0 Investor opportunities March 2019
Engineering Sustainable Growth
INVESTOR OPPORTUNITIES
IN OUR WORLD‐LEADING NICHE BUSINESSES
INVESTOR OPPORTUNITIES IN OUR WORLDLEADING NICHE BUSINESSES 0 - - PowerPoint PPT Presentation
INVESTOR OPPORTUNITIES IN OUR WORLDLEADING NICHE BUSINESSES 0 Investor opportunities March 2019 Engineering Sustainable Growth A British multinational engineering group Three worldleading niche engineering businesses Global
0 Investor opportunities March 2019
Engineering Sustainable Growth
IN OUR WORLD‐LEADING NICHE BUSINESSES
1 Investor opportunities March 2019
Engineering Sustainable Growth
customer value
geographies, markets and products
repair budgets (35% self‐generated)
manufacturing in 14 countries
(excluding 2017 acquisitions)
Production growth rate
A British multi‐national engineering group Three world‐leading niche engineering businesses Global addressable market: £8.5bn; 14% market share
2 Investor opportunities March 2019
Engineering Sustainable Growth
Watson‐Marlow: niche peristaltic pumps and associated fluid path technologies
www.wmftg.com
Chromalox: electrical process heating and temperature management solutions
www.chromalox.com
Steam Specialties: industrial and commercial steam systems
www.spiraxsarco.com; www.gestra.com
£1,153m
64% 13% 23%
Steam Specialties EMEA Asia Pacific Americas Chromalox Watson‐Marlow
2018 Group Revenue
Thermal Energy Management
3 Investor opportunities March 2019
Engineering Sustainable Growth
Process heating and temperature management solutions (from July 2017)
Uses: electric heating for mission‐critical industrial processes, freeze protection for pipes, valves and tanks, and component heating Benefits of electric solutions: easy to incorporate, install and maintain; high temperatures; controllable; no emissions at point of use Products: Industrial Heaters & Systems; Heat Tracing; Component Technologies Delivering: efficient thermal energy management and control solutions for improved industrial processes
Industrial and commercial steam systems
Steam uses: heating and curing, cleaning, sterilisation, hot water generation, space heating and humidification Benefits of steam: high energy content, easy to control, environmentally safe, clean and sterile Products: steam traps, control valves, condensate recovery pumps, strainers, separators, flow meters, boiler controls, pre‐fabricated engineered packages Delivering: improved process efficiency and product quality; reduced CO₂ emissions, energy and water use, waste and maintenance downtime; compliance with industry standards
Thermal Energy Management
4 Investor opportunities March 2019
Engineering Sustainable Growth
Our product range includes: steam traps, pressure and temperature control valves, condensate recovery pumps, strainers, separators, humidifiers, flow meters and boiler controls Pre‐fabricated engineered packages for heat transfer & recovery and clean steam generation
Clean steam generator Heat exchange package Flash steam heat recovery
We are a one‐stop shop for industrial and commercial steam systems
5 Investor opportunities March 2019
Engineering Sustainable Growth
Steam generation Steam distribution and utilisation Packaged Solutions & Energy Recovery
Feedwater supply, storage and conditioning TDS controls Boiler level controls Boiler blowdown Blowdown heat recovery Bottom blowdown valves and vessels Start‐up systems and separators Condensate monitoring Pressure control Temperature control Flow metering Steam traps Ancillaries Wireless communication Flash steam recovery Condensate recovery Humidification Heat transfer solutions Clean & pure steam products
6 Investor opportunities March 2019
Engineering Sustainable Growth
Our product range includes: process heaters, air heaters, radiant heaters, tubular heaters, cartridge heaters, power and temperature controls, temperature sensors, thermostats and heat trace cables and connection kits Pre‐fabricated engineered packages for process heating and temperature management
We provide advanced thermal technologies engineered for the world’s toughest industrial heating applications
Process Heating Packages Fuel Gas Conditioning System Heat Transfer System
7 Investor opportunities March 2019
Engineering Sustainable Growth
* New Product Introduction
Thermal Energy Management: electricity and steam have complementary uses. The choice between heating mediums is driven by application needs or customer circumstances
8 Investor opportunities March 2019
Engineering Sustainable Growth
Peristaltic pumps
Rotor shoes/rollers squeeze tubing for gentle pumping action
No moving parts in contact with process fluid
No seals, check valves, diaphragms or rotors
Sophisticated pump head electronics ensure accuracy for dosing and metering applications
Watson‐Marlow
Business built around unique pumping and niche fluid path technologies
9 Investor opportunities March 2019
Engineering Sustainable Growth
Hygienic applications: the pump does not touch the fluid Making peristaltic pumps perfect for clean fluids which must not be contaminated – Pharmaceutical & Biotechnology and Food & Beverage industry applications. A sterile tube makes a sterile pump. Dirty applications: the fluid does not touch the pump Making peristaltic pumps suitable for dirty fluids which contaminate other pumps – slurries, pigments, effluent applications. No need to strip or clean the pump; a new hose makes a new pump. Specialty filling systems (Flexicon) Small batch production of pharmaceuticals using peristaltic pump filling technology. Bench top models to fully automated filling and capping systems. Lower whole‐life cost for niche applications Higher up‐front purchase cost more than offset by lower life cycle costs. Single‐use fluid path technologies Single‐use fluid path components such as clamps, valves, connectors, sanitary gaskets and tubing, for Pharmaceutical & Biotechnology industries.
10 Investor opportunities March 2019
Engineering Sustainable Growth
Low‐flow peristaltic metering pumps (acquired in 1990) Precision pump and transfer tubing High‐flow industrial hose pumps (acquired 1996) Low‐flow, high precision OEM pumps (acquired 2000) Aseptic filling (acquired 2008) PTFE‐lined flexible hoses (acquired 2016)
Ten brands offering customers an unrivalled breadth of pumping services
Sinusoidal pumps (acquired 2009) Biotechnology tubing connection systems (acquired 2014) High purity polymer products company (acquired 2015) Stainless steel tank bottom and in‐line valves for Biotechnology (acquired 2015)
11 Investor opportunities March 2019
Engineering Sustainable Growth
Customer needs: We help our customers to solve their difficult productivity and process challenges, improve their operational sustainability and comply with increasingly stringent health, safety and environmental requirements. Customer closeness: Our direct sales business model creates a unique understanding of our customers’ needs and enables us to build deep, long‐term relationships as we help our customers solve their difficult productivity, control and energy efficiency problems, and improve their operational performance and sustainability. Applied engineering: It is not our products alone that provide value to our customers ‐ it is the application of our extensive knowledge of systems design, operations and maintenance. Wide product range: The breadth of our product offering is unmatched by our competitors and our one‐stop shop approach simplifies the procurement process for our customers who are increasingly seeking partnerships with competent full‐service suppliers. Regional manufacturing: Local availability of a wide range of products is critical to our business model and enhances top line revenue
world, in Europe, North America, Latin America and Asia.
12 Investor opportunities March 2019
Engineering Sustainable Growth
in applications and systems)
not price)
for one‐stop shop approach)
sustainability objectives and save money)
throughput, and lower operating costs)
expertise and training to meet increasingly stringent standards)
We use our… to deliver… …to customers
13 Investor opportunities March 2019
Engineering Sustainable Growth
Maintenance and repair sales that maintain existing systems, supported by the end users’ opex budgets, with a typical invoice value of around £1k Small project sales that improve existing systems, supported by the end users’ opex budgets, with a typical invoice value of £10k‐£50k Large project sales that build new systems, supported by the end users’ capex budgets, with a typical invoice value of
from annual maintenance and
* Based on Spirax Sarco internal estimates
Self‐generated sales
Our sales and service engineers are highly skilled in both product applications and systems understanding. We self‐generate sales as we identify our customers’ unrecognised needs and solve their difficult process challenges.
50% 35% 15%
14 Investor opportunities March 2019
Engineering Sustainable Growth
17% 3% 16% 14% 7% 7% 4% 4% 4% 3% 3% 2% 1% 1% 14%
Group Sales 2018
Food Beverage Pharmaceutical & Biotechnology OEM machinery Oil & Gas Chemical Healthcare Power Generation Buildings Mining & Precious Metal Processing Water & Wastewater Pulp & Paper Rubber & Plastic Textile Other
50% of Group
revenue derived from defensive, less cyclical, end markets
85% of Group
revenue derived from annual maintenance and
rather than large projects from capex budgets
Based on Spirax Sarco internal estimates
Where there is little visibility of end user industry sector (primarily in sales via distributors), sales have been allocated across industries on a pro‐rata basis. In 2018 these “unknown” sales accounted for 22% of total revenue. OEM sales to identifiable industries have been allocated to those industries. Sales to OEM customers accounted for 20% of Group revenue in 2018.
15 Investor opportunities March 2019
Engineering Sustainable Growth
Food Steam is used for blanching, cooking, baking, packaging, cleaning and
elements are used in commercial food
used to meter ingredients, deliver food to process lines and handle process waste. Beverage Steam is essential for brewing and distilling
protect product quality and flavour, and ensure compliance with industry
used to transfer fruit, juice, concentrates, yeast and other additives. Buildings (HVAC) Steam is used to provide space heating, humidification and hot water in public and private buildings, while
are used for hot water and heat generation, snow melting, gutter and roof de‐icing, and frost‐ heave prevention. OEM Machinery Original Equipment Manufacturers (OEMs) are companies that build and supply machines for use in industry. Our activities with OEMs vary from simple product supply to advising on machine performance improvements and process plant design. Oil & Gas Electrical heating products increase fluid viscosity, deliver freeze protection and help separate natural gas, crude oil and water during extraction. Our steam products enable
performance and reduce energy use during oil and gas production. Pharmaceutical & Biotechnology Clean steam reduces the risk of product and process contamination; electrical heating is used in a wide range of process heating applications; our peristaltic pumps, valves and single‐ use components enable precise flow control and fluid isolation. Healthcare Steam is used in hospitals and clinics for space heating, hot water production, humidification and sterilisation. Pumps and associated equipment are used in the manufacture of products for the Healthcare industry. Mining & Precious Metal Processing Peristaltic pumps reduce water, energy and chemical use and increase productivity while moving and processing abrasive
heating is used for temperature maintenance and space heating for workers. Chemical Steam and electricity are widely used as an energy source in chemical production and product processing, while our pumps are used to safely and accurately transfer and dose critical chemical components. Water & Wastewater Peristaltic pumps are used to dose chemicals during water treatment processes and to transfer viscous and abrasive
solutions provide freeze protection, temperature maintenance and space heating in water treatment plants. Power Generation Electrical heat technologies are widely used to optimise power generation. Steam turbines transfer chemical energy in fuel into electrical energy and steam is used to distribute and re‐use waste heat formed during the power generation process. Pulp & Paper Our steam, electric and pump products facilitate the accurate control of critical processes, such as washing, bleaching, dyeing, drying and finishing, in the manufacture of paper and a wide range of domestic and industrial tissues.
16 Investor opportunities March 2019
Engineering Sustainable Growth
* Operating units are business units that invoice locally Sanctions: We do not supply products subject to sanctions or supply to proscribed persons. We comply with all sanctions and export regulations, including dual purpose regulations.
40 new operating units established or acquired in the 3 years to March 2019. Steam Specialties: SxS: Brazil (Hiter), East Africa, Hungary, Romania and Maghreb Gestra: Germany, Italy, Poland, Portugal, Spain, Singapore, UK and USA Chromalox: Brazil, Canada (x2), China (x2), Developing Markets (Americas, Asia Pacific, EMEA), France, Germany, Hong Kong, India, Mexico, Singapore, Thailand, UAE, UK, USA (x3) Watson‐Marlow: Canada, Ireland, Indonesia, Thailand, Vietnam, UAE, UK (Aflex)
Operating units*
(47 countries)
Sales offices
(+15 countries)
Distributors
(+53 countries)
Serving customers in 115 countries
17 Investor opportunities March 2019
Engineering Sustainable Growth
EMEA: UK (SxS, WM, BioPure and Aflex) Italy France (SxS and Chromalox) Germany (Gestra and MasoSine) Netherlands (Bredel) Denmark (Flexicon) Sweden (Alitea) Americas: USA (SxS, Chromalox, Asepco and FlowSmart) Argentina Brazil Mexico (SxS and Chromalox) Asia Pacific: China (SxS, Chromalox and WM) India Japan (MasoSine)
Steam Specialties manufacturing site Chromalox manufacturing site Watson‐Marlow manufacturing site
18 Investor opportunities March 2019
Engineering Sustainable Growth
Emerging markets: 34% of sales and 39% of operating profit
Americas 34%
Emerging markets 7%
EMEA 42%
Emerging markets 6%
Asia Pacific 24%
Emerging markets 21%
19 Investor opportunities March 2019
Engineering Sustainable Growth
Source: based on Spirax Sarco internal estimates
2018 total addressable market size
Steam Specialties market Steam Specialties market share 16% Watson‐Marlow market share 19% Niche pumps and associated equipment market Electrical thermal energy management market Chromalox market share 6%
£4.6bn £2.4bn £1.4bn
20 Investor opportunities March 2019
Engineering Sustainable Growth
Operate sustainably and help improve our customers’ sustainability
and thermal energy solutions
enhanced customer value propositions
enhanced knowledge and skills
chain
expansion
breakthrough products
sector diversification
people thrive
shareholder value through supplementing organic growth
through new technologies, skills or geographic coverage
market into adjacent related sectors
Watson‐Marlow
Acquisitions Spirax Sarco
Objective: self‐generated growth that outperforms our markets Focus: doing better what we already do well
Sustainability
21 Investor opportunities March 2019
Engineering Sustainable Growth
direct sales force
propositions by sector
energy management within priority sectors
competency, skills and process knowledge
range of training tools and materials
expertise
and skills of our expert sales and service teams
presence
effectiveness through market sector focus
advantage from early entry into emerging markets
infrastructure to pioneer the introduction of Watson‐ Marlow
22 Investor opportunities March 2019
Engineering Sustainable Growth
growth
new products
priority sectors
acquisitions to expand addressable markets
manufacturing strategy
supply chain
increase flexibility, improve service levels and reduce costs
governance, employee wellbeing, community engagement and environmental stewardship
customers meet their sustainability targets
investments
effectiveness
help improve our customers’ sustainability
23 Investor opportunities March 2019
Engineering Sustainable Growth
electrical solutions for industrial process heating & temperature management
US$201m; EBITDA US$43m; EBIT US$37m
market by £2.4 bn
boiler control systems; designs and produces valves and controls for steam and fluid process control
€92.5m; EBITDA €16.6m; EBIT €15.2m
technology and market share
manufacturer of highly engineered electrical thermal solutions
€49.8m; EBITDA €12.9m; EBIT €12.1m
process heating capabilities
24 Investor opportunities March 2019
Engineering Sustainable Growth
‐ Biopharm industry growing at c.10% per annum ‐ Geographical expansion ‐ Displacement of other pump types
External
‐ Industrial production growth ‐ Population growth ‐ Energy and natural resource saving targets ‐ Rising regulatory requirements
Internal
‐ Geographic expansion ‐ New product development ‐ Business strategy ‐ Regional manufacturing strategy
Organic growth drivers: Watson‐Marlow growth drivers: Inorganic growth drivers: Bolt‐on or related acquisitions
‐ New technologies ‐ Increased geographic coverage ‐ Expansion of addressable market
25 Investor opportunities March 2019
Engineering Sustainable Growth
£0 £200 £400 £600 £800 £1,000 £1,200 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Sterling weakens Sterling strengthens Sales prior to 2004 have been adjusted to IFRS Sterling weakens Sterling strengthens
Sterling weakens
Profit margin % Sales £ millions
Sales Sales from 2017 acquisitions Reported profit margin Margin excluding 2017 acquisitions
Underlying margin increased from 17.1% to 25.2%
25 year average
Sterling strengthens
Underlying 7% revenue growth (excluding 2017 acquisitions)
26 Investor opportunities March 2019
Engineering Sustainable Growth
0.0 50.0 100.0 150.0 200.0 250.0 300.0 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
EPS DPS
Dividend CAGR: 12% over 10 years, 10% over 35 years and 11% over 51 years
* Plus special dividends of 25p in 2010, 100p in 2012 and 120p in 2014
Note: Figures exclude non‐operating and exceptional items
p/share
Our prime financial objective is to provide enhanced value to shareholders through consistent growth in earnings and dividends per share.
* * *
27 Investor opportunities March 2019
Engineering Sustainable Growth
0% 20% 40% 60% 80% 100% ‐400 ‐300 ‐200 ‐100 100 200 300 2014 2015 2016 2017 2018
% cash conversion £ million
Free cash flow
Net Cash/(Debt) Cash conversion
Capital allocation priorities: 1) Invest in our businesses 2) Acquisitions 3) Reduce debt 4) Return cash to shareholders
Cash conversion measures the percentage of adjusted cash from
28 Investor opportunities March 2019
Engineering Sustainable Growth
Spirax‐Sarco Engineering plc headquarters, Charlton House, Cheltenham, UK
29 Investor opportunities March 2019
Engineering Sustainable Growth
7%; growth in all segments of Steam Specialties and Watson‐ Marlow
from Gestra and Chromalox
up 12% organically
growth and acquisitions, partially offset by exchange
⁺ Organic measures are at constant currency and exclude contribuons from acquisions and disposals. * Adjusted profit measures exclude certain items.
2018 2017 Reported Organic⁺ Revenue £1,153.3m £998.7m +15% +7% Operating profit* £264.9m £235.5m +12% +12% Operating profit margin* 23.0% 23.6% ‐60 bps +120 bps Net finance expense (£10.3m) (£6.4m) Pre‐tax profit* £254.6m £229.1m +11% Tax rate* 27.6% 29.1% ‐150 bps EPS* 250.0p 220.5p +13% DPS 100.0p 87.5p +14%
30 Investor opportunities March 2019
Engineering Sustainable Growth
12%
reduction in firewood use
The issue: during steam heated air drying of tea leaves, firewood used to generate steam; environmental impacts from overuse of firewood The solution: engineered solution to modulate steam flow to the drying bed, including six control valve stations The result: increased fuel efficiency, firewood use reduced by 12% per annum, reduced environmental impacts, 17 month payback
31 Investor opportunities March 2019
Engineering Sustainable Growth
3%
reduction in energy use
The issue: bacteria in process water reduces efficiency of water removal during paper production, pulp typically enters drying ovens with 40% fibre to 60% water The solution: accurate lime dosing using Qdos pumps; preventing bacteria growth The result: water content of pulp reduced, enabling drying oven temperature to be reduced by 15°C, generating 3% per annum energy savings, reducing carbon emissions by 18,000 kg
32 Investor opportunities March 2019
Engineering Sustainable Growth
Safe
heating of flammable chemicals
The issue: unsafe warming of process lines, transportation pipes and holding tanks during chlorine production; high risk of fire The solution: an audit by Chromalox engineers identified risk areas; bespoke solution included improved insulation, correct termination points and IntelliTRACE heat tracing line‐sensing control panel The result: safe heating of flammable chemicals, significantly reduced risk of fire
33 Investor opportunities March 2019
Engineering Sustainable Growth
EMEA Asia Pacific Americas
Steam Specialties
Armstrong International (USA) Private
ARI Armaturen (Germany) Private
TLV (Japan) Private
Forbes Marshall (India) Private
Spence/Nicholson (USA) Circor: NYSE
Other product specialists: Samson (Germany) Private; Fisher Controls (USA) Emerson: NYSE; Valtek (USA) Flowserve: NYSE; Krohne (Germany) Private; Endress & Hauser (Swiss) Private
Watson‐Marlow
Verder (Netherlands) Private
Cole Parmer (USA) Thermo Fisher: NYSE
Other pump types and fluid path components: Moyno (USA) Dover: NYSE; Wilden (USA) Robbins & Myers: NYSE; Waukesha (USA) SPX:
NYSE; Mono (USA) National Oilwell Varco: NYSE; Warren Rupp/Pulsafeeder (USA) IDEX: NYSE; Prominent (Germany) Private; Saint‐Gobain
Bioprocess Solutions (France) Saint‐Gobain: Euronext Paris
‐ strong presence in the region ‐ medium presence in the region
34 Investor opportunities March 2019
Engineering Sustainable Growth
EMEA Asia Pacific Americas
Chromalox
Watlow Electric Manufacturing Company (USA) Private
BARTEC (Germany) Private Equity
Vulcanic, (France) Private Equity
EXHEAT Limited (UK) Private
nVent (USA) Public: NYSE
Thermon Group Holdings Inc (USA) Public: NYSE
O’Brien (USA) Ametek: NYSE
Other product specialists: Minco Products Inc (USA) Private; Armstrong International (USA) Private; KLÖPPER‐THERM GmbH & Co. KG (Germany) Private; CSI (Controls South East Inc) (USA) Ametek: NYSE; HEAT TRACE (UK) Private
‐ strong presence in the region ‐ medium presence in the region