Smiths’ R&D focus pays off

policy of increased investment in R&D and carefully targeted acquisitions again proved a sound business strategy in 2005, with underlying growth across its four divisions.

Smiths’ solid, if unspectacular, performance — with pre-tax profits rising to £310m from £300m in 2004 — was chiefly achieved through a focus on using innovation and advanced technology to gain a competitive advantage and generate future sales.

Chief executive Keith Butler-Wheelhouse said Smiths will continue in the same vein in the next 12 months.

‘The plan for 2006 will follow a consistent formula — driving forward the top line, controlling costs and finding value-enhancing acquisitions. We are confident that we can deliver continued growth from across the Smiths group,’ he said.

The Smiths Detection arm, which operates in the transportation, military and ports and borders sectors, enjoyed 16 per cent growth, fuelled mainly by the introduction of new products. These include the latest Ionscan trace equipment, which simultaneously screens for explosives and narcotics, and the Sentinel II portal, which speeds the processing of passengers through checkpoints. The US Transportation Security Agency has already purchased 25 of these units.

Two key acquisitions strengthened Smiths Detection’s position. In February it paid £15m for Irish company Farran Technology, which is developing a millimetre wave portal to screen people for weapons and explosives. And in May Smiths snapped up US bio-threat specialist ETI technologies for £3m. Smiths’ aerospace margins were weaker than expected due to cost over-runs on the B767 tanker development contract, but this was offset by seven per cent growth in total air traffic, reflected in the 15 per cent overall growth in aerospace sales. The group said that when completed, the Airbus A380 will be a significant source of income.

Sales in the military sector increased by a third on the back of substantial orders from both the UK and US governments. This includes the delivery of 5,200 automatic chemical agent detector/alarm (ACADA) systems ordered by the US Department of Defence for the continuous monitoring of nerve and blister chemical agents.

An MoD contract for lightweight chemical agent detectors is thought to be worth around £20m.

The company’s medical division increased its sales by 16 per cent, mainly thanks to the £500m acquisition of Medex. Its products — infusion equipment used in intensive care — complement Smiths’ existing range and are sold to the same customer base of hospitals and other healthcare institutions.