2024 Half Year Results

8 August 2024

2024 Half Year Results

Results reflect mixed macroeconomic environment; second half expected to be stronger than first half

Six months ended 30 June

Nimesh Patel, Group Chief Executive Officer, commenting on the results said:

"Against the backdrop of a weak macroeconomic environment in some of our key markets and a strong currency headwind, first half results were slightly below our expectations.  We expect stronger growth in the second half, supported by higher IP, ongoing operational improvement in ETS and cost discipline.  While we have seen early signs of improving Biopharm demand, we do not anticipate a meaningful recovery until late 2024.

"Following my first six months as CEO, visiting our operations, colleagues and customers, I am confident in the fundamental quality of our three Businesses. We are delivering early operational improvements and will increase the pace at which we address these within our Group.  We are also focusing our investments to capitalise on global trends and high growth markets, which will accelerate our long term organic growth.  I thank my exceptional colleagues for their support and look forward to evolving and strengthening Spirax Group together."

⁺ 'Sales' is used interchangeably with 'revenue' when describing the financial performance of the Business

⁺⁺ 'STS': Steam Thermal Solutions; 'ETS': Electric Thermal Solutions

⁺⁺⁺ 'IP': Industrial Production growth

* Organic measures are at constant currency and exclude contributions from acquisitions and disposals

** 'Semicon' refers to ETS sales to the Semiconductor Wafer Fabrication Equipment sector

*** 'Biopharm' refers to Watson-Marlow sales to the Pharmaceutical & Biotechnology sector

See Appendix to the Financial Statements for an explanation of alternative performance measures and reconciliation to IFRS.

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About Spirax Group plc

Spirax Group (formerly Spirax-Sarco Engineering) is positioned to play a critical role in enabling the industrial transition to net zero, aligned to our Purpose to create sustainable value for all our stakeholders as we engineer a more efficient, safer and sustainable world.  We put solving customers' problems at the heart of our 'total solutions' approach.  Our global thermal energy and fluid technology solutions improve operating efficiency and safety in our customers' critical industrial processes.  Our new-to-world decarbonisation* solutions will use our proprietary technologies to electrify boilers, for the raising of steam, as well as the electrification of other critical industrial process heating applications.

Spirax Group comprises three strong and aligned Businesses: Steam Thermal Solutions helps customers control and manage steam within their mission critical industrial applications, such as cleaning, sterilising, cooking and heating.  We are helping to put food safely on the world's tables and keeping our hospitals running. Electric Thermal Solutions has proprietary technologies that deliver electrification solutions at scale in industrial settings, including for the raising of steam, supporting our customers to achieve their net zero goals. We also deliver freeze protection and defrost solutions critical to aviation and space industries and ensure thermal uniformity in Semiconductor chip manufacturing to power the critical electronic systems we rely on.  Watson‐Marlow Fluid Technology Solutions is engineering vital fluid technology solutions that optimise the efficient use of resources and support advancements in global health, such as lifesaving vaccines and gene therapies.

Spirax Group is headquartered in Cheltenham (UK). We have 37 strategically located manufacturing plants around the world and are committed to creating a safe and inclusive working culture for our 10,000 colleagues, operating in 66 countries and serving 110,000 customers globally. 

The Company's shares have been listed on the London Stock Exchange since 1959 (symbol: SPX) and we are a constituent of the FTSE 100 and the FTSE4Good Indexes.

* Eliminates scope 1 and 2 greenhouse gas emissions when connected to a green electricity source.

Further information can be found at spiraxgroup.com

RNS filter: Inside information prior to release

LEI 213800WFVZQMHOZP2W17 

SUMMARY FINANCIALS

* All adjusting measures are reconciled to their nearest statutory equivalent in the Appendix to the Financial Statements.

GROUP CHIEF EXECUTIVE OFFICER'S REVIEW

The challenging trading conditions highlighted in our May trading update continued through the remainder of the first half, with Group results slightly below our expectations.  ETS sales grew organically during the first half supported by operational progress.  Watson-Marlow sales also grew organically with a slight improvement in demand from Biopharm customers.  However, these organic gains were largely offset by macroeconomic weakness in our key markets impacting STS, where sales declined organically.  

Colleagues across the Group have responded to these external challenges, implementing actions to preserve profitability and drive future growth while improving our safety and sustainability performance.  I am grateful to all my colleagues for their support in my first six months as CEO and look forward to evolving and strengthening Spirax Group, together.

During the first half, we made changes to our Group Executive team.  Armando Pazos, Managing Director of ETS, will leave the Group at the end of August to be succeeded by Andrew Mines, who has led Watson-Marlow since 2020.  We thank Armando for his contribution to ETS, including his leadership of the acquisitions of Vulcanic and Durex Industries.  We have commenced a search for Andrew's successor and have put in place interim leadership.

On 8 July, we welcomed our new Chief Financial Officer, Louisa Burdett, to the Board and Group Executive team.  Céline Barroche will join us on 2 September, as Group General Counsel, member of the Group Executive team and Company Secretary. 

Tim Cobbold has been appointed as Chair of the Board of Directors to succeed Jamie Pike who is retiring at the end of 2024.  Tim will join the Board as a Non-Executive Director and Chair Designate from 1 September and will succeed Jamie as Chair of the Board of Directors and Nomination Committee on 1 January 2025.

On 6 August, the Group agreed to invest €4 million in return for an initial 12% stake in Sustainable Process Heat GmbH (SPH), a technology start-up in Germany that is pioneering the development of high temperature heat pumps (HTHPs).  We have an option to increase our shareholding upon SPH meeting certain technical milestones.  This additional investment would also trigger a commercial agreement, adding the HTHPs to our portfolio of solutions to electrify the generation of steam for critical, higher temperature applications where steam is used directly in our customers' industrial processes.

Market Environment

Source: CHR Economics 1 August 2024. 

IP remained weak through the first half, contracting in Germany, France and the USA, representing in aggregate 40% of Group sales in 2023.  In most of our key geographic markets, IP in the second quarter was lower than had been estimated at the time of our May trading update.  Globally, first half IP was 0.8%, excluding China, for which we continue to see volatility and a wide range across the different providers of IP forecasts.

In China, which represented over 10% of Group sales, the rate of expansion in our customers' industrial capacity remained materially weaker compared to prior years.  In light of the uncertain macroeconomic outlook, large projects, which are funded from customers' capital budgets, were materially lower across key sectors including Mining, Oil & Gas, Pharmaceuticals and Electric Vehicle (EV) battery manufacture.

CHR's full year forecast for global IP has been revised down materially from 1.9% in May to 1.5% in August (1.2% excluding China), with significant downward revisions to second half IP expectations in Europe and the Americas.  Second half IP in China also continues to be forecast to be materially lower than in the first half. 

Despite these revisions, forecast IP remains meaningfully higher in the second half compared to the first half, particularly in our key markets.  We remain cautious about the outlook for IP in the second half, particularly this forecast improvement.  Therefore, we have taken a more conservative view in our planning for the second half and have assumed a smaller improvement in IP over the first half.

Financial Performance

As a result of the weak macroeconomic environment in the first half, Group sales of £827.0 million (H1 2023: £850.8 million) were slightly below our expectations at 3% lower compared to the first half of 2023, including a material currency headwind of 4%.  On an organic basis sales were 1% higher, with ETS up 5% and Watson-Marlow up 3%, partially offset by a decline in STS of 1%.  STS sales growth in the first half of 2024 was lower against a particularly strong comparator, with sales in the first half of 2023 up 15% organically.

Group adjusted operating profit of £160.3 million (H1 2023: £171.7 million) was 7% lower compared to the first half of 2023, including a material currency headwind of 6% and broadly flat organically.  Organic growth in adjusted operating profit in ETS of 12% and Watson-Marlow of 2% was offset by a decline in STS of 2%. 

Group adjusted operating profit margin of 19.4% (H1 2023: 20.2%) was down 30bps organically.  We have continued to maintain cost discipline while ensuring we are investing in our sales and manufacturing capabilities, as well as long term growth opportunities.  STS margin of 23.5% was 30bps lower organically compared to the first half of 2023, reflecting lower sales.  This decline offset an organic increase in the ETS margin of 80bps, as operational improvements delivered increased throughput from Chromalox's manufacturing facilities.  Watson-Marlow's margin was broadly flat organically as the benefit of operational gearing from higher sales was offset by a full six months of costs relating to our new manufacturing facility in Devens, Massachusetts (USA).  

Statutory operating profit increased by 11% to £147.2 million and the statutory operating profit margin of 17.8% was higher by 230bps (H1 2023: 15.5%).  The first half of 2023 included a number of restructuring and write-down charges that impacted statutory operating profit.  The reconciling items between adjusted operating profit of £160.3 million and statutory operating profit of £147.2 million are shown below:

Adjusted earnings per share were 137.2 pence, a decline of 12%, reflecting lower adjusted operating profit together with the expected higher net interest cost and effective tax rate. 

Adjusted cash conversion in the first half of the year was in line with our expectations at 53% (H1 2023: 48%), reflecting the usual seasonality of the Group's cashflows.

The Board has declared an Interim dividend of 47.5 pence (H1 2023: 46.0 pence) per ordinary share, an increase of 3%, reflecting our confidence in a return to higher levels of growth and margin.  The dividend will be paid on 15 November 2024 to shareholders on the register at the close of business on 18 October 2024.

Full Year Outlook

For the Group, we expect mid-single digit organic revenue growth for the full year.  Adjusted operating profit margin is expected to be broadly in line with the 2023 margin, adjusted for currency headwinds, of 20.0%.  We anticipate full year adjusted cash conversion will be higher than in 2023, at approximately 75%.

We remain cautious on the scale of the forecast improvement in IP for the second half.  Therefore, we have taken a more conservative view in our planning and expectations for the second half.  Despite early signs of improvement in Biopharm demand, we do not expect a material recovery in sales from this or the Semicon sector in the second half of the year.   

If exchange rates at the end of July were to prevail for the remainder of 2024, there would be a headwind impact across the full year of approximately 4% to 2023 sales and approximately 8% to 2023 adjusted operating profit.  Our organic guidance is based upon 2023 currency adjusted sales of £1,615 million, adjusted operating profit of £321 million and an adjusted operating profit margin of 20.0%.

We anticipate second half organic sales growth in STS, driven by our usual seasonality and improving second half IP.  This will support low-single digit organic sales growth for the full year.  As previously indicated, we expect STS margin for the full year to be lower than the record 24.6% reported in 2023, reflecting currency headwinds, a lower contribution from our high margin business in China and the partial reversal of 2023 temporary cost containment initiatives.

Operational improvements in ETS are expected to support further organic sales, profit and margin growth in Industrial Process Heating in the second half.  In Industrial Equipment Heating, we do not anticipate a meaningful recovery in higher margin Semicon sales in the remainder of the year.  For the full year, we therefore anticipate mid-single digit organic sales growth in ETS with margin progress driven by Industrial Process Heating.

We expect Watson-Marlow sales to grow organically in the second half against the weak prior year comparator, but with lower Biopharm sales growth than previously anticipated as the expected recovery is unlikely until later in the year.  For the full year, we anticipate mid-single digit organic revenue growth with good margin progress.

Tax and Interest

As expected, net financing expenses increased to £21.9 million (H1 2023: £18.2 million) following a refinancing in late 2023 of maturing fixed rate debt at higher coupons due to increases in market interest rates.

The Group effective tax rate reflects the blended average of rates in tax jurisdictions around the world in which the Group operates.  As expected, the Group adjusted effective tax rate increased by 100bps to 26.5% due to an inflation adjustment in Argentina and the impact of the OECD's Base Erosion and Profit Shifting (BEPS) "Pillar 2" initiative (2023: 25.5%).  On a statutory basis the Group effective tax rate was 26.7% (2023: 24.7%).

Currency Movements

The Group's Income Statement and Statement of Financial Position are exposed to movements in a wide range of different currencies.  The largest currency exposures are to the euro, US dollar, Chinese renminbi and Korean won.  While the Group's businesses in Argentina are immaterial to the consolidated financial results, the level of volatility in the Argentinian peso has had a negative translational impact on Group reported financial performance. 

In the first half of the year, currency movements negatively impacted sales by 4% and adjusted operating profit by 6%.  If exchange rates at the end of July were to prevail for the remainder of 2024, there would be a headwind impact of approximately 4% on 2023 sales, or approximately 3% excluding the devaluation of the Argentine peso.  On the same basis, the headwind impact on 2023 adjusted operating profit would be approximately 8%, or approximately 5% excluding the Argentine peso devaluation.  The timing of the material devaluation of the Argentine peso in December 2023 exacerbates the headwind impact based on a materially higher average exchange rate in 2024 compared to 2023.

Adjusted Cash flow

Total working capital increased by £56.2 million reflecting typical seasonality.  Capital expenditure in the first half of the year was £44.1 million, or 5% of sales, lower than the investment of £50.6 million in the first half of 2023.  We continue to expect capital expenditure to be more heavily weighted to the second half of the year, due to the phasing of a number of committed large capital projects, including the expansion of Chromalox's manufacturing facility in Ogden, Utah (USA).

Adjusted cash from operations of £85.6 million (H1 2023: £82.8 million) was up £2.8 million, resulting in cash conversion of 53% (H1 2023: 48%).

Net debt (excluding leases) at 30 June 2024 was £718.3 million (31 December 2023: £666.7 million), with a net debt to EBITDA ratio of 1.9x times (31 December 2023: 1.7 times), following payment of the Final dividend in respect of 2023.

As at 30 June 2024, total committed and undrawn debt facilities amounted to £284.1 million alongside a net cash balance of £162.3 million.  The average tenor of our debt is over four years with the next contractual repayment maturity in October 2025. 

The net post-retirement benefit liability under IAS 19 decreased to £39.2 million (31 December 2023: £51.4 million).  The fair value of assets decreased by £11.3 million to £326.2 million (31 December 2023: £337.5 million).  This was more than offset by lower liabilities which reduced by £23.5 million to £365.4 million (31 December 2023: £388.9 million).

Health and Safety Performance

Our all-workplace incident rate (which includes lost time accidents)* reduced from 1.55 at the end of 2023 to 1.49 during the first half.  We experienced three Serious Lost Time Accidents (SLTA) during the first half, with the rate falling to 0.04 from 0.05 at the end of 2023.

Improving safety standards and processes in our most recent acquisitions, Vulcanic and Durex Industries, remains a key priority as we continue to integrate them into ETS.  Their all-workplace incident rate during the first half was 9.61, with one SLTA and reflects the lower priority that was given to safety reporting and processes under previous ownership.  Both Vulcanic and Durex Industries have embraced our strong H&S focus, enabling us to build an active improvement programme.

*per 100,000 work hours worked.  Group data excludes acquisitions data, which is reported separately

Sustainability Performance

We achieved a reduction in our absolute scope 1 and 2 market-based greenhouse gas emissions of 9% compared to the first half of 2023 and remain on track to achieve our planned reduction of 50%, compared to the 2019 baseline, by the end of 2025.  Water consumption across the Group has reduced by 8%, compared to the first half of 2023.  Building on the strong engagement in biodiversity projects of previous years, a further 79 have been undertaken so far in 2024 with 85% of operating companies now having completed a biodiversity project since the initiative began in 2021.  Volunteering hours of nearly 15,000, were up by 33% compared to the first half of 2023.

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Operating review

Steam Thermal Solutions

The first half of 2023 benefitted from a material increase in large projects in China following the easing of COVID-related lockdowns, capacity expansions in the Pharmaceutical sector and strong demand from customers in the Electric Vehicle (EV) battery sector.  Together with strong pricing to offset high inflation, these factors helped STS deliver 15% organic growth in sales and a 24.4% adjusted operating profit margin in the first half of 2023. 

Sales in the first half of 2024 were 6% lower at £430.8 million, impacted by a material currency headwind.  Against the strong organic growth comparator in the first half of 2023, sales declined by 1% organically, driven by weak IP in key markets and a weaker macroeconomic environment in China.  In China, which accounted for close to 20% of STS sales in the full year 2023, demand was lower in the first half of 2024 by 12%.    

In STS China, large projects have historically accounted for a significantly larger share of demand than in the rest of the world and above the approximately 15% of Group sales funded by customers' capex budgets. These were impacted by the weak macroeconomic outlook and, in particular, the adverse impact of tariffs on EV exports from China resulted in lower demand from the EV battery manufacturing sector.  In the context of this weaker macroeconomic environment, our team in China is working to pivot from the historic reliance on large expansion project orders towards process optimisation as well as maintain and repair orders (MRO).  While this change will take time, we saw growth in these areas in the first half of the year.

STS adjusted operating profit of £101.2 million declined 2% organically and the margin of 23.5% was 30bps lower on an organic basis.  This organic decline reflects lower demand in key markets and the adverse mix effect of lower sales from our high margin business in China. 

Statutory operating profit of £98.6 million was up 2% from £96.3 million in the first half of 2023 and statutory operating profit margin of 22.9% was up 200bps.

Our sector focused go-to-market approach, based on building deep expertise in industrial processes in our target sectors, has continued to drive strong growth.  Sales to customers in the Food & Beverage, Oil & Gas and Chemicals sectors, which account for over 30% of STS sales, grew organically compared to the first half of 2023.

We have continued to develop our suite of TargetZero solutions, designed to help our customers electrify steam generation as well as efficiently recycle and store thermal energy.  Our offering of unique, first-to-world products to decarbonise steam generating boilers: ElectroFit (retro-fit) and SteamVolt (first-fit), remains in development with further testing required ahead of full commercialisation.

We have also invested in emerging high temperature heat pump (HTHP) technology, which will add to our range of electrification products.  HTHPs are a highly engineered, bespoke technology allowing our customers to recycle waste process heat to generate steam for use in their critical processes, while reducing their operating costs and carbon emissions.

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Electric Thermal Solutions

The ETS order book in Industrial Process Heating (Chromalox and Vulcanic) remains at historically high levels.  Industrial Equipment Heating (Thermocoax and Durex Industries) has yet to benefit from a recovery in Semicon demand (sales to Semicon customers accounted for approximately 11 % of ETS sales in 2023).  Our customers in the Semicon sector are signalling high expectations of placing increased orders in late 2024, which will mostly benefit sales in 2025, so we do not anticipate a meaningful recovery in Semicon sales in the current year.

ETS sales of £197.7 million were up 3%, including a currency headwind of 2%.  Organic growth of 5% was supported by strong growth in Industrial Process Heating sales, benefitting from demand for decarbonisation solutions and improvements in throughput from Chromalox's manufacturing facilities.  Organic sales growth in Industrial Equipment Heating continues to be impacted by weak Semicon demand.

Adjusted operating profit in ETS of £29.1 million was up 12% organically with margin up 80bps reflecting strong progress in Industrial Process Heating partially offset by a lower margin in Industrial Equipment Heating, reflecting the adverse mix effect of lower Semicon sales.

Statutory operating profit of £20.1 million was up 88% reflecting a post-completion adjustment to the purchase consideration for Durex Industries, with statutory operating profit margin of 10.2%.

Sales and margin progress in Industrial Process Heating, driven by ongoing improvements across Chromalox's manufacturing facilities remains a key operational priority, particularly in the Ogden, Utah (USA) facility given its importance in fulfilling the strong and growing demand for electrification solutions as a means to reduce carbon emissions.  We have a clear understanding of the issues that impeded progress historically and a visible path to improvement under new management, including the ETS Head of Manufacturing and General Manager for the Ogden facility.  The early progress we have made in improving throughput is encouraging and will continue to support ongoing ETS margin expansion.  Separately, the expansion of the Ogden facility is also progressing well and remains on track for completion by the end of the year, with production expected to begin during the first half of 2025. 

We have taken steps to drive improved collaboration across ETS.  In the Industrial Process Heating Division, this included aligning the regional sales teams as well as combining responsibility for all our manufacturing sites, under a new organisational structure bringing together Vulcanic and Chromalox.  In the Industrial Equipment Heating Division, actions included migrating Thermocoax's US based production to Durex Industries' site in Chicago, Illinois (USA) and closer collaboration in new product development, leveraging the teams' combined expertise.

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Watson-Marlow

Demand from Biopharm customers has shown some early signs of improvement.  Our order book is continuing to normalise to a lower, historical level with sales above new orders as customers take delivery of orders placed in prior years. 

Watson-Marlow sales were unchanged, reflecting a currency headwind which offset organic growth of 3%.

Adjusted operating profit of £48.8 million was up 2% organically with a margin of 24.6%.  Watson-Marlow's adjusted operating profit margin was broadly flat organically as the benefit of operational gearing from higher sales was offset by a full six months of costs relating to our new manufacturing facility in Devens, Massachusetts (USA).

Statutory operating profit of £47.3 million was up 12% from £42.1 million in the first half of 2023 and statutory operating profit margin of 23.8% was up 260bps.

We have seen strong traction in our WM Architect solution, which we launched to Biopharm customers in April 2024.  WM Architect is an example of self-generated solution selling by our direct sales engineers, being a bespoke solution that enables customers to connect disparate systems and equipment along the fluid path while preserving the safety and integrity of their processes.

While demand in Process Industries, which is linked to IP, was dampened by the weak macroeconomic environment, our sector focused approach delivered strong growth in the Wastewater, Food & Beverage and Mining sectors, compared to the first half of 2023, although this was partially offset by a decline in other Industrial sectors.  As part of our development of digital technologies, we have commenced the pilot of a prototype machine learning pump in the mining sector, with more planned for the second half of the year.  This technology is designed to limit process downtime through preventative maintenance alerts based on monitoring of fluid path parameters through the pump.

Following a review of Watson-Marlow's manufacturing footprint in the USA, we consolidated two small facilities (Asepco and Aflex) into our Devens facility during the first half, supporting the ongoing ramp-up of that facility and delivering a small saving benefit in the second half of 2024.

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Update on Strategy Development

Following a comprehensive series of visits to our local operating companies around the world and across all three Businesses, as well as discussions with colleagues and customers, the new CEO and Group Executive team are taking a fresh and objective approach to assessing Spirax Group, including our fundamental strengths, future growth prospects and operational improvement opportunities.

Working together, alongside our Board of Directors, we are developing a long-term strategic plan for the Group.  We plan to share further details at a capital markets event in early October 2024; ahead of which we set out below a summary of our commercial, operational and financial priorities.

We are already taking action to deliver changes that accelerate implementation of these priorities, as set out in our first half results, including: management changes, manufacturing improvements in ETS, consolidation of ETS and Watson-Marlow sites in the USA, targeted investment in the development of our decarbonisation and digital solutions, as well as increasing capital discipline.

We are a trusted global leader in optimising critical thermal energy and fluid technology processes

Our products, solutions and expertise are critical to the operating efficiency and safety of our customers' industrial thermal energy and fluid technology processes and increasingly their transition to a low-carbon, resource-efficient world.  We have a track record of consistent organic growth ahead of IP and at industry-leading margins, delivered through a powerful and resilient Business Model, defined by: engineer-led direct sales, a focus on consultative solution-selling and pricing based on customer economics.  We remain highly diversified across geographic regions and sectors with a high proportion of sales from defensive end-markets and our sales are mostly funded from customers' operational budgets rather than capital expenditure.

By leveraging our unique Business Model, targeting our investments to deliver on significant opportunities in high growth markets and increasing the pace at which we address operational improvements within our Businesses, we will enable, in the long term, an acceleration in compounding organic growth.

We are well positioned to capitalise on key global trends shaping our customers' businesses, which will drive our long-term compounding growth

These trends represent a significant expansion of our addressable market.  Our primary focus will be on delivering on our organic growth potential and we will consider bolt-on M&A to the extent that it accelerates our strategic delivery.

*Middle class is defined as households with an income of between 75% and 100% of the median national income

We are focusing investment on future growth opportunities that strengthen our customer bonding

Energy transition

We are uniquely placed across STS and ETS to influence the energy transition choices facing our customers, which will have a multi-faceted impact on our Businesses over several years.  Both the decarbonisation of steam generation and broader electrification of thermal energy (beyond steam) represent a significant expansion of our addressable market.

Decarbonisation of steam generation

We are developing a suite of TargetZero solutions designed to help our customers optimise their energy use (further building on what we do today), manage their energy use (supported by the development of digital monitoring) and decarbonise their thermal energy generation (through new product development). 

Our offering of unique, first-to-world products to decarbonise steam generating boilers: ElectroFit (retro-fit) and SteamVolt (first-fit), remain in development with further testing required ahead of full commercialisation. We have also added emerging high temperature heat pump technology to our range of electrification products to enable the recycling of waste heat to generate steam.

We remain focused on critical applications of steam at high temperatures and where it is delivered directly into our customers' industrial processes.  In less critical applications of below 100°C, where steam is utilised for indirect heating, some customers are exploring the use of commoditised low temperature, hot water heat pumps, alongside their existing steam systems.  For customers to achieve end-to-end decarbonisation of steam usage within their industrial processes, they will require a range of solutions. 

As we build our TargetZero solutions to address the different dynamics within the decarbonisation of steam, we will significantly expand our addressable market and drive higher growth in both STS and ETS.

To successfully deploy these solutions to customers, we are developing the required capabilities, including: designing an operating model across STS and ETS to establish how we go-to-market and bring together complementary expertise; and building capability in design engineering and the manufacturing of bespoke products.

Electrification of process heating (beyond steam)

Approximately 60% of industrial thermal energy is raised from the direct combustion of fossil fuels, representing a significant opportunity for electrification to play a key role in reducing carbon emissions in energy intensive sectors.  Through the Industrial Process Heating Division of ETS, we have a leading competitive position, supported by innovative technologies such as our Medium Voltage offering.  Today's Medium Voltage products are suitable for the North American market but not yet the higher grid transmission voltages in Europe and Asia.  We are investing in new product development and our range of electrification solutions, including heating elements operating at higher temperatures and at higher voltages, to further expand our addressable market opportunity.

Digital connections

We are investing in technologies to accelerate the delivery of our Business Model through increased customer bonding based on deeper insights.  Together with the expertise of our direct sales engineers, access to more frequent data from our customers' industrial processes further supports self-generation of solutions and an enhanced ability to demonstrate how we deliver economic value.

Organisational capability

Alongside investments in facilitating the energy transition and digital connections, we will also build new organisational capabilities that will accelerate the pace at which we serve our customers' evolving needs.

We are refocusing our investment priorities to deliver operational improvements

Our Business Model remains a key differentiator, but we have a clear opportunity to be both more effective and more efficient in how we serve customers, creating the capacity to fund and accelerate delivery of our growth drivers.  Examples of areas we have already identified, include: leveraging solution-selling knowledge and best practice from across our global operating companies through increased collaboration; improving the efficiency of our manufacturing facilities in all three Businesses, which was previously less of a focus; reducing the organisational complexity that has built-up as we have grown from under 70 operating companies to over 140; and improving our processes and systems across the Group to address areas of past underinvestment, which will be funded by our growth.

We have also taken early steps to accelerate the delivery of value from past acquisitions in ETS, including: changes in leadership, changes to our organisational structure to integrate into two Divisions: Industrial Process Heating and Industrial Equipment Heating, and driving throughput from our manufacturing facilities. 

Strong long term compounding growth with changing mix of sales and profit in the medium term

Spirax Group has a long track record of delivering mid-single digit organic sales growth averaging close to 2x IP and mid-to-high single digit organic profit growth.  In the medium term, we expect to sustain compounding organic growth at these levels, with a different mix of sales and profit, reflecting the growth profiles of each of our three Businesses. Ten years ago, STS represented 80% of Group revenues and today Watson-Marlow and ETS, which are higher growth Businesses, together contribute close to 50% of Group revenues. 

We expect to improve Group margin to between 22% and 23% over the medium term. Organic profit growth, together with our low capital intensity and strong cash generation, will underpin an improving return on capital.

In the long term, we are well positioned to capitalise on some of the key global trends that are shaping our customers' businesses.  By executing against these significant growth opportunities and continuing to deliver operational improvements to fund that growth, we expect to accelerate the Group's compounding organic growth in sales and profits.

PRINCIPAL RISKS AND UNCERTAINTIES

The Group believes the Principal Risks and uncertainties facing the Group for the remainder of the year are included in, and unchanged from, those reported in the Annual Report 2023.  The Group's Principal Risks and uncertainties at 31 December 2023 were detailed on pages 101 to 105 of the Annual Report 2023, and related to the following areas:  economic and political instability; significant exchange rate movement; cybersecurity; failure to realise acquisition objectives; loss of manufacturing output at any Group factory; inability to identify and respond to changes in customer needs; loss of critical supplier; and breach of legal and regulatory requirements (including ABC laws).

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INDEPENDENT REVIEW REPORT TO SPIRAX GROUP PLC

Conclusion

We have been engaged by the Company to review the condensed set of Financial Statements in the half-yearly financial report for the six months ended 30 June 2024 which comprises the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Cash Flows and related notes 1 to 12.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of Financial Statements in the half-yearly financial report for the six months ended 30 June 2024 is not prepared, in all material respects, in accordance with United Kingdom adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Basis for Conclusion

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

As disclosed in Note 1 the annual Financial Statements of the Group will be prepared in accordance with United Kingdom adopted international accounting standards.  The condensed set of Financial Statements included in this half-yearly financial report has been prepared in accordance with United Kingdom adopted International Accounting Standard 34, "Interim Financial Reporting".

Conclusion Relating to Going Concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for Conclusion section of this report, nothing has come to our attention to suggest that the Directors have inappropriately adopted the going concern basis of accounting or that the Directors have identified material uncertainties relating to going concern that are not appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with this ISRE (UK), however future events or conditions may cause the entity to cease to continue as a going concern.

Responsibilities of the Directors

The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

In preparing the half-yearly financial report, the Directors are responsible for assessing the Group's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditor's Responsibilities for the review of the financial information

In reviewing the half-yearly financial report, we are responsible for expressing to the Group a conclusion on the condensed set of Financial Statement in the half-yearly financial report.  Our conclusion, including our conclusions relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

Use of our report

This report is made solely to the Company in accordance with ISRE (UK) 2410. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Deloitte LLP

Statutory Auditor

London, United Kingdom

7 August 2024

​

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONDENSED CONSOLIDATED INCOME STATEMENT

All amounts relate to continuing operations.  The Notes on pages 23 to 33 form an integral part of the Interim Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Other reserves represent the Group's cash flow hedge, capital redemption and employee benefit trust reserves.  The non-controlling interest is a 1.7% share of Spirax Sarco (Korea) Ltd held by employee shareholders.

* During the year, there has been a reclassification in relation to prior year deferred tax on cash flow hedges of £0.9m.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Spirax Group plc (formally Spirax-Sarco Engineering plc) is a Company domiciled in the UK.  The Condensed Consolidated Interim Financial Statements of Spirax Group plc and its subsidiaries (the Group) for the six months ended 30 June 2024 have been prepared in accordance with United Kingdom adopted International Financial Reporting Standard IAS 34 (Interim Financial Reporting).  The accounting policies applied are consistent with those set out in the Spirax Group plc 2023 Annual Report.

These Condensed Consolidated Interim Financial Statements do not include all the information required for full annual statements and should be read in conjunction with the 2023 Annual Report.  The comparative figures for the year ended 31 December 2023 do not constitute the Group's statutory Financial Statements for that financial year as defined in Section 434 of the Companies Act 2006.  The Financial Statements of the Group for the year ended 31 December 2023 were prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the United Kingdom.  The statutory Consolidated Financial Statements for Spirax Group plc in respect of the year ended 31 December 2023 have been reported on by the Company's auditor and delivered to the registrar of companies.  The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor 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 31 December 2023 are available upon request from the General Counsel and Company Secretary, Charlton House, Cheltenham, GL53 8ER.  The Report is also available on our website at www.spiraxgroup.com.

The Condensed Consolidated Interim Financial Statements for the six months ended 30 June 2024, which have been reviewed by the auditor in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council, were authorised by the Board on 7 August 2024.

The Half Year Report and Interim Financial Statements (Half Year 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 Half Year 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 at least 12 months from the date of signing the 2024 Half Year Report.  For this reason, it continues to adopt the going concern basis in preparing the Condensed Consolidated Interim Financial Statements.

The Group's principal objective when managing liquidity is to safeguard the Group's ability to continue as a going concern for at least 12 months from the date of signing the 2024 Half Year Report.  The Group retains sufficient resources to remain in compliance with all the required terms and conditions within its borrowing facilities over this period.  The Group continues to conduct ongoing risk assessments on its business operations and liquidity. Consideration has also been given to reverse stress tests, which seek to identify factors that might cause the Group to require additional liquidity and a view has been formed as to the probability of these occurring.

Our financial position remains robust, with the Group holding committed total debt facilities of £1,048.4 million at 30 June 2024 giving headroom in excess of £323.0 million.  Committed facilities include a £400 million revolving credit facility with a maturity of April 2029 which has £284.1 million undrawn at 30 June 2024.  The Group also has cash and cash equivalents, net of overdrafts, of £162.3 million.  The next maturity of our committed debt facilities is a US$150 million term loan which matures in October 2025.  For the going concern modelling we have not included any refinancing assumptions in relation to existing debt.  The Group's debt facilities contain a leverage (defined as net debt divided by adjusted earnings before interest, tax, depreciation and amortisation) covenant of up to 3.5x.  Certain debt facilities also contain an interest cover (defined as adjusted earnings before interest, tax, depreciation and amortisation divided by net bank interest) covenant of a minimum of 3.0x.

The Group regularly monitors its financial position to ensure that it remains within the terms of these debt covenants.  At 30 June 2024 leverage was 1.9x (30 June 2023: 1.8x; and 31 December 2023: 1.7x).  Interest cover was 9x at 30 June 2024 (30 June 2023: 19x; and 31 December 2023: 10x).

Reverse stress testing was also performed to assess what level of business under-performance would be required for a breach of the financial covenants to occur, the results of which evidenced that no reasonably possible change in future forecast cash flows would cause a breach of these covenants.  In addition, the reverse stress test does not take into account any mitigating actions which the Group would implement in the event of a severe and extended revenue and profitability decline, which would increase the covenant headroom further.

This assessment indicates that the Group can operate within the level of its current committed debt facilities, without the need to obtain any new facilities for a period of not less than 12 months from the date of this report.

NEW STANDARDS AND INTERPRETATIONS APPLIED FOR THE FIRST TIME

The Group has applied the following amendments for the first time from 1 January 2024. Adoption has not had a material impact on the disclosures or on the amounts reported in these Financial Statements:

The economy in both Argentina and Turkey remains subject to high inflation. At 30 June 2024 we have concluded that applying IAS 29 (Financial Reporting in Hyperinflationary Economies) is not required as the impact of adopting is not material.  We will continue to assess the position going forward.

NEW STANDARDS AND INTERPRETATIONS NOT YET APPLIED

In August 2023, the IASB amended IAS 21 to help entities to determine whether a currency is exchangeable into another currency, and which spot exchange rate to use when it is not. These new requirements will apply for annual reporting periods beginning on or after 1 January 2025. The Group does not expect these amendments to have a material impact on its operations or financial statements.

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 31 December 2023.

CAUTIONARY STATEMENTS

This Half Year 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:

The Directors of Spirax Group plc on 7 August 2024 are as listed in the 2023 Annual Report on pages 112 and 113 except for Louisa Burdett who joined as our new Chief Financial Officer on 8 July 2024 replacing Phil Scott who held the interim Chief Financial Officer position. Louisa Burdett's biography can be found on the Group's website.

N. B. Patel
Group Chief Executive Officer
7 August 2024

On behalf of the Board

As required by IFRS 8 Operating Segments, the segmental structure reflects the current internal reporting provided to the Chief Operating Decision Maker (considered to be the Board) on a regular basis to assist in making decisions on resource allocation to each segment and to assess performance.

The Group is organised into three segments with the following core product expertise:

No changes to the structure of operating segments have been made during the current period.

Analysis by operating segment