Spirax-Sarco describes modest growth amid challenging market

Spirax-Sarco Engineering maintained its full-year guidance in an update on Wednesday, as it continued to trade in line with expectations.

Despite challenging market conditions, Spirax-Sarco reported organic sales growth in the first four months of 2023 in line with expectations.

It said sales were driven by growth significantly above industrial production in steam specialties and electric thermal solutions (ETS), while sales in Watson-Marlow were lower due to the ongoing normalisation of Covid-19 related demand from biotechnology and pharmaceutical customers.

Order books in steam specialties and ETS remain at historically high levels, driven by strong demand, while Watson-Marlow's monthly order intake has remained stable.

The company said it anticipated an increase in order intake in the second half of the year, driven by the underlying demand for cell and gene therapy medications.

However, the precise timing and initial pace of that return to growth remained uncertain.

Spirax-Sarco Engineering's integration of the acquisitions of Vulcanic and Durex Industries was progressing well, the board added, with revenue investments aimed at raising operations to the company's standards and delivering future growth.

The firm said its adjusted operating profit margin in the first four months of 2023 was lower than the same period in 2022, consistent with the strong sales performance in steam specialties and ETS.

It said the lower margin in Watson-Marlow was due to the operational gearing effect of reduced sales.

The company said it expected a recovery in Watson-Marlow's adjusted operating profit margin, and therefore the group's margin, in the second half of the year, driven by expected higher demand and the full benefit from actions taken in the first quarter to right-size Watson-Marlow capacity and overhead support costs.

Currency movements had a small positive effect on sales and operating profit, compared to the same period of 2022.

If current exchange rates prevailed for the remainder of the year, the company said it expected a modest adverse effect on full-year sales and profit, compared to 2022.

Excluding leases, Spirax-Sarco Engineering's net debt as at 30 April totalled £710m, up from £690m on 31 December.

The firm said it planned to pay a final dividend of 109.5p per share, subject to shareholder approval, with a cash impact of £81m.

It said it anticipated cash conversion would improve in 2023 to above 70%, including capital expenditure at approximately 7% of sales.

“Although the global macroeconomic outlook remains uncertain, forecast IP for 2023 of 1.3% remains within the range of our planning assumptions,” the board said in its statement.

“As our trading in the first four months of the year is also in line with our expectations, we are maintaining our full year guidance for the group.”

Spirax said it continued to anticipate double-digit sales growth for the group in 2023, representing mid-single-digit sales growth over 2022 pro-forma sales.

“We also continue to anticipate both sales and adjusted operating profit to be more weighted to the second half of the year than in previous years, with a small progression in the group's full year adjusted operating profit margin.”

At 1032 BST, shares in Spirax-Sarco Engineering were flat at 11,145p.

Correction: An earlier version of this story did not make clear that industrial production (IP) figures referenced were from external sources quoted by Spirax-Sarco in its update to give context to its recent performance.

Reporting by Josh White for Sharecast.com.