REG - Spirax-Sarco Engng - 2023 Half Year Results
10/08/2023 07:00
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RNS Number : 8661I Spirax-Sarco Engineering PLC 10 August 2023
Thursday 10th August 2023
2023 Half Year Results
First half trading broadly as expected; Biopharm return to growth now
anticipated in 2024
HIGHLIGHTS
Six months ended 30th June
Statutory 2023 2022 Reported
Revenue(+) £850.8m £750.1m 13%
Operating profit £132.2m £142.1m (7)%
Operating profit margin 15.5% 18.9% (340) bps
Profit before taxation £114.0m £138.5m (18)%
Basic earnings per share 112.5p 131.8p (15)%
Dividend per share 46.0p 42.5p 8%
Adjusted 2023 2022 Reported Organic*
Revenue(+) £850.8m £750.1m 13% 2%
Adjusted operating profit £171.7m £178.8m (4)% (13)%
Adjusted operating profit margin 20.2% 23.8% (360) bps (370) bps
Adjusted profit before taxation £153.5m £175.2m (12)%
Adjusted basic earnings per share 155.2p 175.1p (11)%
● Revenues up 13% or 2% organically
● Strong growth in Steam Specialties and ETS offset by lower Biopharm(**) sales
in Watson-Marlow
● Statutory operating profit down 7% and margin down 340 bps due to ERP
write-down and restructuring
● Adjusted operating margin down 360 bps due to unfavourable sales mix
● Strong sales growth +15% in Steam Specialties; adjusted operating profit
margin +190 bps organically
● ETS organic sales growth +7%; adjusted operating profit margin lower due to
Semicon WFE^ weakness
● Vulcanic and Durex Industries integration progressing very well
● Watson-Marlow sales down 21% organically; adjusted operating profit lower due
to operational gearing
● Underlying Biopharm demand remains strong; growth anticipated to return in
2024
● Adjusted cash conversion 48% in H1; anticipate full year conversion to be over
70%
● Interim dividend up 8% to 46.0 pence, following 12% total increase in 2022
Nicholas Anderson, Group Chief Executive, commenting on the results said:
"We achieved first half results that are broadly in line with our
expectations, against the backdrop of continued destocking in the Biopharm and
Semicon WFE sectors, as well as softening Industrial Production growth. I am
grateful to all our colleagues for their continued support of our customers'
critical industrial processes against this challenging backdrop.
"The underlying demand for Watson-Marlow products and solutions remains as
robust as in pre-pandemic periods, albeit the short-term headwind from
Biopharm destocking is now expected to continue into 2024, with
Watson-Marlow's competitive strengths and market-leading capabilities to
service that demand remaining unchanged. Similarly, we remain confident in
the underlying growth drivers of the Semicon WFE sector.
"We are confident in our Group's strength and our ability to navigate the
current macroeconomic uncertainty and short-term headwinds, while continuing
to drive strategic progress. Our robust business model, diverse reach across
end-markets and geographies and clear opportunity to accelerate the
decarbonisation of industrial processes underpin our confidence in the
medium-term outlook."
(+) The term 'sales' is used interchangeably with 'revenue' when describing
the financial performance of the business.
*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).
**Biopharm refers to Watson-Marlow sales to the Pharmaceutical &
Biotechnology sector
^Semicon WFE refers to the Semiconductor Wafer Fabrication Equipment sector
See Appendix to the Financial Statements for an explanation of alternative
performance measures.
For further information, please contact:
Nimesh Patel, Chief Financial Officer
Mal Patel, Head of Investor Relations
mal.patel@uk.spiraxsarco.com (mailto:mal.patel@uk.spiraxsarco.com) (+44 (0)
7392 263166)
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/2o4cf767/
(https://edge.media-server.com/mmc/p/2o4cf767/) 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/BI16128f01983b4d23bbf2208936e39fd6
(https://register.vevent.com/register/BI16128f01983b4d23bbf2208936e39fd6)
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 leading global thermal energy management
and fluid technology solutions Group that aims to deliver sustainable value to
all its stakeholders through engineering a more efficient, safer and
sustainable world. 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 process heating
products, engineered packages, site services and systems expertise for a
diverse range of industrial and institutional customers. Both Businesses
help their customers improve process efficiencies, meet 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), with 40 strategically located
manufacturing plants around the world and employs more than 10,000 people,
including more than 2,100 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
SUMMARY FINANCIALS
Six months to 30th June H1 2023 H1 2022 y-o-y change
£m £m Organic Reported
SUMMARY FINANCIALS
Steam Specialties 459.8 400.6 15% 15%
ETS 192.5 104.7 7% 84%
Watson-Marlow 198.5 244.8 (21)% (19)%
Group Revenue 850.8 750.1 2% 13%
Steam Specialties 96.3 87.7 10%
ETS 10.7 (8.9) 220%
Watson-Marlow 42.1 83.6 (50)%
Corporate (16.9) (20.3)
Group Statutory Operating Profit 132.2 142.1 (7)%
Steam Specialties 20.9% 21.9% (100) bps
ETS 5.6% (8.5)% 1,410 bps
Watson-Marlow 21.2% 34.2% (1,300) bps
Group Statutory Operating Profit margin 15.5% 18.9% (340) bps
Steam Specialties 112.2 92.1 25% 22%
ETS 26.9 12.8 (6)% 110%
Watson-Marlow 48.9 87.0 (47)% (44)%
Corporate (16.3) (13.1)
Group Adjusted Operating Profit 171.7 178.8 (13)% (4)%
Steam Specialties 24.4% 23.0% 190 bps 140 bps
ETS 14.0% 12.2% (140) bps 180 bps
Watson-Marlow 24.6% 35.5% (1,220) bps (1,090) bps
Group Adjusted Operating Profit margin 20.2% 23.8% (370) bps (360) bps
Cashflow
Statutory cash from operations 85.6 92.1 (7)%
Adjusted cash from operations 82.8 78.4 6%
Adjusted cash conversion 48% 44% 400 bps
Net debt 748.3 202.7
BUSINESS REVIEW
Engineering our Difference
Around the world, our teams are continuing to navigate the challenging
macroeconomic backdrop to deliver mission-critical products and solutions to
our customers while continuing to support all our stakeholders.The Board would
like to express its sincere thanks and gratitude to all colleagues for their
commitment, expertise and efforts during the first half of 2023.
Board changes
On Tuesday 8th August 2023, the Board announced that following his decision to
retire, Nicholas Anderson will step down as Group Chief Executive and from the
Board on 16th January 2024, upon completion of ten years in the role. The
Board acknowledges with gratitude Nick's significant contribution to the
Group's growth and prosperity, firmly establishing Spirax-Sarco Engineering as
a constituent of the FTSE100 Index since 2019 and wishes him every success in
his future Non-Executive career.
On the same date, the Board also announced that Nimesh Patel has been
appointed to succeed Nick as Group Chief Executive and will take up the
position on 16th January 2024. Nimesh joined the Group in 2020 as Chief
Financial Officer and his appointment follows a rigorous succession process
supported by external advisors, Egon Zehnder.
Nimesh's strategic approach and deep understanding of the three Businesses,
together with his global and financial experience, all underpin the Board's
confidence in the future leadership of the Group. Nimesh will provide both
continuity and progression in the Group's journey towards creating sustainable
value for all our stakeholders.
Nimesh will continue as Chief Financial Officer until 16th January 2024. The
Board has commenced a process to appoint a successor to this role, which will
be announced at the appropriate time. To support the transition Nick will
remain as an employee of the Group until 31st March 2024, acting in an
advisory capacity to Nimesh to ensure a seamless handover of the role.
On 2nd August 2023, the Board was pleased to confirm the appointment of
Constance Baroudel as an Independent Non-Executive Director. Constance is
Sector Chief Executive, Environmental & Analysis and Chief Sustainability
Officer at Halma plc. She joined Halma in 2018, having previously held a
range of executive positions with First Group plc, De La Rue and Strategic
Decisions Group. Constance also brings considerable Board experience having
previously served as a Non-Executive Director for both Keir Group and Synergy
Health.
Summary of half year performance
In the first half demand for our products and services was strong in Steam
Specialties and the industrial process focused Divisions of ETS (Chromalox and
Vulcanic). Demand from industrial equipment customers of ETS was lower than
anticipated, particularly in Semicon WFE, impacting Durex Industries and to a
lesser extent, Thermocoax. Demand in Watson-Marlow was slightly weaker than
expected, driven by destocking by its Biopharm customers post the COVID-19
pandemic.
First half sales of £850.8 million (+13%) benefited from a currency tailwind
of 1.5% and a 10% impact from the first-time contribution of our acquisitions
of Vulcanic and Durex Industries, net of a small adverse impact from the
disposal of our Russian operations in 2022. Organic growth was 2% reflecting
strong growth in Steam Specialties (+15%) and ETS (+7%) offset by a 21%
decline in Watson-Marlow.
First half adjusted operating profit of £171.7 million was down 4% as an
organic decline of 13% more than offset a currency tailwind of 1.7% and an 8%
positive impact from acquisitions net of disposals. This organic decline
reflects lower sales to customers in the Biopharm and Semicon WFE sectors that
impacted our highest margin Businesses. The resulting difference in the
Group's mix of sales, compared to the first half of 2022, had an adverse
impact on the adjusted operating profit.
The Board has declared an interim dividend of 46.0 pence (2022: 42.5 pence)
per ordinary share, an increase of 8%, reflecting confidence in the medium and
long-term outlook for the Group. This growth in the interim dividend follows
an increase of 12% in the total dividend in respect of 2022.
Strategic progress in the half year
Our Businesses have continued to make progress against our strategic
priorities. The key achievements during the first half are set out below:
Increasing direct sales effectiveness through market sector focus
All three of our Businesses have continued to develop new solutions in support
of their sector specific growth programmes especially in the Americas and Asia
Pacific. In Steam Specialties, the Customer Value Proposition (CVP) developed
to support lithium mining projects in Argentina for the electric vehicle
battery sector, is helping to expand our addressable market in this growing
sector. Steam Specialties is also successfully expanding its delivery of
solutions to lithium battery projects in China, with around one hundred of its
customers active in this sector. In ETS, Chromalox continued to develop its
decarbonisation projects pipeline and penetration of its Medium Voltage
technology in the Oil & Gas and Petrochemicals sectors. Watson-Marlow's
team successfully transformed its operating model in the mining sector in
Australia from a distributor-led approach to direct sales, helping to build
customer proximity and strengthen its competitive advantage.
Leverage our research & development (R&D) investments
Following commercial launch of the Group's 'TargetZero' solutions, Steam
Specialties has begun to build a pipeline of long-term opportunities amongst
its extensive global customer base. There is strong interest in the
'TargetZero' solutions, especially the first-to-world 'ElectroFit' product
that has been fully commissioned for Diageo in Turkey. Watson-Marlow launched
an important range extension for its Qdos pump, targeted at the industrial
liquid/solid separation market that is forecast to grow at a mid-to-high
single digit CAGR until 2030. We also continued to make progress in
implementing our digital strategy with an acceleration in the number of Steam
Specialties EMEA customers that are digitally connected, as well as growing
momentum in connections throughout the Americas.
Optimise supply chain effectiveness
Across our Group, we measure our customer service levels using a number of
metrics including on-time-to-request (OTTR). Steam Specialties notably
achieved a material improvement in its OTTR performance that had been impacted
by supply chain challenges during 2022.
Operate sustainably and help improve our customers' sustainability
We have achieved a significant reduction in our absolute Scope 1 and 2
market-based greenhouse gas emissions which have reduced by 16% in H1 2023,
compared to H1 2022. The 47% reduction achieved against the 2019 baseline
means the Group is on track to achieve its targeted reduction of 50% by 2025.
There has also been a year-on-year reduction in water consumption across the
Group compared to 2022 and building on the momentum of 78 biodiversity
projects completed in 2022, a further 41 biodiversity projects have been
undertaken so far in 2023. At the end of the first half, we had secured green
energy contracts for close to 61% of the Group's electricity supply and made
further progress in implementing Project Clear Sky which will fully
decarbonise Steam Specialties' UK manufacturing facility in Cheltenham by
early 2024.
Acquisitions and Disposals
In July, we completed the acquisition of a 15% stake in Kyoto Group (Euronext
ticker: KYOTO) as part of a strategic investment agreement alongside Iberdrola
to accelerate the decarbonisation of industrial process heat with Kyoto's
proprietary 'Heatcube', a molten salt thermal energy storage solution. Through
Vulcanic, we have been working with Kyoto since 2021 to provide the electric
immersion heater and power control systems of 'Heatcube'. Our investment and
partnership will support the commercial and technological development of
electrical heaters for existing and future generations of 'Heatcube' and help
drive market adoption.
Market environment
Year-on-year Industrial Production growth (IP) H1 2023 H1 2022
Europe, Middle East & Africa (0.1)% 3.5%
of which, Europe (0.2)% 3.2%
North America 0.4% 4.1%
Latin America (0.4)% (0.6)%
Asia Pacific 1.5% 3.3%
of which, China 4.3% 3.4%
Global 1.0% 2.9%
Source: Oxford Economics
Global industrial production growth (IP) was 1.0% in the first half of 2023,
compared to 2.9% for the equivalent period in 2022. IP in all regions, except
China where there are differing views on the extent of recovery, was lower
than the equivalent period of 2022. IP contracted 0.8% in mature markets,
reflecting weak growth in North America and declines across much of Europe,
offset by 2.9% growth in emerging markets. In Asia Pacific, IP showed
significant regional differences with apparent strength in China offset by
weakness in Taiwan and Korea. There is a risk of downward revisions to IP in
the second half in response to continuing macroeconomic uncertainty as
governments and central banks seek to contain inflation, as well as the slower
than anticipated post COVID-19 recovery in China. The weaker economic backdrop
in China is beginning to impact customer demand, while broader macroeconomic
uncertainty is also leading to customer deferrals of project orders.
Pharmaceutical & Biotechnology (Biopharm) customers accounted for around
60% of Watson-Marlow's sales in 2022. At the beginning of this year and based
upon customer feedback, we had anticipated that the normalisation of Biopharm
demand that began in the second half of 2022 would largely complete during the
first half of 2023. We also anticipated that demand growth would return during
the second half of the year. In our trading update in May, we reiterated the
challenges of predicting the precise timing and scale of this return to demand
growth. More recently, customers have indicated higher excess inventory levels
than they had originally estimated, with a return to demand growth now
unlikely until 2024. Despite the challenges associated with forecasting
short-term demand, the Biopharm end-markets remain robust and supported by
demand for cell and gene therapies and personalised medicines. We anticipate
that the underlying growth in demand has continued at its pre-pandemic rate of
over 10% per annum, throughout the COVID-19 cycle.
Semicon WFE customers accounted for around 18% of ETS pro-forma sales in 2022.
Anticipated lower demand for consumer electronics was factored into our
forecasted demand from customers in the Semicon WFE sector. Nevertheless,
demand in the first half was lower than we had anticipated. Based on recent
customer feedback we expect demand to improve during the second half, although
we remain cautious as to the extent of the recovery in this year. Over the
medium term, Semicon WFE remains an attractive and growing sector. We continue
to anticipate strong demand for our niche solutions for precise thermal
control that are incorporated by Original Equipment Manufacturers (OEMs), into
Wafer Fabrication Equipment (WFE) utilised in higher-end applications. Our
niche positions partially mitigate the impact of any overall reduction in
Semiconductor demand.
Other strategic sectors such as Food & Beverage, Oil & Gas and Power
Generation have proven more resilient. Decarbonisation also remains a growing
strategic imperative for customers, reflected in the strong interest we see
for our sustainability solutions.
Against this backdrop and the strong comparative performance of H1 2022,
overall Group performance in H1 2023 was broadly in line with our
expectations.
FINANCIAL PERFORMANCE
HY 2022 Exchange Organic Acquisitions & disposals* HY 2023 Organic Reported
Revenue £750.1m £11.6m £15.9m £73.2m £850.8m 2% 13%
Adjusted operating profit £178.8m £3.0m £(24.5)m £14.4m £171.7m (13)% (4)%
Adjusted operating profit margin 23.8% 20.2% (370) bps (360) bps
Statutory operating profit £142.1m £132.2m (7)%
Statutory operating margin 18.9% 15.5% (340) bps
*Results include the impact of (i) the acquisition of Vulcanic and Durex
Industries 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.
To aid comparability with the first half of last year we refer to both organic
and pro-forma performance measures in the commentary below. Organic
performance measures exclude the contribution of Vulcanic and Durex Industries
from both periods. Pro-forma comparisons include six months of contribution
from Vulcanic and Durex Industries, as if they had been fully owned by the
Group throughout H1 2022.
Sales
Group sales of £850.8 million (H1 2022: £750.1 million) grew 13% or 2%
organically, benefiting from first-time contributions from Vulcanic and Durex
Industries (acquired in H2 2022) and a currency tailwind. The disposal of our
Russian operations in H1 2022 had a small adverse impact.
Strong organic sales growth in Steam Specialties (+15%) and ETS (+7%) was
significantly ahead of IP.
On a pro-forma basis, Vulcanic and Durex Industries collective sales were
higher than in the first half of last year, with strong growth at Vulcanic
partially offset by lower sales at Durex Industries as a result of ongoing
destocking by Semicon WFE OEMs.
Watson-Marlow sales were down by 21% organically, compared to a very strong H1
2022, as a result of ongoing destocking by Biopharm customers. Sales to
Process Industries sectors were broadly flat on the very strong prior year
comparator.
As a result, Group sales in H1 2023 were broadly in line with our
expectations, with strong growth in Steam Specialties and ETS offsetting the
reduction in Watson-Marlow. Excluding Watson-Marlow's Biopharm sales, the
Group's sales grew 11% organically.
Adjusted operating profit
Group adjusted operating profit of £171.7 million (H1 2022: £178.8 million)
was down 4% or 13% organically.
Strong organic growth in adjusted operating profit at Steam Specialties of 25%
was driven by higher sales and cost containment initiatives.
ETS adjusted operating profit was broadly flat organically, compared to the
first half of 2022 despite the Business' strong organic sales growth, with
profit impacted by weaker Semicon WFE demand in Thermocoax.
On a pro-forma basis, the combined adjusted operating profit of Vulcanic and
Durex Industries was lower than in the first half of 2022, reflecting
investment in onboarding costs and the weaker Semicon WFE demand in Durex
Industries. Actions were taken in the first half of the year to
appropriately right-size capacity and overhead support costs in Durex
Industries, with the full beneficial effect expected to be realised in the
second half.
Watson-Marlow's adjusted operating profit was down 47% organically, as a
result of lower sales to customers in the Biopharm sector. Actions were
taken in the first half of the year to appropriately right-size capacity and
overhead support costs in Watson-Marlow, with the full beneficial effect
expected to be realised in the second half of the year. Destocking by these
customers is expected to be a short-term headwind, with a return to demand
growth anticipated during 2024. As such, no further restructuring actions
are currently planned to avoid compromising the longer-term growth potential
of the Watson-Marlow Business.
Adjusted operating profit margin
Although strong sales growth in Steam Specialties and ETS offset
Watson-Marlow's sales decline, the lower demand from customers in the Biopharm
and Semicon WFE sectors impacted our highest margin Businesses. Therefore,
the resulting difference in the Group's mix of sales compared to the first
half of 2022, had an adverse impact on the adjusted operating profit margin.
Group adjusted operating profit margin of 20.2% (H1 2022: 23.8%) was down 370
bps organically. Steam Specialties adjusted operating profit margin of 24.4%
saw strong organic progression (+190 bps), reflecting volume growth, cost
containment initiatives and strong pricing discipline to offset inflation and
protect margins. This strong growth was offset by organic declines in
adjusted operating profit margin at ETS (-140 bps) and Watson-Marlow (-1,220
bps) to 24.6%, reflecting lower demand from customers in the Semicon WFE and
Biopharm sectors respectively. On a pro-forma basis the combined adjusted
operating profit margin of Vulcanic and Durex Industries was lower than in the
prior year and lower than the Group average due to investment in onboarding
costs and weaker Semicon WFE demand in Durex Industries.
Statutory operating profit and margin
Statutory operating profit decreased by 7% to £132.2 million (H1 2022:
£142.1 million) and the statutory operating profit margin of 15.5% was down
340 bps (H1 2022: 18.9%). Statutory operating profit and statutory operating
profit margin are impacted by the same drivers as explained in the adjusted
operating profit sections above, as well as the reconciling items detailed
below:
● A charge of £18.5 million (H1 2022: £10.5 million) for the amortisation of
acquisition-related intangible assets
● A restructuring charge of £5.2 million in Watson-Marlow to appropriately
right-size manufacturing capacity and reduce overhead support costs in order
to offset the adverse impact of lower sales volumes
● Acquisition costs of £0.6 million relating to the acquisition of Vulcanic
● A one-off impairment charge of £13.9 million relating to a global ERP
programme implementation within the Steam Specialties Business (see the Steam
Specialties Business operating review for further details)
● A charge of £1.3 million from the reversal of fair value adjustments to
inventory on the acquisition of Vulcanic
Outlook and full year guidance
We continue to be confident in our Group's resilience and ability to navigate
the current uncertainty in the macroeconomic climate and short-term headwinds
from weaker demand in the Biopharm and Semicon WFE sectors. Our confidence is
underpinned by our robust business model, our proven price management
practices to offset inflation and protect margins, as well as the
opportunities arising from the demand for decarbonisation solutions.
Oxford Economics' latest forecast for 2023 global Industrial Production growth
(IP) is largely unchanged from earlier this year at 1.4%, reflecting 5.1%
growth in China, which implies a step up to 1.8% IP in the second half of the
year from 1.0% IP in H1 2023. However, the equivalent CHR Economics forecast
for global IP is 0.6%, based on 0.4% in China, illustrating the difficulties
of forecasting in the current environment. There is a risk of downward
revisions to forecasted IP in the second half of the year as governments and
central banks seek to contain inflation through active monetary policies, as
well as a slower than anticipated post COVID-19 recovery in China. The weaker
economic backdrop in China is beginning to impact customer demand, while
broader macroeconomic uncertainty is also leading to customer deferrals of
project orders.
At the time of our last trading update in May, we anticipated a modest adverse
effect from currency movements on full year 2023 sales and adjusted operating
profit if rates as at the end of April were to prevail for the remainder of
the year. Given sterling's continued appreciation and based on rates at the
end of July, we now anticipate an adverse impact on the Group's full year
sales and adjusted operating profit of between 2.0% and 2.5%, compared with
the full year 2022. However, movements in exchange rates are often volatile
and unpredictable, therefore the actual impact could be significantly
different.
The Biopharm and Semicon WFE sectors are likely to remain challenging across
the remainder of the current year. Demand from Biopharm customers is now
likely to normalise in 2024 as they continue to work through COVID-19-driven
excess inventories. In both the Biopharm and Semicon WFE sectors, based upon
the latest customer feedback, we expect demand to improve in the latter part
of 2023 but remain cautious as to the extent of the recovery in this year.
Against this backdrop and consistent with our guidance at the beginning of the
year, for the full year 2023 we continue to anticipate that organic sales
growth in Steam Specialties will be significantly above IP, albeit at a lower
rate of IP outperformance than in the first half. We anticipate that the
improved first half adjusted operating profit margin will be sustained.
In ETS, compared to the full year 2022 pro-forma, we now anticipate full year
2023 sales growth well above IP and for adjusted operating profit margin, we
now anticipate a larger decline in the full year 2023 margin than we had
expected at the beginning of the year, reflecting the impact of weaker Semicon
WFE demand in Durex Industries and Thermocoax.
Watson-Marlow is expected to deliver sequential growth in sales and adjusted
operating profit in the second half of 2023, although both are likely to
remain below prior year levels before returning to year-on-year growth in
2024.
As a result of these factors and excluding the impact of the currency
headwind, compared to 2022 pro-forma sales of £1,734 million and the Group's
adjusted operating profit margin of 23.6%, we anticipate Group sales for the
full year 2023 to grow between 0% and 4%, with a year-on-year adjusted
operating profit margin decline of between 100 bps and 200 bps.
We now anticipate that the half-yearly sales split of all three Businesses
will be closer to the typical 48%:52% than we previously guided to. Second
half adjusted operating profit will benefit from operational gearing and the
full effect of right-sizing actions taken in the first half.
While our guidance for the remainder of the year reflects the short-term
challenges of predicting the precise timing and scale of the return to growth
in the Biopharm and Semicon WFE sectors, we remain confident in the strong
underlying medium and long-term growth drivers for both sectors.
We continue to anticipate adjusted cash conversion of above 70% in 2023, as
well as capital expenditure of approximately 7% of sales.
Net financing expense
Net financing expenses increased to £18.2 million (H1 2022: £3.6 million)
comprising £16.5 million of net bank interest (H1 2022: £2.6 million), £0.8
million of interest on pension liabilities (H1 2022: £0.3 million) and £0.9
million of interest on lease liabilities (H1 2022: £0.7 million). Bank
interest increased due to higher average net debt following the acquisitions
of Vulcanic and Durex Industries at the end of the prior financial year. We
expect net financing expenses for the second half of the year to be broadly in
line with the first half.
Profit before tax
Adjusted operating profit before tax was down 12% to £153.5 million (H1 2022:
£175.2 million), driven by a decrease of adjusted operating profit by 4% and
additional net financing expense. Statutory operating profit before tax was
down 18% to £114.0 million (H1 2022: £138.5 million). The reconciling items
between adjusted operating profit before tax and statutory operating profit
before tax are shown above and in the Appendix to the Financial Statements.
Taxation
The Group tax rate reflects the blended average of rates in tax jurisdictions
around the world in which the Group trades and generates profit. The Group
adjusted effective tax rate increased by 40 bps to 25.4% (FY 2022: 25.0%) and
on a statutory basis the Group effective tax rate was 27.2% (FY 2022: 27.0%).
The Group adjusted effective tax rate is in line with our forecast for 2023,
anticipating a marginally higher rate than in 2022. The Group is subject to a
tax adjustment in Argentina that seeks to offset the impact of inflation upon
taxable profits. Given the current high levels of inflation in Argentina, this
has a meaningful impact on the effective tax rate. Whilst we include the
expected impact of this adjustment in our guidance for the effective tax rate,
this is difficult to accurately forecast given the volatility of Argentinian
inflation.
The Group monitors income tax developments in the territories in which it
operates, including the OECD Base Erosion and Profit Shifting (BEPS)
initiative to set a new minimum global corporate tax rate of 15%. We do not
currently expect that this BEPS initiative will lead to a material increase in
our effective tax rate from 2024 onwards.
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 has
appealed 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 Consolidated 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 £1.1 million. No provisions
have currently been recognised relating to these amounts and therefore they
remain a contingent liability at 30th June 2023.
Earnings per share
Adjusted basic earnings per share decreased by 11% to 155.2 pence (H1 2022:
175.1 pence), consistent with the decrease in adjusted operating profit.
Statutory basic earnings per share were 112.5 pence (H1 2022: 131.8 pence).
The statutory fully diluted earnings per share were not materially different
to the statutory basic earnings per share in either year.
Dividends
The Board has declared an interim dividend of 46.0 pence (2022: 42.5 pence)
per ordinary share, an increase of 8%. This growth in the interim dividend
follows an increase of 12% in the total dividend in respect to 2022. The
dividend will be paid on 10th November 2023 to shareholders on the register at
the close of business on the 13th of October 2023. The final dividend of 109.5
pence per share in respect of 2022 was paid on 19th May at a cash cost of
£80.7 million.
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 forecast future 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.
Financial Position and Cash Flow
Capital employed
30th June 31st December
2023 2022
£m £m
Property, plant and equipment 395.3 384.5
Right-of-use assets 90.2 67.2
Software & development costs 35.0 44.5
Non-current prepayments 2.5 2.0
Inventories 304.9 290.0
Trade receivables 317.2 341.1
Other current assets 81.8 79.6
Tax recoverable 16.6 19.0
Trade, other payables and current provisions (242.7) (295.0)
Current tax payable (24.9) (40.4)
Capital employed 975.9 892.5
Capital employed increased by £83.4 million to £975.9 million at 30th June
2023. In first half of this financial year, our capital expenditure was £50.6
million, which amounts to 6% of sales and is a comparable investment to H1
2022 at £49.3 million. For the full year, we expect capital expenditure to be
approximately 7% of sales due to increased investment in the second half of
the year, driven by the expansion of Chromalox's manufacturing facility in
Ogden, Utah (USA). During the first half, tangible fixed assets (Property,
Plant & Equipment (PPE) and right-of-use-assets) increased by £33.8
million to £485.5 million principally as a result of the new leased
manufacturing facility for Watson-Marlow in Devens, Massachusetts (USA).
Total working capital increased by £62.7 million reflecting usual
seasonality, with an increase in inventory and a reduction in payables driven
by the completion of a number of large capital expenditure projects. Going
forward, we anticipate that the ratio of working capital to sales will be at a
similar level to the pro-forma basis reported at December 2022.
Adjusted cash flow
30(th) June 2023 30(th) June
Adjusted Cash flow £m 2022
£m
Adjusted operating profit 171.7 178.8
Depreciation and amortisation (excl. leased assets) 21.7 17.0
Depreciation of leased assets 7.5 6.4
Cash payments to pension schemes more than the charge to adjusted operating (2.7) (2.9)
profit
Equity settled share plans 4.8 4.8
Working capital changes (62.7) (70.8)
Repayments of principal under lease liabilities (7.7) (6.2)
Capital expenditure (including software and development) (50.6) (49.3)
Capital disposals 0.8 0.6
Adjusted cash from operations 82.8 78.4
Net interest (17.4) (3.3)
Income taxes paid (46.1) (41.2)
Adjusted Free cash flow 19.3 33.9
Net dividends paid (81.0) (72.2)
Purchase of employee benefit trust shares/Proceeds from issue of shares (8.8) (10.4)
(Acquisitions)/Disposals of subsidiaries (2.3) (12.7)
Restructuring costs (6.1) -
Cash flow for the year (78.9) (61.4)
Exchange movements 21.0 (8.5)
Cash transferred to assets classified as held for sale - (2.3)
Opening net debt (690.4) (130.5)
Net debt at 30 June 2023 (748.3) (202.7)
Lease liability (88.4) (61.8)
Net debt and lease liability 30(th) June 2023 (836.7) (264.5)
Adjusted cash from operations of £82.8 million (H1 2022: £78.4 million) was
up £4.4 million, resulting in cash conversion of 48% (H1 2022: 44%). For the
full year we continue to expect cash conversion to be above 70%. Adjusted cash
from operations is a measure of the cash flow generated from our operating
companies that reflects the components within the control of local management.
A reconciliation between this and statutory operating cash flow can be found
in the Appendix to the Financial Statements.
Tax paid in the period increased to £46.1 million (H1 2022: £41.2 million)
driven by payments made by Vulcanic and Durex Industries included in H1 2023
but not in H1 2022. Adjusted free cash flow decreased to £19.3 million (H1
2022: £33.9 million) principally due to increased financing expense in the
period.
Dividend payments were £81.0 million (H1 2022: £72.2 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 £8.8 million (H1 2022: £10.4
million).
Restructuring spend of £6.1 million relates primarily to the right-sizing of
capacity and overhead support costs undertaken in Watson-Marlow.
The net post-retirement benefit liability under IAS 19 decreased to £43.4
million (FY 2022: £52.1 million, H1 2022: £35.2 million). The fair value of
assets decreased by £7.8 million from 31st December 2022 to £333.8 million.
This was more than offset by lower liabilities which reduced by £16.5 million
since 31st December 2022 to £377.2 million.
Financing and Liquidity
Net debt (excluding leases) at the 30th June 2023 was £748.3 million (FY
2022: £690.4 million), with a net debt to EBITDA ratio of 1.8x (FY 2022: 1.7x
on a reported basis and 1.5x on a pro-forma basis).
As at the 30th June 2023, total committed and undrawn debt facilities amounted
to £227.7 million alongside a net cash balance of £214.7 million. The
average tenor of our debt is over four years with the next contractual
repayment maturity in September 2023. During the period, the Group
successfully exercised an option to extend the maturity of our £400 million
committed, revolving credit facility by an additional year to April 2028.
OPERATING REVIEW
Steam Specialties
HY 2022 Exchange Organic Acquisitions & disposals HY 2023 Organic Reported
Revenue £400.6m £0.6m £60.0m £(1.4)m £459.8m 15% 15%
Adjusted operating profit £92.1m £(2.2)m £22.4m £(0.1)m £112.2m 25% 22%
Adjusted operating margin 23.0% 24.4% 190 bps 140 bps
Statutory operating profit £87.7m £96.3m 10%
Statutory operating margin 21.9% 20.9% (100) bps
*Results include the impact of the treatment of our Russian operating
companies as disposals from the date at which the Group suspended all trading
with and within Russia.
Progress in the half year
Steam Specialties made exceptional progress during the first half, with demand
above sales and continued growth in the overall order book. Steam Specialties
sales of £459.8 million were up 15% on a reported basis and organically,
significantly ahead of IP.
EMEA
In EMEA, organic sales growth of 15% reflected the delivery of our first
'TargetZero' order in Turkey and the benefits of prior year revenue
investments to enter new markets in the Middle East and Africa. Growth in more
mature markets, including the UK, was lower reflecting weaker IP.
Asia Pacific
In Asia Pacific, organic sales growth of 14% reflected an increase in
self-generated sales across the region and a focus on driving maintenance and
replacement orders, reducing the historical higher dependency on large
orders. However, Korea benefited from growth in large orders, funded from
our customers' capital expenditure budgets, continuing the post COVID-19
recovery.
Americas
In the Americas, organic sales growth of 17% was delivered against the
backdrop of contracting IP during the first half. In North America, sales
growth was supported by delivery against a significant order book built up in
2022. In Latin America, sales in Brazil were up strongly, driven by the Oil
& Gas sector, while growth in Argentina was driven by both the Food &
Beverage and Oil & Gas sectors including some significant large orders.
Across all regions broader macroeconomic uncertainty is leading to customer
deferrals of project orders, while the weaker economic backdrop in China is
beginning to impact on customer demand in Asia Pacific.
Steam Specialties adjusted operating profit of £112.2 million was up 25% up
on an organic basis. Adjusted operating profit margin of 24.4% was up 190 bps
on an organic basis, reflecting volume growth, cost containment initiatives
and strong pricing discipline to offset inflation and protect margins.
Statutory operating profit of £96.3 million was up 10% from £87.7 million in
the first half of 2022 and statutory operating profit margin of 20.9% was down
100 bps. Since 2018, Steam Specialties has been engaged in a project to
upgrade its ERP systems, known as Project OPAL. Over time the scope of the
project has expanded substantially to include a wider range of business
applications. In parallel, the external technology market has continued to
evolve and the Group has also taken the decision to implement consistent ERP
solutions across all three Businesses. Within Steam Specialties, this will
enhance future capability in addition to leveraging the scale of the broader
Group. This has resulted in a non-cash impairment charge to statutory
operating profit of £13.9 million in relation to existing assets which will
no longer provide future economic benefit.
Operating highlights and strategic update
Following commercial launch of the Group's 'TargetZero' solutions late in
2022, Steam Specialties has begun to build a long-term pipeline of
opportunities within its global customer base. There is strong interest in
the 'TargetZero' solutions, especially the 'ElectroFit' solution, which is the
retrofit of gas burners for electric heaters. In H1 2023, we completed the
installation and commissioning of the first-to-world 'Electrofit' for global
Food & Beverage customer Diageo in Turkey.
During the first half, Steam Specialties continued to implement its digital
strategy with the continued build-out of regional 'digital hubs' and the
deployment of our proprietary STRATA platform, which came with our acquisition
in 2022 of the global energy consulting specialist Cotopaxi, across the
Group's manufacturing facilities in all of our three Businesses.
Electric Thermal Solutions
HY 2022 Exchange Organic Acquisitions & disposals* HY 2023 Organic Reported
Revenue £104.7m £4.4m £7.1m £76.3m £192.5m 7% 84%
Adjusted operating profit £12.8m £0.4m £(0.8)m £14.5m £26.9m (6)% 110%
Adjusted operating margin 12.2% 14.0% (140) bps 180 bps
Statutory operating (loss)/profit £(8.9)m £10.7m 220%
Statutory operating margin (8.5)% 5.6% 1,410 bps
*Results include the impact of the acquisitions of Vulcanic and Durex
Industries.
Progress in the half year
In 2022, on a pro-forma basis and following the acquisitions of Vulcanic and
Durex Industries, the Americas and EMEA represented 56% and 32% of ETS sales
respectively, with sales to the Semicon WFE sector representing 18% of total
ETS sales. While IP remains a key underlying driver of growth in ETS, secular
trends in the decarbonisation and Semiconductor markets are important
additional drivers. As expected, the Semicon WFE sector continued to slow
during the first half with demand additionally impacted by destocking in the
supply chain.
Demand growth for ETS products was significantly ahead of IP and above
sales. In Chromalox and Vulcanic, demand growth was strongest in the
strategically important sectors of Energy Transition, which includes
decarbonisation solutions, as well as Health & Nutrition, leading to a
significantly enhanced order book. Thermocoax experienced strong demand from
customers in the Aerospace, Power Generation and Nuclear industries. Both
Durex Industries and Thermocoax were impacted by slowing Semicon WFE demand.
ETS sales of £192.5 million were up 84% reflecting the first-time
contribution of sales from the acquisitions of Vulcanic and Durex Industries.
Excluding this contribution, sales were up 11% or 7% organically, with the
difference reflecting a currency tailwind during the first half.
On a pro-forma basis, Vulcanic and Durex Industries sales were higher than in
the first half of last year, with strong growth at Vulcanic partially offset
by lower sales at Durex Industries that were impacted by slowing Semicon WFE
demand exacerbated by destocking in the supply chain.
Adjusted operating profit in ETS of £26.9 million was up 110% due to the
first-time contribution from the acquisitions of Vulcanic and Durex
Industries. Excluding this contribution, adjusted operating profit was broadly
flat year-on-year with adjusted operating profit margin performance impacted
by weaker Semicon WFE demand in Thermocoax. On a pro-forma basis, margins in
the recently acquired Divisions were down year-on-year, driven by the impact
of lower Semicon WFE demand at Durex Industries, as well as investment in
systems and processes to align the Divisions with the Group's operating
standards.
Statutory operating profit of £10.7 million was up 220% from a statutory
operating loss of £8.9 million in the first half of 2022 reflecting the
absence of restructuring charges in relation to Chromalox EMEA which impacted
the H1 2022 result. For the same reason, statutory operating profit margin of
5.6% was up 1,410 bps.
Operating highlights and strategic update
We have made good progress with the operational integration of Vulcanic and
Durex Industries to align both acquisitions to the Group culture, our Values
including Safety, our business model, as well as core operational and
financial processes. In addition, we have begun to leverage cross-selling
opportunities between Vulcanic and Chromalox as well as Durex Industries and
Thermocoax that are also consolidating their US manufacturing facilities.
In Q2 2023, we initiated a US$58 million investment to extend Chromalox's
facility in Ogden, Utah (USA) by 9,600 m(3) and establish a state-of-the-art
manufacturing unit dedicated to Medium Voltage heating solutions, which will
be operational early in 2025.
Watson-Marlow
HY 2022 Exchange Organic Acquisitions & disposals* HY 2023 Organic Reported
Revenue £244.8m £6.6m £(51.2)m £(1.7)m £198.5m (21)% (19)%
Adjusted operating profit £87.0m £4.8m £(42.9)m £48.9m (47)% (44)%
Adjusted operating margin 35.5% 24.6% (1,220) bps (1,090) bps
Statutory operating profit £83.6m £42.1m (50)%
Statutory operating margin 34.2% 21.2% (1,300) bps
*Results include the impact of the treatment of our Russian operating
companies as disposals from the date at which the Group suspended all trading
with and within Russia.
Progress in the half year
Watson-Marlow sells to the Biopharm sector through OEMs, contract
manufacturers and directly to end customers. All three customer groups drove
strong growth in Watson-Marlow from Q4 2020 through to H1 2022. This
exceptional demand from the sector was driven by expectations of a far larger
deployment of the COVID-19 vaccine than was subsequently required. The
resulting excess inventory across the supply chain has driven destocking from
H2 2022 onwards.
Expectations from our customers at the beginning of 2023 were that this
destocking would complete during H1 2023, before demand normalised during H2
2023. In recent weeks it has become clear that destocking is likely to
continue through the remainder of 2023, with a return to more normal levels of
demand growth during 2024.
Against a challenging comparator in H1 2022, as well as the backdrop of
continuing normalisation of demand in Biopharm, Watson-Marlow sales in the
first half were 19% lower year-on-year, or down 21% organically, as our
customers have been working through significant levels of overstocking. As a
result, in H1 2023 Biopharm sales were down 33% organically, while Process
Industries sales were broadly flat against a record H1 2022 that saw
double-digit growth.
The higher-than-expected decline in sales volumes during the first half
impacted Watson-Marlow's profitability. Adjusted operating profit in the first
half of £48.9 million was 47% lower organically, with adjusted operating
profit margin lower by 1,220 bps at 24.6%.
Although Watson-Marlow's performance in 2023 is below the exceptional levels
experienced through the COVID-19 pandemic, the Business remains robust and is
well positioned for a return to growth in 2024. Compared to the first half of
2019, Watson-Marlow's H1 2023 sales have grown by 9% on a compound annual
basis, which is consistent with Watson-Marlow's pre-pandemic sales growth,
demonstrating the underlying strength of its business model and strategy.
Statutory operating profit of £42.1 million was down 50% compared to the
first half of 2022, while statutory operating profit margin was down 1,300 bps
for the reasons set out above.
Operating highlights and strategic update
While the trading environment remains temporarily challenging, Watson-Marlow
has taken a prudent approach to costs by balancing the needs of
business-readiness for a recovery in volumes in 2024 against appropriate
near-term actions to support margins.
In the first quarter, Watson-Marlow took steps to appropriately right-size
manufacturing capacity and reduce overhead support costs to offset the adverse
impact of lower sales volumes on adjusted operating profit margin. While the
right-sizing was focused on our UK and EMEA operations, Watson-Marlow also
closed the Flowsmart site in Delaware (USA) and transferred manufacturing to
its newly built facility in Devens, Massachusetts (USA). Following these
actions Watson-Marlow's manufacturing capacity is strongly positioned to
respond to the return of Biopharm demand.
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 2023, 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 2022
Annual Report & Accounts.
Economic and political instability - Consistent compared to 2022
The Group operates worldwide and maintains operations in territories that have
historically experienced economic or political instability, including regime
changes. In addition to the potential impact on our local operations, this
instability also increases credit, liquidity and currency risks.
This risk was already increased in 2022 due to escalating global political
uncertainties and a weakening macroeconomic outlook. For H1 2023 this the risk
remains unchanged.
Significant exchange rate movements -Consistent compared to 2022
The Group reports its results and pays dividends in sterling. Sales and
manufacturing companies trade in local currency. With our local presence in
markets across the globe, the nature of our business necessarily results in
exposure to exchange rate volatility.
Cybersecurity - Consistent compared to 2022
Cybersecurity risks include theft of information, malware, ransomware and
compliance with evolving statutory and legislative requirements. Risks may
manifest through a direct attack on our business or through our supply chain.
This risk was increased in 2022 due to rising geopolitical tensions and
sophisticated, state-backed cyber attacks. For H1 2023 this risk remains
unchanged.
Loss of manufacturing output at any Group factory - Consistent compared to
2022
The risk includes loss of output as a result of natural disasters, industrial
action, accidents or other causes. Loss of manufacturing output from our
larger plants risks serious disruption to Group sales.
Failure to realise acquisition objectives - Consistent compared to 2022
The Group mitigates this risk in various ways, including through comprehensive
due diligence, professional advisers, contractual protections and
comprehensive integration planning. However, there are some variables that are
difficult to control, such as adverse economic conditions, or the loss of key
colleagues, which could impact acquisition objectives.
Loss of critical supplier - Consistent compared to 2022
This risk relates to the loss of a critical supplier that could result in
manufacturing constraints and delayed deliveries to customers.
Breach of legal and regulatory requirements (including ABC laws) - Consistent
compared to 2022
We operate globally and must ensure compliance with laws and regulations
wherever we do business. As we enter new markets and territories we
continually review and update our operating procedures and ensure our
colleagues are fully informed and educated in all applicable legal
requirements, such as 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 2022
This risk could lead to a reduction in demand from a failure to respond to
changes in the needs of customers or technology shifts.
Climate change risks
Although not a Principal Risk, Climate change was elevated to risk 9 in our
Risk Register in 2022. Our Group Director of Sustainability became a member of
the Risk Management Committee in 2022 in recognition of the increasing
importance of this risk. Following a comprehensive review, our description of
this risk was updated in the Group Risk Register, aligning with the TCFD
framework and recognising that climate change is not a singular risk, but a
combination of physical and transitional risks that will emerge differently
under various scenarios.
Climate change-related risks are currently deemed to be low for the Group
(based on assessment of likelihood, impact and control) and climate change is
not identified as a Principal Risk. However, a number of the key risks
associated with climate change are already managed through other Principal
Risks on the Group Risk Register. These include physical risks - notably the
impact of a climate-related event on our manufacturing operations,
specifically the loss of a manufacturing site, or our supply chain - and
transition risks - such as failure to meet changing market needs.
Based on this assessment we believe that our risk management processes are
adequate and appropriate for the level of risk. During the first half of 2023,
management of the Group's climate-change risk mitigation activities was
overseen by the Board, the Group Executive Committee and the Group
Sustainability Management Committee.
Emerging risks
We are continuing to monitor the conflict in Ukraine and its subsequent impact
on our Group, including volatile energy costs, inflationary pressures and
corresponding interest rate rises in an effort to curb inflation.
INDEPENDENT REVIEW REPORT TO SPIRAX-SARCO ENGINEERING PLC
Conclusion
We have been engaged by the Group to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30th
June 2023 which comprises the Condensed Consolidated Statement of Financial
Position, the Condensed Consolidated Income Statement, the Condensed
Consolidated Statement of Comprehensive Income, the Condensed Consolidated
Statement of Changes in Equity, the Condensed Consolidated Statement of Cash
Flows and related Notes 1 to 13.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30th June 2023 is not prepared, in
all material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
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.
As disclosed in Note 1 the annual financial statements of the group will be
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".
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
9th August 2023
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Notes 30(th) June 30(th) June 31(st) December
2023 2022 2022
£m £m £m
(unaudited) (unaudited) (audited)
ASSETS
Non-current assets
Property, plant and equipment 395.3 311.1 384.5
Right-of-use assets 90.2 64.2 67.2
Goodwill 677.8 446.8 703.3
Other intangible assets 455.5 263.8 500.3
Prepayments 2.5 1.3 2.0
Investment in Associate - - -
Taxation recoverable 4.9 4.9 5.1
Deferred tax assets 18.9 50.0 69.0
1,645.1 1,142.1 1,731.4
Current assets
Inventories 304.9 239.4 290.0
Trade receivables 317.2 311.1 341.1
Other current assets 81.8 58.7 79.6
Taxation recoverable 11.7 9.4 13.9
Assets classified as held for sale - 0.7 -
Cash and cash equivalents 8 322.8 304.9 328.9
1,038.4 924.2 1,053.5
Total assets 2,683.5 2,066.3 2,784.9
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables 232.9 225.4 283.0
Provisions 9.8 14.2 12.0
Bank overdrafts 8 108.1 74.3 85.1
Current portion of long-term borrowings 8 196.7 0.9 202.9
Short-term lease liabilities 8 13.3 12.6 14.1
Liabilities directly associated with assets classified as held for sale - 0.5 -
Current tax payable 24.9 33.8 40.4
585.7 361.7 637.5
Net current assets 452.7 562.5 416.0
Non-current liabilities
Long-term borrowings 8 766.3 432.4 731.3
Long-term lease liabilities 8 75.1 49.2 51.1
Deferred tax liabilities 76.8 88.1 128.1
Post-retirement benefits 7 43.4 35.2 52.1
Provisions 6.5 1.6 6.2
Long-term payables 8.6 6.2 8.8
976.7 612.7 977.6
Total liabilities 1,562.4 974.4 1,615.1
Net assets 2 1,121.1 1,091.9 1,169.8
Equity
Share capital 19.8 19.8 19.8
Share premium account 88.4 86.6 88.1
Translation reserve (49.1) 17.8 17.5
Other reserves (3.4) (15.2) (23.4)
Retained earnings 1,064.8 982.1 1,067.0
Equity shareholders' funds 1,120.5 1,091.1 1,169.0
Non-controlling interest 0.6 0.8 0.8
Total equity 1,121.1 1,091.9 1,169.8
Total equity and liabilities 2,683.5 2,066.3 2,784.9
CONDENSED CONSOLIDATED INCOME STATEMENT
Six months Six months Year ended
to 30th June to 30(th) June 31st December
2023 2022 2022
£m £m £m
Notes (unaudited) (unaudited) (audited)
Revenue 2 850.8 750.1 1,610.6
Operating costs (718.6) (608.0) (1,291.8)
Operating profit 2 132.2 142.1 318.8
Financial expenses (22.3) (5.5) (16.3)
Financial income 4.1 1.9 5.6
Net financing expense 3 (18.2) (3.6) (10.7)
Share of (loss)/profit of Associate - - -
Profit before taxation 114.0 138.5 308.1
Taxation 4 (31.0) (41.3) (83.1)
Profit for the period 83.0 97.2 225.0
Attributable to:
Equity shareholders 82.9 97.1 224.7
Non-controlling interest 0.1 0.1 0.3
Profit for the period 83.0 97.2 225.0
Earnings per share
Basic earnings per share 5 112.5p 131.8p 305.1p
Diluted earnings per share 5 112.3p 131.5p 304.4p
Dividends
Dividends per share 6 46.0p 42.5p 152.0p
Dividends paid (per share) 6 109.5p 97.5p 140.0p
All amounts relate to continuing operations. The Notes on pages 26 to 37 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
2023 2022 2022
£m £m £m
(unaudited) (unaudited) (audited)
Profit for the period 83.0 97.2 225.0
Items that will not be reclassified to profit or loss:
Remeasurement gain on post-retirement benefits 5.9 8.5 (8.3)
Deferred tax on remeasurement gain on post-retirement benefits (1.4) (2.3) 1.8
4.5 6.2 (6.5)
Items that may be reclassified subsequently to profit or loss:
Exchange (loss)/gain on translation of foreign operations and net investment (57.7) 63.8 54.8
hedges
Transfer to Income Statement of cumulative translation differences on disposal - - 3.2
of subsidiaries
Gain/(loss) on cash flow hedges net of tax 5.7 (7.7) (3.5)
(52.0) 56.1 54.5
Total comprehensive income for the period 35.5 159.5 273.0
Attributable to:
Equity shareholders 35.4 159.4 272.7
Non-controlling interest 0.1 0.1 0.3
Total comprehensive income for the period 35.5 159.5 273.0
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period ended 30(th) June 2023
(unaudited) Share premium Equity shareholders' funds Non-controlling interest
Share capital account Translation Other reserves Retained earnings £m £m Total equity
£m £m Reserve £m £m £m
£m
Balance at 1(st) January 2023 19.8 88.1 17.5 (23.4) 1,067.0 1,169.0 0.8 1,169.8
Profit for the period - - - - 82.9 82.9 0.1 83.0
Other comprehensive (expense)/income:
Foreign exchange translation differences and net investment hedges - - (66.6) 8.9 - (57.7) - (57.7)
Remeasurement gain on post-retirement benefits - - - - 5.9 5.9 - 5.9
Deferred tax on remeasurement gain on post-retirement benefits - - - - (1.4) (1.4) - (1.4)
Cash flow hedges - - - 5.7 - 5.7 - 5.7
Total other comprehensive (expense)/income for the period - - (66.6) 14.6 4.5 (47.5) - (47.5)
Total comprehensive (expense)/income for the period - - (66.6) 14.6 87.4 35.4 0.1 35.5
Contributions by and distributions to owners of the Company:
Dividends paid - - - - (80.7) (80.7) (0.3) (81.0)
Equity-settled share plans net of tax - - - - (8.9) (8.9) - (8.9)
Issue of share capital - 0.3 - - - 0.3 - 0.3
Employee Benefit Trust shares - - - 5.4 - 5.4 - 5.4
Balance at 30(th) June 2023 19.8 88.4 (49.1) (3.4) 1,064.8 1,120.5 0.6 1,121.1
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 2022
(unaudited) Share premium Equity shareholders' funds Non-controlling interest
Share capital account Translation Other reserves Retained earnings £m £m Total equity
£m £m Reserve £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 (7.2) - 63.8 - 63.8
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
For the year ended 31st December 2022
(audited) Share premium Equity shareholders' funds Non-controlling interest
Share capital account Translation Other reserves Retained earnings £m £m Total equity
£m £m Reserve £m £m £m
£m
Balance at 1(st) January 2022 19.8 86.3 (40.5) (17.7) 961.1 1,009.0 1.0 1,010.0
Profit for the period - - - - 224.7 224.7 0.3 225.0
Other comprehensive income/(expense):
Foreign exchange translation differences and net investment hedges - - 54.8 - - 54.8 - 54.8
Transfer to Income Statement of cumulative translation differences on disposal - - 3.2 - - 3.2 - 3.2
of subsidiaries
Remeasurement gain on post-retirement benefits - - - - (8.3) (8.3) - (8.3)
Deferred tax on remeasurement gain on post-retirement benefits - - - - 1.8 1.8 - 1.8
Cash flow hedges - - - (3.5) - (3.5) - (3.5)
Total other comprehensive income/(expense) for the period - - 58.0 (3.5) (6.5) 48.0 - 48.0
Total comprehensive income/(expense) for the period - - 58.0 (3.5) 218.2 272.7 0.3 273.0
Contributions by and distributions to owners of the Company:
Dividends paid - - - - (103.1) (103.1) (0.5) (103.6)
Equity-settled share plans net of tax - - - - (9.2) (9.2) - (9.2)
Issue of share capital - 1.8 - - - 1.8 - 1.8
Employee Benefit Trust shares - - - (2.2) - (2.2) - (2.2)
Balance at 31(st) December 2022 19.8 88.1 17.5 (23.4) 1,067.0 1,169.0 0.8 1,169.8
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Notes Six months Six months Year ended
to 30(th) June to 30(th) June 31(st) December
2023 2022 2022
£m £m £m
(unaudited) (unaudited) (audited)
Cash flows from operating activities
Profit before taxation 114.0 138.5 308.1
Depreciation, amortisation and impairment 61.1 40.9 81.0
Loss/(profit) on disposal of fixed assets 0.5 (0.7) (1.4)
Loss on impairment of assets classified as held for sale - 3.6 -
Cash payments to the pension schemes greater than the charge to operating (2.7) (2.9) (5.3)
profit
Loss on disposal of subsidiaries - - 7.0
Acquisition related items (0.6) - 3.8
Restructuring related provisions and impairments (0.9) 16.3 10.2
Equity-settled share plans 4.8 4.8 8.9
Net finance expense 18.2 3.6 10.7
Operating cash flow before changes in working capital and provisions 194.4 204.1 423.0
(Increase)/decrease in trade and other receivables (7.0) (36.3) (56.3)
(Increase)/decrease in inventories (28.3) (29.7) (58.3)
(Decrease)/increase in provisions (0.3) (0.8) (0.8)
(Decrease)/increase in trade and other payables (27.1) (4.0) 23.5
Cash generated from operations 131.7 133.3 331.1
Income taxes paid (46.1) (41.2) (90.0)
Net cash from operating activities 85.6 92.1 241.1
Cash flows from investing activities
Purchase of property, plant and equipment (42.4) (44.1) (104.3)
Proceeds from sale of property, plant and equipment 0.8 0.6 4.0
Purchase of software and other intangibles (4.7) (3.5) (8.9)
Development expenditure capitalised (3.5) (1.7) (4.3)
Disposal of subsidiaries - - (2.8)
Acquisition of businesses net of cash acquired - (12.7) (460.3)
Interest received 4.1 1.8 5.6
Net cash used in investing activities (45.7) (59.6) (571.0)
Cash flows from financing activities
Proceeds from issue of share capital 0.3 0.3 1.8
Employee Benefit Trust share purchase (9.1) (10.7) (20.8)
Repaid borrowings - (59.1) (511.1)
New borrowings 60.3 134.2 1,008.8
Interest paid including interest on lease liabilities (21.5) (5.1) (15.5)
Repayment of lease liabilities 8 (7.7) (6.2) (12.9)
Dividends paid (including minority shareholders) 6 (81.0) (72.2) (103.6)
Net cash used in financing activities (58.7) (18.8) 346.7
Net change in cash and cash equivalents 8 (18.8) 13.7 16.8
Net cash and cash equivalents at beginning of period 8 243.8 219.0 219.0
Cash transferred to assets held for sale - (2.3) -
Exchange movement 8 (10.3) 0.2 8.0
Net cash and cash equivalents at end of period 8 214.7 230.6 243.8
Borrowings 8 (963.0) (433.3) (934.2)
Net debt at end of period 8 (748.3) (202.7) (690.4)
Lease liabilities 8 (88.4) (61.8) (65.2)
Net debt and lease liabilities at end of period 8 (836.7) (264.5) (755.6)
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 2023 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 2022 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 2022 Annual Report. The comparative figures for the year
ended 31st December 2022 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 2022 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 2022 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 2022 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 2023, 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 9th August 2023.
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 2023 Half Year Report. For this reason, it continues
to adopt the going concern basis in preparing the Condensed Consolidated
Interim Financial Statements.
The Group's principal objective when managing liquidity is to safeguard the
Group's ability to continue as a going concern for at least 12 months from the
date of signing the 2023 Half Year Report. The Group retains sufficient
resources to remain in compliance with all the required terms and conditions
within its borrowing facilities over this period. The Group continues to
conduct ongoing risk assessments on its business operations and liquidity.
Consideration has also been given to reverse stress tests, which seek to
identify factors that might cause the Group to require additional liquidity
and a view has been formed as to the probability of these occurring.
Our financial position remains robust, with the Group holding committed total
debt facilities of £1,190.5 million at 30th June 2023 giving headroom in
excess of £267 million. Committed facilities include a £400 million
revolving credit facility with a maturity of April 2028 which has £227.7
million undrawn at 30th June 2023. The Group also has cash and cash
equivalents, net of overdrafts, of £214.7 million. The next maturity of our
committed debt facilities is €225 million of Private Placement notes which
mature in September 2023. For the going concern modelling we have not included
any refinancing assumptions in relation to existing debt. The Group's debt
facilities contain a leverage (defined as net debt divided by adjusted
earnings before interest, tax, depreciation and amortisation) covenant of up
to 3.5x. Certain debt facilities also contain an interest cover (defined as
adjusted earnings before interest, tax, depreciation and amortisation divided
by 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 these debt covenants. At 30th June 2023 leverage was 1.8x
(30th June 2022: 0.5x; and 31st December 2022: 1.7x), showing an increase as a
result of the debt taken on to finance the acquisitions of Vulcanic and Durex
Industries in the second half of 2022. Interest cover was 19x at 30th June
2023 (30th June 2022: 91x; and 31st December 2022: 62x).
Reverse stress testing was also performed to assess what level of business
under-performance would be required for a breach of the financial covenants to
occur, the results of which evidenced that no reasonably possible change in
future forecast cash flows would cause a breach of these covenants. In
addition, the reverse stress test does not take into account any mitigating
actions which the Group would implement in the event of a severe and extended
revenue and profitability decline, which would increase the covenant headroom
further.
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 2023, 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 2023. Their adoption has not had a material impact on the Condensed
Consolidated Financial Statements.
The economy in Argentina and Turkey remain subject to high inflation. At 30th
June 2023 we have concluded that applying IAS 29 (Financial Reporting in
Hyperinflationary Economies) is not required as the impact of adopting is not
material. We will continue to assess the position going forward.
NEW STANDARDS AND INTERPRETATIONS NOT YET APPLIED
At the date of approval of these Condensed Consolidated Financial Statements,
there were no new or revised IFRSs, amendments or interpretations in issue but
not yet effective that are potentially material for the Group and which have
not yet been applied.
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 2022.
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 Engineering plc on 9th August 2023 are as listed
in the 2022 Annual Report on pages 104 and 105, except for Constance Baroudel,
appointed on 2nd August 2023 and Olivia Qiu who stepped down on 31st January
2023. Constance Baroudel's biography can be found on the Group's website.
N. J. Anderson
Group Chief Executive
9th August 2023
N. B. Patel
Chief Financial Officer
9th August 2023
On behalf of the Board
2. 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
Total
Six months to 30(th) June 2023 operating Operating
Revenue profit profit margin
£m £m %
Steam Specialties 459.8 96.3 20.9%
Electric Thermal Solutions 192.5 10.7 5.6%
Watson-Marlow 198.5 42.1 21.2%
Corporate - (16.9)
Total 850.8 132.2 15.5%
Net finance expense (18.2)
Share of (loss)/profit of Associate -
Profit before taxation 114.0
Total
Six months to 30(th) June 2022 operating Operating
Revenue profit profit margin
£m £m %
Steam Specialties 400.6 87.7 21.9%
Electric Thermal Solutions 104.7 (8.9) (8.5)%
Watson-Marlow 244.8 83.6 34.2%
Corporate (20.3)
Total 750.1 142.1 18.9%
Net finance expense (3.6)
Share of (loss)/profit of Associate -
Profit before taxation 138.5
Year ended 31(st) December 2022 Total
operating Operating
Revenue profit profit margin
£m £m %
Steam Specialties 866.0 196.2 22.7%
Electric Thermal Solutions 256.1 7.3 2.9%
Watson-Marlow 488.5 154.4 31.6%
Corporate (39.1)
Total 1,610.6 318.8 19.8%
Net finance expense (10.7)
Share of (loss)/profit of Associate -
Profit before taxation 308.1
The following table details the split of revenue by geography for the combined
Group:
Six months Six months Year ended
to 30(th) June 2023 to 30(th) June 2022 31(st) December 2022
£m £m £m
Europe, Middle East and Africa 365.1 308.5 649.6
Asia Pacific 184.1 176.2 384.3
Americas 301.6 265.4 576.7
Total revenue 850.8 750.1 1,610.6
Net financing income and expense
Six months to Six months to Year ended
30(th) June 2023 30(th) June 2022 31(st) December 2022
£m £m £m
Steam Specialties (0.2) 0.7 1.8
Electric Thermal Solutions (0.4) (0.2) (0.2)
Watson-Marlow - (0.2) (0.3)
Corporate (17.6) (3.9) (12.0)
Total net financing expense (18.2) (3.6) (10.7)
Net assets
30(th) June 2023 30(th) June 2022 31(st) December 2022
Assets Liabilities Assets Liabilities Assets Liabilities
£m £m £m £m £m £m
Steam Specialties 735.0 (180.1) 716.5 (178.7) 756.8 (219.2)
Electric Thermal Solutions 1,119.5 (78.7) 581.7 (42.1) 1,171.9 (80.2)
Watson-Marlow 447.2 (40.4) 386.0 (60.7) 423.8 (55.3)
Corporate* 23.5 (2.0) 12.2 (1.1) 15.5 (7.4)
2,325.2 (301.2) 1,696.4 (282.6) 2,368.0 (362.1)
Liabilities (301.2) (282.6) (362.1)
Net deferred tax (57.9) (38.1) (59.1)
Net assets held for sale - 0.2 -
Net tax payable (8.3) (19.5) (21.4)
Net debt including lease liabilities (836.7) (264.5) (755.6)
Net assets 1,121.1 1,091.9 1,169.8
*In order to align to with how we manage net assets across the Group, we have
reallocated specific assets and liabilities to the corporate operating segment
in both the current period and the comparative periods.
Capital additions, depreciation, amortisation and impairment
Six months to Six months to Year ended
30(th) June 2023 30(th) June 2022 31(st) December 2022
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 20.9 30.6 19.5 15.5 43.8 32.9
Electric Thermal Solutions 7.6 20.1 3.3 11.8 285.4 24.7
Watson-Marlow 53.0 10.4 35.2 9.5 76.4 19.0
Corporate* 4.2 - 0.1 4.1 3.3 4.4
Total 85.7 61.1 58.1 40.9 408.9 81.0
*In order to align to with how we manage net assets across the Group, we have
reallocated specific capital additions, depreciation, amortisation and
impairment to the corporate operating segment in both the current period and
the comparative periods.
Capital additions include property, plant and equipment at 30th June 2023 of
£42.4 million (at 30th June 2022: £44.1 million; and at 31st December 2022:
£135.0 million). Capital additions also include other intangible assets at
30th June 2023 of £8.5 million (at 30th June 2022: £8.0 million; and at 31st
December 2022: £258.3 million), of which £0.3 million relates to acquisition
related intangibles (at 30th June 2022: £2.8 million; and at 31st December
2022: £245.1 million). Right-of-use asset additions at 30th June 2023 were
£34.8 million (at 30th June 2022: £6.0 million; and at 31st December 2022:
£15.6 million).
3. NET FINANCING INCOME AND EXPENSE
Six months Six months Year ended
to 30(th) June to 30(th) June 31(st) December
2023 2022 2022
£m £m £m
Financial expenses:
Bank and other borrowing interest payable (20.6) (4.5) (14.0)
Interest expense on lease liabilities (0.9) (0.7) (1.5)
Net interest on pension scheme liabilities (0.8) (0.3) (0.8)
(22.3) (5.5) (16.3)
Financial income:
Bank interest receivable 4.1 1.9 5.6
Net financing expense (18.2) (3.6) (10.7)
Net bank interest (16.5) (2.6) (8.4)
Interest expense on lease liabilities (0.9) (0.7) (1.5)
Net pension scheme financial expense (0.8) (0.3) (0.8)
Net financing expense (18.2) (3.6) (10.7)
4. TAXATION
Taxation has been estimated at the rate expected to be incurred in the full
year.
Six months Six months Year ended
to 30(th) June to 30(th) June 31(st) December
2023 2022 2022
£m £m £m
UK corporation tax (1.7) (0.8) 6.4
Foreign tax 31.2 40.7 87.3
Deferred tax 1.5 1.4 (10.6)
Total taxation 31.0 41.3 83.1
Effective tax rate 27.2% 29.8% 27.0%
The Group's tax charge in future years is likely to be affected by the
proportion of profits arising and the effective tax rates in the various
countries in which the Group operates. The rate may also be affected by the
impact of any acquisitions.
The Group is subject to a tax adjustment in Argentina that seeks to offset the
impact of inflation upon taxable profits. Given the current high levels of
inflation in Argentina this has a meaningful impact on the effective tax rate.
Whilst we include the expected impact of this adjustment in our effective tax
rate this is difficult to accurately forecast given the volatility of
Argentinian inflation.
The Group monitors income tax developments in the territories in which it
operates, including the OECD Base Erosion and Profit Shifting (BEPS)
initiative to set a new minimum global corporate tax rate of 15%. We do not
currently expect that this BEPS initiative will lead to a material increase in
our effective tax rate from 2024 onwards.
The Group's tax charge for the year ended 30th June 2023 includes a credit of
£8.0 million in relation to certain items excluded from adjusting operating
profit (as disclosed in the Appendix). The tax impacts of these items are:
● Amortisation of acquisition related intangible assets (£3.1 million credit)
● Watson-Marlow restructuring costs (£1.1 million credit)
● Costs association with the acquisition of Vulcanic in the prior year (£0.1
million credit)
● Impairment of global ERP system within the Steam Specialties Business (£3.4
million credit)
● Reversal of fair value adjustments to inventory on the acquisition of Vulcanic
(£0.3 million credit)
Excluding these adjustments, the tax on profit and the effective tax rate are
£39.0 million and 25.4% respectively.
In October 2017, the European Commission (EC) opened a State Aid investigation
into 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 to the EU General Court. In June 2022, the EU
General Court dismissed the UK Government's appeal following which the UK
Government lodged a further appeal to the European Court of Justice. The UK
Government's appeal has not yet been heard. Like other UK Groups, the Group
submitted its own appeal against the EC's decision.
The Group's benefit from the FCE in the period from 1st January 2013 to 31st
December 2022 is approximately £8.8 million, including compound interest. To
date, the Group has received, paid and appealed Charging Notices totalling
£4.9 million, assessed for the period from 1st January 2017 to 31st December
2018. The Group expects to recover this in the event of a successful appeal
and has recognised a receivable for the full amount at the balance sheet date.
The Group has not received a Charging Notice for the period prior to 1st
January 2017, the benefit for this period being £2.8 million. HMRC has
enquired into the benefit received during 2019, which the Group estimates to
be £1.1 million. No provisions have been recognised at the year-end balance
sheet date for either the Charging Notice amounts or for the estimates for the
other periods.
No UK tax (after double tax relief for underlying tax) is expected to be
payable on the future remittance of retained earnings of overseas
subsidiaries.
The effective tax rate is calculated as a percentage of profit before tax and
a share of profits of associates.
5. EARNINGS PER SHARE
Six months Six months Year ended
to 30th June to 30th June 31st December
2023 2022 2022
Profit attributable to equity shareholders (£m) 82.9 97.1 224.7
Weighted average shares in issue (million) 73.6 73.7 73.6
Dilution (million) 0.1 0.1 0.2
Diluted weighted average shares in issue (million) 73.7 73.8 73.8
Basic earnings per share 112.5p 131.8p 305.1p
Diluted earnings per share 112.3p 131.5p 304.4p
Basic and diluted earnings per share calculated on an adjusted profit basis
are included in the Appendix. The dilution is in respect of the Performance
Share Plan.
6. DIVIDENDS
Six months Six months Year ended
to 30(th) June to 30(th) June 31(st) December
2023 2022 2022
£m £m £m
Amounts paid in the period:
Final dividend for the year ended 31st December 2022 of 109.5p (2021: 97.5p) 80.7 71.9 71.9
per share
Interim dividend for the year ended 31st December 2022 of 42.5p (2021: 38.5p) - - 31.2
per share
Total dividends paid 80.7 71.9 103.1
Amounts arising in respect of the period:
Interim dividend for the year ending 31st December 2023 of 46.0p (2022: 42.5p) 33.9 31.2 31.2
per share
Final dividend for the year ended 31st December 2022 of 109.5p (2021: 97.5p) - - 80.7
per share
Total dividends arising 33.9 31.2 111.9
The interim dividend for the year ending 31st December 2023 was approved by
the Board after 30th June 2023. 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 2023
interim dividend.
In addition, dividends paid to minority shareholders at 30th June 2023 were
£0.3 million (31st December 2022: £0.5 million, 30th June 2022: £0.3
million).
7. 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 2022 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 31st December
2023 2022 2022
£m £m £m
Post-retirement benefits (43.4) (35.2) (52.1)
Related deferred tax asset 11.0 9.2 13.2
Net pension liability (32.4) (26.0) (38.9)
8. ANALYSIS OF CHANGES IN NET DEBT, INCLUDING CHANGES IN LIABILITIES ARISING FROM
FINANCING ACTIVITIES
1(st) January Cash flow Acquired debt* Exchange movement 30(th) June 2023
2023 £m £m £m £m
£m
Current portion of long-term borrowings (202.9) (196.7)
Non-current portion of long-term borrowings (731.3) (766.3)
Total borrowings (934.2) (963.0)
Comprising:
Lease liability (65.2) 6.8 (32.8) 2.8 (88.4)
Borrowings (934.2) (60.3) - 31.5 (963.0)
Changes in liabilities arising from financing (999.4) (53.5) (32.8) 34.3 (1,051.4)
Cash at bank 328.9 5.8 - (11.9) 322.8
Bank overdrafts (85.1) (24.6) - 1.6 (108.1)
Net cash and cash equivalents 243.8 (18.8) - (10.3) 214.7
Net debt and lease liability (755.6) (72.3) (32.8) 24.0 (836.7)
Net debt excluding lease liability (690.4) (79.1) - 21.2 (748.3)
* Acquired debt comprises debt recognised on the Statement of Financial
Position due to net additions to lease liabilities
During the period £20.6 million of interest on external borrowings (31st
December 2022: £14.0 million; 30th June 2022: £4.5 million) was incurred and
paid.
At 30th June total lease liabilities consist of £13.3 million (31st December
2022: £14.1m, 30th June 2022: £12.6 million) short-term and £75.1 million
(31st December 2022: and £51.1 million, 30th June 2022: £49.2 million)
long-term.
Cash transferred to assets classified as held for sale
£m
30th June
1st January Cash flow Acquired debt* Exchange movement 2022
2022 £m £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:
Lease liabilities (60.1) 6.2 (6.0) - (1.9) (61.8)
Borrowings (349.5) (75.1) - - (8.7) (433.3)
Changes in liabilities arising from financing (409.6) (68.9) (6.0) - (10.6) (495.1)
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 and lease liability (190.6) (55.2) (6.0) (2.3) (10.4) (264.5)
Net debt excluding lease liability (130.5) (61.4) - (2.3) (8.5) (202.7)
1(st) January 31(st) December 2022
2022 Cash flow Acquired debt* Disposal of subsidiaries Exchange movement £m
£m £m £m £m £m
Current portion of long-term borrowings (59.6) (202.9)
Non-current portion of long-term borrowings (289.9) (731.3)
Total borrowings (349.5) (934.2)
Comprising:
Lease liabilities (60.1) 12.9 (15.2) - (2.8) (65.2)
Borrowings (349.5) (497.7) (67.0) - (20.0) (934.2)
Changes in liabilities arising from financing (409.6) (484.8) (82.2) - (22.8) (999.4)
Cash at bank 274.6 46.3 - (2.8) 10.8 328.9
Bank overdrafts (55.6) (26.7) - - (2.8) (85.1)
Net cash and cash equivalents 219.0 19.6 - (2.8) 8.0 243.8
Net debt and lease liability (190.6) (465.2) (82.2) (2.8) (14.8) (755.6)
Net debt excluding lease liability (130.5) (478.1) (67.0) (2.8) (12.0) (690.4)
9. 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 2022. 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 2023 that
have materially affected the financial position or the performance of the
Group during that period.
10. 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 2023 30(th) June 2022 31(st) December 2022
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
£m £m £m £m £m £m
Financial assets:
Cash and cash equivalents 322.8 322.8 304.9 304.9 328.9 328.9
Trade, other receivables and contract assets 362.9 362.9 342.3 342.3 395.2 395.2
Total financial assets 685.7 685.7 647.2 647.2 724.1 724.1
Financial liabilities:
Loans 963.0 948.7 433.3 423.1 934.1 918.1
Lease liabilities 88.4 88.4 61.8 61.8 65.2 65.2
Bank overdrafts 108.1 108.1 74.3 74.3 85.1 85.1
Trade payables 74.1 77.4 69.6 69.6 89.9 89.9
Other payables and contract liabilities 59.0 59.0 63.7 63.7 70.5 70.5
Long-term payables 8.6 8.6 6.2 6.2 8.8 8.8
Accruals 90.7 90.7 84.3 84.3 113.2 113.2
Total financial liabilities 1,391.9 1,380.9 793.2 783.0 1,366.9 1,350.8
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 2023 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 and payables
For receivables and 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 2023, the Group
had contracts outstanding to economically hedge or to purchase £24.3 million
with US dollars, £80.9 million with euros, £8.5 million with Korean won,
£25.1 million with Chinese renminbi, £3.7 million with Singapore dollars,
€18.8 million with US dollars, €3.4 million with Korean won, €8.1
million with Chinese renminbi and DKK15.9 million with euros. Derivative
financial instruments are measured at fair value. The fair value at the end of
the reporting period is a £4.0 million asset (31st December 2022: £3.7
million liability, 30th June 2022: £7.9 million liability).
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
● 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.
11. CAPITAL COMMITMENTS
Capital expenditure contracted for, but not provided for, at 30th June 2023
was £55.5 million (31st December 2022: £67.0 million; 30th June 2022: £60.4
million). All capital commitments related to property, plant and equipment.
12. 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 2022 and half year 2023.
Average Average
half year half year Change
2023 2022 %
US dollar 1.24 1.30 5%
Euro 1.14 1.19 4%
Renminbi 8.60 8.40 (2)%
Won 1,606 1,593 (1)%
Real 6.26 6.63 6%
Argentine peso 263.21 145.55 (81)%
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 1.5% and adjusted operating profit
increased by 0.5%, with transactional currency impacts also increasing profit,
giving a total benefit to profit from currency movements of 1.7%.
13. PURCHASE OF BUSINESSES
During the period the fair value of the assets acquired as part of the
acquisition of Vulcanic (and its related companies) as well as Durex
Industries were reassessed. The outcome of this reassessment was a decrease
in goodwill of £1.2 million for Durex Industries and increase in goodwill of
£0.7 million for Vulcanic.
Appendix - Alternative 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 remuneration. 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 performance measures are not considered to be a
substitute for, or superior to, IFRS measures.
Adjusted operating profit
Adjusted operating profit excludes items that are considered to be significant
in nature and/or quantum at either a Group or an operating segment level 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 including those defined as follows:
● Amortisation and impairment of acquisition-related intangible assets
● Costs associated with the acquisition or disposal of businesses
● Gain or loss on disposal of a subsidiary and / or disposal groups
● Reversal of acquisition-related fair value adjustments to inventory
● Changes in deferred and contingent consideration payable on acquisitions
● Costs associated with a material restructuring programme
● Material gains or losses on disposal of property
● Accelerated depreciation, impairment and other related costs on non-recurring,
material property redevelopments
● Material non-recurring pension costs or credits
● Costs or credits arising from regulatory and litigation matters
● Other material items which are considered to be non-recurring in nature and /
or are not a result of the underlying trading of the business
● Related tax effect on adjusting items above and other tax items which do not
form part of the underlying tax rate
A reconciliation between operating profit as reported under IFRS and adjusted
operating profit is given below.
Six months to 30(th) June 2023 Six months to 30(th) June 2022 Year ended 31(st) December 2022
£m £m £m
Operating profit as reported under IFRS 132.2 142.1 318.8
Amortisation of acquisition-related intangible assets 18.5 10.5 23.7
Reversal of acquisition-related fair value adjustments to inventory 1.3 - 1.8
Restructuring costs 5.2 15.4 15.5
Acquisition-related items 0.6 3.2 9.1
Software related impairment 13.9 - -
Disposal of subsidiaries in Russia - 3.6 7.1
Accelerated depreciation and other related costs on one-off property - 4.0 4.2
redevelopments
Adjusted operating profit 171.7 178.8 380.2
Adjusted earnings per share
Six months to 30(th) June 2023 Six months to 30(th) June 2022 Year ended 31(st) December 2022
Profit for the period attributable to equity holders as reported under IFRS 82.9 97.1 224.7
(£m)
Items excluded from adjusted operating profit disclosed above (£m) 39.5 36.7 61.4
Finance expenses excluded from adjusted operating profit (£m) - - 1.1
Tax effects on adjusted items (£m) (8.0) (4.8) (9.4)
Adjusted profit for the period attributable to equity holders (£m) 114.4 129.0 277.8
Weighted average shares in issue (million) 73.6 73.7 73.6
Basic adjusted earnings per share 155.2p 175.1p 377.2p
Diluted weighted average shares in issue (million) 73.7 73.8 73.8
Diluted adjusted earnings per share 154.9p 174.8p 376.3p
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
5.
Adjusted cash flow
Adjusted cash from operations is used by the Board to monitor the performance
of the Group, with a focus on elements of cashflow, such as net capital
expenditure, which are subject to day-to-day control by the business. 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 2022 Year ended
30(th) June 2023 £m 31(st) December 2022
£m £m
Net cash from operating activities as reported under IFRS 85.6 92.1 241.1
Restructuring and acquisition-related costs 8.6 - 10.2
Net capital expenditure excluding acquired intangibles from acquisitions (49.8) (48.7) (113.5)
Income tax paid 46.1 41.2 90.0
Repayments of principal under lease liabilities (7.7) (6.2) (12.9)
Adjusted cash from operations 82.8 78.4 214.9
Adjusted cash conversion in the first half was 48% (30th June 2022: 44%).
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 a non-statutory measure that the Board uses to 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 2022
30(th) June 2023 30(th) June 2022 £m
£m £m
Property, plant and equipment 395.3 311.1 384.5
Right-of-use assets 90.2 64.2 67.2
Software & development costs 35.0 40.2 44.5
Non-current prepayments 2.5 1.3 2.0
Inventories 304.9 239.4 290.0
Trade receivables 317.2 311.1 341.1
Other current assets 81.8 58.7 79.6
Tax recoverable 16.6 14.3 19.0
Trade, other payables and current provisions (242.7) (239.6) (295.0)
Current tax payable (24.9) (33.8) (40.4)
Capital employed 975.9 766.9 892.5
A reconciliation of Capital employed to net assets as reported under IFRS and
disclosed in the Consolidated Statement of Financial Position is given below:
30(th) June 2023 £m 30(th) June 2022 £m 31(st) December 2022 £m
Capital employed 975.9 766.9 892.5
Goodwill and other intangible assets 1,098.3 670.4 1,159.1
Investment in Associate - - -
Post-retirement benefits (43.4) (35.2) (52.1)
Net deferred tax (57.9) (38.1) (59.1)
Non-current provisions and long-term payables (15.1) (7.8) (15.0)
Lease liabilities (88.4) (61.8) (65.2)
Net assets classified as held for sale - 0.2 -
Net debt (748.3) (202.7) (690.4)
Net assets as reported under IFRS 1,121.1 1,091.9 1,169.8
Net debt including lease liabilities
A reconciliation between net debt and net debt including lease liabilities is
given below. A breakdown of the balances that are included within net debt
is given in Note 8. Net debt excludes lease liabilities to be consistent
with how net debt is defined for external debt covenant purposes, as well as
to enable comparability with prior years.
30(th) June 2023 30(th) June 2022 31(st) December 2022
£m £m £m
Net debt 748.3 202.7 690.4
Lease liabilities 88.4 61.8 65.2
Net debt including lease liabilities 836.7 264.5 755.6
Net debt to earnings before interest, tax, depreciation and amortisation
(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. EBITDA
is calculated by adding back depreciation and amortisation of owned property,
plant and equipment, software and development to adjusted operating profit.
For half year calculations, this is based on the results for the last 12
months all translated at the exchange rate used for the half year period. Net
debt is calculated as Cash and cash equivalents less Bank overdrafts,
Short-term borrowings and Long-term borrowings (excluding Short-term and
Long-term lease liabilities). The net debt to EBITDA ratio is calculated as
follows:
12 month period to 30th June 2023 12 month period to 31st December 2022
£m
£m
Adjusted operating profit 366.2 380.2
Depreciation and amortisation of property, plant and equipment, software and 40.3 37.4
development
EBITDA 406.5 417.6
Net Debt 748.3 690.4
Net debt to EBITDA 1.8x 1.7x
Organic measures
As we are a multi-national Group of companies that trade in a large number of
currencies and also acquire and sometimes dispose of companies, we also refer
to organic performance measures throughout the Half Year Report. Organic
measures strip out the effects of the movement in exchange rates and of
acquisitions and disposals. The Board believe that this allows readers 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 is excluded from
the organic results of the current period at current period exchange rates.
For any disposals that occurred in the current or prior period, the current
period organic results include the difference between the current and prior
period financial results only for the like-for-like period of ownership.
The organic percentage movement is calculated as the organic movement divided
by the prior period at current period exchange rates, excluding disposals for
the non like-for-like period of ownership. The organic bps change in
adjusted operating margin is the difference between the current period margin,
excluding the incremental impact of acquisitions, and the prior period margin
excluding disposals for the non like-for-like period of ownership 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 2022 Six months
Acquisitions and disposals* to 30(th) June
Exchange Organic 2023 Organic Reported
Revenue £750.1m £11.6m £15.9m £73.2m £850.8m 2% 13%
Adjusted operating profit £178.8m £3.0m £(24.5)m £14.4m £171.7m (13)% (4)%
Adjusted operating profit margin 23.8% 20.2% (370) bps (360) bps
*Results include the impact of (i) the acquisition of Vulcanic and Durex
Industries 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.
Analysis by operating segment
Adjusted Adjusted
Six months to 30(th) June 2023 operating operating
Revenue profit profit margin
£m £m %
Steam Specialties 459.8 112.2 24.4%
Electric Thermal Solutions 192.5 26.9 14.0%
Watson-Marlow 198.5 48.9 24.6%
Corporate - (16.3)
Total 850.8 171.7 20.2%
Net finance expense (18.2)
Share of (loss)/profit of Associate -
Adjusted profit before taxation 153.5
Adjusted Adjusted
Six months to 30(th) June 2022 operating operating
Revenue profit profit margin
£m £m %
Steam Specialties 400.6 92.1 23.0%
Electric Thermal Solutions 104.7 12.8 12.2%
Watson-Marlow 244.8 87.0 35.5%
Corporate (13.1)
Total 750.1 178.8 23.8%
Net finance expense (3.6)
Share of (loss)/profit of Associate -
Adjusted profit before taxation 175.2
Year ended 31(st) December 2022 Adjusted Adjusted
operating operating
Revenue profit profit margin
£m £m %
Steam Specialties 866.0 206.1 23.8%
Electric Thermal Solutions 256.1 39.9 15.6%
Watson-Marlow 488.5 160.0 32.8%
Corporate (25.8)
Total 1,610.6 380.2 23.6%
Net finance expense (9.6)
Share of (loss)/profit of Associate -
Adjusted profit before taxation 370.6
The reconciliation for each operating segment for adjusting items is analysed
below:
Six months to 30(th) June 2023 Amortisation Reversal of acquisition-related fair value adjustments to inventory Restructuring costs Acquisition-related items Software related impairment Total
of acquisition-related intangible assets £m £m £m £m £m
£m
Steam Specialties (2.0) - - - (13.9) (15.9)
Electric Thermal Solutions (14.9) (1.3) - - - (16.2)
Watson-Marlow (1.6) - (5.2) - - (6.8)
Corporate expenses - - - (0.6) - (0.6)
Total (18.5) (1.3) (5.2) (0.6) (13.9) (39.5)
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)
Year ended 31(st) December 2022 Reversal of acquisition-related fair value adjustments to inventory Disposal of subsidiaries in Russia Restructuring costs Acquisition-related items Accelerated depreciation and other related costs on one-off property Total
redevelopment
£m £m £m £m
£m
£m
Amortisation
of acquisition-related intangible assets
£m
Steam Specialties (4.6) - (5.3) - - - (9.9)
Electric Thermal Solutions (15.3) (1.8) - (15.5) - - (32.6)
Watson-Marlow (3.8) - (1.8) - - - (5.6)
Corporate expenses - - - - (9.1) (4.2) (13.3)
Total (23.7) (1.8) (7.1) (15.5) (9.1) (4.2) (61.4)
Pro-forma Revenue
Due to the disposal of our Russian operating companies and the acquisitions of
Cotopaxi Limited, Vulcanic and Durex Industries, our reported financial
results for the six months to 30th June 2022 and year ended 31st December 2022
only include the impact of these operations for the period of ownership by the
Group. The table below reconciles between statutory revenue as reported
within the Consolidated Income Statement, and the pro-forma revenue had all
acquisition and disposal transactions occurred on 1st January 2022. This
allows readers of the accounts to see the split of revenue by operating
segment on a basis that will be like-for-like.
Six months to 30(th) June 2022 Pro-forma adjustments Revenue (pro-forma) Proportion of group
£m £m
Revenue (statutory)
£m
Steam Specialties 400.6 (1.2) 399.4 49%
Electric Thermal Solutions 104.7 72.5 177.2 21%
Watson-Marlow 244.8 (1.9) 242.9 30%
Total 750.1 69.4 819.5
Year ended 31(st) December 2022 Pro-forma adjustments Revenue (pro-forma) Proportion of group
£m £m
Revenue (statutory)
£m
Steam Specialties 866.0 (1.2) 864.8 50%
Electric Thermal Solutions 256.1 126.8 382.9 22%
Watson-Marlow 488.5 (1.9) 486.6 28%
Total 1,610.6 123.7 1,734.3
The term 'sales' is used interchangeably with 'revenue' when describing the
financial performance of the business.
Tax on adjusting items
Six months to Six months to Year ended
30(th) June 2023 30(th) June 2022 31(st) December 2022
Adjusted Adj't Total Adjusted Adj't Total Adjusted Adj't Total
£m £m £m £m £m £m £m £m £m
UK Corporation tax (1.8) - (1.8) (0.8) - (0.8) 6.6 (0.2) 6.4
Foreign tax 36.2 (4.9) 31.3 40.7 - 40.7 88.1 (0.8) 87.3
Deferred tax 4.6 (3.1) 1.5 6.2 (4.8) 1.4 (2.2) (8.4) (10.6)
Total taxation 39.0 (8.0) 31.0 46.1 (4.8) 41.3 92.5 (9.4) 83.1
Effective tax rate 25.4% 20.3% 27.2% 26.3% 13.0% 29.8% 25.0% 15.0% 27.0%
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