Smiths Group PLC · LSE:SMIN
Smiths — H1 2009 Earnings Presentation
44 slides from Smiths's earnings presentation, Mar 25, 2009
Slide 1: Smiths Group, Interim Results
Smiths Group, Interim Results London, 25 March 2009
Slide 2: Forward-looking statements
This presentation contains certain forward-looking statements with respect to the operations, performance and financial condition of the Group. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from tho
Slide 3: Introduction
Introductio n Philip Bowman, Chief Executive Smiths Group plc Interim Results 2009 | 3
Slide 4: Agenda
Agenda 1 Highlights Financial Review 2 Operational Review and Priorities 3 Smiths Group plc Interim Results 2009 | 4
Slide 5: Business highlights
Business highlights Challenging economic environment Sales increased by 19%; underlying down 3% Drivers of reported sales growth: • Strong organic growth at John Crane • Currency translation and recent acquisitions Headline operating profit up 17%, underlying down 10% Significant improvement in cash
Slide 6: Opportunities to create value - key steps
Opportunities to create value - key steps Restructuring Restructuring initiatives are already delivering savings Extended our portfolio and presence through two Acquisitions acquisitions in China Better systems Made good progress with the deployment of better business systems Portfolio profita
Slide 7: Financial review
Financial review John Langston, Finance Director Smiths Group plc Interim Results 2009 | 7
Slide 8: Interim results 2009
Interim results 2009 Headline* Statutory £m 2009 2008 2009 2008 Continuing activities Reported Underlying** Sales 1,292 1,088 19% (3)% 1,292 1,088 Operating profit 185 158 17% (10)% 160 170 Margin 14.3% 14.5% - - 12.4% 15.6% Pre-tax profit 167 159 5% (17)% 135 165 Basic EPS (p) 32.5 30.8 6% 28.0 34.
Slide 9: Profit progression 2008 to 2009
Profit progression 2008 to 2009 • Volume: Driven by Detection, Flex-Tek and Medical Pensions/ financing • Operational costs: Includes higher R&D, inflationary increases in labour and material costs offset by efficiencies in freight and overheads £18m PBT: £28m £167m PBT: £159m Currency £11m £16m Vol
Slide 10: Detection: Affected by variable order flow - ports & borders
Smiths Detection: Affected by variable order flow - ports & borders £m 2009 2008 reported underlying Sales 233 222 +5% (11)% Operating profit 24 35 (32)% (45)% Margin 10.2% 15.8% Operating profit £m 2007/08 35 • Volume: Decline driven by ports Volume (14) and borders Mix 3 • Mix: Improved contract m
Slide 11: John Crane: Strong petrochemical demand
John Crane: Strong petrochemical demand £m 2009 2008 reported underlying Sales 393 283 +39% +6% Operating profit 66 41 +62% +18% Margin 16.8% 14.4% Operating profit £m • Volume: Strong OEM order book 2007/08 41 and high aftermarket demand Volume 8 • Pricing: Net benefit Price 5 • Operational: Inflat
Slide 12: Medical: Weak hardware market; recovery from supply chain issues
Smiths Medical: Weak hardware market; recovery from supply chain issues £m 2009 2008 reported underlying Sales 403 346 +16% (3)% Operating profit 77 67 +15% (6)% Operating margin 19.1% 19.3% Operating profit £m • Volume: Lower hardware sales 2007/08 67 & recovery from supply chain issues Volume (5)
Slide 13: Interconnect: Good growth from military; wireless slower
Smiths Interconnect: Good growth from military; wireless slower £m 2009 2008 reported underlying Sales 152 121 +25% (2)% Operating profit 24 23 +3% (20)% Margin 15.7% 19.2% Operating profit £m 2007/08 23 • Mix: Lower wireless sales Mix (2) • One-off restructuring costs Restructuring costs (2) • M&A:
Slide 14: Flex-Tek: Facing challenging markets; growth in aerospace
Flex-Tek: Facing challenging markets; growth in aerospace Specialty - Other (£m) 2009 2008 reported underlying Sales 111 100 +12% (11)% Operating profit 11 11 +3% (17)% Margin 9.7% 10.6% Operating profit £m 2007/08 11 • Volume: Declines in US housing Volume (6) and appliances Price 5 • Price: Across
Slide 15: Reconciliation: Headline operating profit to statutory profit
Reconciliation: Headline operating profit to statutory profit £m Headline operating profit 185.1 Profit on disposal of businesses 0.7 Profit on disposal of property 13.5 John Crane litigation - mark to market (8.6) John Crane litigation - other (7.6) Corporate and divisional restructuring (8.4) Exce
Slide 16: Exceptional items: Restructuring costs and benefits
Exceptional items: Restructuring costs and benefits £m Costs Costs Total Savings Full annualised 2009 to date costs to date benefits HQ 2 5 9 3 5 IT - - 6 - 8 John Crane 3 5 24 3 25 Medical 1 1 4 - 2 Flex-Tek 2 2 5 2 7 Total 8 13 48 8 47 Smiths Group plc Interim Results 2009 | 16
Slide 17: Improved operating cash
Improved operating cash £m (for continuing activities) 2009 2008 Headline operating profit 185 158 Changes in working capital (35) (55) Share based payment 8 7 Capital expenditure (Property, plant & equipment) (26) (24) Depreciation 30 24 Development costs & other intangibles (net of amortisation an
Slide 18: Net debt increased by £204m to £975m
Net debt increased by £204m to £975m driven by FX and acquisitions £m 2009 Net debt at start of period (771) Operating cash (after capex etc) 154 Interest and tax (36) Exceptionals (14) Free cash flow 104 Dividends (91) Acquisitions/disposals (41) Financing (41) Foreign exchange (118) Movement in fa
Slide 19: Pro-forma debt analysis - Post Pricoa $175m private placement
Pro-forma debt analysis - Post Pricoa $175m private placement (as at 31st January 2009) Interest split Currency split* Debt split Net debt £m GBP Borrowings 998 Euro Fixed USD Bank Less net cash (23) Floating other Public Net debt 975 Weighted average life of debt over 4.0 years Credit Rating 400 30
Slide 20: Pensions: Increase in deficit
Pensions: Increase in deficit Funding and balance sheet P&L and cash 31 January 31 July 2009 2008 Funded plans: 2009 UK plans - funding status 94% 106% Finance income US plans - funding status 64% 89% £2m Other plans - funding status 77% 81% Cash contributions £20m Surplus/(deficit): £m £m Funded pl
Slide 21: Financials: Conclusion
Financials: Conclusion Significantly improved free cash flow Investment in growth: R&D, acquisitions and restructuring Strong balance sheet: Good available credit facilities to fund growth A healthy platform for future growth and driving returns Smiths Group plc Interim Results 2009 | 21
Slide 22: Operational review and priorities
Operational review and priorities Philip Bowman, Chief Executive Smiths Group plc Interim Results 2009 | 22
Slide 23: Key developments in the Group
Key developments in the Group HQ restructuring complete • Reduction in headcount • Moved to smaller offices in central London • Delivered savings of £3m Improvement of business systems • Good progress on ERP systems in divisions • Group information platform is creating procurement opportunities - 15
Slide 24: Detection: Variable order flow has affected sales
Smiths Detection: Variable order flow has affected sales 2009 H1 Sales 2009 H1 Op. profit FY 2008 sales £233m £24m by sector £m (11)% growth 10% margin Transportation Critical infrastructure Ports & borders Transportation - flat Military • Good growth in US with roll-out of new technology • Europe s
Slide 25: Detection: Investing in future growth through R&D
Smiths Detection: Investing in future growth through R&D • Company-funded R&D increased to £15m or 6.5% of sales • Total spend increased to £22m; 9.4% of sales • Developing next generation of cargo-screening • Launched eqo - mm wave advanced people-screener • Biological detection - veterinary and cl
Slide 26: Detection: Operational priorities
Smiths Detection: Operational priorities • Roll out airport checkpoint & cargo screening systems • Launch new generation products • Implement cost reduction initiatives • ERP implementation Outlook • Healthy level of tender activity and new business interest • Benefits from leadership position, tech
Slide 27: John Crane: Strong growth driven by oil and gas
John Crane: Strong growth driven by oil and gas 2009 H1 Sales 2009 H1 Op. profit FY 2008 sales £393m £66m by sector £m 6% growth 17% margin Petrochemical Chemical/Pharmaceutical Commercial & refrigeration Underlying demand from petrochemical sector Industrial, pulp & paper, mining Expansion of globa
Slide 28: John Crane: Recent acquisitions performing well
John Crane: Recent acquisitions performing well John Crane Production Solutions has been formed • Double digit growth rates • CDI recently completed a major refit programme in Romania • Fiberod supports launch of solar-powered pump Indufil integration on track • Beginning to leverage the global netw
Slide 29: John Crane: Restructuring for better customer service and lower costs
John Crane: Restructuring for better customer service and lower costs • Integration of two regional organisations: Americas and RoW • Strategy and planning managed centrally • Global approach to engineering, supply chain, finance, IT, HR • Sales and servicing close to customers in the regions • Impr
Slide 30: John Crane: Operational priorities
John Crane: Operational priorities • Implement restructuring programme - global John Crane • Service centre growth • ERP implementation • Build the business through acquisitions Outlook • Aftermarket sales remain stable • OEM order book remained strong and will underpin H2 sales • OEM orders have be
Slide 31: Medical: Operational highlights
Smiths Medical: Operational highlights 2009 H1 Sales 2009 H1 Op. profit FY 2008 sales £403m £77m by sector £m (3)% growth 19% margin Medication Delivery Vital Care Safety Devices 80% of sales from disposables - better performance Pressure on hospital capital budgets Medication Delivery - sales down
Slide 32: Medical: Good progress in supply chain issues & restructuring
Smiths Medical: Good progress in supply chain issues & restructuring 24 month improvement programme delivering results Customer backorders have been reduced to a 5 year low North America benefited most from improvements International - contracting cycle is taking longer to win back customers ERP imp
Slide 33: Medical: Portfolio profitability review and exit from diabetes
Smiths Medical: Portfolio profitability review and exit from diabetes Opportunities: pricing, minimum order quantities, customer management and complexity reduction Rationalisation of SKU portfolio - eliminate 3k out of 13k low volume SKUs Early outcome is decision to exit diabetes business - Cozmo
Slide 34: Medical: Investing in growth opportunities
Smiths Medical: Investing in growth opportunities R&D investment was £14m or 3.4% of sales (2008: 3.6%) Selection of new product launches: • SmartX - wireless blood pressure monitoring • UniPerc - tracheostomy tube for large patients • CADD Solis - new language variants Investing in growth markets -
Slide 35: Medical: Operational priorities
Smiths Medical: Operational priorities • Exploit opportunities from the SKU and customer profitability review • Implement exit from diabetes business • Continue ERP implementation and improve supply chain • Optimise R&D spend across the portfolio and launch new products in growth markets Outlook • P
Slide 36: Interconnect: Good growth from military; wireless slower
Smiths Interconnect: Good growth from military; wireless slower 2009 H1 Sales 2009 H1 Op. profit FY 2008 sales £152m £24m by sector £m (2)% growth 16% margin Military/Aerospace Wireless Medical Margins impacted by restructuring costs Other Military - sales increased through US programmes - • MDAS -
Slide 37: Interconnect: Building the business through acquisition
Smiths Interconnect: Building the business through acquisition Allrizon Tongguang and Triasx • Expanded RF filter footprint in Asia Pacific - design, manufacture and sales capabilities • Acquisitions made in summer 2008 have integrated well Dowin - based in Shenzhen, China • Purchase agreed subject
Slide 38: Interconnect: Operational priorities
Smiths Interconnect: Operational priorities • Focus on cost control • Geographic expansion in Asia Pacific • Deliver major customer requirements to maintain momentum in key contracts Outlook • Continued investment in military communications • Wireless and other sectors are likely to remain challengi
Slide 39: Flex-Tek: Facing challenging markets; growth in aerospace
Flex-Tek: Facing challenging markets; growth in aerospace 2009 H1 Sales 2009 H1 Op. profit FY 2008 sales £111m £11m by sector £m (11)% growth 10% margin Housing Appliances Aerospace Aerospace - delivered continued growth in sales & profit Medical Flexible Solutions - affected by household appliance
Slide 40: Flex-Tek: Restructuring to drive operational efficiencies
Flex-Tek: Restructuring to drive operational efficiencies Restructuring programme • Drive efficiencies • Leverage scale • Closure of factories: Glasgow, UK and Elmhurst, Illinois £m Costs Future Benefits Full annualised to date costs to date benefits Flex-Tek 2 3 2 7 Smiths Group plc Interim Results
Slide 41: Flex-Tek: Operational priorities
Flex-Tek: Operational priorities • Expand non-construction markets, e.g. aerospace & medical • Asian growth potential in industrial and appliance markets • Deliver the restructuring programme Outlook • Uncertainty in US housing and appliances • Seek growth opportunities in other markets while reduci
Slide 42: Group: Opportunities to create value
Smiths Group: Opportunities to create value Sales growth* Margins Smiths Driven by changing threats, Detection technology & legislation 10-12% 17-20% Petrochemical investment John Crane driven by energy consumption 6-8% 17-22% Smiths Driven by demography, Medical outcomes & economics 3-5% 20-24% Smi
Slide 43: Group: Opportunities to create value
Smiths Group: Opportunities to create value Portfolio well-placed to withstand pressures of a downturn Expand margins through a programme of self-help Deliver restructuring programmes to improve margins Upgrading our business systems to drive faster data-based decisions Revenue growth opportunities
Slide 44: Questions & Answers
sm.ths bringing technology to life Questions & Answers