Smiths books £130m loss on polymers sale to Swedes

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Smiths, the aerospace and defence group must write off £130m on the sale of its polymers division - Polymer Sealing Solutions - to Swedish firm Trelleborg.

The loss emerged when Smiths confirmed that the Swedish engineering company had won a four-way bid battle for the business, agreeing to pay £495m.

Smiths originally acquired the division in 2000 when it took over rival engineering group TI. The loss which Smiths must now book reflects the fall in the value of the division's assets.

The company said the "accounting loss" will be treated as an exceptional item because Smiths has already written off the reduction of goodwill on the assets.

Smiths said that the division, which makes seals for the aviation and automotive markets, made £378m of sales in 2002 - accounting for 12.3 per cent of sales from continuing operations - and an operating profit of £45m.

Smiths has felt for some time that the division did not have long-term future as part of the group and this deal is part of an ongoing plan by Smiths to divest itself of non-core parts of its industrial and sealing systems divisions to focus on its more profitable businesses - aerospace, medical equipment and detection devices.

The deal fuelled speculation that Smiths is on the acquisition trail for businesses which do fit with its strategy. Keith Butler-Wheelhouse, Smiths chief executive, said in a statement that the proceeds from the transaction would be used to reduce debt, but added: "We aim to continue to match buys with sells."

Analysts said the most likely targets for Smiths were in the medical or detection devices spheres. Smiths has been attempting to reposition itself as a growth business and in the past three years has sold off £470m of assets, which produced average margins of 10 per cent.

Over the same period it has spent £360m acquiring businesses yielding 14 per cent operating margins.

Trelleborg said the purchase of the division would boost its earnings per share with effect from next year and added that the deal would bring annual cost benefits of around 100m Swedish kronor (£7.64m).

Trelleborg also said in a statement that the purchase will increase its annual sales by more than a quarter from last year to Skr22.5bn