Spirax-Sarco Engineering plc Strong start to the year, despite weakening Industrial Production growth forecasts

Thermal energy management and niche pumping specialist, Spirax-Sarco Engineering plc (LON:SPX), issued the following trading update in respect of the period ended 30th April 2019.

Economic environment

As expected, the global macro-economic environment continues to weaken with the latest forecast for global Industrial Production growth for 2019 being 2.0%, compared to 2.6% at the time of our preliminary announcement and 3.1% in 2018.

Trading

Despite the softening macro-economic environment, organic* sales growth for the Group in the first four months of the year remained at similar levels to the second half of 2018. Growth in Asia Pacific has been particularly strong, aided by large one-off projects and customer requests to pull forward sales ahead of the recent changes to VAT in China. In EMEA we have seen a modest benefit from customers building buffer stocks ahead of the UK’s anticipated exit from the European Union on 29th March, while the Americas saw similar levels of growth to the prior year. Sales growth in Chromalox, while positive, was lower than the Steam Specialties business, albeit against a robust period of growth in the prior year. Watson-Marlow had an excellent start to the year helped by healthy growth in its Biopharmaceutical sector.

Sterling exchange rates against the basket of currencies we trade in have remained very close to the average for the prior year, resulting in a negligible impact from foreign exchange in the period.

On an organic basis, Group operating profit is ahead of the comparable four-month period in 2018, with operating margins consistent with our full-year expectations.

Financial position

Our business remains highly cash generative and we maintain a strong balance sheet. At 30th April 2019 net debt was £203 million. There has been no material change in the financial position of the Group during the period.

Acquisition

On 13th May 2019 we announced the completion of the €158 million acquisition of Thermocoax, following the granting of regulatory approvals in France, Germany and the USA.

Outlook

We have good diversification across market sectors and geographic regions, and remain focused on the rigorous implementation of our strategies for growth. While, as normal, our short order book provides only limited visibility, the Group’s fundamental strengths stand us in good stead to continue to deliver growth that outperforms our markets.

While organic sales growth in the first four months of the year has been strong, the lowering of forecasts for Industrial Production growth rates for 2019 mean that our overall expectations of organic growth and trading margins for the full-year are unchanged to those set out in our preliminary announcement in March.

If current exchange rates were to prevail for the remainder of the year there would be no material impact of translation or transaction on sales and operating profit for the full year, compared with the full year 2018. Movements in exchange rates are often volatile and unpredictable, therefore the actual impact could be significantly different.

Provided there is no material deterioration in trading conditions the Board has confidence that the Group will make further progress in 2019.

Spirax-Sarco Engineering plc expects to publish its 2019 half-year results on Wednesday 7th August 2019.