Smiths Group starts solidly despite oil and gas softness

As expected, underlying revenues for the first quarter at oil and gas engineer John Crane were below the same quarter last year, the company said, continuing the trend seen towards the end of the last financial year, where first-fit sales continued to be very challenging, while aftermarket revenues were more resilient.

Smiths Detection continued to deliver improved profitability in the quarter, supported by recent contract wins and a stronger order book.

As well as announcing that lower pension scheme contributions will lead to an extra £36m annualised free cash flow by 2017, the company's new chief executive Andy Reynolds Smith said expectations for the full year remained "broadly unchanged" and after meeting divisional chiefs and visiting major locations he saw "clear potential" for operational improvements across the business.

He also confirmed that cash conversion continued to be strong and group operating margin was broadly in line with the same period last year.

"Overall, we have made a resilient start to the year," he said. "While persistently tough oil and gas end markets have impacted John Crane, we saw good profitability growth in Detection and performance in line with our expectations at Smiths Medical, Interconnect and Flex-Tek."

Analysts at Panmure Gordon said they expected "some downgrades given the current consensus is for unchanged sales for the full year" but "we remain in the dark on what the management expectations are".

The change in its pension funding structure was agreed as being good news and the broker calculated the value of increased cash flow at £270m, equivalent to 68p per share.

Edison Investment Research said the pension change largely removes the issues from the agenda and "could also eliminate one of the encumbrances to portfolio rebalancing, just as the new CEO Andy Reynolds-Smith assumes control".

Shares in Smiths surged 10.2% higher by 0930 GMT on Tuesday to 1,020p.