Half Year 2026 Spirax Group PLC Earnings Call Transcript
Key Points
- Spirax Group PLC (SPXSY) delivered 5% organic sales growth, well ahead of industrial production (IP) growth of 1.5%, demonstrating strong self-generated demand.
- The company reported a 6% organic profit growth and a 10 basis point improvement in operating margin to 19.8%, with EPS up 9%.
- ETS division performed exceptionally well with 11% sales growth, strong demand across all divisions, and a 220 basis point margin improvement to 17.2%.
- Watson-Marlow saw 7% sales growth, with Biopharm new order intake ahead of sales and Q2 orders reaching the highest quarterly level since the COVID-related peak.
- The company is confident in its medium-term targets, with strong order books and momentum across all businesses, and expects higher sales growth and margins in the second half.
- Digital and decarbonization initiatives are gaining traction, with 19,000 connected steam traps and 10 Powering Zero orders secured, supporting long-term growth.
- China's decline moderated to -1% from -6% in the prior year, with MRO and solutions growth offsetting large project weakness, and the company sees a path to return to growth.
- Cash conversion is expected to be around 90% for the full year, with planned inventory builds to mitigate supply chain disruptions, and net debt to EBITDA is expected to return within the target range by year-end.
- The macroeconomic backdrop remained weak, with IP forecasts revised downwards and industrial production contracting in Germany, while growth in other key markets remains modest.
- STS sales growth was only 1% due to customer-driven shipment phasing into the second half, and the STS margin declined 170 basis points to 22%.
- The company faced headwinds from the Middle East conflict, impacting demand and causing some shipment delays, with potential supply chain disruptions.
- Cash conversion in the first half was lower at 54%, reflecting planned inventory builds and normal seasonality, with absolute cash from operations lower than the prior year.
- Net debt to EBITDA was temporarily outside the target range at 1.6 times, and the company expects to be back within range only by the end of the year.
- China's large project demand continued to decline, albeit at a moderating pace, and the company remains cautious about the timing of a return to growth.
- The company noted that IP can be a headwind, and the expected recovery has been pushed out, requiring significant improvement in key markets to meet forecasts.
- ETS margin improvement was partially offset by ramp-up costs for the new medium voltage facility, and the company expects some under-absorption of fixed costs to continue into 2027.
Hello, and thank you for joining this presentation of Spirax Group's half-year results.
I'm Nimesh Patel, Group CEO, and I'm joined by Louisa Badette, Group CFO.
Let me begin with summarizing our performance in the first half.
We have again delivered a resilient set of results for the first half and we remain on track to deliver our full year guidance.
Across the group, our Together for Growth strategy is strengthening our differentiated business model.
We are benefiting from our diversified end market exposure and importantly, driving growth ahead of our markets in spite of external conditions is becoming increasingly embedded in how we operate.
As a result, we delivered 5% organic sales growth well ahead of IP of 1.5%. Our organic profit growth was 6% and the operating margin progressing to 19.8%, with EPS up 9%. We achieved this while continuing to invest in future growth.
The group adjusted operating margin increased 10 basis points organically with
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