REG - Spirax Group PLC - 2024 Half Year Results
08/08/2024 07:00
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RNS Number : 6325Z Spirax Group PLC 08 August 2024
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
Statutory (£m/p) 2024 2023 Reported
Revenue(+) 827.0 850.8 (3)%
Operating profit 147.2 132.2 11%
Operating profit margin 17.8% 15.5% 230bps
Profit before taxation 124.8 114.0 9%
Basic earnings per share 123.8 112.5 10%
Dividend per share 47.5 46.0 3%
Adjusted (£m/p) 2024 2023 Reported Organic*
Revenue(+) 827.0 850.8 (3)% 1%
Adjusted operating profit 160.3 171.7 (7)% (1)%
Adjusted operating profit margin 19.4% 20.2% (80)bps (30)bps
Adjusted profit before taxation 137.9 153.5 (10)%
Adjusted basic earnings per share 137.2 155.2 (12)%
Adjusted cash conversion 53% 48% 500bps
● Group revenue up 1% organically, impacted by weak macroeconomic environment in
key markets
● Global IP(+++) was weak in the first half, with growth of 0.8% excluding China
● STS(++) sales declined by 1% organically, against a strong comparator in the
first half of 2023
● ETS(++) sales up 5% organically, supported by operational progress; demand
remains stable in Semicon**
● Watson-Marlow sales up 3% organically; early signs of improving demand in
Biopharm***
● Adjusted operating profit margin reflects progress in ETS more than offset by
lower STS margin
● Statutory operating profit and margin higher as 2023 impacted by restructuring
and write-down charges
● Material currency headwinds to revenue (4%) and adjusted operating profit (6%)
in the first half
● Adjusted cash conversion 53% in the first half reflecting usual seasonality
● Interim dividend up 3% to 47.5 pence
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.
For further information, please contact:
Louisa Burdett, Chief Financial Officer: +44 (0) 1242 535234
Mal Patel, Head of Investor Relations: +44 (0) 1242 535234
Media
Martin Robinson, Teneo: +44 (0) 20 7260 2700, spiraxgroup@teneo.com
Audio webcast
The results presentation will be available as a live webcast at 9.15 am on the
Company's website at www.spiraxgroup.com or via the following link:
https://edge.media-server.com/mmc/p/7hk59624
(https://edge.media-server.com/mmc/p/7hk59624)
A recording will be made available on the website shortly after the meeting.
Conference call registration
https://register.vevent.com/register/BI4d25763b07cd432092ff7be190a28dbd
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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
(http://www.spiraxsarcoengineering.com)
RNS filter: Inside information prior to release
LEI 213800WFVZQMHOZP2W17
SUMMARY FINANCIALS
Six months to 30 June H1 2024 H1 2023 y-o-y change
£m £m Organic* Reported
SUMMARY FINANCIALS
Steam Thermal Solutions (STS) 430.8 459.8 (1)% (6)%
Electric Thermal Solutions (ETS) 197.7 192.5 5% 3%
Watson-Marlow 198.5 198.5 3% -
Group Revenue 827.0 850.8 1% (3)%
STS 98.6 96.3 2%
ETS 20.1 10.7 88%
Watson-Marlow 47.3 42.1 12%
Corporate (18.8) (16.9)
Group Statutory Operating Profit 147.2 132.2 11%
STS 22.9% 20.9% 200bps
ETS 10.2% 5.6% 460bps
Watson-Marlow 23.8% 21.2% 260bps
Group Statutory Operating Profit Margin 17.8% 15.5% 230bps
STS 101.2 112.2 (2)% (10)%
ETS 29.1 26.9 12% 8%
Watson-Marlow 48.8 48.9 2% -
Corporate (18.8) (16.3)
Group Adjusted Operating Profit* 160.3 171.7 (1)% (7)%
STS 23.5% 24.4% (30)bps (90)bps
ETS 14.7% 14.0% 80bps 70bps
Watson-Marlow 24.6% 24.6% (10)bps -
Group Adjusted Operating Profit Margin* 19.4% 20.2% (30)bps (80)bps
Cash flow
Statutory cash from operations 93.1 85.6 9%
Adjusted cash from operations* 85.6 82.8 3%
Adjusted cash conversion* 53% 48% 500bps
Net debt* 718.3 748.3 (4)%
Leverage (net debt to EBITDA)* 1.9x 1.8x
* 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
Industrial Production growth (IP) 2024
H1 H2 FY
Europe 0.2% 1.3% 0.8%
North America 0.0% 1.0% 0.5%
South America -2.1% -0.2% -1.2%
Asia 3.0% 2.2% 2.6%
Global 1.5% 1.5% 1.5%
Global (excluding China) 0.8% 1.6% 1.2%
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
£m H1 2023 Exchange Organic H1 2024 Organic Reported
Revenue 850.8 (34.5) 10.7 827.0 1% (3)%
Adjusted operating profit 171.7 (10.6) (0.8) 160.3 (1)% (7)%
Adjusted operating profit margin 20.2% 19.4% (30)bps (80)bps
Statutory operating profit 132.2 147.2 11%
Statutory operating profit margin 15.5% 17.8% 230bps
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:
● a charge of £17.3 million (H1 2023: £18.5 million) for the amortisation of
acquisition-related intangible assets
● income of £4.2 million relating to a post-completion adjustment to the
purchase consideration for Durex Industries
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
30 June 2024 30 June
Adjusted Cash flow £m 2023
£m
Adjusted operating profit 160.3 171.7
Depreciation and amortisation (excl. leased assets) 20.2 21.7
Depreciation of leased assets 9.0 7.5
Cash payments to pension schemes more than the charge to adjusted operating (3.8) (2.7)
profit
Equity settled share plans 4.5 4.8
Working capital changes (56.2) (62.7)
Repayments of principal under lease liabilities (8.7) (7.7)
Capital expenditure (including software and development) (44.1) (50.6)
Capital disposals 4.4 0.8
Adjusted cash from operations 85.6 82.8
Net interest (21.0) (17.4)
Income taxes paid (37.9) (46.1)
Adjusted free cash flow 26.7 19.3
Net dividends paid (84.2) (81.0)
Purchase of employee benefit trust shares/Proceeds from issue of shares - (8.8)
Disposals/(Acquisitions) of subsidiaries 2.9 (2.3)
Restructuring costs (2.5) (6.1)
Cash flow for the period (57.1) (78.9)
Exchange movements 5.5 21.0
Opening net debt (666.7) (690.4)
Net debt at 30 June 2024 (718.3) (748.3)
Lease liability (96.0) (88.4)
Net debt and lease liability 30 June 2024 (814.3) (836.7)
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.
Operating review
Steam Thermal Solutions
£m H1 2023 Exchange Organic H1 2024 Organic Reported
Revenue 459.8 (24.1) (4.9) 430.8 (1)% (6)%
Adjusted operating profit 112.2 (8.5) (2.5) 101.2 (2)% (10)%
Adjusted operating profit margin 24.4% 23.5% (30)bps (90)bps
Statutory operating profit 96.3 98.6 2%
Statutory operating profit margin 20.9% 22.9% 200bps
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.
Electric Thermal Solutions
£m H1 2023 Exchange Organic H1 2024 Organic Reported
Revenue 192.5 (4.5) 9.7 197.7 5% 3%
Adjusted operating profit 26.9 (0.8) 3.0 29.1 12% 8%
Adjusted operating profit margin 14.0% 14.7% 80bps 70bps
Statutory operating profit 10.7 20.1 88%
Statutory operating profit margin 5.6% 10.2% 460bps
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.
Watson-Marlow
£m H1 2023 Exchange Organic H1 2024 Organic Reported
Revenue 198.5 (5.9) 5.9 198.5 3% -
Adjusted operating profit 48.9 (1.3) 1.2 48.8 2% -
Adjusted operating profit margin 24.6% 24.6% (10)bps -
Statutory operating profit 42.1 47.3 12%
Statutory operating profit margin 21.2% 23.8% 260bps
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.
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
Increasing demand for consumer products driven by an emerging middle-class*
will require expertise in:
● process efficiency and productivity improvement
● capacity expansion
● safe and efficient operation of critical production processes
A focus on resource-efficiency and sustainable production will require
innovative solutions to:
● reduce carbon intensity of production
● reduce customers' carbon dependency through electrification of thermal
processes
● provide highly engineered thermal energy management solutions to Nuclear and
Energy sectors
● manage wastewater and desalination processes
Improved healthcare for an ageing population will require specialist insights
into:
● the needs of Biotechnology customers as they develop and produce new
treatments
● the future of Pharmaceutical production and capacity expansion
● critical products used by the Medical sector for patient care
Changing lifestyles are fuelling the emergence of new high-growth sectors,
where we are focused on:
● providing highly engineered, critical thermal electric solutions to the
Semicon sector
● leveraging our expertise in Biopharm to build a presence in new adjacent
sectors such as Future Foods
● facilitating the manufacture of Electric Vehicle batteries
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).
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
Notes 30 June 30 June 31 December
2024 2023 2023
£m £m £m
(unaudited) (unaudited) (audited)
ASSETS
Non-current assets
Property, plant and equipment 422.5 395.3 415.1
Right-of-use assets 97.4 90.2 98.4
Goodwill 674.6 677.8 680.5
Other intangible assets 436.5 455.5 448.8
Prepayments 1.1 2.5 1.9
Investment in Associate 3.9 - 3.0
Taxation recoverable 4.9 4.9 4.9
Deferred tax assets 27.1 18.9 31.0
1,668.0 1,645.1 1,683.6
Current assets
Inventories 290.4 304.9 285.2
Trade receivables 322.3 317.2 299.8
Other current assets 70.2 81.8 71.4
Taxation recoverable 9.2 11.7 8.7
Cash and cash equivalents 8 330.1 322.8 359.7
1,022.2 1,038.4 1,024.8
Total assets 2,690.2 2,683.5 2,708.4
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables 234.4 232.9 251.2
Provisions 6.0 9.8 9.5
Bank overdrafts 8 167.8 108.1 146.9
Current portion of long-term borrowings 8 3.8 196.7 3.6
Short-term lease liabilities 8 15.9 13.3 14.5
Current tax payable 25.5 24.9 28.3
453.4 585.7 454.0
Net current assets 568.8 452.7 570.8
Non-current liabilities
Long-term borrowings 8 876.8 766.3 875.9
Long-term lease liabilities 8 80.1 75.1 82.2
Deferred tax liabilities 64.4 76.8 68.2
Post-retirement benefits 7 39.2 43.4 51.4
Provisions 6.9 6.5 7.6
Long-term payables 11.2 8.6 11.4
1,078.6 976.7 1,096.7
Total liabilities 1,532.0 1,562.4 1,550.7
Net assets 2 1,158.2 1,121.1 1,157.7
Equity
Share capital 19.8 19.8 19.8
Share premium account 90.4 88.4 90.1
Translation reserve (76.5) (49.1) (60.4)
Other reserves (11.3) (3.4) (12.9)
Retained earnings 1,135.3 1,064.8 1,120.3
Equity shareholders' funds 1,157.7 1,120.5 1,156.9
Non-controlling interest 0.5 0.6 0.8
Total equity 1,158.2 1,121.1 1,157.7
Total equity and liabilities 2,690.2 2,683.5 2,708.4
CONDENSED CONSOLIDATED INCOME STATEMENT
Six months Six months Year ended
to 30 June to 30 June 31 December
2024 2023 2023
£m £m £m
Notes (unaudited) (unaudited) (audited)
Revenue 2 827.0 850.8 1,682.6
Operating costs (679.8) (718.6) (1,398.2)
Operating profit 2 147.2 132.2 284.4
Financial expenses (28.4) (22.3) (51.2)
Financial income 6.5 4.1 11.3
Net financing expense 3 (21.9) (18.2) (39.9)
Share of loss of Associate (0.5) - -
Profit before taxation 124.8 114.0 244.5
Taxation 4 (33.5) (31.0) (60.5)
Profit for the period 91.3 83.0 184.0
Attributable to:
Equity shareholders 91.2 82.9 183.6
Non-controlling interest 0.1 0.1 0.4
Profit for the period 91.3 83.0 184.0
Earnings per share
Basic earnings per share 5 123.8p 112.5p 249.5p
Diluted earnings per share 5 123.6p 112.3p 248.9p
Dividends
Dividends per share 6 47.5p 46.0p 160.0p
Dividends paid (per share) 6 114.0p 109.5p 155.5p
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
Six months Six months Year ended
to 30 June to 30 June 31 December
2024 2023 2023
£m £m £m
(unaudited) (unaudited) (audited)
Profit for the period 91.3 83.0 184.0
Items that will not be reclassified to profit or loss:
Remeasurement gain/(loss) on post-retirement benefits 9.6 5.9 (3.8)
Deferred tax on remeasurement (gain)/loss on post-retirement benefits (2.3) (1.4) 1.1
7.3 4.5 (2.7)
Items that may be reclassified subsequently to profit or loss:
Exchange (loss)/gain on translation of foreign operations and net investment (16.1) (57.7) (77.9)
hedges
(Loss)/gain on cash flow hedges net of tax (0.8) 5.7 5.0
(16.9) (52.0) (72.9)
Total comprehensive income for the period 81.7 35.5 108.4
Attributable to:
Equity shareholders 81.6 35.4 108.0
Non-controlling interest 0.1 0.1 0.4
Total comprehensive income for the period 81.7 35.5 108.4
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period ended 30 June 2024
(unaudited) Share premium Equity shareholders' funds Non-controlling interest
Share capital account Translation Other reserves Retained earnings £m £m Total equity
£m £m Reserve £m £m £m
£m
Balance at 1 January 2024 19.8 90.1 (60.4) (12.9) 1,120.3 1,156.9 0.8 1,157.7
Profit for the period - - - - 91.2 91.2 0.1 91.3
Other comprehensive (expense)/income:
Foreign exchange translation differences and net investment hedges - - (16.1) - - (16.1) - (16.1)
Remeasurement gain on post-retirement benefits - - - - 9.6 9.6 - 9.6
Deferred tax on remeasurement gain on post-retirement benefits - - - - (2.3) (2.3) - (2.3)
Cash flow hedges - - - (0.8) - (0.8) - (0.8)
Total other comprehensive (expense)/income for the period - - (16.1) (0.8) 7.3 (9.6) - (9.6)
Total comprehensive (expense)/income for the period - - (16.1) (0.8) 98.5 81.6 0.1 81.7
Contributions by and distributions to owners of the Company:
Dividends paid - - - - (84.0) (84.0) (0.2) (84.2)
Equity-settled share plans net of tax - - - - 1.0 1.0 - 1.0
Purchase of shares from non-controlling interest - - - - (0.5) (0.5) (0.2) (0.7)
Issue of share capital - 0.3 - - - 0.3 - 0.3
Employee Benefit Trust shares - - - 2.4 - 2.4 - 2.4
Balance at 30 June 2024 19.8 90.4 (76.5) (11.3) 1,135.3 1,157.7 0.5 1,158.2
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.
Non-controlling interest
For the period ended 30 June 2023 Share premium Equity shareholders' funds £m
(unaudited) Share capital account Translation Other reserves Retained earnings £m Total equity
£m £m Reserve £m £m £m
£m
Balance at 1 January 2023 19.8 88.1 17.5 (23.4) 1,067.0 1,169.0 0.8 1,169.8
Profit for the period - - - - 82.9 82.9 0.1 83.0
Other comprehensive income/(expense):
Foreign exchange translation differences and net investment hedges - - (66.6) 8.9 - (57.7) - (57.7)
Remeasurement gain on post-retirement benefits - - - - 5.9 5.9 - 5.9
Deferred tax on remeasurement gain on post-retirement benefits - - - - (1.4) (1.4) - (1.4)
Cash flow hedges - - - 5.7 - 5.7 - 5.7
Total other comprehensive income/(expense) for the period - - (66.6) 14.6 4.5 (47.5) - (47.5)
Total comprehensive income/(expense) for the period - - (66.6) 14.6 87.4 35.4 0.1 35.5
Contributions by and distributions to owners of the Company:
Dividends paid - - - - (80.7) (80.7) (0.3) (81.0)
Equity-settled share plans net of tax - - - - (8.9) (8.9) - (8.9)
Issue of share capital - 0.3 - - - 0.3 - 0.3
Employee Benefit Trust shares - - - 5.4 - 5.4 - 5.4
Balance at 30 June 2023 19.8 88.4 (49.1) (3.4) 1,064.8 1,120.5 0.6 1,121.1
Non-controlling interest
For the year ended 31 December 2023 Share premium Equity shareholders' funds £m
(audited) Share capital account Translation Other reserves Retained earnings £m Total equity
£m £m Reserve £m £m £m
£m
Balance at 1 January 2023 19.8 88.1 17.5 (23.4) 1,067.0 1,169.0 0.8 1,169.8
Profit for the period - - - - 183.6 183.6 0.4 184.0
Other comprehensive income/(expense):
Foreign exchange translation and net investment hedges loss - - (77.9) - - (77.9) - (77.9)
Remeasurement loss on post-retirement benefits - - - - (3.8) (3.8) - (3.8)
Deferred tax on remeasurement loss on post-retirement benefits - - - - 1.1 1.1 - 1.1
Gain on cash flow hedges net of tax* - - - 5.0 - 5.0 - 5.0
Total other comprehensive income/(expense) for the period - - (77.9) 5.0 (2.7) (75.6) - (75.6)
Total comprehensive income/(expense) for the period - - (77.9) 5.0 180.9 108.0 0.4 108.4
Contributions by and distributions to owners of the Company:
Dividends paid - - - - (114.5) (114.5) (0.4) (114.9)
Equity-settled share plans net of tax - - - - (13.1) (13.1) - (13.1)
Issue of share capital - 2.0 - - - 2.0 - 2.0
Employee Benefit Trust shares - - - 5.5 - 5.5 - 5.5
Balance at 31 December 2023 19.8 90.1 (60.4) (12.9) 1,120.3 1,156.9 0.8 1,157.7
* 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 Six months Six months Year ended
to 30 June to 30 June 31 December
2024 2023 2023
£m £m £m
(unaudited) (unaudited) (audited)
Cash flows from operating activities
Profit before taxation 124.8 114.0 244.5
Depreciation, amortisation and impairment 49.4 61.1 112.7
(Profit)/loss on disposal of fixed assets (2.9) 0.5 0.1
Cash payments to the pension schemes greater than the charge to operating (3.8) (2.7) (5.7)
profit
Profit on disposal of Associates - - (0.4)
Acquisition related items (4.2) (0.6) 4.3
Restructuring related provisions and impairments (2.5) (0.9) (3.0)
Equity-settled share plans 4.5 4.8 6.1
Net finance expense 21.9 18.2 39.9
Operating cash flow before changes in working capital and provisions 187.2 194.4 398.5
(Increase)/decrease in trade and other receivables (30.3) (7.0) 12.6
(Increase)/decrease in inventories (11.3) (28.3) (13.1)
(Decrease)/increase in provisions (1.5) (0.3) 2.9
(Decrease)/increase in trade and other payables (13.1) (27.1) (11.6)
Cash generated from operations 131.0 131.7 389.3
Income taxes paid (37.9) (46.1) (90.7)
Net cash from operating activities 93.1 85.6 298.6
Cash flows from investing activities
Purchase of property, plant and equipment (33.2) (42.4) (84.0)
Proceeds from sale of property, plant and equipment 4.4 0.8 3.1
Purchase of software and other intangibles (8.6) (4.7) (14.2)
Development expenditure capitalised (2.3) (3.5) (7.2)
Disposal of subsidiaries - - 0.5
Acquisition of businesses net of cash acquired 2.9 - (5.2)
Interest received 6.5 4.1 11.3
Net cash used in investing activities (30.3) (45.7) (95.7)
Cash flows from financing activities
Proceeds from issue of share capital 0.3 0.3 2.0
Employee Benefit Trust share purchase - (9.1) (12.8)
Repaid borrowings (42.7) - (221.1)
New borrowings 55.2 60.3 192.8
Interest paid including interest on lease liabilities (27.5) (21.5) (49.1)
Repayment of lease liabilities 8 (8.7) (7.7) (16.1)
Dividends paid (including minority shareholders) 6 (84.2) (81.0) (114.9)
Net cash used in financing activities (107.6) (58.7) (219.2)
Net change in cash and cash equivalents 8 (44.8) (18.8) (16.3)
Net cash and cash equivalents at beginning of period 8 212.8 243.8 243.8
Exchange movement 8 (5.7) (10.3) (14.7)
Net cash and cash equivalents at end of period 8 162.3 214.7 212.8
Borrowings 8 (880.6) (963.0) (879.5)
Net debt at end of period 8 (718.3) (748.3) (666.7)
Lease liabilities 8 (96.0) (88.4) (96.7)
Net debt and lease liabilities at end of period 8 (814.3) (836.7) (763.4)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
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 (http://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:
● Amendments to IAS 1 Presentation of Financial Statements: Classification of
Liabilities as Current or Non-current
● Amendments to IAS 1 Presentation of Financial Statements: Non-current
Liabilities with Covenants
● Amendments to IFRS 16 Leases: Lease Liability in a Sale and Leaseback
● Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments:
Supplier Finance Arrangements
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:
· This Condensed Consolidated set of Interim Financial Statements has been
prepared in accordance with IAS 34 (Interim Financial Reporting), as adopted
by the United Kingdom;
· The interim management report includes a fair review of the information
required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of
important events that have occurred during the first six months of the
financial year and their impact on the Condensed Consolidated Financial
Statements, and a description of the principal risks and uncertainties for the
remaining six months of the financial year.
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year that have materially affected the financial position or
performance of the entity during that period, and any changes in the related
party transactions described in the last Annual Report that could do so.
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
2. SEGMENTAL REPORTING
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:
● Steam Thermal Solutions - Industrial and commercial steam systems
● Electric Thermal Solutions - Electrical process heating and temperature
management solutions
● Watson-Marlow Fluid Technology Solutions - Peristaltic and niche pumps and
associated fluid path technologies
No changes to the structure of operating segments have been made during the
current period.
Analysis by operating segment
Total
Six months to 30 June 2024 operating Operating
Revenue profit profit margin
£m £m %
Steam Thermal Solutions 430.8 98.6 22.9%
Electric Thermal Solutions 197.7 20.1 10.2%
Watson-Marlow 198.5 47.3 23.8%
Corporate - (18.8)
Total 827.0 147.2 17.8%
Net finance expense (21.9)
Share of loss Associate (0.5)
Profit before taxation 124.8
Total
Six months to 30 June 2023 operating Operating
Revenue profit profit margin
£m £m %
Steam Thermal Solutions 459.8 96.3 20.9%
Electric Thermal Solutions 192.5 10.7 5.6%
Watson-Marlow 198.5 42.1 21.2%
Corporate - (16.9)
Total 850.8 132.2 15.5%
Net finance expense (18.2)
Profit before taxation 114.0
Year ended 31 December 2023
Total
operating Operating
Revenue profit profit margin
£m £m %
Steam Thermal Solutions 910.1 205.2 22.5%
Electric Thermal Solutions 378.5 25.8 6.8%
Watson-Marlow 394.0 81.2 20.6%
Corporate - (27.8)
Total 1,682.6 284.4 16.9%
Net finance expense (39.9)
Profit before taxation 244.5
The following table details the split of revenue by geography for the combined
Group:
Six months Six months Year ended
to 30 June 2024 to 30 June 2023 31 December 2023
£m £m £m
Europe, Middle East and Africa 366.2 365.1 718.7
Asia Pacific 166.1 184.1 357.4
Americas 294.7 301.6 606.5
Total revenue 827.0 850.8 1,682.6
Net financing income and expense
Six months Six months Year ended
to 30 June 2024 to 30 June 2023 31 December 2023
£m £m £m
Steam Thermal Solutions (0.1) (0.2) 0.8
Electric Thermal Solutions (0.4) (0.4) (0.8)
Watson-Marlow (0.1) - (0.3)
Corporate (21.3) (17.6) (39.6)
Total net financing expense (21.9) (18.2) (39.9)
Net assets
30 June 2024 30 June 2023 31 December 2023
Assets Liabilities Assets Liabilities Assets Liabilities
£m £m £m £m £m £m
Steam Thermal Solutions 711.3 (168.8) 735.0 (180.1) 714.1 (203.7)
Electric Thermal Solutions 1,149.0 (89.4) 1,119.5 (78.7) 1,128.8 (82.7)
Watson-Marlow 424.6 (38.1) 447.2 (40.4) 429.3 (43.6)
Corporate 33.9 (1.3) 23.5 (2.0) 31.9 (1.1)
2,318.8 (297.6) 2,325.2 (301.2) 2,304.1 (331.1)
Liabilities (297.6) (301.2) (331.1)
Net deferred tax (37.3) (57.9) (37.2)
Net tax payable (11.4) (8.3) (14.7)
Net debt including lease liabilities (814.3) (836.7) (763.4)
Net assets 1,158.2 1,121.1 1,157.7
Capital additions, depreciation, amortisation and impairment
Six months to Six months to Year ended
30 June 2024 30 June 2023 31 December 2023
Depreciation, amortisation and impairment Depreciation, amortisation and impairment Depreciation, amortisation and impairment £m
£m £m
Capital Capital Capital
additions additions additions
£m £m £m
Steam Thermal Solutions 19.0 16.9 20.9 30.6 48.2 47.9
Electric Thermal Solutions 21.1 18.8 7.6 20.1 32.2 40.3
Watson-Marlow 8.7 12.3 53.0 10.4 66.6 24.5
Corporate 4.3 1.4 4.2 - 14.1 -
Total 53.1 49.4 85.7 61.1 161.1 112.7
Capital additions include property, plant and equipment at 30 June 2024 of
£33.2 million (30 June 2023: £42.4 million; 31 December 2023: £84.0
million). Capital additions also include other intangible assets at 30 June
2024 of £10.9 million (30 June 2023: £8.5 million; 31 December 2023: £25.0
million), of which £nil relates to acquisition related intangibles (30 June
2023: £0.3 million; 31 December 2023: £3.6 million). Right-of-use asset
additions at 30 June 2024 were £9.0 million (30 June 2023: £34.8 million; 31
December 2023: £52.1 million).
3. NET FINANCING INCOME AND EXPENSE
Six months Six months Year ended
to 30 June to 30 June 31 December
2024 2023 2023
£m £m £m
Financial expenses:
Bank and other borrowing interest payable (25.9) (20.6) (46.9)
Interest expense on lease liabilities (1.6) (0.9) (2.2)
Net interest on pension scheme liabilities (0.9) (0.8) (2.1)
(28.4) (22.3) (51.2)
Financial income:
Bank interest receivable 6.5 4.1 11.3
Net financing expense (21.9) (18.2) (39.9)
Net bank interest (19.4) (16.5) (35.6)
Interest expense on lease liabilities (1.6) (0.9) (2.2)
Net pension scheme financial expense (0.9) (0.8) (2.1)
Net financing expense (21.9) (18.2) (39.9)
4. TAXATION
Taxation has been estimated at the rate expected to be incurred in the full
year.
Six months Six months Year ended
to 30 June to 30 June 31 December
2024 2023 2023
£m £m £m
UK corporation tax (1.9) (1.7) 9.3
Foreign tax 35.6 31.2 74.6
Deferred tax (0.2) 1.5 (23.4)
Total taxation 33.5 31.0 60.5
Effective tax rate 26.7% 27.2% 24.7%
The Group's tax charge in future years is likely to be affected by the
proportion of profits arising and the effective tax rates in the various
countries in which the Group operates. The rate may also be affected by the
impact of any acquisitions.
The Group is subject to a tax adjustment in Argentina that seeks to offset the
impact of inflation upon taxable profits. The adjustment gave a reduction in
the Group's effective tax rate in the period of 60bps on a statutory profits
basis (31 December 2023: 260bps). Whilst we include the expected impact of
this adjustment in our guidance for the effective tax rate, this is difficult
to accurately forecast given the current volatility of Argentinian inflation.
The Group monitors income tax developments in the territories in which it
operates. OECD Base Erosion and Profit Shifting (BEPS) initiative to set a new
minimum global corporate tax rate of 15% ('Pillar Two') was enacted in the
United Kingdom, the jurisdiction in which the Group's parent company is
incorporated, and came into effect on 1 January 2024. Under the legislation,
a top-up tax is payable on profits that are taxed at an effective tax rate of
less than 15%. There are a small number of jurisdictions, where a forecast
top-up tax is payable which has increased the Group's effective tax rate by
40bps on a statutory profits basis for the six months to 30 June 2024. The
majority of this relates to Argentina where, as noted above, the tax inflation
adjustment impacts the Group's tax charge. The Group is continuing to assess
the impact of the Pillar Two income taxes legislation on its financial
performance. The Group has applied the temporary exception issued by the
IASB in May 2023 from the accounting requirements for deferred taxes in IAS
12. Accordingly, the Group neither recognises nor discloses information
about deferred tax assets and liabilities related to Pillar Two income taxes.
The Group has continued to recognise a receivable of £4.9 million in the
Consolidated Statement of Financial Position in relation to payments to HM
Revenue & Customs, following the European Commission's 2019 decision that
certain aspects of the UK's Controlled Foreign Company regime constituted
State Aid. The receivable has been recognised as the Group considers there are
grounds for successful appeal. There is no provision for other associated tax
benefits totalling £4.2 million that were recognised in periods prior to 30
June 2024 and remain a contingent liability.
No UK tax (after double tax relief for underlying tax) is expected to be
payable on the future remittance of retained earnings of overseas
subsidiaries.
The effective tax rate is calculated as a percentage of profit before tax and
a share of profits of associates.
5. EARNINGS PER SHARE
Six months Six months Year ended
to 30 June to 30 June 31 December
2024 2023 2023
Profit attributable to equity shareholders (£m) 91.2 82.9 183.6
Weighted average shares in issue (million) 73.6 73.6 73.6
Dilution (million) 0.2 0.1 0.2
Diluted weighted average shares in issue (million) 73.8 73.7 73.8
Basic earnings per share 123.8p 112.5p 249.5p
Diluted earnings per share 123.6p 112.3p 248.9p
Basic and diluted earnings per share calculated on an adjusted profit basis
are included in the Appendix. The dilution is in respect of the Performance
Share Plan.
6. DIVIDENDS
Six months Six months Year ended
to 30 June to 30 June 31 December
2024 2023 2023
£m £m £m
Amounts paid in the period:
Final dividend for the year ended 31 December 2023 of 114.0p (2022: 109.5p) 84.0 80.7 80.7
per share
Interim dividend for the year ended 31 December 2023 of 46.0p (2022: 42.5p) - - 33.8
per share
Total dividends paid 84.0 80.7 114.5
Amounts arising in respect of the period:
Interim dividend for the year ending 31 December 2024 of 47.5p (2023: 46.0p) 35.0 33.8 33.8
per share
Final dividend for the year ended 31 December 2023 of 114.0p (2022: 109.5p) - - 84.0
per share
Total dividends arising 35.0 33.8 117.8
The Interim dividend for the year ending 31 December 2024 was approved by the
Board after 30 June 2024. It is therefore not included as a liability in
these Interim Condensed Consolidated Financial Statements. No scrip
alternative to the cash dividend is being offered in respect of the 2024
interim dividend.
In addition, dividends paid to minority shareholders at 30 June 2024 were
£0.2 million (31 December 2023: £0.4 million; 30 June 2023: £0.3 million).
7. POST-RETIREMENT BENEFITS
The Group is accounting for pension costs in accordance with IAS 19. The
disclosures shown here are in respect of the Group's Defined Benefit
Obligations. Other plans operated by the Group were either Defined
Contribution plans or were deemed immaterial for the purposes of IAS 19
reporting. The full IAS 19 disclosures for the year ended 31 December 2023
are included in the Group's Annual Report.
The amounts recognised in the Consolidated Statement of Financial Position are
as follows:
30 June 30 June 31 December
2024 2023 2023
£m £m £m
Post-retirement benefits (39.2) (43.4) (51.4)
Related deferred tax asset 10.1 11.0 13.3
Net pension liability (29.1) (32.4) (38.1)
On 25 July 2024, the Court of Appeal upheld the June 2023 High Court decision
in the Virgin Media Limited vs. NTL Pension Trustees II Limited and Others.
The Group is continuing to assess the impact this will have on the 2024
Financial Statements.
8. ANALYSIS OF CHANGES IN NET DEBT, INCLUDING CHANGES IN LIABILITIES ARISING FROM
FINANCING ACTIVITIES
Exchange movement
1 January Cash flow Acquired debt* £m 30 June 2024
2024 £m £m £m
£m
Current portion of long-term borrowings (3.6) (3.8)
Non-current portion of long-term borrowings (875.9) (876.8)
Total borrowings (879.5) (880.6)
Lease liability (96.7) 8.7 (9.1) 1.1 (96.0)
Borrowings (879.5) (12.5) - 11.4 (880.6)
Changes in liabilities arising from financing (976.2) (3.8) (9.1) 12.5 (976.6)
Cash at bank 359.7 (21.9) - (7.7) 330.1
Bank overdrafts (146.9) (22.9) - 2.0 (167.8)
Net cash and cash equivalents 212.8 (44.8) - (5.7) 162.3
Net debt and lease liability (763.4) (48.6) (9.1) 6.8 (814.3)
Net debt excluding lease liability (666.7) (57.3) - 5.7 (718.3)
* Debt acquired includes both debt acquired due to acquisition, and debt
recognised on the balance sheet due to entry into new leases and disposals of
existing leases.
During the period £25.9 million of interest on external borrowings (31
December 2023: £46.9 million; 30 June 2023: £20.6 million) was incurred and
paid.
At 30 June total lease liabilities consist of £15.9 million (31 December
2023: £14.5 million; 30 June 2023: £13.3 million) short-term and £80.1
million (31 December 2023: £82.2 million; 30 June 2023: £75.1 million)
long-term.
Exchange movement
1 January Cash flow Acquired debt* £m 30 June
2023 £m £m 2023
£m £m
Current portion of long-term borrowings (202.9) (196.7)
Non-current portion of long-term borrowings (731.3) (766.3)
Total borrowings (934.2) (963.0)
Lease liability (65.2) 6.8 (32.8) 2.8 (88.4)
Borrowings (934.2) (60.3) - 31.5 (963.0)
Changes in liabilities arising from financing (999.4) (53.5) (32.8) 34.3 (1,051.4)
Cash at bank 328.9 5.8 - (11.9) 322.8
Bank overdrafts (85.1) (24.6) - 1.6 (108.1)
Net cash and cash equivalents 243.8 (18.8) - (10.3) 214.7
Net debt and lease liability (755.6) (72.3) (32.8) 24.0 (836.7)
Net debt excluding lease liability (690.4) (79.1) - 21.2 (748.3)
Exchange movement
£m 31 December 2023
1 January Cash flow Acquired debt* £m
2023 £m £m
£m
Current portion of long-term borrowings (202.9) (3.6)
Non-current portion of long-term borrowings (731.3) (875.9)
Total borrowings (934.2) (879.5)
Lease liability (65.2) 16.1 (49.9) 2.3 (96.7)
Borrowings (934.2) 28.3 - 26.4 (879.5)
Changes in liabilities arising from financing (999.4) 44.4 (49.9) 28.7 (976.2)
Cash at bank 328.9 46.5 - (15.7) 359.7
Bank overdrafts (85.1) (62.8) - 1.0 (146.9)
Net cash and cash equivalents 243.8 (16.3) - (14.7) 212.8
Net debt and lease liability (755.6) 28.1 (49.9) 14.0 (763.4)
Net debt excluding lease liability (690.4) 12.0 - 11.7 (666.7)
9. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
Note. Full details of the Group's other related party relationships,
transactions and balances are given in the Group's Financial Statements for
the year ended 31 December 2023.
There have been no material changes in these relationships in the period up to
the end of this Report.
No related party transactions have taken place in the first half of 2024 that
have materially affected the financial position or the performance of the
Group during that period.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table details a comparison of the Group's financial assets and
liabilities where book values and fair values differ:
30 June 2024 30 June 2023 31 December 2023
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
£m £m £m £m £m £m
Borrowings 880.6 872.3 963.0 948.7 879.5 888.5
Fair values of financial assets and financial liabilities
Fair values of financial assets and liabilities at 30 June 2024 are not
materially different from book values due to their size, the fact that they
were at short-term rates of interest or for borrowings at long-term rates of
interest where the rate of interest is not materially different to the current
market rate. For derivatives, the fair value of forward exchange contracts
are marked to market by discounting the future contracted cash flows using
readily available market data. For interest-bearing loans and borrowings, fair
value is calculated based on discounted expected future principal and interest
cash flows using a current market rate of interest. For lease liabilities, the
fair value is estimated as the present value of future cash flows, discounted
at the incremental borrowing rate for the related geographical location,
unless the rate implicit in the lease is readily determinable. For receivables
and payables with a remaining life of less than one year, the notional amount
is deemed to reflect the fair value.
The Group uses forward currency contracts to manage its exposure to movements
in foreign exchange rates. The forward contracts are designated as hedging
instruments in a cash flow hedging relationship. At 30 June 2024 the Group had
contracts outstanding to economically hedge or to purchase £43.7 million with
US dollars, £65.8 million with euros, £8.7 million with Korean won, £19.8
million with Chinese renminbi, £4.6 million with Singapore dollars, €27.5
million with US dollars, €3.4 million with Korean won, €10.8 million with
Chinese renminbi and USD27.2 million with Mexican Pesos. The fair value at the
end of the reporting period is a £0.8 million asset (31 December 2023: £1.8
million asset; 30 June 2023: £4.0 million asset).
Financial instruments fair value disclosure
Fair value measurements are classified into three levels, depending on the
degree to which the fair value is observable.
● Level 1 fair value measurements are those derived from quoted prices in active
markets for identical assets and liabilities
● Level 2 fair value measurements are those derived from other observable inputs
for the asset or liability
● Level 3 fair value measurements are those derived from valuation techniques
using inputs that are not based on observable market data
We consider that the derivative financial instruments fall into Level 2.
There have been no transfers between levels during the period.
11. CAPITAL COMMITMENTS
Capital expenditure contracted for, but not provided for, at 30 June 2024 was
£10.9 million (31 December 2023: £14.5 million; 30 June 2023: £55.5
million). All capital commitments related to property, plant and equipment
and leased assets.
12. EXCHANGE RATES
Set out below is an additional disclosure (not required by IAS 34) that
highlights movements in a selection of average exchange rates between half
year 2023 and half year 2024.
Average Average
half year half year Change
2024 2023 %
US dollar 1.26 1.24 -2%
Euro 1.17 1.14 -3%
Renminbi 9.11 8.60 -6%
Won 1,708.29 1,605.62 -6%
Real 6.47 6.26 -3%
Argentine peso 1,087.16 263.21 -313%
A negative movement indicates a strengthening in sterling versus that
currency. When sterling strengthens against other currencies in which the
Group operates, the Group incurs a loss on translation of the financial
results into sterling.
On a translation basis, sales decreased by 4% and adjusted operating profit
decreased by 6%, with transactional currency impacts marginally increasing
profit, giving a total decrease to profit from currency movements of 6%.
Appendix - Alternative performance measures
The Group reports under International Financial Reporting Standards (IFRS) and
also uses adjusted performance measures where the Board believes that:
· they help to effectively monitor the performance of the Group; and
· users of the Financial Statements might find them informative.
Certain adjusted performance measures also form a meaningful element of
Executive Directors' annual remuneration. A definition of the adjusted
performance measures and a reconciliation to the closest IFRS equivalent are
disclosed below. The term 'adjusted' is not defined under IFRS and may
therefore not be comparable with similarly titled measures reported by other
companies. Adjusted performance measures are not considered to be a
substitute for, or superior to, IFRS measures.
Adjusted operating profit
Adjusted operating profit excludes items that are considered to be significant
in nature and/or quantum at either a Group or an operating segment level and
where treatment as an adjusted item provides stakeholders with additional
useful information to assess the period-on-period trading performance of the
Group. The Group excludes such items including those defined as follows:
· Amortisation and impairment of acquisition-related intangible assets
· Costs associated with the acquisition or disposal of businesses
· Gain or loss on disposal of a subsidiary and / or disposal groups
· Reversal of acquisition-related fair value adjustments to inventory
· Changes in deferred and contingent consideration payable on
acquisitions
· Costs associated with a material restructuring programme
· Material gains or losses on disposal of property
· Accelerated depreciation, impairment and other related costs on
non-recurring, material property redevelopments
· Material non-recurring pension costs or credits
· Costs or credits arising from regulatory and litigation matters
· Other material items which are considered to be non-recurring in
nature and / or are not a result of the underlying trading of the business
· Related tax effect on adjusting items above and other tax items which
do not form part of the underlying tax rate
A reconciliation between operating profit as reported under IFRS and adjusted
operating profit is given below.
Six months to 30 June 2024 Six months to 30 June 2023 Year ended 31 December 2023
£m £m £m
Operating profit as reported under IFRS 147.2 132.2 284.4
Amortisation of acquisition-related intangible assets 17.3 18.5 37.2
Acquisition-related items (4.2) 0.6 5.7
Reversal of acquisition-related fair value adjustments to inventory - 1.3 1.3
Restructuring costs - 5.2 5.2
Software related impairment - 13.9 13.9
Disposal of Associate - - (0.4)
Asset related impairment - - 1.8
Total adjusting items 13.1 39.5 64.7
Adjusted operating profit 160.3 171.7 349.1
Tax on adjusting items
Six months to Six months to Year ended
30 June 2024 30 June 2023 31 December 2023
Adjusted Adj't Total Adjusted Adj't Total Adjusted Adj't Total
£m £m £m £m £m £m £m £m £m
UK Corporation tax (1.9) - (1.9) (1.8) - (1.8) 9.3 - 9.3
Foreign tax 35.6 - 35.6 36.2 (4.9) 31.3 80.7 (6.1) 74.6
Deferred tax 3.0 (3.2) (0.2) 4.6 (3.1) 1.5 (11.2) (12.2) (23.4)
Total taxation 36.7 (3.2) 33.5 39.0 (8.0) 31.0 78.8 (18.3) 60.5
Effective tax rate 26.5% 24.4% 26.7% 25.4% 20.3% 27.2% 25.5% 28.3% 24.7%
Adjusted earnings per share
Six months to 30 June 2024 Six months to 30 June 2023 Year ended 31 December 2023
Profit for the period attributable to equity holders as reported under IFRS 91.2 82.9 183.6
(£m)
Items excluded from adjusted operating profit disclosed above (£m) 13.1 39.5 64.7
Tax effects on adjusted items (£m) (3.2) (8.0) (18.3)
Adjusted profit for the period attributable to equity holders (£m) 101.1 114.4 230.0
Weighted average shares in issue (million) 73.6 73.6 73.6
Basic adjusted earnings per share 137.2p 155.2p 312.4p
Diluted weighted average shares in issue (million) 73.8 73.7 73.8
Diluted adjusted earnings per share 136.9p 154.9p 311.8p
Basic adjusted earnings per share is defined as adjusted profit for the period
attributable to equity holders divided by the weighted average number of
shares in issue. Diluted adjusted earnings per share is defined as adjusted
profit for the period attributable to equity holders divided by the diluted
weighted average number of shares in issue.
Basic and diluted EPS calculated on an IFRS profit basis are included in Note
5.
Adjusted cash flow
Adjusted cash from operations is used by the Board to monitor the performance
of the Group, with a focus on elements of cashflow, such as net capital
expenditure, which are subject to day-to-day control by the business. A
reconciliation showing the items that bridge between net cash from operating
activities as reported under IFRS to adjusted cash from operations is given
below:
Six months to Six months to 30 June 2023 Year ended
30 June 2024 £m 31 December 2023
£m £m
Net cash from operating activities as reported under IFRS 93.1 85.6 298.6
Restructuring and acquisition-related costs 2.5 8.6 10.8
Share of loss of Associate 0.5 - -
Net capital expenditure excluding acquired intangibles from acquisitions (39.7) (49.8) (102.3)
Income tax paid 37.9 46.1 90.7
Repayments of principal under lease liabilities (8.7) (7.7) (16.1)
Adjusted cash from operations 85.6 82.8 281.7
Adjusted cash conversion in the first half was 53% (30 June 2023: 48%).
Adjusted cash conversion is calculated as adjusted cash from operations
divided by adjusted operating profit. The adjusted cash flow is included on
page 7.
Net debt including lease liabilities
A reconciliation between net debt and net debt including lease liabilities is
given below. A breakdown of the balances that are included within net debt
is given in Note 8. Net debt excludes lease liabilities to be consistent
with how net debt is defined for external debt covenant purposes, as well as
to enable comparability with prior years.
30 June 2024 30 June 2023 31 December 2023
£m £m £m
Net debt 718.3 748.3 666.7
Lease liabilities 96.0 88.4 96.7
Net debt including lease liabilities 814.3 836.7 763.4
Net debt to earnings before interest, tax, depreciation and amortisation
(EBITDA)
To assess the size of the net debt balance relative to the size of the
earnings for the Group we analyse net debt as a proportion of EBITDA. EBITDA
is calculated by adding back depreciation and amortisation of owned property,
plant and equipment, software and development to adjusted operating profit.
For half year calculations, this is based on the results for the last 12
months all translated at the exchange rate used for the half year period. Net
debt is calculated as Cash and cash equivalents less Bank overdrafts,
Short-term borrowings and Long-term borrowings (excluding Short-term and
Long-term lease liabilities). The net debt to EBITDA ratio is calculated as
follows:
12 month period to 30 June 2024 12 month period to 31 December 2023
£m
£m
Adjusted operating profit 328.1 349.1
Depreciation and amortisation of property, plant and equipment, software and 57.5 44.2
development
EBITDA 385.6 393.3
Net debt 718.3 666.7
Net debt to EBITDA 1.9x 1.7x
Organic measures
As we are a multi-national Group of companies, who trade in a large number of
foreign currencies and also acquire and sometimes dispose of companies, we
also refer to organic performance measures throughout the News Release.
These strip out the effects of the movement of foreign currency exchange rates
and of acquisitions and disposals. The Board believe that this allows users
of the accounts to gain a further understanding of how the Group has
performed. Exchange translation movements are assessed by re-translating
prior period reported values to current period exchange rates. Exchange
transaction impacts on operating profit are assessed on the basis of
transactions being at constant currency between years.
The incremental impact of any acquisitions that occurred in either the current
period or prior period is excluded from the organic results of the current
period at current period exchange rates. For any disposals that occurred in
the current or prior period, the current period organic results include the
difference between the current and prior period financial results only for the
like-for-like period of ownership.
The organic percentage movement is calculated as the organic movement divided
by the prior period at current period exchange rates, excluding disposals for
the non like-for-like period of ownership. The organic bps change in
adjusted operating profit margin is the difference between the current period
margin, excluding the incremental impact of acquisitions, and the prior period
margin excluding disposals for the non like-for-like period of ownership at
current period exchange rates.
A reconciliation of the movement in revenue and adjusted operating profit
compared to the prior period is given below:
Six months to 30 June 2023 Six months to
Exchange Organic 30 June 2024
£m £m £m £m Organic Reported
Revenue 850.8 (34.5) 10.7 827.0 1% (3)%
Adjusted operating profit 171.7 (10.6) (0.8) 160.3 (1)% (7)%
Adjusted operating profit margin 20.2% 19.4% (30)bps (80)bps
Analysis by operating segment
Adjusted Adjusted
Six months to 30 June 2024 operating operating
Revenue profit profit margin
£m £m %
Steam Thermal Solutions 430.8 101.2 23.5%
Electric Thermal Solutions 197.7 29.1 14.7%
Watson-Marlow 198.5 48.8 24.6%
Corporate - (18.8)
Total 827.0 160.3 19.4%
Net finance expense (21.9)
Share of loss of Associate (0.5)
Adjusted profit before taxation 137.9
Adjusted Adjusted
Six months to 30 June 2023 operating operating
Revenue profit profit margin
£m £m %
Steam Thermal Solutions 459.8 112.2 24.4%
Electric Thermal Solutions 192.5 26.9 14.0%
Watson-Marlow 198.5 48.9 24.6%
Corporate - (16.3)
Total 850.8 171.7 20.2%
Net finance expense (18.2)
Share of loss of Associate -
Adjusted profit before taxation 153.5
Year ended 31 December 2023 Adjusted Adjusted
operating operating
Revenue profit profit margin
£m £m %
Steam Thermal Solutions 910.1 224.0 24.6%
Electric Thermal Solutions 378.5 59.2 15.6%
Watson-Marlow 394.0 93.7 23.8%
Corporate - (27.8)
Total 1,682.6 349.1 20.7%
Net finance expense (39.9)
Share of loss of Associate -
Adjusted profit before taxation 309.2
The reconciliation for each operating segment for adjusting items is analysed
below:
Six months to 30 June 2024 Amortisation Acquisition-related items Total
of acquired intangibles £m £m
£m
Steam Thermal Solutions (2.6) - (2.6)
Electric Thermal Solutions (13.2) 4.2 (9.0)
Watson-Marlow (1.5) - (1.5)
Corporate expenses - - -
Total (17.3) 4.2 (13.1)
Six months to 30 June 2023 Amortisation Reversal of fair value adjustments to inventory Restructuring costs Acquisition-related items Software related impairment Total
of acquired intangibles £m £m £m £m £m
£m
Steam Thermal Solutions (2.0) - - - (13.9) (15.9)
Electric Thermal Solutions (14.9) (1.3) - - - (16.2)
Watson-Marlow (1.6) - (5.2) - - (6.8)
Corporate expenses - - - (0.6) - (0.6)
Total (18.5) (1.3) (5.2) (0.6) (13.9) (39.5)
Year ended 31 December 2023
Amortisation Reversal of fair value adjustments to inventory Restructuring costs Acquisition- related items Disposal of Associate Impairments Total
of acquired intangibles £m £m £m £m £m £m
£m
Steam Thermal Solutions (4.5) - - (0.4) - (13.9) (18.8)
Electric Thermal Solutions (29.5) (1.3) 2.3 (4.9) - - (33.4)
Watson-Marlow (3.2) - (7.5) - - (1.8) (12.5)
Corporate expenses - - - (0.4) 0.4 - -
Total (37.2) (1.3) (5.2) (5.7) 0.4 (15.7) (64.7)
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