Smiths Group Plc · LSE:SMIN
Smiths — H1 2016 Earnings Presentation
34 slides from Smiths's earnings presentation, Mar 16, 2016
Slide 1: Interim Results
Interim Results 16.03.2016 www.smiths.com 1 Smiths Group plc Interim Results 2016
Slide 2: Forward-looking statements 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 our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other thin
Slide 3: Andy Reynolds Smith, Chief Executive
Andy Reynolds Smith Chief Executive 3 Smiths Group plc Interim Results 2016
Slide 4: Agenda
Agenda H1 Performance review - Andy Reynolds Smith H1 Financial performance - Chris O’Shea Initial observations - Andy Reynolds Smith Question & Answer session 4 Smiths Group plc Interim Results 2016
Slide 5: H1 results overview
H1 results overview • Revenue and headline operating profit in line with expectations • John Crane impacted by challenging oil and gas markets; aftermarket revenues more Revenue* resilient • Continued growth at Smiths Medical £1,372m • Good profit growth at Smiths Detection • Interim dividend 13.25
Slide 6: John Crane results impacted by challenging oil and gas end markets
John Crane results impacted • Revenue down 11% - first-fit sales declined 15%, by challenging more resilient aftermarket sales down 7% oil and gas end • Margins driven lower by markets. volumes and investment in strategic first fit projects to expand the installed base • Action to position the busin
Slide 7: Smiths Medical reported underlying revenue growth
Smiths Medical reported underlying • Continued growth in revenue and profitability revenue growth. driven by Infusion Systems and Vital Care Again. • R&D increased 50 bps to 5.8% of sales • Emerging market sales increased – growth of 9% in China, 20% in India Revenue Headline Headline profit operati
Slide 8: Smiths Detection management actions delivered profitable growth
Smiths Detection • Value engineering and programme management management initiatives delivered revenue and margin benefit actions delivered • Strong performance in Ports profitable growth. & Borders, with progress in Military; offset by weakness in Transportation and Critical Infrastructure • R&D at
Slide 9: Smiths Interconnect performance stabilised
Smiths Interconnect • Restructuring and cost controls helped to stabilise performance performance stabilised. • Margin improvement also driven by Connectors and Power; more than offsetting Microwave performance • Increased focus on commercial opportunities in Asia Revenue Headline Headline profit op
Slide 10: Flex-Tek delivered a solid performance
Flex-Tek delivered a solid • Revenue and margin performance in line with performance. expectations • Growth in aerospace, U.S. housing and medical sectors; partly offset by some industrial commercial segments • Further progress in China with double digit sales growth Revenue Headline Headline profit
Slide 11: Chris O'Shea, H1 Financial performance
Chris O’Shea Chief Financial Officer H1 Financial performance 11 Smiths Group plc Interim Results 2016
Slide 12: Resilient financial performance
Resilient financial performance (£m) H1 2016 H1 2015 Underlying Reported growth growth Revenue 1,372 1,416 (3)% (3)% Operating profit 217 232 (6)% (6)% Operating margin 15.8% 16.4% (60) bps (60) bps Headline free cashflow 174 132 32% ROCE 15.4% 15.4% - - Basic EPS 35.2p 38.5p - (9)% Dividend per sha
Slide 13: Group revenue fell 3% on an underlying basis
Group revenue fell 3% on an underlying basis… £m 1,420 Underlying revenue change 2 John Crane (11)% 1,410 Medical 1% Detection 4% 1,400 Interconnect (3)% 1,390 47 Flex-Tek (1)% Group revenue growth (3)% 1,380 4 1,370 9 1,416 1,414 7 1 1,360 1,350 1,372 1,340 1,330 1,320 H1'15 Revenue Currency Underl
Slide 14: Profitability remained resilient
…whilst profitability remained resilient £m 240 Operating margin H1’16 H1’15 John Crane 19.9% 23.2% 235 1 Medical 20.5% 19.0% Detection 12.4% 10.3% 230 Interconnect 9.7% 9.2% Flex-Tek 17.6% 18.1% 225 Group margin 15.8% 16.4% 220 25 3 232 233 215 8 210 0 1 1 217 205 200 H1'15 Currency Underlying John
Slide 15: Cash conversion exceeded 100%
Cash conversion exceeded 100%... £m 250 Strong cash 45 240 42 conversion 230 101% 220 10 8 210 200 217 218 190 180 Headline operating profit Depreciation and Capex Working capital Other Headline operating amortisation cashflow 15 Smiths Group plc Interim Results 2016
Slide 16: 32% improvement in headline free cashflow
…resulting in an 32% improvement in headline free cashflow £m 230 (£m) H1’16 H1’15 Headline operating cashflow 218 204 220 Headline interest (19) (18) Headline tax (25) (54) 210 19 Headline free cashflow 174 132 200 190 25 218 180 170 174 160 150 Headline operating cashflow Interest Tax Headline fre
Slide 17: Net debt higher due to final dividend and FX
Net debt higher due to final dividend and FX £m 1,050 1,000 102 21 174 950 111 900 108 850 1,028 986 800 750 818 700 650 Opening Foreign Legacy and non- Headline free Dividend Other Closing net debt exchange headline cashflow net debt payments 17 Smiths Group plc Interim Results 2016
Slide 18: Good range of debt maturities
The Group has a good range of debt maturities Weighted average Weighted average Credit ratings debt facilities maturity interest rate BBB+/Baa2 4.6 years 4.03% stable 600 Bonds 500 Bank facility - undrawn 400 £ million 300 200 100 0 2016 2017 2018 2019 2020 2021 2022 2023 Bonds 18 Smiths Group plc I
Slide 19: Substantial progress made on pensions
Substantial progress made on pensions Pension funding Annual cash exercise concluded contributions - Significantly lower deficits Y/E July (£m) 2015 2016 2017 2018 - Schemes de-risked SIPS 60 39 24 24 - Enhanced free cash flow TIGPS 16 11 3 3 - Certainty of funding over the next 3 years US 27 74 23
Slide 20: A strong financial framework
A strong financial framework Reduce costs to invest in growth Intelligent cost control generating activities Use assets more efficiently Opportunity to improve utilisation Reduce inventory and invest cash Optimal working capital investment in growth Cash as a key measure of Relentless focus on cash
Slide 21: Initial observations
Andy Reynolds Smith Chief Executive Initial observations 21 Smiths Group plc Interim Results 2016
Slide 22: Smiths Group today
Smiths Group today Revenue by division Revenue by destination 10 John Crane RoW 27 14 29 Medical % Detection % 52 North America 17 Interconnect Europe 21 30 Flex-Tek Employees worldwide Engineers & scientists Sites worldwide 23,000 3,000 350 22 Smiths Group plc Interim Results 2016
Slide 23: How we look at excellence at Smiths
How we look at excellence at Smiths Technology Customer Production Smiths Detection, Wiesbaden Smiths Medical, St Paul Smiths Interconnect, Shanghai Supply Chain Programme People Flex-Tek, Tennessee Smiths Detection, Wiesbaden John Crane, Tianjin 23 Smiths Group plc Interim Results 2016
Slide 24: Customer intimacy
Customer intimacy • Continuous drive to broaden and deepen customer intimacy across the Group • Increase our customer offering in service element of delivery • Relentlessly innovate to meet our customers’ needs Embedding ourselves as a trusted partner with customers - a key initiative to drive after
Slide 25: Increase operational intensity
Increase operational • Good but can be so intensity much better • Faster and more agile decision making • Consistent execution across the portfolio is key • More efficient, better flow in our operations • Opportunities to streamline cost base Considerable scope for operational improvements to unlock
Slide 26: Above market growth
Above market growth Increasing aftermarket sales can help to smooth revenue profile and benefit margins. • Target leadership positions in attractive markets to unlock long-term growth • 80% of Group revenues come from 5 market sectors • Only half of our top 28 product lines are growing • Need to cha
Slide 27: Assessing our market attractiveness and competitiveness
Assessing our market attractiveness and competitiveness Revenue by market Healthcare 6 9 31 Energy & petrochemical 15 Homeland security % Industrial 17 22 Defence Other 27 Smiths Group plc Interim Results 2016
Slide 28: Squaring the circle
Squaring the circle Squaring the circle to optimise growth, investment and returns Revenue Profitability Growth Cash Capital Generation Returns 28 Smiths Group plc Interim Results 2016
Slide 29: Priorities
Priorities • Drive growth Customer intimacy • Address competitive positioning • Establish continuous improvement culture Operational intensity • Extract operational efficiencies to free up cash • Invest in long-term value creation • Develop asset light and Above market growth technology heavy busine
Slide 30: Group outlook
Group outlook • Global energy markets to remain challenging in H2; taking action to position John Crane in an uncertain environment • Smiths Medical to deliver a similar revenue performance in H2; some margin benefit • Strong order book at Smiths Detection expected to drive revenue growth in H2; mar
Slide 31: Questions & Answers
Questions & Answers 16.03.2016 www.smiths.com 31 Smiths Group plc Interim Results 2016
Slide 32: Appendix
Appendix 32 Smiths Group plc Interim Results 2016
Slide 33: Reconciliation of operating profit
Reconciliation of operating profit £m Headline Operating Profit 217 Restructuring programmes (15) Litigation provision: John Crane, Inc. (2) Litigation provision: Titeflex Corporation 7 Changes to post-retirement benefits (10) Amortisation of acquired intangible assets (9) Legacy retirement benefits
Slide 34: Normal full year translational foreign exchange impact
Normal full year translational foreign exchange impact - A 10c movement in USD would have £15m effect on profit - A 10c movement in EUR would have £5m effect on profit 34 Smiths Group plc Interim Results 2016