Smiths Group PLC · LSE:SMIN
Smiths — FY2011 Earnings Presentation
43 slides from Smiths's earnings presentation, Sep 28, 2011
Slide 1: Annual Results 28 September 2011
Annual Results 28 September 2011 Bringing technology to life 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 2011 | 3
Slide 4: Results highlights
Results highlights Reported sales up 3%; underlying up 1% Headline operating profit up 5%, underlying up 4% Margins improve 40 basis points to 18.2% Headline EPS up 10% to 92.7p Cash conversion strong at 95% - in line with guidance Dividend up 7% to 36.25 pence Return on capital employed up 40 basis
Slide 5: Operational highlights
Operational highlights Investing in future growth Investing in future growth through new product development – Company funded R&D investment up 5% to £99m Increased investment in sales and marketing – Sales and marketing investment up 3% to support future growth Investing in targeted acquisitions –
Slide 6: Safety remains our top priority, resulting in continued improvement
Safety remains our top priority, resulting in continued improvement Recordable & lost time incident rates have been improving 4.63 Lost time incident rate Recordable incident rate * 2.75 2.58 Incident rate * 1.89 1.25 1.21 1.07 1.15 1.03 0.86 0.71 0.66 0.54 0.51 0.30 0.28 2004 2005 2006 2007 2008 20
Slide 7: Financial review
Financial review Peter Turner Finance Director Smiths Group plc Annual Results 2011 | 7
Slide 8: Annual results 2011
Annual results 2011 £m Headline* Statutory 2011 2010 2011 2010 Continuing activities reported underlying** Sales 2,842 2,770 3% 1% 2,842 2,770 Operating profit 517 492 5% 4% 438 436 Margin 18.2% 17.8% 40 bps - 15.4% 15.7% Pre-tax profit 486 435 12% 11% 398 373 Basic EPS (p) 92.7 84.6 10% 77.8 75.3 F
Slide 9: Profit progression 2010 to 2011
Profit progression 2010 to 2011 • Volume: Benefits from John Crane, Smiths Interconnect and Flex-Tek • Price: John Crane and Flex-Tek • Mix: Negative mix in John Crane, Smiths Detection and Interconnect PBT: £486m • Investment: Increased investment in sales and marketing • Operational efficiencies:
Slide 10: Smiths Detection: Variable order flow affecting sales and margins
Smiths Detection: Variable order flow affecting sales and margins £m 2011 2010 reported underlying Sales 510 574 (11)% (13)% Operating profit 66 90 (27)% (27)% Margin 12.8% 15.7% (290) bps Operating profit £m • Volume/mix: Decline driven primarily by 2009/10 90 military and ports & borders and mix f
Slide 11: John Crane: Volumes and price drive margin; investing in sales
John Crane: Volumes and price drive margin; investing in sales £m 2011 2010 reported underlying Sales 894 786 +14% +13% Operating profit 189 163 +16% +15% Margin 21.1% 20.7% +40 bps Operating profit £m • Volume: Driven by aftermarket and OEM, 2009/10 163 particularly for oil and gas Volume 35 • Pric
Slide 12: Smiths Medical: Efficiencies deliver further margin improvements
Smiths Medical: Efficiencies deliver further margin improvements £m 2011 2010 reported underlying Sales 838 858 (2)% (3)% Operating profit 196 184 +7% +7% Operating margin 23.4% 21.5% +190 bps • Volume: Portfolio rationalisation, pressure on Operating profit £m safety devices and vital care products
Slide 13: Smiths Interconnect: Higher volumes offset by adverse price and mix
Smiths Interconnect: Higher volumes offset by adverse price and mix £m 2011 2010 reported underlying Sales 379 340 +12% +3% Operating profit 68 62 +9% (2)% Margin 17.8% 18.2% (40) bps Operating profit £m • Volume: Growth in telecoms, rail, medical, 2009/10 62 automation and test offset military decl
Slide 14: Flex-Tek: Volumes and pricing offset inflation pressures
Flex-Tek: Volumes and pricing offset inflation pressures to grow margins £m 2011 2010 reported underlying Sales 221 212 +4% +6% Operating profit 28 24 +18% +19% Margin 12.5% 11.1% +140 bps Operating profit £m • Volume: Gains in aerospace and 2009/10 24 construction sectors Volume 4 • Price: Improved
Slide 15: Delivering improved returns on capital
Delivering improved returns on capital 25.4% 25.0 FY 2011 22.2% 21.9% FY 2010 20.0 18.4% 16.6% 17.0% 16.9% 17.3% 15.7% 15.1% 15.0 13.3% % 9.8% 10.0 5.0 0.0 Smiths Group John Crane Flex-Tek Smiths Medical Smiths Smiths Detection Interconnect Return on capital employed is calculated over a rolling 12-
Slide 16: Reconciliation: Headline operating profit to statutory profit
Reconciliation: Headline operating profit to statutory profit £m Headline operating profit 516.9 Corporate and divisional restructuring (15.7) John Crane, Inc. litigation - provision (28.3) Changes in discounting (11.9) Legal defence costs (9.3) Adverse judgments (6.1) Litigation with insurers (1.0)
Slide 17: Exceptional items: Restructuring programme delivering benefits
Exceptional items: Restructuring programme delivering benefits Programme Costs to date Total planned costs Total planned savings overview £52m £62m £70m £m 2011 savings Savings to date Forecast benefits Phase I 8 49 50 Phase II 7 7 20 Total 15 56 70 2012: Estimated savings of £10m and exceptional co
Slide 18: Group cash conversion – in line with guidance
Group cash conversion – in line with guidance £m (for continuing activities) 2011 2010 Headline operating profit 517 492 Changes in working capital (47) 43 Share based payment 14 10 Capital expenditure (Property, plant & equipment) (46) (40) Depreciation 64 66 Development costs & other intangibles (
Slide 19: Net debt decreased by £108m driven by strong operating cash-flow
Net debt decreased by £108m driven by strong operating cash-flow £m 2011 Net debt at start of period (837) Operating cash (after capex etc.) 489 Interest and tax (158) Exceptionals/Pensions (95) Free cash flow 236 Dividends (136) Acquisitions/disposals (21) Financing including net investment hedges
Slide 20: Strong balance sheet supports investment in acquisitions and growth
Strong balance sheet supports investment in acquisitions and growth Interest split Currency split Debt split Net debt £m Borrowings 990 USD Liquid resources (261) Fixed Euro Bank Floating other Public Net debt 729 £m Weighted average life of debt is 4.9 years Credit Rating: 300 BBB+ (stable)/Baa2 (s
Slide 21: Pensions: Deficit reduced to £199m
Pensions: Deficit reduced to £199m, helped by improved asset returns Deficit movement since 31 July 2010 P&L and cash outlook £m FY 2011 Deficit at 31 July 2010 (305) Finance income £23m Foreign exchange 6 Scheme contributions £64m Return on assets 338 FY 2012 Contributions (net of service costs) 66
Slide 22: Financials: Conclusion
Financials: Conclusion Sales growth achieved through volumes, pricing and acquisitions Self-help initiatives deliver good progress on margins Strong cash performance in line with plans Attractive opportunities to invest and deliver superior returns Delivering cash to drive future growth and returns
Slide 23: Operational review and priorities
Operational review and priorities Philip Bowman Chief Executive Smiths Group plc Annual Results 2011 | 23
Slide 24: Creating shareholder value through long-term profitable growth
Creating shareholder value through long-term profitable growth Sales growth (£m) Delivering growth 3,000 • Exposure to markets with long-term growth characteristics 2,500 • Strong blend of technology businesses 2,000 and markets 1,500 • Investment in growth opportunities – R&D, network expansion in
Slide 25: Creating shareholder value through long-term profitable growth (cash and returns)
Creating shareholder value through long-term profitable growth Strong cash conversion (%) Focus on cash and balance sheet 120% • Strong cash characteristics and low capital investment requirements 100% • Robust balance sheet management 80% to fund our investment plans 60% 40% 2008 2009 2010 2011 Enh
Slide 26: Smiths Detection: Variable order flow has affected sales
Smiths Detection: Variable order flow has affected sales 2011 2010 Reported U’lying 2011 Sales % Sales £510m £574m (11)% (13)% 1 Transportation 43% 2 Ports & borders 15% Op profit £66m £90m (27)% (27)% 3 Military 15% 4 Emergency responders 5% Margin 12.8% 15.7% (290) bps 5 Critical infrastructure 17
Slide 27: Smiths Detection: Performance improvement programme underway
Smiths Detection: Performance improvement programme underway £m Forecast costs FY2012 Annualised benefits by end FY 2014 benefits by end FY 2014 40 15 40 • Focus on reducing fixed costs and overheads • Site rationalisation will align manufacturing footprint to business needs • Opportunities in mater
Slide 28: Smiths Detection: Investing in future growth through new products
Smiths Detection: Investing in future growth through new products • Company funded R&D increased as % of sales to 6.9% - up from 6.2% • Total spend of £43m; 8.5% of sales (including customer-funded R&D of £8m) • RadSeeker launched: detection and identification of radiological and nuclear threats • D
Slide 29: Smiths Detection: Outlook
Smiths Detection: Outlook Outlook • Sales affected by security regulations, government budgets and incidents • Sales environment likely to remain challenging • Margins will benefit from cost savings and operational efficiencies • Longer term, well positioned to benefit from leadership position Smith
Slide 30: John Crane: Delivering sales growth, improving margins and returns
John Crane: Delivering sales growth, improving margins and returns 2011 2010 Reported U’lying 2011 Sales % Sales £894m £786m 14% 13% 1 First-fit OEM 37% Op profit £189m £163m 16% 15% Aftermarket 2 Oil, gas & petrochem 39% Margin 21.1% 20.7% 40 bps 3 Chemical and pharma 8% 4 Distributors 7% Strong sa
Slide 31: John Crane: Investing in future growth
John Crane: Investing in future growth Expanding the service centre network and manufacturing in emerging markets • New manufacturing and service centre in Saudi Arabia • Expansion of service and manufacturing in Dubai • New product lines launched in China Acquisition to expand the aftermarket offer
Slide 32: John Crane: Outlook
John Crane: Outlook Outlook • Strong book-to-bill ratio supports first half growth • Full year sales will be subject to customer investment in capital projects • Margins will benefit from higher volumes and cost savings • Reinvest savings in network expansion and growth opportunities Smiths Group pl
Slide 33: Smiths Medical: Delivering margin growth in a challenging market
Smiths Medical: Delivering margin growth in a challenging market 2011 2010 Reported U’lying 2011 Sales % Sales £838m £858m (2)% (3)% 1 Medication delivery 28% 2 Vital care 41% Op profit £196m £184m 7% 7% 3 Safety devices 31% Margin 23.4% 21.5% 190 bps Portfolio profitability review affecting sales b
Slide 34: Smiths Medical: Investing in growth opportunities
Smiths Medical: Investing in growth opportunities R&D investment supporting new products: increased 3% to £31m or 3.7% of sales (2010: 3.5%) • Medfusion™ 4000 and CADD®-Solis VIP launches in Canada • FDA approval for Medfusion™ 4000 – allowing US launch • Other launches include: CT Marker; Gripper®M
Slide 35: Smiths Medical: Outlook
Smiths Medical: Outlook Outlook • Developed markets are likely to remain challenging • Focus will remain on investment in new product development • Investing in sales and marketing; increasing emerging market exposure • Margins will benefit from cost savings and new product launches Smiths Group plc
Slide 36: Smiths Interconnect: Delivering growth despite defence pressures
Smiths Interconnect: Delivering growth despite defence pressures 2011 2010 Reported U’lying 2011 Sales % Sales £379m £340m 12% 3% 1 Military/Aerospace 43% 2 Wireless 25% Op profit £68m £62m 9% (2)% 3 Medical, rail, automation and test 32% Margin 17.8% 18.2% (40) bps Sales benefit from IDI acquisitio
Slide 37: Smiths Interconnect: Investing in growth drivers
Smiths Interconnect: Investing in growth drivers Agreed acquisition of Power Holdings Inc. for $235m - subject to regulatory approvals • Transforms the existing power protection technology group • Brings complementary products focused on power distribution, conditioning and monitoring • Expands into
Slide 38: Smiths Interconnect: Outlook
Smiths Interconnect: Outlook Outlook • Defence market is likely to remain challenging – although well- positioned on long-term programmes • Wireless network investment will increase demand • Rail, test and automation will be mixed • Margins will benefit from restructuring benefits • Integration of P
Slide 39: Flex-Tek: Margins benefit from operational leverage
Flex-Tek: Margins benefit from operational leverage 2011 2010 Reported U’lying 2011 Sales % Sales £221m £212m 4% 6% 1 Fluid Management 32% 2 Construction 25% Op profit £28m £24m 18% 19% 3 Heat Solutions 27% 4 Flexible Solutions 16% Margin 12.5% 11.1% 140 bps Margins up 140 bps from higher volumes an
Slide 40: Flex-Tek: Outlook
Flex-Tek: Outlook Outlook • Order book for aerospace customers has positive outlook • Residential construction and appliance markets remain uncertain • Any upturn in these markets will support earnings expansion Smiths Group plc Annual Results 2011 | 40
Slide 41: Investment case for Smiths Group
Investment case for Smiths Group Strong market positions in sectors well-placed for long-term profitable growth Leading-edge technologies and high service levels command high margins Further scope for operational improvement and margin enhancement Strong cash generation to reinvest in top-line growt
Slide 42: Operational priorities for 2012
Operational priorities for 2012 Deliver the performance improvement programme benefits in Smiths Detection Launch new products from the divisional pipelines to drive top-line growth Drive benefits from remaining restructuring initiatives Sustain strong cash conversion Seek and evaluate opportunities
Slide 43: Questions & Answers
Questions & Answers Annual Results 28 September 2011 Bringing technology to life investor.relations@smiths.com www.smiths.com Smiths Group plc Annual Results 2011 | 43