2014 results - spirax-sarco engineering plc · dps interim dps final special dividend dividend...

2014 Results for year ending 31st December 2014

Bill Whiteley – Chairman

Nick Anderson – Chief Executive

David Meredith – Finance Director

2014 Results Year ending 31st December 2014 2

Agenda

2014 Highlights

2014 Financial Review

Operations and Outlook

Appendices


2014 Highlights

2014 2013 Change Constant currency

Revenue £678.3m £689.4m -2% +5%

Operating profit* £153.0m £151.6m +1% +12%

Margin* 22.5% 22.0% +50 bps +140 bps

Pre-tax profit* £151.1m £151.1m +0% +12%

Tax rate 29.9% 29.8%

EPS* 140.4p 138.8p +1% +13%

DPS 64.5p 59.0p +9% +9%

Special Dividend 120.0p -

• Organic sales increased over 4%

• Operating profit ahead in all segments at constant currency

• Operating margin up 50 bps, despite stiff currency headwind

• Strong result in Watson-Marlow

• £91m return of capital; 120p per share special dividend

* See Appendix IV for definition of profit measures


Agenda

David Meredith

2014 Financial Review


2014 Sales (£m)

EMEA 236.2 Asia Pac 177.7 Americas 126.2 WM 138.2 Total 678.3 Organic sales versus 2014

Steam Spec +3% WM +9% Group +4%

Rates of change at constant currency

+2% +2% +8% +13% -6%

-8.0

-4.0

0.0

4.0

8.0

12.0

16.0

EMEA Asia Pacific Americas Watson-Marlow FX

-£44m

Segment revenue changes At constant currency

£m

% Change v 2013 H1 H2 Year

Organic sales +4% +5% +4%

Acqns/Disposals +1% +1% +1%

FX -8% -5% -6%

TOTAL -4% 0% -2%


Segment operating profit changes

2014 Profit (£m)

EMEA 45.9 Asia Pac 46.4 Americas 28.0 WM 43.5 Corp Exp (10.9) Total 153.0 2014 Margins

EMEA 19.4% Asia Pac 26.1% Americas 22.2% WM 31.5%

% Change v 2013 H1 H2 Year

Operating profit +12% +12% +12%

Op. margin 2014 21.0% 23.9% 22.5%

Op. margin 2013 20.6% 23.3% 22.0%

+4% +4% +31% +20% -10%

Based on adjusted profit at constant currency – see Appendix IV

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

EMEA Asia Pacific Americas Watson-Marlow FX

At constant currency £m

-£15m


Profit bridge 2013 to 2014


• Strong FX headwind of £15.5m

• £11.4m translation

• £4.1m transaction

• Good first-time contribution from BioPure

• Profit increase in all segments at constant currency 110

115

120

125

130

135

140

145

150

155

160

2013Profit

FX BioPure EMEA Asia Pacific Americas Watson-Marlow

Corporate

151.6 153.0

(15.5)

1.6 1.9

2014 Profit

1.7

6.6

5.5 (0.6)

£m


Record operating margin of 22.5%

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%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

H1 H2 Year


Adjusted cash flow


Pounds (£) million 2014 2013

Adjusted operating profit* 153.0 151.6

Depreciation and share schemes 24.3 25.4

Working capital (14.5) (7.3)

Capital expenditure (net including R&D) (31.4) (26.7)

Adjusted cash from operations 131.4 143.0

Interest paid (net) (0.1) 0.4

Tax paid (41.9) (42.3)

Free cash flow 89.4 101.1

Dividends paid (net) (45.1) (120.0)

Special pension payments/provisions/restructuring (4.8) (8.6)

Shares issues/purchased (net) 2.2 (0.6)

Acquisitions (10.0) (5.6)

Cash flow for the period 31.7 (33.7)

Net cash balance 52.5 16.4

ROCE 44.3% 44.4%

• Continued good

cash generation

• Higher working capital outflow (year-end project debtors)

• Increased capital investment

• Closing net cash of £52 million


-10.0

10.0

30.0

50.0

70.0

90.0

110.0

130.0

150.0

170.0

190.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Pe

nce

pe

r sh

are

DPS Interim DPS Final Special dividend

Dividend growth

•….

• Core dividend up 9% to 64.5p

• 12% pa increase over last five and ten years

• 47 year dividend record, 11% pa increase

• £91m return of capital to shareholders via a special dividend of 120p per share

+11% +11% +13% +11% +8% +19%

25p

+14% +8%

100p

19.5p

+9%

45.0p

+11%

120p


2014 2015

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 operating margin factors Effects on underlying margins*


Agenda

Nick Anderson

Operations and Outlook


Europe, Middle East & Africa (EMEA)

31st Dec 2013 Exchange Organic Acquisitions

31st Dec 2014

Change Constant currency

Sales £244.3m (£13.2m) £5.1m - £236.2m -3% +2%

Op profit* £48.2m (£4.1m) £1.9m - £45.9m -5% +4%

Margin* 19.7% 19.4% -30 bps +30 bps

• Organic sales up 2% despite challenging market conditions

• Good sales growth in UK, Italy, Nordics; small decline in France

• Growth of base business partly off-set by lower project activity – especially Russia and Middle East

• New operating companies: UAE, Netherlands; Egypt in 2015

• Price management, favourable mix and cost controls underpin margin improvement

• Operating profit up 4% – expands underlying margin 30 bps

• Improved structural manufacturing costs in UK (Feb. 2015)


of Group sales 35%


Asia Pacific

• Sales up 2% in very mixed market conditions

• Strong H2 in Korea as expected; good progress in Australia and Japan

• China sales flat – expansion projects down due to industrial over-capacity; off-set growth of underlying opex business

• New company in Indonesia now fully operational

• Operating profit up 4% – underlying margin expands 50 bps

• New company in India to drive growth – exiting JV in March 2015

• Remain positive on the region; China’s industrial capex outlook remains uncertain


31st Dec 2014


Sales £182.8m (£8.4m) £3.3m - £177.7m -3% +2%

Op profit* £48.0m (£3.3m) £1.7m - £46.4m -3% +4%

Margin* 26.3% 26.1% -20 bps +50 bps


of Group sales

26%


Americas

• Organic sales up 8% – growth in all countries except Brazil

• North America markets strong – South America facing industrial recession

• Argentina benefited from dollar-based pricing post-devaluation

• Profit up 7% in reported currency – margin now above 22%

• Strong profit growth in USA – re-focussing business plus strong price management, cost controls and efficiency improvements

• Very good progress in Chile and efficiency gains from Mexico’s new facility

• Positive outlook for North America – markets remain difficult in Brazil and Argentina


31st Dec 2014


Sales £132.0m (£15.0m) £9.1m - £126.2m -4% +8%

Op profit* £26.1m (£4.8m) £6.6m - £28.0m +7% +31%

Margin* 19.8% 22.2% +240 bps +400 bps


of Group sales

19%


Watson-Marlow


31st Dec 2014


Sales £130.3m (£7.5m) £10.8m £4.7m £138.2m +6% +13%

Op profit* £39.5m (£3.2m) £5.5m £1.6m £43.5m +10% +20%

Margin* 30.3% 31.5% +120 bps +190 bps


of Group sales

20%

• Sales up 13% – organic sales up strong 9%

• Growth across all regions and product ranges

• BioPure integration seamless – contributing ahead of expectations

• Profit up 20% – margin at very strong 31.5%

• Favourable mix and some cost containment in H2

• Accelerating investments in R&D, market development & IT support

• Name changed to reflect expanding addressable markets along customers’ fluid path


Getting better at what we already do well

1) Increase direct sales effectiveness through sector focus

2) Develop the knowledge and skills of our expert sales and service teams

3) Broaden our global presence

4) Leverage R&D investments

5) Optimise supply chain effectiveness

6) Operate sustainably and help improve our customers’ sustainability

Implementing our strategy To deliver self-generated growth outperforming our markets


Outperforming our markets by… broadening our global presence and winning new customers

• The problem: poor steam quality

• The requirement: an energy efficient system to meet international clean steam sterilisation standards HTM 2031 and EN 285

• The solution: a complete steam system audit recommends installation of a bespoke turnkey solution including clean steam generators; a reverse osmosis water treatment system; packaged water pre-heating and degassing units

• The result: a £700,000 order to implement internationally recognised clean steam standards

New Spirax Sarco Middle Eastern company helps Saudi Arabian hospital meet internationally recognised clean steam standards

Expanding our global presence and capturing new customers achieves growth that outperforms our markets


Outperforming our markets by… expanding our offering

• The problem: high energy spend

• The requirement: improved energy efficiency

• The solution: recovery of latent heat from waste gases through a gas-to-hot water heat exchanger system; hot water used to generate steam

• The result: latent heat recovery generating 1.75 tonnes of steam per hour, reducing need for primary steam generation elsewhere on site. Customer’s energy bill reduced by £760,000/year and CO₂ savings of 1,340 tonnes/year (<6 month payback period)

Spirax Sarco Korea enables customer to save energy by recovering heat from hydrocarbon resin manufacturing process

Expanding our offering of thermal energy management solutions achieves growth that outperforms our markets


Outperforming our markets by… developing new products and taking market share

• The problem: inaccurate dosing; acidic fluids damaging pump components and increasing maintenance costs; pulsation affecting the quality of transported substances

• The requirement: reliable dosing of process-critical additives, low maintenance and a pulse-free flow

• The solution: 12 Qdos pumps from Watson-Marlow

• The result: “We were impressed with the results right from the start. Qdos provides 100% precision… and they haven’t caused us any problems, even though they are in constant use six days a week.” (Mr Zabel, Maintenance Manager)

Qdos pumps from Watson-Marlow replace competitor’s diaphragm pumps in electroplating application of automotive parts in Germany

Developing new products to take market share from other pump types achieves growth that outperforms our markets


• Organic sales up over 4%

• Operating profit ahead in all segments at constant currency

• Operating margin increased to 22.5%, despite currency headwind

• Good cash generation, £52 million net cash

• Special dividend of 120p per share

• Further progress expected in 2015

Summary


• Outperforming our markets

• Generating consistent growth

• Creating shareholder value

Spirax-Sarco Engineering plc 2014 Results 31st December

Appendices


Appendix I - Return on capital employed



Working Capital

Inventories 98.0 104.2

Trade receivables 155.7 145.4

Prepayments, other current assets 28.8 23.7

Trade, other payables & current tax (112.9) (103.0)

Total working capital 169.6 170.3

Property, plant & equipment 176.6 174.2

Total Capital Employed 346.2 344.5

Average Capital Employed 345.4 341.8

Adjusted Operating Profit * 153.0 151.6

ROCE* 44.3% 44.4%

Working Capital/Sales 25.0% 24.7%


Appendix II - Cash conversion


Adjusted cash generated from operations 131.4 143.0

Adjusted Operating Profit* 153.0 151.6

Cash conversion 86% 94%



Appendix III - Currencies

Average exchange rates 2013 2014 % 2015* %

Spirax weighted index 100.0 106.8 -6% 109.2 -2%

Bank of England index 81.7 87.1 -6% 91.1 -4%

US$ 1.57 1.65 -5% 1.55 +6%

Euro 1.18 1.24 -5% 1.38 -10%

RMB 9.66 10.15 -5% 9.69 +5%

Won 1,716 1,734 -1% 1,696 +2%

Brazilian Real 3.41 3.88 -12% 4.42 -12%

Argentine Peso 8.65 13.32 -35% 13.49 -1%

SA Rand 15.16 17.85 -15% 18.01 -1%

• Given the profile

of currency movements in 2015, each 1% movement in the Spirax currency weighted index changes sales by £7m and operating profit by approximately £1.5m, which includes both translation and transaction effects

* 2014 rates are spot rates as at 28th February 2014


Appendix IV - 2014 Note on 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 and pre-tax profit excludes certain non-operational items which are analysed below.


Amortisation and impairment of acquisition-related intangible assets

(4.1) (4.0)

Acquisition and disposal costs (0.8) (0.6)

Total adjustment to operating profit (4.9) (4.6)

Amortisation of acq’n intangibles in Associates (0.5) (0.8)

Impairment in respect of Spirax Marshall in India (1.0) -

Total adjustment to pre-tax profit (6.3) (5.3)

2014 results - spirax-sarco engineering plc · dps interim dps final special dividend dividend...

Documents