Industrial conglomerate Smiths Group (SMIN) is the biggest riser on the FTSE 100 today, up 1.8% to £14.71, as it unveils plans for a spin off of its medical division as a separate listed company alongside first half results.
Smiths is a diverse collection of businesses providing everything from sensors for explosives to hospital equipment and oil services and there has long been clamour for a break up, with the medical division in particular seen as a candidate for sale due to recent underperformance.
The company books a 13% fall in its first half profit to £174m despite revenue rising 2% to £1.57bn.
On an underlying basis, pre-tax profit is down by a more modest 1% to £216m. The Smiths Medical and Smiths Detection arms fared poorly, while the John Crane oil and gas business, Flex-Tek fluid engineering division and electronic components specialist Smiths Interconnect, all posted solid growth.
The group's operating margin falls 140 basis points to 13.5%. Smiths Group declares an interim dividend of 14.1p per share, up 2.2% on-year.
Smiths says it expects to complete the demerger process during the first half of calendar 2020, conditional on shareholder approval.
DECISION NOT A SURPRISE
AJ Bell investment director Russ Mould says: 'The decision to separate out the Smiths Medical division, first announced last November, wasn't a surprise as it doesn't really fit with the rest of the engineering group whose interests range from airport security scanners to components for the aerospace and construction industries.
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'There is a trend for companies to have a tighter focus and not be all things to all people. Separating business divisions can help the parent company be leaner and meaner, and for the orphaned operations to have a new life of their own with potentially more entrepreneurial decisions by management.
'One could even speculate that the wheels are in motion for a further break-up of Smiths Group. The next step might be to separate John Crane, which is Smiths' energy and chemicals engineering arm. It reported 5% underlying profit growth in the first half period. Demerging the business could allow it to pursue mergers and acquisitions to potentially accelerate growth.
'The downside of separating a business from a conglomerate is that it removes or reduces a diversification cushion.'