Interim Results
Smiths Group PLC
16 March 2005
News Release
London, 16 March 2005
For immediate release
Smiths Group: Interim Results
for the six months ended 31 January 2005
Highlights
• Headline profit before tax up 16% at £155m*
• Headline earnings per share up 17% at 20.4p*
• On a statutory basis, profit before tax was £125m and EPS was 15.9p
• At constant currency, all four divisions contributed to sales growth of
11%, headline operating profit growth of 16%
• Medex acquisition scheduled to complete on 21 March
• Interim dividend increased by 6%, to 9.25p
• Momentum expected to be sustained in second half of 2005
* Before goodwill amortisation and exceptional items.
Commenting on the results, Keith Butler-Wheelhouse, Chief Executive said: 'This
was a strong first half and we expect to sustain this momentum through the
remainder of the year. With all four divisions performing well, Smiths is
achieving real underlying growth and gaining the incremental benefit of recent
acquisitions. The Medex transaction is scheduled to close early next week and
this will have a beneficial impact on the Medical division. We have raised the
interim dividend for the first time since 2001, reflecting our positive outlook
for the full year.'
Media: Investors:
Caroline Harris Russell Plumley
+44 (0) 20 8457 8306 +44 (0) 20 8457 8203
caroline.harris@smiths-group.com russell.plumley@smiths-group.com
A meeting with analysts will be simultaneously webcast at 9:00am UK time on
www.smiths-group.com/interims2005 and archived there shortly after the event.
Reported on a statutory basis
2005 2004
£m £m
Sales - continuing 1,344 1,264
- discontinued - 55
1,344 1,319
Operating profit
- continuing 153 141
- discontinued - 2
- goodwill amortisation (22) (21)
- exceptional items (8) (10)
123 112
Pre-tax profit
- continuing 155 133
- goodwill amortisation (22) (21)
- exceptional items (8) (7)
125 105
EPS - continuing 20.4p 17.5p
- statutory basis 15.9p 12.5p
On a statutory basis, including goodwill amortisation and exceptional items,
Smiths Group recorded pre-tax profit of £125m (2004: £105m) and earnings per
share of 15.9p (2004: 12.5p) for the six months ended 31 January 2005. The
remainder of this statement refers to the continuing activities of the company
before goodwill amortisation and exceptional items, to provide a more consistent
basis for comparison. Results on this basis are referred to as 'Headline' in
the remainder of this statement.
Headline performance
£m 2005 2004
Sales 1,344 1,264
Headline operating profit 153 141
Headline pre-tax profit 155 133
Headline earnings per share 20.4p 17.5p
Interim dividend 9.25p 8.75p
Smiths Group recorded a 16% increase in headline pre-tax profit and a 17%
increase in headline earnings per share for the first half of its 2005 financial
year. The improvement combined better operational performance, some benefit
from acquisitions and lower financing costs. The Board has raised the interim
dividend by 6% to 9.25p.
Sales were 6% higher than for the same period last year and headline operating
profit was up by 9%. The company's net margin on the same basis remained at
11%. Smiths earns more than half its profit in the US, and the dollar's decline
compared with the first half last year reduced reported sales by £65m and profit
by £9m. Measured at constant exchange rates, sales rose by 11% and headline
operating profit by 16%. These gains came equally from the underlying business
and from the contribution of recent acquisitions.
The momentum established in the second half of last year has been sustained
through the first six months of the current financial year. All four divisions
of Smiths achieved higher sales and profits on a constant currency basis.
Aerospace benefited from the rapid recovery in the commercial sector, Detection
made progress beyond the airport market, Medical kept pace with rising demand
and Specialty Engineering was boosted by strong growth in Interconnect.
A £3m reduction in net interest on ordinary activities and a £6m pensions
financing improvement contributed to the higher pre-tax profit. The company's
tax rate on ordinary activities for the period was 26.0% (2004: 26.5%).
Operating cash-flow for the period, after capital expenditure and before
exceptional restructuring, was £83m, representing a conversion from headline
operating profit of 54%. This conversion rate was lower than usual because of
increased investment in aerospace production capacity, and higher stock levels
in anticipation of strong sales growth in the second half. By the year end,
cash conversion is likely to have risen closer to normal levels. Net debt at
the end of the period was £392m, compared to £273m at the start.
Smiths spent £61m on acquisitions during the half year. In November, the
company acquired Integrated Aerospace Inc, a privately-owned, California based
supplier of specialist landing gear systems, for £57m. In December, the company
acquired Tianjin Timing Seals Co Ltd in China, for £3m, and this is now part of
John Crane in Specialty Engineering. Both acquisitions are performing in line
with expectations.
In December, Smiths announced it would acquire Medex Inc, a leading US medical
device company for a total of £490m, including some £160m of assumed debt.
Medex brings a product range which is highly complementary and considerably
increases Smiths' presence in the safety devices sector. Having received
regulatory clearance from all necessary authorities, completion is scheduled for
21 March. Meanwhile the integration of Medex has been planned in detail and
will lead to both revenue and cost synergy benefits.
Two smaller acquisitions have been made since the end of the first half. Irish
company Farran Technology Ltd was acquired in February for £16m, of which £3m is
performance related. Its millimetre wave expertise will be used in future
Smiths Detection products. The acquisition of the US Seal product line from
Superior Essex Inc, for £6m has been announced today. It makes replacement
mechanical seals which complement the John Crane range.
Company funded R&D increased by £6m to £72m. Customer-funded projects increased
at a similar rate, to £63m in this period. Together, they represent 10% of
sales.
Productivity continues to improve. A two-year restructuring programme,
commenced last year, has led to charges of £39m, including £8m during this
period. The payback from this programme is matching expectations and the
efficiencies gained are contributing to current performance. In addition, the
company has absorbed increased costs for plastics, metals, energy and transport
without margin impact.
Smiths generated 54% of its sales by origin in North America (US, Canada and
Mexico), and 62% of its profit. UK sales by origin were 23% of the total,
including £231m in exports. By division, Aerospace generated 38% of Smiths
Group sales, Detection 11%, Medical 18% and Specialty Engineering 33% in this
period.
Smiths Aerospace
£m 2005 2004
Sales 514 457
Headline operating profit 39 33
Margin 8% 7%
Smiths Aerospace has entered a period of strong growth which is likely to be
sustained for a number of years, driven by a recovery in the commercial aviation
sector and rising sales of military systems. In the first six months of 2005,
sales were 17% and headline profits 24% higher on a constant currency basis.
Whilst margins moved ahead by one point in the first half, the division
continues with its normal bias towards the second half. Compared with a year
earlier, company-funded R&D was £3m higher.
The upward trend is the result of a number of positive factors. Boeing and
Airbus are raising their production rates, especially of narrow-bodied aircraft,
and hence demand for Smiths' aircraft systems is higher. Similarly, the engine
makers are placing more orders on the company's engine component business.
Meanwhile, the commercial aftermarket which, for Smiths, was initially slow to
recover, is now growing firmly in step with airline traffic.
In this period, the initial systems for the A380 were delivered, while work on
the B787 Dreamliner, now less than two years from first flight, is on schedule.
The military part of Smiths' business continues to perform strongly, with
current front-line programmes on which the company has valuable shipsets all
sustained at high levels. In the longer term, whilst the US government is
seeking to reduce defence expenditure, Smiths' high capture rate of new
programmes in recent years, combined with increasing international demand,
provides the basis for sustained growth in military business.
Smiths has recently delivered avionics equipment for the first F-35 Joint Strike
Fighter, which is expected to make its initial flight in 2006. Similarly, the
company has delivered the first hardware and software for the C-130 AMP, a
programme to modernise up to 500 of the US AirForce's now elderly transporters.
Recent awards will help sustain military business in the longer term. Smiths
is teamed with Lockheed Martin on the US101 Presidential helicopter fleet, and
Northrop Grumman has selected the landing gear system for the X-47B J-UCAS
unmanned aircraft from recently acquired Integrated Aerospace. In Europe, the
partner nations have reached agreement on the production of Tranche 2 of
Eurofighter, for which Smiths supplies a number of systems.
Construction has commenced on the second phase of the Smiths Aerospace plant in
Suzhou, China, which will double capacity to 130,000 sq ft by 2006. In Poland,
a plant acquired with DGT has been expanded and is now delivering engine
components to Pratt & Whitney.
Smiths Detection
£m 2005 2004
Sales 153 143
Headline operating profit 21 18
Margin 13% 12%
In the relatively short time since it was established, Smiths Detection has
reached a market-leading position in the supply of detection equipment to
military, homeland security and customs authorities. The increasing breadth of
the business offers a wider range of detection and identification technologies
than its competitors, and benefits from a truly global sales footprint.
In the first half of this year, sales were up 10% and headline profit up 22% on
a constant currency basis. The timing of large orders and deliveries, coupled
with the effect of US government spending cycles, continues to impact the
performance of the division considerably from one reporting period to the next.
Sales to government bodies tend to be skewed to the second half of Smiths' year,
and deliveries are expected to increase during the balance of the year.
While aviation security is still the largest market, at a third of divisional
sales, it is now well balanced by other applications including military, first
responder/hazmat teams, critical infrastructure, ports & borders and
non-security applications. The ports & borders market is growing rapidly.
Smiths makes very large X-ray units capable of quickly inspecting freight
containers without opening them. Whilst initially they were used to prevent
transhipment of contraband, recent growth has come equally from the drive to
eliminate terrorist threats in cargo. Deliveries to New Zealand Customs and a
new contract with the Australian government have been among the most significant
applications of this technology during the half year. Additionally, the prison
authorities in New South Wales ordered equipment to prevent illicit or
threatening items being smuggled into prisons.
Military business continues to grow, confirming Smiths as a world leader in
chemical agent detectors. In the US, the company has secured a valuable
follow-on order from the Department of Defense under the Automated Chemical
Agent Detector and Alarm (ACADA) programme. In Holland, an order for chemical
agent detectors has been won from the Royal Netherlands Army and in the UK, the
Ministry of Defence has awarded Smiths a £20m contract for the Lightweight
Chemical Agent Detector (LCAD), which can be worn by troops.
With R&D now at 8% of sales, investment is focused on new-generation biological
detection capability, high frequency imaging systems and a stream of new
products which will keep Smiths at the forefront of the detection industry.
Recent additions to the range include:
X-ray equipment which provides aviation-level security to public buildings,
schools and business mailrooms; an Ionscan desktop trace detection machine that
searches simultaneously for narcotics and explosives; and an upgraded Sentinel
II walk-through explosives detection portal, which has been deployed at some of
the busiest US airports.
Smiths is also working with the US Transportation Security Administration (TSA)
on pilot programmes to scan passenger documents for signs of explosives and to
improve aircargo screening, using trace detection equipment.
In this period, the division secured new orders for airport security equipment,
both trace and X-ray, from authorities in Algeria, Australia, Korea, Mexico and
Senegal, and from Luton Airport in the UK.
Smiths Medical
£m 2005 2004
Sales 237 234
Headline operating profit 39 39
Margin 17% 17%
With more than two thirds of its profit generated in North America, the reported
performance of Smiths Medical is significantly affected by the translation
impact of the US dollar's decline compared with a year earlier. While appearing
steady year-on-year as reported, on a constant currency basis sales grew by 6%
and headline profit by 7%. Growth would have been higher but for the withdrawal
from third-party products in Japan.
Over the past six months the focus has been on operational improvement to give
the division a competitive advantage. Individual business units have been
brought within an integrated structure for manufacturing, and this will be
extended to administration and supply chain management. Production is being
concentrated in fewer locations and the majority of assembly work is carried out
in Tijuana, Mexico.
In the single-use sector, Smiths has continued to benefit from strong demand for
devices which prevent accidental needlestick injuries. Hospitals in the US are
still some way from being fully compliant with the requirement to use safety
products, and the transition is driving above-average growth rates. Smiths is
installing additional capacity and will shortly introduce a new generation, low
dead space hypodermic NeedlePro, the LDS Edge, which maintains technical
leadership for the highly-respected Portex brand.
Single-use airway management, critical care and assisted reproduction devices
are all achieving organic sales growth. DHD Healthcare has received the US Food
& Drug Administration's 510(k) approval to launch the innovative Aquinox heated
airway humidification device, an early benefit from this acquisition made last
June.
Medication delivery and patient monitoring equipment also contributed to Smiths
Medical's growth. The Deltec Cozmo insulin pump is selling strongly in the US.
Now offered with a combined blood/glucose monitor, developed in partnership with
Abbott Laboratories, the Cozmonitor has a distinct competitive advantage.
Additionally, pump users will shortly be offered the new Cleo introducer, which
allows them to place the disposable insulin catheter more securely under their
skin. The opportunities beyond the US are still opening up, and Cozmo has been
launched in another eight countries, starting with those where reimbursement is
available. Ambulatory and hospital infusion, pain management, vital signs and
vascular access products continue to sell well, combining original equipment
with the valuable supply of disposables. A new emergency resuscitator for first
responders, the Pneupac VR1, has just been launched. It is the first to be
powered by the ambulance's own oxygen supply, eliminating the need for
batteries.
In Japan, where Smiths Medical is the market leader in anaesthesia and
respiratory care, the low margin third party products have been dropped,
warehousing has been outsourced, and seven locations will soon be reduced to a
single, purpose-built facility, resulting in efficiency gains.
Specialty Engineering
£m 2005 2004
Sales 440 430
Headline operating profit 54 51
Margin 12% 12%
Specialty Engineering delivered a strong first half performance, with sales up
by 9% and headline profit by 14% on a constant currency basis. All businesses
achieved higher sales and profits in constant currency and, overall, Specialty
Engineering contributed 36% of Smiths' headline operating profit, entirely in
cash and after absorbing £3m in restructuring costs.
John Crane is a truly global operation and its performance varied by region. In
the Americas, it moved ahead strongly, securing an important contract in the US
to supply seals for the grain processing plants operated by Archer Daniels
Midland, and benefiting from good business in Venezuela. In the rest of the
world, the pattern was mixed: while business in Europe and Asia, including
China, was strong, the important Middle East market for oil & gas production
continued to suffer from political instability.
Recent John Crane initiatives are starting to show a return: orders are being
received from Gazprom via the joint venture established in Russia; long-term
shared success contracts for aftermarket business are being secured on the
Performance Plus contract basis, now comprising 32 contracts in 12 countries;
and customer specifications are being matched more swiftly by involving the
software centre co-located with the Indian subsidiary in Bangalore.
Significantly, John Crane has generally been able to pass on its higher raw
material costs.
Interconnect's sales and profits increased in this period, driven by positive
market dynamics in the military, aerospace and telecoms sectors. The microwave
components business is performing particularly well. Its products are finding
new applications in integrated defence communications systems and in medical
electronics, including hospital scanners. A new, highly-advanced silicon
dioxide cable has recently been added to the range. Sales of electronic
connectors and filters were also ahead, although there has been some softness in
the European market while awaiting orders for Tranche 2 of Eurofighter.
Recent acquisitions have been quickly integrated, and the extended product range
gives Smiths a competitive advantage in meeting more complex specifications.
Flex-Tek is performing well and, with higher sales to both HVAC and domestic
appliance customers, margins have improved. Increased raw material costs,
particularly steel and nickel, have been offset by productivity gains and, with
a Malaysian plant now fully operational, Flex-Tek remains competitive in an
industry well used to global component sourcing. The Vac-U-Store hose, which
can be fully retracted into the body of a vacuum cleaner, has secured its first
application, and there is great interest from other customers.
The Marine business improved its profitability as a result of increased naval
business, although sales for commercial shipping were flat.
International Financial Reporting Standards
Progress continues on the transition towards International Financial Reporting
Standards (IFRS), under which 2005/2006 results will be reported. The first
time Smiths will report under IFRS will be on the interim Accounts to 31 January
2006.
The Board
On 20 January, Einar Lindh retired after 28 years' service with the company,
including nine years on the Board, most recently as Group Managing Director,
Specialty Engineering.
Prospects
Smiths is building on its strong market positions, benefiting from investment
in new product R&D, productivity gains and recent acquisitions. With broadly
favourable market environments, Smiths is capitalising on available
opportunities to generate continuing growth.
Dividend
The Board has declared an interim dividend of 9.25p an increase of 6%, and the
first time the interim dividend has been increased for four years. The level of
increase for the full year will be considered in six months' time. The interim
dividend will be paid on 27 April 2005 to holders of all ordinary shares whose
names are registered at the close of business on 29 March. The ex-dividend date
will be 23 March.
Tables attached
- Profit & loss account
- Statement of total recognised gains and losses
- Summarised balance sheet
- Cash-flow statement
- Notes to the accounts
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 (unaudited)
6 months ended 31 January 2005
Ordinary Goodwill Exceptional
activities amortisation items Total
Note £m £m £m £m
Continuing operations 1,339.2 1,339.2
Acquisitions 5.2 5.2
Discontinued businesses
Turnover 2 1,344.4 1,344.4
Continuing operations 152.2 (21.6) (7.6) 123.0
Acquisitions 0.9 (0.5) 0.4
Discontinued businesses
Operating profit 153.1 (22.1) (7.6) 123.4
Exceptional items -
Exceptional property profit
Profit/(loss) on disposal of
businesses
Profit before interest and tax 153.1 (22.1) (7.6) 123.4
Net interest payable (5.9) (5.9)
Other finance income
- retirement benefits 7.5 7.5
Profit before taxation 154.7 (22.1) (7.6) 125.0
Taxation (40.2) 2.2 2.3 (35.7)
Profit after taxation 114.5 (19.9) (5.3) 89.3
Dividends 4 (52.0) (52.0)
Retained profit 62.5 (19.9) (5.3) 37.3
Earnings per share 5
Basic 20.4p (3.6p) (0.9p) 15.9p
Diluted 20.3p (3.6p) (0.9p) 15.8p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES (unaudited) 2005
£m
Profit for the period year attributable to shareholders 89.3
Exchange loss (8.7)
80.6
PROFIT AND LOSS ACCOUNT (unaudited)
6 months ended 31 January 2004
Ordinary Discontinued Goodwill Exceptional
activities Businesses amortisation items Total
Note £m £m £m £m
Continuing operations 1,263.7 1,263.7
Acquisitions
Discontinued businesses 55.0 55.0
Turnover 2 1,263.7 55.0 1,318.7
Continuing operations 140.7 (18.9) (9.6) 112.2
Acquisitions
Discontinued businesses 2.2 (1.9) 0.3
Operating profit 140.7 2.2 (20.8) (9.6) 112.5
Exceptional items -
Exceptional property profit
Profit/(loss) on disposal 2.6 2.6
of
businesses
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
- 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
Dividends 4 (49.1) (49.1)
Retained profit 48.7 (0.2) (19.0) (8.6) 20.9
Earnings per share 5
Basic 17.5p (3.4p) (1.6p) 12.5p
Diluted 17.5p (3.4p) (1.6p) 12.4p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES (unaudited) 2004
£m
Profit for the period year attributable to shareholders 70.0
Exchange loss (35.0)
35.0
PROFIT AND LOSS ACCOUNT (unaudited)
Year ended 31 July 2004
Ordinary Discontinued Goodwill Exceptional
activities Businesses amortisation items Total
Note £m £m £m £m
Continuing operations 2,678.4 2,678.4
Acquisitions
Discontinued businesses 55.0 55.0
Turnover 2 2,678.4 55.0 2,733.4
Continuing operations 360.1 (37.1) (30.9) 292.1
Acquisitions
Discontinued businesses 2.2 (1.9) 0.3
Operating profit 360.1 2.2 (39.0) (30.9) 292.4
Exceptional items -
Exceptional property profit 12.1 12.1
Profit/(loss) on disposal 7.8 7.8
of
businesses
Profit before interest and tax 360.1 2.2 (39.0) (11.0) 312.3
Net interest payable (13.0) (2.4) (15.4)
Other finance income
- retirement benefits 3.2 3.2
Profit before taxation 350.3 (0.2) (39.0) (11.0) 300.1
Taxation (92.8) 4.4 1.2 (87.2)
Profit after taxation 257.5 (0.2) (34.6) (9.8) 212.9
Dividends 4 (151.6) (151.6)
Retained profit 105.9 (0.2) (34.6) 9.8 61.3
Earnings per share 5
Basic 45.9p (6.2p) (1.7p) 38.0p
Diluted 45.8p (6.2p) (1.7p) 37.9p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES (unaudited) 2004
£m
Profit for the period year attributable to shareholders 212.9
Exchange loss (45.0)
Taxation recognised on exchange gains/losses:
Current - United Kingdom (0.4)
FRS17 - Retirement Benefits:
Actuarial gains/(losses) on retirement benefit schemes - gross 145.5
Deferred tax credit related thereto (39.3)
273.7
SUMMARISED BALANCE SHEET (unaudited)
31 January 31 January 31 July
2005 2004 2004
Note £m £m £m
Fixed assets
Intangible assets 748.6 579.8 728.2
Tangible assets 434.6 413.5 423.5
Investments and advances:
Automotive 325.0 325.0 325.0
Other 2.9 2.1 2.3
1,511.1 1,320.4 1,479.0
Current assets
Stocks 484.9 416.7 423.5
Debtors 628.4 580.7 629.6
Cash at bank 343.0 494.2 449.2
1,456.3 1,491.6 1,502.3
Creditors: Amounts falling due within one year (1,045.1) (715.5) (1,077.1)
Net current assets 411.2 776.1 425.2
Total assets less current liabilities 1,922.3 2,096.5 1,904.2
Creditors: Amounts falling due after one year (490.7) (713.0) (499.6)
Provisions for liabilities and charges (116.1) (114.6) (120.0)
Net assets excluding pension assets/ liabilities 1,315.5 1,268.9 1,284.6
Pension assets 77.4 36.4 72.7
Retirement benefit liabilities (228.7) (321.4) (234.8)
Net assets 1,164.2 983.9 1122.5
Capital and reserves
Share capital and share premium account 331.0 320.6 323.3
Reserves 833.2 663.3 799.2
Capital employed 8 1,164.2 983.9 1,122.5
CASH-FLOW STATEMENT (unaudited)
6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2005 2004 2004
£m £m £m
Note
Operating profit (before exceptional restructuring costs) 131.0 122.1 323.3
Goodwill amortisation 22.1 20.8 39.0
Depreciation 35.2 37.4 72.1
Retirement benefits (3.6) 2.8 (22.9)
(Increase) in stocks (56.9) (14.2) (2.4)
Decrease/(increase) in debtors 9.1 (10.0) (78.8)
(Decrease)/increase in creditors (6.9) (2.8) 52.6
Net cash inflow from normal operating activities 130.0 156.1 382.9
Exceptional restructuring expenditure (9.9) (6.2) (23.0)
Net cash inflow from operating activities 120.1 149.9 359.9
Returns on investments and servicing of finance 6.3 3.8 10.5
Tax paid (43.5) (39.5) (61.5)
Capital expenditure and financial investment (47.0) (29.9) (53.9)
Acquisitions and disposals 6 (57.7) 490.0 291.4
Equity dividends paid (102.5) (96.5) (145.6)
Management of liquid resources 99.7 (414.3) (383.7)
Financing 2.9 5.6 21.2
(Decrease)/increase in cash (21.7) 69.1 38.3
(Decrease)/increase in short-term deposits (99.7) 414.3 383.7
Decrease/(increase) in other borrowings 8.4 2.5 (10.9)
Loan note repayments 2.7 2.9
Exchange variations (5.9) 20.7 28.4
(Increase)/decrease in net debt (118.9) 509.3 442.4
Net debt at beginning of period (272.7) (715.1) (715.1)
Net debt at end of period 7 (391.6) (205.8) (272.7)
NOTES TO THE ACCOUNTS (unaudited)
1. Accounting policies
The accounting policies used in preparing the interim financial statements are
consistent with those used in the annual financial statements for 2004.
2. Analyses of turnover and profit
6 months ended 6 months ended Year ended
31 January 2005 31 January 2004 31 July 2004
Turnover Profit Turnover Profit Turnover Profit
£m £m £m £m £m £m
Market
Aerospace 514.0 38.9 456.9 33.0 1,005.8 99.7
Detection 152.9 20.5 142.8 17.8 317.1 55.6
Medical 236.7 39.3 234.1 39.1 487.7 91.6
Specialty Engineering 440.8 54.4 429.9 50.8 867.8 113.2
1,344.4 153.1 1,263.7 140.7 2,678.4 360.1
Discontinued businesses 55.0 2.2 55.0 2.2
1,344.4 153.1 1,318.7 142.9 2,733.4 362.3
Goodwill amortisation (22.1) (20.8) (39.0)
Exceptional items (7.6) (7.0) (11.0)
Profit before interest and tax 123.4 115.1 312.3
Net interest (5.9) (11.2) (15.4)
Retirement benefits
Net finance income 7.5 1.2 3.2
Profit before taxation 125.0 105.1 300.1
Geographical origin
United Kingdom 368.0 13.4 366.3 17.2 784.9 46.0
North America 776.6 94.3 702.9 81.6 1,472.6 221.0
Europe 227.3 32.6 230.7 31.1 471.7 69.5
Other overseas 104.8 12.8 85.7 10.8 188.6 23.6
Inter-company (132.3) (121.9) (239.4)
1,344.4 153.1 1,263.7 140.7 2,678.4 360.1
NOTES TO THE ACCOUNTS
3. Exceptional items
6 months ended 6 months ended Year ended
31 January 2005 31 January 2004 31 July 2004
£m £m £m
Operational restructuring (7.6) (9.6) (30.9)
Exceptional property profit 12.1
Profit on disposal of businesses 2.6 7.8
(7.6) (7.0) (11.0)
Exceptional restructuring costs of £7.6m (2004: £9.6m) have been charged against
operating profit in respect of the continuing programme for improving
competitiveness in Aerospace and the rationalisation of distribution in Medical.
4. Dividends
An interim dividend of 9.25p per share (2004: 8.75p) has been declared and will
be paid on 27 April 2005 to holders of all ordinary shares whose names are
registered at close of business on 29 March 2005.
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 31 January Year ended 31 July
2005 2004 2004
Basic 561,914,824 560,171,050 560,656,310
Effect of dilutive share options 2,366,714 896,887 893,394
Diluted 564,281,538 561,067,937 561,549,704
NOTES TO THE ACCOUNTS
6. Acquisitions
During the period the major acquisition was the issued capital of Integrated
Aerospace, Inc. The fair values set out below are provisional, and will be
finalised in subsequent financial statements.
Date of acquisition Consideration Goodwill Net assets
£m £m £m
Businesses acquired
Integrated Aerospace 23.11.04 56.6 47.9 8.7
Other 4.0 1.7 2.3
60.6 49.6 11.0
Cash received on forward contract (2.9)
Net expenditure on acquisitions 57.7
During the period the Company was in receipt of a cash inflow of £2.9m net of
expenses in respect of a hedging transaction related to the acquisition of Medex
Inc. This sum will be set against the subsequent cost of acquisition. 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 periods of up
to 20 years.
7. Borrowings and net debt
31 January 31 January 31 July
Fixed Floating 2005 2004 2004
£m £m £m £m £m
Maturity:
On demand/under one year 4.1 287.9 292.0 47.3 275.4
One to two years 0.3 0.3 206.3 0.4
Two to five years 0.9 0.9 1.0 0.8
Greater than five years:
Bank loans 11.1 11.1 11.3 10.8
TI Eurosterling bond 2010 149.0 149.0 148.8 148.9
Smiths US private placement 2013 53.2 79.8 133.0 137.3 137.4
Smiths Eurosterling Bond 2016 148.3 148.3 148.0 148.2
366.9 367.7 734.6 700.0 721.9
Cash and deposits (343.0) (494.2) (449.2)
Net debt 366.9 367.7 391.6 205.8 272.7
NOTES TO THE ACCOUNTS
8. Movement in shareholders 'equity
6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2005 2004 2004
£m £m £m
Profit for the period 89.3 70.0 212.9
Dividends (52.0) (49.1) (151.6)
37.3 20.9 61.3
Exchange variations (8.7) (35.0) (45.0)
Taxation recognised on exchange gains/(losses):
Current - UK (0.4)
Share issues 7.7 10.8 13.2
ESOP Trusts - disposal of company shares 5.4
Goodwill written back on disposals 130.0 130.0
Actuarial gains and losses on retirement benefits schemes - gross 145.5
Deferred tax charge related thereto (39.3)
Net increase in shareholders' equity 41.7 126.7 265.3
Shareholders' equity:
At 1 August 1,122.5 857.2 857.2
1,164.2 983.9 1,122.5
NOTES TO THE ACCOUNTS
9. Contingent liabilities
As previously reported, John Crane, Inc ('John Crane'), a subsidiary of the
Company, is one of many co-defendants in numerous law suits pending in the
United States in which plaintiffs are claiming damages arising from exposure to,
or use of, products containing asbestos. The John Crane products generally
referred to in these cases are ones in which the asbestos fibres were
encapsulated in such a manner that, according to tests conducted on behalf of
John Crane, the products were safe. John Crane ceased manufacturing products
containing asbestos in 1985.
John Crane has resisted every case in which it has been named, and will continue
its robust defence of all asbestos-related claims based upon this 'safe product'
defence. In addition, John Crane has access to insurance cover which, while it
is kept under review, is judged sufficient to meet all material costs of
defending these claims for the foreseeable future.
As a results of its defence policy, John Crane has been dismissed before trial
from cases involving approximately 102,000 claims over the last 26 years. John
Crane is currently a defendant in cases involving approximately 179,000 claims.
Despite these large numbers of claims, John Crane has had final judgments
against it, after appeals, in only 43 cases, amounting to awards of some US$30m.
These awards, the related interest and all material defence costs have to date
been met in full by insurance. No provision relating to this litigation has
been made in these accounts.
In common with many other enterprises of similar size, the Company and its
subsidiaries are from time to time engaged in litigation in respect of a variety
of commercial issues. No provision relating to such litigation has been made in
these accounts.
Note: As stated in note 1, the above financial statements have been prepared in
accordance with the accounting policies set out in the company's accounts for
the year ended 31 July 2004. They do not constitute the full financial
statements within the meaning of S240 of the Companies Act 1985. Figures
relating to the year ended 31 July 2004 are abridged. Full accounts for Smiths
Group plc for that period have been delivered to the Registrar of Companies.
The auditors' report on those accounts was unqualified and did not contain a
statement under S237(2) or S237(3) of the Companies Act 1985.
-ends-
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