Smiths Group Plc · LSE:SMIN
Smiths — FY2018 Earnings Presentation
36 slides from Smiths's earnings presentation, Sep 21, 2018
Slide 1: Smiths Group plc Annual Results
SMITHS GROUP PLC ANNUAL RESULTS 21 SEPTEMBER 2018 www.smiths.com
Slide 2: Disclaimer
2 SMITHS GROUP PLC Annual Results 2018 DISCLAIMER This presentation contains certain statements that are forward-looking statements. They appear in a number of places throughout this presentation and include statements regarding the intentions, beliefs and/or current expectations of Smiths Group plc
Slide 3: Introduction
3 SMITHS GROUP PLC Annual Results 2018 INTRODUCTION ANDY REYNOLDS SMITH CHIEF EXECUTIVE
Slide 4: Strategic Progress
4 SMITHS GROUP PLC Annual Results 2018 STRATEGIC PROGRESS 2016 2017 2018 2019 AMBITION OUTPERFORMING A NEW SIGNIFICANT RETURN TO SUSTAINABLE OUR CHOSEN DIRECTION PROGRESS GROWTH GROWTH MARKETS
Slide 5: Financial Review
5 SMITHS GROUP PLC Annual Results 2018 FINANCIAL REVIEW JOHN SHIPSEY CHIEF FINANCIAL OFFICER
Slide 6: Headline Financial Results
6 SMITHS GROUP PLC Annual Results 2018 HEADLINE FINANCIAL RESULTS1 £m FY2018 FY2017 REPORTED CHANGE REVENUE 3,213 3,280 (2)% +2% underlying OPERATING PROFIT 544 589 (8)% +3% underlying OPERATING MARGIN 16.9% 18.0% (110) bps +10bps underlying PROFIT BEFORE TAX 487 528 (8)% EPS 90.7p 97.6p (7)% +4% un
Slide 7: Underlying Revenue Up 2%
7 SMITHS GROUP PLC Annual Results 2018 UNDERLYING1 REVENUE UP 2% £m 3,280 (126) H1 (1)%, H2 +5% 33 3,213 43 (18) 4 (4) 1 3,155 +5% (2)% +1% (1)% +10% ACQUISITIONS FY2017 SMITHS SMITHS SMITHS FY2017 FX JOHN CRANE FLEX-TEK FY2018 & DISPOSALS2 PRO-FORMA MEDICAL DETECTION INTERCONNECT 1 Underlying modif
Slide 8: Revenue by Division
8 SMITHS GROUP PLC Annual Results 2018 REVENUE1 BY DIVISION JOHN CRANE SMITHS MEDICAL SMITHS DETECTION +5% Oil & Gas c.+7% (2)% Infusion Systems +4% +1% Air Transportation +20% Non-Oil & Gas c.+3% Vascular Access (4)% Ports & Borders (43)% £881m £885m £793m Vital Care* (6)% Defence (46)% Good growth
Slide 9: Underlying Operating Profit Up 3%
9 SMITHS GROUP PLC Annual Results 2018 UNDERLYING OPERATING PROFIT1 UP 3% £m 589 (40) (26) 5 544 11 (25) 6 531 16 0 8 Reported FY2017 Operating Pro-forma Operating Margin Operating Margin 18.0% Margin 16.9% 16.8% RESTRUCTURING ACQUISITIONS FY2017 SMITHS SMITHS SMITHS CENTRAL FY2017 FX JOHN CRANE FLE
Slide 10: Operating Profit by Division
10 SMITHS GROUP PLC Annual Results 2018 OPERATING PROFIT1 BY DIVISION JOHN CRANE SMITHS MEDICAL SMITHS DETECTION OP Margin OP Margin OP Margin £202m 22.9% £156m 17.6% £134m 16.9% +6% +10 bps (14)% (250) bps +16% +240 bps • Improving volumes • Adverse geographic mix • Loss of contracts • Investing in
Slide 11: Cash-Flow
11 SMITHS GROUP PLC Annual Results 2018 CASH-FLOW £m FY2018 FY2017 Comments OPERATING PROFIT1 544 589 CAPEX & DEPRECIATION AND AMORTISATION (8) 3 Asset light WORKING CAPITAL (16) 85 Working capital % sales2: 26% (FY2017: 27%) OTHER 18 18 OPERATING CASH-FLOW1 538 695 99% cash conversion INTEREST & TA
Slide 12: Organic Growth: R&D Investment
12 SMITHS GROUP PLC Annual Results 2018 ORGANIC GROWTH: R&D INVESTMENT CASH COSTS1 Income statement costs (expensed and amortised)1 £131m FY2018 £147m 4.6% of revenue £125m FY2017 £150m 4.6% of revenue FY2018 FY2017 John Crane Smiths Medical Smiths Detection Smiths Interconnect Flex-Tek Central 8% u
Slide 13: Dividend
13 SMITHS GROUP PLC Annual Results 2018 DIVIDEND Proposed final dividend of 30.75p, bringing full year dividend to 44.55p, up 3% Strong cash-flow supporting dividend growth Free cash-flow covers the dividend payment
Slide 14: Strong Balance Sheet
14 SMITHS GROUP PLC Annual Results 2018 STRONG BALANCE SHEET £m Net Debt/ 967 (8) 302 EBITDA 1.4x (172) (6) 893 (71) 29 • Weighted average debt maturity: 5.5 years1 • Weighted average interest rate: 3.7%1 • Stable credit rating (BBB+/Baa2) Net debt FX Free Cash Flow Acquisitions Divestitures Dividen
Slide 15: Pension - Continuous Improvement
15 SMITHS GROUP PLC Annual Results 2018 PENSION - CONTINUOUS IMPROVEMENT Reduction in cash contribution - £49m in FY2018 (FY2017: £105m) - c.£45m expected for FY2019 Accounting surplus increased to £381m (FY2017: £224m) Continue to de-risk schemes: buy-ins and lump-sum offerings On track to achieve
Slide 16: FX Sensitivity
16 SMITHS GROUP PLC Annual Results 2018 FX SENSITIVITY • For each $0.10 move, Currency 2018 average rate 2017 average rate % change Current rate the annual operating profit impact is c.£25m • For each €0.10 move, the annual operating USD 1.35 1.27 6% 1.32 profit impact is c.£10m • At current rates,
Slide 17: 2019 Outlook
17 SMITHS GROUP PLC Annual Results 2018 2019 OUTLOOK Sustained growth - John Crane maintaining growth rate - Smiths Medical back to growth in H2 - Growth in Smiths Detection driven by Air Transportation, further H2 weighted - Smiths Interconnect returning to growth - Flex-Tek continued good growth F
Slide 18: Strategic Update
18 SMITHS GROUP PLC Annual Results 2018 STRATEGIC UPDATE ANDY REYNOLDS SMITH CHIEF EXECUTIVE
Slide 19: Characteristics of a Smiths Business - Our DNA
19 SMITHS GROUP PLC Annual Results 2018 CHARACTERISTICS OF A SMITHS BUSINESS – OUR DNA HIGH PROPORTION SUSTAINABLY INCREASING TECHNOLOGY OF AFTERMARKET COMPETITIVE AND DIGITISATION DIFFERENTIATION AND SERVICES ASSET LIGHT TARGETED IN GROWING MARKETS
Slide 20: Strategic Progress
20 SMITHS GROUP PLC Annual Results 2018 STRATEGIC PROGRESS FY2016 FY2018 MEDIUM TERM HIGH GRADING THE BUSINESSES 9 4 DISPOSALS1 ACQUISITIONS 60%+ 80%+ 85%+ c. £530m of for c. £620m proceeds RISK OF EXECUTION PORTFOLIO PRIORITISATION • Disposal of Smiths • Morpho synergies ahead of Medical’s sterile
Slide 21: Smiths Medical
21 SMITHS GROUP PLC Annual Results 2018 SMITHS MEDICAL High quality business in attractive markets • Strong brands and positions Strategic progress • R&D up c.40%1 • > 20 new products launched this year Disappointing H2 performance Confidence in medium term delivery Parallel path 1 Average of R&D %
Slide 22: Operational Excellence
22 SMITHS GROUP PLC Annual Results 2018 OPERATIONAL EXCELLENCE Centre light with SES in action framework and capability Customer development led from the • Inventory optimisation in centre John Crane Supply People Chain - 28% improvement in stock turns in 2 years Smiths Excellence Execution and • Su
Slide 23: Innovation
23 SMITHS GROUP PLC Annual Results 2018 INNOVATION John Crane Smiths Detection dry gas seal Checkpoint CT scanner DIGITAL FORGE Smiths Medical Smiths Medical blood-draw safety Smart device ambulatory pump Smiths Interconnect Flex-Tek edge card contact for floating core duct medical applications
Slide 24: People
24 SMITHS GROUP PLC Annual Results 2018 PEOPLE LEARNING CULTURE • Leadership programme • Shared values • SES Academy • Enhanced employee communication and brand • First Smiths Day celebrated 7th June 2018 • Central graduate apprentice programmes DIVERSITY • D&I programme
Slide 25: Medium Term Ambition
25 SMITHS GROUP PLC Annual Results 2018 MEDIUM TERM AMBITION OPERATIONAL PERFORMANCE FINANCIAL PERFORMANCE FY2018 Ambition FY2018 Ambition Underlying Outperform our Portfolio strength ~80% 85%+ +2% revenue growth chosen markets R&D % sales 4.6% 5-6% Operating margin 16.9% 18-20% Vitality index 13% ~
Slide 26: Sustainable Growth
26 SMITHS GROUP PLC Annual Results 2018 SUSTAINABLE GROWTH 2016 2017 2018 2019 AMBITION OUTPERFORMING A NEW SIGNIFICANT RETURN TO SUSTAINABLE OUR CHOSEN DIRECTION PROGRESS GROWTH GROWTH MARKETS
Slide 27: SMITHS GROUP PLC Annual Results 2018
27 SMITHS GROUP PLC Annual Results 2018
Slide 28: SMITHS GROUP PLC Annual Results 2018
28 SMITHS GROUP PLC Annual Results 2018
Slide 29: Income Statement
29 SMITHS GROUP PLC Annual Results 2018 INCOME STATEMENT £m FY2018 FY2017 Change Revenue 3,213 3,280 (2)% Headline1 operating profit 544 589 (8)% Restructuring costs (Fuel For Growth) - (33) Morpho integration costs (19) (4) Legacy liabilities (8) (5) Pension administration costs - (7) Pension settl
Slide 30: Restructuring and Pension Administration Costs
30 SMITHS GROUP PLC Annual Results 2018 RESTRUCTURING AND PENSION ADMINISTRATION COSTS John Smiths Smiths Smiths Central FY2017 - £m Flex-Tek Group Crane Medical Detection Interconnect costs Headline1 operating profit – reported 204 209 103 56 65 (48) 589 Restructuring programmes (7) (16) (2) (1) (7
Slide 31: Revenue and Operating Profit H1/H2 Split
31 SMITHS GROUP PLC Annual Results 2018 REVENUE AND OPERATING PROFIT1 H1/H2 SPLIT H1 H2 2018 H1 H2 2018 £m Revenue Revenue Revenue Operating profit Operating profit Operating profit John Crane 428 453 881 91 111 202 Smiths Medical 451 434 885 82 74 156 Smiths Detection 367 426 793 59 75 134 Smiths I
Slide 32: John Crane
32 SMITHS GROUP PLC Annual Results 2018 JOHN CRANE: Mission-critical solutions for global energy and process industries Revenue £881m COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE (27% of Group) LANDSCAPE • A global leader in flow control for rotating • Need for operational improvements in non- H
Slide 33: Smiths Medical
33 SMITHS GROUP PLC Annual Results 2018 SMITHS MEDICAL: High-quality, cost-effective medical devices and consumables that are vital to patient care globally Revenue £885m COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE (28% of Group) LANDSCAPE • Category leader in our chosen markets • Ageing popula
Slide 34: Smiths Detection
34 SMITHS GROUP PLC Annual Results 2018 SMITHS DETECTION: A global leader in the detection and identification of security threats and contraband Revenue £793m COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE (25% of Group) LANDSCAPE • A global market leader with • Persistent and evolving terror thre
Slide 35: Smiths Interconnect
35 SMITHS GROUP PLC Annual Results 2018 SMITHS INTERCONNECT: Solutions for high-speed, secure connectivity in demanding applications Revenue £300m COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE (9% of Group) LANDSCAPE • Innovative and technically differentiated offerings • Increased connectivity H
Slide 36: Flex-Tek
36 SMITHS GROUP PLC Annual Results 2018 FLEX-TEK: Innovative components to heat and move fluids and gases Revenue £354m COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE (11% of Group) LANDSCAPE • High-performance products • Steady growth of US housing construction Headline OP • Leading capability in