14th Mar 2005 07:00
Spirax-Sarco Engineering PLC14 March 2005 Spirax-Sarco Engineering plc Charlton House Cheltenham Glos. GL53 8ER News Release Telephone: 01242 521361 Fax: 01242 581470 www.SpiraxSarcoEngineering.com Monday 14th March 2005, 7.00 a.m. 2004 PRELIMINARY ANNOUNCEMENT HIGHLIGHTS Year to 31st December 2004 2003 Change Turnover £325.8m £314.1m +3.7%Operating profit * £51.1m £45.8m +11.7%Operating profit margin * 15.7% 14.6%Profit before taxation * £50.8m £44.6m +14.1%Operating cash inflow £63.2m £53.4m +18.3%Earnings per share 43.4p 38.5p +12.7%Dividends per share 21.4p 20.1p +6.5% * after deducting goodwill amortisation of £0.7m (2003: £0.7m) • Robust organic sales growth of 8% • Strong performance in Asia and Americas • Pre-tax profit growth of 14%, despite adverse exchange movements • Trading margin improved to 15.7% • Good cash flow • Increase of 7% in final dividend to 15.1p Tim Fortune, Chairman, commenting on prospects said:- "The 2005 world economic outlook appears positive, although there are few signsof any significant improvements in Continental Europe or the UK. The Asianeconomies remain strong; the Americas have also started well in 2005 but theremust be doubts about sustainability. Given the underlying strengths of theGroup's business and its global coverage, and assuming no economic shocks ormajor adverse exchange movements, we expect further growth in 2005." Enquiries: Tim Fortune - ChairmanMarcus Steel - Chief ExecutiveDavid Meredith - Director FinanceTel: 020 7638 9571 at Citigate Dewe Rogerson until 6.00 p.m. SPIRAX-SARCO ENGINEERING plc PRELIMINARY RESULTS SUMMARY The Chairman, Tim Fortune, says: "I am pleased to report a robust performance in 2004 despite exchange ratesagain moving against us. Group turnover increased by 4% to £326 million, whichincluded an adverse exchange movement of 4%, so the underlying organic growthwas 8%, spread widely across the globe but with the major increases coming fromthe Americas, Asia and Australasia. This good result arose from our continuingto focus the Group's resources on growing our steam specialty and peristalticpumping businesses in a mixed but mainly positive trading environment. The Group operating profit increased by 12% to a record £51.1 million, theincrease benefiting from the non-repeat of the factory closure costs in 2003 of£1.5 million. The effect of exchange rate movements was to reduce the 2004profit by £3.75 million, so we achieved a strong underlying like for like profitincrease. The operating profit margin rose again to 15.7% compared with 14.6%in 2003." The Chief Executive, Marcus Steel, reports: "TRADING The second half of 2004 continued the good growth experienced in the first half. The market background against which we have been operating has, for the mostpart, been positive. The North American economies were buoyant despitepre-election caution in the USA, and the South American markets followed suit.The Continental European markets were, by contrast, generally weak, beingnegatively affected by the major economies of France, Germany and Italy,although there were some bright spots elsewhere. The UK continued to be a dullmarket with the manufacturing base weakening and little sign of any change forthe better, other than from continued government spending, particularly on theNational Health Service. The Asian economies mostly continued their stronggrowth, with China still growing fast despite the government's measures to takethe heat out of the economy. Exchange rates have again moved against sterling based businesses such as Spiraxwith over 80% of turnover and operating profits earned outside the UK. Ourmanufacturing base is well spread across the world but, despite this, thetransaction impact and the translation impact together reduced operating profitby £3.75 million; the adverse translation effect on sales was £13 million (4%).This came from the roughly 10% devaluation in 2004 of the US dollar andrelated weakness in the South American and some Asian currencies. Also,sterling was slightly stronger against the euro. Turnover increased to £326 million from £314 million in 2003, an increase of 4%(organic growth of 8% at constant exchange rates). This was a robust underlyingperformance in which we gained market share. The organic growth in sales wasachieved in all geographic regions but the main gains were in Asia and theAmericas, which is a continuation of the trends from 2003. We continued thegradual increase in the number of sales and service engineers. The programme ofproduct developments also enhanced the offering to customers as well aschallenging our competitors. The Group's operating profit increased by 12% in 2004 from £45.8 million in 2003to £51.1 million, a record figure. The 2003 operating profit included a chargeof £1.5 million for the closure of a small factory in Spain; on the other hand,the 2004 operating profit is reached after taking the £3.75 million adverseexchange movement effect which is mentioned above. So, the underlying operatingprofit increase was 16%. This came partly from the sales increases (in theAmericas, Asia and, to a lesser extent, in Continental Europe and the UK) andpartly from active cost control, including raw material resourcing whichcounteracted the steel price increases that came through in 2004. We alsoimproved productivity in the Group as a whole. The operating profit margin increased from 14.6% in 2003 to 15.7% in 2004, astronger increase than in the previous two years. In October 2004, we completedthe acquisition of Eirdata Environmental Services for an initial considerationof €1.2 million. This is a small company based in the Republic of Irelandproviding system and utility auditing and servicing for the pharmaceuticalindustry and which will boost our steam system service presence in both theRepublic of Ireland and the UK. UNITED KINGDOM Turnover in the UK domestic market grew by 2% in 2004 to £39.9 million. The UKindustrial and commercial steam using and pumping markets remained weak, withsome customers closing or consolidating plants. Our sales teams focused onareas of opportunity such as OEMs, turnkey projects, steam system management,prefabricated units and silicone tubing. Demand on the UK factories, which aresuppliers to our sales companies worldwide as well as to the domestic market,was constrained as a result of our stock reduction activities in the steambusiness, but was well ahead in Watson-Marlow as a result of the good demand forthe new pump range and expanding tubing sales. Operating profits in the UK were £8.7 million, up 9% on 2003. CONTINENTAL EUROPE Sales to third party customers in Continental Europe increased by 3% from £117.4million in 2003 to £121.2 million in 2004; at constant exchange rates theincrease was 5%, which was achieved in spite of the subdued state of the majorcontinental markets. The major economies are not showing consistent signs ofreturning to growth and probably will not do so until the restrictive regulatorysystems impacting on business are reduced. In these difficult conditions, oursales teams did well to increase demand through focused sales management,concentrating on the Group-wide sales initiatives and local actions such astargeting the OEM, oil and petrochemicals, and pulp and paper markets. The sales growth in Continental Europe was relatively widely spread. InGermany, despite the difficult conditions, the Spirax Sarco business gainedmarket share. Norway and Sweden grew strongly, particularly through heatexchanger sales. We also made gains in Denmark, Poland, Portugal andSwitzerland. Hygromatik, M&M and Bredel in Europe all did well although theSpirax Sarco Italian sales were flat and French sales were only slightly up, acreditable position in lacklustre markets. The main reductions were in theCzech Republic, where the sales were good but below an exceptional pre-EUaccession year in 2003, and in Spain and Finland where the markets weredifficult and sales were down. The factories in France and the Netherlands saw good demand, particularly fromAsia and the Americas, and increased their profits. Operating profits in Continental Europe were £18.9 million in 2004 whichrepresents an increase of 15% on 2003. The 2003 figure included the £1.5million charge for closure costs of the small Spanish factory; the profitincrease excluding this charge would have been 5%, and, at constant exchangerates, would have been 8%. The operating profit margin improved to 12.6% from11.2% in 2003. ASIA, AUSTRALASIA AND AFRICA The economies in Asia and Australasia continued their recent growth record andtrading conditions through 2004 were positive despite the high oil price and theChinese government's measures to slow the economy down. Our sales companiesachieved good sales and profits growth based on both the market activity and ourown sales development actions. Third party sales were £80.2 million, up from£73.3 million in 2003, an increase of 9%. The weakness of the Asian currencieshas undermined the sterling results from this part of the world and the sales atconstant exchange were ahead by 15%. The growth in sales was broadly spreadacross the region, with China and India producing the biggest increases, andJapan also growing well, which was the result of strategic actions taken by themanagement team. Korean sales were ahead as a result of successes with salesinitiatives and some good project wins. Elsewhere, there were good salesincreases in Australia, New Zealand, Taiwan and UK exports, particularly to theMiddle East. Operating profit for the region was £12.2 million, which compares with £11.0million last year, an increase of 11%. The effect of the adverse exchange ratemovements (both transaction and translation) significantly reduced the sterlingvalue of the profit, which at constant exchange would have given an increase of23% over 2003, a strong result. The operating profit margin in 2004 was 16.7%,more or less unchanged from 2003, the benefit of the extra volumes having beenlargely offset by the adverse effect of exchange rate movements on the grossmargin. AMERICAS Turnover in the Americas increased in 2004 over 2003 by 10% at constantcurrency, a good increase, which was, however, almost totally eliminated by theweakness of the US dollar and the other Americas currencies, so the sterlingresult does not reflect the hard work and success of our companies in the year.All the markets in the Americas were busy, although there are some concerns,particularly in Latin America, that the current levels of activity might not besustained. Our businesses in the USA both performed well. The Spirax Sarco company builtup sales in steam system services, prefabricated units and exports to LatinAmerica, and like for like profits were well ahead. The Watson-Marlow Bredelbusiness produced solid underlying growth, and some good OEM and project orderspartially compensated for the large project orders received in 2003; the profitwas adversely affected by the weak dollar. Canada produced a very good result and our Mexican joint venture improved salesand profits following the management changes. The operating profit for the Americas was £11.3 million, up 9% from £10.3million in 2003 despite a significant exchange hit. The operating profit marginimproved to 12.8% in 2004 from 11.7%, the increased sales and overhead controlsmore than compensating for the exchange hit on the gross margin. INTEREST, TAX AND DIVIDENDS Continuing good cash flow eliminated net debt during the year and reduced thenet interest charge to £0.3 million in 2004 from £1.2 million in 2003. TheGroup's pre-tax profit rose to £50.8 million, as against £44.6 million theprevious year; an increase of 14%. Amortisation of goodwill was £0.7 million(2003: £0.7 million). The tax charge at 34% was similar to the charge in 2003 and represents theexpected normal rate. Minority interests were 44% ahead of 2003 as a result ofstrong results in India in particular and Mexico. Earnings per share rose by13% to 43.4p from 38.5p. The Board is recommending a final dividend of 15.1p,which, with the interim dividend of 6.3p per share, gives a total for the yearof 21.4p, an increase of 6.5%. The cost of the interim and final dividends is£16.1 million, which is covered 2.0 times by earnings. No scrip alternative tothe cash dividend is being offered. BALANCE SHEET AND CASH FLOW We finished 2004 with capital employed (net assets excluding net cash/debt andgoodwill) of £167 million, which was virtually unchanged from a year earlierdespite the 8% underlying increase in business levels. Total working capitalcontinued to be closely controlled, in particular stock values were marginallylower representing a good improvement compared with the increased sales whichwere reflected in higher debtors. There was only a small increase in net fixedassets. The overall return on capital employed improved again from 28% to 31%during the year, reflecting the increased operating profit and broadly unchangedcapital employed, a pleasing outcome for the year. Cash flow for the year was also good. The cash inflow from operating activitiesrose to £63.2 million (2003: £53.4 million). Net capital expenditure increasedto £14.1 million (2003: £11.9 million) and taxation payments were higher,reflecting the profit increase. There was a small outflow of £0.8 million inrespect of acquisitions. During the year, the opening net debt of £14.4 millionwas eliminated due to the good trading cash flows and we finished 2004 with asmall net cash balance of £2.9 million. International Financial Reporting Standards will apply for 2005, withcomparative figures for 2004 restated onto the new basis. We have been workingto prepare for these changes and we are well on target to meet the requiredtimetable. The adoption of IFRS will have some impact on the presentation ofthe primary financial statements but does not change the economics, risk profileor cash flows of the business. The main areas affected will be share-basedpayments, pensions, goodwill, R&D and consolidation of subsidiaries (whichaffects the presentation of our minority investments in Mexico and India). CHAIRMAN'S RETIREMENT Finally, in the Chairman's statement, Tim Fortune confirms that he will beretiring from the Board on 12th May after 27 years with the Group. Tim startedas Production Director in the Cheltenham operating company. In 1983 he joinedthe main Board as Group Manufacturing Director, he became Chief Executive in1992 and then Chairman in 1998. Throughout this time with Spirax, Tim'shallmark has been his energetic and enthusiastic questioning of everything,allied to a constant quest for improvement. He has nurtured the Group's visionand clarity of purpose. Under his stewardship the Group has made great stridesand we thank him for the good shape in which he leaves Spirax." The Chairman comments as follows: "As previously announced, Chris Ball and I will be retiring from the Board on29th April and 12th May respectively. Chris has been with Spirax Sarcovirtually all his working life. He is a natural salesman and motivator and,after starting work in the UK Sales company, has worked in Kenya, Korea, Japan,Australia and Canada before returning to the UK to take up his Board position in1992. He has given unstintingly of his time and enthusiasm and he has been asignificant contributor to the Group's success over these many years, and Ithank him on behalf of the Board and shareholders for his achievements whichhave benefited the company so much. We will be pleased to welcome Tony Scrivin as an executive director and GarethBullock as a non-executive director to the Board on 2nd May. Tony has worked atSpirax since 1963 and has wide experience in most areas of the business, bothsales and manufacturing, including running Spirax Sarco Inc. in the USA. Garethis a director of Standard Chartered Bank and will bring a wealth of experiencenot only of financial matters generally but also specifically of Asia andAfrica. During my time with the Group, with the help of my colleagues, we have built onthe foundations laid down by our predecessors a flourishing business with clearstrategies for the future. At the conclusion of the AGM on the 12th May, I willbe handing over the Chairmanship of the Board to Mike Townsend. Mikeunderstands the business well and in his care I am confident the Group willcontinue to prosper. Bill Whiteley will replace Mike Townsend as SeniorIndependent Director and will chair the Remuneration and Audit Committees. The robust 2004 trading performance was based on our sales and marketingphilosophy of providing excellent knowledge, service, products and support tocustomers wherever they are. This requires well trained and enthusiastic peopleright through the organisation, and I would like to record my personal thanksand the thanks of the whole Board for the hard work and dedication of all ourpeople who make the Group the high quality business that it is. PROSPECTS The 2005 world economic outlook appears positive, although there are few signsof any significant improvements in Continental Europe or the UK. The Asianeconomies remain strong; the Americas have also started well in 2005 but theremust be doubts about sustainability. Given the underlying strengths of theGroup's business and its global coverage, and assuming no economic shocks ormajor adverse exchange movements, we expect further growth in 2005." The audited trading results for the Group for the year ended 31st December 2004(together with the comparative figures for 2003) are set out below:- SPIRAX-SARCO ENGINEERING PLC Group Profit and Loss Account for the year ended 31st December 2004 2004 2003 £'000 £'000 Turnover 325,833 314,087Operating costs (274,733) (268,337) Operating profit 51,100 45,750Net interest payable (264) (1,186) Profit on ordinary activities before taxation 50,836 44,564Taxation on profit on ordinary activities (17,154) (15,138) Profit on ordinary activities after taxation 33,682 29,426Minority interests - equity (1,135) (788) Profit for the financial year attributable to shareholders 32,547 28,638Dividends (16,102) (15,028) Retained profit for the financial year 16,445 13,610 Earnings per share (basic) 43.4p 38.5pEarnings per share (diluted) 43.0p 38.2pDividends per share- Interim 6.3p 6.0p- Final 15.1p 14.1p- Total 21.4p 20.1p SPIRAX-SARCO ENGINEERING plc Group Balance Sheet at 31st December 2004 2004 2003 £'000 £'000Fixed assetsIntangible assets 11,713 11,123Tangible assets 89,094 88,089 100,807 99,212 Current assetsStocks 59,756 60,695Debtors 100,576 90,515Cash deposits and short term investments 45,500 38,197Cash at bank and in hand 4,886 4,977 210,718 194,384 CreditorsAmounts falling due within one year (75,948) (86,727) Net current assets 134,770 107,657 Total assets less current liabilities 235,577 206,869 CreditorsAmounts falling due after more than one year (34,657) (25,376) Provisions for liabilities and charges (18,907) (17,677) Net assets 182,013 163,816 Capital and reservesCalled up share capital 18,800 18,690Share premium account 38,024 35,996Revaluation reserve 4,307 4,350Capital redemption reserve 1,832 1,832Profit and loss account 115,078 99,782 Shareholders' funds - equity 178,041 160,650Minority interests - equity 3,972 3,166 182,013 163,816 SPIRAX-SARCO ENGINEERING plc Group Cash Flow Statement for the year ended 31st December 2004 2004 2003 £'000 £'000 RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWOperating profit 51,100 45,750Depreciation and amortisation charges 13,302 13,824Decrease in stocks 342 (2,558)Increase in debtors (9,094) (1,677)Increase in creditors and provisions 7,562 (1,913)Cash inflow from operating activities 63,212 53,426 GROUP CASH FLOW STATEMENTCash inflow from operating activities 63,212 53,426Returns on investments and servicing of finance (694) (1,493)Taxation (16,780) (16,269)Capital expenditure (14,134) (11,912)Acquisitions and disposals (803) (1,909)Equity dividends paid (15,289) (14,517) Cash inflow before use of liquid resources & financing 15,512 7,326Management of liquid resources (7,745) (6,012) 7,767 1,314 Financing - Issue of ordinary share capital 2,138 1,731 - Decrease in debt (2,677) (8,759) (539) (7,028)Increase in cash in the period 7,228 (5,714) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET CASHIncrease in cash in the period 7,228 (5,714)Cash outflow from decrease in debt 2,677 8,759Cash outflow from increase in liquid resources 7,745 6,012 Decrease in net debt resulting from cash flows 17,650 9,057Translation difference (420) (748) Decrease in net debt in the period 17,230 8,309Net debt at 1st January (14,357) (22,666) Net cash/(debt) at 31st December 2,873 (14,357) SPIRAX-SARCO ENGINEERING plc Group Statement of Total Recognised Gains and Losses for the year ended 31st December 2004 2004 2003 £'000 £'000 Profit for the financial year attributable to shareholders 32,547 28,638 Currency translation differences on foreigncurrency net investments (1,192) (1,022) Total recognised gains and losses relating to the year 31,355 27,616 SPIRAX-SARCO ENGINEERING plc Group Reconciliation of Movement in Shareholders' Funds for the year ended 31st December 2004 2004 2003 £'000 £'000 Shareholders' funds at 1st January 160,650 146,331Profit for the financial year 32,547 28,638Dividends (16,102) (15,028)Net proceeds of issue of shares 2,138 1,731Currency translation differences (1,192) (1,022) Shareholders' funds at 31st December 178,041 160,650 Notes: 1. Foreign currency assets and liabilities are translated into sterlingat rates of exchange ruling at 31st December. Trading results of overseassubsidiary undertakings have been translated into sterling at average rates ofexchange ruling during the year. 2. The analysis of turnover by reference to the geographical location ofcustomers is as follows:- 2004 2003 % % change £'000 £'000 change at constant exchange rates United Kingdom 39,922 39,215 +1.8 +1.8Continental Europe 121,164 117,390 +3.2 +4.8The Americas 84,568 84,207 +0.4 +10.4Asia, Australasia and Africa 80,179 73,275 +9.4 +14.7 325,833 314,087 +3.7 +8.1 and by reference to the geographical location of the Group's operations is asfollows:- 2004 2003 % % change £'000 £'000 change at constant exchange rates United Kingdom 97,419 92,370 +5.5 +5.5Continental Europe 149,334 146,408 +2.0 +3.6The Americas 88,578 87,962 +0.7 +10.8Asia, Australasia and Africa 73,161 67,145 +9.0 +14.9 408,492 393,885 +3.7 +7.5 Intra-group sales (82,659) (79,798) +3.6 +4.9 Sales to third parties 325,833 314,087 +3.7 +8.1 3. Operating profit, analysed by reference to the geographical locationof the Group's operations, is as follows:- 2004 2003 % * % change £'000 £'000 change at constant exchange rates United Kingdom 8,732 8,021 +8.9 +4.8Continental Europe 18,866 16,439 +14.8 +17.7The Americas 11,301 10,335 +9.3 +32.2Asia, Australasia and Africa 12,201 10,955 +11.4 +22.6 51,100 45,750 +11.7 +19.9 * The percentage change at constant exchange rates in respect of theoperating profit also includes an estimate of the transaction effect. 4. Net interest payable:- 2004 2003 £'000 £'000 Interest payable:Bank loans and overdrafts 1,461 1,653Other loans 387 644 1,848 2,297Interest receivable (1,584) (1,111) 264 1,186 5. Taxation:- 2004 2003 £'000 £'000 Analysis of charge in periodUK corporation taxCurrent tax on income for the period 12,164 10,152Adjustments in respect of prior periods (148) (137) 12,016 10,015Double taxation relief (8,851) (7,393) 3,165 2,622Foreign taxCurrent tax on income for the period 13,680 12,810Adjustments in respect of prior periods 62 (360) 13,742 12,450Total current tax charge 16,907 15,072Deferred tax 247 66Tax on profit on ordinary activities 17,154 15,138 6. The calculation of earnings per share (basic) is based on earnings of£32,547,000 (2003: £28,638,000) as shown in the Group profit and loss account,divided by the weighted average number of shares in issue during the year of74,931,130 (2003: 74,432,975). The calculation of earnings per share (diluted)is based on the earnings shown above and the weighted average number of sharesin issue diluted by 781,558 (2003: 521,701) to 75,712,688 (2003: 74,954,676).The dilution is in respect of unexercised share options. 7. If approved at the annual general meeting on 12th May 2005, the finaldividend will be paid on 23rd May 2005 to shareholders on the register at 22ndApril 2005. No scrip alternative to the cash dividend is being offered. 8. The analysis of net assets by reference to the geographical locationof the Group's operations is as follows:- 2004 2003 £'000 £'000 United Kingdom 44,983 47,575Continental Europe 60,698 60,901The Americas 36,452 35,868Asia, Australasia and Africa 41,893 38,806 184,026 183,150Cash at bank and in hand (4,886) (4,977) 179,140 178,173Net debt 2,873 (14,357)Net assets 182,013 163,816 9. Analysis of changes in net debt. 1st Jan Cash Exchange 31st Dec 2004 Flow movement 2004 £'000 £'000 £'000 £'000 Cash in hand and at bank 4,977 (116) 25 4,886Overdrafts (12,602) 7,344 387 (4,871) 7,228 Debt due within a year (19,714) 11,857 58 (7,799)Debt due beyond a year (23,986) (9,527) (456) (33,969)Finance leases (1,229) 347 8 (874) 2,677 Current asset investments 38,197 7,745 (442) 45,500Total (14,357) 17,650 (420) 2,873 10. Financial Reporting Standard 17 - Retirement Benefits Whilst the Group continues to account for pension costs in accordance withStatement of Standard Accounting Practice 24 - Accounting for Pension Costs,under FRS17 - Retirement Benefits the following transitional disclosures are alsogiven: The actuarial valuations of the Group's principal defined benefit schemes werecarried out at various dates between 31st December 2001 and 31st December 2004.The results produced at earlier valuation dates were updated to the 31stDecember 2004 by independent qualified actuaries. Overseas UK pensions Total pensions & medical £'000 £'000 £'000 Total market value of schemes' assets 124,000 14,100 138,100 Present value of the schemes' liabilities (148,500) (26,400) (174,900)Deficit in the schemes (24,500) (12,300) (36,800)Related deferred tax asset 7,400 2,000 9,400Net pension liability 2004 (17,100) (10,300) (27,400)Net pension liability 2003 (20,500) (10,600) (31,100) If the above amounts had been recognised in the accounts, the Group's net assetsand profit and loss account reserve at 31st December 2004 would be as follows:- Total Total 2004 2003 £'000 £'000 Net assets 182,013 163,816Unprovided pension liability * (27,400) (29,900)Adjusted net assets including pension liability 154,613 133,916 Profit and loss account reserve 115,078 99,782Unprovided pension liability * (27,400) (29,900)Adjusted profit and loss account reserve 87,678 69,882 * The net pension liability of £27,400,000 (2003: £31,100,000) calculated inaccordance with FRS17 compares with the net pension provision currently recordedof £nil (2003: £1,200,000). 11. The financial information set out above does not constitute thecompany's statutory accounts for the years ended 31st December 2004 or 2003 butis derived from those accounts. Statutory accounts for 2003 have been deliveredto the registrar of companies, and those for 2004 will be delivered followingthe company's annual general meeting. The auditors have reported on thoseaccounts, their reports were unqualified and did not contain statements undersection 237 (2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Spirax-Sarco