Smiths Group pays £118m special dividend

Shareholders in Smiths Group are in line for a £118m windfall, as lower exceptional charges pushed up the engineering and technology conglomerate’s annual pre-tax profit.

The FTSE 100 company, which started life as a watchmaker in 1851 but has expanded to make industrial seals, medical devices and detectors of explosives and weapons, on Wednesday said it would return the cash in the form of a 30p special dividend.

However, the payout is substantially less than shareholders may have received had Smiths sold its medical division for £3bn in the summer.

“We have never tried to sell our medical unit,” said Philip Bowman, Smiths chief executive, referring to talks in July with CareFusion, the healthcare group headquartered in San Diego.

“Earlier this year we did have an approach from a trade buyer [CareFusion] …but in the end both parties concluded that we couldn’t find a win-win. We were not looking to sell that business,” he said.

Mr Bowman added that the £2.45bn approach from Apax in 2011 was akin to “flying a kite outside our door. That wasn’t even a discussion, let alone a process.”

The Smiths chief executive instead highlighted his company’s 20 per cent year-on-year increase in pre-tax profit to £442m, from revenues up 2 per cent to £3.1bn.

Adjusting for last year’s hefty exceptional charges such as £44m relating to asbestos litigation at its John Crane seals division, pre-tax profit was relatively flat at £498m in the 12 months to July 31.

The numbers were in line with expectations that were previously lowered by a profit warning in July.

Smiths’ underlying profit at its medical unit – a provider of devices for hospitals and the emergency services – fell back 7 per cent year on year to £189, which the group partly blamed on the introduction of a US tax on medical devices.

Margins at the medical division fell 1.3 percentage points to 22.2 per cent, on revenues down slightly at £850m.

The possible sale of the medical division was widely seen as the first step in a break-up or overall sale of Smiths, which will next year celebrate a centenary on the UK stock exchange.

Another stumbling block for a potential break-up or sale of Smiths is its £652m pension scheme deficit, into which the group is paying £76m a year.

Diluted earnings per share rose from 64.9p to 89.7p, and a final dividend of 27p was recommended, bringing the total payout for the year to 39.5p, up from 38p.

The group has also initiated a restructuring that will cost Smiths £100m a year, in an attempt to save £50m annually. Mr Bowman declined to confirm whether the cost-cutting programme would include axing jobs, but said that further details would be released next year.

Smiths shares closed up 2.6 per cent to £14.12, approaching the group’s previous record share price of £14.50 achieved in early 2011.