News Release
Wednesday 18th November 2020
TRADING UPDATE
Resilient trading in line with expectations; full year expectations unchanged
Thermal energy management and niche pumping specialist, Spirax‐Sarco Engineering plc, issues the following trading update in respect of the four months ended 31st October 2020.
Economic environment
As anticipated, the global macro-economic environment improved during the third quarter of the year. Compared with the same period of 2019, global Industrial Production (IP)1 was down 4% in the third quarter, a strong improvement on the 12% contraction in the second quarter. Following robust sequential month-on-month IP growth in June and July, the rate of growth slowed markedly in August and September as industrial activity began to approach pre-pandemic levels.
Trading
Despite the challenging economic environment, trading has continued to hold up well. All production facilities remain open and operating without capacity constraints. Our sales engineers remain in close contact with our customers globally, with physical access to customers' facilities improving in those regions that are not subject to new lockdown measures.
Consistent with expectations shared at the Half Year results announcement in August, the organic sales decline in the four months to the end of October was less pronounced than in the first half of the year, supported by the recovery of global IP. Overall, the rate at which reported sales declined was marginally less than in the first half of the year, when reported sales benefited from the inclusion of Thermocoax which joined the Group in May 2019.
In the Steam Specialties business, organic sales in the four months to October declined less than in the first half of the year as the contraction in IP lessened across all regions and China returned to IP growth.
In the Electric Thermal Solutions business, organic sales in the four months to October also declined at a lower rate than in the first half of the year, as a similar organic sales decline in Chromalox was mitigated by strong organic sales growth in Thermocoax.
In the Watson-Marlow Fluid Technology Group, organic sales growth was higher in the four months to October compared with the first half of the year, as sales to the Biopharmaceutical sector remained strong and sales to the other industrial sectors recovered in line with global IP. Watson‐Marlow's exposure to the Biopharmaceutical and Medical Device markets makes it more resilient to the impact of COVID‐19, with many customers working on vaccine development and preparing for mass vaccine production.
The Group operating profit margin was higher in the four months to the end of October than in the first half of the year, supported by increased sales and continued cost containment actions. In the ten months to the end of October, the Group operating profit margin remained slightly below the same period in the prior year.
Currency effects continued to have an adverse impact on sales and operating profit, compared to the same period of 2019, as sterling maintained its strength against our basket of trade currencies. If spot rates at 31st October 2020 prevail for the remainder of the year, the headwind effect on full year sales and profit would be 2% and 4% respectively.
Financial position
Our business remains highly cash generative and we maintain a strong balance sheet. Excluding leases, our net borrowings at 31st October 2020 were £254 million, down from £326 million on 30th June 2020. The interim dividend of 33.5p per share was paid on 6th November at a cash cost of £25 million.
People
We continue to recognise and appreciate the individual and collective efforts of our 7,800 employees across nearly 70 countries that have allowed us to meet the needs of our customers. We have maintained a strong focus on the health and wellbeing of our employees and, thankfully, the rate of infection amongst our employees remains very low.
As previously announced, Neil Daws, Managing Director Steam Specialties and Executive Director will retire from the Steam Specialties business and the Board on 31st December 2020 after more than 42 years of service. We would again like to thank Neil for his huge contribution to the Group.
We are pleased to announce that Neil's successor, Maurizio Preziosa, will take over as Managing Director Steam Specialties from 1st January 2021 and become a member of the Group Executive Committee. Maurizio will be based at the Group Headquarters in Cheltenham, UK. Maurizio joined the Group in November 2011 as General Manager for Spirax-Sarco Italy, progressing to the role of Regional General Manager for Southern Europe in 2014, before becoming Divisional Director for Gestra in May 2017 where he led the successful integration and growth of the Gestra acquisition.
Also as previously announced, Angela Archon and Olivia Qiu will join the Board as Independent Non-Executive Directors effective 1st December 2020.
Outlook
After reaching a low point in the second quarter when global IP contracted 12%, macro-economic conditions improved in the third quarter with a global IP contraction of 4%. IP is now forecast to contract by an overall 5.5% in 2020. However, the sequential month-on-month rate of IP growth slowed markedly in August and September, infection rates remain high in the Americas and increasing levels in Europe are resulting in further lockdowns. Although the impact on IP growth in the fourth quarter resulting from the COVID-19 resurgence remains uncertain, these factors could further slow the rate of IP recovery in the final quarter of 2020, as we anticipated at the Half Year results announcement in August.
Sales and adjusted operating profit in the four months to the end of October were in line with our expectations at the time of our Half Year results. Therefore, absent a significant global IP deterioration in the remaining months of 2020, our overall expectations for the full year remain unchanged.
Spirax-Sarco Engineering plc expects to publish its preliminary 2020 results on 10th March 2021.
1 Source for industrial production data: Oxford Economics, 6th November 2020.
Enquiries:
Nicholas Anderson, Group Chief Executive
Nimesh Patel, Chief Financial Officer
Shaun Laubscher, Head of Investor Relations
Tel: 01242 535234
Note: Operating profit refers to adjusted operating profit and organic performance measures are expressed at constant currency, excluding contributions from acquisitions and disposals as explained in Note 2 to the Consolidated Financial Statements for the period ended 30th June 2020.
About Spirax‐Sarco Engineering plc
Spirax‐Sarco Engineering plc is a thermal energy management and niche pumping specialist. It comprises three world‐leading businesses: Steam Specialties, for the control and management of steam; Electric Thermal Solutions, for advanced electrical process heating and temperature management solutions; and Watson-Marlow, for peristaltic pumping and associated fluid path technologies. The Steam Specialties and Electric Thermal Solutions businesses provide a broad range of fluid control and electrical process heating products, engineered packages, site services and systems expertise for a diverse range of industrial and institutional customers. Both businesses help their end users to improve production efficiency, meet their environmental sustainability targets, improve product quality and enhance the safety of their operations. Watson‐Marlow Fluid Technology Group provides solutions for a wide variety of demanding fluid path applications with highly accurate, controllable and virtually maintenance-free pumps and associated technologies.
The Group is headquartered in Cheltenham, UK, has strategically located manufacturing plants around the world and employs over 7,800 people, of whom close to 1,800 are direct sales and service engineers. Its shares have been listed on the London Stock Exchange since 1959 (symbol: SPX) and it is a constituent of the FTSE 100 and the FTSE4Good indices.
Further information can be found at www.spiraxsarcoengineering.com
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