Smiths delivers underlying growth in revenue but warns of divisional challenges

FTSE 100 technology company Smiths Group has reported the its underlying revenue has grown across all divisions in the three months ended November 3rd, with full year expectations remaining in line with previous guidance.

The group said underlying headline operating profit was also ahead of the same period last year with progress in all divisions except Smiths Medical which, as previously announced, has significantly increased its investment in sales and marketing in higher growth markets.

Growth in the Smiths Medical business underlying revenue was driven by the demand for its single-use consumables, which offset a slight weakness in hardware sales compared with the same period last year. As expected, headline operating profit was lower, as a result of the annualised effect of its increased investment in sales and marketing in emerging markets, which was weighted towards the second half of last year.

The company warned that it expects to feel the effects of the introduction of the medical device tax in the US in January on growth and margins.

Remaining upbeat, the group said: "We will seek to offset these impacts through operational improvements and a continuing focus on higher margin products."

Elsewhere, the John Crane division said that it sustained underlying revenue growth in the first quarter, continuing the same trend as the second half of last year.

"This reflected on-going demand for its first-fit original equipment and aftermarket services," the group said.

"Operating profit also rose, despite increased investment in growth drivers such as sales and marketing and a weaker performance from the John Crane Production Solutions business. We have expanded the order book in the quarter with a positive book-to-bill ratio and we expect to sustain modest revenue growth into the front end of the second half. Beyond that, we remain cautious as some of our customers have signalled concerns about the potential impact on their capital expenditure from any further economic slowdown."

The Smiths Detection division also saw an underlying improvement, with cost savings successfully made during the period. Although the order book continued to grow significantly compared to previous years, the firm said it still believes the overall performance may be affected by the level and timing of government spending.

Revenue in the Smiths Interconnect business was driven by improvements in connectors and microwave, while power management experienced continuing underlying declines. It warned that the outlook for the year "remains challenging".

Finally, the Flex-Tek business reported a good start to the year, with the best performance seen in aerospace and US residential construction.

"Given the division's high operational gearing, headline operating profit and margins improved significantly as a result of the higher volumes. The outlook for the full year remains positive driven by the aerospace order book and the improving trend for US housing," it said.

Net debt at November 3rd was slightly higher at £802m.

The share price rose 0.19% to 1,041p by 15:00.

NR