Smiths Group PLC · LSE:SMIN
Smiths — H1 2011 Earnings Presentation
41 slides from Smiths's earnings presentation, Mar 23, 2011
Slide 1: Interim Results 23 March 2011
Interim Results 23 March 2011 Smiths Group plc Interim Results 2011 | 1 investor.relations@smiths.com www.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
Introduction Philip Bowman Chief Executive Smiths Group plc Interim Results 2011 | 3
Slide 4: Business highlights
Business highlights Reported sales up 7%; underlying up 2% Headline operating profit up 15%, underlying up 9% Margins improve 120 basis points to 17.4% Cash generation strong - apart from £32m investment in working capital for Smiths Detection Dividend returns to growth, up 7% to 11.25 pence Return
Slide 5: Operational highlights
Operational highlights Investing in future growth 9 Company-funded R&D up 14% to £49m 9 Investing in sales and marketing effectiveness 9 Enhancing presence in emerging markets through organic investment Delivering operational efficiencies 9 Cost savings of £6m; £45m to date against £70m target 9 Por
Slide 6: A primary focus on safety is delivering improvements
A primary focus on safety is delivering 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 0.71 0.68 0.54 0.51 0.30 0.29 2004 2005 2006 2007 2008 2009 2010 H1 2011
Slide 7: Financial review
Financial review Peter Turner Finance Director Smiths Group plc Interim Results 2011 | 7
Slide 8: Interim results 2011
Interim results 2011 £m Headline* Statutory 2011 2010 2011 2010 Continuing activities reported underlying** Sales 1,372 1,279 7% 2% 1,372 1,279 Operating profit 239 207 15% 9% 208 186 Margin 17.4% 16.2% 120 bps - 15.2% 14.5% Pre-tax profit 224 178 25% 18% 189 148 Basic EPS (p) 42.1 34.7 21% 35.7 28.
Slide 9: Profit progression 2010 to 2011
Profit progression 2010 to 2011 • Volume: Benefits from John Crane, Smiths Interconnect and Flex-Tek • Price: Most divisions but mainly John Crane and PBT: £224m Flex-Tek • Mix: Negative mix in John Crane and Smiths Interconnect • Investment: Investment in R&D and sales & £14m marketing Pensions/ •
Slide 10: Smiths Detection: Variable order flow affecting sales and margins
Smiths Detection: Variable order flow affecting sales and margins £m 2011 2010 reported underlying Sales 248 266 (7)% (9)% Operating profit 34 39 (11)% (11)% Margin 13.9% 14.5% (60) bps Operating profit £m • Volume: Decline driven primarily by military 2009/10 39 and ports & borders Volume (13) • Lo
Slide 11: John Crane: Volumes and price driving margin expansion
John Crane: Volumes and price driving margin expansion £m 2011 2010 reported underlying Sales 412 358 +15% +12% Operating profit 79 64 +22% +18% Margin 19.0% 17.9% +110 bps Operating profit £m • Volume: Driven by aftermarket and OEM, 2009/10 64 particularly for oil and gas Volume 18 • Price: Afterma
Slide 12: Smiths Medical: Efficiencies deliver further margin improvements
Smiths Medical: Efficiencies deliver further margin improvements £m 2011 2010 reported underlying Sales 418 414 +1% (2)% Operating profit 94 86 +9% 5% Operating margin 22.6% 20.9% +170 bps Operating profit £m • Volume: Diabetes exit, pressure on safety 2009/10 86 devices and vital care products Volu
Slide 13: Smiths Interconnect: Higher volumes deliver margin gains
Smiths Interconnect: Higher volumes deliver margin gains £m 2011 2010 reported underlying Sales 186 146 +28% +7% Operating profit 34 23 +44% +15% Margin 18.1% 16.0% +210 bps Operating profit £m • Volume: Growth across all sectors 2009/10 23 • Mix: Various contract mix effects Volume 6 • Efficiencies
Slide 14: Flex-Tek: Volumes and pricing offset inflation pressures
Flex-Tek: Volumes and pricing offset inflation pressures to grow margins £m 2011 2010 reported underlying Sales 107 96 +12% +8% Operating profit 12 9 +32% +27% Margin 11.6% 9.8% +180 bps Operating profit £m • Volume: Gains in all segments except 2009/10 9 Flexible Solutions Volume 3 • Price: Improve
Slide 15: Delivering improved returns on capital
Delivering improved returns on capital 25.0 H1 2011 24.0% H1 2010 20.6% 19.8% 20.0 17.3% 17.4% 17.4% 15.9% 16.0% 14.9% 15.0 13.9% 13.0% % 11.3% 10.0 5.0 0.0 Smiths Group John Crane Flex-Tek Smiths Smiths Medical Smiths Detection Interconnect Return on capital employed is calculated over a rolling 12
Slide 16: Reconciliation: Headline operating profit to statutory profit
Reconciliation: Headline operating profit to statutory profit £m Headline operating profit 238.7 Corporate and divisional restructuring (5.4) John Crane litigation - provision (2.2) Cost of acquisitions (0.4) Exceptional operating items (8.0) Amortisation of acquired intangible assets (22.3) Statuto
Slide 17: Exceptional items: Restructuring programme delivering benefits
Exceptional items: Restructuring programme delivering benefits £m H1 2011 Savings Forecast Programme savings to date benefits John Crane 2 19 25 Costs to date: £42m Flex-Tek 1 9 9 IT 2 8 8 Total planned costs: £64m Medical Completed 3 3 Total planned savings: HQ Completed 5 5 £70m Phase II 1 1 20 To
Slide 18: Group cash conversion – investment in working capital for Detection
Group cash conversion – investment in working capital for Detection £m (for continuing activities) 2011 2010 Headline operating profit 239 207 Changes in working capital (68) 10 Share based payment/pension 6 4 Capital expenditure (Property, plant & equipment) (18) (20) Depreciation 32 32 Development
Slide 19: Net debt increased £43m driven by working capital and dividends
Net debt increased £43m driven by working capital and dividends £m 2011 Net debt at start of period (837) Operating cash (after capex etc.) 186 Interest and tax (76) Exceptionals (40) Free cash flow 70 Dividends (92) Acquisitions/disposals (18) Financing including net investment hedges 1 Foreign exc
Slide 20: Pensions: Deficit reduced to £119m
Pensions: Deficit reduced to £119m, helped by improved asset returns Deficit movement since 31 July 2010 P&L and cash outlook £m Deficit at 31 July 2010 (305) Foreign exchange 1 FY 2011 Return on assets 233 Finance income c. £24m Scheme contributions £65m Contributions (net of service costs) 23 Escr
Slide 21: Strong balance sheet supports investment in growth
Strong balance sheet supports investment in growth Interest split Currency split Debt split Net debt £m Borrowings 1017 USD Liquid resources (137) Fixed Euro Bank Floating other Public Net debt 880 £m Weighted average life of debt is 5.4 years 300 Credit Rating: 250 BBB+ (stable)/ 200 Baa2 (stable)
Slide 22: Financials: Conclusion
Financials: Conclusion Sales growth achieved through volumes, pricing and acquisitions Self-help initiatives deliver good progress on margins Cash continues to be a priority Significant improvement in returns on capital A healthy platform for driving future growth and returns Smiths Group plc Interi
Slide 23: Operational review and priorities
Operational review and priorities Philip Bowman Chief Executive Smiths Group plc Interim Results 2011 | 23
Slide 24: Creating shareholder value through long-term profitable growth
Creating shareholder value through long-term profitable growth Underlying sales growth (%) Delivering growth • Exposure to markets with long-term growth characteristics • Strong blend of technology businesses and markets • Investment in growth opportunities – R&D, network expansion in emerging marke
Slide 25: Creating shareholder value through long-term profitable growth
Creating shareholder value through long-term profitable growth Strong cash conversion (%) Focus on cash and balance sheet • Strong cash characteristics and low capital investment requirements • Robust balance sheet management to fund our investment plans Additional H1 11 Smiths Detection working cap
Slide 26: Smiths Detection: Variable order flow has affected sales
Smiths Detection: Variable order flow has affected sales 2011 H1 Sales % 2011 2010 Reported U’lying Sales: £248m £266m (7)% (9)% Transportation Op profit: £34m £39m (11)% (11)% Ports & borders Margin: 13.9% 14.5% (60) bps Military Emergency responders Transportation underlying sales down 1% Critical
Slide 27: Smiths Detection: Investing in future growth through new products
Smiths Detection: Investing in future growth through new products • Company funded R&D increased 9% to £17m or 7.0% of sales • Total spend of £21m; 8.8% of sales (including customer-funded R&D of £4m) • Agreement with Analogic to develop next generation checked baggage scanner: - Integrating the CT
Slide 28: Smiths Detection: Operational priorities
Smiths Detection: Operational priorities • Maintain technical leadership through R&D investment • Deliver key milestones on new product development: eqo and new checked baggage scanner • Drive further benefit from ERP investment and streamline global manufacturing Outlook • Strong order book in tran
Slide 29: John Crane: Delivering sales growth, improving margins and returns
John Crane: Delivering sales growth, improving margins and returns 2011 2010 Reported U’lying 2011 H1 Sales % Sales: £412m £358m 15% 12% First-fit OEM 36% Op profit: £79m £64m 22% 18% Margin: 19.0% 17.9% 110 bps Aftermarket 64% Oil, gas & petrochemical Chemical and pharma Margins improved 110 basis
Slide 30: John Crane: Investing in future growth
John Crane: Investing in future growth Expanding the service centre network • New manufacturing and service centre in Saudi Arabia • Planned expansion of service and manufacturing in Dubai in second half Extending our product offering to new geographies • New Indufil facility (filtration systems) op
Slide 31: John Crane: Operational priorities
John Crane: Operational priorities • Expand service centre footprint – exploit growth opportunities in emerging markets • Complete restructuring programme - global John Crane • Consolidate benefits from ERP programme and harmonise processes Outlook • Strong order book supports second half growth – a
Slide 32: Smiths Medical: Delivering margin growth in a challenging market
Smiths Medical: Delivering margin growth in a challenging market 2011 H1 Sales % 2011 2010 Reported U’lying Sales*: £413m £407m 2% (2)% Op profit: £94m £86m 9% 5% Medication delivery Margin: 22.6% 20.9% 170 bps Vital care Safety devices Portfolio profitability review supporting margin improvement To
Slide 33: Smiths Medical: Investing in growth opportunities
Smiths Medical: Investing in growth opportunities Global approach to sales and marketing effectiveness • Identifying opportunities to market our products more systematically across the sales network • Investment in business intelligence and training tools to increase penetration Expanding our presen
Slide 34: Smiths Medical: Operational priorities
Smiths Medical: Operational priorities • Build on new global organisation in sales & marketing and product management • Increase R&D spend to launch new products; emerging market opportunities • Continue to deliver operational efficiencies Outlook • Sales environment is likely to remain challenging
Slide 35: Smiths Interconnect: Delivering growth across all markets
Smiths Interconnect: Delivering growth across all markets 2011 2010 Reported U’lying 2011 H1 Sales % Sales: £186m £146m 28% 7% Op profit: £34m £23m 44% 15% Military/Aerospace Margin: 18.1% 16.0% 210 bps Wireless Medical, rail, automation Sales and margins benefit from IDI acquisition and organic gro
Slide 36: Smiths Interconnect: Investing in growth drivers
Smiths Interconnect: Investing in growth drivers IDI integration complete – delivering growth in sales and margins • Leveraging existing scale and extending our geographic footprint • Major contract win for European radar system • Consolidated Asian sales presence is supporting growth across the con
Slide 37: Smiths Interconnect: Operational priorities
Smiths Interconnect: Operational priorities • Continue to develop new products to meet customer needs • Deliver major customer requirements to maintain momentum in key contracts • Implement restructuring to drive operational efficiencies Outlook • Well-positioned on key military programmes and in co
Slide 38: Flex-Tek: Margins benefit from operational leverage
Flex-Tek: Margins benefit from operational leverage 2011 2010 Reported U’lying 2011 H1 Sales % Sales: £107m £96m 12% 8% Op profit: £12m £9m 32% 27% Fluid Management Margin: 11.6% 9.8% 180 bps Construction Heat Solutions Margins benefit from higher volumes and cost savings Flexible Solutions Restruct
Slide 39: Flex-Tek: Operational priorities
Flex-Tek: Operational priorities • Roll-out new product launches • Asian growth potential in industrial and appliance markets • Deliver the benefits from cost saving initiatives Outlook • Modest improvements in the end markets but uncertainty remains • Increased volumes and cost efficiencies which w
Slide 40: Smiths Group: Operational priorities
Smiths Group: Operational priorities • Investing in targeted R&D to launch new products Investing • Growing our technology and reach through in future bolt-on acquisitions growth • Expansion in developing markets • Improve margins through restructuring and Delivering ‘self-help’ programmes operation
Slide 41: Questions & Answers
Questions & Answers Investor Day 28 June 2011 - New York investor.relations@smiths.com Smiths Group plc Interim Results 2011 | 41 investor.relations@smiths.com www.smiths.com