Spirax Sarco predicts significant 2020 revenue drop but trading holds up

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Cheltenham-based Global thermal energy management and niche pumping specialist, Spirax-Sarco Engineering plc, has contracted its growth forecasts to 6.6 per cent as the impact of the COVID-19 pandemic is felt across the world. In its preliminary results released on March 11, it was forecasting a global expansion of production of almost one per cent.

Spirax currently anticipates that the full year total revenue decline in operating profit in 2020 will be around 45 per cent. But the company said that despite the unprecedented economic environment, trading has held up well. 

In statement the company said: “A small number of our manufacturing facilities in different countries faced temporary closures to comply with government directives. However, all our production facilities are now open, albeit operating at varying levels of capacity.”

More than 50 per cent of Spirax Sarco’s sales are destined for critical sectors in the current global pandemic, such as hospitals & healthcare, pharmaceutical & biotechnology, food & beverage, power generation and water treatment, all of which have retained a higher resiliency of demand during this period. And with 85 per cent of demand coming from customer’s operating rather than capital budgets, it says it is confident it will weather these unprecedented circumstances. 

But it believes the worst of the downturn will occur in the second and third quarters of 2020, and if the world avoids a resurgence of COVID-19 in the second half of the year, it currently expects trading conditions to improve in the last quarter of 2020, resulting in a lower contraction of organic sales in the second half of 2020 than in the first half.   

Demand from MRO (Maintenance, Repair and Overhaul) and small improvement project activities, which traditionally make up around 85 per cent of the company’s revenues, experienced only a mild decline. But some larger project orders have been postponed. Organic sales for the Group in the first four months of the year declined five per cent, with reported sales down three per cent.

While Group operating profit is behind the comparable four-month period in 2019, operating margins remained above 21 per cent over that period due to the cost containment actions. 

To date Spirax Sarco has not furloughed any UK personnel, which account for a quarter of its global workforce, but hasn’t ruled out doing so should further action be needed. The Board and more than one hundred senior managers across the Group agreed to pay reductions ranging from 20% to 7% for six months. 

The company is playing its part in the fight against COVID-19. In April it responded to an urgent request to supply a critical component part for use in the UCL-Ventura breathing aid, a Continuous Positive Airway Pressure (CPAP) device, which is being used to provide potentially life-saving oxygen to patients in the UK.