Smiths Group Plc · LSE:SMIN
Smiths — FY2014 Earnings Presentation
59 slides from Smiths's earnings presentation, Sep 17, 2014
Slide 1: Annual Results
Annual Results 17 September 2014 1851 1914 2014 Samuel Smith opens his first S. Smith & Sons floats on the LSE Smiths now employs over jewellery shop in south London only days before WW1 breaks out 23,000 people in 50 countries [email protected] www.smiths.com Smiths Group plc Annual Res
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
Introduction Philip Bowman Chief Executive Smiths Group plc Annual Results 2014 | 3
Slide 4: Agenda
Agenda Introduction and overview Philip Bowman Financial review Peter Turner Operational review – introduction Philip Bowman Smiths Medical Jeff McCaulley Smiths Detection Richard Ingram John Crane Duncan Gillis Operational review and priorities Philip Bowman Smiths Group plc Annual Results 2014 | 4
Slide 5: Key messages
Key messages Continued progress in commercial markets, tough in medical and defence • Growth in John Crane, Smiths Interconnect and Flex-Tek • Difficult trading environment in Smiths Medical and Smiths Detection Adverse FX hit to profit of £43m (c. 8%): translation £27m & transaction £16m Group is b
Slide 6: Results overview
Results overview Reported headline revenue down 5%; underlying up £2m Headline operating profit down 10%, underlying down 6% Headline EPS down 12% to 81.8p Cash conversion remains strong at 97% - free cash flow of £143m Return on capital employed down 90 bps at 15.7% Dividend up 2% to 40.25 pence Sm
Slide 7: Promoting responsibility: continued improvements on key metrics
Promoting responsibility: Delivering continued improvements on key metrics Recordable & lost time incident rates continue to improve Environmental metrics • New five-year Lost time incident rate environmental targets Recordable incident rate* 0.71 • FY2014* performance: 0.66 0.60 0.54 o Energy: 1% i
Slide 8: Financial review
Financial review Peter Turner Finance Director Smiths Group plc Annual Results 2014 | 8
Slide 9: Underlying headline revenue and profit performance
Underlying headline revenue and profit performance Revenue growth Revenue Operating profit H1 H2 growth growth John Crane +2% +2% +2% +8% Smiths Medical -4% +3% -1% -12% Smiths Detection -1% -7% -5% -57% Smiths Interconnect -4% +6% +1% +9% Flex-Tek +3% +3% +3% +14% Group -1% +1% 0% -6% Smiths Group
Slide 10: Detection: Margins affected by tough trading and one-off costs
Smiths Detection: Margins affected by tough trading and one-off costs One-off costs in 2014: £15m working capital adjustments £8m programme delivery costs £8m £7m net provision charge £19m Volume £8m HOP: £58m Price/mix £8m FY13 programme £7m Expensed £5m delivery R&D FX Operational costs, etc. £8m
Slide 11: Headline profit progression 2013 to 2014
Headline profit progression 2013 to 2014 PBT: £498m FFG Average exchange rates £17m savings £3m US$ 1.64 (2014: 1.57) Euro 1.21 (2014: 1.20) £7m £9m £11m Translation FX ready reckoner £10m Medical 1 US cent = c. £2m HOP Net one- Volume device 1 Euro cent = c. £1m HOP off costs Price/mix £28m Additio
Slide 12: Group cash conversion
Group cash conversion £m (for continuing activities) 2014 2013 Headline operating profit 504 560 Changes in working capital (11) (15) Share based payment 9 12 Capital expenditure (Property, plant & equipment) (54) (56) Depreciation 46 52 Development costs & other intangibles (net of amortisation and
Slide 13: Reconciliation: Headline operating profit to statutory profit
Reconciliation: Headline operating profit to statutory profit £m Headline operating profit 504 Restructuring programmes (29) Litigation provision: John Crane, Inc. (49) Litigation provision: Titeflex Corporation (10) Other items 7 Exceptional operating items (81) Amortisation and impairment of acqui
Slide 14: Fuel for Growth – driving efficiencies to support growth investment
Fuel for Growth – driving efficiencies to support growth investment £m Costs Savings Total Full annualised FY2014 FY2014 costs benefits John Crane 7 7 25 13 Medical 10 - 49 23 Detection 5 - 34 14 Interconnect 5 3 9 7 Flex-Tek - - 3 3 Total 27 10 120 60 £m 2013/14 2014/15 2015/16 2016/17 Ongoing Savi
Slide 15: Pensions: Deficit improved by £12m to £242m
Pensions: Deficit improved by £12m to £242m Deficit movement since 31 July 2013 Annual cash contributions £m 2014 2015 est Deficit at 31 July 2013 (254) Funded scheme Foreign exchange 18 contributions £82m £81m Return on assets 258 - Smiths Industries PS £36m £36m Contributions (net of service costs
Slide 16: Strong balance sheet supports growth investment and returns
Strong balance sheet supports growth investment and returns Interest split Currency split Debt split Net debt £m Borrowings 994 USD Cash (190) Fixed Euro Bank Floating other Public Net debt 804 £m Weighted average life of debt is 4.5 years 280 Credit Rating: 240 BBB+ (stable)/Baa2 (stable) 200 160 $
Slide 17: Guidance – financial items
Guidance – financial items Headline tax rate 26-27% Cash conversion 85-95% Funded pension scheme contributions c. £80m + £24m to escrow Year end net debt (subject to FX and acquisitions) c. £800-850m Smiths Group plc Annual Results 2014 | 17
Slide 18: Operational review and priorities
Operational review and priorities Philip Bowman Chief Executive Smiths Group plc Annual Results 2014 | 18
Slide 19: Priorities for accelerating revenue growth and driving value
Priorities for accelerating revenue growth and driving value Drive sustainable profitable growth • Refresh product portfolio Smiths Medical • Grow in emerging markets; improve penetration in developed markets • Improve service levels and lower costs Stabilise and grow the business • Build on install
Slide 20: Medical
Smiths Medical Jeff McCaulley President Smiths Group plc Annual Results 2014 | 20
Slide 21: Medical: Strong second half, but tough trading environment
Smiths Medical: Strong second half, but overall tough trading environment Underlying revenue Underlying headline profit Headline operating margin 2014 Revenue: £804m 19.8% (1)% (12)% (240) bps 1 Medication delivery 30% 2 Vital care 41% 3 Safety devices 29% • Second half performance improved in all f
Slide 22: Medical: Growth potential, despite recent underperformance
Smiths Medical: Growth potential, despite recent underperformance Strong foundation for accelerated growth and profitability • Broad portfolio and platforms provide exposure to numerous growth opportunities • Great brands, strong reputation and customer loyalty • Well positioned in lower risk interv
Slide 23: Medical: Initiatives to drive medium-term growth
Smiths Medical: Initiatives to drive medium-term growth Improve portfolio competitiveness, primarily through R&D productivity • New product investment at new high (5% of revenues); New Shanghai development centre • Appointed a new Chief Technology Officer as we upgrade talent • Improving process dis
Slide 24: Medical: Restoring competitiveness, growth and margins
Smiths Medical: Restoring competitiveness, growth and margins Outlook • Developed markets are likely to remain challenging with budget constraints and price pressures • Recent product launches (e.g. infusion pumps) should continue to gain traction • Continued investment in new product development wi
Slide 25: Detection
Smiths Detection Richard Ingram President Smiths Group plc Annual Results 2014 | 25
Slide 26: Detection: Tough trading environment; margins under pressure
Smiths Detection: Tough trading environment; margins under pressure Underlying revenue Underlying headline profit Headline operating margin 2014 Revenue: £512m 4.8% (5)% (57)% (560) bps 1 Transportation 51% 2 Ports & borders 15% 3 Military 12% 4 Emergency responders 3% 5 Critical infrastructure 19%
Slide 27: Detection: Facing up to the challenges – the main issues
Smiths Detection: Facing up to the challenges – the main issues Fundamentally a good business • Markets with long-term growth; leading-edge technology and products • Large installed base with strong aftermarket potential Tough trading environment • Difficult economic environment – customer/governmen
Slide 28: Detection: A prioritised action plan to deliver improved performance
Smiths Detection: A prioritised action plan to deliver improved performance Build on our installed base and expand our aftermarket • Reduce cost base and improve competitiveness • Grow service sales, building on installed base to smooth revenue stream • Greater focus on growth markets e.g. Asia, Mid
Slide 29: Detection: Outlook
Smiths Detection: Outlook Outlook • Trading environment remains challenging: government capital spending still constrained • Increasing price pressure in some markets • Order book is at a similar level to last year which would deliver flat revenues but will continue to drive aftermarket revenues • B
Slide 30: John Crane
John Crane Duncan Gillis President Smiths Group plc Annual Results 2014 | 30
Slide 31: John Crane: Delivering revenue growth and enhanced margins and returns
John Crane: Delivering revenue growth and enhanced margins and returns Underlying revenue Underlying headline profit Headline operating margin 2014 Revenue:£941m 24.9% + 2% + 8% +150 bps 1 First-fit OEM 38% Aftermarket 62% 2 Oil, gas & petrochem 37% 3 Chemical and pharma 9% • Sales growth driven by
Slide 32: John Crane: Delivering a value growth platform
John Crane: Delivering a value growth platform Implemented a global reorganisation while continuing to grow the business Progressing our strategy and increased investment in growth initiatives • Sales transformation; delivering on cross-selling opportunities • Continued service network expansion • E
Slide 33: John Crane: Outlook
John Crane: Outlook Outlook • Record order book supports growth • Manufacturing capacity constraints and the challenging upstream conditions will weigh on H1 • Expect conditions to improve slightly in H2 • Margins expected towards upper end of operating ranges John Crane gas seal service engineer in
Slide 34: Interconnect: Return to growth; margins benefit from productivity
Smiths Interconnect: Return to growth; margins benefit from productivity initiatives Underlying revenue Underlying headline profit Headline operating margin 2014 Revenue: £445m 16.0% 1% 9% 1 Connectors 34% + + 2 Microwave 45% +110 bps 3 Power 21% • Strong growth in Microwave in H2 offset a small dec
Slide 35: Interconnect: Product innovation and emerging market growth
Smiths Interconnect: Product innovation and emerging market growth New product development focused on high growth markets • Company-funded R&D increased 5% underlying to £24m or 5.3% of sales (2013: 5.2%) • Total R&D spend (including customer-funded) of £27m or 6.1% of sales (2013: 5.8%) • New produ
Slide 36: Smiths Interconnect: Outlook
Smiths Interconnect: Outlook Outlook • Commercial markets (telecoms, semiconductor test, data centres) are expected to grow • Defence market showing signs of stabilisation • Expect a seasonal bias to H2 • Overall margins will be suppressed by increased investment in growth initiatives • Productivity
Slide 37: Flex-Tek: Growth from US construction and specialty heating
Flex-Tek: Growth from US construction and specialty heating; strong margin boost Underlying revenue Underlying headline profit Headline operating margin 2014 Revenue: £250m 18.9% 3% 14% 1 Fluid Management 33% + + 2 Construction 30% +180 bps 3 Heat Solutions 23% 4 Flexible Solutions 14% • Revenue gro
Slide 38: Flex-Tek: Outlook
Flex-Tek: Outlook Outlook • Commercial aerospace market is well-positioned for future growth • Residential construction market should see steady modest growth • Expect further expansion of specialty products in heating elements and flexible solutions • Margins will benefit from higher volumes but fa
Slide 39: Operational priorities for 2015
Operational priorities for 2015 Continue to reposition the business profile to accelerate sales growth Implement the divisional improvement plans – particularly in Detection Increase investment in growth drivers: new products, emerging markets Deliver the benefits of Fuel for Growth Smiths Group plc
Slide 40: Questions & Answers
Questions & Answers Annual Results 17 September 2014 [email protected] www.smiths.com
Slide 41: John Crane £941m
John Crane Revenue £m A world-leading provider of engineered 973 986 941 894 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 ind
Slide 42: 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 43: John Crane: Margins ahead with higher underlying revenues
John Crane: Margins ahead with higher underlying revenues and efficiencies £m 2014 2013 reported underlying Revenue 941 986 (5)% +2% Headline operating profit 234 231 +2% +8% Margin 24.9% 23.4% +150 bps ROCE 26.7% 25.7% +100 bps Headline operating profit £m • Volume: Growth in OEM and aftermarket of
Slide 44: Smiths Medical £804m
Smiths Medical Headline revenue £m A leading supplier of specialty medical devices 834 858 838 864 850 804 and consumables for global markets. Our devices help treat patients with acute and chronic disease and relieve pain. 2009 2010 2011 2012 2013 2014 Contribution to 2014 Headline revenue by secto
Slide 45: Medical
Smiths Medical In medication delivery, our devices help treat patients with acute and chronic disease and relieve pain. Our vital care products help reduce hospital-acquired infections, manage patients’ airways before, during and after surgery, maintain body temperature and assist reproduction throu
Slide 46: Medical: Margins affected by FX, adverse price and medical device tax
Smiths Medical: Margins affected by FX, adverse price and medical device tax £m 2014 2013 reported underlying Headline revenue 804 850 (5)% (1)% Headline operating profit 159 189 (16)% (12)% Margin 19.8% 22.2% (240) bps ROCE 14.5% 16.6% (210) bps Headline operating profit £m • Volume: Growth in infu
Slide 47: Smiths Detection £512m
Smiths Detection Revenue £m A world-leading designer and manufacturer 574 559 519 of sensors that detect and identify 501 510 512 explosives, weapons, chemical agents, biohazards, nuclear & radioactive material, narcotics and contraband. 2009 2010 2011 2012 2013 2014 Contribution to 2014 Revenue by
Slide 48: Detection
Smiths Detection Our comprehensive range of detection technologies, including X-ray, trace detection and infra-red spectroscopy help customers in the global transportation, ports and borders, critical infrastructure, military and emergency responder markets. Customers: A significant Competitors: Smi
Slide 49: Detection: Margins affected by tough trading and one-off costs
Smiths Detection: Margins affected by tough trading and one-off costs £m 2014 2013 reported underlying Revenue 512 559 (8)% (5)% Headline operating profit 25 58 (58)% (57)% Margin 4.8% 10.4% (560) bps ROCE 3.9% 8.8% (490) bps Headline operating profit £m • Volume: Declines in transportation, ports &
Slide 50: Smiths Interconnect £445m
Smiths Interconnect Revenue £m A recognised leader in technically differentiated 449 461 445 electronic components and sub-systems 379 340 providing signal, power and microwave solutions. 318 2009 2010 2011 2012 2013 2014 Contribution to 2014 Revenue by sector 2014 Group revenue: 15% £445m 3 1 Contr
Slide 51: 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 52: Interconnect: Margins benefit from better volumes and cost savings
Smiths Interconnect: Margins benefit from better volumes and cost savings £m 2014 2013 reported underlying Revenue 445 461 (3)% 1% Headline operating profit 71 69 4% 9% Margin 16.0% 14.9% 110 bps ROCE 13.7% 12.4% 130 bps Headline operating profit £m 2012/13 69 • Volume: Strong growth in Microwave Vo
Slide 53: Flex-Tek £250m
Flex-Tek Revenue £m A global provider of engineered components 253 250 233 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 2014 Contribution to 2014 Revenue by sector 2014 Group revenue: 9%
Slide 54: 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 55: Flex-Tek: Margin and returns improved
Flex-Tek: Margin and returns improved volumes, price and cost savings £m 2014 2013 reported underlying Revenue 250 253 (1)% +3% Headline operating profit 47 43 +9% +14% Margin 18.9% 17.1% +180 bps ROCE 34.0% 30.8% +320 bps Headline operating profit £m • Volume: US residential construction and specia
Slide 56: Annual results 2014
Annual results 2014 £m Headline* Statutory† 2014 2013 2014 2013 reported underlying# Revenue 2,952 3,109 (5)% 0% 2,952 3,109 Operating profit 504 560 (10)% (6)% 378 486 Margin 17.1% 18.0% (90) bps - 12.8% 15.7% Pre-tax profit 445 498 (11)% (6)% 302 396 Basic EPS (p) 81.8 92.7 (12)% 59.0 80.1 Free ca
Slide 57: Improved return on capital from Flex-Tek, Interconnect and John Crane
Improved return on capital from Flex-Tek, Interconnect and John Crane 12 months to 31 July 2014 12 months to 31 July 2013 35.0 34.0% 30.8% 30.0 26.7% 25.7% 25.0 % 20.0 16.6% 16.6% 15.7% 14.5% 15.0 13.7% 12.4% 10.0 8.8% 5.0 3.9% 0.0 Smiths Group Flex-Tek John Crane Smiths Medical Smiths Interconnect
Slide 58: Net debt increased by £60m to £804m
Net debt increased by £60m to £804m £m 2014 Net debt at start of period (744) Operating cash (after capex etc.) 490 Interest and tax (172) Exceptionals/Pensions (175) Free cash flow 143 Dividends (275) Financing acquisitions, investments and disposals (2) Foreign exchange 70 Purchase of own shares l
Slide 59: Asbestos litigation
Asbestos litigation Key facts Key figures • Production ceased in 1985 Gross provision £227m • Exposure within John Crane, Inc. Discounted pre-tax provision £204m • Resists claims based on ‘safe product’ defense Claims dismissed 235,000 Claims outstanding 80,000 • Provision determined using independe