Smiths Group will announce its preliminary results for the year ended 31 July, 2005, on Thursday, 22 September. At the start of its close period the company is issuing the following trading update, based on estimates and subject to adjustment.
As forecast at the time of the interim results, the strong sales and profit growth momentum seen in the first six months has been sustained through the full year.
Sales have increased by 11%, and headline* operating profit is expected to be approximately 16% ahead of the prior year, reflecting a half percent net margin improvement. All four divisions are expected to have achieved double-digit improvements in operating profit. This divisional performance has been achieved despite a currency translation impact of approximately £11m caused primarily by the weaker dollar, and a higher level of investment in R&D. In addition to good organic growth, recent acquisitions have made a valuable contribution, and their integration is proceeding well.
The company expects to report an increase in pre-tax profit of around 17%, resulting in headline* earnings per share in line with the market consensus of 54p, compared with 45.9p in 2004.
Net debt at the year-end will be in the region of £950m, principally due to recent acquisitions. Increased capital expenditure and a higher level of working capital is expected to result in a lower than normal conversion of operating profit into cash. Exceptional charges are likely to be in the region of £50m, comprising the second year of the restructuring programme commenced in 2004, the initial phase of Medex integration and the settlement of the litigation involving the Cozmo diabetes pump.
Following publication of the 2005 Accounts, the results will be restated under International Financial Reporting Standards (IFRS), to allow easier comparison with the years ahead. As indicated in July, had IFRS been adopted for 2005, the effect would have been to increase pre-tax profit by about 6% compared with the current UK GAAP basis. For the new financial year to July 2006, the company will publish its results using IFRS.
The company is confident of the prospects for growth in 2006. In the sectors important to Smiths, the market outlook remains positive. Additionally, recent acquisitions are yielding synergy benefits, increased investment in product development is paying off, and the continuous productivity drive will enhance profitability.
* Headline profits and earnings per share are before exceptional charges and amortisation of goodwill.
The company will hold a conference call for analysts and investors at 2.00pm today, London time. The call can be accessed on:
UK toll free number: 0800 018 0764 US toll free number: 1-877 951 7311
Passcode: Year-End Leader: Russell Plumley
From 4.00pm, a recording of the call can be heard on:
UK toll free number: 0800 376 9053 US toll free number: 1-866 851 5334