Smiths Group Plc · LSE:SMIN
Smiths — H1 2018 Earnings Presentation
37 slides from Smiths's earnings presentation, Mar 23, 2018
Slide 1: Interim Results
INTERIM RESULTS 23 MARCH 2018 www.smiths.com Smiths Group plc Interim Results 2018 | 1
Slide 2: Disclaimer
DISCLAIMER This document contains certain statements that are forward-looking statements. They appear in a number of places throughout this document and include statements regarding the intentions, beliefs and/or current expectations of Smiths Group plc (the “Company”) and its subsidiaries (together
Slide 3: Agenda
AGENDA INTRODUCTION | ANDY REYNOLDS SMITH PERFORMANCE REVIEW | JOHN SHIPSEY STRATEGIC UPDATE AND OUTLOOK | ANDY REYNOLDS SMITH Q&A Smiths Group plc Interim Results 2018 | 3
Slide 4: Introduction
INTRODUCTION ANDY REYNOLDS SMITH CHIEF EXECUTIVE Smiths Group plc Interim Results 2018 | 4
Slide 5: On track for growth in FY18
ON TRACK FOR GROWTH IN FY18 2016 2017 2018 2019 AMBITION OUTPERFORMING A NEW SIGNIFICANT RETURN TO SUSTAINABLE OUR CHOSEN DIRECTION PROGRESS GROWTH GROWTH MARKETS Smiths Group plc Interim Results 2018 | 5
Slide 6: 2018 full year outlook reaffirmed
2018 FULL YEAR OUTLOOK REAFFIRMED OUTLOOK AT FY17 H1 FY18 UNDERLYING1 REVENUE John Crane Improving trends +3% Return to growth with good momentum Smiths Medical Gradual improvement 0% Back to flat with programme of product launches Smiths Detection Strong H2 (11)% Programme phasing with strong order
Slide 7: Group H1 highlights
GROUP H1 HIGHLIGHTS Underlying1 revenue broadly flat, improving trend Underlying1 operating profit down 2%, impacted by programme phasing in Detection, as well as increased R&D costs in Medical to support growth Continued focus on working capital with improved stock turns at 3.6x Good cash generatio
Slide 8: Performance Review
PERFORMANCE REVIEW JOHN SHIPSEY CHIEF FINANCIAL OFFICER Smiths Group plc Interim Results 2018 | 8
Slide 9: Financial results
FINANCIAL RESULTS1 £M H1 2018 H1 2017 REPORTED CHANGE Revenue 1,549 1,617 (4)% (1)% underlying Operating profit 247 277 (11)% (2)% underlying Operating margin 16.0% 17.1% (110)bps (20)bps underlying Profit before tax 217 248 (12)% EPS 40.4p 45.7p (11)% (2)% underlying Free cash flow 113 176 (36)% 98
Slide 10: H1 underlying revenue broadly flat
H1 UNDERLYING1 REVENUE BROADLY FLAT £m 14 15 (49) (8) (1) (35) (4) 3% 0% (11)% (3)% 10% 1,617 1,549 £(10)m – underlying1 revenue (1)% H1 2017 FX A&D John Crane Medical Detection Interconnect Flex-Tek H1 2018 1 Headline excludes non operating items as defined in note 3 of the accounts. Underlying mod
Slide 11: H1 revenue: improving trends
H1 REVENUE1: IMPROVING TRENDS SMITHS JOHN CRANE SMITHS MEDICAL SMITHS DETECTION FLEX-TEK INTERCONNECT +3% 0% (11)% (3)% +10% £428m £451m £367m £135m £168m Return to growth Back to flat Programme phasing Completing restructuring Continued strong growth Oil & gas c.+4% Infusion Systems 0% Air Transpor
Slide 12: Underlying operating profit down 2%
UNDERLYING OPERATING PROFIT DOWN 2%1 £m REPORTED OPERATING H1 2017 UNDERLYING OPERATING MARGIN MARGIN 16.2% 17.1% OPERATING MARGIN 4 16.0% 4 4 (19) 0 (4) (10) (7) (2) 277 £(4)m, underlying1 operating profit declined (2)% 247 H1 2017 Restructuring FX A&D John Crane Medical Detection Interconnect Flex
Slide 13: H1 operating profit by division
H1 OPERATING PROFIT BY DIVISION1 SMITHS JOHN CRANE SMITHS MEDICAL SMITHS DETECTION FLEX-TEK INTERCONNECT OP OP OP OP OP £91m £82m £59m £14m £31m +5% ( 5) % (13)% (1)% +15% Margin Margin Margin Margin Margin 21.3% 18.1% 16.2% 10.3% 18.6% +30bps (90)bps (40)bps +20bps +80bps • Improving volumes • Inve
Slide 14: Group tax rate
GROUP TAX RATE Headline effective tax rate • Full benefit of the new US tax 29.5 - 30.0% legislation in 2019 • 2018 revised 26.5% 25.5 - 26.5% lower guidance - revaluation of 22.0 - 24.0% deferred tax Initial guidance Post US tax reform assets now a non-headline item 2017 2018 2019 Smiths Group plc
Slide 15: Cash flow
CASH FLOW £m H1 2018 H1 2017 Comments Operating profit1 247 277 Capex including capitalised R&D (46) (51) Supporting our asset light model Depreciation and amortisation 48 52 Working capital (18) 27 Build up to support the growth in H2 Other 10 15 Operating cash flow 1 241 320 Interest & taxation1 (
Slide 16: Pension: continuous improvement
PENSION: CONTINUOUS IMPROVEMENT Accounting surplus increased to £237m Further action to decrease the risk with a £207m buy-in agreement in October Cash contributions for the year expected to be c.£50m, down from £105m last year Smiths Group plc Interim Results 2018 | 16
Slide 17: FX sensitivity
FX SENSITIVITY H1 2018 average H1 2017 average Currency % change rate rate • For each $0.10 move, the annual operating USD 1.33 1.26 +6% profit impact is c.£30m EUR 1.12 1.16 (3)% • For each €0.10 move, the annual operating profit impact is c.£8m Translation impact H1 2018 • At current rates, Revenu
Slide 18: Strategic Update
STRATEGIC UPDATE ANDY REYNOLDS SMITH CHIEF EXECUTIVE Smiths Group plc Interim Results 2018 | 18
Slide 19: The strategy on track
THE STRATEGY ON TRACK 2016 H1 2018 MEDIUM TERM TECHNOLOGY INCREASING HIGH GRADING THE BUSINESSES DIFFERENTIATION DIGITISATION 60%+ 75%+ 85%+ TARGETED RISK OF EXECUTION IN GROWING MARKETS PORTFOLIO PRIORITISATION HIGH PROPORTION SUSTAINABLY CAPITAL ALLOCATION DECISIONS OF AFTERMARKET COMPETITIVE AND
Slide 20: Medium term ambition
MEDIUM TERM AMBITION OPERATIONAL FINANCIAL PERFORMANCE PERFORMANCE Competitive position Top 3 Outperforming our Organic revenue growth chosen markets R&D % sales 5-6% Operating margin 18-20% Vitality index ~20% ROCE 16-18% Stock turns ~6x WC % sales ~20% Aftermarket % 60%+ Cash conversion 100%+ Smit
Slide 21: Good momentum – John Crane
GOOD MOMENTUM – JOHN CRANE • Further improvement in underlying markets • Expansion of installed base and good aftermarket demand • Continue to build on John Crane’s STRONG scalable leading positions in ORDER attractive growth markets BOOK • Continued good growth in H2 Smiths Group plc Interim Result
Slide 22: Driving innovation – Smiths Medical
DRIVING INNOVATION – SMITHS MEDICAL • Return to growth for the year • Significant programme of new product launches on track - Further 12 products to launch 11 in H2 CADD® - SOLIS AMBULATORY INFUSION PUMP WITH - Gradual ramp up of revenue WIRELESS COMMUNICATIONS from launch Products - Improved sales
Slide 23: Strong growth drivers – Smiths Detection
STRONG GROWTH DRIVERS – SMITHS DETECTION • Good growth driven by Air Transportation • European regulation – 60% still to be awarded • Strong order book: 9 India airports, Middle East, Scandinavia, Canada, STRONG air cargo customers H2 • Sunset phase of key programmes in Military continuing • Roland
Slide 24: Smiths Interconnect & Flex-Tek
SMITHS INTERCONNECT & FLEX-TEK • Improved H2 Smiths • Exiting certain products and customers Interconnect • Completing restructuring • Continued good growth • Benefiting from the Osram heating Flex-Tek solutions acquisition Smiths Group plc Interim Results 2018 | 24
Slide 25: Investing for sustainable growth
INVESTING FOR SUSTAINABLE GROWTH R&D 4.0% 4.5% 4.6% Aura 120 NS – A narrow section gas seal targeted HemoDraw® Plus, closed CORAL, predictive at methane emission blood sampling system maintenance solution DeltaVen®, H1 2016 H1 2017 H1 2018 Closed System Catheter Expensed Capitalised Customer Funded
Slide 26: Focusing on operational excellence
FOCUSING ON OPERATIONAL EXCELLENCE SMITHS Designed and applied best practice production EXCELLENCE line model SYSTEM IN ACTION - Improved safety HEMEL HEMPSTEAD - 70% reduction in production assembly time (SMITHS DETECTION) - 35% reduction in inventory to date STOCK TURNS1 (X) 3.6 3.5 3.4 H1 2017 FY
Slide 27: 2018 outlook
2018 OUTLOOK Return to growth for the Group • Continued growth in John Crane • Smiths Medical return to growth • Smiths Detection strong H2 • Smiths Interconnect improved H2 • Flex-Tek continued strong growth At current rates, continued FX headwind Continued focus on operational excellence and cash
Slide 28: Questions & Answers
QUESTIONS & ANSWERS www.smiths.com Smiths Group plc Interim Results 2018 | 28
Slide 29: Appendix
smuths bringing technology to life - - APPENDIX www.smiths.com
Slide 30: Statutory income statement
STATUTORY INCOME STATEMENT (£m) H1 2018 H1 2017 Change Revenue 1,549 1,617 (4)% Headline1 operating profit 247 277 (11)% Restructuring costs (Fuel For Growth) - (15) Morpho integration costs (12) - Legacy liabilities (Asbestos/CSST) 4 5 Pension admin costs - (4) Pension settlement gain 4 - Amortisat
Slide 31: Restructuring programmes and pension admin costs
RESTRUCTURING PROGRAMMES AND PENSION ADMIN COSTS HY 2017 (£m) John Crane Medical Detection Interconnect Flex-Tek Central costs Group Headline1 operating profit – reported 90 99 54 26 30 (22) 277 Restructuring programmes (3) (6) (1) (2) (1) (2) (15) Pension admin costs (4) (4) Headline1 operating pro
Slide 32: Cash flow supporting strong balance sheet
CASH FLOW SUPPORTING STRONG BALANCE SHEET £m • Weighted average debt maturity: 5.9 years1 • Weighted average interest rate: 3.4%1 Net Debt/ • Stable credit rating (BBB+/Baa2) EBITDA 1.5x 24 113 6 (5) (15) (117) 967 961 Net debt FX Free Cash Flow Acquisitions Divestitures Dividend Other Net debt 31.0
Slide 33: John Crane
JOHN CRANE: Mission-critical solutions for global energy and process industries Revenue COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE LANDSCAPE £428m • Leader in mechanical seals • Operational improvements in non-oil and (28% of Group) • Broad installed base gas process industries • Flowserve • P
Slide 34: Smiths Medical
SMITHS MEDICAL: High-quality, cost-effective medical devices and consumables that are vital to patient care Revenue COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE LANDSCAPE £451m • Category leadership • Expansion of developing markets (29% of Group) • Trusted brands with a reputation for • Ageing
Slide 35: Smiths Detection
SMITHS DETECTION: A leader in the detection and authentication of security threats and contraband Revenue COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE LANDSCAPE £367m • Global leader • Evolving threat environment (24% of Group) • Integrated solutions provider • Changing security regulations • L3
Slide 36: Smiths Interconnect
SMITHS INTERCONNECT: Solutions for high-speed, secure connectivity in demanding applications Revenue COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE LANDSCAPE £135m • Innovative and technically differentiated • Growth in high data rate applications (9% of Group) offerings • Continued proliferation
Slide 37: Flex-Tek
FLEX-TEK: Innovative components to heat and move fluids and gases Revenue COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE LANDSCAPE £168m • High-performance products • Steady growth of US housing (10% of Group) • Leading residential gas tubing products construction market • Fluid management - • Con