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2001 has been a year of intense corporate activity.
The merger of Smiths Industries and TI Group was finalised in December.
The demerger of the Automotive Systems division was announced in
March and completed in early July. Several small, non-core businesses
were sold, and two others have been sold since the year-end.
Following the merger, integration teams were established for Aerospace,
Sealing Solutions and Head Office.
Accounting for the merger
Under merger accounting, the results
are presented as if the two companies had always been combined.
In contrast to acquisition accounting, the balance sheets are merged
without establishing new 'fair values'. After a merger, the accounting
policies of the predecessor companies are reviewed and material
differences are adjusted as at the merger date. Smiths Group had
no material differences and thus made no adjustment, other than
to align the date from which goodwill has been capitalised.
Accounting for the demerger and other disposals
To give a clearer picture of
the ongoing business, we show the results of Automotive and other
disposals in a separate column in the Profit and Loss Account. By
identifying the interest and tax related to these activities we
show clearly the EPS attributable to the ongoing activities. Interest
has been attributed to the disposals on the basis of cash received
on demerger or sale.
Exceptional costs
With the scale of these transactions and
subsequent restructuring, we incurred significant exceptional costs.
The table below identifies items involving cash – as opposed
to gains or losses on sales of businesses:
Cash exceptionals
In addition to the 'cash exceptionals'
goodwill which had previously been written-off direct to reserves
was charged through the P&L account. This gave rise to a loss
on disposal of Automotive of £299m and a provision of £125m
in respect of prospective disposals of various EIS and Air Movement
businesses. The final element to the exceptional items was the
£13m profit recorded on disposals other than Automotive.
Ongoing Profit and Loss
Last year, Smiths Industries
reported both sales and operating profits increasing by 11%. In
the first year of the new combined Smiths Group, we show ongoing
sales and profits both rising by 13%.
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2001
£m
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2000
£m |
Change
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| Sales |
3,466 |
3,062 |
13% |
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Operating profit
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525 |
465 |
13% |
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With sales
and profits increasing at similar rates, margins were static at
15%.
Current year acquisitions contributed £9m to the profit growth.
Interest was markedly higher, largely because of the acquisition
spend during the 2000 year. Pre-tax profits increased by 5% and
EPS by 6%, helped by a lower tax charge at 29%.
The factors behind this performance are detailed in the Chief Executive's
and Business Reviews. The following paragraphs give further financial
insights.
Geographic spread and exchange rates
The geographic spread of
our ongoing operations is shown below:
The US Dollar strengthened against
sterling by 8%, while the Euro weakened by 2%. Together these exchange
rates give a translation gain and a transaction loss.
This year, the transaction loss arises mainly on our exports from
the US. Valued at £280m, these suffered losses against most
currencies in the 8% to 10% range. The economic cost of about £18m
closely matches the overall translation gain of £17m.
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