REG - Spirax-Sarco Engng - Final Results <Origin Href="QuoteRef">SPX.L</Origin> - Part 2
09/03/2017 07:05
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excluding the results of the
Associate (which is presented on an after-tax basis), fell to 29.1% (2015:
29.8%) primarily as a result of lower withholding tax payments in China. The
Group's overall tax rate essentially reflects the blended average of the tax
rates in over 40 tax jurisdictions around the world in which our operations
trade and generate profit. The Group comprises over 80, mainly small,
operating units reflecting our local direct sales business model. We would
anticipate a broadly similar tax rate in 2017.
Earnings per share
Adjusted basic earnings per share increased by 20% to 171.5 pence (2015: 142.6
pence). The 2016 earnings per share benefited marginally from a reduction in
the number of shares in issue from 15th June 2015, following the share
consolidation of 28 existing Ordinary shares into 27 new Ordinary shares, in
conjunction with the 120.0 pence per share special dividend paid in July 2015.
Statutory earnings per share was 165.0 pence (2015: 129.9 pence). The fully
diluted earnings per share was not materially different in either year.
Dividends
We have a progressive dividend policy where dividend payments follow
underlying earnings per share growth while maintaining prudent levels of
dividend cover. The aim is to provide sustainable, affordable dividend
growth, building on our 49 year record of dividend growth, with a compound
annual increase of 10.9% over that period; in line with the 11.2% per annum
increase over the last 10 years. The Board is proposing a final dividend of
53.5 pence per share for 2016 (2015: 48.2 pence) payable on 26th May 2017 to
shareholders on the register at 28th April 2017. Together with the interim
dividend of 22.5 pence per share (2015: 20.8 pence), total Ordinary dividends
are therefore 76.0 pence per share, which is an increase of 10.1% on Ordinary
dividends of 69.0 pence in 2015.
The total amount paid in dividends during the year was £51.9 million. This
compares with £140.3 million, including the special dividend £91.0 million,
paid in 2015.
Acquisitions and disposals
Acquisitions are an important complement to our strategy for growth.
Dedicated resource is focused on identifying opportunities to add attractive
businesses that closely match our strategic, industrial and commercial
requirements. We have a strong Balance Sheet and considerable debt capacity,
giving us significant flexibility. In 2016 we made two acquisitions at a
total cost of £67 million. Both fulfil one or more of our three broad
acquisition criteria:
· geographic expansion, typically through the acquisition of a distributor
in a developing market;
· products that can be integrated into our existing businesses; and
· related acquisitions that fit alongside our existing Steam Specialties
and Watson-Marlow businesses.
On 9th August 2016 we announced the acquisition of the assets of the Brazilian
process control valve manufacturer, Hiter Indústria e Comércio de Controles
Termo-Hidráulicos Ltda (Hiter) for consideration of £3.9 million. Hiter is
highly synergistic with Spirax Sarco's successful Brazilian steam and process
fluid applications business. Following the acquisition, Spirax became the
only significant manufacturer of both control and safety valves in Brazil.
We acquired Aflex Hose Limited and its subsidiary Aflex Hose USA LLC (Aflex)
on 30th November 2016 for £61.4 million plus taxes and working capital
adjustments. This business joined the Watson-Marlow Fluid Technology Group.
Aflex specialises in the design and manufacture of PTFE-lined flexible hoses
for the Pharmaceutical, Food, Chemical and Automotive industries. It is
highly synergistic with, and a natural extension to, the Watson-Marlow fluid
path product portfolio.
The three acquisitions that Watson-Marlow made in 2015, Asepco, Masosine
(Japan) and FlowSmart, have all been integrated successfully into the business
and are performing in-line with or ahead of expectations.
Research and development
The development of innovative new products, and getting those products to
market faster and sold more effectively, is an important element of our
strategy for growth.
Our Steam Specialties business continued its focus on sector specific
innovation, with over a third of our development projects now being sector
specific. For the Oil & Gas sector, we launched STAPS ISA100, a wireless
steam trap monitoring solution and a new float trap to expand our offer in
higher pressure steam systems. We also released a ready to install, compact
clean steam generator for the Food & Beverage sector.
In our Watson-Marlow niche peristaltic pump and associated fluid path
technologies business, the drive is for truly innovative products that target
attractive market opportunities and expand our addressable market by taking
market share from other positive displacement pump types. We have
concentrated, through 2016, on making MasoSine sinusoidal pumps a first choice
in the Food & Beverage market and developing both pumps and fluid path
components for 2017 launch, to further strengthen our position in the
Pharmaceutical & Biotechnology market.
Overall the Group's total investment in research and development was £10.6
million (2015: £9.9 million).
Capital employed
Capital employed 2016£m 2015£m
Property, plant and equipment 201.8 169.9
Inventories 112.5 92.5
Trade receivables 185.5 152.1
Prepayments and other current assets/(liabilities) (89.8) (70.0)
Capital employed 410.0 344.5
Intangibles and investment in Associate 169.7 109.0
Post-retirement benefits (94.2) (73.7)
Deferred tax 15.0 15.3
Non-current provisions and long-term payables (3.5) (1.6)
Net cash 27.4 4.8
Net assets 524.4 398.3
Adjusted operating profit 180.6 152.4
Average capital employed 377.3 345.4
Return on capital employed 47.9% 44.1%
Total capital employed has increased 19% at reported exchange rates but was
flat if the effects of currency and acquisitions are excluded. This compares
with organic sales growth of 4%.
Tangible fixed assets increased by £32 million to £201.8 million. Of this
increase, £16 million was due to changes in exchange rates, and £9 million
came from acquisitions giving organic growth of £7 million, just under 4%.
Significant capital expenditure projects included the completion of the new
plant in Chennai, India and the extension of our plant in Shanghai, China,
where work commenced late in 2015 and is scheduled for completion in early
2017, and the opening of the first sector-focused manufacturing unit dedicated
to clean steam products, in the UK. Watson-Marlow continued with the
implementation of a global ERP solution and the vast majority of their
business is now transacted through the new system. We generate significant
cash flow and our first priority is to reinvest in the business, taking
opportunities to generate good returns from increased efficiency, reduced
costs and flexibility.
Total working capital increased by just under £34 million, all of which is
down to currency effects and acquisitions. Trade receivables grew 4% on an
organic basis in line with a 4% organic growth in sales while inventory levels
remained flat, a reflection on the focus that we have on maintaining efficient
levels of inventory around the world to help better service our customers
while effectively managing our resources.
The ratio of working capital to sales increased to 27.5% (2015: 26.2%) purely
due to foreign exchange effects and acquisitions. On a constant currency
basis, excluding acquisitions, working capital as a percentage of sales fell
140 bps.
Return on capital employed (ROCE)
This is an important key performance indicator and forms a meaningful element
of Executive Directors' annual bonuses. ROCE measures effective management of
fixed assets and working capital relative to the profitability of the
business. ROCE increased to 47.9% (2015: 44.1%), an increase of 380 bps due
to our close control of the various components of capital employed and
improvement in the operating profit margin.
Post-retirement benefits
The net post-retirement benefit liability under IAS19 rose to £94.2 million
(2015: £73.7 million) primarily as a result of the increase in liabilities due
to the reduction in the AA corporate bond rates used to discount future cash
flows. In total, liabilities rose by £101 million (24%) which could not be
fully compensated by the £80 million rise in assets (23%).
The main UK schemes, which constitute 88% of assets, were closed to new
members in 2001 but have remained open to future service accrual. These
schemes continue to be managed under a dynamic de-risking strategy whereby
asset and liability values are monitored on a daily basis by the asset manager
and appropriate asset allocation decisions taken as the funding level improves
against pre-agreed trigger points. Due to the fall in the discount rate the
cost of future accrual is expected to increase by £2.5 million in 2017.
The last actuarial valuation of the UK schemes, as at the 31st December 2013,
was completed in September 2014 and showed those schemes to be broadly in
balance. As a consequence, deficit reduction cash contributions by the
Company ceased with effect from October 2014. The next actuarial valuation
will be as at the 31st December 2016 and as a result of higher liabilities it
is anticipated that deficit reduction cash contributions will recommence in
2017.
Cash flow and treasury
Cash generation in 2016 was very strong, driven by conversion of operating
profit into cash, whilst continuing to invest in capital expenditure projects
that generate good returns from improvements in efficiency and cost reduction,
and in support of sales growth.
Adjusted cash flow 2016 £m 2015
£m
Operating profit 180.6 152.4
Depreciation and amortisation 25.6 22.2
Cash payments to the pension schemes less than the charge to operating profit 1.6 1.2
Equity settled share plans 1.9 3.3
Working capital changes 4.3 (2.7)
Net capital expenditure (including capitalised R&D) (31.3) (30.9)
Cash from operations 182.7 145.5
Net interest 0.8
Tax paid (56.5) (43.3)
Free cash flow 126.2 103.0
Net dividends paid (52.1) (140.5)
Provisions 2.3 0.7
Proceeds from issue of shares / purchase of employee benefit trust shares 1.3 4.7
Acquisitions and disposals (66.5) (10.2)
Adjustments (0.5) (2.1)
Cash flow for the year 10.7 (44.4)
Exchange movements 11.9 (3.3)
Opening net cash 4.8 52.5
Net cash at 31st December 27.4 4.8
Opening net cash
4.8
52.5
Net cash at 31st December
27.4
4.8
Cash from operations increased to £182.7 million (2015: £145.5 million)
representing 101% cash conversion. This improvement reflects a £4.3 million
inflow of working capital versus an outflow of £2.7 million in 2015, in part
due to sales being more evenly spread over the year and a continuing focus on
inventory efficiency.
Capital expenditure was £31.3 million (2015: £30.9 million) and we would
expect capital expenditure in the current year to increase as we continue to
invest in the Group. In particular we are considering new facilities in
Australia, a new distribution centre for Southeast Asia, a consolidation of
distribution in the UK and an accelerated equipment upgrade programme for some
of our manufacturing facilities to continue the efficiency gains seen in
2016.
Tax paid in the year was £56.5 million (2015: £43.3 million) reflecting the
higher level of profit and payments made on account in the USA. Excluding
these, tax paid was broadly in line with the tax charge in the profit & loss
account and included tax paid in virtually every one of the 44 countries in
which the Group has operating units. Free cash flow rose to £126.2 million
(2015: £103.0 million), providing funds for dividends to shareholders and
acquisitions.
Dividend payments were £52.1 million, including payments to minorities, (2015:
£140.5 million) and represent the final dividend for 2015 and the interim
dividend for 2016. The prior year comparative also includes the special
dividend of £91.0 million paid in July 2015.
There was a net cash outflow of £66.5 million for acquisitions in the year
compared with a net figure for the prior year of £10.2 million, comprising a
cash cost of £23.6 million for acquisitions, net of an inflow of £13.3 million
in respect of disposals. Shares issued under the Group's various employee
share schemes gave a cash inflow of £1.3 million (2015: £4.7 million).
Net cash in the year increased by £22.6 million aided by exchange movements of
£11.9 million, resulting in a net cash balance of £27.4 million at 31st
December 2016.
The Group's Profit and Loss account and Balance Sheet are exposed to movements
in a wide range of different currencies. This stems from our direct sales
business model, with a large number of local operating units. These currency
exposures and risks are managed through a rigorously applied Treasury Policy,
typically using centrally managed and approved simple forward contracts to
mitigate exposures to known cash flows and avoiding the use of complex
derivative transactions. The largest exposures are to the euro, US dollar,
Chinese renminbi and Korean won. Whilst currency effects can be significant,
the structure of the Group provides mitigation through our regional
manufacturing strategy, diverse spread of geographic locations and through the
natural hedge of having a high proportion of our overhead costs in local
currency in our direct sales operating units.
Capital structure
The Board keeps the capital requirements of the Group under regular review,
maintaining a strong Balance Sheet to protect the business and provide
flexibility of funding for growth. The Group earns a high return on capital,
which is reflected in strong cash generation over time. Our first priority is
to maximise investment in the business to generate further good returns in the
future, aligned with our strategy for growth and targeting improvement in our
key performance indicators. We also prioritise finding suitable acquisitions
that can expand our addressable market through increasing our geographic
reach, deepening our market penetration and broadening our product range.
Acquisition targets need to exhibit good strategic fit and meet strict
commercial, economic and return on investment criteria. Where cash resources
significantly exceed expected future requirements, we will seek to return
capital to shareholders, as evidenced by the cash return of £91.0 million via
the special dividend of 120.0 pence per share that was paid in July 2015.
Spirax-Sarco Engineering plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31ST DECEMBER 2016
Note 2016£m 2015£m
ASSETS
Non-current assets
Property, plant and equipment 201.8 169.9
Goodwill 88.5 54.1
Other intangible assets 81.2 54.8
Prepayments 5.9 5.5
Investment in Associate 0.1
Deferred tax assets 36.5 33.0
413.9 317.4
Current assets
Inventories 112.5 92.5
Trade receivables 185.5 152.1
Other current assets 21.7 20.4
Taxation recoverable 11.2 9.5
Cash and cash equivalents 8 119.2 99.8
450.1 374.3
Total assets 864.0 691.7
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables 107.8 84.3
Provisions 2.2
Bank overdrafts 8 0.4 3.9
Short-term borrowing 8 33.0 10.1
Current portion of long-term borrowings 8 0.2 0.3
Current tax payable 18.6 21.1
162.2 119.7
Net current assets 287.9 254.6
Non-current liabilities
Long-term borrowings 8 58.2 80.7
Deferred tax liabilities 21.5 17.7
Post-retirement benefits 94.2 73.7
Provisions 2.0 1.2
Long-term payables 1.5 0.4
177.4 173.7
Total liabilities 339.6 293.4
Net assets 3 524.4 398.3
Equity
Share capital 19.8 19.7
Share premium account 72.7 69.7
Other reserves 44.6 (18.7)
Retained earnings 386.3 326.8
Equity shareholders' funds 523.4 397.5
Non-controlling interest 1.0 0.8
Total equity 524.4 398.3
Total equity and liabilities 864.0 691.7
524.4
398.3
Total equity and liabilities
864.0
691.7
Spirax-Sarco Engineering plc
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2016
Note Adjusted2016£m Adj't2016£m Total 2016£m Adjusted2015£m Adj't2015£m Total2015£m
Revenue 2/3 757.4 - 757.4 667.2 - 667.2
Operating costs (576.8) (6.5) (583.3) (514.8) (9.6) (524.4)
Operating profit 2/3 180.6 (6.5) 174.1 152.4 (9.6) 142.8
Financial expenses (4.0) - (4.0) (3.6) (3.6)
Financial income 1.4 - 1.4 2.1 2.1
Net financing expense 4 (2.6) - (2.6) (1.5) (1.5)
Share of profit of Associates (0.1) - (0.1) 0.2 (1.8) (1.6)
Profit before taxation 177.9 (6.5) 171.4 151.1 (11.4) 139.7
Taxation 5 (51.8) 1.7 (50.1) (45.0) 2.0 (43.0)
Profit for the period 126.1 (4.8) 121.3 106.1 (9.4) 96.7
Attributable to:
Equity shareholders 2 125.9 (4.8) 121.1 105.9 (9.4) 96.5
Non-controlling interest 0.2 - 0.2 0.2 - 0.2
Profit for the period 126.1 (4.8) 121.3 106.1 (9.4) 96.7
Earnings per share 2/6
Basic earnings per share 171.5p 165.0p 142.6p 129.9p
Diluted earnings per share 171.0p 164.5p 141.9p 129.4p
Dividends 7
Dividends per share 76.0p 69.0p
Dividends paid during the year (per share) 70.7p 185.8p
Adjusted figures exclude certain non-operational items, as set out and
explained in the Financial Review and as detailed in Note 2. All amounts
relate to continuing operations.
Spirax-Sarco Engineering plc
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED
31ST DECEMBER 2016
2016£m 2015£m
Profit for the year 121.3 96.7
Items that will not be reclassified to profit or loss:
Remeasurement (loss)/gain on post-retirement benefits (10.0) 5.7
Deferred tax on remeasurement loss/(gain) on post-retirement benefits 1.9 (0.6)
(8.1) 5.1
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences 61.6 (14.1)
Non-controlling interest foreign exchange translation differences 0.2 -
Gain on cash flow hedges net of tax 0.4 -
62.2 (14.1)
Total comprehensive income for the year 175.4 87.7
Attributable to:
Equity shareholders 175.0 87.5
Non-controlling interest 0.4 0.2
Total comprehensive income for the year 175.4 87.7
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST DECEMBER
2016
ShareCapital £m SharePremiumaccount£m Otherreserves £m RetainedEarnings £m Equity shareholders' funds£m Non-controlling interest£m TotalEquity £m
Balance at 1st January 2016 19.7 69.7 (18.7) 326.8 397.5 0.8 398.3
Profit for the year - - - 121.1 121.1 0.2 121.3
Other comprehensive (expense)/income:
Foreign exchange translation differences - - 61.6 - 61.6 0.2 61.8
Remeasurement (loss) on post-retirement benefits - - - (10.0) (10.0) - (10.0)
Deferred tax on remeasurement loss on post-retirement benefits - - - 1.9 1.9 - 1.9
Profit on cash flow hedges reserve - - 0.4 - 0.4 - 0.4
Total other comprehensive (expense) for the year - - 62.0 (8.1) 53.9 0.2 54.1
Total comprehensive income for the year - - 62.0 113.0 175.0 0.4 175.4
Contributions by and distributions to owners of the Company:
Dividends paid - - - (51.9) (51.9) (0.2) (52.1)
Equity settled share plans net of tax - - - (1.6) (1.6) - (1.6)
Issue of share capital 3.0 - - 3.0 - 3.0
Employee Benefit Trust shares 0.1 - 1.3 - 1.4 - 1.4
Balance at 31st December 2016 19.8 72.7 44.6 386.3 523.4 1.0 524.4
Other reserves represent the Group's translation, cash flow hedge, capital
redemption and Employee Benefit Trust reserves.
The non-controlling interest is a 2.5% share of Spirax-Sarco (Korea) Ltd held
by employee shareholders.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST DECEMBER
2015
ShareCapital £m Sharepremiumaccount£m Otherreserves £m RetainedEarnings £m Equity shareholders' funds£m Non-controlling interest£m TotalEquity £m
Balance at 1st January 2015 19.6 65.1 (6.5) 362.8 441.0 0.9 441.9
Profit for the year - - - 96.6 96.6 0.1 96.7
Other comprehensive (expense)/income
Foreign exchange translation differences - - (14.1) - (14.1) - (14.1)
Remeasurement profit on post-retirement benefits - - - 5.7 5.7 - 5.7
Deferred tax on remeasurement profit on post-retirement benefits - - - (0.6) (0.6) - (0.6)
Total other comprehensive (expense)/income for the year - - (14.1) 5.1 (9.0) - (9.0)
Total comprehensive (expense)/income for the year - - (14.1) 101.7 87.6 0.1 87.7
Contributions by and distributions to owners of the Company
Dividends paid - - - (140.3) (140.3) (0.2) (140.5)
Equity settled share plans net of tax - - - 2.6 2.6 - 2.6
Issue of share capital 0.1 4.6 - - 4.7 - 4.7
Employee Benefit Trust shares - - 1.9 - 1.9 - 1.9
Balance at 31st December 2015 19.7 69.7 (18.7) 326.8 397.5 0.8 398.3
Spirax-Sarco Engineering plc
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31ST DECEMBER 2016
Note 2016£m 2015*£m
Cash flows from operating activities
Profit before taxation 171.4 139.7
Depreciation, amortisation and impairment 33.1 29.3
Profit on disposal of fixed assets (1.5) (0.5)
Contribution from Associates 0.1 2.0
Cash payments to the pension schemes less than the charge to operating profit 1.6 1.2
Equity settled share plans 1.9 3.3
Net finance expense 2.6 1.5
Operating cash flow before changes in working capital and provisions 209.2 176.5
Change in trade and other receivables (4.7) (1.9)
Change in inventories 0.3 3.5
Change in provisions 2.3 0.7
Change in trade and other payables 8.7 (3.8)
Cash generated from operations 215.8 175.0
Interest paid (1.4) (1.3)
Income taxes paid (56.5) (43.4)
Net cash from operating activities 2 157.9 130.3
Cash flows from investing activities
Purchase of property, plant and equipment (28.1) (26.0)
Proceeds from sale of property, plant and equipment 3.3 2.4
Sale of businesses - 13.3
Purchase of software and other intangibles (3.5) (4.8)
Development expenditure capitalised (3.0) (2.4)
Acquisition of businesses (66.5) (23.6)
Bank deposits - 24.3
Interest received 1.4 2.1
Net cash used in investing activities (96.4) (14.7)
Cash flows from financing activities
Proceeds from issue of share capital 3.0 4.7
Employee Benefit Trust share purchase (1.7) -
Repaid borrowings (20.4) (79.4)
New borrowings 18.7 81.3
Change in finance lease liabilities 8 (0.1) (0.4)
Dividends paid (including minorities) 7 (52.1) (140.5)
Net cash used in financing activities (52.6) (134.3)
Net change in cash and cash equivalents 8 8.9 (18.7)
Net cash and cash equivalents at beginning of period 95.9 117.5
Exchange movement 14.0 (2.9)
Net cash and cash equivalents at end of period 8 118.8 95.9
Borrowings and finance leases (91.4) (91.1)
Net cash at end of period 8 27.4 4.8
27.4
4.8
*2015 recategorised to be consistent with 2016. A cash inflow of £1.2m in 2015
has been recatergorised from 'change in trade and other payables' to 'cash
payments to the pension schemes less than the charge to operating profit'.
1. NOTES TO THE ACCOUNTS
This announcement is based on the Company's Financial Statements, which are
prepared in accordance with International Financial Reporting Standards (IFRS)
adopted for use in the European Union (EU) and therefore comply with Article 4
of the EU IAS legislation and with those parts of the Companies Act 2006 that
are applicable to companies reporting under IFRS.
With the exception of the new standards adopted in the year, as discussed
below, there have been no significant changes in accounting policies from
those set out in the Spirax-Sarco Engineering plc 2015 Annual Report. The
accounting policies have been applied consistently throughout the years ended
31 December 2015 and 31 December 2016.
In the current year the group has applied a number of amendments to IFRSs
issued by the International Accounting Standards Board (IASB). Their adoption
has not had a material impact on the disclosures or on the amounts reported in
these financial statements. The following amendments were applied:
· IAS 1 Presentation of Financial Statements - Disclosure initiative;
· IAS 16 Property Plant and Equipment, and IAS 38 Intangibles assets in
relation to acceptable methods of depreciation and amortisation; and
· Annual improvements to IFRSs 2012-2014 Cycle including the amendments to
IAS 19 which clarify the rate to be used to discount post-employment benefit
obligations.
Having made appropriate enquiries, the Directors consider that the Group has
adequate resources to continue in operational existence for the foreseeable
future and that therefore it is appropriate to adopt the going concern basis
in preparing the Annual Report.
The Group has processes in place to identify, evaluate and mitigate the
principal risks that could have an impact on the Group's performance. The
principal risks together with a description of why they are relevant are set
out below. Details of how they link with the Group's strategy and how
mitigation is managed are included in the Group's 2015 Annual Report on page
33 and they will be disclosed in the 2016 Annual Report on pages 30-31.
· Economic and political instability
Economic and political instability creates risks for our locally based direct
operations, including the impact of regime changes.
· Significant exchange rate movements
The Group reports its results and pays dividends in sterling. Operating and
manufacturing companies trade in local currency.
· Loss of manufacturing output at any Group factory
Loss of manufacturing output at any important plant risks serious disruption
to sales operations
· Defined benefit pension deficit
Defined benefit pension schemes carry risks in relation to investment
performance, security of assets, longevity and inflation.
· Breach of legal and regulatory requirements
The Group is subject to many different laws and regulations. Breaching these
laws and regulations could have serious consequences.
· Non-compliance with health, safety and environmental legislation
A major health and safety incident could cause total or partial closure of a
manufacturing facility
· Solution specification failure
Failure to meet customers' specific technical requirements could result in
disruption and potential loss to an end users' plant or facility
The 2016 Financial Statements were approved by the Board of Directors and
authorised for issue on 8th March 2017.
2. ALTERNATIVE PERFORMANCE MEASURES
The Group reports under International Financial Reporting Standards (IFRS) and
also uses alternative performance measures where the Board believe that they
help to effectively monitor the performance of the Group, users of the
Financial Statements might find them informative and an aid to comparison with
our peers. A definition of the alternative performance measures included in
the Annual Report and a reconciliation to the closest IFRS equivalent are
disclosed below.
Adjusted operating profit
Adjusted operating profit excludes the amortisation and impairment of
acquisition-related intangible assets and costs associated with acquisitions.
A reconciliation between operating profit as reported under IFRS and adjusted
operating profit is given below.
2016£m 2015£m
Operating profit as reported under IFRS 174.1 142.8
Amortisation of acquisition-related intangible assets 6.0 4.7
Acquisition and disposal costs 0.5 0.8
Loss on closure of USA metering unit - 3.8
Profit on disposal, less recycled exchange losses - 0.3
Adjusted operating profit 180.6 152.4
Adjusted earnings per share
2016 2015
Profit for the period attributable to equity holders as reported under IFRS (£m) 121.1 96.5
Non-operational items excluded from adjusted operating profit disclosed above (£m) 6.5 9.6
Non-operational items excluded from share of profit from Associates (see Note 3) (£m) - 1.8
Tax effects on non-operational items (£m) (1.7) (2.0)
Adjusted profit for the period attributable to equity holders (£m) 125.9 105.9
Weighted average shares in issue (million) 73.4 74.3
Basic adjusted earnings per share 171.5p 142.6p
Diluted weighted average shares in issue (million) 73.6 74.6
Diluted adjusted earnings per share 171.0p 141.9p
Basic and diluted EPS calculated on an IFRS profit basis are included in Note
6.
Adjusted cash flow
Adjusted net cash from operating activities excludes costs associated with
acquisitions and disposals, capital expenditure, profit on disposal of fixed
assets, movement in provisions and tax paid. A reconciliation of net cash
from operating activities reported under IFRS to adjusted net cash from
operating activities is given below.
2016£m 2015£m
Net cash from operating activities as reported under IFRS 157.9 130.3
Acquisition and disposal costs 0.5 3.9
Capital expenditure excluding acquired intangibles from acquisitions (32.8) (33.2)
Profit on disposal of fixed assets 1.5 0.5
Movement in provisions (2.3) (0.7)
Tax paid 56.5 43.3
Interest paid 1.4 1.3
Other - 0.1
Adjusted net cash from operating activities 182.7 145.5
Cash conversion in 2016 is 101% (2015: 95%). Cash conversion is calculated as
adjusted net cash from operating activities divided by adjusted operating
profit. The adjusted cash flow is included in the Financial Review on page
20.
Return on capital employed (ROCE)
This is an important key performance indicator and forms a meaningful element
of Executive Directors' annual bonuses but is a non-statutory measure. ROCE
measures effective management of fixed assets and working capital relative to
the profitability of the business. ROCE is calculated as adjusted operating
profit divided by average capital employed. Average capital employed is based
on capital employed at 31st December 2016 and 31st December 2015 at reported
exchange rates. More information on ROCE can be found in the Capital Employed
and ROCE sections of the Financial Review on page 19.
An analysis of the components is as follows:
Capital Employed 2016£m 2015£m
Property, plant and equipment 201.8 169.9
Prepayments 5.9 5.5
Inventories 112.5 92.5
Trade receivables 185.5 152.1
Other current assets 21.7 20.4
Tax recoverable 11.2 9.5
Trade, other payables and current provisions (110.0) (84.3)
Current tax payable (18.6) (21.1)
Capital employed 410.0 344.5
Average capital employed 377.3 345.4
Operating profit 174.1 142.8
Adjustments (see adjusted operating profit above) 6.5 9.6
Adjusted operating profit 180.6 152.4
Return on capital employed 47.9% 44.1%
44.1%
A reconciliation of capital employed to net assets as reported under IFRS and
disclosed on the Consolidated Statement of Financial Position is given below.
2016£m 2015£m
Capital employed 410.0 344.5
Intangibles and investment in Associate 169.7 109.0
Post-retirement benefits (94.2) (73.7)
Deferred tax 15.0 15.3
Non-current provisions and long-term payables (3.5) (1.6)
Net cash 27.4 4.8
Net assets as reported under IFRS 524.4 398.3
Organic measures
As we are a multi-national Group of companies, who trade in a large number of
foreign currencies and regularly acquire and sometimes dispose of companies,
we also refer to organic performance measures throughout the Annual Report.
These strip out the effects of the movement of foreign currency exchange rates
and of acquisitions and disposals. The Board believe that this allows users
of the accounts to gain a further understanding of how the Group has
performed.
The exchange movement is calculated as the difference between the prior period
reported value translated at prior period exchange rates and translated at
current period exchange rates.
Any acquisitions and disposals that occurred in either the current period or
prior period are excluded from the results of both the prior and current
period at current period exchange rates.
A reconciliation of the movement in revenue and adjusted operating profit
compared to the prior period is given below:
2015 Exchange Organic Acquisitions & Disposals 2016 Organic Reported
Revenue £667.2m £52.6m £30.3m £7.3m £757.4m +4% +14%
Adjusted operating profit £152.4m £14.5m £13.2m £0.5m £180.6m +8% +18%
Adjusted operating margin 22.8% 23.8% +80 bps +100 bps
The reconciliation for each segment is included in the Group Chief Executive's
Report.
3. SEGMENTAL REPORTING
Analysis by location of operation
2016
GrossRevenue £m Inter-Segmentrevenue£m Revenue £m TotalOperatingProfit£m AdjustedOperatingProfit£m AdjustedOperatingMargin%
Europe, Middle East & Africa 273.9 39.6 234.3 49.6 50.0 21.3%
Asia Pacific 197.7 4.4 193.3 49.3 49.9 25.8%
Americas 142.9 7.0 135.9 26.9 29.2 21.5%
Steam Specialties business 614.5 51.0 563.5 125.8 129.1 22.9%
Watson-Marlow 193.9 - 193.9 61.1 64.3 33.1%
Corporate Expenses (12.8) (12.8)
808.4 51.0 757.4 174.1 180.6 23.8%
Intra Group (51.0) (51.0)
Total 757.4 - 757.4 174.1 180.6 23.8%
Net finance expense (2.6) (2.6)
Share of profit of Associates (0.1) (0.1)
Profit before tax 171.4 177.9
2015
GrossRevenue £m Inter-Segmentrevenue£m Revenue £m TotalOperatingProfit£m AdjustedOperatingProfit£m AdjustedOperatingMargin%
Europe, Middle East & Africa 253.7 34.3 219.4 41.4 42.7 19.5%
Asia Pacific 176.3 4.5 171.8 44.2 44.7 26.0%
Americas 128.9 5.5 123.4 21.6 27.1 22.0%
Steam Specialties business 558.9 44.3 514.6 107.2 114.5 22.3%
Watson-Marlow 152.6 - 152.6 45.6 47.9 31.4%
Corporate Expenses (10.0) (10.0)
711.5 44.3 667.2 142.8 152.4 22.8%
Intra Group (44.3) (44.3)
Total 667.2 - 667.2 142.8 152.4 22.8%
Net finance expense (1.5) (1.5)
Share of profit of Associates (1.6) 0.2
Profit before tax 139.7 151.1
Net revenue generated by Group companies based in the USA is £146.3m (2015:
£125.3m), in China is £90.6m (2015: £78.6m) in the UK is £70.4m (2015:
£66.5m), and the rest of the world is £450.1m (2015: £396.8m)
The total operating profit for each period includes the non-operational items
analysed below:
2016
Amortisationof acquisition-related intangible assets Acquisition and disposal costs Total
£m £m £m
Europe, Middle East & Africa (0.4) - (0.4)
Asia Pacific (0.6) - (0.6)
Americas (2.2) (0.1) (2.3)
Steam Specialties business (3.2) (0.1) (3.3)
Watson-Marlow (2.8) (0.4) (3.2)
Total non-operational items (6.0) (0.5) (6.5)
2015
Amortisation of acquisition-related intangible assets Loss on closure of USA meteringunit Profit on disposal of M&M less recycled exchange losses Acquisition and disposal costs Total
£m £m £m £m £m
Europe, Middle East & Africa (0.6) - (0.3) (0.4) (1.3)
Asia Pacific (0.5) - - - (0.5)
Americas (1.7) (3.8) - - (5.5)
Steam Specialties business (2.8) (3.8) (0.3) (0.4) (7.3)
Watson-Marlow (1.9) - - (0.4) (2.3)
Total non-operational items (4.7) (3.8) (0.3) (0.8) (9.6)
Share of profit of Associates
The share of profit of associates analysed between adjusted income and total
(including non-operational items) is as follows:
2016Adjusted£m 2016Total£m 2015Adjusted £m 2015Total£m
Europe, Middle East & Africa (0.1) (0.1) (0.1) (0.3)
Asia Pacific - - 0.3 (1.3)
Americas - - - -
Steam Specialties business (0.1) (0.1) 0.2 (1.6)
Watson-Marlow - - - -
Total share of profit of Associates (0.1) (0.1) 0.2 (1.6)
In 2015 adjusted share of profit of Associates excludes amortisation and
impairment of acquisition-related intangible assets of £0.2m, recycled
exchange losses and a final adjustment to the date of sale to the impairment
of tangible assets in respect of Spirax Marshall in India of £1.6m. No
non-operational items occurred in 2016.
Net financing income and expense
2016£m 2015£m
Europe, Middle East & Africa (1.5) (1.4)
Asia Pacific 0.2 1.1
Americas (0.7) (0.2)
Steam Specialties business (2.0) (0.5)
Watson-Marlow - -
Corporate (0.6) (1.0)
Total net financing expense (2.6) (1.5)
Net assets
2016 2015
Assets£m Liabilities£m Assets£m Liabilities£m
Europe, Middle East & Africa 195.3 (106.8) 182.8 (91.2)
Asia Pacific 163.1 (38.5) 140.3 (30.4)
Americas 127.0 (38.6) 102.4 (24.0)
Watson-Marlow 211.7 (23.8) 123.9 (14.0)
697.1 (207.7) 549.4 (159.6)
Liabilities (207.7) (159.6)
Deferred Tax 15.0 15.3
Current Tax payable (7.4) (11.6)
Net Cash 27.4 4.8
Net assets 524.4 398.3
Non-current assets in the UK were £156.5m (2015: £98.2m)
Capital additions and depreciation and amortisation
2016 2015
Capitaladditions £m Depreciation and amortisation£m Capitaladditions £m Depreciation and amortisation*£m
Europe, Middle East & Africa 11.1 12.4 13.0 11.2
Asia Pacific 12.6 6.9 11.0 5.6
Americas 8.0 5.9 10.4 5.1
Watson-Marlow 38.5 7.9 11.9 7.4
Group total 70.2 33.1
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