Smiths Group PLC · LSE:SMIN
Smiths — H1 2019 Earnings Presentation
38 slides from Smiths's earnings presentation, Mar 22, 2019
Slide 1: Smiths Group plc Interim Results
SMITHS GROUP PLC INTERIM RESULTS 22 MARCH 2019 www.smiths.com
Slide 2: Disclaimer
2 SMITHS GROUP PLC Interim Results 2019 DISCLAIMER This presentation contains certain statements that are forward-looking statements. They appear in a number of places throughout this presentation and include statements regarding the intentions, beliefs and/or current expectations of Smiths Group pl
Slide 3: Agenda
3 SMITHS GROUP PLC Interim Results 2019 AGENDA Introduction Andy Reynolds Smith FY19 Interim Results John Shipsey Strategic Update Andy Reynolds Smith
Slide 4: Introduction
4 SMITHS GROUP PLC Interim Results 2019 INTRODUCTION ANDY REYNOLDS SMITH CHIEF EXECUTIVE
Slide 5: Building on our strategic progress
5 SMITHS GROUP PLC Interim Results 2019 BUILDING ON OUR STRATEGIC PROGRESS 2016 2017 2018 2019 H1 CY2020 AMBITION OUTPERFORMING A NEW SIGNIFICANT RETURN TO SUSTAINABLE SEPARATION OUR CHOSEN DIRECTION PROGRESS GROWTH GROWTH OF MEDICAL MARKETS
Slide 6: FY19 Interim Results
6 SMITHS GROUP PLC Interim Results 2019 FY19 INTERIM RESULTS JOHN SHIPSEY CHIEF FINANCIAL OFFICER
Slide 7: Headline financial results
7 SMITHS GROUP PLC Interim Results 2019 HEADLINE FINANCIAL RESULTS1 £m H1 2019 H1 20182 REPORTED CHANGE REVENUE 1,573 1,542 +2% +2% underlying, +3% excluding Medical OPERATING PROFIT 246 248 (1)% (2)% underlying, +2% excluding Medical OPERATING MARGIN 15.6% 16.1% (50)bps PROFIT BEFORE TAX 216 218 (1
Slide 8: H1 underlying revenue up 2%
8 SMITHS GROUP PLC Interim Results 2019 H1 UNDERLYING REVENUE UP 2%1,3 £m +3% underlying ex. Medical 10 (12) 29 ( 12 ) 10 1,573 21 ( 15 ) 1,549 (7) 1,548 1,542 +7% (3)% +6% +7% (3)% +2% underlying H1 2018 IFRS 15 H1 2018 FX ACQUISITIONS & H1 2018 JOHN CRANE SMITHS FLEX-TEK SMITHS SMITHS H1 2019 REST
Slide 9: H1 revenue by division
9 SMITHS GROUP PLC Interim Results 2019 H1 REVENUE BY DIVISION1,2 JOHN CRANE SMITHS DETECTION SMITHS MEDICAL +7% Oil & Gas Non-Oil & Gas c.+9% c.+4% (3)% Air Transportation (7)% (3)% £449m £361m OE +7% P&B, Defence and £430m Strong growth Programme Urban Security +3% led by OE and AM Aftermarket +8%
Slide 10: H1 underlying operating profit down (2)%
10 SMITHS GROUP PLC Interim Results 2019 H1 UNDERLYING OPERATING PROFIT DOWN (2)%1,2 £m 4 (6) 3 ( 10 ) 4 252 1 1 248 247 2 246 Operating Operating Operating margin margin margin FY2017 Pro-forma Operating 16.0% 16.1% Operating 15.6% Margin Margin 16.9% 16.8% H1 2018 IFRS15 H1 2018 FX H1 2018 JOHN SM
Slide 11: H1 operating profit by division
11 SMITHS GROUP PLC Interim Results 2019 H1 OPERATING PROFIT BY DIVISION1,2 JOHN CRANE SMITHS DETECTION SMITHS MEDICAL OP • Improving OP • Lower OP £97m +5% volumes £55m (9)% volumes £71m • Investing for • Segment mix (12)% Margin future growth Margin and pricing 21.7% 15.2% Margin 16.5% FLEX-TEK SM
Slide 12: Cash-flow reflecting H2 weighted profile
12 SMITHS GROUP PLC Interim Results 2019 CASH-FLOW REFLECTING H2 WEIGHTED PROFILE £m H1 2019 H1 20182 OPERATING PROFIT1,2 246 248 CAPEX, DEPRECIATION AND AMORTISATION (10) 2 Asset light WORKING CAPITAL (68) (19) Build up to support growth in H2 OTHER 12 10 74% cash conversion, expected to be much OP
Slide 13: Strong balance sheet
13 SMITHS GROUP PLC Interim Results 2019 STRONG BALANCE SHEET £m (44) 938 893 21 (122) 71 29 Net Debt/ EBITDA 1.5x • Weighted average debt maturity: 5.7 years1 • Weighted average interest rate: 3.3%1 • Stable credit rating (BBB+/Baa2) • Pro-forma Net Debt/ EBITDA (inc. United Flexible acquisition):
Slide 14: Disciplined capital allocation
14 SMITHS GROUP PLC Interim Results 2019 DISCIPLINED CAPITAL ALLOCATION INVESTMENT IN ORGANIC Cash R&D % sales GROWTH 5.1% CASH United Flexible acquisition VALUE CREATIVE M&A GENERATION completed in February 2019 PROGRESSIVE DIVIDEND Interim dividend growth 2.2%
Slide 15: 2019 outlook reaffirmed
15 SMITHS GROUP PLC Interim Results 2019 2019 OUTLOOK REAFFIRMED Sustained growth of at least 2% - Smiths Medical and Smiths Detection to deliver growth in H2 - Other divisions: continued growth, albeit against a strong H2 comparator Continued focus on operational excellence and cash generation
Slide 16: Strategic Update
16 SMITHS GROUP PLC Interim Results 2019 STRATEGIC UPDATE ANDY REYNOLDS SMITH CHIEF EXECUTIVE
Slide 17: Creating two stronger companies
17 SMITHS GROUP PLC Interim Results 2019 CREATING TWO STRONGER COMPANIES Distinct management, strategies and focus Smiths - concentrated on growing as a leading industrial technology group united by shared business characteristics and common operating model Medical – capitalising on its leading posi
Slide 18: UK demerger – progress
18 SMITHS GROUP PLC Interim Results 2019 UK DEMERGER – PROGRESS To be completed during H1 CY2020 Building on an improving trajectory Good progress made on key workstreams, including: • Pensions • Tax • Capital structure • Dividend Medical CEO H2 return to growth Ongoing NPD including Near-term miles
Slide 19: A focused medical devices company…
19 SMITHS GROUP PLC Interim Results 2019 A FOCUSED MEDICAL DEVICES COMPANY… Leading brands in attractive markets Well invested Strong financial for future characteristics growth WELL POSITIONED TO MAXIMISE VALUE CREATIVE OPPORTUNITIES
Slide 20: …with attractive fundamentals
20 SMITHS GROUP PLC Interim Results 2019 …WITH ATTRACTIVE FUNDAMENTALS Leading brands in Well invested for Strong financial attractive markets the future characteristics • Category leader with trusted brands • R&D up 40%1 • c.80% recurring revenue from disposables (CADD®, ViaValve®, Acapella®) • Str
Slide 21: Smiths - a leading industrial technology company
21 SMITHS GROUP PLC Interim Results 2019 SMITHS - A LEADING INDUSTRIAL TECHNOLOGY COMPANY • ROCE 16-18% through the LEADING • >90% of portfolio in top 3 cycle BUSINESSES leadership positions IN ATTRACTIVE • Progressive dividend policy MARKETS • Underlying markets growing covered by FCF 3-4% p.a. • H
Slide 22: Smiths – our DNA
22 SMITHS GROUP PLC Interim Results 2019 SMITHS – OUR DNA ✓ TECHNOLOGY INCREASING SUSTAINABLY HIGH PROPORTION DIFFERENTIATION DIGITISATION COMPETITIVE AND OF AFTERMARKET ASSET LIGHT AND SERVICES TARGETED IN GROWING MARKETS
Slide 23: Leading businesses in attractive markets
23 SMITHS GROUP PLC Interim Results 2019 ✓ LEADING BUSINESSES IN ATTRACTIVE MARKETS 1 FY2016 FY2018 AMBITION CONTINUED STRENGTHENING OF THE PORTFOLIO2 60%+ 80%+ 90%+ TARGETED ORGANIC INVESTMENT 11 c.£535m of proceeds 6 for c.£885m DISPOSALS ACQUISITIONS DISCIPLINED APPROACH TO ACQUISITIONS AND DISPO
Slide 24: Operational excellence
24 SMITHS GROUP PLC Interim Results 2019 OPERATIONAL EXCELLENCE1 ✓ Smiths Excellence System - embedded operating model driving speed and efficiency - Improving execution – reduction in WC % sales 28%- 26% (FY2016-FY2018) - Reducing costs – reduction in cost of poor quality from 2.1% to 1.7% (FY2017-
Slide 25: A strong financial framework
25 SMITHS GROUP PLC Interim Results 2019 A STRONG FINANCIAL FRAMEWORK ✓ HISTORICAL PERFORMANCE EXCLUDING SMITHS MEDICAL GROWTH MARGIN1 (underlying revenue growth) 3% 3% +260 bps 0% 16.7% 15.3% FY 2016 FY 2017 FY 2018 H1 2019 14.1% -2% FY 2016 FY 2017 FY 2018 CASH (Free Cash Flow)2 RETURN (ROCE1 %) F
Slide 26: Driving long-term, sustainable value
26 SMITHS GROUP PLC Interim Results 2019 DRIVING LONG-TERM, SUSTAINABLE VALUE LEADING BUSINESSES IN ATTRACTIVE Value creative MARKETS Outperforming our investment markets GENERATING Strong dividend SUPERIOR OPERATIONAL EXCELLENCE covered by FCF RETURNS 100%+ STRONG 18-20% margin cash conversion FINA
Slide 27: Further strategic progress
27 SMITHS GROUP PLC Interim Results 2019 FURTHER STRATEGIC PROGRESS 2016 2017 2018 2019 H1 CY2020 AMBITION OUTPERFORMING A NEW SIGNIFICANT RETURN TO SUSTAINABLE SEPARATION OUR CHOSEN DIRECTION PROGRESS GROWTH GROWTH OF MEDICAL MARKETS
Slide 28: Questions & Answers
28 smiths ERS Y) a 2 Lt Y) QU & ANSW
Slide 29: Appendix
smiths 29
Slide 30: Income statement
30 SMITHS GROUP PLC Interim Results 2019 INCOME STATEMENT £m H1 2019 H1 20182 Change Revenue 1,573 # 1,542 +2% Headline1 operating profit 246 Z 248 (1)% Morpho integration costs (5) (12) Legacy liabilities 4 4 Pension settlement gain/(losses)/ GMP (29) 4 Amortisation of acquired intangibles (17) (15
Slide 31: Restatement excluding Smiths Medical – H1 2019
31 SMITHS GROUP PLC Interim Results 2019 RESTATEMENT EXCLUDING SMITHS MEDICAL – H1 2019 £m Smiths Group Smiths Medical Smiths Group excluding Smiths Medical Revenue (£m) 1,573 430 1,143 Underlying1,3 revenue growth (%) +2% (3)% +3% Headline2 operating profit (£m) 246 71 175 Underlying1,3 operating p
Slide 32: Organic growth: R&D investment
32 SMITHS GROUP PLC Interim Results 2019 ORGANIC GROWTH: R&D INVESTMENT CASH COSTS1 Income statement costs (expensed and amortised) 1 H1 2019 £80m £69m 5.1% of revenue £67m 4.8% of revenue excluding Medical H1 2018 £70m 4.6% of revenue2 H1 2019 H1 2018 John Crane Smiths Detection Flex-Tek Smiths Int
Slide 33: FX sensitivity
33 SMITHS GROUP PLC Interim Results 2019 FX SENSITIVITY H1 2018 average Currency H1 2019 average rate % change 21/03/2019 rate • For each $0.10 move, the annual operating profit impact is c.£20m USD 1.29 1.33 +3% 1.31 • For each €0.10 move, the annual operating profit impact is c.£10m EUR 1.12 1.12
Slide 34: John Crane: Mission-critical solutions for global energy and process industries
34 SMITHS GROUP PLC Interim Results 2019 JOHN CRANE: Mission-critical solutions for global energy and process industries Revenue £449m COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE (29% of Group) LANDSCAPE • A strong presence in flow control for rotating • Oil & gas markets recovering driven by H
Slide 35: Smiths Detection: global leader in detection of security threats
35 SMITHS GROUP PLC Interim Results 2019 SMITHS DETECTION: A global leader in the detection and identification of security threats and contraband Revenue £361m COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE (23% of Group) LANDSCAPE • A global leader with differentiated • Persistent and evolving te
Slide 36: Flex-Tek: Innovative components to heat and move fluids and gases
36 SMITHS GROUP PLC Interim Results 2019 FLEX-TEK: Innovative components to heat and move fluids and gases Revenue £184m COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE (12% of Group) LANDSCAPE • High-performance products • Steady growth of US housing Headline OP • Leading capability in design and
Slide 37: Smiths Interconnect: high-speed, secure connectivity solutions
37 SMITHS GROUP PLC Interim Results 2019 SMITHS INTERCONNECT: Solutions for high-speed, secure connectivity in demanding applications Revenue £149m COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE (9% of Group) LANDSCAPE • Innovative and technically differentiated offerings • Increased connectivity
Slide 38: Smiths Medical: High-quality, cost-effective medical devices
38 SMITHS GROUP PLC Interim Results 2019 SMITHS MEDICAL: High-quality, cost-effective medical devices and consumables that are vital to patient care globally Revenue £430m COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE (27% of Group) LANDSCAPE • Category leader in our chosen markets • Ageing popul