Smiths Group Plc · LSE:SMIN
Smiths — H1 2013 Earnings Presentation
56 slides from Smiths's earnings presentation, Mar 20, 2013
Slide 1: Interim Results 20 March 2013
Interim Results 20 March 2013 www.smiths.com investor.relations@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 – Philip Bowman
Philip Bowman Chief Executive Introduction
Slide 4: Agenda
Agenda Introduction and overview Philip Bowman Financial review Peter Turner Operational review – introduction Philip Bowman John Crane Duncan Gillis Smiths Medical Srini Seshadri Operational review and priorities Philip Bowman Smiths Group plc Interim Results 2013 | 4
Slide 5: Key messages
Key messages Resilient results in a challenging trading environment Delivering growth in profit and returns while investing more in growth drivers Channelling greater sales and marketing resource to high growth markets Emerging market sales up 9% - now representing 15% of Group revenues Increased in
Slide 6: Results highlights
Results highlights Reported headline revenue up 4%; underlying up 6% Headline operating profit up 4%, underlying up 5% Headline EPS up 1% to 40.9p Cash conversion strong at 88% - free cash flow of £71m Return on capital employed up 70 basis points to 16.7% Dividend up 6% to 12.5 pence, reflecting th
Slide 7: Promoting responsibility: increased focus is delivering improvements
Promoting responsibility: An increased focus is delivering improvements Recordable & lost time incident rates continue to improve Solid progress on environmental targets*** Lost time incident rate 1.03 • Energy: Recordable incident rate* 21% reduction • Greenhouse gases: 0.71 0.66 25% reduction Inci
Slide 8: Financial review – Peter Turner
Peter Turner Finance Director Financial review
Slide 9: Interim results 2013
Interim results 2013 £m Headline* Statutory 2013 2012 2013 2012 reported underlying** Revenue 1,475 1,415 4% 6% 1,475 1,407 Operating profit 253 244 4% 5% 215 132 Margin 17.1% 17.2% (10) bps - 14.6% 9.4% Pre-tax profit 223 217 3% 6% 188 111 Basic EPS (p) 40.9 40.4 1% 35.8 21.4 Free cash flow 71 81 D
Slide 10: Underlying headline sales and profit performance
Underlying headline sales and profit performance Revenue Operating profit growth growth John Crane +3% +7% Smiths Medical +2% -10% Smiths Detection +19% +56% Smiths Interconnect +4% +13% Flex-Tek +11% +20% Group +6% +5% Smiths Group plc Interim Results 2013 | 10
Slide 11: Headline profit progression 2012 to 2013
Headline profit progression 2012 to 2013 Price/mix Average exchange rates US$ 1.60 (H1 2012: 1.58) Euro 1.24 (H1 2012: 1.16) £5m £5m Volume £5m Translation FX ready reckoner Increased 1 US cent = c. £2m HOP R&D £10m 1 Euro cent = c. £1m HOP Cost £7m £4m inflation PBT: £15m Sales & Associates £3m £22
Slide 12: Group cash conversion
Group cash conversion £m (for continuing activities) 2013 2012 Headline operating profit 253 244 Changes in working capital (43) (51) Share based payment 6 5 Capital expenditure (Property, plant & equipment) (21) (21) Depreciation 27 28 Development costs & other intangibles (net of amortisation and
Slide 13: Improved return on capital from Flex-Tek, John Crane and Detection
Improved return on capital from Flex-Tek, John Crane and Detection 12 months to 31 Jan 2013 12 months to 28 Jan 2012 30.0 29.8% 25.1% 25.0 23.8% 24.3% 20.0 17.3% 16.9% % 16.0% 16.7% 15.0 12.8% 12.3% 12.2% 10.0 7.6% 5.0 0.0 Smiths Group Flex-Tek John Crane Smiths Medical Smiths Smiths Detection Inter
Slide 14: Reconciliation: Headline operating profit to statutory profit
Reconciliation: Headline operating profit to statutory profit £m Headline operating profit 253 Restructuring programmes (5) Litigation provision: John Crane, Inc. (10) Litigation provision: Titeflex Corporation (2) Gains on changes to pension plans 1 Profit on disposal of businesses 1 Exceptional op
Slide 15: Exceptional items: Restructuring programme in Detection delivering benefits
Exceptional items: Restructuring programme in Detection delivering benefits Original – by FY2014 Revised – by FY2015 Total planned savings Total planned costs* Total planned savings Total planned costs* £40m £40m £36m £33m £m H1 2013 savings H1 2013 costs Total savings to date Total costs to date* 4
Slide 16: Pensions: Deficit improved to £382m
Pensions: Deficit improved to £382m, driven by asset performance Deficit movement since 31 July 2012 Cash contributions £m 2013 Deficit at 31 July 2012 (620) Funded scheme Foreign exchange 1 contributions £90m Return on assets 238 - Smiths Industries PS £36m Contributions (net of service costs) 41 -
Slide 17: 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 1,109 USD Cash (254) Fixed Euro Bank Floating other Public Net debt 855 £m Weighted average life of debt is 5.9 years 300 Credit Rating: 250 BBB+ (stable)/Baa2 (stable)
Slide 18: Operational review and priorities – Philip Bowman
Philip Bowman Chief Executive Operational review and priorities
Slide 19: Delivering shareholder value – two key themes
Delivering shareholder value – two key themes Investing to accelerate revenue growth over the medium-term • Increasing exposure to high growth markets, e.g. China, Brazil, India • New product development to sustain technology leadership • Rebalancing portfolio away from government-funded customers •
Slide 20: John Crane – Duncan Gillis
Duncan Gillis CEO & President John Crane
Slide 21: John Crane: Delivering sales growth, improving margins and returns
John Crane: Delivering sales growth, improving margins and returns Underlying revenue Underlying headline profit Headline operating margin 2013 H1 Revenue (£469m) +90 bps 3% 7% 1 First-fit OEM 36% + + 21.8% Aftermarket 64% 2 Oil, gas & petrochem 39% 3 Chemical and pharma 9% • Sales growth across all
Slide 22: John Crane: Investments position John Crane for future growth
John Crane: Investments position John Crane for future growth Investments in growth markets are starting to pay off • Emerging markets and fast-growth businesses represent over 21% of John Crane sales • First-half sales up in several regions • >10% in Middle East & Africa, >13% in China, >20% in Aus
Slide 23: John Crane: Outlook
John Crane: Outlook Outlook • First fit customer slowdown expected to continue • Order book slightly better due to aftermarket business • Overall, H2 revenues at a similar level versus last year • Margins will benefit from productivity efforts Fitting a locking sleeve into the inboard stage of a gas
Slide 24: John Crane: Accelerating growth to increase value to shareholders
John Crane: Accelerating growth to increase value to shareholders Positive long-term customer relationships deliver sustainable and strong cash flow • High net promoter scores speak to strength of customer relationships • Several, large, multi-year customer contracts signed Strong operational leader
Slide 25: Smiths Medical – Srini Seshadri
Srini Seshadri President Smiths Medical
Slide 26: Smiths Medical: Delivering sales growth from emerging markets and consumables
Smiths Medical: Delivering sales growth from emerging markets and consumables Underlying revenue Underlying headline profit Headline operating margin 2013 H1 Revenue* (£413m) (240) bps 1 Medication delivery 27% + 2% (10)% 21.1% 2 Vital care 42% 3 Safety devices 31% • Sales growth despite challenging
Slide 27: Smiths Medical: Investing in growth – emerging markets
Smiths Medical: Investing in growth opportunities – emerging markets Building sales capabilities in high-growth emerging markets • Added almost 300 heads over last 18 months Investing to accelerate sales and generate returns over the medium term • Lead time in recruiting and training people and to b
Slide 28: Smiths Medical: Investing in growth – new product launches
Smiths Medical: Investing in growth opportunities – new product launches Accelerating new product launches: investment up 16% to 4.4% of sales (2012: 3.8%) Continued to streamline the organisation, upgrade talent and improve processes Expanded Chinese engineering team by >20% Strategy is delivering
Slide 29: 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 • Lower margins: regulatory costs: US medical device tax (2.3%) and REACH/RoHS com
Slide 30: Smiths Detection: Improving sales trend; margins benefit from restructuring
Smiths Detection: Improving sales trend; margins benefit from restructuring Underlying revenue Underlying headline profit Headline operating margin 2013 H1 Revenue (£255m) +270 bps 1 Transportation 52% + 19% + 56% 12.0% 2 Ports & borders 17% 3 Military 10% 4 Emergency responders 3% 5 Critical infras
Slide 31: Smiths Detection: Investing in future growth through new products and markets
Smiths Detection: Investing in future growth through new products and markets Increased investment in new products – strong pipeline of new launches • Company funded spend maintained at £17m or 6.6% of sales (2012: 7.6%) • Total spend of £20m or 8.0% of sales – with £3m of customer funded projects R
Slide 32: Smiths Detection: Outlook
Smiths Detection: Outlook Outlook • Targeting a similar level of revenue in second half as very strong equivalent period last year • Remains subject to government budgets and project timing • Order book remains strong • Margins will benefit from cost savings and operational efficiencies An emergency
Slide 33: Smiths Interconnect: Sales and margins improve against a weak comparator
Smiths Interconnect: Sales and margins improve against a weak comparator Underlying revenue Underlying headline profit Headline operating margin 2013 H1 Revenue (£219m) +40 bps 1 Connectors 34% + 4% + 13% 13.5% 2 Microwave 44% 3 Power management 21% • Sales growth from Connectors and Microwave offse
Slide 34: Smiths Interconnect: Investing in new products and emerging markets
Smiths Interconnect: Investing in new products and emerging markets Continued investment in new product development • Company-funded R&D increased 3% to £11m or 5.2% of sales (2012: 5.5%) • Customer-funded portion declined 33% due to US defence budget cuts • Total R&D spend of £13m or 5.9% of sales
Slide 35: Smiths Interconnect: Outlook
Smiths Interconnect: Outlook Outlook • Cautious outlook • Defence market is likely to remain challenging • Commercial markets (telecoms, semiconductor test, data centres) are expected to deliver long-term growth • However, timing on market recoveries is uncertain Assembly of static transfer switches
Slide 36: Flex-Tek: Strong growth from Fluid Management and Construction
Flex-Tek: Strong growth from Fluid Management and Construction; margins benefit Underlying revenue Underlying headline profit Headline operating margin 2013 H1 Revenue (£120m) +120 bps 1 Fluid Management 34% + 11% + 20% 16.7% 2 Construction 30% 3 Heat Solutions 21% 4 Flexible Solutions 15% • Strong
Slide 37: Flex-Tek: Outlook
Flex-Tek: Outlook Outlook • Order book for aerospace customers remains positive • Residential construction market should continue to improve • Solid foundation for H2 albeit against a strong comparator • Margins will benefit from higher volumes but face pressure from increased R&D investment, compet
Slide 38: Operational priorities for 2013
Operational priorities for 2013 Deliver new product launches to accelerate sales growth Invest in sales and marketing capabilities in high growth markets Drive operational efficiencies to improve margins and support investment Sustain strong cash conversion to fund growth initiatives and enhance val
Slide 39: Questions & Answers
Questions & Answers Interim Results 20 March 2013 www.smiths.com investor.relations@smiths.com
Slide 40: John Crane
John Crane A world-leading provider of products and Revenue £m 973 894 services for the major process industries, 790 786 including oil and gas, power generation, 626 chemical, pharmaceutical, pulp and paper, and mining sectors. 2008 2009 2010 2011 2012 Contribution to 2012 Revenue by sector 2012 Gr
Slide 41: John Crane: customers, competitors, suppliers
John Crane Delivering engineered solutions that keep process plants running, John Crane enhances customer productivity by providing advanced technology industrial products and performance-enhancing services backed by an exceptional global network. Customers: John Crane serves oil and gas and Competi
Slide 42: John Crane: Margins ahead on volumes and price despite inflation and investment
John Crane: Margins ahead on volumes and price despite inflation and investment £m 2013 2012 reported underlying Revenue 469 469 +0% +3% Headline operating profit 102 98 +4% +7% Margin 21.8% 20.9% +90 bps ROCE 24.3% 23.8% +50 bps Headline operating profit £m • Volume: Driven by both aftermarket and
Slide 43: Smiths Medical
Smiths Medical A leading supplier of specialist medical devices Headline revenue £m and equipment for global markets. 834 858 838 864 703 Our products are focused on the medication delivery, vital care and safety devices market segments. 2008 2009 2010 2011 2012 Contribution to 2012 Headline revenue
Slide 44: Smiths Medical: customers, competitors, suppliers
Smiths Medical In medication delivery, our devices help treat cancer patients and provide relief to those in pain. Our vital care products reduce hospital-acquired infections, manage patients’ airways before, during, and after surgery, maintain body temperature and assist reproduction through IVF th
Slide 45: Smiths Medical: Growth in tough markets; margins affected by growth investment
Smiths Medical: Growth in tough markets; margins affected by growth investment £m 2013 2012 reported underlying Headline revenue 413 417 (1)% +2% Headline operating profit 87 98 (11)% (10)% Operating margin 21.1% 23.5% (240) bps ROCE 16.9% 17.3% (40) bps Headline operating profit £m • Volume: Growth
Slide 46: Smiths Detection
Smiths Detection A world-leading designer and manufacturer Revenue £m 574 of sensors that detect and identify 509 501 510 519 explosives, narcotics, weapons, chemical agents, biohazards, nuclear & radioactive material and contraband. 2008 2009 2010 2011 2012 Contribution to 2012 Revenue by sector 20
Slide 47: Smiths Detection: customers, competitors, suppliers
Smiths Detection Our technology helps customers in the global transportation, ports and borders, critical infrastructure, military and emergency responder markets. We have the most comprehensive range of detection technologies in the world, including X-ray, trace detection, infra-red and gamma ray s
Slide 48: Smiths Detection: Delivering improvements in revenue, margins and returns
Smiths Detection: Delivering improvements in revenue, margins and returns £m 2013 2012 reported underlying Revenue 255 220 +16% +19% Headline operating profit 31 20 +49% +56% Margin 12.0% 9.3% +270 bps ROCE 12.2% 7.6% +460 bps Headline operating profit £m • Volume: Transportation and ports and borde
Slide 49: Smiths Interconnect
Smiths Interconnect Revenue £m A leader in electronic components and 449 sub-systems that connect, protect and control 379 critical systems for wireless telecommunications, 318 340 aerospace, defence, space, test, medical, rail 261 and industrial markets. 2008 2009 2010 2011 2012 Contribution to 201
Slide 50: Smiths Interconnect: customers, competitors, suppliers
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 51: Smiths Interconnect: Revenue and margins up despite tough trading environment
Smiths Interconnect: Revenue and margins up despite tough trading environment £m 2013 2012 reported underlying Revenue 219 200 +9% +4% Headline operating profit 30 26 +13% +13% Margin 13.5% 13.1% +40 bps ROCE 12.3% 12.8% (50) bps Headline operating profit £m • Volume: Positive volume offset by adver
Slide 52: Flex-Tek
Flex-Tek A global provider of engineered components Revenue £m 233 that heat and move fluids and gases for the 206 222 212 221 aerospace, medical, industrial, construction and domestic appliance markets. 2008 2009 2010 2011 2012 Contribution to 2012 Revenue by sector 2012 Group revenue: 8% £233m 4 1
Slide 53: Flex-Tek: customers, competitors, suppliers
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 54: Flex-Tek: Volumes and pricing offset inflation pressures to grow margins
Flex-Tek: Volumes and pricing offset inflation pressures to grow margins £m 2013 2012 reported underlying Revenue 120 109 +9% +11% Headline operating profit 20 17 +18% +20% Margin 16.7% 15.5% +120 bps ROCE 29.8% 25.1% +470 bps Headline operating profit £m • Volume: Gains in aerospace and constructio
Slide 55: Net debt increased by £64m driven by dividends
Net debt increased by £64m driven by dividends £m 2013 Net debt at start of period (791) Operating cash (after capex etc.) 223 Interest and tax (83) Exceptionals/Pensions (69) Free cash flow 71 Dividends (103) Financing including net investment hedges (6) Foreign exchange (14) Movement in fair value
Slide 56: Asbestos litigation
Asbestos litigation Key facts Key figures • Production ceased in 1985 Gross provision £226m • Exposure within John Crane, Inc. Discounted pre-tax provision £209m • Resists claims based on ‘safe product’ defense Claims dismissed 229,000 • Provision determined using independent Claims outstanding 80,0