Smiths Group PLC · LSE:SMIN
Smiths — H1 2015 Earnings Presentation
63 slides from Smiths's earnings presentation, Mar 18, 2015
Slide 1: Interim Results 18 March 2015
Interim Results 18 March 2015 We bring technology to life safer to help make the world… healthier and more productive investor.relations@smiths.com www.smiths.com Smiths Group plc Interim Results 2015 1
Slide 2: Forward-looking statements
This document contains certain statements that are forward-looking statements. They appear in a number of places throughout this document and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other thin
Slide 3: Introduction & overview
Introduction & overview Philip Bowman Chief Executive Smiths Group plc Interim Results 2015 3
Slide 4: Agenda
Agenda Introduction and overview Philip Bowman Financial review Peter Turner Operational review – introduction Philip Bowman John Crane Duncan Gillis Smiths Medical Jeff McCaulley Smiths Detection Richard Ingram Smiths Interconnect Roland Carter Flex-Tek Tedd Smith Conclusion and outlook Philip Bowm
Slide 5: Results overview
Results overview Reported headline revenue down 2%; underlying up 1% Headline operating profit down 5%; underlying down 3% Headline EPS down 3% to 38.5p Cash conversion remains strong at 88%; dividend up 2% to 13 pence Return on capital employed down 120 bps at 15.4% “Fuel for Growth” restructuring
Slide 6: Divisional performance highlights
Divisional performance highlights Good revenue and margin growth Smiths • Reflects recent investment in new products and sales execution in infusion Medical • Disposables recovery after the distributor destock last year Focus on aftermarket services delivers a resilient performance John • Underlying
Slide 7: Promoting responsibility: focus on leading indicators
Promoting responsibility: Focus on leading indicators to drive future improvement Recordable incident rate trended slightly higher Environmental metrics 0.66 • 5 year environmental goal 0.60 period ending FY2018 0.54 0.53 0.50 • FY2015 H1* performance: Incident rate - Energy: 2% reduction - Greenhou
Slide 8: Financial review
Financial review Peter Turner Finance Director Smiths Group plc Interim Results 2015 8
Slide 9: Headline profit progression 2014 to 2015
Headline profit progression 2014 to 2015 PBT: £215m £4m £4m Volume Price/mix £13m FFG £1m savings £1m £6m PBT: £208m Average exchange rates to £ Cost Efficiencies FX US$ 1.59 (H1 2014: 1.61) inflation Interest £8m £8m Euro 1.27 (H1 2014: 1.19) Translation FX ready reckoner 1 US cent = c. £2m HOP Add
Slide 10: Group cash conversion
Group cash conversion £m H1 2015 H1 2014 Headline operating profit 232 245 Changes in working capital (31) (32) Share-based payment 4 4 Capital expenditure (property, plant & equipment) (26) (24) Depreciation 24 23 Development costs & other intangibles (net of amortisation and deferred income) 1 (5)
Slide 11: Reconciliation: Headline operating profit to statutory profit
Reconciliation: Headline operating profit to statutory profit £m Headline operating profit 232 Restructuring programmes (19) Litigation provision: John Crane, Inc. (12) Litigation provision: Titeflex Corporation (1) Gains on changes to post-retirement benefits 13 Exceptional operating items (19) Amo
Slide 12: Fuel for Growth – driving efficiencies to support growth investment
Fuel for Growth – driving efficiencies to support growth investment £m Costs Annualised savings Total Full annualised to date to date costs benefits John Crane 8 10 25 13 Smiths Medical 15 5 45 23 Smiths Detection 13 - 34 14 Smiths Interconnect 8 5 12 7 Flex-Tek - - 4 3 Total 44 20 120 60 £m 2013/14
Slide 13: Pensions: Deficit increased £96m to £338m
Pensions: Deficit increased £96m to £338m on lower bond yields Deficit movement since 31 July 2014 (£m) Annual cash contributions 2015 Deficit at 31 July 2014 (242) Foreign exchange (15) Funded scheme contributions £81m Return on assets 411 - Smiths Industries PS £36m Contributions (net of service c
Slide 14: Guidance – financial items
Guidance – financial items Headline tax rate 26-27% Cash conversion 85-95% Funded pension scheme contributions c. £80m + £24m to escrow Year end net debt (subject to FX and acquisitions) c. 850m Smiths Group plc Interim Results 2015 14
Slide 15: Operational review and priorities
Operational review and priorities Philip Bowman Chief Executive Smiths Group plc Interim Results 2015 15
Slide 16: Engineered for Growth – Four cross divisional initiatives
Engineered for Growth – Four cross divisional initiatives to accelerate growth Delivered good progress on margins, cash and returns on capital Revenue growth has been more difficult Launched four initiatives under “Engineered for Growth” Drive cross-divisional collaboration and best practice sharing
Slide 17: Engineered for Growth – Sales & marketing, quality
Engineered for Growth – Four cross divisional initiatives to accelerate growth Sales & marketing excellence Objectives Activities Activities • Become a more customer and •• Improve Improve capabilities capabilities through through aa marketing-led business SalesAcademy Sales Academy • Develop sales
Slide 18: Engineered for Growth – Innovation, China
Engineered for Growth – Four cross divisional initiatives to accelerate growth Innovation Objectives Activities • Improve the effectiveness of new • Drive innovation around customer product development insight • Accelerate pace of new launches • Share best practice and processes • Enhance project pr
Slide 19: John Crane
John Crane Duncan Gillis President Smiths Group plc Interim Results 2015 19
Slide 20: John Crane: Resilient performance from aftermarket services
John Crane: Resilient performance from focus on aftermarket services Underlying Underlying Headline revenue headline profit operating margin £453m £105m 23.2% Aftermarket +3% +1% +0% +0 bps First-fit OEM -2% • Excluding upstream oil services, underlying revenue grew 3% • Revenue growth from aftermar
Slide 21: John Crane: A strong platform for value creation
John Crane: A strong platform for value creation Addressed manufacturing constraints for rotating equipment • 10% increase in machining capacity • Added in existing lower cost facilities Revenue from emerging markets up 11%; now 25% of sales • Good growth in Mexico and Nigeria Good progress on cross
Slide 22: John Crane: Operating in a low oil price environment
John Crane: Operating in a low oil price environment Aftermarket focus expected to support resilience of revenues • Predictable revenues from large installed base Bias towards mid- and downstream applications in oil and gas 63% - aftermarket Segment Market dynamics 12 mth Outlook Downstream & • Low
Slide 23: John Crane: Outlook
John Crane: Outlook John Crane gas seal service engineer in Singapore’s super-service centre Outlook • Second half trading performance expected to ease slightly versus the prior year • Upstream oil services business expected to decline with lower oil price environment • Aftermarket revenues for rota
Slide 24: Smiths Medical
Smiths Medical Jeff McCaulley President Smiths Group plc Interim Results 2015 24
Slide 25: Smiths Medical: Strong growth from infusion and disposables recovery
Smiths Medical: Strong growth from focus on infusion and disposables recovery Underlying Underlying Headline revenue headline profit operating margin +19% £406m £78m 19.0% Medication delivery Vital care +0% +6% +9% +70 bps Safety devices +3% • Strong underlying revenue growth driven by targeted exec
Slide 26: Smiths Medical: Building a platform for sustainable growth
Smiths Medical: Building a platform for sustainable growth Investing in new products • Investment up 13% to 5.3% of sales (2014: 4.9%) • Recent product launches are delivering growth: CADD, Medfusion 4000, Jelco IntuitIV and ViaValve • Significant focus on innovation and pipeline execution to improv
Slide 27: Smiths Medical: Outlook
Smiths Medical: Outlook Programming the CADD®-Solis pump before testing delivery accuracy Outlook • Full year performance will moderate compared to H1 – against a strong comparator • Medication delivery is expected to perform well, but the growth rate will slow • Margins expected to show modest impr
Slide 28: Smiths Detection
Smiths Detection Richard Ingram President Smiths Group plc Interim Results 2015 28
Slide 29: Smiths Detection: Tough trading environment
Smiths Detection: Tough trading environment; actions are stabilising performance Underlying Underlying Headline revenue headline profit operating margin Transportation (5)% £231m £24m10.3% Ports & borders Military (55)% +1% (5)% (15)% (150) bps Emergency responders (2)% Critical infrastructure +36%
Slide 30: Smiths Detection: Business improvement plan gaining traction
Smiths Detection: Business improvement plan is gaining traction Building our installed base and expanding our aftermarket • Aftermarket grew 11% and now represents more than a third of revenue • Contract wins have increased and will build installed base during FY16 • Continuing to focus on growth ma
Slide 31: Smiths Detection: Outlook
Smiths Detection: Outlook The new Training & Service Centre for the Americas provides aftermarket maintenance and support services Outlook • Rate of sales decline in H1 is likely to persist during H2 • Reported profit should recover against a comparator affected by one-off costs • Like-for-like H2 m
Slide 32: Smiths Interconnect
Smiths Interconnect Roland Carter President Smiths Group plc Interim Results 2015 32
Slide 33: Smiths Interconnect: Performance affected by tough trading
Smiths Interconnect: Performance affected by tough trading conditions Underlying Underlying Headline revenue headline profit operating margin Connectors (4)% £198m £18m 9.2% Microwave (12)% (6)% (33)% (390) bps Power +4% • Revenues affected by delays in customer spending and some programme slowdowns
Slide 34: Smiths Interconnect: Focused on growth initiatives and efficiencies
Smiths Interconnect: Focused on growth initiatives and efficiencies New product development focused on high growth markets • Total R&D spend (including customer-funded) maintained as % of sales at 6.5% or £13m • New product initiatives include: - Next generation semiconductor test sockets - Tail-mou
Slide 35: Smiths Interconnect: Outlook
Smiths Interconnect: Outlook High-performance test equipment is assembled at a Smiths Interconnect plant in San Jose, Costa Rica Outlook • Commercial markets, such as Medical, are expected to improve • Defence market showing signs of stabilisation • Expect continued capex constraints for US wireless
Slide 36: Flex-Tek
Flex-Tek Tedd Smith President Smiths Group plc Interim Results 2015 36
Slide 37: Flex-Tek: Growth from US construction and specialty heating
Flex-Tek: Growth from US construction and specialty heating; strong margin boost Underlying Underlying Headline revenue headline profit operating margin Fluid Management +1% £128m £23m 18.1% Construction +4% +4% +3% (20) bps Heat Solutions +13% Flexible Solutions (2)% • Revenue growth from specialty
Slide 38: Flex-Tek: Increased investment in new products and sales & marketing
Flex-Tek: Increased investment in new products and sales & marketing Increasing new product investment to drive innovation • R&D spend up 23% • New product initiatives include: - Hoses for next generation aircraft - New heating technologies to support specialty growth Sales and marketing excellence
Slide 39: Flex-Tek: Outlook
Flex-Tek: Outlook High pressure pipeline hose transfers natural gas at temperatures o down to -73 C at pressure up to 345 bar Outlook • Residential construction market should see steady modest growth • Commercial aerospace demand is likely to remain muted until the new programmes benefiting our prod
Slide 40: Operational priorities for 2015
Operational priorities for 2015 Continue to reposition the business profile to accelerate sales growth Implement the divisional improvement plans – particularly in Detection Increase investment in growth drivers: new products, emerging markets Deliver the benefits of Fuel for Growth Smiths Group plc
Slide 41: Questions & Answers
Interim Results 18 March 2015 Questions & Answers investor.relations@smiths.com www.smiths.com Smiths Group plc Interim Results 2015 41
Slide 42: Appendix
Appendix We bring technology to life safer to help make the world… healthier and more productive investor.relations@smiths.com www.smiths.com Smiths Group plc Interim Results 2015 42
Slide 43: John Crane
John Crane Contribution to A world-leading provider of engineered 2014 Group revenue: 32% products and services for a global customer base across the energy services sector. Contribution to 2014 Operating in more than 50 countries with more headline operating profit: Percentage relates to headline 4
Slide 44: John Crane
John Crane Our products and services help ensure the reliability of mission-critical equipment in challenging operating environments. In addition to lowering total cost of ownership of equipment, our products reduce emissions and help our customers meet environmental responsibilities. For nearly 100
Slide 45: John Crane: Margins maintained amid tougher market conditions
John Crane: Margins maintained amid tougher market conditions £m 2015 2014 reported underlying Revenue 453 469 (3)% 1% Headline operating profit 105 109 (3)% 0% Margin 23.2% 23.2% 0 bps ROCE 26.5% 26.5% 0 bps Headline operating profit £m • Volume: Decrease, primarily in first fit and upstream oil se
Slide 46: Smiths Medical
Smiths Medical Contribution to A leading supplier of specialty medical 2014 Group revenue: 27% devices and consumables for global markets. Contribution to 2014 headline operating profit: Percentage relates to headline 30% operating profit before corporate costs Employees: (2014) 7,850 2014 Revenue b
Slide 47: Smiths Medical
Smiths Medical In medication delivery, our devices help treat patients with acute and chronic disease and relieve pain. Our vital care products help reduce hospital-acquired infections, manage patients’ airways before, during and after surgery, maintain body temperature and assist reproduction throu
Slide 48: Smiths Medical: Improved margins due to higher volumes
Smiths Medical: Improved margins due to higher volumes and efficiencies £m 2015 2014 reported underlying Revenue 406 389 4% 6% Headline operating profit 78 71 9% 9% Margin 19.0% 18.3% 70 bps ROCE 15.1% 15.3% (20) bps Headline operating profit £m • Volume: Strong growth in ambulatory infusion 2013/14
Slide 49: Smiths Detection
Smiths Detection Contribution to A world-leading designer and manufacturer 2014 Group revenue: 17% of sensors that detect and identify explosives, weapons, chemical agents, Contribution to 2014 biohazards, nuclear & radioactive material, headline operating profit: Percentage relates to headline 5% o
Slide 50: Smiths Detection
Smiths Detection Our comprehensive range of detection technologies, including X-ray, trace detection and infra-red spectroscopy help customers in the global transportation, ports and borders, critical infrastructure, military and emergency responder markets. Principal Customers: A significant majori
Slide 51: Smiths Detection: Margins affected by tough trading
Smiths Detection: Margins affected by tough trading £m 2015 2014 reported underlying Revenue 231 251 (8)% (5)% Headline operating profit 24 30 (20)% (15)% Margin 10.3% 11.8% (150) bps ROCE 3.1% 8.6% (550) bps Headline operating profit £m • Volume: Declines in transportation, ports & borders and mili
Slide 52: Smiths Interconnect
Smiths Interconnect Contribution to A recognised leader in technically 2014 Group revenue: 15% differentiated electronic components and sub-systems providing signal, power and Contribution to 2014 microwave solutions. headline operating profit: Percentage relates to headline 13% operating profit bef
Slide 53: Smiths Interconnect
Smiths Interconnect We design and manufacture products that connect, protect and control critical systems for the global data centre, wireless telecommunications, aerospace, defence, space, medical, rail, test and industrial markets. Our products are application-specific and incorporate innovative t
Slide 54: Smiths Interconnect: Margins and volumes down
Smiths Interconnect: Margins and volumes down due to tough trading conditions £m 2015 2014 reported underlying Revenue 198 210 (6)% (6)% Headline operating profit 18 27 (33)% (33)% Margin 9.2% 13.1% (390) bps ROCE 12.0% 12.2% (20) bps Headline operating profit £m • Volume: Delays in customer spendin
Slide 55: Flex-Tek
Flex-Tek Contribution to A global provider of engineered 2014 Group revenue: 9% components that heat and move fluids and gases for the aerospace, medical, Contribution to 2014 industrial, construction and domestic headline operating profit: Percentage relates to headline 9% operating profit before c
Slide 56: Flex-Tek
Flex-Tek Our flexible hosing and rigid tubing provide fluid management for fuel and hydraulic applications on commercial and military aircraft, deliver fuel gas and conditioned air in residential and commercial buildings, and provide respiratory care for medical applications. Flex-Tek heating elemen
Slide 57: Flex-Tek: Improved volumes, price/mix; increased growth investment
Flex-Tek: Improved volumes, price/mix; increased growth investment £m 2015 2014 reported underlying Revenue 128 123 4% 4% Headline operating profit 23 22 3% 3% Margin 18.1% 18.3% (20) bps ROCE 33.7% 32.7% 100 bps Headline operating profit £m • Volume: Driven by US residential construction, specialty
Slide 58: Interim results 2015
Interim results 2015 £m Headline* Statutory 2015 2014 2015 2014 reported underlying# Revenue 1,416 1,442 (2)% 1% 1,416 1,442 Operating profit 232 245 (5)% (3)% 164 170 Operating margin 16.4% 17.0% (60) bps - 11.6% 11.8% Pre-tax profit 208 215 (3)% 0% 131 132 Basic EPS (p) 38.5 39.5 (3)% 21.8 23.7 Fr
Slide 59: Underlying headline revenue and profit performance
Underlying headline revenue and profit performance Revenue Operating profit growth growth John Crane +1% 0% Smiths Medical +6% +9% Smiths Detection -5% -15% Smiths Interconnect -6% -33% Flex-Tek +4% +3% Group +1% -3% Smiths Group plc Interim Results 2015 59
Slide 60: Return on capital reduced with lower profit in Detection and Interconnect
Return on capital reduced with lower profit in Detection and Interconnect % 35.0 34.0% 12 months to 31 January 2015 32.7% 12 months to 31 January 2014 30.0 26.5% 26.5% 25.0 20.0 16.6% 15.4% 15.3% 15.1% 15.0 12.2% 12.0% 10.0 8.6% 5.0 3.1% 0.0 Smiths Group Flex-Tek John Crane Smiths Medical Smiths Int
Slide 61: Strong balance sheet supports growth investment
Strong balance sheet supports growth investment Interest split Currency split Debt split Net debt £m Borrowings 1,107 USD Cash (178) Fixed Euro Bank Floating other Public Net debt 929 £m Weighted average life of debt is 4.3 years Credit Rating: 320 280 BBB+ (stable)/Baa2 (stable) 240 200 $800m Revol
Slide 62: Net debt increased by £125m to £929m
Net debt increased by £125m to £929m £m 2015 Net debt at start of period (804) Operating cash (after capex etc.) 204 Interest and tax (71) Exceptionals/Pensions (75) Free cash flow 58 Dividends (108) Financing acquisitions, investments and disposals (1) Foreign exchange (47) Purchase of own shares l
Slide 63: Asbestos litigation
Asbestos litigation Key facts Key figures • Production ceased in 1985 Gross provision £249m • Exposure within John Crane, Inc. Discounted pre-tax provision £232m • Resists claims based on ‘safe product’ defence Claims dismissed 237,000 Claims outstanding 79,000 • Provision determined using independe