Interim Results

Spirax-Sarco Engineering PLC 09 September 2004 ________________________________________________________________________________ Spirax-Sarco Engineering plc Charlton House Cheltenham Glos. GL53 8ER ________________________________________________________________________________ News Release Telephone: 01242 521361 Fax: 01242 581470 www.SpiraxSarcoEngineering.com ________________________________________________________________________________ Thursday 9th September 2004 - embargoed until 7.00 a.m. 2004 Interim Results Six months to 30th June 2004 2003 Change Turnover £157.7m £154.0m +2.4% Operating profit £23.4m £20.3m +15.6% Operating profit margin 14.9% 13.2% Profit before taxation £23.1m £19.6m +18.2% Earnings per share 19.6p 17.2p +14.0% Dividend per share 6.3p 6.0p +5.0% Operating cash inflow £26.2m £20.6m • Good organic sales growth of 7% • Strong performances in Asia and Americas • Margin increased to 14.9% • Good cash flow and reduced net debt • Interim dividend up 5% Commenting on the results, the Chairman, Tim Fortune, said: 'We are continuing to invest in our world leading businesses and to build on our market development opportunities. Assuming that there is no marked deterioration in the Americas and Asian trading conditions or in exchange rates, we expect to make further progress in the second half of the year.' Enquiries: Marcus Steel - Chief Executive David Meredith - Director-Finance Tel: 020 7638 9571 at Citigate Dewe Rogerson until 6.00 p.m. The Chairman, Tim Fortune, comments as follows: 'I am pleased to report a good set of results for the first half of 2004, we made strong progress in Asia and the Americas but market conditions in Western Europe were subdued. We achieved progress by building on the strengths of our specialist businesses in the industrial and commercial steam and peristaltic pumping markets and on our wide customer and geographic spread. Sales increased by 2.4% to £157.7 million. Organic growth of 7% was partially offset by adverse exchange movements of over 4% primarily caused by the weakness of the US dollar and related currencies in Asia. Operating profit increased by 15.6% to £23.4 million, with a corresponding increase in margin from 13.2% to 14.9%. The 2003 comparative figure includes the one-off charge of £1.5 million for closure of the Hydra factory in Spain, excluding which the profit increase is 8%. The adverse movement of exchange rates in 2004 as compared with the first half of 2003 amounted to £1.3 million. This comprised £0.9 million for translation and £0.4 million for transaction effects. The operating profit increase therefore reflects a strong underlying performance attributable to the organic sales growth and firm management controls. The interest charge for the first half year was £0.3 million compared with £0.7 million in the first half of last year reflecting good cash generation. The profit before tax increased by £3.6 million to £23.1 million, an increase of 18.2%. The tax charge was 34% (2003: 33%). The minority interest increased, attributable profit therefore improved by 15% to £14.6 million and earnings per share increased by 14% to 19.6p (2003: 17.2p). TRADING Spirax Sarco is the world leader in the provision of knowledge, service and products to improve the performance of customers' plants in our niche markets which cover users of steam and peristaltic pumps in industrial and commercial applications. The superior qualities of steam as a heat transfer medium, and of the peristaltic principle as a solution to pumping problems, result in them being used in many production processes by diverse industries across the world. Spirax Sarco supplies a wide range of technical products and focuses on providing high levels of customer service and advice worldwide. In the UK, operating profit improved by 6% due to increased demand on the factories from overseas markets. UK domestic demand by comparison remains quiet although we largely protected our position through a combination of new product releases and focused marketing. We extended the resourcing of raw materials in Asia, the benefit of which was partly offset by increased steel prices. In Continental Europe, an organic sales increase of 3% was reduced to only 1% in sterling as a result of the weakening of the euro and most other European currencies versus sterling as compared to the first half of 2003. The European markets were generally weak and we concentrated on our own growth opportunities. We made sales gains in local currency across most of the region, including France, Holland, Portugal, Spain and most of Scandinavia both in the Spirax Sarco and Watson-Marlow Bredel businesses. Germany and Italy were broadly flat and in the Czech Republic and Norway sales were lower against exceptionally strong performances in 2003. Notwithstanding weak European markets, demand on our European factories increased, reflecting the sales activity worldwide. Profits in Europe were well ahead of 2003 due mainly to the non-repeat of the Hydra factory closure costs of £1.5 million incurred in the first half of 2003. At constant exchange, and after excluding the impact of the Hydra costs, the Continental European profits were 1% ahead of 2003. In the Americas, good local currency sales growth of 11% was reduced to a flat result in sterling by the weakness of the US dollar. In the USA, sales were increased and profits of our Spirax Sarco company were well ahead. However, the margin in Watson-Marlow Bredel USA was lower as a result of the impact of exchange on products sourced from the UK and Holland. We also produced good results in Canada, Brazil and Argentina. Operating profits in the Americas increased by 10%; at constant currency the increase was 34%, which was achieved through sales growth and close control of costs. Our operations in Asia, Australasia and Africa performed strongly with overall sales growth of 16% in local currency and 10% in sterling. The economies were generally good, although the Chinese government's actions to limit overheating of the economy seem to be beginning to temper their rate of growth. Our operations in China, India, Japan, Korea, Malaysia, Taiwan and Thailand all performed well, but the markets in Singapore and South Africa were tough and their results were lower. Overall, this region produced a strong result for the half year and profits were up 19% in sterling (31% at constant exchange), driven chiefly by the sales increases. BALANCE SHEET AND CASH FLOW Capital employed (net assets excluding goodwill and net debt) increased by £7 million to £174 million in the first half. Debtors rose by £6 million, driven by the extra sales but stocks have been tightly controlled and fell marginally during the six month period. Capital expenditure of £6.2 million (2003: £6.6 million) was slightly below depreciation and the value of fixed assets was therefore broadly unchanged. The cash flow in the first half of the year was good with a reduction in net debt of £1.8 million in spite of the normal relatively high outgoings that occur in any first half year, notably the final dividend payment. The net debt reduction included £0.8 million on translation due to the weakness of the US dollar and euro in which our debt is largely denominated. Net debt at 30th June 2004 was therefore £12.6 million compared with £14.4 million at the end of 2003 and £30.4 million at 30th June 2003. Net gearing at the end of the period was 7%. DIVIDEND The directors have declared an interim dividend of 6.3p (2003: 6.0p) per ordinary share, an increase of 5% which will be paid on 12th November 2004 to shareholders on the register at the close of business on 15th October 2004. No scrip alternative to the cash dividend is being offered in respect of the 2004 interim dividend. PROSPECTS The Group has achieved a good result in the first six months of 2004 even though exchange rates moved against us and show little sign of easing; the contribution to the profit increase which arose from the non-recurrence of the Hydra factory closure costs will not, of course, be repeated in the second half of the year. We are continuing to invest in our world leading businesses and to build on our market development opportunities. Assuming that there is no marked deterioration in the Americas and Asian trading conditions or in exchange rates, we expect to make further progress in the second half of the year.' Spirax-Sarco Engineering plc GROUP PROFIT AND LOSS ACCOUNT Six months Six months Year ended to 30th June to 30th June 31st December 2004 2003 2003 £'000 £'000 £'000 Turnover (note 2) 157,740 154,026 314,087 ______________________________________________________________ Operating profit (note 3) 23,427 20,257 45,750 Net interest payable (304) (688) (1,186) ______________________________________________________________ Profit before taxation 23,123 19,569 44,564 Taxation (note 5) (7,887) (6,420) (15,138) ______________________________________________________________ Profit after taxation 15,236 13,149 29,426 Minority interests - equity (608) (399) (788) ______________________________________________________________ Attributable profit 14,628 12,750 28,638 Dividends (4,729) (4,463) (15,028) ______________________________________________________________ Retained profit 9,899 8,287 13,610 ______________________________________________________________ Earnings per share (note 6) 19.6p 17.2p 38.5p Dividends per share 6.3p 6.0p 20.1p GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Six months Six months Year ended to 30th June to 30th June 31st December 2004 2003 2003 £'000 £'000 £'000 Profit for the period 14,628 12,750 28,638 Currency translation difference on foreign currency net investments (2,631) 2,514 (1,022) ______________________________________________________________ Total recognised gains and losses relating to the period 11,997 15,264 27,616 ______________________________________________________________ Spirax-Sarco Engineering plc GROUP BALANCE SHEET 30th June 30th June 31st December 2004 2003 2003 £'000 £'000 £'000 Fixed assets Intangible assets 10,671 11,305 11,123 Tangible assets 86,010 90,600 88,089 ______________________________________________________________ 96,681 101,905 99,212 Current assets Stocks 58,868 62,305 60,695 Debtors 96,449 91,390 90,515 Cash deposits and short term investments 39,434 26,265 38,197 Cash at bank and in hand 3,662 3,772 4,977 ______________________________________________________________ 198,413 183,732 194,384 Creditors Amounts falling due within one year (68,984) (67,991) (86,727) ______________________________________________________________ Net current assets 129,429 115,741 107,657 ______________________________________________________________ Total assets less current liabilities 226,110 217,646 206,869 Creditors Amounts falling due after more than one year (36,112) (39,996) (25,376) Provisions for liabilities and charges (17,871) (17,089) (17,677) ______________________________________________________________ Net assets 172,127 160,561 163,816 ______________________________________________________________ Capital and reserves Called up share capital 18,725 18,589 18,690 Share premium account 36,588 34,584 35,996 Revaluation reserve 4,259 4,391 4,350 Capital redemption reserve 1,832 1,832 1,832 Profit and loss account 107,141 97,953 99,782 ______________________________________________________________ Shareholders' funds - equity 168,545 157,349 160,650 Minority interests - equity 3,582 3,212 3,166 ______________________________________________________________ 172,127 160,561 163,816 ______________________________________________________________ Spirax-Sarco Engineering plc GROUP CASH FLOW STATEMENT Six months Six months Year ended to 30th June to 30th June 31st December 2004 2003 2003 £'000 £'000 £'000 RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOW Operating profit 23,427 20,257 45,750 Depreciation & amortisation charges 6,371 6,842 13,824 Decrease in stocks 246 (2,696) (2,558) Increase in debtors (8,074) (2,210) (1,677) Increase in creditors and provisions 4,268 (1,587) (1,913) ______________________________________________________________ Cash inflow from operating activities 26,238 20,606 53,426 ______________________________________________________________ GROUP CASH FLOW STATEMENT Cash inflow from operating activities 26,238 20,606 53,426 Net interest paid (303) (615) (1,181) Dividends paid by subsidiary undertakings to minority interests (108) (182) (312) Taxation (9,052) (9,014) (16,269) Purchase of tangible fixed assets (6,225) (6,602) (12,571) Sales of tangible fixed assets 325 170 659 Acquisitions (net of disposals) - (1,245) (1,909) Equity dividends paid (10,552) (10,033) (14,517) ______________________________________________________________ Cash inflow before use of liquid resources and financing 323 (6,915) 7,326 Management of liquid resources (1,917) 6,162 (6,012) ______________________________________________________________ (1,594) (753) 1,314 ______________________________________________________________ Financing - Issue of ordinary share capital 627 218 1,731 - Decrease in debt (1,555) 647 (8,759) ______________________________________________________________ (928) 865 (7,028) ______________________________________________________________ Decrease in cash in the period (2,522) 112 (5,714) ______________________________________________________________ RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT (Note 7) Decrease in cash in the period (2,522) 112 (5,714) Cash outflow from decrease in debt 1,555 (647) 8,759 Cash outflow from increase in liquid resources 1,917 (6,162) 6,012 ______________________________________________________________ Change in net debt resulting from cash flows 950 (6,697) 9,057 Translation difference 761 (1,014) (748) ______________________________________________________________ Movement in net debt in the period 1,711 (7,711) 8,309 Opening net debt (14,357) (22,666) (22,666) ______________________________________________________________ Closing net debt (12,646) (30,377) (14,357) ______________________________________________________________ Notes 1. Overseas results and cash flows have been translated into sterling at average rates of exchange for each period. Foreign currency assets and liabilities have been translated at period end rates. 2. The analysis of turnover by reference to the geographical location of customers is as follows: Six months Six months Year ended to 30th June to 30th June 31st December 2004 2003 2003 £'000 £'000 £'000 United Kingdom 20,183 20,562 39,215 Continental Europe 60,532 60,137 117,390 The Americas 39,458 39,222 84,207 Asia, Australasia and Africa 37,567 34,105 73,275 ________________________________________________________ 157,740 154,026 314,087 ________________________________________________________ The analysis of turnover by reference to the geographical location of the Group's operations is as follows: Six months Six months Year ended to 30th June to 30th June 31st December 2004 2003 2003 £'000 £'000 £'000 United Kingdom 49,082 47,085 92,370 Continental Europe 74,190 74,615 146,408 The Americas 41,553 41,453 87,962 Asia, Australasia and Africa 34,045 30,998 67,145 ________________________________________________________ 198,870 194,151 393,885 Intra-group sales (41,130) (40,125) (79,798) ________________________________________________________ Sales to third parties 157,740 154,026 314,087 ________________________________________________________ 3. The analysis of operating profit by reference to the geographical location of the Group's operations is as follows: Six months Six months Year ended to 30th June to 30th June 31st December 2004 2003 2003 £'000 £'000 £'000 United Kingdom 4,133 3,885 8,021 Continental Europe 9,253 7,604 16,439 The Americas 4,710 4,300 10,335 Asia, Australasia and Africa 5,331 4,468 10,955 ________________________________________________________ 23,427 20,257 45,750 ________________________________________________________ 4. In accordance with Financial Reporting Standard 10, purchased goodwill arising on consolidation in respect of acquisitions since 1st January 1999 has been capitalised and is being amortised over 20 years. The charge for amortisation in the six months to 30th June 2004 was £336,000 (2003: £319,000). 5. Taxation has been estimated at the rate expected to be incurred in the full year. Six months Six months Year ended to 30th June to 30th June 31st December 2004 2003 2003 £'000 £'000 £'000 United Kingdom corporation tax 1,491 1,514 2,759 Overseas taxation 6,235 5,206 12,810 Deferred taxation 202 (103) 66 Adjustment in respect of previous years (41) (197) (497) ________________________________________________________ 7,887 6,420 15,138 ________________________________________________________ 6. The calculation of earnings per share is based on earnings of £14,628,000 (2003: £12,750,000) together with the weighted average number of shares in issue during the half year of 74,817,348 (2003: 74,316,269). For the full year 2003 the calculation is based on earnings of £28,638,000 together with the weighted average number of shares in issue during the full year of 74,432,975. 7. Analysis of changes in net debt: At Exchange At 1st Jan 2004 Cash flow Movement 30 th June 2004 £'000 £'000 £'000 £'000 Cash in hand and at bank 4,977 (1,188) (127) 3,662 Overdrafts (12,602) (1,334) 407 (13,529) _____________ (2,522) _____________ Debt due within a year (19,714) 13,401 149 (6,164) Debt due beyond a year (23,986) (12,011) 955 (35,042) Finance leases (1,229) 165 57 (1,007) _____________ 1,555 _____________ Current asset investments 38,197 1,917 (680) 39,434 _____________________________________________________________________ (14,357) 950 761 (12,646) _____________________________________________________________________ 8. This financial information, which is unaudited, does not amount to full accounts within the meaning of Section 240 of the Companies Act 1985 (as amended). Full year accounts for 2003 with an unqualified audit report have been filed with the Registrar of Companies. 9. Copies of the Interim Report will be sent on 10th September 2004 to members and can be obtained from our registered office at Charlton House, Cirencester Road, Cheltenham, Gloucestershire GL53 8ER. From 10th September 2004 the Interim Report will be 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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