REG - Spirax-Sarco Engng - 2022 Half Year Results
11/08/2022 07:00
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RNS Number : 6333V Spirax-Sarco Engineering PLC 11 August 2022
News Release
Thursday 11th August 2022
2022 Half Year Results
Strong first half despite headwinds, improving full year outlook
HIGHLIGHTS
Six months ended 30th June
Statutory 2022 2021 Reported
Revenue £750.1m £643.7m +17%
Operating profit £142.1m £153.6m -7%
Operating profit margin 18.9% 23.9% -500 bps
Profit before taxation £138.5m £150.0m -8%
Basic earnings per share 131.8p 147.6p -11%
Dividend per share 42.5p 38.5p +10%
Adjusted 2022 2021 Reported Organic**
Revenue(+) £750.1m £643.7m +17% +15%
Adjusted operating profit* £178.8m £162.9m +10% +9%
Adjusted operating profit margin* 23.8% 25.3% -150 bps -150 bps
Adjusted profit before taxation* £175.2m £159.3m +10%
Adjusted basic earnings per share* 175.1p 157.6p +11%
Adjusted cash conversion* 44% 85%
● Revenues up 17%, or 15% organically, driven by volume growth and price
increases
● Order books remain at record levels; global supply chain disruption being
managed
● Statutory operating profit down 7% and margin down 500bps due to ETS
restructuring
● Adjusted operating profit margin 23.8%, down 150bps organically; reflects
revenue investments
● Steam Specialties sales up 11%; demand growth well above organic sales growth
● Electric Thermal Solutions sales up 18%; demand growth above organic sales
growth
● Watson-Marlow sales up 27%; BioPharm demand lower, Process Industries very
strong
● Agreement to acquire Vulcanic for €261.7 million; strengthens Electric
Thermal Solutions
● Record capital investment during the first half; cash conversion of 44%
● Net debt^ of £202.7 million (H1 2021: £192.8 million); net debt to EBITDA*
ratio of 0.5x
● Interim dividend up 10% to 42.5 pence, following 15% total increase in 2021
Nicholas Anderson, Group Chief Executive, commenting on the results said:
"These strong first half results were achieved against the backdrop of a
weakening IP, supply chain and COVID-19 related disruption, as well as rising
inflation. I am grateful to all colleagues for their tireless efforts to
support our customers in a challenging first half. It is this excellent
execution and resilience that underpins our improved full year outlook.
"Our strong profitability and robust balance sheet support our continued
investment in growth, including our sustainability, digital and manufacturing
initiatives. We recently added to our expertise by acquiring Cotopaxi into
our Steam Specialties Business and will shortly welcome Vulcanic into our
Electric Thermal Solutions Business. Through these actions, we are building
stronger foundations for continued organic growth beyond 2022, helping our
customers achieve their net zero goals while also improving the safety and
efficiency of their industrial processes."
(+) The term 'sales' is used interchangeably with 'revenue' when describing
the financial performance of the business.
*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 (with our Russian Operating Companies treated as
disposals from the date at which the Group suspended all trading with and
within Russia).
^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.
See Note 2 to the Financial Statements for an explanation of alternative
performance measures.
For further information, please contact:
Nimesh Patel, Chief Financial Officer
Andrew Guthrie, Head of Investor Relations
Holly Gillis Citigate Dewe Rogerson (07940 797560)
Audio webcast
The meeting with analysts will be available as a live audio webcast at 9.00 am
on the Company's website at www.spiraxsarcoengineering.com or via the
following link:
https://edge.media-server.com/mmc/p/zb9i39ug
(https://edge.media-server.com/mmc/p/zb9i39ug) and a recording will be made
available on the website shortly after the meeting.
Conference Call
The meeting with analysts will also be available via a full conference call
with Q&A facility, at 9.00 am, participants must register in advance using
the provided link below:
https://register.vevent.com/register/BI236a81998470457b8cd98ab02c0a8fea
(https://register.vevent.com/register/BI236a81998470457b8cd98ab02c0a8fea)
After completing the conference call registration, you will receive dial-in
details on screen and via email.
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 9,200 people,
including over 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
(http://www.spiraxsarcoengineering.com)
RNS filter: Inside information prior to release
LEI 213800WFVZQMHOZP2W17
BUSINESS REVIEW
HY 2021 Exchange Organic Acquisitions & disposals* HY 2022 Organic Reported
Revenue £643.7m £11.3m £99.8m £(4.7)m £750.1m +15% +17%
Adjusted operating profit £162.9m £3.5m £14.2m £(1.8)m £178.8m +9% +10%
Adjusted operating profit margin 25.3% 23.8% -150bps -150bps
Statutory operating profit £153.6m £142.1m -7%
Statutory operating profit margin 23.9% 18.9% -500bps
*Includes the impact of (i) the acquisition of Cotopaxi Limited and (ii) the
treatment of our Russian Operating Companies as disposals from the date at
which the Group suspended all trading with and within Russia.
OVERVIEW
Recognising our colleagues
The Board would like to thank our more than 9,200 colleagues worldwide for
their continued and outstanding efforts to support our customers, particularly
in meeting the ongoing, exceptional demand for our products and solutions in
2022, against what has been a very challenging macroeconomic backdrop.
The health, safety and wellbeing of our teams is of paramount importance with
COVID-19 still affecting our daily lives. We are continuing to monitor and
respond to the situation at a local level, increasing our health and safety
measures when needed to ensure our workplaces remain safe.
Exit from Russia
In March, we announced our decision to suspend all Group trading with or
within Russia. In 2021, our businesses in Russia represented close to 1% of
Group revenues. During the second quarter we continued to support our
colleagues in Russia, including paying salaries, as we prepared the operations
for sale. On 6th July we concluded the disposal of our Spirax Sarco and
Watson-Marlow operations to their respective General Managers for a nominal
consideration. We have now fully exited our Russian Operating Companies and
we wish our former colleagues well.
Acquisition of Vulcanic to strengthen our Electric Thermal Solutions (ETS)
Business
On 25th July, we announced a definitive agreement (subject to regulatory
approvals) to acquire the Vulcanic Group of Companies (Vulcanic), from
Qualium, a French private equity company, for a consideration of €261.7
million, on a cash and debt free basis, subject to customary closing
adjustments. The acquisition is expected to complete by the end of the third
quarter.
Vulcanic is a European industrial electric heating group and is the largest
supplier in Europe of bespoke industrial electric heating solutions.
Headquartered in Paris (France) with 10 manufacturing facilities worldwide,
Vulcanic has over 700 employees of whom almost 90% are based in the Europe,
Middle East and Africa (EMEA) region.
Vulcanic will support the delivery of growth in the Group's ETS Business
through its existing customers, products and operational footprints that are
mostly in the EMEA region and will complement our Chromalox Business that is
mostly focused on the Americas. Vulcanic operates a direct sales model to
end users, Original Equipment Manufacturers and contractors, serving a range
of markets aligned to the core market sectors of ETS.
Vulcanic's strategic fit with ETS expands our platform to deploy the Group's
business model and drive further improvements in sales growth and margin over
time. As part of ETS, Vulcanic will play a significant role in supporting
the Group's drive to help customers decarbonise their critical industrial
processes through electrification, for which there is already strong demand
from European customers.
Separately, on 23rd May 2022, we announced the start of a consultation process
to address the financial underperformance of the Chromalox manufacturing
facility in Soissons (France). We anticipate that the combination of these
two separate strategic actions will enable our ETS Business to establish a
large scale, profitable operating footprint in EMEA (the region that we expect
to lead the way, in terms of demand, for our Group's decarbonisation
solutions) and to balance our geographic presence in ETS more evenly across
the Americas and EMEA.
Market environment
Global industrial production growth(( 1 (#_ftn1) )) (IP) was 2.9% in the
first half of 2022, compared to 11.4% for the equivalent period in 2021. IP
in all regions was lower than the equivalent period of 2021, which was
characterised by the strong recovery from the impacts of the COVID-19 pandemic
in 2020. IP was similar at around 3% in both mature and emerging markets,
reflecting the higher IP in North America compared to other developed regions.
In emerging markets IP was negatively affected by the COVID-19 related
lockdowns in China, which significantly impacted the second quarter.
IP Performance H1 2022 IP Performance H1 2021
Europe, Middle East & Africa +2.3% +10.6%
of which, Europe +1.3% +13.9%
North America +5.3% +5.7%
Latin America -0.8% +13.8%
Asia Pacific +2.8% +13.9%
of which, China +3.2% +16.0%
Since the Russian invasion of Ukraine on 24th February 2022, forecasters have
reduced their expectations of IP growth for 2022 from 4.4% to 3.5%. IP for
the second half of 2022 is forecast to be above the first half at 4.1%, driven
by sustained IP of 5.3% in North America, IP in China recovering to 6.1% in
the second half and IP in the balance of Asia Pacific increasing from 1.9% in
the first half to 4.5% in the second half.
The ongoing disruptions to global supply chains have led to reduced
availability of key components and manufacturing input cost inflation. In
addition, Russia's invasion of Ukraine has driven higher energy prices in the
short term and raised concerns over security of supply in regions such as
Europe, which has a higher dependency on imports of Russian gas. The rising
inflation of the first half has led to increases in interest rates globally,
with expectations of further rises in the balance of the year. It remains
unclear what impact these changes will have on the global economy during the
second half. As a result, there remains a material level of uncertainty
regarding the IP forecast for the remainder of 2022.
PROGRESS IN THE HALF YEAR
Impacts on supply chain
In Q4 2021, global supply chains experienced significant disruption driven by
the combination of strong returning demand for industrial products, as
economies reopened, as well as continued operational challenges resulting from
ongoing COVID-19 mitigation measures. This affected the availability of raw
materials and disrupted freight markets, increasing delivery lead times and
creating shortages.
These challenges were still present in the first half of 2022, impacting the
availability of key manufacturing components, such as nylon, printed circuit
boards and semiconductors. We continued to deploy our mitigation strategies
to manage this disruption, with initiatives such as engaging with our supply
chain partners, expanding our sources of raw materials and improved
forecasting and planning within our procurement activities.
In China, there was a specific further impact on global supply chains
resulting from the extended COVID-19 lockdowns in Shanghai. China
represented 13% of the Group's sales in H1, with the significant majority
coming from the Steam Specialties Business based in Shanghai. This is
predominantly an in-country focused business, with over 70% of sales in China
being served from our manufacturing facility in Shanghai and almost 90% of our
China manufacturing output being sold in China. As a result, there is
limited impact of the Shanghai lockdowns on our Group beyond China and, since
reopening, our team in China has made significant progress in reducing the
resulting backlog, expecting to recover the impact on sales during the second
half of the year. However, we are not immune to the broader disruption to
global supply chains caused by the lockdowns in China, which may affect our
ability to manufacture and ship orders in other plants that source components
from China.
Managing strong demand growth
All three Businesses entered 2022 with record order books and all three
Businesses have expanded their order books during the first half. This
particularly strong demand partly reflects a higher proportion of larger
project orders, which typically have longer lead times, driven by customers
accelerating capital investments.
To meet this high level of demand, we have continued to advance capacity
expansion plans across all three Businesses, such as increased output from our
Steam Specialties supply organisation as we grow headcount and deliver our
factory modernisation initiatives; debottlenecking key ETS facilities
supported by investments in equipment, people and skills and progressing new
manufacturing facilities and capacity in Watson-Marlow.
Implementing our strategy
Increase direct sales effectiveness through market sector focus
Our Businesses benefit from global talent mobility within our Group to share
skills, knowledge and learnings across different parts of our organisation.
As an example, ETS has been able to bring expertise from Steam Specialties to
advance its direct sales activity and has also used an existing 'go to market'
strategy, which has been adapted to suit the ETS market and portfolio.
All three of our Businesses have continued to develop new solutions in support
of their sector specific growth programmes to accelerate demand in these focus
areas where we know we are well positioned. This has been evidenced in the
strong performance of the Process Industries sector within Watson-Marlow and
the increased share of sales going to strategic target sectors within ETS.
All our Businesses are advancing Customer Value Propositions (CVPs) which our
customers' changing requirements. In Steam Specialties, our teams are
developing a CVP to support lithium mining projects in Argentina for the
battery sector. ETS, together with Steam Specialties, has developed a new
CVP linked to sustainability and energy efficiency which is delivered through
a suite of solutions designed to enable the decarbonisation of industrial
heating, including the raising of steam.
Watson-Marlow's response to rising demand for global battery production, as a
result of the transition to electric vehicles in developed countries, is
focused on a CVP for its Bredel hose pumps - used to accurately meter, dose
and transfer various abrasive chemical slurries from raw material tanks to
reaction tanks to create the liquids mix required for battery cell production.
Develop the knowledge and skills of our expert sales and service teams
Across the Group, our sales teams have been undertaking Sales Excellence
training to develop or refresh skillsets in areas such as consultative and
value-based selling. As an example, our Cotopaxi colleagues, who joined
the Group at the end of January as part of our Steam Specialties Business,
have been integrated into our Learning Management System (the Steam
Academy). Work is currently underway with Cotopaxi to develop and launch a
series of learning modules covering 'connected services capability
development' to enable our sales teams to conduct steam loop energy
benchmarking audits. A 'digital transformation' curriculum using third party
content has also been launched to all colleagues across Steam Specialties.
Migration of content to the newly created ETS Academy is expected to complete
in the third quarter of 2022. Chromalox has launched several CVP sales
packages focused on its decarbonisation and net zero solutions. The CVP
packages include training, marketing materials and decarbonisation calculators
for the Engineered Chemicals, Sustainable Energy and Oil & Gas sectors.
Broaden our global presence
A key element of our strategy is the geographic expansion of our direct sales
presence to increase coverage and access to customers. In the first half of
2022, we achieved this through both organic and inorganic investments.
Organically, we increased our headcount in existing territories in both Steam
Specialties and Watson-Marlow.
The acquisition of Vulcanic, as per our announcements on 4th and 25th July,
will support the delivery of growth in our ETS Business through leveraging
Vulcanic's existing customers, products and operational footprints which are
mostly in the EMEA region.
Leverage our research & development (R&D) investments
All three Businesses launched new product, service, or solution offerings
during the first half of 2022.
Following the completion of successful pilots, the first decarbonisation
solutions developed through the Thermal Solutions Synergy project (a
collaboration between Steam Specialties and ETS) are now available.
Collectively known as TargetZero, these new and innovative solutions are
designed to help our customers decarbonise their critical industrial
processes, including the raising of steam.
The patent-pending Steam Battery thermal energy storage system, SteamVolt and
ElectroFit boiler solutions have all been successfully tested in customer
sites and we are already taking customer orders.
All three of these solutions are currently being deployed within our largest
manufacturing site in the UK to support the achievement of our own net zero
commitments in line with our One Planet Sustainability Strategy.
Watson-Marlow has opened a new innovation centre in Cornwall (UK), investing
in a new Research & Development (R&D) facility and in R&D
capability with a total of 85 engineers expected to be working in the
innovation centre by the end of 2022.
Watson-Marlow is also digitally-enabling its products and solutions, launching
its EtherNet IP-enabled peristaltic pumps in the first half, which provide
customers with fast, accurate performance data and seamless connectivity to
their control systems and the Internet of Things, helping to improve process
performance, reduce operating costs and minimise downtime.
Optimise supply chain effectiveness
In Watson-Marlow, our newly installed capacity at BioPure (Portsmouth, UK),
Watson-Marlow Pumps and Tubing (Falmouth, UK) and Aflex (Huddersfield, UK)
enabled almost 40% increased production output across those four plants in the
second quarter of 2022, compared with the same period in 2021, to meet
increased customer demand. We have been making significant progress with
our new Watson-Marlow manufacturing facility in Massachusetts (USA) which is
on track to produce its first shipments by the end of the year.
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, all three Businesses have experienced a reduction in
customer service levels, due to the exceptional demand from customers,
absences due to COVID-19 and disruptions along our global supply chains, but
they have remained focused on driving high standards of customer response.
Operate sustainably and help improve our customers' sustainability
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, as well as helping our customers and
suppliers to do the same.
Our people and our communities
In March, we welcomed a new Group Health & Safety Director to lead our
Group-wide approach to Health & Safety, as well as implement improvements
in our global Health & Safety Excellence framework. This includes
overseeing a new Group-wide Health & Safety Management system which was
deployed globally during the first half of the year and is primarily being
used to manage incident reporting.
It is disappointing that our safety performance in the first six months of the
year has reduced very slightly compared to the same period last year, with a
Group-wide Lost Time Accident Rate of 0.13 (2021: 0.12). Alongside this, we
have noted a higher incidence of hand and upper arm injuries. Our Health &
Safety teams have increased focus on this area, including cascading the
lessons learned and placing a renewed emphasis on engaging colleagues to
prioritise their safety and that of colleagues, through our Behavioural Based
Safety (BBS) programme. We are continually focused on improving Health &
Safety awareness to reduce the potential for complacency leading to accidents
and incidents across the Group. Efforts in this area have included
implementing additional phases of our BBS training as well as the planned
development of the new Group-wide Health and Safety Excellence Framework to be
rolled out in the second half.
In July, our Steam Specialties Business in Cheltenham (UK) was awarded the
prestigious Gold Medal Health & Safety Award from RoSPA, which follows
five consecutive years of being awarded Gold Status from RoSPA and recognises
their significant achievement in being world leaders in health & safety
practice.
We now have over 9,200 colleagues across our Group, up from 8,700 at the year
end. At the start of 2022, we launched Everyone is Included, our Group plan
for an inclusive, equitable and healthy organisation. The Plan includes ten
Inclusion Commitments, which are a set of global minimum standards that became
effective on 1st February 2022. The launch included a short video and seven
supporting toolkits covering parental leave, caregiver leave, domestic abuse,
pregnancy loss, LGBTQ+ inclusion, menopause and hybrid working. We followed
the launch with a series of inclusion masterclasses, webinars and workshops
and have focused on supporting our colleagues to embed these Commitments into
local policy and practice.
We formally signed the UN Women's Empowerment Principles, UN LGBTI Standards
and joined the Women's Engineering Society and the Women in Science and
Engineering organisation to help advance our gender equity journey. Our third
Female Executive Mentoring Programme launched in June 2022 to support the
progression of female talent within the Company. Across our Group we
celebrated International Women's Day, International Women in Engineering Day
and Pride.
Following an initial donation of £100,000 by the Group to the Red Cross
Ukraine Appeal, almost £92,000 was raised and donated by our colleagues in
the response to the humanitarian crisis in Ukraine which was matched by the
Company. In June we were pleased to receive the first applications to our
Group Education Fund and the Trustees made initial awards for a total of
£230,000.
Climate and environmental action
Net zero: We have achieved a significant reduction in our absolute scope 1 and
2 market-based greenhouse gas emissions in the first half compared to the same
period last year. In addition, each manufacturing site has developed a net
zero roadmap that has been reviewed centrally and embedded in forward plans.
Our Spirax Sarco manufacturing facility in China, which accounted for 9% of
our total scope 1 and 2 emissions in 2021, secured a green tariff for its
electricity supply and we expect this to drive a further reduction in
emissions during the second half. At the end of the first half, we had
secured green energy contracts for close to 40% of the Group's electricity
supply and made further progress in implementing Project Clear Sky which will
fully decarbonise Steam Specialties' UK manufacturing facility. We also
signed a leasing contract to enable us to start a UK-wide transition to
electric vehicles across all Group Companies.
Biodiversity: So far in 2022, 56 biodiversity projects were initiated by our
Operating Companies globally. As an example, colleagues from our Steam
Specialties Business in Italy designed and built three beehives, using
recycled materials which are now installed on the roof of their building,
providing a home to around 150,000 bees.
Acquisitions and Disposals
At the end of January, we completed the £12.7 million acquisition of Cotopaxi
Limited, which was agreed in December 2021. The acquisition advances our
journey of embedding digital enablement across the Group. This digitally
enabled, global energy and consulting specialist will support the delivery of
the Steam Specialties Customer first(2) Strategy, by digitally enhancing its
customer bonding. During the first half of 2022 we continued investing in
support of the Cotopaxi business, to meet the growing demand from our Steam
Specialties customer base with 90 opportunities identified jointly since the
acquisition.
On 25th July, we announced a definitive agreement (subject to regulatory
approvals) to acquire Vulcanic, from Qualium, a French private equity company,
for a consideration of €261.7 million, on a cash and debt free basis,
subject to customary closing adjustments. The acquisition is expected to
complete by the end of the third quarter and will significantly strengthen our
ETS business.
On 6th July we concluded the disposal of our Spirax Sarco and Watson-Marlow
operations in Russia to their respective General Managers for a nominal
consideration for each operation. Those transactions completed our Group's
full withdrawal from Russia, following suspension of all trading with and
within Russia in March.
Financial Performance
Sales
Group sales increased by 17% in the first half of the year to £750.1 million
(2021: £643.7 million), up 15% on an organic basis, which included the impact
of price increases to offset inflation. Volumes also increased as we ramped
up shipments from our manufacturing facilities, successfully mitigating global
supply chain disruption and the ongoing impact of COVID-19 on our workforce.
Currency movements had a 2% positive effect on sales, compared with the same
period in 2021.
Steam Specialties sales of £400.6 million were up 11% or 10% up
organically. Demand for Steam Specialties products and solutions grew
significantly above global IP in the first half of 2022 and well above sales,
as the Business expanded its order book further from its record opening
position.
ETS sales of £104.7 million were up 18% or 13% up organically, with the
difference reflecting a currency tailwind as sterling depreciated against the
US dollar. This strong sales growth was driven primarily by Chromalox, which
represented over 75% of ETS sales in the first half and achieved organic
growth ahead of Steam Specialties.
Watson-Marlow sales of £244.8 million were up 27% or 26% up organically.
Sales to the Pharmaceutical & Biotechnology sector grew by close to 30%,
accounting for 60% of total sales. Sales to the Process Industries sectors
grew significantly above IP.
Adjusted operating profit
Group adjusted operating profit of £178.8 million (2021: £162.9 million) was
up 10%, or 9% up on an organic basis, the difference being due to currency
movements that increased Group adjusted operating profit by 2% as well as the
net effect of acquisitions and disposals.
In Steam Specialties, adjusted operating profit of £92.1 million was up 3%,
or 2% up on an organic basis. Adjusted operating profit in ETS of £12.8
million was up 14%, or 9% up organically after adjusting for the currency
tailwind. Watson-Marlow's adjusted operating profit for the first half was
up 22% to £87.0 million, or 21% up organically, driven by strong sales
growth.
Adjusted operating profit margin
Group adjusted operating profit margin of 23.8% was down 150bps, on both a
reported and organic basis, but above pre-pandemic levels and in line with our
guidance. As anticipated at the time of our full year 2021 results, this
reduction in adjusted operating profit margin was driven by the full year
impact of revenue investments made during 2021, with continued revenue
investments in 2022. We have continued to deploy our active approach to
price management to offset the impact of inflation on our Group adjusted
operating profit margin.
In Steam Specialties, adjusted operating profit margin of 23.0% was down
180bps, on both a reported and organic basis, reflecting our revenue
investments, including in our Digital Strategy.
ETS adjusted operating profit margin was down 40bps, or 60bps down
organically, at 12.2%. Within ETS, Chromalox increased its adjusted
operating profit margin organically, driven by the continued strong
performance in the Americas where margins are above 20%. Thermocoax's
adjusted operating profit margin was lower than the first half of 2021, as a
result of investment in our new manufacturing facility in Normandy (France).
In Watson-Marlow, adjusted operating profit margin of 35.5% was down 150bps,
or 170bps down organically. In line with prior guidance, the reduction in
adjusted operating profit margin reflects our continued revenue investments
and the recruitment of additional colleagues for our new manufacturing
facilities.
Statutory operating profit and margin
Statutory operating profit decreased 7% to £142.1 million (2021: £153.6
million) and the statutory operating profit margin decreased from 23.9% to
18.9%. Statutory operating profit is impacted by the same drivers as
described in the adjusted operating profit section above. However, these
positive impacts are more than offset by the reconciling items detailed below:
● A charge of £10.5 million (2021: £11.3 million) for the amortisation of
acquisition-related intangible assets
● Accelerated depreciation and other associated one-off costs of £4.0 million
relating to the Group Head Office building in Cheltenham (UK), which is being
comprehensively re-developed
● A restructuring charge of £15.4 million relating to Chromalox's manufacturing
operations in Soissons (France), which is part of ETS
● An impairment loss on the Group's Russian Operating Companies of £3.6 million
resulting from the reclassification of assets and liabilities as held for
sale, together with the associated disposal costs
● A charge of £3.2 million for costs related to the Cotopaxi and Vulcanic
acquisitions
Profit before tax
The Group adjusted profit before tax of £175.2 million (2021: £159.3
million) was up 10%. The statutory profit before tax of £138.5 million
(2021: £150.0 million) was down 8%. The reconciling items between the
adjusted profit before tax and the statutory profit before tax are shown above
and in Note 2.
Financing expense
Net financing expense remained at £3.6 million (2021: £3.6 million),
comprising £2.6 million of net bank interest (2021: £2.3 million), £0.3
million of interest on net pension liabilities (2021: £0.8 million) and £0.7
million of interest on lease liabilities (2021: £0.5 million). We
anticipate that the net financing expense in the second half of the year will
be higher by approximately £2.0 million as a result of the acquisition of
Vulcanic.
Tax
The Group adjusted effective tax rate of 26.3% (full year 2021: 25.1%), is
based on the expected full year tax rate, in line with the previous guidance
of approximately 26%.
The effective tax rate on statutory profit increased to 29.8% (full year 2021:
25.3%) due to the tax impact of the amortisation of acquired intangibles and
the costs associated with (i) the restructuring of Chromalox's manufacturing
operations in Soissons (France), (ii) the acquisition of Vulcanic and (iii)
the re-development of the Group Head Office in Cheltenham (UK).
On 8th June 2022, the European Union (EU) General Court published its decision
on the appeals for annulment made against the European Commission's (EC) 2019
decision that certain aspects of the UK's Controlled Foreign Company regime
constituted State Aid, finding in favour of the EC. The UK Government and
the taxpayer have an option to appeal the decision of the EU General Court.
Whilst the EU General Court ruling was in favour of the EC, our assessment is
that there are grounds for successful appeal. As a result, we have continued
to recognise a receivable of £4.9 million in the Statement of Financial
Position. This relates to the full amount paid to HM Revenue & Customs
for Charging Notices received in 2021. The Group has not received a Charging
Notice for either the benefit received prior to 2017, which is estimated to be
£2.8 million, or the benefit received during 2019 of £1.0 million. No
provisions have currently been recognised relating to these amounts and
therefore they remain a contingent liability at 30th June 2022. Further
details are included in Note 5 to the Financial Statements.
Earnings per share
Adjusted basic earnings per share of 175.1 pence (2021: 157.6 pence) was up
11%, in line with the increase in adjusted operating profit. Basic earnings
per share on a statutory basis was 131.8 pence (2021: 147.6 pence). The
fully diluted earnings per share were not materially different in either year.
Dividends
The Board has declared an interim dividend of 42.5 pence (2021: 38.5 pence)
per ordinary share, an increase of 10%. This growth in the interim dividend
follows an increase of 15% in the total dividend in respect of 2021. The
dividend will be paid on 11th November 2022 to shareholders on the register at
the close of business on 14th October 2022. The final dividend of 97.5 pence
per share in respect of 2021 was paid on 20th May 2022 at a cash cost of
£71.9 million.
Financial Position and Cash Flow
Capital employed (Note 2) increased to £766.9 million at 30th June 2022. In
the first half, our capital expenditure was £49.3 million, up from £22.2
million in 2021, with nearly 85% of the increase coming from Watson-Marlow
which now represents approximately two thirds of total Group capital
expenditure as we invest to support future growth. For the full year, we
expect capital expenditure to be approximately 7% of sales, as a result of
increased investment in the second half in new production facilities for
Watson-Marlow, as well as our factory modernisation projects and the rollout
of our new ERP system in Steam Specialties. During the first half, tangible
fixed assets (Property, Plant & Equipment (PPE) and IFRS 16
right-of-use-assets) increased by £35.0 million to £375.3 million.
The ratio of working capital to sales increased by 210bps (at constant
currency) to 24.1% (2021: 22.0%). This reflects a planned rebuilding of
stock, to meet increasing demand and mitigate supply-chain-related shortages
of raw materials, as well as an increase in receivables. Going forward, we
anticipate a reduction in the ratio of working capital to sales, to a similar
level as reported in 2021, as shipments increase in the second half of the
year.
Adjusted cash from operations of £78.4 million (2021: £139.1 million) was
down £60.7 million due to increased capital expenditure and investment in
working capital, resulting in cash conversion of 44% (2021: 85%). Adjusted
cash from operations is a measure of the cash flow generated from our
Operating 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.
After adjusting for the £4.9 million payment made to HM Revenue & Customs
in relation to EU State Aid in the first half of 2021, tax paid in the period
increased to £41.2 million driven by higher profitability.
Adjusted free cash flow decreased to £33.9 million (2021: £95.1 million)
principally as a result of increased capital expenditure and investment in
working capital.
Dividend payments were £72.2 million (2021: £62.6 million) including
payments to minority shareholders.
Share purchases, net of new shares issued for the Group's various employee
share schemes, resulted in a cash outflow of £10.4 million (2021: £11.8
million).
The net post-retirement benefit liability under IAS 19 decreased to £35.2
million (2021: £44.7 million). The fair value of assets decreased by
£149.8 million from 31st December 2021 reflecting market movements.
Liabilities were also lower by £159.3 million, largely driven by an increase
in the AA corporate bond interest rates used to discount future cash flows.
At 30th June 2022, net debt (excluding leases) was £202.7 million, a net debt
to EBITDA ratio of 0.5x, compared with net debt of £192.8 million at 30th
June 2021. Net debt will increase in the second half following completion of
the acquisition of Vulcanic, which will be funded through a new committed bank
facility.
Adjusted cash flow 30th June 2022 30th June 2021
£m £m
Adjusted operating profit 178.8 162.9
Depreciation and amortisation (excluding IFRS 16) 17.0 17.8
Depreciation of leased assets 6.4 5.7
Payments to pension schemes above charge to adjusted operating profit (2.9) (2.4)
Equity-settled share plans 4.8 4.8
Working capital changes (70.8) (22.6)
Repayments of principal under lease liability (6.2) (5.7)
Capital expenditure (including software and development) (49.3) (22.2)
Capital disposals 0.6 0.8
Adjusted cash from operations 78.4 139.1
Net interest (3.3) (2.8)
Income taxes paid (41.2) (41.2)
Adjusted free cash flow 33.9 95.1
Net dividends paid (72.2) (62.6)
Purchase of employee benefit trust shares and issue of share capital (10.4) (11.8)
Acquisitions of subsidiaries (12.7) -
Cash flow for the period (61.4) 20.7
Exchange movements (8.5) 15.3
Cash transferred to assets classified as held for sale (2.3) -
Opening net debt (130.5) (228.8)
Net debt at 30(th) June 2022 (excluding IFRS 16) (Note 2) (202.7) (192.8)
IFRS 16 lease liability (61.8) (32.4)
Net debt and lease liability at 30(th) June 2022 (Note 2) (264.5) (225.2)
Currency movements
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, 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 Operating Companies.
OUTLOOK
Macroeconomic forecasts for 2022 continue to deteriorate on increased
uncertainty caused by the conflict in Ukraine and China's response to
COVID-19, as well as actions taken by governments and central banks around the
world to contain rising inflationary pressures, compounded by the global
supply chain challenges that began in 2021. Over the past three months,
forecasts for global industrial production growth (IP) in 2022 have reduced
from 4.2% at the time of our full year results to 3.5% as of 15th July 2022.
We continue to be confident in our Group's resilience and ability to navigate
the current uncertain macroeconomic climate. This is underpinned by our
robust business model, our proven price management practices to offset
inflation, record order books, ramp-up of our manufacturing capacity to meet
customer needs and our ongoing mitigation of disruption caused by the global
supply chain and COVID-19 impacts on our workforce.
If exchange rates at the end of July were to prevail for the remainder of the
year, there would be a tailwind impact of approximately 3.0% on 2021 sales and
approximately 3.5% on 2021 adjusted operating profit. Movements in exchange
rates are often volatile and unpredictable, especially given the current
geopolitical uncertainties, therefore the actual impact could be significantly
different.
In the first half of the year, the acquisition of Cotopaxi and the suspension
of trading as part of the exit from Russia, had a net impact of less than 1%
on sales and just over 1% on profit. We expect a similar impact for the full
year, excluding the impact of the Vulcanic acquisition.
Against current IP forecasts, for close to 80% of the Group's revenue streams
we anticipate organic sales growth significantly above IP in 2022, supported
by both strong volume growth and price increases. For the balance of the
Group's revenue streams, in Watson-Marlow's Pharmaceutical & Biotechnology
sector that now accounts for 60% of its sales, we continue to anticipate very
strong organic sales growth of around 20% for the full year. Overall, we
expect Group revenues in 2022, excluding contributions from the Vulcanic
acquisition, will reflect the typical split of approximately 48% and 52%
between the first half and second half of the year.
As anticipated, our 2021 and 2022 revenue investments in support of future
organic growth have reduced the Group's adjusted operating profit margin in
the first half of the year, partially offset by the benefit of operational
gearing from higher sales. We expect the full year adjusted operating profit
margin in 2022 will be similar to the first half, as we continue to invest for
growth, remaining comfortably above pre-pandemic levels.
On 25th July, the Group announced a definitive agreement to acquire Vulcanic
and the transaction is expected to close late in the third quarter of 2022,
following the receipt of regulatory approvals. Proforma for Vulcanic's
acquisition of EML in December 2021, the Company's revenues in 2021 were
€89.4 million (£76.8 million) with adjusted earnings before interest, tax,
depreciation and amortisation of €17.6 million (£15.2 million) and adjusted
operating profit of €16.0 million (£13.8 million). Vulcanic's organic
sales growth in 2021 and during the first half of 2022 was similar to ETS and
we expect the full year 2022 sales growth to be similar to ETS.
We continue to expect that full year cash conversion will be higher than in
the first half but lower than our historical levels of around 90%, as we step
up capital investments to be approximately 7% of sales and increase working
capital in line with revenue.
CORPORATE GOVERNANCE
Our diverse Board has remained stable in 2022 and has 40% female
representation as well as 30% ethnic diversity. You can find details of our
Directors on pages 96 and 97 of the 2021 Annual Report and Accounts. The
Board met four times in the first half of the year, including a Strategy
Meeting where the Board reviewed the Group's Medium Term Plan. Other key
highlights of Board activity included overseeing the acquisition of Cotopaxi,
the ongoing global rollout of the Group's One Planet Sustainability Strategy,
the launch of the Group's Inclusion Plan, as well as a site visit to Spirax
Sarco's Blythewood manufacturing facility in South Carolina (USA). The Board
also met on 1st July to review and approve the acquisition of Vulcanic.
PRINCIPAL RISKS AND UNCERTAINTIES
The Group has processes in place to identify, evaluate and mitigate the
principal risks that could have an impact on the Group's performance. The
principal risks, as agreed at the most recent meeting of the Risk Management
Committee, together with a description of why they are relevant and if the
significance of the risk has changed during the first half of 2022, are set
out below. Details of how they link with the Group's strategy, an
explanation of the change in risk and how mitigation is managed are disclosed
in the 2021 Annual Report & Accounts.
● Economic and political instability - Increased compared to 2021 year end
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. The impact of the conflict in Ukraine has resulted in an
increase to this risk.
● Significant exchange rate movements - Consistent compared to 2021 year end
The Group reports its results and pays dividends in sterling. Operating and
manufacturing companies trade 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 - Consistent compared to 2021 year end
Cybersecurity risks include risks from malware, accident, statutory and
legislative requirements, malicious actions and other unauthorised access by
third parties, including through our supply chain.
● Loss of manufacturing output at any Group factory - Consistent compared to
2021 year end
The risk includes loss of output as a result of natural disasters, industrial
action, accidents or any other cause. Loss of manufacturing output at any
important plant risks serious disruption to sales operations.
● Failure to realise acquisition objectives - Consistent compared to 2021 year
end
Whilst the Group mitigates this risk in various ways, including through
comprehensive due diligence, professional advisers and contractual
protections, there are some variables that are uncontrollable or difficult to
control, such as economic conditions, culture clashes and employee movement,
which could impact acquisition objectives.
● Breach of legal and regulatory requirements (including ABC laws) - Consistent
compared to 2021 year end
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 operations and 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 - Consistent
compared to 2021 year end
This risk could lead to a loss of business because of a failure to respond
rapidly to changes in the needs of customers or technology shifts.
● Loss of critical supplier - Consistent compared to 2021 year end
This risk could lead to a loss of business because of a failure to respond
rapidly to changes in the needs of customers or technology shifts.
Emerging risks
We are monitoring the current conflict in Ukraine. Our business in the
Ukraine is confined to Steam Specialties. We have ceased all trading with
and within Russia and have disposed of our two Operating Companies in that
country. In addition, we are monitoring macroeconomic risks, such as increased
material and labour costs, energy cost inflation and changes to the interest
rate environment. We are mitigating these risks through our embedded processes
to manage key margin drivers such as our price management practices.
OPERATING REVIEW
STEAM SPECIALTIES
HY 2021 Exchange Organic Acquisitions & disposals* HY 2022 Organic Reported
Revenue £361.9m £3.3m £36.8m £(1.4)m £400.6m +10% +11%
Adjusted operating profit £89.8m £0.9m £2.0m £(0.6)m £92.1m +2% +3%
Adjusted operating profit margin 24.8% 23.0% -180bps -180bps
Statutory operating profit £89.8m £87.7m -2%
Statutory operating profit margin 24.8% 21.9% -290bps
*Includes the impact of (i) the acquisition of Cotopaxi Limited and (ii) the
treatment of Spirax Sarco Russia as a disposal from the date at which the
Group suspended all trading with and within Russia.
Market overview
As part of its Customer first(2) Strategy, Steam Specialties is targeting
eight priority end-use sectors through its dual brands of Spirax Sarco and
Gestra. With the exception of Power Generation, which is served through Gestra
and was impacted by uncertainty in the European power generation market
following the Russian invasion of Ukraine, all priority sectors grew strongly
in the first half, well above global IP. Demand was strongest in the
Healthcare sector, as countries looked to catch-up maintenance following the
pressures of the COVID-19 pandemic on hospitals. In addition, the Machine
OEM and Boiler OEM segments both achieved double digit growth.
Global IP was 2.9% in the first half of 2022, compared to 11.4% for the
equivalent period of 2021. Steam Specialties serves its customers through
three regional divisions. In EMEA, IP of 2.3% in the first half was below
the 10.6% for the equivalent period in 2021, with IP dropping to 1.6% in the
second quarter driven by the combined impacts of COVID-19, global supply chain
disruption and the Russian invasion of Ukraine. In North America, IP of 5.3%
was similar to the 5.7% recorded in the first half of 2021, with quarterly IP
strengthening sequentially over the last two quarters. In Asia Pacific, IP
of 2.8% was significantly below H1 2021 driven primarily by the impact of the
lockdown in China in Q2.
Progress in the half year
Steam Specialties sales of £400.6 million were up 11% or 10% up
organically. Demand for Steam Specialties products and solutions grew
significantly above global IP in the first half of 2022 and well above sales,
as the Business expanded its order book further from its record opening
position.
In EMEA, Steam Specialties achieved 8% organic sales growth. Across the four
major markets of EMEA (UK, Germany, France and Italy), which collectively
represent over 60% of sales in EMEA, demand and sales growth was particularly
strong in Italy driven by the recovery in the marine business. Overall
demand for large project orders, which typically have longer lead times and
lower margins than base business and self-generated sales, was above the
historical average.
In Asia Pacific, organic sales growth of 7% represented a strong performance
against a backdrop of IP falling from 13.9% in the first half of 2021 to
2.8%. In China, which represents over 55% of sales in the Asia Pacific
region, organic sales growth was a modest 3%, significantly behind demand
growth as the lockdowns in Shanghai impacted our ability to ship. In Korea,
the second largest market in the region, sales increased by over 20%
organically.
In the Americas, sales were up 18% organically, significantly above IP, with
demand growth even stronger. In the US, the largest market in the region
representing around 50% of Americas revenues, sales were up 12% organically.
We achieved exceptional growth across Latin America, including the largest
markets of Brazil and Argentina, where we see demand from lithium mining
projects to support electric vehicle battery production.
Adjusted operating profit of £92.1 million was up 3%, or 2% up on an organic
basis. Adjusted operating profit margin of 23.0% was down 180bps, on both a
reported and organic basis, reflecting our revenue investments including in
our Digital Strategy.
Statutory operating profit of £87.7 million was down 2% from £89.8 million
in the first half of 2021 and statutory operating profit margin of 21.9% was
also down 290bps.
During the first half, Steam Specialties continued to implement its Customer
first(2) Strategy, following the refresh that took place in 2021. This
includes an increased focus on strategic sectors, such as Food & Beverage
and machine OEMS, where sales were up 13% and 14% respectively. Steam
Specialties continued to evolve its Natural Technology marketing campaign,
including planning its COP27 marketing and communications campaign. Our
plans to bring further digital capabilities to our sales engineers continue to
progress with a rapid growth in the number of sales engineers trained during
the first half.
Business outlook
During the first half, Steam Specialties experienced strong demand growth,
expanding its order book, while also managing price to offset the impact of
inflation on the adjusted operating profit margin. Volume growth, together
with increased prices, underpinned the strong first half organic sales growth,
significantly exceeding IP growth for the period. We anticipate sales growth
for the full year 2022 will continue to outperform current full year forecasts
for IP by a similar factor.
As anticipated, the first half adjusted operating profit margin was 180bps
lower organically, due to the full year impact of our 2021 and 2022 revenue
investments, which offset the benefit of operational gearing from higher
sales. We expect a similar impact on the full year 2022 adjusted operating
profit margin, compared to 2021.
ELECTRIC THERMAL SOLUTIONS
HY 2021 Exchange Organic Acquisitions & disposals HY 2022 Organic Reported
Revenue £88.9m £3.5m £12.3m - £104.7m +13% +18%
Adjusted operating profit £11.2m £0.6m £1.0m - £12.8m +9% +14%
Adjusted operating profit margin 12.6% 12.2% -60bps -40bps
Statutory operating profit/ (loss) £4.5m £(8.9)m -298%
Statutory operating profit/ (loss) margin 5.1% (8.5)% -1,360bps
Market overview
ETS focuses on its four strategic sectors of Energy Transition, Materials,
Advanced Technology and Health & Nutrition, which comprise ten sub sectors
served by either Chromalox or Thermocoax. As a result of this focus, ETS has
a different balance of end use markets when compared to the rest of the Group,
which includes providing solutions to industries such as Sustainable Energy,
Nuclear, Semiconductor as well as Aerospace & Defence.
Chromalox, which represented over 75% of ETS sales in 2021, generates close to
three-quarters of its sales in the Americas, with the significant majority of
those sales in the USA where IP in the first half was 5.3%. Thermocoax
continues to generate approximately two thirds of its revenue in EMEA, where
IP in the first half was 2.3%. Following the completion of the acquisition
of Vulcanic, which is a predominantly EMEA-focused business, the geographic
footprint of ETS will materially rebalance with over 40% of sales in EMEA and
almost 50% in the Americas (on a proforma based on 2021 sales).
Progress in the first half
Demand growth for ETS products was significantly ahead of IP and above
sales. In Chromalox, demand growth was strongest in the strategically
important sectors of Energy Transition and Health & Nutrition. Chromalox
is also continuing to build a substantial pipeline of decarbonisation
opportunities to support future growth. In Thermocoax, demand recovered
strongly in the Aerospace & Defence market and customers in the
Semiconductor sector brought forward orders fearing supply chain constraints
could delay deliveries.
ETS sales of £104.7 million were up 18% or 13% up organically, with the
difference reflecting a currency tailwind as sterling depreciated against the
US dollar. This strong sales growth was driven primarily by Chromalox, which
achieved organic growth ahead of Steam Specialties. In Thermocoax, organic
growth was lower than the average for ETS, reflecting the longer lead times on
shipments to the Nuclear and Semiconductor markets.
Sales in Chromalox Americas benefitted from higher output from our
manufacturing sites as our operational improvement plans gained further
traction. At our Ogden manufacturing facility in Utah (USA) we conducted an
extensive process mapping exercise to identify and reduce bottlenecks across a
range of activities, which has resulted in increased shipments with further
improvements targeted.
Sales from Chromalox EMEA were lower in the first half with a significant
reduction in output from our plant in Soissons (France), which is subject to
an ongoing consultation process with trade unions to address the lack of
profitability at that site. In the event that the consultation results in
collective dismissals, we expect key aspects of the process to be completed by
the end of December 2022. In Asia Pacific, sales increased by over 50%,
driven by continued growth in the region and improved shipment of the large
existing order book.
Adjusted operating profit in ETS of £12.8m was up 14%, or 9% up organically
after adjusting for the currency tailwind.
Adjusted operating profit margin was down 40bps, or 60bps down organically, at
12.2%. Within ETS, Chromalox increased its adjusted operating profit margin
organically, driven by the continued strong performance in the Americas where
margins are above 20%. Adjusting for losses incurred in Soissons (France)
during the first half of 2022, the ETS adjusted operating profit margin would
have been higher than in the first half of 2021. Thermocoax's adjusted
operating profit margin was lower than the first half of 2021, as a result of
investment in our new manufacturing facility in Normandy (France) as we ramped
up production.
Statutory operating losses of £8.9 million, down from a profit of £4.5
million in the first half of 2021, reflected the impact of restructuring
charges in relation to Chromalox EMEA. For the same reason, statutory
operating profit margin of (8.5)% was also down 1,360bps.
Business outlook
ETS continues to benefit from strong demand growth, leading to further
expansion of its order book that remains at record levels. First half
organic sales growth was also supported by increased shipments, as we
continued to improve operational capacity in Chromalox. For the full year
2022, we anticipate ETS organic sales growth will be significantly ahead of
global IP and similar to the first half, growing above Steam Specialties.
As a result of the operational gearing from increased sales, we anticipate
adjusted operating profit growth ahead of sales growth in 2022, with an
increase in the adjusted operating profit margin for the full year.
WATSON-MARLOW
HY 2021 Exchange Organic Acquisitions & disposals* HY 2022 Organic Reported
Revenue £192.9m £4.5m £50.7m £(3.3)m £244.8m +26% +27%
Adjusted operating profit £71.3m £2.0m £14.9m £(1.2)m £87.0m +21% +22%
Adjusted operating profit margin 37.0% 35.5% -170bps -150bps
Statutory operating profit £68.7m £83.6m +22%
Statutory operating profit margin 35.6% 34.2% -140bps
*Includes the treatment of Watson-Marlow Russia as a disposal from the date at
which the Group suspended all trading with and within Russia.
Market overview
Similar to both Steam Specialties and ETS, Watson-Marlow's sales to its
customers in the Process Industries sectors benefitted from continued global
IP growth.
The Pharmaceutical & Biotechnology sector, which accounted for 60% of
Watson-Marlow sales in the first half of 2022, has historically grown at an
annual rate of between 12% and 14%, while Watson-Marlow's sales to this sector
have historically grown at close to 20% per annum.
Progress in the first half
Watson-Marlow entered 2022 with a record order book following exceptional
growth in demand due to the global COVID-19 vaccine rollout. In the first
half of 2022, demand from Watson-Marlow's customers in the Pharmaceutical
& Biotechnology sector normalised, reflecting lower COVID-19 related
demand, while growth from the Process Industries sectors was significantly
above IP. Watson-Marlow's overall order book at the half year remains above
the 2021 year-end position.
Watson-Marlow sales of £244.8 million were up 27% or 26% up organically.
Sales to the Pharmaceutical & Biotechnology sector grew by close to 30%,
reflecting increased deliveries against the significant order book. Sales to
the Process Industries sectors grew significantly above IP, with all four
priority sectors of Food & Beverage, Industrial, Mining and Water &
Wastewater achieving double digit growth. In the first half of 2022, sales
to the Pharmaceutical & Biotechnology sector accounted for 60% of
Watson-Marlow's total sales, a similar level to the first half of 2021.
Watson-Marlow's adjusted operating profit for the first half was up 22% to
£87.0 million, or 21% up organically driven by strong sales growth.
Adjusted operating profit margin of 35.5% was down 150bps, or 170bps down
organically. In line with prior guidance, the reduction in adjusted
operating profit margin reflects our continued revenue investments and the
recruitment of additional colleagues for our new manufacturing facilities.
Statutory operating profit of £83.6 million was up 22% compared to the first
half of 2021, while statutory operating profit margin was down 140bps for the
same reasons as set out above.
Watson-Marlow has continued to make significant progress in expanding its
manufacturing capacity during the first half of 2022. In the UK, the third
extrusion line at Watson-Marlow's Falmouth facility is now fully operational
and validated. The new Biopure facility in Portsmouth (UK) commenced
production in March 2022. At the end of July, eight injection moulding
machines were operational and the site fitout is now complete, with all four
cleanrooms passing air quality commissioning. In Massachusetts (USA) the
construction of our new North American supply facility remains on track with
first customer deliveries planned before the end of the year. Total
investment in this facility is now expected to be US$106 million, as a result
of enhanced sustainability investments, bringing forward capacity expansions
and inflation.
In addition to expansions in manufacturing capacity, Watson-Marlow continues
investing to drive future organic growth. Our regional sales teams increased
headcount by almost 50 colleagues across EMEA, Asia Pacific and the Americas
compared to the position at the end of the first half of 2021. We continued
to invest in new products utilising conveying wave technology, including new
product variants which operate at higher pressures and higher flow rates.
Business outlook
In 2022, supported both by ongoing demand and the record order book, we
continue to anticipate around 20% organic sales growth to the Pharmaceutical
& Biotechnology sector, which accounts for 60% of Watson-Marlow sales.
Across the Process Industries sectors, we anticipate similar organic sales
growth for 2022 to that of the first half, remaining significantly ahead of
global IP. While we expect strong sales growth in the second half of 2022,
the organic sales growth rate will be lower than that achieved in the first
half, reflecting the strong second half comparator in 2021.
Similar to Steam Specialties, the benefit of operational gearing from higher
sales has been offset by the full year impact of our 2021 and 2022 revenue
investments leading to a 170bps organic reduction in the adjusted operating
profit margin in the first half of 2022. We anticipate that for the full
year 2022, the margin will be below the first half of 2022, reflecting ongoing
investment as we ramp-up new manufacturing capacity, but comfortably above
2020.
INDEPENDENT REVIEW REPORT TO SPIRAX-SARCO ENGINEERING PLC
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30th
June 2022, 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 16.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 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 Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the Directors have
inappropriately adopted the going concern basis of accounting or that the
Directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE (UK), however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the Directors are responsible
for assessing the Group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the Directors either intend to liquidate the
Company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the Group a conclusion on the condensed set of financial
statement in the half-yearly financial report. Our conclusion, including our
Conclusions Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the Company in accordance with International
Standard on Review Engagements (UK) 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
10th August 2022
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Notes 30(th) June 30(th) June 31(st) December
2022 2021* 2021
£m £m £m
(unaudited) (unaudited) (audited)
ASSETS
Non-current assets
Property, plant and equipment 311.1 257.9 277.4
Right-of-use assets 64.2 34.7 62.9
Goodwill 446.8 411.6 411.2
Other intangible assets 263.8 262.1 255.7
Prepayments 1.3 2.0 1.3
Investment in Associate - - -
Taxation recoverable 4.9 4.9 4.9
Deferred tax assets 50.0 41.6 46.1
1,142.1 1,014.8 1,059.5
Current assets
Inventories 239.4 182.8 201.3
Trade receivables 311.1 236.1 272.3
Other current assets 58.7 43.6 44.7
Taxation recoverable 9.4 7.9 10.8
Assets classified as held for sale 14 0.7 - -
Cash and cash equivalents 9 304.9 253.6 274.6
924.2 724.0 803.7
Total assets 2,066.3 1,738.8 1,863.2
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables 225.4 171.4 217.0
Provisions 14.2 4.9 5.2
Bank overdrafts 9 74.3 46.9 55.6
Current portion of long-term borrowings 9 0.9 103.7 59.6
Short-term lease liabilities 9 12.6 10.1 11.2
Liabilities directly associated with assets classified as held for sale 14 0.5 - -
Current tax payable 33.8 33.0 33.1
361.7 370.0 381.7
Net current assets 562.5 354.0 422.0
Non-current liabilities
Long-term borrowings 9 432.4 295.8 289.9
Long-term lease liabilities 9 49.2 22.3 48.9
Deferred tax liabilities 88.1 76.5 81.8
Post-retirement benefits 8 35.2 52.6 44.7
Provisions 1.6 1.5 1.5
Long-term payables 6.2 5.3 4.7
612.7 454.0 471.5
Total liabilities 974.4 824.0 853.2
Net assets 3 1,091.9 914.8 1,010.0
Equity
Share capital 19.8 19.8 19.8
Share premium account 86.6 85.0 86.3
Translation and other reserves 2.6 (47.8) (58.2)
Retained earnings 982.1 857.0 961.1
Equity shareholders' funds 1,091.1 914.0 1,009.0
Non-controlling interest 0.8 0.8 1.0
Total equity 1,091.9 914.8 1,010.0
Total equity and liabilities 2,066.3 1,738.8 1,863.2
* The 30th June 2021 comparatives for Other intangible assets and Retained
earnings have been restated following the IFRS Interpretations Committee
agenda decision on configuration and customisation costs in cloud computing
arrangements (Software as a Service (SaaS)), see Note 1 for further details.
Due to the immaterial nature of the adjustment, no additional Statement of
Financial Position as at the beginning of the prior year has been presented.
CONDENSED CONSOLIDATED INCOME STATEMENT
Six months to Six months to Year ended
30th June 2022 30th June 2021 31st December 2021
Adjusted Adj't Total Adjusted Adj't Total Adjusted Adj't Total
£m £m £m £m £m £m £m £m £m
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (audited) (audited) (audited)
Revenue (Note 3) 750.1 - 750.1 643.7 - 643.7 1,344.5 - 1,344.5
Operating costs (571.3) (36.7) (608.0) (480.8) (9.3) (490.1) (1,004.2) (19.4) (1,023.6)
Operating profit (Note 2/3) 178.8 (36.7) 142.1 162.9 (9.3) 153.6 340.3 (19.4) 320.9
Financial expenses (5.5) - (5.5) (5.0) - (5.0) (9.8) - (9.8)
Financial income 1.9 - 1.9 1.4 - 1.4 3.4 - 3.4
Net financing expense (Note 4) (3.6) - (3.6) (3.6) - (3.6) (6.4) - (6.4)
Share of (loss)/profit of Associate - - - - - - - - -
Profit before taxation 175.2 (36.7) 138.5 159.3 (9.3) 150.0 333.9 (19.4) 314.5
Taxation (Note 5) (46.1) 4.8 (41.3) (43.0) 1.9 (41.1) (83.9) 4.3 (79.6)
Profit for the period 129.1 (31.9) 97.2 116.3 (7.4) 108.9 250.0 (15.1) 234.9
Attributable to:
Equity shareholders 129.0 (31.9) 97.1 116.2 (7.4) 108.8 249.7 (15.1) 234.6
Non-controlling interest 0.1 - 0.1 0.1 - 0.1
0.3 - 0.3
Profit for the period 129.1 (31.9) 97.2 116.3 (7.4) 108.9 250.0 (15.1) 234.9
Earnings per share
Basic earnings per share (Note 2/6) 175.1p 131.8p 157.6p 147.6p 338.9p 318.3p
Diluted earnings per share (Note 2/6) 174.8p 131.5p 157.3p 147.3p 338.0p 317.5p
Dividends
Dividends per share (Note 7) 42.5p 38.5p 136.0p
Dividends paid (per share) (Note 7) 97.5p 84.5p 123.0p
Adjusted figures exclude certain items as detailed in Notes 2 and 3. All
amounts relate to continuing operations. The Notes on pages 29 to 46 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) June to 30(th) June 31(st) December
2022 2021 2021
£m £m £m
(unaudited) (unaudited) (audited)
Profit for the period 97.2 108.9 234.9
Items that will not be reclassified to profit or loss:
Remeasurement gain on post-retirement benefits 8.5 40.4 46.3
Deferred tax on remeasurement gain on post-retirement benefits (2.3) (7.2) (8.9)
6.2 33.2 37.4
Items that may be reclassified subsequently to profit or loss:
Exchange gain/(loss) on translation of foreign operations and net investment 63.8 (10.7) (6.8)
hedges
(Loss)/profit on cash flow hedges net of tax (7.7) 0.8 (2.8)
56.1 (9.9) (9.6)
Total comprehensive income for the period 159.5 132.2 262.7
Attributable to:
Equity shareholders 159.4 132.1 262.4
Non-controlling interest 0.1 0.1 0.3
Total comprehensive income for the period 159.5 132.2 262.7
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period ended 30(th) June 2022
(unaudited)
Share Equity
Share Premium Translation Other Retained Shareholders controlling T
o
capital account Reserve* reserves Earnings funds Interests t
a
l
e
q
u
i
t
y
£m £m £m £m £m £m £m £m
Balance at 1(st) January 2022 19.8 86.3 (53.2) (5.0) 961.1 1,009.0 1.0 1,010.0
Profit for the period - - - - 97.1 97.1 0.1 97.2
Other comprehensive income/(expense):
Foreign exchange translation differences and net investment hedges - - 71.0 - 63.8 - 63.8
(7.2)
Remeasurement gain on post-retirement benefits - - - - 8.5 8.5 - 8.5
Deferred tax on remeasurement gain on post-retirement benefits - - - - (2.3) (2.3) - (2.3)
Cash flow hedges - - - (7.7) - (7.7) - (7.7)
Total other comprehensive income/(expense) for the period - - 71.0 (14.9) 6.2 62.3 - 62.3
Total comprehensive income/(expense) for the period - - 71.0 (14.9) 103.3 159.4 0.1 159.5
Contributions by and distributions to owners of the Company:
Dividends paid - - - - (71.9) (71.9) (0.3) (72.2)
Equity-settled share plans net of tax - - - - (10.4) (10.4) - (10.4)
Issue of share capital - 0.3 - - - 0.3 - 0.3
Employee Benefit Trust shares - - - 4.7 - 4.7 - 4.7
Balance at 30(th) June 2022 19.8 86.6 17.8 (15.2) 982.1 1,091.1 0.8 1,091.9
**In prior years, the translation reserve was included within other reserves
with a breakdown being disclosed separately in the notes to the year-end
Financial Statements. Due to the material value of this reserve, we have
presented it as a separate heading in the Statement of Changes in Equity for
the period ended 30th June 2022. The comparatives have also been amended to
reflect this reclassification to ensure comparability and consistency.
Other reserves represent the Group's 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 30(th) June 2021 Share premium Equity shareholders' funds Non-controlling interest
(unaudited) Share capital account Translation Other Retained earnings £m £m Total equity
£m £m Reserve** reserves £m £m
£m £m
Balance at 1(st) January 2021 (restated)* 19.8 84.8 (27.6) (8.5) 782.8 851.3 1.0 852.3
Profit for the period - - - - 108.8 108.8 0.1 108.9
Other comprehensive (expense)/income:
Foreign exchange translation differences and net investment hedges - - 13.0 - (10.7) - (10.7)
(23.7)
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)
Cash flow hedges - - - 0.8 - 0.8 - 0.8
Total other comprehensive (expense)/income for the period - - 13.8 33.2 23.3 - 23.3
(23.7)
Total comprehensive (expense)/income for the period - - 13.8 142.0 132.1 0.1 132.2
(23.7)
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 (51.3) 3.5 857.0 914.0 0.8 914.8
*As a result of the IFRS Interpretations Committee agenda decision released
during 2021, the Group reassessed the accounting treatment in relation to
customisation and configuration costs for cloud-based software (Software as a
Service (SaaS)). This resulted in an adjustment to opening reserves of £3.7
million. See Note 1 for further details.
For the period ended 31(st) December 2021 Share Equity shareholders' funds Non-controlling interest
(audited) Share Premium Translation Other Retained £m £m Total
Capital account Reserve** reserves Earnings Equity
£m £m £m £m £m £m
Balance at 1(st) January 2021 19.8 84.8 (27.6) (8.5) 782.8 851.3 1.0 852.3
Profit for the year - - - - 234.6 234.6 0.3 234.9
Other comprehensive (expense)/income:
Foreign exchange translation differences and net investment hedges - - (25.6) 18.8 - (6.8) - (6.8)
Remeasurement gain on post-retirement benefits - - - - 46.3 46.3 - 46.3
Deferred tax on remeasurement gain on post-retirement benefits - - - - (8.9) (8.9) - (8.9)
Cash flow hedges - - - (2.8) - (2.8) - (2.8)
Total other comprehensive (expense)/income for the year - - (25.6) 16.0 37.4 27.8 - 27.8
Total comprehensive (expense)/income for the year - - (25.6) 16.0 272.0 262.4 0.3 262.7
Contributions by and distributions to owners of the Company:
Dividends paid - - - - (90.7) (90.7) (0.3) (91.0)
Equity settled share plans net of tax - - - - (3.0) (3.0) - (3.0)
Issue of share capital - 1.5 - - - 1.5 - 1.5
Employee Benefit Trust shares - - - (12.5) - (12.5) - (12.5)
Transfer between reserves - - - - - - - -
Balance at 31(st) December 2021 19.8 86.3 (53.2) (5.0) 961.1 1,009.0 1.0 1,010.0
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Notes Six months Six months Year ended
to 30(th) June to 30(th) June 31(st) December
2022 2021 2021
£m £m £m
(unaudited) (unaudited) (audited)
Cash flows from operating activities
Profit before taxation 138.5 150.0 314.5
Depreciation, amortisation and impairment 40.9 35.3 69.0
Profit on disposal of fixed assets (0.7) (0.5) (0.5)
Loss on impairment of assets classified as held for sale 14 3.6 - -
Cash payments to the pension schemes greater than the charge to operating (2.9) (4.4) (7.6)
profit
Restructuring related provisions and impairments 16.3 - -
Equity-settled share plans 4.8 4.8 9.2
Net finance expense 3.6 3.6 6.4
Operating cash flow before changes in working capital and provisions 204.1 188.8 391.0
(Increase)/decrease in trade and other receivables (36.3) (28.8) (71.3)
(Increase)/decrease in inventories (29.7) (7.0) (26.7)
(Decrease)/increase in provisions (0.8) (1.4) (1.0)
(Decrease)/increase in trade and other payables (4.0) 14.6 59.5
Cash generated from operations 133.3 166.2 351.5
Income taxes paid (41.2) (41.2) (78.1)
Net cash from operating activities 92.1 125.0 273.4
Cash flows from investing activities
Purchase of property, plant and equipment (44.1) (18.9) (52.8)
Proceeds from sale of property, plant and equipment 0.6 0.8 2.0
Purchase of software and other intangibles (3.5) (2.1) (8.1)
Development expenditure capitalised (1.7) (1.2) (3.2)
Acquisition of businesses net of cash acquired 15 (12.7) - -
Interest received 1.8 1.4 3.4
Net cash used in investing activities (59.6) (20.0) (58.7)
Cash flows from financing activities
Proceeds from issue of share capital 0.3 0.2 1.5
Employee Benefit Trust share purchase (10.7) (12.0) (26.1)
Repaid borrowings 9 (59.1) (34.8) (77.5)
New borrowings 9 134.2 0.2 -
Interest paid including interest on lease liabilities (5.1) (4.2) (8.5)
Repayment of lease liabilities 9 (6.2) (5.7) (11.7)
Dividends paid (including minority shareholders) 7 (72.2) (62.6) (91.0)
Net cash used in financing activities (18.8) (118.9) (213.3)
Net change in cash and cash equivalents 9 13.7 (13.9) 1.4
Net cash and cash equivalents at beginning of period 9 219.0 224.0 224.0
Cash transferred to assets held for sale 14 (2.3) - -
Exchange movement 9 0.2 (3.4) (6.4)
Net cash and cash equivalents at end of period 9 230.6 206.7 219.0
Borrowings 9 (433.3) (399.5) (349.5)
Net debt at end of period 9 (202.7) (192.8) (130.5)
Lease liabilities 9 (61.8) (32.4) (60.1)
Net debt and lease liabilities at end of period 9 (264.5) (225.2) (190.6)
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 30th June 2022 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 2021 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 2021 Annual Report. The comparative figures for the
year ended 31st December 2021 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
31st December 2021 were prepared in accordance with International Financial
Reporting Standards (IFRS), as adopted by the United Kingdom. The statutory
Consolidated Financial Statements for Spirax-Sarco Engineering plc in respect
of the year ended 31st December 2021 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 31st December 2021 are available upon request from Mr A. J. Robson,
General Counsel and Company Secretary, The Grange, Bishops Cleeve, Cheltenham,
GL52 8YQ. The Report is also available on our website at
www.spiraxsarcoengineering.com (http://www.spiraxsarcoengineering.com) .
The Condensed Consolidated Interim Financial Statements for the six months
ended 30th June 2022, 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 10th August 2022.
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 2022 Half Year Report. For this reason, it continues
to adopt the going concern basis in preparing the Condensed Consolidated
Interim Financial Statements.
Our financial position remains robust, with the Group holding committed total
debt facilities of £698 million at 30th June 2022 giving headroom in excess
of £330 million. The earliest maturity of any facility is not until
September 2023, being the €225 million Private Placement debt, which is
beyond the going concern assessment period. Committed facilities include a
£400 million revolving credit facility with an initial maturity of April 2027
which has £265 million undrawn at 30th June 2022. The Group also has cash
and cash equivalents, net of overdrafts, of £230.6 million.
On 2nd July 2022, the Group entered into a new committed bank facility for
€265 million with a maturity date of up to July 2024. This facility was
entered into in order to finance the acquisition of Vulcanic.
The Group's debt facilities contain a net debt to EBITDA covenant of a maximum
of 3.5x. Certain debt facilities also contain an EBITDA to net bank interest
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 2022, net debt to EBITDA was 0.5x (30th June 2021:
0.6x and 31st December 2021: 0.35x). EBITDA to net bank interest was 91x at
30th June 2022 (30th June 2021: 79x and 31st December 2021: 93x).
The Group has prepared and reviewed the impact of a reasonably possible
worst-case scenario, representing a decline in revenue and profitability more
severe than that experienced by the Group in its recent history. Under this
scenario, which has been modelled up to August 2023, the Group has access to
sufficient liquidity within its current committed debt facilities and remains
comfortably within the associated financial covenants.
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 testing undertaken does not take into account any
mitigating actions which the Group could implement in the event of a severe
and extended revenue and profitability decline, which would increase the
headroom further. All scenario analysis undertaken included the forecast
impact of the acquisition of Vulcanic.
This assessment indicates that the Group can operate within the level of its
current committed debt facilities, 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 1st January 2022, 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 1st
January 2022. Their adoption has not had a material impact on the Condensed
Consolidated Financial Statements.
The economy in Argentina and Turkey are subject to high inflation. At 30th
June 2022 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.
During 2021, the IFRS Interpretations Committee published its agenda decision
regarding configuration and customisation costs in Cloud Computing
Arrangements (Software as a Service, (SaaS)) under IAS 38. The primary theme
from this agenda decision was that unless the underlying software meets the
criteria for recognising a separate asset (i.e. the Group obtains control of
the software) then it is expected that the costs associated with the
configuration and customisation of this software will be recognised as an
expense rather than capitalised as an intangible asset.
The Group performed a review of previously capitalised configuration and
customisation costs, resulting in a £3.7 million adjustment to opening
reserves and intangible assets in the 2020 opening Statement of Changes in
Equity presented in the 2021 Financial Statements. As a result of this
change in accounting policy, the comparator period in the Statement of
Financial Position and Statement of Changes in Equity as at 30th June 2021
have been restated in line with the restatement at 31st December 2021
disclosed in the prior year. Due to the immaterial nature of the adjustment,
no additional Statement of Financial Position as at the beginning of the prior
year has been presented.
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.
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 31st December 2021.
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
The 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 Eng.ineering plc on 10th August 2022 are as
listed in the 2021 Annual Report on pages 96 and 97.
N. J. Anderson
Group Chief Executive
10th August 2022
N. B. Patel
Chief Financial Officer
10th August 2022
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; and
● users of the Financial Statements might find them informative.
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. The term 'adjusted' is not defined under IFRS and may
therefore not be comparable with similarly titled measures reported by other
companies.
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. 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 and impairment losses on disposal
groups
● Significant restructuring costs
● Certain foreign exchange gains and losses on borrowings
● Significant profits or losses on disposal of property
● significant plan amendments and/or legal rulings requiring a past service cost
or credit for post-retirement benefit plans
● accelerated depreciation, impairment and other related costs on one-off
significant property redevelopments
A reconciliation between operating profit as reported under IFRS and adjusted
operating profit is given below.
Six months to 30(th) June 2022 Six months to 30(th) June 2021 Year ended 31(st) December 2021
£m £m £m
Operating profit as reported under IFRS 142.1 153.6 320.9
Amortisation of acquisition-related intangible assets 10.5 11.3 21.4
Restructuring costs 15.4 - -
Impairment of Russia disposal groups 3.6 - -
Acquisition-related items 3.2 - -
Accelerated depreciation and other related costs on one-off property 4.0 - -
redevelopments
Post-retirement benefit plans in Germany being closed to future accrual - (2.0) (2.0)
Adjusted operating profit 178.8 162.9 340.3
Adjusted earnings per share
Six months to 30(th) June 2022 Six months to 30(th) June 2021 Year ended 31(st) December 2021
Profit for the period attributable to equity holders as reported under IFRS 97.1 108.8 234.6
(£m)
Items excluded from adjusted operating profit disclosed above (£m) 36.7 9.3 19.4
Tax effects on adjusted items (£m) (4.8) (1.9) (4.3)
Adjusted profit for the period attributable to equity holders (£m) 129.0 116.2 249.7
Weighted average shares in issue (million) 73.7 73.7 73.7
Basic adjusted earnings per share 175.1p 157.6p 338.9p
Diluted weighted average shares in issue (million) 73.8 73.9 73.9
Diluted adjusted earnings per share 174.8p 157.3p 338.0p
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 to Six months to 30(th) June 2021 Year ended 31(st) December 2021
30(th) June 2022 £m £m
£m
Net cash from operating activities as reported under IFRS 92.1 125.0 273.4
Net capital expenditure excluding acquired intangibles from acquisitions (48.7) (21.4) (62.1)
Income tax paid 41.2 41.2 78.1
Repayments of principal under lease liabilities (6.2) (5.7) (11.7)
Adjusted cash from operations 78.4 139.1 277.7
Adjusted cash conversion in the first half was 44% (2021: 85%). Cash
conversion is calculated as adjusted cash from operations divided by adjusted
operating profit. The adjusted cash flow is included on page 12.
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 on page 11.
An analysis of the components is as follows:
31(st) December 2021
30(th) June 2022 30(th) June 2021* £m
£m £m
Property, plant and equipment 311.1 257.9 277.4
Right-of-use assets (IFRS 16) 64.2 34.7 62.9
Software & development costs 40.2 36.0 38.9
Non-current prepayments 1.3 2.0 1.3
Inventories 239.4 182.8 201.3
Trade receivables 311.1 236.1 272.3
Other current assets 58.7 43.6 44.7
Tax recoverable 14.3 12.8 15.7
Trade, other payables and current provisions (239.6) (176.3) (222.2)
Current tax payable (33.8) (33.0) (33.1)
Capital employed 766.9 596.6 659.2
* Restated following IFRS Interpretations Committee agenda decision on
configuration and customisation costs in cloud computing arrangements
(Software as a Service (SaaS)), see Note 1 for further details.
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) June 2022 £m 30(th) June 2021 £m 31(st) December 2021 £m
Capital employed 766.9 596.6 659.2
Goodwill and other intangible assets 670.4 637.7 628.0
Investment in Associate - - -
Post-retirement benefits (35.2) (52.6) (44.7)
Net deferred tax (38.1) (34.9) (35.7)
Non-current provisions and long-term payables (7.8) (6.8) (6.2)
Lease liabilities (61.8) (32.4) (60.1)
Net assets classified as held for sale 0.2 - -
Net debt (202.7) (192.8) (130.5)
Net assets as reported under IFRS 1,091.9 914.8 1,010.0
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 be
consistent with how net debt is defined for external debt covenant purposes.
30(th) June 2022 30(th) June 2021 31(st) December 2021
£m £m £m
Net debt 202.7 192.8 130.5
IFRS 16 lease liabilities 61.8 32.4 60.1
Net debt and IFRS 16 lease liabilities 264.5 225.2 190.6
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 and cash equivalents less Bank overdrafts and
external borrowings (excluding IFRS 16 lease liabilities).
Organic measures
As we are a multi-national Group of companies, who trade in a large number of
currencies and also acquire and sometimes dispose of companies, we also refer
to organic performance measures throughout the News Release. These strip out
the effects of the movement in exchange rates and of acquisitions and
disposals. The Board believe that this allows users of the accounts to gain
a further understanding of how the Group has performed.
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 that occurred in either the current
period or prior period are excluded from the results of the current period at
current period exchange rates. For any disposals that occurred in either the
current period or prior period, the current period results remove the impact
of the disposed business on the prior period results at current period
exchange rates.
The organic percentage movement is calculated as the organic movement divided
by the sum of the prior period, excluding disposals and exchange.
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 excluding disposals 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 to 30(th) June 2021 Six months
Acquisitions and disposals* to 30(th) June
Exchange Organic 2022 Organic Reported
Revenue £643.7m £11.3m £99.8m £(4.7)m £750.1m +15% +17%
Adjusted operating profit £162.9m £3.5m £14.2m £(1.8)m £178.8m +9% +10%
Adjusted operating profit margin 25.3% 23.8% -150bps -150bps
*Includes the impact of (i) the acquisition of Cotopaxi Limited and (ii) the
treatment of our Russian Operating Companies as disposals from the date at
which the Group suspended all trading with and within Russia.
The reconciliation for each operating segment can be found on pages 15-20.
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) June 2022 Total Adjusted Adjusted
operating operating operating
Revenue profit profit profit margin
£m £m £m %
Steam Specialties 400.6 87.7 92.1 23.0%
Electric Thermal Solutions 104.7 (8.9) 12.8 12.2%
Watson-Marlow 244.8 83.6 87.0 35.5%
Corporate expenses (20.3) (13.1)
Total 750.1 142.1 178.8 23.8%
Net finance expense (3.6) (3.6)
Share of (loss)/profit of Associate - -
Profit before taxation 138.5 175.2
Six months to 30(th) June 2021 Total Adjusted Adjusted
operating operating operating
Revenue profit profit profit margin
£m £m £m %
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)/profit of Associate - -
Profit before taxation 150.0 159.3
Year ended 31(st) December 2021 Total Adjusted Adjusted
operating operating operating
Revenue profit profit profit margin
£m £m £m %
Steam Specialties 754.9 186.8 188.7 25.0%
Electric Thermal Solutions 181.3 11.1 24.0 13.2%
Watson-Marlow 408.3 145.4 150.0 36.7%
Corporate expenses (22.4) (22.4)
Total 1,344.5 320.9 340.3 25.3%
Net finance expense (6.4) (6.4)
Share of (loss)/profit of Associate - -
Profit before taxation 314.5 333.9
The following table details the split of revenue by geography for the combined
Group:
Six months Six months Year ended
to 30(th) June 2022 to 30(th) June 2021 31(st) December 2021
£m £m £m
Europe, Middle East and Africa 308.5 280.9 563.3
Asia Pacific 176.2 153.9 334.2
Americas 265.4 208.9 447.0
Total revenue 750.1 643.7 1,344.5
The total operating profit for each period includes certain items, as analysed
below:
Six months to 30(th) June 2022
Amortisation Restructuring costs Accelerated depreciation and other related costs on one-off property Impairment of Russia disposal groups Acquisition-related items Total
redevelopments
of acquisition-related intangible assets £m
£m £m £m
£m
£m
Steam Specialties (2.3) - - (2.1) - (4.4)
Electric Thermal Solutions (6.3) (15.4) - - - (21.7)
Watson-Marlow (1.9) - - (1.5) - (3.4)
Corporate expenses - - (4.0) - (3.2) (7.2)
Total (10.5) (15.4) (4.0) (3.6) (3.2) (36.7)
Six months to 30(th) June 2021 Amortisation German pension plan closed to future accrual Total
of acquisition-related intangible assets £m £m
£m
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)
Year ended 31(st) December 2021 Amortisation Total
of acquisition-related intangible assets German pension plan closed to future accrual £m
£m £m
Steam Specialties (3.9) 2.0 (1.9)
Electric Thermal Solutions (12.9) - (12.9)
Watson-Marlow (4.6) - (4.6)
Total (21.4) 2.0 (19.4)
Net financing income and expense
Six months to Six months to Year ended
30(th) June 2022 30(th) June 2021 31(st) December 2021
£m £m £m
Steam Specialties 0.7 0.2 0.7
Electric Thermal Solutions (0.2) (0.2) (0.2)
Watson-Marlow (0.2) (0.2) (0.4)
Corporate expenses (3.9) (3.4) (6.5)
Total net financing expense (3.6) (3.6) (6.4)
Net assets
30(th) June 2022 30(th) June 2021* 31(st) December 2021
Assets Liabilities Assets Liabilities Assets Liabilities
£m £m £m £m £m £m
Steam Specialties 728.7 (179.8) 635.3 (154.9) 658.0 (182.1)
Electric Thermal Solutions 581.7 (42.1) 514.5 (29.9) 536.9 (33.0)
Watson-Marlow 386.0 (60.7) 281.0 (50.9) 331.8 (57.9)
1,696.4 (282.6) 1,430.8 (235.7) 1,526.7 (273.0)
Liabilities (282.6) (235.7) (273.0)
Net deferred tax (38.1) (34.9) (35.7)
Net assets held for sale 0.2 - -
Net tax payable (19.5) (20.2) (17.4)
Net debt including lease liabilities (264.5) (225.2) (190.6)
Net assets 1,091.9 914.8 1,010.0
* Restated following IFRS Interpretations Committee agenda decision on
configuration and customisation costs in cloud computing arrangements
(Software as a Service (SaaS)), see Note 1 for further details.
Capital additions, depreciation, amortisation and impairment
Six months to Six months to Year ended
30(th) June 2022 30(th) June 2021 31(st) December 2021
Depreciation, amortisation and impairment Depreciation, amortisation and impairment Depreciation, amortisation and impairment £m
£m £m
Capital Capital Capital
additions additions additions
£m £m £m
Steam Specialties 19.6 19.6 13.9 17.4 35.6 33.9
Electric Thermal Solutions 3.3 11.8 1.4 9.5 16.6 18.3
Watson-Marlow 35.2 9.5 11.7 8.4 51.0 16.8
Total 58.1 40.9 27.0 35.3 103.2 69.0
Capital additions include property, plant and equipment at 30th June 2022 of
£44.1 million (at 30th June 2021: £18.9 million; and at 31st December 2021:
£52.8 million). Capital additions also include other intangible assets at
30th June 2022 of £8.0 million (at 30th June 2021: £3.3 million; and at 31st
December 2021: £11.3 million), of which £2.8 million relates to acquisition
related intangibles (at 30th June 2021: £nil; and at 31st December 2021:
£nil). Right-of-use asset additions at 30th June 2022 were £6.0 million
(at 30th June 2021: £4.8 million; and at 31st December 2021: £39.1 million).
4. NET FINANCING INCOME AND EXPENSE
Six months Six months Year ended
to 30(th) June to 30(th) June 31(st) December
2022 2021 2021
£m £m £m
Financial expenses:
Bank and other borrowing interest payable (4.5) (3.7) (7.4)
Interest expense on lease liabilities (0.7) (0.5) (1.1)
Net interest on pension scheme liabilities (0.3) (0.8) (1.3)
(5.5) (5.0) (9.8)
Financial income:
Bank interest receivable 1.9 1.4 3.4
Net financing expense (3.6) (3.6) (6.4)
Net bank interest (2.6) (2.3) (4.0)
Interest expense on lease liabilities (0.7) (0.5) (1.1)
Net pension scheme financial expense (0.3) (0.8) (1.3)
Net financing expense (3.6) (3.6) (6.4)
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 2022 30(th) June 2021 31(st) December 2020
Adjusted Adj't Total Adjusted Adj't Total Adjusted Adj't Total
£m £m £m £m £m £m £m £m £m
UK corporation tax (0.8) - (0.8) 2.6 - 2.6 7.0 - 7.0
Foreign tax 40.7 - 40.7 39.2 - 39.2 73.0 - 73.0
Deferred tax 6.2 (4.8) 1.4 1.2 (1.9) (0.7) 3.9 (4.3) (0.4)
Total taxation 46.1 (4.8) 41.3 43.0 (1.9) 41.1 83.9 (4.3) 79.6
Effective tax rate 26.3% 13.0% 29.8% 27.0% 20.6% 27.4% 25.1% 22.2% 25.3%
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 30th June 2022 includes a
credit of £4.8 million in relation to certain items (as disclosed in Note 2).
The tax impacts of these items are:
● Amortisation of acquisition-related intangible assets (£2.5 million credit)
● Restructuring of the Chromalox manufacturing operations in Soissons (France)
(£1.7 million credit)
● Costs associated with the acquisition of Vulcanic (£0.5 million credit)
● Costs associated with the redevelopment of the Group Head Office building in
Cheltenham (UK) (£0.1 million credit)
In October 2017, the European Commission (EC) opened a formal State Aid
investigation into an exemption within the UK's 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, the Group submitted its own appeal. The EU
General Court delivered its decision on the appeals on 8th June 2022, ruling
in favour of the EC, although the UK Government and the taxpayer have the
option to appeal this decision.
The Group's benefit from the FCE, in the period from 2013 to date, is
approximately £8.7 million including compound interest. The Group has
received and paid Charging Notices, issued by the UK tax authority, totalling
£4.9 million assessed for the period from 1st January 2017 to 31st 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 in the Statement of Financial Position. No provision has
been recognised for the estimated amounts where Charging Notices have not been
received, therefore these amounts continue to be recognised as contingent
liabilities.
The UK Government announced on 3rd March 2021 that the standard rate of UK
corporation tax would increase to 25% from 1st April 2023. The changes will
impact the tax charged on UK profits from the effective date. However, as a
result of being substantively enacted at the balance sheet date all UK
deferred tax balances at the period end, which are forecast to remain at 1st
April 2023 have been calculated at a tax rate of 25%.
6. EARNINGS PER SHARE
Six months Six months Year ended
to 30(th) June to 30(th) June 31(st) December
2022 2021 2021
Profit attributable to equity shareholders (£m) 97.1 108.8 234.6
Weighted average shares in issue (million) 73.7 73.7 73.7
Dilution (million) 0.1 0.2 0.2
Diluted weighted average shares in issue (million) 73.8 73.9 73.9
Basic earnings per share 131.8p 147.6p 318.3p
Diluted earnings per share 131.5p 147.3p 317.5p
Basic and diluted earnings per share calculated on an adjusted profit basis
are included in Note 2.
The dilution is in respect of the share awards granted to employees under
share plans.
7. DIVIDENDS
Six months Six months Year ended
to 30(th) June to 30(th) June 31(st) December
2022 2021 2021
£m £m £m
Amounts paid in the period:
Final dividend for the year ended 31(st) December 2021 of 97.5p (2020: 84.5p) 71.9 62.3 62.3
per share
Interim dividend for the year ended 31(st) December 2021 of 38.5p (2020: - - 28.4
33.5p) per share
Total dividends paid 71.9 62.3 90.7
Amounts arising in respect of the period:
Interim dividend for the year ending 31(st) December 2022 of 42.5p (2021: 31.3 28.4 28.4
38.5p) per share
Final dividend for the year ended 31(st) December 2021 of 97.5p (2020: 84.5p) - - 71.9
per share
Total dividends arising 31.3 28.4 100.3
The interim dividend for the year ending 31st December 2022 was approved by
the Board after 30th June 2022. 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 2022
interim dividend.
In addition, dividends paid to minority shareholders at 30th June 2022 were
£0.3 million (31st December 2021: £0.3 million, 30th June 2021: £0.3
million)
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 31st December 2021 is
included in the Group's Annual Report.
The amounts recognised in the Consolidated Statement of Financial Position are
as follows:
30th June 30th June 31(st) December
2022 2021 2021
£m £m £m
Post-retirement benefits (35.2) (52.6) (44.7)
Related deferred tax asset 9.2 13.8 12.0
Net pension liability (26.0) (38.8) (32.7)
9. ANALYSIS OF CHANGES IN NET DEBT, INCLUDING CHANGES IN LIABILITIES ARISING FROM
FINANCING ACTIVITIES
Cash transferred to assets classified as held for sale
£m Exchange
£m 30(th) June
1(st) January Cash flow Acquired debt* 2022
2022 £m £m £m
£m
Current portion of long-term borrowings (59.6) (0.9)
Non-current portion of long-term borrowings (289.9) (432.4)
Total borrowings (349.5) (433.3)
Comprising:
Borrowings (349.5) (75.1) - - (8.7) (433.3)
Changes in liabilities arising from financing (349.5) (75.1) - - (8.7) (433.3)
Cash at bank 274.6 30.8 - (2.3) 1.8 304.9
Bank overdrafts (55.6) (17.1) - - (1.6) (74.3)
Net cash and cash equivalents 219.0 13.7 - (2.3) 0.2 230.6
Net debt (130.5) (61.4) - (2.3) (8.5) (202.7)
Lease liability (60.1) 6.2 (6.0) - (1.9) (61.8)
Net debt and lease liability (190.6) (55.2) (6.0) (2.3) (10.4) (264.5)
* Acquired debt comprises debt recognised on the Statement of Financial
Position due to entry into new leases under IFRS 16.
At 30th June total lease liabilities consist of £12.6 million (31st December
2021: £11.2 million, 30th June 2021: £10.1 million) short-term and £49.2
million (31st December 2021: £48.9 million, 30th June 2021: £22.3 million)
long-term
1(st) January Cash flow Acquired debt* 30(th) June
2021 £m £m Exchange 2021
£m £m £m
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)
Net debt and lease liability (262.9) 26.4 (4.6) 15.9 (225.2)
* Acquired debt comprises debt recognised on the Statement of Financial
Position due to entry into new leases under IFRS 16.
31(st) December 2021
1(st) January Cash Acquired debt* Exchange £m
2021 flow £m movement
£m £m £m
Current portion of long-term borrowings (0.6) (59.6)
Non-current portion of long-term borrowings (452.2) (289.9)
Short-term borrowings - -
Total borrowings (452.8) (349.5)
Comprising:
Borrowings (452.8) 77.5 - 25.8 (349.5)
Changes in liabilities arising from financing (452.8) 77.5 - 25.8 (349.5)
Cash at bank 246.2 35.7 - (7.3) 274.6
Bank overdrafts (22.2) (34.3) - 0.9 (55.6)
Net cash and cash equivalents 224.0 1.4 - (6.4) 219.0
Net debt (228.8) 78.9 - 19.4 (130.5)
Lease liabilities (34.1) 11.7 (39.1) 1.4 (60.1)
Net debt and lease liabilities (262.9) 90.6 (39.1) 20.8 (190.6)
* Acquired debt comprises debt recognised on the Statement of Financial
Position due to entry into new leases under IFRS 16.
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 31st December 2021. 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 2022 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 2022 30(th) June 2021 31(st) December 2021
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
£m £m £m £m £m £m
Financial assets:
Cash and cash equivalents 304.9 304.9 253.6 253.6 274.6 274.6
Trade, other receivables and contract assets 342.3 342.3 261.6 261.6 298.1 298.1
Total financial assets 647.2 647.2 515.2 515.2 572.7 572.7
Financial liabilities:
Loans 433.3 423.1 399.5 409.2 349.5 358.3
Lease liabilities 61.8 61.8 32.4 32.4 60.1 60.1
Bank overdrafts 74.3 74.3 46.9 46.9 55.6 55.6
Trade payables 69.6 69.6 52.8 52.8 67.8 67.8
Other payables and contract liabilities 63.7 63.7 45.3 45.3 56.2 56.2
Long-term payables 6.2 6.2 5.3 5.3 4.7 4.7
Accruals 84.3 84.3 66.3 66.3 85.7 85.7
Total financial liabilities 793.2 783.0 648.5 658.2 679.6 688.4
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 30th June 2022 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 30th June 2022 the Group
had contracts outstanding to economically hedge or to purchase £34.0 million
with US dollars, £55.4 million with euros, £7.7 million with Korean won,
£14.5 million with Chinese renminbi, £1.9 million with Singapore dollars,
€11.3 million with US dollars, €2.4 million with Korean won, €6.2
million with Chinese renminbi and DKK40.3 million with euros. Derivative
financial instruments are measured at fair value. The fair value at the end of
the reporting period is a £7.9 million liability (31st December 2021: £0.2
million liability, 30th June 2021: £3.4 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 30th June 2022
was £60.4 million (31st December 2021: £40.5 million; 30th June 2021: £14.9
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 2021 and half year 2022.
Average Average Change
half year half year %
2022 2021
US dollar 1.30 1.38 6%
euro 1.19 1.15 -3%
renminbi 8.40 8.96 6%
won 1,593 1,546 -3%
real 6.63 7.42 11%
Argentine peso 145.55 125.98 -16%
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 increased by 1.8% and adjusted operating profit
increased by 1.6%, with transactional currency impacts also increasing profit,
giving a total benefit to profit from currency movements of 2.1%.
14. HELD FOR SALE
At the 30th June 2022, Spirax Sarco Russia and Watson-Marlow Russia disposal
groups were available for immediate sale in their present condition. The
assets and liabilities have been classified as held for sale at 30th June
2022.
On the 9th June, the Board approved the disposal of the Group's Russian
Operating Companies as a result of the decision to cease all trading with, or
within, Russia in March. The disposal of these Operating Companies completed
on 6th July and therefore they have been classified as disposal groups held
for sale and presented separately in the Statement of Financial Position at
30th June 2022. Impairment losses of £3.6 million have been recognised in
the Consolidated Income Statement as a result of the classification of these
operations as held for sale. This loss represents the difference between the
fair value less cost to sell and the carrying amount of the businesses net
assets. The impairment losses have been shown as an adjusting item as
disclosed in Note 2, included within the impairment of Russia disposal
groups. The disposal groups are presented within the respective Steam
Specialties and Watson-Marlow reporting segments as appropriate.
15. PURCHASE OF BUSINESSES
The acquisition of 100% of the share capital of the digitally enabled, global
energy consulting and optimisation specialist, Cotopaxi Limited was completed
on 30th January 2022. The acquisition method of accounting has been used.
Cotopaxi is a UK company whose digital solutions experience in steam
installations will accelerate Steam Specialties' objective to connect to its
customers' steam systems and analyse their data. Total consideration on a
cash-free, debt-free basis at the acquisition date was £12.7 million with no
further amounts deferred or contingent on future performance.
Separately identified intangibles are recorded as part of the fair value
adjustment. The goodwill recognised represents the opportunity to develop in
the digital market from being part of the Group. Goodwill arising is not
expected to be tax deductible.
On acquisition, net assets of Cotopaxi were £1.3 million with £2.8 million
of acquired intangibles and £10.0 million of Goodwill being recognised. Since
acquisition Cotopaxi Limited has made revenue and pre-tax profit of 1.2
million and £0.3 million. Had the acquisition been made on 1st January 2022,
the H1 2022 revenue and pre-tax profit would not have been materially
different from the figure disclosed.
16. EVENTS AFTER THE BALANCE SHEET DATE
In July 2022 the Group announced a definitive agreement to acquire 100% of the
share capital of the Vulcanic Group of Companies from Qualium, a French
private equity company. Vulcanic is a European industrial electric heating
group and the largest supplier in Europe of bespoke industrial electric
heating solutions. Headquartered in Paris (France) with 10 manufacturing
facilities worldwide, Vulcanic has over 700 employees, of whom almost 90% are
based in the Europe, Middle East and Africa (EMEA) region.
In the year ended 31st December 2021, Vulcanic recorded revenues of €89.4
million (£76.8 million), earnings before interest, tax, depreciation and
amortisation (EBITDA) of €17.6 million (£15.2 million) and earnings before
interest and tax (EBIT) of €16.0 million (£13.8 million) on an adjusted
proforma basis for Vulcanic's acquisition of EML in December 2021.
1 (#_ftnref1) Source for industrial production data: Oxford Economics, 15th
July 2022
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