Spirax-Sarco reaches bottom of trading trough

Steam and peristaltic pumping technology company Spirax-Sarco Engineering reported on a tough year so far on Tuesday, saying growth remained at around zero globally with a continued small deterioration in OECD economies matched by a small improvement in developing economies.

The FTSE 250 firm said its markets in Europe, the Middle East and Africa are stable overall, with industrial production growth of less than 1% but picking up modestly in some markets.

In the Americas, Spirax-Sarco said industrial production growth remained firmly negative in Latin America and had now turned negative in North America.

Growth in industrial production in Asia Pacific was showing a small improvement, its board pointed out, due to an apparent modest recovery in China, with Korea remaining flat.

“Total organic sales growth in the four months ended 30th April 2016 was in line with the full year 2015,” Spirax-Sarco’s board said.

“There was a similar pattern of growth, with Watson-Marlow Fluid Technology Group continuing to make strong organic sales progress in the first four months, supplemented by the good contribution from the three acquisitions made in 2015.”

Currency movements had turned positive in the year-to-date for the company, with good gains from the stronger US dollar and euro largely offset by weaker currencies against sterling in most emerging markets.

“Group operating profit was ahead of the comparable four-month period at constant currency due to continuing the performance levels of 2015 and the benefit of stable material input costs,” the board explained.

“In addition, we benefited from the non-repeat of the headcount reduction costs in our UK steam specialties manufacturing business that were taken within operating profit in the first quarter of 2015.”

Spirax-Sarco was in a strong cash position and claimed to remain highly cash generative, with net cash of £31m on 30 April compared with £5m at the end of December.

If approved at the annual general meeting, a final dividend of 48.2p per share for 2015 will be paid out on 27 May.

Looking ahead, the company’s board said industrial production growth - which had progressively slowed through 2015 - appeared to be stabilising and showing no further signs of deterioration.

“However, the likely future path of industrial production growth continues to be uncertain and we remain vigilant, controlling cost closely.

“Our strategy is focussed on self-generated growth to reduce reliance on the market and we are investing resources into our strategic priorities to increase the effectiveness of our highly trained direct sales force, broaden the group's geographic presence, leverage new product development and optimise our supply chain, whilst developing a more sector-aligned organisation,” the board explained.

Spirax-Sarco is due to publish its full first-half numbers on 9 August.