13th May 2020 09:12
(Alliance News) - Spirax-Sarco Engineering PLC said Wednesday its trading has "held up well" despite the "unprecedented" market conditions brought about by the Covid-19 outbreak.
The thermal energy manager noted, however, that global industrial production is expected to contract 6.6% in 2020, compared to previous estimates for 0.8% growth.
Spirax-Sarco Engineering said a "small number" of its manufacturing facilities were temporarily shut but all now are open, though operating at different levels of capacity.
Demand in the area of Maintenance, Repair & Overhaul and small improvement project activities, which traditionally make up about 85% of revenue, "experienced only a mild decline compared to a very strong comparable period in 2019," Spirax said.
About 80% of demand weakness stemmed from postponement of larger project orders, the company added.
Spirax continued: "Organic sales for the group in the first four months of the year declined 5%, with reported sales down 3%, reflecting the inclusion of Thermocoax and a currency headwind. In the three months to March, the organic decline in sales was 4%, while in April it was 8% as the full effects of the global pandemic were felt."
On an organic and reported basis, group operating profit is behind the comparable four-month period in 2019, Spirax said, although operating margins remained above 21% over that period due to its cost containment actions.
In the Steam Specialties unit, sales in the four months were down 7% organically, with the majority of the shortfall coming from Asia Pacific, which was down 13% due in part to a "particularly poor" February in China which suffered from an enforced extended Lunar break and tight lockdown.
Spirax's Electric Thermal Solutions unit saw a 16% sales bump, at constant currency, in the four-month period, attributed to the inclusion of the Thermocoax business - which performed "very well", Spirax said.
Reported sales for the ETS unit declined 9%.
Spirax said it remains "highly" cash generative. At April 30, net debt was GBP288 million, with total debt facilities of GBP792 million.
The average tenor of loans is greater than three years with the earliest material repayment being in March 2022, Spirax added.
The company said it is "confident" of being able to "weather" the coronavirus pandemic.
Spirax noted about 85% of its revenue comes from customers' operating rather than capital budgets, with capital expenditure being one of the first areas by companies trying to save cash.
Spirax added a "high proportion" of its revenue comes from sectors less impacted by Covid-19 such as Food & Beverage, Pharmaceutical and Biopharmaceutical, Healthcare, Medical Devices, Power Generation and Water Treatment
"While trading in the first four months of the year has held up well, we currently believe the worst of the downturn will occur in the second and third quarters of 2020," Spirax said in its statement on Wednesday.
"Absent a resurgence of the Covid-19 pandemic in the second half of the year, we currently expect trading conditions to improve in the last quarter of 2020, resulting in a lower contraction of organic sales in the second half of 2020 than in the first half."
Spirax is guiding for its Steam Specialties unit to decline in line with global industrial production. Organic sales contraction in the Electric Thermal Solutions will be "slightly higher" than in the Steam Specialties unit. Watson-Marlow should see "good" organic growth, Spirax said.
The company added: "As a result of cost containment and efficiency improvement initiatives that have been put in place, we currently anticipate that the full year drop through of total revenue decline to operating profit in 2020 will be contained to around 45%."
Shares in Spirax-Sarco Engineering were up 1.7% in London on Wednesday morning at 9,418.00 pence each.
By Paul McGowan; [email protected]
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