SpiraxSarco Engineering plc

1
Spirax-Sarco Engineering plc
Spirax-Sarco Engineering plc 2008 Preliminary
Results 31st December 2008
Mike Townsend Chairman Mark Vernon Chief
Executive David Meredith Finance Director
2
Overview of 2008 results
2008 2007 Change Revenue 502.3m 417.3m 20
Operating profit 85.7m 68.7m 25
Margin 17.1 16.5 Pre-tax profit 90.1m
72.8m 24 EPS 83.4p 65.5p 27 DPS 33.3p
29.9p 11

• 20 sales growth well-spread across all
  geographies (10 at constant currency)
• 25 increase in operating profit (11 at
  constant currency)
• Significant exchange benefits
• Seventh consecutive year of margin improvement
  to 17.1
• Dividend up 11 for the year
• Net cash balance increased to 17m

Operating profit, Pre-tax profit and EPS
exclude amortisation of acquisition-related
intangible assets of 1.9m (2007 0.6m), and
impairment of goodwill and acquisition-related
intangible assets of 3.1m (2007 nil). The tax
effects on these items was 0.9m
3
Revenue changes
Continental North
UK Europe
Asia America ROW Exchange 4.9m
13.5m 7.4m 8.4m 11.7m
39.1m
2008 increase UK and ROI 11 Cont. Europe
8 Asia 8 N. America 10 Rest of world
20 Exchange 9 20 9
m
/- YOY H1 H2 Year Organic Sales
10 7 9 Acquisitions 2 1 2 Exchange 7
12 9 Total 19 21 20
Sales are based on the geographical location of
the customer and are shown at constant exchange
rates.
4
Operating profit changes
Continental North
UK Europe Asia
America ROW Exchange
2.7m 1.9m 0.6m 1.4m
2.0m 8.3m
2008 increase UK and ROI 25 Cont. Europe
6 Asia 3 N. America 19 Rest of world
34 Exchange 12 25
m
/- YOY H1 H2 Year Operating profit 29 21 25
Op margin 2008 17.1 17.0 17.1 Op margin
2007 15.8 17.1 16.5
Segmental splits are shown at constant
exchange rates.
5
Financial aspects
2008 2007 change Revenue 502.3m 417.3m 20
Operating profit 85.7m 68.7m 25
Margin 17.1 16.5 Net finance income 1.7m
2.4m Associates 2.7m 1.6m Profit before
tax 90.1m 72.8m 24 Tax rate (excl
Associates) 30.0 32.3 EPS 83.4p 65.5p 27
DPS 33.3p 29.9p 11

• Good exchange gains, especially Europe
• Tax rate down to 30.0
• Strong results in Associates India Mexico
• Strong EPS growth
• Dividend up 11

6
Cash flow
2008 (m) Operating profit 85.7 Depreciation
and share-based 16.8 Working capital (11.4) Cash
generated from operations 91.1 Interest
paid (0.2) Tax paid (22.1) Capital expenditure
(net incl Development) (26.5) Dividends
paid (23.2) Underlying cash flow 19.0 Special
pension payments (3.3) Treasury shares purchased
(net) (2.8) Acquisitions (13.9) Cash flow for
year (0.9)
m Net cash 31.12.07 15.8 Cash
flow (0.9) Exchange 2.5 Net cash 31.12.08 17.4

• Good underlying cash flow of 19.0 despite higher
  capex
• Acquisitions, share buy-back and special pension
  contributions of 20.0m
• Closing net cash of 17.4m

7
2009 Items to note

• Capital expenditure
• Expect 40m investment in 2009 including
• New China facility 14m 2009 and Q1 2010
• Watson-Marlow tubing plant 5m opening late
  2009
• Cheltenham manufacturing site consolidation 6m
  in 2009 and 5m in 2010. Progressive occupation
  starting in Q1 2010
• Net interest
• IAS19 net pension scheme financial income
  expected to reduce by 3.7m
• Fall in pension scheme asset values in 2008
• Bank interest receivable reduced by estimated 1m
  due to lower interest income on cash deposits
• Cost containment
• Expected pre-tax charge of 7m in 2009 to reduce
  headcount
• Largely back office, support functions and
  manufacturing in all regions
• Annualised benefits of approximately 8m
• Anticipate over half to be realised in 2009
  mostly second half
• Fully realised in 2010

8
Key financial statistics

• 2008 2007
• Operating profit margin 17.1 16.5
• Amortisation of acquisition intangibles 1.9m 0.6
  m
• Impairment of goodwill intangibles 3.1m -
• Sales per employee 4 9
• Net cash 17.4m 15.8m
• Cash from operations 91.1m 80.2m
• Capital expenditure as of depreciation 164 122
  
• Cash conversion 75 93
• Pension liability IAS19 basis (after tax) 49.2m
  14.7m
• Return on capital employed 35.5 33.6

App I EPS / DPS App II ROCE App III Cash
Conv App IV Currencies

• 7th year of Operating profit margin increase
• Closure of UltraPure Non-cash Impairment charge
  3.1m (mostly goodwill)
• 784,000 shares bought-in for Treasury
• Lower cash conversion higher capex working
  capital
• Further increase in ROCE

Excludes special pension contributions of 3.3m
in 2008 (2007 5.7m)
9
Segmental analysis of revenue
UK Republic of Ireland 9.8
2008 2007 UK 9.8
10.5 Europe 37.9 36.8 Asia 19.3
20.4 N Am 19.1 19.4 ROW 13.9
12.9 100.0 100.0
Continental Europe 37.9
North America 19.1
Asia 19.3
Rest of World South America, Africa, Australasia
13.9

• Good geographic spread serving very diverse
  industries
• Major manufacturing operations on nearly all
  continents expansion in Asia
• Direct sales channel in most markets close to
  customers

Sales are by geographical location of the customer
10
UK Republic of Ireland
constant 2008 2007 change
currency Sales to customers 49.2m 44.0m 12 1
1 Sales by operation 125.4m 117.2m
7 7 Operating profit 13.3m 13.4m
0 25 Margin 10.6 11.4

• UK market increasingly challenging
• Domestic sales up 11
• Good growth in steam system services and
  prefabricated heat exchange packages
• Demand on factories increased
• Exchange transaction expense on factories lowered
  margin

Sales by operation comprise customer and
intra-group sales. Margin is Operating profit as
of sales by operation
11
Continental Europe
constant 2008 2007 change
currency Sales to customers 190.6m 153.7m 24
8 Sales by operation 241.0m 189.9m
27 10 Operating profit 36.7m 26.3m
40 6 Margin 15.2 13.8

• Profit up 40 including exchange gains
• Sales up 8 in constant currency (half from
  acquisitions)
• Widespread steady growth
• Good growth in Watson-Marlow and prefabricated
  packages
• Markets slowed from late summer

Sales by operation comprise customer and
intra-group sales. Margin is Operating profit as
of sales by operation
12
Asia
constant 2008 2007 change
currency Sales to customers 97.0m 85.3m 14 8
Sales by operation 93.1m 79.8m
17 11 Operating profit 18.7m 16.6m
12 3 Margin 20.1 20.9

• Economic activity generally good weakening
  Korean market later in 2008
• Exchange gain from stronger renminbi
• Good performances in China and South-east Asia
• Lower profits in Korea due to currency disbenefit
  and product mix
• India (an Associate) delivered strong results
  from good project activity

Sales by operation comprise customer and
intra-group sales. Margin is Operating profit as
of sales by operation
13
North America
constant 2008 2007 change
currency Sales to customers 95.9m 80.8m 19 1
0 Sales by operation 97.7m 81.5m
20 11 Operating profit 8.9m 7.3m
22 19 Margin 9.1 9.0

• Sales ahead 10 in constant currency (small
  contribution from Flexicon)
• Good sales of traditional products, heat exchange
  packages, Watson-Marlow
• FX transaction disbenefit and UltraPure closure
  costs of 1.1m held back margin
• Mexico (an Associate) performed well
• Intangible asset impairment charge 3.1m (largely
  goodwill) in Statutory results

Sales by operation comprise customer and
intra-group sales. Margin is Operating profit as
of sales by operation Operating profit
excludes UltraPure non-cash 3.1m impairment
charge (largely goodwill)
14
Rest of the world
constant 2008 2007 change
currency Sales to customers 69.7m 53.6m 30 2
0 Sales by operation 68.0m 54.1m
26 16 Operating profit 8.1m 5.1m
57 34 Margin 11.8 9.5

• Sales up 20 at constant currency widespread
  growth
• Particular good results in South America,
  Australia and Watson-Marlow South Africa
• Restructured Spirax South African operation
  expect profit improvement
• Strong profit increase and improved margin

Sales by operation comprise customer and
intra-group sales. Margin is Operating profit as
of sales by operation
15
Additional investments in 2009

• Despite gloom of economic environment we see
  opportunities to invest to strengthen market
  position.
• Modest geographic expansion in developing
  markets China, Eastern Europe, Middle East and
  Latin Americaexpect to add about 60 people.
• Further growth in China.
• Increased product development in Cheltenham and
  Falmouth 15 expenditure increase.
• Large capital expenditure program to expand
  facilities in growth areas, consolidate
  Cheltenham manufacturingabout 25m in 2009.

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Investing for long term delivers results
Key EPS DPS
Pence per share
41 year dividend record
83.4
65.5 58.1 38.5
43.1 50.2 38.3 34.5 36.1
37.4 34.4 35.3 27.9 33.8 38.0 9.9 11.5
13.2 14.8 15.8 16.5 17.3 18.0 18.6
19.3 20.1 21.4 23.8 26.5 29.9 33.3
21.6
93 94 95 96 97 98 99 00 01 02 03
04 05 06 07 08
Figures exclude non-operating and exceptional
items From 2004 figures prepared under IFRS and
exclude amortisation and impairment of acquired
intangibles
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Well-Positioned to Maximise Market Opportunities

• Strong market presence
• Broad geographic reach
• Financially strong
• Diversified industry and customer base
• World leader in steam specialties and
  peristaltics
• Well-respected brands
• Excellent track record of performance
• Unmatched direct selling organisation
• Over 1,300 sales service engineers worldwide
• Provide knowledge solutions for higher margins
• Close to customers, trends and applications

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Well-Positioned to Maximise Market Opportunities

• Expanded product range to capture higher amount
  of customer spend and create new markets
• Controls and flow meters
• Heat exchange packages
• Pure steam generators
• Audit and consulting services
• Derivative peristaltic pumps and systems

Electromagnetic flow meter
SPIRA-TROL control valve
Pure Steam Generator
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Spirax Sarco Engineering plc

• Focused on consistent growth and
• creating shareholder value

20
Questions?
Spirax-Sarco Engineering plc 2008 Preliminary
Results 31st December 2008
Questions
21
Appendix Return on capital employed

• m 2008 2007
• Capital Employed
• Property, plant equipment 122.9 93.9
• Inventories 102.4 73.8
• Trade receivables 124.6 98.1
• Prepayments, other current assets 14.9 11.7
• Trade, other payables current
  tax (93.0) (67.1)
• 271.8 210.4
• Average Capital Employed 241.1 204.8
• Operating Profit
• As reported 81.0 68.3
• Amortisation/impairment of acqn intangibles
  4.7 0.4
• 85.7 68.7
• ROCE 35.5 33.6

Further improvement in ROCE in 2008
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Appendix Cash conversion

• m 2008 2007
• Cash generated from operation 87.8 74.5
• Net capital expenditure (property, plant
• equipment, software and development) (26.5) (16.5
  )
• Add back special pension payments 3.2
  5.7
• 64.5 63.7
• Operating Profit 81.0 68.3
• Amortisation of acquisition intangibles 4.7
  0.4
• 85.7 68.7
• Cash conversion 75 93

Cash conversion in 2008 held back by higher
capex
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Appendix - Currencies
Recent exchange rates would give
further exchange benefits in 2009

• Year First Half Year
• 2007 2008 2008
• Average exchange rates
• Bank of England sterling index 103.3 94.4
  90.7
• US 2.00 1.99 1.85
• Euro 1.46 1.30 1.26
• RMB 15.21 14.01 12.90
• Won 1,858 1,954 1,998
• Period end exchange rates
• Bank of England sterling index 96.8 93.2
  73.8
• US 1.99 1.99 1.44
• Euro 1.36 1.26 1.03
• RMB 14.54 13.64 9.81
• Won 1,863 2,082 1,811

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Appendix Sources of growth

• Geographic expansion - new and increased
  penetration
• Market share - traditional and newer products
• Product additions and developments
• Focus on market segments where we are
  under-represented
• Increased sales coverage
• Increase in industrial activity
• Acquisitions

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Spirax Sarco Korea handles entire project for
Dongbu

• Dongbu Corporation - a major construction company
  in South Korea
• Spirax Sarco heat exchanger packaged solutions
  meant
• Spirax Sarco Korea provided the engineering,
  construction products
• Utilised 30 bar g / 300C superheated steam
• Provided a constant temperature of hot water at
  10 bar g / 120C
• Also provided low temperature hot water for
  domestic water and heating
• Other benefits included
• Shortened period of construction
• Delegation of responsibility for the project to
  Spirax Sarco Korea

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Abbey Corrugated achieves special accreditation

• Abbey Corrugated produces 160 million square
  metres of corrugated board annually at its site
  in Blunham, Bedfordshire.
• Plant steam used mainly to heat the plates and
  rollers in its 3 corrugators.
• Abbey Corrugated became one of just 12
  organisations across England and Scotland to be
  awarded the coveted Carbon Trust Standard.
• Spirax Sarco system was the most valuable energy
  saving project undertaken by Abbey Corrugated.
• Manager, Paul Gale "savings from this
  project were in the region of 25 of the gas used
  by the boiler."