Spectris plc – 2024 half year results
30 July 2024 – Spectris plc (SXS: LSE), the expert in providing insight through precision measurement, announces half year results for the six months ended 30 June 2024.
Step change in strategic execution to drive long-term growth in the face of softer end markets
· Acquisition of SciAps Incorporated (SciAps) and Micromeritics Instrument Corporation (Micromeritics) strengthens our leadership in materials characterisation for advanced materials analysis
· Our commitment to R&D and innovation is delivering a record level of new products to drive organic growth and market share gains
· Returning cash to shareholders through continuation of £150 million share buyback, with £100 million remaining
· As announced in June, our first half performance reflects a tough comparator, softer conditions in some end markets and the rephasing of £22 million sales and £15 million operating profit into the second half relating to our new ERP system
· Order book of £532 million at the end of the period provides good visibility into the second half
· Excluding any incremental profit associated with the acquisition of SciAps and Micromeritics, we expect to deliver adjusted operating profit for the full year in line with current market expectations[1]
Andrew Heath, CEO, said:
“In 2019, we set out to evolve our portfolio to increase the quality, growth, margin profile and resilience of the Group. The combination of our disposal programme and the redeployment of capital to acquire and build a world-class business, means we have truly reshaped the portfolio in the last five years, providing a high-quality platform from which to drive sustainable growth well into the future. This has structurally increased our ability to deliver against our medium-term financial targets. And as I look ahead, I have never been as excited about the future potential of the Group as I am today.
We have been very active across the Group over the last six months. We have launched a record number of exciting products, completed our portfolio rationalisation programme with the sale of Red Lion in April, and in July announced the acquisition of two highly complementary businesses. I am delighted with the addition of SciAps and Micromeritics and look forward to them joining the Group. Both are high-quality, high-growth businesses, that will further strengthen our customer offering.
As a result of our financial performance in the first half we will be taking action to accelerate further self-help measures in the second half. With a portfolio of great businesses, a clear strategy to deliver growth and expand margins, we are well placed and in a strong position as we look ahead to 2025 and beyond.”
|
Adjusted1 H1 2024 |
Adjusted1 H1 2023 |
LFL change1 |
Statutory H1 2024 |
Statutory H1 2023 |
Statutory change |
|
|
Sales (£m) |
589.7 |
702.5 |
(10%) |
589.7 |
702.5 |
(16%) |
|
Operating profit (£m) |
61.1 |
102.1 |
(35%) |
24.0 |
70.5 |
(66%) |
|
Operating margin (%) |
10.4% |
14.5% |
(400bps) |
4.1% |
10.0% |
(590bps) |
|
Profit before tax (£m) |
62.8 |
103.4 |
|
235.3 |
68.5 |
244% |
|
Basic earnings per share (pence) |
47.9p |
77.2p |
|
179.6p |
50.0p |
259% |
|
Cash generated from operations |
|
|
|
57.4 |
108.9 |
(47%) |
|
Adjusted cash flow conversion (%) |
111% |
117% |
|
|
|
|
|
Return on gross capital employed (%) |
16.8% |
16.7% |
|
|
|
|
|
Dividend per share (pence) |
|
|
|
26.6p |
25.3p |
5% |
|
|
|
|
|
|
|
|
1. Alternative performance measures (APMs) are used consistently throughout this press release and are referred to as ‘adjusted’ or ‘like-for-like’ (LFL). These are defined in full and reconciled to the reported statutory measures in the Appendix to the Condensed Consolidated Interim Financial Statements.
Chief Executive’s Review
Summary
Over the last five years, we have simplified the Group and created a faster-growing, more profitable business and transformed our offering through the creation of two, world class divisions of scale in Spectris Scientific and Spectris Dynamics. And in doing so we have deployed all aspects of our capital allocation framework. Since 2018 we have sold nine businesses redeploying that capital in 13 acquisitions; we have returned close to £1 billion through a combination of share buybacks and our progressive dividend; and we are on a journey to drive operational excellence across the Group through our enterprise-wide ERP system and SBS. As a result, we have increased ROGCE from 13.5% (FY 2019) to 18.5% (FY 2023) over the same period.
The strategic progress we have made, and the portfolio of world class businesses that we have today, mean that I have never been more excited about the opportunities for Spectris, and have even greater confidence in delivering our medium-term objectives of 6-7% through cycle growth, with our self-help initiatives supporting our progress towards margins of at least 20%+.
The sale of our Red Lion Controls business during the first half concluded the portfolio transformation envisaged in 2019, with Spectris now focused on high growth, high value premium precision measurement businesses. In 2024 we have significantly strengthened the Spectris Scientific Division, creating a world leader in advanced materials analysis, focused on high-growth end markets. It is home to Malvern Panalytical, PMS and now the Servomex business. The two strategically complementary acquisitions of high-quality, high-growth businesses in SciAps and Micromeritics, announced shortly after the period end, will significantly strengthen our leadership position and expand our offering to customers, while delivering material synergies. This is entirely consistent with our on-going portfolio strategy to build a higher-quality, higher-growth, business.
This year is set to be a record year for innovation, supporting organic growth and market share gains. Our commitment to innovation and solving our customers most complex challenges, means we have launched a number of exciting, new products, across both divisions, already this year, with a strong pipeline to come.
We successfully completed the first phase of the rollout of our new ERP system, which together with the Spectris Business System (SBS), represent key building blocks towards Group operating margins of at least 20%. The new system is working very well overall, although some of the cut-over issues that have occurred, while typical with the complexity of a change of this magnitude, impacted our results in the period. This is simply a timing issue and we expect the impact to be fully recovered over the course of the second half. We can already see the opportunity to significantly improve operating effectiveness and efficiency through the deployment of the new system.
We are continuing the £150 million share buyback programme, with £100 million remaining. On completion, this will take the total amount of cash returned to shareholders through share buybacks to £650 million over the last 5 years.
After three years of strong growth and against the backdrop of ongoing macroeconomic uncertainty, we always expected 2024 to be a slower year, before returning to growth in 2025 and 2026. Our first half performance compares with a particularly strong comparative period last year (LFL sales growth of 19%). As noted in our trading update on 19 June, our first half performance has been impacted by two factors:
· First, softer underlying trading driven by weaker demand in China, a significant reduction in battery development - associated with the slowdown in sales of electric vehicles - and continued, subdued trading in pharmaceuticals. This reduced sales and operating profit by around £15 million and £10 million respectively in the first half. As such, we will be taking action to accelerate further self-help measures in the second half.
· In addition, the anticipated disruption to operations associated with the global implementation of our new ERP system across Malvern Panalytical in April, lasted longer than expected, resulting in the rephasing of £ 22 million of sales and £15 million of operating profit to the second half. While the quantum is slightly higher than originally estimated at the time of our June update, we continue to expect to recover all of these sales in the second half, with no impact on the full year.
Notwithstanding softer trading in the first half, we are encouraged by signs that market conditions will improve in the second half, albeit the timing remains uncertain. Our order book of £532 million at the end of the period provides good visibility into the second half.
Outlook
Excluding any incremental profit associated with the acquisition of SciAps and Micromeritics, we expect to deliver adjusted operating profit for the full year in line with current market expectations[2].
Financial performance
After adjusting for Red Lion, our order book at the end of June at £532 million was higher than the December year-end, providing good visibility into the second half. Order intake of £613.9 million in the first half was 6% lower than the comparative period on a LFL basis with continuing strong demand and order growth in both A&D and Automotive, more than offset by softer demand in other end markets, particularly Academia. On a LFL basis, demand in both North America and Europe was solid with orders 3% lower in both regions, with Asia down 12% driven by continuing softer markets in China.
LFL sales were 10% lower, down 16% on a reported basis, reflecting a 3pp net impact from disposals and acquisitions and 3pp from adverse foreign exchange. On a regional basis, sales were 9% lower in both North America and Europe with sales 11% lower in Asia on a LFL basis.
LFL sales performance across our end markets is set out in the table below with further information on end market trends contained in the reviews for the Scientific and Dynamics divisions.
|
End market |
Sales H1 2024 (£m) |
Sales H1 2024 % of total Group |
LFL sales Growth |
Expected medium-term market growth |
|
Life sciences / pharmaceutical |
102 |
17% |
(22%) |
5-7% |
|
Technology-led industrials |
109 |
19% |
(2%) |
5-7% |
|
Electronics and semiconductor |
74 |
12% |
4% |
6-8% |
|
Automotive |
69 |
12% |
0% |
4-6% |
|
Materials |
59 |
10% |
(8%) |
5-6% |
|
Academic research |
51 |
9% |
(21%) |
5-6% |
|
Other |
126 |
21% |
(12%) |
3-5% |
The lower sales and product mix resulted in a 210bps decrease in adjusted gross margins. Adjusted operating margin of 10.4%, was 410bps lower than the comparative period (H1 2023: 14.5%) resulting in adjusted operating profit of £61.1 million (H1 2023: £102.1 million) a decrease of 35% on a LFL basis (40% on a reported basis).
Adjusted earnings per share was 38% lower at 47.9 pence (H1 2023: 77.2 pence). Statutory operating profit of £24.0 million (H1 2023: £70.5 million) was 66% lower. This gave a 4.1% statutory operating margin (H1 2023: 10.0%). Cash conversion was 111% on an adjusted basis in the first half (H1 2023: 117%), with our strong balance sheet providing the Group with significant flexibility.
Strategic progress
We continue to make strong progress against the framework set out in October 2022, in our Strategy for Sustainable Growth, driven by our business model.
Under Spectris Scientific, we have brought together three complementary precision instruments businesses: Malvern Panalytical, Particle Measuring Systems and Servomex. Each of these businesses has leading positions at the premium end of common markets, where their deep domain knowledge is essential and drives high levels of customer centricity, where their depth of capability and expertise play a vital role in making the invisible visible for our customers. The acquisitions of Micromeritics and SciAps are both highly complementary and will further add to these strengths. Additionally, as one division of scale, this provides real opportunities to collaborate, sharing best practice in areas like operational effectiveness, including common IT systems and SBS as well as R&D.
In Spectris Dynamics we are pleased with the acquisition of MicroStrain which completed at the end of last year, adding to the highly successful acquisition of Dytran in 2022.
We invested £52.9 million (H1 2023: £52.2 million) in R&D in the first half and launched a number of exciting, new products with more detail contained in the divisional review sections. The initial customer response to these products and others launched during the period has been extremely positive, and with a strong pipeline and further launches to come over the coming months, we expect 2024 to be a record year for new product introductions for the Group, which will support future organic growth and market share gains.
We continue to leverage SBS to drive operational excellence and deliver tangible cost savings, remaining on track to deliver another c.£10 million in savings in 2024. We have continued to develop and promote our ‘Go For Gold’ programme with seven Bronze sites pursuing Silver and an additional five sites targeting Bronze by the end of this year, with the aim to have all operational sites certified Bronze by the end of 2025.
In April, we successfully completed the first phase of the rollout of our new ERP system with the implementation covering the entire Malvern Panalytical business. In the second half we will begin a phased roll out of the new system across Spectris Dynamics which is expected to complete in 2025. The new system replaces a number of legacy ERP systems and helps standardise, simplify and automate processes to enhance our operations, enabling our businesses to become more efficient and scalable.
We remain on track to meet our Net Zero ambition and a full update will be provided at the year-end as we progress our Net Zero Transition Plan. At Spectris, we recognise the importance of creating the right environment for our people to thrive and develop and I am pleased to say that the work we have done in this area has once again resulted in an increase in engagement levels as measured by our annual employee engagement survey. In 2024, our engagement scores increased to 4.00, increasing for the third successive year and up from 3.92 in 2023 (2022: 3.86).
The strategic progress we have made in the first half is due to the hard work of my colleagues and the continued execution of our Strategy for Sustainable Growth, and I want to thank everyone across the Group for what we have delivered.
Capital allocation
We had net cash position at the period end (30 June 2024) of £292.5 million (30 June 2023: £214.3 million). This, together with good cash generation, provides us with the flexibility to pursue our organic growth investment, return capital to shareholders and execute our targeted M&A strategy.
On 4 July, we announced the acquisition of SciAps for consideration of up to $260 million (£205 million), including a deferred element of $60 million, which will be integrated into Malvern Panalytical within Spectris Scientific. SciAps has a proven track record of growth and will add laser-induced, backscatter spectroscopy (LIBS) technology to Malvern Panalytical’s portfolio and provide access to the adjacent hand-held XRF market. It will create a highly synergistic combination, with SciAps handheld portfolio used in the field, complementing Malvern Panalytical’s range of laboratory and benchtop equipment. When combined, we will provide a comprehensive suite of technology offerings in attractive end markets, particularly mining, NDT and product circularity/recycling, while also providing the ability to rapidly expand our digital offering to these customers.
On 16 July, we announced an agreement to acquire Micromeritics Instrument Corporation (Micromeritics) for upfront consideration of $630 million (£485 million) plus a deferred element up to $53 million (£41 million). Micromeritics is a proven, high-margin, high-growth business which, together with Malvern Panalytical will create the leading particle characterisation business for advanced materials analysis, with a highly differentiated and fully integrated offering. The addition of Micromeritics’ technologies alongside Malvern Panalytical’s capabilities will enable the comprehensive characterisation of particles by detailing their size, count, surface properties and behaviour, thus supporting the entire customer workflow from R&D to QC/QA applications. With highly complementary product portfolios, the combination will also strengthen Spectris’ offering in the rapidly growing, clean tech markets and will deliver significant synergies.
These acquisitions will be funded through a combination of our cash resources and new external debt, with the strong free cash flow generation of the Group expected to bring leverage down to around 1.3x by the end of 2025 and below 1.0x beyond that.
We recognise the importance of a growing dividend to our shareholders and are committed to a progressive dividend policy. The Board is declaring an interim dividend of 26.6 pence per share, growth of 5% on last year (H1 2023: 25.3p). The interim dividend will be payable on 8 November to shareholders on the register on 4 October 2024. The ex-dividend date is 3 October.
We completed the first £50 million tranche of our £150 million share buyback during the period with £100 million remaining.
Board update
On 19 June, we announced that Derek Harding will take up a new role as President of our enlarged Spectris Scientific Division from 1 September 2024. Derek will remain on the Board as an Executive Director of the Company in his new role and will continue to report to Andrew Heath, Chief Executive.
Angela Noon will join the company as an Executive Director and Chief Financial Officer on 1 September 2024. Angela is currently CFO at Royal Mail and was previously CFO for Siemens UK & Ireland.
Contacts:
Spectris plc
Andrew Heath, Chief Executive Officer
Derek Harding, Chief Financial Officer
Mathew Wootton, Director of Investor Relations
Teneo
Martin Robinson / Giles Kernick
+44 20 7353 4200
Analyst meeting and live webcast
A presentation to analysts and investors will take place at Bank of America, 2 King Edward Street, London, EC1A 1HQ begin at 08:00hrs BST, hosted by Andrew Heath, Chief Executive and Derek Harding, Chief Financial Officer to discuss this statement. The presentation will be broadcast live via the following link:
https://www.investis-live.com/spectris/668d52cb99bcb24a0007c9c7/lkei
Dial-In: United Kingdom (Local): +44 20 3936 2999; United Kingdom (Toll-Free): +44 800 358 1035
Global Dial-In Numbers
Access Code: 485405
Copies of this press release are available to the public from the registered office at Melbourne House, 44-46 Aldwych, London, WC2B 4LL and on the Company’s website at www.spectris.com.
About Spectris
Spectris combines precision with purpose, delivering progress for a more sustainable world. We provide critical insights to our customers through premium precision measurement solutions combined with technical expertise and deep domain knowledge. Precision is at the heart of what we do - our leading, high-tech instruments and software equip our customers to solve some of their greatest challenges to make the world cleaner, healthier and more productive. We are focused on two key divisions – Spectris Scientific and Spectris Dynamics, which are placed in technology-driven end markets, with strong fundamentals and attractive growth trajectories. We have leading market positions in premium segments and employ 7,000 people located in more than 30 countries, all united behind our purpose to deliver value beyond measure for all our stakeholders. For more information, visit www.spectris.com.