Interim Results
Smiths Group PLC
10 March 2004
Smiths Group: Interim Results
for the 6 months ended 31 January 2004
Key messages
• Aerospace, Medical and Specialty Engineering all performing strongly
• Underlying growth impacted by contract timing in Detection
• Earnings per share of 17.5p, compared with 18.9p a year ago*
• Consistently good profit-to-cash conversion
• Net debt down to £206m from £715m from disposals and cash generation
• Dividend unchanged at 8.75p
• Full Year delivery remains on track
*continuing activities, before goodwill amortisation and exceptionals. On a
statutory basis, earnings per share were 12.5p (2003: 20.4p).
Commenting on the results, Keith Butler-Wheelhouse, Chief Executive said: '
Aerospace, Medical and Specialty Engineering all achieved good growth in this
period. As expected, Detection was down compared with a very strong first half
a year ago. The recovery in Detection in the second half and continued progress
in the rest of Smiths underline our confidence in the outlook for the full
year.'
Media: Investors:
Bernard Carey Russell Plumley
+44 (0) 20 8457 8403 +44 (0) 20 8457 8203
bernard.carey@smiths-group.com russell.plumley@smiths-group.com
The meeting with analysts will be simultaneously webcast at 9:00am UK time on
www.smiths-group.com/interim2004 and archived there shortly after the event.
Statutory reporting
Including discontinued activities, goodwill amortisation and exceptional
charges, Smiths Group recorded pre-tax profit of £105m (2003: £157m) and
earnings per share of 12.5p (20.4p) for the six months ended 31 January 2004.
Discontinued activities relate to the Polymer Seals business up to the date of
disposal. The remainder of this statement refers to the continuing activities
of the company, to provide a more consistent basis for comparison.
Continuing activities, before amortisation and exceptionals
£m 2004 2003
(restated)
Turnover 1,264 1,236
Operating profit 141 155
Pre-tax profit 133 146
Earnings per share 17.5p 18.9p
On sales of £1.26 billion, Smiths Group today reported operating profit of
£141m, pre-tax profit of £133m and earnings per share of 17.5p in the first half
of financial 2004. The company's gross profit margin was steady at 39%, while
the net margin, including R&D expense, declined two points to 11% of sales. The
company has maintained its interim dividend at 8.75p.
Three operating divisions, Aerospace, Medical and Specialty Engineering achieved
strong profit growth and improved margins in this period. The decrease in
profit was the consequence of contract timing in the Detection division, which,
as previously indicated, had benefited from unusually large North American
deliveries in the comparable period a year ago.
Strong cash generation continued to be a feature of the company's performance.
Operating profit was converted directly to operating cash, after capital
expenditure, at a rate of 88% in the half year. Free cash-flow, after interest,
tax and exceptionals was 15.0p per share. Net debt was reduced to £206m from
£715m at the year end, benefiting from the cash proceeds of the Polymer
disposal.
Net interest and finance costs were £7.6m, benefiting from an improved pensions
financing charge, and from interest earned in the UK on the Polymer disposal.
The tax charge was reduced from 27.5% a year ago to 26.5%, a rate which is
likely to be sustained for the full year.
Smiths Group has continued to improve its portfolio of businesses. Cyrano
Sciences, which has developed a world-leading new trace detection technology,
was acquired in February for £8m in cash plus an earnout dependent on future
sales. The outstanding 38% minority of Smiths Medical Japan has been acquired
at a cost of £16m. A number of small disposals from Specialty Engineering, with
net proceeds of £20m in cash, were made in the period.
The most significant business win for the company in this period was its
selection by Boeing to develop and supply the Common Core System (CCS) for the
new Boeing 7E7 mid-size commercial jet. The estimated potential future sales of
these computer systems are expected to be in excess of $1 billion. The award
reaffirms the position of Smiths Aerospace as a first tier systems integrator.
Smiths Group continues to drive hard to improve operational performance and
generate organic sales growth. This growth has been stimulated by the faster
pace of new product launches, resulting from increased company-funding of R&D,
now running at 5% of annual sales. A key part of the productivity drive is a
restructuring programme. More than half of the cost of this will be for
improving competitiveness in Aerospace, with the balance in Medical for
rationalisation of distribution and manufacturing, and in Detection for the
complete integration of Heimann and the trace detection activities. The
programme will give rise to exceptional charges likely to total £50m, spread
over 2004 and 2005, of which £10m has been charged in this period. There will
be a partial benefit to performance in 2005 and an expected £25m of annual
savings from 2006.
North America is Smiths' largest market, generating 52% of sales and 58% of
profit in the half year. While the weakness of the US dollar had an impact on
translation of reported profit, the company is currently benefiting from
economic growth in this region. In dollar terms, and leaving aside the
Detection division for reasons already described, all other activity in this
market contributed a 10% increase in both sales and profits. Exports from the
US, at $200m, also rose 10% in this period.
The Interim Balance Sheet shows an after-tax deficit of £285m in respect of
pensions and US post-retirement healthcare. Under FRS 17, pension fund assets
are 'marked to market' annually. If these assets were marked to market at
January 2004, the after tax deficit would be £40m less. In the absence of a
full-scale FRS 17 valuation at January, it is difficult to determine the effect
on liabilities, although corporate bond rates, a major influence on liabilities,
remain unchanged from July 2003. The company is expecting to make cash
contributions above the service cost this year.
The company continues to hold the view that litigation relating to asbestos
previously used in John Crane Inc. products does not represent a material
contingent liability.
By division, Aerospace generated 36% of Smiths Group sales, Specialty
Engineering 34%, Medical 19% and Detection 11%. The following divisional
results are stated before goodwill amortisation and exceptionals.
Smiths Aerospace
£m 2004 2003
(restated)
Turnover 457 461
Operating profit 33 29
Margin 7% 6%
In Smiths Aerospace, profit increased by 13%, benefiting from earlier
restructuring to match reduced demand in the commercial aircraft sector.
Measured at a constant exchange rate, sales improved by 3% and profit by 18%.
Military business continues to grow, driven by the US Department of Defense
procurement budget. Programmes now in full production contributing to this good
performance include the Navy's Super Hornet, the Army's Apache Longbow
helicopter and the Air Force's Raptor fighter and Globemaster transporter. At
the same time, development programmes already well underway will secure
long-term growth, including the Joint Strike Fighter, the C-130 Avionics
Modernisation Programme and the Boeing 767 Global Tanker. Although the USAF
order for the latter is under review, Smiths continues development of refuelling
systems for the Italian and Japanese orders which will be delivered first.
In Europe, the rate of delivery of systems for Eurofighter will depend on
forthcoming decisions about the timing of the second tranche of aircraft.
In the commercial aerospace sector, airline revenue passenger miles are on the
increase, indicating an eventual recovery in demand for Smiths products.
However, operators may decide to return aircraft currently parked in the desert
to their active fleets instead of taking delivery of new aircraft. Meanwhile,
the 'desert fleet' includes many older aircraft fitted with Smiths equipment,
and this is holding back recovery of the aftermarket business.
Smiths Aerospace is organised in three main product groups, each serving both
military and commercial customers. Electronic Systems is the largest, and its
status among the industry leaders in avionics has been recently reinforced by
its selection to develop the Common Core System for the new Boeing 7E7. This
technology will have important applications in future military and commercial
aircraft. Mechanical Systems makes electrical and hydraulic equipment for
controlling moving surfaces and landing gear. An extensive application list, in
turn, generates strong aftermarket revenues from maintenance, repair and
overhaul. Valuable systems are in development for the Airbus A380. Engine
Components makes high-technology parts for jet engines. A new plant in China
will commence production shortly, with GE as the principal customer.
Recent substantial investment in R&D has strengthened Smiths' competitive
position, and this reinforces the company's confidence in its outlook for both
military and commercial markets in the medium term.
Smiths Detection
£m 2004 2003
(restated)
Turnover 143 121
Operating profit 18 42
Margin 12% 35%
The inclusion of Heimann in Smiths Detection for a full six months this time,
compared to only two months in the prior period, contributed to the 18% sales
growth by the division. While Heimann has performed strongly since its
acquisition in November 2002, this could not outweigh the adverse contract
timing experienced in the trace detection business.
As previously indicated, in the first half of 2003 the company delivered an
unusually large volume of equipment to US airports, helping to meet an urgent
deadline for improved airport security. This was a well-established product,
and the increased throughput was reflected in the division's profitability. By
contrast, in the first half of the current year, the contract mix included
initial deliveries of new military equipment to meet a demanding requirement
from the UK Ministry of Defence. The consequence of these two factors was that
margins declined considerably year-on-year. Moving forward, the higher level of
confirmed orders for delivery in the remainder of the year underpins a rapid
recovery in the second half.
Smiths Detection is moving rapidly to integrate Heimann, and the synergies are
already proving beneficial. The division now operates in two main units, one
addressing opportunities in North America, but including all military business,
and the other focused on international markets. They both sell x-ray and trace
detection equipment.
Airport business in North America has been subdued for the past 12 months,
following the rush to achieve the level of passenger and baggage security
required by the Transportation Security Administration by December 2002. There
is now evidence of resumed spending, and a valuable aftermarket is emerging, as
demonstrated by a recent $10 million maintenance agreement covering support for
Smiths equipment in US airports for a six month period.
Providing security for other types of federal establishment has continued to
grow in North America. A delayed contract for anthrax detection at US mail
sorting offices will be generating revenue by the end of the current year.
Smiths has now developed a system for detecting threats in mail arriving at
company or government premises, an area of significant opportunity. Five of the
latest walk-through explosive detectors, Sentinel IIs, will be installed at a
nuclear power station in Canada.
Container x-ray inspection equipment is selling well, required as much to detect
contraband as for preventing terrorism. Recent orders have been won in Israel,
Nigeria, Japan and New Zealand, and Smiths equipment will be in use to provide
security at the Athens Olympics. The Hi-Scan explosive detection system is to
be installed at airports in China, Germany, Spain and Poland. This latest
generation machine can operate effectively at the very high throughput of
luggage passing through major international hubs.
Smiths Detection is a technology driven business, and the company is investing
heavily in R&D. New products include the Centurion system which shuts down
building air conditioning in the event of contamination, and the hand-held
Bio-Seeq device to identify biological threats for first responders. The
acquisition of Cyrano Sciences brings valuable technology for miniaturising
chemical agent 'sniffers'.
The market for security protection and detection in both civil and military
areas is evolving rapidly, and presenting considerable opportunities. Smiths
Detection is securing new business on a world-wide basis which will sustain
strong sales growth for some time to come.
Smiths Medical
£m 2004 2003
(restated)
Turnover 234 230
Operating profit 39 37
Margin 17% 16%
Smiths Medical is performing well, benefiting from its strong presence in the
North American market, the powerhouse of medical device technology and the
source of half the division's sales. At a constant exchange rate, sales grew by
4% and profits by 11% in this period. The main driver of the margin improvement
was the savings resulting from the rationalisation of manufacturing.
The division's manufacturing capability is now organised on a global basis, and
consolidation is underway to reduce the number of production locations.
Already, many of the division's high volume devices are made in Tijuana in
Mexico, and a number of components have been outsourced to the Far East.
Four business units within Medical focus on specific products and markets.
Anaesthesia & Safety Devices is responsible for pain management, needle safety
and temperature management devices and equipment. Medication Delivery & Patient
Monitoring covers infusion products, such as ambulatory pumps, vascular access
devices and patient monitoring. Smiths Medical International is responsible for
airway management and IVF devices, and sells these and all other Smiths Medical
products in markets outside the US and Japan. Smiths Medical Japan handles
sales and marketing of all products in its home market.
In the US, sales teams are structured by product specialisation and are focused
on a team basis at particular hospitals and buying organisations. They also
work to ensure better compliance with the supply agreements Smiths has
established with the hospitals' Group Purchasing Organisations and the
Integrated Delivery Networks.
In Anaesthesia & Safety Devices, the fastest growing product area continues to
be needle protection. Compliance in US hospitals is not yet 100%, and hence the
market is still expanding. Smiths now has a comprehensive range of safe needle
closure devices, and is among the market leaders. From a single plant, the
company will deliver 350 million of these items this year.
Medication Delivery & Patient Monitoring is the business which is taking Smiths
into smaller hospital and alternate site healthcare locations. It also has
certain business within the hospital setting, such as pain management pumps used
in labour & delivery wards. Increasingly, healthcare in the US is being
delivered at daycare centres and other outpatient locations which provide better
value to the provider and reimbursement organisations which pay most of the
bills. Within this business is perhaps the most significant current
opportunity, the Cozmo insulin delivery pump.
Since the introduction of Cozmo in December 2002, over 7,000 of these attractive
units have been sold to Type 1 diabetes patients, freeing them from a regimen of
multiple daily injections. In this half year, the US salesforce has been
doubled from its initial strength, and sales continue to grow well. Cozmo has
recently been introduced in France and Canada, and will be launched
progressively in other countries. Nearly half the patients using Cozmo are
under the age of 20.
The cooperation between Smiths and Therasense to combine insulin delivery and
glucose monitoring in a single unit continues, unaffected by Abbott
Laboratories' acquisition of Therasense. Clinical trials are expected to start
shortly.
Outside North America, the acquisition of the remaining minority in Smiths
Medical Japan has enabled the business to capture greater efficiencies in its
operation and expand market penetration. Lower margin third party items have
been dropped from the product range, and a rationalisation of facilities is
underway.
Driven by increased R&D, cost reduction and buoyant market demand, Smiths
Medical is poised to show attractive growth at good margins in the coming years.
Specialty Engineering
£m 2004 2003
(restated)
Turnover 430 423
Operating profit 51 47
Margin 12% 11%
Specialty Engineering accounted for over one third of total Smiths' sales and
profits. At constant currency, sales grew by 3% and margins improved by one
percentage point. On one important measure the Specialty Engineering businesses
maintained their long-held track record: their profits were fully delivered in
cash in this period. The portfolio remained stable, apart from the sale of a
number of small engineering units.
The division comprises four separate businesses, with more than half of its
combined sales originating in the US. Market conditions there have been
generally favourable: high-tech sectors are recovering, while consumer goods and
construction have remained steady.
John Crane contributes half the division's sales and profits. Its rotating
mechanical seals are used in all types of process plant, with oil and gas
production the most important. This market has been relatively healthy, giving
growth in all regions except the Middle East, where uncertainties over Iraq have
held back investment. John Crane's joint venture to service Gazprom in Russia
is established, and is expected to start contributing this year. The
establishment of a plant near Shanghai to service Shell's Nan Hai complex is
also complete. In South America, John Crane has strengthened its presence since
taking control of its distributor in Chile. Global agreements with the oil
majors are generating additional aftermarket revenues.
The Interconnect business achieved very strong growth in this period. Its
equipment for connecting and protecting critical electronic systems is in high
demand. The defence industry is increasing its spending and Smiths' microwave
cable and connectors are used on most of the front line aircraft. The wireless
telecoms industry is recovering from a period of overcapacity and investment in
3G services is now underway, generating new business for the company's advanced
RF and microwave components.
Flex-Tek, making flexible hose and products for durable consumer goods,
industrial and construction markets, achieved growth in a difficult market
environment. Whilst some American customers are outsourcing production to low
cost countries, they continue to source their components from Flex-Tek, to
ensure high quality finished goods regardless of origin.
The marine business, Kelvin Hughes, is maintaining its improved performance, and
is starting to see its markets recover. Investment in shipping is on the
increase again, as the demand for freight capacity grows.
Overall, Specialty Engineering is making a strong contribution to the company's
performance, and has the opportunity to achieve further margin enhancement as
its markets show renewed growth and operational improvements continue.
Prospects
Smiths' strategy remains focused on the delivery of improved operational
performance and organic top-line growth, combined with selected acquisition
opportunities where value can be added. Against the background of both a
generally more positive economic environment and improving market conditions,
Smiths remains on track to deliver full year expectations. Across the business
portfolio there remains significant opportunity to increase shareholder value
over the medium term.
Dividend
The Board has declared an interim dividend of 8.75p, unchanged from a year ago,
and will consider whether to increase the final dividend in the light of
circumstances prevailing in six months' time. The interim dividend will be paid
on 16 April 2004 to holders of all ordinary shares whose names are registered at
the close of business on 19 March. The ex-dividend date will be 17 March.
Tables attached
• Profit & loss account
• Summarised balance sheet
• Cash-flow statement
• Notes to the accounts
The financial statements attached have been prepared in accordance with the
accounting policies set out in the company's accounts for the year ended 31 July
2003, apart from the adoption of UITF 38 (ESOP trusts). Results for the period
ended 31 January 2003 have been restated to reclassify the results of businesses
treated as discontinued in the full year to 31 July 2003. Figures relating to
last year are abridged. Full accounts for Smiths Group plc to 31 July 2003, on
which the auditors made an unqualified report, have been delivered to the
Registrar of Companies.
Copies of the interim report will be sent to shareholders shortly, and will be
available at the company's registered office, 765 Finchley Road, London NW11
8DS.
PROFIT AND LOSS ACCOUNT
6 months ended 31 January 2004
Ordinary Discontinued Goodwill Exceptional
activities businesses amortisation items Total
Note £m £m £m £m £m
Continuing
operations 1263.7 1263.7
Discontinued
businesses 55.0 55.0
________________________________________________________________________
Turnover 2 1263.7 55.0 1318.7
________________________________________________________________________
Continuing
operations 140.7 (18.9) (9.6) 112.2
Discontinued
businesses 2.2 (1.9) 0.3
________________________________________________________________________
Operating profit 140.7 2.2 (20.8) (9.6) 112.5
Profit on disposal
of businesses 3 2.6 2.6
________________________________________________________________________
Profit before
interest and tax 140.7 2.2 (20.8) (7.0) 115.1
Net interest payable (8.8) (2.4) (11.2)
Other finance income
/(costs) - retirement
benefits 1.2 1.2
________________________________________________________________________
Profit before
taxation 133.1 (0.2) (20.8) (7.0) 105.1
Taxation (35.3) 1.8 (1.6) (35.1)
________________________________________________________________________
Profit after taxation 97.8 (0.2) (19.0) (8.6) 70.0
Minority interests
________________________________________________________________________
Profit for the period 97.8 (0.2) (19.0) (8.6) 70.0
Dividends 4 (49.1) (49.1)
________________________________________________________________________
Retained profit/
(loss) 48.7 (0.2) (19.0) (8.6) 20.9
________________________________________________________________________
Earnings per share 5
Basic 17.5p (3.4p) (1.6p) 12.5p
Fully diluted 17.4p (3.4p) (1.6p) 12.4p
PROFIT AND LOSS ACCOUNT
6 months ended 31 January 2003 (Restated)
Ordinary Discontinued Goodwill Exceptional
activities businesses amortisation items Total
Note £m £m £m £m £m
Continuing
operations 1236.0 1236.0
Discontinued
businesses 219.6 219.6
________________________________________________________________________
Turnover 2 1236.0 219.6 1455.6
________________________________________________________________________
Continuing
operations 155.5 (14.4) 141.1
Discontinued
businesses 24.4 (5.8) 18.6
________________________________________________________________________
Operating profit 155.5 24.4 (20.2) 159.7
Profit on disposal
of businesses 3 16.5 16.5
________________________________________________________________________
Profit before
interest and tax 155.5 24.4 (20.2) 16.5 176.2
Net interest payable (8.6) (9.4) (18.0)
Other finance income
/(costs) - retirement
benefits (1.4) (1.4)
________________________________________________________________________
Profit before
taxation 145.5 15.0 (20.2) 16.5 156.8
Taxation (40.0) (4.1) 1.8 (42.3)
________________________________________________________________________
Profit after taxation 105.5 10.9 (18.4) 16.5 114.5
Minority interests (0.2) (0.3) (0.5)
________________________________________________________________________
Profit for the period 105.3 10.6 (18.4) 16.5 114.0
Dividends 4 (48.9) (48.9)
________________________________________________________________________
Retained profit/
(loss) 56.4 10.6 (18.4) 16.5 65.1
________________________________________________________________________
Earnings per share 5
Basic 18.9p 1.9p (3.3p) 2.9p 20.4p
Fully Diluted 18.8p 1.9p (3.3p) 2.9p 20.3p
Note: Results for the period ended 31 January 2003 have been restated to
reclassify the results of businesses treated as discontinued in the full year to
31 July 2003.
PROFIT AND LOSS ACCOUNT
Year ended 31 July 2003
Ordinary Discontinued Goodwill Exceptional
activities businesses amortisation items Total
Note £m £m £m £m £m
Continuing
operations 2629.2 2629.2
Discontinued
businesses 426.9 426.9
________________________________________________________________________
Turnover 2 2629.2 426.9 3056.1
________________________________________________________________________
Continuing
operations 371.9 (32.4) 339.5
Discontinued
businesses 51.9 (11.7) 40.2
________________________________________________________________________
Operating profit 371.9 51.9 (44.1) 379.7
Profit on disposal 3
of businesses 14.5 14.5
Write down of
goodwill on
anticipated future
disposal (137.0) (137.0)
________________________________________________________________________
Profit before
interest and tax 371.9 51.9 (44.1) (122.5) 257.2
Net interest payable (20.3) (17.3) (37.6)
Other finance income
/(cost) - retirement
benefits (2.2) (2.2)
________________________________________________________________________
Profit before tax 349.4 34.6 (44.1) (122.5) 217.4
Taxation (94.3) (9.4) 3.9 (5.3) (105.1)
________________________________________________________________________
Profit after tax 255.1 25.2 (40.2) (127.8) 112.3
Minority interests (0.5) (0.3) (0.8)
________________________________________________________________________
Profit for the period 254.6 24.9 (40.2) (127.8) 111.5
Dividends 4 (145.4) (145.4)
________________________________________________________________________
Retained profit/
(loss) 109.2 24.9 (40.2) (127.8) (33.9)
________________________________________________________________________
Earnings per share 5
Basic 45.6p 4.5p (7.2p) (22.9p) 20.0p
Fully diluted 45.5p 4.5p (7.2p) (22.9p) 19.9p
SUMMARISED BALANCE SHEET
31 January 31 January 31 July
2004 2003 2003
(restated) (restated)
Note £m £m £m
Fixed assets
Intangible assets 579.8 827.1 830.2
Tangible assets 413.5 528.6 557.6
Investments and advances:
Automotive 325.0 325.0 325.0
Other 2.1 5.5 2.8
______________________________________________
1320.4 1686.2 1715.6
Current assets
Stocks 416.7 508.2 489.5
Debtors 580.7 657.3 673.4
Cash at bank 494.2 92.3 82.0
______________________________________________
1491.6 1257.8 1244.9
Creditors:
Amounts falling due within one year (715.5) (818.4) (912.7)
______________________________________________
Net current assets 776.1 439.4 332.2
______________________________________________
Total assets less current liabilities 2096.5 2125.6 2047.8
Creditors:
Amounts falling due after one year (713.0) (895.4) (754.4)
Provisions for liabilities and charges (114.6) (118.8) (116.0)
______________________________________________
Net assets excluding pension assets/
liabilities 1268.9 1111.4 1177.4
Pension assets 36.4 84.4 25.3
Retirement benefit liabilities (321.4) (218.6) (333.7)
______________________________________________
Net assets 983.9 977.2 869.0
______________________________________________
Capital and reserves
Share capital and share premium
account 320.6 305.2 309.8
Reserves 663.3 660.4 547.4
______________________________________________
Shareholders' equity 9 983.9 965.6 857.2
Minority equity interests 11.6 11.8
______________________________________________
Capital employed 983.9 977.2 869.0
______________________________________________
The balance sheets at 31 January 2003 and 31 July 2003 have been restated to
reflect the requirements of the Urgent Issues Task Force Abstract 38 (see note
9).
CASH-FLOW STATEMENT
6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2004 2003 2003
£m £m £m
Note
Operating profit (before exceptional
restructuring costs) 122.1 159.7 379.7
Non-cash items:
Goodwill amortisation 20.8 20.2 44.1
Depreciation 37.4 42.8 88.9
Retirement benefits 2.8 15.5 (4.6)
(Increase)/decrease in stocks (14.2) (12.3) (1.6)
(Increase)/decrease in debtors (10.0) (25.9) (55.8)
(Decrease)/increase in creditors (2.8) (8.3) 15.8
_______________________________________
Net cash inflow from normal operating
activities 156.1 191.7 466.5
Exceptional restructuring expenditure (6.2) (13.8) (22.8)
_______________________________________
Net cash inflow from operating activities 149.9 177.9 443.7
Returns on investments and servicing of finance 3.8 (17.2) (26.1)
Tax paid (39.5) (35.3) (60.8)
Capital expenditure and financial investment (29.9) (33.4) (86.3)
Acquisitions and disposals 6,7 490.0 (84.1) (92.0)
Equity dividends paid (96.5) (93.4) (142.5)
Management of liquid resources (414.3) (1.7) 2.3
Financing 5.6 71.4 (68.7)
_______________________________________
Increase/(decrease) in cash 69.1 (15.8) (30.4)
Increase/(decrease) in short-term deposits 414.3 1.7 (2.3)
(Increase)/decrease in other borrowings 2.5 (75.3) 73.4
Loan note repayments 2.7 0.7 1.2
Term deposits/(debt) acquired with acquisitions 4.8 (13.1)
Exchange variations 20.7 (2.9) (18.7)
_______________________________________
Decrease/(increase) in net debt 509.3 (86.8) 10.1
Net debt at beginning of period (715.1) (725.2) (725.2)
_______________________________________
Net debt at end of period 8 (205.8) (812.0) (715.1)
_______________________________________
NOTES TO THE ACCOUNTS
1. Accounting policies
The accounting policies used in preparing the interim financial statements are
consistent with those used in the annual financial statements for 2003, apart
from the adoption of the requirements of Abstract 38 of the Urgent Issues Task
Force in respect of Employee Share Ownership Plans (see note 9).
2. Analyses of turnover and profit
6 months ended 6 months ended Year ended
31 January 2004 31 January 2003 31 July 2003
Turnover Profit Turnover Profit Turnover Profit
£m £m £m £m £m £m
Market
Aerospace 456.9 33.0 461.0 29.3 998.2 105.5
Detection 142.8 17.8 121.2 42.4 273.3 70.6
Medical 234.1 39.1 230.5 36.6 486.1 87.9
Specialty Engineering 429.9 50.8 423.3 47.2 871.6 107.9
___________________________________________________________________
1263.7 140.7 1236.0 155.5 2629.2 371.9
Discontinued businesses 55.0 2.2 219.6 24.4 426.9 51.9
___________________________________________________________________
1318.7 142.9 1455.6 179.9 3056.1 423.8
_______ ______ ______
Goodwill amortisation (20.8) (20.2) (44.1)
Exceptional items (7.0) 16.5 (122.5)
_____ _____ ______
Profit before interest and
Tax 115.1 176.2 257.2
Net interest payable (11.2) (18.0) (37.6)
Expected return on pension
scheme assets 85.7 76.6 152.7
Interest on retirement
benefit liabilities (84.5) (78.0) (154.9)
_____ _____ ______
Profit before taxation 105.1 156.8 217.4
_____ _____ ______
Geographical origin
United Kingdom 366.3 17.2 347.0 15.0 762.3 52.6
North America 702.9 81.6 754.3 111.1 1513.3 241.4
Europe 230.7 31.1 163.1 20.3 399.6 58.0
Other overseas 85.7 10.8 74.6 9.1 165.1 19.9
Inter-company (121.9) (103.0) (211.1)
___________________________________________________________________
1,263.7 140.7 1,236.0 155.5 2,629.2 371.9
___________________________________________________________________
NOTES TO THE ACCOUNTS
3. Exceptional items
6 months ended 6 months ended Year ended
31 January 2004 31 January 2003 31 July 2003
£m £m £m
Restructuring (9.6)
Profit on disposal of businesses 2.6 16.5 14.5
Write-down of goodwill on
anticipated future disposal - - (137.0)
________ ________ ________
(7.0) 16.5 (122.5)
________ ________ ________
A restructuring programme has been initiated which will give rise to exceptional
charges likely to total £50m spread over 2004 and 2005, of which £9.6m has been
charged in this period. More than half of the cost will be for improving
competitiveness in Aerospace, with the balance in Medical for rationalisation of
distribution and manufacturing, and in Detection for the complete integration of
Heimann and the trace detection activities.
4. Dividends
An interim dividend of 8.75p per share (2003 : 8.75p) has been declared and will
be paid on 16 April 2004 to holders of all ordinary shares whose names are
registered at close of business on 19 March 2004.
5. Earnings per share
Separate figures are given for earnings per share related to the average number
of shares in issue
for each period -
6 months ended 6 months ended Year ended
31 January 2004 31 January 2003 31 July 2003
Basic 560,171,050 558,489,500 558,610,819
Effect of dilutive share options 896,887 1,857,298 838,286
___________ ___________ ___________
Fully Diluted 561,067,937 560,346,798 559,449,105
___________ ___________ ___________
6. Acquisitions
During the period the company acquired the outstanding 38% minority interest in
Smiths Medical Japan Ltd for approximately £16m, giving rise to capitalised
goodwill of £6.3m, subject to review and finalisation of costs. It also
capitalised a further £6.2m of goodwill relating to deferred consideration in
respect of the acquisition of Able Corp., first acquired in 2002, which became
payable following the achievement of defined targets.
In accordance with the provisions of FRS 10, the company amortises goodwill
arising on acquisitions after 1 August 1998 on a straight-line basis over a
period of up to 20 years.
NOTES TO THE ACCOUNTS
7. Disposals
On 30 September 2003, the company completed the disposal of the Polymer group of
companies for £483.7m net of costs. During the period it also sold the Matzen
& Timm, Lapmaster and Icore businesses out of the Specialty Engineering
division.
Polymer Other Total
£m £m £m
Consideration, net of expenses 483.7 20.0 503.7
Net assets/retained liabilities (352.4) (18.7) (371.1)
_______ ______ _______
Surplus over net assets/retained liabilities 131.3 1.3 132.6
Goodwill previously set off against reserves (257.9) (9.1) (267.0)
_______ ______ ______
(126.6) (7.8) (134.4)
Goodwill charged to profit and loss account
in prior period 137.0 137.0
_______ ______ _______
10.4 (7.8) 2.6
_______ ______ _______
8. Borrowings and net debt
31 January 31 January 31 July
Fixed Floating 2004 2003 2003
£m £m £m £m £m
Maturity:
On demand/under one year 15.2 32.1 47.3 79.6 118.3
One to two years 80.1 126.2 206.3 178.7 212.8
Two to five years 1.0 1.0 197.0 1.6
Greater than five years:
Bank loans 11.3 11.3 0.1 12.5
TI Eurosterling bond 2010 148.8 148.8 148.6 148.7
Smiths US private
placement 2013 54.9 82.4 137.3 152.5 155.3
Smiths Eurosterling
Bond 2016 148.0 148.0 147.8 147.9
__________________________________________________________________
310.5 389.5 700.0 904.3 797.1
Cash and deposits (494.2) (92.3) (82.0)
__________________________________________________________________
Net debt 205.8 812.0 715.1
__________________________________________________________________
NOTES TO THE ACCOUNTS
9. Movement in shareholders 'equity
6 months ended 6 months ended Year ended
31 January 2004 31 January 2003 31 July 2003
(restated) (restated)
£m £m £m £m £m £m
Profit for the period 70.0 114.0 111.5
Dividends (49.1) (48.9) (145.4)
_____ _____ _____
20.9 65.1 (33.9)
Exchange variations (35.0) (15.3) 14.7
Taxation recognised on exchange
gains/(losses):
Current - UK 5.3
Deferred - USA 4.5 3.7
Share issues 10.8 1.6 5.9
Goodwill written back on disposals 130.0 74.5 211.5
Actuarial loss on retirement benefits (258.6)
Movement in deferred taxation
relating to actuarial loss 73.4
_____ _____ _____
Net increase in shareholders' equity 126.7 130.4 22.0
Shareholders' equity:
At 1 August as previously reported 862.6 840.6 840.6
Prior period adjustment - UITF 38 (5.4) 857.2 (5.4) 835.2 (5.4) 835.2
_____ _____ _____
_____ _____ _____
983.9 965.6 857.2
_____ _____ _____
The Urgent Issues Task Force Abstract 38 (UITF 38) was issued in December 2003,
and its requirements apply to the annual financial statements 2004 and, as such,
must be reflected in these interim accounts. UITF 38 requires shares held by
Employee Share Ownership Plan (ESOP) Trusts to be treated as a reduction of
shareholders' funds, rather than as a fixed asset. The balance sheet values
for investments and advances - other at 31 January 2003 and 31 July 2003 have
been restated as follows:
£m £m
Investments and advances - other:
As previously reported 10.9 8.2
Adjustment for UITF 38 - as shown above (5.4) (5.4)
______ ______
5.5 2.8
______ ______
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