5th Aug 2015 10:13
LONDON (Alliance News) - Spirax-Sarco Engineering PLC on Wednesday said a slowdown in global industrial production, together with negative currency movements, dragged down its pretax profit and revenue in the first half. Spirax-Sarco also incurred costs associated with the start-up of its business in India and with the restructuring of its UK operations.
The company, which makes steam management systems and peristaltic pumps, said pretax profit in the first half was down by 10% to GBP57.3 million from GBP63.5 million a year earlier, primarily due to the GBP8.2 million in exceptional costs it booked in the half from the start-up of its business in India and from the job cuts it made in the UK.
A year earlier Spirax-Sarco booked one-off costs of GBP2.9 million, so stripping out both of those one-off costs, pretax profit in the half was only down to GBP65.5 million from GBP63.3 million.
Revenue was broadly flat in the half, at GBP320.0 million against GBP319.2 million, as currency translation effects dragged back Spirax-Sarco's 3% organic sales growth in the half, driven by strong growth in the Watson-Marlow Fluid Technology division. Revenue also also constrained by slowing industrial production growth rates in the half in both developing and emerging markets.
The company said it will pay an interim dividend of 20.8 pence per share, up from 19.5p per share a year earlier.
"We anticipate that our markets will remain challenging, especially in emerging economies, but continue to expect modest market improvements in Europe and North America during the second half of this year and remain focused on our strategic priorities to generate our own growth," said Chief Executive Nicholas Anderson.
"We have a robust and resilient business model and, assuming no unexpected deterioration in our markets, the board remains confident that the group will make progress in 2015," Anderson added.
Spirax-Sarco shares were down 7.5% to 3,136.00 pence on Wednesday, the worst performer in the FTSE 250.
Spirax said sales in its steam specialties business were flat in constant currencies in the half, with large project work at a lower level than the year before. This was offset by increased demand from Spirax's customers on replacement and maintenance spending, a key driver of revenue in the division.
The group added that the effect of the oil and gas industry slowdown, which has hit a number of its engineering industry peers in the first half, was "relatively muted" for it, but Spirax said it is not immune to the effects, with particularly weakness seen in Korea and Canada. It also saw softer markets in Brazil and China, partly due to the oil and gas market but also due to domestic economic problems in both.
The operating profit margin for the steam specialties business declined to 19.6% from 20.7% in the half year-on-year, due to its headcount reduction costs in the UK, start-up costs in India and some foreign exchange losses.
The subdued performance in the steam specialties business was offset by a strong performance from Watson-Marlow, with growth made in all geographic regions. The Asepco business it acquired in April this year made a good start, and sales for the whole division were up by 14% in constant currencies. The operating margin in the unit also remained flat at 29.9% as beneficial foreign exchange movements offset increased investments the group made in product and market developments.
Investec analyst Michael Blogg said Spirax-Sarco's results came in slightly weaker than expectations due to the mixture of slowing markets and adverse currency fluctuations, but said the outcome was "nothing very dramatic". He said the broker expects consensus estimates on Spirax to be cut for 2015 on the back of the results, but thinks the company will incur only limited damage from the market conditions it faces.
By Sam Unsted; [email protected]; @SamUAtAlliance
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