TIDMSPX
RNS Number : 9271Y
Spirax-Sarco Engineering PLC
09 March 2017
News Release
Thursday 9(th) March 2017
Delivering strong performance in challenging markets
HIGHLIGHTS
Adjusted* 2016 2015 Reported Organic
Revenue GBP757.4m GBP667.2m +14% +4%
Adjusted operating profit* GBP180.6m GBP152.4m +18% +8%
Adjusted operating profit
margin* 23.8% 22.8% +100 bps +80 bps
Adjusted profit before
taxation* GBP177.9m GBP151.1m +18%
Adjusted basic earnings
per share* 171.5p 142.6p +20%
Dividend per share 76.0p 69.0p +10%
Cash conversion 101% 95%
*All profit measures exclude certain non-operational items, as
set out and explained in the Financial Review and in Note 2.
Organic measures are at constant currency and exclude
acquisitions and disposals.
Statutory 2016 2015 Reported
-------------------------- ---------- ---------- ---------
Operating profit GBP174.1m GBP142.8m +22%
Profit before taxation GBP171.4m GBP139.7m +23%
Basic earnings per share 165.0p 129.9p +27%
-- Organic sales growth of 4%
-- Record operating margin of 23.8%
-- Another excellent performance in Watson-Marlow
-- Robust cash generation, 101% cash conversion
-- Full Year dividend increased by 10%
Nicholas Anderson, Chief Executive, commenting on the results
said:
"I am very pleased with the results delivered in 2016, which
again demonstrate the robustness of our strategy and strong direct
sales business model. We achieved good organic growth and expanded
our margin to a record high, against a backdrop of very low global
industrial production growth that improved in the latter part of
the year. We increased investment in 2016 and, during 2017, will
prioritise accelerating revenue and capital investments for growth
over further margin expansion, to ensure we continue outperforming
our markets by delivering organic sales growth. Assuming no
significant deterioration in trading conditions, the Board expects
to make further progress in 2017."
For further information, please contact:
Nicholas Anderson, Chief Executive
Kevin Boyd, Group Finance Director
Tel: 020 7638 9571 at Citigate Dewe Rogerson until 6.00 p.m.
The meeting with analysts will be available as a live audio
webcast on the Company's website at www.spiraxsarcoengineering.com
or via the following link:
http://edge.media-server.com/m/p/42epghr9 at 8.45 a.m. and a
recording will be posted on the website shortly after the meeting.
For access from any iOS Apple or Android device please use the
following QR code:
Unless otherwise stated, the figures quoted in the text below
are based on the adjusted Group results (see Note 2). References to
"organic" changes are like-for-like excluding acquisitions,
disposals and the effects of exchange rate movements.
Chairman's statement
I am pleased to report a good set of results in 2016 despite a
backdrop of low industrial production growth rates and a year of
economic and political uncertainty.
Performance
Sales for the year were GBP757.4 million, an organic increase of
4%. Following the result of the UK Referendum on EU membership
(Brexit referendum), sterling depreciated sharply against almost
all currencies and this generated a significant favourable currency
movement, increasing sales on translation by 8%. The net effect of
acquisitions and disposals was to add an additional 1% to revenues.
As a result, reported sales were 14% higher than 2015. Our
Watson-Marlow Fluid Technology Group (WMFTG or Watson-Marlow)
followed up a good 2015 with another strong year which saw organic
sales up 10%, spread across all geographic regions. The Spirax
Sarco Steam Specialties business also performed well with organic
sales increasing by over 2%, with gains in all divisions.
Adjusted operating profit increased by 8% on an organic basis to
a reported GBP180.6 million. Watson-Marlow delivered organic profit
growth of 16%, with the Steam Specialties business up 6% driven by
EMEA and the Americas. Organic operating profit in Asia Pacific was
marginally ahead of 2015. Favourable translation and transaction
currency movements increased adjusted operating profit by a further
9% while acquisitions and disposals had a marginally positive
impact leaving adjusted operating profit in total up 18%. The
adjusted operating margin improved by 100 bps, to a record
23.8%.
Net finance costs increased from GBP1.5 million to GBP2.6
million reflecting the reduction in interest from reduced bank
deposits following the payment of the special dividend in 2015,
while the total income from Associates was a loss of GBP0.1
million. The Group adjusted pre-tax profit was therefore GBP177.9
million, 18% ahead at reported currency. Adjusted basic earnings
per share was 20% ahead at 171.5 pence (2015: 142.6 pence).
The pre-tax profit on a statutory basis was GBP171.4 million
(2015: GBP139.7 million) and includes non-operational items,
explained in Note 2. The statutory basic earnings per share was
165.0 pence (2015: 129.9 pence).
Cash and dividends
Cash generation was robust, with very good cash conversion and
we finished the year with net cash of GBP27 million compared with
GBP5 million at 31(st) December 2015. Foreign exchange gains
boosted net cash by GBP12 million.
The interim dividend for 2016, paid on 11(th) November 2016, was
raised by 8.2% to 22.5 pence per share (2015: 20.8 pence per
share). The Board is recommending an increase in the final dividend
of 11.0% to 53.5 pence per share (2015: 48.2 pence). The total
Ordinary dividend for the year, subject to approval by shareholders
at the AGM on 9(th) May 2017 of the final proposed dividend, is
therefore 76.0 pence per share, an increase of 10.1% over the 69.0
pence per share for the prior year. The proposed dividend is in
line with the Group's dividend policy, which is to increase
progressively the dividend to appropriately reflect the underlying
trading performance while having regard to the maintenance of a
healthy dividend cover, the level of cash generation and the future
capital requirements of the business.
Governance and Board changes
On 10(th) May 2016, following 27 years of employment with the
Company and nearly 24 years as Group Finance Director, David
Meredith retired from the Board of Directors. On behalf of
shareholders and the Board, I acknowledge the outstanding
contribution that David made to the Company and express my thanks
for his many years of dedicated service.
Following a rigorous selection process we were pleased to
welcome Kevin Boyd to the Group on 11(th) April 2016, and to the
Board on 11(th) May 2016, as David's successor. Kevin brings with
him a wealth of experience; immediately prior to joining the
Company he was Group Finance Director for Oxford Instruments plc
and before that held the same position at Radstone Technology plc.
Kevin is a Chartered Engineer, a Chartered Accountant, a Fellow of
the Institute of Chartered Accountants and a Fellow of the
Institution of Engineering and Technology. He is a Non-Executive
Director of EMIS Group plc. Kevin's pragmatic approach and broad
experience facilitated a smooth transition and enabled him to make
an immediate contribution to the operation of the Board.
The Board is committed to ensuring the smooth transition of key
Board positions. Following an independent, external Board
effectiveness review in 2015, during 2016 the Nomination Committee
placed particular emphasis on enhanced succession planning.
On 1(st) September 2016 we welcomed Jane Kingston to the Group
as an Independent Non-Executive Director and member of the Audit,
Nomination and Remuneration Committees; in November 2016 she was
appointed Chairman of the Remuneration Committee. From 2006 until
her retirement in December 2015, Jane served as Group Human
Resources Director of Compass Group PLC and prior to that held the
same position at BPB plc. Jane has worked in a wide variety of
sectors and brings with her the skills and experience needed to
support the Group's strategy for growth. She is a Non-Executive
Director of National Express Group plc.
It was with great sadness that the Board was informed of the
death of Dr Krishnamurthy Rajagopal (Raj) in November 2016. Raj had
been an Independent Non-Executive Director of the Board since
February 2009 and was Chairman of the Remuneration Committee from
2014 to October 2016. On behalf of the Board and shareholders, I
express my appreciation for his great contribution to the Company
during his years as a Non-Executive Director.
Employees
During 2016, we were delighted to receive recognition as
"Britain's Most Admired Company" within the engineering sector and
to be acknowledged as Britain's sixth "Most Admired Company" by
Management Today, following extensive peer research. This is an
excellent achievement and is testament to the hard work that our
employees put into ensuring the Company's continued success. On
Behalf of the Board, I would like to thank all our employees
throughout the world for their individual and collective
contributions that have enabled us to deliver another set of good
results in 2016.
Prospects
The wide diversity of our customer base across industry sectors
and geography; the widespread global use of steam as an industrial
energy source; and the extensive application of pumps and fluid
path technologies, cause our markets to be strongly influenced by
industrial production growth rates.
In the first half of 2016 the global industrial production
growth rate was around zero, having progressively slowed in prior
years. During the second half there was a modest upturn, driven
mostly by improvements in emerging markets, resulting in a full
year average of 0.5%, a similarly low average as the previous
year.
The outlook for 2017 remains unclear, with continued political
and economic uncertainty in a number of our key markets. Global
industrial production growth rates are therefore forecast to remain
low, at less than 2% for the year. Given the lacklustre condition
of our markets, we remain focused on delivering self-generated
growth through the rigorous application of our business strategy,
with strategic initiatives designed to increase the effectiveness
of our highly skilled direct sales force, through sector-alignment
and investment in training; broaden our global presence, through
early entry into new and emerging markets; increase our ability to
leverage new product developments; increase the agility and
efficiency of our supply chain; and improve the sustainability of
our and our customers' operations.
With an effective direct sales business model and approximately
85% of revenue generated from our customers' maintenance and
operational budgets, we have a degree of resilience which enables
us to consistently outperform our markets.
In 2017 we could see a further favourable benefit from foreign
exchange as 2017 will include a full year of post-Brexit referendum
currency rates. As a guide, if current exchange rates were to
prevail for the remainder of the year, revenues would be 6% higher
due to translation. Movements in exchange rates are often volatile
and unpredictable, therefore the actual impact could be
significantly different.
Following the one-off impacts that benefited the first half of
2016, in the second half, as expected, we saw over 1% organic sales
growth in the Steam Specialties business, a level more
representative of the improving global industrial production growth
rates of that period. In 2017, we anticipate modestly higher
organic growth than in 2016, as global industrial production growth
is expected to rise to just under 2% for the year. Watson-Marlow
continued to exceed our expectations by delivering 10% organic
growth in 2016. However, we do not expect this level to continue
and, for 2017, maintain our expectations of mid-to-high
single-digit organic growth.
Group operating margin rose to a record level in 2016 and, as
predicted in our Half Year Report, we did not see any margin
expansion in the second half of the year compared to the same
period in 2015. In particular, Watson-Marlow saw margins grow to an
exceptional 33.1% for the year. Our expectation is that on an
organic basis we will be able to sustain these full year margins,
while increasing investments in new products and routes to market
as a means to continue delivering organic sales growth. Assuming no
significant deterioration in trading conditions, the Board expects
to make further progress in 2017.
Group Chief Executive's Report
2015 Exchange Organic Acquisitions 2016 Organic Reported
& Disposals
-------------------- ---------- --------- --------- ------------- ---------- -------- ---------
Revenue GBP667.2m GBP52.6m GBP30.3m GBP7.3m GBP757.4m +4% +14%
-------------------- ---------- --------- --------- ------------- ---------- -------- ---------
Adjusted operating
profit GBP152.4m GBP14.5m GBP13.2m GBP0.5m GBP180.6m +8% +18%
-------------------- ---------- --------- --------- ------------- ---------- -------- ---------
Adjusted operating
margin 22.8% 23.8% +80 bps +100 bps
-------------------- ---------- --------- --------- ------------- ---------- -------- ---------
Introduction
The Group achieved a good financial result in 2016, delivering
positive organic growth against a backdrop of very low to zero
industrial production growth and for the first time since 2010
enjoyed a significant currency tailwind. We again expanded our
geographical reach, opening three new sales companies in the year
and we completed two acquisitions, one each in the Steam
Specialties business and in Watson-Marlow.
Our direct sales business model in both our Steam Specialties
and Watson-Marlow businesses, driven through our team of nearly
1,400 highly skilled and experienced sales and service engineers,
is effective in uncovering opportunities to improve customers'
steam systems and fluid path processes. This "self-generated"
element of our business, combined with the high proportion of sales
that derive from end users' maintenance and operating budgets,
makes our business highly resilient, especially in the current low
market growth environment. Our sales and service engineers generate
solutions for customers' problems and deliver benefits to end users
in the shape of reduced energy usage and lower CO(2) emissions,
water savings, increased productivity, improved quality, better
reliability, reduced costs, reduced chemical use and enhanced
regulatory compliance, to help meet our stated goal of
outperforming our markets.
Strategy implementation
Effective implementation of our strategy for growth has been key
in delivering above market organic growth in 2016. We will continue
to invest in the strategic objective of outperforming our markets
by delivering self-generated growth, which we achieve through
focusing on our six strategic themes:
-- increase direct sales effectiveness through sector focus;
-- develop the knowledge and skills of our expert sales and service teams;
-- broaden our global presence;
-- leverage R&D investments;
-- optimise supply chain effectiveness; and
-- operate sustainably and help improve our customers' sustainability.
Notable progress in implementing our strategy has been made
in:
-- delivering greater alignment with our selected target
industries, notably Food & Beverage, Healthcare,
Pharmaceutical, Oil & Gas, Chemical and OEM customers, as we
have further progressed the sectorisation of our direct sales
force;
-- establishing the Spirax Sarco Academy to oversee the training
and development needs of the Steam Specialties business's sales and
service organisation, developing its curriculum, training materials
and assessment systems;
-- continued geographic expansion, with three new direct sales
companies established and operating in the year and a further four
operating units established that will commence direct selling in
2017;
-- leveraging R&D investments, with a number of key product
launches occurring during 2016, including the MasoSine Certa(TM)
pump range, Qdos 120 pump, Watson-Marlow 530 and 630 pumps, Spirax
Sarco STAPS ISA100 Wireless Steam Trap Monitor, and Spirax Sarco
FT62 High Pressure Float Trap;
-- developing the capacity and efficiency of our supply chain,
with the completion of a new state-of-the-art manufacturing
facility in India, the opening of a new clean steam manufacturing
facility in the UK and the expansion of our manufacturing plant in
China; and
-- the Group-wide roll out of our sustainability strategy.
We have concentrated on the alignment of the entire organisation
behind our strategic themes. Improvements have been made to our
health & safety management processes, and our risk management
processes have also been enhanced and integrated further into the
everyday business.
Market environment
Steam is used in a huge range of manufacturing processes for
heating, curing, cooking, drying and cleaning across a diverse
range of different industries, including Food & Beverage,
Pharmaceutical, Oil & Gas, Chemical and Pulp & Paper. Steam
is also used in hospitals and buildings for space heating,
humidification and sterilisation, and to provide a reliable source
of hot water at constant temperature. Likewise, peristaltic and
niche pumps are also used across a wide range of similar industries
to address difficult pumping problems. This wide spread of industry
sectors and relatively large proportion of revenues that derive
from end users' maintenance and operating budgets, means that our
markets tend to be correlated to the growth in industrial
production. Our exposure to large capital projects is limited,
accounting for approximately 15% of our revenues, with the
proportion of capital projects historically higher in emerging
markets.
Following a strong declining trend in 2014 and 2015, driven by
slowing emerging economies, global industrial production growth
stabilised around zero percent in the first half of 2016 before
experiencing a recovery in some emerging economies in the second
half of the year. Overall, global industrial production growth in
2016 averaged 0.5%, the same very low levels of 2015, but exited
the year with an annualised growth rate below 2%, which is
predicted to continue in the first half of 2017.
In EMEA, industrial production growth, which had slowed modestly
in 2015, returned to just below its 2014 levels at 1.1%, with the
Eurozone and the UK remaining at broadly the same low levels of
previous years. Russia experienced a broadly flat year after the
industrial recession of 2015.
Asia Pacific, excluding China, remained at the same weak levels
of 2015, posting sub one percent growth, while industrial
production in China returned to higher growth rates during the
second half of the year, comparable to those of 2013 and 2014.
In the Americas, industrial production growth was negative in
both North and South America, with the latter being particularly
hard hit by the recession in Brazil and the effect of the currency
devaluation in Argentina at the end of 2015. Although not immune
from the severe economic turmoil in the region, our strong
long-standing businesses across Latin America, that include local
manufacturing, have helped insulate us against the impact of
currency weakness and enabled us to outperform the market.
Progress in 2016
Overall we saw organic sales growth of 4%. The strongest
performance was again in Watson-Marlow where we achieved growth in
all geographic regions. Organic sales in the Steam Specialties
business grew by over 2% after a flat 2015, registering growth in
all three geographic segments.
Group sales at GBP757.4 million were up 14% at reported exchange
rates (2015: GBP667.2 million). The weakening of sterling following
the UK referendum on EU membership gave a translation boost to
sales of 8% with the pound weakening against all our major trading
currencies with the notable exception of the Argentine peso.
Currency movements have been volatile for some time, making
projections increasingly uncertain. However, if recent exchange
rates prevail for the full year, sales in 2017 would be 6% higher
on translation into sterling compared to 2016, as we would see a
similar uplift in the first half of 2017 as we saw in the second
half of 2016. The two acquisitions we made in the year, combined
with the full year effects of the acquisitions made in 2015, offset
the disposal of M&M and resulted in a net contribution of
GBP7.3 million or around 1% of sales. We estimate that the full
year effect of the acquisitions made in 2016 should add 3% to sales
in 2017.
In our Steam Specialties business, which accounted for 74% of
Group revenues, organic sales growth was over 2%. At reported
exchange rates sales were up 10%, helped by favourable currency
movements that increased sales by 7% and the net effect of the
acquisition of Hiter in July 2016 offset by the loss of sales due
to the disposal of M&M in the prior year. We again saw a small
decline in the number of large project sales as the Oil & Gas
industry continues to contract, however this was more than
countered for by gains in our strategic target industries and
product groups. Our business remains very resilient, reflecting the
high proportion of sales that are derived from our end users'
operating and maintenance spend.
Geographically, we achieved a modest organic sales increase in
EMEA, with gains in the UK and Germany but small declines in Italy
and France. The devaluation of the Argentine peso in December 2015
and the ensuing price rises in that country, combined with
excellent performance from our smaller Latin America territories,
offset a decline in recession-hit Brazil and a much smaller decline
in the USA to deliver 5% organic growth in the Americas. Hiter is
successfully being integrated into the Group and is performing to
plan. As expected it was loss making in 2016 due to pre-trading
losses and ramp up costs. These losses are expected to narrow in
the current year as revenues build. In Asia Pacific an excellent
performance in the first half of the year, helped by large one-off
projects in China and Korea, helped organic sales to grow by 3%.
Pleasingly, Korea delivered growth against the backdrop of a
difficult economic environment and China recorded much improved
growth compared to 2015 despite industrial overcapacity continuing
to reduce the level of project work. While much smaller than China
or Korea, Australia had an excellent year as did some of our
businesses in Southeast Asia.
Watson-Marlow, which accounted for 26% of Group revenues, grew
sales by 27% at reported exchange rates and by 10% on an organic
basis. The effect of having a full year of the three acquisitions
made in 2015 plus the acquisition of Aflex at the end of November
2016 was to add a further 7% to sales. Growth was achieved across
all geographic regions, with our strategy of geographic expansion
leading to excellent growth in Asia Pacific. We continue to benefit
from positive conditions in our key Pharmaceutical &
Biotechnology market where recent acquisitions combined with the
launch of innovative new products have expanded the width and depth
of our product portfolio.
Group adjusted operating profit of GBP180.6 million was 8% ahead
of the prior year on an organic basis. The operating profit at
reported exchange rates grew by 18%, helped by a 9% benefit from
translational and transactional exchange rate gains following the
devaluation of sterling and a net 0.3% from acquisitions and
disposals. Three of our four segments delivered double digit
organic operating profit growth, with Watson-Marlow deserving
particular praise. Asia Pacific posted a more subdued profit
growth.
The Group adjusted operating profit margin expanded by 100 bps
to a record 23.8% (2015: 22.8%). We continued to benefit from low
input costs although we believe that we reached a turning point in
the second half of the year as we began to see modest material
price increases. The restructuring carried out in the UK and USA in
2015 had a beneficial impact on margins, as did transactional
foreign exchange gains since we are a net exporter from the UK. In
the face of a relatively stagnant market, we continued to invest in
the business to deliver growth and will accelerate that programme
in 2017 in order to support our goal to deliver organic growth
ahead of our markets, now and in the future. As a result, while our
aim is to sustain these margins, we would not expect to see them
expand in the current year.
Market outlook
We are pleased with our progress in 2016 against a backdrop of
near zero industrial production growth. We have seen good organic
growth, improved margins and made two acquisitions that are
performing well. In addition, we continue to make progress on our
strategic themes, facilitating self-generated growth and making us
less reliant on external market conditions.
Global industrial production remained stagnant during the first
half of the year, recovering in the latter part of 2016. While the
growth rates at the end of 2016 suggest an improvement for 2017, we
remain cautious in predicting a sustained market upturn and
continue to focus on the implementation of our strategy, with its
emphasis on self-generated growth. We have a strong direct sales
business model which, combined with a large proportion of our
revenues being derived from end users' maintenance and operating
budgets, gives us a high degree of resilience in difficult economic
conditions. We increased investment in 2016 and, during 2017, will
prioritise accelerating revenue and capital investments for growth
over further margin expansion, to ensure we continue delivering
organic sales growth. Assuming no significant deterioration in
trading conditions, the Board expects to make further progress in
2017.
Europe, Middle East and Africa (EMEA)
2015 Exchange Organic Disposals 2016 Organic Reported
-------------------- ---------- --------- -------- ---------- ---------- -------- ---------
Revenue GBP219.4m GBP17.5m GBP1.4m (GBP4.0m) GBP234.3m +1% +7%
-------------------- ---------- --------- -------- ---------- ---------- -------- ---------
Adjusted operating
profit GBP42.7m GBP3.6m GBP4.5m (GBP0.8m) GBP50.0m +10% +17%
-------------------- ---------- --------- -------- ---------- ---------- -------- ---------
Adjusted operating +180
margin 19.5% 21.3% bps +190 bps
-------------------- ---------- --------- -------- ---------- ---------- -------- ---------
Market overview
Industrial production growth rates remained at very low levels,
around 1%, throughout the year as successively forecasted growth
failed to materialise. Economic and political uncertainty created a
challenging backdrop. Despite this, the Middle East and Egypt, in
particular, generated strong growth, but investment confidence in
Turkey was low. The UK referendum on EU membership had a small
impact on UK investments during the summer months as uncertainty
stalled decision making. However, disruption was short-lived and
normal market conditions returned by September, with the Brexit
referendum having no material impact on the underlying business for
the full year. Significant currency movements occurred within the
region, with sterling, Turkish lire and the Egyptian pound
weakening considerably. Record low oil prices reduced investment
projects in our Oil & Gas sector, which we somewhat off-set
through a strategic focus on after-market opportunities. We
achieved above market growth in the Food & Beverage industries.
The OEM markets proved challenging in 2016 despite an increased
number of buying customers, which offer the potential for uplift in
2017.
Progress in 2016
In EMEA, sales increased by 1% on an organic basis to a reported
GBP234.3 million with significant favourable currency movements
increasing sales on translation by 8% and the 2015 disposal of
M&M reducing sales by 2%, giving a reported sales increase of
7%. The favourable currency movements reflect the strengthening of
the majority of currencies in the region against sterling following
the Brexit referendum, including the euro which strengthened by
11%. Organic sales growth in the major territories of the region
was mixed, with the UK and Germany up while France and Italy were
down.
Our business performed well in 2016 and operating profit of
GBP50.0 million was ahead 10% on an organic basis, driven mostly by
manufacturing efficiencies and lower material costs. This included
the actions taken in 2015 to reduce headcount by 8% in our UK
manufacturing operations, incurring one-off costs of GBP1.0 million
that delivered annualised benefits of GBP2.2 million from April
2015. As expected, these annualised benefits have been fully
realised and contributed to a GBP1.6 million profit increase in
2016. Continuing price management initiatives, as well as strict
overhead control, also contributed to increase operating profit by
17% on a reported basis, with favourable currency movements
enhancing profit by 8% and the 2015 disposal of M&M reducing
profit by 2%. Operating profits were mixed across the region with
organic growth in the key territories of the UK, Germany, France
and Italy offset to a degree by some of the smaller businesses in
the region such as Poland and Egypt.
This strong profit growth delivered an operating profit margin
of 21.3%, or 180 bps higher on an organic basis, with the
manufacturing efficiencies contributing 140 bps of margin
improvement.
Strategy update
We have made pleasing progress generally with the implementation
of our strategy for growth, particularly strengthening our market
presence in the Netherlands with good results and in Egypt, where
we began trading in 2015. We have completed the groundwork to begin
trading through a newly established operating company in Kenya
(Spirax Sarco East Africa) in 2017. We completed the establishment
of the Spirax Sarco Academy, ready for roll-out in 2017, which will
accelerate the development of the knowledge and skills of our sales
teams, and have continued to implement sales force sectorisation
across the division, making steady progress as we align our sales
engineers to better serve our target sectors. As a result of this
focus, we have seen strong growth in the Chemicals sector and in
the Food & Beverage sector, with progress in the Dairy industry
in particular. We have strengthened our strategic account
management process, with some notable success, and are evolving our
service capability to further improve customer support and
strengthen business relationships, as well as making further
improvements to the wider supply chain. Together, these strategic
actions are underpinning our ability to deliver self-generated
growth that outperforms our markets.
Outlook
We anticipate that our markets will remain challenging with, at
best, a modest improvement in industrial production growth rates.
Continuing uncertainty around Brexit could act as a headwind during
2017 and beyond, although it is too early to determine the extent
of the impact until the UK exit strategy is more clearly defined.
We are monitoring the situation carefully, have a contingency plan
prepared and are well-placed to mitigate the challenges and
capitalise on the opportunities that may arise. Oil prices are
likely to remain subdued and to act as a drag on levels of
investment in new Oil & Gas capacity throughout 2017. Despite
the challenging conditions, we are well-positioned to continue to
deliver progress as we strengthen the capabilities of our sales and
service engineers; better align our organisation to the industries
that we serve; and carefully balance investments, aligned to market
opportunities, whilst controlling costs.
Asia Pacific
2015 Exchange Organic Acquisitions/ 2016 Organic Reported
Disposals
-------------------- ---------- --------- -------- -------------- ---------- -------- ---------
Revenue GBP171.8m GBP15.4m GBP6.1m - GBP193.3m +3% +13%
-------------------- ---------- --------- -------- -------------- ---------- -------- ---------
Adjusted operating
profit GBP44.7m GBP4.9m GBP0.3m - GBP49.9m +1% +12%
-------------------- ---------- --------- -------- -------------- ---------- -------- ---------
Adjusted operating
margin 26.0% 25.8% -70 bps -20 bps
-------------------- ---------- --------- -------- -------------- ---------- -------- ---------
Market Overview
After four successive years of declining industrial production
growth rates, China saw a modest improvement in 2016 with 2%
year-on-year growth. Whilst this increase is encouraging, the
current modest growth rate is forecast to prevail in 2017,
suggesting the continuation of a relatively subdued operating
environment in China in the short-to-medium term. Elsewhere in Asia
Pacific, economic conditions were mixed, with Japan in negative
growth and low growth rates (less than 1%) in India and Korea, with
the latter returning from a negative 2015. Some of our smaller
markets, such as the Philippines and Malaysia, saw good growth. The
Oil & Gas market continued to struggle as a result of the low
global oil price, although we were able to achieve growth as a
result of our strategic focus on this important industry. Project
work remained weak across the region, reflecting overcapacity and
lower investment confidence in many Asian markets. Despite this we
still achieved modest growth in project sales during 2016. We
continued to successfully implement changes in our direct sales
approach, reducing our reliance on large capex projects by
strengthening our ability to identify and deliver smaller-scale
operational efficiency improvement projects for our customers. As a
result of these changes, self-generated sales increased.
Progress in 2016
Sales in Asia Pacific were GBP193.3 million, up 3% on an organic
basis and up 13% at reported exchange rates. The favourable
currency movements reflect the strengthening of all currencies in
the region against sterling following the Brexit referendum,
including the Chinese renminbi and Korean won which strengthened by
6% and 9% respectively. Despite tough economic conditions, organic
sales were ahead in all regions, except Japan and Singapore, as we
continue to reap the benefits of the successful implementation of
our strategy.
Our largest sales and profit contributor, which accounted for
just over 10% of total Group sales in 2016, is China, where
over-capacity and reduced investments in the manufacturing sector
persist, reducing large project orders. Despite this China
performed strongly, with sales and profit up on 2015 as we
continued our transformation from reliance on big projects to
self-generated business. The GBP13 million plant expansion project
is nearly complete and this should help to further increase
efficiency and improve customer delivery performance.
In Korea, our second largest territory in Asia Pacific, sales
and profit were slightly up on an organic basis, benefiting from
the delivery of project sales carried over from 2015.
Elsewhere in Asia Pacific, Australia, Malaysia, the Philippines
and Thailand enjoyed strong sales growth. Vietnam, in its first
year of operation, had good sales volumes in line with expectations
and we delivered good expansion in other developing markets
including Myanmar and Cambodia. Singapore had a challenging year
with sales down on 2015, while Japan was flat after strong sales
growth in the previous year.
In March 2015, we completed the separation from our
long-standing joint venture in India via the sale of the Group's
interest in Spirax Marshall. Our new wholly owned direct sales
operation commenced trading in the second half of 2015 and has made
a small contribution to sales in 2016. As expected, the company
made an operating loss during the year as we continue to incur
start-up costs to develop the business. The state-of-the art
manufacturing, training and office facilities are now complete and
manufacturing commenced in June 2016. We are seeing a steadily
improving trend of business as our brand value becomes better
understood. The availability of locally manufactured products and
world-class service levels, position us well to penetrate the
market and we look forward to sales growing over the coming
years.
Operating profit increased by 1% on an organic basis, with good
progress in most of the established companies. On a reported basis,
profits were up 12% to GBP49.9 million. There was a moderate
decline in the operating margin to 25.8% due to continued
investment around the region, including the start-up costs in India
and Vietnam, as well as lower margin on some larger project
sales.
Strategy update
We have continued to invest in the strategic alignment of our
sales engineers, matching them to key industries as geography
allows, and enhancing training to further develop their application
knowledge and skills. By the end of 2016, approximately 30% of the
division's sales and services engineers had a designated sector
focus. This increased alignment with core industries delivered good
growth in the Oil & Gas industry and to OEM customers in
particular. Sales to the Food & Beverage and Healthcare
industries also achieved above market growth. We have focused on
increasing supply chain efficiency, improving customer service,
cost effectiveness and flexibility.
Outlook
Overall, industrial production growth rates in Asia Pacific,
excluding China, are expected to improve in 2017, with increases
predicted in Korea, India and Japan, while China remains at around
2%. Nevertheless, the outlook remains uncertain with the impacts of
India's "demonetarisation" experiment yet to be fully seen and weak
domestic demand and political scandal having the potential to
undermine business confidence in Korea. We remain focused on
further developing our direct sales business model, strategical
alignment with key industry sectors and strengthening our presence
in new markets, to generate our own growth opportunities.
The Americas
2015 Exchange Organic Acquisitions 2016 Organic Reported
-------------------- ---------- --------- -------- ------------- ---------- -------- ---------
Revenue GBP123.4m GBP5.6m GBP6.2m GBP0.7m GBP135.9m +5% +10%
-------------------- ---------- --------- -------- ------------- ---------- -------- ---------
Adjusted operating
profit GBP27.1m GBP0.2m GBP2.6m (GBP0.7m) GBP29.2m +9% +8%
-------------------- ---------- --------- -------- ------------- ---------- -------- ---------
Adjusted operating
margin 22.0% 21.5% +90 bps -50 bps
-------------------- ---------- --------- -------- ------------- ---------- -------- ---------
Market overview
Industrial production growth rate forecasts for 2016 were
consistently undermined by recessionary economic growth realities,
especially in the USA, Argentina and Brazil. Oil prices remained
low, depressing upstream investments, particularly in Canada,
Brazil and the USA, leading to a drag on the energy sector with no
sign of improvement during the year. Industrial confidence was low
in the Americas with elections, political scandals and general
uncertainty weighing heavily and providing little impetus for
economic growth. Conditions in Latin America remained challenging
with the Brazilian Presidential impeachment, recession in Argentina
and global commodity prices acting as a brake in most countries.
Latin America has remained in an industrial recession since 2014
with strongly negative industrial production growth rates in the
period, while North America also saw negative growth of just under
1%.
Progress in 2016
On an organic basis, sales increased by 5% in the Americas to a
reported GBP135.9 million despite a tough economic climate. Latin
America grew 22%, driven largely by the benefit of US dollar-based
pricing in Argentina, partially offsetting a 3% reduction in North
America. There were significant currency fluctuations in the
region. Against sterling, the Brazilian real rose 7% and the US
dollar was up 11% while the Argentine peso fell 40% due to the
devaluation at the end of 2015. This resulted in net exchange gains
of GBP5.6 million and reported sales up 10%.
Total operating profit was up 9% on an organic basis to a
reported GBP29.2 million reflecting higher margin sales in
Argentina, prudent control of overheads in inflationary
environments and positive pricing strategies. Including an expected
pre-operating loss following the acquisition of the assets of
Brazilian control valve manufacturer Hiter, as well as slightly
favourable exchange movements, the reported operating profit
increased by 8%. The organic operating profit margin was 22.1%
(2015: 21.2%).
In North America, sales declined modestly in Canada due to the
generally inactive Oil & Gas sector. Within the USA, slow
economic conditions affected our distributors, particularly within
the Oil & Gas markets, who reduced stock levels accordingly.
Despite uncertain conditions, we continued to invest in our sales
force as we develop our direct sales model. The journey to
strengthen the direct channel to our customers not only enables us
to respond to growing end user expectations for more sophisticated
solutions but also creates incremental opportunities for our
distribution partners that continue to provide an important route
to market. The self-generated progress made this year against tough
economic conditions helped to restrict the decline in sales in
North America to 3%, with operating profits modestly lower on an
organic basis.
In Latin America, despite the difficult trading conditions in
Brazil and Argentina, we reported strong progress; sales were up
22% on an organic basis, with all operations except Brazil ahead.
Despite the well documented economic problems in Brazil, we still
managed to outperform the market and our smaller operations in
Latin America, including our new company in Peru, performed well
while our new acquisition in Colombia performed in line with
expectations. Operating profits were significantly ahead on an
organic basis driven by an increase in Argentina, largely due to
dollar-based pricing, as well as increased sales across the region
except in Brazil.
On 1(st) July 2016 we acquired the assets of Hiter Indústria e
Comércio de Controles Termo-Hidráulicos Ltda (Hiter), a process
control valve manufacturer based in Brazil. Hiter is highly
synergistic with Spirax Sarco's Brazilian steam and process fluid
applications business. The Hiter brand has a well established
reputation in Brazil with a large installed base. Following the
acquisition, Spirax Sarco became the only significant manufacturer
of both control and safety valves in Brazil. After re-establishing
Hiter's market position during 2017, this business is expected to
make a positive contribution to Group earnings from 2018.
Excluding the acquisition the adjusted operating profit margin
increased to 22.1% (2015: 22.0%) driven by higher margin sales in
Argentina, savings from the closure of the small manufacturing site
in Colorado, USA in 2015, prudent control of overheads and positive
pricing strategies. The pre-operating loss on the Hiter acquisition
diluted the margin by 60 bps.
Strategy update
Good progress has been made in implementing our strategy across
the Americas, with a focus on the Food & Beverage,
Pharmaceutical and Chemical industries countering the worst effects
of the Oil & Gas slowdown. Of particular note has been growth
in the Food & Beverage industry where our re-structured sales
teams have developed deeper relationships with major global food
manufacturers to deliver good growth.
We have significantly invested in developing the sector-specific
and applications knowledge of our sales and service engineers
during 2016, and have continued the process of reorganising our
sales force, where appropriate, by industry. This better enables
our sales engineers to deliver value to customers by identifying
improvement projects, with the additional benefit of bringing new
technology to many of those solutions.
Our manufacturing operations have made good progress in
planning, sourcing and health & safety, while driving
significant improvements in our delivery performance of both
components and fabricated systems.
Outlook
In North America, economies remain generally weak with some
uncertainty arising from the outcome of the US Presidential
election and Canada still suffering from a slow Oil & Gas
business. Industrial production is forecast to grow in 2017, albeit
at the relatively low rate of slightly above 1%, following a
shrinkage of almost 1% in 2016. Oil & Gas spending is unlikely
to restart in 2017, though existing facilities should still
generate good levels of maintenance business across the
Americas.
In Latin America, Brazil's decline over the past three years is
expected to bottom-out in 2017, with slight signs of confidence
returning to the economy, although political uncertainty remains a
threat to an economic turnaround in the short term. Argentina's
austerity measures are expected to stabilise the economy in 2017.
Within Latin America as a whole, a further reduction in industrial
production, of less than 1%, is forecast for 2017, a significantly
lower reduction than in the past two years. While the short-term
economic outcome remains uncertain, we are well-positioned to
continue benefiting from our self-generated growth initiatives.
Watson-Marlow Fluid Technology Group (WMFTG)
2015 Exchange Organic Acquisitions 2016 Organic Reported
-------------------- ---------- --------- --------- ------------- ---------- --------- ---------
Revenue GBP152.6m GBP14.1m GBP16.6m GBP10.6m GBP193.9m +10% +27%
-------------------- ---------- --------- --------- ------------- ---------- --------- ---------
Adjusted operating
profit GBP48.0m GBP5.7m GBP8.6m GBP2.0m GBP64.3m +16% +34%
-------------------- ---------- --------- --------- ------------- ---------- --------- ---------
Adjusted operating
margin 31.4% 33.1% +180 bps +170 bps
-------------------- ---------- --------- --------- ------------- ---------- --------- ---------
Market Overview
General economic conditions and industrial production growth
rates mirror the Steam Specialties business across the various
territories in which our Watson-Marlow niche pumps and associated
fluid path technologies business operates. However Watson-Marlow
continues to benefit from exposure to faster growing market
segments, as well as its initiatives to expand its addressable
market by displacing other pumping technologies. We saw good growth
across all regions, with Asia Pacific having a particularly strong
year, and delivered growth across almost all industries. Our
largest market, Pharmaceutical & Biotechnology, which accounts
for over 40% of Watson-Marlow's sales was buoyant, with BioPure,
Asepco and Flexicon all growing well. Food & Beverage was more
challenging, but showed recovery in the fourth quarter following
the launch of the new Certa(TM) pump range, designed specifically
for that industry. Overall, large project orders increased, with a
number of orders from Biopharmaceutical customers, in particular,
contributing to this growth.
Progress in 2016
Sales increased by an outstanding 10% on an organic basis to a
reported GBP193.9 million, boosted by an excellent fourth quarter.
Acquisitions made in 2015 have performed well and together with
Aflex, acquired in November 2016, contributed a further GBP10.6
million to sales. We received a significant exchange benefit of
GBP14.1 million which resulted in sales increasing by 27% on a
reported basis.
On an organic basis, sales growth was achieved in all geographic
regions. Asia Pacific enjoyed an outstanding year, benefiting from
our strategy of geographical expansion. Europe also performed
strongly given market uncertainties, with organic sales growth of
9%, led by Germany, France, Belgium and Russia. In the Americas,
all operations reported an increase in sales on an organic basis.
North America, our most mature market, was solid with the USA up 3%
while Latin America continued to rebound with Mexico and Brazil
seeing double-digit organic sales growth and Argentina benefiting
from the impact of the Argentine peso devaluation.
Asepco, acquired in April 2015, had a very strong year and has
exceeded our sales and profit expectations while FlowSmart,
acquired in November 2015, had sales in line with, and operating
profit above, expectations.
New product development continues to be a priority, with 2016
launches including the Watson-Marlow 530 and 630 pumps, Qdos 120
pump and MasoSine Certa(TM) 250, 300 and 400 pumps. The 2017
pipeline for new products releases remains strong.
On 30(th) November 2016 we acquired Aflex Hose Limited and its
subsidiary Aflex Hose USA LLC (Aflex) for GBP61.4 million. Aflex
specialises in the design and manufacture of PTFE-lined flexible
hoses for the Pharmaceutical, Food, Chemical and Automotive
industries. Aflex is a natural extension to the WMFTG fluid path
product portfolio and further strengthens WMFTG's already strong
global presence in the Biotechnology, Pharmaceutical, Industrial,
Chemical and Food & Beverage sectors. Aflex's premium
PTFE-lined hoses complement our FlowSmart silicone hoses and
WMFTG's other fluid path products, as part of our strategy to
provide a complete value-added hose and tubing range. Its initial
performance reinforces our confidence that it is an excellent fit
for the Watson-Marlow group.
Watson-Marlow's operating profit of GBP64.3 million was an
excellent performance, up 16% on an organic basis and 34% on a
reported basis. The operating profit margin increased 180 bps on an
organic basis benefiting from gains on transaction and operational
gearing. The reported margin of 33.1% grew 10 bps less than the
organic measure as the dilutionary effect of acquisitions fully
offset the margin benefit due to exchange.
Strategy Update
We have consistently executed our strategy, which focuses on
market, product and direct sales force development, and geographic
expansion, supported by our Global Excellence in Manufacturing
programme and related acquisitions, to expand our addressable
market. During 2016 we established new sales companies in Ireland
and Canada, to take advantage of the opportunities that these
markets present, and established sales offices in Indonesia,
Thailand and Vietnam in preparation for commencing direct sales in
2017. We continue to strengthen our market sectorisation approach
and to invest in the professional development of our employees. New
product development is a key driver of sales growth and we develop
innovative products that grow the addressable market of our niche
pumps and associated fluid path technologies and expand our
addressable market. Through the strategic acquisition of Aflex, we
extended our product portfolio and our position in a number of
important markets.
We have invested extensively in a new ERP system and the
successful implementation of this project is now almost complete
with the vast majority of our business now being transacted through
the new system.
Outlook
Our market conditions are shaped by levels of investment in our
core focus sectors, as well as industrial production growth rates
and general macroeconomic conditions in the countries in which we
operate. Our largest market, Pharmaceutical & Biotechnology, is
expected to remain resilient, although political rhetoric
surrounding drug prices in the USA may dampen capital investment in
this important market. We are able to self-generate opportunities
for growth as we demonstrate the benefits of peristaltic pumping
technology and develop new applications for our pumps, gaining
market share from other pump types; and expand our addressable
market through product development and geographical expansion. In
2017, we will continue to invest in new product development and
expand our routes to market in order to maintain above market
organic sales growth. Our expectation of mid-to-high single-digit
organic growth remains unchanged.
Financial Review
The Group reports under International Financial Reporting
Standards (IFRS) and also uses adjusted and organic figures where
the Board believe that they help to effectively monitor the
performance of the Group and help users of the Financial Statements
to draw comparisons with our peers. Unless otherwise stated,
adjusted figures are used throughout this section and exclude the
amortisation and impairment of acquisition-related intangible
assets and costs associated with acquisitions. A reconciliation of
adjusted operating profit to statutory operating profit is given
below and more detail can be found in Note 2 to the Financial
Statements. As we are a multi-national Group of companies, who
trade in a large number of foreign currencies and regularly acquire
and sometimes dispose of companies, we also refer to organic
performance measures. These strip out the effects of the movement
of foreign currency exchange rates and of acquisitions and
disposals. The Board believe that this allows users of the
Financial Statements to gain a further understanding of how the
Group has performed.
Adjusted Adjusted Adjusted Adjusted
operating operating operating operating
profit 2016 margin 2016GBPm profit margin 2015GBPm
GBPm 2015GBPm
------------------------------------- ------------- ----------------- ----------- -----------------
Europe, Middle East and Africa 50.0 21.3% 42.7 19.5%
------------------------------------- ------------- ----------------- ----------- -----------------
Asia Pacific 49.9 25.8% 44.7 26.0%
------------------------------------- ------------- ----------------- ----------- -----------------
Americas 29.2 21.5% 27.1 22.0%
------------------------------------- ------------- ----------------- ----------- -----------------
Steam Specialties business 129.1 22.9% 114.5 22.3%
------------------------------------- ------------- ----------------- ----------- -----------------
Watson-Marlow 64.3 33.1% 47.9 31.4%
------------------------------------- ------------- ----------------- ----------- -----------------
Corporate expenses (12.8) (10.0)
------------------------------------- ------------- ----------------- ----------- -----------------
Adjusted operating profit 180.6 23.8% 152.4 22.8%
------------------------------------- ------------- ----------------- ----------- -----------------
Amortisation of acquisition-related
intangible assets (6.0) (4.7)
------------------------------------- ------------- ----------------- ----------- -----------------
Acquisition and disposal costs (0.5) (0.8)
------------------------------------- ------------- ----------------- ----------- -----------------
Loss on closure of USA metering
unit (3.8)
------------------------------------- ------------- ----------------- ----------- -----------------
Profit on disposal, less recycled
exchange losses (0.3)
------------------------------------- ------------- ----------------- ----------- -----------------
Statutory operating profit 174.1 142.8
------------------------------------- ------------- ----------------- ----------- -----------------
A good financial result was achieved in 2016 against the
background of effectively zero industrial production growth. Sales
at reported exchange rates grew 14% to GBP757.4 million (2015:
GBP667.2 million). Organic sales grew by 4% overall. Watson-Marlow
had another excellent year with 10% organic growth, spread across
the business but with a particularly good performance in Asia
Pacific. Organic sales grew by over 2% in the Steam Specialties
business, with a 1% advance in EMEA, 3% gain in Asia Pacific helped
by two large project sales in the first half, and 5% growth in the
Americas boosted by currency devaluation in Argentina which led to
significant price increases. The net effect of the three small
acquisitions in Watson-Marlow and one disposal in the Steam
Specialties business in 2015 combined with the acquisitions of
Hiter and Aflex in 2016 added 1% to sales.
The weakening of sterling following the UK referendum to leave
the EU had a dramatic effect on revenue in the second half of the
year giving a gain of 8% for the full year. The only major trading
currency of ours that sterling strengthened against was the
Argentine peso (+40%). Due to the sterling devaluation happening
mid-year in 2016 it is likely to also have an effect on revenue in
2017. If recent exchange rates prevail for the whole of 2017 we
would expect to see a 6% exchange gain to sales on translation
versus 2016.
Adjusted operating profit of GBP180.6 million (2015: GBP152.4
million) was 18% ahead at reported exchange rates and 8% ahead on
an organic basis (constant currency, excluding acquisitions and
disposals). On the same basis the Steam Specialties business saw
profits increase by 6% with 10% growth in EMEA, 9% in the Americas
but only 1% in Asia Pacific. On the back of good sales growth,
Watson-Marlow's profits grew 16% on an organic basis.
Currency movements boosted operating profit by 9%, a mixture of
translational and transactional gains. The net transactional gain
of GBP3.3 million was impacted by adverse currency hedges which
were entered into prior to the post-Brexit referendum devaluation.
The main transactional exposure flow affecting the Group is the
export of products from our factories in the UK invoiced in
sterling, less the import of goods from overseas Group factories
and third parties priced predominately in euros and US dollars. The
net exposure is in the range GBP60-65 million. If recent exchange
rates prevail for the whole of 2017 we would expect to see a 9%
uplift to profit, as a result of transactional and translation
foreign exchange movements.
Adjusted operating profit margins in the Steam Specialties
business grew 70 bps to 22.9% and in Watson-Marlow by 170 bps to an
exceptional 33.1%.
The statutory operating profit was GBP174.1 million (2015:
GBP142.8 million).
Interest
Net interest rose from GBP1.5 million to GBP2.6 million. Net
bank interest decreased from a credit of GBP0.8 million in 2015 to
a neutral position in 2016 reflecting the lower average cash
balances held by the Group as a result of the GBP91 million special
dividend paid in 2015 and the GBP67 million spent on acquisitions
in 2016. Net finance costs under IAS19 in respect of the Group's
defined benefit pension schemes increased slightly to GBP2.6
million (2015: GBP2.3 million).
Associates
Following the disposal of the Group's interest in Spirax
Marshall, India in March 2015, the Group has only one Associate
holding, a 38.9% interest in Econotherm heat pipe technology
business. Econotherm's performance in 2016 was similar to 2015,
with our share, net of tax, amounting to a loss of GBP0.1 million
(2015: GBP0.1 million loss)
Pre-tax profit
The adjusted profit before tax of GBP177.9 million (2015:
GBP151.1 million) was 18% ahead at reported exchange rates. As
outlined earlier, currency movements were favourable in the year.
At constant currency, adjusted profit before tax increased by
8%.
The statutory profit before tax was GBP171.4 million (2015:
GBP139.7 million) and includes the non-operating items listed below
that have been excluded from the adjusted profit:
-- a charge of GBP6.0 million (2015: GBP4.7 million) for the
amortisation of acquisition-related intangible assets; and
-- acquisition and disposal costs of GBP0.5 million (2015: GBP0.8 million).
Taxation
The tax charge on the adjusted profit before tax, excluding the
results of the Associate (which is presented on an after-tax
basis), fell to 29.1% (2015: 29.8%) primarily as a result of lower
withholding tax payments in China. The Group's overall tax rate
essentially reflects the blended average of the tax rates in over
40 tax jurisdictions around the world in which our operations trade
and generate profit. The Group comprises over 80, mainly small,
operating units reflecting our local direct sales business model.
We would anticipate a broadly similar tax rate in 2017.
Earnings per share
Adjusted basic earnings per share increased by 20% to 171.5
pence (2015: 142.6 pence). The 2016 earnings per share benefited
marginally from a reduction in the number of shares in issue from
15(th) June 2015, following the share consolidation of 28 existing
Ordinary shares into 27 new Ordinary shares, in conjunction with
the 120.0 pence per share special dividend paid in July 2015.
Statutory earnings per share was 165.0 pence (2015: 129.9 pence).
The fully diluted earnings per share was not materially different
in either year.
Dividends
We have a progressive dividend policy where dividend payments
follow underlying earnings per share growth while maintaining
prudent levels of dividend cover. The aim is to provide
sustainable, affordable dividend growth, building on our 49 year
record of dividend growth, with a compound annual increase of 10.9%
over that period; in line with the 11.2% per annum increase over
the last 10 years. The Board is proposing a final dividend of 53.5
pence per share for 2016 (2015: 48.2 pence) payable on 26(th) May
2017 to shareholders on the register at 28th April 2017. Together
with the interim dividend of 22.5 pence per share (2015: 20.8
pence), total Ordinary dividends are therefore 76.0 pence per
share, which is an increase of 10.1% on Ordinary dividends of 69.0
pence in 2015.
The total amount paid in dividends during the year was GBP51.9
million. This compares with GBP140.3 million, including the special
dividend GBP91.0 million, paid in 2015.
Acquisitions and disposals
Acquisitions are an important complement to our strategy for
growth. Dedicated resource is focused on identifying opportunities
to add attractive businesses that closely match our strategic,
industrial and commercial requirements. We have a strong Balance
Sheet and considerable debt capacity, giving us significant
flexibility. In 2016 we made two acquisitions at a total cost of
GBP67 million. Both fulfil one or more of our three broad
acquisition criteria:
-- geographic expansion, typically through the acquisition of a
distributor in a developing market;
-- products that can be integrated into our existing businesses; and
-- related acquisitions that fit alongside our existing Steam
Specialties and Watson-Marlow businesses.
On 9(th) August 2016 we announced the acquisition of the assets
of the Brazilian process control valve manufacturer, Hiter
Indústria e Comércio de Controles Termo-Hidráulicos Ltda (Hiter)
for consideration of GBP3.9 million. Hiter is highly synergistic
with Spirax Sarco's successful Brazilian steam and process fluid
applications business. Following the acquisition, Spirax became the
only significant manufacturer of both control and safety valves in
Brazil.
We acquired Aflex Hose Limited and its subsidiary Aflex Hose USA
LLC (Aflex) on 30(th) November 2016 for GBP61.4 million plus taxes
and working capital adjustments. This business joined the
Watson-Marlow Fluid Technology Group. Aflex specialises in the
design and manufacture of PTFE-lined flexible hoses for the
Pharmaceutical, Food, Chemical and Automotive industries. It is
highly synergistic with, and a natural extension to, the
Watson-Marlow fluid path product portfolio.
The three acquisitions that Watson-Marlow made in 2015, Asepco,
Masosine (Japan) and FlowSmart, have all been integrated
successfully into the business and are performing in-line with or
ahead of expectations.
Research and development
The development of innovative new products, and getting those
products to market faster and sold more effectively, is an
important element of our strategy for growth.
Our Steam Specialties business continued its focus on sector
specific innovation, with over a third of our development projects
now being sector specific. For the Oil & Gas sector, we
launched STAPS ISA100, a wireless steam trap monitoring solution
and a new float trap to expand our offer in higher pressure steam
systems. We also released a ready to install, compact clean steam
generator for the Food & Beverage sector.
In our Watson-Marlow niche peristaltic pump and associated fluid
path technologies business, the drive is for truly innovative
products that target attractive market opportunities and expand our
addressable market by taking market share from other positive
displacement pump types. We have concentrated, through 2016, on
making MasoSine sinusoidal pumps a first choice in the Food &
Beverage market and developing both pumps and fluid path components
for 2017 launch, to further strengthen our position in the
Pharmaceutical & Biotechnology market.
Overall the Group's total investment in research and development
was GBP10.6 million (2015: GBP9.9 million).
Capital employed
Capital employed 2016 2015
GBPm GBPm
---------------------------------------------------- ------- -------
Property, plant and equipment 201.8 169.9
---------------------------------------------------- ------- -------
Inventories 112.5 92.5
---------------------------------------------------- ------- -------
Trade receivables 185.5 152.1
---------------------------------------------------- ------- -------
Prepayments and other current assets/(liabilities) (89.8) (70.0)
---------------------------------------------------- ------- -------
Capital employed 410.0 344.5
---------------------------------------------------- ------- -------
Intangibles and investment in Associate 169.7 109.0
---------------------------------------------------- ------- -------
Post-retirement benefits (94.2) (73.7)
---------------------------------------------------- ------- -------
Deferred tax 15.0 15.3
---------------------------------------------------- ------- -------
Non-current provisions and long-term
payables (3.5) (1.6)
---------------------------------------------------- ------- -------
Net cash 27.4 4.8
---------------------------------------------------- ------- -------
Net assets 524.4 398.3
---------------------------------------------------- ------- -------
Adjusted operating profit 180.6 152.4
---------------------------------------------------- ------- -------
Average capital employed 377.3 345.4
---------------------------------------------------- ------- -------
Return on capital employed 47.9% 44.1%
---------------------------------------------------- ------- -------
Total capital employed has increased 19% at reported exchange
rates but was flat if the effects of currency and acquisitions are
excluded. This compares with organic sales growth of 4%.
Tangible fixed assets increased by GBP32 million to GBP201.8
million. Of this increase, GBP16 million was due to changes in
exchange rates, and GBP9 million came from acquisitions giving
organic growth of GBP7 million, just under 4%. Significant capital
expenditure projects included the completion of the new plant in
Chennai, India and the extension of our plant in Shanghai, China,
where work commenced late in 2015 and is scheduled for completion
in early 2017, and the opening of the first sector-focused
manufacturing unit dedicated to clean steam products, in the UK.
Watson-Marlow continued with the implementation of a global ERP
solution and the vast majority of their business is now transacted
through the new system. We generate significant cash flow and our
first priority is to reinvest in the business, taking opportunities
to generate good returns from increased efficiency, reduced costs
and flexibility.
Total working capital increased by just under GBP34 million, all
of which is down to currency effects and acquisitions. Trade
receivables grew 4% on an organic basis in line with a 4% organic
growth in sales while inventory levels remained flat, a reflection
on the focus that we have on maintaining efficient levels of
inventory around the world to help better service our customers
while effectively managing our resources.
The ratio of working capital to sales increased to 27.5% (2015:
26.2%) purely due to foreign exchange effects and acquisitions. On
a constant currency basis, excluding acquisitions, working capital
as a percentage of sales fell 140 bps.
Return on capital employed (ROCE)
This is an important key performance indicator and forms a
meaningful element of Executive Directors' annual bonuses. ROCE
measures effective management of fixed assets and working capital
relative to the profitability of the business. ROCE increased to
47.9% (2015: 44.1%), an increase of 380 bps due to our close
control of the various components of capital employed and
improvement in the operating profit margin.
Post-retirement benefits
The net post-retirement benefit liability under IAS19 rose to
GBP94.2 million (2015: GBP73.7 million) primarily as a result of
the increase in liabilities due to the reduction in the AA
corporate bond rates used to discount future cash flows. In total,
liabilities rose by GBP101 million (24%) which could not be fully
compensated by the GBP80 million rise in assets (23%).
The main UK schemes, which constitute 88% of assets, were closed
to new members in 2001 but have remained open to future service
accrual. These schemes continue to be managed under a dynamic
de-risking strategy whereby asset and liability values are
monitored on a daily basis by the asset manager and appropriate
asset allocation decisions taken as the funding level improves
against pre-agreed trigger points. Due to the fall in the discount
rate the cost of future accrual is expected to increase by GBP2.5
million in 2017.
The last actuarial valuation of the UK schemes, as at the 31(st)
December 2013, was completed in September 2014 and showed those
schemes to be broadly in balance. As a consequence, deficit
reduction cash contributions by the Company ceased with effect from
October 2014. The next actuarial valuation will be as at the 31(st)
December 2016 and as a result of higher liabilities it is
anticipated that deficit reduction cash contributions will
recommence in 2017.
Cash flow and treasury
Cash generation in 2016 was very strong, driven by conversion of
operating profit into cash, whilst continuing to invest in capital
expenditure projects that generate good returns from improvements
in efficiency and cost reduction, and in support of sales
growth.
Adjusted cash flow 2016 2015
GBPm GBPm
-------------------------------------- ------- --------
Operating profit 180.6 152.4
-------------------------------------- ------- --------
Depreciation and amortisation 25.6 22.2
-------------------------------------- ------- --------
Cash payments to the pension schemes
less than the charge to operating
profit 1.6 1.2
-------------------------------------- ------- --------
Equity settled share plans 1.9 3.3
-------------------------------------- ------- --------
Working capital changes 4.3 (2.7)
-------------------------------------- ------- --------
Net capital expenditure (including
capitalised R&D) (31.3) (30.9)
-------------------------------------- ------- --------
Cash from operations 182.7 145.5
-------------------------------------- ------- --------
Net interest 0.8
-------------------------------------- ------- --------
Tax paid (56.5) (43.3)
-------------------------------------- ------- --------
Free cash flow 126.2 103.0
-------------------------------------- ------- --------
Net dividends paid (52.1) (140.5)
-------------------------------------- ------- --------
Provisions 2.3 0.7
-------------------------------------- ------- --------
Proceeds from issue of shares /
purchase of employee benefit trust
shares 1.3 4.7
-------------------------------------- ------- --------
Acquisitions and disposals (66.5) (10.2)
-------------------------------------- ------- --------
Adjustments (0.5) (2.1)
-------------------------------------- ------- --------
Cash flow for the year 10.7 (44.4)
-------------------------------------- ------- --------
Exchange movements 11.9 (3.3)
-------------------------------------- ------- --------
Opening net cash 4.8 52.5
-------------------------------------- ------- --------
Net cash at 31(st) December 27.4 4.8
-------------------------------------- ------- --------
Cash from operations increased to GBP182.7 million (2015:
GBP145.5 million) representing 101% cash conversion. This
improvement reflects a GBP4.3 million inflow of working capital
versus an outflow of GBP2.7 million in 2015, in part due to sales
being more evenly spread over the year and a continuing focus on
inventory efficiency.
Capital expenditure was GBP31.3 million (2015: GBP30.9 million)
and we would expect capital expenditure in the current year to
increase as we continue to invest in the Group. In particular we
are considering new facilities in Australia, a new distribution
centre for Southeast Asia, a consolidation of distribution in the
UK and an accelerated equipment upgrade programme for some of our
manufacturing facilities to continue the efficiency gains seen in
2016.
Tax paid in the year was GBP56.5 million (2015: GBP43.3 million)
reflecting the higher level of profit and payments made on account
in the USA. Excluding these, tax paid was broadly in line with the
tax charge in the profit & loss account and included tax paid
in virtually every one of the 44 countries in which the Group has
operating units. Free cash flow rose to GBP126.2 million (2015:
GBP103.0 million), providing funds for dividends to shareholders
and acquisitions.
Dividend payments were GBP52.1 million, including payments to
minorities, (2015: GBP140.5 million) and represent the final
dividend for 2015 and the interim dividend for 2016. The prior year
comparative also includes the special dividend of GBP91.0 million
paid in July 2015.
There was a net cash outflow of GBP66.5 million for acquisitions
in the year compared with a net figure for the prior year of
GBP10.2 million, comprising a cash cost of GBP23.6 million for
acquisitions, net of an inflow of GBP13.3 million in respect of
disposals. Shares issued under the Group's various employee share
schemes gave a cash inflow of GBP1.3 million (2015: GBP4.7
million).
Net cash in the year increased by GBP22.6 million aided by
exchange movements of GBP11.9 million, resulting in a net cash
balance of GBP27.4 million at 31(st) December 2016.
The Group's Profit and Loss account and Balance Sheet are
exposed to movements in a wide range of different currencies. This
stems from our direct sales business model, with a large number of
local operating units. These currency exposures and risks are
managed through a rigorously applied Treasury Policy, typically
using centrally managed and approved simple forward contracts to
mitigate exposures to known cash flows and avoiding the use of
complex derivative transactions. The largest exposures are to the
euro, US dollar, Chinese renminbi and Korean won. Whilst currency
effects can be significant, the structure of the Group provides
mitigation through our regional manufacturing strategy, diverse
spread of geographic locations and through the natural hedge of
having a high proportion of our overhead costs in local currency in
our direct sales operating units.
Capital structure
The Board keeps the capital requirements of the Group under
regular review, maintaining a strong Balance Sheet to protect the
business and provide flexibility of funding for growth. The Group
earns a high return on capital, which is reflected in strong cash
generation over time. Our first priority is to maximise investment
in the business to generate further good returns in the future,
aligned with our strategy for growth and targeting improvement in
our key performance indicators. We also prioritise finding suitable
acquisitions that can expand our addressable market through
increasing our geographic reach, deepening our market penetration
and broadening our product range. Acquisition targets need to
exhibit good strategic fit and meet strict commercial, economic and
return on investment criteria. Where cash resources significantly
exceed expected future requirements, we will seek to return capital
to shareholders, as evidenced by the cash return of GBP91.0 million
via the special dividend of 120.0 pence per share that was paid in
July 2015.
Spirax-Sarco Engineering plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31ST DECEMBER
2016
Note 2016 2015
GBPm GBPm
----------------------------------------- ----- ------ -------
ASSETS
Non-current assets
Property, plant and equipment 201.8 169.9
Goodwill 88.5 54.1
Other intangible assets 81.2 54.8
Prepayments 5.9 5.5
Investment in Associate 0.1
Deferred tax assets 36.5 33.0
----------------------------------------- ----- ------ -------
413.9 317.4
----------------------------------------- ----- ------ -------
Current assets
Inventories 112.5 92.5
Trade receivables 185.5 152.1
Other current assets 21.7 20.4
Taxation recoverable 11.2 9.5
Cash and cash equivalents 8 119.2 99.8
----------------------------------------- ----- ------ -------
450.1 374.3
----------------------------------------- ----- ------ -------
Total assets 864.0 691.7
----------------------------------------- ----- ------ -------
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables 107.8 84.3
Provisions 2.2
Bank overdrafts 8 0.4 3.9
Short-term borrowing 8 33.0 10.1
Current portion of long-term borrowings 8 0.2 0.3
Current tax payable 18.6 21.1
----------------------------------------- ----- ------ -------
162.2 119.7
----------------------------------------- ----- ------ -------
Net current assets 287.9 254.6
----------------------------------------- ----- ------ -------
Non-current liabilities
Long-term borrowings 8 58.2 80.7
Deferred tax liabilities 21.5 17.7
Post-retirement benefits 94.2 73.7
Provisions 2.0 1.2
Long-term payables 1.5 0.4
----------------------------------------- ----- ------ -------
177.4 173.7
----------------------------------------- ----- ------ -------
Total liabilities 339.6 293.4
----------------------------------------- ----- ------ -------
Net assets 3 524.4 398.3
----------------------------------------- ----- ------ -------
Equity
Share capital 19.8 19.7
Share premium account 72.7 69.7
Other reserves 44.6 (18.7)
Retained earnings 386.3 326.8
----------------------------------------- ----- ------ -------
Equity shareholders' funds 523.4 397.5
Non-controlling interest 1.0 0.8
----------------------------------------- ----- ------ -------
Total equity 524.4 398.3
----------------------------------------- ----- ------ -------
Total equity and liabilities 864.0 691.7
----------------------------------------- ----- ------ -------
Spirax-Sarco Engineering plc
CONSOLIDATED INCOME STATEMENT FOR THE YEARED 31ST DECEMBER
2016
Adjusted Adj't Total Adjusted Adj't Total
Note 2016 2016 2016 2015 2015 2015
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------ -------- ----- ------- -------- ------ -------
Revenue 2/3 757.4 - 757.4 667.2 - 667.2
Operating costs (576.8) (6.5) (583.3) (514.8) (9.6) (524.4)
----------------------- ------ -------- ----- ------- -------- ------ -------
Operating profit 2/3 180.6 (6.5) 174.1 152.4 (9.6) 142.8
----------------------- ------ -------- ----- ------- -------- ------ -------
Financial expenses (4.0) - (4.0) (3.6) (3.6)
Financial income 1.4 - 1.4 2.1 2.1
----------------------- ------ -------- ----- ------- -------- ------ -------
Net financing expense 4 (2.6) - (2.6) (1.5) (1.5)
----------------------- ------ -------- ----- ------- -------- ------ -------
Share of profit
of Associates (0.1) - (0.1) 0.2 (1.8) (1.6)
----------------------- ------ -------- ----- ------- -------- ------ -------
Profit before taxation 177.9 (6.5) 171.4 151.1 (11.4) 139.7
Taxation 5 (51.8) 1.7 (50.1) (45.0) 2.0 (43.0)
----------------------- ------ -------- ----- ------- -------- ------ -------
Profit for the
period 126.1 (4.8) 121.3 106.1 (9.4) 96.7
----------------------- ------ -------- ----- ------- -------- ------ -------
Attributable to:
Equity shareholders 2 125.9 (4.8) 121.1 105.9 (9.4) 96.5
Non-controlling
interest 0.2 - 0.2 0.2 - 0.2
----------------------- ------ -------- ----- ------- -------- ------ -------
Profit for the
period 126.1 (4.8) 121.3 106.1 (9.4) 96.7
----------------------- ------ -------- ----- ------- -------- ------ -------
Earnings per share 2/6
Basic earnings
per share 171.5p 165.0p 142.6p 129.9p
Diluted earnings
per share 171.0p 164.5p 141.9p 129.4p
----------------------- ------ -------- ----- ------- -------- ------ -------
Dividends 7
Dividends per share 76.0p 69.0p
Dividends paid
during the year
(per share) 70.7p 185.8p
----------------------- ------ -------- ----- ------- -------- ------ -------
Adjusted figures exclude certain non-operational items, as set
out and explained in the Financial Review and as detailed in Note
2. All amounts relate to continuing operations.
Spirax-Sarco Engineering plc
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE
YEARED
31(ST) DECEMBER 2016
2016 2015
GBPm GBPm
---------------------------------------------- ------- -------
Profit for the year 121.3 96.7
----------------------------------------------- ------- -------
Items that will not be reclassified to
profit or loss:
Remeasurement (loss)/gain on post-retirement
benefits (10.0) 5.7
Deferred tax on remeasurement loss/(gain)
on post-retirement benefits 1.9 (0.6)
----------------------------------------------- ------- -------
(8.1) 5.1
---------------------------------------------- ------- -------
Items that may be reclassified subsequently
to profit or loss:
Foreign exchange translation differences 61.6 (14.1)
Non-controlling interest foreign exchange 0.2 -
translation differences
Gain on cash flow hedges net of tax 0.4 -
---------------------------------------------- ------- -------
62.2 (14.1)
---------------------------------------------- ------- -------
Total comprehensive income for the year 175.4 87.7
----------------------------------------------- ------- -------
Attributable to:
Equity shareholders 175.0 87.5
Non-controlling interest 0.4 0.2
----------------------------------------------- ------- -------
Total comprehensive income for the year 175.4 87.7
----------------------------------------------- ------- -------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARED 31ST
DECEMBER 2016
Share Share Other Retained Equity shareholders' Non-controlling Total
Capital Premium reserves Earnings funds interest Equity
account GBPm GBPm
GBPm GBPm GBPm GBPm GBPm
---------------------------- -------- -------- --------- --------- -------------------- --------------- -------
Balance at 1st January
2016 19.7 69.7 (18.7) 326.8 397.5 0.8 398.3
---------------------------- -------- -------- --------- --------- -------------------- --------------- -------
Profit for the year - - - 121.1 121.1 0.2 121.3
Other comprehensive
(expense)/income:
Foreign exchange translation
differences - - 61.6 - 61.6 0.2 61.8
Remeasurement (loss)
on post-retirement benefits - - - (10.0) (10.0) - (10.0)
Deferred tax on
remeasurement
loss on post-retirement
benefits - - - 1.9 1.9 - 1.9
Profit on cash flow
hedges reserve - - 0.4 - 0.4 - 0.4
---------------------------- -------- -------- --------- --------- -------------------- --------------- -------
Total other comprehensive
(expense) for the year - - 62.0 (8.1) 53.9 0.2 54.1
---------------------------- -------- -------- --------- --------- -------------------- --------------- -------
Total comprehensive
income for the year - - 62.0 113.0 175.0 0.4 175.4
---------------------------- -------- -------- --------- --------- -------------------- --------------- -------
Contributions by and
distributions to owners
of the Company:
Dividends paid - - - (51.9) (51.9) (0.2) (52.1)
Equity settled share
plans net of tax - - - (1.6) (1.6) - (1.6)
Issue of share capital 3.0 - - 3.0 - 3.0
Employee Benefit Trust
shares 0.1 - 1.3 - 1.4 - 1.4
---------------------------- -------- -------- --------- --------- -------------------- --------------- -------
Balance at 31(st) December
2016 19.8 72.7 44.6 386.3 523.4 1.0 524.4
---------------------------- -------- -------- --------- --------- -------------------- --------------- -------
Other reserves represent the Group's translation, cash flow
hedge, capital redemption and Employee Benefit Trust reserves.
The non-controlling interest is a 2.5% share of Spirax-Sarco
(Korea) Ltd held by employee shareholders.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARED 31ST
DECEMBER 2015
Share Share Other Retained Equity shareholders' Non-controlling Total
Capital premium reserves Earnings funds interest Equity
account GBPm GBPm
GBPm GBPm GBPm GBPm GBPm
--------------------------- -------- -------- --------- --------- -------------------- --------------- --------
Balance at 1st January
2015 19.6 65.1 (6.5) 362.8 441.0 0.9 441.9
--------------------------- -------- -------- --------- --------- -------------------- --------------- --------
Profit for the year - - - 96.6 96.6 0.1 96.7
Other comprehensive
(expense)/income
Foreign exchange
translation
differences - - (14.1) - (14.1) - (14.1)
Remeasurement profit
on post-retirement
benefits - - - 5.7 5.7 - 5.7
Deferred tax on
remeasurement
profit on post-retirement
benefits - - - (0.6) (0.6) - (0.6)
Total other comprehensive
(expense)/income for
the year - - (14.1) 5.1 (9.0) - (9.0)
--------------------------- -------- -------- --------- --------- -------------------- --------------- --------
Total comprehensive
(expense)/income for
the year - - (14.1) 101.7 87.6 0.1 87.7
--------------------------- -------- -------- --------- --------- -------------------- --------------- --------
Contributions by and
distributions to owners
of the Company
Dividends paid - - - (140.3) (140.3) (0.2) (140.5)
Equity settled share
plans net of tax - - - 2.6 2.6 - 2.6
Issue of share capital 0.1 4.6 - - 4.7 - 4.7
Employee Benefit Trust
shares - - 1.9 - 1.9 - 1.9
--------------------------- -------- -------- --------- --------- -------------------- --------------- --------
Balance at 31(st) December
2015 19.7 69.7 (18.7) 326.8 397.5 0.8 398.3
--------------------------- -------- -------- --------- --------- -------------------- --------------- --------
Spirax-Sarco Engineering plc
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARED 31ST
DECEMBER 2016
Note 2016 2015*
GBPm GBPm
-------------------------------------------- ----- ------- --------
Cash flows from operating activities
Profit before taxation 171.4 139.7
Depreciation, amortisation and impairment 33.1 29.3
Profit on disposal of fixed assets (1.5) (0.5)
Contribution from Associates 0.1 2.0
Cash payments to the pension schemes less
than the charge to operating profit 1.6 1.2
Equity settled share plans 1.9 3.3
Net finance expense 2.6 1.5
-------------------------------------------- ----- ------- --------
Operating cash flow before changes in
working capital and provisions 209.2 176.5
Change in trade and other receivables (4.7) (1.9)
Change in inventories 0.3 3.5
Change in provisions 2.3 0.7
Change in trade and other payables 8.7 (3.8)
-------------------------------------------- ----- ------- --------
Cash generated from operations 215.8 175.0
Interest paid (1.4) (1.3)
Income taxes paid (56.5) (43.4)
-------------------------------------------- ----- ------- --------
Net cash from operating activities 2 157.9 130.3
-------------------------------------------- ----- ------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (28.1) (26.0)
Proceeds from sale of property, plant
and equipment 3.3 2.4
Sale of businesses - 13.3
Purchase of software and other intangibles (3.5) (4.8)
Development expenditure capitalised (3.0) (2.4)
Acquisition of businesses (66.5) (23.6)
Bank deposits - 24.3
Interest received 1.4 2.1
-------------------------------------------- ----- ------- --------
Net cash used in investing activities (96.4) (14.7)
-------------------------------------------- ----- ------- --------
Cash flows from financing activities
Proceeds from issue of share capital 3.0 4.7
Employee Benefit Trust share purchase (1.7) -
Repaid borrowings (20.4) (79.4)
New borrowings 18.7 81.3
Change in finance lease liabilities 8 (0.1) (0.4)
Dividends paid (including minorities) 7 (52.1) (140.5)
-------------------------------------------- ----- ------- --------
Net cash used in financing activities (52.6) (134.3)
-------------------------------------------- ----- ------- --------
Net change in cash and cash equivalents 8 8.9 (18.7)
Net cash and cash equivalents at beginning
of period 95.9 117.5
Exchange movement 14.0 (2.9)
-------------------------------------------- ----- ------- --------
Net cash and cash equivalents at end of
period 8 118.8 95.9
Borrowings and finance leases (91.4) (91.1)
-------------------------------------------- ----- ------- --------
Net cash at end of period 8 27.4 4.8
-------------------------------------------- ----- ------- --------
*2015 recategorised to be consistent with 2016. A cash inflow of
GBP1.2m in 2015 has been recatergorised from 'change in trade and
other payables' to 'cash payments to the pension schemes less than
the charge to operating profit'.
1. NOTES TO THE ACCOUNTS
This announcement is based on the Company's Financial
Statements, which are prepared in accordance with International
Financial Reporting Standards (IFRS) adopted for use in the
European Union (EU) and therefore comply with Article 4 of the EU
IAS legislation and with those parts of the Companies Act 2006 that
are applicable to companies reporting under IFRS.
With the exception of the new standards adopted in the year, as
discussed below, there have been no significant changes in
accounting policies from those set out in the Spirax-Sarco
Engineering plc 2015 Annual Report. The accounting policies have
been applied consistently throughout the years ended 31 December
2015 and 31 December 2016.
In the current year the group has applied a number of amendments
to IFRSs issued by the International Accounting Standards Board
(IASB). Their adoption has not had a material impact on the
disclosures or on the amounts reported in these financial
statements. The following amendments were applied:
-- IAS 1 Presentation of Financial Statements - Disclosure initiative;
-- IAS 16 Property Plant and Equipment, and IAS 38 Intangibles
assets in relation to acceptable methods of depreciation and
amortisation; and
-- Annual improvements to IFRSs 2012-2014 Cycle including the
amendments to IAS 19 which clarify the rate to be used to discount
post-employment benefit obligations.
Having made appropriate enquiries, the Directors consider that
the Group has adequate resources to continue in operational
existence for the foreseeable future and that therefore it is
appropriate to adopt the going concern basis in preparing the
Annual Report.
The Group has processes in place to identify, evaluate and
mitigate the principal risks that could have an impact on the
Group's performance. The principal risks together with a
description of why they are relevant are set out below. Details of
how they link with the Group's strategy and how mitigation is
managed are included in the Group's 2015 Annual Report on page 33
and they will be disclosed in the 2016 Annual Report on pages
30-31.
-- Economic and political instability
Economic and political instability creates risks for our locally
based direct operations, including the impact of regime
changes.
-- Significant exchange rate movements
The Group reports its results and pays dividends in sterling.
Operating and manufacturing companies trade in local currency.
-- Loss of manufacturing output at any Group factory
Loss of manufacturing output at any important plant risks
serious disruption to sales operations
-- Defined benefit pension deficit
Defined benefit pension schemes carry risks in relation to
investment performance, security of assets, longevity and
inflation.
-- Breach of legal and regulatory requirements
The Group is subject to many different laws and regulations.
Breaching these laws and regulations could have serious
consequences.
-- Non-compliance with health, safety and environmental legislation
A major health and safety incident could cause total or partial
closure of a manufacturing facility
-- Solution specification failure
Failure to meet customers' specific technical requirements could
result in disruption and potential loss to an end users' plant or
facility
The 2016 Financial Statements were approved by the Board of
Directors and authorised for issue on 8(th) March 2017.
2. ALTERNATIVE PERFORMANCE MEASURES
The Group reports under International Financial Reporting
Standards (IFRS) and also uses alternative performance measures
where the Board believe that they help to effectively monitor the
performance of the Group, users of the Financial Statements might
find them informative and an aid to comparison with our peers. A
definition of the alternative performance measures included in the
Annual Report and a reconciliation to the closest IFRS equivalent
are disclosed below.
Adjusted operating profit
Adjusted operating profit excludes the amortisation and
impairment of acquisition-related intangible assets and costs
associated with acquisitions. A reconciliation between operating
profit as reported under IFRS and adjusted operating profit is
given below.
2016 2015
GBPm GBPm
----------------------------------------------- ------ ------
Operating profit as reported under IFRS 174.1 142.8
Amortisation of acquisition-related intangible
assets 6.0 4.7
Acquisition and disposal costs 0.5 0.8
Loss on closure of USA metering unit - 3.8
Profit on disposal, less recycled exchange
losses - 0.3
----------------------------------------------- ------ ------
Adjusted operating profit 180.6 152.4
----------------------------------------------- ------ ------
Adjusted earnings per share
2016 2015
------------------------------------------------------- ------ ------
Profit for the period attributable to equity holders
as reported under IFRS (GBPm) 121.1 96.5
Non-operational items excluded from adjusted operating
profit disclosed above (GBPm) 6.5 9.6
Non-operational items excluded from share of profit
from Associates (see Note 3) (GBPm) - 1.8
Tax effects on non-operational items (GBPm) (1.7) (2.0)
------------------------------------------------------- ------ ------
Adjusted profit for the period attributable to
equity holders (GBPm) 125.9 105.9
------------------------------------------------------- ------ ------
Weighted average shares in issue (million) 73.4 74.3
------------------------------------------------------- ------ ------
Basic adjusted earnings per share 171.5p 142.6p
------------------------------------------------------- ------ ------
Diluted weighted average shares in issue (million) 73.6 74.6
------------------------------------------------------- ------ ------
Diluted adjusted earnings per share 171.0p 141.9p
------------------------------------------------------- ------ ------
Basic and diluted EPS calculated on an IFRS profit basis are
included in Note 6.
Adjusted cash flow
Adjusted net cash from operating activities excludes costs
associated with acquisitions and disposals, capital expenditure,
profit on disposal of fixed assets, movement in provisions and tax
paid. A reconciliation of net cash from operating activities
reported under IFRS to adjusted net cash from operating activities
is given below.
2016 2015
GBPm GBPm
----------------------------------------------- ------ ------
Net cash from operating activities as reported
under IFRS 157.9 130.3
Acquisition and disposal costs 0.5 3.9
Capital expenditure excluding acquired
intangibles from acquisitions (32.8) (33.2)
Profit on disposal of fixed assets 1.5 0.5
Movement in provisions (2.3) (0.7)
Tax paid 56.5 43.3
Interest paid 1.4 1.3
Other - 0.1
Adjusted net cash from operating activities 182.7 145.5
----------------------------------------------- ------ ------
Cash conversion in 2016 is 101% (2015: 95%). Cash conversion is
calculated as adjusted net cash from operating activities divided
by adjusted operating profit. The adjusted cash flow is included in
the Financial Review on page 20.
Return on capital employed (ROCE)
This is an important key performance indicator and forms a
meaningful element of Executive Directors' annual bonuses but is a
non-statutory measure. ROCE measures effective management of fixed
assets and working capital relative to the profitability of the
business. ROCE is calculated as adjusted operating profit divided
by average capital employed. Average capital employed is based on
capital employed at 31(st) December 2016 and 31(st) December 2015
at reported exchange rates. More information on ROCE can be found
in the Capital Employed and ROCE sections of the Financial Review
on page 19.
An analysis of the components is as follows:
2016 2015
Capital Employed GBPm GBPm
------------------------------------- -------- -------
Property, plant and equipment 201.8 169.9
Prepayments 5.9 5.5
Inventories 112.5 92.5
Trade receivables 185.5 152.1
Other current assets 21.7 20.4
Tax recoverable 11.2 9.5
Trade, other payables and current
provisions (110.0) (84.3)
Current tax payable (18.6) (21.1)
------------------------------------- -------- -------
Capital employed 410.0 344.5
------------------------------------- -------- -------
Average capital employed 377.3 345.4
------------------------------------- -------- -------
Operating profit 174.1 142.8
Adjustments (see adjusted operating
profit above) 6.5 9.6
------------------------------------- -------- -------
Adjusted operating profit 180.6 152.4
------------------------------------- -------- -------
Return on capital employed 47.9% 44.1%
------------------------------------- -------- -------
A reconciliation of capital employed to net assets as reported
under IFRS and disclosed on the Consolidated Statement of Financial
Position is given below.
2016 2015
GBPm GBPm
---------------------------------------------- ------ ------
Capital employed 410.0 344.5
Intangibles and investment in Associate 169.7 109.0
Post-retirement benefits (94.2) (73.7)
Deferred tax 15.0 15.3
Non-current provisions and long-term payables (3.5) (1.6)
Net cash 27.4 4.8
Net assets as reported under IFRS 524.4 398.3
---------------------------------------------- ------ ------
Organic measures
As we are a multi-national Group of companies, who trade in a
large number of foreign currencies and regularly acquire and
sometimes dispose of companies, we also refer to organic
performance measures throughout the Annual Report. These strip out
the effects of the movement of foreign currency exchange rates and
of acquisitions and disposals. The Board believe that this allows
users of the accounts to gain a further understanding of how the
Group has performed.
The exchange movement is calculated as the difference between
the prior period reported value translated at prior period exchange
rates and translated at current period exchange rates.
Any acquisitions and disposals that occurred in either the
current period or prior period are excluded from the results of
both the prior and current period at current period exchange
rates.
A reconciliation of the movement in revenue and adjusted
operating profit compared to the prior period is given below:
2015 Exchange Organic Acquisitions 2016 Organic Reported
& Disposals
------------------- --------- -------- -------- ------------ --------- ------- --------
Revenue GBP667.2m GBP52.6m GBP30.3m GBP7.3m GBP757.4m +4% +14%
Adjusted operating
profit GBP152.4m GBP14.5m GBP13.2m GBP0.5m GBP180.6m +8% +18%
Adjusted operating +100
margin 22.8% 23.8% +80 bps bps
------------------- --------- -------- -------- ------------ --------- ------- --------
The reconciliation for each segment is included in the Group
Chief Executive's Report.
3. SEGMENTAL REPORTING
Analysis by location of operation
2016
Gross Inter- Revenue Total Adjusted Adjusted
Revenue Segment Operating Operating Operating
revenue Profit Profit Margin
GBPm GBPm GBPm GBPm GBPm %
--------------------- --------- --------- -------- ----------- ----------- -----------
Europe, Middle East
& Africa 273.9 39.6 234.3 49.6 50.0 21.3%
Asia Pacific 197.7 4.4 193.3 49.3 49.9 25.8%
Americas 142.9 7.0 135.9 26.9 29.2 21.5%
--------------------- --------- --------- -------- ----------- ----------- -----------
Steam Specialties
business 614.5 51.0 563.5 125.8 129.1 22.9%
Watson-Marlow 193.9 - 193.9 61.1 64.3 33.1%
Corporate Expenses (12.8) (12.8)
--------------------- --------- --------- -------- ----------- ----------- -----------
808.4 51.0 757.4 174.1 180.6 23.8%
Intra Group (51.0) (51.0)
--------------------- --------- --------- -------- ----------- ----------- -----------
Total 757.4 - 757.4 174.1 180.6 23.8%
--------------------- --------- --------- -------- ----------- ----------- -----------
Net finance expense (2.6) (2.6)
Share of profit
of Associates (0.1) (0.1)
--------------------- --------- --------- -------- ----------- ----------- -----------
Profit before tax 171.4 177.9
--------------------- --------- --------- -------- ----------- ----------- -----------
2015
Gross Inter- Revenue Total Adjusted Adjusted
Revenue Segment Operating Operating Operating
revenue Profit Profit Margin
GBPm GBPm GBPm GBPm GBPm %
--------------------- --------- --------- -------- ----------- ----------- -----------
Europe, Middle East
& Africa 253.7 34.3 219.4 41.4 42.7 19.5%
Asia Pacific 176.3 4.5 171.8 44.2 44.7 26.0%
Americas 128.9 5.5 123.4 21.6 27.1 22.0%
--------------------- --------- --------- -------- ----------- ----------- -----------
Steam Specialties
business 558.9 44.3 514.6 107.2 114.5 22.3%
Watson-Marlow 152.6 - 152.6 45.6 47.9 31.4%
Corporate Expenses (10.0) (10.0)
--------------------- --------- --------- -------- ----------- ----------- -----------
711.5 44.3 667.2 142.8 152.4 22.8%
Intra Group (44.3) (44.3)
--------------------- --------- --------- -------- ----------- ----------- -----------
Total 667.2 - 667.2 142.8 152.4 22.8%
--------------------- --------- --------- -------- ----------- ----------- -----------
Net finance expense (1.5) (1.5)
Share of profit
of Associates (1.6) 0.2
--------------------- --------- --------- -------- ----------- ----------- -----------
Profit before tax 139.7 151.1
--------------------- --------- --------- -------- ----------- ----------- -----------
Net revenue generated by Group companies based in the USA is
GBP146.3m (2015: GBP125.3m), in China is GBP90.6m (2015: GBP78.6m)
in the UK is GBP70.4m (2015: GBP66.5m), and the rest of the world
is GBP450.1m (2015: GBP396.8m)
The total operating profit for each period includes the
non-operational items analysed below:
2016
Amortisation Acquisition Total
of acquisition-related and disposal
intangible costs
assets
GBPm GBPm GBPm
----------------------- ------------------------ -------------- ------
Europe, Middle
East & Africa (0.4) - (0.4)
Asia Pacific (0.6) - (0.6)
Americas (2.2) (0.1) (2.3)
----------------------- ------------------------ -------------- ------
Steam Specialties
business (3.2) (0.1) (3.3)
Watson-Marlow (2.8) (0.4) (3.2)
----------------------- ------------------------ -------------- ------
Total non-operational
items (6.0) (0.5) (6.5)
----------------------- ------------------------ -------------- ------
2015
Amortisation Loss on closure Profit on Acquisition
of of USA metering disposal of and disposal
acquisition-related unit M&M less recycled costs
intangible exchange losses Total
assets
GBPm GBPm GBPm GBPm GBPm
----------------------- --------------------- ----------------- ------------------- -------------- --------
Europe, Middle
East & Africa (0.6) - (0.3) (0.4) (1.3)
Asia Pacific (0.5) - - - (0.5)
Americas (1.7) (3.8) - - (5.5)
----------------------- --------------------- ----------------- ------------------- -------------- --------
Steam Specialties
business (2.8) (3.8) (0.3) (0.4) (7.3)
Watson-Marlow (1.9) - - (0.4) (2.3)
----------------------- --------------------- ----------------- ------------------- -------------- --------
Total non-operational
items (4.7) (3.8) (0.3) (0.8) (9.6)
----------------------- --------------------- ----------------- ------------------- -------------- --------
Share of profit of Associates
The share of profit of associates analysed between adjusted
income and total (including non-operational items) is as
follows:
2016 2016 2015 2015
Adjusted Total Adjusted Total
GBPm GBPm GBPm GBPm
---------------------------- ---------- ------- ---------- -------
Europe, Middle East
& Africa (0.1) (0.1) (0.1) (0.3)
Asia Pacific - - 0.3 (1.3)
Americas - - - -
---------------------------- ----------
Steam Specialties business (0.1) (0.1) 0.2 (1.6)
Watson-Marlow - - - -
---------------------------- ---------- ------- ---------- -------
Total share of profit
of Associates (0.1) (0.1) 0.2 (1.6)
---------------------------- ---------- ------- ---------- -------
In 2015 adjusted share of profit of Associates excludes
amortisation and impairment of acquisition-related intangible
assets of GBP0.2m, recycled exchange losses and a final adjustment
to the date of sale to the impairment of tangible assets in respect
of Spirax Marshall in India of GBP1.6m. No non-operational items
occurred in 2016.
Net financing income and expense
2016 2015
GBPm GBPm
------------------------------ ------ ------
Europe, Middle East & Africa (1.5) (1.4)
Asia Pacific 0.2 1.1
Americas (0.7) (0.2)
------------------------------ ------ ------
Steam Specialties business (2.0) (0.5)
Watson-Marlow - -
Corporate (0.6) (1.0)
------------------------------ ------ ------
Total net financing expense (2.6) (1.5)
------------------------------ ------ ------
Net assets
2016 2015
Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm
--------------------- -------- ------------ -------- ------------
Europe, Middle East
& Africa 195.3 (106.8) 182.8 (91.2)
Asia Pacific 163.1 (38.5) 140.3 (30.4)
Americas 127.0 (38.6) 102.4 (24.0)
Watson-Marlow 211.7 (23.8) 123.9 (14.0)
--------------------- -------- ------------ -------- ------------
697.1 (207.7) 549.4 (159.6)
Liabilities (207.7) (159.6)
Deferred Tax 15.0 15.3
Current Tax payable (7.4) (11.6)
Net Cash 27.4 4.8
--------------------- -------- ------------ -------- ------------
Net assets 524.4 398.3
--------------------- -------- ------------ -------- ------------
Non-current assets in the UK were GBP156.5m (2015: GBP98.2m)
Capital additions and depreciation and amortisation
2016 2015
Capital Depreciation Capital Depreciation
additions and amortisation additions and
GBPm amortisation*
GBPm GBPm GBPm
--------------------- ----------- ------------------ ----------- ---------------
Europe, Middle East
& Africa 11.1 12.4 13.0 11.2
Asia Pacific 12.6 6.9 11.0 5.6
Americas 8.0 5.9 10.4 5.1
Watson-Marlow 38.5 7.9 11.9 7.4
--------------------- ----------- ------------------ ----------- ---------------
Group total 70.2 33.1 46.3 29.3
--------------------- ----------- ------------------ ----------- ---------------
Capital additions include property, plant and equipment of
GBP36.9m (2015: GBP26.3m), of which GBP9.0m (2015: GBP0.6m) was
from acquisitions in the period, and other intangible assets of
GBP33.3m (2015: GBP20.0m) of which GBP26.8m (2015: GBP12.8m)
relates to acquired intangibles from acquisitions in the period.
Capital additions split between the UK and rest of the world are UK
GBP41.9m (2015: GBP11.6m), rest of the world GBP28.3m (2015:
GBP34.7m).
*Restated, to exclude profit on disposal of fixed assets
(GBP0.5m), to be on a consistent basis as 2016.
4. NET FINANCING INCOME AND EXPENSE
2016 2015
GBPm GBPm
---------------------------------------- ------ ------
Financial expenses:
Bank and other borrowing interest
payable (1.4) (1.3)
Interest on pension scheme liabilities (2.6) (2.3)
---------------------------------------- ------ ------
(4.0) (3.6)
---------------------------------------- ------ ------
Financial income:
Bank interest receivable 1.4 2.1
---------------------------------------- ------ ------
Net financing expense (2.6) (1.5)
---------------------------------------- ------ ------
Net pension scheme financial expense (2.6) (2.3)
Net bank interest - 0.8
---------------------------------------- ------ ------
Net financing expense (2.6) (1.5)
---------------------------------------- ------ ------
5. TAXATION
2016 2015
GBPm GBPm
-------------------------------------- ------ ------
Analysis of charge in period
UK corporation tax:
Current tax on income for the period 3.2 2.0
Adjustments in respect of prior
periods (0.1) (0.7)
-------------------------------------- ------ ------
3.1 1.3
Double taxation relief - (0.4)
-------------------------------------- ------ ------
3.1 0.9
-------------------------------------- ------ ------
Foreign tax:
Current tax on income for the period 48.6 44.2
Adjustments in respect of prior
periods (0.8) (0.6)
-------------------------------------- ------ ------
47.8 43.6
-------------------------------------- ------ ------
Total current tax charge 50.9 44.5
Deferred tax - UK 0.8 1.1
Deferred tax - Foreign (1.6) (2.6)
-------------------------------------- ------ ------
Tax on profit on ordinary activities 50.1 43.0
-------------------------------------- ------ ------
The Group's tax charge in future years is likely to be affected
by the proportion of profits arising and the effective tax rates in
the various territories in which the Group operates.
6. EARNINGS PER SHARE
2016 2015
-------------------------------------------- ------- -------
Profit attributable to equity shareholders
(GBPm) 121.1 96.5
Weighted average shares in issue
(million) 73.4 74.3
Dilution (million) 0.2 0.3
-------------------------------------------- ------- -------
Diluted weighted average shares
in issue (million) 73.6 74.6
-------------------------------------------- ------- -------
Basic earnings per share 165.0p 129.9p
-------------------------------------------- ------- -------
Diluted earnings per share 164.5p 129.4p
-------------------------------------------- ------- -------
Basic and diluted earnings per share calculated on an adjusted
profit basis are included in Note 2. The dilution is in respect of
unexercised share options and the Performance Share Plan.
7. DIVIDS
2016 2015
GBPm GBPm
------------------------------------------- ------- -------
Amounts paid in the year:
Final dividend for the year ended
31st December 2015
of 48.2p (2014: 45.0p) per share 35.4 34.1
Special dividend for the year ended
31st December 2015 of nil (2014: 120.0p)
per share 91.0
Interim dividend for the year ended
31st December 2016 of 22.5p (2015:
20.8p) per share 16.5 15.2
------------------------------------------- ------- -------
Total dividends paid 51.9 140.3
------------------------------------------- ------- -------
Amounts arising in respect of the
year:
Interim dividend for the year ended
31st December 2016 of 22.5p (2014:
20.8p) per share 16.5 15.2
Proposed final dividend for the year
ended 31st December 2016 of 53.5p
(2015: 48.2p) per share 39.3 35.4
------------------------------------------- ------- -------
Total dividends arising 55.8 50.6
------------------------------------------- ------- -------
8. ANALYSIS OF CHANGES IN NET CASH
At Cash Exchange At
1st Jan flow movement 31st Dec
2016 GBPm GBPm 2016
GBPm GBPm
------------------------------- --------- ------ ---------- ----------
Current portion of long term
borrowings (0.3) (0.2)
Non-current portion of long
term borrowings (80.7) (58.2)
Short term borrowing (10.1) (33.0)
------------------------------- --------- ------ ---------- ----------
Total borrowings (91.1) (91.4)
------------------------------- --------- ------ ---------- ----------
Comprising:
Borrowings (90.6) 1.7 (2.1) (91.0)
Finance Leases (0.5) 0.1 - (0.4)
------------------------------- --------- ------ ---------- ----------
(91.1) 1.8 (2.1) (91.4)
------------------------------- --------- ------ ---------- ----------
Cash at bank 99.8 5.0 14.4 119.2
Bank overdrafts (3.9) 3.9 (0.4) (0.4)
------------------------------- --------- ------ ---------- ----------
Net cash and cash equivalents 95.9 8.9 14.0 118.8
------------------------------- --------- ------ ---------- ----------
Net cash 4.8 10.7 11.9 27.4
------------------------------- --------- ------ ---------- ----------
9. PURCHASE OF BUSINESSES
2016
Acquisitions
------------------------------
Book Fair value Fair
value adjustment value
GBPm GBPm GBPm
--------------------------------------- ------- ------------ -------
Non-current assets:
Property, plant and equipment 6.9 2.1 9.0
Intangibles - 26.8 26.8
6.9 28.9 35.8
--------------------------------------- ------- ------------ -------
Current assets:
Inventories 6.8 (0.3) 6.5
Trade receivables 3.8 - 3.8
Other receivables 0.4 - 0.4
--------------------------------------- ------- ------------ -------
Total assets 17.9 28.6 46.5
--------------------------------------- ------- ------------ -------
Current liabilities:
Trade payables 2.3 - 2.3
Deferred tax - 4.8 4.8
--------------------------------------- ------- ------------ -------
Total liabilities 2.3 4.8 7.1
--------------------------------------- ------- ------------ -------
Total net assets 15.6 23.8 39.4
Goodwill 27.1
--------------------------------------- ------- ------------ -------
Total 66.5
--------------------------------------- ------- ------------ -------
Satisfied by
--------------------------------------- ------- ------------ -------
Cash paid 66.5
Deferred consideration
--------------------------------------- ------- ------------ -------
66.5
--------------------------------------- ------- ------------ -------
Cash outflow for acquired businesses
in the Cash Flow Statement:
Cash paid for businesses acquired
in the period 66.5
Less cash acquired -
Deferred consideration for businesses -
acquired
in prior years
--------------------------------------- ------- ------------ -------
Net cash outflow 66.5
--------------------------------------- ------- ------------ -------
1. The acquisition of the assets of the process control valve
manufacturer, Hiter Industria e Comercio de Controles
Termo-Hidraulicos Ltda (Hiter) was completed on 1st July 2016. The
acquisition method of accounting has been used. Consideration of
GBP3.9 million was paid on completion. Separately identified
intangibles are recorded as part of the fair value adjustment. The
goodwill recognised represents the opportunity to achieve synergies
from being part of the Group and to sell to a wider customer base.
Goodwill arising is not expected to be tax deductible. Hiter has
generated GBP0.7 million of revenue and a small pre-tax loss since
acquisition. Had the acquisition been made on 1st January 2016, the
revenue and pre-tax profit would have been approximately double the
figures disclosed above.
2. The acquisition of Aflex Hose Limited and its subsidiary
Aflex Hose USA LLC was completed on 30th November 2016. The
acquisition method of accounting has been used. Consideration of
GBP62.5 million was paid on completion. Separately identified
intangibles are recorded as part of the provisional fair value
adjustment. The goodwill recognised represents the skilled
workforce acquired and the opportunity to achieve synergies from
being part of a larger Group. Goodwill arising is not expected to
be tax deductible. The acquisition has generated GBP2.0 million of
revenue and GBP0.5 million of pre-tax profit since acquisition. Had
the acquisition been made on 1st January 2016, the revenue and
pre-tax profit would have been approximately twelve times the
figures disclosed.
3. GBP0.5 million of acquisition related costs were incurred
during the year. The acquired intangibles relate to manufacturing
designs and core technology, brand names and trademarks, customer
relationships and non-compete undertakings.
10. BASIS OF PREPARATION
The financial information set out in this announcement does not
constitute the Company's statutory accounts for the years ended
31st December 2016 or 31st December 2015. Statutory accounts for
2015, which were prepared under accounting standards adopted by the
EU, have been delivered to the registrar of companies and those for
2016 will be delivered following the Company's Annual General
Meeting. The Auditors have reported on these accounts; their report
was (i) unqualified, (ii) did not include any references to any
matters to which the auditors drew attention by way of emphasis
without qualifying and (iii) did not contain statements under
sections 498(2) or (3) of the Companies Act 2006.
If approved at the Annual General Meeting on 9th May 2017, the
final dividend will be paid on 26th May 2017 to shareholders on the
register at 28th April 2017. No scrip alternative to the cash
dividends is being offered.
Copies of the Annual Report will be sent on 24th March 2017 to
shareholders who have requested a hard copy and can be obtained
from our registered office at Charlton House, Cirencester Road,
Cheltenham, Gloucestershire GL53 8ER. The report is also available
on our website at www.SpiraxSarcoEngineering.com.
11. RESPONSIBILITY statement OF THE DIRECTORS ON THE ANNUAL
REPORT
The Responsibility Statement below has been prepared in
connection with the company's full Annual Report for the year
ending 31(st) December 2016. Certain parts thereof are not included
within this announcement.
We confirm to the best of our knowledge:
-- the Financial Statements, prepared in accordance with IFRS as
adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit and loss of the company
and the undertakings included in the consolidation taken as a
whole; and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties they face; and
-- the Annual Report and Financial Statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary to assess the Company's performance, business model and
strategy.
This Responsibility Statement was approved by the Board of
Directors on 8(th) March 2017 and is signed on its behalf by:
N.J. Anderson, Chief Executive K.J. Boyd, Group Finance
Director
12. Cautionary statement
All statements other than statements of historical fact included
in this document, including, without limitation, those regarding
the financial condition, results, operations and businesses of
Spirax-Sarco Engineering plc and its strategy, plans and objectives
and the markets and economies in which it operates, are
forward-looking statements. These forward-looking statements which
reflect management's assumptions made on the basis of information
available to it at this time, involve known and unknown risks,
uncertainties and other important factors which could cause the
actual results, performance or achievements of Spirax-Sarco
Engineering plc or the markets and economies in which we operate to
be materially different from future results, performance or
achievements expressed or implied by such forward-looking
statements. Spirax-Sarco Engineering plc and its Directors accept
no liability to third parties in respect of this report save as
would arise under English law. Accordingly, any liability to a
person who has demonstrated reliance on any untrue or misleading
statement or omission shall be determined in accordance with
schedule 10A of the Financial Services and Markets Act 2000. It
should be noted that schedule 10A contains limits on the liability
of the Directors of Spirax-Sarco Engineering plc so that their
liability is solely to Spirax-Sarco Engineering plc.
13. EXCHANGE RATE IMPACTS
Whilst not an IFRS disclosure or part of the audited accounts,
set out below is an additional disclosure that highlights the
movements in a selection of average exchange rates between 2016 and
2015.
Average exchange rates to sterling have been as follows:
Average Average
2016 2015 Change
%
-------------------------- -------- -------- ---------
Bank of England sterling
index 82.3 91.4 +10%
US$ 1.36 1.53 +11%
Euro 1.23 1.38 +11%
Renminbi 9.00 9.60 +6%
Won 1,574 1,728 +9%
Real 4.74 5.11 +7%
Argentine Peso 19.99 14.28 -40%
About Spirax Sarco
Spirax-Sarco Engineering plc is the world leader in each of its
two businesses, Spirax Sarco for steam specialties and
Watson-Marlow Fluid Technology Group for niche peristaltic pumps
and associated fluid path technologies. The Steam Specialties
business provides a broad range of fluid control products,
engineered packages, site services and systems expertise for a
diverse range of industrial and institutional customers. The
Company helps its end users to improve production efficiency,
reduce energy costs, water usage and emissions, improve product
quality and enhance the safety of their operations. Watson-Marlow
Fluid Technology Group offers the ideal solution for a wide variety
of demanding fluid path applications with highly accurate,
controllable and virtually maintenance free pumps and associated
technologies. The Group is headquartered in Cheltenham, England,
has strategically located manufacturing plants around the world and
employs over 5,300 people, of whom nearly 1,400 are direct sales
and service engineers. Its shares have been listed on the London
Stock Exchange since 1959 (symbol: SPX).
Further information can be found at
www.spiraxsarcoengineering.com
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END
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