Smiths Group PLC Interim Management Statement

At reported exchange rates, Smiths Group delivered growth in sales, headline operating profit and margin improvement in the 10 months to 28 May 2011.  At constant currencies and excluding the benefit from acquisitions, underlying sales were ahead of last year driven primarily by growth in John Crane offset by lower sales from Smiths Detection.  Underlying Group headline operating profit is also ahead of the same period last year, benefiting from ongoing operational improvements and self-help initiatives.

John Crane has continued to build a strong order book which has driven sustained underlying sales growth in the first 10 months, particularly from the oil and gas markets.  Margins are also ahead of last year, benefiting from the higher volumes and from further cost savings generated by its restructuring programme.  The strong order book supports continued growth in the full year, although the rate of growth may ease slightly against a strong comparator period.  Full year margins should remain strong notwithstanding our continued investment in growth opportunities and some adverse mix effects.

Smiths Medical has improved operating margins as it continues to benefit from its self help initiatives.  The year to date sales trends are at a broadly similar level to those achieved in the first half.  The tough trading environment is expected to continue with pressure on healthcare budgets in many markets and reduced health insurance levels.  Margins should continue to benefit from our sustained focus on operational improvements and self-help.  At the same time we continue to invest more in new product development and focus on improving sales and marketing effectiveness to position the business for future growth.

Smiths Detection has continued to trade in line with guidance given in the trading update on 3 May.  The sales trends seen in the first half are likely to continue for the full year, although there remains some uncertainty on the timing of deliveries and sales against military orders already received.  Full year margins are likely to be affected by the associated operational gearing.

In the first 10 months, Smiths Interconnect delivered underlying sales growth, although the rate of growth has slowed since the first half.  This was caused by sales declines to defence customers, reflecting US Department of Defense budgetary pressures, and slower sales to wireless customers, due to the timing of investment in the build-out of wireless networks.  Sales to rail, medical, automation and test markets have been strong.  Margins remain ahead of the prior year reflecting higher volumes and cost reduction initiatives.  Reported sales have been boosted by the strong performance of IDI which was acquired in April 2010.

Flex-Tek has continued to see underlying revenue growth driven primarily by higher sales of aerospace components and heating elements.  Sales have also benefited from market share gains and pricing improvements.  Flex-Tek is expected to deliver sales growth for the full year although the comparator will become slightly tougher and the outlook for US residential construction remains uncertain.  Despite pressure on margins from input cost inflation, overall margins should benefit from the increased volumes and the associated operational gearing.

Headline operating cash conversion has strengthened since the half year; net debt was £797m as at 28 May 2011, having taken account of the payment of the interim dividend in April.