Spirax-Sarco Engineering (LON:SPX) management said the group delivered “good organic growth at high margins” in 2025 despite what it described as a weak and volatile macroeconomic environment, while completing a major restructuring program and maintaining its outlook for mid-single-digit organic growth in 2026.

Group CEO Nimesh Patel said the company outperformed industrial production (IP) with 5% organic sales growth in 2025. On an adjusted basis, operating profit rose 6% and the group adjusted operating margin was 20%, up 30 basis points organically, supported by what management characterized as pricing and cost discipline amid FX and tariff headwinds.

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Group CFO Louisa Burdett said currency movements were a 3% headwind to sales and a 4% headwind to operating profit. She also highlighted lower net financing costs of GBP 38 million versus the prior year, citing lower average net debt, lower floating rates, and cash centralization initiatives. The effective tax rate increased to 27.3%, which she attributed to profit mix and one-off benefits in the prior year. Adjusted EPS was GBP 2.963, up 3%.

The company declared a full-year dividend of GBP 1.70 per share, including a 3% increase in the final dividend, which Burdett said reflected confidence in returning to higher growth and margin levels.

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Management said each of the company’s three businesses delivered growth and improved margins in 2025.

Steam Thermal Solutions (STS): Organic sales rose 1%. Patel said geopolitical tension and tariff volatility drove weak demand for large projects, particularly in China and Korea, but headwinds moderated in the second half. The company emphasized offsetting weakness through MRO and “solution sales,” with STS up 3% excluding large projects in China and Korea. STS margin was 23.5%, up 40 basis points organically, supported by manufacturing efficiencies and some restructuring savings.

Electric Thermal Solutions (ETS): Organic sales increased 11%, with management pointing to strong demand across all three ETS divisions and operational improvements. Burdett said ETS operating profit rose 12% organically and margin improved 20 basis points to 16.2%. She noted that 2025 margin progression was moderated by fulfillment of legacy orders at Ogden that were not repriced for inflation and initial costs tied to the startup of a new medium voltage facility, but said ETS margin improved during the year with a stronger second half.

Watson-Marlow: Organic sales grew 6%, with Patel reiterating the biopharm recovery was “U-shaped.” Management said biopharm demand growth of over 10% supported accelerating sales growth in the second half, while process industries benefited from a reorganization of sales teams around target sectors. Watson-Marlow margin increased 160 basis points to 26.2%, with Burdett citing volume leverage and manufacturing efficiencies.

Patel said a significant restructuring initiated in January 2025 is now complete, delivering GBP 40 million in annualized savings, “significantly ahead of where we had planned.” Burdett said the restructuring had a GBP 40 million statutory P&L charge, including GBP 7 million of non-cash charges; of the remaining GBP 33 million, the company spent GBP 22 million in cash in 2025 and expects most of the remaining GBP 11 million to be spent in 2026. She said approximately half of the annualized savings were realized in 2025 and are being used to fund investment in areas including sales capability, digital, new product development, systems, and decarbonization.

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Cash conversion (operating profit to cash) improved to 89%, which Burdett attributed to higher operating profit and disciplined capital expenditure at 4% of sales, partially offset by a working capital outflow driven mainly by higher receivables from strong year-end sales. Net debt ended the year at GBP 564.7 million, or 1.5x EBITDA, and Burdett said the group comfortably met covenants.

Patel also cited improved returns, with ROCE at 36% and ROIC at 13%, despite FX headwinds.

For 2026, Patel said the company anticipates mid-single-digit organic growth and expects operating leverage to drive adjusted operating profit growth ahead of sales. Burdett provided divisional guidance:

Steam: Low single-digit organic sales growth and a slight organic improvement in margin, with growth expected to remain ahead of IP outside China and continued improvement in the trend rate of large orders in China.

ETS: High single-digit organic sales growth supported by a strong order book in process heating and momentum in semicon. Burdett said the shipping of legacy orders at Ogden removes a key headwind and the company anticipates “strong margin progress” in 2026, helped by operating leverage and a higher proportion of semicon sales.

Watson-Marlow: High single-digit organic sales growth driven by biopharm demand, with process industries again expected to outperform IP. Burdett said operating leverage should support another year of margin progress with basis-point improvement broadly similar to 2025.

Burdett added that corporate costs will be slightly higher than 2025 due to investments in digital services and decarbonization, while underlying PLC support costs remain tightly controlled.

Management described 2025 as a year of weakening industrial production expectations, with global IP excluding China at 1.7%. Patel said 2026 global IP excluding China is forecast around 2%, but the company has taken a more conservative view in internal planning given volatility over the last two years. He also noted the Middle East represents about 1% of group sales and said it was “too early” to fully assess impacts on 2026, though the company is preparing for potential supply chain disruption that it currently expects largely in the first half.

On China, Patel said China represented around 15% of STS sales and remained affected by slower capital investment and exposure to large projects. He said China STS sales were down 3% in 2025, improving from a 13% decline in 2024, driven by moderating large-project weakness and double-digit MRO growth across the installed base. Looking ahead, Patel said the company expects capital project demand to stabilize and then increase, with China potentially returning to growth “either in the second half of 2026 or during 2027,” while cautioning that tariffs and geopolitical developments could affect timing.

In semicon, Patel said demand improved with “double-digit growth,” though not back to 2022 peaks. In Watson-Marlow biopharm, he said orders increased by over 10% and in the first half orders exceeded sales for the first time since the 2021 peak, which supported second-half sales and the first year of biopharm sales growth since 2022. He said the recovery broadened in 2025 as OEM demand improved alongside continued end-user strength.

During Q&A, management declined to disclose a specific ETS margin excluding legacy contracts, but reiterated confidence in a path toward 20% ETS margin over time, noting progress would not be linear and that additional operational improvements and pricing actions would take time to embed. Patel also said a large 2025 ETS data center contract would not be a headwind for 2026, though it is not expected to be as growth-accretive as it was in 2025, with longer-term opportunity beyond 2026.

On capital allocation, Patel confirmed a target leverage range of 1x to 1.5x, describing 1x as a trigger to consider actions such as returns of capital, depending on alternative uses of cash. He said future M&A would focus on bolt-on acquisitions in core markets, with discipline around ROIC and earnings growth compared with returning capital to shareholders.

Spirax-Sarco Engineering rebrands as Spirax Group On 22 February 2024, Spirax-Sarco Engineering changed its name to Spirax Group which reflects the Company's evolution over many years to a larger and stronger Group of three aligned Businesses with differentiated and complementary capabilities. Our new name respects our history and where we have come from, with who we are today. It creates more distinction between the Group and its Spirax Sarco trading Division (part of Steam Thermal Solutions), providing improved clarity for all stakeholders.

The article "Spirax-Sarco Engineering H2 Earnings Call Highlights" was originally published by MarketBeat.