Spirax-Sarco Regulatory News (SPX)

10 Mar 2008 07:01

Spirax-Sarco Engineering PLC10 March 2008 Monday 10th March 2008 - (embargoed until 7.00 a.m.) 2007 PRELIMINARY ANNOUNCEMENT HIGHLIGHTS Year to 31st DecemberIFRS 2007 2006 Change Revenue £417.3m £384.2m +9%Operating profit £68.3m £61.9m +10%Profit before taxation £72.2m £65.3m +10%Earnings per share 64.7p 57.7p +12%Dividends per share 29.9p 26.5p +13% Year to 31st DecemberAdjusted* 2007 2006 Change Revenue £417.3m £384.2m +9%Operating profit £68.7m £62.3m +10%Operating profit margin 16.5% 16.2%Profit before taxation £72.8m £65.7m +11%Earnings per share 65.5p 58.1p +13%Dividends per share 29.9p 26.5p +13% * Excludes £0.6m amortisation of acquisition-related intangible assets(2006: £0.4m) of which £0.2m relates to Associates (2006: nil). • 11% sales growth at constant currency• Good sales growth in all regions• Strong 16% growth in operating profit at constant currency• Operating profit margin increased to 16.5%• EPS up 13% and final dividend up 14%• Strong cash generation Mike Townsend, Chairman, commenting on prospects said: "Today, whilst we are faced with increasing uncertainty about the resilience ofthe global economy, the underlying strengths of the Spirax Sarco andWatson-Marlow Bredel businesses, which sell into a very broad range ofindustries worldwide, and the increasing importance of energy savings shouldallow us to continue our long history of consistent performance. 2008 hasstarted well including a more favourable exchange environment. We will continueto invest in the development and expansion of our business and, assuming thatour global markets remain stable, we expect to produce another good performancein 2008." Enquiries: Mike Townsend - ChairmanMarcus Steel - Chief ExecutiveMark Vernon - Chief Operating officerDavid Meredith - Director Finance Tel: 020 7638 9571 at Citigate Dewe Rogerson until 6.00 p.m. SPIRAX-SARCO ENGINEERING plc PRELIMINARY RESULTS (Unless otherwise stated, the figures quoted in the text below exclude theamortisation of acquired intangible assets). SUMMARY The Chairman, Mike Townsend, says: "I am pleased to report another strong performance in 2007; we built on theinvestments and developments of the last few years which helped to sustain ourlong record of growth, good profitability and cash generation. We increasedsales by 9% and pre-tax profits by 11% to £72.8 million. This was achievedthrough maintaining our commitment to product development, investing in new andexpanding markets and improving efficiency in our business." Business Environment Market conditions in 2007 remained generally positive throughout the year.Although there has been increasing speculation as to the future impact of theglobal credit problems, our markets remained firm and were underpinned by anincreasing need to improve plant efficiency and reduce energy consumption, duein part to high oil prices, increasing emphasis on climate change andrequirement for reduction in CO2 emissions. The markets in Continental Europewere helpful through 2007 following the pick up in 2006. Although we increasedsales in the UK domestic market in 2007, our underlying market in the industrialsectors of the economy continued to be subdued, not helped by the strength ofsterling. The markets in North America remained positive with good levels ofdemand despite increasing general worries about a slow-down in 2008. Theeconomies in South America, Australasia and South Africa were positive, althoughwith some degree of fragility, particularly in South America. In Asia, marketactivity has continued to be good and the economic fundamentals have, in mostcases, been strong. Trading Total Group sales increased by 9% in 2007 to £417.3 million (2006: £384.2million). This increase was after an exchange hit and, at constant currency,the sales increase was a strong 11%. While some of this growth arose from thegenerally positive economic conditions, we continued to develop the productrange and to implement a series of global and local sales plans, and, as aresult, have increased our market share. There has been good organic growth inall regions, with the strongest increases in Asia and the Rest of the World andsolid growth in UK, Continental Europe and North America. In the Spirax Sarco steam business, sales increases were achieved in controls,heat exchange solutions, clean steam products and steam system services; thelatter also contributed to good growth in sales of traditional products. InWatson-Marlow Bredel, there were good increases in business into theenvironmental and sanitary applications in both developed and developingmarkets. The Group's operating profit was £68.7 million (2006: £62.3 million), anincrease of 10% in sterling and 16% at constant currency - a strong result. Theprofit was the highest ever achieved by the Group. The increase in operatingprofit arose mainly from the organic sales growth and improved efficiency,partially offset by higher material costs and the impact of exchange ratemovements. The operating profit margin improved again from 16.2% in 2006 to16.5% in 2007. The improvement was held back by exchange transaction effectsand the impact of slow sales development at UltraPure as reported at the halfyear. Not surprisingly, exchange rate movements, on average, have had a noticeableeffect on the 2007 results, particularly as the Group's business is sogeographically diverse. The US dollar and dollar-related currencies weresubstantially weaker against sterling than in 2006, which has held back thereported results - especially in North America. By contrast, the euro andrelated currencies were roughly unchanged against sterling in 2007 as against2006; this area accounts for roughly a third of the Group's sales. Thecurrencies in Asia tended to move with the US dollar. United Kingdom and Republic of Ireland Sales into the domestic market increased by 8% in 2007 to £44.0 million from£40.7 million in 2006. The underlying market remains quiet due to thecontinuing pressure on the manufacturing base. In Spirax Sarco, we focused onour technical support for customers in helping to improve their plant operationsand energy conservation, which resulted in good growth in sales of steam systemservices and prefabricated packages. Watson-Marlow Bredel's sales included agood increase in demand for Bredel pumps but was held back by a lower level ofprojects. Our UK factories continued to be busy satisfying demand for both the domesticand overseas markets and benefiting from the increased throughput and tightcontrol of costs. Operating profit of £13.4 million was well ahead of the £11.0 million achievedin 2006, with good gains in both the sales companies and the manufacturingoperations - with the latter helped by the overseas demand. Continental Europe The good levels of activity that built up in 2006 continued through 2007, withsales increasing to £153.7 million from £138.3 million, an increase of 11%.Exchange movements had little effect on the sterling figures as the average eurorates were similar in both years. In 2007, levels of economic and industrialactivity were positive with increases in GDP growth and industrial production.The higher sales were reflected across both the Spirax Sarco and Watson-MarlowBredel ranges. In particular, there was good progress in sales of controls,heat exchangers, steam system services and tubing. Sales to OEMs,pharmaceutical, biotech, food and pulp & paper did well. Geographically, the growth was also widespread with increases for the SpiraxSarco business in nearly all the operating companies, including in France,Germany, Scandinavia, Spain and Russia. In Watson-Marlow Bredel, there was goodprogress in all companies and the new direct selling company in Denmark,acquired in January 2007, started well. Operating profits increased 17% from £22.4 million in 2006 to £26.3 million in2007, driven mainly by the organic growth. The operating margin in 2007 wasslightly ahead at 13.8%. North America Sales in North America increased in sterling by only 1% in 2007 to £80.8 millionfrom £80.0 million. The substantial devaluation (average year on year) of theUS dollar in 2007 as against 2006 has masked an underlying growth in sales of9%, which is mainly organic growth. In the USA, the markets remained positiveand sales in the Spirax Sarco business grew well with increased sales of energyservices, controls and traditional products. The Watson-Marlow Bredel businesssaw good growth in water/wastewater and sanitary applications. Our Canadian company produced a strong performance in 2007. Our Mexicanoperation also generated a significant increase in sales and profits, althoughit is accounted for separately as an Associate. The operating profit in North America was down 18% at £7.3 million, whichcompares with £8.9 million in 2006; at constant currency, the operating profitwas up 5%. The operating profit margin was lower at 9.0% as against 11.0% in2006. The reduction in margin arises from unfavourable exchange rate movements,particularly in Watson-Marlow Bredel, and, to a lesser extent, the impact ofslow sales development at UltraPure. Excluding these, the operating profitmargin in North America would have increased slightly over 2006. Asia Sales growth in our Asian territories was 11% in sterling to £85.3 million(2006: £77.1 million) and at constant exchange was ahead 15%. The markets inmost of the Asian countries continued to be buoyant, the main exceptions beingTaiwan and Thailand. In Malaysia and South East Asia, our sales and profitsincreased nicely and our operations in China and Korea turned in excellentperformances with good increases in profits. We increased sales coverage in thegrowing markets and increased sales of traditional products as well as heatexchange packages, boilerhouse products and clean steam products. The newfactory in China and offices in Korea were delayed for some months for technicalreasons and the projects will now run into 2009. Our Indian operation, which istreated as an Associate, grew sales well and is strongly profitable. The Asian currencies tended to weaken with the US dollar, particularly the Yen,Won and Taiwanese dollar, thus adversely affecting the Asian results whenreported in sterling. The operating profit in 2007 was £16.6 million, whichcompares with £15.1 million in 2006, an increase of 10%; at constantcurrencies, the operating profit increase was 23%. The overall operating profitmargin in Asia was unchanged at 20.9%, despite the exchange transaction impact. Rest of the World (South America, Africa, Australasia) We also increased sales well in the Rest of the World to £53.6 million in 2007(2006: £48.2 million), an increase of 11%. Here too, net exchange ratemovements adversely affected the sterling numbers and, at constant exchangerates, the sales increased by 13% in 2007. Although the South Americaneconomies remain somewhat fragile, they were buoyant and our company inArgentina, particularly, produced strong increases in local currency sales andprofits. The Spirax Sarco and Watson-Marlow Bredel operations in Brazil alsoprovided good growth. In South Africa, the Watson-Marlow Bredel businessproduced an excellent result, but the Spirax Sarco business performed poorly anda management reorganisation is being implemented. In Australasia, our NewZealand company continued to produce strong results, but in Australia sales wereflat and profits were slightly down. Operating profits in the Rest of the World were £5.1 million, up 6% from £4.8million in 2006; at constant exchange, the operating profit increase was 11%.The profit increase was reduced by the results in Spirax Sarco South Africa andAustralia. The margin in the region therefore came down slightly from 10.0% in2006 to 9.5% in 2007. Interest Net finance income was £2.4 million which compares with £2.0 million in 2006.The increase was due to improved net finance income in respect of definedbenefit pension funds. This arose because the higher value of the assets of thefunds, following the special pension contributions in 2006 and early 2007,improved the return on assets by more than the interest on the schemes'liabilities. Net bank interest payable increased by £0.7 million in 2007 due tothe share buy-back in 2006, the special pension contributions in late 2006 andearly 2007, and the acquisition of UltraPure. Associates We have minority shareholdings in our operations in India and Mexico, which arereported as Associates outside the operating profit. They are nevertheless anintegral part of the Group and both produced good performances in 2007. During2007, we increased our shareholding in the Indian operation from 40% to nearly50%. The Group's share of after tax profits of Associates increased to £1.6million (2006: £1.4 million). Profit before taxation The Group's pre-tax profit increased by 11% to £72.8 million (2006: £65.7million). Taxation The tax charge at 31.6% compares with 32.4% in 2006. More than 80% of theGroup's profits are earned outside the UK and the majority of the overseas taxrates are effectively higher than UK rates. We expect that the tax rate for2008 will be broadly in line with 2007. Earnings per share The Group's prime financial objective is to provide enhanced value toshareholders through consistent growth in earnings per share and dividends pershare. Earnings per share rose to 65.5p from 58.1p, an increase of 13%including a small benefit resulting from the share buy-back in 2006. Dividends per share The Board is recommending a final dividend of 21.6p per share payable on19th May 2008 to shareholders on the register at the close of business on 18thApril 2008. This, together with the interim dividend of 8.3p per share paid inNovember, makes a total dividend for the year of 29.9p per share. This compareswith a total dividend of 26.5p per share last year, an increase of 13%, in linewith our improved performance in 2007. The cost of the interim and finaldividends is £22.8 million, which is covered 2.2 times by earnings. No scripalternative to the cash dividend is being offered. Capital employed The continued growth in the business is reflected in a higher level of capitalemployed, although the overall increase is well below the increase in sales.Working capital was higher with increases in trade receivables and inventoriesbut reflecting improvements in both debtor days and stock weeks as we continuedto closely manage working capital levels. Return on capital employed (ROCE)* ROCE improved in 2007 to 33.6% from 32.2% in 2006. Capital employed wascarefully controlled and increased by 6% in 2007, whereas operating profitincreased by 10%. Capital expenditure The value of tangible fixed assets increased by 2% at constant exchange rates to£93.9 million in 2007 as we continue investing in our businesses. There wereinvestments in new or extended premises in Denmark, Germany and South Africa,together with on-going plant and machinery expenditure in our manufacturingplants to increase efficiency and expand capacity. The additions in 2007exceeded the depreciation charge by 22%. 2007 2006 £'000 £'000 Capital expenditure** 16,052 19,153Depreciation and amortisation 13,147 12,151Capital expenditure as a % of depreciation 122% 158% ** Capital expenditure excludes acquisition-related intangible assets and capitalised development costs. There have been delays in the expansion plans for our plant in China. During2008 and 2009 there will be an investment of around £9 million in a new factoryand offices to increase the volume of production in Shanghai and to accommodatethe growth of the sales organisation of this successful company. We also intendto invest £6 million in expanding the Watson-Marlow tube and pump productionplant. Intangible assets and investments in Associates Intangible assets include goodwill capitalised prior to 2004 under UK GAAP andgoodwill and other intangible assets capitalised on acquisitions since thetransition to IFRS. Goodwill is the subject of annual impairment testing andintangible assets are amortised over their expected useful lives. There was noimpairment of goodwill during 2007, or 2006. Amortisation of acquiredintangible assets was £0.6 million for the year (2006: £0.4 million). Of this£0.2m relates to Associates (2006: nil) following the increase in ourshareholding in India from 40% to nearly 50%, which required the recognition ofintangible assets in respect of our total shareholding. Product developmentcosts capitalised and computer software are also included in intangible assetsin accordance with IFRS. The Group balance sheet also includes the cost ofinvestment in our Associate companies in India and Mexico and our share ofpost-acquisition profit, net of dividends received. Post-retirement benefits The post-retirement benefit liability shown in the balance sheet reduced to£21.5 million at 31st December 2007 from £29.6 million a year earlier. Theimprovement was due to the special pension contributions of £5.5 million made inearly 2007 and to a reduction in pension liability values as bond yields roseboth in the UK and overseas. These gains were partially offset by a shortfallin the return on assets for the year and to a lesser extent by increasedliabilities due to pay and demographic factors. Cash flow There was a good cash flow performance for the year. Free cash flow was £39.0million (2006: £10.0 million) driven by the strong growth in operating profitand despite making the £5.5 million of special contributions into the Group'smain defined benefit pension schemes. Working capital levels were wellcontrolled and movements during the year absorbed only £3.6 million. Taxationpayments at £18.2 million were reduced by tax relief on the special pensioncontributions, particularly in the UK. Capital expenditure (net of disposals)at £16.5 million was at a normal level but is expected to increase significantlyin 2008 as previously explained. Net dividend payments rose to £20.8 million and there was an outflow of £1.2million in respect of acquisitions. Against this, there was an inflow of £3.2million due to the operation of the Group's share-based payment schemes whichwere satisfied by the reissue of treasury shares. In February 2008, we acquiredFlexicon A/S in Denmark for DKK141 million (£14.1 million) of which DKK113million (£11.3 million) was paid on completion with the remainder to be paid inthree equal annual instalments starting in February 2009. The good cash flow and a small favourable exchange effect meant that we finished2007 with net cash of £15.8 million compared with net debt of £6.6 million ayear earlier. The Chairman comments as follows: "On 11th February 2008, the Group completed the acquisition of Flexicon A/S inDenmark. Flexicon will form part of the Watson-Marlow Bredel business and itsrange of peristaltic aseptic filling systems is complementary to the rangeoffered by Watson-Marlow Bredel. The consideration was DKK141 million (£14.1million). We announced on 13th December 2007 that our Chief Executive, Marcus Steel, wouldbe retiring from the Board on 31st March 2008, having joined the Group in 1972and the Board in 1992. Marcus has successfully led the company in a firm andpositive manner achieving improved financial performances, while retaining itsethos and reputation for fair dealing. I, and the whole Board, thank him andwish him a very happy and long retirement. We were delighted to announce that Mark Vernon will succeed Marcus as ChiefExecutive from 1st April 2008. Mark joined the Group as President of SpiraxSarco, Inc. in the USA in 2003 and he then came onto the Board of Spirax-SarcoEngineering plc in June 2006 with responsibility for the Americas and GroupMarketing. Mark brought to Spirax a wealth of experience in the global processcontrol industry and he is well qualified to take the Group forward. Also on 13th December 2007 we announced that Peter Smith will be retiring asCompany Secretary and Director with effect from 31st March 2008 after 33 yearswith the Group. He joined the Board of Spirax-Sarco Engineering plc in 1995.Since that date, Peter has provided the Board with wise and balanced advice.His counsel will be much missed and we wish him a long and healthy retirement. We are pleased to have announced the appointment of William Stebbings as CompanySecretary with effect from 1st April 2008. William joined Spirax in February2007. He is a solicitor with extensive industrial experience at Linpac GroupLtd., HP Bulmer Holdings PLC, Bunzl PLC and The Distillers Company PLC. The good results we have achieved in the past and again in 2007 reflect thefundamental strengths of the Group - a wide geographical spread, diversecustomer base, broad product range and our focus on our niche Spirax Sarco andWatson-Marlow Bredel businesses. Spirax-Sarco Engineering plc is a high qualitybusiness and it is the skills and dedication of the people who make up the Groupthat sets it apart. Their efforts all around the world have made ourachievements possible; my thanks and those of the Board go to our colleaguespast and present for their hard work which has produced such strong results overa very long period. PROSPECTS Today, whilst we are faced with increasing uncertainty about the resilience ofthe global economy, the underlying strengths of the Spirax Sarco andWatson-Marlow Bredel businesses, which sell into a very broad range ofindustries worldwide, and the increasing importance of energy savings shouldallow us to continue our long history of consistent performance. 2008 hasstarted well including a more favourable exchange environment. We will continueto invest in the development and expansion of our business and, assuming thatour global markets remain stable, we expect to produce another good performancein 2008." Note: All profit measures exclude the amortisation of acquisition-relatedintangible assets. The total in 2007 is £0.6 million (2006: £0.4 million) ofwhich £0.2 million relates to Associates (2006: nil). SPIRAX-SARCO ENGINEERING PLCGroup Income Statement for the year ended 31st December 2007 Note Before Adj't* Total Before Adj't* Total Adjustment 2007 2007 Adjustment 2006 2006 2007 2006 £'000 £'000 £'000 £'000 £'000 £'000 Revenue 2 417,317 - 417,317 384,249 - 384,249Operating costs (348,597) (384) (348,981) (321,958) (350) (322,308) Operating profit 3 68,720 (384) 68,336 62,291 (350) 61,941 Financial expenses (13,248) - (13,248) (11,722) - (11,722)Financial income 15,688 - 15,688 13,757 - 13,757 Net financing income 4 2,440 - 2,440 2,035 - 2,035 Share of profit of associates 1,636 (249) 1,387 1,368 - 1,368 Profit before taxation 72,796 (633) 72,163 65,694 (350) 65,344 Taxation UK (3,697) - (3,697) (3,257) - (3,257)Taxation Foreign (19,276) - (19,276) (18,021) - (18,021) Total taxation 5 (22,973) - (22,973) (21,278) - (21,278) Profit for the period 49,823 (633) 49,190 44,416 (350) 44,066 Attributable to: Equity holders of the parent 49,734 (633) 49,101 44,269 (350) 43,919 Minority interest 89 - 89 147 - 147 Profit for the period 49,823 (633) 49,190 44,416 (350) 44,066 Earnings per share 6Basic earnings per share 64.7p 57.7p Diluted earnings per share 64.4p 57.1p Dividends 7Dividends per share 29.9p 26.5p Dividends paid during theyear (per share) 27.3p 24.5p * Amortisation of acquisition-related intangibles. Total 2007 is £633,000 (2006: £350,000) of which £249,000 relates to Associates (2006: nil). On this basis, the basic earnings per share for 2007 is 65.5p (2006: 58.1p). SPIRAX-SARCO ENGINEERING plc Group Balance Sheet at 31st December 2007 2007 2006 Note £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 93,933 88,802Goodwill 18,697 17,541Other intangible assets 9,663 8,866Prepayments 986 352Post retirement benefits 1,095 -Investment in associates 7,937 3,790Deferred tax 11,659 13,738 143,970 133,089 Current assetsInventories 73,824 67,707Trade receivables 98,067 90,023Other current assets 9,755 8,382Tax recoverable 949 1,746Cash and cash equivalents 38,844 22,085 221,439 189,943 Total assets 365,409 323,032 EQUITY AND LIABILITIESCurrent liabilitiesTrade and other payables 58,832 50,372Bank overdrafts 987 3,986Short term borrowing 1,717 5,934Current portion of long term borrowings 78 4,669Current tax payable 8,321 7,445 69,935 72,406 Net current assets 151,504 117,537 Non-current liabilitiesLong term borrowings 20,231 14,050Deferred tax 8,307 6,386Post-retirement benefits 22,628 29,592Provisions 1,343 876 52,509 50,904 Total liabilities 122,444 123,310 Net assets 8 242,965 199,722 EquityShare capital 19,299 19,296Share premium account 47,267 47,228Other reserves 5,719 (1,850)Retained earnings 169,866 133,835 Equity attributable to equity holders of the parent 242,151 198,509Minority interest 814 1,213 Total equity 242,965 199,722 Total equity and liabilities 365,409 323,032 SPIRAX-SARCO ENGINEERING plc Group Statement of Total Recognised Income and Expense for the year ended 31st December 2007 2007 2006 £'000 £'000 Actuarial loss on post retirement benefits (877) (2,939)Deferred tax on actuarial loss on post retirement benefits 279 1,142Foreign exchange translation differences 7,650 (9,574)(Loss)/Gain on cash flow hedges (81) 170 Income and expense recognised directly in equity 6,971 (11,201)Profit for the period 49,190 44,066 Total recognised income and expense for the period 56,161 32,865 Attributable to Equity holders of the parent 56,072 32,718 Minority interest 89 147 Total recognised income and expense for the period 56,161 32,865 SPIRAX-SARCO ENGINEERING plc Statement of Changes in Equity For the year ended 31st December 2007 2007 2006 £'000 £'000 Equity attributable to equity holders of parent at beginning of period 198,509 197,618Total recognised income and expense 56,072 32,718Dividends paid (20,728) (18,715)Increased investment in Associated company 2,946 -Proceeds from issue of share capital 42 1,132Equity settled share plans 2,195 1,142Treasury shares purchased - (18,082)Treasury shares reissued 5,457 3,777Loss on the reissue of treasury shares (2,342) (1,081) 242,151 198,509 SPIRAX-SARCO ENGINEERING plc Group Cash Flow Statement for the year ended 31st December 2007 Note 2007 2006 £'000 £'000 Cash flows from operating activitiesProfit before taxation 72,163 65,344Depreciation and amortisation 14,231 13,364Share of profit of associates (1,387) (1,368)Equity settled share plans 1,259 860Net finance income (2,440) (2,035) Operating cash flow before changes in working capital and provisions 83,826 76,165Increase in trade and other receivables (5,244) (12,662)Increase in inventories (3,999) (6,248)Decrease in provisions and post retirement benefits (5,726) (15,887)Increase in trade and other payables 5,671 5,184 Cash generated from operations 74,528 46,552Interest paid (1,699) (1,137)Income taxes paid (18,162) (16,484) Net cash from operating activities 54,667 28,931 Cash flows from investing activitiesPurchase of property, plant and equipment (13,826) (17,935)Proceeds from sale of property, plant and equipment 599 660Purchase of software and other intangibles (1,693) (1,678)Development expenditure capitalised (1,604) (989)Acquisition of businesses (1,170) (3,969)Interest received 906 983Dividends received 557 477 Net cash used in investing activities (16,231) (22,451) Cash flows from financing activitiesProceeds from issue of share capital 42 1,132Proceeds from reissue of treasury shares 3,115 2,696Treasury shares purchased - (18,082)Repayment of borrowings (2,543) (7,544)Payment of finance lease liabilities (20) (88) Dividends paid (including minorities) (20,828) (18,843) Net cash used in financing activities (20,234) (40,729) Net decrease in cash and cash equivalents 18,202 (34,249)Cash and cash equivalents at beginning of period 18,099 53,093Exchange movement 1,556 (745) Cash and cash equivalents at end of period 9 37,857 18,099 Borrowings and finance leases (22,026) (24,653) Net cash/(borrowings) 9 15,831 (6,554) Notes: 1. Foreign currency assets and liabilities are translated into sterling at rates of exchange ruling at 31st December. Trading results of overseas subsidiary undertakings have been translated into sterling at average rates of exchange ruling during the year. 2. Revenue analysis The analysis of revenue by reference to the geographical location of customers is as follows:- 2007 2006 Change change £'000 £'000 at constant exchange rates % % UK & Republic of Ireland 43,993 40,695 +8 +8Continental Europe 153,661 138,299 +11 +10North America 80,800 79,956 +1 +9Asia 85,252 77,138 +11 +15Rest of the World 53,611 48,161 +11 +13 417,317 384,249 +9 +11 and by reference to the geographical location of the Group's operations is as follows:- 2007 2006 change change £'000 £'000 at constant exchange rates % % UK & Republic of Ireland 117,220 107,922 +9 +9 Continental Europe 189,876 172,382 +10 +9 North America 81,549 80,610 +1 +9 Asia 79,820 72,208 +11 +16 Rest of the World 54,086 48,273 +12 +15 522,551 481,395 +9 +11 Intra-group sales (105,234) (97,146) +8 +9 Sales to customers 417,317 384,249 +9 +11 Secondary segment revenue by business operation: 2007 2006 £'000 £'000 Spirax Sarco 361,611 332,655Watson-Marlow Bredel 55,706 51,594 417,317 384,249 3. Operating profit, analysed by reference to the geographical location of the Group's operations, is as follows:- 2007 2006 change * change £'000 £'000 at constant exchange rates % % UK & Republic of Ireland 13,314 10,957 +22 +19Continental Europe 26,223 22,435 +17 +15North America 7,138 8,732 -18 +4Asia 16,641 15,120 +10 +23Rest of the World 5,020 4,697 +7 +12 68,336 61,941 +10 +16 Amortisation of acquisition-related intangible assets acquired was £384,000 (2006: £350,000) and amortisation of capitalised development costs was £1,086,000 (2006: £994,000). \* The percentage change at constant exchange rates in respect of the operating profit also includes an estimate of the transaction effect. 4. Net Financing Income 2007 2006 £'000 £'000Financial expensesBank and other borrowing interest payable (1,699) (1,137)Interest on pension scheme liabilities (11,549) (10,585) (13,248) (11,722) Financial incomeBank interest receivable 906 1,038Expected return on pension scheme assets 14,782 12,719 15,688 13,757 Net financing income 2,440 2,035 Net pension scheme financing income 3,233 2,134Net bank interest (793) (99)Net financing income 2,440 2,035 5. Taxation 2007 2006 £'000 £'000Analysis of charge in periodUK corporation taxCurrent tax on income for the period 2,259 7,918Adjustments in respect of prior periods (1,057) (207) 1,202 7,711Double taxation relief (280) (7,570) 922 141Foreign taxCurrent tax on income for the period 18,291 16,561Adjustments in respect of prior periods 40 (79) 18,331 16,482 Total current tax charge 19,253 16,623Deferred tax - UK 2,775 3,116Deferred tax - Foreign 945 1,539 Tax on profit on ordinary activities 22,973 21,278 6. Earnings per share 2007 2006 £'000 £'000 Earnings 49,101 43,919 Weighted average shares in issue 75,889,850 76,161,612Dilution 365,911 733,050 Diluted weighted average shares in issue 76,255,761 76,894,662 Basic earnings per share 64.7p 57.7p Diluted earnings per share 64.4p 57.1p Adjusted earnings 49,734 44,269 Basic adjusted earnings per share 65.5p 58.1p The dilution is in respect of unexercised share options and the performance share plan. 7. Dividends 2007 2006 £'000 £'000Amounts paid in the yearFinal dividend for the year ended 31st December 2006 of 19.0p(2005: 17.0p) per share 14,413 13,047Interim dividend for the year ended 31st December 2007 of 8.3p(2006: 7.5p) per share 6,315 5,668 20,728 18,715Amounts arising in respect of the yearInterim dividend for the year ended 31st December 2007 of 8.3p(2006: 7.5p) per share 6,315 5,668Proposed final dividend for the year ended 31st December 2007 of21.6p (2006: 19.0p) per share 16,439 14,370 22,754 20,038 The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in the financial statements. If approved at the annual general meeting on 13th May 2008, the final dividend will be paid on 19th May 2008 to shareholders on the register at 18th April 2008. No scrip alternative to the cash dividend is being offered. 8. The analysis of net assets by reference to the geographical location of the Group's operations is as follows:- 2007 2006 £'000 £'000 UK & Republic of Ireland 54,403 43,935Continental Europe 70,603 61,063North America 34,695 35,207Asia 44,562 40,586Rest of the World 26,891 23,832 231,154 204,623Deferred tax 3,352 7,352Current tax (7,372) (5,699)Net cash 15,831 (6,554) Net assets 242,965 199,722 9. Analysis of changes in net cash 1st Jan Cash Exchange 31st Dec 2007 Flow movement 2007 £'000 £'000 £'000 £'000 Current portion of long term borrowings (4,669) (78)Non-current portion of long term borrowings (14,050) (20,231)Short term borrowings (5,934) (1,717) Total borrowings (24,653) (22,026) Comprising:Borrowings (24,300) 2,543 92 (21,665)Finance Leases (353) 20 (28) (361) (24,653) 2,563 64 (22,026) Cash and cash equivalents 22,085 15,188 1,571 38,844Bank overdrafts (3,986) 3,014 (15) (987) Net cash and cash equivalents 18,099 18,202 1,556 37,857 Net cash (6,554) 20,765 1,620 15,831 10. Return on capital employed 2007 2006 £'000 £'000Capital employedProperty, plant and equipment 93,933 88,802Prepayments 986 352Inventories 73,824 67,707Trade receivables 98,067 90,023Other current assets 9,755 8,382Tax recoverable 949 1,746Trade and other payables (58,832) (50,372)Current tax payable (8,321) (7,445) Capital employed 210,361 199,195 Average capital employed 204,778 193,691 Operating profit 68,336 61,941Acquisition intangibles amortisation 384 350 68,720 62,291 ROCE 33.6% 32.2% 11. Employee benefits The Group is accounting for pension cost and share based payments in accordance with International Accounting Standard 19 - Employee benefits and International Financial Reporting Standard 2 - Share-based payments. The defined benefit plan expense is recognised in the income statement as follows:- UK Pensions Overseas pensions and Total medical 2007 2006 2007 2006 2007 2006 £'000 £'000 £'000 £'000 £'000 £'000 Current service cost (6,540) (6,491) (1,333) (1,699) (7,873) (8,190)Past service cost - (375) - - - (375)Settlement curtailment - - 115 - 115 -Interest on schemes' liabilities (9,660) (8,715) (1,889) (1,870) (11,549) (10,585)Expected return on schemes' assets 13,087 11,216 1,695 1,503 14,782 12,719Total expense recognised in incomestatement (3,113) (4,365) (1,412) (2,066) (4,525) (6,431) A summary of the deficits in the schemes is as follows:- Overseas UK pensions Total pensions & medical £'000 £'000 £'000 Fair value of schemes' assets 184,588 23,932 208,520Present value of the schemes' liabilities (192,612) (37,441) (230,053) Deficit in the schemes (8,024) (13,509) (21,533)Related deferred tax asset 2,247 4,573 6,820 Net pension liability 2007 (5,777) (8,936) (14,713) Net pension liability 2006 (10,958) (9,243) (20,201) The charge to the income statement in respect of share-based payments is made up as follows:- 2007 2006 £'000 £'000 Share Option Scheme 695 495Performance Share Plan 468 290Employees Share Ownership Plan 631 579 Total expense recognised in income statement 1,794 1,364 12. Basis of preparation The financial information set out above does not constitute the Company's statutory accounts for the years ended 31st December 2007 or 31st December 2006. Statutory accounts for 2006, which were prepared under accounting standards adopted by the EU have been delivered to the registrar of companies and those for 2007 will be delivered in due course. The auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include any references to any matters to which the auditors drew attention by way of emphasis without qualifying and (iii) did not contain statements under sections 237(2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange