Smiths Group Plc · LSE:SMIN
Smiths — H1 2010 Earnings Presentation
41 slides from Smiths's earnings presentation, Mar 24, 2010
Slide 1: Smiths Group Interim Results
Smiths Group Interim Results London, 24 March 2010 Smiths Group plc Interim Results 2010 | 1 investor.relations@smiths.com
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 Interim Results 2010 | 3
Slide 4: Business highlights
Business highlights Margins improve 190 basis points to 16.2% - a ten year high Positive margin development across all divisions Reported sales down 1%; underlying down 5% Headline operating profit up 12%, underlying up 7% Significant improvement in cash generation - free cash-flow £133m Dividend un
Slide 5: Results benefited from key operational achievements
Results benefited from key operational achievements 9 Restructuring initiatives delivered savings of £10m; £27m to date Delivering operational 9 Portfolio profitability reviews improving pricing and margins efficiencies 9 Leveraging scale procurement project saves £6m; £15m to date Strong cash 9 Bet
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 0.81 0.54 0.51 0.39 2004 2005 2006 2007 2008 2009 H1 2010 *Measure
Slide 7: Financial review
Financial review John Langston Finance Director Smiths Group plc Interim Results 2010 | 7
Slide 8: Interim results 2010
Interim results 2010 £m Headline* Statutory 2010 2009 2010 2009 Continuing activities Reported Underlying** Sales 1,279 1,292 (1)% (5)% 1,279 1,292 Operating profit 207 185 12% 7% 186 160 Margin 16.2% 14.3% - - 14.5% 12.4% Pre-tax profit 178 167 7% 4% 148 135 Basic EPS (p) 34.7 32.5 7% 28.7 28.0 Fre
Slide 9: Profit progression 2009 to 2010
Profit progression 2009 to 2010 • Volume: Lower across all divisions - except Smiths Detection Pensions/ • Manufacturing efficiencies: Value engineering and other cost initiatives financing • Material cost savings: Group-wide leveraging scale programme • Lower overheads/other: Benefits from restruct
Slide 10: Smiths Detection: Strong growth, improving margins
Smiths Detection: Strong growth, improving margins £m 2010 2009 reported underlying Sales 266 233 +14% +11% Operating profit 39 24 +62% +56% Margin 14.5% 10.2% Operating profit £m • Volume: Higher volumes driven 2008/09 24 primarily by ports and borders and military Volume 10 R&D (1) • R&D: Increase
Slide 11: John Crane: Delivering improved margins
John Crane: Delivering improved margins £m 2010 2009 reported underlying Sales 358 393 (9)% (15)% Operating profit 64 66 (3)% (8)% Margin 17.9% 16.8% Operating profit £m • Volume: Mainly due to declining OEM sales 2008/09 66 • Pricing: Net benefit Volume (28) • Efficiencies: Cost saving initiatives
Slide 12: Smiths Medical: Showing strong margin improvement
Smiths Medical: Showing strong margin improvement £m 2010 2009 reported underlying Sales 414 403 +3% (1)% Operating profit 86 77 +12% +9% Operating margin 20.9% 19.1% Operating profit £m • Volume: Exit from diabetes partly offset by 2008/09 77 volumes improvements in other products Volume (4) • Pric
Slide 13: Smiths Interconnect: Restructuring delivering margin improvements
Smiths Interconnect: Restructuring delivering margin improvements £m 2010 2009 reported underlying Sales 146 152 (4)% (9)% Operating profit 23 24 (2)% (5)% Margin 16.0% 15.7% Operating profit £m • Volume: Primarily wireless and industrial sectors 2008/09 24 Volume (6) • Operational efficiencies: Ope
Slide 14: Flex-Tek: Driving cost efficiencies to preserve margins
Flex-Tek: Driving cost efficiencies to preserve margins £m 2010 2009 reported underlying Sales 96 111 (14)% (14)% Operating profit 9 11 (13)% (14)% Margin 9.8% 9.7% Operating profit £m • Volume: Declines in US housing, appliances and aerospace 2008/09 11 • Procurement savings: Benefits Volume (6) fr
Slide 15: Reconciliation: Headline operating profit to statutory profit
Reconciliation: Headline operating profit to statutory profit £m Headline operating profit 207 Gains on changes to post-retirement benefits 4 Profit on disposal of businesses 4 Corporate and divisional restructuring (5) John Crane litigation - provision (5) Exceptional operating items (2) Amortisati
Slide 16: Exceptional items: Restructuring programme is delivering savings
Exceptional items: Restructuring programme is delivering savings Programme £m 2010 Savings Forecast H1 savings to date benefits Costs to date: John Crane 6 12 25 £33m Medical 1 1 3 Total planned costs: £45m Flex-Tek 3 7 9 IT - 2 8 Total planned savings: £50m HQ Completed 5 5 Total 10 27 50 £17m of s
Slide 17: Improved operating cash
Improved operating cash £m (for continuing activities) 2010 2009 Headline operating profit 207 185 Changes in working capital 7 (35) Share based payment 7 8 Capital expenditure (Property, plant & equipment) (20) (26) Depreciation 32 30 Development costs & other intangibles (3) (8) (net of amortisati
Slide 18: Net debt increased by £30m to £915m driven by foreign exchange
Net debt increased by £30m to £915m driven by foreign exchange £m 2010 Net debt at start of period (885) Operating cash (after capex etc.) 230 Interest and tax (69) Exceptionals (28) Free cash flow 133 Dividends (92) Acquisitions/disposals (8) Financing including net investment hedges (20) Foreign e
Slide 19: Pensions: Deficit has reduced further
Pensions: Deficit has reduced further Deficit reduced since 31 July P&L and cash £m Deficit at 31 July 2009 (339) FY 2010 Foreign exchange (7) Finance income £1m Return on assets 253 Cash contributions* £51m Contributions (net of service costs) 13 Change in liabilities (218) * Agreed cash contributi
Slide 20: Financials: Conclusion
Financials: Conclusion Results demonstrate progress on operational improvement Continued strong cash performance Funding investment in growth: Acquisitions and R&D investment A healthy platform for future growth and driving returns Smiths Group plc Interim Results 2010 | 20
Slide 21: Operational review and priorities
Operational review and priorities Philip Bowman, Chief Executive Smiths Group plc Interim Results 2010 | 21
Slide 22: Smiths 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 23: Smiths Group: Operational improvement is delivering results
Smiths Group: Operational improvement is delivering results 1 2 3 Improving margins Improving cash Investing in R&D 1 / Headline operating profit margin 2 / Headline operating profit last conversion 3 / Company funded investment in R&D (£m) Smiths Group plc Interim Results 2010 | 23
Slide 24: Smiths Detection: Sales growth and margin improvement
Smiths Detection: Sales growth and margin improvement 2010 H1 Sales: £266m 2010 H1 Operating 2010 H1 sales % 14% reported profit: £39m Transportation 11% underlying 14.5% margin Ports & borders Military Emergency responders Margins improved 430 basis points to 14.5% Critical infrastructure Ports & b
Slide 25: 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 4% to £16m or 5.9% of sales • Total H1 spend increased to £20m; 7.4% of sales • Agreement with Analogic to develop next generation checked baggage scanner: - Combine 3-D Computed Tomography with multi-en
Slide 26: Smiths Detection: Operational priorities
Smiths Detection: Operational priorities • Implement cost reduction initiatives • Progress trials for body image screener - eqo • Continue investment in new product development • Roll out airport checkpoint & cargo screening systems Outlook • Order book is ahead of last year - supports growth in sec
Slide 27: John Crane: Margins benefiting from restructuring programme
John Crane: Margins benefiting from restructuring programme 2010 H1 Sales: £358m 2010 H1 Operating 2010 H1 sales % (9)% growth profit: £64m (15)% underlying 17.9% margin First-fit OEM 37% Aftermarket 63% Oil, gas & petrochemical Margins improved 110 basis points to 17.9% Chemical and pharma • Restru
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 H1 savings of £6m; cumulative savings of £12m • Total annualised savings planned of £25m • Improved customer service and faster delivery Investing in future growth • Expanding service cent
Slide 29: John Crane: Operational priorities
John Crane: Operational priorities • Implement restructuring programme - global John Crane • Service centre growth • Complete ERP implementation by July 2010 • Build the business through acquisitions Outlook • John Crane’s order book has continued to build • Second half growth will not offset H1 dec
Slide 30: Smiths Medical: Delivering positive sales momentum and margin growth
Smiths Medical: Delivering positive sales momentum and margin growth 2010 H1 Sales: £414m 2010 H1 Operating 2010 H1 sales % 2% underlying growth profit : £86m excluding diabetes* 20.9% margin Medication Delivery Vital Care Positive sales momentum has continued - excluding diabetes Safety Devices Mar
Slide 31: Smiths Medical: 24-month improvement programme delivering results
Smiths Medical: 24-month improvement programme delivering results • Return to revenue growth and improving margins • Focus on new products and operational improvements delivering value Inventory turns ERP Implementation New Product Sales 99% +53% 3.4 £22m 2.4 62% £4m • Smiths Medical in better shape
Slide 32: Smiths Medical: Investing in growth opportunities
Smiths Medical: Investing in growth opportunities Sales from products launched in last three years up 21% 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: • New convective warming blankets • R
Slide 33: Smiths Medical: Operational priorities
Smiths Medical: Operational priorities • Continue SKU and customer profitability reviews and action planning • Continue to reduce business complexity and reduce costs • Increase R&D spend to launch high margin products • Invest in sales & marketing during the second half Outlook • Positive sales mom
Slide 34: Smiths Interconnect: Delivering margin growth; launching new products
Smiths Interconnect: Delivering margin growth; launching new products 2010 H1 Sales: £146m 2010 H1 Operating 2010 H1 sales % (4)% reported profit : £23m (9)% underlying 16.0% margin Military/Aerospace Wireless Military/aerospace - underlying sales decrease of 3% Medical, rail and automation • Slowdo
Slide 35: Smiths Interconnect: Strengthening the business through acquisition
Smiths Interconnect: Strengthening the business through acquisition Interconnect Devices, Inc. expands the connector portfolio • Meets our criteria of adding complementary technologies; extending our geographic presence and leveraging existing scale • Adds a completely new range of spring probe conn
Slide 36: 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 • Military order book is strong supported by sustained investment in mi
Slide 37: Flex-Tek: Facing challenging markets
Flex-Tek: Facing challenging markets 2010 H1 Sales: £96m 2010 Operating 2010 H1 sales % (14)% reported profit : £9m (14)% underlying 9.8% margin Aerospace Flexible Solutions Restructuring programme delivering savings and margins Heat Solutions • Savings to date of £7m Aerospace - underlying sales fe
Slide 38: Flex-Tek: Improving trend in Heat Solutions and Flexible Solutions
Flex-Tek: Improving trend in Heat Solutions and Flexible Solutions Monthly growth trend versus prior year month 4.1% 0.9% -1.2% Heat and Flexible Solutions (74% of sales) -14.6% -17.9% -24.8% -26.3% Smiths Group plc Interim Results 2010 | 38
Slide 39: 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 • US housing market has shown some signs of improvement; aerospace is likely to remain challenging •
Slide 40: Smiths 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 41: Questions and Answers
Questions and Answers 2010 Investor Days Smiths Interconnect - Tampa, FL - 22 June Smiths Medical - St Paul, MN - 23 June Smiths Group plc Interim Results 2010 | 41 investor.relations@smiths.com