0 Investor opportunities March 2020
Engineering every day
INVESTOR OPPORTUNITIES
IN OUR WORLD‐LEADING NICHE BUSINESSES
Steam Specialties Electric Thermal Solutions Watson‐Marlow
INVESTOR OPPORTUNITIES IN OUR WORLDLEADING NICHE BUSINESSES - - PowerPoint PPT Presentation
INVESTOR OPPORTUNITIES IN OUR WORLDLEADING NICHE BUSINESSES WatsonMarlow Steam Specialties Electric Thermal Solutions 0 Investor opportunities March 2020 Engineering every day A British multinational engineering group Three
0 Investor opportunities March 2020
Engineering every day
IN OUR WORLD‐LEADING NICHE BUSINESSES
Steam Specialties Electric Thermal Solutions Watson‐Marlow
1 Investor opportunities March 2020
Engineering every day
Business model
customer value
geographies, markets and products
repair budgets (35% self‐generated)
manufacturing in 14 countries
Performance
(excluding 2017 acquisitions)
Production growth rate
A British multi‐national engineering group Three world‐leading niche engineering businesses Global addressable market: £9.0bn; 14% market share
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Three world‐leading niche businesses
Watson‐Marlow: niche peristaltic pumps and associated fluid path technologies
www.wmftg.com
Electric Thermal Solutions: electrical process heating and temperature management solutions
www.chromalox.com www.thermocoax.com
Steam Specialties EMEA Asia Pacific Americas Electric Thermal Solutions Watson‐Marlow
2019 Group Revenue
Thermal Energy Management Steam Specialties: industrial and commercial steam systems
www.spiraxsarco.com www.gestra.com
61% 15% 24%
£1,242m
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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 and 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
Pre‐fabricated engineered packages for heat transfer & recovery and clean steam generation Products Packages
A one‐stop shop for plant‐wide applications of industrial and commercial steam systems
Solutions for the control and management of industrial steam systems
4 Investor opportunities March 2020
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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; Mineral insulated cable Delivering: efficient thermal energy management and control solutions for improved industrial processes
Products Packages
Advanced thermal technologies engineered for the world’s toughest industrial heating applications
Pre‐fabricated engineered packages for process heating and temperature management
Solutions for process heating and temperature management
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Thermal Energy Management: electricity and steam have complementary uses. The choice between heating mediums is driven by application needs or customer circumstances.
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Uses: pumping and fluid control in a broad range of critical applications, from chemical dosing to Biopharm production Benefits of peristaltic pump technology: sterile applications (pump does not touch fluid), dirty applications (fluid does not touch pump), sustainable, low‐shear, low maintenance and accurate Products: speciality positive displacement pumps, automated filling machines, tubing, hoses and fluid path components Delivering: accurate, safe, efficient, sterile, low maintenance solutions for the fluid path
Products Peristaltic
Business built around unique pumping and niche fluid path technologies
Solutions for the control and management of industrial fluid paths
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Positioning us well to create value
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.
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Sales by value driver*
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
85%
from annual maintenance and
* Based on 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%
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17% 3% 18% 13% 7% 6% 5% 4% 3% 3% 3% 2% 1% 1% 14%
Group Sales 2019
Food Beverage Pharmaceutical & Biotechnology OEM machinery Oil & Gas Chemical Power Generation Healthcare Buildings Mining & Precious Metal Processing Water & Wastewater Pulp & Paper Rubber & Plastic Semiconductor 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 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 2019 these “unknown” sales accounted for 20% 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 2019. Revenue by industry sector includes full year sales for Thermocoax, acquired in May 2019.
A source of resilience
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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. 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 reduce 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. 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. 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. 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. 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. 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. 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.
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An important driver of growth
Source: Oxford Economics, July 2020
3.0% 1.4% 3.6% 3.1% 0.9% 1.1% ‐6.4% Forecast % = Annual average
‐12.0% ‐10.0% ‐8.0% ‐6.0% ‐4.0% ‐2.0% 0.0% 2.0% 4.0% 6.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2015 2016 2017 2018 2019 2020
(slide updated August 2020)
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at c.10% per annum
External
targets
Internal
Organic growth drivers:
Watson‐Marlow growth drivers:
Inorganic growth drivers: Bolt‐on or related acquisitions
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Key facts:
engineers
countries
countries
* Operating units are business units that invoice locally. Global coverage at year end 2019.
Operating units* (47 countries) Sales offices (19 countries) Indirect presence (64 countries) Number of countries: Operating units Sales
Indirect presence Total Steam Specialties 45 21 64 130 Watson‐Marlow 36 1 29 66 Electric Thermal Solutions 12 7 23 42
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30 manufacturing units in 14 countries
EMEA: UK (x4) Italy (x2) France (x3) Germany (x3) Netherlands Denmark Sweden Americas: USA (x6) Argentina Brazil (x2) Mexico (x2) Asia Pacific: China (x2) India Japan Steam Specialties manufacturing site Electric Thermal Solutions manufacturing site Watson‐Marlow manufacturing site
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Revenue
Emerging markets: 35% of sales and 41% of operating profit
Americas: 34%
Emerging markets: 7%
EMEA: 42%
Emerging markets: 7%
Asia Pacific: 24%
Emerging markets: 21% Steam 23% ETS 68% WM 41% Steam 44% ETS 25% WM 46% Steam 33% ETS 7% WM 13%
Steam – Steam Specialties ETS – Electric Thermal Solutions WM – Watson‐Marlow Includes full year sales for Thermocoax, acquired in May 2019
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14% market share
Source: based on internal estimates. Electric Thermal Solutions Market share includes full year sales for Thermocoax, acquired in May 2019
2019 total addressable market
£9.0bn
Steam Specialties market Steam Specialties market share 16% Watson‐Marlow market share 20% Niche pumps and associated equipment market Electrical thermal solutions market Electric Thermal Solutions market share 7%
£4.7bn £2.8bn £1.5bn
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To create sustainable value for all our stakeholders as we engineer a more efficient, safer and sustainable world.
We are engineering a more efficient, safer and sustainable world. For everyone. Every day. We create sustainable value for:
Shareholders who benefit from strong financial returns and a progressive dividend policy that has delivered over 50 years of dividend growth. Customers who use our products and services to increase operating efficiency, improve product quality, optimise plant safety, meet sustainability targets and reduce costs. Employees who advance their careers in safe, inclusive and collaborative workplaces. Suppliers that we engage with for continuous improvement and responsibly sourced materials and services. Communities that we support through employee volunteering and charitable contributions. Environment, which benefits from the solutions we provide to customers to reduce their carbon emissions, water and waste, and the activities we undertake to reduce our own environmental impacts.
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thermal energy solutions
enhanced customer value propositions
enhanced knowledge and skills
breakthrough products
diversification
thrive
Steam Specialties
Objective: Growth that outperforms our markets
Focus: Doing better what we already do well
industrial heaters and systems
solutions business
customers faster
Electric Thermal Solutions Watson‐Marlow Sustainability Acquisitions
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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 and Electric Thermal Solutions
20 Investor opportunities March 2020
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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
21 Investor opportunities March 2020
Engineering every day Group Chief Executive Nicholas Anderson
Group Sustainability Committee
The Board
Project Sponsors Project Leaders Employees and organised employee groups
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Steam Specialties Watson‐Marlow Electric Thermal Solutions
emissions saved annually from products sold in 2019 Equivalent to: 3.7 million new cars taken off the road, or 327 million mature trees planted
during water and wastewater treatment
900 million litres of water per year; 70% less than a centrifugal pump
less energy than lobe or circumferential piston pumps
produce zero emissions at point of use
powered by renewable energy
voltage range helps customers decarbonize
23 Investor opportunities March 2020
Engineering every day Date Acquisition: May 2017 Acquisition: July 2017 Acquisition: May 2019 Disposal: November 2018 Description Leader in advanced industrial boiler control systems; designs and produces valves and controls for steam and fluid process control Market leading provider of electrical solutions for industrial process heating and temperature management Leading designer and manufacturer of highly engineered electrical thermal solutions Leading manufacturer and brand in premium commercial and industrial air humidification equipment Consideration €186m
11.2x trailing EBITDA
US$415m
9.7x trailing EBITDA
€156m
12.1x trailing EBITDA
€59.0m (£52.3m)
12.5x trailing EBITDA
Revenue
(year before acq/disp)
€92.5m US$201m €49.8m £13.0m EBITDA (year
before acq/disp)
€16.6m US$43m €12.9m £4.1m EBIT
(year before acq/disp)
€15.2m US$37m €12.1m £3.9m Rationale Increases Steam Specialties technology and market share Expands Group addressable market by
Extends electrical process heating capabilities and increases market share Limited strategic fit restricts ability to improve sales growth while maintaining profitability
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Customer Focus: Through our expertise, passion and insight we achieve extraordinary results for customers. Collaboration: We are more successful when we trust each
Safety: We care about people, helping them stay safe and look after their own wellbeing. Excellence: We approach challenges with passion, aiming for excellence in all we do, to build a sustainable business. Respect: Everyone matters, both inside and
the natural environment and our local communities. Integrity: Success only matters when achieved fairly. We believe that winning with integrity leads to sustainable results.
Our values underpin decision‐making, guide our conduct and shape our culture
Creating environments where
1,600 sales and service engineers
Academy (2019)
development programmes
potential females
graduate programme, in 14 countries; half female
leave annually per employee, worldwide
25 Investor opportunities March 2020
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£0 £200 £400 £600 £800 £1,000 £1,200 £1,400 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 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 2019
Sterling weakens Sterling strengthens Sales prior to 2004 have been adjusted to IFRS Sterling weakens Sterling strengthens
Good operating profit margin expansion
Sterling weakens
Profit margin % Sales £ millions
Sales Sales from 2017 acquisitions Reported profit margin Margin excluding 2017 acquisitions
Underlying margin increased from 16.5% to 25.1%
25 year average
Sterling strengthens
Underlying 7% revenue growth (excluding 2017 acquisitions)
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0.0 50.0 100.0 150.0 200.0 250.0 300.0 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 2019
EPS DPS
EPS and DPS growth; 52 year dividend growth
Dividend CAGR: 12% over 10 years, 10% over 35 years and 11% over 52 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.
* * *
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Investing in our strategy drives growth and margin progression
Strategic targeting with disciplined execution
Net debt 0.9x EBITDA at 31st December 2019
Special dividends in 2010, 2012 & 2014
Return on capital employed (ROCE) averaged over 50% p.a. for the last 5 years. Cash conversion above 80% for the last 5 years.
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Cash conversion measures the percentage of adjusted cash from
‐20% 0% 20% 40% 60% 80% 100% ‐400 ‐300 ‐200 ‐100 100 200 300 2014 2015 2016 2017 2018 2019 Free Cash Flow Net Cash/(Debt) Cash Converstion
£ million % cash conversion
0.8x EBITDA 0.9x EBITDA 1.4x EBITDA
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30 Investor opportunities March 2020
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2019 2018 Reported Organic⁺ Revenue £1,242.4m £1,153.3m +8% +6% Operating profit* £282.7m £264.9m +7% +7% Operating profit margin* 22.8% 23.0% ‐20 bps +10 bps Net finance expense (£8.4m) (£10.3m) Pre‐tax profit* £274.5m £254.6m +8% Tax rate* 28.5% 27.6% +90 bps EPS* 265.7p 250.0p +6% DPS 110.0p 100.0p +10% Net debt £295.2m £235.8m
Strong organic sales growth despite weak industrial production growth
⁺ Organic measures are at constant currency and exclude contribuons from acquisions and disposals. * Adjusted profit measures exclude certain items.
6%; organic growth in all segments of Steam Specialties and Watson‐ Marlow
£27.9m to sales and £5.4m to profit
7% organically
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Applications overview
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
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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)
33 Investor opportunities March 2020
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Improved energy efficiency during egg production
Application: heating of poultry sheds Requirement: biomass heating system fuelled by waste litter, bedding and feed Solution: Spirax Sarco and a biomass boiler specialist developed a heating system with integrated steam technology that maximises energy efficiency Result: improved environmental sustainability from renewable fuel use, lower energy bills and reduced waste removal
Engineering every day
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Precise temperature control for biopharmaceutical production
Application: warming of water‐jacketed vessels during biopharmaceutical production Requirement: accurate, clean & safe heating solution Solution: Chromalox worked with a specialist OEM to determine precise temperature load and provided heating and temperature management products such as stainless steel circulation heaters and control panels Result: compact, efficient heating system delivering precise temperature control and product quality
Engineering every day
35 Investor opportunities March 2020
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Increased process efficiency during confectionery manufacture
Application: transfer of liquid sugar and other viscous fluids during confectionery production Requirement: pumps able to transfer hot sugar without sticking and requiring frequent maintenance Solution: four MasoSine pumps from Watson‐Marlow with a triple‐lip seal system, unaffected by viscous fluids Result: downtime significantly reduced, lower maintenance costs and increased process efficiency
Engineering every day
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‐ strong presence in the region ‐ medium presence in the region
EMEA Asia Pacific Americas
Steam Specialties
Armstrong International (USA) Private
ARI Armaturen (Germany) Private
Forbes Marshall (India) Private
Spence/Nicholson (USA) Emerson: NYSE
TLV (Japan) Private
Other product specialists: Samson (Germany) Private; Fisher Controls (USA) Emerson: NYSE; Valtek (USA) Flowserve: NYSE;
Endress & Hauser (Swiss) Private
Watson‐Marlow
Cole Parmer (USA) Thermo Fisher: NYSE
Verder (Netherlands) Private
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
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EMEA Asia Pacific Americas
Electric Thermal Solutions
BARTEC (Germany) Private Equity
EXHEAT Limited (UK) Private
nVent (USA) Public: NYSE
Thermon Group Holdings Inc (USA) Public: NYSE
Vulcanic, (France) Private Equity
Watlow Electric Manufacturing Company (USA) Private
Other product specialists: Minco Products Inc (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