Release Date: December 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Operating profit (EBIT) increased by 4% despite a 4% decline in sales, with operating margins reaching a record high of 13.8%.
- Orders in the Sensing & Connectivity division rose by 20% organically, indicating strong demand in this segment.
- Cash flow performance was excellent, with a conversion rate of 126%, significantly above the 10-year average.
- The company completed a bolt-on acquisition of Hi-Volt, enhancing its product offerings in high-voltage capacitors for medical applications.
- Design wins increased by 8% in the period and 33% over two years, providing a strong foundation for future growth.
Negative Points
- Sales were down 4% overall and 10% organically, reflecting a challenging sales environment.
- Earnings per share decreased by 4%, primarily due to higher interest costs.
- The Magnetics & Controls division experienced a 12% decline in sales, largely due to industrial destocking.
- Interest costs increased by nearly 50%, impacting profitability, although this is expected to improve as rates decrease.
- The order book is down 20% year-on-year, attributed to the normalization of lead times.
Q & A Highlights
Q: Can you elaborate on the impact of destocking on your divisions and how you are managing it?
A: Nicholas Jefferies, CEO: The destocking has primarily affected our Magnetics & Controls division, with sales down 12%. This is due to large industrial customers correcting their inventory levels. Despite this, we've managed to almost maintain operating margins, which are only down 30 basis points. Our Sensing & Connectivity division, however, is recovering with orders up 20% organically, thanks to our design wins.
Q: What are the key drivers behind the increase in operating margins?
A: Simon Gibbins, Finance Director: The increase in operating margins to a record 13.8% is due to a combination of factors, including tight cost control, better pricing, and operational efficiencies such as clustering and production transfers. These initiatives have helped us surpass our 13.5% target six months early.
Q: How is the company positioned in terms of acquisitions and funding capacity?
A: Nicholas Jefferies, CEO: We have a strong pipeline of acquisition opportunities and about GBP70 million of funding capacity for the second half. Although we haven't closed many acquisitions in the first half, we expect more activity in the second half as market conditions stabilize.
Q: Can you discuss the performance and outlook for your geographic markets?
A: Nicholas Jefferies, CEO: North America saw a 19% decline, mainly due to industrial and transportation sectors. However, Asia, driven by China, is up 16% due to Western-based customers. Europe is relatively stable, with some positive projects in Germany. We expect these trends to continue improving.
Q: What is the outlook for interest rates and their impact on earnings?
A: Simon Gibbins, Finance Director: We've passed the peak of higher interest costs, which impacted our earnings per share, down 4%. As interest rates start to come down, we expect to see benefits, with a 1% reduction in rates potentially increasing EPS by about 3%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
