Spirax Group Plc. · LSE:SPX
Spirax — Spirax-Sarco Engineering — FY2018 Earnings Presentation
30 slides from Spirax's earnings presentation, February 2019
Slide 1: 2018 Results
2018 RESULTS YEAR ENDED 31ST DECEMBER 2018 Nicholas Anderson (Group Chief Executive) Kevin Boyd (Chief Financial Officer) 0 2018 Results Year ended 31st December 2018 Engineering Sustainable Growth
Slide 2: Agenda
Agenda 2018 Highlights Nicholas Anderson 2018 Financial Review Kevin Boyd Operations and Outlook Nicholas Anderson 1 2018 Results Year ended 31st December 2018 Engineering Sustainable Growth
Slide 3: 2018 Highlights
2018 Highlights • Revenue growth over 15%; organic sales growth over 7%⁺ • Adjusted operating profit growth over 12%* • Adjusted operating margin of 23.0%*; organic margin up 120 bps to 25.2% • Strong organic growth in Steam Specialties, Watson‐Marlow and Chromalox • Acquisitions performing in line
Slide 4: Agenda
Agenda 2018 Highlights Nicholas Anderson 2018 Financial Review Kevin Boyd Operations and Outlook Nicholas Anderson 3 2018 Results Year ended 31st December 2018 Engineering Sustainable Growth
Slide 5: Financial performance
Financial performance Strong organic growth, plus full‐year contribution from acquisitions • Organic sales up 7%; growth in all segments of 2018 2017 Reported Organic⁺ Steam Specialties Revenue £1,153.3m £998.7m +15% +7% and Watson‐ Marlow Operating profit* £264.9m £235.5m +12% +12% • Good contribut
Slide 6: Sales bridge
Sales bridge Increase in sales 1,200 • Currency (FX) loss 21.5 of 2% 15.6 15.7 113.2 10.0 • Total organic⁺ 1,100 growth of over 7%; Steam Specialties (21.4) +7%, Watson‐ 1,000 Marlow +9% • Acquisitions and a 1,153.3 Sales £m disposal added a 900 net 12% 800 998.7 700 ⁺ Organic measures are at consta
Slide 7: Profit bridge
Profit bridge Increase in adjusted operating profit 280 • Adjusted operating profit* 8.1 0.4 +12% 260 10.3 • 4% currency (FX) 7.6 headwind 13.6 (0.9) 240 (9.7) • Benefit from Argentine peso 220 devaluation 264.9 Profit £m • Acquisitions and a 200 disposal added a net 6% 235.5 • Organic profit 180 gr
Slide 8: Operating margin
Operating margin • Excluding 2017 acquisitions, 25.2% 25% 24.6% margin up 120 bps organically to 25.2% • Steam Specialties 20% margin up 120 bps organically • Watson‐Marlow 23.8% 23.6% 23.0% 22.0% 22.5% 22.8% margin up 50 bps 20.6% 20.6% 15% 20.2% organically 17.3% • Margin excluding HygroMatik and
Slide 9: Strong cash flow
Strong cash flow Adjusted cash flow Pounds (£) million 31st December 31st December 2018 2017 Adjusted operating profit* 264.9 235.5 • Good cash Depreciation and amortisation 32.9 31.6 generation; 91% cash conversion Adjusted earnings before interest, tax, depreciation and amortisation 297.8 267.1 Pe
Slide 10: Dividend growth
Dividend growth 200.0 • Total dividend up 120p 14% to 100.0p 180.0 • Final dividend up 160.0 100p 15% to 71.0p 140.0 • Maintains dividend Pence per share 120.0 cover at 2.5x +14% • 51 years of 100.0 +15% dividend progress 80.0 +10% 25p +7% with a CAGR of +9% 11% 60.0 +8% +11% +14% +19% 40.0 +8% 20.0
Slide 11: Underlying margin drivers
Underlying margin drivers Effects on margins* 2018 2019 Currency movements Operating leverage Sales pricing (vs. inflation) Manufacturing strategies Business and product mix Business development investment Impact of acquisitions and disposals * The arrows as shown are qualitative and indicate direct
Slide 12: Agenda
Agenda 2018 Highlights Nicholas Anderson 2018 Financial Review Kevin Boyd Operations and Outlook Nicholas Anderson 11 2018 Results Year ended 31st December 2018 Engineering Sustainable Growth
Slide 13: Annual IP growth rates by quarter 2012-2019
Annual IP growth rates by quarter 2012‐2019 6.0% Developed (OECD) Emerging (Non‐OECD) Global 5.0% 4.0% 3.6% 3.0% 3.3% 2.6% 2.0% 1.7% 1.0% 0.6% 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 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2015 2016 2017 2018 2019 Prel
Slide 14: Steam Specialties: Europe, Middle East and Africa
Steam Specialties Europe, Middle East and Africa Acquisitions 2017 2017 31st Dec and 31st Dec Base Acquisitions 2017 Exchange Organic disposals 2018 Organic⁺ Reported Sales £259.5m £45.8m £305.3m £0.8m £10.0m £28.3m £344.4m +4% +13% Op profit* £59.0m £7.1m £66.1m £0.5m (£0.9m) £3.6m £69.3m ‐1% +5% M
Slide 15: Steam Specialties: Asia Pacific
Steam Specialties Asia Pacific 2017 2017 31st Dec 31st Dec Base Acquisitions 2017 Exchange Organic Acquisitions 2018 Organic⁺ Reported Sales £215.9m £2.1m £218.0m (£2.3m) £15.7m £1.3m £232.7m +7% +7% Op profit* £56.9m £0.0m £56.9m (£0.7m) £7.6m £0.1m £63.9m +13% +12% Margin* 26.1% 27.5% +150 bps +14
Slide 16: Steam Specialties: Americas
Steam Specialties Americas 2017 2017 31st Dec 31st Dec Base Acquisitions 2017 Exchange Organic Acquisitions 2018 Organic⁺ Reported Sales £148.5m £3.6m £152.1m (£13.7m) £15.6m £2.4m £156.4m +12% +3% Op profit* £31.1m £0.5m £31.6m (£5.5m) £10.3m £0.5m £36.9m +40% +17% Margin* 20.8% 23.6% +490 bps +280
Slide 17: Chromalox
Chromalox 31st Dec 31st Dec (For reference only) 2017 Exchange Organic Acquisitions 2018 Full Year 2017⁺ Sales £75.1m (£1.7m) ‐ £81.2m £154.6m £142m +9% Op profit* £13.8m (£0.4m) ‐ £9.4m £22.8m £25m ‐10% Margin* 18.4% 14.7% 17.8% ‐310 bps ⁺ At constant currency. * See Appendix IV for definition of a
Slide 18: Watson-Marlow
Watson‐Marlow 2017 2017 31st Dec 31st Dec Base Acquisitions 2017 Exchange Organic Acquisitions 2018 Organic⁺ Reported Sales £248.2m ‐ £248.2m (£4.5m) £21.5m ‐ £265.2m +9% +7% Op profit* £80.3m ‐ £80.3m (£3.6m) £8.1m ‐ £84.8m +11% +6% Margin* 32.4% 32.0% +50 bps ‐40 bps ⁺ Organic measures are at cons
Slide 19: Notable progress in 2018
Notable progress in 2018 • Spirax Sarco Academy programmes extended: ‐ Covering over 1,200 sales engineers and sales support staff across 60 countries ‐ Group EH&S, Sustainability, ABC training rolled out via Academy platform (+5,200 users) • Geographical expansion: ‐ 5 new sales companies across Sp
Slide 20: Exclusive negotiations to acquire Thermocoax
Exclusive negotiations to acquire Thermocoax Announced 18th February 2019 • Consideration: €158 million (£139m) • Designs and manufactures highly engineered • Multiple of 12.2x EBITDA 2018 electrical thermal solutions for critical applications in high added‐value industries • Completion expected Q2
Slide 21: Our purpose: increasing process efficiency
Our purpose: increasing process efficiency Reducing virus filtration times, USA The issue: challenging process efficiency requirements in high‐volume, two‐stage virus purification, filtration and concentration process, in biopharmaceutical manufacture The solution: Quantum 600 bioprocessing pump; de
Slide 22: Our purpose: improving product quality
Our purpose: improving product quality Maximising rice grain length, India The issue: steam system inefficiencies causing low dryer temperature, leading to rice grain breakage in de‐husking process The solution: engineered solution with automatic pump traps, steam injectors, 3% temperature and press
Slide 23: Our purpose: providing safer working environments
Our purpose: providing safer working environments Safely warming liquefied natural gas, USA Reduced risk of explosion The issue: cooled to ‐160°C, natural gas liquefies, improving ease of transportation $200,000 and storage; however, pumps and pipes can per annum saved in freeze, requiring controlle
Slide 24: Summary and Outlook
Summary and Outlook • Reported revenue up over 15%; organic revenue up over 7% • Operating profit up over 12% on reported and organic basis • Operating margin 23.0%; organic margin up 120 bps to 25.2% • Overall performance of Gestra and Chromalox in line with expectations • Global IP growth rates fo
Slide 25: Spirax-Sarco Engineering plc
Spirax‐Sarco Engineering plc Full year results for year ended 31st December 2018 Engineering opportunities for growth; creating shareholder value 24 2018 Results Year ended 31st December 2018 Engineering Sustainable Growth
Slide 26: Appendices
Appendices 25 2018 Results Year ended 31st December 2018 Engineering Sustainable Growth
Slide 27: Appendix I - Return on capital employed
Appendix I ‐ Return on capital employed Pounds (£) million 2018 2017 Working Capital Inventories 160.6 145.4 Trade receivables 245.1 237.5 Prepayments and other current assets 43.7 46.3 Trade, other payables, current provisions and current tax (195.7) (176.9) Total working capital 253.7 252.3 Proper
Slide 28: Appendix II - Cash conversion
Appendix II ‐ Cash conversion Pounds (£) million 2018 2017 Adjusted cash generated from operations 242.1 202.6 Adjusted Operating Profit* 264.9 235.5 Cash conversion 91% 86% * See Appendix IV for definition of profit measures. 27 2018 Results Year ended 31st December 2018 Engineering Sustainable Gro
Slide 29: Appendix III - Currencies
Appendix III ‐ Currencies Average exchange rates 2017 2018 % Spirax weighted index 100.0 102.4 ‐2% Bank of England index 77.6 78.3 ‐1% US$ 1.30 1.33 ‐2% Euro 1.15 1.13 +2% RMB 8.75 8.82 ‐1% Won 1,464 1,461 +0% Brazilian Real 4.16 4.85 ‐17% Argentine Peso 21.68 37.44 ‐73% 28 2018 Results Year ended 3
Slide 30: Appendix IV - 2018 note on profit measures
Appendix IV ‐ 2018 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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