Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Spectris PLC (SEPJF, Financial) has maintained a strong order book of GBP532 million, providing good visibility for the second half of the year.
- The company successfully implemented a new ERP system at Malvern Panalytical, which is expected to bring long-term benefits despite short-term disruptions.
- Spectris PLC (SEPJF) completed the acquisition of SciAps and Micromeritics, which will strengthen its leadership in advanced materials analysis.
- The company has continued to return capital to shareholders through a GBP150 million share buyback program.
- Spectris PLC (SEPJF) has a strong pipeline of new products, with 2024 expected to be a record year for new product launches.
Negative Points
- The company experienced weaker overall demand in the first half of 2024, leading to a reduction in sales and operating profit.
- Temporary delays related to the ERP system implementation resulted in a rephasing of GBP22 million in sales and GBP15 million in operating profit to the second half.
- Sales in the pharmaceutical and life sciences sectors were significantly lower, reflecting continued muted conditions.
- The company faced a headwind of GBP21.5 million due to foreign exchange impacts.
- Spectris PLC (SEPJF) anticipates a one-off charge of around GBP10 million to GBP15 million for additional self-help initiatives in the second half.
Q & A Highlights
Q: Can you elaborate on the weak performance in the scientific instrumentation business and what drives the replacement cycle for these instruments?
A: (Andrew Heath, CEO) The pharmaceutical sector is seeing growth in aseptic manufacturing due to new drug development and regulatory demands. However, the scientific instruments for advanced research and development remain subdued, particularly in small molecule development. We are waiting for the next refurbishment cycle, which was expected in the second half of this year. New product developments like Revontium and the Zetasizer are expected to stimulate demand.
Q: Can you clarify the GBP10 million to GBP15 million restructuring charges in the second half?
A: (Andrew Heath, CEO) Most of the charges will be cash in the second half, with some potentially flowing into 2025. The benefits will be seen on a full-year annualized basis, with around 20%-25% of the benefit realized in 2024. These actions are part of our measures to hedge against market risks.
Q: Is the GBP532 million order book all for delivery in the second half?
A: (Andrew Heath, CEO) The order book includes orders for 2025 deliveries as well. We are within our expected range for order visibility, which gives us confidence going into the second half.
Q: What is the outlook for the automotive sector, given its strong performance in the first half?
A: (Andrew Heath, CEO) The automotive sector's strength is driven by virtual test and simulation tools, which are seeing strong demand. Additionally, end-of-line testing for electric vehicles in China has driven incremental demand.
Q: Can you discuss the quarterly development of your businesses and the decision for incremental cost savings and restructuring?
A: (Andrew Heath, CEO) Dynamics saw order momentum building in Q2, while Scientific faced a tough comparative period. The bulk of the cost savings and restructuring will be in the Scientific division, reflecting current trading conditions and expectations for driving efficiencies.
Q: What catalysts are needed to achieve the through-cycle 6% to 7% growth target?
A: (Andrew Heath, CEO) We are facing structurally attractive markets such as automotive, pharmaceuticals, aerospace, and defense. The reequipping cycle in pharmaceuticals and the transition to clean technologies will underpin our growth. We expect to return to the 6%-7% growth range by 2025 or 2026.
Q: With recent acquisitions, is Scientific becoming the core of Spectris, and what is the outlook for Dynamics?
A: (Andrew Heath, CEO) Scientific will have over GBP1 billion in revenue and strong margins. However, Dynamics also has significant value and margin progression opportunities. We are looking at acquisitions in both divisions to complement and expand our offerings.
Q: What is the outlook for the battery materials sector, given its current weakness?
A: (Andrew Heath, CEO) While there is overcapacity in battery manufacturing, new battery technologies and the need for energy storage will drive future demand. The medium- and long-term outlook for battery materials remains strong.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
