Smiths Group profits dips on energy market downturn

Firm unveils plans to boost R&D spending by £20m in the coming year

British engineering company Smiths Group has reported a 2% fall in pre-tax profit to £451 million for the year ended 31 July 2016.

The company posted a 2% increase in revenue for the 12-month period to £1.9 billion.

The firm’s group chief executive Andy Reynolds Smith has been reshaping the company since he joined from GKN in September 2015. He plans to strip non-core parts of the business and increase spending on R&D by £20 million in the next year – it spent £87 million on new research in the year to August.

In the year, Smiths’ John Crane division, which makes mechanical seals and bearings for the energy industry, continued to suffer from the depressed oil price.

However, its medical business, which supplies devices and disposable equipment, increased sales by 5% to £874 million. It spent £52 million on R&D, including launching a new syringe pump in China and expanding its online patient portal to take payments and access health records in Australia, New Zealand, the UK and Middle East.

The company’s detection business spent £28 million on developing new technology in the year, including in X-ray machines that can spot traces of explosives and chemical warfare detection devices aimed at the military.

Meanwhile, its two electronic components businesses, Smiths Interconnect and Flex-Tek, which serve the defence, telecoms, aerospace and medical industries, also grew in line with expectations.

Reynolds Smith said: "Smiths Group delivered a robust performance this year. We achieved good growth in headline operating profits with associated margin expansion in our medical, detection and interconnect divisions, driven by revenue growth and business improvement initiatives.

“However, significant headwinds in the global energy markets impacted John Crane, primarily in the sales of first-fit equipment; aftermarket was more resilient with underlying revenue down 4%. For Smiths Group as a whole, more than half of our revenue continued to come from the recurring aftermarket for our products and services,” he added.