Spirax Group Plc. · LSE:SPX
Spirax — Spirax-Sarco Engineering — FY2016 Earnings Presentation
29 slides from Spirax's earnings presentation, February 2017
Slide 1: 2016 Results
> ENGINEERING SUSTAINABLE VALUE > 2016 RESULTS YEAR ENDED 31ST 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 20
Slide 2: Agenda
Agenda 2016 Highlights 2016 Financial Review Bill Whiteley Operations and Outlook Appendices Nicholas Anderson Kevin Boyd > ENGINEERING 1 2016 Results Year ended 31st December 2016 SUSTAINABLE VALUE >
Slide 3: 2016 Highlights
Bill Whiteley 2016 Highlights > ENGINEERING 2 2016 Results Year ended 31st December 2016 SUSTAINABLE VALUE >
Slide 4: 2016 Highlights
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
Slide 5: 2016 Financial Review
Kevin Boyd 2016 Financial Review > ENGINEERING 4 2016 Results Year ended 31st December 2016 SUSTAINABLE VALUE >
Slide 6: Financial performance
Financial performance 2016 2015 Reported Organic⁺ • Organic sales +4%; Revenue £757.4m £667.2m +14% +4% growth in all divisions of the Operating profit* £180.6m £152.4m +18% +8% Steam Specialties Operating profit margin* 23.8% 22.8% +100 bps +80 bps business and Watson-Marlow Net finance expense (£2
Slide 7: Sales bridge
Sales bridge Increase in sales £m • Currency (FX) gain 760 7.3 of 8% H2 2016 16.6 • Total organic⁺ H1 2016 growth of 4%; 740 13.7 757.4 Steam Specialties over 2%, Watson- 52.6 720 Marlow 10% • Acquisitions net of 700 disposal add 1% 680 660 667.2 640 ⁺ Organic measures are at constant currency and e
Slide 8: Profit bridge
Profit bridge Increase in adjusted operating profit • Adjusted operating £m profit* +18% 180 • Significant exchange benefit 9.4 180.6 2.3 0.5 • 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
Slide 9: Record operating margin of 23.8%
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
Slide 10: Currency movements
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-weight
Slide 11: Strong cash flow
Strong cash flow Pounds (£) million 2016 2015 • Strong cash Adjusted operating profit* 180.6 152.4 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 Adju
Slide 12: Dividend growth
Dividend growth 200.0 120p • Total dividend up 180.0 10% to 76.0p • Final dividend up 160.0 100p 11% to 53.5p 140.0 Pence per share • Dividend cover of 120.0 2.3x • 49 years of dividend 100.0 growth with a CAGR +10% 80.0 25p +7% of 11% +9% +11% 60.0 +14% +8% +19% 53.5p 40.0 +11% +8% +13% 20.0 22.5p
Slide 13: Underlying margin factors
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 indic
Slide 14: Operations and Outlook
Nicholas Anderson Operations and Outlook > ENGINEERING 13 2016 Results Year ended 31st December 2016 SUSTAINABLE VALUE >
Slide 15: Annual IP growth rates by quarter 2012-2017
Annual IP growth rates by quarter 2012-2017 Actual Projected 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% -1.0% H1/16 ≅ 0.0% -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
Slide 16: Europe, Middle East and Africa (EMEA)
Europe, Middle East and Africa (EMEA) 31st Dec 31st Dec 2015 Exchange Organic Disposal 2016 Organic⁺ Reported Sales £219.4m £17.5m £1.4m (£4.0m) £234.3m +1% +7% Op profit* £42.7m £3.6m £4.5m (£0.8m) £50.0m +10% +17% Margin* 19.5% 21.3% +180 bps +190 bps ⁺ Organic measures are at constant currency an
Slide 17: Asia Pacific
Asia Pacific 31st Dec Acquisition/ 31st Dec 2015 Exchange Organic Disposal 2016 Organic⁺ Reported Sales £171.8m £15.4m £6.1m - £193.3m +3% +13% Op profit* £44.7m £4.9m £0.3m - £49.9m +1% +12% Margin* 26.0% 25.8% -70 bps -20 bps ⁺ Organic measures are at constant currency and exclude acquisitions and
Slide 18: Americas
Americas 31st Dec 31st Dec 2015 Exchange Organic Acquisition 2016 Organic⁺ Reported Sales £123.4m £5.6m £6.2m £0.7m £135.9m +5% +10% Op profit* £27.1m £0.2m £2.6m (£0.7m) £29.2m +9% +8% Margin* 22.0% 21.5% +90 bps -50 bps ⁺ Organic measures are at constant currency and exclude acquisitions and dispo
Slide 19: Watson-Marlow
Watson-Marlow 31st Dec 31st Dec 2015 Exchange Organic Acquisitions 2016 Organic⁺ Reported Sales £152.6m £14.1m £16.6m £10.6m £193.9m +10% +27% Op profit* £48.0m £5.7m £8.6m £2.0m £64.3m +16% +34% Margin* 31.4% 33.1% +180 bps +170 bps ⁺ Organic measures are at constant currency and exclude acquisitio
Slide 20: Implementing our strategy for organic growth
Implementing our strategy for organic growth Notable progress in 2016 • Strengthened direct sales sectorisation, accelerating growth • Established the Spirax-Sarco Academy • New operating companies in Vietnam, Canada, Ireland • Innovative product launches, leveraging R&D investments • Improving supp
Slide 21: Case study: Shanghai Totole Food Ltd, China
Case study: Shanghai Totole Food Ltd, China Engineering sustainable value through innovative solutions • Problem: high energy costs. • Requirement: recovery of waste heat from boiler exhaust gases. • Solution: Spirax-Sarco engineered a system using an economiser and heat exchangers to recover heat a
Slide 22: Case study: Goldsteig Käsereien Bayerwald, Germany
Case study: Goldsteig Käsereien Bayerwald, Germany Engineering sustainable value through product innovation • Problem: pumping of shear-sensitive fluids. • Requirement: gentle handling of cream and whey. Hygienic and easy to clean pump. • Solution: the new MasoSine Certa™ pump from Watson-Marlow. •
Slide 23: Summary and outlook
Summary and outlook • Sales up 14%, operating profit up 18% • Operating margin increased to record 23.8% • Robust cash generation, 101% cash conversion • Dividend increased 10% • Implementing strategy for organic growth • In 2017, prioritise investments for growth over further margin expansion • Exp
Slide 24: Spirax-Sarco Engineering plc
Spirax-Sarco Engineering plc Full year results for year ended 31st December 2016 • Outperforming our markets • Generating consistent growth • Creating shareholder value > ENGINEERING 23 2016 Results Year ended 31st December 2016 >SUSTAINABLE VALUE
Slide 25: Appendices
> ENGINEERING SUSTAINABLE VALUE > APPENDICIES 24 2016 Results Year ended 31st December 2016
Slide 26: Appendix I - Return on capital employed
Appendix I - Return on capital employed Pounds (£) million 2016 2015 Working Capital Inventories 112.5 92.5 Trade receivables 185.5 152.1 Prepayments, other current assets 38.8 35.3 Trade, other payables & current tax (128.6) (105.3) Total working capital 208.2 174.6 Property, plant & equipment 201.
Slide 27: Appendix II - Cash conversion
Appendix II - Cash conversion Pounds (£) million 2016 2015 Adjusted cash generated from 182.7 145.5 operations Adjusted Operating Profit* 180.6 152.4 Cash conversion 101% 95% * See Appendix IV for definition of profit measures. > ENGINEERING 26 2016 Results Year ended 31st December 2016 > SUSTAINABL
Slide 28: Appendix III - Currencies
Appendix III - Currencies • Bank of England Average exchange rates sterling index 2015 2016 % 2017* % weakened by 10% Spirax weighted index 100.0 92.1 +8% 86.4 +6% overall Bank of England index 91.4 82.3 +10% 77.4 +6% US$ 1.53 1.36 +11% 1.24 +9% Euro 1.38 1.23 +11% 1.17 +5% RMB 9.60 9.00 +6% 8.56 +5
Slide 29: Appendix IV - 2016 note on profit measures
Appendix IV - 2016 note on profit measures The Group uses adjusted figures as key performance measures in addition to those reported under adopted IFRS. The Group’s management believes these measures provide valuable additional information for users of the financial statements in understanding the G
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