Steam trap and pump maker company Spirax Sarco reported a decline in pre-tax profits for the first half of 2012 following higher material costs, the impact of lower volumes in its main European factories and the economic downturn in Latin America.
Revenue rose 2% from £307.7m to £313.5m, while adjusted profit before tax fell 6% from £63.0m to £59.3m. Statutory profits were 15% lower at £51.7m (2011 H1: £60.8m) and earnings per share fell from 54.1p to 46.3p.
Despite these declines, the dividend was increased 8% from 14.8p to 16p per share.
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Organic sales for the period were 5% higher, partially offset by unfavourable currency movements of 2% and a small impact from two small business disposals in mid-2011, which resulted in the previously mentioned 2% overall increase.
Profits were negatively affected by unfavourable exchange movements of £1.4m as well as higher investment of £2.5m in product development and market penetration to support future growth.
Material costs were an estimated £1.5m higher than in the same period the previous year, something the firm plans to moderate throughout the rest of the year.
A good performance was seen in the Asia Pacific region, with operating profit up 7% at constant currency after operations continued to perform strongly and sales increased 9% at constant currency, with particularly good sales and profit growth in China.
Market conditions were generally good in North America in the first half where it saw an uptick in day-to-day maintenance spending in the US in the second quarter. However, economic growth in Latin America slowed sharply with industrial production continuing to contract in Brazil.
Overall market conditions in Europe were weak in the first half, although the group saw a modest improvement in the second quarter.
In a statement the company said: "We believe that the challenging economic conditions in Europe will persist and are therefore implementing cost reduction actions that will result in a lower headcount in many of our European operations. The associated one-off cost is £5.5m, which has all been taken as an exceptional charge in the first half and is excluded from adjusted operating profit. Annualised savings of £5m are expected to begin to take effect during the second half of this year and be fully realised in 2013.
"The group has a good exposure to emerging markets (38% of total sales and 51% of operating profit in the first half of 2012) that collectively outperformed our developed markets-sales in our emerging markets increased nearly 8% year-on-year (at constant currency) and we continue to selectively add sales resource in these markets to build our presence and maximise future growth opportunities. Our order book, which is typically comparatively short, is at a relatively healthy level as we enter the second half of 2012."
The share price fell 1.7% to 2,025p by 08:17.
NR
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