Smiths Group (LON:SMIN) has posted its interim results this morning.
Highlights from the company statement:
Group results overview
Group headline revenue was in line on an underlying1 basis. John Crane revenue fell 4% on an underlying1 basis as the continuation of difficult trading conditions in global energy drove reduced sales in first-fit, down 15% in the period. Aftermarket revenue returned to growth, up 3% on an underlying1 basis, as activity levels stabilised and a number of significant contract wins led to a growing aftermarket order book. Smiths Medical revenue fell 2% on an underlying1 basis, mainly driven by softness in Infusion Systems and Vascular Access, and only partially offset by growth in Vital Care as we look to reposition our business. Smiths Detection revenue was up 12% on an underlying basis1, delivering good growth across all end-use markets with the exception of Ports & Borders; aftermarket sales continued to grow. On an underlying1 basis, Smiths Interconnect revenue was down 1% and Flex-Tek revenue grew 2%. Group revenue grew 18% on a reported basis, as the benefits of foreign exchange were only partially offset by the impact of disposals.
Group headline operating profit of £277m was up 8% on an underlying1 basis and up 27% on a reported basis. The Group's operating profit margin increased by 150 basis points on an underlying basis, with margin expansion in all divisions reflecting trading performance in addition to cost control, business improvement and restructuring activities.
The Group delivered an improvement in cash generation with a cash conversion rate of 115%. Headline free cash flow of £252m increased 44% and net debt of £635m reduced by £367m excluding valuation adjustments, reflecting the benefit of the disposal of non-core assets, improved cash generation and a significantly lower pension contribution compared to the prior year.
The Board has a progressive dividend policy for future payouts, with the aim of increasing dividends in line with the long term underlying growth in earnings. This policy will enable us to retain sufficient cash flow to finance our investment in the drivers of growth and to meet our financial obligations. In setting the level of dividend payments, the Board will take into account prevailing economic conditions and future investment plans, along with the objective to maintain minimum dividend cover of around 2.0. The Board has declared an interim dividend of 13.55p per share (2016: 13.25p per share). The interim dividend will be paid on 28 April to shareholders registered at close of business on 7 April. The ex-dividend date is 6 April.
Overall, the outlook for 2017 is unchanged. Group performance is expected to be slightly weighted towards the second half, albeit with a more balanced split between the first and second half than we saw last year. We expect some improvement in Smiths Medical's revenue performance in the second half. John Crane's first-fit end markets are expected to remain tough, somewhat counterbalanced by continued resilience in aftermarket. We anticipate sales growth at Smiths Detection in the second half, albeit at lower levels than we saw in the first half, and margins will moderate given contract mix and investment in new products. Smiths Interconnect and Flex-Tek are expected to continue to perform in line with the first half. We expect cash conversion to continue to be strong as the rate of progress on inventory management improves. The depreciation of sterling is expected to provide a tailwind to reported revenue and operating profit, should current rates prevail.