Business review: Group
Smiths is a world leader in the practical application of advanced technologies, Smiths delivers products and services for the threat and contraband detection, energy, medical devices, communications and engineered components markets worldwide.
Sales increased by 3%, or £72m, to £2,842m. The net impact of acquisitions and disposals contributed £45m, partly offset by adverse currency translation on overseas sales of £3m. On an underlying basis, excluding currency translation and acquisitions, sales grew £30m. This increase was driven primarily by strong growth at John Crane (up £104m), Flex-Tek (up £12m) and Smiths Interconnect (up £9m) partly offset by underlying sales declines in Smiths Detection (£73m) and Smiths Medical (£22m).
Headline operating profit rose £25m to £517m. Headline operating margin increased by 40 basis points to 18.2% (2010: 17.8%). The growth comprises a £19m, or 4%, underlying increase in headline operating profit and £8m benefit from the net impact of acquisitions and disposals, partly offset by £2m from adverse currency translation. The main drivers of this £19m underlying improvement were higher volumes and cost savings at John Crane (up £25m), manufacturing and overhead efficiencies at Smiths Medical (up £13m), and higher volumes and prices at Flex-Tek (up £5m), partly offset by lower volumes at Smiths Detection (down £24m) and adverse mix and price at Smiths Interconnect (down £1m). Corporate centre costs were down £1m on last year reflecting lower bonus payments.
Operating profit on a statutory basis, after taking account of the items excluded from the headline figures, was £438m (2010: £436m).
The net interest charge on debt declined to £59m (2010: £62m) which reflects reduced average levels of debt. The pensions financing credit increased to £23m (2010: £2m), reflecting the improved funding level at 1 August 2010. Contribution from associates increased by £2m to £4m. As a result, headline profit before tax increased by £51m to £486m (2010: £435m). On an underlying basis, headline profit before tax grew by 11%.
On a statutory basis, after taking account of items excluded from the headline figure, profit before tax increased £25m to £398m (2010: £373m).
The Group’s tax rate on headline profit for the period was 25% (2010: 24%). Headline earnings per share increased by 10% to 92.7p (2010: 84.6p).
Operating cash generation remained strong, albeit below the high levels of the previous years. Headline operating cash of £489m (2010: £565m) represented 95% (2010: 115%) of headline operating profit. Cash conversion benefited in 2010 from reduced working capital arising from certain one-off initiatives. Free cash-flow declined £95m to £236m (2010: £331m). Free cash-flow is stated after interest and tax but before acquisitions, financing activities and dividends (see note 28 to the accounts for a reconciliation of headline operating cash and free cash-flow to statutory cash-flow measures).
On a statutory basis, net cash inflow from continuing operations was £322m (2010: £410m).
Dividends paid in the year on ordinary shares amounted to £136m (2010: £133m).
Net debt at 31 July was £729m, down from £837m at 31 July 2010. The decrease in net debt reflects the strong free cash-flow and outflows of £136m for dividends and £21m for the net effect of acquisitions and disposals.
Company-funded research and development
Increased by 5% to
Down £108m to
Increased by 7% to