Release Date: March 10, 2021
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Spirax Group PLC (SPXSF, Financial) achieved resilient sales and margin performance in 2020 despite challenging market conditions.
- The Watson-Marlow business experienced 9% organic sales growth, driven by strong demand from the Pharmaceutical & Biotechnology sector.
- The company achieved GBP 22 million in temporary cost savings, supporting strong margin performance.
- Spirax Group PLC (SPXSF) maintained operational continuity with all manufacturing and warehouse facilities remaining operational.
- The company accelerated its sustainability agenda, including setting challenging climate change and biodiversity targets.
Negative Points
- Sales were 4% lower, reflecting an organic decline of 3% and adverse currency movements.
- Operating profit was also 4% lower, impacted by currency movements and partially offset by cost containment measures.
- The Steam Specialties business saw a 5.5% organic sales decline, particularly impacted by larger capital projects.
- The Electric Thermal Solutions business experienced a 12% organic sales decline, driven by weaker market conditions in the U.S.
- The company's operating profit margin fell by 10 basis points to 22.7%, with a significant portion of cost savings expected to reverse in 2021.
Q & A Highlights
Q: On the Watson-Marlow side, given the strong biopharma sales in 2020 and similar expectations for 2021, how sustainable is this demand, especially beyond COVID-related vaccine production?
A: Nicholas J. Anderson, Group Chief Executive: We are confident that Watson-Marlow will continue to achieve mid- to high single-digit organic growth beyond 2021, based on our understanding from customers and market trends.
Q: Regarding Chromalox and Thermocoax in the ETS segment, how do you see these businesses developing, especially given the restructuring actions and strong performance?
A: Nicholas J. Anderson, Group Chief Executive: Chromalox has been impacted by its exposure to Oil & Gas and Power Generation sectors, but we are confident in its path to group-level margins. Thermocoax has shown strong growth due to market share gains and high-quality applications, and we expect continued progress.
Q: Given the strong margin expansion in ETS, when do you expect margins to be closer to the group average?
A: Nicholas J. Anderson, Group Chief Executive: We aim to achieve group-level margins for ETS by 2027, applying the same management tools and activities that have been successful in our other businesses.
Q: How should we think about the opportunities to deploy the balance sheet for M&A?
A: Nicholas J. Anderson, Group Chief Executive: We have a pipeline of potential targets that fit our strategic and financial criteria. We remain optimistic about landing M&A opportunities that reinforce our organic growth and margin capabilities.
Q: Are there any short-term bottlenecks in Watson-Marlow's production capacity to meet the strong sales guidance for 2021?
A: Nicholas J. Anderson, Group Chief Executive: We are aware of the risks and are taking actions to avoid bottlenecks, including adding shifts and outsourcing parts. We are confident in delivering the projected growth despite the extraordinary demand.
Q: Is there a significant margin difference between the biopharma and industrial sectors within Watson-Marlow?
A: Nicholas J. Anderson, Group Chief Executive: There is a slight difference, but it is not significant enough to adjust your models. Both sectors contribute strongly to our overall performance.
Q: Do you expect a restocking event in the Steam business in the Americas, and is it captured in your guidance?
A: Nicholas J. Anderson, Group Chief Executive: We anticipate some restocking as economic activity picks up, and this is already factored into our 2021 guidance.
Q: How are customer relationships and demand for self-generated sales evolving given the restrictions of 2020?
A: Nicholas J. Anderson, Group Chief Executive: Our strong customer relationships have been maintained, and we expect to uncover more self-generated opportunities as we regain full access to customer sites.
Q: How is the focus on ESG manifesting in customer behavior?
A: Nicholas J. Anderson, Group Chief Executive: Larger customers have been focused on sustainability for years, and the increased prominence of ESG discussions is encouraging smaller customers to also prioritize these initiatives. We are well-positioned to capitalize on this trend.
Q: What is the delivery timeline for the $14 million order from the U.S. Navy, and are there more large projects like this?
A: Nicholas J. Anderson, Group Chief Executive: The order will be delivered 50% in 2021 and 50% in 2022. While such large orders are rare, we have many exciting projects in the pipeline, particularly in decarbonization efforts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
