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.

READ MORE ON SMITHS GROUP HERE

'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.'

Find out how to deal online from £1.50 in a SIPP, ISA or Dealing Account.

Issue Date: 22 Mar 2019