TIDMSPX
RNS Number : 1573I
Spirax-Sarco Engineering PLC
07 August 2019
News Release
Wednesday 7(th) August 2019
2019 Half Year Results
Strong first half organic growth; full year expectations
unchanged
FINANCIAL HIGHLIGHTS
Six months ended 30(th) June
2019 2018 Reported Organic
---------------------------- -------------------- --------------------- ---------------- -------------------
Revenue GBP591.2m GBP547.6m +8% +8%
Adjusted operating
profit* GBP129.2m GBP125.7m +3% +4%
Adjusted operating
profit margin* 21.9% 23.0% -110 bps -70 bps
Adjusted profit before
taxation* GBP124.6m GBP120.6m +3%
Adjusted basic earnings
per share* 120.0p 119.2p +1%
Dividend per share 32.0p 29.0p +10%
Adjusted cash conversion** 71% 75%
Statutory 2019 2018 Reported
-------------------------- ---------- ---------- ---------
Revenue GBP591.2m GBP547.6m +8%
Operating profit GBP112.7m GBP111.9m +1%
Operating profit margin 19.1% 20.4% -130 bps
Profit before taxation GBP108.1m GBP106.8m +1%
Basic earnings per share 102.4p 105.1p -3%
*All profit measures exclude certain items which totalled
GBP16.5 million for the six months ended 30(th) June 2019, as set
out in Note 2.
**Cash conversion measures the percentage of adjusted cash from
operations to adjusted operating profit, as set out in Note 2.
Organic percentage growth measures are at constant currency and
exclude contributions from acquisitions and disposals.
-- Revenue up 8% organically and at reported rates
-- Adjusted operating profit margin of 21.9% in line with expectations
-- Strong organic sales and profit growth in Steam Specialties and Watson-Marlow
-- Continued organic sales growth in Chromalox; addressing unsatisfactory profitability
-- Acquisition of Thermocoax for GBP135 million in May 2019
-- Net debt of GBP391.5 million, 1.3x EBITDA
-- Interim dividend increased by 10% to 32.0p
Nicholas Anderson, Group Chief Executive, commenting on the
results said:
"We are pleased to report strong organic sales growth of 8% in
the first half of the year and organic operating profit growth of
4%, with all three businesses delivering organic sales growth ahead
of industrial production. Both the Steam Specialties and
Watson-Marlow businesses achieved strong organic sales growth and
margin progression, reflecting the successful implementation of our
strategy and its focus on self-generated growth. Chromalox also
grew sales organically against a very tough comparison.
The only disappointment of this period was a profitability
deterioration in Chromalox so we have intensified work to improve
its operational performance. Our original expectations for this
business remain unchanged. While the Group's strong first half
organic sales growth was ahead of our expectations, industrial
production growth forecasts for the second half of the year have
weakened below earlier estimates. As a result, our overall full
year expectations remain unchanged."
For further information, please contact:
Nicholas Anderson, Group Chief Executive
Kevin Boyd, Chief Financial Officer
Tel: 020 7638 9571 at Citigate Dewe Rogerson until 6.00 p.m.
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:
https://edge.media-server.com/mmc/p/8pa3j3ez at 9.15 a.m. and a
recording will be posted on the website shortly after the
meeting.
About Spirax--Sarco Engineering plc
Spirax--Sarco Engineering plc is a thermal energy management and
niche pumping specialist. It comprises three world--leading
businesses: Steam Specialties, for the control and management of
steam; Chromalox, for electrical thermal energy solutions; and
Watson-Marlow, for peristaltic pumping and associated fluid path
technologies. The Steam Specialties business and Chromalox provide
a broad range of fluid control and electrical process heating
products, engineered packages, site services and systems expertise
for a diverse range of industrial and institutional customers. Both
businesses help their end users to improve production efficiency,
meet their environmental sustainability targets, improve product
quality and enhance the safety of their operations. Watson--Marlow
Fluid Technology Group provides solutions for a wide variety of
demanding fluid path applications with highly accurate,
controllable and virtually maintenance-free pumps and associated
technologies.
The Group is headquartered in Cheltenham, UK, has strategically
located manufacturing plants around the world and employs over
7,900 people, of whom over 1,600 are direct sales and service
engineers. Its shares have been listed on the London Stock Exchange
since 1959 (symbol: SPX) and it is a constituent of the FTSE 100
index.
Further information can be found at
www.spiraxsarcoengineering.com.
REVIEW OF OPERATIONS
HY 2018 Exchange Organic Acquisitions HY 2019 Organic Reported
& disposals
Revenue GBP547.6m GBP2.4m GBP42.4m (GBP1.2m) GBP591.2m +8% +8%
---------- ---------- --------- ------------- ---------- -------- ---------
Adjusted operating
profit GBP125.7m (GBP0.8m) GBP5.4m (GBP1.1m) GBP129.2m +4% +3%
---------- ---------- --------- ------------- ---------- -------- ---------
Adjusted operating -110
profit margin 23.0% 21.9% -70 bps bps
---------- ---------- --------- ------------- ---------- -------- ---------
Statutory operating
profit GBP111.9m GBP112.7m +1%
---------- ---------- --------- ------------- ---------- -------- ---------
Statutory operating -130
profit margin 20.4% 19.1% bps
---------- ---------- --------- ------------- ---------- -------- ---------
Unless otherwise stated, the figures quoted in the text below
are based on the adjusted Group results (see Note 2). Organic
measures are at constant currency and exclude contributions from
acquisitions and disposals.
Introduction
During the six months to 30(th) June 2019, the Group delivered a
strong financial performance, with record sales and profit, despite
weakening industrial production growth rates. We saw organic
progress across all three geographic segments of the Steam
Specialties business and Watson-Marlow, with Chromalox delivering
sales growth despite a tough compare and continuing operational
inefficiencies.
In May we completed the acquisition of electrical thermal
solutions specialist Thermocoax Developpement, welcoming all its
companies into the Group. Thermocoax will be reported within the
Chromalox business.
Board changes
In March we announced that Caroline Johnstone was joining the
Board as an Independent Non-Executive Director and a member of the
Audit, Remuneration and Nomination Committees. Two months later,
following the conclusion of our Annual General Meeting in May,
Clive Watson, Senior Independent Director and Chair of the Audit
Committee, stepped down, having served for nine years on the Board.
As a result of Clive's departure, Kevin Thompson joined the Board
as an Independent Non-Executive Director and Chair of the Audit
Committee and Dr Trudy Schoolenberg was appointed to the position
of Senior Independent Director. We would like to express our
sincere thanks to Clive for the significant contribution he made to
the development of the Group during his nine year tenure and
welcome Caroline and Kevin to the Board.
The Board changes were part of the succession planning
undertaken by the Nomination Committee to recruit and promote
Non-Executive Directors with the skills and experience required to
support the implementation of our strategy for growth.
Market environment
During the first half of 2019, global industrial production
growth remained positive at 1.6%, compared with 3.5% in the first
half of 2018. In the first six months of 2019, industrial
production growth in Europe and Asia Pacific (excluding China) was
flat and Latin America saw a contraction, compared with the same
period in the prior year. China's industrial production growth rate
was 5.8%, raising Asia Pacific's growth rate as a whole to 3.0%.
North America maintained positive growth, although at almost half
the level of the prior year and with a slowing growth rate in the
second quarter. The latest forecast for global industrial
production growth for the whole of 2019 is 1.6%, approximately half
the 3.1% achieved in 2018.
Progress in the half year
Sales
Sales grew in the first half of the year, up 8% to GBP591.2
million (2018: GBP547.6 million).
HygroMatik, due to its limited strategic fit, was divested on
30(th) November 2018 and as a result made no contribution to sales
in the first half of 2019, compared with GBP7.0 million in the
first half of 2018. This was partially offset by a GBP5.8 million
contribution to sales by Thermocoax, which was acquired on 13(th)
May 2019. Acquisitions and disposals thus resulted in a net GBP1.2
million reduction during the period.
On average in the first half of the year, sterling was slightly
weaker against the basket of currencies that we trade in compared
to the same period in 2018, providing a small tailwind, which
increased sales on translation by GBP2.4 million.
Excluding the impacts of acquisitions, disposals and currency
movements, the Group saw 8% organic sales growth.
Within the Steam Specialties business, which accounted for 62%
of Group revenue in the first half of the year, organic sales
growth was 8%, with good growth in all geographic segments.
Organic sales in Chromalox, which accounted for 14% of Group
revenue, were up 2% against a strong performance in the same period
of 2018. Reported sales grew 15%, boosted by the inclusion of seven
weeks of Thermocoax and favourable exchange movements.
Watson-Marlow, which accounted for 24% of Group revenue, had an
exceptionally strong start to the year and saw sales grow 11%
organically, 13% on a reported basis.
Adjusted operating profit
Group adjusted operating profit was 4% ahead of the prior year
on an organic basis and, at GBP129.2 million, was up 3% at reported
exchange rates, negatively impacted by a net GBP1.1 million from
acquisitions and disposals, and a GBP0.8 million exchange
headwind.
In the Steam Specialties business, adjusted operating profit was
9% higher than the same period in the prior year on an organic
basis, with good growth in all three geographic segments. The
divestment of HygroMatik in the second half of 2018 served to
reduce adjusted operating profit by GBP2.1 million, compared with
2018, and exchange had a GBP2.5 million negative impact.
Chromalox had adjusted operating profit of GBP8.1 million, down
37% organically on the same period in the prior year, as we
continued to step up our investments for future growth and improved
profitability, while responding to manufacturing inefficiencies.
Thermocoax contributed GBP1.0 million to adjusted operating profit
in the period and, with a small benefit from exchange, adjusted
operating profit for the total Chromalox business was down 24%.
Watson-Marlow had an excellent start to the year with adjusted
operating profit of GBP45.0 million, 11% ahead on an organic basis
and up 14% at reported exchange rates.
The Group adjusted pre-tax profit increased by 3% to GBP124.6
million (2018: GBP120.6 million). The pre-tax profit for the first
half on a statutory basis was GBP108.1 million (2018: GBP106.8
million). The reconciling items between the adjusted pre-tax profit
and the statutory pre-tax profit are shown in Note 2. In the first
half of 2019, the reconciling items primarily related to the
amortisation of acquisition-related intangible assets and
acquisition-related items.
Adjusted operating profit margin
The Group adjusted operating profit margin fell by 110 bps to
21.9% due to the disposal of the highly profitable HygroMatik
business, a negative exchange impact and the lower operating profit
in Chromalox. On an organic basis, the Group margin decreased 70
bps.
The Steam Specialties business delivered an operating profit
margin of 22.9%, a reported decrease of 50 bps over the same period
in the prior year, due to the impact of exchange and the disposal
of HygroMatik. On an organic basis the margin increased by 20 bps.
Chromalox's margin contracted by 500 bps to 9.7%. Excluding the
impact of the Thermocoax acquisition and favourable currency
movements, the organic margin decreased by 560 bps as a result of
the full effects of the 2018 revenue investments for growth, a
restructuring programme in North America and increased losses in
the European operations. Watson-Marlow's operating profit margin
was ahead 50 bps to 31.6% aided by a currency tailwind; on an
organic basis the margin was up 10 bps.
Financing Expense
Net financing expense fell to GBP4.6 million from GBP5.1
million. It consists of net bank interest of GBP2.8 million (2018:
GBP4.1 million), interest on net pension liabilities of GBP1.2
million (2018: GBP1.0 million) and for the first time, following
the introduction of IFRS 16, interest on lease liabilities of
GBP0.6 million (2018: GBP0).
We anticipate a full year charge in the region of GBP10.0
million.
Taxation
As expected, due to changes to our internal financing structures
and the geographical mix of adjusted profits, the Group effective
tax rate on adjusted profits in the half year rose to 29.0% (2018:
27.1%); we anticipate a similar level for the full year.
The effective tax rate on statutory profit increased to 30.1%
(2018: 27.4%) due to the factors outlined above combined with
higher Thermocoax acquisition-related costs where no tax relief is
available.
Earnings per share
Adjusted basic earnings per share increased by 1% to 120.0 pence
(2018: 119.2 pence), less than the increase in adjusted operating
profit due to the increased tax rate. Basic earnings per share on a
statutory basis was 102.4 pence (2018: 105.1 pence).
Currency impacts
On average during the first half of 2019, sterling was slightly
weaker against the basket of currencies that we trade in, compared
with the same period in the prior year. Reported sales saw a small
(less than half of one per cent) boost as a result of translation.
However, due to geographic weighting, exchange had a small negative
impact on Group profit. Note 14 includes a table of the Group's
significant exchange rates.
Dividends
The Board has declared an interim dividend of 32.0 pence (2018:
29.0 pence) per ordinary share, an increase of 10%. The dividend
will be paid on 8(th) November 2019 to shareholders on the register
at the close of business on 11(th) October 2019. The final dividend
of 71.0 pence per share in respect of 2018 was paid on 24(th) May
2019 at a cash cost of GBP52.3 million.
Strategy for growth
The six key themes of our strategy for organic growth remain
unchanged:
-- Increase direct sales effectiveness through sector focus;
-- Develop the knowledge and skills of our expert sales and service teams;
-- Broaden our global presence;
-- Leverage our R&D investments;
-- Optimise supply chain effectiveness; and
-- Operate sustainably and help improve our customers' sustainability.
As we continue to rigorously implement these strategic themes
across all our Group businesses we are achieving our aim of
delivering organic growth that outperforms our markets.
Strategic implementation
During the first six months of 2019, progress against our six
strategic themes was a contributing factor to the organic sales and
profit growth achieved.
We have continued to broaden our global presence. Four new
operating companies commenced trading in the first half of the
year: Watson-Marlow Philippines, Watson-Marlow Colombia,
Watson-Marlow Iberia (located in Spain) and Gestra China. In
addition, Watson-Marlow established a direct sales presence in
Portugal and Chromalox established a sales office in the Midwest of
the USA, converting this region from distributor to direct sales.
The new sales companies and direct sales presence will strengthen
our local presence and enhance sales growth as we serve customers
using our proven consultative sales approach.
The programmes of the Academy are under continuous review and
development to ensure that they deliver the best possible training
to our sales engineers. During the first half of the year
additional learning materials were added to the previously-launched
Yellow and Orange belts to further strengthen these programmes (the
programmes of the Spirax Sarco Academy, based on the grading in
Judo, are structured into levels called "belts", with each belt
representing an increasing level of expertise). The Green belt
materials, which were launched in English in 2018, have been
further developed, translation continues apace and we are on track
to roll them out in an additional 15 languages by the end of the
year. Blue belt programmes are being developed and are on track for
a launch in English this year. In addition, a new "Consultative
Selling - Fundamentals" programme has been developed and the
initial roll-out commenced. To date, over 1,100 engineers have
completed the White belt, over 1,000 have completed the Yellow belt
and nearly 600 have completed the Orange belt.
A number of new products were launched during the first half of
the year, including "ReNu PU" a new pump head for the Qdos range
from Watson-Marlow Pumps, which provides increased chemical
compatibility and opens new opportunities for low-flow industrial
and environmental applications; a new "NBR" (nitrate rubber) hose
from Bredel pumps that improves application reach in the Food and
Beverage sector; and a new Spirax Sarco Clean Steam Generator for
the Healthcare market.
Acquisition
On 13(th) May 2019 we acquired Thermocoax for EUR156 million
(GBP135 million) on a cash--free, debt--free basis. The acquisition
was financed from existing cash and debt facilities and is expected
to be accretive to Group earnings in 2019. Thermocoax,
headquartered near Paris, France, is a leading designer and
manufacturer of highly engineered electrical thermal solutions for
critical applications in high added value industries and has become
part of our Chromalox business. In the year ended 31(st) December
2018, the business had revenues of EUR49.8 million and EBIT of
EUR12.1 million.
The acquisition will significantly enhance our electrical
process heating capabilities, enabling us to address critical
high-value applications where product cost is a secondary concern
to reliability and performance. In particular, the US market holds
significant potential for Thermocoax. It has grown substantially
there in recent years but is constrained by lack of critical mass
and local credentials. Chromalox has scale, contacts and reputation
in the USA that can support faster penetration of the market as
well as enhancing its offering to its own customers. In Europe,
Thermocoax will strengthen our market position, capabilities and
brand recognition in a broad range of attractive industries and
applications beyond those where Chromalox currently operates.
In the rest of the world both Thermocoax and Chromalox rely
mainly on agents and distributors and the combination of the two
businesses will allow us to accelerate our direct sales investments
in these markets, while leveraging the extensive global
infrastructure of the Group to facilitate ease of entry for direct
sales.
IFRS 16
The adoption of IFRS 16 from 1(st) January 2019 has resulted in
the inclusion of GBP38.4 million of right-of-use assets in the
Statement of Financial Position at 30(th) June 2019 together with a
lease liability of GBP41.3 million. In the six months to 30(th)
June 2019, operating profit was increased by GBP0.6 million, which
was matched by an increase in lease liability interest of GBP0.6
million, giving a zero net impact to the Income Statement. Further
information can be found in Note 1.
Statement of Financial Position and cash flow
Capital employed increased by 12% from the beginning of the
year, to a reported GBP542.9 million at 30(th) June 2019. Net
investment in fixed assets was higher than depreciation in the
first half of the year as we continued to invest in the business,
in particular in the recent acquisitions. The traditional weighting
will increase capital spend in the second half of the year,
particularly due to the continued construction of the new Aflex
factory, in Yorkshire, UK, with total capital spend for the full
year anticipated to be in the region of GBP70 million.
Cash generation remains a priority. Cash conversion in the first
half was 71% and is expected to increase to 80% for the full year.
We continue to focus on maintaining a strong balance sheet. Net
debt at 30(th) June 2019 was GBP391.5 million compared to net debt
of GBP235.8 million at 31(st) December 2018, the increase due to
the acquisition of Thermocoax. Net debt equated to 1.3x trailing
twelve months' EBITDA. Adjusted Free Cash Flow of GBP52.8 million
was 13% lower than the prior year. Working capital increased as
inventory levels rose ahead of the second half, particularly in the
EMEA region, in order to mitigate potential Brexit supply chain
disruption and maintain delivery to customers. These inventory
levels will be maintained until the Brexit issue has been resolved.
At constant currency working capital as a percentage of the last
twelve months' sales decreased by 50 bps to 24.4%, compared with
June 2018. We continue to expect the ratio of net debt to EBITDA to
be in the region of 1.0 at 31(st) December 2019.
The defined benefit pension deficit increased in the half year
and was, before any associated deferred tax assets, GBP89.3 million
at 30(th) June 2019 compared to GBP85.1 million at 31(st) December
2018.
Adjusted cash flow 30(th) June 30(th) June
2019 2018
GBPm GBPm
------------
Adjusted operating profit 129.2 125.7
Depreciation and amortisation 22.4 15.4
Adjusted earnings before interest, tax,
depreciation and amortisation 151.6 141.1
---------------------------------------------------- ------------ ------------
Cash payments to pension schemes (more)/less
than the charge to adjusted operating profit (2.4) (0.4)
Equity-settled share plans 3.2 2.9
Working capital changes (40.9) (34.1)
Net capital expenditure (including software
and development) (19.3) (15.8)
Adjusted cash from operations 92.2 93.7
---------------------------------------------------- ------------ ------------
Net interest (3.2) (4.1)
Income taxes paid (36.2) (28.9)
Adjusted free cash flow 52.8 60.7
---------------------------------------------------- ------------ ------------
Net dividends paid (52.6) (45.9)
Purchase of employee benefit trust shares/Proceeds
from issue of shares (7.5) (6.6)
Disposals/(Acquisitions) (including costs) (137.7) (2.9)
Repayments of principal under lease liabilities (5.3) -
---------------------------------------------------- ------------ ------------
Cash flow for the period (150.3) 5.3
---------------------------------------------------- ------------ ------------
Exchange movements (5.4) (4.7)
Opening net debt (235.8) (373.6)
---------------------------------------------------- ------------ ------------
Net debt at 30(th) June (391.5) (373.0)
---------------------------------------------------- ------------ ------------
Outlook
We continue to invest in the implementation of our strategy,
which is enhancing our ability to outperform our markets and
generate our own growth.
Our markets remain strongly influenced by industrial production
growth rates. Our operating assumption for the remainder of the
year is for relatively stable levels of global industrial
production growth albeit at significantly reduced rates than
experienced in 2018 and below previous estimates.
If exchange rates at the end of June were to remain unchanged
until the end of the year we would anticipate minimal impact on
either sales or profit due to foreign exchange movements.
Variations in exchange rates are often volatile and unpredictable,
therefore the actual impact could be significantly different.
The Group continues to have limited forward visibility of
demand, with order books in the range of seven to eight weeks of
order intake. In the Steam Specialties business, we anticipate
levels of organic sales growth to more than halve in the second
half of 2019 due to the weaker than originally forecast global
industrial production environment as well as the non-repeat nature
of some of the growth in the first half that included several large
orders in China and Korea, Brexit stock build and a stronger than
anticipated currency devaluation in Argentina. The strong start in
Watson-Marlow, tempered by the macro-economic climate, leads to
expectations of high single-digit growth for the year, while for
Chromalox we are planning for similar levels of organic growth as
experienced in the first half of the year.
Our expectation for the adjusted operating profit margin remains
in line with that outlined in our full year results statement in
March where we anticipated that the Group adjusted operating profit
margin in 2019 would be at a similar level to 2018 despite the
absence of the higher margin HygroMatik business and last year's
devaluation-driven profit boost from Argentina.
While the strong performance in the first half of this year was
ahead of our expectations, we believe that second half trading
conditions will be below our earlier estimates. Therefore, overall,
our full year expectations remain unchanged. Assuming no
significant deterioration in trading conditions, the Board remains
confident that the Group will continue to make progress in
2019.
Steam Specialties
HY 2018 Exchange Organic Acquisitions HY 2019 Organic Reported
& disposals
Revenue GBP348.9m (GBP2.8m) GBP26.6m (GBP7.0m) GBP365.7m +8% +5%
---------- ---------- --------- ------------- ---------- -------- ---------
Adjusted operating
profit GBP81.5m (GBP2.5m) GBP7.0m (GBP2.1m) GBP83.9m +9% +3%
---------- ---------- --------- ------------- ---------- -------- ---------
Adjusted operating
profit margin 23.4% 22.9% +20 bps -50 bps
---------- ---------- --------- ------------- ---------- -------- ---------
Statutory operating
profit GBP77.8m GBP81.1m +4%
---------- ---------- --------- ------------- ---------- -------- ---------
Statutory operating
profit margin 22.3% 22.2% -10 bps
---------- ---------- --------- ------------- ---------- -------- ---------
Market overview
Industrial production growth rates in the EMEA region steadily
weakened throughout 2018 and this continued into 2019, averaging
0.7% during the first half of 2019. Germany and Italy both
experienced contraction in industrial production during the first
half of the year, as did a number of smaller markets in the region,
such as Norway, Portugal and Turkey. Industrial production growth
in the UK and South Africa was broadly flat, compared with the same
period in the prior year, and was close to 1% in France and some of
our smaller markets, such as the Czech Republic and Spain. Only a
few markets, such as Denmark and Poland, experienced anything
approaching robust growth. Brexit remained a cloud of uncertainty
in the region throughout the period, with political change in
Spain, Egypt and Turkey also contributing towards uncertainty in
those countries.
Excluding China, industrial production growth in Asia Pacific
was flat in the first half of the year. Industrial output in China
was lower than the same period of 2018, with growth of around 5.8%
in the first six months of the year. Including China, industrial
production growth in the region averaged 3%. Korea, our second
largest market in the region, saw contraction of over 2%, with
Japan, Singapore, Thailand and Taiwan also experiencing a negative
industrial production growth rate. Elsewhere in the region,
industrial production growth was more mixed, with good growth in
New Zealand, the Philippines and Indonesia, but lower growth rates
of around 1% in Australia and India.
Within the Americas, North America saw relatively good growth in
the first quarter of the year (buoyed by the USA) but saw a
significant slowing of growth in the second quarter. Latin America
experienced continued contraction in industrial production growth
rates, with Argentina, Brazil, Chile and Mexico all experiencing
negative growth in this period. The Argentine economy has continued
to contract strongly in part due to political uncertainty in the
run-up to the Presidential election in October.
Progress in the half year
Good progress was made in the Steam Specialties business in the
first half of 2019, with reported sales of GBP365.7 million.
Organically, revenue was up 8%. On a reported basis, revenue was
ahead 5%, impacted by the sale of HygroMatik in the second half of
2018, as well as a small negative impact from exchange
movements.
Adjusted operating profit was ahead of the prior year, at
GBP83.9 million, up 9% on an organic basis. Adjusted operating
profit was up 3% on a reported basis, impacted by the divestment of
the strongly profitable HygroMatik and a negative exchange impact.
On an organic basis, the adjusted operating profit margin was up 20
bps but was down 50 bps on a reported basis at 22.9%.
Gestra, which joined the Steam Specialties business in May 2017,
saw more muted organic sales growth than in the prior year, due in
part to its very strong performance in 2018 and the negative
industrial production growth rate in Germany, its core market. In
addition, distributor sales were affected by political and economic
uncertainty in Europe, and weakening global industrial production
growth rates led to a softening in OEM demand. Nevertheless, Gestra
saw an increase in adjusted operating profit due to careful pricing
and efficiency projects across the business.
Statutory operating profit for the Steam Specialties business
increased from GBP77.8 million in the first half of 2018 to GBP81.1
million, driven by the factors outlined above, combined with a
GBP0.9 million fall in the charge of acquisition-related
intangibles.
Steam Specialties: Europe, Middle East and Africa (EMEA)
HY 2018 Exchange Organic Acquisitions HY 2019 Organic Reported
& disposals
Revenue GBP169.1m (GBP1.7m) GBP6.2m (GBP7.0m) GBP166.6m +4% -2%
---------- ---------- -------- ------------- ---------- -------- ---------
Adjusted operating
profit GBP35.8m (GBP0.6m) GBP1.2m (GBP2.1m) GBP34.3m +4% -4%
---------- ---------- -------- ------------- ---------- -------- ---------
Adjusted operating -60
profit margin 21.2% 20.6% 0 bps bps
---------- ---------- -------- ------------- ---------- -------- ---------
Statutory operating
profit GBP33.3m GBP32.4m -3%
---------- ---------- -------- ------------- ---------- -------- ---------
Statutory operating
profit margin 19.7% 19.4% -30 bps
---------- ---------- -------- ------------- ---------- -------- ---------
Progress in the half year
Against a backdrop of low or negative industrial production
growth rates across our largest markets in the EMEA region, we
achieved organic sales growth of 4%. At reported exchange rates and
including the GBP7.0 million loss of revenue due to the divestment
of HygroMatik, sales of GBP166.6 million were down 2%. In the first
quarter of the year we saw a small benefit from customers building
buffer stocks ahead of the UK's anticipated exit from the European
Union on 29(th) March.
Organic sales growth in the region was generally robust, with
good growth in the UK, Germany and Italy, and above market growth
in France. Elsewhere in the region, we saw particularly strong
growth in the Middle East, Eastern Europe, Russia and South Africa,
with our new operating companies in Hungary, Romania and the
Maghreb all making good progress. The implementation of our
strategy delivered strong sales growth in our focused sectors of
Food & Beverage, Healthcare and Oil & Gas, partially offset
by a weaker OEM sector.
In March this year we reported some softening of demand for
large projects in the latter half of 2018, which continued into
2019, although this was more than offset by growth in
self-generated small projects as well as maintenance, repair and
overhaul (MRO) base business.
Sales in Gestra grew more slowly, against a very tough
comparison with the same period in the prior year, mostly due to a
contraction in industrial production growth rates in Germany and
global weakness in OEM markets.
At GBP34.3 million, adjusted operating profit was down 4% on a
reported basis, impacted by the divestment of HygroMatik and
exchange. Organically, adjusted operating profit increased by 4%,
with both Spirax Sarco and Gestra contributing to this growth.
Gestra benefited from improved pricing discipline and efficiencies.
Spirax Sarco saw organic growth, despite incremental investments in
emerging markets, as a result of operating leverage on the higher
volumes and a favourable product mix arising from the higher
proportion of MRO and small, self-generated project sales.
The adjusted operating profit margin fell by 60 bps to 20.6%. On
an organic basis, excluding the impact of exchange and HygroMatik,
the margin was flat.
Steam Specialties: Asia Pacific
HY 2018 Exchange Organic Acquisitions HY 2019 Organic Reported
& disposals
Revenue GBP104.7m GBP0.4m GBP11.7m - GBP116.8m +11% +12%
---------- --------- --------- ------------- ---------- -------- ---------
Adjusted operating
profit GBP28.5m GBP0.4m GBP4.7m - GBP33.6m +16% +18%
---------- --------- --------- ------------- ---------- -------- ---------
Adjusted operating +130 +160
profit margin 27.2% 28.8% bps bps
---------- --------- --------- ------------- ---------- -------- ---------
Statutory operating
profit GBP28.2m GBP33.6m +19%
---------- --------- --------- ------------- ---------- -------- ---------
Statutory operating +190
profit margin 26.9% 28.8% bps
---------- --------- --------- ------------- ---------- -------- ---------
Progress in the half year
Sales in Asia Pacific were up 11% organically despite weakening
industrial production growth rates in the region. At GBP116.8
million reported sales were up 12%, with a marginal benefit from
exchange. Sales in the first quarter were boosted by a small number
of large Oil & Gas and Electronics projects from China and
Korea, supported by good base business and an increase in
self-generated sales. Following a strong start to the year, we
began to see some weakening of demand in the second quarter as
sales to OEMs, in particular, were impacted by the global softening
in industrial production growth rates. The Food & Beverage,
Healthcare and Pharmaceutical industries continued to grow, albeit
at a slower pace.
China delivered excellent, double-digit, organic sales growth
during the period, while our second largest operating company in
the region, Korea, also saw double-digit growth. Elsewhere, in our
smaller markets, the picture was more mixed with strong growth in
Malaysia, Singapore and Thailand, but contraction in Japan,
Australia and the Philippines. Our recently established
wholly-owned direct sales company in India continued to make good
progress with very strong sales growth.
Gestra, which has a small local presence in the region,
contributed to sales growth and benefited from a new sales company
in China, which commenced trading in April this year.
Adjusted operating profit increased to GBP33.6 million, a 16%
organic increase. A positive exchange impact further increased
profit, giving an 18% reported increase in profit over the prior
year. The adjusted operating profit margin expanded by 160 bps, to
28.8% due to strong sales growth, pricing discipline and a small
benefit from a positive product mix as a result of a larger
proportion of self-generated project sales, as well as a benefit
from the exchange tailwind. On an organic basis, the operating
profit margin expanded by 130 bps.
Steam Specialties: The Americas
HY 2018 Exchange Organic Acquisitions HY 2019 Organic Reported
& disposals
Revenue GBP75.1m (GBP1.5m) GBP8.7m - GBP82.3m +12% +10%
--------- ---------- -------- ------------- --------- -------- ---------
Adjusted operating
profit GBP17.2m (GBP2.3m) GBP1.1m - GBP16.0m +7% -7%
--------- ---------- -------- ------------- --------- -------- ---------
Adjusted operating -80 -350
profit margin 22.9% 19.4% bps bps
--------- ---------- -------- ------------- --------- -------- ---------
Statutory operating
profit GBP16.3m GBP15.1m -7%
--------- ---------- -------- ------------- --------- -------- ---------
Statutory operating -340
profit margin 21.7% 18.3% bps
--------- ---------- -------- ------------- --------- -------- ---------
Progress in the half year
At GBP82.3 million, reported sales were up 10%. Excluding a
negative impact from exchange, sales were up 12% on an organic
basis.
Organic sales in North America were ahead of the same period in
the prior year. Spirax Sarco USA grew by 6%, aided by a strong
order book carried over into 2019, which has now been realised.
Sales in Latin America were strongly ahead, up 26% on an organic
basis, despite a contraction in industrial production across much
of the region. Organic sales growth benefited from the continued
devaluation of the Argentine peso but to a much lesser extent than
was seen in the prior year and this was negated by a corresponding
exchange headwind.
The small Brazilian control valve manufacturer, Hiter Controls,
which we acquired in 2016, had an excellent start to the year.
Spirax Sarco Brazil was also strongly ahead as was our relatively
new sales company in Colombia. Mexico, however, served as a drag on
the Americas region as market uncertainty caused by continuing
US-Mexican trade tensions undermined confidence and stifled
investment in the country.
Gestra, which has a small local presence in the Americas, saw
very strong organic sales growth.
Adjusted operating profit in the Americas was down 7% on a
reported basis, at GBP16.0 million, as a result of a large foreign
exchange headwind in Latin America. On an organic basis, adjusted
operating profit was ahead 7%. Reported adjusted operating profit
margin was down 350 bps at 19.4%. On an organic basis, the fall was
80 bps. Both the foreign exchange loss and the organic gain were
affected by the continued devaluation of the Argentine peso to an
approximately equal and opposite effect.
Steam Specialties business strategy update
With slowing global industrial production growth rates, and
accompanying softening in demand for large projects, it is
increasingly important to focus our efforts on strengthening the
capabilities of our direct sales engineers to enhance their
knowledge and equip them to deliver bespoke customer solutions,
self-generating sales growth. The Spirax Sarco Academy has
continued to play an essential role in the strategic implementation
across all segments of the Steam Specialties business in the first
half of 2019. Evidence of the successful implementation of the
strategy can be found in the double-digit growth in self-generated
sales that was achieved across much of the Asia Pacific region in
the first half of this year, where a historical reliance on capital
projects is gradually being replaced by a growth in MRO business
and self-generated sales.
In support of customer service we commenced the roll out of a
new CRM (customer relationship management) platform in the Americas
segment, which will be in place across all our sales companies in
the region by the end of the year. The new CRM platform will
improve the robustness of our sales processes and help to deliver
improved customer service in the region.
A new Gestra operating company began trading in China in April
2019. The new company demonstrates our commitment to the dual brand
strategy within the Steam Specialties business, which is designed
to provide customer choice while allowing each business to play to
its strengths and address those industries where it has the
greatest expertise. Elsewhere, in the Asia Pacific region, a new
Spirax Sarco office, training centre and warehouse were opened in
Thailand in March 2019. The new facilities will raise Spirax
Sarco's brand image and increase our attractiveness as an
employer.
The integration of Gestra into the Group is now almost complete.
The company is benefiting from the relaunch of its brand,
significantly improved customer targeting and investments in sales
resource.
Steam Specialties outlook
Forecasts suggest that global industrial production growth rates
will be low throughout the remainder of the year, with developed
markets achieving growth of less than half of one percent in the
second half of the year and emerging markets a little over 3%,
giving a global annual growth rate of 1.6%, compared with 3.1% in
2018.
Even in the short term, however, the economic outlook remains
difficult to predict as all of the global market risks and
uncertainties that existed as we entered 2019 remain at the same
level or higher. Lack of material progress in Brexit negotiations
looks likely to continue to act as a drag on some customer
investments in the UK and Europe. This, combined with the rapid
slowing of industrial production growth in the USA in the second
quarter of this year and indications that Chinese growth may slow
further, suggests that market conditions in the second half of the
year may be worse than those experienced in the first half of the
year.
Growth in the first half of the year was boosted by a number of
factors that we do not anticipate to repeat in the second half.
This, coupled with economic uncertainty, leads us to believe that
growth in the Steam Specialties business in the second half of the
year will return to a more normal correlation to industrial
production growth.
Despite the continuing uncertainty, our resilient business
model, ability to self-generate sales and significant maintenance
and repair revenues, mean that we anticipate a similar level of
full year profitability in the Steam Specialties business as was
delivered in 2018, which benefited from the higher margin
HygroMatik business and a devaluation-driven profit boost from
Argentina.
Chromalox
HY 2018 Exchange Organic Acquisitions HY 2019 Organic Reported
--------- --------- ---------- ------------- --------- -------- ---------
Revenue GBP72.1m GBP3.4m GBP1.8m GBP5.8m GBP83.1m +2% +15%
--------- --------- ---------- ------------- --------- -------- ---------
Adjusted operating
profit GBP10.6m GBP0.6m (GBP4.1m) GBP1.0m GBP8.1m -37% -24%
--------- --------- ---------- ------------- --------- -------- ---------
Adjusted operating -560 -500
profit margin 14.7% 9.7% bps bps
--------- --------- ---------- ------------- --------- -------- ---------
Statutory operating
profit GBP4.6m GBP1.7m -63%
--------- --------- ---------- ------------- --------- -------- ---------
Statutory operating -440
profit margin 6.4% 2.0% bps
--------- --------- ---------- ------------- --------- -------- ---------
Market overview
While broadly positive, slowing global industrial production
growth rates, economic and political uncertainty arising from
US-China and US-Mexico trade tensions, Brexit and governmental
elections in a number of countries caused market uncertainty and
large project investment hesitancy, particularly in the first four
months of the year. Industrial production remained positive in
Chromalox's largest market, the USA, although growth slowed
significantly from over 4% in the second half of 2018 to only 1.4%
in the second quarter of 2019.
Progress in the half year
Reported sales were ahead 15% compared with the same period in
the prior year, at GBP83.1 million, boosted by a GBP3.4 million
benefit from exchange and a GBP5.8 million contribution to sales
from Thermocoax, which joined the Spirax-Sarco Engineering plc
Group on 13(th) May 2019, adding 8% to first half revenues.
Organically, sales increased by 2%, compared to a strong first half
in 2018 that saw 7% growth. The cumulative growth in the first two
years of ownership remains in line with our expectations at the
time of acquisition.
Demand growth was weak in the first quarter of 2019, reflecting
a market hesitation as a result of falling industrial production
growth rates and a demanding comparison to the same period of 2018
that saw demand expand by double-digits. However, delayed project
orders were confirmed in the latter months of the first half,
expanding the order book by 8% and supporting sales growth
expectations for the second half of the year. Sales in Europe were
down, while Asia Pacific was strongly ahead of the same period in
the prior year, as they benefited from shipping projects carried
over from 2018.
Adjusted operating profit of GBP8.1 million was down 24% on a
reported basis. A GBP1.0 million contribution to adjusted operating
profit from Thermocoax and a small benefit from exchange, partially
offset a 37% organic reduction. As previously reported, profit was
significantly affected by a number of supply chain difficulties
exposed by the rapid volume growth last year. We are actively
addressing this and have recruited externally a new Vice President
of Operations to oversee and improve management of the supply
facilities. We have also invested in a number of efficiency
initiatives to improve performance in the second half of this year.
The profit in the half year includes the full effects of the 2018
revenue investments for growth and a restructuring charge in North
America of GBP0.8 million that will provide annual benefits in the
region of GBP2.0 million going forward. Losses in our European
operations, 14% of revenues, increased by GBP2.3 million as
manufacturing inefficiencies and lower throughput volumes were
compounded by the shipment of lower margin projects secured in
2018. We are actively working on improvement plans to return our
European operations to profitability over the course of the next
two years.
At 9.7% the adjusted operating profit margin was 500 bps lower
than the comparable period, for the reasons outlined above. In
addition, a number of low-margin large orders from 2018 were
shipped in the first half of this year creating a drag on margins.
Despite this, the North American business, which represents 80% of
Chromalox revenues, maintained a margin of above 20% before
restructuring costs.
Statutory operating profit reduced from GBP4.6 million in the
first half of 2018 to GBP1.7 million. The reduction is due to the
factors outlined above plus a GBP0.4 million increase in
acquisition-related costs, which included Thermocoax in 2019.
Strategy update
Chromalox joined the Group two years ago and our strategies for
growth are progressing well, particularly expansion outside of its
strong North American base. We are strengthening the business
organically with the establishment of new sales offices, leveraging
the existing Spirax Sarco infrastructure. In line with our
acquisition strategy, European-based Thermocoax joined the Group in
May. Our long-term expectations for the business remain
unchanged.
Having entered a number of new territories for direct sales in
2018, during the first half of 2019 we focused on strengthening the
direct sales teams already in place and expanding our direct sales
presence in the USA. Following on from the 2018 conversion of the
West Coast representatives to direct sales, we have converted the
Midwest from distributor to direct sales, to ensure that our
customers are able to benefit from the expertise and bespoke
solutions offered by our sales engineers. While it is still early
days, we have observed a promising uplift in business in this
region as a result of the transition to direct sales. Expansion
into Latin America is going well, albeit from a small base, and our
most recent direct sales offices in the Nordics, Southern Europe
and the UAE are progressing in line with our expectations.
Electrical thermal solutions specialist, Thermocoax, joined the
Group in May, in line with our strategy to strengthen Chromalox
outside its North American heartland. The acquisition, which is
expected to grow at mid-single digits, had sales of EUR49.8 million
and EBIT of EUR12.1 million in the year ended 31st December 2018.
It expands our reach into a number of critical high-value
applications where product cost is a secondary concern to
reliability and performance, such as in the Semi-conductor,
Nuclear, Aeronautics and Space industries. Chromalox will benefit
from Thermocoax's strong market position in Europe, which will be
reciprocated by strengthening Thermocoax's position in North
America.
We have strengthened the Chromalox leadership team to ensure
delivery of our strategic vision and to help overcome the
operational challenges exposed by the company's very strong growth
in 2018. In addition to the new Vice President of Operations, we
have relocated a senior Finance Director from the Steam Specialties
business to the USA into the position of Vice President of Finance
and Administration. Also, we are finalising the appointment of a
new President of the enlarged Chromalox business who will replace
the previous President who left the company in March.
Outlook
Our expectations remain for organic sales growth ahead of global
industrial production growth as we focus on maintaining a good
level of base business and growth in small project sales, while
delivering a number of large projects carried over from the
previous year. We anticipate that a combination of improved
operational efficiencies, increased operational gearing from
seasonally higher second half shipments, benefits from the
restructuring in the first half, improved pricing discipline and
the acquisition of higher-margin Thermocoax, will result in the
adjusted operating profit margin for the full year being similar to
that reported in 2018.
Although market conditions have softened during the first six
months of the year, we have a healthy order book and remain
confident in our ability to improve Chromalox's performance and
deliver sustainable profitable growth, therefore our longer-term
expectations for this business remain unchanged.
Watson-Marlow
HY 2018 Exchange Organic Acquisitions HY 2019 Organic Reported
& disposals
Revenue GBP126.6m GBP1.8m GBP14.0m - GBP142.4m +11% +13%
---------- --------- --------- ------------- ---------- -------- ---------
Adjusted operating
profit GBP39.4m GBP1.1m GBP4.5m - GBP45.0m +11% +14%
---------- --------- --------- ------------- ---------- -------- ---------
Adjusted operating
profit margin 31.1% 31.6% +10 bps +50 bps
---------- --------- --------- ------------- ---------- -------- ---------
Statutory operating
profit GBP35.6m GBP40.2m +13%
---------- --------- --------- ------------- ---------- -------- ---------
Statutory operating
profit margin 28.1% 28.2% +10 bps
---------- --------- --------- ------------- ---------- -------- ---------
Market overview
Watson-Marlow's geographic presence and wide industrial customer
base is broadly similar to the Steam Specialties business and, as
such, the economic conditions and industrial production growth
rates experienced by Watson-Marlow in its markets are reflective of
those experienced elsewhere in the Group. The Pharmaceutical &
Biotechnology industry, which accounts for approximately 45% of
Watson-Marlow's sales, has continued to experience good growth
across all geographic regions, as has the Medical Devices &
Diagnostics sector, which now represents over 6% of the business'
sales. The uptake of single-use technology within this sector
continues to be strong, benefiting Watson-Marlow Tubing and
BioPure's product ranges in particular. Industrial markets have
generally experienced overall growth, but with regional and sector
variations.
Progress in the half year
On an organic basis sales increased by 11% and a small currency
tailwind boosted sales giving reported sales of GBP142.4 million, a
13% increase over the same period in the prior year. All geographic
regions experienced growth, with EMEA performing particularly
strongly with our young operating companies in Ireland and the UAE
delivering strong growth. In Asia Pacific performance was more
varied, with China and Japan seeing excellent growth while some of
our smaller markets found conditions more challenging. North
America enjoyed solid growth, with our young operating company in
Canada achieving good growth. Despite challenging economic
conditions in Latin America, most of our operations delivered solid
growth, with Brazil seeing good growth in the Mining,
Environmental, Pharmaceutical & Biotechnology sectors, while
Argentina experienced particularly strong growth in the Food &
Beverage industry.
Watson-Marlow's adjusted operating profit was ahead 14% at
GBP45.0 million, consisting of 11% organic growth supplemented by a
3% boost from currency movements. The adjusted operating profit
margin expanded 50 bps to 31.6% at reported rates, with the organic
operating profit margin ahead by 10 bps.
Watson-Marlow's statutory operating profit increased from
GBP35.6 million in the first half of 2018 to GBP40.2 million, due
to the factors outlined above, plus an additional GBP1.0 million
increase in the amortisation of acquisition-related intangible
assets.
Strategy update
Watson-Marlow continued to broaden its global footprint and in
2019 three new operating companies were established and began
trading: Watson-Marlow Philippines, Watson-Marlow Colombia and
Watson-Marlow Iberia (located in Spain), and a direct sales
presence was established in Portugal.
A number of new products were launched to market (as outlined in
the Strategic implementation section).
During the first half of the year, we commenced the construction
of Aflex Hose's new, purpose-built
16,200m(2) manufacturing facility in Yorkshire, which will
consolidate Aflex's four existing factories into one, at a net
capital cost of GBP18 million.
In addition to investing in the business and developing our
people, a central element of our long-term strategy for growth is
ensuring that we have a pipeline of talent, our employees of the
future. Important to this is breaking down gender stereotypes to
encourage women to consider a career in engineering. To this end,
in June, Watson-Marlow hosted Spirax-Sarco Engineering plc's annual
International Women in Engineering Day celebrations. Over 60 school
students participated in a day of activities. The company then
hosted a networking event, with four inspirational speakers,
including Non-Executive Director, Jane Kingston, followed by a
panel discussion.
Outlook
The short-term economic outlook is expected to be relatively
similar to the first half of the year with positive but lower
industrial production growth than in the prior year. The market
drivers in Watson-Marlow's key industries, particularly
Pharmaceutical & Biotechnology, Food & Beverage and
Environmental, remain robust, but general industry and OEM's may be
affected by any market slowdown. Given the strong start to the year
our expectation is for high single-digit organic growth for the
year with an adjusted operating profit margin similar to that seen
in the prior year.
PRINCIPAL RISKS AND UNCERTAINTIES
The Group has processes in place to identify, evaluate and
mitigate the principal risks that could have an adverse impact on
the Group's performance. The principal risks, together with a brief
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 2018 Annual Report on pages 30
to 33. The Risk Management Committee 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 Group's key risks and uncertainties is:
-- Economic and political instability
Economic and political instability, including the impact of
regime changes, creates risks for our locally-based direct
operations.
-- Significant exchange rate movements
The Group reports its results and pays dividends in sterling,
while its operating and manufacturing companies trade in local
currency. The nature of the Group's business necessarily results in
exposure to exchange rate volatility.
-- Cybersecurity
A significant cybersecurity breach could result in a loss of
important information and prevent the Group operating at maximum
efficiency.
-- Failure to realise acquisition objectives
Failure to realise acquisition objectives would impact the
financial performance of the Group.
-- Loss of manufacturing output at any Group factory
Loss of manufacturing output at any important plant risks
serious disruption to sales operations.
-- Breach of legal and regulatory requirements (including ABC laws)
The Group is subject to many different laws and regulations,
including the General Data Protection Regulation and anti-bribery
and corruption legislation. Breaching laws or regulations could
have serious consequences for the Group.
-- Loss of critical supplier
The loss of a critical supplier could lead to logistical
difficulties and delayed deliveries.
-- Health, safety and environmental risks
A major health, safety or environmental incident could cause
total or partial closure of a manufacturing facility. As a premium
provider of safety-critical products, a breach of these
requirements would also have reputational consequences for the
Group.
Uncertainty surrounding Brexit continues, with a "no deal" exit
from the European Union remaining a possibility. The Group's Risk
Management Committee continues to monitor the situation carefully
and the plans put into place, as outlined in the 2018 Annual Report
on page 29, are still relevant and applicable as we go into the
second half of 2019.
The Group has prepared for the application of tariffs for goods
moving in and out of Europe, as disclosed within the Governance
Report in the 2018 Annual Report, on page 69. We have also put in
place a month's buffer stock of raw materials and components in the
UK and finished goods outside the UK equating to an additional two
weeks' usage. Assuming an orderly Brexit we would expect inventory
levels to return to normal levels by the end of the year. The
additional cost to the Income Statement of building and maintaining
these inventories is expected to be in the region of GBP0.8 million
in 2019, while the adverse impact on global inventory levels during
the first half of 2019 was GBP5.0 million.
We have modelled potential tariff impacts and believe that these
would be more than compensated for by a devaluation in sterling
following a "no deal" Brexit.
We are well prepared and well placed to take on the challenges
and identify the opportunities resulting from a UK exit from the
EU. We have navigated periods of economic and political uncertainty
in many different places around the world and have a long and
successful history of doing so. The Board, the Group Executive
Committee and the Risk Management Committee continue to monitor
on-going Brexit negotiations and will apply or adjust the Group's
planned response accordingly.
INDEPENT REVIEW REPORT TO SPIRAX-SARCO ENGINEERING PLC
We have been engaged by the Company to review the condensed set
of Financial Statements in the Half Year Financial Report for the
six months ended 30(th) June 2019, which comprises the Condensed
Consolidated Statement of Financial Position, the Condensed
Consolidated Income Statement, the Condensed Consolidated Statement
of Comprehensive Income, the Condensed Consolidated Statement of
Changes in Equity, the Condensed Consolidated Statement of Cash
Flows and related Notes 1 to 14. We have read the other information
contained in the Half Year Financial Report and considered whether
it contains any apparent misstatements or material inconsistencies
with the information in the condensed set of Financial
Statements.
This Report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the Company those matters we are required to state to it
in an Independent Review Report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company, for our review
work, for this Report, or for the conclusions we have formed.
Directors' responsibilities
The Half Year Financial Report is the responsibility of, and has
been approved by, the Directors. The Directors are responsible for
preparing the Half Year Financial Report in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in Note 1, the annual Financial Statements of the
Group are prepared in accordance with IFRS as adopted by the
European Union. The condensed set of Financial Statements included
in this Half Year Financial Report has been prepared in accordance
with International Accounting Standard 34 (Interim Financial
Reporting) as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of Financial Statements in the Half Year
Financial Report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of Financial Statements
in the Half Year Financial Report for the six months ended 30(th)
June 2019 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor, London, United Kingdom
6(th) August 2019
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Notes 30(th) 30(th) 31(st) December
June June 2018
2019 2018 GBPm
GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------------------------- ------ ------------ ------------ ----------------
ASSETS
Non-current assets
Property, plant and equipment 238.6 225.8 230.8
Right-of-use assets 1 38.4 - -
Goodwill 440.5 359.2 368.0
Other intangible assets 329.8 280.2 277.2
Prepayments 6.2 5.9 6.2
Deferred tax assets 44.3 34.3 41.3
----------------------------------------- ------ ------------ ------------ ----------------
1,097.8 905.4 923.5
----------------------------------------- ------ ------------ ------------ ----------------
Current assets
Inventories 193.9 157.4 160.6
Trade receivables 256.1 226.4 245.1
Other current assets 36.4 35.5 32.9
Taxation recoverable 4.3 9.4 4.6
Cash and cash equivalents 9 166.2 176.3 187.1
----------------------------------------- ------ ------------ ------------ ----------------
656.9 605.0 630.3
----------------------------------------- ------ ------------ ------------ ----------------
Total assets 1,754.7 1,510.4 1,553.8
----------------------------------------- ------ ------------ ------------ ----------------
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables 161.3 135.7 167.0
Provisions 4.0 5.9 5.0
Bank overdrafts 9 0.4 1.7 0.4
Short-term borrowings 9 41.3 19.7 15.7
Current portion of long-term borrowings 9 56.1 39.1 41.5
Short-term lease liabilities 1/9 11.4 - -
Current tax payable 24.4 21.3 23.7
----------------------------------------- ------ ------------ ------------ ----------------
298.9 223.4 253.3
----------------------------------------- ------ ------------ ------------ ----------------
Net current assets 358.0 381.6 377.0
----------------------------------------- ------ ------------ ------------ ----------------
Non-current liabilities
Long-term borrowings 9 459.9 488.8 365.3
Long-term lease liabilities 1/9 29.9 - -
Deferred tax liabilities 91.9 73.3 76.8
Post-retirement benefits 8 89.3 75.0 85.1
Provisions 3.7 3.1 3.7
Long-term payables 3.2 2.5 2.7
----------------------------------------- ------ ------------ ------------ ----------------
677.9 642.7 533.6
----------------------------------------- ------ ------------ ------------ ----------------
Total liabilities 976.8 866.1 786.9
----------------------------------------- ------ ------------ ------------ ----------------
Net assets 777.9 644.3 766.9
----------------------------------------- ------ ------------ ------------ ----------------
Equity
Share capital 19.8 19.8 19.8
Share premium account 78.6 75.6 77.8
Other reserves 19.3 8.6 22.2
Retained earnings 659.3 539.3 646.0
----------------------------------------- ------ ------------ ------------ ----------------
Equity shareholders' funds 777.0 643.3 765.8
Non-controlling interest 0.9 1.0 1.1
----------------------------------------- ------ ------------ ------------ ----------------
Total equity 777.9 644.3 766.9
----------------------------------------- ------ ------------ ------------ ----------------
Total equity and liabilities 1,754.7 1,510.4 1,553.8
----------------------------------------- ------ ------------ ------------ ----------------
CONDENSED CONSOLIDATED INCOME STATEMENT
Six months to 30(th) Six months to 30(th) Year ended 31(st)
June 2019 June 2018 December 2018
Adjusted Adj't Total Adjusted Adj't Total Adjusted Adj't Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (audited) (audited) (audited)
----------------- ------------ ------------ -------------- ------------ ------------ ------------- ---------- ---------- ----------
Revenue (Note
3) 591.2 - 591.2 547.6 - 547.6 1,153.3 - 1,153.3
Operating
costs (462.0) (16.5) (478.5) (421.9) (13.8) (435.7) (888.4) 34.2 (854.2)
----------------- ------------ ------------ -------------- ------------ ------------ ------------- ---------- ---------- ----------
Operating
profit (Note
2/3) 129.2 (16.5) 112.7 125.7 (13.8) 111.9 264.9 34.2 299.1
----------------- ------------ ------------ -------------- ------------ ------------ ------------- ---------- ---------- ----------
Financial
expenses (5.3) - (5.3) (5.7) - (5.7) (11.4) - (11.4)
Financial
income 0.7 - 0.7 0.6 - 0.6 1.1 - 1.1
----------------- ------------ ------------ -------------- ------------ ------------ ------------- ---------- ---------- ----------
Net financing
expense (Note
4) (4.6) - (4.6) (5.1) - (5.1) (10.3) - (10.3)
----------------- ------------ ------------ -------------- ------------ ------------ ------------- ---------- ---------- ----------
Profit before
taxation 124.6 (16.5) 108.1 120.6 (13.8) 106.8 254.6 34.2 288.8
----------------- ------------ ------------ -------------- ------------ ------------ ------------- ---------- ---------- ----------
Taxation (Note
5) (36.1) 3.6 (32.5) (32.7) 3.4 (29.3) (70.4) 5.0 (65.4)
----------------- ------------ ------------ -------------- ------------ ------------ ------------- ---------- ---------- ----------
Profit for
the period 88.5 (12.9) 75.6 87.9 (10.4) 77.5 184.2 39.2 223.4
----------------- ------------ ------------ -------------- ------------ ------------ ------------- ---------- ---------- ----------
Attributable
to:
Equity
shareholders 88.4 (12.9) 75.5 87.8 (10.4) 77.4 183.9 39.2 223.1
Non-controlling
interest 0.1 - 0.1 0.1 - 0.1 0.3 - 0.3
----------------- ------------ ------------ -------------- ------------ ------------ ------------- ---------- ---------- ----------
Profit for
the period 88.5 (12.9) 75.6 87.9 (10.4) 77.5 184.2 39.2 223.4
----------------- ------------ ------------ -------------- ------------ ------------ ------------- ---------- ---------- ----------
Earnings per
share
Basic earnings
per share
(Note 2/6) 120.0p 102.4p 119.2p 105.1p 250.0p 303.1p
Diluted earnings
per share
(Note 2/6) 119.7p 102.2p 118.9p 104.8p 249.1p 302.0p
----------------- ------------ ------------ -------------- ------------ ------------ ------------- ---------- ---------- ----------
Dividends
Dividends
per share
(Note 7) 32.0p 29.0p 100.0p
----------------- ------------ ------------ -------------- ------------ ------------ ------------- ---------- ---------- ----------
Dividends
paid (per
share) (Note
7) 71.0p 62.0p 91.0p
----------------- ------------ ------------ -------------- ------------ ------------ ------------- ---------- ---------- ----------
Adjusted figures exclude certain items as detailed in Notes 2
and 3. All amounts relate to continuing operations. The Notes on
pages 26 to 44 form an integral part of the Interim Condensed
Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months Six months Year ended
to 30(th) to 30(th) 31(st)
June June December
2019 2018 2018
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
---------------------------------------------- ------------------ ------------------ ------------------
Profit for the period 75.6 77.5 223.4
---------------------------------------------- ------------------ ------------------ ------------------
Items that will not be reclassified
to profit or loss:
Remeasurement (loss)/gain on post-retirement
benefits (5.5) 11.4 (5.9)
Deferred tax on remeasurement loss/(gain)
on post-retirement benefits 1.7 (2.1) 1.2
---------------------------------------------- ------------------ ------------------ ------------------
(3.8) 9.3 (4.7)
---------------------------------------------- ------------------ ------------------ ------------------
Items that may be reclassified subsequently
to profit or loss:
Exchange (loss)/gain on translation
of foreign operations and net investment
hedges (1.8) (9.1) 4.2
Loss on cash flow hedges net of tax (1.2) (0.4) (0.1)
---------------------------------------------- ------------------ ------------------ ------------------
(3.0) (9.5) 4.1
---------------------------------------------- ------------------ ------------------ ------------------
Total comprehensive income for the
period 68.8 77.3 222.8
---------------------------------------------- ------------------ ------------------ ------------------
Attributable to:
Equity shareholders 68.7 77.2 222.5
Non-controlling interest 0.1 0.1 0.3
---------------------------------------------- ------------------ ------------------ ------------------
Total comprehensive income for the
period 68.8 77.3 222.8
---------------------------------------------- ------------------ ------------------ ------------------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period ended Share Equity Non-controlling
30(th) June 2019 premium shareholders' interest
funds GBPm
(unaudited) Share account Other Retained GBPm Total
capital earnings equity
GBPm GBPm reserves GBPm GBPm
GBPm
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
Balance at 1(st)
January
2019 19.8 77.8 22.2 646.0 765.8 1.1 766.9
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
Adoption of IFRS 16
(Note 1) - - - (2.9) (2.9) - (2.9)
Balance at 1(st)
January
2019 (restated) 19.8 77.8 22.2 643.1 762.9 1.1 764.0
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
Profit for the period - - - 75.5 75.5 0.1 75.6
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
Other comprehensive
(expense)/income:
Exchange loss on
translation
of foreign
operations
and net investment
hedges - - (1.8) - (1.8) - (1.8)
Remeasurement loss on
post-retirement
benefits - - - (5.5) (5.5) - (5.5)
Deferred tax on
remeasurement
loss on
post-retirement
benefits - - - 1.7 1.7 - 1.7
Loss on cash flow
hedges
reserve - - (1.2) - (1.2) - (1.2)
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
Total other
comprehensive
expense for the
period - - (3.0) (3.8) (6.8) - (6.8)
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
Total comprehensive
(expense)/income for
the period - - (3.0) 71.7 68.7 0.1 68.8
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
Contributions by and
distributions to
owners
of the Company:
Dividends paid - - - (52.3) (52.3) (0.3) (52.6)
Equity-settled share
plans net of tax - - - (1.8) (1.8) - (1.8)
Issue of share
capital - 0.8 - - 0.8 - 0.8
Employee Benefit
Trust
shares - - (1.3) - (1.3) - (1.3)
Transfer between
reserves - - 1.4 (1.4) - - -
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
Balance at 30(th)
June
2019 19.8 78.6 19.3 659.3 777.0 0.9 777.9
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
Other reserves represent the Group's translation, net investment
hedge, cash flow hedge, capital redemption and Employee Benefit
Trust reserves. The non-controlling interest is a 2.5% share of
Spirax-Sarco (Korea) Ltd held by employee shareholders.
For the period ended Share Equity Non-controlling
30(th) June 2018 premium shareholders' interest
funds GBPm
(unaudited) Share account Other Retained GBPm Total
capital earnings equity
GBPm GBPm reserves GBPm GBPm
GBPm
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
Balance at 1(st)
January
2018 19.8 75.1 19.3 494.2 608.4 1.1 609.5
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
Adoption of IFRS 15 - - - 0.7 0.7 - 0.7
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
Balance at 1(st)
January
2018 (restated) 19.8 75.1 19.3 494.9 609.1 1.1 610.2
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
Profit for the period - - - 77.4 77.4 0.1 77.5
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
Other comprehensive
(expense)/income:
Exchange loss on
translation
of foreign
operations
and net investment
hedges - - (9.1) - (9.1) - (9.1)
Remeasurement gain on
post-retirement
benefits - - - 11.4 11.4 - 11.4
Deferred tax on
remeasurement
gain on
post-retirement
benefits - - - (2.1) (2.1) - (2.1)
Loss on cash flow
hedges
reserve - - (0.4) - (0.4) - (0.4)
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
Total other
comprehensive
(expense)/ income
for
the period - - (9.5) 9.3 (0.2) - (0.2)
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
Total comprehensive
(expense)/income for
the period - - (9.5) 86.7 77.2 0.1 77.3
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
Contributions by and
distributions to
owners
of the Company:
Dividends paid - - - (45.7) (45.7) (0.2) (45.9)
Equity-settled share
plans net of tax - - - 3.4 3.4 - 3.4
Issue of share
capital - 0.5 - - 0.5 - 0.5
Employee Benefit
Trust
shares - - (1.2) - (1.2) - (1.2)
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
Balance at 30(th)
June
2018 19.8 75.6 8.6 539.3 643.3 1.0 644.3
---------------------- -------------------- ---------------- ----------------------- ---------------------- ----------------------- ---------------- -------------------
For the period Share Equity Non-controlling
ended Share premium Other Retained shareholders' interest Total
31(st) December capital account reserves earnings funds GBPm equity
2018 GBPm GBPm GBPm GBPm GBPm GBPm
(audited)
------------------- -------------------- -------------- ---------------------- ---------------------- ----------------------- ---------------- -------------------
Balance at 1(st)
January
2018 19.8 75.1 19.3 494.2 608.4 1.1 609.5
------------------- -------------------- -------------- ---------------------- ---------------------- ----------------------- ---------------- -------------------
Adoption of IFRS
15 - - - 0.7 0.7 - 0.7
------------------- -------------------- -------------- ---------------------- ---------------------- ----------------------- ---------------- -------------------
Balance at 1(st)
January
2018 (restated) 19.8 75.1 19.3 494.9 609.1 1.1 610.2
------------------- -------------------- -------------- ---------------------- ---------------------- ----------------------- ---------------- -------------------
Profit for the
period - - - 223.1 223.1 0.3 223.4
------------------- -------------------- -------------- ---------------------- ---------------------- ----------------------- ---------------- -------------------
Other
comprehensive
(expense)/income:
Exchange gain on
translation
of foreign
operations
and net
investment hedges - - 4.2 - 4.2 - 4.2
Remeasurement loss
on
post-retirement
benefits - - - (5.9) (5.9) - (5.9)
Deferred tax on
remeasurement
loss on
post-retirement
benefits - - - 1.2 1.2 - 1.2
Loss on cash flow
hedges
reserve - - (0.1) - (0.1) - (0.1)
------------------- -------------------- -------------- ---------------------- ---------------------- ----------------------- ---------------- -------------------
Total other
comprehensive
(expense)/income
for
the year - - 4.1 (4.7) (0.6) - (0.6)
------------------- -------------------- -------------- ---------------------- ---------------------- ----------------------- ---------------- -------------------
Total
comprehensive
income for the
period - - 4.1 218.4 222.5 0.3 222.8
------------------- -------------------- -------------- ---------------------- ---------------------- ----------------------- ---------------- -------------------
Contributions by
and
distributions to
owners
of the Company:
Dividends paid - - - (67.0) (67.0) (0.3) (67.3)
Equity-settled
share
plans net of tax - - - (0.3) (0.3) - (0.3)
Issue of share
capital - 2.7 - - 2.7 - 2.7
Employee Benefit
Trust
shares - - (1.2) - (1.2) - (1.2)
------------------- -------------------- -------------- ---------------------- ---------------------- ----------------------- ---------------- -------------------
Balance at 31(st)
December
2018 19.8 77.8 22.2 646.0 765.8 1.1 766.9
------------------- -------------------- -------------- ---------------------- ---------------------- ----------------------- ---------------- -------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Notes Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2018
2019 2018 GBPm
GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------------------- ------ --------------- ------------------------- -----------------------------
Cash flows from operating
activities
Profit before taxation 108.1 106.8 288.8
Depreciation, amortisation and
impairment 35.3 29.1 58.1
Profit on disposal of fixed
assets (0.5) (0.3) (8.6)
Profit on disposal of subsidiary - - (47.4)
Reversal of acquisition-related 1.0 - -
fair value adjustments to
inventory
Cash payments to the pension
schemes greater than the charge
to operating profit (2.4) (0.4) (10.1)
Equity-settled share plans 3.2 2.9 5.7
Net finance expense 4.6 5.1 10.3
----------------------------------- ------ --------------- ------------------------- -----------------------------
Operating cash flow before changes
in working capital and provisions 149.3 143.2 296.8
Change in trade and other
receivables (3.2) (0.3) (16.0)
Change in inventories (17.1) (15.7) (15.5)
Change in provisions (0.1) (0.1) 0.8
Change in trade and other payables (19.8) (18.0) 8.1
----------------------------------- ------ --------------- ------------------------- -----------------------------
Cash generated from operations 109.1 109.1 274.2
Interest paid (3.9) (4.7) (7.7)
Income taxes paid (36.2) (28.9) (61.6)
----------------------------------- ------ --------------- ------------------------- -----------------------------
Net cash from operating activities 69.0 75.5 204.9
----------------------------------- ------ --------------- ------------------------- -----------------------------
Cash flows from investing
activities
Purchase of property, plant
& equipment (14.6) (14.1) (33.5)
Proceeds from sale of property,
plant and equipment 1.8 3.1 11.9
Purchase of software and other
intangibles (3.0) (3.5) (8.3)
Development expenditure
capitalised (3.5) (1.3) (1.6)
Disposal of subsidiary - - 51.5
Acquisition of businesses net
of cash acquired 13 (117.6) (2.9) (2.7)
Interest received 0.7 0.6 1.1
----------------------------------- ------ --------------- ------------------------- -----------------------------
Net cash from/(used in) investing
activities (136.2) (18.1) 18.4
----------------------------------- ------ --------------- ------------------------- -----------------------------
Cash flows from financing
activities
Proceeds from issue of share
capital 0.8 0.5 1.8
Employee Benefit Trust share
purchase (8.2) (6.7) (6.7)
Repaid borrowings 9 (49.6) (46.3) (111.6)
New borrowings 9 165.1 69.5 0.1
Repayment of lease liabilities 9 (5.3) (0.1) -
Dividends paid (including
minorities) (52.6) (45.9) (67.3)
----------------------------------- ------ --------------- ------------------------- -----------------------------
Net cash from/(used in) financing
activities 50.2 (29.0) (183.7)
----------------------------------- ------ --------------- ------------------------- -----------------------------
Net change in cash and cash
equivalents 9 (17.0) 28.4 39.6
Net cash and cash equivalents
at beginning of period 9 186.7 151.6 151.6
Exchange movement 9 (3.9) (5.4) (4.5)
----------------------------------- ------ --------------- ------------------------- -----------------------------
Net cash and cash equivalents
at end of period 9 165.8 174.6 186.7
----------------------------------- ------ --------------- ------------------------- -----------------------------
Borrowings 9 (557.3) (547.6) (422.5)
----------------------------------- ------ --------------- ------------------------- -----------------------------
Net debt at the end of the period 9 (391.5) (373.0) (235.8)
----------------------------------- ------ --------------- ------------------------- -----------------------------
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
Spirax-Sarco Engineering plc is a company domiciled in the UK.
The Condensed Consolidated Interim Financial Statements of
Spirax-Sarco Engineering plc and its subsidiaries (the Group) for
the six months ended 30(th) June 2019 have been prepared in
accordance with IAS 34 (Interim Financial Reporting), as adopted by
the European Union. The accounting policies applied are consistent
with those set out in the 2018 Spirax-Sarco Engineering plc Annual
Report except for IFRS 16 (Leases) and IFRIC 23 (Uncertainty Over
Income Tax Treatments), which have been adopted in the current
year.
These Condensed Consolidated Interim Financial Statements do not
include all the information required for full annual statements and
should be read in conjunction with the 2018 Annual Report. The
comparative figures for the year ended 31(st) December 2018 do not
constitute the Group's statutory Financial Statements for that
financial year as defined in Section 434 of the Companies Act 2006.
The Financial Statements of the Group for the year ended 31(st)
December 2018 were prepared in accordance with International
Financial Reporting Standards adopted by the European Union. The
statutory Consolidated Financial Statements for Spirax-Sarco
Engineering plc in respect of the year ended 31(st) December 2018
have been reported on by the Company's auditor and delivered to the
registrar of companies. The report of the auditor was (i)
unqualified, (ii) did not include a reference to any matters to
which the auditor drew attention by way of emphasis without
qualifying their report, and (iii) did not contain a statement
under Section 498 (2) or (3) of the Companies Act 2006. The
Consolidated Financial Statements of the Group in respect of the
year ended 31(st) December 2018 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 Condensed Consolidated Interim Financial Statements for the
six months ended 30(th) June 2019, which have been reviewed by the
auditor in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity"
issued by the Financial Reporting Council, were authorised by the
Board on 6(th) August 2019.
The Half Year Report and Interim Financial Statements (Half Year
Report) has been prepared solely to provide additional information
to shareholders as a body to assess the Group's strategies and the
potential for those strategies to succeed. This Half Year Report
should not be relied upon by any other party or for any other
purpose.
GOING CONCERN
Having made enquiries and reviewed the Group's plans and
available financial facilities, the Board has a reasonable
expectation that the Group has adequate resources to continue its
operational existence for at least 12 months from the date of
signing the 2019 Half Year Report. For this reason, it continues to
adopt the going concern basis in preparing the Condensed
Consolidated Interim Financial Statements.
NEW STANDARDS ADOPTED IN THE CURRENT YEAR
IFRS 16 (Leases)
The Group adopted IFRS 16 (Leases) using the modified
retrospective approach on 1(st) January 2019. IFRS 16 introduces
new requirements for lessee and lessor accounting, with the
distinction between operating lease and finance lease no longer
applying for lessees. Under IFRS 16, a lessee is required to
recognise assets and liabilities for all leases with a term of more
than 12 months, unless the underlying asset is of a low value when
new. The new standard also requires depreciation of the asset to be
recognised separately from the interest expense on the lease
liability.
As a result of adopting IFRS 16, the difference between the
asset and liability recognised on 1(st) January 2019 has been shown
as an adjustment to opening retained earnings within the
Consolidated Statement of Changes in Equity.
The exemptions taken by the Group on transition are detailed
below. For any new leases entered into after 1(st) January 2019,
the lease liability is initially measured at the present value of
the lease payments that are not paid at the commencement date,
discounted by using the incremental borrowing rate for the related
geographical location. The lease liability is subsequently measured
by increasing the carrying amount to reflect interest on the lease
liability and by reducing the carrying amount to reflect the lease
payments made.
The right-of-use assets comprise the initial measurement of the
corresponding lease liability, lease payments made at or before the
commencement date and any initial direct costs. They are
subsequently measured at cost less accumulated depreciation and
impairment losses.
The Group has elected to use the following transition practical
expedients:
a) The definition of a lease in accordance with IAS 17 and IFRIC
4 will continue to be applied to leases entered or changed before
1(st) January 2019, and as a result we have not reassessed whether
a contract is or contains a lease on transition.
b) Leases with a determined lease term of less than 12 months
remaining from 1(st) January 2019 have been treated as short
term.
c) Initial direct costs have been excluded from the measurement
of the right-of-use asset for all leases entered into or changed
before 1(st) January 2019.
Furthermore, the Group has also elected to make use of the
following exemptions provided by IFRS 16:
a) Leases with a determined lease term of 12 months or less from
the commencement of the lease will be treated as short term and
therefore not included in the right-of-use asset or lease
liability. Instead, lease costs will be recognised on a
straight-line basis across the life of the lease.
b) Leases for which the underlying asset is of low value when
new will be exempt from the requirements to value a right-of-use
asset and lease liability. Instead, lease costs will be recognised
on a straight-line basis across the life of the lease. To apply
this exemption, a threshold of GBP5,000 has been utilised to define
"low value".
c) Lease and non-lease components will not be separated;
therefore, each lease component and any associated non-lease
component will be accounted for as a single component.
d) Where applicable, IFRS 16 will be applied to a portfolio of
leases with similar characteristics.
The impact on the Financial Statements on transitioning is as
follows:
Statement of Financial Position
a) Right-of-use assets were capitalised, totalling GBP37.1m. The
vast majority of this value (GBP28.0m) results from leased property
where the Group leases a number of office and warehouse sites in a
number of geographical locations. The remaining GBP9.1m is largely
made up of leased motor vehicles, where the Group makes use of
leasing cars for sales and service engineers at a number of
operating company locations.
b) Lease liabilities were recognised totalling GBP40.0m, split
between GBP10.2m relating to amounts due within 12 months from
1(st) January 2019 and GBP29.8m relating to amounts due after 1(st)
January 2020.
c) As a result of the Group using the modified-retrospective
approach, all property lease assets were valued as if IFRS 16 had
always applied since the commencement of those leases. This led to
a difference between the right-of-use asset capitalised and the
corresponding lease liability. The difference between these values
of GBP2.9m has been recognised as an adjustment to opening retained
earnings.
Income Statement
a) The impact on the Income Statement for the six months to
30(th) June 2019 is an increase in operating profit of GBP0.6m
compared to the operating profit had IAS 17 continued to apply.
This is made up of a reduction in operating lease rentals of
GBP5.9m offset by a depreciation charge of GBP5.3m. Once taking
into account an additional GBP0.6m of lease liability interest, the
overall impact on profit before tax in the six months to 30th June
2019 is GBPnil.
b) The total expense relating to exempt leases (being short
term, low value or variable lease payments not included in the
lease liability) was GBP0.9m.
Statement of Cash Flows
a) Net cash inflow from operating activities for the six months
to 30(th) June 2019 increased by GBP5.3m as a result of the
principal payments made on lease liabilities being reclassified
from cash generated from operations to financing activities.
b) Net cash outflow from financing activities increased by GBP5.3m as a result of the above.
c) There is no impact on the net change in cash and cash
equivalents as a result of the implementation of
IFRS 16.
IFRIC 23 (Uncertainty Over Income Tax Treatments)
The Group adopted the guidance set out in IFRIC 23 (Uncertainty
Over Income Tax Treatments). International Accounting Standard
(IAS) 12 specifies how to account for current and deferred tax, but
not how to reflect the effects of uncertainty.
The guidance issued by the International Financial Reporting
Interpretations Committee (IFRIC) in IFRIC 23 provides requirements
that add to the requirements in IAS 12 by specifying how to reflect
the effects of uncertainty in accounting for income taxes. The
guidance issued by the IFRIC provides clarification on when to
recognise a liability arising from an uncertainty, how to measure
the uncertainty, the unit of account to be used, the risk of
detection of uncertainty and how to consider changes in facts and
circumstances that impact on the measurement.
The impact of adoption of the guidance in IFRIC 23 is no change
in the provision at 1(st) January 2019.
NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
Certain new standards, amendments to standards and
interpretations are not yet effective for the period ended 30(th)
June 2019 and have, therefore, not been applied in preparing these
Condensed Consolidated Interim Financial Statements. These
standards are not expected to have a material impact on the Group
in the current or future reporting periods.
The economy in Argentina remains subject to high inflation. At
30(th) June 2019 we have concluded that applying IAS 29 (Financial
Reporting in Hyperinflationary Economies) is not required as the
impact of adopting is not material. We will continue to assess the
position going forward.
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 31(st)
December 2018.
CAUTIONARY STATEMENTS
This Half Year Report contains forward-looking statements. These
have been made by the Directors in good faith based on the
information available to them up to the time of their approval of
this Report. The Directors can give no assurance that these
expectations will prove to have been correct. Due to the inherent
uncertainties, including both economic and business risk factors
underlying such forward-looking information, actual results may
differ materially from those expressed or implied by these
forward-looking statements. The Directors undertake no obligation
to update any forward-looking statements, whether as a result of
new information, future events, or otherwise.
RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge:
-- This Condensed Consolidated set of Interim Financial
Statements has been prepared in accordance with IAS 34 (Interim
Financial Reporting), as adopted by the European Union;
-- The interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the Condensed
Consolidated Financial Statements, and a description of the
principal risks and uncertainties for the remaining six months of
the financial year.
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year that have materially affected
the financial position or performance of the entity during that
period, and any changes in the related party transactions described
in the last Annual Report that could do so.
The Directors of Spirax-Sarco Engineering plc on 6(th) August
2019 are the same as those listed in the 2018 Annual Report on
pages 72 and 73, with the exception of:
-- Caroline Johnstone, who joined the Board as an Independent
Non-Executive Director on 5(th) March 2019;
-- Clive Watson, who stepped down from the Board at the
conclusion of the AGM on 15(th) May 2019;
-- Kevin Thompson, who joined the Board as Independent
Non-Executive Director and Chair of the Audit Committee on 15(th)
May 2019; and
-- Dr Trudy Schoolenberg, who was promoted to the position of
Senior Independent Director, following Clive's departure.
N. J. Anderson
Group Chief Executive
6(th) August 2019
K. J. Boyd
Chief Financial Officer
6(th) August 2019
On behalf of the Board
2. ADJUSTED PERFORMANCE MEASURES
The Group reports under International Financial Reporting
Standards (IFRS) and also uses adjusted performance measures where
the Board believes that they help to effectively monitor the
performance of the Group, users of the Financial Statements might
find them informative and an aid to comparison with our peers.
Certain adjusted performance measures also form a meaningful
element of Executive Directors' annual bonuses. A definition of the
adjusted performance measures and a reconciliation to the closest
IFRS equivalent are disclosed below.
Adjusted operating profit
Adjusted operating profit excludes items that are considered to
be significant in nature and/or quantum and where treatment as an
adjusted item provides stakeholders with additional useful
information to assess the period-on-period trading performance of
the Group and an aid to comparison with our peers. The Group
excludes such items which management have defined as:
-- Amortisation and impairment of acquisition-related intangible assets;
-- Impairment of goodwill;
-- Costs associated with acquisition and disposal;
-- Reversal of acquisition-related fair value adjustments to inventory;
-- Changes in deferred consideration payable on acquisitions;
-- Profit or loss on disposal of subsidiary;
-- Significant restructuring costs;
-- Foreign exchange gains and losses on borrowings;
-- Significant profits or losses on disposal of property; and
-- Significant plan amendments and/or legal rulings requiring a past service cost or credit for post-retirement benefit plans.
A reconciliation between operating profit as reported under IFRS
and adjusted operating profit is given below.
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June 2019 June 2018 2018
GBPm GBPm
GBPm
----------------------------------------------- ---------- ------------ ----------------
Operating profit as reported under IFRS 112.7 111.9 299.1
Amortisation of acquisition-related intangible
assets 13.0 13.5 25.2
Acquisition-related items 2.5 0.3 (0.2)
Reversal of acquisition-related fair value
adjustments to inventory 1.0 - -
Profit on disposal of subsidiary - - (47.4)
Profit on disposal of property - - (6.5)
Equalising guaranteed minimum pensions for
the UK post-retirement benefit plans - - 0.7
Post-retirement benefit plan in the USA being
frozen to future accrual - - (6.0)
Adjusted operating profit 129.2 125.7 264.9
----------------------------------------------- ---------- ------------ ----------------
Adjusted earnings per share
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June 2019 June 2018 2018
---------------------------------------------- ---------- ---------- ----------------
Profit for the period attributable to equity
holders as reported under IFRS (GBPm) 75.5 77.4 223.1
Items excluded from adjusted operating profit
disclosed above (GBPm) 16.5 13.8 (34.2)
Tax effects on adjusted items (GBPm) (3.6) (3.4) (5.0)
Adjusted profit for the period attributable
to equity holders (GBPm) 88.4 87.8 183.9
Weighted average shares in issue (million) 73.7 73.6 73.6
Basic adjusted earnings per share 120.0p 119.2p 250.0p
Diluted weighted average shares in issue
(million) 73.8 73.8 73.8
Diluted adjusted earnings per share 119.7p 118.9p 249.1p
---------------------------------------------- ---------- ---------- ----------------
Basic adjusted earnings per share is defined as adjusted profit
for the period attributable to equity holders divided by the
weighted average number of shares in issue. Diluted adjusted
earnings per share is defined as adjusted profit for the period
attributable to equity holders divided by the diluted weighted
average number of shares in issue.
Basic and diluted EPS calculated on an IFRS profit basis are
included in Note 6.
Adjusted cash flow
A reconciliation showing the items that bridge between net cash
from operating activities as reported under IFRS to adjusted cash
from operations is given below.
Six months Six months
to 30(th) to 30(th) Year ended
June 2019 June 2018 31(st)
GBPm GBPm December
2018
GBPm
--------------------------------------------------- ---------- ---------- ------------
Net cash from operating activities as reported
under IFRS 69.0 75.5 204.9
Acquisition and disposal costs 2.5 0.3 0.2
Capital expenditure excluding acquired intangibles
from acquisitions (19.3) (15.8) (31.5)
Movement in provisions (0.1) 0.1 (0.8)
Tax paid 36.2 28.9 61.6
Interest paid 3.9 4.7 7.7
Adjusted cash from operations 92.2 93.7 242.1
--------------------------------------------------- ---------- ---------- ------------
Adjusted cash conversion in the first half was 71% (2018: 75%).
Cash conversion is calculated as adjusted cash from operations
divided by adjusted operating profit. The adjusted cash flow is
included in the Review of Operations on page 7.
Capital employed
This is an important non-statutory measure which the Board uses
to help it effectively monitor the performance of the Group. More
information on Capital employed can be found in the Review of
Operations on page 7.
An analysis of the components is as follows:
30(th) 30(th) 31(st) December
June June 2018
Capital 2019 2018 GBPm
Employed GBPm GBPm
---------------- ------------------------------------ ------------------------------------ ------------------------
Property, plant
and equipment 238.6 225.8 230.8
Non-current
prepayments 6.2 5.9 6.2
Inventories 193.9 157.4 160.6
Trade
receivables 256.1 226.4 245.1
Other current
assets 36.4 35.5 32.9
Tax recoverable 4.3 9.4 4.6
Trade, other
payables and
current
provisions (165.3) (141.6) (172.0)
Current tax
payable (24.4) (21.3) (23.7)
IFRS 16
right-of-use
assets less
liabilities (2.9) - -
---------------- ------------------------------------ ------------------------------------ ------------------------
Capital employed 542.9 497.5 484.5
---------------- ------------------------------------ ------------------------------------ ------------------------
A reconciliation of capital employed to net assets as reported
under IFRS and disclosed in the Consolidated Statement of Financial
Position is given below.
30(th) 30(th) 31(st)
June 2019 June 2018 December
GBPm 2018
GBPm GBPm
---------------------------------------------- ----------------- ----------------- ---------
Capital employed 542.9 497.5 484.5
Goodwill and other intangible assets 770.3 639.4 645.2
Post-retirement benefits (89.3) (75.0) (85.1)
Net deferred tax (47.6) (39.0) (35.5)
Non-current provisions and long-term payables (6.9) (5.6) (6.4)
Net debt (391.5) (373.0) (235.8)
---------------------------------------------- ----------------- ----------------- ---------
Net assets as reported under IFRS 777.9 644.3 766.9
---------------------------------------------- ----------------- ----------------- ---------
Net debt including IFRS 16
A reconciliation between net debt and net debt including IFRS 16
is given below. A breakdown of the balances that are included
within net debt is given within Note 9. Net debt excludes IFRS 16
lease liabilities to enable comparability with prior years.
30(th) 30(th) 31(st) December
June 2019 June 2018 2018
GBPm GBPm GBPm
--------------------------- ----------------- ----------------- ---------------
Net debt (391.5) (373.0) (235.8)
IFRS 16 lease liabilities (41.3) - -
Net debt including IFRS 16 (432.8) (373.0) (235.8)
--------------------------- ----------------- ----------------- ---------------
Earnings before interest, tax, depreciation and amortisation
(EBITDA)
EBITDA is calculated by adding back depreciation and
amortisation of property, plant and equipment, software and
development to adjusted operating profit. When calculated at a half
year it is based on the results for the last 12 months all
translated at the exchange rate used for the half year period.
Net debt to EBITDA
To assess the size of the net debt balance relative to the size
of the earnings for the Group, we analyse net debt as a proportion
of EBITDA.
Organic measures
As we are a multi-national Group, with companies that trade in a
diverse range of currencies and because we regularly acquire and
sometimes dispose of companies, we also refer to organic
performance measures throughout the half year results. Organic
measures are at constant currency and exclude contributions from
acquisitions or disposals. The Board believes that this allows
users of the accounts to gain a further understanding of how the
Group has performed.
Exchange translation movements are assessed by re-translating
prior period reported values to current period exchange rates.
Exchange transaction impacts on operating profit are assessed on
the basis of transactions being at constant currency between
years.
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:
Six months Six months
to 30(th) Acquisitions to 30(th)
June 2018 Exchange Organic and disposals June 2019 Organic Reported
------------------- ---------- ---------- --------- --------------- ---------------- --------- ----------
Revenue GBP547.6m GBP2.4m GBP42.4m (GBP1.2m) GBP591.2m +8% +8%
Adjusted operating
profit GBP125.7m (GBP0.8m) GBP5.4m (GBP1.1m) GBP129.2m +4% +3%
Adjusted operating -70 -110
profit margin 23.0% 21.9% bps bps
------------------- ---------- ---------- --------- --------------- ---------------- --------- ----------
The reconciliation for each segment is included in the Review of
Operations.
3. SEGMENTAL REPORTING
As required by IFRS 8 (Operating Segments), the following
segmental information is presented in a consistent format with
management information considered by the Board.
Analysis by location of operation
Six months to 30(th) Inter- Total Adjusted Adjusted
June 2019 Gross segment operating operating operating
revenue revenue Revenue profit profit profit
GBPm GBPm GBPm GBPm GBPm margin
%
------------------------ ---------- -------------- ---------- ----------- ----------- -----------
Europe, Middle East
& Africa 190.1 (23.5) 166.6 32.4 34.3 20.6%
Asia Pacific 120.1 (3.3) 116.8 33.6 33.6 28.8%
Americas 86.3 (4.0) 82.3 15.1 16.0 19.4%
------------------------ ---------- -------------- ---------- ----------- ----------- -----------
Steam Specialties 396.5 (30.8) 365.7 81.1 83.9 22.9%
Chromalox 83.1 - 83.1 1.7 8.1 9.7%
Watson-Marlow 142.4 - 142.4 40.2 45.0 31.6%
Corporate expenses (10.3) (7.8)
------------------------ ---------- -------------- ---------- ----------- ----------- -----------
622.0 (30.8) 591.2 112.7 129.2 21.9%
Intra Group (30.8) 30.8
------------------------ ---------- -------------- ---------- ----------- ----------- -----------
Total 591.2 - 591.2 112.7 129.2 21.9%
------------------------ ---------- -------------- ---------- ----------- ----------- -----------
Net finance expense (4.6) (4.6)
Profit before taxation 108.1 124.6
------------------------ ---------- -------------- ---------- ----------- ----------- -----------
Six months to 30(th) Inter- Total Adjusted Adjusted
June 2018 Gross segment operating operating operating
revenue revenue Revenue profit profit profit
GBPm GBPm GBPm GBPm GBPm margin
%
------------------------ ---------- -------------- ---------- ----------- ----------- -----------
Europe, Middle East
& Africa 192.1 (23.0) 169.1 33.3 35.8 21.2%
Asia Pacific 107.3 (2.6) 104.7 28.2 28.5 27.2%
Americas 78.9 (3.8) 75.1 16.3 17.2 22.9%
------------------------ ---------- -------------- ---------- ----------- ----------- -----------
Steam Specialties 378.3 (29.4) 348.9 77.8 81.5 23.4%
Chromalox 72.1 - 72.1 4.6 10.6 14.7%
Watson-Marlow 126.6 - 126.6 35.6 39.4 31.1%
Corporate expenses (6.1) (5.8)
------------------------ ---------- -------------- ---------- ----------- ----------- -----------
577.0 (29.4) 547.6 111.9 125.7 23.0%
Intra Group (29.4) 29.4
------------------------ ---------- -------------- ---------- ----------- ----------- -----------
Total 547.6 - 547.6 111.9 125.7 23.0%
------------------------ ---------- -------------- ---------- ----------- ----------- -----------
Net finance expense (5.1) (5.1)
Profit before taxation 106.8 120.6
------------------------ ---------- -------------- ---------- ----------- ----------- -----------
Year ended Inter- Total Adjusted Adjusted
31(st) Gross segment operating operating operating
December revenue revenue Revenue profit profit profit
2018 GBPm GBPm GBPm GBPm GBPm margin
%
--------------- ------------------------- --------------- ------------------------- -------------------- ---------------- ------------------
Europe, Middle
East
& Africa 390.8 (46.4) 344.4 111.5 69.3 20.1%
Asia Pacific 238.2 (5.5) 232.7 69.9 63.9 27.5%
Americas 164.1 (7.7) 156.4 41.1 36.9 23.6%
--------------- ------------------------- --------------- ------------------------- -------------------- ---------------- ------------------
Steam
Specialties 793.1 (59.6) 733.5 222.5 170.1 23.2%
Chromalox 154.6 - 154.6 12.1 22.8 14.7%
Watson-Marlow 265.2 - 265.2 77.5 84.8 32.0%
Corporate
expenses (13.0) (12.8)
--------------- ------------------------- --------------- ------------------------- -------------------- ---------------- ------------------
1,212.9 (59.6) 1,153.3 299.1 264.9 23.0%
Intra Group (59.6) 59.6
--------------- ------------------------- --------------- ------------------------- -------------------- ---------------- ------------------
Total 1,153.3 - 1,153.3 299.1 264.9 23.0%
--------------- ------------------------- --------------- ------------------------- -------------------- ---------------- ------------------
Net finance
expense (10.3) (10.3)
Profit before
taxation 288.8 254.6
--------------- ------------------------- --------------- ------------------------- -------------------- ---------------- ------------------
The total operating profit for each period includes certain
items, as analysed below:
Six months to 30(th) Reversal of
June 2019 Amortisation acquisition-related
of acquisition-related Acquisition-related fair value adjustments
intangible assets items to inventory Total
GBPm GBPm GBPm GBPm
----------------------- ------------------------- ---------------------- ------------------------ --------
Europe, Middle East &
Africa (1.9) - - (1.9)
Asia Pacific - - - -
Americas (0.9) - - (0.9)
----------------------- ------------------------- ---------------------- ------------------------ --------
Steam Specialties (2.8) - - (2.8)
Chromalox (5.4) - (1.0) (6.4)
Watson-Marlow (4.8) - - (4.8)
Corporate expenses - (2.5) - (2.5)
----------------------- ------------------------- ---------------------- ------------------------ --------
Total (13.0) (2.5) (1.0) (16.5)
----------------------- ------------------------- ---------------------- ------------------------ --------
Six months to 30(th) June 2018 Amortisation
of acquisition-related
intangible assets Acquisition Total
GBPm costs GBPm
GBPm
-------------------------------- ------------------------ -------------- --------
Europe, Middle East & Africa (2.5) - (2.5)
Asia Pacific (0.3) - (0.3)
Americas (0.9) - (0.9)
-------------------------------- ------------------------ -------------- --------
Steam Specialties (3.7) - (3.7)
Chromalox (6.0) - (6.0)
Watson-Marlow (3.8) - (3.8)
Corporate expenses - (0.3) (0.3)
-------------------------------- ------------------------ -------------- --------
Total (13.5) (0.3) (13.8)
-------------------------------- ------------------------ -------------- --------
Year ended Amortisation
31(st) of Profit Equalising USA pension
December 2018 acquisition-related on Acquisition-related GMP for plan frozen
intangible disposal costs the UK to future
assets of GBPm pension accrual Total
GBPm subsidiary plans GBPm GBPm
and GBPm
property
GBPm
--------------- -------------------- ------------ --------------------- ------------ --------------------- -------
Europe, Middle
East & Africa (4.4) 47.4 (0.1) (0.7) - 42.2
Asia Pacific (0.5) 6.5 - - - 6.0
Americas (1.8) - - - 6.0 4.2
--------------- -------------------- ------------ --------------------- ------------ --------------------- -------
Steam
Specialties (6.7) 53.9 (0.1) (0.7) 6.0 52.4
Chromalox (10.7) - - - - (10.7)
Watson-Marlow (7.8) - 0.5 - - (7.3)
Corporate
expenses - - (0.2) - - (0.2)
--------------- -------------------- ------------ --------------------- ------------ --------------------- -------
Total (25.2) 53.9 0.2 (0.7) 6.0 34.2
--------------- -------------------- ------------ --------------------- ------------ --------------------- -------
Net financing income and expense
Six months Six months Year ended 31(st)
to 30(th) June to 30(th) June December 2018
2019 2018
GBPm GBPm GBPm
Europe, Middle East & Africa (0.4) (0.5) (1.1)
Asia Pacific (0.1) (0.1) -
Americas (0.3) (0.3) (0.8)
------------------------------ --------------------------- --------------------------- ----------------------------
Steam Specialties (0.8) (0.9) (1.9)
Chromalox (0.2) - -
Watson-Marlow (0.2) (0.1) (0.1)
Corporate (3.4) (4.1) (8.3)
------------------------------ --------------------------- --------------------------- ----------------------------
Total net financing expense (4.6) (5.1) (10.3)
------------------------------ --------------------------- --------------------------- ----------------------------
Net assets
30(th) June 2019 30(th) June 2018 31(st) December
2018
Assets Liabilities Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ------------ ---------------- ---------------- ----------------- -------------- ------------
Europe, Middle
East
& Africa 426.5 (107.5) 402.2 (100.4) 407.6 (115.0)
Asia Pacific 168.1 (33.3) 161.1 (28.9) 162.2 (41.6)
Americas 115.8 (42.7) 106.5 (33.8) 113.8 (39.3)
------------------- ------------ ---------------- ---------------- ----------------- -------------- ------------
Steam Specialties 710.4 (183.5) 669.8 (163.1) 683.6 (195.9)
Chromalox 584.6 (36.7) 394.1 (23.6) 409.3 (28.9)
Watson-Marlow 244.9 (41.3) 226.5 (35.5) 227.9 (38.7)
------------------- ------------ ---------------- ---------------- ----------------- -------------- ------------
1,539.9 (261.5) 1,290.4 (222.2) 1,320.8 (263.5)
Liabilities (261.5) (222.2) (263.5)
Net deferred tax (47.6) (39.0) (35.5)
Net current tax
payable (20.1) (11.9) (19.1)
Lease liabilities (41.3) - -
Net debt (391.5) (373.0) (235.8)
------------------- ------------ ---------------- ---------------- ----------------- -------------- ------------
Net assets 777.9 644.3 766.9
------------------- ------------ ---------------- ---------------- ----------------- -------------- ------------
Capital additions, depreciation, amortisation and impairment
Six months to Six months to Year ended
30(th) June 2019 30(th) June 2018 31(st) December
2018
Depreciation, Depreciation, Depreciation,
amortisation amortisation amortisation
Capital and impairment Capital and impairment Capital and impairment
additions GBPm additions GBPm additions GBPm
GBPm GBPm GBPm
--------------- ----------------------------- ---------------- ----------------------------- ---------------- ----------------------------- ----------------
Europe, Middle
East & Africa 15.9 10.0 9.2 8.0 18.5 17.1
Asia Pacific 11.7 4.3 2.3 3.7 4.9 7.1
Americas 7.4 3.5 1.8 3.0 4.5 5.9
--------------- ----------------------------- ---------------- ----------------------------- ---------------- ----------------------------- ----------------
Steam
Specialties 35.0 17.8 13.3 14.7 27.9 30.1
Chromalox 79.3 7.9 2.3 7.5 6.0 13.6
Watson-Marlow 19.0 9.6 11.6 6.9 18.6 14.4
--------------- ----------------------------- ---------------- ----------------------------- ---------------- ----------------------------- ----------------
Total 133.3 35.3 27.2 29.1 52.5 58.1
--------------- ----------------------------- ---------------- ----------------------------- ---------------- ----------------------------- ----------------
Capital additions include property, plant and equipment at
30(th) June 2019 of GBP22.7m; at 30(th) June 2018 of GBP14.3m; and
at 31(st) December 2018 of GBP33.5m; of which at 30(th) June 2019
GBP8.1m; at 30(th) June 2018 GBP0.2m and 31(st) December 2018
GBP0.2m was from acquisitions in the period. Capital additions also
include other intangible assets at 30(th) June 2019 of GBP67.1m; at
30(th) June 2018 of GBP12.9m; and at 31(st) December 2018 of
GBP19.0m of which at 30(th) June 2019 GBP60.2m; at 30(th) June 2018
GBP8.1m and at 31(st) December 2018 GBP9.1m relates to acquired
intangibles from acquisitions in the period. Right-of-use asset
additions of GBP43.5m occurred during the six month period to
30(th) June 2019, of which GBP37.1m relates to additions on 1(st)
January 2019 as a result of transition to IFRS 16, with the
remaining GBP6.4m relating to new leases entered into in 2019.
4. NET FINANCING INCOME AND EXPENSE
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2018
2019 2018 GBPm
GBPm GBPm
-------------------------------------- ---------------------- ---------------------- ------------------------------
Financial expenses:
Bank and other borrowing interest
payable (3.5) (4.7) (9.4)
Interest expense on lease liabilities (0.6) - -
Net interest on pension scheme
liabilities (1.2) (1.0) (2.0)
-------------------------------------- ---------------------- ---------------------- ------------------------------
(5.3) (5.7) (11.4)
-------------------------------------- ---------------------- ---------------------- ------------------------------
Financial income:
Bank interest receivable 0.7 0.6 1.1
Net financing expense (4.6) (5.1) (10.3)
-------------------------------------- ---------------------- ---------------------- ------------------------------
Net pension scheme financial expense (1.2) (1.0) (2.0)
Interest expense on lease liabilities (0.6) - -
Net bank interest (2.8) (4.1) (8.3)
-------------------------------------- ---------------------- ---------------------- ------------------------------
Net financing expense (4.6) (5.1) (10.3)
-------------------------------------- ---------------------- ---------------------- ------------------------------
5. TAXATION
Taxation has been estimated at the rate expected to be incurred
in the full year.
Six months to Six months to Year ended
30(th) June 2019 30(th) June 2018 31(st) December
2018
------------------------------------------------------------------ ------------------------------------------------------------------ ---------------------------------------------------------------
Adjusted Adj't Total Adjusted Adj't Total Adjusted Adj't Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ------------------------ ----------------------- --------------- ------------------------ ----------------------- --------------- ------------------------ ----------------------- ------------
UK
corporation
tax 2.7 - 2.7 3.2 - 3.2 8.0 - 8.0
Foreign
tax 32.9 - 32.9 28.2 - 28.2 59.4 0.3 59.7
Deferred
tax 0.5 (3.6) (3.1) 1.3 (3.4) (2.1) 3.0 (5.3) (2.3)
------------- ------------------------ ----------------------- --------------- ------------------------ ----------------------- --------------- ------------------------ ----------------------- ------------
Total
taxation 36.1 (3.6) 32.5 32.7 (3.4) 29.3 70.4 (5.0) (65.4)
------------- ------------------------ ----------------------- --------------- ------------------------ ----------------------- --------------- ------------------------ ----------------------- ------------
Effective
tax rate 29.0% 21.6% 30.1% 27.1% 24.6% 27.4% 27.6% (14.8%) 22.6%
------------- ------------------------ ----------------------- --------------- ------------------------ ----------------------- --------------- ------------------------ ----------------------- ------------
The Group's tax charge in future years is likely to be affected
by the proportion of profits arising and the effective tax rates in
the various countries in which the Group operates.
The Group's tax charge for the six months ended 30(th) June 2019
included a credit of GBP3.6m in relation to certain items (as
disclosed in Note 2). The tax impacts of these items are:
-- Amortisation of acquisition-related intangible assets (GBP3.3m credit); and
-- Release of fair value adjustment on acquisition-related inventory (GBP0.3m credit).
On 2(nd) April 2019, the European Commission published its final
decision that the UK Controlled Foreign Company (CFC) Finance
Company Partial Exemption (FCPE) constituted State Aid in certain
circumstances. In common with a number of other UK Groups, the
Spirax-Sarco Group has benefited from the FCPE and the total
benefit in the periods 2013 - 2018 is approximately GBP7.7m in tax
excluding interest. On 12(th) June 2019 the UK Government submitted
an application for annulment to the EU General Court appealing the
decision of the European Commission and we are currently evaluating
whether to also appeal the European Commission's decision. As a
result, at present no provision has been recognised at 30(th) June
2019. However we acknowledge a cash payment in part or all of the
amount due may be required in the next year which we would expect
to be refundable in the event of a successful appeal.
During the period the Group adopted IFRIC 23 (Uncertainty Over
Income Tax Treatments).
6. EARNINGS PER SHARE
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2018
2019 2018
-------------------------------------------- --------------------- ------------------------ -----------------
Profit attributable to equity shareholders
(GBPm) 75.5 77.4 223.1
Weighted average shares in issue
(million) 73.7 73.6 73.6
Dilution (million) 0.1 0.2 0.2
-------------------------------------------- --------------------- ------------------------ -----------------
Diluted weighted average shares
in issue (million) 73.8 73.8 73.8
-------------------------------------------- --------------------- ------------------------ -----------------
Basic earnings per share 102.4p 105.1p 303.1p
-------------------------------------------- --------------------- ------------------------ -----------------
Diluted earnings per share 102.2p 104.8p 302.0p
-------------------------------------------- --------------------- ------------------------ -----------------
Basic and diluted earnings per share calculated on an adjusted
profit basis are included in Note 2.
The dilution is in respect of unexercised share options and the
Performance Share Plan.
7. DIVIDS
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2018
2019 2018 GBPm
GBPm GBPm
------------------------------------- ---------------------- ---------------------- -------------------------------
Amounts paid in the period:
Final dividend for the year ended
31(st) December 2018 of 71.0p
(2017:
62.0p) per share 52.3 45.7 45.7
Interim dividend for the year ended
31(st) December 2018 of 29.0p
(2017:
25.5p) per share - - 21.3
------------------------------------- ---------------------- ---------------------- -------------------------------
Total dividends paid 52.3 45.7 67.0
------------------------------------- ---------------------- ---------------------- -------------------------------
Amounts arising in respect of the
period:
Interim dividend for the year ending
31(st) December 2019 of 32.0p
(2018:
29.0p) per share 23.6 21.4 21.3
Final dividend for the year ended
31(st) December 2018 of 71.0p
(2017:
62.0p) per share - - 52.3
------------------------------------- ---------------------- ---------------------- -------------------------------
Total dividends arising 23.6 21.4 73.6
------------------------------------- ---------------------- ---------------------- -------------------------------
The interim dividend for the year ending 31(st) December 2019
was approved by the Board after 30(th) June 2019. It is therefore
not included as a liability in these Interim Condensed Consolidated
Financial Statements. No scrip alternative to the cash dividend is
being offered in respect of the 2019 interim dividend.
8. POST-RETIREMENT BENEFITS
The Group is accounting for pension costs in accordance with IAS
19. The disclosures shown here are in respect of the Group's
Defined Benefit Obligations. Other plans operated by the Group were
either Defined Contribution plans or were deemed immaterial for the
purposes of IAS 19 reporting. Full IAS 19 disclosure for the year
ended 31(st) December 2018 is included in the Group's Annual
Report.
The amounts recognised in the Consolidated Statement of
Financial Position are as follows:
30(th) June 30(th) June 31(st) December
2019 2018 2018
GBPm GBPm GBPm
---------------------------- ------------- ------------ ----------------
Post-retirement benefits (89.3) (75.0) (85.1)
Related deferred tax asset 20.2 17.0 18.8
---------------------------- ------------- ------------ ----------------
Net pension liability (69.1) (58.0) (66.3)
---------------------------- ------------- ------------ ----------------
9. ANALYSIS OF CHANGES IN NET DEBT, INCLUDING CHANGES IN
LIABILITIES ARISING FROM FINANCING ACTIVITIES
1(st) January Cash Acquired Exchange 30(th)
2019 flow debt* GBPm Reclassification June
GBPm GBPm GBPm GBPm 2019
GBPm
----------------------------- ------------- ------------------- ------------------------ ---------------------------- ------------------
Current
portion of
long-term
borrowings (41.5) (56.1)
Non-current
portion
of long-term
borrowings (365.3) (459.9)
Short-term
borrowings (15.7) (41.3)
-------------- -------------- ------------- ------------------- ------------------------ ---------------------------- ------------------
Total
borrowings (422.5) (557.3)
-------------- -------------- ------------- ------------------- ------------------------ ---------------------------- ------------------
Comprising:
Borrowings (422.2) (115.4) (18.2) (1.5) (557.3)
Finance
Leases (0.3) - - - 0.3 -
(422.5) (115.4) (18.2) (1.5) 0.3 (557.3)
-------------- -------------- ------------- ------------------- ------------------------ ---------------------------- ------------------
Cash at bank 187.1 (17.0) - (3.9) - 166.2
Bank
overdrafts (0.4) - - - - (0.4)
-------------- -------------- ------------- ------------------- ------------------------ ---------------------------- ------------------
Net cash and
cash
equivalents 186.7 (17.0) - (3.9) - 165.8
-------------- -------------- ------------- ------------------- ------------------------ ---------------------------- ------------------
Net debt (235.8) (132.4) (18.2) (5.4) 0.3 (391.5)
-------------- -------------- ------------- ------------------- ------------------------ ---------------------------- ------------------
Lease
liability
(including
IFRS 16
transition
adjustment) (40.0) 5.3 (6.4) 0.1 (0.3) (41.3)
-------------- -------------- ------------- ------------------- ------------------------ ---------------------------- ------------------
Net debt and
lease
liability (275.8) (127.1) (24.6) (5.3) - (432.8)
-------------- -------------- ------------- ------------------- ------------------------ ---------------------------- ------------------
* Debt acquired includes both debt acquired due to acquisition,
and debt recognised on the balance sheet due to entry into new
leases under IFRS 16.
The cash flow for borrowings included a repayment on the US
dollar term loan of $25.8m (GBP20.1m) during the period, GBP36.0m
of new drawings against a revolving credit facility, EUR39.0m
(GBP34.1m) of new drawings against a revolving credit facility and
EUR57.0m (GBP49.9m) of new drawings on a euro term loan.
1(st) January 30(th) June
2018 Cash flow Exchange 2018
GBPm GBPm GBPm GBPm
------------------------------- -------------- ----------------------------- ----------- ------------
Current portion of long-term
borrowings (49.3) (39.1)
Non-current portion of
long-term borrowings (455.9) (488.8)
Short-term borrowings (20.0) (19.7)
------------------------------- -------------- ----------------------------- ----------- ------------
Total borrowings (525.2) (547.6)
------------------------------- -------------- ----------------------------- ----------- ------------
Comprising:
Borrowings (524.9) (23.2) 0.7 (547.4)
Finance leases (0.3) 0.1 - (0.2)
------------------------------- -------------- ----------------------------- ----------- ------------
(525.2) (23.1) 0.7 (547.6)
------------------------------- -------------- ----------------------------- ----------- ------------
Cash at bank 152.1 29.6 (5.4) 176.3
Bank overdrafts (0.5) (1.2) - (1.7)
------------------------------- -------------- ----------------------------- ----------- ------------
Net cash and cash equivalents 151.6 28.4 (5.4) 174.6
------------------------------- -------------- ----------------------------- ----------- ------------
Net debt (373.6) 5.3 (4.7) (373.0)
------------------------------- -------------- ----------------------------- ----------- ------------
1(st) Acquired 31(st)
January Cash debt Exchange December
2018 GBPm flow GBPm GBPm 2018
GBPm GBPm
------------- ------------- ----------------------- ------------------- --------------------------- -------------
Current
portion of
long-term
borrowings (49.3) (41.5)
Non-current
portion
of
long-term
borrowings (455.9) (365.3)
Short-term
borrowings (20.0) (15.7)
------------- ------------- ----------------------- ------------------- --------------------------- -------------
Total
borrowings (525.2) (422.5)
------------- ------------- ----------------------- ------------------- --------------------------- -------------
Comprising:
Borrowings (524.9) 111.5 - (8.8) (422.2)
Finance
leases (0.3) - - - (0.3)
------------- ------------- ----------------------- ------------------- --------------------------- -------------
(525.2) 111.5 - (8.8) (422.5)
------------- ------------- ----------------------- ------------------- --------------------------- -------------
Cash at bank 152.1 39.8 (0.3) (4.5) 187.1
Bank
overdrafts (0.5) 0.1 - - (0.4)
------------- ------------- ----------------------- ------------------- --------------------------- -------------
Net cash and
cash
equivalents 151.6 39.9 (0.3) (4.5) 186.7
------------- ------------- ----------------------- ------------------- --------------------------- -------------
Net debt (373.6) 151.4 (0.3) (13.3) (235.8)
------------- ------------- ----------------------- ------------------- --------------------------- -------------
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. The subsidiaries now include Thermocoax
Developpement and all its group companies (Thermocoax) which was
acquired on the 13(th) May 2019. 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 31(st) December
2018. 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 2019 that have
materially affected the financial position or the performance of
the Group during that period.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table compares the carrying and fair values of the
Group's financial assets and liabilities:
30(th) June 2019 30(th) June 2018 31(st) December
2018
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
GBPm GBPm GBPm GBPm GBPm GBPm
------------- -------------- --------------------- -------------- --------------------- -------------- ---------------------
Financial
assets
Cash and
cash
equivalents 166.2 166.2 176.3 176.3 187.1 187.1
Trade, other
receivables
and
contract
assets 276.5 276.5 240.9 240.9 264.9 264.9
------------- -------------- --------------------- -------------- --------------------- -------------- ---------------------
Total
financial
assets 442.7 442.7 417.2 417.2 452.0 452.0
------------- -------------- --------------------- -------------- --------------------- -------------- ---------------------
Financial liabilities
Loans 557.3 557.3 547.4 547.4 422.2 422.2
Lease liabilities 41.3 41.3 0.2 0.2 0.3 0.3
Bank overdrafts 0.4 0.4 1.7 1.7 0.4 0.4
Trade payables 55.0 55.0 44.3 44.3 57.4 57.4
Other payables
and contract liabilities 48.4 48.4 38.6 38.6 46.5 46.5
--------------------------- ------ ------ ------ ------ ------ ------
Total financial
liabilities 702.4 702.4 632.2 632.2 526.8 526.8
--------------------------- ------ ------ ------ ------ ------ ------
There are no other assets or liabilities measured at fair value
on a recurring or non-recurring basis for which fair value is
disclosed.
Fair values of financial assets and financial liabilities
Fair values of financial assets and liabilities at 30(th) June
2019 are not materially different from book values due to their
size, the fact that they were at short-term rates of interest or
for borrowings at long-term rates of interest where the rate of
interest is not materially different to the current market rate.
Fair values have been assessed as follows:
Derivatives
Forward exchange contracts are marked to market by discounting
the future contracted cash flows using readily available market
data.
Interest-bearing loans and borrowings
Fair value is calculated based on discounted expected future
principal and interest cash flows using a current market rate of
interest.
Finance lease liabilities
The fair value is estimated as the present value of future cash
flows, discounted at market interest rates for homogeneous lease
agreements.
Trade and other receivables/payables
For receivables/payables with a remaining life of less than one
year, the notional amount is deemed to reflect the fair value.
The Group uses forward currency contracts to manage its exposure
to movements in foreign exchange rates. The forward contracts are
designated as hedge instruments in a cash flow hedging
relationship. At 30(th) June 2019 the Group had contracts
outstanding to purchase GBP25.9m with US dollars, GBP0.6m with
Danish krone, GBP40.7m with euros, GBP0.5m with Japanese yen,
GBP3.9m with Korean won, GBP8.4m with Chinese renminbi, GBP3.3m
with Singapore dollars, GBP0.2m with Swiss francs, EUR10.8m with US
dollars, EUR3.0m with Korean won and EUR5.7m with Chinese renminbi.
Derivative financial instruments are measured at fair value. The
fair value at the end of the reporting period is a GBP1.1m
liability (31(st) December 2018: GBP0.1m asset).
Financial instruments fair value disclosure
Fair value measurements are classified into three levels,
depending on the degree to which the fair value is observable.
-- Level 1 fair value measurements are those derived from quoted
prices in active markets for identical assets and liabilities;
-- Level 2 fair value measurements are those derived from other
observable inputs for the asset or liability; and
-- Level 3 fair value measurements are those derived from
valuation techniques using inputs that are not based on observable
market data.
We consider that the derivative financial instruments fall into
Level 2. There have been no transfers between levels during the
period.
12. CAPITAL COMMITMENTS
Capital expenditure contracted for but not provided for at
30(th) June 2019 was GBP24.0m (31(st) December 2018: GBP4.1m;
30(th) June 2018: GBP3.9m). All capital commitments related to
property, plant and equipment.
13. PURCHASE OF BUSINESSES
The provisional fair value accounting for the acquisition of
Thermocoax Developpement is shown below:
Fair value
GBPm
----------------------------------------------------------------- ------------------
Non-current assets:
Property, plant and equipment 8.1
Right-of-use assets 1.1
Acquired intangibles 59.3
Software and other intangibles 0.3
Deferred tax assets 0.5
69.3
----------------------------------------------------------------- ------------------
Current assets:
Inventories 15.9
Trade receivables 8.5
Other current assets 3.3
Cash and cash equivalents 4.6
----------------------------------------------------------------- ------------------
32.3
Total assets 101.6
----------------------------------------------------------------- ------------------
Current liabilities:
Trade payables 4.2
Other payables and accruals 6.5
Provisions 0.2
Short-term borrowings 18.2
Short-term lease liabilities 0.3
Current tax payable 2.0
31.4
----------------------------------------------------------------- ------------------
Non-current liabilities:
Long-term lease liabilities 0.8
Deferred tax liabilities 17.2
Long-term payables 0.5
Post-retirement benefit plans 0.3
----------------------------------------------------------------- ------------------
18.8
----------------------------------------------------------------- ------------------
Total liabilities 50.2
----------------------------------------------------------------- ------------------
Total net assets 51.4
Goodwill 70.0
----------------------------------------------------------------- ------------------
Total 121.4
----------------------------------------------------------------- ------------------
Satisfied by
----------------------------------------------------------------- ------------------
Cash paid 121.4
Deferred consideration -
----------------------------------------------------------------- ------------------
Total consideration 121.4
----------------------------------------------------------------- ------------------
Reconciliation to acquisition of businesses in the Consolidated
Statement of Cash Flows (page 25)
Cash paid for the Thermocoax business and debt repaid
on the acquisition date 139.6
Debt repaid on acquisition date (18.2)
----------------------------------------------------------------- ------------------
Cash paid for the Thermocoax business 121.4
Less cash acquired in the Thermocoax business (4.6)
Cash paid for acquired intangibles from distributors 0.8
----------------------------------------------------------------- ------------------
Net cash outflow 117.6
----------------------------------------------------------------- ------------------
1. On a debt-free, cash-free basis the cash outflow for
acquisitions was GBP135.0m consisting of GBP121.4m paid to the
sellers, GBP18.2m of debt repaid on the acquisition date less cash
acquired of GBP4.6m.
2. The acquisition of 100% of the equity in Thermocoax
Developpement and all of its group companies (Thermocoax) was
completed on the 13(th) May 2019. The acquisition method of
accounting has been used. Consideration of GBP121.4m was paid on
completion.
Separately identified intangibles are recorded as part of the
provisional fair value adjustment. The acquired intangibles relate
to customer relationships, brand names, trademarks, manufacturing
designs and core technology. The goodwill recognised represents the
skilled workforce acquired and the opportunity to achieve synergies
from being part of a larger Group. Goodwill arising is not expected
to be tax deductible.
Due to their contractual dates, the fair value of receivables
acquired approximate to the gross contractual amounts receivable.
The amount of gross contractual receivables not expected to be
recovered is immaterial.
The acquisition has generated GBP6m of revenue and GBP1m of
adjusted pre-tax profit since acquisition. Had the acquisition been
made on 1(st) January 2019, the Thermocoax revenue and adjusted
pre-tax profit would have been approximately GBP20m and GBP3m
respectively.
Thermocoax is headquartered near Paris, France and has three
manufacturing facilities in Normandy, France, one in Georgia, USA
and a further facility in Heidelberg, Germany. Thermocoax is a
leading designer and manufacturer of highly engineered electrical
thermal solutions for critical applications in high added value
industries. Thermocoax will enhance and add significantly to the
Spirax-Sarco Engineering plc electrical process heating business in
delivering thermal energy solutions to customers.
3. In addition to the acquired intangibles recognised for the
acquisition of Thermocoax, GBP0.9m of acquired intangibles were
recognised during the period for the acquisition of intangibles
from distributors. Of this GBP0.8m was paid during the period.
4. GBP2.5m of acquisition costs were incurred during the period.
Of this GBP1.9m had been paid during the period.
5. During the period the deferred consideration payable for the
acquisition of a small German pre-revenue company within the
Watson-Marlow Fluid Technology business was reassessed. The result
of this reassessment was that no changes were required.
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 2018 and half year 2019.
Average Average Change %
half year half year
2019 2018
---------------- ---------------------- ---------------------- ------------------------
US dollar 1.29 1.37 +6%
Euro 1.14 1.14 0%
Renminbi 8.78 8.76 0%
Won 1,479 1,476 0%
Real 4.96 4.71 -5%
Argentine peso 53.28 29.84 -79%
A negative movement indicates a strengthening in sterling versus
that currency. When sterling strengthens against other currencies
in which the Group operates, the Group incurs a loss on translation
of the financial results into sterling.
On a translation basis, sales increased by 0.4% and adjusted
operating profit decreased by 1.8%, while transaction benefited
profit, giving a total reduction to profit from currency movements
of 0.6%.
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END
IR LLFERTFIRIIA
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