REG - Spirax-Sarco Engng - 2022 Full Year Results
09/03/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230309:nRSI3719Sa&default-theme=true
RNS Number : 3719S Spirax-Sarco Engineering PLC 09 March 2023
News Release
Thursday 9(th) March 2023
Strong performance in 2022; anticipate good growth in 2023
Statutory 2022 2021 Reported
Revenue(+) £1,610.6m £1,344.5m +20%
Operating profit £318.8m £320.9m -1%
Operating profit margin 19.8% 23.9% -410 bps
Profit before taxation £308.1m £314.5m -2%
Basic earnings per share 305.1p 318.3p -4%
Dividend per share 152.0p 136.0p +12%
Adjusted 2022 2021 Reported Organic*
Revenue(+) £1,610.6m £1,344.5m +20% +14%
Adjusted operating profit £380.2m £340.3m +12% +7%
Adjusted operating profit margin 23.6% 25.3% -170 bps -160 bps
Adjusted profit before taxation £370.6m £333.9m +11%
Adjusted earnings per share 377.2p 338.9p +11%
Adjusted cash conversion 57% 82%
● Revenues up 20% or 14% organically; driven by volume growth and price
increases to protect margins
● Statutory operating profit down 1% due to revenue investments, ETS restructure
and acquisition costs
● Adjusted operating profit of £380.2 million up 12% or 7% organically
● Adjusted operating profit margin of 23.6%, down 170 bps due to revenue
investments
● Steam Specialties organic sales up 12%; Cotopaxi acquisition enhances Digital
growth capabilities
● Electric Thermal Solutions organic sales up 14%; strategic acquisitions of
Vulcanic and Durex Industries
● Watson-Marlow organic sales up 16%; Biopharm** normalising, Process Industries
up strongly
● Net debt^ increased to 1.5x EBITDA* on a pro-forma basis, following ETS
acquisitions
● Adjusted cash conversion lower at 57% due to record capital investment and
inventory rebuilding
● Total dividend up by 12% to 152.0 pence; maintaining 55-year CAGR track record
at 11%
Nicholas Anderson, Group Chief Executive, commenting on the results said:
"The strong performance of our Group in 2022, delivering 14% organic sales
growth and 23.6% adjusted operating profit margin in a volatile geopolitical
and weakening macroeconomic environment, is testament to the Group's robust
strategies and business model, as well as our resilience through economic
cycles. All three Businesses outperformed their markets while progressing
our sustainability and inclusion agendas. In 2022, we also completed the
strategic acquisitions of Vulcanic and Durex Industries that significantly
enhance the scale, competitive positioning and growth prospects of the ETS
Business.
"We remain confident in our ability to self-generate growth and protect
margins, while navigating the uncertainties ahead. In 2023, we anticipate
mid-single-digit growth over 2022 Group pro-forma sales, with mid-to-high
single digit growth in Steam Specialties and ETS, as well as Watson-Marlow
sales slightly below 2022. Watson-Marlow's extraordinary COVID vaccine-related
demand should complete its normalisation cycle in 2023, with growth returning
in the second half. Therefore, we look forward to delivering another year of
overall double-digit sales growth, together with a small progression in the
Group's adjusted operating profit margin and improved cash conversion."
(+) 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).
^Net debt includes total borrowings, cash and bank overdrafts but excludes
lease liabilities, as set out in Note 8 to the Financial Statements.
** Biopharm refers to sales made to the Pharmaceutical & Biotechnology
sector
See Note 2 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
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/8pxn2ptq
(https://edge.media-server.com/mmc/p/8pxn2ptq) 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/BIfa826711e66447009d83ecb13b46511e
(https://register.vevent.com/register/BIfa826711e66447009d83ecb13b46511e)
After completing the conference call registration, you will receive dial-in
details on screen and via email.
About Spirax‐Sarco Engineering plc
Spirax‐Sarco Engineering plc is a thermal energy management and niche
pumping specialist. It comprises three world‐leading Businesses: Steam
Specialties, for the control and management of steam; Electric Thermal
Solutions, for advanced electrical process heating and temperature management
solutions; and Watson-Marlow, for peristaltic pumping and associated fluid
path technologies. The Steam Specialties and Electric Thermal Solutions
Businesses provide a broad range of fluid control and 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), has 40 strategically located
manufacturing plants around the world and employs more than 10,400 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 www.spiraxsarcoengineering.com
(http://www.spiraxsarcoengineering.com)
RNS filter: Inside information prior to release
LEI 213800WFVZQMHOZP2W17
Chair's Statement
Leading with Purpose
In a volatile year for the world's economies, the effects of the deteriorating
macroeconomic situation were felt across our global societies, impacting our
Group's stakeholders in many different ways. In these more challenging
times, the Board has remained focused on ensuring the decisions we make create
value for all our stakeholders and is pleased with the Group's strong and
resilient performance.
During 2022, the Board engaged effectively and continued to reflect
stakeholder views in our decision making. This was evidenced when making
investment decisions such as increasing our manufacturing capacity, improving
our sustainability performance, accelerating our Digital Strategy and the
introduction of our Group Inclusion Plan. The Board also considered the impact
we have on stakeholders when taking more difficult decisions, such as the
closure of our loss-making manufacturing facility in Soissons (France) and the
Group's withdrawal from Russia.
Our commitment to inclusion, equity and diversity
Our Board is diverse ethnically, culturally and in terms of gender, bringing
value to our Group, because of our Board members' rich diversity of
perspectives and experiences, enabling them to better understand and consider
the needs of all our stakeholders.
At the end of December 2022, the Board met the 40% female representation
target and with three members of the Board coming from a minority ethnic
background, we exceeded the Parker Review target of at least one individual.
The Board composition was stable during 2022 and our focus for the year was on
Board consolidation and succession planning for senior leadership.
Given the increasing importance placed on sustainability by all stakeholders,
the Board supported elevating the representation of this area to the Group
Executive Committee (GEC) level, with Sarah Peers, Group Director of
Sustainability, becoming a member of the GEC effective 1st October 2022.
The Board was pleased to approve and oversee the implementation of the Group's
Inclusion Plan in 2022, noting the impact it is already having across the
Group. In 2022, we continued increasing the number of women in senior roles
across the Group and improving gender balance in our senior leadership team
(GEC plus their direct reports) which reached 34% female representation by
October 2022. Although usual attrition and employee changes in the fourth
quarter reduced this to 32% at the year-end, we anticipate female
representation in our senior leadership will return to 34% by April 2023 and
we remain committed to reaching at least 40% female representation across our
senior leadership. We are also pleased that our global graduate programme
again achieved its goal of 50% female intake for the year.
To further strengthen our focus on inclusion and equity leading to greater
diversity in our Group, we approved a set of refreshed Diversity goals at our
December meeting. The goals are published in our Annual Report and reaffirm
our commitment to having a female Chair, Senior Independent Director, Chief
Executive or Chief Financial Officer by the end of 2025, in line with the
recommendations of the FTSE Women Leaders Review (formerly Hampton-Alexander).
We are fully supportive of the Group's continued activity to champion these
important societal changes. In 2022, Nimesh Patel, Chief Financial Officer,
became a Co-Chair of the FTSE Women Leaders Review and Nicholas Anderson,
Group Chief Executive, is now an Ambassador for the 25x25 campaign, which is
seeking to achieve 25 female CEOs in the FTSE100 by 2025. We became
signatories to the UN Women's Empowerment Principles and the UN LGBTI
Standards of Conduct for Business, building on previous commitments, including
as signatories to the Change the Race Ratio campaign which we began supporting
in 2021.
Although not yet required to do so, we have voluntarily reported on all
diversity and inclusion data which complies with the Financial Reporting
Conduct's new disclosure rules on this topic in respect of Board
composition. These disclosures are also published in our Annual Report.
Board highlights
The Board met nine times in 2022. This included two ad hoc meetings to address
the acquisitions of Vulcanic and Durex Industries. The Board was actively and
directly involved in progressing the Group's 'One Planet: Engineering with
Purpose' Sustainability Strategy. Other highlights in the year included visits
to three operating companies in the UK and USA. The Board also reviewed and
approved strategy updates for Digital and Health & Safety. Eight colleague
engagement focus groups were held and the Board undertook a full
organisational and succession review down to the level of GEC-3.
The Board has overseen a year of significant investment to support the Group's
sustainable growth over the long term. In addition to delivering a very strong
financial performance, we are pleased with the progress made by Executive
Management in advancing the Group's strategic agenda across different
dimensions, creating significant value for all our stakeholders in ways that
are meaningful to them.
In addition to three acquisitions designed to create sustainable, long-term
value for shareholders, the Group also closed its loss-making Chromalox
facility in Soissons (France) and fully exited Russia. Investments in
additional supply capacity, factory modernisation, IT systems and Digital are
helping our Businesses do even better what they already do well. Our
collaborative and proactive approach has created mutual benefit across our
global supplier networks during these more challenging times. The launch of
new-to-world decarbonisation solutions, created through a cross-Business
collaboration between Steam Specialties and Electric Thermal Solutions (ETS),
will support our customers to achieve their sustainability goals and protect
our environment. The Group launched its Inclusion Plan and global commitments
to ensure all 10,400 colleagues across the globe can thrive by feeling
included and supported. The outstanding efforts of our teams working in
support of our community engagement framework 'Giving today for a better
tomorrow', continue making a positive difference to the local communities in
which they operate.
Board changes
On 31st January 2023, we reported that, for personal reasons, Olivia Qiu
stepped down as a Non-Executive Director. On behalf of our shareholders the
Board acknowledges with gratitude Olivia's significant contribution since her
appointment. We have initiated the process to appoint another Non-Executive
Director with the skills and experience required to support the implementation
of our strategies and our commitments to inclusion and diversity.
Board effectiveness
In 2022, we conducted a Board effectiveness review with our external advisors
Egon Zehnder, which enabled us to evaluate progress on the recommendations
made in the 2021 review. The conclusions were positive and showed an
improvement across all the key dimensions. The review highlighted the need for
the Board to allow more time for keeping up with industry trends and
competitor activity to better evaluate potential future risks and
opportunities.
Dividends
The Directors are proposing the payment of a final dividend of 109.5 pence per
share, an increase of 12% (2021: 97.5 pence). Subject to approval of the final
dividend by shareholders at the Annual General Meeting on Wednesday 10th May
2023, the total Ordinary dividend for the year will be 152.0 pence per share,
an increase of 12% over the 136.0 pence per share for the prior year.
Chief Executive's Review
ENGINEERING OUR DIFFERENCE
A war in Europe, global supply chain disruptions, COVID-19-related economic
slowdown in China, rising energy prices and heightened inflationary pressures
turned 2022 into a very challenging year, contributing to a significant
weakening in global Industrial Production Growth (IP). I am, therefore,
extremely proud of the way in which our teams successfully navigated these
challenges to deliver strong financial results, as well as advancing the
implementation of our strategies to benefit all our stakeholders.
We entered 2022 fully prepared for a softening in IP after the very strong
7.7% expansion of 2021. However, Russia's attack on Ukraine resulted in tragic
consequences for the people of that country, with the economic shock
reverberating immediately around the globe. The combined impact of further
global supply chain disruptions, as well as significantly higher energy costs,
raised inflation to levels the world has not seen in 40 years and
progressively weakened the global economic outlook throughout the year. For
the full year 2022, IP at 2.7% was materially lower than the 4.4% forecasted
in February 2022 ahead of our 2021 Full Year Results.
Against this backdrop, all three Businesses outperformed their markets to
deliver strong double-digit organic sales growth. This follows our Group's
resilient performance during the COVID-19 pandemic in 2020, when we
outperformed the IP decline, as well as our subsequent double-digit growth in
2021 when the world began recovering from the effects of the pandemic.
The Group adjusted operating profit margin of 23.6% in 2022, is comparable to
the highest margins achieved in our Company's history, excluding the
exceptional 25.3% adjusted operating profit margin achieved in 2021.The
difference, in line with our guidance last year, is due to the full-year
impact of the 2021 revenue investments, in addition to investments made in
2022 to support sustainable, future growth.
In what has been another incredibly busy year, we continued placing the
health, safety and wellbeing of our colleagues at the centre of everything we
do. This included expanding the role of the Group Health & Safety Director
and launching a new Group Safety Framework. Disappointingly, our Lost Time
Accident (LTA) rates (per 100,000 work hours) rose slightly to 0.12 in 2022,
compared to the all-time low rate of 0.10 in 2021. However, these rates are
materially lower than in prior years (0.23 in 2020 and 0.26 in 2019), which
suggests the lower 2021 rate may have been a positive anomaly vis-a-vis the
Group's general trend.
I'm grateful for the commitment, expertise and efforts of our teams across the
world. Our colleagues, supported by our Company Purpose, strong culture and
Values, robust business model and strategy, have once again demonstrated the
resilience of our Group that remains well positioned to continue growing and
adapting to economic cycles. In 2022, this resilience helped us deliver a
strong financial performance, while creating benefits for all stakeholders
through our sustainability and inclusion initiatives.
Self-generating growth
Our long track record of helping customers meet their efficiency, safety and
sustainability goals, through our direct sales model and solutions focus,
became even more critical in 2022 amidst swiftly rising energy prices, as well
as the increasing demand from customers seeking to decarbonise their
industrial processes in line with net zero commitments.
Our direct sales business model, which always involved 'walking our customers'
sites' and now includes 'walking our customers' data', through the evolution
of our digital capabilities, is highly effective at uncovering opportunities
to improve the efficiency and effectiveness of our customers' processes.
These self-generated solutions are becoming a larger part of our sales mix and
remain attractive even during challenging economic times, as they are
typically paid for from customers' operating budgets and have a short payback
period. Approximately 85% of Group sales continue to be funded from our
customers' operational budgets.
The increasing commitments to net zero targets will have a profound effect on
industrial activity over the coming decades and is an additional source of
growth for our Group over at least the next 30 years. To address the
opportunities arising from the decarbonisation of industrial processes, we
have invested significantly in the development of sustainable products and
solutions that help customers meet their own sustainability goals. In 2022, we
launched new-to-world 'TargetZero' decarbonisation solutions, created through
an internal collaboration between Steam Specialties and Electric Thermal
Solutions (ETS). You can read more about the benefits of the three
'TargetZero' solutions, branded 'ElectroFit', 'Steam Battery' and 'SteamVolt',
on page 21 of the Operating Review.
The scale of the decarbonisation opportunity is unprecedented, as direct
burning of fossil fuels is the most prevalent manner of transferring thermal
energy into industrial processes and only 5% of industrial process heating is
currently generated by electricity. There are, however, several factors that
will influence the adoption rate of decarbonisation solutions. Most notably,
the rates of progress towards net zero in different countries, the
infrastructure requirements and the capacity to deliver that infrastructure
quickly, as well as the relatively higher costs of electricity compared to
hydrocarbon fuels. It is still too early in the cycle to predict the precise
rate of adoption, which is why we anticipate this opportunity will play out
globally for at least the next 30 years.
Delivering value to all our stakeholders
Our strategy seeks to achieve organic revenue growth that consistently
outperforms our markets. In the Operating Review section, you can read more
about how each of our three Businesses are advancing the implementation of
their strategy in line with our six strategic themes.
I am delighted with the progress made on all fronts during 2022, as we worked
hard and in challenging circumstances to engineer our difference for all our
stakeholders.
Colleagues
We continued to invest in the development and wellbeing of our colleagues to
help them feel supported and included. We believe that diverse teams bring
diversity of thought and experience, helping us become a better and higher
performing business. Combined with an inclusive and equitable working culture,
this fuels our continued growth, creating opportunities for everyone.
In February 2022, our Group Inclusion Plan, 'Everyone is Included' became
effective. This gives all colleagues, everywhere, the opportunity to benefit
from our ten Group Inclusion Commitments. The impact of 'Everyone is Included'
has been far reaching and made a tangible difference to the lives of many
colleagues who tell us they feel more welcomed, included and proud of our
Group.
In September 2022, we recognised the impact of the cost-of-living crisis on
colleagues worldwide and brought forward our annual pay review from March to
January 2023. We set above-market pay increases country-by-country at levels
designed to materially mitigate the purchasing power eroded by inflation,
which for the UK meant a pay increase of 7.1% for the wider employee base,
which excluded senior executive leaders who received a reduced pay increase.
Following its success in 2022, we also awarded another paid Wellbeing Day in
2023 to all colleagues globally.
In December 2022, the Board approved a refreshed set of Diversity goals. Our
focus on inclusion remains a priority and these Diversity goals will help
accelerate our progress in support of sustainable growth.
Customers
To keep delivering for our customers, we strengthened our direct business
model by investing in the expansion and training of our direct sales teams, in
digital technology solutions and introduced multiple new products, including
innovative new-to-world decarbonisation solutions.
To better serve our customers, we expanded our manufacturing capacity and
increased our regional supply chain capabilities. Our capital investments in
2022 included a significant proportion of our US$106 million investment in a
14,000m(2) state-of-the-art, sustainable, multi-brand manufacturing facility
for Watson-Marlow in Devens, Massachusetts (USA). In 13 months the project
went from 'breaking ground' to 'first customer shipment' in December 2022.
This facility, which will shorten supply chains and provide enhanced support
for customers across the Americas, is scheduled to ramp-up during 2023.
A new facility for Watson-Marlow's BioPure brand was also completed in 2022 to
support increased demand from customers in the Biotechnology &
Pharmaceutical sector. The £37 million facility located in Portsmouth (UK),
shipped its first customer deliveries at the end of the Q1 2022 and has
enabled BioPure to double its previous output.
We are planning a US$58 million investment in ETS to materially expand the
existing manufacturing facility at Ogden, Utah (USA). The new 9,600m(2)
extension will expand the current footprint by almost 60% and is scheduled to
complete by the end of 2024.
Around the Group, we also invested significantly in equipment modernisation
and process automation to support and expand our manufacturing capacity.
Environment
Since refreshing our sustainability goals in June 2021, including our
commitment to achieve net zero emissions in scopes 1 and 2 by 2030, we made
good progress in line with our targets. Through our 'One Planet: Engineering
with Purpose' Sustainability Strategy, we continued to build on our
responsible business foundations and have successfully embedded across the
Group our six sustainability initiatives. These focus on net zero greenhouse
gas (GHG) emissions, biodiversity net gain, improved environmental performance
of our operations, sustainable products, supply chain sustainability and
community engagements, with good progress made in every area.
We are executing on our net zero roadmap for 2030. By the end of 2022, we
reduced our GHG emissions by 41%, compared to our 2019 baseline. We also
introduced a new electric vehicle leasing portal in the UK, as the first step
towards a global transition to electric vehicles across the Group. Other
highlights of our sustainability progress include the introduction of
self-generation of renewable energy at four of our manufacturing sites and
that 57% of our electricity use now comes from renewable sources, largely
through green energy contracts. To protect biodiversity, we partnered with the
World Land Trust for a second consecutive year to offset by 1x our global
operating footprint, as well as our colleagues implementing a further 78
biodiversity projects across our Group operating companies in 2022.
During 2022, we saved our customers 17.7 million tonnes of CO(2), 235 million
GJ of energy and 88.4 million m(3) of water through a select range of product
categories sold, as well as launching our new-to-world 'TargetZero'
decarbonisation solutions. You can read more about our commitment to
sustainability, as well as the progress we are making, in our Annual Report.
Communities
Through our community engagement programme 'Giving today for a better
tomorrow', our teams have gone above and beyond in our local communities,
using their paid volunteering leave to deliver more than 22,000 volunteering
hours while our Group-wide charitable giving (cash and in-kind) exceeded
£900,000. In addition, we supported 51 community projects nominated by
colleagues across the Group, through donations of over £1 million by our new
Group Education Fund. The Fund, which aims to provide equitable access to
education, is particularly focused on helping women and girls achieve their
potential and encouraging pathways to careers in science and engineering
through a variety of grass roots initiatives.
Suppliers
During the year, we relaunched our Supplier Sustainability Code in 17
languages and started to roll out a new Supplier Sustainability Portal to
support our collaborative journey towards a more sustainable supply chain.
Double-digit inflation in certain raw materials led to challenges for our
suppliers too, as some companies struggled to manage the impacts of such sharp
price increases. Recognising this, we supported our suppliers through these
challenging and uncertain times, de-risking their businesses by flexing our
pricing agreements while maintaining our supply of raw materials and
components.
Shareholders
We invested close to £540 million in three important acquisitions to
accelerate the implementation of our Digital Strategy and expand our ETS
Business.
The acquisition of Cotopaxi, a digitally-enabled global energy consulting and
optimisation company, is enabling Steam Specialties to digitally enhance its
customer bonding through the provision of physical and digital connections to
customers' infrastructure and equipment, using Cotopaxi's proprietary STRATA
platform. STRATA generates critical insights that are used to better
understand industrial customers' management and use of Water, Air, Gas, Energy
and Steam (WAGES). We are also installing Cotopaxi's solutions across our
Group manufacturing sites to improve our own WAGES efficiency, in line with
our sustainability targets.
To support the growth of ETS, Vulcanic and Durex Industries became part of our
Group on 29th September and 30th November, respectively. Vulcanic is a
European leader in industrial process heating solutions and Durex Industries,
based in the USA, is a specialist in custom electric thermal solutions for
ultra-critical applications of industrial equipment. Vulcanic and Durex
Industries have rebalanced the geographic footprint of ETS between the USA and
Europe, adding an additional 11 manufacturing sites.
The acquisitions also support a more effective deployment of the ETS strategy,
'Engineering Premium Solutions'. The introduction of dual brand strategies,
which has proven to be highly successful for the Steam Specialties Business
with Spirax Sarco and Gestra, aligns each brand with their chosen strategic
market sectors for growth.
As the lead brands within ETS for electric process heating, Chromalox and
Vulcanic will support the effective deployment of our industry-leading
decarbonisation solutions alongside Steam Specialties. Thermocoax and Durex
Industries are the lead brands for ultra-critical heating solutions for
industrial equipment, being well positioned to capitalise on the growing
demand for increasingly stringent thermal energy requirements in
high-technology equipment within market sectors with high barriers to entry.
The acquisitions of Vulcanic and Durex Industries added over 1,100 colleagues.
The integration of both companies mirrors the successful integration processes
deployed on previous acquisitions and builds upon lessons learnt. Integration
began immediately following completion and we are very encouraged by the
positive engagement by new colleagues, as well as constructive collaborations
already unfolding. These acquisitions have significantly grown ETS which now
accounts for 22% of Group revenues on a pro-forma basis. Steam Specialties and
Watson-Marlow's share of Group revenues accordingly reduced to 50% and 28%
respectively.
More details on Cotopaxi are provided on page 20 of the Operating Review and
on pages 22 and 23 we have set out more details about Vulcanic and Durex
Industries.
The role of digital technologies for our Group is to enhance our existing
business model across the four main adaptive processes of customer targeting,
operational effectiveness, innovation and people management. During 2022 we
completed the development of our Digital Strategy, as well as its
implementation framework. We also recruited an experienced Digital leader who
joined in early March 2023 to accelerate the implementation of our Digital
Strategy across the Group.
We also invested in new technologies, systems and controls to improve
efficiencies, communications and collaboration, as well as strengthen our
resilience. This includes ERP, BI and CRM systems, product configurators, a
new colleague engagement platform, smart manufacturing capabilities and
enhanced internal controls capabilities. We also strengthened cyber defences
and operational IT, as well as laying the foundations for the IT integration
of Vulcanic and Durex Industries.
All of these initiatives contributed to a stronger, more balanced and more
sustainable Group that delivered differentiated financial returns to
shareholders in 2022 and is well positioned for the future.
Financial Review
The Group reports under International Financial Reporting Standards (IFRS) and
references 'adjusted' and 'organic' alternative performance measures where the
Board believes that they help to effectively monitor the performance of the
Group and support readers of the Financial Statements in drawing comparisons
with past performance. Certain alternative performance measures are also
relevant in calculating a meaningful element of Executive Directors' variable
remuneration and our debt covenants. Alternative performance measures
referenced in the text below are further explained in Note 2 to the Financial
Statements. The term 'adjusted' is not defined under IFRS and may therefore
not be comparable with similarly titled measures reported by other companies.
Alternative performance measures are not considered to be a substitute for, or
superior to, IFRS measures.
As a multi-national Group of companies, we trade in a large number of
currencies and occasionally acquire or dispose of companies. Therefore, we
also refer to 'organic' alternative performance measures, which strip out the
effects of the movement of currency exchange rates and of acquisitions and
disposals not included in the prior year. The Board believes that these
measures allow readers of the Financial Statements to gain a further
understanding of how the Group has performed.
Summary of performance in 2022
2021 Exchange Organic Acquisitions & disposals* 2022 Organic Reported
Revenue £1,344.5m £52.5m £191.6m £22.0m £1,610.6m +14% +20%
Adjusted operating profit £340.3m £13.0m £23.5m £3.4m £380.2m +7% +12%
Adjusted operating profit margin 25.3% 23.6% -160 bps -170 bps
Statutory operating profit £320.9m £318.8m -1%
Statutory operating margin 23.9% 19.8% -410 bps
*Results include the impact of (i) the acquisition of Cotopaxi, Durex
Industries and Vulcanic 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.
Sales
Group sales increased by 20% to £1,610.6 million (2021: £1,344.5 million),
up 14% organically. Currency movements and acquisitions (net of the disposal
of our Russian operations) both had a positive effect on sales of 4% and 2%,
respectively.
Organic sales growth was significantly ahead of global IP of 2.7% across all
three Businesses as we successfully navigated global supply chain disruptions
and a weakening macroeconomic environment to deliver a strong increase in
volumes. Our proactive price management practices also allowed us to offset
significant inflation in raw material costs, protecting our adjusted operating
profit margin.
Steam Specialties sales of £866.0 million (54% of Group revenue) grew 15% in
2022 or 12% organically. This very strong performance, significantly ahead of
IP, was delivered despite the challenging macroeconomic environment. Demand
growth exceeded sales growth across all Divisions, with a higher proportion of
larger orders compared to 2021, as customers' capital expenditure continued to
recover from pandemic-driven reductions.
Electric Thermal Solutions (ETS) sales of £256.1 million (16% of Group
revenue) grew 41% or 14% on an organic basis, with the difference due to
currency movements and acquisitions that had a positive effect of 7% and 18%,
respectively. Strong organic growth in both Thermocoax (driven by the
Semiconductor and Aerospace & Defence sectors) and Chromalox (led by
decarbonisation solutions) was achieved despite continuing disruptions in the
global supply chain, although these constraints began to ease in the second
half of 2022.
Chromalox's manufacturing facility in Ogden, Utah (USA) remained capacity
constrained as it transitions to focus on more complex and bespoke industrial
heating solutions, supporting the decarbonisation of buildings and industrial
processes. During the year, we continued investing in further operational
improvements as well as increasing capacity in Ogden. These factors,
together with strong demand growth, resulted in ETS carrying a record order
book into 2023, underpinning sales in the year ahead.
We completed the acquisitions of Vulcanic and Durex Industries towards the end
of the year with both companies delivering strong double-digit sales growth in
2022, driven by the same decarbonisation trend and Semiconductor sector growth
benefiting Chromalox and Thermocoax. Including the acquisitions of Vulcanic
and Durex Industries on a twelve-month pro-forma basis, ETS sales would be
£382.9 million.
Watson‐Marlow sales of £488.5 million (30% of Group revenue) grew 20% or
16% organically supported by our strong order book. Sales to the
Pharmaceutical & Biotechnology sector grew close to 15% organically, while
sales to Process Industries sectors grew 19%, significantly ahead of global
IP. In the second half of 2022, as expected, COVID-19 vaccine-related demand
began to normalise as effects of the pandemic moderated and our customers
began to work through their existing stocks, repurposing COVID-19 vaccine
production to meet the continued strong underlying demand for cell and gene
therapy medications. As a result, Watson-Marlow saw a reduction in overall
demand in 2022 and Pharmaceutical & Biotechnology customers also
rescheduled some deliveries from our order book into 2023.
During the fourth quarter of 2022, steps were taken to appropriately
right-size capacity and overhead support costs in Watson-Marlow, which
included factory labour reductions. Further actions are underway in early
2023, ensuring Watson-Marlow is able to both meet customers' needs and protect
our adjusted operating profit margin.
Adjusted operating profit
Group adjusted operating profit of £380.2 million (2021: £340.3 million)
grew 12%, or 7% organically, the difference being due to 4% favourable
currency movements and a net 1% contribution from acquisitions less the impact
of the disposal of our Russian operations. Adjusted operating profit in
Steam Specialties, ETS and Watson-Marlow grew organically by 8%, 23% and 3%
respectively.
Adjusted operating profit margin
Group adjusted operating profit margin in 2022 was 23.6%, down 170 bps from
the exceptional 25.3% of 2021. Organically the margin was down 160 bps,
driven by the full year impact of revenue investments made during 2021 and the
additional revenue investments of 2022 to support future growth, partially
offset by the benefits of operational gearing from higher sales. To note, the
2021 Group adjusted operating profit margin of 25.3% would have been
approximately 200 bps lower, had we incurred the full-year cost of revenue
investments made during that year.
Steam Specialties adjusted operating margin of 23.8% was down 120 bps or 90
bps organically. Our lower margin, compared to the exceptionally high level of
2021, reflects the full year impact of prior year revenue investments,
partially offset by the benefits of operational gearing from higher sales.
During 2022, we continued investing in support of future revenue growth, with
an expansion in sales-related headcount and new product development, as well
as digital and sustainability initiatives.
ETS adjusted operating profit margin was 15.6%, up 240 bps or 100 bps on an
organic basis, with the difference due to the positive impact from the
acquisitions of Vulcanic and Durex Industries, which have a combined margin
similar to the overall Group margin. Strong sales growth, supported by
increased volumes, resulted in operational gearing benefits with positive
effects on organic margin progression.
During 2022, both Chromalox and Thermocoax shipped a high proportion of orders
from their existing order book that were booked in 2021 or earlier, when
future inflation expectations were lower. These orders did not benefit from
price increases in 2022 and their margin was adversely impacted by higher raw
material cost inflation, as well as higher freight costs. In 2023, we
anticipate margin improvements as we increase the shipment of orders taken in
2022 and 2023.
Thermocoax, which has a higher proportion of sales to OEMs on medium-term
contracts and was impacted by one-off costs associated with the ramp-up of our
new manufacturing facility in Normandy (France), experienced a contraction in
2022 adjusted operating profit margin. Chromalox adjusted operating profit
margin increased in 2022, with overhead reductions from the closure of the
Soissons (France) facility having a positive effect in the fourth quarter. The
full year impact of this plant closure will contribute to further margin
progression in 2023.
Including the acquisitions of Vulcanic and Durex Industries on a twelve-month
pro-forma basis, ETS adjusted operating profit margin would have exceeded
18.0%.
Watson-Marlow's 32.8% adjusted operating profit margin was down 390 bps
against the exceptional margin of 2021 and 400 bps down on an organic basis.
However, Watson-Marlow's adjusted operating profit margin in 2022 was still
100 bps higher than its 2019 pre-pandemic margin. The lower adjusted operating
profit margin was driven by the full year impact of 2021 revenue investments,
which had an impact of over 200 bps, as well as costs associated with the
transition of BioPure to a new facility in Portsmouth (UK) and the ramp-up of
our new facility in Devens, Massachusetts (USA), which together had an impact
of over 150 bps.
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.
Currency movements positively impacted adjusted operating profit by close to
4% with a translational benefit of £12.2 million and an additional
transactional benefit of £0.8 million. The translation benefit reflects the
impact of the weakening of sterling during 2022 against the currencies in
which the Group generated its adjusted operating profit. The main
transactional exposure flow affecting the Group is the export of products from
our factories in the UK, invoiced in sterling, less the import of goods from
overseas Group factories and third parties priced predominately in euros and
US dollars. The net exposure to transactional currency movements is
approximately £150 million.
Statutory operating profit and margin
Statutory operating profit was down 1% to £318.8 million (2021: £320.9
million) and the statutory operating profit margin of 19.8% was down 410 bps
(2021: 23.9%). 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 £23.7 million (2021: £21.4 million) for the amortisation of
acquisition-related intangible assets
● Accelerated depreciation and other associated one-off costs of £4.2 million
relating to the Group Head Office building in Cheltenham (UK), which is being
comprehensively re-developed
● A restructuring charge of £15.5 million, primarily relating to Chromalox's
manufacturing operation in Soissons (France)
● A loss on disposal of £7.1 million relating to the Group's Russian operating
companies, including associated disposal costs
● A charge of £9.1 million for costs related to the acquisitions of Cotopaxi,
Vulcanic and Durex Industries
● A charge of £1.8 million from the reversal of fair value adjustments to
inventory on the acquisition of Vulcanic
Net financing expense
During the fourth quarter of 2022, the Group raised new euro and US dollar
denominated debt, which in aggregate amounted to £509 million. The weighted
average interest rate on these new debt facilities is 4.8%. As a result, net
bank interest increased to £8.4 million (2021: £4.0 million).
Net costs under IAS 19 in respect of Group defined benefit pension schemes
decreased to £0.8 million (2021: £1.3 million) and lease interest charges
for the year increased to £1.5 million (2021: £1.1 million).
As a result, adjusted net financing expenses increased to £9.6 million (2021:
£6.4 million) and on a statutory basis net financing expenses increased to
£10.7 million (2021: £6.4 million), with the difference being the costs of
arranging the acquisition debt financing.
Net financing expenses are expected to increase in 2023 as a result of the
full-year effect of the acquisition-related debt.
Profit before tax
Adjusted profit before tax was up 11% to £370.6 million (2021: £333.9
million). Statutory profit before tax was down 2% to £308.1 million (2021:
£314.5 million). The reconciling items between adjusted profit before tax and
statutory profit before tax are shown above and in Note 2 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 decreased by 10 bps to 25.0% (2021: 25.1%) and on
a statutory basis the Group effective tax rate was 27.0% (2021: 25.3%).
The Group adjusted effective tax rate is lower than our forecast for 2022 by
close to 100 bps due to initiatives that delivered both one-off benefits and
structural changes, reducing the rate in 2022 and on an ongoing basis. For
2023, we currently anticipate that, based on a forecast mix of profits,
including the effect of the Vulcanic and Durex Industries acquisitions, the
Group adjusted effective tax rate will be marginally higher than the 2022
rate.
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 £1.0
million. No provisions have currently been recognised relating to these
amounts and therefore they remain a contingent liability at 31st December
2022. Further details are included in Note 5 to the Financial Statements.
Earnings per share
Adjusted basic earnings per share increased by 11% to 377.2 pence (2021: 338.9
pence), consistent with the increase in adjusted operating profit. Statutory
basic earnings per share were 305.1 pence (2021: 318.3 pence). The statutory
fully diluted earnings per share were not materially different to the
statutory basic earnings per share per share in either year.
Dividends
The Group has a progressive dividend policy under which dividend payments
follow underlying earnings per share growth while maintaining prudent levels
of dividend cover. The aim is to provide sustainable, affordable dividend
growth, building on our 55-year record of dividend progress, with a compound
annual increase of 11% over that period and over the last ten years. The Board
is proposing a final dividend of 109.5 pence per share for 2022 (2021: 97.5
pence) payable on 19th May 2023 to shareholders on the register at 21st April
2023. Together with the interim dividend of 42.5 pence per share (2021: 38.5
pence), the total Ordinary dividend for the year is 152.0 pence per share, an
increase of 12% on the Ordinary dividend of 136.0 pence per share in 2021.
The total amount paid in dividends during the year was £103.6 million, 14%
above the £91.0 million paid in 2021.
Capital employed
Capital employed 2022 2021
£m £m
Property, plant and equipment 384.5 277.4
Right-of-use assets 67.2 62.9
Software & Development costs 44.5 38.9
Inventories 290.0 201.3
Trade receivables 341.1 272.3
Prepayments and other current assets 100.6 61.7
Trade, other payables, current provisions and current tax payable (335.4) (255.3)
Capital employed 892.5 659.2
Acquired intangibles including goodwill 1,159.1 628.0
Investment in Associate - -
Post-retirement benefits (52.1) (44.7)
Net deferred tax (59.1) (35.7)
Non-current provisions and long-term payables (15.0) (6.2)
Lease liabilities (65.2) (60.1)
Net debt (690.4) (130.5)
Net assets 1,169.8 1,010.0
Adjusted operating profit 380.2 340.3
Adjusted operating profit (excluding acquisitions, disposals and leases) 369.9 339.2
Average capital employed 775.9 621.5
Average capital employed (excluding acquisitions, disposals and leases) 677.5 571.9
Return on capital employed 49.0% 54.7%
Return on capital employed (excluding acquisitions, disposals and leases) 54.6% 59.3%
Capital employed increased by £233.3 million to £892.5 million, including
£68.6 million from acquisitions. On an organic basis, excluding the impact
of currency movements, acquisitions and disposals, capital employed increased
by £136.9 million. Tangible fixed assets (PPE and right-of-use-assets)
increased by £111.4 million to £451.7 million, principally as a result of
acquisitions and expenditure on new manufacturing capacity for Watson-Marlow.
The capital intensity of our business is low with capital expenditure
typically amounting to between 4% and 6% of sales. Record capital expenditure
of £117.5 million in 2022 was equivalent to 7% of sales, delivering new
manufacturing capacity for Watson-Marlow, including the BioPure facility in
Portsmouth (UK) and new facility in Devens, Massachusetts (USA), as well as
other significant projects to advance our 'One Planet: Engineering with
Purpose' Sustainability Strategy and development of our digital capabilities.
Excluding our investment in new construction projects, capital expenditure, as
a percentage of sales, would have been at the low end of our typical range.
We are expecting capital expenditure in 2023 to be similar, as a percentage of
sales, to 2022 and above the top end of our historical range. In 2023, we will
begin the expansion of our ETS manufacturing facility in Ogden, Utah (USA), to
meet customer demand for our decarbonisation solutions. We anticipate capital
investment in 2024 will remain above historical levels while we complete new
construction projects.
Total working capital increased by £91.9 million and the ratio of working
capital to sales was 24.6% (2021: 21.3% on a constant currency basis),
including the impact of acquisitions. Adjusting for the full year effect of
acquisitions and disposals on a twelve-month pro-forma basis, the ratio of
working capital to sales was 22.8%. The increase in working capital was driven
by a recovery in the level of inventory as global supply chain constraints
eased, alongside a net cash outflow across trade receivables and trade
payables, largely due to business growth. Going forward, we anticipate
maintaining a similar percentage of working capital to sales.
Return on capital employed (ROCE)
ROCE reduced by 570 bps to 49.0% (2021: 54.7%, 2020: 48.9%). Excluding the
impacts of acquisitions, disposals and leases, ROCE decreased by 470 bps to
54.6% (2021: 59.3%, 2020: 48.9%), driven by an increase in both capital
investment and working capital that more than offset growth in adjusted
operating profit. ROCE is defined in Note 2 to the Financial Statements.
Return on invested capital (ROIC)
ROIC decreased by 370 bps to 18.3% (2021: 22.0%, 2020: 17.8%), primarily as a
result of the acquisitions of Vulcanic and Durex Industries. Excluding the
impacts of acquisitions, disposals and leases, ROIC decreased by 90 bps to
22.0% (2021: 22.9%, 2020: 17.8%). ROIC is defined in Note 2 to the Financial
Statements.
Post-retirement benefits
The net post-retirement benefit liability under IAS 19 increased to £52.1
million (2021: £44.7 million). Assets decreased by 39% to £341.6 million
(2021: £560.7 million), primarily due to the impact of interest rate
increases on fixed income investments. Liabilities decreased by 35% to £393.7
million (2021: £605.4 million), largely due to an increase in AA corporate
bond rates used to discount future cash flows.
The main UK schemes, which constitute 83% of assets, were closed to new
members in 2001 and closed to future accrual in 2020. These schemes continue
to be managed under a de-risking strategy whereby asset and liability values
are closely monitored by our asset manager with appropriate asset allocation
decisions taken as the funding level improves.
Cash flow and treasury
2022 2021
Cash flow £m £m
Adjusted operating profit 380.2 340.3
Depreciation and amortisation 36.0 35.7
Depreciation of leased assets 13.4 11.4
Cash payments to pension schemes more than the charge to adjusted operating (5.3) (5.6)
profit
Equity settled share plans 8.9 9.2
Working capital changes (91.9) (39.5)
Repayments of principal under lease liabilities (12.9) (11.7)
Capital expenditure (including software and development) (117.5) (64.1)
Capital disposals 4.0 2.0
Adjusted cash from operations 214.9 277.7
Net interest (8.8) (5.1)
Income taxes paid (90.0) (78.1)
Free cash flow 116.1 194.5
Net dividends paid (103.6) (91.0)
Purchase of employee benefit trust shares/Proceeds from issue of shares (19.0) (24.6)
(Acquisitions)/Disposals of subsidiaries (538.3) -
Restructuring costs (3.2) -
Cash flow for the year (548.0) 78.9
Exchange movements (11.9) 19.4
Opening net debt (130.5) (228.8)
Net debt at 31(st) December (690.4) (130.5)
Lease liability (65.2) (60.1)
Net debt and lease liability at 31(st) December (755.6) (190.6)
A reconciliation between adjusted cash from operations and statutory operating
cash flow can be found in Note 2 to the Financial Statements.
As expected, adjusted cash from operations was lower than previous years,
decreasing by £62.8 million to £214.9 million (2021: £277.7 million) with
57% cash conversion (2021: 82%), due to planned record capital expenditure of
£117.5 million (2021: £64.1 million) and an increase in total working
capital of £91.9 million (2021: £39.5 million). Excluding our investment in
new construction projects and the rebuilding of inventory, 2022 cash
conversion would have been higher than the prior year and in line with the
Group's historical performance.
Tax paid in the year increased by £11.9 million to £90.0 million as a result
of the increase in profit before tax in 2022. Free cash flow for the year was
£116.1 million (2021: £194.5 million).
Dividend payments, including payments to minorities, were £103.6 million
(2021: £91.0 million), and reflect the final dividend for 2021, as well as
the interim dividend for 2022. Share purchases net of new shares issued
for the Group's various employee share schemes resulted in a cash outflow of
£19.0 million (2021: £24.6 million). Acquisitions (net of disposals)
during the year amounted to £538.3 million (2021: £nil), primarily driven by
the purchase consideration for Vulcanic and Durex Industries. Restructuring
spend during the year was £3.2 million due to the closure of Chromalox's
manufacturing operations in Soissons (France).
Financing and liquidity
Net debt at the end of the year was £690.4 million (2021: £130.5 million),
including debt raised to finance the acquisitions of Vulcanic and Durex
Industries, with a net debt to EBITDA ratio of 1.7 times (2021: 0.35 times).
On a pro-forma basis, including a full-year of EBITDA for companies acquired
during the year, the net debt to EBITDA ratio is 1.5 times. At the end of the
year total committed and undrawn debt facilities amounted to £285.3 million
alongside a net cash balance of £243.8 million. The average tenor of our debt
is over four years with the next contractual repayment maturity in September
2023. Since the end of the year the Group has successfully exercised the first
of two options to extend the maturity of our £400 million revolving credit
facility by an additional year to April 2028.
Capital structure
The Board keeps the capital requirements of the Group under regular review,
maintaining a strong financial position to protect the business against risks
that could impact trading while providing flexibility to invest for future
growth. The Group earns a high return on capital, which is reflected in strong
cash generation over time. Our capital allocation policy remains unchanged.
Our first priority is to maximise organic investment in the business to drive
future growth. Next, we prioritise investing in acquisitions that can expand
our addressable market through increasing our geographic reach, deepening our
market penetration, or broadening our product range. Acquisition targets are
required to exhibit a strong strategic fit whilst meeting strict commercial,
economic and return on investment criteria. When cash resources
significantly exceed expected future requirements, we would look to return
capital to shareholders, as evidenced by special dividends declared in respect
of 2010, 2012 and 2014. In the near term, we will look to reduce our
financial leverage, which increased during the year as a result of the
acquisitions of Vulcanic and Durex Industries, prior to considering one-off
returns of capital to shareholders.
Group Outlook
Forecasts for 2023 IP have trended steadily downwards since February 2022 and
are now at 0.7%, reflecting the likelihood of recession in developed markets
and low growth in emerging markets. Against this uncertain macroeconomic
backdrop, our resilient business model, ability to self-generate sales and
significant proportion of demand from maintenance and repairs, underpins our
confidence in another year of progress for the Group.
If exchange rates at the end of February were to prevail for the remainder of
the year, there would be a tailwind impact of between approximately 1% and 2%
on sales and adjusted operating profit. Movements in exchange rates are often
volatile and unpredictable so the actual impact could be significantly
different. Therefore, our guidance excludes any impact from currency
movements.
The full year effect of the acquisitions of Vulcanic and Durex Industries on a
twelve-month pro-forma basis, net of the disposal of our Russian operations,
would have expanded Group revenues by almost 8% to £1,734 million in 2022.
During the second half of 2022, COVID-19 related demand from Watson-Marlow's
Pharmaceutical & Biotechnology customers began to normalise and, in the
first two months of 2023, we have continued to see a level of demand
consistent with the fourth quarter of 2022, which still ended with untypically
strong order book levels. In the first half of 2023, we expect these customers
to continue utilising their existing stocks and reschedule deliveries from our
order book. However, with strong underlying demand for cell and gene therapy
applications in the Pharmaceutical & Biotechnology sector, as well as
Process Industry applications, we anticipate significantly higher demand in
the second half of 2023 as excess customer stocks are depleted, although
defining the precise timing and scale of any recovery remains difficult.
Therefore, excluding any impact from currency movements for the full-year
2023, we anticipate Watson-Marlow's overall sales for 2023, to be slightly
below 2022, as lower sales to the Pharmaceutical & Biotechnology sector
will be largely offset by strong growth of its Process Industry sectors.
The Steam Specialties and ETS Businesses also opened 2023 supported by record
order books, so we anticipate mid-to-high single-digit growth over 2022
pro-forma sales, driven by volume growth above IP and proactive price
management practices that offset inflation of wages, energy and materials to
protect margins.
Assuming no material deterioration in forecasted IP and excluding any impacts
from currency movements, we anticipate mid-single-digit growth over 2022 Group
pro-forma sales, together with a small progression to the Group's adjusted
operating profit margin. As Watson-Marlow's sales will be strongly weighted to
the second half of the year, we anticipate the Group's sales phasing in 2023
will also be more weighted to the second half than the typical 48%: 52%
phasing of previous years. Based on increased operational gearing in the
second half, as well as the full benefit in the second half of first half cost
saving initiatives in Watson-Marlow to right-size capacity and overhead
support costs, we anticipate the Group's adjusted operating profit phasing in
2023 will be more weighted to the second half than the 44%: 56% phasing of
2020.
Cash conversion of 57% in 2022 was impacted by a rebuilding of inventory as
global supply chain disruptions eased, as well as a step-up in capital
investment as we expanded our manufacturing capacity to support future growth.
In 2023, we anticipate cash conversion will improve to above 70% with capital
investment remaining at approximately 7% of sales driven by project
completions and the expansion of Chromalox's manufacturing facility in Ogden,
Utah (USA).
Therefore, we look forward to delivering another year of overall double-digit
sales growth, together with a small progression in the Group's adjusted
operating profit margin and improved cash conversion.
Operating Review
Market environment
Global industrial production growth(1) (IP) was 2.7% in 2022, compared to 7.7%
in 2021. All regions recorded positive IP, although growth was below the
level achieved in 2021 when the global economy bounced back strongly from the
COVID-19 pandemic-related impacts of 2020.
IP Performance 2022 IP Performance 2021
Europe, Middle East & Africa +2.5% +6.8%
of which, Europe +1.7% +8.3%
North America +3.9% +4.9%
Latin America +1.3% +6.2%
Asia Pacific +3.1% +8.3%
of which, China +3.8% +8.7%
(( 1 )) Source for industrial production data: Oxford Economics, 23rd February
2023
IP was strongest in the first half of 2022 at 2.8%, despite a demanding
comparator in 2021. IP slowed in the second half although at 2.6% industrial
production remained higher than the second half of 2021. In the final quarter
of 2022, sequential IP growth over the third quarter moved into negative
territory, contracting 0.5%. For the full year 2022, IP of 2.7% was materially
lower than the forecasted 4.4% at the time of our 2021 Full Year results in
March 2022. Russia's invasion of Ukraine on 24th February 2022 and the
consequential impact on global supply chains and energy prices, as well as
other inflationary pressures, dampened the global economic outlook that
weakened progressively throughout 2022.
In Asia Pacific, IP was 3.1%, significantly lower when compared to the strong
8.3% expansion in 2021, reflecting the reintroduction of lockdowns in China,
particularly in Shanghai. In the Americas, IP was 3.9% in North America but
only 1.3% in Latin America, with Brazil registering a minor IP contraction
over 2021. In EMEA, IP contracted 3.6% in the UK with Germany, France and
Italy broadly flat.
In March 2022, we suspended all Group trading with or within Russia and
commenced the process of exiting our Spirax Sarco and Watson-Marlow operations
in Russia. This process concluded in July, with the disposal of our Russian
operating companies. The impact on our 2022 results was small as Russia
accounted for close to 1% of Group revenues in 2021.
In our largest sectors, Pharmaceutical & Biotechnology and Food &
Beverage, which accounted for 41% of Group pro-forma sales in 2022, IP was
0.9% and 1.8% respectively. In the OEM sector (12% of Group pro-forma sales
in 2022) IP was 5.8% and in the Oil & Gas sector that accounted for 5% of
2022 Group pro-forma sales, IP was 1.7%.
During the last year, forecasts(1) for 2023 IP have trended downwards, from
4.0% in February 2022 to 0.7% in February 2023, reflecting ongoing
geopolitical tensions, rising interest rates to combat high levels of
inflation and the potential for recession in some countries.
Steam Specialties
2021 Exchange Organic Acquisitions & disposals* 2022 Organic Reported
Revenue £754.9m £19.1m £95.6m (£3.6m) £866.0m +12% +15%
Adjusted operating profit £188.7m £3.5m £15.7m (£1.8m) £206.1m +8% +9%
Adjusted operating profit margin 25.0% 23.8% -90 bps -120 bps
Statutory operating profit £186.8m £196.2m +5%
Statutory operating margin 24.7% 22.7% -200 bps
*Includes the impact of (i) the acquisition of Cotopaxi and (ii) the treatment
of Spirax Sarco Russia as a disposal from the date at which the Group
suspended all trading with and within Russia.
Progress in 2022
Steam Specialties comprises our two world-leading product brands of Spirax
Sarco and Gestra and operates across three geographic Divisions: Europe,
Middle East and Africa (EMEA), Asia Pacific and the Americas. The OEM sector
represented 19% of Steam Specialties total sales, while Food & Beverage
and Healthcare accounted for 29% and 3% respectively.
Steam Specialties sales of £866.0 million grew 15% in 2022 or 12%
organically. This very strong performance combined strong volume growth ahead
of IP, despite the challenging macroeconomic environment, with proactive price
management practices that offset significant raw material, energy and wage
cost inflation to protect margins. The strong volume growth delivered benefits
from operational gearing, supporting revenue investments to drive future
organic sales growth.
Demand growth exceeded sales growth across all Divisions, expanding order
books, with a higher proportion of larger orders compared to 2021, as
customers' capital expenditure continued to recover from pandemic-driven
reductions.
EMEA generated 11% organic sales growth. In the UK, Germany, France and
Italy, the four largest markets in EMEA which collectively represent over 60%
of regional sales, IP progressively weakened during the year and turned
negative in the final quarter. There was a strong recovery in demand from the
marine sector in Italy, as the outlook for worldwide travel improved due to
the relaxation of COVID-19 restrictions that enabled cruise ships to start
operating again.
Asia Pacific achieved 10% organic sales growth despite lower IP and the
challenges in China caused by COVID-19 related lockdowns, particularly in
Shanghai. The region benefited from a recovery in large orders funded from
customers' capital budgets, which account for a higher proportion of sales
than in the rest of the world. China, our largest market in the region
representing over 50% of sales, achieved 8% organic sales growth compared to
3.8% IP. In Korea, our second largest market in Asia Pacific, organic sales
increased by 11%, significantly above IP of 1.6%.
In the Americas, sales grew 20% organically against a mixed backdrop for IP.
In the USA, the largest market in the region, representing around 50% of the
Americas, sales were up 11% compared to IP of 3.9%. This outperformance
against IP reflects good progress in implementing our strategy to drive higher
growth from direct sales, compared to growth through distributors, as well as
our focus on the Healthcare and Chemical sectors which grew strongly.
In Latin America, which accounts for over 40% of the Americas' sales, there
was strong volume growth in the largest markets of Argentina and Brazil,
driven mainly by the Food & Beverage sector, Chemicals and Oil & Gas
sectors, as well as good price management practices to offset higher
inflationary pressures and protect margin.
Steam Specialties adjusted operating profit grew 9% to £206.1 million, up 8%
organically. The adjusted operating profit margin was 23.8%, down 120 bps or
90 bps organically. Statutory operating profit of £196.2 million was up 5%
from £186.8 million in 2021.
Our lower adjusted operating profit margin, compared to the exceptionally high
level of 2021, reflects the full year impact of prior year revenue
investments, partially offset by the benefits of operational gearing from
higher sales. Had we incurred the full-year cost of these revenue investments
in 2021, Steam Specialties 25.0% adjusted operating profit margin would be
reduced by close to 200 bps. During 2022, we continued investing further to
support future revenue growth, with an expansion of sales-related headcount
and new product development, as well as digital and sustainability
initiatives.
Gestra's adjusted operating profit margins increased for the full year and
exceeded the 20% threshold achieved in 2021, the highest since we acquired the
company in 2017.
Business strategy update
In 2021, Steam Specialties launched its refreshed business strategy, Customer
first(2) (Cf(2)) and 2022 represented the first full year of its
implementation. The refreshed strategy builds on the original Customer first
strategy that has been in place since 2014 and focuses on mega trends such as
customer insight, sustainability, innovation, digital and inclusivity.
Increase direct sales effectiveness through market sector focus
Following the acquisition of Gestra in 2017, Steam Specialties adopted a
sector-driven dual brand strategy. Aligning market sectors that offer the best
opportunities with the brand that is traditionally strongest in that sector,
ensures that we are well-placed to grow sales at above IP rates. For example,
Gestra delivered 40% sales growth in the Chemicals sector as a result of its
strong presence, while Spirax Sarco generated growth of 7% in the Healthcare
sector, as hospitals sought to catch-up on deferred maintenance expenditure.
In January 2022, Steam Specialties completed the acquisition of Cotopaxi, a
digitally enabled global energy consulting and optimisation specialist, to
further accelerate the implementation of our Digital Strategy. Cotopaxi's
proprietary software platform, STRATA, generates critical insights that are
used to better understand industrial customers' management and use of Water,
Air, Gas, Energy and Steam (WAGES). Cotopaxi's digital solutions experience in
steam installations has enhanced our ability to connect to customers' systems
and analyse their data, generating further opportunities and solutions that
support system uptime, reduce waste and increase efficiency.
We continued to implement Customer Value Propositions (CVPs) to support our
customers' changing requirements and needs. During 2022, our teams tailored a
CVP to support lithium mining projects in Argentina for the automotive battery
sector.
Develop the knowledge and skills of our expert sales and service teams
We continued to invest in our direct sales force and self-generated sales
capability through our Sales Excellence training that is delivered by our
Steam Academy. Following the acquisition of Cotopaxi, training now includes
modules on our digital capabilities and the value that can be generated for
our customers.
Broaden our global presence
Steam Specialties has direct sales capabilities in 66 countries and we
continue establishing a stronger sales presence in parts of the world that
have previously been under-represented. In 2022, this included parts of Africa
and the Middle East with a substantial step-up in the recruitment of direct
sales engineers across those regions.
Leverage our research and development (R&D) investments
We continued to invest in new product development across Steam Specialties and
released multiple new products during 2022, to support the efficient use and
control of steam, including the 'TargetZero' decarbonisation solutions (for
more information see below). Due to our relentless focus on innovation, in
2022 Steam Specialties exceeded their long-held Product Vitality (PV) target
which compares the revenue from new products, services or solutions introduced
in the previous five years to total revenue.
Optimise supply chain effectiveness
In 2021, we created a Global Supply Chain organisation responsible for all
Steam Specialties manufacturing sites around the world, to further improve the
efficiency of our operations. This global organisation enables the adoption of
consistent supply chain methodologies and accelerates the sharing of best
practices across the 11 Steam Specialties manufacturing sites, while
accelerating investments in plant modernisation. In common with most
businesses, Steam Specialties experienced considerable disruption to its
supply chain over the past two years with an adverse impact on customer
service levels. During 2022, we successfully mitigated materials shortages by
expanding our supplier base while also increasing our sales volume.
Operate sustainably and help improve our customers' sustainability
We work closely with our customers to understand their sustainability goals
and provide solutions to optimise their energy and water usage, as well as
decarbonise steam generation. The Group developed a suite of innovative
'TargetZero' decarbonisation solutions through the Thermal Synergy Solutions
project, a collaboration between Steam Specialties and ETS designed to
decarbonise customers' industrial processes, including the raising of steam.
'ElectroFit', replaces industrial boilers' fossil fuel-fired heating elements
with an in-situ conversion to electric heating elements, eliminating the
boiler's scope 1 greenhouse gas (GHG) emissions while minimising plant
disruptions and retaining the existing boiler infrastructure. 'Steam Battery'
is an energy storage system using steam, which retains the thermal energy
until required and decouples the electric energy generation from the thermal
energy use. 'SteamVolt' uses the patented Chromalox Medium Voltage (MV)
technology to provide electric heating solutions at industrial scale to
decarbonise the raising of steam, as well as other industrial processes. These
solutions were successfully tested on customer sites and we started accepting
orders in the second half of 2022.
Alongside our drive to help customers meet their sustainability goals, we are
also taking steps to meet the Group's ambitious target of achieving net zero
scope 1 and scope 2 GHG emissions by 2030. In 2022 Steam Specialties initiated
a £5.9 million investment programme to decarbonise our UK manufacturing
facility in Cheltenham (UK), through the installation of all three
'TargetZero' solutions for the electrification of our on-site gas-fired
boilers. Upon completion by the end of 2023, this project will eliminate the
site's scope 1 emissions and our purchased electricity requirements (scope 2
emissions) will be satisfied by green energy contracts.
During the first half of 2023 we will also implement Cotopaxi's STRATA
platform across the 11 Steam Specialties manufacturing locations, enabling us
to monitor our efficiency and sustainability performance in real time, using
the insights to make changes that eliminate waste and reduce consumption.
During the year, our colleagues were involved with more than 50 biodiversity
projects across the Business. With projects including, the installation of
beehives in Italy, a roof garden in China, a wildlife pond in the UK, as well
as mangrove protection and tree planting in Indonesia and Argentina.
Focus for 2023
We anticipate a more challenging macroeconomic environment in 2023 for both
our customers and ourselves. We will continue to support our customers with
solutions that improve the safety and efficiency of their industrial
processes, thereby reducing their operating costs. With our 'TargetZero'
solutions, we will also support their journeys towards zero GHG emissions
while completing the decarbonisation of our UK manufacturing facility.
In key regions such as the USA, Middle East and Africa, we are focused on
expanding our direct sales presence and our direct engagement with customers.
We will also leverage our investments in digital capabilities, supported by
Cotopaxi, to further enhance our understanding of customers' operations and
how to best support them.
Steam Specialties Outlook
IP forecasts for 2023 have trended steadily downwards since February 2022 and
are now at 0.7%, reflecting the likelihood of industrial recessions in
developed markets and lower growth in emerging markets. Against this weak
macroeconomic backdrop, our resilient business model, ability to self-generate
sales, significant proportion of maintenance and repair sales and strong order
books underpin our confidence in the growth outlook for Steam Specialties.
Excluding any impact from currency movements, we currently anticipate
mid-to-high single-digit growth, over 2022 pro-forma sales, driven by volume
growth above IP and proactive price management practices that offset inflation
of wages, energy and materials to protect margins.
We also anticipate a more typical drop-through from the increased sales to
adjusted operating profit of close to 35%, leading to further improvement in
our adjusted operating profit margin.
Electric Thermal Solutions
2021 Exchange Organic Acquisitions & disposals* 2022 Organic Reported
Revenue £181.3m £13.2m £27.4m £34.2m £256.1m +14% +41%
Adjusted operating profit £24.0m £1.9m £5.9m £8.1m £39.9m +23% +66%
Adjusted operating profit margin 13.2% 15.6% +100 bps +240 bps
Statutory operating profit £11.1m £7.3m -34%
Statutory operating margin 6.1% 2.9% -320 bps
*Includes the impact of the acquisition of Durex Industries and Vulcanic.
Acquisitions
During the last four months of 2022, the Group's Electric Thermal Solutions
Business (ETS) completed the acquisitions of Vulcanic and Durex Industries,
strengthening coverage of attractive end-market sectors and geographies to
broaden the platform for strong organic growth of the Business.
Vulcanic
On 29th September, we completed the acquisition of Vulcanic, a European leader
of industrial heating solutions that is headquartered in Paris (France) with
ten manufacturing facilities worldwide. Chromalox generates close to
three-quarters of its sales in the Americas, whereas Vulcanic generates around
80% of its sales in EMEA. Vulcanic complements Chromalox through its strong
position in the Food & Beverage and OEM sectors, while serving different
markets than Chromalox within the Oil & Gas and Chemicals sectors.
Vulcanic comprises several product brands that are each individually strong in
their respective sectors. We have appointed an experienced leader for Vulcanic
from within our Group and the integration is progressing well.
We are implementing a dual brand strategy for Chromalox and Vulcanic,
modelling the highly successful approach in Steam Specialties that aligns the
Spirax Sarco and Gestra brands with specific strategic growth sectors. As the
lead brands within ETS for electric process heating, including the
decarbonisation of industrial processes, Chromalox and Vulcanic will support
the effective deployment of our industry leading decarbonisation solutions
alongside Steam Specialties.
Durex Industries
On 30th November, we completed the acquisition of Durex Industries, a US-based
specialist in custom precision thermal solutions with embedded electric
heating, cooling and sensing technologies for ultra-critical applications
within complex industrial equipment, with headquarters and manufacturing
facilities in Cary, Illinois (USA). OEMs accounted for almost 90% of sales
with approximately 60% of sales to the Semiconductor sector.
Durex Industries is a highly complementary brand to Thermocoax, with minimal
customer overlap and over 80% of its sales in North America, whereas over 60%
of Thermocoax's sales are in EMEA. As the lead brands within ETS for
ultra-critical thermal solutions for industrial equipment, Thermocoax and
Durex Industries are well positioned to capitalise on the growing demand for
increasingly stringent thermal heating requirements in high technology
equipment and will accelerate the development of ETS' critical OEM business.
We have retained the existing strong management of Durex Industries and they
are working collaboratively across ETS to identify opportunities that
accelerate the growth of each brand.
Market overview
Following the acquisitions of Vulcanic and Durex Industries, the Americas and
EMEA will represent 56% and 32% of sales respectively on a pro-forma basis.
ETS has a different balance of end markets when compared to the rest of the
Group with 18% of sales to the Semiconductor sector and 12% to the Power
Generation sector on a pro-forma basis.
Our customers' focus on the decarbonisation of their critical industrial
processes, in line with their own sustainability and net zero goals, continues
to drive strong demand for both Chromalox and Vulcanic products and solutions.
The rate of adoption over time of our decarbonisation solutions remains
difficult to predict due to varying rates of progress towards net zero in
different countries, capacity to deliver the necessary infrastructure quickly,
as well as the relatively higher cost of electricity compared to gas.
Therefore, we anticipate this market opportunity will unfold globally over at
least the next 30 years.
During 2022, Semiconductor demand grew strongly with the proportion of ETS
sales to the sector increasing. We anticipate demand will be lower in 2023 due
to consumer spending on electronics being impacted by a weaker macroeconomic
environment, as well as a slowdown in the expansion of Semiconductor
manufacturing capacity. Through Thermocoax and Durex Industries, ETS supplies
complex solutions for precise thermal control, incorporated by OEMs into Wafer
Fabrication Equipment (WFE) for more advanced Semiconductor products utilised
in higher-end applications. We expect that these niche positions will
partially mitigate the impact of an overall reduction in Semiconductor demand.
Additionally, there is an opportunity for our solutions to replace incumbent
suppliers in the WFE aftermarket, further mitigating cyclicality in the
new-build market.
Progress in 2022
ETS sales grew 41% to £256.1 million or 14% on an organic basis, with the
difference due to acquisitions and currency tailwinds.
During 2022, ETS benefitted from strong overall demand growth, significantly
ahead of IP and above the growth in sales. Growth in Thermocoax was driven by
the Semiconductor sector, with increasing end user demand for sophisticated
digital equipment and from the Aerospace & Defence sector, due to demand
for sensing and heating technologies in satellites supporting mobile
telecommunications networks. Chromalox experienced increasing demand for
decarbonisation solutions.
Vulcanic and Durex Industries delivered strong double-digit growth in sales
driven by the same decarbonisation trend and Semiconductor sector growth
benefiting Chromalox and Thermocoax. Including the acquisitions of Vulcanic
and Durex Industries on a twelve-month pro-forma basis, ETS sales would be
£382.9 million in 2022.
Manufacturing continued being impacted by disruptions in the global supply
chain, although these constraints are beginning to ease. Shipments from our
manufacturing facility in Ogden, Utah (USA) remained capacity constrained
during 2022 as it transitions to focus primarily on bespoke industrial heating
solutions, increasingly utilising our patented Medium Voltage (MV) technology
for the decarbonisation of buildings and industrial processes. Throughout the
year we continued investing to increase capacity in Ogden, as well as making
further operational improvements to support manufacturing of more complex and
bespoke solutions. The capacity constraints were compounded by strong demand
growth and resulted in ETS carrying a record order book into 2023,
underpinning strong sales growth in the year ahead.
Sales from Chromalox EMEA contracted year-on-year following the announcement,
in May 2022, of our plans to close the loss-making manufacturing plant in
Soissons (France). This facility was successfully decommissioned in September,
three months ahead of schedule, with minimal disruptions. The costs associated
with the closure (£14.5 million) are included as an adjusting item in the
Consolidated Income Statement as disclosed in Note 2 to the Financial
Statements. The acquisition of Vulcanic restores the capability to manufacture
in Europe some of the products previously sourced from the Soissons facility.
ETS adjusted operating profit grew 66% to £39.9 million and was up 23% on an
organic basis, the difference being due to acquisitions and currency
movements. Statutory operating profit of £7.3 million was down 34% from
£11.1 million in 2021, driven by the restructuring of Chromalox's
manufacturing operation in Soissons (France).
ETS adjusted operating profit margin of 15.6% was up 240 bps and 100 bps
organically, with the difference due to the fourth quarter contributions from
the Vulcanic and Durex Industries acquisitions that had a combined operating
margin similar to the overall Group margin.
During 2022, both Chromalox and Thermocoax shipped a high proportion of orders
from their existing order book that were booked in 2021 or earlier.These
orders did not benefit from the 2022 price increases so the margins achieved
were adversely impacted by high materials cost inflation and higher freight
costs. Nickel-based alloys, electrical components, petrochemical and resin
products, all experienced double-digit cost inflation.
Price increases were applied to new orders taken in 2022 to protect operating
margins from this higher cost inflation, with further price increases being
applied to new orders received in 2023. Although we still have some orders to
be delivered that were taken in 2021, we anticipate some margin progression in
2023 as we increase the shipment of orders taken in 2022 and 2023.
Thermocoax experienced an adjusted operating profit margin decline in 2022,
due to our higher proportion of sales on medium-term contracts and an adverse
impact of one-off costs associated with the ramp-up of our new manufacturing
facility in Normandy (France). Chromalox adjusted operating profit margin
increased strongly in 2022, driven by operational gearing from sales volume
growth above IP and improved price management practices to offset cost
inflation on new orders that was partially offset by the lower margins of some
older orders shipped in 2022, as well as a small benefit of overhead
reductions in the fourth quarter from the closure of the Soissons (France)
facility.
Including the acquisitions of Vulcanic and Durex Industries on a twelve-month
pro-forma basis, ETS adjusted operating margin would be above 18.0%.
Business strategy update
ETS implemented a strategy refresh during 2020, resulting in the launch of
their 'Engineering Premium Solutions' (EPS) strategy. An important component
of this strategy is the drive towards 'Total Customer Solutions' moving from
being mostly product centric to becoming more focused on selling solutions to
higher-growth sectors in which we are well positioned. We also continued
strengthening our business development function and increasing our focus on
new product innovation, with demonstrable technological advantages and
quantified sustainability benefits. We made good progress in advancing our
strategic agenda in line with the Group's six strategic themes:
Increase direct sales effectiveness through market sector focus
Since reshaping our strategy to prioritise focus on strategic sectors that
represent over 50% of our addressable market, we have realised higher growth
in these targeted sectors and increased our proportion of direct sales.
We have also continued identifying opportunities for ETS to leverage its
position as part of our Group by adopting best practice from other parts of
the organisation. In 2022, this led to the launch of a revised 'go to market'
strategy in EMEA and Asia Pacific, following its successful roll out in the
Americas, which optimises the number of accounts assigned to individual direct
sales engineers.
Develop the knowledge and skills of our expert sales and service teams
We have continued to invest in our self-generated sales capability by
developing the skills and knowledge of our direct sales engineers through the
ETS Academy. Building on the success of the Steam Specialties' Academy, the
ETS Academy was completed in the third quarter of 2022 and utilises virtual
and visual assets to provide a rich and immersive experience for our direct
sales teams and end-user customers. Additionally, our sales teams have been
undertaking Sales Excellence training to develop or refresh skillsets in
consultative value-based selling.
Chromalox has launched several Customer Value Propositions (CVPs) focused on
its decarbonisation and net zero solutions during the year, which required
specific training, marketing materials and decarbonisation calculators for the
Engineered Chemicals, Sustainable Energy and Oil & Gas sectors.
Broaden our global presence
The acquisitions of Vulcanic and Durex Industries provide an improved
geographical balance of the ETS Business globally and will support organic
growth by leveraging customer bases, products and technologies. Over the
coming years we will implement our integration plans that also accelerate the
adoption of our market sector driven dual brand strategy on a global scale.
Leverage our research and development (R&D) investments
ETS is evolving its electrification solutions for decarbonisation and
sustainability, which remain important growth drivers as we build a
significant pipeline of opportunities.
By combining our core capabilities with Steam Specialties, we have been able
to develop synergies within our thermal energy management portfolio that
enabled the 'Thermal Solutions Synergy' team to design new industry-leading
products that deliver significant sustainability benefits for customers. The
new-to-world 'TargetZero' solutions are covered in more detail in the Steam
Specialties update on page 21. ETS has also been collaborating with
Watson-Marlow to release a new product for its Aflex Hose product brand in
2023.
In addition to the 'TargetZero' decarbonisation solutions developed with Steam
Specialties, ETS developed and launched multiple new products to market in
2022 from both the Chromalox and Thermocoax Divisions. The new Chromalox
products include a portable air heater designed for safely heating server
rooms and a safe water heater, certified to heat potable water. In addition to
range extensions, Thermocoax also launched two new-to-world products to
support the fabrication of 3nm semiconductor chips, as well as
radiation-hardened heating cables for aerospace applications.
Optimise supply chain effectiveness
During 2022, we continued investing in further operational improvements, as
well as increasing manufacturing capacity in Ogden, Utah (USA). In order to
ensure sufficient capacity to satisfy the anticipated long-term demand for
Chromalox's Medium Voltage technologies that also support decarbonisation, we
are planning a US$58 million investment to materially expand the Ogden
facility. The new 9,600m2 extension will expand the current footprint by
almost 60% by the end of 2024 and includes geothermal heating, as well as
solar panels for on-site renewable energy supply.
In Normandy (France), Thermocoax's four separate sites came together in a new
purpose-built, state-of-the-art manufacturing facility. Production ramped-up
during the first half of 2022 as the teams adjusted to working in a single
facility and secured all the process qualifications needed for the critical
industrial applications that support the Semiconductor, Aerospace and Defence
sectors. The plant is fully aligned to our 'One Planet: Engineering with
Purpose' Sustainability Strategy, with the implementation of solar panels to
self-generate electricity, as well as waste reduction and on-site biodiversity
projects.
Operate sustainably and help improve our customers' sustainability
During the year ETS continued to implement our 'One Planet: Engineering with
Purpose' Sustainability Strategy, which included the installation of 1.2 GWh
of renewable energy supply at three of our sites in Nuevo Laredo (Mexico),
Heidelberg (Germany) and Normandy (France). We completed net zero roadmaps
at all manufacturing sites and rolled out environmental compliance calendars
to ensure business continuity at key locations including Ogden and LaVergne,
Tennessee (USA).
Focus for 2023
During 2023, we will focus on implementing the integration plans for Vulcanic
and Durex Industries, as well as accelerating growth opportunities through
collaboration with Chromalox and Thermocoax. We will align the 'go to
market' dual brand strategy for Chromalox and Vulcanic in Europe during the
first half of the year.
Product developments will focus on the next generation of Medium Voltage (MV)
technology and Heat Trace systems, supporting decarbonisation and temperature
management of commercial infrastructure. ETS is engaged with multiple
partners, including universities, cities and agencies, working to decarbonise
their district heating systems. We will also focus on leveraging Vulcanic's
presence in Europe to increase the penetration of our Heat Trace systems,
which is currently lower than in North America.
Operationally, our focus will be on increasing manufacturing output from our
site at Ogden, as well as implementing our plant modernisation and
sustainability initiatives. We will also progress the expansion of our Ogden
facility.
ETS outlook
The full year effect of the Vulcanic and Durex Industries acquisitions, on a
twelve-month pro-forma basis, would result in ETS sales in 2022 of £382.9
million with an adjusted operating profit margin above 18.0%.
We opened 2023 with record order books, which underpins our confidence of
achieving another year of good sales volume growth above IP, particularly as
we continue to expand our manufacturing capacity to increase shipments. Strong
customer demand for decarbonisation solutions will remain a driver of ETS
sales growth, although Semiconductor demand that grew strongly in 2022 and
accounted for 18% of ETS sales on a pro-forma basis, is likely to be lower in
2023. As Vulcanic and Durex Industries were acquired in late 2022, these
Divisions of ETS have not yet managed to fully embed our Group's proactive
price management practices so their sales growth rates in 2023 will benefit
less from pricing. Consequently, excluding any impact from currency
movements in 2023, we anticipate mid-to-high single-digit growth, over 2022
ETS pro-forma sales, albeit slightly lower growth than at Steam Specialties.
Operational gearing from increased sales, continued proactive price management
practices that offset cost inflation, a higher proportion of order book
shipments that benefit from improved pricing and the full year benefit of
lower overheads resulting from the closure of the Soissons facility in France,
are expected to drive further adjusted operating profit margin improvements
for the Chromalox and Thermocoax Divisions of ETS. We anticipate the adjusted
operating profit margin of the Vulcanic and Durex Industries Divisions will
decline in 2023, compared to their full year pro-forma margins achieved in
2022, as they derive less benefits from the 2023 price increases and we step
up the revenue investments planned for their integration. Consequently, we
anticipate ETS adjusted operating profit margin in 2023 will be slightly below
18.0%.
Watson-Marlow
2021 Exchange Organic Acquisitions & disposals* 2022 Organic Reported
Revenue £408.3m £20.2m £68.6m (£8.6m) £488.5m +16% +20%
Adjusted operating profit £150.0m £7.6m £5.3m (£2.9m) £160.0m +3% +7%
Adjusted operating profit margin 36.7% 32.8% -400 bps -390 bps
Statutory operating profit £145.4m £154.4m +6%
Statutory operating margin 35.6% 31.6% -400 bps
*Includes the impact of the treatment of Watson-Marlow Russia as a disposal
from the date at which the Group suspended all trading with and within Russia.
Market overview
Watson-Marlow sales to the Pharmaceutical & Biotechnology sector, which
now accounts for around 60% of sales, have historically grown at close to 20%
per annum. This was driven by advances in cell and gene therapies, as well as
a move towards single-use manufacturing processes.
In 2020 and 2021, the sector experienced exceptional growth driven by its role
in developing and producing COVID-19 vaccines, with Watson-Marlow sales
growing 22% and 43% respectively. During the period between the fourth quarter
of 2020 and the second quarter of 2022, our Pharmaceutical & Biotechnology
customers experienced exceptionally strong demand for vaccines as the industry
estimated that at least two doses would be required for a significant
proportion of the global population in order to defeat the pandemic, which
potentially could be followed by boosters or new vaccines to combat new
variants of the virus. As such, capacity additions accelerated and production
ramped-up, leading to increased demand for equipment and consumables. This
exceptional demand exceeded Watson-Marlow's manufacturing capacity,
notwithstanding our multiple capacity expansion initiatives, leading to an
increase in the order book, which remained well above pre-pandemic levels at
the end of 2022.
COVID-19 vaccine global adoption rates turned out to be much lower than the
World Health Organisation (WHO) and most governments anticipated, especially
in many developing economies. Nevertheless, the severity of the virus and
its symptoms have subsided due to the effectiveness of the vaccines, despite
lower-than-anticipated doses being administered. With lower forecasted demand
and excess vaccine inventory, production has slowed. In the second half of
2022, as expected, Watson-Marlow's COVID-19 related demand began normalising,
with many customers postponing new orders and rescheduling delivery dates of
orders already placed. As a result, Watson-Marlow's full year sales to the
Pharmaceutical & Biotechnology sector grew close to 15% in 2022 and
untypically, over 50% of sales occurred in the first half of the year.
Demand growth in Process Industries was significantly above IP, supported by
sector specific programmes to accelerate demand, such as in Food &
Beverage and Water & Wastewater sectors, as well as new product
introductions.
Following the rapid growth in COVID-19 related demand in 2021 and the first
half of 2022, Watson-Marlow expanded capacity at its existing manufacturing
facilities with additional shifts and new equipment, which also helped
mitigate the impact of global supply chain disruptions. As demand started
normalising in the second half of 2022, steps were taken to appropriately
right-size capacity and overhead support costs, which included factory labour
reductions in the fourth quarter of 2022. Further actions are underway in
early 2023, ensuring we are able to both meet our customers' needs and protect
our adjusted operating profit margin.
Progress in 2022
Watson-Marlow sales grew 20% to £488.5 million, or 16% up on an organic
basis. Sales to the Pharmaceutical & Biotechnology sector grew close to
15% organically and sales to Process Industries sectors grew 19%,
significantly ahead of global IP. This level of growth reflects both strong
volume increases and our proactive price management practices that offset
inflationary cost pressures to protect margin.
Watson-Marlow's adjusted operating profit grew 7% to a record £160.0 million,
driven by strong sales growth and partially offset by revenue investments to
support future growth. Organically, adjusted operating profit grew 3%, the
difference being the impact of currency and the disposal of our high margin
Russian operation.
Watson-Marlow's adjusted operating profit margin of 32.8% declined 390 bps
from the exceptional margin of 2021. Despite declining 400 bps on an organic
basis, the margin remains 100 bps above the 2019 pre-pandemic margin.
Statutory operating profit grew 6% from £145.4 million in 2021 to £154.4
million in 2022.
The reduction in adjusted operating profit margin was driven by the full year
impact of 2021 revenue investments, which had an impact of over 200 bps, as
well as costs associated with the transition of BioPure to a new facility in
Portsmouth (UK) and the ramp-up of our new facility in Devens, Massachusetts
(USA), which together had an impact of over 150 bps.
Business strategy update
Strategy25 is Watson-Marlow's five-year organic growth strategy, building
momentum to drive sustainable growth that outperforms our markets and create
value for all stakeholders. We made good progress in advancing our strategy
agenda in line with the Group's six strategic themes:
Increase direct sales effectiveness through market sector focus
During 2022, Watson-Marlow increased its direct sales workforce and continued
embedding our sector driven approach to understand customers' processes,
identifying opportunities for improvement and proposing solutions. For
example, we have been working with lithium-ion battery customers to use our
Bredel APEX pumps and hose solutions to accurately dose, meter and transfer
the liquids required for automotive battery production. We are also supporting
our customers in the Water treatment sector with high accuracy chemical dosing
solutions that have facilitated reduced chemical usage, helping them to
achieve their sustainability and cost goals.
Develop the knowledge and skills
In 2022, we invested in over 40,000 hours of training, learning and
development for colleagues across all areas of Watson-Marlow. This included
the development and deployment of a global training programme for our direct
sales engineers to enhance consultative selling skills as we evolve towards
our total solutions approach.
Broaden our global presence
During the fourth quarter of 2022 we completed the construction and first
phase of production fit-out at our new state-of-the-art manufacturing facility
in Devens, Massachusetts (USA), with the first customer deliveries shipped
before the end of the year, as planned. This milestone was achieved in 13
months of breaking ground at the factory, demonstrating strong project
management and governance, as well as cross-continental collaboration of our
teams, set against significant supply chain and inflationary challenges.
Leverage our research and development (R&D) investments
During 2022, we opened our first dedicated Innovation Centre to support the
Business globally. From its location close to our factory in Falmouth (UK),
this state-of-the-art facility will support all new product developments and
is the hub for evolving our Digital Strategy across all products, services,
manufacturing processes and core enterprise systems. These ongoing investments
are critical to support the quality and consistency of our operations and
ensure we continue to deliver value to all our stakeholders.
We launched multiple new products during the year, including an expansion of
our digital capability across the core pump range, with a communication
protocol used to collect data and control equipment over Ethernet systems. We
also launched BioPure-branded hose assemblies, which enable customers to
specify a completely customisable solution based on their technical
specifications, as well as fully integrated Flexmag single-use pressure
sensing systems to extend our fluid path solutions.
Optimise supply chain effectiveness
During 2022, we made significant progress in expanding Watson-Marlow's
manufacturing capacity. The new Biopure facility in Portsmouth (UK) commenced
production in March 2022 and has enabled a doubling of capacity, following the
successful transition to this new location. Injection moulding machines, which
were temporarily located at subcontractor sites to increase capacity, are also
being relocated to the new BioPure facility.
Due to global supply chain disruptions and the impact of transitioning to a
new facility, we took the decision to hold more inventory to ensure continuity
of supply, working with our partners to identify risks and opportunities.
Operate sustainably and help improve our customers' sustainability
Watson-Marlow has established a new dedicated business sustainability team to
develop a deeper understanding of our product life cycle sustainability
impact, drive engagement and accelerate progress on our commitments to the
Group's 'One Planet: Engineering with Purpose' Sustainability Strategy.
In 2022, our Aflex Hose facility in Yorkshire (UK) identified that 50% of
their annual oil consumption could be filtered, recycled and re-used in the
site's braiding machines. This large strong reduction in waste oil volume
will support Watson-Marlow to achieve its goal of 10% waste reduction by 2025,
as well as reducing costs. We have installed solar panels which generate 1.2
GWh of renewable energy at our new manufacturing facility at Devens,
Massachusetts (USA).
Focus for 2023
Our focus for 2023 will include implementing our Operational Excellence
Framework, an integrated planning process to better align resources across the
demand and supply processes, with the aim of driving efficiency improvements
across production and procurement that de-risk our supply chain and reduce
costs. In support of our 'One Planet: Engineering with Purpose' Sustainability
Strategy, Cotopaxi's STRATA platform is being deployed across all
Watson-Marlow's manufacturing operations to better monitor our sustainability
footprint and drive reductions in consumption and waste. The ramp-up of the
new Devens site will continue throughout 2023, supporting the tightly
controlled validation and phased transfer of product brands to the
state-of-the-art manufacturing facility.
Watson-Marlow outlook
COVID-19 related demand from Pharmaceutical & Biotechnology customers
began to normalise in the second half of 2022 and in the first two months of
2023 we continued seeing a level of demand consistent with the fourth quarter
of 2022. In the first half of 2023, we expect that customers will continue
working through their existing stocks of our products and may still defer some
deliveries from our order book, while repurposing their production to meet
continued strong underlying demand growth for cell and gene therapy
applications. In the second half of 2023, we anticipate a return of customers'
demand growth, although defining the precise timing and scale of the recovery
remains difficult.
For the full year 2023, we anticipate Watson-Marlow sales to the
Pharmaceutical & Biotechnology sector will be lower than 2022. However,
this decline will be largely offset by Process Industries sales growth, driven
by volume growth above IP and continued proactive price management practices
to offset cost inflation and protect margins. Therefore, excluding any impact
from currency movements, we anticipate overall Watson-Marlow sales in 2023
will be slightly below 2022, with over 55% of full year sales occurring in the
second half of the year.
As Watson-Marlow continues driving proactive price management practices across
all market sectors, slightly lower sales in 2023 implies mid-to-high
single-digit sales volume decline, with resulting negative operational
gearing. During the fourth quarter of 2022 and first months of 2023,
Watson-Marlow has taken steps to appropriately right-size manufacturing
capacity and reduce overhead support costs in order to offset the adverse
impact of lower sales volumes on Watson-Marlow's adjusted operating profit
margin. As a result, we anticipate the full year adjusted operating profit
margin in 2023 will remain at a similar level to 2022, with close to 65% of
full year operating profit occurring in the second half of the year.
Charges relating to the right-sizing of manufacturing capacity and reduction
in overhead support costs are expected to be excluded from 2023 adjusted
operating profit as defined in Note 2 to the Financial Statements.
PRINCIPAL RISKS AND FINANCIAL RESILIENCE
Principal Risks
The Group has processes in place to identify, evaluate and mitigate the
Principal Risks that could have an impact on the Group's performance. A
top-down risk review in 2022 highlighted an increased risk to our supply chain
as a result of the impact of global inflation. Our Principal Risks have been
revised in recognition of this impact and are set out below together with a
description of why they are relevant. Details of how they link with the
Group's strategy, an explanation of the change in risk and how each risk is
managed will be disclosed in the 2022 Annual Report.
Economic and political instability - Increased compared to 2021
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 has increased due to escalating global political uncertainties and a
weakening macroeconomic outlook, partially offset by declining COVID-19
related risks.
Significant exchange rate movements - Consistent compared to 2021
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 - Increased compared to 2021
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 has increased due to rising geopolitical tensions and sophisticated,
state-backed cyber attacks.
Loss of manufacturing output at any Group factory - Consistent compared to
2021
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 2021
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
employees, which could impact acquisition objectives.
Loss of critical supplier - Increased compared to 2021
This risk relates to the loss of a critical supplier that could result in
manufacturing constraints and delayed deliveries to customers.
This risk has increased on account of global supply chain constraints, the
impacts of COVID-19-related lockdowns and the war in Ukraine.
Breach of legal and regulatory requirements (including ABC laws) - Consistent
compared to 2021
We operate globally and must ensure compliance with laws and regulations
wherever we do business. As we grow into 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 2021
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 has been 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.
The updated risk was extensively discussed at Risk Management Committee
meetings, to ensure alignment and agreement on the definition and scope, the
likelihood and velocity of the risk, as well as the Group's appetite for the
risk.
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 2022, 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
Following the disposal our Russian operating companies, we are continuing to
monitor the conflict in Ukraine and its subsequent impact on our Group,
including rising energy costs, increasing inflationary pressures and
corresponding interest rate rises in an effort to curb inflation. These risks
have been partially offset by a reduction in COVID-19 related risks.
The fundamentals of our financial resilience
The strong operational and financial performance of the Group during 2022
continues to reflect the resilience of our business model. Alongside
completing the acquisitions of Vulcanic and Durex Industries, we have
continued to focus on organic opportunities with significant investments made
in new manufacturing capacity, sustainability initiatives and building
additional digital capability. The Group's longstanding track record of
increasing returns to shareholders has continued with a proposed year-on-year
increase of 12% in ordinary dividends.
Our products and solutions support critical industrial processes across a
broad range of industries and geographical markets, which links our business
performance to movements in global IP. As in previous years, our business
model supported our outperformance against global IP due to our ability to
self-generate sales (accounting for 40% of sales) and a significant base
business in maintenance and repair sales (accounting for 45% of sales). These
sales are funded from our customers' operating budgets. The remaining 15% of
sales are related to large projects, funded from customers' capital
expenditure budgets, which are more heavily influenced by economic cycles.
Over 60% of our sales are to defensive, less cyclical sectors and no single
customer accounts for more than 1.5% of Group sales.
Resilience over the short, medium and long term
Our business model and the investments we have continued to make in our
business, combined with our strong cash generation, position us well to adapt
to economic cycles. Our Going Concern and Viability analysis gives us
confidence in the robust nature of our business and our capital structure,
even when analysed under a number of downside scenarios.
We have undertaken scenario-based modelling of our key risks, the results of
which underpin our confidence in our short and medium-term resilience. The
continued implementation of our strategy supports our longer-term resilience
and we continue to closely monitor and respond to the changing external
economic, environmental and social factors that will impact our Businesses in
the future.
Going Concern statement
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 2022 Annual Report. The Group retains sufficient resources
to remain in compliance with all the required terms and conditions within its
borrowing facilities with material headroom and no material uncertainties have
been identified. 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 form a view as to the probability of
these occurring.
Our financial position remains robust, with the next maturity of our committed
debt facilities being €225 million of Private Placement notes which mature
in September 2023 and which are included within the cashflow forecast that
underpins our scenario modelling. The Group's debt facilities contain a
leverage ratio (net debt/EBITDA) covenant with a limit of up to 3.5x. Certain
debt facilities also contain an interest cover (EBITDA/net finance expense)
covenant of a minimum of 3.0x. The Group closely monitors its financial
position to ensure that it remains within the terms of these debt covenants.
At 31st December 2022 the Group's reported leverage ratio was 1.7x (31st
December 2021: 0.4x), the year-on-year increase resulting from the
debt-financed acquisitions of Vulcanic and Durex Industries. It should be
noted that including a full year of EBITDA for acquired businesses results in
a pro-forma leverage ratio of 1.5x. Interest cover on a pro-forma basis was
62x at 31st December 2022 (31st December 2021: 93x).
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 the Group's covenants. In
addition, the reverse stress tests undertaken did not require us to take into
account any mitigating actions which the Group would implement in the event of
a severe and extended revenue and profitability decline. Such actions would
serve to further increase covenant headroom.
Having assessed the relevant business risks as discussed in our Principal
Risks on pages 31 and 32 and considered the liquidity and covenant headroom
available under several alternative scenarios as set out in the viability
assessment below, the Directors consider it appropriate to continue to adopt
the going concern basis in preparing the financial statements.
Assessment of Viability
In accordance with provision 31 of the UK Corporate Governance Code 2018, the
Board has assessed the viability of the Group, taking into account the Group's
current financial position, business strategy, the Board's risk appetite and
the potential impacts of the Group's Principal Risks. We set out the eight
Principal Risks we have identified on pages 31 and 32.
The Board has adopted a five-year viability assessment, which it believes to
be appropriate as this timeframe is covered by the Group's forecasts; takes
into account the nature of the Group's Principal Risks, a number of which are
external and have the potential to impact over short time periods; and is
aligned with the maturity of the Group's principal committed bank credit
facility. While the Board has no reason to believe that the Group will not be
viable over a longer period, given the inherent uncertainty involved, the
Board believes that a five-year period provides an appropriate degree of
confidence whilst covering a sufficiently longer-term perspective.
In making their assessment, the Board completed a robust assessment, supported
by detailed modelling, of the Principal Risks facing the Group, including
those that would threaten its business model, future performance, solvency, or
liquidity. In addition to completing an impact assessment of the Principal
Risks, the Board considered the probability of the occurrence of the Principal
Risks, the Group's ability to control them and the effectiveness of mitigating
actions available. In every modelled scenario the Group is able to demonstrate
that it continues to remain viable. The scenarios modelled to support this
process were as follows:
Scenarios Modelled Links to Principal Risks
Scenario 1: Revenue Fall Risk 1: Economic and political instability
We considered a combination of forward-looking scenarios in which sales were Risk 2: Significant exchange rate movements
adversely impacted in all years of the assessment period.The reductions
reflected the combined impact of economic political instability on global Risk 4: Loss of manufacturing output at any Group factory
Industrial Production output, material currency exchange rate fluctuations and
a loss of manufacturing output at a significant Group manufacturing site. Risk 6: Loss of critical supplier
Risk 8: Inability to identify or respond to changes in customer needs
We assumed a reduction of 17% in sales and no mitigating actions were taken by
the Group. Despite these impacts the Group continued to trade profitably and
always remained comfortably within the financial covenants in the external
financing facilities.
Scenario 2: Exceptional Charge Risk 7: Breach of legal and regulatory requirements (including ABC laws)
We considered the impact of a potential large, one-off expense as could be
required in the case of a legal or regulatory fine or a compensation payment.
An expense equivalent to 10% of the 2022 adjusted Group operating profit was
assumed alongside a negative impact of 10% on revenue resulting from the
associated reputational damage.
Despite these impacts the Group continued to trade profitably and always
remained comfortably within the financial covenants in the external financing
facilities.
Scenario 3: Cyber Attack Risk 3: Cybersecurity
We considered the occurrence of a cyber-attack that succeeds in severely
impacting Group systems. We assumed an immediate disruption to trading
followed by a fall in sales in subsequent years resulting from the associated
negative reputational impact, the combined effect being a loss of 5% of sales
in each year over the period. A significant initial cost was also included to
rectify the immediate impact of the attack followed by increased investment in
all subsequent years to strengthen our cyber-security.
Despite these impacts the Group continued to trade profitably and always
remained comfortably within the financial covenants in the external financing
facilities.
Scenario 4: Acquisition Failure Risk 5: Failure to realise acquisition objectives
We considered a scenario whereby a large acquisition has failed to achieve the
acquisition business case. We assumed a 20% shortfall in sales in the acquired
business and disposal for a lower cash consideration than the original
consideration.
Despite these impacts the Group continued to trade profitably and remained
comfortably within the financial covenants contained within the external
financing facilities at all times.
A further scenario was modelled to ascertain what level of revenue or adjusted
operating profit margin reduction would be required to cause a breach of the
Group's debt covenants. The reductions in revenue and adjusted operating
profit margin were significantly higher than those shown in the above
scenarios. While linked to the Group's Principal Risks, the scenarios detailed
above are hypothetical and designed to test the ability of the Group to
withstand such severe outcomes. In practice, the Group has an established
series of risk control measures in place that are designed to both prevent and
mitigate the impact of any such occurrences from taking place. The results of
the stress testing undertaken showed that the Group would be able to absorb
the impact of the scenarios considered should they occur within the assessment
time period. In all the scenarios considered, the Group was not required to
implement any mitigating actions in relation to reductions in forecast
expenditure in order to remain within its debt covenants.
Viability statement
Based on the outcomes of the scenarios and considering the Group's financial
position, strategic plans and Principal Risks, the Directors have a reasonable
expectation that the Group will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment. The
Directors' statement regarding the adoption of the going concern basis for the
preparation of the financial statements can be found on page 43.
Long-term resilience
The Group has a long track record, over 130 years, of consistently adapting to
changing macroeconomic, environmental and social factors supported by our
business model. While our strategy and business model lessen any material
impact from our Principal Risk factors, we nevertheless continuously review
our markets, listen to our customers and adapt our solutions, while working
responsibly and in line with our Values to build long-term sustainability.
We have a highly resilient business and strategy that will remain relevant
across different climate-related scenarios. We recognise the need to
anticipate and mitigate the impact of climate-related change. In 2021 we
launched our 'One Planet: Engineering with Purpose' Sustainability Strategy
covered in more detail on page 47 of the Annual Report. Although not classed
as a Principal Risk for our Group, the TCFD disclosures on pages 59 to 61
detail the anticipated impact of climate-change on the Group's longer-term
resilience.
The increasing commitments to net zero targets will have a profound effect on
industrial activity over the coming decades and is an additional source of
growth for our Group over at least the next 30 years. To address the
opportunities arising from the decarbonisation of industrial processes, we
have invested significantly in the development of sustainable products and
solutions that help customers meet their own sustainability goals. In 2022, we
launched new-to-world 'TargetZero' decarbonisation solutions, created through
an internal collaboration between Steam Specialties and Electric Thermal
Solutions (ETS). You can read more about the benefits of the three
'TargetZero' solutions, branded 'ElectroFit', 'Steam Battery' and 'SteamVolt',
on page 21 of the Operating Review.
Spirax-Sarco Engineering plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31ST DECEMBER 2022
8BNote 2022 2021
£m £m
ASSETS
Non-current assets
Property, plant and equipment 384.5 277.4
Right-of-use assets 67.2 62.9
Goodwill 703.3 411.2
Other intangible assets 500.3 255.7
Prepayments 2.0 1.3
Taxation recoverable 5.1 4.9
Deferred tax assets 69.0 46.1
1,731.4 1,059.5
Current assets
Inventories 290.0 201.3
Trade receivables 341.1 272.3
Other current assets 79.6 44.7
Taxation recoverable 13.9 10.8
Cash and cash equivalents 8 328.9 274.6
1,053.5 803.7
Total assets 2,784.9 1,863.2
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables 283.0 217.0
Provisions 12.0 5.2
Bank overdrafts 8 85.1 55.6
Current portion of long-term borrowings 8 202.9 59.6
Short-term lease liabilities 8 14.1 11.2
Current tax payable 40.4 33.1
637.5 381.7
Net current assets 416.0 422.0
Non-current liabilities
Long-term borrowings 8 731.3 289.9
Long-term lease liabilities 8 51.1 48.9
Deferred tax liabilities 128.1 81.8
Post-retirement benefits 52.1 44.7
Provisions 6.2 1.5
Long-term payables 8.8 4.7
977.6 471.5
Total liabilities 1,615.1 853.2
Net assets 3 1,169.8 1,010.0
Equity
Share capital 19.8 19.8
Share premium account 88.1 86.3
Translation reserve 17.5 (40.5)
Other reserves (23.4) (17.7)
Retained earnings 1,067.0 961.1
Equity shareholders' funds 1,169.0 1,009.0
Non-controlling interest 0.8 1.0
Total equity 1,169.8 1,010.0
Total equity and liabilities 2,784.9 1,863.2
Spirax-Sarco Engineering plc
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2022
Adjusted Adj't* Total Adjusted Adj't* Total
Note 2022 2022 2022 2021 2021 2021
£m £m £m £m £m £m
Revenue 2, 3 1,610.6 - 1,610.6 1,344.5 - 1,344.5
Operating costs (1,230.4) (61.4) (1,291.8) (1,004.2) (19.4) (1,023.6)
Operating profit 2, 3 380.2 (61.4) 318.8 340.3 (19.4) 320.9
Financial expenses (15.2) (1.1) (16.3) (9.8) - (9.8)
Financial income 5.6 - 5.6 3.4 - 3.4
Net financing expense 3, 4 (9.6) (1.1) (10.7) (6.4) - (6.4)
Share of profit of Associate - - - - - -
Profit before taxation 370.6 (62.5) 308.1 333.9 (19.4) 314.5
Taxation 5 (92.5) 9.4 (83.1) (83.9) 4.3 (79.6)
Profit for the period 278.1 (53.1) 225.0 250.0 (15.1) 234.9
Attributable to:
Equity shareholders 277.8 (53.1) 224.7 249.7 (15.1) 234.6
Non-controlling interest 0.3 - 0.3 0.3 - 0.3
Profit for the period 278.1 (53.1) 225.0 250.0 (15.1) 234.9
Earnings per share 2, 6
Basic earnings per share 377.2p 305.1p 338.9p 318.3p
Diluted earnings per share 376.3p 304.4p 338.0p 317.5p
Dividends 7
Dividends per share 152.0p 136.0p
Dividends paid during the year (per share) 140.0p 123.0p
*Adjusted figures exclude certain items, as set out and explained in the
Financial Review and as detailed in Note 2. All amounts relate to continuing
operations.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED
31ST DECEMBER 2022
2022 2021
£m £m
Profit for the year 225.0 234.9
Items that will not be reclassified to profit or loss:
Remeasurement (loss)/gain on post-retirement benefits (8.3) 46.3
Deferred tax on remeasurement loss/(gain) on post-retirement benefits 1.8 (8.9)
(6.5) 37.4
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences and net investment hedges 54.8 (6.8)
Transfer to Income Statement of cumulative translation differences on disposal 10 3.2 -
of subsidiaries
Loss on cash flow hedges net of tax (3.5) (2.8)
54.5 (9.6)
Total comprehensive income for the year 273.0 262.7
Attributable to:
Equity shareholders 272.7 262.4
Non-controlling interest 0.3 0.3
Total comprehensive income for the year 273.0 262.7
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST DECEMBER
2022
Share Share Translation reserve* Other Retained Equity shareholders' funds Non-controlling interest Total
Capital Premium £m reserves Earnings £m £m Equity
£m Account £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 year - - - - 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 loss on post-retirement benefits - - - - (8.3) (8.3) - (8.3)
Deferred tax on remeasurement loss 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 year - - 58.0 (3.5) (6.5) 48.0 - 48.0
Total comprehensive income/(expense) for the year - - 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
*In prior years, the translation reserve was included within other reserves
with a breakdown being disclosed separately in the notes to the Financial
Statements. Due to the material value of this reserve, we have presented it as
a separate heading in the Statement of Changes in Equity for the year ended
31st December 2022. The comparatives have also been amended to reflect this
reclassification to ensure comparability and consistency.
Other reserves represent the Group's cash flow hedges, capital redemption and
Employee Benefit Trust reserves. The non-controlling interest is a 2.5%
share of Spirax Sarco (Korea) Ltd held by employee shareholders.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST DECEMBER
2021
Share Share Translation Other Retained Equity shareholders' funds Non-controlling interest Total
Capital Premium reserve* Reserves Earnings £m £m Equity
£m Account £m £m £m £m
£m
Balance at 1(st) January 2021 19.8 84.8 (33.7) (2.4) 782.8 851.3 1.0 852.3
Profit for the year - - - - 234.6 234.6 0.3 234.9
Other comprehensive (expense)/income:
Foreign exchange translation differences and net investment hedges - - (6.8) - - (6.8) - (6.8)
Remeasurement loss on post-retirement benefits - - - - 46.3 46.3 - 46.3
Deferred tax on remeasurement loss on post-retirement benefits - - - - (8.9) (8.9) - (8.9)
Cash flow hedges - - - (2.8) - (2.8) - (2.8)
Total other comprehensive (expense)/income for the year - - (6.8) (2.8) 37.4 27.8 - 27.8
Total comprehensive (expense)/income for the year - - (6.8) (2.8) 272.0 262.4 0.3 262.7
Contributions by and distributions to owners of the Company:
Dividends paid - - - - (90.7) (90.7) (0.3) (91.0)
Equity settled share plans net of tax - - - - (3.0) (3.0) - (3.0)
Issue of share capital - 1.5 - - - 1.5 - 1.5
Employee Benefit Trust shares - - - (12.5) - (12.5) - (12.5)
Balance at 31(st) December 2021 19.8 86.3 (40.5) (17.7) 961.1 1,009.0 1.0 1,010.0
Spirax-Sarco Engineering plc
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31ST DECEMBER 2022
Note 2022 2021
£m £m
Cash flows from operating activities
Profit before taxation 308.1 314.5
Depreciation, amortisation and impairment 81.0 69.0
Profit on disposal of property, plant and equipment (1.4) (0.5)
Cash payments to the pension schemes greater than the charge to operating (5.3) (7.6)
profit
Loss on disposal of subsidiaries 7.0 -
Acquisition related costs 3.8 -
Restructuring related provisions and current asset impairments 10.2 -
Equity settled share plans 8.9 9.2
Net financing expense 10.7 6.4
Operating cash flow before changes in working capital and provisions 423.0 391.0
(Increase)/decrease in trade and other receivables (56.3) (71.3)
(Increase)/decrease in inventories (58.3) (26.7)
(Decrease)/increase in provisions (0.8) (1.0)
Increase/(decrease) in trade and other payables 23.5 59.5
Cash generated from operations 331.1 351.5
Income taxes paid (90.0) (78.1)
Net cash from operating activities 2 241.1 273.4
Cash flows from investing activities
Purchase of property, plant and equipment (104.3) (52.8)
Proceeds from sale of property, plant and equipment 4.0 2.0
Purchase of software and other intangibles (8.9) (8.1)
Development expenditure capitalised (4.3) (3.2)
Disposal of subsidiaries 10 (2.8) -
Acquisition of businesses net of cash acquired 9 (460.3) -
Interest received 4 5.6 3.4
Net cash used in investing activities (571.0) (58.7)
Cash flows from financing activities
Proceeds from issue of share capital 1.8 1.5
Employee Benefit Trust share purchase (20.8) (26.1)
Repaid borrowings 8 (511.1) (77.5)
New borrowings 8 1,008.8 -
Interest paid including interest on lease liabilities 4 (15.5) (8.5)
Repayment of lease liabilities 8 (12.9) (11.7)
Dividends paid (including minorities) 7 (103.6) (91.0)
Net cash used in financing activities 346.7 (213.3)
Net change in cash and cash equivalents 8 16.8 1.4
Net cash and cash equivalents at beginning of period 219.0 224.0
Exchange movement 8 8.0 (6.4)
Net cash and cash equivalents at end of period 8 243.8 219.0
Borrowings 8 (934.2) (349.5)
Net debt at end of period 8 (690.4) (130.5)
Lease liabilities 8 (65.2) (60.1)
Net debt including lease liabilities at end of period 8 (755.6) (190.6)
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The Consolidated Financial Statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) adopted for use in the
United Kingdom (UK) and therefore comply with those parts of the Companies Act
2006 that are applicable to companies reporting under IFRS. IFRS includes the
standards and interpretations approved by the International Accounting
Standards Board (IASB) including International Accounting Standards (IAS) and
interpretations issued by the IFRS Interpretations Committee (IFRIC).
The financial information included in this News Release does not constitute
statutory accounts of the Group for the years ended 31st December 2022 and
2021, although it is derived from those accounts. Statutory accounts for the
year ended 31st December 2021 have been reported on by the Group's auditor and
delivered to the Registrar of Companies. Statutory accounts for the year ended
31st December 2022 have been audited and will be delivered to the Registrar of
Companies following the Company's Annual General Meeting. The report of the
auditors for both years was (i) unqualified, (ii) did not include a reference
to any matters to which the auditors 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.
If approved at the Annual General Meeting on 10th May 2023, the final dividend
will be paid on 19th May 2023 to shareholders on the register at 21st
April 2023. No scrip alternative to the cash dividends is being offered.
Copies of the Annual Report will be sent on 30th March 2023 to shareholders
who have requested a hard copy and can be obtained from our office at The
Grange, Bishops Cleeve, Cheltenham, GL52 8YQ. The Report will also be
available on our website at www.spiraxsarcoengineering.com
(http://www.spiraxsarcoengineering.com) .
As outlined below, there have been no significant changes in accounting
policies from those set out in the Spirax-Sarco Engineering plc 2021 Annual
Report. The accounting policies have been applied consistently throughout the
years ended 31st December 2021 and 31st December 2022.
NEW STANDARDS AND INTERPRETATIONS ADOPTED IN THE CURRENT YEAR
During the current year, the Group has applied the following amendments to
IFRS Standards and Interpretations issued by the International Accounting
Standards Board (IASB) effective for annual periods that begin on or after
1(st) January 2022. Adoption has not had a material impact on the disclosures
or on the amounts reported in these Financial Statements:
● Amendments to IFRS 3 Reference to the Conceptual Framework
● Amendments to IAS 16 Property, Plant and Equipment - Proceeds before Intended
Use
● Amendments to IAS 37 Onerous Contracts - Cost of Fulfilling a Contract
● Annual Improvements to IFRS Accounting Standards 2018-2020 Cycle
The economies in Argentina and Turkey are subject to high inflation. At 31st
December 2022 we have concluded that applying IAS 29 (Financial Reporting in
Hyperinflationary Economies) is not required as the impact of adoption is not
material. We will continue to assess the position going forward.
NEW STANDARDS AND INTERPRETATIONS NOT YET APPLIED
At the date of authorisation of these Financial Statements, the Group has not
applied the following new and revised IFRS Standards that have been issued but
are not yet effective:
● IFRS 17 Insurance Contracts
● IFRS 10 and IAS 28 (amendments): Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture
● Amendments to IAS 1: Classification of liabilities as Current or Non-current
● Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting
Polices
● Amendments to IAS 8: Definition of Accounting Estimates
● Amendments to IAS 12: Deferred Tax related to Assets and Liabilities arising
from a Single Transaction
The Directors do not expect that the adoption of the Standards listed above
will have a material impact on the Financial Statements of the Group in future
periods.
GOING CONCERN
In determining the basis of preparation for the Consolidated Financial
Statements, the Directors have considered the Group's available resources,
current business activities and factors likely to impact on its future
development and performance, which are described in the Chair's Statement,
Operating Review and Financial Review.
Following this assessment, the Board of Directors are satisfied that the Group
has sufficient resources to continue in operation for the foreseeable future,
a period of not less than 12 months from the date of this report. Accordingly,
they continue to adopt the going concern basis in relation to this conclusion
and preparing the Consolidated Financial Statements.
2. ALTERNATIVE PERFORMANCE MEASURES
The Group reports under IFRS and also uses alternative performance measures
where the Board believe that they help to effectively monitor the performance
of the Group and users of the Financial Statements might find them
informative. Certain alternative performance measures also form a meaningful
element of Executive Directors' variable remuneration. Net debt to EBITDA is
also a covenant assessed for external borrowing purposes. A definition of the
alternative performance measures included in the Annual Report 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.
The term 'sales' is used interchangeably with 'revenue' when describing the
financial performance of the business.
Drop-through is calculated as the organic increase in adjusted operating
profit divided by the organic increased in revenue.
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 acquisitions and disposals
● reversal of acquisition-related fair value adjustments to inventory
● changes in deferred and contingent consideration payable on acquisitions
● gain or loss on disposal of subsidiary and disposal groups
● costs associated with a significant restructuring programme
● significant gains or losses on disposal of property
● significant non-recurring pension costs or credits
● accelerated depreciation, impairment and other related costs on one-off
significant property redevelopments
● 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.
2022 2021
£m £m
Operating profit as reported under IFRS 318.8 320.9
Amortisation of acquisition-related intangible assets 23.7 21.4
Reversal of acquisition-related fair value adjustments to inventory 1.8 -
Disposal of subsidiaries in Russia 7.1 -
Restructuring costs 15.5 -
Acquisition-related items 9.1 -
Accelerated depreciation and other related costs on one-off property 4.2 -
redevelopments
Post-retirement benefit plan in Germany being closed to future accrual - (2.0)
Adjusted operating profit 380.2 340.3
The related tax effects of the above are included as adjustments in taxation
as disclosed in Note 5.
The impact of adjustments to operating profit as reported under IFRS of
£61.4m (2021: £19.4m) on net change in cash and cash equivalents is a total
outflow of £13.5m (2021: £nil). Included within cash generated from
operations is acquisition-related items of £7.1m, related costs on one-off
property redevelopments of £0.3m and disposal-related costs £0.1m.
Included within net cash used in investing activities is restructuring costs
of £3.2m and disposal of subsidiaries in Russia of £2.8m.
Adjusted earnings per share
2022 2021
Profit for the period attributable to equity holders as reported under IFRS 224.7 234.6
(£m)
Items excluded from adjusted profit (£m) 62.5 19.4
Tax effects on adjusted items (£m) (9.4) (4.3)
Adjusted profit for the period attributable to equity holders (£m) 277.8 249.7
Weighted average shares (million) 73.6 73.7
Basic adjusted earnings per share 377.2p 338.9p
Diluted weighted average shares (million) 73.8 73.9
Diluted adjusted earnings per share 376.3p 338.0p
Basic adjusted earnings per share is defined as adjusted profit for the period
attributable to equity holders divided by the weighted average number of
shares in issue. Diluted adjusted earnings per share is defined as adjusted
profit for the period attributable to equity holders divided by the diluted
weighted average number of shares.
Basic and diluted EPS calculated on an IFRS profit basis are included in Note
6.
Adjusted cash flow
A reconciliation showing the items that bridge between net cash from operating
activities as reported under IFRS to an adjusted basis is given below.
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.
2022 2021
£m £m
Net cash from operating activities as reported under IFRS 241.1 273.4
Restructuring and acquisition-related costs 10.2 -
Net capital expenditure excluding acquired intangibles from acquisitions (113.5) (62.1)
Income tax paid 90.0 78.1
Repayments of principal under lease liabilities (12.9) (11.7)
Adjusted cash from operations 214.9 277.7
Adjusted cash conversion in 2022 is 57% (2021: 82%). Cash conversion is
calculated as adjusted cash from operations divided by adjusted operating
profit. The adjusted cash flow is included in the Financial Review on page 16.
Cash generation
Cash generation is one of the Group's key performance indicators used by the
Board to monitor the performance of the Group and measure the successful
implementation of our strategy. It is one of two financial measures on which
Executive Directors' variable remuneration is based.
Cash generation is adjusted operating profit after adding back depreciation
and amortisation, less cash payments to pension schemes in excess of the
charge to adjusted operating profit, equity settled share plans, net capital
expenditure excluding acquired intangibles, working capital changes and
repayment of principal under lease liabilities. Cash generation is equivalent
to adjusted cash from operations, a reconciliation between this and net cash
from operating activities as reported under IFRS is shown above.
Return on invested capital (ROIC) and return on capital employed (ROCE)
The Group distinguishes between invested capital and capital employed when
calculating return on capital. Invested capital represents the total capital
invested in the business and is equal to total equity plus net debt and
therefore includes the impact of acquisitions and disposals. Capital employed
is invested capital less certain non-current assets and non-current
liabilities and therefore reflects capital that is more operational in nature.
Both of these return metrics are used to ensure a full assessment of business
performance.
Return on invested capital (ROIC)
ROIC measures the post-tax return on the total capital invested in the
business. It is calculated as adjusted operating profit after tax divided by
average invested capital. Average invested capital is defined as the average
of the closing balance at the current and prior year end. Taxation is
calculated as adjusted operating profit multiplied by the adjusted effective
tax rate.
An analysis of the components is as follows:
2022 2021
£m £m
Total equity 1,169.8 1,010.0
Net debt including lease liabilities 755.6 190.6
Total invested capital 1,925.4 1,200.6
Average invested capital 1,563.0 1,157.9
Average invested capital (excluding acquisitions, disposals and leases) 1,263.8 1,108.4
Operating profit as reported under IFRS 318.8 320.9
Adjustments (see adjusted operating profit) 61.4 19.4
Adjusted operating profit 380.2 340.3
Taxation (94.9) (85.5)
Adjusted operating profit after tax 285.3 254.8
Adjusted operating profit after tax (excluding acquisitions, disposals and 277.6 254.1
leases)
Return on invested capital 18.3% 22.0%
Return on invested capital (excluding acquisitions, disposals and leases) 22.0% 22.9%
Return on capital employed (ROCE)
ROCE measures effective management of fixed assets and working capital
relative to the profitability of the business. It is calculated as adjusted
operating profit divided by average capital employed. Average capital employed
is defined as the average of the closing balance at the current and prior year
end. More information on ROCE can be found in the Capital Employed and ROCE
sections of the Financial Review.
An analysis of the components is as follows:
2022 2021
£m £m
Property, plant and equipment 384.5 277.4
Right-of-use assets 67.2 62.9
Software and development costs 44.5 38.9
Prepayments 2.0 1.3
Inventories 290.0 201.3
Trade receivables 341.1 272.3
Other current assets 79.6 44.7
Tax recoverable 19.0 15.7
Trade, other payables and current provisions (295.0) (222.2)
Current tax payable (40.4) (33.1)
Capital employed 892.5 659.2
Average capital employed 775.9 621.5
Average capital employed (excluding acquisitions, disposals and leases) 677.5 571.9
Operating profit 318.8 320.9
Adjustments (see adjusted operating profit) 61.4 19.4
Adjusted operating profit 380.2 340.3
Adjusted operating profit (excluding acquisitions, disposals and leases) 369.9 339.2
Return on capital employed 49.0% 54.7%
Return on capital employed (excluding acquisitions, disposals and leases) 54.6% 59.3%
A reconciliation of capital employed to net assets as reported under IFRS and
disclosed on the Consolidated Statement of Financial Position is given below.
2022 2021
£m £m
Capital employed 892.5 659.2
Goodwill and acquired intangibles 1,159.1 628.0
Post-retirement benefits (52.1) (44.7)
Net deferred tax (59.1) (35.7)
Non-current provisions and long-term payables (15.0) (6.2)
Lease liabilities (65.2) (60.1)
Net debt (690.4) (130.5)
Net assets as reported under IFRS 1,169.8 1,010.0
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 within 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.
2022 2021
£m £m
Net debt 690.4 130.5
Lease liabilities 65.2 60.1
Net debt including lease liabilities 755.6 190.6
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 and the 12-month pro-forma
EBITDA impact of acquisitions and disposals to adjusted operating profit. 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:
2022 2021
£m £m
Adjusted operating profit 380.2 340.3
Depreciation and amortisation of property, plant and equipment, software and 37.4 36.2
development
Acquisitions and disposals pro-forma basis (EBITDA) 33.7 -
EBITDA 451.3 376.5
Net debt 690.4 130.5
Net debt to EBITDA 1.5x 0.3x
The components of net debt are disclosed in Note 8.
Organic measures
As we are a multi-national Group of companies, who trade in a large number of
foreign currencies and also acquire and sometimes dispose of companies, we
also refer to organic performance measures throughout the News Release. These
strip out the effects of the movement of foreign currency exchange rates and
of acquisitions and disposals. The Board believe that this allows users of the
accounts to gain a further understanding of how the Group has performed.
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.
2021 Exchange Organic Acquisitions and disposal(1) 2022 Organic Reported
£m £m £m £m £m
Revenue £1,344.5m £52.5m £191.6m £22.0m £1,610.6m +14% +20%
Adjusted operating profit £340.3m £13.0m £23.5m £3.4m £380.2m +7% +12%
Adjusted operating profit margin 25.3% 23.6% -160 bps -170 bps
(1) Includes the impact of (i) the acquisition of Cotopaxi, Durex Industries
and Vulcanic and (ii) the treatment of our disposed Russian operating
companies as disposed from the date at which the Group suspended all trading
with and within Russia.
The reconciliation for each segment is included in the Operating Review on
pages 19, 23 and 28.
Pro-forma Revenue
Due to the disposal of our Russian operating companies and the acquisitions of
Cotopaxi, Vulcanic and Durex Industries, our financial results for 2022 only
include the impact of these operations for the period of ownership by the
Group. The table below reconciles statutory Revenue as reported within the
Consolidated Income Statement, and the 2022 pro-forma Revenue had all
acquisition and disposal transactions occurred on 1st January 2022. This
allows users of the accounts to see the split of Revenue by operating segment
on a basis that will be like-for-like against 2023.
Revenue (statutory) Pro-forma adjustments* Revenue Proportion of Group
£m £m (pro-forma)
£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
*includes the 2022 pre-acquisition financial results of Cotopaxi, Vulcanic and
Durex Industries, and the removal of the 2022 statutory results of our Russian
operating companies disposed.
3.SEGMENTAL REPORTING
As required by IFRS 8 (Operating Segments), the following segmental
information is presented in a consistent format with management information
considered by the Board.
No changes to the structure of operating segments have been made during the
current period.
Analysis by operating segment
2022
Revenue Total Adjusted Adjusted
operating operating operating
profit profit margin
£m £m £m %
Steam Specialties 866.0 196.2 206.1 23.8%
Electric Thermal Solutions 256.1 7.3 39.9 15.6%
Watson-Marlow 488.5 154.4 160.0 32.8%
Corporate expenses (39.1) (25.8)
Total 1,610.6 318.8 380.2 23.6%
Net financing expense (10.7) (9.6)
Share of Loss of Associate - -
Profit before tax 308.1 370.6
2021
Revenue Total Adjusted Adjusted
operating operating operating
profit profit margin
£m £m £m %
Steam Specialties 754.9 186.8 188.7 25.0%
Electric Thermal Solutions 181.3 11.1 24.0 13.2%
Watson-Marlow 408.3 145.4 150.0 36.7%
Corporate expenses (22.4) (22.4)
Total 1,344.5 320.9 340.3 25.3%
Net financing expense (6.4) (6.4)
Share of Loss of Associate - -
Profit before tax 314.5 333.9
The following table details the split of revenue by geography for the combined
Group:
2022 2021
£m £m
Europe, Middle East and Africa 649.6 563.3
Asia Pacific 384.3 334.2
Americas 576.7 447.0
Total revenue 1,610.6 1,344.5
Revenue generated by Group companies based in the USA is £433.0m (2021:
£342.4m), in China is £213.2m (2021: £181.6m), in Germany is £134.3m
(2021: £118.2m), in the UK is £115.7m (2021: £99.6m) and the rest of the
world is £714.4m (2021: £602.7m)
The total operating profit for each period includes certain items as analysed
below:
2022
Amortisation Reversal of acquisition-related fair value adjustments Disposal of subsidiaries in Russia Restructuring costs Acquisition-related items Accelerated depreciation and other related costs on one-off property Total
of acquisition-related intangible assets to inventory £m £m £m redevelopments £m
£m £m £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)
2021
Amortisation Germany pension plan closed to future accrual Total
of acquisition-related intangible assets £m
£m
£m
Steam Specialties (3.9) 2.0 (1.9)
Electric Thermal Solutions (12.9) - (12.9)
Watson-Marlow (4.6) - (4.6)
Corporate expenses - - -
Total (21.4) 2.0 (19.4)
Net financing income and expense
2022 2022 2022 2021 2021 2021
Income Expense Net Income Expense Net
£m £m £m £m £m £m
Steam Specialties 3.6 (1.8) 1.8 3.0 (2.3) 0.7
Electric Thermal Solutions 0.3 (0.5) (0.2) − (0.2) (0.2)
Watson-Marlow 0.3 (0.6) (0.3) 0.1 (0.5) (0.4)
Corporate expenses 1.4 (13.4) (12.0) 0.3 (6.8) (6.5)
Total net financing expense 5.6 (16.3) (10.7) 3.4 (9.8) (6.4)
Net assets
2022 2022 2021 2021
Assets Liabilities Assets Liabilities
£m £m £m £m
Steam Specialties 766.4 (226.8) 658.0 (182.1)
Electric Thermal Solutions 1,174.2 (78.0) 536.9 (33.0)
Watson-Marlow 427.4 (57.3) 331.8 (57.9)
2,368.0 (362.1) 1,526.7 (273.0)
Liabilities (362.1) (273.0)
Net deferred tax (59.1) (35.7)
Net tax payable (21.4) (17.4)
Net debt including lease liabilities (755.6) (190.6)
Net assets 1,169.8 1,010.0
Non-current assets in the USA were £686.8m (2021: £345.6m), in France were
£403.1m (2021: £150.5m), in the UK were £284.1m (2021: £231.2m), in
Germany were £165.6m (2021: £154.6m) and in the rest of the world were
£191.8m (2021: £177.6m).
Capital additions, depreciation, amortisation and impairment
2022 2022 2021 2021
Depreciation, amortisation and impairment Depreciation, amortisation and impairment
Capital £m Capital £m
additions additions
£m £m
Steam Specialties 47.1 37.3 35.6 33.9
Electric Thermal Solutions 285.4 24.7 16.6 18.3
Watson-Marlow 76.4 19.0 51.0 16.8
Total 408.9 81.0 103.2 69.0
Capital additions include property, plant and equipment of £135.0m (2021:
£52.8m), of which £30.7m (2021: £nil) was from acquisitions in the period,
and other intangible assets of £258.3m (2021: £11.3m) of which £245.1m
(2021: £nil) relates to acquired intangibles from acquisitions in the period.
Right-of-use asset additions of £15.6m (2021: £39.1m) occurred during the
12-month period to 31st December 2022, of which £4.1m (2021: £nil) relates
to acquired leases from acquisitions in the period. Capital additions split
between the USA £186.4m (2021: £4.7m), UK £51.8m (2021: £54.2m) and rest
of world £170.7m (2021: £44.4m).
4.NET FINANCING INCOME AND EXPENSE
2022 2021
£m £m
Financial expenses:
Bank and other borrowing interest payable (14.0) (7.4)
Interest expense on lease liabilities (1.5) (1.1)
Net interest on pension scheme liabilities (0.7) (1.3)
(16.3) (9.8)
Financial income:
Bank interest receivable 5.6 3.4
Net financing expense (10.7) (6.4)
Net bank interest (8.4) (4.0)
Interest expense on lease liabilities (1.5) (1.1)
Net pension scheme financial expense (0.8) (1.3)
Net financing expense (10.7) (6.4)
5.TAXATION
2022 2021
Analysis of charge in period Adjusted £m Adj't Total Adjusted £m Adj't Total
£m £m £m £m
UK corporation tax:
Current tax on income for the period 7.3 (0.2) 7.1 8.7 - 8.7
Adjustments in respect of prior periods (0.7) − (0.7) (1.7) - (1.7)
6.6 (0.2) 6.4 7.0 - 7.0
Foreign tax:
Current tax on income for the period 89.4 (0.8) 88.6 74.5 - 74.5
Adjustments in respect of prior periods (1.3) − (1.3) (1.5) - (1.5)
88.1 (0.8) 87.3 73.0 - 73.0
Total current tax charge 94.7 (1.0) 93.7 80.0 − 80.0
Deferred tax - UK (0.4) (0.7) (1.1) 4.0 (0.3) 3.7
Deferred tax - Foreign (1.8) (7.7) (9.5) (0.1) (4.0) (4.1)
Tax on profit on ordinary activities 92.5 (9.4) 83.1 83.9 (4.3) 79.6
The Group's tax charge in future years is likely to be affected by the
proportion of profits arising from, and the effective tax rates in, the
various territories in which the Group operates. The rate may also be affected
by the impact of any acquisitions. The Group monitors income tax
developments in the territories in which it operates in line with the
requirements of the OECD Base Erosion and Profit Shifting (BEPS) initiative.
This includes the setting of a new minimum global corporate tax rate of 15%.
We will continue to monitor developments closely and assess whether this will
lead to an increase in tax going forward.
The Group's tax charge includes a credit of £9.4 million in relation to
certain items excluded from adjusted operating profit (as disclosed in Note
2). The tax impacts of these items are:
● Amortisation of acquisition-related intangible assets (£5.6m credit)
● Costs associated with the acquisition of Vulcanic (£1.8m credit)
● Costs associated with the acquisition of Durex Industries (£1.2m credit)
● Restructuring of the Chromalox manufacturing operations in Soissons (France)
(£0.7m credit)
● Costs associated with the redevelopment of the Group Head Office building in
Cheltenham (UK) (£0.1m credit)
Excluding these adjustments, the tax on profit and the effective tax rate are
£92.5 million and 25.0% respectively.
The UK deferred tax assets and liabilities at 31st December 2022 that are
expected to reverse before 1st April 2023 have been calculated based upon the
rate of 19% whilst the UK deferred tax assets and liabilities expected to
reverse on or after 1st April 2023 have been calculated based upon the rate of
25%.
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 £8.7m, including compound interest. To date, the Group has
received, paid, and appealed Charging Notices totalling £4.9m, 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 year-end 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 £2.8m. HMRC has enquired into the benefit
received during 2019, which the Group estimates to be £1.0m. 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.
6.EARNINGS PER SHARE
2022 2021
Profit attributable to equity shareholders (£m) 224.7 234.6
Weighted average shares (million) 73.6 73.7
Dilution (million) 0.2 0.2
Diluted weighted average shares (million) 73.8 73.9
Basic earnings per share 305.1p 318.3p
Diluted earnings per share 304.4p 317.5p
Basic and diluted earnings per share calculated on an adjusted profit basis
are included in Note 2. The dilution is in respect of the Performance Share
Plan.
7.DIVIDENDS
2022 2021
£m £m
Amounts paid in the year:
Final dividend for the year ended 31st December 2021 of 97.5p (2020: 84.5p) 71.9 62.3
per share
Interim dividend for the year ended 31st December 2022 of 42.5p (2021: 38.5p) 31.2 28.4
per share
Total dividends paid 103.1 90.7
Amounts arising in respect of the year:
Interim dividend for the year ended 31st December 2022 of 42.5p (2021: 38.5p) 31.2 28.4
per share
Proposed final dividend for the year ended 31st December 2022 of 109.5p (2021: 80.8 71.8
97.5p) per share
Total dividends arising 112.0 100.2
8.ANALYSIS OF CHANGES IN NET DEBT, INCLUDING CHANGES IN LIABILITIES ARISING
FROM FINANCING ACTIVITIES
2022
At At
1(st) Jan Cash Acquired debt* Disposal of subsidiaries Exchange movement 31(st) Dec 2022
2022 flow £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:
Borrowings (349.5) (497.7) (67.0) - (20.0) (934.2)
Changes in liabilities arising from financing (349.5) (497.7) (67.0) - (20.0) (934.2)
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 (130.5) (478.1) (67.0) (2.8) (12.0) (690.4)
Lease liabilities (60.1) 12.9 (15.2) - (2.8) (65.2)
Net debt including lease liabilities (190.6) (465.2) (82.2) (2.8) (14.8) (755.6)
*Debt acquired includes both debt acquired due to acquisition, and debt
recognised on the balance sheet due to entry into new leases.
The net cashflow from borrowings of £497.7m consists of £1,008.8m of new
borrowings and £511.1m of repaid borrowings.
New borrowings include acquisition-related short-term bank facilities of
€265.0m (£232.8m) and US$185.0m (£153.5m), a US$150.0m (£124.4m) term
loan, revolving credit facility drawdowns of £35.0m and €90.0m (£76.8m)
and new private placement debt of €265.0m (£234.6m) and $185.0m (£149.8m)
that was issued to repay of the acquisition-related short-term bank
facilities.
Repaid borrowings include €70.0m (£59.7m) of term loan that matured during
the year, €265.0m (£234.6m) and US$185.0m (£149.8m) of acquisition-related
short-term bank facilities and €76.3m (£67.0m) of acquired debt that was
repaid on completion of the Vulcanic acquisition.
At 31st December 2022, total lease liabilities consist of £14.1m (2021:
£11.2m) short-term and £51.1m (2021: £48.9m) long-term.
2021
At At
1(st) Jan Cash Acquired debt* Disposal of subsidiaries Exchange 31(st) Dec 2021
2021 flow £m £m movement £m
£m £m £m
Current portion of long-term borrowings (0.6) (59.6)
Non-current portion of long-term borrowings (452.2) (289.9)
Total borrowings (452.8) (349.5)
Comprising:
Borrowings (452.8) 77.5 - - 25.8 (349.5)
Changes in liabilities arising from financing (452.8) 77.5 - - 25.8 (349.5)
Cash at bank 246.2 35.7 - - (7.3) 274.6
Bank overdrafts (22.2) (34.3) - - 0.9 (55.6)
Net cash and cash equivalents 224.0 1.4 - - (6.4) 219.0
Net debt (228.8) 78.9 - - 19.4 (130.5)
Lease liabilities (34.1) 11.7 (39.1) - 1.4 (60.1)
Net debt including lease liabilities (262.9) 90.6 (39.1) - 20.8 (190.6)
9.PURCHASE OF BUSINESSES
The provisional fair value accounting is shown below:
Cotopaxi Vulcanic Durex Total
fair value £m fair value £m fair value £m £m
Non-current assets: - 15.8 14.9 30.7
Property, plant and equipment
Right-of-use assets - 4.1 - 4.1
Acquired intangibles 2.8 115.6 126.2 244.6
Software and other intangibles - 0.5 - 0.5
Deferred tax assets - 2.9 0.5 3.4
2.8 138.9 141.6 283.3
Current assets: - 17.4 7.3 24.7
Inventories
Trade receivables 0.8 24.5 9.5 34.8
Other receivables 0.4 3.5 1.2 5.1
Cash and cash equivalents 0.6 10.3 14.8 25.7
1.8 55.7 32.8 90.3
Total assets 4.6 194.6 174.4 373.6
Current liabilities: 0.1 7.5 1.1 8.7
Trade payables
Other payables, accruals and provisions 0.6 15.9 7.0 23.5
Short-term lease liabilities - 1.1 - 1.1
0.7 24.5 8.1 33.3
Non-current liabilities: - 67.0 - 67.0
Long-term borrowings
Long-term payables - 3.7 - 3.7
Long-term lease liabilities - 3.0 - 3.0
Deferred tax liabilities 0.6 33.4 0.1 34.1
Non-current provisions - 4.6 0.1 4.7
Post-retirement benefit plans - 1.1 - 1.1
0.6 112.8 0.2 113.6
Total liabilities 1.3 137.3 8.3 146.9
Total net assets 3.3 57.3 166.1 226.7
Goodwill 10.0 119.2 130.1 259.3
Total 13.3 176.5 296.2 486.0
Satisfied by: 13.3 176.5 296.2 486.0
Cash paid
Total consideration 13.3 176.5 296.2 486.0
Cash outflow for acquired businesses in the Statement of Cash Flows
Cash paid for businesses acquired in the period and debt repaid 13.3 243.5 296.2 553.0
Debt repaid - (67.0) - (67.0)
Cash paid for businesses acquired in the period 13.3 176.5 296.2 486.0
Less cash acquired (0.6) (10.3) (14.8) (25.7)
Net cash outflow 12.7 166.2 281.4 460.3
On a debt-free cash-free basis the cash outflow for acquisitions was £535.5m
consisting of £486.0m paid to the vendors, £67.0m of debt acquired and
repaid and £8.2m of acquisition costs less cash acquired of £25.7m.
The acquisitions of 100% of Vulcanic (completed on 29th September 2022 for
consideration of €200.8m or £176.5m), 100% of Durex Industries (completed
on 30th November 2022 for consideration of US$357.1m or £296.2m) and 100% of
Cotopaxi (completed on 30th January 2022 for consideration of £13.4m) have
all been accounted for under the acquisition method.
The separately identified intangibles of all three acquisitions are recorded
as part of the provisional fair value adjustment. The acquired intangibles
relate to brand names and trademarks, manufacturing designs and core
technology and customer relationships. The goodwill recognised represents the
skilled workforce acquired and the opportunity to achieve synergies from being
part of a larger Group.
Vulcanic is a European leader in industrial process heating solutions and is
highly complementary to Chromalox within our ETS Business. As the lead
brands within ETS for electric process heating, Chromalox and Vulcanic will
support the effective deployment of our industry-leading decarbonisation
solutions alongside Steam Specialties.
Goodwill arising on the acquisition of Vulcanic is not expected to be tax
deductible. Following completion of the acquisition, Vulcanic generated
€34.8m (£29.7m) of revenue and €8.3m (£7.1m) of adjusted pre-tax profit.
Had the acquisition been made on 1st January 2022, Vulcanic revenue and
adjusted pre-tax profit would have been approximately €111.9m (£95.5m) and
€21.1m (£18.0m) respectively.
Durex Industries, located in Illinois (USA), is a specialist in custom
electric thermal solutions for ultracritical applications of industrial
equipment and is highly complementary to Thermocoax within our ETS Business.
Together, Thermocoax and Durex Industries are well positioned to capitalise on
the growing demand for increasingly stringent thermal energy requirements in
high-technology equipment within market sectors with high barriers to entry.
Goodwill arising on the acquisition of Durex Industries is expected to be tax
deductible in the USA. Following completion of the acquisition, Durex
Industries generated US$5.6m (£4.5m) of revenue and US$1.2m (£1.0m) of
adjusted pre-tax profit. Had the acquisition been made on 1st January 2022,
Durex Industries revenue and adjusted pre-tax profit would have been
approximately US$81.3m (£65.5m) and US$26.4m (£21.3m) respectively.
Cotopaxi is a UK based digitally-enabled global energy consulting and
optimisation company, which will enable Steam Specialties to digitally enhance
its customer bonding through the provision of physical and digital connections
to customers' infrastructure and equipment.
Goodwill arising on the acquisition of Cotopaxi is not expected to be tax
deductible. Following completion of the acquisition, Cotopaxi generated £2.9m
of revenue and £0.5m of pre-tax profit. Had the acquisition been made on 1st
January 2022, Cotopaxi revenue and pre-tax profit would not have been
materially different from the figure disclosed.
As at the date of approval of the Financial Statements, the accounting for all
current year acquisitions is provisional relating to the finalisation of the
acquired intangible assets valuation and certain other provisional balances.
Due to their contractual dates, the fair value of receivables acquired
approximate to the gross contractual amounts receivable. The amount of gross
contractual receivables not expected to be recovered is immaterial.
10.DISPOSAL OF SUBSIDIARIES
The loss on disposal of subsidiaries wholly relates to the disposal of 100% of
Spirax Sarco Russia and Watson-Marlow Russia on 6th July 2022.
The consideration amounted to £nil which resulted in a loss on disposal for
Spirax Sarco Russia of £2.2m and £1.7m for Watson-Marlow Russia, including
£0.1m of legal fees, and cumulative currency translation losses recycled to
the income statement of £3.2m. £2.8m of cash and cash equivalents were
disposed as part of the transaction.
These disposals did not meet the definition of a discontinued operation in
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, and
therefore, no disclosures in relation to discontinued operations have been
made.
11. RESPONSIBILITY statement OF THE DIRECTORS ON THE ANNUAL REPORT
The Responsibility Statement below has been prepared in connection with the
Company's full Annual Report for the year ending 31st December 2022. Certain
parts thereof are not included within this announcement.
We confirm to the best of our knowledge:
● the Financial Statements, prepared in accordance with IFRS as adopted by the
UK, give a true and fair view of the assets, liabilities, financial position
and profit and loss of the Company and the undertakings included in the
consolidation taken as a whole
● the Strategic Report includes a fair review of the development and performance
of the business and the position of the Company and the undertakings included
in the consolidation taken as a whole, together with a description of the
Principal Risks and uncertainties they face
● the Annual Report and Financial Statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary to assess
the Company's performance, business model and strategy
This Responsibility Statement was approved by the Board of Directors on 8th
March 2023 and is signed on its behalf by:
N.J. Anderson, Group Chief Executive
N.B. Patel, Chief Financial Officer
12. Cautionary statement
All statements other than statements of historical fact included in this
document, including, without limitation, those regarding the financial
condition, results, operations and businesses of Spirax-Sarco Engineering plc
and its strategy, plans and objectives and the markets and economies in which
it operates, are forward-looking statements. These forward-looking statements
which reflect management's assumptions made on the basis of information
available to it at this time, involve known and unknown risks, uncertainties
and other important factors which could cause the actual results, performance
or achievements of Spirax-Sarco Engineering plc or the markets and economies
in which we operate to be materially different from future results,
performance or achievements expressed or implied by such forward-looking
statements. Spirax-Sarco Engineering plc and its Directors accept no liability
to third parties in respect of this report save as would arise under English
law. Accordingly, any liability to a person who has demonstrated reliance on
any untrue or misleading statement or omission shall be determined in
accordance with schedule 10A of the Financial Services and Markets Act 2000.
It should be noted that schedule 10A contains limits on the liability of the
Directors of Spirax-Sarco Engineering plc so that their liability is solely to
Spirax-Sarco Engineering plc.
13. EXCHANGE RATE IMPACTS
Whilst not an IFRS disclosure or part of the audited accounts, set out below is an additional disclosure that highlights the movements in a selection of exchange rates between 2022 and 2021.
Exchange rates to sterling have been as follows:
Average Average Change Closing 2022 Closing 2021 Change%
2022 2021 %
US Dollar 1.24 1.37 +10% 1.21 1.35 +10%
Euro 1.17 1.16 -1% 1.13 1.19 +5%
Renminbi 8.32 8.85 +6% 8.34 8.60 +3%
Won 1,587 1,569 -1% 1,525 1,607 +5%
Real 6.41 7.41 +13% 6.39 7.54 +15%
Argentine Peso 161.50 130.24 -24% 213.80 138.92 -54%
A negative movement indicates a strengthening in sterling versus that
currency. When sterling strengthens against other currencies in which the
Group operates, the Group incurs a loss on translation of the financial
results into sterling.
On a translation basis, sales increased by 3.9% and adjusted operating profit
increased by 3.6%, while transactional currency impacts also increased profit,
giving a total increase to profit from currency movements of 3.8%.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END QRTJLMMTMTIMMLJRecent news on Spirax
See all newsREG - Spirax Group PLC - Change in Director Details
AnnouncementREG - Spirax Group PLC - Director/PDMR Shareholding
AnnouncementREG - Spirax Group PLC - Holding(s) in Company
AnnouncementREG - Spirax Group PLC - Notice of AGM
AnnouncementREG - Spirax Group PLC - Director/PDMR Shareholding
Announcement