> ENGINEERING SUSTAINABLE VALUE > 2016 RESULTS YEAR ENDED 31 ST DECEMBER 2016 Bill Whiteley (Chairman) Nicholas Anderson (Group Chief Executive) Kevin Boyd (Group Finance Director) Vicky Ming, Training Executive, Technical Sustainability Department, in Spirax Sarco’s Steam Training Centre, China 0 2016 Results Year ended 31st December 2016
Agenda 2016 Highlights 2016 Financial Review Operations and Outlook Bill Whiteley Appendices Nicholas Anderson Kevin Boyd > ENGINEERING SUSTAINABLE VALUE 1 2016 Results Year ended 31st December 2016 >
Bill Whiteley 2016 Highlights > ENGINEERING SUSTAINABLE VALUE 2 2016 Results Year ended 31st December 2016 >
2016 Highlights 2016 2015 Reported sales £757.4m £667.2m Organic sales growth ⁺ +4% +2% Operating profit margin* 23.8% 22.8% EPS* 171.5p 142.6p DPS 76.0p 69.0p Cash conversion 101% 95% ⁺ Organic measures are at constant currency and exclude acquisitions and disposals. * See Appendix IV for definition of adjusted profit measures. Organic sales increased 4% • Record operating margin 23.8% • Another excellent performance in Watson-Marlow • Robust cash generation, 101% cash conversion • Full Year dividend increased by 10% • > ENGINEERING SUSTAINABLE VALUE 3 2016 Results Year ended 31st December 2016 >
Kevin Boyd 2016 Financial Review > ENGINEERING SUSTAINABLE VALUE 4 2016 Results Year ended 31st December 2016 >
Financial performance 2016 2015 Reported Organic ⁺ Revenue £757.4m £667.2m +14% +4% • Organic sales +4%; growth in all Operating profit* £180.6m £152.4m +18% +8% divisions of the Steam Specialties Operating profit margin* 23.8% 22.8% +100 bps +80 bps business and Net finance expense (£2.6m) (£1.5m) Watson-Marlow Associates* (£0.1m) £0.2m • Operating profit +8% on an organic Pre-tax profit* £177.9m £151.1m +18% basis Tax rate* 29.1% 29.8% -70 bps • Tax rate down 70 bps EPS* 171.5p 142.6p +20% • EPS +20%; profit DPS 76.0p 69.0p +10% increase, lower tax ⁺ Organic measures are at constant currency and exclude acquisitions and disposals. rate and 2015 share * See Appendix IV for definition of adjusted profit measures. consolidation > ENGINEERING SUSTAINABLE VALUE 5 2016 Results Year ended 31st December 2016 >
Sales bridge Increase in sales £m • Currency (FX) gain 7.3 760 of 8% 16.6 H2 2016 H1 2016 • Total organic ⁺ 757.4 13.7 740 growth of 4%; Steam Specialties 52.6 over 2%, Watson- 720 Marlow 10% • Acquisitions net of 700 disposal add 1% 680 660 667.2 640 ⁺ Organic measures are at 2015 FX Steam Watson- Acquisitions 2016 constant currency and exclude Specialties Marlow /Disposal acquisitions and disposals org. growth org. growth > ENGINEERING SUSTAINABLE VALUE 6 2016 Results Year ended 31st December 2016 >
Profit bridge Increase in adjusted operating profit £m • Adjusted operating profit* +18% 180 • Significant exchange 180.6 9.4 benefit 0.5 2.3 • Non-recurring 1.5 170 contribution from Argentina 14.5 • Restructuring in H1 160 2015 • Good underlying profit increase 150 152.4 140 * See Appendix IV for 2015 FX One-off UK/USA Acquisitions Underlying 2016 definition of adjusted profit Argentina restructuring /Disposals profit measures benefit increase > ENGINEERING SUSTAINABLE VALUE 7 2016 Results Year ended 31st December 2016 >
Record operating margin of 23.8% 23.8% 25.0% 25.0% • Continued margin expansion • H1 2016 margin 20.0% 20.0% +190 bps • H2 2016 margin in- line with H2 prior 15.0% 15.0% year 24.9% 24.9% 23.9% 23.3% 22.5% 22.4% • Steam Specialties 21.3% 21.0% 21.0% 20.6% 20.6% 19.9% 19.5% 19.3% business up 60 bps 18.6% 10.0% 10.0% 17.1% 17.1% 17.0% to 22.9% 15.8% 15.0% • WMFTG up 170 bps to an exceptional 5.0% 5.0% 33.1% 0.0% 0.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 > H1 H2 Year ENGINEERING SUSTAINABLE VALUE 8 2016 Results Year ended 31st December 2016 >
Currency movements FX translation impact on sales 2015-2017 Actual Projected 105 8% full year translation impact on sales 100 6% projected full year translation impact on 95 sales 90 85 80 H1 2015 H2 2015 H1 2016 H2 2016 H1 2017 H2 2017 > Yearly average exchange rate Based on Spirax Sarco sales-weighted currency translation index ENGINEERING SUSTAINABLE VALUE 9 2016 Results Year ended 31st December 2016 >
Strong cash flow Pounds (£) million 2016 2015 Adjusted operating profit* 180.6 152.4 • Strong cash generation; 101% Depreciation, pensions and share schemes 29.1 26.7 cash conversion Working capital 4.3 (2.7) • Working capital Capital expenditure (including capitalised R&D) (31.3) (30.9) inflow Adjusted cash from operations 182.7 145.5 • Dividends paid Net interest 0.0 0.8 £52.1m (prior year Tax paid (56.5) (43.3) includes special) Free cash flow 126.2 103.0 • Acquisitions of Dividends paid (net) (52.1) (140.5) £66.5m Proceed from issue of shares 1.3 4.7 • Closing net cash of Acquisitions and disposals (66.5) (10.2) £27.4m Other 1.8 (1.4) • ROCE up 380 bps Cash flow for the period 10.7 (44.4) Net cash balance 27.4 4.8 ROCE 47.9% 44.1% * See Appendix IV for definition of profit measures. > ENGINEERING SUSTAINABLE VALUE 10 2016 Results Year ended 31st December 2016 >
Dividend growth 200.0 120p • Total dividend up 180.0 10% to 76.0p 160.0 100p • Final dividend up 11% to 53.5p 140.0 Pence per share • Dividend cover of 120.0 2.3x 100.0 • 49 years of dividend growth with a CAGR +10% 80.0 25p +7% of 11% +9% +11% 60.0 +8% +14% +19% 53.5p +8% 40.0 +11% +13% 20.0 22.5p 0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 DPS Interim DPS Final Special dividend > ENGINEERING SUSTAINABLE VALUE 11 2016 Results Year ended 31st December 2016 >
Underlying margin factors Effects on underlying margins* 2016 2017 Currency movements Operating leverage Sales pricing (vs. inflation) Material prices (constant currency) Manufacturing strategies Business and product mix Business development investment * The arrows as shown are qualitative and indicate direction only. > ENGINEERING SUSTAINABLE VALUE 12 2016 Results Year ended 31st December 2016 >
Nicholas Anderson Operations and Outlook > ENGINEERING SUSTAINABLE VALUE 13 2016 Results Year ended 31st December 2016 >
Annual IP growth rates by quarter 2012-2017 Projected Actual 5.0% Developed (OECD) Feb. 17 Emerging (Non-OECD) Feb. 17 Global Feb. 17 4.0% Average ≅ 1.9% 3.0% 2.0% 1.7% 1.0% 0.5% 0.0% H1/16 ≅ 0.0% -1.0% -2.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2015 2016 2017 > ENGINEERING Source: CHR Economics – February 2017 SUSTAINABLE VALUE 14 2016 Results Year ended 31st December 2016 >
Europe, Middle East and Africa (EMEA) 31 st Dec 31 st Dec 2015 2016 Organic ⁺ Reported Exchange Organic Disposal Sales £219.4m £234.3m +1% +7% £17.5m £1.4m (£4.0m) Op profit* £42.7m £50.0m +10% +17% £3.6m £4.5m (£0.8m) Margin* 19.5% 21.3% +180 bps +190 bps ⁺ Organic measures are at constant currency and exclude acquisitions and disposals. * See Appendix IV for definition of adjusted profit measures. Organic sales up 1%; operating profit up 10% • Industrial Production growth remained very low, around 1% • Sales growth in the UK and Germany, lower in France and Italy • Strong currency tailwind more than off-set M&M disposal in 2015 • Manufacturing efficiencies boost profit margin by 140 bps 31% • Well positioned for another challenging year • of Group sales > ENGINEERING SUSTAINABLE VALUE 15 2016 Results Year ended 31st December 2016 >
Asia Pacific 31 st Dec 31 st Dec Acquisition/ 2015 2016 Organic ⁺ Reported Exchange Organic Disposal Sales £171.8m £193.3m +3% +13% £15.4m £6.1m - Op profit* £44.7m £49.9m +1% +12% £4.9m £0.3m - Margin* 26.0% 25.8% -70 bps -20 bps ⁺ Organic measures are at constant currency and exclude acquisitions and disposals. * See Appendix IV for definition of adjusted profit measures. Organic sales up 3%, ahead in almost all countries • China performed strongly, self-generated sales and profits up • Korea sales and profit slightly higher; project sales carried over from 2015 • State-of-the-art manufacturing facility opened in India • Investments for growth reduce profit margins by 20 bps • 25% Well positioned to self-generate growth in soft markets • of Group sales > ENGINEERING SUSTAINABLE VALUE 16 2016 Results Year ended 31st December 2016 >
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