2015 Half Year Results for half year ending 30 th June 2015 Bill - - PowerPoint PPT Presentation

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2015 Half Year Results for half year ending 30 th June 2015 Bill - - PowerPoint PPT Presentation

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2015 Half Year Results for half year ending 30 th June 2015 Bill Whiteley Chairman Nick Anderson Chief Executive David Meredith Finance Director Agenda 2015 H1 Highlights 2015 H1 Financial Review Operations and Outlook Appendices

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2015 Half Year Results

for half year ending 30th June 2015

Bill Whiteley – Chairman Nick Anderson – Chief Executive David Meredith – Finance Director

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2015 Half Year Results 30th June 2015 2

Agenda

2015 H1 Highlights 2015 H1 Financial Review Operations and Outlook Appendices

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2015 Half Year Results 30th June 2015 3

  • Organic sales growth of 3%
  • Operating profit up 3% at constant currency excluding India start-up and UK

headcount reduction costs

  • Underlying operating profit margin maintained
  • Currency headwind reduced sales on translation by 2.6% versus first half 2014
  • Strong growth in Watson-Marlow Fluid Technology business
  • 98% cash conversion and interim dividend +7%

* See Appendix IV for definition of profit measures

2015 First half year highlights

30th June 2015 30th June 2014 Reported sales £320.0m £319.2m Organic sales +3% +4% Operating profit margin* 20.6% 21.0% EPS* 60.5p 61.7p DPS 20.8p 19.5p

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2015 Half Year Results 30th June 2015 4

Agenda

David Meredith 2015 H1 Financial Review

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2015 Half Year Results 30th June 2015 5 * See Appendix IV for definition of profit measures

Financial aspects

30th June 2015 30th June 2014 Change Constant currency Revenue £320.0m £319.2m 0% +3% Operating profit* £65.8m £67.1m

  • 2%

0% Margin* 20.6% 21.0%

  • 40 bps
  • 50 bps

Net finance expense (£0.6m) (£1.5m) Associates £0.2m £0.7m Pre-tax profit* £65.5m £66.3m

  • 1%

+1% Tax rate (exc Associate) 30.4% 30.1% EPS* 60.5p 61.7p

  • 2%

0% DPS 20.8p 19.5p +7% +7%

  • Sales up 3% at

constant currency

  • Operating profit

+3% constant ccy excluding UK headcount reduction costs and start-up costs in India

  • Sale of Indian JV

reduced profit from Associates

  • Small increase in

tax rate

  • Reduced shares

in issue - share consolidation

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2015 Half Year Results 30th June 2015 6

Translation Index

Translation Index 2014 H1 2014 Year 2015 H1 2015 Year 2.6% H1 translation impact

  • n sales

4% projected full year translation impact on sales

Currency movements

FX translation impact on sales 2015

Based on Spirax Sarco sales-weighted currency translation index

Actual Projected

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2015 Half Year Results 30th June 2015 7

Profit bridge

Underlying increase in profit

  • FX impact of

£1.5m

  • Indian start-up

costs of nearly £1m

  • Net £0.5m UK

headcount reduction costs

  • £1.7m underlying

profit increase. Good gains in Watson-Marlow and EMEA, partially offset by lower profit in Asia Pacific

* See Appendix IV for definition of profit measures

67.1 (1.5) (1.0) (0.5) 65.8

  • 10

10 20 30 40 50 60 70 80

58.0 60.0 62.0 64.0 66.0 68.0

H1 2014 FX India start- up UK headcount reduction Underlying profit increase H1 2015 1.7

£m

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2015 Half Year Results 30th June 2015 8

H1 operating profit margin of 20.6%

15.0% 15.3% 15.8% 17.1% 15.0% 19.3% 19.9% 18.6% 20.6% 21.0% 16.6% 17.1% 17.1% 17.0% 19.5% 21.0% 21.3% 22.4% 23.3% 23.9%

0% 5% 10% 15% 20% 25% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

H1 H2

20.6%

  • Material costs flat
  • Favourable

business/product mix in 2014 not repeated

  • EMEA +30 bps at

constant currency, +70 bps excluding UK headcount reduction costs

  • Asia Pac margin

lower – weaker performance in Korea, start-up costs in India and SE Asia market development costs

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2015 Half Year Results 30th June 2015 9 * See Appendix I and IV for definition of ROCE and profit measures

Adjusted cash flow

Pounds (£) millions 30th June 2015 30th June 2014 Adjusted operating profit* 65.8 67.1 Depreciation and share schemes 13.8 13.0 Working capital (1.6) (7.1) Capital expenditure (net including R&D) (13.4) (18.7) Adjusted cash from operations 64.6 54.3 Interest received/(paid) 0.7 (0.1) Tax paid (24.2) (24.5) Free cash flow 41.1 29.7 Dividends paid (net) (34.2) (31.1) Special pension payments/provisions/restructuring (0.6) (2.6) Shares issues/purchased (net) 1.9 2.5 Acquisitions net of disposal (0.6) (9.1) Adjustments (0.5) (0.5) Cash flow for the period 7.1 (11.1) Net cash/(debt) balance 53.5 (1.5) ROCE 43.5% 42.1%

  • Very good cash

flow performance

  • 98% cash

conversion

  • Outflow of £7m

for acquisition of Asepco, inflow of £6m in respect of sale of Associate in India

  • Net cash of

£53.5m

  • Special dividend

£91m paid July

  • Improved ROCE
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2015 Half Year Results 30th June 2015 10

Underlying operating margin factors

Effects on underlying margins*

  • Currency effect
  • n margin broadly

neutral

  • Cost of materials

broadly flat

  • Cost savings from

UK and USA actions benefit second half

  • Favourable 2014

mix not repeated

  • Increased market

development costs in India and South East Asia

H1 2015 H2 2015 Currency movements Operating leverage Sales pricing (vs. inflation) Material prices Manufacturing strategies Business & product mix Business development investment

* The arrows as shown are qualitative and indicate direction only

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2015 Half Year Results 30th June 2015 11

Agenda

Nick Anderson Operations and Outlook

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2015 Half Year Results 30th June 2015 12

Europe, Middle East & Africa (EMEA)

30th June 2014

Exchange Organic Acquisitions

30th June 2015 Change Constant currency Sales £119.3m

(£10.6m) £3.1m

  • £111.8m
  • 6%

+3% Op profit* £24.2m

(£3.9m) £1.0m

  • £21.3m
  • 12%

+5% Margin* 20.3% 19.0%

  • 130 bps

+30 bps

  • Organic sales up 3%, despite low growth of industrial production
  • Sales growth in Italy, Germany, Iberia, South Africa
  • Strong exchange headwinds reduce sales by 9%
  • Manufacturing demand lower; cost reduction actions in UK
  • Operating profit up 5%; H2 benefits from UK cost reductions
  • Divested M&M (Italy) due to low strategic fit
  • Expect modest market pick up in H2

* See Appendix IV for definition of profit measures

35%

  • f Group sales
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2015 Half Year Results 30th June 2015 13

Asia Pacific

  • Sales down 5%; widespread economic slowdown
  • China sales marginally lower; projects down, better base business
  • Korea results down; project delays but higher order book
  • New company in India commenced trading; exciting growth prospects
  • Operating profit down 17%; 11% lower excluding India’s pre-op. expenses
  • Higher order book benefits H2 profit; India £1m trading loss in H2
  • Remain positive on the region despite short-term uncertainties

30th June 2014

Exchange Organic Acquisitions

30th June 2015 Change Constant currency Sales £75.5m

£3.0m (£4.2m)

  • £74.3m
  • 2%
  • 5%

Op profit* £16.8m

£1.8m (£3.1m)

  • £15.5m
  • 8%
  • 17%

Margin* 22.2% 20.9%

  • 130 bps
  • 280 bps

* See Appendix IV for definition of profit measures

  • f Group sales

23%

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2015 Half Year Results 30th June 2015 14

Americas

  • Organic sales up 2%; North America down, Latin America ahead
  • North America – large projects down; modest pick-up smaller projects
  • USA increasing direct sales and sector focus; stepped up sales training
  • Latin America – sales growth driven by Argentina and Mexico; Brazil flat
  • Argentina’s inflation eroding benefits from 2014 devaluation
  • Closed meter manufacturing plant in USA; £0.6m benefit in H2
  • Remain positive on the region; expect H2 pick-up in USA

30th June 2014

Exchange Organic Acquisitions

30th June 2015 Change Constant currency Sales £59.8m

£0.2m £1.0m

  • £61.0m

+2% +2% Op profit* £11.9m

  • (£0.1m)
  • £11.8m
  • 1%
  • 1%

Margin* 19.8% 19.3%

  • 50 bps
  • 50 bps

* See Appendix IV for definition of profit measures

  • f Group sales

19%

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2015 Half Year Results 30th June 2015 15

Watson-Marlow

  • Organic sales up exceptional 13%; Asepco acquired in Q2
  • Exceptional sales growth in USA; good growth in EMEA
  • Sales up in most industries; strong performance in biopharm
  • Exchange transaction gains in USA
  • Reversed 2014’s favourable mix effect on profits
  • New products continue to contribute well; active pipeline
  • Acquired MasoSine manufacturing and distribution rights in Japan

30th June 2014

Exchange Organic Acquisitions

30th June 2015 Change Constant currency Sales £64.5m

(£0.9m) £8.1m £1.1m

£72.8m +13% +14% Op profit* £19.3m

£0.5m £1.8m £0.2m

£21.8m +13% +10% Margin* 29.9% 29.9% 0 bps

  • 120 bps

* See Appendix IV for definition of profit measures

  • f Group sales

23%

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2015 Half Year Results 30th June 2015 16

  • 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Developed (OECD) Emerging (Non-OECD) Global

Annual IP growth rates by quarter 2012-2015

Actual Projected

2012 2013 2014 2015

Source: CHR Economics - June 2015

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2015 Half Year Results 30th June 2015 17

Implementing our strategy

Taking action to outperform our markets

  • Stepping up strategic investments for growth
  • Increasing sector focus of sales organisation
  • Strengthening direct sales channel in USA
  • Initiated direct sales in India; exited Associate company
  • Three acquisitions and one disposal in 2015
  • Stepped up training of sales and support teams; new training centres
  • Expanding IT systems for sales, manufacturing, product development
  • Improving business efficiencies
  • Reduced plant overheads in UK
  • Closed loss-making plant in USA
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2015 Half Year Results 30th June 2015 18

Case study: customer value propositions

  • The problems: product damaged by superheated steam; steam system

inefficiencies; and high costs

  • The requirement: improved steam system efficiency and steam quality
  • The solution: deaerator pressure increased improving boiler efficiency;

controls and heat recovery equipment installed to manage efficient boiler blowdown; pressure reducing stations for improved steam temperature control

  • The result: fuel savings of £170,000/year; CO₂ emissions down 2,500

tonnes/year; lower water usage; improved quality; less product scrapped

Spirax Sarco Chile delivers wide range of benefits at Agrosuper’s animal feed plant, including improved product quality and energy savings Engineered solutions tailored to customer’s needs

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2015 Half Year Results 30th June 2015 19

Case study: applied solutions

Nearly £1 million of Spirax Sarco products installed in P&O’s flagship cruise liner Britannia, built by Fincantieri in Italy

  • The problem: reliable and efficient steam and water management
  • The requirement: meet water and steam needs for swimming pools,

potable water, space heating, air conditioning, laundry, engine cooling and window washing

  • The solution: 39 pre-fabricated units for pressure reduction,

temperature control and condensate recovery; 8 engineered packages for distilled water pressurization, condensate recovery and engine water pre-heating; 1,140 strainers; 950 steam traps; 420 bellows sealed stop valves; 70 safety valves; 16 control valves; and 24 heat exchangers

  • The result: state-of-the-art installation, two-week on-board trial tests;

all needs met prior to maiden voyage

Large scale solutions through technical expertise and service

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2015 Half Year Results 30th June 2015 20

Case study: product superiority

  • The problem: 1,000 litres of liquid soap manually transferred from

manufacturing vessel to moulds daily

  • The requirement: automated, efficient process to transfer soap

without lather or bubbles

  • The solution: Bredel 32 hose pump. Gentle product handling and

lower shear operation prevent bubbles forming in clear soap; higher efficiency and energy savings over other pump types

  • The result: 1,000 litres of soap pumped in 30 minutes daily

Bredel 32 hose pump from Watson-Marlow automates liquid soap transfer for Droyt Products Ltd in the UK Winning through superior products and application expertise

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2015 Half Year Results 30th June 2015 21

  • Organic sales up 3% at constant currency
  • Operating profit up 3% at constant currency (excl. India, UK costs)
  • Exchange headwind of 2.6% on sales and 2.3% on profit
  • Strong balance sheet, cash conversion of 98%
  • Dividend increased 7%
  • Implementing strategy to accelerate growth, improve efficiencies
  • Progress expected in 2015

Summary

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2015 Half Year Results 30th June 2015 22

Spirax-Sarco Engineering plc

Focused on consistent growth and creating shareholder value

Interim results to 30th June 2015

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Appendices

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2015 Half Year Results 30th June 2015 24

Appendix I -

Return on capital employed

Pounds (£) millions

30th June 2015 30th June 2014 Working Capital Inventories 98.8 111.3 Trade receivables 133.2 132.6 Prepayments, other current assets 30.1 25.4 Capital employed element of business held for sale 4.7

  • Trade, other payables & current tax

(88.7) (91.6) Total working capital 178.1 177.7 Property, plant & equipment 164.7 177.1 Total Capital Employed 342.8 354.8 Average Capital Employed 348.8 358.0 Adjusted Operating Profit (last 12 months)* 151.6 150.6 ROCE* 43.5% 42.1% Working Capital/Sales 26.2% 26.2%

* See Appendix IV for definition of profit measures

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2015 Half Year Results 30th June 2015 25

Appendix II -

Cash conversion

Pounds (£) millions

30th June 2015 30th June 2014 Adjusted cash generated from operations 64.6 54.3 Adjusted Operating Profit* 65.8 67.1 Cash conversion 98% 81%

* See Appendix IV for definition of profit measures

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2015 Half Year Results 30th June 2015 26

Appendix III -

Currencies

30th June 2015 30th June 2014 Change % Average exchange rates Bank of England sterling index 90.6 86.4

  • 5%

US$ 1.53 1.67 +9% Euro 1.36 1.22

  • 10%

RMB 9.53 10.33 +8% Won 1,685 1,751 +4% Real 4.53 3.84

  • 15%

Yen 185 172

  • 7%

Australian $ 1.96 1.83

  • 7%

Rouble 89.74 58.28

  • 35%

Turkish Lira 3.92 3.61

  • 8%
  • Bank of

England Sterling index strengthened by 5% overall

  • US$ and RMB

stronger by

  • ver 8%
  • Euro 10%

weaker

  • Larger double-

digit weakness in some emerging economies

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2015 Half Year Results 30th June 2015 27

Appendix IV -

2015 note on first half profit measures

The Group uses adjusted figures as key performance measures in addition to those reported under adopted IFRS. The Group’s management believes these measures provide valuable additional information for users of the financial statements in understanding the Group’s performance. Adjusted operating profit excludes certain non-operational items which are analysed below.

Pounds (£) millions

30th June 2015 30th June 2014

Amortisation and impairment of acquisition-related intangible assets 2.2 2.0 USA meter manufacturing facility closure costs 3.8

  • Acquisition and disposal costs

0.4 0.5 Total 6.4 2.5