Smiths Group Plc · LSE:SMIN
Smiths — FY2019 Earnings Presentation
44 slides from Smiths's earnings presentation, Sep 20, 2019
Slide 1: Smiths Group plc Annual Results
www.smiths.com SMITHS GROUP PLC Annual Results 20 September 2019
Slide 2: Disclaimer
SMITHS GROUP PLC Annual Results 2019 2 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
SMITHS GROUP PLC Annual Results 2019 3 INTRODUCTION ANDY REYNOLDS SMITH CHIEF EXECUTIVE
Slide 4: Agenda
SMITHS GROUP PLC Annual Results 2019 4 AGENDA Introduction Andy Reynolds Smith FY19 Results & FY20 Outlook John Shipsey Smiths Medical JehanZeb Noor Smiths Group Andy Reynolds Smith
Slide 5: Building on our strategic progress
SMITHS GROUP PLC Annual Results 2019 5 BUILDING ON OUR STRATEGIC PROGRESS 2016 2017 2018 2019 H1 AMBITION CY2020 OUTPERFORMING A NEW SIGNIFICANT RETURN TO SUSTAINABLE SEPARATION OUR CHOSEN DIRECTION PROGRESS GROWTH GROWTH OF MEDICAL MARKETS ✓ ✓ ✓ ✓
Slide 6: FY2019 Results
SMITHS GROUP PLC Annual Results 2019 6 FY2019 RESULTS JOHN SHIPSEY CHIEF FINANCIAL OFFICER
Slide 7: Headline financial results
SMITHS GROUP PLC Annual Results 2019 7 HEADLINE FINANCIAL RESULTS1 FY2019 FY20182 Reported change Continuing Operations3 Revenue 2,498 2,328 +7% +3% underlying Operating profit 427 388 +10% +4% underlying Operating margin 17.1% 16.7% +40bps Profit before tax 376 333 +13% Profit after tax 273 246 +11
Slide 8: Building on our return to growth
SMITHS GROUP PLC Annual Results 2019 8 BUILDING ON OUR RETURN TO GROWTH1,2 Revenue - £m 67 ( 17 ) 12 8 2,498 43 2,428 57 2,328 +8% (2)% +3% +3% +3% underlying FY2018 FX ACQUISITIONS & FY2018 PROFORMA JOHN CRANE SMITHS FLEX-TEK SMITHS FY2019 DISPOSALS 3 DETECTION INTERCONNECT 1 Underlying modifies he
Slide 9: FY revenue by division
SMITHS GROUP PLC Annual Results 2019 9 FY REVENUE BY DIVISION1 JOHN CRANE SMITHS DETECTION FLEX-TEK SMITHS INTERCONNECT +8% (2)% +3% +3% £945m £798m £436m £319m H2 performance moderated Continued good growth Strong OE growth Good growth driven by programme phasing across both segments by aerospace E
Slide 10: Further margin progression
SMITHS GROUP PLC Annual Results 2019 10 FURTHER MARGIN PROGRESSION1,2 Operating profit - £m 6 427 13 ( 10 ) 3 3 13 412 11 388 Operating +4% underlying Operating margin margin 16.7% 17.1% FY2018 FX ACQUISITIONS & FY2018 PROFORMA JOHN CRANE SMITHS FLEX-TEK SMITHS CENTRAL COSTS FY2019 DISPOSALS 3 DETEC
Slide 11: FY operating profit by division
SMITHS GROUP PLC Annual Results 2019 11 FY OPERATING PROFIT BY DIVISION1 JOHN CRANE SMITHS DETECTION FLEX-TEK SMITHS INTERCONNECT OP £220m +6% OP £127m (7)% OP £84m +4% OP £47m +6% Margin 23.3% Margin 16.0% Margin 19.2% Margin 14.7% - Improving volumes - Segment mix - Continued strong - Higher volum
Slide 12: Smiths Medical
SMITHS GROUP PLC Annual Results 2019 12 SMITHS MEDICAL1,2 £874m - Improving trajectory REVENUE - Infusion systems - - Vascular access (3)% - H2 revenue +2% - Vital Care +3% - Impacted by operational OPERATING OP £147m (6)% inefficiencies - H2 profit +2% PROFIT & MARGIN Margin 16.8% - H2 margin impro
Slide 13: Total Group cash-flow
SMITHS GROUP PLC Annual Results 2019 13 TOTAL GROUP CASH-FLOW £m FY2019 FY20182 Operating profit1,2 574 544 Capex, depreciation and amortisation (26) (12) John Crane investment in capacity Change in working capital (104) (16) See next slide Other 30 22 OPERATING CASH-FLOW1 474 538 Total Group: 83% c
Slide 14: Total Group working capital % sales maintained
SMITHS GROUP PLC Annual Results 2019 14 TOTAL GROUP WORKING CAPITAL % SALES MAINTAINED Working capital as a % sales maintained at 26% Good underlying performance: - DSO/DPO1 gap reduced by 3 days Temporarily impacted by: - Increase in current receivables • Strong sales in June/July now being collect
Slide 15: Total Group - strong balance sheet
SMITHS GROUP PLC Annual Results 2019 15 TOTAL GROUP - STRONG BALANCE SHEET £m - Weighted average debt maturity: 5.2 years1 (64) 1,197 - Weighted average interest rate: 3.2%1 (178) - Stable credit rating (BBB+/Baa2) (277) (41) 234 893 Net Debt/ Net Debt/ EBITDA EBITDA 22 1.4x 1.8x Net debt FX Free Ca
Slide 16: Disciplined capital allocation
SMITHS GROUP PLC Annual Results 2019 16 DISCIPLINED CAPITAL ALLOCATION INVESTMENT IN 4.5% cash R&D % sales1 ORGANIC GROWTH Vitality at 13%2 CASH VALUE CREATIVE M&A United Flexible for $345m GENERATION PROGRESSIVE DIVIDEND Full year dividend growth 3% 1 Continuing Operations 2 Total Group
Slide 17: FY2020 outlook
SMITHS GROUP PLC Annual Results 2019 17 FY2020 OUTLOOK A year of further progress Growth H1 weighted FX tailwind at current rates Improved operational excellence and cash generation
Slide 18: Update on separation of Smiths Medical
SMITHS GROUP PLC Annual Results 2019 18 UPDATE ON SEPARATION OF SMITHS MEDICAL ANDY REYNOLDS SMITH CHIEF EXECUTIVE
Slide 19: Update on separation of Smiths Medical
SMITHS GROUP PLC Annual Results 2019 19 UPDATE ON SEPARATION OF SMITHS MEDICAL On track to demerge by the end of H1 CY2020 H2 return to Ongoing NPD including Medical CEO growth - up 2% Large Volume Pump submission appointment Key performance milestones achieved: ✓ ✓ ✓ Good progress on key separation
Slide 20: Smiths Medical
SMITHS GROUP PLC Annual Results 2019 20 SMITHS MEDICAL JEHANZEB NOOR CEO – SMITHS MEDICAL
Slide 21: Smiths Medical – high potential business in growing markets
SMITHS GROUP PLC Annual Results 2019 21 SMITHS MEDICAL – HIGH POTENTIAL BUSINESS IN GROWING MARKETS Leading brands in Invested for Strong financial attractive markets the future characteristics - Trusted brands - R&D up 40%1 - >80% recurring revenue - Leading global positions - NPIs: over 30 in the
Slide 22: Tangible organic growth opportunities
SMITHS GROUP PLC Annual Results 2019 22 TANGIBLE ORGANIC GROWTH OPPORTUNITIES ACCELERATED GROWTH PRODUCT CHANNEL INNOVATION EXPANSION - Faster, commercially focused NPIs - Expand addressable market GEOGRAPHIC COMMERCIAL EXPANSION EXCELLENCE DRIVE ABOVE MARKET GROWTH BULDING ON AN IMPROVING TRAJECTOR
Slide 23: Near-term margin opportunities
SMITHS GROUP PLC Annual Results 2019 23 NEAR-TERM MARGIN OPPORTUNITIES ENHANCED PERFORMANCE - Maximise operating leverage PROCUREMENT SUPPLY CHAIN - Enhance COGS efficiencies - Optimise G&A and organisation effectiveness G&A AND MANUFACTURING ORGANISATION OP MARGIN OF 20%+ CASH CONVERSION OF 90%+ DE
Slide 24: Accelerating the transformation
SMITHS GROUP PLC Annual Results 2019 24 ACCELERATING THE TRANSFORMATION Underpinned by the attractive fundamentals of the business Plans in place to execute on: • Building on the growth trajectory • Improving operating margin, focused on costs and processes and functional capabilities using the Smit
Slide 25: Smiths Group
SMITHS GROUP PLC Annual Results 2019 25 SMITHS GROUP ANDY REYNOLDS SMITH CHIEF EXECUTIVE
Slide 26: Smiths - a leading industrial technology company
SMITHS GROUP PLC Annual Results 2019 26 SMITHS - A LEADING INDUSTRIAL TECHNOLOGY COMPANY SUSTAINABLY HIGH PROPORTION TECHNOLOGY INCREASING COMPETITIVE AND OF AFTERMARKET DIFFERENTIATION DIGITISATION ASSET LIGHT AND SERVICES
Slide 27: Smiths - a leading industrial technology company
SMITHS GROUP PLC Annual Results 2019 27 SMITHS - A LEADING INDUSTRIAL TECHNOLOGY COMPANY • >90% of portfolio in top 3 • ROCE 16-18% through LEADING BUSINESSES leadership positions the cycle IN ATTRACTIVE • Markets growing 3-4% • Progressive dividend MARKETS through-cycle policy covered by FCF • High
Slide 28: Delivering strategic progress
SMITHS GROUP PLC Annual Results 2019 28 DELIVERING STRATEGIC PROGRESS OPERATIONAL PERFORMANCE FINANCIAL PERFORMANCE FY2019 Ambition FY2019 Ambition Underlying Outperform our Portfolio strength1 >90% 90%+ +3% revenue growth1 chosen markets Operating margin1 17.1% 18-20% Vitality index2 13% ~20% ROCE2
Slide 29: Leading businesses in attractive growing markets
SMITHS GROUP PLC Annual Results 2019 29 LEADING BUSINESSES IN ATTRACTIVE GROWING MARKETS CONTINUED STRENGTHENING OF THE PORTFOLIO1 FY2016 FY2019 c. 60% >90% TARGETED ORGANIC INVESTMENT REMAINS THE PRIORITY ACCELERATED BY A DISCIPLINED APPROACH TO ACQUISITIONS AND DISPOSALS 11 DISPOSALS c.£535m proce
Slide 30: Operational excellence & innovation
SMITHS GROUP PLC Annual Results 2019 30 OPERATIONAL EXCELLENCE & INNOVATION OPERATIONAL EXCELLENCE INNOVATION - Working capital at Smiths Digital Forge – ESG-focused 20% of sales - Detection CT accelerating our product hand baggage digital agenda development £150m opportunity scanner - Smiths Excell
Slide 31: Strong financial performance
SMITHS GROUP PLC Annual Results 2019 31 STRONG FINANCIAL PERFORMANCE1 IMPROVING GROWTH TRAJECTORY (underlying revenue growth2) ENHANCED MARGINS (operating margin2,3) 3% 3% +300 bps 0% 17.1% 16.7% FY 2016 FY 2017 FY 2018 FY 2019 15.3% 14.1% -2% FY 2016 FY 2017 FY 2018 FY 2019 STRONG CASH GENERATION A
Slide 32: Driving long-term, sustainable value
SMITHS GROUP PLC Annual Results 2019 32 DRIVING LONG-TERM, SUSTAINABLE VALUE Value creative LEADING Outperforming our BUSINESSES IN investment ATTRACTIVE markets MARKETS Strong dividend GENERATING SUPERIOR OPERATIONAL covered by FCF RETURNS EXCELLENCE STRONG 100%+ FINANCIAL FRAMEWORK 18-20% margin c
Slide 33: Questions & Answers
www.smiths.com QUESTIONS & ANSWERS
Slide 34: Appendix
sm ut h Ss www.smiths.com APPENDIX
Slide 35: Income statement
SMITHS GROUP PLC Annual Results 2019 35 INCOME STATEMENT1 £m FY2019 FY20183 Reported change # Revenue 2,498 2,328 +7% Headline2 operating profit 427 Z 388 +10% Amortisation of acquisition related intangible assets (42) (26) Legacy pension scheme arrangements (30) 4 Post acquisition integration costs
Slide 36: Organic growth: R&D investment
SMITHS GROUP PLC Annual Results 2019 36 ORGANIC GROWTH: R&D INVESTMENT1 Cash costs Income statement costs (expensed and amortised) £93m FY2019 £111m 4.5% of revenue £85m FY2018 £96m 4.1% of revenue FY2019 FY2018 John Crane Smiths Detection Flex-Tek Smiths Interconnect Central +9% growth 1 Continuing
Slide 37: FX sensitivity
SMITHS GROUP PLC Annual Results 2019 37 FX SENSITIVITY1 • For each $0.10 move, FY2019 FY2018 Currency 19/09/2019 the annual operating average rate average rate profit impact is c.£15m • For each €0.10 move, the annual operating USD 1.29 1.35 1.25 profit impact is c.£10m EUR 1.13 1.13 1.13 1 Continui
Slide 38: Revenue and operating profit H1/H2 split
SMITHS GROUP PLC Annual Results 2019 38 REVENUE AND OPERATING PROFIT1 H1/H2 SPLIT H1 H2 FY2019 H1 H2 FY2019 £m Revenue Revenue Revenue Operating profit Operating profit Operating profit John Crane 449 496 945 97 123 220 Smiths Detection 361 437 798 55 72 127 Flex-Tek 184 252 436 33 51 84 Smiths 149
Slide 39: Sustainability
SMITHS GROUP PLC Annual Results 2019 39 SUSTAINABILITY ENVIRONMENTAL SOCIAL GOVERNANCE FY2007 to FY2019 reductions Our People are our most important Average tenure on the Board c.4 • Greenhouse Gas (GHG): (58)% sources of sustainable competitive years • Energy: (37)% advantage: • Water: (52)%
Slide 40: John Crane: Mission-critical solutions for global energy and process industries
SMITHS GROUP PLC Annual Results 2019 40 JOHN CRANE: Mission-critical solutions for global energy and process industries Revenue £945m COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE (38% of Continuing Group) LANDSCAPE • A strong presence in flow control for • Oil & gas markets recovering driven by
Slide 41: Smiths Detection: A global leader in detection of security threats
SMITHS GROUP PLC Annual Results 2019 41 SMITHS DETECTION: A global leader in the detection and identification of security threats and contraband Revenue £798m COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE (32% of Continuing Group) LANDSCAPE • A global leader with differentiated • Persistent and e
Slide 42: Flex-Tek: Innovative components to heat and move fluids and gases
SMITHS GROUP PLC Annual Results 2019 42 FLEX-TEK: Innovative components to heat and move fluids and gases Revenue £436m COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE (17% of Continuing Group) LANDSCAPE • High-performance products • Steady growth of US housing Headline OP • Leading capability in d
Slide 43: Smiths Interconnect: Solutions for high-speed, secure connectivity
SMITHS GROUP PLC Annual Results 2019 43 SMITHS INTERCONNECT: Solutions for high-speed, secure connectivity in demanding applications Revenue £319m COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE (13% of Continuing Group) LANDSCAPE • Innovative and technically • Increased connectivity Headline OP di
Slide 44: Smiths Medical: High-quality, cost-effective medical devices
SMITHS GROUP PLC Annual Results 2019 44 DISCONTINUED OPERATIONS SMITHS MEDICAL: High-quality, cost-effective medical devices and consumables that are vital to patient care globally Revenue £874m COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE LANDSCAPE • Category leader in our chosen markets • Agei