Industrial components maker Smiths Group (SMIN) said it was looking forward to its future as a more focused group with higher margins since selling off its medical division at the start of the year.
The firm reported strong demand across most of its end markets in the first half of its current financial year, as well as the early repayment of some of its debt and the first tranche of its substantial share buyback.
STRATEGIC PROGRESS
Smiths, which makes fluid management products, industrial seals, electronic components and security scanners, said it had seen good order growth across its end markets.
Revenues for the six months to the end of January rose by 3.4% on an underlying basis to £1.19 billion.
Tight cost management, despite rising input price inflation, meant underlying operating profits rose 11.1% to £189 million and the operating margin increased to 15.9% from 14.5% the previous year.
The bump in margins and better working capital discipline helped lift return on capital employed, a key measure of profitability for firms, from 10.3% to 14%.
Commenting on the results, chief executive Paul Keel said the first half demonstrated the ‘meaningful progress’ the firm was making towards its medium-term targets set out last year.
The disposal of the medical division was ‘an important milestone’ for the group, said Keel.
‘This has enabled us to simplify our business, focus on our higher-performing, more strategically-aligned industrial technology core, whilst investing for growth, deleveraging and returning surplus capital to our shareholders.’
During the period, Smiths repaid $400 million of borrowings and completed a quarter of its £742 million share buyback.
HIGHER GROWTH AND MARGINS
For the second half the firm is forecasting continued demand in most of its customer end markets, with the caveat of a ‘more challenging’ original equipment market for its aviation division.
Despite increased geopolitical uncertainty, Keel stuck to his 3% organic revenue growth guidance for the full year.
Over the medium term, the firm is targeting organic sales growth of between 4% and 6% and underlying earnings per share growth of between 7% and 10% with additional upside from bolt-on acquisitions.
Operating margins are forecast to rise to between 18% and 20% which should help lift return on capital employed to a range of 15% to 17%.
Smiths’ shares eased 1.8% to £14.90 although they have had a good run since the invasion of Ukraine on widespread buying of defence-related stocks.
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