2012 Annual Report - Spirax-Sarco Engineering plc

Chairman’s statement
I am pleased to report further progress in 2012
and another year of record sales, profit and
cash generation.
Bill Whiteley
Chairman
Sales increased by 2% from £650.0 million
to £661.7 million. Organic sales growth
was 5%, which continued through the
second half year despite the slowing in
global economic growth. Sales growth
was strongest in Asia Pacific and Watson-
Marlow Pumps, followed by more modest
growth in the Americas and flat organic
sales in Europe, Middle East and Africa
(EMEA). Unfavourable currency
movements reduced sales by 3%.
Operating profit increased by 2% from
£134.0 million to £136.2 million with a
constant currency increase of 6%. The
operating profit margin was unchanged at
last year’s record level of 20.6% with, as
anticipated, a significant improvement in
the second half year. At constant currency
the margin was slightly ahead of last year.
Margins were higher for the year in Asia
Pacific and Watson-Marlow Pumps.
Net finance income reduced from
£1.1 million to £0.4 million due to lower
finance income in respect of the Group’s
defined benefit pension schemes. The
Group’s share of the after tax profits of
our Associate in India reduced from
£2.1 million to £1.9 million due to
unfavourable currency movements.
Pre-tax profit rose 1% to £138.5 million
(2011 : £137.2 million) and at constant
currency, pre-tax profit rose 5%. Adjusted
earnings per share were 1% higher at
125.6p (2011 : 124.8p).
The statutory pre-tax profit was £127.7 million
(2011 : £132.3 million), which was after
charging the usual amortisation of
acquisition-related intangible assets and
acquisition and disposal costs, but also,
in 2012, after recognising exceptional
restructuring costs of £7.2 million (2011 : nil).
Cash generation was at record levels in
2012 and we continue to operate with a
strong balance sheet, finishing the year
with net cash of £51.7 million.
The interim dividend was increased by
8% to 16.0p per share, which was paid in
November 2012. The Board is recommending
an increase in the final dividend of 8% to
37.0p per share payable on 17th May 2013
to shareholders on the register at the close
of business on 19th April 2013. The total
Ordinary dividend is therefore 53.0p per
share (2011 : 49.0p), an increase of 8%.
The cost of the interim and final dividend
is £41.4 million, which is covered 2.4 times
by earnings. In addition, following a review
of the Company’s capital requirements, the
Board is recommending a return of cash to
shareholders of £78 million in the form of
a special dividend of 100.0p per share in
respect of 2012 (2011 : nil) payable on 3rd
July 2013 to shareholders on the register
at the close of business on 31st May 2013.
This is equivalent to approximately 4% of the
market capitalisation of the Company and, as
is common with a significant return of capital,
the Board recommends that this is combined
with a share consolidation to maintain, as far
as possible, the comparability of the share
price before and after the special dividend.
Economic conditions have remained
challenging and the Board expresses its
thanks to all our employees for their
resilience, hard work and dedication in
contributing to the outstanding results in 2012.
In 2012 we were pleased to welcome three
new Board members, Dr Trudy Schoolenberg
as an independent Non-Executive Director,
Nick Anderson as Executive Director for the
steam specialties business in EMEA and Jay
Whalen as Executive Director for Watson-
Marlow Pumps. These Directors bring
considerable knowledge, experience and
diversity to the Board, and we look forward
to their valuable contribution.
Corporate governance
The Board is ultimately responsible for
ensuring that the Group achieves its
strategic objectives, which leads to
sustainable growth in shareholder value.
In doing so, the Board and its Committees
operate to the highest ethical standards
and corporate governance practices,
setting the tone for the entire organisation
and for our other business stakeholders.
We believe that good governance is about
managing the business effectively and
in a way that is honest, transparent and
accountable. Corporate governance reporting
and disclosure best practice have been
developing rapidly. We have taken a further
significant step in our 2012 Annual Report
to improve the explanation of our strategy,
objectives and business model, and to
enhance the disclosures relating to the work
of Board Committees, risk management,
Board remuneration and how we comply
with the provisions of the UK Corporate
Governance Code, all of which I hope you
find interesting and helpful.
Prospects
Global economic growth progressively
slowed throughout 2012 and many European
economies are back in recession. We
anticipate that low rates of industrial production
growth will persist in most of our mature
markets in 2013, with higher rates of growth in
our emerging markets, particularly in Asia.
2013 has started in line with our expectations
and we look to generate our own sales growth
by capitalising on our investments in market
development and in new products, and by
further penetrating our mature markets.
We have developed a robust and resilient
business model, with excellent revenue
diversification across geographic regions,
industries, end-user customers and products,
and with a high proportion of sales coming
from replacement products and from our
customers’ maintenance budgets. These
fundamental strengths, combined with our
growth strategies and the full-year benefits
of the cost reductions in 2012, give the Board
confidence that the Group will make further
progress in 2013.
Bill Whiteley
Chairman
4 Spirax-Sarco Engineering plc Annual Report and Accounts 2012