Spirax-Sarco finishes first half about as expected

Spirax-Sarco Engineering presented a first-half performance broadly in line with expectations on Thursday, showing a mixture of gains and challenges across its sectors.

The FTSE 100 company reported an overall revenue increase of 13%, amounting to £850.8m.

However, that momentum was not reflected in all its financial metrics, with adjusted operating profit dipping 4% to £171.7m, and its adjusted operating profit margin decreasing 360 basis points to 20.2%.

Its adjusted profit before tax experienced a decline of 12%, reaching £153.5m, while adjusted basic earnings per share dropped 11% to 155.2p.

When broken down organically, revenues grew by a modest 2%.

Notably, there was significant growth in the Steam Specialties sector, with sales rising 15%, and an improved adjusted operating profit margin by 190 basis points on an organic basis.

The ETS segment also saw organic sales growth, of 7%, but a decline in the adjusted operating profit margin due to weaknesses in Semicon WFE.

However, the Watson-Marlow sector faced challenges, with a 21% decline in organic sales.

Spirax-Sarco said the decrease was largely due to lower Biopharm sales, although it noted that underlying demand for Biopharm remained robust, and was optimistic about a return to growth in 2024.

Further challenges came from statutory metrics where the operating profit fell 7%, and the margin declined 340 basis points, primarily due to an ERP write-down and restructuring efforts.

The 360-basis point decrease in the adjusted operating margin was meanwhile blamed on an unfavourable sales mix.

On the brighter side, the firm highlighted that the integration of both Vulcanic and Durex Industries was on a positive track and progressing well.

Spirax-Sarco also reported an adjusted cash conversion of 48% for the first half, and projected that its full-year conversion would surpass 70%.

In a show of confidence, the interim dividend was raised 8% to 46p, following a 12% cumulative increase in 2022.

“We achieved first half results that are broadly in line with our expectations, against the backdrop of continued destocking in the Biopharm and Semicon WFE sectors, as well as softening Industrial Production growth,” said group chief executive officer Nicholas Anderson.

“I am grateful to all our colleagues for their continued support of our customers' critical industrial processes against this challenging backdrop.

“The underlying demand for Watson-Marlow products and solutions remains as robust as in pre-pandemic periods, albeit the short-term headwind from Biopharm destocking is now expected to continue into 2024, with Watson-Marlow's competitive strengths and market-leading capabilities to service that demand remaining unchanged.”

Anderson said that similarly, the company remained confident in the underlying growth drivers of the Semicon WFE sector.

“We are confident in our group's strength and our ability to navigate the current macroeconomic uncertainty and short-term headwinds, while continuing to drive strategic progress.

“Our robust business model, diverse reach across end-markets and geographies and clear opportunity to accelerate the decarbonisation of industrial processes underpin our confidence in the medium-term outlook.”

Reporting by Josh White for Sharecast.com.