Release Date: August 12, 2020
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Resilient trading performance despite COVID-19, with only a 5% organic revenue decline.
- Strong cost containment actions maintained operating profit margin above 20%.
- Watson-Marlow achieved good sales and profit growth, driven by strong demand from the biopharm sector.
- Thermocoax, acquired in May 2019, achieved double-digit sales and profit growth, supported by market share gains in the semiconductor sector.
- Strategic capital and revenue investments were maintained, ensuring readiness for future growth opportunities.
Negative Points
- Reported sales fell by 4%, with an organic decline of 5%.
- Operating profit margin fell by 100 basis points to 20.9%.
- Steam Specialties and Electric Thermal Solutions businesses experienced sales declines consistent with industrial production declines.
- Currency impacts represented a headwind of under 2% in the first half, expected to increase over 2% for the full year.
- Net finance expense reduced slightly, but a charge of GBP 9 million is anticipated for the full year.
Q & A Highlights
Q: It seems like you've had a very strong first half in a relative sense. Is there a degree of pent-up demand because your sales engineers had access issues that we might see coming back as the world approaches normalcy?
A: We don't think there's any material damage to the demand that could have come through in the first half. As economic activity recovers, we'll see more interest as we're able to access plants physically. (Nicholas J. Anderson, Group Chief Executive)
Q: Can you give us a sense of how much of the cost containment in the first half was temporary and may come back in the second half?
A: Some costs will come back as mobility increases, but we have also implemented permanent savings such as ceasing future accrual of the U.K. pension schemes and restructuring in Chromalox France. (Kevin James Boyd, CFO)
Q: The increased caution in terms of the revenue trajectory, is that just a reaction to macro forecasts or is there anything specific from your business?
A: The caution is due to the slower-than-expected recovery of economic activity and the hesitance of people getting back to normal. We anticipate small flare-ups in different parts of the world acting as a drag on recovery. (Nicholas J. Anderson, Group Chief Executive)
Q: Are you actively looking at further M&A opportunities given the resilience in your performance?
A: We have a pipeline of companies that fit our strategy and would reinforce our group's growth. We continue to monitor these opportunities and are prepared to act if the right ones become available, especially in Watson-Marlow and Steam businesses. (Nicholas J. Anderson, Group Chief Executive)
Q: Can you talk about the distributor destocking you saw in the first half? Is there any sign of restocking coming through in H2?
A: Distributors resized their stocks due to lower demand and preserved cash. Restocking will occur as confidence returns and economic activity picks up, but we expect slightly lower levels of demand in the second half due to the pandemic's impact in the Americas. (Nicholas J. Anderson, Group Chief Executive)
Q: How is the outlook for your project side of the business? Have you seen delays in H1, and will these be delivered in H2 or delayed into 2021?
A: Projects that are well underway tend to continue, though some may be delayed. The pipeline of new projects is impacted, but we wouldn't see the effect until next year. We expect project activity to continue similarly in the second half. (Nicholas J. Anderson, Group Chief Executive)
Q: Can you give us a feel for how biopharma trends in 2021 relative to 2020?
A: The biopharma sector has been growing double digits for years and the pandemic has increased demand. We expect strong demand to continue into 2021 and beyond, as the nature of the industry remains unchanged. (Nicholas J. Anderson, Group Chief Executive)
Q: Can you give an indication of how much sales were brought forward in Watson-Marlow and the outlook for the full year?
A: Some demand was pulled forward into the first half, but we still anticipate strong demand in the second half. We expect growth for the full year, though second-half growth may not match the first half. (Kevin James Boyd, CFO)
Q: Can you explain the market share gains in Thermocoax, particularly in the semiconductor sector?
A: Thermocoax has been displacing incumbents with superior technology in both new builds and aftermarket. This has led to significant market share gains, especially in atomic layer deposition, which is growing faster than conventional silicon techniques. (Nicholas J. Anderson, Group Chief Executive)
Q: Given some costs will return next year, what kind of drop-through should we expect with volume growth?
A: We are not giving specific guidance for 2021 yet. We will provide more information later in the year as we see how the situation develops. (Kevin James Boyd, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
