TIDMSPX
RNS Number : 6333V
Spirax-Sarco Engineering PLC
11 August 2022
News Release
Thursday 11th August 2022
2022 Half Year Results
Strong first half despite headwinds, improving full year
outlook
HIGHLIGHTS
Six months ended 30th June
Statutory 2022 2021 Reported
---------------------------- ---------- ---------- --------- ----------
Revenue GBP750.1m GBP643.7m +17%
Operating profit GBP142.1m GBP153.6m -7%
Operating profit margin 18.9% 23.9% -500 bps
Profit before taxation GBP138.5m GBP150.0m -8%
Basic earnings per share 131.8p 147.6p -11%
Dividend per share 42.5p 38.5p +10%
Adjusted 2022 2021 Reported Organic**
---------------------------- ---------- ---------- --------- ----------
Revenue(+) GBP750.1m GBP643.7m +17% +15 %
Adjusted operating profit* GBP178.8m GBP162.9m +10% +9 %
Adjusted operating profit
margin* 23.8% 25.3% -150 bps -150 bps
Adjusted profit before
taxation* GBP175.2m GBP159.3m +10%
Adjusted basic earnings
per share* 175.1p 157.6p +11%
Adjusted cash conversion* 44% 85%
-- Revenues up 17%, or 15% organically, driven by volume growth and price
increases
-- Order books remain at record levels; global supply chain disruption
being managed
-- Statutory operating profit down 7% and margin down 500bps due to ETS
restructuring
-- Adjusted operating profit margin 23.8%, down 150bps organically; reflects
revenue investments
-- Steam Specialties sales up 11%; demand growth well above organic sales
growth
-- Electric Thermal Solutions sales up 18%; demand growth above organic
sales growth
-- Watson-Marlow sales up 27%; BioPharm demand lower, Process Industries
very strong
-- Agreement to acquire Vulcanic for EUR261.7 million; strengthens Electric
Thermal Solutions
-- Record capital investment during the first half; cash conversion of
44%
-- Net debt^ of GBP202.7 million (H1 2021: GBP192.8 million); net debt
to EBITDA* ratio of 0.5x
-- Interim dividend up 10% to 42.5 pence, following 15% total increase
in 2021
Nicholas Anderson, Group Chief Executive, commenting on the
results said:
"These strong first half results were achieved against the
backdrop of a weakening IP, supply chain and COVID-19 related
disruption, as well as rising inflation. I am grateful to all
colleagues for their tireless efforts to support our customers in a
challenging first half. It is this excellent execution and
resilience that underpins our improved full year outlook.
"Our strong profitability and robust balance sheet support our
continued investment in growth, including our sustainability,
digital and manufacturing initiatives. We recently added to our
expertise by acquiring Cotopaxi into our Steam Specialties Business
and will shortly welcome Vulcanic into our Electric Thermal
Solutions Business. Through these actions, we are building stronger
foundations for continued organic growth beyond 2022, helping our
customers achieve their net zero goals while also improving the
safety and efficiency of their industrial processes."
(+) The term 'sales' is used interchangeably with 'revenue' when
describing the financial performance of the business.
*Results quoted in this announcement are 'adjusted' metrics,
except where otherwise stated.
**Organic measures are at constant currency and exclude
contributions from acquisitions and disposals (with our Russian
Operating Companies treated as disposals from the date at which the
Group suspended all trading with and within Russia).
^Net debt includes total borrowings, cash and bank overdrafts
but excludes IFRS 16 lease liabilities, as set out in Note 9 to the
Financial Statements.
See Note 2 to the Financial Statements for an explanation of
alternative performance measures.
For further information, please contact:
Nimesh Patel, Chief Financial Officer
Andrew Guthrie, Head of Investor Relations
Holly Gillis Citigate Dewe Rogerson (07940 797560)
Audio webcast
The meeting with analysts will be available as a live audio
webcast at 9.00 am on the Company's website at
www.spiraxsarcoengineering.com or via the following link:
https://edge.media-server.com/mmc/p/zb9i39ug and a recording
will be made available on the website shortly after the
meeting.
Conference Call
The meeting with analysts will also be available via a full
conference call with Q&A facility, at 9.00 am, participants
must register in advance using the provided link below:
https://register.vevent.com/register/BI236a81998470457b8cd98ab02c0a8fea
After completing the conference call registration, you will
receive dial-in details on screen and via email.
About Spirax--Sarco Engineering plc
Spirax--Sarco Engineering plc is a thermal energy management and
niche pumping specialist. It comprises three world--leading
businesses: Steam Specialties, for the control and management of
steam; Electric Thermal Solutions, for advanced electrical process
heating and temperature management solutions; and Watson-Marlow,
for peristaltic pumping and associated fluid path technologies. The
Steam Specialties and Electric Thermal Solutions businesses provide
a broad range of fluid control and 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
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 more than
9,200 people, including over 2,000 direct sales and service
engineers. The Company's shares have been listed on the London
Stock Exchange since 1959 (symbol: SPX) and it is a constituent of
the FTSE 100 and the FTSE4Good Indexes.
Further information can be found at
spiraxsarcoengineering.com
RNS filter: Inside information prior to release
LEI 213800WFVZQMHOZP2W17
BUSINESS REVIEW
HY 2021 Exchange Organic Acquisitions HY 2022 Organic Reported
& disposals*
Revenue GBP643.7m GBP11.3m GBP99.8m GBP(4.7)m GBP750.1m +15% +17%
---------- --------- --------- -------------- ---------- -------- ---------
Adjusted operating
profit GBP162.9m GBP3.5m GBP14.2m GBP(1.8)m GBP178.8m +9% +10%
---------- --------- --------- -------------- ---------- -------- ---------
Adjusted operating
profit margin 25.3% 23.8% -150bps -150bps
---------- --------- --------- -------------- ---------- -------- ---------
Statutory operating
profit GBP153.6m GBP142.1m -7%
---------- --------- --------- -------------- ---------- -------- ---------
Statutory operating
profit margin 23.9% 18.9% -500bps
---------- --------- --------- -------------- ---------- -------- ---------
*Includes the impact of (i) the acquisition of Cotopaxi Limited
and (ii) the treatment of our Russian Operating Companies as
disposals from the date at which the Group suspended all trading
with and within Russia.
OVERVIEW
Recognising our colleagues
The Board would like to thank our more than 9,200 colleagues
worldwide for their continued and outstanding efforts to support
our customers, particularly in meeting the ongoing, exceptional
demand for our products and solutions in 2022, against what has
been a very challenging macroeconomic backdrop.
The health, safety and wellbeing of our teams is of paramount
importance with COVID-19 still affecting our daily lives. We are
continuing to monitor and respond to the situation at a local
level, increasing our health and safety measures when needed to
ensure our workplaces remain safe.
Exit from Russia
In March, we announced our decision to suspend all Group trading
with or within Russia. In 2021, our businesses in Russia
represented close to 1% of Group revenues. During the second
quarter we continued to support our colleagues in Russia, including
paying salaries, as we prepared the operations for sale. On 6th
July we concluded the disposal of our Spirax Sarco and
Watson-Marlow operations to their respective General Managers for a
nominal consideration. We have now fully exited our Russian
Operating Companies and we wish our former colleagues well.
Acquisition of Vulcanic to strengthen our Electric Thermal
Solutions (ETS) Business
On 25th July, we announced a definitive agreement (subject to
regulatory approvals) to acquire the Vulcanic Group of Companies
(Vulcanic), from Qualium, a French private equity company, for a
consideration of EUR261.7 million, on a cash and debt free basis,
subject to customary closing adjustments. The acquisition is
expected to complete by the end of the third quarter.
Vulcanic is a European industrial electric heating group and is
the largest supplier in Europe of bespoke industrial electric
heating solutions. Headquartered in Paris (France) with 10
manufacturing facilities worldwide, Vulcanic has over 700 employees
of whom almost 90% are based in the Europe, Middle East and Africa
(EMEA) region.
Vulcanic will support the delivery of growth in the Group's ETS
Business through its existing customers, products and operational
footprints that are mostly in the EMEA region and will complement
our Chromalox Business that is mostly focused on the Americas.
Vulcanic operates a direct sales model to end users, Original
Equipment Manufacturers and contractors, serving a range of markets
aligned to the core market sectors of ETS.
Vulcanic's strategic fit with ETS expands our platform to deploy
the Group's business model and drive further improvements in sales
growth and margin over time. As part of ETS, Vulcanic will play a
significant role in supporting the Group's drive to help customers
decarbonise their critical industrial processes through
electrification, for which there is already strong demand from
European customers.
Separately, on 23rd May 2022, we announced the start of a
consultation process to address the financial underperformance of
the Chromalox manufacturing facility in Soissons (France). We
anticipate that the combination of these two separate strategic
actions will enable our ETS Business to establish a large scale,
profitable operating footprint in EMEA (the region that we expect
to lead the way, in terms of demand, for our Group's
decarbonisation solutions) and to balance our geographic presence
in ETS more evenly across the Americas and EMEA.
Market environment
Global industrial production growth ([1]) (IP) was 2.9% in the
first half of 2022, compared to 11.4% for the equivalent period in
2021. IP in all regions was lower than the equivalent period of
2021, which was characterised by the strong recovery from the
impacts of the COVID-19 pandemic in 2020. IP was similar at around
3% in both mature and emerging markets, reflecting the higher IP in
North America compared to other developed regions. In emerging
markets IP was negatively affected by the COVID-19 related
lockdowns in China, which significantly impacted the second
quarter.
IP Performance H1 2022 IP Performance H1 2021
Europe, Middle East
& Africa +2.3% +10.6%
----------------------- -----------------------
of which, Europe +1.3% +13.9%
----------------------- -----------------------
North America +5.3% +5.7%
----------------------- -----------------------
Latin America -0.8% +13.8%
----------------------- -----------------------
Asia Pacific +2.8% +13.9%
----------------------- -----------------------
of which, China +3.2% +16.0%
----------------------- -----------------------
Since the Russian invasion of Ukraine on 24th February 2022,
forecasters have reduced their expectations of IP growth for 2022
from 4.4% to 3.5%. IP for the second half of 2022 is forecast to be
above the first half at 4.1%, driven by sustained IP of 5.3% in
North America, IP in China recovering to 6.1% in the second half
and IP in the balance of Asia Pacific increasing from 1.9% in the
first half to 4.5% in the second half.
The ongoing disruptions to global supply chains have led to
reduced availability of key components and manufacturing input cost
inflation. In addition, Russia's invasion of Ukraine has driven
higher energy prices in the short term and raised concerns over
security of supply in regions such as Europe, which has a higher
dependency on imports of Russian gas. The rising inflation of the
first half has led to increases in interest rates globally, with
expectations of further rises in the balance of the year. It
remains unclear what impact these changes will have on the global
economy during the second half. As a result, there remains a
material level of uncertainty regarding the IP forecast for the
remainder of 2022.
PROGRESS IN THE HALF YEAR
Impacts on supply chain
In Q4 2021, global supply chains experienced significant
disruption driven by the combination of strong returning demand for
industrial products, as economies reopened, as well as continued
operational challenges resulting from ongoing COVID-19 mitigation
measures. This affected the availability of raw materials and
disrupted freight markets, increasing delivery lead times and
creating shortages.
These challenges were still present in the first half of 2022,
impacting the availability of key manufacturing components, such as
nylon, printed circuit boards and semiconductors. We continued to
deploy our mitigation strategies to manage this disruption, with
initiatives such as engaging with our supply chain partners,
expanding our sources of raw materials and improved forecasting and
planning within our procurement activities.
In China, there was a specific further impact on global supply
chains resulting from the extended COVID-19 lockdowns in Shanghai.
China represented 13% of the Group's sales in H1, with the
significant majority coming from the Steam Specialties Business
based in Shanghai. This is predominantly an in-country focused
business, with over 70% of sales in China being served from our
manufacturing facility in Shanghai and almost 90% of our China
manufacturing output being sold in China. As a result, there is
limited impact of the Shanghai lockdowns on our Group beyond China
and, since reopening, our team in China has made significant
progress in reducing the resulting backlog, expecting to recover
the impact on sales during the second half of the year. However, we
are not immune to the broader disruption to global supply chains
caused by the lockdowns in China, which may affect our ability to
manufacture and ship orders in other plants that source components
from China.
Managing strong demand growth
All three Businesses entered 2022 with record order books and
all three Businesses have expanded their order books during the
first half. This particularly strong demand partly reflects a
higher proportion of larger project orders, which typically have
longer lead times, driven by customers accelerating capital
investments.
To meet this high level of demand, we have continued to advance
capacity expansion plans across all three Businesses, such as
increased output from our Steam Specialties supply organisation as
we grow headcount and deliver our factory modernisation
initiatives; debottlenecking key ETS facilities supported by
investments in equipment, people and skills and progressing new
manufacturing facilities and capacity in Watson-Marlow.
Implementing our strategy
Increase direct sales effectiveness through market sector
focus
Our Businesses benefit from global talent mobility within our
Group to share skills, knowledge and learnings across different
parts of our organisation. As an example, ETS has been able to
bring expertise from Steam Specialties to advance its direct sales
activity and has also used an existing 'go to market' strategy,
which has been adapted to suit the ETS market and portfolio.
All three of our Businesses have continued to develop new
solutions in support of their sector specific growth programmes to
accelerate demand in these focus areas where we know we are well
positioned. This has been evidenced in the strong performance of
the Process Industries sector within Watson-Marlow and the
increased share of sales going to strategic target sectors within
ETS.
All our Businesses are advancing Customer Value Propositions
(CVPs) which our customers' changing requirements. In Steam
Specialties, our teams are developing a CVP to support lithium
mining projects in Argentina for the battery sector. ETS, together
with Steam Specialties, has developed a new CVP linked to
sustainability and energy efficiency which is delivered through a
suite of solutions designed to enable the decarbonisation of
industrial heating, including the raising of steam.
Watson-Marlow's response to rising demand for global battery
production, as a result of the transition to electric vehicles in
developed countries, is focused on a CVP for its Bredel hose pumps
- used to accurately meter, dose and transfer various abrasive
chemical slurries from raw material tanks to reaction tanks to
create the liquids mix required for battery cell production.
Develop the knowledge and skills of our expert sales and service
teams
Across the Group, our sales teams have been undertaking Sales
Excellence training to develop or refresh skillsets in areas such
as consultative and value-based selling. As an example, our
Cotopaxi colleagues, who joined the Group at the end of January as
part of our Steam Specialties Business, have been integrated into
our Learning Management System (the Steam Academy). Work is
currently underway with Cotopaxi to develop and launch a series of
learning modules covering 'connected services capability
development' to enable our sales teams to conduct steam loop energy
benchmarking audits. A 'digital transformation' curriculum using
third party content has also been launched to all colleagues across
Steam Specialties.
Migration of content to the newly created ETS Academy is
expected to complete in the third quarter of 2022. Chromalox has
launched several CVP sales packages focused on its decarbonisation
and net zero solutions. The CVP packages include training,
marketing materials and decarbonisation calculators for the
Engineered Chemicals, Sustainable Energy and Oil & Gas
sectors.
Broaden our global presence
A key element of our strategy is the geographic expansion of our
direct sales presence to increase coverage and access to customers.
In the first half of 2022, we achieved this through both organic
and inorganic investments. Organically, we increased our headcount
in existing territories in both Steam Specialties and
Watson-Marlow.
The acquisition of Vulcanic, as per our announcements on 4th and
25th July, will support the delivery of growth in our ETS Business
through leveraging Vulcanic's existing customers, products and
operational footprints which are mostly in the EMEA region.
Leverage our research & development (R&D)
investments
All three Businesses launched new product, service, or solution
offerings during the first half of 2022.
Following the completion of successful pilots, the first
decarbonisation solutions developed through the Thermal Solutions
Synergy project (a collaboration between Steam Specialties and ETS)
are now available. Collectively known as TargetZero, these new and
innovative solutions are designed to help our customers decarbonise
their critical industrial processes, including the raising of
steam.
The patent-pending Steam Battery thermal energy storage system,
SteamVolt and ElectroFit boiler solutions have all been
successfully tested in customer sites and we are already taking
customer orders.
All three of these solutions are currently being deployed within
our largest manufacturing site in the UK to support the achievement
of our own net zero commitments in line with our One Planet
Sustainability Strategy.
Watson-Marlow has opened a new innovation centre in Cornwall
(UK), investing in a new Research & Development (R&D)
facility and in R&D capability with a total of 85 engineers
expected to be working in the innovation centre by the end of
2022.
Watson-Marlow is also digitally-enabling its products and
solutions, launching its EtherNet IP-enabled peristaltic pumps in
the first half, which provide customers with fast, accurate
performance data and seamless connectivity to their control systems
and the Internet of Things, helping to improve process performance,
reduce operating costs and minimise downtime.
Optimise supply chain effectiveness
In Watson-Marlow, our newly installed capacity at BioPure
(Portsmouth, UK), Watson-Marlow Pumps and Tubing (Falmouth, UK) and
Aflex (Huddersfield, UK) enabled almost 40% increased production
output across those four plants in the second quarter of 2022,
compared with the same period in 2021, to meet increased customer
demand. We have been making significant progress with our new
Watson-Marlow manufacturing facility in Massachusetts (USA) which
is on track to produce its first shipments by the end of the
year.
Across our Group, we measure our customer service levels using
on-time-to-request (OTTR) or on-time-to-commitment (OTTC) metrics.
In the first half of this year, all three Businesses have
experienced a reduction in customer service levels, due to the
exceptional demand from customers, absences due to COVID-19 and
disruptions along our global supply chains, but they have remained
focused on driving high standards of customer response.
Operate sustainably and help improve our customers'
sustainability
Our Purpose is to create sustainable value for all our
stakeholders as we engineer a more efficient, safer and sustainable
world. With this comes a responsibility to preserve and protect
natural resources, to support people and the planet by operating
responsibly, as well as helping our customers and suppliers to do
the same.
Our people and our communities
In March, we welcomed a new Group Health & Safety Director
to lead our Group-wide approach to Health & Safety, as well as
implement improvements in our global Health & Safety Excellence
framework. This includes overseeing a new Group-wide Health &
Safety Management system which was deployed globally during the
first half of the year and is primarily being used to manage
incident reporting.
It is disappointing that our safety performance in the first six
months of the year has reduced very slightly compared to the same
period last year, with a Group-wide Lost Time Accident Rate of 0.13
(2021: 0.12). Alongside this, we have noted a higher incidence of
hand and upper arm injuries. Our Health & Safety teams have
increased focus on this area, including cascading the lessons
learned and placing a renewed emphasis on engaging colleagues to
prioritise their safety and that of colleagues, through our
Behavioural Based Safety (BBS) programme. We are continually
focused on improving Health & Safety awareness to reduce the
potential for complacency leading to accidents and incidents across
the Group. Efforts in this area have included implementing
additional phases of our BBS training as well as the planned
development of the new Group-wide Health and Safety Excellence
Framework to be rolled out in the second half.
In July, our Steam Specialties Business in Cheltenham (UK) was
awarded the prestigious Gold Medal Health & Safety Award from
RoSPA, which follows five consecutive years of being awarded Gold
Status from RoSPA and recognises their significant achievement in
being world leaders in health & safety practice.
We now have over 9,200 colleagues across our Group, up from
8,700 at the year end. A t the start of 2022, we launched Everyone
is Included, our Group plan for an inclusive, equitable and healthy
organisation. The Plan includes ten Inclusion Commitments, which
are a set of global minimum standards that became effective on 1st
February 2022. The launch included a short video and seven
supporting toolkits covering parental leave, caregiver leave,
domestic abuse, pregnancy loss, LGBTQ+ inclusion, menopause and
hybrid working. We followed the launch with a series of inclusion
masterclasses, webinars and workshops and have focused on
supporting our colleagues to embed these Commitments into local
policy and practice.
We formally signed the UN Women's Empowerment Principles, UN
LGBTI Standards and joined the Women's Engineering Society and the
Women in Science and Engineering organisation to help advance our
gender equity journey . Our third Female Executive Mentoring
Programme launched in June 2022 to support the progression of
female talent within the Company. Across our Group we celebrated
International Women's Day, International Women in Engineering Day
and Pride.
Following an initial donation of GBP100,000 by the Group to the
Red Cross Ukraine Appeal, almost GBP92,000 was raised and donated
by our colleagues in the response to the humanitarian crisis in
Ukraine which was matched by the Company. In June we were pleased
to receive the first applications to our Group Education Fund and
the Trustees made initial awards for a total of GBP230,000.
Climate and environmental action
Net zero: We have achieved a significant reduction in our
absolute scope 1 and 2 market-based greenhouse gas emissions in the
first half compared to the same period last year. In addition, each
manufacturing site has developed a net zero roadmap that has been
reviewed centrally and embedded in forward plans. Our Spirax Sarco
manufacturing facility in China, which accounted for 9% of our
total scope 1 and 2 emissions in 2021, secured a green tariff for
its electricity supply and we expect this to drive a further
reduction in emissions during the second half. At the end of the
first half, we had secured green energy contracts for close to 40%
of the Group's electricity supply and made further progress in
implementing Project Clear Sky which will fully decarbonise Steam
Specialties' UK manufacturing facility. We also signed a leasing
contract to enable us to start a UK-wide transition to electric
vehicles across all Group Companies.
Biodiversity: So far in 2022, 56 biodiversity projects were
initiated by our Operating Companies globally. As an example,
colleagues from our Steam Specialties Business in Italy designed
and built three beehives, using recycled materials which are now
installed on the roof of their building, providing a home to around
150,000 bees.
Acquisitions and Disposals
At the end of January, we completed the GBP12.7 million
acquisition of Cotopaxi Limited, which was agreed in December 2021.
The acquisition advances our journey of embedding digital
enablement across the Group. This digitally enabled, global energy
and consulting specialist will support the delivery of the Steam
Specialties Customer first(2) Strategy, by digitally enhancing its
customer bonding. During the first half of 2022 we continued
investing in support of the Cotopaxi business, to meet the growing
demand from our Steam Specialties customer base with 90
opportunities identified jointly since the acquisition.
On 25th July, we announced a definitive agreement (subject to
regulatory approvals) to acquire Vulcanic, from Qualium, a French
private equity company, for a consideration of EUR261.7 million, on
a cash and debt free basis, subject to customary closing
adjustments. The acquisition is expected to complete by the end of
the third quarter and will significantly strengthen our ETS
business.
On 6th July we concluded the disposal of our Spirax Sarco and
Watson-Marlow operations in Russia to their respective General
Managers for a nominal consideration for each operation. Those
transactions completed our Group's full withdrawal from Russia,
following suspension of all trading with and within Russia in
March.
Financial Performance
Sales
Group sales increased by 17% in the first half of the year to
GBP750.1 million (2021: GBP643.7 million), up 15% on an organic
basis, which included the impact of price increases to offset
inflation. Volumes also increased as we ramped up shipments from
our manufacturing facilities, successfully mitigating global supply
chain disruption and the ongoing impact of COVID-19 on our
workforce. Currency movements had a 2% positive effect on sales,
compared with the same period in 2021.
Steam Specialties sales of GBP400.6 million were up 11% or 10%
up organically. Demand for Steam Specialties products and solutions
grew significantly above global IP in the first half of 2022 and
well above sales, as the Business expanded its order book further
from its record opening position.
ETS sales of GBP104.7 million were up 18% or 13% up organically,
with the difference reflecting a currency tailwind as sterling
depreciated against the US dollar. This strong sales growth was
driven primarily by Chromalox, which represented over 75% of ETS
sales in the first half and achieved organic growth ahead of Steam
Specialties.
Watson-Marlow sales of GBP244.8 million were up 27% or 26% up
organically. Sales to the Pharmaceutical & Biotechnology sector
grew by close to 30%, accounting for 60% of total sales. Sales to
the Process Industries sectors grew significantly above IP.
Adjusted operating profit
Group adjusted operating profit of GBP178.8 million (2021:
GBP162.9 million) was up 10%, or 9% up on an organic basis, the
difference being due to currency movements that increased Group
adjusted operating profit by 2% as well as the net effect of
acquisitions and disposals.
In Steam Specialties, adjusted operating profit of GBP92.1
million was up 3%, or 2% up on an organic basis. Adjusted operating
profit in ETS of GBP12.8 million was up 14%, or 9% up organically
after adjusting for the currency tailwind. Watson-Marlow's adjusted
operating profit for the first half was up 22% to GBP87.0 million,
or 21% up organically, driven by strong sales growth.
Adjusted operating profit margin
Group adjusted operating profit margin of 23.8% was down 150bps,
on both a reported and organic basis, but above pre-pandemic levels
and in line with our guidance. As anticipated at the time of our
full year 2021 results, this reduction in adjusted operating profit
margin was driven by the full year impact of revenue investments
made during 2021, with continued revenue investments in 2022. We
have continued to deploy our active approach to price management to
offset the impact of inflation on our Group adjusted operating
profit margin.
In Steam Specialties, adjusted operating profit margin of 23.0%
was down 180bps, on both a reported and organic basis, reflecting
our revenue investments, including in our Digital Strategy.
ETS adjusted operating profit margin was down 40bps, or 60bps
down organically, at 12.2%. Within ETS, Chromalox increased its
adjusted operating profit margin organically, driven by the
continued strong performance in the Americas where margins are
above 20%. Thermocoax's adjusted operating profit margin was lower
than the first half of 2021, as a result of investment in our new
manufacturing facility in Normandy (France).
In Watson-Marlow, adjusted operating profit margin of 35.5% was
down 150bps, or 170bps down organically. In line with prior
guidance, the reduction in adjusted operating profit margin
reflects our continued revenue investments and the recruitment of
additional colleagues for our new manufacturing facilities.
Statutory operating profit and margin
Statutory operating profit decreased 7% to GBP142.1 million
(2021: GBP153.6 million) and the statutory operating profit margin
decreased from 23.9% to 18.9%. Statutory operating profit is
impacted by the same drivers as described in the adjusted operating
profit section above. However, these positive impacts are more than
offset by the reconciling items detailed below:
-- A charge of GBP10.5 million (2021: GBP11.3 million) for the amortisation
of acquisition-related intangible assets
-- Accelerated depreciation and other associated one-off costs of
GBP4.0 million relating to the Group Head Office building in Cheltenham
(UK), which is being comprehensively re-developed
-- A restructuring charge of GBP15.4 million relating to Chromalox's
manufacturing operations in Soissons (France), which is part of
ETS
-- An impairment loss on the Group's Russian Operating Companies
of GBP3.6 million resulting from the reclassification of assets
and liabilities as held for sale, together with the associated
disposal costs
-- A charge of GBP3.2 million for costs related to the Cotopaxi and
Vulcanic acquisitions
Profit before tax
The Group adjusted profit before tax of GBP175.2 million (2021:
GBP159.3 million) was up 10%. The statutory profit before tax of
GBP138.5 million (2021: GBP150.0 million) was down 8%. The
reconciling items between the adjusted profit before tax and the
statutory profit before tax are shown above and in Note 2.
Financing expense
Net financing expense remained at GBP3.6 million (2021: GBP3.6
million), comprising GBP2.6 million of net bank interest (2021:
GBP2.3 million), GBP0.3 million of interest on net pension
liabilities (2021: GBP0.8 million) and GBP0.7 million of interest
on lease liabilities (2021: GBP0.5 million). We anticipate that the
net financing expense in the second half of the year will be higher
by approximately GBP2.0 million as a result of the acquisition of
Vulcanic.
Tax
The Group adjusted effective tax rate of 26.3% (full year 2021:
25.1%), is based on the expected full year tax rate, in line with
the previous guidance of approximately 26%.
The effective tax rate on statutory profit increased to 29.8%
(full year 2021: 25.3%) due to the tax impact of the amortisation
of acquired intangibles and the costs associated with (i) the
restructuring of Chromalox's manufacturing operations in Soissons
(France), (ii) the acquisition of Vulcanic and (iii) the
re-development of the Group Head Office in Cheltenham (UK).
On 8th June 2022, the European Union (EU) General Court
published its decision on the appeals for annulment made against
the European Commission's (EC) 2019 decision that certain aspects
of the UK's Controlled Foreign Company regime constituted State
Aid, finding in favour of the EC. The UK Government and the
taxpayer have an option to appeal the decision of the EU General
Court.
Whilst the EU General Court ruling was in favour of the EC, our
assessment is that there are grounds for successful appeal. As a
result, we have continued to recognise a receivable of GBP4.9
million in the Statement of Financial Position. This relates to the
full amount paid to HM Revenue & Customs for Charging Notices
received in 2021 . The Group has not received a Charging Notice for
either the benefit received prior to 2017, which is estimated to be
GBP2.8 million, or the benefit received during 2019 of GBP1.0
million. No provisions have currently been recognised relating to
these amounts and therefore they remain a contingent liability at
30th June 2022. Further details are included in Note 5 to the
Financial Statements.
Earnings per share
Adjusted basic earnings per share of 175.1 pence (2021: 157.6
pence) was up 11%, in line with the increase in adjusted operating
profit. Basic earnings per share on a statutory basis was 131.8
pence (2021: 147.6 pence). The fully diluted earnings per share
were not materially different in either year.
Dividends
The Board has declared an interim dividend of 42.5 pence (2021:
38.5 pence) per ordinary share, an increase of 10%. This growth in
the interim dividend follows an increase of 15% in the total
dividend in respect of 2021. The dividend will be paid on 11th
November 2022 to shareholders on the register at the close of
business on 14th October 2022. The final dividend of 97.5 pence per
share in respect of 2021 was paid on 20th May 2022 at a cash cost
of GBP71.9 million.
Financial Position and Cash Flow
Capital employed (Note 2) increased to GBP766.9 million at 30th
June 2022. In the first half , our capital expenditure was GBP49.3
million, up from GBP22.2 million in 2021, with nearly 85% of the
increase coming from Watson-Marlow which now represents
approximately two thirds of total Group capital expenditure as we
invest to support future growth. For the full year, we expect
capital expenditure to be approximately 7% of sales, as a result of
increased investment in the second half in new production
facilities for Watson-Marlow, as well as our factory modernisation
projects and the rollout of our new ERP system in Steam
Specialties. During the first half, tangible fixed assets
(Property, Plant & Equipment (PPE) and IFRS 16
right-of-use-assets) increased by GBP35.0 million to GBP375.3
million.
The ratio of working capital to sales increased by 210bps (at
constant currency) to 24.1% (2021: 22.0%). This reflects a planned
rebuilding of stock, to meet increasing demand and mitigate
supply-chain-related shortages of raw materials, as well as an
increase in receivables. Going forward, we anticipate a reduction
in the ratio of working capital to sales, to a similar level as
reported in 2021, as shipments increase in the second half of the
year.
Adjusted cash from operations of GBP78.4 million (2021: GBP139.1
million) was down GBP60.7 million due to increased capital
expenditure and investment in working capital, resulting in cash
conversion of 44% (2021: 85%). Adjusted cash from operations is a
measure of the cash flow generated from our Operating Companies
which reflects the components within the control of local
management. A reconciliation between this and statutory operating
cash flow can be found in Note 2 to the Financial Statements.
After adjusting for the GBP4.9 million payment made to HM
Revenue & Customs in relation to EU State Aid in the first half
of 2021, tax paid in the period increased to GBP41.2 million driven
by higher profitability.
Adjusted free cash flow decreased to GBP33.9 million (2021:
GBP95.1 million) principally as a result of increased capital
expenditure and investment in working capital.
Dividend payments were GBP72.2 million (2021: GBP62.6 million)
including payments to minority shareholders.
Share purchases, net of new shares issued for the Group's
various employee share schemes, resulted in a cash outflow of
GBP10.4 million (2021: GBP11.8 million).
The net post-retirement benefit liability under IAS 19 decreased
to GBP35.2 million (2021: GBP44.7 million). The fair value of
assets decreased by GBP149.8 million from 31st December 2021
reflecting market movements. Liabilities were also lower by
GBP159.3 million, largely driven by an increase in the AA corporate
bond interest rates used to discount future cash flows.
At 30th June 2022, net debt (excluding leases) was GBP202.7
million, a net debt to EBITDA ratio of 0.5x, compared with net debt
of GBP192.8 million at 30th June 2021. Net debt will increase in
the second half following completion of the acquisition of
Vulcanic, which will be funded through a new committed bank
facility.
Adjusted cash flow 30th June 30th June
2022 2021
GBPm GBPm
----------
Adjusted operating profit 178.8 162.9
Depreciation and amortisation (excluding
IFRS 16) 17.0 17.8
Depreciation of leased assets 6.4 5.7
Payments to pension schemes above charge
to adjusted operating profit (2.9) (2.4)
Equity-settled share plans 4.8 4.8
Working capital changes (70.8) (22.6)
Repayments of principal under lease liability (6.2) (5.7)
Capital expenditure (including software
and development) (49.3) (22.2)
Capital disposals 0.6 0.8
Adjusted cash from operations 78.4 139.1
----------------------------------------------- ---------- ----------
Net interest (3.3) (2.8)
Income taxes paid (41.2) (41.2)
Adjusted free cash flow 33.9 95.1
----------------------------------------------- ---------- ----------
Net dividends paid (72.2) (62.6)
Purchase of employee benefit trust shares
and issue of share capital (10.4) (11.8)
Acquisitions of subsidiaries (12.7) -
Cash flow for the period (61.4) 20.7
----------------------------------------------- ---------- ----------
Exchange movements (8.5) 15.3
Cash transferred to assets classified as (2.3) -
held for sale
----------------------------------------------- ---------- ----------
Opening net debt (130.5) (228.8)
----------------------------------------------- ---------- ----------
Net debt at 30(th) June 2022 (excluding
IFRS 16) (Note 2) (202.7) (192.8)
----------------------------------------------- ---------- ----------
IFRS 16 lease liability (61.8) (32.4)
----------------------------------------------- ---------- ----------
Net debt and lease liability at 30(th)
June 2022 (Note 2) (264.5) (225.2)
----------------------------------------------- ---------- ----------
Currency movements
The Group's Income Statement and Statement of Financial Position
are exposed to movements in a wide range of different currencies.
This stems from our direct sales business model, with a large
number of local Operating Companies. These currency exposures and
risks are managed through a rigorously applied Treasury Policy,
typically using centrally managed and approved simple forward
contracts to mitigate exposures to known cash flows and avoiding
the use of complex derivative transactions. The largest exposures
are to the euro, US dollar, Chinese renminbi and Korean won. While
currency effects can be significant, the structure of the Group
provides some mitigation through our regional manufacturing
presence, diverse spread of geographic locations and through the
natural hedge of having a high proportion of our overhead costs in
the local currencies of our Operating Companies.
OUTLOOK
Macroeconomic forecasts for 2022 continue to deteriorate on
increased uncertainty caused by the conflict in Ukraine and China's
response to COVID-19, as well as actions taken by governments and
central banks around the world to contain rising inflationary
pressures, compounded by the global supply chain challenges that
began in 2021. Over the past three months, forecasts for global
industrial production growth (IP) in 2022 have reduced from 4.2% at
the time of our full year results to 3.5% as of 15th July 2022.
We continue to be confident in our Group's resilience and
ability to navigate the current uncertain macroeconomic climate.
This is underpinned by our robust business model, our proven price
management practices to offset inflation, record order books,
ramp-up of our manufacturing capacity to meet customer needs and
our ongoing mitigation of disruption caused by the global supply
chain and COVID-19 impacts on our workforce.
If exchange rates at the end of July were to prevail for the
remainder of the year, there would be a tailwind impact of
approximately 3.0% on 2021 sales and approximately 3.5% on 2021
adjusted operating profit. Movements in exchange rates are often
volatile and unpredictable, especially given the current
geopolitical uncertainties, therefore the actual impact could be
significantly different.
In the first half of the year, the acquisition of Cotopaxi and
the suspension of trading as part of the exit from Russia, had a
net impact of less than 1% on sales and just over 1% on profit. We
expect a similar impact for the full year, excluding the impact of
the Vulcanic acquisition.
Against current IP forecasts, for close to 80% of the Group's
revenue streams we anticipate organic sales growth significantly
above IP in 2022, supported by both strong volume growth and price
increases. For the balance of the Group's revenue streams, in
Watson-Marlow's Pharmaceutical & Biotechnology sector that now
accounts for 60% of its sales, we continue to anticipate very
strong organic sales growth of around 20% for the full year.
Overall, we expect Group revenues in 2022, excluding contributions
from the Vulcanic acquisition, will reflect the typical split of
approximately 48% and 52% between the first half and second half of
the year.
As anticipated, our 2021 and 2022 revenue investments in support
of future organic growth have reduced the Group's adjusted
operating profit margin in the first half of the year, partially
offset by the benefit of operational gearing from higher sales. We
expect the full year adjusted operating profit margin in 2022 will
be similar to the first half, as we continue to invest for growth,
remaining comfortably above pre-pandemic levels.
On 25th July, the Group announced a definitive agreement to
acquire Vulcanic and the transaction is expected to close late in
the third quarter of 2022, following the receipt of regulatory
approvals. Proforma for Vulcanic's acquisition of EML in December
2021, the Company's revenues in 2021 were EUR89.4 million (GBP76.8
million) with adjusted earnings before interest, tax, depreciation
and amortisation of EUR17.6 million (GBP15.2 million) and adjusted
operating profit of EUR16.0 million (GBP13.8 million). Vulcanic's
organic sales growth in 2021 and during the first half of 2022 was
similar to ETS and we expect the full year 2022 sales growth to be
similar to ETS.
We continue to expect that full year cash conversion will be
higher than in the first half but lower than our historical levels
of around 90%, as we step up capital investments to be
approximately 7% of sales and increase working capital in line with
revenue.
CORPORATE GOVERNANCE
Our diverse Board has remained stable in 2022 and has 40% female
representation as well as 30% ethnic diversity. You can find
details of our Directors on pages 96 and 97 of the 2021 Annual
Report and Accounts. The Board met four times in the first half of
the year, including a Strategy Meeting where the Board reviewed the
Group's Medium Term Plan. Other key highlights of Board activity
included overseeing the acquisition of Cotopaxi, the ongoing global
rollout of the Group's One Planet Sustainability Strategy, the
launch of the Group's Inclusion Plan, as well as a site visit to
Spirax Sarco's Blythewood manufacturing facility in South Carolina
(USA). The Board also met on 1st July to review and approve the
acquisition of Vulcanic.
PRINCIPAL RISKS AND UNCERTAINTIES
The Group has processes in place to identify, evaluate and
mitigate the principal risks that could have an impact on the
Group's performance. The principal risks, as agreed at the most
recent meeting of the Risk Management Committee, together with a
description of why they are relevant and if the significance of the
risk has changed during the first half of 2022, are set out below.
Details of how they link with the Group's strategy, an explanation
of the change in risk and how mitigation is managed are disclosed
in the 2021 Annual Report & Accounts.
-- Economic and political instability - Increased compared to
2021 year end
The Group operates worldwide and maintains operations in territories
that have historically experienced economic or political instability.
This type of instability, which includes the uncertainties of
regime change, creates risks for our locally based direct operations
and broader risks to credit, liquidity and currency. The impact
of the conflict in Ukraine has resulted in an increase to this
risk.
-- Significant exchange rate movements - Consistent compared
to 2021 year end
The Group reports its results and pays dividends in sterling.
Operating and manufacturing companies trade in local currency.
With sales companies and manufacturing spread across the globe,
the nature of the Group's business necessarily results in exposure
to exchange rate volatility.
-- Cybersecurity - Consistent compared to 2021 year end
Cybersecurity risks include risks from malware, accident, statutory
and legislative requirements, malicious actions and other unauthorised
access by third parties, including through our supply chain.
-- Loss of manufacturing output at any Group factory - Consistent
compared to 2021 year end
The risk includes loss of output as a result of natural disasters,
industrial action, accidents or any other cause. Loss of manufacturing
output at any important plant risks serious disruption to sales
operations.
-- Failure to realise acquisition objectives - Consistent compared
to 2021 year end
Whilst the Group mitigates this risk in various ways, including
through comprehensive due diligence, professional advisers and
contractual protections, there are some variables that are uncontrollable
or difficult to control, such as economic conditions, culture
clashes and employee movement, which could impact acquisition
objectives.
-- Breach of legal and regulatory requirements (including ABC
laws) - Consistent compared to 2021 year end
We operate globally and must ensure compliance with laws and regulations
wherever we do business. As we grow into new markets and territories,
we must continually review and update our operations and procedures,
and ensure our colleagues are fully informed and educated in all
applicable legal requirements. This is particularly important
with respect to anti-bribery and corruption (ABC) legislation.
Breaching any of these laws or regulations could have serious
consequences for the Group..
-- Inability to identify and respond to changes in customer needs
- Consistent compared to 2021 year end
This risk could lead to a loss of business because of a failure
to respond rapidly to changes in the needs of customers or technology
shifts.
-- Loss of critical supplier - Consistent compared to 2021 year
end
This risk could lead to a loss of business because of a failure
to respond rapidly to changes in the needs of customers or technology
shifts.
Emerging risks
We are monitoring the current conflict in Ukraine. Our business
in the Ukraine is confined to Steam Specialties. We have ceased all
trading with and within Russia and have disposed of our two
Operating Companies in that country. In addition, we are monitoring
macroeconomic risks, such as increased material and labour costs,
energy cost inflation and changes to the interest rate environment.
We are mitigating these risks through our embedded processes to
manage key margin drivers such as our price management
practices.
OPERATING REVIEW
STEAM SPECIALTIES
HY 2021 Exchange Organic Acquisitions HY 2022 Organic Reported
& disposals*
Revenue GBP361.9m GBP3.3m GBP36.8m GBP(1.4)m GBP400.6m +10% +11%
---------- --------- --------- -------------- ---------- -------- ---------
Adjusted operating
profit GBP89.8m GBP0.9m GBP2.0m GBP(0.6)m GBP92.1m +2% +3%
---------- --------- --------- -------------- ---------- -------- ---------
Adjusted operating
profit margin 24.8% 23.0% -180bps -180bps
---------- --------- --------- -------------- ---------- -------- ---------
Statutory operating
profit GBP89.8m GBP87.7m -2%
---------- --------- --------- -------------- ---------- -------- ---------
Statutory operating
profit margin 24.8% 21.9% -290bps
---------- --------- --------- -------------- ---------- -------- ---------
*Includes the impact of (i) the acquisition of Cotopaxi Limited
and (ii) the treatment of Spirax Sarco Russia as a disposal from
the date at which the Group suspended all trading with and within
Russia.
Market overview
As part of its Customer first(2) Strategy, Steam Specialties is
targeting eight priority end-use sectors through its dual brands of
Spirax Sarco and Gestra. With the exception of Power Generation,
which is served through Gestra and was impacted by uncertainty in
the European power generation market following the Russian invasion
of Ukraine, all priority sectors grew strongly in the first half,
well above global IP. Demand was strongest in the Healthcare
sector, as countries looked to catch-up maintenance following the
pressures of the COVID-19 pandemic on hospitals. In addition, the
Machine OEM and Boiler OEM segments both achieved double digit
growth.
Global IP was 2.9% in the first half of 2022, compared to 11.4%
for the equivalent period of 2021. Steam Specialties serves its
customers through three regional divisions. In EMEA, IP of 2.3% in
the first half was below the 10.6% for the equivalent period in
2021, with IP dropping to 1.6% in the second quarter driven by the
combined impacts of COVID-19, global supply chain disruption and
the Russian invasion of Ukraine. In North America, IP of 5.3% was
similar to the 5.7% recorded in the first half of 2021, with
quarterly IP strengthening sequentially over the last two quarters.
In Asia Pacific, IP of 2.8% was significantly below H1 2021 driven
primarily by the impact of the lockdown in China in Q2.
Progress in the half year
Steam Specialties sales of GBP400.6 million were up 11% or 10%
up organically. Demand for Steam Specialties products and solutions
grew significantly above global IP in the first half of 2022 and
well above sales, as the Business expanded its order book further
from its record opening position.
In EMEA, Steam Specialties achieved 8% organic sales growth.
Across the four major markets of EMEA (UK, Germany, France and
Italy), which collectively represent over 60% of sales in EMEA,
demand and sales growth was particularly strong in Italy driven by
the recovery in the marine business. Overall demand for large
project orders, which typically have longer lead times and lower
margins than base business and self-generated sales, was above the
historical average.
In Asia Pacific, organic sales growth of 7% represented a strong
performance against a backdrop of IP falling from 13.9% in the
first half of 2021 to 2.8%. In China, which represents over 55% of
sales in the Asia Pacific region, organic sales growth was a modest
3%, significantly behind demand growth as the lockdowns in Shanghai
impacted our ability to ship. In Korea, the second largest market
in the region, sales increased by over 20% organically.
In the Americas, sales were up 18% organically, significantly
above IP, with demand growth even stronger. In the US, the largest
market in the region representing around 50% of Americas revenues,
sales were up 12% organically. We achieved exceptional growth
across Latin America, including the largest markets of Brazil and
Argentina, where we see demand from lithium mining projects to
support electric vehicle battery production.
Adjusted operating profit of GBP92.1 million was up 3%, or 2% up
on an organic basis. Adjusted operating profit margin of 23.0% was
down 180bps, on both a reported and organic basis, reflecting our
revenue investments including in our Digital Strategy.
Statutory operating profit of GBP87.7 million was down 2% from
GBP89.8 million in the first half of 2021 and statutory operating
profit margin of 21.9% was also down 290bps.
During the first half, Steam Specialties continued to implement
its Customer first(2) Strategy, following the refresh that took
place in 2021. This includes an increased focus on strategic
sectors, such as Food & Beverage and machine OEMS, where sales
were up 13% and 14% respectively. Steam Specialties continued to
evolve its Natural Technology marketing campaign, including
planning its COP27 marketing and communications campaign. Our plans
to bring further digital capabilities to our sales engineers
continue to progress with a rapid growth in the number of sales
engineers trained during the first half.
Business outlook
During the first half, Steam Specialties experienced strong
demand growth, expanding its order book, while also managing price
to offset the impact of inflation on the adjusted operating profit
margin. Volume growth, together with increased prices, underpinned
the strong first half organic sales growth, significantly exceeding
IP growth for the period. We anticipate sales growth for the full
year 2022 will continue to outperform current full year forecasts
for IP by a similar factor.
As anticipated, the first half adjusted operating profit margin
was 180bps lower organically, due to the full year impact of our
2021 and 2022 revenue investments, which offset the benefit of
operational gearing from higher sales. We expect a similar impact
on the full year 2022 adjusted operating profit margin, compared to
2021.
ELECTRIC THERMAL SOLUTIONS
HY 2021 Exchange Organic Acquisitions HY 2022 Organic Reported
& disposals
Revenue GBP88.9m GBP3.5m GBP12.3m - GBP104.7m +13% +18%
--------- --------- --------- ------------- ---------- -------- ----------
Adjusted operating
profit GBP11.2m GBP0.6m GBP1.0m - GBP12.8m +9% +14%
--------- --------- --------- ------------- ---------- -------- ----------
Adjusted operating
profit margin 12.6% 12.2% -60bps -40bps
--------- --------- --------- ------------- ---------- -------- ----------
Statutory operating
profit/ (loss) GBP4.5m GBP(8.9)m -298%
--------- --------- --------- ------------- ---------- -------- ----------
Statutory operating
profit/ (loss) margin 5.1% (8.5)% -1,360bps
--------- --------- --------- ------------- ---------- -------- ----------
Market overview
ETS focuses on its four strategic sectors of Energy Transition,
Materials, Advanced Technology and Health & Nutrition, which
comprise ten sub sectors served by either Chromalox or Thermocoax.
As a result of this focus, ETS has a different balance of end use
markets when compared to the rest of the Group, which includes
providing solutions to industries such as Sustainable Energy,
Nuclear, Semiconductor as well as Aerospace & Defence.
Chromalox, which represented over 75% of ETS sales in 2021,
generates close to three-quarters of its sales in the Americas,
with the significant majority of those sales in the USA where IP in
the first half was 5.3%. Thermocoax continues to generate
approximately two thirds of its revenue in EMEA, where IP in the
first half was 2.3%. Following the completion of the acquisition of
Vulcanic, which is a predominantly EMEA-focused business, the
geographic footprint of ETS will materially rebalance with over 40%
of sales in EMEA and almost 50% in the Americas (on a proforma
based on 2021 sales).
Progress in the first half
Demand growth for ETS products was significantly ahead of IP and
above sales. In Chromalox, demand growth was strongest in the
strategically important sectors of Energy Transition and Health
& Nutrition. Chromalox is also continuing to build a
substantial pipeline of decarbonisation opportunities to support
future growth. In Thermocoax, demand recovered strongly in the
Aerospace & Defence market and customers in the Semiconductor
sector brought forward orders fearing supply chain constraints
could delay deliveries.
ETS sales of GBP104.7 million were up 18% or 13% up organically,
with the difference reflecting a currency tailwind as sterling
depreciated against the US dollar. This strong sales growth was
driven primarily by Chromalox, which achieved organic growth ahead
of Steam Specialties. In Thermocoax, organic growth was lower than
the average for ETS, reflecting the longer lead times on shipments
to the Nuclear and Semiconductor markets.
Sales in Chromalox Americas benefitted from higher output from
our manufacturing sites as our operational improvement plans gained
further traction. At our Ogden manufacturing facility in Utah (USA)
we conducted an extensive process mapping exercise to identify and
reduce bottlenecks across a range of activities, which has resulted
in increased shipments with further improvements targeted.
Sales from Chromalox EMEA were lower in the first half with a
significant reduction in output from our plant in Soissons
(France), which is subject to an ongoing consultation process with
trade unions to address the lack of profitability at that site. In
the event that the consultation results in collective dismissals,
we expect key aspects of the process to be completed by the end of
December 2022. In Asia Pacific, sales increased by over 50%, driven
by continued growth in the region and improved shipment of the
large existing order book.
Adjusted operating profit in ETS of GBP12.8m was up 14%, or 9%
up organically after adjusting for the currency tailwind.
Adjusted operating profit margin was down 40bps, or 60bps down
organically, at 12.2%. Within ETS, Chromalox increased its adjusted
operating profit margin organically, driven by the continued strong
performance in the Americas where margins are above 20%. Adjusting
for losses incurred in Soissons (France) during the first half of
2022, the ETS adjusted operating profit margin would have been
higher than in the first half of 2021. Thermocoax's adjusted
operating profit margin was lower than the first half of 2021, as a
result of investment in our new manufacturing facility in Normandy
(France) as we ramped up production.
Statutory operating losses of GBP8.9 million, down from a profit
of GBP4.5 million in the first half of 2021, reflected the impact
of restructuring charges in relation to Chromalox EMEA. For the
same reason, statutory operating profit margin of (8.5)% was also
down 1,360bps.
Business outlook
ETS continues to benefit from strong demand growth, leading to
further expansion of its order book that remains at record levels.
First half organic sales growth was also supported by increased
shipments, as we continued to improve operational capacity in
Chromalox. For the full year 2022, we anticipate ETS organic sales
growth will be significantly ahead of global IP and similar to the
first half, growing above Steam Specialties.
As a result of the operational gearing from increased sales, we
anticipate adjusted operating profit growth ahead of sales growth
in 2022, with an increase in the adjusted operating profit margin
for the full year.
WATSON-MARLOW
HY 2021 Exchange Organic Acquisitions HY 2022 Organic Reported
& disposals*
Revenue GBP192.9m GBP4.5m GBP50.7m GBP(3.3)m GBP244.8m +26% +27%
---------- --------- --------- -------------- ---------- -------- ---------
Adjusted operating
profit GBP71.3m GBP2.0m GBP14.9m GBP(1.2)m GBP87.0m +21% +22%
---------- --------- --------- -------------- ---------- -------- ---------
Adjusted operating
profit margin 37.0% 35.5% -170bps -150bps
---------- --------- --------- -------------- ---------- -------- ---------
Statutory operating
profit GBP68.7m GBP83.6m +22%
---------- --------- --------- -------------- ---------- -------- ---------
Statutory operating
profit margin 35.6% 34.2% -140bps
---------- --------- --------- -------------- ---------- -------- ---------
*Includes the treatment of Watson-Marlow Russia as a disposal
from the date at which the Group suspended all trading with and
within Russia.
Market overview
Similar to both Steam Specialties and ETS, Watson-Marlow's sales
to its customers in the Process Industries sectors benefitted from
continued global IP growth.
The Pharmaceutical & Biotechnology sector, which accounted
for 60% of Watson-Marlow sales in the first half of 2022, has
historically grown at an annual rate of between 12% and 14%, while
Watson-Marlow's sales to this sector have historically grown at
close to 20% per annum.
Progress in the first half
Watson-Marlow entered 2022 with a record order book following
exceptional growth in demand due to the global COVID-19 vaccine
rollout. In the first half of 2022, demand from Watson-Marlow's
customers in the Pharmaceutical & Biotechnology sector
normalised, reflecting lower COVID-19 related demand, while growth
from the Process Industries sectors was significantly above IP.
Watson-Marlow's overall order book at the half year remains above
the 2021 year-end position.
Watson-Marlow sales of GBP244.8 million were up 27% or 26% up
organically. Sales to the Pharmaceutical & Biotechnology sector
grew by close to 30%, reflecting increased deliveries against the
significant order book. Sales to the Process Industries sectors
grew significantly above IP, with all four priority sectors of Food
& Beverage, Industrial, Mining and Water & Wastewater
achieving double digit growth. In the first half of 2022, sales to
the Pharmaceutical & Biotechnology sector accounted for 60% of
Watson-Marlow's total sales, a similar level to the first half of
2021.
Watson-Marlow's adjusted operating profit for the first half was
up 22% to GBP87.0 million, or 21% up organically driven by strong
sales growth. Adjusted operating profit margin of 35.5% was down
150bps, or 170bps down organically. In line with prior guidance,
the reduction in adjusted operating profit margin reflects our
continued revenue investments and the recruitment of additional
colleagues for our new manufacturing facilities.
Statutory operating profit of GBP83.6 million was up 22%
compared to the first half of 2021, while statutory operating
profit margin was down 140bps for the same reasons as set out
above.
Watson-Marlow has continued to make significant progress in
expanding its manufacturing capacity during the first half of 2022.
In the UK, the third extrusion line at Watson-Marlow's Falmouth
facility is now fully operational and validated. The new Biopure
facility in Portsmouth (UK) commenced production in March 2022. At
the end of July, eight injection moulding machines were operational
and the site fitout is now complete, with all four cleanrooms
passing air quality commissioning. In Massachusetts (USA) the
construction of our new North American supply facility remains on
track with first customer deliveries planned before the end of the
year. Total investment in this facility is now expected to be
US$106 million, as a result of enhanced sustainability investments,
bringing forward capacity expansions and inflation.
In addition to expansions in manufacturing capacity,
Watson-Marlow continues investing to drive future organic growth.
Our regional sales teams increased headcount by almost 50
colleagues across EMEA, Asia Pacific and the Americas compared to
the position at the end of the first half of 2021. We continued to
invest in new products utilising conveying wave technology,
including new product variants which operate at higher pressures
and higher flow rates.
Business outlook
In 2022, supported both by ongoing demand and the record order
book, we continue to anticipate around 20% organic sales growth to
the Pharmaceutical & Biotechnology sector, which accounts for
60% of Watson-Marlow sales. Across the Process Industries sectors,
we anticipate similar organic sales growth for 2022 to that of the
first half, remaining significantly ahead of global IP. While we
expect strong sales growth in the second half of 2022, the organic
sales growth rate will be lower than that achieved in the first
half, reflecting the strong second half comparator in 2021.
Similar to Steam Specialties, the benefit of operational gearing
from higher sales has been offset by the full year impact of our
2021 and 2022 revenue investments leading to a 170bps organic
reduction in the adjusted operating profit margin in the first half
of 2022. We anticipate that for the full year 2022, the margin will
be below the first half of 2022, reflecting ongoing investment as
we ramp-up new manufacturing capacity, but comfortably above
2020.
INDEPENT REVIEW REPORT TO SPIRAX-SARCO ENGINEERING PLC
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30th June 2022, 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 16.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council for use in the
United Kingdom. A review of interim financial information consists
of making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that the Directors have inappropriately
adopted the going concern basis of accounting or that the Directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE (UK), however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the Directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the Group a conclusion on the
condensed set of financial statement in the half-yearly financial
report. Our conclusion, including our Conclusions Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council. Our work
has been undertaken so that we might state to the Company those
matters we are required to state to it in an independent review
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the Company, for our review work, for this report, or for the
conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
10th August 2022
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Notes 30(th) 30(th) 31(st)
June June December
2022 2021* 2021
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------------------------- ------ ------------ ------------ ----------
ASSETS
Non-current assets
Property, plant and equipment 311.1 257.9 277.4
Right-of-use assets 64.2 34.7 62.9
Goodwill 446.8 411.6 411.2
Other intangible assets 263.8 262.1 255.7
Prepayments 1.3 2.0 1.3
Investment in Associate - - -
Taxation recoverable 4.9 4.9 4.9
Deferred tax assets 50.0 41.6 46.1
----------------------------------------- ------ ------------ ------------ ----------
1,142.1 1,014.8 1,059.5
----------------------------------------- ------ ------------ ------------ ----------
Current assets
Inventories 239.4 182.8 201.3
Trade receivables 311.1 236.1 272.3
Other current assets 58.7 43.6 44.7
Taxation recoverable 9.4 7.9 10.8
Assets classified as held for sale 14 0.7 - -
Cash and cash equivalents 9 304.9 253.6 274.6
----------------------------------------- ------ ------------ ------------ ----------
924.2 724.0 803.7
----------------------------------------- ------ ------------ ------------ ----------
Total assets 2,066.3 1,738.8 1,863.2
----------------------------------------- ------ ------------ ------------ ----------
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables 225.4 171.4 217.0
Provisions 14.2 4.9 5.2
Bank overdrafts 9 74.3 46.9 55.6
Current portion of long-term borrowings 9 0.9 103.7 59.6
Short-term lease liabilities 9 12.6 10.1 11.2
Liabilities directly associated
with assets classified as held for
sale 14 0.5 - -
Current tax payable 33.8 33.0 33.1
----------------------------------------- ------ ------------ ------------ ----------
361.7 370.0 381.7
----------------------------------------- ------ ------------ ------------ ----------
Net current assets 562.5 354.0 422.0
----------------------------------------- ------ ------------ ------------ ----------
Non-current liabilities
Long-term borrowings 9 432.4 295.8 289.9
Long-term lease liabilities 9 49.2 22.3 48.9
Deferred tax liabilities 88.1 76.5 81.8
Post-retirement benefits 8 35.2 52.6 44.7
Provisions 1.6 1.5 1.5
Long-term payables 6.2 5.3 4.7
----------------------------------------- ------ ------------ ------------ ----------
612.7 454.0 471.5
----------------------------------------- ------ ------------ ------------ ----------
Total liabilities 974.4 824.0 853.2
----------------------------------------- ------ ------------ ------------ ----------
Net assets 3 1,091.9 914.8 1,010.0
----------------------------------------- ------ ------------ ------------ ----------
Equity
Share capital 19.8 19.8 19.8
Share premium account 86.6 85.0 86.3
Translation and other reserves 2.6 (47.8) (58.2)
Retained earnings 982.1 857.0 961.1
----------------------------------------- ------ ------------ ------------ ----------
Equity shareholders' funds 1,091.1 914.0 1,009.0
Non-controlling interest 0.8 0.8 1.0
----------------------------------------- ------ ------------ ------------ ----------
Total equity 1,091.9 914.8 1,010.0
----------------------------------------- ------ ------------ ------------ ----------
Total equity and liabilities 2,066.3 1,738.8 1,863.2
----------------------------------------- ------ ------------ ------------ ----------
* The 30th June 2021 comparatives for Other intangible assets
and Retained earnings have been restated following the IFRS
Interpretations Committee agenda decision on configuration and
customisation costs in cloud computing arrangements (Software as a
Service (SaaS)), see Note 1 for further details. Due to the
immaterial nature of the adjustment, no additional Statement of
Financial Position as at the beginning of the prior year has been
presented.
CONDENSED CONSOLIDATED INCOME STATEMENT
Six months to Six months to Year ended
30th June 2022 30th June 2021 31st December 2021
----------------- ---------------------------------------- ---------------------------------------- ----------------------------------
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) 750.1 - 750.1 643.7 - 643.7 1,344.5 - 1,344.5
Operating
costs (571.3) (36.7) (608.0) (480.8) (9.3) (490.1) (1,004.2) (19.4) (1,023.6)
----------------- ------------ ------------ ------------ ------------ ------------ ------------ ---------- ---------- ----------
Operating
profit (Note
2/3) 178.8 (36.7) 142.1 162.9 (9.3) 153.6 340.3 (19.4) 320.9
----------------- ------------ ------------ ------------ ------------ ------------ ------------ ---------- ---------- ----------
Financial
expenses (5.5) - (5.5) (5.0) - (5.0) (9.8) - (9.8)
Financial
income 1.9 - 1.9 1.4 - 1.4 3.4 - 3.4
----------------- ------------ ------------ ------------ ------------ ------------ ------------ ---------- ---------- ----------
Net financing
expense (Note
4) (3.6) - (3.6) (3.6) - (3.6) (6.4) - (6.4)
----------------- ------------ ------------ ------------ ------------ ------------ ------------ ---------- ---------- ----------
Share of - - - - - - - - -
(loss)/profit
of Associate
----------------- ------------ ------------ ------------ ------------ ------------ ------------ ---------- ---------- ----------
Profit before
taxation 175.2 (36.7) 138.5 159.3 (9.3) 150.0 333.9 (19.4) 314.5
----------------- ------------ ------------ ------------ ------------ ------------ ------------ ---------- ---------- ----------
Taxation (Note
5) (46.1) 4.8 (41.3) (43.0) 1.9 (41.1) (83.9) 4.3 (79.6)
----------------- ------------ ------------ ------------ ------------ ------------ ------------ ---------- ---------- ----------
Profit for
the period 129.1 (31.9) 97.2 116.3 (7.4) 108.9 250.0 (15.1) 234.9
----------------- ------------ ------------ ------------ ------------ ------------ ------------ ---------- ---------- ----------
Attributable
to:
Equity
shareholders 129.0 (31.9) 97.1 116.2 (7.4) 108.8 249.7 (15.1) 234.6
Non-controlling
interest 0.1 - 0.1 0.1 - 0.1 0.3 - 0.3
----------------- ------------ ------------ ------------ ------------ ------------ ------------ ---------- ---------- ----------
Profit for
the period 129.1 (31.9) 97.2 116.3 (7.4) 108.9 250.0 (15.1) 234.9
----------------- ------------ ------------ ------------ ------------ ------------ ------------ ---------- ---------- ----------
Earnings
per share
Basic earnings
per share
(Note 2/6) 175.1p 131.8p 157.6p 147.6p 338.9p 318.3p
Diluted earnings
per share
(Note 2/6) 174.8p 131.5p 157.3p 147.3p 338.0p 317.5p
----------------- ------------ ------------ ------------ ------------ ------------ ------------ ---------- ---------- ----------
Dividends
Dividends
per share
(Note 7) 42.5p 38.5p 136.0p
----------------- ------------ ------------ ------------ ------------ ------------ ------------ ---------- ---------- ----------
Dividends
paid (per
share) (Note
7) 97.5p 84.5p 123.0p
----------------- ------------ ------------ ------------ ------------ ------------ ------------ ---------- ---------- ----------
Adjusted figures exclude certain items as detailed in Notes 2
and 3. All amounts relate to continuing operations. The Notes on
pages 29 to 46 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) December
June June 2021
2022 2021 GBPm
GBPm GBPm
(unaudited) (unaudited) (audited)
--------------------------------------------- ------------ ------------ -----------------
Profit for the period 97.2 108.9 234.9
--------------------------------------------- ------------ ------------ -----------------
Items that will not be reclassified
to profit or loss:
Remeasurement gain on post-retirement
benefits 8.5 40.4 46.3
Deferred tax on remeasurement gain
on post-retirement benefits (2.3) (7.2) (8.9)
--------------------------------------------- ------------ ------------ -----------------
6.2 33.2 37.4
--------------------------------------------- ------------ ------------ -----------------
Items that may be reclassified subsequently
to profit or loss:
Exchange gain/(loss) on translation
of foreign operations and net investment
hedges 63.8 (10.7) (6.8)
(Loss)/profit on cash flow hedges
net of tax (7.7) 0.8 (2.8)
--------------------------------------------- ------------ ------------ -----------------
56.1 (9.9) (9.6)
--------------------------------------------- ------------ ------------ -----------------
Total comprehensive income for the
period 159.5 132.2 262.7
--------------------------------------------- ------------ ------------ -----------------
Attributable to:
Equity shareholders 159.4 132.1 262.4
Non-controlling interest 0.1 0.1 0.3
--------------------------------------------- ------------ ------------ -----------------
Total comprehensive income for the
period 159.5 132.2 262.7
--------------------------------------------- ------------ ------------ -----------------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period ended
30(th) June 2022
(unaudited)
------
Share Equity
Total
Share Premium Translation Other Retained Shareholders controlling
capital account Reserve* reserves Earnings funds Interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------ ---------- -------- ------------ --------- --------- ------------- ------------ ---------
Balance at 1(st)
January 2022 19.8 86.3 (53.2) (5.0) 961.1 1,009.0 1.0 1,010.0
---------------------- ---------- -------- ------------ --------- --------- ------------- ------------ ---------
Profit for the period - - - - 97.1 97.1 0.1 97.2
---------------------- ---------- -------- ------------ --------- --------- ------------- ------------ ---------
Other comprehensive
income/(expense):
Foreign exchange
translation
differences and net
investment hedges - - 71.0 (7.2) - 63.8 - 63.8
Remeasurement gain
on post-retirement
benefits - - - - 8.5 8.5 - 8.5
Deferred tax on
remeasurement
gain on
post-retirement
benefits - - - - (2.3) (2.3) - (2.3)
Cash flow hedges - - - (7.7) - (7.7) - (7.7)
---------------------- ---------- -------- ------------ --------- --------- ------------- ------------ ---------
Total other
comprehensive
income/(expense) for
the period - - 71.0 (14.9) 6.2 62.3 - 62.3
---------------------- ---------- -------- ------------ --------- --------- ------------- ------------ ---------
Total comprehensive
income/(expense) for
the period - - 71.0 (14.9) 103.3 159.4 0.1 159.5
---------------------- ---------- -------- ------------ --------- --------- ------------- ------------ ---------
Contributions by and
distributions to
owners
of the Company:
Dividends paid - - - - (71.9) (71.9) (0.3) (72.2)
Equity-settled share
plans net of tax - - - - (10.4) (10.4) - (10.4)
Issue of share
capital - 0.3 - - - 0.3 - 0.3
Employee Benefit
Trust
shares - - - 4.7 - 4.7 - 4.7
----------------------
Balance at 30(th)
June 2022 19.8 86.6 17.8 (15.2) 982.1 1,091.1 0.8 1,091.9
---------------------- ---------- -------- ------------ --------- --------- ------------- ------------ ---------
**In prior years, the translation reserve was included within
other reserves with a breakdown being disclosed separately in the
notes to the year-end Financial Statements. Due to the material
value of this reserve, we have presented it as a separate heading
in the Statement of Changes in Equity for the period ended 30th
June 2022. The comparatives have also been amended to reflect this
reclassification to ensure comparability and consistency.
Other reserves represent the Group's net investment hedge, cash
flow hedge, capital redemption and Employee Benefit Trust reserves.
The non-controlling interest is a 2.5% share of Spirax Sarco
(Korea) Ltd held by employee shareholders.
For the period Share Equity Non-controlling
ended Share premium Translation Other Retained shareholders' interest Total
30(th) June 2021 capital account Reserve** reserves earnings funds GBPm equity
(unaudited) GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- --------- -------- ------------- ---------- ---------- -------------- ---------------- --------
Balance at 1(st)
January 2021
(restated)* 19.8 84.8 (27.6) (8.5) 782.8 851.3 1.0 852.3
------------------- --------- -------- ------------- ---------- ---------- -------------- ---------------- --------
Profit for the
period - - - - 108.8 108.8 0.1 108.9
------------------- --------- -------- ------------- ---------- ---------- -------------- ---------------- --------
Other
comprehensive
(expense)/income:
Foreign exchange
translation
differences
and net
investment
hedges - - (23.7) 13.0 - (10.7) - (10.7)
Remeasurement gain
on
post-retirement
benefits - - - - 40.4 40.4 - 40.4
Deferred tax on
remeasurement
gain on
post-retirement
benefits - - - - (7.2) (7.2) - (7.2)
Cash flow hedges - - - 0.8 - 0.8 - 0.8
------------------- --------- -------- ------------- ---------- ---------- -------------- ---------------- --------
Total other
comprehensive
(expense)/income
for the period - - (23.7) 13.8 33.2 23.3 - 23.3
------------------- --------- -------- ------------- ---------- ---------- -------------- ---------------- --------
Total
comprehensive
(expense)/income
for the period - - (23.7) 13.8 142.0 132.1 0.1 132.2
------------------- --------- -------- ------------- ---------- ---------- -------------- ---------------- --------
Contributions by
and distributions
to owners of the
Company:
Dividends paid - - - - (62.3) (62.3) (0.3) (62.6)
Equity-settled
share
plans net of tax - - - - (5.5) (5.5) - (5.5)
Issue of share
capital - 0.2 - - - 0.2 - 0.2
Employee Benefit
Trust shares - - - (1.8) - (1.8) - (1.8)
Balance at 30(th)
June 2021 19.8 85.0 (51.3) 3.5 857.0 914.0 0.8 914.8
------------------- --------- -------- ------------- ---------- ---------- -------------- ---------------- --------
*As a result of the IFRS Interpretations Committee agenda
decision released during 2021, the Group reassessed the accounting
treatment in relation to customisation and configuration costs for
cloud-based software (Software as a Service (SaaS)). This resulted
in an adjustment to opening reserves of GBP3.7 million. See Note 1
for further details.
For the period Share Equity Non-controlling
ended 31(st) Share Premium Translation Other Retained shareholders' interest
December Capital account Reserve** reserves Earnings funds GBPm Total
2021 GBPm GBPm GBPm GBPm GBPm GBPm
(audited) Equity
GBPm
------------------ --------- -------- ------------ --------- ---------- ------------- --------------- --------
Balance at 1(st)
January 2021 19.8 84.8 (27.6) (8.5) 782.8 851.3 1.0 852.3
------------------ --------- -------- ------------ --------- ---------- ------------- --------------- --------
Profit for the
year - - - - 234.6 234.6 0.3 234.9
Other
comprehensive
(expense)/income:
Foreign exchange
translation
differences
and net
investment
hedges - - (25.6) 18.8 - (6.8) - (6.8)
Remeasurement gain
on
post-retirement
benefits - - - - 46.3 46.3 - 46.3
Deferred tax on
remeasurement
gain
on
post-retirement
benefits - - - - (8.9) (8.9) - (8.9)
Cash flow hedges - - - (2.8) - (2.8) - (2.8)
------------------ --------- -------- ------------ --------- ---------- ------------- --------------- --------
Total other
comprehensive
(expense)/income
for the year - - (25.6) 16.0 37.4 27.8 - 27.8
------------------ --------- -------- ------------ --------- ---------- ------------- --------------- --------
Total
comprehensive
(expense)/income
for the year - - (25.6) 16.0 272.0 262.4 0.3 262.7
------------------ --------- -------- ------------ --------- ---------- ------------- --------------- --------
Contributions by
and distributions
to owners of the
Company:
Dividends paid - - - - (90.7) (90.7) (0.3) (91.0)
Equity settled
share
plans net of tax - - - - (3.0) (3.0) - (3.0)
Issue of share
capital - 1.5 - - - 1.5 - 1.5
Employee Benefit
Trust shares - - - (12.5) - (12.5) - (12.5)
Transfer between - - - - - - - -
reserves
------------------ --------- -------- ------------ --------- ---------- ------------- --------------- --------
Balance at 31(st)
December 2021 19.8 86.3 (53.2) (5.0) 961.1 1,009.0 1.0 1,010.0
------------------ --------- -------- ------------ --------- ---------- ------------- --------------- --------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Notes Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2021
2022 2021 GBPm
GBPm GBPm
(unaudited (unaudited) (audited )
)
-------------------------------------- ------ ----------- ------------ -----------------
Cash flows from operating activities
Profit before taxation 138.5 150.0 314.5
Depreciation, amortisation and
impairment 40.9 35.3 69.0
Profit on disposal of fixed
assets (0.7) (0.5) (0.5)
Loss on impairment of assets
classified as held for sale 14 3.6 - -
Cash payments to the pension
schemes greater than the charge
to operating profit (2.9) (4.4) (7.6)
Restructuring related provisions 16.3 - -
and impairments
Equity-settled share plans 4.8 4.8 9.2
Net finance expense 3.6 3.6 6.4
-------------------------------------- ------ ----------- ------------ -----------------
Operating cash flow before
changes in working capital and
provisions 204.1 188.8 391.0
(Increase)/decrease in trade
and other receivables (36.3) (28.8) (71.3)
(Increase)/decrease in inventories (29.7) (7.0) (26.7)
(Decrease)/increase in provisions (0.8) (1.4) (1.0)
(Decrease)/increase in trade
and other payables (4.0) 14.6 59.5
-------------------------------------- ------ ----------- ------------ -----------------
Cash generated from operations 133.3 166.2 351.5
Income taxes paid (41.2 ) (41.2) (78.1)
-------------------------------------- ------ ----------- ------------ -----------------
Net cash from operating activities 92.1 125.0 273.4
-------------------------------------- ------ ----------- ------------ -----------------
Cash flows from investing activities
Purchase of property, plant
and equipment (44.1) (18.9) (52.8)
Proceeds from sale of property,
plant and equipment 0.6 0.8 2.0
Purchase of software and other
intangibles (3.5) (2.1) (8.1)
Development expenditure capitalised (1.7) (1.2) (3.2)
Acquisition of businesses net
of cash acquired 15 (12.7) - -
Interest received 1.8 1.4 3.4
-------------------------------------- ------ ----------- ------------ -----------------
Net cash used in investing
activities (59.6) (20.0) (58.7)
-------------------------------------- ------ ----------- ------------ -----------------
Cash flows from financing activities
Proceeds from issue of share
capital 0.3 0.2 1.5
Employee Benefit Trust share
purchase (10.7) (12.0) (26.1)
Repaid borrowings 9 (59.1) (34.8) (77.5)
New borrowings 9 134.2 0.2 -
Interest paid including interest
on lease liabilities (5.1) (4.2) (8.5)
Repayment of lease liabilities 9 (6.2) (5.7) (11.7)
Dividends paid (including minority
shareholders) 7 (72.2) (62.6) (91.0)
-------------------------------------- ------ ----------- ------------ -----------------
Net cash used in financing
activities (18.8) (118.9) (213.3)
-------------------------------------- ------ ----------- ------------ -----------------
Net change in cash and cash
equivalents 9 13.7 (13.9) 1.4
Net cash and cash equivalents
at beginning of period 9 219.0 224.0 224.0
Cash transferred to assets held
for sale 14 (2.3) - -
Exchange movement 9 0.2 (3.4) (6.4)
-------------------------------------- ------ ----------- ------------ -----------------
Net cash and cash equivalents
at end of period 9 230.6 206.7 219.0
-------------------------------------- ------ ----------- ------------ -----------------
Borrowings 9 (433.3) (399.5) (349.5)
-------------------------------------- ------ ----------- ------------ -----------------
Net debt at end of period 9 (202.7) (192.8) (130.5)
-------------------------------------- ------ ----------- ------------ -----------------
Lease liabilities 9 (61.8) (32.4) (60.1)
-------------------------------------- ------ ----------- ------------ -----------------
Net debt and lease liabilities
at end of period 9 (264.5) (225.2) (190.6)
-------------------------------------- ------ ----------- ------------ -----------------
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
Spirax-Sarco Engineering plc is a company domiciled in the UK.
The Condensed Consolidated Interim Financial Statements of
Spirax-Sarco Engineering plc and its subsidiaries (the Group) for
the six months ended 30th June 2022 have been prepared in
accordance with United Kingdom adopted International Financial
Reporting Standard IAS 34 (Interim Financial Reporting). The
accounting policies applied are consistent with those set out in
the Spirax-Sarco Engineering plc 2021 Annual Report.
These Condensed Consolidated Interim Financial Statements do not
include all the information required for full annual statements and
should be read in conjunction with the 2021 Annual Report. The
comparative figures for the year ended 31st December 2021 do not
constitute the Group's statutory Financial Statements for that
financial year as defined in Section 434 of the Companies Act 2006.
The Financial Statements of the Group for the year ended 31st
December 2021 were prepared in accordance with International
Financial Reporting Standards (IFRS), as adopted by the United
Kingdom. The statutory Consolidated Financial Statements for
Spirax-Sarco Engineering plc in respect of the year ended 31st
December 2021 have been reported on by the Company's auditor and
delivered to the registrar of companies. The report of the auditor
was (i) unqualified, (ii) did not include a reference to any
matters to which the auditor drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under Section 498 (2) or (3) of the Companies Act
2006.
The Consolidated Financial Statements of the Group in respect of
the year ended 31st December 2021 are available upon request from
Mr A. J. Robson, General Counsel and Company Secretary, The Grange,
Bishops Cleeve, Cheltenham, GL52 8YQ. The Report is also available
on our website at www.spiraxsarcoengineering.com .
The Condensed Consolidated Interim Financial Statements for the
six months ended 30th June 2022, 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 10th August 2022.
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 2022 Half Year Report. For this reason, it continues to
adopt the going concern basis in preparing the Condensed
Consolidated Interim Financial Statements.
Our financial position remains robust, with the Group holding
committed total debt facilities of GBP698 million at 30th June 2022
giving headroom in excess of GBP330 million. The earliest maturity
of any facility is not until September 2023, being the EUR225
million Private Placement debt, which is beyond the going concern
assessment period. Committed facilities include a GBP400 million
revolving credit facility with an initial maturity of April 2027
which has GBP265 million undrawn at 30th June 2022. The Group also
has cash and cash equivalents, net of overdrafts, of GBP230.6
million.
On 2nd July 2022, the Group entered into a new committed bank
facility for EUR265 million with a maturity date of up to July
2024. This facility was entered into in order to finance the
acquisition of Vulcanic.
The Group's debt facilities contain a net debt to EBITDA
covenant of a maximum of 3.5x. Certain debt facilities also contain
an EBITDA to net bank interest covenant of a minimum of 3.0x. The
Group regularly monitors its financial position to ensure that it
remains within the terms of its banking covenants. At 30th June
2022, net debt to EBITDA was 0.5x (30th June 2021: 0.6x and 31st
December 2021: 0.35x). EBITDA to net bank interest was 91x at 30th
June 2022 (30th June 2021: 79x and 31st December 2021: 93x).
The Group has prepared and reviewed the impact of a reasonably
possible worst-case scenario, representing a decline in revenue and
profitability more severe than that experienced by the Group in its
recent history. Under this scenario, which has been modelled up to
August 2023, the Group has access to sufficient liquidity within
its current committed debt facilities and remains comfortably
within the associated financial covenants.
Reverse 'stress testing' was also performed to assess what level
of business under-performance would be required for a breach of the
financial covenants to occur, the results of which evidenced that
no reasonably possible change in future forecast cash flows would
cause a breach of these covenants. In addition, the reverse stress
testing undertaken does not take into account any mitigating
actions which the Group could implement in the event of a severe
and extended revenue and profitability decline, which would
increase the headroom further. All scenario analysis undertaken
included the forecast impact of the acquisition of Vulcanic.
This assessment indicates that the Group can operate within the
level of its current committed debt facilities, without the need to
obtain any new facilities for a period of not less than 12 months
from the date of this report.
NEW STANDARDS AND INTERPRETATIONS APPLIED FOR THE FIRST TIME
On 1st January 2022, the Group applied new or amended IFRS and
interpretations issued by the International Accounting Standards
Board (IASB) that are mandatorily effective for an accounting
period that begins on or after 1st January 2022. Their adoption has
not had a material impact on the Condensed Consolidated Financial
Statements.
The economy in Argentina and Turkey are subject to high
inflation. At 30th June 2022 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.
During 2021, the IFRS Interpretations Committee published its
agenda decision regarding configuration and customisation costs in
Cloud Computing Arrangements (Software as a Service, (SaaS)) under
IAS 38. The primary theme from this agenda decision was that unless
the underlying software meets the criteria for recognising a
separate asset (i.e. the Group obtains control of the software)
then it is expected that the costs associated with the
configuration and customisation of this software will be recognised
as an expense rather than capitalised as an intangible asset.
The Group performed a review of previously capitalised
configuration and customisation costs, resulting in a GBP3.7
million adjustment to opening reserves and intangible assets in the
2020 opening Statement of Changes in Equity presented in the 2021
Financial Statements. As a result of this change in accounting
policy, the comparator period in the Statement of Financial
Position and Statement of Changes in Equity as at 30th June 2021
have been restated in line with the restatement at 31st December
2021 disclosed in the prior year. Due to the immaterial nature of
the adjustment, no additional Statement of Financial Position as at
the beginning of the prior year has been presented.
NEW STANDARDS AND INTERPRETATIONS NOT YET APPLIED
At the date of approval of these Condensed Consolidated
Financial Statements, there were no new or revised IFRSs,
amendments or interpretations in issue but not yet effective that
are potentially material for the Group and which have not yet been
applied.
SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of Interim Financial Statements, in conformity
with adopted IFRS, requires management to make judgements,
estimates and assumptions that affect the application of accounting
policies and the reported amount of assets and liabilities, income
and expense. Actual results may differ from these estimates. In
preparing these Condensed Consolidated Interim Financial
Statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
Consolidated Financial Statements for the year ended 31st December
2021.
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
T he Directors confirm that to the best of their knowledge:
-- This Condensed Consolidated set of Interim Financial Statements
has been prepared in accordance with IAS 34 (Interim Financial
Reporting), as adopted by the United Kingdom;
-- The interim management report includes a fair review of
the information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules,
being an indication of important events that have
occurred during the first six months of the financial
year and their impact on the Condensed Consolidated
Financial Statements, and a description of the principal
risks and uncertainties for the remaining six months
of the financial year.
b) DTR 4.2.8R of the Disclosure and Transparency Rules,
being related party transactions that have taken place
in the first six months of the current financial year
that have materially affected the financial position
or performance of the entity during that period, and
any changes in the related party transactions described
in the last Annual Report that could do so.
The Directors of Spirax-Sarco Eng.ineering plc on 10th August
2022 are as listed in the 2021 Annual Report on pages 96 and
97.
N. J. Anderson
Group Chief Executive
10th August 2022
N. B. Patel
Chief Financial Officer
10th August 2022
On behalf of the Board
ADJUSTED PERFORMANCE MEASURES
2.
The Group reports under International Financial Reporting
Standards (IFRS) and also uses adjusted performance measures where
the Board believes that:
-- they help to effectively monitor the performance of the Group;
and
-- users of the Financial Statements might find them informative.
Certain adjusted performance measures also form a meaningful
element of Executive Directors' annual bonuses. A definition of the
adjusted performance measures and a reconciliation to the closest
IFRS equivalent are disclosed below. The term 'adjusted' is not
defined under IFRS and may therefore not be comparable with
similarly titled measures reported by other companies.
Adjusted 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. 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 and impairment losses
on disposal groups
-- Significant restructuring costs
-- Certain foreign exchange gains and losses on borrowings
-- Significant profits or losses on disposal of property
-- significant plan amendments and/or legal rulings requiring
a past service cost or credit for post-retirement benefit plans
-- accelerated depreciation, impairment and other related costs
on one-off significant property redevelopments
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 2022 June 2021 2021
GBPm GBPm GBPm
----------------------------------------------- ---------- ---------- ----------------
Operating profit as reported under IFRS 142.1 153.6 320.9
Amortisation of acquisition-related intangible
assets 10.5 11.3 21.4
Restructuring costs 15.4 - -
Impairment of Russia disposal groups 3.6 - -
Acquisition-related items 3.2 - -
Accelerated depreciation and other related
costs on one-off property redevelopments 4.0 - -
Post-retirement benefit plans in Germany
being closed to future accrual - (2.0) (2.0)
Adjusted operating profit 178.8 162.9 340.3
----------------------------------------------- ---------- ---------- ----------------
Adjusted earnings per share
Six months Six months Year ended
to 30(th) to 30(th) 31(st)
June 2022 June 2021 December
2021
---------------------------------------------- ---------- ---------- ----------
Profit for the period attributable to
equity holders as reported under IFRS (GBPm) 97.1 108.8 234.6
Items excluded from adjusted operating
profit disclosed above (GBPm) 36.7 9.3 19.4
Tax effects on adjusted items (GBPm) (4.8) (1.9) (4.3)
Adjusted profit for the period attributable
to equity holders (GBPm) 129.0 116.2 249.7
Weighted average shares in issue (million) 73.7 73.7 73.7
Basic adjusted earnings per share 175.1p 157.6p 338.9p
Diluted weighted average shares in issue
(million) 73.8 73.9 73.9
Diluted adjusted earnings per share 174.8p 157.3p 338.0p
---------------------------------------------- ---------- ---------- ----------
Basic adjusted earnings per share is defined as adjusted profit
for the period attributable to equity holders divided by the
weighted average number of shares in issue. Diluted adjusted
earnings per share is defined as adjusted profit for the period
attributable to equity holders divided by the diluted weighted
average number of shares 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 Year ended
to to 30(th) 31(st) December
30(th) June 2021 2021
June 2022 GBPm GBPm
GBPm
------------------------------------------------ ---------- ---------- ----------------
Net cash from operating activities as
reported under IFRS 92.1 125.0 273.4
Net capital expenditure excluding acquired
intangibles from acquisitions (48.7) (21.4) (62.1)
Income tax paid 41.2 41.2 78.1
Repayments of principal under lease liabilities (6.2) (5.7) (11.7)
Adjusted cash from operations 78.4 139.1 277.7
------------------------------------------------ ---------- ---------- ----------------
Adjusted cash conversion in the first half was 44% (2021: 85%).
Cash conversion is calculated as adjusted cash from operations
divided by adjusted operating profit. The adjusted cash flow is
included on page 12.
Capital employed
This is an important non-statutory measure that the Board uses
to help it effectively monitor the performance of the Group. More
information on Capital employed can be found on page 11.
An analysis of the components is as follows:
30(th) 30(th) 31(st) December
June 2022 June 2021* 2021
GBPm GBPm GBPm
--------------------------------------------- ----------- ------------ ---------------
Property, plant and equipment 311.1 257.9 277.4
Right-of-use assets (IFRS 16) 64.2 34.7 62.9
Software & development costs 40.2 36.0 38.9
Non-current prepayments 1.3 2.0 1.3
Inventories 239.4 182.8 201.3
Trade receivables 311.1 236.1 272.3
Other current assets 58.7 43.6 44.7
Tax recoverable 14.3 12.8 15.7
Trade, other payables and current provisions (239.6) (176.3) (222.2)
Current tax payable (33.8) (33.0) (33.1)
Capital employed 766.9 596.6 659.2
--------------------------------------------- ----------- ------------ ---------------
* Restated following IFRS Interpretations Committee agenda
decision on configuration and customisation costs in cloud
computing arrangements (Software as a Service (SaaS)), see Note 1
for further details.
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) December
June 2022 June 2021 2021 GBPm
GBPm GBPm
--------------------------------------- ---------- ---------- ---------------
Capital employed 766.9 596.6 659.2
Goodwill and other intangible assets 670.4 637.7 628.0
Investment in Associate - - -
Post-retirement benefits (35.2) (52.6) (44.7)
Net deferred tax (38.1) (34.9) (35.7)
Non-current provisions and long-term
payables (7.8) (6.8) (6.2)
Lease liabilities (61.8) (32.4) (60.1)
Net assets classified as held for sale 0.2 - -
Net debt (202.7) (192.8) (130.5)
--------------------------------------- ---------- ---------- ---------------
Net assets as reported under IFRS 1,091.9 914.8 1,010.0
--------------------------------------- ---------- ---------- ---------------
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 in Note 9. Net debt excludes IFRS 16 lease
liabilities to be consistent with how net debt is defined for
external debt covenant purposes.
30(th) 30(th) 31(st) December
June 2022 June 2021 2021
GBPm GBPm GBPm
--------------------------------------- ---------- ---------- ---------------
Net debt 202.7 192.8 130.5
IFRS 16 lease liabilities 61.8 32.4 60.1
Net debt and IFRS 16 lease liabilities 264.5 225.2 190.6
--------------------------------------- ---------- ---------- ---------------
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. Net debt is calculated as Cash and cash equivalents less
Bank overdrafts and external borrowings (excluding IFRS 16 lease
liabilities).
Organic measures
As we are a multi-national Group of companies, who trade in a
large number of currencies and also acquire and sometimes dispose
of companies, we also refer to organic performance measures
throughout the News Release. These strip out the effects of the
movement in exchange rates and of acquisitions and disposals. The
Board believe that this allows users of the accounts to gain a
further understanding of how the Group has performed.
Exchange translation movements are assessed by re-translating
prior period reported values to current period exchange rates.
Exchange transaction impacts on operating profit are assessed on
the basis of transactions being at constant currency between
years.
The incremental impact of any acquisitions that occurred in
either the current period or prior period are excluded from the
results of the current period at current period exchange rates. For
any disposals that occurred in either the current period or prior
period, the current period results remove the impact of the
disposed business on the prior period results at current period
exchange rates.
The organic percentage movement is calculated as the organic
movement divided by the sum of the prior period, excluding
disposals and exchange.
The organic bps change in adjusted operating margin is the
difference between the current period margin excluding acquisitions
and disposals and the prior period margin excluding disposals 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 2021 Exchange Organic and disposals* June Organic Reported
2022
------------------- ---------- ---------- --------- ---------------- ----------- --------- ----------
Revenue GBP643.7m GBP11.3m GBP99.8m GBP(4.7)m GBP750.1m +15% +17%
Adjusted operating
profit GBP162.9m GBP3.5m GBP14.2m GBP(1.8)m GBP178.8m +9% +10%
Adjusted operating
profit margin 25.3% 23.8% -150bps -150bps
------------------- ---------- ---------- --------- ---------------- ----------- --------- ----------
*Includes the impact of (i) the acquisition of Cotopaxi Limited
and (ii) the treatment of our Russian Operating Companies as
disposals from the date at which the Group suspended all trading
with and within Russia.
The reconciliation for each operating segment can be found on
pages 15-20.
SEGMENTAL REPORTING
3.
As required by IFRS 8 (Operating Segments), the following
segmental information is presented in a consistent format with
management information considered by the Board.
Analysis by operating segment
Six months to 30(th) Total Adjusted Adjusted
June 2022 operating operating operating
Revenue profit profit profit
GBPm GBPm GBPm margin
%
---------------------------- ---------- ----------- ----------- -----------
Steam Specialties 400.6 87.7 92.1 23.0%
Electric Thermal Solutions 104.7 (8.9) 12.8 12.2%
Watson-Marlow 244.8 83.6 87.0 35.5%
Corporate expenses (20.3) (13.1)
---------------------------- ---------- ----------- ----------- -----------
Total 750.1 142.1 178.8 23.8%
---------------------------- ---------- ----------- ----------- -----------
Net finance expense (3.6) (3.6)
Share of (loss)/profit - -
of Associate
Profit before taxation 138.5 175.2
---------------------------- ---------- ----------- ----------- -----------
Six months to 30(th) Total Adjusted Adjusted
June 2021 operating operating operating
Revenue profit profit profit
GBPm GBPm GBPm margin
%
---------------------------- ---------- ----------- ----------- -----------
Steam Specialties 361.9 89.8 89.8 24.8%
Electric Thermal Solutions 88.9 4.5 11.2 12.6%
Watson-Marlow 192.9 68.7 71.3 37.0%
Corporate expenses (9.4) (9.4)
---------------------------- ---------- ----------- ----------- -----------
Total 643.7 153.6 162.9 25.3%
---------------------------- ---------- ----------- ----------- -----------
Net finance expense (3.6) (3.6)
Share of (loss)/profit - -
of Associate
Profit before taxation 150.0 159.3
---------------------------- ---------- ----------- ----------- -----------
Year ended 31(st) Total Adjusted Adjusted
December 2021 operating operating operating
Revenue profit profit profit
GBPm GBPm GBPm margin
%
---------------------------- ---------- ----------- ----------- -----------
Steam Specialties 754.9 186.8 188.7 25.0%
Electric Thermal Solutions 181.3 11.1 24.0 13.2%
Watson-Marlow 408.3 145.4 150.0 36.7%
Corporate expenses (22.4) (22.4)
---------------------------- ---------- ----------- ----------- -----------
Total 1,344.5 320.9 340.3 25.3%
---------------------------- ---------- ----------- ----------- -----------
Net finance expense (6.4) (6.4)
Share of (loss)/profit - -
of Associate
---------------------------- ---------- ----------- ----------- -----------
Profit before taxation 314.5 333.9
---------------------------- ---------- ----------- ----------- -----------
The following table details the split of revenue by geography
for the combined Group:
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June 2022 June 2021 2021
GBPm GBPm GBPm
Europe, Middle East
and Africa 308.5 280.9 563.3
Asia Pacific 176.2 153.9 334.2
Americas 265.4 208.9 447.0
Total revenue 750.1 643.7 1,344.5
--------------------- ------------ ------------ -----------------
The total operating profit for each period includes certain
items, as analysed below:
Six months to 30(th) June 2022
Accelerated
depreciation
Amortisation and other
of related costs Impairment
acquisition-related on one-off of Russia
intangible Restructuring property disposal Acquisition-related
assets costs redevelopments groups items Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------------------- -------------- ---------------- ----------- -------------------- -------
Steam Specialties (2.3) - - (2.1) - (4.4)
Electric Thermal
Solutions (6.3) (15.4) - - - (21.7)
Watson-Marlow (1.9) - - (1.5) - (3.4)
Corporate
expenses - - (4.0) - (3.2) (7.2)
Total (10.5) (15.4) (4.0) (3.6) (3.2) (36.7)
------------------ -------------------- -------------- ---------------- ----------- -------------------- -------
Six months to 30(th) June 2021 German
Amortisation pension
of acquisition-related plan closed
intangible to future
assets accrual Total
GBPm GBPm GBPm
-------------------------------- ------------------------ ------------- ------
Steam Specialties (2.0) 2.0 -
Electric Thermal Solutions (6.7) - (6.7)
Watson-Marlow (2.6) - (2.6)
Total (11.3) 2.0 (9.3)
-------------------------------- ------------------------ ------------- ------
Year ended 31(st) December 2021
German
Amortisation pension
of acquisition-related plan closed
intangible to future
assets accrual Total
GBPm GBPm GBPm
--------------------------------- ------------------------ -------------- -------
Steam Specialties (3.9) 2.0 (1.9)
Electric Thermal Solutions (12.9) - (12.9)
Watson-Marlow (4.6) - (4.6)
Total (21.4) 2.0 (19.4)
--------------------------------- ------------------------ -------------- -------
Net financing income and expense
Six months Six months Year ended
to to 31(st) December
30(th) June 30(th) June 2021
2022 2021
GBPm GBPm GBPm
Steam Specialties 0.7 0.2 0.7
Electric Thermal Solutions (0.2) (0.2) (0.2)
Watson-Marlow (0.2) (0.2) (0.4)
Corporate expenses (3.9) (3.4) (6.5)
---------------------------- ------------- ------------- ------------------
Total net financing
expense (3.6) (3.6) (6.4)
---------------------------- ------------- ------------- ------------------
Net assets
30(th) June 30(th) June 2021* 31(st) December
2022 2021
Assets Liabilities Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- --------- ------------ ------------ ---------------- --------- -------------
Steam Specialties 728.7 (179.8) 635.3 (154.9) 658.0 (182.1)
Electric Thermal
Solutions 581.7 (42.1) 514.5 (29.9) 536.9 (33.0)
Watson-Marlow 386.0 (60.7) 281.0 (50.9) 331.8 (57.9)
-------------------- --------- ------------ ------------ ---------------- --------- -------------
1,696.4 (282.6) 1,430.8 (235.7) 1,526.7 (273.0)
Liabilities (282.6) (235.7) (273.0)
Net deferred tax (38.1) (34.9) (35.7)
Net assets held 0.2 - -
for sale
Net tax payable (19.5) (20.2) (17.4)
Net debt including
lease liabilities (264.5) (225.2) (190.6)
-------------------- --------- ------------ ------------ ---------------- --------- -------------
Net assets 1,091.9 914.8 1,010.0
-------------------- --------- ------------ ------------ ---------------- --------- -------------
* Restated following IFRS Interpretations Committee agenda
decision on configuration and customisation costs in cloud
computing arrangements (Software as a Service (SaaS)), see Note 1
for further details.
Capital additions, depreciation, amortisation and impairment
Six months to Six months to Year ended
30(th) June 2022 30(th) June 2021 31(st) December
2021
Depreciation, Depreciation, Depreciation,
amortisation amortisation amortisation
Capital and impairment Capital and impairment Capital and impairment
additions GBPm additions GBPm additions GBPm
GBPm GBPm GBPm
------------------- ------------ ---------------- -------------- ----------------- ------------ ----------------
Steam Specialties 19.6 19.6 13.9 17.4 35.6 33.9
Electric Thermal
Solutions 3.3 11.8 1.4 9.5 16.6 18.3
Watson-Marlow 35.2 9.5 11.7 8.4 51.0 16.8
------------------- ------------ ---------------- -------------- ----------------- ------------ ----------------
Total 58.1 40.9 27.0 35.3 103.2 69.0
------------------- ------------ ---------------- -------------- ----------------- ------------ ----------------
Capital additions include property, plant and equipment at 30th
June 2022 of GBP44.1 million (at 30th June 2021: GBP18.9 million;
and at 31st December 2021: GBP52.8 million). Capital additions also
include other intangible assets at 30th June 2022 of GBP8.0 million
(at 30th June 2021: GBP3.3 million; and at 31st December 2021:
GBP11.3 million), of which GBP2.8 million relates to acquisition
related intangibles (at 30th June 2021: GBPnil; and at 31st
December 2021: GBPnil). Right-of-use asset additions at 30th June
2022 were GBP6.0 million (at 30th June 2021: GBP4.8 million; and at
31st December 2021: GBP39.1 million).
NET FINANCING INCOME AND EXPENSE
4.
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2021
2022 2021 GBPm
GBPm GBPm
--------------------------------------- ----------- ----------- -----------------
Financial expenses:
Bank and other borrowing interest
payable (4.5) (3.7) (7.4)
Interest expense on lease liabilities (0.7) (0.5) (1.1)
Net interest on pension scheme
liabilities (0.3) (0.8) (1.3)
--------------------------------------- ----------- ----------- -----------------
(5.5) (5.0) (9.8)
--------------------------------------- ----------- ----------- -----------------
Financial income:
Bank interest receivable 1.9 1.4 3.4
Net financing expense (3.6) (3.6) (6.4)
--------------------------------------- ----------- ----------- -----------------
Net bank interest (2.6) (2.3) (4.0)
Interest expense on lease liabilities (0.7) (0.5) (1.1)
Net pension scheme financial expense (0.3) (0.8) (1.3)
--------------------------------------- ----------- ----------- -----------------
Net financing expense (3.6) (3.6) (6.4)
--------------------------------------- ----------- ----------- -----------------
TAXATION
5.
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 2022 30(th) June 2021 31(st) December
2020
------------------------- ------------------------- -------------------------
Adjusted Adj't Total Adjusted Adj't Total Adjusted Adj't Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- --------- ------ ------ --------- ------ ------ --------- ------ ------
UK corporation
tax (0.8) - (0.8) 2.6 - 2.6 7.0 - 7.0
Foreign
tax 40.7 - 40.7 39.2 - 39.2 73.0 - 73.0
Deferred
tax 6.2 (4.8) 1.4 1.2 (1.9) (0.7) 3.9 (4.3) (0.4)
---------------- --------- ------ ------ --------- ------ ------ --------- ------ ------
Total taxation 46.1 (4.8) 41.3 43.0 (1.9) 41.1 83.9 (4.3) 79.6
---------------- --------- ------ ------ --------- ------ ------ --------- ------ ------
Effective
tax rate 26.3% 13.0% 29.8% 27.0% 20.6% 27.4% 25.1% 22.2% 25.3%
---------------- --------- ------ ------ --------- ------ ------ --------- ------ ------
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 30th June 2022
includes a credit of GBP4.8 million in relation to certain items
(as disclosed in Note 2). The tax impacts of these items are:
-- Amortisation of acquisition-related intangible assets (GBP2.5
million credit)
-- Restructuring of the Chromalox manufacturing operations in
Soissons (France) (GBP1.7 million credit)
-- Costs associated with the acquisition of Vulcanic (GBP0.5 million
credit)
-- Costs associated with the redevelopment of the Group Head Office
building in Cheltenham (UK) (GBP0.1 million credit)
In October 2017, the European Commission (EC) opened a formal
State Aid investigation into an exemption within the UK's
Controlled Foreign Company (CFC) regime. In April 2019, the EC
published its final decision that the UK CFC Finance Company
Exemption (FCE) constituted State Aid in certain circumstances,
following which the UK Government appealed the decision. Similar to
other UK companies, the Group submitted its own appeal. The EU
General Court delivered its decision on the appeals on 8th June
2022, ruling in favour of the EC, although the UK Government and
the taxpayer have the option to appeal this decision.
The Group's benefit from the FCE, in the period from 2013 to
date, is approximately GBP8.7 million including compound interest.
The Group has received and paid Charging Notices, issued by the UK
tax authority, totalling GBP4.9 million assessed for the period
from 1st January 2017 to 31st December 2018. The Group has appealed
the Charging Notices and expects this amount to be repayable in
full following a successful appeal and has recognised a recoverable
amount in the Statement of Financial Position. No provision has
been recognised for the estimated amounts where Charging Notices
have not been received, therefore these amounts continue to be
recognised as contingent liabilities.
The UK Government announced on 3rd March 2021 that the standard
rate of UK corporation tax would increase to 25% from 1st April
2023. The changes will impact the tax charged on UK profits from
the effective date. However, as a result of being substantively
enacted at the balance sheet date all UK deferred tax balances at
the period end, which are forecast to remain at 1st April 2023 have
been calculated at a tax rate of 25%.
EARNINGS PER SHARE
6.
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2021
2022 2021
-------------------------------------------- ----------- ----------- -----------------
Profit attributable to equity shareholders
(GBPm) 97.1 108.8 234.6
Weighted average shares in issue
(million) 73.7 73.7 73.7
Dilution (million) 0.1 0.2 0.2
-------------------------------------------- ----------- ----------- -----------------
Diluted weighted average shares
in issue (million) 73.8 73.9 73.9
-------------------------------------------- ----------- ----------- -----------------
Basic earnings per share 131.8p 147.6p 318.3p
-------------------------------------------- ----------- ----------- -----------------
Diluted earnings per share 131.5p 147.3p 317.5p
-------------------------------------------- ----------- ----------- -----------------
Basic and diluted earnings per share calculated on an adjusted
profit basis are included in Note 2.
The dilution is in respect of the share awards granted to
employees under share plans.
DIVIDS
7.
Six months Six months Year ended
to 30(th) to 30(th) 31(st) December
June June 2021
2022 2021 GBPm
GBPm GBPm
--------------------------------------- ----------- ----------- -----------------
Amounts paid in the period:
Final dividend for the year ended
31(st) December 2021 of 97.5p (2020:
84.5p) per share 71.9 62.3 62.3
Interim dividend for the year ended
31(st) December 2021 of 38.5p (2020:
33.5p) per share - - 28.4
--------------------------------------- ----------- ----------- -----------------
Total dividends paid 71.9 62.3 90.7
--------------------------------------- ----------- ----------- -----------------
Amounts arising in respect of the
period:
Interim dividend for the year ending
31(st) December 2022 of 42.5p (2021:
38.5p) per share 31.3 28.4 28.4
Final dividend for the year ended
31(st) December 2021 of 97.5p (2020:
84.5p) per share - - 71.9
--------------------------------------- ----------- ----------- -----------------
Total dividends arising 31.3 28.4 100.3
--------------------------------------- ----------- ----------- -----------------
The interim dividend for the year ending 31st December 2022 was
approved by the Board after 30th June 2022. 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 2022 interim dividend.
In addition, dividends paid to minority shareholders at 30th
June 2022 were GBP0.3 million (31st December 2021: GBP0.3 million,
30th June 2021: GBP0.3 million)
POST-RETIREMENT BENEFITS
8.
The Group is accounting for pension costs in accordance with IAS
19. The disclosures shown here are in respect of the Group's
Defined Benefit Obligations. Other plans operated by the Group were
either Defined Contribution plans or were deemed immaterial for the
purposes of IAS 19 reporting. Full IAS 19 disclosure for the year
ended 31st December 2021 is included in the Group's Annual
Report.
The amounts recognised in the Consolidated Statement of
Financial Position are as follows:
30th June 30th June 31(st) December
2022 2021 2021
GBPm GBPm GBPm
---------------------------- ---------- ---------- ----------------
Post-retirement benefits (35.2) (52.6) (44.7)
Related deferred tax asset 9.2 13.8 12.0
---------------------------- ---------- ---------- ----------------
Net pension liability (26.0) (38.8) (32.7)
---------------------------- ---------- ---------- ----------------
ANALYSIS OF CHANGES IN NET DEBT, INCLUDING CHANGES IN LIABILITIES
9. ARISING FROM FINANCING ACTIVITIES
Cash transferred
to assets
classified 30
1(st) Cash Acquired as held (th)
January flow debt* for sale June
2022 GBPm GBPm GBPm Exchange 2022
GBPm GBPm GBPm
------------------------------------- ---------- ------- ----------- ----------------- ----------- ------------
Current portion of long-term
borrowings (59.6) (0.9)
Non-current portion of long-term
borrowings (289.9) (432.4)
Total borrowings (349.5) (433.3)
------------------------------------- ---------- ------- ----------- ----------------- ----------- ------------
Comprising:
Borrowings (349.5) (75.1) - - (8.7) (433.3)
Changes in liabilities arising
from financing (349.5) (75.1) - - (8.7) (433.3)
------------------------------------- ---------- ------- ----------- ----------------- ----------- ------------
Cash at bank 274.6 30.8 - (2.3) 1.8 304.9
Bank overdrafts (55.6) (17.1) - - (1.6) (74.3)
------------------------------------- ---------- ------- ----------- ----------------- ----------- ------------
Net cash and cash equivalents 219.0 13.7 - (2.3) 0.2 230.6
------------------------------------- ---------- ------- ----------- ----------------- ----------- ------------
Net debt (130.5) (61.4) - (2.3) (8.5) (202.7)
------------------------------------- ---------- ------- ----------- ----------------- ----------- ------------
Lease liability (60.1) 6.2 (6.0) - (1.9) (61.8)
------------------------------------- ---------- ------- ----------- ----------------- ----------- ------------
Net debt and lease liability (190.6) (55.2) (6.0) (2.3) (10.4) (264.5)
------------------------------------- ---------- ------- ----------- ----------------- ----------- ------------
* Acquired debt comprises debt recognised on the Statement of
Financial Position due to entry into new leases under IFRS 16.
At 30th June total lease liabilities consist of GBP12.6 million
(31st December 2021: GBP11.2 million, 30th June 2021: GBP10.1
million) short-term and GBP49.2 million (31st December 2021:
GBP48.9 million, 30th June 2021: GBP22.3 million) long-term
1 (st) Cash Acquired 30 (th)
January flow debt* Exchange June
2021 GBPm GBPm GBPm 2021
GBPm GBPm
---------------------------------- --------- ------- --------- ----------- --------
Current portion of long-term
borrowings (0.6) (103.7)
Non-current portion of long-term
borrowings (452.2) (295.8)
Total borrowings (452.8) (399.5)
---------------------------------- --------- ------- --------- ----------- --------
Comprising:
Borrowings (452.8) 34.6 - 18.7 (399.5)
Changes in liabilities arising
from financing (452.8) 34.6 - 18.7 (399.5)
---------------------------------- --------- ------- --------- ----------- --------
Cash at bank 246.2 11.2 - (3.8) 253.6
Bank overdrafts (22.2) (25.1) - 0.4 (46.9)
---------------------------------- --------- ------- --------- ----------- --------
Net cash and cash equivalents 224.0 (13.9) - (3.4) 206.7
---------------------------------- --------- ------- --------- ----------- --------
Net debt (228.8) 20.7 - 15.3 (192.8)
---------------------------------- --------- ------- --------- ----------- --------
Lease liability (34.1) 5.7 (4.6) 0.6 (32.4)
---------------------------------- --------- ------- --------- ----------- --------
Net debt and lease liability (262.9) 26.4 (4.6) 15.9 (225.2)
---------------------------------- --------- ------- --------- ----------- --------
* Acquired debt comprises debt recognised on the Statement of
Financial Position due to entry into new leases under IFRS 16.
31(st)
1(st) Cash Acquired Exchange December
January flow debt* movement 2021
2021 GBPm GBPm GBPm GBPm
GBPm
---------------------------------- ---------- ------- ----------- ----------- -----------
Current portion of long-term
borrowings (0.6) (59.6)
Non-current portion of long-term
borrowings (452.2) (289.9)
Short-term borrowings - -
---------------------------------- ---------- ------- ----------- ----------- -----------
Total borrowings (452.8) (349.5)
---------------------------------- ---------- ------- ----------- ----------- -----------
Comprising:
Borrowings (452.8) 77.5 - 25.8 (349.5)
Changes in liabilities arising
from financing (452.8) 77.5 - 25.8 (349.5)
---------------------------------- ---------- ------- ----------- ----------- -----------
Cash at bank 246.2 35.7 - (7.3) 274.6
Bank overdrafts (22.2) (34.3) - 0.9 (55.6)
---------------------------------- ---------- ------- ----------- ----------- -----------
Net cash and cash equivalents 224.0 1.4 - (6.4) 219.0
---------------------------------- ---------- ------- ----------- ----------- -----------
Net debt (228.8) 78.9 - 19.4 (130.5)
---------------------------------- ---------- ------- ----------- ----------- -----------
Lease liabilities (34.1) 11.7 (39.1) 1.4 (60.1)
---------------------------------- ---------- ------- ----------- ----------- -----------
Net debt and lease liabilities (262.9) 90.6 (39.1) 20.8 (190.6)
---------------------------------- ---------- ------- ----------- ----------- -----------
* Acquired debt comprises debt recognised on the Statement of
Financial Position due to entry into new leases under IFRS 16.
10. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this Note. Full details of the Group's other related
party relationships, transactions and balances are given in the
Group's Financial Statements for the year ended 31st December 2021.
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 2022 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 2022 30(th) June 2021 31(st) December
2021
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ---------- ------- ---------- ------- ---------- -------
Financial assets:
Cash and cash
equivalents 304.9 304.9 253.6 253.6 274.6 274.6
Trade, other receivables
and contract assets 342.3 342.3 261.6 261.6 298.1 298.1
-------------------------- ---------- ------- ---------- ------- ---------- -------
Total financial
assets 647.2 647.2 515.2 515.2 572.7 572.7
-------------------------- ---------- ------- ---------- ------- ---------- -------
Financial liabilities:
Loans 433.3 423.1 399.5 409.2 349.5 358.3
Lease liabilities 61.8 61.8 32.4 32.4 60.1 60.1
Bank overdrafts 74.3 74.3 46.9 46.9 55.6 55.6
Trade payables 69.6 69.6 52.8 52.8 67.8 67.8
Other payables
and contract liabilities 63.7 63.7 45.3 45.3 56.2 56.2
Long-term payables 6.2 6.2 5.3 5.3 4.7 4.7
Accruals 84.3 84.3 66.3 66.3 85.7 85.7
--------------------------- ------ ------ ------ ------ ------ ------
Total financial
liabilities 793.2 783.0 648.5 658.2 679.6 688.4
--------------------------- ------ ------ ------ ------ ------ ------
There are no other assets or liabilities measured at fair value
on a recurring or non-recurring basis for which fair value is
disclosed.
Fair values of financial assets and financial liabilities
Fair values of financial assets and liabilities at 30th June
2022 are not materially different from book values due to their
size, the fact that they were at short-term rates of interest or
for borrowings at long-term rates of interest where the rate of
interest is not materially different to the current market rate.
Fair values have been assessed as follows:
Derivatives
Forward exchange contracts are marked to market by discounting
the future contracted cash flows using readily available market
data.
Interest-bearing loans and borrowings
Fair value is calculated based on discounted expected future
principal and interest cash flows using a current market rate of
interest.
Lease liabilities
The fair value is estimated as the present value of future cash
flows, discounted at the incremental borrowing rate for the related
geographical location, unless the rate implicit in the lease is
readily determinable.
Trade and other receivables/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 hedging instruments in a cash flow hedging
relationship. At 30th June 2022 the Group had contracts outstanding
to economically hedge or to purchase GBP34.0 million with US
dollars, GBP55.4 million with euros, GBP7.7 million with Korean
won, GBP14.5 million with Chinese renminbi, GBP1.9 million with
Singapore dollars, EUR11.3 million with US dollars, EUR2.4 million
with Korean won, EUR6.2 million with Chinese renminbi and DKK40.3
million with euros. Derivative financial instruments are measured
at fair value. The fair value at the end of the reporting period is
a GBP7.9 million liability (31st December 2021: GBP0.2 million
liability, 30th June 2021: GBP3.4 million 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.
CAPITAL COMMITMENTS
12.
Capital expenditure contracted for, but not provided for, at
30th June 2022 was GBP60.4 million (31st December 2021: GBP40.5
million; 30th June 2021: GBP14.9 million). All capital commitments
related to property, plant and equipment.
EXCHANGE RATES
13.
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 2021 and half year 2022.
Average Average Change
half year half year %
2022 2021
---------------- ----------- ----------- -------
US dollar 1.30 1.38 6%
euro 1.19 1.15 -3%
renminbi 8.40 8.96 6%
won 1,593 1,546 -3%
real 6.63 7.42 11%
Argentine peso 145.55 125.98 -16%
A negative movement indicates a strengthening in sterling versus
that currency. When sterling strengthens against other currencies
in which the Group operates, the Group incurs a loss on translation
of the financial results into sterling.
On a translation basis, sales increased by 1.8% and adjusted
operating profit increased by 1.6%, with transactional currency
impacts also increasing profit, giving a total benefit to profit
from currency movements of 2.1%.
14. HELD FOR SALE
At the 30th June 2022, Spirax Sarco Russia and Watson-Marlow
Russia disposal groups were available for immediate sale in their
present condition. The assets and liabilities have been classified
as held for sale at 30th June 2022.
On the 9th June, the Board approved the disposal of the Group's
Russian Operating Companies as a result of the decision to cease
all trading with, or within, Russia in March. The disposal of these
Operating Companies completed on 6th July and therefore they have
been classified as disposal groups held for sale and presented
separately in the Statement of Financial Position at 30th June
2022. Impairment losses of GBP3.6 million have been recognised in
the Consolidated Income Statement as a result of the classification
of these operations as held for sale. This loss represents the
difference between the fair value less cost to sell and the
carrying amount of the businesses net assets. The impairment losses
have been shown as an adjusting item as disclosed in Note 2,
included within the impairment of Russia disposal groups. The
disposal groups are presented within the respective Steam
Specialties and Watson-Marlow reporting segments as
appropriate.
15. PURCHASE OF BUSINESSES
The acquisition of 100% of the share capital of the digitally
enabled, global energy consulting and optimisation specialist,
Cotopaxi Limited was completed on 30th January 2022. The
acquisition method of accounting has been used. Cotopaxi is a UK
company whose digital solutions experience in steam installations
will accelerate Steam Specialties' objective to connect to its
customers' steam systems and analyse their data. Total
consideration on a cash-free, debt-free basis at the acquisition
date was GBP12.7 million with no further amounts deferred or
contingent on future performance.
Separately identified intangibles are recorded as part of the
fair value adjustment. The goodwill recognised represents the
opportunity to develop in the digital market from being part of the
Group. Goodwill arising is not expected to be tax deductible.
On acquisition, net assets of Cotopaxi were GBP1.3 million with
GBP2.8 million of acquired intangibles and GBP10.0 million of
Goodwill being recognised. Since acquisition Cotopaxi Limited has
made revenue and pre-tax profit of 1.2 million and GBP0.3 million.
Had the acquisition been made on 1st January 2022, the H1 2022
revenue and pre-tax profit would not have been materially different
from the figure disclosed.
16 . EVENTS AFTER THE BALANCE SHEET DATE
In July 2022 the Group announced a definitive agreement to
acquire 100% of the share capital of the Vulcanic Group of
Companies from Qualium, a French private equity company. Vulcanic
is a European industrial electric heating group and the largest
supplier in Europe of bespoke industrial electric heating
solutions. Headquartered in Paris (France) with 10 manufacturing
facilities worldwide, Vulcanic has over 700 employees, of whom
almost 90% are based in the Europe, Middle East and Africa (EMEA)
region.
In the year ended 31st December 2021, Vulcanic recorded revenues
of EUR89.4 million (GBP76.8 million), earnings before interest,
tax, depreciation and amortisation (EBITDA) of EUR17.6 million
(GBP15.2 million) and earnings before interest and tax (EBIT) of
EUR16.0 million (GBP13.8 million) on an adjusted proforma basis for
Vulcanic's acquisition of EML in December 2021.
[1] Source for industrial production data: Oxford Economics,
15th July 2022
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
IR PMMMTMTBBTIT
(END) Dow Jones Newswires
August 11, 2022 02:00 ET (06:00 GMT)
Spirax-sarco Engineering (LSE:SPX)
Historical Stock Chart
From May 2023 to Jun 2023
Spirax-sarco Engineering (LSE:SPX)
Historical Stock Chart
From Jun 2022 to Jun 2023
