(Adds details, analysts' comments, share movement)
LONDON May 23 British engineer Smiths Group Plc
warned that full-year profit at its detection business
would be lower than it had expected due to working capital
adjustments, lower volumes and additional costs.
Smiths' shares, which have lost more that a tenth of their
value this year, were down 0.9 percent in mid-morning trade on
The company's detection unit, which accounts for about 18
percent of total revenue, sells its products mainly to
governments and their agencies and has been hurt by budget cuts
in the last few years.
The company had warned in March that full-year revenue at
the unit, which makes sensors to detect explosives, chemical
agents and biohazards, would be lower than a year earlier due to
a weaker order book.
Smiths said on Friday profit at the detection unit would be
25 million pounds ($42 million) lower than it had expected.
This includes a 12 million pound charge related to a review
of its working capital requirements, a 9 million pound hit from
lower volumes and lower margin work, and 4 million pounds of
additional contract-related costs, the company said.
Headline operating profit at the detection unit fell 16
percent to 58 million pounds in the year ended July 31, 2013.
The company said Richard Ingram, who was recently appointed
president of the detection business, would focus on improving
revenue and margin performance.
"The quality of earnings of this contract-orientated
business remains a big question particularly when compared to
the growth profile seen before the downturn", Numis Securities
said in a note to clients.
Smiths said underlying revenue for the detection business
declined in the nine months ended April 30 reflecting weaker
demand from cargo screening and transportation customers.
However, its medical business returned to growth in its
financial third quarter, and Smiths said it expected trading in
the second half to be stronger than the first.
Smiths reiterated its March outlook that 2014 earnings would
be reduced by 4-5 percent if foreign exchange rates remained at
($1 = 0.5931 British Pounds)
(Reporting by Roshni Menon; Editing by Erica Billingham)