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  Accounting Standards
  Results
  Return on Investment
  Cash Flow
  Funding and Gearing
  Treasury Policy
  Foreign Exchange and Cash Management
  Share Price
Group Profit and Loss Account
Energy Controls
 
 

Results
Results for the year were ahead of 1999 with the first half showing stronger sales and profit before tax, exceptional items and goodwill amortisation (PBTEGA) and the second half marginally up on sales but PBTEGA lower.

   
 
The continued weakness of the Euro helped to stimulate growth in many of our European markets but increased the competitive pressures on our UK and US manufacturing businesses. The effect on the profit and loss from currency translation changes was not significant.

Increases in raw material costs, particularly in the first half, significantly affected both margins and cash flow. Copper on average increased by 23% over 1999 and the Polypipe businesses were faced with increases of around 40% on some polymers. It was not possible to immediately pass through such large increases and inevitably margins suffered in the period. Towards the end of the year input prices eased and selling price increases implemented earlier started to become effective.

Rationalisation costs in 2000 were £6.7m compared with £13.3m last year (which included £5.1m following the acquisition of Herion). The major spend was in tube and fittings in Hydronic Controls, the US Drinks Dispense operations and the valve operations and US automotive within Fluid Power.

Acquisitions contributed £136m sales and £12.2m operating profit before goodwill amortisation. This includes £120m sales and £10.5m profit in respect of the additional months' contribution from the Polypipe businesses acquired in May 1999. Robimatic and Flow Design were both acquired in August 2000 and their results have been included from that date. It is estimated that after taking into account interest costs the net impact of acquisitions was to increase PBTEGA by £2.2m.
The comparison for the first half and second half of the year is:  
    2000
% Change		 2000
£m		 1999
£m		    
  Sales:            
  First half +15.0 813   706    
  Second half + 0.8 802   796    
 
    + 7.5 1615   1502    
 
  Operating profit before goodwill:  
  First half + 21.3 86.1   71.0    
  Second half + 0.4 90.2   89.8    
 
    +9.6

176.3

   160.8    
 
  PBTEGA:            
  First half +7.9 72.7   67.4    
  Second half +2.6 75.6   77.6    
 
    +2.3 148.3   145.0    
 
  Profit before tax:            
  First half -7.0 66.4   71.4    
  Second half +49.3 77.2   51.7    
 
  Year +16.7 143.6   123.1    
 


The most important foreign currencies for the Group are the Euro and the US Dollar, the relative average rates of exchange were:  
    2000 1999    
  Euro 1.64   1.52    
  US Dollar 1.52   1.62    
 

 
 

 

 

In December 2000 we sold the Fittings Australia operation and the results to the date of sale and the previous year have been shown as discontinued. Also shown as discontinued are the 1999 results of the copper smelting and Brazilian beverage dispense equipment businesses which were closed and the Marston aerospace business which was sold in 1999.

Interest costs for the year increased by £12.2m, of which, it is estimated, £10m was in respect of acquisitions. Higher interest rates and higher average working capital requirements largely accounted for the balance. Interest cover for the year was 6 times (1999:10 times) and 6 times for the second half of the year (1999: 7 times).

We were successful in disposing of surplus properties during the year realising £15m cash and £10m profit which is shown as an exceptional item along with the £0.5m profit on sale of Fittings Australia.

A summary of the major changes in sales and profit compared to 1999 is as follows:
   
  The tax charge on profit before exceptional items and goodwill amortisation is 32%, the same as last year. The tax charge on profit before tax is higher at 34% mainly because goodwill arising on consolidation is not eligible for UK tax relief.

Earnings per share (EPS) both adjusted and basic were: The total dividend of 15.5p is a 2.6% increase over 1999 and is covered 1.85 times on pre-exceptional and pre-goodwill earnings and 1.74 times after exceptional items and goodwill.
   

  The major changes in sales and profit compared to 1999 is summarised below:  

The comparison for the Earnings Per Share (EPS) is:

 
    Sales
£m		 PBTEGA
£m		 PBT
£m		    
  First Half:              
  As reported in 1999 706   67.4   71.4    
  Effects of currency translation (13 ) (0.6 ) (0.6 )  
 
  Sales & operating profit:              
  Acquisitions 120   10.5   6.2    
  Rationalisation costs     4.6   4.6    
  Other continuing operations 18   (2.3 ) (2.3 )  
  Discontinued operations (18 ) 2.9   2.9    
  Net interest cost     (9.8 ) (9.8 )  
  Exceptional items         (6.0 )  
 
    813   72.7   66.4    
  Second half:              
  As reported in 1999 796   77.6   51.7    
  Effects of currency translation 10   0.3   0.3    
  Sales & operating profit:              
  Acquisitions 16   1.7   0.9    
  Rationalisation costs     2.0   2.0    
  Other continuing operations (3 ) (4.7 ) (6.0 )  
  Discontinued operations (17 ) 1.1   1.1    
  Net interest cost     (2.4 ) (2.4 )  
  Exceptional items         29.6    
 
    802   75.6   77.2    
 
  Year 1615   148.3   143.6    
 
   
 
    2000 % Change

p		 1999

p 		   
  Adjusted EPS              
  First half +10.2   14.0   12.7    
  Second half -4.6   14.6   15.3    
 
  Year +2.1   28.6   28.0    
 
  Basic EPS              
  First half -8.2   12.2   13.3    
  Second half +60.2   14.9   9.3    
 
  Year +19.9   27.1   22.6    
 

As can be seen in the following table, our continuing businesses, both in terms of production and markets, are predominantly European and American.

  
      Sales %

   
Location Market
  UK 35   29    
  Rest of Europe 34   37    
  Americas 28   25    
  Rest of World 3   9    
 
    100   100    
 

 
 
  Segmental analysis
The sales and operating profit of continuing businesses by business area are shown in the Financial Statements. The percentage of sales and operating profit (before goodwill amortisation) is shown below.
   
 
 
 

Goodwill
Goodwill arising on consolidation is being amortised over 20 years. Following a final review of fair values, provisional goodwill for 1999 was increased principally to cover trade warranty costs. Goodwill amortisation increased during the year mainly as a result of the inclusion of Polypipe for a full year. No impairment provision was required for businesses with acquired goodwill on the balance sheet at 31 December 2000.

Return on Investment
Return on capital employed of continuing operations, defined as operating profit before goodwill amortisation as a percentage of the average operating assets plus all goodwill at cost including the amount deducted from reserves, was 13%. This equates to a post tax return of 9% using the corporate tax rate of 32%.

 
  Cash Flow
The Group cash flow statement is shown within this website. Please click here to load it. The change in net debt is summarised below:
   
 
    2000
£m		 1999
£m		    
  Operating profit before depreciation 246   231    
  Working capital requirements (45 ) (10 )  
  Capital expenditure less sales (47 ) (45 )  
 
 
  Operating cash flow 154   176    
  Tax paid (38 ) (31 )  
  Dividends paid (54 ) (52 )  
  Interest paid (net) (29 ) (16 )  
 
 
  Free cash flow 33   77    
  Acquisitions and disposals          
  Including acquired debt (39 ) (385 )  
  Issue of shares 1   2    
  Currency translation (10 ) 4    
 
  Change in net debt (15 ) (302 )  
 
   
  The comparison for the first half and second half of the year is:
   
    2000
£m		 1999
£m		    
  Operating cash flow:          
  First half 18   55    
  Second half 136   121    
 
 
    154   176    
 
 
  Free cash flow:          
  First half (48 ) 2    
  Second half 81   75    
 
 
    33   77    
 
 
  Change in net debt:          
  First half (66 ) (361 )  
  Second half 51   59    
 
    (15 ) (302 )  
 
 
 

Operating cash flow was 87% (1999: 109%) of operating profit before goodwill amortisation. Gross capital expenditure was approximately one times depreciation, the same as last year. Working capital increased during the first half of the year for seasonal trading and returned to lower levels by the year end. It is estimated that raw material input costs have increased working capital by some £10-£15m. Free cash flow, after servicing all finance costs and dividends was £33m (1999: £77m) and compares with retained earnings of £40m.
 
  Funding and Gearing
Net debt of £403m at the year end comprised cash of £50m and debt of £453m. Gearing at 84% compares with 90% at the end of 1999. Currency changes added £10m to net borrowings at 31 December 2000.

No major refinancing was required during the year apart from the extension of certain short term banking facilities. The Group anticipates no difficulty in renewing existing facilities or increasing borrowing capacity should the need arise. There are no material funds outside the UK where repatriation is restricted.

The Group minimises the translation risks associated with holding currency net assets through the use of currency loans and foreign exchanges contracts. The effects of short term swings in interest rates are smoothed through a combination of fixed rate debt and derivative contracts. Analysis of this hedging can be seen in Note 18 to the Financial Statements.
 
  Treasury Policy
The Group's central treasury function operates within Board approved policies and parameters encompassing currency, interest, funding and cash management risks. The function's objective is to provide a sound financial base where the major financial risks are minimised. The use of derivative instruments is permitted where their effect is to reduce the Group's risk. A control and reporting system is in place to ensure compliance with policies. There have been no changes in the year or since the year end to the Group's approach to financial risk management.
 
 

Foreign Exchange and Cash Management
The Group's policy is to minimise exchange risk on transactions by hedging exposures at the time of commitment or when there is a high probability of future commitment using currency instruments (primarily forward exchange contracts). The Group's wide geographic spread enables a certain amount of exposures to be netted centrally by the treasury function. The Euro has helped to make this process more efficient both in general cash management and exchange rate exposure.
 
 

Accounting Standards
The Group accounting policies fully reflect the current requirements of the Accounting Standards Board. This year the Group has adopted FRS16: Current Tax.

 
 

Share Price
The share price at 31 December 2000 was 237p (1999: 268p) valuing the Group at £833m. This compares with shareholders' funds of £478m and capital invested, including goodwill deducted from reserves, of £925m. Based on the year end share price, the total dividend of 15.5p per share gives a yield of 6.5%.