TIDMSXS
RNS Number : 8463C
Spectris PLC
22 October 2020
Spectris plc
Trading update
22 October 2020 - Spectris plc (SXS: LSE), the expert in
providing insight through precision measurement, provides a trading
update for the third quarter period to 30 September 2020 ('the
period').
Summary
-- Seeing positive momentum in a number of end markets
-- Like-for-like(1) ('LFL') sales decline improving - third
quarter LFL sales down 9% versus 18% in second quarter;
year-to-date LFL sales down 12%
-- On track to deliver GBP50 million of overhead costs savings
in 2020, of which GBP20 million is permanent
-- Reset phase well advanced: employee salaries reinstated
-- Restructuring programme underway, expected to deliver further
permanent benefits of GBP20 million
in 2021; costs of GBP25 million
-- Balance sheet and liquidity position strengthened - net cash
of GBP60.2 million , after paying additional interim dividend of
GBP50.2 million, in lieu of the 2019 final dividend
-- Priority remains supporting our people and delivering for our customers
Andrew Heath, Chief Executive, said :
"During the third quarter, we have seen positive progress in a
number of end markets, which we anticipate continuing. The LFL
sales decline improved from 18% in the second quarter to 9% in the
third quarter. Although uncertainties remain, we expect to see
momentum going into the fourth quarter.
"We continue to focus on what we can control and to best
position the company for an extended recovery. As we transition
from temporary cost saving measures to delivering sustainable
benefits, we are executing our restructuring programme and thank
our people for their commitment and support through these difficult
times.
"Our cash generation continues to be a strength and our balance
sheet remains robust. As we implement the restructuring, we will
emerge from this crisis a stronger and even more resilient
business. Our strategic objectives of organic growth and margin
expansion remain, as well as optimising our portfolio and making
acquisitions, to deliver long-term value to our shareholders."
Update on trading
During the third quarter, sales momentum improved. Group sales
in the period were 11% ahead of the previous three months, albeit
Group LFL sales were 9% lower in the period (18% down in the second
quarter). Orders in the period fared slightly better, being 8%
lower on a LFL basis.
Reported sales decreased 20% in the period, with disposals and a
negative foreign currency exchange movement reducing LFL sales by
9% and 2% respectively. For the nine-month period to 30 September,
reported sales decreased 21% to GBP928.4 million, with LFL sales
12% lower.
Sales by geography
Q1 Q2 Q3 9m
------------------ ----- ----- ----- -------
North America 0% (21%) (6%) (9%)
Europe (11%) (18%) (13%) (14%)
Asia (20%) (13%) (9%) (14%)
Rest of the world 10% (30%) (14%) (12%)
Total (9%) (18%) (9%) ( 12 %)
------------------ ----- ----- ----- -------
All regions saw an improving performance compared with the prior
quarter, with North America seeing the most notable improvement.
Asia performance was driven by a rebound in activity in China with
growth of 6% in the period, with particularly strong growth in
September.
From an end market perspective, there was growth in LFL sales
into the pharmaceutical and aerospace and defence industries in the
period, with flat LFL sales into machine building customers. Sales
were weakest into automotive, with a steeper decline in the period
than in the first half, given the later cycle nature of HBK's
activities. Sales into academic research institutes also continued
to be notably lower year-on-year, with a similar sales decline in
the period to that in the first half.
Sales by business
Q1 Q2 Q3 9m
GBPm LFL GBPm LFL GBPm LFL GBPm LFL
--------------------- ----- ----- ----- ----- ----- ----- ----- -----
Malvern Panalytical 74.1 (21%) 76.9 (21%) 95.2 (4%) 246.2 (15%)
HBK 92.7 (2%) 86.6 (14%) 94.8 (13%) 274.1 (10%)
Omega 32.3 (5%) 28.7 (21%) 28.9 (16%) 89.9 (14%)
Industrial Solutions 102.5 (7%) 105.2 (18%) 110.5 (9%) 318.2 (11%)
Total 301.6 (9%) 297.4 (18%) 329.4 (9%) 928.4 (12%)
--------------------- ----- ----- ----- ----- ----- ----- -----
Malvern Panalytical had a much improved performance compared
with the first half, with only a 4% decline in LFL sales in the
period, r eflecting a resumption in capex-oriented spend from its
customer base and some revenue from the completion of installations
of systems delayed from the first half due to customer access
restrictions. There was good growth to pharmaceutical and food
customers, with growth in all major regions, offset by lower LFL
sales into academic research institutes, where demand continued to
be weak, reflecting on-going closures. The order book positions
Malvern Panalytical well for the fourth quarter, with sales
expected to be sequentially higher, although the LFL sales
performance is not expected to be as strong as in the third
quarter, due to a tough comparator with the prior year.
LFL sales in HBK in the period were 13% lower, with a similar
performance to that in the second quarter, given its later cycle
exposure. There was growth in North America, driven by a strong
performance in aerospace and defence, reflecting a number of large
project sales, and into machine manufacturing, whilst sales in
Europe and Asia were both lower year-on-year. Fourth quarter sales
are expected to be higher than the third quarter, with LFL sales
lower reflecting the later cycle nature of the business.
At Omega, LFL sales were 16% lower with continued weak demand in
its main market, North America. Asia outperformed the other
regions, driven by good demand in semiconductor, albeit at a slower
pace than during the second quarter. While the fourth quarter is
expected to continue to see the LFL sales performance improving,
the resumption of growth in North America is not expected until
2021.
Industrial Solutions saw a notable sequential improvement on the
second quarter, with a much improved LFL sales decline of 9% in the
period. Sales into the pharmaceutical and food industries were
resilient with growth in LFL sales in the period, while those
businesses exposed to automotive and upstream oil and gas saw the
weakest performance. We expect the fourth quarter to continue to
show a progressive improvement in LFL sales.
Balance sheet
Maintaining a strong balance sheet and cash position has been a
key priority for the Group during the pandemic. The Group continues
to be highly cash generative and at the end of September, the Group
had net cash of GBP60.2 million (GBP94.3 million at 30 June 2020),
with a cash balance of GBP252.4 million and gross borrowings of
GBP192.2 million. This is after payment of the GBP50.2 million
additional interim dividend, in lieu of the 2019 final dividend,
and before payment of the interim dividend in November of
GBP26.5 million.
The strength of our balance sheet has put us in a good position
to pursue acquisition opportunities that may emerge in this new
environment and work on our opportunity pipeline continues. We will
maintain our capital discipline while at the same time have the
courage to make significant investments in adjacent and synergistic
acquisitions consistent with our strategy. Portfolio optimisation
also remains a strategic priority and the Group has reinitiated its
sale programme with the resumption of activity in the M&A
market.
A balanced approach to managing the business
We have been managing the impact of COVID-19 in three phases -
React; Respond; Reset. We are now firmly in the Reset phase, while
continuing to support our employees and customers through these
challenging times. We will continue to foster a balanced,
responsible approach to managing our business, which is consistent
with our culture, values and strategy. In October, the Board
approved a new sustainability strategy to build on the Group's
existing work in this area and to ensure that we continue to
deliver value beyond measure for all our stakeholders. We look
forward to providing more details at our full year results.
For our people, we reinstated salaries and full-time working,
where possible, during August and September as part of the reset to
a sustainable business model. Executive Director salaries and Board
fees, both of which had been reduced by 25%, were reinstated from 1
October. We remain committed to recognising the sacrifice and
dedication of our people during this challenging period. While the
method of doing this will be reliant on our full year performance
as a Group, we will ensure that this recognition is aligned with
the consideration of any final dividend to shareholders for
2020.
Given the uncertainties that still remain, it is imperative that
we continue to maintain our provision of mental health support and
practical guidance, and to focus on staying connected with those
people who are working remotely. In Europe, we have partnered with
the Wellbeing Project to offer resilience coaching to our people
and in the USA, we have expanded our employee assistance programme
to offer personalised coaching and online mental health support. In
Asia, we have undertaken our first mental health workshops with the
support of our health insurance provider.
For customers, despite restrictions and remote working, we have
continued to launch new products. For example, HBK introduced a
complete power meter solution for testing and monitoring solutions
around electric drive systems, power supplies and grids; and
Vi-grade launched a new product line of cable-driven simulators
with more driving realism. Malvern Panalytical launched three new
products: the Zetasizer Advance range with more flexibility and
upgradeability; the 1Der detector for the Empyrean XRD platform,
enhancing its capability and OmniTrust, a comprehensive suite of
software tools for pharmaceutical customers. Servomex developed, in
record time, a variant of the Paracube sensor, the Mercury,
designed and approved to work in critical care ventilators with the
same features and benefits as the original Paracube sensor.
Development time took only 14 weeks from concept, through
validation, to manufacture and delivery.
We also continue to extend our digital offering with a wider
emphasis on online sales, virtual engagement, workshops and
webinars and remote installations and servicing. As we adapt our
processes to circumvent travel and access restrictions, whilst
still meeting customer requirements, new processes such as remote
demonstrations and sampling are being accepted as the norm. Greater
use of virtual engagement enables a more flexible, time-efficient
and cost-effective way of working and also benefits customers
through better education of our products and how best to deploy
them. Continuing to enhance our digital offering will, therefore,
remain a key focus going forward.
Reset - preparing for the recovery
We completed the unwind of our temporary cost measures in the
period and, as disclosed at our first half results, we launched a
restructuring programme to further reduce our cost base, targeting
sustainable benefits of GBP20 million in 2021. Work has been
progressed at each operating company and we are on track to
optimise our cost base for the more protracted recovery we are
anticipating. These permanent reductions in our cost base will
derive from f ootprint rationalisation, a r eduction in
discretionary costs, including more productive ways of working
digitally, as well as a headcount reduction. We expect to incur a
further GBP5 million of restructuring cost in 2020, in addition to
GBP25 million for the profit improvement programme, and around
GBP20 million of cost in 2021, relating to the additional actions
identified since July.
As previously highlighted, we anticipate our overhead costs in
2020 to be around GBP50 million lower than 2019 consisting of GBP20
million of permanent cost saves delivered from our previous profit
improvement programme and GBP30 million of temporary savings, which
will unwind. The additional actions noted above result in GBP20
million of permanent savings in 2021 to offset this unwind.
Executive Committee change
Amit Agarwal has been appointed as President of Omega and joins
the Spectris Executive Committee, effective 12 October. He replaces
Greg Wright, who left the company at the end of September to take
up a new external role. We would like to thank Greg for his hard
work and commitment to the company during the past four years.
Amit has extensive manufacturing, distribution and e-commerce
experience. Prior to joining Spectris, Amit spent over 20 years
with Thermo Fisher Scientific. He started his career in finance,
before spending the last fourteen years managing global businesses
based in the USA, Australia and India, where he led several
turnarounds and delivered growth. His leadership experience
includes a three-year period leading Cole-Parmer Instrument
Company; the scientific, laboratory, industrial equipment and
supplies distribution business.
Guidance and outlook
We are pleased with our improving performance in the third
quarter and sales momentum going into the fourth quarter. Our order
book provides confidence in meeting our full-year revenue
expectations, subject to no major effect from increasing
COVID-related restrictions. In particular, the imposition of
further lockdowns may impact our ability to access customer sites
for product installation and commissioning. Any delivery in excess
of our expectation will be considered to recognise the sacrifice
and commitment of our people during this year.
We remain on track to deliver the GBP50 million of overhead
costs savings previously highlighted. Given the highly
cash-generative nature of the Group, we remain in a good position
to weather the various market scenarios we have modelled.
Conference call
A conference call for analysts and investors will be hosted by
Andrew Heath, Chief Executive, and
Derek Harding, Chief Financial Officer, at 07.45 today to
discuss this statement.
To access the call, please dial +44 (0) 333 300 0804, toll free
0800 358 9473 - Pin code: 14638027#.
Or for replay, please dial +44 (0) 333 300 0819, toll free 0800
358 2049 - Pin code: 301332551#.
For and on behalf of Spectris plc
LEI Number: 213800Z4CO2CZO3M3T10
Contacts:
Spectris plc
Siobhán Andrews
Head of Corporate Affairs
+44 1784 485325/+44 7920 230093
FTI Consulting
Richard Mountain/Susanne Yule
+44 203 727 1340
About Spectris
Spectris' global group of businesses are focused on delivering
value beyond measure for all our stakeholders. We target global,
attractive and sustainable markets, where growth and high returns
are supported by long-term drivers. Precision is at the heart of
what we do. We provide customers with expert insight through our
advanced instruments and test equipment, augmented by the power of
our software and services. This equips customers with the ability
to reduce time to market, improve processes, quality and yield. In
this way, Spectris know-how creates value for our wider society, as
our customers design, develop, test and manufacture their products
to make the world a cleaner, healthier and more productive place.
Headquartered in Egham, Surrey, United Kingdom, the Company employs
approximately 8,500 people located in more than 30 countries. For
more information, visit www.spectris.com .
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