2009 Half Year Results

RNS Number : 7268X

Spirax-Sarco Engineering PLC

20 August 2009

 



Spirax-Sarco Engineering plc	Charlton House Cheltenham Glos. GL53 8ER
News Release	Telephone: [phone] Fax: [phone] www.SpiraxSarcoEngineering.com

Thursday 20th August 2009        

2009 Half Year Results [embargoed until 7.00 a.m.]

Six months ended 30th June

	2009	2008	Change	Constant Currency Change
Revenue	£251.6m	£238.7m	+5%	-8%
Operating profit	£30.1m	£40.1m	-25%
Adjusted operating profit*	£37.8m	£40.8m	-7%	-26%
Adjusted operating profit margin*	15.0%	17.1%
Profit before taxation	£30.2m	£41.9m	-28%
Adjusted profit before taxation*	£38.2m	£42.7m	-11%	-28%
Earnings per share (Basic)	27.2p	36.9p	-26%
Adjusted Earnings per share (Basic)*	34.9p	38.0p	-8%	-27%
Interim dividend per share	10.5p	10.0p	+5%

* Adjusted figures exclude the headcount reduction costs of £7.0m and the amortisation of acquisition-related intangible assets in 2009 of £1.0m (2008: £0.8m) of which £0.2m relates to Associates (2008: £0.2m).

• Revenue up 5%, geographically widespread

• Adjusted operating profit margin of 15.0% (12.0% including severance cost & amortisation)

• Interim dividend increase of 5% - confidence in future prospects

• Strong balance sheet with £4.1m net cash

• Good progress with cost reductions in line with expectations

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

We are pleased to report a good set of results for the first half of 2009 in the context of the worst economic downturn for decades and trading conditions have remained challenging. Sales in sterling increased in each geographic region and reporting segment, benefiting from favourable currency movements. We have limited forward visibility of our business levels which month-to-month remain somewhat volatile, although the pace of decline against last year has stabilised in recent months. The Group is benefiting from its outstanding niche businesses and fundamental strengths of a very diverse geographic spread, broad industry and customer base, and wide range of products and solutions. Accordingly, the Board remains confident in the future prospects for the Group.

For further information, please contact:

Mark Vernon, Chief Executive David Meredith, Finance Director Tel: [phone] at Citigate Dewe Rogerson until 6.00 p.m.

Note:    Unless otherwise stated, the figures quoted in the text below exclude headcount reduction costs and the amortisation of acquired intangible assets. 

REVIEW OF OPERATIONS

We are pleased to report a good set of results for the first half of 2009 in the context of the worst economic downturn for decades and trading conditions have remained challenging. Sales in sterling increased in each geographic region and reporting segment, benefiting from favourable currency movements. Financial performance across the reporting segments was reasonably consistent, highlighting similar customer purchasing reactions to the global downturn. Currency movements favourably impacted both sales and profits.

Group sales in the half year were £251.6 million, up 5% from £238.7 million in 2008. At constant exchange rates, sales declined 8% against a comparatively strong first half of 2008.

Operating profit decreased 7% (26% at constant currency) from £40.8 million to £37.8 million in 2009. The operating profit margin was strong at 15.0%, as we benefited from favourable currency movements and pricing, which mitigated the impact of lower volume and higher material costs.

Net finance expense was £1.0 million compared with income of £0.8 million in the same period in 2008. As previously reported, there was a sharp decline in the expected return on pension fund assets (under IAS 19) following the fall in pension asset values in 2008. Our share of the after tax profits of our Associates in India and Mexico increased from £1.2 million to £1.4 million. Profit before tax was £38.2 million as against £42.7 million in 2008.

We have made good progress in reducing costs and the headcount is now down 6% this year. In these results, we have taken a one-off charge, excluded from the adjusted figures, of £7.0 million covering the full amount of severance costs, against which we still expect to generate £8 million of annual cost savings, effectively commencing in the second half. The profit before tax after deducting these severance costs and the amortisation of acquisition-related intangible assets was £30.2 million (2008: £41.9 million).

The tax charge, based on the profit excluding Associates, was 31% (2008: 33%) and the profit for the period was £26.6 million. Adjusted earnings per share fell by 8% from 38.0p to 34.9p.

Trading

We are the world leader in industrial steam and in peristaltic pumping. Both Spirax and Watson-Marlow have robust business models that are serving us well in today's market environment. We work closely with our customers in supplying a wide range of products, services and engineered packages to generate energy savings, lower emissions, process efficiency, quality improvements and compliance assistance to meet increasingly stringent health and safety regulations. On a long-term basis, the cost of energy remains relatively high, and this continues to provide a backdrop in which we work with our customers to reduce their energy consumption and also lower their flue gas emissions. In the first half of 2009, we achieved a constant currency sales increase from our prefabricated heat transfer packages - a product segment which we had previously targeted for growth - evidence of the effectiveness of our solutions selling approach.

We have adopted the new accounting standard IFRS 8 Segmental Reporting for 2009. The new segmental disclosures give greater visibility and enable a better understanding of the business. The new segments comprise the Steam Specialties business geographically split into EMEA (Europe, Middle East and Africa), Americas (North and South America) and AsiaPac (Asia Pacific), and the Watson-Marlow Pumps business.

Steam Specialties Business

Europe, Middle East and Africa (EMEA) market conditions weakened considerably in Q4 of 2008 and have remained difficult in 2009. Sales were 2% higher at £113.2 million (down 8% at constant currency) including a small contribution from the Colima business acquired in 2008. Market conditions and results were mixed from country to country. After two consecutive years of double-digit annual growth, sales declined in the UK. Our larger selling companies in France, Germany and Italy each performed well in the prevailing conditions, although our M&M business in Italy was impacted by lower demand from OEMs. Reduced volume at our factories in the UK and France, including some internal de-stocking by our direct sales operations, resulted in a significant drag on profit - this should be mitigated somewhat in the second half year as we benefit from our cost reduction programme. We achieved higher sales of prefabricated heat exchange packages and services across Europe. Credit tightening and a steep drop in industrial production negatively impacted our Russian business which has had historically a higher percentage of projects. For the first half, overall operating profit in EMEA declined by 23% (down 31% at constant currency) to £15.6 million.  

Sales in AsiaPacific increased 8% to £49.0 million (down 7% at constant currency). We reduced backlog at our large company in China and benefited from more favourable exchange rates, resulting in a good profit increase in China. Sales declined nearly 10% at our Korean operation and this, together with the weak local currency, resulted in an even greater decline in trading profit. We have some large projects on hand in Korea that we expect to ship in the second half year and therefore anticipate a good sequential profit improvement. Profits in India (an Associate) were up substantially over last year on higher sales, as we benefited from project sales that were shipped from the backlog. Sales and profits results were somewhat mixed elsewhere throughout AsiaPacific, with Singapore, Taiwan and Thailand turning in weaker profits, but with higher profits from Australia and Malaysia. Total operating profit in AsiaPacific was 10% ahead at £9.4 million (down 23% at constant currency).  

Sales in the Americas increased 7% to £51.0 million (down 11% at constant currency). The sales decline in constant currency was widespread across our companies in the USA, Canada, Argentina and Brazil, although the fall in Brazilian sales occurred in the second quarter. End-user manufacturing output declined significantly in both Argentina and Brazil, where customer exports have also sharply declined. General industrial market weakness in both Canada and the United States resulted in lower sales of our traditional steam specialties products, offset partially by higher sales of prefabricated heat exchange packages. The operating profit in the Americas was 2% higher than in the same period in 2008 (down 16% at constant currency).  

Watson-Marlow Pumps Business

The Watson-Marlow pumps segment performed generally in line with the Steam Specialties Business. Sales increased 10% to £38.3 million (down 7% at constant currency). The market in EMEA was generally difficult with lower sales of Bredel pumps in particular. Sales in Asia increased over 50% as we began to reap the benefits of our investment in selling resources, albeit against a small sales base. Constant currency sales in the Americas were flat due largely to higher Flexicon shipments and continued good sales of Watson-Marlow pumps into the biopharmaceutical market. Overall operating profit was unchanged at £8.9 million (down 25% at constant currency), representing a trading margin of 23%. 

Balance Sheet and Cash Flow

We continue to maintain a strong balance sheet with a good cash flow. Total capital employed was down 3% in the first half to £263 million. At constant currency there was an increase of 7%, comprising a 5% rise in net fixed assets and a rise in working capital where both stock levels and trade debtors were lower but creditors, including taxation, were also reduced. Increased capital expenditure of £15 million reflects the previously announced investment projects in the UK at Falmouth and Cheltenham, and in China.

The net cash balance at 30th June 2009 was £4.1 million (31st December 2008: £17.4 million). There was a good underlying cash flow, offset by the higher capital expenditure, headcount reduction costs, increased taxation payments, additional pension cash contributions and payment in May of the final dividend for 2008. Overall, therefore, there was a net cash outflow of £12.5 million for the first half. Currency movements reduced net cash balances on translation by £0.8 million in the period.

Corporate Developments

As previously announced, Mike Townsend retired from the Board on 30th June 2009 and has been succeeded as Chairman by Bill Whiteley from 1st July 2009. Also, Mike Gibbin joined the Board from 1st May, replacing Alan Black who retired.

Principal Risks and Uncertainties

The Group has an established risk management process which operates within the corporate governance framework, details of which are set out in note 10 below which is followed by a Directors' Responsibility Statement.

Dividend

The Board has declared an interim dividend of 10.5p (2008: 10.0p) per ordinary share, an increase of 5%. The dividend will be paid on 6th November 2009 to shareholders on the register at the close of business on 9th October 2009. The 2008 final dividend of 23.3p was paid on 18th May 2009 at a cash cost of £17.7 million.

Outlook

As widely reported, there are indications that the rate of decline in global GDP and industrial production has moderated in many geographic regions, although industrial production in most countries has fallen sharply from last year and remains at a comparatively low level. We have limited forward visibility of our business levels which month-to-month remain somewhat volatile, although the pace of decline against last year has stabilised in recent months. However, our markets remain challenging.  

Subject to continuation of the current favourable exchange rates versus 2008, there is expected to be a further exchange benefit to trading in the second half year, although at current rates of exchange the benefit will be smaller than in the first half year.  

We have acted decisively in reducing our operating costs and have nearly completed the previously announced headcount reductions. Some of the cost savings benefit began to come through late in the second quarter and we will realise full annualised benefits in the second half year.

The 5% increase to the interim dividend demonstrates the confidence of the Board in the strength of the underlying business and the Group's prospects. At Spirax Sarco, we make our business decisions with a long-term perspective and therefore continue to invest selectively in priority areas through acquisition, product development and geographic expansion. We have maintained our large direct selling presence around the globe to drive market share growth and keep close relationships with our many customers, even in this difficult economic period. The Group is benefiting from its outstanding niche businesses and fundamental strengths of a very diverse geographic spread, broad industry and customer base, and wide range of products and solutions. Accordingly, the Board remains confident in the future prospects for the Group.

Spirax-Sarco Engineering plc

GROUP INCOME STATEMENT

	Six months to 30th  June *Before adj't 2009 £'000	Adj't 2009 £'000	Total 2009 £'000	Six months to 30th June June *Before adj't 2008 £'000	Adj't 2008 £'000	Total 2008 £'000	Year ended 31st Dec. *Before  adj't 2008 £'000	Adj't 2008 £'000	Total 2008 £'000
Revenue (note1)	251,557	-	251,557	238,707	-	238,707	502,316	-	502,316
Operating costs	(213,723)	(7,769)	(221,492)	(197,922)	(637)	(198,559)	(416,647)	(4,641)	(421,288)
Operating profit  (note 1)	37,834	(7,769)	30,065	40,785	(637)	40,148	85,669	(4,641)	81,028
Financial expenses	(7,893)	-	(7,893)	(7,354)	-	(7,354)	(14,805)	-	(14,805)
Financial income	6,848	-	6,848	8,113	-	8,113	16,541	-	16,541
Net financing income (note 2)	(1,045)	-	(1,045)	759	-	759	1,736	-	1,736
Share of profit of associates	1,366	(187)	1,179	1,200	(170)	1,030	2,741	(343)	2,398
Profit before taxation	38,155	(7,956)	30,199	42,744	(807)	41,937	90,146	(4,984)	85,162
Taxation (note 3)	(11,571)	2,112	(9,459)	(13,641)	-	(13,641)	(26,257)	883	(25,374)
Profit for the period	26,584	(5,844)	20,740	29,103	(807)	28,296	63,889	(4,101)	59,788
Attributable to:
Equity holders       of the parent	26,552	(5,844)	20,708	28,971	(807)	28,164	63,648	(4,101)	59,547
Minority       interest	32	-	32	132	-	132	241	-	241
Profit for the period	26,584	(5,844)	20,740	29,103	(807)	28,296	63,889	(4,101)	59,788
Earnings per share
Basic earnings per share  (note 4)			27.2p			36.9p			78.0p
Diluted earnings per share  (note 4)			27.1p			36.8p			77.7p
Dividends
Dividend paid per share  (note 5)			23.3p			21.6p			33.3p
Dividend proposed per share (note 5)			10.5p			10.0p			31.6p

*     Adjustments relate to headcount reduction costs and amortisation of acquisition-related intangibles (see note 1). Before adjustment, the basic earnings per share for the six months ended 30th June 2009 is 34.9p, for the six months ended 30th June 2008 38.0p and for the year ended 31st December 2008 83.4p.

Spirax-Sarco Engineering plc

GROUP BALANCE SHEET

	Notes	30th June 2009 £'000	30th June 2008 £'000	31st December 2008 £'000
ASSETS
Non-current assets
Property, plant and equipment		118,977	96,425	122,897
Goodwill		27,272	24,860	29,908
Other intangible assets		20,199	19,089	22,921
Prepayments		621	2,682	900
Investment in associates		9,599	8,162	9,396
Deferred tax		37,775	19,276	33,180
		214,443	170,494	219,202
Current assets
Inventories		91,810	84,071	102,382
Trade receivables		105,805	103,190	124,595
Other current assets		13,668	13,649	12,874
Tax recoverable		2,020	874	1,118
Cash and cash equivalents	7	41,285	35,750	54,140
		254,588	237,534	295,109
Total assets		469,031	408,028	514,311
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables		62,758	67,644	81,010
Bank overdrafts	7	3,953	4,118	2,045
Short term borrowing	7	7,887	2,143	9,008
Current portion of long term borrowings	7	63	86	176
Current tax payable		6,952	10,657	11,932
		81,613	84,648	104,171
Net current assets		172,975	152,886	190,938
Non-current liabilities
Long term borrowings	7	25,281	17,178	25,521
Deferred tax		12,272	8,455	13,714
Post-retirement benefits		90,652	47,035	73,717
Other payables and provisions		1,067	3,268	1,182
		129,272	75,936	114,134
Total liabilities		210,885	160,584	218,305
Net assets		258,146	247,444	296,006
Equity
Share capital		19,307	19,299	19,307
Share premium account		47,559	47,280	47,559
Other reserves		29,514	14,087	56,802
Retained earnings		161,552	165,878	171,645
Equity attributable to equity holders of the parent		257,932	246,544	295,313
Minority interest		214	900	693
Total equity		258,146	247,444	296,006
Total equity and liabilities		469,031	408,028	514,311

Spirax-Sarco Engineering plc

GROUP STATEMENT OF COMPREHENSIVE INCOME

	Six months to 30th June 2009 £'000	Six months to 30th June 2008 £'000	Year ended     31st December 2008 £'000
Profit for the period	20,740	28,296	59,788
Actuarial loss on post-retirement benefits	(20,737)	(25,588)	(50,088)
Deferred tax on actuarial loss on post-retirement benefits	6,373	8,034	17,708
Foreign exchange translation differences	(28,933)	7,202	51,521
Profits on cash flow hedges	1,645	(113)	(438)
Total recognised income and expense for the period	(20,912)	17,831	78,491
Attributable to
Equity holders of the parent	(20,944)	17,699	78,250
Minority interest	32	132	241
Total recognised income and expense for the period	(20,912)	17,831	78,491

GROUP STATEMENT OF CHANGES IN EQUITY

	Six months to 30th June 2009 £'000	Six months to 30th June 2008 £'000	Year ended     31st December 2008 £'000
Shareholders' funds at beginning of period	295,313	242,151	242,151
Total recognised income and expense for the period	(20,944)	17,699	78,250
Dividends paid	(17,752)	(16,452)	(24,159)
Equity settled share plans net of tax	972	925	1,645
Proceeds of issue of share capital	-	13	300
Treasury shares purchased	-	-	(6,762)
Treasury shares reissued	1,124	5,283	7,679
Loss on the reissue of treasury shares	(781)	(3,075)	(3,791)
Equity attributable to equity holders of parent at end of period	257,932	246,544	295,313

Spirax-Sarco Engineering plc

GROUP CASH FLOW

	Notes	Six months to 30th June 2009 £'000	Six months to 30thJune 2008 £'000	Year ended     31st December 2008 £'000
Cash flows from operating activities
Profit before taxation		30,199	41,937	85,162
Depreciation and amortisation		9,338	8,198	19,859
Share of profit of associates		(1,179)	(1,030)	(2,398)
Equity settled share plans		1,144	1,075	1,519
Net finance expense		1,045	(759)	(1,736)
Operating cash flow before changes in working capital and provisions		40,547	49,421	102,406
Change in trade and other receivables		4,080	(4,534)	(4,029)
Change in inventories		2,437	(5,468)	(12,143)
Change in trade and other payables		(6,283)	368	4,819
Change in provisions and post-retirement benefits		(4,101)	(196)	(3,236)
Cash generated from operations		36,680	39,591	87,817
Interest paid		(605)	(737)	(1,480)
Income taxes paid		(15,424)	(10,802)	(22,087)
Net cash from operating activities		20,651	28,052	64,250
Cash flows from investing activities
Purchase of property, plant & equipment		(13,957)	(6,882)	(22,881)
Proceeds from sale of property, plant & equipment		375	346	879
Purchase of software & other intangibles		(758)	(1,322)	(2,999)
Development expenditure capitalised		(819)	(561)	(1,542)
Acquisition of businesses		(1,288)	(12,166)	(13,939)
Interest received		341	561	1,291
Dividends received		316	329	1,063
Net cash used in investing activities		(15,790)	(19,695)	(38,128)
Cash flows from financing activities
Proceeds from issue of share capital		-	13	62
Proceeds from reissue of treasury shares		343	2,208	3,888
Treasury shares purchased		-	-	(6,762)
Repayment of borrowings		-	(1,936)	-
Proceeds from borrowings	7	2,056	-	9,396
Payment of finance lease liabilities	7	(24)	-	(66)
Dividends paid (including minorities)		(17,739)	(16,484)	(24,252)
Net cash used in financing activities		(15,364)	(16,199)	(17,734)
Net decrease in cash and cash equivalents	7	(10,503)	(7,842)	8,388
Cash and cash equivalents at beginning of period	7	52,095	37,857	37,857
Exchange movement	7	(4,260)	1,617	5,850
Cash and cash equivalents at end of period	7	37,332	31,632	52,095
Borrowings and finance leases	7	(33,231)	(19,407)	(34,705)
Net cash	7	4,101	12,225	17,390

NOTES TO THE ACCOUNTS

1.    SEGMENTAL REPORTING

Analysis by location of operation

Six months to 30th June 2009

	Revenue £'000	Inter-segment revenue £'000	Gross revenue £'000	Total operating profit £'000	Before adjustment operating profit £'000	Before adjustment operating margin %
EMEA	113,235	13,846	127,081	10,187	15,640	12.3%
Americas	51,017	2,009	53,026	4,513	5,992	11.3%
AsiaPac	49,021	1,330	50,351	9,116	9,404	18.7%
Steam Specialties business	213,273	17,185	230,458	23,816	31,036	13.5%
Watson-Marlow Pumps business	38,284	48	38,332	8,320	8,869	23.1%
Corporate Expenses				(2,071)	(2,071)
	251,557	17,233	268,790	30,065	37,834	14.1%
Intra-Group		(17,233)	(17,233)
Net Revenue	251,557	-	251,557	30,065	37,834	15.0%

Six months to 30th June 2008

	Revenue £'000	Inter-segment revenue £'000	Gross revenue £'000	Total operating profit £'000	Before adjustment operating profit £'000	Before adjustment operating margin %
EMEA	110,736	17,937	128,673	20,120	20,223	15.7%
Americas	47,530	3,052	50,582	5,810	5,898	11.7%
AsiaPac	45,501	1,518	47,019	8,583	8,583	18.3%
Steam Specialties business	203,767	22,507	226,274	34,513	34,704	15.3%
Watson-Marlow Pumps business	34,940	16	34,956	8,408	8,854	25.3%
Corporate Expenses				(2,773)	(2,773)
	238,707	22,523	261,230	40,148	40,785	15.6%
Intra-Group		(22,523)	(22,523)
Net Revenue	238,707	-	238,707	40,148	40,785	17.1%

Year ended 31st December 2008

	Revenue £'000	Inter-segment revenue £'000	Gross revenue £'000	Total operating profit £'000	Before adjustment operating profit £'000	Before adjustment operating margin %
EMEA	226,091	34,547	260,638	38,880	39,180	15.0%
Americas	101,913	6,102	108,015	8,840	12,119	11.2%
AsiaPac	98,931	3,898	102,829	21,136	21,136	20.6%
Steam Specialties business	426,935	44,547	471,482	68,856	72,435	15.4%
Watson-Marlow Pumps business	75,381	67	75,448	17,347	18,409	24.4%
Corporate Expenses				(5,175)	(5,175)
	502,316	44,614	546,930	81,028	85,669	15.7%
Intra-Group		(44,614)	(44,614)
Net Revenue	502,316	-	502,316	81,028	85,669	17.1%

Year ended 31st December 2007

	Revenue £'000	Inter-segment revenue £'000	Gross revenue £'000	Total operating profit £'000	Before adjustment operating profit £'000	Before adjustment operating margin %
EMEA	191,130	32,257	223,387	31,586	31,781	14.2%
Americas	84,573	4,512	89,085	9,806	9,995	11.2%
AsiaPac	85,908	2,221	88,129	18,426	18,426	20.9%
Steam Specialties business	361,611	38,990	400,601	59,818	60,202	15.0%
Watson-Marlow Pumps business	55,706	54	55,760	12,856	12,856	23.1%
Corporate Expenses				(4,338)	(4,338)
	417,317	39,044	456,361	68,336	68,720	15.1%
Intra-Group		(39,044)	(39,044)
Net Revenue	417,317	-	417,317	68,336	68,720	16.5%

The total operating profit for each period is after charging the expenses analysed below:

	30th June 2009 £'000	30th June 2008 £'000	31st Dec. 2008 £'000
Headcount reduction costs	6,980	-	-
Amortisation of acquisition-related intangible assets	789	637	1,541
Impairment of goodwill & intangible assets	-	-	3,100
	7,769	637	4,641

Net assets

	30th June 2009		30th June 2008		31st December 2008
	Assets £'000	Liabilities £'000	Assets £'000	Liabilities £'000	Assets £'000	Liabilities £'000
EMEA	193,973	(114,588)	178,134	(86,214)	216,124	(111,832)
Americas	61,197	(20,304)	58,727	(14,463)	81,420	(27,722)
AsiaPac	70,070	(7,429)	60,343	(7,920)	81,437	(11,694)
Watson-Marlow Pumps business	62,712	(12,157)	54,923	(9,349)	46,892	(4,661)
	387,952	(154,478)	352,127	(117,946)	425,873	(155,909)
Liabilities	(154,478)		(117,946)		(155,909)
Deferred tax	25,503		10,821		19,466
Current tax payable	(4,932)		(9,783)		(10,814)
Net cash	4,101		12,225		17,390
Net assets	258,146		247,444		296,006

Capital additions and depreciation and amortisation

	30th June 2009		30th June 2008		31st December 2008
	Capital Depreciation and		Capital Depreciation and		Capital Depreciation and
	additions £'000	amortisation £'000	additions £'000	amortisation £'000	additions £'000	amortisation £'000
EMEA	6,148	4,804	5,151	4,264	15,285	8,772
Americas	1,399	1,644	1,436	1,285	4,216	5,689
AsiaPac	3,771	1,135	1,708	908	8,928	1,846
Watson-Marlow Pumps business	3,257	1,816	10,032	1,741	15,540	3,552
	14,575	9,399	18,327	8,198	43,969	19,859

Capital additions include property, plant and equipment and other intangible assets. Depreciation and amortisation includes amortisation of acquisition-related intangible assets at 30th June 2009 of £789K, 30th June 2008 of £637K and 31st December 2008 of £1,541K. Also included at 31st December 2008 is £3,100K of impairment of goodwill and intangible assets.

2.    NET FINANCING EXPENSE

	Six months to 30th June 2009 £'000	Six months to 30th June 2008 £'000	Year ended 31st December 2008 £'000
Financial expenses
Bank and other borrowing interest payable	(605)	(737)	(1,480)
Interest on pension scheme liabilities	(7,288)	(6,617)	(13,325)
	(7,893)	(7,354)	(14,805)
Financial income
Bank interest receivable	341	561	1,291
Expected return on pension scheme assets	6,507	7,552	15,250
	6,848	8,113	16,541
Net financing expense	(1,045)	759	1,736
Net pension scheme financial expense	(781)	935	1,925
Net bank interest	(264)	(176)	(189)
Net financing expense	(1,045)	759	1,736

3.    TAXATION

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

	Six months to 30th June 2009 £'000	Six months to 30th June 2008 £'000	Year ended 31st December 2008 £'000
United Kingdom corporation tax	879	2,272	3,423
Overseas taxation	8,243	11,136	20,730
Deferred taxation	337	233	1,221
	9,459	13,641	25,374

4.    EARNINGS PER SHARE

	Six months to 30th June 2009 £'000	Six months to 30th June 2008 £'000	Year ended 31st December 2008 £'000
Profit attributable to equity holders of the parent	20,708	28,164	59,547
Weighted average shares in issue	76,006,495	76,230,122	76,359,740
Dilution	254,687	386,999	303,354
Diluted weighted average shares in issue	76,261,182	76,617,121	76,663,094
Basic earnings per share	27.2p	36.9p	78.0p
Diluted earnings per share	27.1p	36.8p	77.7p
Adjusted profit attributable to equity holders of the parent	26,552	28,971	63,648
Basic adjusted earnings per share	34.9p	38.0p	83.4p

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

5.    DIVIDENDS

	Six months to 30th June 2009 £'000	Six months to 30th June 2008 £'000	Year ended 31st December 2008 £'000
Amounts paid in the period
Final dividend for the year ended 31st December 2008 of 23.3p (2007: 21.6p) per share	17,719	16,452	16,452
Interim dividend for the year ended 31st December 2008 of 10.0p per share	-	-	7,674
	17,719	16,452	24,126
Amounts arising in respect of the period
Interim dividend for the year ended 31st December 2009 of 10.5p (2008: 10.0p) per share	7,983	7,653	7,674
Final dividend for the year ended 31st December 2008 of 23.3p (2007: 21.6p) per share	-	-	17,719
	7,983	7,653	25,393

No scrip alternative to the cash dividend is being offered in respect of the 2009 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 2008 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
	Six months to 30th June 2009 £'000	Six months to 30th June 2008 £'000	Six months to 30th June 2009 £'000	Six months to 30th June 2008 £'000	Six months to 30th June 2009 £'000	Six months to 30th June 2008 £'000	Year ended 31st Dec. 2008 £'000
Current service cost	(3,100)	(2,900)	(732)	(642)	(3,832)	(3,542)	(7,718)
Settlement,curtailment	-	-	(108)	-	(108)	-	-
Interest on schemes' liabilities	(5,900)	(5,600)	(1,388)	(1,017)	(7,288)	(6,617)	(13,325)
Expected return on schemes' assets	5,700	6,700	807	852	6,507	7,552	15,250
Total expense recognised in income statement	(3,300)	(1,800)	(1,421)	(807)	(4,721)	(2,607)	(5,793)

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

	Six months to 30th June 2009 £'000	Six months to 30th June 2008 £'000	Year ended 31st December 2008 £'000
Operating costs	(3,940)	(3,542)	(7,718)
Financial expenses	(7,288)	(6,617)	(13,325)
Financial income	6,507	7,552	15,250
Total expense recognised in income statement	(4,721)	(2,607)	(5,793)

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

	UK Pensions		Overseas pensions & medical		Total
	30th June 2009 £'000	30th June 2008 £'000	30th June 2009 £'000	30th June 2008 £'000	30th June 2009 £'000	30th June 2008 £'000	31st Dec. 2008 £'000
Fair value of schemes' assets	150,500	167,887	21,376	23,207	171,876	191,094	170,442
Present value of schemes' liabilities	(217,200)	(200,211)	(45,328)	(37,918)	(262,528)	(238,129)	(244,159)
Retirement benefit liability recognised in the balance sheet	(66,700)	(32,324)	(23,952)	(14,711)	(90,652)	(47,035)	(73,717)
Related deferred tax	18,676	9,050	6,963	4,650	25,639	13,700	24,528
Net pension liability	(48,024)	(23,274)	(16,989)	(10,061)	(65,013)	(33,335)	(49,189)

Share based payments

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

	Six months to 30th June 2009 £'000	Six months to 30th June 2008 £'000	Year ended 31st December 2008 £'000
Share Option Scheme	425	458	809
Performance Share Plan	347	266	605
Employee Share Ownership Plan	372	351	691
	1,144	1,075	2,105

7.    ANALYSIS OF CHANGES IN NET CASH

	At 1st Jan 2009 £'000	Cash flow £'000	Exchange movement £'000	At 30 th June 2009 £'000
Current portion of long term borrowings	(176)			(63)
Non-current portion of long term borrowings	(25,521)			(25,281)
Short term borrowing	(9,008)			(7,887)
Total borrowings	(34,705)			(33,231)
Comprising:
Borrowings	(34,319)	(2,056)	3,460	(32,915)
Finance Leases	(386)	24	46	(316)
	(34,705)	(2,032)	3,506	(33,231)
Cash and cash equivalents	54,140	(8,275)	(4,580)	41,285
Bank overdrafts	(2,045)	(2,228)	320	(3,953)
Net cash and cash equivalents	52,095	(10,503)	(4,260)	37,332
Net cash	17,390	(12,535)	(754)	4,101

8.    CAPITAL EMPLOYED

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

	30th June 2009 £'000	30th June 2008 £'000	31st December 2008 £'000
Property, plant and equipment	118,977	96,425	122,897
Prepayments	621	2,682	900
Inventories	91,810	84,071	102,382
Trade receivables	105,805	103,190	124,595
Other current assets	13,668	13,649	12,874
Tax recoverable	2,020	874	1,118
Trade and other payables	(62,758)	(67,644)	(81,010)
Current tax payable	(6,952)	(10,657)	(11,932)
	263,191	222,590	271,824

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 relationships, transactions and balances are given in the Group's financial statements for the year ended 31st December 2008. 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 2009 that have materially affected the financial position or the performance of the Group during that period.

10.    BASIS OF PREPARATION

The half year consolidated financial statements of Spirax-Sarco Engineering plc and its subsidiaries (the 'Group') have been prepared on the basis of the accounting policies set out in the 2008 Spirax-Sarco Engineering plc Annual Report, and in accordance with International Accounting Standard 34 Interim Financial Reporting, as adopted by the EU.  IFRS 8, Operating Segments, has been adopted from 1st January 2009 and reflected in the comparative figures. The standard introduces a management approach to segment reporting and segment information is consistent with internal management reporting.

The comparative figures for the year ended 31st December 2008 do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The consolidated statutory accounts for Spirax-Sarco Engineering plc in respect of the year ended 31st December 2008 have been reported on by the company's auditors and delivered to the registrar of companies. The report of the auditors was unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985. The financial statements for the six months ended 30th June 2009, which have not been audited or reviewed by the auditors, were authorised for issue by the Board on 20th August 2009.

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.

PRINCIPAL RISKS AND UNCERTAINTIES

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remainder of the financial year and could cause actual results to differ materially from expected and historical results. The principal risks and uncertainties are strategic, commercial, operational and financial. Ultimately these affect our ability to deliver our prime financial objective, which is to provide enhanced value to shareholders through consistent growth in earnings per share and dividends per share as a result of maintaining our world leading position and investing in our businesses for growth. More details of the key risks facing the Group's businesses are included on page 27 and page 36 of the Group's statutory financial statements for the year ended 31st December 2008. Details of further potential risks and uncertainties arising since the issue of the previous statutory financial statements are included within the Review of Operations as appropriate.

RESPONSIBILITY STATEMENT

The directors confirm that to the best of their knowledge:

-    this financial information has been prepared in accordance with IAS 34, as adopted by the EU;

-    this interim management report includes a fair review of the information required by DTR 4.2.7R (Indication of

     important events during the first half and description of principal risks and uncertainties for the remaining half of

     the year); and

-    this interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of

    related party transactions and changes therein).

From 20th August 2009 the Half Year Report will be available to view and download on our website at www.SpiraxSarcoEngineering.com. As previously advised, no printed version is being sent to shareholders.

 

END

 

 

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