Smiths Group, a prominent British engineering company, has announced plans to pay up to 110 million pounds sterling for the acquisition of two North American companies as part of its strategy to expedite an ambitious acceleration plan. This announcement came alongside fiscal results that fell short of market consensus, drawing attention from investors and analysts alike.
In the early morning trading session, shares of Smiths Group experienced a significant drop of over 8%. For the fiscal year ending July 31, the company's EBITA, or operating profit, was reported at 526 million pounds from total group sales of 3.13 billion pounds. This figure was below the consensus forecasts of 535 million pounds in EBITA and 3.15 billion pounds in sales, respectively.
However, it is noteworthy that the company's revenue witnessed a modest annual increase of 3.1% on a reported basis and an impressive 5.4% on an organic basis. The profit attributable to shareholders rose to 250 million pounds, reflecting an increase from 231 million pounds in the previous period. Roland Carter, the newly appointed Chief Executive Officer, stated, "Effective strategy execution is enhancing our performance - and we will build on, and out from, this solid foundation, enabling us to grow more profitably to make Smiths even better." Carter emphasized that the company's advancement will be facilitated through increased prioritization of investment in research and development (R&D) and innovation, as well as through a Group-wide Acceleration Plan aimed at driving productivity and profitability.
This plan includes a series of business-led transformational initiatives expected to deliver annualized benefits ranging between 30 million pounds and 35 million pounds by fiscal 2027, bringing the achievement of medium-term margin targets closer to fruition. In alignment with its growth strategy, Smiths Group has successfully struck agreements to acquire Modular Metal Fabricators, a United States-based manufacturer of metal and flexible ducting, along with Wattco, a Canadian provider of electric heating solutions.
These acquisitions are anticipated to enhance Smiths’ heating, ventilation, and air conditioning, along with its industrial heating operations under the Flex-Tek business unit. Additionally, Smiths Group expressed a deep-seated commitment to fostering innovation and the commercialization of novel products, with the aim of reallocating its research and development resources towards new, high-growth adjacent markets.
During this process, the company also aims to bolster its margins and productivity through its acceleration plan. RBC Capital Markets commented on the new cost plan, noting a focus on improving margins, an area which has historically seen limited progress. They indicated, "Given the slightly lower margins in 2025E and the 4-6% growth expectation for 2025E, there could be some slight downside risks here, although partly offset by acquired EBITA." Looking ahead, for fiscal 2025, Smiths Group forecasts organic revenue growth to remain within its medium-term target range of 4% to 6%, taking into account the impacts of its mergers and acquisitions.
Furthermore, the company reaffirmed its medium-term target for headline EPS growth of 7% to 10%. These strategic moves reflect Smiths Group’s dedication to not only navigating current market challenges but also positioning itself for sustainable long-term growth..