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29 September 2009

£m Headline*     Statutory
Continuing activities 2009 2008 Growth Underlying# 2009 2008
Sales 2,665 2,321 15% (7)% 2,665 2,161
Operating profit 418 381 10% (13)% 429 326
Operating margin 15.7% 16.4% - - 16.1% 14.0%
Pre-tax profit 371 380 (2)% (21)% 371 319
Basic EPS 72.4p 74.5p (3)%   70.8p 63.0p
Free cash flow 256 91        
Dividend 34.0p 34.0p     34.0p 34.0p

*In addition to statutory reporting, Smiths Group reports its continuing operations on a headline basis. Headline profit is before exceptional items, amortisation of acquired intangible assets, profit/loss on disposal of businesses and financing gains/losses. Free cash flow is described in the Financial review.
#Organic growth at constant currency.

During this period of economic uncertainty, we have delivered headline operating profit ahead of last year reflecting favourable exchange rates, strong organic growth in John Crane, significantly lower corporate overheads, cost reductions in the divisions as well as the benefit of recent acquisitions. Our focus on working capital management has delivered improved cash conversion with free cash-flow increased to £256m.

Our attention has been focused on driving operational efficiencies through our self-help programme and by upgrading our business systems. The restructuring programme that began last year has delivered savings to date of £17m in line with our original plans. Our Group-wide procurement programme also delivered savings of £9m with another £11m planned for next year.

At the same time, we have continued to invest in opportunities to support top-line growth for when markets recover. We have increased our R&D investment to drive the next generation of high margin products. Our targeted acquisition strategy has enhanced the product portfolio and increased our exposure to faster growing markets through three acquisitions, two of which were in China.

The business environment deteriorated dramatically in the past year and, while Smiths Group has not been immune to the economic challenges, it remains well placed to benefit in the longer term from markets with secular growth prospects. I believe there are still significant opportunities to improve the performance of the business. Our priority for the coming year is to deliver further cost saving initiatives and to continue to generate strong free cash-flow whilst investing in future growth.

Philip Bowman

Chief Executive
Smiths Group plc


Key developments*

  • Strong free cash flow generation of £256m and year end net debt at £885m
  • Restructuring programmes delivered cost savings of £17m to date
  • Rationalisation of the corporate HQ complete with a 18% underlying decrease in costs
  • Better data systems are supporting procurement savings - £9m in the year with a further £11m targeted next year
  • Underlying increase in Group R&D investment of 3% to £105m (+22% at reported exchange rates)
  • Extended our product portfolio and presence through three acquisitions
  • Action to reduce the pension liabilities has resulted in a deficit of £339m, reduced from £464m at 31 January
  • US$675m of additional long-term debt capital raised to extend our maturity profile

Business highlights*

Smiths Detection: Reported sales down 2%; underlying sales down 17%

  • Restructuring programme underway to deliver greater flexibility to the cost base
  • Continued delays to contract tenders, particularly in the ports and borders area, held back sales – although the trend has improved since the year end
  • Military business has posted a record year with strong growth from the JCAD programme

John Crane: Reported sales up 26%; underlying sales down 1%

  • Aftermarket sales held up while first-fit (OEM) sales have declined as customers reduce their capex spend
  • Restructuring initiatives delivered £6m savings
  • Acquisition of Orion provides North American base for John Crane Bearing Technology

Smiths Medical: Reported sales up 19%; underlying sales down 2%

  • Sales and profit adversely affected by our exit from the diabetes market
  • Sales of single-use devices have held up better than hardware
  • Operational improvements have reduced customer backorders to a five year low
  • Extended presence in China through acquisition of syringe pump company

Smiths Interconnect: Reported sales up 22%; underlying sales down 5%

  • Several long-term military programmes have delivered underlying revenue growth offset by lower sales to wireless
  • Margins constrained by restructuring costs, mix and lower volumes
  • Increased wireless telecom capabilities in Asia through acquisition in China

Flex-Tek: Reported sales up 8%; underlying sales down 15%

  • Sales continue to be affected by the recession in US residential construction although market share increased
  • Sales of components to the aircraft industry were broadly stable
  • Rationalisation programme and other pricing and cost initiatives helping preserve margins

*Underlying figures are at constant currency and exclude the impact of acquisitions and disposals


You can click here to view the full press release.

The presentation slides and a live webcast of the presentation to analysts is available at

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