Smiths Group remains on track

With three-quarters of the fiscal year in the rear view mirror, expectations for the full year at medical devices maker Smiths Group remain in line with the guidance given at the half-year stage.

In the nine months to April 28th, Smiths Group delivered growth in sales, driven principally by increased underlying volumes in John Crane and the acquisition of Power Holdings, while underlying headline operating profit was also ahead of the same period last year reflecting margin improvement in the John Crane and Flex-Tek divisions.

The performance at John Crane was strong, reflecting demand for its first-fit original equipment and after-market services in the oil and gas markets, although, as expected, the growth rate has tapered off in the recent months as the year-ago comparative figures become tougher to beat.

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Underlying sales at the Smiths Medical division were flat on last year in the face of constrained healthcare budgets and pressure on procedure volumes. Growth in single-use consumable devices has been offset by declines in hardware sales.

Headline operating profit margins at Smiths Medical were in line with the same period last year, as cost saving initiatives have continued to offset increased investment in new product development and sales and marketing.

Underlying sales and headline operating profit at Smiths Detection have grown in the three months to April 28th, compared to the equivalent period last year. In spite of this improving trend, however, the cumulative performance in the first nine months remains slightly behind that of the same period last year. Margins have been adversely affected by the lower volumes and the restructuring costs associated with the performance improvement programme.

Flex-Tek has delivered underlying sales growth in the first nine months with a strong performance in aerospace offset by slightly weaker sales to the US residential construction and domestic appliance sectors.

Headline operating margins improved significantly reflecting higher aerospace revenues and the change in accounting treatment for the legal defence costs associated with the flexible gas piping business, as announced in the interim results. Sales for the full year are expected to show modest overall growth as the continued improvement in the aerospace order book is likely to be moderated by the tough trading environment in other market sectors.

Net debt as at April 28th was £941m, £16m lower than three months earlier, largely reflecting cash generation and exchange rate movements partly offset by the payment of the interim dividend.

JH