Spirax-Sarco Regulatory News (SPX)

News Release

Thursday 7th August 2014

2014 Half Year Results

Continued organic sales growth and margin expansion despite currency impact

Six months ended 30th June

*All profit measures exclude certain non-operational items (including amortisation of acquisition-related intangible assets and acquisition and disposal costs), as defined in note 2.

** At constant exchange rates adjusting for both translation and transaction effects

· Continued organic sales growth of 4% with gains in all segments

· Operating profit growth of 12% at constant currency

· Currency headwind reduced reported sales by 7.6% and profit by 12% versus first half year 2013

· Operating margin ahead 40 bps to 21.0%

· Good profit growth in the Americas and Watson-Marlow

· Interim dividend +8%

Commenting on the results, Nick Anderson, Group Chief Executive, said:

We were pleased with the organic sales increase of nearly 4%. Organic sales were ahead in all segments, however there was a strong currency headwind in the period that reduced sales on translation by 7.6% when compared with first half 2013 average exchange rates. Operating profit rose by 12% at constant currency and the operating profit margin improved by 40 bps to 21.0%, despite the unfavourable currency impact. Overall, Industrial Production growth rates marginally picked up pace in the fourth quarter of last year and have remained stable through the first half of 2014, although our markets typically lag the economic cycle by a few quarters. We continue to focus on our strategic priorities to generate our own growth and to out-perform our markets. We anticipate that our markets will remain challenging but as we enter the second half year we have a larger backlog than in the comparable period of 2013 and the Board remains confident that we will continue to make progress in 2014.

For further information, please contact:

Nick Anderson, Group Chief Executive

David Meredith, Finance Director

Tel: 020 7638 9571 at Citigate Dewe Rogerson

The meeting with analysts will be available as a live audio webcast on the Company's website at www.spiraxsarcoengineering.com or via the following link http://www.media-server.com/m/p/3buk7evx 

at 9.00 am, and a recording will be posted on the website shortly after the meeting.

Unless otherwise stated, the figures quoted in the text below are based on the adjusted Group results (see note 2). References to "organic" changes are like-for-like excluding acquisitions and excluding the effects of exchange rate movements.

REVIEW OF OPERATIONS

We were pleased with the organic sales increase of nearly 4% plus the small contribution to the Group from the acquisition of Bio Pure completed in January. However, a strong currency headwind in the period reduced sales on translation by 7.6% when compared with first half 2013 average exchange rates and the reported sales for the first half year therefore reduced by nearly 4% to £319.2 million (2013 : £331.6 million).

Organic sales were ahead in all segments. Overall in our steam specialties business, organic sales increased by 3% with strongest growth of 5% in the Americas, including gains in both North America and Latin America. Organic sales rose by 3% in Europe, Middle East and Africa (EMEA) well spread over many countries. In Asia Pacific, organic sales were up 1% as we expanded our project-based backlog 13% above the comparable period in 2013, underpinning our expectation of a stronger second half performance in that region. In Watson-Marlow, our peristaltic and niche pumps business, sales were ahead 9% at constant currency over half of which was organic growth with Bio Pure making a good first time contribution.

At constant exchange rates, adjusted operating profit rose by 12%. This comprised an increase in our steam specialties business of 10% led by a strong performance in the Americas where operating profit rose by 35%, with good contributions by both North America and Latin America. Following the strong performance in 2013, results were again ahead in EMEA with operating profit growing 11% at constant currency. In Asia Pacific, operating profit was down 4% at constant currency on relatively flat sales due to continued investment in geographic expansion. Watson-Marlow had a good first half year increasing operating profit by 18% at constant currency. Due to the strong currency headwinds, Group adjusted operating profit reduced by 1% to £67.1 million (2013 : £68.1 million). The adjusted operating profit margin improved from 20.6% to 21.0% despite the unfavourable currency headwinds.

Currency movements have been negative this year as a result of stronger sterling and weakness in the currencies of many emerging markets in which we operate with our direct sales business model. The impact has increased from that announced in our Interim Management Statement due to the recent further strengthening of sterling. If current exchange rates prevail to the end of the year, the 7.6% first half year exchange translation impact on sales moderates to 6.8% for the full year, due to the strengthening of sterling in the second half of 2013. In relation to operating profit, for the first half year the exchange translation impact, at 8.7%, was a little higher than on sales due to the above average profitability of emerging markets. Including an additional exchange transaction impact, the total exchange effect on profit was a reduction of 12% in the first half. Note 2 (page 19) includes a breakdown of the Group's main currency exposures for the first half year, both translation and transaction.

Net finance expense increased to £1.5 million from £1.1 million in the first half of 2013, mainly due to lower cash balances following payment of the £78 million special dividend in July 2013. We were disappointed with the results of our Associate business in India and the Group's share of the after-tax profit of our Associate companies was £0.2 million lower at £0.7 million.

Adjusted pre-tax profit increased by 12% at constant currency to £66.3 million but was 2% lower at reported exchange rates than in the comparable period (2013 : £68.0 million). The pre-tax profit for the first half year on a statutory basis, including the amortisation of acquisition-related intangible assets, was £63.5 million (2013 : £65.5 million). The overall tax rate, based on the adjusted profit before tax and excluding the Associates profit, was slightly higher at 30.1% (2013 : 29.5%) and broadly in line with the 29.8% tax rate for the full year in 2013.

Adjusted basic earnings per share increased by 14% at constant currency to 61.7p, benefitting from the reduction in the number of shares in issue following the share consolidation in 2013, but was virtually flat at reported exchange rates against the 62.0p in the first half of 2013. Basic earnings per share on a statutory basis were 58.7p (2013 : 59.6p).

The Board has declared an interim dividend of 19.5p (2013 : 18.0p) per ordinary share, an increase of 8.3%, reflecting underlying progress in the business. The dividend will be paid on 7th November 2014 to shareholders on the register at the close of business on 10th October 2014. The final dividend of 41.0p per share in respect of 2013 was paid on 30th May 2014 at a cash cost of £31.0 million.

Trading

Steam is widely used as the preferred heat transfer medium in a wide range of industries, which is reflected in the diverse geographic, sector and customer spread of our business. We benefit from a large proportion of revenues being derived from on-going replacement demand and maintenance spending by customers, giving a high degree of resilience. We have a powerful and robust direct sales business model with highly trained sales engineers that directly address customers' energy and water saving, productivity, quality and sustainability issues in their manufacturing plants. Our markets broadly reflect changes in global economic activity and movements in Industrial Production, with a typical lag to the cycle of a few quarters. Our focus remains on strategic actions to out-perform our markets and we are well positioned to leverage the investments we have made to achieve growth and improvements in our business.

Global economic conditions, and in particular the rate of Industrial Production growth, marginally picked up pace in the fourth quarter of last year and have overall remained stable through the first half year. In emerging markets Industrial Production growth rates have been slower than in the comparable period, including in China, and in South America growth rates have again turned negative. In developed markets, Industrial Production growth rates have been generally a little higher than in the comparable period, although overall in Europe the growth rate is at a comparatively lower level than North America.

In the first half of 2014, revenue in our steam specialties business increased by 3% at constant currency, continuing the trend from the prior year. The large majority of our sales derive from maintenance and operations spend by our customers comprising day-to-day replacement demand and small to mid-sized energy saving and process efficiency projects, often initiated by our highly trained sales engineers. This base maintenance and operations business increased but was partly offset by a general decline in large project business, although there are indications that this large project business is now picking up. Sales grew in our core traditional products and we achieved good increases in controls and boilerhouse products. The operating profit margin in our steam specialties business increased from 20.3% to 20.7%. We benefitted from broadly flat material costs in the first quarter but, as anticipated, we have subsequently seen some increases in our material costs that we expect to continue through 2014. Our business is seasonally biased towards the second half year and we anticipate a broadly normal pattern this year, other than in Asia Pacific where the increased project-based backlog is expected to deliver a relatively stronger second half year performance in that region.

Watson-Marlow increased sales by 9% at constant currency, including a first time contribution from Bio Pure that performed ahead of our expectations. Good progress was made with Watson-Marlow pumps and tubing, including further gains for the revolutionary new Qdos pump, and there were increased sales of Flexicon filling systems. Sales increased across all main industry sectors except precious metals mining, where the platinum sector has been hit hard with lower levels of investment. The operating profit margin in Watson-Marlow improved from 28.5% to 29.9%.

Our strategy is focused on delivering self-generated growth that out-performs our markets. During the first half of 2014 we have refined and evolved a more customer-centric strategy to increase the effectiveness of our direct sales organisation, leverage our strengths in key sectors, take advantage of the most attractive opportunities, expand our addressable markets and align and direct our resources more effectively to improve business performance. This strategy builds on the foundation of our robust, direct sales business model that has proved resilient through the business cycle. Our six primary strategies are:

· Increase direct sales effectiveness through sector focus. It is not our products alone that provide value to customers, the extensive application and systems knowledge of our direct sales and support people are at the heart of our customer value propositions. Through expanding the sector focus of our direct sales force, with particular emphasis on priority industries such as Food & Beverage, Healthcare, and Oil & Petrochemicals, we will enhance our customer value propositions and increase our sales effectiveness. We are also increasing our focus on thermal energy management within those priority sectors, with the goal of making our Spirax Sarco steam specialties business the customers' first choice provider for steam solutions and thermal energy management.

· Develop the knowledge and skills of our expert sales and service teams. Continually improving the competency, technical skills and in-depth application knowledge of our sales and service engineers is central to our direct sales business model. Understanding our customers' processes and applying appropriately engineered solutions to their steam or niche pumping problems are pivotal to our business success. In addition to extensive on-the-job training and mentoring, we have developed and will extend a wide-range of training materials and tools that are internet-based and available through our 42 training centres located across the world. Through continually investing in the professional development of our people, we develop a level of expertise that is unrivalled by our competitors.

· Broaden our global presence. Our strong global presence is a result of decades of investment in building easily recognisable brands that symbolise expertise and reliability. We will accelerate our investments to achieve a first-to-market advantage from early entry into newly emerging markets in Asia, Latin America and Africa. Leveraging our existing strong infrastructure, we are also pioneering the introduction of Watson-Marlow into much of the developing world, demonstrating the superior technology and lower life cycle costs of peristaltic and niche pumps.

· Leverage R&D investments. Our ability to deliver an increasingly wider range of solutions to reduce energy and water usage, lower plant emissions and improve plant productivity and efficiency, rests with our commitment to new product development. We have significantly increased our R&D investments in recent years and will leverage these investments to generate sales growth, with shorter time-to-market of new products and solutions in such areas as thermal energy management, controls, condensate management and new pumping technologies and systems. Product development will increasingly be aligned to sector requirements. Where appropriate, we will look to make acquisitions in related areas that deliver new products and technologies and expand our addressable markets.

· Optimise supply chain effectiveness. Our direct sales business model, with extensive product ranges and short order books, requires a regional manufacturing strategy with plants throughout the world to optimise customer service and minimise costs. We will continue to invest on a regional basis and increase focus on developing our entire supply chain to enhance product availability, increase flexibility, reduce costs and improve service levels in support of sales growth.

· Operate sustainably and help improve our customers' sustainability. Our approach to sustainability encompasses four primary areas of emphasis: good corporate governance, employee wellbeing, community engagement and environmental stewardship. We believe that effective management in each of these areas is essential to improve our long-term sustainability. Further, our business is centred on providing environmentally-friendly solutions to our customers, helping them to improve the efficiency of their plant operations, reduce their energy and water usage, improve quality and meet their sustainability targets.

Steam Specialties Business

EMEA

Sales in Europe, Middle East and Africa (EMEA) declined slightly from £120.6 million to £119.3 million. Exchange movements were negative reducing sales on translation by 4% with sterling stronger against every currency including 3% against the Euro and mid-teen gains against the South African Rand, Russian Rouble and Turkish Lira. Organic sales increased by 3%, continuing the trend of 2013. We increased sales of boilerhouse products, packages and traditional condensate management products but were unable to sustain the growth in services from last year. Overall, operating profit increased again, rising by 7% or 11% at constant currency. The operating margin expanded from 18.8% to 20.3% due to the higher sales, continued focus on price management and costs containment. Material costs continued to be broadly flat through the first quarter and, as expected, moderately increased in the second quarter.

Economic conditions in EMEA, and in particular growth in Industrial Production, improved towards the end of last year and has been sustained in 2014, albeit at low levels of growth. Our markets tend to lag the movements in Industrial Production by a few quarters and we have begun to see some improvement of demand in a number of markets. Overall economic conditions in EMEA remain challenging and recent political events in Eastern Europe have created renewed uncertainty. We continue to focus on stimulating our own growth through our direct sales approach; generating value-adding solutions to customers' energy and water saving, productivity, quality and cost reduction needs.

In our larger markets of Germany, France, Italy, Spain and the UK, combined sales were again modestly ahead, with the latter two in particular generating higher sales and with project work increasing in Italy. Combined profits and margins were also ahead in these larger markets, due to a continued focus on a better business mix, price management and cost containment. Sales, profits and margins were well ahead in Scandinavia as the increased sales fed through into an improved trading performance. In the EMEA emerging markets, at constant currency, sales were modestly down due to the non-repeat of several exceptional projects in the Czech Republic and the Middle East; however, profits were comfortably ahead driven by strong performances in Turkey, Russia and South Africa.

In our main European manufacturing operations in the UK and France, demand levels were broadly flat and profits were overall ahead of a good first half of last year. We achieved further improvements in service levels, which will remain a key focus alongside improvements in efficiency and in our end-to-end supply chain. Investment in R&D has been maintained at the higher levels established over recent years.

Asia Pacific

Sales in Asia Pacific were 1% ahead at constant currency but reduced 6% from £80.8 million to £75.5 million at reported exchange rates. Currency movements were unfavourable with sterling stronger against all currencies in which we operate and with double digit movements in average exchange rates in a number of countries. Economic conditions have been mixed with slower growth in Industrial Production rates in China, Indonesia, the Philippines and Thailand, and improved Industrial Production growth rates in other markets including Japan and Australia. We also saw marginal improvements in Korea later on in the period, although our markets typically lag the economic cycle by a few quarters. We saw a pick-up in large projects compared with the first half of 2013, resulting in a higher level of project-related backlog as we enter the second half year. Sales increased in our core steam specialties products and were much higher in metering, reflecting greater customer focus on reducing energy costs. Operating profit reduced from £19.8 million to £16.8 million and at constant currency the reduction was 4% due to an expansion of our operations in Indonesia, continued price pressure in some markets and the year-on-year effect of increased investment in market expansion during 2013. The operating profit margin was 22.2% (2013 : 24.6%).

China, which is the largest sales and profit contributor in the Group accounting for 10% of Group sales in 2013, saw overall flat sales at constant currency and lower profits, as the increased demand rebuilt the order book from the relatively low level at the end of 2013. As anticipated, economic growth rates moderated in China and whilst our business is heavily linked to the more resilient sectors such as foods & beverages, pharmaceuticals, textiles and healthcare, we have seen some extended shipment call-off dates due to general customer financing issues. Project work and OEM business has been under pressure but overall demand increased and the order book is more than 20% larger than the comparable period as we enter the second half. In line with our regional manufacturing strategy, output from our plant in Shanghai was expanded to increase the proportion of local manufacture and to support regional demand in Southeast Asia, where the shorter supply chain improves customer service levels.

First half sales in Korea were a little lower at constant currency reflecting the timing of project business, which carries a greater weight than in most other markets. Domestic project work has seen some delays but quotations are running at a healthy level. Our order book is higher than in the comparable period and we again expect a much stronger second half year. Korean operating profit was higher in the first half, largely due to a better mix of business. There was an improved performance in Japan and we achieved higher sales and profits in our businesses in Australasia. Elsewhere in the much smaller markets of the region, trading was more mixed.

Americas

The 10% decline in sales in the Americas from £66.6 million to £59.8 million was heavily influenced by unfavourable currency movements as the constant currency sales were ahead 5%. Sterling was stronger against all currencies and the Argentine Peso devalued significantly. Economic conditions improved in the USA, Canada and Mexico with higher levels of Industrial Production growth but conditions deteriorated again in Latin America, with negative Industrial Production rates returning in Argentina, Brazil and Chile. Overall constant currency sales increased in both North America and Latin America. Operating profit was broadly unchanged at £11.9 million (2013 : £12.0 million) but was 35% ahead at constant currency due to improved price management, good cost controls and the benefit of exports from Argentina following the devaluation. The operating profit margin improved from 18.0% to 19.8%.

Overall sales in the USA and Canada were modestly higher in constant currency due to a strong first quarter. In the USA, we are increasing the focus of our sales force to align with customer segments and expanding direct customer advisory time, although these changes will only impact progressively. Large project business for energy savings and process productivity improvements remains subdued, while core maintenance and operating spending by customers was modestly ahead. Profits were well ahead in North America as we benefitted from improved price management, favourable product mix, flat material costs and reduced overheads.

Market conditions in Latin America turned negative again, although overall sales increased at constant currency. Sales and profits were well ahead in Chile and also in Argentina where we manufacture both to support the local market, where our competitive position is strengthened by the devaluation, and also external markets, where we benefitted from dollar-based exports. Elsewhere, overall sales in constant currency were slightly down, with lower sales in Brazil, whilst in Mexico we were unable to repeat the particularly strong performance in the first half of last year and profits were lower. The new manufacturing plant in Mexico became fully operational in the second quarter and is being integrated into our Americas manufacturing strategy.

Watson-Marlow Pumps

Sales were up 9% at constant currency, almost half of which arose from the first time contribution of Bio Pure, acquired in January 2014, that specialises in the design and production of advanced single-use tubing connector systems for the Biopharmaceutical industry. Unfavourable exchange movements reduced the reported sales increase to 2%, from £63.6 million to £64.5 million. Operating profit rose by 6% from £18.1 million to £19.3 million, raising the operating margin to 29.9% despite the impact of exchange from manufacturing in Europe. At constant currency the profit increase was 18%.

Sales increased across all industry sectors except precious metals mining. There were good gains in Biopharmaceuticals, with increased sales of Flexicon filling systems and Watson-Marlow products, strong growth in Asia Pacific and a boost from the Bio Pure acquisition. Water treatment markets improved, particularly in the USA, where the new Qdos pump continues to gain good traction. OEM demand has been strong with more project business than in the comparable period. Mining markets worldwide were again lower with the platinum sector hit hard and subdued levels of investment expected to continue.

Sales and profits were ahead in all geographic regions at constant currency. Good growth continued in EMEA, benefitting from the increased sector focus and capitalising on opportunities for more effective direct sales. In Asia Pacific, our newer operating units in India, Malaysia and Singapore did particularly well and in the Americas, sales were ahead in all operations at constant currency. We remain focused on R&D to extend the capability of our peristaltic and niche pumps and take market share from other pump types. The Qdos pump range was recently extended with the launch, on 1st July, of the higher flow Qdos 60 version and developments continue in tubing and hose applications.

Balance sheet and cash flow

Capital employed increased by 6% at constant currency from £344 million at the start of the year to £355 million at 30th June 2014. Our business is seasonal and capital employed increased by just 1% at constant currency compared with 30th June 2013. We continued to exercise good control over working capital in the first half, with a small improvement in average debtor days. Investment in fixed assets was higher at £19 million compared with £13 million in the first half of last year due to completion of the new factory in Mexico, additional land in China and IT systems in Watson-Marlow.

Our balance sheet remains strong with good cash generation. There was an outflow of £9 million in respect of acquisitions, principally Bio Pure which was acquired in January 2014. Unfavourable currency movements reduced opening cash balances by £7 million on translation. Net debt at 30th June 2014 was £1.5 million compared with net cash of £16.4 million at 31st December 2013 and £57.4 million at 30th June 2013.

The triennial valuation of our main UK pension schemes as at 31st December 2013 is nearing completion and is expected to show an improved position, including favourable experience gains since the previous valuation at the end of 2010.

Principal risks and uncertainties

The Group has a robust risk management process in place to identify, evaluate and manage the identified risks that could impact the Group's performance. The current risks, together with an explanation of the impact and mitigation actions, are set out in the 2013 Annual Report on pages 26 to 27. The Group has reviewed these risks and concluded that they represent the current position and remain relevant for the second half of the financial year. A summary of the relevant key risks and uncertainties is:

· Economic and political instability

· Significant exchange rate movements

· Loss of manufacturing output at any Group factory

· Breach of regulatory requirements

· Non-compliance with health, safety and environmental legislation

· Defined benefit pension scheme deficits

· Failure to respond to technological developments or customer needs

· Failure to realise acquisition objectives

In the area of economic and political instability, the Group continues to carefully monitor developments in Europe and the Eurozone. We are keeping the events in Russia and Ukraine under constant review and update our Sanctions Policy as announcements are made. We have a well-established and profitable business in that region, which currently accounts for approximately 1.5% of Group sales. Our overall geographic diversity limits the impact of instability in any particular region. Exchange rate movements are also monitored closely and we keep mitigating actions under review.

Outlook

We have a robust business model with an increasing sector focus by our direct sales force to leverage our understanding of our customers' applications and apply appropriately engineered solutions to help our customers solve their energy efficiency, water saving, productivity, quality and pumping needs. Our business is resilient due to the wide diversification across geographic regions, end markets, customers and products, combined with a high proportion of revenues generated from replacement demand and maintenance spending.

Our markets are largely influenced by changes in economic conditions and in particular the rate of growth in Industrial Production, which our markets typically lag by a few quarters. Global Industrial Production growth has exhibited an overall improvement since the fourth quarter of 2013, albeit to still relatively low levels of growth. We continue to assume that this small improvement in global Industrial Production rates will be reflected in a modest up-tick of our markets through the second half of this year but remain focused on our strategic priorities to generate our own growth and out-perform our markets.

The benefit from generally flat material costs moderated in the second quarter and is expected to continue at this slower pace for the remainder of the year. Currency movements have been increasingly unfavourable this year but if current exchange rates prevail to the end of the year, the 7.6% first half year exchange translation impact on sales moderates to 6.8% for the full year, due to comparison with the strengthening of sterling in the second half of 2013.

We anticipate that our markets will remain challenging but as we enter the second half year we have a larger backlog than in the comparable period of 2013 and the Board remains confident that we will continue to make progress in 2014.

STATEMENT OF FINANCIAL POSITION

CONSOLIDATED INCOME STATEMENT

Adjusted figures exclude certain non-operational items as detailed in note 2.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CASH FLOW STATEMENT

NOTES TO THE ACCOUNTS

1. BASIS OF PREPARATION

Spirax-Sarco Engineering plc is a company domiciled in the UK. The half year condensed consolidated financial statements of Spirax-Sarco Engineering plc and its subsidiaries (the 'Group') have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. The accounting policies applied are consistent with those set out in the 2013 Spirax-Sarco Engineering plc Annual Report.

These condensed consolidated half year financial statements do not include all the information required for full annual statements and should be read in conjunction with the 2013 Annual Report. The comparative figures for the year ended 31st December 2013 do not constitute the Group's statutory accounts for that financial year as defined in section 434 of the Companies Act 2006. The consolidated statutory accounts for Spirax-Sarco Engineering plc in respect of the year ended 31st December 2013 have been reported on by the Company's former auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the companies Act 2006.

The consolidated financial statements of the Group in respect of the year ended December 2013 are available upon request from Mr A. J. Robson, General Counsel and Company Secretary, Charlton House, Cheltenham, Gloucestershire, GL53 8ER, United Kingdom or on www.spiraxsarcoengineering.com.

The financial statements for the six months ended 30th June 2014, which have not been audited or reviewed by the auditors, were authorised by the Board on 6th August 2014.

The interim report has been prepared solely to provide additional information to shareholders as a body to assess the Group's strategies and the potential for those strategies to succeed. This interim report should not be relied upon by any other party or for any other purpose.

GOING CONCERN

Having made enquiries and reviewed the Group's plans and available financial facilities, the Board has a reasonable expectation that the Group has adequate resources to continue its operational existence for the foreseeable future. For this reason, it continues to adopt the going concern basis in preparing the condensed consolidated financial statements. There are no key sensitivities identified in relation to this conclusion.

NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED

There are a number of new standards, amendments to standards and interpretations that are not yet effective for the period ended 30th June 2014 and have, therefore, not been applied in preparing these condensed consolidated interim financial statements. None of these are anticipated to have a significant impact on the consolidated income statement or consolidated statement of financial position.

SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of interim financial statements in conformity with adopted IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31st December 2013.

The Directors have considered the facts and circumstances as at 30th June 2014 and concluded that there are no indicators of impairments that require an impairment review to be undertaken on goodwill at the interim statement of financial position date. The annual impairment review will be undertaken later in 2014 consistent with the timing in previous years.

CAUTIONARY STATEMENTS

This interim report contains forward-looking statements. These have been made by the Directors in good faith based on the information available to them up to the time of their approval of this report. The Directors can give no assurance that these expectations will prove to have been correct. Due to the inherent uncertainties, including both economic and business risk factors underlying such forward-looking information, actual results may differ materially from those expressed or implied by these forward-looking statements. The Directors undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

RESPONSIBILITY STATEMENT

The Directors confirm that to the best of their knowledge:

· this financial information has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

· the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year.

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.

The Directors of Spirax-Sarco Engineering plc on 5th August 2014 are the same as those listed in the 2013 Annual Report on pages 60 and 61 with the exception of Mark Vernon who retired on 15th January 2014, Gareth Bullock who retired on 20th May 2014 and Jamie Pike who was appointed on 1st May 2014.

N J Anderson

Group Chief Executive

6th August 2014

D J Meredith

Finance Director

6th August 2014

On behalf of the Board

2. SEGMENTAL REPORTING

Analysis by location of operation

Non-operational items

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 Group's performance. Adjusted operating profit excludes certain non-operational items which are analysed below:

Net assets

The total assets and liabilities of the four segments have not been disclosed as there has been no material change in the amounts disclosed in the 2013 Annual Report and Accounts.

Capital additions include property, plant and equipment at 30th June 2014 of £16,144,000; at 30th June 2013 of £13,716,000; and at 31st December 2013 of £21,835,000; and other intangible assets at 30th June 2014 of £6,356,000; at 30th June 2013 of £3,607,000; and at 31st December 2013 of £9,392,000. Depreciation and amortisation includes amortisation of acquisition-related intangible assets.

Exchange rate impacts

Average exchange rates to sterling have been as follows:

\* The total exchange effect includes intra-segment effects, but they are excluded from the currency exposure figures

\* This measure uses adjusted operating profit

4. TAXATION

Taxation has been estimated at the rate expected to be incurred in the full year

5. EARNINGS PER SHARE