SPXSY - Spirax-Sarco Engineering plc (SPXSF) Full Year 2023 Results Earnings Call Transcript

2024-03-07 22:48:12 ET

Spirax-Sarco Engineering plc (SPXSF)

Full Year 2023 Results Earnings Conference Call

March 07, 2024 4:15 AM ET

Company Participants

Nimesh Patel – Group Chief Executive Officer

Phil Scott – Interim Chief Financial Officer

Conference Call Participants

Andrew Douglas – Jefferies

Jonathan Hurn – Barclays

Mark Jones – Stifel

Rory Smith – UBS

Andrew Simms – Berenberg

Aurelio Calderon – Morgan Stanley

Lush Mahendrarajah – JPMorgan

Stephan Klepp – HSBC

Presentation

Nimesh Patel

So good morning and thank you for joining us for today's presentation. I'm Nimesh Patel and I think most of you know me, although I'm now in a different role, but I would like to introduce Phil Scott, who's our Interim CFO, and you'll hear more from Phil in just a moment. But first, I am at the end of my second month as CEO, and this is my first set of results in the new role. So I thought it would be appropriate to probably just share with you a few early reflections. And I want to start by saying what a privilege it is to lead the Spirax Group because of our outstanding people. I know this business, having been CFO for over three years, and I'm incredibly well supported by our group executive team and our Board, and I'm excited about the opportunity we've got ahead of us building on our strong foundations.

Since my appointment was announced, I've visited over 20 of our operating companies across 11 countries, listening to my colleagues, to understand what they're proud of, what they enjoy, the challenges they face, and what we can do to better support them and support our growth. Not only have I experienced their genuine passion for what they do, but also their dedication to solving our customers' challenges, because solutions are in the bloodstream of our group. They're in our DNA. So while today, we're here principally to review our performance in 2023 and discuss the outlook for 2024, I will also speak briefly at the end of this presentation about our future beyond this year, focusing on what I want to preserve and protect, recognizing what's unique about our group and the foundation for our future success and what I want to build, as we fully capture the opportunities that we see ahead.

And speaking of the future, let me mark our recent rebranding, evolving from Spirax-Sarco Engineering to Spirax Group, which is the culmination of a journey that spans decades. So why did we take this decision? Because this brand which was developed entirely in-house brought together our common purpose, brought together our culture and our business model the three things that unite us at one group. What the brand reflects is that we are now three strong, sizable and solution focused businesses. And as part of this rebrand Steam Specialties became Steam Thermal Solutions, or STS, better reflecting the focus of our business, and it sits alongside Electric Thermal Solutions, and Watson-Marlow Fluid Technology Solutions.

Now, let's turn to our performance in 2023. I want to acknowledge that we're coming out of what was a challenging year. We faced a materially weaker macroeconomic environment with low global industrial production growth, or IP, well below 2022. And we faced additional external headwinds to demand from customers in the biopharm and semicon sectors impacting our highest margin businesses. Against this backdrop, our financial performance was in line with the expectations we set out in our November trading update. So I want to thank all of our stakeholders, particularly my colleagues, for helping us collectively steer through these tougher times.

While overall, we experienced an organic decline in sales, excluding Biopharm, the group grew at a rate significantly above IP because the underlying strength of our business hasn't changed. But I am pleased to say that our expectation is for 2024 to be a year of growth, supported by an improvement in IP, as well as an anticipated recovery in Biopharm demand. During 2023 in light of challenging trading conditions, we took early actions to right size capacity and overhead support costs. Together with our pricing discipline, this partially mitigated the impact of lower volumes and an adverse sales mix on our operating profit margin. And as we return to growth in 2024, we expect an improvement to our margin. We also continue to invest in the group's strategic initiatives, building the strong foundations that will deliver our long-term growth.

So to further explain our 2023 financial performance I'll now hand over to Phil, and then I'll return to speak more about our operational performance in each of the three businesses. Phil?

Phil Scott

Thanks, Nimesh and good morning, everyone. So just a reminder, as always, the numbers we'll be discussing today are the adjusted results. A full reconciliation between the statutory and adjusted operating profit is included as an appendix to today's presentation. Again, just to remind the difference between our reported and organic growth rates reflect the effect of currency movements on sales and profit, as well as the contributions from acquisitions in relation to the differing periods of ownership. These impacts are reflected in our reported numbers, and they're excluded from our organic growth rates....

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