6th Sep 2007 07:01
Spirax-Sarco Engineering PLC06 September 2007 2007 Half Year Results Six months to 30th June Statutory 2007 2006 Change Revenue £200.1m £185.9m +8%Operating profit £31.4m £28.2m +11%Profit before taxation £33.0m £30.0m +10%Earnings per share 28.8p 26.2p +10%Dividend per share 8.3p 7.5p +11% Six months to 30th June Adjusted* 2007 2006 Change Revenue £200.1m £185.9m +8%Operating profit £31.6m £28.3m +12%Operating profit margin 15.8% 15.2%Profit before taxation £33.1m £30.1m +10%Earnings per share 29.1p 26.3p +11%Dividend per share 8.3p 7.5p +11% * Excludes £0.2m amortisation of acquired intangible assets (2006: £0.1m) • Well spread sales growth of 8% including 12% organic. • Operating profit up 12% and up 21% at constant exchange rates. • Operating profit margin for H1 increased to 15.8%. • Net debt unchanged despite £5.5m special pension contributions. • Interim dividend increase of 11%. Commenting on the results, the Chairman, Mike Townsend, said: "The successful performance during the first half of the year was affected byadverse currency movements and there is currently expected to be an additional,though smaller, effect in the second half of the year. Despite this, givencontinuing favourable trading conditions, we look forward to further progress,albeit against a stronger second half in 2006." Enquiries: Marcus Steel - Chief Executive David Meredith - Director-Finance Tel: 020 7638 9571 at Citigate Dewe Rogerson until 6.00 p.m. Note: Operating profit, pre-tax profit and EPS figures exclude theamortisation of acquired intangible assets of £0.2 million in 2007 (2006: £0.1million). The Chairman, Mike Townsend, comments as follows: "I have pleasure in reporting a strong set of results for the first half of2007. Global trading conditions have remained positive although, as indicatedin March, the continued strength of sterling exerted downward pressure on theresults, which were nevertheless another record with a 12% operating profitincrease in sterling. The US dollar, together with currencies in Asia, remainedweak against sterling and the euro. We have continued to focus on the development of our two specialist businessesin the industrial steam using market and the peristaltic pumping market. Bothbusinesses produced good growth in sales and profits in sterling terms, and thegrowth at constant exchange rates is better still. Group sales in the half year were £200.1 million, up 8% from £185.9 million in2006. Within this increase, organic sales growth was 12%, the negative exchangeeffect was 5% and there was a contribution from the small acquisition we made inJuly 2006. We increased operating profits by 12% (21% at constant currency) from £28.3million to £31.6 million in 2007. The operating profit margin in the first halfincreased from 15.2% in 2006 to 15.8% in 2007 despite the adverse exchangetransaction impact, which reduced the margin by about 3/4%. We also continue toexperience higher material and energy costs, but these were more than offset bythe effects of the organic sales growth and efficiency gains. The net finance income was £0.9 million in 2007, which compares with £1.2million in the same period in 2006. The reduction arises mainly as a result ofthe share buy-back in 2006 amounting to £18 million. The profit from Associateswas £0.6 million in the period (2006: £0.6 million). Profit before tax was£33.1 million as against £30.1 million in 2006, an increase of 10%, whichincludes an adverse exchange movement effect of £2.8 million. The tax charge was 34% (2006: 33%) and the profit attributable to shareholdersincreased by 9% to £22.1 million. Earnings per share in the period were 29.1p,which compares with 26.3p in the first half of 2006, an increase of 11%. TRADING Our two businesses, the industrial steam business and peristaltic pumpingbusiness, are world leaders in their niche markets. Spirax Sarco andWatson-Marlow Bredel are continuously developing their product offerings andboth are recognised experts in the application of their products to customers'processes in order to improve plant performance, generally by a combination ofreducing energy consumption, increasing output and improving quality. Ourphilosophy of partnership with our customers has enabled us to deliver a robustperformance in the first half of 2007, with record sales and profits. We achieved good organic sales growth of 10% to £22.4 million in the UK market,although manufacturing output remains subdued in the economy as a whole. Thegrowth came from targeted opportunities, such as sales of services and heatexchange systems, and energy saving projects for our customers. The UKoperating profit of £7.6 million compares with £5.7 million in a quiet firsthalf of 2006, with a strong profit increase in our factories where there washealthy demand from worldwide markets. The business momentum continued in Continental Europe, where economic conditionshave been benign and sales growth has been widespread. The Spirax Sarcooperations increased sales of packaged solutions and controls, and sales to thepulp and paper industry amongst others were strong. We also increased salescoverage in a number of countries. Sales in the region increased by 10% to£75.7 million and by 13% at constant exchange rates. The Spirax Sarco operatingcompanies in Germany, Italy, Norway, Spain and Sweden all produced good growth.Our expanding young company in Russia continued its strong growth and profitrecord. The Watson-Marlow Bredel business grew sales and profits in mostmarkets. Operating profit in Continental Europe increased by 19% (24% atconstant currency) to £12.1 million. The good growth performance continued in Asia, although the comparison with 2006has been adversely affected by exchange rate movements, with sterling beingstronger against most of the Asian currencies, particularly the Yen. Sales inthe region were £39.3 million, an increase of 8% (15% at constant exchangerates). Our operating companies in China, Japan, Korea and Malaysia all grewwell with some good orders from the oil and petrochemicals industry. Sales inIndia (an Associate) were flat and profits lower, although some significantshipments are due to be made in the second half of the year. Operating profitin Asia was 3% ahead at £6.7 million, although at constant currency the increasewas 18%. The operating profit margin was held back by the impact of theexchange transaction effect. In North America, sales increased by 2% in sterling to £38.4 million, includinga small contribution following the acquisition of UltraPure in the USA completedin July 2006. The weakness of the US dollar has had a substantial effect on thefigures and the underlying growth was a good 10%. The economic background inNorth America was broadly favourable. The Spirax Sarco business in the USAincreased sales and profits with growth in sales of newer products and increasedbusiness with the pharmaceutical industry. Sales growth by Watson-Marlow Bredelwas held back as a result of fewer projects and profits were lower due to theexchange effect on the cost of products purchased from our factories in Europe.Our operation in Canada made good gains and in Mexico (an Associate) we madeexcellent progress in the period. The operating profit in North America at £2.8million was 23% lower than in the same period in 2006 but 8% ahead at constantexchange rates. The 2007 profit was also impacted by losses associated with theintegration of UltraPure, the small pure steam business acquired in 2006. Sales in the Rest of the World (South America, Africa and Australasia) increasedby 6% to £24.3 million. Here, too, exchange movements have had a noticeableeffect with the Argentine Peso and South African Rand being relatively weak;the sales growth in constant currency was 13%. All the operations increasedsales, particularly of controls and services, and in boiler water treatment.Australia and New Zealand increased sales and profits, as did Brazil following aweak first half of 2006. Despite solid sales growth, profits in Argentina weredown slightly as increasing inflationary pressures pushed up costs. There was aweak performance in Spirax Sarco South Africa, not helped by softness of theRand. Operating profits in the region increased by 7% to £2.5 million; atconstant currency, the profit increase was 25%. BALANCE SHEET AND CASH FLOW Capital employed increased during the first half of 2007 by only 2% to £204million. This arose from a 5% increase in working capital and roughly unchangednet fixed assets. Capital expenditure in the half year was £6.4 million; thefigure in the second half of the year is expected to be higher as we continue toinvest to underwrite future development both in terms of sales and efficiency.Most of the £9 million outflow associated with the new plant in China will takeplace in 2008. The post-retirement benefits liability recognised in the balancesheet decreased by £27 million in the first half year to £2.5 million at 30thJune. The improvement reflects the benefit from favourable investment returns,bond yield movements and the final special pension contribution of £5.5 million,completing the £20 million special contribution to the main defined benefitpension funds started in 2006. Despite this and after payment of the 2006 finaldividend, with the strong underlying cash flow, net debt was virtually unchangedin the half year and at 30th June was £7.2 million. DIVIDEND The Board has declared an interim dividend of 8.3p (2006: 7.5p) per ordinaryshare, an increase of 11%, which will be paid on 9th November 2007 toshareholders on the register at the close of business on 12th October 2007. Noscrip alternative to the cash dividend is being offered in respect of the 2007interim dividend. PROSPECTS The successful performance during the first half of the year was affected byadverse currency movements and there is currently expected to be an additional,though smaller, effect in the second half of the year. Despite this, givencontinuing favourable trading conditions, we look forward to further progress,albeit against a stronger second half in 2006." Note: Operating profit, pre-tax profit and EPS figures exclude theamortisation of acquired intangible assets of £0.2 million in 2007 (2006: £0.1million). GROUP INCOME STATEMENT Notes Six months Six months Year ended to 30th June to 30th June 31st December 2007 2006 2006 £'000 £'000 £'000 Revenue 2 200,120 185,855 384,249Operating costs (168,711) (157,643) (322,308)Operating profit 2 31,409 28,212 61,941 Financial expenses (6,722) (5,798) (11,722)Financial income 7,667 6,967 13,757Net financing income 3 945 1,169 2,035 Share of profit of associates 620 636 1,368Profit before taxation 32,974 30,017 65,344Taxation 4 (11,089) (9,804) (21,278)Profit for the period 21,885 20,213 44,066 Attributable to: Equity holders of the parent 21,837 20,099 43,919 Minority interest 48 114 147Profit for the period 21,885 20,213 44,066 Earnings per shareBasic earnings per share 5 28.8p 26.2p 57.7pDiluted earnings per share 5 28.6p 26.0p 57.1p DividendsDividend paid per share 19.0p 17.0p 24.5pDividend proposed per share 8.3p 7.5p 19.0p £'000 £'000 £'000Dividend paid 14,413 13,047 18,715Dividend proposed 6,303 5,685 14,370 GROUP BALANCE SHEET Notes 30th June 30th June 31st December 2007 2006 2006 £'000 £'000 £'000 ASSETSNon-current assets Property, plant and equipment 88,185 85,349 88,802Goodwill 17,815 15,328 17,541Other intangible assets 8,853 8,187 8,866Prepayments 316 443 352Investment in associates 7,235 3,498 3,790Deferred tax 5,312 13,922 13,738 127,716 126,727 133,089Current assets Inventories 71,823 68,512 67,707Trade receivables 87,394 81,623 90,023Other current assets 11,477 10,212 8,382Tax recoverable 1,363 869 1,746Cash and cash equivalents 6 23,271 21,498 22,085 195,328 182,714 189,943Total assets 323,044 309,441 323,032 EQUITY AND LIABILITIESCurrent liabilities Trade and other payables 50,192 45,050 50,372Bank overdrafts 6 5,154 8,366 3,986Short term borrowing 6 7,133 1,881 5,934Current portion of long term borrowings 6 65 6,688 4,669Current tax payable 6,565 6,423 7,445 69,109 68,408 72,406Net current assets 126,219 114,306 117,537 Non-current liabilities Long term borrowings 6 18,145 2,374 14,050Deferred tax 6,527 8,044 6,386Post-retirement benefits 2,546 32,080 29,592Provisions 857 759 876 28,075 43,257 50,904Total liabilities 97,184 111,665 123,310Net assets 225,860 197,776 199,722 Equity Share capital 19,299 19,292 19,296Share premium account 47,267 47,128 47,228Other reserves (2,452) 3,276 (1,850)Retained earnings 160,614 127,404 133,835Equity attributable to equity holders of the parent 7 224,728 197,100 198,509Minority interest 1,132 676 1,213Total equity 225,860 197,776 199,722 Total equity and liabilities 323,044 309,441 323,032 GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE Six months Six months Year ended to 30th June to 30th June 31st December 2007 2006 2006 £'000 £'000 £'000 Actuarial gain on post-retirement benefits 20,450 11,436 (2,939)Deferred tax on actuarial gain on post retirementbenefits (6,207) (3,282) 1,142Foreign exchange translation differences (577) (4,541) (9,574)Losses on cash flow hedges (24) 263 170Income and expense recognised directly in equity 13,642 3,876 (11,201)Profit for the period 21,885 20,213 44,066Total recognised income and expense for the period 35,527 24,089 32,865 Attributable to Equity holders of the parent 35,479 23,975 32,718 Minority interest 48 114 147Total recognised income and expense for the period 35,527 24,089 32,865 GROUP CASH FLOW Notes Six months Six months Year ended to 30th June to 30thJune 31st December 2007 2006 2006 £'000 £'000 £'000 Cash flows from operating activities Profit before taxation 32,974 30,017 65,344Depreciation and amortisation 6,958 6,794 13,364Share of profit of associates (620) (636) (1,368)Equity settled share plans 844 664 860Net finance income (945) (1,169) (2,035)Operating profit before changes in workingcapital and provisions 39,211 35,670 76,165Increase in trade and other receivables (916) (3,267) (12,662)Increase in inventories (4,407) (5,651) (6,248) Decrease in provisions and post-retirementbenefits (5,581) (1,014) (15,887)Decrease in trade and other payables (167) (775) 5,184Cash generated from operations 28,140 24,963 46,552Interest paid (880) (395) (1,137)Income taxes paid (8,767) (8,416) (16,484)Net cash from operating activities 18,493 16,152 28,931 Cash flows from investing activities Purchase of property, plant & equipment (5,741) (6,751) (17,935)Proceeds from sale of property, plant & equipment 360 409 660Purchase of software (649) (227) (1,678)Development expenditure capitalised (822) (543) (989)Acquisition of businesses (744) (1,601) (3,969)Interest received 261 634 983Dividends received 227 126 477Net cash used in investing activities (7,108) (7,953) (22,451) Cash flows from financing activities Proceeds from issue of share capital 42 1,611 1,132Proceeds from reissue of treasury shares 1,695 - 2,696Treasury shares purchased - (13,721) (18,082)Increase in borrowings 6 1,264 (22,814) (7,544)Increase in finance lease liabilities 6 26 (110) (88)Dividends paid (14,497) (13,047) (18,843)Net cash used in financing activities (11,470) (48,081) (40,729) Net decrease in cash and cash equivalents 6 (85) (39,882) (34,249)Cash and cash equivalents at beginning of period 6 18,099 53,093 53,093Exchange movement 6 103 (79) (745)Cash and cash equivalents at end of period 6 18,117 13,132 18,099 Borrowings and finance leases 6 (25,343) (10,943) (24,653)Net borrowings 6 (7,226) 2,189 (6,554) NOTES TO THE ACCOUNTS 1. BASIS OF PREPARATION The half year consolidated financial statements of Spirax-Sarco Engineering plcand its subsidiaries (the 'Group') have been prepared on the basis of theaccounting policies set out in the 2006 Spirax-Sarco Engineering plc AnnualReport. The comparative figures for the year ended 31st December 2006 do not constitutestatutory accounts within the meaning of section 240 of the Companies Act 1985.The consolidated statutory accounts for Spirax-Sarco Engineering plc in respectof the year ended 31st December 2006 have been reported on by the company'sauditors and delivered to the registrar of companies. The report of theauditors was unqualified and did not contain statements under section 237 (2) or(3) of the Companies Act 1985. The financial statements for the six monthsended 30th June 2007, which are unaudited, were authorised for issue by theBoard on 6th September 2007. 2. SEGMENTAL REPORTING Primary segment Six months Six months Year ended to 30th June to 30th June 2006 31st Dec. 2007 £'000 2006 £'000 £'000Revenue by geographical location of operation UK & Republic of Ireland 58,574 53,484 107,922Continental Europe 93,616 85,197 172,382North America 38,766 37,743 80,610Asia 36,228 34,198 72,208Rest of the world 24,319 24,228 48,273Intra-Group sales (51,383) (48,995) (97,146) 200,120 185,855 384,249 Six months Six months Year ended to 30th June to 30th June 31st Dec 2007 2006 2006 £'000 £'000 £'000Operating profit by geographical locationof operation UK & Republic of Ireland 7,546 5,721 10,957Continental Europe 12,093 10,179 22,435North America 2,680 3,578 8,732Asia 6,669 6,496 15,120Rest of the world 2,421 2,238 4,697 31,409 28,212 61,941 Six months Six months Year ended to 30th June to 30th June 31st December 2007 2006 2006 £'000 £'000 £'000Revenue by geographical location of customers UK & Republic of Ireland 22,414 20,468 40,695Continental Europe 75,703 68,529 138,299North America 38,393 37,647 79,956Asia 39,345 36,305 77,138Rest of the world 24,265 22,906 48,161 200,120 185,855 384,249 Secondary segment Six months Six months Year ended to 30th June to 30th June 31st December 2007 2006 2006 £'000 £'000 £'000 Revenue by business operation Spirax Sarco 174,056 161,225 332,655Watson-Marlow Bredel 26,064 24,630 51,594Group revenue 200,120 185,855 384,249 3. NET FINANCING INCOME Six months Six months Year ended to 30th June to 30th June 31st December 2007 2006 2006 £'000 £'000 £'000 Financial expenses Bank and other borrowing interest payable (880) (398) (1,137) Interest on pension scheme liabilities (5,842) (5,400) (10,585) (6,722) (5,798) (11,722)Financial incomeBank interest receivable 264 635 1,038Expected return on pension scheme assets 7,403 6,332 12,719 7,667 6,967 13,757Net financing income 945 1,169 2,035 Net pension scheme financial income 1,561 932 2,134Net bank interest (616) 237 (99)Net financing income 945 1,169 2,035 4. TAXATION Taxation has been estimated at the rate expected to be incurred in the fullyear. Six months Six months Year ended to 30th June to 30th June 31st December 2007 2006 2006 £'000 £'000 £'000 United Kingdom corporation tax - 1,196 141Overseas taxation 8,884 7,939 16,482Deferred taxation 2,205 669 4,655 11,089 9,804 21,278 5. EARNINGS PER SHARE Six months Six months Year ended to 30th June to 30th June 31st December 2007 2006 2006 £'000 £'000 £'000 Earnings 21,837 20,099 43,919 Weighted average shares in issue 75,760,224 76,669,026 76,161,612Dilution 687,007 772,879 733,050Diluted weighted average shares in issue 76,447,231 77,441,905 76,894,662 Basic earnings per share 28.8p 26.2p 57.7pDiluted earnings per share 28.6p 26.0p 57.1p The dilution is in respect of unexercised share options and the performanceshare plan. 6. ANALYSIS OF CHANGES IN NET BORROWINGS At Cash flow Exchange At 1st Jan 2007 movement 30 th June 2007 £'000 £'000 £'000 £'000 Current portion of long term borrowings (4,669) (65)Non-current portion of long term borrowings (14,050) (18,145)Short term borrowing (5,934) (7,133)Total borrowings (24,653) (25,343) Comprising:Borrowings (24,300) (1,264) 598 (24,966)Finance Leases (353) (26) 2 (377) (24,653) (1,290) 600 (25,343) Cash and cash equivalents 22,085 1,175 11 23,271Bank overdrafts (3,986) (1,260) 92 (5,154)Net cash and cash equivalents 18,099 (85) 103 18,117 Net borrowings (6,554) (1,375) 703 (7,226) 7. GROUP STATEMENT OF CHANGES IN EQUITY Six months Six months Year ended to 30th June to 30th June 31st December 2007 2006 2006 £'000 £'000 £'000 Shareholders' funds at beginning of period 198,509 197,618 197,618 Total recognised income and expense for the period 35,479 23,975 32,718Dividends paid (14,413) (13,047) (18,715) Increased investment in associated company 2,705 - -Equity settled share plans net of tax 711 664 1,142 Proceeds of issue of share capital 42 1,611 1,132 Treasury shares purchased - (13,721) (18,082) Treasury shares reissued 2,852 - 3,777 Loss on the reissue of treasury shares (1,157) - (1,081) Equity attributable to equity holders of parent at endof period 224,728 197,100 198,509 8. CAPITAL EMPLOYED An analysis of the components of capital employed is as follows: 30th June 30th June 31st December 2007 2006 2006 £'000 £'000 £'000 Property, plant and equipment 88,185 85,349 88,802Prepayments 316 443 352Inventories 71,823 68,512 67,707Trade receivables 87,394 81,623 90,023Other current assets 11,477 10,212 8,382Tax recoverable 1,363 869 1,746Trade and other payables (50,192) (45,050) (50,372)Current tax payable (6,565) (6,423) (7,445) 203,801 195,535 199,195 9. Copies of the Interim Report will be sent on 7th September 2007 toshareholders and can be obtained from our registered office at Charlton House,Cirencester Road, Cheltenham, Gloucestershire GL53 8ER. From 7th September 2007the Interim Report will be available on our website atwww.SpiraxSarcoEngineering.com. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Spirax-Sarco