2015 Results for year ended 31 st December 2015 Bill Whiteley - - PowerPoint PPT Presentation

2015 Results

for year ended 31st December 2015

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

2015 Results Year ended 31st December 2015 2

2015 Highlights 2015 Financial Review Operations and Outlook Appendices

Agenda

2015 Results Year ended 31st December 2015 3

2015 2014 Change Constant currency

Revenue £667.2m £678.3m

• 2%

+2% Operating profit* £152.4m £153.0m 0% +4% Margin* 22.8% 22.5% +30 bps +40 bps Pre-tax profit* £151.1m £151.1m 0% +4% Tax rate 29.8% 29.9% EPS* 142.6p 140.4p +2% +6% DPS 69.0p 64.5p +7% +7% Special dividend

• 120.0p
• * See Appendix IV for definition of profit measures.

2015 Highlights

• Organic sales increased 2%
• Record operating margin of 22.8%
• Another strong performance in Watson-Marlow
• Robust cash generation, 95% cash conversion
• Dividend increased by 7%

2015 Results Year ended 31st December 2015 4

David Meredith 2015 Financial Review

Agenda

2015 Results Year ended 31st December 2015 5

2015 Sales (£m) EMEA 219.4 Asia Pac 171.8 Americas 123.4 WM 152.6 Total 667.2 Organic sales versus 2014 Steam Spec 0% WM +9% Group +2%

Rates of change at constant currency.

+1%

• 4%

+1% +13%

• 4%

£m

% Change v 2014 H1 H2 Year

Organic sales +3% +1% +2% Acqns/Disposals +0% +1% +1% FX

• 3%
• 5%
• 4%

TOTAL +0%

• 3%
• 2%

Segment revenue changes

At constant currency

• 12.0
• 7.0
• 2.0

3.0 8.0 13.0 18.0 EMEA Asia Pac Americas Watson-Marlow FX

• £24m

2015 Results Year ended 31st December 2015 6

2015 Profit (£m) EMEA 42.7 Asia Pac 44.7 Americas 27.1 WM 48.0 Corp Exp (10.0) Total 152.4 2015 Margins EMEA 19.5% Asia Pac 26.0% Americas 22.0% WM 31.4%

% Change v 2014 H1 H2 Year

Operating profit (constant ccy) 0% +7% +4%

• Op. margin 2015

20.6% 24.9% 22.8%

• Op. margin 2014

21.0% 23.9% 22.5%

+11%

• 7%

0% +10%

• 4%

Based on adjusted profit at constant currency – see Appendix IV.

• 7.0
• 5.0
• 3.0
• 1.0

1.0 3.0 5.0 EMEA Asia Pac Americas Watson-Marlow FX

£m

Segment operating profit changes

At constant currency

2015 Results Year ended 31st December 2015 7 * See Appendix IV for definition of profit measures.

• Further FX

translation headwind of £6.3m

• Disposal of M&M
• £0.4m.

Acquisitions +£1.1m. Similar net full year effect in 2016

• Reduced profit in

Asia Pacific

• Good gains in

EMEA and Watson-Marlow

• Lower corporate

costs 4.6 3.2 1.1 0.8

£m

Profit bridge

2014 to 2015

0.0

125 130 135 140 145 150 155

2014 FX M&M Asia Pacific Americas EMEA Watson- Marlow Acq'ns Corporate 2015

153.0 152.4 (6.3) (0.4) (3.6)

2015 Results Year ended 31st December 2015 8 15.3% 15.8% 17.1% 15.0% 19.3% 19.9% 18.6% 20.6% 21.0%

20.6%

17.1% 17.1% 17.0% 19.5% 21.0% 21.3% 22.4% 23.3% 23.9%

24.9% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 H1 H2 Year

Record operating margin of 22.8%

2015 Results Year ended 31st December 2015 9 * See Appendix IV for definition of profit measures.

Pounds (£) million 2015 2014 Adjusted operating profit* 152.4 153.0 Depreciation and share schemes 25.5 25.1 Working capital (1.6) (14.5) Capital expenditure (including capitalised R&D) (30.8) (31.4) Adjusted cash from operations 145.5 132.2 Interest 0.8 (0.1) Tax paid (43.3) (41.9) Free cash flow 103.0 90.2 Dividends paid (net) (140.5) (45.1) Provisions/EMCO costs paid/special pension payments (1.4) (5.6) Shares issues/purchased (net) 4.7 2.2 Acquisitions and disposals (10.2) (10.0) Cash flow for the period (44.4) 31.7 Net cash balance 4.8 52.5 ROCE 44.1% 44.3%

• Strong cash

generation – 95% cash conversion

• Small working

capital outflow

• Increased tax

paid

• Dividends paid

£140m, including £91m special dividend

• Closing net cash
• f £4.8m

Robust cash flow

2015 Results Year ended 31st December 2015 10

• 10.0

10.0 30.0 50.0 70.0 90.0 110.0 130.0 150.0 170.0 190.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Pence per share DPS Interim DPS Final Special dividend

• ….
• Core dividend up

7% to 69.0p

• 9.9% pa increase
• ver last five and

11.2% over last ten years

• 48 year dividend

record, 10.9% pa increase

+11% +13% +11% +8% +19% 25p +14% +8% 100p +9% +11% 120p

Dividend growth

+7%

48.2p 20.8p

2015 Results Year ended 31st December 2015 11

2015 2016 Currency movements Operating leverage Sales pricing (vs. inflation) Material prices Manufacturing strategies Business and product mix Business development investment

* The arrows as shown are qualitative and indicate direction only.

Underlying margin factors

Effects on underlying margins*

2015 Results Year ended 31st December 2015 12

Nick Anderson Operations and Outlook

Agenda

2015 Results Year ended 31st December 2015 13

Annual IP growth rates by quarter 2012-2016

Actual Projected

2012 2013 2014 2015 2016

Source: CHR Economics – June 15 & Feb 16

• 2.0%
• 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Developed (OECD) Feb 16 Emerging (Non-OECD) Feb 16 Global Feb 16 Developed (OECD) Jun 15 Emerging (Non-OECD) Jun 15 Global Jun 15

2015 Results Year ended 31st December 2015 14

Europe, Middle East & Africa (EMEA)

31st Dec 2014

Exchange Organic Disposal

31st Dec 2015 Organic Constant currency Change Sales* £236.2m (£19.7m)

£4.9m (£2.0m)

£219.4m +2% +1%

• 7%

Op profit* £45.9m

(£7.4m) £4.6m (£0.4m)

£42.7m +12% +11%

• 7%

Margin* 19.4% 19.5% +170 bps +170 bps +10 bps

• Organic sales up 2%; sales growth in most operations
• UK modestly lower and Russia down; positive start in Egypt
• Currency headwinds reduced sales 8%; M&M disposal 1% reduction
• Operating profit up 11%; currency headwinds reduce by 16%
• Headcount reduced in UK manufacturing; £0.6m net benefit in 2015
• Profit margin up 10 bps – cost control, price management, efficiency

improvements, flat material costs off-set currency impact

• Remain positive despite continued market challenges

* See Appendix IV for definition of profit measures. Organic measures at constant currency and exclude acquisitions and disposals.

• f Group sales

33%

2015 Results Year ended 31st December 2015 15

Asia Pacific

• Sales down 4%; China’s economic slowdown impacts whole region
• Encouraged by demand stabilisation in H2 2015
• China sales & profit marginally up; large projects down, self-generated projects up
• Korea sales & profit down; large projects down, some shipments delayed to 2016
• Sales and profit well ahead in Japan, down in Australasia, mixed South East Asia
• Operating profit down 7%; significant H2 improvement versus H1
• Direct sales in India since July; pre-trading and start-up losses of nearly £2m
• Started new operation in Vietnam (Jan 2016)
• Positive long-term outlook despite current economic uncertainty

31st Dec 2014

Exchange Organic Acquisitions

31st Dec 2015 Organic Constant currency Change Sales* £177.7m

£2.0m (£7.9m)

• £171.8m
• 4%
• 4%
• 3%

Op profit* £46.4m

£1.9m (£3.6m)

• £44.7m
• 7%
• 7%
• 4%

Margin* 26.1% 26.0%

• 90 bps
• 90 bps
• 10 bps
• f Group sales

26%

* See Appendix IV for definition of profit measures. Organic measures at constant currency and exclude acquisitions and disposals.

2015 Results Year ended 31st December 2015 16

Americas

• Sales up 1%; North America 2% down, Latin America 5% up
• North America – weak distribution markets; closed meter manufacturing plant
• Latin America – sales up in all operations, except Brazil; new operations in

Colombia and Peru

• Good progress implementing strategy; success with direct key accounts in USA
• Significant currency fluctuations; overall 3% reduction in sales
• Operating profit flat; cost saving actions offset by investments for growth
• Remain positive on the region despite slowing industrial production

31st Dec 2014

Exchange Organic Acquisitions

31st Dec 2015 Organic Constant currency Change Sales* £126.2m

(£4.1m) £1.3m

• £123.4m

+1% +1%

• 2%

Op profit* £28.0m

(£0.9m) £0.0m

• £27.1m

0% 0%

• 3%

Margin* 22.2% 22.0%

• 20 bps
• 20 bps
• 20 bps
• f Group sales

18%

* See Appendix IV for definition of profit measures. Organic measures at constant currency and exclude acquisitions and disposals.

2015 Results Year ended 31st December 2015 17

Watson-Marlow

31st Dec 2014

Exchange Organic Acquisitions

31st Dec 2015 Organic Constant currency Change Sales* £138.2m

(£2.7m) £11.6m £5.5m

£152.6m +9% +13% +10% Op profit* £43.5m

£0.2m) £3.1m £1.2m

£48.0m +7% +10% +10% Margin* 31.5% 31.4%

• 40 bps
• 80 bps
• 10 bps
• f Group sales

23%

• Organic sales up 9%, plus 4% from three 2015 acquisitions
• Strong growth in all geographic regions
• Biopharm, OEM, Food & Beverage sectors all up strongly
• Good first-time contribution from Asepco
• Operating profit up 10%; margin edged down by investments

for growth and some dilution from acquisitions

• New direct sales operations in Japan, Taiwan and Chile
• Active product development pipeline supports future growth

* See Appendix IV for definition of profit measures. Organic measures at constant currency and exclude acquisitions and disposals.

2015 Results Year ended 31st December 2015 18

• Stepped up training and development; new Spirax Sarco Academy
• Implementing enhanced Customer Value Propositions
• Increased sector focus: Food & Bev., Healthcare, Chemical, OEMs
• Growth of Controls & Thermal Energy Management products
• Continued development of innovative new products
• Advanced the Global Excellence in Supply Chain initiatives
• Strategic investment in India plus five new direct sales companies
• Completed five acquisitions and two disposals
• Improved sustainability; reduced global carbon emissions by 13%

Implementing our strategy for growth

Notable progress in 2015

Delivering self-generated growth that outperforms our markets

2015 Results Year ended 31st December 2015 19

Implementing our strategy for growth by…

sectorising our sales force

• Problem: wort boiling evaporation rate of 7% per hour
• Requirement: wort boiling evaporation rate under 4%
• Solution: bespoke engineered pressure control loop, plus

steam trapping stations and ancillary metering equipment

• Result: reduced steam pressure, wort boiling evaporation

rate below 4%; improved beer quality; reduced product wastage; maintenance downtime reduced by 90%; energy use reduced by 20%

Spirax Sarco helps Spanish brewery, Compañía Cervecera de Canaris, improve beer quality, increase productivity and lower costs Sector focus delivers outstanding customer value and drives growth

2015 Results Year ended 31st December 2015 20

Implementing our strategy for growth by…

expanding along the fluid path

• Problem: avoiding batch contamination required time

consuming and costly processes at Biotherapeutics Dev. Unit

• Requirement: sterile and efficient filling systems
• Solution: asepticSU™ single-use fluid path technology from

Watson-Marlow with Flexicon automated filling machines

• Result: eliminated cross contamination risk and cleaning

validation; full traceability; faster set-up time; accurate filling

AsepticSU™ single use technology from Watson-Marlow eliminates need for cleaning validation and simplifies traceability at Cancer Research, UK Expanding along the fluid path and providing single use technologies delivers customer value and growth

2015 Results Year ended 31st December 2015 21

• Organic sales up 2%; Operating profit up 4%
• Currency headwind of 4% on sales and profit
• Operating margin increased to 22.8%
• Robust cash generation, 95% cash conversion
• Dividend increased 7%
• Implementing strategy for growth
• Confident of progress in 2016, provided no material

deterioration in trading conditions

Summary

2015 Results Year ended 31st December 2015 22

Spirax-Sarco Engineering plc

• Outperforming our markets
• Generating consistent growth
• Creating shareholder value

2015 results 31st December

Appendices

2015 Results Year ended 31st December 2015 24 * See Appendix IV for definition of profit measures.

Pounds (£) million

2015 2014 Working Capital Inventories 92.5 98.0 Trade receivables 152.1 155.7 Prepayments, other current assets 35.3 28.8 Trade, other payables & current tax (105.4) (112.9) Total working capital 174.5 169.6 Property, plant & equipment 169.9 176.6 Total Capital Employed 344.5 346.2 Average Capital Employed 345.4 345.4 Adjusted Operating Profit * 152.4 153.0 ROCE* 44.1% 43.3% Working Capital/Sales 26.2% 25.0%

Appendix I -

Return on capital employed

2015 Results Year ended 31st December 2015 25

Pounds (£) million

2015 2014 Adjusted cash generated from operations 145.5 132.2 Adjusted Operating Profit* 152.4 153.0 Cash conversion 95% 86%

* See Appendix IV for definition of profit measures.

Appendix II -

Cash conversion

2015 Results Year ended 31st December 2015 26

Currencies

Average exchange rates

2014 2015 % 2016* % Spirax weighted index 100.0 103.8

• 4%

100.8 3% Bank of England index 87.1 91.4

• 5%

87.9 4% US$ 1.65 1.53 8% 1.40 9% Euro 1.24 1.38

• 10%

1.29 7% RMB 10.15 9.60 6% 9.17 5% Won 1,734 1,728 0% 1,722 0% Brazilian Real 3.88 5.11

• 24%

5.59

• 9%

Argentine Peso 13.32 14.28

• 7%

21.35

• 33%

SA Rand 17.85 19.57

• 9%

22.11

• 11%
• Given the profile
• f currency

movements in 2015, each 1% movement in the Spirax currency weighted index changes sales by £7m and

• perating profit

by approximately £1.5m on translation

* 2016 rates are average assuming February rates prevail until the end of 2016.

Appendix III -

2015 Results Year ended 31st December 2015 27

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

• perating profit and pre-tax profit excludes certain non-operational items

which are analysed below.

Pounds (£) million 2015 2014 Amortisation of acquisition-related intangible assets (4.7) (4.1) EMCO closure costs (3.8)

• Disposal of M&M – recycled exchange losses

(0.3)

• Acquisition and disposal costs

(0.8) (0.8) Total adjustment to operating profit (9.6) (4.9) Amortisation of acq’n intangibles in Associates (0.2) (0.5) Spirax Marshall (India) – recycled exchange losses (2014 impairment) (1.7) (1.0) Total adjustment to pre-tax profit (11.5) (6.3)

Appendix IV -

2015 note on profit measures