Smiths Group Plc · LSE:SMIN
Smiths — FY2009 Earnings Presentation
43 slides from Smiths's earnings presentation, Sep 30, 2009
Slide 1: Smiths Group Annual Results
Smiths Group Annual Results London, 30 September 2009 Smiths Group plc Annual Results 2009 | 1
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
Introduction Philip Bowman, Chief Executive Smiths Group plc Annual Results 2009 | 3
Slide 4: Business highlights
Business highlights Sales increased by 15% - currency and recent acquisitions Underlying sales down 7% - challenging economic environment Headline operating profit up 10%, underlying down 13% Significant improvement in cash generation • Free cash flow up £165m to £256m Pension deficit reduced from 3
Slide 5: Opportunities to create value - key achievements
Opportunities to create value - key achievements Restructuring initiatives delivered savings of £17m Delivering operational Implementation of better business systems efficiencies Leveraging scale procurement project saves £9m Portfolio profitability review in Medical is on track Investing in
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 Incident rate 2.75 2.58 1.89 1.25 1.21 1.07 1.15 1.03 0.86 0.54 0.51 2004 2005 2006 2007 2008 2009 *Measured per 100 employee
Slide 7: Financial review
Financial review John Langston, Finance Director Smiths Group plc Annual Results 2009 | 7
Slide 8: Preliminary results 2009
Preliminary results 2009 £m Headline* Statutory 2009 2008 2009 2008 Continuing activities Reported Underlying** Sales 2,665 2,321 15% (7)% 2,665 2,321 Operating profit 418 381 10% (13)% 429 326 Margin 15.7% 16.4% - - 16.1% 14.0% Pre-tax profit 371 380 (3)% (21)% 371 319 Basic EPS (p) 72.4 74.5 (3)%
Slide 9: Profit progression 2008 to 2009
Profit progression 2008 to 2009 • Volume: Lower across all divisions - particularly Smiths Detection • Operational efficiencies: Benefits of the restructuring and efficiency initiatives are more than offsetting inflation • Price: Increases across most divisions £35m Pensions/ financing PBT: £380m £7
Slide 10: Smiths Detection: Affected by variable order flow
Smiths Detection: Affected by variable order flow £m 2009 2008 reported underlying Sales 501 509 (2)% (17)% Operating profit 63 93 (32)% (43)% Margin 12.6% 18.3% Operating profit £m • Volume: Lower volumes and 2007/08 93 adverse cost recovery. Decline Volume (47) driven primarily by ports and border
Slide 11: John Crane: Delivering improved margins
John Crane: Delivering improved margins £m 2009 2008 reported underlying Sales 790 626 +26% (1)% Operating profit 143 104 +38% +7% Margin 18.1% 16.6% Operating profit £m • Volume: Lower volumes in H2 2007/08 104 • Pricing: Net benefit Volume (10) • Efficiencies: Cost savings initiatives Price 15 hav
Slide 12: Smiths Medical: Sales momentum improving; offset by diabetes exit
Smiths Medical: Sales momentum improving; offset by diabetes exit £m 2009 2008 reported underlying Sales 834 703 +19% (2)% Operating profit 164 140 +17% (4)% Operating margin 19.7% 19.8% Operating profit £m • Volume: Lower hardware sales 2007/08 140 and adverse cost recovery Volume (14) • Price: Mod
Slide 13: Smiths Interconnect: Good growth from military; wireless slower
Smiths Interconnect: Good growth from military; wireless slower £m 2009 2008 reported underlying Sales 318 261 +22% (5)% Operating profit 56 54 +3% (20)% Margin 17.4% 20.7% Operating profit £m • Volume: Wireless and industrial sectors 2007/08 54 • Mix: Lower wireless sales Volume (6) • Operational c
Slide 14: Flex-Tek: Facing challenging markets; driving cost efficiencies
Flex-Tek: Facing challenging markets; driving cost efficiencies £m 2009 2008 reported underlying Sales 222 206 +8% (15)% Operating profit 22 24 (10)% (27)% Margin 9.9% 11.8% Operating profit £m 2007/08 24 • Volume: Declines in US housing and appliances Volume (14) Price 2 • Price: Across all busines
Slide 15: Reconciliation: Headline operating profit to statutory profit
Reconciliation: Headline operating profit to statutory profit £m Headline operating profit 417.5 Gains on changes to post-retirement benefits 70.3 Profit on disposal of property and businesses 14.2 Corporate and divisional restructuring (23.7) John Crane litigation - mark to market (2.5) John Crane
Slide 16: Exceptional items: Restructuring programme is slightly ahead of plans
Exceptional items: Restructuring programme is slightly ahead of plans Programme ahead of plans £m Savings Full annualised to date benefits Costs to date: HQ 5 5 £28m IT 2 8 Total planned costs: £45m vs £48m John Crane 6 25 Medical - 3 Total planned savings: £50m vs £47m Flex-Tek 4 9 Total 17 50 £17m
Slide 17: Improved operating cash
Improved operating cash £m (for continuing activities) 2009 2008 Headline operating profit 418 381 Changes in working capital 16 (89) Share based payment 9 13 Capital expenditure (Property, plant & equipment) (54) (61) Depreciation 65 53 Development costs & other intangibles (19) (24) (net of amorti
Slide 18: Net debt increased by £114m to £885m driven by FX and acquisitions
Net debt increased by £114m to £885m driven by FX and acquisitions £m 2009 Net debt at start of period (771) Operating cash (after capex etc) 435 Interest and tax (113) Exceptionals (66) Free cash flow 256 Dividends (132) Acquisitions/disposals (105) Financing including net investment hedges (93) Fo
Slide 19: Strong balance sheet underpins our plans
Strong balance sheet underpins our plans Interest split Currency split* Debt split Net debt £m Borrowings 933 USD Less net cash (48) Fixed Euro Bank Floating other Public Net debt 885 Weighted average life of debt has extended to 5.4 years 160 Credit Rating: 120 BBB+ / Baa2 80 Headline op profit /in
Slide 20: Pensions: Actions have reduced pensions liability
Pensions: Actions have reduced pensions liability Deficit reduced since 31 January P&L and cash £m FY 2009 Deficit at 31 January (464) Finance income £5m Foreign exchange 36 Cash contributions* £53m Return on assets 226 FY 2010 Contributions 40 Finance income £1m Change in liabilities (247) Cash con
Slide 21: Financials: Conclusion
Financials: Conclusion • Significantly improved free cash flow • Investment in growth: Restructuring and acquisitions • Strong balance sheet: Good available credit facilities to fund growth A healthy platform for future growth and driving returns Smiths Group plc Annual Results 2009 | 21
Slide 22: Operational review and priorities
Operational review and priorities Philip Bowman, Chief Executive Smiths Group plc Annual Results 2009 | 22
Slide 23: Group: Opportunities to create value
Smiths Group: Opportunities to create value • Economic environment make them harder to achieve Sales and • Remain committed to the ranges but will take longer margin targets • Focused on managing what we can control Delivering • Restructuring operational • Procurement savings efficiencies • Driving
Slide 24: Investment in better information systems and leveraging scale
Investment in better information systems and leveraging scale Improvement of business systems • Good progress on ERP systems in all divisions • 36 implementations across the Group • All on track for completion in FY2010 Better information enables us to leverage the Group scale • 15k suppliers serve
Slide 25: Smiths Detection: Variable order flow has affected sales and margins
Smiths Detection: Variable order flow has affected sales and margins 2009 Sales: £501m 2009 Operating profit 2009 sales % (2)% reported £63m Transportation (17)% underlying 13% margin Ports & borders Military Emergency responders Ports & borders - sharp decline of 59% • Slowdown in orders - constrai
Slide 26: Smiths Detection: Delivering operational efficiencies
Smiths Detection: Delivering operational efficiencies • Site rationalisation already underway - Closure of a satellite site in Wiesbaden - Consolidation of two New Jersey sites - Closure of two small UK sites • Assessing further site rationalisation opportunities • Cutting fixed costs to increase fl
Slide 27: Smiths 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 to £35m or 6.9% of sales • Total spend increased to £45m; 8.9% of sales • New chemical and trace detection product launches: - High-Performance Radioisotope Identifier (HPRID) - Multi-mode threat detecto
Slide 28: Smiths Detection: Operational priorities
Smiths Detection: Operational priorities • Implement cost reduction initiatives • Roll out airport checkpoint & cargo screening systems • Launch new generation products • ERP implementation Outlook • Positive start to the year with a healthy order book • Government finances constrained: may delay ca
Slide 29: John Crane: Improving margins while OEM orders have slowed
John Crane: Improving margins while OEM orders have slowed 2009 Sales: £790m 2009 Operating profit 2009 sales % 26% growth £143m (1)% underlying 18% margin First-fit OEM 37% Aftermarket 62% Oil, gas & petrochemical First-fit OEM sales declined by 3% Chemical and pharma • Slowing levels of infrastruc
Slide 30: John Crane: Addressable market expanded through acquisitions
John Crane: Addressable market expanded through acquisitions Acquisition strategy delivered 5 deals in past 2 years • Adding complementary technologies to leverage through the global network • Building an upstream energy services business • Extending our geographic footprint Acquisition of Orion in
Slide 31: John Crane: Improving customer service and reducing costs
John Crane: Improving customer service and reducing costs • Restructuring programme - Delivered savings to date of £6m - Total annualised savings planned of £25m • Creation of a global John Crane: Integration of two regional organisations • Consistent global approach to central functions • Sales and
Slide 32: John Crane: Operational priorities
John Crane: Operational priorities • Implement restructuring programme - global John Crane • Service centre growth • Complete ERP implementation by June 2010 • Build the business through acquisitions Outlook • Late cycle business: order book is below last year • Lower OEM orders will result in slowe
Slide 33: Smiths Medical: Delivering operational improvements and better sales momentum
Smiths Medical: Delivering operational improvements and better sales momentum 2009 Sales: £834m 2009 Operating profit 2009 sales % 19% reported £164m (2)% underlying 20% margin Medication Delivery Vital Care 1% sales decline excluding diabetes Safety Devices Pressure on hospital capital budgets affe
Slide 34: Smiths Medical: Well-positioned for future success
Smiths Medical: Well-positioned for future success 24 month improvement programme delivering results • Customer backorders reduced by 50% to a 5 year low • Improved customer retention and winning new customers • Cost saving initiatives lowered headcount by 1,000 or 11% SKU rationalisation and diabet
Slide 35: Smiths Medical: Investing in growth opportunities
Smiths Medical: Investing in growth opportunities Sales from products launched in last three years up 12% year-on-year • More focused approach to R&D spend • Good progress in new launches Selection of new product launches from second half: • Pneupac - disposal circuits for ventilators • SACETT - end
Slide 36: Smiths Medical: Operational priorities
Smiths Medical: Operational priorities • Expand SKU and customer profitability reviews • Complete ERP implementation and optimise supply chain • Continue to reduce business complexity and reduce costs • Optimise R&D spend across the portfolio and launch new products in growth markets Outlook • Build
Slide 37: Smiths Interconnect: Good growth from military; wireless slower
Smiths Interconnect: Good growth from military; wireless slower 2009 Sales: £318m 2009 Operating profit 2009 sales % 22% reported £56m (5)% underlying 17% margin Military/Aerospace Wireless Military/aerospace - underlying sales increase of 9% Medical, rail and automation • New wins on Intelligence,
Slide 38: Smiths Interconnect: Strengthening the business
Smiths Interconnect: Strengthening the business Restructuring to reduce costs • Rationalised two US businesses and transferred manufacturing to Mexico • Headcount reductions in Europe and US Extending our presence in Asia through acquisitions • Completed purchase of Dowin in April • Builds our wirel
Slide 39: Smiths Interconnect: Operational priorities
Smiths Interconnect: Operational priorities • Continued focus on cost control • Integrate recent acquisitions and look for further opportunities • Deliver major customer requirements to maintain momentum in key contracts Outlook • Continued investment in military communications • Wireless and other
Slide 40: Flex-Tek: Facing challenging markets; growth in aerospace
Flex-Tek: Facing challenging markets; growth in aerospace 2009 Sales: £222m 2009 Operating profit 2009 sales % 8% reported £22m (15)% underlying 10% margin Aerospace Flexible Solutions Aerospace - underlying sales fell 1% Heat Solutions • Softer bizjet sales were offset by demand from commercial and
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, strongly leveraged to a recovery • Seek growth opportuni
Slide 42: Group: Opportunities to create value
Smiths Group: Opportunities to create value • 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 g
Slide 43: Questions and Answers
Questions and Answers Smiths Group plc Annual Results 2009 | 43