Smiths Group PLC · LSE:SMIN
Smiths — FY2015 Earnings Presentation
63 slides from Smiths's earnings presentation, Sep 23, 2015
Slide 1: Annual Results 23 September 2015
Annual Results 23 September 2015 investor.relations@smiths.com www.smiths.com 1 Smiths Group plc Annual Results 2015
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 & Overview
Introduction & Overview Philip Bowman Chief Executive 3 Smiths Group plc Annual Results 2015
Slide 4: Agenda
Agenda Introduction and overview Philip Bowman Financial review Rob White Operational review – introduction Philip Bowman John Crane Duncan Gillis Smiths Medical Jeff McCaulley Smiths Detection Richard Ingram Smiths Interconnect Roland Carter Flex-Tek Tedd Smith Conclusion and outlook Philip Bowman
Slide 5: Results overview
Results overview Revenue down 2% with challenging conditions in certain markets Headline operating profit up 1%; margin up 50 bps to 17.6% Headline EPS up 5% to 86.1p; dividend up 2% to 41 pence Cash conversion remains strong at 95%; ROCE up 30 bps at 16.0% Fuel for Growth restructuring on track to
Slide 6: Divisional performance highlights
Divisional performance highlights Focus on aftermarket services delivers a resilient performance John • Underlying growth in aftermarket services; First-fit revenue continues to decline Crane • Margins broadly maintained benefiting from product mix and cost controls Good revenue growth driven by inn
Slide 7: Delivering safety and environmental improvements
Delivering safety and environmental improvements Recordable incident rate trended slightly higher Environmental metrics 1.89 • 5 year environmental goal Recordable incident rate period ending FY2018 Lost time incident rate * Measured per 100 • FY2013-15* performance: employees per year using 1.21 US
Slide 8: Financial review
Financial review Rob White Interim CFO 8 Smiths Group plc Annual Results 2015
Slide 9: Headline profit progression 2014 to 2015
Headline profit progression 2014 to 2015 FY14 one- off costs Average exchange rates to £ US$ 1.56 (2014: 1.64) Euro 1.33 (2014: 1.21) £4m £22m Translation FX ready reckoner 1 US cent = c. £2m HOP £30m 1 Euro cent = c. £1m HOP £2m Volume Price/mix £3m £7m PBT: Interest £459m FX £24m PBT: £445m £15m £
Slide 10: Group cash conversion
Group cash conversion £m 2015 2014 Headline operating profit 511 504 Changes in working capital (36) (11) Share-based payment 8 9 Capital expenditure (property, plant & equipment) (59) (54) Capitalised development and other intangibles (35) (40) Net disposal proceeds 8 2 Depreciation and amortisatio
Slide 11: Reconciliation: Headline operating profit to statutory profit
Reconciliation: Headline operating profit to statutory profit £m Headline operating profit 511 Restructuring programmes (38) Litigation provision: John Crane, Inc. (19) Litigation provision: Titeflex Corporation (8) Gains on changes to post-retirement benefits 14 Profit on disposals & acquisitions a
Slide 12: Fuel for Growth – driving efficiencies to support growth investment
Fuel for Growth – driving efficiencies to support growth investment £m TO DATE FULL PROGRAMME Costs Annual savings Costs Annual savings John Crane 12 10 27 13 Smiths Medical 26 12 50 23 Smiths Detection 16 4 28 10 Smiths Interconnect 11 7 11 9 Flex-Tek 1 0 4 5 Total 66 33 120 60 £m 2013/14 2014/15 2
Slide 13: Successful €600m bond issue underpins strong financial profile
Successful €600m bond issue underpins strong financial profile Interest split Currency split Debt split Net debt £m Borrowings 1,313 USD Cash (495) Fixed Euro Bank Floating other Public Net debt 818 Weighted average life of debt is 5.0 years £m Credit Rating: 400 BBB+ (stable)/Baa2 (stable) €600m 1.
Slide 14: Guidance – financial items
Guidance – financial items Headline tax rate 25.5 – 26.5% Cash conversion 85 – 95% Funded pension scheme contributions* c. £125m + £24m to escrow Debt finance charge (subject to FX) c. £54-58m * 2015/16 subject to the outcome of the triennial review 14 Smiths Group plc Annual Results 2015
Slide 15: Operational review and priorities
Operational review and priorities Philip Bowman Chief Executive 15 Smiths Group plc Annual Results 2015
Slide 16: Engineered for Growth – Progress update
Engineered for Growth – Progress update Sales & marketing excellence • Established Group-wide councils sharing best practices on customer insight, market segmentation, value proposition, etc. • Established a Sales Academy: held four events for 170 sales leaders Quality improvement • Quality Council
Slide 17: John Crane
John John Crane Crane Duncan Gillis President 17 Smiths Group plc Annual Results 2015
Slide 18: John Crane: Resilient performance from focus on aftermarket services
John Crane: Resilient performance from focus on aftermarket services Underlying revenue • Revenue growth from aftermarket offset by declines with first-fit customers -2% £905m • Margins stable as cost saving actions helped offset first-fit volume declines Underlying headline profit • Aftermarket rev
Slide 19: John Crane: A strong platform for value creation
John Crane: A strong platform for value creation Revenue from emerging markets up 5%; now 24% of sales • Good growth in Latin America: Mexico, Colombia, Chile Increased innovation investment by 17% • Next-generation gas seal technology: AURA 220 • New Predictive Diagnostics System in customer trials
Slide 20: John Crane: Operating in sustained challenging market conditions
John Crane: Operating in sustained challenging market conditions Business model provides resilience • Biased to mid- and downstream applications in oil and gas • 56% revenues from aftermarket – supports resilience and positive mix Margin protection actions continuing • Discretionary cost reduction p
Slide 21: John Crane: Outlook
John Crane: Outlook Outlook Servicing local and global customers from John Crane’s • Global energy markets expected expanded Service to remain challenging with Super Centre in Edmonton, Canada depressed oil prices • Absent any improvement, revenue is expected to decline further • Margins anticipated
Slide 22: Smiths Medical
Smiths Medical Jeff McCaulley President 22 Smiths Group plc Annual Results 2015
Slide 23: Smiths Medical: Strong growth from innovation investment in infusion systems
Smiths Medical: Strong growth from innovation investment in infusion systems Underlying revenue • Strong underlying revenue growth driven by targeted execution in infusion systems and key disposables +4% £836m • Headline profit improved on higher volumes and efficiencies despite increased R&D and ad
Slide 24: Smiths Medical: Building a platform for continued growth
Smiths Medical: Building a platform for continued growth Increasing investment in innovation • Investment up 60 bps to 5.4% of sales (2014: 4.8%) • Vitality index up to 9% benefiting from CADD, Medfusion 4000, Graseby C6 and F6, Acapella • Improvements in prioritisation, programme discipline, execut
Slide 25: Smiths Medical: Outlook
Smiths Medical: Outlook Outlook Inspecting a CADD®-Solis Ambulatory Infusion • Revenue expected to grow in Pump medication line with medium-term range cassette to ensure a sealed reservoir (0-3%) for drug delivery • Infusion systems growth rates expected to moderate, returning to normal market dynam
Slide 26: Smiths Detection
Smiths Detection Richard Ingram President 26 Smiths Group plc Annual Results 2015
Slide 27: Smiths Detection: Margin recovery; actions are stabilising performance
Smiths Detection: Margin recovery; actions are stabilising performance Underlying revenue • Revenue down due to expected variations in contract timing and continued tough trading conditions -7% £467m • Margin recovery without last year’s one-off charges and actions to restructure and cut costs Under
Slide 28: Smiths Detection: Strategic initiatives are delivering business improvements
Smiths Detection: Strategic initiatives are delivering business improvements Building our installed base and expanding our aftermarket • Aftermarket grew 9% and now represents more than a third of revenue • Contract wins have increased and will build installed base during FY16 • Continuing to focus
Slide 29: Smiths Detection: Outlook
Smiths Detection: Outlook Outlook • Recent contract wins and the improved order book expected to deliver revenue growth in coming year • Margins should be broadly maintained as cost savings are balanced by investments in future growth The HCVM T mobile cargo scanner’s advanced ‘material discriminati
Slide 30: Smiths Interconnect
Smiths Interconnect Roland Carter President 30 Smiths Group plc Annual Results 2015
Slide 31: Smiths Interconnect: Results affected by tough trading and customer cutbacks
Smiths Interconnect: Results affected by tough trading and customer cutbacks Underlying revenue • Revenues affected by cuts in customer spending and some programme slowdowns and delays -9% £420m • Margins affected by adverse operational gearing from lower volumes and mix • Connectors – revenues down
Slide 32: Smiths Interconnect: Focused on growth initiatives and efficiencies
Smiths Interconnect: Focused on growth initiatives and efficiencies Continued focus on cost optimisation • Restructuring and lean/value engineering delivering efficiencies • Connectors factory consolidation in Americas New product development focused on high growth markets • Company-funded R&D maint
Slide 33: Smiths Interconnect: Outlook
Smiths Interconnect: Outlook Outlook • General market conditions expected to stabilise • Individual customer and programme dynamics will still affect demand • Margins should stabilise as restructuring efficiencies outweigh increased investment, pricing pressure and cost inflation High-speed ruggediz
Slide 34: Flex-Tek
Flex-Tek Tedd Smith President 34 Smiths Group plc Annual Results 2015
Slide 35: Flex-Tek: Sustained revenue growth; margins affected by product mix and investment
Flex-Tek: Sustained revenue growth; margins affected by product mix and investment Underlying revenue • Revenue growth from specialty heating, US construction and hoses for aerospace applications +4% £269m • Margins slightly down despite higher volumes due to adverse product mix and increased R&D Un
Slide 36: Flex-Tek: Increased investment in new products and sales & marketing
Flex-Tek: Increased investment in new products and sales & marketing Product innovation is driving growth • R&D spend up 13% • New product initiatives focused on: - Hoses for next generation of fuel efficient aircraft - Specialty heating elements to drive revenue and margins - Next generation constr
Slide 37: Flex-Tek: Outlook
Flex-Tek: Outlook Outlook • Commercial aerospace demand and increasing output rates of OEMs are positive for Fluid Management • Residential construction market is expected to see modest growth • Specialty applications for Heat Solutions and Flexible Solutions will benefit from continued economic gro
Slide 38: Conclusion
Conclusion Philip Bowman Chief Executive 38 Smiths Group plc Annual Results 2015
Slide 39: Pensions: Deficit falls to £108m – lowest level since 2008
Pensions: Deficit falls to £108m – lowest level since 2008 £m 700 Cash contributions £750m (£629m + £121m in escrow) 550 400 250 Surplus £39m 100 -50 2007 2008 2009 2010 2011 2012 2013 2014 2015 -200 Deficit -350 £(108)m Accounting deficit -500 Accounting deficit net of escrow assets of £147m -650 C
Slide 40: Actions to address pension liabilities and lower actuarial deficits
Actions to address pension liabilities and lower actuarial deficits Closure of pension schemes to future accruals in 2009 • Curtailment and past service gains totalling £91m between FY2008 and FY2015 UK: SIPS Actuarial deficit • March 2013 – 20% of asset switched to index-linked gilts 2012 £535m • J
Slide 41: Pensions: Net accounting deficit decreased £134m to £108m
Pensions: Net accounting deficit decreased £134m to £108m Deficit movement since 31 July 2014 (£m) Annual cash contributions 2015 2016 est* Deficit at 31 July 2014 (242) Foreign exchange (3) Funded scheme contributions £79m £127m Return on assets 389 - Smiths Industries PS £36m £36m Contributions (n
Slide 42: Annual Results 23 September 2015
Annual Results 23 September 2015 investor.relations@smiths.com www.smiths.com 42 Smiths Group plc Annual Results 2015
Slide 43: Investor relations contact
investor.relations@smiths.com www.smiths.com 43 Smiths Group plc Annual Results 2015
Slide 44: John Crane
John Crane Contribution to A leading provider of engineered products 2015 Group revenue: 31% and services to global energy services customers. Our products and services help Contribution to 2015 ensure the reliability of mission-critical headline operating profit: Percentage relates to headline 41%
Slide 45: John Crane
John Crane In addition to lowering total cost of ownership of equipment, our products reduce emissions and help our customers meet environmental responsibilities. For nearly 100 years, our customers have depended on our global service network and technical excellence. Principal operating regions: Cu
Slide 46: John Crane: Resilient performance from focus on aftermarket services
John Crane: Resilient performance from focus on aftermarket services £m 2015 2014 reported underlying Revenue 905 941 (4)% (2)% Headline operating profit 225 234 (4)% (2)% Headline operating margin 24.8% 24.9% (10) bps Statutory operating profit 165 166 (1)% Return on capital employed 25.8% 26.7% (9
Slide 47: Smiths Medical
Smiths Medical Contribution to A leading supplier of specialty medical devices 2015 Group revenue: 29% and consumables that are vital to patient care around the world, Smiths Medical is dedicated Contribution to 2015 to providing innovative solutions and superior headline operating profit: Percentag
Slide 48: Smiths Medical
Smiths Medical Our broad portfolio offers products that aid in the delivery of medication, protect healthcare workers and patients from cross-infection and injury, manage patient airway and temperature, as well as deliver specialised care in areas of in-vitro fertilisation, diagnostics and emergency
Slide 49: Smiths Medical: Strong growth from innovation investment in infusion systems
Smiths Medical: Strong growth from innovation investment in infusion systems £m 2015 2014 reported underlying Revenue 836 804 4% 4% Headline operating profit 166 159 4% 2% Headline operating margin 19.8% 19.8% - Statutory operating profit 142 142 - Return on capital employed 14.7% 14.5% 20 bps Headl
Slide 50: Smiths Detection
Smiths Detection Contribution to A world-leading designer and manufacturer 2015 Group revenue: 16% of sensors that detect and identify explosives, weapons, chemical agents, Contribution to 2015 biohazards, nuclear & radioactive material, headline operating profit: Percentage relates to headline 10%
Slide 51: Smiths Detection
Smiths Detection Our comprehensive range of detection technologies, including X-ray, trace detection and infra-red spectroscopy helps customers in the global transportation, ports and borders, critical infrastructure, military and emergency responder markets. Principal operating Customers: The major
Slide 52: Smiths Detection: Margin recovery; actions are stabilising performance
Smiths Detection: Margin recovery; actions are stabilising performance £m 2015 2014 reported underlying Revenue 467 512 (9)% (7)% Headline operating profit 55 25 124% 167% Headline operating margin 11.9% 4.8% 710 bps Statutory operating profit 45 23 96% Return on capital employed 9.6% 3.9% 570 bps H
Slide 53: Smiths Interconnect
Smiths Interconnect Contribution to A recognised leader in technically 2015 Group revenue: 15% differentiated electronic components and sub-systems providing signal, power and Contribution to 2015 microwave solutions. headline operating profit: Percentage relates to headline 9% operating profit befo
Slide 54: Smiths Interconnect
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 55: Smiths Interconnect: Results affected by tough trading conditions and order timing
Smiths Interconnect: Results affected by tough trading conditions and order timing £m 2015 2014 reported underlying Revenue 420 445 (6)% (9)% Headline operating profit 49 71 (31)% (34)% Headline operating margin 11.6% 16.0% (440) bps Statutory operating profit 28 49 (43)% Return on capital employed
Slide 56: Flex-Tek
Flex-Tek Contribution to A global provider of engineered 2015 Group revenue: 9% components that heat and move fluids and gases for the aerospace, medical, Contribution to 2015 industrial, construction and domestic headline operating profit: Percentage relates to headline 9% operating profit before c
Slide 57: Flex-Tek
Flex-Tek 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 elements and thermal systems improve the performance of a
Slide 58: Flex-Tek: Sustained revenue growth; margins affected by product mix and investment
Flex-Tek: Sustained revenue growth; margins affected by product mix and investment £m 2015 2014 reported underlying Revenue 269 250 8% 4% Headline operating profit 50 47 5% 1% Headline operating margin 18.5% 18.9% (40) bps Statutory operating profit 41 37 11% Return on capital employed 33.6% 34.0% (
Slide 59: Annual results 2015
Annual results 2015 £m Headline* Statutory 2015 2014 2015 2014 reported underlying# Revenue 2,897 2,952 (2)% (2)% 2,897 2,952 Operating profit 511 504 1% 1% 394 378 Operating margin 17.6% 17.1% 50 bps 13.6% 12.8% Pre-tax profit 459 445 3% 3% 325 302 Basic EPS (p) 86.1 81.8 5% 62.4 59.0 Free cash-flo
Slide 60: Underlying headline revenue and profit performance
Underlying headline revenue and profit performance Revenue Operating profit growth growth John Crane -2% -2% Smiths Medical +4% +2% Smiths Detection -7% +167% Smiths Interconnect -9% -34% Flex-Tek +4% +1% Group -2% +1% 60 Smiths Group plc Annual Results 2015
Slide 61: Return on capital improved with recovery in Detection
Return on capital improved with recovery in Detection % 35.0 34.0% 33.6% 12 months to 31 July 2015 12 months to 31 July 2014 30.0 26.7% 25.8% 25.0 20.0 15.7% 16.0% 15.0 14.5% 14.7% 13.7% 10.0 9.6% 9.1% 5.0 3.9% 0.0 Smiths Group Flex-Tek John Crane Smiths Medical Smiths Detection Smiths Interconnect
Slide 62: Net debt increased by £14m to £818m
Net debt increased by £14m to £818m £m 2015 Net debt at start of period (804) Operating cash (after capex etc.) 484 Interest and tax (155) Exceptionals/Pensions (171) Free cash flow 158 Dividends (160) Financing acquisitions, investments and disposals (1) Foreign exchange (13) Purchase of own shares
Slide 63: Asbestos litigation
Asbestos litigation Key facts Key figures • Production ceased in 1985 Gross provision £236m • Exposure within John Crane, Inc. Discounted pre-tax provision £216m • Resists claims based on ‘safe product’ defence Claims dismissed 242,000 Claims outstanding 76,000 • Provision determined using independe