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Smiths Group announces sale of sterile water bottling unit as it reports drop in profits

Last updated: 09:52 21 Sep 2018 BST, First published: 07:52 21 Sep 2018 BST

smiths group
The company raised its full year dividend by 3%

Smiths Group PLC (LON:SMIN) said on Friday that it has agreed to sell its medical division’s sterile water bottling business as it reported an 8% drop in annual profits.

The business will be sold to US medical device manufacturer Amsino Healthcare Inc. for US$40mln with the deal expected to be completed in the first half of 2019.

Smiths Group said it would use the proceeds to reinvest in "attractive growth opportunities".

Earlier this month the company revealed that it had ended talks with ICU Medical Inc. regarding a potential combination with its Smiths Medical arm because the parties were unable to agree to the terms of a merger.

READ: Smiths Group ends talks with ICU Medical over business combination after failing to agree terms

The decision to sell the sterile water bottling business follows a poor performance in the medical unit.

Full year revenue and profit decline

The group’s results for the year to 31 July 2018 showed Smiths Medical posted a 7% drop in revenue on a reported basis or a 2% decline on an underlying basis, excluding the impact of divested businesses, acquisitions and foreign exchange headwinds.

Smiths Interconnect -- the division that provides electronic components, subsystems, microwave and radio frequency products -- also dragged on the group’s performance with reported revenue down 28%, due to the sale of the power and telecoms businesses, and underlying revenue down 1%.

The John Crane business that provides mechanical seals and filtration systems delivered flat reported revenue and a 5% increase in underlying revenue.

The Flex-Tex unit that makes engineered components that heat and move fluids and gases for the aerospace, medical, industrial, construction and domestic appliance markets was the key driver of growth with reported revenue up 4% and underlying revenue up 10%.

The Smiths Detection unit saw revenue jump 15% on a reported basis following the acquisition of Morpho Detection, a supplier of chemical, radiological, and nuclear detection systems. Underlying revenue in the division edged up 1%.

During the period, the company also bought filtration products firm Seebach and the heating element division of Osram. It disposed of its non-core John Crane bearings business.

Total revenue fell 2% to £3.2bn on a reported basis due to the negative impact of foreign exchange rates. On an underlying basis, however, the group returned to growth with revenue up 2%.

Headline operating profit decreased to £533mln from £589mln, largely due to exchange rate headwinds, restructuring charges and pension costs. Excluding items, operating profit increased 3%.

Pre-tax profit fell to £487mln from £528mln.

Smiths Group hikes dividend 

Smiths Group raised its dividend for the year to 44.55p from 43.25p last year

"With the exception of Smiths Medical, where the second half was disappointing, we delivered a good performance," said chief executive Andy Reynolds Smith.

"We continued to progress the high-grading of the portfolio through organic and inorganic investment with approximately 80% of the group now well positioned in attractive markets."

Foreign exchange tailwinds expected in 2019 

For the fiscal year 2019, the company expects underlying revenue growth at least in line with the prior year.

It sees an improvement in the medical division, returning to growth in the second half.

Smiths Interconnect is also expected to return to growth.

“As in previous years, group performance in FY2019 is expected to be weighted towards the second half,” said Smith.

“Foreign exchange will provide a tailwind to reported revenue and operating profit if current rates prevail.”

Shares fell 7.5% to 1,471p in morning trading. 

Medical division the biggest disappointment, says analyst 

Helal Miah, investment research analyst at The Share Centre, said the biggest disappointment seems to be around the medical division, which has "already been through a tough period due to regulatory pressures and contract issues" and saw no improvement. 

However, Miah noted that the company expects the issues in the medical division to abate. 

The analyst added: "We believe the other divisions will continue to lift the overall business and this is a good opportunity to pick up the shares at a lower price point. The Share Centre maintains its ‘buy’ recommendation for investors seeking exposure to a diversified industrial with offering a balanced return for medium risk investors>"

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