Smiths Group FY profit slips amid tough markets for John Crane division

Smiths Group posted a drop in profits for the year to the end of July as its John Crane division suffered amid tough conditions in the global energy markets, but the results were still better than expected.

Reported pre-tax profit fell 2% to £451m on revenue of £2.95bn, up 2% on a reported basis but down 2% on an underlying basis. Statutory pre-tax profit, meanwhile, rose to £346m from £325m.

The board recommended a final dividend per share of 28.75 pence, giving a total dividend for the year of 42p, up 2.4% year-on-year.

Smiths said its John Crane oil services division experienced tough trading conditions as volatility in the global energy markets continued to reduce demand. Revenue in Smiths Interconnect and Flex-Tek was slightly down on the prior year on an underlying basis. On a reported basis, group revenue grew 2%, benefitting from foreign exchange, and in particular the strength of the US dollar.

Chief executive Andy Reynolds Smith said: “Smiths Group delivered a robust performance this year. We achieved good growth in headline operating profits with associated margin expansion in our Medical, Detection and Interconnect divisions, driven by revenue growth and business improvement initiatives.

"However, significant headwinds in the global energy markets impacted John Crane, primarily in the sales of first-fit equipment; aftermarket was more resilient with underlying revenue down 4%. For Smiths Group as a whole, more than half of our revenue continued to come from the recurring aftermarket for our products and services.”

The company said it expects a broad continuation of the trends experienced in 2016, with ongoing challenges in John Crane’s end markets offset by moderate underlying revenue growth in its other divisions.

It added that as is typically the case, group performance in 2017 is expected to be weighted towards the second half.

Credit Suisse said the results for the second half were “strong” and that operating profit of £510m was positive compared to the group’s pre-announcement of “above 473m but below £511m".

The bank lifted its price target on the outperform-rated stock to 1,550p from 1,275p on the back of the results.

“We continue to see an attractive investment thesis in Smiths based on reinvestment for growth and portfolio pruning and believe our new estimates remain conservative.”

At 1230 BST, the shares were up 3% to 1,429p.