Smiths Group shares fall as bottom line profits slump 35%
The UK engineering firm was knocked in part by higher R&D costs.
Smiths Group shares tumbled as the engineering firm reported a 42% slump in profits, having been knocked by higher research and development spending and the phasing in of a new detection business.
The company – known for producing security equipment and medical components – said pre-tax profits tumbled from £346 million to £199 million on a statutory basis in the year to January 31.
That was against a 4% fall in revenues to £1.5 billion.
It said the engineering firm was hit by adverse exchange rates, four divestments and the acquisition of Morpho Detection – which it bought from French firm Safran last year – as well as higher research and development costs in its medical division.
Smith Group’s Interconnect business – which “designs solutions” for high speed and secure connectivity for sectors like defence and aerospace – also weighed on results, with reported revenue growth down 41%.
Chief executive Andy Reynolds Smith said it had made an “encouraging” start to the new financial year, but laid bare the weakness felt in certain departments over the previous 12 months.
“As anticipated, Smiths Detection continued to achieve good growth in Air Transportation but this was offset by programme phasing in the non-aviation segments.
“Following a period of significant strategic and structural change at Smiths Interconnect, sales declined as the division completes its restructuring process.”
Smiths Group shares tumbled as much as 10% in morning trading.
Numis analyst David Larkam said the results left much to be desired.
“The results are a little disappointing and whilst we see some of the softness, ie more investment in Medical as arguably positive, the overall tenure is still not generating organic growth.”
The firm’s chief executive confirmed the company’s 2018 outlook, but said the weaker pound would continue to drag on the business.
Mr Reynolds Smith said: “The Group’s current trading, the strong order books in John Crane and Smiths Detection, as well as the substantial ongoing programme of new product launches in Smiths Medical, support our confidence that the Group’s growth rate will accelerate over the balance of the year.
“At current rates, foreign exchange will remain a headwind for the full year.”