Spirax Group Plc. · LSE:SPX
Spirax — Spirax-Sarco Engineering — FY2017 Earnings Presentation
31 slides from Spirax's earnings presentation, February 2018
Slide 1: 2017 Results
2017 RESULTS YEAR ENDED 31ST DECEMBER 2017 Bill Whiteley (Chairman) Nicholas Anderson (Group Chief Executive) Obadah Zaher (Research Team Leader) and Jagoda Cieslik (Year in Industry Student, R&D) reviewing a steam system’s health using a SIMS™ software and energy monitoring solution from Spirax Sar
Slide 2: Agenda
Agenda 2017 Highlights Bill Whiteley 2017 Financial Review Operations and Outlook Nicholas Anderson 1 2017 Results Year ended 31st December 2017 Engineering Opportunities
Slide 3: 2017 Highlights
2017 Highlights • Organic sales growth of 6% 2017 2016 • Adjusted operating margin Reported sales £998.7m £757.4m of 23.6% Organic sales growth⁺ +6% +4% • Good growth in Steam Operating profit margin* 23.6% 23.8% Specialties and Watson- EPS* 220.5p 171.5p Marlow DPS 87.5p 76.0p • Acquisitions perfor
Slide 4: Agenda
Agenda 2017 Highlights Bill Whiteley 2017 Financial Review Operations and Outlook Nicholas Anderson 3 2017 Results Year ended 31st December 2017 Engineering Opportunities
Slide 5: Financial performance
Financial performance 2017 2016 Reported Organic⁺ • Organic sales up 6%; Revenue £998.7m £757.4m +32% +6% growth in all Operating profit* £235.5m £180.6m +30% +6% segments of Steam Specialties and Operating profit margin* 23.6% 23.8% -20 bps +0 bps Watson-Marlow Net finance expense (£6.4m) (£2.6m) •
Slide 6: Sales bridge
Sales bridge Increase in sales £m 154.8 • Currency (FX) gain 1,000 H2 2017 of 5% H1 2017 950 • Total organic⁺ 998.7 growth of 6%; 900 Steam Specialties 20.2 +5%, Watson- 850 27.9 Marlow +10% 38.4 800 • Acquisitions add 20% 750 700 757.4 650 600 ⁺ Organic measures are at 550 constant currency and exc
Slide 7: Profit bridge
Profit bridge Increase in adjusted operating profit £m • Adjusted operating profit* +30% 240 4.5 (0.2) 3.6 0.4 3.6 • Significant exchange 27.0 benefit adds 9% 220 • Acquisitions add 14% 200 16.0 235.5 • Organic profit growth of 6% 180 160 180.6 140 120 * See Appendix IV for definition of adjusted pr
Slide 8: Operating margin of 23.6%
Operating margin of 23.6% 24.7% • Excluding 25.0% acquisitions, margin improved 90 bps • Steam Specialties 20.0% margin constant. Excluding acquisitions +70 bps 15.0% • WMFTG margin fell; 23.8% 23.6% dilutionary impact 22.0% 22.5% 22.8% 10.0% 20.2% 20.6% 20.6% of Aflex. Excluding 17.1% 17.3% Aflex,
Slide 9: Currency movements
Currency movements FX translation impact on sales 2016-2018 Actual Projected 110 5% actual translation 2% projected translation tailwind on sales headwind on sales 105 100 95 90 H1 2016 H2 2016 H1 2017 H2 2017 H1 2018 H2 2018 Yearly average exchange rate Based on Spirax Sarco sales-weighted currency
Slide 10: Strong cash flow
Strong cash flow 31st December 31st December Adjusted cash flow Pounds (£) million 2017 2016 Adjusted operating profit* 235.5 180.6 • Good cash Depreciation and amortisation 31.6 25.6 generation; 86% cash conversion Adjusted earnings before interest, tax, depreciation and amortisation 267.1 206.2 Pe
Slide 11: Dividend growth
Dividend growth 200.0 120p • Total dividend up 180.0 15% to 87.5p • Final dividend up 160.0 100p 16% to 62.0p 140.0 Pence per share • Dividend cover of 120.0 2.5x • 50 years of dividend 100.0 +15% progress with a +10% 80.0 25p +7% CAGR of 11% +9% +11% 60.0 +14% +8% +19% 40.0 +11% +8% 20.0 0.0 2008 2
Slide 12: Underlying margin factors
Underlying margin factors Effects on underlying margins* 2017 2018 Currency movements Operating leverage Sales pricing (vs. inflation) Manufacturing strategies Business and product mix Business development investment Impact of acquisitions * The arrows as shown are qualitative and indicate direction
Slide 13: Agenda
Agenda 2017 Highlights Bill Whiteley 2017 Financial Review Operations and Outlook Nicholas Anderson 12 2017 Results Year ended 31st December 2017 Engineering Opportunities
Slide 14: Annual IP growth rates by quarter 2012-2017
Annual IP growth rates by quarter 2012-2017 6.0% Developed (OECD) Feb18 Emerging (Non-OECD) Feb18 Global Feb18 5.0% 4.0% 3.4% 3.0% 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 2012 2013 2014 2015 2016 2017 Preliminary data Source: CHR E
Slide 15: Europe, Middle East and Africa
Steam Specialties Europe, Middle East and Africa 31st Dec 31st Dec 2016 Exchange Organic Acquisitions 2017 Organic⁺ Reported Sales £234.3m £12.4m £12.8m £45.8m £305.3m +5% +30% Op profit* £50.0m £5.4m £3.6m £7.1m £66.1m +7% +32% Margin* 21.3% 21.7% +20 bps +40 bps ⁺ Organic measures are at constant
Slide 16: Asia Pacific
Steam Specialties Asia Pacific 31st Dec 31st Dec 2016 Exchange Organic Acquisitions 2017 Organic⁺ Reported Sales £193.3m £9.7m £12.9m £2.1m £218.0m +6% +13% Op profit* £49.9m £3.4m £3.6m £0.0m £56.9m +7% +14% Margin* 25.8% 26.1% +10 bps +30 bps ⁺ Organic measures are at constant currency and exclude
Slide 17: Americas
Steam Specialties Americas 31st Dec 31st Dec 2016 Exchange Organic Acquisitions 2017 Organic⁺ Reported Sales £135.9m £5.8m £2.2m £8.2m £152.1m +2% +12% Op profit* £29.2m £0.9m £0.4m £1.1m £31.6m +1% +8% Margin* 21.5% 20.8% +0 bps -70 bps ⁺ Organic measures are at constant currency and exclude acquis
Slide 18: Chromalox
Chromalox 31st Dec 31st Dec (For reference only) 2016 Exchange Organic Acquisitions 2017 Full Year 2017 Sales £0.0m - - £75.1m £75.1m £146m -2% Op profit* £0.0m - - £13.8m £13.8m £26m +3% Margin* 18.4% 17.8% +80 bps * See Appendix IV for definition of adjusted profit measures. • Since acquisition (J
Slide 19: Watson-Marlow
Watson-Marlow 31st Dec 31st Dec 2016 Exchange Organic Acquisitions 2017 Organic⁺ Reported Sales £193.9m £10.5m £20.2m £23.6m £248.2m +10% +28% Op profit* £64.3m £6.5m £4.5m £5.0m £80.3m +6% +25% Margin* 33.1% 32.4% -110 bps -70 bps ⁺ Organic measures are at constant currency and exclude acquisitions
Slide 20: Implementing our strategy for organic growth
Implementing our strategy for organic growth Notable progress in 2017 • Focus on priority industries; higher organic growth rates • Controls & TEM products: higher growth rate for Steam business • Spirax Sarco Academy: almost 1,100 customer-facing employees; training programmes available in 16 langu
Slide 21: Acquisitions
Acquisitions • Gestra (May) and Chromalox (July): highly complementary to Spirax Sarco business • Increase market share, expand addressable market • Strengthen presence in Germany and USA; geographic expansion opportunities • Both acquisitions share Spirax Sarco direct sales business model • Broaden
Slide 22: Case study: Lithium-ion battery manufacturing
Case study: Lithium-ion battery manufacturing Engineering opportunities… by developing new applications • Problem: high energy costs and safety concerns • Requirement: heating and temperature management in drying ovens • Solution: steam heating of ovens • Result for customers: £140,000 savings per o
Slide 23: Case study: Atlantic Engineering selects Certa pump
Case study: Atlantic Engineering selects Certa™ pump Engineering opportunities… by developing new products • Problem: innovative food packaging machine (Innofill) required a specialist pump • Requirement: low pulsation; gentle handling of viscous fluids; accurate flows; high heat resistance; hygieni
Slide 24: Case study: Chromalox circulation heaters in pharmaceutical bottle filling
Case study: Chromalox circulation heaters help remove moisture during Pharmaceutical bottle filling process Engineering opportunities… by increasing customer efficiency • Problem: residual moisture in bottles after sterilisation process • Requirement: remove moisture; gently warm bottles prior to fi
Slide 25: Summary and outlook
Summary and outlook • Reported revenue up 32%, organic revenue up 6% • Operating profit up 30%, organic increase 6% • Currency tailwind: 5% on sales, 9% on profit • Acquisitions add 20% to sales, 14% to profit • Operating margin 23.6%; underlying margin 24.7% • Total dividend increased 15% • Net deb
Slide 26: Spirax-Sarco Engineering plc
Spirax-Sarco Engineering plc Full year results for year ended 31st December 2017 Engineering opportunities for growth; creating shareholder value 25 2017 Results Year ended 31st December 2017 Engineering Opportunities
Slide 27: Appendices
APPENDICIES 26 2017 Results Year ended 31st December 2017 Engineering Opportunities
Slide 28: Appendix I - Return on capital employed
Appendix I - Return on capital employed Pounds (£) million 2017 2016 Working Capital Inventories 145.4 112.5 Trade receivables 237.5 185.5 Prepayments, other current assets 46.3 38.8 Trade, other payables, current provisions and current tax (176.9) (128.6) Total working capital 252.3 208.2 Property,
Slide 29: Appendix II - Cash conversion
Appendix II - Cash conversion Pounds (£) million 2017 2016 Adjusted cash generated from operations 202.6 182.7 Adjusted Operating Profit* 235.5 180.6 Cash conversion 86% 101% * See Appendix IV for definition of profit measures. 28 2017 Results Year ended 31st December 2017 Engineering Opportunities
Slide 30: Appendix III - Currencies
Appendix III - Currencies Average exchange rates 2016 2017 % 2018* % Spirax weighted index 100.0 94.9 +5% 97.1 -2% Bank of England index 82.3 77.6 +6% 79.0 -2% US$ 1.36 1.30 +4% 1.38 -6% Euro 1.23 1.15 +7% 1.13 +2% RMB 9.00 8.75 +3% 8.75 +0% Won 1,574 1,464 +7% 1,491 -2% Brazilian Real 4.74 4.16 +12
Slide 31: Appendix IV - 2017 note on profit measures
Appendix IV - 2017 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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