2015 Half Year Results for half year ending 30 th June 2015 Bill Whiteley – Chairman Nick Anderson – Chief Executive David Meredith – Finance Director
Agenda 2015 H1 Highlights 2015 H1 Financial Review Operations and Outlook Appendices 2015 Half Year Results 30th June 2015 2
2015 First half year highlights 30 th June 30 th June 2015 2014 Reported sales £320.0m £319.2m Organic sales +3% +4% Operating profit margin* 20.6% 21.0% EPS* 60.5p 61.7p DPS 20.8p 19.5p * See Appendix IV for definition of profit measures Organic sales growth of 3% • Operating profit up 3% at constant currency excluding India start-up and UK • headcount reduction costs Underlying operating profit margin maintained • Currency headwind reduced sales on translation by 2.6% versus first half 2014 • Strong growth in Watson-Marlow Fluid Technology business • 98% cash conversion and interim dividend +7% • 2015 Half Year Results 30th June 2015 3
Agenda David Meredith 2015 H1 Financial Review 2015 Half Year Results 30th June 2015 4
Financial aspects 30 th June 30 th June Constant • Sales up 3% at 2015 2014 Change currency constant currency • Operating profit Revenue £320.0m £319.2m 0% +3% +3% constant ccy Operating profit* £65.8m £67.1m -2% 0% excluding UK headcount Margin* 20.6% 21.0% -40 bps -50 bps reduction costs Net finance expense (£0.6m) (£1.5m) and start-up costs in India Associates £0.2m £0.7m • Sale of Indian JV Pre-tax profit* £65.5m £66.3m -1% +1% reduced profit Tax rate (exc Associate) 30.4% 30.1% from Associates EPS* 60.5p 61.7p -2% 0% • Small increase in tax rate DPS 20.8p 19.5p +7% +7% • Reduced shares in issue - share * See Appendix IV for definition of profit measures consolidation 2015 Half Year Results 30th June 2015 5
Currency movements FX translation impact on sales 2015 Projected Actual Translation Index 4% projected full 2.6% H1 year translation translation impact impact on sales on sales Based on Spirax Sarco sales-weighted currency translation index Translation Index 2014 H1 2014 Year 2015 H1 2015 Year 2015 Half Year Results 30th June 2015 6
Profit bridge Underlying increase in profit 68.0 • FX impact of 80 £1.5m 70 67.1 • Indian start-up 66.0 60 costs of nearly (1.5) £1m 65.8 50 (1.0) 64.0 • Net £0.5m UK 1.7 (0.5) 40 £m headcount 30 reduction costs 62.0 20 • £1.7m underlying profit increase. 10 60.0 Good gains in Watson-Marlow 0 and EMEA, 58.0 -10 partially offset by H1 2014 FX India start- UK Underlying H1 2015 lower profit in up headcount profit Asia Pacific reduction increase * See Appendix IV for definition of profit measures 2015 Half Year Results 30th June 2015 7
H1 operating profit margin of 20.6% • Material costs flat 25% • Favourable business/product 20.6% mix in 2014 not 20% repeated • EMEA +30 bps at constant 15% currency, +70 bps excluding UK headcount 10% reduction costs • Asia Pac margin lower – weaker performance in 5% Korea, start-up 15.0% 16.6% 15.3% 17.1% 15.8% 17.1% 17.1% 17.0% 15.0% 19.5% 19.3% 21.0% 19.9% 21.3% 18.6% 22.4% 20.6% 23.3% 21.0% 23.9% costs in India and SE Asia market 0% development 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 costs H1 H2 2015 Half Year Results 30th June 2015 8
Adjusted cash flow 30 th June 30 th June Pounds (£) millions 2015 2014 Adjusted operating profit* 65.8 67.1 • Very good cash Depreciation and share schemes 13.8 13.0 flow performance Working capital (1.6) (7.1) • 98% cash Capital expenditure (net including R&D) (13.4) (18.7) conversion Adjusted cash from operations 64.6 54.3 • Outflow of £7m Interest received/(paid) 0.7 (0.1) for acquisition of Tax paid (24.2) (24.5) Asepco, inflow of Free cash flow 41.1 29.7 £6m in respect of sale of Associate Dividends paid (net) (34.2) (31.1) in India Special pension payments/provisions/restructuring (0.6) (2.6) • Net cash of Shares issues/purchased (net) 1.9 2.5 £53.5m Acquisitions net of disposal (0.6) (9.1) • Special dividend Adjustments (0.5) (0.5) £91m paid July Cash flow for the period 7.1 (11.1) • Improved ROCE Net cash/(debt) balance 53.5 (1.5) ROCE 43.5% 42.1% * See Appendix I and IV for definition of ROCE and profit measures 2015 Half Year Results 30th June 2015 9
Underlying operating margin factors Effects on underlying margins* • Currency effect on margin broadly H1 2015 H2 2015 neutral Currency movements • Cost of materials broadly flat Operating leverage • Cost savings from UK and USA Sales pricing (vs. inflation) actions benefit second half Material prices • Favourable 2014 Manufacturing strategies mix not repeated Business & product mix • Increased market development Business development investment costs in India and South East Asia * The arrows as shown are qualitative and indicate direction only 2015 Half Year Results 30th June 2015 10
Agenda Nick Anderson Operations and Outlook 2015 Half Year Results 30th June 2015 11
Europe, Middle East & Africa (EMEA) 30 th June 30 th June Change Constant 2014 2015 currency Exchange Organic Acquisitions Sales £119.3m £111.8m -6% +3% (£10.6m) £3.1m - Op profit* £24.2m £21.3m -12% +5% (£3.9m) £1.0m - Margin* 20.3% 19.0% -130 bps +30 bps * See Appendix IV for definition of profit measures • Organic sales up 3%, despite low growth of industrial production • Sales growth in Italy, Germany, Iberia, South Africa • Strong exchange headwinds reduce sales by 9% • Manufacturing demand lower; cost reduction actions in UK • Operating profit up 5%; H2 benefits from UK cost reductions • Divested M&M (Italy) due to low strategic fit 35% • Expect modest market pick up in H2 of Group sales 2015 Half Year Results 30th June 2015 12
Asia Pacific 30 th June 30 th June Change Constant 2014 2015 currency Exchange Organic Acquisitions Sales £75.5m £74.3m -2% -5% £3.0m (£4.2m) - Op profit* £16.8m £15.5m -8% -17% £1.8m (£3.1m) - Margin* 22.2% 20.9% -130 bps -280 bps * See Appendix IV for definition of profit measures • Sales down 5%; widespread economic slowdown • China sales marginally lower; projects down, better base business • Korea results down; project delays but higher order book • New company in India commenced trading; exciting growth prospects • Operating profit down 17%; 11% lower excluding India’s pre -op. expenses • Higher order book benefits H2 profit; India £1m trading loss in H2 23% • Remain positive on the region despite short-term uncertainties of Group sales 2015 Half Year Results 30th June 2015 13
Americas 30 th June 30 th June Change Constant 2014 2015 currency Exchange Organic Acquisitions Sales £59.8m £61.0m +2% +2% £0.2m £1.0m - Op profit* £11.9m £11.8m -1% -1% - (£0.1m) - Margin* 19.8% 19.3% -50 bps -50 bps * See Appendix IV for definition of profit measures • Organic sales up 2%; North America down, Latin America ahead • North America – large projects down; modest pick-up smaller projects • USA increasing direct sales and sector focus; stepped up sales training • Latin America – sales growth driven by Argentina and Mexico; Brazil flat • Argentina’s inflation eroding benefits from 2014 devaluation 19% • Closed meter manufacturing plant in USA; £0.6m benefit in H2 • Remain positive on the region; expect H2 pick-up in USA of Group sales 2015 Half Year Results 30th June 2015 14
Watson-Marlow 30 th June 30 th June Change Constant 2014 2015 currency Exchange Organic Acquisitions Sales £64.5m £72.8m +13% +14% (£0.9m) £8.1m £1.1m Op profit* £19.3m £21.8m +13% +10% £0.5m £1.8m £0.2m Margin* 29.9% 29.9% 0 bps -120 bps * See Appendix IV for definition of profit measures • Organic sales up exceptional 13%; Asepco acquired in Q2 • Exceptional sales growth in USA; good growth in EMEA • Sales up in most industries; strong performance in biopharm • Exchange transaction gains in USA • Reversed 2014’s favourable mix effect on profits • New products continue to contribute well; active pipeline 23% • Acquired MasoSine manufacturing and distribution rights in Japan of Group sales 2015 Half Year Results 30th June 2015 15
Annual IP growth rates by quarter 2012-2015 Actual Projected 6.0% Developed (OECD) Emerging (Non-OECD) Global 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Source: CHR Economics - June 2015 -1.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2015 2015 Half Year Results 30th June 2015 16
Implementing our strategy Taking action to outperform our markets • Stepping up strategic investments for growth - Increasing sector focus of sales organisation - Strengthening direct sales channel in USA - Initiated direct sales in India; exited Associate company - Three acquisitions and one disposal in 2015 - Stepped up training of sales and support teams; new training centres - Expanding IT systems for sales, manufacturing, product development • Improving business efficiencies - Reduced plant overheads in UK - Closed loss-making plant in USA 2015 Half Year Results 30th June 2015 17
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