Multi-technology business Smiths Group is investing in R&D to drive future sales
Industrial conglomerate Smiths Group posted better than expected first-half figures despite the uncertain trading conditions. Pre-tax profits rose 25 per cent from the same period last year to £224m."The environment has not been easy either in the UK or globally," said Philip Bowman, chief executive of Smiths Group. "If you look on a global basis the impact of problems in North Africa and the Middle East and more recently the disaster in Japan has cast a significant shadow over the outlook.
"In terms of the UK, although Smiths Group is based here it only accounts for about 4 per cent of our revenue so it is not a major contributor to our earnings." On UK tax regimes Bowman would not be pushed about reports that the company may become a tax exile, simply stating that if a company such as Smiths Group was being assembled today it would not choose the UK as a base.
However there are still strong rumours that parts of the diversified group may be about to be sold off. The London-based company currently comprises five divisions that serve the energy, communication, engineered components, security and medical devices markets.
Earlier this year the medical division was subject to a cash offer of £2.45bn, which was rejected as being "not in the interest of the shareholders", but the rumours remain strong and a bid of closer to £3bn may prise the division loose.
"You can't operate as a business simply sitting back and saying that you are a takeover target," Bowman added. "We have some very high-quality businesses and what we have been seeking to do is drive up margins, drive up return on capital and improve profitability. We have also been strengthening these businesses by investing in the future in R&D and also by making bolt-on acquisitions – in the past three years we have made 15 acquisitions.
"Our focus on self-help initiatives and operational improvements across the Group has continued to boost margins to new levels. At the same time, we increased investment in future growth drivers, such as company-funded research and development, up 14 per cent and a higher spend on sales and marketing and customer service."
The company instigated a major restructuring programme in 2008 that to date has delivered savings of £45m against total planned savings of £70m when the project comes to completion in 2013.
Bowman stressed Smiths' commitment to new product development and innovation as a key driver of future sales and margin growth, saying: "We raised company-funded investment in R&D by 14 per cent to £49m and were successful in securing a further £7m of customer-funded investment to bring our total spend to £56m, or 4.0 per cent of sales.
Among the fruits of this investment, a new syringe pump with wireless networking, Medfusion 4000, has been licensed in Canada and is expected to be launched into other markets in the coming months, as will a new version of the successful CADD-Solis ambulatory infusion pump for delivering pain-relieving medication.
In Smiths Detection, the development of a next generation explosives detection system for screening airport checked baggage, in cooperation with Analogic Corporation, is meeting all of its programme milestones.