Spirax-Sarco profit falls with worse to come

Spirax-Sarco said profit fell in the first four months of 2020 as the Covid-19 crisis hit its business and predicted worse to come from the effects of the pandemic.

In a trading statement the FTSE 100 company said profit to the end of April was lower than a year earlier but that cost cuts had helped support operating margins. The board and more than 100 senior managers have taken pay reductions ranging from 7% to 20% for six months from 1 April.

Having said in March it expected Covid-19 to reduce annual sales by up to 4% the company gave no guidance in its latest update. Since then the outlook for industrial production in 2020 has worsened from expansion of 0.8% to 6.6% shrinkage, it said.

The company said it would pay its final dividend of £57.5m on 22 May. It did not comment on the outlook for its dividend.

Spirax-Sarco said its business was resilient despite a sharp downturn in the global economy caused by coronavirus lockdowns. But the maker of energy management and pumping products said it expected a greater impact in the months ahead.

"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," the company said. "The significant changes to trading environments since our preliminary results announcement on 11 March, as well as the huge uncertainties that surround the global economy, substantially increase the challenge of providing a full-year outlook.

If there is no resurgence of the pandemic in the second half, conditions will improve in the final quarter, leading to a weaker sales contraction in the second half than in the first six months of the year, Spirax-Sarco said. Cost cuts should limit the "drop-through" of annual revenue decline to operating profit to about 45%, it added.

The steam specialties business will contract at about the pace of industrial production and the electric thermal solutions business will shrink slightly more Spirax-Sarco said. At the Watson-Marlow fluid technology division good growth in biopharmaceutical and medical devices will be offset by weaker global industrial production, the company said.

More than half the company's sales are to critical sectors such as hospitals, food and beverage and power generation, helping to insulate it from the effects of the crisis, Spirax-Sarco said. With 85% of demand from customers' operating rather than capital budgets the company said it was confident about weathering the crisis.