John Crane
|
2009 |
2008 |
Reported |
Underlying |
Sales |
393 |
283 |
39% |
6% |
Headline operating profit |
66 |
41 |
62% |
18% |
Headline operating margin |
16.8% |
14.4% |
|
|
Statutory operating profit |
40 |
34 |
|
|
John Crane’s reported sales rose 39% and headline operating profit increased by 62%. Sales benefited from currency translation (£47m) and from acquisitions (£44m) giving underlying sales growth of 6%, or £19m. Similarly, headline operating profit benefited from currency translation (£8m) and from acquisitions (£9m), leaving an underlying growth rate of 18%. Margins increased by 240 basis points to 16.8%. The strong sales growth has been driven by continued demand for original equipment orders and aftermarket servicing. The petrochemical industry has remained the principal driver of growth with underlying demand continuing to be strong.
The provision of aftermarket maintenance and repair services to customers represents some two-thirds of John Crane’s sales. The sale of original equipment for new production facilities is a third of sales and creates subsequent aftermarket service opportunities that are delivered via John Crane’s industry-leading, global network of service centres. Some 132 local service centres are now sited in 54 countries worldwide and this number is expected to rise. These facilities provide a range of added value services including repair, root cause analysis, alignment and condition monitoring all designed to improve the performance of customers’ rotating equipment and to reduce downtime. Current developments are focused on key growth markets. In the Middle East, we have opened four new facilities including a wet seal service centre in Bahrain and a service, sales, manufacturing and training facility in Damman, Saudi Arabia. In Asia Pacific, three service centres have been opened. We now have an expanded service capability in Rayong, Thailand to serve the petrochemical and oil & gas markets; a new facility in Darwin, Australia to service the oil & gas and minerals mining markets; and a new state-of-the-art wet and gas seal service facility in Tianjin, China, which is part of the recently opened John Crane China facility.
In end markets, underlying sales to the petrochemical/oil & gas sector were ahead of last year. Organic sales in other energy grew substantially, while commercial & refrigeration also grew well. The chemical, textile and pharmaceutical markets also saw good growth while industrial (power), pulp paper and mining decreased marginally.
At the start of this fiscal year, we launched a restructuring programme to create one global John Crane division by integrating the two existing regional organisations. Strategy and planning are now co-ordinated globally, while engineering, operations & supply chain strategy, finance, IT, human resources and legal operate globally. Sales and service functions have been kept close to our customers in regional organisations. These changes are facilitating improved customer focus, quicker decision-making, better delivery, and more effective communications. In the period, we spent £3m and delivered savings of £3m. Overall, the project was forecast to cost £24m and deliver annual savings of £25m.
Implementation of a new ERP system is underway across Europe with 10 markets now successfully online. The project has progressed into the Middle East and will proceed to Asia. Investment to date has been £20m out of a projected total of £24m. The project is expected to generate annual cost savings of £10m after completion in June 2010.
As part of an acquisition strategy to support growth, John Crane is expanding its product portfolio with complementary technologies for similar customers that can leverage the global sales and service network, and is building an upstream energy services business. The product portfolio has expanded with the acquisition of Indufil – a manufacturer of filtration systems for rotating equipment – and the creation of John Crane Bearing Technology from the acquired engineered bearings business of Sartorius. Indufil continued to see solid growth in the first half. Initial integration activities have focused on finance, IT, operations and developing the required skills in the John Crane sales force to promote Indufil’s products through the global John Crane sales and service network. John Crane Bearing Technology saw good growth both in order intake and sales specifically for compressors and turbines. Integration activities are ongoing and have included migration to John Crane’s ERP system. Training and development activity for the sales force is well underway to promote and sell the product range through John Crane’s extensive network. General financial performance is ahead of expectations for this business.
In the upstream energy sector, John Crane Production Solutions business unit has been formed to capitalise on the synergies of the CDI Energy Services and Fiberod acquisitions. These businesses continue to perform well on a global basis. CDI has continued to grow at double digit rates, and has recently completed a major retrofit programme on pumping wells in Romania to improve the country’s oil and gas production. Fiberod has also experienced high double digit growth. The success of these two companies is driven by their exceptional service capabilities and ability to offer customers reduced operating costs.
John Crane Production Solutions has launched a solar-powered low volume pumping system (LVPS) which minimises carbon emissions during gas extraction. The ECO2 pumping unit, which has been specifically developed for the LVPS, consumes less power than a handheld hair dryer and is being trialled by a major energy company at various sites in North America. ECO2 works by pumping water from the underground field – using Fiberod’s lightweight sucker rods – allowing gas to travel to the surface where it is then collected and transported via pipelines. The system enables easier and more economical access to wells in remote areas than traditional artificial lift systems, which are powered by other methods and require miles of transmission cables and costly electricity to work.
Outlook
Two thirds of John Crane’s sales is derived from the aftermarket where the oil & gas and power sectors remain relatively stable. It is anticipated that the chemical and industrial sectors will continue to be challenging. The order book for original equipment, which represents around one third of sales, remained strong in the first half and this is expected to underpin sales during the second half of this fiscal year. However, since January, orders for original equipment have softened as a result of lower capital investment by customers. The major restructuring programme which we began last year to deliver improved customer focus and operational efficiencies will help to underpin enhanced margins. This programme remains flexible to respond to the changing market conditions which we are monitoring closely with our customers.