Interim Results
Spirax-Sarco Engineering PLC
06 September 2005
Spirax-Sarco Engineering plc
Tuesday 6th September 2005
2005 Interim Results
Six months to 30th June
2005 2004 Change
Revenue £166.6m 152.9m +9%
Operating profit £25.0m £22.1m +13%
Operating profit margin 15.0% 14.4%
Profit before taxation £26.0m £22.2m +17%
Earnings per share 23.0p 19.7p +17%
Dividends per share 6.8p 6.3p +8%
Net cash/(debt) £1.5m £(14.0)m
• Good sales growth
• Progress particularly in Asia and Americas
• Improved operating margin of 15.0%
• Strong cash position
• Earnings per share up 17%
Commenting on the results, the Chairman, Mike Townsend, said:
'I am pleased to report good progress in the first half of 2005 with further
increases in sales and profits together with a strong cash position. The
economies in the Americas appear to be continuing to grow and, assuming no
deterioration here or in our major markets elsewhere, we expect to continue to
make progress, although the comparison in the second half will be with the
relatively strong second half of 2004.'
Enquiries:
Marcus Steel Chief Executive
David Meredith Director-Finance
Tel: 020 7638 9571 at Citigate Dewe Rogerson until 6.00 p.m.
The Chairman, Mike Townsend, comments as follows:
'I am pleased to report good progress in the first half of 2005 with further
increases in sales and profits together with a strong cash position.
The implementation of our plans for continued growth in our industrial steam and
peristaltic pumping businesses enabled us to increase sales strongly in Asia and
the Rest of the World; we also saw good growth in North America. The markets
in Continental Europe and the UK remained difficult but, despite this, we
increased our sales in these territories.
These results have been prepared under International Financial Reporting
Standards (IFRS) and all comparisons are with 2004 results restated to comply
with IFRS.
Worldwide sales increased by 9% during the first half of 2005 to £166.6 million
from £152.9 million. This comprises organic growth of 7%, an exchange gain of
1% and a contribution from acquisitions of 1%.
Operating profit increased by 13% to £25.0 million (2004: £22.1m) and the
operating profit margin improved to 15.0% from 14.4%, mainly due to the sales
increase. Demand on our factories increased and higher material and energy
costs were offset by our continuing programme of resourcing materials in Asia
and productivity improvements.
Net finance income was £0.6 million in 2005 compared with a net charge of £0.2
million in the first half of 2004. This results partly from the strong cash
flow over the last twelve months and partly from an improved net finance income
in respect of pension funds. The Group's share of profits of Associates
increased to £0.4 million (2004: £0.3 million).
The tax charge of 33% was similar to 2004 and the profit attributable to equity
shareholders increased by 18% to £17.4 million. Earnings per share increased by
17% to 23.0p from 19.7p in the corresponding period last year.
TRADING
Our two niche businesses - the Spirax Sarco industrial steam business and the
Watson-Marlow Bredel peristaltic pump business - are world leaders in their
focused markets. They have achieved this position by supplying knowledge,
service and products which provide customers with benefits such as energy
saving, cost reduction, improved product quality or higher output. This is
possible because we have over 1,000 sales and service engineers worldwide who
are specialists in the application of our products and so able to solve
customers' pumping or process heating problems.
The UK market showed no sign of improvement; industrial production and
investment were subdued and the manufacturing base continues to decline.
Nevertheless, we increased sales in the UK and Republic of Ireland by 4%
(including Eirdata, the small environmental services company acquired in October
2004) with higher sales to the petrochemical and pharmaceutical sectors. The
operating profit, at £3.4 million, was marginally ahead after increases in
pension costs and share-based payments.
The Continental European economies remained weak and our industrial markets were
flat although our sales increased by 3%, including a small exchange benefit. In
Germany, sales grew, helped by extra business in Watson-Marlow Bredel and the
Hygromatik humidifier businesses. The economies in France and Italy were weak.
Sales in France were lower, while sales in Italy were flat overall despite
increases in sales to shipyards and of peristaltic pumps. In Spain, although
sales were lower, the mix of business was better and profits were up. In
Finland, Poland and Norway, we grew sales well but in the Czech and Slovak
Republics, Portugal and Sweden the sales were down, although for Sweden the
comparison is with a very strong performance in 2004. Operating profit in the
region increased by 4% to £10.0 million, most of the increase being due to
exchange rate movements.
Business in Asia has grown well with sales up 17%. The Korean Won
strengthened significantly and the underlying increase at constant exchange was
therefore 13%. Our company in China continued to increase sales and profits,
and in Korea the growth was strong with good sales to the electronics, oil and
petrochemical industries. Our Thai and Taiwanese companies also grew sales well
but in Japan business was flat and the market continues to be subdued. The
operating profit in Asia increased by 29% to £5.0 million including an exchange
gain.
In North America, there was a good increase in sales of 9% and, excluding
adverse exchange movements, the underlying increase was 12%. The US economy is
still growing and there has been a better than expected level of customer
confidence. Watson-Marlow Bredel has grown shipments to sanitary, OEM and water
treatment applications, and Spirax Sarco Inc. also achieved a good increase in
sales levels, notably of packaged systems and energy services. Operating profit
in North America, at £3.2 million, was 29% ahead of 2004 despite adverse
exchange movements.
We also made good progress in the Rest of the World (mainly South America,
Africa and Australasia) with a sales increase of 23% which, after allowing for
an exchange benefit, gives an underlying increase of 17%. Our operations in
Brazil and Argentina performed well with higher sales and profits. In
Australia, business levels were quiet and in South Africa, while sales were up,
margins were under pressure and profits were down. The operating profit in the
Rest of the World increased by 20% to £3.4 million including an exchange gain.
The results from India and Mexico, in accordance with IFRS, are now disclosed
separately under 'Associates' and their results were well ahead of 2004.
BALANCE SHEET AND CASH FLOW
Capital employed (property, plant and equipment, inventories, debtors and
creditors) increased by 5% to £186 million compared with a year earlier.
Excluding exchange movements the underlying increase was 3% as we maintained our
controls on working capital. Capital expenditure was £6.0 million and, although
this was below the long-term trend, we continue to invest in capital projects to
improve productivity and expand our global sales presence. Dividend payments
were £11.5m during the half year. We also spent a total of £4.9 million on the
acquisition in June of the Mitech group of controls companies in South Africa
and the EMCO metering business in the USA. The exercise of options, which are
granted to a relatively large pool of senior managers across the world, brought
in £4.5 million of cash during the period. There was a small net cash position
at 30th June 2005 of £1.5 million compared with net cash of £1.3 million at the
beginning of the year and net debt of £14.0 million at 30th June 2004.
Post-retirement benefits net of related deferred tax increased during the period
by £8 million to £36 million due to lower bond yields, mitigated by improved
stock market performance.
DIVIDEND
The Board has declared an interim dividend of 6.8p (2004: 6.3p) per ordinary
share, an increase of 8%, which will be paid on 11th November 2005 to
shareholders on the register at the close of business on 14th October 2005. No
scrip alternative to the cash dividend is being offered in respect of the 2005
interim dividend.
BOARD CHANGES
During the first half of 2005, both Tim Fortune and Chris Ball retired from the
Board after long and distinguished careers with Spirax. They contributed a
great deal to the Group's success over the years through their energy and
enthusiasm and we owe them both a debt of gratitude, which I am pleased to
acknowledge.
We welcome Tony Scrivin to the Board as director responsible for most of the
sales operations in Europe. We also welcome Gareth Bullock, a director of
Standard Chartered Bank, as a non-executive director, both appointments taking
effect from 2nd May 2005.
PROSPECTS
The Group achieved a good performance in the first half against a mixed but
relatively benign economic background. The economies in the Americas appear to
be continuing to grow and, assuming no deterioration here or in our major
markets elsewhere, we expect to continue to make progress, although the
comparison in the second half will be with the relatively strong second half of
2004.'
Spirax-Sarco Engineering plc
GROUP INCOME STATEMENT
Six months Six months Year ended
to 30th June to 30th June 31st December
2005 2004 2004
£'000 £'000 £'000
Revenue 166,611 152,946 315,991
Operating costs (141,580) (130,858) (268,035)
Operating profit 25,031 22,088 47,956
Financial expenses (5,613) (5,490) (10,920)
Financial income 6,180 5,333 10,933
Net financing income 567 (157) 13
Share of profit of associates 384 306 735
Profit before taxation 25,982 22,237 48,704
Taxation (8,488) (7,315) (16,262)
Profit for the period 17,494 14,922 32,442
Attributable to:
Equity holders of the parent 17,392 14,748 32,314
Minority interest 102 174 128
Profit for the period 17,494 14,922 32,442
Earnings per share
Basic earnings per share 23.0p 19.7p 43.1p
Diluted earnings per share 22.8p 19.6p 42.7p
Dividends
Dividend paid per share 15.1p 14.1p 20.4p
Dividend proposed per share 6.8p 6.3p 15.1p
£'000 £'000 £'000
Dividend paid 11,459 10,552 15,289
Dividend proposed 5,188 4,747 11,355
Spirax-Sarco Engineering plc
GROUP BALANCE SHEET
30th June 30th June 31st December
2005 2004 2004
£'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 84,306 79,740 83,514
Goodwill 14,122 11,008 11,862
Other intangible assets 8,411 6,934 6,988
Prepayments 356 365 345
Investment in associates 3,061 2,233 2,494
Deferred tax 22,225 18,463 17,868
132,481 118,743 123,071
Current assets
Inventories 61,186 57,352 58,229
Trade receivables 78,978 72,234 76,021
Other current assets 10,376 9,892 8,388
Cash and cash equivalents 46,799 41,697 48,756
197,339 181,175 191,394
Total assets 329,820 299,918 314,465
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables 44,157 38,075 43,429
Bank overdrafts 7,953 13,529 4,842
Current portion of long term borrowings 7,605 6,521 8,183
Current tax payable 5,063 5,134 6,788
64,778 63,259 63,242
Net current assets 132,561 117,916 128,152
Non-current liabilities
Long term borrowings 29,765 35,663 34,432
Tax payable 60 74 -
Deferred tax 10,728 9,192 10,035
Post-retirement benefits 54,059 46,841 41,335
Provisions 715 799 644
95,327 92,569 86,446
Total liabilities 160,105 155,828 149,688
Net assets 169,715 144,090 164,777
Equity
Share capital 19,053 18,725 18,800
Share premium account 42,289 36,588 38,024
Other reserves 6,139 6,091 6,139
Retained earnings 101,371 82,062 101,008
Equity attributable to equity holders of the parent 168,852 143,466 163,971
Minority interest 863 624 806
Total equity 169,715 144,090 164,777
Total equity and liabilities 329,820 299,918 314,465
Spirax-Sarco Engineering plc
GROUP STATEMENT OF TOTAL RECOGNISED INCOME AND EXPENSE
Six months Six months Year ended
to 30th June to 30th June 31st December
2005 2004 2004
£'000 £'000 £'000
Actuarial loss on post-retirement benefits (8,403) (1,671) 2,929
Foreign exchange translation differences 2,652 (1,991) (1,018)
Losses on cash flow hedges (23) - -
Income and expense recognised directly in equity (5,774) (3,662) 1,911
Profit for the period 17,494 14,922 32,442
Total recognised income and expense for the period 11,720 11,260 34,353
Attributable to
Equity holders of the parent 11,618 11,086 34,225
Minority interest 102 174 128
Total recognised income and expense for the period 11,720 11,260 34,353
GROUP STATEMENT OF CHANGES IN EQUITY
Six months Six months Year ended
to 30th June to 30th June 31st December
2005 2004 2004
£'000 £'000 £'000
Shareholders' funds at beginning of period
as previously reported under UK GAAP 178,041 160,650 160,650
IFRS adjustments (14,070) (18,464) (18,464)
Equity attributable to equity holders of parent at
beginning of period 163,971 142,186 142,186
Implementation of IAS 32 and IAS 39 (58) - -
As adjusted at beginning of period 163,913 142,186 142,186
Total recognised income and expense for the period 11,618 11,086 34,225
Dividends paid (11,459) (10,552) (15,289)
Net proceeds of issue of shares 4,518 627 2,138
Equity settled share plans 262 119 711
Equity attributable to equity holders of parent at end
of period 168,852 143,466 163,971
Spirax-Sarco Engineering plc
GROUP CASH FLOW
Six months Six months Year ended
to 30th June to 30th June 31st December
2005 2004 2004
£'000 £'000 £'000
Cash flows from operating activities
Profit before taxation 25,982 22,237 48,704
Depreciation and amortisation 6,142 6,227 13,030
Share of profit of associates (384) (306) (735)
Equity settled share plans 436 85 357
Net finance income (567) 157 (13)
Operating profit before changes in working capital and 31,609 28,400 61,343
provisions
Increase in trade and other receivables (3,701) (6,897) (6,875)
Increase in inventories (1,899) 500 619
Increase in provisions and post-retirement benefits 436 (376) (23)
Increase in trade and other payables 242 4,390 7,139
Cash generated from operations 26,687 26,017 62,203
Interest paid (759) (942) (1,829)
Income taxes paid (9,529) (8,775) (16,071)
Net cash from operating activities 16,399 16,300 44,303
Cash flows from investing activities
Purchase of property, plant & equipment (5,972) (5,977) (14,395)
Proceeds from sale of property, plant & equipment 492 322 641
Development expenditure capitalised (600) (296) (674)
Acquisition of subsidiaries (4,943) - (803)
Interest received 896 622 1,517
Dividends received 47 24 71
Net cash used in investing activities (10,080) (5,305) (13,643)
Cash flows from financing activities
Proceeds from issue of share capital 4,518 627 2,138
Repayment of borrowings (3,917) (1,390) (2,330)
Payment of finance lease liabilities (187) (182) (360)
Dividends paid (11,537) (10,635) (15,322)
Net cash used in financing activities (11,123) (11,580) (15,874)
Net decrease in cash and cash equivalents (4,804) (585) 14,786
Cash and cash equivalents at beginning of period 43,914 29,120 29,120
Exchange movement (264) (367) 8
Cash and cash equivalents at end of period 38,846 28,168 43,914
Long term borrowings and finance leases (37,370) (42,184) (42,615)
Net cash 1,476 (14,016) 1,299
NOTES TO THE ACCOUNTS
1. BASIS OF PREPARATION
The interim consolidated financial statements of Spirax-Sarco Engineering plc
and its subsidiaries (the 'Group') have been prepared in accordance with the
recognition and measurement criteria of International Financial Reporting
Standards (IFRS) in issue that are endorsed, or are expected to be endorsed by
the EU and effective (or available for early adoption) at 31st December 2005,
the Group's first annual reporting date at which it is required to use adopted
IFRS. Based on these IFRS the directors have made assumptions about the
accounting policies expected to be applied when the first annual IFRS financial
statements are prepared for the year ending 31st December 2005. In particular,
the directors have assumed that IAS 19 (revised) issued by the International
Accounting Standards Board (IASB) will be adopted by the EU in sufficient time
that it will be available for use in the annual IFRS financial statements for
the year ending 31st December 2005.
The adopted IFRS that will be effective (or available for early adoption) in the
financial statements for the year ending 31st December 2005 are still subject to
change and to additional interpretations and therefore cannot be determined with
certainty. Accordingly, the accounting policies for the annual period will only
be determined finally when the financial statements are prepared.
On 12th July 2005, the Group announced a restatement of its 2004 results under
IFRS. This included details of the accounting policies applied in restating its
financial statements and reconciliations from UK GAAP to IFRS at transition (1st
January 2004) and for both the 2004 half year and full year. This announcement
is available from the Company's web site at
www.SpiraxSarcoEngineering.com or copies can be requested from the Company
Secretary.
Under IFRS 1 'First-time adoption of IFRS' the Group is required to determine
its IFRS accounting policies at 31st December 2005 and apply these
retrospectively. However, the standard allows a number of exceptions to this
general principle to assist companies as they change to report under IFRS.
Detailed explanations of the areas where the Group has taken advantage of these
exemptions are included in the 12th July 2005 IFRS restatement. One of these
exemptions is that the Group has elected to adopt IAS 32 'Financial Instruments:
Disclosure and Presentation' and IAS 39 'Financial instruments: Recognition
and Measurement' prospectively from 1st January 2005. Consequently, until 31st
December 2004, the Group continued to hedge account under UK GAAP for forward
exchange contracts. The effect of the implementation of IAS 32 and IAS 39 is
shown in the Group Statement of Changes in Equity on page 7.
The preparation of financial statements in conformity with IFRS requires
management to make judgments, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, and
income and expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making the judgments about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period or in the period of
the revision and future periods if the revision affects both current and future
periods.
The comparative figures for the year ended 31st December 2004 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 2004, which were presented under UK GAAP, 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 interim
financial statements for the six months ended 30th June 2005 were authorised for
issue by the Board on 6th September 2005.
2. SEGMENTAL REPORTING
Primary segment Six months Six months Year ended
to 30th June to 30th June 31st Dec.
2005 2004 2004
£'000 £'000 £'000
Revenue by geographical location of operation
UK & Republic of Ireland 51,754 49,082 97,419
Continental Europe 77,503 74,190 149,334
North America 32,990 30,237 64,950
Asia 27,518 23,316 50,465
Rest of the world 20,775 17,251 36,482
Intra-Group sales (43,929) (41,130) (82,659)
166,611 152,946 315,991
Six months Six months Year ended
to 30th June 2005 to 30th June 2004 31st Dec.
£'000 £'000 2004
£'000
Operating profit by geographical location
of operation
UK & Republic of Ireland 3,400 3,262 6,852
Continental Europe 10,045 9,675 19,523
North America 3,229 2,503 7,195
Asia 5,007 3,867 9,067
Rest of the world 3,350 2,781 5,319
25,031 22,088 47,956
Six months Six months Year ended
to 30th June to 30th June 31st December
2005 2004 2004
£'000 £'000 £'000
Revenue by geographical location of customers
UK & Republic of Ireland 21,040 20,183 39,922
Continental Europe 62,356 60,532 121,164
North America 32,583 29,824 64,119
Asia 30,146 25,785 55,327
Rest of the world 20,486 16,622 35,459
166,611 152,946 315,991
Secondary segment Six months Six months Year ended
to 30th June to 30th June 31st December
2005 2004 2004
£'000 £'000 £'000
Revenue by business operation
Spirax Sarco 144,219 133,015 273,065
Watson-Marlow Bredel 22,392 19,931 42,926
Group revenue 166,611 152,946 315,991
3. NET FINANCING INCOME
Six months Six months Year ended
to 30th June to 30th June 31st December
2005 2004 2004
£'000 £'000 £'000
Post-retirement benefits
Expected return on pension scheme assets 5,281 4,709 9,415
Interest on pension scheme liabilities (4,826) (4,544) (9,088)
455 165 327
Bank interest receivable 899 624 1,518
Bank and other borrowing interest payable (787) (946) (1,832)
112 (322) (314)
567 (157) 13
4. TAXATION
Taxation has been estimated at the rate expected to be incurred in the full
year.
Six months Six months Year ended
to 30th June to 30th June 31st December
2005 2004 2004
£'000 £'000 £'000
United Kingdom corporation tax 1,304 1,491 3,313
Overseas taxation 6,601 5,842 12,750
Deferred taxation 576 35 299
Prior year adjustment 7 (53) (100)
8,488 7,315 16,262
5. EARNINGS PER SHARE
Six months Six months Year ended
to 30th June to 30th June 31st December
2005 2004 2004
£'000 £'000 £'000
Earnings 17,392 14,748 32,314
Weighted average shares in issue 75,619,180 74,817,348 74,931,130
Dilution 638,139 566,612 781,558
Diluted weighted average shares in issue 76,257,319 75,383,960 75,712,688
Basic earnings per share 23.0p 19.7p 43.1p
Diluted earnings per share 22.8p 19.6p 42.7p
6. ANALYSIS OF CHANGES IN NET CASH
At Cash flow Exchange At
1st Jan movement 30 th June
2005 2005
£'000 £'000 £'000 £'000
Current portion of long term borrowings (8,183) (7,605)
Non-current portion of long term borrowings (34,432) (29,765)
Total long term borrowings (42,615) (37,370)
Comprising:
Borrowings (41,768) 3,917 1,104 (36,747)
Finance Leases (847) 187 37 (623)
(42,615) 4,104 1,141 (37,370)
Cash and cash equivalents 48,756 (2,003) 46 46,799
Bank overdrafts (4,842) (2,801) (310) (7,953)
Net cash and cash equivalents 43,914 (4,804) (264) 38,846
Net cash 1,299 (700) 877 1,476
7. CAPITAL EMPLOYED
An analysis of the components of capital employed is as follows:
Six months Six months Year ended
to 30th June to 30th June 31st December
2005 2004 2004
£'000 £'000 £'000
Property, plant and equipment 84,306 79,740 83,514
Prepayments 356 365 345
Inventories 61,186 57,352 58,229
Trade receivables 78,978 72,234 76,021
Other current assets 10,376 9,892 8,388
Trade and other payables (44,157) (38,075) (43,429)
Current tax payable (5,063) (5,134) (6,788)
Non-current tax payable (60) (74) -
185,922 176,300 176,280
8. Copies of the Interim Report will be sent on 8th September 2005 to
shareholders and can be obtained from our registered office at Charlton
House, Cirencester Road, Cheltenham, Gloucestershire GL53 8ER. From 8th
September 2005 the Interim Report will be available on our website at
www.SpiraxSarcoEngineering.com.
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