Smiths Group PLC · LSE:SMIN
Smiths — FY2006 Earnings Presentation
31 slides from Smiths's earnings presentation, Sep 27, 2006
Slide 1: Smiths Group Preliminary Results 2006
Smiths Group Preliminary Results 2006 London, Wednesday 27 September 2006 Presentation by: Keith Butler-Wheelhouse, Chief Executive John Langston, Finance Director Register here to receive regular information www.smiths-group.com/ir
Slide 2: Key points from the 2006 results
Key points from the 2006 results Chief Executive speaking Another year of strong top and bottom line growth Cash generation at high levels Dividend raised for 36th year Higher R&D is driving long-term growth Global reach: low cost manufacturing and closer to customers Product range extended; signifi
Slide 3: Preliminary results 2006
Preliminary results 2006 £m 2006 2005 Headline* Statutory Headline* Statutory Sales 3,523 3,005 Operating profit 520 161 416 382 Pre-tax profit 492 132 404 366 Basic EPS (p) 64.8p 4.3p 52.8p 48.3p * In addition to statutory reporting, Smiths Group reports on a headline basis, a measure which shows u
Slide 4: Headline performance
Headline performance £m 2006 Sales 3,523 +17% Operating profit 520 +25% Margin 14.8% up from 13.8% Pre-tax profit 492 +22% Basic EPS (p) 64.8p +23% Annual dividend (pps) 31.35p +8.1% Op. profit/op. cash (after capex) 81% up from 62% Preliminary Results 2006 4
Slide 5: Driving for Full Potential: growth on prior year
Driving for Full Potential: growth on prior year GAAP IFRS underlying Incl. currency, acquisitions 04 basis 05 basis 06 17% 13% Sales 9% 8% 25% 17% Headline operating profit 11% 8% 22% 18% 13% Headline pre-tax profit 14% Preliminary Results 2006 5
Slide 6: Profit progression across the year
Profit progression across the year £m Headline pre-tax 18 financing/exchange 2006 - £492m 85 Headline pre-tax 2005 - £404m volume (40) raw materials 35 price/mix (38) labour costs 43 efficiencies/synergies overhead costs (38) R&D (5) (expensed) 28 acquisitions (net of interest) Preliminary Results 2
Slide 7: Developing technology to help customers succeed: Research & Development
Developing technology to help customers succeed Research & Development Company-funded R&D (£m) % of sales Aerospace 125 9.6% Detection 23 5.5% Medical 25 3.4% Specialty Engineering 20 1.9% 193 5.5% Company-funded R&D increased by £50m in 2006 Customer-funded R&D 159 4.5% Preliminary Results 2006 7
Slide 8: Investing to improve productivity and extend global reach
Investing to improve productivity and extend global reach £m 2006 2005 Capex (property, plant & equipment) 111 100 Depreciation 81 72 New and extended plants: programmes underway in 2006 Bangalore - John Crane Suzhou - Aerospace Bangalore St Petersburg - Detection Tennessee - Detection Maryland - De
Slide 9: Financial update
Financial update Finance Director speaking Currency (translation benefit) sales £68m headline operating profit £11m Acquisitions/disposals sales £159m (contrib. in 2006) headline operating profit £36m Margins (gross margin) 40% Interest (charge) (54) Effective headline tax rate 26% Pensions financin
Slide 10: Operating cash conversion
Operating cash conversion £m 2006 Headline operating profit 520 Share based payments 16 Property, plant & equipment (net of depreciation) (18) Development costs & other intangibles (81) (net of amortisation and deferred income) Changes in working capital (17) Operating cash-flow 420 Conversion rate
Slide 11: Movement in net debt
Movement in net debt £m 2006 Net debt at start of period (931) Operating cash (after capex etc) 420 Interest and tax (159) Special pension contribution (61) Exceptionals (17) 183 Dividends (167) Acquisitions/disposals/new business (65) Financing & exchange 57 Change in net debt 8 Net debt at end of
Slide 12: Post-retirement benefits
Post-retirement benefits £m 2006 2005 Funded pension schemes - UK 140 18 - US (62) (124) Surplus/(deficit) 78 (106) Unfunded, and post-retirement healthcare (UK &US) (118) (131) Other countries (20) (18) Net post-retirement (liability)/asset (60) (255) Smiths’ net pension position improved by £195m
Slide 13: Research & Development: 1
Developing technology to help customers succeed: Research & Development: 1 Cash investment £m 2006 of sales 2005 of sales Company-funded Charged to P&L 108 101 Added to B/S 85 42 193 5.5% 143 4.8% Customer-funded Charged to P&L (and recovered) 141 126 Added to B/S 18 26 159 4.5% 152 5.0% Total cash
Slide 14: Research & Development: 2
Developing technology to help customers succeed: Research & Development: 2 P&L charge £m 2006 2005 R&D charge 108 102 Amortised 14 12 Deferred income released (6) (7) Total P&L charge in year 116 107 Balance sheet movement £m Company-funded 84 42 Customer-funded 18 26 102 68 Less amortisation (14) D
Slide 15: Items included in statutory results
Preliminary results 2006 Items included in Statutory Results Write-down of TI Automotive preference shares (non-cash item) £325m Further integration of Medex £19m Provision for settlement of class action £12m Profit on disposals £16m Amortisation of acquired intangibles £17m (non-cash item) Financin
Slide 16: Aerospace: performance in 2006
Smiths Aerospace: performance in 2006 Chief Executive speaking Aerospace 29% reported excl. currency, £m 2006 growth acquisitions Sales 1,300 +13% +10% Headline operating profit 152 +15% +11% Contribution to Margin 11.7% headline op. profit Boeing 787 • Second year of strong sales growth • Margin ex
Slide 17: Aerospace: markets and business segment analysis
Smiths Aerospace: markets and business segment analysis Commercial • Strong growth of existing business • A380 development completed • B787 development on track for 1st flt Summer 2007 Digital & Power Defence • Growth sustained in 2006 • Tanker delays meant continued R&D expense Engine components Af
Slide 18: Aerospace: business outlook
Smiths Aerospace: business outlook • Continued strong growth in commercial sector • Defence procurement in US levelling off; global growth sustained • Smiths R&D (capitalised & expensed) starts to diminish • Major development programmes begin transition to production Market outlook: • Sustained comm
Slide 19: Detection: performance in 2006
Smiths Detection: performance in 2006 Detection 15% reported excl. currency, £m 2006 growth acquisitions Sales 412 +12% +13% Headline operating profit 75 +11% +10% Margin 18.6% Contribution to headline op. profit Hazmat kit • Second year of strong sales growth • Security remains at top of the agenda
Slide 20: Detection: growth from a wide range of market sectors
Smiths Detection: Growth is coming from the wide range of market sectors Transportation Military • sales increased • new airport products • sales decreased • orders reflect global • UK contracts completed • new US programmes footprint just starting Port & Borders Emergency responders Transportation
Slide 21: Detection: business outlook
Smiths Detection: business outlook Renewed focus on airport security • Continued strong sales growth • Ports & Borders fastest-growing sector • Airport re-equipment cycle gets underway • Military to regain momentum from US opportunities • Investment continues in 2007: - higher R&D expense - higher r
Slide 22: Medical: performance in 2006
Smiths Medical: performance in 2006 Medical 26% reported excl. currency, £m 2006 growth acquisitions Sales 737 +31% +6% Headline operating profit 138 +57% +7% Margin 18.7% Contribution to headline op. profit Digit • Underlying growth in step with the market • Like-for-like margin improved by 0.6% •
Slide 23: Medical: market and business sector analysis
Smiths Medical: market and business sector analysis Medication Delivery Critical Care • Infusion pumps selling well • Increased rate of new • Innovative consumable product launches items for diabetes pumps • Major contracts won introduced with purchasing groups in US Medication Delivery Critical Car
Slide 24: New medical products
New medical products Medication Delivery Critical Care Safety Devices Needle protection Next generation Tracheostomy for range expansion ambulatory pump obese patients • Fixed needle syringe for • Medication error • Worldwide franchise in allergy, insulin & TB minimisation tracheostomy IV Catheters
Slide 25: Medical: business outlook
Smiths Medical: business outlook • Underlying sales growth maintained • Synergies and returns from Medex acquisition will be achieved • Margin will benefit from synergy gains • Continuous cost reduction from: Operating efficiencies - common, unified information - standardised processes World market
Slide 26: Specialty Engineering: performance in 2006
Specialty Engineering: performance in 2006 reported excl. currency, Spec. Eng. 30% growth £m 2006 acquisitions Sales 1,074 +16% +9% - of which, John Crane 518 Contribution to headline op. profit Headline operating profit 153 +21% +13% John Crane - of which, John Crane 69 Margin 14.3% Sales £m • Good
Slide 27: Specialty Engineering: John Crane
Specialty Engineering: John Crane Qatar Performance in 2006: • Strong growth in oil & gas • Aftermarket benefiting from capacity constraints • Investment in new test cells • New plant in Bangalore Outlook for 2007: • Continued strong performances in both OE and aftermarket • Middle East beginning to
Slide 28: Specialty Engineering: excluding John Crane
Specialty Engineering: excluding John Crane Performance in 2006: • Interconnect, Flex-Tek and Marine all achieved good growth • Interconnect benefited from investment in: - military communications networks - wireless mobile networks • Interconnect acquisitions extend its capabilities Outlook for 200
Slide 29: Group: making progress on Full Potential initiatives
Smiths Group: making progress on “Full Potential” initiatives Operating in sectors of high growth Delivering constant improvement Reaching deep into global markets Developing technology to help customers Improving the business mix Doing business the right way Preliminary Results 2006 29
Slide 30: Group: Prospects
Smiths Group: Prospects “The markets for Smiths products remain robust, and the outlook for 2007 is for continued sales growth. “The company is starting to reap the rewards of recent investments in R&D and low cost manufacturing, and the benefits are expected to show in a further improvement in the
Slide 31: Questions and answers
Smiths Group Preliminary Results 2006 Questions and answers Register here to receive regular information www.smiths-group.com/ir