Spirax Sarco Engineering 2012 Annual Report Results

2012 Results
31st December 2012

Bill Whiteley – Chairman
Mark Vernon – Chief Executive
David Meredith – Finance Director

Agenda

2012 Highlights
2012 Financial Review
Operations and Outlook
Appendices

2012 Results 31st December 2012 2

2012 Highlights
Constant
2012 2011 Change currency
Revenue £661.7m £650.0m +2% +5%
Operating profit* £136.2m £134.0m +2% +6%
Margin* 20.6% 20.6% 0 bps +20 bps
Pre-tax profit* £138.5m £137.2m +1% +5%
Tax rate 29.6% 29.8%
EPS* 125.6p 124.8p +1% +5%
DPS 53.0p 49.0p +8% +8%
Special dividend 100.0p -

• Another year of record sales and profit
• Sales +5% and Operating profit +6% at constant currency
• Operating margin 20.6% after strong second half performance
• Cash generation at record levels – ending net cash £52m
• Core dividend up 8%
• Special dividend recommended of 100p (£78m)
* See Appendix IV for definition of profit measures

Agenda

David Meredith
2012 Financial Review


Segment revenue changes
-2% +12% +6% +8% -3%
20.0 £17.9m
2012 Sales (£m)
15.0
EMEA 232.8 £9.4m
Asia Pac 166.9 10.0 £8.1m
Americas 137.5 5.0
WM 124.5
Total 661.7 £m 0.0
EMEA Asia Pacific Americas Watson-Marlow FX
-5.0
Organic sales - £4.8m
versus 2011 -10.0

Steam Spec +5% -15.0
WM +8%
-20.0 - £18.9m
Group +5%
% Change v 2011 H1 H2 Year Rates of change at constant currency

Organic sales +5% +5% +5%

Acqns/Disposals (1%) - (1%)

FX (2%) (3%) (3%)
TOTAL +2% +2% +2%

Segment operating profit changes
-4% +11% +3% +10% -4%
6.0
2012 Profit (£m)
£4.3m
EMEA 36.7 4.0 £3.4m
Asia Pac 43.9
Americas 26.2 2.0
WM 36.8 £0.7m
Corp Exp (7.4) £m 0.0
Total 136.2 EMEA Asia Pacific Americas Watson-Marlow FX
-2.0 - £1.7m

-4.0

- £5.1m
-6.0
% Change v 2011 H1 H2 Year Based on adjusted profit at constant
currency – see Appendix IV
Operating profit (3%) +13% +6%

Op. margin 2012 18.6% 22.4% 20.6%

Op. margin 2011 19.9% 21.3% 20.6%

Profit bridge
2011 to 2012
140.0
• 2011 property 20.6%
profit and mfg 135.0 20.6%
one-off costs not 2.7 136.2
1.5 5.1
repeated 134.0 9.6
130.0
• Large FX impact, 3.5
higher in H2
• De-stocking £m 125.0 2.0
impact on 1.5
European 120.0
factories
• Profit change 115.0
includes higher
investment, mfg
benefits & 110.0
2011 2011 2011 FX Europe Profit 2012
restructuring Profit Property Mfg Factory Change Profit
savings Profit One-off Volume
Exps

* See Appendix IV for definition of profit measures 2012 Results 31st December 2012 7

Record second half operating margin
Strong emphasis on margin expansion
25% 25%
22.4%

20% 20%
18.6%

15% 15%

21.3%
21.0%

19.9%
19.5%

19.3%
10% 10%

17.1%

17.1%

17.1%
17.0%
16.6%
15.9%

15.9%

15.8%
15.3%
15.0%

15.0%
14.4%
13.2%

5% 5%

0% 0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
* See Appendix IV for definition of profit measures H1 H2 Year


Adjusted cash flow
(pounds (£) millions) 2012 2011
Adjusted operating profit* 136.2 134.0
Depreciation and share schemes 23.7 18.5
• Cash from
Working capital (0.5) (32.9)
operations
£129.8m, 95% Capital expenditure (net including R&D) (29.6) (43.4)
conversion
Adjusted cash from operations 129.8 76.2
• Controlled
working capital - Interest paid (0.2) (0.3)
stocks down but Tax paid (37.9) (33.5)
lower trade
Free cash flow 91.7 42.4
creditors (stock
reduction) Dividends paid (net) (37.9) (52.7)
• Free cash flow Special pension payments/provisions/restructuring (12.5) (10.9)
doubled
Shares issues/purchased (net) 4.0 4.4
• Capex at more
normal level Acquisitions (4.5) (3.4)
• Closing net cash Cash flow for the period 40.8 (20.2)
£51.7m
Net cash balance 51.7 12.3


Dividend growth

160.0
• ….
• 45 year dividend 140.0
record
• Core dividend up 120.0
8% in 2012
Pence per share

100.0 100p
• Special dividend
100p per share
for 2012 - £78m 80.0
return of capital
60.0 25p +8%
• Share +14%
+19%
consolidation 40.0 +8%
+13% +11% 37p
+11% +11%
+4% +4% +6%
20.0
16p
0.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

DPS Interim DPS Final Special dividend


Key performance indicators

2012 2011
• Good organic
sales growth in Organic sales growth +5% +10%
tough macro
environment
Sales per employee +4% +4%
• Significantly Operating profit margin* 20.6% 20.6%
higher cash from
operations and Adjusted cash from operations £129.8m £76.2m
good cash Cash conversion* 95% 57%
conversion
Working capital to sales 24.8% 27.4%
• Lower capital
expenditure Capital expenditure to depreciation 150% 254%
• Lower ROCE Return on capital employed (average)* 39.4% 41.1%
from high
opening balance * See Appendix IV for definition of profit measures
Appendix I for ROCE
Appendix II for Cash Conversion
Appendix III for Currencies


Underlying operating margin factors
Effects on underlying margins*

2012 2013

Currency movements

Operating leverage

Sales pricing (vs. inflation)

Material prices

Manufacturing strategies

Business & product mix

Business development investment

* The arrows as shown are qualitative and indicate direction only


Agenda

Mark Vernon
Operations and Outlook


Europe, Middle East & Africa (EMEA)
Constant
Sales £232.8m £250.1m -7% -2%
Op profit* £36.7m £42.5m -14% -4%
Margin* 15.8% 17.0% -120 bps -40 bps
*Based on adjusted Operating profit – see Appendix IV

• Organic sales flat (reported sales down 7% due mainly to weak euro)
• Economic conditions deteriorated throughout 2012
• Flat sales in combined large mature markets of France, Germany, Italy, Spain and the UK
• Eastern Europe impacted by Eurozone uncertainty but higher second half demand
• Restructuring actions taken to reduce cost base in Europe
• Operating profit down 4% at constant currency
• Uncertainty clouds outlook


Asia Pacific
Constant
Sales £166.9m £147.1m +13% +12%
Op profit* £43.9m £37.8m +16% +11%
Margin* 26.3% 25.7% +60 bps -30 bps

• Sales up 12% at constant currency – good growth across product groups
• Market conditions broadly positive
• Another outstanding year in China – good exposure to domestic consumption
• Good year in Korea from strong project-driven second half
• Continued to add sales resource in emerging markets
• Operating profit up 11% at constant currency and margin at 26.3%


Americas
Constant
Sales £137.5m £134.4m +2% +6%
Op profit* £26.2m £27.4m -4% +3%
Margin* 19.1% 20.4% -130 bps -70 bps

• Sales up 6% at constant currency (reported sales up 2% from unfavourable currency)
• North American market conditions broadly positive but slowing large project activity
• Softness in USA with overall lower demand in Q4
• Latin America market conditions mixed
• Sales and profits down in Brazil – exceptional project benefited Argentina
• Operating profit up 3% at constant currency versus record prior year
• Margin lower at 19.1%


Watson-Marlow Pumps
Constant
Sales £124.5m £118.4m +5% +8%
Op profit* £36.8m £34.4m +7% +10%
Margin* 29.6% 29.1% +50 bps +60 bps

• Sales up 8% at constant currency – growth across all product lines
• Difficult trading conditions in EMEA but sales growth in most operations
• Trading conditions positive in biopharmaceuticals, precious metals processing and OEM
• Strong sales growth in the Americas and particularly Latin America
• Sales ahead in all operations in Asia Pacific – new operations in India and Singapore
• Operating profit up 10% at constant currency and margin increased to 29.6%


Group geographic revenues
Sales contribution from Asia Pacific increased to 27%

EMEA 44%
(2011: 48%)
Emerging markets 8%
(2011: 9%)

Americas 29% Asia Pacific 27%
(2011: 28%)
(2011: 24%)
Emerging markets 9%
Emerging markets 22%
(2011: 9%)
(2011: 20%)

2012 emerging markets 39% of sales Sales are by geographical location of operations

and 45% of operating profit 2012 Results 31st December 2012 18

Segment profit contributions
Good sales and profit balance between segments

Segment profit Segment sales
• EMEA profit contribution contribution
contribution
100%
down 17 ppts
20% 24% 24% 24% 26% 19%
since 2008
80%
• Higher growth in 13%
15% 21%
19% 19% 18%
other regions 60%
driving better 23%
24% 25%
segment profit 40% 27% 27% 31%
balance
• 31% of 2012 20% 43% 38%
29% 30% 35%
26%
profit from Asia
Pacific 0%
2008 2009 2010 2011 2012 2012

EMEA Asia Pacific Americas Watson-Marlow

* Segment profit contributions exclude Corporate Expense


Emerging market contributions
Investments delivering benefits
Emerging market direct sales
personnel
• Consistent
programme of 500 600 700
investment and 2008 Emerging Market Contributions
market 2009 0% 10% 20% 30% 40% 50%
development 2010
2011 2008 32% 34%
• New market
2012
entry key 2009 32% 38%
contributor to Solutions
long-term Selling 2010 37% 42%
growth New Market entry (cumulative)
2011 38% 44%
• Emerging 0 5 10
markets 2008 2012 39% 45%
generating 45% 2009
of profit % of Group sales % of Group profit*
2010
* After Group cost allocations
2011
2012


Growth from key product initiatives
Investments delivering benefits
CAGR
% of Steam Specialties sales at
• Group R&D constant currency 2002 2007 2012 10 Yr
expenditure
nearly doubled *Key Steam Business product
Key Initiatives* 19% 23% 28% 11% initiatives include: heat
in 4 years transfer packages, controls,
flow meters, boilerhouse
• New products Traditional products 81% 77% 72% 5% controls and services
delivering about
20% of sales
growth
Total 100% 100% 100% 7%
• Growth rate HEAT TRANSFER FLOW METERING WIRELESS MONITORING PERISTALTIC PUMPING
from key product
initiatives 2x
traditional
products

New EasiHeat hot water system World’s first self-powered Remote monitoring of New Qdos Watson-Marlow
with SIMS technology flow meter condensate removal pump


Summary

• Organic sales up 5% despite deteriorating macro economic
environment – continued strong growth in Asia
• Restructuring in Europe addresses market realities with £5.5m
annualised cost reduction (£3.5m incremental in 2013)
• Strong cash generation – net cash balance £52m
• Dividend increased 8% plus proposed special dividend of 100p
• Expect overall low growth macro environment in 2013
• Continued investments in market development
• Expect further progress in 2013


Spirax-Sarco Engineering plc
2012 Results 31st December

Focused on consistent growth and
creating shareholder value


Appendix I -
Return on capital employed
Pounds (£) millions 2012 2011
Working Capital
Inventories 103.7 116.3
Trade receivables 145.7 142.5
Prepayments, other current assets 17.7 19.2
Trade, other payables & current tax (102.9) (100.1)
Total working capital 164.2 177.9
Property, plant & equipment 174.8 174.7
Total Capital Employed 339.1 352.6
Average Capital Employed 345.8 325.6
Adjusted Operating Profit * 136.2 134.0
ROCE* 39.4% 41.1%
Working Capital/Sales 24.8% 27.4%

Appendix II -
Cash conversion

Adjusted cash generated from operations 129.8 76.2
Adjusted Operating Profit* 136.2 134.0
Cash conversion 95% 57%

* See Appendix IV for definition of profit measures


Appendix III -
Currencies
Change
2012 2011 %
• Euro down 7%
• US dollar up 1% Average exchange rates
• RMB up 3% Bank of England sterling index 83.0 79.9 -4%
• Brazilian Real US$ 1.59 1.61 +1%
down 14% and Euro 1.23 1.15 -7%
South African
Rand down RMB 10.02 10.34 +3%
11% Won 1,785 1,779 0%
• Sterling weaker Period end exchange rates
in early weeks
of 2013 Bank of England sterling index 83.6 80.9 -3%
US$ 1.63 1.55 -5%
Euro 1.23 1.20 -2%
RMB 10.13 9.78 -4%
Won 1,740 1,790 +3%

Appendix IV -
2012 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 excludes
certain non-operational items which are analysed below.

Exceptional restructuring costs (7.2) -
Amortisation of acquisition-related intangible assets (3.7) (4.0)
Acquisition and disposal costs (0.3) (0.4)
Contingent consideration fair value adjustment 0.6 -
Total (10.5) (4.5)


Spirax Sarco Engineering 2012 Annual Report Results

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Spirax Sarco Engineering 2012 Annual Report Results

Similar to Spirax Sarco Engineering 2012 Annual Report Results (20)

Spirax Sarco Engineering 2012 Annual Report Results