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Smiths Medical demerger delayed as NHS ventilator production ramps up for coronavirus

While the planned separation of Smiths Medical was on track to be delivered by the end of the first half of 2020, the group said now “it is simply not practicable to complete the separation in current circumstances”

Smiths Group -
The paraPAC plus ventilator

Smiths Group PLC (LON:SMIN) is delaying the separation of its Smiths Medical business as it works directly with the UK government for a significant ramp-up in production of its portable ventilator to help with the NHS shortfall in the coronavirus crisis.

Smiths Medical is working with a consortium of 14 engineering and other groups, including Rolls-Royce, McLaren, Meggitt, GKN and Renishaw, to scale up production of its paraPAC plus ventilator model at its factory in Luton.

The conglomerate discount: Why Smiths is spinning off its medical division

Four months since its last update, an update for the half-year to 31 January from the FTSE 100 group said it will not pay an interim dividend as trading to the end of March was affected “to some extent” by early disruption from coronavirus but that is now “accelerating”.

While the planned separation of Smiths Medical was on track to be delivered by the end of the first half of 2020, the conglomerate said now “it is simply not practicable to complete the separation in current circumstances”, especially with the focus on delivering ventilators and other critical care devices. 

“Therefore, the board has decided to delay separation until conditions improve. The intent to separate remains unchanged.”

Orders for its John Crane and Interconnect businesses that were due to be shipped in January slipped into the second half, though all the group’s sites in China have reopened and are now operating “close to normal levels”.

Underlying revenue growth was 3% in the first half up for continuing operations, with Smiths Medical up 1%, while in the first eight weeks of the second half to 28 March are up by a “mid-single-digit” percentage for continuing operations and Smiths Medical.

Demand is “generally weaker but with some mitigating factors” and, while 90% of production facilities are running they are not doing so at full capacity due to some disruption to supply.

Looking at the balance sheet, at the end of January net debt stood at £1.3bn, 1.8 times underlying profit (EBITDA), with no debt maturities until October 2022, no covenant obligations and total available liquidity in excess of £850mln, including circa £250m of cash and an undrawn borrowing facility of US$800mln.

Management also believes Smiths should be eligible to access up to £600mln in funding via the Bank of England's covid-19 corporate finance facility.

Smiths Group shares rose 6% to 1,181.5p on Tuesday morning.

Analysts at AJ Bell noted that Smiths was the thirteenth FTSE 100 member to dump its dividend.

Ian Forrest at The Share Centre said: “The cancellation of the dividend is disappointing for investors but hardly unexpected and seems a prudent move given the high degree of uncertainty around future trading.

“The delay in separation of the medical unit which is producing ventilators for the government is also a sensible move given the level of market volatility at present.”

    -- Adds share price and broker comments --

Quick facts: Smiths Group

Price: 1334.5 GBX

Market: LSE
Market Cap: £5.29 billion

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