6th Sep 2005 07:00
Spirax-Sarco Engineering PLC06 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 furtherincreases in sales and profits together with a strong cash position. Theeconomies in the Americas appear to be continuing to grow and, assuming nodeterioration here or in our major markets elsewhere, we expect to continue tomake progress, although the comparison in the second half will be with therelatively strong second half of 2004." Enquiries: Marcus Steel Chief ExecutiveDavid 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 furtherincreases in sales and profits together with a strong cash position. The implementation of our plans for continued growth in our industrial steam andperistaltic pumping businesses enabled us to increase sales strongly in Asia andthe Rest of the World; we also saw good growth in North America. The marketsin Continental Europe and the UK remained difficult but, despite this, weincreased our sales in these territories. These results have been prepared under International Financial ReportingStandards (IFRS) and all comparisons are with 2004 results restated to complywith IFRS. Worldwide sales increased by 9% during the first half of 2005 to £166.6 millionfrom £152.9 million. This comprises organic growth of 7%, an exchange gain of1% and a contribution from acquisitions of 1%. Operating profit increased by 13% to £25.0 million (2004: £22.1m) and theoperating profit margin improved to 15.0% from 14.4%, mainly due to the salesincrease. Demand on our factories increased and higher material and energycosts were offset by our continuing programme of resourcing materials in Asiaand productivity improvements. Net finance income was £0.6 million in 2005 compared with a net charge of £0.2million in the first half of 2004. This results partly from the strong cashflow over the last twelve months and partly from an improved net finance incomein respect of pension funds. The Group's share of profits of Associatesincreased to £0.4 million (2004: £0.3 million). The tax charge of 33% was similar to 2004 and the profit attributable to equityshareholders increased by 18% to £17.4 million. Earnings per share increased by17% to 23.0p from 19.7p in the corresponding period last year. TRADING Our two niche businesses - the Spirax Sarco industrial steam business and theWatson-Marlow Bredel peristaltic pump business - are world leaders in theirfocused markets. They have achieved this position by supplying knowledge,service and products which provide customers with benefits such as energysaving, cost reduction, improved product quality or higher output. This ispossible because we have over 1,000 sales and service engineers worldwide whoare specialists in the application of our products and so able to solvecustomers' pumping or process heating problems. The UK market showed no sign of improvement; industrial production andinvestment 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 October2004) with higher sales to the petrochemical and pharmaceutical sectors. Theoperating profit, at £3.4 million, was marginally ahead after increases inpension costs and share-based payments. The Continental European economies remained weak and our industrial markets wereflat although our sales increased by 3%, including a small exchange benefit. InGermany, sales grew, helped by extra business in Watson-Marlow Bredel and theHygromatik humidifier businesses. The economies in France and Italy were weak.Sales in France were lower, while sales in Italy were flat overall despiteincreases in sales to shipyards and of peristaltic pumps. In Spain, althoughsales were lower, the mix of business was better and profits were up. InFinland, Poland and Norway, we grew sales well but in the Czech and SlovakRepublics, Portugal and Sweden the sales were down, although for Sweden thecomparison is with a very strong performance in 2004. Operating profit in theregion increased by 4% to £10.0 million, most of the increase being due toexchange rate movements. Business in Asia has grown well with sales up 17%. The Korean Wonstrengthened significantly and the underlying increase at constant exchange wastherefore 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 andpetrochemical industries. Our Thai and Taiwanese companies also grew sales wellbut in Japan business was flat and the market continues to be subdued. Theoperating profit in Asia increased by 29% to £5.0 million including an exchangegain. In North America, there was a good increase in sales of 9% and, excludingadverse exchange movements, the underlying increase was 12%. The US economy isstill growing and there has been a better than expected level of customerconfidence. Watson-Marlow Bredel has grown shipments to sanitary, OEM and watertreatment applications, and Spirax Sarco Inc. also achieved a good increase insales levels, notably of packaged systems and energy services. Operating profitin North America, at £3.2 million, was 29% ahead of 2004 despite adverseexchange 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 foran exchange benefit, gives an underlying increase of 17%. Our operations inBrazil and Argentina performed well with higher sales and profits. InAustralia, business levels were quiet and in South Africa, while sales were up,margins were under pressure and profits were down. The operating profit in theRest 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 disclosedseparately under "Associates" and their results were well ahead of 2004. BALANCE SHEET AND CASH FLOW Capital employed (property, plant and equipment, inventories, debtors andcreditors) increased by 5% to £186 million compared with a year earlier.Excluding exchange movements the underlying increase was 3% as we maintained ourcontrols on working capital. Capital expenditure was £6.0 million and, althoughthis was below the long-term trend, we continue to invest in capital projects toimprove productivity and expand our global sales presence. Dividend paymentswere £11.5m during the half year. We also spent a total of £4.9 million on theacquisition in June of the Mitech group of controls companies in South Africaand the EMCO metering business in the USA. The exercise of options, which aregranted to a relatively large pool of senior managers across the world, broughtin £4.5 million of cash during the period. There was a small net cash positionat 30th June 2005 of £1.5 million compared with net cash of £1.3 million at thebeginning 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 periodby £8 million to £36 million due to lower bond yields, mitigated by improvedstock market performance. DIVIDEND The Board has declared an interim dividend of 6.8p (2004: 6.3p) per ordinaryshare, an increase of 8%, which will be paid on 11th November 2005 toshareholders on the register at the close of business on 14th October 2005. Noscrip alternative to the cash dividend is being offered in respect of the 2005interim dividend. BOARD CHANGES During the first half of 2005, both Tim Fortune and Chris Ball retired from theBoard after long and distinguished careers with Spirax. They contributed agreat deal to the Group's success over the years through their energy andenthusiasm and we owe them both a debt of gratitude, which I am pleased toacknowledge. We welcome Tony Scrivin to the Board as director responsible for most of thesales operations in Europe. We also welcome Gareth Bullock, a director ofStandard Chartered Bank, as a non-executive director, both appointments takingeffect from 2nd May 2005. PROSPECTS The Group achieved a good performance in the first half against a mixed butrelatively benign economic background. The economies in the Americas appear tobe continuing to grow and, assuming no deterioration here or in our majormarkets elsewhere, we expect to continue to make progress, although thecomparison in the second half will be with the relatively strong second half of2004." 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 166,611 152,946 315,991Operating 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 48,704Taxation (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 32,314Minority interest 102 174 128 Profit for the period 17,494 14,922 32,442 Earnings per shareBasic earnings per share 23.0p 19.7p 43.1pDiluted earnings per share 22.8p 19.6p 42.7p DividendsDividend paid per share 15.1p 14.1p 20.4pDividend proposed per share 6.8p 6.3p 15.1p £'000 £'000 £'000Dividend paid 11,459 10,552 15,289Dividend 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 ASSETSNon-current assets Property, plant and equipment 84,306 79,740 83,514Goodwill 14,122 11,008 11,862Other intangible assets 8,411 6,934 6,988Prepayments 356 365 345Investment in associates 3,061 2,233 2,494Deferred tax 22,225 18,463 17,868 132,481 118,743 123,071 Current assetsInventories 61,186 57,352 58,229Trade receivables 78,978 72,234 76,021Other current assets 10,376 9,892 8,388Cash 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 LIABILITIESCurrent liabilitiesTrade and other payables 44,157 38,075 43,429Bank overdrafts 7,953 13,529 4,842Current portion of long term borrowings 7,605 6,521 8,183Current 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 liabilitiesLong term borrowings 29,765 35,663 34,432Tax payable 60 74 -Deferred tax 10,728 9,192 10,035Post-retirement benefits 54,059 46,841 41,335Provisions 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 EquityShare capital 19,053 18,725 18,800Share premium account 42,289 36,588 38,024Other reserves 6,139 6,091 6,139Retained earnings 101,371 82,062 101,008 Equity attributable to equity holders of the parent 168,852 143,466 163,971Minority 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) 2,929Foreign 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) 1,911Profit for the period 17,494 14,922 32,442 Total recognised income and expense for the period 11,720 11,260 34,353 Attributable toEquity holders of the parent 11,618 11,086 34,225Minority 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 periodas previously reported under UK GAAP 178,041 160,650 160,650IFRS adjustments (14,070) (18,464) (18,464) Equity attributable to equity holders of parent atbeginning of period 163,971 142,186 142,186Implementation of IAS 32 and IAS 39 (58) - - As adjusted at beginning of period 163,913 142,186 142,186Total recognised income and expense for the period 11,618 11,086 34,225Dividends paid (11,459) (10,552) (15,289)Net proceeds of issue of shares 4,518 627 2,138Equity settled share plans 262 119 711 Equity attributable to equity holders of parent at endof 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 activitiesProfit before taxation 25,982 22,237 48,704Depreciation and amortisation 6,142 6,227 13,030Share of profit of associates (384) (306) (735)Equity settled share plans 436 85 357Net finance income (567) 157 (13) Operating profit before changes in working capital and 31,609 28,400 61,343provisionsIncrease in trade and other receivables (3,701) (6,897) (6,875)Increase in inventories (1,899) 500 619Increase 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 62,203Interest 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 activitiesPurchase of property, plant & equipment (5,972) (5,977) (14,395)Proceeds from sale of property, plant & equipment 492 322 641Development expenditure capitalised (600) (296) (674)Acquisition of subsidiaries (4,943) - (803)Interest received 896 622 1,517Dividends received 47 24 71 Net cash used in investing activities (10,080) (5,305) (13,643) Cash flows from financing activitiesProceeds from issue of share capital 4,518 627 2,138Repayment 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 29,120Exchange 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 plcand its subsidiaries (the 'Group') have been prepared in accordance with therecognition and measurement criteria of International Financial ReportingStandards (IFRS) in issue that are endorsed, or are expected to be endorsed bythe 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 adoptedIFRS. Based on these IFRS the directors have made assumptions about theaccounting policies expected to be applied when the first annual IFRS financialstatements are prepared for the year ending 31st December 2005. In particular,the directors have assumed that IAS 19 (revised) issued by the InternationalAccounting Standards Board (IASB) will be adopted by the EU in sufficient timethat it will be available for use in the annual IFRS financial statements forthe year ending 31st December 2005. The adopted IFRS that will be effective (or available for early adoption) in thefinancial statements for the year ending 31st December 2005 are still subject tochange and to additional interpretations and therefore cannot be determined withcertainty. Accordingly, the accounting policies for the annual period will onlybe determined finally when the financial statements are prepared. On 12th July 2005, the Group announced a restatement of its 2004 results underIFRS. This included details of the accounting policies applied in restating itsfinancial statements and reconciliations from UK GAAP to IFRS at transition (1stJanuary 2004) and for both the 2004 half year and full year. This announcementis available from the Company's web site at www.SpiraxSarcoEngineering.com or copies can be requested from the CompanySecretary. Under IFRS 1 'First-time adoption of IFRS' the Group is required to determineits IFRS accounting policies at 31st December 2005 and apply theseretrospectively. However, the standard allows a number of exceptions to thisgeneral principle to assist companies as they change to report under IFRS.Detailed explanations of the areas where the Group has taken advantage of theseexemptions are included in the 12th July 2005 IFRS restatement. One of theseexemptions is that the Group has elected to adopt IAS 32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'Financial instruments: Recognitionand Measurement' prospectively from 1st January 2005. Consequently, until 31stDecember 2004, the Group continued to hedge account under UK GAAP for forwardexchange contracts. The effect of the implementation of IAS 32 and IAS 39 isshown in the Group Statement of Changes in Equity on page 7. The preparation of financial statements in conformity with IFRS requiresmanagement to make judgments, estimates and assumptions that affect theapplication of policies and reported amounts of assets and liabilities, andincome and expenses. The estimates and associated assumptions are based onhistorical experience and various other factors that are believed to bereasonable under the circumstances, the results of which form the basis ofmaking the judgments about carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from theseestimates. The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognised in the period in which theestimate is revised if the revision affects only that period or in the period ofthe revision and future periods if the revision affects both current and futureperiods. The comparative figures for the year ended 31st December 2004 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 2004, which were presented under UK GAAP, havebeen reported on by the company's auditors and delivered to the registrar ofcompanies. The report of the auditors was unqualified and did not containstatements under section 237 (2) or (3) of the Companies Act 1985. The interimfinancial statements for the six months ended 30th June 2005 were authorised forissue 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 97,419Continental Europe 77,503 74,190 149,334North America 32,990 30,237 64,950Asia 27,518 23,316 50,465Rest of the world 20,775 17,251 36,482Intra-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 £'000Operating profit by geographical locationof operationUK & Republic of Ireland 3,400 3,262 6,852Continental Europe 10,045 9,675 19,523North America 3,229 2,503 7,195Asia 5,007 3,867 9,067Rest 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 £'000Revenue by geographical location of customersUK & Republic of Ireland 21,040 20,183 39,922Continental Europe 62,356 60,532 121,164North America 32,583 29,824 64,119Asia 30,146 25,785 55,327Rest 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 operationSpirax Sarco 144,219 133,015 273,065Watson-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 benefitsExpected return on pension scheme assets 5,281 4,709 9,415Interest on pension scheme liabilities (4,826) (4,544) (9,088) 455 165 327 Bank interest receivable 899 624 1,518Bank 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 fullyear. 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 3,313Overseas taxation 6,601 5,842 12,750Deferred taxation 576 35 299Prior 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 74,931,130Dilution 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 43.1pDiluted 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 46,799Bank 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 83,514Prepayments 356 365 345Inventories 61,186 57,352 58,229Trade receivables 78,978 72,234 76,021Other current assets 10,376 9,892 8,388Trade 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. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Spirax-Sarco