

costs

Total

 

 

 


£'000

£'000

£'000





Europe, Middle East & Africa

(458)

(249)

(707)

Asia Pacific

-

-

-

Americas

(1,711)

-

(1,711)

Steam Specialties business

(2,169)

(249)

(2,418)

Watson-Marlow

(1,875)

(169)

(2,044)


(4,044)

(418)

(4,462)

Associate

(366)

-

(366)

 

2010


Gain on

revaluation

of

Associate

Impairment of

acquisition-

related

intangible

assets

Amortisation

of

acquisition-

related

intangible

assets

Acquisition

and

disposal

costs

Total

 

 

 


£'000

£'000

£'000

£'000

£'000







Europe, Middle East & Africa

-

(2,144)

(780)

(198)

(3,122)

Asia Pacific

-

-

-

-

-

Americas

8,175

-

(1,121)

-

7,054

Steam Specialties business

8,175

(2,144)

(1,901)

(198)

3,932

Watson-Marlow

-

-

(1,661)

-

(1,661)


8,175

(2,144)

(3,562)

(198)

2,271

Associates

-

-

(391)

-

(391)

 

 

Share of profit of associates

 


2011

Adj'd

£'000

2011

Total

£'000

2010

Adj'd

£'000

2010

Total

£'000

 

Europe, Middle East & Africa

-

-

-

-

Asia Pacific

2,132

1,766

2,755

2,364

Americas

-

-

326

326

Steam Specialties business

2,132

1,766

3,081

2,690

Watson-Marlow

-

-

-

-


2,132

1,766

3,081

 2,690

 

 

Net financing income and expense

 


2011

£'000

2010

£'000

 

Europe, Middle East & Africa

1,140

(124)

Asia Pacific

(117)

152

Americas

312

(232)

Steam Specialties business

1,335

(204)

Watson-Marlow

(531)

(562)

Corporate

273

173


1,077

(593)

 

 

Net assets

 


2011

2010


Assets

£'000

Liabilities

£'000

Assets

£'000

Liabilities

£'000

 

Europe, Middle East & Africa

225,513

(99,655)

205,006

(106,154)

Asia Pacific

109,098

(17,282)

102,178

(18,267)

Americas

112,203

(35,082)

99,537

(26,949)

Watson-Marlow

97,376

(14,320)

92,919

(14,628)


544,190

(166,339)

499,640

(165,998)

Liabilities

(166,339)


(165,998)


Deferred Tax

19,476


21,524


Current Tax payable

(9,476)


(10,034)


Net Cash

12,269


34,392


Net assets

400,120


379,524


 

Non-current assets in the UK were £78,123,000 (2010: £67,123,000)

 

 

Capital additions and depreciation, amortisation and impairment

 


2011

2010


Capital

additions

 

 

£'000

Depreciation,

amortisation

and

impairment

£'000

Capital

additions

 

 

£'000

Depreciation,

amortisation

and

impairment

£'000

 

Europe, Middle East & Africa

22,945

6,834

19,249

13,206

Asia Pacific

7,894

3,468

8,938

774

Americas

10,260

5,803

17,968

3,953

Watson-Marlow

5,038

4,723

3,330

4,632


46,137

20,828

49,485

22,565

 

Capital additions include property, plant and equipment of £39,662,000 (2010: £34,892,000) and other intangible assets of £6,475,000 (2010:  £14,593,000) of which £214,000 (2010: £11,588,000) relates to acquired intangibles from acquisitions in the period.  Capital additions split between the UK and rest of the world are UK £20,031,000 (2010:  £15,805,000), rest of the world £26,106,000 (2010:  £33,680,000).  Depreciation, amortisation and impairment includes the profit on disposal of fixed assets of £2,948,000 (2010: 2,452,000)

 

 

3.   NET FINANCING INCOME AND EXPENSE

 


2011

£'000

2010

£'000

Financial expenses



Bank and other borrowing interest payable

(1,381)

(1,315)

Interest on pension scheme liabilities

(16,134)

(15,891)


(17,515)

(17,206)

Financial income



Bank interest receivable

1,048

996

Expected return on pension scheme assets

17,544

15,617


18,592

16,613

Net financing income/(expense)

1,077

(593)




Net pension scheme financial income/(expense)

1,410

(274)

Net bank interest

(333)

(319)

Net financing income/(expense)

1,077

(593)

 

 

4.   TAXATION

 


2011

£'000

2010

£'000

Analysis of charge in period



UK corporation tax



Current tax on income for the period

796

583

Adjustments in respect of prior periods

(231)

(74)

 

565

509

Double taxation relief

(796)

(499)

 

(231)

10

Foreign tax



Current tax on income for the period

35,562

33,206

Adjustments in respect of prior periods

2

(18)

 

35,564

33,188

Total current tax charge

35,333

33,198

Deferred tax - UK

(491)

2,173

Deferred tax - Foreign

4,261

1,468

Tax on profit on ordinary activities

39,103

36,839

 

 

5.   EARNINGS PER SHARE

 


2011

£'000

 

2010

£'000

Profit attributable to equity shareholders

93,049

86,455




Weighted average shares in issue

77,557,190

76,869,249

Dilution

1,016,946

865,396

Diluted weighted average shares in issue

78,574,136

77,734,645




Basic earnings per share

120.0p

112.5p

Diluted earnings per share

118.4p

111.2p

Adjusted profit attributable to equity shareholders

96,765

84,134

Basic adjusted earnings per share

124.8p

109.5p

Diluted adjusted earnings per share

123.2p

108.2p

 

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

 

 

6.   DIVIDENDS

 


2011

£'000

 

2010

£'000

Amounts paid in the period



Final dividend for the year ended 31st December 2010 of 30.0p (2009:  25.6p) per share

 

23,213

 

19,673

Special dividend for the year ended 31st December 2010 of 25.0p (2009: nil) per share

 

19,383

 

-

Interim dividend for the year ended 31st December 2011 of 14.8p per share (2010:  13.0p) per share

 

11,493

 

10,028


54,089

29,701




Amounts arising in respect of the period



Interim dividend for the year ended 31st December 2011 of 14.8p per share (2010:  13.0p) per share

 

11,493

 

10,028

Proposed final dividend for the year ended 31st December 2011 of 34.2p (2010:  30.0p) per share

 

26,579

 

23,213

Special dividend for the year ended 31st December 2011 of Nil (2010: 25.0p) per share

 

-

 

19,383


38,072

52,624

 

 

7.   ANALYSIS OF CHANGES IN NET CASH

 


At

1st Jan 2011

£'000

Cash flow

 

£'000

Exchange

movement

£'000

At

31st Dec 2011

£'000

 

Current portion of long term borrowings

(12,799)



(73)

Non-current portion of long term borrowings

(25,179)



(6,356)

Short term borrowing

(1,126)



(37,280)

Total borrowings

(39,104)



(43,709)






Comprising:





Borrowings

(38,869)

(5,341)

658

(43,552)

Finance Leases

(235)

76

2

(157)


(39,104)

(5,265)

660

(43,709)






Cash and cash equivalents

74,481

(11,737)

(2,572)

60,172

Bank overdrafts

(985)

(3,237)

28

(4,194)

Net cash and cash equivalents

73,496

(14,974)

(2,544)

55,978






Net cash

34,392

(20,239)

(1,884)

12,269

 

 

8.   RETURN ON CAPITAL EMPLOYED

 

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

 


2011

£'000

2010

£'000

 

Property, plant and equipment

174,648

155,553

Prepayments

148

76

Inventories

116,325

96,115

Trade receivables

142,484

137,350

Other current assets

17,054

15,227

Tax recoverable

1,973

1,627

Trade and other payables

(88,632)

(95,544)

Current tax payable

(11,449)

(11,661)

Capital employed

352,551

298,743

Average capital employed

325,647

283,290




Operating profit

129,498

121,396

Adjustments (note 2)

4,462

(2,271)


133,960

119,125

Return on capital employed

41.1%

42.1%

 

 

9.   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 defined benefit plan expense is recognised in the income statement as follows:-

 


UK Pensions

Overseas pensions &

Medical

Total


2011

£'000

2010

£'000

2011

£'000

 

2010

£'000

 

2011

£'000

2010

£'000

Current service cost

(5,097)

(5,269)

(1,694)

(1,755)

(6,791)

(7,024)

Settlement,curtailment

& termination benefits

 

-

 

-

 

-

 

(553)

 

-

 

(553)

Interest on schemes' liabilities

 

(13,567)

 

(13,134)

 

(2,567)

 

(2,757)

 

(16,134)

 

(15,891)

Expected return on schemes' assets

 

15,575

 

13,626

 

1,969

 

1,991

 

17,544

 

15,617

Total expense recognised in income statement

 

 

(3,089)

 

 

(4,777)

 

 

(2,292)

 

 

(3,074)

 

 

(5,381)

 

 

(7,851)

 

The expense is recognised in the following line items in the income statement:

 


2011

£'000

 

2010

£'000

Operating costs

(6,791)

(7,577)

Financial expenses

(16,134)

(15,891)

Financial income

17,544

15,617

Total expense recognised in income statement

(5,381)

(7,851)

 

The amounts recognised in the balance sheet are determined as follows:

 


UK Pensions

Overseas pensions &

Medical

Total


2011

£'000

2010

£'000

2011

£'000

2010

£'000

2011

£'000

2010

£'000

 

Fair value of schemes' assets

 

223,846

 

212,604

 

27,556

 

27,306

 

251,402

 

239,910

Present value of funded schemes' liabilities

 

 

(262,590)

 

 

(250,918)

 

 

(46,448)

 

 

(37,811)

 

 

(309,038)

 

 

(288,729)

(Deficit) in the funded schemes

 

(38,744)

 

(38,314)

 

(18,892)

 

(10,505)

 

(57,636)

 

(48,819)

Present value of unfunded schemes' liabilities

 

 

-

 

 

-

 

 

(14,289)

 

 

(14,609)

 

 

(14,289)

 

 

(14,609)

Retirement benefit liability recognised in the balance sheet

 

 

(38,744)

 

 

(38,314)

 

 

(33,181)

 

 

(25,114)

 

 

(71,925)

 

 

(63,428)

Related deferred tax asset

 

9,686

 

10,345

 

10,646

 

7,541

 

20,332

 

17,886

Net pension liability

(29,058)

(27,969)

(22,535)

(17,573)

(51,593)

(45,542)

 

 

Share based payments

 

The charge to the income statement in respect of share based payments is made up as follows:-

 


2011

£'000

2010

£'000

 

Share Option Scheme

673

695

Performance Share Plan

764

767

Employee Share Ownership Plan

745

767


2,182

2,229

 

 

10. PURCHASE OF BUSINESSES

    

2011


Acquisitions


Book Value

£'000

FV adj

£'000

Fair value

£'000

Fixed assets




Intangibles

-

214

214

Total Assets

-

214

214

Current liabilities

Deferred tax

 

-

 

33

 

33

Total liabilities

-

33

33

Total net assets

Goodwill

-

 

181

 

181

140

Total



321

 

Satisfied by




Cash paid



321

Cash outflow for acquired businesses in the Cash Flow statement:

Cash consideration (for the current year and deferred consideration on prior years' acquisitions)                          3,387

Net cash outflow                                                                                                                                                                          3,387

 

1.   The acquisition of the distribution rights of Watson-Marlow Flexicon products in the Netherlands was made on 21st March 2011.  The acquisition method of accounting has been used.  Consideration of £196,000 was paid following completion.  Separately identified intangibles are recorded as part of the fair value adjustment.  The goodwill recognised represents the opportunity to sell a wider range of the Group's existing products to the acquired customer base and to fully utilise the Group's applications expertise to expand sales. 

 

2.   The acquisition of the distribution rights of Watson-Marlow MasoSine products in Italy was made on 12th August 2011.  The acquisition method of accounting has been used.  Consideration of £125,000 was paid following completion.  Separately identified intangibles are recorded as part of the fair value adjustment.  The goodwill recognised represents the opportunity to sell a wider range of the Group's existing products to the acquired customer base and to fully utilise the Group's applications expertise to expand sales. 

 

 

2010

 


Mexico (Based on 100%)

Other acquisitions

Total


Book

Value

£'000

FV adj

 

£'000

Fair

Value

£'000

Book

Value

£'000

FV adj

 

£'000

Fair

Value

£'000

Fair

Value

£'000

 

Fixed assets








Property, plant & equipment

         1,081

-

1,081

24

               -

        24

1,105

Intangibles

                  -

10,645

10,645

-

      1,074

   1,074

11,719


         1,081

10,645

11,726

24

      1,074

   1,098

12,824

Current assets








Inventories

         1,042

-

1,042

948

(315)

      633

1,675

Trade receivables

         1,492

-

1,492

-

               -

            -

1,492

Other receivables

            193

-

193

-

               -

            -

193

Cash

         1,684

-

1,684

-

               -

            -

1,684


         4,411

-

4,411

948

(315)

      633

5,044

Total assets

         5,492

10,645

16,137

972

         759

   1,731

17,868

Current liabilities








Trade payables

         1,136

-

1,136

210

               -

      210

1,346

Other payables and accruals

            237

-

237

-

               -

            -

237

Deferred tax

                  -

3,194

3,194

-

         272

      272

3,466

Total liabilities

         1,373

3,194

4,567

210

         272

      482

5,049

Total net assets

         4,119

7,451

11,570

762

         487

   1,249

12,819

Goodwill

                  


9,970


               

   1,000

10,970

Total

                  


21,540


               

   2,249

23,789









Satisfied by:








Cash paid



1,778



   2,249

4,027

Deferred consideration



9,207



            -

9,207

Accounting adjustments:








Associated investment eliminated



 

2,018




 

2,018

Gain on revaluation of existing share



 

8,537




 

8,537




21,540



   2,249

23,789

Cash outflow for acquired businesses in the Cash Flow statement:



Cash consideration (for the year including deferred consideration on prior years' acquisitions)


5,139

Mexican cash acquired







(1,613)

Net cash outflow







3,526

 

The identifiable assets and liabilities recognised on acquisitions in the year ended 31 December 2010 excluded a deferred tax liability in respect of intangible assets recognised on acquisition.  This has been corrected in the current year, the effect of which is to create a deferred tax liability of £3,083,000 and to increase goodwill by the same amount.  The same amounts translated into sterling at the dates of the transactions amount to £3,466,000 and are reflected in the table above.

 

1.   On 25th May 2010 the Group acquired from its local partners the remaining 51% of Spirax-Sarco Mexicana S.A., which was previously 49% owned by the Group and treated as an Associate company in the Group Accounts.  The acquisition method of accounting has been used.  Consideration of £1,778,000 was paid on completion.  Separately identified intangibles for the entire business are recorded as part of the fair value adjustment.  Goodwill recognised in the Group Accounts is also based on the business as a whole.  The goodwill recognised represents the value of the acquired workforce and the expected synergies from  more fully integrating the acquired operation into the Group, including bringing the manufacturing operatioons within the Americas regional manufacturing strategy.

 

2.   The acquisition of the distribution rights of Watson-Marlow and Bredel products in Australia and New Zealand was made on 30th June 2010. Inventories, plant and equipment and trade and other payables were also purchased as part of the transaction.  The acquisition method of accounting has been used. Consideration of £2,021,000 was paid following completion.  Separately identified intangibles are recorded as part of the fair value adjustment.  The goodwill recognised represents the value of the acquired workforce and the expected synergies from integrating the acquired operations into the Group, in particular the opportunity to sell a wider range of the Group's existing products to the acquired customer base and to fully utilise the Group's applications expertise to expand sales.

 

3.  The acquisition of the distribution rights of Watson-Marlow and Bredel products in the Rustenburg area of South Africa was made on 30th April 2010. Inventories were also purchased as part of the transaction.  The acquisition method of accounting has been used.  Consideration of £228,000 was paid on completion. Separately identified intangibles are recorded as part of the fair value adjustment.  

 

 

11.       BASIS OF PREPARATION

 

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31st December 2011 or 31st December 2010.  Statutory accounts for 2010, which were prepared under accounting standards adopted by the EU have been delivered to the registrar of companies and those for 2011 will be delivered in due course.  The auditors have reported on these accounts;  their report was (i) unqualified, (ii) did not include an references to any matters to which the auditors drew attention by way of emphasis without qualifying and (iii) did not contain statements under sections 237(2) or (3) of the Companies Act 1985.

 

If approved at the annual general meeting on 15th May 2012, the final dividend will be paid on 18th May 2012 to shareholders on the register at 20th April 2011.  No scrip alternative to the cash dividends is being offered.

 

Copies of the Annual Report will be sent on 26th March 2012 to shareholders and can be obtained from our registered office at Charlton House, Cirencester Road, Cheltenham, Gloucestershire GL53 8ER.  The report is also 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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