Smiths Group reports solid growth as momentum picks up in H2

24th Sep 2024 07:17

(Sharecast News) - Smiths Group reported solid revenue growth against a record comparator in the year ended 31 July, but shares in the engineering solutions business dropped sharply as profits came in short of market forecasts.

Operating profit for the year increased by 7.1% on an organic basis to £526m helped by a 34-basis point improvement in the operating profit margin to 16.8%. However, pre-tax profit rose by 3.3% to £372m, well below the £413m expected by a consensus of analysts.

By 1101 BST, the stock was down more than 7% at 1,692p.

Smiths Group's top-line performance also underwhelmed, with revenues rising 5.4% organically to £3.13bn, compared with the £3.15bn market estimate.

Nevertheless, the company reported a pick-up in momentum over latter part of the year, with organic revenue growth of 3.9% in the first half accelerating to 6.8% in the second.

Growth was driven by a strong performance in its two larger business, John Crane and Smiths Detection, where full-year organic revenues grew by 9.8% and 11.1% respectively. This was able to offset a 0.8% organic decline at Flex-Tek and a 6.5% organic drop at Smiths Interconnect due to "more challenging end market dynamics" - though both businesses returned to growth in the second half.

Alongside its full-year figures, the company unveiled an "acceleration plan" designed to boost profitability and productivity. This will result in one-off costs of £60-65m over the next financial year, should result in £30-35m of annualised benefits from the period ending July 2027.

Operating cash conversion rose to 97%, from 86% the year before, while the company declared a final dividend of 30.2p, up 5.2%, bringing the total dividend to 43.75p, up from 41.6p previously.

Looking ahead, Smiths Group said it expects organic revenues to grow by a further 4-6% in the year ending July 2025, alongside continued margin expansion.

"I am also pleased to guide to further growth and margin expansion in FY2025 and reaffirm our medium-term financial targets. We are making good strategic, operational and financial progress, and all our businesses are well positioned for compelling value creation," said chief executive Roland Carter.

To coincide with its annual results, Smiths also unveiled the acquisitions of two "highly attractive" North American companies for a combined £110m.

Modular Metal Fabricators, a metal and flexible ducting manufacturer, will be integrated into Smiths' HVAC operations, while electric heating group Wattco will be bolted on to the Flex-Tek business.