Spirax-Sarco Engineering (LON:SPX), the world leader in the control and efficient use of steam, peristaltic pumping and associated fluid path technologies, and a leading provider of electric thermal solutions, issues the following trading update in respect of the four month period ended 31st October 2019.
The global macro-economic environment remains subdued with the latest forecast for Global Industrial Production (IP) growth for 2019 at 1.0%, down from 1.6% at the time of our Interim results announcement. As in the first half of the year, IP growth for the full year is expected to be weighted towards the emerging economies where the increase is forecast to be 2.9%, compared with -0.3% in the developed economies, with much of the differential coming from China. This continues the downward trend that we have seen since the first quarter of 2018 although, on a more positive note, economic forecasters are suggesting that the fourth quarter of 2019 will be the bottom of the cycle with growth expected to improve to 1.7% in 2020.
As expected, the Group’s organic* sales growth rate in the four months to October reduced from that achieved in the first six months of the year, but continued to outperform IP growth.
Sales growth in the Steam Specialties business has softened as expected, in response to slowing IP growth rates, with the slowdown being more pronounced in EMEA than in the Americas and Asia Pacific.
Growth in the Watson-Marlow Fluid Technology Group continues to be strong, above that seen in the first half of the year.
Chromalox saw marginal growth in the four months to October against a very strong comparable period in 2018, and reduced forecasts for industrial production in its core USA market. As expected, we have seen indications of operational performance improvement resulting from actions initiated in the first half of this year.
The integration of Thermocoax, which joined the Group in May, continues to progress well and its overall performance remains in line with our expectations. The net effect of this acquisition combined with the disposal of HygroMatik in December last year will increase the Group’s full-year sales by approximately 1.5%. At the Full Year, Thermocoax’s results will be reported within the newly renamed Electric Thermal Solutions business, encompassing Thermocoax and Chromalox, which will continue trading under their respective names.
Consistent with the first half-year performance, Group operating profit is ahead of the comparable ten-month period at constant currency, both on an organic basis and when the effects of the above acquisition and disposal are included.
Currency effects continue to be muted this year, consistent with what we reported at the Half Year. If spot rates at 31st October 2019 prevail for the remainder of the year, there would be a negligible impact to both sales and profit from foreign exchange movements. Movements in exchange rates are often volatile and unpredictable, therefore the actual impact could be quite different.
Our business remains highly cash generative and we maintain a strong balance sheet. At 31st October 2019, the net borrowings of the Group were £315.4 million. The interim dividend for 2019 of 32.0p per share was paid on 8th November at a cash cost of £23.6 million.
As previously announced, Jay Whalen, President Watson-Marlow Fluid Technology Group (WMFTG) and Executive Director, will retire from WMFTG and the Board on 31st December 2019 after more than 28 years of service. We would again like to thank him for his huge contribution to the Group.
We are pleased to announce that Jay’s successor, Andrew Mines, joined the Group on 11th November and will take over as Managing Director WMFTG from 1st January 2020 and become a member of the Group Executive Committee. Andrew, based at the Group Headquarters in Cheltenham, UK, joins us from Illinois Tool Works (ITW), where his most recent role was Global Executive Vice President of Construction Products, a Division with 1,700 employees, revenues of $1.7 billion and a profit margin similar to the Spirax Sarco Group.
We are also pleased to announce that Dominique Mallet, previously Head of Thermocoax, was promoted to the role of President of the Electric Thermal Solutions business and became a member of the Group Executive Committee, effective 1st September 2019.
Industrial production growth rates are forecast to continue to slow for the remainder of the year in both developed and emerging markets and while predictions for 2020 are less clear, forecasters are indicating a modestly improving trend through the next year. Comparisons with previous cycles would lead us to suspect that any macro-economic recovery may be slower than predicted. Notwithstanding the economic backdrop, we continue with our investment programmes to support future growth and the implementation of our strategy to generate growth from our own actions to outperform our markets. We achieve this by being more effective in identifying and generating engineered solutions to help our customers with energy efficiency, sustainability, productivity, quality, cost reduction and compliance with ever increasing regulatory requirements.
Whilst, as always, we have limited visibility due to the short-term nature of our order book, we have good diversification across market sectors and geographic regions and remain focused on our strategies for growth, which, together with the Group’s fundamental strengths, stand us in good stead. Our overall expectations for the Full Year are unchanged and the Board has confidence that the Group will make further progress in 2019.
Spirax Sarco Engineering expects to publish its preliminary 2019 results on 11th March 2020.