LONDON (ShareCast) - (Sharecast News) - Smiths Group reported a decline in first-half profits and said it aims to demerge and float its medical devices arm by the middle of next year.
Following the decision to separate Smiths Medical, which was announced in November, the directors have begun the search for a chief executive for the separated business ahead of spin-off process that will need the approval of the group's shareholders.

Smiths CEO Andy Reynolds Smith said demerging Smiths Medical "will lead to two stronger companies each focusing on accelerating the execution of their plans and maximising the opportunities in their respective markets".

The board believes a separated Smiths will be better able to concentrate on "growing as a leading industrial technology group", while being free of the rest of the group will enable Smiths Medical to realise "its full potential... its large programme of new product launches and value creating opportunities in its rapidly changing market".

Excluding Medical, the rest of the group grew revenue 3% in the six months to 31 January and operating profits grew 2%. Excluding Medical, headline operating margin improved 10 basis points.

But as an entire conglomerate, revenue was up 2% to £1.57bn, with growth from John Crane, Flex-Tek and Smiths Interconnect, but operating profits of £246m were down 2% on an underlying basis and 1% on a reported basis. Headline earnings per share of 40.2% were down 2% on an underlying basis.

Smiths Medical saw underlying revenue fall 3% and underlying operating profits decline 12% as margins were, as expected, squeezed by the disruption of the transition to a new notified body in Europe, though this is now abating.

Statutory PBT, after including pension costs, amortisation and other 'exceptional' costs, fell 13% to £174m but post tax profits and statutory EPS were higher due to the previous year being affected by changes to US tax legislation.

Free cash flow shrank 37% to £71m as the cash conversion rate was hit by inventory build ahead of second-half order and the impact of the US government shutdown, though the total dividend was still lifted 2.2% to 14.1p.

Reynolds Smith said the decline in Smiths Medical and the timing of deliveries in Smiths Detection were both anticipated and are both "on track to deliver growth in the second half".

Overall, he reiterated full-year guidance for "at least" 2% underlying revenue growth for group.

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