Full-year returns for Smiths Group (SMIN) benefited from the positive effects of operational gearing at its John Crane business, together with £57m in favourable currency translations. This fed through to a 13 per cent rise in adjusted pre-tax profit for the diversified engineering group, but perhaps the most noteworthy achievement was a 40 basis point improvement in the adjusted operating margin, attained despite a commensurate rise in research and development (R&D) costs, which now equate to 4.5 per cent of sales.
The statutory figures reflect the fact that Smiths Medical is now classified as a discontinued operation. The separation of this division remains on track for the first half of 2020. It forms part of a general realignment of the group’s operations, as broader M&A activity in the period under review showed. This included second-half deals to bring United Flexible and Advanced Diamond Technologies within the fold, although we will have to wait until the next set of results to get a clear idea of their financial impact.
Existing shareholders – who are entitled to an equity stake in Smiths Medical after its separation – will be encouraged by news that the business achieved its performance milestones in FY2019, and managed to grow sales in the second half of the year. The division’s newly appointed chief executive, JehanZeb Noor, is tasked with building sales momentum for new products. Investors will hope this includes a large-volume pump currently under first-phase review by US regulators – and which could extend Smiths Medical’s addressable market by around £2bn.
M&A activity accounted for a net outflow of £247m in the year, resulting in a 23 per cent fall in free cash flow, although at £234m it still easily covered distributions and share repurchases. Net borrowings increased by 37 per cent year on year, but stand at a manageable 1.8 times cash profits.
JPMorgan Cazenove gives cash profits of £525m for the June 2020 year end, giving to EPS of 69.4p, rising to £546m and 73.1p in FY2021.
| SMITHS GROUP (SMIN) | ||||
| ORD PRICE: | 1,649p | MARKET VALUE: | £6.53bn | |
| TOUCH: | 1,648-1,649p | 12-MONTH HIGH: | 1,701p | LOW: 1,257p |
| DIVIDEND YIELD: | 2.8% | PE RATIO: | 47 | |
| NET ASSET VALUE: | 596p* | NET DEBT: | 51% | |
| Year to 31 Jul | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2015 | 2.90 | 325 | 62.4 | 41.00 |
| 2016 | 2.95 | 346 | 65.6 | 42.00 |
| 2017 | 3.28 | 601 | 144 | 43.25 |
| 2018 † | 2.33 | 287 | 29.6 | 44.55 |
| 2019 † | 2.50 | 304 | 35.4 | 45.90 |
| % change | +7 | +6 | +20 | +3 |
| Ex-div: | 17 Oct | |||
| Payment: | 15 Nov | |||
| *Includes intangible assets of £1.68m, or 425p a share †Figures reflect the treatment of Smiths Medical as discontinued operations. | ||||
