Smiths Group Plc · LSE:SMIN
Smiths — FY2013 Earnings Presentation
60 slides from Smiths's earnings presentation, Sep 18, 2013
Slide 1: Annual Results 18 September 2013
Annual Results 18 September 2013 [email protected] 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
Philip Bowman Chief Executive Introduction Smiths Group plc Annual Results 2013 | 3
Slide 4: Agenda
Agenda Introduction and overview Philip Bowman Financial review Peter Turner Operational review – introduction Philip Bowman John Crane Duncan Gillis Smiths Medical Srini Seshadri Smiths Detection Mal Maginnis Operational review and priorities Philip Bowman Smiths Group plc Annual Results 2013 | 4
Slide 5: Key messages
Key messages Group is better positioned today as a result of our initiatives • Resilient results reflect a Group that is being strengthened and repositioned • Delivering sales and profit growth in a challenging trading environment Significantly increased investment in growth drivers • Emerging marke
Slide 6: Results highlights
Results highlights Reported headline revenue up 2%; underlying up 2% Headline operating profit up 1%, underlying up 1% Headline EPS up 0.1p to 92.7p Cash conversion strong at 98% - free cash flow of £237m Return on capital employed up 10 bps at 16.6% Dividend up 4% to 39.5 pence and special dividend
Slide 7: Promoting responsibility: increased focus delivering improvements
Promoting responsibility: An increased focus is delivering improvements Recordable & lost time incident rates continue to improve Solid progress on environmental targets*** Lost time incident rate 1.03 • Energy: Recordable incident rate* 19% reduction • Greenhouse gases: 0.71 0.66 27% reduction Inci
Slide 8: Financial review
Peter Turner Finance Director Financial review Smiths Group plc Annual Results 2013 | 8
Slide 9: Underlying headline sales and profit performance
Underlying headline sales and profit performance Revenue growth Revenue Operating profit H1 H2 growth growth John Crane +3% +1% +2% +10% Smiths Medical +2% -3% -1% -7% Smiths Detection +19% +0% +8% -16% Smiths Interconnect +4% -5% -1% +3% Flex-Tek +11% +5% +8% +13% Group +6% -1% +2% +1% Smiths Group
Slide 10: Headline profit progression 2012 to 2013
Headline profit progression 2012 to 2013 Average exchange rates Net US$ 1.57 (FY 2012: 1.58) efficiencies £11m Euro 1.20 (FY 2012: 1.20) £15m Detection Translation FX ready reckoner contracts 1 US cent = c. £3m HOP Price/mix Investment £4m 1 Euro cent = c. £1m HOP Medical £10m device tax Volume £15m
Slide 11: Group cash conversion
Group cash conversion £m (for continuing activities) 2013 2012 Headline operating profit 560 554 Changes in working capital (15) (23) Share based payment 12 14 Capital expenditure (Property, plant & equipment) (56) (46) Depreciation 52 59 Development costs & other intangibles (net of amortisation an
Slide 12: Reconciliation: Headline operating profit to statutory profit
Reconciliation: Headline operating profit to statutory profit £m Headline operating profit 560 Restructuring programmes (8) Litigation provision: John Crane, Inc. (14) Litigation provision: Titeflex Corporation (7) Gains on changes to pension plans 4 Profit on disposal of properties/businesses 6 Oth
Slide 13: Pensions: Deficit improved to £254m
Pensions: Deficit improved to £254m, driven by asset performance Deficit movement since 31 July 2012 Cash contributions £m 2013 2014 Deficit at 31 July 2012 (620) Funded scheme Foreign exchange (5) contributions £71m £83m Return on assets 449 - Smiths Industries PS £36m £36m Contributions (net of se
Slide 14: Strong balance sheet supports investment in acquisitions and growth
Strong balance sheet supports investment in acquisitions and growth Interest split Currency split Debt split Net debt £m Borrowings 1,138 USD Cash (394) Fixed Euro Bank Floating other Public Net debt 744 £m Weighted average life of debt is 4.8 years 300 Credit Rating: 250 BBB+ (stable)/Baa2 (stable)
Slide 15: Guidance – financial items
Guidance – financial items Headline finance charge c. £60m Headline tax rate 26-28% Cash conversion 90-100% Funded pension scheme contributions c. £80m + £24m to escrow Year end net debt <£850m Smiths Group plc Annual Results 2013 | 15
Slide 16: Operational review and priorities
Philip Bowman Chief Executive Operational review and priorities Smiths Group plc Annual Results 2013 | 16
Slide 17: Delivering shareholder value: Our strategic themes
Delivering shareholder value: Our strategic themes Driving top-line growth through investment Investing in new products and high growth markets Enhancing margins through operational improvement Driving operational efficiencies to fund investment and/or enhance margins Transforming Smiths into a worl
Slide 18: Next phase of Group-wide restructuring
Next phase of Group-wide restructuring Focus on three areas: • Site rationalisation – including manufacturing footprint • Organisational effectiveness • Upgrading of business information systems Our approach: • Divisions have developed a series of bottom-up plans – undergoing final evaluation • Curr
Slide 19: Delivering shareholder value: Our strategic themes
Delivering shareholder value: Our strategic themes Driving top-line growth through investment Investing in new products and high growth markets Enhancing margins through operational improvement Driving operational efficiencies to fund investment and/or enhance margins Transforming Smiths into a worl
Slide 20: Managing a multi-industry business
Managing a multi-industry business Portfolio of businesses Product innovation/ with strong cash sales & marketing, etc. generation and long- term profitable growth Investment in organic growth Funding Progressive legacy dividend liabilities policy Capital allocation Capital Investing in returns: res
Slide 21: John Crane
Duncan Gillis CEO & President John Crane Smiths Group plc Annual Results 2013 | 21
Slide 22: John Crane: Delivering sales growth, improving margins and returns
John Crane: Delivering sales growth, improving margins and returns Underlying revenue Underlying headline profit Headline operating margin 2013 Revenue (£986m) +180 bps + 2% + 10% 23.4% 1 First-fit OEM 37% Aftermarket 63% 2 Oil, gas & petrochem 38% 3 Chemical and pharma 9% • Sales growth driven by o
Slide 23: John Crane: Investments position for future growth
John Crane: Investments position John Crane for future growth Investments in high-growth markets are driving revenues • Emerging markets and fast-growth businesses represent over 21% of John Crane sales • Revenues up 7% • 12% in Middle East & Africa, 15% in China, 21% in Russia New products and serv
Slide 24: John Crane: Outlook
John Crane: Outlook Outlook • H1 2014 revenue growth rate expected to be similar to comparator period • Shift in investments to enable faster growth • Increased investment in growth initiatives – sales network, new product development John Crane Investor Day: 17 December in Dubai Precision lapping m
Slide 25: Smiths Medical
Srini Seshadri President Smiths Medical Smiths Group plc Annual Results 2013 | 25
Slide 26: Smiths Medical: Tough trading; margins affected
Smiths Medical: Tough trading; margins affected by growth investment and device tax Underlying revenue Underlying headline profit Headline operating margin 2013 Revenue (£850m) (130) bps (1)% (7)% 22.2% 1 Medication delivery 28% 2 Vital care 42% 3 Safety devices 30% • Tough trading in developed mark
Slide 27: Smiths Medical: Investing in growth opportunities
Smiths Medical: Investing in growth opportunities: emerging markets/new products Emerging market revenues up 8% - now representing over 11% of revenue • Invested additional £13m over past two years and added 230 heads • Good growth in Middle East (38%), South East Asia (18%) and Latin America (10%)
Slide 28: Smiths Medical: Outlook
Smiths Medical: Outlook Outlook • Developed markets are likely to remain challenging • Focus will remain on investment in new product development • Investing in sales and marketing; increasing emerging market exposure • US medical device tax (2.3%) • Focus on cost savings such as value engineering t
Slide 29: Smiths Detection
Mal Maginnis President, Smiths Detection Smiths Group plc Annual Results 2013 | 29
Slide 30: Smiths Detection: Delivering revenue growth; margins affected by contract issues
Smiths Detection: Delivering revenue growth; margins affected by contract issues Underlying revenue Underlying headline profit Headline operating margin 2013 Revenue (£559m) (290) bps + 8% (16)% 10.4% 1 Transportation 51% 2 Ports & borders 17% 3 Military 12% 4 Emergency responders 3% 5 Critical infr
Slide 31: Smiths Detection: Delivering the restructuring benefits
Smiths Detection: Delivering the restructuring benefits Smiths Detection performance improvement programme to be delivered by FY2015 Total planned savings Total planned costs* £36m £33m £m FY 2013 savings FY 2013 costs Total savings to date Total costs to date* 9 7 24 27 Restructuring priorities for
Slide 32: Smiths Detection: Investing in future growth through new products
Smiths Detection: Investing in future growth through new products and markets Increased investment in new products – strong pipeline of new launches • Company-funded spend broadly stable at £36m or 6.5% of sales (2012: £37m and 7.2%) • Total spend of £42m or 7.6% of sales – with £6m of customer-fund
Slide 33: Smiths Detection: Outlook
Smiths Detection: Outlook Outlook • Order book is slightly behind last year • Remains subject to government budgets and project timing • Strong pipeline of new products • Margins will benefit from cost savings and operational efficiencies Next generation high-speed checked baggage scanner, can scree
Slide 34: Smiths Interconnect: Defence headwinds; efficiencies drive margins
Smiths Interconnect: Defence market headwinds; efficiencies drive margins Underlying revenue Underlying headline profit Headline operating margin 2013 Revenue (£461m) +20 bps (1)% 3% 1 Connectors 35% + 2 Microwave 44% 14.9% 3 Power 21% • Sales growth from Connectors offset by Microwave and Power 3 •
Slide 35: Smiths Interconnect: Investing in new products and emerging markets
Smiths Interconnect: Investing in new products and emerging markets New product development focused on high growth markets • Company-funded R&D increased 5% to £24m or 5.2% of sales (2012: 5.1%) • Customer-funded portion declined to £3m (2012: £4m) due to US defence budget cuts • Total R&D spend of
Slide 36: Smiths Interconnect: Outlook
Smiths Interconnect: Outlook Outlook • Commercial markets (telecoms, semiconductor test, data centres) are expected to grow • Defence market is likely to remain challenging • Modest revenue and profit growth overall – with a bias to H2 • Margins should benefit from continuing productivity initiative
Slide 37: Flex-Tek: Strong growth from Fluid Management and Construction
Flex-Tek: Strong growth from Fluid Management and Construction; margins benefit Underlying revenue Underlying headline profit Headline operating margin 2013 Revenue (£253m) +80 bps 8% 13% 1 Fluid Management 35% + + 2 Construction 29% 17.1% 3 Heat Solutions 22% 4 Flexible Solutions 14% • Strong sales
Slide 38: Flex-Tek: Outlook
Flex-Tek: Outlook Outlook • Commercial aerospace market remains positive • Residential construction market should see steady modest growth • Margins will benefit from higher volumes but face pressure from increased R&D investment, competitive pricing and potential commodity inflation Precision stain
Slide 39: Solid progress on financial metrics despite tough trading
Solid progress on our financial metrics despite tough trading conditions Performance 2009-2013 Revenue growth CAGR +4% Headline operating margin +230 bps 18.0% Operating cash conversion Average 102% Return on capital +260 bps 16.6% Smiths Group plc Annual Results 2013 | 39
Slide 40: Operational priorities for 2014
Operational priorities for 2014 Deliver new product launches to accelerate sales growth Invest in sales and marketing capabilities in high growth markets Seek acquisitions to support growth and improved returns for shareholders Launch new restructuring programme to support increased growth investmen
Slide 41: Questions & Answers
Questions & Answers Annual Results 18 September 2013 [email protected] www.smiths.com
Slide 42: John Crane
John Crane Revenue £m A world-leading provider of engineered 973 986 894 products and services for a global customer 790 786 base across the energy services sector. Operating in more than 50 countries with more than 230 facilities, we offer customers the largest global service network in the industr
Slide 43: John Crane
John Crane Our products and services help ensure the reliability of mission-critical equipment in challenging operating environments. In addition to lowering total cost of ownership of equipment, our products reduce emissions and help our customers meet environmental responsibilities. For nearly 100
Slide 44: John Crane: Margins ahead on price despite inflation and investment
John Crane: Margins ahead on price despite inflation and investment £m 2013 2012 reported underlying Revenue 986 973 +1% +2% Headline operating profit 231 210 +10% +10% Margin 23.4% 21.6% +180 bps ROCE 25.7% 24.0% +170 bps Headline operating profit £m 2011/12 210 • Price/mix: Favourable sales mix an
Slide 45: Smiths Medical
Smiths Medical Headline revenue £m A leading supplier of specialist medical devices, 834 858 838 864 850 consumables and equipment for global markets. Our products are focused on the medication delivery, vital care and safety devices market segments. 2009 2010 2011 2012 2013 Contribution to 2013 Hea
Slide 46: Smiths Medical
Smiths Medical In medication delivery, our devices help treat cancer patients and provide relief to those in pain. Our vital care products reduce hospital-acquired infections, manage patients’ airways before, during, and after surgery, maintain body temperature and assist reproduction through IVF th
Slide 47: Smiths Medical: Margins affected by growth investment and device tax
Smiths Medical: Margins affected by growth investment and medical device tax £m 2013 2012 reported underlying Headline revenue 850 864 (2)% (1)% Headline operating profit 189 203 (7)% (7)% Margin 22.2% 23.5% (130) bps ROCE 16.6% 17.6% (100) bps Headline operating profit £m • Price/mix: Negative pric
Slide 48: Smiths Detection
Smiths Detection Revenue £m A world-leading designer and manufacturer 574 559 519 of sensors that detect and identify 501 510 explosives, weapons, chemical agents, biohazards, nuclear & radioactive material, narcotics and contraband. 2009 2010 2011 2012 2013 Contribution to 2013 Revenue by sector 20
Slide 49: Smiths Detection
Smiths Detection Our technology helps customers in the global transportation, ports and borders, critical infrastructure, military and emergency responder markets. We have the most comprehensive range of detection technologies in the world, including X-ray, trace detection, infra-red and gamma ray s
Slide 50: Smiths Detection: Growth in revenue; margins impacted by contract execution
Smiths Detection: Growth in revenue; margins impacted by contract execution £m 2013 2012 reported underlying Revenue 559 519 +8% +8% Headline operating profit 58 69 (16)% (16)% Margin 10.4% 13.3% (290) bps ROCE 8.8% 10.3% (150) bps Headline operating profit £m • Volume: Transportation, ports and bor
Slide 51: Smiths Interconnect
Smiths Interconnect Revenue £m A leader in electronic components and 449 461 sub-systems that connect, protect and control 379 340 critical systems for the global data centre, 318 wireless telecommunications, aerospace, defence, space, medical, rail, test and industrial markets. 2009 2010 2011 2012
Slide 52: 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 53: Smiths Interconnect: Margins up despite tough trading environment
Smiths Interconnect: Margins up despite tough trading environment £m 2013 2012 reported underlying Revenue 461 449 +3% (1)% Headline operating profit 69 66 +4% +3% Margin 14.9% 14.7% +20 bps ROCE 12.4% 12.3% +10 bps Headline operating profit £m • Volume: Declines in Power and Microwave 2011/12 66 •
Slide 54: Flex-Tek
Flex-Tek Revenue £m A global provider of engineered components 253 233 that heat and move fluids and gases for the 222 212 221 aerospace, medical, industrial, construction and domestic appliance markets. 2009 2010 2011 2012 2013 Contribution to 2013 Revenue by sector 2013 Group revenue: 8% £253m 44
Slide 55: Flex-Tek
Flex-Tek Our flexible hosing and rigid tubing provide fluid 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 elemen
Slide 56: Flex-Tek: Volume and pricing offset inflation pressures
Flex-Tek: Volume and pricing offset inflation pressures to grow margins £m 2013 2012 reported underlying Revenue 253 233 +9% +8% Headline operating profit 43 38 +14% +13% Margin 17.1% 16.3% +80 bps ROCE 30.8% 28.4% +240 bps Headline operating profit £m • Volume: Gains in Aerospace and Construction 2
Slide 57: Annual results 2013
Annual results 2013 £m Headline* Statutory 2013 2012 2013 2012 reported underlying** Revenue 3,109 3,038 2% 2% 3,109 3,030 Operating profit 560 554 1% 1% 493 407 Margin 18.0% 18.2% (20) bps - 15.9% 13.4% Pre-tax profit 498 497 0% 1% 442 366 Basic EPS (p) 92.7 92.6 0% 90.7 65.4 Free cash flow 237 217
Slide 58: Improved return on capital from Flex-Tek, John Crane and Interconnect
Improved return on capital from Flex-Tek, John Crane and Interconnect 12 months to 31 Jul 2013 30.8% 12 months to 31 Jul 2012 30.0 28.4% 25.7% 25.0 24.0% 20.0 17.6% 16.5% 16.6% 16.6% % 15.0 12.3% 12.4% 10.3% 10.0 8.8% 5.0 0.0 Smiths Group Flex-Tek John Crane Smiths Medical Smiths Interconnect Smiths
Slide 59: Net debt reduced by £47m driven by strong operating cash conversion
Net debt reduced by £47m driven by strong operating cash conversion £m 2013 Net debt at start of period (791) Operating cash (after capex etc.) 548 Interest and tax (174) Exceptionals/Pensions (137) Free cash flow 237 Dividends (152) Financing including net investment hedges (2) Foreign exchange (41
Slide 60: Asbestos litigation
Asbestos litigation Key facts Key figures • Production ceased in 1985 Gross provision £226m • Exposure within John Crane, Inc. Discounted pre-tax provision £210m • Resists claims based on ‘safe product’ defense Claims dismissed 230,000 Claims outstanding 81,000 • Provision determined using independe