Trading
We are the world leader in industrial steam and in peristaltic pumping. Both Spirax and Watson-
Marlow have robust business models that are serving us well in today’s market environment. We
work closely with our customers in supplying a wide range of products, services and engineered
packages to generate energy savings, lower emissions, process efficiency, quality improvements
and compliance assistance to meet increasingly stringent health and safety regulations. On a long-
term basis, the cost of energy remains relatively high, and this continues to provide a backdrop in
which we work with our customers to reduce their energy consumption and also lower their flue gas
emissions. In the first half of 2009, we achieved a constant currency sales increase from our
prefabricated heat transfer packages - a product segment which we had previously targeted for
growth - evidence of the effectiveness of our solutions selling approach.
We have adopted the new accounting standard IFRS 8 Segmental Reporting for 2009. The new
segmental disclosures give greater visibility and enable a better understanding of the business. The
new segments comprise the Steam Specialties business geographically split into EMEA (Europe,
Middle East and Africa), Americas (North and South America) and AsiaPac (Asia Pacific), and the
Watson-Marlow Pumps business.
Steam Specialties Business
Europe, Middle East and Africa (EMEA) market conditions weakened considerably in Q4 of 2008
and have remained difficult in 2009. Sales were 2% higher at £113.2 million (down 8% at constant
currency) including a small contribution from the Colima business acquired in 2008. Market
conditions and results were mixed from country to country. After two consecutive years of doubledigit
annual growth, sales declined in the UK. Our larger selling companies in France, Germany and
Italy each performed well in the prevailing conditions, although our M&M business in Italy was
impacted by lower demand from OEMs. Reduced volume at our factories in the UK and France,
including some internal de-stocking by our direct sales operations, resulted in a significant drag on
profit - this should be mitigated somewhat in the second half year as we benefit from our cost
reduction programme. We achieved higher sales of prefabricated heat exchange packages and
services across Europe. Credit tightening and a steep drop in industrial production negatively
impacted our Russian business which has had historically a higher percentage of projects. For the
first half, overall operating profit in EMEA declined by 23% (down 31% at constant currency) to
£15.6 million.
Sales in AsiaPacific increased 8% to £49.0 million (down 7% at constant currency). We reduced
backlog at our large company in China and benefited from more favourable exchange rates,
resulting in a good profit increase in China. Sales declined nearly 10% at our Korean operation and
this, together with the weak local currency, resulted in an even greater decline in trading profit. We
have some large projects on hand in Korea that we expect to ship in the second half year and
therefore anticipate a good sequential profit improvement. Profits in India (an Associate) were up
substantially over last year on higher sales, as we benefited from project sales that were shipped
from the backlog. Sales and profits results were somewhat mixed elsewhere throughout
AsiaPacific, with Singapore, Taiwan and Thailand turning in weaker profits, but with higher profits
from Australia and Malaysia. Total operating profit in AsiaPacific was 10% ahead at £9.4 million
(down 23% at constant currency).
Sales in the Americas increased 7% to £51.0 million (down 11% at constant currency). The sales
decline in constant currency was widespread across our companies in the USA, Canada, Argentina
and Brazil, although the fall in Brazilian sales occurred in the second quarter. End-user
manufacturing output declined significantly in both Argentina and Brazil, where customer exports
have also sharply declined. General industrial market weakness in both Canada and the United
States resulted in lower sales of our traditional steam specialties products, offset partially by higher
sales of prefabricated heat exchange packages. The operating profit in the Americas was 2% higher
than in the same period in 2008 (down 16% at constant currency).
Watson-Marlow Pumps Business
The Watson-Marlow pumps segment performed generally in line with the Steam Specialties
Business. Sales increased 10% to £38.3 million (down 7% at constant currency). The market in
EMEA was generally difficult with lower sales of Bredel pumps in particular. Sales in Asia increased
over 50% as we began to reap the benefits of our investment in selling resources, albeit against a
small sales base. Constant currency sales in the Americas were flat due largely to higher Flexicon
shipments and continued good sales of Watson-Marlow pumps into the biopharmaceutical market.
Overall operating profit was unchanged at £8.9 million (down 25% at constant currency),
representing a trading margin of 23%.
