Spirax Sarco Engineering : 2023 Annual Report Announcement

Thursday 16th November

Trading Update

Subdued trading environment; return to growth expected in 2024

Spirax-Sarco Engineering plc issues the following trading update in respect of the four months ended 31st October 2023.

Economic environment

Global industrial producon growth (IP) in Q3 slowed to 0.9% from 1.4% in Q2 and was significantly lower than Oxford Economics' July forecast for Q3 of 1.5%. This reflects a weaker macro-economic environment with IP in the key markets of Europe and Asia (excluding China) now forecast to contract in 2023, while North American IP is forecast to be broadly flat on the prior year. Oxford Economics' latest forecast for 2023 global IP has soſtened to 1.2% and there remains significant uncertainty driven by China IP, which Oxford Economics forecasts at 4.7%, while the equivalent CHR Economics forecast is 1.0%.

Weak demand from customers in the Semiconductor Wafer Fabricaon Equipment (Semicon WFE) and Pharmaceucal & Biotechnology (Biopharm) sectors that impacted the Group's first half results, has persisted in the past four months. We do not ancipate any recovery in demand from these sectors (which represented approximately 4% and 16% respecvely of 2022 pro-forma1 sales) in the remainder of 2023, with demand now likely to improve during 2024.

Trading

In the four months ended 31st October, Steam Speciales connued to grow despite the weakening macro-economic environment, although as expected, organic sales growth was well below the very strong 15% delivered in the first half.

Demand growth in the industrial process focused Divisions of Electric Thermal Soluons (ETS) remained strong, driven by decarbonisaon products and soluons, leading to a further increase in the order book. Growth in sales was below demand as operaonal improvements to increase manufacturing output are ongoing. Demand from industrial equipment customers in the Semicon WFE sector has remained weak.

In Watson-Marlow, monthly demand from Biopharm customers has remained broadly in-line with H1 with destocking acvity connuing. Demand from customers in the Process Industries sectors has also been impacted by weakening macro-economic condions.

As a result, sales growth for the four months ended 31st October across all three Businesses was below our expectaons, with Group revenues for the ten months ended 31st October marginally below the corresponding prior year period, excluding the impact of acquisions, disposals and currency effects.

Currency effects had an adverse impact on both sales and adjusted operang profit in the ten months ended 31st October, compared to the same period of 2022. If current exchange rates were to prevail for the remainder of the year, we ancipate an approximately 1.5% adverse impact on full year 2023 sales and profit, compared with the full year 2022.

Financial posion

Net borrowings (excluding leases) at 31st October were £702 million (30th June: £748 million), with the Group net debt to EBITDA rao at 1.8x (30th June: 1.8x).

Outlook

Excluding the currency effects set out above, compared to 2022 pro-forma sales of £1,734 million we ancipate Group full year 2023 sales to be lower by between 1% and 2%, with an adjusted operang profit margin slightly improved on the 20.2% delivered in the first half of the year, which is consistent with the lower end of current market esmates2.

During the year, we have taken acons in all three Businesses to appropriately right-size capacity and overhead support costs, while also protecng our ability to respond to future growth in demand.

Latest IP forecasts for 2024 by both Oxford Economics and CHR Economics point to 2.5% growth. We connue to ancipate a recovery in demand in our Biopharm and Semicon WFE sectors during 2024. While it is always challenging to predict the precise ming and scale of demand changes, we remain confident in our connued ability to drive growth above IP. Therefore, while it is too early to provide guidance for 2024, we do ancipate a return to revenue growth and improvement in adjusted operang margin in the coming year.

For further informaon, please contact: Nimesh Patel, Chief Financial Officer Mal Patel, Head of Investor Rela[e-mail] ([phone])

• 1 Pro-forma for the full twelve-month contribuon of Vulcanic and Durex Industries

• 2 Consensus esmates as at 18th October: Sales £1,717m; Adjusted Operang Profit £360m (range £345m - £389m)[hps://www.spiraxsarcoengineering.com/investors/consensus-forecasts]