TIDMSPX
RNS Number : 7002M
Spirax-Sarco Engineering PLC
13 May 2020
News Release
Wednesday 13(th) May 2020
AGM Statement - TRADING UPDATE
Trading performance holding up, despite unprecedented
circumstances
Thermal energy management and niche pumping specialist,
Spirax-Sarco Engineering plc, issues the following trading update
in respect of the four months ended 30(th) April 2020.
Economic environment
The global macro-economic environment has worsened significantly
since the announcement of our preliminary results on 11(th) March
when the forecast for global Industrial Production growth for 2020
was an expansion of 0.8%. Since then the full-year forecast has
fallen to a contraction of 6.6% as the impact of the COVID-19
pandemic is felt across the world, with quarterly year-on-year
contractions of 3.8%, 10.6%, 7.6% and 4.2% expected throughout the
year.
Trading
Despite the unprecedented economic environment trading has held
up well. A small number of our manufacturing facilities in
different countries faced temporary closures to comply with
government directives. However, all our production facilities are
now open, albeit operating at varying levels of capacity due to our
desire to ensure a safe working environment for employees including
the needs of staff who are shielding or self-isolating. Sales
engineers remain in close contact with customers globally to
satisfy immediate needs, although physical access to customer's
facilities has been significantly curtailed in a number of
geographies. Over 50% of our sales are destined to critical sectors
on the front line of this global pandemic, such as Hospitals &
Healthcare, Pharmaceutical & Biotechnology, Food &
Beverage, Power Generation and Water Treatment, which have retained
a higher resiliency of demand during this period.
Demand from MRO (Maintenance, Repair and Overhaul) and small
improvement project activities, which traditionally make up c. 85%
of revenues, experienced only a mild decline compared to a very
strong comparable period in 2019. Over 80% of demand weakness arose
from the postponement of larger project orders. 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.
In the Steam Specialties business, 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. We are pleased to see that the economy in
China is now recovering and, absent a resurgence of the COVID-19
virus, we expect to see close to normal business activity levels in
the second half of the year. The majority of EMEA entered lockdown
around five to six weeks after China and as a result suffered less
in the period with sales down 6% organically. We believe that the
Americas are lagging Europe in terms of exposure to COVID-19 and
this is reflected in their organic sales performance which was flat
on the prior year.
In the Electric Thermal Solutions business (ETS) sales were up
16%, at constant currency, due to the inclusion of Thermocoax that
performed very well in the four month period, with like-for-like
sales growth of nearly 18%. On an organic basis we saw sales fall
9%, modestly above that of Steam Specialties, due to Chromalox's
higher exposure to larger project activity and to more cyclical
industries such as Oil & Gas, especially in the USA.
Watson-Marlow's exposure to the Biopharmaceutical and Medical
Device markets make it more resilient to the impact of COVID-19
with many customers working on producing testing kits or on
developing a vaccine. As a result, Watson-Marlow's sales grew 4%
organically in the period.
Sterling exchange rates against the basket of currencies we
trade in have strengthened compared to the average for the prior
year, resulting in a 2% negative impact on sales from foreign
exchange in the period.
We continue progressing the reorganisation of the Chromalox
operations in France and also have initiated the process to close
all Defined Benefit Pension Schemes in the UK to future accruals.
These two initiatives will deliver savings in the second half of
the year. Additional cost containment actions were initiated in
late February on a global scale in response to COVID-19, positively
impacting performance in the past two months.
On an organic and reported basis, Group operating profit is
behind the comparable four-month period in 2019, although operating
margins remained above 21% over that period due to the cost
containment actions.
Response to COVID-19
Our ability to operate in such challenging circumstances is not
only a result of the resiliency of our business model and the
important role we play in serving critical sectors but it is,
crucially, also a reflection of the commitment, hard work and
dedication of our employees. Across the world, our employees have
adapted quickly and efficiently to new ways of working, whether at
home or on site, and have maintained an unfaltering focus on
serving our customers.
All of our production facilities remain open, with most running
split shifts to increase social distancing as well as disinfecting
between shifts. Across the Group, office based workers not involved
in manufacturing are working from home. We are starting to plan for
a gradual return of some office-based work as governments ease
restrictions. However, the health, safety and wellbeing of our
employees has been, and will remain, our utmost priority and we
will continue to take all necessary steps to protect and support
them.
To date we have not furloughed any of our UK personnel, which
account for 25% of our global workforce. In late April we
introduced a temporary, voluntary flexible working scheme within
the Steam Specialties business to reduce costs and support
employees, many of whom are managing child or elder care alongside
working. We will continue to review the situation regularly and
should further action be needed, in response to any further
downturn in demand, we will act appropriately and as circumstances
require. In order to help contain costs during the more critical
months of demand weakness, the Board and over one hundred senior
managers across the Group agreed in March to pay reductions ranging
from 20% to 7%. These pay cuts took effect from 1st April for a
duration of six months.
We are proud to support numerous customers around the world in
the fight against COVID-19. For example, in April we responded to
an urgent request to supply a critical component part for use in
the UCL-Ventura breathing aid, a Continuous Positive Airway
Pressure (CPAP) device, which is being used to provide potentially
life-saving oxygen to patients in the UK. Further examples from all
three businesses can be found on our website:
https://www.spiraxsarcoengineering.com/covid-19 .
Financial position
Our business remains highly cash generative and we maintain a
strong balance sheet. At 30(th) April 2020 net debt was GBP288
million. Total debt facilities are GBP792 million, giving headroom
of c. GBP500 million. The average tenor is greater than three years
with the earliest material repayment being in March 2022. In
addition to liquidity from our banks and private placement
providers, we are eligible for support under the Bank of England's
Covid Corporate Financing Facility (CCFF), although we currently do
not anticipate the need to access it. The payment of our 2019 final
dividend of GBP57.5 million will be made on 22(nd) May 2020.
Outlook
With 85% of our demand coming from customers' operating rather
than capital budgets and a high proportion of our revenues from
sectors less impacted by COVID-19 such as Food & Beverage,
Pharmaceutical and Biopharmaceutical, Healthcare, Medical Devices,
Power Generation and Water Treatment, we are confident of our
ability to weather these unprecedented circumstances.
However, the significant changes to trading environments since
our preliminary results announcement on 11(th) March, as well as
the huge uncertainties that surround the global economy,
substantially increase the challenge of providing a full-year
outlook. 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. 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.
Based on current assumptions, we now anticipate that the global
impact of COVID-19 on the Steam Specialties business will be an
organic decline broadly consistent with the reduction in Industrial
Production. We expect the organic sales contraction of the Electric
Thermal Solutions business to be slightly higher than in Steam
Specialties business, which should be modestly offset by the
full-year contribution and expected strong performance from
Thermocoax. In the Watson-Marlow business, we anticipate that good
organic growth in the Biopharmaceutical and Medical Devices sectors
will be offset by a contraction in the balance of the business that
is more closely correlated to movements in global industrial
production. If current exchange rates were to prevail for the
remainder of the year there would be a 2% headwind on the
translation of sales.
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%.
Spirax-Sarco Engineering plc expects to publish its half-year
results on Wednesday 12(th) August 2020, when we anticipate
providing an updated outlook based on the actual performance
achieved during the second quarter of 2020.
Enquiries:
Nicholas Anderson, Group Chief Executive
Kevin Boyd, Chief Financial Officer
Tel: 01242 535234
Press enquiries:
Toby Mountford, Citigate Dewe Rogerson
Tel: +44 (0) 7710 356611
* References to organic changes exclude acquisitions and
disposals, and are expressed at constant currency. References to
profit are to adjusted profit that excludes the amortisation and
impairment of acquisition-related intangible assets and acquisition
and disposal costs, together with the tax effects of these
items.
Cautionary statement
This announcement contains certain forward-looking statements
with respect to the Group's performance. By their nature, these
statements involve uncertainty since future events and
circumstances can cause results and developments to differ
materially from those anticipated. The forward-looking statements
reflect knowledge and information available at the date of
preparation of this announcement and subject to applicable law or
regulation we undertake no obligation to update these
forward-looking statements.
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
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
8,000 people, of whom over 1,600 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 index.
Further information can be found at
www.spiraxsarcoengineering.com
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END
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