1. Spirax-Sarco Engineering plc
2010 Results
31st December 2010
Bill Whiteley – Chairman
Mark Vernon – Chief Executive
David Meredith – Finance Director
2. Overview of 2010 results
Constant
2010 2009 Change
currency
Revenue £589.7m £518.7m +14% +11%
Operating profit* £119.1m £89.9m +32% +26%
Margin* 20.2% 17.3%
Pre-tax profit* £121.6m £90.2m +35% +29%
EPS* 109.5p 82.2p +33% +28%
DPS 43.0p 36.1p +19% +19%
Special Dividend 25.0p - - -
• Sales up 14% – growth led by emerging markets and Watson-Marlow
• Record operating profit margin exceeds 20%
• Continued reinvestment in sales development and R&D
• Good cash flow and strong balance sheet – net cash £34m
• Total dividend up 19% – continuing the Group’s long history of increasing dividends
• Additional special dividend of £20m
* See Appendix VII for definition of profit measures
2010 Results 31st December 2010 2
3. Segment revenue changes
Asia Watson-
EMEA Pacific Americas Marlow FX
Increase over 2009 25.0
+3% +16% +15% +22% +2%
EMEA +3%
Asia Pac +16% 20.0 £18.6m £18.8m
Americas +15%
WM +22% £15.9m
15.0 MasoSine
FX +2% Mexico
Total +14% £m
£10.4m
10.0
£7.4m
Sales 2010 £m
5.0
EMEA 230.0
Asia Pac 131.5
Americas 125.2 0.0
WM 103.0 Based on sales by segment at constant currency % Chg yoy over 2009
Total 589.7 Organic Sales +9%
Acquisitions +2%
FX +2%
TOTAL +14%
2010 Results 31st December 2010 3
4. Segment operating profit changes
Asia Watson-
EMEA Pacific Americas Marlow FX
Increase over 2009 14.0
+5% +27% +67% +36% +5%
EMEA +5%
12.0
Asia Pac +27%
Americas +67% 10.0 £9.8m
WM +36%
Mexico £8.2m
FX +5% 8.0 £7.2m
Total +32% £m MasoSine
6.0
£4.4m
4.0
Profit 2010 £m
EMEA 36.8 £1.7m
2.0
Asia Pac 34.2
Americas 24.3 0.0
WM 30.8 Based on adjusted profit by segment at constant currency % Chg yoy over 2009
Corp Exp -7.0 Operating profit +32.5%
Op margin 2010 20.2%
Total 119.1
Op margin 2009 17.3%
2010 Results 31st December 2010 4
5. Financial aspects
Constant
2010 2009 Change
currency
Revenue £589.7m £518.7m +14% +11%
Operating profit* £119.1m £89.9m +32% +26%
Margin* 20.2% 17.3% +290 bps +240 bps
Net finance expense (£0.6m) (£2.5m)
Associates £3.1m £2.8m +11% +4%
Pre-tax profit* £121.6m £90.2m +35% +29%
Tax rate (excl Associates)* 31.5% 31.4%
EPS* 109.5p 82.2p +33% +28%
DPS 43.0p 36.1p +19% +19%
Special dividend 25.0p - - -
• Record 20.2% operating profit margin • Tax rate virtually unchanged
• Lower finance expense – pensions • FX gain 2% on sales and 5% on operating profit
* See Appendix VII for definition of profit measures
2010 Results 31st December 2010 5
6. Cash flow
(£millions) 2010 2009
Adjusted operating profit* 119.1 89.9
• Strong profit
increase Depreciation and share schemes 18.9 18.4
• Working capital Working capital (12.4) 9.6
outflow Adjusted cash from operations 125.6 117.9
• Free cash flow
Interest paid (0.3) (0.7)
+18% to £62m
• Closing net cash Tax paid (30.4) (29.9)
£34m Capital expenditure (net including Development) (32.9) (34.6)
Free cash flow 62.0 52.7
Dividends paid (net) (28.0) (24.3)
Special pension payments/severance/provisions (12.4) (15.0)
Treasury shares (net) 6.2 2.0
Acquisitions (3.5) (27.2)
Cash flow for the period 24.3 (11.8)
Net cash balance 34.4 8.0
* See Appendix VII for definition of profit measures
2010 Results 31st December 2010 6
7. Key financial statistics
2010 2009
Amortisation & impairment of acquisition intangibles £6.1m £2.4m
App I EPS / DPS
Sales per employee (average for period at constant FX)) +11% -6%
App II ROCE
Adjusted cash from operations £125.6m £117.9m
App III Cash
Free cash flow £62.0m £52.7m
App IV FX
App V H1,H2 Margins Net cash £34.4m £8.0m
App VI Definition Capital expenditure as % of depreciation 197% 210%
Cash conversion* 78% 93%
Pension liability IAS19 basis (after tax) £45.5m £53.2m
Return on capital employed (average)* 42.1% 33.3%
• Return on capital employed improved to 42.1%
• Good cash conversion
• Continued investment – capex at nearly 2X depreciation
* See Appendix VII for definition of profit measures
2010 Results 31st December 2010 7
8. Underlying operating margin factors
(Year-on-year effects on margin) 2010 2011E
Currency movements
Volume leverage
impacts
Higher
Sales pricing (above inflation)
Material prices
Manufacturing strategies
Product mix
impacts
Lower
Business development investment
2010 Results 31st December 2010 8
9. Segmental Revenue Changes
EMEA 39%
(2009: 44%)
Americas 21%
(2009: 20%) Asia Pacific 23%
(2009: 20%)
• Good geographic spread
• Diverse industry and
customer base
• 1,300 direct sales and
service engineers in
over 50 countries Watson-Marlow Pumps 17%
• 42% of 2010 sales into (2009: 16%)
emerging markets
• >80% Watson-Marlow
sales in Europe & North
America
Sales are by geographical location of operations
2010 Results 31st December 2010 9
10. Europe, Middle East & Africa
(EMEA)
Constant
2010 2009 Change
currency
Sales £230.0m £225.5m +2% +3%
Operating profit* £36.8m £35.6m +3% +5%
Margin* 16.0% 15.8%
• Mixed market conditions
• Good performances from Germany, Russia and M&M Italy
• Higher second half sales in UK
• Challenging markets in Italy and France
• Higher volumes at manufacturing plants contributed to profit increase
• Cheltenham manufacturing consolidation largely complete by mid-2011
• Product rationalisation/costs in South Africa
*Based on adjusted Operating profit
2010 Results 31st December 2010 10
11. Asia Pacific
Constant
2010 2009 Change
currency
Sales £131.5m £104.7m +26% +16%
Operating profit* £34.3m £23.1m +48% +27%
Margin* 26.0% 22.1%
• End markets recovering
• Higher levels of project and maintenance spending by customers
• Overall sales up strongly across region
• Exceptional second half project shipments from backlog
• New China plant in production (£2m profit on sale of old premises)
• Favourable exchange benefits from stronger won and Australian dollar
• Restructured Japan management
*Based on adjusted Operating profit
2010 Results 31st December 2010 11
12. Americas
Constant
2010 2009 Change
currency
Sales £125.2m £104.6m +20% +15%
Operating profit* £24.3m £13.9m +75% +67%
Margin* 19.4% 13.2%
• Operating profit up 75%
• Outstanding operating profit margin of 19.4%
• Sales and profit growth from all operations
• Improving second half market conditions in Canada
• Favourable exchange benefits from stronger Brazilian real
• Sales and profit benefits from Mexico shareholding acquisition
• Sharply higher profits in Brazil from improved gross margin, cost/pricing management
*Based on adjusted Operating profit
2010 Results 31st December 2010 12
13. Watson-Marlow Pumps
Constant
2010 2009 Change
currency
Sales £103.0m £83.8m +23% +22%
Operating profit* £30.8m £22.3m +38% +36%
Margin* 29.9% 26.6%
• End markets recovering
• Good growth from all geographic regions and product segments
• Benefits from full year of MasoSine acquisition
• Good demand from OEM customers in EMEA
• Bredel shipments recovered from weak 2009
• Strong sales growth in Asia (small base)
*Based on adjusted Operating profit
2010 Results 31st December 2010 13
14. Operational priorities:
invest for future growth
Investments £25m higher than 2005
New product development
£50.0
• New product development investment increased £45.0
Capex R&D
more than 50% since 2007 and doubled since £40.0
2005 £35.0
• Pipeline of new products increasing £30.0
£25.0
£20.0
Market development
£15.0
• 250 new sales & service engineers since 2005
£10.0
• Developing markets increased to 42% of Group £5.0
sales in 2010 £0.0
• Direct sales in more than 50 countries 2005 2006 2007 2008 2009 2010
• New sales offices opened in Eastern
Europe, Asia and Middle East 7% pa sales growth since 2005
14.0%
Acquisitions Organic
Selling focus on higher growth products 12.0%
10.0%
• Heat transfer/recovery
8.0%
packages, services, controls and metering
6.0%
product groups grew 2x faster than overall 4.0%
growth in last decade 2.0%
• Customer outsourcing trends creating 0.0%
opportunities to grow pre-fabricated packages -2.0% 2006 2007 2008 2009 2010
and services -4.0%
-6.0%
Changes at constant currency
-8.0%
2010 Results 31st December 2010 14
15. Operational priorities:
increase operating efficiency
Manufacturing strategies
Operating margin improved to record high
• Four-year £50m investment
20.2% in 2010
nearing end
24.0%
• Consolidate and rationalise
European footprint 22.0%
• Increase manufacturing capacity 20.0%
closer to growth markets
18.0%
• Improve local product availability
16.0%
• Simplify supply chain logistics
• £2m additional cost benefits in 14.0%
2011 and further £2m in 2012 12.0%
10.0%
Selling efficiency
8.0%
• People costs largest single element
of cost structure – 43% of total 6.0%
costs in 2010 4.0%
• Nearly 30% of employees customer
2.0%
facing
0.0%
• Internet-based technical training
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tools and assessments to speed
development
Years shaded in grey represent global recessions (IMF)
• Global knowledge sharing software
platform
2010 Results 31st December 2010 15
16. Operational priorities:
improve return on capital employed
Working Capital improved to 24% of sales
Working Capital
34.0%
• Working capital reduced from 29% of sales in
2005 to 24% in 2010 32.0%
• Global manufacturing strategies to yield further 30.0%
improvements
28.0%
26.0%
ROCE
• Steady improvements every year since 2005 24.0%
except recessionary 2009 22.0%
• Higher margins/well managed working capital
20.0%
drove improved ROCE in 2010
2005 2006 2007 2008 2009 2010
Cash generation ROCE improved to 42% in 2010
50.0%
• Business highly cash generative – £228m free
cash flow in last five years 45.0%
• £50m invested in acquisitions since 2005
40.0%
• £119m dividends since 2005
• Additional special dividend for 2010 (paid 2011) 35.0%
30.0%
25.0%
20.0%
2005 2006 2007 2008 2009 2010
2010 Results 31st December 2010 16
17. Summary
• Markets recovering but mixed across Europe
• Record operating profit margin exceeds 20% – volume and self helps
• Total dividend up 19% continuing long history – additional special dividend
• Strong balance sheet – net cash of £34m
• Return on capital employed 42.1%
• Higher investments in product development and market penetration planned
• Expect global industrial output to return to more normal levels in 2011
• Board confident in prospects for Group
2010 Results 31st December 2010 17
18. Spirax-Sarco Engineering plc
2010 Results 31st December
Focused on consistent growth and
creating shareholder value
2010 Results 31st December 2010 18
19. Appendix I -
Investing for long term delivers results
120
43 year
Key: EPS
dividend Special dividend
record 100 DPS Final
DPS Interim
80
Pence per share
60
40
20
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
*Based on adjusted Operating Profit. From 2004 figures prepared under IFRS
2010 Results 31st December 2010 19
20. Appendix II -
Return on capital employed
£’m 2010 2009
Capital employed
Property, plant & equipment 155.6 135.4
Inventories 96.1 86.5
Trade receivables 137.3 118.8
Prepayments, other current assets 16.9 14.6
Trade, other payables & current tax (107.2) (87.5)
Total Capital Employed 298.7 267.8
Average Capital Employed 283.3 269.8
Adjusted Operating Profit* 119.1 89.9
ROCE* 42.1% 33.3%
* See Appendix VII for definition of profit measures
2010 Results 31st December 2010 20
21. Appendix III -
Cash conversion
£’m 2010 2009
Adjusted cash generated from operations 125.6 117.9
Good cash
conversion Net capital expenditure
(32.9) (34.6)
(property, plant, equipment, software and development)
92.7 83.3
Adjusted Operating Profit* 119.1 89.9
Cash conversion 78% 93%
* See Appendix VII for definition of profit measures
2010 Results 31st December 2010 21
22. Appendix IV -
Currencies
2010 2009 %
Small FX gains
Average exchange rates
in 2010.
Current rates Bank of England sterling index 80.2 79.6 -1%
indicate broadly
US$ 1.55 1.56 +1%
neutral average
FX for 2011 Euro 1.17 1.12 -4%
RMB 10.48 10.65 +2%
Won 1,798 1,976 +10%
Period end exchange rates
Bank of England sterling index 79.8 80.5 +1%
US$ 1.57 1.61 +3%
Euro 1.17 1.13 -3%
RMB 10.32 11.02 +7%
Won 1,777 1,880 +6%
2010 Results 31st December 2010 22
24. Appendix VI -
2010 Note on profit measures
All profit measures exclude the exceptional revaluation gain in Mexico of £8.2m
(2009: nil) and the amortisation and impairment of acquisition-related intangible
assets of £6.1m (2009: £2.4m) of which £0.4m (2009: £0.4m) relates to
Associates. 2010 excludes professional costs of £0.2m in relation to acquisitions
and 2009 excluded headcount reduction costs of £11.4m. The tax effect on these
items was £0.4m (2009: £4.1m)
2010 Results 31st December 2010 24
