Performance review
Smiths Industrial achieved
good growth in both sales and profits. The division increased
sales by 16% to £520m, with operating profits rising by 16%
to £94m. In the second half of the year, the US economic
downturn and weakness in the telecoms sector affected some businesses,
but this was counterbalanced by buoyancy in industries such as
defence, aerospace, transport and medical.
Interconnect's sales increased significantly as demand for mission-critical
connectors continued to grow. More than half
of Interconnect's sales are for high-tech applications such as
military, aerospace and satellite markets, and these grew strongly
during the year, partly reflecting resurgent defence budgets.
Like other suppliers, Interconnect saw sales decline for products
sold into the telecom sector in the second half of the year.
Connecticut-based Times Microwave Systems
was one of several businesses that increased sales to defence
contractors. European defence projects also proved important,
as Hypertac UK, in collaboration with California-based Sabritec,
began to deliver filtered connector technology for Eurofighter
Typhoon.
Air Movement continued to experience difficult trading conditions.
However, there were several areas of sales growth. Tutco, the
specialist air heating business, gained market share by increasing
sales in a slow market. Vent-Axia ventilation, which is a leader
in heat recovery technology, introduced new environmentally efficient
products and low-energy versions of its market-leading brands.
There were a number of promising commercial, product and process
initiatives across both major business areas.
Activities increased in the emerging growth markets of China and
Brazil. In terms of product innovation, defence applications are
using Interconnect's growing fibre-optic capability. Meanwhile,
Air Movement's exploitation of new polymers and processing technologies
continues to yield new products with key specialist applications
and good margins. Further introduction of process efficiencies
continued to shrink inventory and cost levels while improving
customer service.
Successful integration of acquisitions
An important theme was
the integration of acquisitions made during previous years.
Substantial progress was made, with particular emphasis on boosting
the European sales of US companies acquired by Interconnect.
Entraco, acquired in 1998, was combined with the existing US
Icore business. The resulting Icore-Entraco operation offers
integrated solutions for customers seeking rugged conduit and
connector interface products.
The programme of focusing on growth areas continued, with the
acquisition of Radio Waves, a leading US supplier of antennae
for high-frequency microwave communications,
for $25m. Despite the current telecoms downturn, Radio Waves
has excellent long-term prospects, with product ranges targeting
markets such as broadcast and hub-to-subscriber links.
The non-core industrial hydraulics business, located in the
UK, was sold to SPX Corporation, a US specialist in this area,
in March.
Growing demand
Industrial has good prospects
of continuing growth with sustained high margins and strong
cash generation. While sales to the telecoms industry are likely
to decline in the short term, there is growing demand for robust
high-density and high-frequency connectors from a range of other
industries. Air Movement's innovative products are also well
positioned to benefit from trends such as the burgeoning demand
for environmentally efficient ventilation systems.
The division will continue to concentrate on growth markets.
It will improve profitability through targeted acquisitions,
product development and process innovation.
