REG - Spirax-Sarco Engng - Half Year Results <Origin Href="QuoteRef">SPX.L</Origin> - Part 1
RNS Number : 1077VSpirax-Sarco Engineering PLC05 August 2015Spirax-Sarco Engineering plc
News Release
Wednesday 5th August 2015
2015 Half Year Results
3% organic sales growth against slowing growth rates in industrial production
Currency headwinds increasing
Six months ended 30th June
Adjusted*
2015
2014
Change
Constant Currency**
Revenue
320.0m
319.2m
0%
+3%
Adjusted operating profit*
65.8m
67.1m
-2%
0%
Adjusted operating profit margin*
20.6%
21.0%
-40 bps
-50 bps
Adjusted profit before taxation*
65.5m
66.3m
-1%
+1%
Adjusted earnings per share*
60.5p
61.7p
-2%
0%
Dividend per share
20.8p
19.5p
+7%
+7%
Statutory
2015
2014
Change
Revenue
320.0m
319.2m
0%
Operating profit
59.4m
64.7m
-8%
Profit before taxation
57.3m
63.5m
-10%
Earnings per share
52.2p
58.7p
-11%
Dividend per share
20.8p
19.5p
+7%
*All profit measures exclude certain non-operational items, which total 6.4m for the six months ended 30th June 2015, as defined in note 2.
** At constant exchange rates adjusting for both translation and transaction effects. References to "organic" are at constant currency excluding the effects of acquisitions and disposals.
Organic sales growth of 3%
Operating profit up 3% at constant currency excluding India start-up and UK headcount reduction costs
Underlying operating margin maintained
Currency headwind reduced sales on translation by 2.6% versus first half 2014
Strong growth in Watson-Marlow Fluid Technology business
98% cash conversion and interim dividend +7%
Commenting on the results, Nicholas Anderson, Group Chief Executive, said:
"We are pleased with the organic sales increase of 3%, against a backdrop of slowing growth rates in the global industrial markets we serve, particularly in Asia and South America. We have seen good growth in Europe, and Watson-Marlow is having another strong year. Currency headwinds reduced sales by 2.6% against the first half 2014. Our underlying operating profit margin was maintained and we have continued to reduce our structural cost base while also stepping up our strategic investments for future growth, particularly in India. These actions in the first half of 2015 will bring benefits in the second half of this year and in future years.
We anticipate that our markets will remain challenging, especially in emerging economies, but continue to expect modest market improvements in Europe and North America during the second half of this year and remain focussed on our strategic priorities to generate our own growth. We have a robust and resilient business model and, assuming no unexpected deterioration in our markets, the Board remains confident that the Group will make progress in 2015."
For further information, please contact:
Nicholas Anderson, Group Chief Executive
David Meredith, Finance Director
Tel: 020 7638 9571 at Citigate Dewe Rogerson
The meeting with analysts will be available as a live audio webcast on the Company's website at www.spiraxsarcoengineering.com or via the following link http://edge.media-server.com/m/p/hmksdyur
at 9.00 am, and a recording will be posted on the website shortly after the meeting.
Unless otherwise stated, the figures quoted in the text below are based on the adjusted Group results (see note 2). References to "organic" changes are like-for-like excluding acquisitions and excluding the effects of exchange rate movements.
REVIEW OF OPERATIONS
Organic sales growth was 3% in the first half, partially offset by unfavourable currency movements that reduced sales on translation by 2.6% when compared with first half 2014 average exchange rates. Sales of 320.0 million were therefore marginally ahead of the prior year (2014: 319.2 million) at reported exchange rates.
Global industrial production growth rates, which drive our underlying markets, have progressively slowed over the past year to very low levels of around 1%, in both developed and emerging markets, and this continues to cause a drag on business activity, although we remain focused on our strategic actions to outperform our markets.
Organic sales were flat overall in our steam specialties business following a weak late Spring, although growth resumed in June and has been maintained into the early weeks of the second half year. Europe, Middle East and Africa (EMEA) performed well, achieving organic sales growth of 3% against a background of low, but stable, industrial production growth. In the Americas, organic sales increased by 2% due to growth in Latin America but were lower in North America against a relatively strong first half in 2014. In Asia Pacific, organic sales were 5% lower largely due to a slow first half in Korea. Organic sales again grew strongly in our Watson-Marlow Fluid Technology (WMFTG) business rising by 13%, with expansion in all geographic regions, especially North America and Europe. Asepco, acquired in April 2015 for 7 million, made a good start; sales in the short period since acquisition did not contribute materially to the Group in the first half.
Group adjusted operating profit was flat at constant currency. Watson-Marlow Fluid Technology Group (WMFTG) performed well, increasing profit by 10% at constant currency, reflecting the strong growth in sales. In the steam specialties business, operating profit was 4% lower at constant currency reflecting flat sales, the 0.5 million of net one-off headcount reduction costs in the UK steam specialties manufacturing business and nearly 1 million of start-up costs in India. EMEA performed well, with operating profit ahead 5% at constant currency benefiting from the higher sales, partially offset by the one-off costs. In Asia Pacific, operating profit was down 17% at constant currency reflecting the impact of lower sales and the start-up costs in our new direct sales business in India, which commenced trading last month. Overall in the Americas operating profit was 1% lower against a tough compare, reflecting reduced sales and increased costs in the USA, as resources were added and we continue the process of realigning our market approach, mitigated by good results in some of our smaller Latin American operations. Excluding India start-up costs and the UK headcount reduction costs, Group operating profit was ahead 3% at constant currency. At reported exchange rates, the Group adjusted operating profit of 65.8 million was 2% lower (2014: 67.1 million).
Currency headwinds have continued into 2015 and have increased since our AGM statement in early May, reducing sales on translation by 2.6% compared with first half 2014 average exchange rates. Gains from the stronger dollar have been more than offset by the impact from the weaker euro and some emerging market currencies. If recent exchange rates prevail for the remainder of the year, the translation impact on sales for the full year would increase to 4%. In relation to operating profit, the total impact of unfavourable exchange movements in the first half of 2015, including both translation and transaction effects, was to reduce profit by over 2.3%. Note 14 includes a table of the Group's significant exchange rates.
Net financial expense reduced to 0.6 million from 1.5 million reflecting the improved cash inflow over the prior year and lower interest costs following renegotiation of our debt facilities. Total income from Associate companies declined to 0.2 million from 0.7 million due to the sale in March 2015 of our investment in India ahead of the start-up of our wholly owned direct sales operation in India.
Adjusted pre-tax profit increased by 1% at constant currency to 65.5 million but was reduced by 1% at reported exchange rates (2014: 66.3 million). The pre-tax profit for the first half year on a statutory basis, was 57.3 million (2014: 63.5 million) and includes a one-off charge of 3.8 million in respect of the closure of our metering manufacturing facility in Longmont, Colorado, USA. The statutory pre-tax profit also includes a net charge of 1.7 million in respect of exchange translation losses from prior years, reclassified from equity to the profit and loss account in the current period under IAS 21, net of a small gain on disposal, relating to the sale of the Group's 49.3% interest in our Associate company Spirax Marshall in India that was completed in March 2015. The statutory pre-tax profit includes the amortisation of acquisition-related intangible assets. The overall tax rate, based on the adjusted profit before tax and excluding the Associates profit, was slightly higher at 30.4% (2014: 30.1%).
Adjusted basic earnings per share reduced by 2% to 60.5p (2014: 61.7p) but were flat at constant currency. The number of shares in issue reduced by 3.6% with effect from 15th June 2015, following the share consolidation of 28 existing ordinary shares into 27 new ordinary shares, in conjunction with the recently paid special dividend. This will reduce the number of shares in issue through the second half year and bring down the average shares in issue for the full year. Basic earnings per share on a statutory basis were 52.2p (2014: 58.7p).
The Board has declared an interim dividend of 20.8p (2014: 19.5p) per ordinary share, an increase of 7%. The dividend will be paid on 6th November 2015 to shareholders on the register at the close of business on 9th October 2015. The final dividend of 45.0p per share in respect of 2014 was paid on 29th May 2015 at a cash cost of 34.1 million. The special dividend of 120.0p per share in respect of 2014 was paid on 15th July 2015 at a cash cost of 91.0 million.
Trading
Our businesses serve very diverse markets across a wide range of different industries, geographic regions, customers and products. Because steam is so widely used across so many applications, our markets broadly reflect changes in global economic conditions and, in particular, movements of industrial production growth rates. Our Watson-Marlow fluid path technology business benefits from a similar diversity of markets. The Group's direct sales business model brings to bear our highly trained sales engineers on the solution of customers' energy and water saving, CO2 reduction, productivity, quality and sustainability issues.
Global industrial production growth, which we typically lag by a few quarters, has progressively slowed over the past year to currently very low levels. The slowdown of industrial production growth has been particularly marked in China and other emerging markets where we have long had a strong presence, with recessionary conditions in Latin America and Russia. This slowdown has also been evident in the developed markets of North America and Europe, although industrial production growth rates in the latter look to have stabilised, albeit at close to 1%.
In the first half of 2015, sales in our steam specialties business were flat at constant currency. Overall, large project work has again been at a lower level, offset by growth in our day-to-day business reflecting increased demand from customers' replacement and maintenance spending, from which we derive a large proportion of our revenues. As we have previously noted, the impact on our business from the low oil price is relatively muted but we are not immune, having seen a negative impact in Korea and Canada in particular, as well as Brazil and China for different local reasons. Overall, the weaker oil & petrochemical sector reduced our growth rate by around 1%. The operating profit margin in our steam specialties business was lower at 19.6% compared with 20.7% in the first half of last year, in part due to the one-off headcount reduction costs in the UK, start-up costs in our new operation in India and small exchange transaction losses. However, input costs for materials remained broadly flat.
Sales in our Watson-Marlow Fluid Technology business increased strongly, by 14% at constant currency, with contributions from all geographic regions. Asepco, acquired in April 2015, made a good start, integrating smoothly into the Watson-Marlow business and culture; excluding Asepco, sales were ahead 13% at constant currency. New products from all brands in the business contributed well and the revolutionary Qdos peristaltic metering pump was again a significant part of this, achieving deeper market penetration from an expanded range. Sales increased across almost all industry sectors. The operating profit margin in Watson-Marlow was unchanged at 29.9%, benefiting from favourable exchange transaction gains, particularly on product imported into North America from Europe, but reflecting increased product and market development investment.
The evolution of the Group's business strategy, building on the foundation of our robust, direct sales business model that has proved resilient through the business cycle, was clearly set out in the 2014 Annual Report, with the overarching philosophy of doing better what we already do well, so that we can outperform our markets. We are focusing resources on the implementation of the key elements of that more customer-centric strategy and in particular the sharpening of our direct sales approach to the market through sectorisation, leveraging strength in key industry sectors and key product areas, improved marketing capability, and enhanced training of our sales engineers and support teams. Closer alignment of product development activities to support these key actions and development of the wider supply chain to improve service and reduce costs is also underway. We are also investing in support systems in customer facing areas as well as in product development and manufacturing functions.
Steam Specialties Business
EMEA
2015
2014
Change
Constant
currency
Revenue
111.8m
119.3m
-6%
+3%
Operating profit
21.3m
24.2m
-12%
+5%
Operating margin
19.0%
20.3%
-130 bps
+30 bps
Europe, Middle East and Africa (EMEA) did well, growing sales by 3% at constant currency to 111.8 million. Exchange movements were strongly negative, reducing sales on translation by 9%, due to the 10% weaker euro versus the first half of last year. Reported sales were therefore down by 6% (2014: 119.3 million). Operating profit at 21.3 million was also significantly impacted by unfavourable exchange movements and was down 12% at reported currencies but was ahead 5% at constant currency (2014: 24.2 million). The operating profit margin was 19.0% (2014: 20.3%), while at constant exchange rates a further improvement was achieved, following the good gains in recent years. We benefited from continued flat material input costs and EMEA results were ahead despite the 0.5 million of net one-off headcount reduction costs in the steam specialties UK manufacturing operations.
Economic conditions in EMEA have been stable but with industrial production growth rates running at very low levels close to 1%. Industrial production rates modestly improved overall in our larger developed markets but have deteriorated in some developing markets and in Russia in particular. Our business tends to lag movements in industrial production growth rates by a few quarters and we continue to expect to see some pick-up in market activity through the second half while monitoring closely events in Greece, and indeed Russia, for any wider European impacts. Our sales in Russia account for around 1% of Group sales and our direct exposure to Greece is immaterial. Implementation of our strategy in EMEA is progressing well with good co-operation between operating companies in supporting common key actions across the region. Large project activity has remained flat and growth has come from increased customer spend in maintenance and operations, including a higher number of smaller self-generated projects. Sales and operating profit at constant currency were strongly ahead in Italy, with good gains in shipbuilding, and in South Africa where a refocused team is making positive gains. We achieved good progress in Germany and sales and profit were ahead at constant currency in Iberia, following a number of difficult years. The UK sustained the good performance of 2014. Trading results were lower in a number of smaller operations, with profits sharply lower in Russia, where the sales slowdown was compounded by the currency devaluation.
In our main European manufacturing operations in the UK and France, demand levels were again lower reflecting the reduced demand from Asia Pacific and the Americas. Action was taken to reduce costs and the headcount in our UK steam specialties manufacturing operation was reduced by 8% incurring one-off costs of 1.0 million in the first half. Annualised benefits of 2.2 million commenced from April 2015, with 0.5 million of benefit arising in the second quarter and a further 1.1 million in the second half year. The focus remains on efficiency gains, customer service levels and improvements to the wider supply chain.
We announced yesterday the sale of M&M International to Rotork plc for 9.7 million (6.8 million) in cash, on a cash-free debt-free basis. This company manufactures piston actuated valves and solenoid valves in Bergamo (Italy) and channels close to 15% of its production through our global sales and distribution network. A review concluded that M&M's lower strategic fit with our Group limited our ability to improve their sales growth rates and profitability. 2014 sales of M&M were 8.9 million (7.2 million at 2014 exchange rates) with an operating profit of 1.5 million (1.2 million). In April 2015, we completed the acquisition of Valve and Control Engineering Ltd in Scotland, a specialist boiler and valve service and repair business, for a maximum consideration of 0.8 million.
Asia Pacific
2015
2014
Change
Constant
currency
Revenue
74.3m
75.5m
-2%
-5%
Operating profit
15.5m
16.8m
-8%
-17%
Operating margin
20.9%
22.2%
-130 bps
-280 bps
Sales in Asia Pacific were down 5% at constant currency to 74.3 million and down by 2% (2014: 75.5 million) at the more favourable reported exchange rates, with the Chinese RMB 8% stronger against sterling and the Korean won 4% stronger. Economic conditions have weakened across the region. Industrial production growth slowed markedly, particularly in China, and Korea is experiencing its third quarter of industrial production decline. Project work has declined further with projects delayed or cancelled, this being mitigated by higher focus on smaller value-added opportunities and customers' maintenance and operations requirements. Operating profit of 15.5 million was down 8% (2014: 16.8 million) and down 17% at constant currency. Excluding pre-operating costs of nearly 1 million in India, profit was down 11% at constant currency, due to a much weaker performance in the first half in Korea and increased market development costs in South East Asia. The operating profit margin was 20.9% (2014: 22.2%).
Our largest sales and profit contributor in the Group is China, accounting for over 10% of Group sales in 2014, where the market is suffering from a well-publicised issue of overcapacity to a greater or lesser extent in most industries. Our sales in China in the first half were marginally lower at constant currency due to further reductions in project work, largely offset by increased day-to-day base business as we refocus our sales resource on customers' smaller energy saving and productivity enhancing opportunities. We expect industrial markets in China to continue to slow and aim to continue mitigating this by leveraging our strength in some of the more resilient sectors such as food & beverages, pharmaceuticals, textiles and healthcare, and maximising the benefits of our powerful direct sales business model.
In Korea, sales and profit were lower reflecting a decline of industrial production and delayed or cancelled projects, including a modest impact from lower activity in the oil & petrochemicals market. We note that order books in Korea and China are higher than the levels reported at this time last year, which should again be supportive of stronger sales in the second half. Elsewhere in Asia Pacific, we achieved improved results in Japan, Taiwan and the Philippines but saw lower results in Australasia and other smaller markets.
As previously announced, in March 2015 we completed the separation from our long-standing business in India via the sale of the Group's 49.3% interest in the Associate company Spirax Marshall for 6.5 million in cash. Our new wholly owned manufacturing and direct sales operation commenced trading in July 2015 following intensive training of our sales and support teams, based in the main industrial centres. Economic activity in India has been growing and we look forward to this providing a favourable background as sales start to build over the coming years. A new facility comprising offices, warehouse, training centre and world class manufacturing plant is under construction, with completion expected early in 2016. The Group's results in the first half include nearly 1 million of pre-operating expenses in India which are somewhat greater than our initial expectations due primarily to high product regulatory approval costs. We now have a strong local team and will continue to add resources as sales build and expect another similar net trading loss in the second half of this year, with improved results from 2016 onwards. Associate profits from India of 0.2 million were recorded in respect of the period to March 2015 compared with 0.8 million for the half year in 2014 (1.3 million in the full year 2014).
We remain positive on the Asia Pacific region despite the short-term uncertainties. We continue investing to improve our strong position and outperform in existing markets, as well as investing for growth in new ones.
Americas
2015
2014
Change
Constant
currency
Revenue
61.0m
59.8m
+2%
+2%
Operating profit
11.8m
11.9m
-1%
-1%
Operating margin
19.3%
19.8%
-50 bps
-50 bps
Organic sales increased by 2% in the Americas to 61.0 million and by 2% at reported exchange rates (2014: 59.8 million). Exchange gains on translation of sales from the stronger dollar, were virtually offset by the impact of much weaker currencies in Latin America, in particular, the Brazilian real down 15%. Sales were lower in North America at constant currency but were ahead in Latin America, driven mostly by growth in Argentina and Mexico. Economic conditions in the Americas slowed, with industrial production growth rates trending to a low level in North America and turning sharply negative in Latin America; Argentina has been mired in an industrial recession for over a year and the Brazilian economy continues to contract strongly this year. Divisional operating profit was broadly unchanged at 11.8 million (2014: 11.9 million) and was 1% lower at constant currency. The operating profit margin was 19.3% (2014: 19.8%).
Sales and operating profit were lower at constant currency in North America following a relatively difficult trading environment in the first half and against a strong profit performance in the comparable period last year. Large project business was lower, including a modest impact from the lack of projects in the Canadian tar sands, although smaller projects showed a modest pick-up. We are continuing the gradual implementation of our more proactive approach to the market in the USA, where additional and redirected sales resources are increasingly working with customers, on a sector basis, to grow the total market by unearthing and developing many hitherto unrecognised customer needs and opportunities for energy and water savings, emissions reductions, productivity improvements, quality improvements and cost reductions. We are also working constructively with distributors to strengthen relationships in appropriate areas of the market but these changes have not been without some limited disruption. In June 2015, we completed the closure of our small meter manufacturing facility in Colorado, USA. Sales of products made at that facility have been declining over recent years and the unit posted an operating loss of 0.6 million in the first half of 2015, which will not repeat in the second half of 2015. Skilled technical resources have been retained to form the core of a new sales support and development team, focused on an expanded metering and energy management offering. One-off, mostly non-cash, closure costs of 3.8 million were incurred that have been excluded from the adjusted operating profit but have been charged against profit in the statutory reported results.
Our performance in Latin America was relatively good against a poor economic environment. Sales and profit were ahead at constant currency in a number of our operations, although we enter the second half with a smaller order book than at this point in 2014. Results were ahead in Brazil, although the second half will reflect lower demand that has been significantly impacted by the paralysis in Petrobras, which is also having a wider economic impact in the country. As expected, profits were lower in Argentina, where strong local inflationary pressures persist and the short term benefits of 2014's currency devaluation are being eroded. We continue to perform well in Mexico and in some of the smaller markets in the region, making a good start in our new direct sales operation in Peru.
We remain positive on the Americas region, where we have been present for many decades, and continue investing to strengthen our well established market position. We expect a second half pick up in the USA, as market conditions improve and we gain traction from our strategic growth initiatives.
Watson-Marlow Fluid Technology
2015
2014
Change
Constant
currency
Revenue
72.8m
64.5m
+13%
+14%
Operating profit
21.8m
19.3m
+13%
+10%
Operating margin
29.9%
29.9%
0 bps
-120 bps
Sales increased by an exceptional 14% at constant currency including a first-time contribution from Asepco acquired in April 2015 (+13% excluding Asepco) that specialises in the design and manufacture of high purity aseptic valves for the biotechnology and pharmaceutical industries. Sales comparisons will become more difficult through the second half of the year due to the strong sales achieved in the second half of last year. Exchange rates reduced sales on translation by a net 1% in the first half, giving a reported sales increase of 13% from 64.5 million to 72.8 million. Reported operating profit also increased by 13% from 19.3 million to 21.8 million, including a small initial contribution from Asepco and a transaction exchange benefit primarily due to lower landed costs in North America from Watson-Marlow manufacturing units in Europe. The operating profit margin was unchanged at 29.9%. At constant currency the operating profit increased by 10%.
Sales were higher in most industry sectors. Our largest sector, biopharmaceutical, was strong with a good flow of project business underpinned by a continued trend towards single-use systems that favour Watson-Marlow products. The acquisition of Asepco, in April, will add to sales in this sector and is a logical extension of product along the fluid path. The new Qdos peristaltic metering pump continued to contribute well in an extended range of sizes displacing other pump types, in particular diaphragm pumps. Food & beverage markets were positive and OEM demand continued at a good level, including projects in clinical diagnostic applications. New products again contributed well, with additions to most product ranges and an active pipeline of future opportunities that extend our capability. An entry level peristaltic pump, manufactured in Asia for local markets, was also recently launched.
All geographic regions contributed to the sales growth at constant currency. Strong growth in the Americas was led by exceptional growth in North America. Good growth was sustained in EMEA with widespread gains, continuing to benefit from the increased sector focus and direct sales expansion over recent years. Sales growth in Asia Pacific was more modest, including in China and Korea, with lower order book levels as we enter the second half. The market in Australia was more difficult where the dominant mining sector was weaker.
In July 2015, we completed the purchase, for 2.8 million, of the MasoSine manufacturing and distribution rights in Japan, providing WMFTG with a direct sales presence in the Japanese market for the first time. This will strengthen the level of service and support available to WMFTG customers in the significant Japanese food and beverage and industrial process markets, and provide a platform for future growth in this important market.
Balance sheet and cash flow
Capital employed of 343 million at 30th June 2015 reduced by 1% at constant currency and excluding acquisitions, versus the equivalent position at 30th June 2014. Improved controls over inventory continue to be implemented to maximise customer service levels. Investment in fixed assets was broadly in line with the level of depreciation in the first half year, although we expect increased investment in the second half in the new plant in India, giving Group capital expenditure of over 30 million for the full year 2015.
Cash generation remains a priority, with a very good 98% cash conversion in the first half, and we continue to operate with a strong balance sheet. There was an outflow of 7 million in respect of the acquisition of Asepco in April 2015, which was broadly matched by the inflow of 6 million in respect of the sale of the Group's 49.3% interest in our Associate company Spirax Marshall in India, completed in March 2015. Currency movements reduced opening net cash balances by 6 million on translation. Net cash at 30th June 2015 was 53.5 million compared with 52.5 million at 31st December 2014 and net debt of 1.5 million at 30th June 2014. The special dividend of 120p per share was approved by shareholders at the AGM on 11th May 2015 and 91.0 million was therefore recognised within current liabilities at 30th June 2015. The dividend was paid after the period end on 15th July 2015.
Adjusted cash flow
30th June 2015
'000
30th June 2014
'000
Adjusted operating profit
65,841
67,149
Depreciation (excluding amortisation of acquisition intangible assets)
12,367
11,187
Share plans
1,476
1,795
Working capital changes
(1,636)
(7,117)
Net capital expenditure (including software and development)
(13,404)
(18,684)
Cash from operations
64,644
54,330
Net Interest
725
(144)
Income taxes paid
(24,238)
(24,449)
Free cash flow
41,131
29,737
Net dividends paid
(34,226)
(31,101)
Provisions and post-retirement deficit reduction payments
(605)
(2,645)
Proceeds from issue of shares
1,892
2,454
Acquisitions and disposals
(622)
(9,087)
Adjustments*
(474)
(471)
Cash flow for period
7,096
(11,113)
Exchange movements
(6,110)
(6,816)
Opening net cash
52,493
16,400
Closing net cash/(debt) at 30th June
53,479
(1,529)
*Adjustments comprise acquisition and disposal costs of 374k, USA metering manufacturing cash closure costs of 237k and an adjustment in respect of the disposal of Spirax Marshall of 137k
Net assets of 6.7 million in respect of M&M International are shown as an asset held for sale (within current assets and current liabilities) in the balance sheet at 30th June 2015. Subsequent to the balance sheet date, the disposal of this business was completed on 3rd August 2015 for 9.7 million (6.8 million). A small profit on disposal will be recognised within the statutory profit in the second half year as well as a small loss in respect of prior years' exchange translation differences as required under IAS 21.
Principal risks and uncertainties
The Group has a robust risk management process in place to identify, evaluate and manage the identified risks that could impact the Group's performance. The current risks, together with an explanation of the impact and mitigation actions, are set out in the 2014 Annual Report on pages 28 to 29. The Group has reviewed these risks and concluded that they represent the current position and remain relevant for the second half of the financial year. A summary of the relevant key risks and uncertainties is:
Economic and political instability
Significant exchange rate movements
Loss of manufacturing output at any Group factory
Breach of legal and regulatory requirements
Non-compliance with health, safety and environmental legislation
Defined benefit pension deficits
Failure to respond to technological developments or customer needs
Our overall geographic diversity limits the impact of instability in any particular region. The Group continues to keep events in Russia (now close to 1% of Group sales) under constant review and is monitoring political and economic events in Greece closely, given the possibility of Europe-wide implications. Currency movements have continued to be relatively volatile, with recent weakness in a number of currencies that are important to the Group, including the Brazilian real and Korean won. Exchange rate movements are monitored closely and we keep mitigating actions under review.
Outlook
Implementation of our strategy for growth is aimed at enhancing our capability to outperform our markets and generate our own growth. Our direct sales business model, with highly skilled sales engineers, creates opportunities to generate engineered solutions to meet customers' needs for energy and water saving, emissions reduction, productivity improvement, quality improvements, regulatory compliance and cost reduction. In difficult economic times our business is resilient, deriving a high proportion of revenues from small projects, replacement demand and customers' maintenance and operating spending.
Because our businesses are so diverse across industrial applications, our markets are strongly influenced by movements in industrial production, which our business tends to lag by a few quarters. Growth rates of global industrial production have progressively slowed for the past year to very low growth rates of around 1%. This slowing of growth rates has been mostly driven by emerging markets, particularly China, Russia and South America. We have, however, achieved good growth in Europe and Watson-Marlow. We anticipate that our markets will remain challenging, especially in emerging economies, but continue to expect modest improvements in European and North American markets during the second half of this year and remain focussed on our strategic priorities to generate our own growth. Currency movements reduced sales on translation by 2.6% in the first half and, if recent exchange rates prevail for the remainder of the year, this will increase to 4% for the full year. We continue to improve the efficiency of our business, having taken actions at our UK and USA manufacturing facilities that bring benefits to trading in the second half and reduce our cost base going forward. We are also continuing to invest for growth, particularly in India, where significant resources have been added to support future expansion. We have a robust and resilient business model and, assuming that there is no unexpected deterioration in our markets, the Board remains confident that the Group will make progress in 2015.
STATEMENT OF FINANCIAL POSITION
Notes
30th June
2015
'000
30th June
2014
'000
31st December
2014
'000
ASSETS
Non-current assets
Property, plant and equipment
164,705
177,116
176,668
Goodwill
45,455
48,338
47,682
Other intangible assets
46,716
46,422
48,123
Prepayments
477
180
402
Investment in associate
245
7,917
377
Deferred tax assets
35,919
33,146
35,941
293,517
313,119
309,193
Current assets
Inventories
98,819
111,306
98,007
Trade receivables
133,170
132,596
155,696
Other current assets
25,024
21,153
23,973
Taxation recoverable
4,594
4,027
4,420
Associate held for sale
-
-
5,777
Assets of business held for sale
9,270
-
-
Bank deposits
8
-
31,103
24,437
Cash and cash equivalents
8
86,625
79,318
117,981
357,502
379,503
430,291
Total assets
651,019
692,622
739,484
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables
76,316
80,443
90,754
Special dividend
90,951
-
-
Bank overdrafts
8
153
3,683
461
Short-term borrowing
8
6,326
34,628
40,070
Current portion of long-term borrowings
8
298
298
298
Liabilities directly associated with assets classified as held for sale
2,533
-
-
Current tax payable
12,338
11,184
22,175
188,915
130,236
153,758
Net current assets
168,587
249,267
276,533
Non-current liabilities
Long-term borrowings
8
26,369
73,341
49,096
Deferred tax liabilities
16,564
16,381
17,412
Post-retirement benefits
7
74,970
64,889
75,779
Provisions
443
761
556
Long term payables
881
-
1,005
119,227
155,372
143,848
Total liabilities
308,142
285,608
297,606
Net assets
342,877
407,014
441,878
Equity
Share capital
19,678
19,629
19,622
Share premium account
66,918
62,351
65,067
Other reserves
(23,123)
(7,064)
(6,486)
Retained earnings
278,653
331,382
362,796
Equity shareholders' funds
342,126
406,298
440,999
Non-controlling interest
751
716
879
Total equity
342,877
407,014
441,878
Total equity and liabilities
651,019
692,622
739,484
CONSOLIDATED INCOME STATEMENT
Six months to 30th June 2015
Six months to 30th June 2014
Year ended 31st December 2014
Adjusted
'000
Adj't
'000
Total
'000
Adjusted
'000
Adj't
'000
Total
'000
Adjusted
'000
Adj't
'000
Total
'000
Revenue (note 2)
319,979
-
319,979
319,160
-
319,160
678,277
-
678,277
Operating costs
(254,138)
(6,428)
(260,566)
(252,011)
(2,491)
(254,502)
(525,327)
(4,855)
(530,182)
Operating profit (note 2)
65,841
(6,428)
59,413
67,149
(2,491)
64,658
152,950
(4,855)
148,095
Financial expenses
(1,965)
-
(1,965)
(2,518)
-
(2,518)
(5,229)
-
(5,229)
Financial income
1,388
-
1,388
976
-
976
2,246
-
2,246
Net financing expense (note 3)
(577)
-
(577)
(1,542)
-
(1,542)
(2,983)
-
(2,983)
Share of profit of associates
247
(1,753)
(1,506)
718
(380)
338
1,151
(1,469)
(318)
Profit before taxation
65,511
(8,181)
57,330
66,325
(2,871)
63,454
151,118
(6,324)
144,794
Taxation (note 4)
(19,848)
1,917
(17,931)
(19,748)
608
(19,140)
(44,857)
636
(44,221)
Profit for the period
45,663
(6,264)
39,399
46,577
(2,263)
44,314
106,261
(5,688)
100,573
Attributable to:
Equity
shareholders
45,646
(6,264)
39,382
46,532
(2,263)
44,269
106,015
(5,688)
100,327
Non-controlling
interest
17
-
17
45
-
45
246
-
246
Profit for the period
45,663
(6,264)
39,399
46,577
(2,263)
44,314
106,261
(5,688)
100,573
Earnings per share
Basic earnings per share (note 5)
60.5p
52.2p
61.7p
58.7p
140.4p
132.8p
Diluted earnings per share (note 5)
60.2p
52.0p
61.4p
58.4p
139.5p
132.0p
Dividends
Dividend per share (note 6)
20.8p
19.5p
64.5p
Special dividend per share (note 6)
120.0p
Dividend paid per share (note 6)
45.0p
41.0p
60.5p
Adjusted figures exclude certain non-operational items as detailed in note 2. All amounts relate to continuing operations. The notes on pages 15 to 24 form an integral part of the accounts.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months
to 30th June
2015
'000
Six months
to 30th June
2014
'000
Year ended
31st December
2014
'000
Profit for the period
39,399
44,314
100,573
Items that will not be reclassified to profit or loss
Remeasurement gain/(loss) on post-retirement benefits
1,306
5,471
(5,159)
Deferred tax on remeasurement loss on post-retirement benefits
(972)
(724)
(258)
334
4,747
(5,417)
Items that may be reclassified subsequently to profit or loss
Foreign exchange translation differences
(18,317)
(18,935)
(15,155)
Non-controlling interest foreign exchange translation differences
(8)
11
22
Profit/(loss) on cash flow hedges
33
5
(232)
(18,292)
(18,919)
(15,365)
Total comprehensive income for the period
21,441
30,142
79,791
Attributable to:
Equity shareholders
21,432
30,086
79,523
Non-controlling interest
9
56
268
Total comprehensive income for the period
21,441
30,142
79,791
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Six months to 30th June 2015
Share Capital
000
Share Premium
Account
000
Other
Reserves
000
Retained
earnings
000
Equity
shareholders
funds
000
Non-controlling
interest
000
Total
equity
000
Balance at 1st January 2015
19,622
65,067
(6,486)
362,796
440,999
879
441,878
Profit for the period
-
-
-
39,382
39,382
17
39,399
Other comprehensive (expense)/income for the period
Foreign exchange translation differences
-
-
(18,317)
-
(18,317)
(8)
(18,325)
Remeasurement gain on post-retirement benefits
-
-
-
1,306
1,306
-
1,306
Deferred tax on remeasurement gain on post-retirement benefits
-
-
-
(972)
(972)
-
(972)
Profit on cash flow hedges reserve
-
-
33
-
33
-
33
Total other comprehensive (expense) for the period
-
-
(18,284)
334
(17,950)
(8)
(17,958)
Total comprehensive income for the period
-
-
(18,284)
39,716
21,432
9
21,441
Contributions by and distributions to owners of the Company
Dividends paid
-
-
-
(34,089)
(34,089)
(137)
(34,226)
Special dividend accrued
-
-
-
(90,951)
(90,951)
-
(90,951)
Equity settled share plans net of tax
-
-
-
1,181
1,181
-
1,181
Issue of share capital
41
1,851
-
-
1,892
-
1,892
Employee Benefit Trust Shares
15
-
1,647
-
1,662
-
1,662
Balance at 30th June 2015
19,678
66,918
(23,123)
278,653
342,126
751
342,877
Other reserves represent the Group's translation, cash flow hedge and capital redemption reserves. The non-controlling interest is a 2.5% share of Spirax-Sarco (Korea) Ltd held by employee shareholders.
Six months to 30th June 2014
Share
Capital
000
Share
Premium
Account
000
Other
Reserves
000
Retained
earnings
000
Equity
Shareholders'
funds
000
Non-controlling
interest
000
Total
equity
000
Balance at 1st January 2014
19,568
59,954
11,474
311,737
402,733
801
403,534
Profit for the period
-
-
-
44,269
44,269
45
44,314
Other comprehensive (expense)/income for the period
Foreign exchange translation differences
-
-
(18,935)
-
(18,935)
11
(18,924)
Remeasurement gain on post-retirement benefits
-
-
-
5,471
5,471
-
5,471
Deferred tax on remeasurement gain on post-retirement benefits
-
-
-
(724)
(724)
-
(724)
Profit on cash flow hedges reserve
-
-
5
-
5
-
5
Total other comprehensive (expense) for the period
-
-
(18,930)
4,747
(14,183)
11
(14,172)
Total other comprehensive income for the period
-
-
(18,930)
49,016
30,086
56
30,142
Dividends paid
-
-
-
(30,960)
(30,960)
(141)
(31,101)
Equity settled share plans net of tax
-
-
-
1,589
1,589
-
1,589
Issue of share capital
57
2,397
-
-
2,454
-
2,454
Employee Benefit Trust Shares
4
-
392
-
396
-
396
Balance at 30th June 2014
19,629
62,351
(7,064)
331,382
406,298
716
407,014
For the year ended 31st December 2014
Share
Capital
000
Share
Premium
Account
000
Other
Reserves
000
Retained
earnings
000
Equity
shareholders'
funds
000
Non-controlling
interest
000
Total
equity
000
Balance at 1st January 2014
19,568
59,954
11,474
311,737
402,733
801
403,534
Profit for the year
-
-
-
100,327
100,327
246
100,573
Other comprehensive (expenses)/income
Foreign exchange translation differences
-
-
(15,155)
-
(15,155)
22
(15,133)
Remeasurement loss on post-retirement benefits
-
-
-
(5,159)
(5,159)
-
(5,159)
Deferred tax on remeasurement loss on post-retirement benefits
-
-
-
(258)
(258)
-
(258)
Loss on cash flow hedges reserve
-
-
(232)
-
(232)
-
(232)
Total other comprehensive (expense) for the year
-
-
(15,387)
(5,417)
(20,804)
22
(20,782)
Total other comprehensive income for the year
-
-
(15,387)
94,910
79,523
268
79,791
Contributions by and distributions to owners of the Company
Dividends paid
-
-
-
(45,715)
(45,715)
(190)
(45,905)
Equity settled share plans net of tax
-
-
-
1,864
1,864
-
1,864
Issue of share capital
110
5,113
-
-
5,223
-
5,223
Employee Benefit Trust Shares
(56)
-
(2,573)
-
(2,629)
-
(2,629)
Balance at 31st December 2014
19,622
65,067
(6,486)
362,796
440,999
879
441,878
CASH FLOW STATEMENT
Notes
Six months
to 30th June
2015
'000
Six months
to 30thJune
2014
'000
Year ended
31st December
2014
'000
Cash flows from operating activities
Profit before taxation
57,330
63,454
144,794
Depreciation, amortisation and impairment
16,612
13,207
26,799
Loss on disposal of Associate
1,790
-
-
Share of profit of Associates
(147)
(338)
318
Equity settled share plans
1,476
1,795
2,374
Net finance income
577
1,542
2,983
Operating cash flow before changes in
working capital and provisions
77,638
79,660
177,268
Change in trade and other receivables
9,888
8,751
(20,032)
Change in inventories
(4,956)
(9,771)
1,111
Change in provisions and post-retirement benefits
(605)
(2,645)
(4,870)
Change in trade and other payables
(4,996)
(6,097)
4,398
Cash generated from operations
76,969
69,898
157,875
Interest paid
(663)
(1,120)
(2,299)
Income taxes paid
(24,238)
(24,449)
(41,915)
Net cash from operating activities
52,068
44,329
113,661
Cash flows from investing activities
Purchase of property, plant & equipment
(11,313)
(16,517)
(27,032)
Proceeds from sale of property, plant & equipment
1,198
793
2,980
Purchase of software & other intangibles
(2,000)
(2,069)
(4,647)
Development expenditure capitalised
(1,289)
(891)
(2,632)
Acquisition of businesses
(7,087)
(9,087)
(9,984)
Bank deposits
24,626
-
9,038
Interest received
1,388
976
2,246
Dividends received
-
-
796
Net cash used in investing activities
5,523
(26,795)
(29,235)
Cash flows from financing activities
Proceeds from issue of Share Capital
1,892
2,454
5,223
Sale of associate
6,465
-
-
Employee Benefit Trust Share purchase
-
-
(3,005)
Repaid borrowings
8
(57,000)
(1,703)
(8,995)
New borrowings
8
807
11,000
-
Change in finance lease liabilities
8
(154)
(96)
(241)
Dividends paid (including minorities)
(34,226)
(31,101)
(45,905)
Net cash used in financing activities
(82,216)
(19,446)
(52,923)
Net change in cash and cash equivalents
8
(24,625)
(1,912)
31,503
Net cash and cash equivalents at beginning of period
8
117,520
82,608
82,608
Exchange movement
8
(6,423)
(5,061)
3,409
Net cash and cash equivalents at end of period
8
86,472
75,635
117,520
Bank deposits
8
-
31,103
24,437
Borrowings and finance leases
8
(32,993)
(108,267)
(89,464)
Net Cash/(debt) at the end of the period
8
53,479
(1,529)
52,493
NOTES TO THE ACCOUNTS
1. BASIS OF PREPARATION
Spirax-Sarco Engineering plc is a company domiciled in the UK. The half year condensed consolidated financial statements of Spirax-Sarco Engineering plc and its subsidiaries (the Group) have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. The accounting policies applied are consistent with those set out in the 2014 Spirax-Sarco Engineering plc Annual Report.
These condensed consolidated half year financial statements do not include all the information required for full annual statements and should be read in conjunction with the 2014 Annual Report. The comparative figures for the year ended 31st December 2014 do not constitute the Group's statutory accounts for that financial year as defined in Section 434 of the Companies Act 2006. The consolidated statutory accounts for Spirax-Sarco Engineering plc in respect of the year ended 31st December 2014 have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditors 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.
The consolidated financial statements of the Group in respect of the year ended December 2014 are available upon request from Mr A. J. Robson, General Counsel and Company Secretary, Charlton House, Cheltenham, Gloucestershire, GL53 8ER, United Kingdom or on www.spiraxsarcoengineering.com.
The financial statements for the six months ended 30th June 2015, which have not been audited or reviewed by the auditors, were authorised by the Board on 4th August 2015.
The interim report has been prepared solely to provide additional information to shareholders as a body to assess the Group's strategies and the potential for those strategies to succeed. This interim report should not be relied upon by any other party or for any other purpose.
GOING CONCERN
Having made enquiries and reviewed the Group's plans and available financial facilities, the Board has a reasonable expectation that the Group has adequate resources to continue its operational existence for the foreseeable future. For this reason, it continues to adopt the going concern basis in preparing the condensed consolidated financial statements. There are no key sensitivities identified in relation to this conclusion.
NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
There are a number of new standards, amendments to standards and interpretations that are not yet effective for the period ended 30th June 2015 and have, therefore, not been applied in preparing these condensed consolidated interim financial statements. None of these are anticipated to have a significant impact on the consolidated income statement or consolidated statement of financial position.
SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of interim financial statements in conformity with adopted IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31st December 2014.
The Directors have considered the facts and circumstances as at 30th June 2015 and concluded that there are no indicators of impairments that require an impairment review to be undertaken on goodwill at the interim statement of financial position date. The annual impairment review will be undertaken later in 2015 consistent with the timing in previous years.
CAUTIONARY STATEMENTS
This interim report contains forward-looking statements. These have been made by the Directors in good faith based on the information available to them up to the time of their approval of this report. The Directors can give no assurance that these expectations will prove to have been correct. Due to the inherent uncertainties, including both economic and business risk factors underlying such forward-looking information, actual results may differ materially from those expressed or implied by these forward-looking statements. The Directors undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge:
this financial information has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;
the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year.
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.
The Directors of Spirax-Sarco Engineering plc on 4th August 2015 are the same as those listed in the 2014 Annual Report on pages 60 and 61.
N J AndersonGroup Chief Executive
4th August 2015
D J Meredith
Finance Director
4th August 2015
On behalf of the Board
2. SEGMENTAL REPORTING
As required by IFRS 8, Operating Segments, the following segmental information is presented in a consistent format with management information considered by the Board.
Analysis by location of operation
Six months to 30th June 2015
Gross
revenue
'000
Inter-
segment
revenue
'000
Revenue
'000
Total
operating
profit
'000
Adjusted
operating
profit
'000
Adjusted
operating
margin
%
Europe, Middle East & Africa
128,636
16,807
111,829
20,648
21,294
19.0%
Asia Pacific
76,489
2,210
74,279
15,234
15,492
20.9%
Americas
63,989
2,941
61,048
7,287
11,760
19.3%
Steam Specialties business
269,114
21,958
247,156
43,169
48,546
19.6%
Watson-Marlow
72,823
-
72,823
20,743
21,794
29.9%
Corporate expenses
(4,499)
(4,499)
341,937
21,958
319,979
59,413
65,841
20.6%
Intra-Group
(21,958)
(21,958)
Total
319,979
-
319,979
59,413
65,841
20.6%
Net finance expense
(577)
(577)
Share of profit/(loss) of Associates
(1,506)
247
Profit before tax
57,330
65,511
Six months to 30th June 2014
Gross
revenue
'000
Inter-
segment
revenue
'000
Revenue
'000
Total
operating
profit
'000
Adjusted
operating
profit
'000
Adjusted
operating
margin
%
Europe, Middle East & Africa
138,354
19,089
119,265
23,772
24,218
20.3%
Asia Pacific
78,424
2,881
75,543
16,754
16,754
22.2%
Americas
62,566
2,742
59,824
10,954
11,862
19.8%
Steam Specialties business
279,344
24,712
254,632
51,480
52,834
20.7%
Watson-Marlow
64,536
8
64,528
18,135
19,272
29.9%
Corporate expenses
(4,957)
(4,957)
343,880
24,720
319,160
64,658
67,149
21.0%
Intra-Group
(24,720)
(24,720)
-
-
-
Total
319,160
-
319,160
64,658
67,149
21.0%
Net finance expense
(1,542)
(1,542)
Share of profit of Associates
338
718
Profit before tax
63,454
66,325
Year ended 31st December 2014
Gross
revenue
'000
Inter-
segment
revenue
'000
Revenue
'000
Total
operating
profit
'000
Adjusted
operating
profit
'000
Adjusted
operating
margin
%
Europe, Middle East & Africa
274,271
38,039
236,232
44,855
45,929
19.4%
Asia Pacific
182,556
4,894
177,662
46,191
46,418
26.1%
Americas
131,869
5,681
126,188
26,478
27,961
22.2%
Steam Specialties business
588,696
48,614
540,082
117,524
120,308
22.3%
Watson-Marlow
138,195
138,195
41,428
43,499
31.5%
Corporate expenses
(10,857)
(10,857)
726,891
48,614
678,277
148,095
152,950
22.5%
Intra-Group
(48,614)
(48,614)
Total
678,277
-
678,277
148,095
152,950
22.5%
Net finance expense
(2,983)
(2,983)
Share of operating profit/(loss) of Associates
(318)
1,151
Profit before tax
144,794
151,118
Non-operational items
The Group uses adjusted figures as key performance measures in addition to those reported under adopted IFRS. The Group's management believes these measures provide valuable additional information for users of the financial statements in understanding the Group's performance. Adjusted operating profit excludes certain non-operational items which are analysed below:
Six months to
30th June 2015
'000
Six months to
30th June 2014
'000
Year ended
31st Dec. 2014
'000
Amortisation and impairment of acquisition-related intangible assets
(2,240)
(2,020)
(4,096)
USA meter manufacturing facility closure costs
(3,814)
-
-
Acquisition and disposal costs
(374)
(471)
(759)
(6,428)
(2,491)
(4,855)
Share of profit of Associates
An analysis of the share of profit of Associates is shown below:
Six months to
30th June 2015
'000
Six months to
30th June 2014
'000
Year ended
31st Dec. 2014
'000
Share of adjusted profit
247
718
1,151
Non-operational items
Amortisation and impairment of acquisition-related intangible assets
(100)
(380)
(1,125)
Impairment of tangible assets
-
-
(344)
Final adjustment to previous impairment write offs
137
-
-
Exchange translation differences recycled under IAS 21
(1,790)
-
-
Total non-operational items
(1,753)
(380)
(1,469)
Total Associates
(1,506)
338
(318)
Net assets
The total assets and liabilities of the four segments have not been disclosed as there has been no material change in the amounts disclosed in the 2014 Annual Report and Accounts.
Capital additions and depreciation, amortisation and impairment
Six month
30th June 2015
Six month
30th June 2014
Year ended
31st December 2014
Capital
additions
'000
Depreciation,
amortisation
and
impairment
'000
Capital
additions
'000
Depreciation,
amortisation
and
impairment
'000
Capital
Additions
'000
Depreciation,
amortisation and
impairment
'000
Europe, Middle East & Africa
5,997
5,659
6,818
5,119
15,301
10,476
Asia Pacific
1,967
2,941
7,144
2,385
8,657
5,144
Americas
1,720
4,776
2,351
3,035
4,159
5,335
Watson-Marlow
5,201
3,236
6,187
2,668
11,271
5,844
Group total
14,885
16,612
22,500
13,207
39,388
26,799
Capital additions include property, plant and equipment at 30th June 2015 of 8,805,000; at 30th June 2014 of 16,144,000; and at 31st December 2014 of 26,876,000; and other intangible assets at 30th June 2015 of 6,080,000; at 30th June 2014 of 6,356,000; and at 31st December 2014 of 12,512,000. Depreciation, amortisation and impairment includes amortisation of acquisition-related intangible assets at 30th June 2015 of 2,240,000; at 30th June 2014 of 2,020,000; and at 31st December 2014 of 4,096,000 and impairment at 30th June 2015 of 1,024,000 of intangible assets and 981,000 of tangible assets in respect of the USA meter manufacturing closure costs (2014: nil).
3. NET FINANCING INCOME AND EXPENSE
Six months
to 30th June
2015
'000
Six months
to 30th June
2014
'000
Year ended
31st December
2014
'000
Financial expenses
Bank and other borrowing interest payable
(663)
(1,120)
(2,310)
Net interest on pension scheme liabilities
(1,302)
(1,398)
(2,919)
(1,965)
(2,518)
(5,229)
Financial income
Bank interest receivable
1,388
976
2,246
Net financing expense
(577)
(1,542)
(2,983)
Net pension scheme financial expense
(1,302)
(1,398)
(2,919)
Net bank interest
725
(144)
(64)
Net financing expense
(577)
(1,542)
(2,983)
4. TAXATION
Taxationhas been estimated at the rate expected to be incurred in the full year
Six months
to 30th June
2015
'000
Six months
to 30th June
2014
'000
Year ended
31st December
2014
'000
United Kingdom corporation tax
417
67
2,534
Foreign taxation
18,855
18,923
42,480
Deferred taxation
(1,341)
150
(793)
17,931
19,140
44,221
5. EARNINGS PER SHARE
Six months
to 30th June
2015
Six months
to 30th June
2014
Year ended
31st December
2014
Profit attributable to equity shareholders ('000)
39,382
44,269
100,327
Weighted average shares in issue
75,463,654
75,452,395
75,532,018
Dilution
302,944
393,906
455,530
Diluted weighted average shares in issue
75,766,598
75,846,301
75,987,548
Basic earnings per share
52.2p
58.7p
132.8p
Diluted earnings per share
52.0p
58.4p
132.0p
Adjusted profit attributable to equity shareholders ('000)
45,646
46,532
106,015
Basic adjusted earnings per share
60.5p
61.7p
140.4p
Diluted adjusted earnings per share
60.2p
61.4p
139.5p
The dilution is in respect of unexercised share options and the Performance Share Plan.
6. DIVIDENDS
Six months
to 30th June
2015
'000
Six months
to 30th June
2014
'000
Year ended
31st December
2014
'000
Amounts paid in the period
Final dividend for the year ended 31st December 2014 of 45.0p (2013: 41.0p) per share
34,089
30,960
30,960
Interim dividend for the year ended 31st December 2014 of 19.5p (2013: 18.0p) per share
-
-
14,755
Total dividends paid
34,089
30,960
45,715
Amounts arising in respect of the period
Interim dividend for the year ended 31st December 2015 of 20.8p (2014: 19.5p) per share
15,202
14,733
14,755
Final dividend for the year ended 31st December 2014 of 45.0p (2013: 41.0p) per share
-
-
34,134
Special dividend for the year ended 31st December 2014 of 120.0p (2013: nil) per share
-
-
91,024
Total dividends arising
15,202
14,733
139,913
No scrip alternative to the cash dividend is being offered in respect of the 2015 interim dividend.
7. POST-RETIREMENT BENEFITS
The Group is accounting for pension costs in accordance with IAS 19.
The disclosures shown here are in respect of the Group's Defined Benefit Obligations. Other plans operated by the Group were either Defined Contribution plans or were deemed immaterial for the purposes of IAS 19 reporting. Full IAS 19 disclosure for the year ended 31st December 2014 is included in the Group's Annual Report.
The amounts recognised in the balance sheet are as follows:
Total
At 30th June
2015
'000
At 30th June
2014
'000
At 31st December
2014
'000
Retirement benefit liability recognised in the balance sheet
(74,970)
(64,889)
(75,779)
Related deferred tax asset
16,900
16,905
17,703
Net pension liability
(58,070)
(47,984)
(58,076)
8. ANALYSIS OF CHANGES IN NET CASH
At
1st Jan 2015
'000
Cash flow
'000
Exchange
movement
'000
At
30th June 2015 '000
Current portion of long-term borrowings
(298)
(298)
Non-current portion of long-term borrowings
(49,096)
(26,369)
Short-term borrowing
(40,070)
(6,326)
Total borrowings
(89,464)
56,347
124
(32,993)
Comprising:
Borrowings
(88,637)
56,193
92
(32,352)
Finance leases
(827)
154
32
(641)
(89,464)
56,347
124
(32,993)
Cash and cash equivalents
117,981
(24,879)
(6,477)
86,625
Bank overdrafts
(461)
254
54
(153)
Net cash and cash equivalents
117,520
(24,625)
(6,423)
86,472
Bank deposits
24,437
(24,626)
189
-
Net cash
52,493
7,096
(6,110)
53,479
9. CAPITAL EMPLOYED
The Board uses certain non-statutory measures to help it effectively monitor the performance of the Group. Capital employed is a key measure.
At 30th June
2015
'000
At 30th June
2014
'000
At 31st December 2010
2014
'000
Capital Employed
Property, plant and equipment
164,705
177,116
176,668
Prepayments
477
180
402
Inventories
98,819
111,306
98,007
Trade receivables
133,170
132,596
155,696
Other current assets
25,024
21,153
23,973
Tax recoverable
4,594
4,027
4,420
Capital employed element of business held for sale
4,666
-
-
Trade and other payables
(76,316)
(80,443)
(90,754)
Current tax payable
(12,338)
(11,184)
(22,175)
Capital employed
342,801
354,751
346,237
10. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
Full details of the Group's other related party relationships, transactions and balances are given in the Group's financial statements for the year ended 31st December 2014. There have been no material changes in these relationships in the period up to the end of this report.
No related party transactions have taken place in the first half of 2015 that have materially affected the financial position or the performance of the Group during that period.
11. PURCHASE OF BUSINESSES
Acquisitions
2015
Book
value
'000
FV
adj
'000
Fair
2010 value
'000
Non-current assets
Property, plant and equipment
328
328
Other tangible assets
69
69
Intangibles
2,935
2,935
397
2,935
3,332
Current assets
Inventories
1,351
1,351
Trade receivables
747
747
Other receivables
60
60
Cash
449
449
Total assets
3,004
2,935
5,939
Current liabilities
Trade payables
391
391
Other payables and accruals
160
160
Deferred tax
959
959
Total liabilities
551
959
1,510
Total net assets
2,453
1,976
4,429
Goodwill
3,554
Total
7,983
Satisfied by Cash paid
7,412
Deferred consideration
571
7,983
Reconciliation to the Cash Flow Statement:
Cash paid for 2015 businesses acquired
7,412
Less cash acquired
(449)
Deferred consideration for prior years' acquisitions
124
Cash outflow
7,087
1. The acquisition of the Asepco Corporation, a company specialising in the design and production of high purity tanks and process valves, and magnetically driven mixers for the biopharmaceutical industry based in the USA was completed on 8th April 2015. The acquisition method of accounting has been used. Consideration of 7,005,000 was paid on completion with a further 221,000 deferred. Separately identified intangibles are recorded as part of the fair value adjustment. The goodwill recognised represents the skilled workforce acquired and the synergies that can be achieved by being part of the Spirax Group. 100% of voting rights were acquired. Goodwill arising is not expected to be tax deductible. Asepco has generated 1,100,000 of revenue and 180,000 of pre-tax profit since acquisition. Had acquisition been made on 1st January 2015, the revenue and pre-tax profit would have been approximately double these figures.
2. The acquisition of Valve and Control Engineering Ltd. (VCE), specialising in boiler services and certifications, based in the UK was completed on 14th April 2015. The acquisition method of accounting has been used. Consideration of 407,000 was paid on completion with a further 350,000 deferred and contingent on future performance. Separately identified intangibles are recorded as part of the fair value adjustment. The goodwill recognised represents the skilled workforce acquired and the opportunity to sell to a wider customer base. Goodwill arising is not expected to be tax deductible. VCE has generated 150,000 of revenue and 50,000 of pre-tax profit since acquisition. Had the acquisition been made on 1st January 2015, the revenue and pre-tax profit would have been approximately double these figures.
127,000 of acquisition costs were incurred in relation to these acquisitions. The values above are provisional. The acquired intangibles relate to customer relationships, technology based assets and marketing based assets.
12. ASSETS HELD FOR SALE
On 3rd August 2015 M&M International Srl based in Italy was sold by the Group. This operation has been classified as held for sale in the balance sheet at 30th June 2015. The transaction details are explained more fully in a separate announcement dated 4th August 2015. The proceeds of disposal exceed the book value of the related net assets and accordingly no impairment losses have been recognised on the classification of this operation as held for sale.
The major classes of assets and liabilities classified as held for sale are as follows:
At 30th June
2015
'000
Goodwill and other intangibles
2,610
Property, plant and equipment
3,296
Inventories
996
Trade receivables
1,155
Deferred tax assets
831
Other current assets
382
Total assets of business held for sale
9,270
Trade and other payables
1,136
Deferred tax liabilities
837
Post-retirement benefits
454
Other payables
106
Total liabilities associated with assets classified as held for sale
2,533
Net assets of business held for sale
6,737
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table compares amounts and fair values of the Group's financial assets and liabilities:
At 30th June 2015
At 30th June 2014
At 31st December 2014
Carrying
Value
'000
Fair
Value
'000
Carrying
Value
'000
Fair
Value
'000
Carrying
Value
'000
Fair
Value
'000
Financial assets
Cash and cash equivalents
86,625
86,625
79,318
79,318
117,981
117,981
Bank deposits
-
-
31,103
31,103
24,437
24,437
Trade and other receivables
142,440
142,440
142,808
142,808
168,721
168,721
Total financial assets
229,065
229,065
253,229
253,229
311,139
311,139
Financial liabilities
Bank loans
32,352
32,352
107,295
107,295
88,637
88,637
Finance lease obligations
641
644
972
977
827
831
Bank overdrafts
153
153
3,683
3,683
461
461
Trade payables
20,853
20,853
27,188
27,188
27,670
27,670
Other payables
23,925
23,925
25,500
25,500
25,976
25,976
Total financial liabilities
77,924
77,927
164,638
164,643
143,571
143,575
There are no other assets or liabilities measured at fair value on a recurring or non-recurring basis for which fair value is disclosed.
Derivative financial instruments are measured at fair value. Fair value of derivative financial instruments is calculated based upon discounted cash flow analysis using the appropriate market information for the duration of the instruments.
The Group uses forward currency contracts to manage its exposure to movements in foreign exchange rates. The forward contracts are designated as hedge instruments in a cash flow hedging relationship. At 30th June 2015 the Group had contracts outstanding to purchase 2,508,000 with US Dollars, 300,000 with Korean Won, 120,000 with YEN and 1,634,000 with US Dollars. The fair values at the end of the reporting period were 33,000 (31st December 2014 232,000). The fair value of derivative financial instruments falls into the level 2 category of the fair value hierarchy in accordance with IFRS 7.
14. EXCHANGE RATES
Set out below is an additional disclosure (not required by IAS 34) that highlights movements in a selection of average exchange rates between half-year 2015 and half-year 2014.
Average
half-year
2015
Average
half-year
2014
Change
%
Bank of England sterling index
90.6
86.4
-5%
US$
1.53
1.67
+9%
Euro
1.36
1.22
-10%
RMB
9.53
10.33
+8%
Won
1,685
1,751
+4%
Real
4.53
3.84
-15%
Yen
185
172
-7%
Australian $
1.96
1.83
-7%
Rouble
89.74
58.28
-35%
Turkish Lira
3.92
3.61
-8%
This information is provided by RNSThe company news service from the London Stock ExchangeENDIR DZLFBEVFBBBZ
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