TIDMSPX
RNS Number : 2210I
Spirax-Sarco Engineering PLC
11 August 2021
News Release
Wednesday 11(th) August 2021
2021 Half Year Results
Strong first half performance improves full year outlook
HIGHLIGHTS
Six months ended 30(th) June
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Adjusted* 2021 2020 Reported Organic
---------------------------- ---------- ---------- --------- ----------
Revenue GBP643.7m GBP569.7m +13% +17 %
Adjusted operating profit* GBP162.9m GBP119.0m +37% + 42%
Adjusted operating profit
margin* 25.3% 20.9% +440 bps + 440 bps
Adjusted profit before
taxation* GBP159.3m GBP114.5m +39%
Adjusted basic earnings
per share* 157.6p 111.6p +41%
Cash conversion 85% 86%
Statutory 2021 2020 Reported
-------------------------- ---------- ---------- ---------
Revenue GBP643.7m GBP569.7m +13%
Operating profit GBP153.6m GBP110.8m +39%
Operating profit margin 23.9% 19.4% +450 bps
Profit before taxation GBP150.0m GBP106.3m +41%
Basic earnings per share 147.6p 104.2p +42%
Dividend per share 38.5p 33.5p +15%
-- Revenue growth of 13%, organic revenue growth of 17%
-- Adjusted operating profit growth of 37%, organic profit growth
42%; up 39% on a statutory basis
-- Adjusted operating margin of 25.3%, up 440 bps organically; up
450 bps on a statutory basis
-- Strong order book growth across all three businesses
-- Steam Specialties organic sales growth of 13%; margin up 430 bps
organically
-- Electric Thermal Solutions organic sales growth of 6%; margin
up 250 bps organically
-- Watson-Marlow organic sales growth of 35%; margin up 400 bps organically
-- Net debt^ of GBP192.8 million; leverage reduced to 0.6x EBITDA*
(H1 2020: GBP326.0 million)
-- Interim dividend up by 15% to 38.5 pence, following 7% total increase
in 2020
Nicholas Anderson, Group Chief Executive, commenting on the
results said:
"A strong recovery of global industrial production in the first
half of this year, combined with exceptional COVID-19 vaccine
related demand in Watson-Marlow, has supported strong organic sales
and profit growth across all three businesses. These results
continue to demonstrate the robust business model, strategy and
execution of our Group, being achieved through the outstanding
efforts and dedication of all our employees in managing the higher
levels of demand to meet our customers' needs. This excellent first
half execution underpins our improved full year profit
outlook."
*Results quoted in this announcement are 'adjusted' metrics,
except where otherwise stated. Organic measures are at constant
currency and exclude contributions from acquisitions and disposals.
See Note 2 to the Financial Statements for an explanation of
alternative performance measures.
^Net debt includes total borrowings, cash and bank overdrafts
but excludes IFRS 16 lease liabilities, as set out
in Note 9 to the Financial Statements.
For further information, please contact:
Nimesh Patel, Chief Financial Officer
Shaun Laubscher, Investor Relations Officer
Tel: +44 (0) 207 638 9571 (Citigate Dewe Rogerson)
Audio webcast
The meeting with analysts will be available as a live audio
webcast at 9.00 a.m. on the Company's website at
www.spiraxsarcoengineering.com or via the following link:
https://edge.media-server.com/mmc/p/u2awfggc and a recording
will be made available on the website shortly after the
meeting.
Telephone dial-in
The meeting with analysts will also be available via a full
conference call with Q&A facility, at 9.00 a.m., using the
instructions provided below:
Location Purpose Phone Type Number
--------------------------------- ------------ ----------- ---------------
+44 (0) 33 0551
United Kingdom and International Participant Local 0200
============ =========== ===============
1. 5-10 minutes prior to the call start time, call the participant
dial-in number listed above.
2. Provide the audio operator with the password: Spirax-Sarco Engineering.
About Spirax--Sarco Engineering plc
Spirax--Sarco Engineering plc is a thermal energy management and
niche pumping specialist. It comprises three world--leading
businesses: Steam Specialties, for the control and management of
steam; Electric Thermal Solutions, for advanced electrical process
heating and temperature management solutions; and Watson-Marlow,
for peristaltic pumping and associated fluid path technologies. The
Steam Specialties and Electric Thermal Solutions businesses provide
a broad range of fluid control and electrical process heating
products, engineered packages, site services and systems expertise
for a diverse range of industrial and institutional customers. Both
businesses help their end users to improve production efficiency,
meet their environmental sustainability targets, improve product
quality and enhance the safety of their operations. Watson--Marlow
provides solutions 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, UK, has strategically
located manufacturing plants around the world and employs more than
8,200 people, including almost 2,000 direct sales and service
engineers. The Company's shares have been listed on the London
Stock Exchange since 1959 (symbol: SPX) and it is a constituent of
the FTSE 100 and the FTSE4Good Indexes.
Further information can be found at
spiraxsarcoengineering.com
RNS filter: Inside information prior to release
LEI 213800WFVZQMHOZP2W17
BUSINESS REVIEW
HY 2020 Exchange Organic Acquisitions HY 2021 Organic Reported
& disposals
Revenue GBP569.7m (GBP21.2m) GBP95.2m - GBP643.7m +17% +13%
---------- ----------- --------- ------------- ---------- -------- ---------
Adjusted operating
profit GBP119.0m (GBP4.4m) GBP48.3m - GBP162.9m +42% +37%
---------- ----------- --------- ------------- ---------- -------- ---------
Adjusted operating +440 +440
profit margin 20.9% 25.3% bps bps
---------- ----------- --------- ------------- ---------- -------- ---------
Statutory operating
profit GBP110.8m GBP153.6m +39%
---------- ----------- --------- ------------- ---------- -------- ---------
Statutory operating +450
profit margin 19.4% 23.9% bps
---------- ----------- --------- ------------- ---------- -------- ---------
OVERVIEW
Recognising our colleagues
The Board would like to thank all our colleagues across the
world for continuing to work tirelessly to support our customers,
particularly in meeting the strong demand growth during the first
six months of 2021.
The health and wellbeing of our teams is of paramount importance
with COVID-19 still affecting our daily lives. We have maintained
our rigorous health and safety measures, including the
implementation of updated COVID-19 minimum standards, to ensure our
workplaces remain safe. We are supporting the wellbeing of our
employees and maintaining regular engagement with colleagues who
are working remotely.
Market environment
During the first half of 2021, global industrial production(1)
(IP) expanded 11%, compared to a 7% contraction in the same period
last year, which is in line with forecasts at the time of our AGM
Trading Update in May. Industrial production, throughout the
period, improved across all our geographical markets as the global
economy recovered from the adverse effects of the COVID-19
pandemic, supported by both local vaccination programmes and
sizeable fiscal stimulus packages. IP growth was strong in both our
mature and developing markets in the first half even though most
countries continue to suffer the effects of COVID-19.
IP Performance 1H 2021 IP Performance 1H 2020
Europe, Middle East
& Africa +10% -9%
----------------------- -----------------------
of which, Europe +13% -12%
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North America +7% -9%
----------------------- -----------------------
Latin America +14% -10%
----------------------- -----------------------
Asia Pacific +14% -3%
----------------------- -----------------------
of which, China +16% -2%
----------------------- -----------------------
Forecasters(1) predict global IP will grow between 8% and 9% in
2021, which is also in line with forecasts at the time of our AGM
Trading Update in May. Growth in the second half of 2021 is
forecasted to slow to 6% reflecting the stronger level of IP in the
second half of 2020, when most markets began to recover from low
points driven by COVID-19 in the second quarter of 2020.
With the huge task ahead to complete the global vaccination
programme for COVID-19, as well as the possibility of new variants
of the virus emerging, some of the restrictions placed on normal
trading activities are likely to persist. It is plausible that we
may face further disruption to global supply chains which means
growth forecasts may be subject to revisions over the coming
months.
[1] Source for industrial production data: Oxford Economics,
July 2021.
PROGRESS IN THE HALF YEAR
Managing the 'new normal'
Our teams quickly adapted to the constraints caused by the
COVID-19 pandemic and are operating effectively. Our direct sales
and service engineers have continued to embrace virtual meeting
tools to engage with customers and self-generate sales, while in
some countries beginning to increase their in-person visits to
customers. Our manufacturing facilities have remained open, are
COVID-19 safe and are operating to meet demand. Teams that were
previously office-based have been working flexibly and effectively
from home, using digital technology to maintain close contact with
colleagues and customers.
Meeting strong demand growth
Across our Group, we have experienced strong growth in demand,
driven by a recovery in IP and the ongoing production of COVID-19
vaccines. Our businesses have responded well to meet this demand
growth, leveraging our flexibility to increase capacity. This has
included measures such as, increasing our number of manufacturing
shifts, additional recruitment, relocating warehousing to newly
leased facilities to enable increased manufacturing footprint,
investing in capacity expansion through new equipment and expanding
our supply chain.
The growth in demand has been felt most keenly within
Watson-Marlow, particularly at our BioPure and Falmouth sites.
During the second half of this year, we expect capacity to increase
at our existing BioPure site by 50% and by over 20% at our Falmouth
factory, when compared to the first half.
Despite the disruptive effects of COVID-19 on global supply
chains, leading to an escalation in raw material and freight costs,
we are working closely with our suppliers to meet our customers'
needs. In the first six months of the year, cost escalation has
remained within our expectations and is reflected in our price
management.
Implementing our strategy
Investing in our direct sales and service teams
During the first six months of the year, we have continued to
expand our global presence, adding over 60 new sales and service
personnel across our Group and opening two new operating companies
in France (Gestra) and the Czech Republic (Watson-Marlow). We
stepped up the investment in the training and continuous
development of our sales and service engineers, quadrupling our
training hours in the first half of 2021, compared to the same
period of 2020, as we focused on embedding new skills and
developing their knowledge of our evolving products and solutions.
This was made possible by adapting our delivery of training, using
digital technologies and utilising the time saved by our engineers
as a result of reduced travel.
We are investing in digital solutions to support our engineers'
engagement with customers and to identify opportunities for
self-generated sales. In June, we appointed a Group Digital
Director to oversee and accelerate the implementation of our
digital programmes across our Group.
Investing in the development of new products and solutions
Throughout the pandemic, we have continued to invest in the
development of new products to anticipate our customers' changing
needs, while maintaining and enhancing our competitive
position.
In March, we confirmed that we are developing synergies within
our thermal energy management portfolio, combining core
capabilities from our Steam Specialties and Electric Thermal
Solutions businesses, with the aim of helping our customers
mitigate the impact of their operations on the environment. In
July, our 'Thermal Solutions Synergy' team successfully installed
and started-up for customer trials the first steam thermal energy
storage system, which acts as a thermal energy 'battery'. We also
engineered a second system for installation and start-up in 2022,
while prototypes of different scales have been built and are being
tested.
As part of our work to develop innovative solutions for the
decarbonisation of steam generation, the Thermal Solutions Synergy
team is also currently developing and testing a retrofit system
that allows for the in-place conversion, with minimal disruption,
of fossil-fuel-fired industrial steam boilers into electric steam
boilers. This unique solution has both a lower cost and quicker
installation compared to a full boiler replacement. Most
importantly, when coupled with renewable power generation sources,
the system eliminates scopes 1 & 2 carbon emissions from the
steam generation process, improving the sustainability of our
customers' operations.
We have also maintained momentum with multiple new product and
solution offerings launched across the Group in the first half of
this year. Watson-Marlow has also re-organised its global product
development organisation in order to flex resources in line with
growing customer requirements and demand, as well as improving
collaboration and consistency. Electric Thermal Solutions is
working as a heating technology partner with several large Energy
Storage solution providers, which includes the engineering of a
full-scale commercial thermal energy storage system.
Investing in our manufacturing capabilities
We are making good progress with our planned investments.
Watson-Marlow's new Biopure UK manufacturing facility is on track
for first customer deliveries in Q1 2022. In the USA, plans for
Watson-Marlow's state-of-the-art manufacturing facility in
Massachusetts are well advanced. The build phase of the 12,800m(2)
facility is due to commence later this year and first customer
deliveries are expected by the end of 2022. In France, work to
bring together Thermocoax's four manufacturing facilities in
Normandy and integrate these within a new purpose-build facility,
is on track for completion by the end of this year. We expect some
escalation in expenditure for these projects, due to the sharp cost
inflation of raw materials and commodities within the construction
sector. Nevertheless, our capital expenditure guidance for 2021
remains unchanged and we anticipate the overall return of these
investments will not be materially affected as demand for the
products manufactured in these facilities is also rising above
initial expectations.
In Steam Specialties, we implemented a re-organisation of our
global supply sites, effective 1(st) January, which has brought the
11 supply companies together for the first time under the
leadership of a new Divisional Director. This restructuring is
enabling increased opportunities for collaboration, improved focus
and supply chain optimisation. A key activity this year has been
the acceleration of planned investments in our 'future factory'
modernisation programme. This includes the upgrade and replacement
of equipment as well as the introduction of new technologies, such
as increased automation along our manufacturing assembly lines.
Across our Group, we measure our customer service levels using
on-time-to-request (OTTR) or on-time-to-commitment (OTTC) metrics.
In the first half of this year, we have been able to maintain high
levels of customer service despite experiencing exceptional demand
from customers, as well as disruptions along our global supply
chains.
Investing in our sustainable future
Our responsible business foundations are fundamental to the way
in which we operate and include Health & Safety, People &
Wellbeing, Inclusion & Diversity and Ethical Business
Practices. During the first half of this year, we have maintained
our focus in all of these areas.
Health & Safety
We strive for excellence in Health & Safety and have a
target of zero accidents across the Group. One of the initiatives
we have in place to support this target is our behavioural based
safety (BBS) programme, which is having a positive impact with a
50% reduction in lost time accidents achieved in the first half of
2021, compared to the same period last year. Our leading
indicators, such as near misses, reported safety concerns and
training hours are performing ahead of their targets and are
improving on prior year. We also deployed updated Group COVID-19
Minimum Standards as a framework for our operating companies to
follow, ensuring the health and wellbeing of our colleagues and
their families remains our priority.
People & Wellbeing
In April, we tested the strength of our employee value
propositions by undertaking our third global employee survey. 91%
of our colleagues across the Group took the time to share valuable
insights with us, marking the highest level of participation
achieved since launching our first survey in 2017. We were pleased
to perform above the global benchmark on overall employee
engagement and to see a positive progression across all dimensions
compared to our 2019 survey. Earlier, in February, we undertook a
shorter 'wellbeing check-in' with all our global colleagues. This
offered us some good insights on the topics our colleagues wanted
help with and led to the development of a Wellbeing Toolkit,
distributed in 14 different languages.
Inclusion & Diversity
We are focused on creating an inclusive and equitable working
culture where our people can be themselves, their diversity is
valued and they can achieve their full potential. We achieved
significant progress developing a roadmap for how we will continue
to achieve this ambition and our plan for an inclusive, equitable
and healthy future for all our employees will be launched later
this year. This will include a series of pledges to help shape the
difference we can make for our people and communities by working
together and with our selected partners.
We have made good progress towards balancing gender
representation across our Group, but we recognise we still have
more to do in this area. At the end of June, women accounted for
45% of our Board, 31% of our senior leadership (Group Executive
Committee and their direct reports), and over half of our global
graduate programme. As part of our commitment to improve ethnic
diversity and race equity across our Group, we signed up to Change
the Race Ratio campaign in June, consistent with our commitment to
increasing the racial and ethnic diversity of our Board and senior
leadership.
Risk & Governance
At the start of 2021, we introduced new mandatory guidelines for
the completion of our minimum online training requirements,
applicable to new joiners as well as existing employees, to ensure
all our teams are aware of what is expected of them and to help our
colleagues stay vigilant to threats such as cyber-crime and fraud.
A fraud risk workshop and fraud risk assessment were completed in
the first half of 2021 with several actions identified to enhance
our existing controls, as part of our internal programme to
strengthen our controls framework. This assessment will be
refreshed annually as part of our continuous improvement activity.
All colleagues have access to a local, independent, third-party
whistle-blowing hotline through which they can confidentially raise
any concerns.
Refreshing our Sustainability strategy
New targets to accelerate sustainable performance
Our purpose is to create sustainable value for all our
stakeholders as we engineer a more efficient, safer and sustainable
world. With this comes a responsibility to preserve and protect
natural resources, to support people and the planet by operating
responsibly and helping our customers and suppliers to do the
same.
Our refreshed Sustainability strategy One Planet: Engineering
with Purpose is our commitment to sustainability, as well as our
roadmap to building a more sustainable future. Launched in June
2021, this Group strategy was developed with input from more than
600 people, including external advisors. It is evidence-based and
focuses on critical activities that will have meaningful impact for
us and all our stakeholders.
The four strategic sustainability objectives launched within our
refreshed Sustainability strategy are aligned to the UN Sustainable
Development Goals and aim to deliver climate and environmental
action, customer sustainability, resilient supply chains and
stronger communities. These will be achieved through six strategic
initiatives. Each initiative has a Group Executive Committee
sponsor, a dedicated initiative-lead and a cross-business working
group to ensure progress. Charters have been developed for each
initiative, together with clear commitments and targets, which
include but are not limited to:
1. Achieve net zero greenhouse gas emissions by 2030 (Scopes 1 &2).
We have brought forward our previous net zero goal by ten years
and set additional climate-related goals for 2030, including 100%
of electricity to be sourced or self-generated from renewable
sources and 100% of our vehicle fleet to be electric. We are
working with a carbon accounting consultancy to help us to quantify
our Scope 3 emissions and establish a Scope 3 reduction target.
2. Deliver biodiversity net gain.
We aim to protect and restore biodiversity, through offsetting
our operational footprint as well as implementing biodiversity
improvements, to deliver a 10% net gain on our operational
footprint by 2025.
3. Implement environmental improvements in our operations.
We have set ourselves environmental targets to protect our
planet's critical resources, which include:
-- Sending zero waste to landfill by 2025 and reducing waste generation
by 10%
-- Reducing water use by 15%
-- Attaining ISO14001 accreditation at all manufacturing sites
and phasing out the use of solvent-based paints
4. Grow sales of products with quantified sustainability benefits.
We aim to achieve sustainable sales growth, which includes
understanding the whole life cycle impacts of our products, grow
sales of solutions with quantifiable sustainability benefits to
customers and eliminate all virgin, non-recyclable or
non-biodegradable packaging by 2025.
5. Embed sustainability criteria in supply chain management.
We will embed additional sustainability criteria into our supply
chain management and further develop our oversight of supplier
sustainability, utilising a supplier-monitoring platform. Our aim
is to engage with all potentially high-risk suppliers and introduce
sustainability auditing to achieve 100% of potentially high-risk
suppliers confirmed as compliant by 2030. We will also work with
suppliers to drive improvements in our supply chains, such as
reducing our Scope 3 carbon emissions.
6. Support the wellbeing of people in our communities.
We are establishing a GBP5 million education fund to support
inclusive access to education. This commitment is in addition to
the donations we make through our Group Charitable Fund, as well as
the GBP2 million we have also pledged to donate by 2025 to good
causes through our Group operating companies, whether in cash or
in-kind. We are encouraging and supporting our colleagues around
the globe to play their part in making a difference by using at
least one of their three days of paid volunteering leave each year
to achieve 150,000 hours of employee volunteering by 2025.
To deliver on our targets and accelerate our sustainability
performance we have created 21 new sustainability roles across our
Group so far this year. We also demonstrated our commitment to
protecting nature, people and planet by signing up in support of
the Terra Carta from HRH the Prince of Wales' Sustainable Markets
Initiative. In June, to coincide with World Environment Day, we
held a global internal launch for our refreshed Sustainability
strategy to engage our colleagues around the world so that they can
also play their part in making our One Planet strategy a
success.
Refreshing our Steam Specialties' strategy
Steam Specialties launched its refreshed strategy - Customer
first (2) ('Customer first squared') - in June 2021, through a
global event attended by more than 500 leaders across the business.
The strategy builds on the existing Customer first strategy that
has been in place since 2014 and maintains its focus on
prioritising attractive growth sectors and value-based selling to
deliver total customer solutions. Building upon customer insights,
Customer first (2) further embeds sustainability and digital as
well as innovation and inclusivity within its eight strategic
initiatives. These initiatives will support the Steam Specialties
business to continue driving self-generated growth by strengthening
customer bonding, as well as to leverage global 'megatrends' such
as decarbonisation, the drive for greater efficiency, demographic
and social changes, resource scarcity and technological
breakthroughs.
Financial Performance
Sales
Group sales increased by 13% in the first half of the year to
GBP643.7 million (2020: GBP569.7 million), up 17% on an organic
basis. Currency movements had a 4% negative effect on sales,
compared with the same period in 2020.
Our Steam Specialties business, comprising Spirax Sarco and
Gestra and accounting for 56% of Group sales, delivered 9% sales
growth, up 13% organically. Compared with the same period in 2020,
sales were higher in all three divisions of Europe, Middle East and
Africa (EMEA), Asia Pacific and the Americas. Steam Specialties
ended the first half with a higher order book than normal, driven
by a strong intake of smaller project-related orders in the second
quarter.
Sales in our Electric Thermal Solutions business, comprising
Chromalox and Thermocoax, accounted for 14% of Group sales and were
up 6% organically. However, due to a strong currency headwind
reported sales are flat. Order intake remained strong and ahead of
sales as market conditions improved, with increasing demand for our
engineered solutions contributing to underpin growth and leading to
another strong order book expansion.
Watson-Marlow sales grew 29% and 35% organically to account for
30% of Group sales, driven by the exceptional COVID-19 vaccine
related demand and the strong IP recovery. Sales to the
Pharmaceutical & Biotechnology sector grew by over 45% with the
sector accounting for close to 60% of Watson-Marlow sales in the
first half of the year, while sales to the Process Industries and
Medical Device sectors were ahead of IP growth. Watson-Marlow also
ended the first half with a significantly higher-than-normal order
book as many customers, especially in the Pharmaceutical &
Biotechnology sector, placed orders earlier than usual fearing
global supply chain constraints.
Adjusted operating profit
Group adjusted operating profit increased 37% to GBP162.9
million (2020: GBP119.0 million). The adjusted operating profit
increased 42% organically, ahead of our initial expectations as the
step up of revenue investments in support of growth occurred at a
lower rate than originally planned. Currency movements reduced the
Group adjusted operating profit by 4%, due to translation and
transaction effects.
In the Steam Specialties business, adjusted operating profit of
GBP89.8 million increased 32% (2020: GBP68.0 million). Growth on an
organic basis was 36% and exceeded 30% in each of the EMEA, Asia
Pacific and Americas divisions.
The Electric Thermal Solutions business also delivered strong
growth in adjusted operating profit, up 19% to GBP11.2 million
(2020: GBP9.4 million). Organically, adjusted operating profit grew
by 32%, as a strong currency headwind, primarily from the
strengthening of sterling against the US dollar, reduced profit by
10%.
Watson--Marlow's adjusted operating profit increased 47% to
GBP71.3 million (2020: GBP48.6 million), an outstanding 51%
increase on an organic basis.
Adjusted operating profit margin
In the first half of 2021, the lower-than-planned step up of
revenue investments enhanced the operational gearing resulting from
strong sales growth and resulted in an extraordinary increase of
440 bps in the Group's adjusted operating margin to 25.3%. On an
organic basis, the Group's adjusted operating margin increased by
440 bps, with strong margin expansion across all three
businesses.
Within the Steam Specialties business, the adjusted operating
profit margin grew 430 bps to 24.8% and was also up 430 bps on an
organic basis, with strong margin growth achieved across each of
EMEA, Asia Pacific and the Americas.
The adjusted operating profit margin for the Electric Thermal
Solutions business was up 200 bps to 12.6%, with growth in both
Chromalox and Thermocoax. Organically, the margin expanded 250 bps
and was partially offset by a 50 bps currency headwind.
Watson-Marlow's adjusted operating profit margin was very
strong, up 440 bps to 37.0%, driven by organic sales growth of 35%.
On an organic basis, margin increased by 400 bps.
Statutory operating profit and margin
Statutory operating profit increased 39% to GBP153.6 million
(2020: GBP110.8 million) and the statutory operating profit margin
increased from 19.4% to 23.9%, broadly in line with the adjusted
operating profit margin increase.
Financing expense
Net financing expense fell to GBP3.6 million (2020: GBP4.4
million), comprising GBP2.3 million of bank interest (2020: GBP3.1
million), GBP0.8 million of interest on net pension liabilities
(2020: GBP0.7 million) and GBP0.5 million of interest on lease
liabilities (2020: GBP0.6 million).
Net bank interest was lower due to increased interest income on
cash holdings, which more than offset increased interest expense
resulting from the issuance of a private placement bond in Q2 2020.
We anticipate that the net financing expense in the second half of
the year will be broadly similar to the first half.
The Group adjusted profit before tax was GBP159.3 million, 39%
ahead of the prior year (2020: GBP114.5 million). The profit before
tax on a statutory basis was GBP150.0 million, up 41% on 2020
(GBP106.3 million). The reconciling items between the adjusted
profit before tax and the statutory profit before tax are shown in
Note 2. In the first half of 2021 the reconciling items related to
the amortisation of acquisition-related intangible assets and the
closure of defined benefit pension scheme to future accrual.
Taxation
The Group adjusted effective tax rate, which is based on the
expected full year rate, has decreased slightly to 27.0%, in line
with prior guidance, compared with the full year 2020 (27.5%).
The effective tax rate on statutory profit decreased slightly to
27.4% (2020: 27.7%) due to the release of a deferred tax asset
following the closure of the German defined benefit pension scheme
to future accrual.
In April 2019, the European Commission's investigation into the
UK's Controlled Foreign Company regime concluded that certain
aspects constituted State Aid. The UK tax authority was therefore
required to recover the benefit from affected taxpayers and
Charging Notices for GBP4.9 million were received and paid during
the first half. The Group has appealed the Charging Notices and
expects this amount to be repayable in full, if successful, and
therefore has recognised this as a receivable on the Balance
Sheet.
Earnings per share
Adjusted basic earnings per share grew by 41% to 157.6 pence
(2020: 111.6 pence), marginally ahead of the increase in adjusted
operating profit due to the slight reduction in the effective tax
rate during the first half of the year. Basic earnings per share on
a statutory basis was 147.6 pence (2020: 104.2 pence). The fully
diluted earnings per share were not materially different in either
year.
Dividends
The Board has declared an interim dividend of 38.5 pence (2020:
33.5 pence) per ordinary share, an increase of 15%. This growth in
the interim dividend follows an increase of 7% in the total
dividend in respect of 2020. The dividend will be paid on 12(th)
November 2021 to shareholders on the register at the close of
business on 14(th) October 2021. The final dividend of 84.5 pence
per share in respect of 2020 was paid on 21(st) May 2021 at a cash
cost of GBP62.3 million.
Financial Position and Cash Flow
Capital employed (Note 2) increased to GBP600.3 million at
30(th) June 2021. In the first half , our capital expenditure was
GBP22.2 million and we expect expenditure for the full year to be
between 5% and 6% of sales, as we accelerate investment in the
second half on new production facilities for Watson-Marlow and on
projects such as OPAL, our ERP project in Steam Specialties.
Tangible fixed assets (PPE and IFRS 16 right-of-use-assets)
decreased by GBP5 million to GBP292.6 million, as capital
investment in the first half was broadly offset by
depreciation.
The ratio of working capital to sales (at constant currency)
reduced by 140 bps to 21.5% (2020: 22.9%). Going forward, we
anticipate maintaining a similar percentage of working capital to
sales.
Cash generation was strong throughout the period, with adjusted
cash from operations of GBP139.1 million (2020: GBP102.2 million),
an improvement of GBP36.9 million, representing cash conversion of
85% (2020: 86%). Adjusted cash from operations is a measure of the
cash flow generated from our companies which reflects the
components within the control of local management. A reconciliation
between this and statutory operating cash flow can be found in Note
2 to the Financial Statements.
Tax paid in the period increased by GBP11.1 million to GBP41.2
million in line with the increase in profitability during 2021 and
the closure of certain COVID-19 related government tax deferral
schemes.
Free cash flow increased to GBP95.1 million (2020: GBP68.4
million) principally as a result of improved adjusted operating
profit.
Dividend payments were GBP62.6 million (2020: GBP57.8 million)
including payments to minorities.
Share purchases net of new shares issued for the Group's various
employee share schemes resulted in a cash outflow of GBP11.8
million (2020: GBP3.0 million) reflecting the acquisition of shares
through the market rather than the issue of new equity.
The net post-retirement benefit liability under IAS 19 decreased
to GBP52.6 million (2020: GBP98.6 million). The fair value of
assets remained broadly unchanged from 31(st) December 2020 and
liabilities were lower by GBP44.4 million, a 7% reduction, largely
due to an increase in AA corporate bond rates. During the period
the defined benefit scheme in Germany was closed to future accrual,
effective from 1(st) January 2021, resulting in a GBP2.0 million
credit to the Income Statement (Note 2).
At 30(th) June 2021, net debt (excluding leases) was GBP193
million, a net debt to EBITDA ratio of 0.6 times, compared with net
debt of GBP229 million at 31(st) December 2020.
Adjusted cash flow 30(th) June 30(th) June
2021 2020
GBPm GBPm
------------
Adjusted operating profit 162.9 119.0
Depreciation and amortisation (excluding
IFRS 16) 17.8 18.0
Depreciation of leased assets 5.7 6.0
Cash payments to pension schemes more than
the charge to adjusted operating profit (2.4) (1.3)
Equity-settled share plans 4.8 2.8
Working capital changes (22.6) (12.6)
Repayments of principal under lease liability (5.7) (5.9)
Capital additions (including software and
development) (22.2) (25.3)
Capital disposals 0.8 1.5
Adjusted cash from operations 139.1 102.2
----------------------------------------------- ------------ ------------
Net interest (2.8) (3.7)
Income taxes paid (41.2) (30.1)
Adjusted free cash flow 95.1 68.4
----------------------------------------------- ------------ ------------
Net dividends paid (62.6) (57.8)
Purchase of employee benefit trust shares (11.8) (3.0)
Acquisitions of subsidiaries (including
costs) - (5.1)
Cash flow for the period 20.7 2.5
----------------------------------------------- ------------ ------------
Exchange movements 15.3 (33.3)
Opening net debt (228.8) (295.2)
----------------------------------------------- ------------ ------------
Net debt at 30(th) June (excluding IFRS
16) (Note 2) (192.8) (326.0)
----------------------------------------------- ------------ ------------
IFRS 16 lease liability (32.4) (37.2)
----------------------------------------------- ------------ ------------
Net debt and lease liability at 30(th) June
(Note 2) (225.2) (363.2)
----------------------------------------------- ------------ ------------
The Group's Income Statement and Statement of Financial Position
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 companies. 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, Danish krone, Singapore dollar, Chinese
renminbi and Korean won. While currency effects can be significant,
the structure of the Group provides some mitigation through our
regional manufacturing presence, diverse spread of geographic
locations and through the natural hedge of having a high proportion
of our overhead costs in the local currencies of our direct sales
operating companies.
In April 2021, the IFRS Interpretations Committee issued a final
agenda decision relating to accounting for configuration and
customisation costs in cloud computing arrangements. While a
detailed assessment of the implication for the Group is currently
ongoing, the value of intangible assets at 30(th) June 2021 that
may be impacted is not material. The impact assessment will be
completed during the second half, the results of which will be
recognised in the year-end consolidated financial statements.
OUTLOOK
Since the start of the year, forecasts for global IP growth in
2021 have been revised steadily upwards. In recent months, these
forecasts have moderated slightly and stabilised between 8% and 9%,
while remaining contingent on the successful roll-out of
vaccination programmes across the world and assuming no emergence
of new virus variants against which the available vaccines would be
materially less effective.
During the first half of the year, sterling has continued to
strengthen against our basket of trading currencies. If current
exchange rates were to prevail for the remainder of the year there
would be a less than 4% adverse impact on sales from translation
and a more than 4% adverse impact on profit from translation and
transaction, compared with the full year 2020.
Sales for the Group in the first half were in line with our
expectations at the time of our AGM Trading Update in May.
Furthermore, all three businesses ended the first half with
higher-than-normal order books reflecting the usual lag between the
strong recovery in orders and shipment to customers. Each business
continues to focus on addressing their specific constraints to
further expand capacity, in order to meet the challenge of
increased shipment levels for the remainder of the year. Our
expectation for Watson-Marlow's full year organic growth in sales
to the Pharmaceutical & Biotechnology sector remains unchanged
at over 55% due to continuing strong COVID-19 related demand. We
continue to anticipate the Group's other revenue streams will
deliver organic sales growth in 2021 above the current forecast for
global IP growth and therefore our expectations for full-year
revenues remain unchanged.
Our businesses responded quickly and effectively to the higher
level of demand experienced in the first half, meeting our
customers' needs while carefully managing the additional
operational costs incurred in expanding capacity. The
higher-than-anticipated adjusted operating margin in the first
half, was a result of strong operational performance and does not
yet reflect the full cost impact of the increased revenue
investments. We intend to further accelerate these revenue
investments in the second half of the year, including in corporate
expenses. These investments will be more heavily weighted towards
the second half of the year, mitigating the positive operational
gearing from higher second half sales. Therefore we now anticipate
a similar second half operating margin to that achieved in the
first half of the year.
We anticipate that cash conversion will be close to 80% as we
step up capital investments and increase working capital in line
with revenue.
CORPORATE GOVERNANCE
On 31(st) July 2021, Dr Trudy Schoolenberg stood down from the
Board after completing nine years as a Director. Trudy served as a
member of the Audit, Remuneration and Nominations Committees and
held the position of Senior Independent Director since 2019. On
behalf of our Shareholders, the Board acknowledges with gratitude
Trudy's significant contribution to the Group's growth and
prosperity over the last nine years.
The Board was pleased to welcome Richard Gillingwater as an
Independent Non-Executive Director on 9(th) March 2021. Richard
succeeded Trudy as Senior Independent Director on 1(st) August
2021.
PRINCIPAL RISKS AND UNCERTAINTIES
The Group has processes in place to identify, evaluate and
mitigate the principal risks that could have an adverse impact on
the Group's performance. The principal risks, together with a brief
description of why they are relevant, are set out below. Details of
how we mitigate risk are included in the Group's 2020 Annual Report
on pages 62 to 65. The Risk Management Committee keeps these risks
under continuous review and in the first half of the year they are
unchanged, remaining representative of the current position and
relevant for the second half of the year.
Economic and political instability
The Group operates worldwide and maintains operations in
territories that have historically experienced economic or
political instability. This type of instability, which includes the
uncertainties of regime change, creates risks for our locally based
direct operations and broader risks to credit, liquidity and
currency.
Significant exchange rate movements
The Group reports its results and pays dividends in sterling.
Operating and manufacturing companies trade principally in local
currency. With sales companies and manufacturing spread across the
globe, the nature of the Group's business necessarily results in
exposure to exchange rate volatility.
Cybersecurity
Cybersecurity risks include risks from malware, accident,
statutory and legislative requirements, malicious actions and other
unauthorised access by third parties.
Failure to realise acquisition objectives
Whilst the Group mitigates this risk in various ways, including
through comprehensive due diligence, professional advisers and
contractual protections, amongst others, there are some variables
that are uncontrollable or difficult to control, such as economic
conditions, culture clashes and employee movement. Therefore, these
could adversely affect acquisition objectives.
Loss of manufacturing output at any Group factory
The risk includes loss of output resulting from natural
disasters, industrial action, accidents or any other cause. Loss of
manufacturing output at any important plant risks serious
disruption to sales operations.
Breach of legal and regulatory requirements (including
Anti-bribery and Corruption laws)
We operate globally and must ensure compliance with laws and
regulations wherever we do business. As we grow into new markets
and territories, we must continually review and update our
operating procedures, and ensure our colleagues are fully informed
and educated in all applicable legal requirements. This is
particularly important with respect to anti-bribery and corruption
(ABC) legislation. Breaching any of these laws or regulations could
have serious consequences for the Group.
Inability to identify and respond to changes in customer
needs
This risk could lead to a loss of business resulting from a
failure to respond rapidly to changes in the needs of customers or
technology shifts.
Solution specification failure
This risk relates to loss of output at a customer plant due to
an underperforming solution engineered by our company, potentially
leading to customer product contamination and/or loss of
manufacturing output and thereby contractual liability and loss of
sales.
OPERATING REVIEW
STEAM SPECIALTIES
HY 2020 Exchange Organic Acquisitions HY 2021 Organic Reported
& disposals
Revenue GBP331.7m (GBP10.2m) GBP40.4m - GBP361.9m +13% +9%
---------- ----------- --------- ------------- ---------- -------- ---------
Adjusted operating
profit GBP68.0m (GBP2.1m) GBP23.9m - GBP89.8m +36% +32%
---------- ----------- --------- ------------- ---------- -------- ---------
Adjusted operating +430 +430
profit margin 20.5% 24.8% bps bps
---------- ----------- --------- ------------- ---------- -------- ---------
Statutory operating
profit GBP73.9m GBP89.8m +22%
---------- ----------- --------- ------------- ---------- -------- ---------
Statutory operating +250
profit margin 22.3% 24.8% bps
---------- ----------- --------- ------------- ---------- -------- ---------
Market overview
Global Industrial Production grew 11% in the first half of 2021,
more than recovering the 7% contraction suffered in the same period
of 2020.
In Europe, Middle East and Africa IP grew 10% in the first half
of 2021, following a 9% contraction during the same period of 2020.
Across our larger markets in the region, the UK and Germany both
grew 9% with France and Italy achieving stronger double-digit
growth of 12% and 21% respectively.
In Asia Pacific, IP grew 14% in the first half of 2021, which
compares to a contraction of only 3% during the same period in
2020. China, our largest market in the region, experienced strong
double-digit IP growth of 16%, which reflects the earlier impact of
COVID-19 on the Chinese economy as the virus spread from East to
West, as well as an earlier and swifter recovery.
After a weak first quarter, IP in North America bounced back in
the second quarter achieving 7% growth for the first half of 2021.
Despite being one of the regions where countries continue to suffer
very significantly from the effects of COVID-19, Latin America
achieved strong IP growth of 14% in the first half.
Progress in the half year
While the pace of recovery has varied, demand has been growing
across our markets, partly driven by an acceleration in customer
spending as they return to regular maintenance regimes and seek to
satisfy high demand for their own products and services.
Steam Specialties sales of GBP361.9 million were up 9% or 13% up
organically, while adjusted operating profit of GBP89.8 million was
up 32% or 36% up organically, due to a negative currency impact. At
24.8%, the adjusted operating profit margin was up 430 bps on a
reported and organic basis. Statutory operating profit of GBP89.8
million was up 22% from GBP73.9 million in the first half of
2021.
Divisional Performance
HY 2020 Exchange Organic Acquisitions HY 2021 Organic Reported
& disposals
Europe, Middle East and Africa (EMEA)
Revenue GBP152.3m (GBP1.3m) GBP15.5m - GBP166.5m +10% +9%
---------- ---------- --------- ------------- ---------- -------- ---------
Adjusted operating
profit GBP25.9m - GBP10.6m - GBP36.5m +41% +41%
---------- ---------- --------- ------------- ---------- -------- ---------
Adjusted operating +480 +490
profit margin 17.0% 21.9% bps bps
---------- ---------- --------- ------------- ---------- -------- ---------
Statutory operating
profit GBP32.5m GBP36.6m +13%
---------- ---------- --------- ------------- ---------- -------- ---------
Statutory operating
profit margin 21.3% 22.0% +70 bps
---------- ---------- --------- ------------- ---------- -------- ---------
Asia Pacific
Revenue GBP105.4m (GBP1.0m) GBP15.6m - GBP120.0m +15% +14%
---------- ---------- --------- ------------- ---------- -------- ---------
Adjusted operating
profit GBP28.4m - GBP9.1m - GBP37.5m +32% +32%
---------- ---------- --------- ------------- ---------- -------- ---------
Adjusted operating +400 +440
profit margin 26.9% 31.3% bps bps
---------- ---------- --------- ------------- ---------- -------- ---------
Statutory operating
profit GBP28.4m GBP37.5m +32%
---------- ---------- --------- ------------- ---------- -------- ---------
Statutory operating +440
profit margin 26.9% 31.3% bps
---------- ---------- --------- ------------- ---------- -------- ---------
The Americas
Revenue GBP74.0m (GBP7.9m) GBP9.3m - GBP75.4m +14% +2%
---------- ---------- --------- ------------- ---------- -------- ---------
Adjusted operating
profit GBP13.7m (GBP2.1m) GBP4.2m - GBP15.8m +36% +15%
---------- ---------- --------- ------------- ---------- -------- ---------
Adjusted operating +340 +250
profit margin 18.5% 21.0% bps bps
---------- ---------- --------- ------------- ---------- -------- ---------
Statutory operating
profit GBP13.0m GBP15.7m +21%
---------- ---------- --------- ------------- ---------- -------- ---------
Statutory operating +320
profit margin 17.6% 20.8% bps
---------- ---------- --------- ------------- ---------- -------- ---------
In EMEA, sales were up 9% to GBP166.5 million or 10% up on an
organic basis. The main European operations in the UK, Italy,
France, Benelux and Spain achieved strong organic growth despite
on-going movement constraints imposed by COVID-19. South Africa and
the Middle East also achieved strong organic growth.
In Asia Pacific, sales were up 14% to GBP120.0 million or 15% up
on an organic basis. Sales growth in China was exceptional, driven
by strong demand from smaller projects with a value of less than
GBP200,000 while demand from 'mega projects' (orders larger than
GBP2 million), that are driven by the customers' capital
expenditure budgets, remain below pre-pandemic levels. The lagged
recovery in 'mega projects' has, as expected, impacted our sales in
Korea which remain lower than in the same period of 2020.
In the Americas, sales were up 2% to GBP75.4 million or 14% up
on an organic basis. The larger currency headwind in this region is
due to stronger movements of the US dollar and some of the main
Latin American currencies. The USA, Canada, Brazil and Argentina
achieved strong organic growth despite many countries across the
region still suffering the impacts of COVID-19.
Business strategy update
Steam Specialties launched its refreshed strategy, Customer
first (2) , in June 2021, through a global event attended by more
than 500 leaders across the business. The strategy builds on the
existing Customer first strategy that has been in place since 2014
and maintains its focus on prioritising attractive growth sectors
and value-based selling towards a total customer solution. It
builds upon customer insights and further embeds sustainability,
innovation, digital and inclusivity within eight strategic
initiatives. These initiatives will support Steam Specialties to
continue driving self-generated growth through strengthened
customer bonding, as well as to leverage global 'megatrends' such
as decarbonisation, the drive for greater efficiency, demographic
and social changes, resource scarcity and technological
breakthroughs.
During the first half of the year, Steam Specialties stepped-up
revenue investments to underpin future organic growth and operating
margins, including expansion of our sales-related headcount,
investment in new product development and our digital initiatives,
as well as increasing our sustainability-related headcount to
deliver our One Planet: Engineering with Purpose strategy. These
investments are consistent with our Customer first2 strategy with
further expenditure planned for the second half.
In January, Gestra France began trading in line with the
geographical expansion commitment set out within our acquisition
strategy. Spirax Sarco is also planning further investment in the
second half, expanding our direct sales force in the Middle East
and across Africa.
Steam Specialties released multiple new product offerings in the
first half of the year that support the efficient use and control
of steam. This included the next phase of the Gestra Boiler House
control range for Spirax Sarco sales channels and the M16i OEM Ball
Valve range for the rapidly growing OEM market in China.
We have introduced a range of valve positioners, used widely in
our solutions and packages across all sectors, as well as a
controls system upgrade for the Spirax Sarco EasiHeat(TM) Compact
Heat Transfer Solutions, offering improved energy efficiency over
previous product generations.
Technology from our product brand Hiter, which is based in
Brazil and was acquired by Spirax Sarco in 2016, has been used for
the first time in a global product range of Variable Area
Desuperheaters, which help customers in the efficient use and
control of superheated steam.
Steam Specialties maintained momentum on the implementation of
its 'OPAL' programme, initiated in 2019, which incorporates ERP
(Enterprise Resource Planning), CRM (Customer Relationship
Management), CPQ (Configure, Price, Quote) and BI (Business
Intelligence) modules. Following the 'go live' in Norway, Sweden,
Finland and Denmark in 2020 with the sales suite of platforms, we
are on target to achieve 'go live' in Argentina in Q3 2021 with the
common Spirax Sarco manufacturing platform. In tandem, we are also
further developing the model for larger sites, which is expected to
complete in 2022, followed by global implementation of the standard
solution. This new integrated system is set to improve operational
effectiveness and deliver improved customer focus and insight, as
well as effective strategic account management, rapid quoting and
processing, further improving our delivery performance and customer
experience.
Our On-Time-To-Request (OTTR) customer service measure remained
above 90% in the first half, despite the significant increase in
demand and supply chain disruptions.
Outlook
We anticipate Steam Specialties organic sales growth in 2021 to
be strongly above current forecasts for global IP growth of between
8% and 9%, driven by a strong recovery in base business and smaller
self-generated projects, most of which are funded from customers'
operational budgets, which strongly expanded the order book in the
first half of the year. A step-up in our revenue investments in the
second half, as well as the full cost impact of revenues
investments carried out in the first half, are expected to offset
the benefits of operational gearing from higher organic sales,
resulting in a broadly flat margin in the second half of the year,
compared to the first half.
Simplification of Reporting for Steam Specialties
Following the creation of Electric Thermal Solutions in 2019,
resulting from the acquisitions of Chromalox and Thermocoax, our
Group segmental reporting includes three businesses: Steam
Specialties, Electric Thermal Solutions and Watson-Marlow, as well
as three separate geographical divisions within Steam Specialties:
EMEA, Asia Pacific and the Americas. Recognising the higher
proportion of Group sales now accounted for by Watson-Marlow and
Electric Thermal Solutions and in order to align with our Group
management structure, we intend to simplify the disclosure for
Steam Specialties, reporting as a single business to provide more
balanced, relevant and appropriate information across our three
businesses. We will continue to include geographic commentary in
providing context and insight into the performance of each of our
three businesses. This approach will be fully adopted for the
period ending 31(st) December 2021.
ELECTRIC THERMAL SOLUTIONS
HY 2020 Exchange Organic Acquisitions HY 2021 Organic Reported
& disposals
Revenue GBP88.9m (GBP5.1m) GBP5.1m - GBP88.9m +6% -
---------- ---------- -------- ------------- --------------- -------- ---------
Adjusted operating
profit GBP9.4m (GBP0.9m) GBP2.7m - GBP11.2m +32% +19%
---------- ---------- -------- ------------- --------------- -------- ---------
Adjusted operating +250 +200
profit margin 10.6% 12.6% bps bps
---------- ---------- -------- ------------- --------------- -------- ---------
Statutory operating
(loss) / profit (GBP3.1m) GBP4.5m +245%
---------- ---------- -------- ------------- --------------- -------- ---------
Statutory operating +860
profit margin -3.5% 5.1% bps
---------- ---------- -------- ------------- --------------- -------- ---------
Market overview
With two-thirds of its revenue generated in North America and
less than 10% generated in Asia Pacific, the geographical footprint
of the Electric Thermal Solutions (ETS) business, which comprises
Chromalox and Thermocoax, is different to that of Steam Specialties
and Watson-Marlow. It also has a greater weighting of sales to the
Oil & Gas, Power Generation and Semiconductor sectors and a
lower weighting to the Food & Beverage and Pharmaceutical &
Biotechnology sectors.
In North America, IP growth was at 7% for the first half of
2021, lower than EMEA at 10% and below global IP at 11%.
While the Oil & Gas industry has experienced muted growth
(3%), some sectors have experienced strong growth, such as
Semiconductor (15%) and Power Generation, which includes Nuclear,
(5%).
Progress in the first half
Electric Thermal Solutions sales were up 6% organically but
broadly flat at GBP88.9 million on a reported basis, with the
difference due to a strong currency headwind. Organic sales growth
was in-line with IP growth in North America, as the region started
to recover from a COVID-19 related low point in the second quarter
of 2020. Encouragingly, the orders growth rate surpassed the
organic sales growth in ETS, as well as the orders growth rate in
Steam Specialties, with increasing demand for our engineered
solutions contributing to underpin growth and leading to another
strong order book expansion.
Chromalox, which accounts for three-quarters of ETS revenue,
generates 75% of its revenue in North America where the IP recovery
and increasing demand for our engineered solutions has supported
strong orders growth from base business (funded from customers'
operational budgets) and project activity. Thermocoax has
benefitted from increased demand in nuclear power generation,
especially in the Asia Pacific region and the European Fusion
Reactor project, with some timelines being accelerated. In the
Semiconductor market, sales into the niche and stable sectors of
ALD (atomic layer deposition) and lithography applications
continued to grow following the strong performance in 2020, albeit
at a lower rate.
ETS is experiencing strong interest for its solutions in
electrification, decarbonisation and sustainability, which remain
important future growth drivers. During the first half, we
accelerated the Thermal Solutions Synergy project between ETS and
Steam Specialties, uncovering additional exciting growth
opportunities and seeking to bring these solutions to market
sooner.
The adjusted operating profit was up 32% on an organic basis and
19% up to GBP11.2 million on a reported basis, as improved margins
in both Chromalox and Thermocoax from continued efficiency
improvements added to the benefits of operating leverage from
higher sales. At 12.6% the adjusted operating profit margin was up
200 bps and 250 bps up on an organic basis.
Statutory operating profit of GBP4.5 million improved from a
statutory operating profit loss of GBP3.1 million in the first half
of 2020.
Business strategy update
ETS carried out a strategy refresh during 2020 resulting in the
launch of our Engineering Premium Solutions strategy. An important
component of this strategy is the drive towards total customer
solutions and during the first half of the year we strengthened our
business development function, with increased focus on new product
innovation with demonstrable technological advantages and
quantified sustainability benefits.
ETS is the process heating technology partner for several large
Energy Storage solutions providers. We are engineering a full-scale
commercial thermal energy storage system utilising more than 30MW
of electric process heating for a major European renewable energy
company. Additionally, we are working with a leading power company
in the USA to develop a 5MW molten salt storage system for a new
type of highly efficient power cycle. Chromalox's DirectConnect
Medium Voltage technology provides the innovative step necessary to
enable a grid-scale thermal energy storage system to operate
effectively.
In February 2020, construction commenced on a new manufacturing
and office facility in Normandy, France, to integrate Thermocoax's
four existing manufacturing sites into a new purpose-built
facility. The project is progressing well and is on track to
complete by the end of this year.
In ETS, Chromalox is fully utilising its virtual and visual
assets to provide a rich and immersive experience for our direct
sales teams and end-user customers. Basic and advanced training
programmes have been supplemented with factory tour videos, visual
product depictions and 'how-to' tutorials which help our teams be
more effective in engaging customers virtually. We are also
empowering customers directly, by demonstrating our product use
cases, especially in focus sectors and developing technologies such
as decarbonisation.
Outlook
Industrial production is forecasted to continue recovering in
ETS' core markets in 2021, with over 6% growth in North America and
between 8% and 9% growth on a global basis. We experienced a strong
build-up of the order book in the first half of the year as many
ETS products have longer lead times of around four to nine months
to ship. This higher-than-normal order book combined with the
scheduled shipment of some large projects, such as the US Navy
order booked in Q4 2020, means that revenue growth will be more
weighted to the second half of the year. We therefore anticipate
organic sales growth in 2021 to be in line with current forecasted
global IP growth and expect remaining shipments of large orders in
the second half to add a further GBP4 million to sales.
Continued efficiency improvements, operational gearing from the
strong sales growth in Chromalox and sustained good performance
from Thermocoax, is anticipated to strongly improve the second half
margin, resulting in adjusted operating profit expanding, on an
organic basis, by almost twice the rate of the 2021 organic revenue
growth.
WATSON-MARLOW
HY 2020 Exchange Organic Acquisitions HY 2021 Organic Reported
& disposals
Revenue GBP149.1m (GBP5.9m) GBP49.7m - GBP192.9m +35% +29%
---------- ---------- --------- ------------- ---------- -------- ---------
Adjusted operating
profit GBP48.6m (GBP1.4m) GBP24.1m - GBP71.3m +51% +47%
---------- ---------- --------- ------------- ---------- -------- ---------
Adjusted operating +400 +440
profit margin 32.6% 37.0% bps bps
---------- ---------- --------- ------------- ---------- -------- ---------
Statutory operating
profit GBP47.0m GBP68.7m +46%
---------- ---------- --------- ------------- ---------- -------- ---------
Statutory operating +410
profit margin 31.5% 35.6% bps
---------- ---------- --------- ------------- ---------- -------- ---------
Market overview
The Pharmaceutical & Biotechnology sector, which accounted
for over 55% of Watson-Marlow sales in 2020, has historically grown
at an annual rate of between 12% and 14%, while Watson-Marlow's
sales to this sector have historically grown up to 20% per annum.
During the first half of the year, the sector continued to
experience exceptional growth given the industry's role in the
development and production of COVID-19 vaccines.
Additionally, Watson-Marlow also benefitted from the strong
recovery in global industrial production through its sales to the
Process Industries and Medical Device sectors. However,
Watson-Marlow sales carry a higher weighting in EMEA and the
Americas and a lower weighting in Asia Pacific than the Steam
Specialties business.
Progress in the first half
Watson-Marlow sales were up 29% to GBP192.9 million on a
reported basis, or 35% up on an organic basis, with strong
contributions from all geographic divisions.
During the first half of this year, we have continued to see
exceptional demand from the Pharmaceutical & Biotechnology
sector for Watson-Marlow pumping solutions and single-use
technologies, boosted by the ongoing production ramp-up to deliver
COVID-19 vaccines.
The Process Industries and Medical Device sectors, which
accounted for close to 45% of Watson-Marlow sales in 2020 also
delivered strong sales growth, comfortably outperforming the growth
in global IP and achieving strong sales growth to the Food &
Beverage and Mining sectors. In North America, sales to the Water
& Wastewater sector were impacted by a public funding slowdown
and a challenging comparison to the same period of 2020.
Watson-Marlow's adjusted operating profit was up 47% to a record
GBP71.3 million. Organically, adjusted operating profit was up 51%
with the currency headwind reflecting the strength of sterling and
the significant manufacturing footprint we have in the UK. At an
extraordinary 37.0%, the adjusted operating profit margin was up
440 bps or 400 bps up on an organic basis. The increase in profit
reflects the significant sales growth and benefits of operational
gearing, partially offset by the growing investments in capacity
expansions to meet the higher level of demand. Watson-Marlow has
also continued to invest in new product development, expansion of
direct sales and central support functions.
Statutory operating profit was up 46% from GBP47.0 million in
the first half of 2020 to GBP68.7 million.
Business strategy update
Many of our customers are playing a critical role on the front
line of the COVID-19 pandemic and they rely on our products and
services during this time. It has been essential for
Watson-Marlow's supply locations to remain fully operational and
for our engineers to remain available.
While the use of digital channels has enabled us to maintain
close contact with our customers, we have been able to start
increasing our on-site visits where COVID-19 measures allow. We
have also recruited more than 50 people in direct sales and sales
support during the first half, with more recruitment planned for
the second half, supporting our continued growth and serving the
needs of our customers. As part of our continued focus on
geographic expansion, we also opened a new operating company, in
the Czech Republic, which began trading at the start of 2021.
In response to exceptional demand, we have increased both short
and long-term capacity at our Biopure, Falmouth Pumps, Falmouth
Tubing and Flexicon sites. A new building close to our UK
manufacturing site in Falmouth was leased to relocate warehousing
and new product development activities. This has freed up space for
manufacturing expansion within our current site to meet the
increased demand. During the third quarter, a third tubing line and
associated clean room will become operational. We are also
investing in increased cell capacity for pump assembly and
recruitment of direct and indirect labour in order to move to 24/7
operation. During the second half of this year, we expect output at
our existing Falmouth factories to increase by over 20% and by 50%
at our BioPure site, compared to the first half of this year.
Construction of the new Biopure site at Dunsbury Park in
Plymouth (UK) is progressing well and is on schedule to deliver to
customers from the first quarter of 2022. In the USA, plans for our
state-of-the-art manufacturing facility in Massachusetts are well
advanced. The build phase of the 12,800m(2) facility is due to
commence later this year and first customer deliveries are expected
by the end of 2022. We expect to see some escalation in expenditure
for these projects, due to the sharp inflation of costs for raw
materials and commodities within the construction sector.
We have continued to invest in our people, quadrupling our
training hours in the first half of 2021 compared to the same
period of 2020. The focus has been on the implementation of our
refreshed strategy launched during 2020, 'Strategy25', and
Behaviour Based Safety (BBS) training.
Watson-Marlow also launched multiple new products in the first
half of the year. The Qdos CWT was launched to the wider market
following a soft launch in mid-2020. This product features a
revolutionary new pump head utilising Conveying Wave Technology
(CWT), the ReNu 30 CWT, which fits onto our existing range of
Watson-Marlow Qdos pumps. The new patented-technology pump head
delivers superior accuracy and chemical resistance for metering and
dosing applications, establishing the next level of high
performance for our industry. An evolution in long-life chemical
metering, it expands our addressable market downstream into sectors
requiring higher flow, pressure and enhanced chemical
resistance.
The Flexicon PF7+, a peristaltic filling machine for high
accuracy aseptic filling in critical applications for zero waste,
as well as a new grade of Biopure tubing for transfer applications,
were both launched to the Pharmaceutical and Biotechnology
market.
Thin-walled Watson-Marlow TPU tubing for handling Aliphatic
hydrocarbons aimed at the Industrial and Food & Beverage
sectors, as well as the Watson-Marlow Maxthane FDA and EC1935 food
grade tubing for the Food & Beverage sector were also launched
during this period.
The New Product Development (NPD) organisation has been
reorganised to align all design and engineering from across the
portfolio within the Business Development Division. This change
provides a strong operational focus to the NPD processes and
enables the team to flex resources in line with customer
requirements and demand, as well as improving collaboration and
consistency across product brands.
Outlook
During the second half of this year, we anticipate a
continuation of strong COVID-19 related demand as well as growth in
our Process Industries and Medical Device sectors. Combined with a
higher-than-normal order book at the end of the first half of the
year, we anticipate over 55% organic sales growth to the
Pharmaceutical & Biotechnology sector in the full year 2021,
compared to 2020, as well as organic sales growth strongly above
global IP for the Process Industries and Medical Device
sectors.
Increased operational costs, the full impact of revenue
investments carried out in the first half of the year and the
additional revenue investments planned for the second half of the
year, will offset the operational gearing benefits from higher
second half sales. We therefore anticipate a similar adjusted
operating profit margin in the second half of this year, compared
to the first half.
INDEPENT REVIEW REPORT TO SPIRAX-SARCO ENGINEERING PLC
We have been engaged by the Company to review the condensed set
of Financial Statements in the Half Year Financial Report for the
six months ended 30(th) June 2021, which comprises the Condensed
Consolidated Statement of Financial Position, the Condensed
Consolidated Income Statement, the Condensed Consolidated Statement
of Comprehensive Income, the Condensed Consolidated Statement of
Changes in Equity, the Condensed Consolidated Statement of Cash
Flows and related Notes 1 to 13. We have read the other information
contained in the Half Year Financial Report and considered whether
it contains any apparent misstatements or material inconsistencies
with the information in the condensed set of Financial
Statements.
Directors' responsibilities
The Half Year Financial Report is the responsibility of, and has
been approved by, the Directors. The Directors are responsible for
preparing the Half Year Financial Report in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in Note 1, the annual Financial Statements of the
Group are prepared in accordance with United Kingdom adopted
International Financial Reporting Standards (IFRS). The condensed
set of Financial Statements included in this Half Year Financial
Report has been prepared in accordance with United Kingdom adopted
International Accounting Standard 34 'Interim Financial
Reporting'.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of Financial Statements in the Half Year
Financial Report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of Financial Statements
in the Half Year Financial Report for the six months ended 30(th)
June 2021 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Use of our Report
This Report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
'Review of Interim Financial Information Performed by the
Independent Auditor of the Entity' issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the Company those matters we are required to state to it
in an Independent Review Report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company, for our review
work, for this Report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor, London, United Kingdom
10(th) August 2021
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Notes 30(th) 30(th) 31(st) December
June June 2020
2021 2020 GBPm
GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------------------------- ------ ------------ ------------ ----------------
ASSETS
Non-current assets
Property, plant and equipment 257.9 267.3 261.3
Right-of-use assets 34.7 39.1 36.3
Goodwill 411.6 444.1 422.4
Other intangible assets 265.8 303.9 280.3
Prepayments 2.0 1.6 1.4
Investment in Associate - 0.1 -
Taxation recoverable 4.9 - -
Deferred tax assets 41.6 47.6 50.9
----------------------------------------- ------ ------------ ------------ ----------------
1,018.5 1,103.7 1,052.6
----------------------------------------- ------ ------------ ------------ ----------------
Current assets
Inventories 182.8 202.3 180.1
Trade receivables 236.1 222.5 226.3
Other current assets 43.6 41.1 31.8
Taxation recoverable 7.9 7.7 8.1
Cash and cash equivalents 9 253.6 320.0 246.2
----------------------------------------- ------ ------------ ------------ ----------------
724.0 793.6 692.5
----------------------------------------- ------ ------------ ------------ ----------------
Total assets 1,742.5 1,897.3 1,745.1
----------------------------------------- ------ ------------ ------------ ----------------
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables 171.4 153.3 160.2
Provisions 4.9 5.8 6.1
Bank overdrafts 9 46.9 154.3 22.2
Current portion of long-term borrowings 9 103.7 0.4 0.6
Short-term lease liabilities 9 10.1 10.6 10.3
Current tax payable 33.0 27.6 28.6
----------------------------------------- ------ ------------ ------------ ----------------
370.0 352.0 228.0
----------------------------------------- ------ ------------ ------------ ----------------
Net current assets 354.0 441.6 464.5
----------------------------------------- ------ ------------ ------------ ----------------
Non-current liabilities
Long-term borrowings 9 295.8 491.3 452.2
Long-term lease liabilities 9 22.3 26.6 23.8
Deferred tax liabilities 76.5 85.6 79.4
Post-retirement benefits 8 52.6 94.9 98.6
Provisions 1.5 1.5 2.0
Long-term payables 5.3 4.0 5.1
----------------------------------------- ------ ------------ ------------ ----------------
454.0 703.9 661.1
----------------------------------------- ------ ------------ ------------ ----------------
Total liabilities 824.0 1,055.9 889.1
----------------------------------------- ------ ------------ ------------ ----------------
Net assets 918.5 841.4 856.0
----------------------------------------- ------ ------------ ------------ ----------------
Equity
Share capital 19.8 19.9 19.8
Share premium account 85.0 81.4 84.8
Other reserves (47.8) 17.8 (36.1)
Retained earnings 860.7 721.4 786.5
----------------------------------------- ------ ------------ ------------ ----------------
Equity shareholders' funds 917.7 840.5 855.0
Non-controlling interest 0.8 0.9 1.0
----------------------------------------- ------ ------------ ------------ ----------------
Total equity 918.5 841.4 856.0
----------------------------------------- ------ ------------ ------------ ----------------
Total equity and liabilities 1,742.5 1,897.3 1,745.1
----------------------------------------- ------ ------------ ------------ ----------------
CONDENSED CONSOLIDATED INCOME STATEMENT
Six months to 30(th) Six months to 30 Year ended 31(st)
June 2021 (th) June 2020 December 2020
Adjusted Adj't Total Adjusted Adj't Total Adjusted Adj't Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (audited) (audited) ( audited
)
----------------- ------------ ------------ -------------- ------------ ------------ ------------ ---------- ---------- ----------
Revenue (Note
3) 643.7 - 643.7 569.7 - 569.7 1,193.4 - 1,193.4
Operating
costs (480.8) (9.3) (490.1) (450.7) (8.2) (458.9) (923.0) (21.4) (944.4)
----------------- ------------ ------------ -------------- ------------ ------------ ------------ ---------- ---------- ----------
Operating
profit (Note
2/3) 162.9 (9.3) 153.6 119.0 (8.2) 110.8 270.4 (21.4) 249.0
----------------- ------------ ------------ -------------- ------------ ------------ ------------ ---------- ---------- ----------
Financial
expenses (5.0) - (5.0) (4.9) - (4.9) (10.1) - (10.1)
Financial
income 1.4 - 1.4 0.5 - 0.5 1.4 - 1.4
----------------- ------------ ------------ -------------- ------------ ------------ ------------ ---------- ---------- ----------
Net financing
expense (Note
4) (3.6) - (3.6) (4.4) - (4.4) (8.7) - (8.7)
----------------- ------------ ------------ -------------- ------------ ------------ ------------ ---------- ---------- ----------
Share of
(loss)/profit
of Associate - - - (0.1) - (0.1) (0.2) - (0.2)
----------------- ------------ ------------ -------------- ------------ ------------ ------------ ---------- ---------- ----------
Profit before
taxation 159.3 (9.3) 150.0 114.5 (8.2) 106.3 261.5 (21.4) 240.1
----------------- ------------ ------------ -------------- ------------ ------------ ------------ ---------- ---------- ----------
Taxation (Note
5) (43.0) 1.9 (41.1) (32.1) 2.7 (29.4) (72.0) 5.8 (66.2)
----------------- ------------ ------------ -------------- ------------ ------------ ------------ ---------- ---------- ----------
Profit for
the period 116.3 (7.4) 108.9 82.4 (5.5) 76.9 189.5 (15.6) 173.9
----------------- ------------ ------------ -------------- ------------ ------------ ------------ ---------- ---------- ----------
Attributable
to:
Equity
shareholders 116.2 (7.4) 108.8 82.2 (5.5) 76.7 189.2 (15.6) 173.6
Non-controlling
interest 0.1 - 0.1 0.2 - 0.2 0.3 - 0.3
----------------- ------------ ------------ -------------- ------------ ------------ ------------ ---------- ---------- ----------
Profit for
the period 116.3 (7.4) 108.9 82.4 (5.5) 76.9 189.5 (15.6) 173.9
----------------- ------------ ------------ -------------- ------------ ------------ ------------ ---------- ---------- ----------
Earnings per
share
Basic earnings
per share
(Note 2/6) 157.6p 147.6p 111.6p 104.2p 256.6p 235.5p
Diluted earnings
per share
(Note 2/6) 157.3p 147.3p 111.4p 103.9p 255.8p 234.8p
----------------- ------------ ------------ -------------- ------------ ------------ ------------ ---------- ---------- ----------
Dividends
Dividends
per share
(Note 7) 38.5p 33.5p 118.0p
----------------- ------------ ------------ -------------- ------------ ------------ ------------ ---------- ---------- ----------
Dividends
paid (per
share) (Note
7) 84.5p 78.0p 111.5p
----------------- ------------ ------------ -------------- ------------ ------------ ------------ ---------- ---------- ----------
Adjusted figures exclude certain items as detailed in Notes 2
and 3. All amounts relate to continuing operations. The Notes on
pages 29 to 44 form an integral part of the Interim Condensed
Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2020
2021 2020 GBPm
GBPm GBPm
(unaudited) (unaudited) (audited)
---------------------------------------------- ------------ ------------ -----------------
Profit for the period 108.9 76.9 173.9
---------------------------------------------- ------------ ------------ -----------------
Items that will not be reclassified
to profit or loss:
Remeasurement gain/(loss) on post-retirement
benefits 40.4 (31.7) (40.2)
Deferred tax on remeasurement (gain)/loss
on post-retirement benefits (7.2) 6.0 8.2
---------------------------------------------- ------------ ------------ -----------------
33.2 (25.7) (32.0)
---------------------------------------------- ------------ ------------ -----------------
Items that may be reclassified subsequently
to profit or loss:
Exchange (loss)/gain on translation
of foreign operations and net investment
hedges (10.7) 41.4 (24.5)
Profit/(loss) on cash flow hedges
net of tax 0.8 (6.5) (0.7)
---------------------------------------------- ------------ ------------ -----------------
(9.9) 34.9 (25.2)
---------------------------------------------- ------------ ------------ -----------------
Total comprehensive income for the
period 132.2 86.1 116.7
---------------------------------------------- ------------ ------------ -----------------
Attributable to:
Equity shareholders 132.1 85.9 116.4
Non-controlling interest 0.1 0.2 0.3
---------------------------------------------- ------------ ------------ -----------------
Total comprehensive income for the
period 132.2 86.1 116.7
---------------------------------------------- ------------ ------------ -----------------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period ended Share Equity Non-controlling
30(th) June 2021 premium shareholders' interest
funds
(unaudited) Share account Other Retained GBPm GBPm Total
capital earnings equity
GBPm GBPm reserves GBPm GBPm
GBPm
----------------------- ---------- --------- ----------- ----------- --------------- ---------------- ---------
Balance at 1(st)
January
2021 19.8 84.8 (36.1) 786.5 855.0 1.0 856.0
----------------------- ---------- --------- ----------- ----------- --------------- ---------------- ---------
Profit for the period - - - 108.8 108.8 0.1 108.9
----------------------- ---------- --------- ----------- ----------- --------------- ---------------- ---------
Other comprehensive
(expense)/income:
Exchange loss on
translation
of foreign operations
and net investment
hedges - - (10.7) - (10.7) - (10.7)
Remeasurement gain on
post-retirement
benefits - - - 40.4 40.4 - 40.4
Deferred tax on
remeasurement
gain on
post-retirement
benefits - - - (7.2) (7.2) - (7.2)
Gain on cash flow
hedge
reserve - - 0.8 - 0.8 - 0.8
----------------------- ---------- --------- ----------- ----------- --------------- ---------------- ---------
Total other
comprehensive
(expense)/income for
the period - - (9.9) 33.2 23.3 - 23.3
----------------------- ---------- --------- ----------- ----------- --------------- ---------------- ---------
Total comprehensive
(expense)/income for
the period - - (9.9) 142.0 132.1 0.1 132.2
----------------------- ---------- --------- ----------- ----------- --------------- ---------------- ---------
Contributions by and
distributions to
owners
of the Company:
Dividends paid - - - (62.3) (62.3) (0.3) (62.6)
Equity-settled share
plans net of tax - - - (5.5) (5.5) - (5.5)
Issue of share capital - 0.2 - - 0.2 - 0.2
Employee Benefit Trust
shares - - (1.8) - (1.8) - (1.8)
Balance at 30(th) June
2021 19.8 85.0 (47.8) 860.7 917.7 0.8 918.5
----------------------- ---------- --------- ----------- ----------- --------------- ---------------- ---------
Other reserves represent the Group's translation, net investment
hedge, 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.
For the period ended Share Equity Non-controlling
30(th) June 2020 premium shareholders' interest
funds
(unaudited) Share account Other Retained GBPm GBPm Total
capital earnings equity
GBPm GBPm reserves GBPm GBPm
GBPm
----------------------- ---------- --------- ----------- ----------- --------------- ---------------- ---------
Balance at 1(st)
January
2020 19.8 81.0 (10.6) 735.1 825.3 1.0 826.3
----------------------- ---------- --------- ----------- ----------- --------------- ---------------- ---------
Profit for the period - - - 76.7 76.7 0.2 76.9
----------------------- ---------- --------- ----------- ----------- --------------- ---------------- ---------
Other comprehensive
income/(expense):
Exchange gain on
translation
of foreign operations
and net investment
hedges - - 41.4 - 41.4 - 41.4
Remeasurement loss on
post-retirement
benefits - - - (31.7) (31.7) - (31.7)
Deferred tax on
remeasurement
loss on
post-retirement
benefits - - - 6.0 6.0 - 6.0
Loss on cash flow
hedge
reserve - - (6.5) - (6.5) - (6.5)
----------------------- ---------- --------- ----------- ----------- --------------- ---------------- ---------
Total other
comprehensive
income/(expense) for
the period - - 34.9 (25.7) 9.2 - 9.2
----------------------- ---------- --------- ----------- ----------- --------------- ---------------- ---------
Total comprehensive
income for the period - - 34.9 51.0 85.9 0.2 86.1
----------------------- ---------- --------- ----------- ----------- --------------- ---------------- ---------
Contributions by and
distributions to
owners
of the Company:
Dividends paid - - - (57.5) (57.5) (0.3) (57.8)
Equity-settled share
plans net of tax - - - (7.2) (7.2) - (7.2)
Issue of share capital 0.1 0.4 - - 0.5 - 0.5
Employee Benefit Trust
shares - - (6.5) - (6.5) - (6.5)
Balance at 30(th) June
2020 19.9 81.4 17.8 721.4 840.5 0.9 841.4
----------------------- ---------- --------- ----------- ----------- --------------- ---------------- ---------
For the year ended Share Share Other Retained Equity shareholders' Non- controlling Total
31(st) December 2020 funds interest
(audited) Capital Premium reserves Earnings GBPm GBPm Equity
account
GBPm GBPm GBPm GBPm GBPm
--------------------------- -------- -------- --------- --------- -------------------- ---------------- -------
Balance at 1(st) January
2020 19.8 81.0 (10.6) 735.1 825.3 1.0 826.3
--------------------------- -------- -------- --------- --------- -------------------- ---------------- -------
Profit for the year 173.6 173.6 0.3 173.9
Other comprehensive
(expense)/income:
Exchange loss on
translation
of foreign operations
and net investment
hedges - - (24.5) - (24.5) - (24.5)
Remeasurement loss
on post-retirement
benefits - - - (40.2) (40.2) - (40.2)
Deferred tax on
remeasurement
loss on post-retirement
benefits - - - 8.2 8.2 - 8.2
Loss on cash flow hedge
reserve - - (0.7) - (0.7) - (0.7)
--------------------------- -------- -------- --------- --------- -------------------- ---------------- -------
Total other comprehensive
expense for the year - - (25.2) (32.0) (57.2) - (57.2)
--------------------------- -------- -------- --------- --------- -------------------- ---------------- -------
Total comprehensive
(expense)/income for
the year - - (25.2) 141.6 116.4 0.3 116.7
--------------------------- -------- -------- --------- --------- -------------------- ---------------- -------
Contributions by and
distributions to owners
of the Company:
Dividends paid - - - (82.2) (82.2) (0.3) (82.5)
Equity settled share
plans net of tax - - - (8.0) (8.0) - (8.0)
Issue of share capital - 3.8 - - 3.8 - 3.8
Employee Benefit Trust
shares - - (0.3) - (0.3) - (0.3)
Balance at 31(st) December
2020 19.8 84.8 (36.1) 786.5 855.0 1.0 856.0
--------------------------- -------- -------- --------- --------- -------------------- ---------------- -------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Notes Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2020
2021 2020 GBPm
GBPm GBPm
(unaudited) (unaudited) (audited)
--------------------------------------- ------ ------------ ------------ -----------------
Cash flows from operating activities
Profit before taxation 150.0 106.3 240.1
Depreciation, amortisation and
impairment 35.3 37.7 75.4
Profit on disposal of fixed
assets (0.5) (0.3) (0.3)
Loss on disposal of subsidiary - 0.3 0.4
Reversal of acquisition-related
fair value adjustments to inventory - 1.0 1.0
Cash payments to the pension
schemes greater than the charge
to operating profit (4.4) (11.9) (14.7)
Equity-settled share plans 4.8 2.8 7.0
Net finance expense 3.6 4.4 8.7
--------------------------------------- ------ ------------ ------------ -----------------
Operating cash flow before changes
in working capital and provisions 188.8 140.3 317.6
Change in trade and other receivables (28.8) 21.0 15.1
Change in inventories (7.0) (9.7) 3.8
Change in provisions (1.4) 2.3 3.3
Change in trade and other payables 14.6 (22.3) (8.7)
--------------------------------------- ------ ------------ ------------ -----------------
Cash generated from operations 166.2 131.6 331.1
Income taxes paid (41.2) (30.1) (71.9)
--------------------------------------- ------ ------------ ------------ -----------------
Net cash from operating activities 125.0 101.5 259.2
--------------------------------------- ------ ------------ ------------ -----------------
Cash flows from investing activities
Purchase of property, plant
and equipment (18.9) (21.7) (42.0)
Proceeds from sale of property,
plant and equipment 0.8 1.8 2.2
Purchase of software and other
intangibles (2.1) (2.2) (4.9)
Development expenditure capitalised (1.2) (1.4) (2.7)
Disposal of subsidiary - (0.3) (0.3)
Acquisition of businesses net
of cash acquired - (4.8) (4.8)
Interest received 1.4 0.5 1.4
--------------------------------------- ------ ------------ ------------ -----------------
Net cash used in investing activities (20.0) (28.1) (51.1)
--------------------------------------- ------ ------------ ------------ -----------------
Cash flows from financing activities
Proceeds from issue of share
capital 0.2 0.2 2.0
Employee Benefit Trust share
purchase (12.0) (3.2) (14.5)
Repaid borrowings 9 (34.8) (141.8) (175.0)
New borrowings 9 0.2 137.4 138.3
Interest paid including interest
on lease liabilities (4.2) (4.2) (8.6)
Repayment of lease liabilities 9 (5.7) (5.9) (12.2)
Dividends paid (including minorities) (62.6) (57.8) (82.5)
--------------------------------------- ------ ------------ ------------ -----------------
Net cash used in financing activities (118.9) (75.3) (152.5)
--------------------------------------- ------ ------------ ------------ -----------------
Net change in cash and cash
equivalents 9 (13.9) (1.9) 55.6
Net cash and cash equivalents
at beginning of period 9 224.0 168.3 168.3
Exchange movement 9 (3.4) (0.7) 0.1
--------------------------------------- ------ ------------ ------------ -----------------
Net cash and cash equivalents
at end of period 9 206.7 165.7 224.0
--------------------------------------- ------ ------------ ------------ -----------------
Borrowings 9 (399.5) (491.7) (452.8)
--------------------------------------- ------ ------------ ------------ -----------------
Net debt at the end of the period 9 (192.8) (326.0) (228.8)
--------------------------------------- ------ ------------ ------------ -----------------
Lease liabilities (32.4) (37.2) (34.1)
--------------------------------------- ------ ------------ ------------ -----------------
Net debt and lease liabilities
at end of period (225.2) (363.2) (262.9)
--------------------------------------- ------ ------------ ------------ -----------------
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
Spirax-Sarco Engineering plc is a company domiciled in the UK.
The Condensed Consolidated Interim Financial Statements of
Spirax-Sarco Engineering plc and its subsidiaries (the Group) for
the six months ended 30(th) June 2021 have been prepared in
accordance with United Kingdom adopted International Financial
Reporting Standard IAS 34 (Interim Financial Reporting). The
accounting policies applied are consistent with those set out in
the Spirax-Sarco Engineering plc 2020 Annual Report.
These Condensed Consolidated Interim Financial Statements do not
include all the information required for full annual statements and
should be read in conjunction with the 2020 Annual Report. The
comparative figures for the year ended 31(st) December 2020 do not
constitute the Group's statutory Financial Statements for that
financial year as defined in Section 434 of the Companies Act 2006.
The Financial Statements of the Group for the year ended 31(st)
December 2020 were prepared in accordance with International
Financial Reporting Standards (IFRS), as adopted by the European
Union. The statutory Consolidated Financial Statements for
Spirax-Sarco Engineering plc in respect of the year ended 31(st)
December 2020 have been reported on by the Company's auditor and
delivered to the registrar of companies. The report of the auditor
was (i) unqualified, (ii) did not include a reference to any
matters to which the auditor drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under Section 498 (2) or (3) of the Companies Act
2006.
The Consolidated Financial Statements of the Group in respect of
the year ended 31(st) December 2020 are available upon request from
Mr A. J. Robson, General Counsel and Company Secretary, Charlton
House, Cheltenham, Gloucestershire, GL53 8ER, United Kingdom or on
www.spiraxsarcoengineering.com .
The Condensed Consolidated Interim Financial Statements for the
six months ended 30(th) June 2021, which have been reviewed by the
auditor in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 'Review of Interim Financial
Information Performed by the Independent Auditor of the Entity'
issued by the Financial Reporting Council, were authorised by the
Board on 11(th) August 2021.
The Half Year Report and Interim Financial Statements (Half Year
Report) has been prepared solely to provide additional information
to shareholders as a body to assess the Group's strategies and the
potential for those strategies to succeed. This Half Year Report
should not be relied upon by any other party or for any other
purpose.
GOING CONCERN
Having made enquiries and reviewed the Group's plans and
available financial facilities, the Board has a reasonable
expectation that the Group has adequate resources to continue its
operational existence for at least 12 months from the date of
signing the 2021 Half Year Report. For this reason, it continues to
adopt the going concern basis in preparing the Condensed
Consolidated Interim Financial Statements.
The Directors have considered the impact of COVID-19 on our
businesses and on the health and wellbeing of our employees in the
Operating Review. The Group has prepared cash flow forecasts, which
reflect forecast changes in revenue and cash flows based on the
current economic environment.
Our financial position remains robust, with the Group holding
committed total debt facilities of GBP749 million at 30th June 2021
giving headroom in excess of GBP390 million. The earliest maturity
of any facility is not until March 2022 being EUR120 million due on
the EUR160 million Term Loan and which is accounted for within the
cash flow forecast. Committed facilities include a GBP350 million
RCF which was undrawn at 30th June 2021, with the maturity
successfully extended to May 2024 during the first half of the
year. The Group also has cash and cash equivalents of GBP253.6
million.
The debt facilities contain a leverage (net debt/EBITDA)
covenant of up to 3.5x. Certain debt facilities also contain an
interest cover (EBITDA/Net Finance Expense) covenant of a minimum
of 3.0x. The Group regularly monitors its financial position to
ensure that it remains within the terms of its banking covenants.
At 30th June 2021 leverage (defined as net debt divided by adjusted
earnings before interest, tax, depreciation and amortisation) was
0.6x (30th June 2020: 1.1x and 31st December 2020: 0.7x), showing a
continued reduction since the prior period. Interest cover (defined
as adjusted earnings before interest, tax, depreciation and
amortisation divided by net bank interest) was 79x at 30th June
2021 (30th June 2020: 44x and 31st December 2020: 51x).
The Group has prepared and reviewed the impact of a reasonably
possible worst-case scenario, representing a decline more severe
than that experienced by the Group in its recent history. Under
this scenario, which has been modelled up to December 2022, the
Group has access to sufficient liquidity within its committed debt
facilities and remains comfortably within associated financial
covenants. All debt repayments are forecast to be met without any
refinancing being required.
Reverse 'stress testing' was also performed to assess what level
of business under-performance would be required for a breach of the
financial covenants to occur, the results of which evidenced that
no reasonably possible change in future forecast cash flows would
cause a breach of these covenants. In addition, the reverse stress
test does not take into account any mitigating actions which the
Group would implement in the event of a severe and extended revenue
and profitability decline, which would increase the headroom
further. This assessment indicates that the Group can operate
within the level of its current committed facilities, as set out
above, without the need to obtain any new facilities for a period
of not less than 12 months from the date of this report.
NEW STANDARDS AND INTERPRETATIONS APPLIED FOR THE FIRST TIME
On 1(st) January 2021, the Group applied new or amended IFRS and
interpretations issued by the International Accounting Standards
Board (IASB) that are mandatorily effective for an accounting
period that begins on or after 1(st) January 2021. Their adoption
has not had a material impact on the Condensed Consolidated
Financial Statements.
The economy in Argentina remains subject to high inflation. At
30(th) June 2021 we have concluded that applying IAS 29 (Financial
Reporting in Hyperinflationary Economies) is not required as the
impact of adopting is not material. We will continue to assess the
position going forward.
NEW STANDARDS AND INTERPRETATIONS NOT YET APPLIED
At the date of approval of these Condensed Consolidated
Financial Statements, there were no new or revised IFRSs,
amendments or interpretations in issue but not yet effective that
are potentially material for the Group and which have not yet been
applied.
The Interest Rate Benchmark Reform Amendments Phase 2
(Amendments to IFRS 9, IAS 39 and IFRS 7) apply for the first time
in 2021. We do not have significant derivatives that refer to an
interest rate benchmark, so these amendments do not have a material
impact on the interim condensed consolidated financial statements
of the Group.
SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of Interim Financial Statements, in conformity
with adopted IFRS, requires management to make judgements,
estimates and assumptions that affect the application of accounting
policies and the reported amount of assets and liabilities, income
and expense. Actual results may differ from these estimates. In
preparing these Condensed Consolidated Interim Financial
Statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
Consolidated Financial Statements for the year ended 31(st)
December 2020.
CAUTIONARY STATEMENTS
This Half Year Report contains forward-looking statements. These
have been made by the Directors in good faith based on the
information available to them up to the time of their approval of
this Report. The Directors can give no assurance that these
expectations will prove to have been correct. Due to the inherent
uncertainties, including both economic and business risk factors
underlying such forward-looking information, actual results may
differ materially from those expressed or implied by these
forward-looking statements. The Directors undertake no obligation
to update any forward-looking statements, whether as a result of
new information, future events, or otherwise.
RESPONSIBILITY STATEMENT
T he Directors confirm that to the best of their knowledge:
-- This Condensed Consolidated set of Interim Financial Statements
has been prepared in accordance with IAS 34 (Interim Financial
Reporting), as adopted by the United Kingdom;
-- The interim management report includes a fair review of
the information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules,
being an indication of important events that have
occurred during the first six months of the financial
year and their impact on the Condensed Consolidated
Financial Statements, and a description of the principal
risks and uncertainties for the remaining six months
of the financial year.
b) DTR 4.2.8R of the Disclosure and Transparency Rules,
being related party transactions that have taken place
in the first six months of the current financial year
that have materially affected the financial position
or performance of the entity during that period, and
any changes in the related party transactions described
in the last Annual Report that could do so.
The Directors of Spirax-Sarco Engineering plc on 10(th) August
2021 are as listed in the 2020 Annual Report on pages 90 and 91,
with the exception of Richard Gillingwater, appointed on 9(th)
March 2021 and Trudy Schoolenberg who stepped down on 31 July 2021.
Richard Gillingwater has succeeded Trudy as Independent Senior
Director.
N. J. Anderson
Group Chief Executive
10(th) August 2021
N. B. Patel
Chief Financial Officer
10(th) August 2021
On behalf of the Board
2. ADJUSTED PERFORMANCE MEASURES
The Group reports under International Financial Reporting
Standards (IFRS) and also uses adjusted performance measures where
the Board believes that:
-- they help to effectively monitor the performance of the Group;
-- users of the Financial Statements might find them informative;
and
-- they act as an aid to comparison with our peers.
Certain adjusted performance measures also form a meaningful
element of Executive Directors' annual bonuses. A definition of the
adjusted performance measures and a reconciliation to the closest
IFRS equivalent are disclosed below.
Adjusted operating profit
Adjusted operating profit excludes items that are considered to
be significant in nature and/or quantum and where treatment as an
adjusted item provides stakeholders with additional useful
information to assess the period-on-period trading performance of
the Group and an aid to comparison with our peers. The Group
excludes such items, which management have defined as:
-- amortisation and impairment of acquisition-related intangible
assets;
-- impairment of goodwill;
-- costs associated with acquisition and disposal;
-- reversal of acquisition-related fair value adjustments to inventory;
-- changes in deferred consideration payable on acquisitions;
-- profit or loss on disposal of subsidiary;
-- significant restructuring costs;
-- foreign exchange gains and losses on borrowings;
-- significant profits or losses on disposal of property; and
-- significant plan amendments and/or legal rulings requiring
a past service cost or credit for post-retirement benefit plans.
A reconciliation between operating profit as reported under IFRS
and adjusted operating profit is given below.
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June 2021 June 2020 2020
GBPm GBPm GBPm
----------------------------------------------- ---------- ---------- ----------------
Operating profit as reported under IFRS 153.6 110.8 249.0
Amortisation of acquisition-related intangible
assets 11.3 13.4 26.6
Restructuring costs - 4.2 4.3
Reversal of acquisition-related fair value
adjustments to inventory - 1.0 1.0
Post-retirement benefit plans in the UK and
Canada being closed to future accrual - (10.4) (10.5)
Post-retirement benefit plans in Germany
being closed to future accrual (2.0) - -
Adjusted operating profit 162.9 119.0 270.4
----------------------------------------------- ---------- ---------- ----------------
Adjusted earnings per share
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June 2021 June 2020 2020
---------------------------------------------- ---------- ---------- ----------------
Profit for the period attributable to equity
holders as reported under IFRS (GBPm) 108.8 76.7 173.6
Items excluded from adjusted operating profit
disclosed above (GBPm) 9.3 8.2 21.4
Tax effects on adjusted items (GBPm) (1.9) (2.7) (5.8)
Adjusted profit for the period attributable
to equity holders (GBPm) 116.2 82.2 189.2
Weighted average shares in issue (million) 73.7 73.7 73.7
Basic adjusted earnings per share 157.6p 111.6p 256.6p
Diluted weighted average shares in issue
(million) 73.9 73.9 73.9
Diluted adjusted earnings per share 157.3p 111.4p 255.8p
---------------------------------------------- ---------- ---------- ----------------
Basic adjusted earnings per share is defined as adjusted profit
for the period attributable to equity holders divided by the
weighted average number of shares in issue. Diluted adjusted
earnings per share is defined as adjusted profit for the period
attributable to equity holders divided by the diluted weighted
average number of shares in issue.
Basic and diluted EPS calculated on an IFRS profit basis are
included in Note 6.
Adjusted cash flow
A reconciliation showing the items that bridge between net cash
from operating activities as reported under IFRS to adjusted cash
from operations is given below.
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June 2021 June 2020 2020
GBPm GBPm GBPm
------------------------------------------------ ---------- ----------- ----------------
Net cash from operating activities as reported
under IFRS 125.0 101.5 259.2
Restructuring costs - - 4.3
Net capital expenditure excluding acquired
intangibles from acquisitions (21.4) (23.5) (47.4)
Tax paid 41.2 30.1 71.9
Repayments of principal under lease liabilities (5.7) (5.9) (12.2)
Adjusted cash from operations 139.1 102.2 275.8
------------------------------------------------ ---------- ----------- ----------------
Adjusted cash conversion in the first half was 85% (2020: 86%).
Cash conversion is calculated as adjusted cash from operations
divided by adjusted operating profit. The adjusted cash flow is
included in the Operating Review on page 11
Capital employed
This is an important non-statutory measure that the Board uses
to help it effectively monitor the performance of the Group. More
information on Capital employed can be found in the Operating
Review on page 10.
An analysis of the components is as follows:
30th June 30th June 31(st) December
2021 2020 2020
GBPm GBPm GBPm
--------------------------------------------- ----------- ----------- ---------------
Property, plant and equipment 257.9 267.3 261.3
Right-of-use assets (IFRS 16) 34.7 39.1 36.3
Software & development costs 39.7 32.3 37.1
Non-current prepayments 2.0 1.6 1.4
Inventories 182.8 202.3 180.1
Trade receivables 236.1 222.5 226.3
Other current assets 43.6 41.1 31.8
Tax recoverable 12.8 7.7 8.1
Trade, other payables and current provisions (176.3) (159.1) (166.3)
Current tax payable (33.0) (27.6) (28.6)
Capital employed 600.3 627.2 587.5
--------------------------------------------- ----------- ----------- ---------------
A reconciliation of capital employed to net assets as reported
under IFRS and disclosed in the Consolidated Statement of Financial
Position is given below.
30(th) 30(th) 31(st) December
June 2021 June 2020 2020
GBPm GBPm GBPm
------------------------------------- ---------- ---------- ---------------
Capital employed 600.3 627.2 587.5
Goodwill and other intangible assets 637.7 715.7 665.6
Investment in Associate - 0.1 -
Post-retirement benefits (52.6) (94.9) (98.6)
Net deferred tax (34.9) (38.0) (28.5)
Non-current provisions and long-term
payables (6.8) (5.5) (7.1)
Lease liabilities (32.4) (37.2) (34.1)
Net debt (192.8) (326.0) (228.8)
------------------------------------- ---------- ---------- ---------------
Net assets as reported under IFRS 918.5 841.4 856.0
------------------------------------- ---------- ---------- ---------------
Net debt including IFRS 16
A reconciliation between net debt and net debt including IFRS 16
is given below. A breakdown of the balances that are included
within net debt is given in Note 9. Net debt excludes IFRS 16 lease
liabilities to enable comparability with prior years.
30(th) 30(th) 31(st) December
June 2021 June 2020 2020
GBPm GBPm GBPm
--------------------------------------- ---------- ---------- ---------------
Net debt 192.8 326.0 228.8
IFRS 16 lease liabilities 32.4 37.2 34.1
Net debt and IFRS 16 lease liabilities 225.2 363.2 262.9
--------------------------------------- ---------- ---------- ---------------
Earnings before interest, tax, depreciation and amortisation
(EBITDA)
EBITDA is calculated by adding back depreciation and
amortisation of property, plant and equipment, software and
development to adjusted operating profit. When calculated at a half
year it is based on the results for the last 12 months all
translated at the exchange rate used for the half year period.
Net debt to EBITDA
To assess the size of the net debt balance relative to the size
of the earnings for the Group, we analyse net debt as a proportion
of EBITDA. Net debt is calculated as Cash & cash equivalents
less Bank overdrafts and external borrowings (excluding IFRS 16
lease liabilities).
Organic measures
As we are a multi-national Group, with companies that trade in a
diverse range of currencies and because we regularly acquire and
sometimes dispose of companies, we also refer to organic
performance measures throughout the half year results. Organic
measures are at constant currency and exclude contributions from
acquisitions or disposals. The Board believes that this allows
users of the accounts to gain a further understanding of how the
Group has performed.
Exchange translation movements are assessed by re-translating
prior period reported values to current period exchange rates.
Exchange transaction impacts on operating profit are assessed on
the basis of transactions being at constant currency between
years.
The incremental impact of 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.
The organic bps change in adjusted operating margin is the
difference between the current period margin excluding acquisitions
and disposals and the prior period margin at current period
exchange rates.
A reconciliation of the movement in revenue and adjusted
operating profit compared to the prior period is given below:
Six months Six months
to 30(th) Acquisitions to 30(th)
June 2020 Exchange Organic and disposals June Organic Reported
2021
------------------- ---------- ---------- --------- --------------- ----------- --------- ----------
Revenue GBP569.7m (GBP21.2m) GBP95.2m - GBP643.7m +17% +13%
Adjusted operating
profit GBP119.0m (GBP4.4m) GBP48.3m - GBP162.9m +42% +37%
Adjusted operating +440 +440
profit margin 20.9% 25.3% bps bps
------------------- ---------- ---------- --------- --------------- ----------- --------- ----------
The reconciliation for each segment is included in the Operating
Review.
3. SEGMENTAL REPORTING
As required by IFRS 8 (Operating Segments), the following
segmental information is presented in a consistent format with
management information considered by the Board.
Analysis by operating segment
Six months to 30(th) Total Adjusted Adjusted
June 2021 operating operating operating
Revenue profit profit profit
GBPm GBPm GBPm margin
%
---------------------------- ---------- ----------- ----------- -----------
Steam Specialties 361.9 89.8 89.8 24.8%
Electric Thermal Solutions 88.9 4.5 11.2 12.6%
Watson-Marlow 192.9 68.7 71.3 37.0%
Corporate expenses (9.4) (9.4)
---------------------------- ---------- ----------- ----------- -----------
Total 643.7 153.6 162.9 25.3%
---------------------------- ---------- ----------- ----------- -----------
Net finance expense (3.6) (3.6)
Share of loss of Associate - -
Profit before taxation 150.0 159.3
---------------------------- ---------- ----------- ----------- -----------
Six months to 30(th) Total Adjusted Adjusted
June 2020 operating operating operating
Revenue profit profit profit
GBPm GBPm GBPm margin
%
---------------------------- ---------- ----------- ----------- -----------
Steam Specialties 331.7 73.9 68.0 20.5%
Electric Thermal Solutions 88.9 (3.1) 9.4 10.6%
Watson-Marlow 149.1 47.0 48.6 32.6%
Corporate expenses (7.0) (7.0)
---------------------------- ---------- ----------- ----------- -----------
Total 569.7 110.8 119.0 20.9%
---------------------------- ---------- ----------- ----------- -----------
Net finance expense (4.4) (4.4)
Share of loss of Associate (0.1) (0.1)
Profit before taxation 106.3 114.5
---------------------------- ---------- ----------- ----------- -----------
Year ended 31(st) December Total Adjusted Adjusted
2020 operating operating operating
Revenue profit profit profit
GBPm GBPm GBPm margin
%
---------------------------- ---------- ----------- ----------- -----------
Steam Specialties 694.1 157.8 154.3 22.2%
Electric Thermal Solutions 178.0 4.8 24.6 13.8%
Watson-Marlow 321.3 102.2 107.3 33.4%
Corporate expenses (15.8) (15.8)
---------------------------- ---------- ----------- ----------- -----------
Total 1,193.4 249.0 270.4 22.7%
---------------------------- ---------- ----------- ----------- -----------
Net finance expense (8.7) (8.7)
Share of profit of
Associate (0.2) (0.2)
---------------------------- ---------- ----------- ----------- -----------
Profit before taxation 240.1 261.5
---------------------------- ---------- ----------- ----------- -----------
The following table details the split of revenue by geography
for the combined Group:
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June 2021 June 2020 2020
GBPm GBPm GBPm
Europe, Middle East
and Africa 280.9 248.0 507.8
Asia Pacific 153.9 129.6 288.5
Americas 208.9 192.1 397.1
Total revenue 643.7 569.7 1,193.4
--------------------- ------------ ------------ -----------------
The total operating profit for each period includes certain
items, as analysed below:
Six months to 30(th) June Amortisation
2021 of acquisition-related German pension
intangible plan closed to
assets future accrual Total
GBPm GBPm GBPm
---------------------------- ------------------------ ---------------- ------
Steam Specialties (2.0) 2.0 -
Electric Thermal Solutions (6.7) - (6.7)
Watson-Marlow (2.6) - (2.6)
Total (11.3) 2.0 (9.3)
---------------------------- ------------------------ ---------------- ------
Six months to 30(th) UK pension
June 2020 Amortisation Reversal of plans
of acquisition-related acquisition-related closed
intangible Restructuring fair value adjustments to future
assets costs to inventory accrual Total
GBPm GBPm GBPm GBPm GBPm
--------------------------- ------------------------ -------------- ------------------------- ----------- -------
Steam Specialties (2.6) - - 8.5 5.9
Electric Thermal Solutions (7.3) (4.2) (1.0) - (12.5)
Watson-Marlow (3.5) - - 1.9 (1.6)
Total (13.4) (4.2) (1.0) 10.4 (8.2)
--------------------------- ------------------------ -------------- ------------------------- ----------- -------
Year ended 31(st) Amortisation Reversal
December 2020 of UK and Canada of acquisition-related
acquisition-related pension plans fair value
intangible Restructuring closed to future adjustments
assets costs accrual to inventory Total
GBPm GBPm GBPm GBPm GBPm
----------------------- ---------------------- -------------- ------------------- ----------------------- -------
Steam Specialties (5.0) - 8.5 - 3.5
Electric Thermal
Solutions (14.5) (4.3) - (1.0) (19.8)
Watson-Marlow (7.1) - 2.0 - (5.1)
Total (26.6) (4.3) 10.5 (1.0) (21.4)
----------------------- ---------------------- -------------- ------------------- ----------------------- -------
Net financing income and expense
Six months Six months Year ended
to to 31(st) December
30(th) June 30(th) June 2020
2021 2020
GBPm GBPm GBPm
Steam Specialties 0.2 (0.8) (1.1)
Electric Thermal Solutions (0.2) (0.1) (0.3)
Watson-Marlow (0.2) (0.2) (0.4)
Corporate expenses (3.4) (3.3) (6.9)
---------------------------- ------------- ------------- ------------------
Total net financing
expense (3.6) (4.4) (8.7)
---------------------------- ------------- ------------- ------------------
Net assets
30(th) June 2021 30(th) June 2020 31(st) December
2020
Assets Liabilities Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ----------- --------------- ----------- ---------------- --------- -------------
Steam Specialties 639.0 (154.9) 671.2 (187.0) 640.8 (198.0)
Electric Thermal
Solutions 514.5 (29.9) 576.6 (33.9) 530.0 (27.5)
Watson-Marlow 281.0 (50.9) 274.2 (38.6) 269.1 (46.5)
-------------------- ----------- --------------- ----------- ---------------- --------- -------------
1,434.5 (235.7) 1,522.0 (259.5) 1,439.9 (272.0)
Liabilities (235.7) (259.5) (272.0)
Net deferred tax (34.9) (38.0) (28.5)
Net tax payable (20.2) (19.9) (20.5)
Net debt including
lease liabilities (225.2) (363.2) (262.9)
-------------------- ----------- --------------- ----------- ---------------- --------- -------------
Net assets 918.5 841.4 856.0
-------------------- ----------- --------------- ----------- ---------------- --------- -------------
Capital additions, depreciation, amortisation and impairment
Six months to Six months to Year ended
30(th) June 2021 30(th) June 2020 31(st) December
2020
Depreciation, Depreciation, Depreciation,
amortisation amortisation amortisation
Capital and impairment Capital and impairment Capital and impairment
additions GBPm additions GBPm additions GBPm
GBPm GBPm GBPm
------------------ ------------- ---------------- -------------- ----------------- ------------ ----------------
Steam Specialties 13.9 17.4 15.1 18.4 34.5 36.4
Electric Thermal
Solutions 1.4 9.5 2.0 10.4 3.8 20.8
Watson-Marlow 11.7 8.4 11.4 8.9 19.6 18.2
------------------ ------------- ---------------- -------------- ----------------- ------------ ----------------
Total 27.0 35.3 28.5 37.7 57.9 75.4
------------------ ------------- ---------------- -------------- ----------------- ------------ ----------------
Capital additions include property, plant and equipment at
30(th) June 2021 of GBP18.9 million; at 30(th) June 2020 of GBP21.7
million; and at 31(st) December 2020 of GBP42.0 million. Capital
additions also include other intangible assets at 30(th) June 2021
of GBP3.3 million; at 30(th) June 2020 of GBP3.6 million; and at
31(st) December 2020 of GBP7.6 million. Right-of-use asset
additions at 30(th) June 2021 were GBP4.8 million; at 30(th) June
2020 were GBP3.2 million and at 31(st) December 2020 were GBP8.3
million.
4. NET FINANCING INCOME AND EXPENSE
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2020
2021 2020 GBPm
GBPm GBPm
--------------------------------------- ----------- ----------- -----------------
Financial expenses:
Bank and other borrowing interest
payable (3.7) (3.6) (7.4)
Interest expense on lease liabilities (0.5) (0.6) (1.2)
Net interest on pension scheme
liabilities (0.8) (0.7) (1.5)
--------------------------------------- ----------- ----------- -----------------
(5.0) (4.9) (10.1)
--------------------------------------- ----------- ----------- -----------------
Financial income:
Bank interest receivable 1.4 0.5 1.4
Net financing expense (3.6) (4.4) (8.7)
--------------------------------------- ----------- ----------- -----------------
Net pension scheme financial expense (0.8) (0.7) (1.5)
Interest expense on lease liabilities (0.5) (0.6) (1.2)
Net bank interest (2.3) (3.1) (6.0)
--------------------------------------- ----------- ----------- -----------------
Net financing expense (3.6) (4.4) (8.7)
--------------------------------------- ----------- ----------- -----------------
5. TAXATION
Taxation has been estimated at the rate expected to be incurred
in the full year.
Six months to Six months to Year ended
30(th) June 2021 30(th) June 2020 31(st) December
2020
------------------------- ------------------------- -------------------------
Adjusted Adj't Total Adjusted Adj't Total Adjusted Adj't Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- --------- ------ ------ --------- ------ ------ --------- ------ ------
UK corporation
tax 2.6 - 2.6 1.2 - 1.2 10.7 - 10.7
Foreign
tax 39.2 - 39.2 31.4 (1.0) 30.4 61.0 - 61.0
Deferred
tax 1.2 (1.9) (0.7) (0.5) (1.7) (2.2) 0.3 (5.8) (5.5)
---------------- --------- ------ ------ --------- ------ ------ --------- ------ ------
Total taxation 43.0 (1.9) 41.1 32.1 (2.7) 29.4 72.0 (5.8) 66.2
---------------- --------- ------ ------ --------- ------ ------ --------- ------ ------
Effective
tax rate 27.0% 20.6% 27.4% 28.0% 32.9% 27.7% 27.5% 27.1% 27.5%
---------------- --------- ------ ------ --------- ------ ------ --------- ------ ------
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 countries in which the Group operates.
The Group's tax charge for the six months ended 30(th) June 2021
included a credit of GBP1.9 million in relation to certain items
(as disclosed in Note 2). The tax impacts of these items are:
-- Amortisation of acquisition-related intangible assets (GBP2.5
million credit);
-- Closure of defined benefit pension scheme to future accrual
(GBP0.6 million debit).
In October 2017, the European Commission (EC) opened a formal
State Aid investigation into an exemption within the UK's current
Controlled Foreign Company (CFC) regime. In April 2019, the EC
published its final decision that the UK CFC Finance Company
Exemption (FCE) constituted State Aid in certain circumstances,
following which the UK Government appealed the decision. Similar to
other UK companies, in October 2019, the Group submitted its own
appeal. The Group's benefit from the FCE, in the period from 2013
to date, is approximately GBP8.7 million including compound
interest. During 2021, the Group has received and paid Charging
Notices, issued by the UK tax authority, totalling GBP4.9 million
assessed for the period from 1(st) January 2017 to 31(st) December
2018. The Group has appealed the Charging Notices and expects this
amount to be repayable in full following a successful appeal and
has recognised a recoverable amount at the period end balance sheet
date. The Group has not received a charging notice for the balance
of GBP3.8 million, being GBP2.7 million for the period from 1(st)
January 2013 to 31(st) December 2016 and GBP1.1 million for the
period from 1(st) January 2019 to the balance sheet date. No
provision has been recognised in the period end balance sheet date
for the estimated amounts where Charging Notices have not been
received, therefore these amounts continue to be disclosed as
contingent liabilities.
The UK Government announced on 3(rd) March 2021 that the
standard rate of UK corporation tax would increase to 25% from
1(st) April 2023. The change will impact the tax charged on UK
profits from the effective date. However, as a result of being
substantively enacted in the period all UK deferred tax balances at
the period end, which are forecast to remain at 1(st) April 2023
have been calculated at a tax rate of 25%.
On 7(th) April 2021, the US Treasury published 'The Made in
America Tax Plan' and the proposals included a US Federal corporate
income tax rate of 28%. At 30(th) June 2021, this change had not
been substantively enacted and has been excluded when calculating
all US deferred tax balances at 30(th) June 2021.
6. EARNINGS PER SHARE
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2020
2021 2020
-------------------------------------------- ----------- ----------- -----------------
Profit attributable to equity shareholders
(GBPm) 108.8 76.7 173.6
Weighted average shares in issue
(million) 73.7 73.7 73.7
Dilution (million) 0.2 0.2 0.2
-------------------------------------------- ----------- ----------- -----------------
Diluted weighted average shares
in issue (million) 73.9 73.9 73.9
-------------------------------------------- ----------- ----------- -----------------
Basic earnings per share 147.6p 104.2p 235.5p
-------------------------------------------- ----------- ----------- -----------------
Diluted earnings per share 147.3p 103.9p 234.8p
-------------------------------------------- ----------- ----------- -----------------
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
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2020
2021 2020 GBPm
GBPm GBPm
--------------------------------------- ----------- ----------- -----------------
Amounts paid in the period:
Final dividend for the year ended
31(st) December 2020 of 84.5p (2019:
78.0p) per share 62.3 57.5 57.5
Interim dividend for the year ended
31(st) December 2020 of 33.5p (2019:
32.0p) per share - - 24.7
--------------------------------------- ----------- ----------- -----------------
Total dividends paid 62.3 57.5 82.2
--------------------------------------- ----------- ----------- -----------------
Amounts arising in respect of the
period:
Interim dividend for the year ending
31(st) December 2021 of 38.5p (2020:
33.5p) per share 28.4 24.7 24.7
Final dividend for the year ended
31(st) December 2020 of 84.5p (2019:
78.0p) per share - - 62.3
--------------------------------------- ----------- ----------- -----------------
Total dividends arising 28.4 24.7 87.0
--------------------------------------- ----------- ----------- -----------------
The interim dividend for the year ending 31(st) December 2021
was approved by the Board after 30(th) June 2021. It is therefore
not included as a liability in these Interim Condensed Consolidated
Financial Statements. No scrip alternative to the cash dividend is
being offered in respect of the 2021 interim dividend.
8. POST-RETIREMENT BENEFITS
The Group is accounting for pension costs in accordance with IAS
19. The disclosures shown here are in respect of the Group's
Defined Benefit Obligations. Other plans operated by the Group were
either Defined Contribution plans or were deemed immaterial for the
purposes of IAS 19 reporting. Full IAS 19 disclosure for the year
ended 31(st) December 2020 is included in the Group's Annual
Report.
On 1(st) January 2021 the defined benefit pension scheme in
Germany was closed to future accrual resulting in a GBP2.0 million
credit to the income statement, which has been taken as an
adjusting item as disclosed in Note 2.
The amounts recognised in the Consolidated Statement of
Financial Position are as follows:
30(th) June 30(th) June 31(st) December
2021 2020 2020
GBPm GBPm GBPm
---------------------------- ------------ ------------ ----------------
Post-retirement benefits (52.6) (94.9) (98.6)
Related deferred tax asset 13.8 22.3 22.7
---------------------------- ------------ ------------ ----------------
Net pension liability (38.8) (72.6) (75.9)
---------------------------- ------------ ------------ ----------------
9. ANALYSIS OF CHANGES IN NET DEBT, INCLUDING CHANGES IN LIABILITIES
ARISING FROM FINANCING ACTIVITIES
1 (st) Cash Acquired 30 (th)
January flow debt* Exchange June
2021 GBPm GBPm GBPm 2021
GBPm GBPm
---------------------------------- --------- ------- --------- ----------- --------
Current portion of long-term
borrowings (0.6) (103.7)
Non-current portion of long-term
borrowings (452.2) (295.8)
Total borrowings (452.8) (399.5)
---------------------------------- --------- ------- --------- ----------- --------
Comprising:
Borrowings (452.8) 34.6 - 18.7 (399.5)
Changes in liabilities arising
from financing (452.8) 34.6 - 18.7 (399.5)
---------------------------------- --------- ------- --------- ----------- --------
Cash at bank 246.2 11.2 - (3.8) 253.6
Bank overdrafts (22.2) (25.1) - 0.4 (46.9)
---------------------------------- --------- ------- --------- ----------- --------
Net cash and cash equivalents 224.0 (13.9) - (3.4) 206.7
---------------------------------- --------- ------- --------- ----------- --------
Net debt (228.8) 20.7 - 15.3 (192.8)
---------------------------------- --------- ------- --------- ----------- --------
Lease liability (34.1) 5.7 (4.6) 0.6 (32.4)
---------------------------------- --------- ------- --------- ----------- --------
26.
Net debt and lease liability (262.9) 4 (4.6) 15.9 (225.2)
---------------------------------- --------- ------- --------- ----------- --------
* Debt acquired comprises debt recognised on the Statement of
Financial Position due to entry into new leases under IFRS 16.
The cash flow for borrowings included a repayment on the EUR160
million euro term loan of EUR40 million (GBP34.3 million).
1 (st) Cash Acquired 30 (th)
January flow debt* Exchange June
2020 GBPm GBPm GBPm 2020
GBPm GBPm
---------------------------------- --------- ------- --------- ----------- --------
Current portion of long-term
borrowings (34.3) (0.4)
Non-current portion of long-term
borrowings (429.2) (491.3)
Total borrowings (463.5) (491.7)
---------------------------------- --------- ------- --------- ----------- --------
Comprising:
Borrowings (463.5) 4.4 - (32.6) (491.7)
Changes in liabilities arising
from financing (463.5) 4.4 - (32.6) (491.7)
---------------------------------- --------- ------- --------- ----------- --------
Cash at bank 330.6 (10.8) - 0.2 320.0
Bank overdrafts (162.3) 8.9 - (0.9) (154.3)
---------------------------------- --------- ------- --------- ----------- --------
Net cash and cash equivalents 168.3 (1.9) - (0.7) 165.7
---------------------------------- --------- ------- --------- ----------- --------
Net debt (295.2) 2.5 - (33.3) (326.0)
---------------------------------- --------- ------- --------- ----------- --------
Lease liability (38.9) 5.9 (2.5) (1.7) (37.2)
---------------------------------- --------- ------- --------- ----------- --------
Net debt and lease liability (334.1) 8.4 (2.5) (35.0) (363.2)
---------------------------------- --------- ------- --------- ----------- --------
At 1(st) Cash Acquired Exchange At
Jan flow debt* movement 31(st)
2020 Dec 2020
GBPm GBPm GBPm GBPm GBPm
---------------------------------- --------- ------- --------- ---------- ----------
Current portion of long-term
borrowings (34.3) (0.6)
Non-current portion of long-term
borrowings (429.2) (452.2)
Short-term borrowings - -
---------------------------------- --------- ------- --------- ---------- ----------
Total borrowings (463.5) (452.8)
---------------------------------- --------- ------- --------- ---------- ----------
Comprising:
Borrowings (463.5) 36.7 - (26.0) (452.8)
Changes in liabilities arising
from financing (463.5) 36.7 - (26.0) (452.8)
---------------------------------- --------- ------- --------- ---------- ----------
Cash at bank 330.6 (84.4) - - 246.2
Bank overdrafts (162.3) 140.0 - 0.1 (22.2)
---------------------------------- --------- ------- --------- ---------- ----------
Net cash and cash equivalents 168.3 55.6 - 0.1 224.0
---------------------------------- --------- ------- --------- ---------- ----------
Net debt (295.2) 92.3 - (25.9) (228.8)
---------------------------------- --------- ------- --------- ---------- ----------
Lease liabilities (38.9) 12.2 (7.1) (0.3) (34.1)
---------------------------------- --------- ------- --------- ---------- ----------
Net debt and lease liabilities (334.1) 104.5 (7.1) (26.2) (262.9)
---------------------------------- --------- ------- --------- ---------- ----------
10. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this Note. Full details of the Group's other related
party relationships, transactions and balances are given in the
Group's Financial Statements for the year ended 31(st) December
2020. There have been no material changes in these relationships in
the period up to the end of this Report.
No related party transactions have taken place in the first half
of 2021 that have materially affected the financial position or the
performance of the Group during that period.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table compares the carrying and fair values of the
Group's financial assets and liabilities:
30(th) June 2021 30(th) June 2020 31(st) December
2020
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ----------------- ------------ ----------------- ------------- -------------- ----------
Financial assets:
Cash and cash
equivalents 253.6 253.6 320.0 320.0 246.2 246.2
Trade, other
receivables
and contract assets 261.6 261.6 248.9 248.9 245.5 245.5
----------------------- ----------------- ------------ ----------------- ------------- -------------- ----------
Total financial
assets 515.2 515.2 568.9 568.9 491.7 491.7
----------------------- ----------------- ------------ ----------------- ------------- -------------- ----------
Financial liabilities:
Loans 399.5 409.2 491.7 491.7 452.8 464.1
Lease liabilities 32.4 32.4 37.2 37.2 34.1 34.1
Bank overdrafts 46.9 46.9 154.3 154.3 22.2 22.2
Trade payables 52.8 52.8 53.6 53.6 45.6 45.6
Other payables
and contract liabilities 45.3 45.3 43.2 43.2 44.4 44.4
--------------------------- ------ ------ ------ ------ ------ ------
Total financial
liabilities 576.9 586.6 780.0 780.0 599.1 610.4
--------------------------- ------ ------ ------ ------ ------ ------
There are no other assets or liabilities measured at fair value
on a recurring or non-recurring basis for which fair value is
disclosed.
Fair values of financial assets and financial liabilities
Fair values of financial assets and liabilities at 30(th) June
2021 are not materially different from book values due to their
size, the fact that they were at short-term rates of interest or
for borrowings at long-term rates of interest where the rate of
interest is not materially different to the current market rate.
Fair values have been assessed as follows:
Derivatives
Forward exchange contracts are marked to market by discounting
the future contracted cash flows using readily available market
data.
Interest-bearing loans and borrowings
Fair value is calculated based on discounted expected future
principal and interest cash flows using a current market rate of
interest.
Lease liabilities
The fair value is estimated as the present value of future cash
flows, discounted at the incremental borrowing rate for the related
geographical location, unless the rate implicit in the lease is
readily determinable.
Trade and other receivables/payables
For receivables/payables with a remaining life of less than one
year, the notional amount is deemed to reflect the fair value.
The Group uses forward currency contracts to manage its exposure
to movements in foreign exchange rates. The forward contracts are
designated as hedging instruments in a cash flow hedging
relationship. At 30(th) June 2021 the Group had contracts
outstanding to economically hedge or to purchase GBP35.9 million
with US dollars, GBP72.6 million with euros, GBP7.8 million with
Korean won, GBP14.1 million with Chinese renminbi, GBP5.6 million
with Singapore dollars, EUR28.8 million with US dollars, EUR3.9m
with Korean won, EUR8.0 million with Chinese renminbi and DKK43.4
million with euros. Derivative financial instruments are measured
at fair value. The fair value at the end of the reporting period is
a GBP3.4 million asset (31(st) December 2020: GBP2.6 million
asset).
Financial instruments fair value disclosure
Fair value measurements are classified into three levels,
depending on the degree to which the fair value is observable.
-- Level 1 fair value measurements are those derived from quoted
prices in active markets for identical assets and liabilities;
-- Level 2 fair value measurements are those derived from other
observable inputs for the asset or liability; and
-- Level 3 fair value measurements are those derived from valuation
techniques using inputs that are not based on observable market
data.
We consider that the derivative financial instruments fall into
Level 2. There have been no transfers between levels during the
period.
12. CAPITAL COMMITMENTS
Capital expenditure contracted for but not provided for at
30(th) June 2021 was GBP14.9 million (31(st) December 2020: GBP7.3
million; 30(th) June 2020: GBP4.6 million). All capital commitments
related to property, plant and equipment.
13. EXCHANGE RATES
Set out below is an additional disclosure (not required by IAS
34) that highlights movements in a selection of average exchange
rates between half year 2020 and half year 2021.
Average Average Change
half year half year %
2021 2020
---------------- ----------- ----------- -------
US dollar 1.38 1.27 -9%
Euro 1.15 1.15 0%
Renminbi 8.96 8.94 0%
Won 1,546 1,531 -1%
Real 7.42 6.21 -19%
Argentine peso 125.98 82.01 -54%
A negative movement indicates a strengthening in sterling versus
that currency. When sterling strengthens against other currencies
in which the Group operates, the Group incurs a loss on translation
of the financial results into sterling.
On a translation basis, sales decreased by 3.7% and adjusted
operating profit decreased by 4.2%, while transaction increased
profit, giving a total reduction to profit from currency movements
of 3.7%.
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