Smiths still has firepower for buyouts as profits surge

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The Independent Online

Smiths Group, the engineering and manufacturing company, says it still has plenty of firepower for further acquisitions despite spending nearly £500m on a medical equipment business last year.

Smiths Group, the engineering and manufacturing company, says it still has plenty of firepower for further acquisitions despite spending nearly £500m on a medical equipment business last year.

Keith Butler Wheelhouse, the group's chief executive, announced a 16 per cent rise in half-year profits to £155m yesterday and said Smiths generated so much cash that the acquisition of Medex, a US medical company, would not prevent further takeovers. "We are always looking for acquisitions and still have plenty of firepower. Our debt has gone up following the Medex deal, but we still have plenty of headroom to borrow a lot more. We produce free cash flow of £300m a year, so our debt is easily repaid," he said.

Excluding the Medex take-over, the group spent £280m on a number of acquisitions across its aerospace, detection, medical and specialist engineering divisions over the past six months.

Group sales were up 6 per cent at £1.34bn in the six months to the end of January on constant currency comparisons. A surge of growth in the civil aviation sector delivered a boost for Smiths' aerospace division. It saw a 17 per cent growth in sales over the first half and operating profits were up 24 per cent. While military spending on aerospace has remained flat, Smiths has benefited from contracts in the civil sector, with contracts for Airbus's new 555-seat A380 double-decker airliner, and Boeing's mid-sized 787 Dreamliner, which is due in 2008.

Demand for detection equipment used in airports to find explosives, chemicals, weapons and contraband goods is increasing. Sales in Smiths' detection division were up 10 per cent as it expanded into supplying ports, post offices and other government buildings as authorities fight the threat of terrorism.

So assured is the company of its future growth for the rest of the year that it announced a rise in its interim dividend for the first time since 2001. "We normally wait for the end of the year to raise the dividend, but this is a sign of how confident we are," Mr Butler Wheelhouse said. The company proposed a 5.7 per cent increase in the interim dividend to 9.25p.

The takeover of Medex, a private US company that specialises in safety devices for the medical sector, is due to complete next week. It produces safety syringes which have become mandatory in the US to prevent hospital staff from being accidentally pricked by infected needles. Mr Butler Wheelhouse said Medex would deliver significant cost savings and synergies in the US.

Smiths has also enjoyed the effect of rising stock markets on its pension fund. A move into equities 18 months ago when the FTSE 100 was languishing below 4,000 has paid off: Smiths' £300m pension deficit has shrunk to £75m and the scheme is now 98 per cent funded.

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