Smiths’ chief still has ‘unfinished business’
The chief executive of Smiths Group has admitted he is frustrated by the FTSE 100 engineering conglomerate’s inability to sell non-core divisions, as part of his attempt to turnround the 163-year-old company.
Philip Bowman, who took up his role at the end of 2007 with what many analysts and investors believed was a mandate to break up the group, said he still regards Smiths as “unfinished business” and has no imminent plans to leave.
“When I came in it was about improving performance, it was about focusing the portfolio and the portfolio bit has been elusive,” he said in an interview with the Financial Times. “Did I expect to still be here when I came in? I think the answer would have to be no, I didn’t.”
Mr Bowman, who has a record of selling companies including Allied Domecq and Scottish Power, has faced two significant hurdles in his plan to simplify the group: a big UK pension deficit and asbestos liabilities. Estimates suggest Smiths’ pension fund could cost around £1bn on a buyout basis.
“There is certainly a degree of frustration that I haven’t been able to do those things but you have to at the end say there are external factors and you have to watch those and operate within those constraints,” he said.
Smiths, which on Monday celebrates a centenary on the UK stock exchange, started life as a watchmaker in 1851 but now makes industrial seals, medical devices and security detectors. It is one of Britain’s last remaining engineering conglomerates.
Its share price has lagged behind the FTSE 350 Industrial Engineering over the past five years, up about 70 per cent compared to 300 per cent, prompting regular calls for a break-up of what many view as a disparate portfolio of businesses.
But Mr Bowman said this siren call from analysts ignores the problem the group faces. “If you are in a corporate structure where you have those sort of drains on your cash flow and liabilities, you are not going to be able to resolve them by shrinking,” he said. “You need to grow the core before you actually try and sell anything off.”
The group’s struggling medical devices business is viewed as one of the most likely divisions to be offloaded. Flex-Tek, which produces heating elements and ducting for housing, is another likely candidate.
Smiths has already received two approaches in the past three years for the medical unit – the latest was last July by US group CareFusion – but both have come to nothing. However, Mr Bowman insisted the group would have sold if the price had been right.
Smiths in the meantime is focusing on improving performance by growing its share of commercial business – diversifying away from falling western government spending in divisions such as security detection and medical – and increasing its exposure to emerging markets.
“Much of what Smiths are doing already makes sense but there’s a sense of frustration that these actions fail to manifest in the underlying performance and we suspect many observers would hope for more radical action,” said Matthew Spurr, analyst at Espírito Santo.