Smiths Group Plc · LSE:SMIN
Smiths — FY2010 Earnings Presentation
41 slides from Smiths's earnings presentation, Sep 29, 2010
Slide 1: Annual Results 29 September 2010
Annual Results 29 September 2010 Smiths Group plc Annual Results 2010 | 1 investor.relations@smiths.com www.smiths.com
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
Introduction Philip Bowman Chief Executive Smiths Group plc Annual Results 2010 | 3
Slide 4: Business highlights
Business highlights Reported sales up 4%; underlying flat - driven by 5% growth in H2 Margins improve 210 basis points to 17.8% - a ten year high Positive margin development across all divisions Headline operating profit up 18%, underlying up 14% Significant improvement in cash generation - free cas
Slide 5: Results benefited from key operational achievements
Results benefited from key operational achievements Restructuring initiatives delivered savings of £24m; £41m to date Delivering Restructuring programme extended - £20m of additional savings operational efficiencies Portfolio profitability reviews improving pricing and margins Leveraging sca
Slide 6: A primary focus on safety is delivering continued improvements
A primary focus on safety is delivering continued improvements Recordable & lost time incident rates have been improving 4.63 Lost time incident rate Recordable incident rate 2.75 Incident rate 2.58 1.89 1.25 1.15 1.21 1.07 1.03 0.86 0.71 0.54 0.51 0.30 2004 2005 2006 2007 2008 2009 2010 *Measured p
Slide 7: Financial review
Financial review Peter Turner Finance Director Smiths Group plc Annual Results 2010 | 7
Slide 8: Annual results 2010
Annual results 2010 £m Headline* Statutory 2010 2009 2010 2009 Continuing activities Reported Underlying** Sales 2,770 2,665 4% 0% 2,770 2,665 Operating profit 492 418 18% 14% 436 429 Margin 17.8% 15.7% - - 15.7% 16.1% Pre-tax profit 435 371 17% 14% 373 371 Basic EPS (p) 84.6 72.4 17% 75.3 70.8 Free
Slide 9: Profit progression 2009 to 2010
Profit progression 2009 to 2010 • Volume: Lower across all divisions - except Pensions/ Smiths Detection financing • Manufacturing improvements: Value £9m PBT: engineering and other restructuring initiatives £21m £435m • Procurement savings: Group-wide leveraging scale programme and other benefits •
Slide 10: Smiths Detection: Strong growth, improving margins
Smiths Detection: Strong growth, improving margins £m 2010 2009 reported underlying Sales 574 501 +15% +13% Operating profit 90 63 +43% +40% Margin 15.7% 12.6% Operating profit £m • Volume: Higher volumes driven primarily by 2008/09 63 transportation and ports & borders Volume 23 • R&D: Increased in
Slide 11: John Crane: Restructuring programme delivered margin improvement
John Crane: Restructuring programme delivered margin improvement £m 2010 2009 reported underlying Sales 786 790 (1)% (5)% Operating profit 163 143 +14% +9% Margin 20.7% 18.1% Operating profit £m • Volume: Mainly due to declining OEM sales 2008/09 143 • Pricing: Net benefit mainly in aftermarket Volu
Slide 12: Smiths Medical: Showing strong margin improvement
Smiths Medical: Showing strong margin improvement £m 2010 2009 reported underlying Sales 858 834 +3% 0% Operating profit 184 164 +12% +10% Operating margin 21.5% 19.7% Operating profit £m • Volume: Exit from diabetes offset by volume 2008/09 164 improvements in other products Volume (4) • Price: Inc
Slide 13: Smiths Interconnect: Restructuring delivering margin improvements
Smiths Interconnect: Restructuring delivering margin improvements £m 2010 2009 reported underlying Sales 340 318 +7% (3)% Operating profit 62 56 +12% +3% Margin 18.2% 17.4% Operating profit £m • Volume: Primarily wireless and 2008/09 56 industrial sectors Volume (2) • Operational efficiencies: Overh
Slide 14: Flex-Tek: Driving cost efficiencies to enhance margins
Flex-Tek: Driving cost efficiencies to enhance margins £m 2010 2009 reported underlying Sales 212 222 (5)% (6)% Operating profit 24 22 +7% +6% Margin 11.1% 9.9% Operating profit £m • Volume: Declines primarily in Aerospace 2008/09 22 and Heat Solutions Volume (4) • Procurement savings: Benefits from
Slide 15: Reconciliation: Headline operating profit to statutory profit
Reconciliation: Headline operating profit to statutory profit £m Headline operating profit 492 Corporate and divisional restructuring (8) Gains on changes to post-retirement benefits 4 Profit on disposal of businesses and property 9 Cost of acquisitions (1) John Crane litigation - provision (18) Exc
Slide 16: Exceptional items: Restructuring programme ahead of plan and extended
Exceptional items: Restructuring programme ahead of plan and extended £m 2010 Savings Forecast Programme savings to date benefits John Crane 12 19 25 Costs to date: £36m Medical 2 3 3 Total planned costs: Flex-Tek 4 8 9 £45m IT 6 6 8 Total planned savings: HQ Completed 5 5 £50m Total 24 41 50 Extend
Slide 17: Improved operating cash
Improved operating cash £m (for continuing activities) 2010 2009 Headline operating profit 492 418 Changes in working capital 43 16 Share based payment 10 9 Capital expenditure (Property, plant & equipment) (40) (54) Depreciation 66 65 Development costs & other intangibles (6) (19) (net of amortisat
Slide 18: Strong free cash flow reduced net debt
Strong free cash flow reduced net debt £m 2010 Net debt at start of period (885) Operating cash (after capex etc.) 565 Interest and tax (139) Exceptionals (95) Free cash flow 331 Dividends (133) Acquisitions/disposals (112) Financing including net investment hedges 9 Foreign exchange (42) Movement i
Slide 19: Pensions: Funding agreement reached with UK Trustees
Pensions: Funding agreement reached with UK Trustees Deficit movement since 31 July 2009 P&L and cash £m Deficit at 31 July 2009 (339) FY 2010 Foreign exchange (10) Finance income £2m Return on assets 354 Scheme contributions £51m Contributions (net of service costs) 52 Escrow contributions £25m FY
Slide 20: Financials: Conclusion
Financials: Conclusion Results demonstrate progress on operational improvement – opportunities for reinvestment Continued strong cash performance Strong balance sheet to fund investment in growth A healthy platform for driving future growth and returns Smiths Group plc Annual Results 2010 | 20
Slide 21: Operational review and priorities
Operational review and priorities Philip Bowman Chief Executive Smiths Group plc Annual Results 2010 | 21
Slide 22: Group: Operational priorities
Smiths Group: Operational priorities • Improve margins through restructuring and Delivering ‘self-help’ programmes operational efficiencies • Upgrade our business systems to drive faster data-based decisions and leverage scale • Continue to reduce working capital as percentage Cash of sales generati
Slide 23: Group: Operational improvement is delivering results
Smiths Group: Operational improvement is delivering results Sales growth (£m) Improving margins (%) Headline operating profit margin Strong free cash flow (£) Enhancing returns (%) Return on capital employed Smiths Group plc Annual Results 2010 | 23
Slide 24: Detection: Sales growth and margin improvement
Smiths Detection: Sales growth and margin improvement 2010 Sales % 2010 Sales: £574m 2010 Operating profit: 15% reported £90m Transportation 13% underlying 15.7% margin Ports & borders Military Emergency responders Margins improved 310 basis points to 15.7% Critical infrastructure Transportation und
Slide 25: Detection: Continuing to invest for the future through R&D
Smiths Detection: Continuing to invest for the future through R&D • Company funded R&D increased 3% to £36m or 6.2% of sales • Total spend of £44m; 7.6% of sales (including customer-funded R&D of £8m) • Agreement with Analogic to develop next generation checked baggage scanner: - Progressing well -
Slide 26: Detection: Operational priorities
Smiths Detection: Operational priorities • Continue investment in new product development • Accelerate development of body image screener - eqo • Roll out airport checkpoint & cargo screening systems • Implement cost reduction initiatives Outlook • Well-positioned for growth in transportation and po
Slide 27: John Crane: Margins benefiting from cost saving initiatives
John Crane: Margins benefiting from cost saving initiatives 2010 Sales % 2010 Sales: £786m 2010 Operating profit: (1)% growth £163m First-fit OEM 37% (5)% underlying 20.7% margin Aftermarket 63% Oil, gas & petrochemical Margins improved 260 basis points to 20.7% Chemical and pharma • Restructuring p
Slide 28: John Crane: Driving efficiencies and investing in future growth
John Crane: Driving efficiencies and investing in future growth Restructuring programme is on track • Delivered FY savings of £12m; cumulative savings of £19m • Total annualised savings planned of £25m Investing in future growth • Expanding service centre network - US, Poland, Singapore, and New Zea
Slide 29: John Crane: Operational priorities
John Crane: Operational priorities • Expand service centre footprint – exploit growth opportunities in emerging markets • Complete restructuring programme - global John Crane • Consolidate benefits from ERP programme Outlook • John Crane’s order book has continued to build – subject to continued cus
Slide 30: Medical: Delivering positive sales momentum and margin growth
Smiths Medical: Delivering positive sales momentum and margin growth 2010 Sales % 2010 Sales: £858m 2010 Operating profit: 2% underlying growth £184m excluding diabetes* 21.5% margin Medication Delivery Vital Care Positive sales momentum has continued - excluding diabetes Safety Devices Margins boos
Slide 31: Medical: Investing in growth opportunities
Smiths Medical: Investing in growth opportunities Sales from products launched in last three years up 16% year-on-year • New product launches ahead of schedule • Focus on fewer R&D projects for greater impact - faster execution Selection of new product launches: • Roll-out to new markets: UniPerc™;
Slide 32: Medical: Operational priorities
Smiths Medical: Operational priorities • Build on new global organisation in sales & marketing and product management • Increase R&D spend to launch new products; emerging market opportunities • Continue to drive operational excellence Outlook • Sales momentum can continue although face risks from h
Slide 33: Interconnect: Delivering margin growth; launching new products
Smiths Interconnect: Delivering margin growth; launching new products 2010 Sales % 2010 Sales: £340m 2010 Operating profit: 7% reported £62m (3)% underlying 18.2% margin Military/Aerospace Wireless Medical, rail, automation Military/aerospace – underlying sales up 6% helped by strong H2 and test • S
Slide 34: Interconnect: Investing in growth drivers
Smiths Interconnect: Investing in growth drivers Acquisition integration complete - performing ahead of expectations • Interconnect Devices Inc. (IDI) adds new range of spring probe connectors • Channel Microwave complements the microwave components portfolio • Meets our criteria of adding complemen
Slide 35: Interconnect: Operational priorities
Smiths Interconnect: Operational priorities • Deliver benefits from the recent acquisitions • Continue to develop new products to meet customer needs • Deliver major customer requirements to maintain momentum in key contracts • Implement restructuring to drive operational efficiencies Outlook • Mili
Slide 36: Flex-Tek: Restructuring enhancing margins in tough sales environment
Flex-Tek: Restructuring enhancing margins in tough sales environment 2010 Sales % 2010 Sales: £212m 2010 Operating profit: (5)% reported £23m (6)% underlying 11.1% margin Aerospace Flexible Solutions Heat Solutions Restructuring programme delivering savings and margins • Savings to date of £8m, £4m
Slide 37: Flex-Tek: Investment in new product development
Flex-Tek: Investment in new product development Several new product launches • New product: FlashShield - gas piping with lightning protection • Corrugated stainless steel tube: conduit for harsh environments • New LNG fuel hose products for natural gas vehicles Image: courtesy Chesapeake Energy Smi
Slide 38: Flex-Tek: Operational priorities
Flex-Tek: Operational priorities • Roll-out new product launches • Asian growth potential in industrial and appliance markets • Deliver the benefits from cost saving initiatives Outlook • US housing market has shown some signs of improvement; aerospace is likely to remain challenging • Deliver cost
Slide 39: Group: Operational priorities
Smiths Group: Operational priorities • Improve margins through restructuring and Delivering ‘self-help’ programmes operational efficiencies • Upgrade our business systems to drive faster data-based decisions and leverage scale • Continue to reduce working capital as percentage Cash of sales generati
Slide 40: Questions & Answers
Questions & Answers Smiths Group plc Annual Results 2010 | 40 investor.relations@smiths.com www.smiths.com
Slide 41: Strong balance sheet underpins our plans
Strong balance sheet underpins our plans Interest split Currency split* Debt split Net debt £m Borrowings 1010 USD Less net cash (173) Fixed Euro Bank Floating other Public Net debt 837 Weighted average life of debt is 6 years Credit Rating: BBB+ (neg)/ Baa2 (neg) Net debt/ EBITDA: 1.4 times £ Bonds