21st Sep 2018 14:46
LONDON (Alliance News) - Smiths Group PLC on Friday reported a sharp drop in annual profit and said it will sell its sterile water bottling business of the company's medical unit as part of a strategy to focus on core markets .
The stock was down 3.0% on Friday afternoon at 1,547.50 pence per share, making it the worst performer in FTSE 100 index in London.
The company, which manufactures medical devices, security scanners and fuel systems, said Amsino Healthcare USA Inc will acquire Smiths Medical's sterile water bottling business for USD40 million. The transaction is expected to be completed in the first half of 2019.
The disposal is part of the engineering company's move to concentrate on scalable market leading positions in the company's chosen markets. The proceeds will be reinvested in attractive growth opportunities, it said.
"With a strong portfolio of category leading products trusted by clinicians and patients around the world and with over 20 products launched in the last year, we are confident that our strategy for Smiths Medical will drive market outperformance and world-class competitiveness over the medium term," said Smith Group Chief Executive Andy Smith.
Smiths Group said pretax profit declined by 28% to GBP435 million in the financial year to the end of July from GBP601 million reported the year earlier. Revenue slipped by 2.0% to GBP3.21 billion from GBP3.28 billion.
The company gained GBP7 million on business disposal during the year, versus a GBP175 million gain the year before. Headline pretax profit was GBP487 million, down from GBP528 million the year before.
During the year, the company cut its sales & distribution costs to GBP435 million from GBP449 million. Administrative expenses totalled GBP542 million compared with GBP577 million the year before.
The company's revenue suffered from unfavourable currency translation rates, with underlying revenue, which excludes the effects of foreign exchange, acquisitions and supplemental sales for divested businesses, up 2% year-on-year.
Smiths Group explained that over 95% of its revenue comes from outside of the UK, mainly in US dollars or euros. The company said that for each negative USD0.1 move it looses GBP25 million of operating profit a year, while with each EUR0.1 move, its annual operating profit falls by GBP10 million.
The company said revenue growth in the John Crane, Flex-Tek and Smiths Detection divisions was partially offset by the weak performance in the Smiths Medical and Smiths Interconnect units.
The John Crane engineering division delivered flat performance year-on-year, affected by the disposals of oil & gas exploration services firm Artificial Lift and its Bearings business, and the acquisition of mechanical engineer Seebach GmbH.
In May, the John Crane sold its Bearings business for an enterprise value of USD35 million, and in June completed the acquisition of mechanical engineer Seebach for EUR60 million.
On the underlying basis, revenue in the John Crane unit grew by 5%. Underlying sales from the John Crane's oil & gas and non-oil & gas activities were up 7% and 3%, respectively, Smiths said.
The result was helped by the improving trend in global energy markets and continued growth in the John Crane's chemical, pharma, mining and pulp & paper activities.
The Smiths Detection division recorded 15% rise in revenue over the year to GBP793 million, reflecting continued growth in Air transportation, enhanced by the phasing of contract deliveries.
Meanwhile, in the Flex-Tek hydraulic & fuel systems unit, revenue improved by 4% to GBP354 million, with growth in all segments. On the underlying basis, revenue climbed by 10%.
In November last year, Smiths bought the heating element division of lighting company Osram Sylvania Inc for GBP15 million, which was integrated into the Flex-Tek. The company said it expects to benefit from broadening its portfolio into growing engineered heating solutions market.
The Smiths Interconnect unit saw a 28% fall in revenue to GBP300 million, hurt by the divestments of Power and Telecoms businesses in January and May last year, respectively.
Finally, Smiths Medical division's performance was impacted by the transition to a new Notified Body for European Conformity registration, leading to a short-term suspension of some Smiths Medical products in Europe. Revenue fell by 7% to GBP885 million. On the underlying basis it dropped by 2%.
This disruption and the loss of two contracts in the US offset good underlying growth that was underpinned by a growing contribution from products launched during the year, the company highlighted.
Smiths recommended a final dividend of 30.75p per share, up from 29.70p paid the year prior. This will bring the total payout to 44.55p, up 3% year-on-year.
Looking forward, the company said it remains confident that it will be able to grow faster than its markets.
"We said that this would be the year we returned to growth, and we've done that," said CEO Smith.
"Our next objective is to deliver continued, sustainable growth, on the way to outperforming our markets," he added.
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