Spirax shares jump as profit growth to return in 2024

(Sharecast News) - Shares in Spirax Group surged on Thursday after the engineering firm lifted its dividend despite a dip in profits in 2023, held back by lower volumes in higher-margin work and restructuring and impairment costs. The company, formerly known as Spirax-Sarco Engineering, said it is "well positioned" to return to revenue and profit growth in 2024.

Group revenues totalled £1.68bn in 2023, up 4% on the previous year but down 1% on an organic basis. Organic growth in both the Steam Thermal Solutions (+8%) and Electric Thermal Solutions (+2%) divisions was offset by a 19% drop at health division Watson-Marlow - which accounts for a quarter of company sales - due to weak sales in pharmaceutical and biotechnology sector.

Statutory pre-tax profit fell 21% year-on-year to £244.5m, with the operating profit margin dropping by 290 basis points to 16.9%, though the company said that early restructuring actions and cost containment partially mitigated the margin impact, particularly in the second half.

However, the company still declared a final dividend of 114p, up from 109.5p the year before, bringing the total payout for the year to 160p, up 5% on 2022. This marked the 56th year in a row that the company has made dividend progress.

"Our financial results in 2023 were impacted by a more challenging trading environment than we had anticipated at the start of the year, with a number of external headwinds to our highest margin businesses," said chief executive Nimesh Patel. "An early focus on restructuring to right-size capacity, together with cost containment actions, supported our adjusted operating profit margin."

Looking ahead, Spirax said it was "cautious" about the outlook for global industrial production in 2024, given the backdrop of geopolitical unrest and continuing macroeconomic uncertainty. Current exchange rates were also unfavourable and, if they were to prevail for the remainder of the year, would have a 3% impact on sales.

Nevertheless, the company expects "mid to high-single-digit organic growth in group revenues and low double-digit organic growth in group adjusted operating profit" for 2024.

The stock was up 7.2% at 11,010p by 0856 GMT.