Our largest single end market is healthcare. The majority of revenue comes from medical devices supplied by Smiths Medical, and both Smiths Interconnect and Flex-Tek supply components to medical device manufacturers. The medical device market is driven over the long-term by ageing populations, patient and health worker safety legislation and increasing healthcare spending in developing countries. Some 83% of Smiths Medical’s revenue is from single-use devices used in everyday hospital procedures. The remaining 17% of revenue is from capital equipment, such as infusion pumps.
Smiths Detection provides threat detection equipment for airports, ports and borders, critical infrastructure, military and emergency responder markets. Demand is driven in the medium-term by ongoing geopolitical unrest and associated terrorist and criminal threats, but there is considerable variation by geography and end market. The growing installed base creates opportunities for aftermarket and upgrade revenues. The defence segment, representing 6% of Group revenue, is served by both Smiths Interconnect and Smiths Detection, and is primarily driven by spending on specific programmes in developed markets like the US.
This market is primarily served by John Crane, representing c. 60% of its revenues. The long-term drivers include the global demand for energy, a desire for national energy independence and increasing environmental and safety requirements. John Crane’s mechanical seals and seal support systems are primarily used in the process equipment found in downstream (eg: refineries, ethylene crackers) and midstream (eg: pipelines, gas storage, LNG transportation) applications. Demand for original equipment (41% of revenue) is affected by customer capital expenditure cycles, while aftermarket service (59% of revenue) depends on utilisation rates and equipment age. The drop in oil prices in late 2014 has reduced customer capital expenditure, causing declines in revenue in original equipment and, to a lesser extent, aftermarket service.
Smiths Group serves a range of general industrial sectors including power generation, alternative energy, mining, automotive, test equipment and rail, among others. There are different drivers for each of these markets but overall they tend to track GDP. They are served by John Crane, Smiths Interconnect and Flex-Tek.
Smiths Interconnect supplies a range of high-performance microwave equipment to support the build-out and upgrade of wireless telecommunications infrastructure. It also provides power supply equipment for data centres and high-reliability connectors for semiconductor testing. Growth is drivenby the proliferation of mobile communication devices, internet usage and the demand for higher data rates, and by the capital expenditure of network operators and data centre providers.
Flex-Tek manufactures a range of products such as flexible gas piping and ducting for HVAC applications that are used in the construction of homes, primarily in the US. Demand for single family home starts is driven by population growth.
Flex-Tek provides hydraulic hoses and fuel lines for airframes and aeroengines and Smiths Interconnect sells connectors and microwave components for aircraft and satellite communications. Aerospace demand is driven by investment in new fuel-efficient aircraft and by increasing passenger and freight traffic.
*Industrial includes power generation, alternative energy, mining, test, rail and other general industrial applications