Spirax-Sarco Engineering PLC (LON:SPX) said it still intends to pay its final dividend from last year as it remains cash generative, with all its production facilities currently open, though most are running split shifts to increase social distancing.
Organic sales fell 5% in the first four months of the year, including an 8% decline in April, and while profits were down too, this has been limited by cost savings that have lifted profit margins.
“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 FTSE 100 thermal energy management and pumping specialist said.
Only a small number of its manufacturing facilities in different countries faced temporary closures to comply with government directives, but demand has remained relatively robust as at least half of group sales are destined to crucial sectors such as healthcare, pharmaceuticals, food & beverages and utilities.
Maintenance, repair and overhaul demand, which usually makes up around 85% of revenues, has seen “only a mild decline” compared to a strong quarter last year.
In the main business, Steam Specialties, sales in the four months were down 7%, with most of the shortfall coming from Asia Pacific due to a poor February in China.
Watson-Marlow, which sells into the biopharma and medical device markets, increased sales 4% in the period, while the Electric Thermal Solutions business saw sales jump 16% thanks to the acquisition of Thermocoax last May.
Strong cash generation led to net debt being nibbled down to £288mln at the end of April, from £295.2mln at the end of December.
With headroom of around £500mln in total debt facilities, further liquidity available from banks, institutions and the Bank of England, the group said it planned to pay its 2019 final dividend of £57.5mln, or 110p per share, on 22 May.
Shares in Spirax rose 3% on Wednesday morning to 9,532p, with the previous month’s losses all wiped out and now up more than 5% since the start of the year.
Analysts at UBS noted that the full-year drop through from sales to underlying profits was expected at around 45%.
The growth for the first four months was “in line with consensus expectations and Spirax’s continued resilience should be reassuring to investors”.
–Adds share price and broker comment–
Published at Wed, 13 May 2020 09:46:00 +0000-Spirax-Sarco confirms dividend after robust first quarter, expects worse to come